The Deputy Commissioner Of Income Tax, Central Circle-2(1), Bangalore V. Ibrox Real Estate Development Private Limited, Bangalore

MA 106/BANG/2023

AI Insights

The case involves the Deputy Commissioner of Income Tax, Central Circle \\u2013 2(1), Bangalore as the appellant and M/s. Ibrox Real Estate Development Pvt. Ltd. as the respondent. The Tribunal addressed several issues raised by the assessee in the earlier appeal, including disallowances under section 14A, prior period expenditure, and personal expenditure. The Tribunal found that certain issues, specifically the disallowance under section 14A and the disallowance of personal expenditure, were not considered in the initial order and required further examination. The Tribunal directed the Assessing Officer to compute the disallowance under Rule 8D(2)(ii) based on investments that yielded exempt income, following the precedent set by the Hon'ble Delhi Special Bench in ACIT vs. Vireet Investments Pvt. Ltd. Furthermore, the Tribunal remanded the issues of prior period expenses and adhoc disallowance of 10% on site development expenses back to the Assessing Officer for detailed verification.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124294 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 16 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-08-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-07-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 14-03-2023
• Other Referred Cases: ACIT vs Vireet Investments Pvt Ltd, Vaishnavi Infrastructure Pvt Ltd, M/s. Hasan Hajee and Co. vs. DCIT, ACIT vs. M/s. Modi Rubber Ltd., Tuticorin Alkali Chemicals & Fertilizers Ltd, v/s. CIT, CIT v/s. Bokaro Steel Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NISCHAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) Assessment Year : 2012-13 The Deputy Commissioner of Income Tax, Central Circle – 2(1), Bangalore. Vs. M/s. Ibrox Real Estate Development Pvt. Ltd., SNN Minds Eye, No. 4, 2 nd Floor, Diagonal Road, 3 rd Block, Jayanagar, Bangalore – 560 011. PAN: AACCI2895L APPELLANT RESPONDENT Assessee by : Smt. Suman Lunkar, CA Revenue by : Dr. Nischal, Addl. CIT (DR) Date of Hearing : 14-07-2023 Date of Pronouncement : 30-08-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present M.P. is filed by revenue against the order dated 01.11.2022 passed by this Tribunal in ITA No. 344/Bang/2022 for A.Y. 2012-13. 2. It is submitted that for A.Y. 2012-13, following issues were raised by assessee before this Tribunal. a) Disallowance u/s. 14A b) Disallowance of prior period expenditure Page 2 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) c) Disallowance of various expenses to the extent of 10 % (but out of these expenditures substantial amounts were capitalised to WIP). d) Disallowance of personal expenditure to the extent of 20% thereof. 2.1. It is submitted by the Ld.DR that issue pertaining disallowance u/s. 14A and disallowance of personal expenditure to the extent of 20% has not been considered while passing the impugned order. 2.2. On perusal of the impugned order, we note the submissions of the assessee to be correct and accordingly, the grounds pertaining to these issues are being decided as under: Following paras shall be read after para 23 in the impugned order. “24. Ground no. 2 pertains to the disallowance u/s. 14A r.w. Rule 8D. 24.1 The Ld.AR submitted that the Ld.CIT(A) in para 5.12 of the order dated 08.03.2022 held that the disallowance u/s 14A r.w.s rule 8D(2)(ii) of the Act has to be done only with respect to such investments which had yielded exempt income. This was as per the order of Special Bench of Delhi ITAT in the case of ACIT vs Vireet Investments Pvt Ltd, 82 taxmann.com 415. Similar view is also taken in the case of Vaishnavi Infrastructure Pvt Ltd by the Bangalore Bench of ITAT. 24.2 She submitted that having observed so in para 5.12, the Ld.CIT(A) goes on to state that investment which have not yielded the exempt income should be excluded from both the average investment and the average total asset for the reason that if denominator include certain amount Page 3 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) of certain type which the numerator does not include the form would render undesirable results. It is submitted that this findings of Ld.CIT(A) was challenged by assessee before this Tribunal. 24.3 The Ld.AR relied on the computation of disallowance u/s. 14A as prescribed in Rule 8D(2) in support of her submissions. She submitted that the average value of investment and the average value of total assets are defined in Rule itself which cannot be altered with and therefore the interpretation of the Ld.CIT(A) regarding the components that are to be included in the numerator and the denominator is not in consonance with the rules. The Ld.DR on the contrary relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 24.4 We agree with the findings of Ld.CIT(A) that the disallowance under Rule 8D(2)(ii) has to be done considering those investments that yielded exempt income which is as per the ratio laid down by Hon’ble Delhi Special Bench in ACIT vs. Vireet Investments Pvt. Ltd. reported in 82 taxmann.com 415. The formula that has to be considered for computing such disallowance has been clearly mentioned in Rule 8D(2) itself which cannot be altered. We direct the Ld.AO to compute the disallowance if any under Rule 8D(2)(ii) having regards to the ratio laid down by Hon’ble Delhi Special Bench in case of ACIT vs. Vireet Investments Pvt. Ltd. (supra) and the formula that has been expressly mentioned in Rule 8D(2). Accordingly, this ground raised by assessee stands allowed.” Page 4 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) 3. The next issue raised by revenue is in respect of the disallowance of personal expenditure being not considered in the impugned order by the Tribunal. 3.1. On perusal of the record, we note that the submissions of the revenue is correct. Accordingly, the grounds pertaining to this issue are considered as under. 3.2. Following paragraphs shall be read in continuation to para 24.4 in the impugned order. “25. Ground nos. 4.3 and 4.4 of the appeal filed by assessee that reads as under: “4.3 In any case, the learned Assessing officer had erred in disallowing 20% of the travelling and conveyance expenditure in the absence of documentary evidence and further holding that atleast 20% of the expenditure incurred would be personal in nature and the learned CIT(A) has erred in confirming the same. The conclusion of Authorities below is without any basis and merely on the basis of surmises and conjectures is to be disregarded and adhoc disallowance of travelling and conveyance expenses is to be deleted. 4.4 In any case and without prejudice, the disallowance of expenses are erroneous and excessive.” 25.1. It is submitted that the Ld.AO in the assessment order disallowed 20% of the travelling and conveyance expenses on adhoc basis on the ground that there is an element of transfer use that cannot be ruled out when there being complete supporting documents in respect of the expenditure claimed. The Ld.AR had argued that assessee is engaged in the business of real estate development and considering the nature of Page 5 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) business, it is difficult to maintain supporting documents pertaining to certain expenses. 25.2. It was also submitted that disallowance of expenditure on adhoc basis without rejecting the books of accounts as always been overruled by this Tribunal. The Ld.AR had placed reliance on the decision of Coordinate Bench of this Tribunal in case of M/s. Hasan Hajee and Co. vs. DCIT in ITA No. 170 & 171/Bang/2023. The Ld.AR also submitted that in compilation of case laws, assessee has relied on decision of Hon’ble Delhi Tribunal in case of ACIT vs. M/s. Modi Rubber Ltd. in ITA No. 1952/Del/2014 by order dated 15.05.2018. 25.3. It was thus submitted by Ld.AR that adhoc disallowance of 10% of expenses on mere assumption without any basis is bad in law. 25.4. On the contrary, the Ld.DR relied on the observations of the Ld.CIT(A) that reads as under: Page 6 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) Page 7 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) Page 8 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) Page 9 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) Page 10 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) 25.5. The Ld.DR supported the orders passed by authorities below. 25.6. We have perused the submissions advanced by both sides in the light of records placed before us. 25.6.1. Admittedly, the authorities have accepted the books of account produced by the assessee and in absence of any challenge to the entries made in the books of accounts by the authorities below, we do not agree with an adhoc Page 11 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) disallowance made by the Ld.AO for an expenditure of 10%. Accordingly, the same stands deleted. In the result, this ground raised by assessee stands allowed.” 4. Further we also note that this Tribunal while considering Ground nos. 3.2-4 for A.Y. 2011-12 considered the interest received and the interest paid towards the working project without giving directions to the Ld.AO in para 20. 4.1. Henceforth para 20 shall be read as under: “Thus in the present facts of the case, the assessee has made short fixed deposit from which it had earned interest and such interest earned in inextricably linked with the capital expenditure as the source of the fixed deposit are the borrowed funds. We are therefore of the opinion that the ratio laid down by the Honourable Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers Ltd, v/s. CIT (Supra) is not applicable and that the ratio laid down by the Honourable Supreme Court in case of CIT v/s. Bokaro Steel Ltd, (Supra) would be applicable. Thus the interest earned on fixed deposits has to be considered as a part of capital work in progress. Principally, we allow the claim raised by the assessee. However necessary verification needs to be carried out by the Ld.AO as to whether these expenses has not been subjected to be claimed in the first year.” 5. We also suomoto note that necessary amendments are to be considered in para 23. Accordingly, para 23 of the impugned order shall be read as under: “23. As this issues pertaining to prior period expenses and adhoc disallowance of 10% on site development expenses raised in ground nos. 3.1 to 4.1 has been remanded while considering Assessment Year 2011-12, applying the same view mutatis mutandis, the present appeal for A.Y. 2012- 13 also stands remanded to the Ld.AO, with the Page 12 of 12 M.P. No. 106/Bang/2023 (in ITA No. 344/Bang/2022) direction to verify the claim in accordance with the principles laid down in various decisions. Accordingly, the above grounds stands allowed for statistical purposes.” 6. Apart from the above changes, other portions of the order shall remain unchanged. In the result, the M.P. filed by the revenue stands allowed. Order pronounced in the open court on 30 th August, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 30 th August, 2023 /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore