Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
आयकर अपील�य अ�धकरण “D” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 4824/Mum/2014 (�नधा�रण वष� / Assessment Year : 2011-12) M/s Runwal Developers Pvt. Assistant Commissioner of बनाम/ Ltd., Income Tax- Central v. Runwal & Omkar Square, Circle – 23, 5 th floor, Mumbai. Off Eastern Express Highway, Sion Chunabhatti Signal, Sion (E), Mumbai – 400022. �थायी लेखा सं./PAN : AAACR0395J .. (अपीलाथ� /Appellant) (��यथ� / Respondent)
Assessee by Shri Rishabh Shah Revenue by : Shri Sunil Kumar Agarwal, JCIT
सुनवाई क� तार�ख /Date of Hearing : 24-05-2016 घोषणा क� तार�ख /Date of Pronouncement : 11-08-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being ITA No. 4824/Mum/2014, is directed against the appellate order dated 29th May, 2014 passed by learned Commissioner of Income Tax (Appeals)- 40, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 16th January, 2014 passed by the learned Assessing Officer
ITA 4824/Mum/2014 2
(hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under:-
“1) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the claim of expenses of Rs.1,73,03,946/- from the business income on the alleged plea that the said expenses was claimed by the appellant against the Income from Houses Property, without considering the facts and circumstances of the case.
2) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing in not appreciating the fact that while computing the income, the appellant has already disallowed the expenses, which was related to the rental income.
3) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in exercising the option for disallowing the expenses, which is more beneficial to the interest of revenue, without appreciating the fact that it is well settled principal of law that if two options are available with the Assessing Officer than the option which is beneficial to the assessee is to be followed.
4) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the claim of expenses amounting to Rs.35,30,813/- by invoking the provisions of section 14A of the Income Tax Act' 1961 without appreciating the facts and circumstances of the case.
5) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the expenses of Rs.16,000/- u/s.40(a)(ia) of the Income Tax Act, 1961 being the alleged difference between amount mentioned in tax audit report and return of income, without considering the facts and circumstances of the case.
ITA 4824/Mum/2014 3
6) On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the claim of deduction u/s.80G of Rs. 73,463/- being the alleged difference between the amount mentioned in tax audit report and return of income, without considering the facts and circumstances of the case.”
The brief facts of the case are that the assessee is in the business of builders and developers, generation and sale of electricity and renting of premises.
The A.O. observed that the assessee has leased out the property owned by it namely R Mall, Mulund (west), Mumbai and from the leasing of this property, the assessee has earned leave and license fees of Rs. 5,84,46,493/- from the Mall, office premises and flat at Runwal Pride ; and Rs. 18,80,638/- as signage income , totaling a sum of Rs. 6,03,27,131/- as rental receipts which has been credited to assessee’s business P&L account. While computing the income from house property, the assessee has reduced the property tax of Rs. 26,47,308/-, interest amount of Rs. 17,68,694/- paid on commercial loan and the corresponding standard 30% deduction of repairs from the rental receipts and has offered an amount of Rs. 3,86,07,182/- as income from house property. However, while computing the income from business, the assessee has failed to apportion and disallow the expenses debited to the P&L account on account of the above rental income earned by it. The A.O. observed that the assessee has taken advantage of 30% repair allowed by the statute as a standard deduction against the house property income, the assessee should have suo motu apportioned certain expenses to the rental income and disallowed the same in its computation of income while filing the return of income. The assessee, in reply, contended that it has disallowed the relevant expenses. However, the A.O. observed that the assessee has not disallowed any expenses related to the rental income, except property tax. The assessee contended that it has incurred expenses as are debited in Profit
ITA 4824/Mum/2014 4
and Loss Account apart from what is voluntarily disallowed by the assessee, which would have been same even if it had not leased out the premises in R Mall. The A.O. observed that leasing out the premises of R Mall is incidental to the assessee’s business activity. The AO observed that the assessee had incurred so many expenses under various heads in the course of its business activities which would have also been used for the purposes of earning its rental income. In the computation of income, the assessee has claimed 30% standard deduction from income from house property and secondly the expenses incurred towards earning of house property are not disallowed, which has led to double deduction of expenses. The assessee’s contention is that it has entered into agreement with M/s Veear Property Developers (Bombay) P. Ltd. to collect rentals from the tenants of the Mall. It was observed by the A.O. that Veear Property Developers (Bombay) P. Ltd. is only to assist the assessee in collection of license fees and to carry out the mall upkeep and management of the common areas, signage etc. . The leasing out of the mall premises is still the prerogative of the assessee and hence this contention of the assessee was rejected. Thus, the A.O. disallowed an amount of Rs. 1,73,03,946 claimed as 30% repairs vide assessment orders dated 16.01.2014 passed by the AO u/s 143(3) of the Act which was the higher figure than the figure calculated based on expenses incurred in proportion of rental to total gross revenue. The A.O. also noted , without prejudice , that vide appellate order for the assessment year 2010-11 , the learned CIT(A) dismissed the appeal of the assessee , and additions were therefore confirmed by the AO vide assessment order dated 16.01.2014 passed u/s 143(3) of the Act.
4.Aggrieved by the assessment order dated 16.01.2014 passed u/s 143(3) of the Act by the A.O., the assessee has filed its first appeal before the ld. CIT(A).
ITA 4824/Mum/2014 5
Before the ld. CIT(A), the assessee submitted that the assessee voluntarily disallowed municipal taxes of Rs. 26,47,308/-, society maintenance charges of Rs. 1,32,703/-, property tax of Rs. 3,26,915/- and repairs and maintenance in R Mall of Rs. 7,31,928/- , while the other expenses debited to the P&L account were the expenses incurred for the other business segments or running of the business and nothing to do with the rental activity. These expenses had been incurred merely to continue the set up of the company and for maintaining its corporate identity. The assessee submitted that the assessee has entered into an agreement with M/s Veear Property Private Limited for running and managing the malls and the said company handled all the work related to the mall and therefore the assessee has not incurred any expenses in the maintenance of the malls. The assessee submitted that the onus is on the A.O. to prove that the expenses are not incurred for earning business income. The assessee also submitted , without prejudice that the AO worked out the disallowance of Rs.87,04,840/- being based on proportion of total expenses debited to Profit and Loss Account arrived at by dividing rental income to gross income as per Profit and Loss Account but the AO chose to make higher disallowance of Rs.1,73,03,247/- being 30% of rental income while the amount beneficial to the assessee should have been disallowed. The ld. CIT(A), however, rejected the contention of the assessee as the assessee did not furnish details of expenses incurred in relation to the business income and also the assessee did not submitted details of break-up of the expenses incurred by Veear Property Pvt. Ltd. In maintaining the mall and hence the contention of the assessee remained un- substantiated, and the order of the A.O. was confirmed by the learned CIT(A) vide appellate orders dated 29-05-2014.
Aggrieved by the appellate order dated 29-05-2014 of the ld. CIT(A) the assessee is in appeal before the Tribunal.
ITA 4824/Mum/2014 6
At the outset, the ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the order of the Tribunal in assessee’s own case in the immediately preceding assessment year 2010-11 in ITA No. 4777/Mum/2013 vide Tribunal’s orders dated 12th April, 2016. The ld. Counsel submitted that the assessee has earned income from house property whereby the assessee has received leave & license fee from R Mall. All the expenses incurred by the assessee in relation to the upkeep and maintenance of the R-Mall had already been disallowed by the assessee as set out in preceding para’s. The Tribunal in its order restored the matter to file of the AO for disallowing of advertisement expenses and business promotion expenses out of Rs. 28,66,136/- and Rs. 49,14,399/- respectively after verification , of those expenses which were incurred for mall upkeep and promotional activities and hence directly attributable to earning of lease rental income then, appropriate disallowance be made by the AO as then these expenses cannot be claimed as business expenses u/s 37(1) of the Act.
The ld. D.R. objected to the submission of the assessee. The ld. D.R. submitted that the assessee has incurred several expenses which are common in nature which is to be disallowed. All the expenses have to be included for disallowance as business is composite.
The ld. Counsel for the assessee, in the rejoinder, submitted that the assessee has voluntarily disallowed the municipal taxes of Rs. 26,47,308/-, society maintenance charges of Rs. 1,32,703/-, property tax of Rs. 3,26,915/- and repairs and maintenance in R Mall of Rs. 7,31,928/- while the other expenses debited to the P&L account which were the expenses incurred for the running of the business of the assessee and maintaining corporate identity and has no relation to the earning of rental income.
ITA 4824/Mum/2014 7
We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has received leave and license fees amounting to Rs. 6,03,27,131/- from the tenants. We have observed that as contended by the ld. Counsel, this issue is covered by the decision of the co-ordinate bench of this Tribunal in assessee’s own case for assessment years 2010-11 in ITA No. 4777/Mum/2013 vide Tribunal orders dated 12th April, 2016 whereby the Tribunal has discussed the issue in detail and in the instant appeal the facts are identical. The findings of the Tribunal is reproduced below:-
“2. The brief facts qua first issue are that, assessee is in the business of builders and developers, generation and sale of electricity and has also rented out properties during the year. The AO noted that, assessee has leased out immovable property owned by it in the form of ‘R Mall, LBS Marg, Mulund (West), Mumbai. From leasing of such property, the assessee has earned leave and license fees of Rs.5,36,46,388/-. Besides this, the assessee has also earned other rental income of Rs.3,82,456/- and Rs.19,58,050/-. All these receipts have been shown “rental receipts” chargeable under the head “Income from House Property”. While computing the income from house property, the assessee has reduced property tax of Rs.23,92,857/- and also the standard deduction @ 30% under section 24(1) on account of repairs and accordingly, sum of Rs.3,75,15,126/- was offered as taxable income. The AO observed that the assessee, while computing its income from business has failed to apportion and disallow expenses debited to the profit and loss account which can be attributable to rental income earned by it. Since the assessee had taken the advantage of 30% repair allowable by the statute as a standard deduction, therefore, it should have suo moto apportioned certain expenses to the rental income and disallow the same in its computation of income while filing its return. In
ITA 4824/Mum/2014 8
response to the show cause notice by the AO, the assessee submitted details of direct expenses incurred for the business carried out by it. It was also pointed out that expenses to the tune of Rs.13,11,036/- on account of electricity charges for pertaining to Mall was suo-motto disallowed by the assessee. As regards administrative and other expenses they were universal expenses which were incurred for the running of the business, irrespective of whether or not projects were being executed or rental activity was there or not. These expenses have been incurred to continue the corporate set up of the company and for maintaining its corporate identity. There would not have been any change in the claim of expenses even if assessee would not have leased out any of its properties. Further, this issue of allocation of expenses had never arisen in the past assessment years.
However, the Ld. AO rejected the assessee’s contention and observed that, except for property tax, no other implicit disallowance have been made by the assessee towards rental receipts. The assessee has not apportioned any of the expenses debited to the profit and loss account which has been claimed as business expenditure towards the rental receipts. He held that the assessee’s contention that as on going concern and business enterprise it has to incur certain expenditures even if no rental income would have arisen, is not tenable, because earning of income from leasing out of premises of “R. Mall” is incidental to its business activities. The expenses stated to have been incurred in the course of other business activity may have been used for earning of rental income also, for example, salary paid to the employees, electricity charges paid for the office and other such expenses may have a component towards earning of rental income. Thus, there has to be some allocation of the expenses and accordingly, disallowance should be worked out. The assessee has claimed huge standard deduction of 30%
ITA 4824/Mum/2014 9
and municipal tax as deduction from rental income, but while calculating the business income, the assessee has not apportioned any of the expenses towards its rental receipts. Lastly, in the earlier years, the assessing officers and departmental authorities had not examined this aspect of the matter, therefore, this is the new issue which has been raised in this year. So accordingly, he made a disallowance of Rs.1,60,77,911/- in the following manner:- “6.5 It is very difficult to pin point at the expenses that have been directly incurred for the sake of earning rental income by the assessee. Even the assessee has not given any such working, even though it was asked to do so, without prejudice, in the notice dated 02.01.2013. Therefore such expense has to be estimated on the basis of the available facts and information. Now in order to compute the disallowance of expenses to be made on account of the above discussion, there are two choices available with the undersigned: 1. To disallow the same amount of deduction from the business expenses, as the amount of deduction claimed Rs.1,60,77,911/- as 30% repairs as per the law. The same can be disallowed at first choice.
To disallow the fraction of total expenses claimed by the assessee, as is the proportion of income from rent to the gross income of the assessee as per the P&L account, i.e. in the proportion of 5,59,85,895 X 7,20,08,371 =16,60,380 242,80,30,091
6.6 Keeping in mind the above computation the first choice is exercised in the interests of the revenue. Therefore a disallowance
ITA 4824/Mum/2014 10
of Rs.1,60,77,911/- is made out of the business expenses claimed by the assessee in its return. This amount of disallowance is added to the business income of the assessee.
Before the CIT(A), assessee submitted that, expenses directly related to the rental income being municipal taxes of Rs.23,92,887/- and electricity charges of Rs.13,11,036/- had already been disallowed by the assessee. The other expenses debited to the profit and loss account mainly related to other business segment carried out by the assessee and or for general & administrative expenses incurred were purely for running of the business, irrespective of whether or not Projects being executed or rental activity was there or not. These expenses are essentially for running of company and maintaining its corporate identity. One very important fact which was brought to the notice of and in the record of the CIT(A) was that, assessee had entered into an agreement with M/s Veer Property Pvt. Ltd., for running and managing the Malls and the said company handled all the work related to the Mall and, therefore, assessee did not had to incur any expenditure for the maintenance of the Malls. Further, it was the onus of the AO to prove that the expenses debited by the assessee has not been incurred for the other business income. Alternatively, it was submitted that, if any amount is disallowable then same should be restricted to 2%.
The Ld. CIT(A) after considering the assessee’s submissions and also the finding of the AO, observed that, despite opportunity given by the AO as well as in the course of the appellate proceedings, the assessee could not establish direct correlation with the expenses which were directly related to the business income other than rental income. under the head “Administration and Selling Expenses” assessee has debited salary amount of Rs.292.85 lakhs; Directors’ remuneration of
ITA 4824/Mum/2014 11
Rs.21 lakhs; Conveyance expenses of Rs.24.60 lakhs; electricity expenses of Rs.28.95 lakhs; office repairs and maintenance expenses of Rs.11.5 lakhs; professional fees of Rs.47.28 lakhs; Society charges of Rs.12.06 lakhs; Staff welfare expenses of Rs.13.06 lakhs; and travelling expenses of Rs.14.44 lakhs, which assessee could not prove that same was exclusively for the purpose of other business income and did not relate to earning of rental income. The onus is on the assessee to show that the expenditure have been incurred wholly and exclusively for the purpose of the business. He also referred to certain decisions for the proposition that, the burden to prove that expenditure have been incurred for the business is on the assessee. These decisions have been referred in pages 5 & 6 of the appellate order. As regards the agreement with M/s Veer Properties P. Ltd. for the maintenance of the Mall, the assessee could not produce any details and break-up of expenses incurred by the said company for maintenance of the Mall and hence this argument of the assessee is not substantiated. Lastly, the assessee’s contention that it has suo moto disallowed property tax payment and electricity payment is not relevant, because the AO has disallowed the expenditure from the administration and selling expenses which is there in Schedule “E”. Accordingly, he confirmed the entire disallowance made by the AO of Rs.1,60,77,991/-
Before us, the Ld. Counsel for the assessee Mr. Rakesh Joshi, after explaining the entire facts submitted that, the assessee is having huge business income from construction activities and other receipts. The receipts from the construction activity itself was more than Rs.235 crores. That apart, the assessee had other receipts which were also taxable under head “business income”, which is evident from profit and loss account appearing at page 6 of the Paper-book. The total income shown by the assessee is more than Rs.244 crores. Under the head
ITA 4824/Mum/2014 12
“Administration and Selling Expenses” the amount debited is approximately Rs.7.20 crores. Now, on these facts, whether there can be any occasion for apportionment of expenses for earning of a rental income of Rs.5.59 crores. As there is no dispute that these lease and rental income are assessed as “income from house property”. Once an income has been assessed under a particular head then same has to be computed in the manner provided under that specific head only. Accordingly, there was no requirement for any apportionment of expenses debited in the profit and loss account for other business activities towards earning of rental income. He further submitted that, one very important fact which has not been properly appreciated by the Ld. CIT(A) is that, the assessee had an agreement with M/s Veear Property Pvt Ltd. whereby the assessee has given the entire management, running and maintenance of the Mall to this party, vide agreement dated 29th March, 2009. For carrying on the maintenance by the said company, the assessee does not have to make any payment, as the said company collects the maintenance charges from the tenants, owners and occupiers of the complexes of shops in the Mall directly and uses it for the maintenance. The entire electricity, air-conditioner charges for the common areas are all run and maintained by this company, therefore, in view of this agreement, the assessee does not have to incur any expenditure at all. How, this company runs its maintenance business or incurs any expenditure, the same is not the concern of the assessee at all therefore, the Ld. CIT(A) has completely misdirected himself in holding that, the assessee has failed to establish the expenses incurred by M/s Veear Property Pvt Ltd. Thus, on these facts, no apportionment of expenses should be made.
On the other hand, Ld. DR strongly relied upon the order of the of the CIT(A) and submitted that the assessee is running composite
ITA 4824/Mum/2014 13
activities, that is, construction business and also renting out of the properties. If a composite activity is being carried out then, possibility of common expenditure cannot be ruled out. Thus, some allocation of expenses towards the earning of rental income has to be made from “Administration and Selling Expenses”. In any case before the CIT(A), the assessee itself has offered that 2% of the expenditure should be disallowed on proportionate basis. Thus, the alternate contention of the assessee itself goes to show that some, expenses needs to be allocated.
We have heard rival submissions, perused the relevant finding given in the impugned orders and also material referred before us. The assessee is in the business of builders and developers”; generation and sale of electricity; and is also earning income from leave and license of a Mall from which the income has been shown assessable under the head “income from house property”. From the perusal of the P&L Account as appearing at page 6 of the paper book, it is seen that, assessee’s receipts from construction activity is at Rs.235,35,40,254/-. Besides this, there are other huge receipts from other activities also. The details of the income shown in the profit and loss account for the year ending 31st March, 2010 are as under:-
Particulars Sch. No. Of the year Previous year 31.3.2010 INCOME: A Construction activity Receipts 2,353,540,254 6,584,000 Business facilities receipts B 55,985,895 56,277,222 Other receipts C 6,252,523 6,710,720 Promotional Receipts D 12,251,419 37,901,560 Electricity Generation 14,919,121 16,799,949 Stock of shops at R.Mall –Mulund 191,249,041 190,209,429 Increase/(Decrease) in Stocks 10 (218,729,175) 274,555,611 Closing Work in Progress Runwal Pride –Mulund 280,615,633 270,651,123 Runwal Symphony-Santacruz 356,049,199 - Gabriel Property Mulund 1,071,378,683 859,137,846 Total Rs. 4,123,562,393 1,718,827,459
ITA 4824/Mum/2014 14
Under the head ‘Mall Upkeep and Promotional expenses’, the assessee has debited Rs.11,67,480/-, break-up of which is as under:
SCHEDULE -G: Mall upkeep and Promotional Expenses Electricity Charges 1,311,036 (41,018) Insurance Charges - 254,330 Repairs & Maintenance Expenses - 38,005 Licence fees 137,584 172,633 Legal & professional fees - 1,500 Water charges (281,140) 593,333 1,167,480 1,018,783
Out of this amount, the assessee had already disallowed expenditure of Rs.13,11,036/- on account of electricity charges, as stated by the assessee and also admitted by the Department. Under the head “Administration & Selling Expenses”, the assessee had debited Rs.72,008,371/-. The details of these expenses are appearing in Schedule “E” which for the sake of ready reference, same is reproduced hereinbelow:
SCHEDULE –E Administration & Selling Expenses Audit Fees 110,300 110,300 Advertisement 2,866,136 329,526 Books & Periodicals 88,680 18,688 Business Promotion Expenses 4,914,399 1,256,890 Brokerage 2,500,000 - Computer Expenses 333,474 534,751 Conveyance Expenses 2,460,762 1,882,279 Electricity Charges 2,895,436 535,350 Directors Remuneration 2,100,000 2,100,000 Fees & Form 105,513 126,976 Housekeeping expenses 108,730 - Insurance premium 312,035 - Membership & Subscription 324,300 48,540 Misc. Expenses 49,549 56,778 Mor. Car expenses 975,632 1,045,939 Office Repairs & Maintenance 1,159,892 391,043 Postage & Telegram 39,837 33,713 Printing & Stationery 723,837 696,109
ITA 4824/Mum/2014 15
Professional fees 4,728,139 2,224,312 Profession Tax 2,500 2,500 Rates & Taxes 30,450 - Rent 2,148,925 4,648,660 Salary 29,285,555 22,846,216 Sales Tax Paid - 98,465 Sales Promotion Expenses (R. Mall) - 294,420 SCHEDULE –E Administration & Selling Expenses SECURITY EXPENSES 344,189 Car parking refund 3,00,000 - Sundry balances W/off 56,293 - Society Charge for Flats - 228,089 Society Charges for Sion Office 1,206,952 - Staff Welfare Expenses 1,360,764 1,594,243 Telephone Expenses 1,787,842 1,479,259 Trvelling Expenses 1,444,932 759,405 Training Expenses - 84,270 Web Designing 28,930 100,722 Donations 6,00,000 8,225,000 (Subletting charges Payable) 1,214,388 1,243,764 72,008,371 52,996,206
The revenue’s case is that, for earning of rental income, amount of Rs.1,60,77,911/- should be disallowed on the ground that, this much amount should be allocated for the earning of the rental income from the amount of expenses debited under the head “Administration & Selling Expenses” as appearing in Schedule “E” above. Income earned from leasing out of “Mall premises” is incidental to its business activities and the expense incurred in the due course of its business activities must have also been used for the purpose of earning of rental income. Therefore, some amount of salary, electricity and other such expenses should be attributable for the earning of the rental income. We are unable to appreciate or upheld such a reasoning; firstly, the assessee is having huge business receipts from construction activity and other business activities which is much far more than Rs.250 crores and once assessee is claiming that expenditures debited under the head “Administrative & Selling Expenses” have been incurred directly for its business activity,
ITA 4824/Mum/2014 16
then without examining the accounts relating to business activity and the nature of expenses debited, the AO and the Ld. CIT(A) cannot shift the onus to the assessee to prove, whether any such expenditure is attributable for the earning of rental income. Because it is the revenue which is carving out a premise for allocation of expenditure for the purpose of earning of rental income, and for that, it has to demonstrate having regard to the accounts maintained by the assessee and nature of expenditure debited are also applicable for the earning of the rental income. Only if such premise is established then onus shifts upon the assessee to show that, how much amount of expenses debited is attributable for such income. But, if revenue fails in the first instance then without any material and basis on record, no such allocation can be made, unless the nature of expenses debited is directly attributable to the earning of lease rental income and not the business income. Secondly, once a particular receipts is assessed under a particular head, then the computation of income has to be made strictly made in accordance with the provisions dealing with the assessability of the income under that head. In other words, if income is being assessed under the head “income from house property” then computation has to be made accordingly the provisions laid down therein. Thus, on these counts, the reasoning given by the AO as well as by the CIT(A) for making the disallowance for Administrative expenses in the aforesaid manner cannot be sustained.
Moreover, it has been brought on record that, assessee had entered into an agreement for renting, managing and maintenance of R. Mall with M/s Veear Property Pvt Ltd. vide agreement dated 20.03.2009, the recital itself clearly envisages that, the assessee is not in a position to manage the mall, since they do not have any expertise and equipments for running and managing the Mall, therefore, they have requested the
ITA 4824/Mum/2014 17
said company to run and manage the Mall. Further the same very company has been managing the Mall since 27th April, 2004. Till date the said company has an expert team, experience, equipments’ and other necessary infrastructure required for running and managing the Malls. In the said agreement, it has been clearly mentioned that the parties have entered into the agreement on principal to principal basis. Clause 2 clearly provides that, there will not be any charge or fees payable by the company. The relevant clauses 2 to 5 reads as under:-
“2. It is herewith clarified that there will not be any charges or fees payable by the company, other than common area maintenance charges being collected directly by the Company from the mall tenants, owners and occupiers of the said complex.
It is further agreed between that the Company shall bear and pay all the running, maintenance cost as applicable during the tenure of this Agreement for all the common areas. In addition to the above the Company shall also bear and pay the water, electricity, Airconditioning charges of the common areas for running and managing the Mall.
The Owner undertakes to take out adequate insurance for the common area in the said Mall and also undertakes to keep the equipment, machinery, furniture and fixtures in the said place sufficiently insured against loss, demand, claim or damage by fire with an insurance company of repute and to make all payments necessary for the above purpose. The Owner also undertakes to take public liability insurance or the common area in the said Mall.
ITA 4824/Mum/2014 18
The parties hereby expressly agrees and undertakes that the Company shall have full right to assign or permit and third party to conduct or manage the Mall subject to the Company agreeing to reimburse or bear all the cost etc. on that behalf and also indemnify the Owner against the loss, costs, penalties, damages caused on account of the Company permitting any third party to manage the Mall”.
The entire responsibility is on the said company and Annexure-A of the Agreement deals with the scope of work of the company which is as under:
Supervision / Maintenance of the following: a. General Security of Mall b. Housekeeping c. Common lights in passages and compound lights d. Repair and maintenance of electrical fitting and fixture e. Maintenance of electrical meters f. Maintenance of elevators, escalators g. Air Conditioning of common passages h. AMC for air-conditioning i. Managing parking facilities j. Music in common area k. Looking after the maintenance of building, normal wear and tear l. Fire fighting equipment maintenance m. Overall maintenance of Common area.
