M/s Global Tech Park Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-3(1)(2), Bangalore

ITA 2286/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3430 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-03-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 30-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARIPRASAD NAYAK
• Keywords: Related party transaction; Earning of tax free income; Rule 8D
• Section: 14A; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI PRADIP KUMAR K EDIA , ACCOUNTANT MEMBER IT A NO S . 2 286 & 2287 /BANG/201 8 ASSESSMENT YEAR S : 20 15 - 16 & 2014 - 15 M/S GLOBAL TECH PARK PVT. LTD. NO.11, GROUND FLOOR, DIVYASHREE CHAMBERS, B WING, O SHAUGHNESSY ROAD, NEAR HOCKEY STADIUM, LANGFORD TOWN, LANGFORD GARDENS, BENGALURU 560 025. PAN: AABCG 5707C VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 3(1)(2) BANGALORE. APP ELLAN T RESPONDENT APPELLANT BY : SHRI HARIPRASAD NAYAK , CA RESPONDENT BY : S MT R. PREMI , J CIT(DR)(ITAT), BANGALORE . DATE OF HEARING : 04.03.2020 DATE OF PRONOUNCEMENT : 06 .0 3 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THESE ARE APPEALS BY THE ASSESSEE AGAINST TWO OR DERS BOTH DATED 28.5.2018 OF CIT(A)-3, BENGALURU, RELATING TO ASSES SMENT YEARS 2015-16 & 2014-15. 2. AS FAR AS ITA NO.2286/BANG/18 IS CONCERNED, THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THE SAID APPEAL IS AS T O WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN DISALLOWING EXPENSES OF RS.46,87,556/- BY ITA NOS. 2286 & 2287/BANG/2018 PAGE 2 OF 11 INVOKING THE PROVISIONS OF SEC.14A OF THE INCOME TA X ACT, 1961 (ACT) WHICH PROVIDES THAT ANY EXPENDITURE INCURRED IN EARNING I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE DISALLOWED I N COMPUTING TOTAL INCOME. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DEVELOPING AND MAINTAINING REAL ESTATE PROPERTIES. THE ADMITT ED FACTUAL POSITION IS THAT THOUGH THE ASSESSEE WAS A PARTNER IN TWO FIRMS, IT DID NOT RECEIVE ANY SHARE INCOME FROM THOSE FIRMS AND THEREFORE THERE W AS NO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER CHAPTE R III OF THE ACT THAT WAS EARNED BY THE ASSESSEE. THE ASSESSEE ALSO DID NOT EARN ANY OTHER EXEMPT INCOME, MORE IMPORTANTLY ANY DIVIDEND INCOME . PERUSAL OF THE RETURN OF INCOME FILED BY THE ASSESSEE SHOWS THAT T HE ASSESSEE HAS EARNED NO INCOME WHICH DOES NOT FORM PART OF THE TO TAL INCOME UNDER THE ACT. THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE A LSO SHOWS THAT IT HAD NOT EARNED ANY INCOME LIKE DIVIDEND OR SHARE INCOME FROM FIRM OF WHICH IT WAS PARTNER. IT WAS SUBMISSION OF THE ASSESSEE BEF ORE THE CIT(A) THAT THE ASSESSEE HAS NOT EARNED ANY INCOME WHICH IS EXEMPT. THE CIT(A) IN HIS ORDER WHILE DEALING WITH A DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT 378 ITR 3 (DELHI) CITED BY THE ASSESSEE BEFORE HIM, IN WHICH IT WAS HELD THAT IF THERE IS NO EXEM PT INCOME THEN THERE CAN BE NO DISALLOWANCE OF EXPENDITURE U/S.14A OF THE AC T, MERELY OBSERVED THAT THE ASSESSEE EARNED SHARE INCOME FROM PARTNERSHIP W HICH IS EXEMPT. IN PARAGRAPH 5.2 AND 5.3 OF HIS ORDER HE HAS DEALT ONL Y WITH THE ASPECT THAT INVESTMENT IN THE CAPITAL OF THE FIRM SHOULD ALSO B E CONSIDERED FOR THE PURPOSE OF WORKING OUT THE AVERAGE VALUE OF INVESTM ENTS WHILE COMPUTING DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D O F THE INCOME TAX RULES, 1962 (RULES). THEREFORE IT CAN SAFELY BE CO NCLUDED THAT THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE IN AY 2015- 16. 4. IN THE GIVEN CIRCUMSTANCES, THE FIRST QUESTION F OR OUR CONSIDERATION IS AS TO WHETHER DISALLOWANCE CAN BE MADE U/S. 14A OF THE ACT IN THE ABSENCE ITA NOS. 2286 & 2287/BANG/2018 PAGE 3 OF 11 OF EXEMPT INCOME. THE LAW IN THIS REGARD IS NOW FAI RLY WELL SETTLED. THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S UB INFRA STRUCTURE PROJECTS LTD., VS. DCIT, ITA NO. 2098/BANG/2016 (AY.2012-13) ORDER DATED 22-12-2017, THIS TRIBUNAL TOOK THE VIEW THAT THERE CAN BE NO DI SALLOWANCE OF EXPENSES U/S 14A OF THE ACT, IF THERE IS NO EXEMPT INCOME EA RNED DURING THE RELEVANT PREVIOUS YEAR. THE TRIBUNAL FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) . THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGAR D:- 3. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHOR ITIES BELOW, WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS N OT EARNED ANY EXEMPTED INCOME. NOW IT IS SETTLED POSITION OF LAW THAT WHENEVER ASSESSEE DID NOT EARN ANY EXEMPT INCOME, NO DISALLO WANCE COULD BE MADE U/S. 14A OF THE ACT. THE HONBLE DELHI HIGH CO URT IN THE CASE OF CHEMINVEST LTD. V. CIT, 378 ITR 33 (DEL) HAS CAT EGORICALLY HELD THAT SECTION 14A ENVISAGES THAT THERE SHOULD BE ACT UAL RECEIPT OF INCOME WHICH WAS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWI NG ANY EXPENDITURE IN RELATION TO THE SAID INCOME. WHEREVE R THERE IS NO EXEMPT INCOME INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. THE RE LEVANT OBSERVATIONS OF THE JUDGMENT OF THE HONBLE DELHI H IGH COURT ARE EXTRACTED HEREUNDER:- 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FO R CONSIDERATION, THE COURT FINDS THAT THE COMPLETE AN SWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HO LOLCIM INDIA (P) LTD. (DECISION DATED 5TH SEPTEMBER 2014, IN I.T. A. NO. 486 OF 2014). IN THAT CASE, A SIMILAR QUESTI ON AROSE, VIZ., WHETHER THE INCOME-TAX APPELLATE TRIBU NAL WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SE CTION 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EAR NED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR ? T HE COURT REFERRED TO THE DECISION OF THIS COURT IN MAX OPP INVESTMENT LTD. (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN THIS VERY CASE, I.E., CHEMINVEST LTD. V. CIT [2009] 317 !TR ( AT) 86 (DELHI) [SB]. THE COURT ALSO REFERRED TO THREE DECI SIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST WAS THE DECISION IN CIT V. ITA NOS. 2286 & 2287/BANG/2018 PAGE 4 OF 11 LAKHANI MARKETING INCL. (DECISION DATED APRIL 2, 20 14, OF THE HIGH COURT OF PUNJAB AND HARYANA IN I. T. A. NO . 970 OF 2008)--SINCE REPORTED IN [2015] 4 ITR-OL 246 (P& H)-- WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. [2010] 323 IT R 518 (P&H) AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. [2 009] 319 ITR 204 (P&H). THE SECOND WAS OF THE GUJARAT HI GH COURT IN CIT V. CORRTECH ENERGY (P.) LTD. [2014] 22 3 TAXMANN 130 (GUJ) ; [2015] 372 1TR 97 (GUJ) AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P) LTD. (DECISION DATED 5TH MAY, 2014, IN T .A. NO. 88 OF ITA NO.1 1071BANG12016 2014). THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASSE SSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT ASSESSMENT YEAR IN QUESTION 'CORRESPONDING EXPENDIT URE COULD NOT BE WORKED OUT FOR DISALLOWANCE.' 4. THIS WAS ALSO EXAMINED BY THE TRIBUNAL IN THE AS SESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11 AND HELD THAT WHEN THERE IS NO EXEMPT INCOME, PROVISION OF SECTION 14 OF THE ACT CANNOT BE APPLIED. 5. IN THE LIGHT OF THE AFORESAID JUDGMENT, THE PROV ISIONS OF SECTION 14A CANNOT BE INVOKED AS THERE IS NO EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(APPEALS) WHO HAS RIGHTLY DELETED T HE ADDITION. 5. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNA L, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE DELETED. 6. THE APPEAL OF THE ASSESSEE BEING ITA NO. 2286/BA NG/2018 IS ALLOWED. 7. AS FAR AS ITA NO.2287/BANG/2018 FOR AY 2014-15 I S CONCERNED, THE FIRST ISSUE THAT ARISES FOR CONSIDERATION IN THIS A PPEAL IS DISALLOWANCE OF EXPENSES U/S.14-A OF THE ACT. IN THIS YEAR, THERE IS NO DISPUTE THAT THE ASSESSEE EARNED EXEMPT INCOME IN THE FORM OF DIVIDE ND OF RS.1,51,694/-. THE DISALLOWANCE U/S.14A OF THE ACT COMPUTED BY THE REVENUE AUTHORITIES WAS A SUM OF RS.2,83,23,833/-. THE HONBLE DELHI HI GH COURT IN THE CASE OF ITA NOS. 2286 & 2287/BANG/2018 PAGE 5 OF 11 JOINT INVESTMENTS (P) LTD. V. CIT, 372 ITR 694 HAS TAKEN THE VIEW THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. SIMILAR VIEW WAS EXPRESSED BY THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT V. HOLCIM INDIA PVT. LTD., 272 CTR 282 (DEL) . THESE DECISIONS WERE CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN T HE CASE OF FUTURE CORPORATE RESOURCES LTD V. ACIT, ITA NO.4658/MUM/20 15 DATED 26.07.2017 RELATING TO AY 2011-12 AND IT WAS HELD BY THE TRIB UNAL MUMBAI BENCH THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. FOLLOWING THE AFORESAID DECISIONS, WE HOLD THAT DISALLOWANCE U/S. 14A OF THE ACT IN THE PRESENT CASE SHOULD BE RESTRI CTED TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 8. THE OTHER ISSUE THAT ARISES FOR CONSIDERATION I N THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF INTEREST EXPENSES U/S.36( 1)(III) OF THE ACT. THE ASSESSEE PAID INTEREST ON SHORT TERM AND LONG TERM BORROWINGS TOTALLING RS.23,68,16,255 WHICH WAS CLAIMED AS DEDUCTION WHIL E COMPUTING INCOME FROM BUSINESS. THE AO NOTICED THAT THE ASSESSEE HA D GIVEN THE FOLLOWING INTEREST FREE LOAN TO THE FOLLOWING RELATED PARTIES :- ITA NOS. 2286 & 2287/BANG/2018 PAGE 6 OF 11 9. SINCE BORROWED FUNDS ON WHICH INTEREST WAS PAID WAS NOT USED FOR THE PURPOSE OF BUSINESS BUT USED FOR GIVING INTERES T FREE LOAN TO SISTER CONCERNS, THE AO DISALLOWED INTEREST EXPENDITURE TO THE EXTENT OF SUCH DIVERSION OF FUNDS FOR NON-BUSINESS PURPOSE I.E., T O THE EXTENT OF RS.1,62,30,738/- AS GIVEN IN THE CHART ABOVE. THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 10. BEFORE CIT(APPEALS), THE ASSESSEE SUBMITTED THA T IT HAD, ITS OWN FUNDS IN THE FORM OF SHARE CAPITAL, FREE RESERVES, INTEREST FREE RENTAL DEPOSITS FROM TENANT WHEN INTEREST FREE ADVANCES WE RE GIVEN TO THE RELATED PARTIES AND THEREFORE THE BORROWED FUNDS ON WHICH I NTEREST WAS PAID CANNOT BE SAID TO HAVE BEEN NOT USED FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE. THE ASSESSEE COULD NOT DEMONSTRATE BEFORE CIT(A) NO R BEFORE THE TRIBUNAL, THE CORRECTNESS OF THE AFORESAID PLEA. APART FROM THE ABOVE, THE ASSESSEE SUBMITTED THAT EACH AND EVERY LOAN GIVEN T O THE RELATED PARTIES WERE GIVEN FOR THE PURPOSE OF BUSINESS OF THE ASSES SEE ONLY. WE SHALL DEAL WITH EACH OF THE 9 RELATED PARTIES, WHOSE DETA ILS ARE GIVEN IN THE CHART GIVEN IN THE EARLIER PARAGRAPHS OF THIS ORDER, TO W HOM THE INTEREST FREE LOANS WERE GIVEN. AS FAR AS PARTIES LISTED IN SL.NO.5, 8 & 9 OF THE CHART, VIZ., PRIMUS ENGINEERING SOLUTIONS, CBS HI TECH VENTURES PVT. LTD., AND P.V.LINE PVT.LTD., THE PLEA OF THE ASSESSEE WAS THA T IT CHARGED INTEREST ON THESE LOANS TO THE RELATED PARTIES. TO THE EXTENT OF INTEREST RECEIVED THE AO HAS GIVEN CREDIT WHILE WORKING OUT THE INTEREST EXP ENSES TO BE DISALLOWED. THE PLEA OF THE ASSESSEE BEFORE THE CIT(A) IN SO FA R AS THE AFORESAID THREE PARTIES ARE CONCERNED WAS THAT INTEREST INCOME RECE IVED AS CONSIDERED BY THE AO WAS LESS THAN WHAT WAS ACCOUNTED FOR BY THE ASSESSEE AND THAT IN THE CASE OF SWISS SMILE DENTAL CLINICS INDIA PVT.LT D., THE PLEA OF THE ASSESSEE WAS THAT INTEREST INCOME RECEIVABLE WAS NO T CONSIDERED AT ALL BY ITA NOS. 2286 & 2287/BANG/2018 PAGE 7 OF 11 THE AO. THE CIT(A) ON THE ABOVE PLEA HAS GIVEN THE FOLLOWING DIRECTIONS IN HIS ORDER:- 5.6 AS REGARDS THE CLAIM OF THE APPELLANT THAT IT HAD C HARGED INTEREST IN RELATION TO ADVANCES/LOANS GIVEN TO THR EE COMPANIES AND THE DISALLOWANCE OF INTEREST MADE IN RESPECT OF THESE COMPANIES HAS WRONGLY BEEN COMPUTED BY THE AO, IT I S NOTED THAT THE AO HAS CONSIDERED THE INTEREST RECEIVED FROM TH ESE PARTIES ON THE BASIS OF RELATED PARTY TRANSACTIONS REPORTED IN THE FINANCIALS OF THE COMPANY. THE APPELLANT HAS CLAIMED THAT THE INT EREST RECEIVED WAS MORE THAN THAT AND THE SAME HAS DULY BEEN REFLE CTED BY IT AS OTHER INCOME IN ITS P & L ACCOUNT. THIS ASPECT CAN BE VERIFIED BY THE AO AND IF THE ACTUAL AMOUNT OF INTEREST RECEIVE D FROM M/S CBS HI TECH VENTURES PVT. LTD., M/S PRIMUS ENGINEER ING SOLUTIONS AND P V LINE PVT. LTD. IS MORE THAN WHAT HAS BEEN CONSIDERED BY THE AO WHILE WORKING OUT THE DISALLOW ANCE, THE CREDIT FOR THE SAME MAY BE GIVEN TO THE APPELLANT. 11. EXCEPT THE ABOVE SUBMISSION ON THE AFORESAID TH REE PARTIES NO EVIDENCE WHATSOEVER WAS FILED BY THE ASSESSEE TO SH OW THAT THE LOANS GIVEN TO THESE THREE PARTIES WERE FOR THE PURPOSE O F ASSESSEES BUSINESS AND THEREFORE, WE ARE OF THE VIEW THAT IN RESPECT O F THE AFORESAID THREE PARTIES, NO INTERFERENCE IS CALLED FOR TO THE ORDER OF THE CIT(A). 