2015 (1) TMI 913 - AT - Income Tax

Disallowance u/s 14A - Audit Fees and Bank charges - Held that - These two item of expenditure i.e. audit fee and bank charges do not fall under the category of the expenditure incurred for a composite activity resulting taxable and non taxable income, therefore, there is no direct or proximate nexus of these two expenditures with the earning of dividend income. Under the provisions of section 14A, the apportionment of an expenditure is required to be made only when the expenditure is incurred for a composite activity or indivisible activity which results taxable and non taxable income. In the absence of any nexus of the expenditure in question with earning of the dividend income, no disallowance is called for u/s 14A of the Act. Accordingly we delete the disallowance made u/s 14A on account of administrative expenditure. - Decided in favour of assessee. Reduction of claim u/s 54F - C.I.T. restricted the claim to ₹ 5,20,65,966/- and thereby disallowing deduction to the extent of ₹ 23,62,8401- (Rs.9,90,0001- plus ₹ 13, 72,8401-) - Held that - It is pertinent to note that apart from ₹ 9.90 lakh as sum of ₹ 25,600/- was also paid by the assessee to the society as entry fee which was allowed by the Assessing Officer as part of the cost of the acquisition of flat. Thus it is clear that for entrance in the society, the charges were only ₹ 25,600/- which has been allowed. There is no mandate of payment of ₹ 9.90 lakh to the society as a pre condition for transfer of flat in question when the entrance fee is separately paid by the assessee. Further it was paid for maintenance and development fund of the society and has no connection with acquisition of or transfer of flat in question. The stand of the society in the assessment proceedings of the society is that the amount is collected from the members for carrying out repair of the building of the society and not of any particular flat. Such repair is carried out once in every 10 to 12 years, therefore, when the payment is not for acquisition or transfer of flat then it cannot be part of the cost of the new flat for the purpose of exemption u/s 54F of the Income Tax Act. Accordingly, we do not find any error or illegality in the order of CIT(A) qua this issue. - Decided against assessee . Reduction of deduction u/s 54F on account of expenditure on renovation - Held that - In the case in hand, no such evidence was produced by the assessee to show that the house was not in a habitable condition and the expenditure was incurred for making it habitable. Accordingly, we do not find any error or illegality in the order of CIT(A) qua this issue. - Decided against assessee . Unexplained cash credit - CIT(A) deleted the addition u/s 68 - Held that - it is clear that the assessee produced the record to show the payment towards construction of the property in question from the year 2000 till 31.03.2007 total amounting to ₹ 60,95,000/-. As per MOU the assessee has received back only the invested amount of ₹ 60,95,000/- without any surplus or gain on the same. Thus find any error or illegality in the order of CIT(A) qua this issue. - Decided against revenue.

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Reduction of deduction claimed under Section 54F of the Income Tax Act.
3. Allowance of indexed cost of acquisition against the sale of share in immovable property.
4. Deletion of addition under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The assessee contested the disallowance of Rs. 24,766 under Section 14A, arguing that no expenses were incurred to earn the exempt dividend income of Rs. 14,71,443. The Assessing Officer (AO) had disallowed Rs. 1,43,647 under Rule 8D, which exceeded the total expenses claimed by the assessee. The CIT(A) restricted the disallowance to Rs. 24,766, the actual expenses claimed. The Tribunal noted that the disallowance under Rule 8D should not exceed the actual expenses and found no direct nexus between the claimed expenses (audit fees and bank charges) and the earning of dividend income. Therefore, the Tribunal deleted the disallowance made under Section 14A on account of administrative expenditure.

2. Reduction of Deduction Claimed under Section 54F of the Income Tax Act:
The assessee claimed a deduction of Rs. 5,44,28,806 under Section 54F for investment in a new residential house, including Rs. 9,90,000 paid to the society for building repairs and development fund. The AO disallowed this amount, and the CIT(A) upheld the decision. The Tribunal found that the payment of Rs. 9,90,000 was not a precondition for the transfer of the flat but was for the maintenance and development fund of the society. Therefore, it could not be considered part of the cost of the new flat for exemption under Section 54F. Additionally, the assessee claimed Rs. 13,72,814 for renovation expenses, which the AO disallowed, stating the flat was already habitable. The Tribunal upheld this disallowance, noting the lack of evidence that the expenses were necessary to make the flat habitable.

3. Allowance of Indexed Cost of Acquisition against Sale of Share in Immovable Property:
The assessee argued for the computation of capital gains after reducing the indexed cost of acquisition of Rs. 88,25,241 against the sale consideration of Rs. 60,95,000. However, the Tribunal found that this ground was not raised or adjudicated by the authorities below and dismissed it as it did not emanate from the impugned orders.

4. Deletion of Addition under Section 68 of the Income Tax Act:
The revenue appealed against the deletion of an addition of Rs. 60,95,000 under Section 68, which the AO had treated as unexplained cash credit. The CIT(A) accepted the assessee's explanation that the amount was received from Chandrakant S. Choksi HUF as reimbursement for construction costs. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence of payments made for the construction of the property and that the identity and capacity of the creditor, as well as the genuineness of the transaction, were not in doubt. The Tribunal also referenced a previous order where the transaction was accepted for deduction under Section 54F.

Conclusion:
The Tribunal partly allowed the assessee's appeal by deleting the disallowance under Section 14A and upheld the reduction of the deduction under Section 54F for society contributions and renovation expenses. The Tribunal dismissed the revenue's appeal regarding the addition under Section 68 and the assessee's ground on the indexed cost of acquisition.

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