2019 (2) TMI 527 - HC - Income Tax

Disallowing the entire business expenses being Bank charges, Depreciation, Interest on vehicle, Electricity Charges and Telephone charges - Held that - We are of the view that the AO has misconstrued the income. So far facts are concerned, the expenses claimed by the assessee are towards the heads stated hereinabove and are not relatable to the subleasing of the property as contended by the AO. Therefore, we are of the view, whether the expenses are relatable purely to the business of subleasing the property, or expenses incurred in the regular course of business, is a matter of fact, which is to be considered by the AO. We are of the view that the matter requires to be remanded to the AO for considering the material available with him and thereafter, come to a conclusion whether expenses are required to be allowed or not. Appeal is disposed off. The matter is remanded to the Assessing Officer for a fresh consideration. All contentions are kept open.

Summary

Issues:
1. Disallowance of business expenses
2. Imposition of interest under Section 234 B and 234 D of the Income Tax Act

Analysis:
1. Disallowance of Business Expenses:
The appellant, engaged in real estate business, filed an income tax return for Assessment Year 2003-04, declaring a total income of &8377; 4,15,203/-. The Assessing Officer, under Section 143(3) of the Income Tax Act, 1961, computed the total income at &8377; 7,09,100/-, disallowing &8377; 3,04,345/- as expenses. The appellant appealed to the Commissioner of Income Tax (Appeals) and then to the Tribunal, both of which upheld the disallowance. The main contention was whether the expenses claimed were directly related to the business of subleasing a property. The appellant argued that the expenses on 'depreciation', 'interest on vehicle', 'electricity charges', and 'telephone charges' were part of the regular business activities and not solely linked to subleasing. The High Court found that the Assessing Officer had misconstrued the nature of the expenses and remanded the matter back to the Assessing Officer for a fresh consideration based on the available material. The court emphasized that determining if the expenses were purely for subleasing or part of regular business activities is a factual matter to be decided by the Assessing Officer.

2. Imposition of Interest under Section 234 B and 234 D:
The second substantial question of law raised was regarding the correctness of imposing interest under Section 234 B and 234 D of the Income Tax Act. The appellant challenged the imposition of interest, but the court did not provide a specific analysis or ruling on this issue in the judgment. Therefore, the matter of interest under these sections was not conclusively addressed in the judgment, and the decision primarily focused on the disallowance of business expenses.

In conclusion, the High Court remanded the case back to the Assessing Officer for a fresh consideration of the disallowed business expenses, emphasizing the need to differentiate between expenses related to subleasing and those incurred in the regular course of business. The court kept all contentions open for further examination, providing an opportunity for the appellant to present additional material supporting the business expenses claimed.