2020 (4) TMI 854 - AT - Income Tax

Tribunal directs AO to re-compute disallowances & additions, emphasizes importance of legal principles

Apurva Natvar Parikh And Co. Pvt. Ltd. Versus DCIT, CC 7 (1), Mumbai And (Vice-Versa)

Apurva Natvar Parikh And Co. Pvt. Ltd. Versus DCIT, CC 7 (1), Mumbai And (Vice-Versa) - TMI Issues Involved:1. Disallowance of Rs. 1,11,30,167/- on account of amortization of additional premium paid on leasehold land.2. Addition under Section 14A of the Income Tax Act.3. Addition of Rs. 1,20,54,127/- under Section 40(a)(ia) of the Income Tax Act.4. Disallowance of Rs. 8,20,356/- on account of professional charges paid.5. Addition on account of non-refundable one-time entrance fees collected by the company.Detailed Analysis:1. Disallowance of Rs. 1,11,30,167/- on Account of Amortization of Additional Premium Paid on Leasehold Land:The assessee claimed a deduction for amortization of lease premium, which was treated as capital expenditure by the Assessing Officer (AO). The AO concluded that the cost incurred on land is always capital in nature unless the assessee is engaged in dealing in land. The CIT(A) upheld this view, noting that the premium paid was for releasing land from the Urban Land Ceiling Authority (ULCA), which was not part of the assessee's business assets. The Tribunal affirmed this decision, stating that there was no obligation under the lease agreement for the assessee to pay the premium on behalf of the lessor, and thus, the payment was not a revenue expenditure.2. Addition under Section 14A of the Income Tax Act:The AO made a disallowance under Section 14A read with Rule 8D, considering the assessee's investments that generated exempt income. The CIT(A) directed to exclude investments made in group companies while calculating the disallowance. The Tribunal directed the AO to re-compute the disallowance by considering only those investments that yielded exempt income during the relevant assessment year, in line with the decision of the Special Bench of the Delhi Tribunal in Vireet Investment Pvt. Ltd.3. Addition of Rs. 1,20,54,127/- under Section 40(a)(ia) of the Income Tax Act:The assessee did not press this ground during the hearing. Consequently, the Tribunal dismissed this ground as not pressed.4. Disallowance of Rs. 8,20,356/- on Account of Professional Charges Paid:The AO disallowed the professional charges paid to Bhagwan Madhav, a Civil Engineer, on the ground that no projects were undertaken during the assessment year. The CIT(A) upheld this disallowance, stating that the assessee failed to establish the nexus between the expenses and corresponding income. The Tribunal, however, directed the AO to delete the addition, noting that the services of a Civil Engineer are integral to the construction activities, and the disallowance was made without proper investigation into the genuineness of the payment and services rendered.5. Addition on Account of Non-Refundable One-Time Entrance Fees Collected by the Company:The AO treated the one-time membership entrance fees as revenue receipt, while the assessee treated it as capital receipt. The CIT(A) granted partial relief by spreading the fee over the membership period. The Tribunal followed its earlier decision in the assessee's own case for previous years, directing the AO to tax 1/25th of the fee each year, rather than the entire sum in the year of receipt.Conclusion:The appeals were partly allowed, with specific directions to the AO for re-computation and reconsideration of certain issues based on established judicial precedents and the assessee's previous cases. The Tribunal's order provided a detailed analysis of each issue, ensuring that the legal principles and factual matrix were thoroughly examined and applied.