From the clear cut covenants and terms of the agreement, it is abundantly clear that the assessee does not have to incur any
ITA 4824/Mum/2014 19
administrative expenditure for running and maintenance of the Mall and, therefore, in the light of these facts and background, it cannot be held that any administrative expenditure should be allocated for running of the Mall.
However, on a perusal of expenditure debited under Schedule E, as incorporated above, it is seen that the assessee has debited sum of Rs.28,66,136/- under the head “Advertisement” and sum of Rs. 49,14,399/- under the head “Business Promotion Expenses”. Further, from a perusal of break-up of these expenses as given in page 26 of the paper book which was filed before the CIT(A), we find that certain amounts have been debited for “Mall Upkeep & Promotional receipt”. If these expenditures are related for earning of income from Mall then, definitely it cannot be allowed as an expenditure under section 37(1) i.e. while computing the business income of the assessee, because admittedly, receipts from the Mall is in the form of lease rental which has been assessed under the head “Income from House Property” like in the earlier and subsequent years. This fact needs proper verification and examination by the AO which has not been done in the proper prospective. Accordingly, we are of the opinion that, this matter should be restored back only for the limited purpose of examining the nature of advertisement expenses and business promotion expenses debited under the head “Administrative and Selling Expenses” as enumerated in Schedule E of the Profit & Loss Account. If these expenditures directly attributable to earning of lease rental income then, appropriate disallowance can be made, if at all required. With this direction this issue is treated as partly allowed for statistical purposes.”
Respectfully following the afore-stated decision of the co-ordinate bench of this Tribunal in assessee’s own case in the immediately preceding assessment
ITA 4824/Mum/2014 20
year in ITA no 4777/Mum/2013 for assessment year 2010-11 vide orders dated 12-04-2016 , as facts are identical in the instant appeal, we are also inclined to set aside the matter to the file of the A.O. for verification of the various expenses like business promotion expenses , advertisement expenses and any other expenses debited to Profit and Loss which are directly attributable to earning of lease rental income having regards to the account of the assessee , will be disallowed by the A.O.. It is also noted that in the preceding assessment year , the assessee suo motu voluntarily disallowed electricity expenses incurred in relation to R-Mall but the same are not disallowed in the instant assessment year under appeal which aspect shall also be looked into by the AO. This disposes of Ground No. 1, 2 & 3 raised by the assessee in the memo of appeal filed with the Tribunal as set out above. We order accordingly.
With respect to ground No. 4, the issue is with respect to disallowance of expenses amounting to Rs. 35,30,813/- by invoking the provisions of section 14A of the Act. The A.O. has disallowed the expenses u/s 14A of the Act r.w.r. 8D of Income Tax Rules, 1962. It was observed by the AO that the assessee has earned share of profit from partnership firm amounting to Rs. 1,98,277/- during the year which was claimed fully exempt from tax. The assessee was asked to file the details of the expenses attributable to earning of exempt income. The assessee furnished working of the disallowance amounting to Rs. 35,30,813/- u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 . The assessee objected to the disallowance u/s 14A of the Act. The assessee has denied having incurred any expenses in respect of exempt income. The A.O. invoked the provisions of section 14A(3) of the Act and disallowed the said amount of Rs. 35,30,813/- under Rule 8D of Income Tax Rules, 1962, vide assessment order dated 16.01.2014 passed by the AO u/s 143(3) of the Act.
ITA 4824/Mum/2014 21
Aggrieved by the assessment order dated 16.01.2014 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal before the ld. CIT(A).
In the appellate proceedings before the learned CIT(A), the assessee again contended that there is no expenses incurred by the assessee for earning the exempt income. The assessee submitted that it had made investments in subsidiary companies or joint ventures for having control and business considerations and not for earning dividend income, and, therefore, these investments should not be considered while working out the average investment for the purpose of making disallowance of interest expenses as per Rule 8D of the Income Tax Rules, 1962. The assessee placed reliance in the decision of the Tribunal in the case of JM Financial Ltd. v. ACIT in ITA No. 4521/Mum/2012 dated 26th March, 2014 and in the case of Garware Wall Ropes Limited v. ACIT in ITA No. 5408/Mum/2012 dated 15th January, 2014. Without prejudice to the above, the assessee submitted that it had sufficient interest-free funds for making the investment hence the disallowance under Rule 8D(2)(ii) of Income Tax Rules, 1962 should not be made. The assessee also placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340(Bom.) and the decision of Hon'ble Kerala High Court in the case of CIT, Trichur vs. The Catholic Syrian Bank Ltd. and requested that interest expenditure should not be considered for the purpose of working out disallowance u/s.14A of the Act read with Rule 8D of Income Tax Rules, 1962. The ld. CIT(A) rejected the contentions of the assessee and held that the A.O. does not have discretion in working out the amount disallowable u/s.14A of the Act, after Rule 8D of Income Tax Rules, 1962 was brought on the statute. The ld. CIT(A) relied on the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd., 328 ITR 81 whereby it was held that Rule 8D of Income Tax Rules, 1962 has to be applied to work out the disallowance u/s.14A of the Act with effect from 2008-09 onwards and further the CBDT
ITA 4824/Mum/2014 22
has clarified vide circular No.5 of 2014 dated 11th February, 2014 that Sec.14A of the Act provides for disallowance of expenditure even where the assessee in a particular year has not earned any exempt income. Thus, the ld. CIT(A) confirmed the action of the A.O. vide appellate orders dated 29-05- 2014.
Aggrieved by the appellate order dated 29-05-2014 of the ld. CIT(A) , the assessee is in second appeal before the Tribunal.
The ld. Counsel for the assessee contended that the assessee has earned income of Rs. 1,98,277/- being share of profit from partnership firm which is exempt from tax. He submitted that as per the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. v. CIT, (2015) 378 ITR 33(Del. HC), the disallowance cannot exceed the amount of exempt income. He submitted that no disallowance can be made in the instant case based on facts of the case. The ld. Counsel also relied upon the decision of Hon’ble Bombay High Court in the case of CIT v. Reliance utilities & Power Ltd. – (2009) 313 ITR 340(Bom.) and CIT v. HDFC Bank, [2014] 49 taxmann.com 335(Bom). The ld. Counsel also submitted the Tribunal in the immediately preceding year 2010-11 has set aside the matter to the file of the A.O. for computation of disallowance u/s 14A of the Act in ITA No.4777/Mum/2013 vide Tribunal orders dated 12-04-2016 for the assessment year 2010-11. The learned DR relied upon the orders of the learned CIT(A).
We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has earned exempt income of Rs. 1,98,277/- from share of profit from partnership firm. The assessee contended that no expenses have been incurred for earning the exempt income as the assessee was having sufficient own funds for the investments made in the shares. We find that on identical facts in the
ITA 4824/Mum/2014 23
immediately preceding year, the co-ordinate Bench of this Tribunal in assessee’s own case in ITA no. 4777/Mum/2013 vide orders dated 12-04- 2016 for assessment year 2010-11 has set aside the matter back to the file of the A.O. to decide the matter in accordance with the ratio of the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. (supra) and also work out disallowance of interest expenses after considering the availability of assessee’s own funds vis-à-vis investments made which yields exempt income, wherein the Tribunal has held as under:-
“12. In ground No. 3 and 4, the assessee has raised a issue of disallowance made under section 14A of Rs.8,44,630/-.
Brief facts qua the issue are that, the assessee has earned share of profit from partnership firm of Rs.3,42,506/- which was claimed as exempt. In response to the show cause notice to file details of expenses attributable to the earning of the exempt income, the assessee furnished the working of disallowance of Rs.8,44,630/-. Later on, the assessee however objected to any disallowance under section 14A and not even Rs.8,44,630/- on the ground that, no expenditure can be said to be incurred in respect of earning of the said exempt income. The AO after following the decision of the Special Bench in the case of ITO vs. Daga Capital Management (P) Ltd., reported in 117 ITD 169 (SB) held that, disallowance has to be made in accordance with the Rule 8D and accordingly, the disallowance which was worked out by the assessee as per Rule 8D at Rs.8,44,630/- was disallowed by the AO.
Before the CIT(A), the assessee submitted that, it has sufficient interest free funds to make the investments and, therefore, no disallowance should be made. However, the Ld. CIT(A) confirmed the action of the AO after referring to the decision
ITA 4824/Mum/2014 24
of Hon’ble Bombay high Court in the case of Godrej & Boyce Mfg. Co. Ltd., reported in [2010] 328 ITR 081 (Bom).
Before us, the Ld. Counsel submitted that, firstly, there is no dividend income and only exempt income is from profit earned from the partnership firm which has accrued to the assessee. For this, no expenditure can be said to be attributable for the earning of the said income, because the capital contribution in the said firm was purely out of interest free funds. In support of this contention, he relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs HDFC Bank, reported in [2014] 49 taxmann.com 335; Secondly, he submitted that now in the wake of Delhi High Court decision in the case of Cheminvest Ltd. vs CIT, reported in [2012] 347 ITR 272, no disallowance can be made if there is no exempt income and here in this case if the exempt income is Rs. 3,42,000/- and that to be from the partnership firm, then disallowance cannot be made beyond this income.
On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that, the disallowance has to be made strictly, in accordance with Rule 8D.
After considering the rival submissions and on perusal of the relevant finding given in the impugned orders, we find that, only exempt income which has been earned is on account of share profit from a partnership firm amounting to Rs.3,42,506/-. Initially, in response to the show cause notice, the assessee has worked out disallowance at Rs.8,44,630/-, however, later on, the assessee claimed that, no expenditure has been incurred in respect of earning of the exempt income. Such a claim of the assessee before the AO has not been examined having regard to the accounts maintained by the assessee, which is a mandatory condition provided under sub-section (2) and (3) of section 14A. Before us, Ld. Counsel had submitted that, the investment in the form of capital contribution in the firm, which has yielded the exempt income was made out of surplus funds and also the disallowance cannot exceed the exempt income. However, so far as first contention of the assessee is concerned, the same needs
ITA 4824/Mum/2014 25
verification by the AO because, nothing is borne out from records as to whether the capital investment in the partnership firm is out of interest-free funds or not. Therefore, in the interest of justice, this matter should be restored back to the file of the AO to examine the contention of the assessee relating to availability of interest free funds for making the investment, in accordance with principle and ratio laid down by the Bombay High Court decision in the case of HDFC (supra). Regarding, Second contention of the Ld. Counsel which is based on ratio laid down by the Hon’ble Delhi High Court in the case of Cheminvest (supra), we direct the AO that while deciding with the issue of 14A, he will keep in mind the ratio and principle laid down by the Hon’ble Delhi High Court, as to whether the disallowance can exceed the exempt income or not. With this direction Ground no. 3 & 4 are treated as partly allowed for statistical purposes.”
Respectfully following the afore-stated decision of the co-ordinate Bench of this Tribunal in assessee’s own case in immediately preceding assessment year 2010-11 vide Tribunal orders in ITA no. 4777/Mum/2013 vide orders dated 12-04-2016, we set aside and restore the matter back to the file of the A.O. with the same directions as were given in the Tribunal afore-stated order for the immediately preceding assessment year. This disposes of ground no 4 raised by the assessee in memo of appeal filed with the Tribunal. We order accordingly.
The next issue i.e. ground No. 5 is with respect to the disallowance of Rs. 16,000/- confirmed by the ld. CIT(A) u/s 40(a)(ia) of the Act being the alleged difference between amount mentioned in the tax audit report and the return of income. It is the say of the ld. Counsel for the assessee that the assessee has voluntarily disallowed the same and the same was added back to the work-in-progress by the assessee. Double addition has been made, one by the assessee and another by the A.O. which is not permissible as per scheme of the Act. The ld. Counsel requested that the matter may be set
ITA 4824/Mum/2014 26
aside to the file of the A.O. for verification of the same. The ld DR submitted that contentions of the assessee about double additions leading to double jeopardy need verification by the AO.
We have observed that the assessee has failed to deduct the tax at source whereby the A.O. observed that the disallowance u/s 40(a)(ia) works out at Rs. 3,21,781/- whereas the assessee had made the disallowance of only Rs. 3,05,781/-, hence, the A.O. added an amount of Rs. 16,000/- being the difference between the two amounts. Since the assessee has failed to deduct tax at source in respect of the payment of Rs. 16,000/-, the ld. CIT(A) confirmed the disallowance as were made by the AO . The assessee is in second appeal before the Tribunal. We have observed that the assessee has failed to deduct tax at source on the work-in-progress of Rs. 16,000/-. Since the work-in-progress is part of the P&L account , the assessee was required to disallow the same on the grounds of non-deduction of tax as per provisions of Section 40(a)(ia) of the Act and the same cannot be claimed as expenses while computing income from business as the tax has not been deducted at source. The assessee has submitted that it has disallowed voluntarily the said amount of its own in WIP while filing return of income which needed verification by the authorities below and hence we are inclined to set aside and restore this issue to the file of the AO for de-novo determination of the issue on merits after considering the relevant evidences of the assessee. Needless to say proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.
The next issue i.e. ground No. 6 relates to the disallowance of Rs. 73,463/- u/s 80G of the Act. The A.O. observed that as per the tax audit report the deduction u/s 80G was calculated at Rs. 49,80,497/- whereas the assessee had claimed deduction u/s 80G of the Act at Rs. 50,53,960/-. The
ITA 4824/Mum/2014 27
A.O. rejected the figure of Rs. 50,53,960/- and adopted the figures as mentioned in the tax-auditor’s report. Before the ld. CIT(A) the assessee submitted that the assessee has made donation of Rs. 1.10 crores during the year and deduction claimed u/s 80G of the Act is Rs. 50,53,960/- by restricting the claim to 10% of the gross total income as per provisions of Section 80G of the Act. The assessee before the ld. CIT(A) submitted that the action of the A.O. in restricting the deduction on the basis of figure adopted from tax audit report was not warranted. The assessee has also filed copies of receipts of total donation of Rs. 1.10 crores. The ld. CIT(A) by relying upon the tax auditor’s report works out the eligible amount at Rs. 49,80,497/- u/s 80G of the Act. No other specific details had been furnished by the assessee, hence, the ld. CIT(A) upheld the order of the A.O. The assessee filed second appeal before the Tribunal.
Before the Tribunal the ld. Counsel for the assessee submitted that the assessee had given donation to the tune of Rs. 1.10 crores u/s 80G of the Act. As per the tax audit report, only an amount of Rs. 49,80,497/- was eligible for deduction u/s 80G of the Act whereas the assessee had claimed eligible deduction u/s 80G at Rs. 50,53,960/- as per provisions of Section 80G of the Act. The assessee submitted that if an opportunity is provided to the assessee, the necessary documents in support of the claim of the assessee can be submitted which can be verified by the AO and deduction can then be allowed on merits as per provisions of Section 80G of the Act. The ld. D.R. submitted that he has no objection in granting an opportunity to the assessee to submit the relevant documents and matter may be restored to the file of AO for verification. In our considered view and in the interest of justice, we set aside and restore this issue to the file of the A.O. for verification of the claim of the assessee with respect to allowability of deduction on account of donation paid by the assessee as per provisions of Section 80G of the Act. The A.O. is directed to admit all the relevant evidences submitted by the
ITA 4824/Mum/2014 28
assessee to support its contentions before adjudicating this issue on merits. The assessee is also directed to produce all the relevant documents to substantiate its claim before the A.O. for his verification and the AO shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly.
In the result, assessee’s appeal in ITA No 4824/Mum/2014 is partly allowed for statistical purposes.
Order pronounced in the open court on 11th August , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 11-08-2016 को क� गई ।
Sd/- sd/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated 11-08-2016 [ व.�न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु�त / CIT- Concerned, Mumbai �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai “D” Bench 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai