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TMI Blog2021 (9) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... nd decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (328 ITR 81).? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance u/s 14A of the IT Act while computing the book profits u/s 115JB without appreciating the provision of clause (f) of the Explanation 1 to Section 115JB of the IT Act ?." 4. The brief facts of the case are that the assessee filed its return of income on 17.10.2016 declaring total income to the tune of Rs. 3,36,02,130/-. Thereafter, the assessee received the defective notice u/s 139(9) of the I. T. Act, 1961. In response to the notice, the assessee filed return of income on 01.05.2017 declaring total income to the tune of Rs. 3,71,72,858/-. The case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The AO assessed the income from Annual Letting Value of furnished property as stock-in-trade as income from house property and raised the addition to the tune of Rs. 2,15,31,160/-. The AO also disallowed the expenses to earn the exempt income in view of the provisions u/s 14A r.w. Rule 8D to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue involved in the present case stands concluded against the revenue in ITA No. 270 of 2016. Pr CIT vs. State Bank of Patio/a (2017) 393 ITR 476/88 taxmann.com 667 (Punj &Har.) decided on 27.02.2017 wherein after considering the relevant provision and the case law on the point, it was recorded as under- 'After hearing learned counsel for the parties, we notice that the issue on merits has been decided in favour of the assessee in State Bank of Patiala's case (supra) (2017) 78 taxman. corn 3. The amount of disallowance tinder section 14A was restricted to the amount of exempt income only and not at a higher figure. Once that was so, we do not consider it appropriate to discuss the scope of Sec. 263 of the Act as the same has been rendered academic in view of the issue being answered in favour of the assessee on merits. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed". Similar decision was taken by this Court in ITA No. 193 of 2017, Pr. CIT vs. State Bank of Patiala decided on 22.05 2017. 5. In view of the above, no substantial question of law arises in the present appeal and consequently, the appeal stands dismissed". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of expenditure carried out by the AO CIT(A) disallowed untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arri,9d at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deaf in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder:- "8. The decision in the case of Maxopp Investment Ltd (Supra) is significant and does answer the question in issue. This decision does not support the Revenue as the Assessing Officer in the case of Maxopp Investment Ltd. (Supra) had himself restricted the disallowance to the extent of exempt income. After referring to Walfort Share & Stock Brokers (P.) Ltd. (Supra) it was held-Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includable in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as pail of the total income." 9. The position becomes clear and beyond doubt when we refer to the factual position in the appeal preferred by the Revenue against the decision of the Punjab and Haryana High Court in the case of Pr CIT v. State Bank of Patiala (2017] 391 1TR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investments (supra) wherein the case of the said assessee for AY 2008-09 was also adjudicated, to hold that the disallowance u/s 14A cannot exceed the quantum of exempt / dividend income. The relevant portion of the decision in the case of Kotak Securities Ltd is as under: "4.6 However, in terms of the decision of Special Bench of the Tribunal rendered in ACIT Vs Vireet Investment P Ltd (82 Taxmann.com 415) we find strength in the plea of Ld Counsel that only exempt income yielding investments were to be considered for the purpose of computation of disallowance u/s 14A. Drawing analogy from the decision of Hon'ble Supreme Court rendered in Maxopp investment Ltd. Vs CIT(supra), we also find strength in the plea that the quantum of disallowance could not exceed the exempt income earned by the assessee during the impugned AY Further, those investments which were not capable of yielding any exempt income were also to be excluded while arriving at the disallowance. 4.7 Keeping the above principles in mind, we have perused the nature of investments held by the assessee which are extracted at Page 14 of the impugned order. We find that the investments have been classified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) is quite reasonable and justifiable which is not liable to be interfered with at this appellate stage. Accordingly, we affirm the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue. ISSUE NO.2 7. The revenue has challenged the allowance of disallowance of Rs. 1,70,01,211/- u/s 14A while computing the book profit u/s 115JB of the Act. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:- "7.1 I have carefully considered the stand of the AO as per the assessment order as well as the submissions furnished by the AR of the appellant. The AO after determining the disallowance u/s 14A at Rs. 1,70,01.211/- as per the regular provisions of the I.T. Act, has also proceeded to add the said disallowance while computing the book profit as per 115JB. The assessee contends that this action of the AO is incorrect since it has not debited any expenditure in its accounts as related to earning of exempt income. Moreover, the assessee has placed reliance on a number of judicial decisions. 7.2 While adjudicating the issue as to whether the disallowance computed u/s 14A as per the regular provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative of the CIT(A) has been produced before us. No disallowance u/s 14A r.w. Rule 8D is required while computing the book profit u/s 115JB of the Act. The facts are not distinguishable at this stage. The issue has squarely covered by the decision in case of Vireet Investments Pvt. Ltd. (supra), Bhushan Steel Ltd. (supra), therefore, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfered with at this appellate stage. Accordingly, we decide this issue in favour of the assessee against the revenue. In the result, the appeal filed by the revenue is hereby dismissed. ITA. No. 5294/Mum/2019 9. The assessee has filed the present appeal against the order dated 20.06.2019 passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the A.Y.2016-17. 10. The assessee has raised the following grounds: - 1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition of Rs. 2,15,31,160/- on account of alleged Notional Annual Letting value of unsold flat held as stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessees were assessed under the head 'income from business'. There were certain unsold flats in stock in trade which the AO treated as property assessable under the head 'income from house property' and computed notional annual letting value on such unsold flats placing reliance on the decision in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra). The action of the AO was upheld by the learned CIT(A). 8. The Hon'ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. (supra) considered the question whether the rental income received from any property in the construction business can be claimed under the head 'income from property' even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under: - "8. True it is, that inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing annual letting value under Section 23 of the Act. While holding so the Coordinate Bench observed as under: - "3. The ld. AR placed the order of Bombay Tribunal in the case of M/s Perfect Scale Company Pvt. Ltd., ITA Nos.3228 to 3234/Mum/2013, order dated 6-9-2013, wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the IT Act. 4. On the other hand, ld. DR relied on the order of Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property. 5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon'ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4-2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let out the buildings constructed by the assessee. Development of land or property would also be one of the businesses for which the company was incorporated. 8. True it is, that income derived from the property would always be termed as 'income' from the property, but if the property is used as 'stock-in-trade', then the said property would become or partake the character of the stock, and any income derived from the stock, would be 'income' from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the 'business' and the business stocks, which may include movable and immovable, would be taken to be 'stock-in-trade', and any income derived from such stocks cannot be termed as 'income from property'. Even otherwise, it is to be seen that there was distinction between the 'income from business' and 'income from property' on one side, and 'any income from other sources'. The Tribunal, in our considered opinion, was absolutely unju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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