TMI Blog2016 (8) TMI 1579X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the A.O. It is also noted that in the preceding assessment year , the assessee suo motu voluntarily disallowed electricity expenses incurred in relation to R-Mall but the same are not disallowed in the instant assessment year under appeal which aspect shall also be looked into by the AO. This disposes of Ground No. 1, 2 3 raised by the assessee in the memo of appeal filed with the Tribunal as set out above. We order accordingly. Disallowance u/s 14A - as contended no expenses have been incurred for earning the exempt income as the assessee was having sufficient own funds for the investments made in the shares - HELD THAT:- We find that on identical facts in the immediately preceding year, the co-ordinate Bench of this Tribunal in assessee s own case [ 2016 (4) TMI 1435 - ITAT MUMBAI] for assessment year 2010-11 has set aside the matter back to the file of the A.O. to decide the matter in accordance with the ratio of case of Cheminvest Ltd. [ 2011 (11) TMI 267 - DELHI HIGH COURT ] and also work out disallowance of interest expenses after considering the availability of assessee s own funds vis- -vis investments made which yields exempt income - thus we set aside a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COUNTANT MEMBER For The Assessee : Shri Rishabh Shah For The Revenue : Shri Sunil Kumar Agarwal, JCIT ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee company, being ITA No. 4824/Mum/2014, is directed against the appellate order dated 29th May, 2014 passed by learned Commissioner of Income Tax (Appeals)- 40, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 16th January, 2014 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) reads as under:- 1) On the fact 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 of ₹ 1,73,03,946/- from the business income on the alleged plea that the said expenses was claimed by the appellant against the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flat at Runwal Pride ; and ₹ 18,80,638/- as signage income , totaling a sum of ₹ 6,03,27,131/- as rental receipts which has been credited to assessee s business P L account. While computing the income from house property, the assessee has reduced the property tax of ₹ 26,47,308/-, interest amount of ₹ 17,68,694/- paid on commercial loan and the corresponding standard 30% deduction of repairs from the rental receipts and has offered an amount of ₹ 3,86,07,182/- as income from house property. However, while computing the income from business, the assessee has failed to apportion and disallow the expenses debited to the P L account on account of the above rental income earned by it. The A.O. observed that the assessee has taken advantage of 30% repair allowed by the statute as a standard deduction against the house property income, the assessee should have suo motu apportioned certain expenses to the rental income and disallowed the same in its computation of income while filing the return of income. The assessee, in reply, contended that it has disallowed the relevant expenses. However, the A.O. observed that the assessee has not disallowed any expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s debited to the P L account were the expenses incurred for the other business segments or running of the business and nothing to do with the rental activity. These expenses had been incurred merely to continue the set up of the company and for maintaining its corporate identity. The assessee submitted that the assessee has entered into an agreement with M/s Veear Property Private Limited for running and managing the malls and the said company handled all the work related to the mall and therefore the assessee has not incurred any expenses in the maintenance of the malls. The assessee submitted that the onus is on the A.O. to prove that the expenses are not incurred for earning business income. The assessee also submitted , without prejudice that the AO worked out the disallowance of ₹ 87,04,840/- being based on proportion of total expenses debited to Profit and Loss Account arrived at by dividing rental income to gross income as per Profit and Loss Account but the AO chose to make higher disallowance of ₹ 1,73,03,247/- being 30% of rental income while the amount beneficial to the assessee should have been disallowed. The ld. CIT(A), however, rejected the contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no relation to the earning of rental income. 10. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has received leave and license fees amounting to ₹ 6,03,27,131/- from the tenants. We have observed that as contended by the ld. Counsel, this issue is covered by the decision of the co-ordinate bench of this Tribunal in assessee s own case for assessment years 2010-11 in ITA No. 4777/Mum/2013 vide Tribunal orders dated 12th April, 2016 whereby the Tribunal has discussed the issue in detail and in the instant appeal the facts are identical. The findings of the Tribunal is reproduced below:- 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 R Mall, LBS Marg, Mulund (West), Mumbai. From leasing of such property, the assessee has earned leave and license fees of ₹ 5,36,46,388/-. Besides this, the assessee has also earned other rental income of ₹ 3,82,456/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 ₹ 1,60,77,911/- in the following manner:- 6.5 It is very difficult to pin point at the expenses that have been directly incurred for the sake of earning rental income by the assessee. Even the assessee has not given any such working, even though it was asked to do so, without prejudice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted 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 ₹ 292.85 lakhs; Directors remuneration of ₹ 21 lakhs; Conveyance expenses of ₹ 24.60 lakhs; electricity expenses of ₹ 28.95 lakhs; office repairs and maintenance expenses of ₹ 11.5 lakhs; professional fees of ₹ 47.28 lakhs; Society charges of ₹ 12.06 lakhs; Staff welfare expenses of ₹ 13.06 lakhs; and travelling expenses of ₹ 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 proposition that, the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have 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 Admin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 071,378,683 859,137,846 Total Rs. 4,123,562,393 1,718,827,459 Under the head Mall Upkeep and Promotional expenses , the assessee has debited ₹ 11,67,480/-, break-up of which is as under: SCHEDULE -G: Mall upkeep and Promotional Expenses Electricity Charges 1,311,036 (41,018) Insurance Charges - 254,330 Repairs Maintenance Expenses - 38,005 Licence fees 137,584 172,633 Legal professional fees - 1,500 Water charges (281,140) 593,333 1,167,480 1,018,783 Out of this amount, the assessee had already disallowed expenditure of ₹ 13,11,036/- on account of electricity charges, as stated by the assessee and also admitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 98,465 Sales Promotion Expenses (R. Mall) - 294,420 SCHEDULE E Administration Selling Expenses SECURITY EXPENSES 344,189 Car parking refund 3,00,000 - Sundry balances W/off 56,293 - Society Charge for Flats - 228,089 Society Charges for Sion Office 1,206,952 - Staff Welfare Expenses 1,360,764 1,594,243 Telephone Expenses 1,787,842 1,479,259 Trvelling Expenses 1,444,932 759,405 Training Expenses - 84,270 Web Designing 28,930 100,722 Donations 6,00,000 8,225,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Mall since 27th April, 2004. Till date the said company has an expert team, experience, equipments and other necessary infrastructure required for running and managing the Malls. In the said agreement, it has been clearly mentioned that the parties have ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance 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 of ₹ 28,66,136/- under the head Advertisement and sum of ₹ 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. while computing the business income of the assessee, because admittedly, receipts from the Mall is in the form of lease rental which has been assessed under the head Income from House P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 35,30,813/- u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 . The assessee objected to the disallowance u/s 14A of the Act. The assessee has denied having incurred any expenses in respect of exempt income. The A.O. invoked the provisions of section 14A(3) of the Act and disallowed the said amount of ₹ 35,30,813/- under Rule 8D of Income Tax Rules, 1962, vide assessment order dated 16.01.2014 passed by the AO u/s 143(3) of the Act. 12. Aggrieved by the assessment order dated 16.01.2014 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A). 13. In the appellate proceedings before the learned CIT(A), the assessee again contended that there is no expenses incurred by the assessee for earning the exempt income. The assessee submitted that it had made investments in subsidiary companies or joint ventures for having control and business considerations and not for earning dividend income, and, therefore, these investments should not be considered while working out the average investment for the purpose of making disallowance of interest expenses as per Rule 8D of the Income Tax Rules, 1962. The assessee placed reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the case of CIT v. Reliance utilities Power Ltd. (2009) 313 ITR 340(Bom.) and CIT v. HDFC Bank, [2014] 49 taxmann.com 335(Bom). The ld. Counsel also submitted the Tribunal in the immediately preceding year 2010-11 has set aside the matter to the file of the A.O. for computation of disallowance u/s 14A of the Act in ITA No.4777/Mum/2013 vide Tribunal orders dated 12-04-2016 for the assessment year 2010-11. The learned DR relied upon the orders of the learned CIT(A). 16. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has earned exempt income of ₹ 1,98,277/- from share of profit from partnership firm. The assessee contended that no expenses have been incurred for earning the exempt income as the assessee was having sufficient own funds for the investments made in the shares. We find that on identical facts in the immediately preceding year, the co-ordinate Bench of this Tribunal in assessee s own case in ITA no. 4777/Mum/2013 vide orders dated 12-04- 2016 for assessment year 2010-11 has set aside the matter back to the file of the A.O. to decide the matter in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance can be made if there is no exempt income and here in this case if the exempt income is ₹ 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 ₹ 3,42,506/-. Initially, in response to the show cause notice, the assessee has worked out disallowance at ₹ 8,44,630/-, however, later on, the assessee claimed that, no expenditure has been incurred in respect of earning of the exempt income. Such a claim of the assessee before the AO has not been examined having regard to the accounts maintained by the assessee, which is a mandatory condition provided under sub-section (2) and (3) of section 14A. Before us, Ld. Counsel had submitted that, the investment in the form of capital contribution in the firm, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee about double additions leading to double jeopardy need verification by the AO. 18. We have observed that the assessee has failed to deduct the tax at source whereby the A.O. observed that the disallowance u/s 40(a)(ia) works out at ₹ 3,21,781/- whereas the assessee had made the disallowance of only ₹ 3,05,781/-, hence, the A.O. added an amount of ₹ 16,000/- being the difference between the two amounts. Since the assessee has failed to deduct tax at source in respect of the payment of ₹ 16,000/-, the ld. CIT(A) confirmed the disallowance as were made by the AO . The assessee is in second appeal before the Tribunal. We have observed that the assessee has failed to deduct tax at source on the work-in-progress of ₹ 16,000/-. Since the work-in-progress is part of the P L account , the assessee was required to disallow the same on the grounds of non-deduction of tax as per provisions of Section 40(a)(ia) of the Act and the same cannot be claimed as expenses while computing income from business as the tax has not been deducted at source. The assessee has submitted that it has disallowed voluntarily the said amount of its own in WIP while fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
