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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order of CIT(Appeals), Bengaluru-2, Bengaluru dated 05.04.2017 for the assessment year 2013-14 o the following grounds:-
“1. On the facts and circumstances of the cases, the learned Commissioner of Income Tax (appeals) has erred in not accepting the contentions of the assessee that various expenses incurred by the assessee viz., PMS charges, professional fees. salary is integral to the investment activity undertaken by him and to earn the income returned in the return of income for the previous year. In view of this. the assessee believes that the expenses claimed
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under Section 57 of Rs.18,89,670/- as a deduction from the total income is fully justifiable. 1.1 Commissioner of Income Tax (Appeals) has also not appreciated the fact that certain class of assets may not earn income in a certain year viz., investment in unlisted equities and foreign investments and that this fact will not hamper the allowability of the expenditure incurred to manage and maintain the portfolio. Since some of the income may be exempt under the Income Tax Act, the assessee has voluntarily disallowed expenditure to an extent of income not includible in total income as computed below: Investments Amount in Rs. Investments as on 01/04/2012 41,04,43,249 Investments as on 31/03/2013 40,73,02,270 Average Investments 40,88,72,759 0.5% of Average Investments u/s 14A (foreign securities and unlisted securities 20,44,364 from which no income has been earned has been excluded)
The above amount of Rs.20,44,364/- is the amount computed under section 14A of-the Income Tax Act, 1961. While claiming the deduction u/s 57, the above amount has been reduced as under: Total direct expenses 50,57,206 Less : 0.5% of average investment 20,44,364 Expenses claimed under section 57 30,12,842 Amount restricted to the income under the head Income from Other Sources 18,89,670 1.3 The amount of Rs. 18,89,670/- has been claimed as deduction to the extent of income shown under the head Income from Other Sources. In view of above grounds, the assessee believes that the expenses claimed under Section 57 as a deduction from the total income is fully justifiable and learned Commissioner of Income Tax (Appeals) has erred in disallowing the said claim under Section 57.
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Without prejudice to the foregoing contentions even assuming but without admitting that the action of the learned Commissioner of Income Tax (Appeals) upholding the disallowance to be in order, The learned commissioner ought to have restricted the disallowance to the amount actually claimed of Rs.18,89,670/- and not Rs.39.34,034/-. The amount of Rs.39,34,034/- includes an amount of Rs.20,44,364/- already disallowed u/s 14A by assessee, while computing the amount claimed u/s 57. Consequently this has resulted in double disallowance of Rs.20,44.364/-. 3. Without prejudice to the foregoing contentions even assuming but without admitting that the action of the learned Commissioner of Income Tax (Appeals) upholding the disallowance to be in order, The learned commissioner ought to have either considered an appropriate sum as cost of acquisition of securities for the purposes of computation of capital gains in the event of sale or as expenditure incurred wholly and exclusively in connection with the transfer of securities during the year thereby entitling the assessee relief under section 48 of the Income Tax Act. 1961. The assessee also wishes to state that the expenses claimed are clearly outgoings and in the most unlikely event of your honor not considering the claim as above the said amount have to be capitalized on the various investments that he is holding so that the necessary claim can be made when the said investment are transferred and tax liability arises in accordance with the scheme of the Act. Your appellant seeks leave to add to, to amend any of the foregoing grounds as and when considered necessary/at the time of hearing.”
The facts of the case are that the assessee had filed his original return of income for the assessment year 2013-14 on 30.07.2013 declaring a loss of (-) Rs.3,89,478/-. Subsequently revised return of income was filed on 29.07.2014 declaring a total income of Rs.8,12,640/- and the second revised return of income was filed on 25.02.2015 declaring a total income of Rs.80,64,780/-. The Assessing Officer completed the assessment on
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25.03.2016 determining the total income at Rs.1,25,14,780/- and consequently raised a demand of Rs.19,04,944/-. While completing the assessment, the AO made the following disallowances:
a) Disallowance under section 14A Rs.20,44,364/- b)Disallowance of expenses under other sources Rs.24,05,536/- Total Rs.44,50,000/-
On appeal, the CIT(Appeals) restricted the disallowance to Rs.39,34,034. Against this, the assessee is in appeal before us.
After hearing both the parties, we find that the issue is squarely covered in favour of the revenue by the order of the Tribunal in assessee’s own case for the AY 2014-15 in ITA No.614/Bang/2018 vide order dated 31.7.2019 wherein the Tribunal followed the order dated 20.04.2018 for the AY 2012-13 in assessee’s own case wherein it was held as under:-
“8. As per the provisions of section 57(iii) of IT Act, any expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income under the head ‘income from other sources’ is allowable. In addition to that, in respect of income excluding exempt income being interest on securities, any reasonable sum paid by way of commission or remuneration to banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee is allowable as per clause (i) of section 57. Apart from these two clauses i.e. clause (i) & (iii), other clauses of section 57 are not applicable in the present case. The assessee’s claim is this that as per section 14A of IT Act, ½% of the investments has to be disallowed and the balance has to be allowed and the assessee computed the disallowance in that manner and claimed balance amount as deduction. In this regard, we observe that section 14A comes into picture in respect of those expenses which are otherwise allowable and therefore, the assessee has to first establish this that the expenses claimed by the assessee is allowable under any provisions of the law. For that, the assessee has to show that the claim of the assessee is
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allowable u/s. 57 of IT Act because the expenses are incurred in earning of income from other sources. As per the details of the expenses claimed by the assessee, it is available on table 2 of written submissions filed by the assessee before the CIT(A) as reproduced above, it is seen that there is no claim regarding any expenses specified in clause (i) of section 57 i.e. commission or remuneration to banker or any other person for the purpose of realising dividend or interest income because the assessee has claimed deduction on account of PMS charges, Salaries, Professional charges, vehicle maintenance, travel, computer maintenance, printing and stationery, telephone charges and bank charges. Hence no deduction is allowable in the present case under clause (i) of section 57. 9. Regarding the allowability of deduction under clause (iii) of section 57, it has to be established by the assessee that expenditure has been exclusively laid out or expended wholly and exclusively for the purpose of making or earning such income taxable under the head ‘income from other sources’ and a categorical finding has been given by CIT (A) in para no. 6.2 of his order as reproduced above that no such detail was furnished by the assessee. Before us also, the assessee has made general arguments and has submitted general details but no specific details were furnished before us also. Hence, we hold that no deduction is allowable u/s 57 (iii). 10. Now we examine the applicability of two judgments on which reliance have been placed by ld. AR of assessee. First judgment is the judgment of Hon’ble Apex Court rendered in the case of CIT Vs. Rajendra Prasad Moody (supra). In our considered opinion, this judgment does not help assessee in the absence in the absence of any details as required u/s. 57(iii) of IT Act because the disallowance was not made by the AO and confirmed by CIT (A) by holding that since no income is earned in the present year, deduction is not allowable in respect of this expenditure which are spent for earning some income taxable under the head “Income from other Sources” but income could not be earned in the present year. The reason for disallowance made by the AO and confirmed by CIT(A) is this that the assessee has not furnished necessary details and hence, this judgment renders no help to the assessee in the present case.
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Reliance has been placed by ld. AR of assessee on the Tribunal order rendered in the case of East West Hotels Ltd. vs. ACIT (supra). In that case, lease rent income was to be assessed as income from other sources and the assessing officer held that expenditure allowable is restricted to only such payment, which is separately binding on the employer and legal entity, i.e., company, such as salaries, PF, ESI and other inevitable expenses. In that case, the assessee was a company and the Tribunal has followed the judgment of Hon’ble Calcutta High Court rendered in the case of CIT Vs. Ganga Properties Ltd. as reported in 199 ITR 94 in which it was held that expenditure incurred in complying with statutory obligations is deductible u/s. 57(iii) of IT Act. As per the relevant para of judgment reproduced by the Tribunal, it was noted that even if a company derives income from ‘other sources’, it has to maintain its establishment for complying with statutory obligations so long it is in operation and its name is not struck off the register of companies or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes and so long as it is in operation, it has to maintain its status as a company and it has to discharge certain legal obligations and for that purpose, it is necessary to appoint clerical staff and a secretary or accountant and incur incidental expenses and therefore, such expenses incurred were wholly and exclusively for the activities to earn income and it was held that such expenses are allowable. For the same ratio, judgment of Hon’ble Bombay High Court rendered in the case of Chinai & Co. (P.) Ltd. Vs. CIT a reported in 206 ITR 616 was also followed and the judgment of Hon’ble Allahabad High Court rendered in the case of Rampur Timbur & Turnery Co. Ltd. as reported in 129 ITR 58 was also followed. Since in the present case, the assessee is not a company, these judgments of Hon’ble Calcutta High Court in the case of CIT Vs. Ganga Properties Ltd. (supra), Hon’ble Bombay High Court in the case of Chinai & Co. (P.) Ltd. Vs. CIT (supra) and of Hon’ble Allahabad High Court in the case of Rampur Timbur & Turnery Co. Ltd. (supra) have no relevance and since, the Tribunal has followed these judgments and decided the issue in case of that assessee being a company, this Tribunal order is also not applicable in the present case. The nature of expenses in dispute in that case are noted by the Tribunal in the form of a table and from the same, it is seen that the expenses claimed in that case
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were regarding the personal expenses of Directors, travelling expenses of others, Motor car expenses, security charges, printing and stationery, staff welfare, flowers and plants, AGM expenses, Board meeting expenses, miscellaneous expenses, rent paid, subscription to club, Interest on purchase of car, legal expenses etc. Hence it is seen that as per the nature of expenses involved in that case, the expenses were in relation to the fulfilling the requirements of company law to have directors and to have AGM, Board meeting and to maintain the office etc. which are necessary for fulfilling the legal requirements of a company under the Companies Act. Hence we hold that this Tribunal order is also not applicable in the present case because the assessee in the present case is not a company and therefore, there is no such legal compulsion to incur the expenses which are claimed in the present case. Hence we find that the claim of assessee for allowing deduction of expenses against income from other sources is not allowable because the assessee has not established that the expenses are allowable u/s. 57(iii) of IT Act. 12. Now we deal with and decide the alternative argument of ld. AR of assessee that even if expenses are held as not allowable against income from other sources, the same should be allowed against income from capital gain in the present year or future years. Regarding this argument, we would like to observe that for computing income from capital gains, deduction is allowable u/s. 48 and expenses which can be allowed as per this section are expenses incurred wholly and exclusively in connection with transfer of asset or cost of acquisition of asset or cost of any improvement of the concerned capital asset only. The claim of expenses in the present case is not for those expenses which are incurred on account of cost of transfer of asset or cost of acquisition of asset or cost of any improvement of asset and therefore, this alternative claim also has no merit and accordingly rejected.”
Being so, taking a consistent view, the issue in the appeal is decided against the assessee and in favour of the revenue.
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In the result, the appeal by the assessee is dismissed.
Pronounced in the open court on this 6th day of September, 2021.
Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 6th September, 2021.
/Desai S Murthy /
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.
By order
Assistant Registrar ITAT, Bangalore.