TaxTMI 
TaxTMI 
2015 (7) TMI 576
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.... arises in ITA No. 507 of 2013 is: "Did the Income Tax Appellate Tribunal (ITAT) fall into error in its findings with respect to the addition on account of reimbursement of interest within Section 40(a)(ia) on the issue of non-deduction of TDS on the payments made on reimbursement of service charges?" 3. The relevant facts are that the assessee, a firm set up in 1984-85, is in the business of developing land for commercial, residential, retail, industrial parks, information technology parks, SEZ, etc. During AY 2007-08, the assessee filed its return reporting an income of Rs. 1,67,95,360. Scrutiny assessment notice Section 143(2) of the Income Tax Act, 1961 (hereafter referred to as "the Act") was issued on 22.07.08. During assessment proceedings, the Assessing Officer ("AO") observed that the assessee had in its Balance Sheet shown stock of Rs. 34,55,60,19,667/- and Current Liabilities as Rs. 34,86,09,08,730/-, whereas in the Cash Flow Statement,it had shown stock of Rs. 34,55,54,73,615/- and Current Liabilities as Rs. 34,85,91,89,394/-. Further, the AO asked the assessee to explain the transaction in respect of which advance of Rs. 3038.65 crores was received from M/s DLF Ltd. ....
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.... the assessee for both the assessment years. The Revenue's appeals in both the cases were dismissed by the ITAT, which upheld the findings of CIT(A). Aggrieved, the Revenue is in appeal before this Court. Submissions on Behalf of Revenue: 6. Mr. N.P. Sahni, learned counsel for the Revenue, assails the decisions of the ITAT in respect of the first issue on the ground that the stock and current liabilities shown in the cash flow statement do not match with that shown in the balance sheet. He submits that the decreased stock in cash flow statement implies that the assessee has actually sold the development rights during the year while decreased amount under current liabilities is receipt against the decrease in stock. 7. Learned counsel submits that in terms of the assessee's accounting policy, sale of developed plots was recognized in the financial year in which the agreement to sell is executed. The AO had rightly concluded that the assessee had not declared the net receipts of sale of development rights in its income-tax return. He submits that by agreement to sell dated 02.08.2006, the assessee agreed to assign or transfer the development rights to M/s DLF Ltd. or its affil....
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....ance" and the amounts paid to land owning companies also be treated as advance paid only. Assessing Officer has misunderstood this position and tried to imply that the assessee is following Cash System of accounting and has accordingly made the addition.The amount received by the assessee cannot be treated as income in the hands of the assessee. 11. Mr.Vohra further submits that deletion of amount paid to M/s DLF Land Ltd. from the income of the assessee under Section 40(a)(ia) of the Act is justified as the payment was made for the purposes of reimbursement of expenses handled by M/s DLF Land Ltd. on behalf of the assessee, and the assessee had duly deducted TDS on the service charges paid to M/s DLF Land Ltd. by the assessee. The assessee entered into an agreement dated 01.04.2007 with the said company to carry out activities like maintenance of books of accounts and getting the accounts audited, maintenance of secretarial records, filing with various statutory authorities etc. M/s DLF Land Ltd. was entitled to service charges @ 5% of the total expenditure incurred. During AY 2008-09, the assessee reimbursed Rs. 19,69,83,236/- and also paid service charges @ 5% on it amounting t....
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....uthorities with regard to the development rights." Further, the discrepancy between the figures with respect to current liabilities and stock appearing in the Balance Sheet and Cash Flow Statement, was, in this Court's opinion, adequately explained by the CIT(A) as follows: "The learned AO ought to have appreciated that cash flow statement only reflects transactions made in cash, and therefore, the figures of current liabilities and stock will match with the balance sheet only if all transactions were made in cash." 13. The concurrent findings of fact of the CIT(A) and the ITAT affirm that the LOCs had not acquired any development rights during the concerned assessment years. In such a situation, it is inconceivable as to how the assessee could have acquired such rights from the LOCs, let alone transferring them to M/s DLF Ltd. and CBDL. This Court does not find any basis provided by the Revenue to interfere with ITAT's finding on this aspect. 14. The revenue places reliance on the assessee's accounting policy - mentioned in Schedule 7 of the auditor's report for AY 2007-08 - which states that „sale of developed plots is recognised in the financial year in which the agree....
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....ccount of sale of development rights for AY 2007-08 and AY 2008-09. Question No. 2 17. The AO disallowed the amount of Rs. 19,69,83,236/- as deduction for the reason that the assessee deducted TDS only on the service charges paid by it to M/s DLF Land Ltd. According to the AO, TDS ought to have been deducted under the amount paid by the assessee towards reimbursement expenses to M/s DLF Land Ltd. This Court holds that the CIT(A) and the ITAT rightly set aside the AO's order, ruling that the assessee was not required to deduct TDS on reimbursement expenses paid to M/s DLF Land Ltd. 18. The assessee has correctly relied upon this Court's ruling in Industrial Engineering Projects Pvt. Ltd., (supra). A Division Bench of this Court in that case specifically held that "reimbursement of expenses can, under no circumstances, be regarded as revenue receipt" and therefore, it is not liable to income tax. The Court relied upon the Supreme Court's decision in CIT v. Tejaji Farasram Kharawalla Ltd., [1968] 67 ITR 95 (SC), where the Court had held that it is only the amount that exceeds the expenditure incurred by the agent that would be liable to tax. More recently, this Court in Fortis Heal....