2019 (2) TMI 1895 - AT - Income Tax

Correct head of income - service charges and furniture hire charges received by the assessee - income from other sources or profit and gains of business and profession - HELD THAT - There is no error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold that no business activity was carried out by the assessee during the year under consideration and the income from service charges and hire charges is assessable under the head income from other sources . The ground No. 1 of the appeal is accordingly dismissed. Disallowance of the various expenses claimed - in absence of any business activity same cannot be allowed to the assessee except expenses incurred relevant to the income assessed under the head income from other sources - HELD THAT - CIT(A) has examined each and every expenses sustained by him. As regard the watch and ward water and electricity telephone expense Internet expense and office maintenance expenses towards the premise at B-40 Maharani Bagh he allowed 1/6th of the expenses in view of the part of the building was used as registered office and disallowed the balance as major part of the premise was used for residential purpose of the directors and their family. Legal professional charges the Ld. CIT(A) has allowed payment of 2 78 700/-to m/s Vaish Associates against income from other sources. The expenses of 22, 060/- have been found related to let out property and accordingly he has disallowed. Expenses paid to two professionals namely Mr. Suren Singh Rasaily and Mr. Dilip Sudhakar Deshmukh the Ld. CIT(A) himself summoned the persons and carried out the enquiries and after detailed enquiry he concluded that payment of professional charges were not incurred wholly and exclusively for the purpose of earning income from other sources . Similarly he has examined allowability of the depreciation allowance office maintenance expenses and other expenses under the head income from other sources . We do not find any error in the above factual findings of the Ld. CIT(A).

Issues Involved:
1. Classification of service charges and furniture hire charges.
2. Disallowance of legal and professional fees.
3. Disallowance of Directors' remuneration.
4. Disallowance of salaries of administrative manager and other employees.
5. Disallowance of various staff expenses.
6. Disallowance of car expenses.

Issue-wise Detailed Analysis:

1. Classification of Service Charges and Furniture Hire Charges:
The primary issue is whether the service charges of ?21,50,970 and furniture hire charges of ?13,80,000 should be classified under "Income from other sources" or "Profits and Gains from Business and Profession." The assessee argued that these incomes should be classified under business income, citing the principle of consistency as applied in previous years. However, the Tribunal upheld the CIT(A)'s decision, noting that the assessee had not carried out any business activity for several years, and the income from service charges and furniture hire charges should be classified under "Income from other sources."

2. Disallowance of Legal and Professional Fees:
The assessee challenged the disallowance of legal and professional fees paid to Mr. Suren Singh Rasaily (?6,61,800) and Mr. Dilip Sudhakar Deshmukh (?19,85,400). The CIT(A) conducted detailed inquiries, including summoning the professionals, and concluded that the payments were not incurred wholly and exclusively for the purpose of earning "Income from other sources." The Tribunal upheld this finding, noting that the services rendered were not relevant to the assessee's claimed business activities.

3. Disallowance of Directors' Remuneration:
The assessee contested the disallowance of Directors' remuneration amounting to ?8,40,000. The CIT(A) found that the remuneration was not incurred wholly and exclusively for earning "Income from other sources." The Tribunal upheld this decision, agreeing with the CIT(A)'s detailed analysis and factual findings.

4. Disallowance of Salaries of Administrative Manager and Other Employees:
The assessee argued against the disallowance of salaries paid to the administrative manager and other employees. The CIT(A) allowed only the proportionate expenses related to maintaining the corporate status and earning "Income from other sources." The Tribunal upheld this decision, noting that the majority of the premises were used for residential purposes, and only a small part was used as the registered office.

5. Disallowance of Various Staff Expenses:
The assessee challenged the disallowance of staff medical expenses (?51,900), staff welfare expenses (?29,514), leave travel allowance (?36,000), telephone expenses (?1,79,454), traveling expenses (?2,74,629), internet expenses (?51,513), and insurance expenses (?34,258). The CIT(A) allowed only the expenses that were incurred wholly and exclusively for earning "Income from other sources." The Tribunal upheld this decision, agreeing with the CIT(A)'s detailed examination and allocation of expenses.

6. Disallowance of Car Expenses:
The assessee contested the disallowance of car maintenance (?2,49,242), interest on car loan (?1,83,600), and depreciation (?3,47,530). The CIT(A) found that these expenses were for the personal use of the directors and were not incurred wholly and exclusively for earning "Income from other sources." The Tribunal upheld this decision, agreeing with the CIT(A)'s factual findings and reasoning.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the CIT(A)'s findings on all issues. The decision emphasized the lack of business activity by the assessee and the necessity to classify the income and expenses appropriately under "Income from other sources." The Tribunal also noted the detailed and thorough analysis conducted by the CIT(A) in reaching the conclusions.

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