ITO, WD-1(3), KOLKATA, KOLKATA vs. M/S RAVLON PROPERTIES (P) LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘A’, KOLKATA [Before Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM] I.T.A. No. 1458/Kol/2014 Assessment Year: 2010-11 I.T.O. Ward 1(3) Kolkata .............................…………………………......................Appellant Room No. 11A, 4th Floor, Aayakr Bhawan, P-7, Chowringhee Square, Kolkata - 700069 M/s. Ravlon Properties (P) Ltd.……………………………………………….........Respondent 35, C.R. Avenue, 2nd Floor, Kolkata – 12. [PAN: AACCR3164P] Appearances by: Shri P.B. Pramanick, Addl. CIT appearing on behalf of the Revenue. Shri A.K. Tulsyan, FCA appearing on behalf of the Assessee. Date of concluding the hearing : August 28, 2017 Date of pronouncing the order : October 06, 2017 ORDER Per P.M. Jagtap, AM This appeal is preferred by the revenue against the order of Ld. CIT (A) – 1, Kolkata dated 26.02.2014 on the following grounds: i. That on the facts and circumstances of the case, the Ld. CIT (A) is not justified in deleting addition of Rs. 1,91,90,538/- on undisclosed income of the assessee by admitting fresh evidences from the assessee in contravention to Rule 46A of the I.T. Rules and without giving a finding as to what prevented the taxpayer to adduce evidences before the Assessing Officer. ii. That on the facts and circumstances of the case, the Ld. CIT (A) is not justified in deleting disallowance of Rs. 2,24,877/- u/s 14A of the I.T. Act, 1961 read with Rule 8D without considering the fact that nexus between the interest earned and debited to the Profit & Loss Account could not be established by the assessee before the Assessing Officer. Moreover, the Ld.

2 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . CIT (A) is not justified in not considering CBDT’s instruction No. 5/2014, which is clarificatory in nature and therefore, has retrospective effect. iii. That on the facts and circumstances of the case, the Ld. CIT (A) is not justified in deleting disallowance of Rs. 20,000/- on donation u/s 80G of the I.T. Act, 1961 without proper appreciation of facts, since the assessee could not furnish proper evidence before the Assessing Officer. 2. Apropos ground no 1, the relevant facts of the case are that the assessee is an investment and finance company. The return of income for the year under consideration was filed by it on 16.09.2010 declaring a total income of Rs. 22,50,710/-. In the balance sheet filed along with the said return, the sum of Rs. 1,91,90,538/- was shown by the assessee under the head ‘Advance against Land’ on the asset side. During the course of assessment proceedings, the asssessee was called upon by the AO to furnish the names and addresses of the persons to whom such advances were made along with the relevant details such as amounts paid, mode of payment, copy of agreements and confirmations. Although the assessee furnished a list of advance against land along with confirmation of accounts, the copies of relevant agreements were not furnished by it. From the confirmation of accounts furnished by the assessee, the AO noticed that there was opening balance in some cases whereas there was no balance appearing under the head ‘advance against land’ in the balance sheet of the assessee for the immediately preceding year. He, therefore, treated the advances of Rs. 1,91,90,538/- as undisclosed income of the assessee and added the same to its total income in the assessment completed under section 143(3) vide an order dated 21.03.2013.

3 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd .

4 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . Rs. 1,91,90,538/- made by the AO for the following reasons given in paragraph no 5.3 of his impugned order: “5.3 The submissions of the appellant have been considered. The issue is regarding the aggregate amount of Rs. 1,91,90,538/- under the Head ‘Advance for Land’ shown in the Asset side of the Balance Sheet, which according to the AO were not there in the Balance Sheet of the earlier year. Admittedly the issue is not regarding the genuineness of the funds in respect of amount of Rs. 1,91,90,538/- since the relevant confirmations have been filed in the assessment proceedings. On the other hand, the AO has made the addition on the grounds that there was no balance in the immediate preceding year in respect of the amounts shown in the current year. Therefore, the issue is whether these amounts had been disclosed in the balance sheet of the earlier year by the appellant or not. From the explanation of the appellant and chart submitted by it, it is seen that the appellant has re-grouped certain amounts shown in the Asst as ‘Loan’ to different entities in the balance sheet in the earlier year and it has transferred certain amounts from the same to the head ‘advance against land’ in the current year balance sheet. The appellant has also given the details of transactions in respect of each of the 13 concerns to whom advances loans have been shown as ‘loans’ or advance against land and the same has been explained in a chart which is reproduced in para 5.1 above. Therefore from the same it is clear that the appellant has split up the balance of the earlier year, along with fresh loans given and returned during the year towards closing balance of loans as on 31.03.2010 of Rs. 15,01,692/- and advance against land as on 31.03.2010 of Rs. 1,91,90,538/-. It is therefore seen that this closing balance was actually coming out of the opening loan amount shown on 31.03.2009, against which certain advances had further been made and refund received. It is seen from the same that the overall balances are all tallying and there is no amount in respect of the advance against land of Rs. 1,91,90,538/- taken as undisclosed by the AO, which has not come out of the opening balance or the net balance after giving fresh advance or refund of amount as the case may be in respect of each of the entities. This becomes clear if the regrouped amounts are taken and consolidated which is clear from the chart reproduced below: Opening Loan Given 01.04.2009 84872905 Add: Loan given during the year 4411066 Less: Refund of loan 63779588

5 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . 25504383 Less: Transferred to advance against 24002691 land Net loan given as on 31.03.10 1501692 Advance transferred from loan given 24002691 Add: New advance given during the 4103847 year 28106538 Less: Refund of Advance 8916000 Net advance against land 19190538 Therefore, it is clear that the appellant has only re-grouped the balances and has been able to reconcile the re-grouping satisfactorily as discussed above. Therefore it is clear that these amounts were all disclosed in the appellant’s accounts. The AO the other hand has not pointed any discrepancy in his remand report from the above details submitted in appeal. In fact, it is seen that no opportunity was provided to the appellant to explain the above in assessment proceedings. It is therefore held that the AO was not justified in holding these ‘advance against land’ aggregating to Rs. 1,91,90,538/- to be undisclosed and the addition is accordingly deleted. 4. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The limited grievance of the revenue on this issue as raised in ground no 1 and further reiterated by the learned DR at the time of hearing before us is that the relief allowed by the Ld. CIT (A) to the assessee on this issue by relying on the fresh evidence is in contravention of Rule 46A of the Income Tax Rules in as much as there is no finding given by the Ld. CIT (A) as to what prevented the assessee to adduce the said evidence before the Assessing Officer. However, as submitted by the learned counsel for the assessee, the issue relating to the non- disclosure of opening balance under the head ‘advance against land’ in the balance sheet for the immediately preceding year was never

6 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . confronted by the AO to the assessee during the course of assessment proceedings and in order to meet the objection raised by the AO in this regard directly in the assessment order, the assessee got the opportunity for the first time only before the Ld. CIT (A) and availing the same, the relevant break up was furnished by the assessee. He has also invited our attention to the relevant portion of the submissions made by the assesssee in this regard wherein it was specifically pointed out by the assessee that such break up was never asked for by the Assessing Officer. Moreover, the entire details furnished by the assessee in this regard were forwarded by the Ld. CIT (A) to the AO for the latter’s comment and the Assessing Officer having submitted his remand report to the Ld. CIT (A) wherein no adverse comment was offered by him on the relevant details furnished by the assessee, we are of the view that there is no contravention of Rule 46A of the Income Tax Rule by the Ld. CIT (A) while giving relief to the assessee on this issue. In that view of the matter, we find no infirmity in the impugned order of the Ld. CIT (A) giving relief to the assessee on this issue and upholding the same, we dismiss ground no 1 of revenue’s appeal. 5. As regards the issue raised in ground no 2 relating to the disallowance under section 14A, it is observed that the assessee during the year under consideration had received a dividend income of Rs. 5,070/- which was claimed as exempt in the return. Since no disallowance on account of expenditure incurred in relation to the exempt dividend income was offered by the assessee, the AO applied

7 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . Rule 8D and computed the interest and other expenditure incurred by the assessee in relation to the earning of exempt dividend income at Rs. 2,24,877/-. Accordingly the disallowance of Rs. 2,24,877/- was made by the AO under section 14A read with Rule 8D. 6. The disallowance made by the AO under section 14A read with Rule 8D was challenged by the assessee in the appeal filed before the Ld. CIT (A). During the course of appellate proceedings before the Ld. CIT (A), it was pointed out by the assessee that the entire investment in shares was made by the assessee out of its own fund. It was also pointed out that the assessee company had received interest income of Rs. 27,98,150/- and after adjusting interest expenditure of Rs. 2,75,234/- incurred during the year under consideration, there was a net interest income of Rs. 25,22,960/-. As regards the disallowance to be made on account of other expenditure under Rule 8D(2)(iii), reliance was placed by the assessee on the decision of the Tribunal in the case of REI Agro Ltd. vs DCIT (ITA No. 1331/Kol/2011)to contend that only investment which had given rise to the exempt income should be taken into consideration while computing such disallowance. In this regard, it was pointed out by the assessee that the entire dividend income of Rs. 5,070/- was received by it only on the investment of Rs. 65,910/- made in the shares of Punjab National Bank and therefore the disallowance under Rule 8D(2)(iii) was required to be made only to the extent of Rs. 330/-. It is was also submitted by the assessee that in addition to the said amount, a further disallowance under section 14A was required to be made on

8 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . account of direct expenditure of Rs. 1,017/- incurred on account of Demat charges. 7. The submissions made by the assessee on the issue of disallowance under section 14A were forwarded by the Ld. CIT (A) to the AO and after taking into consideration the remand report submitted by the AO, the Ld. CIT (A) accepted the stand of the assessee on this issue and restricted the disallowance under section 14A to Rs. 1,347/-. 8. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Keeping in view the undisputed fact that the interest received by the assessee during the year under consideration was more than the interest paid, we find ourselves in agreement that the Ld. CIT (A) that no disallowance under section 14A can be made on account of interest expenditure even by applying Rule 8D. 9. As regards the disallowance under section 14A on account of other expenditure, we find that this aspect is squarely covered in favour of the assessee by the decision of this Tribunal in the case of REI Agro Ltd. which has since been upheld by the Hon’ble Kolkata High Court and the Ld. CIT (A) therefore was fully justified in restricting the said disallowance after taking into consideration only that investment which gave rise to the exempt dividend income during the year under consideration. We, therefore, find no justifiable

9 I.T.A. No. 1458/Kol/2014 Assessment Year: 2010 -11 M/s. Ravlon Properties (P) Ltd . reason to interfere with the impugned order of the Ld. CIT (A) on this issue and upholding the same, we dismiss ground no 2 of the revenue’s appeal. 10. As regards the issue raised in ground no 3 relating to the disallowance of Rs. 20,000/- on account of donation, it is observed that the deduction claimed by the assessee on account of donation of Rs. 20,000/- paid to Kolkata Police Family Welfare Centre was disallowed by the AO for want of Exemption Certificate under section 80G of the Act. The Ld. CIT (A) however deleted the said disallowance after having found that the donation made by the assessee to Kolkata Police Family Welfare Centre had immense advertisement value besides fulfilling the responsibility of social commitment. He held that the said donation therefore was eligible to be allowed as business expenditure. At the time of hearing before us, the learned DR has not been able to raise any material contention to rebut or controvert the basis given by the Ld. CIT (A) while allowing the claim of the assessee for deduction on account of donation being a business expenditure. It is also observed that the view taken by the Ld. CIT (A) while giving relief to the assessee on this issue is also supported by the decision of Hon’ble Kolkata High Court in the case of CIT vs Bata India Ltd. 201 ITR 884 wherein it was held that any contribution paid towards community celebration partake the character of advertisement, publicity and sales promotion. We accordingly uphold the impugned order of Ld. CIT (A) on this issue and dismiss ground no 3 of the revenue’s appeal.

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