Ozone Projects Pvt. Ltd., CHENNAI V. JCIT, CHENNAI

ITA 366/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3974 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS S VIJAYA PRABHA
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Earning of tax free income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.366/MDS/2017 /ASSESSMENT YEAR: 2011-12 M/S.OZONE PROJECTS PVT. LTD., OLD NO.22, NEW NO.63, G.N.CHETTY ROAD, T.NAGAR, CHENNAI-600 017. VS. THE JT. COMMISSIONER OF INCOME TAX, COMPANY RANGE-V, CHENNAI-34. [PAN: AAACO 7589 D ] ( & /APPELLANT) ( '(& /RESPONDENT) ./ ITA NO.539/MDS/2017 /ASSESSMENT YEAR: 2011-12 THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-5(1), CHENNAI-34. VS. M/S.OZONE PROJECTS PVT. LTD., OLD NO.22, NEW NO.63, G.N.CHETTY ROAD, T.NAGAR, CHENNAI-600 017. [PAN: AAACO 7589 D ] ( & /APPELLANT) ( '(& /RESPONDENT) ASSESSEE BY : MR.B. RAMAKRISHNAN, CA DEPARTMENT BY : MRS.S.VIJAYA PRABHA, JCIT * /DATE OF HEARING : 26.07.2017 * /DATE OF PRONOUNCEMENT : 27.07.2017 ITA NOS.366 & 539/MDS/2017 :- 2 -: / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.366/MDS/2017 IS AN APPEAL FILED BY THE ASSE SSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, CH ENNAI, IN ITA NO.34/2014-15/CIT(A)-3 DATED 30.11.2016 FOR THE AY 2011-12 AND ITA NO.539/MDS/2017 IS AN APPEAL FILED BY THE REVENUE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI, IN ITA NO.34/2014- 15/CIT(A)-3 DATED 30.11.2016 FOR THE AY 2011-12 . 2. MRS.S.VIJAYA PRABHA, JCIT REPRESENTED ON BEHALF OF THE REVENUE AND MR.B. RAMAKRISHNAN, CA REPRESENTED ON BEHALF OF THE ASSESSEE. 3. AS THE APPEALS ARE RELATED TO THE SAME ASSESSEE AND ARE INTERCONNECTED, THE SAME ARE BEING DISPOSED OFF BY A COMMON ORDER. 4. AT THE TIME OF HEARING, THE LD.AR ON BEHALF OF T HE ASSESSEE SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND NO.2 OF THE ASSESSEES APPEAL. CONSEQUENTLY, GROUND NO.2 OF THE ASSESSEE STANDS DISMISSED AS NOT PRESSED. 5. IN REGARD TO GROUND NO.5 OF THE ASSESSEES APPEA L, IT WAS A SUBMISSION THAT THE DISALLOWANCE CHALLENGED WAS TO AN EXTENT OF RS.60.31 LAKHS BEING THE EXPENDITURE BOOKED UNDER THE HEAD LAND COST AND THE ITA NOS.366 & 539/MDS/2017 :- 3 -: ASSESSEE WAS ONLY CHALLENGING THE DISALLOWANCE TO A N EXTENT OF RS.40.75 LAKHS. EACH OF THE GROUNDS IS BEING DISPOSED OFF B Y SERIATIM. 6. IN REGARD TO GROUND NO.3 OF THE ASSESSEES APPEA L, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN CONFIRMIN G 75% OF THE DISALLOWANCE AMOUNTING TO RS.87,90,528/- TOWARDS TH E COMMON EXPENSES SHARED BY THE COMPANY. THIS GROUND IS CONNECTED TO GROUND NOS.2, 2.1 & 2.2 OF THE REVENUES APPEAL IN ITA NO.539/MDS/2017. IT WAS A SUBMISSION THAT THE ASSESSEE IS A SPECIAL PURPOSE V EHICLE(SPV) WHICH IS DOING BUSINESS OF PROPERTY DEVELOPERS. IT WAS A SU BMISSION THAT THE PARENT COMPANY WAS M/S.OZONE PROPEX PVT. LTD., WHIC H WAS INCORPORATED IN BANGALORE. IT WAS A SUBMISSION THAT THE ASSESSE E COMPANY WAS INVOLVED IN THE DEVELOPMENT OF THE PROJECT CALLED METRO ZONE AT ANNA NAGAR, CHENNAI. IT WAS A SUBMISSION THAT THE ASSES SEE IS FOLLOWING THE PERCENTAGE OF COMPLETION METHOD FOR THE PURPOSE O F RECOGNIZING THE REVENUE, BEING THE REVENUE REPRESENTED THE AGGREGAT E AMOUNTS OF SALE PRICE IN RESPECT OF AGREEMENTS ENTERED INTO AND ARE ACCRUED BASED ON THE PERCENTAGE THAT THE ACTUAL CONSTRUCTION COST INCURR ED UNTIL REPORTING DATE BEARS TO THE TOTAL ESTIMATED CONSTRUCTION COSTS OF COMPLETION. IT WAS A SUBMISSION THAT FOR THE RELEVANT AY, THE ASSESSEE H AD INCURRED A TOTAL EXPENDITURE OF RS.1,242.98 CR. AND THE FOR THE RELE VANT AY, THE ASSESSEE HAD BOOKED RS.101.36 CR. REPRESENTING 8.15% OF THE TOTAL EXPENSES INCURRED FOR THE TOTAL PROJECT. THE REVENUE RECOGNI ZED ON IDENTICAL LINES WAS RS.126.45 CR. IT WAS A SUBMISSION THAT THE RE MAINING PART OF THE ITA NOS.366 & 539/MDS/2017 :- 4 -: EXPENDITURE IS SHOWN IN THE BALANCE SHEET OF THE AS SESSEE AS WORK IN PROGRESS. IT WAS A SUBMISSION THAT THE MANAGEMENT O F THE ASSESSEE COMPANY HAD DECIDED TO HAVE A CORE GROUP OF MANAGEM ENT PERSONNEL IN THE HOLDING COMPANY SUCH AS MD, VP(FINANCE), ETC., BEING ALL MANAGERIAL PERSONNEL TO BE RESPONSIBLE FOR ALL THE PROJECTS UN DERTAKEN BY THE GROUP. CONSEQUENTLY, IT WAS DECIDED THAT THE COMMON EXPENS ES OF THE CORPORATE OVERHEAD WAS TO BE SHARED BY ALL THE SUBSIDIARIES O N USAGE BASIS. THE INDEPENDENT PROJECT DIRECT OVERHEADS WERE TO BE CHA RGED TO EACH RESPECTIVE COMPANY AND THE COMMON CORPORATE OVERHEA D WAS TO BE SHARED BY ALL THE SUBSIDIARIES ON USAGE BASIS. IT WAS A SUBMISSION THAT CONSEQUENTLY THE TOTAL EXPENSES IN RESPECT OF THE H OLDING COMPANY REPRESENTING CORPORATE EXPENSES FOR RELEVANT ASSESS MENT YEAR WAS RS.19,15,703,000/- OF WHICH AN AMOUNT OF RS.14,38,1 2,322/- WAS APPORTIONED TO THE ASSESSEES ACCOUNT AND OUT OF TH E SAME 8.15% WAS CLAIMED BY THE ASSESSEE AS AN EXPENDITURE FOR THE R ELEVANT AY AND THE BALANCE HAD BEEN TRANSFERRED TO WORK IN PROGRESS. I T WAS A SUBMISSION THAT THIS CLAIM OF 8.15% WAS TO THE EXTENT OF RS.1, 17,20,704/-. IT WAS A SUBMISSION THAT THE AO HAD DISALLOWED THE SAME. ON APPEAL LD.CIT(A) HAD GIVEN PART RELIEF TO AN EXTENT OF 25% AND CONFI RMED THE DISALLOWANCE OF 75%. IT WAS A SUBMISSION THAT THE ADMINISTRATI VE OVERHEADS WHICH WERE LOOKED AFTER BY THE HOLDING COMPANY HAD TO BE APPORTIONED TO THE ASSESSEE COMPANY IN VIEW OF THE AGREEMENT ENTERED I NTO BY THE ASSESSEE WITH THE HOLDING COMPANY VIDE AN EMPLOYEE ASSIGNING AGREEMENT DATED 01.04.2010. IT WAS, HOWEVER, A SUBMISSION THAT IN THE COURSE OF THE ITA NOS.366 & 539/MDS/2017 :- 5 -: ASSESSMENT, THE ASSESSEE HAD NOT BEEN GIVEN ADEQUAT E OPPORTUNITY TO PRODUCE THE SAID AGREEMENT AS ALSO THE APPORTIONMEN T DETAILS OF THE INDIRECT EXPENSES CLAIMED AND THE ASSESSEE HAD NO O BJECTION IF THE ISSUE WAS RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICAT ION. 7. IN REPLY, THE LD.DR DREW OUR ATTENTION TO THE AS SESSMENT ORDER WHEREIN AT PAGE NO.2, SHOW CAUSE NOTICE HAD BEEN GI VEN TO THE ASSESSEE VIDE LETTER DATED 06.12.2013 AND THE ASSESSEE HAD G IVEN REPLY DATED 12.03.2014. IT WAS A FURTHER SUBMISSION THAT THE AS SESSEE HAS BEEN GRANTED ADEQUATE OPPORTUNITY BUT THE ASSESSEE HAS N OT PROVIDED THE DETAILS CALLED FOR. THE LD.DR FURTHER DREW OUR ATT ENTION AT PARA NO.2.3 OF THE ASSESSMENT ORDER AT PAGE NO.4 TO SUBMIT THAT TH E ASSESSEE WAS NOT IN A POSITION TO QUANTIFY NOR PROVE IN REALISTIC TERMS , THE QUANTUM OF SERVICES RENDERED BY THE HOLDING COMPANY ON THE ASSESSEES B EHALF. IT WAS A FURTHER SUBMISSION THAT THE ASSESSEE COULD NOT PROV E ON RECORD WITH EVIDENCES REGARDING INCURRING OF THE EXPENDITURE BY THE HOLDING COMPANY ON ITS BEHALF. THE LD.DR FURTHER DREW OUR ATTENTIO N THE ORDER OF THE LD.CIT(A) AT PAGE NOS.15 & 16 OF HIS ORDER. IT WAS A SUBMISSION THAT THE LD.CIT(A) HAD IN PRINCIPLE AGREED WITH THE AO THAT IN THE ABSENCE OF THE EVIDENCE OR THE BASIS FOR QUANTIFICATION, IT IS LEF T TO THE WHIMS AND FANCIES OF THE HOLDING COMPANY TO PASS IT ON ANY AMOUNT TO THE APPELLANT COMPANY IN THE NAME OF COMMON EXPENSES. IT WAS A FURTHER SUBMISSION THAT THE LD.CIT(A) HAD ALSO AGREED WITH THE FINDING S OF THE AO THAT THERE WAS NO WRITTEN AGREEMENT DOCUMENTED OR MUTUALLY ACC EPTED WITH REGARD ITA NOS.366 & 539/MDS/2017 :- 6 -: TO THE SHARING OF THE COMMON EXPENSES. IT WAS A SU BMISSION THAT THE LD.CIT(A) HAD ALSO CONSIDERED THE FACT THAT THE ASS ESSEE HAD NOT PRODUCED ANY EVIDENCE BEFORE THE AO REGARDING INCURRING THE SAID EXPENDITURE. IT WAS A SUBMISSION THAT NO EVIDENCE WAS ALSO PRODUCED BEFORE THE LD.CIT(A). HOWEVER, THE LD.CIT(A) HAD WITHOUT GIVE N ANY VALID REASON HAD ALLOWED 25% OF THE SAID EXPENDITURE AND CONFIRM ED 75% OF THE DISALLOWANCE. IT WAS A SUBMISSION THAT AGAINST THE CONFIRMATION OF 75% OF THE DISALLOWANCE, THE ASSESSEE IS ON APPEAL IN GROU ND NO.3 OF THE ASSESSEES APPEAL AND AGAINST THE RELIEF OF 25% GRA NTED BY THE LD.CIT(A). THE REVENUE IS ON APPEAL IN GROUND NOS.2, 2.1 & 2.2 OF THE REVENUE APPEAL. IT WAS A SUBMISSION THAT THE DISALLOWANCE MADE BY THE AO WAS LIABLE TO BE RESTORED IN ITS ENTIRETY. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE ASSESSEE HA D BEEN GRANTED ADEQUATE OPPORTUNITY TO SUBSTANTIATE ITS CLAIM IN R ESPECT OF THE COMMON EXPENSES. THE ASSESSEE DID NOT PRODUCE ANY EVIDENC E BEFORE THE AO NEITHER BEFORE THE LD.CIT(A). AS THE ASSESSEE HAS N OT PRODUCED ANY EVIDENCE, THE ONLY ARGUMENT IS THAT THESE ARE EXPEN SES APPORTIONED REPRESENTING THE HOLDING COMPANY EXPENSES IN RESPEC T OF ADMINISTRATIVE COST AND EMPLOYEE COST. BEFORE US, THE ASSESSEE HA S NOW COME WITH AN AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE HOLD ING COMPANY. THE ASSESSEE HAS ALSO PLACED BEFORE US A BREAK-UP OF TH E VARIOUS EXPENSES WHICH HAVE BEEN APPORTIONED. THE ASSESSEE HAS UNAB LE TO EXPLAIN AS TO ITA NOS.366 & 539/MDS/2017 :- 7 -: HOW THE HOLDING COMPANY EXPENDITURE HAS BEEN APPORT IONED TO ALLOT THE SAME TO THE ASSESSEE. THE AGREEMENT IN CLAUSE 2(H) TALKS OF APPORTIONMENT OF THE EMPLOYEE COST BY APPLYING A FO RMULA ON MAN HOUR BASIS. NO OTHER EVIDENCES HAVE BEEN PRODUCED BEFORE US AS TO WHO WERE THE EMPLOYEES OF THE HOLDING COMPANY, WHO HAD WORKE D FOR ASSESSEE COMPANY? HOW MANY HOURS REPORTED? HOW THE DENOMINA TOR 208 HAS BEEN DETERMINED? A PERUSAL OF THE BREAK-UP OF THE APPORTION EXPENDITURE SHOWS THAT IT INCLUDES MOBILE PHONE CHARGES, INTERN ET CHARGES, POSTAGE AND MAINTENANCE CHARGES, ETC., IN SHORT THE PRACTIC ALITY AND NECESSITY OF THE EXPENSES OF HOLDING COMPANY BEING M/S.OZONE PRO PEX PVT. LTD., AS HAS BEEN APPORTIONED AND CLAIMED IN THE HANDS OF TH E ASSESSEE COMPANY IS NOT SHOWN. THUS, THE EVIDENCE WHICH HAVE BEEN P RODUCED BEFORE US IS NOT THE EVIDENCE WHICH HAS BEEN CALLED FOR BY THE A O AND DOES NOT GIVEN ANY ANSWER TO THE QUESTIONS RAISED BY THE AO IN SO FAR AS THE METHODOLOGY ADOPTED FOR THE APPORTIONMENT IS NOT AVAILABLE MUCH LESS SUPPORTED. THESE ADMITTEDLY ARE FRESH EVIDENCES. BUT NOT THE DETAILS CALLED FOR BY THE AO. FURTHER WHAT PREVENTED THE ASSESSEE FROM PRODUC ING THE EVIDENCES BEFORE THE AO IS ALSO NOT EXPLAINED. SECOND ROUND C ANNOT BE GRANTED TO THE ASSESSEE, JUST BECAUSE, THE ASSESSEE WANTS TO P RODUCE SOME FRESH EVIDENCE. IF THE ISSUE NEEDS TO BE RESTORED TO THE FILE OF THE AO ON THE BASIS OF THE FRESH EVIDENCE THEN ADMITTEDLY SUCH FR ESH EVIDENCE WOULD HAVE TO BE PRODUCED BEFORE THE TRIBUNAL AND SUCH FR ESH EVIDENCE SHOULD HAVE A DIRECT BEARING TO THE ISSUE OR QUERIES RAISE D BY THE AO. THIS BEING NOT AVAILABLE WE ARE NOT INCLINED TO RESTORE TO THE FILE OF THE AO. A PERUSAL ITA NOS.366 & 539/MDS/2017 :- 8 -: OF THE ORDER OF THE AO CLEARLY SHOWS THAT THE AO HA S DISALLOWED THE APPORTIONED EXPENDITURE ON ACCOUNT OF NON-AVAILABIL ITY OF EVIDENCE. NOTHING HAS BEEN PRODUCED TO SHOW AS TO WHO ARE THE EMPLOYEES, HOW THE SAID APPORTIONED EXPENDITURE RELATED TO THE ASSESSE E? A PERUSAL OF THE ORDER OF THE LD.CIT(A) SHOWS THAT THE LD.CIT(A) HAS AGREED WITH THE STAND OF THE AO IN REGARD TO THE NON-AVAILABILITY OF EVID ENCES. HOWEVER, HE HAS PROCEEDED TO GRANT OF RELIEF TO THE ASSESSE TO THE EXTENT OF 25%. IN THE ABSENCE OF EVIDENCE, NO ADHOC RELIEF CAN BE GRANTED TO THE ASSESSE. IT IS THE DUTY OF THE ASSESSEE TO PRODUCE THE EVIDENCES I N RESPECT OF THE EXPENSES AND CLAIMS FOR DEDUCTIONS OR EXCLUSIONS AS MADE BY AN ASSESSEE. THE LD.CIT(A) HAS ALLOWED THE 25% ON THE GROUND THA T THE SAID RELIEF WOULD MEET JUSTICE KEEPING IN VIEW OF THE NATURE OF ASSESSEES BUSINESS. JUST AS NO ADHOC DISALLOWANCE CAN BE MADE NO ADHOC ALLOWANCES CAN ALSO BE MADE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS ERRED IN GRANTING 25% RELIEF TO THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ORDER OF THE LD.CIT(A) GRANTING RELIEF TO THE A SSESSEE IN RESPECT OF 25% OF THE EXPENDITURE DISALLOWED STANDS REVERSED A ND THE DISALLOWANCE MADE BY THE AO STANDS RESTORED. 9. IN THE RESULT, GROUND NO.3 OF THE ASSESSEES APP EAL STANDS DISMISSED AND GROUND NOS.2, 2.1 & 2.2 OF THE REVENUES APPEAL STANDS ALLOWED. 10. IN RESPECT OF GROUND NO.4, IT WAS SUBMITTED BY THE LD.AR THAT THE ISSUE WAS AGAINST THE ACTION OF THE LD.CIT(A) IN CO NFIRMING THE ITA NOS.366 & 539/MDS/2017 :- 9 -: DISALLOWANCE OF RS.56,79,193/- AS PROVISION FOR WO RK IN PROGRESS YET TO BE BILLED. IT WAS A SUBMISSION THAT THE PROVISION FOR WORK IN PROGRESS YET TO BE BILLED WAS IN RESPECT OF THE PILING WORK, EAR TH EXCAVATION WORK, SOIL NAILING WORK, CIVIL WORK, SITE OFFICES EXPENSES AND SITE EXPENSES AND ROAD WORKS FOR WHICH THOUGH THE WORK HAD BEEN COMPLETED THE BILLS HAD NOT YET BEEN RAISED BY THE CONTRACTORS. IT WAS A SUBMISSIO N THAT AS THESE WERE COMPLETED WORKS FOR WHICH BILLS WERE EXPECTED, THE ASSESSEE HAD PROVIDED BY MAKING THE PROVISION FOR THE SAME AND HAD CLAIME D 8.15% OF THE SAME AS EXPENSES. IT WAS A SUBMISSION THAT AS AND WHEN BILLS WERE GIVEN, THE PROVISION WAS REVERSED. IT WAS A SUBMISSION THAT T HESE EXPENDITURE WERE RELATION TO THE PROJECT OF THE ASSESSEE AND THE WOR KS HAD BEEN COMPLETED AND CONSEQUENTLY THE COST IN RELATING TO THE SAID W ORK WAS THE EXPENDITURE INCURRED BY THE ASSESSEE AND THE ASSESSEE WAS ENTIT LED TO 8.15% OF THE SAME. 11. IN REPLY, THE LD.DR SUBMITTED THAT THE AO HAD D ISALLOWED THE SAME. AS THE ASSESSEE WAS FOLLOWING THE PERCENTAGE OF CO MPLETION METHOD, IT WAS A SUBMISSION THAT THE DISALLOWANCE WAS ON ACCOU NT OF THE FACT THAT THE SAID EXPENDITURE WAS A PROVISION AND THE BILLS IN RESPECT OF THE SAME HAD NOT BEEN RECEIVED AS ON 31.03.2011. HOW THE AS SESSEE HAD QUANTIFIED THIS AMOUNT WAS ALSO NOT EXPLAINED. IT WAS A SUBMISSION THAT THE ASSESSEE WAS FOLLOWING ACCRUAL METHOD OF ACCOUN TING AND THE EXPENSES ARE CONSIDERED AS INCURRED WHEN THE SAME B ECOME PAYABLE. IT WAS A SUBMISSION THAT WHEN THE CONTRACTOR HIMSELF H AS NOT RAISED THE BILLS ITA NOS.366 & 539/MDS/2017 :- 10 -: ON THE ASSESSEE, THE QUESTION OF THE EXPENDITURE HA VING EVEN BECOME ACCRUED DID NOT ARISE. IT WAS A SUBMISSION THAT TH E DISALLOWANCE AS MADE BY THE AO AND CONFIRMED BY THE LD.CIT(A) WAS LIABLE TO BE SUSTAINED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMI TTEDLY, THE SAID EXPENDITURE IS ONLY A PROVISION. THE BILLS IN RESP ECT OF THE SAID EXPENDITURE ARE YET TO BE RECEIVED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, AS THE ASSESSEE IS FOLLOWING MERCANT ILE SYSTEM OF ACCOUNTING, IT CANNOT BE SAID THAT THE EXPENDITURE HAS ACCRUED IN SO FAR AS NO BILLS HAVE BEEN RECEIVED BY THE ASSESSEE. THE D ISALLOWANCE WOULD ALSO HAD BEEN CONSIDERED IN SO FAR AS ADMITTEDLY, THE AS SESSEE HAS CONTRACTED THESE WORKS AND THERE IS NO EVIDENCE EVEN TDS HAVIN G BEEN DEDUCTED FOR THE SAID EXPENDITURE TO BE LIABLE. HOWEVER, THIS IS NOT THE ISSUE BEFORE US AND WE DO NOT GO INTO IT. CONSEQUENTLY, GROUND NO. 4 OF THE ASSESSEES APPEAL STANDS DISMISSED. 13. IN REGARD TO GROUND NO.5 OF THE ASSESSEES APPE AL, IT WAS SUBMITTED BY THE LD.AR THAT THE ISSUE WAS AGAINST THE ORDER O F THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.60,31,000/- BEING THE EXPENDITURE BOOKED UNDER THE HEAD LAND COST. IT WAS A SUBMIS SION THAT THE SAID DISALLOWANCE CONSIST OF FOUR PARTS. IT WAS A SUBMI SSION THAT ONLY IN RESPECT OF THE DISALLOWANCE IN RESPECT OF INCURRING THE PAYMENT MADE TO SHRI G.N.PANDIAN WAS BEING CHALLENGED AND THE ASSES SEE WAS NOT CHALLENGING THE DISALLOWANCE OF THE EXPENDITURE CLA IMED UNDER THE HEAD ITA NOS.366 & 539/MDS/2017 :- 11 -: LAND COST IN RESPECT OF THE AMOUNT PAID TO M/S.FI NDEL INVESTMENTS PVT. LTD., M/S.PALIATH ENTERPRISES AND M/.PELICAN ESTATE S AND DEVELOPERS. IT WAS A SUBMISSION THAT THE DISALLOWANCE IN RESPECT O F THE AMOUNTS CLAIMED AS LAND COST TO M/S.FINDEL INVESTMENTS PVT. LTD., M/S.PALIATH ENTERPRISES AND M/.PELICAN ESTATES AND DEVELOPERS WAS ON ACCOUN T OF NON-DEDUCTION OF TDS AND CONSEQUENTIAL DISALLOWANCE U/S.40(A)(IA) . IT WAS A SUBMISSION THAT IN RESPECT OF THE EXPENDITURE UNDER THE HEAD LAND COST IN RESPECT OF THE PAYMENTS MADE TO SHRI G.N.PANDIAN WAS ONLY CHAL LENGED. THUS, THE CHALLENGE WAS ONLY AGAINST DISALLOWANCE OF RS.40,75 ,000/- REPRESENTING 8.15% ON AN AMOUNT OF RS.5.00 CR. PAID TO SHRI G.N. PANDIAN. IT WAS A SUBMISSION THAT THE ASSESSEE HAD MADE A PAYMENT OF RS.5.00 CR. TO SHRI G.N.PANDIAN WHO IS AN AGREEMENT HOLDER IN RESPECT O F THE LAND PURCHASED BY THE ASSESSEE ON WHICH THE PROJECT OF THE ASSESSE E WAS BEING DONE. IT WAS A SUBMISSION THAT THERE WAS AN ORAL AGREEMENT W ITH SHRI G.N.PANDIAN AND AS PER THE SAID AGREEMENT THE ASSESSEE WAS TO G IVE CERTAIN BUILT UP AREA TO SHRI G.N.PANDIAN. IT WAS A SUBMISSION THAT THE AMOUNT OF RS.5.00 CR. HAD BEEN PAID TO SHRI G.N.PANDIAN TOWARDS REFUN DABLE SECURITY DEPOSIT TO GUARANTEE PROVIDING CERTAIN SUPER BUILT UP AREA IN THE SUPER STRUCTURES OF THE ASSESSEE. IT WAS A SUBMISSION THAT THE ASSE SSEE WAS TO SUPPLY THE BUILT UP AREA TO SHRI G.N.PANDIAN WITHIN FIVE YEARS FROM THE DATE OF AGREEMENT BEING THE DATE OF WHICH THE AMOUNT OF RS. 5.00 CR. HAD BEEN PAID TO SHRI G.N.PANDIAN I.E. ON 16.12.2006. IT WA S A SUBMISSION THAT AS THE ASSESSEE WAS UNABLE TO PROVIDE THE SUPER BUILT UP AREA TO SHRI G.N.PANDIAN WITHIN THE STIPULATED TIME, THE AMOUNT OF RS.5.00 CR. WAS ITA NOS.366 & 539/MDS/2017 :- 12 -: LIABLE TO BE FORFEITED BY SHRI G.N.PANDIAN AND CONS EQUENTLY THE ASSESSEE HAD CLAIMED THE SAME AS PART OF THE LAND COST. IT WAS A SUBMISSION THAT THE ASSESSEE HAD CLAIMED 8.15% OF THE SAID RS.5.00 CR. AS EXPENDITURE RELATING TO THE RELEVANT ASSESSMENT YEAR. IT WAS A SUBMISSION THAT THE PAYMENT TO SHRI G.N.PANDIAN WAS NOT IN DISPUTE. SH RI G.N.PANDIAN ADMITTED TO THE RECEIPT OF THE AMOUNT OF RS.5.00 CR . IN HIS STATEMENT GIVEN TO THE AO. IT WAS A SUBMISSION THAT THE AO D ISALLOWED THE SAID EXPENDITURE ONLY ON THE GROUND THAT SHRI G.N.PANDIA N HAD NOT ADMITTED THE FORFEITURE OF THE AMOUNT. IT WAS A SUBMISSION THAT THE DISALLOWANCE MAY BE DELETED. 14. IN REPLY, THE LD.DR SUBMITTED THAT A STATEMENT HAD BEEN RECORDED FROM SHRI G.N.PANDIAN AND OPPORTUNITY FOR CROSS-EXA MINATION HAD ALSO BEEN GRANTED TO THE ASSESSEE. IT WAS A SUBMISSION THAT THE OPPORTUNITY OF CROSS-EXAMINATION HAS BEEN DECLINED BY THE ASSESSEE . IT WAS A SUBMISSION THAT IN THE STATEMENT RECORDED FROM SHRI G.N.PANDIAN, HE HAS SPECIFICALLY AGREED THAT HE HAS RECEIVED AN ADVANCE OF SECURITY DEPOSIT. NOWHERE IN THE STATEMENT, HE ADMITTED TO THE FORFEI TURE OF THE AMOUNT OF RS.5.00 CR. IN FACT, SHRI G.N.PANDIAN CLAIMS TO BE WAITING FOR THE ASSESSEE TO COMPLY WITH THEIR PART OF ORAL AGREEMENT FOR THE PURPOSE OF REFUND OF THE AMOUNT OF RS.5.00 CR. IT WAS A SUBMISSION THAT AS THE SAID AMOUNT OF RS.5.00 CR. WAS ONLY A SECURITY DEPOSIT THE SAME CO ULD NOT BE ALLOWED AS EXPENDITURE. IT WAS A SUBMISSION THAT THE ORDER OF THE LD.CIT(A) ON THIS ISSUE WAS LIABLE TO BE CONFIRMED. ITA NOS.366 & 539/MDS/2017 :- 13 -: 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A P ERUSAL OF PAGE NO.7 OF THE ASSESSMENT ORDER SHOWS THAT THE STATEMENT OF SHRI G.N.PANDIAN HAD BEEN RECORDED ON 20.03.2014. SHRI G.N.PANDIAN ADMITS TO HAVE RECEIVED AS REFUNDABLE SECURITY DEPOSIT RS.5.00 CR. ON 16.12.2006. FOR WHAT PURPOSE THIS REFUNDABLE SECURITY DEPOSIT HAS B EEN PAID TO SHRI G.N.PANDIAN, IS NOT COMING OUT OF THE STATEMENT. A LL IT TALKS OF IS FOR THE ASSESSEE FULFILL CONDITIONS STIPULATED IN THE AGREE MENT. THE AGREEMENT HOWEVER IS AN ORAL AGREEMENT. WHAT WERE THE CONDIT IONS STIPULATED ARE NOT COMING OUT OF THE STATEMENT. A PERUSAL OF THE ASSESSMENT ORDER ALSO SHOWS THAT THE AO HAS GRANTED OPPORTUNITY TO THE AS SESSEE TO CROSS- EXAMINE SHRI G.N.PANDIAN. THE ASSESSEE SEEMS TO HAV E DECLINED THE OPPORTUNITY. SHRI G.N.PANDIAN HAS NOT ALSO OFFERED RS.5.00 CR. AS INCOME, HE CLAIMS IT AS AN ADVANCE. THE ASSESSEE CLAIMS TH E SAID AMOUNT AS EXPENDITURE ON THE GROUND THAT THE CONDITIONS HAVE BEEN SPECIFIED IN THE AGREEMENT HAVE NOT COMPLIED WITH BY THE ASSESSEE. THIS BEING SO, WE ARE IN AGREEMENT WITH THE FINDING OF THE LD.CIT(A) AT P AGE NO.19 IN HIS ORDER WHEREIN LD.CIT(A) HAS HELD A QUESTION RISES HERE A S TO WHY A SEPARATE AMOUNT IN THE NAME OF SECURITY DEPOSIT HAS BEEN PAI D TO SHRI G.N.PANDIAN, WHEN COMPENSATION HAS TO BE PAID FOR T HE DELAY IN HANDING OVER THE BUILT UP AREA . IN THIS REGARD, IT I S SUFFICE TO SAY THAT THE AMOUNT STATED TO HAVE BEEN PAID TO SHRI G.N.PANDIAN MIGHT BE OUTSIDE THE BUSINESS ACTIVITIES . ITA NOS.366 & 539/MDS/2017 :- 14 -: 16. ADMITTEDLY, THE ASSESSEE IS UNABLE TO SHOW AS T O HOW THIS AMOUNT OF RS.5.00 CR. PAID TO SHRI G.N.PANDIAN IS IN THE COUR SE OF THE BUSINESS AND WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THIS BEING SO, THE FINDING OF THE LD.CIT(A) ON THIS ISSU E STANDS CONFIRMED. 17. IN THE RESULT, GROUND NO.5 OF THE ASSESSEES AP PEAL STANDS DISMISSED. 18. IN GROUND NO.6 OF THE ASSESSEES APPEAL, IT WAS SUBMITTED BY THE LD.AR WAS AGAINST THE ACTION OF THE LD.CIT(A) IN PA RTLY CONFIRMING THE DISALLOWANCE U/S.14A TO THE EXTENT OF EXEMPT INCOME . IT WAS A SUBMISSION THAT THE ASSESSEE IS ON APPEAL IN GROUND NO.6 AND THE REVENUE IS ON APPEAL IN GROUND NOS.3, 3.1 & 3.2 OF THE APPEAL AGAINST THE RELIEF GRANTED BY THE LD.CIT(A). IT WAS A SUBMISSI ON THAT AS THE ASSESSEE HAD SUBSTANTIATE SURPLUS NON-INTEREST BEARING FUNDS , IT HAD INVESTED NEARLY RS.23.10 CR. IN SHORT TERM MUTUAL FUNDS AND EARNED DIVIDEND INCOME OF RS.78,18,542/-. IT WAS A SUBMISSION THAT THE AO HA D INVOKED THE PROVISIONS OF SEC.14A AND BY APPLYING THE PROVISION S OF RULE 8D ARRIVED AT DISALLOWANCE OF RS.1,01,54,806/-. IT WAS A SUBMISS ION THAT THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSE WAS TOWARDS THE SPECIFIC LOANS TAKEN FOR SPECIFIC PURPOSES AND NO PORTION OF THE BORROWE D FUNDS HAD BEEN USED BY THE ASSESSEE FOR MAKING ANY INVESTMENT IN THE SH ORT TERM MUTUAL FUNDS. IT WAS A SUBMISSION THAT CONSEQUENTLY THE I NTEREST PAID BY THE ASSESSEE WAS NOT LIABLE TO BE CONSIDERED FOR DISALL OWANCE U/S.14A OF THE ITA NOS.366 & 539/MDS/2017 :- 15 -: ACT. IT WAS A SUBMISSION THAT DISALLOWANCE AS MADE BY THE AO AND AS CONFIRMED BY THE LD.CIT(A) WAS LIABLE TO BE DELETED . IT WAS A SUBMISSION THAT THE LD.CIT(A) HAD APPLIED THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.RAYALLA CORPORATIO N PVT. LTD., IN ITA NO.908/MDS/2015 TO RESTRICT THE DISALLOWANCE U/S.14 A TO THE EXTENT OF THE EXEMPT INCOME. 19. IN REPLY, THE LD.DR SUBMITTED THAT THERE IS NO PROVISION AVAILABLE FOR RESTRICTING THE DISALLOWANCE U/S.14A TO THE LIMIT O F THE EXEMPT INCOME EARNED. IN THE EVENT THAT SEC.14A IS INVOKED THE C OMPUTATION OF THE DISALLOWANCE WOULD HAVE TO BE BY APPLYING THE PRINC IPLES LAID DOWN IN RULE 8D. IT WAS A SUBMISSION THAT IN THE PRESENT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO SHOW AS TO HOW THE NON-INTEREST BEARIN G FUNDS HAVE BEEN USED FOR MAKING THE SHORT TERM INVESTMENTS IN MUTUA L FUNDS. IT WAS A SUBMISSION THAT THE AO HAS COMPLIED WITH THE PROVIS IONS OF RULE 8D. IT WAS A SUBMISSION THAT THE DISALLOWANCE MADE BY THE AO MAY BE RESTORED. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AO HAS COMP LIED WITH THE PROVISIONS OF RULE 8D WHEN MAKING THE DISALLOWANCE U/S.14A. IN THE PRESENT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO SHO W AS TO HOW THE ASSESSEE HAS INVESTED ONLY ITS NON-INTEREST BEARING FUNDS FOR THE PURPOSE OF MAKING THE SHORT TERM INVESTMENT IN MUTUAL FUNDS . THE ASSESSEEE HAS ALSO NOT BEEN ABLE TO SHOW THAT THE INTEREST PAYMEN TS ARE IN RELATION TO ITA NOS.366 & 539/MDS/2017 :- 16 -: LOANS WHICH HAVE BEEN TAKEN FOR ANY SPECIFIC PURPOS E. IF THE ASSESSEE DID HAVE ANY INTEREST BEARING FUNDS WHAT WAS THE PURPOS E OF THE ASSESSEE TO TAKE THE LOAN ITSELF BECOMES THE QUESTION. HOWEVER , AS IT IS NOTICED THAT THE LD.CIT(A) HAS FOLLOWED THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S.RAYALLA CORPORATION PVT . LTD., WHICH IT IS SUBMITTED HAS BEEN APPROVED BY THE HONBLE JURISDIC TIONAL HIGH COURT FOR THE PURPOSE OF RESTRICTING THE DISALLOWANCE U/S.14A , WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A) ON THI S ISSUE. 21. IN THE RESULT, GROUND NO.6 OF THE ASSESSEES AP PEAL AND GROUND NOS.3, 3.1 & 3.2 OF THE REVENUE APPEAL STANDS DISMI SSED. 22. GROUND NOS.1, 7, 8 OF THE ASSESSES APPEAL AND GROUND NOS.1 & 4 OF THE REVENUES APPEAL ARE GENERAL IN NATURE AND NO S PECIFIC ARGUMENTS IN RESPECT OF THE SAME HAVE BEEN RAISED. CONSEQUENTLY, THE SAME STANDS DISMISSED. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS DISMISSED AND THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 27, 201 7, AT CHENNAI. SD/- SD/- ( ) ( CHANDRA POOJARI ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER ITA NOS.366 & 539/MDS/2017 :- 17 -: /CHENNAI, 0 /DATED: JULY 27, 2017. TLN * '12 32 /COPY TO: 1. & /APPELLANT 4. 4 /CIT 2. '(& /RESPONDENT 5. 2 ' /DR 3. 4 ( ) /CIT(A) 6. /GF