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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-V, Kolkata dated 30.06.2015 for the assessment year 2007-08 and the solitary issue involved therein relates to the disallowance of assessee’s claim for various expenses against rental income.
The assessee in the present case is a Company. During the year under consideration, it was the owner of a land at Jaipur, which was partly used for agriculture. A building was constructed on the remaining portion of the said land and the same was given on rent. For the year under consideration, a sum of Rs.2,10,000/- was received by the assessee
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as rent from the said building and treating the same as business income and claiming deduction on account of various expenses against the same, NIL income was declared by the assessee in its return of income filed for the year under consideration. According to the Assessing Officer, the rental income received by the assessee for the building owned by it was chargeable to tax under the head “income from house property” as per section 22 of the Act. Accordingly, the rental income of Rs.2,10,000/- received by the assessee was brought to tax by him under the head “income from house property” and after allowing standard deduction of Rs.63,000/- under section 24, total income of the assessee was computed by him at Rs.1,47,000/- in the assessment completed under section 143(3) vide order dated 09.11.2009 thereby disallowing the claim of the assessee for various expenses under the head “profits and gains of business or profession”.
Against the order passed by the Assessing Officer under section 143(3), an appeal was filed by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) decided the issue involved in the appeal of the assessee for the following reasons given in paragraph no. 3 of his impugned order:- “3. It is seen from the profit and loss account that against net taxable income of about RS.2,15,000/- (excluding agricultural receipts) the expenses claimed is about Rs.2,91,000/-. From the chart of fixed assets it is seen that the appellant is the owner of land (Rs.10,78,000/-), farm house land (Rs.2,73,000/-), flat (Rs.4,96,000/-), water well (1,72,000/-) and building (Rs.50,000/-) etc. The profit and loss account figures indicate that the receipts had been adjusted by the appellant against various expenses. Even though there is some income shown in the said Profit and Loss A/c., the returned income offered by the appellant assessee is "NIL". It thus appears that the income shown in the Profit and Loss Account has been claimed as exempt and no taxable profit has been shown. Apparently it is in this context that the A.O. has treated the rentals as income from house property and allowed by way of deduction 30% towards standard deduction. The company appellant is holder of some properties and the income from the said house property has been treated as income from house property by the A.O. As regards the taxable income A.O.'s decision appears reasonable
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even if his decision to treat the income as income from house property can be challenged. The appellant's excessive claim of expenses resulting in the net taxable income equal to zero cannot be accepted. I, therefore, find the A.O.'s decision reasonable in so far as computation of total income is concerned. Reliance of the appellant on the decision of the Hon' ble Supreme Court in the case of M/s. Chennai Properties and Investment Limited should not divert the attention from the fact that the appellant has claimed excessive deduction against rent and hire charges. The A.O. proceeded as per the judicial decision available or applicable at the time of passing the order. The Hon'b1e Apex Court's decision in M/s. Chennai Properties and Investment Limited case does have the effect of changing the colour of the income. It may result in terming the rentals as business income. But the expenses claimed in the profit and loss account is considered as excessive. I, therefore, without deciding whether the income is business or one from house property confirm the addition resulting from computation of total income by the AO at Rs.1,47,000/-. As a result, even, though the appellant’s ground for treating the rentals as business income is allowed, the total income computed is confirmed at Rs.1,47,000/- which is the same as determined by the AO. For statistical purpose the appeal is treated as partly allowed”.
I have heard the arguments of both the sides and also perused the relevant material available on record. As rightly pointed out by the ld. Counsel for the assessee from the relevant portion of the impugned order of the ld. CIT(Appeals), the claim of the assessee that the rental income in question is chargeable to tax as business income was accepted by the ld. CIT(Appeals) in principle by relying to the decision of the Hon’ble Supreme Court in the case of M/s. Chennai Properties & Investment Limited, but he still proceeded to uphold the order of the Assessing Officer computing the total income of the assessee at Rs.1,47,000/- observing that the expenses claimed by the assessee in the Profit & Loss A/c. were excessive. As rightly contended by the ld. Counsel for the assessee, the ld. CIT(Appeals), after having held that the rental income in question is chargeable to tax as business income should have considered the allowability of various expenses claimed by the assessee under the head ‘profits and gains of business or profession’ or at least should have directed the Assessing Officer to consider the same on merit in accordance with law. I, therefore, set aside the impugned order of the ld.
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CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer to verify the claim of the assessee for deduction on account of various expenses and allow the same in accordance with law.
In the result, the appeal of the assessee is treated as allowed.
Order pronounced in the open Court on January 06, 2016. Sd/-
(P.M. Jagtap) Accountant Member Kolkata, the 6th day of January, 2016 Copies to : (1) M/s. R.N. Haritwal & Sons (P) Limited, 7, Waterloo Street, 2 nd Floor, Kolkata-700 069
(2) Income Tax Officer, Ward-3(1), Kolkata, P-7, Chowringhee Square, Aayakar Bhawan, Kolkata-700 069
(3) Commissioner of Income-tax (Appeals)-5, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File
By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.