ITO 7(3)(3), MUMBAI V. PHOENIX HOSPITALITY COMPANY P.LTD, MUMBAI

ITA 3832/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7026 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE HONBLE SH. G. S. PANNU , AM & HONBLE SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 3832/MUM/2016 ( / ASSESSMENT YEAR: 2009 - 10 ) ITO 7(3 ) (3) R. NO. 23 , GROUND FLOOR, AAYAKAR BHAVA, M. K. ROAD , MUMBAI - 4000 20 / VS. M/S PHOENIX HOSPITALITY CO. PVT. LTD. PHOENIX MILLS PRMISES, 462, SENAPATIBAPATMARG, LOWER PAREL, M UMBAI - 400 013 ./ ./ PAN NO. A A FCA8863K ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ASHISH KUMAR , D R / RESPONDENTBY : SHRI RAKESH MOHAN , AR / DATE OF HEARING : 22 /05 /201 8 / DATE OF PRONOUNCEMENT : 08/06/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : 2 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. THE P RESENT APPE AL FILED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 21, MUMBAI DATED 29.03.16 F OR AY 20 09 - 10 ON THE GROUNDS MENTIONED HEREIN BELOW: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN HOLDING THAT THE EXPENSES MADE BY THE ASSESSEE ARE MINIMAL IN NATURE AND NEED TO BE INCURRED FOR DAY TO DAY ACTIVITIES OF THE APPELLANT BUSINESS WITHOUT CONSIDERING OR EXAMINING THE EXTRAORDINARY EXPENSES OF RS.60,14,200/ - RELATING TO PROFESSIONAL FEES PAI D ON ACCOUNTOF BUSINESS ADVISORY FEES OR CON SULTING FEES IN THE FIELD OF INTEREST OF THEAPPELLANT COMPANY. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 14A R.W.R 8D ARE NOT APPLICABLE WITHOUT APPRECIATING THE FACTS THAT THE INVESTMENTS MADE DURING THE YEAR WILL RESULT IN EARNING EXEMPT INCOME FOR THE ASSESSEE. 3) THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT(A) ON THE ABOVE GROUNDS BE CONFIRMED THE ORDER OF THE A.O 4) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUN D OR ADD A NEWGR OUND, WHICH MAY BE NECESSARY. 3 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. 2. THE B RIEF FACTS OF THE CASE ARE THAT ASSESSE E FILED RETURN OF INCOME ON 23.09.2009 SHOWING LOSS OF RS . 81,00,016/ - . THE AO NOTED THAT NO BUSINESS ACTIVITY WAS CARRIED OUT DURING THE YEAR. HOWEVER, A S PER THE SUBMISSION OF THE ASSESSEE, THE ASSESSEE COMPANY IS A HOLDING COMPANY OF COMPANIES IN WHICH HOTEL PROJECTS WOUL D COME UP. THE AO NOTED THAT THE ASSESSEE HAD CLAIMEDADMIN I STRATIVE AND OTHER EXPENSES OF RS. 80,83,390/. THE ONLY INCOME SHOWN WAS RS .15,000/ - AS FEES FOR CONSULTANCY SERVICE OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THE BALANCE SHEET IT HAD SHOWN INVESTMENTS IN OTHER COMPANIES. THE AO OBSERVED THAT TH E INVESTMENT IN EQUITY SHARES OF VARIOUS COMPANIES MAY FETCH DIVIDEND INCOME IN THE FUTURE, WHICH IS EXEMPT TO TAX AND THEREFORE THE EXPENSES IN THIS RESPECT IS NOT ALLOWABLE EXPENSES U/S 14A OF THE I.T. ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERI NG THE CASE OF BOTH THE PARTIES, ALLOWED THE APPEAL OF THE ASSESSEE . NOW BEFORE US, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. 4 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. GROUND NO. 1 3. THIS GROUND RAISED BY THE REVENUE RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN HOLDING THAT THE EXPENSES MADE BY THE ASSESSEE ARE MINIMAL IN NATURE AND NEED TO BE INCURRED FOR DAY TO DAY ACTIVITIES OF THE ASSESSEE BUSINESS WITHOUT CONSIDERING OR EXAMINING THE EXTR AORDINARY EXPENSES OF RS.60,14,200/ - RELATING TO PROFESSIONAL FEES PAID ON ACCOUNT OF BUSINESS ADVISORY FEES OR CONSULTING FEES IN THE FIELD OF INTEREST OF THE ASSESSEE COMPANY. 