Set off of expenses against surrendered income held erroneous and prejudicial to the interest of revenue

Set off of expenses against surrendered income held erroneous and prejudicial to the interest of the revenue as assessee failed to demonstrate that income surrendered had a business link.

ABCAUS Case Law Citation:
ABCAUS 2664 (2018) (12) ITAT

Important Case Laws Cited/relied upon:
M/s. Makson Distributors, Vs. The DCIT

The appellant assessee was engaged in the business of let out Garden for various programmes, Hotel Running, Restaurant. During the year under consideration a survey u/s 133A of the Income Tax Act, 1961 ( the Act ) was conducted on the business premises of the assessee and during the course of survey it was found that the investment in the construction of Hotel was more than the investment shown in the books of the account of the assessee and the assessee agreed to declare additional income in his return for the year under consideration.

The same income was declared in his return in addition to regular income. The income was considered as income under section 69 of the Act.

However, the assessee declared loss from business. It is claimed that this year was the first year of the starting of Hotel and due to new Hotel the assessee could not attract the tourist in sufficient numbers as such it could not fetch sufficient receipt, however the fixed over head had to be borne by the assessee to maintain the day to day working of Hotel business. Further being first year of business there was huge depreciation of the Hotel building which also resulted in loss in the books. Also the expenses of electricity, interest and depreciation had to be incurred which resulted loss during the year.

The Assessing Officer disallowed the claim of partners remuneration but allowed claim of set off of loss/expenditure against the income so surrendered.

Later CIT passed the revisionary order passed u/s 263 of the Act on the reason that no expenses were allowable on the surrendered income as such income cannot be categorised as the business income.

As per assessee, all these issues had been examined in regular assessment proceedings and order was being revised purely on the basis of change of opinion.

The Tribunal held that the assessee had failed to demonstrate the income so surrendered during the course of search had any link with the business receipts. In the absence of such link, the set off of expenditure against such income would not be allowed.

The ITAT held that the allowance of expenditure by the A.O. in the absence of supporting evidence of business income was patently erroneous and consequently prejudicial to the interest of the revenue.

In the result, the appeal filed by the assessee was dismissed.

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