TMI Blog2015 (3) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... l expenses incurred towards the visit of the Director, Shri. U.S. Halwasia and his wife to Egypt and U.S.A - Held that:- We find force in the contention of the Revenue that if the assessee has undertaken the foreign travel to explore business opportunities, there must have been some correspondence exchanged between the assessee and its foreign clients/consultant/advisers, but nothing is placed on record. He has also placed reliance upon the aforesaid judgments, but on a careful perusal, we find that in those judgments, it has been held that onus is upon the assessee to prove that foreign visits were undertaken for the business purpose. No doubt, assessee can undertake foreign travel to explore business opportunities, but the onus is entirely upon the assessee to establish, by placing some documentary evidence, that the foreign travel was undertaken for the business purpose. In the absence of any documentary evidence, we are unable to accept the contention of the assessee that the foreign travel was undertaken to explore the business opportunities. We, therefore, find no infirmity in the order of the CIT(A) on this issue and we accordingly confirm the same. Disallowance of the ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . assessment year 2006-07. CIT(A) has not examined the issue of investment in shares and mutual funds at ₹ 19,91,741/-, but in any case for making disallowance, sub-sections (1) & (2) of section 14A cannot be invoked in the impugned assessment year i.e. assessment year 2006-07, as it was introduced w.e.f. 1.4.2007 by the Finance Act, 2006. Therefore, we are of the considered view that no disallowance under section 14A is called for for investment in shares and mutual funds and advances given to M/s G.R. Maintenance & Services Pvt. Ltd. for allotment of shares. We accordingly set aside the order of the CIT(A) in this regard and delete the addition. Disallowance u/r 8D - Held that:- AO as per rule 8D of the rules and we find that the Assessing Officer has treated the investment out of mixed funds and he has computed the disallowance by applying the formula given in rule sub-rule (2) clause (3) of rule 8D of the rules; whereas no disallowance can be made where it is established that the investment in shares are made out of own funds available with the assessee. In the instant case, it has been established that the investment in shares were made by the assessee out of own fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (Appeals) erred on facts and in law in conforming the ad-hoc disallowance of ₹ 70,010-00 on account of 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. 5. The Ld. C.I.T. (Appeals) erred on facts and in Law in confirming the addition of ₹ 9,52,017-00 under section 14A of Income Tax Act, 1961 which is not applicable in the present of sets of facts and circumstances. WITHOUT PREJUDICE TO ABOVE 5.1 The Ld. C.I.T. (Appeals) did not appreciated that ₹ 35750-00 being Income from Dividend as been claimed as Exempted , accordingly disallowance should be computed corresponding to this income. Thus, disallowance ₹ 952017-00 for this income is not as per Law. 5.2 The Ld. C.I.T. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, 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 assessment was completed under section 143(3) of the Act and the Assessing Officer has treated this receipt as income under head income from house property . Copy of the assessment order is also placed on record. The ld. counsel for the assessee has further contended that once the Assessing Officer has treated the receipts as infrastructure charges under the head income from house property in one assessment year, he cannot give a different treatment on the same receipt in succeeding assessment year. In support of his contention, the ld. counsel for the assessee has also placed reliance upon the following judgments:- 1. DCIT vs. Vaishnav S. Puri (HUF), 58 DTR 26 2. Shambhu Investment Pvt. Ltd. vs. CIT, 263 ITR 143 3. Marwar Textiles (Agency) (P) Ltd. vs. Income Tax Officer, 119 TTJ 131. 7. Copies of the lease deed and infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 year 2005-06 and the Assessing Officer has accepted the same. Once the Assessing Officer has treated these receipts as income from house property in assessment year 2005-06, we find no justification in treating the same receipts in succeeding year as business income. Moreover, through the aforesaid judgments, it has been held that where the assessee has received certain charges for providing certain facilities along with rental income, the entire receipts shall be income from house property and not business income. We, therefore, find no merit in the order of the ld. CIT(A) confirming the infrastructure receipts as business income of the assessee. We, accordingly, set aside the order of the ld. CIT(A) on this issue and delete the addition. 14. Apropos ground No.2, it is noticed that the assessee has claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence 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 travel was undertaken to explore the business opportunities, but no evidence in this regard is placed on record. We find force in the contention of the Revenue that if the assessee has undertaken the foreign travel to explore business opportunities, there must have been some correspondence exchanged between the assessee and its foreign clients/consultant/advisers, but nothing is placed on record. He has also placed reliance upon the aforesaid judgments, but on a careful perusal, we find that in those judgments, it has been held that onus is upon the assessee to prove that foreign visits were undertaken for the business purpose. No doubt, assessee can undertake foreign travel to explore business opportunities, but the onus is entirely upon the assessee to establish, by placing some documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 1,42,038/- against the expenses under the head business promotion claimed at ₹ 2,84,075/- on the ground that complete details of these expenses were not furnished before the Assessing Officer and the ld. CIT(A) has restricted the disallowance to ₹ 71,019/- after granting a part relief. 23. Now the assessee is before us with the submission that without pointing out any defect in the maintenance of the accounts, the disallowance on ad hoc basis is not permissible. 24. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. CIT(A). 25. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the assessee has claimed expenses of ₹ 2,84,075/- under the head business promotion and for want of details, the Assessing Officer has made disallowance of 50% which was later on reduced to 25% by the ld. CIT(A), but the lower autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 section 14A of the Act read with rule 8D of the rules. 29. The ld. CIT(A) re-examined the issue, but was not convinced with the explanations of the assessee and he confirmed the disallowance. 30. Now the assessee is in appeal before the Tribunal and reiterated its contentions. 31. The ld. D.R. has simply placed reliance upon the order of the ld. CIT(A). 32. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that before the ld. CIT(A), the assessee has categorically stated that he has given an advance of ₹ 2,39,90,493/- to M/s G.R. Maintenance Services Pvt. Ltd. as share application money and shares were allotted in financial year 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut, 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 ₹ 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 ₹ 9,94,092-00 under section 14Aof Income Tax Act, 1961 which is not applicable in the present ^/ sets -of facts and circumstances. 4. The Ld. C.I.T. (A) erred on facts and in law in confirming the disallowance of ₹ 1,23,000-00 being Rent paid to Halwasiya Court. 5. 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. 35. Ground No.1 relates to the nature of receipts received for providing infrastructure facility. This issue was examined by us in the foregoing appeal wherein we have held that the receipts for infrastructure fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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 Assessing Officer has made disallowance of ₹ 1.23 lakhs claimed by the assessee as rent paid to its sister concern. 42. Against the disallowance, assessee preferred an appeal before the ld. CIT(A) with the submission that the rent was paid to the sister concern for use of the premises; whereas the Assessing Officer has made disallowance with the observation that the assessee was earning income from the same premises. Being not convinced with the explanations of the assessee, the ld. CIT(A) has confirmed the disallowance. 43. Now the assessee is before us with the submission that the lower authorities have not verified the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ₹ 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) of section 14A of the Act read with rule 8D are applicable and the Assessing Officer has calculated the disallowance under section 14A of the Act as per rule 8D of the rules and made disallowance of ₹ 14,43,346/-, against which an appeal was filed before the ld. CIT(A) with the submission that it has not incurred any expenditure against exempt income and exempt income was also Nil. It was also contended that the Assessing Officer has neither identified any income which does not form part of total income nor has identified any expenditure which has incurred in earning such income and disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 borrowed fund for making investment in share had to be allowed u/s 57(iii) of the Act as has been held by us while deciding the appeal of the Revenue for assessment year 2003-04 by following the judgment of Hon'ble apex court rendered in the case of Rajendra Prasad Moody (Supra). In this case, it was held by Hon'ble Apex Court that if borrowed funds have been used for making investment in shares, then interest expenditure incurred on such borrowed fund has to be allowed as deduction u/s 57(iii) of the Act even if there was no dividend income earned during the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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, it would make no difference whether there is any income and if so, what, since whatever it be, X or Y or nil, would be credited. And the ultimate income or loss would be found. We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of s. 57(iii) cannot be different. The deduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 not brought anything on record to establish that this investment in shares is a business of the assessee. Only contention of the assessee before lower authorities and before us is that since the investment is in shares of sister concerns engaged in connected business, it is for business expediency but we find no merit in this contention. The decision of learned CIT (A) is on this basis that it cannot be said that the amounts invested by appellant are for non business purpose, though same may be indirect business connection . In our considered opinion, the order of learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 allowable under any provision of the Act. Since in the present case, such deduction on account of interest expenditure is not allowable u/s 36 (1) (iii) or 57(iii) of the Act, there is no need to invoke the provisions of section 14A of the Act for making disallowance because invoking the provision of this section is required where the deduction is otherwise allowable. 42. As per above discussion, we find that the order of CIT (A) on this issue is not sustainable because it is not as per law and facts of the present case because the decision of CIT (A) is on the basis that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 the arguments advanced by the respective parties and have also carefully examined the orders of the lower authorities and the relevant provisions of the Act and Rule. 7. Before coming to the controversy involved in this case, we would like to prefer to examine the provisions of section 14A of the Act, according to which for computing the total income under Chapter-IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under this Act. In order to determine the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure 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 any particular income or receipt, an amount computed in accordance with the following formula, namely :-- B A X--- C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance-shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing Officer has taken the average of investment of the assessee-company as per balance sheet as on 31.3.2008 and 31.3.2009. The minor mistakes are noted in the calculation of the Assessing Officer following the method of rule 8D. We, however, do not agree with the order of the ld. CIT(A) restricting the disallowance to the extent of ₹ 16,544/- even without assigning any reason and in few lines he accepted the claim of the assessee. Therefore, we set aside the order of the ld. CIT(A), but so far as calculation of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ₹ 8 lacs to Country Power Management Co. Pvt. Ltd., and Unique Construction ), and refund of flat booking amount (Rs.5,65,082/- and ₹ 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.R. Maintenance and Service Pvt. Ltd. is on account of subscription in the share capital, which was allotted to the appellant in the F.Y. 2007-08, and is accordingly in the nature of business transaction for commercial expediency. 6.3.2. I have also gone through the detailed chart (as per Annexure-B) of the submissions dated 22.1.2010. On the basis of this analysis, it has been explained to me that the above mentioned advances have been made out of the own funds available to the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 ₹ 16,31,126-00 u/s 14A of I. T. Act 1961 which is not applicable in the present sets of facts and circumstances. 3. 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. 57. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 funds of the assessee, therefore, disallowance is to be computed as per clause (3) of sub-rule (2) of rule 8D of the rules only. Accordingly, following the observations in the foregoing paras, we set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer with a direction re-compute the disallowance as per clause (3) of sub-rule(2) of rule 8D of the rules. 62. In the result, appeals of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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