DCIT, CHENNAI vs. CEEBROS PROPERTY DEVELOPMENT PVT. LTD., CHENNAI

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

(Appeals)-1, Chennai dated 18.09.2015 in ITA No.119/2011-12 for the assessment year 2009-10 passed U/s.250(6) r.w.s.

143(3) of the Act.

by the Ld.AO U/s.14A r.w.r. 8D of the Rules amounting to Rs.9,81,067/- towards investment in shares in sister concerns

During the course of scrutiny assessment it was observed by the Ld.A.O that the assessee had entered into a joint venture agreement on 19.01.2006 for constructing eight residential flats consisting of 950 sq.ft., each. As per the agreement three flats aggregating to 2850 sq.ft., was allotted to the owner of the land, one flat consisting of 950 sq.ft., was sold for Rs.31,28,600/- and the balance four flats of 950 sq.ft., each aggregating to 3800 sq.ft. was retained by the assessee. The cost of construction of the total built-up area of 7600 sq.ft., including the cost of land paid to the owner of the land worked out to Rs.2,74,26,713/-. Thus the assessee claimed to have incurred loss of Rs.23,53,113/- in the project as detailed herein below:-

“6. I have carefully considered the facts in issue, the view taken by the AO, the arguments advanced by the appellant and material on record. From the facts brought out by the AD and the appellant it is clear that the revenue generated by the housing project in the form of contract receipts had formed part of the gross profit for the assessment year under consideration. Therefore, the basic ingredient as envisaged in s.14A that being, the expenditure incurred in relation to income not includible in total income was not satisfied. In the case of Walfort Share & Stock Brokers P Ltd 326 ITR 1, summarized by the AD in para 2.8 of the assessment order itself shows the non-application of s.14A of the Act to the facts of the present case. In the case of the appellant as has been stated earlier there was no expenditure in relation to income which. does not form part of the total income. This fact is clear as the appellant has accounted for the contract receipts in its gross profit while arriving at the taxable total income for the assessment year under consideration. Now coming to the alternate contention of the AO that the impugned indirect expenses which has been apportioned would not be allowable u/s 37(1) of the I.T.Act. In this regard, the plea taken by the appellant that the said expenses relate to the income earning apparatus of the appellant, including the housing project under consideration as well as other on-going projects and also in view of the appellant being a developer, the said alternate contention of the AO also cannot be upheld. In short, the view taken by the AO on the facts of the case and for reasons discussed in the foregoing cannot be upheld. The AO is directed to delete the disallowance made. This ground of appeal is allowed.”

4.1 The Ld.DR argued in support of the Ld.AO, while as the Ld.AR relied on the orders of the Ld.CIT(A).

4.2 We have heard the rival submissions and carefully perused the materials available on record. From the facts of the case, it is apparent that the Ld.AO has held that the proportionate indirect cost pertaining to administrative cost, finance cost, depreciation etc., attributable towards the cost of construction of the retained flats amounting to Rs.50,31,542/- has to be disallowed by virtue of Section 14A of the Act. At the outset, we do not find any merit in the order of the Ld.AO on this issue. The assessee has entered into a joint venture to execute a mini project during its lien period of operation. In this situation, the entire establishment cost of the assessee company cannot be loaded on the project, because in that case the cost of the project will not be in parity with the cost of construction of the project in the prevailing market scenario. Further it is apparent that only one of the flat consisting of 950 sq.ft., for a value of Rs.31,28,600/- could be sold in the open market which works out to Rs.3,293/- per sq.ft. Even in this market scenario, the assessee have retained the flats at the value of Rs.5,775/- per sq.ft., being the actual cost of construction of the project. Further the assessee has retained the flats as its investment wherein the income derived from which is taxable under the head ‘income from house property’. Therefore the provisions of Section 14A of the Act will not be applicable in the case of the assessee at all because the aforesaid provision only deals with expenditure incurred for earning exempt income. In the case of the assessee the income earned from the investment of the retained flats will be liable for taxable under the head ‘income from house property’ as stated earlier. Therefore the Ld.AO is hereby directed to delete the addition made by invoking the provisions of Section 14A of the Act, as held by the Ld.CIT(A).

The assessee had made investments in shares of sister company, the dividend income from which is exempt from tax.

Therefore the Ld.AO invoked the provisions of Section 14A r.w.r. 8D of the Rules and worked out the disallowance at Rs.9,81,067/-. On appeal, the Ld.CIT(A) following the decision of the Chennai Bench of the Tribunal in the case M/s. EIH Associates Hotels Ltd vs. DCIT in for the assessment year 2008- 09 dated 17.07.2013 held that the provisions of Section 14A r.w.r.

8D would not apply in situations where the investments are made in subsidy company. Further it is not a case, where the assessee

8 had invested in the shares of its sister company from its interest bearing funds. Therefore the decision of the Tribunal supra will be squarely applicable in the case of the assessee. Hence we do not find any infirmity in the order of the Ld.CIT(A) on this issue, accordingly we hereby sustain the same.

Order pronounced on the 27th October, 2017 at Chennai.