Bsm Developmers Pvt. Ltd. vs ACIT

The appeal has been filed by the Assessee against order dated 12.09.2018 in Appeal No. 354/17-18 assessment year 2014-15 passed by Commissioner of Income Tax (Appeals)-33, New Delhi (hereinafter referred to as the First Appellate Authority or in short „Ld. F.A.A.‟) in regard to the appeal before it arising out of assessment order dated 23/12/2016 u/s 143 of the Income Tax Act, 1961 passed by ACIT, Circle-5(1), New Delhi (hereinafter referred to as the Assessing Officer or „AO‟).

Assessee filed its return declaring a loss of Rs. 31,60,977/- and scrutiny notice u/s 143(2) was issued. Ld. AO observed that the assessee company is showing three (03) fixed assets namely farm house Gwal Pahari, Gurgaon (agriculture land), Floor at B-32, Lajpat Nagar, New Delhi and DLF Saket, New Delhi. Out of these property the assessee company showing rental income from B-32, Lajpat Nagar, New Delhi from long time. In A.Y. 2013-14 out of total revenue of Rs. 9418009, Rs. 9008750 has been shown as rental income. Similarly in A.Y. 2014-15 out of total revenue of Rs. 9154878/-, Rs. 8460315/- has been claimed as rental income. Other income includes maintenance charges, miscellaneous charges and sale from building material.

2.1 Ld. AO observed that the assessee company is claiming other expenses which are not directly related and allowable against the rental income. Hence, to divert the income the assessee is claiming loss against the business income whereas there is no business during the year as well as previous years.

In view of the above the expenses claimed during the year under consideration will disallowed amounting to Rs, 12,23,296/- on account of employee expenses and 10,18,681/- on account of establishment expenses and Rs. 2,50,000/- as finance charges have been allowed considering minimum essential expenses required. .

Ld. CIT(A) had given part relief to the assessee to the extent that a sum of Rs. 1,70,765/- was deleted from employee expenses Rs. 10,18,681/-and confirmed the remaining Rs. 20,71,212/- disallowed by the Ld. AO.

The assessee is in appeal raising following grounds :-

“1. i. That the order of Ld. CIT (Appeals) 33 [(CIT A)] dated 12.09.2018 to the extent confirming the additions made by Ld. ACIT Circle 5(1) (AO) vide order dated 23.12.2016 is illegal, unjust, opposed to facts and suffers from the vice of arbitrariness.

ii. That each ground of appeal is without prejudice to the other grounds.

That the Ld. CIT (A), on facts and circumstances of the case, and in law has erred in confirming disallowance of following expenses:

a) Rs. 12,23,296/- out of Employee Benefit Expenses of Rs. 14,23,296/-.

b) Rs. 5,19,120/- out of Other Expenses of Rs. 10,68,681/-.

i) That Ld. AO on facts and circumstances of the case and in law has erred in holding that there was no business during the year as well as in previous year, when the appellant has demonstrated with evidence, the stock of Real Estate held for sale, as well as Trading activity of building material.

ii) That without prejudice to the carrying on of business, in the appellants own case during AY 2011-12, business loss was allowed by CIT (A) 11, when there was no revenue from business, following the Appex Court decision of SA Builders Vs. CIT (2007).

That on facts of the case and in law Ld. AO and Ld. CIT have both erred in confirming adhoc disallowance of expenses out of Employee Benefit Expenses and Other Expenses, without pointing out any specific item of expense not allowable u/s 36 & 37 of The IT Act.

That there is no diversion of expenses incurred towards rental income but claimed against business expenses. The appellant has voluntarily disallowed following expenses of Rs. 4,99,561/- out of Other Expenses of Rs. 10,68,681/- debited to the Profit and Loss A/c. (Property Tax Rs. 1,59,193 + Insurance Rs. 11,572 + Lease Deed Charges Rs. 1,54,535 + Building Maintenance Rs. 1,74,261 =Rs. 4,99,561).

That the Ld. CIT (A) on facts and circumstances of the case and in law has erred in not dealing with the case laws relied upon and in passing a non-speaking order in respect thereof while disallowing business expenses.

That on facts and circumstances of the case and in law the Ld. CIT (A) has erred in assuming that the assessee failed to substantiate running of business, when the same is evident from the audited financial statements past history, holding of stock of real estate for sale and Trading of Building Material. Although there is small trading activity, the expenses incurred for business are allowable, if incurred for the purposes of business, even when there is no income.

That the expenses of Rs. 17,42,416/- erroneously disallowed, on adhoc basis, be allowed.”

Heard. As the case was called for hearing none appeared for the assessee. Earlier also on 04.05.2022 and 04.08.2022 none appeared. Notice issued is received back with remark of “left”. Ld. DR was heard, who supported the finding of Ld. Tax Authorities Below.

It can be appreciated from the matter on record that Ld. AO had considered the fact that without any substantial income from a verifiable business, the expenses not allowable against rental income have been claimed against non-verifiable business activity. Ld. CIT(A) had also observed that appellant failed to substantiate running of business of trading of building material by giving necessary details. The existence of a business activity and generating income from it is a fact which can be verified on the basis of relevant information and evidence to be produced by the assessee. However, assessee had failed to bring on record any such evidence and thus Ld. Tax Authorities were right in disallowing the expenses. The grounds have no substance. The appeal of assessee is dismissed.