J.K.V.B. PROPERTIES PVT. LTD.,NEW DELHI vs. DCIT 13(2), NEW DELHI

per the rent agreement to provide certain services. The assessee also provided copies of ledger account of the expenditure incurred towards earning of the rental income and submitted that a total expenditure of Rs.63,09,173/- had been incurred for earning of the rental income and, therefore, there was a difference in the total rental income earned i.e., Rs,3,00,24,690/- and the income from house property offered to tax at Rs.2,37,15,517/-. The Ld. First Appellate Authority allowed partial relief to the assessee on the issue. On the issue of the Assessing Officer not allowing brought forward losses to be adjusted against the interest income earned during the year under consideration, the assessee submitted before the Ld. First Appellate Authority that during the year under consideration, the interest income earned comprised of interest on income tax refund, interest from Electricity Board and interest on fixed deposits which were all in the nature of business income and, therefore, the same should have been allowed the benefit of set off of brought forward business losses. However, the submissions of the assessee on this issue did not find favour with the Ld. First Appellate Authority and these grounds were dismissed.

“1. Whether on the facts and in the circumstances of the case, the Learned Assessing Officer has grossly erred in law and on facts in enhancing the income from House Property by Rs. 42,32,071/-. The Learned CIT Appeal has also grossly erred in law and on facts in confirming addition to Rs. 19,72,308/- instead of deleting the entire addition to the income from House Property.

instead of income from business as declared in the return of income.

3.0 The Ld. Authorized Representative (AR) on the issue of sustenance of addition amounting to Rs.19,72,308/- out of the income from house property, drew our attention to a table as appearing in para 6.6 of the impugned order. This chart is being reproduced herein under for a ready reference:-

S.No. Head of expenses Amount(Rs.) 6,36,533/- 1. House Keeping Expenses 2. Security Expenses 20,41,048/- 3. Electricity 9,08,342/- 4. Wages & Salary 16,59,284/- 5. Repair & Maintenance 9,07,761/- 6. Insurance 1,56,205/- Total 63,09,173/- 3.1 The Ld. AR submitted that this chart represents the break- up of various expenses incurred by the assessee in earning the rental income. It was submitted that the Ld. CIT(A), after considering the assessee’s submissions, had deleted the disallowances pertaining to House Keeping Expenses, Security Expenses, Wages and Salaries but had confirmed the disallowance pertaining to Electricity Expenses amounting to Rs.9,08,342/-, Repairs and Maintenance Expenses amounting to Rs.9,07,761/- and Insurance Expenses amounting to Rs.1,56,205/-. The Ld. AR further submitted that the Ld. CIT(A) had not given any reason for rejecting the assessee’s reply in this regard.

3.2 The Ld. AR submitted that as far as the claim of Electricity Expenses amounting to Rs.9,08,342/- was concerned, these expenses were on account of electricity cost for Air-conditioning services, power back-up and expenses for common area. With respect to the assessee’s claim of Repairs and Maintenance Expenses, it was submitted that these repairs were mainly towards civil and electrical maintenance expenses which was necessary for the purpose of keeping the property in a rentable and livable condition. With respect to Insurance Claim, it was submitted that the insurance premium had been paid towards protection of property from fire, earthquake and riots and other situations which could put the property of the assessee at risk of loss. The Ld. AR also drew our attention to the details submitted before the Ld. CIT(A) in this regard namely ledger account of electricity expenses, and repairs maintenance expenses as well as copy of the insurance policy.

3.3 With respect to the issue of set off of brought forward losses, the Ld. AR submitted that the interest income had been earned on fixed deposits out of funds which had been earned from business activity and, therefore, the interest on such investment was essential from business activity and, therefore, the benefit of set off of brought forward business losses should be allowed.

4.0 Per contra, the Ld. Sr. Departmental Representative (DR) submitted that as far as the issue of claiming further expenditure out of the rental income was concerned, the 30% deduction allowed U/s 24(a) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsumes all deductions but even then the Ld. CIT(A) had allowed benefit of further deductions to the assessee looking into the facts of the case. It was submitted that the amount of additions sustained by the Ld. CIT(A) were sustained after giving a thoughtful consideration to the assessee’s submissions as well as the facts of the case, and, it was also submitted by the Ld. Sr. DR that the assessee could not justify the incurrence of electricity expenses by producing any electricity bill or by demonstrating with proof as to in whose name was the electricity connection held. She referred to the observations of the Ld. CIT(A) on the issue and submitted that no cogent evidence had been given with respect to electricity expenses.

Similarly, with respect to the repairs and maintenance expenses, it was submitted that the assessee’s further claim of Rs.9,07,767/- would tantamount to double benefit to the assessee because the assessee had already been allowed the benefit of deduction u/s 24(a) of the Act. With respect to the Insurance Policy, it was submitted that as per the Ld. CIT(A), the assessee did not provide any copy of the insurance policy to justify the claim.

4.1 On the issue of set off of brought forward business losses, the Ld. Sr. DR placed reliance on the order of the Ld. CIT(A).

5.0 We have heard the rival submissions and have also perused the material on record. As far as the issue of allowing deduction of expenditure claimed towards the rental income and as sustained by the Ld. CIT(A) is concerned, it is seen that with respect to the issue of electricity expenses, it is the observation of the Ld. CIT(A) that no electricity bill was produced to show as to in whose name was the electricity connection held. It has also been mentioned by the Ld. CIT(A) that the assessee could not demonstrate that it was obligatory on the part of the assessee to provide electricity for Air-conditioning services, power back-up and expenses relating to common area. On the other hand, it is the assessee’s claim that relevant details in this regard had been produced before the Assessing Officer. The Ld. AR has referred to the rental agreement, specifically clause-9(c) of the rental agreement, and has submitted that these details were overlooked by the Ld. First Appellate Authority, as well as the Assessing Officer.

After giving thoughtful consideration to the contention of the assessee in this regard, we deem it appropriate to hold that the issue should be re-adjudicated by the Ld. CIT(A) after giving a proper opportunity to the assessee to present its case in this regard.

The Ld. CIT(A) is also directed to consider and give benefit of the order of the ITAT Delhi Bench in the case of M/s Texaco Overseas Pvt. Ltd. in wherein it has been held that where quantification of charges for additional services was not readily available, annual rental value of the property should be determined after reducing the expenses incurred by the assessee for rendering such additional services. However, the assessee is also directed to demonstrate before the Ld. CIT(A) that the electricity expenses claimed by it were actually incurred and that the assessee held the electricity connection in its name before such expenditure is to be allowed by the Ld. CIT(A).

5.1 As far as the issue of expenditure on repairs and maintenance expenses is concerned, the fact remains that the civil and electrical repairs which the assessee has carried out and are being claimed to the tune of Rs.9,07,761/- is in addition to the deduction of 30% U/s 24(a) already allowed to the assessee on the gross rental income. We agree with the observation of the Ld. CIT(A) that the 30% statutory deduction U/s 24(a) of the Act would subsume all repairs and maintenance expenses. Therefore, we do not find any force in the contention of the assessee on this issue and we dismiss the ground. As far as the payment towards insurance policy is concerned, the Ld. CIT(A) has made an observation that the copy of insurance policy was not made available. However, in paper book, insurance policy has been submitted at pages 90 & 91 and we note that it is a comprehensive insurance policy. However, since the Ld. CIT(A) did not have the benefit of examining this insurance policy, we again deem it fit to restore this claim of the assessee to the file of the Ld. CIT(A) to be considered afresh and to be allowed proportionately after giving proper opportunity to the assessee in this regard.

5.2 As far as the issue of set off of brought forward business loss against income from other sources is concerned, the provision of section 72 are very clear that brought forward business loss can only be set off against business profit. The assessee itself has shown the interest income in its computation as income from other sources. Admittedly and undisputedly, the interest income comprises of interest on income tax refund amounting to Rs.64,097/-, interest from electricity company amounting to Rs.1,99,110/- and interest on fixed deposit amounting to Rs.83,333/-. It is not coming out from records that the fixed deposits were maintained by the assessee out of some business necessity and apparently the fixed deposits were made out of savings from rental income which the assessee has itself offered to tax under income from house property. Interest from electricity company and interest from income tax refund are essentially again ‘income from other sources’. Therefore, as per the provisions of section 72 of the Act, the Lower Authorities have rightly disallowed the set off of brought forward business losses. Therefore, we find no reason to interfere with the finding of the Ld. CIT(A) on the issue and we dismiss the grounds raised in this regard.

6.0 In the final result, the appeal of the assessee stands partly allowed for statistical purposes.

Order pronounced on 30th September, 2021.