Joint Commissioner of Income-Tax(OSD), Circle-14 , Pune V. Kumar Housing Corporation Pvt. Ltd Marge In Kumar Urban Development Pvt. Ltd, Pune

ITA 185/PUN/2020

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had deleted a protective addition made by the Assessing Officer under section 80IA(4)(iii) and reversed a disallowance under section 14A for the assessment year 2012-13. The respondent-assessee, Kumar Housing Corporation Pvt. Ltd., had developed the Cerebrum IT Park and claimed deductions under section 80IA(4)(iii) which were initially accepted but later reversed in subsequent years. The CIT(A) found that the protective addition was effectively a double addition as the same income had been taxed in earlier years. The Tribunal agreed with the CIT(A)'s decision, noting that the Assessing Officer had accepted the assessee's contention that the income was double taxed but chose to make a protective addition pending the outcome of appeals for earlier years. The Tribunal also upheld the CIT(A)'s decision on the disallowance under section 14A, agreeing that no disallowance was warranted as the investments were made from interest-free funds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137139 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-03-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 10-09-2020
• Other Referred Cases: Goetze (India) Ltd. vs. CIT, CIT vs. Pruthvi Brokers & Shareholders, CIT vs. Hero Cycles Ltd., ACIT vs. SIL Investment Ltd., ACIT vs. Magarpatta Township Development & Construction Co. Ltd., Bhavarlal Hiralal Jain vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revised return; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.185/PUN/2020 िनधाᭅरण वषᭅ / Assessment Year : 2012-13 Jt.CIT (OSD), Circle-14, Pune. Vs. Kumar Housing Corporation Pvt. Ltd. Merged in Kumar Urban Development Pvt. Ltd., 10 th Floor, Kumar Business Centre, CTS No.29, Opp. Pune Central Bund Garden, Pune- 411001. PAN : AACCS9537K Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the Revenue directed against the order of ld. Commissioner of Income Tax (Appeals)- 9, Pune [‘the CIT(A)’] dated 28.11.2019 for the assessment year 2012-13. 2. The Revenue raised the following grounds of appeal :- “1) “The order of the Ld CIT(A) is contrary to law and to the facts and circumstances of the case.” 2) “Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A)-7, Pune has erred in holding that the assessee was eligible for deduction under section 80IA(4)(iii) of the I.T. Act amounting to Rs.12,79,75,157/-.” Revenue by : Shri Keyur Patel Assessee by : Shri Nikhil S. Pathak Date of hearing : 02.03.2023 Date of pronouncement : 03.03.2023 ITA No.185/PUN/2020 2 3) “Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in allowing the additional ground raised by the assessee in respect of reversal of disallowance u/s 14A of Rs.1,39,71,272/- made by the assessee itself in its return of income while computing its income thereby disregarding the judicial pronouncement of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. ITR 323? 4) Whether on the facts and in the circumstances of the case and in law, the CIT(A) was correct in holding that no disallowance u/s 14A is called for, thereby resulting in a situation where the assessed income of the assessee would now be less than the income returned by the assessee? 5) For the facts and such other reasons an may be urged at the time of hearing, the order of the Ld. Commissioner of Income Tax (Appeals)-9, Pune may be vacated and that of the Assessing Officer be restored” 6) “The appellant craves leave to add, amend or alter any of the above grounds of appeal.” 3. Briefly, the facts of the case are as under :- The respondent-assessee is public company registered under the Companies Act, 1956 engaged in the business of real estate development. The Return of Income for the assessment year 2012-13 was filed on 20.09.2012 declaring total income of Rs.14,70,89,823/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-14, Pune (‘the Assessing Officer’) vide order dated 16.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.27,71,90,110/-. While doing so, the Assessing Officer made protective addition of Rs.12,79,75,157/- u/s 80IA(4)(iii), disallowance of depreciation on Kumar City Club of Rs.15,12,224/- and disallowance of interest u/s 36(1)(iii) of Rs.6,12,901/-. The factual background leading to the protective ITA No.185/PUN/2020 3 addition u/s 80IA(4)(iii) of Rs.12,79,75,157/- with which we are concerned is as under :- During the previous year relevant to the assessment year under consideration, the respondent-assessee undertook the development of Cerebrum IT Park at Wadgaon Sheri, Pune. The respondent- assessee also obtained approval of Industrial Park Scheme (IPS), 2002 for the purpose of claiming deduction under the provisions of section 80IA(4)(iii) of the Act. However, the project could not be completed before 31.03.2006, meanwhile, IPS, 2008 was introduced by the Government of India w.e.f. 01.04.2006. The respondent- assessee made a fresh application for notification to the Central Board of Direct Taxes as per IPS, 2008 and necessary approval was obtained and the project was required to be completed on or before 31.03.2011. In the original returns of income filed for the assessment years 2009-10 and 2010-11, the appellant offered sale consideration in respect of B-3 of the Cerebrum IT Park and claimed deduction u/s 80IA(4)(iii) of the Act. However, the returns of income were subsequently revised within the due date prescribed u/s 139 by excluding the sale consideration received on sale of building B-3 of Cerebrum IT Park and withdrawing the claim for deduction u/s 80IA(4)(iii) of the Act. However, the Assessing Officer had not taken the cognizance of revised returns of income ITA No.185/PUN/2020 4 by holding that the respondent-assessee had adopted the colourable device to postpone the tax liability by reversing the sales affected during the year under consideration. The assessment orders were contested before the ld. CIT(A) who, in turn, had confirmed the action of the Assessing Officer and on further appeal before the Tribunal, the appeals were dismissed as withdrawn. Thus, the assessment order for the assessment years 2009-10 and 2010-11 had attained the finality. 4. Subsequently, the sales which were reversed in the financial years relevant to the assessment years 2009-10 and 2010-11 were shown as sales during previous year relevant to the assessment year 2012-13. During the course of assessment proceedings under consideration, the respondent-assessee had submitted that the sales which were shown by the respondent-assessee during the previous year relevant to the assessment year 2012-13 are part of the sales shown in the earlier assessment years 2009-10 and 2010-11, which were assessed to tax as per the original returns of income and, therefore, the amount which were taxed in the assessment years 2009-10 and 2010-11 cannot be taxed again in the assessment year 2012-13 (assessment year under consideration), as it amounts double additions. The said submissions were recorded by the Assessing Officer in para 3.14 of the assessment year. The ITA No.185/PUN/2020 5 Assessing Officer while accepting the contentions of the respondent-assessee had chosen to make protective addition for the year under consideration for the reason that the appeal filed against the assessment order was pending disposal before the ITAT, Pune at relevant point of time. 5. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A) contesting the protective disallowance of Rs.12,79,75,157/- u/s 80IA(4)(iii) and also claiming that no disallowance u/s 14A was warranted. The ld. CIT(A) considering the above facts held that there was no warrant for making protective disallowance of Rs.12,79,75,157/- vide para 2.8 of the impugned order. The ld. CIT(A) further proceeded to hold that in view of the orders of the Tribunal in assessee’s own case for the earlier assessment years (supra), the respondent-assessee is also eligible for deduction u/s 80IA(4)(iii) of the Act. As regards to the disallowance u/s 14A, the ld. CIT(A) had admitted the additional ground challenging the addition u/s 14A on the ground that no interest bearing funds were utilized for the purpose of making the investments which yielded the exempt income and no expenditure was incurred to earn the exempt income following the decision of the Hon’ble Jurisdictional High Court in ITA No.185/PUN/2020 6 the case of CIT vs. Pruthvi Brokers & Shareholders, 349 ITR 336 (Bom.), admitted the additional ground of appeal. On the merits of addition, the ld. CIT(A) taking into consideration the financial statements and the order of this Tribunal in assessee’s own case for the earlier assessment years (supra) held that that no disallowance of interest can be made u/s 14A r.w. Rule 8D(2)(ii) of the Income Tax Rules, 1962 (‘the Rules). As regards to the disallowance u/s 14A r.w. Rule 8D(2)(iii), the ld. CIT(A) restored this issue to the Assessing Officer to work out the amount of disallowance in terms of order of this Tribunal in assessee’s own case for the earlier assessment years 2009-10 and 2010-11. 6. Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us in the present appeal. 7. The ld. CIT-DR contends that the ld. CIT(A) ought not to have given finding that no addition u/s 80IA(4)(iii) of Rs.12,79,75,157/- is warranted without examining the facts as well as satisfying himself that it amounts to double addition. He further submits that the issue be remanded to the file of Assessing Officer for reaching the satisfaction that whether or not it amounts to double addition. As regards to the disallowance u/s 14A, he submits that in view of the judgment of the Hon’ble Supreme Court in the case of ITA No.185/PUN/2020 7 Goetze (India) Ltd. vs. CIT, 284 ITR 323 (SC), the ld. CIT(A) ought not to have held that no disallowance u/s 14A is warranted, inasmuch, as result of deletion suo motu of disallowance offered by the respondent-assessee u/s 14A it resulted in assessed income is lower than the returned income.. 8. On the other hand, ld. AR taking us through the assessment orders for the assessment years 2009-10 and 2010-11 and the impugned orders submits that the protective addition of Rs.12,79,75,157/- u/s 80IB(4)(iii) is nothing but a double addition as the assessment orders passed in the assessment years 2009-10 and 2010-11 attained the finality. He further submits that once the double addition is deleted, the question of examining the eligibility for deduction u/s 80IA(4)(iii) does not arise. As regards to the disallowance u/s 14A, he submits that during the year under consideration, the respondent-assessee had not made any fresh investments, which yielded the exempt income. He further submits that in the earlier assessment years 2010-11 and 2011-12 in which the investments were made as it think today, no disallowance u/s 14A r.w. Rule 8D(2)(ii) was made, consequently question of disallowance of interest does not arise for the year under consideration. ITA No.185/PUN/2020 8 As regards to the disallowance of expenditure u/s 14A r.w. Rule 8D(2)(iii), it is crystal clear that the ld. CIT(A) only restored this issue to the Assessing Officer to compute the amount of disallowance on the lines of the order of this Tribunal in assessee’s own case for the earlier assessment years 2009-10 and 2010-11. Thus, it is submitted that there was no warrant to interfere with the order of the ld. CIT(A). 9. We heard the rival submissions and perused the material on record. The ground of appeal nos.1, 5 and 6 are general in nature, hence dismissed as such. 10. Ground of appeal no.2 challenges the correctness of the decision of the ld. CIT(A) deleting the protective addition of Rs.12,79,75,157/- u/s 80IA(4)(iii) of the Act. From perusal of para 3.14 of the assessment order, it would be evident that the Assessing Officer had accepted the contentions of the respondent-assessee that the sale proceeds shown during the year under consideration represents the sales reversed in the financial year relevant to the assessment years 2009-10 and 2010-11, which is nothing but double addition. However, the Assessing Officer had chosen to make a protective addition, as the appeals filed by the assessee before the Tribunal were pending disposal, but however, the appeals for the assessment years 2009-10 and 2010-11 came to be dismissed by this ITA No.185/PUN/2020 9 Tribunal vide order dated 12.07.2017 and the relevant grounds of appeal challenging the action of the Assessing Officer not accepting the revised returns of income came to be withdrawn by the assessee as evident from para 5 of the order of this Tribunal, which is enclosed in the Paper Book at page no.118 to 135. 