2021 (9) TMI 623 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D to the extent of exempt income - HELD THAT - As relying on decision of the Hon ble Supreme Court in the case of State Bank of Patiala 2018 (11) TMI 1565 - SC ORDER in which the Hon ble Supreme Court uphold the decision of the Hon ble Punjab Haryana High Court 2017 (5) TMI 1551 - PUNJAB AND HARYANA HIGH COURT in which the disallowance was restricted to the exempt income - Also held in JOINT INVESTMENTS PVT LTD 2015 (3) TMI 155 - DELHI HIGH COURT and KOTAK SECURITIES LIMITED 2018 (9) TMI 1244 - ITAT MUMBAI expenses to earn the exempt income was restricted to the extent of exempt income - thus we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee. MAT computation - Disallowance u/s 14A while computing the book profit u/s 115JB - HELD THAT - No disallowance u/s 14A r.w. Rule 8D is required while computing the book profit u/s 115JB of the Act. The facts are not distinguishable at this stage. The issue has squarely covered by the decision in case of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI , Bhushan Steel Ltd. 2015 (9) TMI 1424 - DELHI HIGH COURT therefore, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfered with at this appellate stage. Income from house property - addition on account of alleged Notional Annual Letting value of unsold flat held as stock in trade - HELD THAT - The issue is squarely covered by the decision of the sister concern case titled as Runwal Builders Pvt. Ltd 2018 (2) TMI 1707 - ITAT MUMBAI in which the income has been assessed as income from business in similar circumstances. The Hon ble Gujarat High Court in the case of CIT Vs. Neha Builders Pvt. Ltd 2006 (8) TMI 105 - GUJARAT HIGH COURT also speaks the same thing in the same sense. If, the property is used stock-in-trade then the said property would be become or part take the stock. Any income derived in stock would be the income from business and not the income from the house property. The assessee business is to construct the property and to sell and to construct and let out the same then it would be the income from business and accordingly liable to be treated. In view of the said discussion, we are of the view that the finding of the CIT(A) is not correct, hence, we set aside the finding of the CIT(A) and direct the AO to treat the said income as income from the business - Decided in favour of the assessee.

Issues Involved:

1. Disallowance under Section 14A of the Income Tax Act.
2. Computation of book profits under Section 115JB of the Income Tax Act.
3. Taxation of notional annual letting value of unsold flats held as stock-in-trade.

Issue-wise Detailed Analysis:

ISSUE NO. 1: Disallowance under Section 14A of the Income Tax Act

The revenue challenged the CIT(A)'s decision to restrict the disallowance under Section 14A to the extent of exempt income earned. The CIT(A) relied on the Supreme Court's decision in the case of State Bank of Patiala, where it was held that disallowance under Section 14A should be limited to the amount of exempt income. The CIT(A) also referenced decisions from the Delhi High Court and other relevant cases, including Joint Investments (P) Ltd. and Cheminvest Ltd., which support the principle that disallowance cannot exceed the exempt income. The Tribunal affirmed the CIT(A)'s finding, stating that the decision was reasonable and justified, and upheld the restriction of disallowance to the exempt income of ?2,855.

ISSUE NO. 2: Computation of Book Profits under Section 115JB of the Income Tax Act

The revenue contested the deletion of the disallowance under Section 14A while computing book profits under Section 115JB. The CIT(A) referenced the ITAT Mumbai's decision in JSW Energy Ltd., which held that if no expenditure related to earning exempt income is debited in the accounts, Section 14A disallowance cannot be added while computing book profits under Section 115JB. This view was supported by the Special Bench of ITAT Delhi in Vireet Investments P. Ltd. and the Delhi High Court in Bhushan Steel Ltd. The Tribunal agreed with the CIT(A), noting that no contrary law was presented, and upheld the deletion of the addition made by the AO under Section 115JB.

ISSUE NO. 3: Taxation of Notional Annual Letting Value of Unsold Flats Held as Stock-in-Trade

The assessee contested the addition of ?2,15,31,160 on account of notional annual letting value of unsold flats held as stock-in-trade, which the AO had assessed under the head 'Income from House Property'. The CIT(A) confirmed this addition. The Tribunal referred to the case of Runwal Builders Pvt. Ltd., where it was held that unsold flats held as stock-in-trade should be assessed under 'Income from Business' and not 'Income from House Property'. The Tribunal also cited the Gujarat High Court's decision in Neha Builders Pvt. Ltd., which supported the principle that income derived from property held as stock-in-trade should be treated as business income. The Tribunal set aside the CIT(A)'s finding and directed the AO to treat the income as business income.

Conclusion:

The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal, affirming that:

1. Disallowance under Section 14A should be restricted to the amount of exempt income.
2. No disallowance under Section 14A is required while computing book profits under Section 115JB.
3. Notional annual letting value of unsold flats held as stock-in-trade should be treated as business income.

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