The Dy. Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad V. Adani Properties Pvt. Ltd., Ahmedabad

ITA 2006/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9273 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 01-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Assessee Lawyers: P M MEHTA
• Keywords: Depreciation; Earning of tax free income; Proportionate interest; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 143(3); 14A; 115JB; 37(1)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 2006/AHD/2016 WITH CROSS OBJECTION NO. 136/AHD/2016 ( ASSESSMENT YEAR : 2012-13) DCIT, CIRCLE 1(1)(1), A WING, ROOM NO. 309, 3 RD FLOOR, PRATYAKSH KAR BHAVAN, AMBAWADI, AHMEDABAD - 380015 / VS. ADANI PROPERTIES PVT. LTD. 8 TH FLOOR, SHIKHAR, NR. MITHAKHALI CIRCLE, NAVRANGPURA, AHMEDABAD ./ ./ PAN/GIR NO. : AABCA3182H ( APPELLANT / RESPONDENT ) .. ( RESPONDENT / CROSS OBJECTOR ) / REVENUE BY : SHRI L. P. JAIN, SR. D.R. / ASSESSEE BY : SHRI P. M. MEHTA, A.R. DATE OF HEARING 08/04/2019 ! / DATE OF PRONOUNCEMENT 04/07/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-1, AHMEDABAD (CIT(A) IN SHORT), DATED 2 4.05.2016 ARISING IN THE ASSESSMENT ORDER DATED 18.03.2015 PASSED BY THE ASSESSING ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 2 - OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2012-13. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN T HE REVENUES APPEAL AS CAPTIONED ABOVE. 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA D AS UNDER:- (1) THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS.3,28,28,574/- MADE ON ACCOUNT OF DISALLOWANCE U/ S 14A R.W. RULE 8D OF THE ACT. (2) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETING RS.21,98,109/- OUT OF THE ADDITION OF RS.23,08,469/- MADE ON ACCOUNT OF D ISALLOWANCE OF LEGAL EXPENDITURE TREATED AS CAPITAL EXPENDITURE. 4. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN UPHOLDING PARTIAL DISALLOWANCE OF RS.19,49 ,768/- U/S. 14A OF THE I.T. ACT OUT DISALLOWANCE OF ADMINISTRATIVE EXPENSES, AS NARRATED ON PAGES 24 AND 25 OF HIS ORDER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN UPHOLDING PARTIAL DISALLOWANCE OF RS.19,49 ,768/- U/S. 14A OF THE I.T. ACT IN THE BOOK PROFIT OF ASSESSEE U/S.115JB. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN UPHOLDING DISALLOWANCE OF RS.40,074 BEING EMPLOYEES CONTRIBUTION TO P.F. AND ESI U/S. 36[1][VA], FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT I.E. HONBLE HIGH COURT OF GUJARAT IN CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION 366 ITR 170. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN UPHOLDING DISALLOWANCE OF RS.1,10,300 BEIN G PAYMENT DEBITED TO ELP FOR OBTAINING SEARCH REPORT FOR ACQUISITION OF DELH I GOLF LINK PROPERTIES PVT. LTD., AS CAPITAL EXPENDITURE OUT OF THE TOTAL PROFE SSIONAL FEES OF RS.23,08,469. 5. FIRST GROUND OF REVENUES APPEAL CONCERNS ADDITI ON OF RS.3,28,28,574/- BY INVOKING SECTION 14A OF THE ACT . ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 3 - 6. IN THE COURSE OF SCRUTINY ASSESSMENT, IT WAS NOT ICED BY THE AO THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2.52 CRORES FROM HUGE INVESTMENTS MADE IN SHARES/MUTUAL FUNDS WHICH GIVE RISE TO TAX FREE INCOME. THE AO ACCORDINGLY INVOKED PROVISIONS OF SE CTION 14A OF THE ACT AND COMPUTED THE DISALLOWANCE UNDER S.14A OF TH E ACT BY APPLYING THE STATUTORY FORMULA UNDER RULE 8D OF THE IT RULES. THE DISALLOWANCE TOWARDS INTEREST EXPENDITURE WAS WORKE D OUT TO RS.2,77,28,566/- BY APPLYING FORMULA UNDER RULE 8D( 2)(II). A DISALLOWANCE OF RS.1,21,69,984/- WAS MADE TOWARDS ADMINISTRATIVE AND MANAGERIAL EXPENSES BY APPLYING FORMULA UNDER R ULE 8D(2)(III) OF THE IT RULES. THE AGGREGATE DISALLOWANCE WAS THUS WORKED OUT TO RS.3,98,98,550/-. 7. IN THE FIRST APPEAL, THE CIT(A) DELETED THE DISA LLOWANCE MADE TOWARDS INTEREST EXPENDITURE UNDER RULE 8D(2)(II) O F THE IT RULES AND RESTRICTED THE DISALLOWANCE ON ADMINISTRATIVE EXPEN DITURE OF RS.19,49,768/-. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER FOR READY REFERENCE: 3.4 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION FILED BY THE APPELLANT THE ASSESSING OFF ICER HAS OBSERVED THAT APPELLANT HAS EARNED DIVIDEND INCOME OF RS. 2. 52 CRORES AND HAS MADE HUGE INVESTMENT IN SHARES/MUTUAL FUNDS WHICH R ESULT INTO TAX-FREE INCOME. FOR MAKING SUCH INVESTMENT AND EARNING DIVI DEND, APPELLANT IS REQUIRED TO INCUR VARIOUS EXPENDITURE HENCE EXPENDI TURE ATTRIBUTABLE TO EARNING OF SUCH EXEMPT INCOME IS REQUIRED TO BE DIS ALLOWED HENCE HE APPLIED PROVISIONS OF RULE 8D AND MADE AGGREGATE DI SALLOWANCE OF RS. 3,47,78,342/- AFTER GIVING RELIEF OF INTEREST DISAL LOWANCE MADE IN RETURN OF INCOME FOR RS.51,20,208/-. ON THE OTHER H AND, APPELLANT HAS ARGUED THAT ASSESSING OFFICER HAS MADE DISALLOWANCE ON CLOSING INVESTMENTS OF RS. 258.87 CRORES. IT IS ARGUED THAT DURING THE YEAR UNDER CONSIDERATION IT HAS MADE FRESH INVESTMENTS O F RS. 28.92 CRORES IN DB PROPERTIES PVT. LIMITED AND DELHI GOLF-LINK P ROPERTIES PVT. LIMITED AND PROPORTIONATE INTEREST ATTRIBUTABLE TO SUCH INVESTMENTS TO THE EXTENT OF USE OF BORROWED FUNDS AMOUNTING TO RS . 51.20 LACS IS ALREADY DISALLOWED IN RETURN OF INCOME. IT WAS ALSO ARGUED THAT INVESTMENT IS ALSO MADE IN MUTUAL FUNDS AND SAME AR E GROWTH SCHEMES FROM WHICH NO DIVIDEND WOULD EVER BE EARNED HENCE S UCH INVESTMENTS CANNOT BE SUBJECT MATTER OF DISALLOWANCE UNDER SECT ION 14A. WITH REGARD TO BALANCE INVESTMENTS IN THE SHARES OF ADAN I ENTERPRISES FOR ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 4 - RS. 225.32 CRORES, IT WAS ARGUED THAT SAME WERE MAD E IN EARLIER YEARS AND IN THOSE YEARS THERE WAS NO INTEREST BEARING BO RROWINGS AND EVEN ASSESSING OFFICER HAS NOT MADE ANY PROPORTIONATE IN TEREST DISALLOWANCE EXCEPT BANK CHARGES IN THOSE ASSESSMENT YEARS HENCE SUCH INVESTMENT SHOULD BE EXCLUDED FOR MAKING PROPORTIONATE INTERES T DISALLOWANCE. SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE U NDER RULE 8D(2)(III) IS CONCERNED, IT WAS ARGUED THAT DISALLOWANCE MADE BY ASSESSING OFFICER HAS EXCEEDED ACTUAL EXPENDITURE DEBITED IN BOOKS OF ACCOUNT AND MAJORITY OF EXPENDITURE DEBITED IN BOOKS OF ACC OUNT AND CLAIMED AS EXPENDITURE PERTAINS TO RENT INCOME WHICH IS SEPARA TELY DISCLOSED AS INCOME FROM BUSINESS HENCE NO SUCH DISALLOWANCE IS CALLED FOR. 3.5 ON CAREFUL CONSIDERATION OF ENTIRE FACTS, IT IS OBSERVED THAT ASSESSING OFFICER HAS COMPUTED DISALLOWANCE UNDER S ECTION 14A AT RS.3,98,98,550/- WHICH INCLUDES PROPORTIONATE INTER EST DISALLOWANCE FOR RS. 2,77,28,566/- AND ADMINISTRATIVE EXPENDITURE AT RS.1,21,69,984/-. SO FAR AS PROPORTIONATE DISALLOWANCE IS CONCERNED, FOLLOWING FACTS EMERGE FROM APPELLANT'S SUBMISSIONS AS WELL AS FROM ASSESSMENT ORDER: (I) THE APPELLANT HAS SHOWN OPENING INVESTMENTS OF RS.227.91 CRORES AND CLOSING INVESTMENTS OF RS.258.87 CRORES. (II) DURING THE YEAR UNDER CONSIDERATION APPELLANT HAS MADE TWO MAJOR INVESTMENTS OF RS. 28,92 CRORES IN DB PROPERT IES PVT. LIMITED AND DELHI GOLF LINK PROPERTIES PVT. LTD., O UT OF BORROWED FUNDS ACQUIRED FROM ADANI INFRASTRUCTURE & DEVELOPERS PVT. LIMITED AND ADANI LOGISTICS LIMITED . BOTH THE LOANS TAKEN DURING THE YEAR UNDER CONSIDERATION IS REPAID BEFORE CLOSE OF FINANCIAL YEAR. IT IS PERTINENT TO NOTE TH AT REPAYMENT OF SUCH LOAN IS OUT OF INTEREST-FREE FUNDS AVAILABLE W ITH ASSESSEE AND NO NEW INTEREST BEARING LOAN HAS BEEN USED FOR MAKING REPAYMENT OF SUCH LOAN HENCE BOTH THE INVESTMENTS A T YEAR END ARE OUT OF INTEREST-FREE FUNDS AVAILABLE WITH APPEL LANT, THIS FACT IS FURTHER SUBSTANTIATED FROM AUDITED ANNUAL ACCOUN TS THAT INTEREST BEARING LOAN AT THE YEAREND PERTAINS TO MA HASUKH ADANI FAMILY TRUST FOR RS.26.08 CRORES AND SUCH LOAN IS R ECEIVED ON 8TH JUNE, 2011 WHICH IS MUCH EARLIER TO REPAYMENT O F LOAN AND SAME WAS USED FOR GIVING ADVANCE. AS APPELLANT HAS USED BORROWED FUNDS FOR PART PERIO D, IT HAS ALREADY MADE DISALLOWANCE OF PROPORTIONATE INTEREST AT RS. 51,20,208/- IN RETURN OF INCOME HENCE SUCH INVESTME NT CANNOT BE CONSIDERED FOR MAKING PROPORTIONATE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II). (III) THE CLOSING INVESTMENTS OF RS. 4.61 CRORES AN D OPENING INVESTMENTS OF RS. 0.96 LACS IS IN GROWTH SCHEME OF MUTUAL FUND WHICH IS NOT CAPABLE OF EARNING ANY EXEMPT INCOME H ENCE NO PROPORTIONATE DISALLOWANCE OF INTEREST CAN BE MADE ON SUCH INVESTMENT. ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 5 - (IV) SO FAR AS BALANCE CLOSING INVESTMENT OF RS.225 .32 CRORES IS CONCERNED, IT IS IN THE SHARES OF ADANI ENTERPRISES LIMITED WHICH WERE MADE IN EARLIER ASSESSMENT YEARS WHEREIN APPEL LANT HAS NO INTEREST-BEARING FUNDS. EVEN ENTIRE OPENING BALANCE OF INVESTMENT INCLUDING SHARES OF ADANI ENTERPRISES LI MITED ARE OUT OF INTEREST-FREE FUNDS AVAILABLE WITH APPELLANT COM PANY FOR RS.235.87 CRORES. IT IS PERTINENT TO NOTE THAT APPE LLANT HAS NOT CLAIMED OR DEBITED ANY INTEREST EXPENDITURE IN A.Y. 2011-12 OR EARLIER YEARS WHEREIN SUCH INVESTMENTS ARE MADE WHI CH PROVES THAT SUCH INVESTMENTS HAVE DIRECT NEXUS OF UTILISAT ION OF INTEREST- FREE FUNDS. IT IS FURTHER OBSERVED THAT EVEN NEW LO AN TAKEN DURING THE YEAR UNDER CONSIDERATION IS NOT USED FOR MAKING REPAYMENT OF LOAN TAKEN IN EARLIER YEAR HENCE EVEN ON THIS GROUN D, NO PROPORTIONATE INTEREST DISALLOWANCE IS CALLED FOR. (V) IN THE NUTSHELL, THE APPELLANT HAS ESTABLISHED THE NEXUS OF USE OF INTEREST-FREE FUNDS FOR MAKING INVESTMENT IN SHARES AND WHENEVER BORROWED FUNDS ARE USED, PROPORTIONATE INTEREST DIS ALLOWANCE IS ALREADY MADE IN RETURN OF INCOME HENCE THERE IS NO NEED FOR MAKING SEPARATE DISALLOWANCE UNDER RULE 8D(2)(II) F OR RS.2,77,28,566/-. 3.6 SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPEND ITURE UNDER RULE 8D(2)(III) IS CONCERNED, ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 1,21,69,984/- WHEREAS ACTUAL EXPENDITURE DEBITED IN BOOKS OF ACCOUNT OTHER THAN PURCHASE OF STOCK-IN-TRADE, FINANCIAL CO ST IS RS. 79,78,592/-. WHEN EXPENDITURE DEBITED IN BOOKS OF ACCOUNT IS LOW ER THAN DISALLOWANCE COMPUTED UNDER RULE 8D, DISALLOWANCE C ANNOT BE MADE SIMPLY RELYING ON RULE 8D AND THIS VIEW IS SUPPORTE D BY DECISION OF HON'BLE AHMEDABAD ITAT IN THE CASE OF ADANI PORT IN FRASTRUCTURE LIMITED V/S DCIT (REFERRED SUPRA) AND DECISION OF H ON'BLE DELHI ITAT IN THE CASE OF GILLETE GROUP INDIA PVT. LIMITED (RE FERRED SUPRA). THE APPELLANT HAS ALSO ARGUED THAT EXPENDITURE DEBI TED IN BOOKS OF ACCOUNT ARE MAINLY RELATING TO BUSINESS ACTIVITY OF LETTING OUT OF PROPERTIES HENCE SUCH EXPENDITURE SHOULD BE EXCLUDE D WHILE MAKING DISALLOWANCE. THIS VIEW WAS UPHELD BY MY PREDECESSO R CIT (APPEALS) IN A.Y. 2011-12 VIDE HIS ORDER DATED 13TH AUGUST, 2014 WHEREIN HE HAS STATED AS UNDER: '4.2 IDENTICAL ISSUE CAME UP FOR CONSIDERATION IN A PPELLANT'S OWN CASE IN THE IMMEDIATELY PRECEDING A.Y. 2010-11. VID E MY ORDER DATED 27/08/2013 IT WAS HELD AS UNDER: '4.4 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE F ACTS OF THE CASE. THE DISALLOWANCE MADE BY THE AO COMPRISES OF TWO COMPONENTS. THE FIRST COMPONENT IS OF RS.41,577 UNDER RULE 8D(2)(II). SINCE NO INTEREST EXPENDITURE WAS I NCURRED BY THE APPELLANT ON MONIES BORROWED, DISALLOWANCE O F THE SAID SUM IS NOT SUSTAINABLE. IT IS DELETED. THE SEC OND COMPONENT OF THE DISALLOWANCE IS OF RS. 57,69,0377- UNDER RULE 8D(2)(III). AS SEEN FROM THE BREAK-UP OF THE ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 6 - EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT FURNIS HED BY THE LD. AR, MOST OF THE EXPENDITURE INCURRED WAS NO T IN CONNECTION WITH EARNING THE EXEMPT INCOME. ON A PER USAL OF THE VARIOUS ITEMS OF THE EXPENDITURE, IT IS SEEN THAT THE FOLLOWING EXPENDITURE WAS NOT FOR ANY SPECIFIC PURP OSE. SR. NO. PARTICULARS AMOUNT (RS.) 1 INSURANCE 44,456 2 AUDITOR 27,575 3 OTHERS 47,556 4 PERSONAL EXPENSES 6,01,358 TOTAL 7,20,945 THEREFORE, IT IS CONSIDERED REASONABLE TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III) TO RS. 7,20,945. BALANCE EXPENDITURE INCURRED CANNOT BE SAID TO BE F OR EARNING EXEMPT INCOME AND, THEREFORE, DISALLOWANCE OF THE BALANCE AMOUNT IS DELETED. 4.5 TO SUM UP, OUT OF THE DISALLOWANCE MADE, DISALLOWANCE TO THE EXTENT OF RS. 7,20,945 IS UPHEL D. BALANCE DISALLOWANCE IS DELETED. THESE GROUNDS OF A PPEAL ARE PARTLY ALLOWED.' IN THE YEAR UNDER CONSIDERATION, THE FOLLOWING EXPE NDITURE WAS NOT FOUND TO BE FOR ANY SPECIFIC PURPOSE: SR. NO. PARTICULARS AMOUNT (RS.) 1 INSURANCE 44,941 2 AUDITOR FEES 31,436 3 OTHER EXPENSES 91,054 4 PERSONAL EXPENSES 8,84,536 TOTAL 10,51,967 FACTS REMAINING THE SAME, FOLLOWING THE ABOVE ORDER , IMPUGNED DISALLOWANCE IS RESTRICTED TO RS.10,51,967. BALANCE DISALLOWANCE IS DELETED. THIS GROUND OF APPEAL IS PARTLY ALLOWED .' CONSIDERING THESE FACTS, DISALLOWANCE IS REQUIRED T O BE RECOMPUTED AS UNDER : SR. NO. PARTICULARS OF EXPENDITURE AMOUNT AMOUNT REMARKS AMOUNT DISALLOWABLE (RS.) 1 OTHER EXPENSES 3,586,663 ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 7 - (I) RATE & TAXES 65, 783 MUNICIPAL TAX PAID FOR VARIOUS RESIDENTIAL FLATS & MILESTONE, SHRIJIBAG WHICH ARE RENTED PROPERTIES INCLUDING COMPANY PROFESSIONAL TAX OF RS.2000/- (II) REPAIRS & MAINTENANCE BUILDING 461,473 PAID TO TOWARDS MAINTENANCE OF SOCIETY WHEREIN THE FIATS ARE RENTED. & PRINTER & COMPUTER AMC. (III) ELECTRICITY EXPENSES 181,151 PAID ON RENTED PROPERTIES (IV) INSURANCE 61,565 PAID ON RENTED PROPERTIES. CONSIDERED BY CIT(A) IN AY 2011-12 61,565 (V) AUDITOR 30,337 PAID ON RENTED PROPERTIES. CONSIDERED BY C/T(A) IN AY 2011-12 30,337 (VI) LEGAL & PROFESSIONAL FEES 2,327,737 PROFESSIONAL RELATES TO ROC FILING EXPENSES. LEGAL CHARGES AND OTHERS. (THE ASSESSING OFFICER HAS ALREADY MADE DISALLOWANCE OF RS 23,08,469 SEPARATELY IN ASSESSMENT ORDER ) (VII) SECURITY EXPENSES 126,599 PAID FOR PROPERTIES (VIII)LOSS ON NON CURRENT INVESTMENTS 38,000 ALREADY DISALLOWED IN RETURN OF INCOME (VIII) OTHERS 294,018 RELATED TO BUSINESS OF RENTING PROPERTIES. CONSIDERED BY CIT(A) IN AY 2011-12 2,94,018 ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 8 - 2 PERSONNEL EXPENSES 1,700,616 FOR TIMELY COLLECTION OF RENT AND PAYMENT OF EXPENSES. CONSIDERED BY CIT(A) IN A Y 2011-12 17,00,616 3 DEPRECIATION 2,691,313 RELATED TO BUSINESS OF RENTING OF RENTING OF PROPERTIES TOTAL 7,978,592 20,86,536 LESS: SUO MOTU DISALLOWANCE IN RETURN OF INCOME 1,36,768 AMOUNT DISALLOWABLE U/S 14A 19,49,768 IN VIEW OF THESE FACTS, DISALLOWANCE OF ADMINISTRAT IVE EXPENDITURE IS RESTRICTED AT RS.19,49,768/-. IN THE NUTSHELL, DISALLOWANCE UNDER SECTION 14A FOR RS.3,47,78,342/- IS RESTRICTED AT R S.19,49,768/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 8. AGGRIEVED BY THE RELIEF, THE REVENUE PREFERRED A PPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS ALSO OBJECTED TO RETENT ION OF PARTIAL DISALLOWANCE TOWARDS ADMINISTRATIVE EXPENDITURE BY WAY OF ITS CROSS OBJECTION. 9. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE CIT(A) HAS TAKEN INTO ACCOUNT THE EXPLANATIONS AND SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE THREADBARE WHILE ADJUDICATING THE ISSUE. IT WAS NOTICED THAT THE ASSESSEE COMPANY ITSELF HAS DISALLOWED INTEREST AMOUNTING TO RS.51,20,208/- IN ITS RETURN OF INCOME ON UTILIZATI ON OF FUNDS DEPLOYED TOWARDS INVESTMENTS IN GROUP CONCERNS. IT WAS POIN TED OUT BY THE ASSESSEE BEFORE THE CIT(A) THAT INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS STANDS AT RS.235.34 CRORES WHICH IS IN EXCESS OF THE INVESTMENTS OF RS.227.91 CRORES MADE BY IT. IT WAS ALSO DEMONSTRATED THAT THE SIGNIFICANT INVESTMENTS WERE MADE IN THE EARLIER ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 9 - YEARS OUT OF ITS OWN INTEREST FREE RESOURCES. THE CIT(A) AFTER TAKING NOTE OF THE VARIOUS FACTS AS REPRODUCED ABOVE CAME TO THE CONCLUSION FOR NON APPLICABILITY OF RULE 8D(2)(II). NO SUBSTA NTIVE FALLACY HAS BEEN POINTED OUT ON BEHALF OF THE REVENUE IN THE AC TION OF THE CIT(A) EXCEPT PLACING RELIANCE UPON THE ORDER OF THE AO. WE FIND THAT THE ACTION OF THE CIT(A) IS IN TUNE WITH LAW AND JUDICI AL PRECEDENTS. WITHOUT REPEATING THE CONTENTS OF THE CIT(A), WE EN DORSE THE SAME. 10. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE E XPENDITURE, THE AO HAS COMPUTED THE DISALLOWANCE AT RS.1,21,69,984/ - UNDER RULE 8D(2)(III) AS NOTED ABOVE. THE CIT(A) HAS ANALYSED THE NATURE OF EXPENDITURE AND RESTRICTED THE SAME TO RS.19,49,768 /- AS PER THE TABULATION REPRODUCED IN THE CIT(A)S ORDER. BOTH REVENUE AND ASSESSEE ARE AGGRIEVED BY THE AFORESAID ACTION OF T HE CIT(A). THE REVENUE SEEKS DISALLOWANCE OF THE AMOUNT AS COMPUTE D UNDER RULE 8D(2)(III) WHEREAS THE ASSESSEE HAS DISPUTED THE AN ALYSIS OF THE CIT(A). IT IS THE CASE OF THE ASSESSEE THAT ITEMIZ ED EXPENDITURE CAN BE DEMONSTRABLY RELATABLE TO VARIOUS SEGMENT OF TAXABL E INCOME. FOR INSTANCE, THE DISALLOWANCE OF RS.61,565/- MADE BY T HE CIT(A) ON ACCOUNT OF INSURANCE EXPENSES INCURRED WAS PAID FOR RENTED PROPERTIES AND THUS HAS NO RELATION TO THE EXEMPT INCOME. LIK EWISE, THE PERSONNEL EXPENSES OF RS.17,00,616/- IS ALSO CLAIME D BY THE ASSESSEE TO BE TOWARDS TIMELY COLLECTION OF RENT EXPENSES. THE ASSESSEE HAS URGED FOR DELETION OF THE AFORESAID TWO ITEMS OUT O F THE DISALLOWANCE MADE BY THE CIT(A) AMOUNTING TO RS.19,49,768/-. 