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2022 (6) TMI 738 - AT - Income TaxNon service of notice u/s 143(2) within the statutory period - HELD THAT - Assessment Order clearly mentions that notice under section 143(2) was issued and duly served upon the assessee. In response thereto, the assessee participated in assessment proceedings. However the Ld. CIT(A) obtained report from AO who submitted documents to prove service of notice. After giving opportunity to the assessee, the Ld. CIT(A)-1 recorded the finding that the notice has been duly served upon the assessee within the prescribed time limit. We uphold the following findings - Accordingly, we reject these grounds. Denial of deduction of expenditure while computing income under the head Business - grievance of the assessee is that the expenditure relatable to the said business income debited to P L Account ought to have been allowed as deduction which has not been done - HELD THAT - We find substance in the above contention of the assessee and direct the Ld. AO to scrutinise the expenses debited to the P L Account relatable to the aforesaid business income and allow the same in accordance with law after giving reasonable opportunity of hearing to the assessee. Income from Business Centre and reimbursement of expenses - Income from house property or business - contention of the assessee is that it has not let out any property or part thereof, instead it has been allowing the spaces for commercial use by commercially exploiting the property for the purpose of business - HELD THAT - We have perused the Business Centre Agreement ( Agreement ) entered into between the assessee company and three space holder companies - Agreement mentions that the licensor assessee is owner and in possession of commercial building situated in Greater Kailash-II, New Delhi and that it is authorised to utilise commercial space appx. 1852 sq. ft. located at Mezzanine Floor of the said complex for running Business-cum-Facility Centre therefrom. In pursuance of the same the assessee has set up a fully air conditioned Business-cum-Facility Centre in the said commercial space for providing temporary office and other secretarial services and facilities to different individuals, companies and entities against payment of monthly Licence Fee and other charges to enable them to carry on their business operations within the basic structure and framework of the Business Centre. Thus we find substance in the submission of the assessee that it was never the intention of the assessee to let out its commercial building for the purpose of enjoying the rent but to commercially exploit the same by letting it out Therefore, income derived therefrom partakes the character of income from business. Thus income derived by the assessee from running Business Centre in all and income by way of reimbursement of expense constitute Business income and are assessable as such. AO is directed to modify the assessment and carry out necessary consequential amendments. He shall allow the deduction of expenses debited to P L Account as per law and withdraw the deduction allowed under section 24 of the Act. We order accordingly and allow this ground of the assessee. Determination of carry forward and set off of business loss - HELD THAT - Since the assessee is carrying on business, the loss under the head business ought to have been computed. We agree. The Ld. AO is directed to determine, carry forward and set off of business loss in accordance with law. Income from undisclosed sources - HELD THAT - As we have reached to the conclusion that the assessee has discharged the primary onus which lay upon it. The identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction have been proved by the assessee. In CIT vs. Bedi Co. Pvt. Ltd. 1998 (2) TMI 2 - SUPREME COURT the Hon ble Supreme Court held that where the explanation offered by the assessee as to the nature and source of credit is prima facie credible, it cannot be rejected on mere surmises. We, therefore, delete the impugned addition. Treatment to reimbursement of expenses as income from house property - HELD THAT - We have adjudicated this issue while dealing with ground No. 4 wherein we have held that the said sum forms part of income from Business Centre run by the assessee which is assessable as Business income. The assessment be modified accordingly. Denial of deduction of expenditure debited to P L Account on the erroneous assumption that the assessee did not carry on any business - HELD THAT - since it is no longer in dispute that the assessee is engaged in the business, we direct the Ld. AO to look into the expenses claimed by the assessee and allow deduction in computing income from business if on verification the expenses are found to be deductible as per law after giving reasonable opportunity of hearing to the assessee. Disallowance of interest - AO made the disallowance for the reason that amount borrowed by the assessee from M/s. Binaguri Tea Company Pvt. Ltd. was considered as assessee s income from undisclosed source - HELD THAT - We are of the view that the impugned interest paid on borrowal for the purpose of assessee s business has to be allowed under section 36(1)(iii) of the Act. We, therefore, direct the AO to allow the interest (inclusive of TDS deposited by the assessee to the credit of the lender) while computing income of the assessee under the head business . It may not be out of place to mention that the loan obtained by the assessee appearing in its books as credit has been held to be genuine by us. Accordingly, interest on the capital borrowed for the purposes of business is a deductible expenditure. We direct the Ld. AO to modify the assessment. Outstanding credit balance in the account of M/s. Bell Ceramics Ltd . - AO made the disallowance holding that its nexus with income earned during the year is not established - HELD THAT - On consideration of the rival submissions, we agree with the contention of the assessee that the impugned sum is allowable as deduction for the reason that the Ld. AO has not disputed that the said sum has been offered as income in the preceding year which has been brought to tax. The writing off of the impugned sum during the year in the accounts of the assessee has also not been disputed by the Ld. AO/CIT(A)-1. We, therefore, decide this ground in favour of the assessee. Disallowance u/s 14A - assessee s submission is that the exempt income earned by the assessee and claimed as exempt aggregated to Rs. 8,027/- only and therefore the disallowance of Rs. 14,745/- as against Rs. 8,027/- is not sustainable - HELD THAT - We agree and restrict the disallowance to Rs. 8,027/- only. Denial of set off and carry forward of business loss - HELD THAT - We direct the Ld. AO to determine the business loss and allow the set off and carry forward in accordance with law.
Issues Involved:
1. Non-service of notice under section 143(2) of the Income Tax Act. 2. Denial of deduction of business expenditures. 3. Classification of income from Business Centre and reimbursement of expenses. 4. Determination and carry forward of business loss. 5. Addition of income from undisclosed sources. 6. Disallowance of interest paid on unsecured loans. 7. Write-off of outstanding credit balance. 8. Disallowance under section 14A of the Income Tax Act. 9. Set off and carry forward of business loss. 10. Treatment of income derived from running a Business Centre. 11. Proportionate allowance of business expenses. 12. Deduction under section 24(a) of the Income Tax Act. 13. Levy of interest under sections 234B and 234C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Non-service of notice under section 143(2): The assessee argued that the notice under section 143(2) was not served within the statutory period, making the assessment nullity in law. The CIT(A) confirmed that the notice was duly served, and the assessee participated in the assessment proceedings. The Tribunal upheld the CIT(A)'s findings, citing the presumption of correct service under section 292BB. 2. Denial of deduction of business expenditures: The assessee contended that the expenses debited to the P&L Account, related to business income, should be allowed as deductions. The Tribunal directed the AO to scrutinize these expenses and allow them in accordance with the law after giving the assessee a reasonable opportunity of hearing. 3. Classification of income from Business Centre and reimbursement of expenses: The AO classified income from the Business Centre as 'income from house property' and reimbursement of expenses as 'income from other sources.' The Tribunal held that the income derived from the Business Centre and reimbursement of expenses should be classified as 'business income' based on the assessee's intention to commercially exploit the property and the principle of consistency in tax assessments. 4. Determination and carry forward of business loss: The Tribunal directed the AO to determine, carry forward, and set off the business loss in accordance with the law, as the assessee was engaged in business activities. 5. Addition of income from undisclosed sources: The AO added Rs. 7,45,81,575/- as income from undisclosed sources, including unsecured loans and advances. The Tribunal found that the assessee had discharged its onus of proving the identity, capacity, and genuineness of the transactions. Consequently, the Tribunal deleted the addition. 6. Disallowance of interest paid on unsecured loans: The AO disallowed interest paid on loans from Binaguri Tea Company Pvt. Ltd., considering the loans as income from undisclosed sources. The Tribunal allowed the interest as a deductible expense under section 36(1)(iii), as the loan was genuine and used for business purposes. 7. Write-off of outstanding credit balance: The AO disallowed the write-off of Rs. 1,90,64,516/- as it was not linked to income earned during the year. The Tribunal allowed the deduction, noting that the amount was offered as income in preceding years and written off during the year. 8. Disallowance under section 14A: The AO disallowed Rs. 14,745/- under section 14A, while the assessee argued that the exempt income was only Rs. 8,027/-. The Tribunal restricted the disallowance to Rs. 8,027/-. 9. Set off and carry forward of business loss: The Tribunal reiterated its direction to the AO to determine the business loss and allow set off and carry forward in accordance with the law. 10. Treatment of income derived from running a Business Centre (AY 2012-13): The Tribunal held that income derived from running the Business Centre should be classified as 'business income,' consistent with its decision for AY 2011-12. 11. Proportionate allowance of business expenses (AY 2012-13): The Tribunal directed the AO to allow the expenses debited in the P&L Account in computing business income, similar to its direction for AY 2011-12. 12. Deduction under section 24(a) (AY 2012-13): The Tribunal held that the deduction under section 24(a) was not tenable as the income from the Business Centre was classified as 'business income.' 13. Levy of interest under sections 234B and 234C: The Tribunal noted that the levy of interest under sections 234B and 234C is consequential and directed the AO to modify the assessment accordingly. Conclusion: The Tribunal partly allowed the appeals for both AY 2011-12 and AY 2012-13, providing detailed directions to the AO for re-assessment and proper classification of income and expenses. The Tribunal emphasized the principle of consistency and the necessity of proper verification by the AO.
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