RUNWAL DEVELOPEMENT P.LTD, MUMBAI V. ASST CIT CEN CIR 23, MUMBAI

ITA 4824/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3865 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 18-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RISHABH S HAH
• Keywords: Business income; Business expenditure; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Onus to prove
• Section: 143(3); 14A; 37(1); 80G

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4824 /MUM/2014 ( / ASSESSMENT YEAR : 2011-12) M/S RUNWAL DEVELOPERS PVT. LTD., RUNWAL & OMKAR SQUARE, 5 TH FLOOR, OFF EASTERN EXPRESS HIGHWAY, SION CHUNABHATTI SIGNAL, SION (E), MUMBAI 400022. / V. ASSISTANT COMMISSIONER OF INCOME TAX- CENTRAL CIRCLE 23, MUMBAI. ./ PAN : AAACR0395J ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI RISHABH SHAH REVENUE BY : SHRI SUNIL KUMAR AGARWAL, JCIT / DATE OF HEARING : 24-05-2016 / DATE OF PRONOUNCEMENT : 11-08-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING I TA NO. 4824/MUM/2014, IS DIRECTED AGAINST THE APPELLATE OR DER DATED 29 TH MAY, 2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- 40, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2011-12, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 16 TH JANUARY, 2014 PASSED BY THE LEARNED ASSESSING OFFI CER ITA 4824/MUM/2014 2 (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INC OME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE CO MPANY 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 E XPENSES WAS CLAIMED BY THE APPELLANT AGAINST THE INCOME FROM HOUSE S 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 O F 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 A S 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 APP RECIATING THE FACT THAT IT IS WELL SETTLED PRINCIPAL OF LAW THAT IF TWO OPTI ONS ARE AVAILABLE WITH THE ASSESSING OFFICER THAN THE OPTION WHICH IS B ENEFICIAL TO THE ASSESSEE IS TO BE FOLLOWED. 4) ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WELL A S IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN DISALLOWING THE CLAIM OF EXPENSES AMOUNTI NG TO RS.35,30,813/- BY INVOKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT' 1961 WITHOUT APPRECIATING THE FACTS AND CIRC UMSTANCES OF THE CASE. 5) ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WELL A S 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 B ETWEEN AMOUNT MENTIONED IN TAX AUDIT REPORT AND RETURN OF INCOME, WIT HOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA 4824/MUM/2014 3 6) ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WELL A S IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN DISALLOWING THE CLAIM OF DEDUCTION U/S.80 G OF RS. 73,463/- BEING THE ALLEGED DIFFERENCE BETWEEN THE AMOUNT MENTI ONED IN TAX AUDIT REPORT AND RETURN OF INCOME, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS IN THE BUSINESS OF BUILDERS AND DEVELOPERS, GENERATION AND SALE OF ELE CTRICITY 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 L EASING OF THIS PROPERTY, THE ASSESSEE HAS EARNED LEAVE AND LICENSE FEES OF R S. 5,84,46,493/- FROM THE MALL, OFFICE PREMISES AND FLAT AT RUNWAL PRIDE ; AN D RS. 18,80,638/- AS SIGNAGE INCOME , TOTALING A SUM OF RS. 6,03,27,131/ - AS RENTAL RECEIPTS WHICH HAS BEEN CREDITED TO ASSESSEES BUSINESS P&L ACCOUN T. WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY, THE ASSESSEE HAS REDUCE D THE PROPERTY TAX OF RS. 26,47,308/-, INTEREST AMOUNT OF RS. 17,68,694/- PAI D ON COMMERCIAL LOAN AND THE CORRESPONDING STANDARD 30% DEDUCTION OF REP AIRS FROM THE RENTAL RECEIPTS AND HAS OFFERED AN AMOUNT OF RS. 3,86,07,1 82/- AS INCOME FROM HOUSE PROPERTY. HOWEVER, WHILE COMPUTING THE INCOM E FROM BUSINESS, THE ASSESSEE HAS FAILED TO APPORTION AND DISALLOW THE E XPENSES DEBITED TO THE P&L ACCOUNT ON ACCOUNT OF THE ABOVE RENTAL INCOME EARNE D BY IT. THE A.O. OBSERVED THAT THE ASSESSEE HAS TAKEN ADVANTAGE OF 3 0% REPAIR ALLOWED BY THE STATUTE AS A STANDARD DEDUCTION AGAINST THE HOUSE P ROPERTY INCOME, THE ASSESSEE SHOULD HAVE SUO MOTU APPORTIONED CERTAIN E XPENSES TO THE RENTAL INCOME AND DISALLOWED THE SAME IN ITS COMPUTATION O F INCOME WHILE FILING THE RETURN OF INCOME. THE ASSESSEE, IN REPLY, CONTENDE D THAT IT HAS DISALLOWED THE RELEVANT EXPENSES. HOWEVER, THE A.O. OBSERVED THAT THE ASSESSEE HAS NOT DISALLOWED ANY EXPENSES RELATED TO THE RENTAL INCOM E, EXCEPT PROPERTY TAX. THE ASSESSEE CONTENDED THAT IT HAS INCURRED EXPENSE S AS ARE DEBITED IN PROFIT ITA 4824/MUM/2014 4 AND LOSS ACCOUNT APART FROM