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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SRI MAHAVIR SINGH
आयकर अपीलीय अिधकरण “SMC” �यायपीठ मुंबई म�। आयकर अपीलीय अिधकरण �यायपीठ मुंबई म�। आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण �यायपीठ मुंबई म�। �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI �ी महावीर �सह, उपा�य� के सम� । BEFORE SRI MAHAVIR SINGH, VICE PRESIDENT Aayakr ApIla saM Aayakr ApIla saM./ Aayakr ApIla saM Aayakr ApIla saM (inaQa-arNa baYa- / Assessment Year 2012-13) M/s. Soven Trading and DCIT-11(2)(2) Room No.215, Aaykar Bhawan Investment Co.Pvt.Ltd. M.K.Road, Mumbai-400 020 142-48, S.V.Road Vs. Jogeshwari(W) Mumbai-400 102 (ApIlaaqaI ApIlaaqaI ApIlaaqaI- / Appellant) ApIlaaqaI (p`%yaqaaI p`%yaqaaI p`%yaqaaI- / Respondent) p`%yaqaaI .. �थायी लेखा सं./PAN No. AAFCS0143Q अपीलाथ� क� ओर से / Appellant by : Dr.K.Shivram, AR ��यथ� क� ओर से / Respondent by : Shri Vaibhav Jain, DR 27.10.2021 सुनवाई क� तारीख / Date of hearing: घोषणा क� तारीख / Date of pronouncement : 27 .10.2021 AadoSa AadoSa / O R D E R AadoSa AadoSa महावीर �सह, उपा�य� के �ारा / PER MAHAVIR SINGH, VP:
This appeal of the assessee is arising out of order of the Commissioner of Income Tax (Appeals)]-16, Mumbai [in short CIT(A)], in appeal No. CIT(A)-16/DCIT-11(2)(2)/IT- 10107/2018-19 vide dated 29.11.2019. The Assessment was framed by the DCIT,Circle-11(2)(2), Mumbai (in short ITO/ AO) for the A.Y. 2012-13 vide order dated 30.12.2014 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is as regards to the order of Ld.CIT(A) confirming the order of AO in working out the disallowances of expenses relatable to exempt income by invoking the provisions of14A of the Soven Trading and Investment Co.Pvt.Ltd. AY 12-13 Act read with rule 8D(2)(i) i.e direct expenses. For this, assessee has raised following ground No.1.
Disallowance u/s. 14A r.w.s. 8D of Rs. 14,65,467/- (17,11,373 - 2,45,906/-) 1. The learned CIT(A) erred in confirming order of A.O. working out the disallowance u/s. 14A r.w.r. 8D at Rs. 17,11,373/- by including Rs. 9,35,9087- being maintenance charges in respect of a commercial property which is having no nexus with the exempt income, therefore, the disallowance u/s. 14 r.w. Rule 8D is not justified.
2.The learned CIT(A) erred in confirming order of A.O. working out the disallowance u/s. 14A r.w.r. 8D at Rs. 17,11,3737-without appreciating that Rule 8D(2)(iii) apply only to investments on which exempt income is received during year and not all investments and the disallowance made u/s. 14A may be reduced to that extent.
I have heard the rival contentions and gone through the facts and circumstances of the case. I noted that the assessee has received exempt income to the tune of Rs. 3,64,67,484/- during the year under consideration. The assessee suo-moto disallowances a sum of Rs. 2,45,906/- i.e direct expenses under 14A of the Act read with rule 8D(2)(i). The assessee has computed this suo-moto disallowances from the expenses incurred on account of PMS of Rs. 5,29,353/- a total of Rs. 1,35,353/- under Rule 8D(2)(i) of the Rules. The assessee has also incurred direct expenses on account of salary and Demat charges of Rs. 10,010/-. The AO while computing disallowances also included maintaining charges of Rs. 9,35,908/-. Aggrieved the assessee preferred appeal before the Ld.CIT(A). Ld.CIT(A) confirming the entire disallowances of Rs. 14,65,467/- computed by the AO under Rule 8D(2)((ii)(i) of the Rules, including the maintenances expenses.
Aggrieved assessee came in appeal before the Tribunal. Before us, Ld. Counsel for the assessee Dr.
Soven Trading and Investment Co.Pvt.Ltd. AY 12-13 K.Shivram stated that both the authorities below have included maintenance expenses of Rs. 9,35,908/-, for the purpose of disallowance of direct expenses qua exempt income while invoking Rule 8D(2)(i). Ld. Counsel stated that in any case maintenance expenses incurred for commercial premises at Kohinoor City Mall cannot be direct expenses and cannot be computed while making disallowance under Rule 8D. Ld. Counsel stated that maintenance charges has no direct nexus with the exempt income and for this AO has to record satisfaction or give a finding that maintenance charges are for the purpose of earning tax free income. He stated that there is no finding either by AO or by Ld.CIT(A) qua this. As regards to PMS charge expenses and salary and Demat charges, Ld. Counsel for the assessee stated that the AO can be directed to disallow only on the investments, which give rise to exempt income in proportion and no indirect and for this Ld. Counsel stated that the assessee itself has rightly computed the disallowances at Rs. 1,35,350/-. When these facts were confronted to Ld. Sr.DR, he could not controvert that the maintenance charges have direct nexus with the tax free income or he could not point out from the orders of the lower authorities. As regards to the salary and Dmat expenses and PMS expenses, Ld. Sr.DR stated that he agrees with the statement of Ld. Counsel that the disallowances can be restricted to the extent of investments giving rise to exempt income in proportion to that.
Soven Trading and Investment Co.Pvt.Ltd. AY 12-13 5. After hearing the rival contentions and going through the facts, I direct the AO to delete/ exclude the maintenance expenses, while computing disallowances under Rule 8D(2)(i) and he should restrict to the expenses of salary, Demat charges and PMS expenses. The AO will first examine the investments giving rise to exempt income and then disallow in proportion to the expenses under these heads i.e the direct expenses. The AO will decide accordingly. This issue of the assessee is partly allowed.
The second and third issue in this appeal of the assesse is as regards to disallowances of depreciation and disallowance of interest on loan taken on purchase of commercial unit-511, Kohinoor City Mall. For this, assessee has raised following ground No.2 and 3.
“II Disallowance of Deprecation of Rs. 94,80,565/- 3) The learned CIT(A) erred in confirming order of A.O. disallowing the depreciation of Rs. 94,80,565/-, without appreciating that the asset was owned by the assesse and was part of the block of asset since earlier years and said asset was used for business and hence, disallowance of deprecation is bad in law.
III. Disallowance of interest of Rs. 62,15,70177/- 4) The learned CIT(A) erred in confirming order of A.O. disallowing the interest of Rs. 62,15,717 being paid to HDFC bank on account of loan taken for purchase of commercial unit - 511 at Kohinoor City Mall without appreciating that the premises were in possession of the Assessee Company and used for business and hence disallowance of interest may be deleted. 5) The learned CIT(A) failed to alternatively direct that the interest cost should be added to the cost of the premises and hence, the interest cost may be allowed to be added to the cost of the asset.”
Soven Trading and Investment Co.Pvt.Ltd. AY 12-13 7. Ld. Counsel for the assessee stated that the assesee has claimed depreciation in this year at Rs. 94,80,565/- on the commercial unit-511, Kohinoor City Mall as the asset was part of the block of the asset since earlier year in the depreciation schedule and the said business asset was used for the purpose of business and even for consistency, the depreciation should have been allowed. The AO made disallowances of depreciation at Rs. 21,51,032/-, but subsequently vide rectification order passed under section 154 of the Act, dated 17.12.2015 revise the disallowance to Rs. 94,80,965/-. The assessee drew my attention to schedule of fixed asset submitted at page No.29 of the paper book, wherein there are three block of assets namely furniture and fixtures, motor car and building. This building is not new asset, which was purchased in the FY 2009-10 relevant to AY 2010-11 and depreciation was disallowed u/s. 143(3) of the Act, but allowed by the Ld.CIT(A) and no further appeal was filed in this case by revenue. Subsequently also, in AY 2011-12,2013-14 and 2014-15, the depreciation was allowed. Hence, it is the fact that once the depreciation is allowed in between the year, it can be disallowed for the sake of consistency. Ld. Counsel for the assesee before me stated that the Ld.CIT(A) noted that no business is carried out in the year, he stated that building i.e commercial premises in Kohinoor Mall City was sold in AY 2015-16 and as per section 50 of the Act the capital gain was offered to tax as short term
Soven Trading and Investment Co.Pvt.Ltd. AY 12-13 capital gain on account of depreciable asset. Ld. Counsel for the assessee drew my attention to page NO.94 of the paper book, wherein computation of income and assessment order for AY 2015-16 was enclosed and department accepted the short term capital gain. Once, this is position, I am of the view that depreciation cannot be disallowed, hence I direct the AO to allow the depreciation. I set aside the orders of the lower authorities and allowed this issue of assessee’s appeal.
As regards to disallowances of interest, the assessee has paid interest to the HDFC Bank at Rs. 62,15,717/- on account of loan taken from HDFC Bank in AY 2010-11 for the purchase of commercial unit no- 511 at Kohinoor City Mall. Ld. Counsel for the assessee stated that even in the year of sale, the asset sold in AY 2015-16 therein, the assessee offered the gain arising out of the sale of said asset as short term capital gain u/s. 50 of the Act after taking the WDV value as on the date. Ld. Counsel stated that this interest was allowed by the AO consistently from AY 2010-11, but in 2010-11 this was disallowed u/s. 143(3) of the Act, but allowed by Ld.CIT(A) and no appeal was filed by the department. Further, in AY 2011-12, 2013-14 and 2014-15 this interest was allowed completely, although u/s. 143(1) of the Act. Exception was made in AY 2012-13, wherein interest was disallowed, but there is no reason given by AO or CIT(A), once in one year i.e initial year, the interest is Soven Trading and Investment Co.Pvt.Ltd. AY 12-13 allowed on the same loan in the subsequent year interest cannot be disallowed, without any reason. Hence, according to him this interest should have been allowed. On the other hand, Ld. Sr.DR heavily relied on the orders of the lower authorities.
After hearing the rival contentions and going through the facts of the case. I am of the view that for the sake of consistency and the fact that the asset was put to use and assessee has earned income, the interest cannot be disallowed. In even in the AY 2015- 16 although the asset was sold but the gain was offered as short term capital gain u/s.50C and tax accordingly. Hence, I direct the AO to allow the interest. This issue of the assesee is also allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 27.10.2021.