DCIT, CHENNAI vs. KHIVRAJ MOTORS P LTD., CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both the appeals of the Revenue are directed against the

common order of the Commissioner of Income Tax (Appeals)-II,

Chennai, dated 03.11.2014 and pertain to assessment years 2010-

11 and 2011-12. The assessee has also filed cross-objection

2 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

against the very same order for the assessment year 2010-11.

Therefore, we heard the appeals of the Revenue and the cross-

objection of the assessee together and disposing of the same by

this common order.

submitted that the only issue arises for consideration in both the

appeals is with regard to classification of rental income received by

the assessee. According to the Ld. D.R., the assessee constructed

a I.T. Park, namely, Olympia Tech Park, and claimed the rental

income as “income from business”. Referring to Section 22 of the

Income-tax Act, 1961 (in short 'the Act'), the Ld. D.R. submitted that

the rental income from letting out of the property has to be assessed

under the head “income from house property”. Therefore, according

to the Ld. D.R., the CIT(Appeals) is not justified in allowing the claim

of the assessee. The CIT(Appeals) has also found that classification

of income either from “income from house property” or “income from

business” has no relevance for allowing the claim of deduction

under Section 80-IA of the Act. According to the Ld. D.R., the rental

income received by the assessee by letting out the property cannot

3 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

be construed as “income from business”, therefore, the assessee is

not eligible for deduction under Section 80-IA of the Act.

representative for the assessee, submitted that the assessee

constructed a building known as “Olympia Tech Park” and the same

was let out exclusively to software companies. According to the Ld.

D.R., the “Olympia Tech Park” developed by the company is

exclusively meant for software companies and information

technology enabled service companies. The building cannot be

used for the purpose other than software companies. The building

contained special and exclusive facilities for software companies.

There are specialized air-conditioners, special cabling, special

electrical fittings, specialized furniture in the form of business

modules were provided in the premises while letting out the property

to the software companies. The assessee has also organized

uninterrupted and continues power supply and heavy power back-

up generators. Therefore, the CIT(Appeals) by placing reliance on

the judgment of Madras High Court in CIT v. Elnet Technologies

Ltd. (2013) 213 Taxman 129, allowed the claim of the assessee.

Referring to the grounds of appeal filed by the Revenue before this

4 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

Tribunal, the Ld. representative submitted that the Revenue is

placing reliance on the judgment of Madras High Court in CIT v.

Chennai Properties & Investments Ltd. (266 ITR 685). This

judgment of Madras High Court was reversed by the Apex Court.

Therefore, according to the Ld. representative, the reliance placed

by the Revenue in the grounds of appeal in Chennai Properties &

Investments Ltd. (supra) is misconstrued. Therefore, according to

the Ld. representative, the CIT(Appeals) has rightly allowed the

claim of the assessee.

perused the relevant material available on record. The assessee

admittedly developed a technology park by name “Olympia Tech

Park”, which is exclusively meant for developing software and I.T.

enabled services. The assessee, apart from the building, has also

provided infrastructure facilities such as specialized air-conditioners,

specialized cabling, specialized electrical fittings, specialized

furniture in the form of business modules, etc. Therefore, it has to

be construed as infrastructure facility with all specifications and

requirements. Therefore, the CIT(Appeals) has rightly placed

reliance on the judgment of Madras High Court in Elnet

5 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

Technologies Ltd. (supra). As rightly submitted by the Ld.

representative for the assessee, the judgment of Madras High Court

in Chennai Properties & Investments Ltd. (supra) was reversed by

the Apex Court. The Apex Court found that when the assessee let

out the property as business, the rental income has to be assessed

as income from business. Therefore, this Tribunal is of the

considered opinion that the CIT(Appeals) has rightly allowed the

claim of the assessee. This Tribunal do not find any reason to

interfere with the order of the lower authority and accordingly the

same is confirmed.

assessment year 2010-11, the grievance of the assessee is that the Assessing Officer disallowed `21,91,665/- under Section 14A of the

Act.

assessee, submitted that during the year under consideration, the assessee earned dividend income of `6,77,302/- and the same was

claimed as exempted from taxation. The Assessing Officer worked

out the disallowance under Section 14A of the Act to the extent of `21,91,665/-. According to the Ld. representative, the investment

6 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

made by the assessee to the extent of `26,65,60,000/- in Deep

Discount Bonds cannot be construed as investment for earning the

exempted income. According to the Ld. representative, the income

from Deep Discount Bond is taxable. Moreover, the same was

offered for taxation for assessment year 2010-11. The Ld.

representative further submitted that the net worth of the assessee- company during the assessment year 2010-11 is `63.76 Crores as

against investments in alleged exempted investments excluding deep discount bonds of `4.58 Crores. Therefore, it has to be

construed as investment made from non-interest bearing funds.

Therefore, according to the Ld. representative, the disallowance

made by the Assessing Officer is not justified.

that while computing disallowance, the investments which have

yielded taxable income during the year under consideration have to

be excluded. Referring to Rule 8D of Income-tax Rules, 1962, the

Ld. representative submitted that only average value of investment

giving raise to exempted income, has to be considered for the

purpose of disallowance. The Ld. representative further submitted

that investments in group companies are strategic in nature.

7 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

Therefore, it cannot be considered for disallowance. The Ld.

representative further clarified that no dividend / tax free income

was earned during the year under consideration from such

investments. Hence, the CIT(Appeals) is not justified in disallowing

the assessee.

Representative, submitted that the assessee admittedly received dividend income to the extent of `6,77,302/- and claimed the same

as exempted from taxation. Therefore, it cannot be said that the

assessee has not earned any exempted income. Hence, the

assessee earned the exempted income and the Assessing Officer is

not satisfied about the claim of expenditure, the disallowance has to

be computed as per the method prescribed under Rule 8D(2) of

Income-tax Rules, 1962.

5, the Ld. D.R. submitted that the Assessing Officer has taken the

direct expenditure attributable to the income and the indirect

expenditure incurred by the assessee, which is not relatable to any

particular income and also has taken the average investment during

the year under consideration and computed the disallowance at

8 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

`21,91,665/-. Even though the assessee claims that the investment

made to the extent of `26,65,60,000/- in deep discount bonds

resulted in earning of taxable income, the details of such

investments were not furnished by the assessee either before the

Assessing Officer or before this Tribunal. In the absence of any

such details with regard to investment in sister concern or in deep

discount bonds which said to have resulted taxable income. The

CIT(Appeals) has rightly confirmed the disallowance made by the

Assessing Officer.

perused the relevant material available on record. Admittedly, the assessee disclosed dividend income of `6,77,302/- and claimed as

exempted. As rightly submitted by the Ld. D.R., when the assessee

earned exempted income or income which does not form part of

total income and claimed expenditure, the Assessing Officer may

compute the disallowance if he is not satisfied about the claim made

by the assessee. In the case before us, the Assessing Officer

computed the disallowance under Rule 8D. A perusal of the

assessment order, more particularly at page 5, clearly shows that

the Assessing Officer has adopted the method prescribed under

9 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

Rule 8D(2). The only contention of the assessee now before this

Tribunal is that the investment in deep discount bonds does not

result in any exempted income and the income from deep discount

bonds is taxable. However, no details of investments said to be

made by the assessee which earned taxable income are available

either before the Assessing Officer or before this Tribunal.

Moreover, the so-called investments in subsidiary companies are

also not available on record. In the absence of any such details

either before this Tribunal or before the CIT(Appeals) or before the

Assessing Officer, the claim of the assessee that the investment

made in deep discount bonds and subsidiary companies has to be

excluded cannot be accepted. When the assessee claims that

investment in deep discount bonds resulted in taxable income, it is

for the assessee to file necessary material to substantiate its case.

In the absence of any such material, this Tribunal do not find any

reason to interfere with the order of the lower authority and

accordingly the same is confirmed.

objection of the assessee are dismissed.

10 I.T.A. Nos.1179 & 1180/Mds/15 C.O. No.80/Mds/15

Order pronounced on 5th August, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 5th August, 2016.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-II, Chennai 4. आयकर आयु�त/CIT-II, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.