WHAT IS VOLUNTARILY DIS ALLOWED BY THE ASSESSEE, WHICH WOULD HAVE BEEN SAME EVEN IF IT HAD NOT LEASE D OUT THE PREMISES IN R MALL. THE A.O. OBSERVED THAT LEASING OUT THE PREMI SES OF R MALL IS INCIDENTAL TO THE ASSESSEES BUSINESS ACTIVITY. THE AO OBSERV ED THAT THE ASSESSEE HAD INCURRED SO MANY EXPENSES UNDER VARIOUS HEADS IN TH E 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 A SSESSEE 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 ASSESSEES CONTENTION IS THAT IT HAS ENTERED INTO AGREEMENT WITH M/S VEEAR PROPERTY DEVELOPERS (BOMBAY) P. LTD. TO COLLECT RENTALS FROM THE TENAN TS 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 FEE S 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 TH E 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 VI DE 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 E XPENSES INCURRED IN PROPORTION OF RENTAL TO TOTAL GROSS REVENUE. THE A .O. ALSO NOTED , WITHOUT PREJUDICE , THAT VIDE APPELLATE ORDER FOR THE ASSES SMENT 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 16.01.201 4 PASSED U/S 143(3) OF THE ACT BY THE A.O., THE ASSESSEE HAS FILED ITS FI RST APPEAL BEFORE THE LD. CIT(A). ITA 4824/MUM/2014 5 5. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT 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 EXPENS ES INCURRED FOR THE OTHER BUSINESS SEGMENTS OR RUNNING OF THE BUSINESS AND NO THING 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 AGR EEMENT WITH M/S VEEAR PROPERTY PRIVATE LIMITED FOR RUNNING AND MANAGING T HE MALLS AND THE SAID COMPANY HANDLED ALL THE WORK RELATED TO THE MALL AN D 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 THA T THE EXPENSES ARE NOT INCURRED FOR EARNING BUSINESS INCOME. THE ASSESSEE ALSO SUBMITTED , WITHOUT PREJUDICE THAT THE AO WORKED OUT THE DISALLOWANCE O F RS.87,04,840/- BEING BASED ON PROPORTION OF TOTAL EXPENSES DEBITED TO PR OFIT AND LOSS ACCOUNT ARRIVED AT BY DIVIDING RENTAL INCOME TO GROSS INCOM E AS PER PROFIT AND LOSS ACCOUNT BUT THE AO CHOSE TO MAKE HIGHER DISALLOWANC E OF RS.1,73,03,247/- BEING 30% OF RENTAL INCOME WHILE THE AMOUNT BENEFIC IAL TO THE ASSESSEE SHOULD HAVE BEEN DISALLOWED. THE LD. CIT(A), HOWEV ER, REJECTED THE CONTENTION OF THE ASSESSEE AS THE ASSESSEE DID NOT FURNISH DET AILS OF EXPENSES INCURRED IN RELATION TO THE BUSINESS INCOME AND ALSO THE ASSESS EE DID NOT SUBMITTED DETAILS OF BREAK-UP OF THE EXPENSES INCURRED BY VEE AR PROPERTY PVT. LTD. IN MAINTAINING THE MALL AND HENCE THE CONTENTION OF TH E ASSESSEE REMAINED UN- SUBSTANTIATED, AND THE ORDER OF THE A.O. WAS CONFIR MED BY THE LEARNED CIT(A) VIDE APPELLATE ORDERS DATED 29-05-2014. 6. AGGRIEVED BY THE APPELLATE ORDER DATED 29-05-201 4 OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA 4824/MUM/2014 6 7. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR 2010-11 IN ITA NO. 4777/MUM/2013 VIDE TRIBUNALS ORDERS DATED 12 TH APRIL, 2016. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS EARNED INCO ME FROM HOUSE PROPERTY WHEREBY THE ASSESSEE HAS RECEIVED LEAVE & LICENSE F EE FROM R MALL. ALL THE EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO TH E UPKEEP AND MAINTENANCE OF THE R-MALL HAD ALREADY BEEN DISALLOWED BY THE AS SESSEE AS SET OUT IN PRECEDING PARAS. THE TRIBUNAL IN ITS ORDER RESTORE D THE MATTER TO FILE OF THE AO FOR DISALLOWING OF ADVERTISEMENT EXPENSES AND BU SINESS PROMOTION EXPENSES OUT OF RS. 28,66,136/- AND RS. 49,14,399/- RESPECTIVELY AFTER VERIFICATION , OF THOSE EXPENSES WHICH WERE INCURRE D FOR MALL UPKEEP AND PROMOTIONAL ACTIVITIES AND HENCE DIRECTLY ATTRIBUT ABLE TO EARNING OF LEASE RENTAL INCOME THEN, APPROPRIATE DISALLOWANCE BE MAD E BY THE AO AS THEN THESE EXPENSES CANNOT BE CLAIMED AS BUSINESS EXPENS ES U/S 37(1) OF THE ACT. 8. THE LD. D.R. OBJECTED TO THE SUBMISSION OF THE A SSESSEE. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS INCURRED SEVERAL EX PENSES WHICH ARE COMMON IN NATURE WHICH IS TO BE DISALLOWED. ALL TH E EXPENSES HAVE TO BE INCLUDED FOR DISALLOWANCE AS BUSINESS IS COMPOSITE. 9. THE LD. COUNSEL FOR THE ASSESSEE, IN THE REJOIND ER, SUBMITTED THAT THE ASSESSEE HAS VOLUNTARILY DISALLOWED THE MUNICIPAL T AXES OF RS. 26,47,308/-, SOCIETY MAINTENANCE CHARGES OF RS. 1,32,703/-, PROP ERTY TAX OF RS. 3,26,915/- AND REPAIRS AND MAINTENANCE IN R MALL OF RS. 7,31,9 28/- 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 MAI NTAINING CORPORATE IDENTITY AND HAS NO RELATION TO THE EARNING OF RENT AL INCOME. ITA 4824/MUM/2014 7 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE HAS RECEIVED LEAVE AND LICENSE FEES AMOUNTING TO RS. 6,03,27,131/- FRO M 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 ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2010-11 IN ITA NO. 4777/MUM/2013 V IDE TRIBUNAL ORDERS DATED 12 TH 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, ASSE SSEE 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 LEAS ING OF SUCH PROPERTY, THE ASSESSEE HAS EARNED LEAVE AND LICENSE FEES OF RS.5,36,46,388/-. BESIDES THIS, THE ASSESSEE HAS AL SO 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 FR OM HOUSE PROPERTY, THE ASSESSEE HAS REDUCED PROPERTY TAX OF RS.23,92,8 57/- AND ALSO THE STANDARD DEDUCTION @ 30% UNDER SECTION 24(1) ON ACC OUNT 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 EXPEN SES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH CAN BE ATTRIBUTABLE T O RENTAL INCOME EARNED BY IT. SINCE THE ASSESSEE HAD TAKEN THE ADVANTAGE O F 30% REPAIR ALLOWABLE BY THE STATUTE AS A STANDARD DEDUCTION, T HEREFORE, IT SHOULD HAVE SUO MOTO APPORTIONED CERTAIN EXPENSES TO THE R ENTAL INCOME AND DISALLOW THE SAME IN ITS COMPUTATION OF INCOME WHIL E FILING ITS RETURN. IN ITA 4824/MUM/2014 8 RESPONSE TO THE SHOW CAUSE NOTICE BY THE AO, THE AS SESSEE SUBMITTED DETAILS OF DIRECT EXPENSES INCURRED FOR THE BUSINES S CARRIED OUT BY IT. IT WAS ALSO POINTED OUT THAT EXPENSES TO THE TUNE OF R S.13,11,036/- ON ACCOUNT OF ELECTRICITY CHARGES FOR PERTAINING TO MA LL WAS SUO-MOTTO DISALLOWED BY THE ASSESSEE. AS REGARDS ADMINISTRATI VE AND OTHER EXPENSES THEY WERE UNIVERSAL EXPENSES WHICH WERE IN CURRED 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 T HE COMPANY AND FOR MAINTAINING ITS CORPORATE IDENTITY. THERE WOULD NOT HAVE BEEN ANY CHANGE IN THE CLAIM OF EXPENSES EVEN IF ASSESSEE WO ULD NOT HAVE LEASED OUT ANY OF ITS PROPERTIES. FURTHER, THIS ISSUE OF A LLOCATION OF EXPENSES HAD NEVER ARISEN IN THE PAST ASSESSMENT YEARS. 3. HOWEVER, THE LD. AO REJECTED THE ASSESSEES CONT ENTION AND OBSERVED THAT, EXCEPT FOR PROPERTY TAX, NO OTHER IM PLICIT DISALLOWANCE HAVE BEEN MADE BY THE ASSESSEE TOWARDS RENTAL RECEI PTS. THE ASSESSEE HAS NOT APPORTIONED ANY OF THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN CLAIMED AS BUSINESS EXPENDIT URE TOWARDS THE RENTAL RECEIPTS. HE HELD THAT THE ASSESSEES CONTEN TION THAT AS ON GOING CONCERN AND BUSINESS ENTERPRISE IT HAS TO INCUR CER TAIN EXPENDITURES EVEN IF NO RENTAL INCOME WOULD HAVE ARISEN, IS NOT TENAB LE, BECAUSE EARNING OF INCOME FROM LEASING OUT OF PREMISES OF R. MALL IS INCIDENTAL TO ITS BUSINESS ACTIVITIES. THE EXPENSES STATED TO HAVE BE EN INCURRED IN THE COURSE OF OTHER BUSINESS ACTIVITY MAY HAVE BEEN USE D 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, T HERE HAS TO BE SOME ALLOCATION OF THE EXPENSES AND ACCORDINGLY, DISALLO WANCE 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 APPORTION ED ANY OF THE EXPENSES TOWARDS ITS RENTAL RECEIPTS. LASTLY, IN TH E EARLIER YEARS, THE ASSESSING OFFICERS AND DEPARTMENTAL AUTHORITIES HAD NOT EXAMINED THIS ASPECT OF THE MATTER, THEREFORE, THIS IS THE NEW IS SUE WHICH HAS BEEN RAISED IN THIS YEAR. SO ACCORDINGLY, HE MADE A DISA LLOWANCE OF RS.1,60,77,911/- IN THE FOLLOWING MANNER:- 6.5 IT IS VERY DIFFICULT TO PIN POINT AT THE EXPEN SES THAT HAVE BEEN DIRECTLY INCURRED FOR THE SAKE OF EARNING RENTAL IN COME BY THE ASSESSEE. EVEN THE ASSESSEE HAS NOT GIVEN ANY SUCH WORKING, EVEN THOUGH IT WAS ASKED TO DO SO, WITHOUT PREJUDIC E, IN THE NOTICE DATED 02.01.2013. THEREFORE SUCH EXPENSE HAS TO BE ESTIMATED ON THE BASIS OF THE AVAILABLE FACTS AND INFORMATION. N OW IN ORDER TO COMPUTE THE DISALLOWANCE OF EXPENSES TO BE MADE ON ACCOUNT OF THE ABOVE DISCUSSION, THERE ARE TWO CHOICES AVAILAB LE WITH THE UNDERSIGNED: 1. TO DISALLOW THE SAME AMOUNT OF DEDUCTION FROM T HE BUSINESS EXPENSES, AS THE AMOUNT OF DEDUCTION CLAIM ED RS.1,60,77,911/- AS 30% REPAIRS AS PER THE LAW. THE SAME CAN BE DISALLOWED AT FIRST CHOICE. 2. TO DISALLOW THE FRACTION OF TOTAL EXPENSES CLAIM ED 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. THEREFOR E A DISALLOWANCE ITA 4824/MUM/2014 10 OF RS.1,60,77,911/- IS MADE OUT OF THE BUSINESS EXP ENSES CLAIMED BY THE ASSESSEE IN ITS RETURN. THIS AMOUNT OF DISAL LOWANCE IS ADDED TO THE BUSINESS INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT, EXPE NSES DIRECTLY RELATED TO THE RENTAL INCOME BEING MUNICIPAL TAXES OF RS.23,92,887/- AND ELECTRICITY CHARGES OF RS.13,11,036/- HAD ALREADY B EEN DISALLOWED BY THE ASSESSEE. THE OTHER EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT MAINLY RELATED TO OTHER BUSINESS SEGMENT CARRIED OU T BY THE ASSESSEE AND OR FOR GENERAL & ADMINISTRATIVE EXPENSES INCURR ED 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 NO TICE 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 M ANAGING THE MALLS AND THE SAID COMPANY HANDLED ALL THE WORK RELATED T O THE MALL AND, THEREFORE, ASSESSEE DID NOT HAD TO INCUR ANY EXPEND ITURE 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 I NCURRED FOR THE OTHER BUSINESS INCOME. ALTERNATIVELY, IT WAS SUBMITTED TH AT, IF ANY AMOUNT IS DISALLOWABLE THEN SAME SHOULD BE RESTRICTED TO 2%. 5. THE LD. CIT(A) AFTER CONSIDERING THE ASSESSEES 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 PR OCEEDINGS, THE ASSESSEE COULD NOT ESTABLISH DIRECT CORRELATION WIT H 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 MAIN TENANCE 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 NO T PROVE THAT SAME WAS EXCLUSIVELY FOR THE PURPOSE OF OTHER BUSINESS I NCOME 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 CERTAI N DECISIONS FOR THE PROPOSITION THAT, THE BURDEN TO PROVE THAT EXPENDIT URE HAVE BEEN INCURRED FOR THE BUSINESS IS ON THE ASSESSEE. THESE DECISION S HAVE BEEN REFERRED IN PAGES 5 & 6 OF THE APPELLATE ORDER. AS REGARDS T HE 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 EXPEN SES 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 EL ECTRICITY PAYMENT IS NOT RELEVANT, BECAUSE THE AO HAS DISALLOWED THE EXP ENDITURE FROM THE ADMINISTRATION AND SELLING EXPENSES WHICH IS THERE IN SCHEDULE E. ACCORDINGLY, HE CONFIRMED THE ENTIRE DISALLOWANCE M ADE BY THE AO OF RS.1,60,77,991/- 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE MR. RAKESH JOSHI, AFTER EXPLAINING THE ENTIRE FACTS SUBMITTED THAT, THE ASS ESSEE IS HAVING HUGE BUSINESS INCOME FROM CONSTRUCTION ACTIVITIES AND OT HER RECEIPTS. THE RECEIPTS FROM THE CONSTRUCTION ACTIVITY ITSELF WAS MORE THAN RS.235 CRORES. THAT APART, THE ASSESSEE HAD OTHER RECEIPTS WHICH W ERE 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 T HE HEAD ITA 4824/MUM/2014 12 ADMINISTRATION AND SELLING EXPENSES THE AMOUNT DE BITED IS APPROXIMATELY RS.7.20 CRORES. NOW, ON THESE FACTS, WHETHER THERE CAN BE ANY OCCASION FOR APPORTIONMENT OF EXPENSES FOR EARN ING OF A RENTAL INCOME OF RS.5.59 CRORES. AS THERE IS NO DISPUTE TH AT THESE LEASE AND RENTAL INCOME ARE ASSESSED AS INCOME FROM HOUSE PR OPERTY. ONCE AN INCOME HAS BEEN ASSESSED UNDER A PARTICULAR HEAD TH EN SAME HAS TO BE COMPUTED IN THE MANNER PROVIDED UNDER THAT SPECIFIC HEAD ONLY. ACCORDINGLY, THERE WAS NO REQUIREMENT FOR ANY APPOR TIONMENT OF EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR OTHER BUSINESS ACTIVITIES TOWARDS EARNING OF RENTAL INCOME. HE FUR THER SUBMITTED THAT, ONE VERY IMPORTANT FACT WHICH HAS NOT BEEN PROPERLY APPRECIATED BY THE LD. CIT(A) IS THAT, THE ASSESSEE HAD AN AGREEMENT W ITH M/S VEEAR PROPERTY PVT LTD. WHEREBY THE ASSESSEE HAS GIVEN TH E ENTIRE MANAGEMENT, RUNNING AND MAINTENANCE OF THE MALL TO THIS PARTY, VIDE AGREEMENT DATED 29TH MARCH, 2009. FOR CARRYING ON T HE MAINTENANCE BY THE SAID COMPANY, THE ASSESSEE DOES NOT HAVE TO MAK E ANY PAYMENT, AS THE SAID COMPANY COLLECTS THE MAINTENANCE CHARGES F ROM THE TENANTS, OWNERS AND OCCUPIERS OF THE COMPLEXES OF SHOPS IN T HE 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 COMPL ETELY MISDIRECTED HIMSELF IN HOLDING THAT, THE ASSESSEE HAS FAILED TO ESTABLISH THE EXPENSES INCURRED BY M/S VEEAR PROPERTY PVT LTD. THUS, ON T HESE FACTS, NO APPORTIONMENT OF EXPENSES SHOULD BE MADE. 7. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE IS RUNNI NG COMPOSITE ITA 4824/MUM/2014 13 ACTIVITIES, THAT IS, CONSTRUCTION BUSINESS AND ALSO RENTING OUT OF THE PROPERTIES. IF A COMPOSITE ACTIVITY IS BEING CARRIE D OUT THEN, POSSIBILITY OF COMMON EXPENDITURE CANNOT BE RULED OUT. THUS, SOME ALLOCATION OF EXPENSES TOWARDS THE EARNING OF RENTAL INCOME HAS T O BE MADE FROM ADMINISTRATION AND SELLING EXPENSES. IN ANY CASE BEFORE THE CIT(A), THE ASSESSEE ITSELF HAS OFFERED THAT 2% OF THE EXPENDIT URE SHOULD BE DISALLOWED ON PROPORTIONATE BASIS. THUS, THE ALTERN ATE CONTENTION OF THE ASSESSEE ITSELF GOES TO SHOW THAT SOME, EXPENSES NE EDS TO BE ALLOCATED. 8. WE HAVE HEARD RIVAL SUBMISSIONS, PERUSED THE RE LEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AND ALSO MATERIAL REFE RRED BEFORE US. THE ASSESSEE IS IN THE BUSINESS OF BUILDERS AND DEVELOP ERS; GENERATION AND SALE OF ELECTRICITY; AND IS ALSO EARNING INCOME FRO M LEAVE AND LICENSE OF A MALL FROM WHICH THE INCOME HAS BEEN SHOWN ASSESSABL E UNDER THE HEAD INCOME FROM HOUSE PROPERTY. FROM THE PERUSAL OF T HE P&L ACCOUNT AS APPEARING AT PAGE 6 OF THE PAPER BOOK, IT IS SEEN T HAT, ASSESSEES 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 31.3.2010 PREVIOUS YEAR INCOME: CONSTRUCTION ACTIVITY RECEIPTS A 2,353,540,254 6,584,000 BUSINESS FACILITIES RECEIPTS B 55,985,89 5 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 (218,729,17 5) 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 EXPENSE S, 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 DISALL OWED EXPENDITURE OF RS.13,11,036/- ON ACCOUNT OF ELECTRICITY CHARGES, A S STATED BY THE ASSESSEE AND ALSO ADMITTED BY THE DEPARTMENT. UNDER THE HEAD ADMINISTRATION & SELLING EXPENSES, THE ASSESSEE H AD 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 33,7 13 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 9. THE REVENUES CASE IS THAT, FOR EARNING OF RENT AL 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 R ENTAL INCOME FROM THE AMOUNT OF EXPENSES DEBITED UNDER THE HEAD ADMINIST RATION & SELLING EXPENSES AS APPEARING IN SCHEDULE E ABOVE. INCOM E EARNED FROM LEASING OUT OF MALL PREMISES IS INCIDENTAL TO ITS BUSINESS ACTIVITIES AND THE EXPENSE INCURRED IN THE DUE COURSE OF ITS BUSIN ESS ACTIVITIES MUST HAVE ALSO BEEN USED FOR THE PURPOSE OF EARNING OF R ENTAL INCOME. THEREFORE, SOME AMOUNT OF SALARY, ELECTRICITY AND O THER SUCH EXPENSES SHOULD BE ATTRIBUTABLE FOR THE EARNING OF THE RENTA L INCOME. WE ARE UNABLE TO APPRECIATE OR UPHELD SUCH A REASONING; FIRSTLY, THE ASSESSEE IS HAVING HUGE BUSINESS RECEIPTS FROM CONSTRUCTION ACTIVITY A ND OTHER BUSINESS ACTIVITIES WHICH IS MUCH FAR MORE THAN RS.250 CRORE S AND ONCE ASSESSEE IS CLAIMING THAT EXPENDITURES DEBITED UNDER THE HEA D ADMINISTRATIVE & SELLING EXPENSES HAVE BEEN INCURRED DIRECTLY FOR I TS BUSINESS ACTIVITY, ITA 4824/MUM/2014 16 THEN WITHOUT EXAMINING THE ACCOUNTS RELATING TO BUS INESS 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 EXP ENDITURE IS ATTRIBUTABLE FOR THE EARNING OF RENTAL INCOME. BECA USE IT IS THE REVENUE WHICH IS CARVING OUT A PREMISE FOR ALLOCATION OF EX PENDITURE FOR THE PURPOSE OF EARNING OF RENTAL INCOME, AND FOR THAT, IT HAS TO DEMONSTRATE HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASS ESSEE AND NATURE OF EXPENDITURE DEBITED ARE ALSO APPLICABLE FOR THE EAR NING OF THE RENTAL INCOME. ONLY IF SUCH PREMISE IS ESTABLISHED THEN ON US 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 A LLOCATION CAN BE MADE, UNLESS THE NATURE OF EXPENSES DEBITED IS DIRE CTLY ATTRIBUTABLE TO THE EARNING OF LEASE RENTAL INCOME AND NOT THE BUSI NESS INCOME. SECONDLY, ONCE A PARTICULAR RECEIPTS IS ASSESSED UN DER A PARTICULAR HEAD, THEN THE COMPUTATION OF INCOME HAS TO BE MADE STRIC TLY MADE IN ACCORDANCE WITH THE PROVISIONS DEALING WITH THE ASS ESSABILITY OF THE INCOME UNDER THAT HEAD. IN OTHER WORDS, IF INCOME I S BEING ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY THEN CO MPUTATION 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. 10. MOREOVER, IT HAS BEEN BROUGHT ON RECORD THAT, A SSESSEE HAD ENTERED INTO AN AGREEMENT FOR RENTING, MANAGING AND MAINTENANCE OF R. MALL WITH M/S VEEAR PROPERTY PVT LTD. VIDE AGREEMEN T DATED 20.03.2009, THE RECITAL ITSELF CLEARLY ENVISAGES THAT, THE ASSE SSEE IS NOT IN A POSITION TO MANAGE THE MALL, SINCE THEY DO NOT HAVE ANY EXPERTI SE 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 TH E SAME VERY COMPANY HAS BEEN MANAGING THE MALL SINCE 27TH APRIL , 2004. TILL DATE THE SAID COMPANY HAS AN EXPERT TEAM, EXPERIENCE, EQ UIPMENTS AND OTHER NECESSARY INFRASTRUCTURE REQUIRED FOR RUNNING AND M ANAGING THE MALLS. IN THE SAID AGREEMENT, IT HAS BEEN CLEARLY MENTIONED T HAT THE PARTIES HAVE ENTERED INTO THE AGREEMENT ON PRINCIPAL TO PRINCIPA L 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. 3. IT IS FURTHER AGREED BETWEEN THAT THE COMPANY SH ALL BEAR AND PAY ALL THE RUNNING, MAINTENANCE COST AS APPLIC ABLE DURING THE TENURE OF THIS AGREEMENT FOR ALL THE COMMON AREAS. IN ADDITION TO THE ABOVE THE COMPANY SHALL ALSO BEAR AND PAY THE W ATER, ELECTRICITY, AIRCONDITIONING CHARGES OF THE COMMON AREAS FOR RUNNING AND MANAGING THE MALL. 4. THE OWNER UNDERTAKES TO TAKE OUT ADEQUATE INSUR ANCE FOR THE COMMON AREA IN THE SAID MALL AND ALSO UNDERTAKE S 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 UND ERTAKES TO TAKE PUBLIC LIABILITY INSURANCE OR THE COMMON AREA IN THE SAID MALL. ITA 4824/MUM/2014 18 5. THE PARTIES HEREBY EXPRESSLY AGREES AND UNDERTAK ES THAT THE COMPANY SHALL HAVE FULL RIGHT TO ASSIGN OR PERM IT 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, P ENALTIES, DAMAGES CAUSED ON ACCOUNT OF THE COMPANY PERMITTING ANY THIRD PARTY TO MANAGE THE MALL. THE ENTIRE RESPONSIBILITY IS ON THE SAID COMPANY AN D ANNEXURE-A OF THE AGREEMENT DEALS WITH THE SCOPE OF WORK OF THE COMPA NY 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, NORMA L WEAR AND TEAR L. FIRE FIGHTING EQUIPMENT MAINTENANCE M. OVERALL MAINTENANCE OF COMMON AREA. FROM THE CLEAR CUT COVENANTS AND TERMS OF THE AGREE MENT, IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE DOES NOT HAVE TO INCUR ANY ITA 4824/MUM/2014 19 ADMINISTRATIVE EXPENDITURE FOR RUNNING AND MAINTENA NCE OF THE MALL AND, THEREFORE, IN THE LIGHT OF THESE FACTS AND BACKGROU ND, IT CANNOT BE HELD THAT ANY ADMINISTRATIVE EXPENDITURE SHOULD BE ALLOC ATED FOR RUNNING OF THE MALL. 11. HOWEVER, ON A PERUSAL OF EXPENDITURE DEBITED UN DER SCHEDULE E, AS INCORPORATED ABOVE, IT IS SEEN THAT THE ASSESSEE HA S DEBITED SUM OF RS.28,66,136/- UNDER THE HEAD ADVERTISEMENT AND S UM OF RS. 49,14,399/- UNDER THE HEAD BUSINESS PROMOTION EXPE NSES. FURTHER, FROM A PERUSAL OF BREAK-UP OF THESE EXPENSES AS GIV EN IN PAGE 26 OF THE PAPER BOOK WHICH WAS FILED BEFORE THE CIT(A), WE FI ND THAT CERTAIN AMOUNTS HAVE BEEN DEBITED FOR MALL UPKEEP & PROMOT IONAL RECEIPT. IF THESE EXPENDITURES ARE RELATED FOR EARNING OF INCOM E FROM MALL THEN, DEFINITELY IT CANNOT BE ALLOWED AS AN EXPENDITURE U NDER SECTION 37(1) I.E. WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE , BECAUSE ADMITTEDLY, RECEIPTS FROM THE MALL IS IN THE FORM O F LEASE RENTAL WHICH HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PRO PERTY LIKE IN THE EARLIER AND SUBSEQUENT YEARS. THIS FACT NEEDS PROPE R VERIFICATION AND EXAMINATION BY THE AO WHICH HAS NOT BEEN DONE IN TH E PROPER PROSPECTIVE. ACCORDINGLY, WE ARE OF THE OPINION THA T, THIS MATTER SHOULD BE RESTORED BACK ONLY FOR THE LIMITED PURPOSE OF EXAMI NING THE NATURE OF ADVERTISEMENT EXPENSES AND BUSINESS PROMOTION EXPEN SES DEBITED UNDER THE HEAD ADMINISTRATIVE AND SELLING EXPENSES AS E NUMERATED IN SCHEDULE E OF THE PROFIT & LOSS ACCOUNT. IF THESE E XPENDITURES 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 PURPOS ES. RESPECTFULLY FOLLOWING THE AFORE-STATED DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIA TELY PRECEDING ASSESSMENT ITA 4824/MUM/2014 20 YEAR IN ITA NO 4777/MUM/2013 FOR ASSESSMENT YEAR 20 10-11 VIDE ORDERS DATED 12-04-2016 , AS FACTS ARE IDENTICAL IN THE I NSTANT 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 HAVI NG REGARDS TO THE ACCOUNT OF THE ASSESSEE , WILL BE DISALLOWED BY THE A.O.. IT I S ALSO NOTED THAT IN THE PRECEDING ASSESSMENT YEAR , THE ASSESSEE SUO MOTU V OLUNTARILY DISALLOWED ELECTRICITY EXPENSES INCURRED IN RELATION TO R-MALL BUT THE SAME ARE NOT DISALLOWED IN THE INSTANT ASSESSMENT YEAR UNDER APP EAL WHICH ASPECT SHALL ALSO BE LOOKED INTO BY THE AO. THIS DISPOSES OF GRO UND NO. 1, 2 & 3 RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE T RIBUNAL AS SET OUT ABOVE. WE ORDER ACCORDINGLY. 11. WITH RESPECT TO GROUND NO. 4, THE ISSUE IS WITH RESPECT TO DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 35,30,813/- BY INVOKIN G THE PROVISIONS OF SECTION 14A OF THE ACT. THE A.O. HAS DISALLOWED TH E EXPENSES U/S 14A OF THE ACT R.W.R. 8D OF INCOME TAX RULES, 1962. IT WAS OB SERVED BY THE AO THAT THE ASSESSEE HAS EARNED SHARE OF PROFIT FROM PARTNERSHI P 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 EXPEN SES 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 REA D WITH RULE 8D OF INCOME TAX RULES, 1962 . THE ASSESSEE OBJECTED TO T HE DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE HAS DENIED HAVING INCURRE D 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 12. AGGRIEVED BY THE ASSESSMENT ORDER DATED 16.01.2 014 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST AP PEAL BEFORE THE LD. CIT(A). 13. 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 VENTUR ES FOR HAVING CONTROL AND BUSINESS CONSIDERATIONS AND NOT FOR EARNING DIVIDEN D INCOME, AND, THEREFORE, THESE INVESTMENTS SHOULD NOT BE CONSIDERED WHILE WO RKING OUT THE AVERAGE INVESTMENT FOR THE PURPOSE OF MAKING DISALLOWANCE O F 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 FINANCI AL LTD. V. ACIT IN ITA NO. 4521/MUM/2012 DATED 26 TH MARCH, 2014 AND IN THE CASE OF GARWARE WALL ROPES LIMITED V. ACIT IN ITA NO. 5408/MUM/2012 DATE D 15 TH JANUARY, 2014. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE SUBMIT TED 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 BOM BAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. (2009) 31 3 ITR 340(BOM.) AND THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F CIT, TRICHUR VS. THE CATHOLIC SYRIAN BANK LTD. AND REQUESTED THAT INTERE ST EXPENDITURE SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF WORKING OUT DISALL OWANCE U/S.14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962. THE L D. 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 T HE 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 TH E CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., 328 ITR 81 WHEREBY IT WAS H ELD THAT RULE 8D OF INCOME TAX RULES, 1962 HAS TO BE APPLIED TO WORK OU T 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 11 TH FEBRUARY, 2014 THAT SEC.14A OF THE ACT PROVIDES FOR DISALLOWANCE OF EXP ENDITURE EVEN WHERE THE ASSESSEE IN A PARTICULAR YEAR HAS NOT EARNED ANY EX EMPT INCOME. THUS, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. VIDE APPELL ATE ORDERS DATED 29-05- 2014. 14. AGGRIEVED BY THE APPELLATE ORDER DATED 29-05-20 14 OF THE LD. CIT(A) , THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 15. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS EARNED INCOME OF RS. 1,98,277/- BEING SHARE OF PROF IT FROM PARTNERSHIP FIRM WHICH IS EXEMPT FROM TAX. HE SUBMITTED THAT AS PER THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT, (2015) 378 ITR 33(DEL. HC), THE DISALLOWANCE CANNOT EXCEED THE AMO UNT OF EXEMPT INCOME. HE SUBMITTED THAT NO DISALLOWANCE CAN BE MADE IN TH E INSTANT CASE BASED ON FACTS OF THE CASE. THE LD. COUNSEL ALSO RELIED UPO N THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UT ILITIES & POWER LTD. (2009) 313 ITR 340(BOM.) AND CIT V. HDFC BANK, [201 4] 49 TAXMANN.COM 335(BOM). THE LD. COUNSEL ALSO SUBMITTED THE TRIBU NAL 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 I TA NO.4777/MUM/2013 VIDE TRIBUNAL ORDERS DATED 12-04-2016 FOR THE ASSES SMENT YEAR 2010-11. THE LEARNED DR RELIED UPON THE ORDERS OF THE LEARNED CIT(A). 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE HAS EARNED EXEMPT INCOME OF RS. 1,98,277/- FROM SHARE OF PROFIT FROM PARTNERSHIP FIRM. THE ASSESSEE CONTENDED THAT NO EXPENSES HAVE BEEN INCUR RED FOR EARNING THE EXEMPT INCOME AS THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR THE INVESTMENTS MADE IN THE SHARES. WE FIND THAT ON ID ENTICAL FACTS IN THE ITA 4824/MUM/2014 23 IMMEDIATELY PRECEDING YEAR, THE CO-ORDINATE BENCH O F THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 4777/MUM/2013 VIDE O RDERS 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 TH E RATIO OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) AND ALSO WORK OUT DISALLOWANCE OF INTEREST EXPENSES AFTER CO NSIDERING THE AVAILABILITY OF ASSESSEES OWN FUNDS VIS--VIS INVESTMENTS MADE WHI CH 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/ -. 13. BRIEF FACTS QUA THE ISSUE ARE THAT, THE ASSESSE E HAS EARNED SHARE OF PROFIT FROM PARTNERSHIP FIRM OF RS.3,42,506/- WH ICH WAS CLAIMED AS EXEMPT. IN RESPONSE TO THE SHOW CAUSE NOTICE TO FIL E DETAILS OF EXPENSES ATTRIBUTABLE TO THE EARNING OF THE EXEMPT INCOME, T HE 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 CA N BE SAID TO BE INCURRED IN RESPECT OF EARNING OF THE SAID EXEMPT I NCOME. 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 16 9 (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. 14. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT , IT HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INVESTMENTS AND, THEREFORE, NO DI SALLOWANCE 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 HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., REPORTED IN [2010] 328 ITR 081 (BOM). 15. BEFORE US, THE LD. COUNSEL SUBMITTED THAT, FIRS TLY, THERE IS NO DIVIDEND INCOME AND ONLY EXEMPT INCOME IS FROM PROFIT EARNED FROM THE P ARTNERSHIP FIRM WHICH HAS ACCRUED TO THE ASSESSEE. FOR THIS, NO EXPENDITURE CAN BE SA ID TO BE ATTRIBUTABLE FOR THE EARNING OF THE SAID INCOME, BECAUSE THE CAPITAL CONTRIBUTIO N IN THE SAID FIRM WAS PURELY OUT OF INTEREST FREE FUNDS. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF HONBLE 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, REP ORTED IN [2012] 347 ITR 272, NO DISALLOWANCE CAN BE MADE IF THERE IS NO EXEMPT INCO ME 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. 16. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT, THE DISALLOWANCE HAS TO BE MADE STR ICTLY, IN ACCORDANCE WITH RULE 8D. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, WE FIND THAT, ONLY EX EMPT INCOME WHICH HAS BEEN EARNED IS ON ACCOUNT OF SHARE PROFIT FROM A PARTNERSHIP FI RM AMOUNTING TO RS.3,42,506/-. INITIALLY, IN RESPONSE TO THE SHOW CAUSE NOTICE, TH E ASSESSEE HAS WORKED OUT DISALLOWANCE AT RS.8,44,630/-, HOWEVER, LATER ON, T HE 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 CO NDITION 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 OU T FROM RECORDS AS TO WHETHER THE CAPITAL INVESTMENT IN THE PARTNERSHIP FIRM IS OUT O F INTEREST-FREE FUNDS OR NOT. THEREFORE, IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD BE R ESTORED 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 (SUP RA). REGARDING, SECOND CONTENTION OF THE LD. COUNSEL WHICH IS BASED ON RAT IO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST (SUPRA), WE DI RECT THE AO THAT WHILE DECIDING WITH THE ISSUE OF 14A, HE WILL KEEP IN MIND THE RAT IO AND PRINCIPLE LAID DOWN BY THE HONBLE DELHI HIGH COURT, AS TO WHETHER THE DISALLO WANCE 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 ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING ASSESSMENT YEAR 2010-11 VIDE TRIBUNAL ORDERS IN ITA NO. 4777/M UM/2013 VIDE ORDERS DATED 12-04-2016, WE SET ASIDE AND RESTORE THE MATT ER 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. 17. THE NEXT ISSUE I.E. GROUND NO. 5 IS WITH RESPEC T 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 TH E SAME WAS ADDED BACK TO THE WORK-IN-PROGRESS BY THE ASSESSEE. DOUBLE AD DITION HAS BEEN MADE, ONE BY THE ASSESSEE AND ANOTHER BY THE A.O. WHICH IS NO T 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 T HE SAME. THE LD DR SUBMITTED THAT CONTENTIONS OF THE ASSESSEE ABOUT DOUBLE ADDIT IONS LEADING TO DOUBLE JEOPARDY NEED VERIFICATION BY THE AO. 18. WE HAVE OBSERVED THAT THE ASSESSEE HAS FAILED T O DEDUCT THE TAX AT SOURCE WHEREBY THE A.O. OBSERVED THAT THE DISALLOWA NCE 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 AMOUN T 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-PROGR ESS OF RS. 16,000/-. SINCE THE WORK-IN-PROGRESS IS PART OF THE P&L ACCOUNT , T HE ASSESSEE WAS REQUIRED TO DISALLOW THE SAME ON THE GROUNDS OF NON-DEDUCTION O F 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 B EEN DEDUCTED AT SOURCE. THE ASSESSEE HAS SUBMITTED THAT IT HAS DISALLOWED V OLUNTARILY THE SAID AMOUNT OF ITS OWN IN WIP WHILE FILING RETURN OF INC OME 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 EVID ENCES OF THE ASSESSEE. NEEDLESS TO SAY PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO TO THE ASSESSEE IN ACCORDANCE WI TH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGL Y. 19. 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 THA T 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 A T RS. 50,53,960/-. THE ITA 4824/MUM/2014 27 A.O. REJECTED THE FIGURE OF RS. 50,53,960/- AND ADO PTED THE FIGURES AS MENTIONED IN THE TAX-AUDITORS 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 INC OME 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 ASSES SEE HAS ALSO FILED COPIES OF RECEIPTS OF TOTAL DONATION OF RS. 1.10 CRORES. THE LD. CIT(A) BY RELYING UPON THE TAX AUDITORS REPORT WORKS OUT THE ELIGIBLE AMO UNT 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. 20. BEFORE THE TRIBUNAL THE LD. COUNSEL FOR THE ASS ESSEE 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 H AD CLAIMED ELIGIBLE DEDUCTION U/S 80G AT RS. 50,53,960/- AS PER PROVISI ONS 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 AN D 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 O PPORTUNITY 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 EVID ENCES SUBMITTED BY THE ITA 4824/MUM/2014 28 ASSESSEE TO SUPPORT ITS CONTENTIONS BEFORE ADJUDICA TING THIS ISSUE ON MERITS. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE ALL THE RE LEVANT DOCUMENTS TO SUBSTANTIATE ITS CLAIM BEFORE THE A.O. FOR HIS VERI FICATION AND THE AO SHALL PROVIDE PROPER AND ADEQUATE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN AC CORDANCE WITH LAW. WE ORDER ACCORDINGLY. 21. IN THE RESULT, ASSESSEES APPEAL IN ITA NO 482 4/MUM/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST , 2016. # $% &' 11-08-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 11-08-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI D BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI