Adyar Gate Hotels Limited, CHENNAI V. DCIT, CHENNAI

CO 81/CHNY/2014

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3038 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 01-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 22-07-2014
• Court: TRIBUNAL
• Department Lawyers: M V
• Assessee Lawyers: SUPRIYO PAL
• Keywords: Business income; Wholly owned subsidiary
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.1843/MDS./2014 ASSESSMENT YEAR : 2010-11 & C.O. NO.81/MDS./2014 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 1(1), CHENNAI 600 034. VS. M/S.ADYAR GATE HOTEL LTD ., 132, TTK ROAD, CHENNAI 600 018. [PAN AAACA 9041 L ] ( )* / APPELLANT) ( +,)* /RESPONDENT/ CROSS OBJECTOR) / APPELLANT BY : MR.SUPRIYO PAL, JCIT, DR /RESPONDENT BY : MR.K.S.SATHYANARAYANAN, CHIEF FINANCIAL OFFICER & MR.M.V.SANTHOSH, MANAGER FINANCE / DATE OF HEARING : 04 - 05 - 2017 / DATE OF PRONOUNCEMENT : 02.06 - 2017 - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE AND CROSS OBJECTIONS FILE D BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD.CIT(A)-I, CHEN NAI, DATED 31.03.2014 PERTAINING TO ASSESSMENT YEAR 2010-11. ITA NO.1843/MDS./14 :- 2 -: 2. THE FIRST ISSUE IN REVENUES APPEAL IS WITH REG ARD TO TREATING THE RENTAL INCOME OF ` 8,87,98,620/- DERIVED FROM LETTING OUT THE BUILDING SAI REAL TECH PARK AS INCOME FROM OTHER SOURCES BY LD.CIT(A) AS AGAINST THE AOS TREATMENT OF THE SAME UNDER THE H EAD INCOME FROM HOUSE PROPERTY. 3. THE FACTS OF THE ISSUE ARE THAT THE AO TREATED THE RENTAL INCOME OF ` 8,87,98,620/- DERIVED FROM LETTING OUT THE BUILDING SAI REAL TECH PARK AS INCOME FROM HOUSE PROPERTY AS AGAINST THE TREATMENT OF THE SAME UNDER BUSINESS INCOME BY THE ASSESSEE. AGGRIE VED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). O N APPEAL, LD.CIT(A) PLACING RELIANCE ON THE EARLIER ORDER OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1502/MDS./2012 VIDE ORDER DATED 14.12.2012, OBSE RVED THAT INCOME DERIVED FROM LETTING OUT BUILDING CAN BE CON SIDERED AS INCOME FROM OTHER SOURCES. AGAINST THIS, THE REVENUE IS I N APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDERATION BEFOR E THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1502/MDS./2012 VIDE ORDER DATED 14.1.2.2010 WHE REIN THE TRIBUNAL HELD AS FOLLOWS:- 11. A PERUSAL OF THE EARLIER ORDERS OF THE TRIBUNA L ON RECORD (PAGE 112 TO 178 OF THE PAPER BOOK) SHOWS THAT IDENTICAL ISSUE RELATING TO TAXABILITY OF THE INCOME FROM THE BUILDING SAI REA L TECH PARK HAS ITA NO.1843/MDS./14 :- 3 -: BEEN ADJUDICATED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.2168/MDS/2010 ON 15 TH DECEMBER, 2011 AND FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09 IN ITA NO.1572 & 1573/MDS/2011 RESPECTIVELY DECIDED ON 31.07.2012. T HE TRIBUNAL VIDE ORDER DATED 15 TH DECEMBER, 2011 HAS HELD AS UNDER:- 35. THUS, THE ASSESSEE-COMPANY HAS GIVEN ON RENT ( BY STEPPING INTO THE FOOTING OF THE EARLIER COMPANY REAL VALUE PROMOTERS PVT. LTD) THE BUILDING NAMELY SAI REAL TECH PARK TO M/ S TCS, BOTH THE AGREEMENTS ARE WITH THE SAME ENTITY. THE ONLY INFER ENCE WHICH CAN BE DRAWN FROM THE FACTS OF THIS CASE ARE THAT THE P ARTIES INTENTION TO EXECUTE THESE TWO AGREEMENTS ON THE SAME DATE WERE THAT BOTH THE AGREEMENT HAD TO BE ENJOYED TOGETHER. FURTHERMORE, M/S TCS IS ENGAGED IN SOFTWARE/INFORMATION TECHNOLOGY BUSINESS FOR WHICH A BUILDING SIMPLICITOR WITHOUT FACILITIES IN QUESTION WOULD BE USELESS. MOREOVER, BOTH THESE ITEMS I.E BUILDING AND THE FAC ILITIES CANNOT BE SEPARATELY USED FOR ANY PURPOSE AND THEY HAVE TO BE JOINTLY USED. IN CASE THE BUILDING ALONE IS GIVEN ON LEASE, IT WILL BECOME USELESS WITHOUT THE FACILITIES IN QUESTION. MOREOVER, IF TH E FACILITIES ARE GIVEN ON RENT ALONE THESE CANNOT BE UTILIZED WITHOUT THE BUILDING. THE ARGUMENT OF THE LD.DR THAT MOST OF THE FACILITIES A RE SUCH FACILITIES WHICH ARE USUALLY GO WITH A BUILDING TO GIVE THE SA ME ON RENT WOULD NOT APPLY IN THE GIVEN CASE WHERE THE PROPERTY ITSE LF IS MEANT FOR A SPECIFIED UTILITY I.E SOFTWARE AND INFORMATION TECH NOLOGY. SO, THE INTENTION OF BOTH THE PARTIES WAS TO USE BOTH BUILD ING AND FACILITIES ALTHOUGH SEPARATE AGREEMENTS WERE DRAWN, MAY BE FOR QUANTIFYING THE AMOUNT OF LEASE/HIRE CHARGES. THEREFORE, IT IS A CASE WHERE THE BUILDING AND FACILITIES CANNOT BE SEPARATELY LET OU T, THE TOTAL BUILT-UP AREA IS 2,50,260 SQ FT CONSISTING OF FOUR LEVELS. T HE ENTIRE SPACE HAS BEEN LET OUT TO M/S TCS. WHEN THE ASSESSEE-COMPANY HAS INCURRED SUCH HUGE COSTS IT CANNOT AFFORD TO EITHER KEEP THE BUILDING OR THE FACILITIES IDLE. M/S TCS BEING THE LARGEST SOFTWARE COMPANY OF INDIA, IT CANNOT AFFORD TO ALLOW ANY OTHER COMPETITOR IN T HE SAME BUILDING OR TO ENJOY THE FACILITIES FOR THAT MATTER. THUS, F OR M/S TCS IT WOULD NOT BE POSSIBLE TO CONDUCT ITS BUSINESS IN THE BUIL DING WITHOUT ALL THE FACILITIES REQUIRED IN CASE OF A SOFTWARE COMPANY. THUS, THE FACT THAT BOTH THE BUILDING AS WELL AS THE FACILITIES WERE LE T OUT TOGETHER AND NOT SEPARATELY IS ESTABLISHED FROM THE FACTS OF THE CASE. THEREFORE, WE CAN SAFELY HOLD THAT LETTING OUT OF THE BUILDING IS INSEPARABLE FROM LETTING OUT OF THE FACILITIES. THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF SULTAN BROTHERS PVT. LTD (SUPRA) APPLIES ON ALL FORCES TO THE FACTS OF THE GIVEN CAS E. THEREFORE, THE ALTERNATE PLEA OF THE ASSESSEE HAS TO BE ALLOWED AN D CONFIRMED AS THE LD. CIT(A) HAS ALREADY TAKEN SIMILAR VIEW. WITH OUR ABOVE OBSERVATIONS, THE GROUNDS RAISED BY THE REVENUE AND THE ASSESSEE IN THIS REGARD IN THEIR RESPECTIVE APPEALS, STAND D ISMISSED. ITA NO.1843/MDS./14 :- 4 -: 12. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE PRESENT CONTROVERSY WITH REGARD TO TAXABILITY OF TH E INCOME FROM LETTING OUT OF BUILDING HAS ALREADY BEEN LAID TO RE ST BY THE TRIBUNAL. WE RESPECTFULLY FOLLOW THE EARLIER ORDER OF THE TRI BUNAL ON THE ISSUE. WE, THEREFORE, ACCEPT THE ALTERNATIVE PLEA OF THE A SSESSEE AND DIRECT THE ASSESSING OFFICER TO ASSESS THE INCOME FROM BUI LDING UNDER THE HEAD INCOME FROM OTHER SOURCES. THE MAIN PLEA OF THE ASSESSEE THAT THE INCOME FROM BUILDING IS TO BE TREATED AS INCOME FROM BUSINESS IS REJECTED AND SIMILARLY THE GROUNDS RAI SED BY THE REVENUE IN ITS APPEAL FOR TREATING THE INCOME FROM BUILDING IN QUESTION AS INCOME FROM HOUSE PROPERTY IS ALSO REJECTED. 4.1 IN VIEW OF THIS, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE REVENUE IN ITS APPEAL. 5. THE NEXT ISSUE IN REVENUES APPEAL IS WITH REGA RD TO DELETION OF DISALLOWANCE OF INTEREST TO THE TUNE OF ` 2,88,750/- MADE BY THE AO ON ACCOUNT OF INTEREST FREE ADVANCES MADE TO A CHAR ITABLE INSTITUTION IN WHICH THE PROMOTER M.D AND THE JT. M.D OF THE ASSES SEE COMPANY WERE INTERESTED. 6. AFTER HEARING BOTH THE PARTIES, THIS ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OW N CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NO.735/MDS./2008 VID E ORDER DATED 06.03.2009 WHEREIN THE TRIBUNAL HELD AS FOLLOWS:- ITA NO.1843/MDS./14 :- 5 -: 19. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT T HAT THE ADVANCE AMOUNT GIVEN TO THE O.P.GOYAL CHARITABLE T RUST IN THE YEAR ENDING MARCH 1997 WAS A SUM OF RS.82,00,000/- AND FROM THE RELEVANT ASSESSMENT YEAR TILL THE YEAR ENDING 31ST MARCH, 2004, NO SUCH DISALLOWANCE OF INTEREST FOR DIVERSION OF FUND S HAD BEEN MADE BY THE DEPARTMENT. WE ALSO FIND THAT NO FURTHER ADVANC E WAS GIVEN DURING THIS YEAR OR IMMEDIATELY PRECEDING YEAR AND AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, INTEREST CANNOT BE DISALLOWED THIS YEAR SUDDENLY WHEN NO ADVANCE WAS G IVEN DURING THIS YEAR, AND WHAT IS OUTSTANDING IS ONLY OPENING BALAN CE. THERE IS ALSO FORCE THE CONTENTION OF THE LEARNED COUNSEL THAT TH E AMOUNT LENT OUTSTANDING WAS ONLY 1.25% OF THE ASSESSES TOTAL I NCOME APPLYING THE RATIO OF APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION V. CIT AND ANOTHER CITED SUPRA, THIS CAN BE CONSTRUED AS A MOUNT LENT OUT OF OWN FUNDS. WE FIND THAT THE CASE LAWS RELIED ON BY THE LEARNED D.R. FOR THE PROPOSITION THAT RES JUDICATA IS NOT APPLIC ABLE OR NOT RELEVANT SINCE THE FACTS IN THAT CASE WERE DIFFERENT. WE ALS O FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL THAT THE DEPARTME NT SHOULD BE CONSISTENT IN ITS APPROACH IN VIEW OF THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SRIDEV ENTERPRISES CITED SUPRA. WE FIND THAT THE FACTS ARE IDENTICAL IN THE PRESENT CA SE TO THAT REPORTED IN 192 ITR 162. IN THAT CASE IT WAS HELD AS UNDER:- THE AMOUNT DUE FROM N ON THE FIRST DAY OF THE ACCO UNTING Y WAS THE AMOUNT THAT STOOD OUTSTANDING ON THE LAST DAY OF TH E PREVIOUS ACCOUNTING YEAR END, AND THEREFORE, ITS NATURE AND STATUS COULD NOT BE DIFFERENT FROM ITS NATURE AND STATUS AS ON THE LAST DAY OF THE PREVIOUS YEAR. REGARDING PAST YEARS, THE ASSESSEES CLAIMS F OR DEDUCTION WERE ALLOWED IN RESPECT OF THE SUMS ADVANCED DURING THOS E YEARS. THIS COULD BE ONLY ON THE ASSUMPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THIS FINDING DURING THE PREVIOUS YEARS WAS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURI NG THE PAST YEARS. IT WOULD NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PREVIOUS YEARS ASSESSMENTS. ITA NO.1843/MDS./14 :- 6 -: 20. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY AND A S SUCH, FOR THE ABOVE REASONS, WE UPHOLD THE SAME. 6.1 IN VIEW OF THIS, WE ARE INCLINED TO DISMISS T HE GROUND TAKEN BY THE REVENUE IN ITS APPEAL. 6.2 IN THE RESULT, THE REVENUES APPEAL IN ITA NO. 1843/MDS./2014 IS DISMISSED. CROSS OBJECTIONS : 7. THE FIRST OBJECTION RAISED IN C.O BY THE ASSESS EE IS WITH REGARD TO CONFIRMING THE DISALLOWANCE U/S.14A OF THE ACT R EAD WITH RULE 8D OF THE INCOME TAX RULES, 1962 AS NO BORROWINGS WERE UN DERTAKEN FOR MAKING INVESTMENTS. 7.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE C OMPANY HAS MADE INVESTMENTS IN SHARES OF VARIOUS COMPANIES AND IN T HE CAPITAL OF PARTNERSHIP FIRM, M/S.PARMALAKSHMI RESTAURANT AND T HE ASSESSEE RECEIVED DIVIDEND OF ` 29,21,953/- FROM ITS VARIOUS INVESTMENTS. THE ASSESSEE COMPANY ITSELF HAD WORKED OUT THE DISALLOW ANCE U/S.14A OF THE ACT TO THE TUNE OF ` 2,92,195/-. HOWEVER, THE AO APPLIED THE FORMULA IN RULE -8D AND QUANTIFIED THE DISALLOWANCE U/S.14A R.W.RULE 8D AT ` 11,11,379/- AFTER DEDUCTING ALREADY DISALLOWED AMOU NT OF ` 2,92,195/- BY THE ASSESSEE. FURTHER, BALANCE AMOUNT OF ` 8,19,184/- ITA NO.1843/MDS./14 :- 7 -: WAS DISALLOWED U/S.14A OF THE ACT BY THE AO. AGGR IEVED WITH THE ORDER OF AO, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) CONFIRMED THE APPLICABILITY OF SE C.14A R.W.RULE 8D(II) & (III). HOWEVER, THE CORRECT QUANTIFICATION PURPO SE, LD.CIT(A) DIRECTED THE AO TO VERIFY THE COMPUTATION AND IF FOUND CORR ECT, NECESSARY MODIFICATION MAY BE DONE FOR THE SAID DISALLOWANCE U/S.14A OF THE ACT. 7.2 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME FOR CONSIDERATION BEFORE TH IS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1502/MDS./2012 VIDE ORDER DATED 14.12.2012 WHERE IN THE TRIBUNAL DISMISSED THE APPEAL OF ASSESSEE AND HELD THAT:- 13. THE SECOND ISSUE RELATES TO DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. THE ASSESSING OFFICER HAS PRESUME D THAT THE BORROWED CAPITAL HAS BEEN UTILIZED FOR MAKING INVES TMENTS AND THUS DISALLOWED THE ENTIRE AMOUNT UNDER SECTION 14A. THE ASSESSING OFFICER HAS MADE SEPARATE WORKING AND HAD DISALLOWE D A SUM OF `19,46,733/-. THE A.R. FOR THE ASSESSEE PUT FORTH A N ARGUMENT THAT THE ASSESSING OFFICER HAS NOT REJECTED THE CLAIM OF THE ASSESSEE. IN ORDER TO SUPPORT HIS CONTENTIONS, THE A.R. HAS RELI ED ON THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF MAXOPP INVESTMENTS (SUPRA) AND THE JUDGEMENT OF THE HONBL E BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTUR ING CO.LTD., (SUPRA). ON AN APPEAL, THE CIT(A) HAS COME TO THE C ONCLUSION THAT OUT OF THE TOTAL AMOUNT OF INTEREST, `3,76,42,848/- THE ASSESSEE HAS PAID INTEREST TO THE TUNE OF `3,23,37,619/- TO THE HDFC BANK FOR TERM LOAN TAKEN ON ACCOUNT OF SAI REAL TECH PARK. AS FAR AS THE ITA NO.1843/MDS./14 :- 8 -: REMAINING AMOUNT OF INTEREST `53,05,229/-, THE ASSE SSEE WAS NOT ABLE TO ESTABLISH DIRECT NEXUS WITH THE INCOME WHIC H IS TAXABLE. THEREFORE, THE CIT(A) UPHELD THE DISALLOWANCE OF IN TEREST TO THE TUNE OF `53,05,229/- ONLY UNDER RULE 8D(2)(II) AS A LSO EXPENDITURE ON ACCOUNT OF ADMINISTRATIVE COST OF INVESTMENT TO THE TUNE OF `4,34,392/-. WE HAVE CAREFULLY GONE THROUGH THE JUD GEMENT RELIED BY THE A.R. IN THE CASE OF MAXOPP INVESTMENTS (SUPR A). THE RATIO OF THE SAID JUDGEMENT DOES NOT APPLY IN THE PRESENT FA CTS AND CIRCUMSTANCE OF THE CASE. THE ASSESSING OFFICER MAY NOT IN STRAIGHT WORDS HAVE EXPRESSED DISSATISFACTION OVER THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E, HOWEVER IN PARA 2 OF HIS ORDER, THE ASSESSING OFFICER HAS GIVE N REASONS FOR NOT ACCEPTING THE CONTENTIONS OF THE ASSESSEE AND THERE AFTER HAS WORKED OUT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. FROM THE REASONS GIVEN BY THE ASSESSING OFFICER , IT CAN BE SAFELY CONSTRUED THAT THE ASSESSING OFFICER HAS REJECTED T HE CLAIM OF THE ASSESSEE GIVING COGENT REASONS. THE CIT(A) HAS ALSO GONE INTO THE SAME AND HAS THEREAFTER RESTRICTED THE ADDITION TO ` 57,39,621 ( `53,05,229 + `4,34,392). WE ARE IN CONSONANCE WITH THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND UPHOLD THE SAME. THERE FORE, THE GROUND OF APPEAL OF THE ASSESSEE AS WELL AS THE REV ENUE WITH REGARD TO DISALLOWANCE UNDER RULE 8D READ WITH SECT ION 14A OF THE ACT ARE DISMISSED. 7.3 FURTHER, THERE WAS A RECENT JUDGEMENT OF JURI SDICTIONAL HIGH COURT IN THE CASE OF CHETTINADU LOGISTICS IN TAX C ASE NO.24 OF 2017 VIDE ORDER DATED 13.03.2017 CONFIRMED THE TRIB UNAL ORDER IN ITA NO.637/MDS./2016 FOR ASSESSMENT YEAR 2011-12 V IDE ORDER DATED 25.07.2016, THE ISSUE RELATING TO SEC.14A REM ITTING TO THE ITA NO.1843/MDS./14 :- 9 -: FILE OF AO FOR FRESH CONSIDERATION. IN THAT ORDER OF TRIBUNAL HELD AS FOLLOWS:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LEARNED AUTHORIZ ED REPRESENTATIVE HAS ARGUED BEFORE US BY STATING THAT THE ASSESSEE HAD MADE INVESTMENTS ONLY IN ITS SISTER CONCERNS OU T OF ITS FREE FUNDS FOR STRATEGIC REASONS. ON THE EARLIER OCCASIO N, THIS BENCH OF THE TRIBUNAL HAS HELD THE ISSUE IN FAVOUR OF THE AS SESSEE. THE GIST OF THE TRIBUNAL DECISION IN THE CASE OF RANE HOLDINGS LTD. VS. ACIT IN ITA NO.115/MDS/2015 DATED 06.01.2016 IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICAL ISS UE AS POINTED OUT BY THE LD. A.R. THE CHENNAI BENCH OF THE TRIBUNAL I N ITA NO.156/MDS/2013 VIDE ORDER DATED 20/08/13 FOR THE A SSESSMENT YEAR 2009-10 HASREMITTED BACK THE MATTER TO THE LD. ASSE SSING OFFICER TO DECIDE THE MATTER ONCE AGAIN AFRESH BASED ON THE FINDINGS WHETHER THE ASSESSEE H AD ACTUALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND IN COME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREIN B ELOW FOR REFERENCE:- FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HELD AS FOLLOWS: - I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2 014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- II)WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF ANY F INDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME PROVISIONS 14A CANNOT BE APPLIED.. III) INTEGLOBE ENTERPRISES LTD., VS. DCIT REPORTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INTEREST EXPEN DITURE WAS INCURRED FOR MAKING INVESTMENTS. WHERE THE ASSESSEE HAD UTIL IZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TO O INTO ITS SUBSIDIARIES, WHICH WAS NOT FOR THE PURPOSE OF EARN ING EXEMPT ITA NO.1843/MDS./14 :- 10 - : INCOME AND WHICH WAS FOR STRATEGIC PURPOSES ONLY, N O DISALLOWANCE OF INTEREST WAS REQUIRED TO BE MADE UNDER RULE 8D(I ) & 8D(II) AND STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PURPOSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(III). IV) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 201 4- TIOL-202-ITAT- MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPOSE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THE ASSESSE E HAS BROUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INC URRED FOR MAINTAINING THE 98% OF THE INVESTMENT MADE IN THE S UBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NONINTEREST BEARING FUND BY WAY OF SHARE CAPITAL AND RESERVES A ND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASSESSEE AND THE ADV ANCES GIVEN, NO DISALLOWANCE FOR INTEREST WAS CALLED FOR. (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPORT ED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STANDS E STABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THEREFORE NO PART OF INTERE ST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED IN 2013- TIOL-796- ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SUB SIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOT EL INDUSTRY. THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXP EDIENCY. ANY ITA NO.1843/MDS./14 :- 11 - : DIVIDEND EARNED BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFORE THE INVESTM ENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY IS NOT TO BE RECKONED FO R DISALLOWANCE U/S.14A R.W.R.8D. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVE STMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/13 CITED SU PRA, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMINE THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APP ROPRIATE ORDER AS PER LAW AND MERITS AND IN THE LIGHT OF THE DECISION S CITED HEREIN ABOVE. WHILE DOING SO, WE ALSO DIRECT THE LD. ASSES SING OFFICER TO CONSIDER THE DECISION OF THE TRIBUNAL IN THE CASE M /S AGILE ELECTRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS H ELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. MO REOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. DCIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/MDS/2012 DATED 17TH JULY, 2013, I T HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISA LLOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBS IDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNING CAPITA L GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUST RY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOT AL INVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CASE OF THE ASSE SSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXP EDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFORE, THE INVEST MENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO BE RECKON ED FOR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECT ED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISION S OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAVOUR OF ASSESSEE. FOR THE A BOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MADE FOR ACQUIR ING THE SHARES OF THE ASSESSEES SISTER CONCERNS. ACCORDINGLY WE REST RAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELE TE THE ADDITION ITA NO.1843/MDS./14 :- 12 - : MADE BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE ACT, SUBJECT TO VERIFICATION THAT INVESTMENTS ARE M ADE BY THE ASSESSEE IN ITS SISTER CONCERNS ONLY AND FROM ITS I NTEREST FREE FUNDS. 8. FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE REMIT BACK THE MATTER TO THE FILE OF THE LEARNED ASSESSING OFFICER TO VERIFY WHETHER THE INVESTMENTS ARE MADE BY THE ASSESSEE OUT OF ITS INTEREST FREE FUNDS IN ITS SISTER CONCERN FOR STRATEGIC REASONS A ND IF FOUND SO DELETE THE ADDITION AND IF FOUND OTHERWISE, PASS APPROPRIA TE ORDERS AS PER MERIT & LAW. IN VIEW OF THE ABOVE DECISION, WE REMIT THE ISSUE I N DISPUTE TO THE FILE OF AO ON SIMILAR DIRECTIONS. 8. THE NEXT OBJECTION IN CO IS THAT THE LD.CIT(A) ERRED IN HOLDING THAT THE INCOME FROM LETTING OF BUILDING AND HIRE C HARGES FOR PLANT AND MACHINERY AND OTHER FACILITIES FROM INFORMATION TEC HNOLOGY PARK KNOWN AS SAI REAL TECH PARK UNDER TWO SEPARATE AGREEMEN TS BUT INSEPARABLY LET WAS ASSESSABLE AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM BUSINESS AS CLAIMED BY THE ASSESSEE COMPANY. 9. SINCE WE HAVE ALREADY DISCUSSED THE SAME ISSUE AND CONFIRMED THE ORDER OF LD.CIT(A) IN REVENUES APPEAL, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE ASSESSEE IN ITS C.O. 10. THE LAST GROUND IS WITH REGARD TO APPLICABILIT Y OF SEC.14A WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. ITA NO.1843/MDS./14 :- 13 - : 11. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF CO-ORD INATE BENCH OF CHENNAI IN THE CASE OF M/S.SHRIRAM CAPITAL LTD. IN ITA NO.2502/MDS./2016 FOR ASSESSMENT YEAR 2013-14 DATED 01.05.2017 WHEREIN HELD AS FOLLOWS:- WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE FIND THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBU NAL IN ASSESSEES OWN CASE IN ITA NOS. 512 & 513/MDS/2015 DATED 26.6.2015 WHEREIN HELD THAT: 22. WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THES E TWO ASSESSMENT YEARS BY INVOKING PROVISION U/S.14A R.W. RULE 8D, WAS ALREADY ADJUDICATED BY US IN OUR EARLIER PARA O F THIS ORDER. IN OUR OPINION, DISALLOWANCE MADE U/S.14A R.W. RULE 8D CANNOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S.11 5JB OF THE ACT THAT THE DISALLOWANCE IS ONLY DISALLOWANCE FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF THE ASSESSEE IN THE NORMAL COURSE. THERE IS NO PROVISION IN THE ACT TO ADD THESE KIND OF DISALLOWANCE WHILE COMPUTING BOOK PROFIT U/ S.115JB AND IT CANNOT CHANGE THE BOOK PROFIT ON THIS COUNT . THEREFORE EVEN IF THERE IS AN ADDITION IN VIEW OF PROVISION U /S.14A R.W.RULE 8D, THAT CANNOT BE ADDED BACK TO COMPUTE T HE BOOK PROFIT U/S.115JB. THIS GROUND IS ALLOWED. 4.4 IN VIEW OF THE ABOVE ORDER OF TRIBUNAL, THIS G ROUND RAISED BY THE REVENUE STANDS DISMISSED. IN VIEW OF THE ABOVE, THIS GROUND OF THE ASSESSEE I N ITS CROSS OBJECTIONS IS ALLOWED. ITA NO.1843/MDS./14 :- 14 - : 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED AND THE CROSS OBJECTIONS BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 02 ND JUNE, 2017, AT CHENNAI. SD/ - SD/ - ! . ' #$ % ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER &' / CHENNAI () / DATED: 02 ND JUNE, 2017. K S SUNDARAM )*++,-.+/. / COPY TO: + 1 . / APPELLANT 3. + 0+% / CIT(A) 5. .1 2+,,3 / DR 2. / RESPONDENT 4. + 0 / CIT 6. 2 $4+5 / GF