INDIABULLS PROJECTS LTD, NEW DELHI V. DCIT CIR 3(2), MUMBAI

ITA 4910/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88085 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 07-01-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR DR
• Assessee Lawyers: JITENDRA B SANGHAVI
• Keywords: Business income; Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D B ENCH, MUMBAI , , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ./ I.T.A. NO.4910/MUM/2014 ( / ASSESSMENT YEAR : 2010-11) M/S. INDIABULLS PROJECTS LIMITED M-62 & 63, FIRST FLOOR CONNAUGT PLACE DELHI-110 001. OR M/S. INDIABULLS PROJECTS LIMITED 14 TH FLOOR, INDIABULLS FINANCE CENTRE, TOWER 1, PLOT NO.612-613, ELPHINSTONE MILLS MUMBAI-400 013. / VS. DY. COMMISSIONER OF INCOME-TAX- CIRCLE 3(2) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. : AABCI 7666 Q ( /APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI JITENDRA B. SANGHAVI - AR / RESPONDENT BY : SHRI LOVE K UMAR - DR ! ' # / DATE OF HEARING : 27 /01/2015 $%& # / DATE OF PRONOUNCEMENT : 30 /01/2015 ' / O R D E R PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 06/06/2014 OF CIT(A) FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSE E HAS RAISED THE FOLLOWING GROUND :- GROUND NO. 1: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER (HEREIN AFTE R REFERRED TO AS 'AO') OF RS. 1,048,922/- U/S 14A READ WITH RULE 8D. 2 ITA NO.4910/M/14 GROUND NO. 2: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE AO OF RS. 1,048,922/- U/S 14A READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE LD. AO PROCEEDED TO APPLY RULE 8D WITHOUT GIVING DUE REGARD TO THE SUO MOTO DISALLOWANCE AND NATURE OF EXPENSES INCURRED, BY THE APPELLANT GROUND NO. 3: THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE AO'S ACTION OF CONSIDERING THE INTEREST INCOME OF R S. 60,141,004/- TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' INSTEAD OF HEA D 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS CORRECTLY OFFERED BY THE ASSESSEE. GROUND NO.4: THE APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD, AMEND, ALTER OR FOREGO ANY OF THE ABOVE GROUNDS OF APPEAL AS THE CIRCUMSTANCES MAY WARRANT. GROUND NO. 5: THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. 2. GROUND NO.1 AND 2 IS REGARDING DISALLOWANCE UNDE R SECTION 14A R.W. RULE 8D. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL EST ATE DEVELOPMENT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASS ESSEE MADE INVESTMENT OF RS.45 .00 CRORES AND RECEIVED EXEMPT INCOME OF RS.25,52,5 71/- ON THE SAID INVESTMENT. THE AO FURTHER NOTED THAT THE ASSESSEE HAD MADE DISALLO WANCE OF RS.76,200/- TO EARN THE ABOVE EXEMPT INCOME. THE AO ASKED THE ASSESSEE AS T O WHY DISALLOWANCE SHOULD NOT BE MADE AS PER RULE-8D. IN RESPONSE THE ASSESSEE SU BMITTED THAT RULE-8D IS NOT APPLICABLE WHEN THE ASSESSEE HAS MADE OUT DISALLOWA NCE BASED ON THE PERSONAL AND ADMINISTRATIVE EXPENSES INCURRED FOR EARNING THE E XEMPT INCOME. THE ASSESSEE FURTHER CONTENDED THAT APART FROM THE DISALLOWANCE MADE BY THE ASSESSEE ITSELF NO OTHER EXPENDITURE IS INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE DISA LLOWANCE OF RS.10,48,922/- WORKED OUT UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES O N ACCOUNT OF ADMINISTRATIVE AND GENERAL EXPENSES. THE ASSESSEE CHALLENGED THE ACTIO N OF THE AO BEFORE CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE US, THE LD. AR HAS SUBMITTED THAT THE ENT IRE INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE MUTUAL FUNDS COMPRISING CERTAIN GROWTH FUNDS ON WHICH NO DIVIDEND 3 ITA NO.4910/M/14 INCOME IS EARNED. THE AO EXCLUDED THE INVESTMENT SO FAR IT IS GROWTH FUND. HE HAS FURTHER CONTENDED THAT DURING THE YEAR THE ASSESSEE HAS MADE THE INVESTMENT ONLY IN 10 FUNDS OUT OF WHICH CERTAIN FUNDS DO NOT YIELD DI VIDEND INCOME AND THEREFORE, THE SAME ARE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE U NDER SECTION 14A. THE INVESTMENT IS MADE ONLY IN MUTUAL FUNDS WHICH DO NOT REQUIRE A NY EXPENDITURE TO BE INCURRED BY THE ASSESSEE. HE HAS FURTHER CONTENDED THAT THE ASS ESSEE HAS WORKED OUT THE DISALLOWANCE BY ALLOCATING THE SALARY OF ONE DESIGN ATED OFFICER/EMPLOYEE IN THIS RESPECT. THE LD. AR HAS FURTHER SUBMITTED THAT FOR THE ASSES SMENT YEAR2008-09 THE AO WORKED OUT THE DISALLOWANCE UNDER SECTION 14A AT 10% OF TH E DIVIDEND INCOME. THE CIT(A) HAS FOLLOWED THE DECISION FROM THE ASSESSMENT YEAR 2008 -09, AND HOWEVER, SUSTAINED THE DISALLOWANCE MADE BY THE AO. THUS THE LD. AR HAS SU BMITTED THAT WHEN THE AO ITSELF HAS GIVEN A FINDING THAT ONLY 10% OF THE DIVIDEND I NCOME CAN BE TAKEN AS THE EXPENDITURE ALLOCABLE FOR EARNING DIVIDEND INCOME F OR THE ASSESSMENT YEAR 2008-09 THEN, THE AO CANNOT TAKE A DIFFERENT VIEW ON THIS I SSUE FOR THE YEAR UNDER CONSIDERATION. 3.1 ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT THE ASSESSEE ITSELF HAS MADE A DISALLOWANCE UNDER SECTION 14A WHICH SHOWS THAT THE ASSESSEE HAS ACCEPTED THE EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME. O NCE AN EXPENDITURE IS INCURRED FOR EARNING DIVIDEND INCOME THEN THE QUANTUM OF DISALLO WANCE CAN BE WORKED OUT ONLY AS PER RULE 8D. HE HAS FURTHER CONTENDED THAT EVEN IF THE AO HAS MADE A MISTAKE IN THE EARLIER ASSESSMENT YEAR THE SAME WILL NOT OPERATE A S RES-JUDICATA AND ILLEGALITY CANNOT BE ALLOWED TO PERPETUATE FROM YEAR TO YEAR. HE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ONLY DISALLOWANCE MADE BY THE AO U/S. 14A IS ON ACCOUNT OF INDIRECT ADMINISTRATIVE EXPENSES WORKED OUT UNDER RULE 8D(2)(III). THE ASS ESSEE IN ITS COMPUTATION OF INCOME HAS MADE A DISALLOWANCE OF RS.76,200/- WHICH WAS AL LOCATED ON THE BASIS OF THE SALARY OF ONE OFFICER FOR THIS PURPOSE. THE ASSESSEE HAS C LAIMED THAT NO OTHER EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING THE DIVID END INCOME, HOWEVER, THE AO HAS 4 ITA NO.4910/M/14 NOT PROCEEDED TO EXAMINE THE CLAIM OF THE ASSESSEE ABOUT THE ALLOCABLE EXPENDITURE IN RESPECT OF THE EXEMPT INCOME. ONCE THE ASSESSEE HAS CLAIMED THAT IT HAS NOT INCURRED ANY EXPENDITURE OTHER THAN ALLOCATED BY ITSELF FOR THE PURPOSE OF DISALLOWANCE U/S. 14A THE AO HAS TO EXAMINE THE CLAIM OF THE ASSESSEE AND TO FIND OUT WHICH ARE THE EXPENDITURE CLAIMED BY THE ASSESSEE IN THE P&L ACCO UNT ALLOCABLE FOR THE PURPOSE OF DISALLOWANCE U/S. 14A IN RESPECT OF EARNING EXEMPT INCOME. THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAS TO BE DISALLOWED U/S. 14A. ONLY WHEN SUCH EXPENDITURE HAS A DIRECT O R PROXIMATE RELATION WITH THE INCOME EXEMPT HAS TO BE DISALLOWED. IN THE CASE WHE N THERE IS NO DIRECT EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME THEN THE ALL OCATION OR APPORTIONMENT OF EXPENDITURE HAS TO BE MADE ONLY WHEN THERE IS A NEX US BETWEEN EXPENDITURE INCURRED AND EXEMPT INCOME. IN THE CASE IN HAND THE AO HAS N OT CONDUCTED ANY ENQUIRY TO FIND OUT WHICH ARE THE OTHER EXPENDITURE WHICH CAN BE A TTRIBUTABLE FOR EARNING THE EXEMPT INCOME. IF THE AO IS NOT SATISFIED WITH THE CLAIM O F THE ASSESSEE AND CORRECTNESS OF THE CLAIM IN RELATION TO THE EXPENDITURE FOR EARNING EX EMPT INCOME THEN THE AO IS SUPPOSED TO CONDUCT AN ENQUIRY AND FIND OUT THE AMOUNT OF EX PENDITURE WHICH CAN BE APPORTIONED IN RESPECT OF EARNING EXEMPT INCOME. IN THE ABSENCE OF ANY SUCH ENQUIRY THE ACTION OF THE AO IN MAKING DISALLOWANCE IS NOT JUSTIFIED. FOR THE ASSESSMENT YEAR 2008-09 THE AO HAS WORKED OUT THE DISALLOWANCE U/S. 14A AT 10% OF THE EXPENDITURE INCURRED FOR COMPOSITE ACTIVITIES WHICH WAS ALSO CO NFIRMED BY CIT(A) . WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE F OR THE YEAR UNDER CONSIDERATION AND THE AO HAS ALSO NOT CONDUCTED THE NECESSARY ENQUIRY TO FIND OUT THE EXPENDITURE TO BE APPORTIONED IN RELATION TO THE EARNING OF EXEMPT IN COME DISALLOWANCE MADE FOR THE ASSESSMENT YEAR 2008-09 SHOULD HAVE BEEN FOLLOWED F OR THE YEAR UNDER CONSIDERATION. THE CIT(A) HAS FOLLOWED THE EARLIER ORDER AND ALSO RECORD THE FACT IN PARA 5.2.2 AS UNDER :- THE LD. ARS HAVE MADE A CATEGORICAL STATEMENT THAT THE FACTS AND CIRCUMSTANCES OF ASSESSMENT YEAR 2008-09 AND 210-11 ARE IDENTICAL, THEREFORE, GROUND OF APPEAL NO.1 HAS BEEN STATED TO BE A COVERED MATTER. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, I AM OF THE CONSIDERED OPINION THAT THE DISALLOWANCE OF EXPENSES HAS BEEN 5 ITA NO.4910/M/14 CORRECTLY COMPUTED BY THE AO U/S. 14A OF THE ACT R. W.R. 8D OF I.T. RULES, AND THEREFORE, THE SAID NET DISALLOWANCE OF RS.10,4 8,922/- IS CONFIRMED. AS A COROLLARY, GROUND OF APPEAL NO.1 IS DISMISSED. 4.1 ONCE THE FACTS AND CIRCUMSTANCES FOR THE ASSESS MENT YEAR 2008-09 AND ASSESSMENT YEAR UNDER CONSIDERATION ARE IDENTICAL T HEN THE BASIS OF DISALLOWANCE CAN NOT BE DIFFERENT. ACCORDINGLY WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 10% OF THE EXPENDITURE INCURRED FOR COMPOSITE ACTIVITY RES ULTING IN EXEMPT INCOME AS WELL AS TAXABLE INCOME. THE ABOVE DIRECTIONS ARE GIVEN IN P ECULIAR FACTS AND CIRCUMSTANCE OF THE CASE AND TO MAINTAIN THE RULE OF CONSISTENCY, T HEREFORE, WOULD NOT BE APPLIED AS PRECEDENCE. 5. GROUND NO.3 AND 4 IS REGARDING TREATMENT OF INTE REST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. WE HAVE H EARD THE LD. AR AND THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. 5.1 THE LD. AR HAS SUBMITTED THAT INTEREST INCOME H AS BEEN EARNED BY THE ASSESSEE ON THE INTER-CORPORATE DEPOSITS (ICDS) WHICH IS A R EGULAR SYSTEMATIC ACTIVITY OF THE ASSESSEE FOR THE LAST NUMBER OF YEARS. HE HAS FURTH ER SUBMITTED THAT THE ASSESSEE IS HAVING ITS OWN FUNDS AND UTILIZING THE SAME FOR MAX IMUM RETURN INSTEAD OF KEEPING THE SAME IDLE. HE HAS FURTHER CONTENDED THAT FOR THE AS SESSMENT YEAR 2008-09 THE AO HAS ACCEPTED THE INTEREST INCOME AS BUSINESS INCOME, TH EREFORE, FOR THE YEAR UNDER CONSIDERATION THE AO CANNOT TAKE A DIFFERENT VIEW W HEN THE INTEREST INCOME WAS ACCEPTED AS BUSINESS INCOME FOR THE EARLIER ASSESSM ENT YEAR. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT BUSINESS OF THE ASSESSEE IS R EAL ESTATE DEVELOPMENT AND NOT MONEY LENDING, THEREFORE, GIVING THE SURPLUS FUND A S ADVANCE IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE BUT EARNING INTEREST ON TH E SURPLUS FUND. HE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEES BUSINESS ACTIVITY IS REAL ESTATE DEVELOPMENT INCLUSIVE OF PURCHASING, SELLING, DEVEL OPING, CONSTRUCTING, HIRING OR 6 ITA NO.4910/M/14 OTHERWISE DEALING IN REAL ESTATE. SINCE THE ASSESSE E HAS NOT STARTED THE DEVELOPMENT ACTIVITY AND WAS HAVING ITS OWN FUND, THEREFORE, TH E ASSESSEE HAS INVESTED SOME OF THE FUND IN MUTUAL FUND AND OTHER PART IN ICDS. IT IS A PPARENT FROM THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE ASSESSEE IS EARN ING DIVIDEND INCOME AND APPRECIATION OF INVESTMENT FROM THE INVESTMENT IN T HE MUTUAL FUND AND FURTHER CERTAIN PART OF THE SURPLUS FUND IS USED FOR ICDS FOR EARNI NG THE INTEREST INCOME. THE INVESTMENT IN MUTUAL FUND AND ICDS IS NOT A REGULAR BUSINESS ACTIVITY OF THE ASSESSEE. IT IS ONLY A TIME GAP UTILIZATION OF THE SURPLUS FUND TILL IT IS USED FOR BUSINESS OF REAL ESTATE DEVELOPMENT. ACCORDINGLY WE DO NOT FIND ANY ERROR O R ILLEGALITY IN THE ORDERS OF AUTHORITIES BELOW IN TREATING THE INTEREST INCOME A S INCOME FROM OTHER SOURCES. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/01 /20 15 ' $%& ( )! * 30/01/2015 +' SD/- SD/- ( SANJAY ARORA ) ( VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER ,' MUMBAI; )! DATED 30/01/2015 . ! . ./ JV, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , !' / DR, ITAT, MUMBAI 6. #$ %' / GUARD FILE. & & & & / BY ORDER, & //TRUE COPY// ' ' ' ' / &( &( &( &( ) ) ) ) (DY./ASSTT. REGISTRAR) , !' / ITAT, MUMBAI.