M/s Chowgule Real Estate & Construction Company Private Limited, Panaji V. The ACIT, Circle - 2, Margao

ITA 3/PAN/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8220 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI – VIRTUAL COURT BEFORE SHRI INTURI RAMA RAO, AM AND SHRI S. S. VISWANETHRA RAVI, JM आयकर अपील सं. / ITA No.03/PAN/2018 िनधाᭅरण वषᭅ / Assessment Year : 2011-12 M/s. Chowgule Real Estate and Construction Company Private Limited, Office No.311, 1 st Floor, Casa Del Sol, Opp. Marriot Hotel, Miramar, Panaji- Goa- 403001. PAN : AAACC6040M .......अपीलाथᱮ / Appellant बनाम / V/s. ACIT, Circle-2, Margao. ......ᮧ᭜यथᱮ / Respondent Assessee by : Shri Hiral Sejpal Revenue by : Shri Sourabh Nayak सुनवाई कᳱ तारीख / Date of Hearing : 10.11.2021 घोषणा कᳱ तारीख / Date of Pronouncement : 17.11.2021 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-1, Panaji. (‘CIT(A)’ for short) dated 09.10.2017 for the assessment year 2011-12. 2. Briefly, the facts of the case are that the appellant is a private limited company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of property developers etc. The return of income for the assessment year 2011-12 was filed on 29.09.2011 declaring total income of Rs.36,51,117/- and also offered to book profits to tax u/s 115JB of the Income Tax Act, 1961 (‘the Act’) of Rs.2,23,62,741/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-2, Margao, Goa (‘the Assessing Officer’) vide order dated 2 ITA No.03/PAN/2018 28.03.2014 at a total income of Rs.1,28,95,293/- under the normal provisions of the I.T. Act after making disallowance of expenditure u/s 14A of Rs.2,06,718/- and also making additions on account of (i) disallowance of cessation of liability of Rs.16,23,782/- u/s 41(1) and (ii) disallowance made u/s 14A to the book profits for the purpose of computing tax liability u/s 115JB of the Act. 3. Being aggrieved by the above disallowances, an appeal was preferred before the ld. CIT(A), who vide impugned order confirmed the action of the Assessing Officer making addition u/s 14A to the book profits for the purpose of computing the tax liability u/s 115JB of the Act and also confirmed the amount of addition u/s 14A under the normal provisions of the I.T. Act. 4. Being aggrieved by the above decision of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 5. It is contended that the Assessing Officer ought not to have made any disallowance u/s 14A, inasmuch as, no exemption was incurred to earn the exempt income. It is also contended that the methodology adopted by the Assessing Officer for computing the average value of investment for the purpose of computing the amount of disallowance under clause (iii) of Rule 8D(2) of the Income Tax Rules, 1962 (‘the Rules) is wrong, inasmuch as, Assessing Officer had considered all the investments including the investments which yielded the taxable income. It is further contended that the amount of disallowance u/s 14A cannot be added back to the book profits for the purpose of computing the tax liability u/s 115JB placing reliance on the decisions of the Hon’ble Bombay High Court in the case of (i) M/s. Essar Teleholdings [2015 (5) TMI 1263] and (ii) M/s. Bengal Finance & Investments Pvt. Ltd [2015 (2) 3 ITA No.03/PAN/2018 TMI 1124] and the decision of the Delhi Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017 (6) TMI 1124]. 6. On the other hand, ld. Sr. DR placing reliance on the orders of the lower authorities prayed that the orders of the lower authorities should be sustained. 7. We heard the rival submissions and perused the material on record. The first issue raised by the assessee in the grounds of appeal relates to the computation of amount of disallowance u/s 14A of the Act. From perusal of the order of the Assessing Officer, it is clear that the Assessing Officer made disallowance under sub-clause (iii) of Rule 8D(2) of the Rules. There is no challenge as to the applicability of sub-clause (iii) of Rule 8D(2) of Rules. The dispute is only with regard to the method of computation of amount of disallowance under sub-clause (iii) of Rule 8D(2) of the Rules for the purpose of computing the amount. The average value of those investments which yielded the exempt income alone has to be taken into consideration as held by the Special Bench of the Delhi Tribunal in the case of Vireet Investments (P.) Ltd. (supra) and the Hon’ble Delhi High Court in the case of Joint Investment Private Limited vs. CIT 372 ITR 694. From perusal of the assessment order, it is apparent that the Assessing Officer had considered the entire value of investments which yielded the taxable income as well as the exempt income. Therefore, the matter is remanded back to the file of the Assessing Officer with direction to compute the amount of disallowance under sub-clause (iii) of Rule 8D(2) of the Rules by considering only average value of the investment which yielded the exempt income alone. We also make it clear that the amount of disallowance cannot exceed the exempt income in view of the settled position of law as laid down by the Hon’ble Bombay High Court in the case of Nirved 4 ITA No.03/PAN/2018 Traders Pvt. Ltd. (2020) 421 ITR 142. Thus, the first issue raised by the assessee in grounds of appeal stands partly allowed for statistical purposes. 8. As regards to the second issue raised by the assessee in the grounds of appeal relates to the addition of amount of disallowance u/s 14A of the Act to the books profits for the purpose of computing the tax liability u/s 115JB of the Act. Now, the law is well settled to the extent the amount of disallowance u/s 14A is not required to be added back to the book profits for the purpose of computing the tax liability u/s 115JB of the Act in catena of following decisions :- (i) M/s. Essar Teleholdings [2015 (5) TMI 1263], (ii) M/s. Bengal Finance & Investments Pvt. Ltd [2015 (2) TMI 1124], (iii) ACIT vs. Vireet Investments (P.) Ltd. [2017 (6) TMI 1124], (iv) CIT vs. M/s. Gokaldas Images Pvt. Ltd., 122 taxmann.com 160 (Karn.) 9. In the light of the above legal position, we direct the Assessing Officer not to add back the amount of disallowance, if any, to book profits for the purpose of computing the tax liability u/s 115JB of the Act. Thus, the second issue raised by the assessee in grounds of appeal is allowed. 10. In the result, the appeal filed by the assessee stands partly allowed for statistical purpose. Order pronounced on this 17 th day of November, 2021. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) ᭠याियक सद᭭य/JUDICIAL MEMBER लेखा सद᭭य/ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 17 th November, 2021. Sujeet 5 ITA No.03/PAN/2018 आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-1, Panaji. 4. The Pr. CIT, Panaji. 5. DR, ITAT, Panaji. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.