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2020 (3) TMI 226

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..... xpenses 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 assessee is .....

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..... s 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 AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the .....

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..... at 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, the business expenses as claimed by the assessee are not eligible for deduction. Accordingly, the AO disallowed the entire b .....

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..... me 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 business and profession as per statement 259510 8.2. Similarly, we also note that the assessee has carried out this activity in the assessment year 2010-11 as evident from the financi .....

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..... 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 of the AO by sustaining the disallowance of the deduction claimed by the assessee under section 24(a) and 24(b) of the Act on the ground that the income from letting out the land is chargeable under the head income from other sources. 11.2. The assessee is the owner of bungalow bearing plot no 93 of Town planning scheme no. 3 which was let out to M/s Shell India Marketing Pvt. Ltd. vi .....

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..... 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 assessee also filed the municipal corporation bill till 24 July 2007 which also proves that the bungalow was in existence. 11.11. The assessee also claimed that as per the agreement, the lessee has to return the bungalow in the original form or it will compensate 1 month rent to him. As such, the subsequent event happened on the instance of the lessee cannot change the character of the income in his hands. Accordingly such .....

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..... ook. 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 issue in the present case relates whether the assessee has given a piece of land on rent to the lessee or the bungalow. On perusal of the original agreement dated 7th September 2006, there is no ambiguity that the assessee has given up piece of plot to the lessee. However, the assessee subsequently within 4 days of the original agreement entered into supplementary deed with the party to justify that he has given the bungalow to the party with the right to chang .....

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..... 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 income from other sources, we note that the provisions of section 57 of the Act require allowing the deduction of the expenses incurred in generating the income under the head other source. Indeed the assessee has incurred interest expenses but failed to justify based on documentary evidence that such interest expenses were incurred in connection with impugned land/investments/bungalow. Accordingly, we are not convinced with the argument of the learned AR for the assessee. Hence, we do not find an .....

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..... he 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/Ahd/2011. Therefore, we are not inclined to repeat the same for the sake of brevity and convenience. 18.1. We further note that there are two additions/disallowances which were made to the total income of the assessee in the quantum proceedings and the assessee further for such additions/disallowances was visited with the penalty under section 271(1)(c) of the Act by the authorities below. 19. Regarding the penalty imposed on the addition/ disallowance of business expenses of ₹ 14,26,813/-, we note that the addition made by the AO has alr .....

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..... t 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 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim ma .....

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..... 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) of the Act. 21. Now coming to the 2nd part of the dispute whether the assessee has incurred interest expenses in the earning of impugned rental income, in this regard we note that the penalty proceedings are distinct from the assessment proceedings. Therefore the addition made during the assessment proceedings does not authorize the AO ipso facto to levy the penalty under section 271(1)(c) of the Act. As such the AO is under the obligation to carry out the necessary verification before reaching to the conclusion that the assessee has furnished any inaccurate particular of income or concealed the p .....

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..... 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 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. Coming to ITA No. 2493/Ahd/2012 for AY 2009-10 23. The assessee has raises following ground of appeal. 1.1. The order passed u/s.250 on 21.8.2012 for AY 2009-10 by CIT(A)-XVI, Abad, upholding the partly the disallowances made by AO is wholly illegal unlawful and without jurisdiction. 2.1. The ld.CIT(A) has gr .....

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