BHISMA REALTY LTD, MUMBAI V. DCIT CIR 2(1), MUMBAI

ITA 6447/MUM/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6701 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 20-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Earning of tax free income; Question of law
• Section: 142(1); 14A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO S . 6447 /M/ 20 1 4 & 5411 /M/201 5 ( ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 ) M/S. BHISHMA REALTY LTD. VITHALDAS CHAMBERS, 3 RD FLOOR 16, MUMBAI SAMACHAR MARG FORT, MUMBAI - 400001 VS. DY. COMMISSIONER OF I - TAX, CIR 2(1) ROOM NO.542, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AAACB 5995 N ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 05 .0 4 .201 8 DATE OF PRONOUNCEMENT : 29 . 0 6 . 2018 O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE ABOVE MENTIONED APPEA LS AGAINST THE DIFFERENT ORDER PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 4 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 2010 - 11 & 2011 - 12 . ITA NO.6447 /M/201 4 : - 2. THE ASSESSEE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 06 .0 8 .201 4 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 4 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE ASSESSMENT YEAR 2010 - 11 . ASSESSEE BY: SHRI K. GOPAL DEPARTMENT BY: SHRI SUMAN KUMAR (DR) ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 2 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,73,71,68S/ - UNDER RULE SO (11} ON ACCOUNT OF INTEREST EXPENSES .YOUR APPELLANTS SUBMIT THAT NO INTEREST BEARING FUNDS HAVE BEEN UTILIZED TO EARN EXEMPT INCOME AND THAT THE SAID DISALLOWANCE IS NOT WARRANTED AND OUGHT TO BE DELETED WITHOUT PREJUDICE T O THE ABOV E, YOUR APPELLANTS SUBMIT THAT NO INTEREST EXPENSES HAVE BEEN CLAIMED BY THE APPELLANTS DURING THE YEAR SINCE THE ENTIRE INTEREST EXPENSES HAVE BEEN CA PITALIZED TO THE WORK IN PROGRESS ACCOUNT. WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANTS SUBMIT THAT INTEREST IF ANY HAS TO BE CONSIDERED FOR DISALLOWANCE SHOULD BE NET OF THE INTEREST INCOME EARNED DURING THE YEAR AND OFFERED TO TAX, 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 12,19,154/ - ON ACCOUNT OF EXPENSES UNDER RULE 3D (III) BEING 0.5% OF THE AVERAGE INVESTMENTS. YOUR APPELLANTS SUBMIT THAT THE DISALLOWANCE 15 NOT WARRANTED AN D OUGHT TO BE DELETED. WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANTS SUBMIT THAT HAVE CLAIMED ONLY RS. 5,65,45,353/ - 35 BUSINESS EXPENDITURE AND HAVE TAKEN REST OF EXPENDITURE AMOUNTING TO RS. 6,62,55,507/ - TO WORK IN PROGRESS AND THAT THE DISALLOWAN CE IF ANY HAS TO BE OUT OF RS. 5,65,45 F 353/ - WHICH HAS BEEN CLAIMED BY THE APPELLANTS, 3. YOUR APPELLANTS FURTHER RESERVE THE RIGHTS TO ADD, AMEND OR AFTER THE AFORESAID GROUNDS OF APPEAL AS THEY MAY THINK FIT BY THEMSELVES OR BY THEIR REPRESENTATIVES . 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 21.09.2010 DECLARING TOTAL INCOME TO THE TUN E OF RS. 49,42,40,073 / - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT DATED 02.09.2011 WAS ISSUED AND SERVED UPON THE ASSESSEE. FURTHER NOTICE U/S 142(1) OF THE ACT WAS ALSO ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE CLAIMED THE DIVIDEND INCOME TO THE TUNE OF RS.1,36,57,812/ - . THE ASSESSING OFFICER DISALLOWED THE EXPENSES INCURRED TO EARN THE EXEM PT INCOME U/S 14A R.W. RULE 8D OF THE I.T. ACT, 1962 AND ASSESSED THE EXPENDITURE TO INCUR RED TO EARN ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 3 THE THE EXEMPT INCOME TO THE TUNE OF RS.1,85,90,842/ - AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.51,43,60,709/ - . THEREAFTER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A ) WHO DISALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO . 1 : - 5. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE DISALLOWANCE OF RS.1,73,71,688/ - UNDER RULE 8D(II) OF THE ACT ON ACCOUNT OF INTEREST EXPENSES. THE PLEA OF THE ASSESSEE IS THAT THE ASSESSEE WAS HAVING MORE FUNDS THAN INVESTMENT, THEREFORE, NO DISALLOWANCE IS REQUIRED IN VIEW OF THE PROVISION RULE 8D(II) OF THE ACT. HENC E THE ADDITION IS REQUIRED TO BE DELETED IN VIEW OF THE LAW SETTLED IN CIT VS.HDFC BANK LIMITED (2014) 366 ITR 505 (BOM). HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. THE ASSESSING OFFICER DISALLOWED THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME TO THE TUNE OF RS.1,36,57,812/ - IN VIEW OF THE PROVISION OF SECTION 14A R.W. RULE 8D(2) (II) OF THE ACT . T HE SAID ADDITION WAS CONFIRMED BY THE CIT(A) . THE PLEA OF THE ASSESSEE IS THAT THE ASSESSEE WAS HAVING OWN FUNDS MORE THAN INVESTMENT, THEREFORE, NO DISALLOWANCE IS REQUIRED IN VIEW OF THE PROVISION OF SECTION 14A R.W. RULE 8D(2)(II) OF THE ACT IN VIEW OF THE LAW SETTLED IN CIT VS.HDFC BANK LIMITED (2014) 366 ITR 505 (BOM). THE ASSESSEE WAS HAVING FUNDS TO THE TUNE OF ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 4 RS.27,51,56,640/ - AGAINST THE SHARE CAPITAL AND RESERVES AND SURPLUS . I N THIS REGARD THE BALANCE - SHEET LIES AT PAGE NO. 22 OF THE PAPER BOOK . T HE TOTAL INVESTMENT OF THE ASSESSEE WAS TO THE TUNE OF RS.48,76,61,709/ - WHICH ALSO LIES AT PAGE NO. 22 OF THE PAPER BOOK. THE ASSESSEE ALSO RECEIVED THE APPLICATION MONEY TO THE TUNE OF RS.71,23,84,573/ - AND REFUNDABLE DEPOSIT RECEIVED FROM DEVELOPER OF RS.100,00,00,000 / - . THE APPELLANT ALSO RECEI VED THE BUSINESS INCOME IN THE FORM OF SALES OF FLATS AMOUNTING TO RS.76,44,00,000/ - . THE DETAILS HAVE BEEN GIVEN AT PAGE NO. 22 TO 28 OF THE PAPER BOOK. THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS MORE THAN INVESTMENT. THEREFORE, NO DOUBT, NO DISALLOWANC E IS REQUIRED ON ACCOUNT OF INTEREST EXPENSES IN VIEW OF LAW SETTLED IN CIT VS. HDFC BANK LIMITED (2014) 366 ITR 505 (BOM) WHEREIN THE HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: - WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE JU DGEMENT IN THE CASE OF RELIANCE UITLITIES AND POWER LTD (SUPRA). THE FINDING OF FACT GIVEN BY THE INCOME TAX APPELLATE TRIBUNAL IN THE PRESENT CASE IS THAT THE ASSESSEES OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE T AX FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEES CAPITAL PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX FREE SECURITIES. IN VIEW OF THE THIS FACTUAL POSITION AS PER THE JUDGEMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. W E, THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSIONS OF MR. SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE ON ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 5 THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE R EJECTED. 6. IN VIEW OF THE SAID CIRCUMSTANCES, WE DELETE THE ADDITION RAISED IN VIEW OF THE PROVISION OF SECTION 14A R.W. RULE 8D(2)(II) OF THE ACT. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO . 2 : - 7 . UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE ADDITION OF RS.12,19,154/ - RAISED U/S 14A R.W. RULE 8D(2)(III) OF THE ACT. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE DID NOT INCUR ANY ADMINISTRATIVE EXPENSES TO EARN THE EXEMPT INCOME, THEREFORE, THE DISALLOWANCE OF RS.12,19,154/ - BEING 0.5% OF THE AVERAGE INVESTMENT BY INVOKING THE PROVISION RULE 8D(2)(III) OF THE ACT IS WRONG HENCE IS LIABLE TO BE SET ASIDE. IT IS CONTENDED THAT THE BUSINESS OF THE ASSESSEE IS OF THE BUILDER AND DEVELOPER AND THE ASSESSEE WAS FOLLOWING PROJECT COMPETITION METHOD AND HIS EXPENSES WERE NOT INCURRED DURING THE COURSE OF BUSINESS ACTIVITIES AND CAPITALIZED AS WIP . HENCE IN THE SAID CIRCUMSTANCES, NO ADMINISTRATIVE EXPENSE S IS REQUIRED TO BE ASSESSED IN THE INTEREST OF JUSTICE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND IS CARRYING THE BUSIN ESS ACTIVITY OF BUILDER AND DEVELOPER. THE ASSESSEE WAS FOLLOWING THE ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 6 PROJECT COMPETITION METHOD . THE EXPENSE INCURRED D URING THE COURSE OF BUSINESS ACTIVITY CAPITALIZED IN WORK IN PROGRESS WHICH WAS NOT CLAIMED. THE ASSESSEE HAS GIVEN THE WIP FOR THE A.Y. 2010 - 11 LIES AT PAGE NO. 43 TO 44 OF THE PAPER BOOK IN WHICH THE DETAILS OF EXPENSES HAVE BEEN REFLECTED WHICH HAS BEEN INCURRED TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISION OF SECTION 14A R.W. RULE 8D(2)(III) OF THE ACT. SINCE THE EXPE NSES WHICH H AVE BEEN INCURRED FOR ADMINISTRATIVE PURPOSE IS REQUIRED TO BE ASSESSED AT THE END OF THE AO. THEREFORE, IN THE SAID CIRCUMSTANCES, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE A ND REMAND THIS ISSUE BEFORE THE AO TO VERIFY THE CLAIM IN ACCORDANCE W ITH LAW FOR ASSESSING THE EXPENSES ON ACCOUNT OF ADMINISTRATIVE IN VIEW OF THE PROVISION RULE 8D (2)(III) OF THE ACT. ACCORDINGLY, THIS ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. I TA NO.5411 /M/201 5 : - 8 . THE ASSESSEE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 18 . 0 9 .201 5 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 4 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 2011 - 12 . 9 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.21,14,694/ - AS AGAINST RS.90,000/ - OFFERED BY THE APPELLANTS AND SUSTAINING THE ADDITION OF RS.20,24,694/ - U/S 14A R.W. RULE 8D OF THE I.T. ACT, 1961. YOUR APPELLANTS SUBMIT THAT THE DISALLOWANC E OF ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 7 RS.90,000/ - MADE BY THE APPELLANT IS MOST REASONABLE AND OUGHT TO HAVE BEEN ACCEPTED. YOUR APPELLANTS SUBMIT THAT THE ADDITION OF RS.20,24,694/ - BE DELETED. 2. YOUR APPELLANT FURTHER RESERVE THE RIGHTS TO ADD, AMEND OR ALTER THE AFORESAID GROUNDS OF APPEAL AS THEY THINK FIT BY THE APPELLANTS OR BY THEIR REPRESENTATIVES. 10 . THE FACTS OF THE PRESENT CASE ARE THE SAME AS MENTIONED IN TH E ABOVE IN THE APPEAL IN ITA. NO. 6447 /M/201 4 . HOWEVER, THE FIGURE IS DIFFERENT , T HEREFORE , THERE IS NO NEED TO REPEAT THE SAME. ISSUE NO.1 : - 11 . ISSUE NO. 1 IS IN CONNECTION WITH THAT THE CONFIRMATION OF DISALLOWANCE OF RS.21,14,694/ - AS AGAINST OF RS.90,000/ - OFFERED BY THE APPELLANT IN VIEW OF THE PROVISION OF SECTION 14A R.W. RULE 8D OF THE I.T. ACT. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS DISALLOWED AN AMOUNT OF RS.90,000/ - TOWARDS EXPENSES INCUR RED TO EARN THE EXEMPT INCOME BUT THE AO NOWHERE RECORDED THE SATISFACTION WHILE APPLYING THE PROVISION U/S 14A R.W. RULE 8D (III) OF THE ACT AND ASSESSED THE DISALLOWANCE TO THE TUNE OF RS.21,14,694/ - . THEREFORE, IN THE SAID CIRCUMSTANCES, THE DISALLOWANCE TO THE TUNE OF RS.21,14,694/ - IS WRONG AGAINST LAW AND FACTS AND IS NOT LIABLE TO BE SUSTAINABLE IN THIS REGARD. THE LD. REPRESE NTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE LAW SETTLED IN MAXOPP INVESTMENT LTD VS. CIT (2018) 91 TAXMANN.COM 154 (SC). HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTIONS. THE ASSESSMENT ORDER DATED 13.03.2014 IS ON THE FILE AND PERUSED IN ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 8 WHICH WE NOTICED THAT THE AO NOWHERE RECORDED THE SATISFACTION FOR DISALLOWING THE CL AIM OF THE ASSESSEE IN CONNECTION WITH THE EXPENSES TO EARN THE EXEMPT INCOME TO THE TUNE OF RS.90,000/ - . IT IS NECESSARY ON THE PART OF THE AO TO RECORD THE SATISFACTION BEFORE DECLINING THE CLAIM OF THE ASSESSEE IN VIEW OF THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT IN THIS REGARD, WE ALSO PLACED RELIANCE UPON THE LAW SETTLED IN MAXOPP INVESTMENT LTD VS. CIT (2018) 91 TAXMANN.COM 154 (SC) . IN VIEW OF THE SAID CIRCUMSTANCES, WE SET ASIDE THE FINDING OF THE CIT(A) AND REMAND THIS ISSUE BEFORE THE AO TO EX AMINE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. 12 . IN THE RESULT ALL THE APPEALS FILED BY THE ASSESSEE ARE HEREBY ORDERED TO BE ALLOWED . ORDER P RONOUNCED IN THE OPEN COURT ON 29.06 . 201 8 . SD/ - SD/ - ( RAJENDRA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 29.06. 2018 . V IJAY ITA NOS. 5411 /MUM/201 5 6447/MUM/2014 A.Y. 2010 - 11 & 2011 - 12 9 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI