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TMI Blog2019 (3) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... e claimed that no expenditure have been incurred for earning exempt income. A.O. has not recorded any satisfaction as to how the claim of assessee was incorrect. No material have been brought on record to justify the addition. Further, assessee has sufficient own capital to make investment in the firm. Therefore. no disallowance under section 14A is permissible. appeal of the assessee is allowed. Enhancement of income by CIT(A) - Treating agricultural income as taxable income - Power of CIT(A)- HELD THAT:- it is established that the assessing officer did not consider the agricultural income to be taxable income and assessing officer has considered the issue with reference to disallowance of expenses under section 14A of the Income Tax Act. Therefore, Ld. CIT(A) was not justified in enhancing the income by considering it as source of income on account of Agricultural income considered to be taxable income without any basis as to how the agricultural produce was spontaneous growth. It is also well settled Law that power of enhancement was restricted to the subject matter of the assessment or the source of income, which had been considered expressly or by clear implication by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id the taxes on book profit of ₹ 2.94 crores under section 115JB of the Income Tax Act, 1961. 4.1. On Ground No.2, the assessee challenged the disallowance of a sum of ₹ 6,04,361/- out of the expenditure incurred on repair and maintenance. 4.2. The assessing officer on perusal of the details of repair and maintenance furnished by the assessee, observed that the expenses mentioned at page-4 of the assessment order are in the nature of capital expenditure, but, the same have been treated by the assessee as revenue expenditure in a sum of ₹ 7,55,414/-. The assessee furnished few bills on record and from the perusal of same, it was observed that these expenses incurred by assessee during the year under appeal which are in the nature of capital expenditure, which will give benefit to the assessee in future years as well. The assessing officer accordingly disallowed the same under section 37 of the Income Tax Act, 1961 and made the addition of ₹ 7,55,414/-. 5. The addition was challenged before the Ld. CIT(A) and assessee explained that all the details along with vouchers were produced before assessing officer, which have been examined by the A.O. but tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve considered the rival submissions. The Ld. D.R. rightly pointed out that purchases of laptop, LED screen and Ram and electric motor pump are clearly capital expenditure in nature and total of the same comes to ₹ 1,17,997/- (Rs.24,328/- + ₹ 51,435/- + ₹ 42,324/-). Therefore, these would provide enduring benefit to the assessee and as such could not be treated as revenue expenditure. However, the remaining expenses mentioned at page-40 of the appellate order, are in the nature of software charges, office construction expenses, purchase of hard disk, UPS etc., are clearly revenue expenditure in nature, therefore, no addition could be made for the same. In this view of the matter, we set aside the orders of the authorities below and delete the addition on this head except to the extent of ₹ 1,17,997/-. The assessing officer is directed to restrict the addition to ₹ 1,17,997/-. This ground of appeal of assessee is allowed partly. 9. On Ground No.3, assessee challenged the disallowance of a sum of ₹ 22,17,583/- under section 14A of the Income Tax Act read with Rule 8D of I.T. Rules. The assessing officer noted that assessee-company has claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT vs., Metalman Auto (P) Limited 11 taxmann.com 51. Assessee also submitted that when assessee has more own interest free funds, it should be presumed that interest free loans have been given out of own funds, no disallowance could be made and relied upon the decision of the Hon ble Supreme Court in the case of Munjal Sales Corporation vs., CIT (2008) 168 Taxman 43 (SC) and decision of Bombay High Court in the case of CIT vs., Reliance Utilities and Power Ltd., 178 Taxman 135 (Bom.). The assessee also relied upon decision of the Punjab and Haryana High Court in the case of CIT vs., Winsome Textile Industries Ltd., 319 ITR 204 (P H). The assessee also submitted that borrowed funds of the assessee have been utilised in a mixed way for the investment in the partnership firm and also for its own business. It was, therefore, submitted that no addition could be made under section 14A of the Income Tax Act. The A.O. however, rejected the explanation of assessee and made disallowance under section 14A in a sum of ₹ 22,17,583/-. 10. The assessee challenged the above addition before the Ld. CIT(A) and same submissions were reiterated. It was also submitted that assessee has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm. Learned Counsel for the Assessee, therefore, rightly contended that for attracting Section 14A, there has to be a proximate cause i.e., actual expenditure incurred in relation to earning of exempt income that can be disallowed and this Section cannot be extended to disallow expenditure on estimate or assumed basis. Since the assessee was having interest free funds for making the investment, therefore, it should be presumed that interest free funds have been used for the purpose of making investment in the firm. Hon ble Punjab and Haryana High Court in the case of Deepak Mittal 361 ITR 131 (P H) observed that assessee claimed no expenditure incurred to earn exempted income. The A.O. should proceed under section 14A(2) of the I.T. Act, 1961, to collect material and evidence to determine the expenses. Hon ble Punjab and Haryana High Court in the case of Hero Cycles 323 ITR 518 (P H) observed that disallowance under section 14A is not permissible, where no nexus between expenses incurred and income generated. Where no expenditure incurred, no disallowance could be made. Similarly, Hon ble Punjab and Haryana High Court in the case of CIT vs., Winsome Textile Industries Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensation for nursery and plants which were planted by the company on the agricultural land held as stock in trade in real estate business. The same was inadvertently shown under the Head Profit on Disposal of Tangible Assets to the above amount. This was already explained. Further, assessee-company acquired these lands long back before 2004 for the purpose of getting the same approved for business by the Government and convert the same into residential colony in real estate business. During the year under consideration, the said land was acquired by the Government and compensation was received both for land as well as nursery and plants and produce on the said land. Profit of compulsory acquisition from the same have been shown under the Head Other Operating Revenue as income. Compensation received for nursery and plants have been shown as agricultural income which is exempt income. The assessee has made investment in land to earn taxable profit on real estate transaction and not to earn agricultural income. This is an incidental income which has been generated on agricultural land shown as stock in trade. It was, therefore, clarified that Section-14A of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plants have been shown as agricultural income which is non-taxable income. The assessee made investment in land to earn taxable profit on real estate transaction and not to earn agricultural income. This is an incidental income which have been generated on agricultural land shown as stock in trade. No disallowance under section 14A could be made. Further, land was acquired and investment in land was made out of the capital and free reserves available to the assessee which were much higher. No expenses have been incurred to earn agricultural income. The agricultural income is incidental income to the assessee which have been received on account of acquisition of the land by the Government. 16.1. The Ld. CIT(A), however, noted that the assessee has received the above compensation on account of nursery and trees etc. The assessee, therefore, claimed that he did not incur any expenditure for earning such agricultural income. The assessee claimed it to be incidental income, therefore, this income is arising from spontaneous growth. The activities of agricultural nature and normal agricultural process were not carried out for earning this income, therefore, it is not exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) observed that he is not introducing a new source of income because such income is already considered in the assessment year. This addition was, therefore, enhanced 17. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that assessee acquired agricultural land in 2001 in village Pooth Khurd. The Government of NCT proposed to acquire the land for public purpose. The Government issued Notification under section 5A of Land Acquisition Act. Joint Inspection Report was prepared, copy of which, is filed at page 157 of the paper book to show that in the impugned land, the Inspection Report has mentioned that it is cultivated. The Government, ultimately, acquired the land and Awarded compensation to assessee. The compensation was also given to the assessee for land, plants and nursery on the basis of Joint Inspection carried out by the Revenue Authorities. The Horticulture Staff of P.W.D. also have given the Valuation Report which shows that nursery was there in the impugned land and on the said basis, compensation of ₹ 3.39 crores was determined for acquiring plants and nursery etc. He has submitted that no new sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court as relied by the Ld. CIT(A) and the Ld. D.R. are distinguishable on the facts of the present case. 20. We have considered the rival submissions. The assessee explained that it has acquired agricultural land in the year 2001 and that nursery and plants which were planted by the company long back in the year 2004 on agricultural land held as stock in trade in real estate business. The assessee company acquired these lands for the purpose of business for converting the same into residential colony in real estate business, the land was held as Inventory-Real Estate Business in the books of account of the assessee. In the assessment year under appeal, the said land was acquired by the Government and compensation was received both for the land as well as nursery, plants and produce on the said land. The profit on compulsory acquisition have been shown by the assesseecompany as income under the Head Other Operating revenue . The compensation received for nursery and plants have been shown as agricultural income which is nontaxable income. The assessee also claimed that no expenditure have been incurred to earn such agricultural income because it was incidental income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the point of view of taxability and that the Appellate Commissioner had no power to assess the source of income which had not been taken into consideration by the assessing officer. The Ld. CIT(A), however, as against the Law has considered the new source of income for the purpose of making the addition by enhancing the income of the assessee from different new source, which have not been considered by the assessing officer. Thus, the Ld. CIT(A) clearly acted beyond his power and jurisdiction. We rely upon Judgment of the full bench of the Delhi High Court in the case of Sardari Lal Company (2001) 251 ITR 864 (Del.) in which it was held as under : In CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC), the matter related to provisions of the Indian Income Tax Act , 1922. It was held, inter alia, that in an appeal filed by the assessed, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering a new source of income not considered by the Income Tax Officer in the order appealed against. A similar view was expressed in CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC). That also related to a case under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee produced Joint Inspection Report of the Revenue Officials, copy of the Award passed by the Government and other related documents proving compulsory acquiring the land by the Government, would clearly reveal that at the time of Joint Inspection by the Government Officials, it was found that cultivation was going on in the impugned land and there was nursery, trees and plants for which valuation was done and at the time of acquisition of the land in question, apart from compensation granted for acquisition of the land, assessee was also Awarded the compensation for acquiring trees, plants and nursery etc., The Government Officials would not make these findings in favour of the assessee unless verified the claim because so many Government Authorities were involved in making Joint Inspection Report of the impugned agricultural land. The assessee has objected to the acquisition of the land, therefore, there would not be any collusion with the Government Officials. Further, the assessee claimed that land was acquired by assessee for the purpose of business for converting the agricultural land into residential colony for real estate business. Therefore, assessee did not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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