Addition cannot be made solely based on ITS/AIR information without further evidence

Housing Finance Company’s Varied Deduction Claims and Tax Disputes Resolved

Addition cannot be made solely based on ITS/AIR information without further evidence

Overall Theme: The case revolves around a housing finance company (assessee) and its disputes with the tax authorities regarding the eligibility and computation of various deductions claimed under the Income-tax Act, 1961. The disputes cover a wide range of issues, including deductions related to housing finance, infrastructure loans, securitization of debt, employee stock options, dividend income, and more.

Key Issues and Decisions:

• Section 36(1)(viii) – Deduction for Housing Finance:
  • Interest income from non-residential purposes is not eligible for deduction. (In favor of revenue)
  • Profits from housing loans for less than five years are eligible for deduction. (In favor of assessee)
  • Income from temporary deployment of funds in treasury operations is eligible for deduction. (In favor of assessee)
  • Deduction on interest income from infrastructure loans is allowed. (In favor of assessee)
  • Income from securitized housing loans is eligible for deduction. (In favor of assessee)
• Section 14A – Disallowance for Exempt Income:
  • The Assessing Officer must record objective satisfaction before invoking Rule 8D for disallowance. (In favor of assessee)
• Section 37(1) – Business Expenditure:
  • Discount on grant of stock options to employees is allowed as revenue expenditure. (In favor of assessee)
  • Club subscription fees are allowed as revenue expenditure. (In favor of assessee)
  • FCCB issue expenses are allowed as revenue expenditure. (In favor of assessee)
  • ESOS expenditure is allowed as deduction. (In favor of assessee)
  • Year-end provisions for expenses are allowed. (In favor of assessee)
• Section 80M – Deduction for Inter-corporate Dividends:
  • Gross dividend should be reduced by expenditure exclusively for earning such income. (In favor of assessee)
• Section 54EC – Deduction for Investment in Certain Bonds:
  • Deduction is available even if capital gains are deemed short-term under Section 50. (In favor of assessee)
• Section 70 – Set-off of Losses:
  • Assessee has the choice to set off short-term capital loss against any other short-term capital gain. (In favor of assessee)
• Section 115U – Venture Capital Fund Income:
  • Addition cannot be made solely based on ITS/AIR information without further evidence. (In favor of assessee)
• Section 50C – Special Provision for Full Value of Consideration:
  • Value determined by DVO is relevant for the purpose of this section. (In favor of assessee)
• Section 115-O – Tax on Distributed Profits:
  • DDT is to be computed on the net amount of dividend after deducting DDT already paid by subsidiaries. (In favor of assessee)
• Section 92BA – Specified Domestic Transactions:
  • Transactions falling under the omitted clause (i) cannot be subjected to transfer pricing adjustments. (In favor of assessee)
• Section 115JB – Minimum Alternate Tax:
  • No addition is to be made for year-end provisions that are ascertained liabilities. (In favor of assessee)
• Section 36(1)(viia) – Bad Debts:
  • Housing finance companies are eligible for deduction under the amended section. (In favor of assessee)

Important Note: This summary provides a general overview of the case. It is crucial to refer to the full text of the judgment for a complete understanding of the facts, legal arguments, and reasoning behind each decision.