2016 (12) TMI 553 - AT - Income Tax

Tribunal affirms tax authority's decision on income classification and business expenses

The Tribunal upheld the lower authorities' decisions in dismissing the appeal of the assessee. The classification of income under 'other sources' instead ... Lease charge of the building - taxability under head income from house property or business income - restricting the claim of deduction u/s 24(a) on the rental income considered as ‘’Income from other sources’’ - Held that:- It is observed that the annual rental value was calculated by the AO on the basis of facts revealed in the course of survey conducted u/s 133A of the Act. The statement of the Director of the company was recorded in which he admitted that the business of the assessee company had been completely closed in Sept. 1999 and there was no business activity in the assessee company except rental income. It is noted that the ld. AR of the assessee had not advanced any specific submission as to the sustenance of the action of the AO by the ld. CIT(A). Thus the issue of lease charge of the building is taxable under the head income from other sources as there is no sufficient evidence to establish that income should be charged under the head income from house property or business income. The ld. CIT(A) has rightly restricted the deduction u/s 24(a) of the Act as rental income was assessed under the head Income from other sources. Thus not inclined to interfere with the order of the ld. CIT(A) which is sustained. - Decided against assessee Income earned from leasing of plant and machinery - income from Other Sources or Income from business - Held that:- It is noted from the record that the assessee had leased out its plant and machinery and earned the rental income of ₹ 96,000/- due to close down its business since Sept. 1999 which has been explicitly admitted by the Director of the Company. It is also noted from the ld. CIT(A)’s order that the ld. AR of the assessee could not controvert the findings of the AO on this issue. When the Director of the assessee company had admitted that the assessee company had closed down its business due to losses and there was no business activity in the assessee company except rental income then it cannot be considered as business income of the assessee. Hence, we concur with the findings of the ld. CIT(A) which is sustained - Decided against assessee Disallowance of business expenditure - Held that:- The assessee could not controvert the findings of AO before the ld. CIT(A) and the ld. CIT(A) took the support of the same contentions of the Director of the assessee that the assessee company had completely closed down its business in Sept. 1999 and there was no business activity in the assessee company except the rental income . Once the business income was treated as income from other sources by the AO, the claim of the expenses of the assessee was held unjustified by the ld. CIT(A) and he confirmed the action of the AO. Thus find no reason to interfere with the order of the ld. CIT(A). - Decided against assessee Treatment to Misc. Income - under the head Income from other sources or business income - Held that:- The assessee could not controvert the findings of AO before the ld. CIT(A) and the ld. CIT(A) took the support of the same contentions of the Director of the assessee that the assessee company had completely closed down its business in Sept. 1999 and there was no business activity in the assessee company except the rental income. Hence, when there was no business run by the assessee company during the year then addition made AO under the head Misc. income was rightly confirmed by the ld. CIT(A) - Decided against assessee Issues Involved:1. Taxability of receipts from lease charges of the building.2. Restriction of deduction under Section 24(a) on rental income.3. Classification of income from leasing plant and machinery.4. Disallowance of business expenditure.5. Classification of miscellaneous income.Issue-wise Detailed Analysis:1. Taxability of Receipts from Lease Charges of the Building:The assessee contested the classification of Rs. 84,000 received as lease charges under the head 'Income from other sources' instead of 'Income from house property' or 'Business income.' The authorities held that the business of the assessee had been completely closed since September 1999, and the only income was rental income. The CIT(A) sustained the AO's action based on the annual rental value calculated during a survey and the statement of the company's director. The Tribunal agreed with the CIT(A), noting the lack of evidence to classify the income under 'house property' or 'business income.' Thus, the assessee's ground was dismissed.2. Restriction of Deduction under Section 24(a) on Rental Income:The assessee argued for the allowance of a Rs. 25,200 deduction under Section 24(a) on the rental income classified as 'Income from other sources.' The CIT(A) dismissed this ground, aligning with the decision on the first issue, stating that since the rental income was assessed under 'other sources,' the deduction under Section 24(a) was correctly restricted. The Tribunal upheld this decision, dismissing the assessee's ground.3. Classification of Income from Leasing Plant and Machinery:The assessee claimed that Rs. 96,000 earned from leasing plant and machinery should be classified as 'Business income' due to a temporary suspension of business. The CIT(A) observed that the business had been closed since September 1999, and there was no business activity except rental income. The Tribunal found no evidence to support the claim of temporary suspension and concurred with the CIT(A) that the income should be classified under 'other sources.' Thus, this ground was dismissed.4. Disallowance of Business Expenditure:The assessee challenged the disallowance of various business expenses totaling Rs. 2,48,355.78. The CIT(A) noted that since the business was closed and the income was classified under 'other sources,' the claim for business expenses was unjustified. The Tribunal upheld this view, agreeing that the disallowance was proper given the cessation of business activities. The ground was dismissed.5. Classification of Miscellaneous Income:The assessee argued that Rs. 13,855 shown as miscellaneous income should be classified as 'Business income.' The CIT(A) found that the business had been closed since 1999, and there was no business activity except rental income. The Tribunal agreed with the CIT(A), stating that since there was no business activity, the miscellaneous income was rightly classified under 'other sources.' This ground was also dismissed.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the decisions of the lower authorities on all grounds. The classification of various incomes under 'other sources' and the disallowance of business expenses were found to be justified based on the cessation of business activities since September 1999.