Sterling Holiday Resorts India Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1345/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8941 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 03-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 02-06-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: M VISWANATHAN
• Keywords: Earning of tax free income; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1345/MDS/2015 / ASSESSMENT YEAR :20 0 9 - 1 0 M/S. STERLING HOLIDAYS RESORTS INDIA LIMITED, NO.7, 3 RD CROSS STREET, CITI TOWER, KASTURBA NAGAR, ADYAR, CHENNAI 600 0 20 . [PAN: A ADCS4841D ] VS. THE ASSISTANT COM MISSIONER OF INCOME TAX , COMPANY CIRCLE VI(4), CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO. 1409/MDS/2015 / ASSESSMENT YEAR :2009 - 10 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6( 2) , AAYAKAR BHAVAN, NEW BLOCK, 7 TH FLOOR, 121, MG ROAD, CHENNAI 600 034. VS. M/S. STERLING HOLIDAYS RESORTS INDIA LIMITED, NO.7, 3 RD CROSS STREET, CITI TOWER, KASTURBA NAGAR, ADYAR, CHENNAI 600 020. ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI M. VISWANATHAN , C.A. / RESPONDENT BY : SHRI P. RADHAKRISHNAN , JCIT / DATE OF HEARING : 03 . 05 .201 6 / DATE OF P RONOUNCEMENT : 13 .07 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E S E CROSS APPEAL S FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT (APPEALS) - 15 , CHENNAI , DATED I.T.A. NO S . 1 345 & 1409 /M/ 15 2 2 5 . 0 3 . 20 1 5 RELEVANT TO THE ASSESSMENT YEAR 200 9 - 10. THE ONLY EFFECTIVE GROU ND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE .15 , 69 , 623 / - MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] R.W. RULE 8 D OF INCOME TAX RULES. IN THE REVENUE S APPEAL, THE ONLY EFFECTIVE GROUND RAISED IS WITH REGARD TO DELETION OF ADDITION OF .2,62,55,223/ - TOWARDS DEFERRED REVENU E INCOME. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE OF HOLIDAY TIME SHARES AND RESORTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 ON 29.09.2009 ADMITTING NIL INCOME. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT DATED 20.08.2010 WAS ISSUED AND DULY SERVED ON THE ASSESSEE. THE ASSESSEE FURNISHED ALL THE DETAILS CALLED FOR. THE ASSESSEE HAS ADMITTED SALES AT .7,58,01,066/ - WHICH IS INCLUSIVE OF INCOME FROM SALE OF TIME SHARES OF .1,84,20,761/ - . THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT .4,71,76,178/ - AFTER MAKING DISALLOWANCE OF DEFERRED REVENUE EXPENDITURE AT . 2,62,55,223/ - AND DISALLOWANCE OF .15,69,623/ - UNDER SECTION 14A OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) ALLOWED THE I.T.A. NO S . 1 345 & 1409 /M/ 15 3 CLAI M OF DEFERRED REVENUE EXPENDITURE AND SUSTAINED THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 4. ON BEING AGGRIEVED, BOTH THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON R ECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO THE DISALLOWANCE OF .15,69,623/ - UNDER SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER HAS OBSERVED THAT OBSERVED THAT THE ASSESSEE HAS INCURRED HUGE INTEREST EXPENDITURE AS WELL AS OTHER EXPENDITURE WHICH ARE ALSO ATTRIBUTABLE TO MAKING INVESTMENTS OR MANAGING THE INVESTMEN TS IN THE FORM OF EQUITY SHARES TO THE TUNE OF .9,78,33,000/ - . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS NOT DISALLOWED THE EXPENSES ATTRIBUTABLE TO MANAGEMENT OF THE HUGE INVESTMENT IN THE FORM OF EQUITY SHARES. ACCORDINGLY, THE ASSESS ING OFFICER COMPUTED THE EXPENSES OF .15,69,623/ - UNDER RULE 8D OF THE IT RULES R.W.S 14A OF THE ACT. WHILE MAKING THE DISALLOWANCE, THE ASSESSING OFFICER BY RELYING ON THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2008 - 09, WHEREIN, THE LD. CIT(A) C ONFIRMED THE DISALLOWANCE BY RELYING ON VARIOUS CASE LAW INCLUDING THE DELHI SPECIAL BENCH DECISION IN THE CASE OF CHEMINVEST LTD. VS. ITO 121 ITD 318. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE ASSESSEE VEHEMENTLY ARGUED AGAINST THE ACTION OF THE I.T.A. NO S . 1 345 & 1409 /M/ 15 4 ASSESSING OFFICER IN MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AT LENGTH. BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE DID NOT DENY THE FACT OF INCURRING EXPENDITURE FOR MANAGING THE INVESTMENTS WHICH ARE IN RELATION TO EARNING OF EXEMPT INCOME. THE INVESTMENTS HAVE HUGE POTENTIAL IN GIVING OR EARNING EXEMPT INCOME LIKE DIVIDEND INCOME IN THE ASSESSMENT YEAR UNDER CONSIDERATION OR ALSO IN THE FUTURE YEARS. AFTER CONSIDERING VARIOUS DE CISIONS INCLUDING THE JUDGEMENT OF DELHI SPECIAL BENCH DECISION IN THE CASE OF CHEMINVEST LTD. VS. ITO (SUPRA), WHEREIN, IT WAS HELD THAT DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN THE YEAR WHERE NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF M/S. GODREJ & BOYCE. MFG. CO. LTD. V. CIT REPORTED IN 328 ITR 81 HELD THAT THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAD BEEN INCURRED IN RELATION TO INCOME WHICH DID NO T FORM PART OF THE TOTAL INCOME. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 6. COMING TO THE REVENUE S APPEAL, THE LD. DR HAS SUBMITTED THAT THE LD. C IT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE TOWARDS DEFERRED REVENUE INCOME. HE ALSO ARGUED THAT I.T.A. NO S . 1 345 & 1409 /M/ 15 5 THE DECISION OF ITAT IN ASSESSEE S OWN CASE HAS NOT REACHED FINALITY AS THE DEPARTMENT HAS FILED APPEAL BEFORE THE HON BLE M ADRAS HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL. 7. THE ISSUE IS ABOUT TAXATION OF THE TIME SHARES SOLD COMPRISING 55% OF THE TIME SHARE VALUE WHICH WAS TREATED BY THE ASSESSEE AS ADVANCE SUBSCRIPTION TOWARDS CUSTOMERS FACILITIES IN THE ACCOUNTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ENTIRE SALE AMOUNT INCLUDING 55% IS TAXABLE IN THE YEAR OF RECEIPT. BEFORE THE ASSESSING OFFICER, THE AR OF THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF M/S MAHINDRA HOLIDAYS & RESORTS(INDIA) L TD. [2010] 003 ITR 600 AND ARGUED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HOWEVER, SINCE SIMILAR ISSUE DECIDED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2001 - 02 IN FAVOUR OF REVENUE IS PENDING BEFORE THE HIGH COU RT, THE ASSESSING OFFICER, THE ABOVE AMOUNT OF DEFERRED INCOME OF .2,62,55,223/ - RECEIVED BY THE ASSESSEE AND TREATED AS ADVANCE SUBSCRIPTION WAS TREATED AS INCOME OF THE ASSESSEE AND BROUGHT TO TAX. 8. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEARS, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. I.T.A. NO S . 1 345 & 1409 /M/ 15 6 9. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE MAIN CONTENTION OF THE LD. DR IS THAT THE ISSUE OF DEFERRED REVENUE INCOME HAS NOT ATTAINED FINALITY SINCE THE DEPARTMENT HAS FILED THE APPEAL BEFORE THE HON BLE MADRAS HIGH COURT AND THE SAME IS PENDING FOR DECISION. ON THE OTHER HAND, THE LD. COUNSEL FO R THE ASSESSEE STRONGLY RELIED ON THE ORDER OF THE LD. CIT(A), WHEREIN, THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE HAS BEEN FOLLOWED. 10. WE HAVE HEARD BOTH SIDES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER MADE THE DISALLOWANCE ONLY ON THE GROUND THAT SIMILAR ISSUE FOR EARLIER ASSESSMENT YEAR IS PENDING BEFORE THE HON BLE HIGH COURT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE ASSESSEE FURNISHED DECISION OF THE ITAT D BENCH CHENNAI IN ASSESSEE S OWN CAS E FOR THE ASSESSMENT YEARS 2002 - 03, 2006 - 07, 2007 - 08 AND 2008 - 09 IN ITA NOS. 471, 472, 473 & 160/MDS/2012 DATED 30.08.2012 WHEREIN ITAT ALLOWED THE CLAIM OF THE ASSESSEE TO DEFER THE INCOME IN THE SUBSEQUENT YEARS ON THE BASIS OF THE ITAT CHENNAI B BENCH ( SPECIAL BENCH) IN THE CASE OF M/S MAHINDRA HOLIDAYS & RESORTS(INDIA) LTD. IN ITA NOS. 2412 TO 2416/MDS/2005. BY FOLLOWING THE DECISION OF THE TRIBUNAL, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. THE LD. DR COULD FILE ANY DECISION HAVING REVERSED OR MODIFIED THE ORDERS OF THE TRIBUNAL. I.T.A. NO S . 1 345 & 1409 /M/ 15 7 JUST BECAUSE, THE DEPARTMENT HAS FILED AN APPEAL AGAINST THE ORDER OF THE TRIBUNAL, WE CANNOT TAKE A DIFFERENT VIEW ON THIS ACCOUNT. THUS, WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 10 . IN THE RESULT, THE BOTH THE APPEAL S FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 13 TH JULY , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( D UVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 13 . 07 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.