Shree Venkatesh Buildcon Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 6, Pune

ITA 1713/PUN/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5752 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-02-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 13-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Earning of tax free income; Fair market value; Rule 8D
• Section: 143(3); 14A; 250

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI GEORGE MATHAN, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1713/PUN/2017 / ASSESSMENT YEAR : 2013-14 SHREE VENKATESH BUILDCON PVT. LTD., OFFICE NO.2, 1 ST FLOOR, LAUKIK APARTMENTS, BANDARKAR ROAD, PUNE. PAN : AANCS1902K. . / APPELLANT V/S THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE. . / RESPONDENT ASSESSEE BY : SHRI KISHORE PHADKE, C.A REVENUE BY : SHRI S.P. WALIMBE, ADDL.CIT. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 4, PUNE DT.15.03.2017 FOR THE ASSESSMENT YEAR 2013-14. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY WHO IS ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 14.09.2013 DECLARING TOTAL INCOME OF RS.17,18,58,098/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THEREAFTER / DATE OF HEARING : 13.02.2020 / DATE OF PRONOUNCEMENT: 14.02.2020 2 ITA NO.1713/PUN/2017 ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D ATED 16.03.2016 AND THE TOTAL INCOME WAS DETERMINED AT RS.17,42 ,33,750/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO VIDE ORDER DATED (IN APPEAL NO.PN/CIT(A)-4/DCI T, CIRCLE 6, PUNE/33/2016-17 DATED 15.03.2017) GRANTED PARTIAL R ELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A)-4, PUNE ERRED IN LAW AND ON FACTS IN AFFIRMING THE DISALLOWANCE U/S 14A OF THE ITA, 1961 R.W.R. 8D OF THE ITR, 1962; AMOUNTING TO RS. 14,41,438/-, THOUGH NO EXEMPT INCO ME WAS EARNED BY THE APPELLANT DURING AY 2013-14. THE LEARNED CIT(A) -4, PUNE ERRED IN NOT APPRECIATING THAT INVESTMENT IN PARTNERSHIP FIR M WAS AS A STRATEGIC INVESTMENT & NOT FOR EARNING ANY EXEMPT INCOME. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO GROUND NO .1, THE LEARNED CIT(A)- 4, PUNE ERRED IN LAW AND ON FACTS IN AFFIRMING THE DISALLOWANCE U/S 14A OF THE ITA, 1961 R.W.R. 8D OF THE ITR, 1962; AMOUNT ING TO RS. 14,41,438/- WITHOUT APPRECIATING THAT, APPELLANT HAD SUFFICIENT OWN FUNDS OF ABOUT RS. 12.87 CRS. AT THE YEAREND AS AGAINST INVESTMENT OF RS. 5.33 CRS. DURING THE YEAR. 3. THE LEARNED CIT(A)-4, PUNE ERRED IN LAW AND ON F ACTS IN AFFIRMING THE AD-HOC DISALLOWANCE U/S 40A(2)(B) OF THE ITA, 1961 AMOUNTING TO RS. 6,66,708/- (BEING 5% OF RS. 1,33,34,156/-). THE LEA RNED CIT(A)-4, PUNE ERRED IN NOT APPRECIATING THAT THERE WAS NO ANY EXC ESSIVE OR UNREASONABLE PAYMENTS MADE TO PERSONS COVERED U/S 4 0A(2)(B) OF THE ITA, 1961. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT GROUND NOS.1 AND 2 ARE WITH RESPECT TO DISALLOWANCE U/S 14A OF THE AC T. HE SUBMITTED THAT IF GROUND NO.1 IS DECIDED IN ASSESSEES F AVOUR THEN GROUND NO.2 WOULD NOT REQUIRE ANY ADJUDICATION AS IT WOULD BE RENDERED ACADEMIC. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICE D THAT ASSESSEE HAD MADE INVESTMENT TO THE EXTENT OF RS.5.33 C RORE IN VENKATESH GROUP AND HAD NOT SHOWN ANY EXPENSES REL ATED TO THE EXEMPT INCOME. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY 3 ITA NO.1713/PUN/2017 DISALLOWANCE U/S 14A OF THE ACT NOT BE MADE, TO WHICH ASS ESSEE INTER- ALIA SUBMITTED THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND THEREFORE NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR. IT WAS ALSO SUBMITTED THAT THE INVESTMENTS WERE MADE OUT OF THE OW N FUNDS AND THEREFORE NO DISALLOWANCE IS CALLED FOR. THE SUBMISSIONS OF T HE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO WAS OF THE VIEW THAT EVEN WHEN NO EXEMPT INCOME HAS BEEN EARNED, DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE AND FOR THIS PROPOSITION, HE RELIED O N THE CBDT CIRCULAR NO.5/2014 DATED 11.02.2014. HE THEREAFTER PROCEEDE D TO WORK OUT THE DISALLOWANCE WITH THE METHODOLOGY PRESCRIBED UND ER RULE 8D AND COMPUTED THE DISALLOWANCE U/S 14A R.W. RULE 8D AT RS.14,41,438/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CA RRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT NO EXEMPT INCOM E HAS BEEN EARNED BY THE ASSESSEE AND IN SUCH A SITUATION, NO DISALLO WANCE U/S 14A OF THE ACT IS CALLED FOR AND FOR THE AFORESAID PROPOS ITION, HE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS (P) LTD., REPORTED IN (2018) 95 TAXMANN.COM 250 SC . IN SUPPORT OF HIS CONTENTION OF HAVING NOT EARNED ANY EXEMP T INCOME, HE POINTED TO THE ASSESSEES SUBMISSIONS IN THE ORDER OF LOW ER AUTHORITIES. LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLO WANCE U/S 14A R.W. RULE 8D I.T. RULES. BEFORE US, IT IS ASSESSEE S CONTENTION 4 ITA NO.1713/PUN/2017 THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. THE AFORESAID CONTENTION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE. WE FIND THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CI T VS. CHETTINAD LOGISTICS (P) LTD., REPORTED IN (2017) 80 TAXMANN .COM 221 HAS HELD THAT WHEN NO EXEMPT INCOME WAS EARNED IN RELEV ANT ASSESSMENT YEAR BY THE ASSESSEE, SECTION 14A OF THE AC T COULD NOT BE INVOKED. WE FIND THAT AGAINST THE AFORESAID ORDER OF THE H ONBLE MADRAS HIGH COURT, REVENUE PREFERRED SPECIAL LEAVE PETIT ION (SLP) BEFORE THE HONBLE APEX COURT. THE HONBLE APEX COURT DISMISSED THE SLP WHICH IS REPORTED IN (2018) 95 TAXMANN.COM 250 SC. 7. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT SINCE NO EXEMPT INCOME IN THE FORM OF DIVIDEND HAS BEEN EARNED BY THE ASSESSEE FROM THE INVESTMENTS MADE AND RELYING ON THE AFORESAID DECISION OF THE HONBLE APEX COURT, NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR IN THE PRESENT CASE. WE THEREFORE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE BY THE AO. THUS, THE GROUND OF ASSESSEE IS ALLOWED. 8. SINCE GROUND NO.1 IS ALLOWED HEREINABOVE, IN VIEW OF THE SUBMISSION OF LD.A.R., GROUND NO.2 IS DISMISSED AS BEING ACADEMIC. 9. GROUND NO.3 IS WITH RESPECT TO DISALLOWANCE U/S 40A(2)(B) O F THE ACT. 9.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NO TICED THAT ASSESSEE HAD CLAIMED EXPENSES TOWARDS RCC LABOUR CONT RACTOR / MASONARY WORK PAID TO MRS. SHUBANGI ASABE AMOUNTING TO RS.68,34,450/- AND RS.64,49,726/- TO MRS. JYOTHI ASABE. AO NOTED 5 ITA NO.1713/PUN/2017 THAT THE PAYMENTS FALL UNDER THE CATEGORY OF SEC.40A(2)(B ) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PAYME NTS NOT BE CONSIDERED TO BE COLOURABLE DEVICE AND ADDED TO THE IN COME, TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT THE PAYMENTS HAVE BE EN MADE TO THE AFORESAID LADIES ARE NOT AT A HIGHER RATE THAN WHAT IS PA ID TO THE OTHER OUTSIDE PARTIES AND THE PAYMENTS ARE MADE FOR THE PURPOSE OF BUSIN ESS. THE SUBMISSION OF THE ASSESSEE WAS FOUND NOT ACCEPTABLE TO THE AO. AO WAS OF THE VIEW THAT THE AFORESAID TWO LADIES WERE SH OWN AS SUPPLIERS OF LABOUR CONTRACTORS WHICH WAS QUITE IMPROBABLE. HE WAS OF THE VIEW THAT THE EXPENSES HAVE BEEN MADE TO THE AFOR ESAID TWO LADIES TO INFLATE THE EXPENSES AND REDUCE THE PROFIT. HE THE REFORE WAS OF THE VIEW THAT THE GENUINENESS OF THE PAYMENTS WAS NOT FULLY VERIFIABLE. HE ACCORDINGLY DISALLOWED 5% OF THE EXPENSES AMOUNTING TO RS .6,66,708/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 10. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND POINTED TO THE SUBMISSIONS OF THE ASSES SEE MADE TO THE LOWER AUTHORITIES WHEREIN IT WAS MENTIONED THAT THE R ATE PAID TO THE AFORESAID TWO LADIES WERE COMPARABLE TO THE RATE PAID TO THE OUTSIDE PARTIES. HE FURTHER SUBMITTED THAT THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT THE PAYMENTS W ERE EXCESSIVE AND UNREASONABLE AND THAT DISALLOWANCE HAS BEEN MADE ON ADHOC BASIS. HE THEREFORE SUBMITTED THAT THE NO DISALLOWANCE U/ S 40A(2)(B) IS CALLED FOR. LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF AO AND LD.CIT(A). 6 ITA NO.1713/PUN/2017 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLOWANCE OF EXPENSES U/S 40A(2)(B) OF THE ACT. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS MADE THE PAYMENTS AMOUNTING TO RS.1,33,34, 156/- AND AO HAS DISALLOWED 5% OF THE EXPENSES. WE FIND THAT BEFORE LOWER AUTHORITIES, IT WAS ASSESSESS CONTENTION THAT THE PAYM ENTS THAT HAVE BEEN MADE ARE AS PER THE COMPARABLE RATE PAID TO OUT SIDE PARTIES AND ARE NOT EXCESSIVE. 12. PERUSAL OF PROVISIONS OF S.40A(2)(B) OF THE ACT SHOWS THAT WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERSON R EFERRED TO IN CL. (B) OF SECTION 40A(2) AND THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO (A) FAIR MARK ET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MA DE; OR (B) THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE; OR (C ) THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SU CH GOODS, SERVICES OR FACILITIES, THEN THE AO SHALL NOT ALLOW AS A DEDU CTION SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE AO T O BE EXCESSIVE OR UNREASONABLE. THUS IT BECOMES APPARENT THAT THE AO IS REQUIRED TO FORM AN OPINION HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICE RENDERED. THE AO HAS TO RECORD A FINDING AS TO WHETHER THE EXPENDITURE IS EXCESSIVE OR UNREASONABLE IN RELATION TO THE REQUIREMENTS PRESCR IBED. 13. IN THE PRESENT CASE, IT IS SEEN THAT AO HAS NOT DON E ANY EXERCISE TO DETERMINE AS TO WHETHER THE AMOUNT PAID BY THE ASS ESSEE TO THE AFORESAID TWO LADIES WERE EXCESSIVE OR UNREASONABLE BY C OMPARING THE PREVALENT MARKET RATES. HE HAS NOT ARRIVED AT AN EXACT FIGURE OF 7 ITA NO.1713/PUN/2017 EXCESSIVE PAYMENT BY COMPARING THE AMOUNT PAID BY THE ASSESSEE WITH THE MARKET RATES FOR SIMILAR SERVICES BUT HE HAS RATHER PROCEEDED TO DISALLOW THE EXPENSES @ 5% ON ADHOC BASIS. 14. CONSIDERING THE TOTALITY OF FACTS, WE ARE OF THE V IEW THAT IN THE PRESENT CASE, NO CASE HAS BEEN MADE OUT FOR DISALLOWANCE U/S 40A(2)(B) OF THE ACT AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S 40A(2)(B) OF THE ACT. WE THEREFORE DELETE THE DISALLOWANCE MADE BY THE AO. THUS THE GROUND OF THE ASSESSEE IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED ON 14 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( GEORGE MATHAN ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 14 TH FEBRUARY, 2020. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-4, PUNE. PR. CIT-3, PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.