11. The submission of the ld. CIT-DR that the matter be remanded to the file of the ld. CIT(A) for fresh examination or verify whether the addition amounts to double addition or not, cannot be accepted for the reason that the Assessing Officer himself had accepted that it amounts to double addition as evident from para 3.14 of the assessment order. He only chosen to make protective addition for the reason that at relevant point of time, the appeals filed by the assessee before the Tribunal were pending disposal. The Assessing Officer never disputed the fact that the sum shown for the year under consideration is nothing but sales reversed during the financial year relevant to the assessment years 2009-10 and 2010- 12. The submission of the ld. CIT-DR cannot be accepted for another reason that it is settled position of law that the Department Representatives cannot argue the matter beyond the scope of the assessment order. We do not find any merits in the ground of appeal no.2 filed by the Revenue, hence the same is dismissed. ITA No.185/PUN/2020 10 13. Ground of appeal nos.3 and 4 challenges the decision of the ld. CIT(A) reversing the disallowance offered by the respondent- assessee u/s 14A of Rs.1,39,71,272/-. The respondent-assessee in the return of income offered suo motu disallowance of Rs.88,56,524/- being disallowance of interest under Rule 8D(2)(ii) and Rs.51,14,748/- being the amount of disallowance under Rule 8D(2)(iii). However, during the course of proceeding before the ld. CIT(A), the respondent-assessee raised the additional ground of appeal contending that the respondent-assessee made investments which yielded the exempt income out of the interest free funds, therefore, no disallowance under Rule 8D(2)(ii) is warranted. Further, it was contended that the disallowance of expenditure under Rule 8D(2)(iii) was not warranted, as the respondent-assessee had not incurred any indirect expenditure to earn the exempt income. The respondent-assessee also filed the financial statements demonstrating that the respondent-assessee made investment which yielded the exempt income out of the interest free funds and also relied upon the following judicial precedents in support of the proposition that no disallowance can be made when the assessee had not incurred any direct or indirect expenses for earning exempt income :- (i) CIT vs. Hero Cycles Ltd., 323 ITR 518 (P&H). (ii) ACIT vs. SIL Investment Ltd., 26 taxmann.com 78 (Delhi). ITA No.185/PUN/2020 11 (iii) ACIT vs. Magarpatta Township Development & Construction Co. Ltd., 46 taxmann.com 284 (Pune – Trib.). (iv) Bhavarlal Hiralal Jain vs. DCIT, 173 TTJ 17 (Pune – Trib.). 14. The ld. CIT(A) following the order of this Tribunal in assessee’s own case for the earlier assessment years 2009-10 and 2010-11 held that no disallowance u/s 14A r.w. Rule 8D(2)(ii) is warranted after recording categorically finding of fact that no borrowed funds were utilized for the purpose of making investment which yielded exempt income. Further, as regards to the disallowance of indirect expenditure under Rule 8D(2)(iii), the ld. CIT(A) merely remanded the matter to the Assessing Officer to compute the disallowance in terms of the order passed by this Tribunal in assessee’s own case for the assessment years 2009-10 and 2010-11. The finding of the ld. CIT(A) is under challenge before us in the present appeal. It is undisputed fact that during the previous year relevant to the assessment year under consideration, the appellant had not made any fresh investment which yielded the exempt income. In the earlier assessment years, in which the investments were made, no disallowance u/s 14A was sustained in view of orders of this Tribunal (supra). Similarly, for the subsequent assessment year i.e. 2013-14 also, the Tribunal had deleted the disallowance of interest u/s 14A r.w. Rule 8D(2)(ii) after rendering categorically finding that the interest free funds far ITA No.185/PUN/2020 12 exceeds the investments made. Therefore, the findings of the ld. CIT(A) that no disallowance u/s 14A r.w. Rule 8D(2)(ii) is warranted, as it is based on the proper appreciation of facts as well as in consonance with the well settled position of law. 15. As regards to the disallowance of indirect expenses of Rule 8D(2)(iii), the ld. CIT(A) only set-aside the computation of the disallowance in terms of the order passed by this Tribunal in assessee’s own case for the earlier assessment years (supra). Therefore, we do not see any grievance for the Department. Thus, ground of appeal nos.3 and 4 stands dismissed. 16. In the result, the appeal filed by the Revenue stands dismissed. Order pronounced on this 03 rd day of March, 2023. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 03 rd March, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-9, Pune. 4. The Pr. CIT-6, Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “A” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.