TaxTMI 
TaxTMI 
2014 (7) TMI 717
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....,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 execution of the Project. The appellant prays that the d....
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....s 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 approval, by the Assessing Officer vide letter dated 12.05.2010, to be referr....
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....ions 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 allowed. 13. Ground No. 7 Disallowance of Rs. 4,05,83,808/- is upheld. 14. Ground No. 8 Disallowance of Rs....
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....able 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 reply before the DRP dated 26.7.2013 is as under: * The assessee was incorporated on May 20, 2005 as Maytas Rajeshwari Private Limited. There....
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....7/2012, 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 was Maytas Estate Pvt. Ltd. wherein neither bills are raised for this expenditure nor accounted for the same in their books of account, which is placed on rec....
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....ance 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 statistical purposes. 14. The next ground is pertaining to a) Rs. 1,48,97,232/- b) Rs. 1,63,76,773/- towards reimbursement of service tax to sub-contractor, c) Rs. 1,70,376/-, d) Rs. 96,000/- ....
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....sel, 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 claim. c) There has been clerical mistakes in mentioning correct name in the full. 20. After considering the submissions of the assessee, so far as disallowance of Rs. 46,33,163/- u/s 40(a)(ia) is concerned, the DRP held ....
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....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 regarding this payment is available with the assessee. Considering the plea of the assessee we remit the matter to the AO to see whether any double claim of this expenditure once in the hands of MPPL and another in the hands of the assessee. ....
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....ccepted 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 to this ground are that the Assessing Officer has discussed this issue in para 11 of his draft order. In the course of Special Audit, the Auditor found that the assessee had paid Rs. 2.04 crores towards landscaping charges through bearer cheque exceeding Rs....
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....or 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 through the orders of the revenue authorities. In our opinion the reason for disallowance is regarding genuineness of expenditure. According to the lower authorities most of the payments are self-generated, which have high bill value and being so it was disallowed. Incurring....
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....rcised 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 borrowed funds from financial institutions and also received advances from the customers and by any stretch of imagination these funds cannot be called as interest free funds but they are business funds and they should be utilised for the business of the assessee instead of that, diver....
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....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 (supra) and also coordinate bench decision in the case of SSPDL Ltd. Vs. DCIT, 24 ITR(Trib.)(Hyd.) 290 also support the case of the assessee. Accordingly, this ground is allowed. 35. The next ground is pertaining to disallowance of depreciation of Rs. 10,10,475/- as asset bills are not in the name o....
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....t 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 to establish the nexus between the expenditure and the business expediency with satisfactory evidence or explanation. In the present case, the assessee as per its own submission before the Special Auditors stated that it has given the entire contract to M/s. Maytas Infra and claimed to have paid the entire amount (t....
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....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 section 30 to 36. 2. Expenditure should not be of nature of capital expenditure and it should not be a personal expenditure. 3. Expenditure has been laid out for wholly and exclusively for the purpose of business or profession. In the present case, assessee has fulfilled requirement of the provisions of section 37 of the IT A....
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....v) 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 would ordinarily claim reduction in the consideration payable for the shares by the amount which the company had undertaken to pay as assets of the company became reduced to that extent. It cannot, therefore, be said that T were in any way benefited financially by reason of the reduction in the consideration payable by them for the shar....
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.... 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 accepted accounting principles in India A.Y. 2006-07 - Rs. 410.33 cr. A.Y. 2007-08 - Rs. 437.33 cr. A.Y. 2008-09 - Rs. 584.72 cr. It is submitted that the Assessee has recognized revenue for Asst. year 2008-09 on the basis of percentage of completion of the project, which has been arrived at by dividing the actual cost incurred up to the 31st Marc....
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....f 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 it by customers on account of non-completion of the project.' The Id.AO in the draft order, added Rs. 111.68 crores to the income of the assessee as income short recognized during the year. The cumulative revenue from the project offered to tax by the assessee up to Asst. year 2008-09 is Rs. 374.53 cr. The Id.AO sought to tax cumulative revenue of Rs. 524 cr. in As....
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....ork 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: The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate (see accounting standard (AS) 5, Net p....
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....nty 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 detailed bill of quantities attached to this amendment agreement. 4. Both the parties also agreed that the date for completing the project sholl stand extended up to 31st March 2009 as against 31st March 2008. 5. All other terms and conditions shall stand unaltered. 45.8 According to the DRP, it is clear that the conditions for increase in project cost as provided in para 1.11.0 and 1.12 of the Agreement are not fulfilled. As ....
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.... 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. We have to see surrounding circumstances to decide accrual of income of the assessee. Looking at the prevailing circumstances of market in the present case it is not possible to hold that income actually accrued to the assessee as estimated by the AO. Once the assessee recognized the income in accordance with the accounting standard and in terms of the agreements the assessee entered into, revenue authorities cannot disturb the same. AO cannot substi....
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....iar 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 by the AO is not correct. Our view is fortified by the coordinate bench of Hyderabad in case of SP Real Estate in ITA Nos. 866 & 1058/Hyd/2010 order dated 13/02/2014 wherein the Bench held as follows: "43. Considering all the above facts of the case, in our opinion, it is too early to assess business profit out of the sale of constructed area to M/s. Janapriya Engineers Syndicate. The assessee neither received substantial consideration or assets to be ....
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....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 the Tribunal Chennai Bench held as under: "9. We are unable to agree with the contentions of the learned Departmental Representative that the transaction of transfer is complete by applying the provisions of s. 53A of Transfer of Property Act on the date when the possession of the property was handed over to the developer as per the development agreement dt. 1st Sept., 2003. Sec. 53A of the Transfer of Property Act does not provide the conditions for transfer bu....
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....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 any consideration for handing over the possession of the property to the developer but as per the agreement the assessee got the right to get the built-up area of 25,130 sq. ft. and proportionate car park as per Schs. E and E1 of the agreement and the rest of the constructed area was to be sold out for recovery of the cost and margin of the developer. From the development agreement, the possession was handed over for carrying out the construction work by the developer....
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.... 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 transfer of the constructed apartments in favour of the end-user/purchaser, therefore the transfer of the proportionate land took place only when the assessee transferred the construction property by way of sale deeds and offered the business income which was accepted by the Department. In any case, when the assessee has retained the portion of the land being proportionate to the constructed area to be retained by the assessee, then there is no question of transfer of the enti....
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.... 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 Estates (India) (P) Ltd. vs. ITO, 1 DTR (Mum) (Trib) 366 wherein the Mumbai 'SMC' Bench held as under: "2.3 After going through the rival submissions and also after perusing the material available on record, I am not inclined to concur with the finding of the CIT(A), because the assessee had entered into the development agreement with M/s Arora Builders (Sukhmani Construction). The FSI on the said plot was revised, but the project could not be completed. Therefore, at the ....
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....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 said that he has acted in a manner in which no reasonable person can act. C) The guidance note on accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made. D) Non-recogni....
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....me 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. 1,56,23,944/- out of the claim of Rs. 2,33,24,429/- in the earlier assessment year Viz. AY 2007-08 and this amounts to double disallowance and therefore, the disallowance should be restricted to Rs. 77,00,485/- . 50.1 The DRP observed that the assessee has not made out any case as to how the statutory and consultancy charges incurred on account of the development of the amenities such as club house, school in commercial area are revenue in nature, the disallowance by the AO is justified. However, the alte....
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....o 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 deducted TDS on this amount paid to Soft Hard Technologies Pvt. Ltd., the Assessing Officer is justified in disallowing the same. 54.4 To sum up, out of disallowance of Rs. 92,71,184/- for which objection has been filed, disallowance to the extent of Rs. 91,25,431/- (Rs. 92,71,184 - Rs. 1,45,753) is confirmed by DRP. 55. Aggrieved, the assessee is in appeal before us. 56. We have heard both the parties, perused the record and gone through the orders of the authorities below. As held by the Delhi High Court in the cas....
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....t 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 in this type of transactions. Hence, it is hard to believe the claim of the assessee that he has acted as mere conduit pipe between the customers and polishing people. Accordingly, the claim that the assessee stands in a fiduciary capacity is also liable to be rejected. In this kind of factual situation, in our view, the existence or absence of profit element in the polishing works does not make any difference. 7.2 The Ld Counsel, by placing reliance on the decision of special bench in the case of Merylin Shipping and transports....
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....n 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 of the same cannot be a reason for disallowance u/s 40(a)(ia) as held by the Hon'ble Calcutta High Court in the case of Tekriwal (supra). This ground is partly allowed for statistical purposes. 57. Next ground is pertaining to disallowance of Rs. 8,55,911/- on account of reimbursement made by the Assessee to MIPL towards cost incurred in relation to development activities. 58. Briefly the facts relating to this ground is that this issue is discussed in the draft assessment order at para 21. The Assessing Officer found that certain ....
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.... 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 correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income u/s section 14A(2) or if the assessee claims that no expenditure has been incurred by them in relation to income which does not form part of the total income section 14A(3), expenditure relatable to the exempted income needs to be disallowed. 63.2 The DRP held that the AO has clearly stated that the contention of the assessee is not acceptable in view of the fact that the interest expenses incurred on loans taken from var....
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....tment 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 that the RBI has not given any approval for the transaction in question. It has clearly mentioned that it has allotted the identification number for all the correspondence in regard to the overseas direct investment in a WOS in UAE and that the allotment of the identification number does not constitute an approval from the RBI for the investment made/to be made in the said WOS. And hence, the contention that it has got the approval from RBI to invest in the share application money in the WOS and thereby no TP analysis can be made in respect of the transaction in question....
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....unds 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 facts of the case. The TPO after obtaining information from CRISIL has concluded that the taxpayer falls in the grading range of BB to D which is for the cases where either there is no safety or the safety is inadequate and considering high risk involved adopted the rate by annualizing average yield for 'BB' rated bond for five years or more at 17.26%. It is noted that the advancement of the said amount to the AE is not supported by any guarantee or collateral and is therefore a very high risk transaction. Therefore, we are of the opinion that the TPO has correctly applied the rate o....
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....t 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. * The assessee has mode TDS at the rate of 1 % (plus applicable surcharge and education cess) on payments to MIPL. * The Hon'ble Kolkata Tribunal in the case of SK Tekriwal (Infra) has held that the disallowance u/s 40(a)(ia) is not applicable in the case of short deduction of TDS. It was held that if there is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be mode u/s 40(a)(ia). Similar view has been held in following judicial precedents: Chandabhoy & Jassbhoy (Infra) Teja Constructions Vs. CIT (Infra) K.Srinivas Naidu Vs. Ass/. ClT (Infra) J....
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....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 194C(1) of the Act. It is submitted that given the fact that the project consists of residential house property and not commercial property, an overwhelming majority of its customers are persons to whom the provisions of section 194C(1) of the Act do not apply. In the minority of cases where the buyer is a person to whom withholding provisions u/s 194C of the Act apply in relation to the AFC, the same constitutes the principal contract for work u/s 194C(1) of the Act. The contract of the assessee with MIPL, being a sub-contract arising out of the AFC, is liable for tax withholding only under section 194C(2) of the Act. It is submitted that the Company has a....
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....arranted 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. Hero Motocorp Ltd. Vs. ACtT (ITA No. 1980/Del/2012) Apollo Tyres Ltd. Vs. DCtT (ITA No.31/ Coch/ 2010) DCIT Vs. Chandabhoy and Jassobhoy (2012) 49 sot 448 (Mum) * Since the assessee has deducted and remitted taxes @1% u/s 194C(2} of the Act based on a bona fide belief that the same is the rate applicable in respect of payments to be made to MIPL, no disallowance u/s 40(a)(ia) is warranted on the same. 1.4 Disallowance u/s 40(a)(ia) to be proportionate to the extent of short deduction. Without prejudice to our earlier submissions, it is submitted that the disallowance u/s 40(a)(ia), if any, is to be restricted only to the extent of short deduction of taxes. The above contention ....