MANISH G. DALAMAL,MUMBAI vs. ASST CIT 12(3), MUMBAI

Though there are four grounds raised by the assessee in this appeal but there are only two effective grounds viz ground no.1 relates brokerage, legal expenses and insurance which were disallowed while computing annual value of property which has been let out and the second ground is in respect of 2 7414/Mum/2013 expenses of Rs.21,06,469/- which were stated to be incurred wholly and exclusively for the purpose of business of investment etc however was not allowed by the AO and also upheld by the ld.CIT(A).

Facts in brief are that the assessee filed his return of income declaring total income of Rs.59,40,420/- on 3.8.2010. The return was processed under section 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. It is seen from the para 4 of the assessment order that the assessee has earned a rental income of Rs.90,13,537/- against which he has claimed various expenses such as brokerage charges of Rs.1,92,884/-, Legal expenses Rs.3,24,258/-, maintenance and repairs Rs.2,44,653/- and insurance charges Rs.3,863/- The AO disallowed a sum of Rs.7,65,658/- being total all these expenses. The details of the same have been given hereinabove by holding that neither section 23 nor 24 of the Act provide for deduction of such expenses in respect of property let out.

Before the ld. CIT(A), the assessee raised the issue of disallowance of Rs.7,65,658/- on account of brokerage charges, legal expenses, maintenance charges and insurance expenses and the ld. CIT(A) partly allowed the appeal of the assessee by directing the AO to verify whether maintenance charges were paid to the housing society and by observing and holding as under :

“2.3 I have considered the facts of the case and the submissions made by the assessee. I agree with the observation of the Assessing Officer that only those expenditures can be allowed as a deduction in computing the income from house property which are specifically provided in section 23 and section 24 of the I.T. Act, 1961. Since the provisions of sec. 23 & 24 do not provide for deduction on account of brokerage, legal expenses and insurance in computing the income under the head "Income from House Property",no deduction on account of expenditure incurred by the assessee on the aforesaid heads can be allowed as claimed by him. 2.3.1 As regards the allowability of deduction on account of maintenance charges, the assessee has placed reliance on the decision of the Hon'ble Mumbai Tribunal in the case of Sharmila Tagore (supra) in support of his contention. However, in the case of Sharmila Tagore, what was held to be allowable as a deduction by the Hon'ble Tribunal even while determining the annual value of the property u/s 23, was maintenance charges paid to the housing society. In view of the same, the Assessing Officer is directed to verify whether the maintenance charges have been paid to the housing society. If the same is paid to the housing society, respectfully following the decision of the Hon'ble Mumbai Tribunal in the case of Sharmila Tagore (supra), the same shall be allowed as a deduction in computing the annual value of the property and, consequently, the income from house property. However, if the same is not paid to the housing society, no deduction shall be allowed in computing the income under the head "Income from House Property". The ground of appeal filed by the assessee is, accordingly, partly allowed.”

The facts with regard to the second ground of appeal are that the assessee has shown an income of Rs.2,97,926/- from business and profession. In the profit and loss account the net profit of Rs.2,73,917/- was worked out after claiming expenses of Rs.21,06,469/-. These expenses were claimed against the receipt of Rs.23,80,386/- which consisted of interest income of Rs.24,09,421/- from banks deposits, commission of Rs.12,000/-, speculative profit of Rs.24,009/- and loss from shares Rs.65,044/-. During the course of scrutiny-assessment proceedings, the AO observed that the assessee has only activity of business from trading in shares in which no delivery of shares were taken and therefore the activity is of speculative in nature. Therefore, the AO held that the assessee was not carrying on any business except share trading and therefore the interest income from FDRs of Rs.24,09,421/- was of the nature of income from other sources and was assessed accordingly and so was the commission of Rs.12,000/- and held that the expenses claimed by the assessee of Rs.21,06,469/- were not related to earning of interest at all which are in the nature of communication, car insurance, repairs salary, depreciation etc. and having no nexus with the earning of interest income and also held expenses are not covered under the provisions of section 57 of the Act.

The matter was carried before the ld.CIT(A). Before the ld.CIT(A), the assessee submitted that the business was being continued for the last several years and the assessee has proper office set up in order to take decisions relating to trading in shares and on investment of surplus funds. The ld. AR of the assessee submitted that the investment made in the fixed deposits in the bank is a part of the business activity of the assessee and therefore interest accrued thereon constituted business receipt and the assessee was entitled to claim legitimate expenses as incurred by the assessee solely and exclusively for the purposes of business of the assessee. The ld. CIT(A) dismissed the appeal of the assessee on this ground by observing and holding as under : “3.3 I have considered the facts of the case and the submissions made by the assessee. I agree with the decision of the Assessing Officer that by no stretch of imagination the interest earned on fixed deposits can be considered as an income chargeable under the head "Income from Business and Profession". The activity of the assessee of making fixed deposits and earning interest thereon cannot be regarded as a business activity. All that the assessee is doing is to invest his surplus funds in fixed deposits or manage the fixed deposits. The income on account of interest earned by the assessee on such fixed deposits have to be assessed under the head "Income from Other Sources". The expenditures in question cannot be allowed as a deduction u/s 37 of the I.T. Act, 1961 as claimed by the assessee in the facts and circumstance') of the case. The assessee has also not shown as to how the expenditures in question have been laid out or expended wholly and exclusively for the purpose of making or earning the income from the fixed deposits. Hence, no deduction u/s 57 can be allowed to the assessee. The assessee has also not shown that these expenses have been incurred in the course of carrying out any business and that the same were laid out or expended wholly and exclusively for the purpose of any business or profession carried out by him. In view of the aforesaid reasons, the action of the Assessing Officer

In the result, the appeal of the assessee is dismissed.