2015 (1) TMI 602 - AT - Income Tax

Dis allowance u/s 14A - further disallowance in terms of rule 8D - Interest to the extent of ₹ 14,82,540/- as attributable to earning of dividend income on mutual fund - Held that - The facts for the year under consideration are exactly similar to those present for Assessment Years 2005-06 and 2007-08, i.e., the immediately preceding and the immediately succeeding Assessment Years. The Tribunal has held 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. The reliance by the assessee on Maxopp Investment Ltd. vs. CIT (2011 (11) TMI 267 - Delhi High Court ) and Godrej & Boyce Manufacturing Co. Ltd vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT) in this regard is correct. - Decided in favour of assessee. Depreciation claim rejected - Held that - Remit this issue to the file of the Assessing Officer for decision afresh, before whom, the assessee has agreed to file evidence of user of the property in question. - Decided in favour of assessee for statistical purposes. Treatment of income - treat income of ₹ 4,04,382/- as capital loss as against business loss - Held that - For Assessment Year 2005-06, under circumstances similar to those present for the year under consideration, the Tribunal has upheld the CIT (A) s direction for treating the loss as a capital loss. Respectfully following the said Tribunal order, in the assessee s own case for Assessment Year 2005-06, Ground No.2 raised by the department is rejected. - Decided in favour of assessee. Unexplained credits in the bank account - CIT (A) deleted the addition by accepting the additional evidence filed by the assessee - Held that - CIT (A) correctly arrived at the conclusion that the amount of ₹ 4,91,02,322/- had been received by the assessee company from Hotline CPT Ltd. On the basis thereof, it was correctly observed that this 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 Ld. CIT (A) in this regard and we hereby confirm the same. - Decided in favour of asssessee.

Summary

Issues Involved:
1. Disallowance of interest attributable to earning of dividend income under Section 14A and Rule 8D.
2. Claim of depreciation on property used for business purposes.
3. Treatment of income as capital loss versus business loss.
4. Deletion of addition made on account of written back liabilities.
5. Deletion of addition made on account of unexplained credits in the bank account.

Detailed Analysis:

1. Disallowance of Interest Attributable to Earning of Dividend Income under Section 14A and Rule 8D:
The assessee challenged the disallowance of Rs. 14,82,540/- confirmed by the CIT (A) as attributable to earning of dividend income on mutual funds, arguing that Rule 8D is not applicable for the year under consideration and is prospective in nature. The Tribunal referenced its earlier decision for Assessment Year 2005-06, where it was held that Rule 8D is prospective, and disallowance cannot be increased without a valid basis. The Tribunal upheld the assessee's contention, following its own orders for Assessment Years 2005-06 and 2007-08, and concluded that the CIT (A) was not justified in restoring the matter to the Assessing Officer for further disallowance under Section 14A or Rule 8D.

2. Claim of Depreciation on Property Used for Business Purposes:
The assessee claimed depreciation of Rs. 44,80,000/- on a property, which was rejected by the Assessing Officer and upheld by the CIT (A) on the grounds that the property was not registered in the assessee's name and there was no evidence of its use for business purposes. The Tribunal, considering the assessee's reliance on the Supreme Court's decision in 'Mysore Minerals Ltd. vs. CIT', which allows depreciation even if the property is not registered in the assessee's name, remitted the issue back to the Assessing Officer for fresh decision, allowing the assessee to submit evidence of the property's usage.

3. Treatment of Income as Capital Loss versus Business Loss:
The department contended that the CIT (A) erred in treating the income of Rs. 4,04,382/- as capital loss instead of business loss, given the assessee's main business of trading in shares and securities. The Tribunal upheld the CIT (A)'s decision, referencing its own order for Assessment Year 2005-06, where the change in accounting method by the assessee was accepted, and the loss was treated as capital loss.

4. Deletion of Addition Made on Account of Written Back Liabilities:
The department argued that the CIT (A) wrongly deleted the addition of Rs. 5,80,552/- made on account of written back liabilities by accepting additional evidence. The Tribunal noted that this issue was consequential to the issue of unexplained credits and would be adjudicated accordingly.

5. Deletion of Addition Made on Account of Unexplained Credits in the Bank Account:
The Assessing Officer added Rs. 4,91,02,321/- as unexplained credits, doubting the genuineness of receipts from Hotline CPT Ltd. The CIT (A) deleted the addition, accepting the additional evidence that the payments were made by Hotline CPT Ltd. to the assessee in satisfaction of outstanding dues. The Tribunal upheld the CIT (A)'s decision, noting that the evidence provided, including a certificate from HDFC Bank and a letter from Hotline CPT Ltd., clarified the transactions, and the department failed to refute these findings.

Conclusion:
The Tribunal partly allowed the assessee's appeal by accepting the contention against further disallowance under Section 14A and Rule 8D and remitting the issue of depreciation back to the Assessing Officer. 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 written back liabilities and unexplained credits. The order was pronounced in the open court on 31.01.2014.