CIG REALTY FUND, MUMBAI V. ASST CIT 14(1), MUMBAI

ITA 6326/MUM/2012

• Counselvise Citation: 632619914 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: MRUGAKSHI K JOSHI; PRAKASH K JOTWANI
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

, E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , ! '# $ %, & ' BEFORE SHRI B.R. BASKARAN, AM AND SHRI AMIT SHUKLA, JM . / ITA NO.6326/MUM/2012 ( / ASSESSMENT YEAR : 2008-09 ) M/S. CIG REALTY FUND. C/O. D.M. HARISH & CO. 305-309, NEELKANT, 98 MARINE DRIVE, MUMBAI 400 021 .. / APPELLANT V/S ACIT 1 4 ( 1 ), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAATC7307E APPELLANT BY : SHRI PRAKASH K. JOTWANI & MS. MRU GAKSHI K. JOSHI (AR) REVENUE BY : SHRI PREMANAND J. (DR) ! ' #$ / DATE OF HEARING 23.04.2015 %& '( ' #$ / DATE OF ORDER 10 .06.2015 $ / ORDER . . , (! / PER B.R. BASKARAN , A.M. THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE O RDER DATED 09-08-2012 PASSED BY LD CIT(A)-25, MUMBAI AND IT RE LATES TO THE ASSESSMENT YEAR 2008-09. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITION MADE U/S 14A OF THE ACT. CIG REALTY FUND. 2 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS A VENTURE CAPITAL FUND AND IT MOBILIZES FUNDS FROM INVESTORS UNDER SPECIFIC SCHEMES FLOATED BY IT BY ALLOTTING UNITS TO THEM. DURING THE YEAR UNDER CONSIDERATION, IT WAS OPERATING THREE SCHEM ES VIZ., FUND I, FUND II AND FUND III. THE AMOUNTS COLLECTED FROM VA RIOUS FUNDS HAVE BEEN INVESTED MAINLY IN REALITY SECTOR. DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.1,38,622/- . THE ASSESSEE DISALLOWED A SUM OF RS.8,20,865/-, BEING EXPENSES DIRECTLY RELATED TO THE EARNING OF DIVIDEND INCOME. THE ASSESSEE DID NOT DISALLOW EXPENDITURE OUT OF INTEREST AND OTHER GENER AL ADMINISTRATIVE EXPENSES. 3. THE AO, HOWEVER, COMPUTED DISALLOWANCE AS PE R RULE 8D OF THE IT RULES AND ACCORDINGLY HE DISALLOWED A SUM OF RS. 58.99 LAKHS OUT OF INTEREST EXPENDITURE AND RS.725.51 LAKHS OUT OF GEN ERAL AND ADMINISTRATIVE EXPENSES, BOTH AGGREGATING TO RS.784.51 LAKHS, WHICH WAS IN ADDITION TO THE AMOUNT OF RS.8,20,865/- THAT H AD ALREADY BEEN DISALLOWED BY THE ASSESSEE. 4. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT IT HAD NOT BORROWED ANY FUNDS FOR MAKING INVESTMENTS AND THE IN TEREST EXPENDITURE REPRESENTS INTEREST PAID ON SHARE APPLICA TION MONEY AND ACCORDINGLY CONTENDED THAT THE INTEREST EXPENDITURE SHOUL D NOT HAVE BEEN DISALLOWED. IT WAS FURTHER SUBMITTED THAT THE DI SALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES IS ALSO NOT CORRECT, SI NCE THE ASSESSEE DID NOT INCUR ANY INDIRECT EXPENSES FOR EARNING DIV IDEND INCOME. IN THE ALTERNATIVE, IT WAS CONTENDED THAT THE AVERAGE VA LUE OF INVESTMENTS AND ASSETS ADOPTED BY THE AO TO COMPUTE THE CIG REALTY FUND. 3 DISALLOWANCE DID NOT MATCH WITH THE FIGURES AVAILABLE IN THE BALANCE SHEET. 5. THE LD CIT(A), IN PRINCIPLE, UPHELD THE DISAL LOWANCE COMPUTED BY THE AO IN ACCORDANCE WITH RULE 8D OF IT RULES, BUT RES TORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR ADOPTING COR RECT FIGURES OF AVERAGE VALUE OF INVESTMENTS AND ASSETS. AGGRIEVED, T HE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. THE LD A.R SUBMITTED THAT THE DISALLOWANCE WORK ED OUT BY THE ASSESSING OFFICER IS IN FAR EXCESS OF THE DIVIDEND E ARNED. HE FURTHER SUBMITTED THAT THE AO DID NOT MENTION ANYTHING IN THE A SSESSMENT ORDER AS TO HOW HE IS NOT SATISFIED WITH THE DISALLOWA NCE WORKED OUT BY THE ASSESSEE BY HAVING REGARD TO THE ACCOUNTS OF THE AS SESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE IS INVESTING THE FU NDS COLLECTED UNDER VARIOUS SCHEMES IN SHARES OF REALITY COMPANIES AND SURPLUS FUND IS INVESTED IN MUTUAL FUNDS. HE FURTHER SUBMITTED THAT SOME OF THE INVESTMENTS WILL NOT YIELD ANY DIVIDEND AT ALL, AS PER THE TERMS OF INVESTMENTS ENTERED BETWEEN THE ASSESSEE AND THOSE CO MPANIES. IN SUPPORT OF THIS SUBMISSION, THE LD A.R FURNISHED COP IES OF LETTERS OBTAINED FROM CERTAIN COMPANIES ALONG WITH THE AFFIDA VIT OF THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE INVESTMENTS MADE IN SUCH COMPANIES SHOULD NOT BE INCLUDED IN THE VALUE OF INVE STMENTS FOR WORKING OUT THE DISALLOWANCE. THE LD A.R ALSO SUBMIT TED THAT THE ASSESSEE HAS ALSO INVESTED IN THE FORM OF DEBT/DEBEN TURES AND THE SAME SHOULD ALSO NOT BE CONSIDERED FOR WORKING OUT TH E AVERAGE VALUE OF INVESTMENTS. THE LD A.R ALSO FURNISHED A COPY OF ASSESSMENT ORDER RELATING TO AY 2011-12 AND SUBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED ONLY THE INVESTMENTS MADE IN SHARES AND M UTUAL FUNDS FOR CIG REALTY FUND. 4 COMPUTING AVERAGE VALUE OF INVESTMENTS. HE ALSO SUBM ITTED THAT THE AMOUNT OF DISALLOWANCE SHOULD NOT EXCEED THE AMOUNT OF DIVIDEND INCOME EARNED BY THE ASSESSEE. 7. THE LD D.R SUBMITTED THAT THE ASSESSEE DID NOT G IVE ANY JUSTIFICATION TO SUPPORT THE DISALLOWANCE COMPUTED BY I T AND HENCE THE AO HAS PROCEEDED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D OF IT RULES. ACCORDINGLY HE SUBMITTED THAT THE NON-SATISFA CTION OF THE AO IS IMPLIED IN THE PRESENT CASE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE INTEREST DI SALLOWANCE IS THAT THE SAME DOES NOT RELATE TO THE PAYMENT MADE IN RES PECT OF BORROWED FUNDS, BUT IT REPRESENTS INTEREST PAID ON APPL ICATION MONEY. HOWEVER, WE NOTICE THAT THE SAID INTEREST HAS BEEN A LLOWED AS DEDUCTION AND FURTHER IT WAS NOT SHOWN THAT THE RELEVAN T SHARE APPLICATION MONEY WAS NOT INVESTED IN SHARES/MUTUAL FUNDS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE INTEREST PAID O N APPLICATION MONEY, IN THE INSTANT CASE, SHOULD BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S 14A OF THE ACT. 9. THE NEXT CONTENTION OF THE ASSESSEE IS THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY DISSATISFACTION ABOUT THE AMOUNT OF DISALLOWANCE COMPUTED BY THE ASSESSEE. IT IS CONTENTION OF THE ASS ESSEE THAT THE AVERAGE VALUE OF INVESTMENTS/ASSETS ADOPTED BY THE AO WAS NOT CORRECT. FURTHER, BEFORE US, THE ASSESSEE HAS RAISED NEW CONTENTION, VIZ., THE TERMS AND CONDITIONS OF INVESTMENTS MADE IN CERTAIN COMPANIES PROVIDE THAT THE DIVIDEND WILL NOT BE DECLA RED AT ALL BY THEM. ACCORDINGLY, IT WAS CONTENDED BEFORE US THAT VA LUE OF THOSE CIG REALTY FUND. 5 INVESTMENTS SHOULD BE EXCLUDED. WE FIND MERIT IN TH E SAID SUBMISSIONS. 10. IT IS NOW WELL SETTLED THAT THE ASSESSING OFFIC ER IS REQUIRED TO EXAMINE THE DISALLOWANCE COMPUTED BY THE ASSESSEE BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND IF HE IS NOT SATISF IED WITH THE SAME, HE HAS TO COMPUTE THE DISALLOWANCE IN ACCORDANC E WITH THE RULES PRESCRIBED. IN THE INSTANT CASE, WE NOTICE THAT THE AS SESSING OFFICER HAS NOT EXAMINED THE DISALLOWANCE MADE BY THE ASSESSE E BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. FURTHER, THE ASSESSEE HAS ALSO SUBMITTED BEFORE US THAT CERTAIN INVESTMENTS SHALL NOT EARN DIVIDEND AT ALL AS PER THE TERMS AND CONDITIONS OF INVESTMENTS. TH OUGH THE ABOVE SAID SUBMISSIONS APPEAR TO HAVE BEEN MADE FOR THE F IRST TIME, WE ARE OF THE VIEW THAT THE SAME IS A VITAL ONE HAVING BEARI NG ON THE QUANTUM OF DISALLOWANCE. 11. THE LD A.R ALSO CONTENDED THAT THE DISALLOWA NCE TO BE COMPUTED UNDER SEC. 14A SHOULD NOT EXCEED THE AMOUNT OF DIVIDEND RECEIVED. HOWEVER, WE ARE OF THE VIEW THAT SUCH A GE NERAL PROPOSITION WOULD GIVE MISLEADING RESULTS AND THE SAME WOULD DEPE ND UPON FACTS PREVAILING IN EACH CASE. WE MAY EXPLAIN THIS PROPOS ITION WITH AN EXAMPLE. LET US PRESUME THAT AN ASSESSEE BORROWS TEN L AKHS OF RUPEES @ 15% INTEREST RATE AND INVEST THE SAME IN SHA RES OF A PARTICULAR COMPANY. AT THE END OF THE YEAR, HE HAS TO PAY RS.1.50 LAKHS AS INTEREST. IF HE DOES NOT RECEIVE ANY DIVIDEN D, STILL THE ABOVE SAID INTEREST AMOUNT OF RS.1.50 LAKHS IS REQUIRED TO BE DISALLOWED IN TERMS OF SEC. 14A OF THE ACT. CIG REALTY FUND. 6 12. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT TH IS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICE R. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO E XAMINE THIS ISSUE AFRESH, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DAY OF JUNE, 2015. SD/- SD/- SD SD/ - '# $ % & AMIT SHUKLA JUDICIAL MEMBER SD/ - . . B.R. BASKARAN ACCOUNTANT MEMBER MUMBAI, )* DATED: 10 .06.2015 PATEL %& ' #)* +*# / COPY OF THE ORDER FORWARDED TO : (1) ,# / THE ASSESSEE; (2) - / THE REVENUE; (3) .#( ) / THE CIT(A); (4) .# / THE CIT, MUMBAI CITY CONCERNED; (5) *1 #2, $ 2, ! / THE DR, ITAT, MUMBAI; (6) 14 5! / GUARD FILE. * # # / TRUE COPY %& / BY ORDER 6 / 7 - / (DY./ASSTT. REGISTRAR) $ 2, ! / ITAT, MUMBAI