Landmark Land Holdings Pvt. Ltd., New Delhi v. Addl. CIT, New Delhi

ITA 5029/DEL/2010 | 2007-2008
Pronouncement Date: 21-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 502920114 RSA 2010
Assessee PAN AAACL9256A
Bench Delhi
Appeal Number ITA 5029/DEL/2010
Duration Of Justice 2 month(s) 5 day(s)
Appellant Landmark Land Holdings Pvt. Ltd., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 21-01-2011
Assessment Year 2007-2008
Appeal Filed On 15-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER ITA NO.5029/DEL/2010 ASSESSMENT YEAR : 2007-08 LANDMARK LAND HOLDINGS PVT. LTD. 11 TH FLOOR NARAIN MANZIL 23-BARAKHAMBA ROAD NEW DELHI. PAN : AAACL9256A VS. ADDL. CIT RANGE-4 NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.M. MEHTA AR REVENUE BY : SHRI A.K. MONGA DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 1 ST OCTOBER 2010 FOR ASSESSMENT YEAR 2007- 08. GROUNDS OF APPEAL READ AS UNDER:- GROUND NO.1 A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF A SUM OF RS.500 228/- INCURRED BY THE APPELLANT COMPANY TOWARDS REGISTRATION FEES PAID TO SECURITIES AND EXCHANGE BOARD OF INDIA FOR LANDMARK REAL ESTATE FUND-1 SPONSORED BY THE APPELLANT COMPANY (RS.500 000/-) FILING FEES PAID TO ROC (RS.200/-) AND FEES PAID FOR FILING TDS RETURN IN FOR M 26Q (RS.28/-) B) THE LEARNED CIT (A) HAS FAILED TO APPRECIATE THA T THE AMOUNT OF RS.500 000/- PAID BY THE APPELLANT COMPANY TOWARDS REGISTRATION CHARGES TO SEBI HAVE ITA NO.5029/DEL/2010 2 COMPANY TOWARDS REGISTRATION CHARGES TO SEBI HAVE BEEN INCURRED OUT OF COMMERCIAL EXPEDIENCY INCIDENTAL TO CARRYING ON ITS BUSINESS AND HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF IT S BUSINESS AND THEREFORE SHOULD HAVE BEEN ALLOWED AS DEDUCTION IN COMPUTING THE BUSINESS INCOME OF THE ASSESSMENT YEAR 2007-08. C). THE LEARNED CIT (A) HAS FAILED TO APPRECIATE TH AT A SUM OF RS.228/- WAS INCURRED BY THE APPELLANT COMPANY IN COMPLIANCE OF THE STATUTORY PROVISIONS VIZ. FILING FEES TO ROC AND FEES FOR FILING THE TDS RETURN WHICH IS ALLOWABLE AS DEDUCTION IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08. D) THE LEARNED CIT (A) HAD ERRED IN NOT CONSIDERING THAT THE AMOUNT OF RS.500 000/- WAS PAID BY THE APPELLANT AS REGISTRATION FEE TO SEBI FOR LANDMARK REAL ESTATE FUND-1 AS MANAGER OF THE FUND FOR EARNING BUSINESS INCOME (MANAGEMENT FEES) IN FUTURE WHICH COULD NOT COMMENCE ITS BUSINESS AND THEREFORE THE FEES PAID BY THE APPELLANT BECAME IRRECOVERABLE AND THEREFORE WAS ALLOWABLE AS A BUSINESS LOSS U/S 28 OF THE IT ACT 1961. GROUND NO.2 A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN LAW IN MAKING PROPORTIONATE DISALLOWANCE OF RS.3 LACS U/S 14A OF THE IT ACT 1961 ON ESTIMATED BASIS IGNORING THE SUBMISSIONS MADE BY THE APPELLANT COMPANY THAT THE PROVISIONS OF SECTION 14A WERE NOT APPLICABLE TO IT DURING THE SAID ASSESSMENT YEAR. B) IT IS CONTENDED THAT THE LEARNED CIT (A) HAS ERRE D IN LAW WHILE CONFIRMING THE DISALLOWANCE OF RS.300 000/- MADE U/S 14A OF THE ACT IGNORING THAT THE PROVISIONS OF RULE 8D (WHICH WERE INSERTED BY THE IT (FIFTH AMD T.) RULES 2008 W.E.F. 24.03.2008 MUCH AFTER THE FILIN G OF INCOME TAX RETURN FOR A.Y. 2007-08) WERE NOT APPLICABLE IN THE ASSESSMENT YEAR 2007-08. GROUND NO.3 YOUR APPELLANT RAVES LEAVE TO ADD ALTER AMEND MODIFY VARY AND FOREGO ANY OF THE GROUNDS OF APPEAL ITA NO.5029/DEL/2010 3 MODIFY VARY AND FOREGO ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. IT IS THE CASE OF THE ASSESSEE THAT IT ENTERED INTO AN AGREEMENT WITH IL &FS TO WORK AS AN INVESTMENT MANAGER VIDE TRU ST DEED DATED 28 TH DECEMBER 2005 WHEREIN THE IL & FS BEING THE TRUSTE E HAD APPOINTED THE ASSESSEE COMPANY AS INVESTMENT MANAGER VIDE INVESTMENT MANAGEMENT AGREEMENT DATED 13 TH JANUARY 2006 AND THE ASSESSEE WAS ENTITLED TO A MANAGEMENT FEE OF 2% PER ANNU M OF THE TOTAL CAPITAL COMMITMENT OF THE VENTURE CAPITAL FUN D. THE SAID VENTURE CAPITAL FUND WAS REQUIRING REGISTRATION OF FUND WITH THE REGULATOR VIZ. SEBI. IT IS THE CASE OF THE ASSESSEE THAT IT WAS ENTITLED TO MAKE EXPENSES IN CONNECTION WITH THE MANAGEMENT OF THE ABO VE FUND AND GOT REIMBURSEMENT FROM THE FUND IN TERMS OF CLAUSE 5.2 .1 OF THE SAID AGREEMENT AND IN THAT CONNECTION THE ASSESSEE HAS PAID A SUM OF RS.5 LAC TO SEBI ON 12 TH JUNE 2006 WHICH WAS TO BE REIMBURSED TO THE ASSESSEE BY THE ABOVE VENTURE CAPITAL FUND IN TERMS OF 5 .2.1 OF THE AGREEMENT AND SINCE THE FUND DID NOT TAKE OFF TILL T HE END OF THE FINANCIAL YEAR ON 31 ST MARCH 2007 THE CHANCES OF REIMBURSEMENT WAS NOT THERE AND THE SAID AMOUNT WAS TRANSFERRED AND CHAR GED TO PROFIT & LOSS ACCOUNT UNDER THE HEAD FILING FEE. IT IS FURTH ER THE CASE OF LD. AR THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND DUE TO CERTAIN RESTRICTIONS IT WAS DIF FICULT FOR THE ASSESSEE TO GET FINANCE FROM BANKS AND FINANCIAL INSTITUT IONS AND TO AUGMENT ITS FINANCES THE ASSESSEE COMPANY SPONSORED VENTURE CAPITAL FUND NAMELY LANDMARK REAL ESTATE FUND-1 FOCUSED O N REAL ESTATE DEVELOPMENT IN INDIA AND THEREFORE THE CLAIM OF T HE ASSESSEE HAS EITHER TO BE ALLOWED AS BUSINESS EXPENDITURE U/S 37 OF T HE ACT OR IT SHOULD BE ALLOWED AS A BUSINESS LOSS. LD. AR HAS TOOK US TH ROUGH THE INVESTMENT MANAGEMENT AGREEMENT VIDE WHICH THE ASSESSEE WAS APPOINTED AS INVESTMENT MANAGER. COPY OF SUCH AGREEME NT IS PLACED ITA NO.5029/DEL/2010 4 AT PAGES 25-44 OF THE PAPER BOOK. HE REFERRED TO CL AUSE 5.2 AND 5.2.1 WHICH READ AS UNDER:- 5.2 EXPENSES 5.2.1 THE TRUSTEE SHALL REIMBURSE THE INVESTMENT MANAGER OR ITS AFFILIATES FOR ALL EXPENSES INCURRED IN CONNECTION WITH THE FUNDS ACTIVITIES IN RELATION TO THE SCHEME INCLUDI NG THE FOLLOWING: (A) ALL EXPENSES INCURRED IN IDENTIFYI NG EVALUATING STRUCTURING NEGOTIATING AND EXECUTING ANY POTENTIAL INVESTMENT; (B) ALL ORDINARY ADMINISTRATIVE EXPENSES OF THE FUND IN RELATION TO THE SCHEME INCLUDI NG FEES OF ACCOUNTANTS AUDITORS ATTORNEYS AND OTHER PROFESSIONALS AND THE COSTS OF REPORTS TO THE CONTRIBUTOR S; (C) ACTUAL COSTS INCURRED IN ESTABLISHMENT OF THE SCHEME EXCLUDING FUND RAISING COSTS; 9D) PLACEMENT EXPENDITU RE COSTS IN RELATION TO THE SCHEME FIXED AT 2% OF THE COMMITMENT; (E) COMMON EXPENSES OF THE FUND ALLOCATED SPECIFICALLY TO THE SCHEME; (F) OUT OF POCKET EXPENSES INCURRED BY THE INVESTMENT MANAGER IN RELATION TO THE SCHEME ON AN ACTUAL BASIS SUCH AS TRAVEL AND COMMUNICATION COSTS MARKETING AND SELLING EXPENSES AUDIT FEES LEGAL EXPENSES ACCOUNTING CHARGES INVES TOR COMMUNICATION COSTS OTHER EXPENSES ATTRIBUTABLE TO THE SCHEME AS MAY BE APPROVED BY THE TRUSTEE; AND (G) ALL OTHER INCIDENTAL EXPENSES OF OPERATING THE FUND IN RELATION TO THE SCHEME. 3. REFERRING TO THE ABOVE CLAUSE IT WAS SUBMITTED BY HIM THAT THE ASSESSEE HAS INCURRED SUCH EXPENDITURE AND IT DID NOT GET REIMBURSEMENT THEREFORE THE AFOREMENTIONED AMOUNT OF ` 5 LAC SHOULD BE ALLOWED AS DEDUCTION. HE ALSO REFERRED TO THE SUBMISSIONS MADE BEFORE THE CIT (A) WHICH REFER TO THE FOLLOWIN G DECISIONS FOR SUPPORTING THE ALLOWABILITY OF THE AFOREMENTIONED SUM :- I) MOTOR INDUSTRIES CO. LTD. VS. CIT 163 ITR 659. II) CIT VS. ALEMBIC CHEMICAL WORKS CO. LTD. 201 ITR 2 50 III) CIT VS. GRAPHITE INDIA LTD. 221 ITR 420 IV) CIT VS. INDIA CARBON LTD. 221 ITR 264. V) CIT VS. TAMIL NADU CHEMICAL PRODUCTS LTD. 259 ITR 582. ITA NO.5029/DEL/2010 5 4. REFERRING TO THE AFOREMENTIONED DECISIONS IT WAS SU BMITTED THAT THE AFOREMENTIONED AMOUNT SHOULD BE ALLOWED TO THE A SSESSEE. 5. SO AS IT RELATES TO THE OTHER AMOUNT OF ` 228 IT WAS SUBMITTED BY HIM THAT THESE ARE IN THE NATURE OF FEES FOR FILING T HE RESPECTIVE RETURNS. HE HAS PRODUCED BEFORE US RECEIPTS OF THE SAME AND IT WAS CLAIMED THAT THESE ARE VERY MINOR EXPENDITURES WHICH ARE PETTY AS UNDER:- A) ` 200/- VIDE RECEIPT DATED 30 TH OCTOBER 2005 PAID TO OFFICE OF THE REGISTRAR OF COMPANIES REGARDING FILING OF THE DOCUMENT STYLED AS BALANCE SHEET. B) ` 28 FOR FILING THE TDS RETURN FOR WHICH ` 28 WE RE CHARGED AS UPLOAD FEE INCLUDING TAXES. THUS HE SUBMITTED THAT A SUM OF ` 228 SHOULD BE ALLOWE D. 7. ON THE OTHER HAND RELYING UPON THE ORDER OF ASSESSI NG OFFICER AND CIT (A) IT WAS SUBMITTED BY LD. DR THAT THE DISAL LOWANCE OF ` 5 LAC HAS RIGHTLY BEEN MADE AND THE DISALLOWANCE SHOULD BE U PHELD. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THOUGH IT HAS BEEN TH E CONTENTION OF THE ASSESSEE THAT THE SAID AMOUNT OF ` 5 LAC WAS PAID BY THE ASSESSEE FOR BUSINESS EXPEDIENCY BUT THE ASSESSEE HAS PRODUCED NO E VIDENCE WHATSOEVER TO SUPPORT SUCH CONTENTION. ` 5 LAC HAS BEE N PAID BY THE ASSESSEE TO SEBI FOR REGISTRATION OF VENTURE FUND WHICH WAS FLOATED BY IL & FS TRUSTEE COMPANY LTD. THE SAID VENTURE FUND D ID NOT BELONG TO THE ASSESSEE AT ALL. THE ASSESSEE WAS APPOINTED AS INVESTMENT MANAGER. NO EVIDENCE HAS BEEN PLACED ON RECORD TO SH OW THAT TO PAY ` 5 LAC TO SEBI WAS IN ANY WAY AN OBLIGATION OF THE ASSESSEE. THE SAID ITA NO.5029/DEL/2010 6 AMOUNT WAS THE LIABILITY OF IL & FS TRUSTEE COMPANY L TD. WHAT THE CLAUSE 5.2.1 OF THE AGREEMENT STATES IS REGARDING REIMB URSEMENT TO THE ASSESSEE. EVEN IF THE SAID AMOUNT WAS PAID BY THE ASSE SSEE EVEN THEN NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HAD EVER SOUGHT REIMBURSEMENT OF THE SAID AMOUNT AND IF IT WAS TO BE REIMBURSED IT WAS THE LIABILITY OF THE OTHE R COMPANY AND IT CANNOT BE THE CASE OF THE ASSESSEE THAT BECAUSE IT WAS NOT REIMBURSED TO IT THEREFORE IT SHOULD BE ALLOWED EITHER AS BUSIN ESS EXPENDITURE OR AS A BUSINESS LOSS. THE ASSESSEE HAS ALSO NOT ESTABLISHED ANY CONNECTION OF THE SAID DEPOSIT WITH ITS BUSINESS. HERE IT IS THE CONTENTION OF THE ASSESSEE THAT AS THE ASSESSEE IS INVOLVED I N THE ACTIVITY OF REAL ESTATE IT WOULD HAVE BENEFITED TO THE ASSESSEE TO RAISE FUNDS THROUGH SUCH VENTURE. HERE ALSO THE CONTENTION OF THE ASSESSEE IS NOT CORRECT AS NO LINK HAS BEEN SHOWN WITH THE PROJE CT OF THE ASSESSEE FOR WHICH SUCH FINANCES COULD BE RAISED THROUGH T HIS VENTURE. THEREFORE FROM THE FACTS OF THE CASE IT IS CLEAR THAT THIS AMOUNT OF ` 5 LAC CLAIMED BY THE ASSESSEE HAS NO RELATION WHATSOEVER WI TH THE BUSINESS OF THE ASSESSEE AND HENCE COULD NOT BE ALLOWED EITHER AS REVENUE EXPENDITURE U/S 37 OF THE ACT OR AS BUSINESS LOSS. THE CASE LAW RELIED UPON BY LD. AR HAS NO RELEVANCE TO THE FA CTS OF THE PRESENT CASE. THEREFORE THE DISALLOWANCE OF ` 5 LAC IS UPHEL D AND THE GROUND NO.1 TO THIS EXTENT IS DISMISSED. 9. SO AS IT RELATES TO FURTHER SUM OF ` 228 AFTER HEA RING BOTH THE PARTIES WE ARE OF THE OPINION THAT THESE ARE MINOR E XPENDITURE INCURRED IN THE REGULAR COURSE OF BUSINESS I.E. FOR FI LING CERTAIN STATUTORY DOCUMENTS WITH THE AUTHORITIES AND THIS EXPEN DITURE SHOULD HAVE BEEN ALLOWED. THEREFORE WE DIRECT THE ASSESSING OFFICER TO ALLOW THEM AND THE ADDITION TO THAT EXTENT IS DELETED. 10. IN THE RESULT GROUND NO.1 IS PARTLY ALLOWED. ITA NO.5029/DEL/2010 7 11. SO AS IT RELATES TO GROUND NO.2 IT HAS BEEN THE C ONTENTION OF LD. AR THAT THE DISALLOWANCE OF ` 3 LAC UPHELD BY THE CI T (A) U/S 14A SHOULD BE DELETED IN VIEW OF THE DECISION OF THE TRIBUNAL I N THE CASE OF DIT VS. JINDAL PHOTO LTD. I.E. ORDER DATED 22 ND DECEMBER 2010 IN ITA NO.4539/DEL/2010. A COPY OF THE SAID DECISION WAS PLA CED ON OUR RECORD AND A COPY OF THE SAME WAS GIVEN TO LD. DR. 12. IN THE ALTERNATIVE IT WAS PLEADED THAT IF IT IS RESTORED TO THE FILE OF ASSESSING OFFICER TO RE-DECIDE THE SAME CONSIDERING THE D ECISION OF GODREJ & BOYCE MFG. PVT. LTD. THEN IT MAY ALSO BE MENTIONED THAT THE DECISION AVAILABLE ON THE DATE OF RE-ADJUDICATION BY THE ASSESSING OFFICER SHOULD ALSO BE CONSIDERED AS THE HONBLE DELHI HIGH COURT HAS ALREADY HEARD THE SAID ISSUE AND THE DECISION OF THE HO NBLE DELHI HIGH COURT ON THIS ISSUE IS AWAITED. 13. ON THE OTHER HAND LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND CIT (A). 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER HA S APPLIED RULE 8D FOR CALCULATING THE DISALLOWANCE U/S 14A OF THE AC T. LD. CIT (A) HAS REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. 234 CTR 1 AND HAS COME TO THE CONCLUSION THAT EVEN IF RULE 8D IS NOT APPLICABLE PRI OR TO ASSESSMENT YEAR 2008-09 AS THE RULE 8D WAS NOTIFIED ONLY W.E.F. 24 TH MARCH 2008 W.E.F. ASSESSMENT YEAR 2008-09 REASONABLE DISALLOWANCE W AS REQUIRED TO BE MADE AND HE HAS ESTIMATED THE REASONABLE DISALLOW ANCE AT ` 3 LAC IN PLACE OF DISALLOWANCE CALCULATED BY THE ASSESSING OFFICER AT ` 3 96 587/-. BUT LD. CIT (A) HAS NOT MENTIONED THE BASIS. THEREFORE WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO RE-A DJUDICATE THE SAID ISSUE IN THE LIGHT OF THE AFOREMENTIONED DECISION OF HONBLE ITA NO.5029/DEL/2010 8 BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA). THE ASSESSING OFFICER WILL ALSO TAKE INTO CONSID ERATION THE OTHER APPLICABLE LAW AS ON THAT DATE TO RE-ADJUDICAT E THE ISSUE AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY. SO AS IT RELATES TO THE DECISION OF THE TRIBUNAL REFERRED TO BY LD. AR IT MAY BE MENTIONED THAT IN THAT CASE IT WAS FOUND THAT THERE WAS NO NEXUS OF THE ASSESSEE HAVING INVESTMENT IN TH E FUND IN THE SHARES ON WHICH DIVIDEND INCOME WAS EARNED BUT I N THE PRESENT CASE THERE IS INVESTMENT BY THE ASSESSEE IN THE SHARES FROM WHERE THE DIVIDEND HAS BEEN EARNED. THEREFORE THE FACTS OF TH E CASE ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 15. IN VIEW OF THE ABOVE DISCUSSION THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER A FORESAID. 16. IN THE RESULT THE APPEAL IS PARTLY ALLOWED IN TH E MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.20 11. SD/- SD/- [A.K. GARODIA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 21.01.2011. DK ITA NO.5029/DEL/2010 9 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES DATE OF DICTATION 17.01.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 18.01.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH