TaxTMI 
TaxTMI 
2019 (6) TMI 1288
X X X X Extracts X X X X
X X X X Extracts X X X X
....n payment to Petron Civil Engineering Ltd.Rs. 1,29,52,790/- Ground nos. 5 To 5.1: addition on account of notional rent where security deposits received but no rental income- Rs. 10,91,270/- Ground no. 6: Addition on account of capitalization of interest and processing fees on loan taken for purchase of windmills: -Rs. 2,15,51,123/- Ground no. 7: Addition on account of interest on late of deposit TDS - Rs. 28,79,372/- 2. At the outset, learned counsel for the assessee, Shri R.S. Singhvi submitted that ground nos.1 and 3 relating to brokerage and commission expenses and disallowance u/s. 43B are not pressed. Accordingly, grounds no. 1 and 3 are dismissed as not pressed. 3. Coming to the issue of disallowance u/s.14A, the facts in brief are that the Assessing Officer has made disallowance u/s.14A to the extent of Rs. 35,40,91,000/- in accordance with Rule 8D. The Assessing Officer noted that the special auditors to whom matter was referred u/s.142A have pointed out that assessee-company has made investment for an amount aggregating to Rs. 89.97 crore as on 31st March, 2008 in 12 partnership firms as its capital contribution. These investments have been made out of interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ING OFFICER, orders of CIT (A)-XVIII for AY 2006-07 and my own order for AY 2007-08 in appellant's own case and various judicial pronouncements relied upon by the appellant on this issue. It is seen that during the year, the appellant has earned exempt income of Rs. 87,20,11,847/- as share of profit from partnership firms and dividend income on mutual funds. It is also seen that appellant has made average investment of Rs. 1197.30 crore in various partnership firms and in the shares of various group companies and mutual funds. The appellant has shown total average assets during the year of 17319.40 crore in the balance sheet. Vide my decision on ground No. 6 and 7,1 have held that appellant has shown interest incurred on fixed period loan of Rs. 604.43 crore. Out of this, an amount of Rs. 354.89 crore has been capitalized over the project. The appellant has also paid interest on over draft etc. to the tune of Rs. 176.06 crore. As such the total interest payment during the year comes to Rs. 425.60 crore. As against this, the appellant has shown interest receipts of Rs. 411.99 crore in the P&L account. If the interest paid on bank overdraft facilities of Rs. 176.06 crore is reduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... investment, and therefore, no disallowance can be made u/s.14A. Apart from that, he submitted that assessee has substantial amount of own funds in the form of share capital and reserves and entire investments are fully made out of non interest bearing free funds. The details of share capital and reserves as on 31.03.2008 and corresponding investment appearing in the balance sheet were as under: Amount (Rs. in Lacs) a. Share Capital 34,095.95 b. Reserve and Surplus 1,092,818.68 Own funds 1,126,914.63 Total investment in shares/partnership firms As per Balance sheet 175,349.69 6. He further provided us the details of investment and the details of exempt income in the following manner: (a) Details of investment are given hereunder: (Rs. in crores) 31.03.08 31.03.07 31.03.06 31.03.05 31.03.04 - Quoted Mutual Funds 31 10 - - - - Quoted Shares - Unquoted Shares 1633 588 565 133 133 - Partnership Firm 90 84 49 41 45 (b) Details of exempt income: Particulars Assessment Year 2008-09 2007-08 2006-07 Share of Profit from Partnership Firms (net) 1,87,02,00....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en the borrowed funds and its utilization so as to prove that all the investments yielding investment income has been made out of surplus funds and interest bearing fund has been used purely for the business purposes. 10. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. The undisputed fact is that assessee has earned exempt income of Rs. 87,20,11,847/- as share of profit from partnership firm and dividend income on mutual funds. The average investment as on 31st March, 2008 stood at Rs. 1197.30 crore in various partnership firm and the shares of various group and mutual funds. The total average assets during the year in the balance-sheet were Rs. 1,754 crores. The assessee's case has been that it has huge surplus fund in the form of reserves and surplus and share capital at Rs. 1126.91 crore out of which investments in shares and in partnership firm was only 175.30 crore. From a perusal of the impugned appellate order which is based on perusal of material placed on record, it is seen that ld. CIT (A) has taken note to the fact that assessee has paid Rs. 176.06 crores interest on bank....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned counsel before us is that, for the computation of average investment which had not yielded exempt income should be removed for which, reliance has been placed in the judgment of Hon'ble Delhi Court in the case of ACB India Ltd vs. ACIT (supra). In view of such a binding precedent, we direct the Assessing Officer only to include those investments while computing the average investments which have yielded exempt income, i.e., investment made in the partnership firm and mutual fund only, because investment made on unquoted shares have not yielded any exempt income. The calculation of average investment in partnership firm and mutual fund has been given by the learned counsel as has been incorporated above and accordingly we direct the Assessing Officer to verify the same and work out the disallowance of 0.5%. Accordingly, appeal of the assessee is partly allowed. 12. The next issue relates to disallowance on account of expenses u/s.40(a)(ia) for non-deduction of TDS on payment to Petron Civil Engineering Ltd for Rs. 1,29,52,790/-. 13. The facts in brief are that assessee has paid legal and professional expenses to Petron Civil Engineering Pvt. Ltd. against arbitration awar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e plea of the assessee that the payment was treated in the nature of compensation is not acceptable in view of clear and defined nature of award as per the order. The expense of Rs. 1,29,52,790 is accordingly disallowed u/s.40(a)(ia) for non deduction of TDS." 14. Ld. CIT (A) too has confirmed the said disallowance holding that payment awarded by the arbitrator was not compensation but same was contractual payment for which appellant was required to withheld TDS from running bills as penalty was for delay in executing the work and disputes with regard to the quality of the work. 15. Before us, learned counsel submitted that the M/s. DLF Cement Ltd. had awarded a construction contract to M/s. DLF Ltd. (Appellant assessee) on 24/02/1994. Subsequently, the assessee sub-contracted the work to M/s. Petron Civil Engineering P. Ltd. as per MOU dated 31/03/1994. The effective date of sub-contract was 06/06/1994 and the work was to be completed in 12 months i.e. by 05/06/1995. The work got delayed and dispute arose between the parties regarding correctness of bills and payment of the same. The assessee adjusted an amount of Rs. 45 lacs towards damages for delay in completion of project.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t for taxation. 18. On the other hand, ld. Special Counsel has strongly relied upon the order of the ld. CIT(A) and submitted that basically the payment which was to be made to the said party was due to the nature of contract entered between the assessee and the M/s. Petron Civil Engineering Ltd. Thus, even if the payment has been made through arbitral award, it will not change the character of the payment, and therefore, assessee was liable to deduct TDS under the provision of Income Tax Act. 19. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. As stated above, the assessee has given said contract work to M/s. Petron Civil Engineering Pvt. Ltd. effective from 06.06.1994 and the work was to be completed in 12 months, i.e., 05.06.1995. Due to delay, dispute had arisen between the parties regarding the correctness of the bills and payments of the same. The assessee has adjusted an amount of Rs. 45 lacs towards delay in completion of the project and has further disputed the correctness of the final bill of Rs. 91.87 lacs. The dispute was referred for arbitration by the Hon'ble Delhi H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oming to the issue of addition on account on notional rent where security deposits were received but no rental was shown, amounting to Rs. 10,91,270/-. It has been pointed out by both the parties that this issue now stands covered in favour of the assessee by the Tribunal in assessee's own case for the Assessment Year 2007-08 vide order dated 01.11.2017 in ITA No.3846/D/2012. 22. The addition has been made on the ground that assessee despite being owner of the Kiosks has not disclosed rental income in its books and the same has been transferred to M/s. DLF Services Ltd. by over riding title. M/s. DLF Services Ltd is providing maintenance and upkeep services of the mall including Kiosks. In return for consideration for these services, the appellant vide authority letter dated 12/12/2005 has granted M/s DLF Services Ltd., right to recover the rental receipts from the third parties using said Kiosks. Assessee has not claimed any expenditure in the name of M/s DLF Services Ltd. in connection with maintenance services of the mall. In view of above arrangement, M/s. DLF Services Ltd. is showing the receipts from the Kiosk as a part of its income which is duly subjected to tax in its ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the fact that such lease rent has been subjected to tax in case of M/s. DLF Services Ltd. 46. After considering the facts of the case, we are of the view that there is no justification for addition of Rs. 12,60,000/- as same was towards business obligation and for specific services rendered by M/s. DLF Services Ltd. and accordingly the impugned disallowance is directed to be deleted." 24. Thus, following the aforesaid precedence in assessee's own case, we decide this issue in favour of the assessee and the impugned addition is directed to be deleted. 25. The next issue relates to addition on account of capitalization and processing fees on loan taken for purchase of windmills of Rs. 2,15,51,123/-. 26. Ld. Assessing Officer noted that assessee-company during the year had shown income from power generation through windmills and corresponding expenses for the same has been debited to the P&L account. The Special Auditors have noted that out of the total amount capitalized/invested in the windmill for Rs. 940.61 crore, an amount of Rs. 561 crore has been funded out of borrowed funds and balance Rs. 379.61 crores were met out of own funds. 27. After taking note of the amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee has submitted that out of total processing fees of Rs. 1,79,77,600/- it had claimed expenditure of Rs. 1,60,00,000/- and the balance amount of Rs. 19,77,600/- pertained to service tax and was not claimed as expenditure but adjusted against service tax payable as input credit. The assessee has further argued that processing fees is allowable as deduction and it had paid processing fee in the month of December, 2007 of Rs. 11,23,600/- and in February, 2008 of Rs. 1,68,54,000/-. The company has stated that up to December, 2007, 27 numbers of windmills were installed and were operational, similarly till February, 2008, 63 numbers of windmills were installed and were operational. However as in the case of interest disallowance the processing fees paid for availing loan is the starting point of disbursement of loan and all the processing fees paid was prior to the installation of windmills and accordingly the processing fees of Rs. 1,60,00,000/- is capitalized and depreciation @ 40% (for half year) is allowed and the total disallowance of processing fee would be Rs. 96,00,000/-. Hence the total disallowance is as under: Interest disallowance Rs. 1,19,51,123 Processing Fees ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of Hon'ble Karnataka High Court in the case of CIT vs. Oriental Insurance Company Ltd., (2009) 183 Taxman 186 (Kar.). However, the ld. Assessing Officer held that the assessee has not furnished any statement regarding late deposit of TDS. 34. Ld. CIT(A) has confirmed the said addition after observing and holding as under: "33.10 I have considered the observations of Special Auditors as well as of the Assessing Officer and submission of the appellant. It is seen that the appellant company has received interest on income tax refund of Rs. 30,31,199/-. This interest was credited in the account "interest paid others - Income Tax" and this interest on refund was adjusted against the interest paid on late payment of TDS of Rs. 28,79,372/-. Thus, an amount of Rs. 28,79,372/- was adjusted against the interest received on income-tax refund and balance amount was offered as interest income. The interest paid on late payment of TDS is not an allowable expenditure u/s 37 of the IT Act. This is not an expenditure wholly and exclusively for the purposes of the business of the appellant company, therefore same is not an allowable expenditure. Hence, the disallowance of set off of inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon'ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand. Thus, in our considered view, the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee. In case there is any delay in payment of tax deducted by the assessee on behalf of the deductee, then it cannot be linked or reckoned as income tax of the assessee payable by the assessee, and moreover the interest herein is more of compensatory in nature. Though, Co-ordinate Bench of ITAT Kolkata in the case of DCIT vs. M/s. Narayani Ispat Pvt. Ltd. (supra) has allowed the said expenditure. Even though, we may be persuaded by such a reasoning, however, we find that Hon'ble Madras High Court as pointed out by the ld. Special Counsel for the revenue, in the context of interest u/s. 201(1A) only, has held that the TDS partakes the character of income tax and is not allowable as business expenditure. The relevant observation of the Hon'ble Court reads as under: "The liability for deduction of tax arises by reason of the provisions of the Act. Under s. 201, the consequence of failure to comply with the same renders that person liable to be deemed as an assessee in default with all the consequences attached thereto. The liability to pay interest on the amount not deducted or deducted but not paid is directly related to the failure to deduct or remit the amount. The amou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for default committed by the assessee in discharging his statutory obligation under the IT Act, which is calculated with reference to the tax on income, cannot be allowed as deduction". Before holding so, the Court considered the decision of the apex Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198: (1980) 123 ITR 429 (SC): TC 17R.877 a decision rendered by three learned Judges of the apex Court and held that the ratio of that judgment had no application to the case before it in the case of Bharat Commerce & Industries Ltd. vs. CIT (supra). The assessee in the case of Mahalakshmi Sugar Mills Co. (supra), had claimed deduction of interest paid on arrears of sugarcane cess. The payment of sugarcane cess, as it was observed by the Court in the case of Bharat Commerce & Industries (supra), is very much a part of the assessee's business expense and any interest on arrears of cess would, therefore, take colour from the cess which is payable, that it was an indirect tax which had to be paid in the course of carrying on business. 7. Learned counsel for the assessee placed reliance on the judgment of the apex Court in the case Mahalakshmi Sugar Mill....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an item of expenditure. The amount not deducted and remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. The Supreme Court in the case of Bharat Commerce & Industries (supra), rejected the argument advanced by the assessee that retention of money payable to the State as tax or income-tax would augment the capital of the assessee and the expenditure incurred, namely, interest- paid for the period of such retention would assume character of business expenditure. The Court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure." 39. Since, this is the only judgment of the Hon'ble High Court brought to our notice and no contrary decision of any High Court has been cited by from the side of the assessee, therefore, as judicial precedence we are persuaded to follow the same and accordingly, we hold that such an interest on late payment of deposit of TDS cannot be allowed as ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lassification of income from income from house property to income from business and profession.- Rs. 9,40,52,455/-; 19. Deletion of addition on account of disallowance of notional rent/additional annual letting value in respect of the vacant property. - Rs. 12,28,340/-; 20. Deletion of addition on account of disallowance of depreciation claimed on DLF Centre Building. - Rs. 7,17,794/-; 21. Deletion of addition on account of disallowance of expenses where bills are not in the name of company - Rs. 58,50,162. 41. Before us, the learned counsel at the outset pointed out that most of the issues raised in the Revenue's appeal is covered by the earlier decisions of the Tribunal and also confirmed by the Hon'ble High Court. 42. In so far as the first issue is concerned, the facts in brief are that the Special Auditors have pointed out that assessee has claimed prior period expenses amounting to Rs. 70,12,062/- on the basis of which, ld. Assessing Officer issued a show cause notice to the assessee. In response, the assessee submitted that first of all, an amount of Rs. 14,63,017/- was on account of purchase of assets being the cost of office equipment and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yer. The special auditor has held so because of the reason that the actual travelling has taken in the previous year. Naturally, it is a matter of common sense for the purpose of LTA claim, the travelling of the employees is prior to the claims submitted by the employees. The CIT (A) has specifically dealt with one instance in para 27.3 of his order. After verification of the details, it was received by the assessee from its employees during this period and after following the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Shriram Piston - 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 app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-IAB provides for deduction from the activity of developing, operating and maintaining SEZ. In view of the same, please explain how the activity of constructing buildings and sale thereof to Co-Developer is covered by the provisions of section 80-IAB. * As per SEZ Rules, 2006, developer of an SEZ cannot sell land in the Special Economic Zone under rule 11(9). In view of the same, you are required to explain how the sale of buildings can take place without the sale of land. Also explain that how any income arising from such transfer of assets is covered under section 80-IAB and eligible for deduction. * The SEZ Act notifies specified authorized operations which alone qualify for exemptions, deductions. Please explain how sale of constructed buildings can be classified as authorized operations eligible for deduction under section 80-IAB especially with reference to the Notification No. SO/1846(E) dated 27.10.2006 and also with reference to the approval dated 14.02.2007 granted by Government of India, Ministry of Commerce & Industry. * A modified approval dated 01.06.2009 was granted by Board of Approval, SEZ to co-developer i.e. DLF Assets Ltd. after taking into account the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowable for a period of 10 years on the profits arising from development on a year to year basis and there is no provision for claiming the entire deduction of the income in any one year and that also in respect of receipt which actually pertains to a further rent for 49 years. In view of this you may explain why the claim of deduction under section 80IAB, may not be restricted to 1/49th of the total development income received by the assessee company in any one financial year. 50. In light of above observations of the AO, assessee made detail submissions with regard to the specific queries raised by the Assessing Officer which has been noted and dealt by him from paragraph 2.20 to 2.41 of the assessment order. However, ld. Assessing Officer apparently without adverting to the various points and issues raised by the assessee, held that the claim of deduction u/s.80IAB is not allowable predominantly in view of the fact that Hon'ble Punjab and Haryana High Court has held that acquisition of SEZ land was illegal and also the sale of building to a cobuilder is neither a business activity nor one of the authorized operations of SEZ. Accordingly, he denied entire claim of deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransfer of land or one time lease rental/one time down payment/premium etc. as clarified by the Ministry of Commerce in the clarification dated 18.01.2011 and correspondence made between the Ministry of Commerce and Department of Revenue as filed by the appellant during the course of appellate proceedings as additional evidence. In view of the facts discussed above, I agree with the submission of the appellant that the disclaimer condition mentioned in the codeveloper approval letter dated 01.06.2009 is primarily put in by the Board of approvals in the approvals to put a curb on the wrong practices of leasing the land for long periods and receiving onetime payment in the form of lease rental/down payments/premiums etc. which tantamount to sale of land in the guise of long term lease. The appellant has obtained requisite approval from the Board of Approvals by disclosing all facts. The entire controversy as to whether the transfer of bare shell buildings to the co-developer was an authorized operation has been set at rest by the correspondence made between the Ministry of Commerce and Department of Revenue and also by clarification letters issued, dated 18.01.2011 & 20.01.2011 by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....These grounds of appeal pertains to the observation of the Assessing Officer wherein the Assessing Officer has held that the profit arising from sale of bare shell buildings by the appellant to the co-developer constitute capital gains and not the business income so as to be eligible for deduction U/s 80 IAB of the Act. Further, the Assessing Officer has held that the sale consideration received for the sale of bare shells had to be spread over the period of 49 years. The appellant has contended without prejudice to the other grounds that if the contentions of the Assessing Officer are accepted that either the appellant was not the lawful owner of the land on which SEZ has been set up or sale of bare shell buildings by the appellant was impermissible then the amount received by the appellant has to be refunded to the co-developer. The appellant has contended that it had been engaged in the business of real estate and the development of such commercial projects is the main object of the appellant. The appellant had been following the Percentage of Completion Method (POCM) for recognizing revenue of various projects as per the Accounting Standards issued by the Institute of Charte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ice to her decision in disallowing the entire claim of deduction U/s 80 IAB. 8.29 I have considered the submission of the appellant and observation of the Assessing Officer. It is seen that observations of the Assessing Officer are not based on correct appreciation of facts. The appellant has shown work in progress in the business of construction and by no stretch of imagination work in progress can be treated as capital asset. The stock in trade is specifically excluded from the definition of 'Capital Asset' Under section 2(14) of the Act. The development of the bare shell buildings in the SEZ and subsequent transfer thereof cannot be considered as giving rise to short term capital gain considering the business of the appellant and accounting treatment adopted in the books of account irrespective of the treatment by the co-developer in the books of accounts as fixed assets. The observations of the Assessing Officer on this issue are erroneous, legally untenable and misdirected in holding that the income can be assessed as capital gains. I have gone through the judicial rulings relied upon by the appellant in support to its claim. Further, the appellant has disputed the decis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n authorized operation or the acquisition of land was illegal then nothing accrues to the appellant and the monies received by it from the co-developer ought to have been refunded. I have considered the submissions of the appellant. Since it has been held that the deduction U/s 80 IAB is admissible to the appellant, this ground becomes infructuous and does not call for any adjudication. 8.30 Ground No.4.2 - This grounds pertains to the observation of the Assessing Officer wherein the Assessing Officer held that without prejudice to the disallowance made U/s 80 IAB, if at any higher appellate stage the assessee is allowed deduction U/s 80 IAB of the IT Act, then the quantum of deduction is to be reduced by Rs. 24,20,98,512/- on the basis of findings given by the Special Auditors in para 3.15 to 3.22 at page Nos.25-29 in Volume-IIIA of the Special Audit Report. The appellant has contended that the Assessing Officer has made these observations on the basis of Special Audit Report wherein the Special Auditors have stated that there is short allocation of overheads to the SEZ Division. The Special Auditors proposed that some expenses ought to have been allocated to the SEZ project ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Assessing Officer from the salary expenses of senior management and expenses under the head 'other expenses' have been made without bringing any adverse information on record. The appellant has given details of headwise expenses incurred on SEZ and non-SEZ activities and such information cannot be brushed aside without pointing out any mistake in the allocation of expenses. The allocation cannot be made on the basis of presumptions and some material has to be brought on record to justify such reallocation of expenses for working out deduction U/s 80 IAB. It is seen that this issue has been considered by me while passing the appellate order dated 19.12.2012 in appeal No.71/12-13 in the case of DLF Commercial Developers Ltd. where the similar disallowance has been directed to be deleted. In view of the factual position, the Assessing Officer is directed to allow the deduction U/s 80 IAB as claimed by the appellant in the return of income without making any reallocation." 52. The Ld. Spl. Counsel appearing on behalf of the Revenue, after referring to the facts as noted in the assessment order, also summarised the findings of the AO given from pages 31 to 81 of the assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Co-developer Agreement, Co- Developer agreements and addendums to Co-developers agreements executed. It is significant to note that the intention here, from the very beginning, was to transfer the entire land and buildings to the co-developer and the assessee company never engaged itself in the business of development of SEZ. Some of these clauses were later amended only with a purpose to show that it might not appear to approving authorities that the intention was to transfer both land and buildings to the codeveloper, particularly when they realized that sale of land in SEZ was not permitted. This fact can be vouched from point 3 of the facts of the case mentioned above. Combined reading of all the clauses of Co-Developer Agreement and Lease deed clearly shows that the intention of the assessee company was to sell land to their related company and they have booked business income out of the transaction. Thereafter the deduction u/s 80-IAB has been claimed out of the business income which should not be allowed for the reason that sale of land is not permitted as per SEZ Act and Rules. iii. When the Board of Approval (BoA) later examined this issue, they were of the categorical ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....portant and are reproduced as follows: 32nd Meeting "The representative of the DoR (Department of Revenue i.e representative of CBDT) pointed out that the co-development agreement refers to transfer and hand over deeds which states that co-developer shall be the owner of the SEZ buildings on payment of development consideration, which is against the spirit of SEZ Act and Rules. 34th Meeting "The Board noted that in the meeting held on 23.02.2009 it was decided to defer the 4 proposals of co-developers in respect of same Developer, i.e., M/s DLF Limited as the representative of the DoR pointed out that the co-developer agreement refers to transfer and hand over deeds which states that co-developer shall be the owner of the SEZ buildings on payment of development consideration, which is against the spirit of SEZ Act and Rules. Following this observation, the proposals were deferred and it was decided to examine the case on file. DoC examined these proposals on file in consultation with CBDT and the agreements were revised by the co-developer. The proposals were approved subject to the condition that particular terms and conditions of lease agreement will not have any bearing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....will allow the assessee the deduction u/s 80-IAB. Section 80-IAB states that profit and gains derived from business of developing SEZ. Thus, the deduction is only available once the SEZ is developed and it cannot be allowed before the stage of development of SEZ. b. Sale of buildings to the co-developer is neither an activity of development of SEZ nor one of the authorized operations for SEZ notified by the competent authority. It is an isolated transaction giving one time income from transfer of capital assets. It is very clear from the Co- Developer agreement and lease deed that the intention on the part of the assessee company, from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. Co-developer agreement and lease deed very clearly shows that the developer has sold the land and building and loses all rights over these transferred capital assets and the relinquishment of right is irrevocable. c. Though SEZ Act prohibits for sale of land thereby implicitly denying any benefit to a developer who is basically interested in deriving income by transfer of assets, the assessee has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....transfer for the purpose of taxability. 57. Thereafter, he referred to the provision of Section 2(47)(v) r.w.s. 53A of Transfer of Property Act and submitted that in such cases capital gain should be taxable in the year in which such transaction is entered into even if the transfer of the immovable property is not complete under the general law. He further submitted that in the light of provisions of section 2(47)(v), this issue was examined in great details by AAR Tribunal in the case of Mr. Jasbir Singh Sarkaria (2007) 294 ITR196, it was held that the transaction of the nature referred to in clause (v) of section 2(47) had taken place on a particular date, the actual date of taking physical possession need not be probed into. It is enough if the transferee has by virtue of that transaction a right to enter upon and exercise the acts of possession effectively. It was further held that to attract clause (v) of section 2(47), it is not necessary that the entire sale consideration up to the last installment should be received by the owner. In the above-mentioned case the judges have gone into detailed examination of the issue and applicability of provisions section 2(47)(v). To ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g complex gets ready. Even if some amount, say 10 per cent, remains to be paid and the developer/transferee fails to pay, leading to a dispute between the parties, the right to exclusive and indefeasible possession may be in jeopardy. In this state of affairs, the transaction within the meaning of clause (v) cannot be said to have been effected and the liability to pay capital gains may be indefinitely postponed. True, it may not be profitable for the developer to allow this situation to linger for long as the process of transfer of flats to the prospective purchasers will get delayed. At the same time, the other side of the picture cannot be overlooked. There is a possibility of the owner with the connivance of the transferee postponing the payment of capital gain tax on the ostensible ground that the entire consideration has not been received and some balance is left. The mischief sought to be remedied, will then perpetuate. We are, therefore of the view that possession given to the developers need not ripen itself into exclusive possession on payment of all the installments in entirety for the purpose of determining the date of transfer. While on the point of possession, we w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of SEZ, the assessee did not derive income from business of developing SEZ. Such isolated transaction of sale of bare shell buildings to the co-developer is nothing but sale of capital assets as the assessee has relinquished all rights over the buildings. Accordingly, the income from sale of bare shell buildings is capital gains on sale of buildings. g) Sale of buildings to the co-developer is not an activity of development of SEZ. It is an isolated transaction giving one time income from transfer of capital assets. It is very clear from the agreement that the intention from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. CO-developer agreement is very clearly showing that the developer loses all rights over these assets and the relinquishment of right is irrevocable." 58. Referring to the provisions contained in Section 80IAB, he submitted that the word 'derived' is very crucial in appreciating any kind of deduction which would fall within the ambit of the said provision. Here, in this case, the source of income is a sale of bare shell of the building and there is no questio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... benefit of doubt should go in favour of the Revenue and also referred to observations of Their Lordships in paragraph 49 to 52. Thus, he submitted that assessee is not eligible for claim of deduction u/s.80IAB. 60. By way of counter submission, learned counsel for the assessee submitted that the Revenue's counsel has merely reiterated the observations of the Assessing Officer and no new arguments have been taken in respect of claim of deduction u/s.80IAB. He has tabulated the various arguments and point-wise rebuttal of ld. Special counsel in his written submissions. 61. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. The main issue is with regard to allowability of claim of deduction u/s.80IAB in respect of profit arising from sale of bare shell building in SEZ by assessee to M/s. DLF Pvt. Ltd. As a part of its business activities, the assessee has undertaken to develop SEZ project in a Govt. designate Special Economic Zone after obtaining requisite approval under SEZ Act and SEZ Rules in terms of provisions of Section 80IAB of the Income Tax Act. As brought on record, assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0.03.2008 which was also filed before the Board of approvals and the approval was also granted to this agreement vide letter dated 01.06.2009 by the Ministry of Commerce & Industry (SEZ Section). 62. The case of the Assessing Officer for making the disallowance on various counts can be summarized in the following manner: - A. The ownership of land on which SEZ has been developed is in dispute in view of the decision of Punjab & Haryana High Court and as such the claim of deduction is inadmissible in absence existence of SEZ project. B. Transfer of building cannot be considered as activity of development of SEZ and as such the profit arising from such transfer is not eligible for deduction u/s 80IAB. The activity of development and sale of building is neither an authorized operation under SEZ Act nor approved by competent authority. Further, lease of land for 30 years to M/s. DLF Asset Ltd. tantamount to transfer of land which is an impermissible activity in terms of Rule 11(9) of SEZ Rules, 2006. (Which AO has wrongly construed the period of lease as 49 Years) C. Isolated transaction of sale of building is assessable under the head income from capital gain and as such th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case may be: Provided further that in a case where an undertaking, being a Developer who develops a Special Economic Zone on or after the 1st day of April, 2005 and transfers the operation and maintenance of such Special Economic Zone to another Developer (hereafter in this section referred to as the transferee Developer), the deduction under sub-section (1) shall be allowed to such transferee Developer for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee Developer. (3) The provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA shall apply to the Special Economic Zones for the purpose of allowing deductions under sub-section (1). Explanation-For the purposes of this section, "Developer" and "Special Economic Zone" shall have the same meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005." 64. Ergo, the benefit u/s.80IAB is eligible only in respect of project approved by Board of Approval under the aegis of Ministry of Commerce and Industry and once the approval is granted by BOA, the statutory b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt shall have right to examine the taxability of transaction involving lease of land. 66. One of the main reasons for denying the claim of benefit u/s.80IAB by the Assessing Officer was that the ownership of land on which SEZ has been developed is in dispute in view of decision of Hon'ble Punjab and Haryana High Court, and therefore, such a claim is inadmissible. In this connection, learned counsel before us has clarified that assessee was a bona fide purchaser of the property in respect of which approval for development of SEZ project was duly granted by Government of India. In any case, the Hon'ble P&H High Court has not commented upon SEZ Project developed on said piece of land and the decision will not at all affect the right of the assessee. In these circumstances, the decision of P&H High Court shall have no bearing on the claim of deduction u/s 80IAB of the Act particularly when the infrastructure project has already been executed and completed. In any case, the order of P&H High Court pronounced on 03/02/2011 was challenged before Supreme Court by the assessee and other parties and now the Hon'ble Supreme Court vide order dated 20/06/2011 has stayed the operation of j....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anted approval not only to the assessee for building the bare shell but also to the co-developer after examining the various clauses of MOUs dated 29.01.2007 and 20.03.2008, wherein particulars of development activity are extensively laid down. The provision of Section 80IAB mandates that assessee must be a developer under the SEZ Act and income must be derived from business of developing SEZ notified under the SEZ Act, 2005. Here in this case, all the conditions stood satisfied and Assessing Officer has also not pointed out as to which of the conditions have not been fulfilled. Likewise, in the present case, it is an undisputed fact that, firstly, the area has been notified as Special Economic Zone vide notification dated 06.12.2006 and 19.03.2007; secondly, the assessee has been approved as Developer by BOA vide letter dated 25.10.2006 and 14.12.2007; and lastly, the operation of developing of building has been approved as authorized operations and as such the income has been derived from developing and sale of bare shell building in SEZ. The term 'Developing a Special Economic Zone' has to be seen in terms of authorized operations specified by BOA under the SEZ Act, 2005. Though....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 01.06.2009 to Codeveloper, M/s. DLF Assets P. Ltd. on definitive agreement dated 20.03.2008 after inserting clause (xvii) of Para 3, wherein it was clarified that approval to lease agreement will not have any bearing on treatment of income by way of lease /rental/down payment/premium etc. under the Income tax Act, 1961. It was specifically pointed out by the Ld. Counsel that there was nothing in the minutes of meetings of Board of Approval held on 23.02.2009 and 19.06.2009, indicating that there was any objection with regard to proposed transfer of bare shells by the assessee to Co-developer. The assessing officer has relied upon clause (xvii) of Para 3 of letter dated 01.06.2009 while reaching to the erroneous conclusion that taxability of entire transaction is open for examination and assessment. However, it is seen that the assessing officer in fact has failed to appreciate the above clause in right perspective and has attempted to make use of the same for justifying the denial of claim of deduction u/s 80IAB of the Act. It is pertinent to note here that clause (xvii) of Para 3 is only with regard to terms and conditions of lease agreement and same cannot be inferred to dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness of developing a Special Economic Zone" and for what constitutes 'developing a Special Economic Zone', one has to refer to the provisions of the SEZ Act. When the assessee has been granted approval as a Developer and all the authorized operation were approved including transfer of bare shells to the Co-developer for a development consideration by the Board of Approval, the business activity carried out by the assessee pursuant to such approvals constitute business of 'Developing a Special Economic Zone' within the meaning of Section 80IAB of the Act. Under section 80IAB, the AO's authority is limited to examine whether the provisions of section 80IAB read along with the relevant Rules have been complied or not. For instance, some of the conditions as stipulated in the section which the AO may examine may include: - -Whether the assessee is a developer under the SEZ Act and is in the business of developing a SEZ. -The SEZ has been notified on or after the 1st day of April 2005 under the Special Economic Zone Act, 2005. -Whether the profits have been derived from the business of development, operation and maintenance of a SEZ. 72. The case of assessee has been that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he claim of deduction u/s.80IAB. The copy of these judgments has been placed before us in paper books. 76. From the perusal of the aforesaid, we find that precisely same reasoning were given by the Assessing Officer in these cases wherein the Tribunal after analyzing the provision of SEZ Act, 2005 and on exactly similar set of activities have held that assessee is eligible for deduction u/s.80IAB because they were in consonance not only under the SEZ but also BOA has approved such activities. 77. The Assessing Officer as an alternative has also held that isolated transaction of sale of building is assessable under the head 'income from capital gain', and therefore, provision of Section 80IAB is not applicable and since the purchaser M/s. DLF Ltd. has shown the bare shell building as fixed assets with balance-sheet, therefore, the same constitutes the capital assets of the assessee and thus, the profit arising from sale of bare shell is in the nature of Short Term Capital Gain. The aforesaid observations of the ld. Assessing Officer cannot be accepted because assessee is engaged assessee is engaged in the business of real estate and the building in SEZ has been shown as stock-in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sistently following POCM which has accepted by the Tribunal in assessee's own case for AY 2006-07. Hence, such a reasoning of the AO to disallow proportionate deduction cannot be sustained. 79. Thus, in view of our finding given above, the order of the ld. CIT (A) in allowing the claim of benefit u/s.80IAB is confirmed and consequently the ground raised by the Revenue is dismissed. 80. Lastly, in so far as the reliance placed by the Ld. Spl. Counsel for the revenue that the Hon'ble High Court in the case of one of the sister concerns, has set-aside the issue for deciding on merits while upholding the revision us/s 263 by the CIT, is also sans any merits, because, nowhere the Hon'ble High Court has adversely commented on the claim of deduction u/s 80IAB on merits. In fact, matter has been restored back to the Tribunal to decide the issue on merits afresh after considering all the facts and the relevant provisions of SEZ Act, which we have already discussed in detail. Thus, reliance placed by the Revenue to draw any adverse inference on merits cannot be sustained. 81. The next issue relates to deletion of addition on account of disallowance of Revenue recognition as per percent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,75,82,954 337,582,954 - - - Grand Mall - - - - - Exclusive Floors - - - - 6,95,96,807 Moulsary Arcade - - - - 6,76,915 Total (B) 173,72,54,633 1,73,90,55,150 18,56,420 65,641 7,02,73,722 Net Total (A+B) 13,97,71,37,609 14,40,62,99,580 42,92,17,872 33,99,87,214 2,22,56,87,056 Accordingly, AO made the addition of Rs. 42,92,17,872/-. 85. Ld. CIT(A) after detailed finding has deleted the said addition after observing and holding as under: "9.8 I have considered the submission of appellant, observation of the ASSESSING OFFICER & Special Auditors comments, decision of Hon'ble ITAT in appellant's own case in A.Y. 1994-95 and treatment given to this issue in earlier assessment years by ASSESSING OFFICER as well as appellate authorities. It is also noticed that this issue has been decided in favour of the appellant vide order dated 25.03.2011 passed by CIT(A)-XVIII, New Delhi, for A.Y. 2006-07 (page Nos.122-153 of the said order) and in my own order in appellant's own case for the immediately preceding year relevant to assessment year 2007-08 (page Nos.108-139 of the said order). It is seen that whenever appellant company starts a new building/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue with cost to be incurred to earn the revenue. On this principle alone and by itself the inclusion of IDC in the total cost to be incurred is reasonable and justified, as without applying the principle of matching revenue with cost there would be distortion in the matter of arriving at income. This distortion needs to be avoided for the purpose of ascertaining the true profit/loss of the appellant. As per the initial estimate prepared by the appellant the cost on internal development charges was estimated at Rs. 230 crores for its phase V projects. The same has been prepared by Shri Sunil Arora having diploma in civil engineering with an experience of 16 years and Sh. Devender Singh, B.E. (Civil) having an experience of 24 years. The cost estimate of Rs. 230 crores is further backed by individual items of cost, such as earth work, road work, storm water drainage work, horticulture work, water supply work, sewerage work, boundary wall, electrical work etc. In turn, there is a cost break down of all these broad heads. 9.9 In view of the detailed facts discussed above, the IDC is a part of budgeted cost prepared by the appellant. The budgeted IDC is prepared on scientific ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision of the IDC cost from its budgeted level to actual cost incurred. In my considered view, whether one follow project completion method or percentage of completion method, the element of cost cannot change. Once IDC is accepted to be an element of cost, then whichever method one apply, it has to be allowed as a cost of the project for working out the true profit and loss account in respect thereof. 9.10 I am therefore, of the considered view that ASSESSING OFFICER was not justified in replacing budgeted IDC with actual IDC cost incurred for recognizing revenue as per POCM Method. The Budgeted IDC is a part of cost and same has to be accepted for recognizing revenue as per POCM which is being consistently accepted by the department. Hence, the addition of Rs. 39,52,39,897/- made by the ASSESSING OFFICER on this issue is uncalled for and the same is, therefore, deleted. (II) Labour Cost: 9.11 Special Auditors have increased cost of construction actually incurred by Rs. 3,39,77,973/- on the ground that expenditure in relation to contract work performed during FY 2007-08 has been booked in subsequent financial year i.e F.Y. 2008-09. They have based their findings on the per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oration. The Assessing Officer however, held that as the assessee was following mercantile system of accounting, the expenditure should have been claimed as deduction in the earlier year and not in the subsequent year and accordingly, disallowed the claim. The Commissioner (Appeals) confirmed the order but the Tribunal held that the liability could be ascertained only in the accounting year relevant to the assessment year 1990- 91. On a reference: Held, that the expenditure was deductible in the assessment year 1990-91." Thus, by applying the same principles it is requested that the allocation of expenses by the Special Auditors, against the bills which were received subsequently, was not justified. Reliance is placed on the decision in the case of CIT vs. Modipon Ltd. [2011] 334 ITR 0102 wherein the similar issue was decided in the favour of assessee. 9.13 The AR further submitted that the facts of Saurashtra Cement and Chemical Industries Ltd. Vs. CIT (1995) 213 ITR 523 (Guj.) were similar to the facts of the instant case, in which it was held that earlier years expenses could be allowed in the year in which the liability is accepted and paid. Hon'ble Gujarat High Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee this amount was liable to be adjusted in the assessment year 1983-84. The basis on which the assessee had claimed this deduction for that year was that the liability had accrued and crystallized only on 30-6-1981 when the assessee came to know the actual sales made by its dealers." As far as the purchase of material is concerned the entry of purchases and stocks is made only after receipt of material, inspection of material and Material Receipt Note (MRN). It is, therefore, submitted that liability accrued only when material is accepted and MRN is made. Therefore, the appellant submitted that the effect of this proposed addition of Rs. 3,39,77,973/- recommended by the special auditors may please be deleted." 9.14 I have carefully considered submission of the appellant, observation of Assessing Officer and various judicial pronouncements relied upon by the appellant. It is also noticed that this issue has been decided in favour of the appellant vide order dated 25.03.2011 passed by learned CIT(A)-XVIII, New Delhi, for A.Y. 2006-07 (page Nos.122-153 of the said order) and my own order in appellant's own case for the immediately preceding year relevant to assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1961, S. 37. The assessee entered into a contract for doing job works and made a payment of Rs. 1,36,767/- to B in respect of certain jobs done by it from December 1988 to June 1989. The bills were raised by the party in the month of August 1989. According to the assessee, as it was not aware of the actual liability on the last date of the accounting period, it claimed this deduction only when the bills were submitted by the corporation. The Assessing Officer however, held that as the assessee was following mercantile system of accounting, the expenditure should have been claimed as deduction in the earlier year and not in the subsequent year and accordingly, disallowed the claim. The Commissioner (Appeals) confirmed the order but the Tribunal held that the liability could be ascertained only in the accounting year relevant to the assessment year 1990- 91. On a reference Held, that the expenditure was deductible in the assessment year 1990-91. COMMISSIONER OF INCOME-TAX V. MODIPON LTD. (No. 1) [2011] 334 ITR 0102- BUSINESS EXPENDITURE--DEDUCTION ONLY ON ACTUAL PAYMENT--DISALLOWANCE ON GROUND THAT EXPENSES RELATED TO PRIOR PERIOD AND NOT PRESENT ASSESSMENT YEAR--TRIBUNA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the similar issue was also involved before this Tribunal in the appeal for the Assessment Year 2006-07, wherein the Tribunal has decided this issue in favour the assessee in the following manner: "42. We have carefully considered the rival contentions and also given a careful thought to the offer of ld. DR for setting aside this ground of appeal to the file of the AO for determination of threshold limit of 30% of the total project cost incurred up to this year or not. Before that we would like to address the issue of threshold percentages determined by the assessee of 30% instead of 25 % provided in the guidance note on accounting for real estate transactions issued by ICAI in 2012. Firstly assessee has submitted the instances where in the identical facts and circumstances there is trade practice of adopting threshold of 30 % of the achievement of total project cost for commencement of recognising of revenue. According to that guidance note it is provided that "5.3 Further to the conditions in paragraph 5.2 there is a rebuttable presumption that the outcome of a real estate project can be estimated reliably and that revenue should be recognised under the percentage completi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roject cost for commencement of revenue recognition. Further the working of the total project should also include all types of development charges required to be included in the same. Ld. AR has stated that the details of percentage of completion of project are available in the assessment order itself. However after careful consideration and agreed by both the parties, we set aside this issue to the file of the AO to determine with respect to Magnolia Project and Summit Project following :- (i) To determine the total project cost of both these projects including the cost of internal and external development charges of the project (ii) To determine whether the actual cost of expenditure incurred up to 31.03.2006 is less than 30% of the total project cost estimated by the assessee; (iii) If the threshold limit of 30% is crossed then to determine the income of both these projects on percentage completion method in this year; (iv) To give appropriate relief in subsequent years, if any income is taxed on these projects in those years; (v) If the project cost incurred up to this year has not crossed threshold of 30% limit of the total project cost estimated then to delete ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Total Funds (1) (2) (3) (2)+(3)=(4) (1)+(4) = 5 As on 1.4.07 6,76,929 1,34,822 65,280 2,00,102 8,77,031 As on 31.3.08 8,38,640 91,961 11,26,915 12,18,876 20,57,516 TOTAL 'A' 15,15,569 2,26,783 11,92,195 14,18,978 29,34,547 Average Funds 'A'/2 7,57,784 7,09,489 14,67,273 Proportion of funds (rounded off) 52% 48% 100% Amount (Rs. in crores) Total fixed period - loan interest debited to P & L Account for the year ended 31.3.2007. 249.54 Less: - 52% of interest earned on loans/advances to Group entities i.e. Rs. 412.84 lacs 214.68 Net interest expenditure eligible for capitalization 34.86 S. No Issue/Particulars Amount (Rs.) (crores) Inter-se % 1. Interest on Project- Keventer Lane 7.93 3.18 2. Interest pertaining to projects under execution 241.61 96.82 TOTAL 249.54 100 Accordingly, interest of Rs. 1,10,00,000 from the interest paid on loan taken for Keventer land project was capitalised by the AO was disallowed. 91. Ld. CIT(A) has deleted the said addition in the following manner: "10.10 I have considered t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of Edward Keventor (Successor) Pvt. Ltd. The investment has already been considered by the ASSESSING OFFICER while working out the disallowance of interest u/s 14A. Therefore, further capitalization of interest on this issue will amount to double addition. 10.11 Otherwise also from the details filed by the appellant, it is seen that appellant has paid total interest of Rs. 604.43 crores on fixed period loans during the year. Out of this, interest to the extent of Rs. 354.89 crores have been capitalized over the projects. As a result, the total interest claimed in the profit & loss account on fixed termed loans comes to Rs. 249.54 crores. The appellant has also paid bank over draft interest of Rs. 176.06 crores. Thus, the total interest claimed in the profit & loss account is at Rs. 425.60 crores. As against this the appellant has shown receipt of interest from bank deposits, customers and subsidiary and associate companies to the extent of Rs. 411.99 crores. If the interest payment on over drafts is taken out from the total interest claimed in the profit and loss account, then the total interest claimed in profit and loss account is Rs. 249.54 crores which is less than the in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 satisfied by the assessee. The proviso says that any amount of the interest paid in respect of capital borrowed for acquisition of an asset whether capitalized in books of accounts or not for any period beginning....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent 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 section 36(1)(iii) of the Act - Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom.). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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." 93. Since, similar facts and reasons for disallowance is permeating in this year also, therefore, respectfully following the earlier year precedence, we decide this issue in favour of the assessee. 94. The next issue pertains to deletion of addition on account of disallowance of capitalization of interest of Rs. 7,93,00,000/-. Ld. Assessing Officer on the basis of Special Auditor's comment observed that interest capitalization is also required on interest paid on loan taken for M/s. Edward Keventer Project, and therefore, net interest eligible for capitalization is to be bifurcated into interest capitalization on Keventer loan and interest capitalization on project under execution. The Special Auditor has recommended that out of net interest of Rs. 34.86 crore requiring capitalization, Rs. 1.10 crore is to be capitalized towards interest paid on loan taken for M/s. Edward Keventer project and Rs. 33.76 crore of interest is eligible for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to P&L A/c comes to Rs. 249.54 crores, which is less than the interest income of Rs. 411.99 crores as offered in the P&L A/c. Since, the interest payable is less than the interest received from different sources. No further notional interest can be capitalized over the projects. The interest pertaining to projects has already been capitalized by the appellant to the extent to Rs. 354.89 crores, which is specific to the projects under execution. The further capitalization of Rs. 7.93 crores is based on presumptions, there is no scientific method worked out by the ASSESSING OFFICER for capitalizing the further interest of Rs. 7.93 crores. The net impact of the interest in Profit & Loss A/c is positive income after excluding the overdraft interest expenses. Once the interest income is positive in the P&L a/c, the further capitalization of interest cannot be estimated on presumption basis as done by the ASSESSING OFFICER. It is also seen that ASSESSING OFFICER has not pointed out any diversion of funds which was not utilized for business purposes. The funds taken by the appellant from banks or otherwise generated from own sources have either been utilized in construction business or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce 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 satisfied by the assessee. The proviso says that any amount of the interest paid in respect of capital borrowed for acquisition of an asset whether capitalized in books of accounts or not for any period beginning from the date on which the capital asset was borrowed for acquisition of the asset till the date on which such asset was put to use shall not be allowed as deduction. The deduction is to be disallowed even if the interest is capitalized in the books of accounts or not. Hon'ble Supreme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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-intrade (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 section 36(1)(iii) of the Act - Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom.). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e aforesaid precedence which is applicable on the facts of the present year also, we decide this issue in favour of the assessee. 99. In ground no.6, the Revenue has challenged the deletion of addition on account of disallowance of brokerage and commission of Rs. 2,99,74,610/-. 100. Ld. Assessing Officer on the basis of comments of Special Auditors observed that certain expenses such as brokerage and commission are being claimed in the P&L account while the matching revenues are not credited to the P&L account. He has discussed in detail various observations and note of the Special Auditors and observed that assessee's reliance on accounting standard-7 is not misplaced as it applies to construction contract and not to development project undertaken by the assessee himself. Further, the reliance placed by the assessee upon the order of the ld. CIT(A) for the Assessment Year 1983-84 is also misplaced as accounting policy is followed for recognition of revenue in Assessment Year 1983-84 is to be from the accounting policy followed for the year under assessment. The assessee has not paid this brokerage as a selling cost for procuring any construction contract. He has paid this mone....
X X X X Extracts X X X X
X X X X Extracts X X X X
....selling of flats and property to the extent of Rs. 9,98,95,581/- is an allowable expenditure during the year and disallowance to that extent of Rs. 2,99,74,644/- is deleted. It is also seen that this issue has been decided in favour of the appellant by Hon'ble ITAT in its order for A.Y. 1984-85. However, the ASSESSING OFFICER has observed that the accounting policy followed by the appellant company for recognition of revenue in the A.Y. 1983-84 were different from the accounting policy followed during the year under consideration. It is seen that in A.Y. 1983-84 also the selling cost i.e. brokerage and commission were claimed in the year in which they are incurred and same were not recognized on the basis of revenue recognition. Therefore, the ratio of the said judgment is still applicable in the case of appellant and the brokerage and commission has to be allowed in the year in which they are incurred and cannot be associated with construction cost. The contention of the ASSESSING OFFICER that the brokerage expenditure to be postponed to subsequent year as per AS-9 cannot be accepted, as brokerage and commission are related to the sale of flats and properties. By incurring the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e against the income from house property except deduction @30% and interest payment on the loan for construction of house u/s 24 of the IT Act. There is no provision of deduction of brokerage paid for giving the property on rent, therefore, the expenditure incurred by the appellant of Rs. 64,51,161/-( for Grand Mall Rs. 3,65,378/- + town square mall Rs. 60,85,783/-) is not an allowable expenditure. In the result, this ground of appeal is partly allowed and appellant gets a relief of Rs. 2,99,74,600/-." 102. Again, this issue has been decided in favour of the assessee by the Tribunal in assessee's own case for Assessment Year 2006-07 in the following manner: "69. We have carefully considered the rival contentions. We have also perused the order of ITAT in assessee's own case for AY 1984-85 submitted before us by the ld. AR. This decision has also been considered by the AO at page 188 of the assessment order. The AO has not followed this decision as it could not be verified whether the issue has been taken up by the department before the Hon'ble Delhi High Court or not. Before us, ld. DR also could not point out that why this decision cannot be followed nor we could find any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowing manner: "14.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and judgment of Hon'ble Supreme Court in this regard. It is seen that Hon'ble Supreme Court has set aside the judgment of Hon'ble Punjab & Haryana High Court and has accepted the appellant's right to collect the late construction charges from customers, if they fail to commence the construction activities within stipulated time. It may be seen that Hon'ble Punjab & Haryana High Court had declared such levy as illegal, therefore, appellant was showing such charges as its liability instead of showing such late construction charges as its income. Because of that judgment these charges were not treated as appellant's income and the amount of late construction charges cannot be said to have accrued to appellant unless the appellant acquires a right to receive it. Had the Hon'ble Supreme Court would have approved the judgment of Punjab & Haryana High Court, the appellant would have refunded such late construction charges to the respective parties. Therefore, such amount was kept in a liability account. After the Supreme Court judgment which has set aside the Punjab & Haryana h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erned 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 or accruing' are general words descriptive of a right to receive profits... If the assessee acquires a right to receive the income, the income can be said to have accrued to him. Though it may be received later on it being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody... Unless and until there is created in favour of assessee a debt due by....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the appeal." 107. Accordingly, following the aforesaid order of the Tribunal in assessee's own case, this issue is decided in favour of the assessee. 108. The next issue for deletion of addition on account of net contingency deposit received at Rs. 1,14,837/-. Ld. Assessing Officer observed that the deposits have been received from the customers as part of total sale price to meet out various contingency expenses and this amount has neither paid back to the customers nor was intended to be paid back. Accordingly, he treated the amount of Rs. 1,14,837/- as income of the assessee. 