2016 (1) TMI 314 - AT - Income Tax

Addition under the head income from house property - whether the rental income declared by the assessee is composite income including charges for these services also and hence the expenses incurred on these additional services has to be reduced form such composite rental income to arrive at the annual value.Held that - As decided in assessee s own case for A.Y 2006-07 2010 (4) TMI 1066 - ITAT DELHI for the purpose of computing income from house property rental income in connection with user of house property only is assessable and when charges for other services stand included in such rental income such additional charges should be reduced from rental income if the quantification of the same is availablethe issue is covered in favour of the assessee in principle and thus we follow the same. However some recalculation is required at the end of the A.O therefore the A.O is directed to reduce the expenses incurred by the assessee for rendering additional services to the tenants for arriving at annual rental value and thereafter on such annual rental value deduction u/s 24 of the Act @ 30% is to be allowed. The issue is restored to the file of the A.O to recompute the income from house property on the same line as directed by the Tribunal order for A.Y 2006-07. Allowing of set off of loss - Held that - As decided in assessee s own case for A.Y 2006-07 2010 (4) TMI 1066 - ITAT DELHI find that these expenses incurred by the assessee are such which are necessary for the purpose of maintaining registered office of a company to continue its existence and also to comply with the statutory obligations and hence the same is allowable as business expenditure and the resulting loss from business is rightly claimed for set off against income from house property by the assessee and hence we find no reason to interfere in the order of the CIT(A) on this aspect also - Decided in favour of the assessee Addition u/s 14A - Held that - Since the assessee has not earned any income during the relevant period hence no disallowance can be made u/s 14A of the Act. See CIT vs. Holcin 2014 (9) TMI 434 - DELHI HIGH COURT - Decided in favour of the assessee

Summary

Issues:
1. Addition under income from house property
2. Enhancement of income from house property
3. Disallowance of entire business loss
4. Ignoring show cause notice before making addition/disallowance
5. Addition u/s 14A of the Act

Issue 1: Addition under income from house property
The appellant challenged the addition made by the Assessing Officer (A.O) under income from house property, arguing that vital facts and evidence were ignored. The appellant contended that the Commissioner of Income Tax (CIT) further erred in enhancing the income instead of deleting the addition. The Tribunal referred to a previous case and directed the A.O to reduce expenses incurred for additional services to tenants to arrive at the annual rental value, allowing a deduction of 30% under section 24 of the Act. The Tribunal held in favor of the appellant, allowing the appeal.

Issue 2: Enhancement of income from house property
The appellant contested the enhancement of income from house property by the CIT, arguing that the entire business loss as declared was disallowed by the A.O. The Tribunal noted that expenses necessary for maintaining the registered office of a company are allowable as business expenditure, even if no business activities were carried out. Following a previous Tribunal decision, the Tribunal directed the A.O to compute and allow the claim of the appellant in line with the previous order for the assessment year 2006-07, thereby allowing the appeal.

Issue 3: Disallowance of entire business loss
The appellant raised concerns about the disallowance of the entire business loss declared. The Tribunal referred to a previous order where it was held that expenses necessary for maintaining a company's registered office are allowable as business expenditure, even if no business activities were conducted. Following this precedent, the Tribunal directed the A.O to allow the claim of the appellant in a similar manner as directed for the assessment year 2006-07, resulting in the allowance of the appeal.

Issue 4: Ignoring show cause notice before making addition/disallowance
The appellant argued that the A.O made additions/disallowances without issuing any show cause notice, rendering them invalid. However, the Tribunal did not provide specific details or rulings related to this issue in the judgment summary provided.

Issue 5: Addition u/s 14A of the Act
The appellant contested an addition made under section 14A of the Act, citing that no tax-free income was earned during the relevant period. The Tribunal, following a High Court order, directed the A.O to delete the addition made under section 14A of the Act, thereby allowing the appeal.