Assistant Commissioner of Income Tax, Central Circle-2(2), Bangalore V. M/s Century Real Estate Holdings Pvt Ltd, Bangalore

ITA 1583/BANG/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2480 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-04-2021
• Assessment Year: 2009-2010
• Appeal Filed On: 20-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 14A

Judgement Text

ITA NO.1583/BANG/2017& CO 32/BANG/2019 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD., BANGAL ORE IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.1583/BANG/2017 ASSESSMENTYEAR:2009-10 ACIT CENTRAL CIRCLE-2(2) BANGALORE VS. M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD. J.P. TECHNOPARK 4 TH FLOOR, NO.3/1 MILLERS ROAD BENGALURU 560 052. PAN NO : AADCC0651M APPELLANT RESPONDENT C.O. NO.32/BANG/2019 (ARISING OUT OF ITA NO.1583/BANG/2017) ASSESSMENT YEAR:2009-10 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD. J.P. TECHNOPARK 4 TH FLOOR, NO.3/1 MILLERS ROAD BENGALURU 560 052. VS. ACIT CENTRAL CIRCLE-2(2) BANGALOR3E APPELLANT RESPONDENT APPELLANT BY : MS. NEERA MALHOTRA, D.R. RESPONDENT BY : SHRI RAMAKRISHNAN, A.R. DATE OF HEARING : 15.04.2021 DATE OF PRONOUNCEMENT : 28.06.2021 ITA NO.1583/BANG/2017 & CO 32/BANG/2019 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD., BANGAL ORE PAGE 2 OF 6 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE AND THE CROSS OBJE CTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATE D 27.4.2017 PASSED BY LD. CIT(A)-11, BENGALURU AND THEY RELATE TO THE ASSESSMENT YEAR 2009-10. THE ISSUES URGED IN THESE APPEALS RELATE TO DISALLOWANCE MADE U/S 14A OF THE INCOME-TAX ACT, 1961 ['THE ACT' FOR SHORT]. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY DEV ELOPMENT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE R ECEIVED SHARE INCOME FROM PARTNERSHIP FIRM AND DIVIDEND FROM MUTU AL FUNDS AGGREGATING TO RS.2,64,40,765/-. THE ASSESSEE CLAI MED THE ABOVE SAID AMOUNT AS EXEMPT. HOWEVER, THE ASSESSEE DID N OT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. IT CONTENDED BEFO RE THE A.O. THAT IT DID NOT INCUR ANY EXPENDITURE TO EARN THE EXEMPT INCOME. THE A.O. REJECTED THE SAID CONTENTION AND COMPUTED THE DISALLOWANCE UNDER RULE 8D CONSISTING OF INTEREST DISALLOWANCE O F RS.1,64,302/- UNDER RULE 8D(2)(II) OF THE ACT AND EXPENSES DISALL OWANCE OF RS.1,49,73,084/- UNDER RULE 8D(2)(III) OF THE ACT, BOTH AGGREGATING TO RS.1,51,37,386/-. 3. BEFORE LD. CIT(A), THE ASSESSEE CONTENDED THAT T HE INTEREST EXPENDITURE WAS INCURRED IN RESPECT OF TERM LOAN AN D BANK OVERDRAFT. FURTHER, IT WAS CONTENDED THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS IN EXCESS OF THE VALUE OF INVE STMENT. HENCE, INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) OF THE A CT IS NOT CALLED FOR. WITH REGARD TO THE EXPENSES DISALLOWANCE, IT WAS SU BMITTED THAT THE ASSESSEE HAS CROSS CHARGED AN AMOUNT OF RS.1,19,59, 384/- OUT OF OPERATING AND OTHER EXPENSES TO THE PARTNERSHIP FIR MS AND ONLY NET ITA NO.1583/BANG/2017 & CO 32/BANG/2019 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD., BANGAL ORE PAGE 3 OF 6 EXPENSES HAS BEEN CLAIMED. ACCORDINGLY, IT WAS SUB MITTED THAT NO DISALLOWANCE UNDER RULE 8D(2)(III) OF THE ACT IS AL SO CALLED FOR. THE LD. CIT(A) WAS CONVINCED WITH THE CONTENTIONS OF TH E ASSESSEE AND ACCORDINGLY, DIRECTED THE A.O. TO DELETE THE DISALL OWANCE OF RS.1,51,37,386/-. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION BELATED LY RAISING CERTAIN LEGAL CONTENTIONS. 4. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE LD. D.R. PLACED HER RELIANCE ON THE DECISION RENDERED BY HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. KINGFISHER FINV EST INDIA LTD. (2020) 121 TAXMANN.COM 233. WE HAVE GONE THROUGH T HE SAID DECISION AND THE SAME RELATE TO A CASE WHERE NO DIV IDEND INCOME WAS RECEIVED. IN THIS CASE, THE ASSESSEE HAS EARNE D DIVIDEND INOME AND HENCE, IN OUR VIEW THE SAID DECISION IS NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE. 5. WE NOTICE THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WAS RS.355.57 CRORES WHILE THE VALUE OF INVESTMENT IN P ARTNERSHIP FIRM MUTUAL FUNDS AND SHARES AGGREGATED TO RS.251.82 CRO RES. IN VIEW OF THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MICRO LABS LTD. (2016) 383 ITR 490, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OBSERVATIONS MADE BY HONBLE KARNATAKA HIGH COURT IN THE ABOVE SAID CASE. 40. WE HAVE HEARD THE RIVAL SUBMISSIONS. A COPY OF THE AVAILABILITY OF FUNDS AND INVESTMENTS MADE WAS FILED BEFORE US WHICH IS A T PAGES 38 TO 42 OF THE ASSESSEE'S PAPER BOOK AND THE SAME IS ENCLOSED AS A NNEXURE-III TO THIS ORDER. IT IS CLEAR FROM THE SAID STATEMENT THAT THE AVAILABILITY OF PROFIT, SHARE CAPITAL AND RESERVES & SURPLUS WAS MUCH MORE THAN I NVESTMENTS MADE BY THE ASSESSEE WHICH COULD YIELD TAX FREE INCOME. ITA NO.1583/BANG/2017 & CO 32/BANG/2019 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD., BANGAL ORE PAGE 4 OF 6 41. THE HON'BLE BOMBAY HIGH COURT IN RELIANCE UTILI TIES & POWER LTD. 313 ITR 340 (BOM) HAS HELD THAT WHERE THE INTEREST FREE FUNDS FAR EXCEED THE VALUE OF INVESTMENTS, IT SHOULD BE CONSIDERED THAT INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AND NO DISALLOWANCE U/S. 14A TOWARDS ANY INTEREST EXPENDITURE CAN BE MADE. THIS VIEW WAS AGAIN CONFIR MED BY THE HON'BLE BOMBAY HIGH COURT IN CIT V. HDFC BANK LTD., ITA NO. 330 OF 2012, JUDGMENT DATED 23.7.14, WHEREIN IT WAS HELD THAT WH EN INVESTMENTS ARE MADE OUT OF COMMON POOL OF FUNDS AND NON-INTEREST BEARIN G FUNDS WERE MORE THAN THE INVESTMENTS IN TAX FREE SECURITIES, NO DISALLOW ANCE OF INTEREST EXPENDITURE U/S. 14A CAN BE MADE. 42. IN THE LIGHT OF ABOVE SAID DECISIONS, WE ARE OF THE VIEW THAT DISALLOWANCE OF INTEREST EXPENSES IN THE PRESENT CASE OF RS.49,4 2,473 MADE UNDER RULE 8D(2)(II) OF THE I.T. RULES SHOULD BE DELETED. WE O RDER ACCORDINGLY.' THEREAFTER, IT WAS HELD BY HONBLE KARNATAKA HIGH C OURT AS UNDER:- THE AFORESAID SHOWS THAT THE TRIBUNAL HAS FOLLOWED A DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK L TD. [2014] 366 ITR 505/226 TAXMAN 132 (MAG.)/49 TAXMANN.COM 33 5 . WHEN THE ISSUE IS ALREADY COVERED BY A DECISION OF THE HIGH COURT OF BOMBAY WITH WHICH WE CONCUR, WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW WOULD ARISE FOR CONSIDERATION AS CANVASSED. ACCORDINGLY, WE CONFIRM THE DELETION OF DISALLOWANC E OF INTEREST EXPENSES OF 8D(2)(II) OF IT RULES 6. THE NEXT ISSUE RELATES TO DISALLOWANCE OUT OF EX PENDITURE UNDER RULE 8D(2)(III). WE NOTICE THAT THE LD. CIT( A) HAS DELETED THE DISALLOWANCE BY ACCEPTING THE SUBMISSIONS OF THE AS SESSEE THAT THE ASSESSEE HAS CROSS CHARGED A SUM OF RS.1.19 CRORES OUT OF OPERATING AND OTHER EXPENSES TO THE RESPECTIVE PARTNERSHIP FI RMS. WE ARE UNABLE TO AGREE WITH THE VIEW OF LD CIT(A) ON THIS ASPECT. THE CROSS CHARGING OF EXPENSES IS NORMALLY MADE IN RESPECT OF SERVICES/FACILITIES AVAILED BY ONE CONCERN FROM ANO THER CONCERN, ITA NO.1583/BANG/2017 & CO 32/BANG/2019 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD., BANGAL ORE PAGE 5 OF 6 ACCORDINGLY, THE AMOUNT OF RS.1.19 CRORES CROSS CHA RGED BY THE ASSESSEE TO OTHER CONCERNS, WOULD REPRESENT FACILIT IES/SERVICES AVAILED BY THE PARTNERSHIP FIRMS FROM THE ASSESSEE. 7. THE OBJECT OF PROVISIONS OF SECTION 14A OF THE A CT IS TO DISALLOW EXPENSES RELATABLE TO EXEMPT INCOME, I.E., IT IS REQUIRED TO SEGREGATE THE EXPENSES DEBITED TO THE PROFIT AND LO SS ACCOUNT AS RELATABLE TO TAXABLE INCOME AND EXEMPTED INCOME . HENCE, WHAT IS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF SEC TION 14A OF THE ACT IS THE AMOUNT FINALLY DEBITED TO PROFIT & LOSS ACCOUNT. THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE WOULD HAVE BEEN REDUCED BY THE AMOUNT CROSS CHARGED TO THE PARTNERSHIP FIRM S AND THE NET AMOUNT WOULD HAVE BEEN CHARGED TO THE PROFIT & LOSS ACCOUNT. THE DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR OUT O F THE ABOVE SAID NET AMOUNT. 8. WE NOTICE THAT THE ASSESSEE HAS EARNED EXEMPT IN COME AS DETAILED BELOW: SHARE PROFIT FROM PARTNERSHIP FIRMS - RS.2,46,49, 618/- DIVIDEND FROM MUTUAL FUNDS - RS. 17,91,146/- RS.2,64,40,765/- THE DIVIDEND RECEIVED FROM MUTUAL FUNDS ALSO DOES N OT REQUIRE MUCH EXPENDITURE FOR THE ASSESSEE. IN RESPECT OF PARTNERSHIP FIRMS, WE HAVE EARLIER NOTICED THAT THE SERVICES RE NDERED IN RESPECT OF PARTNERSHIP FIRMS HAVE BEEN CROSS CHARGED BY THE ASSESSEE. HENCE OVER ALL SUPERVISION MAY BE RELEVANT FOR THE PURPOSES OF SEC.14A OF THE ACT. UNDER THESE SET OF FACTS, WE A RE OF THE VIEW THAT THE PROVISIONS OF RULE 8D NEED NOT BE APPLIED FOR C OMPUTING THE DISALLOWANCE OUT OF GENERAL EXPENDITURE. ACCORDIN GLY, WE ARE OF THE VIEW THAT A LUMPSUM DISALLOWANCE OF RS.15 LAKHS MAY BE MADE OUT OF GENERAL EXPENDITURE AND THE SAME, IN OUR VIEW WO ULD MEET THE REQUIREMENTS OF SECTION 14A OF THE ACT. ACCORDINGL Y, WE SET ASIDE ITA NO.1583/BANG/2017 & CO 32/BANG/2019 M/S. CENTURY REAL ESTATE HOLDINGS PVT. LTD., BANGAL ORE PAGE 6 OF 6 THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND DI RECT THE A.O. TO RESTRICT THE DISALLOWANCE UNDER 14A OF THE ACT TO R S.15 LAKHS. 9. THE LD. A.R. SUBMITTED THAT HE WILL NOT PRESS CR OSS OBJECTION, IF DISALLOWANCE U/S 14A OF THE ACT IS MADE ON A REA SONABLE FIGURE. HOWEVER, WE NOTICE THAT THE CROSS OBJECTION FILED B Y THE ASSESSEE IS DELAYED BY MORE THAN A YEAR. WE NOTICE THAT THE AS SESSEE HAS NOT FILED ANY PETITION FOR CONDONING THE DELAY. HENCE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS LIABLE TO BE DIS MISSED IN LIMINE. ACCORDINGLY, WE DECLINE TO ADMIT THE CROSS OBJECTIO N FILED BY THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2021 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 28 TH JUNE, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.