12. WITH REGARD TO THE REMAINING 6 PERSONS, THE ASS ESSEE HAS NOT GIVEN ANY EVIDENCE WITH REGARD TO THE NEXUS BETWEEN THE A SSESSEES BUSINESS AND INTEREST FREE LOAN TO BINDU S.CHANDRA, MYSORE I NTERNATIONAL PVT.LTD., AND SWISS SMILE DENTAL CLINICS INDIA PVT.LTD., EITH ER BEFORE THE REVENUE AUTHORITIES OR BEFORE THE TRIBUNAL AND THEREFORE TH E ORDER OF THE CIT(A), IN SO FAR AS THESE TWO PARTIES ARE CONCERNED, IS ALSO CONFIRMED. 13. AS FAR AS INTEREST FREE LOAN TO GLOBAL BIZ PROP VENTURES PVT.LTD., IS CONCERNED, THE PLEA OF THE ASSESSEE WAS THAT THIS C OMPANY WAS A GROUP COMPANY AND DID NOT HAVE SUFFICIENT FUNDS TO MAINTA IN MINIMUM BALANCE WITH ICIC BANK, BANGALORE-1. THEREFORE THE INTERES T FREE LOAN WAS GIVEN SO ITA NOS. 2286 & 2287/BANG/2018 PAGE 8 OF 11 THAT THE IMAGE OF THE ASSESSEE IN THE EYES OF THE P UBLIC DOES NOT SUFFER. IN OUR VIEW THIS EXPLANATION WAS RIGHTLY REJECTED BY T HE CIT(A) BECAUSE THE BUSINESS PURPOSE OF THE INTEREST FREE LOAN HAS NOT BEEN ESTABLISHED BY THE ASSESSEE. 14. AS FAR AS INTEREST FREE LOAN TO MYSORE LOGISTIC S PVT.LTD., IS CONCERNED, THE PLEA OF THE ASSESSEE WAS THAT THE LO AN WAS GIVEN BY IT TO MYSORE LOGISTICS PVT.LTD., TO ENABLE THE LATER TO M AKE PAYMENT TO KARNATAKA UDYOG MITRA FOR THE PURPOSE OF PAYING FEE S FOR SINGLE WINDOW CLEARANCE FOR SETTING UP LOGISTIC PARK AT BHAKTIPUR A AND THE PROJECT WAS TO BE DEVELOPED BY THE ASSESSEE. THE AFORESAID CLAIM HAS NOT BEEN SUBSTANTIATED WITH ANY CREDIBLE EVIDENCE WHATSOEVER , EXCEPT THE SELF- SERVING STATEMENT OF THE ASSESSEE. WHAT IS ASSESSE ES INTEREST IN THE PROJECT, WHETHER ASSESSEE INTENDS TO DEVELOP THE PR OJECT AND WHY THE PAYMENT IS ROUTED THROUGH MYSORE LOGISTICS PVT.LTD. , AND WHAT IS THE CONNECTION BETWEEN THE PROJECT AND MYSORE LOGISTICS PVT.LTD., ARE NOT EXPLAINED. THEREFORE THE BUSINESS PURPOSE, IN OUR VIEW WAS RIGHTLY NOT ACCEPTED BY THE CIT(A). 15. AS FAR AS PRIMUS ENGINEERING SOLUTIONS PVT. LTD ., IS CONCERNED, IT IS CLAIMED THAT INTEREST WAS CHARGED ON THIS LOAN AND THE CIT(A) HAS DIRECTED THE AO TO VERIFY THIS ASPECT AND ALLOW RELIEF. HEN CE, WE NEED NOT EXAMINE THE BUSINESS PURPOSE OF THIS LOAN, AS THE LOAN IS N OT INTEREST FREE LOAN. 16. WHAT IS NOW LEFT FOR CONSIDERATION IS INTEREST FREE LOAN TO G.SUSHEELA WHO IS A DIRECTOR OF THE ASSESSEE. IT WAS THE PLEA OF THE ASSESSEE THAT IT WAS IN REAL ESTATE AND PROPERTY DEVELOPMENT BUSINES S. TO ACQUIRE LAND FOR PROPERTY DEVELOPMENT, AGRICULTURAL LANDS WERE PROPO SED TO BE ACQUIRED IN BHAKTHIPURA. THE PROCESS INVOLVED IS TO ACQUIRE AG RICULTURAL LANDS AND THEN CONVERT THE USAGE FROM AGRICULTURAL TO NON-AGRICULT URAL PURPOSES. A COMPANY CANNOT ACQUIRE AGRICULTURAL LANDS AS PER TH E KARNATAKA REVENUE ITA NOS. 2286 & 2287/BANG/2018 PAGE 9 OF 11 RULES AND HENCE THE MODUS OPERANDI ADOPTED IS TO AC QUIRE LANDS IN THE NAME OF INDIVIDUALS AND AFTER CONVERSION FOR NON-AG RICULTURAL USE, THE COMPANY ACQUIRES THE LAND AND CARRIES OUT DEVELOPME NT. THE ADVANCES GIVEN TO G.SUSHEELA WAS FOR ACQUIRING LAND. IT WAS SUBMITTED THAT THERE EXISTS AGREEMENT BETWEEN THE ASSESSEE AND G.SUSHEEL A IN THIS REGARD BUT NO COPIES WERE EITHER FILED BEFORE THE REVENUE AUTH ORITIES OR BEFORE THE TRIBUNAL. EVIDENCE TO SHOW PAYMENT OF ADVANCE TO A LLEGED LAND OWNERS WAS ALSO FILED. THE CIT(A) HOWEVER DID NOT AGREE W ITH THE STAND OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 5.2 THE SUBMISSIONS OF THE APPELLANT HAVE DULY B EEN CONSIDERED. THE APPELLANT HAS CLAIMED THAT LOAN GIV EN TO DIRECTOR MS SUSHEELA IS FOR THE PURCHASE OF LAND AT BHAKTHIP URA FOR THE PROJECTS OF THE APPELLANT AND SO THE LOAN NEEDS TO BE TREATED AS FOR BUSINESS PURPOSE. THE APPELLANT SUBMITTED THAT SUCH PURCHASE OF LAND IS CURRENTLY IN PROGRESS AND THE LAND SHALL BE USED FOR THE PURPOSE OF THE BUSINESS ONCE THE SAME ARE CONVERTED FOR NON- AGRICULTURE USE. THIS CONTENTION OF THE APPELLANT I S WITHOUT ANY MERIT. THE APPELLANT HAS ADMITTED THAT THE LAND TO BE PURCHASED BY MS SUSHEELA WOULD BE AGRICULTURAL LAND. AS PER EXIS TING LAWS A COMPANY CANNOT PURCHASE AGRICULTURAL LAND. SO GIVIN G ADVANCE FOR PURCHASE OF AGRICULTURAL LAND CANNOT BE CONSIDE RED AS TO BE FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. THE A RGUMENT OF THE APPELLANT IS THAT THE DIRECTOR WOULD TRANSFER SUCH LAND AFTER OBTAINING NECESSARY 'CHANGE OF LAND USE' IS ALSO WI THOUT ANY MERIT. BY MAKING THIS ARGUMENT THE APPELLANT IS ADMITTING THAT IT IS CIRCUMVENTING THE LAW OF LAND BY SUCH MEANS. FURTHE R THIS IS JUST A PRESUMPTION OF THE APPELLANT THAT THE GOVERNMENT WOULD ALLOW IT CHANGE OF LAND USE FOR BUSINESS PURPOSES. SO THE ADVANCE GIVEN BY THE APPELLANT TO ITS DIRECTOR CANNOT BE CONSIDER ED AS BUSINESS EXIGENCY OF THE APPELLANT. FURTHER THE LAND MEANT T O BE PURCHASED WOULD NOT BE USED FOR THE EXISTING BUSINESS OF THE APPELLANT BUT FOR THE PURPOSE OF EXPANSION OF ITS BUSINESS AND AN Y EXPENDITURE IN RELATION TO THAT CAN ONLY BE OF CAPITAL NATURE A ND NOT REVENUE EXPENSE. SO EVEN ON THIS ACCOUNT PROPORTIONATE EXPE NDITURE ON ACCOUNT OF INTEREST WOULD NEED TO BE DISALLOWED EVE N IF THE LOANS/ADVANCES ARE CONSIDERED FOR BUSINESS PURPOSES . ITA NOS. 2286 & 2287/BANG/2018 PAGE 10 OF 11 17. THE STAND TAKEN BY THE ASSESSEE HAS NOT BEEN ES TABLISHED WITH CREDIBLE EVIDENCE. THERE IS NO AGREEMENT BETWEEN G .SUSHEELA AND THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE. THERE IS NO MATERIAL BROUGHT ON RECORD TO SHOW ANY OBLIGATION ON THE PAR T OF G.SUSHEELA TO PART WITH HER RIGHTS OVER ANY PROPERTY THAT SHE MIGHT AC QUIRE EITHER AS OWNER AS AGREEMENT HOLDER IN FAVOUR OF THE ASSESSEE. IN SUC H CIRCUMSTANCES, THE PLEA OF THE ASSESSEE DESERVES TO BE REJECTED AND WA S RIGHTLY REJECTED BY THE CIT(A). 18. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A) AND ACCORDINGLY, THE RELEVANT GROUND OF APPEAL OF THE A SSESSEE IS DISMISSED. 19. IN THE RESULT ITA NO.2287/BANG/2018 IS PARTLY A LLOWED. 20. THUS, ITA NO.2286/BANG/18 IS ALLOWED WHILE ITA NO.2287/BANG/2018 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF MARCH, 2020. SD/- SD/- ( PRADIP KUMAR KEDIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 6 TH MARCH, 2020. / DESAI S MURTHY / ITA NOS. 2286 & 2287/BANG/2018 PAGE 11 OF 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE