Dy. Commissioner of Income Tax , Central Circle-1(1), Hyderabad v. Cybercity Builders & Developers Private Limited , Hyderabad

ITA 421/Hyd/2019 | 2016-2017
Pronouncement Date: 27-05-2021 | Result: Partly Allowed

Appeal Details

RSA Number 42122514 RSA 2019
Assessee PAN AACCC8152C
Bench Hyderabad
Appeal Number ITA 421/Hyd/2019
Duration Of Justice 2 year(s) 2 month(s)
Appellant Dy. Commissioner of Income Tax , Central Circle-1(1), Hyderabad
Respondent Cybercity Builders & Developers Private Limited , Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 27-05-2021
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB-A
Tribunal Order Date 27-05-2021
Date Of Final Hearing 20-05-2021
Next Hearing Date 20-05-2021
Last Hearing Date 28-07-2020
First Hearing Date 08-03-2021
Assessment Year 2016-2017
Appeal Filed On 27-03-2019
Judgment Text
QQ IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ' HYDERABAD BEFORE S HRI SATBEER SINGH GODARA JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU ACCOUNTANT MEMBER ITA NO. 421 /H/201 9 ASSESSMENT YEAR: 20 16 - 17 DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1) HYDERABAD. VS. CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYDERABAD. PAN AACCC8152C (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI K.C. DEVDAS REVENUE BY: S MT. AMISHA GUPTA DATE OF HEARING: 20 /0 5 /2021 DATE OF PRONOUNCEMENT: 27 / 0 5 /2021 O R D E R PER L.P. S AHU AM: TH IS APPEAL FILED BY THE REVENUE FOR AY 20 16 - 17 IS DIRECTED AGAINST THE CIT(A) - 11 HYDERABAD S ORDER DATED 2 7 / 1 1/201 8 INVOLVING PROCEEDINGS U/S 143(3) RWS 153A OF THE INCOME TAX ACT 1961 ; IN SHORT THE ACT ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1 49 51 533/ - U/S.14A WITHOUT APPRECIATING THE FAC TS AND CIRCUMSTANCES OF THE CASE. 3. THE LD. CIT(A) ERRED IN DECIDING THE PRESENT APPEAL RELYING UPON THE DECISION AS HELD BY I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 2 JURISDICTIONAL ITAT IN THE CASE OF M/S. KARVY STOCK BROKING LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX IN WHICH THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME WHEREAS IN THE PRESENT CASE THE ASSESSEE EARNED EXEMPT INCOME DURING THE YEAR. 4. THE LD. CIT(A) ERRED IN DELETING THE ADDITION U/S.14A WITHOUT ANY SUPPORTING EVIDENCE/BASIS. 5. THE LD. CIT(A) ERRED IN DELETING THE ADD ITION ON THE ASSESSEE'S REITERATION OF THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WITHOUT BRINGING ON RECORD AS TO WHY HE IS DIFFERING FROM THE DECISION OF THE ASSESSING OFFICER. THEREFORE DECISION OF THE CIT(A) IS PERVERSE AND BAD IN LAW WHEN PAR A 4.4 OF THE ASSESSMENT ORDER CLEARLY SPEAKS ABOUT THE EXEMPT INCOME. 6. THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE HAS ACTUALLY EARNED EXEMPT INCOME OF RS. 29 91 859/ - DURING THE YEAR AND HENCE THE ENTIRE EXPENDITURE INCURRED FOR EARNIN G THE EXEMPT INCOME IS LIABLE FOR DISALLOWANCE U/S.14A. 7. THE LD.CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE EARNED EXEMPT INCOME BEING SHARE OF PROFIT FROM THE FIRM M/S. C YBER HOMES AMOUNTING TO RS.29 91 859/ - WHICH IS CLEARLY MENTIONED AT PARA 4.4 OF THE ASSESSMENT ORDER. 8. THE LD.CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR WHEN PARA 4.4 OF THE ASSESSMENT ORDER CLEARLY SPEAKS ABOUT THE EXEMPT INCOME. 9 ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OF HEARING. I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 3 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/11/2016 DECLARING INCOME AT RS. 25 46 81 620/ - . ACCORDINGLY THE AO ISSUED NOTICES U/S 143(2) AND 142(1) TO THE ASSESSEE AGAINST WHICH THE AR OF THE ASSESSEE FILED THE INFORMATION. 2.1 ON VERIFICATION OF THE ASSESSEE'S BOOKS OF ACCOUNTS AND DETAILS FURNISHED THE AO OBSERVED THAT THE ASSESSEE HA D INVESTED FUNDS IN THE FIRMS WHERE IT IS ONE OF THE PARTNERS. HE FURTHER OBSERVED THAT TOTAL SUCH INVESTMENT WAS MADE UP TO THE A.Y UNDER CONSIDERATION W AS RS. 67 70 03 347 / - OUT OF WHICH RS. 50 28 98 229 / - HA D BEEN INVESTED DURING THE YEAR UNDER CONSIDERATION. THE SAID INVESTMENT WAS FOUND TO HAVE BEEN MADE IN THE FIRMS LIKE M / S AMMARIS ASSOCIATES MIS ICONICA PROJE CT S M / S ARAM CYBERCITY ETC. ACCORDING TO THE AO THE INCOME WHATEVER RECEIVED AND RECEIVABLE FROM SUCH INVESTMENT WOULD BE EXEMPT FROM INCOME TAX. ACCORDINGLY THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PROPORTIONATE EXPENDITURE ATTRIBUTABLE TO SUC H EXEMPT INCOME RECEIVED OR RECEIVABLE SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF SEC 14A OF IT ACT READ WITH RULE 8 D AND VARIOUS CIRCULARS AND CLARIFICATIONS ISSUED BY THE CONCERNED AUTHORITY TIME TO LIME. 2 . 2 THE ASSESSEE COULD NOT FURNISH ANY CONVI NCING EXPLANATION NOR ANY DOCUMENTARY EVIDENCES IN ANY FORM IN SUPPORT OF ITS CLAIM. ONLY COULD SUBMIT THAT NO I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 4 PORTION OF THE BORROWED FUND HAS BEEN INVESTED IN THE ABOVE FIRMS. IT WAS FURTHER ARGUED THAT THE AMOUNT OF INVESTMENT REFERRED ABOVE REPRESENT T HE ACCUMULATED INVESTMENT UP TO THE A.Y IN QUESTION . THE ASSESSEE ASSERTED THAT AS IT HAS MADE THE INVESTMENT OUT OF THE PROFIT ACCRUED ONLY AND NO EXPENSES RELATED TO THOSE INVESTMENT HAVE BEEN CLAIMED IN THE P& L A/C DISALLOWANCE OF ANY EXPENDITURE ON THE ABOVE GROUND WILL NOT BE JUST IFI ED AND THE SAME SHOULD NOT BE MADE. 2.3 THE AO OBSERVED THAT THE ASSESSEE HAD TRIED TO EXPLAIN THAT THE INVESTMENT IN THE SAID FIRMS WERE MADE OUT OF SURPLUS AVAILABLE WITH IT BUT THE FACT IS THAT FOR THE YEAR UNDER CONS IDERATION THERE WAS NOT ENOUGH SURPLUS FUND TO MAKE INVESTMENT OF RS. 50 26 98 229/ - . THE SURPLUS AS ON 31.03.2015 WAS RS 69 04 60 256/ - AND AS ON 31 03 2016 WAS RS. 83 55 86 4671 - WHICH IMPLIES THAT SURPLUS AVAILABLE FOR THE YEAR WAS ONLY RS. 14 51 26 2 1 1/ - . THE ASSESSEE COULD NOT FURNISH EVEN A SINGLE LINE CLARIFICATION AS TO HOW THE ABOVE HUGE INVESTMENT COULD BE MADE WITH THE SURPLUS FUND AVAILABLE WHICH WAS ONLY OF RS. 14 51 26 211/ - FOR THE YEAR. ACCORDINGLY THE AO COMPUTED THE DISALLOWANCE U/S 14A RWR 8D AT RS. 1 49 51 533/ - RELYING ON THE BOARDS CIRCULAR NO. 5/2014 AS WELL AS THE PROVISIONS OF SECTION 14A RWR 8D . I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 5 3. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO DELETED THE DISALLOWANCE MADE BY THE AO U/S 1 4A RWR 8D ON THE GROUND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR FOR WHICH HE RELIED ON THE DECISION OF JURISDICTIONAL ITAT IN THE CASE OF M/S KARVY STOCK BROKING LTD VS. DCIT. 4. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE THE ITAT. 5. BEFORE US THE LD. DR BESIDES RELYING ON THE ORDER OF ASSESSING OFFICER SUBMITTED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME DURING THE YEAR AND HENCE THE ENTIRE EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME IS LIABLE FOR DISALLOWANCE U/S 14A OF THE ACT. 6. THE LD. AR ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT(A ) AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE NO DISALLOWANCE IS CALLED FOR. HE HAS FILED PAPER BOOK CONTAINING PAGE NOS. 1 TO 37 ON 17/05/2021 BEFORE THE ITAT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. WE OBSERVE FROM THE I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 6 PARA 4.2 OF THE AO ORDER THAT THE AO NOTED THAT THERE WAS NO ENOUGH SURPLUS FUND AVAI LABLE WITH THE ASSESSEE TO MAKE INVESTMENT OF RS. 50 28 98 229/ - AS THE SURPLUS FUND AVAILABLE WITH THE ASSESSEE IS ONLY RS. 14 51 26 211/ - FOR THE YEAR . FOR THE SAKE OF CLARITY WE REPRODUCE PARA 4.2 OF ASSESSMENT ORDER AS UNDER: 2 . THE ASSESSEE'S SUBM ISSION HAS BEEN CONSIDERED AND VERIFIED CAREFULLY AND FOUND TO MISL EADING NOT IN ACCORDANCE WITH THE FACTS AND CIRCUMSTANCES OF THE CASE AND BASED ON FALSE ASSUMPTION. THE ASSESSEE HAS TRIED TO EXPLAIN THAT THE INVESTMENT IN THE SAID FIRMS A RE MADE OUT OF SURPLUS AVAILABLE WITH IT BUT THE FACT IS THAT FOR THE YEAR UNDER CONSIDERATION TH ERE WAS NOT ENOUGH SURPLUS FUND TO MAKE INVESTMENT OF RS. 50 28 98 229/ - . THE SURPLUS AS 0' 31.03.2015 WAS RS. 69 04 60 256/ - AND AS ON 31.03.2016 WAS RS. 83 55 86 467/ - WHICH I M PLIES THAT SURPLUS AVAILABLE FOR THE YEAR WAS ONLY RS. 14 51 26 2 1 1/ - . THE ASSESSEE COULD N OT FURNISH EVEN A SINGLE LINE CLARIFICATION AS TO HOW THE ABOVE HUGE INVESTMENT COULD BE M ADE WITH THE SURPLUS FUND AVAILABLE WHICH WAS ONLY OF RS. 14 51 26 211/ - FOR THE YEAR. F URTHER THE ASSESSEE WAS MISERABLY FAILED TO CLARIFY THAT IF THE ACCUMULATED FUND WAS AVAILABLE TO SUCH HUGE EXTENT WHAT WAS THE PURPOSE BEHIND OPTING THE BURDEN OF HUGE I NTEREST PAYMENT ON THE FUNDS BORROWED. IT IS CLEAR AND BEYOND A NY AMBIGUITY THAT HAD THE SAID INVESTMENT IN FIRMS WERE TO BE AVAILABLE WITH THE ASSESSEE IT WOULD NOT HAVE BEEN REQUIRED TO RAISE LOANS TO THAT EXTENT AND INCUR EXPENDITURE ON INTEREST ON SUCH LOANS. THE ASSESSEE COULD NOT FURNISH ANY EXPLANATION ON THIS PECULIAR ACTIVITIES CARRIED OUT BY IT. 7.1 BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENT IN PARTNERSHIP FIRMS AND I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 7 AS PER THE PARTNERSHIP ACT THE ASSESSEE SHALL BE ENTITLED TO RECEIVE INTEREST AT THE RATES SPECIFIED. SECTION 28(V) OF THE ACT STATES THAT THE INTEREST EARNED ON A PARTNERSHIP FIRM IS TAXABLE. IT WAS THEREFORE SUBM ITTED THAT THE SAID INVESTMENT WAS CAPABLE OF EARNING EXEMPT INCOME IN THE FORM OF SHARE OF PROFIT AS WELL AS TAXABLE INCOME IN THE FORM OF INTEREST ON PARTNERS CAPITAL HENCE IT IS NOT CORRECT TO INVOKE PROVISIONS OF SECTION 14A. FOR THIS PROPOSITION T HE ASSESSEE RELIED ON THE DECISION OF THE ITAT BOMBAY IN THE CASE OF M/S DELITE ENTERPRISES. LATER ON IT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE BOMBAY HIGH COURT (UNREPORTED). 7.2 IN THE FINANCIAL STATEMENT UNDER NOTE NO. 18 THE ASSESSEE HAS SHOWN UNDER THE HEAD OTHER INCOME INTEREST INCOME IS SHOWN AT RS. 98 42 370/ - AND MISCELLANEOUS INCOME IS SHOWN AT RS. 3 93 41 118/ - AS AT MARCH 31 2016. WE DO NOT KNOW FROM THE SAID INTER EST INCOME WHETHER IT IS RECEIVED FROM PARTNERSHIP FIRM OR WHETHER IT IS EXEMPT INCOME. 7.3. AS OBSERVED BY THE AO IN HIS ORDER AT PARA 4.4 THE ASSESSEE HAS RECEIVED INCOME FROM ONE OF THE FIRMS NAMELY M/S CYBER HOMES AMOUNTING TO RS. 29 91 859/ - WHE RE IT HAD MADE INVESTMENT AND THE SAID RECEIPT FROM M/S CYBER HOMES WAS CLAIMED EXEMPT U/S 10(2A) OF THE ACT. I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 8 7.4 THE SUBMISSION OF THE ASSESSEE BEFORE THE CIT(A) THAT THE ASSESSEE HAS MADE INVESTMENT IN PARTNERSHIP FIRMS AND AS PER THE PARTNERSHIP ACT THE ASSESSEE SHALL BE ENTITLED TO RECEIVE INTEREST AT THE RATES SPECIFIED. SECTION 28(V) OF THE ACT STATES THAT THE INTEREST EARNED ON A PARTNERSHIP FIRM IS TAXABLE. THE CASE RELIED ON BY THE ASSESSEE BEFORE THE CIT(A) IS SQUARELY APPLICABLE TO THE CASE O F THE ASSESSEE. IF THE ASSESSEE IS UNABLE TO SUBSTANTIATE ITS CASE IN THE LIGHT OF CASE LAW RELIED ON BY HIM BEFORE THE CIT(A) THE ASSESSMENT ORDER STANDS CONFIRMED. IN VIEW OF THE ABOVE OBSERVATIONS WE REMIT THE MATTER BACK TO THE FILE OF CIT(A) WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE JUDGMENT RELIED UPON BY THE ASSESSEE QUOTES SUPRA AND IF IT FOUND OTHERWISE THE DISALLOWANCE BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME RECEIVED BY THE ASSESSEE AS OBSERVED BY THE ASSESSING OFFIC ER. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE PARTLY ALLOWED. 8. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN ABOVE TERMS. PRONOUNCED IN THE OPEN COURT ON 27 TH MAY 2021. SD/ - ( S.S. GODARA ) JUDICIAL MEMBER SD/ - ( L.P. SAHU ) ACCOUNTANT MEMBER HYDERABAD DATED 27 TH MAY 2021 I.T.A. NO. 421 /HYD/201 9 CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. HYD. 9 KV 1 ACIT CENTRAL CIRCLE 1(1) BLOCK A ROOM NO. 6 7 TH FLOOR AAYAKAR BHAVAN BASHEERBAGH HYDERABAD. 2 M/S CYBERCITY BUILDERS & DEVELOPERS PVT. LTD. 3 RD & 4 TH FLOOR PLOT NO. 55 KAVURI HILLS ROAD NO. 36 EXTENDED JUBILEE HILLS ROAD OPP. WATER TANK HYDERABAD 500 033. 3 CIT(A) - 11 HYDERABAD. 4 PR. CIT (CENTRAL) HYDERABAD. 5 ITAT DR HYDERABAD. 6 GUARD FILE.