2016 (1) TMI 239 - AT - Income Tax

Assessing income from letting out of property - under the head income from house property OR income from business or profession - Held that - For the assessment year 2001-02, the ITAT in its order decided the issue in favour of the Revenue by following the decision of the Hon ble Jurisdictional High Court in the case of CIT v. Chennai Properties and Investments 2015 (5) TMI 46 - SUPREME COURT . The very same decision of the Hon ble Jurisdictional High Court has been reverted by the Hon ble Supreme Court in the case of Chennai Properties and Investments Ltd. v. CIT 2015 (5) TMI 46 - SUPREME COURT thus income had to be treated as income from business and not as income from house property.- Decided in favour of assessee. Disallowance u/s 14A read with Rule 8D - Held that - In the present case, the assessee has earned exempt dividend income of ₹ 50,611/-. The assessee has not admitted any expenses to earn the above dividend income. The Assessing Officer disallowed the expenses to the tune of ₹ 1,30,649/- by invoking section 14A r.w.r. 8D. By taking into consideration of the facts and circumstances of the present case and keeping in view of the above decision of the Hon ble Delhi High Court in case of Joint Investments Pvt. Ltd. v. CIT 2015 (3) TMI 155 - DELHI HIGH COURT , we are of the opinion that the Assessing Officer is not justified in making excessive disallowance. Therefore, we restrict the disallowance made by the Assessing Officer to the extent of exempt income earned by the assessee and ordered accordingly. - Decided partly in favour of assessee

Summary

Issues involved:
1. Classification of income from letting out of property as 'income from house property' or 'income from business or profession.'
2. Disallowance under section 14A read with Rule 8D in relation to exempt dividend income.

Issue 1: Classification of Income:
The appeal dealt with the classification of income from letting out of property as 'income from house property' or 'income from business or profession.' The Tribunal considered the previous decision of the Hon'ble Jurisdictional High Court in a similar case and noted that the same decision had been reversed by the Hon'ble Supreme Court. Accordingly, the Tribunal decided in favor of the assessee, following the judgment of the Supreme Court.

Issue 2: Disallowance under Section 14A:
The second issue revolved around the disallowance of expenses under section 14A read with Rule 8D concerning exempt dividend income. The Assessing Officer disallowed an amount exceeding the exempt income earned by the assessee. The Tribunal referred to a case decided by the Hon'ble Delhi High Court, where it was held that the entire tax-exempt income cannot be disallowed. The Tribunal, considering the facts and the Delhi High Court decision, restricted the disallowance to the extent of the exempt income earned by the assessee.

In conclusion, the Tribunal partly allowed the appeal, restricting the disallowance made by the Assessing Officer to the extent of the exempt income earned by the assessee. The decision was pronounced on October 16, 2015, in Chennai.