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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI JOGINDER SINGH
The captioned are two appeals by the assessee for Assessment Years 2008-09 and 2009-10 which involve common issues, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
Since it was a common point between the parties that the facts and circumstances in both the years are common, we take up for discussion appeal of the assessee for Assessment Year 2008-09 which is directed against the order of CIT(A)-14, Mumbai dated 21.11.2013, which in turn
2 Ayepee Lamitubes Ltd. & 890/Mum/2014 has arisen from the order passed by the Assessing Officer u/s. 143(3) of the Income Tax Act, 1961 (in short „the Act‟) dated 29.12.2010.
In its Memo of appeal, the appellant-company has raised the following Grounds of appeal :
“1. The Ld. CIT(A) erred in law and facts in upholding asst. of income of Rs. 12,00,000/- from leasing of building along with plant & machinery as Income from Other Sources instead of business income. The reasons given by her for doing so are wrong, contrary to the facts of the case and against the provisions of law.
2. The Ld. CIT (A) erred in law and facts in not adjudicating ground related to asst. of income of Rs. 1,62,36,445/- from finance activities as Income from Other Sources instead of business income.
3. The Ld. CIT (A) failed to appreciate that the income of the assessee from leasing and finance activities are assessable under the head Profits and Gains from Business or Profession in the facts and circumstances of the case as has been accepted for in earlier as well as subsequent years.
The Ld. CIT (A) erred in law and facts in confirming disallowance of expenses incurred for its business of finance & leasing holding it to be no business activity is carried out by the assessee during the year. The reasons given by her for doing so are wrong, contrary to the facts of the case and against the provisions of law.
(i) The Ld. CIT (A) erred in law and facts in not adjudicating ground related to disallowance of interest of Rs. 1,70,92,013/- on arbitrary basis instead of Rs. 1,09,50,503/- disallowed by the assessee as per Rule 8D in the Return of income.
(ii) The Ld. CIT (A) erred in law and facts in in not adjudicating ground related to restricting allowance of interest expenses to interest income whereby disallowed interest of Rs. 8,55,568/-.
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Without prejudice to above grounds, the Ld. CIT (A) failed to appreciate that it is not necessary to have business to allow expenses. Any expenses incurred for earning the income are allowable under relevant provisions.
The Ld. CIT(A) ought to have reversed the disallowance of legitimate expenses allowable u/s 57 of the Act incurred to earn the income u/s 56 of the Act.”
4. Although the appellant has raised multiple Grounds of appeal, at the time of hearing the learned representative for the assessee made a preliminary plea to the effect that the matters be restored back to the file of the CIT(A) for adjudication afresh because the CIT(A) has misconstrued the arguments and failed to determine the dispute before her in the correct perspective. In support of his preliminary point, the learned representative has referred to the factual matrix of the dispute which is emerging from the orders of the authorities below.
5. The orders of the authorities below reveal that the appellant- company was engaged in the business of Multilayer Collapsible Tubes in Murbad and as it could not continue the manufacturing activity, it gave on rent the factory alongwith the plant and machinery to one M/s. Essel Propack Ltd. In turn, assessee was earning lease rentals. During the year under consideration, the assessee had filed a return of income declaring income on account of such lease rentals and interest income from financing activities. Both the streams of income were categorized by the assessee as „Business Income‟ consistent with earlier years, wherein the said treatment is stated to have been accepted. The Assessing Officer in the impugned Assessment Years treated the rental income as well as the income from financing activities as „Income from 4 Ayepee Lamitubes Ltd. & 890/Mum/2014 Other Sources‟ and not as „Business Income‟, as declared by the assessee. Since the interest income declared was assessed under the head „Income from Other Sources‟, the expenditure on interest and financial charges was also proportionately disallowed. Because he had treated both the streams of income as „Income from Other Sources‟, the administrative and other expenses debited in the Profit & Loss Account were also disallowed.
6. Before the CIT(A), the assessee assailed the order of the Assessing Officer on various grounds, inter alia, canvassing – (i) that the rental income as well as interest income was in the nature of business income; (ii) that the interest expenditure was allowable as claimed; (iii) that the administrative and other expenses debited in the Profit & Loss Account were allowable irrespective of the fact whether the incomes are held to be assessable as „Business Income‟ or under the head „Other Sources‟.
7. In this background, the learned representative for the assessee pointed out that the CIT(A) inadvertently addressed herself to the controvery as to whether the rental income was to be assessed as „Income from House Property‟ or „Income from Other Sources‟, an approach which was mis-directed. Ultimately, the CIT(A) held that the rental income was not to be regarded as „Income from House Property‟ but was to be treated as „Income from Other Sources‟. The learned representative also pointed out that the ground relating to the interest income being „Business Income‟ or „Income from Other Sources‟ has not been adjudicated by the CIT(A) at all.
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The aforesaid factual matrix is clearly emerging from the order of the authorities below and the CIT-DR also did not controvert the same at the time of hearing before us.
Further, with regard to deductibility of interest expenditure, it is seen from the impugned order that the CIT(A) examined the details of interest income on loans given and held that interest income be assessed at 11% instead of 9% actually earned by the assessee. Thus, on this aspect also the learned representative pointed out that the effective ground raised by the assessee was not adjudicated by the CIT(A) and rather, the determination of the dispute is misconceived.
With regard to the disallowance of administrative expenses, the learned representative for the assessee pointed out that the CIT(A) did not determine the crucial argument of the assessee that the expenses incurred to maintain status as a company were allowable irrespective of whether income earned was assessable under the head „Business Income‟ or „Income from Other Sources‟.
Based on the aforesaid preliminary objection, the learned representative for the assessee canvassed that the matters be set aside to the file of the CIT(A) for adjudication afresh in the correct perspective.
The learned Departmental representative appearing for the Revenue has not controverted any of the factual matrix brought out by the learned representative for the assessee.
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Having considered the preliminary point made out by the learned representative for the assessee, we find that the CIT(A) did not address the controversy in an appropriate manner inasmuch as the question as to whether the lease rental income earned by the assessee was assessable as „Business Income‟ or not, has not been addressed at all. In fact, the characterization of interest income as „Business Income‟ sought by the assessee has not been adjudicated at all. Even on other points, as brought out by the learned representative for the assessee, the decision of the CIT(A) deserves to be re-visited in order to correctly set-out the controversy and decision thereon in accordance with law. For the said reasons, we accept the preliminary plea of the assessee that the impugned order of CIT(A) be set aside and the matter be restored back to the file of CIT(A) for adjudication afresh on the grounds raised by the assessee in accordance with law. We may also state here that our decision to remand the matter back to the file of CIT(A) is no reflection on the merits of the case which shall be the subject matter of adjudication by the CIT(A) in accordance with law. Needless to say, the CIT(A) shall allow the assessee a reasonable opportunity of being heard before adjudicating the issues, as per law.
In the result, the appeal of the assessee for Assessment Year 2008- 09 is treated as allowed for statistical purpose, as above.
Since the facts and circumstances of the dispute in Assessment Year 2009-10 stands on identical footing to the Assessment Year 2008- 09, our decision in the appeal for Assessment Year 2008-09 in the earlier paragraphs shall apply mutatis mutandis in the appeal for Assessment Year 2009-10 also.
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Resultantly, the captioned appeals of the assessee are allowed for statistical purpose, as above.
Order pronounced in the open court on 24th February, 2016.