BAPA ESTATE P.LTD,MUMBAI vs. ACIT CEN CIR 38, MUMBAI

Bapa Real Estate Pvt.Ltd. Assessment Year-2010-11 2. The registry has noted that the appeal has been filed with a delay of 255 days, the condonation of which has been sought by the assessee on the strength of condonation petition & affidavit dated 21/07/2017 executed by one of the director of the assessee company. The same is supported by the affidavit dated 10/03/2015 executed by staff member of the assessee. The delay has been attributed to the lapse on the part of the office staff to hand over the impugned order in time to the head of the accounts department. Since the circumstances are being supported by two duly sworn affidavits, we condone the delay and proceed to dispose-off the appeal on merits as argued before us.

The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax, Central Circle-38, Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 15/03/2013 wherein the income of the assessee has been assessed at Rs.911.11 Lacs under normal provisions after certain adjustments as against returned income of Rs.871.38 Lacs e-filed by the assessee on 26/09/2010. The ‘book profits’ for the purpose of computing Minimum Alternative Tax [MAT] u/s 115JB has been computed at Rs.911.11 Lacs as against Rs.864.44 Lacs computed by the assessee. During impugned AY, the assessee being resident corporate entity was engaged in Real Estate & Finance Activities. The sole subject matter of the present appeal is disallowance u/s 14A. Bapa Real Estate Pvt.Ltd. Assessment Year-2010-11 4. During assessment proceedings, it was noted that the assessee earned exempt income by way of profit from partnership firms amounting to Rs.852.68 Lacs and against the same, offered suo-moto disallowance u/s 14A for Rs.6,93,277/-. This disallowance comprised- off of interest disallowance u/r 8D(2)(ii) for Rs.3.68 Lacs & expense disallowance u/r 8D(2)(iii) for Rs.3.25 Lacs. The computation of income as placed on record reveal that the said disallowance has been worked out by considering only those investments which has yielded exempt income during impugned AY i.e. capital contribution in the partnership firms. However, disregarding the same, Ld. AO worked out aggregate disallowance of Rs.46.66 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.25.25 Lacs and expense disallowance u/r 8D(2)(iii) for Rs.21.41 Lacs. After adjusting suo-moto disallowance of Rs.6.93 Lacs, the net disallowance worked out to be Rs.39.73 Lacs which was added to the income of the assessee under normal provisions as well as while computing Book Profits for the purpose of MAT u/s 115JB. It is pertinent to note that difference in calculations as made by the assessee and as made by Ld. AO stem from the fact that Ld. AO has considered the gross figures of investments irrespective of the fact that whether the same has yielded any exempt income or not whereas the assessee has considered only those investments which have yielded exempt income during impugned AY. Bapa Real Estate Pvt.Ltd. Assessment Year-2010-11 5. Aggrieved, the assessee agitated the same without any success before first appellate authority vide impugned order dated 28/03/2014 wherein the stand of Ld. AO got confirmed, inter-alia, on the premise that the assessee did not maintain separate accounts for the purposes of earning exempt income and also could not provided co-relation between funds available and funds deployed. Aggrieved, the assessee is in further appeal before us.

The Ld. Auhtorized Representative for Assessee [AR], Shri Reepal G.Tralashawala, drawing our attention to the financial structure of the assessee submitted that the assessee has sufficient owned funds in the shape of Share Capital & Reserves to make the aforesaid investments and therefore, interest disallowance as offered by the assessee was sufficient. The expenses disallowance as computed by the assessee has been justified by placing reliance on the judgment of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. Per Contra, Ld. Departmental Representative [DR], Shri Manoj Kumar Singh, justified the stand of lower authorities.

We have carefully heard the rival contentions and perused relevant material on record including judicial pronouncements cited before us. So far as the expense disallowance u/r 8D(2)(iii) for Rs.3.25 Lacs as suo-moto offered by the assessee is concerned, the same has been computed after considering only those investments which have yielded exempt income during the impugned AY. This Bapa Real Estate Pvt.Ltd. Assessment Year-2010-11 computation is in consonance with ratio laid down by the cited decision of the Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [supra] and therefore, acceptable to us. Resultantly, the additional disallowance of Rs.18.16 Lacs [Rs.21.41 Lacs – Rs.3.25 Lacs] as worked out by Ld. AO u/r 8D(2)(iii) stand deleted.

Regarding interest disallowance, the perusal of financial statements as placed on record, reveal that the assessee’s own funds in the shape of Share Capital & Reserves far exceeds the investments made by the assessee and therefore, in case of composite funds, a presumption is drawn in assessee’s favor that the investments were made from own resources rather than from borrowed funds as per the ratio laid down by Hon’ble Bombay High Court in CIT Vs. Reliance Utilities Power Ltd. [313 ITR 340] & CIT Vs. HDFC Bank [366 ITR 505]. Therefore, the interest disallowance as computed by the assessee, in our opinion, was quite sufficient to meet the requirements of law. Resultantly, the additional disallowance of Rs.21.57 Lacs [Rs.25.25 Lacs – Rs.3.68 Lacs] as worked out by Ld. AO u/r 8D(2)(ii) stand deleted.

In nutshell, accepting the suo-moto disallowance of Rs.6.93 Lacs as offered by the assessee, the additional aggregate disallowance of Rs.39.73 Lacs as made by Ld. AO stand deleted.

The appeal stand allowed in terms of our above order. Order pronounced in the open court on 10th October, 2018. Bapa Real Estate Pvt.Ltd. Assessment Year-2010-11 Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांक Dated :10.10.2018 Sr.PS:-Thirumalesh आदेश की �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.