2015 (11) TMI 1057 - AT - Income Tax

Deduction u/s 54(1) denied - Held that - The assessee had booked the flat with the builder and an allotment letter was given to the assessee. The house was under construction. Under such circumstances it can be safely presumed that the assessee had invested the money for construction of the house through the builder. So the money invested by the assessee within three years from the date of transfer is allowable as deduction under section 54 of the Act. The assessee has claimed that up to the due date of filing of the return for the year under consideration, he had invested an amount of ₹ 25,46,760/-. Therefore, the assessee is entitled to claim the said sum as deduction under section 54(1)/54F for the year under consideration. - Decided in favour of assessee. Disallowance of expenditure under section 14A read with rule 8D - Held that - in the earlier Assessment Year 2007-08, the Ld. CIT(A) had restricted the disallowance to the extent of bank charges and accounting charges. Considering the overall facts and circumstances of the case, we find that apart from the suo-moto disallowance of ₹ 5,40,188/-, the further disallowance which can be added is in relation to bank charges of ₹ 5,426/- and accounting expenses of ₹ 71,500/-. So considering the overall facts and circumstances of the case, the disallowance under section 14A is restricted to the suo-moto disallowance made by the assessee of ₹ 5,40,188/- ₹ 5,426/- towards bank charges ₹ 71,500/- incurred towards accounting expenses. - Decided partly in favour of assessee. Disallowance being 10% of the telephone expenses - Held that - The nature of the telephone expenses is that some element of personal use cannot be ruled out. The Ld. CIT(A) has very fairly restricted the disallowance of the telephone expense to 10%. We do not find any infirmity in the order of the Ld. CIT(A) in this respect. - Decided against the assessee. Disallowance of 1/6 of interest on motor car loan and motor car insurance - Held that - The assessee himself has disallowed 1/6 car expenses but left out to disallow the expenses related to interest on car loan and insurance on car which are very much part of the car expenses. We do not find any infirmity in the order of the lower authorities in making the above disallowance - Decided against the assessee.

Summary

Issues Involved:
1. Deduction under Section 54(1) of the Income Tax Act.
2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
3. Disallowance of telephone expenses.
4. Disallowance of interest on motor car loan and motor car insurance.

Issue-wise Detailed Analysis:

1. Deduction under Section 54(1) of the Income Tax Act:
The assessee sold a flat and claimed deductions under Sections 54(1) and 54E. The AO disallowed the deduction under Section 54(1) due to the lack of a purchase agreement, possession, or completion certificate for the new flat. The CIT(A) upheld this disallowance, emphasizing that the claim was not revised in the return. The Tribunal referenced the Karnataka High Court's decision in "CIT vs. B.S. Shantakumari," which supports a liberal interpretation of Section 54F, allowing deductions if investments are made within the stipulated period, even if the construction is not complete. The Tribunal directed the AO to allow the deduction for the amount invested up to the due date of filing the return, recognizing the appellate authority's jurisdiction to entertain such claims.

2. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules:
The AO applied Rule 8D to disallow expenses related to tax-exempt income without recording dissatisfaction with the assessee's claims. The CIT(A) upheld this. The Tribunal noted that the AO must objectively assess the correctness of the assessee's claims before applying Rule 8D, as established in "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT." The Tribunal found that the AO failed to provide such an assessment. For A.Y. 2008-09, the Tribunal restricted the disallowance to the assessee's suo-moto disallowance plus specific bank and accounting charges. For A.Y. 2009-10, a similar restriction was applied.

3. Disallowance of Telephone Expenses:
The AO disallowed 20% of telephone expenses, assuming personal use. The CIT(A) reduced this to 10%. The Tribunal upheld the CIT(A)'s decision, recognizing the likelihood of some personal use.

4. Disallowance of Interest on Motor Car Loan and Motor Car Insurance:
The AO disallowed 1/6 of the interest on a car loan and car insurance, aligning with the assessee's disallowance of 1/6 of car expenses and depreciation. The CIT(A) upheld this, and the Tribunal found no fault in this approach, affirming the disallowance.

Conclusion:
The appeals were partly allowed, with directives for the AO to reassess specific disallowances and deductions in line with the Tribunal's findings and relevant judicial precedents. The order was pronounced in the open court on 06.11.2015.