The Tribunal overturns the CIT(A) decision, allowing key deductions and remands issues for fresh examination.
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) of Mumbai has decided in favor of the Western Industrial Co-operative Estate Limited, reversing the decision of the National Faceless Appeal Centre (NFAC), Delhi, and restoring the assessee's position on several income tax assessments for the financial year 2017-18.
The crux of the dispute revolved around the classification of rental income received by Western Industrial Co-operative Estate Limited from leasing out its administrative building. The Assessing Officer (AO) had reclassified this income from "Income from House Property" to "Income from Other Sources," thereby disallowing significant deductions that are permissible under the former category. These included a standard deduction of 30% under Section 24(a) and interest on borrowed funds under Section 24(b).
The ITAT, presided over by Shri Saktijit Dey and Shri Jagadish, emphasized the principle of consistency, a doctrine upheld by the Supreme Court in the Azadi Bachao Andolan case. The Tribunal observed that the assessee had consistently declared this income under "Income from House Property" in previous years without any objection from the tax authorities. It noted that there had been no change in the nature of the property or the agreements with tenants, which primarily included reputable entities like Kotak Mahindra Bank and Renaissance Global Limited.
Consequently, the Tribunal directed the AO to reassess the income under "House Property," thereby reinstating the standard deduction and the interest deduction under Section 24(b).
Additionally, the Tribunal remanded the issue of disallowance of expenses related to testing charges and parking fees back to the AO for a fresh examination, emphasizing the need for proper verification of the claimed expenses.
Another key aspect of the ruling involved the disallowance of deductions under Section 80P. The ITAT directed the AO to re-examine the nature of storage charges and interest income from cooperative banks to determine their eligibility for deductions under Sections 80P(2)(e) and 80P(2)(d), respectively.
The Tribunal's decision brings relief to Western Industrial Co-operative Estate Limited, setting a precedent for the treatment of rental income under tax law. The appeal concerning the rectification order under Section 154, which disallowed the standard deduction, was dismissed as infructuous, following the main appeal's outcome.
This ruling underlines the importance of consistency in tax assessments and the need for thorough verification of claims before disallowing them.
Bottom Line:
Income Tax - Rental income earned from letting out immovable properties on leave and license basis is chargeable under the head "Income from House Property" and not under "Income from Other Sources" when the assessee has consistently shown such income under the head "House Property" in preceding years and there has been no change in nature of property or tenants.
Statutory provision(s): Income Tax Act, 1961 Sections 24(a), 24(b), 80P(2)(e), 80P(2)(d), 154
