TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 933
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....17.01.2018 3) The Ld. CIT(A) has erred in assessing the rental income of Rs. 40,50,000/- under the head "income from other sources". The same was assessed as "business income" and accepted by the Department in two previous years. 4) The expenditure of Rs. 4,38,636/- (7,38,636/- -3,00,000/-) is connected with the earning of rent and is liable to be fully allowed. Without prejudice to the above grounds, assessee's rental income was assessed as "house property income" even deduction u/s 24 for repairs amounting to Rs. 10,12,500/- is liable to be fully allowed along with interest paid on the capital for the purpose of acquiring the property. 5) The Ld. CIT(A) has erred in not allowing the deduction of Rs. 3,00,000/- being 1/10 of the expenditure of Rs. 30,00,000/- claimed by the assessee. The same deserves to be fully allowed. Without prejudice to the above, a sum of Rs. 15,00,000/- is liable to be fully allowed against the rent received by the assessee. The assessee objects to the disallowance of expenses as the total expenditure incurred is for the purpose of business." 2. The brief facts of the case are that the assessee filed return of income declaring income of R....
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....) of the Act. The rest amount of Rs. 4,38,636/- debited by the assessee against the business income, out of which only 10% was allowed by the Assessing Officer for earning income from other sources and rest was disallowed because the assessee had not taken any business activity. 4. Further, the Assessing Officer noted that a sum of Rs. 15,23,312/- was debited on account of interest payable to Punjab National Bank Ltd. On being asked, the assessee submitted that the assessee had taken loan from Punjab National Bank in February, 1995 and it was advanced to M/s. Rabab Publications Pvt. Ltd from whom the interest @ 22% was charged. On this loan, the assessee was paying interest to the bank and the same was claimed since assessment year 1995-96 and deduction was also allowed by the Revenue in earlier assessment years. The Assessing Officer was not agreed with the assessee and observed that the assessee was not engaged in any business activities during the relevant year and disallowed the claim of interest and added back to the income of the assessee. 5. During the year, the assessee had received a rental income of Rs. 40,50,000/- on letting out a lease hold property and claimed it to ....
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....n of the continuity of business is not accepted. Reliance placed on the following case laws:- * L. Ve. Vairavan Chettiar Vs. CIT (1969) 72 ITR 114. 119 (Mad.) * Inderchand Hari Ram Vs. CIT (1953) 23 ITR 437, 442-3 (All) * Karsondas Ranchhoddass Vs. CIT(1972) 83 ITR I,.20 (Bom.) * Mrs. Sarojini Rajah Vs. CIT (1969) 71 ITR 504 (Mad.) Grounds of appeal..... 2 (interest amounting to Rs. 15,23,312/-) The company had taken a loan of Rs. 1.45 Crores from Bank of Punjab Limited. Total money was lent out and interest was received. The same was fully allowed as deduction right from Asstt. Year 1995-96 to till date. The assessee company has disallowed the claim holding that no business has been conducted. Grounds of Appeal ......3 (rental income of Rs. 40,50,0007-) Rental income of Rs. 40,50,000/- to be assessed as 'income from business" as against 'income from other sources' as were done in earlier years. Facts continuing to be the same, the change is unwarranted. Reliance placed on the following ease laws:- 1) CIT Vs. Girish Mohan Ganeriwala 260 ITR 417 (P&H) In this case it has been held that although findings in a preceding year "do not operate as ....
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.... 2. CIT vs Bosotto Bros. Ltd. 8 ITR 41 (Mad) In this case it was held that letting out of hotel was "business income" 3. Manohar Singh Vs CIT 58 ITR 592 (Punj) In this case, it was held that income received from letting out of tenants with facilities and services was assessable under the head "income from business" 4. CIT I's National Storage (P) Ltd 66 ITR 596 (SC) In this case, it was held that monthly charge realized from letting out of its units for storage of films was assessable under the head "income from business" 5. SG Mercantile Corpn. (P) Ltd. Vs CIT 83 ITR 700 (SC) Income derived by a company from sub-letting of its market place after developing and remodeling was assessable under the head "income from business" 6. CIT Vs. Ajmera Industries (P) Ltd 103 ITR 245 (Cat.) In this case, it was held that income derived from letting out of surplus of non-factory building including godowns was assessable "as business income" 7. CIT Vs V, Shanmugham 147 ITR 692 (Mad) In this case it was held that rental income was to be assessed as business income where the lodging house was being run on a commercial basis rather than as an owner of property. ....
