2014 (3) TMI 294 - AT - Income Tax

Deletion of disallowance of interest Interest free advance given Held that - The CIT(A) has recorded the finding that the advances were for the purpose of business because the assessee is in the business of real estate, share trading etc. and these advances were given for the purpose of purchase of property or as share application money - There is no nexus of the borrowed money with these advances and the own funds available with the assessee - the interest free advance is coming from preceding years and no disallowance was made in the preceding years in which the advance was given thus, there was no infirmity in order of CIT(A) Decided against Revenue. Disallowance u/s 14A of the Act Held that - The CIT(A) held that Rule 8D is not applicable - he directed the Assessing Officer to work out the disallowance under Section 14A, if any, having regard to proximity of the expenses to earn the income which did not part form of the total income The decision in Maxopp Investment Ltd. Vs. CIT - 2011 (11) TMI 267 - Delhi High Court followed Decided against Revenue. Deletion made u/s 50C of the Act - Full value of consideration Valuation of Building Held that -It is not clear that the assessee objected to the stamp duty valuation of both the flats or one flat only - If he objected to the valuation of both the flats, then why the matter was referred to the DVO only for one flat - If the matter was referred to the DVO for both the flats, then what about the valuation of the second flat - All these questions arise because in the order of the Assessing Officer, there is no mention of the valuation report of even first flat Thus, the matter remitted back to the AO for verification of the record Decided in favour of Revenue.

Summary

Issues Involved:
1. Deletion of disallowance of interest on account of interest-free advances.
2. Disallowance under Section 14A of the Income Tax Act.
3. Deletion of addition under Section 50C of the Income Tax Act.

Detailed Analysis:

1. Deletion of Disallowance of Interest on Account of Interest-Free Advances:

The Revenue challenged the deletion of the disallowance of interest made by the Assessing Officer (AO) on interest-free advances given by the assessee. The AO disallowed interest of Rs. 4,79,773/- and Rs. 5,83,673/- for AY 2006-07 and AY 2008-09, respectively, on the grounds that advances were given without charging interest. The CIT(A) deleted these additions, stating that the advances were for business purposes, and there was no nexus between borrowed funds and these advances. The CIT(A) also noted that the assessee had sufficient own funds to cover these advances. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order and noting that the Revenue did not controvert the factual findings of the CIT(A).

2. Disallowance under Section 14A of the Income Tax Act:

The AO computed disallowance under Section 14A as per Rule 8D for AY 2006-07, 2007-08, and 2008-09. The CIT(A) held that Rule 8D was not applicable for AY 2006-07 and 2007-08 and directed the AO to work out the disallowance under Section 14A, considering the proximity of expenses to earn income that does not form part of the total income. For AY 2008-09, the CIT(A) upheld the disallowance under Rule 8D but directed the AO to verify the expenditure incurred for earning exempt income. The Tribunal found the CIT(A)'s directions to be in conformity with the decision of the Hon'ble Jurisdictional High Court in Maxopp Investment Ltd. Vs. CIT, and upheld the CIT(A)'s order.

3. Deletion of Addition under Section 50C of the Income Tax Act:

The AO made additions under Section 50C, as the stamp duty valuation of the properties sold by the assessee was higher than the actual sale consideration. The CIT(A) directed the AO to consider the DVO's report for one property and deleted the addition for the other property, as the AO failed to refer the matter to the DVO. The Tribunal noted that it was unclear whether the assessee objected to the stamp duty valuation of both properties or only one. The Tribunal set aside the issue regarding the addition of Rs. 2,32,930/- for the second property and directed the AO to verify the records and refer the matter to the DVO if the assessee had objected to the valuation. The Tribunal allowed the Revenue's appeal for statistical purposes.

Conclusion:

The Tribunal dismissed the Revenue's appeals for AY 2006-07 and 2007-08 and partly allowed the appeal for AY 2008-09 for statistical purposes. The decisions were pronounced in the open Court on 28th February 2014.