2018 (5) TMI 174 - AT - Income Tax

Disallowances made u/s. 40(a)(ia) - tds liability on legal and professional charges - Held that - TDS has been deducted as well as paid within the same financial year on expense of Rs. 45, 000/- only. Hence to this extent no disallowance u/s. 40 (a) (ia) can be made. However for the balance expense Rs. 1, 01, 000/- the Ld. A.R. could not state as to why to this extent the disallowance u/s. 40 (a) (ia) has been incorrectly made. Thus the disallowance to the extent of Rs. 1, 01, 000/- stands confirmed and disallowance to the extent of Rs. 45, 000/- stands deleted. This ground is partly allowed. Addition u/s.14A r/w Rule-8D - Held that - It is not in dispute that exempted income is only Rs. 13, 063/-. Thus in view of all the disallowance u/s.14A/Rule-8D cannot exceed the amount of exempted income which is only Rs. 13, 063/-. Addition of deemed dividend u/s.2 (22)(e) - Held that - On examining the facts of present case the assessee is a share holder in M/s Nanak Builders & Investors (P) Ltd. having 48.86% of share holdings. The assessee is having a running account with the company. There is no finding or evidence on record or otherwise to show that the transactions are undertaken with the object of evasion of any tax. Hence find that the ratio of law as laid down in Suraj Devi Dada (2014 (5) TMI 625 - PUNJAB & HARYANA HIGH COURT) squarely applies to the facts of this case also. D.R. also did not controvert the contention of the Ld. A.R. that under the peculiar facts of this case only the transactions of A.Y.2010-11 should be considered independently ignoring the opening balance for the limited purposes of examining the applicability of sec.2 (22) (e). Thus addition deleted - Decided on favour of assessee Correct head of income - hire charges receipts - busniss income or income from other sources - Held that - The head of income being income from other sources is a residuary head of income wherein apart from the specific nature of income as are to be covered under the head income from other sources only such other incomes are to be included which cannot be assessed under any other head of income. Rs. 2, 50, 000/- have been received as hire charges of some farm land for one day to a private party for some event. Thus it is an activity in the nature of the business activity. Therefore amount should be assessed under the head income from business and profession. On perusal of asstt. order as find that the A.O. has not assigned any reason for opting the head of income as income from other sources for this addition. Income stands assessed under the head income from other sources should be set off against un-absorbed brought forward depreciation - Held that - Sec.72 (2) provides that any allowance shall be first treated as provided in sec.71 (1) and only thereafter the balance shall be carry forward. Thus sec.72 (2) nowhere restricts for setting offf of income from other sources from B/F depreciation. It is also found that in the case of the assessee in A.Y.2009-10 the A.O. himself allowed similar set off u/s.143 (3). It is also noteworthy that for not allowing this set off in this year the A.O. has not assigned any reason whatsoever. Thus direct that whatever income stands assessed under the head income from other sources should be allowed to be set off against B/F depreciation and B/F losses. In result this ground of appeal is allowed.

Summary

Issues Involved:
1. Disallowance of professional expenses under section 40(a)(ia).
2. Disallowance under section 14A read with Rule 8D.
3. Addition under section 2(22)(e) for deemed dividend.
4. Addition under section 68 for undisclosed income.
5. Setting off income from other sources against brought forward losses and depreciation.
6. Interest under section 234B on deemed income.

Issue-wise Detailed Analysis:

1. Disallowance of Professional Expenses under Section 40(a)(ia):
The assessee challenged the disallowance of Rs. 95,000 and Rs. 51,000 under section 40(a)(ia) for non-deduction of TDS on professional expenses. The tribunal found that TDS was deducted and deposited on Rs. 45,000 out of Rs. 95,000, hence no disallowance for this amount. However, for the remaining Rs. 50,000 and Rs. 51,000, TDS was neither deducted nor deposited, confirming the disallowance of Rs. 1,01,000. This ground was partly allowed.

2. Disallowance under Section 14A read with Rule 8D:
The assessee contested the disallowance of Rs. 39,559 under section 14A read with Rule 8D, arguing that it should not exceed the exempt income of Rs. 13,063. The tribunal agreed, citing the case of Joint Investment (P.) Ltd. v. CIT, and restricted the disallowance to Rs. 13,063, deleting the excess of Rs. 26,496. This ground was partly allowed.

3. Addition under Section 2(22)(e) for Deemed Dividend:
The assessee, a significant shareholder in a company, contested the addition of Rs. 47,20,000 as deemed dividend under section 2(22)(e). The tribunal noted that the opening balance of Rs. 6,44,44,842 had already been considered in the previous year’s assessment. It was found that only Rs. 12,55,000 could be considered for the current year, and even this amount was not deemed as an advance for tax evasion purposes. Citing the case of CIT v. Suraj Dev Dada, the tribunal deleted the entire addition of Rs. 47,20,000. This ground was allowed.

4. Addition under Section 68 for Undisclosed Income:
The assessee initially contested the addition of Rs. 2,50,000 as undisclosed income but later did not press this ground, acknowledging it would be set off against brought forward losses. The tribunal sustained the addition but agreed it should be assessed under the head "income from business and profession" rather than "income from other sources." This ground was partly allowed.

5. Setting off Income from Other Sources against Brought Forward Losses and Depreciation:
The assessee argued that income assessed under "income from other sources" should be set off against unabsorbed depreciation. The tribunal noted that the addition under section 2(22)(e) was deleted and the Rs. 2,50,000 addition was reclassified under business income, leaving only Rs. 1,524 as income from other sources. The tribunal agreed that unabsorbed depreciation could be set off against income from other sources, aligning with the case of ACIT v. Shree Raghupati Fibers (P.) Ltd. This ground was allowed.

6. Interest under Section 234B on Deemed Income:
The assessee contended that interest under section 234B should not be levied on deemed income under section 2(22)(e). Since the addition under section 2(22)(e) was deleted, this ground became infructuous and was dismissed.

Conclusion:
The appeal was partly allowed, with significant deletions and reclassifications of additions, and the tribunal provided clarity on the applicability of various sections concerning disallowances and set-offs.