2014 (6) TMI 701 - AT - Income Tax

ITAT Mumbai: Rent addition deleted, expenses disallowed due to lack of other income

M/s. Chirag (India) Infradevelopers & Construction Pvt. Ltd. Versus The DCIT, Circle 2(2), Mumbai

The ITAT Mumbai partially allowed the appeal by directing the deletion of the rent addition made without basis and confirming the disallowance of expenses ... Estimation of income from Rent and not according to TDS certificate - Disallowance of expenses – Ratio based work on from own assumption – Held that:- The AO has increased the rent received from Corporation bank by 10% without any basis - as there is no basis for increasing the rent, there was no reason for making the addition of Rs. 2,75,400 – the AO is directed to delete the same – Decided in favour of Assessee. The order of the CIT(A) is upheld that the assessee has no other income other than the rental income – there was no reason for claiming the expenditures – Decided against assessee. Issues:1. Addition of rent on estimated basis not in line with tax deduction certificate.2. Disallowance of expenses based on own assumption.Analysis:Issue 1: The appeal was against the order of the Ld. CIT(A) regarding the addition of Rs. 2,75,400/- on account of rent, which was not in line with the tax deduction certificate submitted by the assessee. The assessee, a company deriving income from house property, had shown rent received from Corporation Bank under 'business income' but the AO treated it as 'income from house property' citing a Supreme Court decision. The AO increased the rent by 10% and denied the deduction of payment of Municipal tax due to lack of evidence. The Ld. CIT(A) confirmed the treatment of rent under 'income from house property' but directed verification of the claim based on the Municipal corporation receipt. The ITAT found no basis for the 10% increase in rent and directed the AO to delete the addition of Rs. 2,75,400/-, allowing ground No. 1 of the appeal.Issue 2: The second issue pertained to the disallowance of expenses amounting to Rs. 6,05,833/- based on the assumption that the assessee had no other income besides rent income. The Ld. CIT(A) upheld this disallowance stating that since the assessee had no other income, there was no basis for claiming these expenditures. The ITAT agreed with the Ld. CIT(A) on this matter and dismissed ground No. 2 of the appeal. Consequently, the appeal was partly allowed, with the addition of Rs. 2,75,400/- being deleted while the disallowance of expenses was confirmed.In conclusion, the ITAT Mumbai partially allowed the appeal, directing the deletion of the rent addition made without basis and confirming the disallowance of expenses due to lack of other income besides rental income.