2023 (11) TMI 632 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D - HELD THAT - As disallowance under section 14A cannot exceed exempt income earned by the assessee during the year. Ground of appeal so taken by the Revenue is dismissed. Claim of depreciation @ 30% on the buses as against 15% allowed by the AO - HELD THAT - Hon'ble jurisdictional ITAT in the case of Dabwali Transport Co . Ltd. vs. DCIT, Bathinda 2016 (6) TMI 1283 - ITAT AMRITSAR held that the buses were entitled for higher rate of depreciation at the rate of 30%. Correct head of income - rental income under the head Income from Business Profession or income from House Property as treated by the AO - HELD THAT - The question is whether the fact that rent has been fixed as a percentage of gross sales is sufficient enough to classify a particular transaction as business transaction or there should be other factors or terms and conditions of the agreement which should be considered before taking a final view in the matter. Agreements have to be read and understood holistically to get a clear picture of business understanding between the two parties, and one cannot be swayed solely by how the revenues are distributed or the operations have to be carried out. Unfortunately, we do not have the benefit of either of the agreements before us and therefore, in absence of the same, we are of the considered view that the matter deserve to be set-aside to the file of the ld CIT(A) to examine the same a fresh taking into consideration the aforesaid discussions and decide the same as per law. The ld CIT(A) shall also take into consideration the decision of Sheetal Khurana Food Private Limited 2011 (1) TMI 763 - PUNJAB AND HARYANA HIGH COURT as well as Tranvancore Sugar and Chemicals 2022 (4) TMI 396 - KERALA HIGH COURT and any other authority which the assessee, as advised wishes to bring on record and decide the applicability thereof in the facts of the present case. In the result, the ground of appeal is allowed for statistical purposes. Characterization of the transaction - Allowing cost of improvement claimed by the assessee against the Short Term Capital Gain (STCG) on sale of land at village - CIT(A) has treated the transaction as adventure in nature of trade and not as transfer of capital asset - HELD THAT - Revenue has not disputed this re- characterization of the transaction done by the ld CIT(A). Therefore, where the transaction is treated as adventure in nature of trade, the net profit resulting from the said transaction can be brought to tax. The assessee has established the necessary nexus of incurrence of expenditure of Rs 18 lacs by way of purchase of non-forest land and transfer thereof directly in favour of Forest Department for getting the necessary change of land use and permission to develop ecotourism resort. Therefore, the same has been rightly allowed by the ld CIT(A) while bringing the transaction to tax. Also where the said cost as claimed by the Revenue (as part of its ground of appeal) has already been allowed in the year of purchase i.e, A.Y 2013-14, the assessee cannot claim the same again in the year under consideration. The matter is accordingly set-aside to the file of the AO to examine whether the said amount has been allowed to the assessee in the year A.Y 2013-14 or not and where the same is found to be correct, the benefit thereof cannot be allowed to the assessee. In the result, the ground of appeal is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 14A
2. Depreciation on buses
3. Classification of rental income
4. Cost of improvement against Short Term Capital Gain (STCG)

Summary:

Disallowance under Section 14A:
The Revenue challenged the Ld. CIT(A)'s action in restricting the disallowance under section 14A to the extent of exempt income earned by the assessee during the Financial Year. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the Hon'ble Delhi High Court's ruling in Era Infrastructure (India) Ltd., which clarified that the amendment to Section 14A by the Finance Act 2022 is not retrospective. The Tribunal dismissed the Revenue's grounds on this issue.

Depreciation on Buses:
The Revenue contested the Ld. CIT(A)'s decision to allow depreciation at 30% on buses as opposed to 15% determined by the AO. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the assessee's buses were used in the business of running them on hire, referencing various judicial precedents, including the Hon'ble High Court of Kerala in Balakrishna Transport. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the Revenue's grounds.

Classification of Rental Income:
The Revenue challenged the Ld. CIT(A)'s classification of rental income under "Income from Business & Profession" instead of "Income from House Property." The Tribunal noted that the Ld. CIT(A) considered the variable nature of the rental income and the long-term lease agreements, which indicated an adventure in the nature of trade. However, the Tribunal set aside the matter to the Ld. CIT(A) to re-examine the lease agreements and decide as per law, considering the Hon'ble Punjab and Haryana High Court's decision in Sheetal Khurana Foods Pvt. Ltd. and other relevant authorities. The ground was allowed for statistical purposes.

Cost of Improvement against STCG:
The Revenue disputed the Ld. CIT(A)'s allowance of Rs. 18,00,000/- as cost of improvement against the STCG on the sale of land. The Tribunal upheld the Ld. CIT(A)'s decision, recognizing the transaction as an adventure in the nature of trade and allowing the expenditure. However, the Tribunal remanded the matter to the AO to verify if the cost was already allowed in A.Y. 2013-14. If so, the benefit cannot be claimed again. The ground was partly allowed for statistical purposes.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s decisions on the disallowance under Section 14A and depreciation on buses, dismissed the Revenue's grounds, and remanded the issues of rental income classification and cost of improvement for further examination.