2017 (7) TMI 1000 - AT - Income Tax

Tribunal directs Assessing Officer to treat lease rental as business income, emphasizing consistency.

The Tribunal allowed the appeals of the assessee for statistical purposes, directing the Assessing Officer to verify and treat the lease rental as 'income ... Lease rental raising from exploitation of commercial property - income from house property instead of business income - search and seizure operation u/s 132 - Held that:- Since the facts in the years under consideration are identical to the facts involved in the assessment year i.e. 2012-13 which has been decided by the ld CIT(A) in assessee’s favour by following the judgment of the Hon'ble Supreme Court in case of M/s. Chennai Property and Investment Ltd. Vs CIT (2015 (5) TMI 46 - SUPREME COURT ). In the present case the assessee stated that department had not preferred any appeal against the order dated 29.01.2016 passed by the ld CIT(A) for the subsequent assessment year i.e. Assessment Year 2012-13, the said averment needs verification. We therefore deem it appropriate to set aside this issue back to the file of AO for verification of the facts and if the department accepted the rental income as business income in subsequent year 2012-13 then for the assessment years under consideration also, the same stand to be taken. Appeals of the assessee allowed for statistical purposes. Issues Involved:1. Legality of additions made without incriminating material found during search under Section 132 of the Income Tax Act, 1961.2. Classification of rental income as 'income from house property' versus 'income from business and profession'.3. Disallowance of depreciation claimed by the assessee.4. Charging of interest under Section 234B of the Income Tax Act, 1961.Detailed Analysis:1. Legality of Additions Without Incriminating Material:The assessee contended that the additions made by the Assessing Officer (AO) were invalid as no incriminating material was found during the search under Section 132 of the Income Tax Act, 1961. The assessee cited judicial precedents, including All Cargo Global Logistics Ltd vs. DCIT and Gurinder Singh Bawa v. DCIT, which stipulate that additions under Section 153A can only be made based on incriminating material discovered during the search. The CIT(A) dismissed this argument, stating that for Assessment Year (AY) 2010-11, the time for issuing a notice under Section 143(2) had not expired, and thus, the assessment was not closed. Therefore, the AO had the jurisdiction to assess the total income irrespective of the seized material.2. Classification of Rental Income:The primary issue was whether the rental income should be classified under 'income from house property' or 'income from business and profession'. The AO classified the rental income as 'income from house property' and allowed a deduction under Section 24(a) while disallowing the depreciation claimed under Section 32. The assessee argued that the rental income should be considered as 'income from business and profession' as the property was commercially exploited, citing the Supreme Court's decision in I.C.D.S Ltd. vs. CIT.The CIT(A) upheld the AO's classification but agreed with the assessee that the disallowance of depreciation should be restricted to the depreciation claimed on the rented property. The CIT(A) directed the AO to verify the claim and restrict the disallowance accordingly. However, the CIT(A) rejected the argument that the rental income should be classified as business income, relying on the Delhi High Court's decision in CIT Vs. Discovery Estates (P) Ltd.3. Disallowance of Depreciation:The AO disallowed the depreciation claimed by the assessee on the grounds that the rental income was classified as 'income from house property'. The CIT(A) partially agreed with the assessee, directing the AO to restrict the disallowance of depreciation to the extent of the depreciation claimed on the rented property. The CIT(A) rejected the broader claim that the depreciation should be allowed under the head 'income from business and profession'.4. Charging of Interest Under Section 234B:The assessee argued against the charging of interest under Section 234B of the Income Tax Act, 1961. The CIT(A) did not specifically address this issue in the detailed analysis, and the primary focus remained on the classification of income and the disallowance of depreciation.Conclusion:The Tribunal considered the submissions and material on record, noting that the CIT(A) had previously ruled in favor of the assessee for AY 2012-13 by treating the lease rental as 'income from business' based on the Supreme Court's decision in Chennai Property and Investment Ltd Vs. CIT. The Tribunal set aside the issue back to the AO for verification, directing that if the department accepted the rental income as business income in subsequent years, the same should apply to the years under consideration. The Tribunal also emphasized considering the Supreme Court's judgment in Chennai Property and Investment Ltd while deciding the issue.The appeals of the assessee were allowed for statistical purposes, pending further verification by the AO.