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2014 (3) TMI 255 - AT - Income TaxDeletion made u/s 14A of the Act Held that - Rule 8D(1) specifically states that determination of disallowance under Sub-Rule (2) can be done only when Assessing Officer is not satisfied with the correctness of the claim of expenditure made by the assessee - Such a satisfaction has to be an objective one based on cogent reason Relying upon REI AGRO LTD, KOLKATA Versus DCIT CENTRAL CIRCLE-XXVII, KOL 2013 (9) TMI 156 - ITAT KOLKATA - CIT(Appeals) was justified in holding that Assessing Officer could not have applied Rule 8D(2)(iii) of the Act and made a disallowance of percent of average value of investment -CIT(Appeals) was justified in deleting such disallowance there is no reason to interfere with the order of CIT(Appeals) Decided against Revenue. Deletion of disallowance of interest expenditure Held that - There is nothing on record to show that during the relevant previous year assessee was doing any business as a builder - to fasten a completed contract method of accounting on an assessee who is not doing any construction or undertaking any project work, will not be appropriate - It cannot be said that the loan raised by assessee from ICICI Bank, which was utilized for paying advances for acquiring built up spaces, was in relation to extension of an existing business. Business of assessee was real estate and the assesese s intention was to trade in constructed spaces - It never contemplated to use such constructed spaces for its own use the decision Commissioner of Income-Tax Versus Lokhandwala Construction Inds. Ltd. 2003 (1) TMI 93 - BOMBAY High Court followed - As long as the payment of advance was not for acquisition of fixed assets but only for acquiring stock-in-trade, assessee was entitled for deduction under section 36(1)(iii) of the Act thus, the CIT(Appeals) was justified in deleting the addition made by the Assessing Officer Decided against Revenue. Deletion of disallowance of processing charges on loan Held that - Since loan raised from State Bank of India was used by the assessee for financing its stock - processing charges incurred for raising such loan was an allowable expenditure there is no reason to interfere with the order of CIT(Appeals) Decided against Revenue. Disallowance of depreciation on a boiler Held that - The boiler on which depreciation was not allowed, was one which was leased out by the assessee in earlier years, income from which was admitted - Thus the boiler was already part of the block of assets of the assessee - Once a machinery is becomes the part of a block, it looses its separate identity - Depreciation is granted on block of assets as stipulated in section 36(1)(ii) - Once the boiler was already used, it cannot be said that it was not ready for use - Passive use of the boiler, argument by the assessee has to be accepted thus, the disallowance was not in accordance with law Decided in favour of Assessee. Valuation made u/s 50C of the Act Valuation of LTCG on transfer of assets Held that - Revenue has not rebutted the submission of the assessee that it had objected to the adoption of value assessed by the Stamp Valuation Authority before the Assessing Officer - There is no case for the Revenue that the value assessed by the Stamp Valuation Authority was subject to any dispute in any appeal, revision or reference the Assessing Officer was obliged to refer the valuation to a Valuation Officer in accordance with sub-section (2) of section 50C of the Act - the matter requires a fresh look by the Assessing Officer - Assessing Officer shall refer the valuation to the Departmental Valuation Officer order set aside and the matter remitted back to the AO for fresh consideration Decided in favour of Assessee.
Issues Involved:
1. Deletion of addition under section 14A. 2. Disallowance of interest expenditure. 3. Disallowance of processing charges on loan. 4. Disallowance of depreciation on a boiler. 5. Application of section 50C for long-term capital gain. Issue-Wise Detailed Analysis: 1. Deletion of Addition under Section 14A: The Revenue's grievance was that the CIT(A) deleted an addition made by the Assessing Officer (AO) under section 14A of the Act. The assessee, engaged in real estate, guest house, and trading in shares, declared an income of Rs.1,26,00,660/-. The AO issued a notice to disallow expenditure attributable to exempt dividend income of Rs.1,10,79,771/-. The assessee claimed only Rs.88,732/- as expenditure, which included salary and Demat charges. The AO, dissatisfied, applied Rule 8D and made a disallowance of Rs.54,86,350/-. The CIT(A) found that the AO did not provide reasons for his dissatisfaction and deleted the addition. The Tribunal upheld the CIT(A)'s decision, stating the AO's dissatisfaction must be based on cogent reasons and not presumptions. 2. Disallowance of Interest Expenditure: The AO disallowed interest expenditure of Rs.29,68,289/- paid to ICICI Bank, arguing that the assessee had not conducted any real estate transactions and was following the completed contract method. The CIT(A) found that the assessee was engaged in buying and selling real estate and allowed the interest expenditure as it was for business purposes. The Tribunal agreed with the CIT(A), noting that the assessee's intention was to trade in constructed spaces, and the loan was for acquiring stock-in-trade, making the interest expenditure allowable under section 36(1)(iii). 3. Disallowance of Processing Charges on Loan: The AO disallowed Rs.7,21,500/- paid as processing charges to SBI, claiming the assessee followed the completed contract method. The CIT(A) allowed the claim, stating the loan was used for business purposes. The Tribunal upheld the CIT(A)'s decision, agreeing that the processing charges were a revenue expenditure since the loan financed the assessee's stock. 4. Disallowance of Depreciation on a Boiler: The AO disallowed depreciation of Rs.74,762/- on a boiler, stating it was not used during the relevant year. The CIT(A) upheld the disallowance. The Tribunal found the boiler was part of the block of assets and had been used in earlier years. It ruled that passive use should be accepted, and disallowance was not in accordance with the law, thus allowing the assessee's claim. 5. Application of Section 50C for Long-Term Capital Gain: The AO applied section 50C, making an addition of Rs.32,96,073/- for the difference between the sale deed value and the Stamp Duty Authority's value. The CIT(A) upheld this. The Tribunal noted the assessee had objected to the adoption of the Stamp Valuation Authority's value and the AO should have referred the valuation to the Departmental Valuation Officer as per section 50C(2). The Tribunal remitted the matter back to the AO for fresh consideration. Summary: The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s decisions on the deletion of addition under section 14A, disallowance of interest expenditure, and processing charges on loan. It allowed the assessee's claim for depreciation on the boiler and remitted the issue of section 50C application back to the AO for fresh consideration.
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