ACIT 10(1), MUMBAI V. GORAKHPUR EXPRESSWAY LTD, MUMBAI

ITA 6833/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8845 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D V LAKHANI
• Keywords: Maximum Marginal Rate; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6833/MUM/2011 (ASSESSMENT YEAR: 2008-09) ASST. COMMISSIONER OF INCOME- TAX -10(1), ROOM NO. 455, 4TH FLOOR, AAYAKAR BHAVAN, MUMBAI -400 020 VS GORAKHPUR EXPRESSWAY LTD., KOHINOOR CORPORATE LTD., KOHINOOR CORPORATE OFFICE, SENAPATI BAPAT MARG, DADAR WEST, MUMBAI -400 028 PAN : AACCG6361M APPELLANT RESPONDENT APPELLANT BY : SHRI PAVAN VED RESPONDENT BY : SHRI D.V. LAKHANI DATE OF HEARING : 10.09.2012 DATE OF PRONOUNCEMENT : 26.09.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE DEPARTMENT, AGAINST THE ORDER OF CIT(A) 21, MUMBAI, DATED 06.07.2011. 2. THE ONLY GROUND OF APPEAL, AS RAISED BY THE DEPA RTMENT PERTAINS TO DISALLOWANCE OF EXPENSES U/S 14A. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A ME MBER OF AN AOP AND IS IN THE BUSINESS OF DEVELOPMENT, CONSTRUCTION, OPERA TE AND MAINTAIN INFRASTRUCTURE FACILITIES. IN THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAS SHOWN INCOME OF RS. 80,67,42,773, WHICH WAS CLAIMED AS EXEMPT. BESIDES THIS, THE ASSESSEE HAS SHOWN INTEREST INCOME AT RS. 14,75,24,605/- (RS. 14,70,00,822 + RS. 5,23,723)(PAGE 32 APB). GORAKHPUR EXPRESSWAY LTD. ITA NO.6833/MUM/2011 2 4. THE AO, DURING THE ASSESSMENT PROCEEDINGS, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY EXPENSES CLAIMED BY THE ASSESSEE SHOULD NOT BE DISALLOWED. THE ASSESSEE, VIDE ITS LETTER DATED 23. 09.2010, STATE THAT THE ASSESSEE IS A MEMBER OF THE AOP, WHERE TAXES HAVE A LREADY BEEN PAID AT MAXIMUM MARGINAL RATE AND ASSESSEE BEING A MEMBER O F THE AOP, THE INCOME COMING TO IT, IS TAX PAID INCOME. THE ASSES SEE, THEREFORE, SUBMITTED THAT NO DISALLOWANCE IS CALLED FOR U/S 14A. 5. CONSIDERING THE REPLY OF THE ASSESSEE, THE AO TO OK INTO ACCOUNT EXPENSES AGGREGATING TO RS. 18,96,54,308 (AS REPROD UCED IN THE ASSESSMENT ORDER) AND HELD THAT THE EXPENSES ARE DIRECTLY RELA TABLE TO THE EARNING OF EXEMPT INCOME. THE AO, THEREFORE COMPUTED THE DISALLOWANCE AT RS. 18,96,54,308. 6. AGGRIEVED, THE ASSESSEE, APPROACHED THE CIT(A), WHO, AFTER EXAMINING THE ENTIRE COST, CAME TO THE CONCLUSION THAT OUT OF THE AMOUNT DISALLOWED BY THE AO, U/S 14A, AGGREGATING TO RS. 18,96,54,308, A MOUNTS FIGURING AT RS. 50,50,800, RS. 44,28,034 AND LEGAL AND PROFESSIONAL FEE AT RS. 1,00,89,492 HAD ALREADY BEEN DISALLOWED BY THE ASSESSEE SUO MOTO (APB 27), THEREFORE, THESE FIGURES HAVE TO BE REDUCED FROM THE DISALLOWA NCE, AND THE CIT(A) ACCORDINGLY DIRECTED THE AO TO NOT TO CONSIDER THES E EXPENSES. 7. FURTHER, THE CIT(A), WHILE CONSIDERING THE FACTS , OBSERVED THAT THE ASSESSEE HAD MADE INVESTMENT IN THE PROJECT AT RS. 45,08,00,000, WHICH WAS FINANCED BY RS. 25 CRORES FROM IL&FS LTD. AND B ALANCE BY EQUITY SHARE/APPLICATION RECEIVED. AS SUCH, THERE WAS NO I NTEREST EXPENDITURE ON THE EQUITY SHARE/APPLICATION MONEY AND THE INTEREST PAID ON THE BORROWINGS OF RS. 25.00 CRORES, AT RS. 2,26,84,932, WAS NOT CL AIMED IN THE P&L ACCOUNT. THIS AMOUNT WAS CAPATALISED BY THE ASSESSEE BY TRAN SFERRING THE SAME TO WIP. THE CIT(A) FURTHER OBSERVED THAT THE ONLY INTE REST EXPENDITURE CLAIMED WAS AGAINST INTEREST EARNED BY PARKING ITS BORROWED FUNDS FOR INTEREST EARNING ACTIVITY, WHICH WAS OFFERED TO TAX. THE CIT (A), THEREFORE, CONCLUDED GORAKHPUR EXPRESSWAY LTD. ITA NO.6833/MUM/2011 3 THAT EXPENDITURE OF RS. 14,15,27,921 DEBITED TO P&L ACCOUNT DID NOT RELATE TO EXEMPT INCOME. 8. THE CIT(A) FURTHER OBSERVED THAT RS. 10,42,014 B EING PROJECT EXPENSES WRITTEN OFF DID NOT RELATE TO EARNING OF EXEMPT INC OME. HE FURTHER OBSERVED THAT REMUNERATION OF RS. 2.00 CRORES PAID TO MD AND COMMISSION PAID TO DIRECTORS AT RS. 75 LAKHS ,IN FACT, PERTAINED TO AD MINISTRATION AND MANAGERIAL EXPENSES, WHICH WERE INCURRED TO EARN BO TH TYPES OF INCOMES, I.E. TAXABLE AND EXEMPT. ACCORDINGLY, HE DIRECTED T HE AO TO RECOMPUTED THE DISALLOWANCE TO BE MADE U/S 14A BY TAKING THESE TWO AMOUNTS AS COVERED UNDER RULE 8D(2)(III). 09. AGAINST THESE OBSERVATIONS OF THE CIT (A), THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 10. BEFORE US, THE DR, RELIED ON THE ORDER OF THE A O. 11. ON THE OTHER HAND, THE AR, DEFENDED THE ORDER O F THE CIT (A). 12. WE HAVE CONSIDERED THE SUBMISSIONS MADE AND PER USED THE ORDERS OF THE REVENUE AUTHORITIES. WHAT WE FIND IS THAT THE C IT(A) HAS TAKEN EACH ITEM INDIVIDUALLY AND ANALYSED THE EFFECTIVE NATURE OF E ACH EXPENSE. EXPENSES SUCH AS DIRECTORS REMUNERATION AND DIRECTORS COMM ISSION ARE PRIMARILY OF ADMINISTRATIVE NATURE AND AS SUCH CANNOT BE ATTRIBU TED OR ALLOCATED SPECIFICALLY TOWARDS ONE SOURCE OF INCOME. WE FIND, THAT OUT OF RS. 95.42 CRORES OF INCOME, THE ASSESSEE IS SHOWING RS. 80.67 CRORES FROM INFRASTRUCTURE PROJECT DEVELOPMENT, WHICH SIMPLY ME ANS TO HOLD THAT THE ENTIRE EXPENSE ON DIRECTORS REMUNERATION AND COMMI SSION CANNOT BE BLINDLY ALLOCABLE TOWARDS EXEMPT INCOME, WHICH IS R S. 14.25 CRORES. 13. IN OUR CONSIDERED OPINION, THE CIT(A) HAS CORRE CTLY DIRECTED TO CONSIDER THESE TWO EXPENSES TO WORK OUT THE DISALLO WANCE AFRESH. GORAKHPUR EXPRESSWAY LTD. ITA NO.6833/MUM/2011 4 14. WE ARE ALSO INCLINED TO HOLD THAT DISALLOWANCE OF EXPENSES UNDER THE HEADS SECURITY AND TRUSTEESHIP AT RS. 50,50,800; RA TE AND TAXES AT RS. 44,28,034 AND LEGAL AND PROFESSIONAL FEE AT RS. 1,0 0,89,492 HAD ADDED BACK BY THE ASSESSEE ITSELF AS PER PAGES 26 & 27 OF THE APB, WILL AMOUNT TO DOUBLE DISALLOWANCES. WE, THEREFORE, AGREE WITH THE CIT(A) AND WE SUBSCRIBE TO THE DIRECTION TO THE AO TO NOT TO CONSIDER THESE EXPENSES FOR THE COMPUTATION OF ALLOCABLE EXPENSE UNDER RULE 8D. 15. PROJECT EXPENSES, IN OUR OPINION CANNOT BE RELA TABLE IN ANY CIRCUMSTANCE WITH THE EARNING OF EXEMPT INCOME, WE, THEREFORE, SUSTAIN THE CIT(A) OBSERVATION TOWARDS DISALLOWANCE OF RS. 10,4 2,014 BEING PROJECT EXPENSES WRITTEN OFF. 16. IN THE RESULT, THE ORDER OF THE CIT(A), GIVING DIRECTION TO THE AO, TO RECOMPUTE THE DISALLOWANCE U/S 14A IS UPHELD, THUS, THE APPEAL FILED BY THE REVENUE IS DISMISSED. HELD ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 6 TH SEPTEMBER, 2012. SD/- SD/- ( P.M. JAGTAP ) ACCOUTANT MEMBER ( VIVEK VARMA ) JUDICIAL MEMBER MUMBAI, DATE: 26 TH SEPTEMBER, 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-21, MUMBAI. 4) THE CIT, MC-X, MUMBAI, 5) THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN