Income Tax Appellate Tribunal - Delhi
Dlf Assets Pvt. Ltd., New Delhi vs Department Of Income Tax on 27 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'F' NEW DELHI)
BEFORE SMT DIVA SINGH, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.126/Del/2013 &
I.T.A. No. 4761/Del/2012
Assessment year : 2008 -09 & 2009-10
DCIT, DLF Assets Pvt. Ltd.
Circle-10 (1), 1-E, Naaz Cinema Complex,
New Delhi. V. Jhandewalan Extn,
New Delhi.
(Appellant) (Respondent)
PAN /GIR/No.AACCD
/GIR/No.AACCD-
AACCD-4923-
4923-A
Appellant by : Dr.Sudha Kumari, CIT-DR.
Respondent by : Shri Pradeep Dinodia &
Shri RK Kapoor, C.A.
ORDER
PER BENCH;
These appeals were earlier heard on 23.8.2013 which were re- fixed for certain clarification and were finally heard on 10.1.2014. These are two appeals filed by the revenue against the two separate orders of Ld CIT(A) which were passed on 26.10.2012 and 4.6.2012 respectively. The revenue has taken two grounds of appeal in assessment year 2008-09 whereas in assessment year 2009-10 the revenue has taken three grounds of appeals. Ground No.1 & 2 of assessment year 2008-09 and ground No.1 & 3 in assessment year 2009-10 are similar grounds. The only difference is the amount. For the 2 ITA No126 & 4761/Del/2013 & 2012 sake of convenience, grounds of appeals in assessment year 2009-10 are reproduced below:-
Assessment Assessment year: 2009- 2009-10:
1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in restricting the disallowance to `.18.75 lakhs as against the disallowance of `.20.17 lakhs worked out by the Assessing Officer as per the provisions of section 14A of the Income Tax Act, 1961 read with Rule 8D of the IT Rules.
2. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the adjustment of disallowance u/s 14A of the Income Tax Act, 1961 amounting to `.20,17,000/- in the book profit calculation u/s 115JB of the IT Act, 1961 made by the Assessing Officer.
3. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the adjustment of a sum of `.1,40,76,35,917/- in the book profit u/s 115JB of the IT Act, 1961 which has not been claimed as income derived from operations & maintenance of SEZ by assessee.
4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing.
2. The brief facts of the case are that the assessee company is engaged in the business of real estate and other allied activities. In the year 2008-09 the Assessing Officer disallowed an amount of `.27,24,000/- u/s 14A as expenses pertaining to earning of exempt income. The amount of disallowance in the year 2009-10 was `.20,17,000/-. The second common addition made in both the years was on account of refusal of Assessing Officer to exclude the income 3 ITA No126 & 4761/Del/2013 & 2012 earned by the assessee from SEZ business for the purpose of calculation of profit u/s 115JB of the Act. The operative part of Assessing Officer for making disallowance is contained in para 5.3 of the assessment order for the year 2008-09n which is reproduced below:-
"Regarding income of `.1,85,,48,545/- allegedly on account of operation and maintenance of SEZ. It is not worthy that the assessee has not made any claim for deduction u/s 80IAB of the IT Act. This may presumably be on account of the fact that as per its revised computation of income, the gross total income is a loss. Notwithstanding the same if the assessee is claiming that income accruing to it on account of operation and maintenance of SEZ is to be excluded, it has to bring on record all facts and documents in support of such claim. The assessee has not filed Form No.10CCB which is required to be filed for claiming deduction u/s 80IAB. Further the claim of the assessee for claiming deduction u/s 80IAB is yet to be determined and shall remain part of book profit for computing the tax liability u/s 115JB."
3. The third disallowance made by the Assessing Officer in assessment year 2009-10 was on account of calculation of book profit u/s 115JB. The Assessing Officer has added back disallowance u/s 14A for the purpose of calculation of book profit.
4. Dissatisfied with the order of Assessing Officer the assessee filed appeals before Ld CIT(A) and Ld CIT(A) reduced the disallowance u/s 14A by excluding interest expense and further deleted the disallowance made in respect of calculation of book profit and also 4 ITA No126 & 4761/Del/2013 & 2012 gave relief to the assessee on account of exclusion of SEZ income from the total income for the purpose of calculation u/s 115JB of the Act. The operative part of Ld CIT(A)'s order for reducing disallowance u/.s 14A for assessment year 2008-09 is reproduced below:-
"I have considered the submission filed by the appellant, observation of the Assessing Officer and various case laws relied upon by the appellant in this regard. On verification of balance sheet of the appellant, it is seen that appellant has paid up share capital of `.2563.87 crores during the year which is free from interest as against this appellant has made investment of `.75 crores in the unit of Mutual Funds. It is also seen that investment of `.24 crores were made in earlier years and during the year investment of `.51 crores were made. It is also seen from the balance sheet that appellant has shown interest income of `.118.12 crores as against that appellant has shown interest payment of `.1.21 crores. Therefore, the appellant had enough non interest bearing funds for making investment in Mutual Funds, hence, no interest can be attributed for earning exempt income and no interest expenditure requires to be disallowed for earning exempt income.
The findings of Ld CIT(A) in assessment year 2009-10 are reproduced below:-
"Considering the above, the Assessing Officer has applied and disallowance of `.20,17,000/- has been worked out. However, as discussed above the appellant has invested in Mutual Funds out of own funds therefore no interest for making investment calls for disallowance as per provisions of section 14A read with Rule
5 ITA No126 & 4761/Del/2013 & 2012 8D. However, the investment is not a passive activity and expenses on management and administration of investment are embedded in the expenses debited to P&L A/c during the year, hence 0.5% of the average investment has to be worked out being expenses incurred on management and administration of investments made by the appellant. During the year, the average investment works out at `.37.5 crores and 0.5% of the same works out at `.18.75 lakhs which is considered as expenses incurred for earning exempt income. Therefore, the disallowance is restricted to `.18.75 lakhs, as a result appellant gets a relief of `.1,42,000/-."
5. The second common disallowance was deleted by the Ld CIT(A) by holding as under:-
"I have considered the submissions of the appellant, observation of the Assessing Officer and provisions of the Act. It is seen that the appellant is a Co-Developer of the SEZ projects and it has received income from SEZ operations. The provisions laid down in sec. 80IAB of the Income Tax Act, 1961 provide that the deduction is admissible for 10 consecutive assessment years in a span of 15 years at the option of the assessee. The appellant has not yet exercised its option to claim the deduction admissible to it u/s 80IAB and the same is required if the deduction is claimed under that section. Since the deduction was not claimed, the report as stated by the Assessing Officer was not required to be filed.
The appellant claimed that its only source of income is income from operation and maintenance of SEZ projects. The appellant
6 ITA No126 & 4761/Del/2013 & 2012 has contended that the operation of sec. 115JB (6) of the Income Tax Act, 1961 is independent of the provisions contained in the section 80IAB of the IT Act. The provisions of sec., 115JB(6) clearly state that the provisions of sec. 115JB shall not apply to the income accrued or arising on or after the Ist day of April, 2005 from any business on or services rendered by an entrepreneur or a developer in a unit or special economic zone as the case may be. In a way the provisions of sub section 15JB are a complete code in itself and are independent of any other sections.
Reference was also made to the audit report filed during the course of assessment order, copy of which has also been filed before me. The Ld AR has submitted that the auditor also has considered the income as SEZ income and has reduced the same from the book profit in view of the provisions of section 115JB (6).
The provisions of sec. 115JB (6) are very clear and the income from the development and maintenance of SEZ project is not to be included for working out of book profits. I agree with the submissions of the appellant that such adjustment is also not provided in explanation contained in section 115JB which provide for certain additions and subtractions from the profit shown in the P&L Account.
I, therefore, hold that income of the appellant is from SEZ operations and not to be included from working of book profit u/s 115JB. The appellant gets a relief of `.1,85,48,545/- for working out the book profit u/s 115JB."
7 ITA No126 & 4761/Del/2013 & 2012 Similar findings were made in the assessment year 2009-10.
6. The third disallowance was deleted by the Ld CIT(A) by relying upon the Hon'ble Supreme Court judgment in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273. The operative part of Ld CIT(A)'s order is reproduced below:-
"I have considered the submissions of the appellant and the case laws relied upon by the appellant in this regard of Hon 'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (2002) 255 ITR 27, (SC) wherein the Court has held that Assessing officer while computing the income under section I15 JB of the Income-tax Act, 1961 has no power of examining the books of accounts by going behind net profit shown in the profit and loss account, except to the extent provided in the' Explanation to Section 115 JB, duly certified by the authorities under the Companies Act which is as under:
"8. xxxxxxx If we examine the said provision in the above background, we notice that the use of the words" in accordance with the provisions of Part II and III of Schedule VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company. an assessing officer under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company 8 ITA No126 & 4761/Del/2013 & 2012 in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the assessing officer to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion reliance placed by the Revenue on Sub-section (1 A) of Section 115-J of the IT Act in support of the above contention is misplaced. Sub- section (1A) of Section 115-J does not empower the assessing officer to embark upon a fresh inquiry in regard to the entries made in the hooks of account of the company. The said sub- section. as a matter of fact mandates· the company to maintain its account in accordance with the requirements or the Companies Act which mandate. According to us is bodily lifted from the Companies Act into the IT /\ct for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers the authority under the Income-tax Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of Section 115-J of the Act then it should be that income which is acceptable to the authorities under the Companies Act. There can not be two incomes one for the purpose of Companies Act and another for the purpose of income tax both maintained under the same Act.
9 ITA No126 & 4761/Del/2013 & 2012 If the legislature intended the assessing officer to reassess the company's income, then it would have stated in Section 115J that 'income of the company as accepted by the Assessing Officer. In the absence of the same and on the language of Section 115J, it will have to held that view taken by the tribunal is correct and the High Court has erred in reversing the said view of the tribunal.
9. Therefore, we are of the opinion. the assessing officer while computing the income under Section 115J has only the power of examining whether the books of account arc certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section I J 5-J."
In view of the above the action of the Assessing Officer of adding `.20, 17,000/- in the book profit calculated u/s 115JB of the I.T.. Act was not correct. For working out book profit adjustment can be made to the book profit as per the explanation 1 to sub- section 2 of section 115JB and no adjustment beyond that can be made. Therefore the adjustment made by the Assessing Officer in the book profit of RS.20, 17,000/- is deleted.
7. Aggrieved, the revenue is in appeal before us.
10 ITA No126 & 4761/Del/2013 & 2012
8. At the outset, with regard to ground No.3, the Ld DR submitted that these submissions were not submitted to Assessing Officer and in support relied upon para 3 of assessment order and argued that since no complete details were provided, the Assessing Officer was justified in making disallowance of common interest as well as expenses. Arguing second ground of appeal which is also third ground of appeal in assessment year 2009-10 the Ld DR submitted that before Assessing Officer no details were there as to which income was from SEZ and which was not from SEZ. Therefore, the Assessing Officer was justified in excluding the alleged SEZ income from the calculation of profit u/s 115JB. It was further submitted that section 115JB is a complete code in itself and Assessing Officer made the addition for the purpose of section 115JB as the assessee had not claimed deduction u/s 80IAB of the Act.
9. Regarding the second ground of appeal in assessment year 2009-10, the Ld DR submitted that disallowance u/s 14A has to be considered and has to be added back to the profit as per P&L Account as it is specifically covered by the clause (f) of Explanation-1 to section 115JB of the Act and in this respect our attention was invited to Explanation-1 to section 115JB and in view of this it was argued that Ld CIT(A) has wrongly given the relief to the assessee on this account.
10. While defending the Ld CIT(A)'s order the Ld AR invited our attention to ld CIT(A)'s order with respect to disallowance u/s 14A and submitted that Assessing Officer himself had held that there was no direct expenditure as contained on page 5 of assessment order. He further argued that Ld CIT(A) has very rightly reduced the amount of interest from the calculation of disallowance as per Rule 8D as the assessee had sufficient interest free funds which is apparent from the findings of Ld CIT(A) in which he has held that instead of interest 11 ITA No126 & 4761/Del/2013 & 2012 expense, the assessee had earned net interest income. Defending 2nd & 3rd ground for assessment year 2008-09 & 2009-10 the Ld AR invited our attention to the provisions of clause (6) to sec. 115JB which specifically exempted the income of SEZ for the purpose of calculation of book profit u/s 115JB of the Act. To a query from the Bench as to whether the developer includes Co-developer, our attention was invited to the section 2 of SEZ Act, 2005 which contained the definition of developer and which included a co-developer also. Our attention was also invited to Explanation provided in section 80IAB for the proposition that for the purpose of this section developer and SEZ shall have the same meaning as assigned to them in clauses (g) and (za) of SEZ Act, 2005. Regarding claim of the Assessing Officer that assessee had not claimed deduction u/s 80IAB it was argued that assessee was free to claim the deduction u/s 80IAB for 10 consecutive assessment years out of a period of 15 years beginning from the year in which SEZ was notified by the Central Govt. and in this respect our attention was invited to the provisions (1) & (2) of section 80IAB. Therefore, in view of the above circumstances the Ld AR submitted that Ld CIT(A) has rightly given the relief.
11. Regarding ground No.2 in assessment year 2009-10 the Ld AR submitted that Ld CIT(A) was rightly given the relief relying upon the order of Hon'ble Supreme Court in the case of Apollo Tyres Ltd., (supra). He further argued that under similar circumstances the Hon'ble Tribunal has decided the matter in favour of the assessee in I.T.A. No. 410/Del/ vide order dated 27th November, 2009 and our specific attention was invited to para 6 of the said order and in view of the above, it was argued that the matter is duly covered in favour of assessee and therefore, the ground of appeal taken by revenue needs to be dismissed.
12 ITA No126 & 4761/Del/2013 & 2012
12. We have heard the rival submissions of both the parties and have gone through the material available on record. These appeals were earlier head on 23.8.2013. However, while dictating the order, it was observed that ground No.2 in assessment year 2009-10 was not argued therefore the appeals were refixed for clarifications and was finally heard on 10.1.2014. Regarding disallowance u/s 14A we find that assessee had sufficient interest free funds which it had invested in mutual funds and moreover the assessee instead of incurring expenditure in the form of interest has earned income and therefore Ld CIT(A) has rightly deleted the interest component from the disallowance of Rule 8D. The Ld CIT(A) has very elaborately held that assessee had sufficient interest free funds and therefore we do not find any infirmity in the order of Ld CIT(A). Therefore, ground No.1 in both the years is dismissed.
