DCIT 8(3)(1), MUMBAI V. TATA HOUSING DEVELOPMENT CO. LTD, MUMBAI

ITA 838/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8654 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 09-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGH
• Keywords: Earning of tax free income; Revenue expenditure; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , HON'BLE ACCOUNTANT MEMBER ITA NO S . 837 & 838 /MUM/201 8 (A.Y S : 2013 - 1 4 & 2014 - 15 ) DY. CIT., CIRCLE 8(3)(1) 6 TH FLOOR, ROOM NO. 615 AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 V. M/S. TATA HOUSING DEVELOPMENT CO. LTD., 12 TH FLOOR, TIMES TOWER SENAPAT BAPAT MARG , LOWER PAREL MUMBAI 400 013 PAN: AAACT0191Q (APPELLANT) (RESPONDENT) CO. NOS. 154 & 153/MUM/2019 [ARISING OUT OF ITA NO S . 837 & 838 /MUM/201 8 (A.Y S : 2013 - 14 & 2014 - 15 ) ] M/S. TATA HOUSING DEVELOPMENT CO. LTD., 12 TH FLOOR, TIMES TOWER SENAPAT BAPAT MARG, LOWER PAREL MUMBAI 400 013 PAN: AAACT0191Q V. DY. CIT., CIRCLE 8(3)(1) 6 TH FLOOR, ROOM NO. 615 AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MADHUR AGARWAL DEPARTMENT BY : SHRI AMIT PRATAP SINGH DATE OF HEARING : 0 8 .01.2020 DATE OF PRONOUNCEMENT : 20 .07 .2020 2 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., O R D E R PER C.N. PRASAD (JM) 1. THESE APPEALS AND CROSS OBJECTION S ARE FILED BY THE REVENUE AND ASSESSEE AGAINST DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 14, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 03.11.2017 FOR THE A.YS. 2013 - 14 AND 2014 - 15. 2. GROUND NOS. 1 AND 2 OF REVENUES APPEAL FOR A.Y. 2013 - 14 AND A.Y. 2014 - 15 RELATES TO DELETION OF DISALLOWANCE M ADE U/S. 36(1)(III) OF THE ACT. 3. LD. COUNSEL FOR THE ASSESSEE , AT THE OUTSET SUBMITS THAT THIS ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS AND BOTH AUTHORITIES BELOW FOLLOWED EARLY YEAR S ORDERS WHILE DECIDING THE ISSUE. 4. LD. DR FAIRLY SUBMITTED THAT THE ISSUE HAS BEEN DECIDED BY T HE TRIBUNAL WHICH HAS BEEN FOL LOWED BY THE LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF 3 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., THE ASSESSEE IN ITA.NO. 2664/MUM/2012 DATED 01.05.2015 FOR THE A .Y . 2004 - 05 WHEREIN THE TRIBUNAL HELD AS UNDER: - 2. WE WILL FIRST TAKE UP ASSESSEES APPEAL FOR THE A.Y. 2004 - 05, BEING ITA.NO. 2664/MUM/2012 IN VARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS MAINLY CHALLENGED THE DISALLOWANCE OF INTEREST U/S .36(1 )(III) AND DISALLOWANCE OF EXPENDITURE U/S.14 A. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT IN MUMBAI AND OTHER CITIES. AT THE OUTSET THE LD. SENIOR COUNSEL, SHRI DINESH VYAS SUBMITTED THA T BOTH THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS. REGARDING DISALLOWANCE OF INTEREST U/S. 36(1 )(III), HE SUBMITTED THAT LD. CIT(A) HAS DIRECTED THE AO TO RESTRICT THE CLAIM O F INTEREST U/S. 36(1 )(III) TO THAT FOR THE PROJECT COMPLETED DURING THE RELEVANT PREVIOUS YEAR ONLY AND HELD THAT AO SHOULD FOLLOW THE SAME REASONING AS GIVEN BY HIM IN HIS APPELLATE ORDER FOR THE AY 2005 - 06. IN AY 2005 - 06, THE ASSESSEE HAD CONTENDED THAT IT HAD CLAIMED INTEREST ON PAYMENT BASIS U/S. 36(1 )(III), WHEREAS THE LD. CIT(A) HELD AS UNDER: '3.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD . COUNSEL AND IN THIS CASE, IT IS CLEAR THAT THE DECISION OF HON BLE IT AT MUMBAI SPECIAL BENCH IN WALL STREET CONSTRUCTION (SUPRA) IS VERY CLEAR ON THIS ISSUE THAT ALTHOUGH THE 'INTEREST PAID/INCURRED IS OF A REVENUE NATURE - IT ONLY THE YEAR OF ALLOWABILITY THAT IS IN DISPUTE. NOT ITS ALLOWABILITY PER SE I.E. THE EXPENDITURE IS ALLOWABLE BEING OF A REVENUE NATURE BUT IN THE CASE OF PROJECT COMPLETION METHOD IT HAS TO BE ALLOWED ONLY WHEN THE PROJECT IS COMPLETE AND REVENUE/INCOME IS RECOGNIZED BY THE APPELLANT - I.E. IT HAS TO BE MATCHED WITH THE CORRESPONDING INCOME AND WHEN THERE IS NO REORGANIZ ATION OF INCOME THEN THERE CAN BE NO ALLOWABILITY OF THE CORRESPONDING EXPENDITURE - OTHERWISE IT WOULD RESULT IN DISTORTION OF THE MATCHING PRINCIPLE - AS HELD BY HON BLE BOMBAY HIGH COURT IN THE CASE OF TAPARIA TOOLS 260 ITR 102 (BOM ) - THEREFORE, SINCE IT CANNOT BE LINKED WITH THE RECOGNIZATION OF REVENUE - IN A PROJECT COMPLETION METHOD - IT CANNOT BE ALLOWED TILL THE PROJECT IS COMPLETE AND REVENUE RECOGNIZED - THUS THIS GROUND OF APPEAL IS DISMISSED. RELIANCE PLACED BY LD. COUNSEL ON THE FOLLOWING DEC ISIONS: (I) TATA CHEMICALS LTD. 256 ITR 395 (II) CIT VS. LOKHANDWALA CONSTRUCTIONS INDIA LTD. (2003) 260 ITR 579 . 4 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., (III) PARANJAPE GRIHA NINNAN P. LTD. VS. JT. C1T SPL RG, 50 IN ITA NO. 2398/MUM/2001 DATED 04 - 04 - 2006. (IV) JT. CIT SPL RG. 6 VS. K. RAHEJA (P) LTD. 102ITD 414. IS OF NO AVAIL BECAUSE IN ALL THESE CASES WHAT HAS BEEN DECIDED IS THE FA CT OF ALLOWABILITY OF 'INTEREST AS A 'PERIOD COST - WHICH IS NOT IN DOUBT HERE - WHAT IS ASSAILED IS THAT 'PROJECT COMPLETION METHOD ITS TIME OF ALLOW ABILITY IS ONLY WHEN THE PROJECT IS COMPLETE AND REVENUE THEREFROM RECOGNIZED. HENCE, THIS GROUND OF APPEAL IS DISMISSED. THUS, THE LD. CIT(A) HAD DECIDED THE ISSUE ON THE BASIS OF BOMBAY HIGH COURT DECISION IN THE CASE OF TAPARIA TOOLS 260 ITR 102, WHICH NOW STANDS OVERRULED BY HON'BLE SUPREME COURT VIDE JUDGMENT AND ORDER DATED 23.03.2015 IN THE CASE OF TAPARIA TOOLS VS. JCIT [(REPORTED IN (2015) 92 CCH 123) (SC)], WHEREIN THE HON'BLE SUPREME COURT HELD THAT IF THE ASSESSEE'S CLAIMS THE REV ENUE EXPENDITURE IN THE YEAR IN WHICH IT HAS BEEN PAID THEN SAME CANNOT DENIED ON THE GROUND THAT MATCHING REVENUE IS ALSO TO BE SHOWN IN THIS YEAR. MOREOVER, THIS ISSUE HAVE ALWAYS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL, RIGHT FROM THE AY 1993 - 94 ONWARDS. 4. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ASSESSEE HAS BEEN FOLLOWING COMPLETED CONTRACT METHOD I.E. 'PROJECT COMPLETION METHOD'. THIS METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY THE TRIBUNAL IN AY 1997 - 98 AND 1999 - 2000 AND ALSO TH E SAME HAS BEEN UPHELD BY THE HON'BLE BOMBAY HIGH COURT IN THE EARLIER YEARS. THE ASSESSEE HAS BEEN CLA IMING INTEREST EXPENSES U/S. 36(1 )(III) ON PAYMENT BASIS ON THE LOANS WHICH ARE MAINLY FOR BUSINESS AND NOT PROJECT SPECIFIC. THE LD. CIT(A) HAS DIRECTED TO RESTRICT THE CLAIM OF INTEREST TO THAT ON THE PROJECT COMPLETION DURING THE RELEVANT PREVIOUS YEAR AND HELD THAT IT IS TO BE ALLOWED ONLY WHEN THE PROJECT IS COMPLETE AND REVENUE/INCOME IS RECOGNIZED BY THE ASSESSEE, BECAUSE IT IS THEN IT HAS TO BE MAT CHED WITH THE CORRESPONDING INCOME. IF THERE IS NO RECOGNITION OF INCOME, THEN THERE CANNOT BE ALLOWABILITY OF CORRESPONDING EXPENDITURE. 5. BEFORE US, LD, SENIOR COUNSEL, MR. DINESH VYAS HAD SUBMITTED THAT THE ASSESSEE HAS TAKEN LOAN FOR OVERALL BUSINESS AND NOT FOR A PARTICULAR PROJECT. IN ANY CASE, THE REVENUE EXPENDITURE SHOULD BE ALLOWED IN THE YEAR IN WHICH ASSESSEE HAS CLAIMED AND CANNOT BE DEFERRED FOR SUBSEQUENT YEARS BASED ON REVENUE MATCHING PRINCIPLE. WE AGREE WITH THE CONTENTION OF THE LD. COUN SEL, FIRSTLY THAT HON'BLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS, NOW HAVE CLEARLY HELD THAT IF THE REVENUE EXPENDITURE HAS BEEN INCURRED IN A PARTICULAR YEAR AND ASSESSEE CLAIMS THAT EXPENDITURE IN THAT YEAR, THE REVENUE 5 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., CANNOT DENY THE EXPENDITURE AN D IT HAS TO BE ALLOWED; SECONDLY, THE LOANS ARE NOT PROJECT SPECIFIC AND IT IS UNDISPUTEDLY A REVENUE EXPENDITURE AND SAME HAS TO BE ALLOWED IN THE YEAR IT HAS BEEN INCURRED IRRESPECTIVE OF THE FACT THAT, WHETHER THE ASSESSEE IS FOLLOWING 'PROJECT COMPLETI ON METHOD'. OTHERWISE ALSO, THIS ISSUE STANDS ALLOWED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEE'S OWN CASE RIGHT FROM THE AYS 1993 - 94 TO AY 2002 - 03. THUS, RESPECTFULLY FOLLOWING THE EARLIER YEARS PRECEDENCE AND THE DECISION OF HON'BLE SUPREME C OURT IN TAPARIA TOOLS, WE DIRECT THE AO TO ALLOW THE INTEREST CLAIMED BY ASSESSEE DURING THE YEAR. IN THE RESULT, GROUND NO. 1 HAS RAISED BY THE ASSESSEE STANDS ALLOWED. 6. RESPECTFULLY FOLLOWING THE SAID ORDER, WE SUSTAIN THE ORDER OF THE LD.CIT(A) AND REJECT THE GROUNDS RAISED BY THE REVENUE . 7. SIMILARLY, GROUND NOS. 3 AND 4 OF THE REVENUES APPEALS ARE COMMON FOR THE A.Y. 2013 - 14 AND A.Y. 2014 - 15 AND THEY RELATE TO PARTLY DE LETING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF I.T. RULES. 8. BRIEFLY STATED THE FACTS ARE , THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENTS FOR THE A.Y. 2013 - 14 AND 2014 - 15 COMPUTED THE DISALLOWANCE U/S. 14A R.W. RULE 8D AND MADE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) AND EXPENSES BEING 0.5% OF AVERAGE INVESTMENTS UNDER RULE 8D(2)(III) OF I.T. RULES. THE LD.CIT(A) DELETED THE INTEREST DISALLOWANCE MADE UNDER RULE 8D(2)(II) AND RESTRICTED THE DISALLOWANCE MADE UNDER RULE 8D(2)(III) OF I. T. RULES TO THE AMOUNT OF EXEMPT INCOME EARNED B Y THE ASSESSEE DURING THE YEAR. 6 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., 9. LD. DR VEHEMENTLY SUPPORTED THE O RDERS OF THE ASSESSING OFFICER. 10. LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT LD.CIT(A) DELETED THE DISALLOWANCE OF INTEREST AS THE ASSESSEE HAS IT S OWN FUNDS MUCH MORE THAN THE INVESTMENTS AND FOLLOWED THE DECISION OF THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF HDFC BANK LTD., V. DCIT [383 ITR 529] . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CROSS OBJECTION S FILED BY THE ASSESSEE IT CHALLENGED THE ORDER OF THE LD.CIT(A) IN RESTRICTING THE DISALLOWANCE TO THE EXEMPT INCOME . LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE RATIO OF THE DECISION OF THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LI MITED [165 ITD 27] MAY BE FOLLOWED AND ONLY THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME MAY BE CONSIDERED FOR COMPUTING THE DISALLOWANCE . 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS THE INTEREST DISALLO WANCE IS CONCERNED WE FIND THAT THE LD.CIT(A) FOLLOWING T HE DECISION OF THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF HDFC BANK LTD., V. DCIT (SUPRA) DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE AS THE ASSESSEE WAS HAVING CLOSING VALUE OF INVES TMENTS AT .5 , 66 , 19 , 52 , 810/ - AND WHEREAS THE SHARE CAPITAL AND RESERVES AND SURPLUS AVAILABLE WITH T HE ASSESSEE WERE AT 7 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., . 9 , 38 , 74 , 21 , 699/ - . THUS, SINCE THE ASSESSEE WAS HAVING MORE SURPLUS FUNDS THAN THE CLOSING VALUE OF INVESTMENTS WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN DELETING THE DISAL LOWANCE UNDER RULE 8D(2)(II) OF I.T. RULES, THE SAME IS SUSTAINED. 12. COMING TO THE DISALLOWANCE UNDER RULE 8D(2)(III) OF I.T. RULES , THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXEMPT I NCOME EARNED BY THE ASSESSEE DURING THE YEAR. LD. COUNSEL FOR THE ASSESSEE BEFORE US PLEADED THAT IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF ACIT V . VIREET INVESTMENTS PRIVATE LIMITED (SUPRA) ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE. WE DIRECT THE ASSESSING OFFICER TO APPLY THE RATIO OF THE DECISION OF THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LI MITED (SUPRA) AND COMPUT E THE DISALLOWANCE ACCORDINGLY. 13. IN THE RESULT, APPEAL S OF THE REVENUE ARE DISMISSED AND CROSS OBJECTION S FILED BY THE ASSESSEE ARE PARTLY ALLOWED. 14. BEFORE PARTING , WE NOTICED T HAT THIS APPEAL WAS HEARD ON 08 .01.2020 AND THE PRONOUNCEMENT IS DELAYED DUE TO LOCKDOWN IN VIEW OF COVID - 19 8 ITA NOS. 837 & 838/MUM/2018 CO. NOS. 154 & 153/MUM/2019 M/S. TATA HOUSING DEVELOPMENT CO. LTD., PANDEMIC. THE PRONOUNCEMENT IS AS PER RULE 34(5) OF INCOME TAX APPELLATE TRIBUNAL RULES, 1963 AND HON'BLE BOMBAY HIGH COURT DECISION VIDE ORDERS DATED 15.04.2020 AND 15.06.2020 EXTENDING THE TIME BOUND PERIODS SPECIFIED BY HON'BLE HIGH COURT BY REMOVING THE PERIOD UNDER LOCKDOWN. THIS ASPECT WAS ALSO DEALT WITH IN DETAIL BY THE MUMBAI BENCH OF THE TRIBUNAL IN CASE OF DCIT V. JSW STEEL VIDE ORDER DATED 15.05.2020. ORDER PRONOUNCED ON 20 . 07.2020 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. SD/ - SD/ - ( S. RIFAUR RAHMAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 20 / 0 7 / 2020 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM