BOMBAY REAL ESTATE DEVELOPMENT CO. P.LTD, MUMBAI V. ACIT RG 1(1),

ITA 6561/MUM/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5418 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JOTILAKSHMI NAYAK LD
• Assessee Lawyers: J D MISTRY
• Keywords: Earning of tax free income; Onus to prove; TDS; Rule 8D; Capital Gains
• Section: 143(3); 14A; 115JB; 40(a)(ia)

Judgement Text

ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO 6561/MUM/2014 ( / ASSESSMENT YEAR : 2010-11 ) BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. NOSHIRWAN MANSION, 3 RD FLOOR, HENRY ROAD, COLABA MUMBAI 400039. / VS. ACIT RANGE 1(1), MUMBAI. %& ./ ./PAN/GIR NO. AAACB-2092-E ( &( /APPELLANT ) : ( )*&( / RESPONDENT ) & ./ I.T.A. NO 2973/MUM/2017 ( / ASSESSMENT YEAR : 2013-14 ) BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD., NOSHIRWAN MANSION, 3 RD FLOOR, HENRY ROAD, COLABA MUMBAI 400039. / VS. DCIT CIRCLE 1(1)(1), MUMBAI. %& ./ ./PAN/GIR NO. AAACB-2092-E ( &( /APPELLANT ) : ( )*&( / RESPONDENT ) ASSESSEE BY : MR. J.D. MISTRY, SR. ADVOCATE REVENUE BY : MS. JOTILAKSHMI NAYAK- LD. DR / DATE OF HEARING : 30/01/2020 / DATE OF PRONOUNCEMENT : 19/02/2020 ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 2 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YEA RS [IN SHORT REFERRED TO AS AY] 2010-11 AND 2013-14 CONTEST SE PARATE ORDERS OF LEARNED FIRST APPELLATE AUTHORITY. SINCE COMMON ISS UES WERE INVOLVED, THE APPEALS WERE HEARD TOGETHER AND ARE NOW BEING DISPO SED-OFF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST, WE TAKE UP APPEAL FOR AY 2010-11. ITA NO.6561/MUM/2014, AY 2010-11 2.1 THE PERUSAL OF ORDER SHEET ENTRIES WOULD REVEAL THAT THIS APPEAL WAS ALREADY HEARD ON 17/08/2017 AND THE ORDER WAS P RONOUNCED ON 06/09/2017. HOWEVER, FINDING INADVERTENT MISTAKE IN THE SAME, THE SAID ORDER WAS RECALLED BY THE BENCH ON 06/12/2017. ACCO RDINGLY, THE APPEAL HAS COME UP FOR FRESH HEARING BEFORE THIS BENCH. 2.2 THE ASSESSEE IS UNDER APPEAL CHALLENGING THE OR DER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, MUMBAI [CIT (A)] ORDER DATED 28/08/2014, APPEAL NO. CIT(A)-I/IT-57/2012-13. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS. 34,59,553/- UNDER THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT , 1961 WITHOUT CONSIDERING THE FACTS OF THE CASE AND VARIOUS JUDGMENTS QUOTED BY T HE APPELLANTS AND WITHOUT CONSIDERING THE FACT THAT INVESTMENTS IN MUTUAL FUN DS IS MADE OUT OF OWN FUNDS AND NET OUT OF BORROWED FUNDS. 2. THE DISALLOWANCE U/S 40(A)(IA) OF RS.6,06,650/- MADE ON ACCOUNT OF NON- PAYMENT OF TDS ON PROFESSIONAL FEES AND DISALLOWANC E U/S 14A R.W. RULE 8D HAS WRONGLY BEEN CONSIDERED AS A PART OF BOOK PROFIT U/ S 115JB. FURTHER, WITHOUT PREJUDICE TO OUR CONTENTION THAT DISALLOWANCE U/S 4 0(A)(IA) DOES NOT FORM A PART OF BOOK PROFIT, THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX WHILE CALCULATING THE BOOK PROFIT U/S 115JB OUGHT TO HAVE CONSIDERED THAT THE TDS PAID IN THE CURRENT YEAR ON PROFESSIONAL FEES DISALLOWED IN PRIOR YEARS OF RS. 602,6617/- WHICH HAS BEEN ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 3 ALLOWED BY HIM AS A DEDUCTION U/S 40(A) IN ASSESSME NT YEAR UNDER APPEAL AND THUS SHOULD HAVE AT MOST RESTRICTED THE DISALLOWANCE TO BE ADDED TO ARRIVE AT BOOK PROFIT U/S 115JB AT RS.3,989/- ONLY AND CONSIDERED THE BOO K PROFIT U/S 115JB AT RS.6,67,78,752/-. 3. HENCE THE TOTAL INCOME BE REDUCED BY RS.34,59,5 53/- AND THE INCOME U/S. 115JB BE CONSIDERED AT RS.6,67,74,763/- ONLY. AS EVIDENT, THE ISSUES WHICH ARISE FOR OUR CONSIDER ATION ARE DISALLOWANCE U/S. 14A AND DISALLOWANCE U/S. 40(A)(IA). 2.3 WE HAVE CAREFULLY HEARD THE ARGUMENTS ADVANCED BY RESPECTIVE REPRESENTATIVES. WE HAVE PERUSED RELEVANT MATERIAL ON RECORD AND DELIBERATED ON JUDICIAL PRONOUNCEMENTS AS CITED BEF ORE US. OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 3.1 FACTS ON RECORD WOULD REVEAL THAT ASSESSEE BEIN G RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED AS BUILDER AND DEVELOPER WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S. 143(3) O N 26/11/2012 WHEREIN INCOME OF THE ASSESSEE WAS DETERMINED AT RS .0.78 LACS AFTER CERTAIN ADDITION AND DISALLOWANCES AGAINST RETURNED LOSS OF RS.33.85 LACS E-FILED BY THE ASSESSEE ON 30/09/2010. 3.2 DISALLOWANCE U/S. 14A: - DURING THE ASSESSMENT PROCEEDINGS IT TRANSPIRED THAT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME AND LONG- TERM CAPITAL GAINS (LTCG) FOR RS. 397.85 LACS & RS. 49.97 LACS RESPECTIVELY. THE ASSESSEE DID NOT OFFER ANY SUO-MO TO DISALLOWANCE AGAINST THE SAME AND SUBMITTED THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME. HOWEVER, REJECTING THE SAME , LD.AO NOTED THAT MOST OF THE INCOME EARNED BY THE ASSESSEE WAS IN TH E FORM OF CAPITAL GAIN AND DIVIDEND INCOME AND THEREFORE, THE PLEA TH AT NO EXPENDITURE ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 4 WAS INCURRED, COULD NOT BE ACCEPTED. RESULTANTLY, T HE BANK CHARGES OF RS.1.38 LACS WERE CONSIDERED AS DIRECT EXPENDITURE. FURTHER, 0.5% OF AVERAGE VALUE OF INVESTMENTS WAS CONSIDERED AS INDI RECT EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. THE SAID WORKIN G RESULTED INTO AGGREGATE DISALLOWANCE OF RS.34.59 LACS IN THE HAND S OF THE ASSESSEE. 3.3 DISALLOWANCE U/S. 40(A)(IA) :- IT TRANSPIRED THAT ASSESSEE DID NOT DEDUCT TDS ON LEGAL AND PROFESSIONAL FEE OF RS.6.06 LACS AND CONSEQUENTLY, THE SAME WAS DISALLOWED AND ADDED BAC K TO THE INCOME OF THE ASSESSEE. 3.4 BOTH THE DISALLOWANCES WERE ADDED BACK WHILE CO MPUTING INCOME UNDER NORMAL PROVISIONS AS WELL AS WHILE COMPUTING BOOK PROFITS U/S 115JB. 4. ALTHOUGH THE ASSESSEE CONTESTED THE DISALLOWANCE U/S 14A BEFORE LD. CIT(A), HOWEVER, THE SAID DISALLOWANCE WAS CONF IRMED. THE ASSESSEE HAD ALSO ASSAILED THE ADJUSTMENT OF BOTH D ISALLOWANCE U/S 115JB, HOWEVER, THE SAME WAS ALSO REJECTED. AGGRIEV ED, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. 5.1 BEFORE US, LD. SR. COUNSEL HAS RAISED A PLEA TH AT LD. AO FAILED TO RECORD REQUISITE SATISFACTION BEFORE PROCEEDING TO COMPUTE DISALLOWANCE U/S 14A R.W.R. 8D AND THEREFORE, THE DISALLOWANCE W AS BAD IN LAW. HOWEVER, WE FIND THAT NO SUO-MOTO DISALLOWANCE WAS OFFERED BY THE ASSESSEE DESPITE EARNING EXEMPT INCOME IN THE FORM OF DIVIDEND INCOME AND LTCG. THE LD. AO SPECIFICALLY TOOK NOTE OF THE FACT THAT MOST OF THE INCOME EARNED BY THE ASSESSEE WAS IN THE FORM OF DI VIDEND INCOME AND CAPITAL GAINS. THE SAID ANALYSIS, IN OUR OPINION, W AS QUITE SUFFICIENT TO ESTABLISH THAT LD. AO HAD RECORDED THE REQUISITE SA TISFACTION BEFORE ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 5 PROCEEDING TO COMPUTE DISALLOWANCE U/S 14A. THEREFO RE, THIS PLEA RAISED BY LD. SR. COUNSEL COULD NOT BE ACCEPTED. 5.2 THE LD. SR. COUNSEL SUBMITTED THAT WHILE COMPUT ING THE DISALLOWANCE, ONLY THOSE INVESTMENTS WERE TO BE CON SIDERED WHICH YIELDED EXEMPT INCOME DURING THE YEAR. RELIANCE HAS BEEN PLACED ON THE DECISION OF DELHI TRIBUNAL (SPECIAL BENCH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415]. THE WORKING IN THIS MANNER, AS PLACED ON RECORD, WOULD SHOW THAT DISALL OWANCE WOULD COME TO RS.21.64 LACS. WE CONCUR WITH THE SAID SUBMISSIO NS MADE BY LD. SR. COUNSEL. ACCORDINGLY, LD. AO IS DIRECTED TO VERIFY THE COMPUTATIONS AND RESTRICT THE DISALLOWANCE CONSIDERING ONLY THOSE IN VESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. THE SEPARATE DISALLOWANCE OF BANK CHARGES FOR RS.1.38 LACS WOULD NOT BE WARRANTE D SINCE IT COULD NOT BE SAID THAT THE BANK WAS USED ONLY FOR THE PURPOSE OF EARNING EXEMPT INCOME. GROUND NO. 1 STAND PARTLY ALLOWED. 5.3 IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED BY AD JUSTMENT OF TWO DISALLOWANCE WHILE COMPUTING BOOK PROFITS U/S 115JB. WE ARE OF THE OPINION THAT UNLESS THE FACTUM OF DEBIT OF ACTUAL E XPENDITURE WAS BROUGHT ON RECORD, ADJUSTMENT OF DISALLOWANCE U/S 14A WHILE COMPUTING BOOK PROFITS U/S 115JB WOULD NOT STAND TEST OF LAW. SIMI LARLY, DISALLOWANCE U/S 40(A)(IA) WAS A STATUTORY DISALLOWANCE FOR WANT OF TDS. UNLESS THE SAME WAS SPECIFICALLY COVERED BY MANNER OF COMPUTATIONS AS PROVIDED U/S 115JB, THE ADJUSTMENT OF THE SAME WOULD ALSO NOT BE JUSTIFIED. THEREFORE, BOTH THESE DISALLOWANCES WOULD NOT BE AD DED BACK WHILE COMPUTING BOOK PROFITS U/S115JB. 5.4 RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED. ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 6 ITA NO.2973/MUM/2017, AY 2013-14 6.1 THE ASSESSMENT FOR THIS YEAR WAS FRAMED U/S 143 (3) ON 26/02/2016. THE ASSESSEE EARNED EXEMPT INCOME OF RS .176.55 LACS BUT DID NOT OFFER ANY DISALLOWANCE U/S14A.THE LD. AO WO RKED OUT EXPENSE DISALLOWANCE OF RS.25.18 LACS U/R 8D(2)(III). THE S AME, UPON CONFIRMATION BY LD. CIT(A), IS UNDER FURTHER APPEAL BEFORE US. FINDING THE FACTS TO BE PARI-MATERIA THE SAME, WE DIRECT LD. AO TO COMPUTE DISALLOWANCE BY CONSIDERING ONLY THOSE INVESTMENTS WHICH HAVE ACTUALLY YIELDED EXEMPT INCOME DURING THE YEAR. A CHART HAS BEEN PLACED BEFORE US FOR THIS YEAR ALSO WHICH SHOW THAT DISALLOWANCE AS WORKED OUT IN THIS MANNER, WOULD COME TO RS.13.65 LACS. THE LD. AO IS DIRECTED TO VERIFY THE SAME AND RESTRICT THE DISALLOWANCE TO THAT EXTE NT. GROUND-1 OF THE APPEAL STAND PARTLY ALLOWED. 