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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Instant appeal by the assessee is directed against the order dated 5th November 2009, passed by the learned Commissioner (Appeals)–7, Mumbai, for the assessment year 2005–06.
Ground no.1 and 2 are on the common issue of disallowance of expenditure of ` 23,47,545.
Brief facts are, the assessee an individual filed his return of income for the impugned assessment year on 17th August 2006, declaring loss of ` 3,67,617. As stated during the relevant previous
2 Roderick Sale year, the assessee was a director in M/s. J.P. Morgan and derived income from business capital gain as well as from other sources. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed loss from business and profession of ` 23,47,545. He, therefore, called upon the assessee to furnish details of business activities carried on by him. As observed by the Assessing Officer, assessee vide letter dated 3rd November 2007 and 7th December 2007, had contended that though there is no business income during the year, however, he has carried out business activities as he was in the initial stage of setting up of his business of providing consultancy services. It was submitted by the assessee that he spent considerable time in evaluating potential business opportunities and has acted as a consultant to Himalayan Skies Village for the development of a Ski Resort in Himachal Pradesh. The Assessing Officer, however, did not accept the claim of the assessee for the reason that the assessee was unable to co–relate expenditure with the receipts which was received by him in the subsequent years. He also noted that in assessment year 2004–05, similar loss claimed by the assessee was disallowed. On the aforesaid reasoning, the Assessing Officer disallowed the business loss claimed by the assessee. Being aggrieved of such disallowance of loss, assessee carried the matter in first appeal before the learned Commissioner (Appeals).
3 Roderick Sale 4. The learned Commissioner (Appeals), after considering the submissions of the assessee found inconsistency in the nature of business claimed to have been carried on by the assessee. He observed, as the assessee has not shown any income from business or profession since assessment year 2003–04, it cannot be said that the expenditure incurred were for the purpose of business. He observed, as the assessee failed to substantiate the expenditure claimed the disallowance made by the Assessing Officer is proper.
Learned Authorised Representative submitted, while deciding identical nature of dispute in assessee’s own case for assessment year 2004–05, the Tribunal in its order passed in ITA no.2529/Mum./2009, dated 18th March 2010, has allowed the loss claimed by the assessee by upholding the order of the learned Commissioner (Appeals). She submitted, though the order passed by the learned Commissioner (Appeals) for the assessment year 2004–05 was brought to the notice of the first appellate authority in the course of hearing of appeal, he completely ignored the same while upholding the disallowance of loss. Learned Authorised Representative relying upon certain documentary evidences sought to be produced as additional evidence submitted, the assessee in fact has started his consultancy business during the relevant previous year, however, no income was generated. She, therefore, submitted that the matter may be restored back to the file
4 Roderick Sale of the learned Commissioner (Appeals) for deciding the issue afresh after examining the additional evidence filed by the assessee.
Learned Departmental Representative, though, supported the order of the Assessing Officer and the learned Commissioner (Appeals) on the issue, however, he submitted that the issue of claim of loss can be examined afresh by the learned Commissioner (Appeals) on the basis of additional evidence filed by the assessee.
We have considered the submissions of the parties and perused the material available on record. It is evident, the Departmental Authorities have disallowed assessee’s claim of loss arising out of business expenditure incurred on the reasoning that assessee has not started any business activity and earned any business income. However, it is the claim of the assessee after resigning from his service he has started his own consultancy business and has received assignments to execute some projects. It is noticed, in the assessment year 2004–05 also, the assessee claimed loss on account of business expenditure incurred which was disallowed by the Assessing Officer on the very same reason of no business activity by the assessee. However, when the assessee challenged the assessment only made before the learned Commissioner (Appeals), he allowed the expenditure claimed by the assessee. The Department being aggrieved with the decision of the first appellate authority went in appeal before
5 Roderick Sale the Tribunal. The Tribunal while disposing off the appeal of the Department in the order referred to above, upheld the order of the learned Commissioner (Appeals) by observing as under:–
After considering the arguments of both the learned D.R. and the learned counsel, we are of the opinion that Revenue has not made out any case in disallowing the expenditure. The assessee was being assessed in earlier years on the salaried income and after his termination from earlier employment started his own consultancy firm with his experience. Eventhough there were no receipts during the year, it was submitted that the assessee has received consultation fees in the later years, but already a fining was given by the A.O. as well as the CIT(A) that the assessee has started the consultancy business and the expenditure claimed is revenue in nature. Just because there is no income earned during the year the A.O. cannot disallow the revenue expenditure genuinely incurred. On the facts of the case there is no need to interfere with the order of the CIT(A), which is correct both legally and factually. Ground of the Revenue is rejected.
Thus, as could be seen, the Tribunal allowed assessee’s claim of expenditure on the principle that only because no income was earned by the assessee from its business activities, expenditure incurred by the assessee which are revenue in nature cannot be disallowed. Facts are more or less identical in the impugned assessment year. However, considering the fact that the assessee has furnished certain additional evidence to justify his claim of expenditure which were not submitted earlier before the Departmental Authorities, in the interest of fair play and justice, we consider it appropriate to restore this issue to the file of the learned Commissioner (Appeals) for deciding afresh after verifying the additional evidences submitted by the assessee and 6 Roderick Sale keeping in view the order passed by the Tribunal in assessee’s own case for the assessment year 2004–05. It goes without saying the CIT(A) must afford reasonable opportunity of being heard to the assessee. Thus, Grounds no.1 and 2 are allowed for statistical purposes.
In ground no.3, the assessee has challenged disallowance of expenditure claimed of ` 25,96,950, against rental income from farmland.
Brief facts are, in the course of assessment proceedings, the Assessing Officer noticed that assessee has claimed loss against income from other sources at ` 9,15,520. After verifying the details of claim of loss, the Assessing Officer found that the assessee is the owner of a farmland located at Foxcote Hill, Andover Ford, Cheltenham, Gloucestershire, U.K. The said farmland has been given for the purpose of agriculture by the assessee under a tenancy agreement. On verification of details furnished by the assessee, the Assessing Officer found that the loss shown was as a result of various expenditure claimed amounting to ` 25,96,950, claimed to have been incurred for the purpose of rental income from the farmland. Though, the assessee claimed that these expenditures are required to incurred to maintain the land for the purpose of letting out for farming operation, but, the Assessing Officer was not convinced with the reply
7 Roderick Sale of the assessee. He observed, as per section 57(iii), only those expenditures which are laid out and expended wholly and exclusively for the purpose of earning the income from other sources can be allowed. After verifying the nature of expenditure claimed, the Assessing Officer observed that such expenditures are not incurred for earning the rent from farmland. He observed, the amount incurred for maintaining land in proper condition cannot be treated as expenditure incurred for earning the rental income. Accordingly, he disallowed the expenditure of ` 25,96,950. Being aggrieved of such disallowance, assessee preferred appeal before the learned Commissioner (Appeals) who also sustained the disallowance by observing that the assessee has made no efforts to substantiate the expenditure through documentary evidence.
Learned Counsel for the assessee submitted before us, similar dispute arising out of the expenditure claimed by the assessee against the rental income of farmland arose in assessment year 2004–05 and the Tribunal, while deciding the issue in ITA no. 2175/Mum./2011, dated 11th January 2002, has restored if back to the file of the learned Commissioner (Appeals) for deciding afresh after considering various documentary evidences submitted by the assessee. To establish assessee’s claim that the expenditure incurred were for the purpose of earning the rental income, the assessee sought to rely upon certain
8 Roderick Sale documentary evidences produced as additional evidence. Thus, it was submitted by the learned Authorised Representative the issue may be restored back to the file of the learned Commissioner (Appeals) for deciding afresh after considering the documentary evidence produced by the assessee.
Learned Departmental Representative submitted, as per the provisions of section 57, the assessee cannot claim expenditure more than the income derived from other sources. He also submitted, the assessee has also not established the fact that the expenditure claimed was for the purpose of earning the rental income from farmland.
We have considered the submissions of the parties and perused the material available on record. As is evident, assessee’s claim of expenditure in respect of rental income earned from farmland was disallowed primarily for the reason that the assessee failed to substantiate that the expenditure was wholly and exclusively laid out for earning the rental income. Further, in the course of hearing, the learned Departmental Representative contended that the expenditure incurred cannot exceed the income earned as per the provisions of section 57. However, on careful reading of the said provision, we do not find any such restriction. Be that as it may, it is observed, similar issue arose for consideration before the co–ordinate bench in 9 Roderick Sale assessee’s own case for assessment year 2004–05. While disposing off the appeal of the assessee in ITA no.2178/Mum./2011, the Bench restored the issue to the file of the learned Commissioner (Appeals) for considering afresh after examining the various documentary evidences submitted by the assessee. In the present appeal also, the assessee has sought to produce various documentary evidences by way of additional evidence. Considering the fact that these documentary evidences were not produced before the Departmental Authorities and keeping in view the directions of the Tribunal in assessment year 2004–05 on similar issue, we deem it appropriate to restore the issue back to the file of the learned Commissioner (Appeals) for considering afresh after examining documentary evidences produced by the assessee and after providing reasonable opportunity of being heard to the assessee. Thus, ground no.3, is allowed for statistical purposes.
In the result, assessee’s appeal is allowed for statistical purposes.
Order pronounced in the open Court on 03.06.2016