M/S.BINDU AGRO PRODUCTS,BANGALORE vs. INCOME TAX OFFICER, BANGALORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.6.10.2016 of

Commissioner of Income Tax (Appeals) for the Assessment Year 2012-13.

2 ITA No.2081/Bang/2016

disallowance of business loss on the ground that the assessee has not set up its

business.

Assessing Officer noted that in the profit and loss account the only income

3 ITA No.2081/Bang/2016 credited by the assessee is income from rent of Rs.93,30,000. After claiming

expenses the net profit of Rs.36,20,712 was determined. In the statement of

income, the assessee has shown its rental income as income from house

property after claiming standard deduction under Section 24(a) of the Income

Tax Act, 1961 (in short 'the Act') and deduction on account of interest under

Section 24(b) of the Act. The remaining expenses claimed in the profit and loss

account were treated as income under the head profit from business and

profession at loss of Rs.33,89,296. The Assessing Officer disallowed the claim

of set off business against the rental income which was offered as income from

house property and assessed the rental income by ignoring the loss. The

assessee challenged the action of the Assessing Officer before the CIT

(Appeals) but could not succeed.

has submitted that the claim of business loss was denied by the authorities

below on the ground that the only activity carried out by the assessee during

the year was let out of the warehouse, income from which has been declared

as income from house property. Thus the authorities below have concluded

that the assessee has not carried out any business activity during the year and

4 ITA No.2081/Bang/2016 therefore the business loss claimed cannot be allowed. The learned

Authorised Representative has contended that the business activity of the

assessee includes acquiring immovable property, development of the same and

sale, lease or mortgage the same. Therefore the development of the

warehouse is part of the business activity of the assessee. Thus the learned

Authorised Representative has contended that the authorities below are not

right in concluding that the assessee has not set up the business. He has

argued that the assessee has commenced business vide partnership deed

dt.9.10.2009. He has further submitted that the entire activity of

development of warehouse and loss of the same is part of the business activity

and therefore the assessee has not only set up the business but also commence

the business. The expenses which are claimed by the assessee as business loss

on only in respect of the carrying out the business activity of the assessee which

includes the bank interest, consulting charges, depreciation, electricity,

property tax, interest on vehicle loan, professional charges, etc. All these

expenses have been incurred by the assessee only with respect to the activity

of development of property and leasing out of the property. Thus the learned

Authorised Representative has submitted that the business loss is an allowable

5 ITA No.2081/Bang/2016 claim and has to be set off against the rental income of the assessee. In

support of his contention, he has relied upon the following decisions : a. Dhoomketu Builders & Development (P) Ltd. Vs. Addl. CIT 17 Taxmann.com 36 (Del) b. CIT Vs. Dhoomketu Builders & Development (P) Ltd. 34 Taxmann.com 18 (Del) c. CIT Vs. ;Hughes Escorts Communications 165 Taxman 318 (Del) d. CIT Vs. Herbalife International Ltd. 163 Taxman 147 (Del)

submitted that the assessee has not carried out any business activity or earned

business income during the year under consideration therefore the expenses

cannot be allowed against the rental income which has been offered under the

income from house property. He has relied upon the orders of the authorities

below.

record it is noted that there is no dispute that the assessee has offered the

rental income as income from house property after claiming the standard

deduction under Section 24(a) of the Act as well as deduction on account of

interest under Section 24(d) of the Act. The assessee in the computation of

6 ITA No.2081/Bang/2016 income has already claimed the expenditure which are claimed as business

expenditure of the assessee and therefore offered the net income after the said

expenditure of Rs.33,89,296. The Assessing Officer concluded that this

expenditure is nothing but business loss but since the assessee has not carried

out any business activity during the year the same cannot be set off against the

rental income. Since the assessee has offered the rental income as income

from house property and claimed deduction under Section24 of the Act then

the expenses in question which are claimed to have been incurred for the

purpose of business cannot be allowed against the income from house

property. The assessee itself has decided to offer the rental income under the

head income from house property and therefore double deduction cannot be

allowed as per the provisions of the Act. As regards the set up of the business

it is manifest from the record and particularly the Partnership Deed

dt.9.10.2009 that the acquisition of the property, development of the same

and leasing out of the property is part of the business activity of the assessee.

The assessee has also filed the sale agreement under which the property was

purchased and after development it was let out. Therefore so far as the

question of setting up of the business, the assessee has established this fact

7 ITA No.2081/Bang/2016 that the business of the assessee was already set up. However since the

assessee has not offered any business income during the year under

consideration therefore the expenditure in question will be treated has

business loss and has to be carry forward for set off against the business

income if any in the subsequent year as per the provisions of Section 72 of the

Act.

Order pronounced in the open court on 15th March, 2017. Sd./- (VIJAY PAL RAO) JUDICIAL MEMBER Bangalore, Dt.15.03.2017.

*Reddy gp Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

Assistant Registrar Income Tax Appellate Tribunal Bangalore.