Upkar Infra Projects Private Limited, Hyderabad, Hyderabad V. ITO, Ward-17(3), Hyderabad, Hyderabad

ITA 123/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2504 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Business expenditure; Earning of tax free income; Agreed addition; Right to appeal
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 123/HYD/2017 ASSESSMENT YEAR: 2012-13 UPAKAR INFRA PROJECTS PRIVATE LIMITED, HYDERABAD [PAN: AABCK4691F] VS INCOME TAX OFFICER, WARD-17(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SHRI V. SREEKAR, DR DATE OF HEARING : 16-10-2017 DATE OF PRONOUNCEMENT : 25-10-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-5, HYDERABAD, DATED 31-10-2016. 2. THERE ARE TWO ISSUES IN THIS APPEAL. ONE IS PERTA INING TO ADDITION MADE U/S. 14A OF THE INCOME TAX ACT [ACT] AND OTHER IS ADHOC DISALLOWANCE OF 10% OF SITE EXPENSES. ASSESSE E HAS RAISED GROUNDS ON THESE TWO ISSUES. 3. BRIEFLY STATED, ASSESSEE IS A COMPANY IN WHICH PUB LIC ARE NOT SUBSTANTIALLY INTERESTED. IT IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACT AND FILED RETURN OF INCOME ADMITTING RS. 25,06 ,150/-. WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE ACT, THE ASSESSING OFFICER (AO) NOTICING THAT ASSESSEE HAS INV ESTED AN AMOUNT OF RS. 1,39,00,000/-. INVOKING THE PROVISIONS OF SECTION I.T.A. NO. 123/HYD/2017 :- 2 - : 14A AO MADE DISALLOWANCE OF RS. 4,95,194/-. IN ADD ITION TO THE ABOVE AMOUNT, AO ALSO DISALLOWED 10% OF THE SITE EXPE NSES AMOUNTING TO RS. 4,10,782/-. 3.1. AS FAR AS THE SECOND DISALLOWANCE IS CONCERNED, IT SEEMS ASSESSEE HAS ACCEPTED AS AN AGREED ADDITION BEFORE TH E AO. HOWEVER, ASSESSEE CONTESTED BOTH THE DISALLOWANCES BEF ORE THE LD.CIT(A). WHILE UPHOLDING THE DISALLOWANCE U/S. 14 A, LD.CIT(A) DID NOT INTERFERE WITH THE DISALLOWANCE OF SITE EXPENSE S ON THE REASON THAT ASSESSEE HAS AGREED. 4. EVEN THOUGH ASSESSEE HAS RAISED A GROUND ABOUT THE DISALLOWANCE OF 10% OF SITE EXPENSES, AS SEEN FROM TH E FACTS PLACED BEFORE THE LD.CIT(A), ASSESSEE SUBMITTED THAT IT HAS ACCE PTED THE DISALLOWANCE AND CONTESTED THE ISSUE ONLY BECAUSE AO DISALLOWED THE AMOUNT U/S. 14A. SINCE THIS IS AN AGREED ADDITION, I AM OF THE OPINION THAT THERE IS NO FURTHER RIGHT OF APPEAL TO THE A SSESSEE. IN VIEW OF THIS, THE GROUND NO. 3 PERTAINING TO THE ISSUE OF ADHOC DISALLOWANCE OF SITE EXPENSES IS REJECTED. 4.1. OTHER ISSUE IS THE DISALLOWANCE OF RS. 4,95,194/ - MADE BY THE AO BY APPLYING THE PROVISIONS OF SECTION 14A. AO NOTICED THAT ASSESSEE HAS INVESTED AN AMOUNT OF RS. 1.39 CRORES A S ON 31-03- 2011. THE SAME AMOUNT WAS SHOWN AS ON 31-03-2012 AS WELL. WHEN ENQUIRED, ASSESSEE HAS STATED THAT AN AMOUNT OF RS . 9 LAKHS WAS INVESTED IN PRADHAN GREEN FIELDS PVT. LTD., DURING THE PREVIOUS YEAR 2006-07 FOR THE AY. 2007-08. THAT WAS MADE OUT OF OWN FUNDS AS ON 31-03-2007. BALANCE AMOUNT OF RS. 1 .30 CRORES WAS MADE IN THE EQUATY SHARES OF SUSHEE INFRA PRIVAT E LTD., DURING I.T.A. NO. 123/HYD/2017 :- 3 - : THE PREVIOUS YEAR 2010-11. ASSESSEE HAD BUSINESS TRAN SACTION TO THE SAID COMPANY AND ACCORDINGLY, IT WAS SUBMITTED THAT T HE INVESTMENT BY THE ASSESSEE-COMPANY IS FOR BUSINESS CON SIDERATIONS AND NOT TO EARN DIVIDEND INCOME. FURTHER, IT WAS SUBM ITTED THAT ASSESSEE HAD MORE THAN RS. 7.49 CRORES OF OWN FUNDS AND THE BORROWED FUNDS ARE SPECIFICALLY FOR BUSINESS PURPOS ES ON WHICH NO DISALLOWANCE CAN BE MADE OUT. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING T HE YEAR NOR HAS SPENT ANY AMOUNT WHICH HAS CLAIMED AGAINST THE BU SINESS EXPENDITURE. IT WAS SUBMITTED THAT NO DISALLOWANCE U/S. 14A IS WARRANTED. AO, HOWEVER, INVOKED SECTION 14A R.W. RUL E 8D AND DETERMINED THE DISALLOWANCE WITHOUT GIVING ANY FINDING WHETHER ASSESSEE HAS SPENT ANY AMOUNT FOR EARNING THE EXEMPT IN COME. IN FACT, THERE IS NO EXEMPT INCOME CLAIMED BY ASSESSEE D URING THE YEAR. 5. ASSESSEE CARRIED THE MATTER TO CIT(A) AND SUBMITTED THAT THE INTEREST PAYMENTS ARE FOR THE PURPOSE OF BUSINESS AND N O PART OF BORROWED FUNDS WERE DIVERTED FOR INVESTMENT. ANOTHER A RGUMENT RAISED BY ASSESSEE WAS THAT ASSESSEE WAS HAVING OWN F UNDS, SO THE DISALLOWANCE IS NOT WARRANTED UNDER RULE 8D(2). IT IS ALSO FURTHER SUBMITTED THAT NO DIVIDEND INCOME WAS EARNED DURING THE YEAR AND NO EXEMPTION WAS CLAIMED, THEREFORE THE PROVISIONS OF SECTION 14A ARE NOT ATTRACTED AT ALL. IT RELIED ON VARIOUS CASE LAW IN SUPPORT OF VARIOUS CONTENTIONS. 6. LD.CIT(A), HOWEVER, INTERPRETING VARIOUS CASE LAW AND ALSO RELYING ON THE BOARD CIRCULAR, CONFIRMED THE ADDITION . I.T.A. NO. 123/HYD/2017 :- 4 - : 7. LD. COUNSEL DRAWING MY ATTENTION TO THE PAPER BOOK PL ACED, PARTICULARLY FUNDS POSITION, SUBMITTED THAT THE INVESTMENT WAS CARRIED OVER FROM 31-03-2011 AND THERE WAS NO DISAL LOWANCE IN EARLIER YEAR U/S. 14A. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR. ACCORDINGLY, FOLLOWING THE CO-ORDINATE BENCH DECISION IN THE CASE O F ITO VS. M/S. NEULAND HEALTH SCIENCES PVT. LTD., IN ITA NO. 41/ HYD/2017 DT. 31-07-2017, NO DISALLOWANCE U/S. 14A IS WARRANTED . IT IS ALSO FURTHER SUBMITTED THAT ALL THE BORROWED FUNDS ARE FOR THE SPECIFIC PURPOSE OF BUSINESS AND NO PART OF AMOUNT WAS DIVERTE D FOR INVESTMENT. HENCE, RULE 8D(2)(II) IS NOT ATTRACTED. 8. LD.DR, HOWEVER, RELIED ON THE ORDERS OF THE LD.CIT (A). 9. I HAVE CONSIDERED THE RIVAL CONTENTIONS. IT IS THE F ACT THAT ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR. SO, QUESTION OF DISALLOWANCE U/S. 14A DOES NOT ARISE AS T HERE IS NO INCOME EARNED WHICH WAS CLAIMED AS EXEMPTION. THE C O-ORDINATE BENCH DECISION RELIED BY THE LD. COUNSEL IS AS UNDER : 10. THE FIRST ISSUE IS WITH REGARD TO THE APPLICAB ILITY OF PROVISIONS OF SECTION 14A OF THE ACT. DURING THE COURSE OF HE ARING, LD. DR SUBMITTED THAT THE EXPENDITURE PERTAINING TO THE EXEMPT INCOM E HAS TO BE DISALLOWED AND SINCE WORKING IS DIFFICULT, RULE 8D PROVIDES FO R A PROCEDURE TO BE FOLLOWED BY THE A.O. THEREFORE, IT IS NOT CONNECTE D TO THE EARNING OF INCOME. 10. ON THE OTHER HAND, LD. COUNSEL FOR ASSESSEE SUB MITTED THAT THE CASE OF THE ASSESSEE RESTS ON TWO ISSUES I.E., (A) NO EXPENDITURE WAS INCURRED IN THIS CASE SINCE THE ASSESSEE HAS NOT UT ILISED OWN FUNDS OR INTEREST FREE FUNDS FOR THE PURPOSE OF MAKING INVES TMENTS AND (B) THE FOLLOWING DECISION OF VARIOUS HIGH COURTS SHOW THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE ONLY WHEN THERE IS INCOM E IN THE FORM OF DIVIDEND ETC., WHICH IS EXEMPT FROM TAX. IN OTHER WORDS, SECTION 14A WILL I.T.A. NO. 123/HYD/2017 :- 5 - : NOT APPLY WHERE EXEMPT INCOME IS NOT RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 1. CIT VS. LAKHANI MARKETING INC. [2014] 226 TAXMAN 45 (PUNJAB & HARHANA); 2. CIT VS. CORRTECH ENERGY (P) LTD [2014] 45 TAXMAN N.COM 116 (GUJARAT); 3. PRATHISTA INDUSTRIES LTD VS. DCIT (ITA NO.1302/H /2015, DT 29.4.2016); 4. CIT VS. SHIVAM MOTORS (P) LTD [2015] 55 TAXMANN. COM 262 (ALLAHABAD); 5. CIT VS. DELITE ENTERPRISES BOMBAY HIGH COURT ( IT A. NO.110 OF 2009); 6. ACIT VS. DELITE ENTERPRISES (P.) LTD [2011] 128 ITD 146 (MUM.); 7. AVSHESH MERCANTILE (P.) LTD VS. DCIT [2012] 148 TTJ 607 (MUMBAI) AND 8. REDINGTON (INDIA) LTD VS. ADDL. CIT [2017] 392 I TR 633 (MAD.). HE FURTHER SUBMITTED THAT THERE ARE NO CONTRADICTOR Y DECISIONS OF OTHER HIGH COURTS ON THIS ISSUE. 11. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RECORD. THE CASE OF THE ASSESSEE IS THAT NO EX PENDITURE WAS INCURRED FOR THE PURPOSE OF MAKING INVESTMENT IN M/S. NEULAN D LABORATORIES LTD. NEITHER THE A.O. NOR THE LD. CIT(A) DISCUSSED THIS ISSUE. AT ANY RATE, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT ASSESSEE HAS NOT EARNED ANY INCOME OUT OF SUCH INVESTMENTS DURING THE PREVIOUS YEAR RELATABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION, IN WHICH EVENT , THE AFOREMENTIONED CASES AND THE RATIO THEREIN DESERVE TO BE TAKEN INT O CONSIDERATION. UNDER THESE CIRCUMSTANCES, I HOLD THAT A.O. ERRED IN INVO KING THE PROVISIONS OF SECTION 14A OF THE ACT AND THUS, THE ORDER PASSED B Y THE LD. CIT(A) IS AFFIRMED AND THE GROUND URGED BY THE REVENUE IS DIS MISSED. 9.1. RESPECTFULLY FOLLOWING THE SAME, I AM OF THE OPIN ION THAT THE PROVISIONS OF SECTION 14A ARE NOT ATTRACTED. EVEN OTHERW ISE ALSO, IF ASSESSEE HAS BORROWED FUNDS FOR THE PURPOSE OF BUSIN ESS AND HAS DIVERTED FOR THE PURPOSE OF NON-BUSINESS PURPOSES, P ROVISIONS OF SECTION 36(1)(III) ARE ATTRACTED. AO HAS NEITHER EXAMINED THE FACTS NOR HAS GIVEN ANY FINDING WHETHER ANY OF THE BORROWED AMOUNTS HAVE BEEN DIVERTED TO NON-BUSINESS PURPOSES, PARTICUL ARLY FOR INVESTMENT. THE PRINCIPLES LAID DOWN BY HON'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWE R LTD., [313 ITR 340] ARE CLEARLY APPLICABLE. LD.CIT(A) EVEN THOUGH FOLLOWED THE ABOVE JUDGMENT, HE HAS MIS-CONSTRUED THE F INDINGS OF THE HON'BLE HIGH COURT AND CONFIRMED THE ADDITION. WHAT THE HON'BLE COURT HAS DIRECTED THAT EVEN IF ASSESSEE HAS U TILISED ITS OWN FUNDS FOR MAKING INVESTMENTS WHICH HAVE RESULTED I N INCOME I.T.A. NO. 123/HYD/2017 :- 6 - : WHICH DOES NOT FORM PART OF INCOME, THE EXPENDITURE WH ICH IS INCURRED IN EARNING OF THAT INCOME WOULD HAVE TO BE DI SALLOWED. THAT EXACTLY A MATTER WHICH THE AO HAS TO DETERMINE. HOW EVER, THERE IS NO FINDING BY THE AO THAT ASSESSEE HAS DIVERTE D THE BORROWED FUNDS FOR INVESTMENT. IF THAT IS THE CASE, PROV ISIONS OF SECTION 36(1)(III) WOULD DIRECTLY APPLY AND THERE IS NO NEED TO INVOKE THE SECTION14A. AS PER THE SECTION FURTHER AS PE R THE RULE 8D(2), ONLY THE INTEREST PAID WHICH IS NOT FOR THE PURPO SE OF BUSINESS, CAN BE DISALLOWED. SINCE THE ASSESSEES BORROWED FUNDS ARE STATED TO HAVE BEEN UTILISED ONLY FOR THE PURPOSE O F BUSINESS, THE INTEREST AMOUNT CANNOT BE CONSIDERED FOR DISALLOWANC E U/S. 14A, WITHOUT GIVING A FINDING THAT FUNDS ARE DIVERTED. ASSESSEE ALSO HAD ITS OWN FUNDS. THEREFORE, THE QUESTION OF DISALLOWING THE INTEREST DOES NOT ARISE. SINCE THE ASSESSEE HAS NOT EAR NED ANY DIVIDEND INCOME AND HAS SIMPLY CARRIED OVER THE INVE STMENT MADE IN THE EARLIER YEAR AND NO DISALLOWANCE SEEMS TO HAV E BEEN MADE IN AY. 2011-12, I AM OF THE OPINION THAT PROVISIONS OF RU LE 8D(2)(III) ARE ALSO NOT ATTRACTED. SINCE NO EXPENDITURE IS SUPPOS ED TO HAVE BEEN SPENT WAS QUANTIFIED BY THE AO, ADHOC DISALLOWA NCE OUT OF BUSINESS EXPENDITURE DOES NOT ARISE. IN VIEW OF THIS, ASSESSEES GROUND IS ALLOWED. AO IS DIRECTED TO DELETE THE ADDITI ON MADE U/S. 14A. 10. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 25 TH OCTOBER, 2017 TNMM I.T.A. NO. 123/HYD/2017 :- 7 - : COPY TO : 1. UPAKAR INFRA PROJECTS PRIVATE LIMITED, C/O. SR I S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6 -643, STREET NO. 9, HIMAYAT NAGAR, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-17(3), HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-5, HYDERABAD . 4. THE PR. COMMISSIONER OF INCOME TAX-5, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.