MANTRI REALTY LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 5317/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0410 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 21-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Fair market value; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

1 ITA NO.5317/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5317/MUM/2014 (ASSESSMENT YEAR 2010-11) M/S MANTRI REALTY LTD (FORMERLY M/S SUNIL MANTRI REALTY LIMITED), G-1, COURT CHAMBERS, GROUND FLOOR V. THACKERSEY MARG, 35, NEW MARINE LINES, CHURCHGATE, MUMBAI PAN : AADCM6966F VS ACIT, C ENT.CIR.29, MUMBAI APPELLANT RESPONDENT APPELLANT BY NONE RESPONDENT BY SHRI SUMAN KUMAR DATE OF HEARING 19-06-2017 DATE OF PRONOUNCEMENT 11-08-2017 O R D E R PER G MANJUNATHA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF CIT(A)-40, MUMBAI DT 21.05.2014 FOR ASSESSMENT YEAR 2006-07. THE GROUND RAISED BY THE ASSESSEE READS AS BELOW:- THE APPELLANT COMPANY PREFERS AN APPEAL AGAINST AN ORDER DATED 21/05/2014 PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEAL) 40, MUMBAI ON FOLLOWING AMONGST OTHER GROUNDS EACH OF WHICH ARE WITHOUT PREJUDICE TO ANY OTHER :- 2 ITA NO.5317/MUM/2014 1.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LD. CIT(A) HAVING APPLIED SEC 51 ON REDUCING THE FORFEI TED ADVANCE OF RS 9,00,00,000/- WITH COST (WDV) OF ASSET OF RS 3,16,46,250/-, THEREAFTER, ERRED IN CONFIRMING THE ADDITION OF RS 3,16,46,250/- ON IGNORING THE FACT THAT SUCH SURPLUS AMOUNT COULD BE BROUGHT TO CAPITAL GAIN TAX ONLY IN THE YEAR OF TRANSFER OF TH E ASSET; 2.0 THE LD. CIT(A) FAILED TO APPRECIATE THAT THE FO RFEITURE OF ADVANCE RECEIVED ON PROPOSED SALE OF THE OFFICE PRE MISES OF RS 9 CRORES CANNOT BE REDUCED FROM THE COST OF ASSET S INCE SUCH ADVANCE IS SUBJECT TO SERIOUS LITIGATIONS AND REFUN DABLE AMOUNTS WOULD NOT FORM A CHARACTER OF AN INCOME; ADDITIONAL GROUND NO-3 INVOLVING LEGAL ISSUE 3.0 WITHOUT PREJUDICE, LD CIT(A) HAVING CONFIRMED T HE ADDITION U/S 50 OF RS 3,16,46,250/- OUGHT TO DIRECTED LD. AO TO CHARGE THE INCOME TAX 20% BEING APPLICABLE RATE U/S 112 ON LONG TERM CAPITAL GAIN AS THE ASSET WAS HELD BY THE APPELLANT FOR MORE THAN 36 MONTHS; 4.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW,LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PUBLIC ISSUE EXPENSES OF RS 9,92,284/-; ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ADVERTISEMENT EXPENS ES OF RS 39,23,158/- ON HOLDING SUCH AS PRIOR PERIOD EXPENSE ON IGNORING THE FACT THAT SUCH EXPENSE HAD BEEN CRYSTALISED DURING IMPUGNED YEAR; 6.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES U/S 14A R.W.R 8D OF RS 2,65,778/- ON IGNORING THE FACT THAT APPELLANT HAD NOT EARNED ANY EXEMPT DIVIDEND DURING THE YEAR. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN 3 ITA NO.5317/MUM/2014 THE BUSINESS OF REAL ESTATE DEVELOPMENT, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 30-09-2010 DECLARING TOT AL INCOME OF RSW.66,15,214. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 26-03-2013 DETERMINING TOTA L INCOME AT RS.10,65,72,700 INTERLIA MAKING ADDITIONS / DISALLO WANCES TOWARDS FORFEITURE OF ADVANCE RECEIVED OF RS.9 CRORES FOR SALE OF PROPERT Y, DISALLOWANCE OF PUBLIC ISSUE EXPENSES OF RS.9,92,284, ADVERTISEMENT EXPENS ES OF RS.86,99,422 AND RS.2,65,778 U/S 14A R.W.R. 8D OF IT RULES, 1962. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS VIDE LETTER DATED 19-05-2014 AND CONTESTED ADDITIONS MADE BY TH E AO TOWARDS FORFEITURE OF ADVANCE RECEIVED FOR SALE OF PROPERTY, DISALLOWA NCE OF PUBLIC ISSUE EXPENSES OF RS.9,92,284, ADVERTISEMENT EXPENSES OF RS.86,99, 422 AND RS.2,65,778 U/S 14A R.W.R. 8D. THE CIT(A), AFTER CONSIDERING THE R ELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRE CEDENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TR AVANCORE RUBBER & TEA CO LTD VS CIT 243 ITR 158 (SC), HELD THAT THE RECEIPT OF RS.9 CRORES IN LIEU OF PROPOSED SALE OF PROPERTY AND ITS FORFEITURE IS CLE ARLY COVERED BY PROVISIONS OF SECTION 51 OF THE ACT AND HENCE, FORFEITURE OF ADVA NCE AMOUNT SHOULD BE REDUCED FROM THE COST OF THE ASSET. HOWEVER, THERE IS A PECULIAR ASPECT OF THE 4 ITA NO.5317/MUM/2014 CASE THAT THE WDV OF THE PROPERTY AS ON 31-03-2009 WAS ONLY RS.5,83,53,750 WHEREAS FORFEITURE OF ADVANCE AMOUNT IS RS.9 CRORES . THUS, THERE IS A SURPLUS OF RS.3,16,46,250 WHICH IS LIABLE TO BE TAXED AS CA PITAL GAINS ON TRANSFER OF SHORT TERM CAPITAL ASSET AS PER THE PROVISIONS OF S ECTION 50(2) OF THE ACT. THE CIT(A) FURTHER OBSERVED THAT AS THE COST OF THE ASS ET NOW BECOMES NIL, THE ENTIRE AMOUNT OF CONSIDERATION WHICH WOULD BE RECEI VED BY THE ASSESSEE ON SALE OF THIS ASSET IN FUTURE WOULD BE LIABLE TO BE TAXED UNDER THE HEAD INCOME FROM CAPITAL GAINS. IT WAS FURTHER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AMOUNTING TO RS.58,35,375 IN RESPECT O F THIS PROPERTY. SINCE THE WDV OF IMPUGNED PROPERTY ITSELF BECOMES ZERO, THE A SSESSEE CANNOT CLAIM DEPRECIATION. THIS ISSUE WAS DISCUSSED WITH THE LD .AR AND HE AGREED THAT ONCE THE WDV BECOMES ZERO, DEPRECIATION CANNOT BE ALLOWE D. THEREFORE, THE CLAIM OF DEPRECIATION OF RS. 58,35,375 IS DIRECTED TO BE FURTHER ADDED IN THE HANDS OF THE ASSESSEE. THUS, OUT OF THE TOTAL ADDITION OF R S.9 CRORES MADE BY THE AO ADDITION TO THE EXTENT OF RS.3,74,81,625 WAS CONFIR MED AND THE BALANCE AMOUNT OF RS.5,25,18,375 WAS DIRECTED TO BE DELETED . 4. AS REGARDS DISALLOWANCE OF PUBLIC ISSUE EXPENSES, T HE CIT(A) OBSERVED THAT PUBLIC ISSUE EXPENSES ARE CLEARLY IN THE NATURE OF CAPITAL EXPENDITURE AND COULD NOT BE CLAIMED AS REVENUE EXPENDITURE AND ACCORDING LY UPHELD ADDITIONS MADE BY THE AO. INSOFAR AS DISALLOWANCE OF ADVERTISEMEN T EXPENSES OF RS.86,99,422, 5 ITA NO.5317/MUM/2014 CONSIDERING THE EXPLANATIONS OF THE ASSESSEE, ALLOW ED A SUM OF RS.47,76,264 BY HOLDING THAT EXPENDITURE TO THE EXTENT OF RS.47,76, 264 IS ACCRUED TO THE ASSESSEE IN THE FINANCIAL YEAR RELEVANT TO THE ASSE SSMENT YEAR 2010-11 EVEN THOUGH THE BILLS PERTAINS TO PREVIOUS FINANCIAL YEA R AS THE ASSESSEE HAS DISPUTED BILLS RAISED BY THE SERVICE PROVIDER WHICH WAS SETT LED DURING THE FINANCIAL YEAR RELEVANT TO AY 2010-11. THE DISALLOWANCE OF THE BA LANCE AMOUNT OF RS.39,23,158 IS CONFIRMED BY HOLDING THAT THE BILLS ARE QUITE OLD AND NO VALID REASON HAS BEEN GIVEN AS TO WHY THOSE EXPENSES SHOU LD BE CLAIMED AND ALLOWED IN THIS YEAR. SIMILARLY, IN RESPECT OF DIS ALLOWANCE OF RS.2,65,778 MADE BY THE AO U/S 14A R.W.R. 8D, THE CIT(A) UPHELD ADDI TIONS MADE BY THE AO ON THE GROUND THAT AS PER THE PROVISIONS OF SECTION 14 A R.W.R. 8D, THERE IS A METHOD PRESCRIBED FOR DISALLOWANCE OF EXPENDITURE I NCURRED IN RELATION TO EXEMPT INCOME WHICH WAS FURTHER SUPPORTED BY THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD 328 ITR 81 (BOM) WHEREIN IT HAS BEEN HELD THAT RULE 8D HAS TO BE APP LIED TO WORK OUT THE DISALLOWANCE WEF AY 2008-09 ONWARDS. WITH THESE OB SERVATIONS, THE CIT(A) PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. A GGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS ADDITION TOWARDS FORFEITURE OF ADVANCE RECEIVED FROM M/S QUEST FINAN CIAL SERVICES LTD TOWARDS 6 ITA NO.5317/MUM/2014 SALE OF PROPERTY. THE SAID SUM WAS FORFEITED AS TH E PURCHASER OF THE PROPERTY DID NOT PAY THE BALANCE AMOUNT OF SALE CONSIDERATIO N ON OR BEFORE THE AGREED DATE. THE ASSESSEE CLAIMS THAT FORFEITURE OF ADVAN CE RECEIVED TOWARDS SALE OF PROPERTY IS A CAPITAL RECEIPT NOT LIABLE TO TAX AS PER THE PROVISIONS OF SECTION 51 OF THE ACT, BECAUSE THE ASSESSEE HAS NOT TRANSFERRE D PROPERTY IN THE IMPUGNED ASSESSMENT YEAR. THE AO MADE ADDITION ON THE GROUN D THAT FORFEITURE OF ADVANCE RECEIVED TOWARDS SALE OF PROPERTY IS TAXABL E UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT(A), AFTER CONSIDERIN G THE EXPLANATIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRE CEDENTS INCLUDING THE DECISION OF SUPREME COURT IN THE CASE OF TRAVANCORE RUBBER & TEA CO LTD (SUPRA) HELD THAT FORFEITURE OF ADVANCE RECEIVED TO WARDS SALE OF PROPERTY IS CLEARLY COVERED BY THE PROVISIONS OF SECTION 51 OF THE ACT, AND HENCE NEEDS TO BE REDUCED FROM THE COST OF THE ASSET. IN CASE THE ADVANCE RECEIVED IS MORE THAN THE COST OF THE ASSET, THEN THE SURPLUS IS TAX ABLE IN THE YEAR OF FORFEITURE AS SHORT TERM CAPITAL GAIN AS PER THE PROVISIONS OF SECTION 50(2) OF THE ACT. 6. HAVING HEARD AND CONSIDERED MATERIALS ON RECORD, WE FIND FORCE IN THE FINDINGS OF THE CIT(A) THAT SECTION 51 OF THE ACT D EALS WITH FORFEITURE OF ADVANCE RECEIVED TOWARDS SALE OF PROPERTY. AS PER THE SAID PROVISIONS, WHERE ANY CAPITAL ASSET WAS ON ANY PREVIOUS OCCASION THE SUBJ ECT OF NEGOTIATIONS FOR ITS TRANSFER, ANY ADVANCE OR OTHER MONEY RECEIVED AND R ETAINED BY THE ASSESSEE IN 7 ITA NO.5317/MUM/2014 RESPECT OF SUCH NEGOTIATIONS SHALL BE DEDUCTED FROM THE COST FOR WHICH THE ASSET WAS ACQUIRED OR THE WRITTEN DOWN VALUE OR THE FAIR MARKET VALUE, AS THE CASE MAY BE, IN COMPUTING THE COST OF ACQUISITION. IN THIS CASE, THE COST OF THE ASSET AS ON THE DATE OF FORFEITURE OF ADVANCE WAS A T RS.5,83,53,750. THE ASSESSEE HAS RECEIVED ON FORFEITURE A SUM OF RS.9 C RORES. THUS, THERE IS A SURPLUS OF RS.3,16,46,250 WHICH NEEDS TO BE TAXED I N THE YEAR OF FORFEITURE. IN ADDITION, THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE IMPUGNED ASSET FOR RS.58,35,375. SINCE THE WDV OF THE PROPERTY ITSELF BECOME ZERO, THE ASSESSEE CANNOT CLAIM DEPRECIATION. THEREFORE, IN ADDITION TO SURPLUS OF RS.3,16,46,250, A SUM OF RS. 58,35,375 ALSO NEEDS TO BE ADDED TO TH E SURPLUS. THE CIT(A), AFTER CONSIDERING RELEVANT PROVISIONS OF ACT HAS RIGHTLY HELD THAT SURPLUS GENERATED FROM FORFEITURE OF ADVANCE RECEIVED TOWARDS SALE OF PROPERTY ALONG WITH DEPRECIATION IS TAXABLE AS SHORT TERM CAPITAL GAIN UNDER THE PROVISIONS OF SECTION 50(2) OF THE ACT. WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A) AND THEREFORE, REJECT THE GROUND RAISED BY THE ASSESSEE . 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF PUBLIC ISSUE EXPENSES. THE CIT(A) UPHELD ADDITION MADE BY THE AO ON THE GROUND THAT THE ASSESSEE DID NOT PRESS THE GROUND C HALLENGING ADDITION MADE BY THE AO. THE CIT(A) FURTHER OBSERVED THAT PUBLIC ISSUE EXPENSES ARE CLEARLY IN THE NATURE OF CAPITAL EXPENDITURE AND COULD NOT BE CLAIMED AS REVENUE 8 ITA NO.5317/MUM/2014 EXPENDITURE. THE FACTS REMAIN UNCHANGED. THE ASSE SSEE FAILS TO BRING ON RECORD ANY EVIDENCE TO PROVE THE FINDINGS OF FACTS RECORDED BY THE CIT(A) IS INCORRECT, HENCE, WE ARE INCLINED TO UPHOLD THE FIN DINGS OF THE CIT(A) AND REJECT GROUND RAISED BY THE ASSESSEE. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS.86,99,422. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS C LAIMED ADVERTISEMENT EXPENSES OF RS.18,59,80,223, OUT OF WHICH EXPENDITU RE TO THE EXTENT OF RS.86,99,422 PERTAINS TO THE PREVIOUS FINANCIAL YE AR WHICH CANNOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. IT IS THE CONTE NTION OF THE ASSESSEE THAT THOUGH THE BILLS RELATING TO THE IMPUGNED EXPENDITU RE PERTAINED TO THE PREVIOUS FINANCIAL YEAR, EXPENDITURE ACCRUED IN THE CURRENT FINANCIAL YEAR BECAUSE OF DISPUTE BETWEEN THE SERVICE PROVIDER AND THE ASSESSEE WHICH HAS BEEN RESOLVED IN THE CURRENT FINANCIAL YEAR, THEREF ORE, IT HAS RIGHTLY CLAIMED THE EXPENDITURE. THE CIT(A), DURING THE COURSE OF APPE LLATE PROCEEDINGS, HAS OBSERVED THAT OUT OF THE TOTAL DISALLOWANCE OF RS.8 6,99,422/-, THE ASSESSEE WAS ABLE TO PROVIDE NECESSARY EVIDENCES TO THE EXTENT O F RS.47,76,264 WHICH PERTAINED TO THE FINANCIAL YEAR RELEVANT TO AY 2010 -11. INSOFAR AS BALANCE AMOUNT OF RS.39,23,158, THE CIT(A) RECORDED A CATEG ORICAL FINDING THAT THOSE BILLS ARE QUITE OLD AND NO VALID REASON HAS BEEN GI VEN AS TO WHY THESE EXPENSES 9 ITA NO.5317/MUM/2014 SHOULD BE CLAIMED AND ALLOWED IN THE CURRENT FINANC IAL YEAR. THE FACTS REMAIN UNCHANGED. NO SUPPORTING DETAILS AS TO WHETHER THE RE WAS A MISTAKE IN PUBLISHING OF ADVERTISEMENT IN RESPECT OF THE BALAN CE EXPENDITURE OR ANY OTHER DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE. THERE FORE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND REJECT GROUND RAISED BY THE ASSESSEE. 9. THE FINAL ISSUE THAT CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF EXPENDITURE U/S 14A R.W.R.8D. THE AO DISALLOWED A SUM OF RS.2,65,778 BY INVOKING PROVISIONS OF RULE 8D. WE FIND THAT THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS CIT 328 IT R 81 (BOM) HAS OBSERVED THAT RULE 8D HAS TO BE APPLIED TO WORK OUT THE DISA LLOWANCE U/S 14A WEF AY 2008-09. THE FACTS RELATING TO EARNING EXEMPT INCO ME AND INCURRING OF EXPENDITURE ARE NOT DISPUTED BY THE ASSESSEE. THE AO HAS DISALLOWED THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /R 8D. THEREFORE, WE ARE OF THE VIEW THAT THE AO HAS RIGHTLY DISALLOWED EXPE NDITURE INCURRED IN RELATION TO EXEMPT INCOME, AS PER THE PROVISIONS OF RULE 8D. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST, 2017. SD/- SD/- (D.T. GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 11 TH AUGUST, 2017 10 ITA NO.5317/MUM/2014 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI