2022 (2) TMI 698 - AT - Income Tax

Disallowance of excess claim of agricultural income - AO has given his reasons and more specifically he has relied on a data published by National Horticultural Board (NHB) - HELD THAT - As in the instant case, natural justice has been clearly violated and the A.O's order was clearly indicative of possible bias and therefore, the impugned order passed by the A.O was set aside and the Revenue was directed to serve copies of reports which were sought to be relied upon by the A.O against the assessee to the assessee. This issue was decided in favour of the assessee. Reverting to the facts of the present case, the A.O had relied on NHB reports which were never given to the assessee for his response or submissions. The mandate of principles of natural justice is thus violated in this case. In view thereof, in the interest justice, we set aside the order of the ld. CIT(A) on this ground and remand the issue back to the file of the A.O to re-adjudicate as per law while complying with the principles of natural justice. Disallowance of 20% of depreciation on luxury cars - AO observed that the assessee was not having any business income during the year. However, he claimed huge depreciation on the luxury cars such as BMW, ETC. No log book was also maintained - HELD THAT - CIT(A) confirmed the addition made by the A.O and even before us, the assessee was unable to bring out on record any evidence or material to support his case on this issue. We are therefore, of the considered view and after going through the entire details that no business activity was carried out by the assessee and when he could not establish the business connection for the use of the luxury vehicles in relation to his business in such a scenario the stand of the revenue is correct. This ground is therefore, dismissed. Disallowance of legal expenses - AO has clearly mentioned that there was no business co-relation between the legal expenses claimed and the business of the assessee - HELD THAT - On perusal of some of the sample bills, it is seen that majority of the payments have been made to M/s. Vidhi Partners for handling various writ petitions. During the appellate proceedings, the assessee has failed to bring any evidence which could prove that the same were related wholly and exclusively for the purpose of the business of the assessee. Particularly keeping in view of the fact that no business operations were carried on by the assessee during the year as no business income has been shown, therefore, the learned CIT(A) upheld the disallowance of legal expenses as made by the A.O. The fact remains undisputed before us that the assessee has not done any business activities during the year and that there is no business income shown also by the assessee. Therefore, the legal expenses claimed cannot be wholly and exclusively for the purposes of business of the assessee. In such a scenario, the decision of the subordinate authorities is held to be correct. Ground No. 4, therefore, dismissed.

Summary

Issues:
1. Disallowance of agriculture income
2. Disallowance of expenses under Sec. 14A r.w. Rule 8D
3. Disallowance of depreciation on ad hoc basis
4. Disallowance of legal and professional expenses

Analysis:

1. Disallowance of Agriculture Income:
The appeal pertains to the disallowance of agriculture income by the Commissioner of Income Tax (Appeals) for the Assessment Year 2012-13. The appellant contested the disallowance of agriculture income amounting to ?3,01,781, arguing that the expenses for banana cultivation were incorrectly calculated. The Assessing Officer (AO) relied on data from the National Horticultural Board (NHB) to make the disallowance. However, the appellant was not provided with this data for a response, violating principles of natural justice. Citing a precedent from the Orissa High Court, it was determined that the AO's reliance on undisclosed NHB reports without providing them to the appellant was unjust. The matter was remanded back to the AO for re-adjudication while ensuring compliance with natural justice principles.

2. Disallowance of Expenses under Sec. 14A r.w. Rule 8D:
The appellant did not press Ground No. 2, which pertained to the disallowance of expenses amounting to ?94,500 under Section 14A read with Rule 8D of the Income Tax Rules, 1962. As a result, this ground was dismissed as not pressed.

3. Disallowance of Depreciation on Ad Hoc Basis:
Regarding the disallowance of depreciation on luxury cars, the AO disallowed 20% of the claimed depreciation due to the absence of business income and lack of maintenance of a logbook. The Commissioner upheld this disallowance, noting the failure to establish a business connection for using luxury vehicles. The Tribunal concurred with the revenue's stance, leading to the dismissal of this ground.

4. Disallowance of Legal and Professional Expenses:
The AO disallowed legal expenses of ?15,08,770, deeming them as capital expenditure unrelated to the appellant's business activities. The Commissioner upheld this disallowance, emphasizing the lack of business correlation between the expenses and the appellant's business. Despite detailed submissions by the appellant, the Tribunal affirmed the decision, highlighting the absence of business operations and income during the year. Consequently, the disallowance of legal expenses was upheld, and this ground was dismissed.