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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
(A.Y:2008-09 Dy. Commissioner of Income Tax, M/s Lodha Developers Pvt. Ltd., Central Circle-7(3),Room 412, Floor-4, 17G Vardhaman Vs. No.655, Aaykar Bhavan, M.K. Chamber, Fort, Mumbai-400020 Road, Mumbai-400020 Appellant .. Respondent Assessee by .. Shri. Vijay Mehta, AR .. Shri. R.P. Meena,CIT DR Revenue by Date of hearing .. 11-01-2017 .. Date of pronouncement 17-02-2017 O R D E R PER MAHAVIR SINGH, JM:
These cross appeals one by the assessee and another by Revenue are arising out of the same order of CIT (A)-48, Mumbai in appeal No. CIT (A)-48/I.T.- 320/ACCC-6(3)/2011-12 dated 21-01-2015. The Assessment was framed by ACIT Central Circle-6(3), Mumbai for the A.Y. 2008-09 vide order dated 28-12-2010 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee in is as regards to the order of CIT(A) confirming the disallowance made by AO by invoking the provision of section 14A of the Act, qua expenses relatable to exempt income amounting to Rs. 8,63,15,825/-.
At the outset, the leaned Counsel for the assessee first of all took us through the order of Income Tax Settlement Commission dated 28-11-2004 passed u/s 245D (4) of the Act. He took us through the final finding of Settlement Commission at page no.61 in Para 28.6, wherein the settlement commission has restricted the disallowance at Rs. 4,27,76,189. The relevant to Para 28.6 was read by the learned Counsel which reads under: -
“28.6 In view of the above, the DI has obtained and verified the revised statement of working of section 14A read with Rule SD after reducing from investments, the own funds and interest free funds available in respect of each applicant. As computed the revised working gives rise to the additional income of Rs. 10,02,03092/-, After considering the facts of the case and judicial pronouncements on the issue we are of the considered view that total disallowance u/s 14A would be fairly taken at Rs 10,02,03,092/-, which is hereby added to the total income of the respective applicants in the respective assessment years. Applicant wise and assessment year wise addition is as under: -
Sl No Name of the Entity 2007-8 2008-09 2010-11 2011-12 2012-13 Total 1. Lodha Developers Pvt. Ltd 36637491 42776189 5215333 0 8625015 93254028 2. Infratech Builders & Agro Pvt. Ltd. 0 0 4315908 0 00 4315908 0 0 3. Ainath Builders P Ltd 0 1623 0 1623 4. 0 0 Microtec Construction P Ltd 0 691452 0 691452 0 0 5. Lodha Properties Devl P Ltd 0 958 958 6. Shantinath Designer Const P Ltd 0 0 0 10281 0 10281 0 0 7. Cotown Land Development P 12 0 12 Lt 0 0 8. Lodha Finstock P Ltd 0 1928830 0 1928830 Total 36637491 42776189 9531253 2632186 8625973 100203092
In view of the above, the learned counsel for the assessee stated that the issue is now decide and AO be directed to restrict to this addition only. When this was confronted to the learned CIT DR, he objected to the same.
After hearing the rival contentions and gone through the facts of the case, we find that this issue is settled by Income Tax Settlement Commission in its order vide settlement application No.MH/MUCC-4/118/2012-13/IT for the A.Y. 2008-09, the year under consideration, and restricted the disallowance at Rs. 4,24,76,189/-. We direct the AO to adopt the Income as directed by the Income Tax Settlement Commission. This issue of assessee’s appeal is partly allowed. 6. The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses for non-deduction of TDS u/s 40a(ia) of the Act amounting to Rs. 31,71,50,217/-. 7. At the outset, the learned Counsel for the assessee took us through the page 66 of the order of Income Tax Settlement Commission at Para 27, wherein this issue has been dealt with and Income Tax Settlement Commission has directed that no disallowance on the issue of non-deduction of TDS on income capitalized also short- term and / or non-deduction of TDS on payment made to group entities be not disallowed by invoking the provision of section 40a (ia) of the Act. The relevant finding of Income Tax Settlement Commission reds as under: -
“27. Regula assessment issues.
27.1 On legal issues arising out of returns of income, CIT as per report dated 30-09-2014 stated that the Commission may adjudicate on the same as per law. Director of Income Tax, Investigation of this Bench was directed to verify all the issues arising in the returns of income of various applicants. The Director of Income Tax (Investigation) has submitted a common verification report of such issues vide a forwarding letter dated 05.11.2014 In the above report of the DL there are 10 issues which were dealt with.
27.2 Based on the findings in the report, no infirmity was observed with regard to the following issues: -
Non-deduction of TDS on income capitalised.
Short deduction and / or non-deduction of TDS on payment made to group entities disallowable u/s.40(a)(ia).
Deemed Dividend uls.2(22)(e)Payments to entities covered u/s.40A(2)(b). Page 3 of 6
Interest disallowances of advances made to group entities.
Depreciation on sample flats.
We have considered the submissions made and the Report of the Director of Income Tax (Investigation). We are in agreement with the view of DIT (Inv.). Further in the absence of any comments by the Department no disallowance is called for as regards the above six issues.”
We have gone through the order of Settlement Commission and find that the issue is adjudicated and hence no disallowance can be made by the AO. The orders of the lower authorities are set aside and this issue of assessee’s appeal is allowed.
The next issue in this appeal of assessee is against the order of CIT(A), giving the direction to the AO to reduce the value of investment reflected in the balance sheet of the assessee to the extent of brokerage expenses of Rs. 66.90 lakhs. For this assessee has raised following ground no.2.3: - “2.3 On facts and circumstances of the case and in law, the learned 01(A) has erred in giving directions to learned AO to reduce value of investment reflected in the Balance Sheet to the extent of brokerage expense of Rs. 66,90,000 while computing eventual gain on sale of such investment pursuant to section 40(a)(ia) of the Act without appreciating the legal position that the provisions of section 40(a)(ia) are applicable only while computing 'Business Income' and not while computing 'Capital Gains'.”
The learned Counsel for the assessee took us through Para 28-30 of the CIT(A) order which are reproduced as under: - “28. This ground is covered in the discussion in respect of ground no 1. In principle, the amount of disallowance of interest u/s 40(a)(ia) should be excluded from the interest considered under Rule 8D while computing the disallowance u/s 14A. The ground is merited and is allowed as directed above.
The fifth ground of appeal pertains to the disallowance of brokerage expenses of Rs. 66,90,000/-. It is stated in the assessment order that as per column 27 of the Tax Audit Report, the tax was not deducted at source on brokerage paid to Geeta Cinema amounting to Rs. 66,90,000/-. Therefore, AO disallowed the same u/s 40(a)(ia) of the Act. During the appeal proceedings, the Ld. AR of the appellant has submitted that the appellant company has purchased of Odeon Theater Pvt. Ltd. for Rs. 31,26,65,954/- including brokerage of Rs. 66,90,000/-, the cost of which is reflected in investments in Balance Sheet. It is further submitted that the brokerage of Rs. -66,90,000/- was not debited to the Profit & Loss Account and therefore, the same should not be considered for disallowance u/s. 40(a)(ia) of the Act.
30. Since the payment made is capitalized, there is merit in the contention that addition cannot be made to the taxable income. Tus the taxable income computed in the current year will not be affected by this. The amount of investment reflected in the Balance Sheet should be treated as lower to the extent of brokerage on which TDS was not effected. The assessing officer will do so. This ground is partly allowed as above.”
And stated that the CIT(A) has clearly given direction that an amount to the extent of capitalized is to be excluded from addition, but CIT(A) has given direction to the AO that investment reflected in the balance sheet should be treated as lower to the extent of brokerage on which TDS was not deducted. According to the learned Counsel, these amounts are also capitalized and not claimed or debited to the profit or loss account. According to him, this can be verified by the AO, on this proposition learned CIT DR agreed.
After hearing both the sides and going through the facts of the case, we remand this issue back to the file of the AO with direction to verify whether this amount of Rs.66.90 loss being brokerage on which TDS is not effected has been capitalized or not. In case these amounts are capitalized and not claimed in the P & L account, the disallowance cannot be made by invoking the provisions of Section 40a(ia) of the Act. In case these are claimed then the assessee is liable to deduct TDS Page 5 of 6 and amount is to be disallowed in the absence of TDS. In term of the above, the issue is remanded back to the file of the AO for verification of the AO.
Coming to Revenue’s appeal in CIT(A) and now, we have only adjudicating the issue raised while adjudicating assessee’s appeal. Hence, the same has become infructuous and dismissed.
In the result, the appeal of assessee is partly allowed and the appeal of Revenue is dismissed. Order pronounced in the open court on 17-02-2017.