Mak Projects Private Limited , Hyderabad V. Asst. Commissioner of Income Tax, Circle-16(2), Hyderabad

ITA 1576/Hyd/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4568 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 19-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ESTHER N HANGAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 1576/HYD/2018 ASSESSMENT YEAR: 2013-14 MAK PROJECTS PRIVATE LIMITED, HYDERABAD [PAN: AAECM6145K] VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-16(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : NONE FOR REVENUE : MS. ESTHER N. HANGAL, DR DATE OF HEARING : 28-11-2018 DATE OF PRONOUNCEMENT : 15-02-2019 O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD, DATED 09-05-2018. 2. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL VILLAS/APARTMENTS, FILED ITS RETURN OF INCOME ELECTRONIC ALLY ON 28-09-2013 DECLARING A TAXABLE INCOME OF RS. 36,14,5 40/- UNDER THE NORMAL PROVISIONS AND RS. 59,71,380/- U/S. 115JB OF THE INCOME TAX ACT [ACT]. ITA. NO. 1576/HYD/2018 :- 2 -: 3. DURING THE ASSESSMENT PROCEEDING U/S. 143(3) OF THE ACT PURSUANT TO THE SELECTION BY CASS, THE ASSESSING OFFIC ER OBSERVED THAT THE ASSESSEE-COMPANY HAS MADE ITS INVESTME NTS IN M/S. SUNWAY MAK INTERNATIONAL PRIVATE LIMITED TO THE TU NE OF RS. 14 CRORES AS ON 31-03-2013. BUT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN THE P&L A/C IN RELATION TO INVESTMENTS MADE BY IT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE PROVISIONS OF SECTION 14A ARE APPLICAB LE TO THE CASE OF THE ASSESSEE. THUS, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE DISALLOWANCE U/S. 14A SHOUL D NOT BE MADE. ASSESSEE VIDE LETTER DT. 04-12-2015 SUBMITTED THAT DURING THE YEAR, THERE IS NO INCREASE IN INVESTMENTS WHEN COMPARED TO THE EARLIER YEAR AND THAT NO PART OF THE INVE STMENT IS MADE OUT OF THE BORROWED FUNDS AND THEREFORE, DISAL LOWANCE OF EXPENDITURE U/S. 14A DOES NOT ARISE. FURTHER, VIDE LETTER DT. 11-03-2016, THE ASSESSEE REITERATED THE ABOVE SUBMISS IONS AND SUBMITTED THAT AS HAS BEEN DONE IN THE EARLIER YEAR S, 0.50% OF THE AVERAGE INVESTMENTS CAN BE TAKEN AS DISALLOWANCE U/S. 14A OF THE ACT TO COVER OTHER INDIREC T COSTS. ASSESSING OFFICER, HOWEVER, WAS NOT SATISFIED WITH THE CONTENTIONS OF ASSESSEE AND HELD THAT ASSESSEE HAS NOT DEMONSTRATED THAT IT HAS INTEREST FREE FUNDS AVAILABLE ON THE ASSETS SIDE OF THE BALANCE SHEET AS ON THE DATE OF MAK ING TAX FREE INVESTMENTS. THEREFORE, HE HELD THAT DISALLOWANCE U/S. 14A IS TO BE MADE. ACCORDINGLY, HE MADE DISALLOWANC E UNDER RULE 8D(II) AND 8D(III) AND BROUGHT IT TO TAX. ITA. NO. 1576/HYD/2018 :- 3 -: 3.1. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), STATING THAT DURING THE YEAR, THE ASSESSEE-COM PANY HAS NOT RECEIVED ANY DIVIDEND INCOME FROM THE SAID INVESTM ENT AND THAT THERE IS NO DIRECT OR INDIRECT COST AND FURTHER TH AT 0.5% OF THE AVERAGE INVESTMENT CAN BE DISALLOWED U/S. 14A OF THE ACT, TO COVER OTHER INDIRECT COST. CIT(A) WAS NOT CO NVINCED WITH THE ASSESSEES CONTENTIONS AND DISMISSED THE APPEA L OF ASSESSEE ON THE GROUND THAT NONE APPEARED FOR THE ASSES SEE. SHE DID NOT DECIDE THE APPEAL ON MERITS. ASSESSEE HAS THUS RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE US: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS)-4, IS ERRONEOUS AND UNJUSTIFIABLE BOTH IN LAW AND IN F ACTS. 2. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN CONFIRMING THE DISALLOWANCE OF RS.15,49,347/- (PORTION OF INTEREST COST) U/S 14A TOTALLY IGNORING THE FACT THAT THE ENTIRE INTEREST COST FOR THE YEAR IS ON LOANS BORROWED FOR WORKING CAPITAL. 3. THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT THE INVESTMENT IN EQUITY SHARES WERE MADE LONG BEFORE T HE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION OUT OF O WN FUNDS AND NOT OUT OF BORROWED FUNDS. 4. THE LEARNED COMMISSIONER OF INCOME-TAX GROSSLY E RRED IN CONFIRMING ABOVE ADDITION AND DISMISSING THE APPEAL ON THE GROUND OF NON-APPEARANCE FOR HEARING DURING THE APPEAL PROCEE DINGS. THE LEARNED COMMISSIONER OF INCOME-TAX OUGHT TO HAVE CO NSIDERED THE ADJOURNMENT APPLICATION AS THE AR COULD NOT APPEAR ON THE APPOINTED DATE AS HE WAS OUT OF THE COUNTRY. 5. ANY OTHER GROUNDS WHICH MAY BE RAISED AT THE TIM E OF HEARING. 4. THE CASE WAS FIXED FOR HEARING ON 28-11-2018, BU T NONE APPEARED FOR ASSESSEE. WE FIND THAT THIS ISSUE IS COVE RED IN FAVOUR OF ASSESSEE . THE HON'BLE DELHI HIGH COURT IN THE CASE ITA. NO. 1576/HYD/2018 :- 4 -: OF CHEMINVEST LTD., IN (2015) [378 ITR 33] (DEL) AND THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (IN DIA) LTD., VS. ADDL. CIT IN TCA NO. 520/2016 DT. 26-06-201 5 HAVE HELD THAT THE DISALLOWANCE U/S. 14A CANNOT BE MADE WHERE THERE IS NO EXEMPT INCOME DURING THE RELEVANT ASSES SMENT YEAR . THEREFORE, WE SET ASIDE THE ORDER OF LD.CIT(A) AND DI RECT THE AO TO DELETE THE ADDITION MADE BY HIM. SINCE THERE IS NO DIVIDEND INCOME EARNED FROM THE INVESTMENTS, NO DISALLOWANCE U /S. 14A IS CALLED FOR. THEREFORE, THE DISALLOWANCE U/S. 14A R.W. RULE 8D(III) IS DELETED. 5. IN THE RESULT, THE APPEAL OF ASSESSEE IS ACCORDINGL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY, 2019 SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED 15 TH FEBRUARY, 2019 TNMM ITA. NO. 1576/HYD/2018 :- 5 -: COPY TO : 1. MAK PROJECTS PRIVATE LIMITED, C/O. REDDY A.V. & CO., CHARTERED ACCOUNTANTS, 206, SRINILAYA ESTATE, AMEER PET, HYDERABAD. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD. 3. CIT(APPEALS)-4, HYDERABAD. 4. PR.CIT-4, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.