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TMI Blog2021 (7) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer are neither determinative of the issue nor they are relevant to judge the character and status of the assessee with regard to the housing projects executed. - Decided against revenue Disallowance u/s 14A - as stated that in the returns filed pursuant to notice issued u/s 153A of the I.T.Act, the assessee by mistake and sheer inadvertent, erroneously adopted the disallowance u/s 14A of the I.T.Act made in the original assessment - HELD THAT:- The disallowance u/s 14A of the I.T.Act in the original assessment order are subject matter of appeal in regular assessment. Depending upon the final outcome in the regular assessment as regards the disallowance u/s 14A of the I.T.Act, the same shall be adopted in the assessment orders u/s 153A of the I.T.Act. Therefore, with the above directions, ground as disposed of Disallowance u/s 14A r.w.r. 8D(2)(ii) - as decided in the case of CIT Anr. v. Microlabs [ 2016 (4) TMI 219 - KARNATAKA HIGH COURT] had held that when investments are made out of common pool of funds and non-interest bearing funds are much more than the investment in tax free securities, no disallowance of interest expenditure u/s 14A of the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is erroneous understanding of statutory provisions. Accordingly, we set aside the orders of the A.O. and the CIT(A) on this count. The A.O. is directed to recompute deduction u/s 80IB(10)(f) of the I.T.Act keeping in view the above direction. - ITA No.1436/Bang/2018, ITA No.1437/Bang/2018, ITA No.2172/Bang/2018, ITA No.2173/Bang/2018, ITA No. 1204 to 1207/Bang/2018 - - - Dated:- 18-6-2021 - Shri Chandra Poojari, AM And Shri George George K, JM For the Appellant : Sri.Muzaffar Hussain, CIT-DR For the Respondent : Sri.V.Srinivasan, Advocate ORDER PER GEORGE GEORGE K, JM : These appeals at the instance of assessee and Revenue are directed against various orders of the CIT(A). The relevant assessment years are 2007-2008 to 2010-2011. There are some common issues in these appeals, hence, all appeals were heard together and are being disposed of by this consolidated order. We shall first adjudicate the Revenue s appeals. ITA Nos.1436/Bang/2018, 1437/Bang/2018, 2172/Bang/ 2018 2173/Bang/2018 (Asst.Years 2007-2008 to 2010- 2011) 2. The solitary issue raised in the Revenue s appeals is whether the CIT(A) was justified in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollow:- A. The land were procured by SobhaInnercity Technopolis Pvt. Ltd., which never got registered in the assessee's name? B. The agreement for sale is between the ultimate customer and SobhaInnercityTechnopolis Pvt. Ltd. C. The agreement for construction of apartment is between the assessee and the ultimate buyers. The sale and construction agreements with the ultimate buyer show the assessee's sister concerns as the owner not the assessee. D. The assessee only builds apartments on the land belonging to the sister concerns. The company has acted only as a builder of the housing project. E. Considering the fact that the assessee is only a builder and not a developer, the question that needs to be addressed is, whether the assessee is entitled to deduction under section 80IB at all. Section 80IB (1O) provides :- the amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st of march, 2007 by a local authority shall be hundred percent of the profits derived in the previous year relevant to any AY from such housing project . F. Section 80IB(1O) says very clearly that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, is reproduced below:- 5.9 In my considered view, the nature of activity performed by the appellant has to be examined to find out whether the appellant can be considered as mere builder or has to be regarded as a developer. It is seen from the assessment order the appellant has filed a detailed Note dated 25.01.2016 pointing out that the nature of activity it had carried on with regard to the housing projects, which the A.O. has not disputed or controverted in the assessment order. A look at the nature of activities shows that the appellant cannot be considered as a mere builder since it has undertaken the complex scheme of developing the housing project. It is also seen that the appellant alone is entitled to the entire revenue from the sale of apartmentsincluding the profits that arise from the sale of undivided interest in land to the customers and that this profit from sale of the undivided interest in the land was also considered as part of the allowable deduction u/s. 80IB[10] of the Act, by the Hon'ble ITAT in ITA No. 1027/Bang/2010 dated 16/12/2011, before the view taken in the proceedings u/s. 263 of the Act as to the nature of the appellant's role in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re reproduced below: (a) From the agreement dated 03.01.2005: 1) SALE PRICE 1.1) The price payable by the Purchaser to the Vendors for the Schedule Property shall be ₹ 3,24,09,902/-(Rupees three crores twenty four lakhs nine thousand nine hundred and two only) 1.2) The Purchased has already paid a sum of ₹ 3,23,09,902/-(Rupees three crores twenty three lakhs nine thousand nine hundred and two only)to the vendor, the receipt of which the vendor hereby accepts and acknowledges; 1.3) The balance of the sale price of ₹ 1,00,000/-(Rupees one lakh only) shall be paid by the Purchaser to the vendor at the time of execution of Deed of Sale; 5) POSSESSION The vendor shall deliver possession to the purchaser or their nominee at the time of execution of the Deed of sale: (b) From the agreement dated 09.02.2005: 1) SALE PRICE 1.1) The price payable by the Purchaser to the Vendors for the Schedule Property shall be ₹ 21,32,18,942/-(Rupees twenty one crores thirty two lakhs eighteen thousand nine hundred and forty two only) 1.2) The Purchased has already paid a sum of ₹ 21,27,18,942/-(R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the projects were also issued in the name of the assessee's sister concern, M/s. Sobha Innercity Technopolis Pvt Ltd.(reference - Page no.l0, para5.2 of the Assessment Order for the AY 2009-10) . 5. It has also been found by the Assessing officer that the assessee's sister concern has extended collateral security in respect of the term loan and cash credit loan availed by the assessee as per the following details. Nature of loan Description of property offered as security Bank Loan facility granted Balance (in Cr.) as on 31.03.2009 Cash credit Sobha Dahlia Andhra Bank 500 Mn 485.33 Mn Term Loan Daffodil Carnation Projects Corp Bank 500 Mn Daffodil 400Mn Carnation 516.05 Mn So, the Assessing Officer has rightly arrived at the conclusion that if the project did not belong to M/s.SobhaInnercity Technopolis Pvt Ltd., how it could offer collateral security to a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the AO and the CIT(A). 2.7 We have heard rival submissions and perused the material on record. For the assessment years 2007-2008 and 2008-2009, the assessment orders are passed consequent to proceedings taken u/s 263 of the I.T.Act as modified by the ITAT s order dated 30.04.2014 in ITA No.1395/Bang/2012. For assessment years 2009-2010 and 2010-2011, these appeals arise out of regular assessment proceedings u/s 143(2) of the I.T.Act. The ITAT in its order dated 30.04.2014 directed the A.O. to examine the following aspects to arrive at the conclusion as to whether the assessee can be regarded as a developer and entitled to deduction u/s 80IB(10) of the I.T.Act. (i) The copies of the agreement for purchase of land by the assessee from the sister concern and, as to how the several aspect of development of a housing project were done only by the assessee; (ii) What is the role of sister concern of assessee in so far as it relates to sale of land is concerned; and (iii) How despite being not owner of the land pursuant to a registered sale deed was in fact entitled to all ownership rights as envisaged u/s 2(47)(v) of the Act. (iv) After scrutiny of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Secondly, as directed by the ITAT, the A.O. has also considered and distinguished the judgement of the Hon ble Gujarat High Court in the case of Radhe Developers reported in 341 ITR 403 (Guj) observing that the documentation executed by the parties in the said case differed from the case of the assessee. The A.O. has held that the ratio of the judgement of the Hon ble Gujarat High Court was limited to the extent that the ownership of land was not a condition precedent to obtain exemption u/s 80IB(10) of the Act. The A.O. has observed that the decision rendered by the Hon ble Gujarat High Court was for the assessment years before the insertion of the Explanation to Sec.80IB(10) of the Act that debars deduction to be given to contractors. Finally, as directed by the ITAT, the A.O. has also gone into the question of who conceptualizes the scheme and has taken the view that the conceptualization is done by individuals consisting of the top management of both the assessee and its sister concern. The A.O. has observed that the top management of both companies have the same common individuals and it cannot be said that the assessee alone has the conceptualized such scheme. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings as well and discussion on the same is also found at para [3.9] in the assessment order for the assessment year 2009-2010 :- (1) Copy of the return of income filed for the assessment year 2005-06 alongwith intimation u/s.143[1] of the Act, as Annexure-2A; (2) Copy of the assessment order passed for the assessment year 2005-06 as Annexure-2B; (3) Copies of the return of income filed for the assessment years 2006-07, 2007-08,2008-09 and 2009-10 as Annexure-2C; and (4) Copies of the assessment orders passed for the assessment years 2006-07 and 2009-10 as Annexure- 2D; 2.7.4 It can be seen from the above income tax returns filed by SITPL that it has offered business income from sale of lands in assessment years 2005-06 and 2006-07, which also includes the lands sold to the assessee in terms of the sale agreements mentioned above. The same has also been assessed to tax for the assessment year 2005-06 and 2006- 07. Thereafter, it is important to note that from the assessment years 2007-08, 2008-09 and 2009-10, there are no sale of lands shown by SITPL and the only income reported relates to interest income earned. No deduction has been claimed u/s. 801B(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same project another Agreement for sale dated 02/02/2006 and construction agreement dated 02/02/2006 with customer Mr. GurudattaNagaraja and NikhilaSimhaCapt. Manoj Airon, as Annexure-4C and 40. (iii) Sobha Dalia : - Agreement for sale dated 28/05/2007 and construction agreement dated 28/05/2007 with customer Mrs. Vimalaben K. Patel as Annexure-5A and 5B. Similarly, in respect of the same project another Agreement for sale dated 14/10/2006 and construction agreement dated 14/1012006 with customer Mrs. Asha Dinesh and Mr. Dinesh Krishnaswamy as Annexure-5C and 50. (iv) Sobha Daisy : - Agreement for sale dated 16/09/2008 and construction agreement dated 16/09/2008 with customer Mr. Subramaniam Shankaran and Mrs. GirijaSubramaniah as Annexure-6A and 6B. Similarly, in respect of the same project another Agreement for sale dated 28/01/2006 and construction agreement dated 28/01/2006 with customer Ms. Padmini Nistala, as Annexure-6C and 60. (v) Sobha May Flower:- Agreement for sale dated 10/01/2005 and construction agreement dated 10101/2005 with customer Mrs. Debbani Kundu Naskar and Mr. DebankurNaskar as Annexure-7 A and 7B. Similarly, in respect of the same proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since, he has not formulated thescheme of development or engaged in any activities that are normally done by the developers. The documentary evidence on records clearly shows that the assessee has formulated the scheme of development. It has incurred all the costs for development and has received the sale proceeds from the customers. The sister concern SITPL has merely sold land to the assessee and offered income therefrom for the assessment year 2005-06 and it has not participated in the development of the housing projects thereafter except to join in the execution of documents to convey title to the customers. It has not received any profits or income from the development activity and it has not claimed any deduction u/s 80IB(10) of the I.T.Act. The sister concern(SITPL) neither has employees nor any infrastructure for carrying out the development of the housing projects. Thus, merely on account of certain factors like sanction plan being in the name of SITPL, which is the registered title owner of the land, an inference cannot be drawn that the projects belonged to SITPL and not to the assessee. The Hon'ble Chennai Bench in the case of M/s.Sanghvi Doshi Enterprises reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re contractor cannot be judged solely on the basis of the said certificates. The nature of activities carried out have to be examined. The customers of the assessee have purchased the property looking at the brand SOBHA which belongs to the assessee. It is the assessee which has formulated the scheme of development in which the sister concern SITPL has no role except for conveying title in respect of theland to the customers of the assessee. So also, the provision of the properties as security for the loans raised by the assessee actually goes to show that the assessee is actively engaged in raising finance for the project and the sister concern has no role to play other than conveying title. Nothing turns much on these aspects of the matter pointed out by the learned DR in the submissions filed before us. 2.7.10 To sum up, we are of the view that the assessee has established that it was carrying out the activities that are done for developing the housing project and various factors pointed out by the Assessing Officer are neither determinative of the issue nor they are relevant to judge the character and status of the assessee with regard to the housing projects execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doption of the income assessed in the original order u/s 143(3) of the Act. No fault can be found with the A.O. for making an assessment on the said basis because the income ultimately determined in the original assessment after appeal effect will have to be the basis on which the income is computed in the order passed u/s 153A of the Act. Hence, the interest of justice will be taken care of, if the A.O. is directed to modify the assessment order passed u/s 153A of the Act by adopting the income finally assessed in the original assessment proceedings after appeal effect is given. These grounds are disposed off with the aforesaid directions. 3.3 The CIT(A) has clearly directed the A.O. to modify the assessment order u/s 153A of the I.T.Act, by adopting the income finally assessed in the original assessment proceedings after appeal effect is given. In view of the above direction of the CIT(A), we see no grievance in the order of the CIT(A). Therefore, ground No.3 in ITA No.1204/Bang/2018 ITA No.1206/ Bang/2018, are dismissed. Ground No.4 3.4 The brief facts in relation to the above ground are as follows:- For the assessment year 2009-2010 and 2010-2011, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of ₹ 1,28,13,850/- u/s 14A of the Act under the facts and in the circumstances of the appellant s case. She further failed to appreciate that the disallowance computed u/s 14A of the Act was highly excessive, opposed to law and facts of the appellant s case and therefore, the same deserves to be deleted. 3. The learned CIT(A) is not justified in upholding the restricting the deduction claimed u/s 80G of the Act holding that the appellant has not furnished the receipts for certain donations under the facts and in the circumstances of the appellant s case. 4. The learned CIT(A) is not justified in upholding the income determined u/s 115JB of the Act at ₹ 1,39,52,78,779/-, by making an addition of ₹ 1,28,13,850/- being the disallowance determined u/s 14A of the Act and a further sum of ₹ 7,28,594/- being the wealth tax paid under the facts and in the circumstances of the appellant s case. Ground No.2 4.2 The assessee had voluntarily disallowed u/s 14A of the I.T.Act a sum of ₹ 26,55,305. Later, vide letter dated 28.12.2011, it was claimed that disallowance u/s 14A of the I.T.Act should be restricted to ₹ 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l High Court reads as follow:- We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paper book and the same is enclosed as annexure-III to this order. It is clear from the said statement that the availability of profit, share capital and reserves and surplus was much more than investments made by the assessee which could yield tax- free income. The hon'ble Bombay High Court in CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) has held that where the interest-free funds far exceed the value of investments, it should be considered that investments have been made out of interest-free funds and no disallowance under section 14A towards any interest expenditure can be made. This view was again confirmed by the hon'ble Bombay High Court in CIT v. HDFC Bank Ltd., I. T. A. No. 330 of 2012, judgment dated July 23, 2014 - [2014] 366 ITR 505 (Bom) wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax-free securities, no disallowance of interest expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 4clauses (b) and (c) of sub-section (2) exceeds ten per cent. of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of ten per cent. of the gross total income shall be ignored for the purpose of computing the aggregate of the sums in respect of which deduction is to be allowed under sub-section (1). 4.12.1 From the above, it is clear that if the aggregate of sums referred to in sub-clause (v), (vi), (via) and (vii) of clause (a) and clause (b) and (c) of sub-section (2), exceeds 10% of the gross total income then the amount in excess of 10% shall be ignored for purposes of computing the aggregate of sums on which deduction is allowed u/s 80G(1) of the I.T.Act. It is provided in section 80G(1) of the I.T.Act that, for certain sums contributed, the whole of the sum will be taken and in other cases 50% of the aggregate of the sums specified in subsection (2) and the aggregate of the same will be allowed as deduction. In other words, section 80G(1) of the I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted independently without having regard to the provisions of section 14A of the Act. In view of the above, we are unable to sustain the addition made by the A.O. Since the addition required to be made under clause (f) to Explanation 1 is required to be computed independently, we restore this issue to the file of the A.O. for examining it afresh. It is ordered accordingly. 4.17 Therefore, ground No.4 is allowed for statistical purposes. ITA No.1207/Bang/2018 : Asst.Year 2010-2011 (Assessee s appeal) 5. The above appeal at the instance of the assessee is directed against CIT(A) s order dated 18.12.2017. The CIT(A) s order arises out of the assessment order dated 30.03.2013 passed u/s 143(3) of the I.T.Act. The relevant assessment year is 2010-2011. 5.1 The assessee has raised six grounds. The effective grounds, namely, ground No.2A, 2B, 2C and 3 read as follows:- 2A. The learned CIT(A) is not justified in upholding the view taken by the A.O. that the appellant is not entitled to deduction u/s 80IB(10) of the Act in respect of the projects Sobha Ruby (Basil) Sobha Sunbeam-2 amounting to ₹ 11,57,09,500/- on the ground that the appellant had v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It may be noted that no explanation was offered before AO. Even during appellate proceedings, no explanation has been furnished. Therefore, no interference in assessment order is called for on the issue since no infirmity arose. The disallowance u/s 80IB(10)(f) is upheld and sustained. 5.4 Aggrieved, the assessee has raised this issue before the Tribunal. The learned Counsel for the assessee submitted that the A.O. and the CIT(A) have misconstrued section 80IB(10)(f) of the I.T.Act and has taken a view that the assessee cannot sell any flat in housing project to nonindividuals, which is erroneous understanding of statutory provision. 5.5 The learned DR supported the orders of the Income Tax Authorities. 5.6 We have heard rival submissions and perused the material on record. As regards the two projects of the assessee, Sobha Ruby (Basil) and Sobha Sunbeam-2, the A.O. referred to the provisions of section 80IB(10)(f) of the I.T.Act and took the view that provisions of the Act mandates that the residential flats must be sold to individuals only and selling the flat to a private limited company violates one of the conditions prescribed for claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as incurred on investment since investments flow from a common pool of funds i.e. current or cash credit or overdraft accounts. Since business receipts and payments as well as investments are made from these accounts, it cannot be said with certainty that investments were made exclusively out of non interest bearing or surplus funds. Even if appellant had not utilized any borrowed funds to make investments, section 14A ought to be invoked to disallow all indirect expenses. Therefore, AO noted his satisfaction and invoked provision of section 14A r.w. Rule 8D in view of the above facts, objection of appellant in respect of disallowance u/s 14A is found to be untenable and the same is rejected. Hence disallowance is upheld and confirmed. 5.8 Aggrieved, the assessee has raised this issue before the Tribunal. The learned Counsel for the assessee submitted that no disallowance under Rule 8D(2)(ii) of I.T.Rulescan be made in the facts of the case since own funds are much more than tax exempted investment as per the balance sheet. In this context, the learned AR relied on the judgment of the Hon ble jurisdictional High Court in the case of CIT Anr. v. Microlabs reported in (2016) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Bom bay High Court in the case of CIT v. HDFC Bank Ltd., I. T. A. No. 330 of 2012, judgment dated July 23, 2014 - [2014] 366 ITR 505 (Bom)). Whenthe issue is already covered by a decision of the High Court of Bombay with which we concur, we do not find any substantial question of law would arise for consideration as canvassed. 5.10 In the instant case, this specific plea was not raised before the A.O. Therefore, in the light of the judgment of the Hon ble jurisdictional High Court in the case of CIT Anr. v. Microlabs (supra), we restore the case to the A.O. The A.O. shall re-compute the disallowance u/s 14A of the I.T.Act read with Rule 8D(2)(ii) of the I.R.Rules, following the dictum laid down by the Hon ble jurisdictional High Court in the case of CIT Anr. v. Microlabs (supra). 5.11 Therefore, ground No.3 is allowed for statistical purposes. 6. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. 7. To sum up (i) Appeals filed by the Revenue are dismissed. (ii) Assessee s appeal in ITA No.1204/Bang/2018 and 1206/Bang/2018, are dismissed. (iii) Assessee s appeal in ITA No.1205/Bang/2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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