M/s. Mansarover Builders Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4334/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5083 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHANT KHAN
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SH. I.C.SUDHIR, JUDICIAL MEMBER AND SH.L.P.SAHU, ACCOUNTANT MEMBER ITA NO. 4334/DEL/2014 (ASSESSMENT YEAR: 2010 -11) APPELLANT BY SH. ANIL BHALLA, ADV. RESPONDENT BY SH. FARHANT KHAN, SR.DR DATE OF HEARING 27 .07.2017 DATE OF PRONOUNCEMENT 04 .08.2017 ORDER PER L.P.SAHU, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28.05.2014 OF THE CIT(A)-IX, NEW DELHI RELATING TO ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUNDS:- 1) THE LEARNED CIT(APPEALS) HAS ERRED BOTH ON FACTS A ND IN LAW IN CONFIRMING THE ACTION OF THE LEARNED ASESSING OFFIC ER IN DISALLOWING CONSULTANCY CHARGES AMOUNTING TO RS.5,82,990/- ALLE GEDLY ON THE GROUND THAT NO SPECIFIC SERVICE HAS BEEN RECEIVED BY THE A PPELLANT COMPANY. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LE ARNED ASSESSING OFFICER IN DISALLOWING EXPENSES AMOUNTING TO RS.1,18,134 IN ADDITION TO RS.1,69,580 DISALLOWED BY THE APPLICANT COMPANY IN THE RETURN OF INCOME IN TERMS OF SECTION 14A BY WRONGLY APPLYING RULE 8D AND THEREBY NOT MANSAROVER BUILDERS PVT.LTD., 48/1, COMMERCIAL CENTRE MALCHA MARG, CHANAKYA PURI, NEW DELHI-110021. PAN-AAACM6591R VS DCIT, CIRCLE-6(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 4334/DEL/2014 PG. 2 FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF MAXOPP INVESTMENTS LTD. 203 TAXMAN 364 (DEL). 2.1) WITHOUT PREJUDICE TO ABOVE THE LEARNED CIT(APP EALS) HAS FURTHER ERRED BOTH ON FACTS AND IN LAW IN WRONGLY CALCULATING THE DISALLOWANCE UNDER RULE 8D OF THE INCOME TAX RULES, 1962 AT RS.2,87,71 4 INSTEAD OF THE CORRECT AMOUNT OF RS.1,69,580 AND THEREBY MAKING EX CESS DISALLOWANCE OF RS.1,18,134. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME DECLARING A LOSS OF RS.1,78,97,808/-. THE CASE WAS SELECTED FO R SCRUTINY AND STATUTORY NOTICES WERE ISSUED U/S 143(2)/142(1) OF THE INCOME TAX ACT, 196 1 (IN SHORT ACT) TO THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF REAL ES TATE AND MADE INVESTMENT IN SHARES, INCOME FROM WHICH DOES NOT & SHALL NOT FORM PART OF TOTAL INCOME. IN RESPECT OF GROUND NO.1, LD.AR SUBMITTED THAT THE ASSESSEE WAS CARRYIN G ON THE BUSINESS OF REAL ESTATE DEVELOPMENT WHICH REQUIRES SERVICES OF CONSULTANTS WHO ARE SPECIALIZED IN THEIR RESPECTIVE FIELDS. THE OVERALL PROJECT UNDERTAKEN B Y THE ASSESSEE IS MONITORED AND SUPERVISED BY THE EXPERTS IN VARIOUS CAPACITIES FR OM TIME TO TIME AND THEY HAVE BEEN PAID AS PER THE AGREEMENT EXECUTED WITH HIM. LD.AR