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.... the head "income from other sources" it is respectfully submitted that amounts paid by the assessee company to evict the old tenants should be allowed as a deduction U/s 57 of the IT Act, as the same was laid out and expended wholly and exclusively for the purpose of earning higher rental income. It has been held in the case of Sarabhai Sons P. Ltd. Vs. CIT 201 ITR 464, 470 (Guj.) that the connection between the expenditure incurred and the income earned need not be direct. Even if the connection is indirect or incidental that can be regarded as sufficient for the purpose of Section 57(iii). It is, therefore, humbly submitted that even if the income is held by your honour to be assessable under the head '"income from other sources" the expenditure incurred for evicting the old tenants may kindly be fully allowed as having been incurred wholly and exclusively for the purpose of earning of higher rental income. Grounds of Appeal ......4 As mentioned above out of expenditure of Rs. 4,38,636/- the Assessing Officer had allowed deduction of Rs. 43,863/- being for the purpose of earning of dividend income. Remaining expenses were disallowed by him on the plea that no busine....
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.... 3,94,77/-. (8) Ld. AO as well as CIT(A) has rightly held that mere the fact that the assessee had made payment against the purchases by cheque does not establish that the assessee has done business during the year. Thus, disallowance made by the AO deserves to be upheld. (B) Grounds of appeal 2 : Disallowance of Interest Paid Rs. 15,23,312/-: 1) The assessee claimed an expense of Rs. 15,23,312/- on account of interest paid against loan of Rs. 1.45 crores taken in 1995 for so called Business Purposes. 2) Loan Rs. 1.45 crores was taken in Feb. 1995, relevant to A.Y. 95-96. As per page 91 of the paper book furnished by the assessee, total sale of the business of the assessee was mere Rs. 21,85,462/- and purchase 1,68,631/- Since A.Y. 1995-96 the assessee has been claiming huge interest expenditure against income under the other heads. In subsequent year the amount of purchase and sale are very nominal. Pl. refer to the page 3 of the 2ndpaper book. 3) Pl. refer to Page 89 and 90 of the PB which show that loan taken was not utilized for business purposes. From the balance sheets of subsequent years it is well established that any loan amount has never been utilized for b....
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....lished that the loan taken was invested in the property from which rent has been received. Thus the assessee's claim in this regard does not have any substance. (E). Grounds of Appeal No. 5: Deferred Revenue Expenses of Rs. 3,00,000/- 1). The appellant incurred an expenditure of Rs. 30 lacs in year 96-97 on account of payment made to a tenant to vacant a property. Since, then it writes off 1/10 of this amount as Deferred Revenue Expenditure. 2). There is no provision under the Income Tax Act to allow deferment of expenditure incurred. Thus the AO has rightly disallowed the same which has been upheld by the CIT(A)." 9. We have heard the submissions of rival parties and have gone through the entire material available on record. As far as the issue of treatment given to the rental income of Rs. 40,50,000/- is concerned, we find that the ld. Authorities below have treated these receipts as 'income from other sources' only on the premise that the assessee was not the owner of the premises and the case relating to its ownership stood lost at the lower judicial level. This reason assigned by the ld. Authorities below to treat the rental income as income from other sources, ....
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....g the year. Besides, the assessee has claimed to have made the payment against the impugned purchase through banking channel. However, on perusal of assessee's account in the books of Vendor (PB-88), we find that no payments have been made by the assessee upto 31.03.2001 and the assessee was not able to establish any subsequent payment to the said party before the authorities below. We, therefore, endorse the view of the authorities below regarding no activities of purchase and sales during the year and transactions of purchase and sale shown, as sham. This however, would not affect the business of assessee regarding receipt of rentals as noted above. 11. As far as the next issue relating to administrative expenses of Rs. 4,38,636/- is concerned, we find that the Assessing Officer has allowed such expenditure only to the extent of 10% to earn the income from other sources. We, however, find that the disallowance made by the ld. Authorities below to the extent of 90% of the expenditure claimed by the assessee is somewhat excessive. It is worthwhile to note that in order to keep the company alive, the assessee is required to make certain necessary overhead expenses also apart from e....