Asst. Commissioner of Income Tax, Circle-1(1), Panaji V. M/s Milroc Development Company., Panaji

ITA 426/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93547 (ITAT-PANAJI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B BALA KRISHNA LD
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI, HON'BLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NOS. 321 & 426/PNJ/2014 : (A.YS 2009 - 10 & 2010 - 11) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PANAJI - GOA ( APPELLANT) VS. M/S. MILROC DEVELOPMENT COMPANY L.L.P, 501, 5 TH FLOOR, MILROC LAR MENEZES, S.V. ROAD, PANAJI, GOA. PAN : AACFM6219M (RESPONDENT) CO NO.43/PNJ/2014 ( IN ITA NO. 321/PNJ/2014) : (A.Y 2009 - 10) M/S. MILROC DEVELOPMENT COMPANY L.L.P, 501, 5 TH FLOOR, MILROC LAR MENEZES, S.V. ROAD, PANAJI, GOA. PAN : AACFM6219M (CROSS OBJECTOR) VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PANAJI - GOA ( RESPONDENT) ASSESSEE BY : SANDIP BHANDARE, CA REVENUE BY : B. BALAKRISHNA, LD. DR DATE OF HEARING : 09/07/2015 DATE OF PRONOUNCEMENT : 09/07/2015 O R D E R PER GEORGE MATHAN : 1. ITA NO. 321/PNJ/2014 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A), HUBLI IN ITA NO. CIT(A)487/HBL/2011 - 12/AY 2009 - 10 DT. 30.5.2014 FOR THE A.Y 2009 - 10 AND CO NO. 43/PNJ/2014 IS THE CROSS OBJECTION FILED BY THE ASSESSEE IN THE REVENUES APPEAL. ITA NO. 2 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) 426/PNJ/2014 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), PANAJI IN ITA NO. 142/PNJ/13 - 14 DT. 24.9.2014 FOR THE A.Y 2010 - 11. SHRI B. BALAKRISHNA, LD. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI SANDIP BHAND ARE, CA REPRESENTED ON BEHALF OF THE ASSESSEE. ITA NO. 321/PNJ/2014 - 2. IT WAS SUBMITTED BY THE LD. DR THAT IN GROUND NO. 2 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT( A) IN DELETING PART OF THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 14A R/W RULE 8D. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES BY USING BORROWED FUNDS. IT WAS THE SUBMISSION THAT THE INVESTMENT WAS TO THE EXTENT OF RS. 10.77 CR ORES. IT WAS THE SUBMISSION THAT THE AO HAD MADE DISALLOWANCE U/S 14A AND THE SAME WAS REDUCED BY THE LD. CIT(A). IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 3. IN REPLY, THE LD. AR SUBMITTED THAT THE ASSESSEE DID N OT HAVE ANY DIVIDEND INCOME MUCH LESS EXEMPT INCOME WHICH CALLS FOR ANY DISALLOWANCE U/S 14A. HE PLACED RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DELITE ENTERPRISES IN TAX APPEAL NO. 110 OF 2009 DT. 26.2.2009 AS ALSO THE DEC ISIONS OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF SIVAM MOTORS PVT. LTD. IN ITA NO. 88 OF 2014 DT. 5.5.2014, THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY PVT. LTD. IN TAX APPEAL NO. 239 OF 2014 DT. 24.3.2014, AND THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILES INDUSTRIES LTD. REPORTED IN 319 ITR 204 . IT WAS THE SUBMISSION THAT NO ADDITION ITSELF WAS CALLED FOR IN THE HANDS OF THE ASSESSEE U/S 14A. 3 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE BALANCE - SHEET OF THE ASSESSEE FOUND AT PAGES 59 TO 69 OF THE PAPER BOOK. IT IS NOTICED THAT THE INVESTMENTS ARE CARRY FORWARD INVESTMENTS RIGHT FROM 2008 - 09. THERE IS NO NEW INVESTMENT DURING THE RELEVANT ASSESSMENT YEAR. THE ASSESSMENT ORD ER FOR THE A.Y 2008 - 09 WAS ALSO FOUND AT PGS. 81 TO 84 OF THE PAPER BOOK, IN WHICH ALSO THERE IS NO DISALLOWANCE MADE U/S 14A. FURTHER, IT IS NOTICED THAT THE ASSESSEE DOES NOT HAVE ANY EXEMPT INCOME MUCH LESS DIVIDEND INCOME. CONSEQUENTLY, WE ARE OF THE VIEW THAT IN VIEW OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DELITE ENTERPRISES AS ALSO THE DECISIONS OF THE HON'BLE ALLAHABAD HIGH COURT, HON'BLE GUJARAT HIGH COURT AND HON'BLE PUNJAB & HARYANA HIGH COURT REFERRED TO SUPRA, NO DISALL OWANCE U/S 14A CAN BE MADE IN THE HANDS OF THE ASSESSEE. CONSEQUENTLY, GROUND NO. 2 OF THE REVENUES APPEAL STANDS DISMISSED. 5. IN RESPECT OF GROUND NO. 3, IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE WAS AGAINST THE ACTION OF LD. CIT(A) IN DELETING TH E DISALLOWANCE OF EXPENDITURE O F INTEREST PAID ON LOANS TAKEN AT INTEREST AND ADVANCES TO SISTER CONCERNS WITHOUT CHARGING ANY INTEREST. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD DELETED THE SAME. IT WAS THE SUBMISSION THAT THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 6. IN REPLY, THE LD. AR SUBMITTED THAT THE DETAILS OF THE ADVANCES TO THE ASSOCIATES ARE AT PG. 65 OF THE PAPER BOOK UNDER SCHEDULE 8 AND THE SAME WAS AN AMOUNT OF RS. 73,23,364/ - . IT WAS THE SUBMISSION THAT THE SAID ADVANCES HAD REDUCED COMPARED TO THE EARLIER YEAR WHEN IT WAS AN AMOUNT OF RS. 95,80,773/ - . IT WAS THE SUBMISSION THAT IN THE ASSESSMENT FOR THE EARLIER YEARS ALSO NO DISALLOWANCE HAD BEEN MADE. 4 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS N OTICED THAT THE ADVANCES TO THE ASSOCIATES HAS ACTUALLY REDUCED DURING THE RELEVANT ASSESSMENT YEAR WHEN COMPARED TO THE EARLIER ASSESSMENT YEAR, IT SHOWS THAT THESE ADVANCES WERE OF THE EARLIER YEARS AND SUBSTANTIAL PORTION OF THE ADVANCES HAVE BEEN RETUR NED. ADMITTEDLY, THERE IS NO DISALLOWANCE ON THIS COUNT IN THE EARLIER YEAR ALSO. IN THE CIRCUMSTANCES, FOLLOWING THE PRINCIPLES OF CONSISTENCY, NO DISALLOWANCE CAN BE MADE FOR THIS YEAR ALSO IN VIEW OF THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SRIDEV ENTERPRISES REPORTED IN 192 ITR 165. THUS, GROUND NO. 3 RAISED BY THE REVENUE STANDS DISMISSED. 8. IN RESPECT OF GROUND NO. 4 IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE WAS AGAINST THE ACTION OF LD. CIT(A) IN REDUCING THE DISALLOWA NCE OF INTEREST PAID TO THE PARTNERS AND RELATIVES BY INVOKING THE PROVISIONS OF SEC. 40A(2) OF THE ACT. IT WAS THE SUBMISSION THAT IN THE COURSE OF THE ASSESSMENT IT WAS NOTICED THAT THE ASSESSEE WAS PAYING INTEREST ON BORROWED FUNDS RANGING FROM 18% TO 24% TO THE PARTNERS, RELATIVES AND PERSONS WHO ARE COVERED U/S 40A(2) OF THE ACT WHEREAS THE INTEREST PAID TO THE BANK WAS BELOW 18%. IT WAS THE SUBMISSION THAT CONSEQUENTLY THE AO HAD DISALLOWED THE INTEREST PAYMENT IN EXCESS OF 20%. IT WAS THE SUBMISSI ON THAT THE LD. CIT(A) HAD ENHANCED THE SAME TO 22%. IT WAS THE SUBMISSION THAT THE ORDER OF THE LD. CIT(A) WAS LIABLE TO BE REVERSED. 9. IN REPLY, THE LD. AR SUBMITTED THAT NO COMPARABLE CASE HAD BEEN PRODUCED PROVING THE RATE OF INTEREST PAID TO THE PA RTNERS AND RELATIVES TO BE EXCESSIVE. IT WAS THE SUBMISSION THAT NO DISALLOWANCE ITSELF WAS CALLED FOR. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMITTEDLY, WHEN INVOKING THE PROVISIONS OF SEC. 40A(2) OF THE ACT COMPARABLE CASE IS ONE OF THE 5 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) REQUIR EMENT. HERE, IN THE PRESENT CASE THE AO HAS NOT BEEN ABLE TO SHOW ANY COMPARABLE CASE WHERE THE INTEREST PAYMENTS WERE LOWER THAN THE RATES PAID BY THE ASSESSEE. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDING OF THE LD. CIT(A) WAS ON A RIGHT F OOTING AND DOES NOT CALL FOR ANY INTERFERENCE. THUS, GROUND NO. 4 RAISED BY THE REVENUE STANDS DISMISSED. 11. IN RESPECT OF GROUND NO. 5 IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE WAS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION ON ACCOUN T OF TAXING OF PROFITS ON THE BASIS OF PERCENTAGE COMPLETION METHOD ON THE CONSTRUCTION OF VILLAS WHEREAS THE ASSESSEE WAS BOOKING PROFITS OF VILLAS BY FOLLOWING THE COMPLETED CONTRACT METHOD. ON A SPECIFIC QUERY FROM THE BENCH AS TO WHETHER THE ASSESSEE HAS OFFERED THE INCOME FROM THE SALE OF THE VILLAS BY FOLLOWING THE COMPLETED CONTRACT METHOD, IT WAS FAIRLY AGREED BY THE LD. DR THAT THE ASSESSEE HAS OFFERED THE SAME IN THE SUBSEQUENT ASSESSMENT YEAR. FURTHER, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE COMPLETED CONTRACT METHOD RIGHT FROM THE BEGINNING. IT WAS ALSO MENTIONED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF V.S. DEMPO & CO. PVT. LTD. REPORTED IN 131 CTR 203 HAS HELD THAT THE COMPLETED CONTRACT METHOD IS AN ACCEPTABLE METHOD AND THAT CONSISTENCY IS TO BE FOLLOWED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS NOTICED THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF V.S. DEMPO & CO. PVT. LTD. REFERRED TO SUPRA, AS ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF REALEST BUILDERS AND SERVICES LTD. REPORTED IN 307 ITR 202 AND AS THE ASSESSEE HAS OFFERED THE INCOME ON THE COMPLETION OF THE VILLAS AND THIS FACT IS NOT DISPUTED BY THE REVENUE, WE ARE OF THE VIEW THAT THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND 6 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) DOES NOT CALL FOR ANY INTERFERENCE. THUS, GROUND NO. 5 OF THE REVENUES APPEAL STANDS DISMI SSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. CO NO. 43/PNJ/2014 : 14. AT THE TIME OF HEARING OF THE CROSS OBJECTION, THE LD. AR SUBMITTED THAT HE DID NOT WISH TO PRESS THE CROSS OBJECTION. CONSEQUENTLY, THE CROSS OBJECTION FILED BY THE ASSESSEE STANDS DISMISSED AS WITHDRAWN. ITA NO. 426 /PNJ/2014 - 15. IN RESPECT OF GRO UND NOS. 2 & 2A OF THE REVENUES APPEAL IT WAS SUBMITTED BY THE LD. DR THAT IN THE COURSE OF ASSESSMENT THE AO HAD DISALLOWED BROKERAGE CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE IN RESPECT OF SALE OF VILLAS AS THE ASSESSEE COULD NOT PROVE WITH EVIDENCE THE GENUINENESS OF THE TRANSACTION. IT WAS THE SUBMISSION THAT THE LD. CIT(A) HAD CONFIRMED THE DISALLOWANCE BUT HAD GIVEN A DIRECTION TO ALLOW THE SAID BROKERAGE IN THE YEAR IN WHICH THE ASSESSEE OFFERS THE INCOME IN RESPECT OF THE VILLAS. IT WAS THE SUBMI SSION THAT THIS DIRECTION TO ALLOW THE BROKERAGE IN THE YEAR IN WHICH THE ASSESSEE OFFERS THE INCOME WAS LIABLE TO BE REMOVED INSOFAR AS WHEN THERE IS A DIRECTION FROM THE LD. CIT(A), THEN, THE AO WOULD NOT BE ABLE TO DO ANY VERIFICATION IN RESPECT OF THE GENUINENESS OF THE EXPENDITURE CLAIMED REPRESENTING THE BROKERAGE. 