2021 (12) TMI 988 - AT - Income Tax

ITAT decision: Interest on delayed rent payment to be assessed under 'Income from Business'

The ITAT allowed the appeal, overturning the disallowance of interest on delayed rent payment to BPT. It directed the AO to assess interest income under ... Disallowing interest on delay in payment of rent to Bombay Port Trust u/s. 57(1)(iii) of the Act while assessing occupancy charges under the head 'income from other sources' - HELD THAT:- This issue was very much before this tribunal and the tribunal had remanded the matter to examine all the expenses, which were raised in ground, which included this claim. The authorities below have clearly erred in holding that ITAT has not remanded this issue. The ITAT in concluding portion has clearly mention that various expenses claimed by the assessee require examination at the end of AO. As the amount involved is duly allowable as claimed. The plank of the authorities below in denying that this was not before ITAT is wrong and not sustainable. Hence, set aside the order of Ld. CIT(A) and decide the issue in favour of the assessee. Issues Involved:1. Disallowance of interest on delay in payment of rent to Bombay Port Trust (BPT) under Section 57(1)(iii) of the Income Tax Act.2. Assessment of interest income under the head 'Income from Other Sources' vs. 'Income from Business'.3. Disallowance of various expenses claimed by the assessee.Issue-wise Detailed Analysis:1. Disallowance of Interest on Delay in Payment of Rent to BPT:The primary issue was whether the interest on delay in payment of rent to BPT amounting to Rs. 39,69,999/- should be allowed as a deductible expense under Section 57(1)(iii) of the Income Tax Act. The Assessing Officer (AO) disallowed this interest expenditure, and the CIT(A) upheld this disallowance. The AO argued that since the rental income from Marico was taxable under 'Income from Other Sources,' the interest expenditure on delayed rent payment could not be allowed against business income. The CIT(A) agreed, stating that the issue had reached finality since the assessee did not appeal this specific computation of rental income to the ITAT. However, the ITAT noted that this issue was indeed before them in the earlier round and had remanded the matter for examination of all expenses, including this claim. The ITAT concluded that the authorities below erred in holding that the ITAT had not remanded this issue and decided in favor of the assessee, allowing the deduction of the interest expenditure.2. Assessment of Interest Income under 'Income from Other Sources' vs. 'Income from Business':In the earlier round, the ITAT addressed the assessment of interest income totaling Rs. 60,42,870/- under the head 'Income from Other Sources' instead of 'Income from Business.' The AO had assessed the interest income under 'Income from Other Sources' because the assessee's application for NBFC status was rejected by the RBI, and the AO did not consider the deposits with banks/corporates as part of the business activity. The ITAT, however, noted that the assessee had been earning similar income in the past, which was assessed under 'Income from Business,' and the tax authorities had not provided reasons for deviating from this consistent treatment. The ITAT held that the principle of consistency should be followed and directed the AO to assess the interest income under 'Income from Business' for the year under consideration.3. Disallowance of Various Expenses Claimed by the Assessee:The AO disallowed various expenses claimed by the assessee in its profit and loss account, including employee remuneration, repairs to the building, electricity charges, auditor's remuneration, legal and professional charges, and others, because the interest income was assessed under 'Income from Other Sources.' The ITAT, in the earlier round, directed the AO to examine these expenses since they were claimed in connection with the business income. The ITAT emphasized that the AO must examine the expenses in light of the interest income being assessed as business income. In the current appeal, the ITAT reiterated that the authorities below erred in holding that the ITAT had not remanded the issue of expenses for examination. The ITAT set aside the order of the CIT(A) and decided in favor of the assessee, allowing the claimed expenses.Conclusion:The ITAT allowed the appeal filed by the assessee, setting aside the disallowance of interest on delayed rent payment to BPT and directing the AO to assess the interest income under 'Income from Business' and to examine and allow the various expenses claimed by the assessee. The ITAT emphasized the importance of consistency in tax assessments and the need for a thorough examination of expenses in light of the nature of the income being assessed.