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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal filed by the assessee is directed against the order of ld.
CIT (Appeals)-22, New Delhi dated 27.07.2018 pertaining to Assessment Year 2013-14.
The grounds of appeal taken by the assessee read as under :-
“1. That the order is bad in law and against the fact of the case. 2. That Ld. Assessing officer has erred in disallowing the genuine/legitimate and other ongoing business expenditure incurred by the appellant for its continued business.
./2018 3. That Ld. Assessing officer overlooked the judgement given by various courts wherein it is held that business expenses to be allowed to assessee in case of continued business even if no receipt is there.
That Ld. Assessing officer did not consider the documentary evidence submitted by the appellant company in support of expenses shown in profit and loss account overlooking the facts that the same were incurred for the business of the company.
5. Because the Ld. Commissioner of Income Tax appeals erred in law as well as on the facts while confirming the addition made by Ld. DCIT except the interest expenses allowed u/s 24( 1 )(b) of the Act for adjustment against rental income shown in P & La/c.
The existing properties in the company are part of inventory showing the intention of the company for business.
Because the Ld. CIT (Appeals) has also erred ignoring the fact the appellant has incurred expenses in order to keep the Company alive and has also entered into collaboration agreements.”
Brief facts of the case are that the assessee filed the return declaring total income of Rs.78,35,020/-. The case was picked up for scrutiny and in the assessment proceedings, the AO noted that the assessee has claimed huge expenses without any business activity. The only income which is derived by the assessee is from rental received of Rs.2,59,80,000/-. The AO noted that the assessee has claimed substantial business loss of Rs.94,18,009/ - which was adjusted against the rental income despite the fact that there is no business receipt. On this pretext, the AO completed the assessment disallowing the business loss of Rs.94,18,009/- against the rental income.
4. Upon assessee’s appeal, ld. CIT (A) granted part relief and held as under :- ./2018 “ I have carefully gone through the finding of the AO and submission of the appellant. The major expenses claimed is of finance cost. Out of this the Ld. AR submitted that Rs.35,97,251/- is the interest expense incurred towards acquisition of property at 22-A, Janpath, New Delhi from which rental income has been earned and also submitted that the same is allowable is u/s 24(b) as interest expense against the income from house property. While disallowing the expenses the AO has categorically stated that no business activity has been undertaken by the appellant in the year under consideration. In appeal also Ld. AR has been asked about the business activity and he stated that till F.Y. 2016-17 there is no business receipt by the appellant company. Even earlier also no business receipt have been received since 01. 04.2010. Therefore, no deduction of expenses is allowable as there is not business activity. At most I am inclined to accept the submission of the appellant that Rs.35,97,251/- as interest expense incurred towards acquisition of property at 22-A, Janpath, New Delhi from which rental income has been earned is allowable u/s 24(b). For balance interest expense, no deduction is allowable u/s 36(l)(iii) in respect of interest paid. The other expenses claimed are also not allowable as no business activity has undertaken by the appellant. In view of these facts I do not find any reason to interfere to order of the AO. However AO is directed to re-compute income from house property by allowing interest of Rs.35,97,251/- u/s 24(b) of the Act.”
Against the above order, assessee is in appeal before us. We have heard both the parties and perused the records.
6. We note that while the AO has disallowed the expenditure on the ground that assessee has not earned any business income. Similar view has been taken by the ld. CIT (A). However, ld. CIT (A) has granted some relief on account of expenses in connection with the property from which rental income has been offered. Ld. Counsel for the assessee in this regard submitted that assessee has incurred the expenditure to keep the company going and that there is only a temporary lull and subsequently after 2 – 3 years, the business income was also started coming. He further submitted that the expenditure should not have been authorities below. 8. Upon careful consideration, we agree with the submission that authorities below have not found that the expenditure is bogus. There is no law that the business income is a must for allowance of genuine business expenditure. Moreover, it is the submissions of the assessee’s counsel that assessee has started earning income in subsequent years. In these circumstances, we deem it appropriate to remand the file to AO. AO shall verify the assessee’s submissions about the genuineness of the expenditure and also the averment of the ld. Counsel for the assessee that assessee had started earning income after 2 – 3 years. After examining the aforesaid aspects, AO shall pass an order after giving the assessee appropriate opportunity of being heard. 9. In the result, assessee’s appeal is allowed for statistical purposes. Order pronounced in the open court on this 13th day of July, 2023.