2010 (10) TMI 705 - AT - Income Tax

Disallowance - u/s 14A - Since the decision of the jurisdictional High Court in M/s Godrej Boyce and Mfg Co Ltd vs DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT) was not available either before the AO or before the CIT(A) therefore, we are of the considered opinion that the matter needs fresh adjudication at the level of the Assessing Officer in the light of the decision of the jurisdictional High Court cited above. The Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue afresh in accordance with law - This ground of the assessee, accordingly allowed for statistical purpose. Deduction u/s 80HHC - In view of the decision of the Hon ble Supreme Court in the case of K Ravindranath nair (2007 -TMI - 2378 - Supreme Court of India), do not find any infirmity in the order of the CIT(A) denying the benefit of deduction u/s 80HHC on I.T Refund, interest on tax free bonds and other interest income. The ground raised by the assessee is accordingly dismissed. Expenditure for canteen subsidy - provisions of section 40A(9) - do not find any infirmity in the order of the CIT(A), who has followed the decision of his predecessor from Assessment Year 1998-99 to 2002-03 as well as the order for Assessment Year 2003-04. Further, the Tribunal has decided the issue in favour of the assessee in assessee s own case for various years. Therefore, respectfully following the decision of the Tribunal in assessee s own case for different years and in the absence of any contrary material brought to our notice; this ground of the revenue is dismissed. Deduction u/s 8HHC - interest on housing loan - , the CIT(A) held that providing housing loans to employees is part of business exigency and therefore, such interest on housing loans is certainly income from business even though, it is not directly earned from business transactions. According to him, it is certainly includable with the business income and naturally it should be assessed as business income - Decided against the assessee.

Issues Involved:
1. Disallowance of expenditure on Voluntary Retirement on Pension Scheme under Section 35DDA.
2. Disallowance under Section 14A related to interest and other expenditure attributable to tax-free income.
3. Classification of interest income for the purpose of deduction under Section 80HHC.
4. Disallowance of canteen subsidy expenditure under Section 40A(9).
5. Classification of interest on housing loans received from employees for deduction under Section 80HHC.

Issue-wise Detailed Analysis:

1. Disallowance of expenditure on Voluntary Retirement on Pension Scheme under Section 35DDA:
The assessee's appeal on this ground was dismissed. The Tribunal referenced its own prior decision in the assessee's case for the assessment year 2002-03 (ITA No.5699/Mum/2005, dated 28.4.2008), which had ruled against the assessee on the same issue.

2. Disallowance under Section 14A related to interest and other expenditure attributable to tax-free income:
The Assessing Officer disallowed notional interest and administrative expenditure under Section 14A. The Tribunal found that the jurisdictional High Court's decision in M/s Godrej Boyce and Mfg Co Ltd vs DCIT (ITA No.626 of 2010) was not available to the Assessing Officer or the CIT(A) at the time of their decisions. The High Court had provided guidelines on enforcing Section 14A and determining related expenditure. The Tribunal remanded the matter back to the Assessing Officer for fresh adjudication in light of the High Court's decision, directing the Assessing Officer to give the assessee a reasonable opportunity to present relevant material.

3. Classification of interest income for the purpose of deduction under Section 80HHC:
The Assessing Officer had treated certain interest incomes as "income from other sources" rather than "business income," affecting the deduction under Section 80HHC. The CIT(A) partially upheld this, classifying some interest incomes as business income and others as income from other sources. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in CIT vs K Ravindranathan Nair (295 ITR 228), which supported the revenue's stance. Therefore, the Tribunal dismissed the assessee's appeal on this ground.

4. Disallowance of canteen subsidy expenditure under Section 40A(9):
The Assessing Officer disallowed the expenditure on canteen facilities under Section 40A(9), but the CIT(A) deleted the disallowance, citing consistent decisions in the assessee's favor in previous years and a specific Tribunal decision for the assessment year 1996-97. The Tribunal found no infirmity in the CIT(A)'s order, noting that the issue had been consistently decided in the assessee's favor in prior years, and dismissed the revenue's appeal on this ground.

5. Classification of interest on housing loans received from employees for deduction under Section 80HHC:
The CIT(A) had treated the interest on housing loans to employees as business income for the purpose of Section 80HHC deduction. The Tribunal, however, referenced its decision on a similar issue in the assessee's case and the Supreme Court's ruling in K Ravindranathan Nair, concluding that such interest cannot be treated as business income for Section 80HHC purposes. The Tribunal allowed the revenue's appeal on this ground.

Conclusion:
The appeals by the assessee and the revenue were partly allowed. The Tribunal provided specific directions for fresh adjudication on certain issues and upheld or dismissed other grounds based on established legal precedents and prior decisions.

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