2017 (3) TMI 685 - AT - Income Tax

Addition u/s 14A r.w.r 8D - Held that - Rule 8D had no applicability for the year under consideration.The assessee had produced evidences to show that the loan taken by it was not used for investment purposes.As the loan was utilised for specific business purposes therefore,there was no justification for upholding the interest disallowance. We find that during the year under consideration the assessee had sufficient own funds for making investment. Therefore,following the judgment of Reliance Utilities(2009 (1) TMI 4 - BOMBAY HIGH COURT) we hold that the FAA had wrongly upheld the disallowance under the head interest expenditure. We find that the assessee, on its own,had made disallowance of 1%. The Hon ble Bombay High Court in the case of Godrej Agrovet 2015 (3) TMI 651 - BOMBAY HIGH COURT had held that disallowance of 5% in the earlier years i.e. up to the AY. 2007-08 was reasonable. Respectfully following the above,we direct the AO to restrict the disallowance to 5% of the exempt income. Applying the provisions of section 50 of the act for determination of full value of consideration in relation to sale of leasehold interest in plot at Jalgaon and Dombivali - Held that - Provisions of section 50 were not applicable to leasehold land/building. See Commissioner of Income Tax Versus M/s. Greenfield Hotels & Estates Pvt. Ltd. 2016 (12) TMI 353 - BOMBAY HIGH COURT Computation of Short-Term Capital Gain (STCG) derived from transfer of units of any equity oriented mutual fund - Held that - During the course of hearing before us it was stated that the AO had levied the tax on STCG at the rate of 30% (plus applicable surcharge)as against the rate of 10% (plus applicable surcharge). We find that the FAA has not passed and speaking order in that regard stating that issue raised by the assessee is not arising out of the assessment order. Calculation of taxes is made in the tax demand notice and if the AO does not apply correct rate of taxes, it is duty of the FAA to decide the issue. Therefore, we direct him to adjudicate the issue , raised before him , by passing and speaking order i.e. to decide the rate of taxes applicable to STCG for the year under consideration. Third ground of appeal is allowed in favour of the assessee, in part.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Applicability of section 50 for determination of full value of consideration in sale of leasehold interest.
3. Computation of Short-Term Capital Gain (STCG) and applicable tax rate.

Issue 1: Disallowance under section 14A of the Income Tax Act:
The Assessing Officer (AO) disallowed a certain amount under section 14A as the assessee had earned dividend income claimed exempt u/s.10 (34) of the Act. The AO directed the assessee to explain why disallowance as per Rule 8D of the Income Tax Rules should not be made. The First Appellate Authority (FAA) upheld the AO's decision, stating that the assessee failed to provide evidence that interest expenses were incurred for investment purposes. However, during the appeal before the Appellate Tribunal, it was argued that the provisions of Rule 8D were not applicable for that year. The Tribunal found that the loan taken by the assessee was not used for investment purposes, and as the loan was utilized for specific business purposes, interest disallowance was not justified. The Tribunal directed the AO to restrict the disallowance to 5% of the exempt income, in line with previous judgments. This issue was decided in favor of the assessee, in part.

Issue 2: Applicability of section 50 for determination of full value of consideration in sale of leasehold interest:
The AO applied section 50 for determining the full value of consideration in relation to the sale of leasehold interest in plots at Jalgaon and Dombivali. The FAA upheld the AO's decision, stating that the provisions of section 50 were applicable as the assessee had transferred the leasehold land. The FAA enhanced the valuation of the land and considered it as the consideration value for working out capital gains. During the appeal before the Appellate Tribunal, it was argued that section 50 was not applicable to leasehold land/building. Referring to relevant case laws, the Tribunal found that section 50C was not applicable to the transfer of leasehold rights. Following previous judgments and the order of the Tribunal, the Tribunal decided this issue in favor of the assessee.

Issue 3: Computation of Short-Term Capital Gain (STCG) and applicable tax rate:
The AO levied tax on STCG at a higher rate than applicable. The FAA did not address this issue in a speaking order, stating it did not arise from the assessment order. The Tribunal directed the FAA to adjudicate the issue of the correct tax rate applicable to STCG for the year under consideration. This issue was allowed in favor of the assessee, in part.

In conclusion, the appeal filed by the assessee was partly allowed based on the decisions made regarding the disallowance under section 14A, the applicability of section 50 for determining consideration in the sale of leasehold interest, and the computation of Short-Term Capital Gain and applicable tax rate.