TMI Blog2020 (11) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... addition. Resultantly, Ground no. 1(i) is allowed. TDS on unrealised rent - licensee has deducted TDS and declared the same in the TDS return - HELD THAT:- Assessee has not received rental income for the previous assessment year and any Security/ Rental deposit available is to be adjusted first for old outstanding and if there is any amount remaining unadjusted, the extra rental advance will be adjusted in the current assessment year outstanding. It is undisputed that the rental advance was adjusted for previous assessment year dues and nothing was available for outstanding rent of current assessment year. Therefore, there is no reason for Ld. CIT(A) to give such direction. Therefore, we are inclined to accept the submission of the assessee. Accordingly, this ground of assessee also allowed. Common administrative expenses for the purpose of disallowance u/s 14A - HELD THAT:- We are partly in agreement with Ld. CIT(A) that sometimes, the determination of disallowance under rule 8D is absurd. We may have to go by practical or depending on the facts of the case. The Ld. CIT(A) has accepted that the common other administrative expenses are ₹ 78,52,422/-. Assessee has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses can be considered as relatable to earning of exempt income. It was further submitted that out of total interest claimed in P L A/c, a part of interest expenditure claimed u/s 24(b) under the head Income from House Property and balance interest claimed as trading expenses while calculating business income. Since no interest expenditure claimed in P L account, therefore no disallowance u/s 14A can be made. 4. After considering the submission of assessee, AO rejected the submission of assessee. He observed that assessee cannot earn exempt income without systematic management of its investment portfolio. Investment decisions are very complex in nature. It requires substantial market research, day to day analysis of market trends and decisions with regard to acquisition, retention and sale of share at the most appropriate time. It would be, therefore, no proper to say that exempt income can be earned by incurring no or nominal expenditure. It is difficult to accept that an assessee can earn exempt income without incurring any expenses whatsoever including management or administrative expenses as investment decisions are generally taken in a planned manner. The term exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng tax at source at the time of crediting the amount of rent and depositing the same into Government Account. 3. The assessee company has duly taken into account the claim of TDS in the return of income. 4. The assessee has taken support of Rule 4 of the I.T Rule 1962 for not disclosing the rental income. Rule 4 of the I.T Rule 1962 is being re-produced hereunder :- (a) The tenancy is bona fide; (b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; (c) The defaulting tenant is not in occupation of any other property of the assessee; (d)The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfied the Assessing Officer that legal proceedings would be useless. 7. AO further observed that though the assessee fulfils the first 3 conditions of Rule 4 of I.T Rule 1962, but has failed to fulfill the 4th condition. The assessee has neither furnished any documentary evidences for instituting any legal proceedings against the tenant for recovery of outstanding rent, nor proved that institution of legal proceedings would be useless. Therefore, AO concluded that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in confirming disallowance of ₹ 43,97,356/- (i.e.56% of ₹ 78,52,4227-) u/s 14A of the Act which is excessive considering the facts and circumstances of the case of the Appellant. (iii) The CIT(A) erred in confirming disallowance u/s 14A r.w.r. 8D(iii) without appreciating that the administrative expenses are incurred by the Appellant for carrying on its day to day business activity and none of the expenditure are incurred or related to carrying on of business of the partnership firm in which the Appellant is partner and hence no disallowance is called for u/s 14A of the Act. Your Appellant craves leave to add, to alter or to amend the aforesaid grounds of appeal. 10. At the time of hearing, Ld. AR appearing on behalf of the assessee submitted with regard to rental income that assessee entered into L L agreement in the previous year 2007-2008 with Spanco Telesystems and Solutions Ltd. for giving 4 floors namely 5th, 6th, 7th and 13th floor on leave and license in Infotech Park at Vashi, Navi Mumbai and brought to our notice at page 60 to 98 of the paper book. In April 2008, Spanco Telesystems and Solutions Ltd. informed the Assessee of the slump sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss to the assessee and enrichment by the government if unrealised rent is taxed in the absence of any provision for claiming bad debts subsequently. 12. It is submitted that the assessee did not initiate any legal proceedings against the licensees because the licensees were in possession of the premises which was worth more than ₹ 200 cr. Civil litigation would have taken decades for the assessee and during which period the assessee would have been deprived of the possession of its premises. Civil litigation would have also involved huge litigation and opportunity costs. The assessee also relies upon the submissions made to this effect which are reproduced at pg 203 of the paper book in support of its contention as to why no recovery proceedings were initiated against the licensee. It was under these circumstances that the assessee agreed with licensees on 20th Nov 2011 to give up all its claim in lieu of possession of the premises. 13. He further submitted that it is well settled legal saying that physical possession is 9/10th of ownership and the person in possession is in a far superior position irrespective of the legality of the possession. As per section 6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed TDS to save themselves from penal consequences under the Act and to claim deduction on accrual basis, the income cannot be taxed in the hands of the licensor u/s 23 r/w Explanation thereto and Rule 4 of the IT Rules, more so when it is an undisputed position that the assessee has not received any amount towards rent for the previous year 2011-12 relevant to A.Y. 2012-13. Section 25A itself takes care of the taxability of unrealised rent when received subsequently by taxing the same in the year of receipt. In view of above, it is respectfully submitted that the orders of the lower authorities be quashed and no amount can be taxed under the head Income from House Property. Alternatively, it is submitted that only ₹ 38.58 lakhs being TDS deducted can be construed as received by the assessee and only that amount can be taxed and the credit for TDS deducted of ₹ 38.58 lakhs by the licensees be granted to the assessee. 15. With regard to disallowance u/s 14A, Ld. AR submitted that assessee is a partner in a partnership firm and has received share of profit amounting to ₹ 2.43 cr. The assessee did not disallow any amount u/s 14A on the ground that no expenses have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee gave the property at Vashi, Navi Mumbai consisting of 5th, 6th, 7th and 13th Floor to M/s. Spanco Telesystems and Solutions Ltd, on Leave and License basis. Subsequently, the Spanco Telesystems informed the assessee about the slump sale of their business to M/s. Spanco BPO Services Ltd. and Spanco Respondez BPO Pvt. Ltd. and requested the assessee to substitute the names of these new Companies as licensee in their place w.e.f. 01.04.2008. Due to financial problems in the new companies, they stopped making payment towards rent from F.Y. 2010-11 relevant to A.Y. 2011-12. As on 31.03.2011, the total outstanding dues stood at ₹ 15-60 crores. After lot of negotiation and persuasion, the assessee was managed to get ₹ 10.51 crores during previous assessment year. It is a fact that assessee could not recover ₹ 7.09 crores. Since assessee could not recover the rent for the period under consideration, assessee did not declare the rental income for the A.Y. 2012-13. The AO noticed the non-declaration of income from these properties, he rejected the claim of the assessee and brought to tax by observing that though the assessee fulfils the first 3 conditions of Rule 4 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38.58 lakhs. The AO can treat the amount of ₹ 38.58 lakhs as the income from head Income from House Property . 20. With regard to Ground No. 1(iii), it is fact that the assessee has not received rental income for the previous assessment year and any Security/ Rental deposit available is to be adjusted first for old outstanding and if there is any amount remaining unadjusted, the extra rental advance will be adjusted in the current assessment year outstanding. It is undisputed that the rental advance was adjusted for previous assessment year dues and nothing was available for outstanding rent of current assessment year. Therefore, there is no reason for Ld. CIT(A) to give such direction. Therefore, we are inclined to accept the submission of the assessee. Accordingly, this ground of assessee also allowed. 21. With regard to Ground No. 2, we notice that assessee has declared exempt income earned by participating in the partnership firm. The AO invoked rule 8D and disallowed u/s 8D(2)(iii) i.e. 0.5% of the average investment for administrative expenses. On appeal, Ld. CIT(A) reduced the disallowance of ₹ 147.97 lakhs to ₹ 78.52 lakhs by calculating the ratio o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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