DCIT, CHENNAI V. Ceebros Property Development Pvt. Ltd., CHENNAI

ITA 297/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5968 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 12-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.297/MDS/2017 ( / ASSESSMENT YEAR: 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI 600 034. VS M/S. CEEBROS PROPERTY DEVELOPMENT PVT. LTD., NO.19/1, 3 RD CROSS ROAD, R.A. PURAM, CHENNAI 600 028. PAN: AAACC3052H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE /DATE OF HEARING : 20.10.2017 ! /DATE OF PRONOUNCEMENT : 27.10.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI DATED 18.09.2015 IN ITA NO.119 /2011-12 FOR THE ASSESSMENT YEAR 2009-10 PASSED U/S.250(6) R .W.S. 143(3) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUXES OF THE ISSUE ARE THAT 2 ITA NO. 297/MDS/2016 (I) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITIO N MADE BY THE LD.AO U/S.14A OF THE ACT, AMOUNTING TO RS.50,31,542 /- RELATING TO TTK ROAD RESIDENTIAL PROJECT. (II) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE MADE BY THE LD.AO U/S.14A R.W.R. 8D OF THE RULES AMOUNTI NG TO RS.9,81,067/- TOWARDS INVESTMENT IN SHARES IN SISTE R CONCERNS 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROMOTING RESIDENTIAL FLATS AND BUILDINGS, FILED ITS RETURN O F INCOME FOR THE ASSESSMENT YEAR 2009-10 ELECTRONICALLY ON 26.09.200 9 ADMITTING LOSS OF RS.1,09,90,641/-. THE CASE WAS TAKEN UP FO R SCRUTINY UNDER CASS AND FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 24.10.2011, WHEREIN THE LD.AO MADE DI SALLOWANCE U/S.14A OF THE ACT AMOUNTING TO RS.50,31,542/- BEIN G THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME VIZ. , THE PROPORTIONATE EXPENSES RELATED TO COST OF THE FOUR FLATS RETAINED BY THE ASSESSEE AMOUNTING TO RS. 2,19,45000/- AND THE OTHER DISALLOWANCE OF RS.9,81,067/- BEING EXPENDITURE IN CURRED TOWARDS INVESTMENTS MADE IN SISTER COMPANY FOR EARNING EXEM PT INCOME BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES. 3 ITA NO. 297/MDS/2016 4. GROUND NO.2(I) : DISALLOWANCE U/S.14A FOR RS.50,31,542/-:- DURING THE COURSE OF SCRUTINY ASSESSMENT IT WAS O BSERVED BY THE LD.A.O THAT THE ASSESSEE HAD ENTERED INTO A JOINT VENTURE AGREEMENT ON 19.01.2006 FOR CONSTRUCTING EIGHT RESI DENTIAL FLATS CONSISTING OF 950 SQ.FT., EACH. AS PER THE AGREEMEN T THREE FLATS AGGREGATING TO 2850 SQ.FT., WAS ALLOTTED TO THE OWN ER OF THE LAND, ONE FLAT CONSISTING OF 950 SQ.FT., WAS SOLD FOR RS. 31,28,600/- AND THE BALANCE FOUR FLATS OF 950 SQ.FT., EACH AGGREGAT ING TO 3800 SQ.FT. WAS RETAINED BY THE ASSESSEE. THE COST OF CONSTRUCT ION OF THE TOTAL BUILT-UP AREA OF 7600 SQ.FT., INCLUDING THE COST OF LAND PAID TO THE OWNER OF THE LAND WORKED OUT TO RS.2,74,26,713/-. THUS THE ASSESSEE CLAIMED TO HAVE INCURRED LOSS OF RS.23,53, 113/- IN THE PROJECT AS DETAILED HEREIN BELOW:- 1. TOTAL CONSTRUCTION OF 7600 SQ.FT. BUILDING INCLUDING COST OF LAND - RS.2,74,26,71 3 2. LESS A. SALE OF ONE FLAT OF 950 SQ.FT. - RS.31,28,600 B. COST OF FOUR FLATS RETAINED BY THE ASSESSEE AGGREGATING TO 3800 SQ.FT. - RS.2,19,45,000 ------- ------------- RS.2,50,73,600 ---------------------- LOS S RS. 23,53,113 ============ 4 ITA NO. 297/MDS/2016 SINCE THE ASSESSEE HAS INCURRED OTHER ROUTINE ADMIN ISTRATIVE