TaxTMI 
TaxTMI 
2016 (4) TMI 1435
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....nsidering the facts and circumstances of the case. 2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Assessing officer in not appreciating the fact that while computing the income, the appellant has already disallowed the expenses, which was related to the rental income. 3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not appreciating the fact that in earlier years no such disallowance was made by the Assessing Officer in the Assessment Order passed u/s 143(3) of the Income Tax Act, 1961. 4. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Learned Assessing officer in disallowing the claim of expenses amounting to Rs.8,44,630/- by invoking the provisions of section 14A of the Income Tax Act, 1961 without appreciating the facts and circumstances of the case". 2. The brief facts qua first issue are that, assessee is in the business of builders and developers, generation and sale of electricity and has also rented out properties during the year. The AO noted that, ass....
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....He held that the assessee's contention that as on going concern and business enterprise it has to incur certain expenditures even if no rental income would have arisen, is not tenable, because earning of income from leasing out of premises of "R. Mall" is incidental to its business activities. The expenses stated to have been incurred in the course of other business activity may have been used for earning of rental income also, for example, salary paid to the employees, electricity charges paid for the office and other such expenses may have a component towards earning of rental income. Thus, there has to be some allocation of the expenses and accordingly, disallowance should be worked out. The assessee has claimed huge standard deduction of 30% and municipal tax as deduction from rental income, but while calculating the business income, the assessee has not apportioned any of the expenses towards its rental receipts. Lastly, in the earlier years, the assessing officers and departmental authorities had not examined this aspect of the matter, therefore, this is the new issue which has been raised in this year. So accordingly, he made a disallowance of Rs.1,60,77,911/- in the followi....
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....debited by the assessee has not been incurred for the other business income. Alternatively, it was submitted that, if any amount is disallowable then same should be restricted to 2%. 5. The Ld. CIT(A) after considering the assessee's submissions and also the finding of the AO, observed that, despite opportunity given by the AO as well as in the course of the appellate proceedings, the assessee could not establish direct correlation with the expenses which were directly related to the business income other than rental income. under the head "Administration and Selling Expenses" assessee has debited salary amount of Rs.292.85 lakhs; Directors' remuneration of Rs.21 lakhs; Conveyance expenses of Rs.24.60 lakhs; electricity expenses of Rs.28.95 lakhs; office repairs and maintenance expenses of Rs.11.5 lakhs; professional fees of Rs.47.28 lakhs; Society charges of Rs.12.06 lakhs; Staff welfare expenses of Rs.13.06 lakhs; and travelling expenses of Rs.14.44 lakhs, which assessee could not prove that same was exclusively for the purpose of other business income and did not relate to earning of rental income. The onus is on the assessee to show that the expenditure have been incurred wh....
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.... dated 29th March, 2009. For carrying on the maintenance by the said company, the assessee does not have to make any payment, as the said company collects the maintenance charges from the tenants, owners and occupiers of the complexes of shops in the Mall directly and uses it for the maintenance. The entire electricity, air-conditioner charges for the common areas are all run and maintained by this company, therefore, in view of this agreement, the assessee does not have to incur any expenditure at all. How, this company runs its maintenance business or incurs any expenditure, the same is not the concern of the assessee at all therefore, the Ld. CIT(A) has completely misdirected himself in holding that, the assessee has failed to establish the expenses incurred by M/s Veear Property Pvt Ltd. Thus, on these facts, no apportionment of expenses should be made. 7. On the other hand, Ld. DR strongly relied upon the order of the of the CIT(A) and submitted that the assessee is running composite activities, that is, construction business and also renting out of the properties. If a composite activity is being carried out then, possibility of common expenditure cannot be ruled out. Thus....
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.... 593,333 1,167,480 1,018,783 Out of this amount, the assessee had already disallowed expenditure of Rs.13,11,036/- on account of electricity charges, as stated by the assessee and also admitted by the Department. Under the head "Administration & Selling Expenses", the assessee had debited Rs.72,008,371/-. The details of these expenses are appearing in Schedule "E" which for the sake of ready reference, same is reproduced hereinbelow: SCHEDULE -E Administration & Selling Expenses Audit Fees 110,300 110,300 Advertisement 2,866,136 329,526 Books & Periodicals 88,680 18,688 Business Promotion Expenses 4,914,399 1,256,890 Brokerage 2,500,000 - Computer Expenses 333,474 534,751 Conveyance Expenses 2,460,762 1,882,279 Electricity Charges 2,895,436 535,350 Directors Remuneration 2,100,000 2,100,000 Fees & Form 105,513 126,976 Housekeeping expenses 108,730 - Insurance premium 312,035 - Membership & Subscription 324,300 48,540 Misc. Expenses 49,549 56,778 Mor. Car expenses 975,632 1,045,939 Office Repairs & M....
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....g of rental income, and for that, it has to demonstrate having regard to the accounts maintained by the assessee and nature of expenditure debited are also applicable for the earning of the rental income. Only if such premise is established then onus shifts upon the assessee to show that, how much amount of expenses debited is attributable for such income. But, if revenue fails in the first instance then without any material and basis on record, no such allocation can be made, unless the nature of expenses debited is directly attributable to the earning of lease rental income and not the business income. Secondly, once a particular receipts is assessed under a particular head, then the computation of income has to be made strictly made in accordance with the provisions dealing with the assessability of the income under that head. In other words, if income is being assessed under the head "income from house property" then computation has to be made accordingly the provisions laid down therein. Thus, on these counts, the reasoning given by the AO as well as by the CIT(A) for making the disallowance for Administrative expenses in the aforesaid manner cannot be sustained. 10. Moreov....
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....arty to manage the Mall". The entire responsibility is on the said company and Annexure-A of the Agreement deals with the scope of work of the company which is as under: Supervision / Maintenance of the following: a. General Security of Mall b. Housekeeping c. Common lights in passages and compound lights d. Repair and maintenance of electrical fitting and fixture e. Maintenance of electrical meters f. Maintenance of elevators, escalators g. Air Conditioning of common passages h. AMC for air-conditioning i. Managing parking facilities j. Music in common area k. Looking after the maintenance of building, normal wear and tear l. Fire fighting equipment maintenance m. Overall maintenance of Common area. From the clear cut covenants and terms of the agreement, it is abundantly clear that the assessee does not have to incur any administrative expenditure for running and maintenance of the Mall and, therefore, in the light of these facts and background, it cannot be held that any administrative expenditure should be allocated for running of the Mall. 11. ....
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....he disallowance which was worked out by the assessee as per Rule 8D at Rs.8,44,630/- was disallowed by the AO. 14. Before the CIT(A), the assessee submitted that, it has sufficient interest free funds to make the investments and, therefore, no disallowance should be made. However, the Ld. CIT(A) confirmed the action of the AO after referring to the decision of Hon'ble Bombay high Court in the case of Godrej & Boyce Mfg. Co. Ltd., reported in [2010] 328 ITR 081 (Bom). 15. Before us, the Ld. Counsel submitted that, firstly, there is no dividend income and only exempt income is from profit earned from the partnership firm which has accrued to the assessee. For this, no expenditure can be said to be attributable for the earning of the said income, because the capital contribution in the said firm was purely out of interest free funds. In support of this contention, he relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs HDFC Bank, reported in [2014] 49 taxmann.com 335; Secondly, he submitted that now in the wake of Delhi High Court decision in the case of Cheminvest Ltd. vs CIT, reported in [2012] 347 ITR 272, no disallowance can be made if there is no exem....