Shri. Balbirsingh Pritam Singh Renu, Nagpur V. Deputy Commissioner of Income Tax,Circle-4, Nagpur

ITA 46/NAG/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84664 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2011
• Court: TRIBUNAL
• Department Lawyers: PRG
• Keywords: Rule of consistency; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . /ITA NO.46/NAG/2011 ( AY: 2007 - 2008 ) SHRI BALBIR SINGH PRITAM SINGH RENU, C/O. M/S. J.S. UBEROI & CO., CHARTERED ACCOUNTANTS, 2, SAT - PRATAP, BEZONBAGH, KAMPTEE ROAD, NAGPUR - 440 004. / VS. DCIT CIRCLE - 4, NAGPUR. ./ PAN : ABYPR2450G ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI HARISH BHONEJA / RESPONDENT BY : SHRI A.R. NINAWE, JCIT / DATE OF HEARING : 03.09.2014 / DATE OF PRONOUNCEMENT : 05 .09.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSSESSEE ON 18.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - II, NAGPUR DATED 19.1.2011 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING EFFECTIVE GROUND WHICH READS AS UNDER: ON THE FACTS AND MERITS OF THE CASE, THE DISALLOWANCE OF PROPORTIONATE INTEREST INVESTMENT IN SHARES OF HOTEL BALBIR INN PRIVATE LIMITED IS ERRONEOUS AND BASED ON SURMISES & CONJECTURES. 3. DURING THE PROCEEDINGS BEFORE US, AT THE VERY OUTSET, SHRI HARISH BHONEJA, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUND AND MENTIONED THAT ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF PROPORTIONATE INTEREST INVESTMENT IN SHARES OF HOTEL BALBIR INN PRIVATE LIMITED IS EXACTL Y IDENTICAL TO THAT THE OF THE ISSUE DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2008 - 2009 VIDE ITA NO.246/NAG/2012 DATED 3.4.2013 WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . IN THIS REGARD, LD COUNSEL READ OUT THE RELEVANT PARAS 2 TO 8 OF THE SAID ORDER OF THE TRIBUNAL AND SUBMITTED THAT CONSIDERING THE COVERED NATURE OF THE ISSUE, THE SAME MAY BE DECIDED IN FAVOUR OF THE ASSESSEE. 2 4. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES . 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED ORDER OF THE TRIBUNAL (SUPRA) DATED 3.4.2013 AND THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL (SUPRA), WHERE IN ONE OF US (AM) IS A PARTY TO THAT ORDER, WE FIND THAT PARAS 2 TO 8 ARE RELEVANT IN THIS REGARD AND THE SAME READ AS UNDER: 2. THE ASSESSEE IS OBJECTING IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST ON INVESTMENT IN SHARES OF HOTEL BALBIR INN PVT. LIMITED. 3. THE ASSESSMENT IN THIS CASE WAS COMPLETED AT A TOTAL INCOME OF RS.68,27,024/ - AS AGAINST RETURNED INCOME OF RS.39,53,870/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT AN INVESTMENT OF RS.2.39 CRORE HAS BEEN MADE WHI CH ARE PERSONAL IN NATURE AND NOT USED FOR THE BUSINESS OF THE ASSESSEE. THIS CONSISTS OF ASS E TS IN PLOTS IN THE CASE OF PRITAM BUILDERS WHICH IS A PROPRIETARY CONCERN ON WHICH NO DEVELOPMENT HAS COMMENCED. THE AO FURTHER NOTED THAT ON INVESTMENT IN THE SH ARE OF HOTEL BALBIR INN, A PRIVATE LIMITED COMPANY, OF RS.99 LAKHS WAS HELD BY THE AO AS INVESTMENT WHICH WAS ONLY RESULT IN EARNING OF TAX FREE DIVIDEND. THEREFORE, PROPORTIONATE INTEREST UNDER SECTION 14A WAS DISALLOWED, WHICH WAS COMPUTED AT RS.24,73,1 54/ - . 4 . BEING AGGRIEVED WITH THE ORDER OF THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A), BEFORE WHOM IT WAS CONTENDED THAT THE ASSESSEE WAS A PROPRIETOR AND THEREAFTER HE CONSTITUTED A PRIVATE LIMITED COMPANY IN THE NAME OF HOTEL BALBIR I NN. THE ASSESSEE TRANSFERRED ITS FUNDS TO THE PRIVATE LIMITED COMPANY FOR STARTING CONSTRUCTION BUSINESS. ACC ORDINGLY, IT WAS SUBMITTED THAT THE AO WAS TOTALLY INCORRECT IN HOLDING THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES FOR EARNING DIVIDEND. THE A SSESSEE IS HAVING 97% OF THE SHARES OF THAT COMPANY AND THE COMPANY IS DOING THE BUSINESS OF CONSTRUCTION AND FUND INVESTED IN SHARES WERE UTILIZED FOR THE PURCHASE OF PLOT AND FOR THE PURPOSE OF CONSTRUCTION AND, THEREFORE, THE PROVISION OF SECTION 14A AR E NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. AFTER CONSIDERING THE SUBMISSION, THE LEARNED CIT(A)OBSERVED THAT IT IS NOT DISPUTED THAT THE ASSESSEE IS CARRYING ON BUSINESS OF A HOTELIER AND THE BUILDER, THEREFORE, HE FOUND THAT THE ACTION OF THE AO I N HOLDING THAT THE INVESTMENT IN LAND IS NOT FOR BUSINESS PURPOSE IS NOT TENABLE. LEARNED CIT(A) FURTHER FOUND MERIT IN THE ASSESSEES SUBMISSION THAT INVESTMENT IN LAND IS FOR A BUSINESS PURPOSE, THEREFORE, NO DISALLOWANCE OF INTEREST IS CALLED FOR ON INV ESTMENT IN LAND. HOWEVER, AS REGARDS INVESTMENT IN THE BALBIR INN (P) LTD., IT IS SEEN THAT ASSESSEE ACQUIRED 97% OF SHAREHOLDING AND AS THE INVESTMENT IS FOR OBTAINING CONTROLLING INTEREST IN THE SAID COMPANY AND THE ONLY YIELD FROM SUCH INVESTMENT WOULD BE TAX FREE DIVIDEND, THEREFORE, HE HELD THAT THE DISALLOWANCE ON INTEREST ATTRIBUTABLE TO THIS INVESTMENT IS REQUIRED TO BE MADE AS PER PROVISIONS OF SECTION 14A AND DIRECTED THE AO TO CALCULATE THIS DISALLOWANCE AS PER PROVISIONS OF RULE 8D OF THE I.T. R ULES. ACCORDINGLY, THE GROUND OF THE APPEAL OF THE ASSESSEE WAS ALLOWED IN PART. NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5. THE CONTENTIONS RAISED BEFORE THE LEARNED CIT(A) WERE REITERATED HERE BEFORE THE TRIBUNAL. RELIANCE WAS PLACED ON T HE COPY OF THE WRITTEN SUBMISSION PLACED IN THE PAPER BOOK AT PAGE 1 TO 9. RELIANCE WAS ALSO PLACED ON TWO CASE LAWS I.E. IN THE CASE OF RELIANCE UTILITIES & POWER LTD, 313 ITR 340 AND IN THE CASE OF S.A. BUILDERS, REPORTED IN 288 ITR 1 (SC). 6. ON THE OTHER HAND, LEARNED DR PLACED RELIANCE ON THE ORDER OF THE CIT(A). 7. AFTER CONSIDERING THE ORDER OF THE AO AND THE CIT(A), WE FOUND THAT THE LEARNED AO AS WELL AS LEARNED CIT(A) COULD NOT UNDERSTAND THE CASE OF THE ASSESSEE IN RIGHT PERSPECTIVE. THE ASSES SEE HAS NOT MADE INVESTMENT IN SHARES FOR EARNING OF DIVIDEND BUT HE HAS INVESTED IN THE COMPANY IN WHICH 97% SHARE HOLDINGS BELONGS TO ASSESSEE. FUNDS OF THE ASSESSEE PROPRIETORSHIP CONCERN WERE UTILIZED IN INVESTING IN 3 THE SHARES OF THE SAID COMPANY. THE SAID COMPANY IS DOING THE BUSINESS OF CONSTRUCTION , THEREFORE, IT CANNOT BE SAID THAT THERE WILL BE ANY DIVIDEND INCOME, WHICH WILL