The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that income from the business of renting equipment of residual management does not fall under house property income and held that the assessee’s business was not the business of renting out the equipment, but the business of acquiring and dealing in unguaranteed residuary interest in the assets rented to customers.
The Assessee, M/S Connect Residuary Pvt Ltd, filed a return of income in the 2014-15 assessment year of ₹3,71,679/-, which was scrutinized and assessed by the Assessing Officer (AO) on 30/12/2016. The AO made a substantial addition to the assessee’s income due to a mismatch between Form 26AS and the assessee’s financial statements.
The assessee explained its business model, which involves acquiring and dealing in unguaranteed residuary interest in assets rented to customers. The CIT-A accepted the assessee’s business model and accounting method, but the AO’s addition was deleted and therefore the assessing officer is aggrieved and is in appeal before ITAT
The Revenue Department claimed that because the assessee’s books of accounts did not reflect the rental revenue that appeared on Form 26AS, the assessee had not disclosed the right amount of income. Additionally, the assessee was said by the Revenue Department to have failed to give a party-wise reconciliation of 26AS.
The assessee argued that its income was not the rental income but the income earned in the business of acquiring and dealing in unguaranteed residuary interest in assets rented to customers. The assessee also argued that it had followed the same accounting method in earlier years and subsequent years and that the Revenue Department had not objected to it in those years.
The ITAT observed that the assessee had followed the same accounting method in earlier years and subsequent years and that the Revenue Department had not objected to it in those years. It was also noted that the assessee had explained its business model in detail and had provided a diagrammatic presentation of the same. The ITAT was satisfied that the assessee’s explanation was clear and that the assessee’s accounting method was correct.
The Two-member bench Comprising Sandeep Singh Karhail (Judicial Member) and Prashant Maharshi (Accountant Member) dismissed the appeal of the Revenue Department and confirmed the order of the CIT(A). The ITAT held that the addition made by the Revenue Department was not justified, as the assessee’s income was not the rental income but the income earned in the business of acquiring and dealing in unguaranteed residuary interest in assets rented to customers.
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