TMI Blog2014 (9) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules read with section 14A of the Act applies. In the absence of adherence to the requirements of section 14A(2) of the Act, the AO could not have proceeded to invoke rule 8D of the Rules and subject the interest expenditure for disallowance as per clause (ii) of rule 8D of the Rules - the CIT(A) records another finding which is to the effect that the dividend receipt has been directly credited into the bank account of the assessee, thus "leaving no scope for incurring any other expenses for earning exempt income" by the assessee - the indirect expenditure sought to be disallowed by invoking clause (iii) to sub-rule (2) of rule 8D of the Rules has also been faulted by the CIT(A) - the AO was not justified in invoking rule 8D of the Rules in order to compute the disallowance u/s 14A(1) of the Act –Decided against revenue. Income derived from the letting out of premises – Business income or not house property – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that CIT(A) in holding that the income earned by way of license of letting out of premises of 'Cyber City' is liable to be assessed as 'business income' and not under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the infrastructure and services provided by the assessee were incidental to the letting out of the properties and that substantial income as per the agreement was towards rent and not towards provision of services. 3. In terms of Ground of Appeal No.1 to 3, the issue relates to the action of the CIT(A) in deleting the disallowance of ₹ 20,66,011/- made by the Assessing Officer by invoking section 14A of the Act. In this context, brief facts are that the assessee is, inter-alia, engaged in the business of development of integrated township known as 'Magarpatta City' at Hadapsar, Pune. In the course of assessment proceedings, the Assessing Officer noted that assessee had earned dividend income of ₹ 2,75,483/- which was exempt from tax. On account of earning of such exempt income, the Assessing Officer show-caused the assessee as to why the expenditure incurred in relation to the said income be not disallowed as prescribed by section 14A of the Act. The assessee contended before the Assessing Officer that the said dividend income was considered as an incidental business income and it was not considered as an exempt income in the computation of income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer erred in invoking rule 8D of the Rules to compute the disallowance without recording a satisfaction mandated in terms of section 14A(2) of the Act. The CIT(A) also records a finding in para 4.6 of his order that the Assessing Officer failed to appreciate the none of the borrowed funds were utilized to make the impugned investments. Against such action of the CIT(A) in deleting the disallowance, Revenue is in appeal before us. 5. Before us, the learned CIT-DR has pointed out that the CIT(A) erred in deleting the addition because the Assessing Officer had duly considered the submissions put-forth by the assessee and had also recorded his satisfaction that the claim of the assessee of no expenditure having been incurred in relation to the exempt income was incorrect. In this context, the learned CIT-DR has referred to the discussion made by the Assessing Officer in paras 3.4 and 3.5 of the assessment order. 6. On the other hand, the learned Representative for the respondent-assessee has defended the order of the CIT(A) by pointing out that in the present case, there was no satisfaction recorded by the Assessing Officer with regard to the plea of the assessee that no dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to determine the amount of expenditure incurred in relation to an income which does not form part of the total income. However, the phraseology of sub-section (2) of section 14A of the Act itself brings out that the power of the Assessing Officer to invoke rule 8D of the Rules is subject to the condition that the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which does not form part of the total income i.e. exempt income. It is no longer res integra that invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is neither automatic and nor is dependent merely on the existence of an exempt income in the hands of the assessee. In support of the aforesaid proposition, a gainful reference can be made to the judgement of the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) as well as the judgement of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. Ors. vs. CIT, (2012) 247 CTR 162 (Del). The Pune Bench of the Tribunal in the case of Kalyani Steels Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been asserted that the investment in the mutual funds were also made by the same bank. It was therefore contended that there was no direct or indirect expenditure incurred in relation to earning of the impugned exempt income. 9. In para 4.2 of the impugned order, the CIT(A) notes that the Assessing Officer has not examined the availability of interest-free funds and the investments made by the assessee in the mutual funds during the year. The CIT(A) further notes that the Assessing Officer considered interest expenditure of ₹ 3,00,19,761/- as expenditure not directly attributable to any particular income or receipt and subjected the same to disallowance as per clause (ii) of sub-rule (2) of rule 8D of the Rules. As per the CIT(A), the manner and the working for considering ₹ 3,00,19,761/- for the purposes of clause (ii) of sub-rule (2) of rule 8D of the Rules has not been recorded by the Assessing Officer in his order. The CIT(A) further records that the Assessing Officer has not examined the accounts of the assessee so as to arrive at a satisfaction and finding regarding incurrence of direct or indirect expenses in connection with earning of the exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises of 'Cyber City' is liable to be assessed as 'business income' and not as income under the head 'house property', as taken by the Assessing Officer during the assessment proceedings. 12. On this aspect, it was a common point between the parties that identical controversy was considered by the Tribunal in the assessee's own case for earlier two assessment years of 2007-08 and 2008-09 vide ITA No.822/PN/2011 order dated 18.09.2012 and ITA No.1130/PN/2012 order dated 30.07.2013 respectively. 13. In the above background, we have perused the material on record and also the precedents in the assessee's own case dated 18.09.2012 (supra) and 30.07.2013 (supra) for assessment years 2007-08 and 2008-09 respectively. The relevant operative portion of the order of the Tribunal dated 18.09.2012 (supra) for the lead assessment year of 2007-08 is reproduced as under : In this background, it is clear that assessee has provided various complex integrated services as mentioned in Schedule-II to the lease agreement with the I.T. Company. The services are vast and the amenities provided were in the nature of plant and machinery as contended by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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