THE PR. COMMISSIONER OF INCOME-TAX, CIT (A) vs. M/S. BANGALORE HOUSING DEVELOPMENT AND INVESTMENTS

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ITA/325/2019HC KarnatakaKAHC01037376201929 May 2023Bench: P.S.DINESH KUMAR,T.G. SHIVASHANKARE GOWDA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court considered the rival contentions and the records. It noted that the assessee had incurred expenditure in AY 2008-09, which was allowed by the AO and remained unchallenged. The ITAT, as the last fact-finding authority, recorded that the Revenue's representative could not demonstrate any factual difference between AY 2008-09 and AY 2013-14. The CIT(A)'s order was upheld by the ITAT on the principle of consistency. In light of these facts, the High Court concluded that no substantial question of law arose for consideration. Consequently, the appeal filed by the Revenue was dismissed. The court did not explicitly leave any issue undecided.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax, filed an appeal before the High Court of Karnataka against an order dated November 7, 2018, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to Assessment Year (AY) 2013-14. The assessee, M/s. Bangalore Housing Development and Investments, a partnership firm engaged in Real Estate Business, claimed expenditure of Rs. 3,71,23,836/-. This expenditure was disallowed by the Assessing Officer (AO). The Commissioner of Income-Tax (Appeals) [CIT(A)] allowed the assessee's appeal, following the assessment order for AY 2008-09. The ITAT upheld the CIT(A)'s order, leading to the present appeal by the Revenue.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in allowing expenses claimed by the assessee as business expenses, to be set off against income from commission/other sources, when there is no nexus between the expenses and the income, and same is not allowable under Section 37(1) of the Income Tax Act, 1961? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in allowing expenses claimed as business expenses when the assessee had ceased active business activities in earlier years and showed no revival in the relevant financial year? 3. Whether, on the facts and in the circumstances of the case, expenses claimed by the assessee can be held as business expenses when the assessee had no reported business activities during the relevant financial year and income disclosed was from commission and other sources? Revenue's contentions: The Revenue argued that the claimed expenditure of Rs. 3,71,23,836/- was grossly disproportionate to the assessee's earnings of Rs. 5,11,008/- for AY 2013-14. It was contended that the expenditure was claimed solely to reduce taxable rental income. The Revenue argued that the CIT(A) erred in following the AY 2008-09 order, as each assessment year is distinct, and there is no precedent for expenditure computation. The AO had rightly disallowed the expenditure, and the ITAT erred in dismissing the Revenue's appeal. Assessee's contentions: The assessee, referring to paragraphs 10 and 11 of the ITAT's order, submitted that in identical circumstances for AY 2008-09, similar expenditure was allowed. The ITAT rightly held that on the principle of consistency, the CIT(A)'s order did not require interference. The assessee highlighted that the ITAT noted the Revenue's representative could not point out any factual difference between AY 2008-09 and AY 2013-14. Therefore, no interference was warranted.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

- 1 - ITA No. 325/2019

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 29TH DAY OF MAY, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 325 OF 2019

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX CIT(A), 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.

2.

THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(2)(1), 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095. …APPELLANTS

(BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)

AND:

M/s. BANGALORE HOUSING DEVELOPMENT AND INVESTMENTS NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD BENGALURU-560 052. PAN-AAGFB 0819A …RESPONDENT

(BY SHRI. ARVIND KAMATH, SENIOR ADVOCATE FOR SHRI. POPAT PRASHANT DHARMASINH, ADVOCATE)

THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT 1961, ARISING OUT OF THE ORDER DATED 07.11.2018 PASSED IN ITA NO.556/BANG/2018 FOR THE ASSESSMENT YEAR 2013-2014, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ALLOW THE APPEAL AND

Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA

- 2 - ITA No. 325/2019

SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.556/Bang/2018 DATED 07.11.2018 FOR ASSESSMENT YEAR 2013-14 ANNEXURE-C CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2)(1) AND ETC.,

THIS APPEAL IS COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal by the Revenue challenging the order dated November 7, 2018 in ITA No.556/Bang/2018 passed by the ITAT1, Bengaluru, for A.Y.2013-14 has been admitted to consider following questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in allowing expenses claimed by the assessee can be held as “Business expenses” and same can be allowed to be set off against income from Commission/Income from other sources when there is no nexus between the expenses and the income and same is not allowable under the provisions of section 37(1) of the Act? 2. Whether on the facts and in the circumstances of the case, the Tribunal is justified in allowing the expenses claimed as business expenses, when the assessee had ceased to have active business

1 Income Tax Appellate Tribunal

- 3 - ITA No. 325/2019

activities in the earlier years and did not show any revival during the relevant financial year? 3. Whether on the facts and in the circumstances of the case, expenses claimed by the assessee can be held as “Business expenses” when the assessee had no reported business activities during the relevant financial year and income disclosed was from commission earned and income from other sources?”

2.

Heard Shri M.Dilip, learned standing counsel for the Revenue and Shri Arvind Kamath, learned Senior Advocate for the assessee. 3. Briefly stated facts of the case are, assessee is a partnership firm engaged in Real Estate Business. For A.Y.2013-14, assessee claimed expenditure of Rs.3,71,23,836/- and it was disallowed. The CIT(A)2 allowed the appeal by following the assessment order for A.Y.2008-09. Revenue challenged the CIT(A)’s order with regard to expenditure of Rs.3,71,23,836/- claimed by the assessee and assessee challenged the CIT(A)’s order on different aspect. The ITAT has disposed of both appeals by the common impugned order.

2 Commissioner of Income Tax (Appeals)

- 4 - ITA No. 325/2019

4.

Shri Dilip for the Revenue submitted that assessee had earned only a sum of Rs.5,11,008/- for A.Y.2013-14 and showed an expenditure of Rs.3,71,23,836/- which is grossly disproportionate to the earnings of the firm. Only in order to reduce taxable rental income of Rs.6.98 Crores, assessee had claimed expenditure. The CIT(A) erred in following the earlier assessment order for A.Y.2008-09. He argued that each assessment year is different and there will be no precedent so far as computation of expenditure is concerned. The AO3 has rightly considered the expenditure for the relevant year and disallowed the same and that the ITAT has fallen into the same error by dismissing the Revenue’s appeal. He submitted that ITAT has simply extracted the order passed by the CIT(A). Therefore, impugned order is unsustainable in law. 5. In reply, Shri Kamath, adverting to paragraphs 10 and 11 of the ITAT’s order, submitted that in identical circumstances for A.Y.2008-09, assessee had

3 Assessing Officer

- 5 - ITA No. 325/2019

incurred expenditure and the same was allowed. The ITAT has extracted the order passed by the CIT(A) on Grounds No.5 to 9 and rightly held that on the principle of consistency, the order passed by the CIT(A) did not call for any interference. He pointed out that the ITAT has recorded that learned DR could not point out any difference in facts before the ITAT vis-a-vis A.Y.2008-09. Therefore, no interference is called for in this appeal. 6. We have carefully considered rival contentions and perused records. 7. Undisputed facts of the case are, admittedly, assessee had incurred certain expenditure for A.Y.2008-09 and the same was allowed by the AO and it has remained unchallenged. The ITAT, which is the last fact finding authority, has recorded a fact at para 11 of the impugned order that learned DR could not point out any difference in the facts with regard to the A.Y.2008-09 and A.Y.2013-14. The CIT(A)’s order has been upheld on the ground of principle of consistency. In that view of the matter,

- 6 - ITA No. 325/2019

in our opinion, no substantial question of law arises for consideration. Resultantly, this appeal must fail and it is accordingly dismissed.

No costs.

Sd/- JUDGE

Sd/- JUDGE

AV List No.: 1 Sl No.: 31

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