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1.AO observed that the assessee for the year under consideration claimed business expenses of Rs. 14,26,813/- against NIL business income. The assessee claimed that due to lull in the market, there was no business transaction carried out during the year. But he incurred the expenses in order to sustain his business.the AO held that assessee has not carried business activity during the year. Accordingly, the AO disallowed the entire business expenses of Rs. 14,26,813/- and added to the total income of the assessee. there can be a situation when the assessee is not able to generate any business but it has to incur the expenses to keep its business setup in existence.in such a situation the assessee cannot be denied the claim of expenses incurred during the period when he was not able to generate the businessAccordingly, we hold that the assessee cannot be deprived from the benefit of claiming the deduction for the expenses incurred to keep the setup of the business in existence 2. It important to ascertain whether the expenses incurred by the assessee are really essential to keep its business setup in existence during the lull period In thecaseon hand, this aspect has not been verified by the authorities below.e. Considering the facts available on record, we note that all the details of the expenses incurred by the assessee were available before the authorities below, therefore we feel that the revenue should not be given fresh inning for determining the expenses incurred by the assessee which are to be allowed/disallowed as thecasemay be. direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 3 & 4disallowance of the deduction claimed by the assessee under section 24(a) and 24(b) of the Act on the ground that the income from letting out the land is chargeable under the head income from other sources.. AO held that the rent received by the assessee is from letting out the land and not the house property. Therefore the same cannot be treated income under the head house property but the income from other sources. Eventually, the assessee cannot be allowed deduction claimed by him under the provisions of section 24(a) and 24(b) of the Act. The dispute in the presentcaseto be addressed is whether the assessee has given a piece of plot or the bungalow to the party. The lessee was not interested in the bungalow at all. It is because the lessee immediately after entering into the lease agreement started the process of getting approval from various authorities for the purpose of petrol pumpThus the rent paid by the lessee to the assessee was towards the use of land and not for the use of the bungalow.Regarding the claim of the assessee for the interest expenses against the income from other sources, we note that the provisions of section 57 of the Act require allowing the deduction of the expenses incurred in generating the income under the head other source. Indeed the assessee has incurred interest expenses but failed to justify based on documentary evidence that such interest expenses were incurred in connection with impugned land/investments/bungalow. Accordingly, we are not convinced with the argument of the learned AR for the assessee. Hence, we do not find any infirmity in the order of the authorities below. Thus, the ground of appeal of the assessee is dismissed. 5Wether assessee has furnished inacurate particulars of income so thatpenalty under section 271(1)(c) of the Act.along with interest can be lavied There can be dispute to classify the impugned rental income under the head house property/income from other sources.Because the deduction under section 24(a) of the Act is automatic against the income chargeable to tax under the head house property we hold that the assessee did not claim the deduction under section 24(a) of the Act with mala-fide /dishonest intent.

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Section 22, 24, 37, 271 of Income Tax act, 1961—Business Disallowance --- The captioned appeals have been filed at the instance of the Assessee against the separate orders of the Commissioner of Income Tax (Appeals) and penalty u/s 271(1)(c) of the Act dated 28/03/2012 and assessment order u/s.143(3). The assessee carried on its business activities in the immediate previous assessment year i.e. 2006-07 and in A.Y. 2010-11 but in between there was no business activity for the assessment years 2007-08, 2008-09 and 2009-10. In such a situation the assessee cannot be denied the claim of expenses incurred during the period when he was not able to generate the business. Accordingly, Tribunal held that the assessee cannot be deprived from the benefit of claiming the deduction for the expenses incurred to keep the setup of the business in existence. After considering the facts in totality, Tribunal set aside the order of the CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee was allowed.
The rent paid by the lessee to the assessee was towards the use of land and not for the use of the bungalow. Accordingly, the impugned rent cannot be classified as income under the head house property. To tax the rent income under the head house property, there has to be a house property or the land pertinent thereto as envisaged under the provisions of section 22 of the Act. Accordingly, the only option available to tax the impugned rental income from the land is under the head income from other sources. Accordingly, Tribunal held that the assessee was not entitled for the deduction under section 24(a) and 24(b) of the Act with respect to such rental income.
The penalty was initiated on account of the disallowance of the interest expenses against the impugned rental income. However, the assessee claimed that the interest was paid on the money borrowed which was invested in the impugned property from where he was getting the rental income. The assessee furnished the details of borrowed funds. However the AO without verifying the genuineness of the details furnished by the assessee has levied the penalty merely on the ground that such interest expenses was disallowed during the quantum proceedings. On the facts and findings, held that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceedings. The AO has to carry out necessary verification by issuing the notice to the parties before levying the penalty. Tribunal was of the opinion that no penalty can be levied under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee was allowed. All the three appeals of the Assessee was partly allowed. --- SHRI ATUL BABUBHAI SHAH vs. Jt. CIT. [2020] 23 ITCD Online 58 (AHD)