The ACIT, Circle-1(1)(2), Baroda V. M/s. Inox Leisure Ltd., Vadodara

ITA 142/AHD/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2005 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 17-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Earning of tax free income; Notional interest; Revenue expenditure; Capital expenditure
• Section: 14A; 115JB

Judgement Text

ITA NOS. 3475/AHD/2016 & 142/AHD/2017 INOX LEISURE LTD VS. DCIT (CROSS APPEALS) ASSESSMENT YEAR: 2010-11 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: JUSTICE P P BHATT, PRESIDENT AND PRAMOD KUM AR, VICE PRESIDENT] ITA NO. 3475/AHD/2016 ASSESSMENT YEAR: 2010-11 INOX LEISURE LIMITED ..................APPE LLANT 2 ND FLOOR, ABS TOWERS, OLD PADRA ROAD, BARODA-390007 [PAN : AAACI 6063 J] VS. DY. COMMISSIONER OF INCOME-TAX ............................ RESPONDENT CIRCLE 1 (1)(2), BARODA ITA NO. 142/AHD/2017 ASSESSMENT YEAR: 2010-11 ASSTT. COMMISSIONER OF INCOME-TAX ........... .......APPELLANT CIRCLE 1(1)(2), BARODA VS. INOX LEISURE LIMITED ............................ RESPONDENT 2 ND FLOOR, ABS TOWERS, OLD PADRA ROAD, BARODA-390007 [PAN : AAACI 6063 J] APPEARANCES BY: S N SOPARKAR & PARIN SHAH, FOR THE ASSESSEE VINOD TALWANI, FOR THE REVENUE DATE OF CONCLUDING THE HEARING : 31.10.2018 DATE OF PRONOUNCING THE ORDER : 16.11.2018 O R D E R 1. THESE CROSS-APPEALS ARE DIRECTED AGAINST THE ORD ER DATED 31 ST OCTOBER 2016 PASSED BY THE LEARNED CIT(A)-1, VADODARA IN THE MAT TER OF ASSESSMENT UNDER SECTION 143 (3) R.W.S. 263 OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE AS SESSEE. IN GROUND NO.1, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I, BARODA, ERR ED IN CONFIRMING DISALLOWANCES AND ADDITIONS AND THE OBSERVATIONS MA DE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IN RESPECT OF THE FOLLOWING POINTS. HE ERRED IN: ITA NOS. 3475/AHD/2016 & 142/AHD/2017 INOX LEISURE LTD VS. DCIT (CROSS APPEALS) ASSESSMENT YEAR: 2010-11 PAGE 2 OF 5 1. IN RESPECT OF DISALLOWANCE U/S 14A: A) IN CONFIRMING THE ADDITIONAL DISALLOWANCE OF 20, 62,097/- U/S 14A READ WITH RULE 3D BY COMPUTING ADMINISTRATIVE EXPENSES A S PER CLAUSE (III) OF RULE 8D IS AS PER DIRECTION GIVEN BY THE PR. CIT . HE OUGHT TO HAVE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER. B) IN NOT APPRECIATING THAT THE COMPANY HAS NOT EA RNED DIVIDEND ON THIS INVESTMENT AND ALSO THE SAID COMPANY IS SUBSEQUENTL Y AMALGAMATED WITH THE APPELLANT COMPANY AND HENCE NO DISALLOWANC E IS REQUIRED U/S 14A. HE OUGHT TO HAVE APPRECIATED THAT IN VIEW OF T HE AFORESAID FACTS, NO DISALLOWANCE U/S 14A IS REQUIRED. 