VAYUPUTRA REALTY P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 5330/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3919 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 22-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H M WAMRE
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F, BENCH MUM BAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSA IN, JM ITA NO.5330/MUM/2014 (ASSESSMENT YEAR: 2011-12) VAYUPUTRA REALTY PVT. LTD., KNOWLEDGE HOUSE, SHYAM NAGAR, OFF. J. V. LINK ROAD, JOGESHWARI (E), MUMBAI 400 060 VS. THE DY. COMMISSIONER OF INCOME TAX, WARD -8(3), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI PAN: AA CC V 53 2 3 Q APPELLANT .. RESPONDENT APPELLANT BY SHRI NITISH GANDHI, AR RESPONDENT BY SHRI H. M. WAMRE, DR DATE OF HEARING: 06-04-2016 DATE OF PRONOUNCEMENT: 04-05-2016 O R D E R PER SANDEEP GOSAIN,J.M : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LEARNED CIT (A)-18, MUMBAI DATED 22-07 -2014 PASSED IN APPEAL NO.CIT(A)-18/DCIT-8(3)/IT-265/2013-14 FOR AS SESSMENT YEAR 2011-12 THEREBY PARTLY ALLOWING THE APPEAL FILED BY THE ASSESSEE ON THE GROUNDS MENTIONED HEREIN BELOW:- 1. DISALLOWANCE OUT OF INTEREST EXPENSES [RS.8,41,500] 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) 18, MUMBAI [LD. CIT (A)] ERRED IN CONFIRMING THE ACTI ON OF THE DEPUTY COMMISSIONER OF INCOME TAX 8 (3), MUMBAI [ THE A.O.] IN DISALLOWING RS.8,41,500/- OUT OF THE INTE REST EXPENSES. 1.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED F OR. 1.3 WITHOUT PREJUDICE TO THE ABOVE, ASSUMING BUT NOT ADMITTING THAT ANY DISALLOWANCE WAS CALLED FOR, IT IS SUBMITT ED THAT THE COMPUTATION OF THE DISALLOWANCE MADE BY THE A. O. I S ARBITRARY, EXCESSIVE AND NOT IN ACCORDANCE WITH THE LAW. ITA NO.5330/MUM/2014 2 2. DISALLOWANCE U/S. 14A READ WITH RULE 8D 2.1 THE LD. CIT (A) ERRED IN CONFIRMING THE ACTION OF THE A. O. TO THE ADDITION OF RS.11,72,828/- IN MAKING DISALLOWANCE U /S. 14A OF HE INCOME TAX ACT, 1961[ THE ACT] READ WITH RUL E 8 D OF THE INCOME TAX RULES, 1962. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED F OR. 2.3 WITHOUT PREJUDICE TO THE ABOVE, ASSUMING BUT NOT ADMITTING THAT ANY DISALLOWANCE WAS CALLED FOR, IT IS SUBMITT ED THAT THE COMPUTATION OF THE DISALLOWANCE MADE BY THE A. O. I S ARBITRARY, EXCESSIVE AND NOT IN ACCORDANCE WITH THE LAW. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUND AT THE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF ACQUIRING, DEVELOPING, IMPROVING, BUILD ING, SELLING, LEASING, MANAGING, COMMERCIALLY EXPLOITING AND OTHERWISE DEA LING IN REAL ESTATE, PROPERTIES OF ALL NATURE AND DESCRIPTION OR ANY RIG HTS THEREIN INCLUDING LAND, BUILDINGS AND OTHER ESTATE AND REALTY INCLUDING SHO PPING MALLS, COMMERCIAL AND RESIDENTIAL COMPLEXES AND INVESTMENT IN SHARES AND SECURITIES. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING BUSINESS LOSS OF RS.9,34,489/- AND SHORT TERM CAPITAL GAIN OF RS. 85,15,065/-. THE SHORT TERM CAPITAL GAIN SO DECLARED HAS BEEN SET OFF AGAI NST THE BROUGHT FORWARD SHORT TERM CAPITAL LOSS OF ASSESSMENT YEAR 2009-10. THE RETURN WAS PROCESSED U/S 143 (1) OF THE IT ACT. THE CASE WAS S ELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES, THE ORDER OF A SSESSMENT U/S 143(3) OF THE ACT WAS PASSED BY THE AO THEREBY DISALLOWING IN TEREST ATTRIBUTABLE TO ADVANCE OF RS.3,82,50,000/- TOWARDS BOOKING OF FLAT S AT LOWER PRICE AND DISALLOWANCE U/S 14A OF THE ACT WAS MADE. THE ASSES SEE PREFERRED ITA NO.5330/MUM/2014 3 APPEAL BEFORE THE LEARNED CIT (A) AND THE LEARNED C IT (A) CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSION OF THE ASSESSE E BEFORE HIM HAS ALLOWED PART RELIEF TO THE ASSESSEE. AGGRIEVED BY T HE ORDER OF THE LEARNED CIT (A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. GROUND NO.1 OF THE APPEAL RELATES TO DISALLOWANC E OF INTEREST ATTRIBUTABLE TO ADVANCE OF RS.3,82,50,000/- TOWARDS BOOKING OF FLATS AT LOWER PRICE AMOUNTING TO RS.8,41,500/-. THE LEARNED REPRESENTING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE AO AS WEL L AS THE LEARNED CIT (A) HAS WRONGLY DECIDED THE SAID ISSUE AND WRONGLY MENTIONED THAT NO EXPLANATION WAS FILED BEFORE THE AO OR THE LEARNED CIT (A) TO SUBSTANTIATE THAT THE ADVANCES WERE MADE OUT OF OWN FUNDS AND TO PROVE THAT THE INTEREST-FREE ADVANCES WERE GIVEN OUT THE OWN FUNDS OF THE ASSESSEE COMPANY. THE LEARNED AR DREW OUR ATTENTION TO ITS W RITTEN SUBMISSION MADE BEFORE THE LEARNED CIT (A) PAGE NOS. 20 TO 30 MORE PARTICULARLY TO PAGE NO.22 WHEREIN COPY OF AUDIT REPORT, BALANCE S HEET AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE-COMPANY FOR ASSESSMENT YEAR 2009-10 ARE MENTIONED. IN ADDITION, THE LEARNED AR DREW OUR ATT ENTION TO PAGE 31 OF THE PAPER BOOK WHICH IS BALANCE SHEET NARRATING THE UNSECURED LOAN LIABILITY OF RS.3,82,50,000/- AND FURTHER REFERRED TO PAGE NOS. 34 TO 36 OF THE PAPER BOOK WHICH ARE BALANCE SHEET AS ON 31 ST MARCH, 2008 REFLECTING THE LOANS AND ADVANCES. OUR ATTENTION WAS ALSO DRAW N TO PAGE 41 OF THE PAPER BOOK WHICH ARE ALSO WRITTEN SUBMISSION IN CON TINUATION OF THE EARLIER WRITTEN SUBMISSION MADE BY THE ASSESSEE. FROM THE C O-JOINT READING OF THE ENTIRE DOCUMENTS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE ITA NO.5330/MUM/2014 4 HAS ALREADY PLACED ON RECORD ALL THE DOCUMENTS AND WRITTEN SUBMISSIONS CONTAINING THE COPIES OF THE AFOREMENTIONED RELEVAN T DOCUMENTS. ON PERUSAL OF THE SAME, WE FIND THAT THE ADVANCE OF RS .3,82,50,000/- WAS NOT GIVEN IN THE YEAR UNDER APPEAL BUT WAS GIVEN IN THE ASSESSMENT YEAR 2007-08 OUT OF INTEREST-FREE FUNDS AND NO INTEREST WAS INCURRED OR CLAIMED IN THIS YEAR. THE PROFIT & LOSS ACCOUNT FOR THE ASS ESSMENT YEAR 2008-09 REFLECTS THIS POSITION. IT IS EVIDENT FROM THE ABOV E, THAT THE SAID ADVANCE IS OUT OF INTEREST-FREE FUNDS AND NO INTEREST WAS RECE IVED ON THE SAID