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Income Tax Appellate Tribunal, ‘A’ / ’SMC’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN
आदेश / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 23.03.2018, and pertains to the AY 2005-06.
This appeal of the assessee was disposed off earlier by an order dated 30.10.2018. The assessee filed a Miscellaneous Petition on the ground that the rental income earned on letting out of the property was outside the scope of the present appeal. The Tribunal by an order dated 07.05.2019 accepted the claim of the assessee and recalled its earlier order dated 30.10.2018. The assessed income is less than Rs.50.00 lakhs, therefore, it is posted before the single Member for final disposal.
Shri S.Sridhar, Ld.Counsel for the assessee submitted that the first issue raised regarding the validity of the re-opening u/s.147 is not pressed. The Ld.Counsel for the assessee also submitted that he will make an endorsement to that effect on the appeal folder. However, the Ld.Counsel has not made any endorsement on the file and also not argued the issue regarding the re-opening. Therefore, I perused the materials available on record. The AO re-opened the assessment by issuing a notice u/s.148. Initially, the return was processed u/s.143(1) of the Act. There is no doubt that the assessment was re-opened within a period of four years from the end of the relevant assessment year. Therefore, the Ld.CIT(A) by placing a reliance on the judgment of the Hon’ble Apex Court in the case of CIT vs. Rajesh Jhaveri Stock Brokers Ltd., [2007] 161 Taxman 316 (SC) found that the assessment was rightly re-opened. This Tribunal after carefully gone through the records found that the Ld.CIT(A) has rightly confirmed the order of the AO. Accordingly, the same is confirmed.
Now coming to the merit of the appeal, the only issue arises for consideration is that the apportionment of expenditure between the rental income and the income from amenities. According to the Ld. representative, the rental income has to be assessed as income from house property and the income from amenities has to be assessed as income from business. Referring to the order of the AO more particularly Para No.4, Ld.representative submitted that the AO himself treated the amenities income as business income. Therefore, there is no question of apportionment of expenditure between the business income and the income from house property. The entire expenditure has to be allowed only from the business income. Therefore, the Ld.CIT(A) was not justified in directing the AO to apportion the expenditure. Ld.Counsel has placed reliance on the orders of the Tribunal in the assessee’s own case for the AYs 2006-07, 2007-08 & 2008-09 in 1742 & 1743/Mds/2013 dated 13.11.2015 and submitted that this Tribunal found that the amenities charges has to be classified as business income.
On the contrary, Shri AR.V.Sreenivasan, Departmental Representative submitted that the expenditure includes depreciation.
Referring to the order of the Ld.CIT(A) more particularly at Para Nos.11 & 12, the Ld.DR submitted that the depreciation claimed by the assessee as expenditure includes depreciation on buildings. According to the representative, depreciation on building relatable only to the property which was let out and the income there from was assessed as income from house property. Therefore, the Ld.CIT(A) has rightly found that the expenditure relates to both rental income as well as income from amenity charges. Hence, the AO was directed by the Ld.CIT(A) to apportion the total expenditure in the same ratio as rental income to the amenities income.
I have considered the rival submissions on either side and also perused the material available on record. The income from amenities charges was admittedly classified as income from house property by the AO. This Tribunal in the assessee’s own case for the AYs 2006-07, 2007- 08 & 2008-09 found that amenities income has to be classified as income from business. Sec.37 of the Income Tax Act clearly says that the expenditure wholly and exclusively relatable for the purpose of business shall be allowed in computing the income under the head ‘profit & gains of business’. Therefore, this Tribunal is of the considered opinion that there is no question of apportionment of the expenditure between the business income and the income from house property. In other words, the entire expenditure relatable to business income has to be considered while computing the business income and not while computing the income from house property. Therefore, the orders of both the authorities below are set-aside and the entire issues raised by the assessee are remitted back to the file of the AO. The AO is directed to examine and find out the expenditure claimed for earning the business income while computing the business income of the assessee from amenities charges.
The Ld.DR claims that the depreciation claimed by the assessee relates to the building that cannot be business expenditure. There is a merit in the contention of the Ld.DR. The assessee is not using the building for its own business. The assessee simply let out the building and the rental income is assessed as income from house property. Therefore, what is to be allowed while computing the income from house property is a standard deduction as provided in Sec.24 of the IT Act and not the expenditure as claimed by the assessee. Moreover, when the property was let out for rent the assessee is not eligible for any depreciation.
Therefore, the depreciation claimed by the assessee which is relatable to the building cannot be treated as a business expenditure and cannot be allowed while computing the income from house property. Accordingly, the orders of the authorities below had modified. The AO is directed to allow only the expenditure while computing the income from business with respect to amenities.
In the result, with the above observations, the appeal filed by the assessee is partly allowed.
Order pronounced on the 16th day of July, 2019, in Chennai.