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2016 (1) TMI 1350 - AT - Income TaxDisallowing the interest expenditure against the interest income - CIT-A treating the interest income as business income - Held that - DR has not brought anything contrary to the submission of the assessee. We also observe that the assessee is at liberty to utilize the borrowed fund in the best possible manner. There is nobody who can interfere in the working of the assessee. The fund utilized in the earlier year for investment in securities can be used for different activity like investment in FD. There is no bar as such regarding the utilization of fund. So in the instant case the plea of the AO that fund borrowed for investment in securities was not utilized for the FD do not hold good. As regards the interest income of the assessee on the loan given to a party for an amount of 19,144/- we deem it to classify such income from other sources as the assessee is not into the money lending business. In view of above, we reverse the order of lower authorities. This ground of assessee s appeal is allowed. Disallowance on account of interest expenses and other expenses u/s 14A r.w.r. 8D - Held that - Taking a consistent view in the case of M/s Trade Apartment Ltd. (2012 (3) TMI 421 - ITAT KOLKATA) we restore this file to the AO for fresh adjudication as per law with the direction that - i) Regarding the disallowance as per rule 8D(ii), the net figures of interest should be taken into consideration. ii) Regarding the disallowance as per rule 8D(iii), the disallowance should not exceed the total expenses claimed by the assessee. Hence, in terms of above, this ground of appeal of the assessee is allowed for statistical purposes. Treating the receipt as income from other sources - disallowing the depreciation - Held that - In the instant case the activity of letting out the use of the trademark is to be seen whether it is business of the assessee or not. There is no bar under the Act that if the commercial asset is used by the third party then the income will not be treated as business income . In the instant case, the commercial assets is being exploited by the third party and the receipt arising from the exploitation of the commercial assets has been regarded as business receipts . Besides this, even otherwise the income from the exploitation of commercial assets is shown as income from other sources then also the assessee is also entitled for depreciation on the trademarks being intangible assets. In view of above, we are inclined to treat the income arising from the exploitation of commercial assets as business income. Accordingly, we reverse the orders of authorities below and allow this ground raised by assessee. Treating the receipt as income from other sources - disallowing expenses incurred for earning such income - Held that - The assessee during the year has claimed an expense of ₹ 18.34 lacs towards the maintenance activity. The above said expenses were inclusive of ₹ 12 lacs which were paid to the third party to whom the maintenance work was outsourced. The AO disallowed all the expenses except ₹ 12 lacs. Since the same income has been held as business income of the assessee in the immediate preceding assessment year, we are not inclined to treat the same as income from other sources. Therefore to maintain the consistency we reverse the order of the lower authorities and treat the same as income from business. Regarding the disallowance of the expenses we find that in the immediate preceding assessment year, the AO has disallowed the expenses to the tune of ₹ 3,16,752.00 only. Now to maintain the consistency in the order of lower authorities, we are inclined to restore this file to the AO with the direction to work out the disallowance of the expenses in the light of assessment order of the earlier year. Hence this ground of appeal is allowed for statistical purpose. TDS u/s 194C - Non deduction of tds on the maintenance expenses - Held that - The party to whom the maintenance charges were paid, have duly disclosed the receipt in its return of income and paid the due taxes on it. Now as per the amended provisions of the Finance Act 2012, the assessee shall not be treated as assessee in default if the recipient of the income has duly shown in its return of income. Accordingly we reverse the order of the lower authorities, hence, ground raised by assessee is allowed. Allowing the loss of future & options against the speculation income - Held that - The brought forward speculation loss was not allowed for set off against the current year speculation income on the ground that the assessee failed to set off the same in the immediate preceding year. However from the submission of the Ld.AR we find that there was no speculation profit for set off in the immediate assessment year. We also observe from the order of AO that in the immediate preceding assessment year that there was no speculation profit. We reverse the order of the lower authorities and this ground of appeal of assessee is allowed.
Issues Involved:
1. Disallowance of interest expenditure against interest income. 2. Disallowance under Section 14A read with Rule 8D. 3. Treatment of receipt as income from other sources and disallowance of depreciation. 4. Treatment of service charges as income from other sources and disallowance of related expenses. 5. Disallowance under Section 40(a)(ia) for non-deduction of TDS. 6. Set off of brought forward loss against speculation income. Issue-wise Detailed Analysis: 1. Disallowance of Interest Expenditure Against Interest Income: The assessee claimed interest expenditure of Rs. 43,10,083/- against interest income of Rs. 26,59,463/- and Rs. 19,144/- as business income. The AO disallowed the interest expenditure, arguing that the borrowed funds were used for investments in shares and mutual funds, not for fixed deposits. The CIT(A) upheld this view, stating the assessee adjusted interest expenditure based on convenience to avoid taxes. The Tribunal found that the fixed deposit was made from the redemption of mutual funds and recovery of unsecured loans. It reversed the lower authorities' orders, allowing the interest expenditure against the interest income, classifying Rs. 19,144/- as income from other sources. 2. Disallowance Under Section 14A Read with Rule 8D: The assessee declared dividend income of Rs. 15,22,890/- but did not disallow any expenses under Section 14A. The AO applied Rule 8D, disallowing Rs. 30,67,213/- for interest expenses and Rs. 5,71,648/- for other expenses. The CIT(A) confirmed this disallowance. The Tribunal noted that the AO should consider only the net interest for disallowance under Rule 8D(ii) and that the disallowance under Rule 8D(iii) should not exceed the actual expenses claimed. It restored the matter to the AO for fresh adjudication. 3. Treatment of Receipt as Income from Other Sources and Disallowance of Depreciation: The assessee purchased a trademark and received Rs. 4,40,730/- for its use, claiming it as business income and claiming Rs. 55,000/- depreciation. The AO and CIT(A) treated the income as from other sources, disallowing the depreciation, arguing the transaction was collusive. The Tribunal found the income from exploiting commercial assets should be treated as business income and allowed the depreciation, reversing the lower authorities' orders. 4. Treatment of Service Charges as Income from Other Sources and Disallowance of Related Expenses: The assessee received Rs. 25,25,508/- as service charges but outsourced the maintenance work. The AO treated this as income from other sources and disallowed most expenses. The CIT(A) upheld this view. The Tribunal noted that the same income was treated as business income in the preceding year and reversed the lower authorities' orders, treating it as business income. It directed the AO to disallow expenses consistently with the previous year's assessment. 5. Disallowance Under Section 40(a)(ia) for Non-deduction of TDS: The AO disallowed Rs. 12 lakh for non-deduction of TDS under Section 194C. The CIT(A) confirmed this. The Tribunal found the recipient disclosed the income and paid taxes, invoking the amended provisions of the Finance Act 2012, which prevent treating the payer as an assessee in default if the recipient has disclosed the income. It reversed the lower authorities' orders, allowing the expense. 6. Set Off of Brought Forward Loss Against Speculation Income: The AO disallowed the set-off of Rs. 3,29,661/- brought forward loss against current year speculation income, arguing it should have been set off in the preceding year. The CIT(A) upheld this view. The Tribunal found there was no speculation profit in the preceding year, reversing the lower authorities' orders, allowing the set-off. Conclusion: The Tribunal allowed the appeal partly, reversing several disallowances and reclassifying certain incomes, directing the AO for fresh adjudication on specific points.
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