DCIT, CIR-10(2), KOLKATA, KOLKATA vs. M/S TOLLYGUNGE ESTATES PVT. LTD., KOLKATA

The assessee is company and is in the business of earning rental income and trading its shares. The first issue that the department has taken up is in ground nos. 1 and 2 and is with regard to whether, the Ld. CIT(A) was right in directing the assessing officer to treat the income receipts on account of water supply charges, hire charges and services as “income from business” and not under the head income from house property.

Ground no. 3 is directed against the deletion of disallowance of expenditure to the extent of Rs. 82,44,062/- by the Ld. CIT(A).

After hearing rival contentions, we find that the assessee has claimed total expenditure of Rs. 94,36,642/-. The assessing officer has disallowed amount of Rs. 82,44,062/-. The Ld. CIT(A) sustained expenditure disallowance to the tune of Rs. 41,06,083/-. The assessee has given a table showing the expenditure claimed headwise and explaining the reasons for allowance for the same. We have gone through each of this submissions, the finding of both the AO and the Ld. CIT(A). The ld. DR could not controvert the findings of the Ld. CIT(A). Hence we do not interfere with the factual findings of the Ld. CIT(A). Hence we uphold the same and dismiss the ground no. 3 of the revenue.

Ground no. 4 is on the disallowance made u/s 14A of the Act. The assessee has earned dividend income of Rs. 6,04,426/- which it claimed as exempt u/s 10(34) of the Act. The assessing officer made disallowance of Rs. 3,93,373/- u/s 14A of the Act read 2

We find from the assessment order that the assessee was asked to explain by the AO. as to why Rule 8D read with section 14A of the Act should not be applied by the AO. the assessee replied that no expenses were incurred by it in relation to earning dividend income. At para 4.6.3 the AO recorded that, the assessee has not backed its claim with evidence and hence the assessee has not discharged its burden of proof. He further held that, though the assessee might not have incurred any expenditure in order to acquire the shares directly, factually the expenses made in the profit and loss account might have been incurred indirectly for generating dividend income which is claimed as ‘exempt income’ . Thereafter he observed that the assessee being juristic entity, it can perform these transactions only through employees and the establishment and by using the fund generated. These observations of the AO, in our view proves that the assessing officer has recorded his satisfactions, prior to rejecting the claim of the assessee and invoking Rule 8D. Thus the finding of the Ld. CIT(A) that no satisfaction was recorded by the AO prior to invoking the Rule 8D is not correct. Hence we reverse this finding of the Ld. CIT(A), and allow this ground of revenue.

Be as it may, total disallowance has been made by invoking Rule 8D(iii) of the Act. While doing so, only dividend yielding investment have to be considered as held by the Special Bench of the Delhi Tribunal in the case of ACIT vs. Veer Investment Pvt. Ltd. in dated 16.06.2017. Hence we set aside this issue to the file of 4 M/s Tollygunge Estate Pvt. Ltd. A.Yrs.2010-11&2011-12 the AO for fresh computation of disallowance under sec. 14A read with Rule 8D, by applying the proposition of law laid down in the case of M/s Veer Investment Pvt. Ltd.

Now take up in The first issue is on the disallowance of expenses. The assessing officer disallowed expenses to the tune of Rs. 58,32,362/-. The Ld. CIT(A) restricted the same to Rs. 11,89,867/-. As in the previous year the assessee has given, in a tabular form, each of the expenditure claimed and an explanation for allowing for the same. The Ld. CIT(A) has examined the claim as per the table and sustained disallowance of Rs. 13,31,230/-. The factual findings of the Ld. CIT(A) could not be controverted for the ld. DR. Hence, we see no reason to interfere in the same. Hence we uphold the order of the Ld. CIT(A) and dismiss ground no.1 of the revenue.

Ground No. 2 is on the disallowance u/s 14A read with Rule 8D of the Rules.

After hearing rival contention, we set aside the matter to the file of the AO to fresh adjudication in accordance with law as the issue is the same as in the previous assessment year. Hence this ground is allowed for statistical purposes.

In the result, both the appeals of the revenue are allowed in part.