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Thursday, 12 May 2016 13:31

Disallowance of Expenses - When the findings of the CIT(A) and Tribunal is Purely Factual, Then No Substantial Question of Law Arises - Delhi High Court

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Disallowance of Expenses Not Related to Business Disallowance of Expenses Not Related to Business

Appeal u/s 260-A to the High Court 

The findings returned by the CIT(A) and confirmed by the Tribunal are purely factual in nature. We have also examined the account statement and are of the view that the findings of fact returned are not perverse. No substantial question of law arises in the facts of the present appeal.  

Facts

A. Disallowance of Expenses -

1. Appeal is filed u/s 260-A of the Income Tax Act, 1961

2. AO had made the disallowance on the basis that the assessee was not doing any business activity but acting as a real estate developer

3. The expenses claimed debited to its profit and loss account were held to be not related to its day-to-day business activities

4. The CIT(A) noted that the assessee was engaged in the business of providing and running of hospitality services

5. During the relevant financial year, the assessee had provided project management services to DLF Ltd. and earned income of Rs. 29,53,775/-

6. The CIT(A) noted that the assessee company was engaged in rendering professional services for advising and assisting in implementation of administrative and technical, financial, costing, cost control, fiscal, taxation, personnel, marketing and solving general management problems related to Hotel and food entrepreneurs

7. It was noted that the assessee had rendered services in the hospitality line and earned the income

8. However, the expenses incurred on running the hospitality business exceeded the receipts

9. The assessee had maintained a pool of staff/personnel for providing such services and maintained infrastructure for that

10. In support of the expenditure, the assessee filed copy of accounts of expenses incurred on hiring cars, rent paid, hiring personnel, furniture & fixtures, recruitment & training, miscellaneous expense, repair and maintenance, brokerage and commission etc

11. The CIT(A) noted from the accounts that full narration of the expenses was given date wise and person wise

12. The CIT(A) held that it reasonably established that these expenses had been incurred by the assessee for running its business and further noted that these expenses were necessary for running any business establishment and in the absence of these expenses an establishment could not be run

13. The AO had disallowed 50% of the expenditure and depreciation of the assets related to business but had not held that the balance expenditure was not genuine

14. The CIT(A) held that the disallowance of 50% of the expenditure was not based on any scientific method or any specific defects were pointed out in the books of account

15. The disallowance of 50% of the expenditure and depreciation was held to be unjustified. The disallowance was accordingly deleted

16. The Tribunal has affirmed the finding of the CIT(A)

B. Addition of Rs. 1,27,21,738/- on account of interest income accrued on time deposits -

18. AO held that the interest income of Rs. 6,22,35,272/- had accrued to the assessee out of which only Rs. 4,95,13,545/- had been offered to tax and Rs. 1,27,21,738/- had not been offered to tax

19. Therefore, the aforesaid amount of Rs. 1,27,21,738/- was added by the AO as undisclosed income of the assessee

20. The CIT(A) noted that the interest on time deposits shown by the assessee in the accounts on accrual basis was for the purpose of closing of quarterly results

21. The accrual entries made in the accounts were subsequently reversed and the actual interest income earned by the assessee was duly accounted for

22. It is noted that the entries totalling to Rs. 1,27,21,738/- were memorandum entries and had no relation with the actual interest earned

23. The CIT(A) held that there was no suppression of income accrued on the fixed deposits (FDs) and the entire income received had been offered to tax. The addition of Rs. 1,27,21,738/- was accordingly deleted

24. The Tribunal has confirmed the order passed by the CIT(A)

25. Revenue moved to the High Court and following two substantial questions were framed for the consideration of Honb. High Court -

A. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in dismissing the appeal of the Revenue and deleting the addition of Rs. 1,30,01,214/- made by the AO on account of disallowance of miscellaneous expenses and depreciation as the same do not relate to the business of the assessee?

B. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in dismissing the appeal of the Revenue and deleting the addition of Rs. 1,27,21,738/- made by the AO on account of disallowance of interest income accrued on time deposits? 

26. Honb. High Court dismissed the Appeal and decided the issue in favour of the Assessee 

Adjudication

The findings returned by the CIT(A) and confirmed by the Tribunal are purely factual in nature. We have also examined the account statement and are of the view that the findings of fact returned are not perverse. No substantial question of law arises in the facts of the present appeal. 

Cases Referred to

None

Additional Info

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