THE DCIT, CIRCLE-4(1)(2),, AHMEDABAD vs. VENUS INFRASTRUCTURE & DEVELOPERS LTD.,, AHMEDABAD

ITA No. 727//Ahd/2015 & C.O. No. 64/Ahd/2015 are appeal by the Revenue and cross objection by the assessee preferred against the order of the Ld. CIT(A)-8, Ahmedabad dated 01.01.2015 pertaining to A.Y. 2010-11. ITA No. 1916/Ahd/2015 & C.O. No. 151/Ahd/2015 are appeal by the Revenue and cross objection by the Assessee preferred against the order of the Ld. CIT(A)-8 Ahmedabad dated 27.04.2015 pertaining to A.Y. 2011-12 and ITA No. 1969/Ahd/2015 is the cross appeal by the assessee for A.Y. 2011-12.

The first ground relates to the deletion of the addition made u/s. 14A r.w. Rule 8D of the Act.

During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has made investments, the income from which does not form part of total income, therefore, form a belief that disallowance u/s. 14A read with Rule 8D has to be made. The A.O. accordingly computed the disallowance at Rs. 46,25,310/-.

When the matter was agitated before the ld. CIT(A). The assessee furnished chart showing the source of funds which were utilized for investment activities and it was brought to the notice of the ld. CIT(A) that the investment in shares is not out of borrowed funds. After considering the facts and the submissions, the ld. CIT(A) found that during the year the assessee has not earned any exempt income. Therefore strong reliance from the decision of the Jurisdictional High Court in the case of Corrtech Energy Pvt. Ltd. 372 ITR 97 deleted the addition.

Before us, the ld. D.R. could not bring any distinguishing decision in favour of the revenue. The Hon’ble Jurisdictional High Court in the case of Corrtech Energy Pvt. Ltd. (supra), has held that if there is no exempt income, no disallowance is to be made u/s. 14A read with Rule 8D. Since the FAA has followed the judgment of the Hon’ble Jurisdictional High Court, no interference is called for. Ground no. 1 is dismissed.

On perusal of the details of various expenditure as furnished by the assessee during the course of the assessment proceedings, the A.O. noticed that the assessee has claimed GIHED Property Show expenses amounting to Rs. 17,95,620/-. The assessee was asked to show cause why the said expenses should not be disallowed. In its reply, the assessee explained that the impugned amount has been paid to Gujarat Institute of Housing and Estate Development which has been incurred for the purpose of selling of the properties constructed by the assessee, the details of various projects undertaken were furnished and it was brought to the notice of the A.O. that the total revenue earned by the assessee during the year under consideration was Rs. 62 crores. It was strongly contended that the impugned amount has been incurred solely and exclusively for the purposes of the business and the same has to be allowed.

The contention of the assessee did not find any favour with the A.O. who was of the firm belief that by incurring such expenditure, the assessee has build its brand which has enduring benefits and is therefore of capital in nature. The A.O. made the disallowance of Rs. 17,95,620/-.

Assessee carried the matter before the ld. CIT(A) and reiterated its contention. After considering the facts and the submissions, the ld. CIT(A) found that his predecessor has deleted similar addition made in A.Y. 2009-10 and following the findings of his predecessor, the ld. CIT(A) deleted the addition of Rs. 17,95,620/-.

We have given a thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel. The Tribunal in ITA No. 2725/Ahd/2011, 1675 & 1604/Ahd/2012 for A.Y. 2008-09 & 2009-10 has held as under:- 32. We have heard the rival contentions and perused the material placed before us. Revenue through this ground no.4 for Asst. Year 2008-09 and ground no.2 for Asst. year 2009-10 has challenged the orders of Id. CIT(A) deleting the disallowance of expenses paid to GIHED at Rs.26,08,028/- for Asst. Year 2008-09 and Rs.11,01,8277-for Asst. Year 2009-10 towards sponsorship and organizing a fair. We observe that assessee being into the business of development of infrastructure and residential projects is always in need to advertise its projects at various platforms. We find that assessee in its regular course of business has become a co-sponsoror of a show organized by GIHED. Assessee also participated in the show for promotion of its business. Genuineness of the payment is not challenged. No particular observations has been made by Assessing Officer to link up the impugned expenses to a particular project. Further we observe from the audited financial statements that as on 31st March, 2008 as many as 12 projects were undergoing having WIP of Rs.139.93 crores approx. However, for Asst. Year 2008-09 income of Rs.13.54 crores have been offered to tax. Looking to these facts, we find that the impugned expenses of Rs.26,08,028/- for Asst. Year 2008- 09 and Rs.11,01,827/- for Asst. Year 2009-10 were incurred by assessee in the regular course of business to develop its projects and not for a particular project. In the given facts and circumstances of the case in our view it is purely of revenue in nature. Therefore, we find no reason to interfere with the orders of ld. CIT(A). We uphold the same. Accordingly, ground no.4 for Asst. Year 2008-09 and ground no.2 for asst. year 2009-10 are dismissed.

The third ground relates to the deletion of the addition of Rs. 4,67,798/- made u/s. 2(22)(e) of the Act.

By scrutinizing the return of income, the A.O. noticed that the assessee has received loans from Betterhome Mall Management Pvt. Ltd. and found that the director Shri Rajesh S Vaswani was holding substantial interest in the said company. The A.O. was of the opinion that provisions of Section 2(22)(e) squarely apply on the facts of the case and accordingly made the addition of Rs. 4,67,798/- to the extent of the accumulated profit of Betterhome Mall Management Pvt. Ltd.

The assessee agitated the matter before the ld. CIT(A). Placing strong reliance on the decision of the Hon’ble Delhi High Court in the case of Anditech (P) Ltd. 340 ITR 14 and on the decision of the Jurisdictional High Court in the case of Daisy Packers (P.) Ltd. 40 taxmann.com 480. After considering the facts and the submissions, the ld. CIT(A) was convinced with the contention of the assessee and deleted the addition of Rs. 4,67,798/-.

We find that this issue has been referred by the Hon’ble Supreme Court to a Larger Bench on finding two diverse decision of the Hon’ble Supreme Court on the same issue. In our considered opinion, since the matter is subjudiced before the Larger Bench of the Hon’ble Supreme Court, we do not find it fit to decide the issue at our stage. We, therefore, set aside this issue to the files of the A.O. The A.O. is directed to decide the issue afresh in the light of the

Ground no. 4 relates to the deletion of the disallowance of interest expenses of Rs. 59,98,774/-.

The A.O. noticed that the assessee has claimed huge interest expenses which has been netted against interest income. On perusal of the balance sheet, the A.O. found that the assessee has given interest free loan to various persons. The assessee was asked to explain why proportionate disallowance of interest expenditure should not be made on interest free loans given by the assessee. Assessee filed a detailed reply explaining each and every advance. However, none of his explanation found favour from the A.O. who computed the disallowance at Rs. 59,98,774/-.

Assessee carried the matter before the ld. CIT(A) and reiterated its contention. It was explained that most of the advances were made in the ordinary course of business towards purchase of property. Therefore, the same should not be considered as interest free loans. It was further pointed out that the assessee was having paid up share capital of RS. 10 crores and free reserves and surplus of Rs. 49.22 crores. The assessee was also having interest free funds from the members booking deposit collection to the extent of Rs. 53.47 crores. Aggregating to the total interest free funds available with the assessee to Rs. 109.68 crores. It was contended that on these facts, no disallowance need to be made. After considering the facts and the submissions, the ld. CIT(A) was convinced with the contention of the assessee and deleted the disallowance of Rs. 59,98,774/-.

Before us, the ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.

We have given a thoughtful consideration to the orders of the authorities below. It is true that most of the advances were towards purchase of properties and in fact on such property, the assessee earned profits which have been shown as income in subsequent years. Further, we find that the total interest free funds available with the assessee were to the tune of Rs. 109.68 crores. Considering these facts in totality, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no. 4 is dismissed.

Ground no. 5 relates to the deletion of the disallowance of Rs. 15,50 lacs.

The A.O. found that the assessee has claimed expenses on account of loss from property of Rs. 15.50 lacs. The assessee was asked to justify its claim. In its reply, the assessee pointed out that in his project at Venus Atlantis Ground Floor Office No. 9 along with Office No. 1,2 & 3 were agreed to be showed to Manisha Enterprises and Manohar Mercantile Pvt. Ltd. It was further explained that on receiving more beneficial offer from other parties, the assessee agreed to cancel the agreement with Manohar Mercantile Pvt. Ltd. and Manisha Enterprises. On cancellation of such agreement, the assessee compensated the two parties by paying Rs. 15.50 lacs. It was strongly contended that since the amount has been incurred on the ground of commercial expediency, the same has to be allowed. The reply of the assessee

Assessee carried the matter before the ld. CIT(A) and reiterated its contention. After considering the facts and the submissions, the ld. CIT(A) was convinced with the commercial expediency of the payment of compensation of Rs. 15.50 lacs and accepted the same as allowable revenue expenditure u/s. 37(1) of the Act. The addition was deleted.

Before us, the ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.

We have given a thoughtful consideration to the orders of the authorities below. It is true that the assessee has received advance of Rs. 58 lacs from Manisha Enterprises and Rs. 2.62 crores from Manohar Mercantile Pvt. Ltd. towards booking amount for its commercial project at Venus Atlantis. The said booking amount was received for Unit No. 9 and 1,2 & 3 at Ground Floor. On finding a better opportunity, the assessee cancelled these two agreements and agreed to pay a compensation of Rs. 15.50 lacs. We find that Unit No. 1, 2 & 3 were sold finally for a total consideration of Rs. 13.05 crores after incurring construction cost of Rs. 2.76 crores only. Unit No. 9 was converted into “Alpha Bazar” with many small shops which were sold to different persons at a much higher price. We find that total sales of project Venus Atlantis was at Rs. 50.16 crores which justifies the commercial expediency of the compensation so paid. We, therefore decline to interfere. Ground no. 5 is dismissed.

In the result, the appeal filed by the Revenue is partly allowed.

Cross objection by the assessee is in support of the order of ld. CIT(A)and needs no separate adjudication.

The first ground relates to the deletion of the disallowance of GIHED expenses of Rs. 40,92,252/-.

An identical issue has been considered and decided by us in ITA No. 727/Ahd/2015 (supra) qua ground no. 2 of that appeal. For our detailed discussion therein, this ground is dismissed.

Ground no. 2 relates to the deletion of the disallowance of interest expenses of Rs. 9.90 lacs.

An identical issue has been considered and decided by us in ITA No. 727/Ahd/2015 (supra) qua ground no. 4 of that appeal. For our detailed discussion therein, this ground is dismissed.

In the result, the appeal filed by the Revenue is dismissed.

Cross objection by the assessee is in support of the order of ld. CIT(A)and needs no separate adjudication.

The only grievance of the assessee relates to the disallowance of Rs. 96.08 lacs made u/s. 14A read with Rule 8D of the Act.

The A.O. noticed that the assessee has earned dividend income of Rs. 33,031/- and was of the firm belief that disallowance u/s. 14A read with Rule 8D has to be made. The A.O. accordingly computed the disallowance at Rs. 96,08,508/-.

Assessee carried the matter before the ld. CIT(A) but without any success.

Before us, the ld. counsel for the assessee stated that the exempt income earned by the assessee was a meager Rs. 33,000/- on which the disallowance has been computed by the A.O. at Rs. 96 lacs.

We have given a dispassionate consideration to this contention of the ld. counsel. In our considered opinion, the disallowance should be restricted to the exempt income and therefore we direct the A.O. to restrict the disallowance to the extent of Rs. 33,031/-. We direct accordingly.

Appeal filed by the assessee is partly allowed.