Adani Properties Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-1(1), Ahmedabad

CO 305/AHD/2014

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3908 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 03-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, L LL LH HH H IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD LOZJH LOZJH LOZJH LOZJH OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA EK/KQFERK JKW; EK/KQFERK JKW; EK/KQFERK JKW; EK/KQFERK JKW;] U;KF;D LNL; ] U;KF;D LNL; ] U;KF;D LNL; ] U;KF;D LNL; DS LE{KA DS LE{KA DS LE{KA DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER 1. I.T.A. NO.2456/AHD/2013 FOR A.Y.2010-11 2. CROSS OBJECTION NO.48/AHD/2014 (IN ITA NO.2456/AHD/2013) FOR A.Y. 2010-11. 3. I.T.A. NO.2768/AHD/2014 FOR A.Y.2011-12 4. CROSS OBJECTION NO.305/AHD/2014 (IN ITA NO.2768/AHD/2014) FOR A.Y. 2011-12 THE ITO, WD.1(1), AHMEDABAD. / VS. M/S. ADANI PROPERTIES PVT. LTD. 8 TH FLOOR, SHIKHAR, NR. MITHAKHALI SIX ROAD, NAVRANGPURA, AHMEDABAD. ./ ./ PAN/GIR NO. : AABCA 3182 H ( / APPELLANT ) .. ( / RESPONDENT ) / CROSS OBJECTOR REVENUE BY : SHRI PRASOON KABRA, SR. D.R. ASSESSEE BY : SHRI S. N. SOPARKAR, A.R. / DATE OF HEARING 04/07/2018 !' / DATE OF PRONOUNCEMENT 31/07/2018 #$ / O R D E R PER BENCH: THE TWO CAPTIONED APPEALS ALONG WITH TWO CROSS OBJE CTIONS (COS) HAVE BEEN FILED AT THE INSTANCE OF THE REVENUE AND THE A SSESSEE RESPECTIVELY AGAINST THE SPEARATE APPELLATE ORDERS OF THE COMMIS SIONER OF INCOME TAX(APPEALS)-VI, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NOS. ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 2 - CIT(A)-VI/173/ITO.WD.1(1)/12-13 DATED 27/08/2013 & CIT(A)- VI/376/ITO.WD.1(1)/13-14 DATED 13/08/2014 ARISING IN THE ASSESSMENT ORDERS PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') DATED 28/12/2012 & 27/02 /2014 RELEVANT TO ASSESSMENT YEARS (AYS) 2010-11 & 2011-12 RESPECTIVE LY. SINCE THE COMMON ISSUE IS ARISING IN BOTH THE APPEA LS AND CROSS OBJECTIONS FILED BY THE REVENUE AND ASSESSEE, THERE FORE, BOTH THE APPEALS AND CROSS OBJECTIONS ARE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY WAY OF A CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.2456/AHD/2013 PERTAINING TO A.Y. 2010-11: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY DE LETING THE DISALLOWANCE U/S 14A R.W.R 8D TO THE EXTENT OF RS.3 3.84 LACS DESPITE THE FACT THAT THE ASSESSEE HAD MADE FRESH I NVESTMENT OF RS.38.39 CRORES DURING THE YEAR IN PARTNERSHIP FIRM S AND HAD EARNED MORE THAN 3/4 TH OF REVENUES IN THE FORM OF EXEMPT INCOME N/S 10(2A). THE AO HAD NOT TREATED ANY EXPENDITURE AS DIRECTLY RELATED TO EARNING EXEMPT INCOME UNDER RULE 8D(2)(I ) BUT HAD ONLY PARTLY ALLOWED THE SAME UNDER RIDE 8D(2)(II)/( III). 2. THE CIT(A) HAS OVERLOOKED THE FACT THAT THE ASS ESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS FOR EXEMPT INCOME EARN ED FROM PARTNERSHIP FIRMS (RS.37.81 CRORES) AND TAXABLE INC OME EARNED FROM RENT (RS.78.26 LACS). THE AO HAD RECORDED CLEA R FINDINGS REGARDING APPLICABILITY OF SECTION 14A TO THE FACTS OF THE CASE WHICH IS IN HUE WITH THE PROVISIONS OF SECTION 14A( 2)/(3). 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT EXPENDITURE CONSIDERED AS INCURRED IN EARNING EXEMP T INCOME CANNOT BE ADDED TO THE BOOK PROFIT U/S 115JB. THIS IS IN CONTRAVENTION OF THE PROVISIONS OF SECTION 115JB(2) EXPLANATION 1, CLAUSE (F). ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 3 - ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DI SCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED TO THE ABOVE EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS CO NO.48/AHD/2014: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A FOR RS. 7,20,940/-. THE LEARNED CIT (AP PEALS) OUGHT TO HAVE APPRECIATED THAT THESE EXPENDITURE WERE INC URRED FOR THE PURPOSE OF APPELLANT'S MAIN BUSINESS OF RENTING OF RESIDENTIAL AND COMMERCIAL PROPERTIES AND SUCH EXPENDITURE HAVE NO NEXUS WITH INVESTMENTS MADE BY APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, DISALLOWANCE UNDER SECTION 14A MADE BY ASSESSING OFFICER IS UNCA LLED FOR AS ENTIRE INVESTMENTS MADE IN PARTNERSHIP FIRMS AND IN JOINT VENTURES WERE STRATEGIC INVESTMENTS AND FOR ACQUIRI NG CONTROLLING INTEREST AND NOT FOR EARNING ANY EXEMPT INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, DISALLOWANCE UNDER SECTION 14A MADE BY ASSESSING OFFICER IS UNCA LLED FOR AS HE HAS DISALLOWED ENTIRE EXPENDITURE DEBITED IN PRO FIT & LOSS ACCOUNT ON THE ASSUMPTION THAT SAME HAS BEEN INCURR ED FOR EARNING EXEMPT INCOME WITHOUT APPRECIATING THE FACT THAT ALL THESE EXPENDITURE WERE INCURRED FOR APPELLANT'S MAI N BUSINESS OF LETTING OUT PROPERTIES. 4. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND AND/OR ALTER THE GROUND OR GROUNDS OF CROSS-OBJECTIONS EITHER BEFORE OR AT THE TIME OF HEARING. ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 4 - 4. THE ISSUES RAISED BY THE REVENUE IN THE GROUND N O. 1 & 2 AND ISSUES RAISED BY THE ASSESSEE IN ITS CO ARE COMMON, THEREFORE, WE HAVE CLUBBED THEM FOR BREVITY, CONVENIENCE, AND ADJUDICA TION. 5. THE GRIEVANCE OF THE REVENUE IS AGAINST THE DELE TION OF THE DISALLOWANCE MADE BY THE AO FOR RS. 33.84 LACS AND THE GRIEVANCE OF THE ASSESSEE IS AGAINST THE CONFIRMATION OF THE ADDITIO N MADE BY THE AO FOR RS. 7,20,945.00 ONLY. 6. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF RENTING OF COMMERCIAL AND RESIDENTIAL PROPERTIES. THE ASSESSEE IS ALSO A PARTNER IN TWO PARTNERSHIP FIRM NAMELY ADVANCE TRADEX AND CROW N INTERNATIONAL. THE ASSESSEE DURING THE YEAR RECEIVED A SHARE OF PR OFIT FROM ADVANCE TRADEX FOR RS.37.81 CRORES, WHICH WAS CLAIMED AS EX EMPT FROM TAX U/S 10(2A) OF THE ACT. BESIDES THE ABOVE, THE ASSESSEE HAS ALSO SHOWN RENTAL INCOME FOR RS.78,26,389/-, WHICH WAS OFFERED TO TAX UNDER THE HEAD BUSINESS AND PROFESSION. THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE IN RESPE CT OF ITS EXEMPTED INCOME U/S 14A OF THE ACT. AS PER THE ASSESSEE, IT HAS NOT INCURRED ANY EXPENSES FOR EARNING THE SHARE OF PROFIT FROM THE F IRM. SIMILARLY, IT HAS NOT INCURRED ANY INTEREST EXPENSE ON THE BORROWED F UND. THERE WAS ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 5 - INTEREST EXPENSE OF RS.45,360/- ONLY AND OUT OF WHI CH A SUM OF RS. 43,331/- IS ON ACCOUNT OF LATE PAYMENT OF SERVICE T AX. THE ASSESSEE FURTHER SUBMITTED THAT OUT OF THE TOTAL EXPENDITURE OF RS. 44,05,114/-, A SUM OF RS.25,92,050/- REPRESENTS THE DEPRECIATION O N ASSETS. SIMILARLY, OUT OF THE PROFESSIONAL FEE OF RS.3,58,614/- A SUM OF RS.3,00,000/- HAS ALREADY BEEN DISALLOWED IN THE COMPUTATION OF INCOM E. THEREFORE, THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE UNDER THE PROVISION OF SECTION 14A OF THE ACT. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE A SSESSEE BY OBSERVING THAT ASSESSEE HAS EARNED EXEMPTED INCOME FROM THE P ARTNERSHIP FIRM AND THEREFORE SOME AMOUNT OF EXPENSES MUST HAVE BEEN IN CURRED IN RELATION TO SUCH INCOME. THE AO ALSO OBSERVED THAT THE ASSES SEE DURING THE YEAR HAS ALSO INVESTED RS.38.39 CRORES IN THE PARTNERSHI P FIRM. ACCORDINGLY, THE AO INVOKED THE PROVISION OF SECTION 14A R.W.R. 8D AND MADE THE DISALLOWANCE AS UNDER: SR. NO. PARTICULARS AMOUNT 1. DIRECT EXPENSES UNDER RULE 8D 2(I) NIL 2. INTEREST EXPENSES UNDER RULE 8D 2(II) 41,577/- 3. ADMINISTRATIVE EXPENSES UNDER RULE 8D 2(III) 52,10, 614/- HOWEVER, THE ASSESSEE OBSERVED THAT THE EXPENSES CL AIMED AS A DEDUCTION BY THE ASSESSEE IS OF RS.41,05,114/- ONLY. THEREFOR E, HE RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS.41,05,114/- ONLY A ND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 6 - 7. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE AO HAD MADE THE DISALLOWANCE U/S 14A OF THE ACT ON PRESUMPTION BASI S AND WITHOUT ESTABLISHING THE NEXUS BETWEEN THE EXPENDITURE INCU RRED AND THE INCOME DERIVED FROM THE PARTNERSHIP FIRM. THE MAJORITY OF THE EXPENSES INCURRED BY THE ASSESS EE ARE NOT CONNECTED WITH THE SHARE OF PROFIT DERIVED FROM THE PARTNERSH IP FIRM. AS SUCH ALL THE EXPENSES INCURRED BY IT RELATE TO THE RENTAL INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE BEFORE THE LD CIT(A) FILED A DETAILED CHART OF ALL THE EXPENSES CLAIMED IN THE FINANCIAL STATEM ENTS, WHICH ARE PLACED ON PAGES 3 & 4 OF THE CIT-A ORDER. THE ASSESSEE ALSO SUBMITTED THAT IT HAD CLAIMED DEP RECIATION OF RS.25,92,050/-, WHICH PERTAINS TO THE BUSINESS OF R ENTING OF PROPERTIES. MOREOVER, THE DEPRECIATION IS NOT AN EXPENDITURE BU T AN ALLOWANCE, THEREFORE, THERE IS NO QUESTION OF MAKING THE DISAL LOWANCE U/S 14A OF THE ACT. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO IN PART BY OBSE RVING AS UNDER: 4.4 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE FACTS OF THE CASE. THE DISALLOWANCE MADE BY THE A.O. COMPRISES OF TWO COMPONENTS. THE FIRST COMPONENT IS OF RS.41,577/- UNDER RULE - 8D ( 2)(II). SINCE NO INTEREST EXPENDITURE WAS INCURRED BY THE APPELLANT ON MONIES BORROWED, DISALLOWANCE OF THE SAID SUM IS NOT SUSTAINABLE. IT IS DELETED. THE SECOND COMPONENT OF THE DISALLOWANCE IS OF RS.51,69,037/- UNDER RULE- 8D(2)(III). AS SEEN FROM THE BREAK-UP OF THE EXPEND ITURE DEBITED TO PROFIT & LOSS ACCOUNT FURNISHED BY THE LD. A.R. MOS T OF THE EXPENDITURE INCURRED WAS NOT IN CONNECTION WITH EARNING THE EXE MPT INCOME. ON A ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 