PEEJAY SILK MILLS,MUMBAI vs. ITO 20(2)(1), MUMBAI

At the time of hearing assessee did not press ground No. 5 and hence the same is dismissed as not pressed.

Ground No. 6 is general in nature. Remaining grounds give rise to following issues :-

We heard the parties and perused the record. The assessee is a partnership firm. It is running a business Centre and also carrying on 2 M/s. Peejay Silk Mills business such as providing computing accounting services, trading in textiles, investment activities etc. The assessee claimed rental income as well as other receipts as its business income. In A.Y. 2005-06 rental income was assessed as income from house property. Accordingly, during the year under consideration also, the Assessing Officer assessed rent received by the assessee under the head income from house property. The Assessing Officer also noticed that the assessee received interest income of ` 9.65,015/- and he assessed the same as income from other sources. Remaining receipts were assessed under the head ‘income from business’ against which expenses relating to income from house property etc. were disallowed.

Before the learned CIT(A), the assessee furnished a statement of allocation of various expenses between rental income and other receipts. The said statement was confronted to the Assessing Officer and in the remand report filed, the Assessing Officer observed that allocation was fair and reasonable.

While computing income from house property, the Assessing Officer did not allow deduction towards Municipal Tax & other charges and also interest payable on housing loan. The Ld CIT(A) also confirmed the same by observing that the assessee did not furnish any supporting evidence in relation to tax and other charges and also with regard to payment of interest on housing loan. The learned CIT(A) upheld the assessment of interest income under the head ‘income from other sources’. With regard to the claim of the assessee for deduction of interest expenditure of ` 6,41,862/- against interest income, the Assessing Officer observed that the assessee has not shown that it was engaged in investment business and also he did not brought on record any material to establish that interest expenditure of ` 6,41,862/- was spent directly for earning the interest income. The assessee is aggrieved by the above said decision of the learned CIT(A).

The first issue relates to computation of income from house property, wherein deduction for tax & other charges and interest on housing loan were not allowed. We noticed that the learned CIT(A) did not allow above expenditure on the reasoning that the assessee did not furnish relevant material.

Learned AR submitted that the assessee did furnish relevant materials before the tax authorities but they were not considered by them. Learned AR, by placing reliance on the decision dated 3.2.2016 passed by the Coordinate Bench in the case of Shri Kanwaljit Singh P. Kohli (ITA No. 839/Mum/2014) and also decision rendered by the SMC Bench in the case of Mrs. Amarjit Kaur Kohli (ITA No. 588/Mum/2010 dated 28.5.2010), submitted that the society charges have to be deducted from gross rental income and net rental income should be taken into consideration for computing income under the head income from house property.

Having heard the rival submissions, we are of the view that this issue requires examination at the end of the Assessing Officer since the assessee did contend that it has furnished all the evidences before the tax authorities. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to compute income under head income from house property by considering the evidence furnished by the assessee and also by following the decision rendered by the Coordinate Benches (referred supra).

Next issue relates to non-deduction of interest expenditure against interest income. Learned AR submitted that the assessee has been receiving interest income for the past several years and that have been assessed as business income only. He submitted that there is no change in the factual position during the year under consideration. Accordingly he submitted that the tax authorities are not justified in assessing interest income as income under the head income from other sources. In the alternative he submitted

We have heard learned Departmental Representative on this issue. Having heard the rival submissions, we are of the view that this issue also requires fresh examination at the end of the Assessing Officer, since the assessee claims that the identical receipts have been accepted has business receipts in the earlier years, which proves the claim of the assessee that was carrying on the investment activities also as part of its business operations. Accordingly we set aside this issue to the file of the AO for fresh consideration by duly considering the past records and the manner of assessment of interest receipts. If the AO accepts the same as business receipts, then the interest expenditure is required to be allowed against the same. If he does not accept the claim of the assessee, then the AO should also consider alternative contentions and take appropriate decision in accordance with the law.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.