The ACIT, Circle-2(1)(2), Baroda V. M/s. Pratham Realty Pvt. Ltd., Vadodara

ITA 2881/AHD/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5321 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: NIRMIT M MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 234B; 14A; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE ACIT, CIRCLE - 2(1)(2), BARODA (APPELLANT/RESPONDENT) VS M/S. PATHAM REALTY PVT. LTD., 1 ST FLOOR, PRATHAM, ISKON TEMPLE ROAD, GOTRI, VADODARA PAN: AACCP 4084A (RESPONDENT /CROSS OBJEC TOR ) REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI NIRMIT M. MEHTA, A.R. DATE OF HEARING : 14 - 03 - 2 018 DATE OF PRONOUNCEMENT : 24 - 10 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL AND ASSESSEE S CROSS OBJECTION FOR A. Y. 2012 - 13 , ARI SE FROM ORDER OF THE CIT(A) - 2, VADODARA DATED 26 - 08 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; I N SHORT THE ACT . 2 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C.I.T, (A) ERRED IN DIRECTING THE A.O. TO DELETING DISALLOWANCE OF RS. 1,00,37,410/ - U/S. 14A OF TH E ACT WITHOUT APPRECIATING THAT THE A.O'S FINDING IN THE ASSESSMENT ORDER TO THE EFFECT THAT 'THE ASSESSEE DID NOT CREDIT IN ITS PROFIT AND LOSS A/C BEING THE INTEREST ON CAPITAL INVESTED IN THE FIRM, BUT THE ASSESSEE HAD CLAIMED INCOME RECEIVED FROM THE F IRM AS EXEMPT INCOME'. I T A NO . 28 81 / A HD/20 16 & C . O. NO. 07/AHD/2017 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 2881 /AHD/20 1 6 & CO NO. 07/AHD/2017 A.Y. 2012 - 13 PAGE NO ACIT VS. M/S. PRATHAM REALTY PVT. LTD. 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C.I.T. (A) ERRED IN DIRECTING THE A.O. TO DELETING DISALLOWANCE U/S. 14A OF THE ACT OF RS. 1,00,37,410/ - RELYING ON THE HON'BLE I.T.A.T'S ORDER IN THE AS SESEE'S CASE FOR A.Y. 2011 - 12, WITHOUT APPRECIATING THAT THE ASSESEE DURING THE COURSE OF ASSESSMENT PROCEEDING DID NOT SUBMIT THE COPY OF PARTNERSHIP DEED TO THE A.O. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C.I.T. ( A) ERRED IN DIRECTING THE A.O. TO EXCLUDE THE DISALLOWANCE OF INTEREST FROM TOTAL DISALLOWANCE OF RS.1,37,67,410/ - WITHOUT APPRECIATING THAT THE A.O. HAD COMPUTED DISALLOWANCE U/S. 14A OF RS. 1,00,37,410/ - AFTER EXCLUDING DISALLOWANCE OF INTEREST FROM TOTAL DISALLOWANCE OF RS. 1,37,67,410/ - . THE GROUNDS OF APPEAL OF THE REVENUE ARE INTERCONNECTED TO THE COMMON ISSUE, THEREFORE FOR THE SAKE OF CONVENIENCE THE Y ARE ADJUDICATED TOGETHER AS FOLLOWS. 3. THE BRIEF FACT OF THE CASE IS THAT T HE ASSESSEE FIRM I S PARTNER IN THE VARIOUS FIRMS . T HE TOTAL INVESTMENT IN T HESE FIR M S WAS MADE TO THE AMOUNT OF RS . 