AAA DIAMONDS P.LTD,MUMBAI vs. ITO 12(1)(1), MUMBAI

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ITA 1195/MUM/2017Status: DisposedITAT Mumbai03 July 2017AY 2012-134 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that disallowing rent for a registered office is based on conjecture, as the Revenue cannot dictate how a businessman should conduct their operations. The disallowance of expenses under Section 14A was not properly adjudicated by the lower authorities.

What were the facts?

The assessee, an investment company, claimed rent for its registered office and expenses under Section 14A. The Assessing Officer and CIT(A) disallowed the rent and confirmed the disallowance of expenses respectively.

What were the issues?

Whether rent paid for a registered office is a deductible business expense and whether the disallowance of expenses under Section 14A was correctly made.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI

Before: Shri Shamim Yahya

For Appellant: Shri Rajeshmal Lodha, Shri B.Satyanarayana Raju (Sr.DR)
For Respondent: Shri B.Satyanarayana Raju (Sr.DR)
Hearing: 16.05.2017Pronounced: 03.07.2017

आदेश / O R D E R This is an appeal by the assessee directed against the order of CIT(A) dated 04.11.2016 and pertains to assessment year 2012-2013.

2.

The issue raised read as under:- “1. The learned CIT(A) has erred in law and on facts in confirming disallowance of rent paid of Rs.1,20,000. 2. The learned CIT(A) has totally ignored the submissions made by Appellant vide para 3 of Statement of facts submitting mainly that rent was paid for the registered office of the company and therefore the same was incurred for the business.

3.

The learned CIT(A) has erred in law and on facts in confirming disallowance of expenses paid of Rs.31,323 u/s 14A.”

. M/s.AAA Diamonds Private Limited. 3. Apropos disallowance of rent;

1.

On this issue the assessee explained to the Assessing Officer that assessee is an investment company and deals in share and securities and other investments. However, the Assessing Officer was not satisfied with the submission of the assessee. He was of the opinion that assessee has received only interest and dividend income and the same are not taxable under the head “business or profession”. He proceeded to disallow the rental expenditure of Rs.1,20,000 claimed by the assessee.

4.

Upon assessee’s appeal, the learned CIT(A) confirmed the addition.

5.

Against this order, assessee is in appeal before the ITAT.

6.

I have heard both the Counsel and perused the records. I find that assessee has claimed that it is engaged in the business of making investment. The assessee has incurred rental expenditure. It is not Revenue’s case that the expenditure is bogus. The view of the authorities below that assessee should have engaged its business without paying any rent, is based upon conjecture and surmises. It is settled law that Revenue should not enter into the shoes of the businessman. Revenue authorities cannot direct that assessee should conduct the business without paying any rent. Hence, I set aside the orders of the authorities below and decide the issue in favour of the assessee. Moreover, it has been submitted that rent has been paid for the registered office of the assessee-company, which further supports the case of the assessee.

. M/s.AAA Diamonds Private Limited. 7. Apropos disallowance of expenses u/s 14A.

7.1 On this issue, the Assessing Officer observed that assessee must have incurred expenditure in relation to income which is not includible in the total income. He did not accept the assessee’s contention Accordingly, the A.O. proceeded to apply Rule 8D and made disallowance of Rs.31,323.

7.2 Upon assessee’s appeal, the learned CIT(A) confirmed the Assessing Officer’s action. The Revenue authorities did not consider at all the submission that borrowed funds were not used to earn exempt income. Assessee’s reliance upon the decision of Hon’ble jurisdictional High Court in the case Reliance Utilities and Power Limited [(2009) 313 ITR 340 (Bom.)], was also not dealt with.

8.

In these circumstances, in my considered opinion, the authorities below have not properly adjudicated the issue. They have also not dealt with the decision of the jurisdictional High Court referred by the assessee. Hence, I remit this issue to the file of the Assessing Officer. The Assessing Officer is directed to consider the issue afresh after giving the assessee proper opportunity of being heard.

9.

In the result, this appeal filed by the assessee stands partly allowed.

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