2015 (6) TMI 722 - AT - Income Tax

Tribunal upholds CIT(A) decisions on lease rent, ship expenses, and losses set-off.

The Tribunal upheld the CIT(A)'s decisions, confirming the disallowance of lease rent under Section 14A, deleting the disallowance of ship management ... Treatment to Agricultural income - CIT(A) held that the expenditure incurred for earning agricultural income has to be set off against the income from agricultural operations and the resultant loss from agricultural operations was treated as the net disallowance u/s 14A - Held that:- The finding recorded by the ld. CIT(A) has not been controverted by the ld. D.R. by bringing any positive material on record, we, therefore, find no reason to interfere with the findings recorded by the ld. CIT(A) holding that the assessee had earned agricultural income of ₹ 8,01,175/-. With regard to lease rent expenditure of ₹ 26,59,140/- incurred by the assessee, the ld. CIT(A) has disallowed the same on the plea that the expenditure was incurred for earning exempt income. We also find that the lease rent was paid to the directors of the assessee company for leasing the lands to the assessee which deserves to be disallowed u/s 14A of the Act to the extend attributable to earning of exempt income. Revenue ground with regard to additional evidence accepted by the ld. CIT(A) without giving opportunity to the A.O is not acceptable as the A.O. has not given sufficient opportunity to the assessee, insofar as the documents were asked at the fag end of the assessment proceedings, therefore, the assessee could not furnish the same before the A.O. These documents were filed before the ld. CIT(A) who has sent all these documents to the A.O. for his remand report. The A.O. has examined all these documents and sends his remand report. Accordingly, there is no violation of Rule 46A.- Decided against revenue. Disallowance u/s 40(a)(ia) - assessee did not comply with the TDS provisions - expenditure incurred on ship management fees - CIT(A) deleted the addition - Held that:- A.O. has himself certified that the assessee company has complied with the applicable TDS provisions in respect of the expenditure amounting to ₹ 60.42 crores which were genuine and there was no contravention of TDS provisions while making payment for such expenses, we do not find any infirmity in the order of ld. CIT(A). We accordingly do not find any reason to interfere with the finding of ld. CIT(A) deleting the disallowance of expenses incurred on ship management.- Decided against revenue. Disallowance of losses from activity of horse breeding and owning and maintaining race horses - CIT(A) partly allowed the assessee’s claim - Held that:- The activity of breeding of horses is similar to that of poultry or piggeries etc. where the animals are bred for the purpose of selling. Section 74A is not applicable for such breeding activity. The ld. CIT(A) also found that during the remand proceedings, the A.O. reported that income and expenditure pertaining to breeding activity and racing activity were found to be captured under two different accounting codes in respect of both the assessment years. The ld. CIT (A) also found that an amount of ₹ 1.94 crores is recovered on account of livery expenses from other horse owners, who have utilized the stables and other services of the stud farm of the assessee. After considering the remand report and corroborative evidences filed before him, the ld. CIT(A) reached to the conclusion that only the business loss in respect of horse breeding activity amounting to ₹ 1,89,92,554/- was liable to be set off against business income whereas loss of ₹ 1,18,63,894/- is from horse racing activity not eligible for set off against business income in view of provisions of section 74A of the Act. The findings recorded by the ld. CIT(A) are as per material on record, thus we do not find any reason to interfere in the findings of ld. CIT(A) and accordingly we confirm the same. - Decided against revenue. Disallowance of lease rent paid to the directors of the company - Held that:- the assessee company paid lease rent to the directors. The lease rent was paid in respect of land used for agricultural income which is exempt. Since the expenditure was incurred for earning exempt income, the ld. CIT(A) has correctly disallowed the claim u/s 14A of the Act. Accordingly, the additional ground raised by the assessee is dismissed. Issues Involved:1. Agricultural income and lease rent disallowance.2. Disallowance of ship management expenses.3. Disallowance of losses from horse breeding and racing activities.4. Additional evidence admission and Rule 46A compliance.Issue-wise Detailed Analysis:1. Agricultural Income and Lease Rent Disallowance:The assessee claimed agricultural income and lease rent paid to directors for agricultural land. The A.O. disallowed the agricultural income, treating it as income from other sources due to lack of evidence and the natural growth of grass. The A.O. also disallowed lease rent under Section 14A, as it was related to exempt income. The CIT(A) allowed the agricultural income but upheld the lease rent disallowance. The Tribunal confirmed the CIT(A)'s decision, noting that the grass was specially planted and the agricultural activities were substantiated by evidence. The lease rent was rightly disallowed as it related to exempt income.2. Disallowance of Ship Management Expenses:The A.O. disallowed expenses related to ship management fees, citing non-compliance with TDS provisions. The assessee argued that the expenses were reimbursed and TDS was deducted. The CIT(A) admitted additional evidence and found that the assessee complied with TDS provisions. The Tribunal upheld the CIT(A)'s decision, noting that the A.O. verified the expenses and TDS compliance during remand proceedings and found no discrepancies. The disallowance was deleted as the expenses were genuine and TDS was duly deducted.3. Disallowance of Losses from Horse Breeding and Racing Activities:The A.O. treated the losses from horse breeding and racing as a single activity under Section 74A, disallowing the set-off against other income. The CIT(A) distinguished between breeding and racing activities, allowing the set-off of breeding losses against other income and disallowing the racing losses. The Tribunal confirmed the CIT(A)'s decision, noting that only a small percentage of horses participated in races and the breeding activity was distinct from racing. The loss from breeding was allowed to be set off, while the racing loss was carried forward under Section 74A.4. Additional Evidence Admission and Rule 46A Compliance:The Revenue argued that the CIT(A) admitted additional evidence without giving the A.O. an opportunity to examine it. The Tribunal found that the A.O. had not given sufficient opportunity to the assessee during assessment proceedings and the CIT(A) had sent the additional evidence to the A.O. for a remand report. The A.O. examined the evidence and submitted a remand report. The Tribunal held that there was no violation of Rule 46A as the A.O. was given due opportunity to examine the additional evidence. The Tribunal dismissed the Revenue's ground on this issue.Conclusion:The Tribunal upheld the CIT(A)'s decisions on all issues, confirming the disallowance of lease rent under Section 14A, deleting the disallowance of ship management expenses, and allowing the set-off of breeding losses while carrying forward the racing losses under Section 74A. The appeals of both the assessee and the Revenue were dismissed.