Hi-Tech Housing Projects Private Limited, CHENNAI V. DCIT, CHENNAI

CO 161/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9039 (ITAT-CHENNAI)
• Duration Of Justice: 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 17-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N SANKARAN IRS
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER ITA NO. 2197/MDS/2012 ASSESSMENT YEAR : 2009-10 AND C.O.NO.161/MDS/2013 (IN ITA NO.2197/MDS/2012) THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(2), CHENNAI 600 034. VS. M/S. HI TECH HOUSING PROJECTS PVT. LTD., MENA KAMPALA ARCADE, 3 RD FLOOR, A BLOCK, B WING, 113-114, SIR THEYAGARAYA ROAD, T. NAGAR, CHENNAI 600 017. PAN AAACH2527C (APPELLANT) (RESPO NDENT/CROSS OBJECTOR) APPELLANT BY : SHRI N.SANKARA N, IRS, CIT RESPONDENT BY : SHRI SRIRAM SESHADRI, CA DATE OF HEARING : 21 ST OCTOBER, 2013 DATE OF PRONOUNCEMENT : 21 ST OCTOBER, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THE RELEVANT A SSESSMENT YEAR ITA 2197/12 & CO 161/13 :- 2 -: IS 2009-10. THE APPEAL AND THE CROSS OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III AT CHENNAI, DATED 17.8.2012. THE APPEAL AND THE C ROSS OBJECTION ARISE OUT OF THE ASSESSMENT COMPLETED UND ER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. WE HEARD SHRI N. SANKARAN, THE LEARNED COMMISSIO NER OF INCOME-TAX APPEARING FOR THE REVENUE AND SHRI SRIRA M SESHADRI, CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE. 3. THE DETAILED GROUNDS RAISED BY THE REVENUE IN TH E APPEAL READ AS BELOW : 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE MADE U/S 14A RW RULE 8D (II) TO THE EXTENT OF ` .6.89 CRORES. 2.1 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ASSESSEE HAD FAILED TO PROVE WITH CASH FLO W ANALYSIS AND BANK STATEMENT THAT THE SAID AMOUNT OF ` .378.00 CRORES RECEIVED FROM M/S. VANTAGE REALITY P . LTD. HAD GONE INTO THE REMAINING INVESTMENT AT THE TIME OF SCRUTINY PROCEEDINGS; ITA 2197/12 & CO 161/13 :- 3 -: 2.2 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ASSESSING OFFICER HAD ALSO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, SEVERAL INTERE ST FREE ADVANCES WERE GIVEN AND AN AMOUNT OF ` .81.13 CRORES WERE REPAID TO SIVA VENTURES LTD. TOWARDS SHARE APPLICATION MONEY; 2.3 THE LD CIT(A) FAILED TO APPRECIATE THAT THE DECISION OF THE HONBLE DELHI ITAT IN THE CASE OF ESCORTS LTD. VS. ACIT (102 TTJ 522) IS APPLICABLE T O THE FACTS OF THE CASE WHEREIN IT WAS HELD THAT INDI RECT MANAGEMENT AND ADMINISTRATIVE EXPENSES QUALIFY FOR DISALLOWANCE U/S.14A; 2.4 THE LD CIT(A) OUGHT TO HAVE GIVEN AN OPPORTUNI TY UNDER RULE 46A TO THE ASSESSING OFFICER TO EXAMINE THE ADDITIONAL DETAILS PRODUCED BEFORE THE CIT(A) I N SUPPORT OF THE CASH FLOW STATEMENT; 2.5 THE LD CIT(A) OUGHT TO HAVE CALLED FOR A REMAN D REPORT IN VIEW OF THE DECISION OF THE MADRAS HIGH C OURT IN TC(A) NO.686 OF 2005 AND 2 OF 2009 DATED 27.03.2012 IN THE CASE OF CIT, CENTRAL II VS KU PA KRISHNAN. 2.6 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (313 ITR 340) WERE RENDERED IN THE CONTEXT OF DISALLOWANCE ITA 2197/12 & CO 161/13 :- 4 -: U/S.36(1)(III) OF THE ACT AND IN THE INSTANT CASE, THE ISSUE WAS WHETHER INVESTMENTS WERE MADE OUT OF THE INTEREST BEARING FUNDS AND IT CALLS FOR DISALLOWANC E OF PROPORTIONATE INTEREST TOWARDS DISALLOWANCE U/S.14A ; 3. THE LD CIT(A) ERRED IN RESTRICTING THE DISALLOW ANCE U/S 14A TO THE THIRD LIMB OF RULE 8D OF THE ACT TO THE EXTENT OF ACTUAL EXPENDITURE CLAIMED BY THE ASSESSE E; 3.1 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THIRD LIMB OF RULE 8D PROVIDES THAT DISALLOWAN CE U/S.14A HAS TO BE COMPUTED BY WORKING OUT 0.5% OF THE AVERAGE VALUE OF INVESTMENTS AS ON THE 1 ST DAY AND LAST DAY OF THE RELEVANT ASSESSMENT YEAR AND THERE IS NO PROVISION IN THE ACT TO RESTRICT THE DISALLOWANC E TO THE ACTUAL EXPENDITURE CLAIMED IN THE PROFIT AND LO SS ACCOUNT; 4. THE LD CIT(A) ERRED IN RESTRICTING THE DISALL OWANCE OF INTEREST U/S.36(1)(III) TO ` . 