Kailash Royal Premium Projects Pvt Ltd , Bangalore V. The Income Tax Officer Ward-4(1)(2) , Bangalore

ITA 3316/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6124 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 13-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMESH KUMAR
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO . 3 3 16 /BANG/201 8 ASSESSMENT YEAR : 20 1 3 - 1 4 M/S. KAILASH ROYAL PREMIUM PROJECTS PVT. LTD., NO. 232, 2 ND FLOOR, III PHASE, PEENYA INDUSTRIAL AREA, BANGALORE 560 058. PAN: AACCK8671N VS. THE INCOME TAX OFFICER, WARD 4 (1) (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SUMAN LUNKAR, CA RESPONDENT BY : SHRI A. RAMESH KUMAR, JCIT (DR) DATE OF HEARING : 14 .01.2019 DATE OF PRONOUNCEMENT : 25 . 01 .201 9 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT(A)-9, BANGALORE DATED 31.10.2018 FOR ASSESS MENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN PASSI NG THE ORDER IN THE MANNER PASSED BY HIM AND THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE SAME. THE IMPUGNED ORDERS BEING BAD IN LAW, VOID AB-INITIO ARE REQUIRED TO BE QUASHED. 2. IN ANY CASE AND WITHOUT PREJUDICE, THE LEARNED A SSESSING OFFICER HAD ERRED IN DISALLOWING A SUM OF RS.28,52,795/- U/ S. 14A R.W.RULE 8D OF THE ACT AND THE LEARNED CIT(A) HAS ERRED IN CONF IRMING THE SAME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW APPLICABLE, THE PROVISIONS OF SEC. 14A ARE NOT AT ALL APPLICABLE TO THE CASE OF THE APPELLANT. 3. THE AUTHORITIES BELOW HAVE ERRED IN NOT APPRECIA TING THE FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD NOT RECEIVED ANY EXEMPT. IN THE ABSENCE OF ANY EXEMPT INCOME, TH E PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE AT ALL. T HE DISALLOWANCE AS MADE AND CONFIRMED IS TO BE DELETED. ITA NO. 3316/BANG/2018 PAGE 2 OF 4 4. IN ANY CASE, THE AUTHORITIES BELOW HAVE ERRED IN NOT APPRECIATING THE FACT THAT NO PART OF BORROWED FUNDS WERE UTILIZ ED FOR MAKING INVESTMENTS IN TAX EXEMPT INVESTMENTS. THE DISALLOW ANCE MADE ON ERRONEOUS ASSUMPTION OF FACTS IS TO BE DELETED. 5. IN ANY CASE AND WITHOUT PREJUDICE, APPELLANT'S O WN FUNDS ARE SUFFICIENT TO COVER INVESTMENTS MADE IN SUBSIDIARY COMPANIES, THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, ARE NOT APPLICABLE TO THE FACTS OF CASE. THE CONCLUSION OF THE COMMISSIONER OF INCO ME TAX (APPEALS) THAT THERE WAS NEGATIVE FUNDS IS NOT BASED ON ANY M ATERIAL AND IS TOTALLY ERRONEOUS AND IS NOT TO BE QUASHED. 6. THE DISALLOWANCE AS DONE BEING CONTRARY TO FACTS AND LAW IS TO BE DELETED. 7. IN ANY CASE, AND WITHOUT PREJUDICE THE DISALLOWA NCE MADE IS ERRONEOUS AND IN FACT EXCESSIVE. 9. THE APPELLANT DENIES THE LIABILITY TO PAY INTERE ST U/S 234A AND 234B OF THE ACT. THE INTEREST HAVING BEEN LEVIED ERRONEO USLY IS TO BE DELETED. 10. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER PAS SED BE QUASHED OR AT LEAST (I) THE DISALLOWANCE MADE U/S 14A R.W. RULE 8D BE D ELETED, (II) INTEREST LEVIED U/S 234A AND 234B OF THE ACT I S TO BE DELETED. 3. AT THE VERY OUTSET, IT WAS SUBMITTED BY LD. AR O F ASSESSEE THAT THERE IS NO EXEMPT INCOME IN THE PRESENT YEAR AND IN SUPPORT OF THIS CONTENTION, IT WAS SUBMITTED BY HER THAT ON PAGE NO. 66 OF THE PAPER B OOK IS THE P&L ACCOUNT AND ON PAGE NO. 72 OF THE PAPER BOOK IS THE DETAILS OF OTHER INCOME AND IT CAN BE SEEN THAT THERE IS NO EXEMPT INCOME IN THE P RESENT YEAR. THE ASSESSEE ALSO POINTED OUT THAT EVEN THE PROFIT ON S ALE OF LONG-TERM INVESTMENTS OF RS. 3,88,660/- IS NOT EXEMPT. SHE SU BMITTED THAT THE COMPUTATION OF INCOME IS AVAILABLE ON PAGE 49 OF TH E PAPER BOOK AND AS PER THE SAME, TWO AMOUNTS OF RS. 119,463/- AND RS. 125, 224/- ARE SHORT TERM CAPITAL GAINS, WHICH ARE TAXABLE. IN RESPECT OF LON G TERM CAPITAL GAIN, SHE SUBMITTED THAT THE SAME ARE IN RESPECT OF UNLISTED SHARES AS PER DETAILS ON PAGE 50 OF THE PAPER BOOK ON WHICH LONG TERM CAPITA L LOSS IS COMPUTED AT RS. 46,62,728/- AFTER INDEXATION. SHE SUBMITTED THA T THEREFORE, IT HAS TO BE ACCEPTED THAT THERE IS NO EXEMPT INCOME IN THE PRES ENT YEAR. SHE PLACED ITA NO. 3316/BANG/2018 PAGE 3 OF 4 RELIANCE ON THE JUDGEMENT OF HONBLE DELHI HIGH COU RT RENDERED IN THE CASE OF CHEMINVEST PVT. LTD. VS. CIT AS REPORTED IN (201 5) 378 ITR 33 AND POINTED OUT THAT AS PER THIS JUDGMENT, IF THERE IS NO ACTUAL RECEIPT OF EXEMPT INCOME WHICH IS NOT PART OF THE TOTAL INCOME THEN I N THAT YEAR, NO DISALLOWANCE IS TO BE MADE U/S. 14A OF IT ACT. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. IN PART ICULAR, HE DRAWN OUR ATTENTION TO PARA NO. 33 IN THE ORDER OF CIT(A) AND SUBMITTED THAT IN THIS PARA, IT IS HELD BY CIT(A) THAT THE APPLICABILITY O F SECTION 14A DOES NOT HINGE ON ACTUAL EARNING OF TAX-EXEMPT INCOME AND SINCE TH E ASSESSEE HAS MADE INVESTMENTS IN SHARES AND THE ASSESSEE WAS HAVING N EGATIVE NET WORTH DURING RELEVANT YEAR AND THEREFORE THE ENTIRE INVES TMENT WAS FINANCED BY BORROWED CAPITAL AND, ADMINISTRATIVE EXPENDITURE WA S ALSO INCURRED BY THE ASSESSEE, THIS DISALLOWANCE U/S. 14A IS JUSTIFIED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARA NO. 33 FROM THE ORDER OF CIT(A) WHICH IS AS UNDER. 33. IN THIS CASE IT HAS BEEN HELD THAT THE APPLICAB ILITY OF SECTION 14A DOES NOT HINGE ON ACTUAL EARNING OF TAX-EXEMPT INCO ME. IN THIS CASE THE ASSESSEE MADE INVESTMENT IN SHARES AND CLAIMED THAT IT HAD NOT EARNED ANY INCOME BY WAY OF DIVIDEND ON SAID SHARES , THUS, CLAIMED THAT SECTION 14A WOULD NOT APPLY. FURTHER, IT CLAIM ED THAT IT HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO SAID INVEST MENT IN SHARES, SO THAT SECTION 14A EVEN OTHERWISE WOULD NOT APPLY. IT WAS NOTED THAT ASSESSEE FIRM HAD NEGATIVE NET WORTH DURING RELEVAN T YEAR AND ENTIRE INVESTMENT WAS FINANCED BY BORROWED CAPITAL AND, AD MINISTRATIVE EXPENDITURE WAS INCURRED BY ASSESSEE. IT WAS HELD T HAT THE SECTION 14A WOULD APPLY EVEN IF NO TAX-EXEMPT INCOME (I.E., INC OME NOT FORMING PART OF TOTAL INCOME) HAD IN FACT BEEN EARNED, AS L ONG AS EXPENDITURE WAS INCURRED FOR EARNING SUCH INCOME. THEREFORE, AD MINISTRATIVE EXPENSES INCURRED ON MONEY BORROWED FOR INVESTMENT IN SHARES, WHICH HAD NOT YIELDED ANY DIVIDEND, WAS NOT TO BE ALLOWED . 5. FROM THE ABOVE PARA, WE FIND THAT THIS IS NOT TH E CASE OF THE CIT(A) THAT ASSESSEE WAS HAVING ANY EXEMPT INCOME IN THE PRESEN T YEAR. HENCE IN THE LIGHT OF THESE FACTS, WE EXAMINE THE APPLICABILITY OF THE JUDGEMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHEMINVEST PVT. LTD. VS. CIT (SUPRA). MOREOVER THE HONBLE DELHI HIGH COURT IN THIS CASE HAS ALSO CONSIDERED THE JUDGEMENT OF HONBLE APEX COURT REND ERED IN THE CASE OF ITA NO. 3316/BANG/2018 PAGE 4 OF 4 CIT V. RAJENDRA PRASAD MOODY[1978] 115 ITR 519 (SC) . PARA 21 OF THIS JUDGEMENT IS RELEVANT WHICH IS REPRODUCED HEREINBEL OW. 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA T HAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER S ECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME . SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME. THE DECISION IN RAJENDRA PRASAD MOODY (SUPRA) CANNOT BE USED IN THE REVERSE TO CONTEND TH AT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT. 6. FROM THE ABOVE PARA REPRODUCED FROM THIS JUDGEME NT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHEMINVEST PVT. LTD. VS. CIT (SUPRA), IT IS SEEN THAT THIS WAS HELD BY HONBLE DELHI HIGH COURT THAT THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT V. R AJENDRA PRASAD MOODY (SUPRA) IS IN THE CONTEXT OF ALLOWABILITY OF DEDUCT ION UNDER THE PROVISIONS OF SECTION 57(III) OF IT ACT AND THEREFORE, THE SAME C ANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTIO N 14A OF IT ACT. RESPECTFULLY FOLLOWING THIS JUDGEMENT OF HONBLE DE LHI HIGH COURT, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 25 TH JANUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.