Nova Properties Pvt.Ltd., Ahmedabad V. Asstt. Commissioner of Income Tax, Circle-5, Ahmedabad

ITA 3494/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8420 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

ITA NOS. 3455 & 3494/AHD/2014 NOVA PROPERTIES PVT LTD VS. ACIT ASSESSMENT YEAR: 2011-12 & 2010-11 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND RAJPAL YADAV JM] ITA NOS. 3455/AHD/2014 & 3494/AHD/2014 ASSESSMENT YEAR: 2011-12 & 2010-11 RESPECTIVELY NOVA PROPERTIES PVT LTD ..................A PPELLANT 10 TH FLOOR, COMMERCE HOUSE-4, BESIDE RELIANCE PETROL PUMP, PRAHLADNAGAR, SATELLITE, AHMEDABAD -380015 [PAN : AABCN 4138 N] VS. ACIT ............................RESPONDENT CIRCLE-5, AHMEDABAD APPEARANCES BY: PM MEHTA FOR THE APPELLANT MUDIT NAGPAL FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 21.09.2017 DATE OF PRONOUNCING THE ORDER : 22.09.2017 O R D E R PER PRAMOD KUMAR, AM: 1. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED A GAINST SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XI , OF EVEN DATED 07.10.2014 PASSED IN ASSESSMENT YEARS 2011-12 & 2010-11 RESPEC TIVELY. IN BOTH THESE APPEALS COMMON ISSUES HAVE BEEN RAISED AND THEREFOR E, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. GRIEVANCES RAISED BY THE ASSESSEE-APPELLANT ARE AS FOLLOWS:- AY : 2011-2012 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE D ISALLOWANCE U/S 14A OF RS.17,85,152/-. THE LEARNED CIT(A) OUGHT TO HAVE AP PRECIATED THAT ENTIRE DISALLOWANCE MADE BY ASSESSING OFFICER DESERVES TO BE DELETED. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE D ISALLOWANCE, WITHOUT ITA NOS. 3455 & 3494/AHD/2014 NOVA PROPERTIES PVT LTD VS. ACIT ASSESSMENT YEAR: 2011-12 & 2010-11 PAGE 2 OF 5 CONSIDERING THE FACT THAT AO HAS NOT RECORDED SATIS FACTION REGARDING INCORRECTNESS OF DISALLOWANCE MADE U/S 14A R.W. RUL E 8D FOR RS.20,000/- WHICH IS SUO MOTO DISALLOWED BY APPELLANT IN THE RE TURN OF INCOME AND FURTHER ERRED IN CONFIRMING ACTION OF ASSESSING OFFICER FOR TREATING SUCH EXPENDITURE UNDER RULE 8D(I) WHEN NO SUCH DIRECT EXPENDITURE IS INCURRED. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED C1T(A) HAS ERRED IN AFFIRMING THE DISALLOWA NCE OF PROPORTIONATE INTEREST EXPENDITURE FOR RS.6,46,044/- MADE U/S 14A OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS SUFFIC IENT INTEREST FREE FUNDS AVAILABLE TO COVER THE INVESTMENTS YIELDING TAX FRE E INCOME. 3.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES O F THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING NETTING OF F OF INTEREST EXPENDITURE WITH INTEREST INCOME. THE LEARNED CIT(A) OUGHT TO HAVE A PPRECIATED THAT AS THE INTEREST INCOME WAS MORE THAN INTEREST EXPENSE AND THE APPELLANT HAS NET POSITIVE INTEREST INCOME, THE INTEREST EXPENDITURE CANNOT BE CONSIDERED FOR DISALLOWANCE U/S 14A READ WITH RULE 8D. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWA NCE OF PROPORTIONATE INTEREST EXPENDITURE, WITHOUT APPRECIATING THE FACT THAT INVESTMENTS WHICH NOT YIELD ANY TAX FREE INCOME SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 5. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN AFFIRMING THE DISALLOWA NCE IN RESPECT OF ADMINISTRATIVE FOR RS.14,31,884/- MADE U/S 14A OF T HE ACT, WITHOUT APPRECIATING THE FACT THAT ALL THE EXPENSES CLAIMED ARE MEANT FOR RUNNING DAY TO DAY AFFAIRS OF THE COMPANY AND NOT FOR THE PURPO SE OF EARNING ANY TAX FREE INCOME. 5.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWA NCE OF ADMINISTRATIVE EXPENSES FOR RS.14,31,884, WHEN EXPENDITURE CLAIMED IN THE RETURN OF INCOME IS JUST RS.87,600. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT SUO MOTO DISALLOWED RS. 20,000 U/S 14 A IN ITS RETURN OF INCOME HENCE, IN ANY CASE, THE DISALLOWANCE CANNOT EXCEEDR S.67,600 ( RS.87,600 - RS.20,000). 6. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING GROU ND OF THE APPELLANT'S APPEAL BEFORE HIM CHALLENGING THE LEVY OF INTEREST U/S.234B, 234C & 234D OF THE ACT, ON THE GROUND THAT LEVY OF INTEREST WAS CO NSEQUENTIAL IN NATURE. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST. AY : 2010-2011 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE ITA NOS. 3455 & 3494/AHD/2014 NOVA PROPERTIES PVT LTD VS. ACIT ASSESSMENT YEAR: 2011-12 & 2010-11 PAGE 3 OF 5 LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE D ISALLOWANCE U/S 14A OF RS.6,46,824/-. THE LEARNED CIT(A) OUGHT TO HAVE APP RECIATED THAT ENTIRE DISALLOWANCE MADE BY ASSESSING OFFICER DESERVES TO BE DELETED. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE D ISALLOWANCE, WITHOUT CONSIDERING THE FACT THAT AO HAS NOT REJECTED THE M ETHODOLOGY OPTED BY APPELLANT FOR CALCULATING DISALLOWANCE U/S 14A R.W. RULE 8D FOR RS. 56,822/- IN THE RETURN OF INCOME. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN AFFIRMING THE DISALLOWA NCE OF PROPORTIONATE INTEREST EXPENDITURE FOR RS. 1,24,192/- MADE U/S 14 A OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS SUFFIC IENT INTEREST FREE FUNDS AVAILABLE TO COVER THE INVESTMENTS YIELDING TAX FRE E INCOME. 3.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES O F THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING NETTING OF F OF INTEREST EXPENDITURE WITH INTEREST INCOME. THE LEARNED CIT(A) OUGHT TO HAVE A PPRECIATED THAT AS THE INTEREST INCOME WAS MORE THAN INTEREST EXPENSE AND THE APPELLANT HAS NET POSITIVE INTEREST INCOME, THE INTEREST EXPENDITURE CANNOT BE CONSIDERED FOR DISALLOWANCE U/S 14A READ WITH RULE 8D. 3.2 IN LAW AND IN THE FACTS AND CIRCUMSTANCES O F THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN NOT ADJUDICATING THE AP PELLANT'S ALTERNATE CONTENTION THAT IT HAS ALREADY DISALLOWED INTEREST ON TDS FOR RS.25,434 IN RETURN OF INCOME, HENCE WHILE COMPUTING PROPORTIONA TE DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A. SUCH INTEREST CANNOT FORM PART OF TOTAL INTEREST CONSIDERED IN NUMERATOR FOR RS 3,75,450. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANTS CASE, THE LEARNED CIT(A) HAS ERRED IN NOT DEALING THE APPELLA NT'S PLEA THAT OPENING INVESTMENT OF RS.14,35,58,095/- INCLUDES FIXED DEPO SITS FOR RS.11,56,53,540/- FROM WHICH TAXABLE INCOME HAS BEEN EARNED AND ALREA DY OFFERED TO TAX, HENCE THE SAME REQUIRES TO BE REDUCED FROM OPENING INVEST MENTS FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A OF THE ACT. 5. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN AFFIRMING THE DISALLOWA NCE IN RESPECT OF ADMINISTRATIVE FOR RS, 5,79,454/- MADE U/S 14A OF T HE ACT, WITHOUT APPRECIATING THE FACT THAT ALL THE EXPENSES CLAIMED ARE MEANT FO R RUNNING DAY TO DAY AFFAIRS OF THE COMPANY AND NOT FOR THE PURPOSE OF EARNING A NY TAX FREE INCOME. 5.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWA NCE OF ADMINISTRATIVE EXPENSES FOR RS. 5,79,454, WHEN EXPENDITURE CLAIMED IN THE RETURN OF INCOME IS JUST RS. 33,217. IN ANY CASE, THE DISALLOWANCE C OULD NOT EXCEED THE AMOUNT OF EXPENDITURE CLAIMED IN RETURN OF INCOME, HENCE T HE SAME REQUIRES TO BE RESTRICTED TO RS. 33,217. ITA NOS. 3455 & 3494/AHD/2014 NOVA PROPERTIES PVT LTD VS. ACIT ASSESSMENT YEAR: 2011-12 & 2010-11 PAGE 4 OF 5 6. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING GROU ND OF THE APPELLANT'S APPEAL BEFORE HIM CHALLENGING THE LEVY OF INTEREST U/S.234B, 234C & 234D OF THE ACT, ON THE GROUND THAT LEVY OF INTEREST WAS CO NSEQUENTIAL IN NATURE. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST. 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE AB OVE GRIEVANCES IN BOTH ASSESSMENT YEARS UNDER CONSIDERATION ARE COVERED, I N FAVOUR OF THE ASSESSEE, BY THE DECISION DATED 14.07.2016 OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008-0 9 & 2009-10 WHEREIN THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS FOLLOWS:- 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DI SALLOWANCE OF EXPENSES U/S.14A OF THE ACT. THE UNDISPUTED FACT IS THE ASSE SSEE HAS EARNED TAX FREE AMOUNTING TO RS.58,41,551/- AND HAS ALSO INCURRED I NTEREST EXPENSES. IT IS ASSESSEES SUBMISSION THAT IT HAS INTEREST-FREE FUN DS WHICH ARE MORE THAN THE AMOUNTS INVESTED FROM WHICH IT HAS EARNED EXEMPT IN COME AND IN SUCH A CASE THE PRESUMPTION IS THAT INVESTMENTS ARE OUT OF INTEREST-FREE FUNDS AND, THEREFORE, NO DISALLOWANCE ON ACCOUNT OF INTEREST C AN BE MADE. THIS SUBMISSION OF THE ASSESSEE HAS NOT BEEN CONTROVERTE D BY THE REVENUE BUT HOWEVER ITS ARGUMENT IS THAT ASSESSEE HAS NOT KEPT INTEREST-FREE AND INTEREST- BEARING FUNDS SEPARATELY AND THEREFORE IT IS NOT PO SSIBLE FOR THE ASSESSEE TO PIN POINT AS TO WHICH OF THE FUNDS HAVE BEEN USED F OR MAKING THE INVESTMENTS. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. REPORTED AT (2009) 313 ITR 340 (BOM.) HA S HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST-FREE AND OVERDRAFT A ND / OR LOAN TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. BEFORE US, LD.S R.DR HAS NOT PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT. IN SUCH A SITUATION, RELYING ON THE AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), WE ARE OF THE VIE W THAT NO DISALLOWANCE OF INTEREST U/S 14A OF THE ACT CAN BE MADE IN THE PRES ENT CASE. AS FAR AS THE ISSUE OF NET INTEREST FOR THE PURPOSE OF DISALLOWAN CE U/S.14A IS CONCERNED, WE FIND THAT THE COORDINATE BENCH OF TRIBUNAL IN THE C ASE OF SAFAR REALITY PVT.LTD. VS. ACIT (ITA NOS.2334/AHD/2012 & 1842/AHD/2012, OR DER DATED 29/11/2013) HAS APPROVED THE THEORY OF NETTING OFF OF INTEREST INCOME WITH INTEREST EXPENDITURE. CONSIDERING THE TOTALITY OF THE AFORES AID FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, NO DISALLOWANCE U/S.14A I S CALLED FOR AND THUS DIRECT THE DELETION OF ADDITION MADE BY THE AO. THUS, THE GROUND(S) OF ASSESSEE ARE ALLOWED. AS FAR AS THE APPEAL OF REVENUE FOR AY 200 9-10 IS CONCERNED, SINCE IN AYS 2008-09 & 2009-10 THE GROUND OF ASSESSEE IS DECIDED IN ASSESSEES FAVOUR, THE GROUND RAISED BY REVENUE HAS BECOME ACA DEMIC AND, THEREFORE, REQUIRES NO ADJUDICATION AND THEREFORE DISMISSED. T HUS, THIS GROUND OF ASSESSEE IS ALLOWED. ITA NOS. 3455 & 3494/AHD/2014 NOVA PROPERTIES PVT LTD VS. ACIT ASSESSMENT YEAR: 2011-12 & 2010-11 PAGE 5 OF 5 4. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE M ATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH. RESPECTFULLY FOLLOWING TH E SAME, WE UPHOLD THE GRIEVANCES OF THE ASSESSEE AND ALLOW BOTH APPEALS FILED BY THE ASSESSEE FOR AYS 2010-11 AND 2011-12. 5. IN THE RESULT, THE APPEALS ARE ALLOWED. PRONO UNCED IN THE OPEN COURT TODAY ON THE 22 ND DAY OF SEPTEMBER, 2017. SD/- SD/- RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 22 ND DAY OF SEPTEMBER, 2017 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ........22.09.2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ... 22.09.2017........ 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 22.09.2017....... . 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: ... 22.09.2017...... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : . 25.09.2017..... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: ..