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2015 (3) TMI 1333 - AT - Income TaxReceipt being rent of Infrastructure Facilities installed in the property Let Out - Business Income OR Income from House Property - whether receipts for providing certain facilities to its tenants can be called to be part of rental income of the assessee - Held that - As perused the lease deed and infrastructure agreement executed on 1.9.2003 and other relevant documents we find that the assessee has claimed these receipts as income from house property in assessment year 2005-06 and the Assessing Officer has accepted the same. Once the AO has treated these receipts as income from house property in assessment year 2005-06, we find no justification in treating the same receipts in succeeding year as business income - where the assessee has received certain charges for providing certain facilities along with rental income, the entire receipts shall be income from house property and not business income. We, therefore, find no merit in the order of the CIT(A) confirming the infrastructure receipts as business income of the assessee. Disallowance of foreign travel expenses incurred towards the visit of the Director, Shri. U.S. Halwasia and his wife to Egypt and U.S.A - Held that - We find force in the contention of the Revenue that if the assessee has undertaken the foreign travel to explore business opportunities, there must have been some correspondence exchanged between the assessee and its foreign clients/consultant/advisers, but nothing is placed on record. He has also placed reliance upon the aforesaid judgments, but on a careful perusal, we find that in those judgments, it has been held that onus is upon the assessee to prove that foreign visits were undertaken for the business purpose. No doubt, assessee can undertake foreign travel to explore business opportunities, but the onus is entirely upon the assessee to establish, by placing some documentary evidence, that the foreign travel was undertaken for the business purpose. In the absence of any documentary evidence, we are unable to accept the contention of the assessee that the foreign travel was undertaken to explore the business opportunities. We, therefore, find no infirmity in the order of the CIT(A) on this issue and we accordingly confirm the same. Disallowance of the educational expenses incurred in connection with sponsorship of the educational expenses of Shri. Mukund Halwasiya, Director for his studies abroad for professional course in Accounts and Finance - Held that - Tribunal in the assessee s own case for assessment year 2005-06 with the submission that the impugned issue was raised before the Tribunal and the Tribunal has decided the issue in favour of the assessee by holding that the expenditure was incurred for business purposes. Copy of the order of the Tribunal is placed on record. Since the impugned issue has already been adjudicated by the Tribunal in assessment year 2005-06 and the claim of expenditure incurred on education of Shri. Mukund Halwasiya was allowed, we find no reason to disallow the claim in the impugned assessment year. We, therefore, following the order of the Tribunal for assessment year 2005-06, allow the claim of the assessee after setting aside the order of the ld. CIT(A) in this regard. Disallowance of business promotion - held that - Disallowance was made on ad hoc basis. It has been repeatedly held by various judicial forums that if the Assessing Officer is not satisfied with the maintenance of the books of account, he may dispute the particular entry and make disallowance, but disallowance on ad hoc basis should be avoided. In the instant case, nothing is borne out from the orders of the lower authorities as to whether the AO has raised any query in respect of a particular entry. He has simply made ad hoc disallowance, which is not permissible under the law. We accordingly set aside the order of the ld. CIT(A) and delete the addition in this regard. Disallowance under section 14A - Held that - We are of the view that no disallowance under section 14A of the Act can be made on account of this investment made for allotment of shares under section 14A of the Act. Moreover, provisions of sub-section (1) and (2) of section 14A were introduced by the Finance Act, 2006 w.e.f. 1.4.2007 relevant to the assessment year 2007-08. Therefore, these provisions cannot be invoked for making disallowance under section 14A of the Act. As carefully examined the provisions of rule 8D and we find that this rule was introduced w.e.f. 24.3.2008, and the relevant assessment year would be 2008-09. Therefore, computation of disallowance under rule 8D is not called for in the impugned assessment year i.e. assessment year 2006-07. CIT(A) has not examined the issue of investment in shares and mutual funds at ₹ 19,91,741/-, but in any case for making disallowance, sub-sections (1) & (2) of section 14A cannot be invoked in the impugned assessment year i.e. assessment year 2006-07, as it was introduced w.e.f. 1.4.2007 by the Finance Act, 2006. Therefore, we are of the considered view that no disallowance under section 14A is called for for investment in shares and mutual funds and advances given to M/s G.R. Maintenance & Services Pvt. Ltd. for allotment of shares. We accordingly set aside the order of the CIT(A) in this regard and delete the addition. Disallowance u/r 8D - Held that - AO as per rule 8D of the rules and we find that the Assessing Officer has treated the investment out of mixed funds and he has computed the disallowance by applying the formula given in rule sub-rule (2) clause (3) of rule 8D of the rules; whereas no disallowance can be made where it is established that the investment in shares are made out of own funds available with the assessee. In the instant case, it has been established that the investment in shares were made by the assessee out of own funds available with it. Therefore, no disallowance can be made on account of expenditure incurred by way of interest during the previous year. Whatever disallowances are to be made that can only be made as per clause (3) of sub-rule(2) of rule 8D of the rules. We, therefore, set aside the order of the ld. CIT(A) and direct the Assessing Officer to re-compute the disallowance as per clause (3) of sub-rule(2) of rule 8D of the rules.
Issues Involved:
1. Classification of Receipts: Business Income vs. Income from House Property 2. Disallowance of Foreign Traveling Expenses 3. Disallowance of Educational Expenses 4. Ad-hoc Disallowance of Business Promotion Expenses 5. Disallowance under Section 14A of the Income Tax Act 6. Disallowance of Rent Paid to Sister Concern Issue-wise Analysis: 1. Classification of Receipts: Business Income vs. Income from House Property The primary issue was whether receipts from infrastructure facilities should be classified as "Business Income" or "Income from House Property." The assessee argued that infrastructure facilities like lift, generator, air conditioning plant, and fire fighting plant were integral parts of the property and should be treated as rental income. The Tribunal referred to the Supreme Court's judgment in Shambhu Investment Pvt. Ltd. vs. CIT, which held that income derived from letting out furnished premises with amenities should be assessed as income from property. The Tribunal concluded that the infrastructure receipts should be treated as income from house property and not business income, setting aside the CIT(A)'s order. 2. Disallowance of Foreign Traveling Expenses The assessee claimed foreign travel expenses for exploring business opportunities. However, the Assessing Officer and CIT(A) disallowed these expenses due to a lack of documentary evidence supporting the business purpose of the travel. The Tribunal upheld this disallowance, emphasizing that the onus was on the assessee to provide evidence of business-related travel, which was not met. 3. Disallowance of Educational Expenses The assessee incurred educational expenses for a director's professional course, arguing it was for business development. The Tribunal noted that in a previous assessment year, the same issue was decided in favor of the assessee, recognizing the expenses as business-related. Following this precedent, the Tribunal allowed the educational expenses, setting aside the CIT(A)'s disallowance. 4. Ad-hoc Disallowance of Business Promotion Expenses The Assessing Officer made an ad-hoc disallowance of business promotion expenses due to incomplete details. The CIT(A) reduced this disallowance. The Tribunal found that the disallowance was made without pointing out specific defects in the accounts and ruled that ad-hoc disallowances are not permissible. The Tribunal set aside the CIT(A)'s order and deleted the addition. 5. Disallowance under Section 14A of the Income Tax Act The Assessing Officer disallowed expenses under Section 14A, applying rule 8D, arguing that investments in shares and mutual funds were income-generating. The Tribunal noted that the provisions of Section 14A(1) and (2) were introduced from the assessment year 2007-08 and rule 8D from 2008-09. Therefore, these provisions could not be applied retrospectively to the assessment year 2006-07. The Tribunal also found that the advance given for share application money, which was later allotted, could not be considered income-generating for the concerned year. The Tribunal set aside the CIT(A)'s order and deleted the addition. 6. Disallowance of Rent Paid to Sister Concern The Assessing Officer disallowed rent paid to a sister concern, questioning its necessity. The Tribunal found that the lower authorities did not properly verify the facts and set aside the CIT(A)'s order, remanding the matter back to the Assessing Officer for proper verification. Conclusion: The Tribunal's consolidated order addressed multiple appeals, providing detailed rulings on each issue. The key takeaways include the proper classification of infrastructure receipts as rental income, the necessity of documentary evidence for foreign travel expenses, the allowance of educational expenses based on precedent, the inadmissibility of ad-hoc disallowances, the non-applicability of Section 14A provisions before the assessment year 2007-08, and the need for proper verification of rent payments to sister concerns. The Tribunal's decisions were based on careful examination of facts, relevant legal precedents, and the specific provisions of the Income Tax Act.
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