2017 (2) TMI 1094 - AT - Income Tax

Tribunal decision: Disallowed expenses limited, TDS issue favored assessee, investment value remanded

M/s Lodha Developers Pvt. Ltd. Versus Dy. Commissioner of Income Tax And Vice-Versa

The Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal. The disallowance under section 14A was restricted to a specific ... Addition u/s 14A qua expenses relatable to exempt income - Held that:- This issue is settled by Income Tax Settlement Commission in its order vide settlement application No.MH/MUCC-4/118/2012-13/IT for the A.Y. 2008-09, the year under consideration, and restricted the disallowance at ₹ 4,24,76,189/-. We direct the AO to adopt the Income as directed by the Income Tax Settlement Commission. This issue of assessee’s appeal is partly allowed. Non-deduction of TDS u/s 40a(ia) - Held that:- Income Tax Settlement Commission has directed that no disallowance on the issue of non-deduction of TDS on income capitalized also short- term and / or non-deduction of TDS on payment made to group entities be not disallowed by invoking the provision of section 40a (ia) of the Act. - Decided in favour of assessee Reduce the value of investment reflected in the balance sheet of the assessee to the extent of brokerage expenses - Held that:- We remand this issue back to the file of the AO with direction to verify whether this amount of ₹ 66.90 loss being brokerage on which TDS is not effected has been capitalized or not. In case these amounts are capitalized and not claimed in the P & L account, the disallowance cannot be made by invoking the provisions of Section 40a(ia) of the Act. In case these are claimed then the assessee is liable to deduct TDS and amount is to be disallowed in the absence of TDS. In term of the above, the issue is remanded back to the file of the AO for verification of the AO. Issues:1. Disallowance under section 14A of the Income Tax Act2. Disallowance of expenses for non-deduction of TDS under section 40a(ia) of the Act3. Reduction of investment value in balance sheet for brokerage expensesAnalysis:Issue 1: Disallowance under section 14A of the Income Tax ActThe first issue in the appeal pertains to the disallowance made by the AO under section 14A of the Act, regarding expenses related to exempt income. The CIT(A) confirmed the disallowance, but the learned Counsel for the assessee referred to the order of the Income Tax Settlement Commission, which restricted the disallowance to a specific amount. The Tribunal considered the Settlement Commission's order and directed the AO to adopt the income as directed by the Settlement Commission. Consequently, the issue in the assessee's appeal was partly allowed.Issue 2: Disallowance of expenses for non-deduction of TDS under section 40a(ia) of the ActThe second issue raised by the assessee was against the disallowance of expenses for non-deduction of TDS under section 40a(ia) of the Act. The learned Counsel referred to the order of the Income Tax Settlement Commission, which had directed that no disallowance be made on this issue. The Tribunal, after reviewing the Settlement Commission's order, set aside the lower authorities' orders and allowed the issue in the assessee's appeal.Issue 3: Reduction of investment value in balance sheet for brokerage expensesThe final issue involved a direction by the CIT(A) to reduce the value of investment in the balance sheet by the amount of brokerage expenses. The Tribunal noted the directions given by the CIT(A) and remanded the issue back to the AO for verification. The AO was instructed to determine whether the brokerage amount, on which TDS was not deducted, had been capitalized. If the amount was capitalized and not claimed in the profit and loss account, the disallowance under section 40a(ia) could not be made. The Tribunal remanded the issue to the AO for further examination.In conclusion, the Tribunal partly allowed the appeal of the assessee and dismissed the appeal of the Revenue, based on the detailed analysis and considerations of the issues raised in the case.