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TMI Blog2020 (11) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... s 143(2) and 142(1) were issued and served on the assessee. In response, AR of the assessee filed the relevant information as called for. 3. With regard to disallowance u/s 14A r.w.r. 8D of the Act, it was explained that the assessee company is a partner in partnership firm namely M/s Vijay Associates (Wadhwa). The share of profit has been claimed as exempt u/s 10(2A) of the Income Tax Act, 1961. It has not incurred any expenses for making investment in partnership firm and has made the strategic investment with the sole object to expand its business activities. The administrative expenses and interest expenses were incurred for carrying out its business activity and no part of the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Ltd vacated the premises in November 2011. The assessee has further submitted that though M/s Spanco BPO Services Ltd has made TDS & deposited the same into Government Account, but no rent has been received by the assessee. Therefore the assessee has not disclosed such rental income in the return of income. The assessee has also taken support of Rule 4 of Income tax Rules 1962 for unrealized rent. 6. From the above submission of assessee, AO has rejected the submission of assessee with the following observations:- 1. The assessee is following Mercantile method of accounting, therefore income has to be disclosed on accrual basis. 2. The deductor is deducting 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 defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) erred in confirming the disallowance u/s 14A of the Act to the extent of Rs. 43,97,356/- (i.e.56% of Rs. 78,52,422/-) as expense attributable to investment activity giving rise to the exempted income. The Appellant submits that it has not incurred any expenditure attributable to investment activity giving rise to the exempted income and hence no disallowance u/s 14A of the Act is called for. The Appellant made administrative expenses for carrying on its business activity and hence the same shall not be considered while calculating disallowance as per Section 14A r.w.r 8D (iii) of the I.T.Rules. (ii) The CIT(A) erred in confirming disallowance of Rs. 43,97,356/- (i.e.56% of Rs. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 25A is parimateria to section 41 of the Act which deals with taxation of amount of benefit received which was claimed as deduction in the earlier year. On a harmonious reading of the scheme of house property taxation with the scheme of determination of business income, it is submitted that provision of section 23 should be strictly construed in a situation where the assessee is unable to receive the rent. The strict construction should be in favour of the assessee as explained hereinabove more so when there is no loss of revenue on account of section 25A of the Act but there will be a 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 Rs. 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 relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52 wherein the proceedings against the parent company to recover dues of sister concern was held to be illegal. Furthermore, in the year 2012, various creditors had filed winding up petition against the holding company and the said holding company was ordered to be wound up by the Hon'ble High Court. It is further important to note that there was prosecution launched by the department against the group companies of the licensees for non-deposit of TDS, etc. and referred page 235 and 236 of the paper book. It is submitted that merely because the licensees have deducted 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 amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance ought to be made on the facts of this case as more particularly set out hereinabove and in the absence of any reasons for rejection of the claim made by the assessee appellant on why no disallowance is required to be made. 16. On the other hand, Ld. DR relied on the orders passed by the revenue authorities. 17. Considered the rival submission and material placed on record. We notice from the record that assessee has not received the rent to the extent of Rs. 3,85,85,341/- and the revenue is not disputing the fact. The assessee 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 Rs. 15-60 crores. After lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realised rent. Yes, the licensee has deducted TDS and declared the same in the TDS return. They have complied with the advance tax provisions and did not pay any rent to the assessee and it is fact on the record. This alone cannot be the reason to sustain the rental income. As discussed in the earlier para, it is fact on record that assessee has no certainty of receiving any rent. Therefore, we reject the contention of Ld. CIT(A). However, we notice that assessee has taken the TDS credit to the extent of Rs. 38.58 lakhs. The AO can treat the amount of Rs. 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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