2013 (10) TMI 1383 - AT - Income Tax

Deemed income from house property on estimate basis only - Held that - We have noted the decision of Hon ble Calcutta High Court pronounced in the case of Prodip Kumar Bothra 2011 (7) TMI 31 - CALCUTTA HIGH COURT came to the conclusion that the assessee cannot pray for exclusion of the income of the property occupied by a partnership firm. The Hon ble Court has expressed the view in favour of the Revenue and held that by operation of Section 22 of IT Act income from house property is chargeable in the hands of the assessee. Resultantly, the view expressed by the Revenue Authorities is hereby affirmed and this ground of the assessee is dismissed. Dis allowance of expenses incurred wholly and exclusively for earning taxable income - Held that - 70% of the expenditure was disallowed by the AO which appeared to be towards higher side in a situation when one estimate is to be pitted against another estimate; than it is reasonable to adopt a fair estimate. Considering the nature of the business of a tax payer, we therefore direct that 50% of the expenditure is to be allowed and, therefore, the balance 50% shall be disallowed. In this manner, the assessee shall get part relief in respect of disallowance made by the AO.

Summary

Issues involved:
1. Addition of deemed income from house property on estimate basis.
2. Disallowance of expenses incurred for earning taxable income.

Issue 1: Addition of deemed income from house property on estimate basis
The appeal was filed by the assessee challenging the addition of deemed income from a residential flat owned by the assessee. The Assessing Officer (AO) determined an annual letting value (ALV) for the flat and added it to the total income of the assessee as deemed income from house property. The assessee claimed that the flat was used for the convenience of employees commuting from other cities for work-related purposes and hence no rental income was charged. The AO conducted a local inquiry and found that nobody was staying in the flat. The First Appellate Authority upheld the AO's decision, stating that the property was not used for the business purpose of the assessee. The ITAT considered various precedents from different High Courts, highlighting conflicting views on whether income from a property used by a partnership firm should be included in the owner's total income. The ITAT noted that the latest decision of the Calcutta High Court supported the Revenue's view that income from house property is chargeable in the hands of the assessee. Therefore, the ITAT affirmed the decision of the Revenue Authorities and dismissed the ground raised by the assessee regarding the addition of deemed income from the house property.

Issue 2: Disallowance of expenses incurred for earning taxable income
The second ground raised in the appeal was related to the disallowance of expenses incurred for earning taxable income. The assessee had claimed commission expenditure and salary expenses related to being a financial advisor in the field of mutual funds. The AO disallowed 70% of the expenses, stating that most of the expenditure was not related to the business of the assessee. The First Appellate Authority confirmed the disallowance. The ITAT considered that the disallowance was based on estimates and directed that 50% of the expenditure should be allowed, providing partial relief to the assessee. Consequently, this ground of the assessee was partly allowed.

In conclusion, the ITAT partially allowed the assessee's appeal, providing relief in the disallowance of expenses incurred for earning taxable income while affirming the addition of deemed income from the house property.