DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE vs. M/S. K S T D C LTD, BANGALORE

Ground No.1 is general and as per grounds 2 to 6, this is the grievance of the Revenue that CIT(A) is not right in holding that the amount of Rs. 11/- pr year per acre charged by the assessee as against the prevailing rate in the vicinity of the same area of Rs.1,30,000/- per year per acre is proper and reasonable by relying on the Tribunal order in assessee’s own case for Assessment Year 2007-08 to 2011-12 which has not been accepted by the Department and further appeal has been filed before Hon’ble High Court of Karnataka and it is pending for adjudication.

In the course of hearing, although learned DR of the Revenue supported the assessment order, but he had nothing to say in reply to the query of the Bench as to whether the earlier Tribunal orders followed by CIT(A) is stsyed by the Hon’ble Karnataka High Court. Learned AR of the assessee supported the order of CIT(A).

We have considered the rival submissions and since learned CIT(A) has followed Tribunal order in assessee’s own case and no difference in facts could be pointed by learned DR of the Revenue and since, that earlier Tribunal order has not been stayed by Hon’ble Karnataka High Court, we find no reason to interfere in the order of learned CIT(A) on this issue. Accordingly, these grounds are rejected.

As per ground No.7 raised by the Revenue, the grievance of the Revenue is regarding deletion of the disallowance made by the AO under section 14A of the Income Tax Act, 1961. Learned DR of the Revenue supported the assessment order whereas the learned AR of the assessee supported the order of CIT(A). He also submitted that as per para 8.3 on page 13 of his order, learned CIT(A) has upheld the disallowance of Rs.21,030/- under Rule 8D(iii) of IT Rules and has only deleted the disallowance of Rs.25,801/- under Rule 8D(2)(ii). He also pointed out that this is also noted by learned CIT(A) in this para that investment was made during earlier period and no borrowing was made for making these investments.

We have considered the rival submissions and in view of these facts noted by learned CIT(A) that investment was made in earlier years when there was no borrowing, we find no infirmity in the deletion of the disallowance of Rs.25,801/- under Rule 8D(2)(ii) and hence, decline to interfere in the order of CIT(A) on this issue also. Accordingly, ground 7 is also rejected.

As per ground No.8, this is the grievance of the revenue that learned CIT(A) was not justified in deleting the disallowance made by the AO on account of reversal of interest by holding that the sum payable to Government of India is not covered under section 43B of the IT Act, 1961. The AO has not made the disallowance under that section. Learned DR of the Revenue supported the assessment order whereas the learned AR of the assessee supported the order of CIT(A). He also placed reliance on the Tribunal order rendered in the assessee’s own case for Assessment Year 2007-08 and 2008- 09 in & 519/Bang/2011 dated 12.08.2016. He submitted a copy of this Tribunal order and drawn our attention to paras 11-15 of this Tribunal order.

We have considered the rival submissions. We find that in para 7 on page 11 of the assessment order, it is noted by the AO that the assessee company has earned an interest of Rs.19,17,319/- out of deposits from grants received from the Department of Tourism (DoT) with the bank during the year. The AO further noted that the amount is debited to P & L Account by creating a provision towards interest payable to DoT. The AO held that the interest paid back to the DoT is an application of income and hence, the same is not an allowable expense. When the assessee carried the matter in appeal before learned CIT(A), he deleted this disallowance as per para 7.3 of his order by holding that amount payable to Department of Tourism, Government of India does not fall under the purview of section 43B of the IT Act, 1961 and he deleted this disallowance. We have seen that in the assessment order, the AO has not invoked the provisions of section 43B for making this disallowance and therefore, the deletion of this disallowance by CIT (A) by holding that section 43B is not applicable is not proper. As per the Tribunal order in assessee’s own case for Assessment Years 2007-08 and 2008-09, it is seen that in those years, disallowance of Rs.12.50 lakhs was made by the AO in respect of claim for interest on loan from Government of India under section 43B of the IT Act, 1961. Since in the present year, disallowance is not made by the AO by invoking the provisions of section 43B of the Income Tax Act, 1961, this Tribunal order is not relevant in the present year. Considering the facts of the present case, we feel it proper to restore back the matter to file of CIT(A) for a fresh decision. Accordingly, ground No.8 is allowed for statistical purposes.

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