2024 (10) TMI 652 - AT - Income Tax

Revenue appeal dismissed: no Section 14A disallowance without exempt income, rental deductions allowed, administrative expenses under AS-7 upheld, full depreciation on business assets confirmed

The ITAT Delhi dismissed the Revenue's appeal on multiple grounds. The Tribunal upheld CIT(A)'s decision allowing the assessee's claims regarding: (1) no ... Disallowance u/s 14A r.w.r. 8D - expenditure incurred on earning exempt income - HELD THAT:- Revenue has not brought any material suggesting that the contention of the assessee that the assessee do not have any income which does not part of the total income and did not make any expenditure/claimed expenditure for earning exempt income, is not true. The finding of CIT(A) is in consonance with the binding precedents. Therefore, we do not see any reason to interfere in the findings of CIT(A), the same is hereby affirmed. The Grounds of appeal raised by the Revenue on this issue are dismissed. Disallowances of assured rental/interest paid by the assessee on account of expenditure claimed by the assessee - AO made disallowance on the basis that such deduction of expenses as claimed by the assessee, could be allowed only in the year in which corresponding sale takes place - CIT(A) deleted addition - as argued CIT(A) failed to appreciate that assured rentals cannot be equated with the interest - HELD THAT:- “Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of money borrowed or debt incurred by the assessee”. Thus, Tribunal in the case of M/s. Vipul Infracon Pvt. [2023 (8) TMI 670 - ITAT DELHI] has under the identical facts and the issue has ruled in favour of the assessee. The Revenue has not brought to our our notice any other binding precedent that may impel us for deviating from the decision of the Co-ordinate Bench. We therefore, respectfully following the decision of the Co-ordinate Bench of the Tribunal hereby affirm the impugned order on the issue and reject the plea of the Revenue. Addition of administrative expenses and staff cost - Assessee contended that as per AS-7, the expenses are allowable as administration cost and staff cost incurred by the assessee, are not directly related to a construction of project and same are to be charged to profit and loss account - Revenue submitted that CIT(A) was not justified in deleting the addition as it is admitted fact that the assessee is following complete contract method, therefore, the proportionate disallowance of expenditure was rightly made by the AO - HELD THAT:- Revenue has not controverted the finding that the assessee has booked the direct expenses incurred on the cost of material and labour for construction of property in the cost of inventory and claimed the indirect expenses such as office employee’s salary, administrative expenses and market and selling expenses as revenue expenses. As per AS-7, these expenses would be allowable.' Revenue has not brought out any other binding precedent to our notice that may impel for deviating from the decision of the Co-ordinate Bench Lodha Palazzo [2014 (12) TMI 1272 - ITAT MUMBAI] that the expenses would be allowable if the assessee has consistently followed the method which is as per the recognized principles of accounting. It is rebutted by the Revenue that the assessee has not been following consistently method prescribed u/s AS-7. Hence, we affirm the impugned order on the issue and reject the plea of the Revenue. Ground raised by the Revenue is accordingly, dismissed. Disallowance of depreciation - disallowance of depreciation by applying a percentage as considered by the AO - CIT(A) deleted addition - HELD THAT:-As per finding on facts, Ld.CIT(A) is not controverted by the Revenue by bringing any adverse material therefore, we do not see any reason to interfere in the findings of Ld.CIT(A) stating that disallowance of depreciation made by the AO by applying a percentage to eligible amount of depreciation is not well founded - There is no justification in making any disallowance. If the car is used by the Assessee for the purpose of his business, then the depreciation need to be allowed as per the rate suggested by the statute. Depreciation is a statutory allowance. The statutory allowance cannot be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the Assessee and it should be used for the business or profession. Both the conditions are satisfied here. Personal use of the car cannot fetter the granting of statutory allowance. Decided against revenue. Issues Involved:1. Deletion of disallowance of expenditure and depreciation related to construction activity.2. Application of Rule 8D and disallowance under Section 14A of the Income Tax Act.3. Deletion of disallowance of assured rental/interest paid by the assessee.4. Deletion of disallowance of administrative and staff expenses.5. Deletion of disallowance of depreciation.Issue-Wise Detailed Analysis:1. Deletion of Disallowance of Expenditure and Depreciation:The Revenue challenged the Ld. CIT(A)'s decision to delete the disallowance of expenditure and depreciation related to construction activity, arguing that the assessee had not offered income during the year as it followed the Complete Contract Method of accounting. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the assessee's business model involved treating the construction project as stock-in-trade, and the interest paid on capital borrowed for the project was deductible as revenue expenditure under Section 36(1)(iii) of the Income Tax Act. The Tribunal referenced the Bombay High Court's decision in CIT vs. Lokhandwala Construction Inds. Ltd., which supported the allowance of such deductions.2. Application of Rule 8D and Disallowance under Section 14A:The Revenue contended that the Ld. CIT(A) was incorrect in deleting the disallowance under Section 14A, arguing that the application of Rule 8D was mandatory. The Tribunal, however, affirmed the Ld. CIT(A)'s decision, citing judicial precedents like CIT vs. Holcim India P. Ltd. and CIT vs. HDFC Bank Ltd., which held that no disallowance under Section 14A is warranted in the absence of tax-free income. The Tribunal emphasized that the Revenue failed to demonstrate that the assessee had incurred any expenditure for earning exempt income, thus justifying the deletion of the disallowance.3. Deletion of Disallowance of Assured Rental/Interest:The Revenue argued that assured rentals paid by the assessee should not be equated with interest and thus were not deductible. The Tribunal upheld the Ld. CIT(A)'s decision to delete the disallowance, noting that the assured rental was indeed interest under Section 2(28A) of the Income Tax Act. The Tribunal referenced the decision in DCIT vs. M/s. Vipul Infracon Pvt. Ltd., which supported the treatment of assured returns as interest deductible under business expenditure.4. Deletion of Disallowance of Administrative and Staff Expenses:The Revenue contended that the Ld. CIT(A) erred in deleting the disallowance of administrative and staff expenses, which were claimed without corresponding revenue. The Tribunal affirmed the Ld. CIT(A)'s decision, referencing the ITAT Mumbai's decision in Lodha Palazzo and others, which allowed such expenses as revenue expenditure when they are not directly related to a construction project. The Tribunal noted that the assessee had consistently followed the method prescribed under AS-7, which justified the allowance of these expenses.5. Deletion of Disallowance of Depreciation:The Revenue challenged the deletion of the disallowance of depreciation. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that depreciation is a statutory allowance and should be granted if the assets are used for business purposes. The Tribunal referenced the case of Mukesh K. Shah vs. ITO, which supported the view that personal use does not affect the statutory allowance of depreciation. The Ld. CIT(A) found that the assessee had calculated depreciation correctly as per Section 32 of the Income Tax Act, and the Revenue did not provide any contrary evidence.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order in its entirety. The Tribunal's decision was based on the consistent application of judicial precedents and statutory provisions, supporting the assessee's claims for deductions and disallowances. The Tribunal found no material evidence from the Revenue to warrant a deviation from the Ld. CIT(A)'s findings.