Lease Rental Income Classified as Business Income; New Claims Allowed in Abated Assessments; Interest and Depreciation Validated

The Tribunal dismissed the revenue's appeals for AY 2016-17 and AY 2017-18, affirming the Ld. CIT(A)'s decisions. It upheld the classification of lease rental income as business income, allowed new claims in abated assessments, and validated interest expenses as genuine business expenditures. The Tribunal also permitted the depreciation claim based on the original cost of assets. These rulings were consistent with previous Tribunal and High Court decisions, particularly concerning the classification of income and allowance of claims in abated assessment years.

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Issues Involved:

1. Classification of lease rental income.
2. Applicability of the CIT v. Sun Engineering Works (P) Ltd. and K. Sudhakar S. Shanbhag v. ITO decisions.
3. Disallowance of interest expenses.
4. Treatment of payment to M/s Om Metals Ltd. and M/s Wellwisher Construction & Finance Pvt. Ltd.
5. Claim of depreciation on assets.

Issue-Wise Detailed Analysis:

1. Classification of Lease Rental Income:
The primary issue was whether the lease rental income earned by the assessee should be classified under "Profit or Gains from Business and Profession (PGBP)" or "Income from House Property." The Ld. CIT(A) considered the lease rental income as "income from business" based on CBDT Circular 16/2017, which clarified that lease rentals derived by entities in SEZ/Industrial Park should be taxed under PGBP. The Tribunal upheld this classification, noting that the assessee's sister concern had a similar issue resolved in its favor, and the revenue had not challenged this decision further.

2. Applicability of CIT v. Sun Engineering Works (P) Ltd. and K. Sudhakar S. Shanbhag v. ITO:
The revenue argued that the assessee could not seek relief not claimed earlier during post-search assessment and reassessment as per section 153A of the Act. However, the Tribunal noted that in abated assessments, the return filed under section 153A replaces the original return, allowing the assessee to make new claims. This position was supported by the Hon'ble Bombay High Court in Commissioner of Income Tax v. B.G. Shirke Construction Technology P. Ltd and Pr.CIT v. JSW Steel Limited, which allowed fresh claims in abated assessment years.

3. Disallowance of Interest Expenses:
The revenue contested the deletion of disallowance of interest expenses attributable to borrowed funds for making payment to M/s Om Metals Ltd. and M/s Wellwisher Construction & Finance Pvt. Ltd. The Tribunal upheld the Ld. CIT(A)'s decision, which relied on earlier Tribunal orders in the assessee's favor, confirming that the transactions were genuine and the interest expenses were incurred for business purposes.

4. Treatment of Payment to M/s Om Metals Ltd. and M/s Wellwisher Construction & Finance Pvt. Ltd.:
The revenue argued that the payment of Rs.100.80 Crores to these entities was not a genuine business expenditure. The Tribunal dismissed this argument, referencing earlier Tribunal decisions that validated the transactions and allowed the interest expenses as genuine business expenditures.

5. Claim of Depreciation on Assets:
The revenue challenged the allowance of depreciation on assets, arguing that the assessee could not claim deductions not made in the original return during reassessment proceedings. The Tribunal upheld the Ld. CIT(A)'s decision, which allowed the depreciation claim based on the original cost of the assets, treating AY 2016-17 as the first year for claiming depreciation under PGBP. This was consistent with the Tribunal's earlier decisions and the legal position that in abated assessment years, the assessee can make new claims.

Conclusion:
The Tribunal dismissed the revenue's appeals for both AY 2016-17 and AY 2017-18, upholding the Ld. CIT(A)'s decisions on all grounds. The decisions were consistent with earlier Tribunal and High Court rulings, particularly regarding the classification of lease rental income and the allowance of interest expenses and depreciation claims in abated assessment years.

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