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2017 (1) TMI 934 - AT - Income TaxIncome from house property - determination of annual value of the income from house property - Held that:- We find that assessee was owner of two flats, that same were rented in the earlier years and it had offered the rental income in its returns,that before the AO/FAA it was claimed that during the year under consideration repair and renovation was carried out and the flats were not rented out, that it was also claimed that the flats were used for office premises,that in the subsequent years the AO had not made any addition under the head beings rental income. Once the assessee had produced the bills of repairs and renovation of the flats and the AO had treated the said expenditure as capital expenditure, there was no justification for making any addition under the head house property income. Both the authorities have not proved that the flats were rented out during the year under appeal. As per the settled principles of taxation if any sum has to be taxed the AO has to bring on record the necessary facts for taxing the same. AO had not discharged the onus in that regard. Therefore, reversing the order of the FAA,we decide the first ground of appeal in favour of the assessee. Addition under section 14 A read with Rule 8D - Held that:- 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 consideration therefore, in our opinion,the order of the FAA has to be reversed. - Decided in favour of the assessee. TD u/s 194C - disallowance on account of non-deduction of tax at source on advertisement expenses and business promotion expenses - Held that:- Matter should be restored back to the file of the AO. He is directed to afford a reasonable hearing to the assessee to prove its claim that tax was actually paid by the recipient. The assessee is directed to produce all the necessary evidence before the AO. Ground number three is decided in favour of the assessee,in part. Non-deduction of tax on payment of interest on car loan - Held that:- We find that legal payments were made during the year under consideration and the amounts in question pertain to earlier year. Prior period expenses, as per the taxation principles, can be allowed if they are crystallised during the subsequent year. The AO/FAA has not given any finding as to whether the assessee was following the same accounting policy in the earlier and subsequent years of claiming pre paid expenditure on account of crystallised expenditure in the later years.There is no doubt about the genuineness of the payment and therefore same has to be allowed in one of the years. Considering the peculiar facts and circumstances of the case and the fact that assessee had made the payment after the receipt of the bills in the subsequent year,we are of the opinion that ground number 5,filed by the assessee ,should be allowed. Disallowance of remuneration paid to the directors - Held that:- 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 claimed that she was attending the day-to-day affairs of the company and had stood as guarantor to the banks, that in the subsequent year the AO had allowed the remuneration (Rs. 6 lakhs) paid to her. Considering these facts we are of the opinion that there was no justification for restricting the expenditure to ₹ 3 lakhs. Reversing the order of the FAA, we decide ground in favour of the assessee. Disallowance of the business promotion expenditure - AO had held that assessee had incurred an expenditure through credit cards, that he did not call for any details in that regard, that he had made an ad hoc disallowance at the rate of 20%, that the FAA had confirmed his order - Held that:- In our opinion in case of corporate assessees disallowance on account of personal element can be made only if the expenditure incurred was for the personal use of any of the directors/employee and that expenditure did not have any relation with the carrying out of the business. We don’t find that AO/FAA had carried out any such exercise. If the AO had any doubt, it was his duty to make further investigation and pinpoint the actual expenditure not incurred for the business of the assessee. We are of the opinion that making and upholding the disallowance was not justifiable. Reversing the order of the FAA, we decide ground in favour of the assessee.
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