PVP Ventures Ltd. Hyderabad, Hyderabad V. DCIT, Circle-2(3), Range-2, Hyderabad, Hyderabad

ITA 637/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5879 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: B RAMA KRISHNA
• Keywords: Proportionate interest
• Section: 143(3); 147

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SMT P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 637/HYD/2016 ASSESSMENT YEAR: 2007-08 M/S PVP VENTURES PVT., LTD., HYDERABAD PAN AAACS3101P/AADCP9954C VS. D CIT, CIRCLE - 2(3) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI B.RAMA KRISHNA (A R) REVENUE BY : SHRI K.J. RAO (D R) DATE OF HEARING : 10 - 11 - 2016 DATE OF PRONOUNCEMENT : 30 - 12 - 2016 ORDER PER P. MADHAVI DEVI, J.M.: THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT(A)-2, HYDERABAD, DATED 29-02-2016. THE CIT(A) HAD PASSED THE ORDER CONFIRMING THE CONSEQUENTIAL ORDER DATED 08-08-2014 PASSED BY THE A.O. MODIFYING THE ORDER PASSED U/S 147 OF THE ACT FOR THE A.Y 2007-08, WHILE GIVING EFFECT TO ORDER OF THE ITAT I N ITA NO. 647/HYD/2014 DATED 24-05-2013. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY, ENGAGED IN THE BUSINESS OF DEVELOPMENT OF URBAN INF RASTRUCTURE, FILED ITS RETURN OF IN INCOME FOR THE ASSESSMENT YE AR 2007-08 ON 31-10-2003, DECLARING TOTAL INCOME OF RS. NIL. THE ASSESSMENT U/S 143(3) OF THE ACT, WAS COMPLETED ON 29-12-2009, ASS ESSING THE INCOME AT RS. 10,61,71,360/-, BEING INTEREST RECEIV ED / ACCRUED ON DEBENTURES. SUBSEQUENTLY, THE CASE WAS REOPENED U/ S 147 OF THE ACT, AND THE ASSESSMENT WAS COMPLETED AFTER ADDING INTEREST ACCRUED ON DEBENTURES TO THE TUNE OF RS. 50,94,958/ -, AND ALSO BRINGING TO TAX THE SHARE PREMIUM OF RS. 7,73,27,00 3/-. THE ITA NO.637/HYD/2016 M/S PVP VENTURES LTD. PAGE 2 OF 5 ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A) AND ALSO BEFORE THE ITAT, BOTH AGAINST THE ORIGINAL PROCEEDI NGS AS WELL AS RE- ASSESSMENT PROCEEDINGS. THE ITAT VIDE ITS ORDER DA TED 24-05-2013 HAS DIRECTED THE A.O. TO ALLOW PROPORTIONATE INTERE ST OUT OF RS. 5,30,31,148/- PAID TO M/S PLATEX LTD, AND ALSO THE INCIDENTAL EXPENDITURE THAT MIGHT HAVE BEEN INCURRED TOWARDS L EGAL AND CORPORATE EXPENDITURE ALLOWABLE U/S 57(1)(III) OF T HE ACT . THE RELEVANT PORTION OF THE ITAT ORDER AT PARA 12 IS RE PRODUCED HEREUNDER FOR READY REFERENCE: 12 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT BOTH THE A.O. AND THE CIT(A) ERRED IN NOT CONS IDERING THE ALLOWANCE OF EXPENDITURE, WHICH HAS A DIRECT NEXUS WITH THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES BY WAY OF REDEEMABLE NON-CONVERTIBLE DEBENTURES. OUT OF RS/ 508.72 CORE S RECEIVED FROM M/S PLATEX LTD. MAURITIUS FROM