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Income Tax Appellate Tribunal, JAIPUR BENCH ‘B’, JAIPUR
Before: Shri Vijay Pal Rao, JM & Shri Vikram Singh Yadav, AM vk;dj vihy la-@ITA No. 689/JP/2019
ORDER
PER VIJAY PAL RAO, JM
This appeal by the assessee is directed against the order of ld. CIT(A)-4, Jaipur dated 25-02-2019 for the Assessment Year 2016-17. The assessee has raised the following ground. ‘’1. That the AO has erred in law as well as on the facts and circumstances of the case in considering a sum of Rs. 36,000/- under the head income from other sources in place of income from the house property and also erred in disallowing of deduction claimed u/s 24(a) of Rs. 10,800/- and the ld. CIT(A) has erred in sustaining the same.’’ 2.1 The assessee company has closed down its factory and let out the factory building to its sister concern. The rental income from the building let out to its sister concern M/s. Vijay Solvex Ltd. was declared as income from house property. The AO during the scrutiny assessment noted that the assessee has claimed depreciation of Rs. 3,212/- on the building and simultaneously claimed deduction u/s 24(a) of the Act of Rs. 10,800/- on the same building which was let out to M/s. Vijay Solvex Ltd. Further the AO observed that the assessee has not filed any rental agreement in support of the claim that said income is assessable to tax under the head income from house property. Accordingly, the AO treated the rental income as business income of the assessee and thereby denied the deduction u/s 24(a) of the Act. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.
2.2 Before us, the ld.AR of the assessee has submitted that the assessee has erroneously claimed depreciation of Rs. 3,212/- on the building whereas the said building was let out against rent which was offered to tax as income from house property. He further submitted that the assessee has closed down its factory and also sold out the plant and machinery.
Therefore, the building was let out to the tenant. Since no business activity is carried out from the said building, therefore, the rental income cannot be assessed as business income of the assessee. The ld.AR of the assessee fairly conceded that depreciation claimed by the assessee in the return of income is not an allowable deduction when the building was let out and the income was offered to tax as income from house property.
The ld.AR of the assessee pointed out that for the Assessment Year 2006- 07 to 2008-09, the AO has accepted the rental income as income from house property.
2.3 On the other hand, the ld. DR has submitted that the assessee is offering income from business and also claimed depreciation on the said building. Therefore, the assessee has never claimed that it has closed down its business activity. The ld. DR has further contended that as per Schedule of Fixed Assets , the assessee is showing the factory building as part of the Fixed Assets and has also shown the depreciation and Written Down Value (for short ‘’WDV’’) of the building. Therefore, all these facts show that the assessee has not closed down its factory till the showing the same as business assets in the Schedule of Fixed Assets. The ld. DR relied on the orders of the lower authorities.
2.4 We have considered the rival submissions as well as the relevant materials available on record. The AO in the assessment order has clearly stated the nature of business or source of income as N.A. and therefore, the AO has accepted that the assessee is not doing any business. It is also not in dispute that the assessee has already sold out its plant and machinery and factory building is no more utilized for the purpose of business. In fact, the assessee has closed down its business activity in the factory in question and the building is let out to its sister concern M/s.
Vijay Solvex Ltd. against rent of Rs. 36,000/- per annum against which the assessee has claimed deduction u/s 24(a) of the Act. The ld.AR of the assessee has fairly admitted that depreciation claimed by the assessee in the return of income of Rs. 3,212/- on the said building is not allowable when rental income was offered to tax as income from house property.
Prima facie, it appears that the assessee has closed its business activity from the factory premises in question and therefore, the rental income cannot be treated as business income of the assessee. Further, at the same time, the claim of depreciation against said building is also not permissible and the same shall be disallowed. Though the ld.AR of the assessee has referred to the assessment orders for the Assessment Years 2007-08 and 2008-09 wherein the assessee offered the rental income as income from house property and the AO has accepted the same while processing the return u/s 143(1) of the Act. However, the status of the subsequent Assessment Years from A.Y. 2009-10 to 2015-16 is not ascertainable from the record as nothing has been filed by the assessee in this regard. Even no submission has been advanced regarding the status of the rental income either offered to tax by the assessee or treatment of the same by the AO in those Assessment Years. Accordingly, the AO is directed to decide this issue afresh in the light of the status of rental income for the preceding assessment years i.e. from A.Y. 2009-10 to 2015-16. Needless to say that the assessee be given an appropriate opportunity of hearing of appeal before passing the fresh order. Thus the appeal of the assessee is allowed for Statistical purposes.
3.0 In the result, the appeal of the assessee is allowed for Statistical purposes.
Order pronounced in the open court on 16 /03/2020.