ACIT, Hyderabad V. M/s.Prajay Engineers Synducate Ltd., Hyderabad

ITA 1224/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6039 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 19-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-08-2013
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Keywords: Earning of tax free income
• Section: 143(3); 234B; 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1224/HYD/2013 ASSESSMENT YEAR: 2010-11 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD VS M/S. PRAJAY ENGINEERS SYNDICATE LTD., HYDERABAD [PAN: AACCP2287M] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI P. CHANDRA SEKHAR, DR FOR ASSESSEE : SHRI MOHD. AFZAL, AR DATE OF HEARING : 19-10-2016 DATE OF PRONOUNCEMENT : 04-11-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD D ATED 31-05-2013 FOR THE AY. 2010-11. INITIALLY, REVENUE HAS PREFERRED THE APPEAL BY FILING DRAFT GROUNDS OF APPEAL AND A GENERAL DIRECTION GIVEN BY THE CIT U/S. 253(2). WHEN IT WAS P OINTED OUT, THE ITO, WARD-16(4) HAS FILED GROUNDS OF APPEAL AG AIN. BY THE DETAILED ORDER SHEET DT. 24-03-2016, IT WAS POINTED OUT TH AT THE ORIGINAL APPEAL WAS FILED BY THE ACIT, CIRCLE-16(3), WHEREAS THE GROUNDS ALONE (WITHOUT FORM 36) WAS FILED BY THE ITO, WARD-16(4) AND DIRECTED THE DR TO TAKE UP THE MATTER WITH THE OFFICER S I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 2 -: CONCERNED. NOW THE DCIT, CIRCLE-16(2) HAD FILED REVI SED FORM 36 WITH DULY AUTHORIZED GROUNDS OF APPEAL. THE APPEAL MEMO FILED ON 13-07-2016 IS TAKEN ON RECORD. 2. ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTI ONS AND DEVELOPMENT OF PROPERTY. IT FILED RETURN OF INCOME ON 14-10-2010 ADMITTING TOTAL INCOME AT RS. 2,62,97,051/ - UNDER THE NORMAL PROVISIONS AND BOOK PROFIT AT RS. 3,07,23,820/ -. IN THE SCRUTINY ASSESSMENT COMPLETED U/S. 143(3), AO HAS MA DE A DISALLOWANCE OF RS. 4,29,07,752/-, AS PROPOSED IN T AX AUDIT REPORT IN FORM 3CD BY THE CHARTERED ACCOUNTANT. ASSESSEE HA S ADMITTED BY FILING A REVISED COMPUTATION OF INCOME IN THE COURS E OF ASSESSMENT. THIS WAS DULY REFLECTED IN PARA 3 OF T HE ASSESSMENT ORDER. APART FROM THE ABOVE, AO ALSO MADE AN ADDITION OF RS. 1,70,94,180/- U/S. 14A COMPUTING UNDER RULE 8D. IT WAS OBJECTED TO BY ASSESSEE AS NO INCOME WAS CLAIMED AS EXEMPTION. 3. BEFORE THE LD.CIT(A), ASSESSEE FILED FORM 35 INTER ALIA CONTESTING ONLY THE DISALLOWANCE OF EXPENDITURE U/S. 14 A. HOWEVER, THE CIT(A) HAS EXTRACTED GROUNDS STATED TO HAVE BEEN FILED BEFORE HIM (WHICH ARE DIFFERENT FROM THE GROUND S ACCOMPANYING FORM 35 PLACED ON RECORD) AND ADJUDICA TED THE APPEAL. IN THAT HE GAVE RELIEF OF DISALLOWANCE ADMITTE D BY ASSESSEE AS WELL AS ON DISALLOWANCE U/S. 14A. AGGRIEVED, RE VENUE IS IN APPEAL AND FILED THE FOLLOWING GROUNDS IN THE REVISED FORM 36: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIONS MADE OF RS. 3,76,73,440/-, RS. 2,78,220/- AND RS. 16,86,575/- TOWARDS DISALLOW ANCE OF INTEREST ON INCOME TAX, FRINGE BENEFIT TAX AND INTEREST ON DIVI DEND DISTRIBUTION TAX RESPECTIVELY. I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 3 -: 2. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE OF RS. 1,70,94,180/- TOWARDS DISALLOWANCE U/S. 14A OF THE INCOME TAX. 4. LD. DR HAS POINTED OUT THAT THE DISALLOWANCE OF R S. 4,29,07,752/- WAS CONSENTED BY ASSESSEE AND WAS NOT CONTESTED BEFORE LD.CIT(A) IN FORM 35 AND SUBMITTED THAT LD.CIT( A) HAS GIVEN RELIEF ON AN ISSUE WHICH WAS NOT SUBJECT MATTER O F APPEAL BEFORE HIM. IT WAS ALSO SUBMITTED THAT NO ADDITIONAL GRO UNDS WERE SENT TO AO FOR COMMENTS. WITH REFERENCE TO THE ADDITION U/S. 14A, IT WAS THE SUBMISSION THAT THE ISSUE WAS REMITTED TO AO B Y ITAT IN AY. 2009-10 I.E., EARLIER YEAR AND FINDINGS THERE IN HAS A BEARING ON THE ISSUE. HE FURTHER SUBMITTED THAT AT LEAST 0.5% OF AVER AGE INVESTMENT UNDER RULE 8D(III) SHOULD HAVE BEEN SUSTAIN ED BY LD.CIT(A) WHICH IS MANDATORY AND NOT LINKED TO EARNIN G OF INCOME. 5. LD. COUNSEL FOR ASSESSEE WHILE ADMITTING THAT HE H AS NO INFORMATION WHETHER ANY REVISED FORM 35 OR ADDITIONAL GROUNDS WERE FILED BEFORE LD.CIT(A), HOWEVER, SUPPORTED THE ORDER OF LD.CIT(A) ON THE ISSUE. HE ALSO SUBMITTED THAT ASSESSE E HAS NOT EARNED ANY EXEMPT INCOME AND SO NO DISALLOWANCE U/S. 14A IS WARRANTED. HE HAS HOWEVER, NO OBJECTION IF THE MATTER IS REMITTED TO AO AS IN EARLIER YEAR. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDER ON RECORD. AS FAR AS THE ADDITION AGREED BY ASSESSEE OF RS. 4,29,07,752/- IS CONCERNED, PARA 3 OF THE AO IS AS UNDER: 3. DURING THE COURSE OF VERIFICATION OF BOOKS OF A CCOUNTS ALONG WITH MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT A S PER FORM 3CD, ITEM NO. I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 4 -: 17(F) CERTAIN DISALLOWANCES WERE PROPOSED. BUT ONL Y SOME OF THE DISALLOWANCE WERE CONSIDERED IN COMPUTATION OF INCO ME. WHEN IT IS POINTED OUT THE ASSESSEES AR VIDE LETTER DT. 08.03 .2013 SUBMITTED AS UNDER: IT IS FROM THE TAX AUDIT REPORT DT. OCTOBER 14 TH , 2010, ISSUED BY S.V. RANGAN, CHARTERED ACCOUNTANTS, THAT, CERTAIN EXPENDIT URES ARE TO BE DISALLOWED FOR THE PURPOSE OF COMPUTATION OF TAXABLE INCOME UNDER INCOME TAX ACT. HOWEVER, THE SAID EXPENDITURE WERE NOT OF FERED TO TAX BY WAY OF DISALLOWANCE IN THE FINAL COMPUTATION OF INCOME, DUE TO OVERSIGHT. WE REQUEST YOU TO CONDONE THE ERROR. THE OVERSIGHT IS HER E WITH SOUGHT TO BE RECTIFIED. HENCE, THE REVISED COMPUTATION OF INCOME IS FILED INCORPORATING ALL THE BELOW MENTIONED DISALLOWANCES. SL.NO PARTICULARS AMOUNT RS. REMARKS CLAUSE REFERENCE IN TAX AUDIT REPORT 1 INTEREST @ 12% ON DIVIDEND DISTRIBUTION TAX (FY 2007-08) FOR THE PERIOD OCT 08 TO JULY 10 16,86,575 DISALLOWANCE U/S. 40(A)(II) 17(F) 2 INTEREST ON FBT PAID FOR THE AY 2009-10 1,50,330 DISALLOWANCE U/S. 40(A)(IC) 17(F) 3 PROVISION FOR INTEREST ON INCOME TAX PAYABLE AS PER INTIMATION UNDER 143(1) FOR AY 2008- 09 3,76,73,440 DISALLOWANCE U/S. 40(A)(II) 17(F) 4 INTEREST ON FBT PAID FOR THE AY 2007-08 1,27,890 DISALLOWANCE U/S. 40(A)(IC) 17(F) 5 AMOUNT DEBITED TO PROFIT & LOSS ACCOUNT BEING CAPITAL IN NATURE FEE PAID TO ROC FOR INCREASE IN AUTHORISED SHARE CAPITAL 32,69,517 DISALLOWANCE AS PER SECTION 37(1) TOTAL 4,29,07,752 IN VIEW OF THE ABOVE DISCUSSION AN AMOUNT OF RS. 4, 29,07,752/- IS DISALLOWED AND ADDED BACK TO THE RETURNED INCOME . I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 5 -: 7. BEFORE THE LD.CIT(A), ASSESSEE HAS FILED FORM 35 WHICH HAS GROUNDS AS UNDER: 1. THE ORDER U/S. 143(3) OF THE ACT DATED 27-03-20 13 AS PASSED BY THE ASSESSING OFFICER IS CONTRARY TO FACTS AND LAW. 2. THE ASSESSING OFFICER ERRED IN DISALLOWING A SUM OF RS. 1,70,94,180/- U/S. 14A OF THE ACT READ WITH RULE 8D OF IT RULES A S EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME OF RS. 42,750/-. 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSE SSING OFFICER ERRED IN NOT RESTRICTING THE EXTENT OF DISALLOWANCE TO THE A MOUNT OF DIVIDEND INCOME. 4. THE ASSESSING OFFICER ERRED IN ALLOWING CREDIT F OR TAX DEDUCTED AT SOURCE AT RS. 41,05,765/- AS AGAINST RS. 41,85,152/ - BEING THE APPLICABLE TAX DEDUCTED ON INCOME OFFERED TO TAX. 5. THE ASSESSING OFFICER ERRED IN NOT ALLOWING CRED IT FOR RS. 5,34,382/- PAID ON 04-01-2013. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER ANY OF THE AFORESAID GROUNDS OF APPEAL. 7.1. THE CIT(A) HOWEVER, EXTRACTED THE GROUNDS IN PA RA 3 AS UNDER: 1. THE ORDER U/S. 143(3) OF THE ACT DATED 27-03-2 013 AS PASSED BY THE ASSESSING OFFICER IS CONTRARY TO FACTS AND LAW. 2. THE ASSESSING OFFICER ERRED IN DISALLOWING A SUM OF RS. 1,70,94,180/- U/S. 14A OF THE ACT READ WITH RULE 8D OF IT RULES A S EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME OF RS. 42,750/-. 3. THE ASSESSING OFFICER ERRED IN DISALLOWING PROVI SION FOR INTEREST ON INCOME TAX PAYABLE AS PER INTIMATION UNDER SECTION 143(1) OF RS. 3,76,73,440/- FRINGE BENEFIT TAX OF RS. 2,78,220/- AND INTEREST ON DIVIDEND DISTRIBUTION TAX TO THE EXTENT OF RS. 16,86,575/- 4. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE ASSES SING OFFICER ERRED IN NOT RESTRICTING THE EXTENT OF DISALLOWANCE TO THE A MOUNT OF DIVIDEND INCOME. I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 6 -: 5. THE ASSESSING OFFICER ERRED IN ALLOWING CREDIT F OR TAX DEDUCTED AT SOURCE AT RS. 41,05,765/- AS AGAINST RS. 41,85,152/ - BEING THE APPLICABLE TAX DEDUCTED ON INCOME OFFERED TO TAX. 6. THE ASSESSING OFFICER ERRED IN NOT ALLOWING CRED IT FOR RS. 5,34,382/- PAID ON 04-01-2013. 7. THE ASSESSING OFFICER ERRED IN INITIATING THE PE NALTY PROCEEDINGS U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961. 8. THE ASSESSING OFFICER ERRED IMPOSING INTEREST U/ S. 234B & C OF THE INCOME TAX ACT, 1961. 9. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER ANY OF THE AFORESAID GROUNDS OF APPEAL. 7.2. AS CAN SEEN FROM THE ABOVE, THE GROUNDS EXTRACTE D BY LD. CIT(A) IN THE ORDER ARE AT VARIANCE WITH THE GROU NDS AS CONTESTED BY ASSESSEE. THERE IS NO EVIDENCE BROUGHT ON RECORD THAT ASSESSEE HAS FILED REVISED GROUNDS OR REVISED FO RM 35 BEFORE LD.CIT(A). IN OUR OPINION, IT IS NOT CORRECT ON THE PAR T OF CIT(A) TO ADJUDICATE AN ISSUE AND GIVE RELIEF WHEN THERE IS NO GROUND TAKEN IN APPEAL. AS SEEN FROM THE ORDER OF AO, EVEN THE CH ARTERED ACCOUNTANT IN AUDIT REPORT HAS REPORTED THE DISALLOWANCE AND ASSESSEE FILED REVISED COMPUTATION, ACCEPTING THE MISTA KE. THEREFORE, WITHOUT GOING INTO OTHER ASPECTS, WE SET AS IDE THE ORDER OF LD.CIT(A) TO THAT EXTENT AND RESTORE THE ADDITION MAD E BY THE AO. GROUND NO. 1 IS ALLOWED. 7.3. COMING TO THE ISSUE OF ADDITION U/S. 14A, THE I TAT IN EARLIER YEAR IN AY. 2009-10 HAS RESTORED THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. THE ORDER OF ITAT IN PARA 47 IS AS UNDER: 47. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH T HE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE RAISED VARIO US LEGAL CONTENTIONS IN I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 7 -: SUPPORT OF THEIR RESPECTIVE STANDS ON THIS ISSUE, W E FIND FROM THE RELEVANT PORTION OF THE IMPUGNED ORDER OF LEARNED CIT(A), AS CONTAINED IN PARAGRAPH 5.2 EXTRACTED ABOVE, THAT THE RELIEF HAS BEEN ALLOW ED BY THE LEARNED CIT(A) BY DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A ON APPRECIATION OF THE FACTS OF THE CASE. IT IS WO RTHWHILE TO NOTE HERE THAT AS PER THE PROVISIONS OF S.14A, NO DEDUCTION SHALL BE ALLOWED, FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHAPTER IV, IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE BASIC QUESTION T HUS IS WHETHER THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE CAN BE SAID TO HAVE INCURRED ANY INTEREST EXPENDITURE IN RELATION TO THE INVESTMENT MADE IN THE SHARES OF THE COMPANIES, WHICH IS CAPABLE OF EA RNING EXEMPT DIVIDEND INCOME. IN THIS REGARD, THE LEARNED CIT(A) HAS NO TED IN THE IMPUGNED ORDER THAT THE ASSESSE, AT THE RELEVANT TIME, HAD ITS OWN FUNDS IN THE FORM OF CAPITAL AND RESERVES TO THE EXTENT OF RS.60 3.72 CRORES, WHICH WERE MORE THAN THE INVESTMENT MADE IN THE SHARES OF OTHE R COMPANIES. HE ALSO FOUND FROM THE FACTS AND FIGURES FURNISHED BY THE A SSESSEE THAT NO PART OF THE FUNDS BORROWED BY THE ASSESSEE HAD ANY LINK OR NEXUS WITH THE INVESTMENTS MADE IN THE SHARES OF OTHER COMPANIES. AS HELD BY THE LEARNED CIT(A), NO INTEREST EXPENDITURE ON BORROWED FUNDS THUS WAS INCURRED BY THE ASSESSEE IN RELATION TO THE INVESTM ENT MADE IN THE SHARES OF OTHER COMPANIES, WARRANTING ANY DISALLOWANCE UND ER S.14A AND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN AB LE TO DISPUTE THIS POSITION. HE, HOWEVER, HAS CONTENDED THAT ALL THES E FACTS AND FIGURES FURNISHED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND RELIED UPON BY HIM TO GIVE RELIEF TO THE ASSESSEE ON THIS ISSUE, WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND THE ASSESSING OFFICER THEREFORE HAD NO OPPORTUNITY TO VERIFY THE SAME. WE FIND MERIT IN THIS CONTENTION OF THE LEARNED DEPART MENTAL REPRESENTATIVE. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AS SESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING THE STAND OF THE ASSES SEE THAT SUFFICIENT OWN FUNDS WERE AVAILABLE WITH IT FOR MAKING THE INVEST MENTS IN THE SHARES OF OTHER COMPANIES AND THAT THE INTEREST BEARING BORRO WED FUNDS WERE NOT UTILISED FOR MAKING SUCH INVESTMENTS. IF THE CLAIM OF THE ASSESSEE IS FOUND TO BE CORRECT ON SUCH VERIFICATION, THE ASSESSING O FFICER SHALL NOT MAKE ANY DISALLOWANCE UNDER S.14A. GROUND NO.3 OF THE REVENU ES APPEAL FOR ASSESSMENT YEAR 2009-10 IS ACCORDINGLY TREATED AS A LLOWED FOR STATISTICAL PURPOSES. 7.4. SINCE THE FINDINGS IN THAT YEAR HAS A BEARING I N THIS YEAR, WE MODIFY THE ORDERS OF CIT(A) AND RESTORE THE I SSUE TO THE FILE OF AO. ASSESSEE IS FREE TO RAISE CONTENTIONS BOTH ON FACTS AND ON I.T.A. NO. 1224/HYD/2013 M/S. PRAJAY ENGINEERS SYNDICATE LTD., :- 8 -: LAW. WITH THESE DIRECTIONS, THE SECOND GROUND RAISED B Y REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2016 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 4 TH NOVEMBER, 2016 TNMM COPY TO : 1. DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD. 2. M/S. PRAJAY ENGINEERS SYNDICATE LTD., 8-2-293/82 /A, PLOT NO. 1091, ROAD NO. 41, JUBILEE HILLS, HYDERABA D. 3. CIT (APPEALS)-V, HYDERABAD. 4. CIT-IV, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.