2018 (9) TMI 109 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - Tribunal invalidating the decision of AO who disallowed certain expenditure claimed by the assessee under Section 14A - Held that - No reason to interfere with the Tribunal s decision on the same issue in relation to assessment year 2007-08 when Rule 8D of the Income Tax Rules 1962 had not become operational and the Tribunal found on fact that the expenditure already disallowed was sufficient. Apply the block assets concept in respect of certain properties of the assessee - Tribunal opined that block assets concept ought to be applied in terms of Section 32 in case of the assessee - No error in law on the part of the Tribunal in its decision on this point. Determination of annual value of certain property of the assessee being a firm house near New Delhi - Held that - The assessing officer had undertaken a valuation exercise to come to his conclusion that the rent disclosed by the assessee is much lower than the market value. He has referred to a website www. 99acres. com. from which he has referred to higher figures of rent. But this Court has consistently held that agreed rent would be the determinant factor for valuation and not the rent revealed from the market search. The authorities on this point are Commissioner of Income Tax Vs. Kishanlal and Sons (Udyog) Pvt. Ltd. 2002 (10) TMI 62 - CALCUTTA HIGH COURT and Commissioner of Income Tax vs. Indra Co. Ltd. 2003 (12) TMI 25 - CALCUTTA HIGH COURT . The point urged by the Revenue is thus covered. We decline to admit the appeal of the Revenue on this point also. We admit the appeal on the following point which in our opinion involves substantial question of law - Whether the assessing officer had properly construed the provisions of Section 14A in rejecting the assessee s claim of deduction for business expenditure and applying the formula in Rule 8D of the Income Tax 1962 which decision was ultimately overruled by the Tribunal?

Summary

Issues:
1. Validity of disallowed expenditure under Section 14A for assessment year 2008-09.
2. Application of block assets concept for depreciation.
3. Determination of annual value of property near New Delhi.
4. Proper construction of Section 14A for deduction of business expenditure.

Issue 1: Validity of disallowed expenditure under Section 14A for assessment year 2008-09:
The High Court admitted the appeal for the assessment year 2008-09 concerning the disallowed expenditure claimed by the assessee under Section 14A of the Income Tax Act, 1961. The key question was whether the Tribunal was correct in invalidating the assessing officer's decision when the income in question was not part of the total income chargeable to tax. The Court found no reason to interfere with the Tribunal's decision for the assessment year 2007-08, citing the sufficiency of the already disallowed expenditure when Rule 8D was not operational.

Issue 2: Application of block assets concept for depreciation:
The Revenue challenged the Tribunal's decision to apply the block assets concept for certain properties of the assessee, contrary to the assessing officer and the First Appellate authority's treatment of the asset in isolation for depreciation purposes. The Tribunal held that the block assets concept under Section 32 of the Income Tax Act should be applied. The High Court found no legal error in the Tribunal's decision on this matter.

Issue 3: Determination of annual value of property near New Delhi:
The assessing officer had disputed the annual value of a property near New Delhi, claiming that the rent disclosed by the assessee was lower than the market value obtained from a website. However, the Court emphasized that agreed rent should be the determining factor for valuation, not the market search results. Referring to precedents, the Court declined to admit the Revenue's appeal on this issue.

Issue 4: Proper construction of Section 14A for deduction of business expenditure:
The High Court admitted the appeal on the point of whether the assessing officer correctly interpreted the provisions of Section 14A in rejecting the assessee's deduction claim for business expenditure and applying Rule 8D, which was later overturned by the Tribunal. The Court declined to interfere with the Tribunal's decision upholding the expenses claimed by the assessee, rejecting the views of the assessing officer and the First Appellate authority.

In both appeals, the Court disposed of stay applications and scheduled the appeals for hearing, with informal paper books to be filed by a specified date. The judgments focused on interpreting and applying the relevant provisions of the Income Tax Act, emphasizing the proper construction of statutory provisions and adherence to established legal principles in tax assessments.