2012 (11) TMI 269 - AT - Income Tax

Disallowance of Business expenses Held that - AO has allowed the assessee s similar claims of expenditure and no such disallowances have been made - expenditure has been disallowed on surmises and suspicion. In preceding and subsequent years similar expenditure has been allowed by AO in assessments u/s 143(3) on same business disallowance deleted - in favour of assessee Regarding claim of finance charges on the leased property Held that - Fact about incurring of finance charges was mentioned in assessee s books of accounts - Revised return filed by the assessee was not to make a fresh claim but was correcting its claim in respect of business income and house property income - earning of lease rent is not disputed which is taxed under the head income from house property. Similarly, the interest has been paid in relation to acquisition of lease property - unless there is material change in the facts and circumstances of a case, the principle of consistency should ordinarily be followed. No extra ordinary reason has been put forth by the department to deviate from the principle of consistency in favor of assessee

Summary

Issues Involved:
1. Deletion of addition of Rs. 4,29,098/- made by the AO on account of business expenses claimed.
2. Deletion of addition of Rs. 32,05,602/- made by the AO on account of interest paid to Corporation Bank as financial charges.

Issue-wise Detailed Analysis:

1. Deletion of addition of Rs. 4,29,098/- on account of business expenses claimed:
The Revenue appealed against the CIT(A)'s order which deleted the addition of Rs. 4,29,098/- made by the AO. The AO had disallowed this expenditure on suspicion, arguing that the business volume was low and the expenses were likely bogus. The assessee argued that the expenses were legitimate business expenses related to electricity, water charges, salary, wages, telephone expenses, van charges, conveyance expenses, and petty expenses. The CIT(A) noted that the AO's suspicion was not backed by any evidence and that similar expenses had been allowed in subsequent years (A.Y. 2008-09 and 2009-10). The CIT(A) concluded that mere suspicion was insufficient to disallow the expenses, especially when they were supported by documentary evidence. The Tribunal upheld the CIT(A)'s decision, noting that similar expenses were allowed in the preceding and subsequent years under assessments u/s 143(3), and found no infirmity in the CIT(A)'s order.

2. Deletion of addition of Rs. 32,05,602/- on account of interest paid to Corporation Bank as financial charges:
The Revenue also appealed against the CIT(A)'s order which deleted the addition of Rs. 32,05,602/- made by the AO. The assessee had shown this amount as interest paid to Corporation Bank in relation to the acquisition of a property, which was earning rental income taxed under "House Property Income." The AO disallowed the claim in the revised return, relying on the Supreme Court judgment in Goetze India Ltd., arguing that the claim was an attempt to reduce income. The CIT(A) found that the AO had not entertained the revised computation based on the Goetze India case but noted that the Jurisdictional High Court in CIT vs Bharat Aluminum Co. Ltd. permitted revised claims during assessment proceedings. The CIT(A) observed that the funds borrowed were used to purchase the property, which was generating rental income, and thus, the interest expenses should be considered under "Income from House Property." The Tribunal agreed with the CIT(A), noting that the AO had allowed similar claims in subsequent years (A.Y. 2008-09 and 2009-10) and upheld the CIT(A)'s order.

Conclusion:
The Tribunal upheld the CIT(A)'s order on both issues, emphasizing the principle of consistency as laid down by the Supreme Court in Radha Swami Satsang, which states that unless there is a material change in facts and circumstances, the principle of consistency should be followed. The Revenue's appeal was dismissed.