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2014 (1) TMI 1132 - AT - Income TaxBrokerage expenses - Held that - Following CIT vs. H.G. Gupta & Sons 1983 (12) TMI 54 - DELHI High Court - If a particular type of expenditure is not specifically provided to be deductable under section 23 & 24 of the I.T.Act, the same cannot be claimed as deduction out of the annual letting value observing that the provisions of section 23 & 24 of the Income Tax Act are exhaustive - The payment of maintenance charges etc. paid to the housing society is an allowable deduction on the principle that the same is in the shape of taxes and charges etc. which have a considerable bearing on the actual letting value of the property - Whereas the payment of brokerage for arranging for a lessee cannot be said to have any bearing effect on the annual letting value of the property - Decided against assessee. Professional fees Held that - The assessee paid amount for attending to all meetings, drafting and settling letter of intent/lease agreement etc. in respect of leasing out of the property - Neither the letting out of the property was business of the assessee nor any steps taken for letting out the property in question were related to business of the assessee - Following CIT vs. H.G. Gupta & Sons 1983 (12) TMI 54 - DELHI High Court - The said expenditure cannot be said to be having any bearing on the annual letting value of the property - As such any expenditure incurred for payment of professional fees etc. as mentioned above cannot be said to be an allowable deduction - Decided in favour of assessee. Advise and consultation Held that - The said expenditure has been incurred for payment as consultation charges in relation to rain water harvesting system installation in the building - The business of the assessee has been development and sale of the property and the installation of rain water harvesting system was a part of the development activity and the consultation charges were paid in relation to installation of the said system - It can be said to be incurred in relation property development business of the assessee - The same is an allowable deduction. Era architechts Held that - The above expenditure has been claimed to be incurred towards interior designing work of the single screen cinema - Apart from property development business, the assessee was also in the cinema business - The said business was suspended for some time and the same has been revived during the year 2010 - The payment towards designed work of single screen cinema can be said to be towards improvement/development of the said property - The same is an allowable deduction. Expenses for valuation of property Held that - The said expenditure has been claimed to be incurred for getting the valuation of the property done for the purpose of its letting out - The said expenditure cannot be said to be in relation to the business of the assessee as the letting out of the property has never been the business of the assessee The expenses are not allowable.
Issues Involved:
1. Disallowance of brokerage expenses as business expenditure. 2. Non-allowance of brokerage expenses as a reduction while computing annual letting value. 3. Disallowance of professional fees as business expenditure. 4. Non-allowance of professional fees as a reduction while computing annual letting value. 5. Disallowance of various professional expenses incurred during a period of dormant business. 6. Computation of interest charged under section 234 of the Income Tax Act. Detailed Analysis: Ground No. I: Disallowance of Brokerage Expenses as Business Expenditure The assessee contended that brokerage expenses of Rs.61,73,200/- were incurred for leasing out the Bahar Property, which should be considered as business expenditure. The AO disallowed the claim, stating the expenditure was not related to the business and was instead related to income from house property. The CIT(A) upheld this view. The Tribunal noted that the brokerage was paid for letting out the property, not for its development or sale, and thus could not be considered a business expense. The Tribunal relied on the Delhi High Court's ruling in CIT vs. H.G. Gupta & Sons, stating that if a particular type of expenditure is not specifically deductible under sections 23 and 24 of the Income Tax Act, it cannot be claimed as a deduction. The Tribunal dismissed this ground of appeal. Ground No. II: Non-Allowance of Brokerage Expenses as a Reduction While Computing Annual Letting Value This ground was an alternative to Ground No. I. The assessee argued that brokerage expenses should be considered while computing the annual letting value of the leased premises. The Tribunal reiterated that brokerage expenses do not affect the annual letting value and are not allowable deductions under sections 23 and 24. The Tribunal cited precedents from the cases of 'Excellent Associates' and 'Scaffold Properties Pvt. Ltd.' to support its decision. This ground of appeal was also dismissed. Ground No. III: Disallowance of Professional Fees as Business Expenditure The assessee claimed Rs.10,25,000/- as business expenditure towards professional fees for leasing out the property. The AO and CIT(A) disallowed this expenditure, stating it was not related to the business. The Tribunal upheld this view, emphasizing that the letting out of the property was not the business of the assessee. Consequently, this ground of appeal was dismissed. Ground No. IV: Non-Allowance of Professional Fees as a Reduction While Computing Annual Letting Value This ground was an alternative to Ground No. III. The assessee argued that professional fees should be considered while computing the annual letting value. The Tribunal reiterated its stance that such expenses do not affect the annual letting value and are not allowable deductions under sections 23 and 24. This ground of appeal was dismissed. Ground No. V: Disallowance of Various Professional Expenses Incurred During Dormant Business The assessee claimed various professional expenses totaling Rs.1,65,554/- as business expenditure. The AO and CIT(A) disallowed these expenses, stating they were not related to the business. The Tribunal analyzed each expense: - Advise and Consultation (Rs.28,060/-): Allowed as it related to property development. - Era Architects (Rs.56,120/-): Allowed as it related to interior designing of the cinema, part of the Bahar Property. - Consultancy (Rajan D. Hate) (Rs.39,284/-): Allowed as it related to supervision and development of the property. - Valuation of Property (Rs.16,836/-): Disallowed as it related to letting out the property. - Valuation Fees for Cinema Theatre (Rs.25,254/-): Disallowed as it related to letting out the property. Ground No. VI: Computation of Interest Charged Under Section 234 The assessee challenged the computation of interest under section 234. The Tribunal cited the Supreme Court rulings in 'Karanvir Singh Gossal vs. CIT' and 'CIT vs. Anjum Ghaswala,' which held that the levy of interest under section 234 is mandatory and can only be waived by the Chief Commissioner in appropriate cases. This ground was decided against the assessee. Conclusion The appeal was partly allowed, with some professional expenses being accepted as business expenditure while others were disallowed. The Tribunal upheld the disallowance of brokerage and professional fees related to letting out the property and confirmed the mandatory nature of interest under section 234.
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