Kumar Urban Development Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 2175/PUN/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0761 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-02-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 19-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NANDITA KANCHAN
• Assessee Lawyers: PIYUSHA
• Keywords: Capital asset; Business expenditure; Earning of tax free income; Additional evidence; Deemed dividend; Onus to prove; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 2(22)(e); 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2164/PUN/2016 / ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-14, PUNE. ....... / APPELLANT / V/S. KUMAR URBAN DEVELOPMENT LTD., 2413, KUMAR CAPITAL, 2 ND FLOOR, EAST STREET, CAMP, PUNE-411001. PAN : AAACK7659N / RESPONDENT . / ITA NO.2175/PUN/2016 / ASSESSMENT YEAR : 2011-12 KUMAR URBAN DEVELOPMENT LTD., 10 TH FLOOR, KUMAR BUSINESS CENTER (KBC), OPP. BUND GARDEN ROAD, PUNE-411001. PAN : AAACK7659N ....... / APPELLANT / V/S. DCIT, CIRCLE-11(1), PUNE. / RESPONDENT REVENUE BY : MS. NANDITA KANCHAN ASSESSEE BY : SHRI NIKHIL PATHAK & MS. PIYUSHA / DATE OF HEARING : 25.06.2019 / DATE OF PRONOUNCEMENT : 14.08.2019 / ORDER PER D. KARUNAKARA RAO, AM: THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-7, PUNE DATED 24.05.2016 FOR THE ASSESSMENT YEAR 2011-12. 2 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 2. THE RESPECTIVE GROUNDS RAISED BY THE REVENUE AS WELL AS BY THE ASSESSEE ARE AS UNDER :- ITA NO.2164/PUN/2016 (BY REVENUE): A. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. B. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION ON ACCOUNT OF EXPENSES NOT RELATED TO THE BUSINESS OF THE ASSESSEE OF RS. 1,95,07,565/- INSTEAD OF CONFIRMING THE SAME. C. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THE DECISION OF SUPREME COURT IN THE CASE OF LASHMIRATAN COTTON MILLS CO LTD VS CIT (1969) 73 ITR 634 (SC) WHEREIN IT WAS HELD THAT IN ORDER TO CLAIM THAT AN EXPENDITURE FALLS UNDER SECTION 37(1) THE BURDEN OF PROVING THE NECESSARY FACTS IN THAT CONNECTION IS ON THE ASSESSEE AND THE ASSESEE HAS FAILED TO DISPOSE THE BASIC ONUS TO PROVE THE NEXUS OF THE VARIOUS EXPENSES WITH ITS BUSINESS HAD NOT BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS, AND THEREFORE COULD NOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE INCOME TAX ACT 1961. D. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICERS BE RESTORED. E. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL. ITA NO.2175/PUN/2016 (BY ASSESSEE): 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE ADDITION OF RS.14,33,719/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BANK INTEREST ON DEPOSITS BELONGING TO THE SOCIETY. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF BUSINESS EXPENDITURE OF RS.3,66,34,133/- REFLECTED SEPARATELY AS EXCEPTIONAL ITEMS. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE BY TREATING THE AMOUNT OF ADVANCE OF RS.2,38,60,653/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX ACT, 1961. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE FIGURE OF AVERAGE OF TOTAL ASSETS AT RS.406,56,33,364/- INSTEAD OF AT RS.614,75,23,172/- WHILE WORKING OUT THE DISALLOWANCE U/S 14A R.W.R. 8D. 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST AT RS.10,52,27,421/- U/S 36(1)(III) . 6. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE CIT (APPEALS) AND THE ASSESSING OFFICER MAY BE VACATED AND THE APPELLANTS CLAIM MAY BE ALLOWED OR ANY SUITABLE DIRECTIONS ISSUED. 3 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ANY OR ALL GROUNDS OF APPEAL AND TO ADDUCE ADDITIONAL EVIDENCES AT THE TIME OF HEARING. THE ASSESSEE ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS :- 1] THE ASSESSEE SUBMITS THAT THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND OF RS.2,38,60,653/- ON ACCOUNT OF THE ADVANCE RECEIVED FROM RIVERVIEW PROPERTIES PVT. LTD. SINCE THERE WERE NO ACCUMULATED PROFITS IN THE CASE OF RIVERVIEW PROPERTIES PVT. LTD. AND THEREFORE, NO ADDITION ON ACCOUNT OF DEEMED DIVIDEND COULD BE MADE IN THE HANDS OF THE ASSESSEE. 1.1] THE ASSESSEE SUBMITS THAT THE SHARE PREMIUM RECEIVED CANNOT BE CONSIDERED AS PART OF ACCUMULATED PROFITS AND ACCORDINGLY, AFTER EXCLUSION OF SHARE PREMIUM, THERE WERE NO ACCUMULATED PROFITS IN THE CASE OF RIVERVIEW PROPERTIES PVT. LTD. AND HENCE, NO ADDITION COULD BE MADE ON ACCOUNT OF DEEMED DIVIDEND. 2] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OFFERED BY IT OF INTEREST EXPENDITURE OF RS.9,39,19,481/- U/S 14A R.W.R. 8D IN THE RETURN OF INCOME IS NOT WARRANTED AND THE SAME SHOULD BE DELETED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 2.1] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OFFERED BY IT ON ACCOUNT OF INDIRECT EXPENDITURE OF RS.90,54,328/- U/S 14A R.W.R. 8D IN THE RETURN OF INCOME IS NOT WARRANTED AND THE SAME SHOULD BE DELETED WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 2.2] THE ASSESSEE SUBMITS THAT THE INVESTMENTS ON WHICH NO TAX FREE INCOME HAS BEEN EARNED DURING THE YEAR SHOULD BE EXCLUDED FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S 14A R.W.R. 8D. 2.3] WITHOUT PREJUDICE, IN CASE, ANY DISALLOWANCE OF INTEREST IS WARRANTED U/S 14A R.W.R. 8D, THE SAME SHOULD BE WORKED OUT BY CONSIDERING THE NET INTEREST EXPENDITURE OF RS.21,46,46,009/- AS AGAINST THE INTEREST EXPENDITURE CONSIDERED BY THE A.O. OF RS.36,14,01,644/-. 3. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS A PROMOTER, BUILDER AND DEVELOPER. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING LOSS OF RS.16,22,73,675/-. AT THE END OF THE ASSESSMENT, THE ASSESSING OFFICER ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.9,10,71,309/-. THE DETAILS OF COMPUTATION OF INCOME AS GIVEN IN PARA 9 OF THE ASSESSMENT ORDER ARE EXTRACTED AS UNDER :- 9. SUBJECT TO THE ABOVE REMARKS, THE TOTAL INCOME OF THE ASSESSEE IS RECOMPUTED AS UNDER :- 4 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) TOTAL INCOME/(LOSS) AS PER THE RETURN OF INCOME (16,22,73,675) ADD: AS PER PARA 3. DISALLOWANCE ON ACCOUNT OF ITS MISMATCH 14,33,719 4. DISALLOWANCE ON ACCOUNT OF EXCEPTIONAL ITEMS 3,66,34,133 5. DISALLOWANCE U/S 2(22)(E) 2,38,60,653 6. DISALLOWANCE U/S 14A R.W. RULE 8D 6,66,81,493 7. DISALLOWANCE OF INTEREST ON ACCOUNT OF DIVERSION OF BORROWED FUND FOR NON BUSINESS CONSIDERATION 12, 47,34,986 8. DISALLOWANCE U/S 37 OF THE ACT [26,54,82,375] 25,33,44,984 ASSESSED TOTAL INCOME 9,10,71,309 ROUNDED OFF TO 9,10,71,310 4. THE MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY AGAINST THE DISALLOWANCES/ADDITIONS MADE BY THE ASSESSING OFFICER. THE CIT(A), AFTER DETAILED DISCUSSIONS, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED WITH THE ABOVE PARTLY DECISION OF THE CIT(A), THE REVENUE AS WELL AS THE ASSESSEE ARE IN CROSS APPEALS WITH THE ABOVE EXTRACTED RESPECTIVE GROUNDS OF APPEAL. 6. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ADJUDICATION. ITA NO.2175/PUN/2016 BY ASSESSEE 7. GROUND NO.1 RELATES TO THE ADDITION OF RS.14,33,719/- ON ACCOUNT OF BANK INTEREST ON DEPOSITS BELONGING TO THE SOCIETY. 8. ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE CAME UP FOR ADJUDICATION BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 IN ASSESSEES OWN CASE AND THE SAME WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. FURTHER, THE ASSESSEE FILED A WRITTEN SUBMISSION WITH 5 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 RESPECT TO THIS ISSUE UNDER CONSIDERATION AND THE SAME IS EXTRACTED AS FOLLOWS :- 1] GROUND NO. 1 - ADDITION OF RS.14,33,719/- : INTEREST ON DEPOSITS BELONGING TO SOCIETY - 1.1] THE LEARNED A.O. HAS DISCUSSED THIS ISSUE IN PARA 3 - 3.1 OF HIS ORDER. THE ASSESSEE HAD RECEIVED INTEREST ON DEPOSITS AMOUNTING TO RS.14,33,719/-. THE SAID INTEREST WAS NOT OFFERED TO TAX ON THE GROUND THAT THE DEPOSITS WERE KEPT WITH THE BANK FOR MAINTENANCE OF THE SOCIETIES OF THE PROJECTS UNDERTAKEN BY THE ASSESSEE. THE LEARNED A.O. HAS HELD THAT THE INTEREST IS TAXABLE IN THE HANDS OF THE ASSESSEE. 1.2] THE LEARNED CIT(A) DISCUSSED THIS APPEAL IN PARAS 5.5 OF HIS ORDER. HE HAS CONFIRMED THE VIEW TAKEN BY THE LEARNED A.O. 1.3] IT IS SUBMITTED THAT SIMILAR ADDITION WAS MADE IN THE EARLIER YEARS. THE CLAIM OF THE ASSESSEE HAS BEEN REJECTED FOR A.YS. 2009 -10 TO 2010-11. 9. FROM THE ABOVE, IT IS EVIDENT THAT, THE ISSUE NOW STANDS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR 2010-11 VIDE ITA NO.39 & 46/PUN/2015 DATED 31.10.2017; WHEREIN, THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. THE CONTENTS OF PARA 13 OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) ARE RELEVANT AND THE SAME ARE EXTRACTED AS UNDER :- 13. IN GROUND NO. 3 THE ASSESSEE HAS ASSAILED CONFIRMING THE ADDITION OF RS.10,13,878/- INTEREST RECEIVED ON DEPOSITS BELONGING TO THE SOCIETY. THE LD. DR FAIRLY ADMITTED THAT THIS ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2009-10. WE OBSERVE THAT IN ASSESSMENT YEAR 2009-10 THE CO-ORDINATE BENCH OF THE TRIBUNAL DISMISSED THIS GROUND OF APPEAL RAISED BY THE ASSESSEE BY OBSERVING AS UNDER : 40. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT ASSESSEE HAS INFACT HANDED OVER THE MONEY TO THE SOCIETY. SINCE THERE IS NO EVIDENCE ON RECORD THAT ANY SOCIETY HAS BEEN FORMED AND THE ASSESSEE HAS TRANSFERRED THE MONEY TO THE SOCIETY OR HAS SHOWN ANY LIABILITY IN ITS BOOKS AND CONSIDERING THE FACT THAT THE ASSESSEE HAS CLAIMED TAX CREDIT ON SUCH INTEREST INCOME, THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE DISMISSED. 6 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 THUS, IN VIEW OF STATEMENT MADE BY LD. AR AND THE DECISION OF COORDINATE BENCH, GROUND NO. 3 RAISED IN THE APPEAL BY ASSESSEE IS DISMISSED. 10. THUS, THE CONTENTION OF THE ASSESSEE THAT THE INTEREST INCOME ACCRUED ON THE DEPOSITS OF THE SOCIETY IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE, STANDS REJECTED BY THE TRIBUNAL OVER THE YEARS. CONSIDERING THE ABOVE WRITTEN SUBMISSION ON THIS ISSUE ON HAND AND THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 (SUPRA) ON THE IDENTICAL ISSUE, WE ARE OF THE OPINION, THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 SHOULD BE DISMISSED. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 11. GROUND NO.2 RELATES TO THE SUSTAINING THE DISALLOWANCE OF BUSINESS EXPENDITURE SHOWN AS EXCEPTIONAL ITEMS . 