FURTHER SUBMITTED THAT THE EXPENSES HAVE BEEN APPORTIONED @ 75% & 25% BETWEEN THE CONSULTANT TO WHOM PAYMENT HAS BEEN MADE AND THE ASSESSEE RESPECTIVELY AND 75% OF THE EXPENSES HAVE BEEN CAPITALIZED AND 25% OF EXPENSES HAVE BEEN CHAR GED TO THE REVENUE ACCOUNTS. THIS IS THE PRACTICE FROM THE LAST AY 2006-07 & CONTINUI NG BY THE ASSESSEE AND HE SUBMITTED THAT IN RESPECT OF AY 2008-09 IN THE CASE OF MANSAR OVER BUILDER P. LTD. VS DCIT IN ITA NO.4193 & 85/DEL/2012 ORDER DATED 18.05.2017, THE APPEALS OF THE ASSESSEE SINCE AY 2006-07 ARE ALLOWED. 3. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE A O NOTICED THAT THE ASSESSEE HAS MADE DISALLOWANCE U/S 14A R.W. RULE 8D OF RS.1,69, 580/-. THE AO WAS NOT SATISFIED ITA NO. 4334/DEL/2014 PG. 3 FROM THE ABOVE DISALLOWANCE AND MADE CALCULATION SE PARATELY AS PER RULE 8D. THE AO HAD ALSO NOTICED THAT THE ASSESSEE HAS INCURRED INT EREST EXPENDITURE OF RS.15,19,681/- BUT DURING THE YEAR THE ASSESSEE HAS CAPITALIZED TO THE INTEREST PAID AND OTHERS. THE ASSESSEE ALSO DEBITED INTEREST PAID ON CAR LOAN OF RS.989.69 AND INTEREST PAID ON SERVICE TAX OF RS.375/- WHICH WERE CAPITALIZED UNDER PROJEC T ACQUISITION. THE AO MADE DISALLOWANCE OF RS.1,71,140/- AND ENHANCED THE INC OME OF THE ASSESSEE. FURTHER THE AO NOTED THAT THE ASSESSEE HAS INCURRED AN EXPENDIT URE OF RS.17,48,699/- AND RS.5,82,900/- WAS CLAIMED UNDER THE REVENUE EXPENSE S. THE SIMILAR EXPENSES WERE MADE IN REGARD TO AY 2008-09 & 2009-10, THE AO HAD DISALLOWED THE ADDITIONS. IN THE SCRUTINY PROCEEDINGS, THE AO FOLLOWED THE OBSERVATI ONS OF THE PREVIOUS SCRUTINY ASSESSMENT YEARS AND DISALLOWED THE CLAIM OF RS.5,8 2,990/- AND THE AO FURTHER MADE ADDITION OF RS.2,00,000/- U/S 94(7) OF THE ACT, THE HOUSE KEEPING OF RS.5,00,000/- AND STAMP DUTY CHARGES OF RS.9,500/-. 4. AGGRIEVED BY THE ABOVE FIVE ADDITIONS, THE ASSES SEE APPEALED BEFORE THE LD. CIT(A). THE ASSESSEE SUBMITTED WRITTEN SUBMISSIONS BEFORE T HE LD. CIT(A). LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LD.CIT(A ) CAME BEFORE THE APPELLATE TRIBUNAL ON THE ABOVE TWO GROUNDS AS MENTIONED ABOVE IN RESP ECT OF CONSULTANCY CHARGES PAID OF RS.5,82,900/- AND DISALLOWANCE OF RS.1,18,134/- U/ S 14A R.W. RULE 8D OF THE ACT. 5. LD.AR REITERATED THE SUBMISSIONS MADE BEFORE THE LD.CIT(A) AND HE SUBMITTED DURING THIS YEAR THAT THERE WAS NO ANY INVESTMENT M ADE BY THE ASSESSEE. THERE ARE ONLY INVESTMENT OF RS.21,56,632/- OF TWO COMPANIES WERE REMAINED AT THE YEAR END. NO FRESH INVESTMENTS WERE MADE AND NO INTEREST HAS BEE N PAID TOWARDS PURCHASES OF ANY SHARES WHICH DO NOT FORM PART OF THE TOTAL INCOME O F THE ASSESSEE. THE ASSESSEE HAS HIMSELF DISALLOWED IN HIS COMPUTATION OF INCOME OF RS.1,69,580/-. THE AO HAS NOT SPELT OUT ANY REASONS RECORDED THAT WHY HE IS NOT SATISFI ED ON THE EXPENSES DISALLOWED ITA NO. 4334/DEL/2014 PG. 4 HIMSELF BY THE ASSESSEE. THE ASSESSEE HAS PAID TOT AL INTEREST OF RS.14,98,816.69 DURING THE YEAR OUT OF WHICH INTEREST PAID ON INTEREST LOA N (CAR) OF RS.989.69, INTEREST PAID ON SERVICE TAX OF RS.375/- AND INTEREST PAID ON OTHERS RS.14,98,452/-. ALL THE EXPENSES HAVE BEEN CAPITALIZED, THEREFORE, SECTION 14A R.W. RULE 8D OF THE ACT WILL NOT BE APPLICABLE. 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE LD. CIT(A) AND HE ALSO SUBMITTED THAT IN RESPECT OF GROUND NO.2, THE SPECI FIC DETAILS WERE NOT PROVIDED BY THE ASSESSEE BEFORE THE AO, THEREFORE, THE MATTER SHOUL D BE SET ASIDE TO THE AO TO LOOK INTO THE MATTER FOR FRESH CONSIDERATION. IN RESPECT OF GROUND NO.1, HE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 7. AFTER HEARING BOTH SIDES AND PERUSING THE MATERI AL AVAILABLE ON RECORD, IN RESPECT OF GROUND NO.1, THIS ISSUE IS COVERED BY THE ORDER OF THE HONBLE CO-ORDINATE BENCH OF ITAT, DELHI IN THE CASE OF MANSAROVAR BUILDER PVT. LTD. (SUPRA), THE FACTS ARE SIMILAR TO THE EARLIER YEARS AND THE OBSERVATIONS MADE IN THIS CASE ARE EXTRACTED HEREUNDER:- 34. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 35. IT IS OBSERVED THAT CONSULTANCY EXPENSES PAID B Y ASSESSEE WERE TOWARDS LEGAL AND PROFESSIONAL CHARGES, PROJECT MANAGEMENT FEES SUPERVISORY CHARGES ETC. LOOKING INTO NATURE OF BUSINESS CARRIED ON, THE ASS ESSEE NEEDS CONSULTANTS FOR HANDLING VARIOUS ISSUES OF PROJECTS. ASSESSEE IS C ARRYING ON WITH BUSINESS OF REAL ESTATE WHICH REQUIRES SERVICES OF SPECIALIZED CONSU LTANT LIKE ARCHITECTS, INTERIOR DECORATORS ETC. 36. IT IS OBSERVED THAT LD.CIT(A CONFIRMED THE ADDI TION AS ASSESSEE DID NOT EXPLAIN THE NATURE OF SERVICES AND BASIS OF APPORTI ONING THE EXPENSES INTO 75:25. 37. ASSESSEE HAS INCURRED SIMILAR EXPENSES IN THE P RECEDING ASSESSMENT YEARS, WHICH HAS NOT BEEN DISPUTED BY LD.AO. IN FACT FOR A.Y. 2006-07, WHICH HAS BEEN ARGUED BEFORE US, NO SUCH DISALLOWANCES HAVE BEEN O BSERVED TO HAVE BEEN MADE BY LD.AO. LD.AO HAS ALSO NOT DISPUTED THE CONSISTE NT METHOD OF ALLOCATION OF CONSULTANCY IN THE PRECEDING ASSESSMENT YEARS. HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS ARJ SECURITIES PRINTERS, REPORTED IN 264 ITR 276 HAS HELD AS UNDER:- ITA NO. 4334/DEL/2014 PG. 5 ALTHOUGH EACH ASSESSMENT YEAR BEING INDEPENDENT OF THE OTHER, THE PRINCIPLE OF RES JUDICATA OR ESTOPPELS BY RECORD WH ICH APPLIES TO CIVIL COURTS, DOES NOT APPLY TO INCOME TAX PROCEEDINGS, YET FOR T HE SAKE OF CONSISTENCY AND FOR THE PURPOSE OF FINALITY IN ALL