2019 (12) TMI 618 - AT - Income Tax

Disallowance of business expenses from the remuneration earned by the assessee from the partnership firm assessed as business income u/s. 28 (v) - HELD THAT - It is an admitted fact that in case of another partner such salary paid to the employees was allowed by the Ld. CIT(A) as an expenditure from the remuneration of the partnership firm. Further the payment of salary of the two employees is not in dispute. We, therefore, find merit in the argument of the Ld. Counsel for the assessee that the CIT(A) cannot alter the nature of expenditure. The Hon ble Supreme Court in the case of Ramlik Kothari 1969 (3) TMI 1 - SUPREME COURT has held that expenditure incurred by the partner for earning income from the partnership firm is an allowable expenditure. The various other decisions relied on by the assessee in the case law compilation also supports his case. Further the rule of consistency also is in favour of the assessee, since in the preceding and subsequent years such salary paid to employees were allowed as business expenditure from the salary income received from the partnership firm. No proceedings u/s. 147 or 263 have been initiated in subsequent years after the order of the CIT(A), rejecting the claim of the assessee. In view of the above discussion we are of the considered opinion that the Ld. CIT(A) was not justified in upholding the disallowance made by the AO. Accordingly the order of the CIT(A) on this issue is set aside and the ground raised by the assessee on this issue is allowed. Addition under the head income from the house property - AO made addition on the ground that the assessee did not submit any documentary evidence in support of his claim that the premises was vacated by Sinclair Knight Merz Consulting (India) P. Ltd. - HELD THAT - CIT(A) also the assessee did not give any supporting evidence that the premises was vacated by the said tenant for which he upheld the action of the AO. It is the submission of the assessee that given an opportunity the assessee is in a position to substantiate the claim by producing necessary evidence. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the AO with a direction to grant an opportunity to the assessee to substantiate with evidence to his satisfaction that the tenant had in fact vacated the premises for the intervening period.

Summary

Issues:
1. Disallowance of business expenses against remuneration earned from a partnership firm.
2. Addition of income from house property due to lack of evidence of premises being vacated by a tenant.

Issue 1: Disallowance of Business Expenses
The appeal was against the disallowance of business expenses amounting to ?1,80,000 from the remuneration of ?34,61,241 earned by the assessee from a partnership firm, assessed as business income under section 28(v) of the IT Act, 1961. The Assessing Officer (AO) disallowed the expenses, stating that the remuneration received by partners is based on the partnership deed and work done for the firm, not personal employees. The AO added back the disallowed amount to the income of the assessee. The CIT(A) upheld the AO's decision, stating that expenses incurred by the appellant on behalf of the firm cannot be allowed in the appellant's name. The Tribunal, however, found merit in the appellant's arguments. It noted that the AO had accepted similar expenses in preceding and subsequent years, and consistency should be maintained. The Tribunal held that the CIT(A) was not justified in upholding the disallowance, setting aside the order and allowing the appellant's ground on this issue.

Issue 2: Addition of Income from House Property
The AO added ?5,25,000 to the assessee's income under the head "income from house property" as the assessee failed to provide evidence that the premises were vacated by a tenant. The CIT(A) upheld the AO's decision, noting the lack of supporting evidence. In the appeal before the Tribunal, the assessee expressed readiness to substantiate the claim with necessary evidence if given the opportunity. The Tribunal, considering the totality of facts, decided to remand the issue back to the AO. The AO was directed to grant the assessee an opportunity to provide evidence and decide the matter based on facts and law after hearing the assessee. The Tribunal allowed the second issue raised by the assessee for statistical purposes.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, setting aside the disallowance of business expenses and remanding the issue of addition of income from house property back to the AO for further consideration based on evidence provided by the assessee.