Income Tax Appellate Tribunal - Chennai
Tropical Agrosystem (India) Ltd., ... vs Department Of Income Tax on 30 October, 2014
आयकर अपील य अ धकरण, 'ए' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, CHENNAI
डॉ. ओ.के. नारायणन, उपा य एवं ी वकास अव थी, या यक सद य के सम
BEFORE Dr. O.K. NARAYANAN, VICE PRESIDENT &
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
I.T.A. No. 91/Mds/2012
&
C.O. No. 25/Mds/2012
(In ITA No. 91/Mds/2012)
Assessment Year : 2008-09
The Assistant Commissioner M/s.Tropical Agrosystem
of Income Tax , Vs (India) Ltd.,
Company Circle -III(2), No.72, Marshalls Road,
New Block, 4th Floor, Egmore,
121, Mahatma Gandhi Road, CHENNAI-600 008
Nungambakkam,
CHENNAI [PAN: AAACT 4250 E]
(Appellant) (Respondent/Cross Objector)
Revenue by : Shri Guru Bhashyam, JCIT
Assessee by : Dr.Anita Sumanth, Advocate
सन
ु वाई क तार ख/ Date of hearing : 21-08-2014
घोषणा क तार ख /Date of Pronouncement : 30-10-2014
आदे श / O R D E R
PER VIKAS AWASTHY, J.M:
The appeal is filed by the Revenue against the order of the Commissioner of Income-tax(Appeals)-III, Chennai dated 07-10-2011 for the Assessment Year (AY) 2008-09.
I.T.A. No. 91/Mds/12 &
:- 2 -: C.O. No. 25/Mds/12
The assessee has filed Cross-objections against the same order of Commissioner of Income-tax(Appeals).
2. In appeal, the Revenue has raised five grounds. Ground Nos.1 & 5 are general in nature. Therefore, the three effective grounds raised by the Revenue are as under:
i. Deleting of dis-allowance of `1,75,82,000/- claimed by the assessee as cost of improvement of property; ii. Allowing claim of assessee to the tune of `7.00 Crores for perfecting the title of the property sold; and iii. Deleting of addition made towards expenditure on office renovation.
In the cross-objection, assessee has assailed the findings of Commissioner of Income-tax(Appeals) in confirming addition of `3,42,556/- u/s.14A of the Income Tax Act, 1961 (herein after referred to as 'the Act').
I.T.A. No. 91/Mds/12 &
:- 3 -: C.O. No. 25/Mds/12
3. The facts of the case as emanating from records are as under:
The assessee is engaged in the business of manufacturing of pesticides and chemicals. Apart from the business income, the assessee has earned Short Term Capital Gains from sale of land at Thiruvottiyur. The assessee filed its return of income for the AY.2008-09 on 29-09-2008 declaring an income of `13,11,89,740/-. The case of assessee was selected for scrutiny and notice u/s. 143(2) of the Act was issued to the assessee on 31-08-2009. The Assessing Officer during the course of assessment proceeding made additions/dis-allowances inter alia on account of compensation of `7.00 Crores paid by the assessee in perfecting the title of the property which was sold during the year; Expenditure of `1.75 Crores towards improvement over the land sold during the year; and the Expenditure allegedly incurred towards renovation of office premises. The Assessing Officer held that the expenditure on renovation is capital in nature and allowed depreciation. The Assessing Officer further made dis-allowance u/s.14A r.w.Rule 8D on the investments made by the assessee in shares and debentures.
I.T.A. No. 91/Mds/12 &
:- 4 -: C.O. No. 25/Mds/12
Aggrieved by the assessment order dt.31-12-2010, the assessee preferred an appeal before the Commissioner of Income-tax(Appeals). The Commissioner of Income-tax(Appeals) after examining the documents on record and the submissions of the ld.AR of the assessee held that the expenditure of `1.75 Crores claimed towards improvement of land is deductible while computing the Short Term Capital Gains. Similarly, the payment of `7.00 Crores made for perfecting the title of the property sold during the year was also held to be allowable. On the issue of allowability of expenditure on renovation of office premises, the Commissioner of Income-tax(Appeals) held that the payments made as advance for purchase of iron and steel were received back as no renovation work was undertaken. Therefore, there is no question of treating the said amount either as capital or revenue expenditure. As far as dis-allowance u/s.14A is concerned, the Commissioner of Income-tax(Appeals) confirmed the findings of Assessing Officer by following the judgment of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd., reported as 328 ITR 81 (Bom) Now, the Revenue as well as the assessee have come in appeal and cross-objection I.T.A. No. 91/Mds/12 & :- 5 -: C.O. No. 25/Mds/12 before the Tribunal assailing the concerned findings of the First Appellate Authority.
4. Shri Guru Bhashyam, appearing on behalf of the Revenue submitted that the expenditure of `1.75 Crores alleged towards improvement of property is not an allowable expenditure. The assessee had purchased the property in December, 2005 for `13.80 Crores and within a short span of less than two years, the assessee has sold the property vide four different sale deeds for a total consideration of `37.99 Crores. The assessee in order to reduce Capital Gains has fabricated the documents and claimed expenditure to the tune of `1.75 Crores towards the cost of improvement. The ld.DR pointed out that in Paper Book of the assessee, at page Nos.42 to 45 the order of the District Revenue Officer, Chennai is placed. The District Revenue Officer after inspecting the site has categorically stated in his order that the buildings on the land-in-question are dilapidated due to lack of proper maintenance. The ld.DR further pointed out that in the report it has been stated that there is no lay out, the area being low lying is covered by stagnant water. The property-in-question I.T.A. No. 91/Mds/12 & :- 6 -: C.O. No. 25/Mds/12 was advertised for sale @ `170.83 per sq. ft., even at that rate, no one had come forward to purchase. The ld.DR pointed that the order of District Revenue Officer in proceedings under the Indian Stamps Act, 1899 for valuation of stamp duty is dt.11-01-2007.
Thereafter, the property was sold in the month of May, 2007. The alleged improvement work valuing `1.75 Crores was undertaken during the short span of two months from January, 2007 to March, 2007 which is highly improbable. There is no improvement what- so-ever as claimed by the assessee.
On the issue of expenditure claimed towards perfecting the title, the ld.DR submitted that the assessees was under no obligation to pay `7.00 Crores to M/s.OPG Metals Private Limited, with whom the assessee had initially entered agreement of sale of the land-in-question. The ld.DR draws our attention towards Clause-6 of the Agreement for Sale dt.12th April, 2006, placed on record by the assessee in its Paper Book at page Nos.1 to 8. The ld.DR argued that Clause-6 of the agreement clearly states that, in case the purchaser is unable to fulfill its obligation within the period stipulated in clause-1 and 4, the advance paid by the I.T.A. No. 91/Mds/12 & :- 7 -: C.O. No. 25/Mds/12 purchaser shall stand forfeited and the agreement will stand terminated without any further notice. The vendor shall be at liberty to deal with the schedule property in any manner what-so- ever. Since, the purchaser i.e., M/s.OPG Metals Private Limited, failed to comply with the conditions laid down in the Agreement for Sale, the assessee was at liberty to forfeit the advance received and deal with the property in whatever manner it deemed appropriate. Thus, there was no question of paying any amount of compensation to the vendee for violating the terms of Agreement for Sale. The ld.DR contended that payment of `7.00 Crores for allegedly perfecting the title is nothing but a colourable device to reduce the margin of Short Term Capital Gains.
On the third issue of expenditure incurred on office renovation, the ld.DR contended that the Assessing Officer had categorically stated in his order that the assessee had paid a sum of `1.28 Crores to M/s.Arihanth Steel for the purpose of office renovation and has charged the same to the Profit & Loss A/c. The said expenditure has been incurred for bringing a permanent I.T.A. No. 91/Mds/12 & :- 8 -: C.O. No. 25/Mds/12 change in the office structure. Therefore, it is capital in nature. The assessee is entitled to claim depreciation on the same. 5.1. On the other hand, Dr.Anita Sumanth, appearing on behalf of the assessee controverting the submissions of the ld.DR submitted that the expenditure of `1,75,82,000/- claimed by the assessee towards the cost of improvement of property was not incurred on the buildings in the land-in-question. The said expenditure was towards laying of roads, repairs of compound walls, filling of earth etc., The assessee had maintained all the vouchers of the payments made. All the payments were made through bank accounts of the contractors. The contractors had confirmed the receipt of payments. The assessee while making payments to the contractors had deducted tax at source. The Assessing Officer has not disputed the genuineness of the payments. The ld.Counsel for the assessee referred to the bills raised by M/s.Ankur Construction Company and M/s. Om Sakthi Seetha, Engineering Contractors who had executed the work. The said bills are plced on record at page Nos.61 to 67 of the Paper Book filed by the assessee.
I.T.A. No. 91/Mds/12 &
:- 9 -: C.O. No. 25/Mds/12
5.2. On the issue of payment of compensation for perfecting the title of the land, the ld.Counsel for the assessee submitted that the payment was made to M/s.OPG Metals Private Limited, with whom the assessee had initially entered into an agreement for sale of land. Since, the purchaser failed to comply with the conditions with respect to payment of consideration instalment as specified in the agreement, the assessee invoked the terms of clause-6 of the agreement for terminating the same. However, the purchaser invoked the provisions of Clause-12 of the agreement and insisted for Arbitration and conciliation proceedings. Accordingly, Justice Maruthamuthu (retired) was appointed as conciliator. After series of conciliatory sessions, Settlement Agreement was drawn between the assessee and M/s.OPG Metals Private Limited on 29th November, 2006. According to the agreement, the assessee was required to pay `7.00 Crores to M/s.OPG Metals Private Limited, in lieu of M/s.OPG Metals Private Limited, relinquishing all its rights and claims over the property in dispute. The ld.Counsel for the assessee submitted that the decision to pay `7.00 Crores as compensation was taken in the interest of the assessee-company.
I.T.A. No. 91/Mds/12 &
:- 10 -: C.O. No. 25/Mds/12
The assessee had initially entered into an agreement of sale of property with M/s.OPG Metals Private Limited, for a consideration of `26,69,00,000/-. Whereas, the assessee subsequently sold the property for `37,99,80,000/-. Even after paying `7.00 Crores as compensation, the assessee gained more than `4.00 Crores from the sale of property. Payment of compensation and selling it to the subsequent vendees was purely a business dicision. 5.3. On the third issue raised by the Revenue with regard to expenditure of `1.25 Croes on office renovation, the ld.Counsel for the assessee submitted that the assessee had paid the said amount to M/s.Arihanth Steel as advance for purchase of iron and steel for office renovation. Since, renovation work was not carried out, the aforesaid amount paid was received back next year. The assessee had not debited any expenditure in the Profit & Loss A/c or has claimed any deduction in computing the income. Since no renovation was undertaken, there is no expenditure either Revenue or capital as alleged by the Revenue.
I.T.A. No. 91/Mds/12 &
:- 11 -: C.O. No. 25/Mds/12
5.4. The ld.Counsel submitted that the assessee had filed cross- objections against the findings of Commissioner of Income- tax(Appeals) on the issue of dis-allowance u/s.14A. The Commissioner of Income-tax(Appeals) has failed to take into consideration that investment in shares and debentures were made from assessee's own fund. No expenditure was incurred for earning exempt income. The dis-allowance has been made merely on assumptions.
6. Controverting the submissions of the ld.Counsel for the assessee, the ld.DR submitted that the Assessing Officer made dis-allowance u/s.14A r.w.Rule 8D. The Commissioner of Income-tax(Appeals) has followed the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd., (supra), wherein it has been held that the provisions of Rule 8D are applicable w.e.f. AY.2008-09. The assessee has received a dividend income of `11,618/- during the year. The assessee had investment portfolio to the tune of `1,26,88,410/-. The assessee has not furnished any details to show that the investments in shares and debentures were made out of own funds and not from I.T.A. No. 91/Mds/12 & :- 12 -: C.O. No. 25/Mds/12 borrowed funds. The ld.DR prayed for sustaining the findings of Commissioner of Income-tax(Appeals) on the issue.
7. We have heard the submissions made by the representatives of both the sides at length and also perused the orders of the authorities below, as well as the documents referred during the course of arguments placed in the Paper Book. The Revenue in its appeal has raised three issues.
8. Before proceeding further, we would like to re-capitulate the un-disputed facts in the case. The assessee purchased property measuring 304 grounds and 2032 sq. ft., at Tondiyarpet, Chennai from M/s.Hindustan Lever Ltd., on 12-12-2005 for a consideration of `13.80 Crores. Thereafter, the assessee entered into an agreement for sale of the aforesaid land on 12th April, 2006 with M/s.OPG Metals Private Limited, for a total consideration of `26,29,00,000/-. `10.00 Lakhs was received as advance by the assessee. As per the terms and conditions of the agreement, `5.00 Crores was to be paid by M/s.OPG Metals Private Limited, on or before 30-06-2006 and the remaining amount of I.T.A. No. 91/Mds/12 & :- 13 -: C.O. No. 25/Mds/12 `21,59,00,000/- was to be paid on or before 30-09-2006. On 03-06-2006, M/s.OPG Metals Private Limited, expressed their inability to pay the instalment of `5.00 Crores on or before the date fixed and sought extension of time to comply with the conditions. The assessee vide communication dt.03-07-2006 refused to grant extension and invoked the provisions of Clause-6 of the Agreement to forfeit advance and terminate agreement. M/s.OPG Metals Private Limited, vide letter dt.10-07-2006 invoked Clause-12 of the agreement to settle the dispute between the parties through arbitration and conciliation proceedings. Both the parties agreed to appoint Mr. Justice Maruthamuthu (retired) as conciliator. After series of conciliatory sessions, the dispute was settled and Settlement Agreement dt.29-11-2006 was made. According to assessment, the assessee had to pay `7.00 Crores to M/s.OPG Metals Private Limited, in lieu of M/s.OPG Metals Private Limited, relinquishing its rights and claims over the property-in-question. Simultaneously, proceedings under Indian Stamps Act, 1899 were going on in the office of District Revenue Officer, (Stamps), Chennai for determining stamp duty to be paid by the assessee at the time of purchase of property. In the said I.T.A. No. 91/Mds/12 & :- 14 -: C.O. No. 25/Mds/12 proceedings, the DRO vide order dt.11-01-2007 observed that buildings which are on the property-in-question are dilapidated due to lack of proper maintenance. It is necessary to demolish the buildings. There is no lay out for roads, path way and open space. The area being low had stagnant water. The assessee allegedly incurred expenditure of more than `1.75 Crores on the development of the land. The amount was allegedly spent in connection with filling of earth, repairing compound wall, land leveling, laying of road and drainage work etc. The assessee in order to support its contentions placed on record bills of the contractors who performed the work.
The assessee sold the land to four different parties vide separate sale deeds dt.09-05-2007 for a total consideration of `37.99 Crores. While determining Short Term Capital Gains on sale of property, the assessee claimed `1.75 Crores towards the cost of improvement and `7.00 Crores paid as compensation for perfecting title of the property. Both the aforesaid expenditures have bearing in determining Short Term Capital Gains from the sale of land.
I.T.A. No. 91/Mds/12 &
:- 15 -: C.O. No. 25/Mds/12
9. After considering all the aspects of the case, we proceed to dispose of the issues placed before us. The first issue raised by the Revenue is the question of cost of improvement of `1,75,82,000/- . It is to be seen that the assessee acquired the property in December, 2005 and thereafter, sold the property in May, 2007. The property was under the possession of the assessee only for a period of less than two years. The District Revenue Officer, Chennai had an occasion to study the nature of the property with reference to deciding the value of the property for the purpose of stamp duty. The findings of the District Revenue Officer, Chennai have been consolidated in a report dated 11.01.2007. That is, the said report was made within three months before the sale of the said property in May, 2007. In the said report, the District Revenue Officer, Chennai has clearly stated that the subject property was in a depressed state of condition with no sign of any improvement or work. The District Revenue Officer has stated in his report that the buildings available on the land in question were in a dilapidated condition for want of maintenance and upkeep. He has also stated that the whole property was in a low lying area inundated with stagnant I.T.A. No. 91/Mds/12 & :- 16 -: C.O. No. 25/Mds/12 water. It is clear that it is a water logged property with no visible mark of any activity or improvement. When such finding is available on record, as made out by a competent authority of the State Government, it is not possible to accept the contentions of the assessee only on the grounds of certain technical points. Those technical points highlighted by the assessee are that the payments to the contractors were made through banking channels after deducting tax at source; all the payments were supported by vouchers and the Revenue did not doubt any of such payments made to the contractors. If all these technical arguments of the assessee are to be accepted, the corresponding result should be reflected in the property, as well. In the present case, the said property is dumb and deaf towards the argument of the assessee that an amount of `1,75,82,000/- was spent on improvement of the property. It is the case of the assessee that the amount was spent for not constructing any buildings on the land in question, but towards the improvement of land and property itself. The assessee sought to explain that the expenditure was incurred towards laying of roads, repairs of compound walls, earth filling etc. But the report of the State I.T.A. No. 91/Mds/12 & :- 17 -: C.O. No. 25/Mds/12 Government Officer does not contain any such findings. It is to be further seen that if at all, as argued by the assessee, improvements were made on the landscape of the property, the same should have been made within a short period of three months. This is because, the report of the District Revenue Officer was in January, 2007 and the property was sold in May, 2007. Even if, it might not be impossible, it is highly improbable that the assessee could spend a whopping amount of `1,75,82,000/- within a period of just three months to improve the land-property by earth filling, repairs of compound walls and laying of roads. When the Revenue has alleged a case of "colourable device" against the assessee, there is no reason to treat the technical compliance made by the assessee as the final piece of evidence. The payments to the contractors might have been made through banks. Such bank payments do not establish that the assessee had carried out improvement in the property within the said period of three months. Deduction of tax at source is again technical in nature, where the rate of deduction is far less than the rate of tax. The vouchers prepared by the assessee company are the evidences created by the assessee itself. Those I.T.A. No. 91/Mds/12 & :- 18 -: C.O. No. 25/Mds/12 evidences could be accepted only if the circumstances surrounding the case justify such payments. The incidence of expenditure cannot be inferred only for the reason that the payments were made and supported by vouchers, especially, when there are materials on record to show that no improvement was taken up in the property till January, 2007. When all these circumstances are considered together, we come to an irrefutable conclusion that the claim of the assessee for deducting an amount of `1,75,82,000/- towards the cost of improvement of the property, is not at all acceptable. We agree with the Assessing Officer that this is only a make-believe story. The Commissioner of Income-tax(Appeals) has gone wrong in accepting the contention of the assessee on the basis of certain technical compliances reported by the assessee. He has ignored the vital materials available on record against the assessee. Accordingly, we set aside the order of the Commissioner of Income- tax(Appeals) on this point. The disallowance of ` 1,75,82,000/- made by the assessing authority is restored. This issue is decided in favour of the Revenue.
I.T.A. No. 91/Mds/12 &
:- 19 -: C.O. No. 25/Mds/12
10. Next issue relates to the deductibility of `7.00 crores claimed by the assessee as payment made to M/s. OPG Metals Private Limited to perfect the title of the property and to settle the dispute. The assessee had purchased the property in December, 2005 for a consideration of `13.80 crores and sold the same within a short span of less than two years, in May, 2007 for a consideration of `37.99 crores. Earlier, the assessee had entered into an agreement with M/s.OPG Metals Private Limited. The agreement was executed on 12th April, 2006. As per the said agreement, M/s.OPG Metals Private Limited had an obligation to make periodical payments to the assessee against the consideration. The agreement further stipulates that if M/s.OPG Metals Private Limited fails in fulfilling the obligation cast on it, the assessee could terminate the agreement without a notice and advance paid by M/s. OPG Metals Private Limited could be forfeited. When M/s. OPG Metals Private Limited failed in paying the agreed instalments, the assessee invoked the conditions stated in clause-6 of the agreement and sought to terminate the agreement. But the other party, M/s. OPG Metals Private Limited invoked clause-12 of the agreement and insisted that the matter I.T.A. No. 91/Mds/12 & :- 20 -: C.O. No. 25/Mds/12 be referred to arbitration and conciliation proceedings. The assessee agreed to this proposition. The matter was referred to Justice Maruthamuthu (retired), who was appointed as Conciliator. Finally as a conclusion of the conciliation proceedings, an agreement was executed on 29-11-2006, for settling the dispute between the assessee and M/s. OPG Metals Private Limited. As per the said agreement, the assessee had to pay `7.00 crores to M/s.OPG Metals Private Limited in settlement of all claims against the property. It is in the light of the above agreement that the assessee has claimed a deduction of `7.00 crores in computing short term capital gains on the ground that the said amount was paid to M/s.OPG Metals Private Limited for perfecting the title of the property.
11. This claim of deduction of `7.00 crores was disallowed by the assessing authority stating that it was only a purposeful adjustment made by the assessee to reduce the incidence of tax on short term capital gains. As per the sale agreement dated 12th April, 2006, the sale consideration was ` 26.69 crores. `10.00 lakhs was paid as advance to the assessee. As per the I.T.A. No. 91/Mds/12 & :- 21 -: C.O. No. 25/Mds/12 agreement, M/s. OPG Metals Private Limited had to pay `5.00 crores as part of consideration on or before 30-06-2006. M/s. OPG Metals Private Limited has expressed its inability to pay the said amount and this was communicated on 03-06-2006. At this point of time, the assessee invoked Clause-6 of the agreement dated 12th April, 2006 and sought to cancel the agreement on 03-07-2006. Thereafter, M/s.OPG Metals Private Limited invoked arbitration clause on 05-07-2006. Immediately on 07-07-2006, the assessee agreed to arbitration and conciliation proceedings. Mr. Justice M. Maruthamuthu was appointed as Conciliator, on 28-07-2006. Conciliatory proceedings were initiated on 10-08-2006. The parties came to an agreement on 29-11-2006, by which the assessee had to pay `7.00 crores to M/s. OPG Metals Private Limited in view of relinquishing its rights and claims over the property. The Assessing Officer referred to the speed in which all these events happened within a span of 7 months. Finally, the assessee shouldered itself a liability of `7.00 crores. The Assessing Officer has held that as per the agreement, the assessee had no obligation to make any such payment to M/s.
OPG Metals Private Limited. He also pointed out that the
I.T.A. No. 91/Mds/12 &
:- 22 -: C.O. No. 25/Mds/12
assessee could have even forfeited the advance amount of `10.00 lakhs. When the assessee was not at all under any legal obligation to pay any compensation to M/s. OPG Metals Private Limited, the payment of `7.00 crores was stated to be made by the assessee only for the purpose of reducing the tax incidence.
12. On the other hand, the crucial contentions of the assessee are that the settlement agreement under conciliation proceedings is akin to arbitration award u/s.30 of Arbitration and Conciliation Act and, therefore, the agreement was binding on the assessee. The assessee explained that the award is executable as a decree of Civil Court and therefore, the assessee was under an obligation to pay `7.00 crores to M/s.OPG Metals Private Limited. It is also the case of the assessee that the Revenue never questioned the genuineness of conciliatory proceedings.
13. On going through the chronology of events and surrounding circumstances of the case, we find that the Commissioner of Income-tax(Appeals) has erred in accepting the contention of the assessee only on the basis of conciliation proceedings settled I.T.A. No. 91/Mds/12 & :- 23 -: C.O. No. 25/Mds/12 before retired Justice Maruthamuthu. It is true that a settlement arrived at under conciliation proceedings is similar to an arbitration award u/s.30 of Arbitration and Conciliation Act. It is also true that arbitration award is executable as a decree of the court. As per the terms of sale agreement, the assessee was in a position to terminate the sale agreement. M/s. OPG Metals Private Limited failed to make the payment in installment as envisaged in the agreement. Therefore, law permits the assessee to withdraw from the agreement. In spite of such a better legal position in favour of the assessee, the assessee has jumped into conciliation proceedings immediately after the notice from M/s. OPG Metals Private Limited. The sequence of these events reasonably take us to a possible conclusion that the conciliation proceedings were the result of a premeditated plan. The amount of ` 7.00 crores paid through bank is not the crucial test in the present case. The conciliation agreement would be binding on the assessee, but that is not the question exactly here. The question is, why the assessee opted for conciliatory proceedings. That question was never answered by the assessee. That is the primary issue to be investigated. This was I.T.A. No. 91/Mds/12 & :- 24 -: C.O. No. 25/Mds/12 done by the assessing authority. The Commissioner of Income- tax(Appeals), on the other hand, ignored this crucial aspect and relied on conciliation proceedings. The Commissioner of Income- tax(Appeals), while concentrating on conciliatory agreement, has not examined whether the conciliatory proceedings were not at all necessary or not.
14. Even if, all these things are taken as a prudent business decision adopted by the assessee, still the issue cannot be decided in favour of the assessee only on the ground of conciliation proceedings concluded in the presence of retired Justice. The sale agreement and thereafter, conciliation agreement are all matters of private arrangements between the assessee and M/s. OPG Metals Private Limited. Unless and until these agreements and consequential actions of the parties inspire some amount of confidence acceptable to an ordinary man of reasonable prudence, it is not possible to accept the contention of the assessee that the amount of `7.00 croes was paid for perfecting the title of the property.
I.T.A. No. 91/Mds/12 &
:- 25 -: C.O. No. 25/Mds/12
15. We agree with the Assessing Officer that this is a planned colourable device attempted by the assessee to minimize the incidence of tax arising out of the sale of the property. The Commissioner of Income-tax(Appeals) has overlooked the pith and substance of the case and relied only on technical aspects like payments through bank, agreement of sale, conciliatory agreement etc. It is not possible to accept the argument of the assessee that `7.00 crores was paid for perfecting the title of the property. Therefore, the disallowance of `7.00 crores made by the assessing authority is restored and the order of the Commissioner of Income-tax(Appeals) is set aside. This issue is decided in favour of the Revenue.
16. The next ground raised by the Revenue in its appeal is with regard to expenditure of `1.28 Crores on office renovation. The Commissioner of Income-tax(Appeals) in his order has clearly stated that the amount paid to M/s.Arihanth Steel as advance towards the purchase of iron and steel for renovation of office premises during the period between 12-12-2007 and 16-02-2008 has been received back by assessee during the period 26-05-
I.T.A. No. 91/Mds/12 &
:- 26 -: C.O. No. 25/Mds/12
2008 to 24-12-2008. Both the payments and re-payments have been made through bank account of the assessee maintained with Indian Overseas Bank. Thus, no amount was spent on renovation of the building. Therefore, there is no question of allowing the expenditure of `1.28 Crores either as revenue or capital. Therefore, this ground of appeal of the Revenue is dismissed.
17. The assessee in its cross-objections has assailed the findings of Commissioner of Income-tax(Appeals) with regard to dis-allowance u/s.14A. The Assessing Officer has made dis- allowance of `3,42,556/- by applying Rule 8D(ii)(iii). The assessee during the year has received dividend income of `11,618/-. The assessee has an investment portfolio in shares and debenditures to the tune of `1,26,88,410/-. The stand of the assessee is that investments in shares and debentures have been made from own fund and not from borrowed funds. However, nothing has been placed on record to show that the investments have been made from assessee's own funds alone. The assessee has not made dis-allownace u/s.14A on its own in I.T.A. No. 91/Mds/12 & :- 27 -: C.O. No. 25/Mds/12 earning dividend income. We do not find any infirmity in the order of Commissioner of Income-tax(Appeals) in confirming dis-allowance u/s.14A. The cross objections of the assessee are accordingly dismissed.
18. In result, appeal of the Revenue is partly allowed and the cross-objections of the assessee are dismissed.
Order pronounced on Thursday, the 30th October, 2014 at Chennai.
Sd/- Sd/-
(डॉ. ओ.के. नारायणन) ( वकास अव थी)
(Dr. O.K. NARAYANAN) (VIKAS AWASTHY)
उपा य /VICE PRESIDENT या यक सद य/JUDICIAL MEMBER
चे नई/Chennai,
दनांक/Dated: 30th October, 2014
TNMM
आदे श क त ल प अ े षत/Copy to:
1. अपीलाथ /Appellant 2. यथ /Respondent
3. आयकर आयु त (अपील)/CIT(A) 4. आयकर आयु त/CIT
5. वभागीय त न ध/DR 6. गाड फाईल/GF