TRAVANCORE TEXTILES P LTD.,CHENNAI vs. ITO, CHENNAI
What did the Tribunal hold?
The Tribunal allowed the assessee's plea for an opportunity to present separate books of accounts for agricultural and interest income. The issue was remitted back to the Assessing Officer for fresh consideration.
What were the facts?
The assessee claimed expenses against interest income, while agricultural income and profit on sale of investment were exempt. The Assessing Officer disallowed a portion of these expenses proportionally. The CIT(Appeals) confirmed this disallowance.
What were the issues?
Whether common expenses should be disallowed proportionally when an assessee has both exempt and taxable income. Whether the assessee should be given an opportunity to prove actual expenditure for agricultural income.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” – ‘D’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI
आदेश /O R D E R
This appeal by the assessee is directed against the order of the Commissioner of Income-tax(Appeals)-11, Chennai dated 29.12.2016 for assessment year 2013-14.
- - 2 ITA 483/Mds/17
The only grievance in this appeal is with regard to sustaining the disallowance of expenses amounting to ₹7,37,749/- as against the total claim of ₹11,81,998/- in proportion to the agricultural income reported and the interest income claimed in the computation of taxable total income without assigning proper reasons and justification.
The facts of the case are that the Assessing Officer found that the assessee’s income mainly consists of agricultural income, interest income and profit on sale of investment. No textile business has been carried out during the year. The AO observed that the assessee deducted all the expenses directly attributable to agricultural activities from gross agricultural receipts whereas all other remaining expenses have been deducted from the interest income, which in turn, reduced the taxable income. According to the AO, in the absence of any other business other than interest income and agricultural activity, all other common expenses have to be deducted proportionately from agricultural income and other taxable income and show cause notice was issued to the assessee, as to why 5/8th of the expenses should not be disallowed. The - - 3 ITA 483/Mds/17
assessee’s contention that all the expenses incurred in connection with the investment activity carried out from the Registered Office, was not accepted by the AO. Therefore, the AO disallowed proportionately, i.e. 5/8th of the common expenses debited in the profit and loss account against interest income of ₹11,81,998/- amounting to ₹ 7,38,749/- and added the same to the total income of the assessee. Aggrieved, the assessee went in appeal before the CIT(Appeals).
Before the CIT(Appeals), the ld. AR, filed the assessee’s financial details but no written submission was submitted in support of the assessee’s claim. While, the assessee has claimed exemption u/s.10 of the Act towards agricultural income and u/s.10(38) of the Act towards profit on sale of investment and the assessee has claimed the entire expenditure against the interest income, as pointed out by the AO. As per sec.14A of the Act, expenditure relatable to the income exempt from taxation should be disallowed which the assessee has failed to do so.
- - 4 ITA 483/Mds/17 4.1 The CIT(Appeals) relied on the decision of the Tribunal, Mumbai Bench in the case of Rhythm Exports (P) Ltd. v. ITO reported in 2 SOT 429, wherein it was held that the expenditure relatable to an exempt income should be disallowed on proportionate basis. Therefore, following the aforesaid decision of the Tribunal, the CIT(Appeals) confirmed the disallowance made by the AO. Against this, the assessee is in appeal before us.
We have heard both the parties and perused the material available on record. At the time of hearing, ld.A.R made a plea that the assessee has maintained separate books of account for agricultural income and for interest income and the assessee has right to demonstrate actual expenditure incurred towards agricultural income and the ld.A.R pleaded for one more opportunity to present the books of accounts before the ld. Assessing Officer. Considering the request of the ld.A.R, I am inclined to remit the issue to the file of ld. Assessing Officer to establish the claim of expenditure for agricultural. Accordingly, the issue in dispute is remitted back to the file of ld. Assessing
- - 5 ITA 483/Mds/17 Officer for fresh consideration for giving proper opportunity of hearing to the assessee. 6. In the result, the appeal of assessee is partly allowed. Order pronounced on 21st August, 2017 at Chennai.
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