M/s Agnus Holdings Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 529/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9338 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V K GURUNATHAN SHRI KU
• Keywords: Capital asset; Business income; Business expenditure; Earning of tax free income; Proportionate interest
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI A .K. GARODIA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 529 /BANG/201 4 (ASSESSMENT YEAR : 20 09 - 10 ) M/S. AGNUS HOLDINGS PVT. LTD., STAR - 2, OPP. IIMB BILEK AHALL, BANNERGHATTA ROAD, BANGALORE - 560 076 PAN AAHCS 6660A VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT. I.T.A. NO. 668 /BANG/201 4 (ASSESSMENT YEAR : 20 09 - 10 ) (BY REVENUE) APPELLANT BY : SHRI V.K. GURUNATHAN, ADV OCATE. RESPONDENT BY : SHRI KUMAR AGARWAL, JCIT (D.R) DATE OF H EARING : 04.10 .2016. DATE OF P RONOUNCEMENT : 13 .10. 201 6 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DT.31.1.2014 OF COMMISSIONER OF INCOME TAX (APPEALS) - I, BANGALORE FOR THE ASSESSMENT YEAR 2009 - 10. 2 ITA NO S . 529 & 668 /BANG/ 2014 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS : 3 ITA NO S . 529 & 668 /BANG/ 2014 3. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. GROUND NOS.2 TO 7 ARE REGARDING DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') BY APPLYING RULE 8D OF INCOME TAX RULES , 1962. 5. WE HAVE HEARD THE LEARNED A.R. AS WELL AS LEARNED D.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11 VIDE ORDER DT.30.11.2015 IN ITA NO.1612/BANG/2014 IN PARA 6 AS UNDER : 6. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTI CAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 VIDE ORDER DT.28.3.2013 IN ITA NOS.941 & 942/BANG/2011. THE TRIBUNAL HAS REMITTED THE ISSUE OF DISALLOWANCE OF ADDITION UNDER SECTION 14A FOR THE ASSESSMENT YEAR 2008 - 09 WHEREIN RULE 8D IS APPLICABLE IN PARA 18 AS UNDER : - 18. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS, WE FIND THAT FROM THE RELEVANT ASSESSMENT YEAR ONWARDS THE PROVISIONS OF RULE 8D R.W.SEC 14A ARE APPLICABLE. HOWEVER, WE FIND THAT THE ASSESSING OFFICER HAS NOT EXAMINED AS TO WHETHER THE INVESTMENT MADE BY THE ASSESSING OFFICER ARE OUT OF ASSESSEE'S OWN FUNDS OR OUT OF BORROWED FUNDS AND ALSO WHETHER THE INVESTMENTS MADE ARE DURING THE RELEVANT PRE VIOUS YEAR AND WHETHER THESE INVESTMENTS YIELDED ANY EXEMPT INCOME ALL THESE FACTS NEED VERIFICATION BY THE ASSESSING OFFICER. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMAND THE 4 ITA NO S . 529 & 668 /BANG/ 2014 ISSUE THE FILE TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF BOTH THE FACTS AND LAW. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RAISED THE SIMILAR CONTENTION THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND FURTHER NO BORROWED FUND WAS USED THAT THE PURPOSE OF INVESTMENT. ACCORDINGLY , IN VIEW OF THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2008 - 09, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER WITH SIMILAR DIRECTION TO RECONSIDER THE ISSUE AFTER VERIFICATION OF THE FACTS OF AVAILABILITY OF ASSESSEE'S OWN FUNDS A S WELL AS AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAS NOT EARNED INCOME TAX FREE INCOME DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THE EARLIER ORDERS OF THIS TRIBUNAL, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSI NG OFFICER TO CONSIDER THIS ISSUE ON SIMILAR DIRECTIONS. 6. GROUND NOS.8 & 9 ARE REGARDING DISALLOWANCE OF INTEREST ON ACCOUNT OF INVESTMENT IN PROPERTIES BY T REAT ING THE SAME AS CAPITAL IN NATURE. THE ASSESSING OFFICER NOTICED FROM THE BALANCE SHEET THAT THE ASSESSEE HAS MADE INVESTMENT AMOUNTING TO RS.21,84,84,043 FOR ACQUIRING PROPERTIES AND THE ASSESSEE HAD PAID INTEREST AMOUNTING TO RS.8,69,67,108. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NEITHER PROVED TH AT INTEREST WAS NOT INCURRED FOR THE INVESTMENT IN PROPERTY NOR THAT IT HAS UTILIZED INTEREST FREE FUND IF ANY AVAILABLE FOR INVESTMENT IN ACQUIRING VARIOUS PROPERTIES. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST OF RS.1,87,47,149. THE ASSESSEE CHALLENGED T HE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT 5 ITA NO S . 529 & 668 /BANG/ 2014 (APPEALS). THE CIT (APPEALS) HAS HELD THAT INVESTMENT IN PROPERTIES ARE DISCLOSED UNDER THE HEAD INVESTMENT AND NOT AS STOCK IN TRADE AND THEREFORE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . HOWEVER, THE CIT (APPEALS) HAS RESTRICTED THE DISALLOWANCE TO RS.1,03,22,775 INSTEAD OF RS.1,87,47,149. THE CIT (APPEALS) HAS GIVEN THE BENEFIT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE AC T. 7. BEFORE US, THE LD. AR HAS SUBMITTED THAT SINCE THE ASSESSEE IS DEALING IN THE REAL ESTATE AND THEREFORE THE INTEREST EXPENDITURE EVEN FOR THE PURPOSE OF INVESTMENT IN LAND IS AN ALLOWABLE BUSINESS EXPENDITURE. THUS THE LD. AR HAS SUBMITTED THAT THE MERE ENTRIES IN THE BOOKS OF ACCOUNTS WOULD NOT DETERMINE THE NATURE OF TRANSACTION AND ALLOWABILITY OF CLAIM WHEN THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AND SALE OF LAND. 8. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS SHOWN INVESTMENT SEPARATELY FROM INVENTORIES AND STOCK IN TRADE AND THEREFORE THE INVESTMENT IN PROPERTIES IS NOT FOR THE REGULAR BUSINESS ACTIVITY OF THE ASSESSEE. THUS THE LD. DR HAS SUBMITTED THAT 6 ITA NO S . 529 & 668 /BANG/ 2014 WHEN THE ASSESSEE HA S NOT SHOWN THE INVESTMENT AS PART OF THE BUSINESS ACTIVITY THEN THE INTEREST EXPENDITURE ATTRIBUTABLE TO THE INVESTMENT IS NOT ALLOWABLE AGAINST THE BUSINESS INCOME. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. WE FIN D THAT IN THE BALANCE SHEET AND PARTICULARLY IN SCHEDULE F THE ASSESSEE HAS SEPARATELY SHOWN THE INVESTMENT IN LAND OF RS.21,84,84,043. APART FROM THIS, THE ASSESSEE HAS ALSO SHOWN STOCK IN TRADE IN LAND OF RS.2,01,62,330 UNDER SCHEDULE H . THUS IT IS CLEAR FROM THE SCHEDULE F & H THAT THE ASSESSEE HAS SHOWN THE STOCK IN TRADE OF LAND SEPARATELY FROM THE INVESTMENT IN LAND. THE ASSESSING OFFICER HAS CONSIDERED THE AMOUNT OF INVESTMENT IN LAND OF RS.21.84 CRORES AND THEREFORE THE CONTENTION OF THE ASSE SSEE THAT THIS INVESTMENT IN LAND IS ALSO PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE IS NOT BORNE FROM THE FACTS RECORDED IN THE BOOKS OF ACCOUNTS AND FINANCIAL STATEMENTS. IT IS PERTINENT TO NOTE THAT WHEN THE ASSESSEE HAS NOT SHOWN THE INCOME FROM SA LE OF THESE INVESTMENT AS BUSINESS INCOME THEN THE INTEREST EXPENDITURE ON ACCOUNT OF INVESTMENT IN LAND CANNOT BE ALLOWED AGAINST THE BUSINESS INCOME. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW. 7 ITA NO S . 529 & 668 /BANG/ 2014 10. THE REV ENUE HAS RAISED THE FOLLOWING GROUNDS : 8 ITA NO S . 529 & 668 /BANG/ 2014 9 ITA NO S . 529 & 668 /BANG/ 2014 11. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 12. GROUND NOS. 2 TO 4 ARE REGARDING THE CLAIM OF LOSS DUE TO FORFEITURE OF SHARE WARRANTS. 13. WE HAVE HEARD TH E LEARNED A.R. AS WELL AS LEARNED D.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE CIT (APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08. THE TRIBUNAL VIDE ITS ORDER DT.28.3.2013 IN ITA NO.941/BANG/2011 HAS CONSIDERED AND DECIDED THIS ISSUE IN PARAS 6 & 7 AS UNDER : 6. THE QUESTION BEFORE US IS WHETHER THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF M/S. BPO SANYO FI NANCE LTD. (CITED SUPRA), IS APPLICABLE TO THE FACTS OF THE CASE BEFORE US. WE FIND THAT IN THE CASE OF M/S. BPO SANYO FINANCE LTD., THE ASSESSEE THEREIN WHICH IS ENGAGED IN THE NON - BANKING FINANCE BUSINESS PAID SHARE APPLICATION MONEY AND THAT THE SHARES WERE ALLOTTED BUT THE ASSESSEE DID NOT PAY BALANCE CALL MONEY RESULTING IN THE SHARE APPLICATION MONEY PAID BEING FORFEITED AND THE ASSESSEE CLAIMED IT AS SHORT TERM CAPITAL LOSS. THE HON'BLE KARNATAKA HIGH COURT, AFTER CONSIDERING T HE LEGAL PROVISIONS HA S HELD AS UNDER : 9. ON ACCOUNT OF THE AFORESAID FACT THAT THE BINDING CONTRACT EXISTED BETWEEN THE ASSESSEE AND THE INVESTEE COMPANY, THE IRRESISTIBLE CONCLUSION THAT CAN BE DRAWN ON THE AFORESAID FACTS AND CIRCUMSTANCES IS THAT AS SOON AS THE ALLOTME NT IS MADE, THE ASSESSEE WOULD BE DEEMED TO HAVE ACQUIRED A RIGHT IN SUCH SHARE EVEN IF THE CALL MONIES OR THE FULL FACE VALUE OF THE SHARES HAS NOT BEEN PAID. THUS, IN A CASE WHERE ONLY SHARE APPLICATION 10 ITA NO S . 529 & 668 /BANG/ 2014 MONEY IS PAID AND THE BALANCE IS YET TO BE PAID ON ACTUAL ALLOTMENT OF SHARES, THE HOLDER OF SUCH ALLOTMENT WOULD BE RECOGNISED AS A MEMBER OF THE INVESTEE COMPANY. THUS, IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT ACQUIRED RIGHT IN SUCH SHARES ON ACCOUNT OF ITS FAILURE TO DEPOSIT THE BALANCE AMOUNT FOR AL LOTMENT OF SHARES. THE AFORESAID VIEW WOULD ATTRACT THE PROVISIONS OF S. 2(47) OF THE ACT. THE EXTINGUISHMENT OF ANY RIGHTS THEREIN AS APPEARED IN S. 2(47) OF THE ACT, COVERS EVERY POSSIBLE TRANSACTION RESULTING IN THE DESTRUCTION, ANNIHILATION, EXTINCTION , TERMINATION, CESSATION OR CANCELLATION, BY SATISFACTION OR OTHERWISE OF ALL OR ANY OF THE BUNDLE OF RIGHTS WHETHER QUALITATIVE OR QUANTITATIVE, WHICH THE ASSESSEE HAS IN A CAPITAL ASSET WHETHER OR NOT SUCH AN ASSET IS CORPOREAL OR INCORPOREAL. 10. IN TH E CASE ON HAND CONSEQUENT TO THE ASSESSEE S DEFAULT IN NOT PAYING THE BALANCE OF MONEY ON ALLOTMENT, ITS RIGHT IN THE SHARES STOOD EXTINGUISHED ON ITS FORFEITURE BY THE INVESTEE COMPANY. THE LOSS SUFFERED BY THE ASSESSEE, I.E., NON - RECOVERY OF SHARE APPLIC ATION MONEY IS CONSEQUENT TO THE FORFEITURE OF ITS RIGHT IN THE SHARE AND THE SAME IS TO BE UNDERSTOOD TO BE WITHIN THE SCOPE AND AMBIT OF TRANSFER. IN THIS VIEW OF THE MATTER, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT IT WOULD AMOUNT TO SHORT - TERM CAPITA L LOSS TO THE ASSESSEE. NO OTHER POINT WAS URGED BEFORE US. 11. WITH REGARD TO THE EXTINGUISHMENT OF ANY RIGHTS, WE MAY PROFITABLY REFER TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. MRS. GRACE COLLIS & ORS. (2001) 166 CTR (SC) 201 : (2001) 248 ITR 323 (SC). IN THE SAID CASE, IT HAS BEEN HELD AS UNDER : 'IT IS TRUE THAT THE DEFINITION OF 'TRANSFER IN S. 2(47) OF THE ACT IS AN 'INCLUSIVE DEFINITION AND, THEREFORE, EXTENDS TO EVENTS AND TRANSACTIONS WHICH MAY NOT OTHERWISE BE 'TRANSFER ACCO RDING TO ITS ORDINARY, POPULAR AND NATURAL SENSE.' 12. FOR THE AFORESAID REASONS, WE ARE OF THE CONSIDERED OPINION THAT THE QUESTIONS POSED HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL ACCORDINGLY STANDS DISPOSED OF. 7. IT CAN BE SEEN THAT IN THE CASE OF M/S. BPL SANYO, THE ISSUE WAS FORFEITURE OF SHARE APPLICATION MONEY, WHEREAS IN THE CASE BEFORE US, THE ISSU IS OF FORFEITURE OF SHARE WARRANT MONEY. IN BOTH CASES, THE ASSESSEE'S DEFAULTED IN MAKING FULL PAYME NT OF ISSUE OF SHARES OR SHARE WARRANTS. IT IS THE CONDITION PRECEDENT FOR ALLOTMENT OF SHARES OR SHARE WARRANTS, THAT THE FULL AMOUNT SHOULD BE MADE AND ON ACCOUNT OF DEFAULT THE AMOUNT ALREADY PAID IS FORFEITED. THEREFORE, WE ARE OF THE OPINION, THAT THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US ARE SIMILAR TO THE FACTS OF THE CASE BEFORE THE HON'BLE KARNATAKA HIGH COURT, IN THE CASE OF M/S. BPL SANYO AND THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (APPEALS). THE GR OUNDS RELATING TO DISALLOWANCE OF SHORT TERM CAPITAL LOSS ARE ACCORDINGLY, REJECTED. 11 ITA NO S . 529 & 668 /BANG/ 2014 IN ADDITION TO THE ABOVE, THE REVENUE IS ALSO AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) IN ALLOWING THE RELIEF OF RS.2,34,18,585 OUT OF THE DISALLOWANCE AND THE CONS EQUENTIAL ADDITION MADE IN TERMS OF SEC. 14A OF THE IT ACT, 1961. SINCE THIS ISSUE IS COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE AND THE CIT (APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER OF THIS TRIBUNAL THEREFO RE , WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT (APPEALS) ON THIS ISSUE. 14. GROUND NO.5 IS REGARDING DISALLOWANCE UNDER SECTION 14A WAS DIRECTED TO BE REWORKED . THIS ISSUE IS COMMON AS INVOLVED IN THE APPEAL OF THE ASSESSEE. WE HA VE SET ASIDE THIS ISSUE IN THE ASSESSEE'S APPEAL TO THE RECORD OF THE ASSESSING OFFICER. ACCORDINGLY, THE GROUND NO.5 OF THE REVENUE S APPEAL STAND SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER FOR RECOMPUTING THE DI SALLOWANCE AS PER THE SAME DIRECTION S . 15. IN THE RESULT, THE ASSESSEE'S APPEAL AS WELL AS REVENUE S APPEAL ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH OCT., 201 6 . SD/ - (A .K. GARODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DT. 13 .10.2016. *REDDY GP