Chettinad Builders P Ltd., CHENNAI V. DCIT Corporate Circle 1(2), CHENNAI

ITA 1919/CHNY/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5766 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 13-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R ANITA
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Principle of natural justice; Earning of tax free income; Commercial expediency; Rule 8D; Capital Gains
• Section: 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1919/CHNY/2018 / ASSESSMENT YEAR :2012-13 M/S. CHETTINAD BUILDERS P. LTD. [NOW MERGED WITH M/S. CHETTINAD PRODUCTS AND SERVICES P. LTD.], 5 TH FLOOR, RANI SEETHAI HALL, 603, ANNA SALAI, CHENNAI 600 006. [PAN:AACCC4133B] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : MS. R. ANITA, ADDL. CIT / DATE OF HEARING : 08.09.2021 /DATE OF PRONOUNCEMENT : 17.09.2021 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1, CHENNAI, DATED 30.03.2018 RELEVANT TO THE ASSESSMENT YEAR 2012-13. THE EFFECTIVE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE ARE CONFIRMATION OF ADDITION OF .39,08,750/- MADE UNDER SECTION 14A R.W. RULE 8D AND CONFIRMATION OF ADDITION TO INCOME FROM CAPITAL GAINS. 2. THE ABOVE APPEAL IS FILED WITH A DELAY OF ONE DAY, FOR WHICH, THE ASSESSEE HAS FILED A PETITION IN SUPPORT OF AN AFFIDAVIT FOR CONDONATION OF THE I.T.A. NO. 1919/CHNY/18 2 DELAY, TO WHICH; THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION. CONSEQUENTLY, SINCE THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE, THE DELAY OF ONE DAY IN FILING OF THE APPEAL STANDS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATION. 3. BRIEF FACTS LEADING TO THE ADDITION MADE UNDER SECTION 14A OF THE ACT ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD MADE INVESTMENTS IN SECURITIES YIELDING EXEMPT INCOME TO THE EXTENT OF .86.35 CRORES (OPENING BALANCE OF .69.99 CRORES). SINCE THE ASSESSEE HAS RECEIVED DIVIDEND INCOME FOR A SUM OF .76,08,695/- AND NOT ADMITTED ANY EXPENSES TO EARN THE EXEMPT INCOME, CONSIDERING THE AVERAGE INVESTMENT AT .78.17 CRORES, THE ASSESSING OFFICER QUANTIFIED THE DISALLOWANCE UNDER RULE 8D(2) (I), (II) & (III) OF .39,08,750/- AND BROUGHT TO TAX. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED DIVIDEND INCOME FOR A SUM OF .76,08,695/- OUT OF INVESTMENT MADE. THE ASSESSING OFFICER NOTED FROM THE BALANCE SHEET THAT THE ASSESSEE HAD INVESTMENTS OF .86,34,99,915/- AS ON 31.03.2012 AND INVESTMENT OF .69,99,99,940/- AS ON 31.03.2011 AND I.T.A. NO. 1919/CHNY/18 3 DURING THE YEAR, THERE WAS AN INVESTMENT OF .19,34,99,975/-. HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE. ACCORDINGLY, BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER DETERMINED THE EXPENDITURE AT .39,08,750/- IN RELATION TO EARNING EXEMPT INCOME. BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE INVESTMENTS YIELDING EXEMPT INCOME WERE IN GROUP COMPANIES. CITING THE REASON OF COMMERCIAL EXPEDIENCY, THE ASSESSEE SUBMITTED THAT THE OBJECT OF MAKING SUCH INVESTMENT WAS NOT TO EARN EXEMPT INCOME. BY FOLLOWING THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. [(2018) 91 TAXMANN.COM 154 (SC)], THE LD. CIT(A) DISMISSED THE GROUND RAISED BY THE ASSESSEE. WE HAVE PERUSED THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA), WHEREIN, THE HONBLE SUPREME