JCIT, Bangalore V. M/s Brigade Enterprises Ltd., Bangalore

ITA 883/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7692 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS J
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, B E NGAL U R U BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 883 / BANG/20 16 (ASSESSMENT YEAR: 20 1 1 - 12) JOINT COMMISSIONER OF INCOME - TAX (OSD) CIRCLE 1(1)( 2), BENGALURU - 560095. APPELLANT VS. M/S .BRIGADE ENTERPRISES LTD. 29 TH & 30 TH FLOORS, WORLD TRADE CENTRE, BRIGADE GATEWAY CAMPUS, 26/1, RAJKUMAR ROAD, MALLESWARAM, BENGALURU - 560055. PAN: AAACB 7459 F RESPONDENT APPELLANT BY : SMT. SWAPNA DAS, JCIT(DR). RESPONDENT BY : SHRI PADAMCHAND KHINCHA, CA. DATE OF HEARING : 19/06/2017 DATE OF PRONOUNCEMENT : 09 /0 8 /2017 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APP EAL FILED BY THE REVENUE DIRECTED AGAINST TH E ORDER OF THE CIT(A) - 1, BENGALURU, DATED 2 0/0 1 / 2016 FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE REVENUE RAISED THE FOLLOWING G ROUNDS OF APPEAL: ITA NO . 883 /BANG/201 6 PAGE 2 OF 8 ITA NO . 883 /BANG/201 6 PAGE 3 OF 8 3. BRIEFLY FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT 1956 . I T IS ENGAGED IN THE BUSINESS OF REAL ESTATE. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 WAS FILED ON 30 /09/ 2011 DISCLOSING INCOME OF RS. 35 , 38 , 78 , 618 / - . AGAINST THE SAID RETURN OF INCOME , THE ASSESSMENT WAS COMPLETED BY THE DY.CIT, CIRCLE 11(2) V IDE ORDER DATED 21 /0 3 / 2014 AT TOTAL INCOME OF RS. 37 , 90 , 69 , 7 60. WH ILE DOING SO , T HE A SSESSING O FFICER (AO) MADE THE DISALLOWANCE OF RS. 19 , 41 , 754 / - UNDER THE PROVISIONS OF SECTION 14 A AND FURTHER DISALLOWANCE OF RS. 2 , 3 2 , 49 , 384 / - BY DISALLOWING INTEREST HOLDING THAT BORROWED FUNDS W ERE DIVERTED FOR THE PURPOSE OF MAKING INVESTMENTS OR ADVANCING LOANS AND ADVANCES TO THE SISTER CONCERN , INVOKING THE PROVISIONS OF SECTION 36 ( 1 )(III) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. 4. THE FACTUAL M ATRIX LEADING TO THE ABOVE ADDITION IS AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT A SUM OF RS.1 9.69 CRORES WAS MADE IN THE FORM OF INVESTMENTS IN THE SHARES OF SEVERAL COMPANIES . D IVIDEND INCOME OF RS. 23 , 71 , 636 / - WAS EARNED OUT OF WHICH ITA NO . 883 /BANG/201 6 PAGE 4 OF 8 RS. 14 , 46 , 634 / - WAS EARNED BY WAY OF DIVIDEND ON INVESTMENTS IN MUTUAL FUNDS AND RS.9,25,000/ - WAS EARNED AS DIVIDEND ON INVESTMENTS IN SHARES OF TANDEM A LLIED S ERVICES P.LTD. WHEN THE AS SESSEE WAS CALLED UPON TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 14 A CANNOT BE INVOKED , IT WAS CONTENDED BEFORE AO THAT THERE WAS NO DIRECT N EXUS BETWEEN BORROWED FUNDS AND INVESTMENTS . A S REGARDS DISALLOWANCE OF INTEREST UNDER THE PROVISIONS OF SECTI ON 36 (1)(III), THE AO REJECTED THE CON TENTION OF THE ASSESSEE THAT ADVANCES TO SUBSIDIARY COMPANIES WERE MADE OUT OF RESERVES AND SURPLUS OF THE COMPANY . A FTER PLACING R ELI ANCE ON THE FOLLOWING DECISIONS: I. CIT VS. ABHISHEK INDUSTR IES LTD. (205 CTR 304) (P&H ) II. CIT VS. VARINDER AGRO CHEMICALS LTD. (205 CTR 334) (P&H) III. CIT VS. DOCTOR & CO. (180 ITR 627) (BOM) IT WAS HELD THAT LOANS TO SISTER CONCERNS WERE NOT OUT OF BUSINESS EXPEDIENCY AND BROUGHT TO TAX THE SUM OF RS. 2 , 32 , 49 ,384/ - . 5. BE ING AGGRIEVED , AN AP PEAL WAS FILED BEFORE THE CIT(A). T HE CIT(A) DELETED THE ADDITION ON ACCOUNT OF 14 A BY OBSERVING THAT THE AO HAD NOT RENDERED FINDING REGARDING CORRECTNESS OR OTHERWISE OF THE ASSESSEE S CLAIM THAT NO INTEREST EXPENDITURE WAS INCU R R E D FOR EARNING TAX EXEMP T INCOME . A S REGARDS DISALLOWANCE OF INTEREST U /S 36 (1)(III) OF THE ACT, THE CIT(A), FOLLOWING THE CO - ORDINATE BENCH DECISION OF THE ITAT IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2010 - 11 , DELETED THE ADDITION . ITA NO . 883 /BANG/201 6 PAGE 5 OF 8 6. THE LEARNED DR VEHEMENTLY CONT ENDED THAT THE CIT(A) OUGHT NOT TO HAVE DELETED THE ADDITIONS HOLDING THAT THERE WAS NO FINDING BY AO THAT THE CLAIM MADE BY THE RESPONDENT - ASSESSEE THAT THERE WAS NO EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. SHE FURTHER SUBMITTED THAT INVESTMENTS HAVE BEEN MADE OUT OF OVERDRAFT FACILITIES AVAILED FROM THE BANK AND THE INVESTMENTS ARE MORE THAN THE SHARE CAPITAL AND FREE RESERVE S . A S REGARDS DISALLOWANCE U /S 36(1)(III) SHE PLACED R ELIANCE ON THE DECISION OF THE HON BLE KARNATAKA HIGH COURT I N THE CA SE OF RAHEJA DEVELOPMENT CORPORATION IN SUPPORT OF THE PROPOSITION THAT IN THE ABSENCE OF BUSINESS EXPEDIENCY TO ADVANCE LOAN TO SISTER CONCERNS , THE SAME CAN BE THE DISALLOWED INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. 7. ON THE OTHER HAND, LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS TRIBUNAL GRANTED RELIEF TO THE ASSESSEE FOR THE ASSESSMENT YEAR S 2009 - 10 AND 20 10 - 11 AND PLACED R ELIANCE ON THE ORDERS OF THE TRIBUNAL IN ITA NO.236/BANG/2013 FOR ASSESSMENT YEAR 200 9 - 10 AND ITA NOS.127 5 & 1323/BANG/2014 FOR ASSESSMENT YEAR 2010 - 11. 8. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. G ROUND NOS. 1 , 9 AND 10 ARE GENERAL IN NATURE AND DO NOT REQUIRE ADJUDICATION. ITA NO . 883 /BANG/201 6 PAGE 6 OF 8 9. GROUND NOS.2 TO 6 CHALLENGE DELETION OF ADDITION BY THE CIT(A) U /S 14A OF THE ACT READ WITH RUL E 8D OF THE IT RULES . IT IS UNDISPUTED FACT THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 23 , 71 , 636 / - DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. DIVIDEND OF RS. 14 , 46 , 634 / - WAS BY WAY OF DIVIDEND ON INVESTMENTS IN MUTUAL FUNDS AND RS.9,25,000/ - WAS DIVIDEND ON INVESTMENTS IN SHARES OF TANDEM A LLIED S ERVICES P.LTD. THEN THE QUESTION THAT ARISES IS WHETHER ANY DISALLOWANCE IS CALLED FOR UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. THIS ISS UE HAS TO BE DECIDED BASED ON FACTS PREVAILING IN THE CASE. N OW THE LAW IS SETTLED TO THE EXTENT THAT WHERE INTEREST FREE FUNDS EXCEED INVESTMENT, NO DISALLOWANCE OF UNDER SUB - RULE 2 OF RULE 8 D READ WITH SECTION 14 A CAN BE MADE. HOWEVER , IN RE SPECT OF DISALLOWANCE OF E XPENDITURE UNDER CLAUSE (III) OF SUB - RULE (2) OF RULE 8 D, CANNOT BE RULED OUT . I N THE PRESENT CASE , THE CIT(A) MERELY FOLLOWED THE EARLIER ORDER ORDER , WITHOUT EXAMINING FACTS OF THE PRESENT CASE UNDER CLAUSE (III) OF RULE 8D R.W. S. 14A OF THE ACT. FROM THE BALANCE SHEET FILED ALONG WITH PAPER BOOK , IT IS CLEAR THAT THERE IS INCREASE IN THE INVESTMENT COMPARED TO LAST YEAR . T HIS NECESSITATES ENQUIRY INTO THIS ASPECT . MORE OVER , DISALLOWANCE UNDER SUB - CLAUSE (III) OF RULE 8 D CANNOT B E RULED OUT . TH EREFORE , WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING O FFICER FOR DE NOVO ASSESSMENT ON THE ABOVE LINES AFTER AFFORDING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO . 883 /BANG/201 6 PAGE 7 OF 8 10. A S REGARDS GROUND NOS.7 & AND CHALLENGING DELETION OF ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS ON THE GROUND THAT NO BORROWED FUNDS WERE USED FOR BUSINESS PURPOSE . NO DOUBT, THE RATIO OF THE HON BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS VS. CIT (288 ITR 1) CAN COME TO RESCUE OF THE ASSESSE E ONLY WHEN IT IS ESTABLISHED THAT THERE WAS BUSINESS EXPEDIENCY IN ADVANC ING LOAN. F ROM THE PERUSAL OF THE ASSESSMENT ORDER AS WELL AS THE CIT(A) S ORDER, IT IS DISCERNABLE THAT ASSESSEE - COMPANY MADE NO ATTEMPT TO ESTABLISH ITS BUSINESS EXPEDIENCY BY LAY ING FACTUAL F OUNDATION . I N THE CIRCUMSTANCES , CIT(A) WAS NOT JUST IFIED IN GRANTING RELIEF WITHOUT REFERRING TO ANY MATERIAL ESTABLISHING BUSINESS EXPEDIENCY. T HIS ISSUE IS ALSO RESTORED TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT AFTER AFFORDING DUE OPPOR TUNITY TO THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE R EVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH AUGUST , 201 7 S D/ - S D/ - (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER AC COUNTANT MEMBER PLACE : B EN GAL URU D A T E D : 09 /0 8 /2017 SRINIVASULU, SPS ITA NO . 883 /BANG/201 6 PAGE 8 OF 8 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORD ER SENIOR PRIVATE SECRETARY. INCOME - TAX APPELLATE TRIBUNAL BANGALORE