DCIT, CHENNAI V. Arun Excello Foundations P Ltd., CHENNAI

ITA 2247/CHNY/2014

• Counselvise Citation: 224721714 RSA 2014
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: B RAMAKRISHNAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.2247/MDS/2014 ( )( / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI - 600 034. V. M/S ARUN EXCELLO FOUNDATIONS PVT. LTD., BHATTAD TOWERS, 18, WEST COTT ROAD, ROYAPETTAH, CHENNAI - 600 014. PAN : AABCA 8168 K (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. PATHLAVATH PEERYA, CIT -.+, / 0 / RESPONDENT BY : SH. B. RAMAKRISHNAN, CA 1 / 2% / DATE OF HEARING : 08.04.2015 3') / 2% / DATE OF PRONOUNCEMENT : 17.04.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL-I , CHENNAI, DATED 30.05.2014 AND PERTAINS TO ASSESSMENT YEAR 20 09-10. 2 I.T.A. NO.2247/MDS/14 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS REGAR DING DISALLOWANCE UNDER SECTION 14A OF THE INCOME-TAX AC T, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D(II) OF THE INCOM E-TAX RULES, 1962. 3. SH. PATHLAVATH PEERYA, LD. DEPARTMENTAL REPRESEN TATIVE, SUBMITTED THAT THE ASSESSEE IS ENGAGED ITSELF IN TH E BUSINESS OF ENGINEERING CONTRACT WORK AND CONSTRUCTION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE MADE INVESTMENT, THE IN COME OF WHICH WOULD EXEMPT UNDER SECTION 10(34) OF THE ACT. ACCO RDING TO THE LD. D.R., THE ASSESSEE INVESTED BORROWED FUNDS IN COMPU LSORY CONVERTIBLE DEBENTURES FOR A PERIOD OF SEVEN YEARS. THOUGH THE ASSESSEE CLAIMED THAT THE BORROWED FUNDS WERE NOT U SED FOR INVESTMENT, THE ASSESSEE COULD NOT ESTABLISH THAT I NTEREST-FREE FUNDS WERE USED FOR MAKING INVESTMENT IN CONVERTIBLE DEBE NTURES. ACCORDING TO THE LD. D.R., THE CLAIM OF THE ASSESSE E THAT THE ADVANCE RECEIVED FROM CUSTOMERS FROM ADORA PROJEC T WAS DIVERTED FOR MAKING INVESTMENT COULD NOT BE ESTABLISHED. TH EREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE- COMPANY MADE INVESTMENT IN SISTER CONCERNS IN THE F ORM OF COMPULSORY CONVERTIBLE DEBENTURES DURING THE ASSESS MENT YEAR 3 I.T.A. NO.2247/MDS/14 2008-09 AND NOT DURING THE YEAR UNDER CONSIDERATION . ACCORDING TO THE LD. REPRESENTATIVE, INVESTMENT MADE BY THE ASSE SSEE IN DEBENTURES CARRIED 0% INTEREST. THE DEBENTURES IN WHICH THE ASSESSEE INVESTED WOULD BE CONVERTED INTO SHARES IN FUTURE, AFTER SEVEN YEARS. HOWEVER, TILL SUCH CONVERSION, THE CH ARACTER OF THE INVESTMENT WOULD REMAIN ONLY AS LOAN. THEREFORE, A CCORDING TO THE LD. REPRESENTATIVE, THE PROVISIONS OF SECTION 14 RE AD WITH RULE 8D IS NOT APPLICABLE TO THE FACTS OF THE CASE. MOREOVER, NO INVESTMENTS WERE MADE DURING THE YEAR UNDER CONSIDERATION. REF ERRING TO THE ORDER OF THE CIT(APPEALS), THE LD. REPRESENTATIVE S UBMITTED THAT THE INVESTMENTS WERE MADE DURING THE ASSESSMENT YEAR 20 07-08 AND 2008-09. THESE INVESTMENTS DID NOT CARRY ANY INCOM E. IN FACT, FOR THE ASSESSMENT YEAR 2008-09, THE MATTER CAME BEFORE THIS TRIBUNAL IN I.T.A. NO.1823/MDS/2011 AND THIS TRIBUNAL BY AN ORDER DATED 19.07.2012, SET ASIDE THE ORDER OF THE CIT(APPEALS) AND REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICE R. THE ASSESSING OFFICER IN COMPLIANCE WITH THE DIRECTION OF THIS TR IBUNAL, ALLOWED THE CLAIM OF THE ASSESSEE RESTRICTING THE DISALLOWANCE TO ` 40,00,000/- BY AN ORDER DATED 27.03.2013. BY REPRODUCING THE ORDE R OF THE ASSESSING OFFICER, THE CIT(APPEALS) RESTRICTED THE CLAIM TO ` 40,00,000/- INSTEAD OF ` 2,35,28,949/-. 4 I.T.A. NO.2247/MDS/14 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE A LSO CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSEES CLAIM BEFORE THE ASSESSING OFFICER IS THAT THE ADVA NCE RECEIVED FROM CUSTOMERS IN ADORA PROJECT WAS DIVERTED FOR MAKIN G INVESTMENT IN CONVERTIBLE DEBENTURES. HOWEVER, FROM THE ORDER OF THE CIT(APPEALS) IT APPEARS THAT FOR THE ASSESSMENT YEA R 2008-09, THE ADVANCE RECEIVED BY THE ASSESSEE IN THE PROJECT DE SH WAS USED FOR MAKING INVESTMENT IN COMPULSORY CONVERTIBLE DEB ENTURES TO THE EXTENT OF ` 19.77 CRORES. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER RE-EXAMINED THE ISSUE ON THE BASI S OF THE ORDER REMANDING THE MATTER BY THIS TRIBUNAL AND RESTRICTE D THE DISALLOWANCE TO ` 40,00,000/-. THE CIT(APPEALS) HAS SIMPLY FOLLOWED THAT ORDER FOR THE YEAR UNDER CONSIDERATIO N. FOR THE YEAR UNDER CONSIDERATION, THE CLAIM OF THE ASSESSEE WAS THAT ADVANCE RECEIVED FROM PROJECT ADORA WAS USED IN MAKING IN VESTMENT. HOWEVER, FOR ASSESSMENT YEAR 2008-09, THE CLAIM WAS WITH REGARD TO ADVANCE RECEIVED IN PROJECT DESH. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATT ER NEEDS TO BE RE- EXAMINED. FOR THE ASSESSMENT YEAR 2008-09, THE ASS ESSING OFFICER, AFTER EXAMINING THE BORROWED FUNDS AND OTH ER MATERIALS, FOUND THAT THE INTEREST PAID FOR THE LOAN, WHICH WA S DIVERTED TO THE 5 I.T.A. NO.2247/MDS/14 EXTENT OF ` 40,00,000/- WAS DISALLOWED. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER SIMILARLY HAS TO EXAMINE THE DIVERSION OF INTEREST PAID FUNDS FOR THE PURPOSE OF MAKING THE INVESTMENT. THOUGH THE ASSESSEE CLAIMS THAT NO INV ESTMENT WAS MADE DURING THE YEAR UNDER CONSIDERATION, THE ASSES SING OFFICER SPECIFICALLY FOUND THAT THERE WAS AN INVESTMENT DUR ING THE YEAR UNDER CONSIDERATION ALSO. IN VIEW OF THE ABOVE, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE FACT NEEDS TO BE FO UND OUT WHETHER THERE WAS INVESTMENT MADE DURING THE YEAR UNDER CON SIDERATION OR NOT. THEREFORE, THE ORDERS OF THE LOWER AUTHORITI ES ARE SET ASIDE AND THE ISSUE WITH REGARD TO DISALLOWANCE OF INTEREST O N BORROWED FUNDS UNDER SECTION 14A R.W. RULE 8D IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE CONSIDER THE ISSUE AND FIND OUT THE AVAILABILITY OF INTEREST-FRE E FUNDS AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WI TH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. WITH THE ABOVE OBSERVATION, THE APPEAL OF THE RE VENUE IS ALLOWED FOR STATISTICAL PURPOSES. 6 I.T.A. NO.2247/MDS/14 ORDER PRONOUNCED ON 17 TH OF APRIL, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !'# ! ) ( . . . ) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 17 TH APRIL, 2015. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A), CENTRAL-I, CHENNAI 4. 1 92 /CIT, CHENNAI-I, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.