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2024 (1) TMI 1000 - AT - Income TaxCorrect head of income - income earned out of sale of property - business income or capital gains - DR has submitted that the assessee has not filed any details as to when the asset was converted into stock-in-trade, therefore, AO has treated income as business income - HELD THAT - We find that the assessee has not filed any details before the Assessing Officer or ld. CIT(A) or even before the Tribunal as to when the asset was converted into stock-in-trade. Therefore, the assessee has furnish the details, such as how long the asset was treated as long term capital gain and when the assessee has converted the property into stock-in-trade and accordingly up to conversion of the property, the AO has to treat it as capital asset and after conversion of the property, it has to be treated as business asset. In this case, neither the assessee nor the AO properly computed the property of the assessee. Thus, we set aside the orders of the ld. CIT(A) on this issue and remit the matter back to the file of the Assessing Officer to examine and compute the property u/s 45(2) of the Act keeping in view of the above observation and decide the issue afresh in accordance with law after affording reasonable opportunity of being heard to the assessee. Thus, the ground raised by assessee is allowed for statistical purposes for all the assessment years under appeal. Disallowance u/s 14A - contention of the assessee is that the disallowance made u/s 14A should not be in excess of the exempted income of the relevant assessment years - HELD THAT - By referring to various case law including the decision in the case of Joint Investments Private Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT , the decision in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT the Hon ble Madras High Court has held that the disallowance u/s 14A of the Act should be restricted to the extent of exempt income earned during the previous year. Respectfully following the judgement of Envestor Venture Ltd. 2021 (1) TMI 922 - MADRAS HIGH COURT we direct the Assessing Officer to restrict the disallowance to the extent of exempted income earned by the assessee. Thus, the ground raised by the assessee is allowed. Disallowance made u/s 14A of the Act when the assessee has not earned any dividend income from investments made in earlier years - In this circumstances, in the case of CIT v. Chettinad Logistics (P) Ltd. 2017 (4) TMI 298 - MADRAS HIGH COURT the Hon ble Jurisdictional High Court has observed and held that when there was no dividend income earned in the relevant assessment year, the disallowance made by the Assessing Officer in view of the provisions of section 14A of the Act read with Rule 8D was completely contrary to the provisions of that section as Rule 8D only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of total income of the assessee. Against the decision of the Hon ble High Court, the Department preferred Special leave Petition, which was dismissed by the Hon ble Supreme Court M/S CHETTINAD LOGISTICS PVT. LTD. 2018 (7) TMI 567 - SC ORDER . In view of the above decision in the case of CIT v. Chettinad Logistics (P) Ltd. (supra), the disallowance made by the Assessing Officer stands deleted. Nature of expenses - Disallowance of fee paid to ROC - whether the fees paid to Registrar of Companies for enhancing the working capital of the company should be treated as revenue expenditure or capital expenditure? - HELD THAT - We have perused the order of Punjab State Industrial Development Corporation Limited 1996 (12) TMI 6 - SUPREME COURT wherein, as held that the fee paid to the Registrar for expansion of the capital base of the company was directly related to capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit making, it still retains the character of capital expenditure since the expenditure was directly related to the expansion of capital base of the company and thus it was not an expense in the nature of revenue . Respectfully following the above CIT(A) has rightly confirmed the disallowance made by the AO and dismissed the ground raised by the assessee. Thus, we find no infirmity in the order passed by the ld. CIT(A). The ground raised by the assessee is dismissed.
Issues Involved:
1. Determination of income from sale of property as business income or capital gains. 2. Disallowance made under section 14A of the Act for assessment years 2012-13 and 2013-14. 3. Disallowance made under section 14A of the Act for the assessment year 2008-09. 4. Confirmation of disallowance of fee paid to ROC. Issue 1: The appeal concerned the classification of income from the sale of property as business income or capital gains. The Assessing Officer considered the profits from the sale of lands as business income due to the nature of the assessee's property development business. The Tribunal found that the assessee did not provide details on when the asset was converted into stock-in-trade. As a result, the Tribunal remitted the matter back to the Assessing Officer to properly compute the property under section 45(2) of the Act and decide the issue afresh. Issue 2: Regarding the disallowance under section 14A of the Act for the assessment years 2012-13 and 2013-14, the Assessing Officer disallowed amounts exceeding the exempt income earned by the assessee. Citing relevant case law, the Tribunal directed the Assessing Officer to restrict the disallowance to the extent of exempted income earned by the assessee, thereby allowing the ground raised by the assessee. Issue 3: In the assessment year 2008-09, the dispute centered on the disallowance made under section 14A of the Act despite the assessee not earning any dividend income from investments. The Tribunal observed that the disallowance made by the Assessing Officer was contrary to the provisions of section 14A as there was no exempt income earned in the relevant assessment year. Therefore, the disallowance made by the Assessing Officer was deleted. Issue 4: The final issue pertained to the confirmation of the disallowance of a fee paid to the Registrar of Companies (ROC) for increasing the authorized share capital. The Assessing Officer and the CIT(A) considered this expenditure as capital in nature. The Tribunal, following the decision of the Hon'ble Supreme Court, upheld the capital nature of the expenditure, dismissing the ground raised by the assessee. The Tribunal pronounced the order on 18th January 2024 in Chennai, partly allowing the appeals for statistical purposes.
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