ASSISTANT COMMISSIONER OF INCOME TAX, KOLHAPUR vs. MAHALAXMI INFRA PROJECTS PVT. LTD., KOLHAPUR

In appeal, the Ld. CIT(A) gave full relief to the assessee in respect of the above additions/disallowances made by the Ld. AO on account of deduction claimed u/s 80IA(4), disallowance u/s 14A r.w. Rule 8Dand depreciation on luxury car. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the following grounds of appeal : “a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.22,83,215/- made by the Assessing Officer u/s. 14A of the L.T. Act, 1961. c) On the facts and in the circumstances of the case and in law, the Ld.CIT (A) has erred in deleting the disallowance of depreciation on luxury car of Rs.32,42,484/- ignoring the fact that the Assessee could not furnish necessary evidence to show that the luxury car were used wholly for business purpose to rule out personal use by directors of the company.

Ground No. 1 relates to deletion of addition of Rs.10,29,58,075/- made by the Ld. AO u/s 14 of the Act r.w. Rule 8D of the IT Rules.

1 The facts pertaining to this ground are that during the course of assessment proceedings, the Ld. AO noted that the assessee has made investments in shares and mutual funds to the tune of Rs.65,09,34,047/- and earned dividend income of Rs.1,31,21,894/- which is exempt in nature. Accordingly, he asked the assessee to submit the details regarding investments made for earning exempt income and also computation as per Rule 8D of the IT Rules r.w.s. 14A of the Act. In response thereto, the assessee submitted that the investments of Rs.65,09,34,047/- are made either from own funds or out of receipts from earlier investments and hence, no disallowance u/s 14A is called for. The assessee relied upon the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (313 ITR 340) and the decision of ITAT Pune in the 3

The investment made, being a conscious decision and involving deployment of funds, clearly beings into picture expenditure by way of cost of funds, "invested." A composite fund having costs needs to be spread so as to apportion appropriate cost of funds invested in the activity leading to carrying of exempt income.”

2 The Ld. AO therefore applying the provisions of section 14A r.w. Rule 8D and taking support from the CBDT Circular No. 5 of 2014 and certain judicial precedents on the subject made disallowance of Rs.22,83,215/-.

3 The Ld. CIT(A) deleted the addition of Rs.22,83,215/- made by the Ld. AO observing as under : “8.1 This issue has been discussed by the A.O in para 6 of the order. The A.O found that the assessee had made investment in shares and mutual fund and earned exempt dividend income of Rs 1,31,21,894/-. The A.O computed the expenditure incurred with respect to the exempt income on the 4

2 Looking at the financials of the appellant which have been submitted in these proceedings, I find that the appellant has sufficient non-interest bearing funds as on 31.07.2017 namely Share capital Rs.9,14,13,770/- and Reserves and Surplus Rs. 199,67,00,411/- totaling Rs 208,81,14,181 and hence there is merit in the contention of the appellant that the investment made of Rs 65,09,34,047are either from its own funds or from earlier investments.

3 The Hon'ble Juri ictional Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 has held that if there are funds available both interest free and overdrafts/loan taken then the presumption would arise that the investment would be out of interest free fund generated or available with company. The Hon'ble Pune ITAT has followed the above decision in the case of ACIT Vs. M/s Gujrat Tea Traders Pvt Ltd. ITA No. 90/PN/2014 and in case of S.M. Auto Engg. Pvt. Ltd. ITA No. 20502051/PN/2013 Accordingly, respectfully following these decisions, the addition of Rs 22,83,215/- is deleted and the Ground of Appeal is Allowed.”

Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

We have heard the rival arguments made by both the sides and perused the records. At the outset, the Ld. AR submitted that an identical issue came up for consideration before the Tribunal in assessee’s own case for AY 2017-18 wherein the Tribunal directed the Ld. AO to restrict the disallowance u/s 14A to Rs.23,575/- being the amount of actual dividend income received by the assessee in the relevant AY. However, for the AY 2018-19, the Ld. AR contended that the assessee is having sufficient capital and free reserves which far exceeds the investment in shares and mutual funds, the dividend income of which is exempt. Without prejudice to the above arguments, the Ld. AR drawing support from the decision of the Special Bench of the Delhi Tribunal in the case of ACIT Vs. Vireet Investment Pvt. Ltd. reported in 165 ITD 27 (Delhi)(SB) submitted that for disallowance u/s 14A r.w. Rule 8D only those investments should be considered which has earned exempt income. We find force in the alternate argument of the Ld. AR. In the case of Vireet Investment Pvt. Ltd. (supra) one of the issue considered by the Special Bench was “whether investment which did not yield any exempt income should enter into the computation under Rule 8D while arriving at the average value of investment, income from which does not form part of the total income”? The Special Bench of the Delhi Tribunal held that only those investments are to be considered for computing the average value of investment which yielded

Ground No. 2 raised by the Revenue relates to deletion of disallowance of depreciation on luxury cars of Rs. 32,42,484/- by the Ld. CIT(A). The Ld. AR brought to our notice that an identical issue came up for consideration of the Tribunal in assessee’s own case for preceding AY 2017-18 wherein the Tribunal has decided the impugned issue in favour of the assessee and dismissed the ground raised by the Revenue. We have perused the order of the Tribunal in assessee’s own case in ITA No. 1450/PUN/2023. The relevant observations and findings of the Tribunal on the impugned issue is reproduced below : “17. After hearing both the sides, we find the AO made disallowance of 50% of depreciation on Motor cars on the ground that personal use of the Luxury cars by family members of the assessee cannot be ruled out. We find the ld. CIT(A) deleted the disallowance by observing as under :

Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.

After hearing both the sides, we do not find any infirmity in the order of the ld. CIT(A) deleting the 50% disallowance of depreciation of Motor cars for probable personal use of the Directors and Family members by relying on the decision of Hon’ble Gujarat High Court in the case of Sayaji Iron and Engineering Company and the decision of the Pune Bench of the Tribunal in the case of Hindumal Balmukund Investment Co Pvt Ltd.. The ld. DR could not bring any material to take a contrary view than the view taken by the ld. CIT(A) on this issue. Accordingly, the ground raised by the Revenue is dismissed.”

We observe that in the relevant AY 2018-19, the Ld. AO has made the impugned disallowance giving the same reason as it was for AY 2017- 18 that the personal use of luxury cars by the family members of the assessee cannot be ruled out. Similarly, the Ld. CIT(A) has also deleted the said disallowance in the relevant AY 2018-19 giving the same reasoning as it was for AY 2017-18 reproduced above in para 17 of the Tribunal’s order for AY 2017-18. Following the decision of the Tribunal (supra) for AY 2017-18 and in the absence of any new fact being brought on record by either side, we dismiss ground No. 2 raised by the Revenue.

The Revenue is also aggrieved by the order of the Ld. CIT(A) in deleting the disallowance u/s 80IA(4) of the Act. It was brought to our notice by the Ld. AR that this is a recurring issue which has arisen in the earlier assessment year(s) in the assessee’s own case and has consistently been decided in favour of the assessee by the Ld. CIT(A) and Tribunal. Referring to para 21 to 23 of the Tribunal’s order for immediately preceding AY 2017-18, in ITA No. 1450/PUN/2023, the Ld. AR submitted that the Tribunal has dismissed this ground of the Revenue holding that the assessee is eligible to claim deduction u/s 80IA(4) of the Act. We have perused the order of the Tribunal for AY 2017-18 (supra). The relevant findings and observations of the Tribunal in para 21 to 23 of the said order is reproduced below : “21. After hearing both the sides, we find the AO disallowed the claim of deduction u/s.80IA(4) of Rs.2,66,92,291/- on the ground that the assessee was a contractor employed by the Government to execute a pre-determined work. In relation to work, the Government/Contractee continued to be the Developer which had not parted with the right to operate and maintain the facility which would come into existence after execution of contract. While doing so, the AO did not accept the contention of the assessee that similar issue has already been decided by the Tribunal in assessee’s own case for the immediately preceding assessment years on the ground that the Revenue has filed an appeal before the Hon’ble Bombay High Court against the order of the Tribunal which is pending and therefore, to keep the matter alive, the AO made the disallowance.

We find the ld. CIT(A) following the order of the Tribunal in assessee’s own case allowed the claim of deduction u/s.80IA(4) by observing as under :

We do not find any infirmity in the order of the ld. CIT(A) on this issue. Admittedly, the Tribunal in assessee’s own case is consistently allowing the claim of deduction u/s.80IA(4) treating the assessee as a developer and is entitled to claim deduction. Merely because an appeal has been filed by the Revenue against the order of the Tribunal, the same cannot be a ground to take a contrary view than the view taken by the Tribunal in assessee’s own case in the preceding years, in absence of any contrary decision of the Hon’ble Juri ictional High Court. In this view of the matter, we do not find any infirmity in the order of the ld. CIT(A) on this issue. The ground raised by the Revenue is, therefore, dismissed.”

Following the decision of the Tribunal (supra) and in the absence of any change in the facts of the case brought on record before us, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and therefore dismiss this ground raised by the Revenue.

In the result, the appeal of the Revenue is partly allowed for statistical purposes.

अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File.