TaxTMI 
TaxTMI 
2016 (3) TMI 679
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 29.09.2008. During the course of assessment proceedings, the AO issued a detailed questionnaire to the assesse based on audited balance sheet, profit & loss account and tax audit report u/ 44AB. The books of accounts of the assesse are maintained on Oracle Software System which was found to be complex by the AO. It was also noted by the AO that there is a change in the method of accounting. During the year to conform with the guidance note issued by ICAI, the AO found the accounting complex and, therefore, issued a show-cause notice for getting their accounts audited u/s 142(2A) for this year. The AO sent the details of complexities found in the books of accounts along with the reply of the assesse. A proposal was sent for conducting special audit u/s 142(2A) of the Act. Further, it was noted that a survey was also conducted u/s 133A of the Act at the company's premises at P-39 (Basement), NDSE, Part II, New Delhi and certain documents were found. On 30.06.2008, CIT (A), Delhi IV granted approval of conducting the special audit of books of accounts of the assesse for this year. In accordance with that, a special auditor was appointed for conducting the special audit and sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss Depreciation on Constructed Building Revenue recognition on Saket Court Yard 192 194 194 198 9,14,277 13,24,00,000 15. TOR - 13 Volume - VIIA - VIID Revenue recognition on the basis of POCM Working for 8 projects 198 320 222,56,87,056 16. TOR - 15 & 20 Volume - VIII Reclassification of Income from House property Reconciliation of rental income with TDS Certificate Notional Income from House properties 321 326 330 326 329 346 8,15,68,758 4,49,85,573 3,27,52,542 17. TOR - 20 Volume - VIII Compensation paid to Shriram School Withdrawal of 30% deduction u/s 24 346 353 1,16,99,500 35,09,850 18. TOR - 30 Volume - IX Expenditure on account of Provision for gratuity u/s 43B 353 354 14,49,123 19. TOR - 29 Volume - IX Disallowance u/s 14A read with Rule 8D 354 360 16,47,55,000 20. Term of Reference No.31, Volume X Capitalization of Revenue Expenditure 360 362 2,13,94,580 21. TOR - 35 Volume - X Late Construction Charges 363 367 1,88,81,388 22. TOR - 33 Volume - X Prior Period Expenses 367 369 20,9....
X X X X Extracts X X X X
X X X X Extracts X X X X
....six items are covered in favour of the assesse by the order of ITAT in the case of the assesse itself or by the orders of the AO in succeeding or preceding assessment years. Before ld. CIT (A), the assesse in all raised 34 effective grounds of appeal which were disposed off by the ld. CIT (A) vide his order dated 25.03.2011. Vide his order, ld. CIT (A) confirmed some of the additions and deleted some of the additions. Mostly on the additions deleted by the CIT (A), the revenue is in appeal and against the additions confirmed by the CIT (A), the assesse is in appeal. Therefore, it resulted in cross appeals. 04. Assesse has raised following grounds of appeal "1. These facts were on record, calculation filed, remand asked for, the AO did not dispute the calculation. In such circumstances, the CIT (A) was wrong in asking the AO to again verify the working in respect of these disallowances. 2. That the learned CIT (A) has failed to appreciate that the CIT(A) has no power to set aside any fact of his order to the AO and, therefore, unless The CIT(A) found the calculations to be wrong, he had no option but to order relief. The facts of the order wherein CIT(A) has set....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in rejecting the books of account of the appellant company and invoking the provisions of section 145(3) of the Income Tax Act, 1961, on wholly illegal and untenable grounds by treating the appellant's grounds as infructuous. [Page 24-25 of CIT (A)'s Order] 5. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in directing the assesse to get the accounts audited under section 142(2A) of the I.T. Act, 1961, by the Special Auditors and dismissing the appellant's appeal on this ground as infructuous. [Page 25 of CIT (A)'s Order] 5.1 The learned CIT(A) ought to have held that no genuine cause existed for ordering Special Audit u/s 142(2A) of the Income Tax Act as assesse's accounts were not complex and these accounts were being maintained for the last so many years. 6. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... prejudice, the learned CIT(A) ought to have directed to exclude the amount of Rs. 78,77,80,921/- from taxable income of A.Y. 2007 -08 or subsequent years if it was to be held that amount is taxable in the assessment year under appeal. 9. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of interest expenditure of Rs. 27,45,OO,OOO/- out of total disallowance of interest expenditure of Rs. 119, 15, 13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans for specific projects were utilized for such projects only and by drawing a formula that 1/3rd of advances have been given out of own funds and 2/3rd of advances have been given out of borrowed funds. [Page 90-109 of CIT (A)'s Order] 9.1 That the learned CIT(A) has grossly erred in law in directing for verification by the AD on part of the interest expenditure amounting to Rs. 27.45 Crores although the AD had already given his remand as duly noted in Para 17.35 of CIT(A)'s order. 9.2 That the learned CIT(A) complet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n under the head 'Income from House Property' by holding that the appellant is not the owner of this property and the rental income cannot be computed under the head 'Income from House Property'. [Page 166-173 of CIT (A)'s Order] 12.1 That the learned CIT(A) has erred in directing the AO to verify the facts and in confirming the disallowance as the CIT(A) has no such power to set a-side the addition made by AO. [Page 173 of CIT (A)'s Order] 13. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs. 14,49,123/- for expenditure on account of Provision of gratuity u/s 40A(7) of the Income-tax Act, 1961. [Page 173-175 of CIT (A)'s Order] 14. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs. 84,12,762/- out of total disallowance of Rs. 2,13,94,580/- in respect of the following items by treating the same as capital in nature and erred in not considering the fact that these expenses are on account of legal and professional charges, repai....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it constructs houses, commercial places like malls, airports etc. 17. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs. 1,02,786/- by holding the same as cash payment in excess of Rs. 20,000/-- and not allowable u/s 40A(3) the Income-tax Act, 1961. [Page 254-256 of CIT (A)'s Order] 18. That the order passed by the learned CIT (Appeals) is bad in law as well as wrong on facts and erroneous in points of law and right is reserved to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing." 05. Ground Nos.1 and 2 are general in nature. No arguments against and for them have been advanced by the parties and therefore they are dismissed. 06. Ground No.3 of the assessee's appeal is against the disallowance of Rs. 16,47,55, 000/- made by the AO u/s 14A of the Act applying the formula laid down under Rule 8D of the Income Tax Rules, 1962 and which has been set aside by CIT (A) to the file of AO for verification of complete facts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act cannot be invoked." 07. Brief facts of the case are that assesse has earned income of Rs. 48869000/- as share of profit from firms which is exempt u/s 10(2A) of the Act. During the course of assessment proceeding, AO asked assesse to work out disallowance u/s 14A of the Act. Assesse vide letter dated 26.03.2009 submitted working of such disallowance of Rs. 1,87,35,000/- made by assesse in computation of total income. The AO rejected the disallowance made by assesse as according to him it was not in accordance with rule8D of the Income tax Rules 1962. Therefore he applied the provisions of rule 8D and disallowed a sum of Rs. 16,47,55,000/-providing working of such disallowance at page no 359-360 of the assessment order. Composition of expenses for such disallowance, AO has computed interest disallowance of Rs. 1450.67 lakhs and other expenditure of Rs. 196.89 lakhs. Ld. AO has worked out interest disallowance on proportionate basis. He worked out total interest expenditure other than direct interest expenditure incurred by the assesse at Rs. 13598.23 lakhs. He further took the average value of investments yielding exempt income of Rs. 393777.52 lakhs. He then worked out....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome tax rules 1962 which is applicable from AY 2008-09 as held by Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Ltd. (supra) and, therefore, the disallowance made by AO invoking Rule 8D for AY 2006-07 is not correct. (iii) He submitted that assesse has invested as on 31.03.2006 Rs. 49 crores in partnership firms and Rs. 505 crores in various private limited companies. The assesse has not earned any dividend income from those private limited companies. However, during the year, it has earned profits from the partnership firms only which is exempt by virtue of the provisions of section 10(2A) of the Act. From those partnership firms, the assesse has earned profit of Rs. 4,88,69,000/- as shown in Schedule 15 of the profit & loss account. This was the only exempt income earned by the assesse. It was submitted that these partnership firms are formed for holding of land for the purposes of real estate business of the company. Further, it was submitted that investment of Rs. 505 crores as at 31.03.2006 has been made in several private limited companies for the purposes of holding land in those companies because of restrictions provided under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT v. HDFC Bank Ltd. (2014) 107 DTR (Bom) 140 and CIT Vs. Reliance Utilities & Power Ltd. 178 Taxman 135/313 ITR 340/221 CTR (Bom.) 435 etc. (v) The next argument advanced was that profit from the firm in the hands of the assesse partner is doubly taxed income and is not exempt income. For this, he relied on the Circular No.636-dated 31.08.1992 wherein CBDT has held that the profits from the firm are doubly taxed income. Therefore, it was his contention that profits from the partnership firms are taxable and investment thereon cannot be taken in to consideration for any disallowance u/s 14A of the Act. (vi) Further, it is also submitted in respect of investment in subsidiary companies, that no tax free income is earned during the year as demonstrated from the chart showing the exempt income during the year. Therefore he submitted that these investments should be excluded for working out any disallowance on account of other expenditure also. He further submitted that it is settled legal position that no disallowance u/s 14A can be made in the absence of receipt of any exempt income, for this he referred several high court and tribunal decisions some o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e further submitted that there is no nexus between the interest bearing funds invested in tax free income yielding investments. He relied on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs. Reliance Utilities & Power Ltd. - (2009) 178 Taxman 135 (Bom) where in absence of nexus, the assesse should be given benefit of interest free funds available with it presumed to have been invested in assets wherever income is exempt. 10. Ld. DR submitted that (i) There is no grievance on the issue that Rule 8D does not apply for AY 2006-07 and, therefore, it is not contested. (ii) Further, he submitted that CIT (A) in para 24.9.1 has set aside the matter back to the file of the AO to compute the disallowance after verifying complete facts and figures and then the disallowance may be worked out. It was his contention that when the matter has been set aside to the file of the AO where opportunity was obviously would be given to the assesse to raise all plausible grounds; therefore assesse is not aggrieved by this finding of CIT (A). He submitted that mere setting aside an issue to the file of the AO in view of the decision....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as under:- Particulars Assessment Year 2006-07 2005-06 2004-05 Share of Profit from Partnership Firms (net) 4,88,69,429 9,81,36,794 8,84,32,899 Exempt income from subsidiary companies - - - Other Exempt Income (Dividend) - - 10,000 Total 4,88,69,429 9,81,36,794 8,84,42,899 13. With the above facts we proceed to decide the each of the relevant arguments advanced by the parties as under :- (i) It is fairly conceded by the ld. DR that the provisions of Rule 8D of The Income tax Rules 1962 is applicable form AY 2008-09 and not in AY 2006-07 and therefore is not applicable to the impugned assessment year in the appeal. Therefore, we confirm the order of CIT (A) that disallowance, according to Rule 8D of the Income Tax Rules 1962 cannot be made in the case of the assesse for this year. (ii) It is also the matter of contention before us that AO has not at all recorded his satisfaction regarding incorrectness of the claim of the disallowance made by the assesse which is mandatory u/s 14A (2) of the Act . It is a matter of record ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture in relation to income which does not form part of the total income under the said Act and subsection (3) applies to cases where the assesse asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assesse in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assesse, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assesse with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same."....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion clinches the issue in favour of the respondent assesse and against the Revenue. The self or voluntary deductions made by the assesse were not rejected and held to be unsatisfactory, on examination of accounts. Judgments in Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) would be relevant if the satisfaction of the Assessing Officer is in issue, and such question of satisfaction is with reference to the accounts. 19. However, the decisions relied upon by the Tribunal in the case of Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) could not be now applicable, if we apply and compute the disallowance under Rule 8D of the Rules. The said Rule in sub Rule (2) specifically prescribes the mode and method for computing the disallowance under Section 14A of the Act. Thus, the interpretation of clause (ii) to sub Rule (2) to Rule 8D of the Rules by the CIT(A) and the Tribunal is not sustainable. The said clause expressly states that where the assesse has incurred expenditure by way of interest in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dmitted fact that assesse has interest free funds available as per the balance sheets submitted before us and tabulated by CIT (A) at page no.178 of his order. According to that statement, as at 31st March 2006, assesse has interest free fund available to the extent of share capital of Rs. 40 crores and reserves and surplus amounting toRs.607 crores making total available interest free funds at Rs. 647 crores,. Against that, assesse has invested in unquoted equity shares of subsidiary companies and investment in partnership firms of Rs. 505 crores and Rs. 49 crores respectively, which makes total tax-free income generating investment of Rs. 554 Crores. Apparently, the interest free funds available of Rs. 647 crores exceeds against the investment generating tax-free income of Rs. 614 crores, therefore, according to us, no disallowance of interest expenditure u/s 14A can be made. Hon'ble Bombay High Court in the case of Reliance Utilities Limited reported in 313 ITR 340 ( Bom) has held that :- "10..... The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments wou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder :- "Admittedly, income from subsidiary is from "profit or gains of business" i.e. Loans and advances given to subsidiaries in the normal course of carrying on business of the appellant. The appellant is in the business of real estate development either directly as well as indirectly through the subsidiary companies. Therefore, the act of passing on interest bearing monies to the subsidiaries is also a part of the business model of the appellant." Before us, ld. AR has relied on the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Holcim India Pvt. Ltd. In ITA 486 /2014 and CIT vs. Oriental Engineering Pvt. Ltd. In ITA 605/2012 dated 15.01.2013 further several decisions of various coordinate benches were also advanced. Principle enunciated by all these decision is that in case the investment is for the purposes of the business but not to earn tax-free income such as dividend etc. disallowance cannot be made. It is further stated before us that coordinate Bench of ITAT, Mumbai in the case of Garware wallropes Ltd V ACIT in ITA No.5408/Mum./2012 in para no 2.4 has held that- "We find merit and substance in the contention of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come but for the business purposes of the assesse. We held so accordingly. (v) It is also an admitted fact that on the investments made by the assesse in various subsidiaries and group companies no dividend income is received during the year. Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT reported in 378 ITR 33 has held that there should be an actual receipt of income for making any disallowance u/s 14A of the act with respect to such investments. Provisions of section 14A envisage that there should be an actual receipt of income, which is exempt during the relevant previous year, and then only provisions of section 14A can be invoked. Admittedly, there is no income arising out of investments made in subsidiaries companies, group companies where assesse has controlling interest. Therefore we are of the view that these investments cannot be considered for working out disallowance of interest as well as other expenditure u/s 14A, therefore, according to us, no expenditure including interest expenditure shall also be disallowable on these investments. (vi) Investment in partnership firms has yielded tax-free income during year of Rs. 4,88,69,429/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w of various judicial pronouncements and the decision of Special Bench of ITAT, disallowance on account of expenditure excluding interest expenditure on average investment in partnership firms be worked out @ 0.5% of Rs. 45 crores which is amounting to Rs. 22,50,000/-. As the assesse has made higher disallowance then this amount, no separate disallowance on this account can be imputed. (vii) The argument of the ld. DR that as CIT (A) has only set aside the issue to the file of the AO, assesse cannot be said to be agreed by that order. We are not in a position to reconcile ourselves with the argument of the ld. DR when despite the appellate order of CIT (A) passed on 21.03.2011 till the date of hearing i.e. even after five years, the appeal effect order making the disallowance has not been made by the AO. In view of this, we are of the view that by setting aside the issue to the file of the AO by CIT (A) matter has not been attended and addressed for five years, makes assesse really aggrieved. Further, in spite of the fact that all relevant details were available before the CIT (A) we see no reason to set aside the issue to the file of AO. We are conscious of our duty....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ese facts appear in the order of the lower tax authorities. (3) In the case of Maharani Kanak Kumar Sahibav.CIT [1955] 28 ITR 462 (Pat.) - Remand should only be made in very rare cases and should be used sparingly and only in cases where the Tribunal, after examination of material already placed on record by way of evidence, takes a view that it is not possible for it to make a just order - Surinder Pal Verma v. Asstt. CIT [2004] 89 ITD 129 (Chd.) (TM). (4) In the case of Karnataka Wakf Board v. State of Karnataka AIR 1996 Kar. 55 at pages 63 & 64, it has been held that : "Where the party had an opportunity of adducing evidence in the case but with open eyes failed to adduce that evidence, the case should not be remanded to give a second chance to the party to adduce that evidence. The policy of the law is that once that matter has been fairly tried between the parties, it should not, except in special circumstances, be reopened and retired. In a recent decision their Lordships of the Supreme Court laid down that power to order retrial after remand, where there had already been a trial on evidence before the court of first instance, cannot be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rds to see whether there is sufficient material on record to dispose of the issue on merit and there is no need to remand the issue to provide a fresh inning to the revenue." Ld. CIT (A) has remanded the matter in a causal and as a shortcut, which is totally prohibited. It has to be borne in mind that litigants in our country have to wait for a long time to have fruit of legal action. The situation now, according to us, requires a change and when issue is not attended for half a decade even when all evidences, judicial precedents, principles of taxation are available, the issue requires to be decided on merit which we are duty bound to perform. Therefore, we reverse the finding of ld. CIT (A) for setting aside the issue to the file of the AO for working out disallowance u/s 14A of the Act. Therefore we hold that there cannot be disallowance u/s 14A of the act on the basis of arriving cumulative facts that (i) in absence of satisfaction recorded by the AO u/s 14A (2) of the act (ii) interest free funds available in excess of investments in earning tax free securities, (iii) the investments in partnership firms and companies are for the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Cheques Account as on 31.03.2006 by holding the same as outstanding for a very long period and in the nature of trading receipts. [Page 25-31 of CIT(A)'s Order]" 19. This ground is against confirming the addition of Rs. 3,67,27,062/- out of the total addition of Rs. 3,92,27,313/- made by the AO in respect of credit balance in stale cheque account as on 31.03.2006 by holding that these cheques are outstanding for a very long period and are in the nature of trading receipt. 20. The brief facts regarding this addition are that as on 31.03.2006 stale cheques of Rs. 3,92,27,312/- were outstanding for clearance in the bank account of the assesse and therefore they are standing in stale cheque account in the books. The amount of old cheques for more than 3 years were also outstanding of Rs. 2,57,29,937/-. The breakup of the amount of closing balance and the movement in the account was tabulated by the AO at page 39 of the assessment order. As on 01.04.2005 an amount of Rs. 5,18,75,677/- was found outstanding, Rs. 38,04,671/- was an additional transferred to this account and Rs. 1,64,53,036/- was subtraction (clearance of cheques from the bank account ) to that account resultin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in appeal before us. 22. The ld. AR of the assesse submitted that the accounting entries shows that this amount is pertaining to the cheques issued to various parties and some have not been deposited by those parties in their bank account and therefore for the control purposes, these entries have been passed in the books of accounts. These accounting entries have been accepted in past several years and in none of the years, the revenue has rejected it. The method of accounting is within the knowledge of the income tax department who is assessing the assesse u/s 143(3) for all those years and has accepted it in past. To support his contention, he drew our attention to page 39 of the assessment order where the details of such stale cheques are given from AY 2002-03 to 2006-07. He further argued that there is an opening balance of Rs. 5.18 crores as on 01.04.2005, which is reduced to Rs. 3.92 crores at the end of the year, the only amount of addition during the year is Rs. 38.04 crores, and subtraction is Rs. 1.64 crores. Therefore, there is no element of income during this year and the taxability of Rs. 3.92 crores during this year is against the principles of taxation. He submitt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of this case and the ratio laid down is properly applicable and the outstanding liability cannot be treated as revenue trading receipt of the current year as they are carried forward for several years. He submitted this for the reason that merely because the cheques are outstanding for more than3 years not presented in the bank account of the assesse cannot become the income of the assesse in this year. Therefore, he submitted that addition confirmed by the CIT (A) is on erroneous reading of the facts and law. 25. We have carefully considered the rival contentions on this ground. As per the accounting practice already recorded by above while recording the facts of this ground, it is apparent that this stale account cheque is appearing in the balance sheet of the company and details with the name, address, cheque numbers, date of cheque and the party to whom it is issued is available on record. The accounting entry by debiting the bank account and credited in the stale cheque account is an accepted corporate accounting practices for the controlling of dayto- day bank balance and reconciling it with the balance shown by bank in the account of the assesse. The basic intent and ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s statement is also appreciated on looking at the movement of the account tabulated in the assessment order that stale cheque account is just an accounting entry for the control purposes. Ld. CIT (A) has confirmed this addition merely because these cheques are outstanding for long period and, therefore, it has become a trading receipt is erroneous. The first reason is that it is not at all the receipt of any sum by the assesse but it is just an accounting entry; the second reason is the inflow of the cheque or outflow of the money has not occurred during the year but in past; and thirdly, merely because the cheques have been issued to the parties before three years and has not been encashed by those parties cannot go against the assesse when full details of those parties along with the details of payments against which the cheques have been issued is available on record. Further, if the liability remains unpaid for more than three years cannot extinguish that liability because assesse is year on year confirming its liability in stale cheque account by showing it into the balance sheet. Therefore, it cannot be said that by action on both the parties, the liability has extinguished. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee's accounts. Therefore, as rightly pointed out by the learned standing counsel for the income tax department, the question has to be considered de hors Explanation 1 to Section 41(1). When we do so, what we find from clause (a) is that in order to invoke the section, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The argument of the learned standing counsel that the nonpayment or non-discharge of the liability in favour of the sundry creditors resulted in "some benefit in respect of such trading liability" in a practical sense or common sense and, therefore, the section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Anson's Law of Contract, 19th Edition, page 383, are directly in point: " At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration. But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicaeutsi finis litium. The remedies are barred, though the right is not extinguished." And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that requirement is the normal course he is not likely to be exposed to action by the creditor."(underlining ours) This was also the view taken by the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended clause (a) of sub-section (1) of Section 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 with effect from 1st April, 1993, by which the words "some benefit in respect of such trading liability by way of remission or cessation thereof" were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received "some benefit" in respect of such trading liability. However, we have already seen that this benefit in respect of trading liability should be "by way of remission or cessation of the liability", after the amendment made to the clause with effect from 1st April, 1993. The second part of the reasoning of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) is based on the interpretation of the words "cessation or remission" of the trading liability. The Supreme Court noticed a judgment of the Bombay High Court in J.K. Chemical....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Manufacturing Company Ltd. v. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of Section 41(1). In the case before us, the identical contention has been taken on behalf of the revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be grante....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct. In Rishi Pal Gupta v. S.J. Knitting & Finishing Mills Pvt. Ltd. 73 (1998) DLT 593, the same view was taken. The last two decisions were cited by Geeta Mittal, J. in S.C. Gupta v. Allied Beverages Company Pvt. Ltd. (decided on 30/4/2007) and it was held that the acknowledgement made by a company in its balance sheet has the effect of extending the period of limitation for the purposes of Section 18 of the Limitation Act. In Ambika Mills Ltd. Ahmedabad v. CIT Gujarat (1964) 54 ITR 167, it was further held that a debt shown in a balance sheet of a company amounts to an acknowledgement for the purpose of Section 19 of the Limitation Act and in order to be so, the balance sheet in which such acknowledgement is made need not be addressed to the creditors. In light of these authorities, it must be held that in the present case, the disclosure by the assessee company in its balance sheet as on 31st March, 2002 of the accounts of the sundry creditors amounts to an acknowledgement of the debts in their favour for the purposes of Section 18 of the Limitation Act. The assessee's liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors. The liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the returns filed by the assessee. It was explained that the amounts were payable by the assessee-company to its customers but since they were not claimed by them, they were transferred to the profit and loss account. The ITO rejected the explanation. He held that because the surplus in the accounts of the creditors arose on account of trading transactions, it had the character of income and had to be added to the total income for tax purposes. The CIT(A) and the Tribunal deleted the additions holding that neither section 41(1) nor section 28 applied, as the amounts represented excess trading advances given by the customers to the assessee and that since at the time they were received they were capital receipts they could not change character and become assessable as revenue receipts. At the instance of the revenue, the following question of law was referred to the High Court of Madras: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting the addition made by the Income-tax Officer representing unclaimed sundry credit balances written back to the profit and loss account by the assessee during the previous year relevant for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and there was a finding of the appellate authorities to the effect that neither section 41(1) nor section 28 was attracted to that case. That was a case of certain deposits being received by the assessee. At the time of the receipt they were admittedly treated as capital in nature, and the assessee credited them to separate accounts. In due course of time, they were depleted by adjustments made from time to time. The balance in the accounts remained unclaimed for a long time and in the accounts for the accounting periods relevant to the assessment years 1982-83 and 1983-84, the balance remaining in the accounts was taken to the credit of the profit and loss account. The assessee could not explain why the balance was taken to its profit and loss account even though the money belonged to somebody else. It was in these circumstances that the Supreme Court applied a common sense view of the matter and held that the assessee had become richer by the amount transferred to the profit and loss account. The matter was thus decided on general principles and on the footing that the assessee committed and overt act indicating that it had appropriated the balances in the deposit amounts belong....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us is of this Court in Jay Engineering Works Ltd. v. CIT (supra). A perusal of the judgment shows that though Section 41(1) was invoked to tax amounts that were unilaterally written back to the profit and loss account of the assessee, this Court had applied the judgment of the Supreme Court in CIT Vs. T.V. Sundaram Iyengar (supra) to hold that the unclaimed liabilities written back were taxable under Section 41(1). A perusal of question No.3 referred to this Court under Section 256(1) of the Act shows that there is a specific reference to Section 41(1) of the Act. However, this judgment cannot be invoked to the present case for the simple reason that in the present case, the assessee did not write back the sundry creditors to its profit and loss account, a finding which is not disputed by the Revenue. The judgment of this Court in Jay Engineering Works Ltd. v. CIT (supra) is therefore distinguishable. 23. In the course of his arguments, the learned standing counsel referred to Section 28(iv) of the Act, according to which "the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession" shall be chargeabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounsel for the revenue, the alleged benefit enjoyed by the assessee by utilizing the amounts payable to the sundry creditors in its own business for a period of four years or more is to be brought to tax under Section 28(iv), notwithstanding that the conditions of Section 41(1), which govern the factual situation, are not satisfied, then it would render the latter section otiose or a dead letter. If we accept the argument of the learned standing counsel for the revenue, it would also introduce an element of uncertainty or subjectiveness in ascertaining as to what would be the lapse of time that would be necessary to render a liability to pay the creditors ineffective, which would result in an alleged benefit to the assessee. Moreover, if after the taxing of the amount u/s 28(iv) on the ground that considerable time has elapsed from the date of the debt during which the assessee had the benefit of the monies in his business, it is found that in another later year the creditor has recovered the money from the assessee, there is no provision in the Act to allow deduction for such payment. The section cannot be made subject to such vagaries or subjectiveness in its applicability. It is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee's appeal is allowed. 28. Ground No.7 of the appeal of the assesse is as under :- "7. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs. 5,41,75,304/- made by the Assessing Officer on account of revenue recognition in respect of sale of land and plots based on POCM (Percentage Of Completion Method) by changing the appellant's method of accounting. [Page 31-35 of CIT(A)'s Order] 7.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the immediately subsequent year relevant to assessment year 2007-08 and has, as such, resulted into double taxation of the same income. [Page 33 and 35 of CIT(A)'s Order] 7.2 That without prejudice, the learned CIT(A) ought to have given directions to exclude this amount from the taxable income of A.Y. 2007-08 if the same has been found taxable in the current year." 29. This ground is against the order of the CIT (A) confirming the addition of Rs. 5,41,75,304/- on account of revenue recognition of sale of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f which was Rs. 8,30,53,522/- resulting into profit of Rs. 1,78,49,594/- which was shown in AY 2007-08. Thus, from these two properties, an aggregate profit of Rs. 5,41,75,304/- which was shown by the assesse in AY 2007-08 as tabulated at page no.58 of the assessment order, AO taxed this as income of AY 2006-07 i.e. the impugned current assessment year. Admittedly both these plots do not have any significant development project cost. Against this, the assesse preferred appeal before CIT (A) who in turn confirmed the addition. The CIT (A) was of the view that though there is a change in method of accounting of constructed projects of the assesse, there is no logic as to why the same accounting practices of changed method with respect to sale of land and plots should not be followed. He was also of the view that the assessee's main business is real estate developer which includes both construction of projects and sale of land and plots. According to him, the Assesse does not have any right to pick and choose method of accounting and adopt percentage completion method from project completion method for constructed properties form this year and continue to recognise revenue on sale....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nveyance deed in favour of buyer and not before. He stated that as the conveyance deed in these two properties is executed in the next year, hence according to this decision, it is rightly offered for taxation in the year in which conveyance deed is executed. f) He submitted that in any case, assesse has already offered to tax this income in AY 2007-08 in which the registration of conveyance deed is made and has paid due tax in that year. Therefore, relying on the decision of Hon'ble Supreme Court in case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295, and fact of payment of tax in subsequent year, it is incorrect on the part of the CIT (A) to state that it is a technique to defer the taxes. g) His next argument is that as the income has already been offered for taxation in AY 2007-08, if the addition is sustained in this year and it will result into double taxation. To further strengthen his argument, he relied on the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. - 358 ITR 295 wherein it is held that as the income has already been taxed in the subsequent year, revenue has not been deprived of any tax and the rate of the tax in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld. DR submitted that concept of revenue neutrality cannot apply to method of accounting and assesse is duty bound to follow correct method of accounting to deduce the correct taxable profit every year. He heavily relied on para 9.12 of the order of CIT (A) and urged that the impugned addition of Rs. 5,41,75,304/- may be confirmed. 32. In rejoinder, ld. AR of the assesse submitted that Accounting Standard-7 does not apply to the real estate developer and for this, he relied on the decision of M/s. Mittal Investment Corporation vs. ACIT - ITA No.1652/Mum./2009 dated 13.08.2010, Paras buildtech India Private Limited V CIT [ ITA No 602/2015] [18-11-2015], Hon'ble Delhi High Court in paras 21 & 22, considered the revenue neutrality. He further relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. SABH Infrastructure Ltd. Wherein it is held that project completion method cannot result in deferment of payment of tax. He further relied on the decision of Hon'ble ITAT, Delhi Bench in case of Ansal Landmark Township that if only the year of taxability is disputed and overall profitability is not disputed, the addition is required to be deleted. 33. We h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assess whether it is the right method from which correct profit can be deduced. Guidance for the same is available in the Guidance Note issued by the ICAI - 'Guidance Note on Accounting For Real Estate Transactions' issued in 2006 and subsequently revised in 2012 gives a guidance which is in para no 6 as under :- "6. Accounting for sale of land or plots A. Sale of plots of land without any development Revenue from sale of land or plots should be recognised when all the conditions in paragraph 4.2 above are met. B. Sale of developed plots Where the development activity is significant and if the projects meet the criteria specified in paragraphs 3.3 and 5.1 above, the percentage completion method is used to account for such sales." In para no 4 of this guidance note it is provided that:- "4. Application of principles of AS 9 in respect of sale of goods to a real estate project 4.1 The application of principles of AS 9 in respect of sale of goods requires recognition of revenues on completion of the transaction/activity when the revenue recognition process in respect of a real estate project is completed as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng into the agreement. The purchaser is further enquired to pay for external development charges or other Government levies on prorate basis along with other purchasers which would be incorporated in the sale or conveyance deed executed by the seller in favour of the purchaser. Therefore, this is an obligation cast on the buyer which would be decided at the time of execution of sale deed. According to Condition No.5, the seller will have the right to effect alteration in the lay out plan and if there is a reduction arising out of this the seller would be liable to refund the amount of sale price paid to that extent. According to Condition No.7, it is provided that initial 20% sum paid by the buyer shall be considered as earnest money only which would be considered as advance against the sale of the plot. The right of the purchaser is not assignable or transferable without the written consent of the seller. According to the Condition No.22, the seller shall execute the sale deed in favour of the purchaser within reasonable time and after the plot has been finally demarcated, full consideration is paid by buyer, interest free maintenance security is recovered from buyer, full cost of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this year. Further, assesse as well as revenue both have relied heavily on the decision of Hon'ble Supreme Court in the case of Realest Builders and Services Limited 307 ITR 202. Hon'ble Supreme Court in that short decision has dealt with a controversy about the year in which the taxability arose in case of registration of sale deed in favour of the party or it accrued at the time of execution of tripartite agreement. According to the revenue, the income accrued to the assesse on the date of execution of the tripartite agreement when the full consideration of the building was received by the assesse and, according to the assesse, the income accrued in the year in which the sale deed is executed. In that case, Hon'ble Supreme Court has held that under the Act, according to section 145 of the Act, it is always open to the department to insist on the change in method of accounting followed by the assesse over years if the method of accounting employed by the assesse results in under-assessment of profit or net income. The Hon'ble Supreme Court also held that the rule of consistency accepted by the Hon'ble High Court in that decision is incorrect. It was further h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es ltd 307 ITR 202 (SC), we are of the view that income of the assesse on sale of plot of land cannot be taxed in this year. The reliance placed upon by the ld. AR on the decision of Hon'ble Supreme court in the case of CIT vs. Excel Industries (supra) is apposite as in both the years i.e. AY 2007-08 and 2006-07, the rate of tax remained the same and the revenue has not been deprived of its taxes. It becomes a futile exercise when there is no loss of revenue involved. The facts of the present ground clearly lead application of the principles laid down by the Hon'ble Supreme Court in that decision. In view of this, we reverse the decision of CIT (A) and delete the addition of Rs. 5,41,75,304/- on account of profits on sale of land and plots which are registered in favour of the buyer in AY 2007-08 and income of the identical amount is offered for taxation in AY 2007-08 and revenue has not reduced that sum from the assessment u/s 143(3) of that year. 34. Therefore, ground no.7 of the appeal of the assesse is allowed. 35. Ground No.8 of the appeal is as under :- "8. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t method to percentage completion method. It was noted by the AO that despite change in method of accounting, the assesse has not recognized any revenue on Mangolia Project as well as Summit Project. Therefore, the AO worked out a profit chargeable to tax from Mangolia Project of Rs. 26,55,94,049/- and from Summit Project of Rs. 11,45,52,376/-. The contention of the assesse is that construction of these two projects based on the percentage completion method has not reached threshold requirement of 30% as on 31.03.2006. It was submitted that profits of these projects are offered for taxation in subsequent years when the threshold yardsticks of 30% in terms of accounting policy of the assesse is achieved. Against this, AO was of the view that assesse has himself incurred expenses on land, such as, external development and construction cost on both these projects the revenue should have been recognized. Assesse further submitted that even the special auditor appointed by the revenue have also not recommended any recognition of revenue on Mangolia and Summit projects. The assesse submitted comparative data of other developers too where they are following threshold for starting of reven....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... completion method. However, assesse who is not in the business of construction is required to estimate reliably correct amount of revenue of the respective year. The auditor further went to state that the company has initially fixed the threshold limit of 30% effect from AY 2006-07 for recognizing revenue and its method has been consistently followed by the company every year thereafter. Thereafter, auditor stated that, according to him, it is reasonable to adopt revenue under the Percentage of completion (POC) Method where the level of expenditure incurred is 30% or more of the estimated project cost. Hence, auditor was of the view that the assesse company has adopted the threshold limit of 30% going by the industry claims, prudence and followed the same consistency and, therefore, there is no postponement of tax. In nutshell, the ld. AR argued that it is an opinion of the expert on accounting practices for AY 2010-11 which has been accepted by the revenue that 30% threshold limit is as per the industry norms, provisions and consistency, same should not be disturbed in this year. 40. Against this, ld. DR submitted that the CIT (A) as well as the AO has correctly decided the is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of the project have been obtained. These include, wherever applicable: (i) Environmental and other clearances. (ii) Approval of plans, designs, etc. (iii) Title to land or other rights to development/ construction. (iv) Change in land use (b) When the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25 % of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. (c) At least 25% of the saleable project area is secured by contracts or agreements with buyers. (d) At least 10 % of the total revenue as per the agreements of sale or any other legally enforceable documents are realised at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate - If there are 10 Agreements of sale and 10 % of gross amount is realised in case of 8 agreements, revenue can ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ete the addition of Rs. 1,02,84,93,509/-. While deciding this issue AO may however keep in mind the principle laid down by honourable Supreme court in case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295, if AO is satisfied that issue is revenue neutral the matter may be set at rest. Therefore, ground no.8 of the appeal is allowed with above direction 43. Ground No.9 of the appeal is as under :- "9. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of interest expenditure of Rs. 27,45,OO,OOO/- out of total disallowance of interest expenditure of Rs. 119,15,13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans for specific projects were utilized for such projects only and by drawing a formula that 1/3rd of advances have been given out of own funds and 2/3rd of advances have been given out of borrowed funds. [Page 90-109 of CIT(A)'s Order] 9.1 That the learned CIT(A) has grossly erred in law in directing for verification by the AD on part of the interest expenditure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... crores and, therefore, on netting principle there is no interest expenditure incurred by the assesse. Alternatively, it was also stated that CIT (A) did not give direction to allow this interest expenditure based on the percentage completion method against respective projects in this year or in subsequent years, when revenue is recognized. 45. Briefly stated, the facts are that during the year, assessee has incurred total finance charges of Rs. 1,19,56,56,108/- on fixed period loans and other interest amounting to Rs. 16,41,67,222/- . The interest on loan is paid for acquisition of land and for financing the project undertaken by the assesse. The AO took note of the accounting policy of the assesse mentioned in Schedule 24 of the balance sheet wherein it is mentioned that borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalized as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the profit and loss account. According to the AO, as the loan from ICICI Bank Ltd. of Rs. 300 crores is taken for p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....han the rates of interest of borrowings. (d) Appellant has a mixed account of funds and there is no nexus of the interest bearing funds and utilisation thereof. (e) Appellant has earned interest income of Rs. 1322714859/- and has interest expenditure of Rs. 1195422543/-. Income is charged to tax under the head profits and gains of business and expenses are also claimed as deduction u/s 36(1) 9iii) as business expenditure. (f) That part of the interest expenditure of Rs. 1191513955/- is required to be capitalised because purposes of the part of the borrowings is for purchase of land and construction purposes and there is no nexus of the funds. (g) Average Interest free funds are available to the assesse of Rs. 159254 lacs and total interest bearing funds are Rs. 182350 lacs and cost of the project as at 31.3.2006 is Rs. 351.78 crores. Net interest expenditure is Rs. 49.46 crores. Amount invested in group entities is Rs. 132.27 Crores. Based on above as in AY 2006-07, 44.51% of the revenue is recognized out of total cost of project of Rs. 351.78 crores, he proportionately worked out that Rs. 22.01 crores being 44.51% of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dard 16 issued by ICAI which does not apply to inventory and even if it applies, the provision of law should prevail when there is conflict between accounting standard and the taxation laws while deciding issue under the Income Tax. Even otherwise, whole controversy is of academic nature as there is no dispute that all the borrowed funds have been used for the business and even if part of interest is capitalised by linking the same with recognition of revenue, the claim of interest so capitalised is to be allowed as deduction in the AY 2007-08 as entire receipt was duly subjected to tax in the AY 2007-08. He further submitted that the finding of the CIT(A) in the year under reference being not in conformity with accounting and legal principles, the same has not been approved by the successor CIT(A) in the assesse's own case for A.Y. 2007-08. He submitted that in the past years identical claim of interest has always been allowed in the preceding years and there is no change in facts of the case and nature of claim. He also argued that whole controversy is of academic nature as there is no dispute that all the borrowed funds have been used for the business and even if part of int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f interest expenditure incurred by the company, it is required to be capitalized if the borrowing is related to the qualifying assets. In this case the inventory is a qualifying assets as it is held for more than 12 months and therefore interest attributable to it is required to be capitalised in the books of accounts as per AS -16. Therefore we do not agree with the arguments of AR that AS -16 does not apply to inventory. However, those are the provisions which are applicable for the maintenance of the accounts of the company and interest is allowable according to provisions of section 36(1) (iii) of the act. Further according to us, the provisions of Accounting Standards and provisions of the Act are two different set of regulations and while deciding this issue, it is well settled judicial precedent that is if there is a contradiction between the two, the provisions of the Act shall prevail. Provisions of section 36(1)(iii) provides that the amount of interest paid in respect of capital borrowed for the purposes of the business or profession deduction is required to be allowed. Proviso inserted w.e.f. 01.04.2004 is the only restriction if condition laid down u/s 36(1) (iii) are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0(2)(iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the Project of construction of flats under the Kandivali Project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali Project constituted the stock-in-trade of the assessee. That, the Project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under section 36(1)(iii). Since the assessee had received loan for obtaining stock-in-trade (Kandivali Project), the assessee was entitled to deduction under section 36(1)(iii) of the Act. That, while adjudicating the claim for deduction under section 36(1)(iii) of the Act, the nature of the expense - whether the expense was on capital account or revenue account - was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That, the utilization of the capital was irrelevant for the purposes of adjudicating the claim for deduction under se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ainst assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [131 taxman 810] and CIT V Reliance Utilities & Power limited [313 ITR 340]. We reverse the order of the CIT (A) confirming the disallowance of expenditure of Rs. 27.40 crores and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act. 50. In the result, ground no.9 of the appeal is allowed. 51. Ground No.10 of the appeal is as under :- "10. That learned CIT(A) has grossly erred in law and on the facts and in the 1circumstances of the appellant's case in confirming the disallowance of Rs. 64,39,262/- on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building. [Page 109-116 of CIT(A)'s Order]" 52. This ground is against the order of the CIT (A) confirming the disallowance of Rs. 64,39,262/- on account of brokerage expenses for Amex Building by holding the same is related to renting of building. 53. Brief facts of this groun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ived or receivable means the actual rent received or receivable in the hands of the assesse. We could not digest such a plea of the assesse because what is contemplated u/s 23 is that the annual value of the property which is let out should be the portion of the rent received or receivable by the owner from the tenant or the licence. The first and foremost condition is that it should be in the nature of rent mutually agreed upon between the two parties in the enjoyment of the property let out in lieu of the rent. The only deduction i.e. envisages is about the taxes levied by the local authority. Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by the tenant. For renting of the property brokerage cannot be said to be charged that has been created against property for enjoying the rights and at best, it is application of income earned. For such expenses as brokerage etc. is held to be allowable then there are number of other expenses which also can be held to be allowable which is against the mandate of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition is upheld, a direction may be issued to allow relief in AY 2007-08, the year in which entire receipt was subjected to tax in AY 2007-08. 61. Ld. DR submitted that the issue involved in this ground is identical to the ground no.8 of the appeal of the assesse where it has been prayed for setting aside to the file of AO for working out income chargeable to tax in this year only if threshold of the 30% of the total project cost incurred is made up to 31.03.2006. To this, ld. AR agreed. 62. Therefore, in view of this, we direct the AO to follow the same direction as has been given in ground no.8 of this appeal of the assesse with respect to Summit Project and Manoglia Project. Therefore, ground no.11 of the appeal is allowed with above direction. 63. Grounds No.12 of the appeal is as under :- "12. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs. 35,09,850/- on account of statutory deduction u/s 24 in respect of amount received from Shriram School and shown under the head 'Income from House Property' by holding that the appellant is not the owner of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts of the company and, therefore, it was claimed as deduction u/s 37(1) of the Act. The AO and CIT (A) confirmed the disallowance for the reason that it is incurred for registration of trademark and brand identity whichis a capital expenditure and on which depreciation is allowable u/s 32 of theAct. 70. Ld. AR submitted that the issue of allowability of this expenditure is covered in favour of the assesse by the decision of CIT vs. Finlay Mills Limited - 20 ITR 475 (SC) as well as the decision of Hon'ble Gujarat High Court in the case of CIT vs. Arvind Ltd. - 237 ITR 415. It was further pressed that Hon'ble Madras High Court in the case of Erode Transports Private Ltd. vs. CIT in 71 ITR 283 (Madras) has also held that registration of trademark is allowable expenditure. 71. Against this, ld. DR relied on the orders of the AO and CIT (A). 72. We have carefully considered this ground of appeal and we are of the view that the issue is squarely covered in favour of the assesse by the decision of Hon'bel Supreme Court in the case of CIT vs. Finlay Mills Ltd., supra, wherein Hon'ble Supreme Court has allowed the expenditure as revenue expenditure pertaining to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and circumstances of the case. It is generally understood that repair involves renewal; renewal of a part; of a subordinate part... repair is restoration by renewal. The size and importance of the work involved are to be considered. In the context of a building, its roof will be a subordinate part of it and, therefore, its replacement by asbestos sheets, in the place of a thatched roof should normally be understood as repair. The purpose of the fence around the business premises is to prevent trespassers and thieves from entering; the dominant purpose is to safeguard the property in the premises, the materials in the premises are certainly part of the business assets of the assessee. In this context, the compound wall cannot be treated in isolation. It is to be understood as part of the business premises and when only a part of the premises is replaced, prima facie, it will be a case of repair. The identity of the entire asset as a whole is not affected at all. The works carried out contribute to the better and safer utilisation of the existing business asset. These works effected, if considered in proportion to the entire business premises, will not be of significant replacemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nditure of Rs. 10,85,650/-. CIT (A) confirmed the disallowance holding that expenses have been incurred towards conducting due diligence of certain companies in which the shares were proposed to be purchased. This expenditure is also cost of the investment and therefore, in the nature of capital expenditure. 81. Before us the Ld. AR submitted that expenses which is conducted for due diligence of business activities is to be considered as part of running business and there is no case for capitalization of the same. Ld. DR relied on the orders of lower authorities. 82. We have carefully considered the rival contention. Assesse has made investments in subsidiaries and is in the business of real estate where in it has invested large sums in those companies. Professional fees paid for due diligence in case of one of the companies is in furtherance of the business of the company. Therefore it cannot be said that expenditure incurred by the assessee for due diligence of investments in furtherance of its business is capital in nature. 83. Next item of disallowance of expenditure is expenses relating to proposed merger of Rs. 6,50,000/- with wholly owned subsidiary company. Ld. AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is without proper appreciation of facts and provisions of the law. The allotment money represents application money from prospective buyers in respect of ongoing projects of the appellant. On the basis of application money, no legal title is acquired by the applicant till the allotment is made. After the allotment to the applicant, the allotment money is transferred to the project receipt account and same is considered as trading receipt of the business. There is no dispute about correctness of system and entries in the accounts. The CIT(A) in the finding extracted in para 28.13 have brought out the relevant particulars on record . Outstanding balance in the allotment account is refundable application money to the customers who were not allotted any property and as such there is no case of any income relating to such outstanding balance in the allotment account. It is not the case of the Assessing Officer and CIT(A) that there was actual allotment or transfer of application money to project receipt account of the business and such, there is no case of any presumed receipt in respect of credit balance in the allotment account. 90. Ld. DR. relied on the orders of lower authorities....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and sale of plots and apartments and has never been engaged in modernization of Airport which is a new and specialized line of business. 94. Ld. AR submitted that the appellant company is engaged in the business of development of real estate and modernization of any existing real estate project is part of its objects and activities and as such the basis of disallowance is factually incorrect and misconceived. He submitted that revenue has not disputed the genuineness of the expenses and in the light of fact that expenses were incurred in the normal course of business, the same is permissible deduction. He relied on the decision of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del). 95. Ld. DR relied on the orders of lower authorities. 96. We have carefully considered the rival contention. Admittedly assessee is in businesss of the real estate development. The tender fees paid for bidding of modernisation of airport cannot be said to be the new line of business but it is the same line of business i.e. of development of real estate. Therefore according to us the expenditure if incurred for the tender fees same is allowable u/s 37(1) of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowance. The factual position to this effect is corroborated from para 31.3 & 31.4 (page 254) of the CIT(A)'s order. In view of the above position, there is no case of any disallowance. However, if necessary, Assessing Officer may be directed to verify the factual position to this effect and give appropriate relief. He submitted regarding balance amount of disallowance of Rs. 59,984/-, that most of these payments were reimbursements to the employees towards travelling and medical expenses etc.. Further, payment to the employees towards reimbursement of expenses is not covered u/s 40A(3).Even otherwise, there is no case of any single payment exceeding Rs. 20,000/- and as such no disallowance is called for u/s. 40A(3) of the Income Tax Act, 1961. 100. Ld. DR relied on the orders of lower authorities and submitted that there cannot be any objection on setting aside this issue to the file of AO. 101. We have carefully considered the rival contentions. In view of the agreement between both the parties that correct facts have not come on the record therefore in the interest of justice this ground is set aside to the file of the AO with a direction to verify the contention raise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions of Rs. 37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 6 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs. 30,16,44,316/- on a/c of provision for construction account- Regency Park account no A33P038-000-03. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 7 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs. 21,39,996/- on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account). Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 8 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of POCM method adopted for AY 2006-07 which was needed to be applie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ized on the ground that the project was under completion but even then the assessee company had claimed the expenditure. 15. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs. 13,24,00,000/- on a/c of Revenue recognition of Saket Court Yard in spite of the fact that it was clearly established by the AO as well as auditors that by manipulating book of account the assessee company had postponed its income. 16. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs. 179,70,81,070/- out of addition made by the AO to the tune of Rs. 222,56,87,056/- by recognizing the revenue on POCM method based on the detailed working of the Special Auditor who had mentioned that the assessee had wrongly implemented the new accounting standards in its various projects. 17. That on the facts & circumstances of the case the ld. CIT( ) erred in deleting the additions of Rs. 8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issue mentioned in the assessment order where the AO has discussed nature of income from each an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t going through the details of the same and accepting the same at the face value of assessee company. 25. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs. 1,88,81,388/- (Correct amount should be Rs. 2,11,93,472/-) being late construction charges received by the assessee company during the year which should have been credited by the assessee company in his receipts for the year. 26. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs. 20,99,510/- being prior period expenses. 27. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs. 4,94,00,550/- received from customers in terms of contractual obligation. 28. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs. 8,09,92,427/- on a/c of Interest free security deposit, ignoring the facts that these were proved to be non-refundable and the Hon'ble Punjab & Haryana High Court held the same to be unreasonable. 29. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Apex Court in the case of Kishanchand (supra) was squarely applicable in this case. 35. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs. 225,85,28,452/- on a/c of deemed dividend (on protective basis) without appreciating the facts and various case laws discussed by the AO in the assessment order which were squarely applicable in this case. 36. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs. 1,94,78,538/- on a/c of personal expenditure made by the AO u/s 40A(2) of the IT Act . 37. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs. 1,93,38,906/- on a/c of brokerage, maintenance and professional charges paid to group companies which were either not legal or capital in nature as it was given for providing necessary information about land across India. 38. That on the facts & circumstance of the case the ld. CIT(A) erred in deleting the disallowance of Rs. 13,48,804/- made by the AO because the vouchers/bills against such expenditure were not in the name of assessee company and thus it was not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....jects and upholding the additions up to Rs. 78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT(A) has the effect of setting aside the order which was not permissible as per I T Act." 110. Ground No.2 is against the deletion of addition of Rs. 24,07,12,588/- based on percentage or completion method (POCM) in Summit and Magnolia project, without giving any reasoning. Further that on the facts and circumstances the ld. CIT (A) erred by directing the AO to verify the IDC allocation to above mentioned two projects and upholding the additions up to Rs. 78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT (A) has the effect of setting aside the order which was not permissible as per IT Act. 111. We have heard the rival contentions of the parties. Regarding taxability of these two projects was also the ground no 8 of the appeal of the assesse. While this ground of appeal on the request of both the parties we have set aside the issue of determining threshold of 30 % of incurring the total project cost of these projects for commencement of revenue recognition. Therefore the parties also requested to set asi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... change of the method of accounting the debit balance also is required to be adjusted. Therefore, there is no under-statement of income of the assessee. 116. We have carefully considered the rival contentions as well as the orders of the lower authorities. Because of the change of the method of accounting and as per the matching concept assesse has recognised the goods sold as well as the cost of those goods sold in the profit and loss account as all the projects have been completed in the earlier years. Details of those projects are tabulated on page no.97 of the assessment order which shows that these projects are pertaining to period 1990 to 2004. The assessee has accounted for revenue in this year of the constructed properties even when the conveyance of those properties has not been registered in favour of the buyers. As revenue has been recognised due to change in method of accounting which is bonafide and not doubted by revenue the relevant debit entries pertaining to those projects are claimed by the assessee as explained. None of this expenditure is incurred during the year but is claimed as expenditure for the year in view of the revenue being recognised of these proje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en taxed. Therefore, the debit balance of this account is also required to be granted. Before us, the ld. DR did not submit any other argument other than that the bills and vouchers for these projects have not been submitted. As it is evident that it is part of opening balance of Project Regency there cannot be any bills for the current year, therefore, the argument of the ld. DR regarding nonproduction of bills and vouchers cannot be accepted. Moreover, the AO has added for the only reason that these expenses are prior period expenses and cannot be granted as deduction though it was not considered that income received in the earlier years is being charged to tax in this year because of percentage completion method. According to the matching concept if the credit balances of various projects are charged to tax as a natural corollary the debit of those projects which represent the expenditure incurred in the previous years are definitely required to be allowed as deduction. They are neither prior period expense nor incurred during the year but are forming part of the taxable profit and loss of the assessee only because of the reason that assessee has changed its method of accounting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se. On appeal before CIT (A) the disallowance is deleted and therefore revenue is in appeal. 119. Before us, ld. DR submitted two arguments that the expenses are not related to the business of the assessee and it should be apportioned to the respective projects. 120. Against this, the ld. AR submitted that the CIT (A) has considered the claim of the assessee considering the nature of each of the expenditure and held that these are allowable to the assessee even if there is an incidental benefit accrued to the other party. 121. We have carefully considered the rival contentions. The brief fact is that certain overhead expenses incurred by the assessee have been apportioned to the other group companies for the reason that by incurring those expenses, the assessee has passed on some benefit to those companies. The amount of 75% of that expenditure has been transferred to the group companies and 30% of that expenditure is borne by the assessee company. During the course of assessment proceedings, the AO found that an amount of Rs. 20,79,10,574/- expenditure pertaining to payment to Directors, advertisements, printing and stationery, security charges, leave encashment and salar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d.CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions." 123. Ground No.5 is against deleting the additions of Rs. 37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 124. The only objection of the ld. DR on this account is that the CIT (A) has set aside this ground to verify the working submitted by the ld. AR. His only contention is that CIT (A) does not have power to remand it back to the file of the AO. 125. Against this, ld. AR submitted that CIT (A) has deleted the addition in on principle but just for the purpose of verifying the amount of Rs. 37,81,33,639/-. The CIT (A) sent it back for verification. He further submitted that after verification of the same, the AO has deleted the addition. 126. We have carefully considered the rival contentions. The brief facts of the case are that there is construction account with respect of 13 projects which has a credit balance of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal is dismissed. 127. Ground no 6 of the appeal is as under :- 6 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs. 30,16,44,316/- on a/c of provision for construction account- Regency Park account no A33P038-000-03. Further the ld.CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 128. Ground No.6 is against deleting the additions of Rs. 30,16,44,316/- on a/c of provision for construction account-Regency Park account No.A33P038-000-03. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 129. Ld. DR submitted that an amount of Rs. 30,16,44,316/- is on account of provision of construction amount of the Regency Park Project. He submitted that this is extra money received by the assessee and, therefore, AO has rightly charged this amount as income of the assessee. 130. Against this, ld. AR submitted that the CIT (A) has granted relief to the assessee after considering the fact that on account of the Regency Park Proje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d.CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions." 133. Ground No.7 is against deleting the additions of Rs. 21,39,996/- on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account). Further the Id CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 134. Ld. DR for the revenue submitted that this is excess money collected by the assessee. Against this LD AR submitted that it is the part of the stock entry and ignoring debit balances, only credit balances are considered by AO whereas the net effect of debit and credit balances of these projects are already included as part of the income and expenditure for the tax purposes. 135. We have carefully considered the rival contentions. This amount has already been included in the stock account shown in the balance sheet of the company at Schedule 8 incorporating the main ledger. Further, the credit balance accounts with respect to the Qutab Enclave plot of two ledgers where there is a credit balance amount in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rds the sale of the plot. Out of this amount conveyance deed has been executed in FY 2005-06 and revenue has been recognised of that sale consideration of Rs. 56,08,588/-. This leaves the balance of Rs. 1,23,81,979/- being advance received from the customers towards the sale of plot for which conveyance deed has not been executed. It is not disputed that revenue on these plots has already been recognised by the assessee in AY 2007- 08. As we have already held that assessee has correctly offered the revenue on the sale of plot and land at the time of execution of sale deed, we are of the view that the addition of Rs. 1,23,81,979/- cannot be made in the hands of the assessee in AY 2006-07. Therefore, we confirm the order of CIT (A) on the ground that firstly it is a double addition made and secondly as the sale of plot of land is chargeable to tax at the time of execution of the sale deed and therefore this income cannot be recognised in AY 2006-07 when it is already offered for taxation in AY 2007-08 on following the correct method of accounting. Therefore, ground no.8 of the appeal of the revenue is dismissed. 140. Ground no 9 of the appeal is as under :- 9 That on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....31.03.2006(*) Bill of Devyani International Oct- March-2004. 15,59,858/- The AO was of the view that these are without any basis and merely provided as liability. Therefore, he has made the addition. The amount of Rs. 22,83,72,235/- is consisting of provision of estimated development cost of Rs. 17,29,99,721/- which has been already spent up to 31.12.2008, therefore, these amount cannot be treated as unascertained liability as it has already been crystallised. Regarding the amount of Rs. 5,70,25,405/- for provision for internal development cost provided for as at 31.03.2006. This amount has been credited as at 31.03.2006 as provided for in the books of account as an expenditure. The AO has not doubted the expenditure but merely taxed the liability as it is outstanding in the books of account. Therefore, it cannot be stated that these are the unascertained liabilities. Further the amount of Rs. 25,60,429/- is an audit fee provision payable to the auditors and, therefore, also it cannot be said that it is unascertained liability as the audit has been conducted as provision has been made. The last amount is the bill of Devyani International Limited pertaining to Oct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the nature of fees etc. levied by the revenue. Further, he submitted that this amount has already been included in JV No.456 and JV No.373. He submitted that these amounts have already been included in the disallowance made by the AO of Rs. 22,83,72,935/-, therefore, it is a duplicate addition. 149. We have carefully considered the rival contentions. We have perused the relevant orders of AO as well as the CIT (A). This amount is already included in the addition made by the AO in ground no.9 of the revenue's appeal. In ground no.9, item no.2 vide JV No.373 dated 31.03.2006 related to the provision of IDC expenses of Rs. 1,22,41,224/- and item no.3 vide JV No.456 dated 31.03.2006 of Rs. 5,00,18,803/- total to Rs. 6,22,60,027/-. In this ground, instead of adding the full amount, the AO has granted deduction of actual expenses incurred of Rs. 1,40,15,503/- thereby a net addition of Rs. 4,82,44,524/- and, therefore, it is apparent that in ground no.9, the addition contested of Rs. 6,22,60,027/- and in ground no.10, the addition is contested of Rs. 4,82,44,524/- pertaining to the same items. Therefore, it is a double addition. Hence, we confirm the deletion of addition of Rs. 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purview of section 40A(2). 156. Ground No.12 is against deleting the additions of Rs. 16,95,67,085/= on account of Grand Mall project u/s 40A(2)(b) in spite of the fact that it was clear from the findings of special auditor as well as AO that the payments were made in excessive to fair market value to the company which falls within the purview of section 40A(2). 157. Ld. DR submitted that the assessee has passed the taxable profit from this net profit and loss account to its associate concern and, therefore, the provisions of section 40A(2)(b) of the Act are applicable as the relationship between the other identity with the assessee is of holding him subsidiary company. It was further submitted that profitability of the other identity as well as the assessee entity are irrelevant for examining the provisions of section 40A(2)(b). He vehemently supported the order of disallowance of Rs. 16,95,67,085/- being amount paid for Grand Mall. 158. Ld. AR for the assessee submitted that the provisions of section 40A(2)(b) cannot be applied in case of holding company and subsidiary company. For this, he submitted the decision of Hon'ble Karnataka High Court in the case of CIT v....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the product transacted for which the payment is made is required to be proved. From the assessment order, we could not find an observation or a finding of AO about what was the fair market value of the product for which the transaction has been entered into and payment has been made to a related party. Unless, the AO derives the fair market value he cannot determine that the payment is excessive or unreasonable. The AO has not done this exercise in both those additions. Further, Hon'ble Karnataka High Court in the case of CIT vs. Raman Goods Ltd. in ITA No.8/2007 dated 01.04.2003 following the decision of Hon'ble Bombay High Court in the case of CIT vs. V.S. Dempo and Company Ltd. - 196 taxman 193 has held that when the assessee is a company, the person to whom it has to make payment in order to attract the sale provision is any director of the company or any relative of the director. Admittedly, in this case, the payment is made to the subsidiary company and not to any director or any relative of the said direction. As the alleged transaction by the AO is between holding company and subsidiary company, we respectfully following the decision of Hon'ble Bombay High C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....13 of the revenue's appeal is dismissed. 165. Ground no 14 of the appeal of revenue is as under :- 14. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of Rs. 20,87,70,567/- on a/c of brokerage charges in spite of the fact that no revenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure 166. Ground No.14 is against deleting the disallowances of Rs. 20,87,70,567/- on a/c of brokerage charges in spite of the fact that no revenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure. 167. Ld. DR submitted that the AO has rightly disallowed the expenditure of brokerage amounting to Rs. 20,87,70,567/- pertaining to projects where now revenue has been recognised. 168. Ld. AR submitted that this issue is covered in favour of the assessee in its own case for AY 1993-94 by the decision of Hon Delhi high court in case of the assesse in ITA 1136/2009 dated 16.04.2015 where in while deciding ground no 4 of that appeal hon High court has held that these expenses are al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see had wrongly implemented the new accounting standards in its various projects. 171. Ground No.15 is against deleting the additions of Rs. 13,24,00,000/- on a/c of Revenue recognition of Saket Court Yard in spite of the fact that it was clearly established by the AO as well as auditors that by manipulating books of account the assessee company had postponed its income. 172. Ld. DR submitted that Saket Courtyard project is not the fixed asset of the assessee company but stock-in-trade of the assessee company and, therefore, the assessee has capped this asset as fixed asset is incorrect and it has to be taken as stock-in-trade. He, therefore, supported the order of the AO. 173. Ld. AR for the assessee submitted that Saket Courtyard Project is being fixed asset of the assessee company, hence the amount has been shown correctly as capital work in progress. It was further submitted that there is no sale deed executed by the assessee in favour of the buyers therefore, it cannot be taxed during this year. Further, he has stated that as in AY 2007-08, the project is recognised from fixed asset to business asset and in AY 2007-08 this transfer has been not disputed by the AO and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal. 178. We have carefully considered the rival contentions. In ground no.8 of the assessee's appeal, the ground is set aside to the file of the AO as per directions contained therein. We also set aside this ground of appeal of the revenue to the file of the AO with the same direction. In the result, the ground no.16 is allowed accordingly. 179. Ground no 17 of the appeal is as under :- 17. That on the facts & circumstances of the case the ld.CIT( ) erred in deleting the additions of Rs. 8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issue mentioned in the assessment order where the AO has discussed nature of income from each and classified it under proper head of Income. 180. Ground No.17 is against deleting the additions of Rs. 8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issues mentioned in the assessment order where the AO has discussed nature of Income from each & every property and classified it under proper head of Income. This addition is on account of reclassification of 'Income from House Propert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....el/2000. He pointed out further that the first appellate authority has also decided the issue in favour of the assessee in the case assessee itself of the assessment years 2006-07, 2007-08 & 2008-09. He submitted further that there is no change in the facts and circumstances of the case in this regard during the year under appeal. 12. The Ld. Departmental Representative on the other hand tried to justify the assessment order on the issue. 13. We find that the Ld. CIT (A) has discussed the issue in detail and has given its finding in this regard in para no.6.14 of the first appellate order, reproduced hereunder: "6.14 I have considered the submission of the appellant, observation of the Assessing Officer and decision of Hon'ble ITAT for A. Y 1996-97 in appellant's own case and order of Commissioner of Income Tax (Appeals) XVIII for A. Y 2006-07 and my own orders for A. Y. 2007-08 and A. Y. 2008-09 in appellant's own case wherein this issue was decided in favour of the appellant. It is seen that the issue in this ground is covered in favour of the appellant by the order of Hon'ble ITAT in appellant's own case for AY 1996-97. The appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st appellate order in this regard is thus upheld. Ground No.2 is accordingly rejected." 184. Further, Ld. DR has relied upon the decision of Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. vs. CIT in Civil Appeal No.4494/2004 wherein Hon'ble Supreme Court has held that letting out of the properties is in fact the business of the assessee. We have gone through the decision of Hon'ble Supreme Court and we are of the view that this decision favours the argument of the assessee. At page 4 of the decision, the Hon'ble Supreme Court has considered the judgement of that court in East India Housing and Land Trust Ltd. The court has considered that decision that where the main objection the company is buying and developing land and properties and promoting and developing markets and some rent is turned out of that, the character of that income shall be income from house property. Therefore, in this case too, the assessee company is a developer and hence, the decision of Hon'ble Supreme Court in the case of Chennai Properties is rendered in the context of the company which is formed with the main object of renting up of the properties.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9,907/- thereby there is a difference of Rs. 6,42,65,105/-. After deducting there from 30% as standard statutory deduction for computing income from house property amounting to Rs. 1,92,79,531/- , and addition of Rs. 4,49,85,573/- is made. The CIT(A) has dealt with this issue in para 21.23 at page no.163 of his order as under:- "21.23 I have carefully considered the assessment order, remand report of the AO and the submissions made by the ld. AR. As per reconciliation submitted by the assessee, the difference in income as per books of account and TDS certificates is on account of advance rent received during the year which has been accounted for by the appellant in the next year to which the advance rent received this year pertains. Since the assessee is following mercantile system of accounting, the advance rent has been accounted for in the period to which it pertains. However, as far as credit for tax deducted at source is concerned, I am of the view that following the matching concept, it is allowable in the same assessment year in which the income is recognised. In view of the above, the AO is directed to verify the reconciliation statement furnished by the assessee, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ual value amounting to Rs. 3,22,84,192/- and by making addition of notional rent of properties that remained vacant for a part of the previous year amounting to Rs. 4,68,350/- ignoring the fact of the case and wrongly relying upon the decision of Hon'ble ITAT in spite of the fact that the jurisdictional High Court has favoured the revenue on similar issue . 193. Ld. CIT (A) has dealt with this issue as under :- "21.32 I have carefully considered the assessment order and the submissions made by the ld. AR. From the details and other material on record, it is noted that the addition of Rs. 3,27,52,542/- comprises addition of Rs. 3,22,84,192/- by enhancement in the annual value by applying highest rent on all properties and secondly making addition of Rs. 4,68,350/- on account of notional rent of property that remained vacant for a part of the previous year. 21.33 So far as the addition of Rs. 3,22,84,192/- on account of applying highest rent on properties concerned, the AO had relied on the decision in the case of CIT vs. Smt. Bhagwati Devi (supra). In that case, the property had been rented out to related parties as at substantially lower rates as compared t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....23(1) (a) of the Income tax Act,1961, in respect of vacant properties. The details of the addition as per the assessment order is as under: - DLF City Centre Rs.2,36,01,310/- - DLF Commercial Shopping Complex Rs. 27,21,360/- DLF Corporate Park Rs.1,69,07,688/- Rs.4,32,30,358/- Less: Standard Deduction u/s 24(1) Rs.1,29,69,107/- Rs.3,02,61,250/- 17. The Ld. CIT (A) has deleted the addition after discussing the case of the assessee in detail and following the decision cited before him in this regard including decision of 'D' Bench of the Tribunal on an identical issue in the assessee's group concern M/s DLF Office Developers vs. ACIT reported in 23 SOT 19 (Del) and first appellate orders in the assessee's own case for the assessment years 2006-07, 2007-08 and 2008-09. 18. In support of the ground the Ld. Departmental Representative has basically placed reliance on the assessment order. 19. The Ld. AR on the other hand reiterated the submissions made before the Ld. CIT (A) and the decisions cited and relied upon before him. 20. Considering the above submission, we f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s annual value of the property in order to compute the income from property. " In the case of appellant, the appellant had intention to let such properties but could not get suitable tenant. In such a situation, the AL V will be Nil as per provision of section 23(1)(c) of the IT Act. Section 23(1)(a) r.w.s 23(1)(c) clearly provides that if the property remain vacant wholly or partly during the year, then actual rent received or receivable will be taken as the ALV of such properties. In the case of appellant the property is remained vacant, therefore, the ALV of such properties will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. The decision of the Assessing Officer was not justified. As regards, the Assessing Officer's decision of computing the notional rent based on highest rent in respect of each building, it is seen that the properties have been given to various parties which are not related to the appellant and some of them are of International repute like GE Capital, KPMG. The rent has been charged based on the location of the property, area of lease property and timing of lease agreement. It is seen that appellant has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the prohibition created by the arbitration award." 199. Ground No.20 is against deleting the additions of Rs. 1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the fact of the case that the AO disallowed the same in light of the prohibition created by the arbitration award. 200. Ld. DR submitted that income is charged to tax for earning income from property named as Shriram School Building and there is no provision for granting this deduction u/s 57(3) of the Act as it is not incurred for earning of the income under the head other sources. 201. Against this, ld. AR submitted that this amount is paid to the owner of the property for earning of the income. He stated that it is a pass through transaction and the identical amount of the sum has been transferred to DLF Qutab Enclave Educational Charitable Trust. 202. We have carefully considered the rival contentions. The facts of the issue are that compensation of Rs. 1,16,99,500/- is paid by the assessee to the owner of the property from the property i.e. Shriram School Building. The original income was shown by the assessee under the head income from house property and claimed deduction of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....15 So far as the AO's denial of the credit of TDS of Rs. 26,25,369/- on the income received from Shriram School is concerned, I find that as the rental income has been assessed under the head "income from other sources" and since the TDS relates to the very same income, the credit for the said TDS cannot be logically denied. Therefore, the AO is directed to allow credit of TDS of Rs. 26,25,369/-, after due verification." 208. Further, the ld. CIT (A) has asked the AO to make necessary verification; therefore, we confirm the order of the CIT (A) and dismiss ground no.21 of the revenue's appeal. 209. Ground no 22 of the appeal is as under :- 22. That on the facts & Circumstances of the case the ld. CIT(A) erred in directing the AO to verify the complete facts and figures with regard to disallowance u/s 14A read with Rule 8D and compute the amount of expenditure which has been incurred in relation to the exempt income and disallow the same. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 210. Ld. DR and ld. AR both agreed that this issue relates to d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....venue is in appeal . 214. Ld. DR submitted that these expenditure are capital in nature, therefore, vehemently supported the order of the AO and submitted that the addition may be confirmed. 215. Ld. AR relied on the order of the CIT (A) deleting the addition. 216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee. Hence, we confirm the order of CIT (A) and delete this ground of revenue's appeal. 217. Ground no 24 is as under :- 24. That on the facts & Circumstances of the case the ld. CIT(A) erred in del....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s on the ground of nonconstruction of building and in absence of any legal sanction for doing so assessee cannot indirectly impose penalty on the plot holder. The order of the Director Town and Country Planning upheld and was declared to be not ultra vires of the act. Further it was submitted by the assessee regarding late construction charges are received from customers / plot holders are under litigation in the Supreme Court. The decision is pending before the Supreme Court, as such, it cannot be accrued as income of the assessee company. In earlier years, late construction charges have been shown as income in the year of receipts and alter the order of Hon'ble High Court was received; the said late construction charges have been shown as an liability. As if the Supreme Court decides that the assessee company cannot collect the said charges, then all these charges will be returned to the concerned customers in the future year. In this regard, it may be noted that as per the High Court order, the Assessee Company has no right to collect the late construction charges from its customer. However, the Assessee company has filed an appeal in the Supreme Court against this order and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... treated collection of late construction charges as its income and from October 2002 onward, the appellant has not been treated the receipts of late construction charges as its income, in view of the matter being under litigation. The assessee himself has stated that if the Hon'ble Supreme Court decides that the assessee cannot collect late construction charges then only charges will be returned to concerned customers. It is noted that as per the High Court order, the assessee company had no right to collect late construction charges from its customers. However, the Supreme Court by its order dated 19.11.2010 has set aside the order of the High Court and therefore, it cannot be said that receipts in question are not accrued income. As the order of the Hon'ble Supreme Court is dated 19.11.2010 the amount collected is the income for financial year 2010-11. 26.11 An amount cannot be said to accrue unless enforceable debt is created in favour of assessee. Reference can be made to the judgment of Hon'ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27. Their Lordships at page 51 observed as under : "That the words 'arising o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncertainties same should not be recognised till the uncertainties are resolved. Therefore following the decision of coordinate bench as well as the accounting standard 9 of ICAI we are of the view that assesse has correctly recognised revenue in the year the issue attained certainty. Therefore on perusal of the decision of CIT (A) we are of the view that there is no infirmity in the order . Hence we confirm the order of CIT (A) and dismiss ground no 25 of the appeal. 227. Ground No 26 of the appeal is as under :- 26. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs. 20,99,510/- being prior period expenses. 228. Ld. AO has disallowed the sum of the employee reimbursement holding these expenses are of the nature of prior period expenses and because the bills were not submitted by the employees and hence it did not accrue during the year. No factual details of these bills were given. In light of this the claim of the assessee is rejected and amount of Rs. 20,99,510/- is added of income of the assessee On appeal before CIT (A) he deleted the disallowance holding that expenditure in respect of reimbursement of travellin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n - 174 taxman 147, the disallowance is deleted. The reliance of the ld. AR on the decision of Hon'ble Delhi High Court in CIT vs. Modipan Ltd. - 334 ITR 102 is also apt as the expenditure are settled during the year. Further genuineness of these expenditure is not in doubt and allowabaility of these expenditure is also not in question except classifying them as prior period expenses and there is no difference in rate of taxes for respective years. In the result, we confirm the order of the CIT (A) in deleting the addition of Rs. 22,98,510/- on account of prior period expenditure. In the result, ground no.26 of the revenue's appeal is dismissed. 232. Ground No 27 of the appeal is as under :- 27. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs. 4,94,00,550/- received from customers in terms of contractual obligation. 233. Brief facts are that before AO assessee submitted that these are refundable deposits and are shown as liabilities in the balance sheet and hence it cannot be treated as part of sale. In past also no such addition has been made on this account and this method of account is being followed consta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t has actually been utilised from time to time in performance of the contractual obligation. His argument was that each and every receipt cannot be charged to tax unless it partakes the character of revenue receipt without any obligation for payment. 236. We have carefully considered the rival contentions. This amount has been collected by the assessee at predetermined rate from the buyers which has obligation to incur expenditure on account of contingent nature for the projects. It is not a fact that this amount has not been utilised as it is evident that in March 2006, assessee has incurred the cost of Rs. 9.87 crores. Furthermore, in the preceding two years as well as succeeding two years, the assessee has incurred expenditure out of this sum. We agree with the contention of the ld. AR that each and every receipt cannot be charged to tax unless it partakes the character of revenue. Further, we also agree with the observation of the ld. DR that receipts if revenue in nature and camouflaged as deposits cannot escape the taxation. In between these two use, facts of the case show that there is a regular movement in this account and expenditure of Rs. 9.87 crores as noted by the C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....undable to resident welfare associations. CIT (A) relying on the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Goel Gases Pvt. Ltd. - 188 ITR 216 (Del.) held that security deposit cannot be charged to tax as an income. In view of this, we do not find any infirmity in the order of the CIT (A) when deposits are with a purpose, the depositors are identified, there is a regular method of accounting adopted in past for treatment of this income which is accepted by the revenue and there is an obligation cast upon the assessee. Hence, ground no.28 of the revenue's appeal is dismissed. 241. Ground No 29 of the appeal is as under :- 29. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs. 18,66,82,603/- being the amount received by the assessee company from the customers for execution of conveyance deed in favour of customers which was in the nature of liability ceased to exist and thus should have been forfeited by the assessee company. 242. Ground No.29 is against deleting the addition made by the AO of Rs. 18,66,82,603/- being the amount received by the assessee company from the cus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Registrar for conveyance deed registration. At the time of registration, assessee incurs this expenditure by debiting to this account of that particular customer. The total receipt of registration charges is identified with respect to each of the buyer and there are movement in respective accounts. In fact, it is a past through cost collected by the assessee from the buyer to be incurred by assessee on behalf of the buyer. In view of these facts, these receipts cannot partake character of the revenue in the hands of the assessee. It is also not the case of the AO that the depositors are not identified and despite the conveyance deed executed by the assessee, the amount has not been incurred. In absence of this finding, it is not possible to confirm the disallowance. Therefore, we confirm the order of the CIT (A) in deleting the addition of Rs. 18,66,82,603/- being credit balance of registration charges received from the customers. Ground No.29 of the revenue's appeal is dismissed. 245. Ground No 30 of the appeal is as under :- 30. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs. 7,00,67,242/- being ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nst restricting the addition to the tune of Rs. 3,12,41,768/- only out of addition Rs. 35,08,31,012/-, shown as Closing Credit Balances in Allotment Account which, though proved to be non-refundable, was not offered by the assessee company as income. 252. This issue is regarding revenue recognition in case of sale of land and plots has been decided in ground no.15 of the assessee's appeal, therefore, ld. DR as well as ld. AR agreed that decision taken in ground no.15 of the assessee's appeal shall dealt with this addition. Ld. AR further submitted that if it is decided against the assessee, it would amount to double addition in the hands of the assessee. 253. We have carefully considered the rival contentions and we are also of the view that it is covered by ground no.15 of the assessee's appeal which is against revenue recognition in case of sale of plot and land. We have already held in the case of revenue recognition in case of sale of land and plots that it should be chargeable to tax only in the year in which the sale deed is executed after giving our reasons. In view of this, this amount is only an advance received by the assessee, therefore, this addition c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tective basis) without appreciating the facts and various case laws discussed by the AO in the assessment order which were squarely applicable in this case 255. All these grounds relate to common issue of taxation of deemed dividend and therefore these are argued by the parties on similar lines. 256. Brief facts of the ground no 32 is that there are some loan transaction between DLF Commercial Developers Ltd. (DCDL) has given some loans to the assessee company. Assessee is the holding company of the lender DCDL. DCDL had on the date of giving these loans to the parent assessee company who is holding 100% share in this company there was reserve and surplus of Rs. 216,05,69,000/- and on various dates mentioned Rs. 2,57,970/- were advance by the company DCDL to the shareholders DLF Ltd. Hence this amount created a debit balance on the date and is therefore according to AO it is liable for taxation under 2(22) (e) of the act. On appeal before CIT (A) who deleted the addition holding that the amount is for the business purposes of the assessee as the nature of these transaction is receipt of amount from customers of DLF commercials developers limited in respect to sale of prope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bulated as under for clear picture of the transactions and rival arguments. Sl. No. Loan/ Advances Paid by Loan/ Advances Paid by Amount Shareholding In the payee Company At Column No.3 Assessee's arguments 1. DLF Retail Developers Ltd. Anjuli Builders Pvt. Ltd. 1,00,00,000 100% of DLF Home Dev. Ltd. The observation of the Ld AO in column 3 of table 2 of that "DLF Universal is holding Company of Anjuli Builders Pvt Ltd Via DLF Home Developers Ltd" is factually incorrect as explained below. The borrower namely Anjuli Builders Pvt Ltd is not a shareholder of lending company i.e. DLF Retail Developer Ltd. A copy of the annual return filed by the lending company with the registrar of the companies shows no shareholding by the borrowing company. Therefore this transaction is not covered by the section 2(22) (e). Secondly it will be noted that from Schedule 7 of the Balance Sheet of the appellant company that it does not hold any share in the borrowing company namely Anjuli Builders Pvt Ltd. Therefore it can also not be said that the payment has been made to a concern in which shareholder is a member and in which he has a substantial interest. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot subsidiaries of DLF Ltd. DLF Ltd. do not hold any share in these companies. The borrower namely DLF Info City Developers (Chd) Pvt Ltd and other companies are not a shareholder of lending company i.e. DLF Commercial Developer Ltd. A copy of the annual return filed by the lending company with the registrar of the companies (Page 27- 38) shows no shareholding by the borrowing company. Therefore this transaction is not covered by the section 2(22) (e). Secondly it will be noted that from Schedule 7 of the Balance Sheet of the appellant company that it does not hold any share in the borrowing company namely DLF Info City Developers (Chd) Pvt Ltd. and other companies Therefore it can also not be said that the payment has been made to a concern in which shareholder is a member and in which he has a substantial interest. Thirdly the money borrowed by the DLF Info City Developers Pvt(Chd) Ltd and other companies has been used by the borrowing company for its business and therefore though the appellant being the holding company of the lending company it can not be said that the payment by the lending company to DLF Info City Developers(Chd) Pvt Ltd and other companies is on the beh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r for the benefit of the appellant as there is no payment by the borrower to the appellant. The same is evident from the financial statements of borrower company enclosed at page 219- 288 In fact the money had been paid by the lending company to the borrower out of loan given by the appellant company. Same has been evident from the financial statement of lending company enclosed at page 335-350. 4. DLF Gold Resorts Pvt. Ltd. DLF Commercial Developers Ltd. 66,13,530 100% DLF Ltd. Copies of account of DLF Commercial Developers Ltd in the books of DLF Golf resort Ltd (vol 33 page 12132-12140). DLF Commercial Developers Ltd had entered into an agreement(Vol 33 Page 12024-12027) with DLF Golf Resort Ltd under which the DLF Golf Resort runs the Golf club on behalf of the DLF Commercial Developers Ltd, subject to a charge of 2% of the total expenditure. Details along with copy of the agreement were enclosed of our letter dated 20.04.2009 (Vol 33 Page 12073). The amount of Rs. 69,71,34,285 is the closing balance of security deposit received by the DLF Commercial Developers Ltd as per agreement dated 1.5.1999. Therefore it is not a loan transaction but a business transacti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t order, remand report of the AO and the submissions made by the ld. AR. From the judgment of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Ambassador Travels Pvt. Ltd. (2008) 173 Taxman 407 (Delhi), it is clear that if advance is taken by an assessee, who is otherwise covered by Section 2(22)(e) for treating such advances as deemed dividend, and the assessee is able to establish that such advances were not taken as loan and these were business receipts in the ordinary course of business then those amounts would not fall within the scope of deemed dividend. The contentions of the appellant have not been disputed by the AO. The AO has himself noted at page No. 415 of the assessment order that there were no disputes on the facts of the case as submitted by the assessee and what was remaining to be seen was whether the provisions of Section 2(22)(e) were applicable to these transactions or not. The AO has observed that the contention of the assessee that these were business advances and hence not covered by the scope of deemed dividend could be considered only when advancing company is in the business of money lending. Since the appellant is in the business of real ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t for making the protective addition of Rs. 225,77,97,142/-. Section 2(22) (e) provides "Dividend includes any payment by a company............by way of advance or loan to a shareholder.................". In this case, the undisputed facts as per charts reproduced in this order show that in serial No.2 DLF Retail Developers Ltd., had given an advance to Anjali Builders. Here, Anjali Builders did not hold any shares in DLF Retail Developers Ltd., at all. There is no relationship of the payee of being a shareholder of the payer. After all, on first principle, dividend or deemed dividend can only be brought to tax when a payment is made by a company to its shareholder in the garb of a loan. This fact is wholly absent in the instant case. The appellant is neither the payee, nor a common shareholder of the payer and payee company having requisite number of shares to be eligible to caught in the mischief of section 2(22) (e) of the Act. Therefore, in my opinion, the question of protective addition in the hands of the appellant does not arise. 29.47 Now we come to serial No.2, i.e. loans have been advanced by DLF Commercial Developers Ltd., (DCDL) to various companies. All these ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tracted. This position is evident from material on record referred to by the learned CIT (A) in para 29.5 at page 219 of the CIT (A)'s order. ii) With regard to transaction at SL.No.2 of Rs. 30,23,187/- between DLF Financial Services Ltd. and the Assessee, it is submitted that these are business transactions in respect of booking of property for which the payment was made by DLF Financial Services Ltd. to the Assessee. Being business transactions, it is submitted that these are not Deemed Dividend. Reliance is placed on the judgment in the case of CIT Vs. Ambassador Travels Pvt. Ltd. (2008) 173 Taxman 407 (Delhi). It is further submitted that transaction of Rs. 5,09,265/- was merely a book entry and there was no flow of money as the book entry of Rs. 7,59,265/- was netted of by Rs. 2,50,000/- paid by DLF Limited to DLF Financial Services Ltd. as advance against purchase of property. Reliance is placed on Sunil Sethi vs. DCIT, Company, Circle 1(1), New Delhi, (2008) 26 SOT 95 (Del) wherein it is held that amount given for business purpose of the company i.e. to purchase a suitable business premises, the amount in question could not be considered as deemed dividend. Rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perties and, therefore, it cannot be charged to tax u/s 2(22) (e) of the Act. He relied on the decision of Sunil Sethi vs. DCIT - 26 SOT 95 (Del.). Regarding the contention that book entries cannot be taxed, he relied on the decision of Hon'ble Delhi High Court in CIT vs. Raj Kumar - 181 taxman 155 (Del.). vii) He further submitted that according to the decision of Hon'ble Delhi High Court in the case of CIT V Ankitech Pvt. Ltd.[2011] 11 taxmann.com 100 (Delhi). He further relied on the decision of AR CIT V A R Mangnetics Private Limited - 220 taxman 209.[Delhi] 264. We have carefully considered the rival contentions. We discuss the each of the issue as under :- (i) Regarding Rs. 257950/- received from the customers of DCDL assessee is the holding company of the lender DCDL. DCDL had on the date of giving these loans to the parent assessee company who is holding 100% share in this company there was reserve and surplus of Rs. 216,05,69,000/- and on various dates mentioned Rs. 2,57,970/- were advance by the company DCDL to the shareholders DLF Ltd. It is an accepted fact that this amount is for the business purposes as receipt of amount from customers of DLF....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not doubt this agreement or these facts. The assessee having proved a tangible business expediency between the assessee and the company, the question of invoking Section 2(22) (e) of the Act does not arise. The Income Tax Appellate Tribunal has after considering these facts rightly held that as the assessee has proved business expediency the advance is not covered by Section 2(22) (e) of the Act. We find no reason whether in law or in fact to interfere with these findings of facts, which are neither perverse nor arbitrary. The question of law is, therefore, answered against the revenue and the appeal is dismissed.""6. A perusal of the facts and the above extract reveals that the revenue failed to adduce any evidence to prove that the transaction between the assessee and the company was a mere smoke screen to cover a surreptitious payment of money to a share holder. M/s Nexo Products (India) received certain export orders but was not in a position to execute the orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. The Company, therefore, entered into an agreement, dated 1.8.2007 with the assessee t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mann.com 392 (Delhi) Commissioner of Incometax v.AR Magnetics (P.) Ltd. has held as under :- "2. The respondent-assessee is a company and had received loan from another company Arcon (India) Pvt. Ltd. The respondent-assessee is not a shareholder in Arcon (India) Pvt. Ltd. The Assessing Officer, however, made an addition by invoking the provisions of deemed dividend under section 2(22)(e) of the Act on the ground that one Sanjay Bhaskar held more than 50.49 per cent of the shares in Arcon (India) Pvt. Ltd. and also held 99.98 per cent of Shares in the respondent-assessee. The aforesaid addition made under section 2(22)(e) was upheld by the Commissioner of Income-tax (Appeals). 3. The Tribunal has, however, deleted the said addition following decision of the jurisdictional High Court in CIT v. Ankitech (P.) Ltd. [2011] 199 Taxman 341/11 taxmann.com 100/[2012] 340 ITR 14 (Delhi). The said decision has been held that deemed dividend provisions cannot be invoked in such cases because the shareholdersare common." Therefore for the reason that the business advances have not been disputed by the AO and further merely common shareholding cannot be the cause for in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dvance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsel for the Revenue would stand answered, once we look into the matter from this perspective." 12. Later, with respect to the mandatory need to fulfil both preconditions which are conjunctive and not dis-conjunctive, as is now sought to be argued by the Revenue, too, Ankitech (P.) Ltd. (supra) was decisive: "The expression 'shareholder being a person who is the beneficial owner of shares' referred to in the first limb of section 2 (22) (e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provision of section 2 (22) (e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the first limb of the provisions of section 2 (22) (e) will not apply." 13. It is, therefore, clear that in the absence of any finding that Harjit Kaur owned the shares in terms of Section 201A or....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and other expenses in the nature of entertainment of official guests and broad band charges etc. for official use. These expenses have been found to have been incurred only an exclusively for the purpose of business and are therefore, not disallowable u/s 40A(2) of the Act. The impugned amount of Rs. 1,94,78,538/- is, therefore, deleted." 268. Before us Ld. DR relied on the order of AO and submitted that these expenditure are personal expenditure in nature and are rightly disallowed by AO. Against this Ld. AR relied on the order of CIT (A). 269. We have carefully considered the detail of expenditure stated at page no 439 to 442 of the assessment order. Expenses incurred are in the nature of broadband charges, travelling expenses of directors, entertainment expenses of the guests of the companies. It also includes foreign travel expenses of directors where foreign tour report is also submitted by the assessee before AO. No infirmity in the order of ld. CIT (A) was pointed out and therefore we confirm the findings of CIT (A) in deleting this disallowance. In the Result ground no 36 of the appeal is dismissed. 270. Ground No 37 of the appeal is as under :- 37. That ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....;ble Punjab & Haryana High Court holding that these expenses are illegal. Further, the payment of Rs. 96,34,580/- and Rs. 25,05,315/- paid to subsidiary company were also disallowed in absence of the services rendered. The CIT (A) has held that these are maintenance charges paid to the assessee group companies and professional service charges with regard to payment made to subsidiary company on account of real estate business. We have noted that payments of maintenance charge are not illegal payment and further the amount paid for survey about the land. The details of these expenses are noted at page no 442-443 of the assessment order where the explanation given by the assessee before AO is also reproduced. In view of this we do not find any infirmity in the order of CIT (A) in deleting this disallowance. In the result ground no 37 of the appeal is dismissed. 273. Ground No 38 of the appeal is as under :- 38. That on the facts & circumstance of the case the ld. CIT(A) erred in deleting the disallowance of Rs. 13,48,804/- made by the AO because the vouchers/bills against such expenditure were not in the name of assessee company and thus it was not established that such e....