6.2 THE SECOND ISSUE PERTAIN TO DISALLOWANCE U/S 41 (1). IT TRANSPIRED THAT THE ASSESSEE REFLECTED TRADE PAYABLE OF RS.201 .45 LACS AS ON 31/03/2013 AGAINST AN ENTITY NAMELY M/S STATUS MARK ETING PRIVATE LIMITED IN RESPECT OF HILL VIEW PROJECT. THE ASSESS EE REWORKED THE ENTIRE PAYABLE AS ON 31/03/2014 WHEREIN A SUM OF RS.128.21 LACS WAS WRITTEN- BACK AS SUNDRY BALANCES WRITTEN BACK. THE BALANCE A MOUNT OF RS.73.23 LACS WAS SHOWN TO BE REMAINING PAYABLE. HOWEVER, LD . AO SHOW- CAUSED AS TO WHY THE AMOUNT OF RS.73.23 LACS SHOULD NOT BE TREATED AS LIABILITY NO LONGER PAYABLE AND TREATED AS ITS INCO ME U/S 41(1). THE ASSESSEE SUBMITTED THAT THE SAID LIABILITY WAS NOT PAID BY THE ASSESSEE AS THE DIRECTORS OF M/S STATUS MARKETING PRIVATE LI MITED OWED CERTAIN LIABILITY TOWARDS DIRECTORS OF THE ASSESSEE COMPANY IN THEIR INDIVIDUAL CAPACITY. HOWEVER, SINCE NETTING-OFF COULD NOT BE P ROVED, THE AMOUNT OF ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 7 RS.73.23 LACS WAS ADDED TO THE INCOME OF THE ASSESS EE U/S 41(1). THE LEARNED CIT(A) CONFIRMED THE STAND OF LD.AO. AGGRIE VED, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. 6.3 THE LD. SR. COUNSEL EXPLAINED THAT THE OUTSTAND ING AMOUNT OF RS.73.23 LACS WAS NOT PAID SINCE THE DIRECTORS OF O THER ENTITY OWED ASSESSEE AGGREGATE SUM OF RS.59.56 LACS IN THEIR IN DIVIDUAL CAPACITY. THE DEBT WAS ACKNOWLEDGED BY THE SAID ENTITY AND HE NCE THE OUTSTANDING AMOUNT WAS NOT PAID BY THE ASSESSEE. NE VERTHELESS, THE LIABILITY WAS SUBSISTING AND CONFIRMED BY THE CREDI TORS ALSO AND THEREFORE, THE PROVISIONS OF SEC. 41(1) WERE NOT APPLICABLE. T HE LD. DR SUBMITTED THAT THE ONUS TO PROVE THAT THE DEBTS WERE SUBSISTI NG WAS UPON ASSESSEE. 6.4 AFTER CAREFUL CONSIDERATION, WE FIND THAT ON PA GE NO. 39 OF THE PAPER-BOOK, THE ASSESSEE HAS PLACED ON RECORD DEBT- CONFIRMATION DATED 24/02/2016 ISSUED BY M/S STATUS MARKETING PVT. LTD. THE SAID CONFIRMATION LETTER ACKNOWLEDGES THE FACT THAT AMOU NT OF RS.90.43 LACS WAS RECEIVABLE FROM THE ASSESSEE AS ON 31/03/2014. IT ALSO ACKNOWLEDGES THE FACT THAT AMOUNT OF RS.59.56 LACS WAS DUE BY THE DIRECTOR OF THAT ENTITY TO THE ASSESSEE COMPANY AGA INST BOOKING OF FLATS IN THE HILL VIEW PARK PROJECT. UPON PERUSAL OF THE SAM E, IT COULD NOT BE SAID THAT THE AMOUNT PAYABLE BY THE ASSESSEE HAD CEASED TO EXIST OR THERE WAS REMISSION OR CESSATION OF TRADING LIABILITY. TH E FACTUM OF OUTSTANDING DEBT WAS DULY ACKNOWLEDGED IN THE CONFIRMATION OF M /S STATUS MARKETING PVT. LTD. THEREFORE, THE PROVISIONS OF SEC. 41(1), IN OUR CONSIDERED OPINION, COULD NOT BE APPLIED TO THE FACT OF THE CA SE. THEREFORE, BY DELETING THE IMPUGNED ADDITION, WE ALLOW THIS GROUN D OF APPEAL. ITA NOS.6561/MUM/2014 & 2973/MUM/2017 BOMBAY REAL ESTATE DEVELOPMENT CO. PVT. LTD. ASSESSMENT YEARS :2010-11 & 2013-14 8 7. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED. CONCLUSION 8. FINALLY, BOTH THE APPEALS STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2020. SD/- SD/- (MAHAVIR SINGH) (MA NOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 19/02/2020 SR.PS, JAISY VARGHESE !'#' / COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 2. )*&( / THE RESPONDENT 3. 1 ( ) / THE CIT(A) 4. 1 / CIT CONCERNED 5. 23),4 , 4 , / DR, ITAT, MUMBAI 6. 3567 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.