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TMI Blog2019 (8) TMI 1835X X X X Extracts X X X X X X X X Extracts X X X X ..... tion i.e. IPO expenses is not relevant when it comes to a case of abandoned project like the present one. Therefore, we are of the opinion, the ground no.2 raised by the assessee should be allowed. Deemed dividend addition u/s 2(22)(e) - Correctness of invoking the provisions of section 2(22)(e) - HELD THAT:- As the entire accumulated reserves of (i) M/s Riverview Properties Pvt. Ltd. and (ii) M/s Khiranagar Development Pvt. Ltd. are nothing but the share premium. The same is outside the scope of the accumulated reserves within the meaning of section 2(22)(e) of the Act. Thus, in the absence of eligible reserves and surplus with the payer companies, the provisions of section 2(22)(e) of the Act are not correctly invoked by the Assessing Officer in this case. From this point of law, Assessing Officer/CIT(A) are not correct in making the addition u/s 2(22)(e) of the Act. Accordingly, the relevant ground no.3 and additional ground no.1 1.1 are allowed in favour of the assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- Disallowance made by the assessee in connection with the clause (ii) of Rule 8D(2) of the Rules. Regarding the Rule 8D(2)(iii), we find same again stands in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) erred in sustaining the addition of Rs.14,33,719/- made by the Assessing Officer on account of bank interest on deposits belonging to the Society. 2. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of business expenditure of Rs.3,66,34,133/- reflected separately as 'Exceptional Items'. 3. The ld. Commissioner of Income Tax (Appeals) erred in upholding the disallowance by treating the amount Rs.2,38,60,653/- of advance of as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961. 4. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the figure of average of total assets at Rs.406,56,33,364/- instead of at Rs. 614,75,23,172/- while working out the disallowance u/s 14A r.w.r. 8D. 5. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of interest at Rs.10,52,27,421/- u/s 36(1)(iii). 6. For these and such other grounds as may be urged at the time of hearing, the order of the CIT (Appeals) and the assessing officer may be vacated and the appellant's claim may be allowed or any suitable directions issued. 7. The appellant craves leave to add, alter, delete or substitute any or all grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance on account of ITS Mismatch 14,33,719 4. Disallowance on account of Exceptional Items 3,66,34,133 5. Disallowance u/s 2(22)(e) 2,38,60,653 6. Disallowance u/s 14A r.w. rule 8D 6,66,81,493 7. Disallowance of interest on account of diversion of borrowed fund for non- business consideration 12,47,34,986 8. Disallowance u/s 37 of the Act [26,54,82,375] 25,33,44,984 Assessed Total Income 9,10,71,309 Rounded off to 9,10,71,310 4. The matter travelled to the First Appellate Authority against the disallowances/additions made by the Assessing Officer. The CIT(A), after detailed discussions, partly allowed the appeal of the assessee. 5. Aggrieved with the above partly decision of the CIT(A), the Revenue as well as the assessee are in cross appeals with the above extracted respective grounds of appeal. 6. First, we shall take up the appeal of the assessee for adjudication. ITA No.2175/PUN/2016 - By Assessee 7. Ground no.1 relates to the addition of Rs.14,33,719/- on account of bank interest on deposits belonging to the society. 8. On this issue, ld. Counsel for the assessee submitted that an identical issue came up for adjudication before the Tribunal for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. Accordingly, the grounds raised by the assessee on this issue are dismissed." Thus, in view of statement made by ld. AR and the decision of Coordinate Bench, ground No. 3 raised in the appeal by assessee is dismissed." 10. Thus, the contention of the assessee that the "interest income" accrued on the deposits of the society is not taxable in the hands of the assessee, stands rejected by the Tribunal over the years. Considering the above written submission on this issue on hand and the order of the Tribunal in assessee's own case for the assessment year 2010-11 (supra) on the identical issue, we are of the opinion, the issue raised by the assessee in ground no.1 should be dismissed. Accordingly, the ground no.1 raised by the assessee is dismissed. 11. Ground no.2 relates to the sustaining the disallowance of business expenditure shown as 'Exceptional Items'. 12. Before us, ld. AR filed written submission and relevant paras are extracted as under :- "2] Ground No. 2 - Disallowance of Rs.3,66,34,133/- : Disallowance on account of exceptional items - 2.1] This issue has been discussed by the learned A.O. in paras 4 - 4.2 of the order. The assessee had debited an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the expenditure as the details were already furnished and accepted by the Assessing Officer on its merits. He further submitted that most of the payments were incurred towards the deposits and processing fee paid to the agencies and government bodies. According to ld. AR, no fixed assets like land or building etc were purchased. In the light of the undisputed fact of genuineness of expenditure, the only issue of adjudication by the Tribunal relates to the applicability of the said Hon'ble Supreme Court judgement in the cases of (i) Brooke Bond India Ltd. (supra) and (ii) Punjab State Industrial Development Corporation Ltd. (supra). In this regard, ld. Counsel submitted that these judgements are not applicable to the facts of the present case. Highlighting the facts of the present case, ld. Counsel submitted that an identical issue came for adjudication before the Jurisdictional High Court in the case of Idea Cellular Ltd. (supra). The said judgment is relevant for the legal proposition that where new cellular towers were constructed by cellular operator in addition to existing tower and no new business was set up, when the project was abandoned, the expenditure so far incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIFIED TRUE EXTRACT OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF KUMAR URBAN DEVELOPMENT LIMITED HELD ON TUESDAY, 29TH MARCH, 2011 AT 12.00 NOON AT THE OFFICE OF THE COMPANY AT TARDEO NO.7, GROUND FLOOR, SURYODAYA ESTATES, TARDEO ROAD, MUMBAI. The Chairman informed the Board that the company had filed Draft Red Herring Prospectus and Red Herring Prospectus before SEBI and Bombay Stock Exchange during the period September, 2009 and May 2010. In view of the negative and volatile market conditions, the company had deferred the proposed issue of Shares and conveyed the same to the multiple agencies involved in the exercise. However, having waited for a reasonable period and the changing model of funding of Real Estate companies through private equity in Special Purpose Vehicle and Subsidiaries implementing the project rather than funding through the holding company. The Company noted the following- a) Public exposure derived by various advertisements and initiatives including net working with financial intermediaries, corporate lawyers and solicitors. b) Market exposure in view of indirect involvement through the above agencies as well as merchant bankers. c) Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding that the said expenditure was incurred for expansion of capital base to meet the requirement of long term funds for its working capital. The CIT(A) relied on heavily on the Hon'ble Supreme Court judgement in the cases of (i) Brooke Bond India Ltd. vs. CIT, 225 ITR 798 (SC) and (ii) Punjab State Industrial Development Corporation Ltd. vs. CIT, 225 ITR 792 (SC). The contents of para 6 to 6.5 of the order of the CIT(A) are relevant. 22. Further, we find it relevant to extract the legal propositions on the topic. (a) CIT v. Idea Cellular Ltd. [76 taxmann.com 77 com (Bom)]: "Where new cellular towers were constructed by cellular operator in addition to existing tower and no new business was set up, if project was abandoned, expenditure so far incurred would be allowed as business expenditure." (b) Binani Cement Ltd. v. CIT [60 Taxmann.com 384 (Cal)]: "Expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of assessee's business." (c) Lawkim Ltd. v. JCIT [1 SOT 907 (Mum)]: "Assessee-company engaged in manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder of Riverview Properties Pvt. Ltd. According to him, Riverview Properties Pvt. Ltd. had accumulated reserves to the tune of Rs.35,07,69,275/-. Accordingly, the loan taken by the assessee is being taxed as deemed dividend u/s 2(22)(e). The learned CIT(A) has confirmed the said addition. The relevant discussion is in para 7 to 7.7 of his order. 3.2] The assessee submits that the addition made is not justified. The balance sheet of Riverview Properties Pvt. Ltd. is given on pages 68 to 94 of the paper book. The accumulated reserves of Rs.35,07,69,275/- considered by the learned A.O. are on account Account of Share Premium . There are no free reserves in the balance sheet of Riverview Properties Pvt. Ltd. The relevant schedule 2 is on page 77 of the paper book. 3.3] The assessee has raised an additional grounds of appeal wherein it has raised an issue that share premium cannot be considered as part of accumulated reserves. For this proposition, the assessee has placed reliance on the following decisions - a. CIT v. Shree Balaji Glass Manufacturing P. Ltd. [72 taxmann.com 118 (Cal)] b. CIT v. Mahesh Chandra Manti [61 taxmann.com 101 (Cal)] c. Dy. CIT v. MAIPO India L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mulated profits" 28. Thus, the entire accumulated reserves of (i) M/s Riverview Properties Pvt. Ltd. and (ii) M/s Khiranagar Development Pvt. Ltd. are nothing but the share premium. The same is outside the scope of the "accumulated reserves" within the meaning of section 2(22)(e) of the Act. Thus, in the absence of eligible reserves and surplus with the payer companies, the provisions of section 2(22)(e) of the Act are not correctly invoked by the Assessing Officer in this case. From this point of law, Assessing Officer/CIT(A) are not correct in making the addition u/s 2(22)(e) of the Act. Accordingly, the relevant ground no.3 and additional ground no.1 & 1.1 are allowed in favour of the assessee. 29. Ground no.4 and additional ground no.2 - 2.3 relate to the disallowance u/s 14A of the Act. 30. On this issue, ld. Counsel for the assessee filed the following written submission :- "4] Ground No.4 and Addl. Ground No.2 - 2.3 : Disallowance u/s 14A - 4.1] The assessee company had earned exempt income during the year consideration. In the return of income, the assessee had suo-muto made a disallowance u/s 14A of Rs.10,29,73,809/-. This comprised of interest amounting to Rs. 9,39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the year under consideration. The relevant details of the exempt income are given on pages 95 - 96 of the paper book. The assessee submits that the investments which did not yield any exempt income should be excluded while working the disallowance of indirect expenditure under rule 8D(iii). The view has been taken by Hon'ble ITAT in the assessee's own case for the earlier years. 4.7] Accordingly, the assessee submits that the investments which did not yield exempt income should be excluded while working out the disallowance u/s. 14A r.w.r. 8D." 31. From the above, it is evident that the issue now stands covered in favour of the assessee by virtue of the fact that the assessee has adequate interest free funds to take care of the investments made by the assessee which yielded exempt income. We proceeded to extract the relevant para 12 from the order of the Tribunal in assessee's own case for the assessment year 2010-11 (supra) and the same are as under:- "12. In additional grounds of appeal the assessee has sought deletion of suo-moto disallowance u/s. 14A made by the assessee. The assessee has given list of group companies/partnership firms (at page 83 of the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricted the disallowance to Rs.10,52,27,421/- and granted relief of Rs.1,95,07,565/-. Considering the part relief, both Revenue and assessee are in appeal before us. 34. On this issue, in appeal of the assessee, the ld. Counsel for the assessee submitted that this issue is now covered and furnished following submissions :- "5] Ground No. 5 - Disallowance u/s 36(1)(iii) of Rs.10,52,27,421/- : 5.1] This issue has been discussed by the learned A.O. in para 7 to 7.5 of his order. According to him, the assessee had interest free funds to its sister concerns and on the other hand, assessee had paid interest on the funds borrowed by it. According to the A.O., the assessee has diverted borrowed funds for non business purposes and he has worked out the disallowance of interest of Rs.12,47,34,896/-. 5.2] The learned CIT(A) has discussed this issue in paras 9 to 9.7 of his order. He has held that the assessee had diverted the interest bearing funds for non business purposes. However, he has worked out the average amount of advances given to sister concerns at Rs.87,68,95,178/- and on the said amount he has worked out the disallowance of interest @ 12% amounting to Rs. 10,52,27,421/- as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. AR pointed that peak amount advanced by the assessee to two group concerns Kumar Housing Corporation Ltd. and Kumar Sinew Developers Pvt. Ltd. is Rs.108.82 crores. As against this the assessee has own interest free funds including share capital and reserves of Rs.217.93 crores. We find that in assessment year 2009-10 the Coordinate Bench of the Tribunal by placing reliance on the decision of Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd. reported as 313 ITR 340 and the decision of Pune Bench of the Tribunal in the case of Trinity India Ltd. Vs. DCIT in ITA No. 666/PN/2012 decided on 28-08- 2013 deleted the additions. The ld. DR has failed to controvert the findings of Co-ordinate Bench in assessee's own case in immediately preceding assessment years on the same set of facts. We find no reason to take a contrary view when the facts are identical and are not disputed. Accordingly, we direct the Assessing Officer to delete disallowance made u/s. 36(1)(iii) of the Act. Accordingly, ground No. 4 raised in the appeal by assessee is allowed." 36. Considering the above written submission on this issue, existence of e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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