Dy. Commissioner of Income Tax , Central Circle-2(3), Hyderabad V. Preethi Foods and Villas Private Limited, Khammam

ITA 668/Hyd/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3963 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 11-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: T CHAITANYA KUMAR
• Keywords: Earning of tax free income
• Section: 142(1); 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 66 8 /HYD/201 8 ASSESSMENT YEAR: 20 14 - 15 DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2(3), HYDERABAD. VS. PREETHI FOODS AND VILLAS PVT. LTD., KHAMMAM (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.J. RAO ASSESSEE BY : SHRI T. CHAITANYA KUMAR DATE OF HEARING : 1 0 - 0 8 - 201 8 DATE OF PRONOUNCEMENT : 1 0 - 0 8 - 201 8 O R D E R PER S . RIFAUR RAHMAN, A .M.: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF DATED 3 0 / 0 1 / 201 8 OF CIT(A) 7 , HYDERABAD, FOR AY 20 14 - 15 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CI T(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A RWR 8 D WITHOUT APPRECIATING THE FACT THAT THE DISALLOWANCE U/S 14A CAN BE MADE EVEN IN A YEAR IN WHICH NO EXEMPT INCOME WAS EA RNED OR RECEIVED BY THE ASSESSEE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. C I T(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A RWR 8 D WITHOUT APPRECIATING THE FACT THAT THE FORMULA FOR COMPUTATION OF DISALLOWANCE U/S 1 4A AS GIVEN IN RULE 80 NOT ONLY INCLUDES THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME BUT ALSO THE INVESTMENT, INCOME FROM WHICH SHALL NOT FORM PART OF THE TOTAL INCOME? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE ID. CI T(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A RWR 8 D WITHOUT APPRECIATING THE FACT THAT THE BOARD VIDE 2 ITA NO. 66 8 /HYD/201 8 PREETHI FOODS AND VILLAS PVT. LTD., KHAMMAM CIRCULAR NO. CIRCULAR NO.512014 HAS MADE IT CLEAR THAT THE RULE 80 READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD ANY OTHER GROUNDS WHICH MAY BE NECESSARY. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY IS ENGAGED IN REAL ESTATE BUSINESS. IT ACQUIRES LANDS FROM THE FARMERS AS FARM LAND AND THE SAID PROPERTY IS CONVERTED INTO NON - AGRICULTURE OPEN PLOTS BY OBTAINING NECESSARY APPROVALS FROM REVENUE AUTHORITIES. IT FILED ITS RETURN OF INCOME FOR AY 2014 - 15 ON 28/09/2014 ADMITTING TOTAL INCOME OF RS. 99,92,830/ - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142(1) WERE ISSUED. AFTER EXAMINING THE INFORMATION FILED BY THE ASSESSEE, THE AO COMPLETED THE ASSESSMENT U/S 14 3(3) OF THE ACT DETERMINING THE TOTAL INCOME AT RS. 1,70,81,870/ - BY MAKING THE FOLLOWING ADDITIONS: I) TRAVELLING & MISC. EXPENDITURE RS. 2,09,339/ - II) INTEREST ON BORROWED FUNDS RS. 68,79,698/ - 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WITH REGARD TO THE ADDITION OF RS. 68,79,698/ - TOWARDS INTEREST ON BORROWED FUNDS, THE CIT(A) DELETED THE ADDITION. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. THE FACTS RELATING TO THE GROUND ARE THAT ON VERIFICATION OF THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION HAS MADE NON - CURRENT INVESTMENTS IN THE FORM OF UNQUOTED EQUITIES IN VARIOUS ASSOCIATED COMPANIES TO THE TUNE OF RS. 7,56,90,350/ - AS AT 31 ST MARCH, 2014. WHEN ASKED ABOUT THE SOURCES OF SUCH INVESTMENTS, AR OF THE ASSESSEE VIDE HIS LETTER DATED 24/11/2015 SUBMITTED THAT THE SOURCE OF INVESTMENT WAS MET FROM 3 ITA NO. 66 8 /HYD/201 8 PREETHI FOODS AND VILLAS PVT. LTD., KHAMMAM ADV ANCES RECEIVED FOR SALE OF PLOTS IN THE FORM OF BHUADIPATHI SCHEME AND SALE ADVANCE ON INSTALMENTS FROM PROSPECTIVE CUSTOMERS. HOWEVER, THE AO RELYING ON THE CBDR CIRCULAR NO. 5/2014, DATED 11/02/2014, HELD THAT CBDT IN EXERCISE OF ITS POWERS U/S 119 OF TH E ACT CLARIFIES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDE FOR DISALLOWANCE OF EXPENDITURE EVEN WHERE ASSESSEE IN PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. ACCORDINGLY, HE COMPUTED THE DISALLOWANCE U/S 14A R.W.R. 8D(2) AT RS. 68,79,698/ - . 6. THE CIT(A) RELYING ON VARIOUS DECISIONS OF ITAT DELETED THE DISALLOWANCE MADE U/S 14A R.W.R 8D. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER THE INFORMATION SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A), THE CIT(A) C AME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME FROM ANY COMPANY DURING THE FY 2013 - 1 4 RELEVANT TO THE AY 2014 - 15 AND ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE U/S 14A RELYING ON VARIOUS CASES OF ITAT HYDERBAD INCLUDING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVEST LTD., [2015] 378 ITR 33 (DEL.) IT IS A SETTLED POSITION OF LAW THAT THE PROVISIONS OF SECTION 14A CAN BE APPLIED TO QUANTIFY THE EXPENSES IN RELATION TO EXEMPT INCOME. SINCE THE EXEMPT INCOME IS NIL, SECTION 14A WILL NOT APPLY. THE RULE 8D CAN BE APPLIED ONLY WHEN THERE IS DIFFICULTY IN FINDING THE EXPENDITURE RELATING TO EXEMPT INCOME. THE PROVISIONS OF SECTION 14A AND RULE 8D WILL NOT APPLY TO THE PRESENT CASE. IT IS THE CONSISTENT VIEW OF T HE HYDERABAD BENCHES AND ACCORDINGLY WE UPHOLD THE ORDER OF CIT(A) AND DMSISS THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD. 4 ITA NO. 66 8 /HYD/201 8 PREETHI FOODS AND VILLAS PVT. LTD., KHAMMAM 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 1 0 TH AUGUST , 2018. SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 1 0 TH AUGUST , 2 018. KV COPY TO: - 1) DCIT, CENTRAL CIRCLE 2 ( 3 ), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYD. 2) M/S PREETHI FOODS AND VILLAS PVT. LTD., 7 - 3 - 284, DWARAKA NAGAR, KHAMMAM. 3) CIT(A) 7 , HYDERABAD. 4) PR. CIT 7 , HYD . 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE