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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 28.10.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The assessee has raised the following grounds of appeal:
1. The appellant submits that the learned Commissioner (Appeals) erred in not allowing deduction amounting to Rs.2,52,543/-, in respect of expenses incurred on providing amenities to tenants, under the head "Income from House Property", following earlier appellate orders.
2. The learned Commissioner of Income Tax (Appeals) erred in giving a direction to the Assessing Officer to obtain necessary
Both the lower authorities erred in applying Section 14A in respect of investments held by the appellant, when the income received thereon is not tax-free income.
4. The appellant submits the learned Commissioner (Appeals) erred in confirming the disallowance of Rs.62,87,653/- under Section 14A read with Rule 8D(2)(iii).
5. The appellant submits that both the lower authorities erred in not excluding investments on which no dividend was received while computing the above disallowance.
The learned Commissioner of Income Tax (Appeals) failed to consider that the mere possibility of earning exempt income in future is not adequate for applicability of Section 14A.
7. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.62,87,653/- while computing book profits under Section 1 15JB.
The appellant submits that while computing addition under Explanation 1(f) below section 115JB, the Assessing Officer be directed to exclude those investments on which no dividend is received.
The Appellant craves leave to add to, amend, alter, modify or withdraw any or all the Grounds of Appeal before or at the time of hearing of the Appeal, as they may be advised from time to time.”
3. The issue raised in ground No.1 & 2 is against the decision of Ld. CIT(A) not allowing the deduction of Rs.2,52,543/- in respect of expenses incurred on providing amenities to tenants, under the head "Income from House Property” by following earlier appellate order.
The facts in brief are that during the assessment proceedings the AO noticed that assessee has received income from house property of Rs.1,52,52,888/- and while calculating the income from house property, assessee has claimed common expenses of Rs.16,11,999/-. The AO observed that 3 M/s. Ewart Investments Ltd. there is no express provision in the Income Tax Act to allow deduction other than Municipal Taxes paid and statutory deduction @ 30% for repairs under section 24 of the Act and consequently the expenses claimed by the assessee were disallowed.
In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by observing and holding as under: “3.2. I have considered the findings of the Assessing Officer as well as rival submission of the Appellant, carefully. According to the clarification of the Assessee, it has incurred Electricity charges, Security charges, House Keeping charges and Salary to the Sweeper and ex-gratia to the contractual staff to the extent of Rs.8,12,870/- for Elphinstone Bldg. and Rs.7,99,129/- for Colaba Property. It is pertinent to mention that this issue has been decided by my Ld. Predecessor in the Appellant's own case in A.Y.2009-10 which is as under :-
"9. I have considered the facts of the case and submissions of the assessee. Income from house property is taxable u/s. 23 of LT. Act at the an nual value . Annual v alue is the va lue at whi c h the proper ty can reasonably let out in the open market or the rent received, whichever is higher. There is no dispute in this regard in the case of the assessee and the rent received is taken as the annual value. Any deduction other than what is al lowed u/s. 24 of I.T . Ac t can be allowe d to the asse sse e o n account of any other facility provided to the tenants only if either it is part of the rent agreement or there is a separate agreement for providing such services or which the charges are separately received. If there is no separate agreement or separate provision for such 8(:7"/ic(,8 in the rent agreement then it is merely a gratuitous act of the landlord for which no deduction is allowed.
In the case of property at Colaba of the assessee, there is neither any separate agreement for any common services nor the rent agreement includes any provision in this regard in the case of property, Ashley House and Somerset House at Colaba, and, therefore, the claim of the assessee for reducing the rent received on account of common services is not allowed for Rs.15,19,701/-.
Regarding Elphistone Building assessee has produced two
4 M/s. Ewart Investments Ltd. agreements, one with tenant Tata Realty and Infrastructure Ltd. and another with Indian Overseas Bank where assessee /?ac entered into separate agreement for providing certain service for which separate payment is made by the tenants, whereas assessee has included this payment for services also in the rent and offered the some as rent for taxation, therefore, before arriving at annual value the amount received by the assessee on account of other services is to be excluded from the rent received. But assessee has further told that the entire amount received from these tenants on account of other services has not been spent and, therefore, proportionate amount spent for these two tenants out of the total claim of Rs.1,60,239/- only is to be reduced after calculating the same, for which the assessee will furnish the detail before the A.O. in result, the ground of appeal is partly allowed." Respectfully following the decision of my Ld. Predecessor, the Assessing Officer is directed to proceed in the matter accordingly for obtaining necessary evidences.”
6. The Ld. A.R. submitted before the Bench that the Ld. CIT(A) has erred in law in not giving the similar directions to the AO in the current year as were given in the earlier year. So the Ld. A.R. requested before the Bench that the AO be directed to allow the expenses as in earlier year subject to calculation.
The Ld. D.R., on the other hand, relied on the order of Ld. CIT(A).
8. We have heard the rival submissions of both the parties and perused the material on record. After hearing both the parties, we feel that Ld. CIT(A) has given a direction to the AO to proceed in the matter after obtaining the necessary evidences. In our opinion, the direction given by Ld. CIT(A) is vague and not clear. We are, therefore, modify direction given by the Ld. CIT(A) to AO to allow the expenses as in the earlier year by calculating the same by taking the current
Ground No.3 is not pressed at the time of hearing and therefore we dismiss the same as not pressed.
The issue raised in ground Nos.4, 5 & 6 is in respect of confirmation of disallowance of Rs.62,87,653/- by Ld. CIT(A) as made by the AO under section 14A read with rule 8D(2)(iii) and also disregarding the fact that the investments which did not yield any dividend were not excluded while calculating the disallowance.
The facts in brief are that the assessee received dividend income to the tune of Rs.8,48,87,567/- and made a suo-moto disallowance of Rs.12,79,280/-. The AO observed that since the working is not in accordance with the provision of section 14A read with rule 8D and accordingly invoked the provisions of section 14A read with Rule 8D directing the assessee to furnish a working of disallowance under these provisions.
The assessee submitted before the AO that disallowance be restricted to 20% of expenses which comes to Rs.12,79,280/- and is in accordance with the decision of the co-ordinate bench of the Tribunal in assessee’s own case in A.Y. 2000-01 and 2001-02. However, the reply of the assessee did not find favour with the AO and he calculated the disallowance at Rs.62,87,653/- under Rule 8D(2)(iii) by taking 0.5% of the average investments of Rs.125,75,30,533/- which
The Ld. CIT(A) also dismissed the appeal of the assessee on this issue by holding that the arguments of the assessee that no dividend is received on certain investments is not tenable as dividend may not be received during the year but such investments are capable of earning of exempt income and may yield income in the subsequent years and thus justified the order of the AO.
The Ld. A.R. vehemently submitted before us that the assessee has suo-moto disallowed Rs.12,79,280/- whereas the AO has calculated the disallowance under Rule 8D(2(iii) at Rs.62,87,653/- even without excluding those investments which did not yield exempt income during the year. The assessee vehemently submitted that while calculating the disallowance under Rule 8D(2)(iii), the investments which did not yield any exempt income during the year has to be excluded. The Ld. Counsel placed reliance on the decision of Delhi Special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. 165 ITD 27 wherein it has been held by the Special Bench that investments not yielding any income during the year has to be excluded while calculating the average investments and only then disallowance has to be worked out. The Ld. A.R. prayed before the Bench that the AO be directed to compute the disallowance under Rule 8D(2)(iii) by not taking into account the investments which yielded no dividend
The Ld. D.R., on the other hand, relied on the order of authorities below.
After carefully considering the rival submissions of both the parties and perusing the material on record, we find that the AO has included those investments which yielded no exempt income during the year for the purpose of calculation of disallowance under Rule 8D(2)(iii) which in our opinion is wrong and against the ratio laid down by the Delhi Special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. (supra). In the said decision, the Special Bench has decided that investments not yielding any income during the year have to be excluded for the calculation of average investments and only thereafter the 0.5% has to be applied. We, therefore, respectfully following the special bench decision, direct the AO to work out the disallowance by excluding the investments which yielded no exempt income during the year. The ground is allowed.
The issue raised in ground No.7 & 8 is against the decision of Ld. CIT(A) confirming the addition of Rs.62,87,653/- while computing the book profit under section 115JB of the Act and erred in not directing the AO to exclude those investments which yielded no dividend during the year.
We have heard the rival submissions of both the parties and perused the material on record. This issue stands covered
8 M/s. Ewart Investments Ltd. by the Special Bench, ITAT Delhi in the case of ACIT vs. Vireet Investments Pvt. Ltd. (supra). Thus we direct the AO to follow the decision of the Hon’ble Special Bench and decide the issue accordingly after providing adequate opportunity of being heard to the assessee. Accordingly, ground Nos.7 & 8 are allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 24.07.2018.