COURT HAS OBSERVED THAT AS LONG AS AN EXEMPT INCOME WAS EARNED, THE EXPENDITURE INCURRED AS ATTRIBUTABLE TO EARNING SUCH EXEMPT INCOME, HAD TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. MOREOVER, THE HONBLE SUPREME COURT HAS ALSO HELD THAT IRRESPECTIVE OF THE OBJECTIVE OF INVESTMENT IN SHARES (WHEN THE SHARES ARE HELD AS STOCK-IN-TRADE WITH A VIEW TO EARN TRADING PROFITS OR AS INVESTMENT REPRESENTING CONTROLLING INTEREST) AND THE TAXPAYER EARNED AN INCIDENTAL EXEMPT DIVIDEND INCOME, SECTION 14A WAS TRIGGERED WHICH WAS BASED ON THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND EXEMPT INCOME. IN THIS CASE, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE WARRANTING ANY SPECIFIC SATISFACTION TO BE RECORDED I.T.A. NO. 1919/CHNY/18 4 BY THE ASSESSING OFFICER A CONTENDED BY THE ASSESSEE IN THE GROUNDS OF APPEAL. THUS, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER ONLY THOSE INVESTMENTS FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION AS PER RULE 8D(2)(III) IN VIEW OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT (P) LTD. (2017) 165 ITD 27 (DELHI)(SB) AND THE DISALLOWANCE SHALL BE RECOMPUTED. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO CONFIRMATION OF ADDITION TO INCOME FROM CAPITAL GAINS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE SOLD AGRICULTURAL LAND MEASURING 18.63 ACRES FOR THE TOTAL CONSIDERATION OF .40,05,000/- TAKING INTO ACCOUNT THE COST OF LAND AT .26.72 LAKHS. THE ASSESSEE CALCULATED THE LONG TERM CAPITAL GAINS AT .13,32,141/- AND CLAIMED THE SAME AS EXEMPT. SINCE THE ASSESSEE FAILED TO PLACE ON RECORD THE EVIDENCES TO SHOW THAT THE LAND WAS AGRICULTURAL LAND AND IT HAD BEEN USED FOR AGRICULTURAL CULTIVATION AND MOREOVER, THE ASSESSEE HAS SOLD THE LAND TO M/S. VAMANA BUILDERS PVT. LTD., WHICH SHOWED THAT THE INTENTION OF BOTH THE ASSESSEE AS WELL AS THE BUYER WAS TO PUT THE LAND TO USE FOR NON-AGRICULTURAL PURPOSES, THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE AND BROUGHT TO TAX. I.T.A. NO. 1919/CHNY/18 5 6.1 ON APPEAL, THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS OBSERVATIONS OF THE LD. CIT(A) ARE REPRODUCED AS UNDER: 9. IN THE COURSE OF APPEAL, THE APPELLANT SUBMITTED THAT THEY HAD FURNISHED THE DETAILS OF LAND TAX PAID AS PER THE RECORDS OF THE STATE REVENUE. THE APPELLANT ALSO STATED THAT THEY HAD FURNISHED THE ENCUMBRANCE CERTIFICATE FOR THE SAID LAND WHICH SHOWED THAT THE LAND WAS AGRICULTURAL LAND. THE APPELLANT ALSO SUBMITTED THAT THEY HAD BEEN OFFERING AGRICULTURAL INCOME IN THE RETURN. AS REGARDS THE DEFINITION OF CAPITAL ASSET UNDER SECTION 2(14), THE APPELLANT SUBMITTED THAT THE LAND WAS BEYOND THE DISTANCE OF 5 KMS FROM KANCHEEPURAM AND TOTAL POPULATION TO THE VILLAGE WAS ONLY 671. IT WAS SUBMITTED THAT THE IMPUGNED LAND DID NOT FALL WITHIN THE DEFINITION OF CAPITAL ASSET. 10. THE APPELLANT'S CONTENTIONS ARE CONSIDERED. THE ASSESSING OFFICER HAS STATED THAT NO EVIDENCE WAS FURNISHED TO SHOW THAT THE LAND WAS AGRICULTURAL OR AGRICULTURAL ACTIVITIES WERE CARRIED ON THE LAND. HOWEVER ACCORDING TO THE APPELLANT, ALL THE EVIDENCES WERE ALREADY ON THE RECORD. IT IS OBSERVED FROM THE APPELLANT'S SUBMISSION THAT WHILE THE APPELLANT WAS SOLD 18.63 ACRES DURING THE YEAR, THE APPELLANT HAD PLACED ON RECORD ONLY SAMPLE DOCUMENTS IN THE FORM OF ENCUMBRANCE CERTIFICATE AND DOWNLOADS FROM STATE REVENUE AUTHORITY IN CONNECTION WITH PROPERTY TAX. THE ENCUMBRANCE CERTIFICATE IS ONLY FOR A PART OF THE PROPERTY, WHILE SOME OF THE CERTIFICATES ARE VERY OLD. BASED ON SAMPLE DOCUMENTS FOR A PART OF THE LAND, THE RELIEF UNDER THE SECTION CANNOT BE ALLOWED FOR THE ENTIRE PROPERTY. THE APPELLANT HAS NOT EVEN FILED THE SALE DEED FROM WHICH THE RELEVANT SURVEY CAN BE ASCERTAINED. THE APPELLANT'S CONTENTION THAT THE LAND IS SITUATED BEYOND THE DISTANCE OF 5 KMS FROM KANCHEEPURAM, IS ALSO NOT VERIFIABLE IN THE ABSENCE OF SALE DEED OF THE PROPERTY, ON THE BASIS OF WHICH THESE CLAIMS CAN BE VERIFIED. FURTHER, THE HON'BLE SUPREME COURT IN THE CASE OF SMT. SARIFABIBI MOHMED IBRAHIM VS. CIT [(1993) 70 TAXMAN 301(SC)] HAS CATEGORICALLY HELD THAT WHENEVER THE INTENTION OF THE SALE WAS NOT TO USE IT FOR AGRICULTURAL PURPOSE BUT EXPLOIT IT COMMERCIALLY, THE BENEFIT OF THE AGRICULTURAL LAND CANNOT BE ALLOWED. IN VIEW OF THE SAME, THIS GROUND OF APPEAL IS DISMISSED. 6.2 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY FILING THE SCHEDULE OF IMMOVABLE PROPERTIES, THE LD. COUNSEL FOR THE ASSESSEE PRAYED FOR EXEMPTION ON THE GAINS ARISING FROM THE SALE OF LAND BEING AGRICULTURAL LAND. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. I.T.A. NO. 1919/CHNY/18 6 6.3 WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW INCLUDING PAPER BOOK FILED BY THE ASSESSEE. SINCE THE ASSESSEE FAILED TO PLACE ON RECORD COMPLETE EVIDENCES TO SHOW THAT THE LAND WAS AGRICULTURAL LAND AND IT HAD BEEN USED FOR AGRICULTURAL CULTIVATION AND MOREOVER, THE ASSESSEE HAS SOLD THE LAND TO M/S. VAMANA BUILDERS PVT. LTD., WHICH SHOWED THAT THE INTENTION OF BOTH THE ASSESSEE AS WELL AS THE BUYER WAS TO PUT THE LAND TO USE FOR NON- AGRICULTURAL PURPOSES, THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) HAS OBSERVED THAT WHEN THE ASSESSEE SOLD 18.63 ACRES DURING THE YEAR, THE ASSESSEE HAS PLACED ON RECORD ONLY SAMPLE DOCUMENTS IN THE FORM OF ENCUMBRANCE CERTIFICATE AND DOWNLOADS FROM STATE REVENUE AUTHORITY IN CONNECTION WITH PROPERTY TAX. SINCE THE ENCUMBRANCE CERTIFICATE WAS ONLY FOR A PART OF THE PROPERTY, WHILE SOME OF THE CERTIFICATES ARE VERY OLD, AND IN THE ABSENCE OF ANY VALID DOCUMENTARY EVIDENCES, THE LD. CIT(A) HAS HELD THAT RELIEF CANNOT BE ALLOWED FOR THE ENTIRE PROPERTY. MOREOVER, THE ASSESSEE HAS NOT FILED THE SALE DEED FROM WHICH THE RELEVANT SURVEY CAN BE ASCERTAINED. FURTHER, THE LD. CIT(A) HAS HELD THAT THE LAND IS SITUATED BEYOND THE DISTANCE OF 5 KMS FROM KANCHEEPURAM IS ALSO NOT VERIFIABLE IN THE ABSENCE OF SALE DEED OF THE PROPERTY, ON THE BASIS OF WHICH THESE CLAIMS CAN BE VERIFIED. THEREFORE, FOLLOWING THE DECISION IN THE CASE OF SMT. SARIFABIBI MOHMED IBRAHIM V. CIT (SUPRA), WHEREIN, THE HONBLE I.T.A. NO. 1919/CHNY/18 7 SUPREME COURT HAS HELD THAT WHENEVER THE INTENTION OF THE SALE WAS NOT TO USE IT FOR AGRICULTURAL PURPOSE BUT EXPLOIT IT COMMERCIALLY, THE BENEFIT OF THE AGRICULTURAL LAND CANNOT BE ALLOWED, THE LD. CIT(A) DISMISSED THE GROUND RAISED BY THE ASSESSEE. 6.4 BEFORE US, IN SUPPORT OF THE CLAIM OF THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED SCHEDULE OF IMMOVABLE PROPERTIES CONTAINING THE DETAILS OF DOCUMENT NUMBER, AREA, SURVEY NUMBER, VILLAGE/TALUK/DISTRICT/SRO AND BOUNDARY, LOCATED AT THOTTIPALAYAM VILLAGE OF TIRUPUR, KARAPAKKAM VILLAGE & SHOLINGANALLUR VILLAGE OF TAMBARAM TALUK, MADUKARAI VILLAGE OF COIMBATORE SOUTH TALUK, KAVUNDANPALAYAM VILLAGE OF COIMBATORE NORTH TALUK, NEELAMBUR VILLAGE OF SULUR TALUK, SENNEERKUPPAM VILLAGE OF POONAMALLEE TALUK, SANGANOOR VILLAGE OF COIMBATORE TALUK, BUT WHAT PREVENTED THE ASSESSEE IN FILING THE SALE DEED EITHER BEFORE THE AUTHORITIES BELOW OR BEFORE THE TRIBUNAL HAS NOT BEEN EXPLAINED. MOREOVER, THE ASSESSEE HAS PLACED ON RECORD SAMPLE DOCUMENTS IN THE FORM OF ENCUMBRANCE CERTIFICATE PERTAINING TO NEERVALLUR VILLAGE PROPERTY, WHEREAS, AS PER THE SAID SCHEDULE OF IMMOVABLE PROPERTIES, THIS PROPERTY DISAPPEARS. ANYHOW, TO MEET THE ENDS OF NATURAL JUSTICE, WE DIRECT THE ASSESSEE TO FILE COMPLETE SALE DEEDS OF THE PROPERTIES SOLD, AND OTHER ORIGINAL RELEVANT REVENUE RECORDS FOR VERIFICATION OF THE PROPERTIES AS AGRICULTURAL LAND OR NOT BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO I.T.A. NO. 1919/CHNY/18 8 VERIFY COMPLETE DOCUMENTARY EVIDENCES FOR THE CLAIM OF THE ASSESSEE THAT THE LANDS SOLD BY IT ARE AGRICULTURAL LAND AND IT HAD BEEN USED FOR AGRICULTURAL CULTIVATION AND IN CASE, IF THE ASSESSEE FAILS TO FURNISH COMPLETE DOCUMENTARY EVIDENCES FOR VERIFICATION, THE ASSESSMENT ALREADY COMPLETED AND CONFIRMED THE LD. CIT(A) STANDS SUSTAINED. 6.5 THE LD. COUNSEL FOR THE ASSESSEE ON BEHALF OF THE ASSESSEE HAS RAISED FOLLOWING TWO ADDITIONAL GROUNDS OF APPEAL BY WAY OF SEPARATE PETITION FOR ADJUDICATION: 1. THE CIT(A) ERRED IN SUSTAINING THE LONG TERM CAPITAL GAINS COMPUTED BY THE ASSESSING OFFICER ON THE LAND SOLD DURING THE ASSESSMENT YEAR UNDER CONSIDERATION WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 2. THE CIT(A) FAILED TO APPRECIATE THAT IN ANY EVENT THE ASSESSING OFFICER OUGHT TO HAVE ALLOWED INDEXATION BENEFIT WHILE COMPUTING LONG TERM CAPITAL GAINS ON THE LAND SOLD DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AS MANDATED IN THE PROVISIONS OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO FILED COPY OF THE JUDGEMENT OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF PCIT V. RELIANCE CAPITAL ASSET MANAGEMENT LTD. [2017] 86 TAXMANN.COM 200 AND DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF DCIT V. SUBRAMANYA CONSTRUCTIONS & DEVELOPMENT CO. LTD. [2015] 58 TAXMANN.COM 219. FIRST OF ALL, BOTH THE CASE LAW HAVE NO RELEVANCE TO THE ADDITIONAL GROUNDS OF APPEAL RAISED IN THE MEMORANDUM OF ADDITIONAL GROUNDS OF APPEAL. SECONDLY, WHILE CONFIRMING THE DISALLOWANCE, THE LD. CIT(A) FOLLOWED THE DECISION OF HONBLE SUPREME I.T.A. NO. 1919/CHNY/18 9 COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT 402 ITR 640, WHICH WAS PRONOUNCED ON 12.02.2018, SUPERSEDES THE DECISIONS OF THE OLDER LOWER COURTS. 6.6 SINCE THE TAXATION OF LONG TERM CAPITAL GAIN ISSUE HAS BEEN REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER, THE ASSESSING OFFICER IS ALSO DIRECTED TO ADJUDICATE THE ADDITIONAL GROUND RAISED BY THE ASSESSEE WITH REGARD TO ALLOWABILITY OF INDEXATION BENEFIT. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 17 TH SEPTEMBER, 2021 IN CHENNAI. SD/- SD/- (S. JAYARAMAN) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 17.09.2021 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.