ISSUE OF 14.5% REDEE MABLE FULLY CONVERTIBLE DEBENTURES OF R/1 LAKH EACH, ASSESSEE H AS INVESTED RS/ 410.85 CRORES IN SUBSIDIARIES AS STATED EARLIER. A S THERE IS DIRECT NEXUS TO THE INVEST EARNED, WHICH WAS BROUGHT TO TA X, ASSESSEES CLAIM OF FOR CORRESPONDING PROPORTIONATE INTEREST A ND INCIDENTAL EXPENDITURE HAS TO BE ALLOWED, NOT ONLY ON FACTS, B UT ALSO UNDER THE PROVISIONS OF S.57. ACCORDINGLY, WE ALLOW GROUND N O. 11 AND 12 OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO A LLOW PROPORTIONATE INTEREST, OUT OF RS/ 5,30,31,148, PAID TO M/S PLATE X LTD. AND ALSO ANY OTHER INCIDENTAL EXPENDITURE THAT MIGHT HAVE BE EN INCURRED TOWARDS LEGAL AND CORPORATE EXPENDITURE ALLOWABLE U NDER S.57(1)(III) OF THE ACT. 3. IN COMPLIANCE AND TO GIVE CONSEQUENTIAL EFFECT T O THE ORDER OF THE ITAT, THE A.O. REQUIRED THE ASSESSEE TO FURNISH THE NECESSARY INFORMATION. ON PERUSAL OF THE INFORMATION FURNISHE D BY THE ASSESSEE, THE A.O. NOTICED THAT THE ASSESSEE COMPAN Y HAS INVESTED IN THE DEBENTURES OF M/S NEW CYBER CITY PROJECTS PV T. LTD. AND M/S PVP VENTUERS LTD (NOW M/S PVP VENTURES PVT. LTD) AN D INTEREST ACCRUED TO THE ASSESSEE COMPANY THEREFROM. REGARDI NG THE PROPORTIONATE INTEREST AND THE PROPORTIONATE ADVISO RY FEE TO BE ALLOWED, THE ASSESSEE SUBMITTED ITS WORKINGS. ON P ERUSAL OF THE CLAIM OF THE ASSESSEE, THE A.O. NOTICED THAT THE IN VESTMENTS MADE BY THE ASSESSEE COMPANY ON WHICH THE INTEREST OF RS . ITA NO.637/HYD/2016 M/S PVP VENTURES LTD. PAGE 3 OF 5 10,61,71,760/-, HAD ACCRUED TO THE ASSESSEE WAS MAD E IN THE MONTHS OF JANUARY & FEBRUARY 2007, WHERE AS THE AS SESSEE HAS RECEIVED THE SAME FROM M/S PLATEX LTD., TOWARDS INV ESTMENTS IN DEBENTURES TO THE EXTENT OF RS. 132.89 CRORES ONLY BEFORE IT MADE THE INVESTMENTS AND THE REMAINING AMOUNT OF RS. 277 .96 CRORES WAS RECEIVED BY THE ASSESSEE COMPANY IN THE MONTH O F MARCH 2007, I.E. AFTER THE ASSESSEE MADE INVESTMENTS IN THE DEB ENTURES OF THE THREE COMPANIES. THEREFORE, THE A.O. ALLOWED THE P ROPORTIONATE EXPENDITURE ON DEBENTURES AMOUNTING TO RS. 132.89 C RORES ONLY WHICH WERE ALLOTTED BY THE ASSESSEE COMPANY TO M/S PLATEX LTD., ON 22-03-2007. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) CONTENDING THAT THE ENTIRE FUNDS FROM M/S P LATEX LTD., WERE RECEIVED BY THE ASSESSEE COMPANY ON 26-06-2007 ITSE LF AND THEREFORE, THE FINDING OF THE A.O. THAT THE ASSESSE E HAS RECEIVED THE INVESTMENTS FROM M/S PLATEX LTD. TO THE EXTENT OF RS. 227.96 CRORES IN THE MONTH OF MARCH 2007, IS NOT CORRECT. IT WAS ALSO BROUGHT TO THE NOTICE OF THE CIT(A) THAT THE DATE OF ALLOTMENT OF DEBENTURES CANNOT BE CONSIDERED AS THE DATE ON WHICH THE ASSES SEE HAS RECEIVED THE INVESTMENT. THE CIT(A), HOWEVER, CO NFIRMED THE ORDER OF THE A.O. THE ASSESSEE IS IN SECOND APPEAL BEFOR E US. 4. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE PREMISE ON WHICH THE A.O. HAS ALLOWED THE PROPORTIONATE INTERE ST AND EXPENDITURE TO THE EXTENT OF RS. 132.89 CRORES, IS THAT THE REMAINING AMOUNT OF RS. 277.96 CRORES WAS RECEIVED BY THE ASSESSEE COMPANY IN THE MONTH OF MARCH 2007 AND TH E BASIS FOR COMING TO THIS CONCLUSION IS THE DATE OF ALLOTMENT OF DEBENTURES I.E. 22-03-07, WHEREAS THE ASSESSEE HAS RECEIVED AL L THE AMOUNTS BEFORE 26-02-2007. IN SUPPORT OF THESE CONTENTIONS , THE ASSESSEE HAS ALSO FILED BEFORE US THE COPY OF THE BANK STATE MENT SHOWING THE ENTRIES IN THE BANK A/C FOR THE FUNDS RECEIVED AND THE PAYMENTS ITA NO.637/HYD/2016 M/S PVP VENTURES LTD. PAGE 4 OF 5 MADE TOWARDS SUBSCRIPTION OF DEBENTURES. LEDGER EX TRACTS OF BOOKS OF ACCOUNTS FOR THE SAME ARE ALSO INCLUDED IN THE P APER BOOK. 5. THE LD. DR ARE HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL PLACED ON RECORD, WE FIND THAT THE ITAT IN THE EARLIER PRO CEEDINGS HAS ALREADY HELD THAT THERE IS A DIRECT NEXUS BETWEEN T HE INTEREST INCOME RECEIVED AND THE INTEREST EXPENDITURE AND TH E INCIDENTAL EXPENDITURE INCURRED BY THE ASSESSEE AND HAS DIRECT ED THE A.O. TO ALLOW THE PROPORTIONATE EXPENDITURE. THE A.O. HAS T AKEN THE DATE OF ALLOTMENT OF DEBENTURES BY THE ASSESSEE AS THE DATE OF RECEIPT OF THE FUNDS FROM M/S PLATEX LTD. HOWEVER, AS SEEN FROM T HE COPY OF THE BANK STATEMENT, THE ASSESSEE HAS RECEIVED THE ENTIR E FUND FROM M/S PLATEX LTD., BEFORE 26-02-2007, AND ASSESSEE HAS AL SO MADE THE INVESTMENTS IN DEBENTURES OF THE COMPANIES BEFORE 2 6-02-2007. THEREFORE, THERE IS A CLEAR NEXUS BETWEEN THE INTER EST INCOME EARNED AND THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. THEREFORE, WE ARE OF THE OPINION THAT THE A.O. AND CIT(A) HAVE ERRED IN ALLOWING THE PROPORTIONATE EXPENDITURE ONLY TO T HE EXTENT OF RS. 132.89 CRORES. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE OF THE A.O. WITH A DIR ECTION TO RECALCULATE THE PROPORTIONATE INTEREST AND EXPENDITURE TO BE AL LOWED ON THE ENTIRE INVESTMENTS MADE BY THE ASSESSEE AND TO ALLO W THE SAME. 7. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2016. SD/- SD/- (J. SUDHAKAR REDDY) (P. MADH AVI DEVI) ACCOUNTANT MEMBER JUDICIAL M EMBER HYDERABAD, DATED: 30 TH DECEMBER, 2016 KRK ITA NO.637/HYD/2016 M/S PVP VENTURES LTD. PAGE 5 OF 5 COPY TO:- 1) M/S PVP VENTURES LTD.,, PLOT NO. 83 & 84, 4 TH FLOOR, PUNNAIAH PLAZA, ROAD NO. 2, BANJARAHILLS, HYD -34 2) DCIT, CIRCLE-2 (3) HYDERABAD. . 3) CIT ( APPEALS)-2, HYDERABAD 4) THE PCIT-2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 6) GUARD FILE