2014 (3) TMI 530 - AT - Income Tax

Restriction of disallowance u/s 14A of the Act Compliance of Rule 8D not made - Held that - It is an undisputed fact that the revised working based on which CIT(A) had reduced the disallowance and thereby granted relief to the Assessee was not furnished by Assessee before AO nor any report on the alternate working of disallowance was obtained during appellate proceedings by CIT(A) from AO in view of all fairness and to meet the ends of justice, the AO should be granted an opportunity to examine the working of disallowance u/s. 14A which has been accepted by CIT(A) thus, the matter remitted back to the AO for verification Decided partly in favour of Revenue. Deletion of disallowance u/s 36(1)(vii) of the Act Held that - The CIT(A) while deleting the addition has noted that the Assessee had clamed the expenditure u/s 37of the Act and not as bad debts u/s 36(1)(vii) of the Act - CIT(A) has further given a finding that that 1/5 of the expenses as claimed by the Assessee was allowable u/s. 37 of the Act - Revenue could not controvert the findings of CIT(A) nor has brought on record any contrary material in its support - the Revenue is contesting the disallowance u/s. 36(1)(vii) and not the deduction u/s. 37 of the Act thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue. Deletion on account of loss on sale of property Held that - CIT(A) while deleting the addition has noted that Assessee had submitted sufficient documentary evidences and explanation before the AO but A.O. had ignored and over looked - CIT(A) has further accepted the submissions of the Assessee that the property sold was kept as investment, it was given on rent in earlier years, the income from rentals from the property has been offered to tax under the head income from house property and no depreciation has been claimed on the property which was sold during the year - the treatment of sale consideration of property was in conformity with the provisions of Section 45 of the Act and had accordingly directed the A.O to work out the capital gain/loss under the head capital gains during the year - the Revenue could not controvert the findings of CIT(A), nor has brought any contrary material in its support on record thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Restricting disallowance under Section 14A.
2. Deleting the disallowance under Section 36(1)(vii).
3. Deleting the addition on account of loss on sale of property.

Issue-Wise Detailed Analysis:

1. Restricting Disallowance under Section 14A:
The first issue concerns the disallowance under Section 14A of the Income Tax Act. The Assessing Officer (A.O.) noticed that the Assessee had made investments in shares and mutual funds amounting to Rs. 9.27 crore and earned dividend income of Rs. 39,20,000/-, which was claimed as exempt. The A.O. applied Rule 8D of the Income Tax Rules, 1962, and calculated a total disallowance of Rs. 14,64,083/-. The Assessee argued that the investments were made from its own funds and no expenditure was incurred to earn the exempt income. The CIT(A) partially agreed with the Assessee, reducing the disallowance to Rs. 3,73,714/-. The Revenue appealed, arguing that the alternate working accepted by CIT(A) was not submitted to the A.O. The Tribunal remitted the issue back to the A.O. for verification of the alternate working, directing that if the calculation by CIT(A) is correct, the disallowance should be confirmed to that extent.

2. Deleting the Disallowance under Section 36(1)(vii):
The second issue pertains to the disallowance of Rs. 2,07,399/- under Section 36(1)(vii). The A.O. disallowed the deferred revenue expenses written off, arguing that the Assessee had not shown any income from the project for which the expenses were incurred and thus did not fulfill the conditions under Section 36. The CIT(A) found that the expenses were actually claimed under Section 37 as deferred revenue expenditure and not as bad debts under Section 36(1)(vii). The CIT(A) concluded that 1/5 of the expenses were allowable under Section 37. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not contest the deduction under Section 37, and thus dismissed this ground of Revenue's appeal.

3. Deleting the Addition on Account of Loss on Sale of Property:
The third issue involves the disallowance of a loss on the sale of property amounting to Rs. 16,87,364/-. The A.O. disallowed the claim due to a lack of justification or evidence from the Assessee. However, the CIT(A) found that the Assessee had provided sufficient documentary evidence and explanations, which the A.O. had ignored. The CIT(A) accepted that the property was held as an investment, rented out in earlier years, and no depreciation was claimed on it. The CIT(A) directed the A.O. to work out the capital gain/loss as per Section 45. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue could not provide contrary evidence.

Conclusion:
The appeal by the Revenue was partly allowed for statistical purposes. The Tribunal remitted the first issue back to the A.O. for verification, upheld the CIT(A)'s decision on the second issue, and confirmed the deletion of the addition on the third issue. The order was pronounced in open court on 07-03-2014.