Shri Balbirsingh Pritamsingh Renu, Nagpur V. D.C.I.T. Circle-4, Nagpur

ITA 246/NAG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3896 (ITAT-NAGPUR)
• Duration Of Justice: 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 27-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRG
• Assessee Lawyers: HARISH BHONEJA MR PRAKASH MANE
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR , BENCH , ( E - COURT), MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI D.KARUNA KAR RAO , A M ITA NO. 246 / N AG / 20 1 2 ( ASSESSMENT YEAR :200 8 - 200 9 ) BALBIRSINGH PRITAMSINGH RENU, C/O J.S.UBERIO &CO. C.A.2, SAT - PRATAP BEZONBAGH, KAMPTEE ROAD, NAGPUR - 440 004 VS. DCIT, CIRCLE - 4, ROOM NO. 301, SARAF CHAMBERS, NAG PUR - 440 001. PAN/GIR NO. : A BYPR 2450 G ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. HARISH BHONEJA /REVENUE BY : MR. PRAKASH MANE DATE OF HEARING : 6 TH MARCH ., 201 3 DATE OF PRONOUNCEMENT : 03/04/ 201 3 O R D E R P ER SHRI R.K.G UPTA, JM : TH E ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE ITAT NAGPUR BENCH, NAGPUR, AGAINST THE ORDER DATED 15 - 3 - 2012 OF LEANED CIT(A) - I I , NAGPUR (MAHARASHTRA) RELA TING TO THE ASSESSMENT YEAR 200 8 - 0 9 , WHICH HAS BEEN HEARD THROUGH E - COURT, MUMBAI. 2 . THE ASSESSEE IS OBJECTING IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST ON INVESTMENT IN SHARES OF HOTEL BALBIR INN PVT. LIMITED. ITA NO. 246 /20 1 2 2 3 . THE ASSESSMENT IN THIS CASE WAS COMPLETED AT A TOTAL INCOME OF RS. 68,27,024/ - AS AGAINST RETURNED INCOME OF RS. 39,53,870/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT AN INVESTMENT OF RS. 2.39 CR ORE HAS BEEN MADE WHICH ARE PERSONAL IN NATURE AND NOT USED FOR THE BUSINESS OF THE ASSESSEE. THIS CONSISTS OF ASSTS IN PLOTS IN THE CASE OF PRITAM BUILDERS WHICH IS A PROPRIETARY CONCERN ON WHICH NO DEVELOPMENT HAS COMMENCED. THE AO FURTHER NOTED THAT ON INVESTMENT IN THE SHARE OF HOTEL BALBIR INN, A PRIVATE LIMITED COMPANY, OF RS. 99 LAKHS WAS HELD BY THE AO AS INVESTMENT WHICH WAS ONLY RESULT IN EARNING OF TAX FREE DIVIDEND. THEREFORE, PROPORTIONATE INTEREST UNDER SECTION 14A WAS DISALLOWED, WHICH WAS COM PUTED AT RS. 24,73,154/ - . 4 . BEING AGGRIEVED WITH THE ORDER OF THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A ), BEFORE WHOM IT WAS CONTENDED THAT THE ASSESSEE WAS A PROPRIETOR AND THEREAFTER HE CONSTITUTED A PRIVATE LIMITED COMPANY IN THE NA ME OF HOTEL BALBIR INN. THE ASSESSEE TRANSFERRED ITS FUNDS TO THE PRIVATE LIMITED COMPANY FOR STARTING CONSTRUCTION BUSINESS. ACCORDINGLY, IT WAS SUBMITTED THAT THE AO WAS TOTALLY INCORRECT IN HOLDING THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES FOR EAR NING DIVIDEND. THE ASSESSEE IS HAVING 97% OF THE SHARES OF THAT COMPANY AND THE COMPANY IS DOING THE BUSINESS OF CONSTRUCTION AND FUND INVESTED IN SHARES WERE UTILIZED FOR THE PURCHASE OF PLOT AND FOR THE PURPOSE OF CONSTRUCTION AND, THEREFORE, THE PROVISI ON OF SECTION 14A ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. AFTER ITA NO. 246 /20 1 2 3 CONSIDERING THE SUBMISSION, THE LEARNED CIT(A) OBSERVED THAT IT IS NOT DISPUTED THAT THE ASSESSEE IS CARRYING ON BUSINESS OF A HOTELIER AND THE BUILDER, THEREFORE, HE FOUND THAT T HE ACTION OF THE AO IN HOLDING THAT THE INVESTMENT IN LAND IS NOT FOR BUSINESS PURPOSE IS NOT TENABLE. LEARNED CIT(A) FURTHER FOUND MERIT IN THE ASSESSEES SUBMISSION THAT INVESTMENT IN LAND IS FOR A BUSINESS PURPOSE, THEREFORE, NO DISALLOWANCE OF INTEREST IS CALLED FOR ON INVESTMENT IN LAND. HOWEVER, AS REGARDS INVESTMENT IN THE BALBIR INN (P) LTD., IT IS SEEN THAT ASSESSEE ACQUIRED 97% OF SHAREHOLDING AND AS THE INVESTMENT IS FOR OBTAINING CONTROLLING INTEREST IN THE SAID COMPANY AND THE ONLY YIELD FROM S UCH INVESTMENT WOULD BE TAX FREE DIVIDEND, THEREFORE , HE HELD THAT THE DISALLOWANCE ON INTEREST ATTRIBUTABLE TO THIS INVESTMENT IS REQUIRED TO BE MADE AS PER PROVISIONS OF SECTION 14A AND DIRECTED THE AO TO CALCULATE THIS DISALLOWANCE AS PER PROVISIONS OF RULE 8D OF THE I.T.RULES. ACCORDINGLY, THE GROUND OF THE APPEAL OF THE ASSESSEE WAS ALLOWED IN PART. NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL . 5 . THE CONTENTIONS RAISED BEFORE THE LEARNED CIT(A) WERE REITERATED HERE BEFORE THE TRIBUNAL . REL IANCE WAS PLACED ON THE COPY OF THE WRITTEN SUBMISSION PLACED IN THE PAPER BOOK AT PAGE 1 TO 9. RELIANCE WAS ALSO PLACED ON TWO CASE LAWS I.E. IN THE CASE OF RELIANCE UTILITIES & POWER LTD, 313 ITR 340 AND IN THE CASE OF S.A. BUILDERS, REPORTED IN 288 ITR 1 (SC) . ITA NO. 246 /20 1 2 4 6 . ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDER OF THE CIT(A) . 7 . AFTER CONSIDERING THE ORDER OF THE AO AND THE CIT(A), WE FOUND THAT THE LEARNED AO AS WELL AS LEARNED CIT(A) COULD NOT UNDERSTAND THE CASE OF THE ASSESSEE IN RIGHT P ERSPECTIVE. THE ASSESSEE HAS NOT MADE INVESTMENT IN SHARES FOR EARNING OF DIVIDEND BUT HE HAS INVESTED IN THE COMPANY IN WHICH 97% SHARE HOLDINGS BELONGS TO ASSESSEE. FUNDS OF THE ASSESSEE PROPRIETORSHIP CONCERN WERE UTILIZED IN INVESTING IN THE SHARES OF THE SAID COMPANY. THE SAID COMPANY IS DOING THE BUSINESS OF CONSTRUCTION, THEREFORE, IT CANNOT BE SAID THAT THERE WILL BE ANY DIVIDEND INCOME, WHICH WILL BE EXEMPTED AND DISALLOWANCE OF INTEREST IS WARRANTED. THIS ASPECT HAS NOT BEEN TAKEN INTO CONSIDERATI ON EITHER BY THE AO OR BY LEARNED CIT(A) AS LEARNED CIT(A) HAS OBSERVED THAT THE INVESTMENT IN COMPANY WILL YIELD PROFIT WHICH WILL BE TAX FREE, WHEREAS THIS OBSERVATION IS NOT CORRECT BECAUSE WHATEVER THE PROFIT OF THE COMPANY WAS THERE ON ACCOUNT OF CONS TRUCTION BUSINESS , THAT WILL BE A BUSINESS PROFIT. WHETHER THERE SHOULD BE ANY DIVIDEND OR NOT IT IS NOT ASCERTAINED BUT IT IS ASCERTAINED THAT THE FUNDS TRANSFERRED FROM PROPRIETORSHIP CONCERN WERE UTILIZED IN CONSTITUTING THE PRIVATE LIMITED AND MAKING I NVESTMENT IN LAND FOR CONSTRUCTION BUSINESS. THIS IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS INVESTED IN SHARES I N DIFFERENT COMPANIES, WHICH DO NOT BELONG TO THE ASSESSEE AND HAS MADE INVESTMENT FOR EARNING DIVIDEND WHEREAS IN THE PRESENT CAS E, THE INVESTMENT HAS BEEN MADE IN SHARES FOR STARTING THE BUSINESS IN THE ITA NO. 246 /20 1 2 5 NAME AND STYLE OF PRIVATE LIMITED COMPANY. THEREFORE, INTENTION OF THE ASSESSEE IS CLEAR FOR INVESTMENT IN SHARES OF THE PRIVATE LIMITED COMPANY , WHERE THE ASSESSEE HAS 97% SHARES W AS NOT FOR THE PURPOSE OF EARNING DIVIDEND BUT FOR THE PURPOSE OF DOING BUSINESS. IN THE CASE OF CCL LIMITED, REPORTED IN 250 ITR 291 , TH E HONBLE KARNATAKA HIGH COURT HAS HELD THAT THE ASSESSEE HAS NOT RETURNED THE SHARES WITH THE INTENTION TO EARN DIVIDE ND INCOME WHICH WAS MERELY AN INCIDENTAL DIVIDEND INCOME AS THE ASSESSEE WANTS ALWAYS THOSE SHARES TO BE PARTED OR SOLD AND ONLY THE UNSOLD SHARES IS THE SOURCE OF SUCH INCIDENTAL DIVIDEND INCOME. ACCORDINGLY, DISALLOWANCE MADE UNDER SECTION 14A WAS DELETE D. SIMILAR FACTS ARE INVOLVED IN THIS CASE AS THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF COMPANY FOR DOING BUSINESS AND NOT FOR EARNING DIVIDEND. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT DISALLOWANCE OF PROPORTIONATE IN TEREST ON INVESTMENT IN SHARES OF HOTEL BALBIR INN PRIVATE LIMITED WAS NOT JUSTIFIED. ACCORDINGLY, WE DELETE THE SAME. 8 . RESULTANTLY , APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF APR .201 3 . 201 3 SD/ - SD/ - ( ) ( D.KARUNAKAR RAO ) ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 0 3 / 0 4 / 201 3 . /PKM , PS ITA NO. 246 /20 1 2 6 COPY OF THE ORDER FORWARDED TO : 1. / T HE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI / NAGPUR . 4. / CIT 5. / DR, ITAT, MUMBAI / NAGPUR . 6. GUARD FILE. //TRUE CO PY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI