DCIT 8(3), MUMBAI V. SUN-N-SAND HOTELS P.LTD, MUMBAI

ITA 4263/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101002 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI N.K . BILLAIYA, ACCOUNTANT MEMBER AND RAM L AL NEGI, JUDICIAL MEMBER / I .T.A. NO. 4263/MUM/2013 ( / ASSESSMENT YEAR : 2010 - 11 THE DCIT - 8(3), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. SUN - N - SAND HOTELS PVT. LTD., 39, JUHU BEACH, MUMBAI - 400 049 ./ ./ PAN/GIR NO. : AAACS 5521P ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI AJAY MODI / RESPONDENT BY: SHRI PRAKASH K. JOTWANI / DATE OF HEARING : 10 .0 9 .2015 / DATE OF PRONOUNCEMENT : 10 .0 9 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 18 , MUMBAI D ATED 1 5 . 3 .201 3 PERTAINING TO ASSESSMENT YEAR 20 1 0 - 11 . 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D(2)(III) IN RESPECT OF THE ASSESSEES INVESTMENT IN THE CURRENT ACCOUNT OF THE FIRMS IN WHICH THE ASSESSEE COMPANY IS A PARTNER. ITA. NO. 4263/M/2013 2 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF HOTELING AND WIND POWER GENERATION. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS COMPUTED THE DISALLOWANCE U/S. 14A AT RS. 53,41,165/ - . DURING THE COURSE OF TH E SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED A REVISED WORKING AND COMPUTED THE DISALLOWANCE AT RS. 37,06,769/ - . THE ASSESSEE EXPLAINED THE REDUCTION IN THE COMPUTATION OF DISALLOWANCE STATING THAT WHILE CALCULATING THE DISALLOWANCE UNDER RULE 8D @ 0.5% OF THE AVERAGE INVESTMENTS, THE CURRENT ACCOUNT OF THE TWO FIRMS IN WHICH THE ASSESSEE IS A PARTNER, WAS REQUIRED TO BE EXCLUDED AND ONLY THE CAPITAL CONTRIBUTION WAS REQUIRED TO BE CONSIDERED FOR SUCH DISALLOWANCE. 3.1. THE AO WAS NOT CONVINCE D WITH THIS CLAIM OF THE ASSESSEE. HE WAS OF THE OPINION THAT RULE 8D DOES NOT PERMIT ANY EXCLUSION FROM WORKING OUT THE DISALLOWANCE BASED ON AVERAGE INVESTMENTS. THE AO PROCEEDED BY CONSIDERING RS. 53,41,165/ - FOR DISALLOWANCE U/S. 14A OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) DREW SUPPORT FROM THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DELITE ENTERPRISES ORDER DATED 26.2.2009. THE LD. CIT(A) WAS CONVINCED THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, ACCORDINGLY DELETED THE IMPUGNED DISALLOWANCE. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE U S. ITA. NO. 4263/M/2013 3 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE AO. 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. UNDISPUTEDLY, THE ASSESSEE IS A PARTNER IN THE FIRM MET ROPOLIS HOTELS AND THE CURRENT CAPITAL ACCOUNT IN THE SAID FIRM IS AT RS. 300,297,800/ - . IT IS ALSO AN UNDISPUTED FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT RECEIVED ANY SHARE IN PROFIT. IN A VERY RECENT DECISION OF THE HONBLE H IGH COURT OF DELHI IN THE CASE OF CHEMINVEST LTD IN ITA 749/2014 THE SUBSTANTIAL QUESTION OF LAW FOR DETERMINATION WAS WHETHER DISALLOWANCE U/S. 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE ? 7.1. AT PARA - 23 OF ITS ORDER THE HONBLE HIGH COURT OF DELHI OBSERVED AS UNDER: IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME, IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. ITA. NO. 4263/M/2013 4 7.2. THE RATIO OF THIS DECISION OF THE HONBLE HIGH COURT OF DELHI SQUARELY APPLY ON THE FACTS OF THE CASE IN HAND. WE, THEREFORE DECLINE TO INT ERFERE WITH THE FINDINGS OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON 10 TH SEPTEMBER , 2015 SD/ - SD/ - ( RAM L AL NEGI ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 10 TH SEPTEMBER , 2015 . . ./ RJ , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI