2015 (4) TMI 438 - AT - Income Tax

Tribunal partially allows assessee's appeal, dismisses revenue's appeal, upholds interest levy.

The Tribunal allowed the assessee's appeal partially by deleting the disallowances under Section 14A, additions under Section 41(1), and income from the ... Disallowance u/s.14A - Held that:- The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd. V CIT [2011 (11) TMI 267 - Delhi High Court] has held that by virtue of the provisions of sub-section (2) and (3) of Section 14A of the Act, if the Assessing Officer is not satisfied by the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon the determination of the amount of expenditure in accordance with Rule 8D. While rejecting the claim of the assessee, the Assessing Officer has to render cogent reasons for the same. In a case where the assessee states that no expenditure has been incurred by it to earn exempt income, the Assessing Officer has to verify the correctness of the assessee's claim having regard to the accounts of the assessee. In the case on hand, we find that the Assessing Officer has not given any cogent reason in the order of assessment for disbelieving the contention of the assessee that it has incurred no expenditure to earn the exempt income of ₹ 18,400 but has proceeded to apply the provisions of Rule 8D to arrive at the disallowance of ₹ 1,93,730 as the expenditure deemed to be incurred for earning exempt income. Further, as contended by the learned Authorised Representative, the judicial pronouncements relied on by the assessee i.e. J.M. Financial Ltd (2014 (4) TMI 752 - ITAT MUMBAI), apply to the factual matrix of the case on hand and in this view of the matter, it cannot be said that the assessee was incurring expenditure to maintain and / or monitor its long term investments of ₹ 3,87,00,000 in its sister / associate concern M/s. Trichy Steel Rolling Mills P. Ltd. and ₹ 46,000 invested in the shares of Andhra Bank. Thus we delete the disallowance of ₹ 1,93,730 made by the Assessing Officer under Section 14A r.w. Rule 8D. - Decided in favour of assessee. Addition u/s.41(1) - difference in liability towards Karnataka Breweries & Distilleries Ltd. ('KBDL') - Held that:- It has been submitted by the assessee that the impugned addition of ₹ 5,87,817 can be made only if the liability claimed by the assessee is higher than the dues shown by the creditor viz. KBDL. In the case on hand, the undisputed facts as per record show that the liability claimed by the assessee is ₹ 3,65,92,256, whereas on examination of the books of KBDL by the Assessing Officer, it was found that the assessee was shown to be liable to pay KBDL ₹ 3,71,80,073. We find that it is in these factual circumstances the finding of the authorities below is erroneous as the basic requirement that a liability no longer exists is not present in the case on hand to warrant the application of the provision of section 41(1) of the Act - Decided in favour of assessee. Interest under Section 234B - Held that:- The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld in the case of Anjum H Ghaswala (2001 (10) TMI 4 - SUPREME Court) and we, therefore, uphold the action of the Assessing Officer in charging the said interest. - Decided against assessee. Income from 'Prestige Shantiniketan' Project - CIT (Appeals) deleted the addition and upheld the basic contention of the assessee that the property, which is the subject matter of JDA between the assessee and PEPL, is held as stock-in-trade by the assessee and not as a capital asset, therefore income arising under Section 45(2) in respect of the conversion of the capital asset to stock-in-trade, as well as business income arising on the sale of such stock-in-trade will accrue and arise only in the year in which the stock-in-trade is actually sold - Held that:- The lands which are subject matter of the JDA dt.5.2.2005, between the assessee and PEPL, are stock-in-trade of the assessee at the time of JDA was entered into. There is a finding to this effect, rendered by a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2005-06 [2015 (4) TMI 465 - ITAT BANGALORE]. No sale of such stock-in-trade has been reported to have taken place during the year under consideration i.e. Assessment Year 2009-10. The assessee has reportedly been consistently following the completed contract method of accounting and the same appears to have accepted by revenue. AO has not brought on record any material evidence to demonstrate that the system of accounting followed by the assessee does not show a true and correct picture of income, which in turn would warrant rejection of the books of account. The Assessing Officer has not rejected the books of account maintained by the assessee in the year under consideration. The assessee is basically a landlord simpliciter as far as the JDA between the assessee and PEPL is concerned thus there is no requirement in law that the assessee ought to adopt the percentage completion method of accounting merely because PEPL, the developer in the JDA, in following the said method.In the light of the above facts, it would be incorrect to conclude that the assessee has earned any income out of the JDA in the period relevant to the impugned assessment year 2009-10. As decided in case of R.Gopinath (HUF) V CIT [2009 (7) TMI 1209 - ITAT CHENNAI] when an immovable property is held as stock-in- trade, the same is to be considered as sold only when the sale is conveyed by means of a registered sale deed and not before that. The learned CIT(A) has also expressed the same view in the impugned order in the case on hand and the said view, in our considered opinion, is in order Non-refundable deposit would par take the character of sale consideration only upon the ownership of the undivided interest in land being transferred by a sale deed and not before and then only to the extent of the amount proportionately applicable to the extent of the land so transferred. 11.6.4 In the light of the facts and circumstances of the case as discussed above and the observations made and findings rendered by us, we see no reason for interfering with the findings rendered by the learned CIT(A) in the impugned order deleting the addition as income from the Shantiniketan Project in the year under consideration - Decided against revenue. Issues Involved:1. Disallowance under Section 14A.2. Addition under Section 41(1).3. Income from Shantiniketan Project.4. Interest under Section 234B.Detailed Analysis:1. Disallowance under Section 14A:- Facts: The Assessing Officer (AO) disallowed Rs. 1,93,730 under Section 14A read with Rule 8D(2)(iii) for expenses incurred to earn exempt income. The assessee argued that no expenditure was incurred to earn the exempt income of Rs. 18,400 and that the AO applied Rule 8D mechanically without proper application of mind.- CIT (Appeals) Decision: The CIT (Appeals) upheld the AO's disallowance, referencing judicial pronouncements.- Tribunal's Analysis: The Tribunal noted that the AO did not provide cogent reasons for rejecting the assessee's claim of no expenditure incurred for earning the exempt income. The Tribunal referenced the Delhi High Court's decision in Maxopp Investments Ltd. and other ITAT decisions, concluding that the disallowance under Section 14A should be deleted as the AO failed to establish a proper case for disallowance and the investments were long-term and strategic, not aimed at earning exempt income.- Conclusion: The disallowance of Rs. 1,93,730 under Section 14A was deleted.2. Addition under Section 41(1):- Facts: The AO added Rs. 5,87,817 under Section 41(1) due to a discrepancy between the liability shown by the assessee and its creditor, KBDL. The assessee showed a liability of Rs. 3,65,92,256 while KBDL showed Rs. 3,71,80,073.- CIT (Appeals) Decision: The CIT (Appeals) sustained the addition, stating the assessee failed to prove that the amount was offered to tax by KBDL.- Tribunal's Analysis: The Tribunal found that the basic requirement for applying Section 41(1)-that a liability no longer exists-was not met. The liability shown by the assessee was less than that shown by the creditor, indicating the liability still existed.- Conclusion: The addition of Rs. 5,87,817 under Section 41(1) was deleted.3. Income from Shantiniketan Project:- Facts: The AO determined the assessee's income using the Percentage Completion Method, adding Rs. 29,55,92,202 as income from the Shantiniketan Project. The assessee contended that the income should be recognized on the Project Completion Method.- CIT (Appeals) Decision: The CIT (Appeals) held that the income from the project should be recognized in the year the stock-in-trade is sold, not based on the percentage completion method. The CIT (Appeals) also noted that the assessee is a landlord and not required to follow the same accounting method as the developer, PEPL.- Tribunal's Analysis: The Tribunal upheld the CIT (Appeals) decision, agreeing that the property was held as stock-in-trade and that no sale of stock-in-trade occurred in the assessment year 2009-10. The Tribunal also noted that the AO did not reject the assessee's books of account and that the assessee consistently followed the completed contract method, which is permissible.- Conclusion: The addition of Rs. 29,55,92,202 as income from the Shantiniketan Project was deleted.4. Interest under Section 234B:- Facts: The assessee challenged the levy of interest under Section 234B.- Tribunal's Analysis: The Tribunal noted that the charging of interest under Section 234B is consequential and mandatory as upheld by the Supreme Court in Anjum H Ghaswala. The AO was directed to recompute the interest, if any, while giving effect to the Tribunal's order.- Conclusion: The levy of interest under Section 234B was upheld, subject to recomputation.Summary:- The assessee's appeal was partly allowed, with deletions of disallowances under Section 14A and additions under Sections 41(1) and income from the Shantiniketan Project.- The revenue's appeal was dismissed.- Interest under Section 234B was upheld but to be recomputed.