2013 (5) TMI 940 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of investment in earning Agricultural Income.
2. Deletion of addition on account of interest on interest-free loans.
3. Allowance of claim under section 54F of the I.T. Act.
4. Disallowance under section 14A read with Rule 8D.
5. Disallowance under section 40(a)(ia).

Summary:

Issue 1: Deletion of addition on account of investment in earning Agricultural Income
The Assessing Officer (AO) added Rs. 1,66,727/- to the income of the assessee, estimating that 40% of the gross agricultural receipts should be disallowed as expenditure. The CIT(A) deleted this addition, accepting the assessee's claim of reasonable agricultural income based on the size of the land and the arrangement with the cultivator. The Tribunal confirmed the CIT(A)'s order, finding no merit in the Revenue's argument.

Issue 2: Deletion of addition on account of interest on interest-free loans
The AO disallowed Rs. 79,364/- as interest on interest-free advances given to M/s Chandigarh Cable Pvt. Ltd., citing lack of commercial expediency. The CIT(A) deleted the addition, following the Supreme Court's decision in S.A. Builders Ltd. The Tribunal partially upheld the CIT(A)'s order, allowing interest on advances for business purposes but disallowing interest on advances for land acquisition due to the amendment to section 36(1)(iii).

Issue 3: Allowance of claim under section 54F of the I.T. Act
The AO disallowed the assessee's claim of Rs. 5,67,904/- under section 54F for constructing rooms on the first floor of an existing house, distinguishing it from the Madras High Court's decision in CIT v. P.V. Narasimhan. The CIT(A) allowed the deduction, and the Tribunal confirmed this decision, agreeing that construction on the first floor constitutes a new residential house.

Issue 4: Disallowance under section 14A read with Rule 8D
The AO disallowed Rs. 32,930/- under section 14A read with Rule 8D for investment in shares. The CIT(A) confirmed the disallowance. The Tribunal reduced the disallowance to Rs. 5,000/-, noting that Rule 8D was not applicable for the assessment year 2006-07 and considering the small amount of investment and its age.

Issue 5: Disallowance under section 40(a)(ia)
The AO disallowed Rs. 73,79,647/- for non-deduction of TDS on interest payments, distinguishing between hire charges and loan interest. The CIT(A) confirmed the addition. The Tribunal upheld the addition of Rs. 68,52,119/- for loan interest, following the Calcutta High Court's decision, and remitted the issue of Rs. 5,27,528/- hire charges back to the AO for re-examination.

Conclusion:
The Tribunal partly allowed both the Revenue's and the assessee's appeals, confirming some additions, reducing others, and remitting certain issues for further examination.