DCIT, CHENNAI V. Khivraj Motors P Ltd., CHENNAI

ITA 1180/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8794 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYARAM RAIPURA
• Assessee Lawyers: AJITH KUMAR CHORADIA
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1179 & 1180/MDS/2015 ( )( / ASSESSMENT YEARS : 2010-11 & 2011-12 & C.O. NO.80/MDS/2015 (IN I.T.A. NO.1179/MDS/2015) ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(2), CHENNAI - 600 034. V. M/S KHIVRAJ MOTORS PVT. LTD., 623, ANNA SALAI, CHENNAI - 600 006. PAN : AAACK 2572 Q (+,/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) +, - . / APPELLANT BY : SHRI JAYARAM RAIPURA, CIT /0+, - . / RESPONDENT BY : SHRI AJITH KUMAR CHORADIA, CA 1 - 2% / DATE OF HEARING : 07.06.2016 3') - 2% / DATE OF PRONOUNCEMENT : 05.08.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGA INST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS)-II, CHENNAI, DATED 03.11.2014 AND PERTAIN TO ASSESSMENT YEARS 2010- 11 AND 2011-12. THE ASSESSEE HAS ALSO FILED CROSS- OBJECTION 2 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 AGAINST THE VERY SAME ORDER FOR THE ASSESSMENT YEAR 2010-11. THEREFORE, WE HEARD THE APPEALS OF THE REVENUE AND THE CROSS- OBJECTION OF THE ASSESSEE TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. SHRI JAYARAM RAIPURA, THE LD. DEPARTMENTAL REPRE SENTATIVE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IN BOTH THE APPEALS IS WITH REGARD TO CLASSIFICATION OF RENTAL INCOME RECEIVED BY THE ASSESSEE. ACCORDING TO THE LD. D.R., THE ASSES SEE CONSTRUCTED A I.T. PARK, NAMELY, OLYMPIA TECH PARK, AND CLAIMED THE RENTAL INCOME AS INCOME FROM BUSINESS. REFERRING TO SEC TION 22 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), THE LD. D.R. SUBMITTED THAT THE RENTAL INCOME FROM LETTING OUT OF THE PROPERTY HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THERE FORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. THE CIT(APPEALS) HAS ALSO FOUND TH AT CLASSIFICATION OF INCOME EITHER FROM INCOME FROM HOUSE PROPERTY OR INCOME FROM BUSINESS HAS NO RELEVANCE FOR ALLOWING THE CLAIM O F DEDUCTION UNDER SECTION 80-IA OF THE ACT. ACCORDING TO THE L D. D.R., THE RENTAL INCOME RECEIVED BY THE ASSESSEE BY LETTING OUT THE PROPERTY CANNOT 3 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 BE CONSTRUED AS INCOME FROM BUSINESS, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF T HE ACT. 3. ON THE CONTRARY, SHRI AJITH KUMAR CHORADIA, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE CONSTRUCTED A BUILDING KNOWN AS OLYMPIA TECH PARK AND THE SAME WAS LET OUT EXCLUSIVELY TO SOFTWARE COMPANIES. ACC ORDING TO THE LD. D.R., THE OLYMPIA TECH PARK DEVELOPED BY THE COMP ANY IS EXCLUSIVELY MEANT FOR SOFTWARE COMPANIES AND INFORM ATION TECHNOLOGY ENABLED SERVICE COMPANIES. THE BUILDING CANNOT BE USED FOR THE PURPOSE OTHER THAN SOFTWARE COMPANIES. THE BUILDING CONTAINED SPECIAL AND EXCLUSIVE FACILITIES FOR SOFT WARE COMPANIES. THERE ARE SPECIALIZED AIR-CONDITIONERS, SPECIAL CAB LING, SPECIAL ELECTRICAL FITTINGS, SPECIALIZED FURNITURE IN THE F ORM OF BUSINESS MODULES WERE PROVIDED IN THE PREMISES WHILE LETTING OUT THE PROPERTY TO THE SOFTWARE COMPANIES. THE ASSESSEE HAS ALSO O RGANIZED UNINTERRUPTED AND CONTINUES POWER SUPPLY AND HEAVY POWER BACK- UP GENERATORS. THEREFORE, THE CIT(APPEALS) BY PLAC ING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. ELNET T ECHNOLOGIES LTD. (2013) 213 TAXMAN 129, ALLOWED THE CLAIM OF TH E ASSESSEE. REFERRING TO THE GROUNDS OF APPEAL FILED BY THE REV ENUE BEFORE THIS 4 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 TRIBUNAL, THE LD. REPRESENTATIVE SUBMITTED THAT THE REVENUE IS PLACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COU RT IN CIT V. CHENNAI PROPERTIES & INVESTMENTS LTD. (266 ITR 685) . THIS JUDGMENT OF MADRAS HIGH COURT WAS REVERSED BY THE A PEX COURT. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE RELIANCE PLACED BY THE REVENUE IN THE GROUNDS OF APPEAL IN CHENNAI PROPERTIES & INVESTMENTS LTD. (SUPRA) IS MISCONSTRUED. THEREFOR E, ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(APPEALS) HAS RIGHTL Y ALLOWED THE CLAIM OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY DEVELOPED A TECHNOLOGY PARK BY NAME OLY MPIA TECH PARK, WHICH IS EXCLUSIVELY MEANT FOR DEVELOPING SO FTWARE AND I.T. ENABLED SERVICES. THE ASSESSEE, APART FROM THE BUI LDING, HAS ALSO PROVIDED INFRASTRUCTURE FACILITIES SUCH AS SPECIALI ZED AIR-CONDITIONERS, SPECIALIZED CABLING, SPECIALIZED ELECTRICAL FITTING S, SPECIALIZED FURNITURE IN THE FORM OF BUSINESS MODULES, ETC. TH EREFORE, IT HAS TO BE CONSTRUED AS INFRASTRUCTURE FACILITY WITH ALL SP ECIFICATIONS AND REQUIREMENTS. THEREFORE, THE CIT(APPEALS) HAS RIGH TLY PLACED RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN EL NET 5 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 TECHNOLOGIES LTD. (SUPRA). AS RIGHTLY SUBMITTED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE, THE JUDGMENT OF MA DRAS HIGH COURT IN CHENNAI PROPERTIES & INVESTMENTS LTD. (SUPRA) WA S REVERSED BY THE APEX COURT. THE APEX COURT FOUND THAT WHEN THE ASSESSEE LET OUT THE PROPERTY AS BUSINESS, THE RENTAL INCOME HAS TO BE ASSESSED AS INCOME FROM BUSINESS. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTL Y ALLOWED THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 5. NOW COMING TO THE CROSS-OBJECTION FILED BY THE A SSESSEE FOR ASSESSMENT YEAR 2010-11, THE GRIEVANCE OF THE ASSES SEE IS THAT THE ASSESSING OFFICER DISALLOWED ` 21,91,665/- UNDER SECTION 14A OF THE ACT. 6. SHRI AJIT KUMAR CHORADIA, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF ` 6,77,302/- AND THE SAME WAS CLAIMED AS EXEMPTED FROM TAXATION. THE ASSESSING O FFICER WORKED OUT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT T O THE EXTENT OF ` 21,91,665/-. ACCORDING TO THE LD. REPRESENTATIVE, THE INVESTMENT 6 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 MADE BY THE ASSESSEE TO THE EXTENT OF ` 26,65,60,000/- IN DEEP DISCOUNT BONDS CANNOT BE CONSTRUED AS INVESTMENT FO R EARNING THE EXEMPTED INCOME. ACCORDING TO THE LD. REPRESENTATI VE, THE INCOME FROM DEEP DISCOUNT BOND IS TAXABLE. MOREOVER, THE SAME WAS OFFERED FOR TAXATION FOR ASSESSMENT YEAR 2010-11. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT THE NET WORTH OF THE ASSESSEE- COMPANY DURING THE ASSESSMENT YEAR 2010-11 IS ` 63.76 CRORES AS AGAINST INVESTMENTS IN ALLEGED EXEMPTED INVESTMENTS EXCLUDING DEEP DISCOUNT BONDS OF ` 4.58 CRORES. THEREFORE, IT HAS TO BE CONSTRUED AS INVESTMENT MADE FROM NON-INTEREST BEAR ING FUNDS. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. 7. THE LD. REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT WHILE COMPUTING DISALLOWANCE, THE INVESTMENTS WHICH HAVE YIELDED TAXABLE INCOME DURING THE YEAR UNDER CONSID ERATION HAVE TO BE EXCLUDED. REFERRING TO RULE 8D OF INCOME-TAX RU LES, 1962, THE LD. REPRESENTATIVE SUBMITTED THAT ONLY AVERAGE VALU E OF INVESTMENT GIVING RAISE TO EXEMPTED INCOME, HAS TO BE CONSIDER ED FOR THE PURPOSE OF DISALLOWANCE. THE LD. REPRESENTATIVE FU RTHER SUBMITTED THAT INVESTMENTS IN GROUP COMPANIES ARE STRATEGIC I N NATURE. 7 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 THEREFORE, IT CANNOT BE CONSIDERED FOR DISALLOWANCE . THE LD. REPRESENTATIVE FURTHER CLARIFIED THAT NO DIVIDEND / TAX FREE INCOME WAS EARNED DURING THE YEAR UNDER CONSIDERATION FROM SUCH INVESTMENTS. HENCE, THE CIT(APPEALS) IS NOT JUSTIF IED IN DISALLOWING THE ASSESSEE. 8. ON THE CONTRARY, SHRI JAYARAM RAIPURA, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE ADMITTE DLY RECEIVED DIVIDEND INCOME TO THE EXTENT OF ` 6,77,302/- AND CLAIMED THE SAME AS EXEMPTED FROM TAXATION. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPTED INCOME. HENCE , THE ASSESSEE EARNED THE EXEMPTED INCOME AND THE ASSESSI NG OFFICER IS NOT SATISFIED ABOUT THE CLAIM OF EXPENDITURE, THE D ISALLOWANCE HAS TO BE COMPUTED AS PER THE METHOD PRESCRIBED UNDER RULE 8D(2) OF INCOME-TAX RULES, 1962. 9. REFERRING TO THE ASSESSMENT ORDER, MORE PARTICUL ARLY AT PAGE 5, THE LD. D.R. SUBMITTED THAT THE ASSESSING OFFICE R HAS TAKEN THE DIRECT EXPENDITURE ATTRIBUTABLE TO THE INCOME AND T HE INDIRECT EXPENDITURE INCURRED BY THE ASSESSEE, WHICH IS NOT RELATABLE TO ANY PARTICULAR INCOME AND ALSO HAS TAKEN THE AVERAGE IN VESTMENT DURING THE YEAR UNDER CONSIDERATION AND COMPUTED THE DISAL LOWANCE AT 8 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 ` 21,91,665/-. EVEN THOUGH THE ASSESSEE CLAIMS THAT THE INVESTMENT MADE TO THE EXTENT OF ` 26,65,60,000/- IN DEEP DISCOUNT BONDS RESULTED IN EARNING OF TAXABLE INCOME, THE DETAILS OF SUCH INVESTMENTS WERE NOT FURNISHED BY THE ASSESSEE EITH ER BEFORE THE ASSESSING OFFICER OR BEFORE THIS TRIBUNAL. IN THE ABSENCE OF ANY SUCH DETAILS WITH REGARD TO INVESTMENT IN SISTER CO NCERN OR IN DEEP DISCOUNT BONDS WHICH SAID TO HAVE RESULTED TAXABLE INCOME. THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE DISCLOSED DIVIDEND INCOME OF ` 6,77,302/- AND CLAIMED AS EXEMPTED. AS RIGHTLY SUBMITTED BY THE LD. D.R., WH EN THE ASSESSEE EARNED EXEMPTED INCOME OR INCOME WHICH DOES NOT FOR M PART OF TOTAL INCOME AND CLAIMED EXPENDITURE, THE ASSESSING OFFICER MAY COMPUTE THE DISALLOWANCE IF HE IS NOT SATISFIED ABO UT THE CLAIM MADE BY THE ASSESSEE. IN THE CASE BEFORE US, THE ASSESS ING OFFICER COMPUTED THE DISALLOWANCE UNDER RULE 8D. A PERUSAL OF THE ASSESSMENT ORDER, MORE PARTICULARLY AT PAGE 5, CLEA RLY SHOWS THAT THE ASSESSING OFFICER HAS ADOPTED THE METHOD PRESCR IBED UNDER 9 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 RULE 8D(2). THE ONLY CONTENTION OF THE ASSESSEE NO W BEFORE THIS TRIBUNAL IS THAT THE INVESTMENT IN DEEP DISCOUNT BO NDS DOES NOT RESULT IN ANY EXEMPTED INCOME AND THE INCOME FROM D EEP DISCOUNT BONDS IS TAXABLE. HOWEVER, NO DETAILS OF INVESTMEN TS SAID TO BE MADE BY THE ASSESSEE WHICH EARNED TAXABLE INCOME AR E AVAILABLE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THIS TRIBUNAL. MOREOVER, THE SO-CALLED INVESTMENTS IN SUBSIDIARY COMPANIES ARE ALSO NOT AVAILABLE ON RECORD. IN THE ABSENCE OF AN Y SUCH DETAILS EITHER BEFORE THIS TRIBUNAL OR BEFORE THE CIT(APPEA LS) OR BEFORE THE ASSESSING OFFICER, THE CLAIM OF THE ASSESSEE THAT T HE INVESTMENT MADE IN DEEP DISCOUNT BONDS AND SUBSIDIARY COMPANIE S HAS TO BE EXCLUDED CANNOT BE ACCEPTED. WHEN THE ASSESSEE CLA IMS THAT INVESTMENT IN DEEP DISCOUNT BONDS RESULTED IN TAXAB LE INCOME, IT IS FOR THE ASSESSEE TO FILE NECESSARY MATERIAL TO SUBS TANTIATE ITS CASE. IN THE ABSENCE OF ANY SUCH MATERIAL, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND THE CROSS- OBJECTION OF THE ASSESSEE ARE DISMISSED. 10 I.T.A. NOS.1179 & 1180/MDS/15 C.O. NO.80/MDS/15 ORDER PRONOUNCED ON 5 TH AUGUST, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 5 TH AUGUST, 2016. KRI. - /267 87)2 /COPY TO: 1. +, /APPELLANT 2. /0+, /RESPONDENT 3. 1 92 () /CIT(A)-II, CHENNAI 4. 1 92 /CIT-II, CHENNAI 5. 7: /2 /DR 6. ;( < /GF.