2016 (7) TMI 1553 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - Assessee did not deny the fact of incurring expenditure for managing the investments which are in relation to earning of exempt income. The investments have huge potential in giving or earning exempt income like dividend income in the assessment year under consideration or also in the future years. After considering various decisions and case of Cheminvest Ltd. vs. ITO 2009 (8) TMI 126 - ITAT DELHI-B wherein, it was held that disallowance under section 14A can be made even in the year where no exempt income has been earned or received by the assessee. The Hon'ble High Court of Bombay in the case of M/s. Godrej Boyce. Mfg. Co. Ltd. v. CIT 2010 (8) TMI 77 - BOMBAY HIGH COURT held that the Assessing Officer is duty bound to determine the expenditure which had been incurred in relation to income which did not form part of the total income. In view of the above, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed. Addition towards deferred revenue income - taxation of the time shares sold comprising 55% of the time share value which was treated by the assessee as advance subscription towards customers facilities in the accounts - AO was of the view that the entire sale amount including 55% is taxable in the year of receipt - AO made the disallowance only on the ground that similar issue for earlier assessment year is pending before the Hon ble High Court - HELD THAT - Assessee furnished decision of the ITAT D Bench Chennai in assessee s own case for the assessment years 2002-03, 2006-07, 2007-08 and 2008-09 2012 (8) TMI 1171 - ITAT CHENNAI wherein ITAT allowed the claim of the assessee to defer the income in the subsequent years on the basis of the ITAT Chennai B Bench (Special Bench) in the case of M/s Mahindra Holidays Resorts(India) Ltd. 2010 (5) TMI 524 - ITAT, CHENNAI . By following the decision of the Tribunal, the ld. CIT(A) directed the Assessing Officer to delete the addition. The ld. DR could file any decision having reversed or modified the orders of the Tribunal. Just because, the Department has filed an appeal against the order of the Tribunal, we cannot take a different view on this account. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance under section 14A of the Income Tax Act, 1961 r.w. Rule 8D
2. Deletion of addition towards deferred revenue income

Analysis:

1. Disallowance under section 14A of the Income Tax Act, 1961 r.w. Rule 8D:
The case involved cross-appeals by the assessee and the Revenue against the order of the ld. CIT(A) relevant to the assessment year 2009-10. The primary issue raised by the assessee was the disallowance of &8377;15,69,623 under section 14A of the Act r.w. Rule 8D. The Assessing Officer observed that the assessee had not disallowed expenses related to managing investments in equity shares, leading to the disallowance. The ld. CIT(A) upheld this disallowance, considering the potential for earning exempt income from investments. The Tribunal, after considering various legal precedents, including the Delhi Special Bench decision in the case of Cheminvest Ltd. vs. ITO, affirmed the order of the ld. CIT(A) and dismissed the ground raised by the assessee.

2. Deletion of addition towards deferred revenue income:
Regarding the Revenue's appeal on the deletion of addition towards deferred revenue income, the ld. DR argued against the direction to delete the addition made by the ld. CIT(A). The issue stemmed from the treatment of time shares sold as advance subscription towards customer facilities in the accounts. The Assessing Officer treated the deferred income of &8377;2,62,55,223 as taxable income due to pending cases before the High Court. However, the ld. CIT(A) directed the deletion of this addition based on the Tribunal's decision in the assessee's favor for earlier assessment years. The Tribunal, noting the absence of any decision reversing the Tribunal's orders and the pending appeal by the Department, confirmed the ld. CIT(A)'s decision to delete the addition, dismissing the ground raised by the Revenue.

In conclusion, both the appeals filed by the assessee and the Revenue were dismissed by the Tribunal, upholding the decisions of the ld. CIT(A) on the issues of disallowance under section 14A and deletion of addition towards deferred revenue income for the assessment year 2009-10.