2019 (1) TMI 988 - AT - Income Tax

Disallowance of the carry forward of the Business loss - provisions of section 14A r.w.r 8D applicability - as per revenue no business activity was being carried out by the assessee during impugned AY - receipts in the shape of dividend, interest and liabilities not payable were treated as Income from Other Sources against which the assessee was allowed expenditure - income from office premises was assessable as Business Income or Income from House Property? - Held that - We are of the considered opinion that both the lower authorities have failed to clinch the issue in the proper perspective and therefore, we have no option but to remit the matter back to the file of AO for proper appreciation of the facts and re-adjudication as per law. It is made clear that income from office premises shall be assessed as per the statutory provisions depending upon the fact that whether the same is assessed as Income from House Property or as Business Income. The dividend income of ₹ 0.47 Lacs has been claimed as exempt, against which, disallowance u/s 14A, if deemed fit as per circumstances, may be computed. The liabilities not payable, prima-facie, seems to be of the nature covered by Section 41(1) and therefore assessable as Business Income. The interest on tax refund shall be assessable as Income from Other Sources. Whatever stand is adopted by lower authorities with respect to office premises, the expenditure found necessary to maintain the corporate personality / identity shall be allowable under the head Business Income. The deductibility of other expenditure including depreciation shall be ascertained at the threshold of stand of lower authorities with respect to fact that whether the income from office premises was assessable as Business Income or Income from House Property. - Appeal allowed for statistical purposes.

Summary

Issues:
1. Disallowance of carry forward of Business loss
2. Disallowance of claimed business expenses
3. Applicability of section 14A r.w.r 8D
4. Disallowance of business expenditure and depreciation
5. Assessment of rental income as Business Income
6. Disallowance u/s 36(1)(iii) for diverted funds

Analysis:

Issue 1: Disallowance of carry forward of Business loss
The assessment for the relevant year concluded that no business activity was carried out by the assessee, leading to disallowance of various business expenses and denial of carry forward of business losses. The Tribunal found that the lower authorities failed to properly appreciate the facts and remitted the matter back to the Assessing Officer for re-adjudication.

Issue 2: Disallowance of claimed business expenses
The Assessing Officer disallowed the claimed business expenses as no business activity was evident except for letting out a building to sister concerns. The Tribunal observed that the office premises were used by the sister concerns, and the matter was remitted back for proper assessment as Income from House Property or Business Income.

Issue 3: Applicability of section 14A r.w.r 8D
The Assessing Officer proposed disallowance u/s 14A due to exempt dividend income. The Tribunal directed the Assessing Officer to compute disallowance u/s 14A if deemed fit, depending on the circumstances.

Issue 4: Disallowance of business expenditure and depreciation
Various business expenditures and depreciation claimed by the assessee were disallowed by the lower authorities. The Tribunal remitted the matter back for proper assessment based on whether the income from office premises was assessable as Business Income or Income from House Property.

Issue 5: Assessment of rental income as Business Income
The Tribunal directed the Assessing Officer to assess the rental income as per statutory provisions, either as Income from House Property or Business Income, depending on the nature of usage of the office premises.

Issue 6: Disallowance u/s 36(1)(iii) for diverted funds
The revenue appealed against the disallowance made under section 36(1)(iii) for diverting interest-bearing funds to interest-free loans. The Tribunal remitted the matter back for fresh adjudication in line with the directions given for other assessment years to maintain consistency.

In conclusion, all the appeals were allowed for statistical purposes, and the matters were remitted back to the Assessing Officer for re-adjudication in accordance with the directions provided by the Tribunal for each issue involved in the respective assessment years.