2015 (4) TMI 1133 - AT - Income Tax

Addition in respect of Administrative & managerial expenses related to non-agricultural activities - deduction u/s. 80P computation - Held that - In the present case Assessee was undertaking various activities and out of the various activities, profit from some activities were exempt and from some other activities the profit was not exempt u/s 80P and accordingly A.O has re-worked out the amount eligible for deduction u/s. 80P. We find that ld. CIT(A) while deciding the issue in favour of the Assessee has given a finding that Assessee has maintained separate set of books of accounts for income eligible and non-eligible for deduction u/s. 80P and the invocation of Rule 3 by A.O to allocate the exempt profits was arbitrary and unjustified. He has also noted that A.O has not brought on record what he meant by Rule 3 and how it was applicable to the case. He has further noted that A.O has applied an unknown formula of Rule 3 which was not correct. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus the grounds of Revenue are dismissed. - Decided in favour of assessee.

Summary

Issues:
1. Whether the deletion of addition of administrative and managerial expenses related to non-agricultural activities by the CIT(A) was justified.
2. Whether the CIT(A) should have upheld the order of the Assessing Officer (AO) regarding the deduction under section 80P of the Act.

Analysis:

Issue 1:
The appeal filed by the Revenue challenged the order of the CIT(A) regarding the deletion of an addition of Rs. 23,17,376 in respect of administrative and managerial expenses related to non-agricultural activities. The Revenue contended that the Rule of 3 should be applied to tax the profit earned from non-agricultural activities. The AO observed that the Assessee had a mix of agricultural and non-agricultural activities, and the profits from some activities were exempt under section 80P, while others were not. The AO applied Rule of 3 basis to determine the eligible deduction under section 80P. However, the CIT(A) disagreed with the AO's approach, stating that the Assessee maintained separate accounting records for income eligible for deduction under section 80P. The CIT(A) found the AO's invocation of Rule 3 arbitrary and unjustified, directing the deletion of the addition. The ITAT upheld the CIT(A)'s decision, noting that the Revenue failed to provide any material to counter the CIT(A)'s findings.

Issue 2:
The second ground raised by the Revenue was whether the CIT(A) should have upheld the AO's order. The AO had reworked the amount eligible for deduction under section 80P due to the mix of exempt and non-exempt profits from various activities. The CIT(A found that the Assessee maintained separate books of accounts for income eligible and non-eligible for deduction under section 80P. The CIT(A criticized the AO for applying an unknown formula of Rule 3 without proper justification. The ITAT agreed with the CIT(A), stating that the Revenue failed to present any evidence to challenge the CIT(A)'s findings. Consequently, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the addition of administrative and managerial expenses related to non-agricultural activities and dismissed the Revenue's appeal, finding no reason to interfere with the CIT(A)'s order.