2017 (2) TMI 1368 - AT - Income Tax

Addition of principal portion of lease rent as income of the appellant - Held that - Assessment year 2002-03 to 2008-09 where the lordship have dismissed the tax appeals and the same is binding on the assessee and CIT(A) has dismissed the assessee s ground Aggrieved by the order assessee filed appeal before the Tribunal. AR argued the grounds and on the accounting aspects and AS -19. We find the issue is squarely covered against the assessee and uphold the order of the CIT(A). Addition u/s. 14A r/w r. 8D - Held that - The assessee s argument of the investments being made much earlier to the current year has implication only with regard to their financing cost i.e. interest expenditure direct or indirect or even partly each. That is it has no bearing to the indirect administrative expenditure which is liable to be disallowed following estimation under rule 8D(2)(iii). This is as the same is in the nature of maintenance expenditure which is incurred from year and year irrespective of the date of the acquisition of the relevant capital asset. There is no material adduced at any stage much less with reference to the accounts to indicate even primafacie of no such expenditure having being incurred. Its disallowance is therefore confirmed. As regards the interest cost we consider it proper that the matter is restored to the file of the AO to allow the assessee an opportunity to present its case of no interest expenditure having being incurred during the year before him. The AO shall adjudicate issuing definite findings of fact.

Summary

Issues:
1. Addition of principal portion of lease rent as income.
2. Disallowance of expenditure related to earning dividends under Rule 8D.

Issue 1: Addition of Principal Portion of Lease Rent as Income:
The assessee, a non-banking financial company, appealed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of the principal portion of lease rent as income. The Assessing Officer added the difference amount of the principal portion to the total income of the assessee, contending that the entire lease rent, including principal and interest, should be offered as income. The assessee argued that the principal portion was not taxable based on Accounting Standard-19 of ICAI. The CIT(A) upheld the order, citing a High Court decision in the appellant's own case for a previous assessment year. The Tribunal found the issue against the assessee, upholding the CIT(A)'s order.

Issue 2: Disallowance of Expenditure Related to Earning Dividends Under Rule 8D:
The second ground of appeal involved the disallowance of expenditure related to earning dividends under Rule 8D. The assessee had dividend income from investments and claimed exemption under section 10(34) of the Act. The Assessing Officer disallowed a proportionate expenditure under section 14A, applying Rule 8D. The CIT(A) relied on a Tribunal decision stating that disallowance under section 14A applies even if no exempted income was earned. The assessee argued that no expenditure was incurred to earn dividend income, and investments were made over 20 years ago. The Tribunal confirmed the disallowance of administrative expenditure under Rule 8D(2)(iii) but directed the AO to re-examine the interest expenditure issue.

In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes, confirming the disallowance of administrative expenditure but remanding the interest cost issue back to the AO for further examination.