BE EXEMPTED AND DISALLOWANCE OF INTEREST IS WARRANTED . THIS ASPECT HAS NOT BEEN TAKEN INTO CONSIDERATION EITHER BY THE AO O R BY LEARNED CIT(A) AS LEARNED CIT(A) HAS OBSERVED THAT THE INVESTMENT IN COMPANY WILL YIELD PROFIT WHICH WILL BE TAX FREE, WHEREAS THIS OBSERVATION IS NOT CORRECT BECAUSE WHATEVER THE PROFIT OF THE COMPANY WAS THERE ON ACCOUNT OF CONSTRUCTION BUSINESS, TH AT WILL BE A BUSINESS PROFIT. WHETHER THERE SHOULD BE ANY DIVIDEND OR NOT IT IS NOT ASCERTAINED BUT IT IS ASCERTAINED THAT THE FUNDS TRANSFERRED FROM PROPRIETORSHIP CONCERN WERE UTILIZED IN CONSTITUTING THE PRIVATE LIMITED AND MAKING INVESTMENT IN LAND FOR CONSTRUCTION BUSINESS. THIS IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS INVESTED IN SHARES IN DIFFERENT COMPANIES, WHICH DO NOT BELONG TO THE ASSESSEE AND HAS MADE INVESTMENT FOR EARNING DIVIDEND WHEREAS IN THE PRESENT CASE, THE INVESTMENT HAS BEEN MADE IN SHARES FOR STARTING THE BUSINESS IN THE NAME AND STYLE OF PRIVATE LIMITED COMPANY. THEREFORE, INTENTION OF THE ASSESSEE IS CLEAR FOR INVE STMENT IN SHARES OF THE PRIVATE LIMITED COMPANY, WHERE THE ASSESSEE HAS 97% SHARES WAS NOT FOR THE PURPOS E OF EARNING DIVIDEND BUT FOR THE PURPOSE OF DOING BUSINESS. IN THE CASE OF CCL LIMITED , REPORTED IN 250 ITR 291, THE HONBLE KARNATAKA HIGH COURT HAS HELD THAT THE ASSESSEE HAS NOT RETURNED THE SHARES WITH THE INTENTION TO EARN DIVIDEND INCOME WHICH WAS M ERELY AN INCIDENTAL DIVIDEND INCO ME AS THE ASSESSEE WANTS ALWAYS THOSE SHARES TO BE PARTED OR SOLD AND ONLY THE UNSOLD SHARES IS THE SOURCE OF SUCH INCIDENTAL DIVIDEND INCOME. ACCORDINGLY, DISALLOWANCE MADE UNDER SECTION 14A WAS DELETED. SIMILAR FACTS ARE INVOLVED IN THIS CASE AS THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF C OMPANY FOR DOING BUSINESS AND NOT FOR EARNING DIVIDEND. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT DISALLOWANCE OF PROPORTIONATE INTEREST ON INVESTMENT IN SHARES OF HOTEL BALBIR INN PRIVATE LIMITED WAS NOT JUSTIFIED . ACCORDINGLY, WE DELETE THE SAME. 8. RESULTANTLY, APPEAL OF THE ASSESSEE IS ALLOWED . 6. THERE IS NO CHANGE IN THE FACTS IN THE YEAR UNDER CONSIDERATION QUA THE ASSESSMENT YEAR DECIDED BY THE TRIBUNAL FOR THE AY 2008 - 2009. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE ASSESSEE HAS MADE INVESTMENT IN THE SHARES OF THE COMPANY FOR DOING BUSINESS AND NOT EARNING OF THE DIVIDEND INCOME. THEREFORE, THE DECISION TAKEN BY THE ITAT IN THE ASS ESSEES OWN CASE SQUARELY APPLIES TO THE INSTANT APPEAL TOO. THEREFORE, CONSIDERING THE SETTLED NATURE OF THE ISSUE AS WELL AS THE FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE ISSUE RAISED IN THIS APPEAL SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. ACCORD INGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON 05 TH SEPTEMBER, 2014 . SD/ - SD/ - (VIVEK VARMA) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER NAGPUR; 5 /09/2014 . . ./ OKK , SR. PS 4 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , / DR, ITAT, NAGPUR. 6. / GUARD FILE . //TRUE COPY// / BY ORDER, (SR. PRIVATE SECRETARY) / ITAT, NAGPUR