EXPENSE AND FINANCIAL COST, THE TOTAL LOSS WAS ARRI VED AT RS.1,09,90,640/-. THE LD.AO OPINED THAT WHILE VALUI NG THE COST OF THE 4 FLATS RETAINED BY THE ASSESSEE AGGREGATING TO 3800 SQ.FT., THE PROPORTIONATE EXPENSES RELATING TO THE INDIRECT COS T AMOUNTING TO RS.50,31,542/- WAS NOT INCLUDED AS DETAILED HEREIN BELOW:- F.Y. 2006-07 2007-08 2008-09 TOTAL ADMINISTRATIVE COSTS 6064641 6777588 8418998 21261227 FINANCE COSTS 215501 106589 207999 530089 DEPRECIATION 668320 546680 399215 1614215 TOTAL 6948462 7430857 9026212 23405531 TOTAL CONSTRUCTED VALUE 39258359 28810615 29397379 97466353 CONSTRUCTION COST OF TTK ROAD PROJECT 2618957 4772970 14964894 223556821 PORTION OF INDIRECT COSTS ATTRIBUTABLE TO TTK ROAD PROJECT 463538 1231048 4594842 6289428 BASED ON THE ABOVE TABULATION THE LD.AO FROM THE PO RTION OF INDIRECT COSTS ATTRIBUTABLE TO TTK ROAD PROJECT WOR KED OUT THE PROPORTIONATE COST ATTRIBUTABLE TO THE FLATS RETAIN ED BY THE ASSESSEE AS RS. 50,31,542/-. THEREAFTER THE LD.AO CAME TO THE CONCLUSION THAT PROVISIONS OF SECTION 14A WILL BE A PPLICABLE IN THE CASE OF THE ASSESSEE WITH RESPECT TO THE AMOUNT OF RS.50,31,542/- AND ACCORDINGLY DISALLOWED THE EXPENDITURE OF RS.50 ,31,542/-. ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION BY OBSER VING AS UNDER:- 5 ITA NO. 297/MDS/2016 6. I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE, THE VIEW TAKEN BY THE AO, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIAL ON RECORD. FROM THE FACTS BROUGHT OUT BY T HE AD AND THE APPELLANT IT IS CLEAR THAT THE REVENUE GENERATE D BY THE HOUSING PROJECT IN THE FORM OF CONTRACT RECEIPTS HA D FORMED PART OF THE GROSS PROFIT FOR THE ASSESSMENT YEAR UNDER C ONSIDERATION. THEREFORE, THE BASIC INGREDIENT AS ENVISAGED IN S.1 4A THAT BEING, THE EXPENDITURE INCURRED IN RELATION TO INCO ME NOT INCLUDIBLE IN TOTAL INCOME WAS NOT SATISFIED. IN TH E CASE OF WALFORT SHARE & STOCK BROKERS P LTD 326 ITR 1, SUMM ARIZED BY THE AD IN PARA 2.8 OF THE ASSESSMENT ORDER ITSELF S HOWS THE NON-APPLICATION OF S.14A OF THE ACT TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF THE APPELLANT AS HAS BEEN STAT ED EARLIER THERE WAS NO EXPENDITURE IN RELATION TO INCOME WHIC H. DOES NOT FORM PART OF THE TOTAL INCOME. THIS FACT IS CLEAR A S THE APPELLANT HAS ACCOUNTED FOR THE CONTRACT RECEIPTS IN ITS GROS S PROFIT WHILE ARRIVING AT THE TAXABLE TOTAL INCOME FOR THE ASSESS MENT YEAR UNDER CONSIDERATION. NOW COMING TO THE ALTERNATE CO NTENTION OF THE AO THAT THE IMPUGNED INDIRECT EXPENSES WHICH HA S BEEN APPORTIONED WOULD NOT BE ALLOWABLE U/S 37(1) OF THE I.T.ACT. IN THIS REGARD, THE PLEA TAKEN BY THE APPELLANT THAT T HE SAID EXPENSES RELATE TO THE INCOME EARNING APPARATUS OF THE APPELLANT, INCLUDING THE HOUSING PROJECT UNDER CONS IDERATION AS WELL AS OTHER ON-GOING PROJECTS AND ALSO IN VIEW OF THE APPELLANT BEING A DEVELOPER, THE SAID ALTERNATE CONTENTION OF THE AO ALSO CANNOT BE UPHELD. IN SHORT, THE VIEW TAKEN BY THE A O ON THE FACTS OF THE CASE AND FOR REASONS DISCUSSED IN THE FOREGOING CANNOT BE UPHELD. THE AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE. THIS GROUND OF APPEAL IS ALLOWED. 4.1 THE LD.DR ARGUED IN SUPPORT OF THE LD.AO, WHILE AS THE LD.AR RELIED ON THE ORDERS OF THE LD.CIT(A). 6 ITA NO. 297/MDS/2016 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE LD.AO HAS HELD THAT THE PROPORTIO NATE INDIRECT COST PERTAINING TO ADMINISTRATIVE COST, FINANCE COS T, DEPRECIATION ETC., ATTRIBUTABLE TOWARDS THE COST OF CONSTRUCTION OF THE RETAINED FLATS AMOUNTING TO RS.50,31,542/- HAS TO BE DISALL OWED BY VIRTUE OF SECTION 14A OF THE ACT. AT THE OUTSET, WE DO NO T FIND ANY MERIT IN THE ORDER OF THE LD.AO ON THIS ISSUE. THE ASSES SEE HAS ENTERED INTO A JOINT VENTURE TO EXECUTE A MINI PROJ ECT DURING ITS LIEN PERIOD OF OPERATION. IN THIS SITUATION, THE ENTIRE ESTABLISHMENT COST OF THE ASSESSEE COMPANY CANNOT BE LOADED ON THE PRO JECT, BECAUSE IN THAT CASE THE COST OF THE PROJECT WILL N OT BE IN PARITY WITH THE COST OF CONSTRUCTION OF THE PROJECT IN THE PREVAILING MARKET SCENARIO. FURTHER IT IS APPARENT THAT ONLY ONE OF THE FLAT CONSISTING OF 950 SQ.FT., FOR A VALUE OF RS.31,28,600/- COULD BE SOLD IN THE OPEN MARKET WHICH WORKS OUT TO RS.3,293/- PER SQ.FT . EVEN IN THIS MARKET SCENARIO, THE ASSESSEE HAVE RETAINED THE FLA TS AT THE VALUE OF RS.5,775/- PER SQ.FT., BEING THE ACTUAL COST OF CONSTRUCTION OF THE PROJECT. FURTHER THE ASSESSEE HAS RETAINED THE FLAT S AS ITS INVESTMENT WHEREIN THE INCOME DERIVED FROM WHICH IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THERE FORE THE PROVISIONS OF SECTION 14A OF THE ACT WILL NOT BE AP PLICABLE IN THE 7 ITA NO. 297/MDS/2016 CASE OF THE ASSESSEE AT ALL BECAUSE THE AFORESAID P ROVISION ONLY DEALS WITH EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. IN THE CASE OF THE ASSESSEE THE INCOME EARNED FROM THE INV ESTMENT OF THE RETAINED FLATS WILL BE LIABLE FOR TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS STATED EARLIER. THEREFORE THE LD.AO IS HEREBY DIRECTED TO DELETE THE ADDITION MADE BY INVO KING THE PROVISIONS OF SECTION 14A OF THE ACT, AS HELD BY TH E LD.CIT(A). 5. GROUND NO.2(II) : DISALLOWANCE U/S.14A R.W.R 8D FOR RS.9,81,067/- BEING THE EXPENDITURES INCURRED TOWAR DS INVESTMENT MADE IN SISTER COMPANY FOR EARNING EXEMP T INCOME:- THE ASSESSEE HAD MADE INVESTMENTS IN SHARES OF SI STER COMPANY, THE DIVIDEND INCOME FROM WHICH IS EXEMPT F ROM TAX. THEREFORE THE LD.AO INVOKED THE PROVISIONS OF SECTI ON 14A R.W.R. 8D OF THE RULES AND WORKED OUT THE DISALLOWANCE AT RS.9,81,067/-. ON APPEAL, THE LD.CIT(A) FOLLOWING THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE M/S. EIH ASSOCIAT ES HOTELS LTD VS. DCIT IN ITA NO.1503/MDS/2012 FOR THE ASSESSMENT YEAR 2008- 09 DATED 17.07.2013 HELD THAT THE PROVISIONS OF SEC TION 14A R.W.R. 8D WOULD NOT APPLY IN SITUATIONS WHERE THE INVESTME NTS ARE MADE IN SUBSIDY COMPANY. FURTHER IT IS NOT A CASE, WHER E THE ASSESSEE 8 ITA NO. 297/MDS/2016 HAD INVESTED IN THE SHARES OF ITS SISTER COMPANY FR OM ITS INTEREST BEARING FUNDS. THEREFORE THE DECISION OF THE TRIBUN AL SUPRA WILL BE SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE. HE NCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE, ACCORDINGLY WE HEREBY SUSTAIN THE SAME. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON THE 27 TH OCTOBER, 2017 AT CHENNAI. SD/- SD/- ( ! ' . #$ ) ( . ) (DUVVURU RL REDDY) (A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER %' /CHENNAI, &# /DATED 27 TH OCTOBER, 2017 RSR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF