2023 (3) TMI 966 - AT - Income Tax

Disallowance of expenses - calculation on proportionate basis - Revenue contended that since the assessee has both income from licensing activities and business income , the assessee cannot claim deduction under both the heads - AR stated that the expenses pertaining to brokerage, security and telephone expenses are exclusively business expenses which are to be fully allowed and the other expenditure pertaining to repair and maintenance, etc. has been allocated by the assessee and only expenses related to the units owned by the assessee or leased out are claimed as expenses - A.O. had disallowed the total expenses by calculating the total area of the project from the leased area and by reducing the suo moto disallowance made by the assessee and had worked out the disallowance HELD THAT - On a perusal of the profit and loss account of the assessee for the impugned year, it is evident that the assessee has not bifurcated the expenditure pertaining to the leased units and the units which are owned by the assessee. Even otherwise, the assessee has submitted that the assessee s business premises is situated at Olympia building which was exclusively for carrying out the assessee s business activity. By assuming that the rest of the properties were leased out by the assessee in which the assessee has received rental income inclusive of maintenance and the assessee has not shown any material evidence to prove that the assessee has not claimed double deduction u/s. 24 and section 57 of the Act. Neither the A.O. nor the ld. CIT(A) has looked into this aspect. The assessee has also not proved by any documentary evidence as how much maintenance the assessee is charging from the lessee for maintaining the area occupied by the lessee. In view of the same, we are of the considered opinion that the said appeal has to be remanded back to the A.O. for proper verification of the fact that the expenses claimed by the assessee pertain to the business activity of the assessee or relevant to the leased units. A.O. is directed to verify whether the maintenance expenses and other expenditures claimed by the assessee has not been claimed under income from house property as well as business income . A.O. is also directed to consider the claim of the assessee in view of the receipts to be filed by the assessee to substantiate its claim and to consider whether the impugned expenditure pertains to income from house property or expenditure for business activity . Revenue appeal is allowed for statistical purpose.

Summary

Issues:
Challenge to deletion of disallowance of expenses for Assessment Years 2015-16 and 2016-17 based on proportionate basis without considering income from leasing under 'income from house property' and claimed standard deduction.

Analysis:

1. Background: The appeals were filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for Assessment Years 2015-16 and 2016-17. The consolidated order was passed as the facts were identical.

2. Primary Issue: The main issue revolved around the deletion of disallowance of expenses by the Commissioner of Income Tax (Appeals) amounting to Rs.1,77,37,817/- and Rs.1,90,93,072/- for the respective assessment years. The disallowance was related to income from licensing activity and business income, with the Revenue contending that expenses were not wholly allowable against business income.

3. Assessee's Position: The assessee, a registered partnership firm engaged in construction and development, challenged the assessment order passed by the Assessing Officer. The assessee had bifurcated expenses related to maintenance, property tax, and other costs based on units leased, owned, and sold.

4. Commissioner's Decision: The Commissioner dismissed the disallowance of depreciation but upheld the disallowance of expenses related to licensing activity. However, the Commissioner deleted the disallowance of Rs.1,77,37,817/- made by the Assessing Officer, stating it was not based on rational criteria.

5. Appellate Tribunal's Ruling: The Appellate Tribunal directed a remand back to the Assessing Officer for proper verification of expenses claimed by the assessee. The Tribunal emphasized the need to differentiate expenses related to business activity and income from house property, urging the assessee to provide relevant documents for verification.

6. Remand Order: The Tribunal highlighted the lack of evidence regarding the segregation of expenses between leased and sold units. It directed the Assessing Officer to verify the nature of claimed expenses and ensure no double deduction was claimed under relevant sections of the Income Tax Act.

7. Conclusion: The appeals filed by the Revenue were allowed for statistical purposes, emphasizing the importance of proper verification and documentation regarding expenses claimed by the assessee.

This detailed analysis encapsulates the legal judgment's core issues, arguments presented by both parties, decisions made by the Commissioner and the Appellate Tribunal, and the final ruling by the Tribunal.