TaxTMI 
TaxTMI 
2018 (1) TMI 839
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....o Rs. 2,18,304/- out of Rs. 39,14,000/- is giving relief of Rs. 36,95,625/- to the assessee on adhoc basis. 4. That the order of the ld. CIT(A) is erroneous and is not tenable on facts and in law. 5. That the grounds of appeal are without prejudice to each other. 6. That the appellant craves leave to add, alter, amend or forgo any ground(s) of the appeal either before or at the time of hearing of the appeal." 3. Ground Nos. 4 to 6 are general in nature and need no adjudication at our end. 4. The brief facts pertaining to Ground No. 1, as noted by the Assessing Officer in paras 6 to 6.4 are reproduced hereinbelow for ready reference: "6.1 It is noticed that the assessee has claimed, inter alia, the following expenditure in its Profit and Loss account: Conveyance Expenses-staff Rs.16,50,000 Travelling Expenses Rs. 21,06,431 Foreign Travelling Expenses Rs. 1,23,300 Telephone Expenses Rs. 11,03,304 Electricity Expenses Rs. 14,23,006 Total Rs. 64,06,041 6.2 A perusal of the schedule 9 shows that the assessee does not have income out of business activities but incomes declared only relate to interest r....
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....see in totality and accordingly, the assessee was allowed a relief of Rs. 25,13,385/-, against which the Revenue is in appeal. 6. The ld. DR relied upon the order of the Assessing Officer whereas the ld. counsel for the assessee relied upon the impugned order passed by the ld. CIT(A) and relied upon various decisions including the decisions relied upon by the ld. CIT(A) in his order. 7. We have heard the rival contentions and perused the facts of the case. The total expenditure incurred is Rs. 64,06,041/- whereas the disallowance made by the Assessing Officer is to the extent of Rs. 25,13,385/- as mentioned in the Assessing Officer's order reproduced hereinabove. From a careful reading of the assessment order, it is evident that the Assessing Officer has not disallowed 100% expenditure and he had considered the maximum expenditure as genuine and having been incurred for the purpose of business u/s 37(1) of the Act, which means that the expenditure claimed by the assessee has been considered as excessive. Nowhere in the order of the Assessing Officer there is a whisper as to how the expenditure is excessive and how the expenditure to the extent of Rs. 25,13,385/- is not having....
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....d any infirmity in the same. Thus, Ground No. 1 of the Revenue stands dismissed. 10. The brief facts pertaining to Ground No. 2 as narrated by the Assessing Officer in para 7 page 5 in his assessment order are reproduced hereinebelow for ready reference: "6. In the profit and loss account, the assessee has shown Miscellaneous income of Rs. 97.88 lacs which includes rental income of Rs. 85.02 lacs. As per provision of section 22, the annual value of property consisting of any building or land appurtenant thereto of which the assessee is the owner, shall be chargeable to income tax under the head House property. As per decisions of various Courts including the Apex Court, for the purposes of levy of income tax, management of properties cannot be business and the income there from has to be charged as Income from House Property. Hence, the rental income is not the business income of the assessee. The income of the assessee chargeable under head Income from House property is determined as under: Annual value - Gross Rent received Rs. 85,02,000 Less: 30 % Deduction Rs. 25,50,600 Income from House property Rs.59,51,400" 11. When the aggrieved as....
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....ncome from house property'. 14. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Vikram Cotton Mills Ltd reported at 169 ITR 597 [SC]. The facts of the said decision of the Hon'ble Supreme Court and the decision is reproduced hereinbelow: "The respondent- assessee company, carried on business of manufacture of textiles. From the year 1949, the respondent started running into losses, resulting in the stoppage of its manufacturing activity from December, 1953. In May, 1956, one of the creditors of the company filed a winding up petition in the High Court. One major creditor of the respondent-company, in exercise of its powers under an English mortgage of the fixed assets of the company took actual possession of the immovable properties hypothecated to the creditor. The High Court, with the approval of the assessee company and its creditors, evolved a scheme whereunder the business assets of the company were let out on a rent of Rs. 2,50,000 per year. The lease was for ten years with option of renewal for another ten years. The intention was that the various creditors would be paid out of the lease money. The lease money reali....
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....ne but to lease it out for a temporary period as a part of exploitation. In such circumstances, it cannot be said that no business was carried on and the income derived from the machine letting out was only a rent income, and in the facts and circumstances of the case, it cannot be said that such a finding was perverse or not sustainable. The High Court was right in the view it took". 15. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of ACIT Vs. Rajindra Flour and Allied Industries [P] Ltd reported at 128 ITR 402 [Del] wherein it has been held that the company started erecting building and machinery for its flour mill and for three years incurred considerable expenditure thereon. After the installation of the factory company letting the flour mill for five years owing to difficulties, the assets were restored to the assessee on expiry of term of lease and the assessee thereafter, ran the mill. Rent received for this purpose has been treated as 'business income' by the Hon'ble High Court of Delhi. 16. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of Northern India Iron and Steel ....
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....ble. Section 14A provides as under: "14A.Expenditure incurred in relation to income not includible in total income. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act." 8.2 in view .of the explicit provisions of section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Therefore it becomes necessary to quantify the expenditure incurred by the assessee in relation to the earning of income which does not form part of total income. Recently, Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.j Mumbai. V. DCIT: 328 ITR 81 (Bom.), has held Rule-8D to be prospective in nature and applicable from assessment year 2008-09 onwards. Accordingly, disallowance as per Rule-8D is being calculated as under: Rs. Rs. [in lacs] Rule 8D(2)(i) Demat Charges 2,18,304 Rule 8D(2)(ii) (A x Bye A = amount of expendit....
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....ith such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:" 21. On a bare reading of the said section, it is amply clear that only the actual expenditure incurred for the purpose of disallowance has to be incurred and not any notional disallowance can be made by the AO. Sub-sections (2) and (3) of the aforesaid section empowers the AO to apply the formula given in Rule 8D of the I.T. Rules subject to his recording of satisfaction that the claim of the assessee in respect of expenditure in relation to exempt income is incorrect, which has not been done in the present case. Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT reported in 328 ITR ....
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....aim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in r....