2015 (4) TMI 138 - AT - Income Tax

Disallowance of business loss - CIT(A) held that no business was carried out by the appellant during the year - argument of the Ld. Counsel is that the Short Term Capital Gains declared by the assessee is in respect of sale of plots of land and the assessee has only changed the head of taxability of the business activity but otherwise the assessee has done the business - Held that - Unable to accept the plea of the Ld. Counsel. As per the provisions of Sec. 14 of the Income-tax Act the income is to be computed under the different heads after allowing the relevant expenditure. Though it is claimed by the assessee that the assessee is in the business of the land development but the assessee has shown the transactions of the land as an investment and declared the Short Term Capital Gains. So far as the claim of the business in the real estate is concerned three is not even a single transaction of sale or purchase of land or real estate and even there is no opening or closing stock-in-trade. We, therefore, concur with the finding of the Ld. CIT(A) that the assessee has not proved that the expenses debited to the profit and loss account of the M/s. V.V. Realtors are expended only and exclusively for the business of the assessee.Nothing has been placed before us to demonstrate that the assessee has carried out any regular systematic business activity. We do not find any reason to interfere with the order of the Ld. CIT(A) - Decided against assessee. Allowance part of the expenses as a deduction against income from short term capital gains - Held that - In this case the assessee has claimed the expenditure in different head and the said act of the assessee should not deprive him for claiming the allowable expenditure in computing the income under any of other head. We, accordingly, direct the Assessing Officer on the basis of observations of the Ld. CIT(A) to allow the following expenditure after verification - (i) brokerage and commission of ₹ 2,97,200/-, (ii) corporation charges of ₹ 2,000/-, (iii) Departmental expenses of ₹ 3,550/-, (iv) land survey charges of ₹ 2,500/- and (v) legal and professional charges of ₹ 37,500/-. Needless to say the assessee should be given opportunity of being heard as per the principles of natural justice. - Decided in favour of assessee for the statistical purposes.

Summary

Issues: Disallowance of business loss, Existence of business activity, Deduction of expenses against short term capital gains

Issue 1: Disallowance of Business Loss

The appeal challenged the order confirming the disallowance of business loss of Rs. 9,00,993 on the grounds of no business activity carried out by the appellant during the relevant year. The Assessing Officer observed no business activity by the appellant, leading to the disallowance of the claimed loss set off against capital gains. The Ld. CIT(A) upheld this decision, emphasizing the absence of evidence supporting business activity and the necessity for expenses to be wholly and exclusively for business purposes. The appellant's reliance on legal precedents was deemed inapplicable due to lack of proof regarding business-related expenses. The burden of proof for allowable deductions rested on the appellant, who failed to demonstrate the expenses' direct business connection. The Tribunal concurred with the lower authorities, dismissing the appeal on this issue.

Issue 2: Existence of Business Activity

The appellant claimed to have incurred expenses for setting up an office and engaging in construction activities individually and through partnerships. However, the Assessing Officer and Ld. CIT(A) found no concrete evidence of business operations, leading to the disallowance of business loss set off against capital gains. The appellant's argument regarding the purpose of expenses incurred was scrutinized under Section 37 requirements, emphasizing the need for expenses to be exclusively for business and not of a personal or capital nature. The Tribunal upheld the lower authorities' decision, noting the absence of proof of systematic business activity or the expenses' direct business-related utilization.

Issue 3: Deduction of Expenses Against Short Term Capital Gains

An alternate plea by the appellant focused on certain expenses related to investments made in land for which short term capital gains were declared. The Ld. CIT(A) acknowledged that some expenses were linked to these investments and directed the Assessing Officer to allow specific expenditures while computing the short term capital gains. The Tribunal agreed with the appellant's argument, directing the verification and allowance of certain expenses related to land investments. Ground No. 3 was allowed for statistical purposes, emphasizing the need for the Assessing Officer to verify and consider these expenses in the computation of income under relevant heads.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, directing the verification and allowance of specific expenses related to land investments while dismissing the appeal on the disallowance of business loss due to the absence of concrete evidence of business activity by the appellant.