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TMI Blog2017 (1) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... lied that it was using the flats for office premises.The AO held that as per the provisions of section 23 (1) of the Act,annual value of the income from house property had to be worked out he made an addition of Rs. 5, 00,604/-to the total income of the assessee under the head income from house property. 2.1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA) and contended that it had used the flats for purpose of office during the year under consideration, that it had not earned any rental income. However, the FAA held that assessee was not able to substantiate that renovation was carried out for converting the flats to office premises.He upheld the order of the AO. 2.2. During the course of hearing before us, the Authorised Representative (AR) argued that there was repair and renovation in the office premises of the assessee, that the AO himself has treated the repair expenses as capital expenditure,that he did not make any addition on account of rental income while computing the assessment order for the AY. 2011-12, that it had filed an affidavit before the AO in the assessment proceedings of the subsequent years in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses only, that it was made for purpose of holding controlling stake in the group concern and not for earning any dividend or capital gains, that it was not required to incur any expenditure. The DR supported the order of the F AA. 3.3. We have heard the rival submissions.We find that assessee had not incurred any expenditure nor had it claimed any expenditure with regard to the tax-free income during the year under consideration.Therefore,there was no justification of any kind to make any dis-allowance invoking the provisions of section 14 A of the Act. The basic precondition for making disallowance under the said section is earning of tax-free income and incurring of expenditure by the assessee.As both the preconditions are absent in the case under considera - tion therefore, in our opinion,the order of the FAA has to be reversed. Ground number two is decided in favour of the assessee. 4. Next ground pertains to disallowance of Rs. 1.31 lakhs on account of non-deduction of tax at source.During the assessment proceedings,the AO found that the assessee had claimed advertisement expenses of Rs. 31.10 lakhs and business promotion expenses of Rs. 10.38 lakhs. On verification of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs, being the pre paid expenses.During the assessment proceedings, the AO found that assessee had paid Rs. 84,000/-to Beekay legals in respect of the bill dated 04/03/2008, that petty cash expenses amounting to Rs. 20, 531/-were also debited to legal expenses. He directed the assessee to file explanation in that regard. It was stated that expenses were booked in the year in which they were settled for payment. The AO held that in the Mercantile System of accounting expenses of the relevant year were allowable, that earlier years expenses could not be allowed, that what was important was accrual or reliability to pay and not the actual payment, that the expenses were of the prior period and hence were not allowable. Accordingly he made an addition of Rs. 1,04,531/-. 6.1. Before the FAA, the assessee argued that it had made payments to Bekay Advocates, amounting to Rs. 84,000/- after deducting the tax at applicable rates the bill dated 4/03/2008 was settled on 08/08/2008, that the petty expenses for the period 21/03/2008 to 31/03/2008, amounting to Rs. 20,531/- was settled on 01/04/2008, that the assessee was following similar policy for the earlier years and subsequent years.Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of business. Finally, he disallowed the demolition paid to RM, amounting Rs. 6 lakhs. 7.1. Before the FAA, the assessee argued that RM was attending all day-to-day affairs of the company,that she had given personal guarantee to banks, that she had paid tax on the remuneration received from the company.Referring to the order of the FAA for the AY. 2008-09, he restricted the disallowance to Rs. 3 lakhs. 7.2. Before us, the AR argued that remuneration paid to RM(Rs. 6 lakhs) was allowed by the Assessing Officer,while passing the order for the AY. 2011-12, that there was no basis to hold that RM was not providing services to the assessee. He referred to the pages 82 of the paper book. The DR supported the order of the AO and the FAA. 7.3. We have heard the rival submissions and perused the material. We find that the AO had disallowed the entire remuneration paid to the director, that the FAA restricted it to 50%, that the director had offered the remuneration income in her individual return of income, that the return of the director was accepted by the Department, that the AO had not made any enquiry about the assertion made before the assessee before him, that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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