Halwasiya Development Pvt. Limited, ... vs Assessee

These appeals are preferred by the assessee against the respective orders of the ld. CIT(A).

2. Since common issues are involved in these appeals, these were heard together and are being disposed of through this consolidated order. We, however, prefer to adjudicate them one after the other.

I.T.A. No. 275/LKW/2010:

3. Through this appeal, the assessee has assailed the order of the ld. CIT(A), inter alia, on various grounds, which are as under:-

1. The Ld. C.I.T. (Appeals)-I, erred on facts and in law in upholding the Order of the Ld. A. O. that Receipts of Rs.29,21,771-00 should be assessed as "Business Income" instead of "Income from House Property" as shown by the appellant.

1.1 The Ld. C.I.T. (Appeals) did not appreciated that the receipt of Rs.29,21,771-00 being rent of "Infrastructure Facilities" installed in the property Let Out, and are integral part of Property in total which is Let Out, as such, it should be assessed as "Rental Income"

2. The Ld. C.I.T. (Appeals) erred on facts and in law in confirming the disallowance of Rs.1109156-00 on account of "Foreign Travelling Expenses" of the Directors of the Company, which were incurred wholly and exclusively for the purpose of Development of Business and for exploring business opportunities for Company.

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3. The Ld. C.I.T. (Appeals) erred on facts and in law in confirming the disallowance of. Rs.1,32,953-00 incurred in connection with sponsor ship of "Educational Expenses" of Director of the Company for conducting Professional Course .

3.1 The Ld. C.I.T. (Appeal) did not appreciate that expenses incurred are for the purpose of business as benefit resulted in Development and Growth of the Company in subsequent year.

3.2 The Ld. C.I.T. (Appeal) did not appreciated that after completion of the Studies in Financial Year 2008-09, the said Director joined the Company and because of his specified knowledge, profitability of the company has increased.

4. The Ld. C.I.T. (Appeals) erred on facts and in law in conforming the ad-hoc disallowance of Rs.70,010-00 on account of "Business Promotion Expenses" incurred solely and exclusively for the purpose of business, without bringing out any contrary evidence, that expenses are not incurred wholly and exclusively for the purpose of business.

5. The Ld. C.I.T. (Appeals) erred on facts and in Law in confirming the addition of Rs.9,52,017-00 under section 14A of Income Tax Act, 1961 which is not applicable in the present of sets of facts and circumstances.

WITHOUT PREJUDICE TO ABOVE

5.1 The Ld. C.I.T. (Appeals) did not appreciated that Rs.

35750-00 being Income from Dividend as been claimed as "Exempted", accordingly disallowance should be computed corresponding to this income. Thus, disallowance Rs. 952017-00 for this income is not as per Law.

5.2 The Ld. C.I.T. (Appeals) did not appreciated that the advance of Rs.21218417-00 made in earlier year for which notional interest addition made in earlier year had been deleted by Ld. C.I.T. (Appeals) in A.Y. 2005-06 by :-4-:

treating as "Nature of Business Transaction for commercial expediency". Accordingly, in present year, this advance should not be consider for computing the present addition of Rs. 952017-00 under section 14A of Income Tax Act, 1961.

6. The Additions upheld are highly excessive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him.

4. Apropos ground No.1, it is noticed from the orders of the authorities below that the assessee owns a building at A-10, Sanskrit Bhawan, Qutab Institutional Area, New Delhi and income generated from the building is in the form of rent and infrastructure charges. The assessee has treated the entire receipts under head "income from house property" and claimed deduction at 30% under section 24(a) of the Income-tax Act, 1961 (hereinafter called in short "the Act"). The Assessing Officer has treated the infrastructure charges received by the assessee as "business income"

and disallowed the claim of deduction under section 24(a) of the Act.

5. An appeal was filed before the ld. CIT(A) with the submission that the name differentiations are only the bifurcation of the rent of the property and are part and parcel of each other. The infrastructure facilities, namely lift, generator, air conditioning plant, fire fighting plant, etc. along with the building space form a composite as a whole. Neither of the building space nor the infrastructure facilities can be used solely without dependence on each other. The primary object was to let out the property along with the right to use common facilities. He has also laced reliance upon the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment Pvt. Ltd. vs. CIT [2003] 129 Taxman 70 (SC). The ld. CIT(A) re-examined the claim of the assessee in the light of assessee's :-5-:

contentions, but was not convinced with it and he has confirmed the order of the Assessing Officer treating the infrastructure charges as business income.

6. Now the assessee has preferred an appeal before the Tribunal with the submission that all the infrastructure facilities like lift, generator, air condition plant and fire fighting plant are fitted and installed in the building and these are the integral part of the building. Neither the building space nor the infrastructure facilities can be used solely without inter dependence on each other. It was further contended that under the similar set of facts in assessment year 2005-06, the assessment was completed under section 143(3) of the Act and the Assessing Officer has treated this receipt as income under head "income from house property". Copy of the assessment order is also placed on record. The ld. counsel for the assessee has further contended that once the Assessing Officer has treated the receipts as infrastructure charges under the head "income from house property" in one assessment year, he cannot give a different treatment on the same receipt in succeeding assessment year. In support of his contention, the ld. counsel for the assessee has also placed reliance upon the following judgments:-

1. DCIT vs. Vaishnav S. Puri (HUF), 58 DTR 26

2. Shambhu Investment Pvt. Ltd. vs. CIT, 263 ITR 143

3. Marwar Textiles (Agency) (P) Ltd. vs. Income Tax Officer, 119 TTJ 131.

7. Copies of the lease deed and infrastructure agreement are also placed on record for our perusal.

8. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. CIT(A).

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9. Having carefully examined the orders of the lower authorities in the light of the rival submissions, sublease deed, infrastructure agreement and the judgments referred to by the ld. counsel for the assessee, we find that the assessee has let out different premises to different tenants against a particular rate of rent, besides execution of sublease deed, a separate infrastructure agreement was also executed between the assessee and different tenants. Through this agreement, the assessee has agreed to provide certain facilities to the tenants against fixed payment. The receipts received against this infrastructure facility were treated to be the business income by the Revenue whereas the assessee has claimed it as income from house property.

10. The sole dispute raised before us is whether the receipts for providing certain facilities to its tenants can be called to be part of rental income of the assessee for its treatment as income from house property or it would be treated as business income. This aspect was examined by the Hon'ble Apex Court in the case of Shambhu Investment Pvt. Ltd. vs. CIT (supra), in which their Lordships has held that the income derived by the assessee by letting out furnished premises on monthly rent basis to various parties along with furniture, fixture, light, air conditioners, etc. for being used as table space and providing services like watch and ward staff, electricity and water and other common amenities without any separate charges was assessable as income from property and not business income. Through this judgment, the Hon'ble Apex Court has confirmed the judgment of the Hon'ble High Court of Calcutta.

11. Similar view was also expressed by the Mumbai Bench of the Tribunal in the case of DCIT vs. Vaishnav S. Puri (HUF) (supra), in which the Tribunal has held the income from letting out of building for consolidated monthly rent which includes the furniture and fixtures, air conditioners, etc. :-7-:

is to be treated as income from house property and not as business income.

12. Similar view was also expressed by the Mumbai Bench of the Tribunal in the case of Marwar Textiles (Agency) (P) Ltd. vs. Income Tax Officer (supra), in which it is held that the entire receipts being composite receipts on account of letting out of furnished accommodation, was rightly held as income from house property.

13. We have also carefully perused the lease deed and infrastructure agreement executed on 1.9.2003 and other relevant documents and we find that the assessee has claimed these receipts as income from house property in assessment year 2005-06 and the Assessing Officer has accepted the same. Once the Assessing Officer has treated these receipts as income from house property in assessment year 2005-06, we find no justification in treating the same receipts in succeeding year as business income. Moreover, through the aforesaid judgments, it has been held that where the assessee has received certain charges for providing certain facilities along with rental income, the entire receipts shall be income from house property and not business income. We, therefore, find no merit in the order of the ld. CIT(A) confirming the infrastructure receipts as business income of the assessee. We, accordingly, set aside the order of the ld. CIT(A) on this issue and delete the addition.

14. Apropos ground No.2, it is noticed that the assessee has claimed total travel expenses at Rs.15,87,478/-, out of which the Assessing Officer has disallowed foreign travel expenses at Rs.11,09,156/- incurred towards the visit of the Director, Shri. U.S. Halwasia and his wife to Egypt and U.S.A. Though the assessee has claimed the purpose of the visit as to explore business opportunities, but during the course of assessment proceedings, the assessee could not place any evidence before the Assessing Officer to justify his visit that it was incurred to explore the :-8-:

business opportunities in the light of the fact that the assessee was engaged in construction activities. The Assessing Officer accordingly made disallowance of a sum of Rs.11,09,156/- incurred on foreign travel to Egypt and U.S.A.

15. An appeal was preferred before the ld. CIT(A), but no evidence was filed to justify that this foreign travel was undertaken to explore the business opportunities and the ld. CIT(A) accordingly confirmed the addition.

16. Now the assessee has preferred an appeal before the Tribunal and has reiterated its contentions, but no documentary evidence except oral submission is placed on record. It was also contended on behalf of the assessee that in order to get aware of the pattern, mode of elevation, method of construction, nature of structure design and distribution of load bearing, architectural design, interior, modern way of construction of common passage and site development, internal room size, elevation, etc., the M.D. and Director of the company decided to visit Egypt as Egypt has some of the best for residential apartments in the world. He has also placed reliance upon the Minutes of the Board of Meeting and the following case laws in support of his contentions:-

1. Rahuljee & Company (P) Ltd., vs. ITAT & Others, 73 DTR 89.

2. CIT vs. Williamson Tea (Assam) Ltd., 38 taxmann.com 154

17. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. CIT(A), with the submission that onus is upon the assessee to place the relevant evidence on record in order to justify that the foreign travel was undertaken to explore the business opportunities. Mere oral submissions are not sufficient to justify the claim. If the assessee has gone to explore business opportunities, there must have been some correspondence exchanged between the assessee and the foreign :-9-:

clients/advisers/consultants. In the absence of any evidence placed on record, the claim of the assessee is not justified and the ld. CIT(A) has rightly disallowed the expenditure incurred on foreign travel.

18. Having carefully examined the orders of the lower authorities in the light of the rival submissions and the material available on record, we find that the ld. counsel for the assessee has emphatically argued that the foreign travel was undertaken to explore the business opportunities, but no evidence in this regard is placed on record. We find force in the contention of the Revenue that if the assessee has undertaken the foreign travel to explore business opportunities, there must have been some correspondence exchanged between the assessee and its foreign clients/consultant/advisers, but nothing is placed on record. He has also placed reliance upon the aforesaid judgments, but on a careful perusal, we find that in those judgments, it has been held that onus is upon the assessee to prove that foreign visits were undertaken for the business purpose. No doubt, assessee can undertake foreign travel to explore business opportunities, but the onus is entirely upon the assessee to establish, by placing some documentary evidence, that the foreign travel was undertaken for the business purpose. In the absence of any documentary evidence, we are unable to accept the contention of the assessee that the foreign travel was undertaken to explore the business opportunities. We, therefore, find no infirmity in the order of the ld. CIT(A) on this issue and we accordingly confirm the same.

19. Apropos ground No.3, it is noticed that the Assessing Officer has made disallowance of the educational expenses to the tune of Rs.1,32,953/- incurred in connection with sponsorship of the educational expenses of Shri. Mukund Halwasiya, Director for his studies abroad for professional course in Accounts and Finance.

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20. Against the disallowance, an appeal was filed before the ld. CIT(A) with the submission that the said expenditure was for business purpose, as the benefit would result in development and growth of the income in subsequent years and later on in financial year 2008-09, Shri. Mukund Halwasiya has joined the company as Working Director on a meager remuneration of Rs.12,000/- per month after pursuing the said higher professional course in the field of Accounts and Finance, which in itself proves that the educational expenses were incurred by the company on the grounds of commercial expediency. Besides, he has also placed reliance upon various judicial pronouncements. The ld. CIT(A), relying upon his order for assessment year 2005-06, has confirmed the order of the Assessing Officer and the claim of the assessee was disallowed.

21. Now the assessee is before the Tribunal and during the course of hearing of the appeal, the ld. counsel for the assessee has invited our attention to the order of the Tribunal in the assessee's own case for assessment year 2005-06 with the submission that the impugned issue was raised before the Tribunal and the Tribunal has decided the issue in favour of the assessee by holding that the expenditure was incurred for business purposes. Copy of the order of the Tribunal is placed on record. Since the impugned issue has already been adjudicated by the Tribunal in assessment year 2005-06 and the claim of expenditure incurred on education of Shri. Mukund Halwasiya was allowed, we find no reason to disallow the claim in the impugned assessment year. We, therefore, following the order of the Tribunal for assessment year 2005-06, allow the claim of the assessee after setting aside the order of the ld. CIT(A) in this regard. Accordingly, the addition made on this count is hereby deleted.

22. Apropos ground No.4, it is noticed that the Assessing Officer has made ad hoc disallowance of Rs.1,42,038/- against the expenses under the head "business promotion" claimed at Rs.2,84,075/- on the ground that :-11-:

complete details of these expenses were not furnished before the Assessing Officer and the ld. CIT(A) has restricted the disallowance to Rs.71,019/- after granting a part relief.

23. Now the assessee is before us with the submission that without pointing out any defect in the maintenance of the accounts, the disallowance on ad hoc basis is not permissible.

24. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. CIT(A).

25. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the assessee has claimed expenses of Rs.2,84,075/- under the head "business promotion" and for want of details, the Assessing Officer has made disallowance of 50% which was later on reduced to 25% by the ld. CIT(A), but the lower authorities have not pointed out any specific defect in the maintenance of the accounts. The disallowance was made on ad hoc basis. It has been repeatedly held by various judicial forums that if the Assessing Officer is not satisfied with the maintenance of the books of account, he may dispute the particular entry and make disallowance, but disallowance on ad hoc basis should be avoided. In the instant case, nothing is borne out from the orders of the lower authorities as to whether the Assessing Officer has raised any query in respect of a particular entry. He has simply made ad hoc disallowance, which is not permissible under the law. We accordingly set aside the order of the ld. CIT(A) and delete the addition in this regard.

26. Apropos ground No.5 relating to disallowance under section 14A of the Act, it is noticed that the Assessing Officer has considered Rs.19,91,741/- as investment in shares and mutual funds and Rs.2,39,90,493/-, advance to M/s G.R. Maintenance & Services Pvt. Ltd. as :-12-:

a source of income, which is exempt and has disallowed an amount of Rs.9,52,017/- calculated as per rule 8D read with section 14A of the Act.

27. Aggrieved, the assessee has preferred an appeal before the ld. CIT(A) with the submission that an amount of Rs.2,39,90,493/- advanced to M/s G.R. Maintenance & Services Pvt. Ltd. was in the nature of share application money held with the concern pending for allotment. The corresponding shares were allotted in financial year 2007-08. Therefore, the Assessing Officer has failed to appreciate the fact that the said advance did not become income generating investment in the concerned financial year i.e. 2005-06, in which it was advanced. It was further explained that the shareholder becomes eligible for dividend income only when shares are allotted to him and allotment process was completed in financial year 2007-

08. Thus, there was no question of eligibility of any exempt income in financial year 2005-06. It was further contended that the total income exempted from tax was Rs.87,111.76 consisting of dividend income of Rs.35,750/- exempted under section 10(34) of the Act, long term capital gain of Rs.1,18,922.27 exempted under section 10(38) of the Act and short term capital loss of Rs.67,560.51. Therefore, disallowance made by the Assessing Officer at Rs.9,52,017/- was irrational. It was further contended that provisions of sub-section (1) and (2) of section 14A of the Act were introduced w.e.f. 1.4.2007 by the Finance Act, 2006, therefore, it cannot be invoked to the issue pertaining to assessment year 2006-07 and no alleged disallowance can be made.

28. With regard to rule 8D, it was contended that rule 8D was introduced w.e.f. 24.3.2008 by (5th Amendment) Rules, 2008. In the light of these facts, disallowance cannot be computed as per provisions of section 14A of the Act read with rule 8D of the rules.

29. The ld. CIT(A) re-examined the issue, but was not convinced with the explanations of the assessee and he confirmed the disallowance.

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30. Now the assessee is in appeal before the Tribunal and reiterated its contentions.

31. The ld. D.R. has simply placed reliance upon the order of the ld. CIT(A).

32. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that before the ld. CIT(A), the assessee has categorically stated that he has given an advance of Rs.2,39,90,493/- to M/s G.R. Maintenance & Services Pvt. Ltd. as share application money and shares were allotted in financial year 2007-08. These contentions of the assessee was not rebutted by the ld. CIT(A) in his order. In the light of these facts, once the advance is given to M/s G.R. Maintenance & Services Pvt. Ltd. for allotment of shares, the said investment cannot be called to be income generating investment in the concerned financial year i.e. 2005-06 in the form of dividend income. Therefore, we are of the view that no disallowance under section 14A of the Act can be made on account of this investment made for allotment of shares under section 14A of the Act. Moreover, provisions of sub-section (1) and (2) of section 14A were introduced by the Finance Act, 2006 w.e.f. 1.4.2007 relevant to the assessment year 2007-08. Therefore, these provisions cannot be invoked for making disallowance under section 14A of the Act.

33. We have also carefully examined the provisions of rule 8D and we find that this rule was introduced w.e.f. 24.3.2008, and the relevant assessment year would be 2008-09. Therefore, computation of disallowance under rule 8D is not called for in the impugned assessment year i.e. assessment year 2006-07. The ld. CIT(A) has not examined the issue of investment in shares and mutual funds at Rs.19,91,741/-, but in any case for making disallowance, sub-sections (1) & (2) of section 14A of the Act cannot be invoked in the impugned assessment year i.e. :-14-:

assessment year 2006-07, as it was introduced w.e.f. 1.4.2007 by the Finance Act, 2006. Therefore, we are of the considered view that no disallowance under section 14A of the Act is called for for investment in shares and mutual funds and advances given to M/s G.R. Maintenance & Services Pvt. Ltd. for allotment of shares. We accordingly set aside the order of the ld. CIT(A) in this regard and delete the addition.

I.T.A. No. 24/LKW/2012:

34. Through this appeal, the assessee has assailed the order of the ld. CIT(A), inter alia, on following grounds:-

1. The Ld. C.I.T. (Appeals)-I, erred on facts and in law in upholding the Order of the Ld. A.O. that Receipts of Rs.24,61,858-00 should be assessed as "Business Income" instead of "Income from House Property" as shown by the appellant.

