2021 (9) TMI 921 - AT - Income Tax

Addition u/s 14A r.w. Rule 8D - average value of investment which yielded exempt income - HELD THAT - As perused the decision in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT wherein, as observed that as long as an exempt income was earned, the expenditure incurred as attributable to earning such exempt income, had to be disallowed under section 14A - also irrespective of the objective of investment in shares (when the shares are held as stock-in-trade with a view to earn trading profits or as investment representing controlling interest) and the taxpayer earned an incidental exempt dividend income, section 14A was triggered which was based on the theory of apportionment of expenditure between taxable and exempt income. In this case, the assessee has not admitted any expenditure warranting any specific satisfaction to be recorded by the Assessing Officer a contended by the assessee in the grounds of appeal - Assessing Officer is directed to consider only those investments for computing average value of investment which yielded exempt income during the year under consideration as per Rule 8D(2)(iii) in view of the case of ACIT v. Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI and the disallowance shall be recomputed. Thus, this ground of appeal is partly allowed. Addition to income from capital gains - Nature of land sold - Whether land was agricultural land? - As per AO assessee has not filed the sale deed from which the relevant survey can be ascertained. Further, the ld. CIT(A) has held that the land is situated beyond the distance of 5 kms from Kancheepuram is also not verifiable in the absence of sale deed of the property, on the basis of which these claims can be verified - HELD THAT - What prevented the assessee in filing the sale deed either before the authorities below or before the Tribunal has not been explained. Moreover, the assessee has placed on record sample documents in the form of Encumbrance Certificate pertaining to Neervallur village property, whereas, as per the said schedule of immovable properties, this property disappears. Anyhow, to meet the ends of natural justice, we direct the assessee to file complete sale deeds of the properties sold, and other original relevant revenue records for verification of the properties as agricultural land or not by the Assessing Officer. The Assessing Officer is accordingly directed to verify complete documentary evidences for the claim of the assessee that the lands sold by it are agricultural land and it had been used for agricultural cultivation and in case, if the assessee fails to furnish complete documentary evidences for verification, the assessment already completed and confirmed the ld. CIT(A) stands sustained.

Summary

Issues:
1. Condonation of delay in filing appeal.
2. Disallowance under section 14A r.w. Rule 8D.
3. Addition to income from capital gains.

Condonation of Delay in Filing Appeal:
The appeal was filed with a one-day delay, and the assessee submitted a petition for condonation of the delay, which was not objected to by the ld. DR. The delay was condoned as the assessee was prevented by sufficient cause, and the appeal was admitted for adjudication.

Disallowance under Section 14A r.w. Rule 8D:
The Assessing Officer disallowed &8377;39,08,750 under section 14A as the assessee had investments yielding exempt income. The ld. CIT(A) confirmed this addition. The assessee contended that the investments were in group companies for commercial expediency, not to earn exempt income. However, following the Maxopp Investment Ltd. case, the Tribunal directed the Assessing Officer to consider only investments yielding exempt income for disallowance calculation under Rule 8D(2)(iii), partially allowing this ground of appeal.

Addition to Income from Capital Gains:
The Assessing Officer denied the claim of long-term capital gains exemption on the sale of agricultural land, as the assessee failed to provide sufficient evidence that the land was used for agricultural purposes. The ld. CIT(A) dismissed the appeal, citing the intention to exploit the land commercially. The Tribunal directed the assessee to submit complete sale deeds and relevant records to verify the land's agricultural status. The Assessing Officer was instructed to reexamine the claim. The Tribunal also directed the Assessing Officer to consider the indexation benefit for long-term capital gains while adjudicating the additional ground raised by the assessee.

In conclusion, the appeal by the assessee was partly allowed for statistical purposes, with directions given for further examination of both the disallowance under section 14A and the addition to income from capital gains.