2016 (11) TMI 1634 - AT - Income Tax

Disallowance u/s 14A - plea of assessee is that the assessee has not incurred any expenditure in earning of the exempt income and, therefore, the disallowance is not justified - HELD THAT - AO was justified in making the impugned disallowance because he was not satisfied, having regard to the accounts of the assessee, that no expenditure was incurred in relation to earning of the exempt income. No doubt, the proposition canvassed by the assessee is tenable, so however, it has to be examined in the context of facts of each case. In the present case, having regard to the discussion in the assessment order, we find no reason to delete the disallowance made by the Assessing Officer by invoking Sec. 14A of the Act. Thus, on this aspect, assessee fails. Assessment of rental income - Accrual of income - addition pertaining to Shiv Sagar property, which has been assessed in the hands of the assessee, whereas the plea of assessee is that it is not the owner of such property - HELD THAT - insofar as the issue of assessability of rental income of ₹ 33,63,677/- relating to Shiv Sagar property is concerned, same is directed to be assessed in the hands of the assessee as held by the income-tax authorities following the order of Tribunal 2012 (2) TMI 681 - ITAT MUMBAI in the case of assessee. Simultaneously, the Assessing Officer is directed to apply the final decision on the question of law, which is pending before the Hon'ble Bombay High Court in the earlier Assessment Year 2006-07 2013 (3) TMI 825 - BOMBAY HIGH COURT without requiring the assessee to file appeal to the higher court in this year on the same issue. In this view of the matter, the issue is decided against the assessee, subject to the aforesaid observations.

Summary

Issues Involved:
1. Disallowance of expenses under section 14A of the Income Tax Act, 1961.
2. Assessment of rental income pertaining to Shiv Sagar property.

Analysis:

Issue 1: Disallowance of expenses under section 14A of the Income Tax Act, 1961:
The appeal raised by the assessee contested the disallowance of expenses amounting to ?1,31,209 under section 14A r.w. Rule 8D of the Income Tax Rules, 1962. The Assessing Officer disallowed the amount as the assessee had earned exempt dividend income of ?1,99,644, but had not disallowed the related expenditure as required by Sec. 14A. The CIT(A) upheld the disallowance, stating that the Assessing Officer correctly found the claim of no expenditure related to the exempt income to be incorrect. The ITAT affirmed this decision, stating that the Assessing Officer was justified in making the disallowance as he was not satisfied that no expenditure was incurred in relation to earning the exempt income. The ITAT found no reason to delete the disallowance, and thus, the assessee's plea failed.

Issue 2: Assessment of rental income pertaining to Shiv Sagar property:
The second ground of appeal involved the assessment of rental income of ?33,63,677 related to Shiv Sagar property in the hands of the assessee, who claimed not to be the owner of the property. The CIT(A) noted a similar dispute in the past years, where the Tribunal had affirmed the assessing authority's stand. The assessee referred to a pending appeal before the Hon'ble Bombay High Court for Assessment Year 2006-07, seeking direction to apply the ultimate decision on the question of law in the present year. The ITAT directed the rental income to be assessed in the hands of the assessee as per the Tribunal's previous order, while also instructing the Assessing Officer to apply the final decision pending before the Hon'ble Bombay High Court without requiring the assessee to file an appeal. Consequently, the issue was decided against the assessee, leading to the dismissal of the appeal.

In conclusion, the ITAT upheld the disallowance of expenses under section 14A and directed the assessment of rental income related to Shiv Sagar property in the hands of the assessee based on previous decisions and pending legal proceedings.