2015 (9) TMI 596 - AT - Income Tax

Disallowance u/s 14A r.w.r 8d - Held that - The issue arising before us is identical to the issue before Tribunal in Rainy Investment Pvt. Ltd. Vs. ACIT (2013 (2) TMI 602 - ITAT MUMBAI ) and following the same parity of reasoning, we hold that no disallowances under section 14A of the Act is to be made in respect of the investment made by the assessee in share application money. However, relying on the order of the Tribunal we restore this issue back to file of the AO for verifying the claim of the assessee that the such investment is in share application money as on 31.03.2008 and 31.03.2009. In case the stand of the assessee is found to be correct then no disallowance is warranted under section 14A read with Rule 8D of the Rules. In respect of the second aspect of the issue we are in conformity with the finding of the Tribunal in Rainy Investment Pvt. Ltd Vs. ACIT (supra) that the deletion of addition under section 14A on account of share application money was not for the reason that it did not yield any tax free income for the relevant year, but for the reason that it was incapable of generating any such income. Accordingly, we hold so. - Decided in favour of assessee for statistical purposes. Addition of vehicle expenses debited to profit & loss account treating the same as expenses for non-business purposes - Held that - No merit in the orders of the authorities below as this is the case of the Pvt. Ltd. Company which was engaged in carrying on the business. During the year under consideration admittedly the assessee had earned income from leasing of properties. Though no construction activity was carried out by the Assessee but it does not warrant the disallowance of 75% of the expenses for non business purpose. Reversing the order of the CIT(A), we direct the AO to allow the expenditure on account of vehicle expenses, petrol expenses and depreciation on motorcar.- Decided in favour of assessee. Claim of brought forward business losses disallowed - Held that - The said adjustment was not allowed by the AO which in turn was also not allowed by CIT(A), though ground of appeal was raised by the assessee in this regard. Following the principles of natural justice, we deem it fit to revert this issue back to the file of the AO, to verify the claim of assessee and allow the adjustment of brought forward losses in accordance with law. - DEcided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance under section 14A of the Income Tax Act related to investment in share application money.
2. Disallowance of vehicle expenses, petrol expenses, and depreciation on motor car for non-business purposes.
3. Set-off of brought forward business losses.

Analysis:

Issue 1: Disallowance under section 14A related to investment in share application money:
The appellant, Starwing Developers Pvt. Ltd., contested the addition of Rs. 13,15,993 made by the Assessing Officer (AO) under section 14A of the Act. The AO disallowed the amount as per Rule 8D, considering the investment made by the assessee in share application money. The CIT(A) upheld the AO's decision. The appellant argued that since the investment did not yield any income, no disallowance should be made under section 14A. Citing precedents, the appellant contended that the investment was incapable of generating income, thus no expenditure should be attributed to earning exempt income. The Tribunal referred to a similar case and held that no disallowance under section 14A should be made in respect of the investment in share application money. The issue was remanded back to the AO for verification.

Issue 2: Disallowance of vehicle expenses, petrol expenses, and depreciation on motor car for non-business purposes:
The appellant challenged the disallowance of vehicle expenses, petrol expenses, and depreciation on a motor car by the AO and confirmed by the CIT(A). Both authorities held that the expenses were for non-business purposes. However, the Tribunal found no merit in their decision as the appellant was engaged in a business of leasing properties. The Tribunal directed the AO to allow the expenditure on vehicle and petrol expenses, and depreciation on the motor car, reversing the CIT(A)'s decision.

Issue 3: Set-off of brought forward business losses:
The appellant raised a ground against the disallowance of set-off of brought forward business losses. The AO and CIT(A) did not allow the adjustment of the losses. The Tribunal, following the principles of natural justice, remanded the issue back to the AO to verify the claim of the appellant and allow the adjustment of brought forward losses in accordance with the law.

In conclusion, the appeals filed by the appellant were allowed for statistical purposes, with the Tribunal providing detailed reasoning and directions for each issue raised in the appeals.

This summary provides a comprehensive analysis of the legal judgment, addressing each issue involved in detail while maintaining the original legal terminology and key points from the judgment.