16. IN REPLY, THE LD. AR DID NOT RAISE ANY SERIOUS OBJECTION. CONSEQUENTLY, THE DIRECTION GIVEN BY THE LD. CIT(A) IN RESPECT OF THE ISSUE OF DISALLOWANCE OF 7 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) BROKERAGE WHICH READ AS FOLL OWS HOWEVER, THE A.O IS DIRECTED TO ALLOW THE BROKERAGE EXPENSES IN THE YEAR IN WHICH CORRESPONDING INCOME IS OFFERED FOR TAXATION . STANDS DELETED. THE AO SHALL CONDUCT NECESSARY VERIFICATION AND EXAMINATION OF THE DETAILS IN RESPECT OF THE BROKERAGE PAYMENTS, IF ANY, CLAIMED BY THE ASSESSEE WHEN THE ASSESSEE SELLS THE VILLAS. IN THE CIRCUMSTANCES, GROUND NOS. 2 & 2A OF THE REVENUES APPEAL STANDS PA RTLY ALLOWED. 17. IN RESPECT OF GROUND NOS. 3 & 3A IT WAS SUBMITTED THAT THE SAID GROUNDS ARE AGAINST THE ACTION OF LD. CIT(A) IN REDUCING THE DISALLOWANCE OF THE INTEREST PAID TO PARTNERS, RELATIVES AND PERSONS WHO ARE COVERED U/S 40A(2) OF THE ACT. IT WAS THE SUBMISSION THAT THE ISSUE WAS IDENTICAL TO GROUND NO. 4 OF THE REVENUES APPEAL IN ITA NO. 321/PNJ/2014. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE FINDING IN RESPECT OF GROUND NO. 4 IN ITA NO. 321/PNJ/2014 WOULD APPLY TO THIS GROUND ALSO. 18. WE HAVE CONSIDERED THE SUBMISSIONS. AS WE HAVE ALREADY DISMISSED THE REVENUES APPEAL BEING ITA NO. 321/PNJ/2014, MORE SO, GROUND NO. 4 OF THE SAID APPEAL, ON IDENTICAL REASONING GROUND NOS. 3 & 3A IN THE REVENUES APPEAL IN ITA NO. 426/PNJ/2014 STAN DS DISMISSED. 19. IN RESPECT OF GROUND NO. 4 IT WAS SUBMITTED THAT THE ISSUE WAS IDENTICAL TO GROUND NO. 5 OF REVENUES APPEAL IN ITA NO. 321/PNJ/2014 AND THE FINDING THEREIN WOULD APPLY TO THIS GROUND ALSO. WE HAVE CONSIDERED THE SUBMISSIONS. AS WE HAV E ALREADY DISMISSED GROUND NO. 5 OF REVENUES APPEAL IN ITA NO. 321/PNJ/2014, ON IDENTICAL REASONING GROUND NO. 4 IN REVENUES APPEAL IN ITA NO. 426/PNJ/2014 STANDS DISMISSED. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 8 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) 21. IN THE RES ULT, ITA NO. 321/PNJ/2014 FILED BY THE REVENUE STANDS DISMISSED, CO NO. 43/PNJ/2014 FILED BY THE ASSESSEE STANDS DISMISSED AS WITHDRAWN AND ITA NO. 426/PNJ/2014 FILED BY THE REVENUE STANDS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 09/07/2015. S D / - (N.S. SAINI) ACCOUNTANT MEMBER S D / - ( GEORGE MATHAN ) JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 0 9 /07/ 201 5 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER , 9 ITA NOS. 321 & 426/PNJ/2014 & CO NO. 43/PNJ/2014 (A.YS. : 2009 - 10 & 2010 - 11) DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ORDER ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 0 9 /07/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 10 /07/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 10/07/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 10/07/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 10/07/2015 SR.PS 6. DATE OF PRONOUNCEMENT 0 9 /07/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 10/07/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER