2018 (3) TMI 1876 - AT - Income Tax

Income from house property - Determination of Annual letting value of the property u/s 23 - assessee had taken huge amount as interest free deposit and rent was received at lower amount - HELD THAT - Since the assessee had taken huge amount of interest free deposit the AO has determined the ALV of the property at a higher amount. The principles for determining Annual letting Value has since been laid down by Hon ble Bombay High Court in the case of Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT . Hence the Tribunal has restored the issue to the file of the AO in order to determine the ALV by following the decision rendered in the above said case. Accordingly consistent with the view taken in AY 2007-08 and 2008-09 in the assessee s own case we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with similar directions. Disallowance made u/s 40(a)(ia) - Whether TDS amount is remitted before the due date for filing return of income u/s 139(1)? - HELD THAT - The provisions of sec. 40(a)(ia) amended by Finance Act 2010 provides that no disallowance shall be made u/s 40(a)(ia) of the Act shall be made if the TDS amount is remitted before the due date for filing return of income u/s 139(1) of the Act. Accordingly if the assessee has paid the TDS amount before the due date for filing return of income u/s 139(1) of the Act no disallowance u/s 40(a)(ia) is required to be made. Accordingly we modify the order passed by Ld CIT(A) and direct the AO to verify the date of payment of TDS amount and delete the disallowance if the TDS amount is paid before the due date for filing return of income u/s 139(1) . Addition of notional interest in respect of interest free loan given to Thailand subsidiary - HELD THAT - Identical addition was also made in AY 2008-09 and the Tribunal has restored the issue to the file of the AO to examine the issue afresh by following the decision rendered by Hon ble Bombay High Court in the case of CIT Vs. Tata Auto-Comp Systems 2015 (4) TMI 681 - BOMBAY HIGH COURT . Consistent with the view taken by the Tribunal in AY 2008-09 we restore this issue to the file of the AO with similar directions. Scientific Research Expenditure - Non furnishing of Form 3CL - A.R submitted that the furnishing of Form 3CL is only directory and not mandatory for claiming deduction u/s 35(2AB) - HELD THAT - Identical disallowance made by the AO in AY 2007-08 and 2008-09 has since been deleted by the Tribunal. In AY 2008-09 the assessee has field Form 3CL before the Tribunal and hence the Tribunal has observed that there should not be any bar for the assessee in availing the deduction u/s 35(2AB). However since the AO has not examined Form 3CL the Tribunal directed the AO to allow the claim after verifying Form 3CL. From the order passed by Ld CIT(A) for AY 2009-10 we notice that the assessee has furnished Form 3CL dated 07-03-2012 before Ld CIT(A) in AY 2009-10. In any case in the case laws relied upon by the assessee furnishing of Form 3CL was held to be not mandatory. Under these set of facts we are of the view that there is no reason to interfere with the order passed by Ld CIT(A) on this issue in both the years under consideration. Gross profit by rejecting the books of accounts - HELD THAT - In AY 2007-08 and 2008-09 the Ld CIT(A) has held that the rejection of books of accounts is not warranted and accordingly held that the provisions of sec. 145 are not attracted AND held that in terms of sec.145A of the Act CENVAT VAT are to be added to the Closing stock. As directed the AO to work out the addition on the basis of particulars to be submitted by the assessee in respect of closing stock. Accordingly by following his decision rendered in AY 2007-08 and 2008-09 the Ld CIT(A) set aside the rejection of books of accounts and restricted the addition only to Closing stock as per the direction given in AY 2007-08. Since a particular view has already been taken by the Tribunal on identical issue in AY 2007-08 and 2008-09 following the same we uphold the order passed by Ld CIT(A) on this issue in both the years under consideration. Disallowance made u/s 14A r.w.r. 8D - HELD THAT - Admittedly the own funds available with the assessee is in far excess of the value of investments. Accordingly the presumption would be that the assessee has used its own funds for making investments as per the decision rendered in the case of HDFC Bank Ltd 2016 (3) TMI 755 - BOMBAY HIGH COURT Accordingly disallowance of interest expenditure u/r 8D(2)(ii) is not called for. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of interest expenditure u/s 8D(2)(ii) of the I T Rules. Disallowance made out of administrative expenses under Rule 8D(2)(iii) of the IT Rules we notice that the assessee has brought forward most of the investments from the prior year. During the year under consideration the assessee has made a fresh investment of 11.25 lakhs in a joint venture company. The assessee has received dividend income of 1.24 lakhs. Thus we notice that the activity of the assessee in the investment portfolio is very minimal. Under these set of facts we are of the view that the application of Rule 8D(2)(iii) is not warranted in this case. Considering the activities of the assessee we are of the view that a round sum disallowance of 10, 000/- out of administrative expenses would meet the requirement of sec. 14A of the Act. Accordingly we modify the order passed by Ld CIT(A) and direct the AO to restrict the disallowance out of administrative expenses to 10, 000/-.

Summary

Issues involved:
1. Determination of Annual Letting Value of the property under section 23 of the Act.
2. Disallowance made under section 40(a)(ia) of the Act.
3. Addition of notional interest on interest-free loan.
4. Disallowance of Scientific Research Expenditure under section 35(2AB).
5. Rejection of books of accounts and addition to Gross profit.
6. Disallowance made under section 14A of the Act.

Issue 1: Determination of Annual Letting Value:
The assessee's appeal in AY 2009-10 contested the determination of Annual Letting Value (ALV) of the property under section 23 of the Act. The AO had set ALV at a higher figure due to interest-free deposits received by the assessee. Following the decision in previous years and the principles established by the Hon'ble Bombay High Court, the Tribunal directed the AO to re-examine the issue and determine ALV accordingly.

Issue 2: Disallowance under section 40(a)(ia):
The assessee challenged the disallowance made under section 40(a)(ia) in AY 2009-10. The AO disallowed the amount due to delayed TDS payment, but the assessee argued that the TDS was remitted before the due date for filing returns. Citing a decision by the Hon'ble Calcutta High Court, the Tribunal ruled that no disallowance was warranted if TDS was paid before the due date, directing the AO to verify the payment date and delete the disallowance if paid timely.

Issue 3: Addition of notional interest on interest-free loan:
The addition of notional interest on an interest-free loan given to a subsidiary was contested by the assessee in AY 2009-10. The Tribunal, following a decision by the Hon'ble Bombay High Court, directed the AO to re-examine the issue in line with the established principles.

Issue 4: Disallowance of Scientific Research Expenditure:
The revenue contested the disallowance of Scientific Research Expenditure under section 35(2AB) in both AY 2009-10 and 2010-11. The Tribunal upheld the Ld CIT(A)'s decision to delete the disallowance, emphasizing that the furnishing of Form 3CL was not mandatory for claiming the deduction under section 35(2AB).

Issue 5: Rejection of books of accounts and addition to Gross profit:
Both parties contested the rejection of books of accounts and the subsequent addition to Gross profit in AY 2009-10 and 2010-11. The Tribunal upheld the Ld CIT(A)'s decision, following the precedent set in previous years, and restricted the addition only to the closing stock.

Issue 6: Disallowance under section 14A of the Act:
The disallowance made under section 14A of the Act was challenged by both parties in AY 2009-10. The Tribunal modified the Ld CIT(A)'s order, ruling that disallowance of interest expenditure was not warranted due to the excess of own funds over investments. Additionally, the disallowance of administrative expenses was reduced to a nominal amount considering the minimal activity in the investment portfolio.

In conclusion, the Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeal for AY 2009-10, while dismissing the assessee's appeal for AY 2010-11.