2015 (6) TMI 879 - AT - Income Tax

ITAT Appeal: Analysis of Disallowances & Adjustments in Taxation

The ITAT partly allowed the appeal, directing the assessing officer to restrict disallowance under section 14A to 20% for shares in stock-in-trade. The ... Disallowance made u/s 14A r.w.r 8D - Held that:- As relying on case of DCIT V/s Damani Estates and Finance Pvt. Ltd [2013 (8) TMI 457 - ITAT MUMBAI] we direct the assessing officer to restrict the disallowance to be made under Rule 8D(2)(ii) of the IT Rules to 20% of the amount computed under that Rule in respect of Shares held as ‘’stock in trade’’. The disallowance to be made under Rule 8D(2)(ii) in respect of Shares held as investment has to be computed in accordance with Rule 8D(2)(ii) only. In respect of the disallowance to be made under Rule 8D(2)(iii), the Co-ordinate bench has taken the view that the shares held as stock in trade should also be included in computing the Average value of investments. Hence, no interference is called for in the computation made by the AO under Rule 8D(2)(iii). In view of the above, the order of Ld CIT(A) shall stand modified - Decided partly in favour of assessee. Disallowance of irrecoverable amounts written off of - Held that:- From the perusal of the submissions made by the assessee, it appears that there was a dispute between the assessee and land lord with regard to the quantum of rent. When the quantum of rent was finally settled between the parties, the arrear rent was deducted by the Land lord against the Rent deposit. Accordingly, the assessee has transferred the amount so deducted from the Rent deposit account to Rent expenditure account. We notice that, the tax authorities, without appreciating these factual aspects, has held that the loss of rent deposit is a capital loss. However, according to the assessee, it was not loss of rent deposit as presumed by the tax authorities, but it was only adjustment of part of rent deposit towards arrear rent. However, the factual details relating to rent arrear, dispute and adjustment of rent deposit have not been examined by the tax authorities. Thus restore this issue to the file of the assessing officer with the direction to examine this issue afresh - Decided in favour of assessee for statistical purposes. Disallowance of retention money retained from sub-brokerage - Held that:- The liability is determined on the basis of contract between the assessee and the sub-brokers and accordingly, the assessee seems to have claimed the above said amount as expenditure. However, while making actual payment, the assessee has retained a part of liability as contingency fund in order to cover up possible bad debts. Thus, it is seen that the assessee has retained a part of liability that has already accrued to it. Hence, in our view, the tax authorities are not justified in holding that the liability to the extent of amount retained as contingency fund did not accrue at all. Accordingly, we set aside the order of Ld CIT(A) and direct the assessing officer to delete this addition. - Decided in favour of assessee. Disallowance of difference in brokerage income - AO noticed that there was a difference of ₹ 9,380/- between the Brokerage income shown in the books of account and that shown in the service tax return - Held that:- Difference is a matter of reconciliation. If the assessee is able to show the mistake that occurred in the service tax return vis-à-vis the books of account, this addition is not warranted. However, the assessee has failed to furnish any reconciliation statement or failed to show the mistake occurred in preparation of service tax return. Hence, we have no other option, but to confirm this addition.- Decided against assessee. Issues:1. Disallowance made u/s 14A.2. Disallowance of irrecoverable amounts written off.3. Addition of retention money retained from sub-brokerage.4. Disallowance of difference in Service Tax.Issue 1 - Disallowance u/s 14A:The assessee received tax-free dividend income and made a disallowance under section 14A. The assessing officer included the value of shares held as stock-in-trade while computing the disallowance, leading to an additional disallowance. The Co-ordinate Bench of the Mumbai Tribunal had previously restricted the disallowance for shares in stock-in-trade to 20% of the amount computed under Rule 8D(2)(ii). Following this precedent, the ITAT directed the assessing officer to restrict the disallowance accordingly. The disallowance under Rule 8D(2)(iii) was upheld for shares held as stock in trade.Issue 2 - Disallowance of Irrecoverable Amounts:The AO disallowed a sum written off from a rent deposit as a capital loss, which the CIT(A) upheld. The ITAT found that the loss was due to an adjustment against arrear rent and not a capital loss. The case was remanded to the assessing officer for a fresh examination with the direction for the assessee to provide relevant documents.Issue 3 - Addition of Retention Money:The AO disallowed a portion of retention money retained by the assessee for a contingency fund, which the CIT(A) confirmed. The ITAT observed that the liability had accrued to the assessee, and the retention was justified to cover potential bad debts. The addition was directed to be deleted.Issue 4 - Disallowance of Difference in Service Tax:A difference in brokerage income between books of account and service tax return was added as income by the AO and confirmed by the CIT(A). The ITAT noted the lack of reconciliation provided by the assessee and upheld the addition, emphasizing the need for proper documentation to support claims.In conclusion, the appeal was partly allowed by the ITAT, with specific directions given for each issue. The judgment provided detailed reasoning and legal interpretations for each issue, ensuring a fair and thorough analysis of the challenges raised by the assessee.