2015 (7) TMI 532 - AT - Income Tax

Disallowance under section 14A - CIT(A) who deleted the addition under rule 8D(2)(ii), while he confirmed the disallowance made under rule 8D(2)(iii) - Held that - Tribunal for the earlier assessment year had considered the very same issue at length stating as per Rule 8D(2)(ii), disallowance can be made in respect of that interest expenditure which is not directly attributable to any particular income or receipt. The learned CIT (Appeals) after considering the facts on record held that there is no material on record to show that the overdraft cannot has been directly used for tax exempt investments and that the interest free funds, reserves and surplus are sufficient to make the tax free investments. Revenue has not brought on record any material to substantiate that the overdraft account was utilized for making tax free investments. Revenue has also not disputed that the investments proceeds from the public issue of shares. Thus, it cannot be said that funds from the overdraft account, on which interest is paid, has been invested in mutual funds which yield tax exempt income. In this factual matrix, we hold that the learned CIT (Appeals) was justified in deleting the disallowance under section 14A r.w. Rule 8D(2)(ii) In the present case, the assessee, in so far it relates to common expenses falling within the ambit of Rule 8D(2)(iii) of the Rules , has taken a stand that no expenses whatsoever was incurred by the assessee. The AO has only dealt with the expenditure in the form of interest. With regard to other indirect common expenses, he has only made an observation that the assessee does not maintain separate accounts to enable identification of expenditure relating to exempt income. It is thus clear that as far as indirect expenses are concerned, neither the assessee has given any basis for his claim that no expenses were incurred for earning the exempt income, nor has the AO arrived at an objective satisfaction regarding the claim of the assessee that no indirect expenses were incurred to earn the tax-free income is not correct. In the circumstances, we are of the view that it would be just and appropriate that the order of the CIT(A) should be set aside and the issue with regard to disallowance to be made of indirect expenses under Rule 8D(2)(iii) of the Rules should be remanded to the AO for fresh consideration. Thus we confirm the order of the CIT(A) as far as disallowance under rule 8D(2) is concerned and set aside the issue of disallowance u/s rule 8D(2)(iii) to the file of the AO with similar direction as given by the Tribunal. - Decided partly in favour of assessee for statistical purposes. Claim of deduction u/s 80IB(10) - residential units having built up area of 1500 sq. ft. or less in Brigade Gateway and Brigade Metropolis housing projects. - Held that - As the housing projects Brigade Gateway and Brigade Metropolis were same for Assessment Years 2007-08, 2008-09 and 2009-10 in respect of which deduction under section 80-IB(10) of the Act was denied by the Assessing Officer. Revenue has failed to demonstrate as to how the facts in the assessment year under consideration i.e. 2009-10 are different, even though in ground No.5 of revenue s appeal it is stated that the facts of the present assessment year are different. It appears to us that the facts and circumstances of the case as it prevailed for Assessment Years 2007-08 and 2008-09 are identical for the Assessment Year under consideration i.e. 2009-10. As explained above, proportionate deduction under section 80- IB(10) of the Act has been allowed by different co-ordinate benches of this Tribunal in the assessee s own case for earlier assessment years. Revenue s appeals against the aforesaid decisions of the Tribunal (supra) have been dismissed by the Hon ble Karnataka High Court (supra) and Revenue s SLPs by the Hon ble Apex Court (supra). In this view of the matter, respectfully following the decisions of the co-ordinate benches of this Tribunal, the Hon ble Karnataka High Court and the Hon ble Apex Court in the assessee s own case for the earlier assessment years (supra), we hold that the assessee is entitled for deduction under section 80-IB(10) of the Act in respect of residential units having built up area of 1500 sq. ft. or less in Brigade Gateway and Brigade Metropolis housing projects. - Decided in favour of assessee. Disallowance of Interest paid u/s.36(1)(iii) - CIT(A) deleted the disallowance - Held that - The CIT(A) has only followed the decision of this Tribunal in the assessee s own case for the earlier assessment year 2009-10. Respectfully following the decision of the co-ordinate bench to which one of us i.e. Judicial Member is the signatory, we do not see any reason to interfere with the order of the CIT(A) as there appears to be no material on record to justify the Assessing Officer s conclusion that deposits and advances have flown from out of the bank overdraft facility, we are of the considered view that the learned CIT (Appeals) has rightly deleted the disallowance of interest - Decided in favour of assessee. Disallowance of fine and penalty paid by the assessee on account of project Brigade Gateway - Held that - This issue is decided against the assessee by the decision of the jurisdictional High Court in the case of CIT vs. Mamta Enterprises (2003 (10) TMI 26 - KARNATAKA High Court) which has been followed by the CIT(A) in rejecting the assessee s ground of appeal.- Decided against assessee. As in respect of disallowance of fine and penalty, the AO should be directed to allow the deduction u/s 80IB(10) of the Act as it results in increase in the business profit. Estimating annual value of the building let out to Brigade Foundation for running its school at ₹ 15,00,000/- and consequent addition of ₹ 10,50,000/- under the head income from house property - Held that - The assessee has not disputed the fact that it had parted with the completed portion to Brigade Foundation for running the school during the relevant assessment year and since it had not entered into an agreement of sale with Brigade Foundation for sale of the said property, the benefit of using the property should be treated as the ALV of the property and should be brought to tax. Since the revenue authorities have accordingly brought the income to tax and the assessee has not been able to produce any evidence to the contrary, we do not see any reason to interfere with the order of the CIT(A). This ground of appeal is, therefore, rejected - Decided against assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D.
2. Deduction under Section 80IB(10) of the Income-tax Act, 1961.
3. Disallowance under Section 36(1)(iii) of the Income-tax Act, 1961.
4. Estimation of Annual Letting Value (ALV) of the building let out to Brigade Foundation.
5. Levy of interest under Sections 234B and 234C of the Income-tax Act, 1961.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The Assessing Officer (AO) observed that the assessee had made investments in tax-exempt assets but had not made any disallowance under Section 14A. The AO applied Rule 8D and disallowed proportionate indirect interest and 0.5% of the average amount of tax-exempt investments. The CIT(A) deleted the disallowance under Rule 8D(2)(ii) but confirmed the disallowance under Rule 8D(2)(iii). The Tribunal upheld the CIT(A)'s deletion of disallowance under Rule 8D(2)(ii) and set aside the disallowance under Rule 8D(2)(iii) to the AO for fresh consideration, following the Tribunal's decision in the assessee's own case for earlier assessment years.

2. Deduction under Section 80IB(10):
The AO disallowed the deduction under Section 80IB(10) for four projects where some flats exceeded the 1500 sq. ft. limit. The CIT(A) allowed the deduction proportionately for flats within the limit, following earlier Tribunal and High Court decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, noting that the issue was similar to earlier years where proportionate deduction was allowed.

3. Disallowance under Section 36(1)(iii):
The AO disallowed interest on advances to subsidiaries and for acquiring lands, claiming these were non-business advances made from overdraft accounts. The CIT(A) deleted the disallowance, finding that advances were made from the assessee's own funds and were for business purposes. The Tribunal upheld the CIT(A)'s decision, citing sufficient interest-free funds and the business nature of the advances.

4. Estimation of Annual Letting Value (ALV):
The AO estimated the ALV of a school building let out to Brigade Foundation at Rs. 15,00,000, adding Rs. 10,50,000 as income from house property. The CIT(A) confirmed this addition. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had not disputed the use of the property by Brigade Foundation and had not provided contrary evidence.

5. Levy of Interest under Sections 234B and 234C:
The Tribunal directed the AO to grant consequential relief regarding interest under Sections 234B and 234C, as it is consequential in nature.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal, providing specific directions for each issue based on the factual matrix and legal precedents. The Tribunal's decisions were largely influenced by prior rulings in the assessee's own cases and consistent judicial interpretations.