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Facts
The assessee, a private limited company, filed its return for AY 2017-18 declaring income from house property, capital gains, and business, but also a loss from other sources. The loss was set off against other income, resulting in Nil taxable income. The Assessing Officer (AO) made an addition under Section 14A. The CIT(A) upheld the disallowance. The assessee filed an appeal.
Held
The Tribunal held that expenses attributable to income taxable under the head 'income from other sources' are allowable. It further held that depreciation is a statutory allowance and cannot be disallowed by invoking Section 14A. The case was restored to the AO for quantification.
Key Issues
Whether expenses attributable to income from other sources and depreciation are disallowable under Section 14A, and whether the AO exceeded the scope of limited scrutiny.
Sections Cited
14A, 32, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, BANGALORE “A” BENCH, BANGALORE
Plaza Agencies Pvt. Ltd. DCIT, Circle - 5(1)(2) #41, Mantri House Bengaluru Vittal Mallya Road vs. Bengaluru 560001 PAN – AACCP0589Q (Appellant) (Respondent) Assessee by: Smt. Sunaiana Bhatia, CA Revenue by: Ms. Neha Sahay, JCIT-DR Date of hearing: 26.06.2024 Date of pronouncement: 27.06.2024 O R D E R Per: Prakash Chand Yadav, J.M. Present assessee’s appeal is arising from the order of the National Faceless Appeal Centre, Delhi (CIT(A)) dated 08.04.2024 passed under Section 250 of the Income Tax Act, 1961 (the Act) in respect of Assessment Year (AY) 2017-18 having DIN & order No. ITBA/NFAC/S/2004-25/1063981275(1).
The brief facts of the case are that the assessee, a private limited company, filed its return of income (ROI) for the impugned year on 07.11.2017 declaring income house property at Rs.1,05,82,839/-, income from capital gain at Rs. 26,42,278/-, loss under the head income from other sources of Rs.7,68,79,249/- and business of Rs.97,23,869/-. The assessee set off the loss from other sources against the entire income from house property and capital gain to the extent of Rs. 1,32,25,117/- and thus declared Nil income. The case of the assessee was selected for limited scrutiny for the following reasons: -
(a) Expenses incurred for earning exempt income
Plaza Agencies Pvt. Ltd. (b) Sales turnover/receipts During the course of assessment proceedings the Assessing Officer (AO) made an addition of Rs. 4,87,22,105/- after invoking the provisions of s. 14A of the Act.
Aggrieved by the order of the AO the assessee preferred appeal before the ld. CIT (A) but remain unsuccessful.
Aggrieved by the order of the CIT(A) the assessee preferred appeal before us and raised 6 grounds of appeal. The ld. Counsel of the assessee also filed application for admission of additional ground and contended that the facts in respect of the additional ground are already on record and hence in the interest of justice this ground may kindly be admitted.
4.1 The assessee has raised additional ground, which is as under:-
“The ld.CIT(A) is not justified in holding that the depreciation of Rs.6,25,050/- claimed by the appellant has to be disallowed, while sustaining the disallowance to the extent of Rs.94,38,831/- u/s 14A of the Act under the facts and in the circumstances of the appellant’s case.
After considering the factual metrics and judgement of the Hon'ble Supreme Court in the case of NTPC Ltd. Vs. CIT reported in 229 ITR 383 and the judgement of the Hon'ble Karnataka High Court in the case of Gundathur Thimmappa & Sons v. CIT reported in 70 ITR 70 we admit the additional ground of appeal and proceed with the matter as under.
6. At the time of hearing the ld. Counsel of the assessee pressed ground Nos. 3 & 3.1 and craved that the AO ought to have allowed the sef-off of loss with Income From Other sources (IOS). Ld Counsel argued that AO has exceeded his jurisdiction while framing the computation in as much as the case of the assessee, was selected for the purpose of limited scrutiny only. Hence in view of the guidelines of the CBDT the ld. AO could not have enlarged the scope of assessment. So far as the merits of the additions are concerned the ld. Counsel of the assessee argued that order of the AO is non speaking, as admitted by the CIT(A) also
7. With respect to the disallowance under Section 14A of the Act. The ld. Counsel of the assessee submitted that since the disallowance of 14A is beyond the jurisdiction of the AO, the ld. AO could not have touced this issue.
8. In respect of the additional ground the ld. Counsel of the assessee has raised two arguments: (a) the ld. CIT(A) has enhanced the disallowances without
Plaza Agencies Pvt. Ltd. any show cause notice; and (b) the depreciation allowance is not at all covered by the provisions of s. 14A of the Act.
The learned D.R. argued that: (a) the AO has not travelled beyond the scope of enquiry applicable in limited scrutiny case; (b) the ld. CIT(A) has issued show cause notice before disallowing the depreciation; and (c) since the assessee has not used the assets during the year under consideration the assessee is not entitled for depreciation.
After considering the rival contentions we are of the view that it is settled position of law that the expenses attributable to the income taxable under the head income from other sources are allowable expenses. Further, depreciation is a statutory allowance and hence cannot be disallowed by invoking the provisions of s. 14A of the Act. Our view finds support from the provisions of Explanation 5(a) to s. 32 of the Act which provides that depreciation is inevitable irrespective of the claim of the assessee. In view of the above we restore the matter to the file of the AO to allow the expenses attributable to Income taxable under the head of IOS as well as to allow the depreciation to the assessee in accordance with law.
Since we have already decided the issue on merits we are not making any comments on the scope of enquiry in limited scrutiny cases.
In the result, the appeal filed by the assessee is allowed in substance and set aside to the file of AO for limited purpose of quantification of the amount of expenses and depreciation
In result the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 27th June, 2024.