M/s RNS Infrastructure Limited , Bangalore V. Deputy Commissioner of Income Tax Central Circle-2(3), Bangalore

ITA 319/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6775 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 02-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHEELESH KUMAR HEGDE
• Keywords: Rejection of books of accounts; Earning of tax free income; Additional evidence; Capital expenditure; Rule 8D
• Section: 14A; 40(a)(ia); 201

Judgement Text

ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.319/BANG/2018 ASSESSMENT YEAR : 2014-15 M/S. RNS INFRASTRUCTURE LTD. 7 TH FLOOR, NAVEEN COMPLEX NO.14, M.G. ROAD TRINITY CIRCLE BENGALURU 560 001 PAN NO : AACCR7165G VS. DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2(3) BENGALURU APPELLANT RESPONDENT ITA NO.291/BANG/2018 ASSESSMENT YEAR : 2014-15 ACIT CENTRAL CIRCLE-2(3) BENGALURU VS. M/S. RNS INFRASTRUCTURE LTD. 7 TH FLOOR, NAVEEN COMPLEX NO.14, M.G. ROAD TRINITY CIRCLE BENGALURU 560 001 APPELLANT RESPONDENT APPELLANT BY : SHRI SHEELESH KUMAR HEGDE, A.R. RESPONDENT BY : MS. NEERA MALHOTRA, D.R. DATE OF HEARING : 06.09.2021 DATE OF PRONOUNCEMENT : 08.09.2021 ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 2 OF 9 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 16.11.2017 PASSED BY LD CIT(A)-11, BANGALORE AND TH EY RELATE TO THE ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF U NDERTAKING CIVIL CONTRACT WORKS. THE ASSESSING OFFICER COMPLETED TH E ASSESSMENT MAKING FOLLOWING DISALLOWANCES/ADDITIONS:- (A) INTEREST PAID TO NBFC U/S 40(A)(IA) - 41,47,3 01 (B) DISALLOWANCE OF WAGES - 5,23,79.379 (C) DISALLOWANCE MADE U/S 14A - 2,29,39,15 3 (D) DISALLOWANCE OF INTEREST RELATING TO INTEREST FREE ADVANCE GIVEN - 2,14,35,676 (E) ADDITION MADE U/S 56(VIIA) OF THE ACT 26,58,789 3. THE LD CIT(A) CONFIRMED THE DISALLOWANCE OF ITE M (A) AND (E) ABOVE. HE DELETED THE DISALLOWANCE OF ITEM (B) AND (D) ABOVE. HE GAVE PARTIAL RELIEF IN RESPECT OF DISALLOWANCE MADE UNDE R (C) ABOVE. AGGRIEVED, BOTH THE PARTIES HAVE FILED APPEALS CHAL LENGING THE DECISION TAKEN BY LD CIT(A) AGAINST EACH OF THEM. 4. WE SHALL TAKE UP THE APPEAL FILED BY THE AS SESSEE. THE LD A.R ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT PRESSIN G GROUNDS RELATING TO ADDITION MADE U/S 56(VIIA) OF THE INCOME-TAX ACT ,1961 ['THE ACT' FOR SHORT]. ACCORDINGLY, THE GROUNDS 4 TO 6 RELATING T O THIS ISSUE ARE DISMISSED AS NOT PRESSED. 5. GROUND NO.2 AND 3 URGED BY THE ASSESSEE RELA TES TO THE DISALLOWANCE OF RS.41,47,301/- MADE BY THE AO U/S 4 0(A)(IA) OF THE ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 3 OF 9 ACT. THE AO NOTICED THAT THE ASSESSEE HAS PAID INT EREST TO VARIOUS NON BANKING FINANCIAL COMPANIES WITHOUT DEDUCTING T AX AT SOURCE. BEFORE AO, THE ASSESSEE ALSO FAILED TO DEMONSTRATE THAT THE ABOVE SAID INTEREST FORMED PART OF TOTAL INCOME OF THE PAYEE C OMPANIES. ACCORDINGLY, THE AO DISALLOWED THE INTEREST EXPENDI TURE U/S 40(A)(IA) OF THE ACT. THE LD CIT(A) ALSO CONFIRMED THE SAME. 6. THE LD A.R SUBMITTED THAT THE ASSESSEE COULD OBTAIN A CERTIFICATE FROM CHARTERED ACCOUNTANT WITH REGARD TO THE PAYMEN T OF RS.13,76,627/- MADE TO M/S TATA CAPITAL FINANCIAL S ERVICES LTD TO THE EFFECT THAT THE ABOVE SAID INCOME WAS OFFERED T O TAX BY THE ABOVE SAID COMPANY. HE SUBMITTED THAT THE ASSESSEE HAS F URNISHED A COPY OF CERTIFICATE AT PAGES 61 TO 62 OF THE PAPER BOOK ALONG WITH AN AFFIDAVIT REQUESTING FOR ADMISSION OF THE SAME. AC CORDINGLY, HE PRAYED THAT THIS ADDITIONAL EVIDENCE MAY BE ACCEPTE D AND THE MATTER MAY BE SENT TO THE FILE OF AO FOR EXAMINING THE DIS ALLOWANCE IN TERMS OF SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT. 7. WE HEARD LD D.R AND PERUSED THE RECORD. W E NOTICE THAT THE TOTAL AMOUNT OF DISALLOWANCE MADE BY THE AO WAS RS. 41,47,301/-. IN THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE A BOVE SAID PAYMENTS HAVE BEEN MADE TO VARIOUS NBFCS LIKE L & T FINANCE LTD, BAJAJ FINANCE LTD, RELIANCE CAPITAL LTD, INDIA BULL S LTD, DAIMLER FINANCE LTD, KOTAK MAHINDRA BANK LTD, LIC INDIA LTD AND TATA CAPITAL LTD. HOWEVER, THE ASSESSEE HAS OBTAINED CE RTIFICATE ONLY FROM ONE COMPANY NAMED M/S TATA CAPITAL LTD, WHICH HAS C LAIMED TO HAVE RECEIVED INTEREST INCOME OF RS.13,76,627/-. T HE ASSESSEE HAS NOT FURNISHED ANY CERTIFICATE FROM ANY OF OTHER PAY EES FOR THE REMAINING AMOUNT. ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 4 OF 9 8. IN VIEW OF THE ABOVE, WE CONFIRM THE DISALLO WANCE OF INTEREST EXPENDITURE PAID TO NBFCS OTHER THAN M/S TATA CAPIT AL LTD. WITH REGARD TO THE PAYMENT MADE TO M/S TATA CAPITAL LTD, WE RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING THE SAME A FRESH IN THE LIGHT OF ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE. ACCORDINGLY, THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE WOULD STAND MODIFIED. 9. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE URGED BY THE REVENUE RELATES TO THE DIS ALLOWANCE OF WAGES EXPENDITURE. THE AO EXAMINED THE VOUCHERS RELATING TO WAGE PAYMENTS AND NOTICED THAT MOST OF THEM ARE SELF MAD E. ACCORDINGLY HE MADE ADHOC DISALLOWANCE OF 10% OF WAGE EXPENDITU RE. THE DISALLOWANCE WORKED OUT TO RS.5,23,79,379/-. THE L D CIT(A) DELETED THE SAME. 10. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. THE LD D.R SUPPORTED THE ORDER PASSED BY THE AO AND ALSO POINTED OUT THAT MOST OF THE VOUCHERS ARE SELF MADE. THE L D A.R. ON THE CONTRARY, PLACED HIS RELIANCE ON THE ORDER PASSED B Y THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE RELATING TO AY 201 3-14 IN ITA NO.290 & 318/BANG/2018 DATED 20.12.2019, WHEREIN TH E TRIBUNAL HAD DELETED IDENTICAL DISALLOWANCE MADE BY THE AO I N THAT YEAR. 11. WE NOTICED FROM THE ORDER PASSED BY THE CO -ORDINATE BENCH THAT THE TRIBUNAL HAD FOLLOWED THE DECISION RENDERE D BY ANOTHER CO- ORDINATE BENCH IN THE ASSESSEES OWN CASE IN AY 200 4-05 PASSED IN ITA NO.929 & 930/B/2009 DATED 11.09.2009 AND ALSO T HE DECISION RENDERED IN THE FOLLOWING CASES:- ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 5 OF 9 (A) PCIT VS. M/S R.G BUILDWELL ENGINEERS LTD (2018 )(99 TAXMANN.COM 283)(DELHI) (B) PCIT VS. M/S R.G BUILDWELL ENGINEERS LTD (2018 )(99 TAXMANN.COM 84)(SC) THE TRIBUNAL HAS ALSO OBSERVED THAT AN IDENTICAL DI SALLOWANCE WAS DELETED IN THE ABOVE SAID CASES FOR TWO REASONS, VI Z., (A) THAT THE BOOKS OF ACCOUNTS WERE NOT REJECTED AND (B) THAT EXPENSES WERE ALLOWED CONSISTENTLY IN THE PAST IN SCRUTINY ASSESSMENTS. T HE TRIBUNAL HAS ALSO NOTICED THAT THE LD CIT(A) HAS OBSERVED THAT T HE AO HAS NOT POINTED ANY SPECIFIC DEFECTS IN ANY OF THE VOUCHERS . IN THE INSTANT YEAR ALSO, THE LD CIT(A) HAS OBSERVED THAT THE AO H AS GIVEN VAGUE REASONS FOR MAKING THE DISALLOWANCE. FURTHER THE A O HAS NOT REJECTED THE BOOKS OF ACCOUNTS. ACCORDINGLY, FOLLO WING THE DECISIONS RENDERED BY THE CO-ORDINATE BENCHES, WE CONFIRM THE ORDERS PASSED BY LD CIT(A) ON THIS ISSUE. 12. THE NEXT ISSUE URGED BY THE REVENUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE HAS RECEIVED EXEMPT DIVIDEND INCOME OF RS.11,600/- DURING THE YEAR UNDER CONSIDE RATION. THE AO WORKED OUT THE DISALLOWANCE APPLYING THE PROVISIONS OF RULE 8D AT RS.2,29,39,153/-, WHICH CONSISTED OF INTEREST DISAL LOWANCE OF RS.2,17,84,744/- U/S 8D(2)(II) AND EXPENDITURE DISA LLOWANCE OF RS.11,54,409/- U/R 8D(2)(III). THE LD CIT(A) RESTR ICTED THE DISALLOWANCE TO EXEMPT INCOME OF RS.11,600/- AND DE LETED THE REMAINING AMOUNT OF DISALLOWANCE. 13. WE HEARD THE PARTIES ON THIS ISSUE AND PE RUSED THE RECORD. WE NOTICE THAT IDENTICAL DISALLOWANCE WAS MADE BY T HE AO U/S 14A OF THE ACT IN AY 2013-14 ALSO AND THE TRIBUNAL, IN ITS ORDER REFERRED SUPRA, HAS CONFIRMED THE ORDER PASSED BY LD CIT(A) IN RESTRICTING THE DISALLOWANCE TO THE AMOUNT OF EXEMPT DIVIDEND INCOM E. WE NOTICE ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 6 OF 9 THAT THE HONBLE HIGH COURT OF DELHI IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED VS. CIT 372 ITR 694 HAS HELD THAT T HE DISALLOWANCE U/S 14A SHOULD NOT EXCEED EXEMPT INCOME. THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF FUTURE CORPORATE RESOURCES LIMITED VS. DCIT (ITA NO.4658/MUM/2015 DATED 26.7.20 17) HAS EXPRESS ED AN IDENTICAL VIEW. THE HONBLE DELHI HIGH COURT HAS C ONSIDERED AN IDENTICAL ISSUE IN THE CASE OF PCIT VS. CARAF BUILD ERS & CONSTRUCTION (P) LTD (2019)(101 TAXMANN.COM167) AND HAS HELD AS UNDER:- 25. TOTAL EXEMPT THIS YEAR WAS RS. 19 LAKHS. IN THESE C IRCUMSTANCES, WE ARE NOT REQUIRED TO CONSIDER THE CASE OF THE REVENUE TH AT THE DISALLOWANCE SHOULD BE ENHANCED FROM RS. 75.89 CRORES TO RS. 144.52 CRO RES. UPPER DISALLOWANCE AS HELD IN PR. CIT V. MCDONALDS INDIA (P.) LTD. ITA 725/2018 DECIDED ON 22ND OCTOBER, 2018 CANNOT EXCEED THE EXEMPT INCOME OF THAT YEAR. IN VIEW OF THE ABOVE SAID DECISIONS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN RESTRICTING THE DISALL OWANCE U/S 14A TO THE AMOUNT OF EXEMPT INCOME. 14. THE NEXT ISSUE URGED BY THE REVENUE RELATE S TO THE DISALLOWANCE OF INTEREST EXPENDITURE RELATABLE TO ADVANCE GIVEN FOR ACQUISITION OF LAND. THE AO NOTICED THAT THE ASSESSEE HAS GIVEN A DVANCE OF RS.24.13 CRORES TOWARDS PURCHASE OF LAND TO A CONCE RN NAMED M/S NAVEEN HOTEL. THE AO ALSO NOTICED THAT THE ASSESSE E HAS PAID INTEREST ON THE OVERDRAFT ACCOUNT TO THE TUNE OF RS .2,41,35,676/-. THE AO TOOK THE VIEW THAT THE ABOVE SAID ADVANCE GI VEN TOWARDS PURCHASE OF LAND IS A CAPITAL EXPENDITURE AND THE S AME HAS BEEN MET OUT OF OVERDRAFT WITHDRAWALS, WHICH RESULTED IN INC URRING OF INTEREST EXPENDITURE. ACCORDINGLY THE AO TOOK THE VIEW THAT THE CORRESPONDING INTEREST EXPENDITURE SHOULD BE CAPITA LISED IN TERMS OF PROVISO TO SEC.36(1)(III) OF THE ACT. ACCORDINGLY, HE DISALLOWED A SUM OF RS.2,14,35,676/- IN TERMS OF THE PROVISO TO SEC. 36(1)(III) OF THE ACT. THE LD CIT(A) DELETED THE DISALLOWANCE ON THE REASO NING THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS MORE THAN THE ADVANCE AMOUNT. THE REVENUE IS AGGRIEVED. ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 7 OF 9 15. THE LD D.R SUBMITTED THAT THE ASSESSEE HAS USED ITS OWN FUNDS TO OTHER PURPOSES OF BUSINESS, WHICH IS EVIDE NCED BY THE FACT THAT THE ASSESSEE WAS CONSTRAINED TO USE THE OVERDR AFT FACILITIES FOR THE PURPOSE OF GIVING ADVANCE FOR LAND PURCHASE. SH E SUBMITTED THAT IT IS FOR THE ASSESSEE TO PROVE THE NEXUS BETWEEN O WN FUNDS AND THE ADVANCE GIVEN FOR PURCHASE OF LAND. SHE SUBMITTED THAT THE LD CIT(A) HAS NOT EXAMINED THE NEXUS MENTIONED ABOVE. SHE S UBMITTED THAT THE LD CIT(A) HAS COMPARED OVER ALL FUND POSITION A ND THAT PRINCIPLE COULD NOT BE APPLIED TO THE INSTANT FACTS. ACCORDI NGLY, THE LD CIT-DR SUBMITTED THAT THE ORDER PASSED BY LD CIT(A) SHOULD BE REVERSED. 16. THE LD A.R SUPPORTED THE ORDERS PASSED BY LD CIT(A) ON THIS ISSUE. HE FURTHER RELIED UPON THE ORDER PASSED BY CO-ORDINATE BENCH IN THE CASE OF DCIT VS. IDEB PROJECTS LTD (ITA NO.1 531/BANG/2012 DATED 28-04-2017). 17. WE HEARD RIVAL CONTENTIONS AND PERUSED TH E RECORD. WE NOTICE THAT THE LD CIT(A) HAS GIVEN DECISION BY CONSIDERIN G THE OWN FUNDS AVAILABLE WITH THE ASSESSEE AS THE BEGINNING AND EN D OF THE YEAR. THE DECISION RENDERED IN THE CASE OF IDEB PROJECTS LTD (SUPRA) IS ALSO RELATED TO INTEREST FREE ADVANCES GIVEN TO SISTER C ONCERNS, WHEREIN A PRESUMPTION OF UTILISATION OF OWN FUNDS WAS ENTERTA INED. 18. HOWEVER, THE ISSUE HERE IS ABOUT THE APPLI CABILITY OF THE PROVISO TO SEC.36(1)(III) OF THE ACT, I.E., WHETH ER ANY PORTION OF INTEREST EXPENDITURE IS ATTRIBUTABLE TO CAPITAL EXP ENDITURE INCURRED IN PURCHASE OF LAND AND IN THAT CASE, WHETHER A DISALL OWANCE IS CALLED FOR AS PER PROVISO TO SEC.36(1)(III) OF THE ACT. T HE AO HAS INVOKED THE ABOVE SAID PROVISO AND WE NOTICE THAT THE LD CIT(A) HAS NOT EXAMINED THE SAID ASPECT AT ALL. ACCORDING TO LD D.R, THE A SSESSEE WAS ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 8 OF 9 CONSTRAINED TO UTILISE OVERDRAFT FACILITIES AND INC URRED INTEREST EXPENDITURE CONSEQUENTLY, ONLY ON ACCOUNT OF THE RE ASON THAT THE ASSESSEE HAS GIVEN HUGE ADVANCE FOR PURCHASE OF LAN D. WE NOTICE THAT NONE OF THESE FACTUAL ASPECTS HAVE BEEN EXAMIN ED BY LD CIT(A). IN OUR VIEW, IT IS THE DUTY OF THE ASSESSEE TO PROV E THAT THE LOAN FUNDS WERE NOT USED FOR GIVING ADVANCE FOR PURCHASE OF LA ND. FURTHER IT IS NECESSARY FOR THE ASSESSEE TO ADDRESS ON APPLICABIL ITY OR OTHERWISE OF PROVISO TO SEC.36(1)(III) TO THE FACTS OF THE PRESE NT CASE AND IT IS FOR THE LD CIT(A) TO TAKE A DECISION ON IT. ACCORDINGL Y, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE E ND OF LD CIT(A). WE HAVE NOTICED THAT THE AO HAS ESTIMATED THE INTER EST EXPENDITURE TO BE DISALLOWED FOR THE WHOLE YEAR. IN OUR VIEW, IF IT IS DECIDED THAT THE INTEREST EXPENDITURE ATTRIBUTABLE TO ADVANCE GI VEN FOR LAND PURCHASE, THEN THE DISALLOWANCE SHOULD BE RESTRICTE D TO THE PERIOD OF ACTUAL USAGE OF LOAN FUNDS. ACCORDINGLY, WE SET ASI DE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO HIS FILE WITH THE DIRECTION TO EXAMINE THE APPLICABILITY OF PROVISO T O SEC.36(1)(III) TO THE FACTS OF THE PRESENT CASE AND ITS EFFECT ON THE INT EREST EXPENDITURE CLAIMED BY THE ASSESSEE. THE LD CIT(A) MAY TAKE DE CISION IN ACCORDANCE WITH LAW, AFTER AFFORDING ADEQUATE OPPOR TUNITY TO THE ASSESSEE. 19. IN THE RESULT THE APPEALS OF ASSESSEE IS P ARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH SEPT, 2021. SD/- (N.V. VASUDEVAN ) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 8 TH SEPT, 2021. VG/SPS ITA NOS.319 & 291/BANG/2018 M/S. RNS INFRASTRUCTURE LTD., BANGALORE PAGE 9 OF 9 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.