3. ON THIS ISSUE, LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE MATTER IS NOW COVERED BY HONBLE JURISDICTIONAL HIGH COURTS JUDG MENT IN THE CASE OF CIT VS CORRTECH ENERGY PVT LTD [(2015) 372 ITR 97 (GUJ)] INASMUCH AS THE ASSESSEE DID NOT HAVE ANY EXEMPT INCOME IN THE PRESENT ASSESSMENT YEAR AND TH AT IN A SITUATION IN WHICH THE ASSESSEE DOES NOT HAVE ANY INCOME EXEMPT FROM TAX, THE QUESTION OF DISALLOWANCE UNDER SECTION 14A DOES NOT ARISE. LEARNED DEPARTMEN TAL REPRESENTATIVE DUTIFULLY RELIES UPON THE STAND OF THE AUTHORITIES BELOW. 4. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CORRTECH ENERGY PVT LTD (SUPRA ) AND IN VIEW OF THE UNDISPUTED FACTUAL POSITION THAT THERE WAS NO EXEMPT INCOME IN THE HANDS OF THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR, WE UPHOLD THE PLEA OF THE A SSESSEE AND DELETE THE IMPUGNED DISALLOWANCE OF RS.20,62,097/- U/S. 14A. THE ASSES SEE GETS THE RELIEF ACCORDINGLY. 5. GROUND NO.1 IS THUS ALLOWED. 6. IN GROUND NO.2, THE ASSESSEE HAS RAISED FOLLOWIN G GRIEVANCE:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I, BARODA, ERR ED IN CONFIRMING DISALLOWANCES AND ADDITIONS AND THE OBSERVATIONS MA DE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IN RESPECT OF THE FOLLOWING POINTS. HE ERRED..... 2. IN CONFIRMING DISALLOWANCE OF INTEREST EXPENDITU RE OF RS 63,52,554/- AS CAPITAL EXPENDITURE ON PART OF LOAN WHICH WAS UTILI SED FOR THE PURPOSE OF THE RUNNING BUSINESS OF THE COMPANY. 7. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF IMPUGNED ASSESS MENT PROCEEDINGS, AS A RESULT OF REVISION ORDER PASSED BY THE PR.CIT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ITA NOS. 3475/AHD/2016 & 142/AHD/2017 INOX LEISURE LTD VS. DCIT (CROSS APPEALS) ASSESSMENT YEAR: 2010-11 PAGE 3 OF 5 BORROWED RS.20 CRORES FROM CITI BANK AND THAT THERE IS NO EVIDENCE THAT IT HAS NOT BEEN UTILIZED FOR MAKING CAPITAL EXPENSES. IT WAS IN THI S BACKDROP THAT THE ASSESSING OFFICER PROCEEDED TO DISALLOW THE INTEREST AS A CAPITAL EXP ENDITURE BY OBSERVING AS FOLLOWS:- REGARDING CAPITALIZATION OF INTEREST, THE CONTENT IONS RAISED BY THE ASSESSES VIDE ITS WRITTEN SUBMISSIONS ARE NOT ACCEPTABLE IN VIEW OF THE DETAILED REASONS AS GIVEN IN THE FOREGOING PARAS AND ALSO THE ASSESSES HAS NOT FURNISHED ANY DETAILS NOR EVIDENCES IN SUPPORT OF ITS CLAIM THAT THE MONE Y BORROWED WAS UTILIZED FOR FINANCING ITS LONG TERM REQUIREMENTS INCLUDING REFU NDABLE LONG TERM SECURITY DEPOSIT TO THE MALL OWNERS. IN VIEW OF THE ABOVE, I NTEREST PAYMENT OF RS. 63,63,355/- AS DEBITED IN THE PROFIT & LOSS ACCOUNT IS DISALLOWED OUT AS REVENUE EXPENDITURE AND THE SAME IS TREATED AS CAPITAL EXPE NDITURE. AS THE ASSESSES HAS NOT GIVEN EVIDENCE OF PUT TO USE OF THE RELEVANT AS SETS, THE DEPRECIATION IS NOT BEING ALLOWED IN THE YEAR UNDER CONSIDERATION. 8. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). IN THE PROCEEDINGS BEFORE THE LEARNED CIT(A), IT WAS POINT ED OUT THAT THE ASSESSEE HAD ALREADY CAPITALIZED THE INTEREST OF RS.9,37,926/- WHICH PERTAINED TO THE CAPITAL WORK. AS REGARDS THE BORROWING FROM THE CITI BANK, IT WAS FO R THE SPECIFIC PURPOSE OF MEETING LONG TERM REQUIREMENTS INCLUDING REFUNDABLE LONG TERM SECURITY DEPOSITS TO BE GIVEN TO MALL BORROWERS AND PRE-OPERATIVE EXPENSES IN RESPECT OF MULTIPLEXES AT MADURAI, COIMBATORE, BUBLI, JALGAON, THANE (KORAM KALPATAR U), PUNE (G CROP) AND JAIPUR (CENTRAL-KSHITIJ). IT WAS THUS CLEAR, ACCORDING TO THE ASSESSEE, THE LOAN WAS NOT TAKEN TO THE NEW PROPERTIES BUT FOR EXISTING PROPERTIES WHIC H WERE ALREADY COMPLETED. THE CIT(A), HOWEVER, REJECTED THE SAID SUBMISSIONS AND DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING THAT THE LOAN WAS FOR THE PUR POSE OF ACQUISITION OF MULTIPLEXES IN DIFFERENT MALLS AND, THEREFORE, NO PART OF INTEREST CAN BE ALLOWED AS DEDUCTION IN COMPUTATION OF INCOME. 9. ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL B EFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 11. AS LEARNED COUNSEL HAS CATEGORICALLY POINTED OU T, THE BORROWING IS SPECIFICALLY IN RESPECT OF REQUIREMENTS OF THE EXISTING PROJECTS AN D IT IS NOT IN DISPUTE, AS EVIDENT FROM THE MATERIAL PLACED BEFORE US, THAT THERE IS ANY DI VERSION FROM SUCH END USE OF BORROWINGS. IN ANY EVENT, THE INVESTMENT IN THE NE W PROJECTS IS FAR IN EXCESS OF THE NON- INTEREST BEARING FUNDS AVAILABLE TO THE ASSESSEE, A ND, THEREFORE, A PRESUMPTION, IN THE ABSENCE OF ANY SPECIFIC DETAILS TO THE CONTRARY, TO BE TAKEN IS THAT THE INVESTMENT IN THE ITA NOS. 3475/AHD/2016 & 142/AHD/2017 INOX LEISURE LTD VS. DCIT (CROSS APPEALS) ASSESSMENT YEAR: 2010-11 PAGE 4 OF 5 NEW PROJECTS IS OUT OF THE INTEREST BEARING FUNDS. THIS APPROACH HAS BEEN DULY RECOGNIZED IN THE CO-ORDINATE BENCH DECISION IN THE CASE OF CIL NOVA PETROCHEMICALS LTD VS. DCIT (ITA NOS. 2875 & 2876/AHD/2014, VIDE O RDER DATED 10.07.2018). ONE MORE CO-ORDINATE BENCH OF THIS TRIBUNAL, IN THE SUB SEQUENT YEAR, IN THE CASE OF SAME ASSESSEE (ITA NO.388/AHD/2016, ORDER DATED 13.08.20 18) HAS ALSO ADOPTED THE SAME APPROACH AND OBSERVED AS FOLLOWS:- WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS PLACED ON RECORD ANNUAL REPORT CONTAINING THE BALANCE SHEET AND OTHER DETAILS. THE ASSESSEE HAS R ESERVES AND SURPLUS OF MORE THAN RS.48 CRORES. IT HAS INTERNAL ACCRUAL DURING T HE YEAR WHICH CAN TAKE CARE OF SUCH INVESTMENTS. THE LD. COUNSEL FOR THE ASSESSEE TOOK US THROUGH NET CASH FLOW FROM OPERATIONS AVAILABLE ON PAGE NO.20 OF THE ANNU AL REPORT WHICH SUGGEST THAT THE ASSESSEE HAS NET CASH FLOW RS.16,55,474/-. THUS , CONSIDERING INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF S HARE CAPITAL, RESERVES AND SURPLUS, AS WELL AS NET REVENUE FROM OPERATIONS, WE ARE OF THE VIEW THAT ALLEGED INVESTMENT IN WIP COULD BE ASSUMED AS CARRIED FROM THESE SURPLUS FUNDS. NO NOTIONAL INTEREST OUGHT TO BE CALCULATED FOR CAPITA LIZATION. IN ORDER TO FORTIFY OURSELVES, WE WOULD LIKE TO REFER TO THE DECISION O F HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. , 313 ITR 340 (BOM). IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL IS ALLOWED. 