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Order under section 254(1) of Income–tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This group of four appeals by revenue under section 253 of the Income-tax Act (the Act) are directed against the order of ld. Commissioner of Income Tax (Appeals)-12 [ld. CIT(A)], Mumbai for Assessment Year 2010-11, 2011-12 and 2012-13. In all appeals the grounds of appeal are common related with deduction under section 80IB(10) and section 14A, therefore, all appeal were clubbed, heard together and are decided by a consolidated & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. order to avoid the conflicting decision. For discussion of facts the appeal for Assessment Year 2010-11 was treated as a lead case.
Brief facts of the case are that assessee is a company engaged in the business of Property Development and Wind Power Generation, filed its return of income for relevant Assessment Year 2010-11 on 30.09.2010 declaring Nil income. In the return, the assessee claimed deduction under section 80IB of Rs. 31,23,89,658/- and also shown the dividend income of Rs. 1,00,320/-. The assessment was completed on 30.01.2013 under section 143(3). The Assessing Officer while passing the assessment order disallowed deduction under section 80IB and disallowed Rs. 1,44,76,162/- under section 14A r.w. Rule 8D. On appeal before the ld. CIT(A), the disallowance was under section 80IB(10) was allowed, however the disallowance under section 14A was restricted to Rs. 12,75,550/-.
Therefore, aggrieved by the order of ld. CIT(A), the Revenue has filed present appeal and raised the following grounds of appeal:
1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of deduction claim of Rs.31,23,89,658/- as it does not fall in the meaning of section 80IB(10) wherein Housing project as mentioned u/s 80IB(10) means one project. Maximum area of residential unit in this project shall not exceed 1000 sq. ft. " 2. “Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.1,44,76,162/- u/s 14A r.w.r. 8D of the Income Tax Act, 1961 and considering the same for purpose of calculating the MAT u/s 115JB of the Act without considering the facts that the assessee has received dividend income of Rs.1,00,320/ - from its investments"
& 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd.
We have heard the ld. Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. The ld. DR for the Revenue supported the order of Assessing Officer. The assessee completed housing project constructed the residential unit exceeding 1000 sq. ft. The assessee violated the prescribed condition for seeking deduction under section 80IB (10). Each of the housing Project has to be considered as one project, the assessee is claiming deduction on the basis of percentage breakup area of flat less than 1000 sq. ft. which is beyond the scope of section 80IB(10).
Therefore, the claim of assessee was not admissible and was rightly disallowed by the Assessing Officer.
On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). The ld. AR of the assessee further submits that during the assessment year, the project of assessee was completed. The project of assessee consists of 8 Wings and every wing consists of seven floors.
Some of the flats are having less than 1000 sq. ft. while some of the flat exceeded 1000 sq. ft. area. However, the assessee-company while computing deduction under section 80IB (10) has not claimed the profit earned on sale of flats having area exceeding 1000 sq. ft. The working of those flat which were not considered for claim of deduction under section 80IB (10). The working on proportionate deduction for claim under section 80IB(10) was furnished before the ld. CIT(A). The working of 3 & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. claim on proportionate basis and the details for claim of deduction under section 80IB (10) was forwarded to the Assessing Officer for his remand report. The assessing officer furnished his remand report on 13.12.2013.
After considering the contention of assessee and the report of Assessing Officer, the ld. CIT(A) directed to allow the proportionate deduction under section 80IB(10). In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Madras High Court in Viswas Promoters (P.) Ltd. vs. ACIT [2113] 29 taxmann.com 19 (Madras), the decisions of Tribunal in Sreevatsa Real Estates (P.) Ltd. vs. ITO [2011] 16 taxmann.com 224 (Chennai), SJR Builders vs. ACIT [2010] 3 ITR(Tri)
569 (Bangalore), DCIT vs. Rajarathnam Construction (P.) Ltd. [2015] 53 taxmann.com 517 (Chennai Trib.), ACIT vs Ekta Sankalp Developers [2015] 53 taxmann.com 75 (Mumbai Trib.) & Smt. Manju Gupta vs ACIT [2015] 15 taxmann.com 287 (Mumbai). The ld AR for the assessee finally submits that the order of ld CIT(A) is based on various decision of higher forums and does not require further interference.
We have considered the rival submission of the parties and have gone through the orders of authorities below. In the return of income, the assessee made a claim of deduction under section 80IB(10) of Rs. 31,23,89,658/-. The Assessing Officer asked the assessee to furnish the details with respect to his claim under section 80IB(10) i.e. approval of local authority, commencement of project, completion of project, area of 4 & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. project, area of each residential unit and name of the buyers. The assessee vide its reply dated 15.01.2013 furnished the requisite details. From the details furnished by assessee, the Assessing Officer noted that the project of assessee consist of 8 Wings and further divided into 7 floors. The Assessing Officer also noted that some of the flats were having area of more than 1000 sq. ft. or assessee sold more than one or more flats to the same person or the relative of the person, covered under section 80IB(10)(f) of the Act. The assessee was asked as to why deduction under section 80IB (10) be not disallowed. The assessee vide its reply dated 23.01.2013 contended that assessee may be allowed deduction on pro-rate basis. The contention of the assessee was not accepted by the Assessing Officer holding that the purpose of restricting area of each residential unit or to maximize the need of housing made available for common man. The assessee claimed deduction under section 80IB(10) on percentage of built up area of flats less than 1000 sq. ft., if this meaning is given to this section, the inference on eligible housing project with maximum residential area will fall out of place. Therefore, the assessing officer disallow the entire claim of deduction under section 80IB(10).
Before the ld. CIT(A), the assessee also furnished the claim on proportionate basis for the comprising less than 1000 sq. ft. to the total area. The working was forwarded to the Assessing Officer for his remand report. The Assessing Officer furnished its remand report on 13.12.2013. 5 ITA No.7111 & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. After considering the contention of assessee and the remand report furnished by Assessing Officer, the ld. CIT (A) observed that project is partly commercial and partly residential. Some of the flats constructed by the assessee are in excess of area of 1000 sq. ft. and the assessee has allotted more than one flat to some of the buyer or their relative. The assessee has reduced its claim to the extent of flat constructed in excess of 1000 sq.ft. as well as in case where more than one residential unit in housing project is allotted to the person being individual or his family member. The ld. CIT(A) by following the decision of Viswas Promoters (P.) Ltd. (supra) directed the Assessing Officer to allow the proportionate deduction under section 80IB (10).
The Hon’ble Madras High Court in case of Viswas Promoters (P.) Ltd. (supra) held that assessee is entitled for deduction under section 80IB(10) on proportionate basis in respect of those block which are less than the prescribed eligible area. Further, the Chennai Tribunal in case of Sreevatsa Real Estates (P.) Ltd. (supra) held that where some of the residential units developed by assessee exceeded area of 1500 sq. ft., it was entitled to claim deduction under section 80-IB(10) pro rate for housing units having area of less than 1500 sq.ft., Bangalore Tribunal in case of SJR Builders (supra) held that merely because some flats were larger than the specified limit of 1500 sq.ft., the assessee would not lose the benefit in its entirety.
ITA No.7111 & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. Only with reference to the flats which had more than the prescribed area, the assessee would lose the benefit.
In view of the aforesaid factual and legal discussion and considering the decision of Hon’ble Madras High Court and decisions of various Tribunal, we find that there is no illegality and infirmity in the order passed by ld. CIT(A) in directing the Assessing Officer to allow the proportionate deduction under section 80IB(10). No contrary, the decision is brought on record the notice to take the different view. In the result, ground of appeal
raised by Revenue is dismissed.
9. Ground No.2 relates to disallowance under section 14A r.w. Rule 8D. The ld. DR for the Revenue supported the order of Assessing Officer. The ld. DR further submits that the assessee has earned dividend income during the relevant Financial Year. The assessee has not apportioned any expenditure related to the exempt income. Therefore, the Assessing Officer invoked the provision of Rule 8D and disallowed the expenditure related to the income which does not form part of total income. The ld. CIT(A) restricted the same to Rs. 12,75,500/- on the basis of .5% of average value of investment during the relevant period.
10. On the other hand, the ld. AR of the assessee supported the order of ld. CIT (A). The ld. AR for the assessee further submits that the assessee invested the certain fund as a strategic partner in joint venture in the form of preference share. The investment made by assessee is cumulative 7 & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. convertible preference share of Rs. 250 Crore. These investments do not have any potential to earn exempt income. The ld. AR of the assessee further submits that assessee has not earned exempt income during the year. On redemption, the premium will be taxed as taxable income.
11. We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment proceeding, the Assessing Officer noted that during the relevant period the assessee earned dividend income at Rs. 1,00,320/-. The assessee has not apportioned any expenditure related to such exempt income, therefore, the Assessing Officer invoked the provision of Rule 8D and disallowed Rs. 1,44,76,162/- under Clause-(iii) of Rule 8D(2) of the Act. No disallowance was made under Clause (i) & (ii) of Rule 8D(2) was made.
12. Similar contention was urged before ld CIT(A). The ld CIT(A) after considering the contention of the assessee took the view that the investment made by assessee in preference share of a company as a strategic investor, investment made in share application and advance given to Mangoan Land developer are outside the purview of investment for the purpose of calculating the disallowance under section 14A. The ld. CIT(A) directed the assessing officer to restricted the disallowance at .5% of average value of investment and worked out the disallowance at Rs. 12,57,500/-. & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd.
The contention of assessee before the lower authority was that the assessee made investment on certain fund as strategic partner in joint venture. Recently, the Hon’ble Supreme Court in case of Maxopp Investment Ltd. vs. CIT [2018] 402 ITR 640(SC) held that the dominant purpose for which investment into shares is made by assessee may not be relevant as section 14A applies irrespective of whether shares are held to gain control or as stock-in-trade, where shares are held as stock-in-trade, main purpose is to trade in those shares and earn profits therefrom and, in process, certain dividend is also earned which is tax exempt under section 10(34); expenditure attributable to exempt dividend income will have to be appointed to be disallowed under section 14A 14. Further the Special Bench of Delhi Tribunal in ACIT Vs Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415 (Delhi-Trib.) (SB) held that the Computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Therefore, considering the latest decision of Hon’ble Supreme Court in Maxopp Investment Ltd (supra) and the decision of Special Bench of Delhi Tribunal in Vireet Investment this ground of appeal is restored back to the file of assessing officer to pass the order afresh after considering the aforesaid two decisions. Needless to order that before passing the order the assessing officer shall grant sufficient opportunity to the assessee before passing the order in 9 & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. accordance with law. Hence, this ground of appeal raised by the revenue is allowed.
In the result the appeal of the revenue is partly allowed.
In for AY 2011-12, the Revenue has raised the following grounds of appeal:
1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.1,52,61,061/- u/s 14A r.w.r. 8D of the Income Tax Act, 1961 without considering the facts that the assessee has received dividend income of Rs. 50,160/- from its investments."
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of deduction claim of Rs.1, 74,94,562/- as it does not fall in the meaning of section 80IB(10) wherein Housing project as mentioned u/s 80IB(10) means one project. Maximum area of residential unit in this project shall not exceed 1000 sq. ft. "
We have noted that the ground No.1 of the appeal is identical to the ground No.2 of the appeal for AY 2010-11, which we have restored to the file of assessing officer for fresh adjudication. Therefore, considering the decision for AY 2010-11, this ground of appeal is also restored to the file of assessing officer with the similar direction. In the result this ground of appeal is allowed.
Ground No.2 is identical to the ground No.1 of the appeal for AY 2010- 11, which we have already dismissed. Therefore, considering the decision for AY 2010-11, this ground of appeal is also dismissed. & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd.
In for AY 2011-12, the Revenue has raised the following grounds of appeal:
1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.1,52,61,061/- u/s 14A to the Book profit for the purpose of calculating MAT u/s 115JB without considering the facts that as per Act disallowance u/s 14A should be added to the Book Profit for the purpose of calculating MAT u/s 115JB.”
We have noted that the ground of the appeal raised by revenue is covered by our order is ground No.2 of the appeal for AY 2010-11, which we have restored to the file of assessing officer with the direction to follow the order of Special Bench of Delhi Tribunal in ACIT Vs Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415 (Delhi-Trib.) (SB), wherein it was held that the Computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Therefore, considering the decision for AY 2010-11, this ground of appeal is also restored to the file of assessing officer with the similar direction. In the result this ground of appeal is allowed for statistical purpose.
In the result this appeal is allowed for statistical purpose.
In for AY 2012-13 the Revenue has raised the following grounds of appeal:
"On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.l,94,54,359/- u/s 14A r.w.r. 8D of the Income Tax Act, 1961 without considering the facts that the expenditure incurred by & 624 to 626/M/16- M/s Kohinoor Plant Construction Pvt. Ltd. way of interest during the previous year which is not attributable directly to any particular income or receipt and an amount equal to one half percent of the average value of investment income from which does not and shall not form part of the total income as appearing in the balance sheet of the assessee Oil the first day and last day of the financial year had to be disallowed under Rule 8D, being attributable to the exempt income".
We have noted that this ground of the appeal is identical to the ground No.2 of the appeal for AY 2010-11, which we have restored to the file of assessing officer for fresh adjudication. Therefore, considering the decision for AY 2010-11, this ground of appeal is also restored to the file of assessing officer with the similar direction. In the result this ground of appeal is allowed.
In the result, all the appeals filed by Revenue are partly allowed.
Order pronounced in the open court on 30.05.2018.