2017 (4) TMI 912 - AT - Income Tax

Addition of rental income - difference in TDS amount and corresponding income shown in Form 26AS - Held that - None of the departmental authorities have taken care to properly verify the reconciliation statement submitted by the assessee with reference to Form 26AS as well as the ledger account copies and the return of income filed for the previous assessment years, wherein the assessee claimed to have declared the income corresponding to excess TDS amount. On the basis of documents submitted before us, it has been demonstrated by the assessee that the excess TDS in the impugned assessment year is on account of non-deduction of TDS on service tax as well as amenities amount paid to the assessee in the earlier assessment years. Thus, from the aforesaid material placed on record, we are satisfied that in reality there is no difference in rental income claimed to have been received by the assessee as per the return of income and as attempted to be made out by the department on the basis of the TDS amount shown in Form 26AS. Accordingly, we delete the addition - Decided in favour of assessee. Disallowonce of business expenditure - assessee had not carried out any manufacturing and business activity and is only effecting sales for stock clearance - Held that - AO has not denied the fact that the assessee is carrying on its trading activity by disposing of the stock available with it. If that is the case, certainly the assessee requires infrastructure/establishment to carry on its business activity even if it relates to disposing of the stock available with it. For carrying on such activity also assessee has to employ person by incurring salary cost, rent payment and many other ancillary and incidental expenditures like electricity, conveyance etc. Similarly, there can be no dispute that bad debts are in course of its regular business activity. Once it is held so, there is no need for the assessee to demonstrate that it has failed in its attempt to recover the debt from the parties. The only requirement being, the assessee has to write off the debt in its books of account. As far as interest expenditure is concerned, when there is no dispute that the assessee is maintaining its establishment to carry on its trading activity it requires capital to run such activity as it has to incur day to day expenditure as well as other regular business expenditure. It is evident the AO has not raised any doubt with regard to the genuineness of the expenditure apart from making general observations. Thus we agree with the CIT(A) that expenditure claimed by the assessee is allowable - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of rental income of ?33,62,157/- in the assessee's appeal.
2. Disallowance of expenses amounting to ?88,40,658/- in the department's appeal.

Issue 1: Addition of Rental Income

The primary issue in the assessee's appeal revolved around the addition of rental income amounting to ?33,62,157/- for the assessment year 2011-12. The Assessing Officer (AO) noted a variance between the rental income declared by the assessee and the actual income received as per AIR data. The AO, disregarding the assessee's explanation, added the differential amount to the assessee's income. The assessee contended that the variance arose due to service tax on amenities becoming payable subsequently due to a court decision. The CIT(A) did not find merit in the assessee's submissions as no reconciliation statement was provided. However, the Tribunal, upon review of Form 26AS and reconciliation statements, found that the excess TDS was due to non-deduction of TDS on service tax and amenities in earlier years. Consequently, the Tribunal deleted the addition of ?33,62,157/-, as it was satisfied that there was no actual difference in rental income received by the assessee.

Issue 2: Disallowance of Expenses

In the department's appeal, the sole issue pertained to the disallowance of expenses claimed by the assessee amounting to ?88,40,658/-. The AO disallowed the expenditure, citing that the assessee had ceased manufacturing activity and was only selling old stock. The AO further disallowed interest expenditure, stating it was unnecessary since manufacturing had stopped. The CIT(A), after considering the submissions, allowed the expenditure claim, acknowledging that the assessee was still engaged in business activities. The department contended that since the manufacturing activity had ceased, there was no need for business-related expenses. Conversely, the assessee argued that it continued trading activities with the hope of resuming manufacturing operations. The Tribunal observed that even for trading activities, infrastructure and expenses were necessary. It noted that bad debts and interest expenditure were part of regular business activities. Therefore, considering the circumstances and genuineness of the expenditure, the Tribunal upheld the CIT(A)'s decision to allow the expenses claimed. Consequently, the department's grounds were dismissed, and the assessee's appeal was allowed.

In conclusion, the Tribunal ruled in favor of the assessee by deleting the addition of rental income and upholding the allowance of expenses. The judgment highlighted the importance of substantiating claims with supporting evidence and ensuring that expenses incurred for business purposes are allowable, even in the absence of certain business activities.