2014 (2) TMI 257 - AT - Income Tax

Disallowance u/s 14A of the Act r.w Rule 8D of the Rules Claim of Interest - Earnings of dividend income on mutual fund Held that - The decision in Godrej & Boyce Manufacturing Co. Ltd vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT followed - Rule 8D of the Income- tax Rules to be prospective in nature and the assessee s challenge of CIT (A) s action in increasing the amount of disallowance u/s 14A of the Act without pointing out any valid basis for such further disallowance was upheld Decided in favour of Assessee. Claim of depreciation Property used for business purpose Held that - The matter remitted back to the AO for fresh adjudication and the assessee has agreed to file evidence of user of the property in question. Capital loss treated as business loss conversion of investment from stock-in-trade to capital asset - Held that - For the earlier years also, the Tribunal has upheld the CIT (A) s direction for treating the loss as a capital loss Decided against Revenue. Deletion made u/s 68 of the Act - Unexplained credits in bank Held that - The CIT (A) correctly arrived at the conclusion that the amount had been received by the assessee company from Hotline CPT Ltd. it was correctly observed that the amount could not be treated as unexplained cash credit u/s 68 of the IT Act - The department has not been able to successfully refute the well-reasoned findings of fact recorded by the CIT (A) in this regard Decided against Revenue.

Issues Involved:
1. Disallowance of interest attributable to earning dividend income on mutual funds.
2. Claim of depreciation on property used for business purposes.
3. Classification of income as capital loss versus business loss.
4. Deletion of addition on account of written back liabilities.
5. Deletion of addition on account of unexplained credits in the bank account.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Attributable to Earning Dividend Income on Mutual Funds:
The assessee contested the disallowance of Rs. 14,82,540/- interest attributable to earning dividend income on mutual funds and argued against further disallowance under Rule 8D, asserting its non-applicability for the assessment year in question. The Tribunal noted the CIT (A)'s direction for the Assessing Officer to examine the sources of investment and decide the disallowance amount in line with the previous year's appellate order. The Tribunal referenced its own earlier decisions for Assessment Years 2005-06 and 2007-08, which held Rule 8D to be prospective and not applicable to the year under consideration. Consequently, the Tribunal accepted the assessee's ground, ruling out further disallowance under Rule 8D.

2. Claim of Depreciation on Property Used for Business Purposes:
The assessee's claim for depreciation of Rs. 44,80,000/- on a property was rejected by the Assessing Officer and upheld by the CIT (A) on the grounds that the property was neither registered in the assessee's name nor evidenced to be in use for business purposes. The Tribunal, considering the assessee's reliance on 'Mysore Minerals Ltd. vs. CIT' and 'CIT vs. Panacea Biotech Ltd.', remitted the issue back to the Assessing Officer for fresh examination, allowing the assessee to submit evidence of the property's use for business purposes.

3. Classification of Income as Capital Loss versus Business Loss:
The department challenged the CIT (A)'s direction to treat Rs. 4,04,382/- as capital loss instead of business loss, arguing that the assessee's main business was trading in shares and securities. The Tribunal, following its earlier decision for Assessment Year 2005-06, upheld the CIT (A)'s order, treating the loss as capital loss due to the consistent facts across the assessment years.

4. Deletion of Addition on Account of Written Back Liabilities:
The deletion of Rs. 5,80,552/- on account of written back liabilities was consequential to the deletion of Rs. 4,91,02,321/- unexplained credits. The Tribunal decided to adjudicate this issue after addressing the unexplained credits.

5. Deletion of Addition on Account of Unexplained Credits in the Bank Account:
The Assessing Officer added Rs. 4,91,02,321/- as unexplained credits, suspecting the genuineness of transactions with Hotline CPT Ltd. The CIT (A) accepted additional evidence and deleted the addition, noting that the assessee provided satisfactory explanations and supporting documents, including a certificate from Hotline CPT Ltd. confirming the payments. The Tribunal upheld the CIT (A)'s deletion of the addition, affirming that the evidence substantiated the transactions and the amount could not be treated as unexplained cash credit under Section 68 of the IT Act.

Conclusion:
The Tribunal partly allowed the assessee's appeal by accepting the grounds related to disallowance under Rule 8D and remitting the depreciation claim for fresh examination. The department's appeal was dismissed, upholding the CIT (A)'s decisions on treating the loss as capital loss and deleting the additions related to unexplained credits and written back liabilities. The judgment was pronounced on 31.01.2014.

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