1.1 The Ld. C.I.T. (Appeals) did not appreciated that the receipt of Rs.24,61,858-00 being rent of "Infrastructure Facilities" installed in the property Let Out, and are integral part of Property in total which is Let Out, as such, it should be assessed as "Rental Income"

2. The Ld. C.I.T. (Appeals) erred on facts and in law in conforming the adhoc. disallowance of Rs.6,43,333.00 on account of "Travelling and Business Promotion Expenses" incurred solely and exclusively for the purpose of business, without bringing out any contrary evidence, that expenses are not incurred wholly and exclusively for the purpose of business.

3. The Ld. C.I.T. (Appeals) erred on facts and in Law in confirming the addition of Rs.9,94,092-00 under section 14Aof Income Tax Act, 1961 which is not applicable in the present ^/ sets -of facts and circumstances.

4. The Ld. C.I.T. (A) erred on facts and in law in confirming the disallowance of Rs.1,23,000-00 being Rent paid to Halwasiya Court.

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5. The Additions upheld are highly excessive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him.

35. Ground No.1 relates to the nature of receipts received for providing infrastructure facility. This issue was examined by us in the foregoing appeal wherein we have held that the receipts for infrastructure facility is in the nature of income from house property. We, therefore, following the aforesaid order in I.T.A. No. 275/LKW/2010 decide this issue in favour of the assessee by holding that the receipts on account of infrastructure facility provided by the assessee are the income from house property. Accordingly, the order of the ld. CIT(A) on this issue is set aside and the addition made by the Assessing Officer is deleted.

36. Apropos ground No.2, it is noticed that the Assessing Officer has made ad hoc disallowance of Rs.12,87,067/- being 50% of the claims for travelling and business promotion expenses.

37. When the matter was brought before the ld. CIT(A), the ld. CIT(A), following his order for assessment year 2005-06, has restricted it to 25% resulting into an addition of Rs.6,43,333/-.

38. An identical issue was raised in the foregoing appeal for assessment year 2006-07, in which we have confirmed the travelling disallowance, but deleted the disallowance on account of business promotion expenses, as it was done on ad hoc basis. The ld. CIT(A) while adjudicating the appeal has followed his earlier order for assessment year 2006-07, therefore, following the order for assessment year 2006-07 in the foregoing paras, we direct the Assessing Officer to delete the disallowance made on account of business promotion expenses, as it was done on ad hoc basis.

39. So far as travelling disallowance is concerned, we find that in assessment year 2006-07 disallowance made for expenses incurred on :-16-:

foreign travel was confirmed by the Tribunal, but in the present assessment year i.e. 2007-08 no expense on account of foreign travel was claimed. The disallowance of local expenses was deleted by the ld. CIT(A) in assessment year 2006-07 and the order of the ld. CIT(A) was later on confirmed by the Tribunal. Therefore, following the order of the Tribunal, we find no merit on account of travelling expenses, as it was also done on ad hoc basis. Accordingly, we delete the addition.

40. Apropos ground No.3, it is noticed that identical issue was raised in assessment year 2006-07. The Tribunal has adjudicated this issue in the light of the amendment brought in section 14A and introduction of rule 8D. Since the provisions of sub-section (1) and (2) of section 14A was inserted w.e.f. 1.4.2007 and the provisions of rule 8D was introduced w.e.f. 24.3.2008 relevant to the assessment year 2008-09, disallowance under section 14A of the Act cannot be made in assessment year 2007-08. It was also held in the light of the fact that shares were allotted in financial year 2007-08. Therefore, following the order of the Tribunal in assessment year 2006-07, we are of the view that no disallowance under section 14A of the Act can be made in the impugned assessment year i.e. 2007-08. We accordingly delete the addition made by the Assessing Officer in this regard.

41. Apropos ground No.4, it is noticed that the Assessing Officer has made disallowance of Rs.1.23 lakhs claimed by the assessee as rent paid to its sister concern.

42. Against the disallowance, assessee preferred an appeal before the ld. CIT(A) with the submission that the rent was paid to the sister concern for use of the premises; whereas the Assessing Officer has made disallowance with the observation that the assessee was earning income from the same premises. Being not convinced with the explanations of the assessee, the ld. CIT(A) has confirmed the disallowance.

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43. Now the assessee is before us with the submission that the lower authorities have not verified the relevant facts, as the premises was used by the assessee for its office purpose. Therefore, no disallowance on rent can be made for the simple reason that the rent was paid to its sister concern. The ld. counsel for the assessee has further contended that since the facts were not properly verified by the lower authorities, the matter may be sent back to the Assessing Officer for verification in the light of assessee's contentions.

44. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that this issue was not properly examined by the lower authorities. We, therefore, set aside the order of the ld. CIT(A) and restore the matter to the Assessing Officer with a direction to adjudicate the issue afresh after making verification from the relevant evidence filed by the assessee in this regard.

I.T.A. No. 588/LKW/2012:

45. Through this appeal, the assessee has assailed the order of the ld. CIT(A) on the following grounds:-

1. The Ld. C.I.T. (Appeals)-I, erred on facts and in law in upholding the Order of the Ld. A.O. that Receipts of Rs.7,05,276-00 should be assessed as "Business Income"

instead of "Income from House Property" as shown by the appellant.

1.1 The Ld, C.I.T. (Appeals) did not appreciated that the receipt of Rs.7,05,276-00 being rent of "Infrastructure Facilities" installed in the property Let Out, and are integral part of Property in total which is Let Out, as such, it should be assessed as "Rental Income"

2. The Ld. C.I.T. (Appeals) erred on facts and in Law in confirming the addition of Rs.14,43,346-00 under section 14A of Jncome :-18-:

Tax Act, 1961 which is not applicable in the present of sets of facts and circumstances.

3. The Additions upheld are highly excessive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him.

46. Apropos ground No.1, it is noticed that the receipts on account of infrastructure facility was treated to be business income following the orders of earlier years.

47. This issue was examined by us in the foregoing appeals, in which it has been held that the entire receipts would be the rental income under the head income from house property. Since there is no change in the facts in the impugned assessment year, we treat the receipts on account of infrastructure facilities as rental income under the head income from house property and allow the ground of appeal of the assessee on this issue.

48. Apropos ground No.2, it is noticed that the disallowance of Rs.14,43,346/- was made under section 14A of the Act.

49. Although this issue was raised in earlier assessment year, but no disallowance was upheld for the reason that provisions of sub-section (1) and (2) of section 14A were not applicable in those assessment years, as it was introduced w.e.f. 1.4.2007. But for the impugned assessment year, sub-sections (1) and (2) of section 14A of the Act read with rule 8D are applicable and the Assessing Officer has calculated the disallowance under section 14A of the Act as per rule 8D of the rules and made disallowance of Rs.14,43,346/-, against which an appeal was filed before the ld. CIT(A) with the submission that it has not incurred any expenditure against exempt income and exempt income was also Nil. It was also contended that the Assessing Officer has neither identified any income which does not :-19-:

form part of total income nor has identified any expenditure which has incurred in earning such income and disallowance has been made merely because investment has been made in shares and mutual funds. Being not convinced with the explanations of the assessee, the ld. CIT(A) has confirmed the order of the Assessing Officer on this issue.

50. Now the assessee has preferred an appeal before the Tribunal with the submission that no exempt income was earned by the assessee during the impugned assessment year, therefore, no disallowance under section 14A of the Act is called for. He has also disputed the applicability of rule 8D of the rules.

51. The ld. D.R., on the other hand, has placed reliance upon the order of the Tribunal in the case of Income Tax Officer vs. M/s Commercial Auto Centre in I.T.A. No. 180/LKW/2010, in which it has been held that even in case of non-exempt income provisions of section 14A of the Act can be invoked and disallowance as per rule 8D of the rules can be made. Therefore, there is no infirmity in the order of the ld. CIT(A).

52. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that in the impugned assessment year, provisions of section 14A of the Act can be invoked even in a case no exempt income was earned by the assessee. This issue was examined by us in the light of various judicial pronouncements in the case Income Tax Officer vs. M/s Commercial Auto Centre in I.T.A. No. 180/LKW/2010, in which it has been held as under:-

"38. From the above paras from the order of CIT(A), we find that the addition was deleted by him on the basis that the Assessing Officer has not appreciated the business connection with the sister concern and commercial expediency as argued by the assessee in respect of these transactions of investment. He has noted in Para 13 of his order that deduction was :-20-:

claimed by the assessee u/s 36 (1) (iii) of the I. T. Act. Thereafter it is noted by CIT(A) in para 14 of his order that it cannot be said that the amounts invested by assessee are for non business purpose, though same may be indirect business connection. We are of the considered opinion that having business connection is different thing and making investment for business expediency is different thing altogether. In the present case, this is the only claim of the assessee before the Assessing Officer and before us also that the investments made by the assessee in sister concerns who are engaged in a connected or similar business. Even if this is correct then also, it cannot be said that this investment in sister concern is for business purpose or for business expediency. Hence, the judgment of Hon'ble apex court rendered in the case of S. A. Builders (Supra) is not rendering any help to the assessee. Investment in shares is made only to earn dividend income and as in case of any other investment, there may be capital gain or loss also at the time of sale of capital asset. Till the assessment year 2003-04, dividend income was taxable and therefore, deduction on account of interest on borrowed fund for making investment in share had to be allowed u/s 57(iii) of the Act as has been held by us while deciding the appeal of the Revenue for assessment year 2003-04 by following the judgment of Hon'ble apex court rendered in the case of Rajendra Prasad Moody (Supra). In this case, it was held by Hon'ble Apex Court that if borrowed funds have been used for making investment in shares, then interest expenditure incurred on such borrowed fund has to be allowed as deduction u/s 57(iii) of the Act even if there was no dividend income earned during the year under consideration. The relevant para of this judgment of Hon'ble Apex Court in the case of Rajendra Prasad Moody vs. CIT as reported in [1978] 115 ITR 519 is reproduced below:

:-21-:

"What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. It may be pointed out that an identical view was taken by this court in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1, 4 (SC), where interpreting the corresponding provision in s. 12(2) of the Indian I.T. Act, 1922, which was ipsissima verba in the same terms as s. 57(iii). Bose J., speaking on behalf of the court, observed :

"It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned."

It is indeed difficult to see how, after this observation of the court, there can be any scope :-22-:

for controversy in regard to the interpretation of s. 57(iii).

It is also interesting to note that, according to the revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs. 1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of Rs. 999 under the head " Income from other sources ".

But if there is no income, then, on the argument of the revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allowed by the statute would be debited. Equally, it would make no difference whether there is any income and if so, what, since whatever it be, X or Y or nil, would be credited. And the ultimate income or loss would :-23-:

be found. We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of s. 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income."

40. There was an argument that since no Dividend income was earned during A.Y. 2004 - 05, no disallowance can be made u/s 14A. Reliance was placed on a tribunal decision rendered in the case of Shivam Auto, which is upheld by Hon'ble Allahabad High Court in ITA No.88 of 2014 dated 5.5.2014. Reliance was also placed on a judgment of Hon'ble Gujarat High Court rendered in the case of CIT vs. Corrtech Energy (P) Ltd. 145 Taxman 116. But this is to be noted that in the present case, disallowance is not made by the A.O. u/s 14A of the I. T. Act alone. The disallowance is made on this basis that it is not allowable u/s 36 (1) (iii) because Investment in shares is not a business of the assessee. Thereafter it is stated by the A.O. that such disallowance is also to be made keeping in view the provisions of section 14A. Here, we would like to observe that whether any disallowance u/s 14A is called for or not is required to be seen only if expenditure is otherwise allowable under a provision of the Act minus section 14A. In fact, section 14A is a disallowing section, as per which, even if deduction is allowable in respect of any expenditure as per some provision of the Act then in view of the provision of section 14A of the Act, deduction cannot be allowed of such :-24-:

expenditure if it is found that such expenditure is incurred in relation to income which does not form part of the total income under this Act. Hence, it has to be first established by the assessee that deduction on account of interest is allowable under some provisions of the Act. In our considered opinion, in the facts of the present case, interest is not an allowable expenditure under any provision of the Act. It is definitely not allowable for computing salary income or income from house property. It cannot be said that deduction on account of interest expenditure is to be allowed for computing income from capital gain since income on account of capital gain is taxable because deduction on account of interest expenditure is not allowable for computing capital gain. For computing capital Gain, deduction is allowable in respect of cost of acquisition, cost of improvement and cost of transfer only and interest does not fall in any of these three categories. From A.Y. 2004 - 05, it is not an allowable deduction u/s 57 (iii) i.e. for computing Income from other Sources also because, deduction is allowable under this section for those expenses which are incurred for earning an income taxable under the head income from other sources. Since now dividend income is not taxable under this head, deduction is not allowable u/s 57

(iii). Now, the only remaining section is section 36 (1) (iii) for allowability of interest expenditure. This is admitted position that the assessee is not dealing in shares as the assessee itself has shown it as investment in the balance sheet. Otherwise also, the assessee has not brought anything on record to establish that this investment in shares is a business of the assessee. Only contention of the assessee before lower authorities and before us is that since the investment is in shares of sister concerns engaged in connected business, it is for business expediency but we find no merit in this contention. The decision of learned CIT (A) is on this basis that "it cannot be said that the amounts invested by :-25-:

appellant are for non business purpose, though same may be indirect business connection". In our considered opinion, the order of learned CIT (A) is not sustainable because deduction u/s 36 (1) (iii) is not allowable on the basis of a business connection. Deduction for interest u/s 36 (1) (iii) is allowable in respect of money borrowed for the purposes of the business. In the facts of the present case, the assessee has failed to establish that interest is incurred for borrowings for business purposes. Hence, we have no hesitation in holding that in the facts of the present case, deduction on account of interest is not allowable under any provision of Income Tax Act and there is no need to take help of section 14A to disallow the interest expenditure.

41. Still, we deal with this contention that no such disallowance u/s 14A is justified because there is no actual earning of the dividend in the present year. We find that in this regard, the judgment of Hon'ble Apex Court in the case of Rajendra Prasad Moody (supra) supports the case of the Revenue because while deciding the issue in respect of allowability of interest expenditure u/s 57(iii), it was held by Hon'ble Apex Court that section 57(iii) does not suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. As per the same logic, when the interest expenditure is incurred for earning dividend income, it has to be accepted that this interest expenditure was incurred in relation to earning exempt dividend income and hence, it is not relevant as to whether there was actual dividend income in the present year or not.

In this regard, we are aware that there are Tribunal decisions as well as the judgment of Hon'ble Allahabad High Court also that if there is no dividend income actually earned then no disallowance can be made u/s 14A but in these judgments, the judgment of Hon'ble Apex Court rendered in the case of Rajendra Prasad Moody (supra) was not brought to the notice :-26-:

of the tribunal and Hon'ble High Court and hence, it was not taken note of. It was also not taken note of that even if it is held that no disallowance is to be made u/s 14A of the Act, then also, there has to be a positive finding that under which section, this interest expenditure is allowable. Since dividend income is not subject to tax as income from other sources from assessment year 2004-05, it cannot be said that interest expenditure has to be allowed u/s 57(iii) of the Act. This is also not a case of the assessee that investment in shares was made out of borrowed funds in course of dealing in shares and therefore, interest expenditure is allowable u/s 36 (1) (iii) of the Act. We have already seen that interest income is not allowable while computing capital gain. Hence, even if it is held that section 14A is not to be invoked for making disallowance in a year in which there is no actual dividend income as was held by Hon'ble jurisdictional High Court and Hon'ble Gujarat High Court, then also, it has to be seen as to whether deduction on account of interest expenditure is allowable under any provision of the Act. Since in the present case, such deduction on account of interest expenditure is not allowable u/s 36 (1) (iii) or 57(iii) of the Act, there is no need to invoke the provisions of section 14A of the Act for making disallowance because invoking the provision of this section is required where the deduction is otherwise allowable.

42. As per above discussion, we find that the order of CIT (A) on this issue is not sustainable because it is not as per law and facts of the present case because the decision of CIT (A) is on the basis that in his opinion, the investment made by the assessee in sister concern is in course of business as per business expediency but we have already seen that making investment in shares as a capital asset cannot be said to be in course of business or for business expediency. The second reasoning of CIT (A) is that the investment has been made in the earlier year at the time when interest free funds were :-27-:

available in the hands of the assessee. This finding of CIT (A) is without any basis because as per the copy of fund flow statement available on page NO. 11 of the paper book and as per copy of balance sheet available on page No. 12, we find that even at the end of the year on 31/03/2003 also, there was debit balance in the capital accounts of the partners. Hence, even if there was profit at any point of time, the same was withdrawn by the partners and in fact the withdrawal was more than the contribution of capital and profit of the firm resulting into debit balance in partners' capital accounts and therefore, it cannot be said that at any point of time, own fund was available with the assessee firm for making investment in shares. The fund is available with the assessee out of unsecured loans and sundry creditors. The assessee is paying interest on unsecured loan and for sundry creditors, the assessee is getting supply of materials without payment and the assessee does not get cash from sundry creditors for making investment in shares and therefore, it cannot be accepted that the investment was made out of fund available in the form of sundry creditors.

43. As per above discussion, we have seen that interest expenditure incurred by the assessee by borrowing funds for making investment in shares is not allowable from assessment year 2004-05 because the dividend income is not taxable income under the head income from other sources and therefore, deduction is not allowable u/s 57(iii) of the Act. We have also seen that no deduction is allowable u/s 36 (1) (iii) also. Hence we reverse the order of learned CIT (A) and restore that of the A.O. Regarding various judgments cited by the learned AR of the assessee including the judgment of Hon'ble apex court rendered in the case of S. A. Builders (Supra), we would like to observe that no judgment is rendering any help to the assessee because we have seen that deduction is not allowable under any provisions of any section :-28-:

of Income Tax Act. Hence, there is no need to disallow any expenses which is not allowable. In fact, the assessee has failed to make out a case that deduction of interest expenditure is allowable under the provisions of any section of Income Tax Act, 1961."

53. The scope of ruled 8D of the rules was also examined by us in the case of Income Tax Officer vs. M/s Shruti Finsec Pt. Ltd. in I.T.A. No. 592/LKW/2012, in which it has been held that computation as per rule 8D takes care of all the direct and indirect expenses. The relevant observations of the Tribunal are as under:-

"6. We have carefully considered the arguments advanced by the respective parties and have also carefully examined the orders of the lower authorities and the relevant provisions of the Act and Rule.