13. Regarding ground No. 2 in assessment year 2009-10 we find that the provisions of clause (g) to section 115JB refers to the amount of expenditure incurred for earning exempt income which has to be added back to the profit as per P&L A/c for the purpose of calculation of book profits u/s 115JB. However, we further find that for the purpose of making addition of such expenses to profits for the purpose of section 115JB first requirement is that amount of expenditure should have been debited in the P&L A/c. This requirement is contained in the section itself. In the present case, the disallowance was made on notional basis under section 14A and therefore Ld CIT(A) has rightly following the order of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) has deleted the disallowance. Moreover, the Hon'ble Tribunal in I.T.A. No. 410/Del/ dated 27th November, 2009 followed the same. The findings are contained in para 6 of this order whicy are reproduced below:-
13 ITA No126 & 4761/Del/2013 & 2012 "Coming to the sustenance of disallowance of `.88,290/- u/s 115JB the CIT(A) has upheld the disallowance under clause (f) of Explanation to sec. 115JB (2) of the Act. U/s 115JB of the Act, the assessee is required to pay tax on its book profit subject to certain conditions. The book profit is to be determined u/s 115JB(2) as per Part II & III of Schedule VI to Company's Act 1956. Explanation 1 to sec. 115JB (2) defines the expression 'book profit' and means the net profit as shown in the P&L A/c for the relevant previous year prepared under sub sec. (2) as increased by the amounts specified in clause (a) to (h) of the Explanation-1 . Clause (f) of the Explanation 1 refers to the amount or amounts or expenditure relatable to any income to which section 10 (other than provisions contained in clause 38 thereof) or section 11 or sec. 12 apply. For applying the provisions of clause (f) of Explanation to section 115JB (2) there should be nexus between the amount of expenditure relatable to the income exempt u/s 10 of the Act. The dividend income is exempt u/s 10(33) for assessment year 2001-02. Since the expenditure incurred has not been identified and no nexus has been established with the dividend income, the expenditure could not be disallowed under clause (f) of the Explanation. As per the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. the Assessing Officer is not entitled to tinker with the book profits as determined as per provisions of Company's Act unless the amount is specified in clauses (a) to (h) of the Explanation. The amount of `.88,290/- has not been established to have nexus with the dividend income. The amount of `.88,290/- has been estimated at 1% of the income. In our view, no disallowance could be made. Accordingly, we direct the 14 ITA No126 & 4761/Del/2013 & 2012 Assessing Officer to delete the amount of `.88,290/- from the book profit."
Therefore respectfully following the above, we dismiss ground No.3 in assessment year 2009-10.
14. As regards ground No.2 in assessment year 2008-09 and ground No.3in assessment year 2009-10 we find that the Assessing Officer has not considered the claim of assessee because of the fact that assessee had not made claim u/s 80IAB of the Act and further the Assessing Officer had not examined the claim u/s 80IAB. However, we find that assessee is eligible to claim the deduction u/s 80IAB in 10 consecutive assessment years within a period of 15years and we also find that assessee as a co-developer also qualifies to be a developer for the purpose of claiming benefit u/s 115JB of the Act as the definition of developer includes co-developer as contained in clause (g) of section 2of SEZ Act, 2005 which defines the developer as under:-
"(g) Developer means a person who or a State Govt. which has been granted by the Central Govt. a letter of approval under sub section 10 of section (3) and includes an authority and a co-
developer."
15. It is undisputed fact that assessee is a co-developer as the necessary letter for approval as a co-developer is placed in paper book pages 40 to 56. Regarding applicability of clause (6) of sec. 115JB we find that clause (6) specifically contains the following provisions:-
"The provision of this section shall not apply to the income accrued or arising on or after the Ist day of April, 2005 from any 15 ITA No126 & 4761/Del/2013 & 2012 business carried on or services rendered by an entrepreneur or a developer in a unit or SEZ as the case may be."
Therefore, there is no dispute that the assessee was eligible for exclusion of income from SEZ business for the purpose of section 115JB. However, we find that the claim of assessee with respect to SEZ income has not been examined by the Assessing Officer or by ld CIT(A). Therefore, in the interest of justice we remit this ground of appeal to Assessing Officer with a direction to examine the claim of assessee in respect of income from SEZ business and after arriving at the amount of profits from SEZ business, allow the same as exclusion for the purpose of determining book profits u/s 115JB of the Act.
16. In view of the above, ground No.2 and ground No.3 in respect of assessment year 2008-09 and 2009-10 is allowed for statistical purposes.
17. In view of the above, the appeals filed by the revenue are partly allowed for statistical purposes.
18. Order pronounced in the open court on 24th day of January, 2014.
Sd/- Sd/-
(DIVA SINGH) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt. 24.1.2014.
HMS
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
16 ITA No126 & 4761/Del/2013 & 2012
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing 10.1.2014 Date of Dictation 17.1.2014 Date of Typing 17.1.2014 Date of order signed by both the Members & pronouncement. Date of order uploaded on net & sent to the Bench concerned.