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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
आयकर अपीलीय अधिकरण “A” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI श्री महावीर स ुंह, न्याययक दस्य एवुं श्री एन. के. प्रिान लेखा दस्य के मक्ष । BEFORE SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM Aayakr ApIla saM./ (inaQa-arNa baYa- / Assessment Year 2013-14) The Dy. Commissioner of La-Fin Financial Services Income Tax, Central Circle - Pvt. Ltd. 4(3)(2) 202, B-6, Kamla Nagar, Vs. R. No. 649, 6th Floor, Aayakar Kandiwali (West), Bhavan, Mumbai-400 020 Mumbai-400 067 .. (ApIlaaqaI- / Appellant) (p`%yaqaaI- / Respondent) स्थायी लेखा सं./PAN No. AAACL2320D प्रत्याक्षेप M./ CO No. 357/Mum/2018 (Arising in for AY 2013-14) La-Fin Financial Services Pvt. The Dy. Commissioner of Ltd. Income Tax, Central Circle - 202, B-6, Kamla Nagar, 4(3)(2) Vs. Kandiwali (West), R. No. 649, 6th Floor, Mumbai-400 067 Aayakar Bhavan, Mumbai- 400 020 .. (p`%yaqaaI- / Respondent) (ApIlaaqaI- / Appellant) अपीलाथी की ओर से / Appellant by : Shri Satischandra Rajore, DR प्रत्यथी की ओर से / Respondent by : Shri M.Subramanian, AR सुनवाई की तारीख / Date of hearing: 13-05-2019 घोषणा की तारीख / Date of pronouncement : 21-05-2019 CO. 357/Mum/2018 AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-9, Mumbai [in short CIT(A)], in appeal No. CIT(A)- 9/Cir.4/202/2016-17, dated 12.06.2017. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-4(3)(2), Mumbai (in short ITO/ AO) for the A.Y. 2013-14 vide order dated 30.03.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first common issue in these appeals of Revenue and the cross objection of the assessee is against the order of CIT(A) in restricting the addition made by the AO towards notional rent from Lonawala property at an amount of ₹ 18 lacs suo moto offered by assessee. For this Revenue has raised the following grounds: - “1. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A erred in deleting the addition made towards notional rent from Lonawala Property even though assessee failed to submit any evidence that said property was actually used as guest house for assessee company and also lying vacant during the year under consideration.”
Assessee in its CO has raised the following grounds: - “1. On the facts and in the circumstances of the case and in law, the learned A.O. erred in computing property income and the learned CO. 357/Mum/2018 C.I.T.(A) erred in confirming the same to the extend declared by the appellant although there is neither any such income nor the provisions of section 23 are applicable to the facts of the instant case.
2. Without prejudice to ground no. I and on the facts and in the circumstances of the case and in law, even if the deemed income were assessable u/s 23, the same is allowable u/s 23(IX c) of the act since property was vacant throughout the year.”
3. Briefly stated facts are that the assessee company is the owner of Bunglow at Lonawala and which is vacant during the year and not let out. During the course of assessment proceedings, the assessee was asked by the AO to explain as to why the deemed rent on the said property should not be determined in term of provisions of section 23(1) of the Act. The assessee before AO and CIT(A) stated that income from house property basing its calculation that the house was letting out only on one day for the weekend and for other days it was vacant. It was contested that it should not be held as letting out for the entire period of the year. The assessee submitted that the Bunglow is being held as Guest House which remains with it for the purpose of housing its client or guest or letting out to big corporate. Therefore, the assessee offered a sum of ₹ 18 lacs as deemed rent under section 23(1)A of the Act. But the AO computed the weekend rent of ₹ 35,000 per day and for week days ₹ 10,000/- for each day and therefore computed the total rental income at ₹ 62,40,000/-. Aggrieved, assessee preferred the appeal before CIT(A), who deleted the addition and sustain the addition suo moto offered by assessee being notional rent of ₹ 18 lacs. For this CIT(A) has observed as under: - CO. 357/Mum/2018 “5.3. I have considered the facts of the case as well as assessment order and also through the appellant's submission. I find that the AD had erred in stating that the appellant has not held the property as company guest house and has held it for letting out to other corporate. The appellant has suo-moto offered notional rental income of Rs.18,00,000/- when the same was not required to be offered. Also, the basis on which the AO has applied the rate of ₹ 10,000/- for weekdays (5 days) and Rs.35,000/- for weekends (2 days) has not been given specifically knowing the fact that company is using it as Guest-house as not earning income out of it, moreover, as per the judgements quoted above by the appellant, the issue is covered in favour of the appellant. Therefore, the notional income cannot be taxed under the provisions of the l.T. Act, 1961 without proving the intention of the appellant to let out in real sense. Moreover, it would be against the principles of natural justice to charge additional income when the same has not been earned since the appellant has suo moto offered the income notionally. Accordingly, the AO is directed to delete the said addition.”
Revenue came in appeal and assessee also came in cross objection. Revenue came in appeal against deletion of addition made by AO, whereas, the assessee came in appeal against sustaining the notional rent offered suo moto by assessee.
We have gone through the rival submissions and facts and circumstances of the case. We noted that the CIT(A) has given a CO. 357/Mum/2018 categorically finding that the Guest House was not earning income for five days i.e. week days. But it was only disclosed the income for weekends i.e. 2 days at the rate of 35,000/- as the same has been used by corporates as Guest House. Hence, we find no infirmity in the order of CIT(A) deleting the addition. As regards to the contention raised by assessee before Tribunal regarding deletion of suo moto disallowance, we noted that the AO has categorically recorded the finding of fact that the assessee has offered this income under the head income from house property basing its calculation on the precise issue that the house was let out on 1 days of the weekend. The AO also recorded that it is letting out the Bunglow to big corporate, who now a days have adopted the policy of outbound training for its employees which covers their official duties. It means that the assessee company has computed on some basis this suo moto house rent of ₹ 18 lacs but since the assessee is now contesting, and this issue is contested before CIT(A) for the first time, the matter need reverification at the level of the CIT(A) afresh. Hence, as regards to the issue of assessee’s CO for deletion of addition suo moto, the CIT(A) has to examine the issue afresh. This issue of Revenue’s appeal is dismissed and the CO of the assessee is allowed for statistical purposes.
The next two issues, which are common in both the Revenue’s appeal as well as cross objection of the assessee, is as regards to the disallowance of business expenses of ₹ 26,70,244/- deleted by CIT(A) and other suo moto disallowance of ₹ 1,41,52,486/- and consequent disallowance deleted by CIT(A) made by AO on expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules amounting to ₹ 44,52,435/-. For this Revenue has raised the following ground No 2 and 3 and assessee in its CO has raised the following ground No. 3 and 4: - CO. 357/Mum/2018 Revenue has raised the following Ground no. 2 and 3
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made towards disallowance of expenses of Rs.26,70,244/- as no business activity was carried out by the assessee company in the year under consideration.
On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance u/s l4A read with rule SD of Rs.44,52,435/- as worked out by AO.”
Assessee in its CO has raised following ground No. 3 and 4
3. On the facts and in the circumstances of the case and in law, the learned AO erred in disallowing business expenses and the learned C.I.T.(A) erred in confirming the same to the extend voluntarily disallowed by the appellant although the business was in existence during the year under consideration.
4. On the facts and in the circumstances of the case and in law, the learned A.O. erred in making disallowance u/s 14A read with rule SD and the learned C.I.T.(A) erred in confirming the same to the extend voluntarily disallowed by the appellant although the appellant did not incur any expenditure in relation to income which does not form part of the total income under the act.” CO. 357/Mum/2018 6. Briefly stated facts are that the AO during the course of assessment proceedings noticed that the assessee has claimed net expenses to the tune of ₹ 26,70,244/- out of the total expenditure incurred is ₹ 1,68,22,731/- and balance of ₹ 1,41,52,487/- was added back in the computation of income and not claimed. According to AO, the assessee is not carrying on any business and assessee has not conducted any business activity but claimed huge expenses thereby resulting in business loss. The AO disallowed the claim of net expenses of ₹ 26,70,244/-, in fact, the total disallowance made by AO and suo moto disallowed by assessee is ₹ 1,68,22,731/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) deleted the addition only on the premises that the assessee has voluntarily disallowed the expenses worth ₹ 1,41,52,487/- on account of administrative expenses and yearly charge in respect of deprecation was claimed. Hence, he deleted the addition by observing in para 6.3.1 to 6.3 as under: - “6.3.1. I have considered the facts of the case as well as assessment order and also gone through the appellants submission. It is pertinent to note that the appellant has been carrying various activities of during the relevant assessment year i.e. there is in the business of investing in shares and mutual funds, and the appellant has such investment in the relevant Assessment Year.
6.3.2. The AO has unilaterally assumed that business was not in existence without any concrete evidence to prove otherwise as also without giving sufficient opportunity to appellant. The appellant has been dealing in similar manner during the earlier previous years and the aforesaid issue has been CO. 357/Mum/2018 assessed without any disallowance during relevant previous years is further observed from records, that there was no finding to contradict appellant's claim without any specific evidence. The intention to run the business plays a vital role. No businessman would incur expenses when there is no intention to run the business and the genuineness of expenses was accepted by the AO. Accordingly, one cannot conclude that there was no business merely on the grounds of any business income.
6.3.3. The AO has not considered the fact that in order to earn income, some basic expenses are necessary. The appellant has made voluntary disallowance in respect of the expense worth Rs.1,41,52,487/- and accordingly, one can conclude that it has claimed bare minimum administrative expenditure and yearly charge in respect of depreciation as per the provisions of income tax Act.”
Similarly, another issue in this appeal is disallowance of expenses relatable to exempt income under section 14A of the act read with Rule 8D of the Income Tax Rules hereinafter the Rules amounting to ₹ 44,52,435 i.e. administrative expenses under Rule 8D(2)(iii). The AO limited these disallowances to the extent of net Expenses of ₹ 26,70,244 because the assessee has not claimed more than this in its P and L account. One more fact is to be noted is that the assessee has suo moto disallowed expenses relatable to exempt income at ₹ 33,49,912/-. The assessee earned the dividend income to the tune of ₹ 11,11,14,598/- and claimed same as exempt under section 10(34) / 35 of the Act. The CIT(A) CO. 357/Mum/2018 deleted the disallowance but restricted the same to the extent of suo moto disallowance made by assessee amounting to ₹ 33,49,912/- by observing in Para 7.3.1 and 7.3.2 as under: - “7.3.1 I have considered the facts of the case as well as assessment order and also gone through the appellant’s submission. I find that the AO had erred in stating that the appellant has not disallowed u/s. 14A of the Act. In fact, the appellant has already disallowed a sum of Rs.1,41,52,487/- on suo-moto basis. It transpired from the details submitted before the AO, that appellant had offered the aforesaid expenses during the course of assessment proceedings on suo-moto basis u/s. 14A(1).
7.3.2. It is further seen that a similar finding has been given for AY 2010-11 and 2011-12, where the AO has been directed to accept the suo-moto disallowances made by the appellant and not to make further addition. Further during AY 2012-13, the AO has not made any addition on grounds of sec. 14A and accepted the suo-moto disallowance made by appellant. Therefore, the ground of appeal was thus allowed u/s. 14A in favour of the appellant.
Since the issue raised in the current assessment year is similar to the issue raised in the earlier AY 2010-11 and 2011-12 this ground is decided in favour of the appellant.”
On both the above issues, we have heard the rival contentions and gone through the facts and circumstances of the case. On the cumulative CO. 357/Mum/2018 fact, we have noted that the assessee has not made any claim of expenses to the extent of Rs. 1,41,52,587/- and according to us, which is fair and more than the disallowance confirmed by CIT(A) and made by assessee of suo moto disallowance in relation to exempt of Rs. 33,49,912/-. Even otherwise, the AO has not recorded any satisfaction for rejection of assessee’s claim of disallowance of expenses and hence, we are of the view that no disallowance at all can be made by the AO in the absence of recording of satisfaction in view of the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT [2018] 402 ITR 640 (SC), held as under: - “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/ making the investment in shares is to be examined by the AO.”
In view of the above, we are of the view that there is no satisfaction recorded by the AO despite the fact that the assessee has computed the expenses relatable to exempt income in a scientific manner and once there is no satisfaction recorded by the AO, no disallowance can be CO. 357/Mum/2018 made. Hence, we confirm the order of CIT(A) deleing the disallowance. The Cross Objections of assessee is allowed on this issue.
Coming to the expenses claim of Rs. 26,70,244/-, we are of the view that the assessee’s disallowance which the assessee has not claimed the expenses at Rs. 1,41,51,487/- and which is added back in the computation of income, no further disallowance can be attributed by the AO. Hence, we delete the addition. Both the issues are allowed in term of the above. The appeal of Revenue is dismissed and that of the CO is allowed. 11. In the result, the appeal of Revenue is dismissed and that Cross Objections of the assessee is partly allowed for statistical purposes.