LITIGATIONS, INCLUDING LITIGATION ARISING OUT OF FISCAL STATES, EARLIER DECISIONS OR THE SAME QUE STION SHOULD NOT BE REOPENED UNLESS SOME FRESH FACTS ARE FOUND IN THE S UBSEQUENT YEAR. 38. IN OUT CONSIDERED OPINION, WHEN THERE IS NO CHA NGE IN THE BUSINESS OF ASSESSEE CONSULTANCY EXPENSES INCURRED TOWARDS CONS ULTANCY CHARGES TO AN EXTENT OF 25% CANNOT BE DISALLOWED. ACCORDINGLY, THIS GRO UND RAISED BY ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. WE RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE C O-ORDINATE BENCH IN THIS CASE, THE FACTS REMAINED UNCHANGED, THE ASSESSEE SUCCEDED IN THIS GROUND. 9. GROUND NO.2, THE ASSESSEE HAS HIMSELF DISALLOWED IN HIS COMPUTATION OF INCOME OF RS.1,69,580/-. THE CALCULATION MADE BY THE ASSE SSEE U/S 14A R.W. RULE 8D OF THE ACT ARE AS UNDER:- 1). AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOM E 1,18,247 WHICH DOES NOT FORM PART OF TOTAL INCOME (REFER PAGE 64 OF TAX AUDIT REPORT ANNEXURE-B) 2). WHERE EXPENDITURE INCURRED BY WAY OF INTEREST WHICH NIL IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR IN COME/RECEIPT . 3). AMOUNT EQUAL TO ONE-HALF PERCENT OF THE AVERAGE VALUE % OF 10,26,636 OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL N OT FORM PART OF TOTAL INCOME. REFER ANNEXURE 8 OF TAX AUDIT REPORT AT PAGE 64 =RS.51 ,333 TOTAL DISALLOWANCES UNDER RULE 8D 1,69,580 10. THE ASSESSEE HAS PAID INTEREST FOR A SUM OF RS. 14,98,816.69 OUT OF WHICH A SUM OF RS.989.69 IS FOR FIXED LOAN (CAR) AND A SUM OF R S.375/- FOR SERVICE TAX AND RS.14,98,452/- PAID INTEREST ON OTHERS. FIXED LOAN HAS BEEN CAPITALIZED TO THE GURGAON-1 PROJECT. THE ASSESSEE HAS NOT CLAIMED AN Y EXPENDITURE IN THE P&L ACCOUNT IN RESPECT OF LOAN TAKEN AND HAS BEEN UTILIZED FOR THE PURPOSE OF INVESTMENTS OR ANY OTHERS. ON PERUSAL OF SCHEDULE-5, THE ASSESSEE HAS MADE TOTAL INVESTMENTS AT THE YEAR END OF RS.21,56,632/- FROM THE SUBMISSIONS OF THE A SSESSEE AND THE ORDER OF THE ITA NO. 4334/DEL/2014 PG. 6 AUTHORITIES BELOW. IT APPEARS THAT THE ASSESSEE HA S NOT MADE ANY FRESH INVESTMENTS DURING THE YEAR. RELIANCE WAS PLACED ON THE ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. 203 TAXMAN 364 (DELHI) AND HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. 323 ITR 518 (P&H). 11. RESPECTFULLY FOLLOWING THE ABOVE TWO JUDGEMENTS , THE CALCULATION MADE BY THE ASSESSEE APPEARS CORRECT AND WE ALLOW ALL GROUNDS R AISED BY THE ASSESSEE IN THIS APPEAL. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 04 TH AUGUST, 2017. SD/- SD/- (I.C.SUDHIR) (L.P.SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER *AMIT KUMAR* DATE:- 04.08.2017 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI