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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.428 OF 2016 BETWEEN: M/S. PRESTIGE ESTATES PROJECTS LTD., THE FALCON HOUSE NO.1 MAIN GUARD CROSS ROAD BANGALORE-560001. ... APPELLANT (BY SRI. ASHOK A. KULKARNI, ADV.) AND: THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(1), BANGALORE. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 13-05-2016 PASSED IN ITA NO.845/BANG/2015, FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO:
2 I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. SET ASIDE THE ORDER OF THE ITAT IN ITA NO.845/(BANG)/2015 DATED 13.05.2016 IN ANNEXURE-D AND DIRECT THE ALLOWANCE OF Rs.56,45,800/- AS A DEDUCTIN IN THE COMPUTATION OF THE INCOME UNDER THE ACT FOR THE A.Y. 2010-11. SET ASIDE THE ABOVE ORDER OF THE ITAT ORDER IN ITA NO.845/BANG/2015 DATED 13.05.2016 IN ANNEXURE-D DIRECTING THE DISALLOWANCE U/S 14A IN A SUM OF RS. 97,154. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT Mr.Ashok A.Kulakarni, learned counsel for the assessee. Mr.K.V.Aravind, learned counsel for the revenue. 2. This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment Year 2010-11. The appeal was admitted by a Bench of this Court vide order 07.11.2017 to consider the following substantial questions of law:
3 i. Whether on the facts and in the circumstances of the case and having regard to the true meaning of 'penalty' and 'compounding fee' and the provisions of the Corporation Act, especially those relating to levy and quantification of penalty and compounding fee as the case may be the sum of Rs.56,45,800/- or any part of it is allowable as a deduction while computing the income under the Income Tax Act? ii. Whether on the facts and in the circumstances of the case, on a true and correct interpretation of the provisions of Section 14A of the Act. The disallowance of Rs.97,154/- by invoking the provisions of Rule 8D(2)(iii) is justified? 3. Facts leading to filing of this appeal briefly stated are that an order of assessment was passed by the Assessing Officer on 28.03.2013, by which the Assessing Officer disallowed the claim to the extent of Rs.56,45,810/- being expenditure incurred as fee for minor deviation from the initially sanctioned plan and to
4 bring the actually constructed structure in conformity with the modified plan as per building bye laws of the assessee on the ground that such payment amounted to penalty not falling under Section 37(1) of the Act. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 14.01.2015, by following the previous decisions of the Income Tax Appellate Tribunal, dismissed the appeal preferred by the assessee. Thereupon, the assessee approached the Tribunal by filing an appeal. The Tribunal, by an order dated 13.05.2016, dismissed the appeal. In the aforesaid factual background, the assessee has approached this Court. 4. When the matter was taken up today, learned counsel for the assessee fairly submitted that the first substantial question of law is answered against the assessee by a Bench of this Court vide order dated
5 08.10.2013 passed in ITA No.302/2013 (M/s. Prestige Estates Projects (P) Ltd. Vs. The Deputy Commissioner of Income-tax, Bangalore). However, it is pointed out that against the aforesaid order, special leave petition has been filed before the Supreme Court which is pending consideration and the Assessing Officer be directed to decide the issue involved in the first substantial question of law after the decision of the Supreme Court in the special leave petition. 5. With regard to the second substantial question of law, it is submitted that the Assessing Officer has disallowed proportionate interest expenditure and indirect expenditure under Section 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules. The Tribunal has upheld disallowance of administrative expenses in respect of earning non-taxable income. It is further pointed out that it is the case of the assessee that he has not incurred any direct or administrative
6 expenditure for the purpose of earning non-taxable income. It is also submitted that with respect to disallowance under Section 14A of the Act, the Assessing Officer has to bring the material on record to show that certain expenditure was incurred for earning the exempt income and therefore, when no expenditure was incurred by the assessee in earning the exempt income, no notional administrative expenditure could be disallowed. In this connection, reliance has been placed on the decision of this Court in 'CANARA BANK Vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-11(2), BANGALORE' (2015) 228 TAXMAN 212 (KAR). Reliance has also been placed on the decision of the Supreme Court in 'GODREJ & BOYCE MANUFACTURING CO. LTD. Vs. DY. CIT.' 394 ITR 449 (SC). It is further submitted that the aforesaid aspect of the matter has not been considered by the Assessing Officer. Therefore, the matter be remitted to the Assessing Officer to decide the issue involved in the
7 second substantial question of law in the light of the aforesaid decisions. 6. On the other hand, learned counsel for the revenue submitted that infact no substantial question of law arises for consideration in this appeal as the matter stands concluded against the assessee by findings of fact by the Tribunal which is the final fact finding authority. 7. We have considered the submissions made on both sides and have perused the record. Admittedly, the first substantial question of law has been answered against the assessee by a Bench of this Court vide order dated 08.10.2013 passed in ITA No.302/2013. It is also not in dispute that against the aforesaid order, an appeal has been filed which is pending before the Supreme Court.
Therefore, in the facts and circumstances of the case, we deem it appropriate to direct the Assessing Officer to give effect to his order
8 with regard to the issue involved in the first substantial question of law, after decision of the Supreme Court in the special leave petition which is pending before the Supreme Court against the decision of this Court. Accordingly, the first substantial question of law is answered. Sofar as the second substantial question of law is concerned, we find from the order passed by the Tribunal that the submissions made by the Assessing Officer, particularly in the light of the decision of this Court in the case of CANARA BANK, supra and the decision of the Supreme Court in GODREJ & BOYCE MANUFACTURING CO. LTD., supra, have not been considered by the Tribunal. The order passed by the Tribunal as well as the Commissioner of Income Tax (Appeals) insofar as it pertains to the issue involved in the second substantial question of law, is hereby set aside and the matter is remitted to the Assessing Officer to decide the issue involved in the second substantial question of law in the light of the decision rendered by
9 this Court in CANARA BANK, supra and the decision of the Supreme Court in GODREJ & BOYCE MANUFACTURING CO. LTD., supra. Therefore, it is not necessary for us to answer the second substantial question of law. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE RV