Indiabulls Projects Ltd, New Delhi vs Assessee

ी संजय अरोड़ा, लेखा सद य, एवं ी िवजय पाल राव, याियक सद य के सम । BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER

आयकर अपील सं./ I.T.A. No.4910/Mum/2014 ( िनधा रण वष / Assessment Year : 2010-11)

M/s . In dia b ull s P ro je ct s Lim ite d बनाम/ V s. D y. C om m is si on e r o f M- 6 2 & 6 3, F ir st Fl o or In c om e -ta x- Ci r cle 3 (2 ) Co n na u gt P la ce Aa ya ka r B ha va n De l h i- 1 1 0 0 0 1. M.K . R oa d OR Mu m ba i- 4 0 0 0 20 . M/s . I n dia b u lls P ro j ec ts L im i t ed 1 4 t h Fl oo r, I nd ia b ul ls F ina n ce Ce ntr e , T ow e r 1, P l ot N o. 6 1 2 - 6 13 , E lp hi n st on e Mil ls Mu m ba i- 4 0 0 0 13 . था यी ले खा सं ./ जी आ इ आ र सं ./ P A N/ GIR N o . : A AB CI 7 6 6 6 Q (अपीलाथ /Appellant) .. ( यथ / Respondent)

अपीलाथ ओर से / Assessee by : Shri Jitendra B. Sanghavi-AR यथ क ओर से/Respondent by : Shri Love Kumar - DR

सुनवाई क तारीख / Date of 27/01/2015 Hearing : घोषणा क तारीख /Date of 30 /01/2015 Pronouncement :

आदेश / O R D E R

PER VIJAY PAL RAO, JM :

This appeal by the assessee is directed against the order dated 06/06/2014 of CIT(A) for the assessment year 2010-11. The assessee has raised the following ground :-

"Ground No. 1:

The CIT(A) has erred on facts and circumstances of the case in confirming the addition made by the Assessing Officer (herein after referred to as "AO") of Rs. 1,048,922/- u/s 14A read with Rule 8D.

2 ITA No.4910/M/14 Ground No. 2:

The CIT(A) has erred on facts and circumstances of the case in confirming the addition made by the AO of Rs. 1,048,922/- u/s 14A read with Rule 8D without appreciating the fact that the Ld. AO proceeded to apply Rule 8D without giving due regard to the suo moto disallowance and nature of expenses incurred, by the appellant

Ground No. 3:

The CIT(A) has erred on facts and circumstances of the case in confirming the AO's action of considering the interest income of Rs. 60,141,004/- taxable under the head "Income from Other Sources" instead of head "Profits and Gains of Business or Profession" as correctly offered by the assessee.

Ground No.4:

The appellant prays that he may be allowed to add, amend, alter or forego any of the above grounds of appeal as the circumstances may warrant.

Ground No. 5:

The above grounds are without prejudice to each other."

2. Ground No.1 and 2 is regarding disallowance under section 14A r.w. Rule 8D. The assessee is engaged in the business of real estate development . During the course of assessment proceedings the AO noted that the assessee made investment of Rs.45 .00 crores and received exempt income of Rs.25,52,571/- on the said investment. The AO further noted that the assessee had made disallowance of Rs.76,200/- to earn the above exempt income. The AO asked the assessee as to why disallowance should not be made as per Rule-8D. In response the assessee submitted that Rule-8D is not applicable when the assessee has made out disallowance based on the personal and administrative expenses incurred for earning the exempt income. The assessee further contended that apart from the disallowance made by the assessee itself no other expenditure is incurred by the assessee for earning the exempt income. The AO did not accept the contention of the assessee and made disallowance of Rs.10,48,922/- worked out under Rule 8D(2)(iii) of the Income tax Rules on account of administrative and general expenses. The assessee challenged the action of the AO before CIT(A) but could not succeed.

3. Before us, the ld. AR has submitted that the entire investment has been made by the assessee in the mutual funds comprising certain growth funds on which no dividend 3 ITA No.4910/M/14

income is earned. The AO excluded the investment so far it is growth fund. He has further contended that during the year the assessee has made the investment only in 10 funds out of which certain funds do not yield dividend income and therefore, the same are excluded for the purpose of disallowance under section 14A. The investment is made only in mutual funds which do not require any expenditure to be incurred by the assessee. He has further contended that the assessee has worked out the disallowance by allocating the salary of one designated officer/employee in this respect. The ld. AR has further submitted that for the assessment year2008-09 the AO worked out the disallowance under section 14A at 10% of the dividend income. The CIT(A) has followed the decision from the assessment year 2008-09, and however, sustained the disallowance made by the AO. Thus the ld. AR has submitted that when the AO itself has given a finding that only 10% of the dividend income can be taken as the expenditure allocable for earning dividend income for the assessment year 2008-09 then, the AO cannot take a different view on this issue for the year under consideration.

3.1 On the other hand the ld. DR has submitted that the assessee itself has made a disallowance under section 14A which shows that the assessee has accepted the expenditure incurred for earning dividend income. Once an expenditure is incurred for earning dividend income then the quantum of disallowance can be worked out only as per Rule 8D. He has further contended that even if the AO has made a mistake in the earlier assessment year the same will not operate as res-judicata and illegality cannot be allowed to perpetuate from year to year. He has relied upon the orders of authorities below.

4. We have considered the rival submissions as well as relevant material on record. The only disallowance made by the AO u/s. 14A is on account of indirect administrative expenses worked out under Rule 8D(2)(iii). The assessee in its computation of income has made a disallowance of Rs.76,200/- which was allocated on the basis of the salary of one officer for this purpose. The assessee has claimed that no other expenditure has been incurred by the assessee for earning the dividend income, however, the AO has 4 ITA No.4910/M/14

not proceeded to examine the claim of the assessee about the allocable expenditure in respect of the exempt income. Once the assessee has claimed that it has not incurred any expenditure other than allocated by itself for the purpose of disallowance u/s. 14A the AO has to examine the claim of the assessee and to find out which are the expenditure claimed by the assessee in the P&L Account allocable for the purpose of disallowance u/s. 14A in respect of earning exempt income. The expenditure incurred in relation to income which does not form part of the total income has to be disallowed u/s. 14A. Only when such expenditure has a direct or proximate relation with the income exempt has to be disallowed. In the case when there is no direct expenditure incurred for earning the exempt income then the allocation or apportionment of expenditure has to be made only when there is a nexus between expenditure incurred and exempt income. In the case in hand the AO has not conducted any enquiry to find out which are the other expenditure which can be attributable for earning the exempt income. If the AO is not satisfied with the claim of the assessee and correctness of the claim in relation to the expenditure for earning exempt income then the AO is supposed to conduct an enquiry and find out the amount of expenditure which can be apportioned in respect of earning exempt income. In the absence of any such enquiry the action of the AO in making disallowance is not justified. For the assessment year 2008-09 the AO has worked out the disallowance u/s. 14A at 10% of the expenditure incurred for composite activities which was also confirmed by CIT(A) . When there is no change in the facts and circumstances of the case for the year under consideration and the AO has also not conducted the necessary enquiry to find out the expenditure to be apportioned in relation to the earning of exempt income disallowance made for the assessment year 2008-09 should have been followed for the year under consideration. The CIT(A) has followed the earlier order and also record the fact in para 5.2.2 as under :-

"The ld. ARs have made a categorical statement that the facts and circumstances of assessment year 2008-09 and 210-11 are identical, therefore, ground of appeal No.1 has been stated to be a covered matter. Having regard to the facts and circumstances of the case and in law, I am of the considered opinion that the disallowance of expenses has been 5 ITA No.4910/M/14

correctly computed by the AO u/s. 14a of the Act r.w.r. 8D of I.T. Rules, and therefore, the said net disallowance of Rs.10,48,922/- is confirmed. As a corollary, ground of appeal No.1 is dismissed."

4.1 Once the facts and circumstances for the assessment year 2008-09 and assessment year under consideration are identical then the basis of disallowance can not be different. Accordingly we direct the AO to restrict the disallowance to 10% of the expenditure incurred for composite activity resulting in exempt income as well as taxable income. The above directions are given in peculiar facts and circumstance of the case and to maintain the rule of consistency, therefore, would not be applied as precedence.

5. Ground No.3 and 4 is regarding treatment of interest income as income from other sources instead of business income. We have heard the ld. AR and the ld. DR and considered the relevant material on record.

5.1 The ld. AR has submitted that interest income has been earned by the assessee on the inter-corporate deposits (ICDs) which is a regular systematic activity of the assessee for the last number of years. He has further submitted that the assessee is having its own funds and utilizing the same for maximum return instead of keeping the same idle. He has further contended that for the assessment year 2008-09 the AO has accepted the interest income as business income, therefore, for the year under consideration the AO cannot take a different view when the interest income was accepted as business income for the earlier assessment year. On the other hand the ld. DR has submitted that business of the assessee is real estate development and not money lending, therefore, giving the surplus fund as advance is not the business activity of the assessee but earning interest on the surplus fund. He has relied upon the orders of authorities below.

6. We have considered the rival submissions as well as relevant material available on record. There is no dispute that the assessee's business activity is real estate development inclusive of purchasing, selling, developing, constructing, hiring or 6 ITA No.4910/M/14

otherwise dealing in real estate. Since the assessee has not started the development activity and was having its own fund, therefore, the assessee has invested some of the fund in mutual fund and other part in ICDs. It is apparent from the facts and circumstances of the case that the assessee is earning dividend income and appreciation of investment from the investment in the mutual fund and further certain part of the surplus fund is used for ICDs for earning the interest income. The investment in mutual fund and ICDs is not a regular business activity of the assessee. It is only a time gap utilization of the surplus fund till it is used for business of real estate development. Accordingly we do not find any error or illegality in the orders of authorities below in treating the interest income as income from other sources.

7. In the result appeal of the assessee is partly allowed.

Order pronounced in the open court on 30/01 /2015 आदेश क घोषणा खुले यायालय म( )दनांकः 30/01/2015 को क गई ।

Sd/- Sd/- ( Sanjay Arora ) ( Vijay Pal Rao ) लेखा सद य / ACCOUNTANT MEMBER याियक सद य / JUDICIAL MEMBER मुंबई Mumbai; )दनांक Dated 30/01/2015 व.िन.स./ Jv, Sr. PS

आदे श क ूितिल प अमे षत/Copy षत of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. आयकर आयु (अपील) / The CIT(A)- 4. आयकर आयु / CIT 5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड$ फाईल / Guard file. आदे शानुसार/ ार BY ORDER, स या पत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai.