ITO 1(1)(2), MUMBAI V. DOSTI REALTY LTD, MUMBAI

ITA 4863/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8124 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 21-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: V K VED
• Keywords: Unexplained expenditure; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A; 6; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I G. MANJUNATHA , ACCOUNTANT MEMBER ITA NO . 4863 /MUM. /2016 ( ASSESSMENT YEAR : 2011 12 ) INCOME TAX OFFICER WARD 1(1)(2)M, MUMBAI . APPELLANT V/S DOSTI REALTY LTD. 276, LAWRENCE & MAYO HOUSE DR. D.N. ROAD, FORT MUMBAI 400 001 AACCD7714K . RESPONDENT ITA NO .4865/MUM./2016 ( ASSESSMENT YEAR : 2012 1 3 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), MUMBAI . APPELLANT V/S DOSTI R EALTY LTD. 276, LAWRENCE & MAYO HOUSE DR. D.N. ROAD, FORT MUMBAI 400 001 AACCD7714K . RESPONDENT ITA NO .4866 /MUM./2016 ( ASSESSMENT YEAR : 2012 1 3 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), MUMBAI . APPELLANT V/S DOSTI LAND DEVELOPERS PVT. LTD. 276, LAWRENCE & MAYO HOUSE DR. D.N. ROAD, FORT MUMBAI 400 001 AA A CD 2624A . RESPONDENT REVENUE BY : SHRI M.C. OMININGSHEN ASSESSEE BY : SHRI V.K. VED DATE OF HEARING 31 .1 0 .2017 DATE OF ORDER 18.12.2017 2 DOSTI REALTY LTD. O R D E R PER SAKTIJIT DEY, J.M. AFORESAID APPEAL S BY THE DEPARTMENT A RE AGAINST THREE SEPARATE ORDERS, ALL DATED 29 TH APRIL 2016, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 2, MUMBAI, FOR ASSESSMENT YEAR S 2011 12 AND 2012 13. 2 . SINCE ALL THESE APPEALS PERTAIN TO A COMMON ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. SINCE , FACTS ARE COMMON IN THESE APPEALS, THEREFORE, WE PROPOSE TO DEAL WITH THE FACTS AS INVOLVED IN ITA NO.4863/MUM./2016, FOR THE ASSESSMENT YEAR 2011 12. ITA NO.4863/MUM./2016 REVENUES APPEAL FOR A.Y. 2011 12 2 . THE COMMON GROUND S RAISED BY THE REVENUE IN ALL THESE APPEALS ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A R/W RULE 8D BY INCLUDING THE INVESTMENTS MADE IN PARTNERSHIP FIRMS IN RESPECT OF WHICH THE ASSESSEE CLAIMED SHARE OF PROFIT AS EXEMPT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A R/W RULE 8D DESPI TE THE FACTS THAT CIRCULAR NO.5 OF 2014 ISSUED BY THE CBDT CLARIFIES THAT EVEN WHEN EXEMPT INCOME IS NOT EARNED DURING THE YEAR, DISALLOWANCE U/S 3 DOSTI REALTY LTD. 14A CAN BE WORKED OUT ON THE INVESTMENTS WHICH ARE LIKELY TO GENERATE EXEMPT INCOME. 3 . BRIEF FACTS ARE, THE AS SESSEE A RESIDENT COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE BUILDERS AND DEVELOPERS. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 TH SEPTEMBER 2011, DECLARING LOSS OF ` 30,48,420. THE ASSESSING OFFICER COMPLET ED ASSESSMENT UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 31 ST MARCH 2014, DETERMINING THE TOTAL INCOME AT ` 1,68,72,430 AFTER MAKING COUPLE OF ADDITIONS ON ACCOUNT OF UNEXPLAINED EXPENDITURE AND PROFIT ON PURCHASES FROM UNREGISTERED DEALERS. AFTER CO MPLETION OF ASSESSMENT AS AFORESAID, THE ASSESSING OFFICER HAVING FOUND THAT IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS RECEIVED EXEMPT INCOME BY WAY OF DIVIDEND ON MUTUAL FUNDS AMOUNTING TO ` 87,79,262 AND SHARE OF PROFIT FROM THE PARTNERSHIP FIRM OF ` 1,32,32,269 , WHEREAS THE ASSESSEE HAS DISALLOWED AN AMOUNT OF ` 4,02,720 UNDER SECTION 14A WAS OF THE VIEW THAT THE ASSESSEE HAS NOT CORRECTLY COMPUTED THE EXPENDITURE ATTRIBUTABLE TO EARNING THE EXEMPT INCOME. ACCORDINGLY, THE ASSESSING OFFICER INITIAT ED PROCEEDINGS UNDER SECTION 154 OF THE ACT FOR RECTIFICATION OF THE ASSESSMENT ORDER AND ACCORDINGLY ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. THOUGH, THE ASSESSEE OBJECTED TO THE PROPOSED RECTIFICATION UNDER SECTION 154 OF THE ACT, THE ASSESSING OFFICE R REJECTING THE CONTENTION OF THE ASSESSEE PROCEEDED TO PASS AN ORDER UNDER SECTION 154 OF THE ACT DISALLOWING AN 4 DOSTI REALTY LTD. AMOUNT OF ` 47,28,056 UNDER SECTION 14A R/W RULE 8D. WHILE DOING SO THE ASSESSING OFFICER HELD THAT IN ADDITION TO DISALLOWANCE OF PROPORTIONA TE EXPENDITURE FOR EARNING DIVIDEND INCOME FURTHER DISALLOWANCE HAS TO BE MADE FOR THE PROFIT EARNED FOR PARTNERSHIP FIRM SINCE SUCH INCOME IS NOT TAXABLE AT THE HANDS OF THE ASSESSEE. AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14 A R/W RULE 8D ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE FACTS AND MATERIAL ON RECORD FOUND THAT AS ON 31 ST MARCH 2011, THE ASSESSEE HAS OWN SURPLUS FUNDS OF ` 174,83,91,327, AS AGAINST INVESTMENT MADE OF ` 92,02,16,961. T HEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE UNDER RULE 8D(2)(II) OF THE ACT. THE LEARNED COMMISSIONER (APPEALS) DIRECTED TH E ASSESSING OFFICER TO EXCLUDE THE STRATEGIC INVESTMENTS FOR COMPUTING AVERAGE VALUE OF INVESTMENT. AS FAR AS THE DISALLOWANCE OF EXPENDITURE TOWARDS INVESTMENT IN PARTNERSHIP FIRM IS CONCERNED, THE LEARNED COMMISSIONER (APPEALS) RELYING UPON THE DECISIONS OF THE TRIBUNAL HELD THAT , SINCE , SUCH INVESTMENTS ARE IN GROUP ENTITIES AND FURTHER EXEMPTION OF SHARE INCOME FROM PARTNERSHIP FIRM UNDER SECTION 10(2A) OF THE ACT IS NOT IN ABSOLUTE SENSE BUT TO AVOID DOUBLE TAXATION , PROVISIONS OF SECTION 14A WOULD NOT APPLY. 5 DOSTI REALTY LTD. ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE DECISIONS RELIED UPON. THE ASSESSING OFFICER HAS C 1 OMPUTED DISALLOWANCE UNDER SECTION 14A R/W RULE 8D BY TAKING INTO ACCOUNT THE AVERAGE VALUE OF INVESTMENTS MADE IN MUTUAL FUNDS AND PARTNERSHIP FIRMS. THE LEARNED COMMISSIONER (APPEALS) HAS RECORDED A FINDING OF FACT THAT THE ASSESSEE HAS SUFFICIENT SURPLUS INTEREST FREE FUNDS AVAIL ABLE WITH IT TO TAKE CARE OF THE INVESTMENT. THAT BEING THE CASE, THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) OF THE ACT CANNOT BE MADE. FURTHER, STRATEGIC INVESTMENT MADE IN GROUP COMPANIES ALSO HAS TO BE EXCLUDED IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CHEMINVEST V/S CIT, 378 ITR 33, AS WELL AS A NUMBER OF DECISIONS OF DIFFERENT BENCHES OF THE TRIBUNAL INCLUDING MUMBAI BENCHES. IT IS ALSO NECESSARY TO OBSERVE , THE INVES TMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR ALSO HAVE TO BE EXCLUDED FROM THE AVERAGE VALUE OF INVESTMENT FOR COMPUTING DISALLOWANCE UNDER SECTION 14A. 6 . AS FAR AS THE APPLICABILITY OF SECTION 14A ON THE INVESTMENT MADE IN PARTNERSHIP FIRM AND INCOME DERIVED THEREFROM, WE ARE UNABLE TO AGREE WITH THE REASONING OF THE LEARNED COMMISSIONER ( APPEALS) IN 6 DOSTI REALTY LTD. VIEW OF THE DECISION OF THE ITAT, AHMEDABAD SPECIAL BENCH IN CASE OF VISHNU ANANT MAHAJAN V/S.ACIT,16 ITR(TRIB)621, WHEREIN, THE BENCH HELD THAT PROVISION OF SECTION 14A ARE APPLICABLE TO EXEMPT INCOME EARNED BY WAY OF SHARE INCOME FROM PARTNERSHIP FIRM. HOWEVER, ASSESSEES CLAIM THAT INVESTMENT IN PARTNERSHIP FIRM IS ALSO IN THE NATURE OF STRTEGIC INVESTMENT AND FURTHER, NO EXPENDITURE WAS INCURRED FOR EARNING SHARE INCOME EA RNED FROM THE FIRM DESERVES TO BE CONSIDERED AFRESH. ACCORDINGLY, WE RESTORE THE ISSUE OF DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE ON SHARE INCOME FROM PARTNERSHIP FIRM TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDS RAISED ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7 . IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NO.4865/MUM./2016 REVENUES APPEAL FOR A.Y. 201 2 13 8 . FACTS INVOLVED IN THESE TWO APPEALS ARE ALMOST IDENTICAL WITH THE FACTS INVOLVED IN ITA NO.4863/MUM./2016, EXCEPT , TO THE EXTENT THAT IN THESE APPEALS, THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D IN THE ASSESSMENT ORDER S PASSED UNDER SECTION 143(3) ITSELF. THEREFORE, OUR DECISION IN ITA NO.4863/MUM./2016, WILL 7 DOSTI REALTY LTD. APPLY MUTATIS MUTANDIS TO THESE APPEALS ALSO. ACCORDINGLY, GROUNDS RAISED ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . 9 . IN THE RESULT, ALL THE APPE ALS OF THE REVENU E ARE ALLOWE D FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2017 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED : 18.12.2017 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI .