9911796707
TMI Blog2016 (4) TMI 1435X X X X Extracts X X X X X X X X Extracts X X X X ..... se. 2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of Assessing officer in not appreciating the fact that while computing the income, the appellant has already disallowed the expenses, which was related to the rental income. 3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not appreciating the fact that in earlier years no such disallowance was made by the Assessing Officer in the Assessment Order passed u/s 143(3) of the Income Tax Act, 1961. 4. 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 disallowing the claim of expenses amounting to Rs.8,44,630/- by invoking the provisions of section 14A of the Income Tax Act, 1961 without appreciating the facts and circumstances of the case". 2. The brief facts qua first issue are that, assessee is in the business of builders and developers, generation and sale of electricity and has also rented out properties during the year. The AO noted that, assessee has leased out immovable property owned by it in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business enterprise it has to incur certain expenditures even if no rental income would have arisen, is not tenable, because earning of income from leasing out of premises of "R. Mall" is incidental to its business activities. The expenses stated to have been incurred in the course of other business activity may have been used for earning of rental income also, for example, salary paid to the employees, electricity charges paid for the office and other such expenses may have a component towards earning of rental income. Thus, there has to be some allocation of the expenses and accordingly, disallowance should be worked out. The assessee has claimed huge standard deduction of 30% and municipal tax as deduction from rental income, but while calculating the business income, the assessee has not apportioned any of the expenses towards its rental receipts. Lastly, in the earlier years, the assessing officers and departmental authorities had not examined this aspect of the matter, therefore, this is the new issue which has been raised in this year. So accordingly, he made a disallowance of Rs.1,60,77,911/- in the following manner:- "6.5 It is very difficult to pin point at the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that, if any amount is disallowable then same should be restricted to 2%. 5. The Ld. CIT(A) after considering the assessee's submissions and also the finding of the AO, observed that, despite opportunity given by the AO as well as in the course of the appellate proceedings, the assessee could not establish direct correlation with the expenses which were directly related to the business income other than rental income. under the head "Administration and Selling Expenses" assessee has debited salary amount of Rs.292.85 lakhs; Directors' remuneration of Rs.21 lakhs; Conveyance expenses of Rs.24.60 lakhs; electricity expenses of Rs.28.95 lakhs; office repairs and maintenance expenses of Rs.11.5 lakhs; professional fees of Rs.47.28 lakhs; Society charges of Rs.12.06 lakhs; Staff welfare expenses of Rs.13.06 lakhs; and travelling expenses of Rs.14.44 lakhs, which assessee could not prove that same was exclusively for the purpose of other business income and did not relate to earning of rental income. The onus is on the assessee to show that the expenditure have been incurred wholly and exclusively for the purpose of the business. He also referred to certain decisions for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to make any payment, as the said company collects the maintenance charges from the tenants, owners and occupiers of the complexes of shops in the Mall directly and uses it for the maintenance. The entire electricity, air-conditioner charges for the common areas are all run and maintained by this company, therefore, in view of this agreement, the assessee does not have to incur any expenditure at all. How, this company runs its maintenance business or incurs any expenditure, the same is not the concern of the assessee at all therefore, the Ld. CIT(A) has completely misdirected himself in holding that, the assessee has failed to establish the expenses incurred by M/s Veear Property Pvt Ltd. Thus, on these facts, no apportionment of expenses should be made. 7. On the other hand, Ld. DR strongly relied upon the order of the of the CIT(A) and submitted that the assessee is running composite activities, that is, construction business and also renting out of the properties. If a composite activity is being carried out then, possibility of common expenditure cannot be ruled out. Thus, some allocation of expenses towards the earning of rental income has to be made from "Administration a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on & Selling Expenses", the assessee had debited Rs.72,008,371/-. The details of these expenses are appearing in Schedule "E" which for the sake of ready reference, same is reproduced hereinbelow: SCHEDULE -E Administration & Selling Expenses Audit Fees 110,300 110,300 Advertisement 2,866,136 329,526 Books & Periodicals 88,680 18,688 Business Promotion Expenses 4,914,399 1,256,890 Brokerage 2,500,000 - Computer Expenses 333,474 534,751 Conveyance Expenses 2,460,762 1,882,279 Electricity Charges 2,895,436 535,350 Directors Remuneration 2,100,000 2,100,000 Fees & Form 105,513 126,976 Housekeeping expenses 108,730 - Insurance premium 312,035 - Membership & Subscription 324,300 48,540 Misc. Expenses 49,549 56,778 Mor. Car expenses 975,632 1,045,939 Office Repairs & Maintenance 1,159,892 391,043 Postage & Telegram 39,837 33,713 Printing & Stationery 723,837 696,109 Professional fees 4,728,139 2,224,312 Profession Tax 2,500 2,500 Rates & Taxes 30,450 - Rent 2,148,925 4,648,660 Salary 29,285,555 22,846,216 Sales Tax Paid - 98,465 Sales Promotion Expenses (R. Mall) - 294,420 SECURITY EXPENSES 344 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenses debited is directly attributable to the earning of lease rental income and not the business income. Secondly, once a particular receipts is assessed under a particular head, then the computation of income has to be made strictly made in accordance with the provisions dealing with the assessability of the income under that head. In other words, if income is being assessed under the head "income from house property" then computation has to be made accordingly the provisions laid down therein. Thus, on these counts, the reasoning given by the AO as well as by the CIT(A) for making the disallowance for Administrative expenses in the aforesaid manner cannot be sustained. 10. Moreover, it has been brought on record that, assessee had entered into an agreement for renting, managing and maintenance of R. Mall with M/s Veear Property Pvt Ltd. vide agreement dated 20.03.2009, the recital itself clearly envisages that, the assessee is not in a position to manage the mall, since they do not have any expertise and equipments for running and managing the Mall, therefore, they have requested the said company to run and manage the Mall. Further the same very company has been managing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditioning i. Managing parking facilities j. Music in common area k. Looking after the maintenance of building, normal wear and tear l. Fire fighting equipment maintenance m. Overall maintenance of Common area. From the clear cut covenants and terms of the agreement, it is abundantly clear that the assessee does not have to incur any administrative expenditure for running and maintenance of the Mall and, therefore, in the light of these facts and background, it cannot be held that any administrative expenditure should be allocated for running of the Mall. 11. However, on a perusal of expenditure debited under Schedule E, as incorporated above, it is seen that the assessee has debited sum ofRs.28,66,136/- under the head "Advertisement" and sum of Rs. 49,14,399/- under the head "Business Promotion Expenses". Further, from a perusal of break-up of these expenses as given in page 26 of the paper book which was filed before the CIT(A), we find that certain amounts have been debited for "Mall Upkeep & Promotional receipt". If these expenditures are related for earning of income from Mall then, definitely it cannot be allowed as an expenditure under section 37(1) i.e. whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip firm which has accrued to the assessee. For this, no expenditure can be said to be attributable for the earning of the said income, because the capital contribution in the said firm was purely out of interest free funds. In support of this contention, he relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs HDFC Bank, reported in [2014] 49 taxmann.com 335; Secondly, he submitted that now in the wake of Delhi High Court decision in the case of Cheminvest Ltd. vs CIT, reported in [2012] 347 ITR 272, no disallowance can be made if there is no exempt income and here in this case if the exempt income is Rs. 3,42,000/- and that to be from the partnership firm, then disallowance cannot be made beyond this income. 16. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that, the disallowance has to be made strictly, in accordance with Rule 8D. 17. After considering the rival submissions and on perusal of the relevant finding given in the impugned orders, we find that, only exempt income which has been earned is on account of share profit from a partnership firm amounting to Rs.3,42,506/-. Initially, in response to the show cause n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of strategic investment and dividend income is mere incidental. Moreover, in this year also, the assessee had huge surplus funds, therefore, no disallowance of interest should be made. 21. On the other hand, Ld. DR strongly relied upon the order of the AO. 22. After considering the rival submissions, we find that, the Ld. CIT(A) has referred to the earlier order of the CIT(A) and Tribunal for the assessment year 2008-09, however before us, nothing relating to A.Y. 2008-09 has been filed before us. In any case, we find that, assessee's claim with regard to non-incurring of any expenditure for earning of exempt income has not been examined by the AO, as per the requirement of section 14A(2) and (3). The AO has blindly followed Rule 8D without complying with the mandatory requirement of section 14A(2) and (3). Therefore, in the interest of justice, we are restoring this issue to the file of the AO to examine the nature of accounts of the assessee and also the contentions raised before us that all these investments are strategic investment made in the subsidiary company and decide the issue afresh and in accordance with the law. Accordingly, ground as raised by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
