TaxTMI 
TaxTMI 
2015 (5) TMI 930
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the year under consideration was filed by the assessee company on 30.9.2009 declaring a loss of Rs. 74,98,75,451. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has made an investment of Rs. 52,68,08,490 in the share application money of its wholly owned subsidiary, M/s. Maytas Properties M.E.(FZE) Pvt. Ltd., Duibai. Keeping in view that this transaction was in the nature of the international transaction entered into by the assessee company with its AE, a reference was made by the Assessing Officer to the TPO for determining its Arm's Length Price. As noticed by the TPO, no interest was charged by the assessee company on the share application money paid to its AE. According to the TPO, the assessee company in Arm's Length situation would have charged interest on the share application money paid to its AE. He therefore, worked out such interest at Rs. 8,79,77,255, and since interest actually charged by the assessee was nil, he worked out the TP adjustment required to be made on this issue at Rs. 8,79,77,255. When this addition on account of TP adjustment was proposed to be made by the Assessing Officer in the t assessment orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ouchers pertaining to these expense however, were not in the name of the assessee company, but the same were in the name of M/s. Maytas Properties P. Ltd. He therefore, proposed to disallow the said expenses claimed by the assessee. On objections raised by the assessee, the Dispute Resolution Panel restored this issue to the file of the Assessing Officer with a direction to cause enquiry in order to find out whether M/s. Maytas Properties Ltd. has also claimed the same expenditure on the basis of the relevant bills and vouchers raised in its name or not and if it is found that there is no such double claim, the expenditure claimed by the assessee should be allowed. 7. At the time of hearing, the learned representatives of both the sides have agreed that a similar issue was involved in the case of the assessee for the assessment year 2008-09 and vide its order dated 6.6.2014 (supra), the Tribunal has decided the same holding that the department cannot disallow the expenditure merely because there is a clerical error in the bills produced by the assessee towards the expenditure. It was held that if the expenditure is not claimed by M/s. Maytas Properties Ltd., it is fair to allow ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of S.37(1), it was held by the Tribunal that such expenditure claimed by the assessee, which was otherwise genuine, could not be disallowed entirely for want of vouchers. It was held by the Tribunal that it would be fair and reasonable in the facts of the case to disallow relevant expenditure to the extent of 10% for the unverifiable element. Following the decision of the Tribunal in assessee's own case for assessment year 2008-09, the Dispute Resolution Panel directed the Assessing Officer to restrict the amount of disallowance to the extent of 10%. 10. At the time of hearing, the learned representatives of both the sides have agreed that this issue is also squarely covered by the decision of the Tribunal in assessee's own case for assessment year 2008-09, which has been relied upon by the Dispute Resolution Panel to give relief to the assessee on the similar issue involved in the year under consideration, i.e. assessment year 2009-10. Respectfully following the said decision of the coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 on similar issue, we uphold the impugned order of the Dispute Resolution Panel directing the Assessing Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under consideration are similar to assessment year 2008-09 in as much as the assessee company had interest free funds in the form of customer advances amounting to Rs. 556.36 crores and debentures and CCDs amounting to Rs. 600 cores, which were sufficient to give the interest free advances to the subsidiaries as well as other companies. He has also submitted that all these advances were given by the assessee company during the course of its regular business and nexus of these advances with the business of the assessee was duly explained before the Assessing Officer. He has contended that the facts involved in the year under consideration thus are similar to that of assessment year 2008-09, for which a similar issue has already been decided by the Tribunal in favour of the assessee and the Learned Departmental Representative has not been able to dispute this position. 15. We find that in its order dated 6.6.2014, the Tribunal has considered and decided similar issue in favour of the assessee for the following reasons given in paragraphs 34 of its order- "34. We have heard both the parties and perused the record. The revenue authorities disallowed the notional interest on the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt of total expenditure of Rs. 5,59,97,114 only to the extent of 10% of such expenditure for which payment is found to be made in cash. 17. In their Audit Report, the Special Auditors had reported that various expenses claimed by the assessee company aggregating to Rs. 6,05,33,905 were not properly supported by bills, receipts etc. During the course of assessment proceedings, the assessee company could produce the supporting bills/receipts only in respect of such expenses amounting to Rs. 45,36,791. The Assessing Officer therefore, proposed to disallow the balance expenditure of Rs. 5,59,97,114 for want of supporting evidence. On objection raised by the assessee to dispute the said disallowance, the learned DRP found that a similar issue involved in assessee's own case for assessment year 2008-09 was decided by the Tribunal vide its order dated 6.6.2014, whereby the Assessing Officer was directed to allow the expenses found to be paid by cheques on verification and to make a disallowance of 10% of the balance expenses, which are found to be made in cash. Following the said decision of the Tribunal for assessment year 2008-09, the DRP directed the Assessing Officer to decide thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4. Accordingly, following the said order of the Tribunal in assessee's own case for assessment year 2008-09, the DRP directed the Assessing Officer to allow the expenditure claimed by the assessee on account of payment made to M/s. Chourasia Construction. 22. At the time of hearing, learned representatives of both the sides have agreed that this issue is also squarely covered by the decision of the Tribunal rendered in assessee's own case for assessment year 2008-09, wherein a similar issue has been decided by the Tribunal in favour of the assessee vide paragraph No.43 which reads as under- "43. We have heard both the parties, perused the record 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 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oo late in the day to treat the expenditure incurred a management in paying reasonable sums by way of gratuit bonus, retrenchment compensation or compensation for termination of service as not business expenditure. In order to claim deduction under s. 10(2)(xv), an assessee had to show that the expenditure in question, (i) was not an allowance of the nature described in any of the cls. (i) to (xiv) of s. 10(2), (ii) was not in the nature of a capital expenditure or personal expenses of the assessee, and (iii) had been laid out or expended wholly and exclusively for the purposes of his business, profession or vocation. Even assuming that 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 e 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt d to directors and employees is allowable as a deduction." Further, it is also noticed that the dispute went before the Court and MOU was filed before the Court, which is placed on record at pages 234, 225 & 204 of the paper book. It is also brought on record that Maytas Infra Ltd. is not carried on any work of this and there is no overlapping of work. Considering the above proposition, we find that the entire payment to sub- contractor shall not be disallowed as there is evidence on record for such payment. More so, the assessee has produced payment details and it has been subjected to tax deduction. Being so, considering the totality of the facts and circumstances, we are inclined to allow the claim of the assessee. This ground is allowed." As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to assessment year 2008-09, we respectfully follow the decision of the coordinate bench of the Tribunal and uphold the impugned order of the DRP giving relief to the assessee on this issue. Ground no.6 of the Revenue's appeal is accordingly dismissed. 23. In ground No.7. Revenue has challenged the action of the DRP i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere was no way that the budgeted cost of the same design could escalate to such an extent as claimed by the assessee within a period of one year. He held that the increase in the estimated budgeted cost, as claimed by the assessee was itself flawed and the claim of the assessee for such escalation and calculation of less percentage completion based on such escalation could not be accepted. He held that the percentage completion for assessment year 2009-10, therefore, has to be calculated based on the budgeted cost as estimated originally for reckoning the income of the assessee company. 26. As regards the change in the method adopted by the assessee company in the year under consideration to recognize the revenue only on the basis of registration of the agreements for sale or possession of the flats and bungalows as well as consequential reversal of income recognized in the earlier years on the basis of execution of agreements for sale, which were sought to be cancelled by the agreement holders, the Assessing Officer noticed that the assessee company has not paid back any amount to the customers in the wake of purported cancellation and legal cases. He also noted that the Specia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ittedly the assessee is engaged in the business of construction of residential plots and houses and the revenue from construction is recognized on the basis of percentage completion method. In the assessment year under consideration, project cost was increased and accordingly revised budget was made, which is as 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 selfserving 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. The provisions of section 145(1) are subject to, inter alia, mandate of AS-1 which also prescribes that Accounting policies adopted by an assessee should be such 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... possession of flats to the ultimate customers. The Department cannot thrust upon the assessee so as to tax the future income. 44. In our opinion, the assessee has recognised the income in accordance with the true terms of the agreement and if there is any inconsistency in recognising the 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 th assessee has postponed the tax liability. There is no ic 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 pro y was sold by the assessee, profit on such transaction is to be assessable not in the year of agreement and it should be assessable pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade is the point when the stock-intrade is sold or otherwise transferred, whereas the chargeability of capital gain under s. 45 of the IT Act, 1961 from transfer of capital asset shall be in the previous year in which the transfer took place including the transfer as provided 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 learne 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 contrac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onstruction work. 13. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of immovable property as held by the Hon'ble apex Court in the case of Alapati Venkataramiah vs. CIT (supra). Until and unless the title of 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, the development agreement, the assessee has not agreed for sale of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee and the individual, Smt. Sundari Ramachandran. Subsequently, the assessee instituted a suit for recovery of the amount terms of the settlement before the Civil Court at Bangalore O.S. No. 5898/2000, a copy of which is placed in the paper book 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 t d 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 lakh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al of the records and the subsequent events leading to the amalgamation establishes that the debenture issuing company has been under serious financial crisis and the impugned resolutions passed to the effect of waiver of interest are reliable. 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 actua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ustified in bringing the impugned notional interest to tax. Accordingly, we delete the impugned additions. Thus, Ground no 1 is allowed." 46. In view of the above discussion, we are inclined to hold that the CIT(A) is justified in deleting the addition 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 an not notional income and accordingly, we delete the addition made. This ground is allowed." 29. At the time of hearing before us, the Learned Departmental Representative has submitted that the issue relating to the recognition of income of the assessee and quantification of such income as involved in the year under consideration, i.e. assessment year 2009-10 has two aspects; (1) relating to the budgeted cost that has to be adopted for working out th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t such unilateral cancellation cannot create any uncertainty in the recognition of income of the assessee company, unless and until the assessee company also agrees for such cancellation. He has contended that there was however, no such mutual agreement for cancellation of agreements for sale and since the assessee company had not agreed for such cancellation nor refunded any amount, received under the agreement for sale already executed, there was no justification on the part of the assessee to change the method of recognition of income and consequently to reverse the income already recognised in the earlier years on the basis of cancellation of agreement for sale sought by some of the agreement holders. 31. The learned counsel for the assessee, on the other hand, has submitted that the extraordinary events witnessed during the month of January, 2009 in the entire Satyam group as a whole resulted in uncertainty in the execution of project undertaken by the assessee as a result of which some of the agreement holders sought cancellation of the units booked by them, by filing applications as well as by lodging cases in the court of law. He has submitted that the advances paid by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee only in the year under consideration, i.e. assessment year 2009-10. At the same time, we also find merit in the contention of the learned counsel for the assessee that the ratio of the decision of the Tribunal rendered while deciding the first aspect of the matter is applicable even in relation to the second aspect, as both these aspects involve the claim of the assessee based on prudential norms of revenue recognition, which is duly supported by the Accounting Standards issued by the ICAI. The relevant observations of the Tribunal in this context as recorded in paragraph 47 of its order dated 6.6.2014 (supra) are reproduced below- "47. ......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 distu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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." 34. A perusal of the relevant portion of the Tribunal's order in assessee's own case for assessment year 2008-09 clearly shows that while deciding the first aspect of the mater in favour of the assessee, reliance was heavily placed by the Tribunal on the relevant Accounting Standard which provided for prudential norms of revenue recognition. The Tribunal also took note of the uncertainty involved in revenue recognition and held that in terms of the Guidance Note issued by the ICAI, it was appropriate to recognise the Revenue in such cases only when it became reasonably certain that ultimate collection would be made. The Tribunal also held that non-recognition of income on the ground that the income has not really accrued is legally corre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee company belonged in the month of January, 2009, there was uncertainty with regard to the completion of project by the assessee company and delivery of units booked. Keeping in view this uncertainty, some of the agreement holders tendered applications for cancellation of the units booked and demanded refund of the advances paid. Some of the agreement holders also filed cases against the assessee company for cancellation the agreements and refund of the amounts paid by them. The ultimate collection from these agreement holders thus became uncertain and the assessee company, in our opinion, rightly decided to postpone the revenue recognition to the extent of such uncertainty, by adopting the new method of recognition of income on the basis of registration of agreements for sale or handing over of possession of the units, as the same enabled it to assess the ultimate collection with reasonable certainty. As a matter of fact, the claim made by some of the agreement holders for cancellation of agreements for sale already executed and for refund of the advances already paid created uncertainty relating to collectability which arose even after the execution of the agreements ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the DRP and the learned counsel for the assessee has also not raised any objection for the admission thereof, the additional grounds raised by the Revenue have been admitted by us. We now proceed to adjudicate upon the issues raised by the Revenue in the additional grounds. 40. As regards the issue involved in additional ground No.1 of the Revenue, relating to disallowance of various expenses amounting to Rs. 5,72,62,133 proposed to be made by the Assessing Officer on the ground that the bills produced by the assessee company in support of the said expenses were not in its name, but were in the name of other group companies, it is observed that a similar issue as involved in ground No.2 originally raised in the appeal of the Revenue has already decided by us in the foregoing portion of this order by following the decision of the coordinate bench in assessee's own case for assessment year 2008- 9. Following the said decision, we uphold the impugned order of the DRP directing the Assessing Officer to verify the relevant expenses and if it is found on such verification that the payments are made by the assessee company by cheque and the same expenses are not claimed by the othe....