TaxTMI 
TaxTMI 
2016 (8) TMI 1579
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....the Tribunal") reads as under:- "1) On the fact 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 of Rs. 1,73,03,946/- from the business income on the alleged plea that the said expenses was claimed by the appellant against the Income from Houses Property, without considering the facts and circumstances of the case. 2) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing 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 fact 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 exercising the option for disallowing the expenses, which is more beneficial to the interest of revenue, without appreciating the fact that it is well settled principal of law that if two options are available with the Assessing Officer than the option which is beneficial to the assessee is to....
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....house property income, the assessee should have suo motu apportioned certain expenses to the rental income and disallowed the same in its computation of income while filing the return of income. The assessee, in reply, contended that it has disallowed the relevant expenses. However, the A.O. observed that the assessee has not disallowed any expenses related to the rental income, except property tax. The assessee contended that it has incurred expenses as are debited in Profit and Loss Account apart from what is voluntarily disallowed by the assessee, which would have been same even if it had not leased out the premises in R Mall. The A.O. observed that leasing out the premises of R Mall is incidental to the assessee's business activity. The AO observed that the assessee had incurred so many expenses under various heads in the course of its business activities which would have also been used for the purposes of earning its rental income. In the computation of income, the assessee has claimed 30% standard deduction from income from house property and secondly the expenses incurred towards earning of house property are not disallowed, which has led to double deduction of expenses. The....
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....fit and Loss Account arrived at by dividing rental income to gross income as per Profit and Loss Account but the AO chose to make higher disallowance of Rs. 1,73,03,247/- being 30% of rental income while the amount beneficial to the assessee should have been disallowed. The ld. CIT(A), however, rejected the contention of the assessee as the assessee did not furnish details of expenses incurred in relation to the business income and also the assessee did not submitted details of break-up of the expenses incurred by Veear Property Pvt. Ltd. In maintaining the mall and hence the contention of the assessee remained unsubstantiated, and the order of the A.O. was confirmed by the learned CIT(A) vide appellate orders dated 29-05-2014. 6. Aggrieved by the appellate order dated 29-05-2014 of the ld. CIT(A) the assessee is in appeal before the Tribunal. 7. At the outset, the ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case in the immediately preceding assessment year 2010-11 in ITA No. 4777/Mum/2013 vide Tribunal's orders dated 12th April, 2016. The ld. Counsel submitted that the assessee has....
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....ssee has leased out immovable property owned by it in the form of 'R Mall, LBS Marg, Mulund (West), Mumbai. From leasing of such property, the assessee has earned leave and license fees of Rs. 5,36,46,388/-. Besides this, the assessee has also earned other rental income of Rs. 3,82,456/- and Rs. 19,58,050/-. All these receipts have been shown "rental receipts" chargeable under the head "Income from House Property". While computing the income from house property, the assessee has reduced property tax of Rs. 23,92,857/- and also the standard deduction @ 30% under section 24(1) on account of repairs and accordingly, sum of Rs. 3,75,15,126/- was offered as taxable income. The AO observed that the assessee, while computing its income from business has failed to apportion and disallow expenses debited to the profit and loss account which can be attributable to rental income earned by it. Since the assessee had taken the advantage of 30% repair allowable by the statute as a standard deduction, therefore, it should have suo moto apportioned certain expenses to the rental income and disallow the same in its computation of income while filing its return. In response to the show cause notice ....
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.... the following manner:- "6.5 It is very difficult to pin point at the expenses that have been directly incurred for the sake of earning rental income by the assessee. Even the assessee has not given any such working, even though it was asked to do so, without prejudice, in the notice dated 02.01.2013. Therefore such expense has to be estimated on the basis of the available facts and information. Now in order to compute the disallowance of expenses to be made on account of the above discussion, there are two choices available with the undersigned: 1. To disallow the same amount of deduction from the business expenses, as the amount of deduction claimed Rs. 1,60,77,911/- as 30% repairs as per the law. The same can be disallowed at first choice. 2. To disallow the fraction of total expenses claimed by the assessee, as is the proportion of income from rent to the gross income of the assessee as per the P&L account, i.e. in the proportion of 5,59,85,895 X 7,20,08,371 = 16,60,380 242,80,30,091 6.6 Keeping in mind the above computation the first choice is exercised in the interests of the revenue. Therefore a disallowance of Rs. 1,....
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....o show that the expenditure have been incurred wholly and exclusively for the purpose of the business. He also referred to certain decisions for the proposition that, the burden to prove that expenditure have been incurred for the business is on the assessee. These decisions have been referred in pages 5 & 6 of the appellate order. As regards the agreement with M/s Veer Properties P. Ltd. for the maintenance of the Mall, the assessee could not produce any details and break-up of expenses incurred by the said company for maintenance of the Mall and hence this argument of the assessee is not substantiated. Lastly, the assessee's contention that it has suo moto disallowed property tax payment and electricity payment is not relevant, because the AO has disallowed the expenditure from the administration and selling expenses which is there in Schedule "E". Accordingly, he confirmed the entire disallowance made by the AO of Rs. 1,60,77,991/- 6. Before us, the Ld. Counsel for the assessee Mr. Rakesh Joshi, after explaining the entire facts submitted that, the assessee is having huge business income from construction activities and other receipts. The receipts from the construction....
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....then, possibility of common expenditure cannot be ruled out. Thus, some allocation of expenses towards the earning of rental income has to be made from "Administration and Selling Expenses". In any case before the CIT(A), the assessee itself has offered that 2% of the expenditure should be disallowed on proportionate basis. Thus, the alternate contention of the assessee itself goes to show that some, expenses needs to be allocated. 8. We have heard rival submissions, perused the relevant finding given in the impugned orders and also material referred before us. The assessee is in the business of builders and developers"; generation and sale of electricity; and is also earning income from leave and license of a Mall from which the income has been shown assessable under the head "income from house property". From the perusal of the P&L Account as appearing at page 6 of the paper book, it is seen that, assessee's receipts from construction activity is at Rs. 235,35,40,254/-. Besides this, there are other huge receipts from other activities also. The details of the income shown in the profit and loss account for the year ending 31st March, 2010 are as under:- Particulars ....
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....n 324,300 48,540 Misc. Expenses 49,549 56,778 Mor. Car expenses 975,632 1,045,939 Office Repairs & Maintenance 1,159,892 391,043 Postage & Telegram 39,837 33,713 Printing & Stationery 723,837 696,109 Professional fees 4,728,139 2,224,312 Profession Tax 2,500 2,500 Rates & Taxes 30,450 - Rent 2,148,925 4,648,660 Salary 29,285,555 22,846,216 Sales Tax Paid - 98,465 Sales Promotion Expenses (R. Mall) - 294,420 SCHEDULE -E Administration & Selling Expenses SECURITY EXPENSES 344,189 Car parking refund 3,00,000 - Sundry balances W/off 56,293 - Society Charge for Flats - 228,089 Society Charges for Sion Office 1,206,952 - Staff Welfare Expenses 1,360,764 1,594,243 Telephone Expenses 1,787,842 1,479,259 Trvelling Expenses 1,444,932 759,405 Training Expenses - 84,270 Web Designing 28,930 100,722 Donations 6,00,000 8,225,000 (Subletting charges Payable) 1,214,388 1,243,764 72,008,371 52,996,206 9. The reven....
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....sions 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. Moreover, it has been brought on record that, assessee had entered into an agreement for renting, managing and maintenance of R. Mall with M/s Veear Property Pvt Ltd. vide agreement dated 20.03.2009, the recital itself clearly envisages that, the assessee is not in a position to manage the mall, since they do not have any expertise and equipments for running and managing the Mall, therefore, they have requested the said company to run and manage the Mall. Further the same very company has been managing the Mall since 27th April, 2004. Till date the said company has an expert team, experience, equipments' and other necessary infrastructure required for running and managing the Malls. In the said agreement, it has been clearly mentioned that the parties have entered into the agreement on principal to principal basis. Clause 2 clearly provides that, there will not be any charge or fees payable by the company. The relevant clauses 2 to 5 reads as under:- "2. It is....
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....y 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. However, on a perusal of expenditure debited under Schedule E, as incorporated above, it is seen that the assessee has debited sum of Rs. 28,66,136/- under the head "Advertisement" and sum of Rs. 49,14,399/- under the head "Business Promotion Expenses". Further, from a perusal of break-up of these expenses as given in page 26 of the paper book which was filed before the CIT(A), we find that certain amounts have been debited for "Mall Upkeep & Promotional receipt". If these expenditures are related for earning of income from Mall then, definitely it cannot be allowed as an expenditure under section 37(1) i.e. while computing the business income of the assessee, because admittedly, receipts from the Mall is in the form of lease rental which has been assessed under the head "Income from House Property" like in the earlier and subsequent years. This fact needs proper verification and examination by the AO which has not been done in the proper prospe....
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.... having incurred any expenses in respect of exempt income. The A.O. invoked the provisions of section 14A(3) of the Act and disallowed the said amount of Rs. 35,30,813/- under Rule 8D of Income Tax Rules, 1962, vide assessment order dated 16.01.2014 passed by the AO u/s 143(3) of the Act. 12. Aggrieved by the assessment order dated 16.01.2014 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A). 13. In the appellate proceedings before the learned CIT(A), the assessee again contended that there is no expenses incurred by the assessee for earning the exempt income. The assessee submitted that it had made investments in subsidiary companies or joint ventures for having control and business considerations and not for earning dividend income, and, therefore, these investments should not be considered while working out the average investment for the purpose of making disallowance of interest expenses as per Rule 8D of the Income Tax Rules, 1962. The assessee placed reliance in the decision of the Tribunal in the case of JM Financial Ltd. v. ACIT in ITA No. 4521/Mum/2012 dated 26th March, 2014 and in the case of Garware Wall Ropes Limited v. ....
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....itted the Tribunal in the immediately preceding year 2010-11 has set aside the matter to the file of the A.O. for computation of disallowance u/s 14A of the Act in ITA No.4777/Mum/2013 vide Tribunal orders dated 12-04-2016 for the assessment year 2010-11. The learned DR relied upon the orders of the learned CIT(A). 16. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has earned exempt income of Rs. 1,98,277/- from share of profit from partnership firm. The assessee contended that no expenses have been incurred for earning the exempt income as the assessee was having sufficient own funds for the investments made in the shares. We find that on identical facts in the immediately preceding year, the co-ordinate Bench of this Tribunal in assessee's own case in ITA no. 4777/Mum/2013 vide orders dated 12-04- 2016 for assessment year 2010-11 has set aside the matter back to the file of the A.O. to decide the matter in accordance with the ratio of the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra) and also work out disallowance of interest expenses after considering the availability....
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....made beyond this income. 16. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that, the disallowance has to be made strictly, in accordance with Rule 8D. 17. After considering the rival submissions and on perusal of the relevant finding given in the impugned orders, we find that, only exempt income which has been earned is on account of share profit from a partnership firm amounting to Rs. 3,42,506/-. Initially, in response to the show cause notice, the assessee has worked out disallowance at Rs. 8,44,630/-, however, later on, the assessee claimed that, no expenditure has been incurred in respect of earning of the exempt income. Such a claim of the assessee before the AO has not been examined having regard to the accounts maintained by the assessee, which is a mandatory condition provided under sub-section (2) and (3) of section 14A. Before us, Ld. Counsel had submitted that, the investment in the form of capital contribution in the firm, which has yielded the exempt income was made out of surplus funds and also the disallowance cannot exceed the exempt income. However, so far as first contention of the assessee is concerned, th....
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....bserved that the disallowance u/s 40(a)(ia) works out at Rs. 3,21,781/- whereas the assessee had made the disallowance of only Rs. 3,05,781/-, hence, the A.O. added an amount of Rs. 16,000/- being the difference between the two amounts. Since the assessee has failed to deduct tax at source in respect of the payment of Rs. 16,000/-, the ld. CIT(A) confirmed the disallowance as were made by the AO . The assessee is in second appeal before the Tribunal. We have observed that the assessee has failed to deduct tax at source on the work-in-progress of Rs. 16,000/-. Since the work-in-progress is part of the P&L account , the assessee was required to disallow the same on the grounds of non-deduction of tax as per provisions of Section 40(a)(ia) of the Act and the same cannot be claimed as expenses while computing income from business as the tax has not been deducted at source. The assessee has submitted that it has disallowed voluntarily the said amount of its own in WIP while filing return of income which needed verification by the authorities below and hence we are inclined to set aside and restore this issue to the file of the AO for de-novo determination of the issue on merits after co....