81 ,45,71, 630/ - AS ON 31 ST MARCH, 2012 BY THE ASSESSEE . THE ASSSESSEE HAS EARNED SHARE OF PROFIT TO THE AMOUNT OF RS. 10,49,55,379/ - FROM THE PART NERSHIP FIRMS WHICH IS EXEMPTED FROM TAX IN THE HANDS O F PARTNERS. THE ASSESSEE HAS BORROWED MONEY ON WHICH IT HAS PAID INTEREST TO THE AMOUNT OF RS . 1 , 00 , 37 ,414 / - .IT WAS ALSO NOTICED THAT THE BOR ROWED FUND S WERE ADVANCE D TO THE PARTNERSHIP FIRM M/S. PRATHAM DO STI R EALITY IN WHICH THE ASSESSEE WAS A PARTNER. THE ASSESSEE HAS RECEIVED INTEREST OF RS. 1 , 00 , 33 , 168/ - FROM THE SAID PARTNERSHIP FIRM ON THE AFORESAID AMOUNT ADVANCED. THE ASSESSING OFFICER OBSERVED THAT THE INTEREST EXPENDITURE ARE REQUIRED TO BE CONSIDERED FOR THE PURPOSES OF DISALLOWANCE U/S 14A OF THE ACT. HOWEVER, THE ASSESSEE HAS RESPONDED THAT INCOME EARNED FROM THE PARTNERSHIP FIRM M/S. PARHAM DOSTY R ALITY IS TAXABLE U/S. 28(5) OF THE ACT AND IT WAS CLAIMED THAT THE INTERNET EXPENDIT URE ON BORROWED FUND WAS INCURRED FOR EARNING T H E INTEREST INCOME , THEREFORE, PR OVISION OF SECTION 14A WOULD NOT BE APPL ICABLE . IT WAS STATED THAT ONLY DIFFERENTIAL INTEREST AMOUNT OF RS 4,246 DEBITED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR UNDE R CONSIDERATION AND T HE ASSESSEE HAS SUO - MOTO DISALLOWED A SUM OF RS. 37,30000/ U/S 14A, BEING 0.5% OF AVERAGE INVESTMENT. HOWEVER , THE I.T.A NO. 2881 /AHD/20 1 6 & CO NO. 07/AHD/2017 A.Y. 2012 - 13 PAGE NO ACIT VS. M/S. PRATHAM REALTY PVT. LTD. 3 ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND APPLIED THE PROVISION OF SECTION 14A AND MADE DISALLOWANCE OF RS. 1 , 00,37,410/ - 4. THE ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT (A). THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY REFERRING THE DECISION OF THE COORDINATE BENCH OF THE ITAT IN THE CASE OF ASSESS EE IT SELF HOLDING THAT THE PARTNERSHIP FIRM M/S. PARHAM DOSTY R E ALTY HAD PAID INTEREST TO THE ASSESSEE AS P E R THE PARTNERSHIP DEED. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, IT WAS BROUGHT TO OUR NOTICE THAT THE IDENTICAL ISSUE WAS DECIDE D BY THE CO - ORDINATE BENCH OF THE ITAT VIDE ITA NO. 1449/AHD/2015 DATED 12/07/2016 IN FAVOUR OF THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE WAS FAIR ENO UGH NOT TO CONTRA DICT THE DECISION OF CO - ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF FOR ASSES SMENT YEAR 2011 - 12 VIDE ITA NO. 1449/AHD/2015 WHICH IS REPRODUCED AS UNDER : - 17. ' WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. IN ORDER TO APPRECIATE THE CONTENTION OF THE ASSESSEE, WE DEEM IT PERTINENT TO TAKE NOTE OF THE RELEVANT AMENDMENT MADE TO THE PARTNERSHIP DEED OF M/S.PRATHAM DOSTI REALTY, WHICH AUTHORIZED THE PARTNERS TO RECEIVE INTEREST ON LOANS PROVIDED TO THE FIRM. THE RELEVANT PART OF THIS AMENDMENT READS AS UNDER: WHEREAS THE PARTIES OF THE FIRST PART TO FIFTH PART HAVE BEEN CARRYING ON THE BUSINESS IN PARTNERSHIP UNDER THE NAME AND STYLE OF M/S. PRATHAM DOSTI REALTY VIDE DEED OF PARTNERSHIP ENTERED INTO W.E.F. 1S' APRIL, 2010 DULY AMENDED BY DEED OF ADMISSION OF A PARTNER VIDE PARTNERSHIP DEED DATED 2 .3RD DECEMBER 2010. AS PER CLAUSE NO.16 OF THE ORIGINAL PARTNERSHIP DEED DATED 1S1 APRIL, 2010 AND AS PER CLAUSE NO.16 OF ADMISSION TO PARTNERSHIP DEED DATED 23RD DECEMBER 2010, THE PARTNERS SHALL BE ENTITLED TO MODIFY THE TERMS RELATING TO REMUNERATION, INTEREST ETC. PAYABLE TO THE PARTNERS BY EXECUTING A SUPPLEMENTARY DEED AND ANY SUCH DEED WHEN EXECUTED SHALL HAVE EFFECT, UNLESS OTHERWISE PROVIDED, FROM THE FIRST DAY OF THE ACCOUNTING PERIOD IN WHICH SUCH SUPPLEMENTARY DEED IS EXECUTED AND THE SAME SHAL L FORM PART OF THIS DEED OF PARTNERSHIP. WHEREAS THE PARTIES OF THE FIRST TO FIFTH PARTS NOW DECIDED TO PROVIDE FOR INTEREST ON CAPITAL OF PARTNERS SUBJECT TO CERTAIN CONDITION. NOW THIS INDENTURE WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PAR TIES HERETO AS FOLLOWS: I.T.A NO. 2881 /AHD/20 1 6 & CO NO. 07/AHD/2017 A.Y. 2012 - 13 PAGE NO ACIT VS. M/S. PRATHAM REALTY PVT. LTD. 4 IT HAS BEEN MUTUALLY AGREED UPON BY THE PARTIES HERETO THAT FOLLOWING CLAUSE IS INSERTED IN PLACE OF CLAUSE NO. 6 OF THE ORIGINAL PARTNERSHIP DEED DATED 1ST APRIL, 2010 AND DEED OF ADMISSION OF PARTNER DATED 23'RT DECEMBER, 2010. '6. THE CAPITAL OF THE PARTNERSHIP SHALL CONSIST OF SUCH AMOUNT AS MAY BE MUTUALLY AGREED UPON FROM TIME TO TIME AND SUCH/CAPITAL SHALL BE PROVIDED BY THE PARTNERS AS MAY BE MUTUALLY AGREED. NO INTEREST SHALL BE PAID ON CAPITAL ACCOUNT OF THE PARTNERS. HOW EVER, IN CASE IF ANY OF THE PARTNERS, AFTER HAVING BEEN AUTHORISED BY ALL OTHER PARTNERS, HAVE BORROWED MONEY FOR MAKING INVESTMENT IN*THE FIRM AS CAPITAL, THEN TO THE EXTENT INTEREST PAID (NOT EXCEEDING @12% SIMPLE INTEREST PER ANNUM) BY SUCH PARTNER, INT EREST WOULD BE PAID BY THE FIRM ON THE CAPITAL ACCOUNT, AS IF THE AMOUNT BORROWED BY SUCH PARTNER WERE TO BE THE AMOUNT BORROWED BY THE FIRM IT IS FURTHER AGREED BY THE PARTNERS THAT BALANCE IN CAPITAL ACCOUNT OF THE FIRST AND SECOND PARTNER SHALL BE MAINT AINED IN THE PROPORTION OF THEIR PROFIT SHARING RATIO' THAT ALL THE OTHER CLAUSES OF THE DEED OF PARTNERSHIP DATED 1 ST APRIL, 2010 AS AMENDED BY THE DEED OF ADMISSION OF PARTNER DATED 23RD DECEMBER, 2010 SHALL REMAIN UNCHANGED. THAT THIS DEED OF AMENDMEN T OF PARTNERSHIP SHALL BECOME A PART AND PARCEL OF THE DEED OF PARTNERSHIP DATED 1ST APRIL, 2010 AS AMENDED BY THE DEED OF ADMISSION OF PARTNER 23RD DECEMBER, 2010 AND SHALL REMAIN IN CUSTODY OF THE PARTY OF THE FIRST PART AS PROVIDED IN THE DEED OF PARTNE RSHIP DATED 1 ST APRIL, 2010. 18. THE AMENDMENT TO THE PARTNERSHIP DEED HAS BEEN GIVEN EFFECT FROM 1.4.2010. WHILE CONSIDERING THIS ASPECT, THE LD.CIT(A) IN SUB - PARA II AND III OF PARA - 5.5 HAS OBSERVED THAT WHILE AVAILING THE LOAN FROM M/S.J.M. FINANCIAL PRODUCTS AND INFINA FINANCE P. LTD., THE ASSESSEE NOWHERE PROVIDED IN THE AGREEMENT THAT THESE LOANS WILL BE USED BY M/S.PRATHAM DOSTI REALTY. TO OUR MIND THAT CANNOT BE RELEVANT FACTORS TO DECIDE THE ISSUE WHETHER THE INTEREST EXPENDITURE ALLOWABLE IN T HE HANDS OF THE ASSESSEE OR NOT. THE LOANERS, M/S.J.M. FINANCIAL PRODUCTS AND INFINA FINANCE P. LTD. ARE NOT CONCERNED WHETHER THE FUNDS ARE BEING USED BY THE ASSESSEE OR THEY ARE BEING FURTHER FORWARDED TO SOMEONE ELSE FOR USER. IT HAS NOT BEEN BROUGHT TO OUR NOTICE THAT THEY HAVE PUT ANY CONDITION ABOUT PARTICULAR USER OF THE LOAN GIVEN TO THE ASSESSEE. THE LD.CIT(A) FAILED TO TAKE COGNIZANCE OF THE AMENDMENT MADE TO THE PARTNERSHIP DEED. NON - CONSIDERATION OF THIS AMENDMENT HAD LED THE LD.CIT(A) TO OB SERVE THAT THE ASSESSEE HAD MADE CAPITAL CONTRIBUTION TO OTHER FIRM ALSO, WHERE THE ASSESSEE IS A PARTNER. IT IS PERTINENT TO MENTION HERE THAT THE CASE OF THE ASSESSEE IS THAT IT HAS TAKEN FROM LOAN FROM TWO CONCERNS, WHENEVER IT HAS AN IDLE FUND, THESE WERE BEING USED BY OTHER CONCERNS ALSO. BUT SPECIFICALLY, ULTIMATELY THE LOANS TRAVELLED TO M/S.PRATHAM DOSTI REALTY AND THAT FIRM HAS RECOGNIZED ITS OBLIGATION TO PAY INTEREST AS PER THE AMENDMENT MADE TO THE PARTNERSHIP DEED. THE ASSESSEE HAS DEMONSTRAT ED AS TO HOW INTEREST BEARING FUNDS WERE PROVIDED TO A FIRM WHERE IT IS A PARTNER. IT HAS ALSO DEMONSTRATED THAT INTEREST WAS GIVEN TO THE ASSESSEE BY THE FIRM AS PROVIDED IN THE PARTNERSHIP DEED. THE LD.FIRST APPELLATE AUTHORITY HAS CREATED AN ARTIFIC IAL DISTINCTION ABOUT THE USER OF INTEREST BEARING FUNDS. IT WAS CONSTRUED BY THE LD.CIT(A) THAT THE INTEREST BEARING FUNDS WERE USED BY THE ASSESSEE AS A CAPITAL CONTRIBUTION IN OTHER THREE FIRMS FROM WHERE SHARE OF PROFIT WOULD BE TAX FREE. THE LD.CIT( A) FAILED TO CONSIDER THAT IF PAYMENT OF INTEREST ON CAPITAL OF PARTNERS IS BEING PROVIDED IN THE PARTNERSHIP DEED THAT INTEREST INCOME WOULD NOT BE EXEMPT FROM TAX, AND SECTION 14 WILL NOT BE APPLICABLE. IN THE PRESENT CASE, ASSESSEE HAS I.T.A NO. 2881 /AHD/20 1 6 & CO NO. 07/AHD/2017 A.Y. 2012 - 13 PAGE NO ACIT VS. M/S. PRATHAM REALTY PVT. LTD. 5 DEMONSTRATED TH AT INTEREST EXPENDITURE WAS INCURRED ON EARNING INTEREST INCOME FROM THE PARTNERSHIP FIRM. 19. ON CONSIDERATION OF ALL THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD.CIT(A) FAILED TO APPRECIATE THE FACTS IN RIGHT PERSPECTIVE. WE ALLOW THIS GROUND AND DELETE ADDITION OF RS.1,30,36,783/ - . THIS GROUND IS ALLOWED. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT AS CITED ABOVE ON THE S IMILAR FACTS AND IDENTICAL ISSUE IN THE CASE OF THE ASSESSEE ITSELF , WE ARE IN CLINED WITH THE DECISION OF THE LD. CIT(A) . ACCORDINGLY, THE APPEAL OF T HE REVENUE IS DISMISSED . CO NO. 07/AHD/2017 FILED BY ASSESSEE 7. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN CROSS OBJECTION: - 1. THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) - 2, VADODARA ['CIT(A)'] ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF ASSISTANT COMMISSIONER OF INCOME TAX - 2(L)(2),VADODARA ('THE AO') IN REJECTING THE CLAIM OF EXPENSES OF RS. 12,84,049/ - BEING EXPENSES ON AHMEDABAD TOWNSHIP PROJECT MAD E AS ADDITIONAL CLAIM DURING THE COURSE OF ASSESSMENT ON THE GROUND THAT THE AO HAS NOT MADE ANY DISALLOWANCE IN THE ASSESSMENT ORDER. 2. THE LEARNED CIT(A) ERRED IN LAW AND IN FACT IN CONFIRMING THE ACTION OF THE LEARNED AO IN NOT APPRECIATING THE FACT THAT THE APPELLANT IS INVOLVED IN THE BUSINESS OF CONSTRUCTION AND THEREFORE AHMEDABAD TOWNSHIP CANNOT BE TERMED AS A NEW PROJECT. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED AO IN REJECTING THE CL AIM OF EXPENSES OF RS. 14,23,791/ - MADE AS ADDITIONAL CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE THE FACT THAT THE EXPENSE WERE NOT INCURRED FOR EARNING EXEMPT INCOME AND HENCEFORTH PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT ('THE ACT ') ARE NOT APPLICABLE. 4. THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S. 234B OF THE ACT 5. THE LEARNED AO ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S. 234C OF THE ACT 8. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E . CROSS OBJECTIONS FILED BY THE ASSESSEE FROM 1 TO 3 ARE PERTAINED TO EXPENSES INCURRED IN RESPECT OF AHMEDABAD TOWNSHIP PROJECT . DURING THE COURSE OF APPELLATE PROCEEDINGS, T H E LD. COUNSEL HAS FAILED TO PROVE ITS CLAIM WITH ANY RELEVANT EVIDENCES AND MA TERIAL AND ALSO FAILED TO JUSTIFY ITS CLAIM , THEREFORE, WE DO NOT FIND ANY INFIRMITY WITH THE DECISION OF LD. CIT(A) HOLDING THAT ASSESSING OFFICER HAS NOT DISALLOWED ANY EXPENDITURE OUT OF THE EXPENSES INCURRED FOR AHMEDABAD TOWNSHIP PROJECT . I.T.A NO. 2881 /AHD/20 1 6 & CO NO. 07/AHD/2017 A.Y. 2012 - 13 PAGE NO ACIT VS. M/S. PRATHAM REALTY PVT. LTD. 6 T HEREFORE, WE DO NOT FIND ANY MERIT IN THE CROSS OBJECTION FILED BY THE ASSESSE, THEREFORE, THE SAME IS DISMISSED. 9. THE CROSS OBJECTION 4&5 PERTAINING TO CHARGING OF INTEREST U/S 234B &234C ARE DISMISSED AS CHARGING OF INTEREST UNDER THE AFORESAID PROVISION ARE MANDATORY AS PER LAW. 10. IN THE RESULT, THE APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSE SSEE BOTH ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 24 - 10 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 24 /10 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,