TMI Blog2018 (3) TMI 1686X X X X Extracts X X X X X X X X Extracts X X X X ..... ciating the facts of the present case has rightly concluded that the assessee has incurred legal and professional charges in connection with the business of assessee. The assessee incurred total expenses of ₹ 31,75,043/- being the amount of legal expenses and other expenditure like labor matters, the assessee has incurred an amount of ₹ 3,06,536 and retainership fees and others amounting to ₹ 10,21,849/- as expenses in connection with business of the assessee. The said expenses have also been allowed by the AO in the earlier years in assessment u/s 143(3) - Decided against revenue. Treating the profit on sale of shares - as Capital gain OR business income - intention of the assessee to earn business profits - Held that:- CIT(A) after appreciating the facts of the present case has rightly concluded that the assessee has been showing investment in the balance sheet as investments only. We have also noticed that the assessee has not treated the shares as stock-in-trade, hence the intention of the assessee is to earn capital gain on sale of shares. From the facts of the case, the assessee has not used any borrowed funds for the purpose of purchasing the shares - co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income assessed by the Assessing Officer whereas the facts show clear intention of the assessee to earn business profits? 4. Whether on the facts and circumstances of the case and in law, the CIT (A)erred in treating the rental income as income from business and profession as against income taxed under the head income from house property by the Assessing Officer. The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal. 4. As per the facts of the present case, the assessee was carrying on the business of gas distribution through its network of underground pipelines. Due to strike, followed by closure, the company closed its operation with effect from July 1981. Thereafter the assessee company is engaged in the business of subletting guaranteed premises and subsequently entered into finance and investment activity claiming to be anon-banking finance company. During the year, the assessee has shown income by way of rent, compensation and service at ₹ 1,89,64,556/-, interest and others at ₹ 3,55,58,852/- which includes interest on ICDs, Fixed Deposits, Income Tax refunds, dividend, long term and short term capital gains, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be computed in accordance with principle of accounting. In this case, the assessee has earned income on the basis of Mercantile System of Accounting; but the interest income has not been shown as the assessee has not received the interest in last three years. The money lent as debentures has become non performing asset (NPA). Hence, as per AS-9 no interest is to be charged on NPA. Therefore, the AO is not justified in adding the interest income not received by the appellant. Reliance is placed on the decision of Delhi High Court in the case of CIT vs. VasisthChayVyapar (ITA 552 of 2005), wherein it was held that if there are uncertainties revenue should not be recognized. Similar decision was pronounced in the case of ACIT v. Ruby Mills Ltd (ITA No.587/Mum/06), wherein it was held that interest should not be taken as income if there was default in payment of such interest by the other party. This ground of appeal is allowed. After having gone through the facts of the present case, arguments addressed by both the parties, documents placed on record, judgment cited and orders passed by the lower authorities, we find that Ld. CIT(A) after appreciating the facts of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced below:- 5.2 I have duly considered the submission of the appellant's AR and the facts of the case. I find that the assessee has incurred legal and professional charges in connection with the business of the assessee. Had the assessee not contested the legal proceedings with MIs. Mark Mascarenhas, in London, the assessee would have been held liable to pay more damages. Although the arbitration was passed against the appellant at London, the assessee incurred total expenses of ₹ 3 1,75,043/- only as against the total cost of the award of British pound of ₹ 6,25 ,695/-. Hence, the amount of legal expenses amounting to ₹ 31,75,043/- is allowable as business expenditure. As regards, the expenditure of ₹ 17,72,620/- is concerned, this expenditure was incurred on legal and professional charges to recover flat from Mr. Ashok Jalan. Mr. Ashok Jalan, is son of ex-director of the company and to recover the flat from him the assessee filed Suit against him. In my considered view this expenditure is in connection with the flat which is capital asset. Therefore, expenditure incurred by the assessee isalso required to be capitalized. Even the assessee has adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds dismissed. Ground No. 3. 10. This ground grounds raised by the revenue relates to challenging the order of Ld. CIT(A) in treating the profit on sale of shares of ₹ 2,47,49,139/- as Capital gain as against the business income assessed by the Assessing Officer whereas the facts show clear intention of the assessee to earn business profits. 11. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in its detailed order in para no. 7. The operative portion of the order of Ld. CIT(A) is contained in para no. 7.1 of its order and the same is reproduced below:- Decision I have duly considered the submission of the appellant's AR and facts of the case. I find that the AO has noted that the assessee has been purchasing and selling shares frequently and showing the income as capital gain, Short Term or Long Term depending on the period of Investment. However, the AO has treated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Therefore considering the above facts and circumstances, we dismiss this ground raised by the revenue. Ground No. 4 12. This ground grounds raised by the revenue relates to challenging the order of Ld. CIT(A) in treating the rental income as income from business and profession as against income taxed under the head Income from house property by the AO. 13. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in its detailed order in para no. 8. The operative portion of the order of Ld. CIT(A) is contained in para no. 8.2 of its order and the same is reproduced below:- Order of the Estate Officer Life Insurance Corporation services like Facsimile machine, telex machine, copying machine, word processors etc,. On the facts and circumstances of the case, appellant cannot be held as owner of the property and the income derived by him cannot be taxed under the head Income from House ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a monthly tenancy right. Since, section 27 of the Act specifically excludes any right by way of any lease from month to month, hence the tenancy in the present case clearly falls within the exclusions as provided in section 27(iii)(b) of the Act. In order to substantiate the above contentions, the assessee want to bring on record the following documents:- 1) Order of the Estate Officer Life Insurance Corporation under the Public premises (Eviction of Unauthorized Occupant) Act, 1971 dated July 0, 2012, 2) Order of the Bombay Civil Court dated October 12, 2012 3) Order of the Hon ble Bombay High Court dated February 5, 2013. It was also submitted that the above documents could not be submitted before the lower authorities, as the same were received after the said proceedings. 14. On the other hand, the Ld. DR refuted the claim of the assessee. 15. We have heard the Counsels for both the parties on this application and after perusing the contents of the application, we find that the documents, which the assessee wants to place on record by way of additional evidence are orders passed by Civil Court, Hon ble Bombay High Court and Estate Officer. It is a fact that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2009-10 on the grounds mentioned herein below:- GROUND I: The Learned Commissioner of Income-Tax (Appeals) - I, Mumbai [ the CIT (A) ] erred in upholding the decision of the Deputy Commissioner of Income Tax - 1(1), Mumbai ( the AO ) in disallowing a sum of ' 18,30,157/- under section 14A read with rule 8D of the Income Tax Act,1961 ( the Act ) on the alleged ground that the expenses were incurred for earning tax-free income. 2. The Appellant therefore prays that the disallowance of 18,30,157/- being alleged expenses attributed to earning tax-free income be deleted. Revised Ground No. II 1 On the facts and circumstances of the case, the Hon ble Commissioner of Income Tax (Appeals) CIT(A) erred in confirming the action of the AO in assessing the Income of' 2,03,70,306/- received in the form of Rent and Service charges under the head Income form House Property instead of Profits and Gains from Business and Profession , without considering the order dated October 20, 2012 passed by the Hon ble Bombay City Civil Court, which was submitted to the CIT(A) on November 26, 2012. The CIT(A) while passing his order dated November 27, 2012, had not consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionally made. The term in relation to means that the expenditure must have been actually incurred in earning exempt income. Ld. AR also submitted that as per the decisions of Hon ble Bombay High Court in the case of CIT vrs. Walfort Share and Stock Brokers Pvt. Ltd (reported in 310 ITR 421) wherein it was held that what section 14A contemplates is the expenditure actually incurred for earning tax free income and not assumed expenditure or deemed expenditure . Apart from above, Ld. AR also submitted that the assessee was having own funds and no borrowed funds were used to earn exempt income and therefore the provision of section 14A(2) r.w.r 8D is no attracted. In this respect, assessee relied upon the judgment in the case of CIT vrs. HDFC Bank Ltd (366 ITR 505) (Bom HC) and HDFC Vrs. DCIT (383 ITR 529) (Bom HC). It was also submitted that the unsecured loans, taken were utilized for giving ICD s (Inter Corporate Deposits) to parties at higher rate of interest. Ld. AR further submitted that the strategic investments are to be ignored for the purpose of disallowance u/s 14A of the I.T. Act and in this respect, relied upon the judgment in the case of EIH Associated Hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee should be viewed based on the accounts of the assessee. Be that as it may, after considering the facts of the present case and orders passed by Ld. CIT(A) on this ground, we find that Ld. CIT(A) has merely relied upon the judgment of Hon ble Bombay High Court in the case of M/s Godrej Boyce Mfg. Co. Ltd. and Daga Hospital Mangement Pvt. Ltd (119 TTJ 289) while applying rule 8D of I.T. Act, and Ld. CIT(A) has not considered the arguments put forth before us. Considering the interest of justice, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO for passing afresh order keeping in view the above submissions and judicial precedents raised by the assessee and apply provision of section 14A r.w. rule 8D of I.T. Act only in relation to the income which does not form a part of the total income under the Act. It is needless here to mention that before passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assesse. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits ..... X X X X Extracts X X X X X X X X Extracts X X X X
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