Century Joint Development Pvt. Ltd., Bangalore V. Income Tax Officer, Ward 2(1)(1), Bangalore

ITA 1033/BANG/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2616 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-06-2021
• Assessment Year: misc
• Appeal Filed On: 11-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R RAMAKRISHNAN
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

ITA NO.1033/BANG/2017 M/S. CENTURY JOINT DEVELOPMENT PVT. LTD., BANGALOR E IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.1033/BANG/2017 ASSESSMENT YEAR: 2012-13 M/S. CENTURY JOINT DEVELOPMENT PVT. LTD. NO.10/1, LAKSHMINARAYANA COMPLEX PALACE ROAD BANGALORE 560 066 PAN NO :AAECC0945K VS. ITO WARD-2(1)(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI R. RAMAKRISHNAN, A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 24.06.2021 DATE OF PRONOUNCEMENT : 25.06.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 10.2.2017 PASSED BY LD. CIT(A)-2, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2012-13. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWAN CE OF RS.42.42 LAKHS MADE BY THE A.O. U/S 14A OF THE INCOME-TAX AC T,1961 ['THE ACT' FOR SHORT]. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF INDUSTRIAL PARK, RESIDENTIAL HOUSES, BUILDINGS, APARTMENTS, ET C. DURING THE ITA NO.1033/BANG/2017 M/S. CENTURY JOINT DEVELOPMENT PVT. LTD., BANGALOR E PAGE 2 OF 5 COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED SHARE INCOME FROM FIRMS AGGREGA TING TO RS.20.32 LAKHS AND CLAIMED THE SAME AS EXEMPT U/S 1 0(2A) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. HENCE, THE A.O. PR OCEEDED TO COMPUTE DISALLOWANCE U/R 8D OF I T RULES READ WITH SECTION 14A OF THE ACT. THE DISALLOWANCE MADE BY THE AO CONSISTED OF INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) AMOUNTING TO RS.8 ,56,691/-AND EXPENDITURE DISALLOWANCE OF RS.33,85,377/- UNDER RU LE 8D(2)(III), BOTH AGGREGATING TO RS.42,42,668/-. THE LD. CIT(A) ALSO CONFIRMED THE SAME. 3. THE LD. A.R. SUBMITTED THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. HE FURT HER SUBMITTED THAT THE MAIN INCOME OF THE ASSESSEE IS INCOME FROM PROPERTY DEVELOPMENT WHICH, DURING THE YEAR AMOUNTED TO RS.7 0.03 CRORES. HOWEVER, THE ASSESSEE HAS RECEIVED SHARE OF PROFIT FROM PARTNERSHIP FIRM TO THE TUNE OF RS.20.32 LAKHS ONLY. HE SUBMIT TED THAT MAJOR PORTION OF THE EXPENSES ARE DIRECTLY RELATED TO PRO PERTY DEVELOPMENT ACTIVITY OF THE ASSESSEE. ONLY FOLLOWING EXPENSES MAY BE TERMED AS COMMON EXPENSES: RATES & TAXES - RS.24.70 LAKHS LEGAL & PROFESSIONAL - RS.21.62 LAKHS INSURANCE - RS.1.35 LAKHS BANK CHARGES - RS.0.64 LAKHS MISCELLANEOUS EXPENSES - RS.0.21 LAKHS TOTAL - RS.48.52 LAKHS THE LD A.R FURTHER SUBMITTED THAT THE LOANS TAKEN B Y THE ASSESSEE, ON WHICH INTEREST EXPENDITURE WAS INCURRED, ARE PRO JECT LOANS AND ARE DIRECTLY RELATED TO THE PROJECTS EXECUTED BY TH E ASSESSEE COMPANY. HE ALSO SUBMITTED THAT INTEREST EXPENSE I NCURRED BY THE ASSESSEE DURING THE YEAR WAS RS.11.62 LAKHS, WHILE IT HAS EARNED ITA NO.1033/BANG/2017 M/S. CENTURY JOINT DEVELOPMENT PVT. LTD., BANGALOR E PAGE 3 OF 5 INTEREST INCOME OF RS.15.20 LAKHS. ACCORDINGLY, HE SUBMITTED THAT, IN THE FACTS & CIRCUMSTANCES OF THE CASE, THE APPLI CATION OF RULE 8D IS NOT WARRANTED. HE SUBMITTED THAT THE A.O. HAS F AILED TO SHOW THAT THE CLAIM OF THE ASSESSEE FOR NOT DISALLOWING ANYTHING U/S 14A OF THE ACT IS NOT CORRECT. HE FURTHER SUBMITTED TH AT THOUGH THE ASSESSEE HAS INVESTED IN MANY PARTNERSHIP FIRMS, YE T IT HAS EARNED SHARE INCOME ONLY FROM TWO CONCERNS NAMELY M/S. CEN TURY AIRPORT CITY & M/S. CENTURY CORBEL. HENCE, FOR DECIDING TH E APPLICABILITY OF PROVISIONS OF SEC.14A, ONLY INVESTMENTS MADE IN THE SE TWO CONCERNS ALONE ARE REQUIRED TO BE TAKEN INTO CONSIDERATION. ACCORDINGLY, HE SUBMITTED THAT THE DISALLOWANCE U/S 14A OF THE ACT IS NOT WARRANTED. 4. ON THE CONTRARY, THE LD. D.R. SUPPORTED THE ORDE R PASSED BY LD. CIT(A). 5. WE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. WE NOTICE THAT THE A.O. HAS COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT AT RS.42.42 LAKHS BY APPLYING PROVISIONS OF RUL E 8D OF I.T. RULES, EVEN THOUGH THE EXEMPT INCOME BY WAY OF SHAR E OF PROFIT FROM PARTNERSHIP FIRM DECLARED BY THE ASSESSEE WAS RS.20.32 LAKHS. WE ALSO NOTICE THAT THE MAJOR INCOME OF THE ASSESSE E IS FROM PROPERTY DEVELOPMENT AMOUNTING TO RS.70.03 CRORES, WHILE THE EXEMPT INCOME IS ONLY RS.20.32 LAKHS. THUS EXEMPT INCOME CONSTITUTES FRACTION OF TOTAL REVENUE. WITH REGARD TO THE INTEREST EXPENSES, IT IS SUBMITTED THAT THEY HAVE BEEN INCUR RED IN RESPECT OF PROJECT SPECIFIC LOANS AND NO PART OF THE SAID LOAN S HAVE BEEN DIVERTED TO PARTNERSHIP FIRMS. IT IS IN THE COMMON KNOWLEDGE OF EVERYONE, THE PROJECT SPECIFIC LOANS CAN BE USED FO R THE SPECIFIC PROJECTS AND FURTHER THE USAGE OF LOANS WILL ALSO M ONITORED BY THE BANK. ACCORDINGLY, IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE PROJECT SPECIFIC LOAN HAS BEEN DIVERTED FOR INVESTM ENT IN PARTNERSHIP ITA NO.1033/BANG/2017 M/S. CENTURY JOINT DEVELOPMENT PVT. LTD., BANGALOR E PAGE 4 OF 5 FIRMS, IN OUR VIEW, THE DISALLOWANCE OUT OF INTERES T EXPENDITURE IS NOT CALLED FOR. ACCORDINGLY, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THERE IS NO NECESSITY TO APPLY THE PROVISIONS OF RULE 8D. 6. WITH REGARD TO THE OTHER EXPENSES, WE NOTICE THA T THE ASSESSEE HAS CLAIMED OTHER EXPENSES OF RS.14.13 CRO RES, OUT OF WHICH ONLY RS.48.52 LAKHS ALONE CAN BE SAID TO BE C OMMON EXPENSES. THE LD A.R SUBMITTED THAT THE SERVICES A ND FACILITIES USED BY ASSESSEE FROM OTHER CONCERNS AND ALSO BY TH E OTHER CONCERNS FROM THE ASSESSEE HAVE BEEN QUANTIFIED AND CROSS CHARGED. HENCE, OVERALL SUPERVISION OF THE ACTIVI TIES OF PARTNERSHIP FIRMS BY THE ASSESSEE WOULD BE RELEVANT FOR SEC.14A OF THE ACT. CONSIDERING THESE FACTS AND ALSO THE FACT THAT MAJO R INCOME OF THE ASSESSEE IS FROM PROPERTY DEVELOPMENT, WE ARE OF TH E VIEW THAT THE DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE AT AN A DHOC FIGURE OF RS.2.00 LAKHS AND THE SAME, IN OUR VIEW, WOULD MEET THE REQUIREMENTS OF SECTION 14A OF THE ACT. 7. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY L D. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO RESTRICT THE DISALLOWA NCE TO TWO LAKHS RUPEES U/S 14A OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 25 TH JUNE, 2021. VG/SPS ITA NO.1033/BANG/2017 M/S. CENTURY JOINT DEVELOPMENT PVT. LTD., BANGALOR E PAGE 5 OF 5 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.