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2018 (3) TMI 301 - AT - Income TaxDisallowance u/s 14A - Held that - While making disallowance under Rule 8D(2)(iii), it is only the average of those investments which have yielded exempt income are to be taken into consideration and not the average of all investments. Adverting to the facts of the instant case, it is seen that the disallowance has been made in ignorance of the above mandate of law as approved by the Hon ble Delhi High Court in ACB India Ltd. vs. ACIT 2015 (4) TMI 224 - DELHI HIGH COURT . We, therefore, set aside the impugned order and direct the computation of correct amount of disallowance under clause (iii) of Rule 8D(2) accordingly. It is made clear that if the disallowance under clause (iii) of Rule 8D(2) exceeds the amount of exempt income, then, the disallowance should be restricted to such income alone. If, however, this exercise results in some further relief to the assessee, the same should be granted. Non-refundable membership fee - Held that - CIT(A) has deleted the addition by relying on the orders passed by the Tribunal in the assessee s own case for the assessment year 2006-07 and 2007-08. The ld. AR submitted that the order passed by the Tribunal for the assessment year 2006-07 has been upheld by the Hon ble Delhi High Court and, further, the SLP filed by the Revenue has been dismissed. This position has not been controverted by the ld. DR. In view of the fact that the ld. CIT(A) deleted the addition by relying on the Tribunal order, respectfully following the precedent, we uphold his decision on this issue. Disallowance on account of brokerage/demat charges - Held that - It is palpable that section 48(1) of the Act provides for deducting expenditure incurred wholly and exclusively in connection with the transfer of shares from the full value of consideration received in the computation of income under the head Capital gains. Since the brokerage of ₹ 5.45 lac was paid in connection with shares, the same has, inter alia, to be allowed as deduction in the computation of capital gain in terms of section 48(1) of the Act. As regards the payment of demand charges of ₹ 80,030/- we find that the same cannot be allowed as deduction in the computation of business income as the investment activity in shares carried on by the assessee is not of the trading nature. We, therefore, uphold the impugned order on this score. Both the grounds stand dismissed. Disallowance on account of disallowance of excessive brokerage - Held that - Assessing Officer has not doubted the genuineness of brokerage paid to Gaurav Associates and M/s DTZ International Property Advisors Ltd. His point of view is that the deduction on account of brokerage should be allowed only to the extent of income earned in this year and the remaining amount of brokerage should be adjusted against the income in succeeding years. We are unable to appreciate this stand point of the Assessing Officer. Obviously, when an expenditure has been incurred on account of brokerage for letting out of property, the same has to be allowed as deduction in the year of incurring/payment itself. It is not permissible to allow expense on account of brokerage to the extent of income earned during the year and then carry forward such unabsorbed expenditure to the succeeding years for set off against the future income. Addition on account of partial disallowance of deduction u/s 80IAB - Held that - When common expenses are incurred, a reasonable proportion allocable to SEZ unit is required to be debited to the Profit & Loss Account of such eligible SEZ unit, so that proper amount of profits relatable to the SEZ units and the resultant deduction could be computed. In the given circumstances, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is restored to the file of Assessing Officer for deciding this issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee. We order accordingly
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Addition on account of non-refundable membership fee. 3. Disallowance of brokerage expenses. 4. Addition on account of brokerage/demat charges. 5. Disallowance of expenditure on a project not commenced. 6. Disallowance of excessive brokerage. 7. Partial disallowance of deduction under Section 80IAB. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act, 1961: The core issue revolves around the disallowance under Section 14A, specifically the interest disallowance under Rule 8D(2)(ii) and disallowance under Rule 8D(2)(iii). The Tribunal noted that the assessee's share capital and reserves were significantly higher than the investments yielding exempt income. Citing precedents such as CIT vs. Reliance Utilities and Power Ltd., it was established that if an assessee has sufficient interest-free funds, it can be presumed that investments were made from these funds. Consequently, no disallowance under Rule 8D(2)(ii) was justified. Regarding Rule 8D(2)(iii), the Tribunal directed that only the average value of investments yielding exempt income should be considered, following the jurisdictional High Court's decision in ACB India Ltd. vs. ACIT. The disallowance should not exceed the exempt income. 2. Addition on account of non-refundable membership fee: The assessee received non-refundable membership fees but recognized only a part as income. The Assessing Officer added the unrecognized amount, but the CIT(A) deleted this addition based on the Tribunal's orders for previous years. The Tribunal upheld the CIT(A)'s decision, noting that the Tribunal's previous orders had been affirmed by the High Court, and the Revenue's SLP was dismissed. 3. Disallowance of brokerage expenses: The Assessing Officer disallowed brokerage expenses based on the matching principle, correlating them with revenue from projects. The CIT(A) deleted the addition. The Tribunal upheld this deletion, referencing a similar decision in the case of DLF Ltd., the assessee's sister concern, where the Tribunal had followed the Delhi High Court's decision in DLF Universal Ltd. 4. Addition on account of brokerage/demat charges: The assessee paid brokerage and demat charges related to investment transactions. The CIT(A) allowed brokerage as a deduction under Section 48(1) but disallowed demat charges. The Tribunal upheld this, noting that brokerage related to the transfer of shares should be deductible, while demat charges were not deductible as they pertained to investment activity, not trading. 5. Disallowance of expenditure on a project not commenced: The assessee claimed a deduction for pre-feasibility study expenses. The Assessing Officer capitalized this amount, but the CIT(A) deleted the disallowance. The Tribunal upheld the CIT(A)'s deletion, referencing a similar issue in the case of DLF Ltd., where the Tribunal had confirmed the deletion of such additions. 6. Disallowance of excessive brokerage: The Assessing Officer limited the deductible brokerage to the income earned during the year, carrying forward the balance for future years. The CIT(A) deleted this addition. The Tribunal upheld the CIT(A)'s decision, stating that brokerage expenses should be allowed in the year incurred and cannot be carried forward. 7. Partial disallowance of deduction under Section 80IAB: The Assessing Officer reallocated certain expenses to the SEZ unit, reducing the deduction claimed under Section 80IAB. The CIT(A) deleted this reallocation. The Tribunal, however, held that common expenses should be reasonably allocated between SEZ and non-SEZ units. The matter was remitted back to the Assessing Officer for fresh consideration and proper allocation of expenses. Conclusion: The Revenue's appeal was partly allowed for statistical purposes, and the assessee's appeal was partly allowed. The Tribunal directed a fresh examination of the allocation of common expenses for the SEZ unit by the Assessing Officer.
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