Kumar Urban Development Ltd., Pune V. Income-tax Officer, Ward - 14(1), Pune

ITA 1569/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4446 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-10-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 22-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.1569/PUN/2017 / ASSESSMENT YEAR : 2012-13 KUMAR URBAN DEVELOPMENT LTD., 10 TH FLOOR, KUMAR BUSINESS CENTRE, CTS 29, BUND GARDEN ROAD, PUNE 411 001 PAN : AAACK7659N VS. ITO, WARD-14(1), PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DA TED 15-03-2017 PASSED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS)- 7, PUNE IN RELATION TO THE ASSESSMENT YEAR 2012-13. 2. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF ADDITION OF RS.5,64,264/- ON ACCOUNT OF BANK INTEREST ON DEPOSITS NOT BELONGING TO THE ASSESSEE. 3. AT THE VERY OUTSET, THE LD. AR FAIRLY SUBMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL ORDER PASS ED IN THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING ASSESS MENT YEAR. INVITING OUR ATTENTION TOWARDS PAGE 67 OF THE PAPER B OOK, ASSESSEE BY SHRI NIKHIL PATHAK REVENUE BY SHRI S.P. WALIMBE DATE OF HEARING 23-10-2020 DATE OF PRONOUNCEMENT 23 -10-2020 ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 2 WHICH IS THE RELEVANT PART OF THE TRIBUNAL ORDER FOR THE ASSE SSMENT YEAR 2011-12, THE LD. AR POINTED OUT THAT THIS ISSUE CAME TO B E DECIDED AGAINST THE ASSESSEE. IN VIEW OF THE FOREGOING F ACTS, WE UPHOLD THE ACTION OF THE LD. CIT(A) IN SUSTAINING THE DISALLOW ANCE AT THIS LEVEL. THIS GROUND IS NOT ALLOWED. 4. THE SECOND GROUND IS AGAINST THE CONFIRMATION OF ADDITIO N OF RS.71,18,316/- U/S.14A READ WITH RULE 8D. 5. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THAT THE ASSE SSEE MADE SUO MOTO DISALLOWANCE U/S.14A AT RS.12,26,39,682/- IN TERMS OF RULE 8D. THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE DID NOT OFFER PROPER DISALLOWANCE. HE MADE HIS OWN CALCULATION AT PARA 4.2 OF ASSESSMENT THE ORDER AND WORK ED OUT THE AMOUNT DISALLOWABLE AT RS.12,97,57,998/-. THE DIFFERENTIAL AMOUNT OF RS.71,18,316/- WAS DISALLOWED. THE ASSESSEE SUBMITTE D BEFORE THE LD. CIT(A) THAT THE DIFFERENCE IN ASSESSEES CALCULATION AND THAT OF AO AROSE PRIMARILY BECAUSE OF THE FACT THAT THE ASSESSE E DID NOT CONSIDER THE AMOUNT OF SHARE APPLICATION MONEY PENDING ALLOTM ENT AS INVESTMENT YIELDING EXEMPT INCOME, WHEREAS THE AO TREATE D IT OTHERWISE. RELYING ON THE TRIBUNAL ORDER PASSED IN THE ASSE SSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, THE LD. AR P LEADED FOR ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 3 THE DELETION OF DISALLOWANCE, WHICH DID NOT FIND FAVOUR WITH THE LD. CIT(A). THIS HAS BROUGHT THE ASSESSEE BEFORE THE TRIBUNA L. 6. HAVING HEARD BOTH THE SIDES THROUGH THE VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD, IT IS FOUND TH AT THE AO COMPUTED THE AMOUNT OTHERWISE DISALLOWABLE U/S.14A READ WITH RULE 8D AT RS.12.97 CRORE. ON THE OTHER HAND, THE ASS ESSEE SUO MOTO OFFERED DISALLOWANCE OF RS.12.26 CRORE. THE DIFFEREN CE OF RS.71,18,316/- EMANATED ON ACCOUNT OF THE FACT THAT TH E ASSESSEE DID NOT CONSIDER SHARE APPLICATION MONEY AT THE YEAR-END AS INVESTMENT YIELDING EXEMPT INCOME, WHICH THE AO TOOK IT OTHERWISE. IT IS FOUND THAT SIMILAR ISSUE CAME UP FOR CONS IDERATION BEFORE THE TRIBUNAL IN CASE OF THE ASSESSEE FOR THE ASSES SMENT YEAR 2009-10. A COPY OF SUCH ORDER HAS BEEN PLACED ON REC ORD. THE TRIBUNAL ON PAGE 114 OF THE PAPER BOOK HAS DECIDED THIS IS SUE IN ASSESSEES FAVOUR. SIMILAR VIEW HAS BEEN REITERATED BY THE TRIBUNAL IN ITS ORDER FOR THE ASSESSMENT YEAR 2010-11, WHOSE COPY HAS ALSO BEEN PLACED IN THE PAPER BOOK. THE LD. DR COULD NOT POINT OUT IF THE VIEW OF THE TRIBUNAL IN SUCH EARLIER YEARS HAS BEEN R EVERSED OR MODIFIED BY THE HONBLE HIGH COURT IN ANY MANNER. RESPEC TFULLY FOLLOWING THE PRECEDENT, WE SET-ASIDE THE IMPUGNED ORDER O N THIS ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 4 SCORE AND ORDER TO DELETE THE DISALLOWANCE SUSTAINED AT RS.71,18,316/-. 7. THE ONLY OTHER ISSUE WHICH SURVIVES IN THIS APPEAL IS AGA INST THE DISALLOWANCE OF INTEREST AT RS.3,79,97,067/-. THE AO O BSERVED THAT THE ASSESSEE DIVERTED BORROWED FUNDS FOR NON-BUSINES S PURPOSE. BY APPLYING INTEREST RATE AT 12%, HE COMPUTED THE AMOUNT OF DISALLOWANCE AT RS.3,79,97,067/-. THE LD. CIT (A) DID NOT AGREE WITH THE ASSESSEE AND SUSTAINED THE DISALLOWANCE. 8. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVA NT MATERIAL ON RECORD, IT IS OBSERVED FROM PAGE 20 OF THE IMP UGNED ORDER THAT THE BALANCE OF ASSESSEES SHARE CAPITAL AND RESE RVES AS AT THE BEGINNING OF THE YEAR STOOD AT RS.243.66 CRORE WHIC H AMOUNT AT THE END OF THE YEAR CAME TO RS.246.12 CRORE, THEREBY GIVING AVERAGE BALANCE OF RS.244.89 CRORE. THE AO HAS COMP UTED DISALLOWABLE OF INTEREST AT 12%, WHICH IN TURN, GIVES FIGURE OF THE AMOUNT OF INVESTMENTS MADE BY THE ASSESSEE IN SISTER CONCER NS AT RS.31.66 CRORE. 9. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , HAS HELD THAT WHERE AN ASSESSEE POSSESSED SUFFICIENT INTEREST FREE FUNDS OF ITS OW N WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR, AP ART FROM ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 5 SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMPTION GETS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESS EE OUT OF INTEREST FREE FUNDS AND, THEREFORE, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IN REACHING THIS CONCLUSION, THE HONBLE HIGH COURT RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC). SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DEHI HIGH COURT IN CIT VS. TIN BOX COMPANY (2003) 260 ITR 637 (DEL), HOLDING THAT WHEN THE CAPITAL AND INTEREST FREE UNSECURED LOAN WITH THE ASSESSEE FAR EXCEEDED THE INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERN, DISALLOWANCE OF PART OF IN TEREST OUT OF TOTAL INTEREST PAID BY THE ASSESSEE TO THE BANK WAS NOT JUSTIF IED. MORE RECENTLY, THE HONBLE SUPREME COURT IN CIT(LTU) VS. RELIANCE INDUSTRIES LTD. (2019) 410 ITR 466 (SC) HAS REITERATED THE SAME VIEW. 10. WHEN WE EXAMINE THE AMOUNT OF INTEREST FREE ADVANCES MADE TO SISTERS CONCERNS AT RS.31.66 CRORE AS AGAINST THE AVAILAB ILITY OF SHARE CAPITAL AND RESERVES AT AVERAGE BALANCE OF RS.244. 89 CRORE, IT BECOMES EVIDENT THAT THE AMOUNT OF SUCH ADVANCES IS MUCH LESS THAN THE AMOUNT OF SHAREHOLDERS FUND. THE LD.CIT(A) EXA MINED ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 6 THE ISSUE FROM THIS ANGLE ALSO BUT DID NOT AGREE WITH ASSESSE ES CONTENTION BY OBSERVING THAT THE ASSESSEE EXHAUSTED THE SHAREHOLDERS FUND IN AVOIDING DISALLOWANCE U/S.14A AS WELL AS U/S.36(1)(III) FOR THE ASSESSMENT YEAR 2009-10. THERE IS NO DISPUTE THAT THE ASSESSEE DID CLAIM THE UTILIZATION OF SHAREHOLDERS FUND S FOR THE PURPOSES OF AVOIDING DISALLOWANCE U/S 14A IN THE PREVIOU S YEAR RELEVANT TO THE A.Y. 2009-10. HOWEVER, UTILIZATION OF SHAREHO LDERS FUNDS FOR THE PURPOSES OF AVOIDING DISALLOWANCE U/S 14A H AS NOT BEEN CLAIMED FOR THE YEAR UNDER CONSIDERATION. THIS SHOWS THAT SUCH FUNDS AGAIN BECAME AVAILABLE WITH THE ASSESSEE, WHICH COULD HAVE BEEN CLAIMED FOR ANY PURPOSE, NAMELY, AVOIDING DI SALLOWANCE U/S 14A OR CLAIMING DEDUCTION SECTION 36(1)(III) ETC. WE HAV E EXAMINED THE ASSESSEES CALCULATION OF DISALLOWANCE U/S.14A F OR THE YEAR UNDER CONSIDERATION. IT CAN BE SEEN THAT THE ASSE SSEE OFFERED DISALLOWANCE OF INTEREST U/S.14A R.W. RULE 8D AT RS. 11.69 CRORE. THUS, IT IS EVIDENT THAT THE AMOUNT OF SHAREHOLDERS F UND AVAILABLE WITH THE ASSESSEE AT THE BEGINNING OF THE YEAR WAS N OT CLAIMED TO HAVE BEEN UTILIZED DOUBLY BY THE ASSESSEE ONCE FOR THE PURPOSE OF AVOIDING DISALLOWANCE U/S.14A AND SECONDLY, FO R CLAIMING ALLOWANCE OF DEDUCTION OF INTEREST U/S.36(1)(III). THE ASSESSEE CLAIMED IT ONLY ONCE, THAT IS, FOR CLAIMING DEDUCTIO N OF ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 7 INTEREST U/S 36(1)(III) OF THE ACT. HAD THE ASSESSEE CLAIMED TH E BENEFIT OF UTILIZATION OF SHAREHOLDERS FUND FOR AVOIDING DISALLOWANCE UNDER SECTION 14A AND SIMULTANEOUSLY FOR CLAIMIN G DEDUCTION OF INTEREST IN THE YEAR UNDER CONSIDERATION, THE VIE W POINT OF THE LD. CIT(A) WOULD HAVE BEEN CORRECT. HAVING NOT DONE SO, THE UTILIZATION OF SHAREHOLDERS FUND BY THE ASSESSEE TOWA RDS MAKING INVESTMENT WITH SISTER CONCERNS CANNOT BE IGNORED. A S THE ASSESSEE HAS TAKEN BENEFIT OF THE RATIO OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IN RESPECT OF ALLOWANCE OF INTEREST U/S.36(1)(III) ONLY, WE HOLD THAT THE ADDITION CANNOT BE SUSTAINED. WE, THERE FORE, ORDER FOR THE DELETION OF ADDITION. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2020. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S.SY AL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 23 RD OCTOBER, 2020 SATISH ITA NO.1569/PUN/2017 KUMAR URBAN DEVELOPMENT LTD., 8 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-7, PUNE 4. 5. THE PR.CIT-6, PUNE , , / DR A, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 23-10-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 23-10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *