ITAT rules property lease income as business profits, dismisses Revenue's appeal.

The ITAT ruled in favor of the assessee, directing the property lease income to be treated under "Profits & Gains of Business," excluding notional lease rental income, and deleting the disallowances of interest expenses. The Revenue's appeal was dismissed, upholding the ITAT's decision and rendering the grievance on interest expenditure moot.

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Issues:
1. Treatment of property lease income under the head "Profits and Gains of Business or Profession."
2. Addition of notional lease rental income.
3. Disallowance of interest expenses for giving interest-free advances and earning exempt income.

Analysis:

Issue 1: Treatment of Property Lease Income
The dispute revolved around the classification of property lease income as either "Income from House Property" or "Profits & Gains of Business." The Assessing Officer (AO) initially treated the income as "House Property" income, disallowing depreciation and brokerage expenses. The CIT(A) upheld this decision. However, the ITAT Mumbai, citing the Supreme Court's decision in Chennai Properties & Investments Ltd Vs CIT, ruled that as the company's main objective was to operate malls, income from such activities should be taxed under "Profits & Gains of Business." The ITAT directed the AO to allow depreciation and brokerage expenses, overturning the CIT(A)'s decision.

Issue 2: Addition of Notional Lease Rental Income
The assessee showed notional lease rental income based on Accounting Standard-19, which was disputed by the Revenue. The ITAT, following the Bombay High Court's decision in Reliance Industrial Infrastructure Ltd, concluded that such entries were not real income but made to comply with accounting standards. Therefore, the notional lease rental income was excluded from the total income of the assessee.

Issue 3: Disallowance of Interest Expenses
Regarding the disallowance of interest expenses for interest-free advances and earning exempt income, the ITAT referred to the balance sheet to highlight the sufficient own funds of the assessee. Relying on the Bombay High Court's decisions in CIT Reliance Utilities & Power Ltd. and CIT Vs HDFC Bank Ltd., the ITAT directed the AO to delete the disallowances, as the assessee had ample own funds for investments and interest-free advances.

In conclusion, the ITAT allowed the assessee's appeal, directing the treatment of property lease income under "Profits & Gains of Business," excluding notional lease rental income, and deleting the disallowances of interest expenses. The Revenue's appeal was dismissed, rendering the grievance on interest expenditure otiose.

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