TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 1579
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....e 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 be followed. 4) On the fact and circumstances of the case as ....
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....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 assessee's contention is that it has entered into agreement with M/s Veear Property Deve....
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....oss 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 earned income from house property whereby the assessee has received leave & license fee from R M....
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....om 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 by the AO, the assessee submitted details of direct expenses incurred for the business carried out by it. It w....
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....or 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. 1,60,77,911/- is made out of the business expenses claimed by the assessee in its return. This amount of disallowance is added to the business income of ....
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....at, 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 activity itself was more than Rs. 235 crores. That apart, the assessee had other receipts which were also taxable under head "business income", which is evident from pr....
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....ling 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 Sch. No. Of the year 31.3.2010 Previous year INCOME: Construction activity Receipts A 2,353,540,254 6,584,000 Business facilities receipts B 55,985,895 56,277,222 Other rece....
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....all) - 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 revenue's case is that, for earning of rental income, amount of Rs. 1,60,77,911/- should be disallowed on the ground that, this much amount should be allocated for the earning of the rental income from the amount of expenses debited under the head "Administration & Selling Expenses" as appearing in Schedule "E" above. Income earned from leasing out of "Mall premises" is incidental to its business activities and the expense incurred in the due course of its business activities must have also been used for the purpose of earning of rental income. Therefore, some amount of salary, electricity and other ....
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....re, 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 herewith clarified that there will not be any charges or fees payable by the company, other than common area maintenance charges being collected directly by the Company from the mall tenants, owners and occupiers of the said complex. 3. It is further agreed between that the Company shall bear and pay all the running, maintenance cost as applicable during the tenure of this Agreement for all the common areas. In addition to the above the Company shall also bear and pay the water, electricity, Airconditioning charges of the common areas for running and managing the Mall. 4. The Owner undertakes to take....
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....e 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 prospective. Accordingly, we are of the opinion that, this matter should be restored back only for the limited purpose of examining the nature of advertisement expenses and business promotion expenses debited under the head "Administrative and Selling Expenses" as enumerated in Schedule E of the Profit & Loss Account. If these expenditures directly attributable to earning of lease rental income then, appropriate disallowance can be made, if at all required. With this direction this issue is treated as partly allowed for statistical purposes." Respectfully following the afore-stated decision of the co-ordinate bench of this Tribunal in assessee's own case in the immediately preceding assessment year in ITA no 4777/Mum/2013 for as....
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....s 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. ACIT in ITA No. 5408/Mum/2012 dated 15th January, 2014. Without prejudice to the above, the assessee submitted that it had sufficient interest-free funds for making the investment hence the disallowance under Rule 8D(2)(ii) of Income Tax Rules, 1962 should not be made. The assessee also placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340(Bom.) and the decision of Hon'ble Kerala High Court in the case of CIT, Trichur vs. The Catholic Syrian Bank Ltd. and requested that interest expenditure should not be considered for the purpose of working out disallowance u/s.14A of the Act read with Rule 8D of Income Tax Rules, 1962. The ld. CIT(A) rejected ....
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....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 of assessee's own funds vis-à-vis investments made which yields exempt income, wherein the Tribunal has held as under:- "12. In ground No. 3 and 4, the assessee has raised a issue of disallowance made under section 14A of Rs. 8,44,630/-. 13. Brief facts qua the issue are that, the assessee has earned share of profit from partnership firm of Rs. 3,42,506/- which was claimed as exempt. In response to the show cause notice to file details of expenses attributable to the earning of the exempt income, the assessee furnished the working of disallowance of Rs. 8,44,630/-. Later on, the assessee however objected to any disallowance under section 14A and not even Rs. 8,44,630/- on the ground that, no expenditure can be said to be inc....
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....s 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, the same needs verification by the AO because, nothing is borne out from records as to whether the capital investment in the partnership firm is out of interest-free funds or not. Therefore, in the interest of justice, this matter should be restored back to the file of the AO to examine the contention of the assessee relating to availability of interest free funds for making the investment, in accordance with principle and ratio laid down by the Bombay High Court decision in the case of HDFC (supra). Regarding, Second contention of the Ld. Counsel which is based on ratio laid down by the Hon'ble Delhi High Court in the case of Cheminvest (supra), we direct the AO that while deciding with the issue of 14A, he will keep in mind the ratio and principle laid down by the Hon'ble D....
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....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 considering the relevant evidences of the assessee. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly. 19. The next issue i.e. ground No. 6 relates to the disallowance of Rs. 73,463/- u/s 80G of the Act. The A.O. observed that as per the tax audit report the deduction u/s 80G was calculated at Rs. 49,80,497/- whereas the assessee had claimed deduction u/s 80G of the Act at Rs. 50,53,960/-. The A.O. rejected the figure of Rs. 50,53,960/- and adopted the figures as mentioned in the tax-auditor's report. Before the ld. CIT(A) the assessee submitted that the assessee has made donation of Rs. 1.10 crores during the year and deduction cl....