7 - PERUSAL OF THE VARIOUS ITEMS OF THE EXPENDITURE, IT IS SEEN THAT THE FOLLOWING EXPENDITURE WAS NOT FOR ANY SPECIFIC PURP OSE. SR.NO PARTICULARS AMOUNT (RS.) 1 INSURANCE 44,456 2 AUDITOR 27,575 3 OTHERS 47,556 4 PERSONNEL EXPENSES 6,01,358 TOTAL 7,20,945 THEREFORE, IT IS CONSIDERED REASONABLE TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III) TO RS.7,20,945/-. BALANCE EXPENDITU RE INCURRED CANNOT BE SAID TO BE FOR EARNING EXEMPT INCOME AND THEREFO RE DISALLOWANCE OF THE BALANCE AMOUNT IS DELETED. 4.5 TO SUM-UP OUT OF THE DISALLOWANCE MADE, DISALLO WANCE TO THE EXTENT OF RS.7,20,945/- IS UPHELD. BALANCE DISALLOW ANCE IS DELETED. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD CIT(A) REVENUE A ND ASSESSEE ARE IN APPEAL BEFORE US. REVENUE IS IN APPEAL BEFORE US FO R RESTRICTING THE DISALLOWANCE MADE BY THE AO TO RS. 38.84 LACS WHERE AS THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) FOR RS.7,20,945/- ONLY. THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF AUTH ORITIES BELOW AS FAVORABLE TO REVENUE. ON THE OTHER HAND, LD. AR BEFORE US FILED A PAPER B OOK, WHICH IS RUNNING FROM PAGES 1 TO 113 AND SUBMITTED THAT INSURANCE AN D AUDIT EXPENSES COULD NOT BE CONSIDERED FOR DISALLOWANCE IN RELATIO N TO EXEMPTED INCOME. ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 8 - THE ASSESSEE BEING A BODY CORPORATE HAD TO INCUR AU DIT EXPENSES. SIMILARLY, THE ASSESSEE HAS TO INCUR THE INSURANCE EXPENSES IRRESPECTIVE OF ANY NATURE OF INCOME WHETHER DERIVED FROM THE FIRM OR NOT. HOWEVER, THE LD. AR FOR THE REMAINING EXPENSES BOOKED UNDER THE HEAD OTHER AND PERSONNEL EXPENSES AMOUNTING TO RS.47,556/- AND 6,0 1,358/- LEFT THE ISSUE AT THE DISCRETION OF THE BENCH. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AN UNDISPUTED FACT THAT THERE IS NO BORROWED FUND USED BY THE ASSESSEE IN THE INVESTMENT MADE TO THE PARTNERSHIP FIRMS. THEREFORE, THERE IS NO QUESTION OF MAKING AN Y DISALLOWANCE OF INTEREST EXPENSES. THUS, THE INTEREST EXPENSE CLAIM ED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT DOES NOT REPRESENT THE IN TEREST ON THE BORROWED FUND. ACCORDINGLY, THERE IS NO QUESTION OF MAKING T HE DISALLOWANCE U/S 14A R.W.R. 8D(2) ON ACCOUNT OF INTEREST EXPENSES. ON PERUSAL OF THE ADMINISTRATIVE EXPENSES, WE NOTE THAT ALL THE EXPENSES CLAIMED BY THE ASSESSEE CANNOT BE SAID/ CONCLUDED T O BE CONNECTED WITH THE SHARE OF PROFIT EARNED FROM THE PARTNERSHIP FIR M. THE AMOUNT OF DEPRECIATION HAS BEEN CONSIDERED FOR DISALLOWANCE U /S 14A OF THE ACT WHICH IS NOT CORRECT. WE ALSO NOTE THAT THE PROVISIONS OF SECTION 14A REQ UIRE THE AO TO RECORD THE SATISFACTION FOR THE DISALLOWANCE U/S 14A OF TH E ACT AFTER REFERRING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ASSESSEE IN THE YEAR UNDER ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 9 - CONSIDERATION HAS SHOWN FOLLOWING INCOME AS EVIDENT FROM THE FINANCIAL STATEMENT PLACED ON PAGE 17 OF THE PAPER BOOK. PARTICULARS SCHEDULE 2009-10 RUPEES INCOME RENT ON PROPERTIES PROFIT FROM PARTNERSHIP FIRM OTHER INCOME 1 7,826,369 378,166,109 3,375,834 389,368,312 THE ABOVE INCOME WAS OFFERED TO TAX UNDER THE HEAD BUSINESS AND PROFESSION AS EVIDENT FROM THE COMPUTATION OF INCOM E PLACED ON PAGE 2 OF PAPER BOOK. THE AO HAS TREATED THE ENTIRE AMOUNT OF EXPENSES AS INCURRED TOWARDS THE EARNING OF A SHARE OF PROFIT F ROM THE FIRM, WHICH IS NOT CORRECT. IT IS BECAUSE THE ASSESSEE BESIDES THE SHARE OF PROFITS HAS ALSO DISCLOSED INCOME UNDER THE HEAD OF HOUSE PROPERTY A ND OTHER SOURCES WHICH WAS DECLARED AS BUSINESS INCOME. THE REVENUE ACCEPTED THE SAME AS BUSINESS INCOME. THEREFORE, THE POSSIBILITY OF I NCURRING SUCH EXPENSES AGAINST THE RENTAL /OTHER SOURCES CANNOT BE IGNORED . THEREFORE, WE HOLD THAT THE ASSESSEE FAILED TO RECORD THE SATISFACTION BEFORE MAKING THE DISALLOWANCE OF THE EXPENSES INCURRED IN RELATION T O SUCH EXEMPTED INCOME AND HAS INVOKED THE PROVISIONS OF SECTION 14 A OF THE ACT. HOWEVER, IT CAN ALSO NOT BE HELD THAT THE ASSESSEE HAS NOT INCURRED IN ADMINISTRATIVE EXPENSES IN RELATION TO SUCH EXEMPT INCOME. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE FEEL THAT DISALLOWANCE FOR A SUM ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 10 - RS.2,00,000/- IS REASONABLE ON ACCOUNT OF ADMINISTR ATIVE EXPENSES IN THE GIVEN FACTS & CIRCUMSTANCES. ACCORDINGLY, WE HOLD T HAT THE DISALLOWANCE OF INTEREST EXPENSES CAN BE MADE UNDER SECTION 14A R.W.R. 8D(2)(III) OF I. T. RULE. ACCORDINGLY, THE AMOUNT OF ADMINISTRATIVE EXPENSES ARE DISALLOWED BY RS.2,00,000/-. THUS, THE GROUNDS OF A PPEAL OF THE REVENUE AND GROUNDS OF CO OF THE ASSESSEE ARE PARTLY ALLOWE D. 9. THE NEXT ISSUE RAISED BY THE REVENUE IN GROUND N O.3 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O FOR RS.41,05,114/- WHILE DETERMINING THE PROPERTY U/S 115JB OF THE ACT . THE AO WHILE DETERMINING THE PROFIT UNDER THE PROVI SION OF SECTION 115JB OF THE ACT DISALLOWED THE EXPENSES FOR RS. 41 ,05,114/- IN PURSUANCE TO CLAUSE (F) OF SECTION 115JB OF THE ACT . 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE D ISALLOWANCE MADE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT COUL D NOT BE APPLIED WHILE DETERMINING THE PROFIT U/S 115JB OF THE ACT. AS SUCH THERE IS CERTAIN SPECIFIED ADJUSTMENTS U/S 115JB OF THE ACT WHICH CAN BE MADE. AS PER CLAUSE (F) TO SECTION 115JB OF THE ACT ONLY THOSE EXPENDITURE RELATABLE TO EXEMPT INCOME CAN BE DISALLOWED. THERE IS NO PROVISION U/S ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 11 - 115JB OF THE ACT TO MAKE THE DISALLOWANCE ON NOTION AL / PRESUMPTION BASIS. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND AFTER HAVING A RELIANCE ON CERTAIN JUDICIAL PRONOUNCEMENT DELETED THE ADDITION MADE BY THE AO. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. THE LD DR BEFORE US SUBMITTED DISALLOWANCE NEED S TO BE MADE UNDER THE PROVISION OF MAT. THE LD. DR VEHEMENTLY SUPPORT ED THE ORDER OF AO. ON THE OTHER HAND, LD AR SUBMITTED THAT THE AMOUNT OF DISALLOWANCE MADE U/S 14A OF THE ACT CANNOT BE IMPORTED WHILE DE TERMINING THE PROFIT U/S 115JB OF THE ACT. THE LD. AR IN SUPPORT OF HIS CLAIM RELIES ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ALEMBIC LTD. IN TAX APPEAL NO.1249/2014. THE LD. AR BEFORE US SUBMITTED THAT THE FOLLOWING Q UESTION WAS RAISED BEFORE THE HONBLE ITAT: (III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, THE ITAT WAS JUSTIFIED IN HOLDING THAT ADJUSTM ENT MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT IN COMPUTATION O F BOOK PROFIT U/S115JB OF THE ACT IS NOT AS PER LAW WITHOUT APPRE CIATING THAT THE AMOUNT DISALLOWABLE UNDER SECTION 14A IS COVERED UN DER CLAUSE (F) OF EXPLANATION TO SECTION 115JB (2) AND, THUS SAID AMO UNT HAS TO BE ADDED BACK WHILE COMPUTING AMOUNT OF BOOK PROFITS? ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 12 - THE LD. AR FURTHER SUBMITTED THAT ABOVE QUESTION RA ISED BEFORE THE HONBLE GUJARAT HIGH COURT WAS ANSWERED AS BELOW: 8. TAKING INTO CONSIDERATION THE EVIDENCE ON RECOR D AND CONSIDERING THE DECISION OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX I VS. GUJARAT STATE FERTILIZERS & CHEM ICALS LTD. (SUPRA), WE ARE OF THE OPINION THAT ISSUE NOS. (III) AND (IV ) REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THAT VIEW OF THE MATTER, WE ANSWER QUESTIONS (III) AND (IV) R EFERRED TO US IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL OF REVENUE IS DISMISSED. THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF LD. CI T(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS SETTLED LAW THAT THE AMO UNT OF DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT CANNOT BE IMPORTE D WHILE DETERMINING THE PROFIT U/S 115JB OF THE ACT. IN THI S REGARD, WE RELY ON THE JUDGMENT CITED BY THE LD AR FOR THE ASSESSEE IN THE CASE OF ALEMBIC LTD. (SUPRA). WE ALSO NOTE THAT IN THE RECENT JUDGMENT OF SPECIAL BENCH OF HONBLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVES TMENT PVT. LTD. REPORTED IN 82 TAXMANN.COM 415 THAT THE DISALLOWANC ES MADE U/S 14A R.W.R. 8D CANNOT BE THE SUBJECT MATTER OF DISALLOWA NCES WHILE DETERMINING THE NET PROFIT U/S 115JB OF THE ACT. TH E RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED BELOW: IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 13 - RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. THE RATIO LAID DOWN BY THE HONBLE TRIBUNAL IS SQUA RELY APPLICABLE TO THE FACTS OF THE CASE. THUS IT CAN BE CONCLUDED THAT TH E DISALLOWANCE MADE UNDER SECTION 14A R.W.R. 8D CANNOT RESORT WHILE DET ERMINING THE EXPENSES AS MENTIONED UNDER CLAUSE (F) TO EXPLANATION 1 TO S ECTION 115JB OF THE ACT. HOWEVER, IN OUR CONSIDERED VIEW THE DISALLOWANCE NE EDS TO BE MADE AS PER CLAUSE (F) TO SECTION 115JB OF THE ACT INDEPEND ENTLY. THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RELIED ON BY THE LD A R IN THE CASE OF ALEMBIC LTD. (SUPRA) , DOES NOT DENY TO MAKE THE DISALLOWANCE AS PER CLAUSE (F) U/S 115JB OF THE ACT. THUS IT IS CLEAR THAT THE DISALLOWANCE NEEDS TO BE MADE IN TERMS OF THE PROVISIONS OF CLAUSE (F) TO SECTION 115JB OF THE AC T WHILE DETERMINING THE BOOK PROFIT. IN HOLDING SO, WE DRAW OUR SUPPORT FRO M THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. IN GO NO.1501 OF 2014 (ITAT NO.47 OF 2014) DATED 19.11.14 WHEREIN IT WAS HELD THAT THE DISALLOWANCE ABOUT EXEMPTED INCOME NEEDS TO BE MADE AS PER THE CLAUSE (F) TO EX PLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY. THE RELEVANT EXTRAC T OF THE JUDGMENT IS REPRODUCED BELOW:- WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE R ELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSESSEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUT ATION MUST BE MADE BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTI ON 115JB OF THE ACT. ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 14 - WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MAD E BY THE LEARNED TRIBUNAL. WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SE NIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COM PUTATION IS A COMPLETE CODE IN ITSELF AND RESORT NEED NOT AND CAN NOT BE MADE TO SECTION 14A OF THE ACT. GIVEN ABOVE, WE HOLD THAT THE DISALLOWANCES MADE UN DER THE PROVISIONS OF SEC. 14A R.W.R. 8D OF THE IT RULES, CANNOT BE AP PLIED TO THE PROVISION OF SEC. 115JB OF THE ACT AS PER THE DIRECTION OF TH E HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. (SUPRA). NOW THE QUESTION ARISES TO DETERMINE THE DISALLOWAN CE AS PER THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEP ENDENTLY. HOWEVER, WE ALSO NOTE THAT THERE IS NO MECHANISM GIVEN UNDER THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT TO WORKOUT/ DETERMINE THE DISALLOWANCE. THEREFORE IN THE GIVEN FACTS & CIRCUM STANCES, WE FEEL THAT AD-HOC DISALLOWANCE WILL SERVICE THE JUSTICE TO THE REVENUE AND ASSESSEE. WE, THEREFORE, ARE DIRECTING FOR THE AD-HOC DISALLO WANCE TO AVOID THE MUTIPLICITY OF THE PROCEEDINGS AND UNNECESSARY LITI GATION. THUS WE DIRECT THE AO TO MAKE THE DISALLOWANCE OF RS. 2 LACS UNDER CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT. WE ALSO FEE L TO BRING THIS FACT ON RECORD THAT WE HAVE RESTORED OTHER CASES INVOLVING IDENTICAL ISSUES TO THE FILE OF AO FOR MAKING THE DISALLOWANCE AS PER THE C LAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTL Y. BUT NOW WE NOTE THAT THERE IS NO MECHANISM PROVIDED UNDER THE CLAUS E (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT TO MAKE THE DISALLOWANCE I NDEPENDENTLY. ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 15 - THEREFORE OUR ACTION FOR RESTORING BACK THE ISSUE T O THE FILE OF AO WOULD UNNECESSARILY CAUSE FURTHER LITIGATION. THUS WE LIM IT THE DISALLOWANCE ON AN AD-HOC BASIS FOR RS. 2 LACS AS PER THE CLAUSE (F ) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT. THUS THE GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE AND CO OF THE ASSESSEE BOTH ARE PARTLY ALLOWED. COMING TO OTHER APPEAL OF REVENUE IN ITA 2768/AHD/2 014 & CO 305/AHD/2014 OF THE ASSESSEE. 13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL IN ITA NO.2768/AHD/2014 PERTAINING TO A.Y. 2011-12: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RE STRICTING THE DISALLOWANCE U/S. 14A R.W.R. 8D TO THE EXTENT OF RS .10,51,967/- DESPITE THE FACT THAT THE ASSESSEE HAD MADE FRESH I NVESTMENT OF RS.175.27 CRORES DURING THE YEAR IN PARTNERSHIP FIR MS AND HAD EARNED MAJOR CHUNK OF REVENUES IN THE FORM OF EXEMP T INCOME U/S 10(2A). 2. THE CIT(A) HAS OVERLOOKED THE FACT THAT THE ASS ESSEE HAD NOT MAINTAINED SEPARATE ACCOUNTS FOR EXEMPT INCOME EARN ED FROM PARTNERSHIP FIRMS (RS.102.75 CRORES) AND TAXABLE IN COME EARNED FROM RENT (RS.80.73 LACS). THE AO HAD RECORDED CLEA R FINDINGS REGARDING APPLICABILITY OF SECTION 14A TO THE FACTS OF THE CASE WHICH IS IN HUE WITH THE PROVISIONS OF SECTION 14A( 2)/(3). 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT EXPENDITURE CONSIDERED AS INCURRED IN EARNING EXEMP T INCOME CANNOT BE ADDED TO THE BOOK PROFIT U/S 115JB. THIS IS IN ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 16 - CONTRAVENTION OF THE PROVISIONS OF SECTION 115JB(2) EXPLANATION 1, CLAUSE (F). ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DI SCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED TO THE ABOVE EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 14. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N ITS CO NO.305/AHD/2014 PERTAINING TO A.Y. 2011-12: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S14A OF THE I.T. ACT TO THE EXT ENT OF RS.10,51,967/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN COMPLETING IGNORING THE FACTUAL POSITION P LACED BEFORE HIM THAT THE AFORESAID EXPENDITURE OF RS.10,51,967/ - COMPRISED OF EXPENSES UNDER THE HEADS INSURANCE, AUDITOR FEES , OTHER EXPENSES AND PERSONNEL EXPENSES WHICH ENTIRELY PERT AIN TO THE ASSESSEES MAIN BUSINESS OF RENTING OF RESIDENTIAL AND COMMERCIAL PROPERTIES AND THE SAME HAD NO NEXUS WHA TSOEVER WITH ANY EXEMPT INCOME EARNED BY THE ASSESSEE COMPA NY. 3. THE RESPONDENT CRAVES LEAVE TO ADD, AMEND AND/OR ALTER THE GROUND OR GROUNDS OF CROSS-OBJECTIONS EITHER BEFORE OR AT THE TIME OF HEARING. 15. AT THE OUTSET IT WAS OBSERVED THAT THE IMPUGNED ISSUES RAISED BY THE REVENUE AND OBJECTED BY THE ASSESSEE IN ITS CO HAVE ALREADY BEEN DECIDED BY US VIDE PARA NO. 11 & 12 OF THIS ORDER IN THE OWN CASE OF ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 17 - ASSESSEE IN ITA NO. 2456/AHD/2013 & CO NO.48/AHD/20 14. BOTH THE PARTIES AGREED WHATEVER VIEW WILL BE TAKEN IN ITA N O. 2456/AHD/2013 & CO NO.48/AHD/2014 WILL ALSO BE APPLIED TO THIS CASE ALSO. AS WE HAVE ALREADY DECIDED THE ISSUE IN PARTLY IN FAVOR OF REV ENUE IN ITA NO. 2456/AHD/2013 & PARTLY IN FAVOR OF ASSESSEE IN CO N O.48/AHD/2014, RESPECTFULLY FOLLOWING THE SAME THE ISSUE RAISED BY REVENUE & ASSESSEE IS ALSO PARTLY ALLOWED IN THIS APPEAL. 16. IN THE COMBINED RESULT, THE BOTH THE APPEALS FI LED BY THE REVENUE AND BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 31/07/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LN L; L; L; L; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 31/07/2018 PRITI YADAV, SR.PS ITA NO.2456/AHD/2013 & CO NO.48/AHD/14 ITA NO.2768/AHD/2014 & CO NO.305/AHD/2014 M/S. ADANI PROPE RTIES PVT. LTD. ASST.YEARS 2010-11 & 2011-12 - 18 - ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. % &' ( / CONCERNED CIT 4. ( () / THE CIT(A)-VI, AHMEDABAD. 5. +,- ..&' , &'' , 01#%# / DR, ITAT, AHMEDABAD 6. -23 4 / GUARD FILE. # $ / BY ORDER, + . //TRUE COPY// %/$ &' ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD