PS Realty Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1294/CHNY/2015

• Counselvise Citation: 129421714 RSA 2015
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 03-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2015
• Court: TRIBUNAL
• Department Lawyers: M M BHUSARI
• Assessee Lawyers: M VISWANATHAN
• Keywords: Earning of tax free income
• Section: 143(3); 244A; 14A; 115JB; 263; 63

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU R L REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1 294 /MDS/2015 / ASSESSMENT YEAR :20 1 0 - 11 M/S. PS REALTY PRIVATE LIMITED [NOW MERGED WITH SIVA INDUSTRIES AND HOLDINGS LIMITED, 5 TH FLOOR, TOWER 1, BELICIAA TOWER, 71/1 MRC NAGAR MAIN ROAD, RAJA A NNAMALAIPURAM, CHENNAI 600 028. [PAN: A A A C S4460M ] VS. THE DEPUTY COMMISSIONER OF INCOME TAX , CO MPANY CIRCLE V ( 2 ), AYAKAR BHAVAN, 121, MG ROAD, NUNGAMBAKKAM, CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI M. VISWANATHAN, C.A. / RESPONDENT BY : SHRI M.M. BHUSARI , CIT / DATE OF HEARING : 0 3 . 11 .201 5 / DATE OF P RONOUNCEMENT : 27 . 1 1 .201 5 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX - 6 , CHENNAI , DATED 31 . 03. 20 1 5 RELEVANT TO THE ASSESSMENT YEAR 20 1 0 - 11 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] . IN T HE ANNEXURE TO FORM 36, THE ASSESS E E HAS RAISED THE FOLLOWING GROUNDS: 1. T O DELETE T HE DISALLOWAN C E MADE BY THE HONOURABLE PCIT UNDER SECTION 14A R.W. RULE 8D OF THE RULES. I.T.A. NO . 1 294 /M/ 15 2 2. TO PASS SUCH OTHER ORDERS AS YOUR HONOURS MAY DEEM FI T TO RENDER JUSTICE AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE ONLY EFFECTIVE GROUND EMANATES OUT OF THE ORDER OF THE LD. PCIT PASSED BY INVOKING PROVISIONS OF SECTION 263 OF THE ACT IS WITH REGARD TO THE DIRECTION TO THE ASSESSIN G OFFICER TO REDO THE ASSESSMENT PASSED UNDER SECTION 143(3) OF THE ACT ON 12.03.2013 BY MAKING DISALLOWANCE UNDER SECTION 14 R.W. RULE 8D. ONCE THE ASSESSEE HAS NOT CHALLENGED IN THE GROUNDS OF APPEAL , THE ORDER PASSED UNDER SECTION 263 OF THE ACT , OUT OF WHICH THE ABOVE GROUND IS RAISED BEFORE THE TRIBUNAL, THE APPEAL OF THE ASSESSEE P REFERRED BEFORE THE TRIBUNAL IS NOT MAINTAINABLE. HOWEVER, DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ORDER PASSED UNDER SECTION 2 63 OF THE ACT IS INCORRECT SINCE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D CANNOT BE APPLIED IN ASSESSEE S CASE SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME . HENCE, AFTER HEARING BOTH SIDES, WE PROCEEDED TO DECIDE THE LEGAL ISSUE RAISED BEFO RE THE TRIBUNAL. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN BUSINESS OF DEVELOPMENT OF URBAN AND RURAL IMMOVABLE PROPERTIES. THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF .2,98,30,310/ - AND ADMITTIN G BOOK PROFIT UNDER SECTION 115JB OF THE ACT AT . 2,98,09,037/ - . THE ASSESSEE HAS ALSO CLAIMED A REFUND OF .53,42,220/ - I.T.A. NO . 1 294 /M/ 15 3 BY WAY OF DEDUCTING TDS AND THE SAME WAS ISSUED UNDER SECTION 143(1) ALONG WITH INTEREST UNDER SECTION 244A OF .3,47,243/ - . THE CASE WAS SELECTED FOR SCRUTINY TO EXAMINE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 02.09.2011. 4 . THE AR OF THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HAS N OT INCURRED ANY EXPENDITURE TO EARN EXEMPT INCOME DURING THE YEAR. HE FURTHER STATED THAT THE ASSESSEE COMPANY HAS MADE AN INVESTMENT OF .134,00,68,754/ - IN M/S. CHAITRA REALTY PRIVATE LIMITED BY WAY OF EQUITY AND PERFORMANCE SHARES. THIS INVESTMENT WAS MADE OUT OF THE INTEREST FREE FUNDS OBTAINED FROM ITS HOLDING COMPANY M/S. SIVA VENTURES LIMITED AND PRODUCED COPY OF LEDGER EXTRACT EVIDE NCING THE RECEIPT OF MONEY. THE AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS TAKEN LOAN FROM ITS HOLDING COMPANY M/S. SIVA VENTURES LIMITED TO THE EXTENT OF .268,28,82,536/ - AND OUT OF THE BORROWED FUNDS THE ASSESSEE HAS ADVANCED AN AMOU NT OF .131.94 CRORES TO M/S. CHAITRA REALTY PVT. LTD. AS INTEREST BEARING LOAN AND PRODUCED LEDGER EXTRACTS OF LOANS AND ADVANCES. THE AR OF THE ASSESSEE HAS ALSO PRODUCED DETAILS OF EXPENSES RELATING TO ACQUISITION. AN AMOUNT OF .16,03,167/ - INCURRED FO R DUE DILIGENCE AND ADVISORY SERVICES WAS DISALLOWED BY THE ASSESSEE AT THE TIME OF COMPUTATION OF TOTAL INCOME AND SOUGHT TO INCLUDED IN THE COST OF INVESTMENT. ON VERIFICATION OF THE DETAILS FURNISHED BY THE I.T.A. NO . 1 294 /M/ 15 4 ASSESSEE, THE ASSESSING OFFICER HAS ACCEPTED T HE CLAIM OF THE ASSESSEE AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT. 5 . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT EXAMINED THE AVAILABILITY OF CAPITAL AMOUNT WITH THE ASSESSEE BEFORE OBTAINED INTEREST BEARING LOAN . THE ASS ESSEE HAS BORROWED LOAN OF .268,28,82,536/ - FROM ITS HOLDING COMPANY M/S. SIVA VENTURES LTD. AND PAID INTEREST ON THE SAME TO THE TUNE OF .12,33,28,561/ - OUT OF THIS BORROWED FUNDS, THE ASSESSEE COMPANY HAS ADVANCED .131.94 CRORES TO M/S. CHAITRA REALTY PVT. LTD. THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.12.33,28,561/ - ON SUCH BORROWED FUNDS. HOWEVER, THE INCOME (DIVIDEND) THAT WOULD BE EARNED FROM SUCH INVESTMENTS OF .134 CRORES IS EXEMPTED UNDER SECTION 10(34) OF THE ACT. HOWEVER, THE ASSESS ING OFFICER HAS FAILED TO NOTE THAT A S PER SECTION 14A OF THE ACT, ANY EXPENDITURE ATTRIBUTABLE TO EARNING EXEMPTED INCOME CANNOT BE ALLOWED IN COMPUTING THE TOTAL INCOME UNDER THE ACT AND HE HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT, WHIC H IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 6. SINCE THE ABOVE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER HAS BEEN FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE LD. PCIT VALIDLY INITIATED REVISIONARY PROCEEDINGS UNDER SECTION 263 OF THE ACT AND ACCORDINGLY, NOTICE WAS ISSUED TO THE ASSESSEE. I.T.A. NO . 1 294 /M/ 15 5 7 . BEFORE THE LD. PCIT, THE ASSESSEE HAS SUBMITTED THAT THE INVESTMENT IS NOT OUT OF INTEREST BEARING FUND. FROM THE BALANCE SHEET, THE LD. PCIT HAS NOTED THAT THERE WAS NO BUSINESS ACTIVITY OR SOURCE FOR FUNDS FOR THE ASSESSEE COMPANY IN THE EARLIER YEAR ENDING 31.03.2009. ONLY SHARE CAPITAL TO THE TUNE OF . 1 LAKH WAS AVAILABLE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS TAKEN LOAN FROM ITS HOLDING COMPANY M/S. SIVA VENTURES LIMITED TO THE EXTENT OF .268,28,82,536/ - AND OUT OF THE BORROWED FUNDS THE ASSESSEE HAS ADVANCED AN AMOUNT OF .131.94 CRORES TO M/S. CHAITRA REALTY PVT. LTD. AS INTEREST BEARING LOAN AND PRODUCED LEDGER EXTRACTS OF LOANS AND ADVANCES AND BEFORE THE LD. PCIT, THE SUBMISSIONS MADE BY THE ASSESSEE THAT THE INVESTMENT IS NOT OU T OF INTEREST BEARING FUND IS FACTUALLY INCORRECT SINCE THE ASSESSEE WAS NOT HAVING ANY OTHER RESERVES OR SURPLUS AS ON 01.04.2009 EXCEPT .1 LAKH AS SHARE CAPITAL. FROM THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER BY THE AR OF THE ASSESSEE, IT IS VER Y CLEAR THAT THE ASSESSEE HAS MADE INVESTMENT OUT OF INTEREST BEARING LOAN OBTAINED FROM THE HOLDING COMPANY. THEREFORE, THE INTEREST EXPENDITURE ATTRIBUTABLE TO THE INVESTMENT IN PROPORTION TO THE TOTAL ASSETS IS REQUIRED TO BE DISALLOWED WHILE COMPUTING THE TOTAL INCOME. 8 . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, BY SETTING ASIDE THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3), THE LD. PCIT HAS RIGHTLY I.T.A. NO . 1 294 /M/ 15 6 PASSED ORDER UNDER SECTION 263 OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO TAX , TO BE EVA DED , UNDER SECTION 14A R.W. RULE 8D BY DISALLOWING THE PORTION OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 9 . IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A OF THE ACT, EVEN IF NO DIVIDEND IS EARNED OUT OF INVESTMENTS IN A PARTICULAR YEAR, THE PORTION OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAS TO BE DISALLOWED. MOREOVER, SUB - SECTION (2) OF SECTION 14A PRESCRIBES THE METHOD UNDER RULE 8D OF THE INCOME TAX RULES FOR COMPUTING THE EXPENDITURE ATTRIBUTABLE TO EARNING THE EXEMPTED INCOME. THE LD. PCIT HAS PASSED WELL REASONED DETAILED ORDER UNDER SECTION 263 OF THE ACT. ACCORDINGLY, WE CONFIRM THE ORDER PAS SED BY THE LD. PCIT DIRECTING THE ASSESSING OFFICER TO IDENTIFY THE EXPENDITURE ATTRIBUTABLE TO EARNING THE EXEMPTED INCOME AND TAX ACCORDINGLY. THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 10 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 27 TH NOVEMBER , 2015 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 27. 1 1 .201 5 VM/ - I.T.A. NO . 1 294 /M/ 15 7 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.