2016 (1) TMI 644 - AT - Income Tax

Tribunal directs AO to recompute disallowances & accept valuation reports. Revenue's appeal dismissed.

Addl. Comm. of Income Tax Versus Infomedia 18 Ltd., (Formerly known as Infomedia India Limited) And Vice-Versa

Addl. Comm. of Income Tax Versus Infomedia 18 Ltd., (Formerly known as Infomedia India Limited) And Vice-Versa - TMI Issues Involved:1. Disallowance of expenses under Section 14A of the Income Tax Act, 1961.2. Non-adjudication of certain grounds by the CIT(A).3. Disallowance of expenses treated as capital expenditure.4. Ad-hoc disallowance of provision for expenses.5. Bifurcation of sale consideration between land and building for computing capital gains.Issue-wise Detailed Analysis:1. Disallowance of Expenses under Section 14A:The assessee company appealed against the disallowance of Rs. 42,02,922 made by the AO under Section 14A read with Rule 8D, instead of the Rs. 4,65,332 disallowed by the assessee company. The AO made the disallowance based on the CBDT circular, which the assessee argued was not applicable for the assessment year in question. The CIT(A) upheld the AO's disallowance, considering the provisions of Section 14A(2) and (3) read with Rule 8D as retrospective. However, the Tribunal, referencing the Bombay High Court decision in Godrej and Boyce Mfg. Co. Ltd. v. DCIT, held that Rule 8D is applicable prospectively from the assessment year 2008-09. Consequently, the Tribunal restored the issue to the AO for re-computation of the disallowance on a reasonable basis as per the directions of the Bombay High Court, considering the assessee's self-disallowed amount of Rs. 4,65,332.2. Non-adjudication of Certain Grounds by the CIT(A):The assessee company claimed that grounds 12 to 14 raised before the CIT(A) were not adjudicated. However, the CIT(A) had already passed orders under Section 154, amending the appellate order, which addressed the assessee's grievance. The Tribunal dismissed this ground as infructuous.3. Disallowance of Expenses Treated as Capital Expenditure:The AO disallowed Rs. 78,700, treating it as capital expenditure instead of revenue expenditure claimed by the assessee company. The CIT(A) upheld this disallowance. The Tribunal found that the assessee company failed to substantiate its claim that these expenses were revenue in nature. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the assessee's appeal on this ground.4. Ad-hoc Disallowance of Provision for Expenses:The AO disallowed 5% of the provision for expenses (Rs. 23,22,920 out of Rs. 4,64,58,410) created by the assessee company at the year-end, which was reversed the next day. The CIT(A) confirmed the AO's disallowance due to the lack of substantiation by the assessee company. The Tribunal restored the issue to the AO, directing the assessee company to provide necessary evidence to substantiate its claim. The AO was also directed to ensure no double addition for the same amount in subsequent years.5. Bifurcation of Sale Consideration between Land and Building:The Revenue appealed against the CIT(A)'s decision to accept the valuation of land and building shown by the assessee company. The AO had adopted the building residual technique, assigning values based on the ready reckoner rates, which the CIT(A) found inappropriate. The CIT(A) preferred the land residual technique used by the assessee's registered valuer, which was based on comparable sales and ready reckoner rates. The Tribunal upheld the CIT(A)'s decision, finding that the AO's method led to absurd results and lacked proper justification. The Tribunal directed the AO to accept the valuation provided by the assessee's registered valuer.Conclusion:The Tribunal partly allowed the assessee company's appeal for statistical purposes and dismissed the Revenue's appeal, directing the AO to re-compute disallowances and accept the valuation reports provided by the assessee's registered valuer.