2017 (10) TMI 593 - AT - Income Tax

Compute the income from House Property on the basis of municipal value - Held that - We find that the CIT(A) following the orders of the Tribunal in the assesses own case for A.Ys 2006-07 and A.Y. 2007-08 (which as on date had been upheld by the Hon ble High Court), had directed the A.O to ascertain the municipal rateable vale of the property for the year under consideration and compute the income from house property by taking the annual value of the property at such municipal rateable value. We find that the CIT(A) had also as a word of caution directed the A.O to keep in mind that though the market rateable value of the property was ₹ 12,60,000/- in the earlier year, however, the same pursuant to efflux of time might had changed. We have given a thoughtful consideration to the issue before us and are of the considered view that as the CIT(A) had merely followed the order of the Tribunal passed in the assesses own case for A.Y. 2006-07 and A.Y. 2007-08, which as on date had been affirmed by the Hon ble High Court, therefore, no infirmity arises from his order in respect of the issue under consideration. We thus, in light of the aforesaid facts uphold the order of the CIT(A) in respect of the issue under consideration. The Ground of appeal No. 1 raised by the revenue before us is dismissed. Disallowance u/s 14A r.w Rule 8D - Held that - The scope of disallowance of expenses incurred for earning of exempt incomes was required to be read and applied in context of Sec. 14A, which requires that the expenditure actually incurred in earning of such exempt income, and nothing more than such expenditure could be disallowed. We find ourselves to be in agreement with the contention of the ld. A.R that the very purpose sought to be achieved by the legislature by making available the machinery proviso, i.e Rule 8D, cannot be lost sight of while computing the disallowance under Sec. 14A. Disallowance under Sec. 14A cannot exceed the expenditure actually claimed by the assessee. We find ourselves to be in agreement with the aforesaid view taken by the Tribunal in the assesses own case, as well as the other cases on which reliance had been placed by the ld. A.R. We have given a thoughtful consideration to the order of the CIT(A) and do not find any infirmity in his order, to the extent the latter had reduced the further disallowance of ₹ 1,38,37,713/- made by the A.O u/s 14A to an amount of ₹ 15,41,788/-, with a consequential relief of ₹ 1,22,95,925/- i.e ₹ 1,38,37,713 (-) ₹ 15,41,788/- to the assessee. Increased the book profit under Sec. 115JB by the amount of disallowance made under Sec. 14A. - Held that - As the disallowance under Sec. 14A was already restricted by him to the extent of the actual expenses debited in the Profit & loss account, he therefore directed the A.O to increase the book profit only to the extent of disallowance of ₹ 37,11,208/- sustained by him in the hands of the assessee under Sec. 14A.

Summary

Issues involved:
1. Computation of income from House Property based on municipal value.
2. Disallowance under Section 14A read with Rule 8D.
3. Enhancement of 'book profit' under Section 115JB by the amount of disallowance under Section 14A.

Issue-wise Detailed Analysis:

1. Computation of Income from House Property based on Municipal Value:
- The revenue contended that the CIT(A) erred in directing the AO to compute the income from House Property based on municipal value, arguing that the market value was higher.
- The assessee argued that the issue was covered by the Bombay High Court's judgment in their own case for previous years, which held that the Annual Letting Value (ALV) must be determined with reference to the municipal rateable value unless vitiated.
- The Tribunal upheld the CIT(A)'s order, referencing the High Court's decision and previous Tribunal orders, confirming that the municipal rateable value should be used to compute the ALV.
- The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's ground of appeal.

2. Disallowance under Section 14A read with Rule 8D:
- The AO had disallowed a higher amount under Section 14A, which was reduced by the CIT(A) to the actual expenses debited in the Profit & Loss account.
- The CIT(A) accepted that the disallowance should be limited to the actual expenditure incurred for earning exempt income, as per the assessee's contention.
- The Tribunal agreed with the CIT(A), referencing previous Tribunal decisions and the principle that disallowance under Section 14A cannot exceed the total expenditure claimed in the Profit & Loss account.
- The Tribunal dismissed the revenue's appeal on this ground, upholding the CIT(A)'s decision to limit the disallowance to the actual expenses.

3. Enhancement of 'Book Profit' under Section 115JB by the Amount of Disallowance under Section 14A:
- The AO had increased the 'book profit' under Section 115JB by the amount disallowed under Section 14A.
- The CIT(A) directed the AO to enhance the 'book profit' only to the extent of the actual expenses disallowed under Section 14A.
- The Tribunal referenced the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to the computation under Section 14A read with Rule 8D.
- The Tribunal directed the AO to modify the computation of 'book profit' under Section 115JB without including the disallowance under Section 14A, thus setting aside the CIT(A)'s order to the extent it directed the enhancement of 'book profit'.

Conclusion:
- The Tribunal dismissed the revenue's appeal for A.Y. 2010-11 and partly allowed the appeal for A.Y. 2011-12 for statistical purposes.
- The assessee's appeal for A.Y. 2010-11 was partly allowed, with directions to delete the separate disallowance of demat charges and modify the computation of 'book profit' under Section 115JB.