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TMI Blog2015 (11) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirming Rs. 1,50,000/- disallowed by the AO from Rental income on estimate and ad hoc basis. It is submitted by your appellant that the entire expenses of Rs. 17,99,762/- incurred by your appellant is wholly and fully allowable and that the expenditure not being of personal or capital nature the disallowance is required to be deleted. 3) Without prejudice to above it is submitted that as long as the expenses are incurred for purpose of business under the Income-tax Act there is no provision of making any disallowance on estimate basis and in relation to amount of business income earned by the appellant. In view of the direct and binding judgment of Hon. Gujarat High Court in the case of CIT v. City of Ahmedabad Spg. & Mfg. Co. Ltd. reported in 207 ITR page 427 disallowance of Rs. 1,50,000/- is required to be deleted. It is therefore, submitted that relief claimed above be allowed and the order of the AO be modified accordingly. Your appellant reserves right to add, alter, amend to withdraw any or all grounds of appeal. 2. Briefly stated the facts of the case are that the assessee is a limited company. It filed its return of income on 19.09.2008 declaring total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as filed Paper Book containing computation of total income, annual report of the assessee for F.Y.2007-08 and the working of addition in reserve surplus vis-à-vis additions in total investment in mutual funds along with list of judicial pronouncements. 5. On the other hand the ld. DR relied of the orders of lower authorities. 6. We have heard the rival contentions and gone through the facts and circumstances of the case as well as records available. From going through the Paper Book at page -15 read with respect to audited annual report of the Company, we observe that the total of capital and reserve surplus as on 31.3.2007 was at Rs. 72,91,694/- and after adding the additions made during the year at Rs. 23,77,768/- , the closing balance of share capital and reserve surplus as on 31.3.2008 stood at Rs. 1,02,69,463/-. So there was an increase in the capital and reserve & surplus by Rs. 23,77,768. On the other hand, the total investment in shares and mutual funds as on 31.3.2007 at Rs. 80,66,131/- and the closing balance of investment in shares and mutual funds as on 31.3.2008 stood at Rs. 1,00,84,219/-. So there was an increase in the investment in shares and mutual funds b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of assessee is allowed. 8. The second ground of the appeal is in regard to disallowance of Rs. 1,50,000/- by the AO from rental income on estimated ad hoc basis. Being aggrieved, the assessee went in appeal before CIT(A) who confirmed the disallowance made by AO by giving following observations :- "3.3 I have considered the facts of the case, assessment order and appellant's submissions. It is not in dispute that appellant was earning rent and other income against which no expense were attributed and entire expenses were claimed against warehouse income which constituted only 30% of the appellant's total income. The expenses incurred by the appellant are in the nature of salary, building repair, land revenue, security expenses and various other small expenses. Appellant has not maintained any details as to which expenses relates to which income and therefore it cannot be said that only those expenses relating to warehouse income were claimed. The total claim of expenses was Rs. 17.99 lacs as against warehouse income of Rs. 17.61 lakhs. If the expenses are apportioned on the basis of income, then not even one third expenses can be claimed against warehouse income. Therefore, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following submissions against the ad hoc disallowance of Rs. 1,50,000/- made by AO and confirmed by CIT(A)- "1. The second and third grounds before your honour are against the AO making on ad hoc disallowance ot Rs. 1,50,000/- on estimate basis to have been incurred for earning rent income. The relevant discussion is contained in para 3 pages 3 to 5 of the assessment order. We may submit that the AO has not given any show cause notice or a chance of personal hearing before making any such disallowance. 2. The only ground for the above ad hoc disallowance is a suspicion that the assessee must have incurred various expenses i.e. salary, legal expenses, conveyance, bank charges, auditors fees etc,"[page 4 of the order]. 3. On this issue we state that we have maintained all vouchers, bills, receipts etc. with the supporting evidences. It is submitted that all the expenses are incurred wholly and exclusively for the purpose of the business and the same do not contain any element for earning rent income. 4. We therefore state that disallowance of an estimate made on an ad hoc basis from established business expenses cannot be mde as held by Hon'ble Courts in the following cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Gujarat High Court in assessee's own case reported at 207 ITR 427 (supra), wherein the Hon'ble High Court has held as under :- "For the assessment years 1973-74, 1974-75 and 1975-76, the assessee claimed deduction in respect of expenditure of Rs. 18,336/-, Rs. 10,089/- & Rs. 19,722/- respectively on the ground that it was business expenditure and, therefore, an allowable deduction. The ITO rejected the claim of the assessee on the ground that the expenditure claimed was disproportionate to the income. As the assessee was aggrieved by this disallowance, it preferred three separate appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the claim of the assessee and allowed the appeals filed by the assessee to that extent. The Department then went in appeal to the Tribunal by filing three separate appeals. The Tribunal dismissed the appeals agreeing with the view taken by the Appellate Assistant Commissioner. The same contention which was urged on behalf of the Revenue before the lower authorities has been urged before us. Now, in this connection, what is required to be borne in mind is that it is found as a matter of fact that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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