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TMI Blog2015 (3) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-00 being rent of "Infrastructure Facilities" installed in the property Let Out, and are integral part of Property in total which is Let Out, as such, it should be assessed as "Rental Income" 2. The Ld. C.I.T. (Appeals) erred on facts and in law in confirming the disallowance of Rs. 1109156-00 on account of "Foreign Travelling Expenses" of the Directors of the Company, which were incurred wholly and exclusively for the purpose of Development of Business and for exploring business opportunities for Company. 3. The Ld. C.I.T. (Appeals) erred on facts and in law in confirming the disallowance of. Rs. 1,32,953-00 incurred in connection with sponsor ship of "Educational Expenses" of Director of the Company for conducting Professional Course . 3.1 The Ld. C.I.T. (Appeal) did not appreciate that expenses incurred are for the purpose of business as benefit resulted in Development and Growth of the Company in subsequent year. 3.2 The Ld. C.I.T. (Appeal) did not appreciated that after completion of the Studies in Financial Year 2008-09, the said Director joined the Company and because of his specified knowledge, profitability of the company has increased. 4. The Ld. C.I.T. (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant, fire fighting plant, etc. along with the building space form a composite as a whole. Neither of the building space nor the infrastructure facilities can be used solely without dependence on each other. The primary object was to let out the property along with the right to use common facilities. He has also laced reliance upon the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment Pvt. Ltd. vs. CIT [2003] 129 Taxman 70 (SC). The ld. CIT(A) re-examined the claim of the assessee in the light of assessee's contentions, but was not convinced with it and he has confirmed the order of the Assessing Officer treating the infrastructure charges as business income. 6. Now the assessee has preferred an appeal before the Tribunal with the submission that all the infrastructure facilities like lift, generator, air condition plant and fire fighting plant are fitted and installed in the building and these are the integral part of the building. Neither the building space nor the infrastructure facilities can be used solely without inter dependence on each other. It was further contended that under the similar set of facts in assessment year 2005-06, the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard staff, electricity and water and other common amenities without any separate charges was assessable as income from property and not business income. Through this judgment, the Hon'ble Apex Court has confirmed the judgment of the Hon'ble High Court of Calcutta. 11. Similar view was also expressed by the Mumbai Bench of the Tribunal in the case of DCIT vs. Vaishnav S. Puri (HUF) (supra), in which the Tribunal has held the income from letting out of building for consolidated monthly rent which includes the furniture and fixtures, air conditioners, etc. is to be treated as income from house property and not as business income. 12. Similar view was also expressed by the Mumbai Bench of the Tribunal in the case of Marwar Textiles (Agency) (P) Ltd. vs. Income Tax Officer (supra), in which it is held that the entire receipts being composite receipts on account of letting out of furnished accommodation, was rightly held as income from house property. 13. We have also carefully perused the lease deed and infrastructure agreement executed on 1.9.2003 and other relevant documents and we find that the assessee has claimed these receipts as income from house property in assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the world. He has also placed reliance upon the Minutes of the Board of Meeting and the following case laws in support of his contentions:- 1. Rahuljee & Company (P) Ltd., vs. ITAT & Others, 73 DTR 89. 2. CIT vs. Williamson Tea (Assam) Ltd., 38 taxmann.com 154 17. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. CIT(A), with the submission that onus is upon the assessee to place the relevant evidence on record in order to justify that the foreign travel was undertaken to explore the business opportunities. Mere oral submissions are not sufficient to justify the claim. If the assessee has gone to explore business opportunities, there must have been some correspondence exchanged between the assessee and the foreign clients/advisers/consultants. In the absence of any evidence placed on record, the claim of the assessee is not justified and the ld. CIT(A) has rightly disallowed the expenditure incurred on foreign travel. 18. Having carefully examined the orders of the lower authorities in the light of the rival submissions and the material available on record, we find that the ld. counsel for the assessee has emphatically argued that the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of hearing of the appeal, the ld. counsel for the assessee has invited our attention to the order of the Tribunal in the assessee's own case for assessment year 2005-06 with the submission that the impugned issue was raised before the Tribunal and the Tribunal has decided the issue in favour of the assessee by holding that the expenditure was incurred for business purposes. Copy of the order of the Tribunal is placed on record. Since the impugned issue has already been adjudicated by the Tribunal in assessment year 2005-06 and the claim of expenditure incurred on education of Shri. Mukund Halwasiya was allowed, we find no reason to disallow the claim in the impugned assessment year. We, therefore, following the order of the Tribunal for assessment year 2005-06, allow the claim of the assessee after setting aside the order of the ld. CIT(A) in this regard. Accordingly, the addition made on this count is hereby deleted. 22. Apropos ground No.4, it is noticed that the Assessing Officer has made ad hoc disallowance of Rs. 1,42,038/- against the expenses under the head "business promotion" claimed at Rs. 2,84,075/- on the ground that complete details of these expenses were not fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year i.e. 2005-06, in which it was advanced. It was further explained that the shareholder becomes eligible for dividend income only when shares are allotted to him and allotment process was completed in financial year 2007-08. Thus, there was no question of eligibility of any exempt income in financial year 2005-06. It was further contended that the total income exempted from tax was Rs. 87,111.76 consisting of dividend income of Rs. 35,750/- exempted under section 10(34) of the Act, long term capital gain of Rs. 1,18,922.27 exempted under section 10(38) of the Act and short term capital loss of Rs. 67,560.51. Therefore, disallowance made by the Assessing Officer at Rs. 9,52,017/- was irrational. It was further contended that provisions of sub-section (1) and (2) of section 14A of the Act were introduced w.e.f. 1.4.2007 by the Finance Act, 2006, therefore, it cannot be invoked to the issue pertaining to assessment year 2006-07 and no alleged disallowance can be made. 28. With regard to rule 8D, it was contended that rule 8D was introduced w.e.f. 24.3.2008 by (5th Amendment) Rules, 2008. In the light of these facts, disallowance cannot be computed as per provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly set aside the order of the ld. CIT(A) in this regard and delete the addition. I.T.A. No. 24/LKW/2012: 34. Through this appeal, the assessee has assailed the order of the ld. CIT(A), inter alia, on following grounds:- 1. The Ld. C.I.T. (Appeals)-I, erred on facts and in law in upholding the Order of the Ld. A.O. that Receipts of Rs. 24,61,858-00 should be assessed as "Business Income" instead of "Income from House Property" as shown by the appellant. 1.1 The Ld. C.I.T. (Appeals) did not appreciated that the receipt of Rs. 24,61,858-00 being rent of "Infrastructure Facilities" installed in the property Let Out, and are integral part of Property in total which is Let Out, as such, it should be assessed as "Rental Income" 2. The Ld. C.I.T. (Appeals) erred on facts and in law in conforming the adhoc. disallowance of Rs. 6,43,333.00 on account of "Travelling and Business Promotion Expenses" incurred solely and exclusively for the purpose of business, without bringing out any contrary evidence, that expenses are not incurred wholly and exclusively for the purpose of business. 3. The Ld. C.I.T. (Appeals) erred on facts and in Law in confirming the addition of Rs. 9,94,092-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2006-07 and the order of the ld. CIT(A) was later on confirmed by the Tribunal. Therefore, following the order of the Tribunal, we find no merit on account of travelling expenses, as it was also done on ad hoc basis. Accordingly, we delete the addition. 40. Apropos ground No.3, it is noticed that identical issue was raised in assessment year 2006-07. The Tribunal has adjudicated this issue in the light of the amendment brought in section 14A and introduction of rule 8D. Since the provisions of sub-section (1) and (2) of section 14A was inserted w.e.f. 1.4.2007 and the provisions of rule 8D was introduced w.e.f. 24.3.2008 relevant to the assessment year 2008-09, disallowance under section 14A of the Act cannot be made in assessment year 2007-08. It was also held in the light of the fact that shares were allotted in financial year 2007-08. Therefore, following the order of the Tribunal in assessment year 2006-07, we are of the view that no disallowance under section 14A of the Act can be made in the impugned assessment year i.e. 2007-08. We accordingly delete the addition made by the Assessing Officer in this regard. 41. Apropos ground No.4, it is noticed that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him. 46. Apropos ground No.1, it is noticed that the receipts on account of infrastructure facility was treated to be business income following the orders of earlier years. 47. This issue was examined by us in the foregoing appeals, in which it has been held that the entire receipts would be the rental income under the head income from house property. Since there is no change in the facts in the impugned assessment year, we treat the receipts on account of infrastructure facilities as rental income under the head income from house property and allow the ground of appeal of the assessee on this issue. 