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TMI Blog2022 (11) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses incurred by the assessee on other operating expenses, employee benefit expenses and administrative general expenses has been made. Therefore, the argument of double disallowance has no legs to stand and, thus, we dismiss the same. Obviously, when the assessee is claiming deduction u/s 24 of the Act on the rental income earned by it, then, it is not entitled for claiming any depreciation on the commercial block from which rental income has been earned. From the assessment order, we also observe that it is not the case of the AO that the assessee has claimed depreciation on the rental commercial block and, therefore, he is making disallowance of proportionate expenditure. Therefore, this contention of the ld. Counsel of the assessee is also not acceptable. CIT(A) was not correct and justified in deleting the disallowance by observing that the AO, without identifying any expenses attributable to rental income, assumption of the AO without identifying any expenses attributable to rental income and such disallowance without identifying any expenses cannot be sustained. As the ld. CIT(A) has ignored some factual position as noted above from the audited accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted relief to the assessee without any justified and reasonable basis ignoring the fact that the principle of res judicata is not applicable to the income-tax proceedings. The ld. Sr. DR also submitted that the assessee has claimed deduction u/s 24(a) of the Act, but, has not apportioned the relevant part of the expenses incurred by it and claimed in the P L of operating expenses, employee benefit expenses and administrative general expenses, therefore, the impugned first appellate order may kindly be set aside by restoring that of the AO. The ld. Sr. DR also submitted that the ld.CIT(A) while granting relief to the assessee, has considered irrelevant facts and circumstances and by observing that the AO for AY 2014-15 and 2015-16 had accepted the method of accounting after scrutiny ignoring that principle of res judicata is not applicable to the income-tax proceedings. Therefore, the impugned first appellate order being perverse and devoid of merits, may kindly be set aside by restoring that of the AO. 4. Replying to the above, the ld. AR supported the first appellate order and submitted that in the scrutiny assessment orders u/s 143(3) of the Act, the AO had not made any disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional High Court of Delhi in the case of CIT vs. Dalmia Cement (P) Ltd. to submit that once it is established that there was a nexus between the expenditure and the purpose of business, the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of Board of Directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of a case. Lastly, placing reliance on the judgement of the Hon ble Supreme Court in the case of SA Builders Ltd. vs. CIT, (2007) 288 ITR 1, the ld. AR submitted that the Hon ble Supreme Court, by referring to the judgement of jurisdictional High Court in the case of Dalmia Cement (P) Ltd. (supra), explicitly held that the Revenue authorities must not look at the matter from their own view point, but, that of a prudent businessman. 5. Placing rejoinder to the above, the ld. Sr. DR submitted that there is no quarrel regarding the proposition rendered by the Hon ble jurisdictional High Court of Delhi, Hon ble Madras High Court and the coordinate Bench of the Tribunal which had been rendered under peculiar facts and circumstances of the relevant cases. The ld. DR furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submissions have, been considered and not found tenable on the following issues because of the following reasons:- (i) Disallowance of expenses: The assessee has submitted that it has already disallowed Rs. 8,80,58,254/-as proportionate expenses relating to rental income but from the computation of income furnished, it is seen that the expenses disallowed are only on a/c of municipal taxes and lease rent which the assessee has paid for the hotel property. Further, the assessee s contentions are wrong and incorrect that it has disallowed all the expenses related to earning of the rental income. The total receipts of the assessee company are 86 crores from the revenue of operations and Rs 12.56 crores from the other income. The major part of the other income is the rental income of Rs 9,86,07,579/- and maintenance charges received of Rs. 2.47 crores. Thus from the perusal of the P L a/c it is absolutely clear that the assessee is showing losses of Rs. 12 crores if we exclude the other income. Further, similar is the position last year wherein against the income from operations of Rs. 91.72 cr the assessee, has claimed total expenses of Rs. 104 cr which results in opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as pertaining to earning of rental income a a/c and added back in the total income of the assessee. 7. The findings recorded by the ld.CIT(A) in the first appellate order while granting relief to the assessee are as follows:- Findings: 5. Ground No. 1: pertains to disallowance expense amounting to Rs.7,67,21,258/-. The fact of the case that the appellant had claimed business expenses under the heads operating expenses of Rs.41,75,19,132/-, employee benefit expenses of Rs.20,10,42,449/- and administrative and general expenses of Rs. 14,86,51,001/- totaling to Rs.76,72,12,582/-. The AO has made disallowance of 10% of these expenses amounting to Rs.7,67,21,258/- on the ground that since the rental income earned by the appellant constituted 10% of the total income earned by the appellant, a proportionate disallowance is warranted. The AO is of the view that the assessee is claiming double deduction by booking maintenance/other expenses in the P L account incurred for earning rental income and at the same time claiming deduction u/s 24b of the Act. 5.1 In appeal, the Ld. AR of the appellant submitted that sufficient details were filed before the AO by vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om hotel business and rental income from commercial block. The rental income earned is shown as income from house property and on this income deduction u/s 24 of the Act is claimed and further the municipaltaxes is also claimed. The appellant is also receiving maintenance charges from tenants by way of agreement and the same is shown as business income and the related expenses is being charged to the normal head of accounts debited to P L account. The Ld. AR submitted that this is as per Industry norms and hotel industry follow this practice where maintenance expenses are passed to tenants and recovered from them. On the other hand, the AO has worked out disallowance on the basis of some formula that since percentage of rental income to the total income is 10%, therefore, the AO assumed that 10% of the expenses relates to rental income. The assumption of the AO is without identifying any expenses attributable to rental income. I find such disallowances without identifying any specific items wrongly claimed, can not be sustained. It is also noted that in earlier years the AO has been accepting the working of the appellant. Nothing specific has been brought on record by the AO to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we observe that the first limb of the argument is that since the assessee has already claimed deduction u/s 24 of the Act on the rental income earned by it and it had voluntarily made disallowance of expenses debited on account of earning of such rental income, then, any further disallowance would amount to double disallowance which cannot be made as per the settled principles of law. On this contention, we are of the view that undisputedly, from the computation of taxable income, the assessee, for AY 2015-16, placed at page 19 of the assessee s paper book, it is clear that the assessee has suo moto made disallowance of lease rent on rental portion and municipal taxes related to rental portion and has made disallowance of Rs.7,64,147 and Rs.80,41,107/- totaling to Rs.88,05,254/-. But, from the assessment order, we observe that the AO has not made any allegation regarding proportionate lease rent and municipal taxes related to rental portion, but, the disallowance of 10% of total expenses incurred by the assessee on other operating expenses, employee benefit expenses and administrative general expenses has been made. Therefore, the argument of double disallowance has no legs to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unicipal taxes which shows that the area of rental portion wherein a rental activity has been undertaken by the assessee is of huge size, therefore, the assessee has apportioned and suo moto disallowed 64.67% of municipal taxes and such big area cannot be maintained properly the onus is on the assessee to show that the actual expenditure on other operating expenses, employee benefit expenses and administrative general expenses was equal or lesser in comparison with the maintenance charges of Rs.2,47,00,000/- received by the assessee. Therefore, the 10% disallowance made by the AO was quite justified and reasonable. It has also been contended by the ld. Sr. DR that the rule of consistency has to be followed by the tax authorities, but, if a factual mistake has been made by the AO in the preceding or subsequent, then, the same cannot be allowed to be persisted blindly following the rule of consistency. Therefore, the first appellate order may kindly be set aside by restoring that of the AO. 14. On careful consideration of the above rival submissions, first of all, we may point out from the audited accounts of the assessee that the assessee has shown other operating expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousekeeping expenses, laundry charges, linen and uniform, as shown in table 21 of the audit report. But, in all the three tables, maximum expenditure pertains to the hotel business and rental operation which has not been apportioned or segregated by the assessee to show that the actual maintenance charges received by it are equal or less than the actual expenditure incurred by the assessee from common pool towards maintenance of rental area which contains other operating expenses, employee benefit expenses and administrative general expenses. In this situation, when the assessee is not discharging its onus to show the expenditure incurred on rental operation, maintenance is equal or less than the actual amounts received against maintenance charges, then, the AO is very well entitled to make proportionate disallowance in this regard keeping in view the surrounding facts and circumstances and totality of the situation before him on the issue. 16. Identical situation arose before the ITAT Mumbai Bench in the case of Runwal Developers P. Ltd. vs. ACIT reported as (2016) 50 ITR (Trib) 260 (ITAT Mum) and the Tribunal restored the issue to the AO for proper verification, examination ..... X X X X Extracts X X X X X X X X Extracts X X X X
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