2014 (7) TMI 955 - AT - Income Tax

Repair expenses disallowed Amount paid to society as compensation Held that - Assessee has not claimed the expenditure during the AY under consideration and the mere fact that the payment has been made during the AY under consideration cannot be the basis for disallowing the same - the AO is directed to delete the expenditure already allowed in the earlier AY and further verify the quantum of expenditure incurred during the year - the AO is directed to decide in accordance with law, the allowability of the expenditure incurred during the year after providing reasonable opportunity of being heard to the assessee Decided partly in favour of Assessee. The expenditure is a reimbursement of cost incurred by the society and there is no income element which requires deduction of tax at source - the payment has not been paid as damages for breach of any agreement/infraction of law which is clear from the reading MOU - the authorities are not justified in making/confirming the disallowance Decided in favour of Assessee. License fees treated as business income Held that - The rent has been received for the office premises which are owned by the assessee - even if house property is held as stock in trade, the rental income has to be assessed as income from house property as the assessee is owner of the house property and the house property is not used by the assessee for his own purpose - the AO is directed to verify whether the premises rented out to Reliance Life Insurance Ltd is different from the premises involved in the AY 2005-06 and the same is not forming part of the business centre and accordingly tax the rent as income from house property- Decide d in favour of Assessee. Notional interest on debit balance Held that - CIT(A) has wrongly recorded that the assessee has not filed fund flow statement whereas the assessee filed the same providing source of withdrawals supported by bank statements for the claim of the assessee that no interest bearing funds are used for making payments to partners thus, the matter is remanded back to the Ao for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of expenses incurred for repairs at Kailash Tower Co-operative Housing Society and compensation paid to the society.
2. Treatment of license fees received from Reliance Life Insurance Ltd. as business income.
3. Addition of notional interest on partner's debit balance.
4. Disallowance of certain office, staff welfare, and maintenance expenses.
5. Levying of interest u/ss 234B and 234D without giving an opportunity of being heard.

Issue 1 - Disallowance of Expenses:
The assessee challenged the disallowance of expenses for repairs at Kailash Tower Co-operative Housing Society and compensation paid to the society. The ITAT directed the AO to delete the expenditure already allowed in the earlier assessment year and verify the quantum of expenditure incurred during the year under consideration. The tribunal allowed the claim of expenditure, stating that the payment made by the assessee to the society was in accordance with the terms of the MoU and hence allowable under section 37 of the Income Tax Act.

Issue 2 - Treatment of License Fees:
The dispute involved the treatment of license fees received from Reliance Life Insurance Ltd. as business income. The ITAT directed the AO to verify whether the premises rented out to Reliance Life Insurance Ltd. were different from those involved in the previous assessment year and not part of the business center. The rent was to be taxed as income from house property, allowing the consequential deduction under section 24A of the Income-tax Act.

Issue 3 - Addition of Notional Interest:
The ITAT found that the Ld.CIT(A) wrongly noted that the assessee did not file a fund flow statement, which was actually submitted. The partnership deed did not provide for charging interest on debit balance, and there was a total credit balance during the year. The ITAT set aside the issue to the AO to decide afresh after considering the records and giving a reasonable opportunity to the assessee.

Issue 4 - Disallowance of Certain Expenses:
The disallowance of certain office, staff welfare, and maintenance expenses was upheld by the ITAT as the expenses were mainly incurred in cash and supported by self-made vouchers, making it challenging to ascertain the quantum with 100% authenticity.

Issue 5 - Levying of Interest:
The ITAT set aside the decision regarding levying interest u/ss 234B and 234D back to the AO to decide afresh in accordance with the law after providing a reasonable opportunity of being heard to the assessee.

In conclusion, the ITAT partly allowed the appeal filed by the Assessee, providing detailed directions and reasoning for each issue raised in the appeal.