2018 (9) TMI 210 - AT - Income Tax

Addition under the head Income from House property - AO has made the addition in the ALV of the property in question on the ground that in the immediately preceding year the assessee has declared the rental income as against the annual rental income during the year under consideration - Held that - CIT (A) has given the finding that the ALV of the last year was determined for the entire house whereas the assessee has occupied part of the house for his residential purposes during the year under consideration and therefore the ALV for the last year for entire house cannot be adopted as ALV of the part portion of the house let out by the assessee. Hence we do not find any error or illegality in the order of the ld. CIT (A). Disallowance under section 14A - Held that - Though we find merits in the contention of the ld. D/R that the quantum of exempt income is relevant only for the indirect expenditure apportioned for earning the exempt income and not the interest expenditure which has been incurred for making the investment in the shares and security yielding exempt income. Addition on the value of excess stock found during search and survey operation - accepting the less valuation of excess stock as on 31st March 2013 - whether the entire stock which was found excess at the time of survey remained as unsold till 31st March 2013 so that the assessee can take the benefit of reduction in the prevailing price of gold against the surrendered income on account of unexplained investment in the stock? - Held that - So far as the applicability of amended provisions of section 115BBE of the Act is concerned the same is applicable with effect from 1.4.2017 and not prior to that. Since this issue was not considered by the authorities below as the AO disallowed the claim of the assessee by placing reliance on the provisions of section115BBE and the ld. CIT (A) has accepted the prevailing price of gold as on 31st March 2013 without verifying the actual details of the remaining stock out of the excess stock found at the time of survey therefore this factual aspect of the matter is required to be verified and examined by considering all the relevant details at the level of the AO. Accordingly we set aside this issue for limited purposes of verification and examination of the quantity of stock which was remained unsold as on 31st March 2013 out of the total excess stock found at the time of survey.

Summary

Issues Involved:
1. Deletion of addition under "Income from house property".
2. Deletion of disallowance under Section 14A.
3. Verification of the claim regarding reduction in the value of excess stock.
4. Consideration of addition as disallowance of expenses under Section 115BBE.
5. Deletion of addition regarding unexplained investment in excess stock under Section 115BBE.

Issue-wise Detailed Analysis:

1. Deletion of Addition under "Income from House Property":
The primary issue was whether the CIT (A) was right in deleting the addition of ?31,780/- under the head "Income from house property". The assessee declared annual rent of ?65,000/- for the property, whereas the preceding year’s rent was ?1,10,400/-. The AO added the difference, considering the higher rent as the ALV. The CIT (A) deleted this addition, noting that part of the property was self-occupied by the assessee during the year under consideration. The Tribunal upheld the CIT (A)'s decision, agreeing that the ALV for the entire house from the previous year could not be applied to the portion let out in the current year.

2. Deletion of Disallowance under Section 14A:
The assessee earned dividend income of ?31,034/- and incurred expenditure of ?14,44,298/-. The AO disallowed ?73,332/- under Section 14A read with Rule 8D. The CIT (A) restricted the disallowance to the amount of exempt income, ?31,034/-. The Tribunal upheld this, referencing the Delhi High Court's rulings that disallowance under Section 14A cannot exceed the exempt income. The Tribunal acknowledged the merit in the Revenue's argument regarding interest expenditure but followed the precedent set by the Delhi High Court.

3. Verification of the Claim Regarding Reduction in the Value of Excess Stock:
During a search, the assessee surrendered income based on excess stock valued at ?16,11,07,328/-. However, in the return, the value was reduced to ?12,11,17,822/- due to a fall in gold prices by 31st March 2013. The AO added ?2,32,09,339/- under Section 69 read with Section 115BBE, considering the initial valuation. The CIT (A) deleted the addition, accepting the reduced valuation. The Tribunal noted the need to verify whether the excess stock found during the survey remained unsold till 31st March 2013. The matter was remanded to the AO for this verification.

4. Consideration of Addition as Disallowance of Expenses under Section 115BBE:
The AO applied Section 115BBE, which was contested by the assessee, arguing that the amended provisions were effective from 1.4.2017 and not applicable for the assessment year in question. The Tribunal agreed, referencing various judicial decisions that the amendment was prospective. However, the factual aspect regarding the unsold stock needed verification, leading to a remand.

5. Deletion of Addition Regarding Unexplained Investment in Excess Stock under Section 115BBE:
The AO added ?2,32,09,339/- as unexplained investment in excess stock under Section 115BBE. The CIT (A) deleted this addition, accepting the assessee's claim of reduced gold prices by the end of the financial year. The Tribunal upheld the CIT (A)'s decision but remanded the case to the AO to verify if the excess stock found during the survey remained unsold till 31st March 2013.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, remanding the issue of excess stock valuation for verification. The Tribunal upheld the CIT (A)'s deletions and disallowances based on legal precedents and factual considerations, ensuring compliance with applicable legal provisions and judicial interpretations.