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Income Tax Appellate Tribunal, “F”
Before: SHRI PAWAN SINGH, JM & SHRI S. RIFAUR RAHMAN, AM
M/s Unity Realty & DCIT Cen Cir 8(2), Developers Ltd. 6th floor, R. No. 658, बिधम/ K. K. Tower, Parek Tank Aayakar Bhavan, M. K. Road, G. D. Ambedkar Vs. Road, Mumbai-400 020 Marg, Parel Village, Mumbai-400 012 स्थायीलेखासं./जीआइआरसं./PAN No. AAACU8860B (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Sushil Kumar Poddar, DR by प्रत्यथीकीओरसे/Respondentby : Shri Rakesh Mohan, AR सुनवाईकीतारीख/ : 02.12.2019 Date of Hearing घोषणाकीतारीख / : 31.01.2020 Date of Pronouncement आदेश / O R D E R
Per S. Rifaur Rahman, Accountant Member:
The present Appeal has been filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeals) – 50 in short referred as ‘Ld. CIT(A)’, Mumbai, dated 30.10.17 for Assessment Year (in short AY) 2013-14. M/s Unity Realty & Developers Ltd.
The brief facts of the case are that assessee is engaged in the business of construction of residential cum commercial complexes, star hotels, commercial shopping malls, township development, information technology parks and entertainment & educational projects. The return of income for the aforesaid assessment year was filed on 30.11.2013 declaring total income of Rs. Nil. The return was processed u/s. 143(1) of the Income Tax Act, 1961 ('the Act7) and subsequently the case was selected for scrutiny under CASS.
During the course of assessment proceedings, the A.O. asked the assessee as to why the disallowance u/s 14A of the Act should not be made in accordance with the provisions of Rule 8D of the Income Tax Rules, 1962 ('the Rules'). In response, the assessee had submitted that it has not earned any exempt income during the captioned assessment year. The assessee had also stated that all the investments made by it were in their SPV's/Joint Venture etc. for acquiring a reasonable stake in the upcoming projects, in view of which disallowance u/s. 14A of the Act should not be made.
M/s Unity Realty & Developers Ltd.
Further, the assessee had shown an amount of Rs. 155,17,02,480 as closing work in progress ('closing WIP'). However, the A.O. observed that no tax was deducted at source from the said interest expenditure, which was forming a part of closing WIP and thus by invoking the provisions of section 40(a)(ia) of the Act, the AO disallowed the said capitalized interest expenses amounting to Rs. 33,61,71,036 from the capital WIP. Hence, in a nutshell, the A.O. had made the following disallowances - Particulars Amount Disallowance u/s. 14AoftheAct 15,77,877 Disallowance u/s. 40(a)(ia) of the Act 33,61,71,036
Aggrieved with the above order, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A), after considering the submission of the assessee, deleted the disallowance made by AO and allowed the appeal of the assessee.
6. Aggrieved with the above order, revenue has preferred the appeal before us on the ground mentioned herein below:-
M/s Unity Realty & Developers Ltd.
1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s. 14A r.w.r 8D of Rs. 15,77,877/- holding that no exempt income was earned during the year, thereby ignoring the CBDT circular no. 5 of 2014 dated 11.02.2014 wherein it is specifically stated that provisions of section 14A of the Income Tax Act, 1961 are attracted even to cases where no exempt income has been earned during the year.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s. 14A r.w.r 8D of Rs. 15,77,877/- holding that the assessee has made strategic investment, ignoring the fact that the decision of Hon'ble ITAT in the case Garwar Wall Ropes Ltd. vs. Addl. CIT Rg. 5(1) (46 taxmann.com 18) has not been accepted by the Revenue and further appeal has been filed before Hon'ble Bombay High Court.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made u/s. 40(a)(ia) of the Income Tax Act, 1961 amounting to Rs. 33,61,71,036/- after holding that provision of the sections 40(a)(ia) of the act are not attracted as the said amount of interest in capitalized under the head capital work in Progress' in the books of M/s Unity Realty & Developers Ltd. account and the same has not been claimed as an expense during the year under consideration, ignoring the fact that the same will be claimed as revenue expenditure in the year in which profit will be offered for tax either on percentage basis or on the basis of 'Project Completion Method', as the case may be and hence, the provisions of section 40(a)(ia) of the Income Tax Act, 1961 are applicable."
The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary.
Ground No. 1 & 2 7. These grounds raised by the revenue are inter related and inter connected and relates to challenging the order of Ld. CIT(A) in deleting the disallowance u/s. 14A r.w.r 8D, therefore we thought it fit to dispose of the same by this common order.
8. At the outset, Ld. AR appearing on behalf of the assessee submitted that these grounds raised by the revenue are squarely M/s Unity Realty & Developers Ltd. covered by the order of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vrs. CIT (ITA No. 749/2014) and Hon’ble High Court of Judicature at Bombay in the case of PCIT vrs. Ballarpur Industries Ltd. (ITA No. 51 of 2016), wherein the Hon’ble High Courts have passed orders on identical ground in favour of the assessee.
On the other hand, Ld. DR supported the orders passed by the revenue authorities.
We have heard counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vrs. CIT (supra), similarly in the case of PCIT vrs. Ballarpur Industries Ltd. (ITA No. 51 of 2016), wherein it was held as under:- On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding M/s Unity Realty & Developers Ltd. of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014 {CHEMINVEST LIMITED vs. COMMISSIONER OF INCOME TAX (2015) 378 ITR 0033 (Delhi)}, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the 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.
The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.
M/s Unity Realty & Developers Ltd. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law.
Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs.
11. Therefore, respectfully following the aforesaid decisions which is applicable mutatis mutandis in the present case, we are inclined to accept the submission of Ld. AR. Accordingly, we dismiss the grounds raised by the revenue.
Ground No. 3 12. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the disallowance made u/s. 40(a)(ia) of the Income Tax Act, 1961.
13. At the outset, Ld. AR appearing on behalf of the assessee submitted that this ground raised by the revenue is squarely covered by the consolidated order of Coordinate Bench of ITAT in the case of Fedex Express Services (India) Pvt. Ltd. vrs. ACIT in & 3088/Mum/2014, wherein the M/s Unity Realty & Developers Ltd. Hon’ble ITAT have passed orders on identical ground in favour of the assessee.
14. On the other hand, Ld. DR supported the orders passed by the revenue authorities.
We have heard counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the consolidated order of Coordinate Bench of ITAT in the case of Fedex Express Services (India) Pvt. Ltd. vrs. ACIT in & 3088/Mum/2014, wherein it was held as under:-
We have heard both the counsel and perused the records. The learned counsel of the assessee submitted that provisions of section 40(a)(ia) are not at all attracted in this case, as the said amount has not been claimed as revenue expenditure. Hence, he submitted that there is no question of disallowing deprecation claimed on the capital item so acquired. For this M/s Unity Realty & Developers Ltd. proposition, he placed reliance upon following case laws:
Sr. No. Decisions Citation 1 CIT vs. Mark Auto Industries Ltd. [358ITR43(P&HHQ]
2. SAB Miller India Ltd. vs. ACIT [155 1TD 1093 (Mumbai Trib.)] 3 Sonic Biochem Extractions (P.) Ltd. vs. ITO [23 1TR(T) 447 (Mumbai Trib.)] 4 SKOL Breweries Ltd. vs. ACIT [28 ITR (T) 465 (Mumbai Trib.)] 5 Kawasaki Microelectronics Inc. vs. DDIT(IT) [60 taxmann.com 259(Bang. Trib.)]
Jaguar Enterprises vs. DCIT [33 ITR(T) 483 (Delhi Trib.)]
Upon careful consideration, we find that in the above case laws it has duly been held that when the payment is in the realm of capital expenditure and expenditure is not claimed as revenue expenditure, the provisions of section 4o(a)(ia) are not applicable. In this regard, we may gainfully refer to the decision of Hon’ble Punjab and Haryana High Court in the case M/s Unity Realty & Developers Ltd. of CIT vs. Mark Auto Industries Ltd. (supra). In this case the question considered by the honourable High Court was as under:
(ii) Whether on the facts and in the circumstances of the case Ld. ITAT is right in law in upholding the order of Ld. CIT(A), that the provision of Section 40(a)(i) of Income Tax Act, 1961 are not applicable to payments of Technical know-how, simply because only part of it is written off by the assessee, each year by way of depreciation u/s 32 of Income Tax Act, 1961?
The Hon’ble High Court answered the above question as under:
6. Learned counsel for the revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know-how which was capitalized and no amount was claimed as revenue expenditure, the deduction could be disallowed under Section 40(a)(i) of the Act. Accordingly, no infirmity could be found in the order passed by the Tribunal which may warrant interference by this Court. Thus, both the M/s Unity Realty & Developers Ltd. questions are answered against the revenue and in favour of the assessee.
Similar proposition was also held by the respective decisions of tribunal as above. Following the above said precedents, we are of the considered opinion that adverse inference drawn for lack of deduction of TDS in this case is not sustainable, inasmuch as the payment was made in respect of capital expenditure. Hence, following the above said precedents, we hold that assessee’s claim for deprecation was justified.
Therefore, respectfully following the aforesaid decision which is applicable mutatis mutandis in the present case, we are inclined to accept the submission of Ld. AR. Accordingly, we dismiss this ground raised by the revenue.