2016 (5) TMI 1129 - AT - Income Tax

Reopening of assessment - non-deduction of TDS - Held that - If the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.In our opinion, the assessment was re-opened to consider the issue of non-deduction of TDS and we do not find any infirmity in reopening assessment , which was duly re-opened after recording the reasons, s such we confirm the same. - Decided against assessee. Disallowance u/s.40(a)(ia) - Held that - The issue in dispute is squarely covered by the decision of Co-ordinate Bench of Tribunal in the case of Shri N.Palanivelu Vs. ITO 2015 (10) TMI 1415 - ITAT CHENNAI wherein held that section 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year in respect of these payments. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whether the impugned amount is outstanding at the end of the close of the previous year relevant to the assessment year either in the name of the party or outstanding expenses. Hence, in the interest of justice, we are remitting the issue back to the file of the Assessing Officer with direction to verify the claim of the assessee and the assessee shall place necessary evidence in support of his claim. Disallowance u/s 14A - Held that - Assessee has considerable investments at the opening as well the close of the year under consideration. Therefore, the portion of expenditure attributable to the investments made by the assessee has to be computed as per Rule 8D of the I.T Rules. Therefore, the Assessing Officer was of the opinion that it is a clear diversion of interest bearing funds to other purposes. The assessee would be entitled to claim deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilized for business purpose. The only benefit the assessee derived was the dividend income which was not assessable under the Act, we are of the opinion that the disallowance under section 14A of the Act was squarely attracted and the Assessing Officer has rightly disallowed the claim. - Decided against assessee Treatment to rent received from two properties - income from house property or business income - Held that - As decided in assessee s own case for assessment year 2005-06 to 2008-09 that income from the above properties to be assessed as business income and not as income from house property. - Decided against revenue

Summary

Issues Involved:
1. Reopening of assessment.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act.
3. Disallowance under Section 14A of the Income Tax Act.
4. Disallowance of interest paid on loans.
5. Condonation of delay in filing the appeal.
6. Classification of rental income as business income or income from house property.

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The first issue pertains to the reopening of the assessment for the assessment year 2008-09. The assessee, a domestic company engaged in building promotion, had its assessment reopened by the Assessing Officer (AO) under Section 148 on the grounds that TDS on selling expenses debited in the P&L needed verification. The AO completed the reassessment under Section 143(3) r.w.s. 147, disallowing certain expenditures under Section 40(a)(ia). The assessee appealed against this reopening, but the CIT(A) confirmed the AO's action. Upon further appeal, it was held that Section 147 permits the AO to reassess income if there is "reason to believe" that income has escaped assessment. The Tribunal found no infirmity in the reopening, confirming the AO's action and rejecting the assessee's ground.

2. Disallowance under Section 40(a)(ia):
The second issue involves the disallowance of expenses under Section 40(a)(ia) due to non-deduction of TDS on payments such as commission, advertisement expenses, professional charges, and other charges totaling ?1,91,54,887. The assessee argued that these amounts were not outstanding at the end of the year, referencing the Special Bench decision in Merilyn Shipping and Transports. The Tribunal, citing the Coordinate Bench in Shri N. Palanivelu Vs. ITO, remitted the issue back to the AO to verify the claim, directing that if the amounts were not outstanding at the year-end, they should not be disallowed.

3. Disallowance under Section 14A:
The third issue concerns the disallowance under Section 14A, where the AO applied Rule 8D to compute disallowance at 0.5% of the average value of investments. The CIT(A) upheld this, noting that strategic investment decisions require considerable management attention. The Tribunal supported this view, referencing cases like Pradeep Kar v. ACIT and Smt. Leena Ramachandran, which upheld disallowance under Section 14A for expenses related to earning exempt income. The Tribunal dismissed the assessee's appeal on this ground.

4. Disallowance of Interest Paid on Loans:
The fourth issue, raised in ITA Nos. 2052 and 2056/Mds./2015, involved the disallowance of interest paid on loans. However, this ground was not pressed by the assessee during the hearing, leading to its dismissal.

5. Condonation of Delay in Filing the Appeal:
The fifth issue pertains to a delay of 914 days in filing the appeal for the assessment year 2009-10. The assessee attributed the delay to miscommunication and subsequent advice from a new CA. The Tribunal found the reasons too general and unconvincing, emphasizing that sufficient cause must be beyond the control of the party. The delay was attributed to the assessee's negligence and inaction, leading to the dismissal of the appeal.

6. Classification of Rental Income:
The sixth issue involves the classification of rental income from properties Tek Meadows and Tek Towers. The CIT(A) treated this income as business income, referencing a previous Tribunal decision that rental income from providing software infrastructural facilities should be treated as business income. The Tribunal upheld this classification, dismissing the Revenue's appeal.

Conclusion:
The Tribunal's order resulted in the partial allowance of the assessee's appeal for statistical purposes, the dismissal of other appeals by the assessee, and the dismissal of both appeals by the Revenue. The order was pronounced on April 13, 2016, in Chennai.