NSL Estates Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-16(1), Hyderabad

ITA 1373/Hyd/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2333 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 18-10-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 29-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI K
• Assessee Lawyers: A V RAGHURAM
• Keywords: Earning of tax free income; Source of fund; Set aside
• Section: 14A; 251; 13; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER SL.NO. ITA NO AY APPELLANT RESPONDENT 1 TO 3 1372, 1373 & 1374/ HYD/2018 2012 - 13 TO 2014 - 15 NSL ESTATES PVT. LTD., HYDERABAD. PAN AACCN 5480C DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), HYDERABAD. 4 TO 6 1375, 137 6 & 1377/ HYD/2018 2012 - 13 TO 2014 - 15 NSL INFRATECH PVT. LTD., HYDERABAD. PAN - AACCN5479K - DO - 7 1459/HYD /2018 2012 - 13 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), HYDERABAD. NSL ESTATES PVT. LTD., HYDERABAD. PAN AACCN 5480C ASSESSEE BY: S HRI A.V. RAGHURAM REVENUE BY: S HRI RAVI K. /CIT - DR DATE OF HEARING: 1 8 / 1 0/2021 DATE OF PRONOUNCEMENT: 26 / 10 /2021 O R D E R PER L.P. SAHU, A.M. : ALL THESE APPEAL S FILED BY THE TWO ASSESSEES AND REVENUE ARE DIRECTED AGAINST CIT (A) - 4 , HYDERABAD S SEPARATE ORDER S DATED FOR AY 20 1 2 - 1 3 TO 2014 - 15 INVOLVING I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 2 - : PROCEEDINGS U/S 14 3(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT . AS THE FACTS AND GROUNDS OF APPEAL ARE MATERIALLY IDENTICAL THEREFORE, THE SAME WERE CLUBBED AND HEAD TOGETHER AND THEREFORE A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE . 2. A COMMON GROUND RAISED BY THE ASSESSEES IN ITA NO. 1372 & 1375/ HYD/2018 AS GROUND NO.2 REGARDING THE POWER OF ENHANCEMENT MADE BY THE CIT (A) AND THE DISALLOWANCE OF EXPENDITURE DEBITED INTO P&L ACCOUNT. IN ALL OTHER APPEALS, THE ASSESSEE HAS RAISED A COMMON GROUND REGARDING DISALLOWANCE OF EXPENDITURE DEBITED INTO P&L ACCOUNT ONLY. THE DECISION TAKEN IN THE CASE OF NSL ESTATES PVT. LTD. IN ITA NO. 13 7 2/HYD/2018 SHALL MUTATIS - MUTANDIS APPLY TO ALL THE OTHER CASES . 3 . THE GROUND NO. 02 RAISED BY THE ASSESSEEES IN ITA NO. 1372 & 1375/ HYD/2018 IS THAT THE CIT(A) ERRED IN INVOKING POWERS OF ENHANCEMENT FOR THE P URPOSE OF DISALLOWING EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT ON THE ALLEGED GROUND THAT THE BUSINESS OF THE APPELLANT HAS NOT COMMENCED. 4 . BRIEFLY THE FACTS AS TAKEN FROM AY 1372/HYD/2018 IN THE CASE OF NSL ESTATES PVT. LTD . ARE THAT THE CIT(A) DIRECTED THE AO TO DISALLOW THE EXPENSES CLAIMED BY THE ASSESSEE AS THERE IS NO BUSINESS ACTIVITY COMMENCED BY THE I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 3 - : ASSESSEE , WHICH THE AO FAILED TO OB SERVE THIS ASPECT WHILE COMPLETING ASSESSMENT. 5 . AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6 . THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE CIT(A) ERRED IN INVOKING POWERS OF ENHANCEMENT FOR THE PURPOSE OF DISALL OWING EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT ON THE ALLEGED GROUND THAT THE BUSINESS OF THE ASSESSEE HAS NOT COMMENCED. HE HAS FILED PAPER BOOK CONTAINING PAGES 1 TO 92, IN SUPPORT OF ASSESSEES CASE. HE SUBMITTED THAT THE ASSESSEE IS A PVT. L TD. COMPANY AND THEREFORE, THE MOMENT THE COMPANY IS REGISTERED WITH ROC, IT IS DEEMED TO HAVE COMMENCED ITS BUSINESS. HE, THEREFORE, CONTENDED THAT THE CIT(A) WAS WRONG IN DIRECTING THE AO TO DISALLOW THE EXPENSES CLAIMED AND DEBITED IN THE P&L ACCOUNT. I N THIS CONNECTION, THE LD. AR OF THE ASSESSEE INVITED THE BENCH ATTENTION TO THE CLAUSE NO. 8, 10 & 11 OF MEMORANDUM OF ASSOCIATION (MOA) , WHICH IS PLACED AT PAGE NO. 4 & 5 OF THE PAPER BOOK TO SUBMIT THAT THE ASSESSEE WAS CARRYING BUSINESS ACTIVITY AS PER THE BYE - LAWS OF THE COMPANY. 7 . THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF CIT(A) AND SUBMITTED THAT THE COMPANY HAS NOT COMMENCED ITS BUSINESS ACTIVITY AS PER THE MAIN OBJECT CLAUSE OF THE I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 4 - : COMPANY. HE SUBMITTED THAT THE SUBMISSIONS MADE BY THE LD. AR WITH REGARD TO CLAUSE NOS. 8, 10 & 11 OF MOA, WHICH ARE NOT THE MAIN OBJECTS OF THE C OMPANY, AS THESE CLAUSES ARE THE INCIDENTAL/ANCILLARY OBJECTS TO THE ATTAINMENT OF THE MAIN OBJECTS OF THE ASSESSEE COMPANY. HE, THEREFORE, CONTENDED THAT IT CANNOT BE SAID THAT THE COMPANY HAS STARTED ITS BUSINESS ACTIVITY. FURTHER, HE SUBMITTED THAT THE CIT(A) HAS POWER OF ENHANCEMENT AS PER SECTION 251 OF THE ACT AND THE CIT(A) HAS COTERMINOUS POWERS WITH THAT OF AO. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS LENT MONEY WITHOUT CHARGING ANY INTEREST WHEREAS HE HAS PAID INTEREST ON BORROWED FUNDS , WHICH I S NOT BUSINESS EXPEDIENCY IN THE EYES OF LAW. HE SUBMITTED THAT EVEN IN THE THREE IMPUGNED AYS, THE ASSESSEE HAS NOT RECEIVED ANY INTEREST FROM MONEY LENT TO ITS SUBSIDIARIES . HE, THEREFORE, CONCLUDED THAT THE AUTHORITIES BELOW WERE JUSTIFIED TO MAKE ADDITION. THE LD. DR RELIED ON THE FOLLOWING CASES: 1. COROMANDAL FERTILIZERS LTD. , 128 TAXMAN 869 2. WESTERN INDIA VEGETABLE PRODUCTS LTD., 26 ITR 151 3. TRAVANCORE COCHIN CHE MICALS (P) LTD., 65 ITR 651 4. RAMARAJU SURGICAL COTTON MILLS LTD., 63 ITR 478 5. SREE ANJANEYA MEDICA, 74 TAXMANN.COM 243 8 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS REGARDS THE POWERS OF THE CIT(A) IS CONCERNED IN REGARD TO THE ENHANCEMENT OF ASSESSMENT ORDER, IN WHICH THE MATTERS HAVE NOT BEEN CONSIDERED BY THE AO, THE HONBLE SUPREME COURT IN THE I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 5 - : CASE OF COMMISSIONER OF INCOME - TAX V. NIRBHERAM DELURAM, 1997] 91 TAXMAN 181 (SC) HAS HELD AS UNDER (FOR THE SAKE OF CLARITY, FULL JUDGEMENT OF THE APEX COURT IS EXTRACTED): 1. IN THIS APPEAL, BY SPECIAL LEAVE , THE QUESTION THAT FALLS FOR CONSIDERATION RELATES TO THE SCOPE OF THE POWERS OF THE AAC WHILE DEALING WITH APPEALS AGAINST ORDERS OF THE ASSESSING OFFICERS UNDER SECTION 251 OF THE INCOME - TAX ACT, 1961 ('THE ACT'). THE MATTER RELATES TO THE ASSESSMENT YE AR 1956 - 57. NIRBHERAM DELURAM ('THE ASSESSEE') IS A PARTNERSHIP FIRM CARRYING ON BUSINESS IN GRAINS, RICE, GUNNY BAGS AND OIL SEEDS, ETC. UNDER ORDER DATED 11 - 3 - 1957, THE ASSESSMENT WAS ORIGINALLY MADE ON A TOTAL INCOME OF RS. 28,724. ON REASSESSMENT IN PR OCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT, THE ITO INCLUDED IN THE TOTAL INCOME A SUM OF RS. 2,45,000 REFERABLE TO OSTENSIBLE TRANSACTIONS IN HUNDI LOANS SHOWN BY THE ASSESSEE. THE ASSESSEE FILED AN APPEAL AGAINST THE SAID ASSESSMENT ORDER PASSED BY THE ITO. THE AAC NOT ONLY SUSTAINED THE SAID ADDITION OF RS. 2,45,000 BUT HE ALSO TOOK NOTICE OF 10 OTHER ITEMS OF OSTENSIBLE HUNDI LOANS AMOUNTING TO RS. 2,30,000 AND DIRECTED THAT THE TOTAL INCOME BE ENHANCED BY THE SUM OF RS. 2,30,000. ON FURTHER APPEA L, THE TRIBUNAL DELETED THE SAID ADDITION OF RS. 2,30,000 MADE BY THE AAC ON THE VIEW THAT IN DOING SO THE AAC HAD EXCEEDED HIS JURISDICTION. AT THE INSTANCE OF THE REVENUE, THE TRIBUNAL WAS DIRECTED BY THE MADHYA PRADESH HIGH COURT TO REFER THE FOLLOWING QUESTIONS OF LAW FOR OPINION : '1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DELETING A SUM OF RS. 2,30,000 FRESHLY ADDED BY THE APPELLATE ASSISTANT COMMISSIONER ? 2. WHETHER THE SUM OF RS. 2,30,000 WAS ADDED BY THE APPELLATE ASSISTANT COMMISSIONER ON NEW SOURCES OF INCOME OF ITEMS NOT CONSIDERED BY THE INCOME - TAX OFFICER FROM THE POINT OF VIEW OF ASSESSABILITY ? I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 6 - : 3. WHETHER THE APPELLATE ASSISTANT COMMISSIONER HAD NO JURISDICTION OR POWER TO ADD THE SUM OF RS. 2,30,000 IN THE FACTS AND CIRCUMSTANCES IN WHICH HE HAS ADDED THE SAME ?' BY THE IMPUGNED JUDGMENT DATED 28 - 2 - 1980, THE HIGH COURT HAS ANSWERED THESE QUESTIONS AGAINST THE REVENUE. THE HIGH COURT HAS HELD THE THE AAC HAD NO JURISDICTION TO CONSIDER THE NE W ENTRIES WHICH WERE NOT CONSIDERED AT ALL BY THE ITO AND TO ADD THE AMOUNT OF RS. 2,30,000 TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDING TO THE HIGH COURT, THE ITEMS CONTAINING THAT AMOUNT CONSTITUTED NEW SOURCES OF INCOME WHICH WERE NOT THE SUBJECT - MATT ER OF ASSESSMENT BEFORE THE ITO AND, THEREFORE, IT WAS NOT OPEN IN APPEAL TO CONSIDER THESE SOURCES AND TO ASSESS THEM. IN TAKING THIS VIEW THE HIGH COURT HAS PLACED RELIANCE ON THE DECISION OF THIS COURT IN ADDL. CIT V . GURJARGMVURES (P.) LTD. [1978] 111 ITR 1 , WHEREIN IT WAS HELD THAT THE AAC HAD NO POWER TO GRANT EXEMPTION UNDER SECTION 84 OF THE ACT SINCE THE ITO DID NOT CONSIDER THE ITEM FROM THE POINT OF VIEW OF ITS NON - TAXABILITY. FEELING AGGRIEVED BY THE SAID DECISION OF THE HIGH COURT, THE REVENUE HAS FILED THIS APPEAL. 2. S HRI RANBIR CHANDRA, THE LEARNED COUNSEL APPEARING FOR THE REVENUE, HAS SUBMITTED THAT THE HIGH COURT WAS IN ERROR IN CONSTRUING NARROWLY THE POWERS CONFERRED ON THE AAC UNDER SECTION 251. THE LEARNED COUNSEL HAS POINTED OUT THAT THE DECISION IN GURJARGRAVU RES (P.) LTD.'S CASE (SUPRA), ON WHICH RELIANCE HAS BEEN PLACED BY THE HIGH COURT, WAS A DECISION OF A TWO JUDGE BENCH AND THAT ITS CORRECTNESS HAS BEEN DOUBTED BY A BENCH OF THREE JUDGES IN JUTE CORPN. OF INDIA LTD. V. CIT [1991] 187 ITR 688 (SC) . 3. IN JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA)THIS COURT HAS REFERRED TO THE EARLIER DECISION OF THIS COURT IN CIT V. KANPUR COAL SYNDI CATE [1964] 53 ITR 225 , WHICH WAS ALSO A DECISION OF A THREE JUDGE BENCH WHEREIN THE SCOPE OF SECTION 31(3)(A) OF THE INDIAN IN COME - TAX ACT, 1922 [WHICH WAS ALMOST IDENTICAL TO SECTION 251(1)(A) OF THE 1961 ACT] WAS CONSIDERED AND IT WAS HELD: I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 7 - : ' 'IF AN APPEAL LIES, SECTION 31 OF THE ACT DESCRIBES THE POWERS OF THE APPELLATE ASSISTANT COMMISSIONER IN SUCH AN APPEAL. UNDER SECTION 3 1(3)(A), IN DISPOSING OF SUCH AN APPEAL, THE APPELLATE ASSISTANT COMMISSIONER MAY, IN THE CASE OF AN ORDER OF ASSESSMENT, CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT; UNDER CLAUSE (B) THEREOF HE MAY SET ASIDE THE ASSESSMENT AND DIRECT THE INCOME - TAX O FFICER TO MAKE A FRESH ASSESSMENT. THE APPELLATE ASSISTANT COMMISSIONER HAS, THEREFORE, PLENARY POWERS IN DISPOSING OF AN APPEAL. THE SCOPE OF HIS POWER IS COTERMINOUS WITH THAT OF THE INCOME - TAX OFFICER. HE CAN DO WHAT THE INCOME - TAX OFFICER CAN DO AND AL SO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO'.' AFTER REFERRING TO THESE OBSERVATIONS, THIS COURT IN JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA)HAS STATED : 'THE ABOVE OBSERVATIONS ARE SQUARELY APPLICABLE IN THE INTERPRETATION OF SECTION 251(1)(A)OF THE ACT. THE DECLARATION OF LAW IS CLEAR THAT THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IS CO - TERMINOUS WITH THAT OF THE INCOME - TAX OFFICER, AND IF THAT IS SO, THERE APPEARS TO BE NO REASON AS TO WHY THE APPELLATE AUTHORITY CANNOT MODIFY THE ASSESSMENT ORD ER ON AN ADDITIONAL GROUND EVEN IF NOT RAISED BEFORE THE INCOME - TAX OFFICER. NO EXCEPTION COULD BE TAKEN TO THIS VIEW AS THE ACT DOES NOT PLACE ANY RESTRICTION OR LIMITATION ON THE EXERCISE OF APPELLATE POWER. EVEN OTHERWISE, AN APPELLATE AUTHORITY WHILE H EARING THE APPEAL AGAINST THE ORDER OF A SUBORDINATE AUTHORITY, HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATION, IF ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE AB SENCE OF ANY STATUTORY PROVISION, THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE APPEARS TO BE NO GOOD REASON AND NONE WAS PLACED BEFORE US TO JUSTIFY CURTAILMENT OF THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IN ENTERTAINING AN ADDITIONAL GROUND RAISED BY THE ASSESSEE IN SEEKING MODIFICATION OF THE I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 8 - : ORDER OF ASSESSMENT PASSED BY THE INCOME - TAX OFFICER.' (P. 693) TAKING NOTE OF THE DECISION IN GURJARGRAVURES (P.) LTD.'S CASE ( SUPRA) , THE COURT HAS SAID : '... APPARENTLY, THIS VIEW TAKEN BY THE TWO JUDGE BENCH OF THIS COURT APPEARS TO BE IN CONFLICT WITH THE VIEW TAKEN BY THE THREE JUDGE BENCH OF THIS COURT IN KANPUR COAL SYNDICATE CASE [1964] 53 ITR 225 . IT APPEARS FROM THE REPORT OF THE DECISION IN THE GUJARAT CASE THAT THE THREE JUDGE BENCH DECISION IN KANPUR COAL SYNDICATE CASE [1964] 53 ITR 225 (SC) WAS NOT BROUGHT TO THE NOTICE OF THE BENCH IN GURJARGRAVURES (P.) LTD. [1978] 111 ITR 1 (SC) . IN THE CIRCUMSTANCES, THE VIEW OF THE LARGER BENCH IN KANPUR COAL SYNDICATE CASE [1964] 53 ITR 225 (SC) HOLDS THE FIELD....' (P. 694) 4. HAVING REGARD TO THE DECISION IN JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA),IT MUST BE HELD THAT THE HIGH COURT WAS IN ERROR IN HOLDING THAT THE APPELLATE POWER CONFERRED ON THE AAC UNDER SECTION 251 WAS CONFINED TO THE MATTER WHICH HAD BEEN CONS IDERED BY THE ITO AND THE AAC EXCEEDED HIS JURISDICTION IN MAKING AN ADDITION OF RS. 2,30,000 ON THE BASIS OF THE OTHER 10 ITEMS OF HUNDIS WHICH HAD NOT BEEN EXPLAINED BY THE ASSESSEE. THIS MEANS THAT EVEN IF QUESTION NO. 2 IS ANSWERED IN THE AFFIRMATIVE, QUESTION NOS. 1 AND 3 MUST BE ANSWERED IN THE NEGATIVE. THE APPEAL IS, THEREFORE, ALLOWED, THE IMPUGNED JUDGMENT OF THE HIGH COURT INSOFAR AS IT RELATES TO QUESTION NOS. 1 AND 3, IS SET ASIDE AND THE SAID QUESTIONS ARE ANSWERED IN THE NEGATIVE, I.E., IN FA VOUR OF THE REVENUE AND AGAINST THE ASSESSEE. NO ORDER AS TO COSTS. 8 .1 IN THE INSTANT CASE, SINCE THE AO HAS FAILED TO NOTICE THAT THE ASSESSEE HAS NO BUSINESS ACTIVITY DURING THE IMPUGNED AY AND ALLOWED THE ASSESSEE S CLAIM OF EXPENDITURE, T HE CIT(A) DIRECTED THE AO TO DISALLOW THE I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 9 - : EXPENSES CLAIMED BY THE ASSESSEE , BY USING THE POWERS VESTED WITH HIM, WHICH WERE NOT CONSIDERED BY THE AO IN THE ASSESSMENT ORDER. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HONBLE SUPREME COURT, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO DISALLOW THE EXPENSES CLAIMED BY THE ASSESSEE . 8 .2 AS REGARDS THE DISALLOWANCE OF EXPENSES, WE REFER TO THE CLAUSES OF 8, 9, 10 & 11 OF MOA, WHICH ARE PLACE D IN THE PAPER BOOK AND THE SAME ARE AS UNDER: 8) TO ESTABLISH OR PROMOTE OR CONCUR IN ESTABLISHING OR PROMOTING OF ANY COMPANY OR COMPANIES FOR THE PURPOSES OF ACQUIRING ALL OR ANY OF THE PROPERTY, RIGHTS AND LIABILITIES OF THE COMPANY OR FOR ANY OTHE R PURPOSE WHICH MAY SEE DIRECTLY OR INDIRECTLY CALCULATED TO BENEFIT THE COMPANY AND TO PACE OR GUARANTEE THE PLACING OF UNDERWRITE, SUBSCRIBE FOR OR OTHERWISE ACQUIRE ALL OR ANY PART OF THE SHARES, DEBENTURES OR OTHER SECURITIES OR ANY SUCH OTHER COMPANY. 9) GENERALLY TO PURCHASE, TAKE ON LEASE OR IN EXCHANGE, HIRE OR OTHERWISE ACQUIRE AN D REAL AND PERSONAL PROPERTY AND ANY RIGHTS OR PRIVILEGES WHICH THE COMPANY MAY THINK NECESSARY OR CONVENIENT FOR THE PURPOSE OF ITS BUSINESS OR WHICH MAY ENHANCE THE VALUE OF ANY OTHER PROPERTY OF THE COMPANY AND IN PARTICULAR ANY LAND, BUILDINGS, EASEMEN TS, MACHINERY, PLANT, VEHICLES AND STOCK - IN - TRADE AND TO MAKE ADVANCE OF SUCH SUMS OF MONEY ON ORDER TO ACQUIRE THE ABOVE MENTIONED ASSETS UPON SUCH TERMS, WITH OR WITHOUT SECURITY, AS THE COMPANY MAY DEEM EXPEDIENT. I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 10 - : 10 )TO INVESTE AND DEA L WITH THE MON EY OF THE COMPANY NOT IMMEDIATELY REQUIRED IN ANY MAN NER IN PARTICULAR TO ACCUMULATE FUNDS OR TO ACQUIRE TO T AKE BY SUBSCRIPTION ON PURCHASE OF OTHERWISE OR THE HOLD SHARES, SECU RI TIES OR DEBENTURES OR STOCK IN ANY COMPANY ASSOCIATION OR UNDE RTAKING IN INDIA OR ABROAD. 11 ) TO LEND AND ADVANCE MONE Y OR GIVE CREDIT TO SUCH PE RSONS OR COM P ANIES AND ON SUCH TERMS AS MAY SEEM EX PE DIENT AN IN P ARTICULAR TO CUSTOMERS AND OTHER HAVING DEALINGS WITH COMPANY. 8 .3 WHEN THE BENCH ASKED ABOUT CLAUSE 11 OF THE ABOVE THAT SUCH TERMS AS MAY SEEM EXPEDIENT AND IN PARTICULAR TO CUSTOMERS AND OTHER HAVING DEALING WITH THE COMPANY , THE LD. AR WAS UNABLE TO EXPLAIN SUCH TERMS AND CONDITIONS AND FAILED TO SUBMIT ANY DOCUMENT ARY EVIDENCE ENTERING INTO SUCH TERMS WITH THE CUSTOMERS. THEREFORE, WE ARE OF THE VIEW THAT ACTS OF THE ASSESSEE COMPANY BEING LEGAL ENTITY IN THE EYES OF LAW, AS ULTRA - VIRES, MEANING THEREBY, ACTING OR DONE BEYOND ONE'S LEGAL POWER OR AUTHORITY. IN THE EYES OF LAW, THE ASSESSEE HAS NOT YET STARTED ITS BUSINESS ACTIVITIES AS PER THE OBJECT CLAUSE OF MOA. FURTHER, WE NOTICE THAT THE ASSESSEE HAS TAKEN HUGE AMOUNT OF LOANS AND GIVEN THE SAME ITS SUBSIDIARIES AND TO OTHERS, B UT NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE. AS PER THE CLAUSE 1 1 OF MOA AS CITED ABOVE, WHICH IS A N INCIDENTAL OR ANCILLARY OBJECT TO THE ATTAINMENT OF THE MAIN OBJECTS, THE ASSESSEE HAS NOT MADE ANY SUCH AGREEMENTS AS SUBMITTED BY THE LD. AR . IT SHOWS THAT THE ASSESSEE HAS NOT STARTED ITS BUSINESS I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 11 - : ACTIVITY, WHICH IS A PRECONDITION AS PER MOA. EVEN, GIVING THE LOAN IS ULTRA - VIRES WITHIN THE FRAME WORK OF MOA, AS THE ASSESS EE WAS UNABLE TO SHOW ANY BUSINESS EXPEDIENCY FOR GIVING THE LOANS TO ITS SUBSIDIARIES AND OTHERS. THEREFORE, THE INTEREST PAID BY THE ASSESSEE ON SUCH LOANS, IN TURN, WHICH HA VE BEEN GIVEN ON INTEREST FREE TO ITS SUBSIDIARIES AND OTHERS, ARE DISALLOWABLE AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE AO IS DIRECTED TO RECALCULATE INTEREST ON THE LOANS WHICH ARE GIVEN ON INTEREST FREE TO THE EXTENT OF THE RATE OF INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS. THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8 .4 COMING TO THE EXPENSES UNDER THE HEAD OTHER EXPENSES DEBITED TO THE P&L ACCOUNT, DISALLOWED BY THE CIT(A), WE FIND FROM THE FINANCIAL STATEMENTS UNDER THE HEAD OTHER EXPENSES, THE ASSESSEE HAD DEBITED DIFFERENT KINDS OF EXPENSES, SUCH AS, RATES AND TAXES, REPAIR & MAINTENANCE TO OTHERS, PRINTING AND STAT IONERY, OFFICE MAINTENANCE, COMMUNICATION EXPENSES, TRAVELLING AND CONVEYANCE EXPENSES, PAYMENT TO AUDITORS, LEGAL AND PROFESSIONAL CHARGES AND MISCELLANEOUS EXPENSES. THESE ARE IN THE NATURE OF ADMINISTRATIVE EXPENSES AND THE ENTIRE EXPENSES HAVE BEEN DIS ALLOWED BY THE CIT(A) IS NOT CORRECT BECAUSE THE ASSESSEE IS A COMPANY , WHICH IS A LEGAL ENTITY IN THE EYES OF LAW, THEREFORE, WHETHER THE BUSINESS ACTIVITIES OF THE ASSESSEE ARE STARTED OR NOT, TO KEEP ALIVE THE I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 12 - : EXISTENCE OF THE COMPANY, SOME EXPENSES AR E REQUIRED TO BE INCURRED. THEREFORE, IN OUR CONSIDERED OPINION, OUT OF THE TOTAL OTHER EXPENSES, WE DEEM IT FIT AND PROPER TO RESTRICT THE DISALLOWANCE OF EXPENDITURE TO 50% OF THE TOTAL OTHER EXPENSES DISALLOWED BY THE CIT(A). THEREFORE, THIS ISSUE IS PARTLY ALLOWED. 9. IN THE RESULT, APPEALS IN ITA NO. 1372 & 1375/HYD/2018 ARE PARTLY ALLOWED IN ABOVE TERMS. 10 . AS THE FACTS AND GROUNDS ARE MATERIALLY IDENTICAL IN IT A NOS. 1 373 , 1374, 1376 & 1377 /HYD/2018 WITH REGARD TO ASSESSEES GROUND OF DISALLOWANCE OF EXPENDITURE DEBITED TO P&L ACCOUNT , FOLLOWING THE DECISION IN ITA NO. 1 372 & 1375 /HYD/2018, TH ESE ISSUES ARE PARTLY ALLOWED IN ABOVE TERMS. 11 . IN THE RESULT, ALL THE APPEALS OF THE ASSESSEES ARE PARTLY IN ABOVE TERMS. 1 2 . AS REGARDS THE APPEAL OF THE REVENUE IN ITA NO. 1459/HYD/2018, THE REVENUE HAS RAISED 4 GROUNDS OF APPEAL, THE SUM AND SUBSTANCE OF WHICH IS THAT THE CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S 14A OF RS. 3,70,76,111/ - . I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 13 - : 1 2 .1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, , THE ASSESSING OFFICER OBSERVED THAT, THE ASSESSEE HAD SHOWN AN AMOUNT OF RS. 64,76,00,000/ - TOWARDS INVESTMENT IN SHARES. THE INCOME FROM SHARES IS DIVIDE ND INCOME WHICH IS EXEMPT FROM TAX U/ S 10(38) OF THE ACT. THE ASSESSEE COMPANY HAS CLAIMED INTEREST AMOUNT OF RS. 11,52,83,428/ - . IN THIS REGARD, THE ASSESSING OFFICER CONSIDERED THE ASSESSEE'S REPLY. BUT AS PER BOARD'S CIRCULAR NO.5/2014 IN WHICH IT HAS CLARIFIED THE DISALLOWANCE OF EXPENDITURE U/S 14A, IN CASES WHERE CORRESPONDING EXEMPT INCOME IS NOT EARNED DURING THE FINANCIAL YEAR FOR THE ASSESSEE. KEEPING IN VIEW OF THE SAID CIRCULAR, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS. 3,70,76,111/ - U/ S 14A AND ADDED TO THE TOTAL LOSS OF THE ASSESSEE COMPANY. 1 2 .2 THE CIT(A) FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF PRATHISTA INDUSTRIES LTD., IN ITA NO. 1302/HYD/2015 DATED 29/04/2016 DELETED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT SINCE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE RELEVANT YEAR, THE PROVISIONS OF SECTION 14A R.W.R 8D ARE NOT APPLICABLE IN THIS CASE. 1 3 . AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 14 - : 1 4 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. IT IS A SETTLED LAW THAT IF THERE IS NO EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE AS THERE ARE CATENA OF JUDGEMENTS OF HON BLE TRIBUNAL THAT IF THERE IS NO EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. THEREFORE, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE U/S 14A RWR 8D OF THE ACT. THUS, THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DI SMISSED. 1 5 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED IN ABOVE TERMS. 1 6 . TO SUM UP, ALL THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED IN ABOVE TERMS . A COPY OF THIS COMMON ORDER BE PLACED IN ALL THE RE SPECTIVE CASE FILES. PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER , 2021 . SD/ - SD/ - ( S.S. GODARA ) (L . P . SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 26 TH OCTOBER , 20 2 1 . K V I TA NO S . 1372/HYD/2018 AND OTHERS M/S NSL ESTATES PVT. LTD., & M/S NSL INFRATECH PVT. LTD., HYD. : - 15 - : C OPY TO : 1 2 M/S NSL ESTATES PVT. LTD., M/S NSL INFRATECH PVT. LTD., C/O S/SHRI AV RAGHURAM, P. VINOD, ADVOCATES, 610 BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 3 DCIT, CIRCLE 16(1), IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 1 . 3 C I T(A) - 4 , HYDERABAD 4 PR. CIT - 4 , HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.