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DCIT, Circle-2 (1) , New Delhi Versus Alpha G. Corp Development Ltd.

2017 (12) TMI 358 - ITAT DELHI

Addition u/s 14A - Held that:- As no specific nexus has been established by the Assessing Officer about the receipt of the exempt income and incurring of expenses, hence, no disallowance of expenses is called for. - Decided in favour of assessee. - ITA No. 6049, 6050 And 6051/Del/2015 - Dated:- 22-11-2017 - SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Revenue : Shri Shravan Gotru, Sr. DR For The Assessee : None ORDER PER PRASHANT MAHARISHI, A. M. 1. Thes .....

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ce u/s 14A and allowing consequential relief thereof. 2 The Ld CIT(A) has erred in law and on facts in directing the AO to exclude investments in mutual funds which generate exempt income for the purpose of calculating disallowance u/s 14A holding it as temporary phenomena and allowing consequential relief thereof. 3 The Ld CIT(A) has erred in placing reliance on the decision of the Hon'ble High Delhi Court in CIT Vs. Oriental Structural Engineering Pvt. Ltd. as the facts of which case are d .....

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A) has erred in law and on facts in deleting the addition of Its.97,84,132/ made by the AO on account of disallowance u/s 14A r.w Rule 8D. 2. The Ld CIT(A) has erred in placing reliance on the decision of the Hon'ble High Delhi Court in CIT Vs. Oriental Structural Engineering Pvt. Ltd. as the facts of which case are different from the facts of instant case. 3. The Ld CIT(A) has failed to appreciate the fact that in the case of Oriental Structural Engineering Pvt. Ltd., investments were made .....

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l 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 u/s 143(3) of the Act was completed and subsequently, the case was reopened u/s 147 of the Act for making disallowance u/s 147 of the Act. During the year the assessee has earned dividend income of ₹ 11.66 crores which is claimed as exempt income but no d .....

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xempt. No disallowance has been by the assessee. He submitted that the AO has not disallowed any amount on account of interest but on account of other expenses. He therefore stated that disallowance has correctly been made. 7. The ld AR submitted that the assessee has not incurred any expenditure on account of interest as agreed by the ld AO. He further submitted that the assessee has not incurred any expenditure as for the personal cause as the staff cost of ₹ 9.83 lacs have been related .....

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can be made. 8. We have carefully considered the rival contentions and also perused various orders of the lower authorities. The ld CIT(A) 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 ₹ 1,63 50,876/- u/s 14A read with Rule 8D of the I.T. Rules, 1962 as expenses attributable to earning of exempt income .....

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cted to ₹ 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 rig .....

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lis Buildtech Pvt. Ltd. 48.00 Subsidiary 10,000 9,999 100% 10,67,26,000 Fortune Buildtech Pvt. Ltd. 30.49 Subsidiary 10,000 9,999 100% 1,17,98,000 Habitat Buildcon Pvt. Ltd. 16.27 Subsidiary 10,000 9,999 100% 14,63,000 Piccadilly Real Estates Pvt. Ltd. 15.11 Subsidiary 10,000 9,999 100% 63,16,000 Penguin Buildtech Pvt. Ltd. 64.57 Subsidiary 10,000 9,999 100% 2,05,99,000 Rosebuds Buildtech Pvt. Ltd. 1.23 Subsidiary 10,000 9,999 100% 1,14,000 Seven Seas Real Estates Pvt. Ltd. 15.66 Subsidiary 10,0 .....

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nt Pvt. Ltd. 19.13 Subsidiary 10,000 10,000 100% 1,00,000 Ambrose Real Estate Pvt. Ltd. 51.76 Subsidiary 10,000 10,000 100% 1,00,000 Canterbury Real Tech Pvt. Ltd. Subsidiary 10,000 10,000 100% 1,00,000 Stylus Development Pvt. Ltd. 5.54 Subsidiary 10,000 10,000 100% 1,00,000 Venture Real Tech Pvt. Ltd 14.12 Subsidiary 10,000 10,000 100% 1,00,000 Opal Development Pvt. Ltd. 14.83 Subsidiary 10,000 10,000 100% 1,00,000 Alpha G: Corp Management Services Pvt. Ltd. Subsidiary 10,000 10,000 100% 1,00,0 .....

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d to arrange 50 acres of land with the help of subsidiary companies for developing a township. It is further submitted by the appellant that all these subsidiaries have transferred their development rights to the holding companies for the land bought in their name. Therefore, 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 .....

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at these investments were made in the subsidiary companies of the appellant which are engaged in the business of acquiring land for development of townships and malls etc. It is also seen that appellant is holding almost entire shares in these subsidiary companies and 50% shares in the joint venture companies. It is also seen that all these subsidiary companies acquired land to help the appellant company in its business. The entire share capital of these subsidiary companies has been contributed .....

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anies. On going through the Balance Sheet of the company, it is seen that appellant has received exempt income of ₹ 11,54,07,071/- from the non-trade investments made in the mutual funds. It is explained by the appellant that during the financial year 2006-07 appellant company has received investment from SSIII Investments One Limited under the Foreign Direct Investment of ₹ 287 crores and in the financial year 2007-08, an investment of ₹ 344 crores from Wyndford Investments Lt .....

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l funds advisor do not charge any fee and whatever fee or other charges are charged they are deducted from the amount of investment itself. Therefore, it was submitted by the appellant that no financial or administration expenses directly or indirectly have been incurred by the appellant for earning the dividend income. It is also submitted by the appellant that the dividend distributed by the mutual funds is after deduction of tax u/s 115R, therefore, these dividends are not tax-free income to .....

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direct or indirect expenditure seems to be incurred by the appellant. The money was received from the foreign investor and till the same was invested in the projects, the same was invested in the mutual funds. Therefore, no cost expenditure seems to be incurred by the appellant for making these investments. It is also seen that the making investment in these mutual funds was a single day activity and appellant was not involved in frequent buying and frequent selling, therefore, no expenditure wa .....

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tention of the appellant was not to earn dividend income but till the finalization of the project the money was kept temporarily in the mutual funds. It was also contended by the appellant that it has not debited any expenditure relating to investments in its Profit & Loss A/c, therefore, no disallowance of expenses is called for u/s 14A read with Rule 3D. In support of its contention, the appellant has relied upon the judgment of Hon ble Delhi High Court in the case of CIT Vs. Oriental Stru .....

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no disallowance could be made u/s 14A for investment made in a subsidiary company for business expediency. The Tribunal also held that where assessee brings on record that no expenditure has been incurred on investment made in subsidiary company, the AO has to record his satisfaction for not accepting the claim of the assessee and he has to give his finding that the expenditure has been incurred by the assessee for earning exempt income. It is seen that no such finding has been given by the Asse .....

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