SATELLITE DEVLOPERS P.LTD, MUMBAI V. ACIT CEN CIR 5(4), MUMBAI

ITA 2664/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0250 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2012-2013
• Appeal Filed On: 12-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: V C SHAH
• Keywords: Bogus purchase; Business income; Business expenditure; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER & SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NOS.2664 & 2665/MUM/2017 ASSESSMENT YEARS : 2012-13 & 2013-14 SATELLITE DEVELOPERS P. LTD., BLDG. NO.14, 7 TH FLOOR, ANDHERI GHATKOPAR LINK ROAD, ANDHERI (E), MUMBAI 400 092. PAN AADCS0420Q VS. A CIT CENTRAL CIRCLE 5(4) , MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V C SHAH RESPONDENT BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 0 6 . 1 2 .201 8 DATE OF PRONOUNCEMENT : 12 .1 2 .2018 O R D E R PER B R BASKARAN, ACCOUNTANT MEMBER BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY LEARNED CIT(A)-53, MUMBAI, AND THEY RELAT E TO THE ASSESSMENT YEARS 2012-13 AND 2013-14. BOTH THE APPEALS WERE H EARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORD ER, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RE AL ESTATE DEVELOPMENT, POWER GENERATION (WINDMILL), FINANCE AND TRADING. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE A SSESSEE FOR A.Y. 2012-13. THE FIRST ISSUE AGITATED THEREIN RELATES TO DISALLO WANCE OF CLAIM FOR DEDUCTION OF SOCIETY CHARGES OF ` 7,59,850/- PAID BY THE ASSESSEE IN RESPECT OF FLAT S SOLD BY IT. ITA NO2664 & 2665/MUM/2017 SATELLITE DEVELOPERS P. LTD. 2 4. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID A SUM OF ` 13,24,409/- AS SOCIETY MAINTENANCE CHARGES IN RESPE CT OF FLATS WHICH DID NOT FETCH ANY RENTAL INCOME. THE ASSESSING OFFICER TOOK THE VIEW THAT THE ABOVE SAID EXPENDITURE DOES NOT PERTAIN TO BUSINESS AND, ACCORDINGLY, DISALLOWED THE CLAIM. THE LEARNED CIT(A) ALLOWED THE CLAIM TO THE EXTENT OF ` 5,64,559/- AND SUSTAINED THE ADDITION TO THE EXTENT OF ` 7,59,850/-. THE RELEVANT OBSERVATIONS MADE BY THE CIT(A) ARE EXTRACTED BELOW : 4.3.2 AS REGARDS THE APPELLANT'S CLAIM FOR DEDUCT ION OF FURTHER SOCIETY MAINTENANCE CHARGES OF RS.13,24,409/-, IT IS NOTICE D FROM THE RECORD THAT OUT OF THIS, SOCIETY CHARGES AGGREGATING TO RS .5,64,559/- WERE INCURRED IN RESPECT OF UNSOLD FLATS HELD BY THE APP ELLANT IN TRIDEV APARTMENT AND UTPAL PARK PROJECTS WHEREAS SUM OF RS .7,59,850/- WAS INCURRED IN RESPECT OF 3 FLATS ALREADY SOLD IN THE BUILDING KNOWN AS SATELLITE TOWER B1B2. THE APPELLANT VIDE ITS WRITTE N SUBMISSIONS DATED 05.03.2015 EXPLAINED BEFORE THE A.O. THAT THE PURCH ASERS OF THESE FLATS HAD PAID ENTIRE CONSIDERATION UPFRONT INCLUDI NG ALL CHARGES PAYABLE FOR THEIR FLATS POST OCCUPATION EXCEPT MONT HLY OUTGOINGS PAYABLE DIRECTLY TO THE SOCIETY. IN OTHER WORDS, IT WAS NOT THE APPELLANT BUT THE RESPECTIVE PURCHASERS OF SAID FLATS WHO WER E LIABLE TO PAY MONTHLY OUTGOINGS DIRECTLY TO THE SOCIETY. THEREFOR E, I AGREE WITH THE A.O.'S FINDING THAT THE APPELLANT CANNOT BE ALLOWED DEDUCTION OF SOCIETY CHARGES TO THE TUNE OF RS.7,59,850/- AND TH E ACTION OF THE A.O. IN DISALLOWING THE SAME IS THUS UPHELD. HOWEVER, IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION OF SOCIETY MAIN TENANCE CHARGES AMOUNTING TO RS.5,64,559/- PAID IN RESPECT OF UNSOL D FLATS U/S.37(1) OF THE ACT. GROUND NO.2 OF THE PRESENT APPEAL IS HENCE ALLOWED TO THE EXTENT INDICATED ABOVE . THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS SOLD CERTAIN FLATS AND THE IMPUGNED AMOUNT OF ` 7,59,850/- WAS PAID BY THE ASSESSEE ON BEHALF OF T HE FLAT BUYERS, SINCE AS PER THE AGREEMENT ENTERED BET WEEN THE ASSESSEE AND FLAT PURCHASERS, THE CONSIDERATION INCLUDED ABOVE S AID AMOUNT ALSO. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS AGREED T O PAY INTEREST FREE DEPOSIT EQUIVALENT TO TWENTY FOUR MONTHS TO THE SOC IETY ON BEHALF OF THE FLAT PURCHASERS. IN THIS REGARD HE INVITED OUR ATTENTI ON TO PARA 4.5 OF THE ITA NO2664 & 2665/MUM/2017 SATELLITE DEVELOPERS P. LTD. 3 AGREEMENT ENTERED INTO BETWEEN THE PARTIES, WHICH I S PLACED AT PAGE 3 OF THE PAPER BOOK. ACCORDINGLY, HE SUBMITTED THAT THE ASS ESSEE WAS OBLIGED TO PAY THE AMOUNT AS PER THE AGREEMENT ENTERED INTO WITH T HE PURCHASE PARTIES AND THE SAME CONSTITUTES NORMAL BUSINESS EXPENDITURE AL LOWABLE U/S. 37(1) OF THE ACT. ON THE CONTRARY, LEARNED DR SUPPORTED THE ORD ER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE. 5. WE HEARD THE PARTIES ON THE ISSUE AND PERUSED TH E RECORD. IT IS THE CONTENTION OF THE ASSESSEE THAT THE FLAT BUYERS HAD PAID THE ENTIRE AMOUNT UPFRONT INCLUDING ALL CHARGES PAYABLE FOR THEIR FLA TS POST OCCUPATION. IT IS THE CONTENTION OF THE ASSESSEE THAT THE IMPUGNED AMOUNT OF ` 7,59,850/- IS IN THE NATURE OF INTEREST FREE DEPOSIT PAYABLE BY THE FLAT PURCHASERS TO THE SOCIETY. IN THIS REGARD THE LEARNED AR PLACED HIS RELIANCE ON CLAUSE 4.5 OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE FLAT PURCHASERS. 6. THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND F LAT PURCHASERS IS VERY MUCH RELEVANT HERE. AS PER THE AGREEMENT, IF THE ASSESSEE HAD AGREED TO PAY THE AMOUNT PAYABLE TO THE SOCIETY BY THE FLA T PURCHASERS, THEN THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE A MOUNT SO PAID IS ALLOWABLE AS DEDUCTION WHILE COMPUTING THE BUSINESS INCOME. WE NOTICED THAT THE LEARNED AR HAS PLACED HIS RELIANCE ON THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE FLAT PURCHASERS. HOWEVER, WE NOTICED THAT THE TAX AUTHORITIES HAVE NOT EXAMINED THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE FLAT PURCHASERS AND ALSO DID NOT E XAMINE THE OBLIGATION OF THE ASSESSEE TO PAY THE IMPUGNED AMOUNT TO THE SOCI ETY. HENCE, IN OUR VIEW THIS ASPECT REQUIRES FRESH EXAMINATION AT THE END O F THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE L EARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSES SING OFFICER WITH A DIRECTION TO EXAMINE THE SUBMISSIONS OF THE ASSESSEE VIS-A-VI S THE AGREEMENT ENTERED ITA NO2664 & 2665/MUM/2017 SATELLITE DEVELOPERS P. LTD. 4 INTO BETWEEN THE PARTIES AND ALSO BY DULY CONSIDERI NG THE INFORMATION AND EXPLANATIONS FURNISHED BY THE ASSESSEE AND TAKE APP ROPRIATE DECISION IN ACCORDANCE WITH LAW. 7. THE NEXT ISSUE RELATES TO DISALLOWANCE OF ALLEGE D BOGUS PURCHASES. THE REVENUE RECEIVED INFORMATION FROM THE SALES TAX DEP ARTMENT OF GOVERNMENT OF MAHARASHTRA THAT CERTAIN DEALERS WERE ONLY PROVI DING ACCOMMODATION BILLS WITHOUT ACTUALLY SUPPLYING THE MATERIALS. IT WAS N OTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS PURCHASED MATERIALS F ROM SOME OF SUCH DEALERS AGGREGATING TO ` 43.00 LACS. THE ASSESSING OFFICER DISALLOWED THE SAME TREATING THE PURCHASES AS BOGUS IN NATURE. IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO RE STRICT THE ADDITION TO THE PEAK AMOUNT OF PURCHASES, WHICH WORKED OUT TO ` 14,34,089. THE LEARNED CIT(A) ALSO DIRECTED THE ASSESSING OFFICER TO ADD 1 % OF THE AGGREGATE AMOUNT OF PURCHASES AS COMMISSION EXPENSES INCURRED BY THE ASSESSEE IN PROCURING ACCOMMODATION BILLS. 8. AT THE TIME OF HEARING, LEARNED AR SUBMITTED THA T THE ASSESSING OFFICER HAS MADE IDENTICAL ADDITION IN A.Y. 2011-12 ALSO AN D WHEN THE MATTER REACHED THE TRIBUNAL, ITAT VIDE ITS ORDER DATED 23. 08.2017 PASSED IN ITA NO.4874/MUM/2016 HAS MODIFIED THE ORDER OF THE LEAR NED CIT(A) AND DIRECTED THE ASSESSING OFFICER TO SUSTAIN ADDITION TO THE EXTENT OF 12.50% OF THE VALUE OF ALLEGED BOGUS PURCHASES. ACCORDINGLY, THE LEARNED DR SUBMITTED THAT THE ORDER PASSED BY THE TRIBUNAL IN A.Y. 2011- 12 MAY BE FOLLOWED IN THE YEAR UNDER CONSIDERATION ALSO. 9. WE HEARD THE LEARNED DR AND PERUSED THE RECORD. SINCE THE CORDINATE BENCH OF THE TRIBUNAL HAS ADJUDICATED IDENTICAL ISS UE IN ASSESSEES OWN CASE IN A.Y. 2011-12, FOLLOWING THE SAID ORDER OF THE CO -ORDINATE BENCH, WE MODIFY THE ORDER PASSED BY THE LEARNED CIT(A) ON THE ISSUE AND DIRECT THE ASSESSING ITA NO2664 & 2665/MUM/2017 SATELLITE DEVELOPERS P. LTD. 5 OFFICER TO RESTRICT THE ADDITION TO 12.50% OF THE V ALUE OF ALLEGED BOGUS PURCHASES. CONSEQUENTLY, THE COMMISSION EXPENDITUR E ESTIMATED BY THE LEARNED CIT(A) IS DELETED. 10. WE SHALL NOT TAKE UP APPEAL FILED BY THE ASSESS EE FOR A.Y. 2013-14. THE SOLITARY ISSUE FOR ADJUDICATION IN THIS APPEAL RELATES TO DISALLOWANCE OF ` 17.99 LACS MADE U/S. 14A READ WITH RULE 8D OF THE A CT. 11. WE HEARD THE PARTIES AND PERUSED THE RECORD. D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF ` 2,85,306/-. THE ASSESSEE DID NOT CLAIM THE SAME AS EXEMPT I.E. THE ASSESSEE OFFERED THE SAME AS PART OF ITS BUSINESS INCOME. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SHOWN INVESTMENTS TO THE TUNE OF ` 3754.10 LACS, WHICH CAN YIELD AN EXEMPT INCOME. ACCORDINGLY, HE TOOK THE V IEW THAT THE PROVISION OF SECTION 14A SHALL BE APPLICABLE TO THE ASSESSEE. T HE ASSESSING OFFICER WORKED OUT THE AMOUNT DISALLOWABLE U/. 14A AS PER R ULE 8D(2)(III) AND, ACCORDINGLY, DISALLOWED A SUM OF ` 17.99 LACS. THE LEARNED CIT(A) CONFIRMED THE SAME AND, HENCE, HAS FILED THIS APPEAL. 12. AT THE TIME OF HEARING, THE LEARNED AR SUBMITT ED THAT THE ASSESSEE DID NOT CLAIM ANY EXEMPTION IN RESPECT OF DIVIDEND INCO ME AND, HENCE, THE TAX AUTHORITIES ARE NOT JUSTIFIED IN COMPUTING DISALLOW ANCE U/S. 14A OF THE ACT. THE LEARNED AR PLACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. BALLARPUR INDUSTRIES LIMITED (INCOME TAX APPEAL NO.51 OF 2016 DATED 13.10.2016). 13. ON THE CONTRARY, THE LEARNED DR SUPPORTED THE O RDER PASSED BY THE LEARNED CIT(A). 14. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ` ITA NO2664 & 2665/MUM/2017 SATELLITE DEVELOPERS P. LTD. 6 2,85,306/-. THE LEARNED AR FAIRLY ADMITTED THAT TH E ABOVE SAID DIVIDEND INCOME IS EXEMPT UNDER THE INCOME TAX ACT. HOWEVER , THE ASSESSEE HAS OFFERED THE SAME FOR TAXATION AND, ACCORDINGLY, CLA IMED THAT NO DISALLOWANCE U/S. 14A SHALL BE MADE AS THE ASSESSEE DID NOT CLAI M ANY EXEMPTION. 15. WE ARE UNABLE TO AGREE WITH THE STAND TAKEN BY THE ASSESSEE. IF AN ITEM OF INCOME IS EXEMPT UNDER THE PROVISIONS OF TH E ACT, THE ASSESSING OFFICER IS NOT AUTHORIZED TO ASSESS THE SAME SIMPLY ON THE REASON THAT THE ASSESSEE HAS DECIDED TO FOREGO THE EXEMPTION. THER E SHOULD NOT BE ANY DISPUTE THAT THE TOTAL INCOME OF THE ASSESSEE HAS T O BE COMPUTED IN ACCORDANCE WITH THE MANDATE OF THE PROVISIONS OF TH E INCOME TAX ACT AND NEITHER THE ASSESSING OFFICER NOR THE ASSESSEE HAS ANY RIGHT TO DEVIATE FROM THE SAME. HENCE, THE DIVIDEND INCOME OF ` 2,85,306/- OFFERED BY THE ASSESSEE HAS TO BE NECESSARILY BE TREATED AS EXEMPT . ONCE THE DIVIDEND INCOME IS TREATED AS EXEMPT THE PROVISIONS OF SECTI ON 14A OF THE ACT SHALL AUTOMATICALLY APPLY. 16. WE NOTICED THAT CO-ORDINATE BENCH OF ITAT IN TH E CASE OF FUTURE CORPORATE RESOURCES LTD VS. DCIT (ITA NO. 4658/MUM/ 2015 DATE 26.07.2017) HAS TAKEN A VIEW THAT DISALLOWANCE U/S. 14A SHOULD NOT EXCEED THE AMOUNT OF EXEMPT INCOME. THE CO-ORDINATE BENCH HAS TAKEN THE SUPPORT OF DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA PVT. LTD. (2014) 272 CTR 282 AND ALSO THE DECISION RENDERED IN THE CASE OF JOINT INVESTMENTS PRIVATE LTD. (2015) 3 72 ITR 694 FOR ARRIVING AT THE DECISION. IN THE INSTANT CASE, THE EXEMPT INCO ME DECLARED BY THE ASSESSEE WAS ` 2,85,306/- AND THE SAME HAS ALSO BEEN OFFERED TO T AX. IN VIEW OF THE DECISION RENDERED BY CO-ORDINATE BENCH IN THE CASE OF FUTURE CORPORATE RESOURCES LTD., THE AMOUNT OF ` 2,85,306/- OFFERED BY THE ASSESSEE, IN OUR VIEW, SHOULD BE CONSTRUED AS DISALLOWANCE MA DE U/S. 14A OF THE ACT. ITA NO2664 & 2665/MUM/2017 SATELLITE DEVELOPERS P. LTD. 7 ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE L EARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE D IVIDEND INCOME OF ` 2,85,306/- AS THE SAME IS EXEMPT AND DISALLOW A SUM OF ` 2,85,306/- U/S. 14A OF THE ACT AS EXPENDITURE RELATING TO THE ABOVE SAI D EXEMPT INCOME. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2012-13 IS TREATED AS PARTLY ALLOWED AND APPEAL FOR A.Y. 2013- 14 IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 2 TH DECEMBER 2018 SD/- SD/- (AMARJIT SINGH) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 12 TH DECEMBER, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI