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2024 (3) TMI 531 - AT - Income TaxLTCG OR business income - entitlement to exemption u/s 54F - gains arising on sale of land and other properties by the assessee in the relevant assessment years - AO was of the view that the assessee has carried out activities of land selling which is adventure in the nature of trade - HELD THAT - We note that the identical issue arose in the assessment year 2012-13 2016 (10) TMI 1319 - ITAT AHMEDABAD as held that land/properties were held by the assessee as capital asset before its sale and consequential gains arising on sale thereto is chargeable under the head of capital gains . Accordingly, the AO is directed to consider the gains arising on sale of land/properties under the head capital gains . In the light of the facts noted above, the AO is further directed to de novo consider the relief as and where claimed by the assessee u/s. 54B relevant to assessment years under appeals in accordance with law after affording requisite opportunity to the assessee. Decided against revenue. Disallowance u/s 14A r.w.r. 8D - disallowance of interest and administrative expenses - HELD THAT - Undeniably, the interest income shown by the assessee exceeds the total amount of interest expenses therefore, no disallowance of interest expense is warranted. Regarding the administrative expense we note that the assessee has not given any explanation why such expenses should not be disallowed. Admittedly, assessee earned exempted income not chargeable to tax and therefore the expenses incurred by the assessee against such exempt income cannot be allowed while calculating the income chargeable to tax. The primary onus lies with the assessee to demonstrate that no administrative expense has been incurred by the assessee. However, from the order of the authorities below, we find that such an onus has not been discharged by the assessee. Therefore, administrative expense against the exempted income needs to be worked out under the provisions of rule 8D of Income Tax Rules in the absence of any justification from the assessee. Accordingly, we confirmed the disallowance only representing the disallowance of administrative expense as made by the AO. Hence, ground of appeal of the revenue is hereby partly allowed.
Issues Involved:
1. Classification of income from the sale of land as "capital gains" or "business income". 2. Disallowance of expenses under Section 14A read with Rule 8D of Income Tax Rules. Summary: 1. Classification of Income from Sale of Land (AY 2014-15, 2015-16, 2016-17): The primary issue raised by the revenue in these appeals was whether the income from the sale of land should be treated as "capital gains" or "business income". The Assessing Officer (AO) had reclassified the income from the sale of land as business income and denied the benefit of deduction under Section 54F of the Income Tax Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the income should be treated as capital gains and directed the AO to allow the exemption under Section 54F after necessary verification. The Tribunal noted that a similar issue had arisen in the assessee's case for the assessment year 2012-13, which was decided in favor of the assessee by the ITAT. The Tribunal observed that the land and properties were held as capital assets and not as trading assets. The balance sheets, wealth tax returns, and other documents supported the assessee's claim of holding the properties as capital assets. The Tribunal also noted that the revenue had accepted the capital asset classification in the hands of other co-owners. Consequently, the Tribunal held that the gains arising from the sale of land should be taxed under the head "capital gains" and directed the AO to consider the relief claimed under Section 54B after affording the requisite opportunity to the assessee. The appeals for AY 2015-16 and 2016-17 were dismissed following the findings for AY 2014-15. 2. Disallowance of Expenses under Section 14A read with Rule 8D (AY 2014-15): The second issue involved the disallowance of Rs. 1,89,412/- under Section 14A read with Rule 8D of the Income Tax Rules. The AO had disallowed the expenses on the grounds that the assessee had shown exempt income but failed to make any disallowance against such income. The CIT(A) deleted the addition made by the AO, noting that the assessee had earned more interest than it had paid and the interest-bearing loan was much lower than the investments from which income was earned. The Tribunal agreed with the CIT(A) regarding the interest expenses, noting that the interest income shown by the assessee exceeded the total amount of interest expenses, and therefore, no disallowance of interest expense was warranted. However, the Tribunal upheld the disallowance of administrative expenses amounting to Rs. 1,28,048/- as the assessee failed to demonstrate that no administrative expense was incurred against the exempt income. Thus, the Tribunal partly allowed the appeal of the revenue on this ground. Conclusion: In conclusion, the appeal for AY 2014-15 was partly allowed concerning the disallowance of administrative expenses under Section 14A read with Rule 8D, while the classification of income from the sale of land as "capital gains" was upheld. The appeals for AY 2015-16 and 2016-17 were dismissed, following the findings for AY 2014-15.
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