The Income Tax Appellate Tribunal (ITAT), New Delhi Bench ruled that disallowance without identifying expenses on rental income not sustainable.
This appeal filed by the Revenue is directed against the orderof the CIT(A)relating to Assessment Year 2016-17 and the grounds of appeal is that the CIT(A) has erred in law and facts in deleting disallowances of Rs.7 crores which pertains to house property income but wrongly claimed in the P&L by the assessee, A.B. Hotels Limited.
The assessee has suo moto disallowed part of lease rent of rental portion and municipal taxes related to rental portion and had also claimed deduction of 30% for repair under Section 24(a) of the Income Tax Act in the computation of income.
However, being dissatisfied by the suo moto disallowance made by the assessee the AO observed that the assessee had only shown receipt of Rs.2 crores as maintenance charges from the tenants and has incurred expenditure towards maintenance from the common pool which consisted of expenditure towards hotel area as well as rental area.
The Counsel for the Revenue the assessee has claimed deduction under Section 24(a) of the Income Tax Act, but, has not apportioned the relevant part of the expenses incurred by it and claimed in the P&L of operating expenses, employee benefit expenses and administrative and general expenses, therefore, the impugned first appellate order may kindly be set aside by restoring that of the Assessing Officer (AO).
The Counsel for the assessee submitted that where the AO could not point out any discrepancy in the evidences relied upon by the assessee and it was held that purely on the basis of surmises and conjectures no transaction can be held as bogus unless the same is proved on the basis of sound reasoning and evidence on the part of the AO before making the addition.
The AO has not made any allegation regarding proportionate lease rent and municipal taxes related to rental portion, but, the disallowance of 10% of total expenses incurred by the assessee on other operating expenses, employee benefit expenses and administrative and general expenses has been made. Therefore, the argument of double disallowance has no legs to stand.
A Coram consisting of C M Garg, Judicial Member and Pradip Kumar Kedia, Accountant Member observed that “In the present case, the assessee has not discharged its onus and we are of the view that blindly following the rule of consistency a mistake cannot be allowed to be persisted when the leakage of revenue is clearly discernible.”
“The CIT(A) was not correct and justified in deleting the disallowance by observing that the AO, without identifying any expenses attributable to rental income, assumption of the AO without identifying any expenses attributable to rental income and such disallowance without identifying any expenses cannot be sustained” the Bench noted.
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