Dy. CIT Vs. Alpha G. Corp Development Ltd. (ITAT Delhi)
The intention of the appellant to invest in the subsidiary companies was never to earn dividend but the same was made to acquire land to meet the minimum requirement of Haryana Town and Country Planning Act and to overcome the restrictions put by the Haryana Urban Land Ceiling Act, 1995. The investments in the subsidiaries were for development of business and for the commercial expediency. These investments were to get the strategic advantage to gain the benefit of synergies in the different markets. Therefore, dis allowance under section 14A was not called for in relation to such strategic investments.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
1. These are the appeals filed by the revenue against the order of the learned Commissioner (Appeals)-I, New Delhi dated 21-8-2015 and Commissioner (Appeals)-42, New Delhi dated 18-8-2015 for the assessment year 2008-09, 2011-12 and 2012-13, wherein the dis allowance on account under section 14A were deleted.
2. The Revenue has raised the following grounds of appeal for assessment year 2008-09:-
“1 The learned Commissioner (Appeals) has erred in law and on facts in directing the assessing officer to exclude investments in Subsidiary Companies for the purpose of calculating dis allowance under section 14A and allowing consequential relief thereof.
2. The learned Commissioner (Appeals) has erred in law and on facts in directing the assessing officer to exclude investments in mutual funds which generate exempt income for the purpose of calculating dis allowance under section 14A holding it as temporary phenomena and allowing consequential relief thereof.
3. The learned Commissioner (Appeals) has erred in placing reliance on the decision of the Hon’ble High Delhi Court in CIT v. Oriental Structural Engineering Pvt. Ltd. as the facts of which case are different from the facts of instant case.
4. The learned Commissioner (Appeals) has failed to appreciate the fact that in the case of Oriental Structural Engineering Pvt. Ltd., investments were made in Special Purpose Vehicles whereas in the present assessee investments were made in the subsidiaries that too not on account of commercial expediency but to circumvent the Land Ceiling Act, 1975 of the State of Haryana.”
3. The Revenue has raised the following grounds of appeal for assessment year 2011-12:-
1. The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 97,84,132 made by the assessing officer on account of dis allowance under section 14A read writ Rule 8D.
2. The learned Commissioner (Appeals) has erred in placing reliance on the decision of the Hon’ble High Delhi Court in CIT v. Oriental Structural Engineering Pvt. Ltd. as the facts of which case are different from the facts of instant case.
3. The learned Commissioner (Appeals) has failed to appreciate the fact that in the case of Oriental Structural Engineering Pvt. Ltd., investments were made in Special Purpose Vehicles whereas in the present assessee investments were made in the subsidiaries that too not on account of commercial expediency but to circumvent the Land Ceiling Act, 1975 of the State of Haryana.”
4. The Revenue has raised the following grounds of appeal for assessment year 2012-13:-
“1. The learned Commissioner (Appeals) has erred in law and on facts in directing the assessing officer to exclude investments in subsidiary companies for the purpose of calculating dis allowance under section 14A and allowing consequential relief thereof.”
5. The brief facts of the case is that the assessee is a company engaged in the business of real estate management and development of real estate. For assessment year 2008-09 it filed its return of income. The assessment under section 143(3) of the Act was completed and subsequently, the case was reopened under section 147 of the Act for making dis allowance under section 147 of the Act. During the year the assessee has earned dividend income of Rs. 11.66 crores which is claimed as exempt income but no dis allowance was made. Therefore, the learned assessing officer disallowed sum of Rs. 16350876 applying Rule 8D of the Income Tax Rules and dis allowance 0.5% of the average investment of the assessee. The assessee preferred appeal before the learned Commissioner (Appeals) against the above dis allowance. The learned Commissioner (Appeals) deleted the same. Therefore, the revenue is in appeal before us.
6. The learned Departmental Representative vehemently supported orders of the learned assessing officer. He stated that the assessee has made huge investment and also has earned huge dividend which is exempt. No dis allowance has been by the assessee. He submitted that the assessing officer has not disallowed any amount on account of interest but on account of other expenses. He therefore stated that dis allowance has correctly been made.
7. The learned authorized representative submitted that the assessee has not incurred any expenditure on account of interest as agreed by the learned assessing officer. He further submitted that the assessee has not incurred any expenditure as for the personal cause as the staff cost of Rs. 9.83 lacs have been related to the subsidiary company and they have reimbursed it. He however submitted that on the explanation of the assessee no satisfaction has been recorded by the learned assessing officer. He further stated that the learned Commissioner (Appeals) has deleted the addition on the basis of decision of Hon’ble Punjab and Haryana High Court as well as decision of the Hon’ble Allahabad High Court. He further stated that amount of investment made by the assessee is also for strategic control and business expediency on such advance no dis allowance can be made.
8. We have carefully considered the rival contentions and also perused various orders of the lower authorities. The learned Commissioner (Appeals) dealt with this issue at para 21 to 24 as under:-
“Decision:
I have considered the submission of the appellant and observation of the assessing officer in the assessment order. It is seen that assessing officer has disallowed expenses of Rs. 1,63 50,876 under section 14A read with Rule 8D of the Income Tax Rules, 1962 as expenses attributable to earning of exempt income. The appellant company is engaged in the business of development of integrated townships, Malls, development of management services. The area of operation of the appellant company is mainly in the state of Haryana, Gurjarat and Punjab. In the state of Haryana, if a company intend to develop a township, the minimum area required is 50 acres, however, as per section 4 of Haryana Urban Land Ceiling Act 1975, holding of Haryana Urban Land Ceiling Act, 1975, holding of the land in urban areas restricted to Rs. 7.25 hectares i.e. 17.915 acres by a single entity.
In view of the above restrictions of the Haryana Urban Land Ceiling Act, the appellant company had invested in the subsidiary companies for acquiring the land in the name of subsidiary companies so that minimum requirement of 50 acres of land required for developing township can be met by acquiring land in the name of various subsidiary companies. Once the land is acquired in the name of subsidiary companies, the development rights were transferred by the subsidiary companies to the holding companies. Due to this, the income generated out of the development of the acquired land has been taxed in the hands of the appellant company i.e. holding company. The appellant company has shown total investment as on 31-3-2008 of Rs. 1,66,68,29,250 in various subsidiary and joint venture companies which is as under:
