2020 (10) TMI 85 - AT - Income Tax

Correct head of income - treatment of rental income received on account of letting out the surplus area of factory building - income from house property or income from other sources - Standard deduction u/s.24 against income earned on letting out of industrial shed along with office while holding such income as Income from house property - HELD THAT - CIT(A) while deciding the issue has considered various decisions including the decision of M/s. Universal Plast Ltd. others 1999 (3) TMI 15 - SUPREME COURT relied on by the revenue in the grounds of appeal and after considering the totality of the facts of the case has given a finding that there is no activity carried out by the assessee except in the capacity of a normal owner of property carrying out normal maintenance and repairs and providing the standard facilities such as power, clean drinking water etc. and came to the conclusion that such income should be treated as income from house property. In view of the detailed reasoning given by the Ld. CIT(A) while treating the income as income from house property and considering the fact that in the past also such income was accepted by the revenue as income from house property. we do not find infirmity in the order of the Ld. CIT(A) on this issue - Decided against revenue. Addition u/s 14A u/s 8D(2)(ii) - CIT-A allowed part claim - HELD THAT - We find the Ld. CIT(A) while directing the AO to reduce the interest income from the gross interest and thereafter compute the disallowance u/s 8D(2)(ii) has followed the decision of Morgan Stanley India Securities 2017 (6) TMI 864 - ITAT MUMBAI - Decided against revenue. Disallowance of expenses incurred for payment to Shri K.Shrinivas Shri Dinesh N. Jain - assessee failed to substantiate genuineness of services rendered by these persons in sale of shares - CIT- A deleted the addition - HELD THAT - We find Ld. CIT(A) deleted the addition on the ground that such expenditure was approved by the Board Resolution which includes for payment of the remuneration in connection with the sale of the shares. He has further given a finding that Shri K Shri Niwas and Shri Dinesh N Jain had declared such income and paid taxes @ 30% whereas the assessee company was liable to tax @ 20% on the capital gain and therefore the intention of the assessee can not be considered as malafide. Shri K Shri Niwas who is a Mechanical Engineer and a diploma holder in advance management program from IIM, Bangalore is a professional director associated with the assessee company and does not hold any shares of the company. Similarly Shri Dinesh Nandan Jain has a long association with the promoters of Kenmore Vikas and is not a shareholder in the company. He has considered the role of Shri K Shri Niwas and Shri Dinesh Nandan Jain in the transaction and after considering the nature of services has allowed the claim - claim of the assessee was not based on 37(1) but u/s 57(iii) and the expenditure was incurred by the assessee for earning the huge capital gain. Since the Ld. CIT(A) has passed a detailed order giving reasons and since Ld. DR could not controvert the findings given by the Ld. CIT(A), therefore, we do not find any infirmity in the same - Decided against revenue.

Summary

Issues Involved:
1. Treatment of rental income from letting out surplus factory area.
2. Disallowance under Section 14A of the Income Tax Act.
3. Disallowance of expenses incurred for payment to individuals in connection with the sale of shares.

Issue-wise Detailed Analysis:

1. Treatment of Rental Income from Letting Out Surplus Factory Area:
The primary issue was whether the rental income from letting out a surplus area of the factory premises should be treated as "income from house property" or "income from other sources." The Assessing Officer (AO) treated the income as "income from other sources" and disallowed the standard deduction claimed under Section 24 of the Income Tax Act. The assessee argued that the surplus area was let out to group concerns and had been consistently treated as rental income in the past. The CIT(A) analyzed various case laws and concluded that the rental income should be treated as "income from house property." The Tribunal upheld the CIT(A)'s decision, noting that the rental income had been consistently treated as house property income in the past and there was no commercial exploitation of the property.

2. Disallowance under Section 14A of the Income Tax Act:
The AO disallowed an additional ?35,56,757 under Section 14A, arguing that the assessee had not substantiated the use of interest-free funds. The CIT(A) directed the AO to reduce the interest income from the gross interest and then compute the disallowance under Rule 8D(2)(ii). The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had followed the decision of the coordinate bench of the Tribunal and the Hon'ble Bombay High Court. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground.

3. Disallowance of Expenses Incurred for Payment to Individuals in Connection with the Sale of Shares:
The AO disallowed ?1 crore incurred as expenses for payment to two individuals, Mr. K. Srinivas and Mr. Dinesh N. Jain, in connection with the sale of shares, on the ground that there was no documentary evidence of services rendered. The CIT(A) deleted the addition, noting that the payments were approved by a Board Resolution and that the individuals had declared the income and paid taxes on it. The CIT(A) also noted that the expenditure was incurred wholly and exclusively for earning the capital gains. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the detailed reasoning provided by the CIT(A).

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues. The Tribunal found that the CIT(A) had provided detailed and reasoned orders, and the revenue could not provide any contrary material to take a different view. The Tribunal's decision was pronounced on 30th September 2020.