7. Before coming to the controversy involved in this case, we would like to prefer to examine the provisions of section 14A of the Act, according to which for computing the total income under Chapter-IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under this Act. In order to determine the amount of expenditure incurred in relation to such income, which does not form part of the total income of the assessee, the Assessing Officer has to follow the method prescribed, if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The method for determining the amount of expenditure has been prescribed under Rule 8D of the Rules which was introduced w.e.f. 24.3.2008 by the Income-tax (5th Amendment) Rules, 2008 relevant to the assessment year 2008-09. For the sake of reference, we extract the provisions of section 14A of the Act and 8D of the Rules as under:-

:-29-:

SECTION 14A OF THE ACT:

"14A. Expenditure incurred in relation to income not includible in total income.--For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. 3(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

3(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act.

Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.

RULE 8D OF THE RULES:

"8D. Method for determining amount of expenditure in relation to income not includible in total income.--(1) Where the Assessing Officer having regard to the :-30-:

accounts of the assessee of the previous year, is not satisfied with--

(a) the correctness of the claim of expenditure made by the assessee ; or

(b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub- rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:--

(i) the amount of expenditure directly relating to income which does not form part of total income ;

(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :--

B A X---

C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ;

B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ;

:-31-:

C = the average of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year;

(iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year.

3. For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets."

8. From a bare reading of the aforesaid provisions, it has become abundantly clear that once the Assessing Officer has any reason to doubt the expenditures and is not satisfied with the correctness of the claim of the assessee in respect of such expenditures in relation to the income which does not form part of the total income under the Income-tax Act, the Assessing Officer shall determine the amount of expenditures so incurred in accordance with such method as may be prescribed under rule 8D of the Rules. No option was given to the Assessing Officer to adopt different formula to compute the amount of expenditures incurred in relation to such income which does not form part of the total income under the Act. Only two options are left with the Assessing Officer - one is to accept the expenditures claimed by the assessee and if he disputes the same, he has to compute the expenditures by adopting the formula laid down in rule 8D of the Rules.

9. Turning to the facts of the case, the assessee has earned the dividend income at Rs.68,635/- for which it has claimed expenditures of only Rs.16,544/- of which details were :-32-:

furnished before the Assessing Officer. Apparently, the quantum of expenditures does not commensurate with the exempted income claimed by the assessee. Therefore, the Assessing Officer has every reason to doubt the correctness of the expenditures claimed by the assessee for earning the exempted income of Rs.17,68,735/-. Therefore, we are of the view that the Assessing Officer has to re-compute the expenditures relating to the dividend income which does not form part of total income under this Act and for computing the expenditures, the Assessing Officer has no other option but to adopt the formula laid down under rule 8D of the Rules and he did the same. But from the calculation, we find that the Assessing Officer has not determined the amount of expenditures directly related to the income which does not form part of the total income of the assessee as per sub-rule (2) (i) of rule 8D. It is also not clear whether the Assessing Officer has made any verification with regard to the amount of expenditures directly relating to the investment made in earning dividend income. The other defect we find in the calculation is that as per definition (c) of rule 8D, the average of the total as appearing in the balance sheet of the assessee on the first day and the last day of the previous year is to be taken, but the Assessing Officer has taken the average of investment of the assessee-company as per balance sheet as on 31.3.2008 and 31.3.2009. The minor mistakes are noted in the calculation of the Assessing Officer following the method of rule 8D. We, however, do not agree with the order of the ld.

CIT(A) restricting the disallowance to the extent of Rs.16,544/- even without assigning any reason and in few lines he accepted the claim of the assessee. Therefore, we set aside the order of the ld. CIT(A), but so far as calculation of disallowance of expenditures are concerned, we restore the matter to the Assessing Officer with a direction to re-verify the calculation of disallowance of expenditures as per rule 8D.

:-33-:

Accordingly, the appeal of the Revenue is allowed for statistical purposes."

54. In the light of the aforesaid judgments, we are of the view that the provisions of section 14A of the Act are to be invoked in the impugned assessment year and the disallowance of expenditures are to be computed in accordance with rule 8D of the rules. While computing the disallowance under rule 8D of the rules, it is necessary to examine whether the investment was made out of borrowed funds or personal funds of the assessee. In the instant case, it is an admitted fact that the assessee has made investment during the assessment year 2005-06 and assessee has claimed that the investment was made out of personal funds of the assessee. The Revenue has disputed these facts and the matter has gone before the ld. CIT(A) and the ld. CIT(A) has given a categorical finding that major advance of Rs.2,12,18,417/- has been made to M/s G.R. Maintenance & Services Pvt. Ltd. towards share capital, which stands allotted to the assessee in financial year 2007-08. This order of the ld.

CIT(A) has not been challenged by the Revenue, therefore, it attained finality. For the sake of reference, we extract the relevant portion of the order of the ld. CIT(A) as under:-

"6.3.1 I have carefully considered the detailed submissions made by the Id. AR and also perused the material in the form of analysis of various advances made during the year amounting to Rs. 2,70,38,236/-. I have taken note of the fact that the above advances have been made to various parties in the manner as detailed in para 6.1 herein above.. This demonstrate that the major advance of Rs. 2,12,18,417/- has been made to M/s. G.R. Maintenance and Services Pvt. Ltd, towards share capital, which stands allotted to the appellant in the F.Y. 2007-08. Some other interest free "advances" have been against the credit card :-34-:

payment to AEB Ltd. (Rs. 92,501) unmaterialised land deals ( Rs.

10 lacs, Rs. 2.5 lacs, Rs. 2 lacs & Rs. 2 lacs to Asha Garg, Ashok Pathak, Mohan Kapoor and Sonia Shetti), advance made and received back to Shri R.K. Almal and S.K. Almal ( Rs. 62,400/- each), advance made for supply of material or business transaction ( Rs. 8 lacs to Country Power Management Co. Pvt. Ltd., and Unique Construction ), and refund of flat booking amount (Rs.5,65,082/- and Rs. 22,33,830/- in the cases of Victory Glass Industries and Shri Bharat Halwasia). The above makes it apparent that the outstanding balances in the case of 9 parties out of 13 parties are on account of business transaction whereas in the case another two parties it appears as an advance due to insufficient credit balance in the books of accounts of the appellant company. It is also seen that these credit balances also pertain to advances against flat, for which, no interest has been paid ,to them. As already observed above, the largest advance made to M/s. G.R. Maintenance and Service Pvt. Ltd. is on account of subscription in the share capital, which was allotted to the appellant in the F.Y. 2007-08, and is accordingly in the nature of business transaction for commercial expediency.

6.3.2. I have also gone through the detailed chart (as per Annexure-B) of the submissions dated 22.1.2010. On the basis of this analysis, it has been explained to me that the above mentioned advances have been made out of the own funds available to the appellant company, all funds receipts free of interest from persons booking flats with the appellant company, or interest free advance received from certain business associates or out of the advance/sale proceed of the appellant company. The appellant has also placed on record the copies of relevant bank account for exhibiting the sources of various advances, in support of the analysis as contained in the above said Annexure-B. On a closer look into the submissions of the Id. AR I find that there is merit in the claim that the advances in question have come out of the interest-free sources available with the appellant company on :-35-:

the relevant dates on which interest free advances have been made to various parties. As an illustration, the advance of Rs. 40 lacs and Rs. 30 lacs to M/s. G.R. Maintenance & Services Pvt. Ltd. on 28.5.2004 and 7.6.2004 have been made out of the receipt of Rs. 70 lacs from Shri Bharat Halwasia on 24.5.2004 as interest-free advance against the booking of flat, which is also reflected in the financial statement."

55. The shares were allotted to the assessee during the financial year 2007-08 relevant to the assessment year 2008-09. Once it is held in assessment year 2005-06 that the investment in shares were made out of own funds available with the assessee-company, the same investment cannot be considered to be out of borrowed funds in succeeding year. We have also carefully examined the calculation made by the Assessing Officer as per rule 8D of the rules and we find that the Assessing Officer has treated the investment out of mixed funds and he has computed the disallowance by applying the formula given in rule sub-rule (2) clause (3) of rule 8D of the rules; whereas no disallowance can be made where it is established that the investment in shares are made out of own funds available with the assessee. In the instant case, it has been established that the investment in shares were made by the assessee out of own funds available with it. Therefore, no disallowance can be made on account of expenditure incurred by way of interest during the previous year.

Whatever disallowances are to be made that can only be made as per clause (3) of sub-rule(2) of rule 8D of the rules. We, therefore, set aside the order of the ld. CIT(A) and direct the Assessing Officer to re-compute the disallowance as per clause (3) of sub-rule(2) of rule 8D of the rules.

I.T.A. No. 81/LKW/2013:

56. Through this appeal, the assessee has assailed the order of the ld.

CIT(A) on the following grounds:-

:-36-:

1. The Ld. C.I.T (A)-I, Lko, erred on facts and in law in holding infrastructure charges Rs.23,77571-00 as Income from Other Sources, instead of Income under the head House Property, as shown by the appellant.

1.1 The Ld. C.I.T. (Appeals)-I, did not appreciated that "Infrastructure Facilities" installed in the property let out and is an integral part of Property. Thus the Rent received on it has been correctly shown as "Rental Income".

2. The Ld. C.I.T. (Appeals) erred on Facts and in Law in confirming the addition of Rs.16,31,126-00 u/s 14A of I. T. Act 1961 which is not applicable in the present sets of facts and circumstances.

3. The Additions upheld are highly excessive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him.

57. Ground No.1 relates to the nature of receipt received on account of infrastructure facility and this issue has already been adjudicated by us in the foregoing appeal, in which it has been held that it is a part of rental income and to be assessed as income from house property. Following the view taken in the foregoing appeals, we hold that receipts on account of infrastructure facility is a rental income and is to be assessed under the head income from house property.

58. Ground No.2 relates to the disallowance made under section 14A of the Act. This issue has already been examined by us in the foregoing paras, in which it has been held that provisions of section 14A of the Act and rule 8D of the rules are applicable in the impugned assessment year.

However, the disallowance calculated by the Assessing Officer as per rule :-37-:

8D of the rules was not found to be correct. It has been held in the foregoing paras that investment in shares were made out of own funds of the assessee, therefore, disallowance is to be computed as per clause (3) of sub-rule (2) of rule 8D of the rules only. Accordingly, following the observations in the foregoing paras, we set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer with a direction re-compute the disallowance as per clause (3) of sub-rule(2) of rule 8D of the rules.

I.T.A. No. 62/LKW/2014:

59. Through this appeal, the assessee has assailed the order of the ld.

CIT(A) on the following grounds:-

1. The Ld. C. I. T. (A)-I, Lko, erred on facts and in law in holding infrastructure charges Rs.7,87,155-00 as Income from Other Sources, instead of Income under the head House Property, as shown by the appellant.

1.1 The Ld. C. I. T. (Appeals)-l, did not appreciate that "Infrastructure Facilities" installed in the property let out and is an integral part of Property. Thus the Rent received on it has been correctly shown as "Rental Income".

2. The Ld. C. I. T. (Appeals) erred on Facts and in Law in confirming the addition of Rs.15,07,703-00 u/s 14A of I. T. Act 1961 which is not applicable in the present sets of facts and circumstances.

4. The Additions upheld are highly excessive, contrary to the facts, law and principle of natural justice without providing sufficient opportunity to have its say on the reasons relied upon by him.

60. Ground No.1 relates to the nature of receipt received on account of infrastructure facility and this issue has already been adjudicated by us in :-38-:

the foregoing appeal, in which it has been held that it is a part of rental income and to be assessed as income from house property. Following the view taken in the foregoing appeals, we hold that receipts on account of infrastructure facility as rental income and is to be assessed under the head income from house property.

61. Ground No.2 relates to the disallowance made under section 14A of the Act. This issue has already been examined by us in the foregoing paras, in which it has been held that provisions of section 14A of the Act and rule 8D of the rules are applicable in the impugned assessment year.

However, the disallowance calculated by the Assessing Officer as per rule 8D of the rules was not found to be correct. It has been held in the foregoing paras that investment in shares were made out of own funds of the assessee, therefore, disallowance is to be computed as per clause (3) of sub-rule (2) of rule 8D of the rules only. Accordingly, following the observations in the foregoing paras, we set aside the order of the ld. CIT(A) and restore the matter to the file of the Assessing Officer with a direction re-compute the disallowance as per clause (3) of sub-rule(2) of rule 8D of the rules.

62. In the result, appeals of the assessee in I.T.A. No. 275/LKW/2010 and 24/LKW/2014 are partly allowed; I.T.A. No.62/LKW/2013; I.T.A. No. 81,LKW/2013 and I.T.A. No. 588/LKW/2012 are partly allowed for statistical purposes.

Order was pronounced in the open court on the date mentioned on the captioned page.

Sd/- Sd/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED: 31st March, 2015 JJ:181903 :-39-:

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR Assistant Registrar