2019 (7) TMI 536 - AT - Income Tax

Disallowance u/s 14A - expenditure attributable the exempt income under Rule 8D(2)(ii), towards proportionate interest expenditure and towards administrative expenditure Rule 8D(2)(iii) of the IT Rules - HELD THAT - In the light of the fact that own funds are in substantially excess of the corresponding investment, there is no warrant to invoke Rule 8D(2)(ii) in view of the judicial precedents noted above. Therefore, disallowance under Rule 8D(2)(ii) requires to be deleted by the AO. As regards the administrative and general expenses the assessee could not explain with evidence about the actual expenditure attributable to earning of such income. The statute has provided a formula for ascertaining disallowance which cannot be ordinarily departed from. No compelling circumstances have been shown. Therefore, we decline to interfere with the disallowance made under Rule 8D(2)(iii) of the IT Rules.Ground No.1 of the assessee is partly allowed. Disallowance u/s 36(1)(va) - default in payment of employees contribution to PF - HELD THAT - In view of the decision of the Hon ble Gujarat High Court in case of CIT vs. Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT we do not find any merit in the grievance of the assessee on this score. Ground No.2 of the assessee s appeal is dismissed. Method of computation of business income as a consequence of sale of flat - conversion of land into stock-in-trade - AR thus submitted that the cost price of FMV on the date of conversion of land into stock-in-trade is liable to be taxed as long term capital gain and excess consideration accrued / received over and above FMV is liable to be taxed as business income - HELD THAT - We find merit in the plea of the assessee for setting right the error committed by the assessee. We, therefore, are disposed to entertain deviation in the claim originally made which may result in lower tax liability. The issue however has not been examined by the Revenue authorities on facts. Therefore, we consider it appropriate to set aside the issue to the file of the AO for fresh adjudication in the light of submissions to be made by the assessee with factual evidences before AO. It will thus be open to the assessee to show before the AO that it was over assessed incorrectly or subjected to higher tax in any manner owing to its own mistake. The AO shall determine the issue in accordance with law after giving fair opportunity to the assessee. Ground No.3 of the assessee s appeal is accordingly allowed for statistical purposes.

Summary

Issues:
1. Disallowance under Section 14A concerning AYs 2013-14 & 2014-15.
2. Disallowance under Section 36(1)(va) for default in PF payment.
3. Method of computation of business income from sale of flats.

Issue 1 - Disallowance under Section 14A:
The appeals were filed against the CIT(A)'s orders concerning disallowances under Section 14A of the Income Tax Act for AYs 2013-14 & 2014-15. The assessee challenged the disallowances, arguing that sufficient interest-free funds were available and that the onus was on the AO to prove expenditure for earning exempt income. The ITAT partially allowed the appeals, deleting disallowances under Rule 8D(2)(ii) but upholding disallowances under Rule 8D(2)(iii) for both AYs.

Issue 2 - Disallowance under Section 36(1)(va):
Regarding the disallowance under Section 36(1)(va) for default in PF payment, the ITAT dismissed the appeal based on the decision of the Gujarat High Court. The ITAT found no merit in the assessee's grievance in this regard.

Issue 3 - Computation of Business Income from Sale of Flats:
The ITAT considered the method of computing business income from the sale of flats. The assessee argued that the FMV on the date of conversion of land into stock-in-trade should be taxed as long-term capital gain, with excess consideration as business income. The ITAT allowed the appeal for AY 2013-14, directing the AO to reexamine the issue based on the submissions and evidences provided by the assessee. The ITAT also partially allowed the appeal for AY 2014-15, setting aside the issue for fresh determination by the AO.

In conclusion, the ITAT partially allowed both appeals, addressing the issues of disallowances under Section 14A, default in PF payment, and computation of business income from the sale of flats. The judgments were delivered on 09/07/2019 by the ITAT Ahmedabad.