2019 (4) TMI 854 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions: Rule 8D Inapplicable, ALV Set, Excess Expenditure Deleted

The Tribunal upheld the CIT(A)'s decisions on all three issues: 1) Rule 8D not applicable for disallowance under Section 14A, 2) Annual Lettable Value ... Disallowance u/s 14A r.w.r. 8D - HELD THAT:- Rule 8D is not applicable in the assessee’s case, the ld. Counsel for the assessee has contended that total disallowance was suo motu offered by the assessee u/s 14A and the same being more than the exempt dividend income of ₹ 10,88,37,814/- received by the assessee during the year under consideration, a further disallowance made by the Assessing Officer which exceeded even the exempt dividend income is not sustainable. Since this contention raised by the assessee is duly supported by the decision of the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Limited –vs - CIT (2015 (3) TMI 155 - DELHI HIGH COURT), we uphold the impugned order of the CIT(Appeals) deleting the disallowance made by the Assessing Officer under section 14A as the said disallowance resulted into a total disallowance under section 14A, which was more than the exempt dividend income actually earned by the assessee during the year under consideration. Income from house property - Accepting the ALV of the assessee’s house property thereby rejecting the fair market rent - AO adopted the annual value of the property at ₹ 1.20 crores by following the stand taken in the earlier years and computed the income of the assessee under the head “income from house property” after allowing deduction under section 24(a) - HELD THAT:- This issue thus is squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee’s own case for the earlier years [2016 (1) TMI 169 - ITAT KOLKATA], which has been upheld by the Hon’ble Calcutta High Court and respectfully following the same, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue. Ground No. 2 is accordingly dismissed. Addition on account of excess expenditure allegedly claimed by the assessee - HELD THAT:- This working prepared and furnished by the assessee during the course of assessment proceedings was not properly understood and appreciated by the Assessing Officer and he made a huge disallowance without recording any adverse finding about the genuineness or the business expediency of the said expenditure. CIT(Appeals), on the other hand, appreciated the working furnished by the assessee in the right perspective and deleted the disallowance made by the AO, which was unsustainable and unfounded in the facts and circumstances of the case. We, therefore, find no infirmity in the impugned order of the CIT(Appeals) giving relief to the assessee on this issue and upholding the same, we dismiss Ground No. 3 of the Revenue’s appeal. Issues Involved:1. Applicability of Rule 8D for disallowance under Section 14A of the Income Tax Act.2. Determination of Annual Lettable Value (ALV) of house property.3. Disallowance of excess expenditure claimed by the assessee.Issue-wise Detailed Analysis:1. Applicability of Rule 8D for Disallowance under Section 14A:The Revenue challenged the CIT(A)'s decision that Rule 8D is not applicable in the assessee's case, leading to the deletion of the disallowance made by the Assessing Officer (AO) under Section 14A. The assessee, a company engaged in running hotels and providing technical services, had earned exempt dividend income and had disallowed only direct and indirect expenses as per Rule 8D read with Section 14A. The AO made an additional disallowance of Rs. 82,81,539/- under Rule 8D(2)(iii) for common administrative expenses. The CIT(A) deleted this disallowance, relying on the ITAT Kolkata's decision in the assessee's own case for AY 2008-09, which held that Rule 8D is not applicable as the primary object of the investment was for holding a controlling stake in group concerns, not for earning income. Additionally, the CIT(A) directed the AO to consider net interest for disallowance purposes and excluded foreign investments from the average investment calculation. The Tribunal upheld the CIT(A)'s order, citing the Hon'ble Delhi High Court's decision in Joint Investments Pvt. Limited vs. CIT, which supported that the total disallowance should not exceed the exempt income earned.2. Determination of Annual Lettable Value (ALV) of House Property:The Revenue contested the CIT(A)'s acceptance of the assessee's house property ALV at Rs. 3,60,000/-, rejecting the AO's determination of Rs. 1,20,00,000/- as the fair market rent. The property in question was let out at a monthly rent of Rs. 30,000/-, totaling Rs. 3,60,000/- annually. The AO had adopted the ALV of Rs. 1.20 crores based on earlier years' assessments. The CIT(A) deleted the addition, referring to the Tribunal's decision in the assessee's own case for earlier years, which stated that the AO cannot deviate from the actual rent received without any material evidence. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the Tribunal's earlier decisions in the assessee's favor and upheld by the Hon'ble Calcutta High Court.3. Disallowance of Excess Expenditure Claimed by the Assessee:The Revenue challenged the CIT(A)'s deletion of the AO's disallowance of Rs. 5,12,71,228/- on account of excess expenditure claimed by the assessee. The AO noted discrepancies in the allocation of expenses against different income heads, particularly against royalty and membership fees. The AO disallowed the alleged excess expenditure after adjusting for amounts already disallowed by the assessee. The CIT(A) deleted the disallowance, finding that the AO did not consider the common expenses allocated by the assessee and failed to bring any material evidence to prove excessive claims. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO misunderstood the working furnished by the assessee and made an unsustainable disallowance without any adverse findings on the genuineness or business expediency of the expenditure.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The order was pronounced in the open court on April 12th, 2019.