TMI Blog2020 (3) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- Expenses incurred by the assessee to keep the business setup in existence are eligible for deduction. But it is equally important to ascertain whether the expenses incurred by the assessee are really essential to keep its business setup in existence during the lull period. As such, in our considered view all the expenses incurred by the assessee during the lull period are not eligible for deduction except those expenses which were necessary to incur or keep its business setup in existence. In the case on hand, this aspect has not been verified by the authorities below. Now again the question arises whether the issue for the deduction of the expenses claimed by the assessee should be set aside to the file of the AO to find out the expenses which were necessary to be incurred for keeping the status of the business alive. Considering the facts available on record, we note that all the details of the expenses incurred by the assessee were available before the authorities below, therefore we feel that the revenue should not be given fresh inning for determining the expenses incurred by the assessee which are to be allowed/disallowed as the case may be. Ground of appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid on the money borrowed which was invested in the impugned property from where he was getting the rental income. The assessee has also furnished the details of the parties from whom he has borrowed fund which was utilized for the purpose of the investments. However the AO without verifying the genuineness of the details furnished by the assessee has levied the penalty merely on the ground that such interest expenses was disallowed during the quantum proceedings. We hold that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceedings. As such the AO has to carry out necessary verification by issuing the notice to the parties before levying the penalty. In view of the above, we are of the opinion that no penalty can be levied under section 271(1)(c) of the Act for the reasons as stated above. Hence the ground of appeal of the assessee is allowed. - ITA No(s) 76/Ahd/2011, 966/Ahd/2014, 2493/Ahd/2012 - - - Dated:- 2-3-2020 - Shri Waseem Ahmed, Accountantmember And Ms. Madhumita Roy, Judicial Member For the Assessee : Shri S.N. Divatia, AR For the Revenue : Shri L.P.Jain, Sr.DR ORDER PER WASEEM AH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in upholding the disallowance of interest expenses of ₹ 8,00,387/-. It is, therefore, prayed that the additions upheld by the CIT(A) may kindly be deleted. 2. The first issue raised by the assessee is that the order passed by the learned CIT (A) is bad in law and against natural justice as the same was passed without granting sufficient opportunity. However, the learned AR did not press this ground before us. Accordingly we dismiss the same. 3. The second issue raised by the assessee is that the learned CIT (A) erred in holding that there was no business activity and confirming the disallowances of expenses of ₹ 14,26,813/-. 4. During assessment proceedings, the AO observed that the assessee for the year under consideration claimed business expenses of ₹ 14,26,813/- against NIL business income. The assessee claimed that due to lull in the market, there was no business transaction carried out during the year. But he incurred the expenses in order to sustain his business. 4.1. However, the AO held that assessee has not carried business activity during the year and the incomes disclosed by the assessee were related to other sources. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the parties and perused the materials available on record. The facts as discussed above are not in dispute. Therefore, we are not repeating the same for the sake of brevity and convenience. From the foregoing discussion, the issues arise for our consideration stand as under: 1. Whether the assessee was engaged in business activity or business was continuing or closed? 2. Whether the expenses incurred were wholly and substantially for the purpose of business or not? 8.1. Regarding the question No.1, the undisputed fact is that there was the business activity from the transactions of land dealing in the assessment year 2006-07 as evident from the assessment order under section 143(3) of the Act. The relevant finding of the AO in the assessment order stands as under: The assessee is trading in land. He is also doing in investment in shares and stocks and in real estate. During the year, the assessee has sold the land which was lying with him as closing stock since assessment year 2004 05. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 4. , In view of the above, the total income of the assessee is determined as under: income from b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were necessary to incur or keep its business setup in existence. In the case on hand, this aspect has not been verified by the authorities below. Now again the question arises whether the issue for the deduction of the expenses claimed by the assessee should be set aside to the file of the AO to find out the expenses which were necessary to be incurred for keeping the status of the business alive. Considering the facts available on record, we note that all the details of the expenses incurred by the assessee were available before the authorities below, therefore we feel that the revenue should not be given fresh inning for determining the expenses incurred by the assessee which are to be allowed/disallowed as the case may be. 10.1. In view of the above and after considering the facts in totality, we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 11. The issue raised by the assessee in ground Nos. 3 and 4 is interconnected. Therefore, we have clubbed both of them for the purpose of adjudication. The issue raised is that the learned CIT (A) erred in confirming the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses against the rental income chargeable to tax under the head income from other sources for the reason that the interest expenses was not incurred for the running of such rental income. Accordingly the AO denied the deduction to the assessee for ₹ 8,00,387/- and added the same to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A). 11.8. The assessee before the learned CIT (A) submitted that he has given the bungalow to the lessee as per the supplementary deed dated 11-9-2006. The inspector of the income tax visited to the property in dispute and submitted in his report that the bungalow was demolished and there was a piece of land. But the inspector visited to such property after a gap of 3 years from the date of the agreement. Therefore, the report of the inspector does not establish the fact that there was no bungalow at the time of rent agreement. 11.9. The assessee further submitted that the changes effected by the lessee in the said bungalow were approved by the municipal Corporation dated 30th November 2007. Thus, it can be inferred that the bungalow was in existence till 31st of March 2007. 11.10. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 to 47 of the paper book. Therefore, any subsequent change in the said bungalow should not change the character of the income in the hands of the assessee. 12.1 Without prejudice to the above the learned AR also claimed that there was no change in the bungalow till the end of the year under consideration as evident from the Municipal Corporation tax bill for assessment year 2006- 07 and 2007-08 which are placed on pages 48 to 51 of the paper book. 12.2 The learned AR without prejudice to the above also submitted that if the rental income is treated as income from other sources then also benefit of interest expenses should be extended to the assessee. 13. On the other hand, the learned DR before us submitted that the entire bungalow was demolished and it became a piece of land. 13.1 The learned DR also claimed that the substance of the lease agreement was to let out the land only. Therefore, any rental income against the use of such land has to be treated as income from other sources. The learned DR vehemently supported the order of the authorities below. 14. We have heard the rival contentions of both the parties and perused the materials available on record. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal) wherein it was held that A man indulging in double-speaking cannot be said by any means a truthful man at any stage-and no court can decide on which occasion he was truthful. 14.3. Accordingly, the impugned rent cannot be classified as income under the head house property. To tax the rent income under the head house property, there has to be a house property or the land pertinent thereto as envisaged under the provisions of section 22 of the Act. But in the case on hand, even if we assume that there was the bungalow for some time, the rent received thereto cannot be classified as income under the head house property as lease agreement was never intended for the use of bungalow. Accordingly, the only option available to tax the impugned rental income from the land is under the head income from other sources. Accordingly, we hold that the assessee is not entitled for the deduction under section 24(a) and 24(b) of the Act with respect to such rental income as discussed above. 15. Regarding the claim of the assessee for the interest expenses against the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as in law, the ld.CIT(A) ought not to have held that the provisions of Sec.271(1)(c) were attracted in respect of business disallowance and rental income treated as income from other sources. 3.3. In any view of the matter, the penalty proceedings u/s.271(1)(c) initiated only in respect of disallowance of business expenses, the penalty levied by AO in respect of rental income treated as other sources is wholly illegal and unlawful. It is therefore prayed that penalty of ₹ 13,62 lakhs levied by the AO and confirmed by the CIT(A) should be deleted. 17. The effective issued raised by the assessee in all the grounds of appeal is that the learned CIT (A) erred in confirming the penalty of ₹ 13,62,200/- imposed by the AO under section 271(1)(c) for furnishing inaccurate particular of income on account of disallowances of expenses of ₹ 14,26,813/- and disallowances of deduction for ₹ 26,18,000 claimed under section 24 of the Act. 18. At the outset, we note that the facts related to disallowances as discussed in the above issue of the assessee, have already been elaborated by us in somewhere in the preceding paragraph of this order in ITA No. 76/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d lease rental and declared the correct rental income but the same was declared under the wrong head i.e. under income from house property instead of income from other sources. Thus, it is transpired that the assessee has declared his income under the wrong head which can be inaccurate claim but the same cannot be treated as inaccurate particulars of income. It is because the deduction under section 24(a) of the Act is automatic against the income chargeable to tax under the head house property. Thus, in our considered view a wrong claim by the assessee cannot tantamount as inaccurate particulars of income. In holding so we find support and guidance from the judgment of Hon ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. reported in 322 ITR 158 wherein it was held as under: Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport and guidance from the judgment of Hon ble Gujarat High Court in the case of CIT vs. Sambhav Media Ltd. where it was held as under: It appears that the assessee made a claim of statutory deduction under Section 24 of the Act as well as also for depreciation. At the time of assessment, all relevant material facts were disclosed by the assessee and depreciation was also claimed on its business assets. Both Assessing Officer and CIT(A) found that assessee was dis-entitled to claim double deduction of depreciation as well as deduction under Section 24 of the Act. The Tribunal rightly held that there was no concealment of income nor was there any filing of inaccurate particulars of income. Thus, on finding the conduct of the assessee bona fide and this being a matter of bona-fide difference of opinion between the assessee and the department regarding allowability of the claim, it was justified in deleting the penalty imposed by both the authorities. 20.5. In the light of the above stated discussion and after considering the facts in totality, we hold that there cannot be any penalty on account of disallowance of the deduction claimed by the assessee under section 24(a) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could in no circumstances had been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee s case, that the cash credits were arranged as temporary loans, was false. The facts and circumstances were equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, the circumstance or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department. It was, accordingly, held that the Tribunal was not justified in law in confirming the penalty levied under section 271(1)(c). 22.1. In view of the above, we hold that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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