2020 (12) TMI 405 - HC - Income Tax

Vivad Se Vishwas Scheme - Assessee submits that the assessee already filed the declaration/undertaking under the Vivad Se Vishwas Scheme on 06.12.2020 and is awaiting orders to be passed in Form No.3 - HELD THAT - Competent Authority shall process the applications/declarations in accordance with the Direct Tax Vivad Se Vishwas Act, 2020 (Act 3 of 2020) and pass appropriate orders as expeditiously as possible. The assessee is given liberty to restore these appeals in the event the ultimate decision to be taken on the declarations filed by the assessee under Section 4 of the said Act is not in favour of the assessee. If such a prayer is made, the Registry shall entertain the prayer without insisting upon any applications to be filed for condonation of delay in restoration of the appeals and on such request made by the assessee by filing miscellaneous petitions for restoration, the Registry shall place such petitions before the appropriate Division Bench for orders.

Summary

Issues:
1. Disallowance of expenditure related to rental income in service apartment business.
2. Disallowance of expenditure under Section 14A of the Income Tax Act.

Analysis:

Issue 1: Disallowance of expenditure related to rental income in service apartment business
The appellant challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance of expenditure as related to rental income without considering its connection to the newly started service apartment business. The appellant contended that the expenditure was not linked to rental income but to the service apartment business income declared under the head 'business income.' The ITAT's decision was questioned on the grounds that the expenditure incurred for the service apartment business, assessed as business income, should have been allowed under Section 37 of the Income Tax Act, 1961. The Tribunal's decision to uphold the disallowance of expenditure on a proportionate basis to rental income, despite the appellant having a service apartment business with income assessed as business income, was also contested.

Issue 2: Disallowance of expenditure under Section 14A of the Income Tax Act
The appellant raised concerns about the ITAT's ruling on the claim of expenditure subject to disallowance under Section 14A of the Income Tax Act, 1961, along with Rule 8D of the Income Tax Rules, 1962. Additionally, the appellant questioned whether the disallowance under Section 14A could exceed the exempt income earned during the year. The appellant argued against the ITAT's decision to uphold the disallowance under Section 14A, highlighting the potential for double disallowance if the expenditure towards personnel and administrative costs was already disallowed under Section 24 of the Act. Furthermore, the applicability of Section 14A along with Rule 8D was challenged, particularly in cases where no expenditure was incurred concerning exempt income earned from investments made out of own source of funds.

In conclusion, the High Court directed the Competent Authority to process the appellant's declarations under the Vivad Se Vishwas Scheme promptly. The appellant was granted the liberty to restore the appeals if the decision on the declarations was unfavorable. The tax case appeals were disposed of with liberty granted, leaving the substantial questions of law raised open and closing the connected CMP without costs.