2022 (9) TMI 470 - AT - Income Tax

Tribunal favors assessee on income classification & expenses, partially allows appeals with corrections

M/s. Suchetan Commercial & Marketing Pvt. Ltd. Versus Income Tax Officer – 2 (3) (2), Churchgate

M/s. Suchetan Commercial & Marketing Pvt. Ltd. Versus Income Tax Officer – 2 (3) (2), Churchgate - TMI Issues Involved:1. Classification of income from the sale of shops and flats.2. Disallowance of depreciation on assets purchased from a related party.3. Disallowance of reimbursement of expenses under section 40(a)(ia).4. Disallowance of brokerage expenses as a deduction under section 48.Detailed Analysis:Issue 1: Classification of Income from Sale of Shops and Flats- The primary issue is whether the receipt of Rs 84,98,670 from the sale of shops and flats should be treated as 'Income from Other Sources' under section 56(1) of the Income Tax Act, 1961, or as 'Income from Business.'- The assessee, engaged in trading, renting of immovable property, and IT services, reported the sale of shops and flats as business income in its financial statements.- The Assessing Officer (AO) treated the sale value of Rs 84,98,670 as unexplained cash credit under section 68, Rs 38,35,500 as unexplained investment under section 69, and Rs 67,77,600 as unexplained expenditure under section 69C.- The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the transactions were interlinked and called for a remand report, which confirmed the actual sale and purchase of shops and flats.- The CIT(A) held that the transactions would result in capital gains for Jamshri, as the assessee did not receive the title to the property, and taxed the amount under section 56(1) as 'Income from Other Sources,' deleting the additions under sections 69 and 69C.- The Tribunal upheld the CIT(A)'s decision, noting that the unregistered MOUs did not constitute an organized business activity. However, it allowed the cost of shops and flats as a deduction under 'Income from Other Sources.'Issue 2: Disallowance of Depreciation on Assets Purchased from a Related Party- The AO disallowed depreciation of Rs 23,38,870 on assets purchased from Iping Technologies Pvt Ltd, a related party, citing lack of proper documentation and excessive consideration under section 40A(2).- The CIT(A) confirmed the disallowance, noting that no sales tax was paid and the consideration was excessive.- The Tribunal found that the assets were used by the assessee for its BPO services, and Iping had confirmed the transactions and not claimed depreciation. It directed the AO to grant depreciation of Rs 20,43,520, correcting any calculation errors.Issue 3: Disallowance of Reimbursement of Expenses under Section 40(a)(ia)- The AO disallowed Rs 4,36,940 reimbursed to Iping Technologies Pvt Ltd, citing lack of agreement and TDS deduction.- The CIT(A) accepted that the expenses were reimbursed on an actual cost basis but upheld the disallowance for non-compliance with section 194C.- The Tribunal held that the provisions of section 194C do not apply to actual reimbursement without markup and noted that the second proviso to section 40(a)(ia) and section 201 applies retrospectively, disallowing the AO's decision.Issue 4: Disallowance of Brokerage Expenses as Deduction under Section 48- The AO disallowed brokerage of Rs 6,00,000 related to the sale of property, questioning the details and the method of claim.- The Tribunal directed the AO to allow the brokerage as a deduction under section 48, noting that the brokerage was at the prevailing market rate and properly documented.Conclusion:- The appeals for both assessment years were partly allowed, with the Tribunal providing relief on specific grounds while upholding certain findings of the CIT(A). The decisions were applied mutatis mutandis for the subsequent assessment year, with appropriate adjustments for figures.