48. Apropos ground No.2, it is noticed that the disallowance of Rs. 14,43,346/- was made under section 14A of the Act. 49. Although this issue was raised in earlier assessment year, but no disallowance was upheld for the reason that provisions of sub-section (1) and (2) of section 14A were not applicable in those assessment years, as it was introduced w.e.f. 1.4.2007. But for the impugned assessment year, sub-sections (1) and (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee u/s 36 (1) (iii) of the I. T. Act. Thereafter it is noted by CIT(A) in para 14 of his order that it cannot be said that the amounts invested by assessee are for non business purpose, though same may be indirect business connection. We are of the considered opinion that having business connection is different thing and making investment for business expediency is different thing altogether. In the present case, this is the only claim of the assessee before the Assessing Officer and before us also that the investments made by the assessee in sister concerns who are engaged in a connected or similar business. Even if this is correct then also, it cannot be said that this investment in sister concern is for business purpose or for business expediency. Hence, the judgment of Hon'ble apex court rendered in the case of S. A. Builders (Supra) is not rendering any help to the assessee. Investment in shares is made only to earn dividend income and as in case of any other investment, there may be capital gain or loss also at the time of sale of capital asset. Till the assessment year 2003-04, dividend income was taxable and therefore, deduction on account of interest on borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs. 1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of Rs. 999 under the head " Income from other sources ". But if there is no income, then, on the argument of the revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allowed by the statute would be debited. Equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definitely not allowable for computing salary income or income from house property. It cannot be said that deduction on account of interest expenditure is to be allowed for computing income from capital gain since income on account of capital gain is taxable because deduction on account of interest expenditure is not allowable for computing capital gain. For computing capital Gain, deduction is allowable in respect of cost of acquisition, cost of improvement and cost of transfer only and interest does not fall in any of these three categories. From A.Y. 2004 - 05, it is not an allowable deduction u/s 57 (iii) i.e. for computing Income from other Sources also because, deduction is allowable under this section for those expenses which are incurred for earning an income taxable under the head income from other sources. Since now dividend income is not taxable under this head, deduction is not allowable u/s 57 (iii). Now, the only remaining section is section 36 (1) (iii) for allowability of interest expenditure. This is admitted position that the assessee is not dealing in shares as the assessee itself has shown it as investment in the balance sheet. Otherwise also, the assessee has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rendered in the case of Rajendra Prasad Moody (supra) was not brought to the notice of the tribunal and Hon'ble High Court and hence, it was not taken note of. It was also not taken note of that even if it is held that no disallowance is to be made u/s 14A of the Act, then also, there has to be a positive finding that under which section, this interest expenditure is allowable. Since dividend income is not subject to tax as income from other sources from assessment year 2004-05, it cannot be said that interest expenditure has to be allowed u/s 57(iii) of the Act. This is also not a case of the assessee that investment in shares was made out of borrowed funds in course of dealing in shares and therefore, interest expenditure is allowable u/s 36 (1) (iii) of the Act. We have already seen that interest income is not allowable while computing capital gain. Hence, even if it is held that section 14A is not to be invoked for making disallowance in a year in which there is no actual dividend income as was held by Hon'ble jurisdictional High Court and Hon'ble Gujarat High Court, then also, it has to be seen as to whether deduction on account of interest expenditure is allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head income from other sources and therefore, deduction is not allowable u/s 57(iii) of the Act. We have also seen that no deduction is allowable u/s 36 (1) (iii) also. Hence we reverse the order of learned CIT (A) and restore that of the A.O. Regarding various judgments cited by the learned AR of the assessee including the judgment of Hon'ble apex court rendered in the case of S. A. Builders (Supra), we would like to observe that no judgment is rendering any help to the assessee because we have seen that deduction is not allowable under any provisions of any section of Income Tax Act. Hence, there is no need to disallow any expenses which is not allowable. In fact, the assessee has failed to make out a case that deduction of interest expenditure is allowable under the provisions of any section of Income Tax Act, 1961." 53. The scope of ruled 8D of the rules was also examined by us in the case of Income Tax Officer vs. M/s Shruti Finsec Pt. Ltd. in I.T.A. No. 592/LKW/2012, in which it has been held that computation as per rule 8D takes care of all the direct and indirect expenses. The relevant observations of the Tribunal are as under:- "6. We have carefully considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. RULE 8D OF THE RULES: "8D. Method for determining amount of expenditure in relation to income not includible in total income.--(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with-- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub- rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:-- (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed by the assessee. Therefore, the Assessing Officer has every reason to doubt the correctness of the expenditures claimed by the assessee for earning the exempted income of Rs. 17,68,735/-. Therefore, we are of the view that the Assessing Officer has to re-compute the expenditures relating to the dividend income which does not form part of total income under this Act and for computing the expenditures, the Assessing Officer has no other option but to adopt the formula laid down under rule 8D of the Rules and he did the same. But from the calculation, we find that the Assessing Officer has not determined the amount of expenditures directly related to the income which does not form part of the total income of the assessee as per sub-rule (2) (i) of rule 8D. It is also not clear whether the Assessing Officer has made any verification with regard to the amount of expenditures directly relating to the investment made in earning dividend income. The other defect we find in the calculation is that as per definition (c) of rule 8D, the average of the total as appearing in the balance sheet of the assessee on the first day and the last day of the previous year is to be taken, but the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and Services Pvt. Ltd, towards share capital, which stands allotted to the appellant in the F.Y. 2007-08. Some other interest free "advances" have been against the credit card payment to AEB Ltd. (Rs. 92,501) unmaterialised land deals ( Rs. 10 lacs, Rs. 2.5 lacs, Rs. 2 lacs & Rs. 2 lacs to Asha Garg, Ashok Pathak, Mohan Kapoor and Sonia Shetti), advance made and received back to Shri R.K. Almal and S.K. Almal ( Rs. 62,400/- each), advance made for supply of material or business transaction ( Rs. 8 lacs to Country Power Management Co. Pvt. Ltd., and Unique Construction ), and refund of flat booking amount (Rs.5,65,082/- and Rs. 22,33,830/- in the cases of Victory Glass Industries and Shri Bharat Halwasia). The above makes it apparent that the outstanding balances in the case of 9 parties out of 13 parties are on account of business transaction whereas in the case another two parties it appears as an advance due to insufficient credit balance in the books of accounts of the appellant company. It is also seen that these credit balances also pertain to advances against flat, for which, no interest has been paid ,to them. As already observed above, the largest advance made to M/s. G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in shares were made by the assessee out of own funds available with it. Therefore, no disallowance can be made on account of expenditure incurred by way of interest during the previous year. Whatever disallowances are to be made that can only be made as per clause (3) of sub-rule(2) of rule 8D of the rules. We, therefore, set aside the order of the ld. CIT(A) and direct the Assessing Officer to re-compute the disallowance as per clause (3) of sub-rule(2) of rule 8D of the rules. I.T.A. No. 81/LKW/2013: 56. Through this appeal, the assessee has assailed the order of the ld. CIT(A) on the following grounds:- 1. The Ld. C.I.T (A)-I, Lko, erred on facts and in law in holding infrastructure charges Rs. 23,77571-00 as Income from Other Sources, instead of Income under the head House Property, as shown by the appellant. 1.1 The Ld. C.I.T. (Appeals)-I, did not appreciated that "Infrastructure Facilities" installed in the property let out and is an integral part of Property. Thus the Rent received on it has been correctly shown as "Rental Income". 2. The Ld. C.I.T. (Appeals) erred on Facts and in Law in confirming the addition of Rs. 16,31,126-00 u/s 14A of I. T. Act 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f facts and circumstances. 4. The Additions upheld are highly excessive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him. 60. Ground No.1 relates to the nature of receipt received on account of infrastructure facility and this issue has already been adjudicated by us in the foregoing appeal, in which it has been held that it is a part of rental income and to be assessed as income from house property. Following the view taken in the foregoing appeals, we hold that receipts on account of infrastructure facility as rental income and is to be assessed under the head income from house property. 61. Ground No.2 relates to the disallowance made under section 14A of the Act. This issue has already been examined by us in the foregoing paras, in which it has been held that provisions of section 14A of the Act and rule 8D of the rules are applicable in the impugned assessment year. However, the disallowance calculated by the Assessing Officer as per rule 8D of the rules was not found to be correct. It has been held in the foregoing paras that investment in shares were made out of own fun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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