2015 (12) TMI 1741 - AT - Income Tax

Disallowance u/s 14A - Held that - As noted from the facts brought before us that loans were taken by the assessee in earlier years. It is informed that no disallowance was made in earlier years on account of interest. Thus impliedly it can be said that no borrowed funds have been used in acquiring tax-free investment during the year. It is further noted that onus is upon the AO to prove that interest bearing funds were used for earning tax free income. Reliance is placed in this regard on the judgment of Hon ble Punjab & Haryana High Court in the cases of CIT vs. Hero Cycles Ltd. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT CIT vs. Winsome Textiles 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT and CIT vs. Deepak Mittal 2013 (9) TMI 764 - PUNJAB & HARYANA HIGH Court . Thus viewed from any angle the disallowance made by the AO was contrary to law and facts and therefore the same has been rightly deleted by the Ld. CIT(A). Treating the income earned by the assessee from hoarding mobile tower display of advertising hoarding from subletting hotel premises - income from house property or income from other sources - Held that - It is noted that the assessee has credited income from hotel business in its profit and loss account and debited expenses with respect to running of hotel and maintenance of the hotel premises in the P & L account. In these facts the income received from exploitation from the hotel premises in any manner should also be credited in the profit and loss account. The assessee has already debited the expenses with respect to maintenance of the hotel premises. It is clarified that the assessee is also eligible to claim of expenses incurred for earning the aforesaid income.Thus keeping in view the peculiar facts of this case for the year under consideration the aforesaid income is directed to be treated as income from business . Disallowance u/s 40(a)(ia) - Held that - As in the case of Rajiv Kumar Agrawal vs. ACIT 2014 (6) TMI 79 - ITAT AGRA wherein it has been held that the second proviso to section 40(a)(ia) is declaratory and curative in nature and should be given retrospective effect from the 1st April 2005. Thus the position of law on this issue is now very clear. The other grievance of the Revenue is that evidences with regard to payment of taxes by the payees were not referred by the Ld. CIT(A) to the AO and thus additional evidences were admitted by him in violation of Rule 46A. Thus accepting the grievance of the Revenue in this regard we send this issue back to the file of the AO for the limited purpose of verification of the facts with regard inclusion of income by the payees in their respective returns and if the claim of the assessee in this regard is found to be factually correct in that case no disallowance shall be made with regard to impugned payment of interest. Thus this ground is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of interest cost under Rule 8D
2. Classification of income from hoarding, mobile tower, and advertising as 'Income from House Property'
3. Disallowance under section 40(a)(ia) of the Income Tax Act

Issue 1: Disallowance of interest cost under Rule 8D

The Revenue challenged the Ld. CIT(A)'s deletion of the disallowance made by the AO on interest cost under section 14A of the Act. The AO invoked Rule 8D due to the assessee's tax-free investments and interest expenditure. The Ld. CIT(A) deleted the disallowance, stating that if own funds exceed investments, no disallowance is warranted. The Tribunal upheld this decision, citing the jurisdictional High Court's ruling. It noted the absence of disallowance in prior years and emphasized the AO's burden to prove the use of interest-bearing funds for tax-free income. The Tribunal found the deletion justified, affirming the Ld. CIT(A)'s order.

Issue 2: Classification of income from hoarding, mobile tower, and advertising

The Revenue contested the Ld. CIT(A)'s treatment of income from various sources as 'Income from House Property' instead of 'Income from Other Sources.' Both parties agreed that the income was derived from the business asset of the hotel. The Tribunal concluded that income from business asset exploitation should be categorized as 'income from business.' The Tribunal directed the AO to adjust the treatment accordingly, partially allowing this ground of appeal.

Issue 3: Disallowance under section 40(a)(ia) of the Income Tax Act

The Revenue challenged the Ld. CIT(A)'s deletion of the disallowance amounting to Rs. 4,10,056 under section 40(a)(ia). The AO disallowed the interest payment due to non-deduction of tax at source, but the Ld. CIT(A) overturned this based on payees' tax payments. Citing relevant case law, the Tribunal sent the issue back to the AO for verification of payees' tax inclusion in returns. The Tribunal allowed this ground for statistical purposes, ensuring proper verification.

In conclusion, the Tribunal partly allowed the Revenue's appeal and the Assessee's cross objection, addressing each issue comprehensively and providing detailed analysis based on legal principles and case law references.