PRIME GOLD INFRA STEEL LTD.,JAIPUR vs. ACIT, ALWAR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 831/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke M/s Prime Gold Infra Steel Ltd. The ACIT, Vs. 5/2, Punjab Bagh Extn., Central Circle, Club Road, Delhi Alwar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCK3370P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Podar (Adv.) jktLo dh vksj ls@ Revenue by : Shri. P.P. Meena (J.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 15/01/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 25/01/2018 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 14.11.2014 of ld. CIT(Appeals) for the assessment year 2010-11. The assessee has raised the following grounds:- “1. Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the addition of Rs. 7,10,681/- on account of long term capital gain by invoking the provision of section 50C of the IT Act, 1961. 2. That under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the disallowing for Rs. 20,06,902/- u/s 14A of the IT Act, 1961 without going into the detailed calculation and actual facts.

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

confirmed by the ld. CIT(A) by invoking the provisions of Section 50C of

the Act in respect of the capital gain arising from sale of agricultural

land held by the assessee as business asset. The assessee sold the land

for Rs. 5,50,000/- which was acquired for a sum of Rs. 4,48,420/-. The

assessee declared business loss of Rs. 40,419/- from the sale of land.

The AO noted that the assessee claimed the land as business asset but

applied index cost for computing gain arising from the sale of the said

land. Accordingly, the AO held that the land was a capital asset and

profit on sale of land was calculated under the head long term capital

gain by applying the provisions of section 50C of the Act. Accordingly,

the AO made an addition of capital gain of Rs. 7,10,681/-. The assessee

challenged the action of the AO before the CIT(A) and contended that

the land in question was shown as business asset in the balance sheet

and therefore, the profit arises on sale of the said land is business profit

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

and not capital gain. The ld. CIT(A) did not accept the contention of the

assessee and confirmed the action of the AO.

department has not disputed that this land in question was held by the

assessee as business asset and therefore, the same being an

agricultural land outside the limit of the Municipal Corporation cannot

be held as capital assessee u/s 2(14) of the IT Act. Thus, the ld. AR has

contended that the gain/ profit on sale of the business asset is business

profit and not capital gain. He has further contended that the land in

question is situated beyond 12 KM from municipal limits and therefore,

the same cannot be held as capital asset.

has computed the profit on sale of land by applying index cost which

shows that the assessee accepted the land in question as a capital

asset. The deletion of capital asset includes any property held by the

assessee whether or not connected with his business or profession.

When the property in question does not fall in the exclusion clause of

section 2(14) of the Act then, the same is capital asset for the purpose

of section 48 and section 50C of the Act. He has relied upon the orders

of the authorities below. 3

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

material on record. The exemption from income tax provided on sale of

agricultural land is an incentive to promote the agricultural operations

and to keep the land use for agricultural purpose. Therefore, the

scheme and objects of excluding the agricultural land from the

definition of the capital asset is to provide an incentive for preserve the

land for agriculture use and character of agricultural land unchanged. It

is undisputed fact that after acquisition of this land in question the

assessee never carried out any agricultural operations on the same and

it was held as business asset. Therefore, the true character and nature

of the land must be seen whether the land has been or intended to be

used for agricultural purpose for a reasonable span of time period the

relevant date and the land was intended put to be use for agricultural

purpose in future also. Therefore, when the land was neither used for

agricultural purpose nor it was intended to be used for agricultural

purpose after it was sold by the assessee then in the absence of

cultivation and agricultural operations are the land in question the same

cannot be held as agricultural land for the purpose of section 2(14) of

the Act.

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

assessee has held this land as business asset, therefore, the provisions

of section 50C cannot be applied. We find that as per the definition u/s

2(14) of the Act the capital asset means property of any kind held by

the assessee whether or not connected with his business or profession.

The section itself has provided exclusion of certain assets from the

definition of capital asset. Since, the land in question does not fall

exclusion provided u/s 2(14) of the Act, therefore, then the same is

nothing but a capital asset as per the definition provided u/s 2(14) of

the Act. As regards the applicability of section 50C of the Act the capital

asset in the nature of land and building falls under the scope of section

50C of the Act and therefore, the full value consideration of such capital

asset has to be adopted as per the valuation adopted by the stamp duty

Valuation Authority. In view of the above facts and circumstances of the

case, we do not find any error or illegality in the orders of the

authorities below qua this issue.

Income Tax Act. The AO noted that the assessee has made investment

in the shares of sister concerns of Rs. 3,62,74,400/- and investment in

mutual funds of Rs. 1 lacs. The dividend income earned on their 5

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

investments was exempt from tax. Accordingly the AO invoked the

provisions of section 14A r.w.r. 8D and made a disallowance of Rs.

20,06,902/-. The assessee challenged the action of the AO before the

ld. CIT(A) but could not succeed.

investment in shares of sister concern was made in the earlier years

and no fresh investment was made by the assessee during the year

uder consideration. Therefore, no disallowance is called for the

assessment year under consideration when no such disallowances were

made by the AO in the earlier years. He has further contended that the

assessee has not received any dividend income on the shares of the

sister concern. The dividend income earned by the assessee of Rs.

3,669/- is only on the Mutual Funds investment. Thus, the ld. AR as

contended that when no dividend income was earned then no

disallowance is called for u/s 14A of the Act so far as the investment

made in the shares of sister concerns. He has further submitted that the

entire investment was made in the earlier years during the assessment

years 2002-03 to 2007-08. Therefore, in the absence of any fresh

investment no disallowance u/s 14A of the Act can be made. In support

of his contention, he has relied upon the decisions of Hon’ble Delhi High 6

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

Court in case of Cheminvest Ltd. vs/ CIT 378 ITR 33 as well as decision

ofMumbai Bench of Tribunal in case of Garware Wall Ropes Ltd. Vs.

ACIT 65 SOT 86.

made huge investment of Rs. 3,62,74,400/- in the shares of the sister

concern. The assessee has also paid interest on borrowed funds,

therefore, the proportionate disallowance u/s 14A of the Act is justified.

He has relied upon the orders of the authorities below and submitted

that the AO has computed the disallowance as per the formula provided

under rule 8D.

material on record. We find from the details of investment that the

assessee made the entire investment in the shares of the sister concern

from the assessment years 2002-03 to 2007-08 and no fresh

investment was made during the year under consideration. The

assessee has earned the dividend income of Rs. 3.669/- on the

investment in the Mutual Funds and no dividend income was occurred

or earened on the share of sister concern. The Hon’ble Delhi High Court

in case of Cheminvest Ltd. vs. CIT(supra) while dealing with an issue of

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

disallowance u/s 14A when no exempt income was earned or received

by the assessee has held in para 17 to 24 as under:-

“17. On facts, it was noticed in Holcim India (P.) Ltd's. case (supra) that the Revenue had accepted the genuineness of the expenditure incurred by the Assessee in that case and that expenditure had been incurred to protect investment made. 18. In the present case, the factual position that has not been disputed is that the investment by the Assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the Assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the Assessee is in relation to such investments which gives rise to income which does not form part of total income. 19. In light of the clear exposition of the law in Holcim India (P.) Ltd's. case (supra) and in view of the admitted factual position in this case that the Assessee has made strategic investment in shares of Max India Ltd.; that no exempted income was earned by the Assessee in the relevant AY and since the genuineness of the expenditure incurred by the Assessee is not in doubt, the question framed is required to be answered in favour of the Assessee and against the Revenue. 20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Prasad Moody's case (supra), it is considered necessary to discuss the true purport of the said decision. It is noticed to begin with that the issue before the Supreme Court in the said case was whether the expenditure under Section 57(iii) of the Act could be allowed as a deduction against dividend income assessable under the head "income from other sources". Under Section 57(iii) of the Act deduction is allowed in respect of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression "incurred for making or earning such income', did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: 8

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT

"What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure." 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody's case (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is 'for the purpose of making or earning such income'. Section 14A of the Act on the other hand contains the expression 'in relation to income which does not form part of the total income.' The decision in Rajendra Prasad Moody's case (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act. 22. In the impugned order, the ITAT has referred to the decision in Maxopp Investment Ltd's. case (supra) and remanded the matter to the AO for reconsideration of the issue afresh. The issue in Maxopp Investment Ltd's. case (supra) was whether the expenditure (including interest on borrowed funds) in respect of investment in shares of operating companies for acquiring and retaining a controlling interest therein was disallowable under Section 14A of the Act. In the said case admittedly there was dividend earned on such investment. In other words, it was not a case, as the present, where no exempt income was earned in the year in question. Consequently, the said decision was not relevant and did not apply in the context of the issue projected in the present case.

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 24. Consequently, the impugned order of the ITAT is set aside and the appeal is allowed in the above terms. This Court should not be understood to have expressed any opinion on the issue of whether for the AY in question the interest expenditure incurred by the Assessee would be allowable as business expenditure under Section 36 (1)(iii) of the Act.” Therefore, in view of the decision of Hon’ble Delhi High Court no

disallowance is called for so far as the investment made by the assessee

in the shares of the sister concerns on which no dividend income was

earned or received by the assessee during the year under consideration.

Accordingly, we set aside the orders of the authorities below and direct

the AO to reconsider this issue for disallowance u/s 14A, if any, to be

restricted only in respect of the investment in Mutual Funds.

expenses. At the time hearing, the ld. AR of the assessee has stated at

bar that the assessee does not press ground No. 3 and the same may

be dismissed as not pressed. The ld. DR has raised no objection it this

ground of the assessee’s appeal is dismissed as not pressed. 10

ITA No.831/JP/2014 M/s Prime Gold Infra Steel Ltd. vs. ACIT Accordingly the grounds No. 3 of the assessee’s appeal is dismissed being not pressed. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 25/01/2018

Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 25/01/2018. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Prime Gold Infra Steel Ltd., Delhi. 2. izR;FkhZ@ The Respondent- ACIT. Central Circle, Alwar. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 831/JP/2014} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत