Wonderla Holidays Ltd., V. CIT,

ITA 722/BANG/2013

• Counselvise Citation: 72221114 RSA 2013
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Question of law; Cost of acquisition; Difference of opinion; Revenue expenditure
• Section: 14A

Judgement Text

ITA.722/BANG/2012 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE BEFORE SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.722/BANG/2013 (ASSESSMENT YEAR : 2008-09) WONDERLA HOLIDAYS LIMITED (FOMERLY VEEGA HOLIDAYS & PARKS P. LTD) 28 TH KM, MYSORE ROAD, BANGALORE 562 109 ..APPELLANT PAN : AAACW4514C V. COMMISSIONER OF INCOME-TAX OFFICER, BANGALORE - III, BANGALORE ..RESPONDENT ASSESSEE BY : SHRI. CHERIAN BABY, CA REVENUE BY : SHRI. FARHAT HUSSAIN QURESHI, CIT HEARD ON : 01.06.2015 PRONOUNCED ON : 11.06.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, IT ASSAILS AN OR DER DT.30.03.2013, U/S.263 OF THE INCOME-TAX ACT, 1961 (THE ACTIN SHORT), FO R THE ASSESSMENT YEAR 2008- 09. 02. FACTS APROPOS ARE THAT ASSESSEE HAD FILED ITS R ETURN FOR A. Y. 2008-09 DECLARING INCOME OF RS.4,17,60,770/- AND THE ASSESS MENT WAS COMPLETED U/S.143(3) OF THE ACT, ON 21.12.2010, ASSESSING THE TOTAL INCOME AT ITA.722/BANG/2012 PAGE - 2 RS.4,70,77,660/-. IN THE SAID ASSESSMENT, DISALLOW ANCE OF RS.16,896/- WAS MADE IN RELATION TO CLAIM OF DEPRECIATION ON COMPUTERS, FOR A REASON THAT A PART OF SUCH CLAIM WERE ON COMPUTER PERIPHERALS. 03. THEREAFTER ON 28.03.2013, NOTICE U/S.263 OF THE ACT WAS ISSUED BY THE CIT CITING TWO REASONS. FIRST WAS THAT INTEREST EX PENDITURE OF RS.73,12,500/- CLAIMED ON A LOAN OF RS.6.5 CRORES RAISED FROM STAT E BANK OF INDIA WAS NOT ALLOWABLE SINCE THE LOAN WAS INTENDED FOR STARTING A NEW AMUSEMENT PARK AT MUMBAI AND ASSESSEE HAD DROPPED THE PLAN. THE SECO ND REASON CITED BY THE CIT WAS THAT ASSESSEE HAD MADE AN INVESTMENT OF RS. 4 CRORES IN M/S. WONDERLA HOLIDAY (P) LTD, UNDER THE SAME MANAGEMENT AND ON S UCH INVESTMENT SECTION 14A OF THE ACT WAS APPLICABLE. 04. IN ITS REPLY TO THE SHOW-CAUSE NOTICE ASSESSEE STATED THAT LAND WAS PURCHASED FOR THE PROJECT WHICH WAS AN EXTENSION OF ITS ALREADY EXISTING BUSINESSAND THE LOAN TAKEN FROM SBI WAS UTILISED FO R THIS PURPOSE. AS PER THE ASSSSEE, SINCE LAND COULD BE USED AS SOON AS IT WAS PURCHASED AND THERE WAS NO QUESTION OF ANY INSTALLATION, INTEREST COULD BE CLA IMED AS REVENUE EXPENDITURE. ALTERNATIVELY IT WAS SUBMITTED BY THE ASSESSEE THAT IF IT WAS NOT CONSIDERED AS REVENUE EXPENDITURE, IT SHOULD BE ALLOWED TO BE CAP ITALISED ALONG WITH THE COST OF ACQUISITION OF THE ASSET. VIS--VIS, APPLICATIO N OF SECTION 14A OF THE ACT, ON INVESTMENTS MADE IN WONDERLA HOLIDAY (P) LTD, SUBMI SSION OF THE ASSESSEE WAS THAT NO DIVIDEND WHAT SO EVER WAS RECEIVED FROM THE SAID COMPANY DURING THE RELEVANT PREVIOUS YEAR. ITA.722/BANG/2012 PAGE - 3 05. HOWEVER, CIT WAS NOT IMPRESSED IN THE ABOVE REP LY. ACCORDING TO HIM, THE LAND PURCHASED USING THE LOAN RAISED BY THE ASS ESSEE WAS NOT USED FOR THE PURPOSE FOR WHICH IT WAS ACQUIRED AND THEREFORE, TH E INTEREST PAID ON SUCH LOANS COULD NOT BE ALLOWED AS REVENUE OUTGO. VIS--VIS A PPLICATION OF SECTION 14A OF THE ACT, THE VIEW OF CIT WAS THAT IN THE JUDGMENT O F HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD V. D CIT [(2010) 328 ITR 81), IT HAD HELD THAT RULE 8D(2)(III) OF THE IT RULES CO ULD BE APPLIED FOR ASCERTAINING THE ADMINISTRATIVE AND OTHER EXPENDITURE RELATING T O TAX FREE INVESTMENTS. AS PER THE CIT, THE AO HAD FAILED TO TAKE INTO CONSIDERATI ON THESE ISSUES AND THEREFORE, HE CONSIDERED THE ASSESSMENT ORDER TO BE ERRONEOUS INSOFAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE. 06. NOW BEFORE US, LD. AR SUBMITTED THAT IN SO FAR AS THE ISSUE, VIZ., INTEREST ON LOAN FROM SBI WAS CONCERNED, HE WAS NOT PRESSING THE RELEVANT GROUNDS. HOWEVER, IN SO FAR AS THE DISALLOWANCE CONTEMPLATED U/S.14A OF THE ACT, LD.AR SUBMITTED THAT THERE WAS NO ERROR IN THE ORDER OF T HE AO SINCE THERE WAS NO SCOPE FOR ANY SUCH DISALLOWANCE, ASSESSEE HAVING NO T RECEIVED ANY EXEMPT DIVIDEND INCOME FROM THE INVESTMENTS DURING THE REL EVANT PREVIOUS YEAR. 07. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 08. WE HAVE PERUSED THE MATERIALS ON RECORD AND CON SIDERED THE RIVAL CONTENTIONS. IN SO FAR AS THE FIRST ISSUE VIZ., IN TEREST CLAIMED ON LOAN FROM SBI, USED FOR ACQUIRING THE LAND IN QUESTION WAS CONCERN ED, LD. AR HAS ADMITTED THAT THE ISSUE REQUIRED A LOOK BY THE AO, SINCE IT WAS N OT VERIFIED BY HIM AT THE STAGE ITA.722/BANG/2012 PAGE - 4 OF THE ASSESSMENT PROCEEDINGS. HENCE, IN SO FAR AS THIS PARTICULAR CLAIM OF THE ASSESSEE IS CONCERNED, WE CANNOT FIND ANY FAULT IN THE ORDER OF THE CIT. HOWEVER, VIS-A-VIS THE SECOND ISSUE, VIZ., DISALLOW ANCE U/S.14A OF THE ACT, ASSESSEE HAD POINTED OUT BEFORE THE CIT THAT IT DID NOT HAVE ANY EXEMPT INCOME. THAT A DISALLOWANCE U/S.14A OF THE ACT, CAN BE MADE ONLY IF THERE IS A CLAIM OF EXEMPT INCOME, IS CLEAR FROM VARIOUS JUDGMENTS OF H ONBLE HIGH COURTS, WHICH HAVE BEEN DISCUSSED HEREUNDER IN THE FOLLOWING PARA GRAPHS : 09. IN THE CASE OF CIT VS M/S. SHIVAM MOTORS P.LTD. (ITA NUMBER 88 OF 2014 JUDGMENT DATED 5-5-2014 FOR AY 2008-09) THE QU ESTION OF LAW RAISED BY THE REVENUE BEFORE THE HON ALLAHABAD HIGH COURT WAS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS J USTIFIED IN UPHOLDING THE DECISION OF CIT(A) IN DELETING THE DISALLOWANCE OF RS 2,03,752/- U/S.14A IGNORING THE FACT THAT THERE IS DIFFERENCE OF OPINION OF VARIOUS COURTS ON THE VIEW TAKEN BY THE ITAT THAT IN THE ABSENCE OF TAX FREE I NCOME, NO DISALLOWANCE U/S.14A IS PERMISSIBLE. 10. THE HIGH COURT WHILE ANSWERING THE ABOVE QUESTI ON HELD AS UNDER:- AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOT AL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE I S ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE I NCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTIO N, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOM E, THE ITA.722/BANG/2012 PAGE - 5 CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT F OR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEE N AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER. 11. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. C ORRTECH ENERGY PVT. LTD.(TAX APPEAL 239 0F 2014 DATED 24-3-2014) HELD A S UNDER:- WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FACTS AND THE DECISION RELIED UPON BY THE ID AR. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME T EXTILE INDUSTRIES LTD. REPORTED AT (2009) 3191TR 204(P&H) HAS HELD THAT IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTI ON 14A COULD HAVE NO APPLICATION. IN THIS CASE ALSO, THE ASSESSE E HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON'BLE HIGH COURT OF PU NJAB & HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDU STRIES LTD. (SUPRA), WE HEREBY ALLOW THIS GROUND AND DIRECT THE AO TO DELETE THE ADDITION. THEREFORE, GROUND NOS 1 TO 1.2 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE ALLOWED.' 12. THE DIVISION BENCH OF HON PUNJAB AND HARYANA HI GH COURT IN CASE OF COMMISSIONER OF INCOME TAX V WINSOME TEXTILE INDUST RIES LTD REPORTED IN (2009) 319 ITR 204 HAD OBSERVED AS UNDER: '7. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. TH E JUDGMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) 286 IT R 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCT ION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BU SINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CO NCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. THE OBSERVATIONS MA DE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CAS E, ADMITTEDLY ITA.722/BANG/2012 PAGE - 6 THE ASSESSE DID NOT MAKE ANY CLAIM FOR EXEMPTION. I N SUCH A SITUATION SECTION 14A COULD HAVE NO APPLICATION.' 13. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS.DELITE ENTERPRISES(TAX APPEAL 110 OF 2009 DATED 26-2-2009) HELD AS UNDER:- THE REVENUE IS IN APPEAL ON THE FOLLOWING QUESTION S ; 'A-WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW THE HON'BLE TRIBUNAL WAS RIGHT IN DELETING T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF INTER EST PAID BY THE ASSESSEE COMPANY ON BORROWED FUNDS AMOUNTING TO RS.241.10 LAKHS OVERLOOKING THE FACT THAT THE BORRO WED FUNDS WERE USED BY THE ASSESSEE COMPANY TO INVEST IN THE CAPITAL OF ANOTHER PARTNERSHIP FIRM AND SINCE PROFITS DERIVED BY THE ASSESSEE COMPANY FROM A PARTNERSHIP FIRM WERE EXEMP T FROM TAX U/S.10(2A) OF THE INCOME-TAX ACT, THE INTEREST EXPENSE RELATED TO SUCH TAX FREE PROFITS IS TO BE DISALLOWE D U/S.14A OF THE INCOME TAX ACT? IN SO FAR AS QUESTION (A) IS CONCERNED, ON FACTS WE FIND THAT THERE IS NO PROFIT FOR THE RELEVANT ASSESSMENT YEAR . HENCE THE QUESTION AS FRAMED WOULD NOT ARISE. 14. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. LAKHANI MARKETING INCL. IN ITA NO.970 OF 2008 DATED 2.4.2014. THE HONBLE HIGH COURT WHILE AFFIRMING TH E DECISIONS OF CIT(A) AS WELL AS THE TRIBUNAL IN DELETING THE DISALLOWANCE M ADE UNDER SECTION 14A OBSERVED AS UNDER:- 7. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, WE DO NOT FIND ANY MERIT IN THE APPEALS. THE PRIMARY ISSUE TH AT ARISES FOR CONSIDERATION IN THESE APPEALS IS WHETHER THE CIT(A ) AS WELL AS THE TRIBUNAL WERE RIGHT IN ALLOWING DEDUCTION OF IN TEREST LIABILITY OUT OF OTHER INCOME AND THE CLAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SECTION 14A OF THE ACT WAS JUSTIFIED. ITA.722/BANG/2012 PAGE - 7 THE CIT(A) VIDE ORDER DATED 24.6.2004 ANNEXURE A.II , RECORDED AS UNDER:- '7.2 KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE IT IS HELD THAT THE AO WAS NOT CORRECT IN APPL YING SECTION 14A OF THE IT ACT IN DISALLOWING THE EXPENDITURE ON ACCOUNT OF INTEREST AMOUNTING TO RS.46,91,684/-. IT WAS INCUMB ENT ON THE AO TO ESTABLISH A NEXUS BETWEEN THE EXPENDITURE INC URRED AND THE INCOME WHICH WAS EXEMPT UNDER THE ACT. FACTS CL EARLY DO NOT SUPPORT THE ACTION OF THE AO. DISALLOWANCE IS A CCORDINGLY DELETED. THE AO IS DIRECTED TO RECOMPUTE THE INCOME ACCORDINGLY.' 15. WE ARE, THEREFORE, OF THE OPINION THAT IN SO FA R AS THE ISSUE RELATING TO DISALLOWANCE U/S.14A IS CONCERNED, THERE WAS NO ERR OR IN THE ASSESSMENT ORDER, WHICH COULD BE CONSIDERED AS PREJUDICIAL TO THE INTERESTS OF REVENUE. THEREFORE, WHILE SUSTAINING THE ORDER OF CIT, PASSE D U/S.263 OF THE ACT, WE MODIFY SUCH ORDER IN THAT THE AO SHALL IN THE ASSES SMENT TO BE DONE PURSUANT TO SUCH ORDER, CONSIDER ONLY THE ISSUE WIT H REGARD TO INTEREST ON LOANS TAKEN FROM SBI AND NOT THE OTHER ISSUE, VIZ, DISALLOWANCE U/S.14A OF THE ACT. ORDER OF THE CIT IS MODIFIED TO THIS EXTE NT. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH DAY OF J UNE, 2015. SD/- SD/- (N. V. VASUDEVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA.722/BANG/2012 PAGE - 8