ACIT 14(2)(2), MUMBAI V. MASTER REALTORS P.LTD, MUMBAI

ITA 3513/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9897 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: AJAY R SINGHLD
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO.3513/MUM/2015 MASTER REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 3513/MUM/2015 ( / ASSESSMENT YEAR: 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX 14(2)(2) ROOM NO.432, 4 TH FLOOR AAYKAR BHAWAN, MUMBAI-400 020 / VS. MASTER REALTORS PRIVATE LIMITED 1 ST FLOOR, CAPRI BUILDING, ANANT KANEKAR MARG, BANDRA(E) MUMBAI-400051 ! ./ ./PAN/GIR NO. AAFCM-0944-H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : AJAY R.SINGH,LD. AR REVENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 29/06/2017 / DATE OF PRONOUNCEMENT : 14 /07/2017 ITA NO.3513/MUM/2015 MASTER REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2010-11 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2010- 11 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-22 [CIT(A)], MUMBAI DATED 11/03/2015. THE ONLY ISSUE I NVOLVED IN THE APPEAL IS DISALLOWANCE U/S 14A READ WITH RULE 8D. 2. BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED AS REAL ESTATE DEVELOPER WAS ASSESSED ON 27/02/2013 U/S 143(3) AT RS.3,52,000/- AS AGAINST RETURNED LOSS OF RS.8,11,59,870/- E- FILED BY THE ASSESSEE ON 14/10/2010 WHICH WAS REVIS ED AT THE SAME FIGURE ON 27/03/2012 TO RECTIFY THE CAPITAL GAINS R EFLECTED UNDER THE HEAD BUSINESS INCOME. 2.1 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE MADE CERTAIN INVESTMENT OF RS.905 LACS IN EQUITY SH ARES WHICH COULD EARN EXEMPT INCOME AND THE ASSESSEE DEBITED CERTAIN INTEREST AGAINST BORROWED FUNDS WHICH ATTRACTED DISALLOWANCE U/S 14A . SINCE THE ASSESSEE DID NOT MAKE ANY SUO-MOTO DISALLOWANCE AND PROVIDED NO WORKING THEREOF, LD. AO APPLIED RULED 8D AND WORKED OUT THE DISALLOWANCE OF RS.70.50 LACS WHICH COMPRISED OF IN TEREST DISALLOWANCE U/R 8D(2)(II) FOR RS. 65.99 LACS AND ADMINISTRATIVE EXPENSES DISALLOWANCE U/R 8D(2)(III) FOR RS.4.51 LACS. 2.2 AGGRIEVED, THE ASSESSEE CONTESTED THE SAME SUCC ESSFULLY BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 11/03/2015 ON THE PREMISES THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE IMPUGNED AY ITA NO.3513/MUM/2015 MASTER REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2010-11 3 AND FURTHER THE INVESTMENT WERE OUT OF OWNED FUNDS AND NOT BORROWED FUNDS WERE USED TO MAKE INVESTMENT AND HENCE THE SA ID DISALLOWANCE WAS NOT JUSTIFIED. THE LD. CIT(A) NOTED THAT THE SA ID INVESTMENTS WERE PASSIVE INVESTMENT IN GROUP CONCERNS, OWNED FUNDS O F RS.901 LACS WERE SUFFICIENT TO COVER INVESTMENT OF RS.905 LACS AND THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME AND THEREFORE, DELETED T HE SAID DISALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL B EFORE US. 3. THE LD. DEPARTMENTAL REPRESENTATIVE ASSAILED THE ORDER OF LD. CIT(A) ON THE GROUND THAT THE APPLICATION OF RULE 8 D WAS MANDATORY SINCE THE ASSESSEE MADE INVESTMENT AND USED MIXED F UNDS FOR THE SAME AND HENCE RIGHTLY BEEN SADDLED WITH THE SAID D ISALLOWANCE. OUR ATTENTION WAS ALSO DRAWN TO THE FACT THAT THE ASSES SEE DEBITED TOTAL INTEREST OF RS.813.23 LACS OUT OF WHICH A DISALLOWA NCE OF RS.65.99 LACS WAS MADE U/R 8D(2)(II) AND BALANCE WAS DISALLOWED B Y LD. AO U/S 36(1)(III) AND THEREFORE, THE SAME WAS EVEN OTHERWI SE DISALLOWABLE U/S 36(1)(III). 4. PER CONTRA, LD. COUNSEL FOR ASSESSEE [AR] DREW OUR ATTENTION TO THE FACT THAT THERE WAS MEAGER ADDITION OF RS.5.00 LACS AS FRESH INVESTMENT AND ALL INVESTMENT WERE IN GROUP CONCERN S WHERE THE MAIN MOTIVE WAS NOT TO EARN ANY EXEMPT INCOME BUT TO GAI N CONTROLLING INTEREST IN THOSE CONCERNS. THE LD. AR FURTHER CONT ENDED THAT NO SUCH DISALLOWANCE WAS MADE IN PRECEDING TWO YEARS AS WEL L AS IN IMMEDIATELY NEXT ASSESSMENT YEAR AND FOLLOWING THE RULE OF CONS ISTENCY, THE PRESENT DISALLOWANCE WAS NOT JUSTIFIED. FURTHER, THE ASSESS EE DID NOT EARN ANY EXEMPT INCOME AND EVEN OTHERWISE, OWNED FUNDS WERE MORE THAN THE ITA NO.3513/MUM/2015 MASTER REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2010-11 4 INVESTMENT MADE BY THE ASSESSEE AND THEREFORE, THE SAID DISALLOWANCE WAS NOT JUSTIFIED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. FIRST OF ALL, IT IS NOTICED THAT ALTHOUG H LD. AO COMPUTED COMBINED DISALLOWANCE OF RS.70.50 LACS U/R 8D BUT A DDED ONLY RS.65.99 LACS DISALLOWANCE U/R 8D(2)(II) IN THE COM PUTATION OF INCOME WHILE FRAMING ASSESSMENT AND THEREFORE, OUR FINDING S UNDER APPEAL WOULD REMAIN CONFINE ONLY WITH RESPECT TO ADDITION OF RS.65.99 LACS TOWARDS INTEREST DISALLOWANCE U/R 8D(2)(II). 6. AFTER PERUSING RIVAL CONTENTIONS AND FINANCIAL S TATEMENTS OF THE ASSESSEE, WE ARE CONVINCED WITH THE FINDINGS OF LD. CIT(A) SINCE WE FIND STRENGTH IN VARIOUS ARGUMENTS OF LD. AR. THERE WAS MEAGER ADDITION OF RS.5.00 LACS IN THE INVESTMENT DURING THE YEAR AND THE INVESTMENTS WERE IN GROUP CONCERN. THE ASSESSEE HAS NOT BEEN SA DDLED WITH SIMILAR DISALLOWANCE IN AY 2008-09, 2009-10 & 2011-12 AS EV IDENT FROM LD. ARS SUBMISSIONS. THE ASSESSEE HAS NOT EARNED ANY E XEMPT INCOME DURING THE YEAR. THE ASSESSEES SHARE CAPITAL AND F REE RESERVES STOOD AT RS.901 LACS AS AGAINST INVESTMENT OF RS.905 LACS. T HEREFORE, LD. CIT(A) CLINCHED THE ISSUE IN CORRECT PERSPECTIVE AN D WE FIND NO REASON TO INTERFERE WITH THE SAME. 7. HOWEVER, WE FIND THAT IN VIEW OF OUR ABOVE DECIS ION, A CONSEQUENTIAL ISSUE CROPS UP. THE LD. AO RESTRICTED INTEREST DISALLOWANCE TO RS.747.24 LACS U/S 36(1)(III) AS AG AINST TOTAL INTEREST OF RS.813.23 LACS CLAIMED BY THE ASSESSEE IN VIEW OF T HE FACT THAT A DISALLOWANCE OF RS.65.99 LACS WAS ALREADY MADE BY H IM U/R 8D(2)(II). SINCE WE HAVE ALREADY DELETED THE SAME, THE INTERES T DISALLOWANCE U/S ITA NO.3513/MUM/2015 MASTER REALTORS PRIVATE LIMITED ASSESSMENT YEAR 2010-11 5 36(1)(III) REQUIRES RE-WORKING. WE FIND THAT THE LD . CIT(A) HAS UPHOLD THE STAND OF LD. AO U/S 36(1)(III) BUT AT THE SAME TIME , DIRECTED LD. AO TO ALLOW CAPITALIZATION OF THE SAME. THE BENCH HAS BEE N INFORMED THAT THERE IS NO FURTHER APPEAL BY ASSESSEE ON THIS ISSUE AND THE SAME HAS ALREADY ATTAINED FINALITY. THEREFORE, WHILE DELETING THE SA ID DISALLOWANCE OF RS.65.99 LACS U/R 8D(2)(II), THE SAME SHALL BE DISA LLOWED U/S 36(1)(III) AND THE ASSESSEE SHALL BE ALLOWED TO CAPITALIZE THE SAME IN TERMS OF THE ORDER OF LD. CIT(A). THE LD. AO IS DIRECTED TO WORK OUT THE REVISED COMPUTATION IN TERMS OF OUR ABOVE ORDER. 8. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JULY, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14 .07.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. $'. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI