TaxTMI 
TaxTMI 
2015 (1) TMI 967
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....derabad dated 3.9.2010. Ground No.1 raised by the assessee in this appeal is general which does not call for any specific adjudication. 3. The issue raised in ground No.2 relates to the disallowance of assessee's claim for deduction under S.80IB(10) as made by the Assessing Officer and confirmed by the CIT(A) to the extent of Rs. 59,49,280. 4. The assessee in the present case is a company, which is engaged in the business of construction and hospitality. The return of income for the year under consideration was filed by it on 27.11.2006 declaring total income of Rs. 16,29,19,420, after claiming deduction under S.80IB(10) at Rs. 11,50,92,475. The said deduction was claimed in respect of profit derived from three projects, namely, Sai Gardens, Prajay Homes and Prajay Shelters and such profit was worked out by the assessee as under- 5. During the course of assessment proceedings, the claim of the assessee for deduction under S.80IB(10) was examined by the Assessing Officer and on such examination, he found that the total sales of other projects taken by the assessee at Rs. 34,19,87,767, while working out the profits of different projects, was inclusive of the land related sales of ....
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....m which all relevant financial costs can be reduced. Since such details pertaining to indirect administrative expenditure have not been kept, it is obviously important to find a logical method of allocating the total indirect expenditure between various projects. First of all, it is seen that the indirect expenditure is made up of general administration expenses, marketing expenses, financial charges and other corporate overheads. With respect to sale of land, there are no marketing expenses, no financial charges relating to construction Division, negligible administration expenses and hardly any other overheads incurred. On the contrary, with respect to construction Division, people are employed every day to oversee construction activity. Even otherwise, electricity expenses, marketing expenses regarding sales of villas and flats, etc., are incurred only with respect to the construction Division. I therefore, find merit in the argument of the Assessing Officer that for calculation of indirect expenses, the sale value of the land must be removed from total sales because negligible amount of indirect expenditure relates to direct sale of land. 6.3. Given the above facts and circums....
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.... capitalized by it. From the perusal of the working furnished by the assessee in this regard, it was noticed by the Assessing Officer that interest of Rs. 14,39,614 received by the assessee on the bank deposit made from the proceeds of FCCB issue was credited to the FCCB Expenditure Account. According to the Assessing Officer, this treatment given by the assessee to the interest income was not correct and relying on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT (227 ITR 172), he brought to tax the interest income of Rs. 14,39,614 in the hands of the assessee. On appeal, the learned CIT(A) confirmed the addition made by the Assessing Officer on this issue, holding that net interest income received by the assessee from bank deposit being in the nature of revenue receipt, the same was chargeable to tax in the hands of the assessee. 11. We have heard the arguments of both the sides and also perused the relevant material on record. As rightly submitted by the Learned Departmental Representative, there being no nexus between the interest income received by the assessee on bank deposits and the expenses incurred in connec....
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.... of the total managerial commission of Rs. 5.45 crores. In reply, it was submitted by the assessee that more efforts of the Director were directed towards Hospitality Division specifically, since the same was a new Division and considering these extra efforts, managerial commission to the extent of Rs. 2.93 crores was allocated to the Hospitality Division. This explanation of the assessee was not found acceptable by the Assessing Officer. According to him, the managerial commission was claimed to be paid to the Director for enhancing the overall profitability of the company and if this theory of the assessee was to be accepted, no payment of commission was required to be made to the Directors, who were looking after the Hospitality Division, as there was no profitability in that Division. He held that since the managerial commission was paid on the basis of overall profitability of the company, there was no justification for allocating Rs. 2.93 crores of managerial commission to the Hospitality Division and the same should be done proportionately on the basis of the total sales of each unit made during the year under consideration. Accordingly, the managerial commission to the exte....
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....er of the Hospitality Division is allocated to that Division while a lesser commission of Rs. 2.51 Crores i.e. 1.3% of the relevant turnover is allocated to the Construction Division. Given the above facts and circumstances, I have no hesitation in holding that the allocation is not genuinely made and has been done with the sole purpose of increasing the profits of the Construction Division so as to increase the deduction under section 80IB(10) of the Act. Accordingly, I hold that the reallocation made by the Assessing officer is correct and needs no interference." 18. The learned counsel for the assessee submitted that the Hospitality Division of the assessee company was relatively new as compared to the Construction Division and therefore, more efforts of the Directors were diverted to develop the Hospitality Division. He contended that the Assessing Officer as well as the learned CIT(A), however, overlooked this vital fact and allocated the managerial commission on the basis of sales of the two Divisions, which is not justified. He also contended that business exigencies were taken into consideration by the assessee, while allocating the managerial commission. In reply to a que....
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.... we are of the view that allocation of managerial commission done by the authorities below on the basis of sales of the two Divisions of the assessee is fair and reasonable and there is no merit in ground No.2 raised in the appeal of the assessee. 21. The common issue involved in grounds No.3 and 4 of the assessee's appeal for A.Y. 2007-08 relates to the addition of Rs. 2,31,98,781 made by the Assessing Officer and confirmed by the CIT(A) by way of restricting assessee's claim for deduction u/s 80IA by altering the apportionment of indirect costs. 22. At the time of hearing before us, learned representatives of both the sides have agreed that the issue involved in these grounds of appeal for assessment year 2007-08 is similar to the one involved in ground No.2 of the assessee's appeal for assessment year 2006-07, which has been decided by us in the foregoing paras of this order. As the material facts relating to this issue, as involved in assessment year 2007-08 are similar to assessment year 2006-07, we follow our decision rendered for assessment year 2006-07 on similar issue and direct the Assessing Officer to consider the turnover of sale of land only to the extent of 25% whil....
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.... as claimed. He held that the said investment thus was going to benefit only the subsidiaries and not the assessee company and there was no commercial expediency in the interest free advances given by the assessee company to its subsidiaries. He, therefore, worked out the interest attributable to the interest free advances paid by the assessee company to its subsidiaries at Rs. 10,38,606 and made a disallowance to that extent. 25. On appeal, the learned CIT(A) confirmed the disallowance made by the Assessing Officer on account of interest holding that there was no evidence brought on record by the assessee in the form of agreement, etc. to support and substantiate its claim that the investment in land was made by the assessee in the names of subsidiaries and not in its own name, since Lehman Brothers had agreed to participate in the project. He also held that the assessee also could not establish its case of commercial expediency, which prompted it to divert interest bearing funds for giving interest free advances to its subsidiaries. 26. We have heard the arguments of both the sides and also perused the relevant material on record. Although the learned counsel for the assessee h....
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....based on unsubstantiated allegation of receipt of extra consideration. 9. The learned CIT(A) ought not to have upheld the addition made in the case of the appellant based on the proceedings before another authority and that too without confronting the assessee with factual evidence. Grounds in Revenue's appeal: 1. The learned CIT(A) erred in facts and in law in ignoring the fact that the declared sale consideration as adopted is a typographical mistake since the understated sale consideration as per deeds vide Annex 1 & annex 2 was only Rs. 16,87,500/- and assessee's share therein would be Rs. 5,62,500/- as against the actual sale consideration of Rs. 1.16 crores affirmed under oath by the vendee. Hence, the CIT(A) ought to have not only upheld the addition but also should have enhanced the addition. 2. The learned CIT(A) erred in facts and in law in ignoring the fact that there was no basis of figure of Rs. 56,00,000/- taken as sale consideration by the Assessing Officer which was only a typographical error. 28. As noted by the Assessing Officer, the assessee company during the year under consideration had shown to have purchased land at Bogaram Village for Rs. 43,33,000 and s....
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....nd in question and the amount received by the assessee on sale of the land. 2.3 The Assessing Officer made addition u/s.69 of the I.T Act. Sec.69 applies where the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory. 2.4 On the facts narrated in the assessment order, it is clear that the investment alleged to have been made by a third party is added in the hands of the assessee. There is no basis for the allegation that assessee. received monies on sale of land and not recorded the same in its books. 1f at all an addition is to be made, the same should have been under Sec.69A, that too if the assessee were found to be the owner of any money not recorded in the books of account. The assessee submits that the proceedings before another authority ought not to have been made the basis for addition in the hands of the assessee. 2.5 In the case of ITO ward 14(8) vs Pukhraj Jain 95 ITD 281(Mum), the A.O made addition based on the ....
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.... M.Rambabu on 17.4.2006 for a total consideration of Rs. 30 lakhs and the same was subsequently sold by two separate agreements dated 13.12.2006 (four acres) and 8.1.2007 (8 Acres and 27 guntas) to Shri G.Nageswra Reddy for a consideration of Rs. 8,53,000 and Rs. 8,34,500 respectively. Shri G.Nageswra Reddy thus has purchased the land from the assessee and it is not a case of purchase of land by the assessee form him, as presumed by the Assessing Officer. In the assessment order, the Assessing Officer has thus wrongly referred to Shri G.Nageswara Reddy as seller at one place and has mentioned at other place that Shri G.Nagewara Reddy in his statement accepted of having paid an amount of Rs. 1.16 crores for purchase of land from the assessee. The Assessing Officer however finally concluded that the difference of Rs. 72,67,000 represented the excess amount invested by the assessee in the purchase of land and treated the same as unexplained investment made by the assessee under S.69. There are thus factual contradictions in the order of the Assessing Officer. The learned CIT(A) to some extent appreciated these factual contradictions and rightly held that the amount of Rs. 1.16 crores ....
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.... raised by the Revenue in this appeal are general seeking no specific adjudication. 36. As regards the issue involved in ground No.2 relating to the allocation of managerial commission to Hospitality Division and Construction Division, it is observed that a similar issue has already been decided by us while dealing with the assessee's appeal for assessment year 2007-08. The facts and circumstances for the assessment year 2008-09 relating to this issue are similar to those considered by us for assessment year 2007-08, except for the fact that in the assessment year 2008-09, the CIT(A) has accepted the claim of the assessee and granted relief on this issue. Hence, following our decision for assessment year 2006-07, we set aside the impugned order of the CIT(A) on this issue and restore the order of the Assessing Officer making disallowance out of the claim of the assessee for deduction under S.80IB of the Act by allocating the managerial commission between the Construction Division and Hospitality Division in the ratio of sales. Ground no. 2 of Revenue's appeal is accordingly allowed. 37. As regards the issue involved in grounds no.3 and 4, it is observed that the common issue invo....
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....before the learned CIT(A) that the difference in total income as shown in the computation and as declared in the return was due to hedging loss of Rs. 4.86 crores, which was inadvertently added in the computation of total income. The nature of the said loss was also explained by the assessee before the learned CIT(A), giving relevant facts and figures. Reliance was also placed by the assessee on various judicial pronouncements in support of its stand that the said loss was allowable as a business loss. The learned CIT(A) found merit in the claim of the assessee and directed the Assessing Officer to reduce the hedging loss of Rs. 4.86 crores from the returned income of Rs. 7,21,04,185 adopted by him. 42. We have heard the arguments of both the sides and also perused the relevant material on record. As rightly submitted by the Learned Departmental Representative, the claim of the assessee for hedging loss of Rs. 4.,86 crores made for the first time before the learned CIT(A) was accepted by him, without giving any opportunity to the Assessing Officer to verify the same in the light of the relevant details furnished by the assessee in this regard as well as the evidence filed in suppo....
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....o offer its explanation in the matter. In reply, it was submitted on behalf of the assessee that the provisions of S.14A are not applicable in its case, as there was no expenditure incurred by it for earning any exempt income. This explanation of the assessee was not found acceptable by the Assessing Officer. According to him, the assessee must have borrowed funds for the purpose of making the investments in shares, which was to the tune of Rs. 99.37 cores and therefore, certain interest expenditure incurred on such borrowed funds might have been in relation to the exempt income. Accordingly, such interest on borrowed funds relatable to the expenditure incurred for earning exempt income was worked out by him at Rs. 2,42,41,117 and disallowance to that extent was made by him under S.14A read with Rule 8D of the Income-tax Rules. 45. The disallowance made by the Assessing Officer on account of interest under S.14A was challenged by the assessee in the appeal before the learned CIT(A) and the following submissions were made on behalf of the assessee in support of its case on this issue- . "a) The investment in the shares of the subsidiaries is purely of business perspective or the s....
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....rder- "5.2 I have carefully considered the facts of the case and submissions of the appellant. On a careful consideration of the entire circumstances of the case, it is seen that none of the investments made by the appellant company have generated any exempt income during the year. The appellant also submitted a statement showing the investments made by it. From the statement, it is clear that all the investments are not made during current financial year and most of the investments are accumulated over a period of time. It is also submitted that the share capital and reserves of the appellant are Rs. 7,03,72,00/-, which is much higher than the investments made by the appellant company,. The appellant also submitted a statement pertaining to loans taken and purpose of loans alongwith the loan approval letters. From these documents, I find that the loan from TATA Capital has been taken for developing commercial and residential complexes alongwith projects. The loan from APSFC has been taken for construction of independent houses at Masjidpur (V), Shampeerpet (M).The loan from Indian Overseas Bank has been utilized for meeting the working capital requirement of four large size proje....