12. BEFORE US, LD. AR FILED WRITTEN SUBMISSION AND RELEVANT PARAS ARE EXTRACTED AS UNDER :- 2] GROUND NO. 2 - DISALLOWANCE OF RS.3,66,34,133/- : DISALLOWANCE ON ACCOUNT OF EXCEPTIONAL ITEMS - 2.1] THIS ISSUE HAS BEEN DISCUSSED BY THE LEARNED A.O. IN PARAS 4 - 4.2 OF THE ORDER. THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.3,66,34,133/- AS AN EXCEPTIONAL ITEM IN THE P & L ACCOUNT. THIS EXPENDITURE WAS RELATING TO THE EXPENDITURE ON INITIAL PUBLIC OFFER WHICH WAS WRITTEN OFF IN THE BOOKS. THE ASSESSEE HAD PLANNED TO LIST HIS SHARES ON STOCK EXCHANGE AND ACCORDINGLY, HAD INCURRED THE EXPENDITURE. HOWEVER, SUBSEQUENTLY, THE ASSESSEE DECIDED NOT TO PURSUE WITH THE SAID PUBLIC ISSUE AND ACCORDINGLY, THE EXPENDITURE INCURRED WAS WRITTEN OFF IN THE YEAR UNDER CONSIDERATION. 2.2] THE LEARNED A.O. HAS DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE DID NOT SUBMIT THE RELEVANT DETAILS . THE LEARNED CIT(A) HAS DISCUSSED THIS ISSUE IN PARAS 6 - 6.5 OF HIS ORDER. ACCORDING TO HIM, THE EXPENDITURE WAS INCURRED FOR INCREASING THE SHARE CAPITAL AND THEREFORE, THE SAME WAS CAPITAL IN NATURE. 2.3] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE MADE IS NOT JUSTIFIED. IT IS SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON 7 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 ADVERTISEMENT, PROCESSING FEES AND ALSO DEPOSITS WITH STOCK EXCHANGES . SINCE IT DECIDED TO CANCEL THE PUBLIC ISSUE, THE SAID EXPENDITURE WAS WRITTEN OFF IN THE BOOKS. IT IS SUBMITTED THAT NO SHARES WERE ISSUED AND THE IPO WAS PART OF THE EXISTING BUSINESS OF THE ASSESSEE . THERE WAS NO FRESH CAPITAL ISSUED BY THE ASSESSEE. THE ASSESSEE SUBMITS THAT THE EXPENDITURE INCURRED ON A PROJECT WHICH HAS BEEN ABANDONED IS ALLOWABLE AS A REVENUE EXPENDITURE. IT IS SUBMITTED THAT THE RELIANCE IS PLACED ON THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT IN CASE OF ABORTED EXPENSES , WHICH MAY BE CAPITAL IN NATURE, THE EXPENDITURE IS ALLOWABLE AS A DEDUCTION U/S 37(1) - A. CIT V. IDEA CELLULAR LTD. [76 TAXMANN.COM 77 COM (BOM)] B. BINANI CEMENT LTD. V. CIT [60 TAXMANN.COM 384 (CAL)] C. LAWKIM LTD. V. JCIT [1 SOT 907 (MUM)] D. TAMILNADU MAGNESITE LTD. [95 TAXMANN.COM 239 (MAD)] 13. THUS, IT IS THE CASE OF THE ASSESSEE THAT THE CLAIM OF EXPENDITURE RELATING TO THE ABORTED PROJECT OF GOING FOR INITIAL PUBLIC OFFER (IPO) CONSTITUTES AN ALLOWABLE REVENUE EXPENDITURE. THE SAID JUDGEMENTAL LAWS SETTLE THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN THESE CASE, VARIOUS PROJECTS, OTHERWISE CAPITAL IN NATURE WERE ALLOWED AS BUSINESS EXPENDITURE OF RESPECTIVE ASSESSEES. 14. IN THE LIGHT OF THE WRITTEN SUBMISSION DISCUSSED ABOVE, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE VARIOUS DETAILS AND SUBMITTED THAT THERE IS NO DISPUTE ABOUT THE FACT RELATING TO THE GENUINENESS OF THE EXPENDITURE AS THE DETAILS WERE ALREADY FURNISHED AND ACCEPTED BY THE ASSESSING OFFICER ON ITS MERITS. HE FURTHER SUBMITTED THAT MOST OF THE PAYMENTS WERE INCURRED TOWARDS THE DEPOSITS AND PROCESSING FEE PAID TO THE AGENCIES AND GOVERNMENT BODIES. ACCORDING TO LD. AR, NO FIXED ASSETS LIKE LAND OR BUILDING ETC WERE PURCHASED. IN THE LIGHT OF THE UNDISPUTED FACT OF GENUINENESS OF EXPENDITURE, THE ONLY ISSUE OF ADJUDICATION BY THE TRIBUNAL RELATES TO THE APPLICABILITY OF THE SAID 8 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 HONBLE SUPREME COURT JUDGEMENT IN THE CASES OF (I) BROOKE BOND INDIA LTD. (SUPRA) AND (II) PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. (SUPRA). IN THIS REGARD, LD. COUNSEL SUBMITTED THAT THESE JUDGEMENTS ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HIGHLIGHTING THE FACTS OF THE PRESENT CASE, LD. COUNSEL SUBMITTED THAT AN IDENTICAL ISSUE CAME FOR ADJUDICATION BEFORE THE JURISDICTIONAL HIGH COURT IN THE CASE OF IDEA CELLULAR LTD. (SUPRA). THE SAID JUDGMENT IS RELEVANT FOR THE LEGAL PROPOSITION THAT WHERE NEW CELLULAR TOWERS WERE CONSTRUCTED BY CELLULAR OPERATOR IN ADDITION TO EXISTING TOWER AND NO NEW BUSINESS WAS SET UP, WHEN THE PROJECT WAS ABANDONED, THE EXPENDITURE SO FAR INCURRED WOULD BE ALLOWED AS BUSINESS EXPENDITURE. FURTHER, REFERRING TO THE ITAT, PUNE BENCH DECISION IN THE CASE OF DAIMLER CHRYSLER INDIA (P.) LTD. VS. DCIT, 98 TAXMANN.COM 53 (PUNE-TRIB.), LD. COUNSEL SUBMITTED THAT WRITING OFF OF CAPITAL-WORK-IN-PROGRESS TO BE ALLOWED AFTER DUE VERIFICATION OF GENUINENESS OF EXPENDITURE INCURRED ON THE SAID ABANDONED PROJECT. 15. ON THE OTHER HAND, LD. DR FOR THE REVENUE ARGUED VEHEMENTLY STATING THAT, ON IDENTICAL FACTS, THE HONBLE MADRAS HIGH COURT IN THE CASE OF MASCON TECHNICAL SERVICES LIMITED VS. CIT, 358 ITR 545 (MAD) HELD THAT THE EXPENDITURE TO INCREASE THE SHARE CAPITAL, IRRESPECTIVE OF WHETHER ASSESSEE DID SO OR NOT, AFTER THE DIRECTION OF THE RESERVE BANK OR OTHERWISE, THE EXPENDITURE SO INCURRED FOR THE PUBLIC ISSUE, WOULD REMAIN CAPITAL EXPENDITURE. 16. REPLYING TO THE LD. DRS ARGUMENT, ON THESE JUDGEMENTS, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID JUDGEMENTS OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MASCON TECHNICAL SERVICES 9 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 LIMITED (SUPRA) IS DISTINGUISHED BY THE SAME HIGH COURT IN THE CASE OF TAMILNADU MAGNESITE LTD. VS. ACIT, 95 TAXMANN.COM 239 (MAD) STATING THAT THE ASSESSEE CONTENDED THAT THE EXPENSES INCURRED IN THE IMPLEMENTATION OF THE ABANDONED PROJECT UNDER CONSIDERATION HAD NOT BROUGHT ANY ASSET INTO EXISTENCE. FURTHER, IT WAS SUBMITTED THAT THE VENTURE UNDERTAKEN WAS NOT A NEW ONE, BUT, IN FACT ONE IN THE SAME LINE OF BUSINESS ALREADY BEING CARRIED ON BY THE ASSESSEE-COMPANY. THUS, THE EXPENDITURE INCURRED ON THE SAME WAS TO BE ALLOWED. FINDING OF THE TRIBUNAL - IPO EXPENSES AN ABANDONED PROJECT. 17. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND LEGAL PROPOSITION CITED BY BOTH THE PARTIES. 18. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE DECIDED TO GO FOR INITIAL PUBLIC OFFERING (IPO) RIGHT FROM THE YEAR 2009. THE COMPANY FILED THE DRAFT RED HERRING PROSPECTUS AND RED HERRING PROSPECTUS BEFORE SEBI AND BSE IN SEPTEMBER, 2009 AND MAY, 2010. IN THIS REGARD, THE BOARD RESOLUTION WAS PASSED IN 2011 TO NOT PURSUE WITH THE SAID PUBLIC ISSUE. ACCORDINGLY, BY THIS TIME, THE ASSESSEE INCURRED GROSS EXPENDITURE OF RS.3,66,34,133/-. THE BOARD RESOLUTION ALSO SPEAKS ABOUT THE DECISION OF WRITTEN OFF OF THE SAID EXPENDITURE FOR THE YEAR ENDING ON 31 ST MARCH, 2011. WE FIND RELEVANT TO EXTRACT RELEVANT PARTS OF THE RESOLUTION AS UNDER :- CERTIFIED TRUE EXTRACT OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF KUMAR URBAN DEVELOPMENT LIMITED HELD ON TUESDAY, 29 TH MARCH, 2011 AT 12.00 NOON AT THE OFFICE OF THE COMPANY AT TARDEO NO.7, GROUND FLOOR, SURYODAYA ESTATES, TARDEO ROAD, MUMBAI. 10 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 THE CHAIRMAN INFORMED THE BOARD THAT THE COMPANY HAD FILED DRAFT RED HERRING PROSPECTUS AND RED HERRING PROSPECTUS BEFORE SEBI AND BOMBAY STOCK EXCHANGE DURING THE PERIOD SEPTEMBER, 2009 AND MAY 2010. IN VIEW OF THE NEGATIVE AND VOLATILE MARKET CONDITIONS, THE COMPANY HAD DEFERRED THE PROPOSED ISSUE OF SHARES AND CONVEYED THE SAME TO THE MULTIPLE AGENCIES INVOLVED IN THE EXERCISE. HOWEVER, HAVING WAITED FOR A REASONABLE PERIOD AND THE CHANGING MODEL OF FUNDING OF REAL ESTATE COMPANIES THROUGH PRIVATE EQUITY IN SPECIAL PURPOSE VEHICLE AND SUBSIDIARIES IMPLEMENTING THE PROJECT RATHER THAN FUNDING THROUGH THE HOLDING COMPANY. THE COMPANY NOTED THE FOLLOWING- A) PUBLIC EXPOSURE DERIVED BY VARIOUS ADVERTISEMENTS AND INITIATIVES INCLUDING NET WORKING WITH FINANCIAL INTERMEDIARIES, CORPORATE LAWYERS AND SOLICITORS. B) MARKET EXPOSURE IN VIEW OF INDIRECT INVOLVEMENT THROUGH THE ABOVE AGENCIES AS WELL AS MERCHANT BANKERS. C) RECENT INTERACTIONS WITH BANKS, NBFCS, PRIVATE EQUITY PLAYER LOCAL AS WELL AS INTERNATIONAL. THEREFORE, IT WAS DECIDED THAT THE COMPANY WILL NOT PURSUE WITH THE PUBLIC ISSUE AND THE EXPENDITURE AMOUNTING TO RS.3,66,34,133/- BE WRITTEN OFF DURING THE YEAR ENDING 31 ST MARCH, 2011 AS THE SAID EXPENDITURE HAS GIVEN THE COMPANY REQUIRED PUBLIC AND MARKET EXPOSURE FOR SALE OF ITS REAL ESTATE OFFERING AS WELL AS THE PERCEPTION AMONGST OTHER FUNDING AGENCIES FOR ONGOING AS WELL AS THE PROJECTS ON THE LAUNCH PAD. THE COMPANY SECRETARY SHALL INFORM THE ACCOUNT TEAM ACCORDINGLY WHILE FINALIZATION OF ACCOUNTS FOR THE YEAR ENDING 31 ST MARCH, 2011. CERTIFIED TRUE COPY FOR KUMAR URBAN DEVELOPMENT LIMITED SD/- DIRECTOR 19. FURTHER, THE ASSESSEE FURNISHED THE BREAKUP OF THE EXPENDITURE INCURRED FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. THE DETAILS OF IPO EXPENSES, WHICH ARE AVAILABLE AT PAGE 2 OF THE PAPER BOOK, ARE EXTRACTED AS UNDER :- SL. NO. PARTICULARS TOTAL AMOUNT (RS.) 1 DEPOSITS IN BSE AND NSE 4,963,500.00 2 PROCESSING FEE 12,471,197.00 3 ADVERTISEMENT 19,199,436.38 TOTAL 36,634,133.38 11 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 FROM THE ABOVE, IT IS EVIDENT THAT THE EXPENDITURE WAS NOT INCURRED ON ANY FIXED ASSETS LIKE LAND OR BUILDING. 20. FURTHER, WE FIND THAT THE ASSESSING OFFICER DISALLOWED THE SAME BY OBSERVING AS UNDER :- 4. DISALLOWANCE ON ACCOUNT OF EXCEPTIONAL ITEMS: ASSESSEE HAS DEBITED AN AMOUNT OF RS.3,66,34,133/- TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD EXCEPTION ITEMS. FURTHER, IN THE NOTES TO ACCOUNTS, UNDER SCHEDULE 20-NOTE 3(O) IT IS STATED AS UNDER: EXCEPTIONAL ITEMS IN THE PROFIT & LOSS ACCOUNT REPRESENTS RS.36634133 INCURRED TOWARDS PROPOSED INITIAL PUBLIC OFFERING 4.1 ACCORDINGLY, VIDE ORDER SHEET NOTE DATED 10.03.2014, THE ASSESSEE WAS REQUESTED TO JUSTIFY THE SAID EXPENSES AND ALSO CONTENDED AS TO WHY SAME SHALL NOT BE DISALLOWED. 4.2 IN RESPONSE, THE ASSESSEE FILED A WRITE-UP ON 18.03.2014. HOWEVER, NO OTHER DOCUMENTS JUSTIFYING THE EXPENSES HAVE BEEN PROVIDED BY THE ASSESSEE. IN ABSENCE OF THE RELEVANT SUPPORTING DOCUMENTS, ASSESSEES CLAIM CANNOT BE ESTABLISHED WITHOUT REASONABLE DOUBT. ACCORDINGLY, AN AMOUNT OF RS.3,66,34,133/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THUS, ASSESSING OFFICER DISALLOWED THE CLAIM FOR WANT OF THE EVIDENCES. 21. THE CIT(A) CONFIRMED THE ABOVE FINDING OF THE ASSESSING OFFICER BY HOLDING THAT THE SAID EXPENDITURE WAS INCURRED FOR EXPANSION OF CAPITAL BASE TO MEET THE REQUIREMENT OF LONG TERM FUNDS FOR ITS WORKING CAPITAL. THE CIT(A) RELIED ON HEAVILY ON THE HONBLE SUPREME COURT JUDGEMENT IN THE CASES OF (I) BROOKE BOND INDIA LTD. VS. CIT, 225 ITR 798 (SC) AND (II) PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT, 225 ITR 792 (SC). THE CONTENTS OF PARA 6 TO 6.5 OF THE ORDER OF THE CIT(A) ARE RELEVANT. 12 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 22. FURTHER, WE FIND IT RELEVANT TO EXTRACT THE LEGAL PROPOSITIONS ON THE TOPIC. (A) CIT V. IDEA CELLULAR LTD. [76 TAXMANN.COM 77 COM (BOM)]: WHERE NEW CELLULAR TOWERS WERE CONSTRUCTED BY CELLULAR OPERATOR IN ADDITION TO EXISTING TOWER AND NO NEW BUSINESS WAS SET UP, IF PROJECT WAS ABANDONED, EXPENDITURE SO FAR INCURRED WOULD BE ALLOWED AS BUSINESS EXPENDITURE. (B) BINANI CEMENT LTD. V. CIT [60 TAXMANN.COM 384 (CAL)]: EXPENDITURE INCURRED FOR CONSTRUCTION/ACQUISITION OF NEW FACILITY WHICH WAS SUBSEQUENTLY ABANDONED AT WORK-IN-PROGRESS STAGE WAS ALLOWABLE IN YEAR OF WRITE OFF AS INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE OF ASSESSEE'S BUSINESS. (C) LAWKIM LTD. V. JCIT [1 SOT 907 (MUM)]: ASSESSEE-COMPANY ENGAGED IN MANUFACTURE OF ELECTRICAL MOTORS FOR REFRIGERATION, AIR-CONDITIONING AND HOME APPLIANCES, MADE PAYMENT TO IDCL FOR PURPOSE OF DEVELOPMENT OF BYPASS MOTORS TO BE USED IN WET AND DRY VACUUM CLEANERS WHICH THE ASSESSEE CONTEMPLATED TO PRODUCE IN FUTURE;SAME WAS EXPANSION OF EXISTING BUSINESS, AND WHICH WAS ABANDONED FOR GOOD, THE EXPENDITURE COULD NOT BE SAID TO BE CAPITAL IN NATURE. (D) TAMILNADU MAGNESITE LTD. [95 TAXMANN.COM 239 (MAD)]: WHERE ASSESSEE-COMPANY ENTERED INTO AN ARRANGEMENT FOR IMPLEMENTATION OF A PROJECT WHICH WAS LATER ON ORDERED TO BE CLOSED BY GOVERNMENT, SINCE SAID PROJECT WAS IN SAME LINE OF EXISTING BUSINESS OF ASSESSEE AND THERE WAS NO CREATION OF ANY NEW ASSET OF ENDURING NATURE, ENTIRE EXP. INCURRED ON SAID PROJECT WAS TO BE ALLOWED AS REVENUE EXPENDITURE. 23. FROM THE ABOVE, IT IS EVIDENT THAT THE EXPENDITURE IN CONNECTION WITH AN ABANDONED PROJECT IS AN ALLOWABLE EXPENDITURE. IT IS NOT THE CASE OF THE REVENUE, THAT ASSESSEE SPENT ON CAPITAL ASSETS LIKE THE LAND, BUILDING ETC. THE CAPITAL NATURE OF THE EXPENDITURE IN QUESTION I.E. IPO EXPENSES IS NOT RELEVANT WHEN IT COMES TO A CASE OF ABANDONED PROJECT LIKE THE PRESENT ONE. THEREFORE, WE ARE OF THE OPINION, THE GROUND NO.2 RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 13 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 24. GROUND NO.3 AND ADDITIONAL GROUND NO.1 & 1.1 RELATE TO THE CORRECTNESS OF INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 25. ON THIS ISSUE, THE RELEVANT FACTS INCLUDE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY RECEIVED CERTAIN ADVANCES FROM ITS SUBSIDIARY COMPANIES VIZ. RIVERVIEW PROPERTIES PVT. LTD. AND KHIRANAGAR DEVELOPMENT PVT. LTD. THE ASSESSEE SUBMITTED THE EXPLANATION FOR THESE ADVANCES. HOWEVER, THE ASSESSING OFFICER HELD THAT THESE ADVANCES SQUARELY FALL WITHIN THE MISCHIEF OF DEEMED DIVIDEND AS PER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THEREFORE, ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.2,38,60,653/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 26. BEFORE US, IN THIS REGARD, LD. COUNSEL FILED THE FOLLOWING WRITTEN SUBMISSION :- 3] GROUND NO. 3 AND ADDL GROUND NO. 1 AND 1.1 - ADDITION ON ACCOUNT OF DEEMED DIVIDEND OF RS.2,38,60,653/- : 3.1] THIS ISSUE HAS BEEN DISCUSSED BY THE LEARNED A.O. IN PARAS 5-5.3 OF HIS ORDER. ACCORDING TO HIM, THE ASSESSEE COMPANY HAD TAKEN LOAN FROM RIVERVIEW PROPERTIES PVT. LTD. HE HAS STATED THAT THE ASSESSEE IS A SUBSTANTIAL SHAREHOLDER OF RIVERVIEW PROPERTIES PVT. LTD. ACCORDING TO HIM, RIVERVIEW PROPERTIES PVT. LTD. HAD ACCUMULATED RESERVES TO THE TUNE OF RS.35,07,69,275/-. ACCORDINGLY, THE LOAN TAKEN BY THE ASSESSEE IS BEING TAXED AS DEEMED DIVIDEND U/S 2(22)(E). THE LEARNED CIT(A) HAS CONFIRMED THE SAID ADDITION. THE RELEVANT DISCUSSION IS IN PARA 7 TO 7.7 OF HIS ORDER. 3.2] THE ASSESSEE SUBMITS THAT THE ADDITION MADE IS NOT JUSTIFIED. THE BALANCE SHEET OF RIVERVIEW PROPERTIES PVT. LTD. IS GIVEN ON PAGES 68 TO 94 OF THE PAPER BOOK. THE ACCUMULATED RESERVES OF RS.35,07,69,275/- CONSIDERED BY THE LEARNED A.O. ARE ON ACCOUNT OF SHARE PREMIUM ACCOUNT . THERE ARE NO FREE RESERVES IN THE BALANCE SHEET OF RIVERVIEW PROPERTIES PVT. LTD. THE RELEVANT SCHEDULE 2 IS ON PAGE 77 OF THE PAPER BOOK. 3.3] THE ASSESSEE HAS RAISED AN ADDITIONAL GROUNDS OF APPEAL WHEREIN IT HAS RAISED AN ISSUE THAT SHARE PREMIUM CANNOT BE CONSIDERED AS PART OF ACCUMULATED RESERVES. FOR THIS PROPOSITION, THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS - 14 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 A. CIT V. SHREE BALAJI GLASS MANUFACTURING P. LTD. [72 TAXMANN.COM 118 (CAL)] B. CIT V. MAHESH CHANDRA MANTI [61 TAXMANN.COM 101 (CAL)] C. DY. CIT V. MAIPO INDIA LTD. [24 SOT 42 (DELHI)] D. DY. CIT V. RADHE SHAM JAIN [28 TAXMANN.COM 255 (CHD.)] 3.4] ACCORDINGLY, IN ALL THE ABOVE DECISIONS IT HAS BEEN HELD THAT SHARE PREMIUM CANNOT FOUND PART OF ACCUMULATED RESERVES FOR THE PURPOSES OF SECTION 2(22)(E) . IT HAS BEEN HELD THAT NO DIVIDEND CAN BE DISTRIBUTED OUT OF SHARE PREMIUM ACCOUNT ON ACCOUNT OF THE PROVISIONS OF SECTION 78 OF THE COMPANIES ACT. IN VIEW OF THE ABOVE DECISIONS, THE ASSESSEE SUBMITS THAT M/S. RIVERVIEW PROPERTIES PVT. LTD. HAS NOT ACCUMULATED RESERVES AND ACCORDINGLY, NO ADDITION ON ACCOUNT OF DEEMED DIVIDEND CAN BE MADE IN THE HANDS OF THE ASSESSEE IN RESPECT OF THE LOAN RECEIVED FROM THE SAID ENTITY. 27. FROM THE ABOVE, IT IS EVIDENT THAT, IT IS SETTLED LEGAL PROPOSITION THAT THE SHARE PREMIUM CANNOT BE CONSIDERED AS PART OF ACCUMULATED RESERVES FOR THE PURPOSE OF SECTION 2(22)(E) OF THE ACT AS THE SAID SHARE PREMIUM IS NOT ENTITLED FOR THE DIVIDEND DISTRIBUTION ON ACCOUNT OF THE PROVISIONS OF SECTION 78 OF THE COMPANIES ACT. WE PROCEED TO EXTRACT RELEVANT CONCLUSIONS OF THE CITED JUDGEMENT OF HIGH COURT OF CALCUTTA AND THE TRIBUNALS ORDER OF DELHI & CHANDIGARH BENCHES AS UNDER :- (I) CIT VS. SHREE BALAJI GLASS MANUFACTURING P. LTD. [72 TAXMANN.COM 118 (CAL)] : PAYMENT MADE BY PUSHPAK COMMERCIAL FINANCE PVT LTD. TO THE ASSESSEE WAS WITHIN THE MISCHIEF OF SECTION 2(22)(E) BECAUSE THE PAYMENT HAS BEEN HELD TO HAVE BEEN MADE BY PUSHPAK COMMERCIAL FINANCED PVT LTD IN THE ORDINARY COURSE OF ITS BUSINESS OF MONEY LENDING WHICH IS SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. (II) CIT VS. MAHESH CHANDRA MANTI [61 TAXMANN.COM 101 (CAL)] : BEFORE ANY PAYMENT CAN TAKE CHARACTER OF DIVIDEND WITHIN MEANING OF PROVISION, IT HAD TO BE SHOWN THAT THERE WERE ACCUMULATED PROFITS LYING WITH COMPANY WHICH MADE PAYMENT 15 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 (III) DCIT VS. MAIPO INDIA LTD. [24 SOT 42 (DELHI)] : AMOUNT REPRESENTING SHARE PREMIUM CANNOT FROM PART OF ACCUMULATED PROFITS AND THEREFORE LOANS AND ADVANCES RECEIVED BY ASSESSEE COMPANY OUT OF THAT COULD NOT BE TREATED AS DEEMED DIVIDEND UNDER S. 2(22)(E). (IV) DCIT VS. RADHE SHAM JAIN [28 TAXMANN.COM 255 (CHD.)] : PAYMENT BY COMPANY WHEREIN PUBLIC IS NOT SUBSTANTIALLY INTERESTED BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER WHO IS HOLDING SHARES NOT LESS THAN 10 PERCENT, IS TO BE TREATED AS DEEMED DIVIDEND AND SUCH DEEMED DIVIDEND CAN BE THERE ONLY TO THE EXTENT OF ACCUMULATED PROFITS 28. THUS, THE ENTIRE ACCUMULATED RESERVES OF (I) M/S RIVERVIEW PROPERTIES PVT. LTD. AND (II) M/S KHIRANAGAR DEVELOPMENT PVT. LTD. ARE NOTHING BUT THE SHARE PREMIUM. THE SAME IS OUTSIDE THE SCOPE OF THE ACCUMULATED RESERVES WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THUS, IN THE ABSENCE OF ELIGIBLE RESERVES AND SURPLUS WITH THE PAYER COMPANIES, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT CORRECTLY INVOKED BY THE ASSESSING OFFICER IN THIS CASE. FROM THIS POINT OF LAW, ASSESSING OFFICER/CIT(A) ARE NOT CORRECT IN MAKING THE ADDITION U/S 2(22)(E) OF THE ACT. ACCORDINGLY, THE RELEVANT GROUND NO.3 AND ADDITIONAL GROUND NO.1 & 1.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 29. GROUND NO.4 AND ADDITIONAL GROUND NO.2 2.3 RELATE TO THE DISALLOWANCE U/S 14A OF THE ACT . 30. ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE FILED THE FOLLOWING WRITTEN SUBMISSION :- 4] GROUND NO.4 AND ADDL. GROUND NO.2 2.3 : DISALLOWANCE U/S 14A 16 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 4.1] THE ASSESSEE COMPANY HAD EARNED EXEMPT INCOME DURING THE YEAR CONSIDERATION. IN THE RETURN OF INCOME, THE ASSESSEE HAD SUO-MUTO MADE A DISALLOWANCE U/S 14A OF RS.10,29,73,809/-. THIS COMPRISED OF INTEREST AMOUNTING TO RS. 9,39,19,481/- AND INDIRECT EXPENDITURE AMOUNTING TO RS. 90,54,328/-. THE LEARNED A.O. HAS DISCUSSED THE ISSUE IN PARAS 6 - 6.6 OF HIS ORDER. HE HAS WORKED OUT THE TOTAL DISALLOWANCE AT RS. 16,96,55,302/-. THE SAID AMOUNT COMPRISED OF INTEREST UNDER RULE 8D(II) OF RS. 16,06,20,688/- AND INDIRECT EXPENDITURE UNDER RULE 8D(III) OF RS.90,34,613/-. 4.2] THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE U/S 14A MADE BY THE LEARNED A.O. THE RELEVANT DISCUSSION IS IN PARAS 8 TO 8.7 OF HIS ORDER. 4.3] THE ASSESSEE HAS RAISED THE ADDITIONAL GROUNDS OF APPEAL. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT THE DISALLOWANCE OF INTEREST OFFERED BY IT IN THE RETURN AS WELL AS ENHANCED BY THE A.O. IS NOT JUSTIFIED SINCE IT HAD INTEREST FREE FUNDS MUCH HIGHER THAN THE TAX FREE INVESTMENTS. THE DETAILS OF TAX FREE INVESTMENTS ARE GIVEN ON PAGES 95 - 96 OF THE PAPER BOOK. IT IS TO BE NOTED THAT THE OPENING AMOUNT OF TAX FREE INVESTMENTS IS RS. 127.97 CRS. WHILE CLOSING BALANCE IS RS.233.41 CRS. THE AVERAGE AMOUNT WORKS OUT TO RS. 180.69 CRS. NOW, THE OWN CAPITAL AND RESERVES ARE TO TUNE OF RS.243.66 CRS. AND TOTAL INTEREST FREE FUNDS AVAILABLE ARE TO THE TUNE OF RS.417.43 CRS. THE RELEVANT DETAILS ARE GIVEN ON PAGE 97 OF THE PAPER BOOK. 4.4] ACCORDINGLY, SINCE THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH MORE THAN THE TAX FREE INVESTMENTS MADE BY IT, NO DISALLOWANCE OF INTEREST IS WARRANTED. ACCORDINGLY, IT IS SUBMITTED THAT THE DISALLOWANCE OF INTEREST MADE BY THE A.O. IS NOT JUSTIFIED AT ALL. SECONDLY, THE INTEREST DISALLOWANCE OFFERED BY THE ASSESSEE ON ITS OWN IN THE RETURN OF INCOME IS ALSO NOT WARRANTED. THE ASSESSEE SUBMITS THAT SIMILAR DISALLOWANCE OF INTEREST U/S 14A R.W.R. 8D WAS OFFERED BY IT IN THE RETURN. THE LEARNED A.O. HAD ENHANCED THE DISALLOWANCE. THE ENTIRE INTEREST DISALLOWANCE INCLUDING THE DISALLOWANCE OFFERED BY THE ASSESSEE ON SUO- MOTO BASIS WAS DELETED BY HON'BLE ITAT ON THE GROUND THAT THE ASSESSEE HAD INTEREST FREE FUNDS MUCH HIGHER THAN THE TAX FREE INVESTMENTS. 4.5] THE ASSESSEE FURTHER SUBMITS THAT IN VIEW OF THE ABOVE DECISION IN ITS OWN CASE FOR THE EARLIER YEARS, NO DISALLOWANCE OF INTEREST IS WARRANTED U/S. 14 A. 4.6] AS REGARDS THE DISALLOWANCE OF INDIRECT EXPENDITURE UNDER RULE 8D(III), IT IS SUBMITTED THAT THE SAID DISALLOWANCE SHOULD NOT BE MADE IN RESPECT OF THE INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. THE RELEVANT DETAILS OF THE EXEMPT INCOME ARE GIVEN ON PAGES 95 - 96 OF THE PAPER BOOK. THE ASSESSEE SUBMITS THAT THE INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCOME SHOULD BE EXCLUDED WHILE WORKING THE DISALLOWANCE OF INDIRECT EXPENDITURE UNDER RULE 8D(III). THE VIEW HAS BEEN TAKEN BY HON'BLE ITAT IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS. 4.7] ACCORDINGLY, THE ASSESSEE SUBMITS THAT THE INVESTMENTS WHICH DID NOT YIELD EXEMPT INCOME SHOULD BE EXCLUDED WHILE WORKING OUT THE DISALLOWANCE U/S. 14A R.W.R. 8D. 17 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 31. FROM THE ABOVE, IT IS EVIDENT THAT THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE FACT THAT THE ASSESSEE HAS ADEQUATE INTEREST FREE FUNDS TO TAKE CARE OF THE INVESTMENTS MADE BY THE ASSESSEE WHICH YIELDED EXEMPT INCOME. WE PROCEEDED TO EXTRACT THE RELEVANT PARA 12 FROM THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 (SUPRA) AND THE SAME ARE AS UNDER :- 12. IN ADDITIONAL GROUNDS OF APPEAL THE ASSESSEE HAS SOUGHT DELETION OF SUO-MOTO DISALLOWANCE U/S. 14A MADE BY THE ASSESSEE. THE ASSESSEE HAS GIVEN LIST OF GROUP COMPANIES/PARTNERSHIP FIRMS (AT PAGE 83 OF THE PAPER BOOK) WHEREIN THE ASSESSEE HAS MADE STRATEGIC INVESTMENTS. UNDISPUTEDLY, THE ASSESSEE HAS NOT RECEIVED ANY INCOME IN THE FORM OF DIVIDEND FROM INVESTMENTS MADE IN GROUP CONCERNS. HOWEVER, THE ASSESSEE HAS RECEIVED TAX FREE INCOME IN THE FORM OF SHARE IN PROFITS FROM PARTNERSHIP FIRMS. THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS.7,16,67,703/-. THE LD. AR POINTED THAT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009-10 (SUPRA), THE TRIBUNAL HAS HELD THAT THE INVESTMENTS ON WHICH NO TAX FREE INCOME HAS BEEN EARNED SHOULD BE EXCLUDED WHILE COMPUTING DISALLOWANCE U/S. 14A. AS STATED EARLIER THERE IS NO DISPUTE AS REGARDS THE PRINCIPLE THAT NO DISALLOWANCE IS TO BE MADE U/S. 14A WHERE NO TAX FREE INCOME HAS BEEN EARNED FROM STRATEGIC INVESTMENTS. IT IS ALSO A WELL SETTLED PRINCIPLE THAT NO DISALLOWANCE CAN BE MADE U/S. 14A WHERE OWN INTEREST FREE FUNDS ARE MUCH MORE THAN THE INVESTMENTS. HOWEVER, IN THE PRESENT CASE AS WE HAVE POINTED EARLIER, THE ASSESSEE HAS EARNED TAX FREE INCOME FROM PARTNERSHIP FIRMS. IT IS NO ONE S CASE THAT INVESTMENT HAS BEEN MADE BY UTILIZING BORROWED FUNDS. THEREFORE, PROVISIONS OF RULE 8D(2)(II) ARE NOT ATTRACTED. HOWEVER, THE PROVISIONS OF RULE 8D(2)(III) WOULD APPLY IN RESPECT OF TAX FREE INCOME EARNED FROM PARTNERSHIP FIRMS. THE FACTS IN THE PRESENT CASE ARE DISTINGUISHABLE FROM THE FACTS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS. WHILE DECIDING GROUND NO. 2 WE HAVE UPHELD DISALLOWANCE U/S. 14A IN RESPECT OF INVESTMENTS MADE IN PARTNERSHIP FIRMS ON WHICH TAX FREE INCOME HAS BEEN EARNED. THE ASSESSING OFFICER IS DIRECTED THAT AFTER GIVING EFFECT TO GROUND NO. 2, THE BALANCE DISALLOWANCE, IF ANY FROM SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE U/S. 14A BE DELETED. ACCORDINGLY, ADDITIONAL GROUND NO. 1 RAISED IN THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 32. THE ABOVE EXTRACTS/DISCUSSION DEALS WITH THE DISALLOWANCE MADE BY THE ASSESSEE IN CONNECTION WITH THE CLAUSE (II) OF RULE 8D(2) OF THE RULES. REGARDING THE RULE 8D(2)(III), WE FIND SAME AGAIN STANDS IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009-10 TO 2010-11 (SUPRA). ACCORDINGLY, 18 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 THE RELEVANT GROUND NO.4 AND ADDITIONAL GROUND NO.2 2.3 ARE RAISED BY THE ASSESSEE ARE ALLOWED. 33. GROUND NO.5 RELATES TO THE DISALLOWANCE OF RS.12,47,34,896/- U/S 36(1)(III) OF THE ACT. THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.10,52,27,421/- AND GRANTED RELIEF OF RS.1,95,07,565/-. CONSIDERING THE PART RELIEF, BOTH REVENUE AND ASSESSEE ARE IN APPEAL BEFORE US. 34. ON THIS ISSUE, IN APPEAL OF THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS NOW COVERED AND FURNISHED FOLLOWING SUBMISSIONS :- 5] GROUND NO. 5 - DISALLOWANCE U/S 36(1)(III) OF RS.10,52,27,421/- : 5.1] THIS ISSUE HAS BEEN DISCUSSED BY THE LEARNED A.O. IN PARA 7 TO 7.5 OF HIS ORDER. ACCORDING TO HIM, THE ASSESSEE HAD INTEREST FREE FUNDS TO ITS SISTER CONCERNS AND ON THE OTHER HAND, ASSESSEE HAD PAID INTEREST ON THE FUNDS BORROWED BY IT. ACCORDING TO THE A.O., THE ASSESSEE HAS DIVERTED BORROWED FUNDS FOR NON BUSINESS PURPOSES AND HE HAS WORKED OUT THE DISALLOWANCE OF INTEREST OF RS.12,47,34,896/-. 5.2] THE LEARNED CIT(A) HAS DISCUSSED THIS ISSUE IN PARAS 9 TO 9.7 OF HIS ORDER. HE HAS HELD THAT THE ASSESSEE HAD DIVERTED THE INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. HOWEVER, HE HAS WORKED OUT THE AVERAGE AMOUNT OF ADVANCES GIVEN TO SISTER CONCERNS AT RS.87,68,95,178/- AND ON THE SAID AMOUNT HE HAS WORKED OUT THE DISALLOWANCE OF INTEREST @ 12% AMOUNTING TO RS. 10,52,27,421/- AS AGAINST THE DISALLOWANCE OF RS. 12,47,34,986/-. THE LEARNED CIT(A) HAS WORKED OUT THE DISALLOWANCE BY CONSIDERING AVERAGE AMOUNT OF ADVANCES MADE AS AGAINST THE METHOD OF THE LEARNED A.O. OF CONSIDERING THE CLOSING BALANCE AS ON THE YEAR END. 5.3] THE ASSESSEE SUBMITS THAT THE DISALLOWANCE OF INTEREST IS NOT JUSTIFIED AT ALL. IT IS SUBMITTED THAT THE LEARNED A.O. AND CIT(A) HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS ADVANCED INTEREST FREE FUNDS FOR NON BUSINESS PURPOSES. THE LEARNED A.O. HAS CONSIDERED THE AMOUNT OF RS. 103.94 CRS FOR WORKING OUT THE DISALLOWANCE WHICH IS THE CLOSING BALANCE OF THE ADVANCES GIVEN AT THE YEAR END. WHILE THE LEARNED CIT(A) HAS CONSIDERED THE AMOUNT OF RS. 87.68 CRS BEING THE AVERAGE AMOUNT OF ADVANCES GIVEN. THE ASSESSEE SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED SINCE IT HAS INTEREST FREE FUNDS AVAILABLE MUCH HIGHER THAN THE AMOUNTS CONSIDERED BY THE LOWER AUTHORITIES. THE TOTAL INTEREST FREE FUNDS AVAILABLE ARE TO THE TUNE OF RS.417.43 CRS. AND THE DETAILS ARE GIVEN ON PAGE 97 OF THE PAPER BOOK. ACCORDINGLY, SINCE THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH HIGHER THAN THE AMOUNTS ADVANCED, NO DISALLOWANCE OF INTEREST CAN BE MADE IN VIEW OF THE DECISION OF HON'BLE 19 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 BOMBAY H.C. IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. [313 ITR 340]. IT IS ALSO SUBMITTED THAT SIMILAR DISALLOWANCE OF INTEREST WAS MADE FOR A.YS. 2009 - 10 TO 2010 - 11 AND THE SAME HAS BEEN DELETED BY HON'BLE ITAT. 35. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSEE HAS INTEREST FREE FUNDS AMOUNTING TO RS.417.43 CRORES AGAINST GRANTING OF INTEREST FREE FUNDS TO THE ASSESSEES RELATIVES RELATING TO THE SOURCE WHICH IS MUCH LESS THAN THE SAID INTEREST FREE FUNDS. CONSIDERING THE SAME, THE ASSESSEE IS ENTITLED TO RELIEF ON THIS ISSUE. THE SIMILAR ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 (SUPRA). FOR THE SAKE OF COMPLETENESS, THE CONTENTS OF PARA 14 FROM THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2010-11 (SUPRA) ARE EXTRACTED AS UNDER :- 14. IN GROUND NO. 4 THE ASSESSEE HAS ASSAILED CONFIRMING OF DISALLOWANCE OF INTEREST EXPENDITURE U/S. 36(1)(III). THE STAND OF THE ASSESSEE IS THAT OWN FUNDS OF THE ASSESSEE ARE MUCH MORE THAN THE FUNDS ADVANCED TO THE SISTER CONCERNS. THE LD. AR REFERRED TO THE BALANCE SHEET AT PAGE 13 OF THE PAPER BOOK. THE LD. AR POINTED THAT PEAK AMOUNT ADVANCED BY THE ASSESSEE TO TWO GROUP CONCERNS KUMAR HOUSING CORPORATION LTD. AND KUMAR SINEW DEVELOPERS PVT. LTD. IS RS.108.82 CRORES. AS AGAINST THIS THE ASSESSEE HAS OWN INTEREST FREE FUNDS INCLUDING SHARE CAPITAL AND RESERVES OF RS.217.93 CRORES. WE FIND THAT IN ASSESSMENT YEAR 2009-10 THE COORDINATE BENCH OF THE TRIBUNAL BY PLACING RELIANCE ON THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD. REPORTED AS 313 ITR 340 AND THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF TRINITY INDIA LTD. VS. DCIT IN ITA NO. 666/PN/2012 DECIDED ON 28-08- 2013 DELETED THE ADDITIONS. THE LD. DR HAS FAILED TO CONTROVERT THE FINDINGS OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING ASSESSMENT YEARS ON THE SAME SET OF FACTS. WE FIND NO REASON TO TAKE A CONTRARY VIEW WHEN THE FACTS ARE IDENTICAL AND ARE NOT DISPUTED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE DISALLOWANCE MADE U/S. 36(1)(III) OF THE ACT. ACCORDINGLY, GROUND NO. 4 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED. 36. CONSIDERING THE ABOVE WRITTEN SUBMISSION ON THIS ISSUE, EXISTENCE OF EXCESSIVE INTEREST FREE FUNDS AND PERUSING THE ORDER OF THE TRIBUNAL IN 20 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 (SUPRA), WE ARE OF THE OPINION, THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.5 SHOULD BE ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUND NO.5 RAISED BY THE ASSESSEE IS ALLOWED. 37. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.2175/PUN/2016 IS PARTLY ALLOWED. ITA NO.2164/PUN/2016 BY REVENUE 38. THE ONLY ISSUE RAISED BY THE REVENUE IN THIS APPEAL RELATES TO THE ALLOWABILITY OF ASSESSEES CLAIM AMOUNTING TO RS.1,95,07,565/-. ON FACT, THIS GROUND OF THE REVENUE IS CONNECTED TO THE GROUND NO.5 OF THE ASSESSEES APPEAL. 39. WHILE ADJUDICATING THE GROUND NO.5 OF THE APPEAL OF THE ASSESSEE, WE HAVE HELD THAT, WITH THE INTEREST FREE FUNDS OF RS.417.43 CRORES, THE ADVANCES OF RS.87.68 CRORES GIVEN TO THE RELATED CONCERNS DOES NOT WARRANT THE DISALLOWANCE U/S 36(1)(III) OF THE ACT. THUS, WE GRANT RELIEF TO THE ASSESSEE ON THE ENTIRE DISALLOWANCE OF RS.12,47,34,896/-. CONSEQUENTLY, THE GRIEVANCE OF THE REVENUE IN ITS APPEAL HAS TO BE DISMISSED. 40. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.2164/PUN/2016 IS DISMISSED. 21 ITA NO.2164/PUN/2016 ITA NO.2175/PUN/2016 41. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 14 TH DAY OF AUGUST, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 14 TH AUGUST, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-7, PUNE. 4. THE CCIT, PUNE. 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.