DCIT 22(3), NAVI MUMBAI vs. GULAM HUSSAIN ABDUL KARIM KHATRI, NAVI MUMBAI

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ITA 7041/MUM/2013Status: DisposedITAT Mumbai13 November 2015AY 2010-113 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that a temporary lull in business activity does not warrant disallowance of administrative expenses, especially when substantial business profits were shown. The CIT(A)'s deletion of the disallowance was affirmed.

What were the facts?

The assessee, proprietor of two firms, reported rental income from an office/flat owned by one of his proprietary concerns, M/s G K Khatri & Co. The Assessing Officer disallowed administrative expenses claimed against this income, arguing the concern had no business activity.

What were the issues?

Whether administrative expenses can be disallowed when a proprietary concern has a temporary lull in business activity but shows overall business profits.

Which sections of the Income-tax Act were involved?

Section 24

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI

Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR

For Appellant: Shri Abani Kanta Nayak

ITA No. : 7041/Mum/2013 (Assessment year: 2010-11) Dy. Commissioner of Income Tax- Vs Shri Gulam Hussain Abdul Karim 28(1)/28(2), Khatri, 3rd Floor Tower No. 6, E, F & G Block, Navi Mumbai Vashi Railway Station Complex, Sports Complex, Sector -4, Vashi, Navi Mumbai -400 703 Vashi, Navi Mumbai -400 703 �थयी लेखा सं.:PAN: AAJPK 7809 C अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Shri Abani Kanta Nayak : Respondent by : Dr. P Daniel सुनवाई क� तार�ख /Date of Hearing : 16-11-2015 घोषणा क� तार�ख /Date of Pronouncement : 16-11-2015 आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the revenue against impugned order dated 02.09.2013 passed by CIT(A) -33, Mumbai in relation to quantum proceedings passed u/s 143(3) for the assessment year 2010-11. In its appeal, the revenue has raised following grounds of appeal:-

“1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition in respect of administrative expenses without appreciating the fact that during the year under consideration the proprietary concern M/s G K Khatri & Co. did not conduct any business activity and derived only rental income received from the office / bunglow owned and claimed deduction u/s 24 of the Act. 2) The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored”.

2 Shri Gulam Hussain Abdul Karim Khatri

2.

Brief facts of the case are that, the assessee is an individual and Proprietor of two firms namely, M/s G K Khatri & Co., which is engaged in the construction business and M/s G H Khatri, which is engaged in providing cold storage services. During the year, the Proprietary firm, M/s G H Khatri & Co. had not done any business activity but has mostly derived income from “rent” from the office / flat owned. The AO noted that, except for the interest income from deposits, the other income debited to the profit and loss account are the sundry creditors and balance written off amounting to Rs. 1,20,97,877/- which is merely a book entry. He noted that, the assessee has treated the rent received as income from house property and also claimed statutory deduction of 30% from rental income. Besides this, various expenses were debited to the profit and loss account amounting to Rs. 39,57,019/- including the interest paid to the bank amounting to Rs. 17,18,361/-. The said expenses were also claimed against the said business activity. The AO held that administrative expenses of Rs. 22,24,226/- cannot be allowed. The Ld. CIT(A) noted that, assessee had shown business income from proprietary concern in the following manner :-

Net profit as per profit & loss a/c -M/s G H Khatri & Co. Rs.1,20,52,120 Net profit as per profit & loss a/c -M/s GHK Cold Storage Rs. 31,61,930 Further he held that, once the AO accepted the computation of business income and Auditors have certified the same u/s 44AB, such a disallowance expenses cannot be made.

3.

After hearing both the parties and on perusal of the impugned order and material placed on record, we find that assessee has shown income from business from both the proprietary concerns as noted by the Ld. CIT(A). Once the assessee has been carrying out the business and there is temporary lull in the construction activity during the year that does not mean that ‘administrative expenses’ have to be disallowed. On the perusal of the assessee’s computation of income, it is seen that out of the 3 Shri Gulam Hussain Abdul Karim Khatri Rs. 18,52,14,050/- the assessee has reduced rent received of Rs. 40,65,620/- and a net business income of Rs. 1,11,48,450/- has been shown. Thus, when the assessee had shown substantial business profit then ‘administrative expenses’ cannot be disallowed.

4.

Accordingly, the order of the CIT(A) deleting the said disallowance is affirmed and ground raised by the revenue is dismissed.

5.

In the result, appeal of the revenue stands dismissed. Order pronounced in the open court on 16th November, 2015.

Sd/- Sd/- (रिमत कोचर) (अिमत शु�ला) लेखा सद�य �याईक सद�य (RAMIT KOCHAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 16th November, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -33, Mumbai. 4) The CIT– 22, Mumbai. 5) िवभागीय �ितिनिध “जी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “G” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /

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