ADVANCE. THEREFORE, NO DISALLOWANCE OF INTEREST COU LD BE MADE IN RESPECT OF THE AFOREMENTIONED ADVANCE WHICH WAS GIVEN OUT O F INTEREST-FREE FUNDS. WE HAVE ALSO NOTICED THAT IN THE PAST ASSESSMENT YE ARS THERE HAS BEEN NO DISALLOWANCE OF INTEREST U/S 36(1) (III) OF THE ACT AND THEREFORE, THERE COULD NOT BE ANY DISALLOWANCE AS NO ADVANCE WAS GIV EN OUT OF THE BORROWED CAPITAL. WE HAVE ALSO PERUSED THE JUDGMENT OF THE CO-ORDINATE BENCH I.E. ITAT CHANDIGARH BENCH [ITA NO.345/CHD/20 13 DCIT VS M/S. AVON CYCLES LTD. ORDER DATED 19-09-2014] RELIE D UPON BY THE LEARNED AR, WHEREIN THE FACTS ARE QUITE SIMILAR TO THE FACT S OF THE PRESENT CASE. EVEN, ON PERUSAL OF THE ORDER OF THE CO-ORDINATE BE NCH IN THE AFORESAID CASE EVEN SHOWS THAT ADDITION MADE U/S 36 (1) (III) OF THE ACT WAS DELETED. THE RELEVANT PORTION OF THE SAME IS REPRODUCED HERE IN BELOW FOR REFERENCE:- 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT SIMILAR ISSUE OF DISALLOWANCE UNDER SE CTION 36 (1) (III) OF THE ACT ON THE INVESTMENT MADE IN THE PURCHASE O F LAND AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008-09 (SUPRA) AND VIDE ORDER DATED 17.01.201 3, THE TRIBUNAL HELD AS UNDER:- ITA NO.5330/MUM/2014 5 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE HAD MADE INVESTMENT TOTALING TO RS.4.75 CRORES IN THE PURCHASE OF AGRICULTURAL LAN D AS UNDER: 14/1/2006 RS.1,50,00,000/- 9/3/2006 RS. 20,00,000/- 15/2/2007 RS.2,43,00,000/- 15/2/2007 RS. 57,00,000/- 11/4/2007 RS. 5,00,000/- 10. THE FINDING OF THE CIT (APPEALS) VIDE PARA 4.1 OF THE APPELLATE ORDER IS THAT THE ASSESSEE HAD FURNISHED COPIES OF BANK ACCOUNTS REFLECTING AVAILABILITY OF FUNDS ON THE DATES WHEN EARLIER INVESTMENTS WERE MADE AND ALSO WHEN P AYMENT OF RS. 5 LACS WAS MADE DURING THE YEAR. THE LEARNE D D. R. FOR THE REVENUE HAS NOT CONTROVERTED THE FACTUAL FINDI NG OF THE CIT (APPEALS) THAT THE TOTAL INVESTMENT MADE BY TH E ASSESSEE IN EARLIER YEAS AND THE SUM OF RS.5 LACS INVESTED DURING THE YEAR WERE OUT OF ITS OWN FUNDS AND NOT OUT OF BORR OWED FUNDS. 11. THE HONBLE APEX COURT IN MUNJAL SALES CORPORAT ION VS. CIT [298 ITR 298 (SC)] HAS REVERSED THE FINDING S OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THAT ASSESSE ES CASE AND APPEAL FILED BY THE REVENUE AGAINST THE A SSESSEE REPORTED IN 298 ITR 288 & 294 RESPECTIVELY. THE HON BLE SUPREME COURT HAVE ALLOWED THE APPEAL OF THE ASSESS EE AGAINST THE DISALLOWANCE OF INTEREST UNDER SECTION 36 (1) (III) OF THE ACT IN VIEW OF THE PROFITS EARNED BY THE ASS ESSEE AGAINST WHICH INTEREST FREE LOAN OF RS.5 LACS BEING ADVANCED TO THE SISTER CONCERN. IN VIEW OF THE RATIO LAID DO WN BY THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT (SUPRA) WE FIND NO MERIT IN THE PLEADINGS OF THE LEARNED D. R. FOR THE REVENUE PLACING RELIAN CE ON THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIG H COURT, WHICH HAVE BEEN REVERSED BY THE HONBLE SUPREME COU RT. 12. IN THE FACTS OF THE PRESENT CASE WHERE LOAN OF RS.5 LACS HAS BEEN ADVANCED DURING THE YEAR UNDER CONSIDERATI ON AND THE BALANCE LOAN HAVING BEEN ADVANCED IN THE EARLIE R YEARS, WHERE NO DISALLOWANCE WAS MADE OUT OF INTEREST EXPE NDITURE AND THE ASSESSEE HAVING ESTABLISHED THE AVAILABILIT Y OF THE NON INTEREST BEARING FUNDS, WE ARE IN CONFORMITY WI TH THE ORDER OF THE CIT (APPEALS). THE GROUND NO.1 RAISED BY THE REVENUE IS THUS DISMISSED. 10. WE FIND THAT THE ISSUE BEFORE THE TRIBUNAL WAS IN RELATION TO THE INVESTMENT MADE IN PURCHASE OF LAND AND IDENTIC AL ISSUE HAS BEEN RAISED BEFORE US. FOLLOWING THE SAME PARITY OF REASONING, WE ITA NO.5330/MUM/2014 6 UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION MADE UNDER SECTION 36(1) (III ) OF THE ACT OF RS.57,36,000/-. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ON CAREFULLY PERUSAL THE MATERIALS ON RECORD, WE ARE OF THE CONSIDERED V IEW THAT THE FACTS OF THE PRESENT CASE ARE AKIN TO THE FACTS OF THE ABOVE CAS E VIZ. M/S. AVON CYCLES LTD. CITED SUPRA OF THE CO-ORDINATE BENCH OF THE TR IBUNAL AND CONSIDERING THE DOCUMENTS AS REFERRED TO BY THE ASSESSEE IN THE PRESENT CASE, WE DELETE THE DISALLOWANCE OF RS.8,41,500/-. ACCORDING LY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 5. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE RELATES T O CONFIRMATION OF ADDITION OF RS.11,72,828/- IN MAKING DISALLOWANC E BY THE AO U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES, 1962. TH E LEARNED AR SUBMITTED THAT THE ASSESSEE HAD MADE INVESTMENT OF RS.5,97,72,908/- AS ON 31-03-2011 IN EXEMPT INCOME YIELDING ASSETS AND THAT THE ASSESSEE HAD ALSO RECEIVED DIVIDEND INCOME OF RS.4,71,180/- AND CLAIMED THE SAME AS EXEMPT BY VIRTUE OF THE PROVISIONS U/S 10(38) OF THE ACT. IN THE COMPUTATION OF TOTAL INCOME THE ASSESSEE HAS SUO-MO TO MADE DISALLOWANCE OF THIS AMOUNT OF RS.4,71,180/- U/S 14 A OF THE ACT. BUT, THE AO HAS MADE TOTAL DISALLOWANCE U/S 14A OF THE ACT O F RS.20,61,478/- BY APPLYING RULE 8D OF THE IT RULES, AND THE LEARNED C IT (A) HAS ALSO WRONGLY UPHELD THE DISALLOWANCE MADE BY THE AO AS P ER RULE 8D. THE LEARNED AR FURTHER SUBMITTED THAT THE AO HAS NOT RE CORDED ANY SATISFACTION THAT THE DISALLOWANCE MADE BY THE ASSE SSEE WAS WRONG. IT WAS FURTHER SUBMITTED BY HIM THAT APPLICABILITY OF RULE 8D IS NOT AUTOMATIC ITA NO.5330/MUM/2014 7 AND THAT THE DISALLOWANCE CANNOT BE MORE THAN THE E XEMPT INCOME CLAIMED BY THE ASSESSEE. THE LEARNED AR HAS ALSO DR AWN OUR ATTENTION TO PAGE 10 OF THE PAPER BOOK WHEREIN DETAILS OF EXPEND ITURE INCURRED HAVE BEEN REFLECTED IN THE PROFIT AND LOSS ACCOUNT HAS B EEN MENTIONED. FROM PERUSAL OF THE SAID CHART AND DESCRIPTION GIVEN AGA INST EVERY ITEMS OF EXPENDITURE IT IS EVIDENT THAT APPROXIMATELY 20% OF THE EXPENSES HAVE BEEN SUO-MOTO ASSESSED BY THE ASSESSEE WHILE MAKING SUO-MOTO DISALLOWANCE OF RS.4,71,180/- U/S 14A OF THE ACT. T HE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS CLAIMED BEFORE THE AO AS WELL AS BEFORE THE LEARNED CIT (A) THAT IT HAS NOT INCURRED ANY EX PENSES BUT EARNED EXEMPT INCOME, THEREFORE, REQUESTED FOR DELETING TH E ENTIRE DISALLOWANCE MADE U/S 14A OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T FROM THE ASSESSMENT ORDER IT IS CLEARLY EVIDENT THAT RULE 8D HAS BEEN AUTOMATICALLY APPLIED AND NO SATISFACTION HAS BEEN RECORDED BY TH E AO TO THE FACT THAT THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE WAS WRONG. THE LEARNED AR ALSO RELIED UPON THE DECISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS PUNJAB STATE CO-OP. & MARKETING LTD. [ITA NO.548/CHD/2011] AND THE JUDGMENT RENDERED BY THE H ONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS CIT [ITA NO.117/2015 ORDER DATED 25-02-2015 WHEREIN IT HAS BEEN HELD AS UNDER:- 8. THE COURT IN TAIKISHA ENGINEERING (SUPRA) PERTI NENTLY OBSERVED:- THUS, SECTION 14A (2) OF THE ACT AND RULE 8D (1) I N UNISON AND AFFIRMATIVELY RECORD THAT THE COMPUTATION OR DISALL OWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS IN CURRED TO ITA NO.5330/MUM/2014 8 EARN EXEMPT INCOME MUST B EXAMINED WITH REFERENCE T O THE ACCOUNTS, AND ONLY AND WHEN THE EXPLANATION/CLAIM O F HE ASSESSEE IS NOT SATISFACTORY, COMPUTATION UNDER SUB RULE (2) TO RULE 8D OF THE RULES IS TO BE MADE. 13. WE NEED NOT, THEREFORE, GO ON TO SUB RULE (2) T O RULE 8D OF THE RULES UNTIL AND UNLESS THE ASSESSING OFFICER HAS FIRST RECORDED THE SATISFACTION, WHICH IS MANDATED BY SUB SECTION (2) TO SECTION 14A OF THE ACT AND SUB RULE (1) TO RULE 8D OF THE RULES. AFTER CONSIDERING THE AFOREMENTIONED DECISIONS AS W ELL AS THE FACTUAL POSITION IN THE PRESENT CASE WE ARE OF THE CONSIDER ED VIEW THAT THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE IS RS.4.70 LAC S WHEREAS THE DISALLOWANCE MADE UNDER RULE 8D IS RS.20.6 LACS AND WHICH IS MUCH MORE THAN THE AMOUNT WHICH HAS BEEN EARNED BY THE A SSESSEE. THEREFORE, THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D CANNOT BE MORE THAN THE AMOUNT WHICH HAS BEEN EARNED BY THE A SSESSEE. WHILE RELYING UPON THE JUDGMENT PASSED BY THE HONBLE DEL HI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS CIT, CITED S UPRA AS WELL AS BY THE ITAT CHANDIGARH BENCH IN ITA NO.548/CHD/2011, FOR T HE PROPOSITION THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO WITH RE FERENCE TO THE ACCOUNTS OF THE ASSESSEE BEING ERRONEOUS BEFORE APP LYING SECTION 14A READ WITH RULE 8D. WE ACCEPT THIS GROUND AND RESTRI CT THE DISALLOWANCE TO RS.4,71,180/- AS MADE BY THE ASSESSEE SUO-MOTO U/S 14A OF THE ACT. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO.5330/MUM/2014 9 ORDER PRONOUNCED IN THE OPEN COURT ON 04-05-2016 . SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 04.05.2016 LAKSHMIKANTA DEKA/SR.PS LAKSHMIKANTA DEKA/SR.PS LAKSHMIKANTA DEKA/SR.PS LAKSHMIKANTA DEKA/SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//