Rental income constitutes house property income, while unverified interest claims require fresh adjudication remand.

ORDER

1. This appeal in ITA No.2885/Del/2026 for assessment year 2020-21 has arisen from the appellate order dated 21.01.2026 passed by the learned CIT(A) under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) (DIN & Order No. ITBA/NFAC/S/250/2025-26/10845004105(1)), which, in turn, has arisen from the assessment order dated 12.02.2025 passed by learned Assessing Officer under Section 147 read with Section 144B of the Act(DIN : ITBA/AST/S/147/2024-25/1073209284(1)).

2. The brief facts of the case are that the assessee did not file its return of income u/s 139, for the impugned assessment year. The assessee is a partnership firm. The department was in possession of the information received through insight portal as per Risk Management Strategy that income chargeable to tax has escaped assessment , the assessee having received rental income of Rs. 20,73,600/-, but not having filed income tax return. The reassessment proceedings u/s 147/148 were initiated against the assessee by reopening the assessment with the belief that income has escaped assessment. The Revenue followed the procedure as laid down u/s 148A before issuing notice u/s 148. The assessee did not respond to notice u/s 148A(b) dated 27.02.2024 issued by the AO, which led to an order passed u/s 148A(d) dated 13.03.2024 by the AO , after taking approval from Competent Authorities. Notice u/s 148 dated 19.03.2024 was issued by the AO. Notices u/s 142(1) as well SCN were issued from time to time by the AO during reassessment proceedings. Initially, the assessee did not participated in reassessment proceedings, but later came forward and participated in reassessment proceedings. The assessee did not filed return of income u/s 139, but filed return of income belatedly on 11.12.2024 in response to notice issued u/s 148, declaring income of Rs. 5,23,250/-. The details of proceedings are enumerated in details by ld. AO in his reassessment order at page no. 2& 3. The dispute between rival parties are within narrow compass. The assessee has received rental income to the tune of Rs.20,73,600/- on leasing premises situated at W8, 42/8, 3^rd Floor, West Patel Nagar, New Delhi-110008. The AO made enquiries with the tenant u/s 133(6), and obtained copy of rent agreement, bank statements and ledger account. The assessee in its return of income filed in pursuance to notice u/s 148(although belatedly) claimed said rental income is chargeable to tax under the head ‘Income from house property’. The assessee claimed standard deduction u/s 24(a) @30% and further deductions to the tune of Rs. 9,28,272/- towards interest u/s 24(b), both under the head ‘Income from House Property’. The assessee has availed loan to the tune of Rs. 70,00,000/- from Tata Capital Housing Finance Limited by mortgaging its aforesaid tenanted property situated at W8, 42/8, 3^rd Floor, West Patel Nagar, New Delhi-110008 , and the proceeds of the aforesaid loan were utilized for purchasing another property at W8, 42/8, 2^nd Floor, West Patel Nagar, New Delhi-110008. The asssessee was confronted with the same by the AO. The assessee withdrew its claim of deduction of interest u/s 24(b) under the head ‘Income from house property’, and instead claimed deduction of said interest paid on loans availed by mortgage of property as business expenses under the head ‘Income from Business or Profession’. The assessee claimed that it is engaged in the business of sale, purchase, construction and development of land building and leasing activities. The AO , however, observed that the assessee is engaged in the business of leasing activities. The AO observed that the assessee is engaged in the business activities of leasing, and the rental income is to be assessed as income from business or profession , and not having income chargeable to tax under the head ‘Income from House Property’. The AO also observed that the assessee has collected GST from the tenant on rental income. Thus, the assessee’s rental income was brought to tax by the AO under the head ‘Income from Business or Profession’ by the AO, and deduction on account of standard deduction to the tune of Rs. 6,22,080/- u/s 24(a) was denied by the AO. The AO redrew P&L account and allowed depreciation to the tune of Rs. 79,405/- and further allowed interest expenses to the tune of Rs. 9,28,272/- claimed by the assessee, thus bringing to tax income to the tune of Rs. 10,65,923/- under the head ‘income from business or profession’, as against income of Rs. 5,23,250/-declared by the assessee under the head ‘Income from House Property’ .

3. Aggrieved, the assessee filed first appeal with ld. CIT(A), but the appeal of the assessee stood dismissed by ld. CIT(A), by holding as under:

“6.1.1 Now before me in the appellate proceedings,the appellant has filed written submission.In the written submission, the appellant has relied upon various judgements of various courts in the favour of its submission, but all the judgements relied upon by the appellant are earlier judgements from the judgements of SC in the case of Chennai Properties & Investments Ltd. [2015]  (SC) and Rayala Corporation (P.) Ltd. (SC). Time and again, it has been held by Hon SC that where there are multiple judgements of Hon SC on an issue, the later judgements would prevail. Hence , relying upon these judgements, the addition of the AO is confirmed.

7. The appeal of the appellant is dismissed”

4. Aggrieved, the assessee has filed second appeal with the Tribunal. The ld. Counsel for the assessee submitted that the assessee has given property viz. W8, 42/8, 3rd Floor, West Patel Nagar, New Delhi-110008 on rent to Tata Business Support Services Limited for a period of 9 years effective from 01^st April, 2017 to 31^st March, 2026 . The copy of leave and license agreement entered into with the tenant is placed on record by the assessee. It was submitted by ld. Counsel for the assessee that the assessee has offered for tax rental income under the head ‘Income from House Property’. It was submitted that the AO has brought to tax, said income under the head ‘Income from Business or Profession’. It was submitted that the assessee has declared said property under the head ‘Fixed Assets’ in its books of accounts. It was submitted that consistency has to be followed as for assessment year’s 2018-19 and 2019-20, Revenue accepted said income under the head ‘Income from House Property’ . It was submitted that rent income is chargeable to GST,and hence the assessee complied with GST laws , collected GST from tenant and deposited the same with Government Treasury. The ld. Counsel for assessee relied upon decision of ITAT, Delhi Benches in the case of ACIT v. IHDP Global (P.) Ltd. [IT Appeal No. 331 (Del) of 2021, dated 7-2-2025].

4.1 The ld. Sr. DR relied upon the orders of the authorities below. The ld. SR. DR drew my attention to various para’s of the reassessment order.

4.2 The ld. Counsel submitted in rejoinder that allowability of interest is not in dispute.

5. I have considered rival contentions and perused the material on record. The assessee is a partnership firm. I have observed that the assessee did not filed its return of income u/s 139. The Revenue has information from insight portal that the assessee has received rental income of Rs. 20,73,600 during the year, but no return of income was filed. Reassessment proceedings u/s 147/148 were initiated by the AO against the assessee. Notice u/s 148A(b) was issued by the AO. The assessee did not responded to notice, which culminated into an order u/s 148A(d) of the 1961 Act. The AO issued notices u/s 148, 142(1) , 143(2) and SCN during the course of reassessment proceedings. The assessee initially did not participated in reassessment proceedings. The assessee belatedly filed return of income in pursuance to notice u/s 148. The assessee later participated in reassessment proceedings. The assessee in its return of income, declared rental income of Rs. 20,73,600/- received from Tata Business Support Services Limited under the head ‘Income from House Property’ and claimed deduction of Rs. 6,22,080/- u/s 24(a) being standard deduction and further claimed deduction of Rs.9,28,272/- as interest deduction u/s 24(b) of the 1961 Act, thus, declaring taxable income of Rs. 5,23,250/- . The AO made enquiry u/s 133(6) with tenants i.e. Tata Business Support Services Limited(later renamed Conneqt Business Services Limited) , and the tenant came forward and supplied copy of rent agreement, copy of its bank statement and copy of ledger account. The AO observed that the assessee has received rental income of Rs. 20,73,600/- from letting out premises situated at W8, 42/8, 3^rd Floor, West Patel Nagar, New Delhi-110008 , and the assessee has availed loan of Rs. 70,00,000/- from Tata Capital Housing Finance Limited, which is used for purchasing another premises situated at W8, 42/8, 2^nd Floor, West Patel Nagar, New Delhi-110008. The AO observed that the assessee is in the business of leasing . The assessee agreed that interest on loans to the tune of Rs. 9,28,272/- be allowed as business expenses. The AO also observed that the assessee has charged GST on rent which also proves that it is business income. The AO recasted the P& L Account and brought to tax rental income of Rs. 20,73,600/- as business income, and thereafter allowed deduction of depreciation to the tune of Rs. 79,405/- and interest expenses to the tune of Rs.9,28,272/-, and the AO brought to tax Rs. 10,65,923/- as income of the assessee, as against returned income of Rs.5,23,250/-. The ld. CIT(A) dismissed the appeal of the assessee. I have carefully gone through the leave and license agreement entered into by the assessee. This agreement is entered into by and between assessee and Tata Business Support Services Limited on 23^rd March, 2017. It is a registered agreement. This agreement is for a period of 9 years effective from 01^st April, 2017. The agreement provide for enhancement of license fees after every 3 years. The premises covered under this leave and license agreement is W8, 42/8, 3^rd Floor, West Patel Nagar, New Delhi-110008, which has 2700 square feet chargeable area.The assessee i.e. the Licesnor has given this premises to Licensee the infrastructure in the premises for the sole purpose of running its BPO/Business Operations. The premises has about 60 seats Plug & Play seats along with the fixtures , fittings and furnishing for running its business operations . The licensor i.e. the assessee has also provided certain vehicle parking space on first come first serve basis .The monthly license fee is Rs. 1,72,600/- . This monthly license fee include rental for fully furnished office space, common vehicle parking area in the premises(on first come first serve basis), usage of common area , allotment of roof top water tank , fire fighting equipments operational in the premises and property tax. This monthly license fee is exclusive of electricity, power back up and water bills, which shall be payable by licensee. GST shall be paid separately by licensee , which shall be collected by the assessee and deposited with Government Authorities. The major repairs and maintenance will be undertaken by the Licensor i.e. the assessee, and the licensee shall not pay for the same, while minor day to day maintenance shall be carried out by the licensee. Thus, it is very clear from the terms of the agreement that the assessee has let out the vacant premises for earning rental income , and there is no intention of undertaking any systematic business activity of running and maintaining the premises. Thus, the license fee earned by the assessee is to be charged to tax under the head ‘Income from house Property’ and not as income from business or profession. Further, the assessee will be eligible for deduction u/s 24(a) of the 1961 Act, as provided in the Statute. The assessee has claimed that it has shown the assets under the head ‘Fixed Asset’, and there was no intention of undertaking any business activity.The assessee has not filed audited accounts before the Tribunal. Thus, Regarding the claim of consistency raised by the assessee , that for assessment year 2018-19 and 2019-20 , the income was accepted by Revenue from ‘Income from house property’ is concerned, the assessee has chosen not to file any assessment orders, moreover, mere acceptance of return u/s 143(1) will not bind revenue to accept the stand of the assessee, if the facts as emerging during scrutiny proceedings reveal otherwise . Regarding GST on the premises, it is a statutory levy on rental income , however, the same will not determine its taxability under the heads of income prescribed under the 1961 Act. Both operate in different field. So far as interest expenses are concerned , the loans raised are used for acquiring other premises viz. W8, 42/8, 2^nd Floor, West Patel Nagar, New Delhi-110008. No details are brought on record by the assessee as to the purposes for which said premises were acquired and utilized , and when it was fit to be use or the purposes for which it was put to use. No enquiry is made by the AO with respect thereto nor the same was brought on record by the assessee, as per records before me. The assessee has not offered to tax deemed annual value of said property i.e. W8, 42/8, 2^nd Floor, West Patel Nagar, New Delhi-110008, under the head ‘Income from house property’ although deduction of interest is claimed . Thus, enquiry is required to be made by the AO to ascertain the allowability of interest expenses as claimed by the assessee either under the head ‘Income from House Property’ or under the head ‘Income from business or profession’, for which I am setting aside the matter back to the file of the AO to readjudicate on the issue of allowability of interest expenses. Thus, the appeal of the assessee is partly allowed for statistical purposes as is indicated above. I order accordingly.

6. In the result, the appeal of the assessee is partly allowed for statistical purposes.