7.44 CRORES BY COMPUTING THE BORROWED FUNDS NOT USED FOR THE PURPOSE OF BUSINESS AT ` .63.96 CRORES OUT OF THE TOTAL FUNDS OF ` .156.66 CRORES; 4.1 THE LD CIT(A) ERRED IN HOLDING THAT THE BORROW ED FUNDS TO THE EXTENT OF ` .92.70 CRORES WERE UTILISED TOWARDS BUSINESS PURPOSE ONLY; ITA 2197/12 & CO 161/13 :- 5 -: 4.2 THE LD CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ASSESSEE COULD NOT PROVE THE NEXUS BETWEE N THE INTEREST BEARING LOANS AND APPLICATION OF FUNDS IN THE BUSINESS TO THE EXTENT OF ` .92.70 CRORES OUT OF THE TOTAL FUNDS OF ` .156.66 CRORES; (156.66 63.96 CR.) 4. ON GOING THROUGH THE ORDERS OF THE ASSESSING AUT HORITY AND THE COMMISSIONER OF INCOME-TAX(APPEALS), WE FIND TH AT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS NOT RECONCI LED THE CRUCIAL FIGURES CONCERNING THE ISSUES OF DISALLOWAN CE UNDER SEC.14A AND DISALLOWANCE UNDER SEC. 36(1)(III). 5. IN THE MATTER OF DISALLOWANCE MADE UNDER SEC.14A , THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS NOT EXAMINE D IN DETAIL THE AMOUNTS ADVANCED BY THE ASSESSEE TOWARDS SHARE APPLICATION MONEY WITH M/S. SHIVA VENTURES LTD. THE CORRECT FU ND FLOW REFLECTED IN THE HANDS OF THE ASSESSEE WITH SUPPORT ING EVIDENCES HAS NOT BEEN BROUGHT OUT ON RECORD TO EXAMINE, WHET HER THE CONTENTIONS PLACED BY THE ASSESSEE BEFORE THE TRIBU NAL OUGHT TO BE ACCEPTED OR NOT. THE AMOUNTS INVOLVING INTEREST -FREE FUNDS, INTEREST-BEARING FUNDS AND DISTRIBUTION TO DIFFEREN T DESTINATIONS, ALL CALL FOR PROPER VERIFICATION TO COME TO AN UNDISPUT ED FINDING OF FACT. ITA 2197/12 & CO 161/13 :- 6 -: 6. SAME IS THE CONDITION REGARDING THE ISSUE OF DIS ALLOWANCE OF INTEREST UNDER SEC.36(1)(III). WHAT THE COMMISSION ER OF INCOME- TAX(APPEALS) HAS DONE IS TO APPLY THE RATE OF INTER EST ON INTEREST- BEARING BORROWED FUNDS ON THE BASIS OF THE COST OF FUNDS TO THE ASSESSEE. BUT THE COMPUTATION OF COST IS NOT CLEAR . 7. IN THESE CIRCUMSTANCES, WE FIND THAT THE FACT SH EET OF THIS CASE IS NOT COMPLETE. DETAILS HAVE TO BE OBTAINED AND FIGURES TO BE VERIFIED. WITHOUT THIS BASIC EXERCISE, IT IS NO T POSSIBLE TO COME TO A FINDING OF FACT. 8. IN THE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) AND REMIT BACK THE MATTER TO THE ASSESSING OFFICER FOR DOING THE ASSESSMENT A FRESH AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE B EFORE HIM AS WELL AS BEFORE THE COMMISSIONER OF INCOME-TAX(APPEA LS). 9. THERE IS A DELAY OF 277 DAYS IN FILING THE CROSS OBJECTION FILED BY THE ASSESSEE. THE ONLY REASON STATED BY THE ASS ESSEE IN THE CONDONATION PETITION IS THAT THE DELAY WAS NEITHER DELIBERATE NOR WILLFUL NOR WITH ANY MALAFIDE INTENTIONS. BUT FOR THE ABOVE, NO ITA 2197/12 & CO 161/13 :- 7 -: FACTUAL REASON IS EXPLAINED BEFORE US. IN THE CIRC UMSTANCES, THE DELAY CANNOT BE CONDONED. 10. IN RESULT, THE APPEAL FILED BY THE REVENUE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJE CTION FILED BY THE ASSESSEE IS DISMISSED AS BARRED BY LIMITATION. ORDER PRONOUNCED ON MONDAY, THE 21 ST OF OCTOBER, 2013 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 21 ST OCTOBER, 2013. MPO* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.