Ch.Ramoji Rao(Huf), Secunderabad vs Assessee

ITA No. Asst Appellant Respondent year

1087/Hyd/2010 2005-06 Assistant Commissioner M/s. Ch. Ramoji Rao- 1460/Hyd/2010 2006-07 of Income-tax (HUF), Hyderabad 1461/Hyd/2010 2007-08 Circle 16(2), Hyderabad 1451/Hyd/2011 2008-09 (PAN AADHR 6836 E)

1506/Hyd/2010 2006-07 M/s. Ch. Ramoji Rao Assistant Commissioner 1507/Hyd/2010 2007-08 (HUF), Hyderabad of Income-tax 1536/Hyd/2011 2008-09 Circle 16(2), Hyderabad (PAN AADHR 6836 E)

Assessee by : Shri K.Gopal Choudhary Revenue by : Smt. G.Aparna Rao DR

Date of Hearing 04.2.2015 Date of Pronouncement 20.12.2015

ORDER

Per P.M.Jagtap, Accountant Member :

Out of these seven appeals, six appeals are cross appeals for assessment year 2006-07, 2007-08 and 2008-09, while the remaining one is the appeal of the Revenue filed for assessment year 2005-06. Since some of the issues involved in these appeals are common, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience.

2 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

Revenue's Appeal for Assessment year 2005-06 :

2. First, we shall take up the appeal of the Revenue for assessment year 2005-067, being ITA No.1087/Hyd/2010, which is directed against the order of the learned Commissioner of Income-

tax(Appeals) V, Hyderabad dated 20.5.2010.

3. Grounds No.1 and 7 raised by the Revenue in this appeal are general, requiring no specific adjudication.

4. The common issue relating to the disallowance of interest attributable to the share application money made by the Assessing Officer and partly sustained by the learned CIT(A) is raised by the Revenue in grounds No.2 to 4 of this appeal, which read as under-

"2. The learned CIT(A) relying on the Hon'ble Punjab & Haryana High Court decision in the case of Haryana Land Reclamation and Development Vs. CIT(2008) 302 ITR 218, erred in holding that Section 14A is not applicable to disallowance of interest on investment in share application money.

3. The learned CIT(A) ought to have recognised that in view of close proximity of the assessee-HUF land its sister concerns, no shares have been allotted and the borrowed funds are lying in share application money deposit. As such, the CIT(A) should have upheld the action of the Assessing Officer in invoking the provisions of Secirton14A.

4. The learned CIT(A) should have recognized that the assessee is borrowing funds to play the interest costs and held that the Assessing Officer is correct in calculating the disallowed interest on cumulative basis."

5. The assessee in the present case is a HUF which filed its return of income for the year under consideration on 27.10.2005 declaring a loss of Rs.252.59 crores, apart from the capital loss of 3 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

Rs.35.72 lakhs. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee-HUF has borrowed substantial interest bearing funds and the same are partly invested in the share application money paid to the other group concerns. He also noticed that the share application money so paid has been kept pending over the years with the sister concerns, without allotment of any shares and even for making payment of interest on the borrowed funds utilized for making investment in the share application money, the assessee has borrowed more funds and paid interest thereon. He held hat since no income was generated out of the investments made by the assessee in the share application money paid to the sister concerns, not only the interest paid on borrowed funds for making such investments was liable to be disallowed under S.14A, but even the interest paid on the funds further borrowed by the assessee to make such payment was also liable to be disallowed on a compounding basis. Accordingly, he worked out such interest on compounding basis attributable to the investments made by the assessee in the share application money paid to the sister concerns at Rs.54,03,88,060 and made a disallowance to that extent under S.14A.

6. The disallowance of Rs.54,03,88,060 made by the Assessing Officer on account of interest attributable to the investments made in share application money on compounding basis was challenged by the assessee in an appeal filed before the learned CIT(A), and after considering the submissions made on behalf of the assessee as well as the material available on record, the learned CIT(A) held that there being no income earned by the assessee either exempt or otherwise, from the share application money paid to the sister concerns, the provisions of S.14A were not applicable, to make a disallowance on account of interest attributable to the investment made in the share application 4 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

money. He, however, held that borrowing the funds and utilising the same for making investment in the share application money of the sister concern was not the business activity of the assessee, and therefore, interest paid by the assessee on the borrowed funds to the extent attributable to the investments made in the share application money was liable to be disallowed. Accordingly, the learned CIT(A) confirmed the disallowance made by the Assessing Officer on account of interest attributable to the investments made in the share application money, although on a different ground.

7. As regards the alternative contention of the assessee that the quantum of disallowance made by the Assessing Officer on account of interest on compounding basis is not justified, as the same constitutes only a notional disallowance and that it should be restricted to the interest actually paid by the assessee on the borrowed funds which were utilised for making payment of share application money, the learned CIT(A) found merit in the same. He accordingly directed the Assessing Officer to verify the exact amount of interest expenditure claimed by the assessee, with respect to the corresponding borrowings and restrict the disallowance to that extent.

8. Aggrieved by the order of the ld CIT(A) on this issue, Revenue is in appeal before us.

9. We have heard the arguments of both the sides and also perused the relevant material on record. As rightly contended by the learned counsel for the assessee, investment made in the share application money till its conversion into shares being not capable of earning any income, which is exempt from tax, expenditure incurred by the assessee in relation to the making of such investments including interest paid on the borrowed funds to 5 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

the extent invested in shares application money cannot be disallowed by invoking the provisions of S.14A. The learned CIT(A), in our opinion, therefore, was correct in holding that the provisions of S.14A were not applicable for making disallowance on account of interest attributable to the investments made by the assessee in share application money, but finally confirming the disallowance made by the Assessing Officer on account of such interest by holding that the same did not represent the expenditure wholly and exclusively incurred by the assessee for the purpose of its business. As regards quantum of interest disallowed by the Assessing Officer, we find that the disallowance of interest computed by the Assessing Officer on compounding basis was not sustainable, as the same resulted in notional disallowance, which is not permissible in law, and the learned CIT(A) therefore, was fully justified in directing the Assessing Officer to verify the actual expenditure incurred by the assessee on account of interest on the borrowed funds utilised for making payment of share application money and to restrict the disallowance to that extent. We therefore, find no merit in ground Nos. 2 to 4 raised by the Revenue in its appeal and dismiss the same.

10. In grounds No.5 and 6, the Revenue has challenged the action of the learned CIT(A) in deleting the addition made by the Assessing Officer by way of disallowance on account of interest attributable to the investment made by the assessee in landed property.

11. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee had utilised the borrowed funds partly for making investment in landed property. According to him, interest attributable to such investments was liable to be disallowed under S.14A of the Act. He also held that the landed 6 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

property having not been used by the assessee for the purposes of its business, interest attributable to the investment made in the landed property was not allowable as deduction even as per S.36(1)(iii) of the Act. He further held that such interest, in any case, was required to be capitalized to the respective land account till the same was put to use for the purpose of business. Accordingly, interest attributable to the investment made in the landed property to the extent of Rs.5,70,68,728 was disallowed by the Assessing Officer.

12. During the course of appellate proceedings before the learned CIT(A), it was submitted by the assessee that the provisions of S.14A were not applicable to make disallowance on account of interest attributable to the investment made in the landed property. It was also submitted that the landed properties in question were purchased by the assessee for its business purposes and the same were duly reflected in the Balance Sheet as capital assets pertaining to the business. The learned CIT(A) found merit in the contentions raised on behalf of the assessee and held that the provisions of S.14A were not applicable to make disallowance on account of interest attributable to the investments made in the landed property as the said investment was not going to yield any income, which would exempt from tax. He also held that the assessee having purchased the landed properties for the purposes of his business and the Assessing Officer having failed to show that the said properties were non-business capital assets of the assessee, interest expenditure incurred by the assessee for making investment in landed properties was allowable as business expenditure.

13. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel 7 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

for the assessee has furnished before us details showing that investment was made in four landed properties by the assessee during the relevant period at Tirupati Industrial Estate, Shamshabad, Gachchibowli and at Ramoji Film City. He has submitted that out of these four properties, two properties at Tirpuati Industrial Estate and at Ramoji Film City were already put to use by the assessee for the purpose of his business, whereas the remaining two properties at Shamshabad and Gachchibowli were acquired by the assessee from its own funds, in the form of accumulated profits over the years. He has contended that no disallowance on account of interest attributable to the investments made in the landed properties, therefore, can justifiably be made. The Learned Departmental Representative on the other hand, has contended that since this submission made by the learned counsel for the assessee now before the Tribunal was not made specifically in that manner before the authorities below, the Assessing Officer may be allowed an opportunity to verify the same. Since the learned counsel for the assessee has no objection in this regard, we restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 and 6 are accordingly treated as allowed for statistical purposes.

14. In the result, Revenue's appeal for assessment year 2005-06, being ITA No.1087/Hyd/2010, is partly allowed for statistical purpose.

Cross Appeals for Assessment year 2006-07

15. Now, we shall take up the cross appeals for assessment year 2006-07, being ITA No.1460/Hyd/2010 of the Revenue and 8 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

ITA No.1506/Hyd/2010 of the assessee, which are directed against the order of the learned Commissioner of Income-tax(Appeals) V, Hyderabad dated 3.9.2010.

Revenue's Appeal:

16. In the appeal of the Revenue, grounds No.1 and 7 are general, seeking no specific adjudication, while remaining grounds No.2 to 6 read as under-

"2. The learned CIT(A) relying on the Hon'ble Punjab & Haryana High Court decision in the case of Haryana Land Reclamation and Development Vs. CIT(2008) 302 ITR 218, erred in holding that Section 14A is not applicable to disallowance of interest on investment in share application money.

3. The learned CIT(A) ought to have recognised that in view of close proximity of the assessee-HUF land its sister concerns, no shares have been allotted and the borrowed funds are lying in share application money deposit. As such, the CIT(A) should have upheld the action of the Assessing Officer in invoking the provisions of Secirton14A.

4. The learned CIT(A) should have recognized that the assessee is borrowing funds to play the interest costs and held that the Assessing Officer is correct in calculating the disallowed interest on cumulative basis.

5. The learned CIT(A) erred in deleting the addition made towards disallowance of interest on investment in lands on the ground that no income is yielded during the current year.

6. The learned CIT(A) ought to have upheld the action of the Assessing Officer in disallowing drawings & interest on drawings in view of the fact that the entire HUF is running on borrowed funds; the investments made in various Units of HUF are out of these borrowed funds only; and the assessee-HUF on the whole is returning losses year after year thereby there are no accumulated profits/internal accruals."

9 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

17. As agreed at the time of hearing before us, by the learned representatives of both the sides, the common issue involved in grounds No.2 to 4 relating to disallowance made by the Assessing Officer and sustained by the learned CIT(A) on account of interest attributable to the investments made in share application money, is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and uphold the impugned order of the learned CIT(A). Grounds No.2 to 4 are accordingly dismissed.

18. As regards the issue involved in ground No.5, it relates to disallowance of interest attributable to the investments made in landed properties. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 is accordingly treated as allowed for statistical purposes.

19. As regards the issue involved in ground No.6 relating to disallowance of interest attributable to the withdrawals made by 10 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

the assessee out of borrowed funds, it is observed that the assessee-HUF during the year under consideration had made withdrawals from Ushakiron Movies as well as form other concerns for personal purposes. According to the Assessing Officer, these withdrawals were made from the borrowed funds and therefore, interest paid on the borrowed funds to the extent attributable to the withdrawals made was liable to be disallowed on compounding basis. He, therefore, computed such interest at Rs.39,37,464 and made a disallowance to that extent. On appeal, the disallowed CIT(A), deleted the disallowance made by the Assessing Officer on this issue, accepting the contention of the assessee that withdrawals for personal and household purpose were made out of profits generated in Ushodaya News Agency and not out of borrowed funds.

20. We have heard the arguments of both the sides and also perused the relevant material on record.. The Learned Departmental Representative has contended that the claim of the assessee of having made the withdrawals for household purposes out of the profits generated in M/s. Ushodaya News Agency was not supported by any evidence and still the learned CIT(A) accepted the same without discussing the relevant facts and figures and without referring to any documentary evidence. We find merit in this contention of the Learned Departmental Representative. It is observed that no case was made out by the assessee before the Assessing Officer to show that the withdrawals for household purposes were made by the assessee out of the profits generated in M/s. Ushodaya News Agency and this claim apparently made by the assessee for the first time before him was accepted by the learned CIT(A) without discussing the relevant facts and figures and without referring to any documentary evidence, which supported the claim of the assessee. As contended by the learned counsel for 11 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

the assessee, the assessee, however, is in a position to establish his claim by producing the relevant evidence as well as by furnishing the relevant facts and figures. Hew has requested that one more opportunity may, therefore, be given to the assessee to make out its case before the Assessing Officer. Since the Learned Departmental Representative also has no objection in this regard, we set aside the order of learned CIT(A) on this issue and restore this same to the file of the Assessing Officer for deciding it afresh, after giving the assessee sufficient opportunity to establish its claim that the withdrawals for house hold expenses were made out of the profits generated in Ushodaya News Agency and not out of the borrowed funds. Ground No.6 of the Revenue's appeal for assessment year 2006-07 is accordingly treated as partly allowed for statistical purposes.

21. In the result, Revenue's appeal for assessment year 2006-07, being ITA No.1460/Hyd/2010, is partly allowed for statistical purposes.

Assessee's Appeal:

22. Grounds No.1 and 5 raised in the appeal of the assessee for assessment year 2006-07, being ITA No.1506/Hyd/2010, are general seeking no specific adjudication. Ground No.2 relating to the disallowance of interest made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.59,29 crores on account of interest attributable to the investment made in share application money, is not pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed.

23. The issue involved in ground No.3 of the assessee's appeal for assessment year 2006-07 relates to the disallowance 12 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.4.39 crores on account of interest attributable to the investment allegedly made by the assessee in the residential building out of borrowed funds.

24. As noticed by the Assessing Officer during the course of assessment proceedings, the assessee-HUF had constructed residential building for its own occupation at Ramoji Film City and the cost of the said construction was met from the borrowed funds. Since the said investment was not made by the assessee for its business purposes, the Assessing Officer held that the interest attributable to the investment made in the residential building at Ramoji Film City was liable to be disallowed on compounding basis. Accordingly, he worked out the interest to be disallowed at Rs.4.39 crores and made a disallowance to that extent.

25. On appeal, the learned CIT(A) found that a similar issue involving identical facts and circumstances was already decided by him in assessee's own case for assessment year 2005-06 vide order dated 28.5.2010 as under-

"6.1 I have considered the arguments and facts and I find that once again there is no applicability of section 14A of the Act in this case because there is no income generated out of this asset. Further, it is definitely not a business asset being a residential house meant for own occupation. Even the appellant has admitted the same in his reply given above. Therefore, in principle, the Assessing Officer is correct in disallowing the aforementioned interest. However, the appellant has stated that the calculations of the Assessing Officer are incorrect and out of Rs.29 Crores investment, Rs.18 crores was made out of own funds. However, during appeal proceedings, the appellant could not bring any evidence to prove its point. The onus lay squarely on the appellant to state clearly the amount of interest it had claimed with respect to the aforementioned property. This simple detail was not provided by the appellant. Accordingly, given the facts and circumstances, the Assessing Officer is directed to verify the exact amount of interest claimed by the appellant with respect to the residential building at Ramoji Film City and disallow the same."

13 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

Following the aforesaid decision rendered in assessee's own case for the immediately preceding year, the learned CIT(A) directed the Assessing Officer to verify the exact amount of interest claimed by the assessee with respect to the residential building at Ramoji Film City and make a disallowance accordingly.

26. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has reiterated before us the submissions made by the assessee on similar issue before the learned CIT(A) for assessment year 2005-06, that out of the total investment of Rs.29.68 crores made in the residential building, a sum of Rs.18.68 crores was out of own funds, whereas the balance amount of Rs.11 crores only was utilised out of the funds borrowed on interest . He has contended that interest attributable only to the borrowed founds, therefore, is liable to be disallowed and the disallowance of Rs.4,39,25,177 made by the Assessing Officer on this count is excessive and unreasonable. In this regard, it is observed that keeping in view the similar stand taken by the assessee in assessment year 2005-06, a direction was given by the learned CIT(A) to the Assessing Officer to verify the exact amount of interest expenditure incurred by the assessee with respect to the residential building at Ramoji Film City and make a disallowance to that extent. In his impugned order for assessment year 2006-07, the learned CIT(A) has followed his own order for the assessment year 2005-06 and has given a similar direction to the Assessing Officer to verify the exact amount of interest expenditure claimed by the assessee with respect to the residential building at Ramoji Film City and make disallowance to that extent. We therefore, find no infirmity in the impugned order of the learned CIT(A) on this issue and upholding the same, we dismiss ground No.3 of the assessee's appeal.

14 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

27. The issue involved in ground No.4 of the assessee's appeal for assessment year 2006-07 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.3,47,76,217 on account of interest attributable to the investment made by the assessee out of borrowed funds in fixed assets created for the purpose of tourism, but not put to business use.

28. As noticed by the Assessing Officer during the course of assessment proceedings, the funds borrowed on interest were partly utilised by the assessee for the construction of fixed assets which had not been put to use during the year under consideration. Relying on the provisions of S.36(1)(iii), he therefore worked out the interest attributable to the funds utilised for such assets at Rs.3,47,36,217 and disallowance to that extent was made by him. On appeal, the learned CIT(A) confirmed the disallowance made by the Assessing Officer on this issue observing that the assessee could not demonstrate that these assets were actually put to use during the year under consideration.

29 We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has submitted that the disallowance made by the Assessing Officer on account of interest attributable to the assets not put to use is correct in principle. He, however, has contended that the disallowance of such interest was worked out by the Assessing Officer on compounding basis, which is not correct and the same has to be worked out on the basis of interest actually paid by the assessee on the borrowed funds utilised for such assets. He has submitted that a similar exercise has been done by the Assessing Officer in assessment year 2005-06, as per the direction 15 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

of the learned CIT(A), and a similar direction may be given to the Assessing Officer to do such exercise even for the year under consideration. Since the Learned Departmental Representative has no objection in this regard, we set aside the impugned orders of the lower authorities on this issue, and restore the matter to the file of the Assessing Officer for the limited purpose of working out, as done in the preceding year as per the directions of the learned CIT(A) for that year, the actual quantum of interest actually paid by the assessee on the borrowed funds utilised for the construction of the relevant assets which were not put to use in the year under consideration and restrict the disallowance to that extent. He shall accordingly redecide this issue after giving reasonable opportunity of hearing to the assessee. Ground No.4 is accordingly treated as partly allowed for statistical purposes.

30. In the result, appeal of the assessee for the assessment year 2006-07, being ITA No.1506/Hyd/2010, is partly allowed for statistical purposes.

Cross Appeals for Assessment year 2007-08

31. Now, we shall take up the cross appeals for assessment year 2007-08, being ITA No.1461/Hyd/2010 of the Revenue and ITA No.1507/Hyd/2010 of the assessee, which are directed against the order of the learned Commissioner of Income-tax(Appeals) V, Hyderabad dated 3.9.2010.

Revenue's Appeal:

32. In the appeal of the Revenue, grounds No.1 and 7 are general, seeking no specific adjudication, while remaining grounds No.2 to 6 read as under-

"2. The learned CIT(A) relying on the Hon'ble Punjab & Haryana High Court decision in the case of Haryana 16 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

Land Reclamation and Development Vs. CIT(2008) 302 ITR 218, erred in holding that Section 14A is not applicable to disallowance of interest on investment in share application money.

3. The learned CIT(A) ought to have recognised that in view of close proximity of the assessee-HUF land its sister concerns, no shares have been allotted and the borrowed funds are lying in share application money deposit. As such, the CIT(A) should have upheld the action of the Assessing Officer in invoking the provisions of Secirton14A.

4. The learned CIT(A) should have recognized that the assessee is borrowing funds to play the interest costs and held that the Assessing Officer is correct in calculating the disallowed interest on cumulative basis.

5. The learned CIT(A) erred in deleting the addition made towards disallowance of interest on investment in lands on the ground that no income is yielded during the current year.

6. The learned CIT(A) ought to have upheld the action of the Assessing Officer in disallowing drawings & interest on drawings in view of the fact that the entire HUF is running on borrowed funds; the investments made in various Units of HUF are out of these borrowed funds only; and the assessee-HUF on the whole is returning losses year after year thereby there are no accumulated profits/internal accruals."

33. As agreed at the time of hearing before us by the learned representatives of both the sides, the common issue involved in grounds No.2 to 4 relating to disallowance made by the Assessing Officer and sustained by the learned CIT(A) on account of interest attributable to the investments made in share application money, is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and uphold the 17 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

impugned order of the learned CIT(A). Grounds No.2 to 4 are accordingly dismissed.

34. As regards the issue involved in ground No.5, it relates to disallowance of interest attributable to the investments made in landed properties. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 is accordingly treated as allowed for statistical purposes.

35. As regards the issue involved in ground No.6 relating to disallowance of interest attributable to the withdrawals made by the assessee out of borrowed funds, the learned representatives of both the sides have agreed that this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow our conclusion drawn in assessment year 2006- 07 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after giving the assessee sufficient opportunity to establish its claim that the withdrawals for house hold expenses were made out of the profits generated in Ushodaya 18 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

News Agency and not out of the borrowed funds. Ground No.6 of the Revenue's appeal for assessment year 2007-08 is treated as partly allowed for statistical purposes.

36. In the result, Revenue's appeal for assessment year 2007-08, being ITA No.1461/Hyd/2010, is partly allowed for statistical purposes.

Assessee's Appeal:

37. In the appeal of the assessee for assessment year 2007-08, being ITA No.1507/Hyd/2010, Grounds No.1 and 6 are general seeking no specific adjudication. Ground No.2 relating to the disallowance of interest made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.68,85,96,134 on account of interest attributable to the investment made in share application money, is not pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed.

38. The issue involved in ground No.3 of the assessee's appeal for assessment year 2007-08 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.5,10,03,729 on account of interest attributable to the investment allegedly made by the assessee in the residential building out of borrowed funds. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow the 19 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

conclusion drawn in assessment year 2006-07, and uphold the impugned order of the learned CIT(A) on this issue. Ground No.3 of the assessee's appeal is accordingly dismissed.

39. The issue involved in ground No.4 of the assessee's appeal for assessment year 2007-08 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.4,44,52,660 on account of interest attributable to the investment made by the assessee out of borrowed funds in fixed assets created for the purpose of tourism, but not put to business use. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow the conclusion drawn in assessment year 2006-07, and restore the matter to the file of the Assessing Officer for the limited purpose of working out, as done in the assessment year 2005-06 as per the directions of the learned CIT(A) for that year, the actual quantum of interest actually paid by the assessee on the borrowed funds utilised for the construction of the relevant assets which were not put to use in the year under consideration and restrict the disallowance to that extent. He shall accordingly redecide this issue after giving reasonable opportunity of hearing to the assessee. Ground No.4 is accordingly treated as partly allowed for statistical purposes.

40. Ground No.5 of the assessee's appeal relating to the treatment given by the Assessing Officer and confirmed by the CIT(A) with regard to income of Rs.773,67,56,036 from sale of TV/Film software, as income from capital gains, was not pressed by 20 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed.

41. In the result, appeal of the assessee for the assessment year 2007-08, being ITA No.1507/Hyd/2010, is partly allowed for statistical purposes.

Cross Appeals for Assessment year 2008-09

42. Now, we shall take up the cross appeals for assessment year 2008-09, being ITA No.1451/Hyd/2011 of the Revenue and ITA No.1536/Hyd/2011 of the assessee, which are directed against the order of the learned Commissioner of Income-tax(Appeals) V, Hyderabad dated 1.6.2011.

Revenue's Appeal:

43. In the appeal of the Revenue, grounds No.1 and 7 are general, seeking no specific adjudication, while remaining grounds No.2 to 6 read as under-

"2. The learned CIT(A) relying on the Hon'ble Punjab & Haryana High Court decision in the case of Haryana Land Reclamation and Development Vs. CIT(2008) 302 ITR 218, erred in holding that Section 14A is not applicable to disallowance of interest on investment in share application money.

3. The learned CIT(A) ought to have recognised that in view of close proximity of the assessee-HUF land its sister concerns, no shares have been allotted and the borrowed funds are lying in share application money deposit. As such, the CIT(A) should have upheld the action of the Assessing Officer in invoking the provisions of Secirton14A.

4. The learned CIT(A) should have recognized that the assessee is borrowing funds to play the interest costs and held that the Assessing Officer is correct in 21 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

calculating the disallowed interest on cumulative basis.

5. The learned CIT(A) erred in deleting the addition made towards disallowance of interest on investment in lands on the ground that no income is yielded during the current year.

6. The learned CIT(A) ought to have upheld the action of the Assessing Officer in disallowing drawings & interest on drawings in view of the fact that the entire HUF is running on borrowed funds; the investments made in various Units of HUF are out of these borrowed funds only; and the assessee-HUF on the whole is returning losses year after year thereby there are no accumulated profits/internal accruals."

44. As agreed at the time of hearing before us by the learned representatives of both the sides, the common issue involved in grounds No.2 to 4 relating to disallowance made by the Assessing Officer and sustained by the learned CIT(A) on account of interest attributable to the investments made in share application money, is similar to the one involved in assessment year 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and uphold the impugned order of the learned CIT(A) on this issue. Grounds No.2 to 4 are accordingly dismissed.

45. As regards the issue involved in ground No.5, it relates to disallowance of interest attributable to the investments made in landed properties. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment years 2005-06, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under 22 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

consideration as well as the arguments of both the sides are similar to assessment year 2005-06, we follow our conclusion drawn in assessment year 2005-06 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after verifying the specific submissions made by the learned counsel for the assessee before us, in accordance with law and after giving sufficient opportunity of hearing to the assessee. Grounds No.5 is accordingly treated as allowed for statistical purposes.

46. As regards the issue involved in ground No.6 relating to disallowance of interest attributable to the withdrawals made by the assessee out of borrowed funds, the learned representatives of both the sides have agreed that this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow our conclusion drawn in assessment year 2006- 07 and restore this issue to the file of the Assessing Officer for deciding the same afresh, after giving the assessee sufficient opportunity to establish its claim that the withdrawals for house hold expenses were made out of the profits generated in Ushodaya News Agency and not out of the borrowed funds. Ground No.6 of the Revenue's appeal for assessment year 2007-08 is treated as partly allowed for statistical purposes.

47. In the result, Revenue's appeal for assessment year 2008-09, being ITA No.1451/Hyd/2011, is partly allowed for statistical purposes.

23 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

Assessee's Appeal:

48. In the appeal of the assessee for assessment year 2008-09, being ITA No.1536/Hyd/2011, Grounds No.1 and 5 are general seeking no specific adjudication. Ground No.2 relating to the disallowance of interest made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.53,93,960 on account of interest attributable to the investment made in share application money, is not pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed.

49. The issue involved in ground No.3 of the assessee's appeal for assessment year 2008-09 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.8,54,31,999 on account of interest attributable to the investment allegedly made by the assessee in the residential building out of borrowed funds. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow the conclusion drawn in assessment year 2006-07, and uphold the impugned order of the learned CIT(A) on this issue. Ground No.3 of the assessee's appeal is accordingly dismissed.

50. The issue involved in ground No.4 of the assessee's appeal for assessment year 2008-09 relates to the disallowance made by the Assessing Officer and sustained by the learned CIT(A) to the extent of Rs.6,26,44,482 on account of interest attributable 24 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

to the investment made by the assessee out of borrowed funds in fixed assets created for the purpose of tourism, but not put to business use. As agreed at the time of hearing before us by the learned representatives of both the sides, this issue is similar to the one involved in assessment year 2006-07, which has already been decided by us in the foregoing paras of this order. As the material facts relating to this issue as involved in the year under consideration as well as the arguments of both the sides are similar to assessment year 2006-07, we follow the conclusion drawn in assessment year 2006-07, and restore the matter to the file of the Assessing Officer for the limited purpose of working out, as done in the assessment year 2005-06 as per the directions of the learned CIT(A) for that year, the actual quantum of interest actually paid by the assessee on the borrowed funds utilised for the construction of the relevant assets which were not put to use in the year under consideration and restrict the disallowance to that extent. He shall accordingly redecide this issue after giving reasonable opportunity of hearing to the assessee. Ground No.4 is accordingly treated as partly allowed for statistical purposes.

51. In the result, appeal of the assessee for the assessment year 2008-09, being ITA No.1536/Hyd/2011, is partly allowed for statistical purposes.

52. To Sum up:

(a) Revenue's appeal for assessment year 2005-06, being ITA No.1087/Hyd/2010, is partly allowed for statistical purposes.

(b) Out of cross appeals for assessment year 2006-

07, Revenue's appeal, being ITA 25 ITA No.1087/Hyd/2010 & Others M/s. Ch. Ramoji Rao (HUF), Hyderabad

No.1460/Hyd/2010, as well as assessee's appeal, being ITA No.1506/Hyd/2010, are partly allowed for statistical purposes.

(c) Out of cross appeals for assessment year 2007-

08, Revenue's appeal, being ITA No.1461/Hyd/2010, as well as assessee's appeal, being ITA No.1507/Hyd/2010, are partly allowed for statistical purposes.

(d) Out of cross appeals for assessment year 2008-

09, Revenue's appeal, being ITA No.1451/Hyd/2011, as well as assessee's appeal, being ITA No.1536/Hyd/2011, are partly allowed for statistical purpose.

Order pronounced in the court on 20th February, 2015

Sd/- Sd/-

( Asha Vijayaraghavan) (P.M.Jagtap) Vice President Accountant Member

Dt/- 20th February, 2015

Copy forwarded to:

1. M/s. Ch. Ramoji Rao- (HUF), No.3, Chikoti Gardens, Begumpet Hyderabad

2. Asstt Commissioner of Income-tax Circle 16(2), Hyderabad

3. Commissioner of Income-tax(Appeals) V, Hyderabad

4. Commissioner of Income-tax IV Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S