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TMI Blog2018 (1) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee upto 31.03.2001 and the assessee was not able to establish any subsequent payment to the said party before the authorities below. We, therefore, endorse the view of the authorities below regarding no activities of purchase and sales during the year and transactions of purchase and sale shown, as sham. This however, would not affect the business of assessee regarding receipt of rentals as noted above. Administrative expenses disallowance - AO has allowed such expenditure only to the extent of 10% to earn the income from other sources - Held that:- Disallowance made by the ld. Authorities below to the extent of 90% of the expenditure claimed by the assessee is somewhat excessive. It is worthwhile to note that in order to keep the company alive, the assessee is required to make certain necessary overhead expenses also apart from earning the income, as there is nothing on record to establish that the assessee company was closed once for all. We feel it appropriate to allow 50% of the total administrative expenditure of ₹ 4,38,636/- claimed by the assessee. Disallowance of interest on account of loans taken from PNB - addition u/s 36 - Held that:- The inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 40,50,000/- under the head income from other sources . The same was assessed as business income and accepted by the Department in two previous years. 4) The expenditure of ₹ 4,38,636/- (7,38,636/- -3,00,000/-) is connected with the earning of rent and is liable to be fully allowed. Without prejudice to the above grounds, assessee's rental income was assessed as house property income even deduction u/s 24 for repairs amounting to ₹ 10,12,500/- is liable to be fully allowed along with interest paid on the capital for the purpose of acquiring the property. 5) The Ld. CIT(A) has erred in not allowing the deduction of ₹ 3,00,000/- being 1/10 of the expenditure of ₹ 30,00,000/- claimed by the assessee. The same deserves to be fully allowed. Without prejudice to the above, a sum of ₹ 15,00,000/- is liable to be fully allowed against the rent received by the assessee. The assessee objects to the disallowance of expenses as the total expenditure incurred is for the purpose of business. 2. The brief facts of the case are that the assessee filed return of income declaring income of ₹ 18,50,410/- which was processed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The rest amount of ₹ 4,38,636/- debited by the assessee against the business income, out of which only 10% was allowed by the Assessing Officer for earning income from other sources and rest was disallowed because the assessee had not taken any business activity. 4. Further, the Assessing Officer noted that a sum of ₹ 15,23,312/- was debited on account of interest payable to Punjab National Bank Ltd. On being asked, the assessee submitted that the assessee had taken loan from Punjab National Bank in February, 1995 and it was advanced to M/s. Rabab Publications Pvt. Ltd from whom the interest @ 22% was charged. On this loan, the assessee was paying interest to the bank and the same was claimed since assessment year 1995-96 and deduction was also allowed by the Revenue in earlier assessment years. The Assessing Officer was not agreed with the assessee and observed that the assessee was not engaged in any business activities during the relevant year and disallowed the claim of interest and added back to the income of the assessee. 5. During the year, the assessee had received a rental income of ₹ 40,50,000/- on letting out a lease hold property and claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash 3. Stock register for purchase was produced 4. Director of Pentagon Screws and Fasteners attended before the Assessing Officer 5. Director of the assessee company attended before the Assessing Officer Even so the contention of the continuity of business is not accepted. Reliance placed on the following case laws:- L. Ve. Vairavan Chettiar Vs. CIT (1969) 72 ITR 114. 119 (Mad.) Inderchand Hari Ram Vs. CIT (1953) 23 ITR 437, 442-3 (All) Karsondas Ranchhoddass Vs. CIT(1972) 83 ITR I,.20 (Bom.) Mrs. Sarojini Rajah Vs. CIT (1969) 71 ITR 504 (Mad.) Grounds of appeal. .... 2 (interest amounting to ₹ 15,23,312/-) The company had taken a loan of ₹ 1.45 Crores from Bank of Punjab Limited. Total money was lent out and interest was received. The same was fully allowed as deduction right from Asstt. Year 1995-96 to till date. The assessee company has disallowed the claim holding that no business has been conducted. Grounds of Appeal ......3 (rental income of ₹ 40,50,0007-) Rental income of ₹ 40,50,000/- to be assessed as 'income from business as against 'income from other sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its business is assessable under the head. income from business . 1. Sadhucharan Roy Chowdhury, In re, (1935) 3 ITR 114 (Cal.) In this case it was held that income derived by an assessee from leasing out of jute press was assessable under the head income from business'' and not as property income 2. CIT vs Bosotto Bros. Ltd. 8 ITR 41 (Mad) In this case it was held that letting out of hotel was business income 3. Manohar Singh Vs CIT 58 ITR 592 (Punj) In this case, it was held that income received from letting out of tenants with facilities and services was assessable under the head income from business 4. CIT I's National Storage (P) Ltd 66 ITR 596 (SC) In this case, it was held that monthly charge realized from letting out of its units for storage of films was assessable under the head income from business 5. SG Mercantile Corpn. (P) Ltd. Vs CIT 83 ITR 700 (SC) Income derived by a company from sub-letting of its market place after developing and remodeling was assessable under the head income from business 6. CIT Vs. Ajmera Industries (P) Ltd 103 ITR 245 (Cat.) In this case, it was held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punj.) It has been held by Hon'ble Supreme Court in the case of CIT Vs Podar Cements (P) Ltd. 226 ITR 625, 653, 647 (SC) that for income to be assessed under the head income from house property it is not necessary that the person receiving the income should be a registered owner of the property. In case your honour still feel that the income derived by the assessee company should be brought to tax under the head income from other sources it is respectfully submitted that amounts paid by the assessee company to evict the old tenants should be allowed as a deduction U/s 57 of the IT Act, as the same was laid out and expended wholly and exclusively for the purpose of earning higher rental income. It has been held in the case of Sarabhai Sons P. Ltd. Vs. CIT 201 ITR 464, 470 (Guj.) that the connection between the expenditure incurred and the income earned need not be direct. Even if the connection is indirect or incidental that can be regarded as sufficient for the purpose of Section 57(iii). It is, therefore, humbly submitted that even if the income is held by your honour to be assessable under the head ' income from other sources the expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered to its premises. (6) At page 3 of paper book detail of purchase and sale has been given from A.Y. 96-97 to 04-05 which shows that the assessee has never done any business activity. It entered into very few purchase and sale transaction to claim huge business expenditure against the taxable income under other heads of income. (7) The facts of the case establish that the assessee did not do any business during the year. Thus the AO rightly disallowed expenses of ₹ 3,94,77/-. (8) Ld. AO as well as CIT(A) has rightly held that mere the fact that the assessee had made payment against the purchases by cheque does not establish that the assessee has done business during the year. Thus, disallowance made by the AO deserves to be upheld. (B) Grounds of appeal 2 : Disallowance of Interest Paid ₹ 15,23,312/-: 1) The assessee claimed an expense of ₹ 15,23,312/- on account of interest paid against loan of ₹ 1.45 crores taken in 1995 for so called Business Purposes. 2) Loan ₹ 1.45 crores was taken in Feb. 1995, relevant to A.Y. 95-96. As per page 91 of the paper book furnished by the assessee, total sale of the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o follow the precedent to decide any recurring issue because Res Judicata does not apply in the matter of income tax. Thus the disallowance made by the AO deserves to be upheld. AO made investigation and established that the claim of the assessee was not justified, at this stage the assessee should not be allowed to change its stand to claim deduction u/s 24(a). 3). Similarly, the assessee cannot change its stand that interest expenses should be allowed to adjust against the rent received. Loan taken was not housing loan. The assessee has not established that the loan taken was invested in the property from which rent has been received. Thus the assessee's claim in this regard does not have any substance. (E). Grounds of Appeal No. 5: Deferred Revenue Expenses of ₹ 3,00,000/- 1). The appellant incurred an expenditure of ₹ 30 lacs in year 96-97 on account of payment made to a tenant to vacant a property. Since, then it writes off 1/10 of this amount as Deferred Revenue Expenditure. 2). There is no provision under the Income Tax Act to allow deferment of expenditure incurred. Thus the AO has rightly disallowed the same which has been upheld by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vendor recorded in pursuance to notice u/s. 133(6), though the sale transaction was admitted, but no evidence regarding supply of goods, such as copy of delivery challan etc. could not be placed before the Assessing Officer nor could he meet out the discrepancy pointed out by the Assessing Officer in their the stock register after the impugned sale by the vendor. In the administrative expenses, the assessee has shown to have paid Sales Tax, as also in the preceding years, but no sales tax records could be adduced before the authorities below to establish any purchase or sale of goods during the year. Besides, the assessee has claimed to have made the payment against the impugned purchase through banking channel. However, on perusal of assessee s account in the books of Vendor (PB-88), we find that no payments have been made by the assessee upto 31.03.2001 and the assessee was not able to establish any subsequent payment to the said party before the authorities below. We, therefore, endorse the view of the authorities below regarding no activities of purchase and sales during the year and transactions of purchase and sale shown, as sham. This however, would not affect the business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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