M/s. Alliance Infrastructure Projects Private Limited, Bengaluru V. The Assistant Commissioner Of Income Tax, Central Circle- 2(4), Bangalore

ITA 2466/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9444 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-07-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 02-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 271(1)(c); 14A

Judgement Text

ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NOS.2464 TO 2467/BANG/2019 ASSESSMENT YEARS: 2013-14 TO 2016-17 ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD. NO.85, KARTHIK NAGAR MARATHAHALLI K.R. PURAM, OUTER RING ROAD BENGALURU 560 037. PAN NO.AAFCA0404J VS. ACIT CENTRAL CIRCLE 2(4) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SMT. SUMAN LUNKAR, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 29.07.2021 DATE OF PRONOUNCEMENT : 30.07.2021 O R D E R PERBENCH: ALL THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 30.9.2019 PASSED BY LD. CIT(A)-1 1, BENGALURU AND THEY RELATE TO THE ASSESSMENT YEARS 2013-14 TO 2016-17. THE COMMON ISSUE URGED IN ALL THE APPEALS RELATE TO DIS ALLOWANCE MADE BY THE A.O. U/S 14A OF THE INCOME-TAX ACT,1961 ['TH E ACT' FOR SHORT] WHICH HAS BEEN CONFIRMED BY LD. CIT(A). ALL THE AP PEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 2 OF 8 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. IT HAS FORMED SUBSIDIARY COMPANIES AND PARTNERSHIP FIR MS TO EXECUTE VARIOUS PROJECTS. ACCORDINGLY, THE ASSESSEE HAS MA DE INVESTMENTS IN THE ABOVE SAID CONCERNS. IN ALL THE FOUR YEARS U NDER CONSIDERATION, THE ASSESSEE HAS RECEIVED SHARE INC OME FROM PARTNERSHIP FIRM AS DETAILED BELOW:- FOR A.Y. 2013-14 - 12.34 CRORES FOR A.Y. 2014-15 - 12.95 CRORES FOR A.Y. 2015-16 - 12.22 CRORES FOR A.Y. 2016-17 - 10.82 CRORES (NOTE:-- THE ABOVE SAID FIGURES HAVE BEEN COLLATED BY US FROM THE BALANCE SHEET FILED IN THE PAPER BOOK. THERE IS SL IGHT VARIATION IN AMOUNT OF SHARE INCOME SHOWN IN ITR FORMS). 3. HOWEVER, THE ASSESSEE DID NOT MAKE ANY DISALLOWA NCE AS REQUIRED U/S 14A OF THE INCOME-TAX ACT,1961 ['THE A CT' FOR SHORT], EVEN THOUGH IT HAD RECEIVED EXEMPT INCOME IN ASSESS MENT YEARS 2013-14 TO 2015-16. HOWEVER, IN AY 2016-17, THE AS SESSEE HAD MADE DISALLOWANCE OF ROUND SUM OF RS.5.00 LAKHS U/S 14A OF THE ACT. HENCE THE A.O. HAS COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D AS UNDER: ASSESSMENT YEAR INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) EXPENDITURE DISALLOWANCE UNDER RULE 8D(2)(III) 2013-14 61,05,257 34,41,876 2014-15 3,90,418 43,04,968 2015-16 -- 52,92,691 2016-17 -- 53,31,451* (*AFTER DEDUCTING RS.5.00 LAKHS, BEING THE DISALLOW ANCE MADE BY THE ASSESSEE) ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 3 OF 8 THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A .O. HENCE THE ASSESSEE HAS FILED ALL THESE APPEALS CHALLENGING TH E DECISION RENDERED BY LD CIT(A) ON THE IMPUGNED ISSUE. 4. THE LD. A.R. SUBMITTED THAT THE A.O. HAS MADE DI SALLOWANCE OUT OF INTEREST EXPENDITURE U/R 8D(2)(II) IN ASSESS MENT YEAR 2013-14 & 2014-15 ONLY. THE AO HAS ALSO MADE DISALLOWANCE O UT OF EXPENSES U/R 8D(2)(III) IN ALL THE FOUR YEARS. WIT H REGARD TO THE INTEREST DISALLOWANCE, THE LD. A.R. SUBMITTED THAT THE OWN FUNDS AND INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN AY 2013-14 AND 2014-15ARE IN EXCESS OF THE VALUE OF INVESTMENT AND INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT NO DISALLOWANCE OUT OF INTEREST EXPE NDITURE IS CALLED FOR, SINCE THE PRESUMPTION IS THAT THE INTEREST FRE E FUNDS/OWN FUNDS HAVE BEEN USED TO MAKE INVESTMENTS. THE LD. A.R. A LSO SUBMITTED THAT THE ASSESSEE HAD TAKEN LOAN IN THE EARLIER YEA RS FOR SPECIFIC PURPOSES AND NOT DURING THE YEAR UNDER CONSIDERATIO N. 5. THE LD. A.R. ALSO CONTENDED THAT THE A.O. HAS NO T RECORDED SATISFACTION TO REJECT THE CLAIM OF THE ASSESSEE WI TH REGARD TO THE DISALLOWANCE U/S 14A OF THE ACT AND HENCE, THE A.O. COULD NOT HAVE INVOKED PROVISIONS OF RULE 8D FOR MAKING DISALLOWAN CE. 6. THE LD. A.R. ALSO SUBMITTED THAT THE A.O. HAS CO NSIDERED VALUE OF ALL INVESTMENTS FOR WORKING OUT AVERAGE VA LUE OF INVESTMENT, WHEREAS, THE ASSESSEE HAS RECEIVED EXEM PT INCOME ONLY FROM ONE/TWO PARTNERSHIP FIRMS IN ALL THESE YEARS. ACCORDINGLY, BY PLACING HER RELIANCE ON THE DECISION RENDERED BY DE LHI SPECIAL BENCH OF ITAT IN THE CASE OF ACIT VS. VIREET INVEST MENTS PVT. LTD. (2017) 82 TAXMANN.COM 415, THE LD. A.R. SUBMITTED T HAT ONLY ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 4 OF 8 THOSE INVESTMENTS, WHICH HAVE YIELDED EXEMPT INCOME SHOULD BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMEN TS. 7. ON THE CONTRARY, THE LD. D.R. PLACED RELIANCE ON THE ORDER PASSED BY TAX AUTHORITIES. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE SHALL FIRST ADDRESS THE LEGAL ISSUE URGED BY THE AS SESSEE, VIZ., THE A.O. HAS NOT RECORDED SATISFACTION BEFORE INVOKING THE PROVISIONS OF RULE 8D. HOWEVER, A PERUSAL OF ASSESSMENT ORDER WO ULD SHOW THAT THE A.O. HAS DISCUSSED THE APPLICABILITY OF THE PRO VISIONS OF SECTION 14A OF THE ACT BY DULY CONSIDERING THE LETTERS FILE D BY THE ASSESSEE BEFORE HIM. HENCE, IT IS NOT A CASE OF NON-RECORDI NG OF DIS- SATISFACTION OVER THE CLAIM MADE BY THE ASSESSEE, A S CONTENDED BY LD A.R. IT IS PERTINENT TO MENTION HERE THAT THE A CT DOES NOT PRESCRIBE ANY PARTICULAR METHOD FOR RECORDING SATIS FACTION/DIS- SATISFACTION. HENCE THE SATISFACTION/DISSATISFACTI ON OF THE AO OVER THE CLAIM MADE BY THE ASSESSEE SHOULD BE INFERRED F ROM THE OBSERVATIONS MADE BY HIM IN THE ASSESSMENT ORDER. WE FIND SUPPORT FOR THIS PROPOSITION FROM THE DECISION REND ERED BY HON'BLE SUPREME COURT IN THE CASE OF MAK DATA (P) LTD,(2014 )(1 SCC 674) WHEREIN IT WAS OBSERVED AS UNDER:- 10. THE AO HAS TO SATISFY WHETHER THE PENALTY PROC EEDINGS BE INITIATED OR NOT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE AO IS NOT REQUIRED TO RECORD HIS SATISFACTION IN A PARTICULAR MANNER OR REDUCE IT INTO WRITING. EVEN THOUGH, THE ABOVE SAID OBSERVATION WAS MADE IN THE CONTEXT OF PENALTY LEVIED U/S 271(1)(C) OF THE ACT, YET THE SA ID RATIO, IN OUR VIEW, COULD EQUALLY BE APPLIED TO SEC.14A OF THE AC T IN THE MATTER OF RECORDING OF SATISFACTION/DISSATISFACTION. IN TH E INSTANT CASES, WE HAVE EARLIER NOTICED THAT THE A.O. HAS MADE DETAILE D DISCUSSION IN ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 5 OF 8 ALL THE YEARS UNDER CONSIDERATION ON THE APPLICABIL ITY OF SEC.14A OF THE ACT, THAT TOO, AFTER CONSIDERING THE LETTER FIL ED BY THE ASSESSEE. MEANING THEREBY, THE ASSESSING OFFICER HAS SHOWN TH AT HE WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. ACCORDIN GLY, WE DO NOT FIND ANY MERIT ON THE LEGAL ISSUE URGED BY THE ASSESSEE. ACCORDINGLY, WE REJECT THE LEGAL GROUND RELATING TO RECORDING OF SA TISFACTION/DIS- SATISFACTION BY THE A.O. 9. WITH REGARD TO THE DISALLOWANCE MADE UNDER R ULE 8D(2)(II) IN ASSESSMENT YEAR 2013-14 & 2014-15, THE ASSESSEE HAS FURNISHED THE DETAILS OF OWN FUNDS AND INTEREST FREE FUNDS AV AILABLE WITH IT AS UNDER, WHICH HAS BEEN CULLED OUT FROM THE FINANCIAL STATEMENTS OF ALL THE YEARS UNDER CONSIDERATION:- PARTICULARS ASSESSMENT YEAR 2013-14 ASSESSMENT YEAR 2014-15 SHARE CAPITAL 57,049,000.00 57,049,000.00 RESERVES & SURPLUS 90,909,586.00 196,658,626.00 INTEREST FEES ADVANCE FROM GROUP COMPANIES 2,046,156,085.00 2,689,701,585.00 TOTAL (A) 2,194,114,671.00 2,943,409,211.00 PARTICULARS ASSESSMENT YEAR 2013-14 ASSESSMENT YEAR 2014-15 INVESTMENTS IN SUBSIDIARIES/RELATED CONCERNS 752,024,414.00 969,963,162.00 INTEREST FREE ADVANCES GIVEN 1,299,506,011.00 1,833,113,842.00 TOTAL (B) 2,051,530,425.00 2,803,077,004.00 SURPLUS FUNDS (A-B)=C 142,584,246.00 140,332,207.00 WE HAVE OBSERVED EARLIER THAT THE ASSESSEE HAS FLOA TED MANY SISTER CONCERNS AND THERE HAS BEEN TRANSFER OF FUNDS (INTE REST FREE) BETWEEN THE SISTER CONCERNS. HENCE THE ASSESSEE HA S SHOWN BOTH INTEREST FREE FUNDS RECEIVED FROM THE SISTER CONCER NS AND ALSO ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 6 OF 8 ADVANCES GIVEN TO OTHER SISTER CONCERNS IN THE ABOV E STATEMENT. A PERUSAL OF THE ABOVE STATEMENT WOULD SHOW THAT THE OWN FUNDS AND INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE IN EXCESS OF THE VALUE OF INVESTMENTS IN SUBSIDIARIES/RELATED CONCER NS AND INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. HENCE, AS PER THE DECISION RENDERED BY HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. MICRO LABS LTD. (INCOME TAX APPEAL NO.471/2015 DATE D 11.3.2016), NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALL ED FOR UNDER RULE 8D(2)(II). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER PASSED BY HONBLE KA RNATAKA HIGH COURT: 40. WE HAVE HEARD THE RIVAL SUBMISSIONS. A COPY OF THE AVAILABILITY OF FUNDS AND INVESTMENTS MADE WAS FILED BEFORE US WHICH IS A T PAGES 38 TO 42 OF THE ASSESSEE'S PAPER BOOK AND THE SAME IS ENCLOSED AS A NNEXURE-III TO THIS ORDER. IT IS CLEAR FROM THE SAID STATEMENT THAT THE AVAILABILITY OF PROFIT, SHARE CAPITAL AND RESERVES & SURPLUS WAS MUCH MORE THAN I NVESTMENTS MADE BY THE ASSESSEE WHICH COULD YIELD TAX FREE INCOME. 41. THE HON'BLE BOMBAY HIGH COURT IN RELIANCE UTILI TIES & POWER LTD. 313 ITR 340 (BOM) HAS HELD THAT WHERE THE INTEREST FREE FUNDS FAR EXCEED THE VALUE OF INVESTMENTS, IT SHOULD BE CONSIDERED THAT INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AND NO DISALLOWANCE U/S. 14A TOWARDS ANY INTEREST EXPENDITURE CAN BE MADE. THIS VIEW WAS AGAIN CONFIR MED BY THE HON'BLE BOMBAY HIGH COURT IN CIT V. HDFC BANK LTD., ITA NO. 330 OF 2012, JUDGMENT DATED 23.7.14, WHEREIN IT WAS HELD THAT WH EN INVESTMENTS ARE MADE OUT OF COMMON POOL OF FUNDS AND NON-INTEREST BEARIN G FUNDS WERE MORE THAN THE INVESTMENTS IN TAX FREE SECURITIES, NO DISALLOW ANCE OF INTEREST EXPENDITURE U/S. 14A CAN BE MADE. 42. IN THE LIGHT OF ABOVE SAID DECISIONS, WE ARE OF THE VIEW THAT DISALLOWANCE OF INTEREST EXPENSES IN THE PRESENT CASE OF RS.49,4 2,473 MADE UNDER RULE 8D(2)(II) OF THE I.T. RULES SHOULD BE DELETED. WE O RDER ACCORDINGLY.' ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 7 OF 8 THEREAFTER, IT WAS HELD BY HONBLE KARNATAKA HIGH C OURT AS UNDER:- THE AFORESAID SHOWS THAT THE TRIBUNAL HAS FOLLOWED A DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK L TD. [2014] 366 ITR 505/226 TAXMAN 132 (MAG.)/49 TAXMANN.COM 33 5 . WHEN THE ISSUE IS ALREADY COVERED BY A DECISION OF THE HIGH COURT OF BOMBAY WITH WHICH WE CONCUR, WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW WOULD ARISE FOR CONSIDERATION AS CANVASSED. ACCORDINGLY, APPLYING THE RATIO LAID DOWN BY HONBL E KARNATAKA HIGH COURT IN THE CASE OF MICRO LABS LTD. (SUPRA), WE HOLD THAT NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR UNDER RULE 8D(2)(II). ACCORDINGLY, WE SET ASIDE THE ORDER PAS SED BY LD. CIT(A) ON THIS ISSUE IN ASSESSMENT YEARS 2013-14 & 2014-15 AND DIRECT THE A.O. TO DELETE THE DISALLOWANCE. 10. WITH REGARD TO THE DISALLOWANCE MADE OUT OF OT HER EXPENSES UNDER RULE 8D(2)(III), IT IS THE CASE OF THE ASSESS EE THAT IT HAS RECEIVED EXEMPT INCOME ONLY FROM ONE/TWO PARTNERSHI P CONCERNS. ACCORDINGLY, IT WAS SUBMITTED THAT, FOR THE PURPOSE OF COMPUTING AVERAGE VALUE OF INVESTMENTS, ONLY THOSE INVESTMENT S WHICH HAVE YIELDED EXEMPT INCOME SHOULD BE CONSIDERED. THIS C ONTENTION OF THE ASSESSEE GETS SUPPORT FROM THE DECISION RENDERE D BY DELHI SPECIAL BENCH OF ITAT IN THE CASE OF VIREET INVESTM ENTS PVT. LTD. (SUPRA). ACCORDINGLY, WE SET ASIDE THE ORDER PASSE D BY LD. CIT(A) ON THIS ISSUE IN ALL THE YEARS UNDER CONSIDERATION AND DIRECT THE A.O. TO RECOMPUTE DISALLOWANCES UNDER RULE 8D(2)(III) BY CO NSIDERING ONLY THOSE INVESTMENTS, WHICH HAVE YIELDED EXEMPT INCOME FOR THE PURPOSE OF COMPUTING AVERAGE VALUE OF INVESTMENTS. IN CASE THE DISALLOWANCE COMPUTED AS PER ABOVE FORMULA WORKS OU T TO LESS THAN RS.5.00 LAKHS IN AY 2016-17, THEN THE DISALLOWANCE SHALL BE MADE AT THE AMOUNT OF RS.5.00 LAKHS VOLUNTARILY DISALLOW ED BY THE ASSESSEE IN THAT YEAR. ITA NOS.2464 TO 2467/BANG/2019 M/S. ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD., BA NGALORE PAGE 8 OF 8 11. IN THE RESULT, THE APPEALS FILED BY TH ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2021 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 30 TH JULY, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.