TaxTMI 
TaxTMI 
2019 (5) TMI 675
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....appeal No.Pn/CIT(A)-11/DCIT, Cen. Cir.1(1), Pune/101/2015-16) granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : "1. The learned CIT(A) erred in confirming the disallowance of Rs. 1.40 Crs. on account of indirect expenditure u/s 14A r.w.r. 8D(2)(iii) as against Rs. 5,00,000/- made by the appellant company. 2. The learned CIT(A) failed to appreciate that the disallowance made by the A.O. on account of indirect expenditure was not justified since the learned A.O. had not recorded any objective satisfaction to demonstrate that the disallowance made of Rs. 5,00,000/- by the appellant company was not correct and accordingly, the disallowance confirmed by CIT(A) should be deleted. 3. The learned CIT(A) failed to appreciate that the assessee had not incurred any indirect expenditure of Rs. 1.40 Crs. for earning exempt income and hence, the disallowance of Rs. 5,00,000/- offered by the assessee was more than sufficient to cover the indirect expenditure incurred, if any, for earning exempt income and hence, the disallowance confirmed by the CIT(A) should be deleted....
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....be substituted by the municipal retable value determined for the various units by the local authorities. 12. Without prejudice to the above grounds, assuming without admitting that the addition made towards income from house property is justified, the assessee submits that the deduction u/s 24 and municipal taxes may be allowed to the assessee while computing the annual value of the various units." 3. Before us, at the outset, Ld.A.R. submitted that ground Nos.1 to 7 are inter-connected and are with respect to disallowance u/s 14A of the Act and ground Nos.8 to 12 are inter-connected and are with respect to addition made on account of deemed rent in respect of unsold units. Ground No.13 is general in nature and requires no adjudication. In view of the aforesaid submission of Ld.A.R. we first proceed to decide the issue with respect to disallowance u/s 14A of the Act. 4. During the course of assessment proceedings, on perusing the computation of income, AO noticed that assessee had earned exempt income in the form of dividend and share of profits to the extent of 13.20 crores (rounded off). It was the claim of the assessee that no expenditure was incurred for earning ....
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....for earning the tax free income. Considering the totality of the facts of the case, we are of the considered opinion that disallowance of Rs. 10 lakhs on adhoc basis on account of expenditure attributes for earning tax free income will meet the ends of justice. We hold and direct accordingly." 4.16 Thus the honourable Tribunal in principle upheld the disallowance of the indirect expenditure thought on an ad hoc basis, notwithstanding the fact that the AO had not recorded his satisfaction in this regard. 4.17. In the present case, the AO has recorded his satisfaction at para 3.3 of the asst order, Further I find that as per the appellant total investment in tax free equities were Rs. 281.07 cr. excluding the investment in debentures of the group companies, which the AO appear to have included, The appellant claims that as per the ITAT decision only those investments should be considered from which the appellant had actually received income/dividend. However I find that the honourable ITAT had confirmed the disallowance of Rs. 10 lakh on an ad hoc basic. Further, the CBDT circular no 5/2014 was not brought to the notice of the honourable ITAT. The circular makes it ....
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....mandate of Rule 8D of IT Rules. He thereafter computed the disallowance under Sec.14A r.w.r 8D. On the issue of necessity of recording the satisfaction before proceeding to work out disallowance under Rule 8D of IT Rules, we find that Hon'ble Bombay High Court in the case of CIT Vs. Asian Paints Limited (ITA No.1564 of 2016 order dated 06.02.2019) and after considering the decision of Hon'ble Apex Court in the case of Godrej and Boyce Manufacturing Co., Ltd., Vs. DCIT reported in 394 ITR 449 (SC) has held that Rule 8D of the rules cannot be invoked where suo moto disallowance made by the assessee is not found to be satisfactory by the AO having regard to the account of the assessee. It has further held that in the absence of recording of non-satisfaction in terms of Sec.14A(2) of the Act, invocation of Rule 8D is not permissible. The relevant question before the Hon'ble High Court and its observation are as under : "2. The Revenue urges the following questions of law for our consideration :- (a)..... (b)..... (c) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in deleting addition of Rs. 1,10,72,191/- ....
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....to be satisfactory by the Assessing Officer having regard to the accounts of the assessee. In the absence of recording the aforesaid fact of nonsatisfaction in terms of Section 14A(2) of the Act, invocation of Rule 8D is not permissible. (e) Therefore, in view of the above decision of the Apex Court, this question also does not give rise to any substantial question of law. Thus, not entertained. 7. In view of the aforesaid facts and relying on the decision of Hon'ble Bombay High Court cited supra and in view of the absence of recording of necessary satisfaction in terms of Sec.14A(2) of the Act, we are of the view that in the present case, no disallowance of expenses under Sec.14A r.w.r 8D is called for. We therefore direct the deletion of addition made by AO and upheld by Ld.CIT(A). Thus, the ground of the assessee is allowed. 8. Now, we take other issue of deemed rent in respect of unsold units. 8.1. During the course of assessment proceedings, AO noticed that assessee was holding closing stock of 32 unsold flats/shops. AO was of the view that since assessee was owner of two or more house properties, provision of Sec.23(4) of the Act would be attracted and as pe....
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....ncome from house property". We further find that the Co-ordinate Bench of the Mumbai Tribunal in the case of C.R. Developments Pvt. Ltd., Vs. CIT in ITA No.4277/2012 order dt.13.05.2015, after considering the decision of Hon'ble Apex Court in the case of Chennai Properties and Investment Vs. CIT (2015) 373 ITR 673 (SC) has held that on the flats which were unsold, which were neither given on rent nor the assessee had intention to let out the flats, no deemed rental income could be considered in assessee's hands. We further find that the Co-ordinate Bench of Pune Tribunal in the case of M/s. Cosmopolis Construction (in ITA Nos.230 and 231/PUN/2018 dt.12.09.2018) after considering the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Neha Builders (P) Ltd., (supra), the decision of Mumbai Tribunal in the case of C.R. Developments Pvt. Ltd., (supra) after also considering the decision in the case of CIT Vs. Ansal Housing and Construction reported in [2013] 29 taxmann.com 303 has held that no notional annual rental value on unsold flats held in stock-in-trade can be made in assessee's hands. The relevant findings of the Co-ordinate Bench of the Tribunal is as under : ....
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....een let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-intrade'." 8. In the case of Commissioner of Income Tax Vs. Ansal Housing Finance And Leasing Co. Ltd. (supra) the Hon'ble Delhi High Court taking a contrary view has held that annual rental value on unsold flats built by assessee engaged in construction business is assessable as income from house property. It is a well settled law that when two divergent views of non-jurisdictional High Courts are available and there is no decision on the issue from the Jurisdictional High Court, the view in favour of the assessee has to be adopted [Commissioner of Income Tax Vs. Vegetable Products Ltd.(supra)]. 9. In so far as the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) is concerned we find that the facts in the said case are at variance. In the said case the assessee was engaged in construction business. The assessee rented out unsold flats and suo-motu offered rental income from the flats under the head 'Income from House Property'. On t....