2018 (8) TMI 1620 - AT - Income Tax

Appeals allowed for multiple years, delay condoned, income reclassified, property value re-computed. Tribunal decision June 15, 2018.

The appeals for the Assessment Year 2009-10, as well as for the Assessment Years 2010-11 and 2012-13, were allowed by the Tribunal. The delay in filing ... Estimation of the annual value of the property - Addition under the head ‘Income from House Property’- Held that:- There is no allegation, much less any positive material with the Assessing Officer, to say that the assessee has suppressed the real position by declaring rent from the sister concern @ ₹ 7,500/- per month. On the contrary, what we find is that without arriving at such satisfaction, AO has proceeded to ascertain the going rate of the rentals in the vicinity of assessee’s property. AO has straightaway based his estimation on the rates found on his inquiry without establishing the similarity of the arrangement. As pointed out by the learned representative with regard to the rental arrangement of Galaxy Aviation, the same is incomparable with assessee’s arrangement because of the timing difference. The arrangement of Galaxy Aviation is of the year 2012 whereas assessee’s arrangement is of 2007. No justification for the action of the Assessing Officer in disregarding the actual rent declared by the assessee for the purpose of arriving at the annual value of the property to be taxed u/s 22 of the Act. As a consequence, we set-aside the order of CIT(A) and restore the matter back to the file of the Assessing Officer who shall recompute the income assessable under the head ‘Income from House Property’ in terms of our aforesaid directions. Thus, on this aspect, assessee succeeds. Disallowance of expenses - additional ground - Held that:- Once the income declared from rental income has been assessed under the head ‘Income from House Property’, the income under the head ‘Income from Business’ has to be separately assessed. While assessing the income from business, the entire expenditure claimed have been disallowed, an aspect which was sustained by the CIT(A) also. It is pointed out that though assessee does not have an active business activity, but expenses which are necessary for existence of the company as such are required to be allowed. The said Ground was omitted to be raised at the time of filing of appeal and is now being raised as an Additional Ground of appeal. On the issue of Additional Ground, we deem it fit and proper to direct the Assessing Officer to consider the same on merits and allow such expenses as are permissible and required for maintenance of a corporate entity as such. Thus, on this aspect, assessee succeeds for statistical purposes. Issues Involved:1. Condonation of delay in filing the appeals.2. Validity of reassessment proceedings under Sections 147/148 of the Income Tax Act.3. Classification of rental income under the head 'Income from House Property' versus 'Business income.'4. Estimation of the annual value of the property for tax purposes.5. Disallowance of business expenses.Detailed Analysis:1. Condonation of Delay:The appeals were filed with a delay of 25 days. The assessee submitted a sworn affidavit explaining that the delay was unintentional and for bona fide reasons. The Revenue did not doubt the bona fides of the reasons but opposed the application. The Tribunal, in the absence of any material to doubt the bona fide reasons, condoned the delay and admitted the appeals for adjudication on merits.2. Validity of Reassessment Proceedings:The first ground relating to the initiation of reassessment proceedings under Sections 147/148 of the Income Tax Act was not pressed by the assessee during the hearing and was accordingly dismissed.3. Classification of Rental Income:The substantive dispute was regarding the addition of Rs. 8,09,810/- made by the Assessing Officer under the head 'Income from House Property.' The assessee, a private limited company, had declared rental income as 'Business income.' However, the Assessing Officer taxed it under 'Income from House Property' based on Section 27(iiib) of the Act. The Tribunal affirmed the action of the income-tax authorities in this regard as no arguments were raised by the assessee against this classification.4. Estimation of Annual Value:The main contention was the estimation of the annual value of the property. The Assessing Officer determined a fair rent of Rs. 96,406/- per month based on market rates and publications, which was significantly higher than the Rs. 7,500/- per month declared by the assessee. The Tribunal noted that the Assessing Officer did not have any positive material to indicate suppression of the real rental rate by the assessee. The Tribunal cited the judgment of the Hon'ble Bombay High Court in CIT vs. Tip Top Typography, emphasizing that the Assessing Officer must have cogent and satisfactory material to indicate suppression of the prevailing rate. The Tribunal found that the Assessing Officer's approach was contrary to this judgment and that the comparisons made were not valid due to differences in timing and conditions. Consequently, the Tribunal set aside the estimation made by the Assessing Officer and directed a recomputation of the income assessable under 'Income from House Property' based on the actual rent declared by the assessee.5. Disallowance of Business Expenses:The assessee raised an Additional Ground regarding the disallowance of expenses amounting to Rs. 99,139/-. The Tribunal admitted this ground, noting that it emerged from the material on record. The Tribunal directed the Assessing Officer to consider the expenses on merits and allow those necessary for the maintenance of a corporate entity.Conclusion:The appeals for the Assessment Year 2009-10 were allowed. The decisions for the Assessment Years 2010-11 and 2012-13 were based on similar issues and were also allowed accordingly. The Tribunal pronounced the order in the open court on 15th June 2018.