OBEROI CONSTRUCTION LTD, MUMBAI V. ACIT CEN CIR 4(1), MUMBAI

ITA 5631/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5565 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 04-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Assessee Lawyers: R MURLIDHAR
• Keywords: Rule of consistency; Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 5631/MUM/17 2012-13 OBEROI CONSTRUCTIONS LIMITED, COMMERZ, 3 RD FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF WESTERN EXPRESS HIGHWAY, GOREGAON (EAST), MUMBAI [PAN:AAACO1805E] THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(1), MUMBAI 502/MUM/18 2014-15 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(1), MUMBAI 692/MUM/18 2014-15 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(1), MUMBAI M/S. OBEROI REALTY LTD., INTERNATIONAL BUSINESS PARK, OBEROI GARDEN ESTATE, OFF. W.E. HIGHWAY, GOREGAON (EAST) MUMBAI [PAN: AABCK0235H] 503/MUM/18 2014-15 M/S. OBEROI REALTY LTD., COMMERZ, 3 RD FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF. WESTERN EXPRESS HIGHWAY, GOREGAON (EAST), MUMBAI [PAN: AABCK0235H] THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(1), MUMBAI ASSESSEE BY : SHRI R. MURLIDHAR, AR REVENUE BY : MS. KUSUM BANSAL, DR DATE OF HEARING : 26-06-2019 DATE OF PRONOUNCEMEN T : 20-08-2019 O R D E R PER RAJESH KUMAR, A.M: THESE APPEALS FILED BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER(S) OF THE COMMISSIONER O F INCOME ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 2 : TAX(APPEALS)-52, MUMBAI FOR THE AYS.2012-13 & 2014- 15. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEA LS, THESE APPEALS ARE HEARD TOGETHER AND DECIDED BY THIS COMM ON ORDER. FOR THE SAKE OF CONVENIENCE, ITA NO.5631/MUM/2017 (AY.2012-13) IS TAKEN UP FIRST. 2. THE ONLY ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF CIT(A), UPHOLDING THE ORDER OF ASSESSING OFFICER (AO), THUS CONFIRMING THE ADDITION OF RS.2, 28,73,670/- UNDER THE HEAD INCOME FROM HOUSE PROPERTY BY ESTI MATING THE DEEMED RENT AT RS.3,26,76,672/-ON UNSOLD PROPER TY HELD AS STOCK IN TRADE. 2.1. THE FACTS IN BRIEF ARE THAT, THE ASSESSEE IS E NGAGED IN THE BUSINESS OF CONSTRUCTION. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE AO OBSERVED THAT UNDER THE HEAD I NVENTORY, ASSESSEE IS HOLDING FINISHED GOODS OF RS.26,44,38,2 17/- AND STOCK-IN-TRADE RS.4,22,72,320/- AND ACCORDINGLY AS KED THE ASSESSEE TO FURNISH BREAK-UP OF THE ITEMS SHOWN IN THE INVENTORY UNDER FINISHED GOODS AND STOCK-IN-TRADE. THE ASSESSEE REPLIED THE QUERY VIDE LETTER DT.31-12-201 4 SUBMITTING THAT THE FINISHED GOODS CONSISTING OF 50 FLATS IN OBEROI SPLENDOUR MEASURING 49,350 SQ. FT., WHICH HA VE BEEN VALUED AT RS.26,44,38,217/- AND STOCK-IN-TRADE COMP RISING ONE FLAT IN OBEROI WOODS ., WHICH HAS BEEN VALUED A T RS.4,22,72,320/-. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SAID ASSETS REPRESENTED THE STOCK-IN-TRADE AND FINISHED GOODS IN THE BUSINESS OF ASSESSEE AND THEREFORE CAN NOT BE ASSESSED UNDER THE HEAD HOUSE PROPERTY. HOWEVER, AO REJECTING THE CONTENTIONS OF ASSESSEE, ASSESSED THE SAME ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 3 : UNDER THE HOUSE PROPERTY BY ESTIMATING THE DEEMED R ENT OF RS.3,26,76,672/- AND A NET ADDITION OF RS.2,28,73,6 70/- WAS MADE TO THE INCOME OF ASSESSEE. 2.2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SU BMITTED BEFORE THE BENCH THAT THE CASE OF ASSESSEE WAS SQUA RELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ITS ASSESSEES SISTER CONCERN, VIZ., OBEROI REAL TY LIMITED VS. DCIT IN ITA NO.2771/MUM/2017, (AY.2012-13), DT.25-0 2- 2019, WHEREIN IDENTICAL ISSUE HAS BEEN DECIDED IN F AVOUR OF ASSESSEE. LD. COUNSEL FOR THE ASSESSEE ALSO REFERRE D TO THE DECISION OF THE ANOTHER CO-ORDINATE BENCH DECISION IN THE CASE OF RNA CORP PVT. LTD., VS. DCIT IN ITA NO.4419/MUM/ 2017, DT.05-11-2018 AND M/S. SARANGA ESTATES PVT. LTD., VS. DCIT IN ITA NO.4420/MUM/2017, DT.13-03-2019, WHEREIN THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY HOLDING T HAT STOCK- IN-TRADE HELD BY THE ASSESSEE IN THE BUSINESS OF CO NSTRUCTION CANNOT BE SUBJECTED TO ESTIMATION OF DEEMED RENT AN D NET INCOME CAN BE ASSESSED UNDER THE HEAD HOUSE PROPER TY . 2.3. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSI NG THE MATERIAL ON RECORD, WE OBSERVE THAT THE ISSUE IS SQ UARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF IT S SISTER CONCERN AND OTHER TWO DECISIONS, REFERRED HEREIN A BOVE. WE ARE THEREFORE OF THE VIEW THAT NO ADDITION CAN BE MADE BY ESTIMATING THE DEEMED RENT IN RESPECT OF STOCK-IN-T RADE AND FINISHED GOODS HELD BY ASSESSEE IN THE BUSINESS OF DEVELOPERS AND BUILDERS. RESPECTFULLY FOLLOWING THE SAID DECIS IONS, WE HEREBY ALLOW THE GROUND RAISED BY ASSESSEE BY REVER SING THE ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 4 : ORDER OF LD CIT(A) AND THE AO IS DIRECTED ACCORDING LY. IN RESULT THE APPEAL OF ASSESSEE IS ALLOWED. ITA NO.502/MUM/2018 (AY.2014-15) : 3. THE ISSUE RAISED BY ASSESSEE VIDE GROUND NO.1 O F THIS APPEAL IS QUA UPHOLDING THE DISALLOWANCE OF BMC CHARGES OF RS.2,51,43,410/- BY THE CIT(A) AS MADE BY THE AO. 3.1. THE FACTS IN BRIEF ARE THAT DURING THE ASSESSM ENT PROCEEDINGS, THE AO OBSERVED THAT ASSESSEE HAS SPEN T RS.2,51,43,410/- AS CHARGES TO THE BMC AS PER THE D ETAILS, BELOW: SR.NO. PROJECT RS. REMARKS 1 PRISMA 2,24,00,750 REGULARIZATION CHARGES FOR REGULARIZING THE CONSTRUCTION OF RAMP AND THE PORTIONS OF PODIUM CONSTRUCTED 2 GRANDE 19,00,500 TOWARDS REGULARISATION OF FLAT NO.2 3 GRANDE 1,43,000 TOWARDS REGULARISATION OF ELEVATION FEATURES 4 GRANDE 20,000 TOWARDS REGULARISATION OF CONSTRUCTION OF LIFT MACHINE ROOM 5 GRANDE 20,000 TOWARDS REGULARISATION OF CONSTRUCTION OF OVERHEAD TANK 6 GRANDE 6,11,960 TOWARDS REGULARISATION OF CONSTRUCTION OF SHEAR WALL (RETAINING WALL ABOVE TERRACE) 7 GRANDE 22,450 DELAY IN N.A. CONVERSION 8 PRISMA 6,600 DELAY IN CC REVALIDATION 9 GRANDE 18,150 REVALIDATION CHARGES OF TEMPORARY LABOUR HOUSING SHED TOTAL 2,51,43,410 ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 5 : ACCORDING TO THE AO, THE SAID EXPENSES WERE IN THE NATURE OF PENALTY PAID TO BMC AND THEREFORE, NOT ADMISSIBLE U /S.37(1) OF THE ACT. IN THE APPELLATE PROCEEDINGS , LD.CIT( A) ALSO CONFIRMED THE ORDER OF AO ON THIS ISSUE. 3.2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSE E POINTED OUT THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.1010/MUM/2013 (AY.2009-10), DT.19-05-2017, WHEREIN IT WAS HELD THAT THE BMC CHARGES PAID TO THE CORPORATION WERE HELD TO BE ADMISSIBLE EXPENSES . 3.3. LD. DR, HOWEVER, RELIED ON THE ORDERS OF THE A UTHORITIES BELOW. 3.4. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSI NG THE MATERIAL ON RECORD, WE OBSERVE THAT THE IDENTICAL I SSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE, IN ITA NO.1010/MUM/2013 (AY.2009-10), DT.19-05-2017, WHERE IN THE CO-ORDINATE BENCH HAS DECIDED THE ISSUE AS UNDE R: 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE A SSESSEE HAS EARNED EXEMPT INCOME OF RS.2,69,12,453/-. THE AO MA DE THE DISALLOWANCE OF RS.33,78,666/- U/S.14A OF THE ACT. ON APPEAL BEFORE LD.CIT(A) THE DISALLOWANCE WAS SUSTAINED. CONSIDERI NG THE CONTENTION OF LD. REPRESENTATIVE OF THE PARTIES AS WE HAVE RES TRICTED THE DISALLOWANCE UNDER SECTION 14A AT RS.5,00,000/- ON EXEMPT INCOME OF RS.5,92,90,214/-. THUS, KEEPING IN VIEW THE DIS ALLOWANCE IN ITA NO.1050/MUM/2013 WHEREIN THE IDENTICAL DISALLOWANCE WAS RESTRICTED TO RS.5,00,000/-. IN THE CASE UNDER CONS IDERATION, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,69,12,5 43/-. THUS, FOLLOWING THE PRINCIPLE OF CONSISTENCY AS WE HAVE R ESTRICTED THE DISALLOWANCE U/S.14A IS RESTRICTED TO RS.2,00,000/- (RUPEES TWO LAKHS). THE AO IS DIRECTED ACCORDINGLY. HENCE, GROU ND OF APPEAL RAISED BY ASSESSEE IS PARTLY ALLOWED. ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 6 : 3.5. THE ASSESSEES CASE IS ALSO COVERED BY THE DEC ISION OF ITS SISTER CONCERN IN THE CASE OF OBEROI REALTY LTD., V S. ACIT IN ITA NO.1050/MUM/2013 (AY.2009-10), DT.04-11-2015 AN D M/S. DARSHAN PROPERTIES VS. DCIT IN ITA NO.3098/MUM/2010, DT.24-06-211. 3.6. IN ALL THE ABOVE DECISIONS, IT HAS BEEN HELD T HAT THE CHARGES PAID TO BMC ARE FOR THE REGULARIZATION OF C ONSTRUCTION MADE BY THE ASSESSEE ARE NOT FOR ANY CONTRAVENTION OF ANY LAW AS THESE ARE PERMISSIBLE DEVIATIONS UNDER THE ACT A ND THEREFORE, RESPECTFULLY FOLLOWING THE SAID ORDERS, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO ALLOW THES E EXPENSES. HENCE, THIS GROUND RAISED BY ASSESSEE IS ALLOWED. 4. GROUND NO.2 RAISED BY ASSESSEE IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF EXPENSES OF RS.20,97,514/- BY THE CIT(A) AS MADE BY THE AO U/S. 14A OF THE ACT. 4.1. THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS RECEIVED TAX PAID DIVIDEND OF RS.1,78,30,865/- AND ALSO PAID INTEREST EXPENSES IN P&L A/C AND ACCORDINGLY ASKED THE ASSESSEE TO JU STIFY AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE U/S.14A OF THE ACT, WHICH WAS REPLIED BY ASSESSEE VIDE LETTER DT.18-11- 2016 THAT ASSESSEE HAS NEITHER INCURRED ANY DIRECT EXPENDITUR E NOR PAID ANY INTEREST ON INVESTMENT AS THE SAID INVESTMENT I S OUT OF OWN FUNDS AND HENCE THE QUESTION OF SECTION 14A R.W .R.8D DOES NOT ARISE. HOWEVER, THE AO INVOKED THE PROVISI ONS OF SECTION 14A R.W.R.8D(2)(III) BY BRUSHING ASIDE THE SUBMISSIONS ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 7 : OF ASSESSEE AND CALCULATING THE DISALLOWANCE AT RS.20,97,514/-. 4.2. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) AF FIRMED THE ORDER OF AO BY HOLDING THAT THE PROVISIONS OF SECTI ON 14A R.W.R.8D ARE CLEARLY ATTRACTED AND AO HAS RIGHTLY MADE THE DISALLOWANCE UNDER RULE 8D(2)(III) OF INCOME TAX RU LES AND THUS, CONFIRMED THE ADDITION OF RS.20,97,514/-. 4.3. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSI NG THE MATERIAL ON RECORD, WE OBSERVE THAT THE IDENTICAL I SSUE HAS BEEN DECIDED IN FAVOUR OF OF THE ASSESSEE IN ASSESS EES OWN CASE, IN ITA NO.7190/MUM/2013 (AY.2010-11), DT.19-0 5- 2017, WHEREIN THE CO-ORDINATE BENCH HAS DECIDED THE ISSUE AS UNDER: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE SEE N THAT THE ASSESSEE HAS EARNED THE DIVIDEND INCOME OF RS.1,55, 37,388/- WHICH IS CLAIMED EXEMPTED U/S.10(35) OF THE ACT. THE AO MADE THE DISALLOWANCE OF RS.19,74,227/-. CONSIDERING THE DE CISION OF THE CO- ORDINATE BENCH IN ASSESSEES SISTER CONCERN IN CASE OF M/S.R.S. ESTATE DEVELOPER PVT. LTD., ((SUPRA)) AND THE DISAL LOWANCE RESTRICTED BY US IN ITA NO.1050/MUM/2013 AND IN ITA NO.1010/MU M/2013. WE HAVE SEEN THAT THE FACTS OF THIS APPEAL ARE ALMO ST SIMILAR TO ITA NO.1050/MUM/2013 AND IN ITA NO.1010/MUM/2013 AND TH E IDENTICAL ISSUE IS RAISED BY ASSESSEE. THUS, CONSI DERING THE PRINCIPLE OF CONSISTENCY, WE SET-ASIDE THE ORDER OF AO AND LD .CIT(A) AND ESTIMATE A SUM OF ROUND FIGURE OF RS.1,00,000/- (RU PEES ONE LAKHS) AS DISALLOWANCE U/S.14A AND DIRECT THE AO ACCORDING LY. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4.4. THEREFORE RESPECTFULLY FOLLOWING THE SAID DECI SION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE, WE DIRECT THE AO TO MAKE DISALLOWANCE OF RS.2 LAKHS AND DELETE THE REMA INING ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 8 : AMOUNT OF RS.18,97,514/-. THIS GROUND RAISED BY AS SESSEE IS PARTLY ALLOWED. 4.5. IN THE RESULT, THIS APPEAL OF ASSESSEE IS PART LY ALLOWED. ITA NO.503/MUM/2018 (AY.2014-15): 5. THE ISSUE RAISED IN THE FIRST GROUND OF APPEAL B Y THE ASSESSEE IS IDENTICAL TO THE ISSUE AS DECIDED BY US IN GROUND NO. 2 IN ITA NO.502/MUM/2018 WHEREIN A LUMP SUM DISALLOWANCE WAS DIRECTED INSTEAD OF APPLYING PROVI SIONS OF RULE 8D(2)(III) BY FOLLOWING THE ORDER OF THE COORD INATE BENCH IN ASSESSEES OWN CASE IN ITA NO. ITA NO.7190/MUM/2013 (AY.2010-11), DT.19-05-2017. FOLLOWING THE SAME RAT IO WE ARE INCLINED TO SET ASIDE THE ORDER OF CIT(A) ON THIS I SSUE AND DIRECT THE AO TO MAKE A DISALLOWANCE OF RS. 12,00,0 00/- AND DELETE THE DISALLOWANCE TO THE EXTENT OF RS. 1,44,5 8,051/-. 5.1. THE ISSUE RAISED IN THE SECOND GROUND OF APPEA L BY THE ASSESSEE CHALLENGING THE ORDER OF CIT(A) UPHOLDING THE ADDITION MADE BY THE AO ON ACCOUNT OF ANNUAL LETTIN G VALUE IS IDENTICAL TO ONE AS DECIDED US IN ITA NO. 5631/MUM/ 2017 WHEREIN WE HAVE HELD THE NO ADDITION CAN BE MADE HE RE THE PROPERTY IS HELD AS STOCK IN TRADE. ACCORDINGLY FOL LOWING THE SAME RATIO WE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. 5.2. THE ISSUE RAISED IN GROUND NO. 3 QUA DISALLOWA NCE OF BMC CHARGES IS IDENTICAL TO ONE AS DECIDED BY US IN GRO UND NO. 1 IN ITA NO. 502/MUM/2018. THEREFORE OUR FINDING IN ITA ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 9 : NO.502/MUM/2018 WOULD ,MUTATIS MUTANDI , APPLY TO G ROUND ALSO. ACCORDINGLY THE AO IS DIRECTED TO DELETE THE ADDITION. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. REVENUES APPEAL IN ITA NO.692/MUM/2018 (AY.2014-15 ) : 7. IN THIS APPEAL, REVENUE HAS CHALLENGED THE ORDE R OF LD. CIT(A) ON THE GROUND THAT LD CIT(A) HAS WRONGLY DIR ECTED THE AO TO EXCLUDE THOSE INVESTMENTS WHICH HAVE NOT YIEL DED ANY DIVIDEND DURING THE YEAR. SINCE WE HAVE ALREADY PAR TLY ALLOWED IN THE CROSS APPEAL THE ISSUE CONCERNING THE APPLIC ABILITY OF RULE 8D(2)(III) IN GROUND NO.1 DIRECTING THE AO TO MAKE LUMP SUM DISALLOWANCE OF 12,00,000/-. THEREFORE THE AP PEAL OF THE REVENUE BECOMES INFRUCTUOUS AND IS DISMISSED. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. 9. IN THE RESULT THE APPEALS OF THE ASSESSEE IN IT A NO. 5631/MUM/2017 IS ALLOWED WHEREAS IN ITA NO. 502/MUM/2018 & ITA NO. 503/MUM/2018 ARE PARTLY ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 692/M UM/2018 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.08.2019 SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI; /DATED : 20.08.2019 TNMM ITA NOS. 5631/MUM/2017 502, 503 & 692/MUM/2018 : 10 : / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A), MUMBAI 4. / CIT, MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, //TRUE COPY// / (DY./ASST. REGISTRAR) , / ITAT, MUMBAI