2019 (3) TMI 11 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D (ii) - satisfaction about the correctness of the claim of the assessee - HELD THAT - In this case AO without recording his dissatisfaction / reasons as to his satisfaction about the correctness of the claim of the assessee mechanically proceeded to invoke the provisions contained u/s 14A with Rule 8D which is not permissible under law. CIT(A) has deleted the addition on the basis of facts that expenditures debited to P & L Account by the assessee have been suo moto added back by the assessee in the computation of income. So, we find no scope to interfere into the findings returned by CIT(A). Income from other sources - forfeiture of earnest money received during the negotiation of a capital assets - Insertion of new subsection (IX) in Section 56(2) w.e.f. 01.04.2015 is prospective - sale proceeds forfeited to be deducted from the cost acquisition of the property in question u/s 51 - HELD THAT - Since in A.Y. 10-11 there was no provision under the Act for treating the forfeiture of earnest money received during the negotiation of a capital assets as income from other sources, the CIT(A) has rightly deleted the addition. The issue in controversy is also covered by decision rendered by Co-ordinate bench of Tribunal in case of Vijay Singh 2014 (12) TMI 599 - ITAT DELHI . - Decided against the revenue.

Summary

Issues:
1. Disallowance of expenses under section 14A read with Rule 8D
2. Addition on account of capital gain for forfeited amount

Issue 1: Disallowance of expenses under section 14A read with Rule 8D

The appellant, Deputy Commissioner of Income Tax, sought to set aside the order passed by the Commissioner of Income Tax (Appeals) regarding disallowance of expenses under section 14A read with Rule 8D. The Assessing Officer disallowed ?23,28,214 claimed as exempt under section 10(34) and made an addition of the same to the total income. The appellant also challenged the deletion of an addition of ?2,76,17,625 made on account of capital gain. The CIT(A) deleted both additions, leading to the appeal by the revenue.

The dispute revolved around the correctness of invoking provisions under section 14A read with Rule 8D without recording dissatisfaction with the claim of the assessee. The revenue relied on the Supreme Court decision in MAXOPP INVESTMENT LTD. vs. COMMISSIONER OF INCOME TAX, while the assessee cited the same case to support their contention. The CIT(A) examined the Profit & Loss account and the computation of income, noting that all expenditures had been added back by the assessee. The Delhi High Court's judgment in MAXOPP INVESTMENT LTD. emphasized the need for the Assessing Officer to reject the claim of the assessee with cogent reasons before determining the expenditure under section 14A.

The tribunal found that the AO mechanically invoked section 14A without recording dissatisfaction with the claim, which was impermissible. The CIT(A) had correctly deleted the addition based on the facts that all expenditures were added back by the assessee. Consequently, ground no. 2 was decided against the revenue.

Issue 2: Addition on account of capital gain for forfeited amount

The assessee had entered into an agreement to sell a property and accepted earnest money, which was later forfeited due to the buyer's failure to perform. The property was eventually sold to another party, and the assessee treated the forfeited amount as a capital receipt. The CIT(A) discussed section 51 of the Act and noted that the relevant provision under section 56(2)(ix) was not applicable for the assessment year 2010-11.

Referring to a tribunal decision in Randhir Singh Kadan vs. Department of Income Tax, the CIT(A) rightly deleted the addition as there was no provision in the Act for treating forfeited earnest money as income from other sources for the relevant assessment year. The issue was also covered by another tribunal decision in the case of Vijay Singh. Consequently, ground no. 3 was determined against the revenue.

In conclusion, finding no illegality or perversity in the CIT(A)'s order, the tribunal dismissed the appeal filed by the revenue.

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