KSTDC Ltd., V. ACIT,

ITA 1614/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9475 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: SATYANARAYAN MURTHY
• Section: 43B; 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NOS.456/BANG/2011 & 1614/BANG/2013 ASSESSMENT YEARS : 2007-08 & 2008-09 KARNATAKA STATE TOURISM DEVELOPMENT CORPORATION LTD., NO.49, II FLOOR, WEST AVENUE, KHANIJA BHAVAN, RACE COURSE ROAD, BANGALORE 560 001. PAN: AACCK 3563F VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. APPELLANT RESPONDENT ITA NO.519/BANG/2011 ASSESSMENT YEAR : 2007- 08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. VS. KARNATAKA STATE TOURISM DEVELOPMENT CORPORATION LTD., BANGALORE 560 001. PAN: AACCK 3563F APPELLANT RESPONDENT ASSESSEE BY : SHRI SATYANARAYAN MURTHY, CA RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 02.06.2016 DATE OF PRONOUNCEMENT : 12.08.2016 ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 2 OF 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE ARE APPEALS PREFERRED BY THE ASSESSEE AS WE LL AS THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CIT(AP PEALS). 2. SINCE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.456/BANG/2011 & 1614/BANG/2013 3. THESE APPEALS ARE PREFERRED AGAINST THE RESPECTI VE ORDERS OF THE CIT(APPEALS) ON A COMMON GROUND THAT THE CIT(APPEAL S) ERRED IN CONFIRMING ADDING BACK OF NOTIONAL INCOME OF RS.1,6 1,20,000 TOWARDS LAND LEASED TO KARNATAKA GOLF ASSOCIATION (KGA). IN THIS REGARD, OUR ATTENTION WAS INVITED THAT THE ASSESSEE HAS LEASED OUT ITS LA ND OF 124 ACRES TO KGA FOR DEVELOPMENT OF GOLF CLUB IN THE CHALLAGHATTA TA NK BED, NEAR OLD AIRPORT ROAD, FOR A PERIOD OF 30 YEARS AT THE ANNUAL RENTAL CHARGED BY THE ASSESSEE AT RS.1 PER ACRE PER ANNUM. SINCE THE LE ASE RENTAL CHARGES WERE VERY LOW, THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN THE REASONS FOR CHARGING OF LES SER ANNUAL RENT. IN RESPONSE THERETO, IT WAS CONTENDED BY THE ASSESSEE THAT THE LAND HAS BEEN GRANTED BY THE GOVT. OF KARNATAKA TO LEASE IT TO KG A AND THE LEASE RENT WAS FIXED IN 1986 AS PER THE DIRECTION OF THE GOVERNMEN T. THEREFORE, VALUATION AND TREATMENT OF THE ASSUMED SUM BY THE AO WAS NOT PROPER. THE AO WAS ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 3 OF 8 NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HAVING OBSERVED THAT KGA WAS EARNING HUGE INCOME ON ACCOUNT OF MEMB ERSHIP FEES AND ALSO HELD INVESTMENT IN FIXED DEPOSIT, BUT IS NOT P AYING THE REASONABLE RENTAL TO THE ASSESSEE. HAVING TAKEN INTO ACCOUNT T HE MARKET VALUE OF THE SURROUNDING AREAS, THE AO HAS ESTIMATED THE LEASE R ENT AT RS.1,30,000 PER ACRE PER YEAR AND HE ACCORDING WORKED OUT THE NOTIO NAL LEASE RENT RECEIVED BY THE ASSESSEE AT RS.1,61,20,000. 4. THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(APPEALS) WITH THE SUBMISSION THAT THE ASSESSEE IS A STATE GOVT. P UBLIC SECTOR AND IS PURELY CONTROLLED BY THE GOVERNMENT AND ITS ACTIVIT IES ARE ALSO MONITORED BY THE GOVERNMENT THROUGH SENIOR OFFICERS. THE LAND W AS ALLOTTED TO KGA AT THE DIRECTION OF THE GOVERNMENT AND THE ANNUAL RENT WAS ALSO FIXED AS PER THE GOVT. NORMS. THEREFORE THE ASSESSEE DOES NOT H AVE MUCH SAY IN FIXING THE ANNUAL RENT. MOREOVER, THERE IS NO PROVISION I N THE INCOME-TAX ACT, 1961 [THE ACT] WHICH SAYS THAT NOTIONAL INCOME CA N BE TAXED IN THE HANDS OF THE ASSESSEE, WITHOUT ITS ACTUAL RECEIPT. THE C IT(APPEALS) WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND CONFIRMED THE ADDITION. 5. NOW THE ASSESSEE IS BEFORE US AND HAS FILED COPY OF LEASE AGREEMENT AND A COPY OF THE PROCEEDINGS OF THE GOVT . OF KARNATAKA TO DEMONSTRATE THAT LAND WAS GIVEN ON LICENCE AT FIXED ANNUAL RENT AT THE INSTRUCTION OF THE GOVERNMENT. A COPY OF THE BILLS AND INVOICES WITH RESPECT TO LEASE RENT IS ALSO PLACED ON RECORD. THE LD. CO UNSEL FOR THE ASSESSEE ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 4 OF 8 FURTHER CONTENDED THAT NOBODY CAN FORCE THE ASSESSE E TO EARN INCOME OF PARTICULAR ACTIVITIES. THEREFORE, THE ADDITION CAN NOT BE MADE ON THE BASIS OF NOTIONAL INCOME. THERE MUST BE REAL INCOME WHICH C AN ONLY BE TAXED. 6. THE LD. DR, ON THE OTHER HAND, HAS PLACED RELIAN CE UPON THE ORDER OF THE CIT(APPEALS). 7. HAVING CAREFULLY EXAMINED THE ORDER OF LOWER AUT HORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THE LAND WAS GIVEN ON LEASE BY THE ASSESSEE TO KGA AT FIXED ANNUAL RENT AT THE INSTRUCTION OF THE GOVERNMENT. IT IS ALSO A FACT THAT THE ASSESSEE IS A PUBLIC SECTOR OF THE STATE GOVT. AND ITS ACTIVITIES ARE CONTROLLED AND M ONITORED BY THE STATE GOVT. THROUGH SENIOR OFFICERS. SINCE THE LAND WAS LEASED OUT AT THE INSTRUCTION OF THE GOVERNMENT, THE ASSESSEE HAS NO DISCRETION TO FIX THE ANNUAL RENT MORE THAN THE RENT FIXED BY THE GOVT. MOREOVER, UNDER THE INCOME-TAX ACT, THERE IS NO PROVISION WHICH ENTAILS THE REVENUE TO FORCE THE ASSESSEE TO EARN INCOME ON PARTICULAR ACTIVITIES. INCOME CAN ONLY BE CHARGED TO TAX WHICH HAS BEEN ACTUALLY RECEIVED OR ACCRUED TO THE ASSESSEE AND NOT ON THE BASIS OF NOTIONAL INCOME. AT THE MOST, REVENUE CAN DISALLOW THE EXPENDITURE FOR THE REASON THAT TH E EXPENDITURE WAS NOT INCURRED FOR THE BUSINESS ACTIVITY OF THE ASSESSEE, BUT NOTIONAL INCOME CANNOT BE CHARGED. SINCE THE REVENUE HAS MADE THE A DDITION ON THE BASIS OF NOTIONAL INCOME, WE FIND NO MERIT IN THE ADDITIO N. WE ACCORDINGLY SET ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 5 OF 8 ASIDE THE ORDER OF CIT(APPEALS) AND DELETE THE ADDI TION MADE IN THIS REGARD. 8. THE OTHER GROUND IN APPEAL NO.456/BANG/2011 IS W ITH REGARD TO DISALLOWANCE OF RS.86,386 MADE U/S. 40A(3) OF THE ACT. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE COMPANY HAS PAID A SUM OF RS.4,31,932 IN CASH TO GOVT. OF K ARNATAKA UNDERTAKING TOWARDS SUPPLY OF LIQUOR AT NANDI HILLS RESTAURANT AS THEY INSISTED TO MAKE PAYMENT ONLY IN CASH OR DD AND NOT BY CHEQUE. AT NA NDI HILLS, THERE WERE NO BANKING FACILITIES, HENCE THE ASSESSEE WAS FORCE D TO MAKE THE PAYMENT IN CASH. HE ALSO PLACED RELIANCE UPON VARIOUS CASE LAWS, BUT IT WAS NOT ACCEPTED BY THE LOWER AUTHORITIES AND THE CIT(APPEA LS) CONFIRMED THE ADDITION. IT WAS FURTHER CONTENDED BEFORE US THAT SINCE PAYMENT WAS MADE TO THE GOVT. OF KARNATAKA UNDERTAKING IN CASH AS TH EY WERE NOT READY TO ACCEPT PAYMENT THROUGH CHEQUE, IT WAS CASE OF EXTRA ORDINARY CIRCUMSTANCES. THUS THE PAYMENT MADE IN CASH SHOUL D NOT BE DISALLOWED. 9. THE LD. DR PLACED RELIANCE UPON THE ORDER OF CIT (APPEALS). 10. HAVING CAREFULLY EXAMINED THIS ISSUE, WE FIND T HAT ASSESSEE IS A PUBLIC SECTOR UNDERTAKING OF THE STATE GOVT. AND HA S MADE PAYMENT IN CASH TO OTHER PUBLIC SECTOR UNDERTAKING OF GOVT. SINCE THERE WAS NO BANKING FACILITY AT NANDI HILLS AND PAYEE INSISTED FOR CASH PAYMENT, ASSESSEE HAS ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 6 OF 8 MADE THE PAYMENT IN CASH. THEREFORE, WE FIND NO JU STIFICATION IN MAKING DISALLOWANCE U/S. 40A(3) OF THE ACT. ITA NO.519/BANG/2011 11. THIS APPEAL IS PREFERRED BY THE REVENUE ASSAILI NG THE ORDER OF THE CIT(APPEALS) ON THE GROUND THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.12,50,000 MADE ON ACCOUNT OF DISALLO WANCE OF CLAIM OF INTEREST ON LOAN FROM GOVT. OF KARNATAKA U/S. 43B O F THE ACT, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES UNDER WHIC H THE ADDITION WAS MADE BY THE AO. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO HAS NOTED THAT THE ASSESSEE COMPANY HAS MADE A PROVISION OF R S.12,50,000 TOWARDS LOAN GRANTED BY GOVT. OF KARNATAKA. HAVING INVOKED THE PROVISIONS OF SECTION 43B, THE AO HAS MADE THE DISALLOWANCE OF TH E SAME. 13. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) WITH THE SUBMISSION THAT AS PER THE STATE GOVT. CIRCULAR DAT ED 18.03.2004, PAYMENT OF INTEREST @ 12.5% P.A. IS AN ALLOWABLE EXPENDITUR E. HE ALSO PLACED RELIANCE UPON THE ORDER OF THE CIT(APPEALS) AND THE TRIBUNALS ORDER IN ASSESSEES OWN CASE WHEREIN THE SAME EXPENDITURE WA S HELD TO BE AN ALLOWABLE EXPENDITURE. THE CIT(APPEALS) BEING CONV INCED WITH THE EXPLANATION OF THE ASSESSEE HAS DELETED THE ADDITIO N; HAVING OBSERVED THAT THE AMOUNT EVEN IF NOT PAID TO THE GOVT., SUCH WAS AN ASCERTAINED LIABILITY ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 7 OF 8 BEING COVERED BY A STATE GOVT. NOTIFICATION AND HEN CE DESERVES TO BE ALLOWED AS AN EXPENDITURE, EVEN IF DEBIT IS MADE UN DER THE PROVISION. 14. DURING THE COURSE OF HEARING, THE LD. DR COULD NOT POINT OUT ANY PARTICULAR DEFECT IN THE ORDER OF CIT(APPEALS). HE HAS SIMPLY PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; W HEREAS THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE ORDER OF CIT(APPEALS). 15. HAVING CAREFULLY EXAMINED THE ORDER OF CIT(APPE ALS), WE FIND THAT THE CIT(A) HAS PROPERLY ADJUDICATED THE ISSUE IN TH E GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. SINCE WE DO NOT FIND AN Y INFIRMITY THEREIN, WE CONFIRM HIS ORDER. 16. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED AND THAT OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF AUGUST, 2016. SD/- SD/- ( ABRAHAM P. GEORGE ) (SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 12 TH AUGUST, 2016. /D S/ ITA NO.1614/BANG/2013 & 456 & 519/BANG/2011 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.