Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI ‘SMC’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM)
O R D E R Per B.R.Baskaran (AM) :-
The assessee has filed this appeal challenging the order dated 29.12.2022 passed by the learned CIT(A)-56, Mumbai and it relates to A.Y. 2017-18. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition of Rs. 20,16,642/- made by the CPC in the intimation issued under section 143(1) of the Act.
The facts relating to the issue are stated in brief. The assessee herein filed a return of income on 29.7.2017 declaring a total income of Rs. 97,170/-. The assessee subsequently filed a revised return on 8.2.2019 for rectifying an error in TAN of TDS credit claimed by it. Thereafter, the assessee received a defect notice under section 139(9) of the Act from the CPC stating that there is mismatch in the income returned in the return of income and Form No. 26AS, since there was under reporting of rental income by the assessee. In response thereto, the assessee filed rectified return of income, wherein he disclosed rental income of Rs. 20,16,642/- received on 2 Shanay Jhaveri sub-letting of premises under the head Income from other sources and against which the assessee claimed equal amount as expenditure towards earning subletting income. Accordingly, the assessee declared NIL income against the sub-letting of premises. However, the CPC assessed the sub- letting income of Rs.20,16,642/- under the head “income from house property” and after allowing deduction towards repairs @ 30%, the CPC made addition of Rs.14,73,872/-.
Before the learned CIT(A), the assessee explained the facts relating to sub-letting income received by it. It was submitted that the assessee’s parents/grand parents had taken a warehouse on lease from Bombay Port Trust (BPT). The assessee had inherited it from them. The assessee sub-let that warehouse to M/s. Nanavati Specialty Chemicals Private Ltd. and Nanavati Sons Pvt. Limited. The assessee received lease rental income of Rs.17,28,172/- from Nanavati Specialty Chemicals Pvt. Ltd. and Rs.28,84,470/- from Nanavati Sons Pvt. Ltd., both aggregating to Rs. 20,16,642/-, against which TDS was deducted. The above said rental income was reflected in Form No. 26AS. The assessee, in turn, paid lease charges to BPT amounting to Rs. 20,50,292/-, which is an expenditure incurred in earning sub-letting rental income. However, the assessee claimed expenditure of Rs.20,16,642/- only and accordingly declared NIL income. Since sub-letting rental income cannot be assessed under the head Income from House Property, the assessee declared NIL income under the head Income from Other sources in the rectified return of income. Accordingly, it was submitted that the CPC was not justified in assessing sub-letting rental income under the head Income from House Property and also in ignoring the expenses incurred by the assessee in earning sub-letting rental income.
The learned CIT(A) accepted these factual aspects. He also held that the sub-letting rental income of Rs.20,16,952/- is required to be assessed under the head Income from Other sources. With regard to the claim for deduction
3 Shanay Jhaveri of lease charges of equal amount paid to BPT, the Ld CIT(A) noticed that the invoices towards lease charges have been raised by BPT in the name of Ratilal Manilal Nanavati and three others and Mrs. Sarla Ratilal Nanavati and two others. Hence, the Ld CIT(A) held that the invoices do not stand in the name of the assessee and accordingly he took the view that the assessee has failed to prove the claim of expenditure. Accordingly, the Ld CIT(A) rejected the claim of expenditure.
We heard the parties and perused the record. The dispute before us boils down on the issue – Whether the Ld CIT(A) was justified in rejecting the claim of expenditure towards lease charges paid to BPT. It is the submission of Learned AR that the assessee has inherited lease rights from Mr. Ratilal Manilal Nanavati and three others and Mrs. Sarla Ratilal Nanavati and two others and the same has not yet been transferred to his name. Hence the invoices were continued to be raised in the name of his parents/grandparents. He submitted that the assessee has received sub- letting rental income from the warehouse for which the above said lease charges were paid to BPT. Hence, the above said expenditure has been incurred for the purposes of earning sub-letting rental income. Accordingly, he submitted that the expenditure of BPT charges should be allowed against lease rental income.
In principle, we agree with the contentions of the assessee that the lease charges paid to BPT is allowable as deduction against the sub-letting rental income received on sub-letting of warehouse. However, we notice that evidences in support of two factual aspects were not brought on record by the assessee. First, the assessee has claimed that he has inherited lease rights from parents/grand parents. The details of how he inherited the same were not brought on record. In this regard, the agreements entered by the assessee with M/s. Nanavati Specialty Chemicals Private Ltd. and Nanavati Sons Pvt. Limited will through light on this aspect. But these agreements
4 Shanay Jhaveri were not brought on record. Secondly, the assessee has not shown that the lease charge to BPT has been paid by him, which would enable him to claim expenditure. Since these vital aspects require verification at the end of the AO, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO for examining it afresh. We also direct the assessee to furnish above discussed materials before the AO. After examining the information and explanations that may be furnished by the assessee, the AO may take appropriate decision in accordance with law.
In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.
Pronounced in the open court on 19.5.2023.