11. WE DO NOT FIND MERIT IN THE PLEA OF THE REVENUE FOR APPLICABILITY OF RULE 8D(2)(III) WHERE THE SPECIFICATION OF THE N ATURE OF THE EXPENDITURE IS AVAILABLE AND SUCH EXPENDITURE CAN B E REASONABLY IDENTIFIED TOWARD REVENUE FROM TAXABLE OPERATIONS A ND REVENUE FROM INCOME WHICH IS EXEMPT. ON THE OTHER HAND, WE HOWE VER FIND ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 10 - SUBSTANCE IN THE PLEA OF THE ASSESSEE PARTIALLY. R S.61,565/- ON ACCOUNT OF INSURANCE EXPENSES HAS NOT APPARENT CONNECTION W ITH THE INVESTMENT GIVING RISE TO TAX FREE INCOME. THUS, SUCH EXPENSE S CANNOT FIND PART OF DISALLOWANCE UNDER S. 14A OF THE ACT. THE CLAIM OF PERSONNEL EXPENSES OF RS.17,00,616/- DISPUTED BY THE ASSESSEE TO BE ATTRIBUTABLE TO COLLECTION OF RENT ONLY IS HOWEVER WITHOUT ANY C OGENT EVIDENCE. THE ASSESSEE IS ENGAGED IN THE MULTIPLE BUSINESS VI Z. TRADING OF COMMODITIES, DERIVING RENT INCOME AND ALSO GENERATI NG EXEMPT INCOME. HAVING REGARD TO THE VARIOUS STREAM OF INC OME GENERATED BY THE ASSESSEE, THE PERSONNEL EXPENSES, TO OUR MIND, CAN BE FAIRLY ESTIMATED TO BE 1/3 RD OF THE TOTAL COSTS. THE ASSESSEE THUS GETS RELIEF OF RS.11,33,744/- ON THIS SCORE. THE TOTAL RELIEF T HUS WORKS OUT TO RS.11,95,309/- AGAINST THE DISALLOWANCE OF RS.19,49 ,768/- CONFIRMED BY THE CIT(A). THUS, WHILE GROUND NO.1 OF THE REVE NUES APPEAL IS DISMISSED, THE GROUND NO.1 OF THE ASSESSEES CROSS OBJECTION IS ALLOWED IN PART. 12. GROUND NO.2 OF THE CROSS OBJECTION IS CONSEQUEN TIAL. THE ADJUSTMENT TO THE TUNE OF RS.19,49,768/- MADE UNDER CLAUSE (F) TO SECTION 115JB SHALL BE REDUCED BY THE AO IN LINE WI TH THE DISALLOWANCE SUSTAINED UNDER THE NORMAL PROVISIONS. THE CLAIM OF THE ASSESSEE THAT NO ADJUSTMENT IS CALLED FOR WHILE COM PUTING BOOK PROFIT IS VIOLATIVE OF EXPLANATION 1(F) REFERRED TO SECTIO N 115JB OF THE ACT AND THUS CANNOT ENTERTAINED. NO BLANKET EXEMPTION CAN READ IN THE SPECIAL BENCH DECISION IN VIREETS CASE IN THIS REG ARD. GROUND NO.2 OF CROSS OBJECTION IS THUS PARTLY ALLOWED. 13. GROUND NO.2 OF THE REVENUES APPEAL CONCERNS DI SALLOWANCE OF LEGAL EXPENDITURE. THE CIT(A) HAS DEALT WITH THE I SSUE AS UNDER: 7.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION FILED BY THE APPELLANT THE ASSESSING OFF ICER OBSERVED THAT ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 11 - THE APPELLANT HAS CLAIMED PROFESSIONAL FEES AMOUNTI NG TO RS. 23,08,469/- BEING RS. 1,10,300/- DEBITED TO ELP FOR RESEARCH REPORT FOR ACQUISITION OF DELHI GOLF LINK PROPERTIES PVT. LTD. AND RS.21,98,169/- BEING AMOUNT PAYABLE TOWARDS PROFESSIONAL FEES FOR VARIOUS LEGAL ASSISTANCE. HE THEREFORE HELD THAT AS THE PAYMENTS WERE MADE AS REIMBURSEMENT OF FEES FOR SEARCH REPORT FOR ACQUISI TION OF DELHI GOLF LINK PROPERTIES PVT. LTD. IT WAS IN THE NATURE OF C APITAL EXPENSE AND BY NO STRETCH OF IMAGINATION CAN BE SAID TO BE REVENUE EXPENDITURE. ON THE OTHER HAND, APPELLANT HAS ARGUED THAT PAYMENT OF RS .21,98,169/- MADE TO ECONOMIC LAW PRACTICE IS FOR RETAINER FEE AND FO R SERVICES PROVIDED DURING THE YEAR HENCE IT IS ALLOWABLE AS REVENUE EX PENDITURE. FURTHER, PAYMENT OF RS. 1,10,300/- MADE TO ELP FOR OBTAINING SEARCH REPORT FOR ACQUISITION OF DELHI GOLF LINK PROPERTIES PVT. LIMI TED, IT IS SUBMITTED THAT INVESTMENT WAS MADE FOR EXPANSION OF EXISTING BUSINESS HENCE SUCH EXPENDITURE IS ALLOWABLE REVENUE EXPENDITURE. ON CAREFUL CONSIDERATION OF ENTIRE FACTS, IT IS OBS ERVED THAT PAYMENT OF RS.1,10,300/- MADE TO ELP FOR OBTAINING SEARCH REPORT FOR ACQUISITION OF SHARES IS TOWARDS NEW CAPITAL INVEST MENT AND WHICH CANNOT GIVE APPELLANT ANY BENEFIT OF REVENUE IN NAT URE. BY MAKING SUCH INVESTMENT, APPELLANT IS NOT GOING TO EARN ANY REVE NUE RECEIPT HENCE SUCH EXPENDITURE IS CAPITAL EXPENDITURE AND ADDITIO N MADE BY ASSESSING OFFICER TO THAT EXTENT IS UPHELD. SO FAR AS BALANCE PAYMENT OF RS.21,98,169/- IS CONCERNED, IT IS FOR RETAINERSHIP WHEREIN APPELLANT CAN OBTAIN LEGAL ADVICE AS AND WHEN REQUIRED FOR DI RECT TAX, INDIRECT TAX OR ANY OTHER LEGAL MATTER. THE SAID AMOUNT IS P AYABLE EVERY YEAR AND RECURRING IN NATURE AND SAME DOES NOT GIVE APPE LLANT ANY ENDURING BENEFIT. BY OBTAINING SUCH SERVICES, APPELLANT CAN OBTAIN LEGAL ASSISTANCE ON DAY-TO-DAY BASIS AND AS PER PROVISION S OF SECTION 37(1) OF THE ACT; IT IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. THUS, ADDITION MADE BY ASSESSING OFFICER FOR RS.23,08,469 /- IS RESTRICTED TO RS. 1,10,300/-. THIS GROUND OF APPEAL IS PARTLY ALL OWED. 13.1 AS REGARDS PROFESSIONAL FEES COMPONENT OF RS.2 1,98,169/- DISPUTED BY THE REVENUE, WE FIND THAT CIT(A) HAS OB SERVED THAT SUCH EXPENDITURE HAS BEEN INCURRED FOR LEGAL ASSISTANCE TAKEN BY THE ASSESSEE ON DAY-TO-DAY BASIS FOR THE PURPOSES OF BU SINESS. SUCH EXPENDITURE IN OUR VIEW HAS BEEN RIGHTLY TREATED AS REVENUE EXPENDITURE BY THE CIT(A). THE GROUND NO.2 OF THE REVENUES APPEAL THUS IS WITHOUT ANY MERIT. 13.2 AS REGARDS EXPENSES OF RS.1,10,300/- TOWARDS P ROFESSIONAL FEES FOR SEARCH REPORT FOR ACQUISITION OF DELHI GOLF LIN K PROPERTIES PVT. LTD., THE CIT(A) OBSERVED THAT THE AFORESAID EXPEND ITURE IS TOWARDS ACQUISITION OF NEW CAPITAL INVESTMENT. THIS BEING SO, THE CIT(A) HAS ITA NO. 2006/AHD/16 WITH CO NO. 136/AHD/2016 [ADANI PROPERTIES PVT. LTD.] A.Y. 2012-13 - 12 - RIGHTLY TREATED THE SAME TO BE CAPITAL EXPENDITURE. GROUND NO.4 OF THE CROSS OBJECTION OF THE ASSESSEE IN THIS REGARD IS A LSO THUS BEREFT OF ANY MERIT. GROUND NO.4 OF THE CROSS OBJECTION IS ACCOR DINGLY DISMISSED. 14. WE ARE NOW LEFT WITH GROUND NO.3 CONCERNING DIS ALLOWANCE OF RS.40,074/- TOWARDS BELATED EMPLOYEES CONTRIBUTION TO PF AND ESIC UNDER S.36(1)(VA). WE OBSERVE THAT CIT(A) HAS RIGH TLY CONCLUDED THE ISSUE AGAINST THE ASSESSEE IN THE LIGHT OF THE DECI SION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROA D TRANSPORT CORPORATION 360 ITR 170 (GUJ). WE THUS SEE NO MERI T IN GROUND NO.3 OF THE CROSS OBJECTION RAISED ON BEHALF OF THE ASSE SSEE. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 04/07/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 9 / GUARD FILE. BY ORDER / 3 /4 ()!3 45' THIS ORDER PRONOUNCED IN OPEN COURT ON 04/07/2019