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TMI Blog2008 (10) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the business of real estate agent, it was for the AO to prove that such expenditure was not incurred in the course of carrying on business but were incurred for earning exempt income. The AO having failed to do such exercise cannot presume and allocate the expenditure in the ratio of exempt income to total income. The finding has to be specific. The nexus has to be proved. In absence of such finding or nexus, provisions of section 14A cannot be invoked so as to disallow the expenses on proportionate basis. We, therefore, delete the disallowance Unexplained investment u/s 69B - construction of house property - difference in the cost of construction and cost of investment in the property - CIT deleted the addition made by AO - Assessee filed complete details in respect of investment made. Total investment by three co-owners - HELD THAT: - Considering the facts it cannot be said that there was any unexplained investment by the assessee in construction of house property, After all the report of DVO is only an opinion and not a conclusive proof that any unexplained investment has been made. Moreover, defects were also pointed out in the said report. Considering these facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to substantiate the claim for expenditure on foreign travelling by filing the copies of the bills as also the purpose for which such foreign travelling has been undertaken. Being dissatisfied with the explanation so furnished impugned disallowance has been made by holding that the tour expenses were not attributable to business and were private tours. This resulted into disallowance of ₹ 26,09,688 being the entire foreign travelling expenses incurred by the assessee. Before the learned CIT(A) elaborate arguments were made. The learned CIT(A) after considering the assessment order as also the arguments by the assessee held as under :- 4. I have carefully considered the findings of the Assessing Officer as also the submissions of the AR as well as the supporting documents filed by the AR. The details of travelling expenses have been filed by the assessee at page No. 98 of the paper book, according to which there are three foreign trips. The first foreign trip has been made by the assessee along with his son Rajesh Arora who is stated to be working for the assessee and in respect of whom salary also stands allowed by the Assessing Officer while completing the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of assessee since the nature of business is such that it can be promoted only by meeting successful businessmen and in understanding their needs for real estate in Delhi and for personally giving them offers in respect of properties available in Delhi. The assessee has also furnished details of income earned by him from foreign parties in various years and it is seen that in assessment year 1999-2000 commission income of ₹ 50,93,437 was earned by the assessee from foreign parties. Similarly in assessment year 2002-03 and the instant year the assessee has received commission of ₹ 40.80 lacs and ₹ 11.70 lacs from foreign parties. It is seen that substantial commission has accrued to the assessee from foreign parties. The perusal of the assessment order shows that the Assessing Officer has not pointed out any discrepancy in this fact also. The argument of the AR that since the assessee s total commission during the instant year had gone down to ₹ 88.05 lacs as against ₹ 1.68 crores in the last year and therefore also it was imperative for the assessee to make more efforts to generate business during the instant year can also not be lost sight of. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atest technology and it was held that such expenditure was allowable and that it was not necessary that there is a immediate benefit to the assessee out of the foreign tours. In my considered opinion what is important for allowance of deduction on account of foreign travel expenses is to see if the expenditure has been incurred for business consideration or is the expenditure incurred for private purposes. The mere fact that there has been no immediate benefit to the assessee s business is not a sufficient ground for disallowance of foreign tour expenses. As regards the Assessing Officer s observation that the family members of Rajesh Arora had also accompanied the assessee and Rajesh Arora on their foreign trip to Europe, I agree with AR s contention that since no expenditure incurred on these family members has been claimed by the assessee and also since the assessee has been able to prove that he had undertaken these visits for the purpose of his business, the entire expenditure cannot be disallowed. Similarly in respect of. the trips of Rajesh Arora to USA and of the assessee to Dubai, it is seen that these trips were also made only for the purpose of business and intact in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken for the purpose of business. Reliance was placed on the decision of ITAT in the case of a Asstt. CIT v. Amtek Auto Ltd. [2007] 112 TTJ (Delhi) 455. 7. The learned DR Shri T. Vasanthan on the other hand, relied upon assessment order. He submitted that not only the assessee but also his son as well as his brother travelled abroad. In a way it was a personal tour and this is evident from the fact that no business was procured while travelling abroad. Therefore, the entire expenses need to be disallowed. In reply the learned counsel for the assessee submitted that the expenses on the family members have not been claimed rather the same are debited to the personal account and not forming part of the expenditure claimed in computation of income. 8. We have considered the rival submissions. The details of tour and the expenses incurred thereon were filed. The assessee has given specific name of clients/prospective clients with whom meetings were held in abroad in connection with business. These details were also filed before the Assessing Officer. The assessee has been earning income in the past from such foreign parties. Therefore, in furtherance of the same business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee gets a relief of ₹ 40,163 out of disallowance in respect of telephone expenses and the ground of appeal in relation to vehicle repair and maintenance and depreciation is dismissed. 11. After considering the submissions made by both the counsels we do not find any reason to interfere in the finding given by the learned CIT(A). When the personal element for the user of telephone and vehicles is not denied, the learned CIT(A) was justified in estimating such personal user so as to disallow the same. 12. Ground No. 4 in the appeal by the assessee is against upholding a disallowance of ₹ 30,476 out of total disallowance of ₹ 1,01,863 made by the Assessing Officer invoking provision of section 14A of the Act. The revenue also challenges relief granted of ₹ 71,387 in ground No. 2 before us. 13. The Assessing Officer noted that the assessee has earned income of ₹ 10,18,632 by way of dividend of shares, mutual fund, UTI bonds, RBI bonds and interest of PPF. The same were exempt. The Assessing Officer held that the total expenditure debited by assessee is ₹ 1.21 crores. As per section 14A, the expenditure incurred in relation to income wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of real estate agent, it was for the Assessing Officer to prove that such expenditure was not incurred in the course of carrying on business but were incurred for earning exempt income. The Assessing Officer having failed to do such exercise cannot presume and allocate the expenditure in the ratio of exempt income to total income. The finding has to be specific. The nexus has to be proved. In absence of such finding or nexus, provisions of section 14A cannot be invoked so as to disallow the expenses on proportionate basis. The decisions relied by learned counsel for assessee squarely applies. We, therefore, delete the disallowance of ₹ 30,476. 16. Ground No. 3 in revenue s appeal is against deletion of addition of ₹ 4,63,700 being treated as unexplained investment under section 69B in construction of house property E-114, Malcha Marg, New Delhi. The Assessing Officer has made this addition by holding that the assessee has made unexplained investment of ₹ 4,63,700 in construction of house property at E-l 14, Malcha Marg, New Delhi. The Assessing Officer found that the assessee was constructing a house which was primarily completed upto 31-3-2003 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked Out by the DVO Income-tax Department, New Delhi for the period upto 31-3-2003 10180523 1135737 = 927398 12467560 The assessee was asked to show cause as to why difference in the cost of investment in the property may not be added under section 69B of the Act and the Assessing Officer was not satisfied with the reply so submitted and made addition of ₹ 4,36,700 to the income of the assessee being 50 per cent of the amount of ₹ 9,27,398. 17. Before the learned CIT(A) it was submitted that the addition has been made on the basis of DVO s report ignoring the approved valuer s report obtained by the assessee. The assessee has also raised objection to the report of DVO which has not been considered by the Assessing Officer while considering the addition. Some mistakes in the DVO s report were pointed out. It as submitted that even the measurement taken in respect of covered area is wrong which results into excess valuation to the extent of ₹ 5,18,406. It was also submitted that part of the building material of old building was utilized in the construction of new house. The credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any expenditure which ought to have been incurred by the assessee find other co-owners for construction of the impugned house property has not been incurred by them. He has also not pointed out any specific item of construction expenditure where cost has been suppressed by the assessee. The assessee on the other and has furnished complete details of each and every expenditure incurred on construction of this house property. The details of expenses incurred by other co-owners has also been considered by the Assessing Officer since he has made the assessments in all the three cases together. No discrepancy in such detail has been pointed out. The addition has been made only on the basis of Departmental Valuation Officer s report which is a mere estimate and cannot be taken to be gospel truth, moreso when details regarding actual expenditure are available and in which no discrepancy is found. It is a settled principle of law now that where cost of construction was regularly recorded by the assessee in records maintained by him and duly supported by vouchers etc., wherein no discrepancy was found then no addition could be made merely on the basis of DVO s report, I agree with A.R, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the addition was rightly deleted by the learned CIT(A). 20. The next ground of appeal by the revenue is against directing the Assessing Officer to compute the income earned on sale of properties as capital gain as against business income held by the Assessing Officer, The assessee has sold his flats in Enkay Tower, Gurgaon during the instant year which were acquired by him in 1996 and also a property at West Patel Nagar, According to the Assessing Officer since the assessee is engaged in the business of real estate commission agency therefore these are his stock in trade. 21. Before the learned CIT(A) it was submitted that the assessee never carried on business as dealer in property rather he was earning commission on property dealt with or negotiate through him. Due to this activity the assessee happened to purchase certain properties but the business of the assessee was never dealing in property. It was also contended that in earlier three years the assessee has never sold any property. The frequency of transaction does not show that the assessee is trader in property. The learned CIT(A) after considering the submissions held as under :- 17. I have considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held out against him, moreso when these properties were acquired by him way back in 1996 i.e., more than five years back. On these facts and circumstances it is held that the Assessing Officer has not been able to discharge the onus to prove that the properties sold by the assessee were his stock in trade or that the transactions of sale were transactions of trade. The Assissing Officer is accordingly directed to recompute the income from sale of such property under the head Income from capital gains by allowing indexation as per law. 22. On careful consideration of relevant facts we do not find any reason to disturb the findings arrived at by the learned CIT(A). The fact that the assessee is engaged only in consultancy business or as a broker in real estate is not denied. The assessee never acquired property so as to deal in the same rather the property acquired way back in 1996 was sold after a gap of six years. This does not make the assessee a dealer in property. Therefore, there is no infirmity in the order of the learned CIT(A). 23. The next ground of appeal is against allowing relief of ₹ 4,88,554against addition of ₹ 6,12,475 made on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is held that no notional income can be assessed in respect of this property as per the provisions of section 23(1)(c) of the Act. However, no relief is allowable to the assessee on account of the other two properties and the balance addition as made by the Assessing Officer amounting to ₹ 1,23,930 is sustained. As a result this ground of appeal is partly allowed and out of total addition of ₹ 6,12,475 the assessee is allowed relief of ₹ 4,88,545 (697933 (-) 30 per cent which is the amount of notional value included in the total income on account of Amba Deep property. 24. At the tune of hearing both the counsels agreed that similar issue arose before ITAT in appeal by revenue for assessment year 2002-03. The Tribunal after considering the submissions held as under :- 12, After considering rival submissions, we are in agreement with the finding of learned CIT(A). The law in this regard is very clear. The assessee demonstrated that earlier the property at Ambadeep was let out and was vacant during the whole year and owing to such vacancy there was no actual rent received by the assessee in respect of said property. Therefore, the annual letting value is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order that, the explanation of the assessee is not convincing and expenses claimed in excess of income from commission and after reducing the amount of house tax paid is disallowed. 28. Before the learned CIT(A) it was contended that the Assessing Officer having accepted that business was carried on and there being no discontinuation. Only because slow down of business, the nature of expenses does not loose its character as incurred during the course of carrying of business. The learned CIT(A) after considering the submissions held as under :- 4. I have considered the findings of the Assessing Officer which led him to make the impugned disallowance as also the contentions of the AR, and the supporting documents filed by him in his paper book, I have also perused the copies of audited Profit and Loss Account of the assessee for the instant year as well as for the preceding two years filed by the assessee. It is seen that the assessee has been carrying on business of property broking in all these years. In fact the finding of the Assessing Officer in para 2 of the assessment order is very relevant which is reproduced as under; The assessee derived income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activity and running expenses was continued as a going concern. The expenses has also reduced from ₹ 28,60,000 to ₹ 10,00,000. It may also be stated that due to search cases assessee was busy with Income-tax Department for the computation of Income-tax assessments. It is also seen that the assessee vide various letters furnished to the Assessing Officer, copies whereof have been placed at pages 54 to 66 of the paper book as also on pages 87 to 88 has furnished complete details of each and every expenditure incurred by him for running of his business during the instant year. A comparative chart of expenses incurred during the instant year vis-a-vis the expenses incurred in the immediate preceding year have also been filed before the Assessing Officer and it has been explained to him that because of the slow down in business the assessee had also reduced its expenses considerably during the instant year as total expenses had also gone down from ₹ 47,80 lacs in the last year to ₹ 13.59 lacs during the instant year. It was further explained that since the assessee was still in business, therefore it was necessarily required to incur certain expenses to k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of business or not. Since there is no dispute about this fact, there cannot be ad hoc or artificial disallowance without giving a finding that particular expense was not incurred for the purpose of business. We, therefore, delete the disallowance of ₹ 1.00,594. 32. In the appeal by the revenue the first ground of appeal is against defection of addition of ₹ 2,31,849 added as unexplained investment under section 69B of the Act in the construction of house property at E-114, Malcha Marg, New Delhi. 33. We find that the assessee is one of the co-owner of the property along with Shri K.J. Arora, The addition was made on pro rata basis. The issue has been discussed at length in the case of Shri KJ. Arora. For the reasons stated above, we confirm the deletion of addition of ₹ 2,31,849. 34. The next ground of appeal by revenue is on account of treating the income from sale of properties under the head Capital gain as against Business income assessed by the Assessing Officer. 35. We find that the issue is similar to that of in the case of Shri K.J. Arora, Both the counsels agreed that the facts in these two cases are identical. For the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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