2016 (12) TMI 347 - AT - Income Tax

Tribunal ruling on income sources, capital gains, expenses, and penalties

Shri V.N. Karbhatkar Versus Income Tax Officer-19 (3) (4), Mumbai

Shri V.N. Karbhatkar Versus Income Tax Officer-19 (3) (4), Mumbai - TMI Issues Involved:1. Admission of Additional Evidence2. Disallowance out of Administrative Expenditure3. Treatment of Compensation from Leave and License4. Disallowance of Expenditure Related to Vasai Property5. Taxing of Capital Gains from Relinquishment of Tenancy Rights6. Charging of Interest under Sections 234B and 234C7. Initiation of Penalty Proceedings under Section 271(1)(c)Issue-wise Detailed Analysis:1. Admission of Additional Evidence:The assessee contended that the CIT(A) erred in not admitting additional evidence. However, the Tribunal found that the CIT(A) had indeed admitted and forwarded the additional evidence to the Assessing Officer (AO) for verification, who submitted a remand report. Therefore, the Tribunal dismissed this ground, finding no merit in the assessee's contention.2. Disallowance out of Administrative Expenditure:The AO made an adhoc disallowance of Rs. 50,000 out of administrative expenses due to the lack of supporting bills and the possibility of personal expenditure. The Tribunal found that most expenses were for business purposes and reduced the disallowance to Rs. 20,500, considering donations and a portion of residential telephone expenses as non-business expenditures.3. Treatment of Compensation from Leave and License:The assessee received compensation for letting out a bakery and shop, which the AO assessed as 'Income from House Property.' The Tribunal, referencing the Bombay High Court decision in Dudhsagar Investments P. Ltd., held that the income should be assessed as 'Income from Other Sources' or 'Business Income' since the letting was inseparable from the business equipment and fixtures provided. Thus, the Tribunal reversed the lower authorities' decision on this issue.4. Disallowance of Expenditure Related to Vasai Property:This ground was rendered infructuous as the Tribunal allowed the assessee's claim that the income from letting out the bakery should be assessed as 'Income from Other Sources.' Consequently, the expenditure related to the Vasai property was no longer disputed.5. Taxing of Capital Gains from Relinquishment of Tenancy Rights:The dispute was about the assessment year in which capital gains from relinquishing tenancy rights should be taxed. The AO taxed it on a protective basis in A.Y. 2006-07, while the assessee claimed it should be in A.Y. 2007-08. The Tribunal concluded that the capital gains should be taxed in A.Y. 2007-08, as the possession was transferred in December 2006, and the assessee had already declared the gains in that year, which was accepted by the Revenue.6. Charging of Interest under Sections 234B and 234C:The Tribunal upheld the AO's action in levying interest under sections 234B and 234C, citing the mandatory nature of these provisions as upheld by the Supreme Court in Anjum H. Ghaswala. However, the AO was directed to recompute the interest while giving effect to the Tribunal's order.7. Initiation of Penalty Proceedings under Section 271(1)(c):The Tribunal dismissed this ground as premature since the initiation of penalty proceedings does not constitute a cause of action by itself.Conclusion:The Tribunal partly allowed the assessee's appeal, providing relief on several grounds, particularly regarding the treatment of compensation from leave and license agreements and the timing of capital gains taxation. The Tribunal's detailed analysis upheld the principles of consistency and factual correctness in assessing the income and related expenditures.