2019 (1) TMI 2030 - AT - Income Tax

Tribunal upholds decision on expense disallowance, clarifies impact of business income absence on ruling.

Shri Mukesh Gupta Versus The DCIT, Circle-6 (1) (2), Bangalore

The Appellate Tribunal upheld the decision not to increase the disallowance of expenses despite identifying certain non-allowable expenses. It clarified ... Apparent mistakes in the impugned Tribunal order - Disallowance of expenditure at 10% of total expenditure on an estimate basis - HELD THAT:- This disallowance was confirmed by CIT (A) on this basis that on the issue of estimated disallowance in the absence of complete details no being available, the estimated disallowance appears to be reasonable and not excessive. When the assessee carried the matter in appeal before the Tribunal, the Tribunal held that the AO has made disallowance of 10% of the total indirect expenses debited in P&L account only whereas as per the Tribunal, the expenses of Rs. 2 Lakhs on account of commission paid, Rs. 14,29,951/- being interest in respect of Sundaram Finance Housing Loan and Rs. 4,19,981/- being Processing Fee in respect of Loan from Sundaram Finance are not allowable at all but the Tribunal is not supposed to increase the disallowance while deciding the appeal of the assessee and therefore, it was held that no inference is called for in the order of CIT(A) on this issue. Hence it is seen that this is the ultimate decision of Tribunal as per the impugned Tribunal order that no inference is called for in the order of CIT (A) and hence, these observations of the Tribunal that the assessee has no business income or that the interest and processing fees of loan are in respect of housing loan etc. do not affect the ultimate decision of the Tribunal that no inference is called for in the order of CIT (A). We find that as per the P&L account of the assessee available assessee has declared income on account of Creditors Written Off, Director Remuneration, Dividend Received, Interest received from Banks, Interest Received – K.G. Enterprises and Profit on Sale of Shares. Hence from these six headings of income credited in the P&L account, it is clear that in the present year, no business income is there. Hence this observation of Tribunal that there is no business income in the present year is not incorrect. Second alleged mistake that the interest paid to Sundaram Finance is not in respect of Housing Loan - We find that the assessee has himself stated in P&L account available on page no. 41 of the paper book that Interest-Sundaram Finance Housing Loan-Rs. 14,29,951/- and therefore, this observation of the Tribunal is also not incorrect when this interest of Rs. 14,29,951/- is in respect of Housing Loan even as per the nomenclature given to it by the assessee himself in P & L Account. Regarding the amount of Rs. 4,19,981/-, the assessee himself stated in the P&L account available on page no. 41 of the paper book that Processing Fee – Loan Sundaram Finance – Rs. 4,19,981/- and since, the only loan from Sundaram Finance is Housing Loan, this observation of the Tribunal is also not incorrect. Hence find no apparent mistake in the Tribunal order. Issues:1. Disallowance of expenditure on an estimate basis.2. Incorrect observation by the Tribunal regarding business income and loan categorization.Issue 1: Disallowance of expenditure on an estimate basisThe Appellate Tribunal addressed the issue of disallowance of expenditure on an estimate basis. The Assessing Officer (AO) had disallowed 10% of total indirect expenses amounting to Rs. 2,81,338 due to incomplete details provided by the assessee. The CIT (A) confirmed this disallowance, considering it reasonable. However, the Tribunal, in the impugned order, held that certain expenses were not allowable, such as commission paid, interest on Sundaram Finance Housing Loan, and processing fee for a loan from Sundaram Finance. Despite these observations, the Tribunal concluded that no further disallowance was warranted, maintaining the CIT (A)'s decision. The Tribunal clarified that the lack of business income or the nature of the loan expenses did not impact the final decision. The Tribunal's ultimate ruling was that no interference was required in the CIT (A)'s order on this issue.Issue 2: Incorrect observation regarding business income and loan categorizationRegarding the second issue, the Tribunal addressed the alleged mistakes in its observation concerning business income and loan categorization. The assessee contended that the Tribunal incorrectly stated there was no business income for the year and mischaracterized the loan from Sundaram Finance as a housing loan. The Tribunal examined the P&L account provided by the assessee, which showed income under various headings but no specific business income. Consequently, the Tribunal found its observation regarding the absence of business income to be accurate. Additionally, the Tribunal noted that the interest payment mentioned by the assessee as 'Interest-Sundaram Finance Housing Loan' and the processing fee as 'Processing Fee - Loan Sundaram Finance' aligned with the categorization as housing loan-related expenses. Therefore, the Tribunal concluded that there were no apparent mistakes in its order and dismissed the Miscellaneous Petition filed by the assessee.In conclusion, the Appellate Tribunal ITAT BANGALORE addressed the issues of disallowance of expenditure on an estimate basis and incorrect observations concerning business income and loan categorization. The Tribunal upheld the decision not to increase the disallowance of expenses despite identifying certain non-allowable expenses. It also clarified that the absence of business income and the nature of loan expenses did not impact the final ruling. The Tribunal found no errors in its observations, leading to the dismissal of the assessee's Miscellaneous Petition.