4. LD. D R SUBMITTED THAT ASSESSEE COMPANY WAS NOT ENGAGED IN ANY BUSINESS AC TIVITY AND EVEN THE NATURE OF BUSINESS AS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF SCRUTINY PROCEEDING WAS THE ASSESSEE COMPANY IS A HOLDING COMPANY OF COMPANIES IN WHICH HOTEL PROJECTS WOULD COME UP . IT WAS SUBMITTED THAT KEEPING IN VIEW THE ABOVE ADMISSION ON THE PART OF THE ASSESSEE, IT IS PROVED THAT ASSESSEE WAS NOT ENGAGED IN ANY BUSINESS ACTIVITIES AND THUS RELIED UPON THE ORDERS PASSED BY AO. 5. ON THE OTHER HAND, LD. AR APPEARING ON BEHALF O F THE ASSESSEE SUBMITTED THAT AO WHILE PASSING THE ORDER OF ASSESSMENT 5 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. HAD MADE ACTUAL MISTAKE BY MENTIONING THAT ASSESSEE COMPANY WAS NOT ENGAGED IN ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED THAT DURING THE APPELL ATE PROCEEDINGS, CERTAIN DOCUMENTS WERE FILED BY THE ASSESSEE AND THUS REMAND REPORT WAS SOUGHT FROM THE AO VIDE LETTER 17.12.13 WHICH IS CONTAINED IN PARA NO 13 TO 15 OF THE ORDER OF LD. CIT(A). IT WAS FURTHER SUBMITTED THAT DURING THE APPELLATE PROCEEDIN GS, IT WAS FOUND THAT ASSESSEE WAS ENGAGED IN THE BUSINESS ACTIVITY ON THE BASIS OF REMAND REPORT AND THUS LD. CIT(A) HAS PASSED A DETAILED ORDER IN PARA NO . 16 OF ITS ORDER, WHICH IS REPRODUCED BELOW: - 16. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLA NT AND THE ASSESSMENT ORDER AND THE REMAND REPORT CAREFULLY. INVESTMENT IN OTHER COMPANIES WHICH ARE IN SAME LINE OF BUSINESS AS THE APPELLANT IS PART OF INCIDENTAL OBJECTS OF THE APPELLANT. DETAILS FILED SHOW THAT SUCH INVESTMENTS MADE ARE IN COMPANIES WH ICH ARE IN TO REAL ESTATE AND CONSTRUCTION OF HOTELS AND MALLS. FURTHER, SUCH INVESTMENTS MADE IN EARLIER YEARS AND CURRENT YEAR SHOW THAT BUSINESS HAS COMMENCED. FURTHERMORE, MANY OF THE EXPENSES SUCH AS AUDIT FEES 6 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. ARE SUCH AS ARE REQUIRED TO MAINTAIN THE EXISTENCE OF THE COMPANY. 6. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT LD. CIT(A) HAS CORRECTLY RELIED UPON THE REMAND REPORT FILED BY THE AO AND THE DETAIL REJOINDER FILED BY THE ASSESSE E WH ICH HAS BEEN MENTIONED IN PARA NO. 13 TO 15 OF THE ORDER OF LD. CIT(A). WE ALSO FIND THAT ASSESSEE HAD GIVEN ADVANCES AND HAD LENT MONIES AND ALSO MADE I NVESTMENT IN SECURITIES OF OTHER COMPANIES , WHICH ARE IN SAME LINE OF BUSINESS AS THAT OF ASSESSEE . EVEN LD. CIT(A) AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSE HAD RIGHTLY CONCLUDED T HAT BALANCE SHEET OF THE ASSESSEE ALSO REFLECTED SUCH INVESTMENTS MAD E ARE IN COMPANIES WHICH ARE IN TO REAL ES TATE AND CONSTRUCTION OF HOTELS AND MALLS. WE ALSO FIND THAT SUCH INVESTMENTS MADE IN EARLIER YEARS AND CURRENT YEAR S HOW THAT BUSINESS HAS COMMENCED, THEREFORE MANY OF THE EXPENSES SUCH AS AUDIT FEES ARE SUCH AS ARE REQUIRED TO MAINTAIN THE EXISTENCE OF T HE COMPANY. 7 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. WE HAVE ALSO CONSIDERED THAT LD. CIT(A) WHILE REACHING TO THE ABOVE CONCLUSION HAD RIGHTLY RELIED UPON THE JUDGMENT REFERRED BY JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VRS. RAJEEVA LOCHAN KANORIA, WHEREIN THE HONBLE JURISDICTIONAL HIGH C OURT HAS HELD THAT INVESTING IN SHARES TO CONTROL AND MANAGE THE COMPANY IS TO BE TREATED AS BUSINESS ACTIVITY. AS PER THE FACTS, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SUBSTANTIALLY INVESTED MONEY AS SHARES AND SHARE APPLICATION MONEY IN THE GROUP ENTITIES, THEREFORE ON THE BASIS OF ABOVE JUDGMENT AND OBJECT CLAUSE OF THE ASSESSEE COMPANY, IT WAS RIGHTLY CONCLUDED THAT ASSESSEE HAS STARTED ITS BUSINESS ACTIVITY. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD . CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUNDRAISED BY THE REVENUE STANDS DISMISSED . 8 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. GROUND NO. 2 7 . THIS GROUND RAISED BY THE REVENUE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN HOLDING THAT THE PROVISIONS OF SECTION 14A R.W.R 8D ARE NOT APPLICABLE WITHOUT APPRECIATING THE FACTS THAT THE INVESTMENTS MADE DURING THE YEAR WILL RESULT IN EARNING EXEMPT INCOME FOR THE ASSESSEE. 8 . LD. DR SUBMITTED THAT THE ASSESSEE COMPANY HAD INVESTED IN THE EQUITY SHARES OF VARIOUS COMPANIES, WHICH WILL FETCH DIVIDEND INCOME OF THE ASSESSEE IN THE FUTURE, WHICH IS EXEMPT TO TAX, THEREFORE THE EXPENSES IN THIS RESPECT WERE NOT ALLOWABLE EXPENSE U/S 14A OF THE ACT AND THUS RELIED UPON THE ORDERS PASSED BY AO. 9. ON THE OTHER HAND, L D. AR SUBMITTED BEFORE US THAT ASSESSEE HAS NOT RECEIVED ANY DIVIDEND DURING THE YEAR UNDER CONSIDERATION AND THERE WAS NO EXEMPT INCOME TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT LD. CIT(A) HAD DELETED THE DISALLOWANCE ON MANY GROUND INCLUDING THE ABOVE MENTIONED 9 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. GROUND. THIS FACT IS CLEARLY MENTIONED IN PAR NO. 17 OF THE ORDER OF LD. CIT(A) , WHICH IS REPRODUCED BELOW: - 17. THE APPLICATION OF SECTION 14A HAS BEEN VEHEMENTLY OBJECTED TO. IT IS SEEN THAT SIMILAR ARGUMENTS PUT FORTH BEFORE ME HAVE BEEN ACCEPTEDBY THE ASSESSING OFFICE R IN THE APPELLANT'S OWN CASE FOR SUBSEQUENT AY 2010 - 11 AND AY 2011 - 12. THE ASSESSMENT ORDER FOR AY 2010 - 11 IS BY THE SAME ASSESSING OFFICER WHO HAS PASSED ORDER IN THE CASE BEFORE ME. THE DISALLOWANCE WAS COMPUTED ONLY ON INVESTMENT IN MUTUAL FUNDS IN THO SE YEARS AND NOT ON INVESTMENTS IN GROUP COMPANIES AS IS THE CASE BEFORE ME. CONSISTENCY DEMANDS THAT ON IDENTICAL FACTS, THE ASSESSING OFFICER CANNOT SEEK TO HAVE DIFFERENT INTERPRETATION. IN THE PRESENT CASE THE INVESTMENTS ARE ALSO AS PER THE OBJECTS OF THE APPELLANT COMPANY AND STRATEGIC INVESTMENT. NO INTEREST EXPENSES ARE INCURRED. NO EXEMPT INCOME HAS BEEN EARNED IN THE CURRENT YEAR . LASTLY PROFIT ON SALE OF INVESTMENT ON SHARES HAS BEEN OFFERED IN AY 2010 - 11 AND AY 2011 - 12 WHICH SHOWS THAT THE INCOM E FROM INVESTMENTS HAS GIVEN RISE TO TAXABLE INCOME. 10 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. 10 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT LD. CIT(A) HAS RIGHTLY APPRECIATE D THE FACTS OF THE PRESENT CASE AND REACHED TO THE CONCLUSION THAT SINCE N O EXEMPT INCOME HAS BEEN EARNED I N THE CURRENT YEAR. WE HAVE ALSO CONSIDERED THE JUDGMENTS CITED BY THE ASSESSEE TITLED CIT VRS. LAKHANI MARKETING, ITA NO. 970/M/2008 (P & H HIGH COURT) , WHEREIN ALSO THE HONBLE HIGH COURT HAS TAKEN A VIEW THAT UNLESS THERE IS AN EXEMPT INCOME IN A YEAR, NO DISALLOWANCE U/S 14A CAN BE MADE FOR THAT YEAR. THEREFORE, IN SUCH CIRCUMSTANCES, LD. CIT(A) HAS CORRECTLY HELD THAT NO EXEMPT INCOME E ARNED BY THE ASSESSEE DURIN G THE YEA R UNDER CONSIDERATION AND THUS , SEC TION 14A RULE 8D IS NOT REQUIRED. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD . CIT (A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE 11 I.T.A. NO. 3832 /MUM/201 6 M/S PHOENIX HOSPITALITY CO. PVT. LTD. JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, TH IS GROUNDRAISED BY THE REVENUE STANDS DISMISSED . GROUND NO. 3 & 4 11 . THESE GROUND S RAISED BY THE REVENUE ARE GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 12 . IN THE NET RESU LT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JUNE . 2018 SD/ - SD/ - ( G. S. PANNU ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 08 . 06 .201 8 SR.PS . DHANANJAY / 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 F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI