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Facts
The Revenue appealed an order by the CIT(A) which deleted additions made by the AO regarding exemption of Rs. 44,63,29,740/- under section 10(23FB) and Rs. 2,24,18,067/- under section 10(35). The assessee, a Venture Capital Fund (VCF), claimed these exemptions on income derived from investments in Venture Capital Undertakings (VCUs) and mutual funds. The AO had disallowed these exemptions.
Held
The Tribunal held that the CIT(A) correctly followed the binding precedent of the Tribunal in the preceding assessment year (A.Y. 2016-17) concerning both the exemption under section 10(23FB) and section 10(35). The Tribunal found no infirmity in the CIT(A)'s order and upheld the deletion of additions.
Key Issues
Whether the CIT(A) erred in deleting the disallowance of exemptions under sections 10(23FB) and 10(35), by following the precedent of the preceding assessment year.
Sections Cited
10(23FB), 10(35), 143(3), 2(n)
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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the Revenue is directed against order dated 31.05.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2017-18, raising following grounds:
1. Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in deleting the addition made by the AO and allowing the exemption of Rs. 44,63,29,740/- u/s 10(23FB) of the Act.
Aditya Birla Real Estate Fund. 2 ITA No. 2684/M/2023
Whether on the facts and circumstances of the case and Whether on the facts and circumstances of the case and Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) the Hon'ble CIT(A) erred in not upholding the status of three erred in not upholding the status of three investee companies investee companies of the assessee as NON- VCU for the reasons VCU for the reasons discussed in detail in the assessment order. discussed in detail in the assessment order.
3. Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in allowing the exemption u/s 10(23FB) the Hon'ble CIT(A) erred in allowing the exemption u/s 10(23FB) the Hon'ble CIT(A) erred in allowing the exemption u/s 10(23FB) of the Act on assumption that the deduc of the Act on assumption that the deduction claimed in 2016 tion claimed in 2016-17 has been allowed in the subsequent year on the basis that the has been allowed in the subsequent year on the basis that the has been allowed in the subsequent year on the basis that the assessee has reversed the interest income received from M/S. assessee has reversed the interest income received from M/S. assessee has reversed the interest income received from M/S. Amrapali Smart City Developers Put Ltd. (On the basis that the Amrapali Smart City Developers Put Ltd. (On the basis that the Amrapali Smart City Developers Put Ltd. (On the basis that the receipt was very doubtful), which in fact such receipt was very doubtful), which in fact such reversal didn't reversal didn't happen in the A. Y. 2017 happen in the A. Y. 2017-18. 4. Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in deleting the addition made by the the Hon'ble CIT(A) has erred in deleting the addition made by the the Hon'ble CIT(A) has erred in deleting the addition made by the Assessing Assessing Assessing Officer Officer Officer and and and allowing allowing allowing the the the exemption exemption exemption of of of Rs. Rs. Rs. 44,63,29,748/ 44,63,29,748/- u/s. 44,63,29,748/- 10(23FB) of the Act, in spite 10(23FB) of the Act, in spite of fact that the said M/s. Amrapali Smart City Developers Put. Ltd of fact that the said M/s. Amrapali Smart City Developers Put. Ltd of fact that the said M/s. Amrapali Smart City Developers Put. Ltd Company Company -VCU not carried any real estate business and derived VCU not carried any real estate business and derived any income during the year under consideration, where the any income during the year under consideration, where the any income during the year under consideration, where the chapter chapter - Ill specially mentioned that income of any clause u/s 10 that income of any clause u/s 10 shall not be included in total income of a previous year. shall not be included in total income of a previous year. shall not be included in total income of a previous year. 5. Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in deleting the addition, when CSN the Hon'ble CIT(A) has erred in deleting the addition, when CSN the Hon'ble CIT(A) has erred in deleting the addition, when CSN Estate Put Ltd in which the Assesssee Estate Put Ltd in which the Assesssee has invested which intum has invested which intum has lent the money to third party, which hows that it is engaged has lent the money to third party, which hows that it is engaged has lent the money to third party, which hows that it is engaged in finance activity and such act of lending money to third party is in finance activity and such act of lending money to third party is in finance activity and such act of lending money to third party is clear violation o SEB! (Venture Capital Funds / Regulation Act, clear violation o SEB! (Venture Capital Funds / Regulation Act, clear violation o SEB! (Venture Capital Funds / Regulation Act, 1996 6. Whether on the facts and Whether on the facts and circumstances of the case and in law, circumstances of the case and in law, the Hon'ble CIT(A) has erred in deleting the addition made by the the Hon'ble CIT(A) has erred in deleting the addition made by the the Hon'ble CIT(A) has erred in deleting the addition made by the Assessing Officer, since SEBA has not taken any adverse view, Assessing Officer, since SEBA has not taken any adverse view, Assessing Officer, since SEBA has not taken any adverse view, where as per the provision of Act income derived by the assessee where as per the provision of Act income derived by the assessee where as per the provision of Act income derived by the assessee from such investment is n from such investment is not eligible for exemption u/s 10(23FB) of ot eligible for exemption u/s 10(23FB) of the Act. the Act. 7. Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in deleting the addition made by the the Hon'ble CIT(A) has erred in deleting the addition made by the the Hon'ble CIT(A) has erred in deleting the addition made by the Assessing Officer, whereas the section 10(23FB), has been Assessing Officer, whereas the section 10(23FB), has been Assessing Officer, whereas the section 10(23FB), has been amended from 01.04 amended from 01.04.2008 restricting the scope of investment to .2008 restricting the scope of investment to only in Venture Capital Undertakings. only in Venture Capital Undertakings. 8. Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, Whether on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred allowing the exemption u/s 10(35) of the Hon'ble CIT(A) has erred allowing the exemption u/s 10(35) of the Hon'ble CIT(A) has erred allowing the exemption u/s 10(35) of the Act. of Rs.2,24,18,067/ the Act. of Rs.2,24,18,067/-earned from distribution from units ribution from units held in mutual funds. held in mutual funds. 9. The appellant prays that the order of the Hon'ble CIT(A), on the The appellant prays that the order of the Hon'ble CIT(A), on the The appellant prays that the order of the Hon'ble CIT(A), on the above grounds be set. aside and that of the Assessing Officer be above grounds be set. aside and that of the Assessing Officer be above grounds be set. aside and that of the Assessing Officer be restored. restored. 2. Briefly stated, facts of the case are that the assessee is Briefly stated, facts of the case are that the assessee is Briefly stated, facts of the case are that the assessee is registered as a Venture Capital F a Venture Capital Fund (VCF) and derived its income and derived its income
Aditya Birla Real Estate Fund. 3 ITA No. 2684/M/2023 from investment in optional convertible from investment in optional convertible debantures debantures (OCD) of Venture Capital Undertaking (VCU) ndertaking (VCU), which was claimed as exempt which was claimed as exempt u/s 10(23FB) of the Income u/s 10(23FB) of the Income-tax Act, 1961 (in short ‘the Act’). The tax Act, 1961 (in short ‘the Act’). The assessee also derived income from dividend from investment in o derived income from dividend from investment in o derived income from dividend from investment in mutual fund which was claimed as mutual fund which was claimed as exempt u/s 10(35) of the Act. In u/s 10(35) of the Act. In the scrutiny assessment completed u/s 143(3) of the Act, the the scrutiny assessment completed u/s 143(3) of the Act, the the scrutiny assessment completed u/s 143(3) of the Act, the Assessing Assessing Assessing Officer Officer Officer disallowed disallowed disallowed exemption exemption exemption amounting amounting amounting to to to Rs.44,63,29,740/- out of total tal exemption exemption claimed claimed of of Rs.106,55,43,135/- u/s 10(23FB) of the Act. The Assessing Officer u/s 10(23FB) of the Act. The Assessing Officer u/s 10(23FB) of the Act. The Assessing Officer also denied exemption claimed in respect of dividend from the also denied exemption claimed in respect of dividend from the also denied exemption claimed in respect of dividend from the mutual fund amounting to Rs.2,24,18,067/ mutual fund amounting to Rs.2,24,18,067/-. Aggrieved, the . Aggrieved, the assessee filed appeal before the Ld. CIT(A). assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) following The Ld. CIT(A) following the finding of the Income the finding of the Income-tax Appellate Tribunal (in short ‘the tax Appellate Tribunal (in short ‘the Tribunal’) in preceding assessment year deleted the additions. Tribunal’) in preceding assessment year deleted the additions. Tribunal’) in preceding assessment year deleted the additions.
Aggrieved the Revenue is in appeal before the Tribunal. Aggrieved the Revenue is in appeal before the Tribunal. Aggrieved the Revenue is in appeal before the Tribunal.
We have heard rival submission of the part We have heard rival submission of the parties on the issue in ies on the issue in dispute and perused the relevant material on record. dispute and perused the relevant material on record. dispute and perused the relevant material on record.
4.1 As regards to the issue of disallowance of exemption claimed As regards to the issue of disallowance of exemption claimed As regards to the issue of disallowance of exemption claimed to the extent of Rs.44,63,29,740/ to the extent of Rs.44,63,29,740/- u/s 10(23FB) of the Act is u/s 10(23FB) of the Act is concerned, during the year under consideration the asse during the year under consideration the assessee has during the year under consideration the asse shown income of Rs.106,55,43,135/ shown income of Rs.106,55,43,135/- from investment in different from investment in different Venture Capital Undertakings. However out of those, the Assessing ndertakings. However out of those, the Assessing ndertakings. However out of those, the Assessing Officer has treated the investment in respect of three parties namely Officer has treated the investment in respect of three parties namely Officer has treated the investment in respect of three parties namely
Aditya Birla Real Estate Fund. 4 ITA No. 2684/M/2023 M/s CSN Estates Pvt. Ltd., Startechinfraproject CSN Estates Pvt. Ltd., Startechinfraprojects Pvt. Ltd. and s Pvt. Ltd. and Amrapali Smart City Developers Pvt. Ltd. mart City Developers Pvt. Ltd. as not eligible for as not eligible for exemption u/s 10(23FB) of the Act. We find that in the year under exemption u/s 10(23FB) of the Act. We find that in the year under exemption u/s 10(23FB) of the Act. We find that in the year under consideration no income has been received in respect of income has been received in respect of income has been received in respect of Startechinfraprojects Pvt. Ltd. In respect of M/s Amrapali Smart Startechinfraprojects Pvt. Ltd. In respect of M/s Amrapali Smart Startechinfraprojects Pvt. Ltd. In respect of M/s Amrapali Smart City Developers Pvt. Ltd. City Developers Pvt. Ltd. , the assessee made investment of Rs.150 made investment of Rs.150 crores crores crores in in in the the the form form form of of of OCDs OCDs OCDs and and and derived derived derived income income income of of of Rs.20,09,74,740/-. The Assessing Off . The Assessing Officer found that said icer found that said VCU is not carrying out any real estate business and no financial were any real estate business and no financial were any real estate business and no financial were maintained by the company. He further observed that no provision maintained by the company. He further observed that no provision maintained by the company. He further observed that no provision of the business was carried out by the company and the director of of the business was carried out by the company and the director of of the business was carried out by the company and the director of the company were also in also in jail, therefore, the company cannot be herefore, the company cannot be treated as VCU within the definition of section 2(n) of the Securities treated as VCU within the definition of section 2(n) of the Securities treated as VCU within the definition of section 2(n) of the Securities and Exchange Board of India (Venture Capital Fund) Regulations, and Exchange Board of India (Venture Capital Fund) Regulations, and Exchange Board of India (Venture Capital Fund) Regulations, 1996. Similarly, in respect of CSN Estates Pvt. Ltd., the assessee 1996. Similarly, in respect of CSN Estates Pvt. Ltd., the assessee 1996. Similarly, in respect of CSN Estates Pvt. Ltd., the assessee against against investment investment of of Rs.100 crores, derived derived income income of of Rs.24,53,55,000/- from the said company. The Assessing Officer from the said company. The Assessing Officer from the said company. The Assessing Officer observed that said VCU has violated the provision and acted as observed that said VCU has violated the provision and acted as observed that said VCU has violated the provision and acted as pass through entity as said entity has further pass through entity as said entity has further lent the amount of lent the amount of Rs.120,46,54,374/- to a company to a company called as Lemon Tree Land and called as Lemon Tree Land and Developers Pvt. Ltd.
4.2 However, we find that the Ld. CIT(A) has deleted the addition However, we find that the Ld. CIT(A) has deleted the addition However, we find that the Ld. CIT(A) has deleted the addition observing as under:
“1. As can be seen from the above, the issue of disallowance of As can be seen from the above, the issue of disallowance of As can be seen from the above, the issue of disallowance of exemption u/s. 10(23FB) of the Act in respect of the exemption u/s. 10(23FB) of the Act in respect of the exemption u/s. 10(23FB) of the Act in respect of the aforesaid 3
Aditya Birla Real Estate Fund. 5 ITA No. 2684/M/2023 companies namely Amrapali Smart City Developers Pvt. Ltd., CSN companies namely Amrapali Smart City Developers Pvt. Ltd., CSN companies namely Amrapali Smart City Developers Pvt. Ltd., CSN Estates Pvt. Ltd., StarteckInfraprojects Pvt. Ltd. was in dispute for A.Y. Estates Pvt. Ltd., StarteckInfraprojects Pvt. Ltd. was in dispute for A.Y. Estates Pvt. Ltd., StarteckInfraprojects Pvt. Ltd. was in dispute for A.Y. 2016-17 and the said issue has been decided in favour of the appellant 17 and the said issue has been decided in favour of the appellant 17 and the said issue has been decided in favour of the appellant by the Hon'ble Tribunal in the abov by the Hon'ble Tribunal in the above mentioned case. Since the issue is e mentioned case. Since the issue is decided by the Hon'ble Tribunal in case of the appellant for the decided by the Hon'ble Tribunal in case of the appellant for the decided by the Hon'ble Tribunal in case of the appellant for the immediate preceding year, A.Y. 2016 immediate preceding year, A.Y. 2016-17, respectfully following the 17, respectfully following the findings, reasoning and adjudication. of the CIT(A) and Hon'ble Tribunal, findings, reasoning and adjudication. of the CIT(A) and Hon'ble Tribunal, findings, reasoning and adjudication. of the CIT(A) and Hon'ble Tribunal, I decide the I decide the said issue in favour of the appellant and delete the said issue in favour of the appellant and delete the disallowance of Rs. 44,63,29,740/ disallowance of Rs. 44,63,29,740/- made by the Assessing Officer and made by the Assessing Officer and direct the Assessing Officer to allow exemption u/s. 10(23FB) of the Act. direct the Assessing Officer to allow exemption u/s. 10(23FB) of the Act. direct the Assessing Officer to allow exemption u/s. 10(23FB) of the Act. In result, these grounds are treated as allowed. In result, these grounds are treated as allowed.” 4.3 We find that the Ld. CIT(A) has followed the binding precedent d that the Ld. CIT(A) has followed the binding precedent d that the Ld. CIT(A) has followed the binding precedent of the Tribunal in the case of the assessee for immediately of the Tribunal in the case of the assessee for immediately of the Tribunal in the case of the assessee for immediately preceding assessment ye preceding assessment year i.e. assessment year 2016 ar i.e. assessment year 2016-17. The order of the Tribunal is still in operation and has not been reversed by of the Tribunal is still in operation and has not been reversed by of the Tribunal is still in operation and has not been reversed by any higher appellate forum, gher appellate forum, therefore, we do not find any infirmity therefore, we do not find any infirmity in the order of the Ld.CIT(A) on the issue in dispute. Accordingly, in the order of the Ld.CIT(A) on the issue in dispute. in the order of the Ld.CIT(A) on the issue in dispute. the ground Nos. 1 to . 1 to 7 of the appeal of the Revenue are dismissed. of the appeal of the Revenue are dismissed.
In ground No. 8, the Revenue is aggrieved with the del In ground No. 8, the Revenue is aggrieved with the del In ground No. 8, the Revenue is aggrieved with the deletion of disallowance of Rs.2,24,18,067/ disallowance of Rs.2,24,18,067/- in respect of dividend income in respect of dividend income from mutual fund which was claimed as exempt. from mutual fund which was claimed as exempt.
5.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that the Ld. CIT(A) has followed the finding of the Tribunal in d. CIT(A) has followed the finding of the Tribunal in d. CIT(A) has followed the finding of the Tribunal in assessment year 2016 assessment year 2016-17 on the issue in dispute. The relevant 17 on the issue in dispute. The relevant finding of the Ld. CIT(A) is reproduced as under: finding of the Ld. CIT(A) is reproduced as under:
“1. As can be seen from the submissions made and the “1. As can be seen from the submissions made and the “1. As can be seen from the submissions made and the assessment order for A.Y. 2016 assessment order for A.Y. 2016-17 placed on record, the ced on record, the exemption in respect of dividend income from the mutual funds of exemption in respect of dividend income from the mutual funds of exemption in respect of dividend income from the mutual funds of Rs. 6,64,92,670/ Rs. 6,64,92,670/- was denied by the Assessing Officer on the was denied by the Assessing Officer on the identical ground that the appellant being VCF was only eligible for identical ground that the appellant being VCF was only eligible for identical ground that the appellant being VCF was only eligible for Aditya Birla Real Estate Fund. 6 ITA No. 2684/M/2023 exemption u/s. 10(23FB) of the Act if the c exemption u/s. 10(23FB) of the Act if the conditions therein were onditions therein were complied. As such, the appellant cannot be granted exemption u/s. complied. As such, the appellant cannot be granted exemption u/s. complied. As such, the appellant cannot be granted exemption u/s. 10(35) of the Act if they are entitled to exemption u/s. 10(23FB) of 10(35) of the Act if they are entitled to exemption u/s. 10(23FB) of 10(35) of the Act if they are entitled to exemption u/s. 10(23FB) of the Act. Against the said disallowance, my predecessor had the Act. Against the said disallowance, my predecessor had the Act. Against the said disallowance, my predecessor had decided the issue in favour of the appe decided the issue in favour of the appellant vides his order dated llant vides his order dated 18-09-2019. In an appeal filed by the Assessing Officer before the 2019. In an appeal filed by the Assessing Officer before the 2019. In an appeal filed by the Assessing Officer before the Hon'ble Tribunal in the Hon'ble Hon'ble Tribunal in ITA No. 7504/Mum/2019, the Hon'ble Hon'ble Tribunal in ITA No. 7504/Mum/2019, the Hon'ble Tribunal, vide its order dated 13.08.2021, held as under. Tribunal, vide its order dated 13.08.2021, held as under. Tribunal, vide its order dated 13.08.2021, held as under.
We have heard both the parties and perused the 17. We have heard both the parties and perused t 17. We have heard both the parties and perused t records. Learned Departmental Representative relied upon records. Learned Departmental Representative relied upon records. Learned Departmental Representative relied upon the order of the Assessing Officer.However, he could not the order of the Assessing Officer.However, he could not the order of the Assessing Officer.However, he could not point out as to why assessee shall not be allowed point out as to why assessee shall not be allowed point out as to why assessee shall not be allowed exemption under section 10(35) of the Act with respect to exemption under section 10(35) of the Act with respect to exemption under section 10(35) of the Act with respect to dividend income. dividend income.
Upon caref 18. Upon careful consideration we note that the Assessing ul consideration we note that the Assessing Officer's view that VCF was eligible for deduction under a Officer's view that VCF was eligible for deduction under a Officer's view that VCF was eligible for deduction under a specific section 10(23FB) and therefore it cannot claim specific section 10(23FB) and therefore it cannot claim specific section 10(23FB) and therefore it cannot claim deduction under another section 10(35) of the Act is totally deduction under another section 10(35) of the Act is totally deduction under another section 10(35) of the Act is totally inapplicable in the facts and circum inapplicable in the facts and circumstances of the case. stances of the case. Exemption under section 10(23FB) and exemption under Exemption under section 10(23FB) and exemption under Exemption under section 10(23FB) and exemption under section 10(25) of the Act operates in different fields. section 10(25) of the Act operates in different fields. section 10(25) of the Act operates in different fields. Learned CIT(A) is correct in holding that operations of these Learned CIT(A) is correct in holding that operations of these Learned CIT(A) is correct in holding that operations of these sections are independent. Assessee's income in VCU is sections are independent. Assessee's income in VCU is sections are independent. Assessee's income in VCU is exempt und exempt under section 10(23FB) of the Act and the dividend er section 10(23FB) of the Act and the dividend income is exempt under section 10(35) of the Act. Hence, income is exempt under section 10(35) of the Act. Hence, income is exempt under section 10(35) of the Act. Hence, there is no infirmity in the assessee's claim of exemption on there is no infirmity in the assessee's claim of exemption on there is no infirmity in the assessee's claim of exemption on dividend income under section 10(35) of the Act. Learned dividend income under section 10(35) of the Act. Learned dividend income under section 10(35) of the Act. Learned CIT(A)'s order in this regard is CIT(A)'s order in this regard is cogent. Decisions referred by cogent. Decisions referred by the Assessing Officer has been duly distinguished by the Assessing Officer has been duly distinguished by the Assessing Officer has been duly distinguished by learned CIT(A). We do not find any infirmity in the same. learned CIT(A). We do not find any infirmity in the same. learned CIT(A). We do not find any infirmity in the same. Accordingly, we uphold the order of learned CIT(A)." Accordingly, we uphold the order of learned CIT(A)." Accordingly, we uphold the order of learned CIT(A)."
Since the aforesaid issue is decided by the Hon'ble Tribun 1. Since the aforesaid issue is decided by the Hon'ble Tribun 1. Since the aforesaid issue is decided by the Hon'ble Tribunal in case of the appellant for A.Y. 2016 case of the appellant for A.Y. 2016-17, respectfully following the 17, respectfully following the findings of the Horible Tribunal, the appellant is held eligible for findings of the Horible Tribunal, the appellant is held eligible for findings of the Horible Tribunal, the appellant is held eligible for exemption u/s. 10(35) of the Act on the incame of Rs. exemption u/s. 10(35) of the Act on the incame of Rs. exemption u/s. 10(35) of the Act on the incame of Rs. 2,24,18,067/ 2,24,18,067/-. As a result the said grounds of appeal are he . As a result the said grounds of appeal are held allowed.” 5.2 Since, the Ld. CIT(A) has followed Since, the Ld. CIT(A) has followed a binding precedent on the binding precedent on the issue in dispute, we do not find any infirmity in the order of the Ld. issue in dispute, we do not find any infirmity in the order of the Ld. issue in dispute, we do not find any infirmity in the order of the Ld. CIT(A) and accordingly, the finding of the Ld. CIT(A) on the issue in CIT(A) and accordingly, the finding of the Ld. CIT(A) on the issue in CIT(A) and accordingly, the finding of the Ld. CIT(A) on the issue in Aditya Birla Real Estate Fund. 7 ITA No. 2684/M/2023 dispute is upheld. The ground dispute is upheld. The ground No. 8 of appeal of the Revenue is of appeal of the Revenue is accordingly dismissed. accordingly dismissed.
In the result, appeal of the Revenue is dismissed. In the result, appeal of the Revenue is dismissed. In the result, appeal of the Revenue is dismissed.