TaxTMI 
TaxTMI 
2014 (7) TMI 717
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness. It is prayed that the addition of Rs. 7,60,93,925/- may be deleted. 3. On the facts and circumstances of the case the appellant prays that the learned Assessing Officer, hereinafter referred to as Learned Assessing Officer, has erred in adding an amount of Rs. 2,04,08,005/- u/s 37(1) and 40A(3). It is prayed that the addition of Rs. 2,04,08,005/- may be deleted. 4. On the facts and circumstances of the case the appellant prays that the learned Assessing Officer has erred in adding an amount of Rs. 5,36,98,655/- as notional Interest on interest free advances made by the Company. It is prayed that the addition of Rs. 5,36,98,655/- may be deleted. 5. On the facts and circumstances of the case, the appellant prays that the learned Assessing Officer has erred in disallowing a depreciation amount of Rs. 10,10,475/- on assets owned by the Company. It is prayed that the disallowance of Rs. 10,10,475/- made by the Learned Assessing Officer be deleted. 6. On the facts and circumstances of the case, the appellant prays that the learned Assessing Officer has erred in disallowing the payments made by the appellant, amounting to Rs. 4,05,83,808/- to a sub-contractor towards ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... named 'Maytas Hill Country Project." 3.1 The assessee company has filed its return of income for the AY 2008-09 on 29/09/2008 declaring the income of Rs. 29,38,81,950/-. The return was processed u/s 143(1) on 14/09/2009, accepting the income returned by the assessee company. This case was selected for scrutiny u/s 143(3) of the IT Act, 1961 and accordingly notice u/s 143(2) dated 14/09/2009 was issued. On verification of records with reference to Schedule 6 and Schedule 10 to balance sheet of the Company as on 31/03/2008, it is noticed that the assessee company has made investment in its subsidiary company viz. M/s Maytas Properties M.E.(FZE) Pvt. Ltd., Dubai an amount of Rs. 16,34,625/- & Rs. 50,33,42,956/-. On further verification of loans and advances, it is noticed that Rs. 50,33,42,956/- has been shown as share application money of the company in its subsidiary as mentioned above. As this transaction has bearing on profits, income, losses and assets of the company and is covered under the meaning of 'international transactions' as defined in section 92B of I.T. Act, 1961, a proposal has been made to the Commissioner of Income Tax (Central), Hyderabad, for appro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esolution Panel on 2.11.2012. 4. The DRP gave directions in respect of objections raised before the Panel as follows: 1. Ground No. 1 to 3 involving ALP adjustments of Rs. 95,73,740/- is confirmed. 2. Ground No. 4 i.e. objection regarding reference to Audit u/s. 142(2A) is rejected. 3. Ground No. 5 (i) Addition of Rs. 4,44,53,544/- is confirmed. 4. Ground No. 5(ii) Disallowance of Rs. 2,04,08,005/- is upheld. 5. Ground No. 5 (iii) Addition of Rs. 1,48,97,232/- is confirmed out of total addition of Rs. 1,75,70,005/-. 6. Ground No. 5(iv) Out of total addition of Rs. 2,83,62,623/-, addition of Rs. 46,33,.163/- and Rs. 1,88,12,703/- are confirmed. 7. Ground No. 5(v) Disallowance of Rs. 3,66,376/- is upheld. 8. Ground No. 6(i) Objection regarding double disallowance of Rs. 46,33,163/- is allowed. 9. Ground No. 6(ii) Objection regarding double disallowance of Rs. 18,09,246/ is rejected. 10. Ground No. 6(iii) Objection regarding double disallowance of Rs. 49,16,757/- is allowed. 11. Ground No. 6(iv) Objection regarding double disallowance of Rs. 71,000/- is allowed. 12. Ground No. 6(v) Objection regarding double disallowance of Rs. 1,45,753/* is allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting the assessee's response along with his comments and concluded that the expenditure to the extent of Rs. 4,44,53,544/- is disallowable u/s.37(1) of I.T. Act and while doing so, he has considered the disallowance made by the assessee in the computation of income and also the disallowance made by him on account of the transaction with M/s. Chaurasia Construction and Infrastructure India Ltd. According to AO the assessee did not produce any bills in respect of expenses claimed either before the Special Auditors or before the AO. The bills produced before the AO were computer generated and also post-dated. Hence, AO observed that it cannot be relied as authentic evidence. The expenditure includes various items which are tabulated by the DRP in its order at pages 8 to 13. Thereafter, the DRP held as follows: "The items of disallowances proposed and referred by assessee vide its letter dated 31.8.2012 at Sl.No. 9 to 20, 22 to 24, 26 to 33, 35 to 40 and 42 to 44 are on account of bills raised by vendors in the name of Maytas Properties Pvt. Ltd. which is a different entity. Assessee failed to file documentary evidences from the vendors in support of its claim. Assessee's re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n his audit report as Maytas Properties Pvt. Ltd., which is wrong. He also drew our attention to summons issued by the DCIT, Circle - 9, Hyd, dated 25/07/2012, which is placed on record at page 435 of assessee's paper book wherein mentioned assessee's name as Maytas Properties Pvt. Ltd. instead of Maytas Properties Ltd. Accordingly, he submitted that error should be condoned and the deduction towards business expenditure is to be allowed. 9. The learned DR, on the other hand, submitted that it is not a single isolated case, but, there are large number bills which are produced for claiming the expenditure contain the name of the parties as Maytas Properties Pvt. Ltd. in stead of Maytas Properties Ltd. He pointed out that these are two different entities and it cannot be said that human error so as to grant deduction towards business expenditure. The learned DR supported the order of DRP. 10. We have heard both the parties, perused the record as well as gone through the orders of the authorities. The assessee brought on record confirmation letter from Maytas Estate Pvt. Ltd. issued to the Maytas Properties Ltd. stating that Maytas Properties Ltd., whose name formerly wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollowing the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Tekriwal vide order dated 03.12.2012, directed the Assessing Officer to delete the proposed disallowance of Rs. 26,72,773/-. In respect of other items of disallowance, the DRP agreed with the Assessing Officer that the assessee has not filed proper supporting evidence to prove that these are allowable business expenditure. Hence, the addition of Rs. 1,48,97,232 (Rs. 1,75,70,005 - Rs. 26,72,773) proposed in the draft order is upheld. 12.3 Against this, the assessee is in appeal before us. 13. We have heard both the parties on this issue. Before us, the learned AR pleaded that the issue may be remitted back to the file of the AO as the requisite evidence available with the assessee and it is also stated that since the office of the assessee has been shifted to another premises, the required information was misplaced, now it is available, which is material for deciding this issue. Considering the request of the assessee, we remit the issue back to the file of the AO for fresh consideration after examining the evidence that will be filed by the assessee before him. This ground is allowed for statistic....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../- as genuine and there is no reason for disallowing of Rs. 1,48,97,232/-. The payment has been by way of cheque and being so the expenditure is to be allowed. Considering the request of the assessee's counsel, we are inclined to direct the AO not to disallow the payments which are made by way of cheque and in respect of cash expenses there is every chance of inflating the same. Accordingly, we direct the AO to disallow 10% of cash expenses made by cash payments. This ground is partly allowed. 18. As regards the addition of Rs. 1,63,76,773/-, the facts are that the AO had discussed the reasons for disallowance in para 22 of his draft order. Referring to each item of expenditure, the AO had disallowed the same stating the following reasons: a) Assessee has not produced evidence to substantiate the claim with supporting details. b) TDS not deducted from payment on which TDS is deductible. 19. On appeal, before the DRP, the assessee reiterated the submissions made before the AO, which are as under: a) TDS provision not applicable on certain payments as these are meant for supply of materials. b) The evidences are available with company in respect of expenditure c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refore, out of the total disallowance, this amount needs to be reduced. Further, Rs. 71,000/- being expenditure towards investment in asset has been disallowed. Though as per page 73 of draft order depreciation on such amount has been disallowed as these are capital expenditure. Since the disallowance of depreciation is confirmed, there is no need for again disallowing the cost of the asset in the computation of total income. Accordingly, to sum up out of total amount of Rs. 2,83,62,623/-, the DRP directed the AO to delete the following amounts: i) addition of Rs. 46,33,163/- which has been confirmed in para 4.4.3 of its order. ii) Rs. 49,16,757/- which has already been confirmed by us iii) Rs. 23,64,930/- disallowance due to mistake in writing the item twice. iv) Rs. 71,000/- as mentioned above. 21. Aggrieved, the assessee is in appeal before us. 22. We have heard both the parties and perused the record. The learned AR submitted that this amount represent reimbursement of service tax of sub-contractor and there is no claim of such expenditure in the hands of the MPPL and there cannot be any chance of addition in the hands of the assessee. The details of evidence ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re prohibited from taking any private assignments and worked full time with the assessee firm. There is no dispute with reference to the deduction of tax under section 192 and also the fact that in their individual assessments these payments were accepted as salary payments. It is also not disputed that the entire amount paid for 18 consultants is only an amount of Rs. 26,75,535/-, which indicates that they are in employment and not professional consultants. It is also not the case that assessee has not deducted any amount. Assessee has indeed deducted tax u/s 192, Provisions of section 40(a)(ia) also do not apply as the said provision can be invoked only in the event of non deduction of tax but not for lesser deduction of tax." Accordingly, we direct the AO to allow the assessee claim at Rs. 96,000/-. 23.2 Regarding disallowance of Rs. 1,00,000/- due to misplacement bills, this issue is remitted to AO for fresh consideration and if the assessee is able to produce the bills, then the claim of the assessee is to be allowed. 24. Next ground is with regard to disallowance of Rs. 20,408,005/-on account of landscaping charges paid to farmers. 25. Briefly the facts relating t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... serious doubt about genuineness of such expenditure claim. Considering the above facts, the DRP was of the view that these expenditures cannot be allowed u/s 37(1) of the Act as the assessee failed to satisfactorily prove that these expenditure are incurred for the purpose of its business. The disallowance of Rs. 2,04,08,005/- was upheld by DRP. Since the DRP confirmed the addition u/s. 37(1), they have not expressed any opinion on disallowance u/s. 40A(3). 28. Before us, the learned AR submitted that these payments are necessary and the same are as per Rule 6DD(g) of the IT Rules, therefore, for these payments 40A(3) is not applicable. Further, he submitted that these payments are genuine, hence provisions of section 37 are also not applicable. For this proposition, he relied on the following case laws: 1. CIT Vs. Green Gold Tea Farmers Pvt. Ltd., [2008] 299 ITR 262 (Uttarakhand) 2. CIT Vs. Soundarya Nursery, [2000] 241 ITR 530 (Mad.) 28.1 According to learned AR, the whole expenditure cannot be disallowed. 29. The learned DR, on the other hand, relied upon the order of the DRP. 30. We have heard the arguments of both the parties, perused the record and gone thr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng or land development activities and in fact related to the Maytas group and the assessee could not establish that these advances were purely for business purposes and governed by the principle of independent party transactions. He noted that the very fact that M/s.MPL has exercised control over these companies subsequent to forwarding of advances to expand its commercial interest squarely cover these advances within the scope of interest free advances to related parties. Accordingly, computed the interest foregone by the assessee on such advances at the bank rates by modifying the computation given by the assessee. The assessee has calculated notional interest of Rs. 1,91,34,626/- on monthly basis at 10.5% on proportionate interest free advances in respect of related parties and not third parties. The AO has calculated notional interest on the third parties and added Rs. 3,03,57,134/-. The Assessing Officer also added Rs. 2,03,20,973/- on account of interest receivable from MIPL (HO) and the notional interest of Rs. 30,20,548/- on the advances given to other land owning companies. 32.2 The DRP noted that the assessee started development of a mega project and for this it borrow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce from customers and deposits and the funds were diverted to the sister concern for business purpose which are in the similar nature of business of the assessee. Being so, it cannot be considered that the assessee used the interest bearing funds for non-business purposes. The assessee also placed reliance on the judgment of the Hon'ble Supreme Court in the case of SA Builders Ltd., Vs. CIT, 288 ITR 1 (SC). In our opinion, before disallowance of notional interest it is incumbent upon AO to establish that there is a nexus between the amount diverted and interest incurred by the assessee. Even if assessee has diverted interest bearing funds to the sister concern, then it is business decision taken by the assessee to make such an investment and even if it has resulted no income to the assessee, notional interest cannot be disallowed on the reason that assessee should have used its non-interest bearing funds for the purpose of business instead of using borrowed funds. The AO cannot sit in the arm chair of businessman and decide what the assessee has to do to maximize its profit. In our opinion, the judgment relied upon by the learned AR of the assessee in the case of SA Builders (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r: Clause 1.5 (project): The "project" shall mean the construction, completion and commercial commissioning and total execution of the works. Clause 1.19 (sub sub-contractrs) "sub sub- contractor" shall mean the persons, firms, companies or agencies who after approval of the contract have entered into a direct contract with the sub contractor in respect of any part of the works, and include the sub-contractors' legal representatives, successors and permitted assignee. 40.1 Before the AO it has been contended by assessee vide letter dt. 26-4-2012 that it had given contracts to others also and relied on some judicial decisions in its support. As per the agreement with MIPL, the entire contract has been given to MIPL and any sub-contract to be given to others have to be in accordance with the terms of agreement. The assessee has also claimed that the payment made to M/s. Chourasia Construc- tion Co. was due to commercial expediency and relied on various judicial decisions such as the Supreme Court decision in M/s. SA Builders (supra). The AO observed that the revenue does not argue what expenditure should be incurred and how it should be incurred but it wants the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecord and gone through the orders of the revenue authorities. The DRP came to the conclusion that the agreement entered by the assessee is not genuine on the reason that M/s Chourasia Construction was a small time contractor based at Bangalore and there were certain inconsistencies in the agreement. No enquiry was carried on by the Department to suggest that there was no contract work carried on by M/s Chourasia Construction company in respect of this expenditure. The expenditure incurred by the assessee cannot be disallowed on mere presumptions and surmises and it is necessary to bring on record the evidence to suggest that payment is not genuine. In the present case, there is a valid agreement between the assessee and M/s Chourasia Constructions company and they have rendered services and payment was made. It is not the case of the revenue authorities that particulars of person to whom the amounts were paid could not be furnished. We are of the view that allowance or disallowance of a claim of business expenditure should depend upon the existence or otherwise of the following conditions: 1. Expenditure in question should not be of the nature described in the provisions of sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the motive behind the payment of retrenchment compensation was that the terms of the agreement of the sale of shares should be satisfied, as long as the amount had been laid out or expended wholly and exclusively for the purpose of the business of the assessee, there appears to be no good reason for denying the benefit of s. 10(2)(xv) to the company if there is no other impediment to do so. The company continued to function even after its control passed on to the hands of T and the expenditure in question was laid out for the purpose of the company's own trade and not for the trade of T who were only the shareholders of the company. As a result of the expenditure in question, the company was in fact benefited and it was possible for it to earn more profits as a consequence of the reduction in the wage bill. Subsequent to 31st Dec., 1955, the company had by passing the resolution incurred liability to pay retrenchment compensation and compensation for termination of service. On account of the said resolution, the total value of the assets of the company was reduced by the amount payable to the employees by way of compensation. It is natural that the purchaser of the shares wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g so, considering the totality of the facts and circumstances, we are inclined to allow the claim of the assessee. This ground is allowed. 44. The next ground is with regard to taxation ignoring revised estimates. A disallowance of Rs. 1,116,896,593/- made as revenue short recognized, by ignoring revised estimates. 45. Briefly the facts relating to this ground are that this issue has been discussed in para 17 of the draft assessment order under the head 'addition on account of. short recognition of revenue'. According to the AO, the special auditors in their report u/s 142(2A) have pointed out that the assessee company has not fully recognized the revenue for subject previous year 2007-08 and the shortfall in revenue so recognized is to be added to the total income. He, accordingly, added this short fall of revenue amounting to Rs. 111,68,96,593/- as per para 17.7 of the asst. order after considering the report of the special auditor and explanation filed by the assessee objecting to the above addition in course of the assessment proceedings. The assessee has objected the above additions before DRP as follows: 2.1 Accounting treatment in line with generally accepte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cost estimation is a common feature of most construction costs. It is a regular feature and not an anomaly. It may be noted that is on account of such common escalation of costs that the construction contracts are usually either entered into as a 'cost-plus' contracts. Fixed price contracts are not commonly found in the construction industry. Even in case of fixed price contracts, there is invariably a 'cost escalation clause' that provides for reimbursement of costs incurred in respect of subsequent increase in prices of material, labour etc. Cost escalation being the norm of the industry, it is wrong to contend that any increase in cost mutual result in an increase in output. Hence, it is prayed before the learned panel to strike down the contention of the Id.AO and direct the deletion of the addition made to the total income of the assessee for Asst. year 2008-09.' Further, the Hon'ble High Court of A.P. also took cognizance of the non-completion of the Project in 2011 when a petition for winding of the assessee was filed. before it. Similarly, the consumer court of Andhra Pradesh also ruled against the assessee in 2012 on complaints filed before i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot accepted the increase in estimate of cost stating that there is no increase in saleable areas or no increase in revenue. The A.O. has observed as under: "The basis for adopting this revision of Budget estimate by the assessee, is explained due to increase in the cost of project from year to year. However, it does not reflect the true picture of the actual works done and the percentage of completed work shown by the assessee in its books of account after revision of its budget expenses. This claim of the assessee is more of convenience any contrary to the spirit of accounting principle under accounting standard-7 as it telescopes the ,expenses significantly from year to year. By adopting this method, the current year percentage completion of independent houses of 82% gets further reduced in view of the increased budget estimates in the fy 2008-09, which, not only fails to correlate with physical completion of work but also stretches the work on project beyond a realistic time line". 45.3 It was further observed by the DRP that as per AS-7 (para 37), the estimated revenue and estimated cost can be increased. The relevant guidance is reproduced below. "change in estimates:....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by contractor as compensation for delay and consequent extended stay on the site, provided, that the delay is attributable solely to the contractor". 45.7 The assessee company signed an amendment agreement on 02/09/2007 with MIL as under: "This Amendment Agreement is executed on this 2nd day of September 2007 at Hyderabad by Maytas Infra Limited (formerly known as Maytas Infra Pvt. Ltd.) Whereas 1. Maytas Hill County Private Ltd. And Maytas Infra Limited (referred to as parties) have entered into a contract on 4th feb. 2006 by which Maytas Infa Ltd. As the sub-contractor to the Maytas Hill County Pvt. Ltd. Has agreed to execute certain works at Bachupally village, now entitled a Maytas Hill County Project for a value of Rs. 410 crores. 2. Consequently, upon the change in certain technical specifications, partly to comply with the Government regulations and partly due to change in specifications, both the parties have re-worked on the bill of quantities based on actual site conditions and further based on detailed drawings received from the architects. 3. Both the parties therefore now agree that the contract value will now stand increased to Rs. 525 crores as per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....follows: 2006-07 - Rs. 410.33 crores 2007-08 - Rs. 437.33 crores 2008-09 - Rs. 484.72 crores The assessee considered the revised budget to determine profit for the assessment year under consideration. According to the department, the percentage of work completed should be computed on the basis of original estimate and not on the basis of revised estimate thereby DR pleaded that it is self- serving budget to reduce the tax liability. It is a normal feature in construction activity that cost gets escalated in view of increase in price of construction materials. The Department has not doubted the fact of increase in cost and has stated that assessee's books of account does not represent the true picture of the actual works completed by the assessee and wholly relied on the special auditor's report. The other reason given by the AO is for changing the method of computation of the profit though saleable area is not increased though the budget cost is increased. It is not necessary to increase saleable area when the cost of construction gone up due to various reasons. It is also a fact that assessee has recognized the income in accordance with the accounting standards....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies'. In the name of compliance with section 145(1), it cannot be open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the assessee was justified in following the policy of not recognizing these revenues till the point of time when the uncertainty to realize the revenues vanished. As the principles laid down in recognizing the income equally applies to the facts of the assessee's present case, we are of the view that the authorities below are not justified in bringing the impugned notional income to tax. 47.1 In view of the above, in our opinion, unless and until the department has proved that agreement executed by the assessee with M/s Maytas Infra Ltd., is collusive agreement, the agreement cannot be rejected as both are different assessees and it is to be followed in true spirit. In our opinion, the method followed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income then only revenue authorities can disturb the same. Once the assessee recognised the income in accordance with the agreements, the AO cannot substitute his assessment to say that the assessee has postponed the tax liability. There is no basic deviation in the method followed by the assessee regarding recognising of income. However, the AO was of the opinion that there is basic flaw in the method followed by the assessee to recognise the income. When there is no deviation in recognising the income by the assessee, the AO cannot recompute the profit of the assessee by observing that there is basic flaw in the method followed by the assessee. 45. In our opinion, income arising out of sale of flats to M/s. Janapriya Engineers Syndicate in which constructed property was sold by the assessee, profit on such transaction is to be assessable not in the year of agreement and it should be assessable proportionately in the previous years in which the constructed area was sold by the assessee or constructed flats were handed over by the assessee to the buyers. This view of ours is supported by the following decisions: (a) R. Gopinath (HUF) vs. ACIT, 133 TTJ (Chennai) 595 wherein t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under s. 2(47) of the IT Act, 1961. The sale/transfer of stock-in-trade cannot be equated with the transfer of capital asset. The decisions relied upon by the learned Departmental Representative as well as the lower authorities are with respect to the transfer of capital asset under s. 2(47) of the IT Act, 1961 and not in respect of stock-in-trade. Therefore, these decisions are not relevant and applicable in the facts of the present case. As far as s. 53A of the Transfer of Property Act is concerned, the said section provides only a protection to the transferee on fulfilment of certain conditions provided therein but does not provide that even on fulfilment of that condition the transfer is complete. As per provision of s. 53A of the Transfer of Property Act when a right is created in favour of the transferee which cannot be defeated, otherwise then by the terms and conditions expressly provided in the contract itself. 10. From the development agreement dt. 1st Sept., 2003 as well as the supplementary agreement dt. 23rd Dec., 2003, the assessee handed over the possession of the property for construction of residential apartments by the developer. The assessee did not receive an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the property is passed on to the purchaser, there cannot be a sale or transfer of immovable property, since in the present case the question is whether the handing over of the possession under the development agreement of the property which is stock-in-trade of the assessee can be treated as a transfer by applying the definition of transfer in s. 2(47) of the IT Act, 1961. As we have already stated earlier that in the case of stock-in-trade, the definition of transfer under s. 2(47) of the IT Act, 1961 is not applicable, therefore, the contextual or the ordinary meaning of the word transfer is applicable in the present case. 15. In the present case, the business profit arises to the assessee on the sale of the stock-in-trade only when the constructed apartments were sold and not at the time when the development agreement was entered into. Moreover, in the development agreement, the assessee has not agreed for sale of the entire constructed property on the land, the assessee has agreed only for a portion of the constructed property for sale for the purpose of recovery of the cost of construction and margin of the developer. The assessee has executed all the sale deeds for transfe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k filed before us. We also find from the paper book that the defendant, Smt. Sundari Ramachandran, has denied the existence and execution of the said settlement agreement dt. 9th Aug., 1997 as been concocted/ fabricated. Therefore, undisputedly the entire settlement agreement dt. 9th Aug., 1997 is in jeopardy. Of course, the assessee has withdrawn a sum of Rs. 23 lakhs from the firm, M/s Electronics Controls. Therefore, having regard to the binding nature of judgment of the Hon'ble Supreme Court in the case of Hindustan Housing & Land Development Trust Ltd. (supra), to the proposition that where an amount was in dispute, it could not be treated as income, we do not find any infirmity in the conclusion of the CIT(A) that a sum of Rs. 77,00,000 cannot be brought to tax during the year under consideration as the matter had not attained finality. However, the CIT(A) went wrong in not applying the same principle to the amount of Rs. 23 lakhs received by the assessee. Even this amount of Rs. 23 lakhs is disputed and the right of the assessee in the said amount is inchoate and therefore, the same also cannot be brought to tax during the year under consideration." (c) Bhavesh Estate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eliable. Regarding the requirement of the resolution to be registered u/s 106 r.w.s. 192 of the Companies Act as observed by the Ld.CIT(A), it is pertinent to mention that the said provisions are not applicable as the resolutions passed by the debenture issuing company do not fall under the resolutions prescribed by the provisions of section 192(4) of the Companies Act. Also in similar set of facts, the ITAT in the case of Riya Holdings Ltd in ITA Nos. 1119 to 1124/Mum/2011, where the present Account Member is also one of the parties to the said order, has directed the AO delete a similar amount of interest brought to tax. The relevant principles summarized by the ITAT in the said cases on the basis several judgments of the High Courts and Supreme Court is extracted hereunder: A) that merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it. B) earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides not to charge interest in order to safeguard the principal amount and ensure its recovery, it cannot be sai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in deleting the addition made by the AO as there is no income accrued to the assessee on the basis of agreement entered by the assessee with M/s. Janapriya Engineers Syndicate. We do not find any infirmity in the order of the CIT(A) and the same is confirmed. Grounds taken by the Revenue are rejected and the appeal is dismissed. 48. Since the issue under consideration is identical to that of the said case, following the decision of the Tribunal in the said case, it is to be held that real income to be taxed and not notional income and accordingly, we delete the addition made. This ground is allowed. 49. Next Ground is pertaining to the disallowance of Rs. 77,00,485/- on account of statutory and consultancy charges. 50. The AO disallowed Rs. 2,33,24,429/- on account of expenditure relating to statutory and consultancy charges on the ground that it is capital in nature. The assessee contended that no work was started on the amenities during the year under consideration and hence the entire cost incurred for statutory and consultancy charges being direct cost, are towards independent houses and apartments. Alternatively, it is submitted that since the AO disallowed Rs. 1,5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed TDS u/s. 194J and therefore, disallowed the same. 54.1 Regarding professional charges paid to Maigrot Koenig amounting to Rs. 1,45,753/-, it is seen that this amount has been disallowed by the Assessing Officer as per para 10 of the draft assessment order which has been confirmed by DRP as per para 4.1.1. Since the amount has already been disallowed, there is no further disallowance. Accordingly DRP directed the Assessing Officer to delete the disallowance of Rs. 1,45,753/-. 54.2 The balance amount relates to audit remuneration and computer maintenance. TDS has not been deducted in respect of audit remuneration paid to M/s. SRB & Krishna and Prasad Associates amounting to Rs. 45,18,531/- and Rs. 44,94,400/-. It is stated by the assessee that the TDS has not deducted on these amounts during the year. However, such TDS has been deducted and paid in next year. In view of the above, the DRP held that for this asst. year the AO is justified in disallowing the same u/s 40(a)(ia) of the Act and The disallowance of the above payments is therefore confirmed. 54.3 The DRP observed with regard to payment of Rs. 1,12,500/- as computer maintenance charges that the assessee has not d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of sec. 194C shall apply to the polishing works given by the assessee. 7.1 According to Ld AR, the assessee has acted as a conduit pipe in connection with the polishing works between the customers and the person doing polishing job. Accordingly, it was submitted that there is no profit element in the said transactions. The Ld AR further submitted that the assessee has included the cost of polishing works in the sale value of aluminium extrusions, without knowing tax implications. However, we notice that the assessee did not furnish any proof to substantiate the above said claims. The assessee, being a dealer in aluminium extrusions, has only supplied the products after carrying out the polishing works according to the taste and requirement of customers. It is only one of the many business techniques normally adopted by a business man to improve his sales, since it will be very difficult for customers to identify the polishing people and get the work done by themselves. Hence, we are of the view that it may not be correct to argue that the contract existed between the customers and the polishing people. In fact, the customer may not have any contact with the polishing people i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f this contention has not been examined by the tax authorities. Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer. Accordingly, we modify the order of the Ld CIT(A) and set aside this ground to the file of the assessing officer with the direction to examine the above said contention of the assessee and decide the same in accordance with the law, after affording necessary opportunity of being heard. We make it clear that we have, in effect, rejected all the contentions of the assessee except the ground relating to applicability of the second proviso to sec. 40(a)(ia) of the Act to the year under consideration." 56.1 The said view was followed by Pune Bench of ITAT in the case of Gaurimal Mahajan & Sons in ITA No. 1852/Pune/2012 for AY 2008-09 vide order dated 06/01/2014. 56.2 Following the decision of the coordinate bench of ITAT, Cochin in the case of Antony D. Mundackal Vs. ACIT(supra), we direct the Assessing Officer to see whether the recipient has paid tax or not on this payment and decide the issue in accordance with law. Further, short deduction of TDS and remittance o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Rs. 600 crores by way of subscription towards CCDs. The assessee had not incurred any expenditure directly attributable to the activity of investing in mutual funds. The dividend income was a result of temporary parking of available funds without much involvement of human resources. 63.1 The contention that it had interest free funds which comprised of advanced of Rs. 487 crores from customers and also the subscription towards CCDs of Rs. 600 crores received cannot absolve the assessee of its liability u/s. 14A. The assessee though stated that it had interest free funds which were invested in the mutual funds, the same has not been supported by any documentary evidence such as cash flow statement and the contention that it did not incur any expenditure directly attributable to the activity of investing in mutual funds is devoid of any merit. The insertion of Rule 8D has been aimed at disallowing the expenditure incurred in respect of earning exempted income by following the formula contained therein and this amendment came into existence from AY 2008-09 i.e. the year under consideration. If the AO having regard to the accounts of the assessee is not satisfied with the corre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anced Rs. 50,49,77,581/- to its wholly owned subsidiary (WOS), Maytas Properties M.E.F.Z.E., Dubai and did not charge any interest on this amount which has been advanced out of its interest bearing funds. Since the assessee did not charge any interest on this amount, the TPO on the reference made by the AddI.CIT, Central Range-I, Hyderabad has calculated the Arm's Length interest on the amount of Rs. 50,49,77,581/- advanced to the AE, as per the provisions of Sec. 92CA of IT Act. 70.1 Assessee objecting to the proposed additional before DRP contended that the investment of the said amount was by way of share application money and is not an international transaction and has the approval of the RBI as being share application money and has been sent through banking channels. It is further contended that it is in the nature of equity in the hands of subsidiary and that there is no provision in the Act empowering the TPO to re-characterize an investment in the form of equity as a debt. DRP held that this contention cannot be accepted and the TPO has already considered all the objections at Para-8 of the TP order. It is noted from the submissions filed and the supporting documents....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds to be made for the taxpayer as it is not into lending and borrowing money. 1. Banks spread their risk among various customers whereas the same is not possible for the taxpayer in its loan transactions. Thus, the taxpayer has higher risk than the banker in lending money to its related party. 4. Adjustment needs to be made for no security offered by the related party. Banks generally ask for security even for foreign currency loans. But in the loan transaction between the 'taxpayer and the AE, there is no security provided by the AE to the taxpayer. 70.4 Assessee borrowed funds in Indian currency at the interest rates prevailing in India utilised by assessee for converting into foreign currency to advance interest free loan to its associate enterprise (AE) namely Mis. Maytas Properties, M.E.F.Z.E, Dubai. It is also fact that no shares were allotted till date in favour of the assessee against the interest free loan given to its AE. As the interest free loans advanced to AE are taken in India in Indian currency at the rates prevailing in India, the case laws relied upon by the assessee and the claim of the LIBOR rate for computation of ALP are not applicable to the fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the circumstances of the case and, in law, the DRP erred in deleting the disallowances made u/s 40(a)(ia) in respect of the following payments: a) Rs. 26,72,773/- b) Rs. 14,80,251/- on the ground that the above mentioned payments were already disallowed u/s 37(1) without giving a finding regarding the disallowance of these payments u/s 40(a)(ia) of the Act. 75. The addition has been proposed on the basis of discussion made in para 23 of the draft asst. order. On the basis of special audit report u/s 142(2A), the AO found that in a number of cases of expenditure, the assessee has short deducted tax at source u/s 194C. The total amount of such expenditure comes to Rs. 178.66 crores which has been disallowed u/s 40(a)(ia). 75.1 In course of the asst. proceedings, when this issue was raised, the assessee has submitted the following objections. "Without prejudice to the facts provided in para 9.2 and 9.4 above, it was submitted before the Id. AD that even in case of MIPL is considered as a contractor and tax to be withheld is 2.244% u/s 194C of the Act, the entire amount of expenditure cannot be disallowed u/s 40(a)(ia) of the Act on account of the following. * ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the deduction of tax at source at the rate of 1% u/s 194C(2) of the Act on amounts payable to MIPL. We have attached herewith the following proofs of deduction and remittance of tax @1%. (i) Form 26AS of MIPL for AY 2008-09 (Refer Annexure l) (S No. 5 60 to 582 of the table for details of TDS deducted the assessee). (ii) TDS certificates issued by the assessee to MIPL for A Y 2008-09 (refer Annexure-2. (iii) Extracts of the return of income of MIPL for A Y 2008-09 wherein credit of the TDS deducted by the assessee has been claimed (refer Annexure 3) (S. No. 58 of the TDS schedule discloses the credit claimed by MIPL of the TDS deducted by the assessee during AY 2008-09). 1.2 Agreement for construction entered into with buyers. * Without prejudice to our submissions that the DA constitutes a contract for work u/s 192C(l) of the Act, we wishes to respectfully submit that the assessee has entered into an agreement for construction (AFC) with all the buyers of the Hill County Project. * The AFC entered into with the customers is a contract of work u/s 194C(1) of the Act. This gives rise to the following two scenarios. Where the buyer is liable to deduct tax u/s 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obligations to be complied with. (refer annexure 5 for a relevant extract of the circular). Hence, where the buyer is not liable to withhold taxes on the amounts payable under the AFC to the assessee, the assessee was not required to withhold any taxes on the amounts payable to MIPL. Therefore, no disallowance be mode u/s 40(a)(ia) of the Act on account of non-deduction of taxes. 1.3 No disallowance u/s 40(a)(ia) in case of short-deduction of taxes on a bonafide belief. It is submitted that the provisions of section 40(a)(ia) of the Act are attracted only' in case of non-deduction of taxes and not in case of short deduction of taxes. Disallowance u/s 40(a)(ia) is warranted only in case of non-deduction of taxes at source. The above contention has been upheld by the Hon'ble High Court of Calcutta in the case of CIT Vs. M/s. S. K. Tekriwal (ITA T NO.183 of 2012) wherein it was held as follows. "Where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TOS, the provisions of section 40(ia)(ia) of The Act cannot be invoked. The same contention has also been upheld in the following judgments of the Hon'ble ITAT. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the financial statements of MIPL for FY 2007-08). 76. After considering the above submissions, the DRP observed that as per the draft asst. order, according to the AO, in the following cases, there is short deduction of tax at source: Since, there is short deduction of tax on the above payment, the AO held that tax at source has not been deducted as per provisions of section 194C, hence, the amount was added u/s 40(a)(ia). 76.1 The DRP observed that this issue of disallowance u/s 40(a)(ia) on account of short deduction of tax at source has been considered by different Courts. 76.2 In case of CIT Vs. SK Tekriwal (ITAT Kolkata) held as follows: "this section 40(a)(ia) of the act refers only to the duty to deduct tax and pay to government .account. If there is a short fall due to any difference of opinion as to taxability of any item or the nature of payment falling under various TDS provisions, the assessee can be declared to be an assesseedefault /s 201 of the act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act." This order of the Hon'ble ITAT, Kolkata was upheld by the Hon'ble High Court of Kolkata in their order....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a Constructions & Infrastructure Pvt. Ltd. Disallowance u/s 37(1) (as discussed in para 15) 07 08 Addition on account of short recognition of revenue (as discussed in para 17) Addition on account of non-apportionment of statutory and consultancy charges on amenities (which ought to be capitalized but debited to P&L A/c is disallowed (as discussed in para 18) 10,10,475 4,05,83,808 111,68,96,593 2,33,24,429 09 Disallowance u/s 40(a)(ia) (as discussed in 8,55,911 para 21) 10 Disallowance u/s 40(a)(ia) (as discussed in Para 22) 46,33,163 11 Disallowance w/s 37(1) (as discussed in para 2,83,62,623 22) 12 Disallowance u/s 40(a)(ia) (as discussed in 1,78,66,16,64 para 23) 9 13 Disallowance u/s 37(1) (as discussed in para 1,70,376 231 14 Disallowance u/s 40(a)(ia) (as discussed in 14,80,251 para 24 15 Disallowance u/s 37(1) (as discussed in para 96,000 24) 16 Disallowance u/s 37(1) (as discussed in Para 1,00,000 25) 17 Disallowance u/s 40(a)(ia) (as discussed in 92,71,184 рага 25) 18 Disallowance on account of Corpus Fund (....