Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2019 (4) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (4) TMI 1103 - AT - Income TaxDisallowance on account of leasehold repairs and maintenance expenses capitalized by the AO - Allowable revenue expenditure u/s 37 - HELD THAT:- The assessee does not become owner of the modification carried out in the rented out premises as the are either held or fastened to the ground and these could not be removed and carried in the present state after modification.Thus, the expenditure are revenue in nature Expenditure incurred by the assessee on suspended lights, outdoor flooring recessed luminaire frame made of brushed metal and installation of epoxy flooring, tiles is for making the rented premises more attractive and presentable with commensurate as dealer of high end vehicles as tenant of premises being in the nature of current repairs and therefore, revenue in nature and allowable as business expenses. Hence, the lower authorities were not justified in treating the same as capital in nature and consequently, capitalizing it. - Decided in favour of assessee Addition u/s 40A (2)(b) - interest paid on Inter Corporate Deposit (ICD) - CIT-A reducing the rate of interest from 12% to 11% - HELD THAT:- The increase in interest rate from 10% to 12% without bringing and substantiated and bringing any evidence on record is not justified, notwithstanding the fact that the assessee has taken ICD loan on interest rate of 10% from M/s. TACL. Further no evidence has been adduced to substantiate the excessiveness of interest rate @12% asper provisions of section 36(1) (iii) of the Act as interest paid is for personal benefit and not for business purpose, when the assessee has been paying interest @11% for other persons. Therefore, the AO was quite justified in restricting the increase in interest rate to 11% with commensurate with other parties. In view of this matter, we find do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Disallowance of prior period expenses on account of rate and taxes - unascertainable liability - HELD THAT:- Though the liability pertained to arrears including the period up to 31.03.2009, but it has been crystallized and determined vide letter dated 30.07.2009.Thus, the liability has been determined and crystallized during the year under consideration and also paid during the year under consideration, hence, same is being business expenditure is allowable as expenses. Since the liability was not ascertainable and quantified hence, provision could not be made in earlier years As decided in EXXON MOBIL LUBRICANTS P. LTD. [2010 (9) TMI 36 - DELHI HIGH COURT] where the liability for payment was determined and crystallized in the year under question and therefore, allowable and it cannot be held to be prior period merely because the expenses related to a transaction of earlier years.In view of these facts we hold that the liability of prior period expenses has been determined and crystallized vide letter dated 30.07.2009, hence, these expenses on account of rate and taxes are allowable as business expenses. Addition u/s. 14A read with Rule 8D - non recording satisfaction, excluding share application money, establishing link of investment and expenditure and by not considering the average of total assets and not the net assets - HELD THAT:- The presumption would be that the investment in exempt income yielding investment is made out of interest-free funds as held in the case of CIT vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] wherein it has been laid down that where the assessee had both interest bearing borrowed funds and interest free own funds and if own funds were sufficient to meet investment yielding tax free income, then it can be presumed that such investments were from interest-free funds and not from borrowed funds. Therefore, we are of the considered opinion that no disallowance on account of interest is called for under Rule 8D (ii) of Income-Tax Rules, 1962. Disallowance of interest in respect of interest under Rule 8D(2)(ii) are not to be considered as same are directly related to business income. Therefore, disallowance of interest of ₹ 20,12,865 is therefore, deleted. AO at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the AO is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or ‘nil’ disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. Disallowance u/s. 14A are restricted to ₹ 8,516 and balance disallowance is deleted subject to verification by the AO that the assessee has correctly taken the average value of investment after excluding of share capital and reserve& surplus, and only considering exempt income yielding investment and excluding interest of ₹ 20,12,865, which is directly attributable to business income.
|