Manjeera Hotels and Resorts Private Limited, Hyderabad V. Asst. Commissioner of Income Tax, Circle-16(2), Hyderabad

ITA 719/Hyd/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5820 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 06-08-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 19-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: D VIJAY KUMAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 142(1); 14A; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER S.NO. ITA NO. AY APPELLANT RESPONDENT 1 & 2 718 & 719/H/18 2012 - 13 & 2013 - 14 MANJEERA HOTELS AND RESORTS PVT. LTD., HYDERABAD. PAN AACCM 3554C ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 16(2), HYDERABAD. 3&4 720/H/18 & 1315/H/16 2012 - 13 & 2013 - 14 MANJEERA ESTATES PVT. LTD.,HYDERABAD. PAN - AABCM3700D - DO - ASSESSEE BY : SHRI D. VIJAY KUMAR REVENUE BY : S HRI KIRAN KATTA DATE OF HEARING : 06 / 0 8 /201 9 DATE OF PRONOUNCEMENT : 09 / 0 8 / 201 9 O R D E R PER S . RIFAUR RAHMAN , A .M. : THESE APPEALS FILED BY THE ASSESSEES AGAINST THE ORDERS OF CIT(A) 4, HYDERABAD FOR THE AYS 2012 - 13 AND 2013. SINCE IDENTICAL ISSUE INVOLVED IN THESE APPEALS, THE SAME WERE CLUBBED AND HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, A CONSOLIDATED ORDER IS PASSED. 2. BRIEF FACTS AS TAKEN FROM ITA NO. 718/HYD/2018 IN THE CASE OF MANJEERA HOTELS AND RESORTS PVT. LTD. ARE, THE ASSESSEE COMPANY IS IN HOTEL BUSINESS & POWER GENERATION, FILED ITS RETURN OF INCOME FOR THE AY 2012 - 13 ON 28/09/2012 ADMITTING AN INCOME OF RS. 12,56,28,285/ - , WHICH WAS PROCESSED U/S 143(1) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT). SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY, NOTICE U/S 143(2) DATED 12/08/2013 WAS ISSUED AND DULY SERVED ON THE ASSESSEE COMPANY AND ALSO NOTICE U /S 142(1) WAS ISSUED. IN RESPONSE TO THE SAID NOTICES, THE AGM (FINANCE) OF THE ASSESSEE COMPANY FURNISHED THE INFORMATION AS CALLED FOR. 2 ITA NO. 718 / HYD/1 8 AND OTHERS MANJEERA HOTELS AND RESORTS PVT. LTD. AND OTHERS, HYD. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED IN THE BALANCE SHEET THAT THE ASSESSEE HAS MADE INV ESTMENT TO THE EXTENT OF RS. 1,09,50,000/ - AS ON 31/03/2012 AND THE ASSESSEE COMPANY HAS NOT DECLARED ANY INCOME FR O M THE SAID INVESTMENTS . FURTHER, T HE AO NOTICED FR O M THE INFORMATION FURNISHED BY THE ASSESSEE THAT IT HAD INCURRED INTEREST ON TERM LOANS T O THE EXTENT OF RS. 6,46,13,482/ - . 2.2 THE AO REFERRING TO THE PROVISIONS OF SECTION 14A RWR 8D, INTER - ALIA OBSERVED THAT NO EVIDENCE IS REQUIRED TO BE EXAMINED TO SEE THAT THE EXPENDITURE HAS BEEN ACTUALLY INCURRED IN RELATION TO INCOME NOT INCLUDIBLE I N TOTAL INCOME. HE, THEREFORE, WORKED OUT AN AMOUNT OF RS. 5,74,571/ - AND DISALLOWED THE SAME U/S 14A. 3.1 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT IT HAS INVESTED OUT OF ITS OWN FUNDS AND HAVING RESERVES AND OWN FUNDS TO THE EXTENT OF RS. 29.33 CRORES. HOWEVER, IT HAS NOT DENIED THE FACT THAT THERE IS INCOME WHICH DOES N OT FORM PART OF TOTAL INCOME AND EXPENDITURE WHICH IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE SAID TOTAL INCOME. FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE HAS NEITHER ACCOUNTED ANY EXPENDITURE NOR CLAIMED ANY EXPENDITURE NOR INCURR ED ANY EXPENDITURE ON ANY ACCOUNT WHATSOEVER RELATABLE TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME ON INVESTMENTS MADE IN EARLIER YEARS. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO BY HOLD ING THAT SINCE THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS. 1,44,575/ - TOWARDS DIVIDEND INCOME, HENCE, THE ADDITION MADE BY THE AO IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEA L, WHICH ARE COMMON IN ALL THE APPEALS UNDER CONSIDERATION EXCEPT THE QUANTUM OF ADDITION : 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ['THE CIT(A)] ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE 3 ITA NO. 718 / HYD/1 8 AND OTHERS MANJEERA HOTELS AND RESORTS PVT. LTD. AND OTHERS, HYD. LEARNED ASSESSING OFFICER ['THE AO'] IN DISALLOWANCE OF EXPENDITURE U1S.14A OF INCOME TAX ACT, 1961. 2. THE COMMISSIONER OF IN COME TAX (APPEALS) FAILED TO APPRECIATE THAT THE A. INVESTMENTS WERE MADE IN THE SUBSIDIARY COMPANY AND IN GROUP COMPANY TOTALLY FROM THE SHAREHOLDER'S FUNDS IN EARLIER FINANCIAL YEARS AND SUCH INVESTMENTS WERE ONLY TO PROMOTE THE COMPANIES AND WAS ON AC COUNT OF BUSINESS EXPEDIENCY. B. THE INTEREST EXPENDITURE IS FULLY ON ACCOUNT OF FULLY CHARGE CREATED SECURED TERM LOANS AND WORKING CAPITAL SPECIFICALLY BORROWED FROM SCHEDULED BANKS AND IS DIRECTLY ATTRIBUTABLE TO THE EARNINGS OF REVENUE FROM OPERATION S AND NOT RELATED TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 3 . WITHOUT PREJUDICE, THE CIT(A) ERRED IN NOT APPRECIATING THAT IN ORDER TO BRING ANY INTEREST EXPENDITURE UNDER AMBIT OF RULE 8D(2)(II), IT WILL HAVE TO BE DEMONSTRATED BY THE AO THAT SAID INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 6. LD. AR SUBMITTED T HAT AO HAS DISALLOWED INTEREST EXPENDITURE AND ADMINISTRATIVE EXPENDITURE U/S 14A. HE SUBMITTED THAT THE INTEREST EXPENDITURE S ARE FOR THE TERM LOAN WHICH ARE SECURED AGAINST THE STOCK AND WORKING CAPITAL. THEREFORE, THE FUNDS INVESTED WERE OUT OF OWN FUND S. FURTHER, HE SUBMITTED THAT AO SHOULD HAVE CONSIDERED THE AVERAGE INVESTMENT WHICH HAS YIELDED EXEMPT INCOME. 7. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 8. CONSIDERED THE R IVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. EVEN THOUGH, THE ASSESSEE HAS NOT RAISED ANY SPECIFIC GROUND ON SEEKING RELIEF TO CONSIDER THE INVESTMENT WHICH HAS YIELDED EXEMPT INCOME BUT FILED WRITTEN SUBMISSION. SINCE, THIS ISSUE HAS ALREADY BEEN CONSIDERED BY THIS BENCH IN FAVOUR OF THE ASSESSEE, WE ACCEPT THE SUBMISSION OF THE LD. AR AND ADJUDICATE AS BELOW: 4 ITA NO. 718 / HYD/1 8 AND OTHERS MANJEERA HOTELS AND RESORTS PVT. LTD. AND OTHERS, HYD. 8.1 WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRANSPORT CORPO RATION OF INDIA LTD. IN ITA NO. 117/HYD/2016 VIDE ORDER DATED 21 ST SEPTEMBER, 2016 WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), THE FORMULA GIVEN ARE: A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR: B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; IN PARTICULAR, THE NOTES FOR B CLEARLY STATES THAT THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME . IT IS CLEAR THAT WE HAVE TO INCLUDE THOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EXCLUDE THOSE INVESTMENTS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, AO HAD TAKEN THE TOTAL INVESTMENT INSTEAD OF THOSE INVESTMENTS, WHICH HAVE GENERATED INC OME. ACCORDINGLY, WE DIRECT THE AO TO CALCULATE THE DISALLOWANCE OF INTEREST AS BELOW ( AS PER RULE 8D): INTEREST X INVESTMENT( WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS THE MAIN REASON IS THAT AS PER SECTION 14A, NO DEDUCTION SHALL BE A LLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE RELEVANCE IS THE EXPENDITURE IN RELATION TO INCOME. THE QUANTIFICATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHIC H HAS NOT GENERATED EXEMPT INCOME SHOULD BE EXCLUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWANCE. 11.2 SIMILARLY, FOR THE ADMINISTRATIVE EXPENSES, 0.5% OF AVERAGE INVESTMENTS FROM WHICH THE EXEMPT INCOME IS RECEIVED SHOULD BE CONSIDERED INSTEAD OF AVERAGE OF THE TOTAL INVESTMENTS. 5 ITA NO. 718 / HYD/1 8 AND OTHERS MANJEERA HOTELS AND RESORTS PVT. LTD. AND OTHERS, HYD. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT THE AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS ALLOWED. AS THE ISSUE UNDER CONSID ERATION IS MATERIALLY IDENTICAL TO THAT OF THE SAID CASE, FOLLOWING THE CONCLUSIONS DRAWN THEREIN WE DIRECT THE AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE GUIDELINES GIVEN AS ABOVE IN THE CASE OF TRANSPORT CORPORATION OF INDIA AND CALCULA TE THE DISALLOWANCE OF EXPENDITURE UNDER RULE 8D(2) (II) & (III) TAKING THE AVERAGE INVESTMENT FROM WHICH THE EXEMPT INCOME IS RECEIVED. 8.2. COMING TO GROUND NO. 2B AND GROUND NO. 3, LD. AR SUBMITTED THAT THE INTEREST EXPENDITURE INCURRED BY THE ASS ESSEE ARE TOWARDS THE SECURED LOANS WHICH ARE SECURED AGAINST THE STOCK AND WORKING CAPITAL. THEREFORE, AO CANNOT CONSIDER THE ABOVE INTEREST ON SECURED LOANS WHICH ARE COMMITTED TO THE BUSINESS EXCLUSIVELY. AO MAY CONSIDER THE OTHER INTEREST INCURRED BY T HE ASSESSEE FOR THE PURPOSE OF DISALLOWANCE U/S 14A. ACCORDINGLY, THESE GROUNDS ARE ALSO REMITTED TO THE AO FOR RECALCULATION. 8.3 WITH REGARD TO GROUND NO. 2A, WE CANNOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT INVESTMENTS WERE MADE ON BUSINESS EXPEDI ENCY. WHEN ASSESSEE MAKES INVESTMENTS AND EARNS EXEMPT INCOME, IRRESPECTIVE OF THE FACT THAT WHETHER ASSESSEE HAS OWN FUNDS OR NOT, WHEN THE BUSINESS HAS MIXED FUNDS, RULE 8D WILL APPLY. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 9 . AS THE ISSUE IN OTHER APPEALS IN ITA NO. 719 & 720/HYD/2018 AND IN ITA NO. 1315/H/16 ARE MATERIALLY IDENTICAL TO THAT OF ITA NO. 718/HYD/18, FOLLOWING THE DECISION THEREIN, WE DIRECT THE AO TO DECIDE THESE APPEALS IN LINE WITH THE DIRECTIONS GIVEN IN THE S AID APPEAL. 6 ITA NO. 718 / HYD/1 8 AND OTHERS MANJEERA HOTELS AND RESORTS PVT. LTD. AND OTHERS, HYD. 10 . IN THE RESULT, ALL THE APPEALS UNDER CONSIDERATION ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST , 201 9 . SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 9 TH AUGUST , 201 9 KV C OPY TO: - 1) MANJEERA HOTELS AND RESORTS PVT. LTD., 2) MANJEERA ESTATES PVT. LTD., 711, MANJEERA TRINITY CORPORATE, JNTU - HITECH CITY ROAD, KUKATPALLY, HYDERABAD 500 0 72 3) AC IT, CIRCLE 16 ( 2 ) , HYDERABAD 4 ) CIT(A) 4 HYDERABAD. 5 ) PR. CIT - 4 , HYD. 6 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 7 ) GUARD FILE 7 ITA NO. 718 / HYD/1 8 AND OTHERS MANJEERA HOTELS AND RESORTS PVT. LTD. AND OTHERS, HYD.