12. THE FACTUAL POSITION ABOUT INTEREST FREE FUNDS BEING FAR FROM EXCESS OF THE FUNDS DEPLOYED IN THE NEW PROJECTS AND ABSENCE OF ANY FAC TUAL FINDINGS ABOUT THE DIVERSION OF FUNDS IS NOT EVEN DISPUTED BY THE LEARNED DEPARTMEN TAL REPRESENTATIVE. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE DISALLOW ANCE OF INTEREST ON THE BORROWINGS FROM THE CITI BANK, WHICH IS SOLELY BASED ON THE AS SUMPTION THAT THE BORROWINGS FROM THE CITI BANK HAVE BEEN USED IN THE NEW PROJECTS SOMETHING WHICH IS NOT BURNOUT FROM THE MATERIAL ON RECORD, IS DEVOID OF LEGALLY SUSTAI NABLE BASIS. LEARNED CIT(A)S CONCLUSIONS ARE BASED ON SURMISES AND CONJECTURES. IN THE LIGHT OF THESE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS.63,52,554/-. ASSESSEE GETS THE RELIEF ACCORDINGLY. 13. GROUND NO.2 IS THUS ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 15. WE NOW TAKE UP THE APPEAL FILED BY THE REVENUE. GRIEVANCE RAISED BY THE ASSESSING OFFICER IS AS FOLLOWS:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE ITA NOS. 3475/AHD/2016 & 142/AHD/2017 INOX LEISURE LTD VS. DCIT (CROSS APPEALS) ASSESSMENT YEAR: 2010-11 PAGE 5 OF 5 U/S 14A OF THE ACT IN COMPUTATION OF BOOK PROFIT U/ S 115JB OF THE ACT IS NOT AS PER LAW WITHOUT APPRECIATING THAT THE AMOUNT DISALLOWAB LE UNDER SECTION 14A IS COVERED UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTIO N 115JB(2) AND, THUS, SAID AMOUNT HAS TO BE ADDED BACK WHILE COMPUTING AMOUNT OF BOOK PROFITS. 16. IN VIEW OF THE FACT THAT THE DISALLOWANCE UNDER SECTION 14A ITSELF HAS BEEN DELETED VIDE OUR ORDER IN ASSESSEES CASE VIDE APPE AL ITA NO.3475/AHD/2016 (SUPRA), THIS ISSUE IS NOW WHOLLY ACADEMIC AND INFRUCTUOUS. THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) IS IN ANYWAY CORRECT BECAUSE THE DIS ALLOWANCE UNDER SECTION 14A ITSELF STANDS DELETED AND, FOR THIS REASON, WE ARE NOT REQ UIRED TO INTERFERE IN THE MATTER. LEARNED REPRESENTATIVES DO NOT DISPUTE THE POSITION THAT IN THE EVENT OF DISALLOWANCE UNDER SECTION 14A BEING DELETED, THE ABOVE GRIEVANC E WILL BE ACADEMIC, BUT THE RELIEF GRANTED BY THE CIT(A) WILL NEVERTHELESS BE JUSTIFIE D FOR THE REASON THAT THE VERY FOUNDATION OF IMPUGNED ADJUSTMENT CEASES TO HOLD GO OD IN LAW. WE, THEREFORE, DECLINE TO INTERFERE IN THE MATTER. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSIN G OFFICER IS DISMISSED. 18. TO SUM-UP, WHILE THE APPEAL OF THE ASSESSEE IS ALLOWED, THE APPEAL OF THE ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 16 TH NOVEMBER, 2018 SD/- SD/- JUSTICE P P BHATT PRAMOD KUMAR (PRESIDENT) (VICE PRESIDENT) AHMEDABAD, THE 16 TH DAY OF NOVEMBER, 2018 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD