2013 (5) TMI 438 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D - assessee contested that income in question is not an exempt income as the same is not covered by the provisions of section 10(38) Held that - no reason to reject the claim of the assessee for the limited purpose of examining the issue if the dividend income in question does not constitute exempt income for forming part of the total income. In case, the dividend income is not completely examined, it is obvious that the provisions of section 14A do not come into picture. Therefore, the AO is directed to examine the issue afresh and re-adjudicate the same after considering the relevant provisions as well as existing laws if any in force. Disallowance of expenditure incurred on play ground - Held that - The expenditure incurred on the play ground for (a) Removal of bushes, trees, trees, stumps, roots and their disposal, (b)Filling and leveling of ground (c) Repairing of gutters and broken boundary walls etc , merely brings or adds advantage to the school. The advantages merely facilitate asessee s business operation or enabling it to efficiently or more profitably run its business. One day, the leased land has to go back to the MHADA. Hence, the impugned expenditure constitutes revenue expenditure - appeal of the assessee allowed pro-tanto.

Summary

Issues Involved:
1. Applicability of provisions of section 14A read with Rule-8D of the Income Tax Act.
2. Justification for disallowance of expenditure incurred on playground repairs.
3. Justification for disallowance of Rs. 21,400/- due to un-reconciled interest figures.

Issue-wise Detailed Analysis:

1. Applicability of Provisions of Section 14A read with Rule-8D:
The assessee contested the disallowance of Rs. 3,38,240/- under section 14A read with Rule-8D, arguing that the income in question was not exempt under section 10(38) of the Act. The Tribunal directed the Assessing Officer (AO) to re-examine whether the dividend income constituted exempt income. If it did not, section 14A would not apply. The AO was instructed to provide the assessee a reasonable opportunity to be heard and re-adjudicate the issue based on relevant provisions and existing laws.

2. Justification for Disallowance of Expenditure on Playground Repairs:
The assessee claimed Rs. 25,21,000/- as revenue expenditure for repairing a playground leased from MHADA. The AO allowed only 1/5th of the expenditure, treating the rest as capital expenditure, arguing that the expenditure provided an enduring benefit. The CIT (A) upheld this view, citing that the expenditure was capital in nature as it brought into existence a new capital asset. The Tribunal, however, disagreed, referencing the Supreme Court's judgment in Empire Jute Co. Ltd. vs. CIT, which stated that expenditure for facilitating business operations without adding to the fixed capital is revenue in nature. The Tribunal concluded that the expenditure on the playground was for business purposes and did not add to the profit-making apparatus, thus constituting revenue expenditure. The grounds raised by the assessee on this issue were allowed.

3. Justification for Disallowance of Rs. 21,400/- for Un-reconciled Interest Figures:
The AO disallowed Rs. 21,400/- due to the assessee's failure to reconcile this amount with the State Bank of India. The CIT (A) confirmed this disallowance due to the assessee's consistent failure to provide reconciliation. The Tribunal, considering the interest of justice, remanded the issue back to the AO, allowing the assessee another opportunity to reconcile the amount.

Conclusion:
The Tribunal allowed the appeal of the assessee partially. It remanded the issues regarding the applicability of section 14A and the disallowance of Rs. 21,400/- back to the AO for re-examination. It allowed the claim of the assessee regarding the expenditure on playground repairs, treating it as revenue expenditure. The order was pronounced in the open court on April 5, 2013.