M/s Renaissance Holdings and Developers Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITA 848/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7732 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 19-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: B SUDHEENDRA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, B E NGAL U R U BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALI E T KUMAR, JUDICIAL MEMBER ITA NO. 848 / BANG/ 201 8 (ASSESSMENT YEAR : 20 1 4 - 15 ) M/S.RENAISSANCE HOLDINGS & DEVELOPERS PVT. LTD. NO.5, REN AISSANCE LANDMARK, 8 TH MAIN, 17 TH CROSS, MALLESWARAM, BENGALUR U - 560055. PAN: AAACR 6804 I VS. ASST. COMMISSIONER OF INCOME - TAX, APPELLANT CIRCLE 5(1)(1), BENGALURU. RESPONDENT APPELLANT BY : SHRI B.SUDHEENDRA, ADVOCATE. RESPONDENT BY : DR.P.V.PRADEEP KUMAR, ADDL.CIT(DR). . DATE OF HEARING : 2 8 /06/2018 DATE OF PRONOUNCEMENT : 06 /0 7 /2018 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER O F INCOME - TAX (APPEALS) - 5 , [CIT(A)], BENGALURU, DATED 03/01/2018 FOR THE ASSESSMENT YEAR 201 4 - 1 5 . 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: IT A NO.848 /BANG/201 8 PAGE 2 OF 5 IT A NO.848 /BANG/201 8 PAGE 3 OF 5 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DULY INCORPORATED UNDER T HE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014 - 15 WAS FILED ON 30/09/2014 DECLARING TOTAL INCOME OF RS.6,32,57,700/ - . AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED VIDE ORDER DATED 30/12/2016 PASSED U/S 143(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] AT TOTAL INCOME OF RS.6,86,39,036/ - . WHILE DOING SO, THE AO MADE ADDITION OF RS.24,87,246/ - INVOKING RUL E 8D R.W.S. 14A OF THE ACT. THE CASE OF THE AO IS THAT THE ASSESSEE - COMPANY WOULD HAVE INCURRED CERTAIN ADMINISTRATIVE EXPENDITURE FOR THE PURPOSE OF MAKING INVESTMENTS EARNING DIVIDEND INCOME ETC. , AND THEREFORE, MADE DISALLOWANCE OF RS.24,87,246/ - UNDER CLAUSE (III) OF RULE 8D OF IT RULES BY ADOPTING % OF AVERAGE VALUE INVESTMENTS. 4. BEING AGGRIEVED BY THE ABOVE ORDER, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER CONFIRMED THE ACTION OF THE AO. IT IS CONTENDED BEFORE THE LD.CIT (A) THAT THE AMOUNT OF DISALLOWANCE SHOULD BE RESTRICTED TO EXEMPT INCOME OF RS.96,116/ - AND THE INVESTMENTS WHICH HAS NOT YIELDED DIV IDEND INCOME/EXEMPT INCOME SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPUTING AVERAGE INVESTMENT FOR WORKING OUT DISALLOWANCE UNDER CLAUSE ( III) OF SUB - RULE (2) OF 8D OF IT RULES. THESE CONTENTIONS HAVE BEEN REJECTED BY THE LD.CIT(A). 5. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY CONTENDED THAT THE AMOUNT OF DISALLOWAN CE U/S 14A CANNOT EXCEED THE EXEMPT INCOME OF RS.96,116/ - . IN THIS CONNECTION, HE PLACED RELIANCE ON THE DECISION OF THE DHARWAD BENCH OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRAGATHI KRISHNA GRAMIN BANK VS. JCIT IN ITA NOS.100001 & IT A NO.848 /BANG/201 8 PAGE 4 OF 5 100002 /2018 DT.28/05/018 . IT IS FURTHER SUBMITTED THAT FOR THE PURPOSE OF CALCULATING AVERAGE VALUE OF INVESTMENTS FOR WORKING OUT DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D, THE ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME SHOULD ALONE BE CONSIDERED. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL (DELHI) IN THE CASE OF ACIT VS. VIREET INVESTMENT (P) LTD. 82 TAXMANN.COM 415 / 165 ITD 27 . ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF T HE LOWER AUTHORITIES. 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE INVOLVED IS WHETHER THE AO IS JUSTIFIED IN MAKING DISALLOWANCE OF RS.24,87,246/ - UNDER CLAUSE (III) OF RULE 8D OF THE IT RULES. THERE IS NO DISPUTE ABO UT THE APPLICABILITY OF THE PROVISIONS OF SEC.14A OF THE ACT. THE CONTENTION OF THE ASSESSEE IS TWO - FOLD. THE FIRST LIMB OF ARGUMENT IS THAT DISALLOWANCE CANNOT EXCEED EXEMPT INCOME AND SECONDLY, FOR THE PURPOSE OF WORKING OUT DISALLOWANCE UNDER CLAUSE (I II) OF RULE 8D, THE ONLY INVESTMENTS WHICH YIELDED DIVIDEND INCOME OR EXEMPT INCOME ALONE SHOULD BE CONSIDERED. THIS ISSUE IS NOW COVERED BY THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL (DELHI) IN THE CASE OF VIREET INVESTMENT (P) LTD. (SUPRA). THE RELE VANT PARAGRAPH IS EXTRACTED HEREUNDER: 11.16. THEREFORE, IN OUR CONSIDERED OPINION, NO CONTRARY VIEW CAN BE TAKEN UNDER THESE CIRCUMSTANCES. WE, ACCORDINGLY, HOLD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTME NT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. THUS THE PROPOSITION THAT THE AMOUNT OF DISALLOWANCE CANNOT EXCEED EXEMPT INCOME IS SETTLED. ACCORDINGLY, W E HOLD THAT THE DISALLOWANCE CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. ON THE SECOND LIMB OF ARG UMENT THAT ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME SHOULD ALONE BE CONSIDERED, IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. & ANR ( 165 ITD 27 ) (SB), TH E CONTENTION OF THE ASSESSEE IS IT A NO.848 /BANG/201 8 PAGE 5 OF 5 ACCEPTED . ACCORDINGLY, WE RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR DISALLOWANCE U/S 14A BY RESTRICTING THE AMOUNT OF DISALLOWANCE TO THE LOWER OF EXEMPT INCOME OR AMOUNT ARRIVED AT BY PRESCRIBED FORMULA UNDER RULE 8D CLAUSE (III) BY TAKING INTO O NLY THOSE INVEST MENTS W HICH YIELDED EXEMPT INCOME. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 0 6 TH JULY 2018. S D/ - S D/ - ( LALI E T KUMAR ) (INTURI RAMA RAO) JUDICIAL MEMB ER ACCOUNTANT MEMBER PLACE : B EN GAL URU D A T E : 06 /0 7 2018 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE