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Case Law Details

Case Name : Armasol Properties Pvt. Ltd. Vs ITO (ITAT Kolkata)
Appeal Number : I.T.A. No. 772/KOL/2023
Date of Judgement/Order : 05/01/2024
Related Assessment Year : 2016-17

Armasol Properties Pvt. Ltd. Vs ITO (ITAT Kolkata)

Introduction: In the case of Armasol Properties Pvt. Ltd. vs. ITO, the Income Tax Appellate Tribunal (ITAT) Kolkata ruled in favor of the assessee. This article provides a detailed analysis of the case, focusing on the allowance of running maintenance expenses under section 24(a) of the Income Tax Act.

Detailed Analysis: The dispute centered around the disallowance of certain expenses claimed by Armasol Properties Pvt. Ltd. The Assessing Officer (AO) disallowed expenses amounting to Rs. 5,33,759/-, stating that they were not allowable under section 24(a) of the Income Tax Act.

Armasol Properties Pvt. Ltd., a private limited company engaged in real estate development and property leasing, claimed expenses related to the running and maintenance of its office. The company, despite having no business income during the assessment year, incurred expenses to keep its office operational.

Both the AO and the Commissioner of Income-tax (Appeals) (CIT(A)) disallowed the expenses, arguing that they were not directly related to the income from house property shown by the assessee.

However, the ITAT Kolkata, upon careful consideration of the facts and legal provisions, overturned the decision of the lower authorities. The tribunal recognized that as a company engaged in real estate development, Armasol Properties Pvt. Ltd. had genuine expenses related to the maintenance of its office, necessary for its business operations.

The ITAT observed that the authorities failed to acknowledge the nature of the assessee’s business and the need to maintain its office. It emphasized that the company had correctly segregated its business and house property income in its computation of total income.

Consequently, the ITAT directed the AO to delete the addition made by disallowing the expenses, allowing the loss from business to be set off against the income from house property.

Conclusion: The ruling in the case of Armasol Properties Pvt. Ltd. vs. ITO highlights the importance of understanding the nature of business operations while assessing expenses claimed by companies. The ITAT’s decision to allow running maintenance expenses underscores the principle of allowing genuine business expenditures for the purpose of taxation.

In conclusion, the case sets a precedent for companies to justify and claim legitimate expenses necessary for their business operations, even if they do not directly correlate with the income earned during the assessment year.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal preferred by the assessee is against the order of Learned Commissioner of Income-tax (Appeals)- NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 30.06.2023 for the Assessment Year (in short ‘AY’) 20 16-17.

2.Ground no. 1 is general in nature and does not require a specific adjudication.

3. The issues raised in ground no. 2 is against the confirmation of disallowance of brought forward losses of Rs. 3,70,075/- which was not pressed at the time of hearing and accordingly the same is dismissed as not pressed.

4. The issue raised in ground no. 3 is against the confirmation of disallowance of Rs. 5,33,759/- by ld. CIT(A) as made by the AO in respect of expenses charged in the profit and loss account under various heads.

5. The facts in brief are that the assessee is a private limited company and derives income from business as well as from house property. During the year the assessee did not have any business income albeit it needs to maintain its office and minimum staff in order to keep the office in a running condition. The assessee has only income from house property. During the year the assessee returned loss from business of Rs. 5,66,441/- and income from house property of Rs. 4,71,653/- thereby the gross total income worked out to be negative i.e. Rs. (-)94,788/-. The Assessing Officer (in short ld. ‘AO’) during the course of assessment proceedings observed that the house property is the only source of income of the assessee and assessee has availed standard deduction to the tune of 30% and thus offered net income from house property Rs. 4,71,653/-. The AO observed that the assessee has also claimed certain expenses in the profit and loss account which do not relate to the house property income and accordingly the AO held that the assessee is not entitled to claim the set off of these expenses against the house property income and consequently, a sum of Rs. 5,33,759/- was disallowed out of total expenses claimed of Rs. 5,53,684/- and added back to the income of the assessee.

6. In the appellate proceedings ld. CIT(A) observed that the assessee is engaged in the business of real estate and letting out of properties on rent and has shown only income from house property of Rs. 4,71,653/-. Ld. CIT(A) noted that the assessee has claimed Rs. 5,53,684/- in the profit and loss account and since the same were not allowable u/s 24(a) of the Income Tax Act, 1961 (in short the ‘Act’) and rightly disallowed by the AO.

7. After hearing the rival contentions and perusing the material on record, undisputed facts are that the assessee is a private limited company engaged in the development of the property and leasing/renting. During the year the assessee incurs expenses on running and maintenance of its office to the tune of Rs. 5,53,684/- . The authorities below has disallowed the expenses to the tune of Rs. 5,33,759/- out of the said expenses on the ground that these expenses were not allowable u/s 24(a) of the Act by ignoring the fact that the assessee is a private limited company and needs to maintain its office in order to keep it running. The assessee has also filed a computation of total income in which the income from business as well as income from house property have been shown separately by making necessary adjustments. The expenses claimed in the profit and loss account have been shown under the head income from business and a net loss of Rs. 6,66,441/- was claimed whereas the income under the head house property was shown at Rs. 4,71,653/- after making allowances for property taxes paid and standard deduction u/s 24(a) of the Act. In our opinion, both the authorities below have failed to appreciate and understand the fact that the assessee is a company and has to incur certain expenses to keep its office running. The assessee has rightly claimed the loss of Rs. 5,66,441/- which has to set off against the house property income. Accordingly, we set aside the order of ld. CIT(A) and direct the AO to delete the addition by allowing loss from business.

8. In the result, the appeal filed by the assessee is allowed.

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