2017 (11) TMI 993 - AT - Income Tax

Tribunal upholds CIT(A) decisions, disallows Section 14A, rental income additions removed

The Tribunal upheld the decisions of the Ld. CIT(A) in dismissing the Revenue's appeal. The disallowance under section 14A was deleted, and the addition ... Disallowance u/s 14A r.w.r. 8D(2)(ii) - Held that:- As for the disallowance under Rule 8D(2)(iii), the assessee on her own had disallowed a sum of ₹ 5 lacs in the return of income out of total administrative expenses of ₹ 40,73,576/-. The Ld. AO had not recorded any satisfaction as to how the said disallowance made by the assessee is incorrect having regard to the accounts of the assessee in terms of Section 14A(2) of the Act read with Rule 8D(1) of the Rules. Accordingly, this Tribunal held that the other disallowance under Rule 8D(2)(iii) deleted by the Ld. CIT(A) was in order and dismissed the appeal of the revenue. We find that the aforesaid finding given would squarely apply to the instant appeal also as admittedly the revenue had agitated the disallowance made under Rule 8D(2)(ii) of the Rules in the sum of ₹ 49,31,531/-. Since, this issue had already been decided by this Tribunal in assessee’s case for the assessment year 2010-11 in original assessment proceedings, there is no need to adjudicate the same again in the reassessment proceedings. Hence, the ground no. 1 raised by the Revenue is dismissed. Addition made towards rental income in respect of five shops - determination of income - ownership of shops - assessee pleaded that she is not the owner of the property and hence there could not be any charge of rental income of notional basis under the head income from house property on her - Held that:- In the instant case, the assessee had used these five shops for the purpose of her business in the capacity of sub-licensee. These facts are not in dispute. Hence there is no scope for assessment of rental income on notional basis on fair market value determined by the Inspector of Income Tax. The legislature in its wisdom had contemplated to bring to tax the rental income from properties held as stock in trade on notional basis after one year from the date on which they were acquired, and this amendment is effective only from 01.04.2018. We find similar provision was conspicuously absent previously under the Income Tax Act more particularly, under the head ‘profits and gains of business or profession’ for chargeability of notional income for five shops. Hence, we hold that the Ld. CIT(A) had rightly deleted the addition made towards rental income under the head income from house property in the instant case and accordingly, the ground no. 2 of the revenue is dismissed. Issues:1. Disallowance under section 14A read with Rule 8D(2)(ii) of the Income Tax Act.2. Addition made towards rental income under the head income from house property.Analysis:Issue 1: Disallowance under section 14A read with Rule 8D(2)(ii) of the Income Tax Act:The appeal by the Revenue challenged the deletion of disallowance made under section 14A of the Act by the Ld. CIT(A). The original assessment had resulted in a reduced total income for the assessee. The disallowance under section 14A was initially restricted by the Ld. AO due to discrepancies in the total expenses debited. However, upon reassessment, the disallowance was increased. The Ld. CIT(A) in the impugned order relied on the previous decision and deleted the disallowance under Rule 8D(2)(ii) of the Rules. The Revenue contended that the disallowance should be based on total interest paid, not on netting interest income. The Tribunal, referring to a previous decision, upheld the deletion of the disallowance, stating that there was no need to adjudicate the issue again in reassessment proceedings. Therefore, the ground raised by the Revenue was dismissed.Issue 2: Addition made towards rental income under the head income from house property:The Revenue contested the deletion of the addition towards rental income for five shops by the Ld. CIT(A). The assessee argued that she was not the owner of the property and thus not liable for rental income under the head income from house property. The Ld. CIT(A) agreed with the assessee, noting that the appellant was a sub-licensee and not the owner of the shops. The Tribunal concurred, emphasizing that the provision of deemed rental income applies when the assessee is the owner of the property, not for business assets. The Tribunal also highlighted a newly inserted provision regarding properties held as stock-in-trade, effective from 01.04.2018, which was not applicable in this case. Therefore, the deletion of the addition towards rental income was upheld, and the Revenue's appeal was dismissed.In conclusion, the Tribunal upheld the decisions of the Ld. CIT(A) regarding both issues, resulting in the dismissal of the Revenue's appeal.