Bharatbhai Dahyabhai Patel Vs DCIT (ITAT Ahmedabad)
No Basis for Proportionate Disallowance – Tribunal Allows Entire Business Expenditure
Assessee is a civil contractor & also a partner in multiple partnership firms. He filed return declaring income of ₹26,76,660. During the year, there was no civil contract income, but he earned remuneration, interest on capital & share of profit from partnership firms. He claimed business expenses of ₹10,83,194 against such income. The case was selected in CASS to verify “excess expenses claimed against remuneration”. AO held that Assessee earned remuneration only from one firm, while expenses were relatable to all firms in which he was a partner including those generating exempt share of profit. AO held that only proportionate expenses were allowable & disallowed ₹9,99,872.
CIT(A) upheld the disallowance by holding that expenses relatable to firms where Assessee earned exempt share of profit cannot be allowed. CIT(A) observed that Assessee earned remuneration from only one firm but claimed expenses related to all firms, hence only specific expenses related to that firm were allowable.
Before Tribunal, Assessee submitted that he was a sole proprietor of M/s Almitee Construction & also an active working partner in two firms, not one. He had incurred expenses wholly & exclusively for his proprietary business & for the firms where he was actively involved. He earned remuneration from two firms & profit from both. It was argued that AO wrongly assumed only one working partnership & proportionately disallowed business expenses without any finding that expenses were not genuine or not incurred for business.