109. Ld. CIT(A) has deleted the addition in the following manner: "15.6 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, orders of the CIT(Appeals) for the Assessment Years 2006-07 and 2007-08, which are in favour of the appellant, and the other material available on record. It is seen that these contingency deposits were received from the customers at the time of sale or agreement to sale of plot/flat to meet out the future liability which may arise on account of enhancement of compensation to the land owners or any demand from Govt. of Haryana on accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se are the security deposits which would be utilised in performance of the contractual obligation of the assessee towards those buyers. Anyway, it is not the case of the AO that these receipts have been received during the year, it is also not the case that the payers or the depositors are unidentified and it is not the case of the AO that these amounts have been paid by the buyers without any obligation on the assessee to perform by providing the services. In view of this, we confirm the order of CIT (A) in deleting the addition of Rs. 4,94,00,550/-. on account of security deposits. In the result, the ground no.27 of the revenue's appeal is dismissed." 111. Accordingly, following the same precedence this issue is decided in favour of the assessee. 112. In ground no.9, the Revenue has challenged the deletion of addition on account of net interest fee security deposits receipt of Rs. 3,30,893/-. This amount has been added by the Assessing Officer on the ground that maintenance charges collected by the assessee are the same as has been collected by the maintenance agencies. There was no liability of the assessee to pay back this amount to the buyers, and therefore, this amount is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenditure of the society and to keep these deposits for insurance premium and maintenance. They are refundable 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." 115. Accordingly, following the aforesaid order, this issue is decided in favour of the assessee and revenue's ground is dismissed. 116. The next issue relates to deletion of addition on account of net registration charges received at Rs. 8,49,20,884/-. 117. Ld. Assessing Officer noted that as per clause 13 of the 'Buyers' agreement', it is mentioned that the company along with subsidiary company will prepare and execute Conveyance Deed in favour of the buyer only after receiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant and various judicial pronouncements on the issue. It is seen that registration charges are received from the buyers of the plots/flats alongwith other charges to get the flats/plots registered in the name of buyer. There is time gap between the receipt of such charges and actual registration of the flat/plot. Before actual registration takes place, the appellant has to pay stamp charges or it has to get the documents franking for the stamp charges. Therefore, after payment of franking/stamp charges a date is fixed for registration of the property. This procedure takes time, therefore, the amount received on account of registration charges are credited in the account maintained under the head 'registration charges'. These registration charges have been shown as liability in the balance sheet of the appellant. It is also seen that some time registration charges are received from the customers but actual registration could not takes place due to non availability of person concerned or for want of other formalities or documents. Therefore, the money received in this account is kept in a separate account under the head 'Current Liability' as the same does not belong to the appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dition has been made in this regard." 120. Further, learned counsel has informed that this issue is decided in favour of the assessee by ld. CIT (A) in assessee's own case for Assessment Year 2007-08 and the Department has not preferred any second appeal and further, no addition has been made from Assessment Year 2012-13 onwards. In view of the Tribunal order and as a matter of consistency, in this year also we delete the said addition. 121. In Ground No.11, the Revenue has challenged the deletion of addition on account of closing credit balances in indirect taxes account at Rs. 1,81,15,047/-. 122. Ld. Assessing Officer after considering the entire facts and submission of the assessee noted that as per assessee's own submission in direct tax amounts which received from the customers as per clause 32(b) of the agreement to sale entered into with different customers. He observed that these receipts are received from the customers in terms of the contractual obligation and treated as part of the sale price while working out the POCM sale revenue. Assessing Officer held that as the assessee itself has stated that the amount in respect of indirect taxes are a part of sale price, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) in assessee's case for Assessment Year 2006-07 and Department has not preferred any second appeal in ITAT. Otherwise also, we are of the view that, the indirect tax collected from the customer on behalf of the Revenue authorities, which the assessee is liable to pay to the government, then such an action of the Assessing Officer in treating the indirect taxes as income of the assessee is highly misconceived and unjustified. In any case, this amount has been subsequently paid and therefore, it cannot be treated as income in this year. Accordingly, the order of the ld. CIT (A) is affirmed. 125. In ground no.12, the Revenue has challenged the deletion of addition Rs. 15,02,99,365/- on account of disallowance of expenses towards non allocation of overheads. 126. Ld. Assessing Officer based on Special auditor's observation noted that there were certain discrepancies with regard to apportionment of common overhead expenses incurred by the assessee company but attributable to group concern were benefitting from such expenditure. Based on the observations of the Special Auditors, the Assessing Officer required the assessee as to why the expenditure of Rs. 15,02,99,365/- benefit of w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is prohibition by creating 49 years lease in favour of co-developer. It is pertinent to note that the lease deed is renewable further and thus effectively transferring the land also. Para 2.3 and 5.1 of the Lease Deed clearly allows the parties to renew the lease deed. Thus, the assessee company has transferred the land in actual sense and substance of this present transaction means sale of land. In most of the cases, substance of the transaction and its form are one and the same. However, the substance can be different from the form of the transaction in many cases. In the present case, the assessing officer has rightly gone for the substance of the transaction and disallowed the deduction u/s 80-IAB claimed by the assessee company as the lease deed is mere eye wash and actual transaction was sale of land which is clearly not permissible under SEZ Act. Relevant paras of Lease deed are at page 135 & 136 of the Paper Book II filed by the Counsel of the assessee. d. The transfer of building is absolute and as per the amended agreement and lease deed, Co-developer shall be treated as owner of the bare shell building and the warm shell building after additions etc and will have excl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....venue neutral since if certain amount of expenses is held to be allocable to group entities, the same will have to be allowed in the hands of those entities. In this respect the point to be observed is that the two companies identified by the Special Auditors which had incurred negligible overheads have earned income from development of SEZ and claimed deduction equal to 100% of profit earned on SEZ development u/s 801AB, hence the argument of the assessee that this exercise would be revenue neutral is incorrect. 12.7 The assessee has stated in the reply that in these two companies even though construction activities were going on, there was no marketing, planning or any other HO level administrative work involved during the year. The assessee has not been able to substantiate this argument with any documentary evidence. 12.8 The assessee has relied on certain citations wherein it has been held that expenses incurred for business requirement are allowable and any incidental benefit arising to a third party out of such expenditure cannot be made basis for disallowing the same. These citations are not relevant in the present case since the expenses incurred by the assessee have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ust 0.042% of total turnover and DLF Cyber City Developers Ltd have incurred administrative overheads of Rs. 38.72 Lacs (after reducing brokerage and commission) against development income of Rs. 163049 Lacs which is just 0.023% of total turnover. The line of business of the assessee company and associated concern being identical, the proportion of overhead expenditure to the level of business should also be similar but as mentioned above there is substantial variance in the proportion of overhead expenditure incurred by the assessee company vis-a-vis the two associated concerns. The judgment of Nestle quoted by the assessee is not at all relevant in the present case since the assessee has not been able to prove that the overhead expenses incurred were wholly and exclusively for its benefit and had not benefitted the associated concerns. The assessee has not been able to convincingly explain the extremely low level of administrative overhead expenditure incurred by the two associated concerns as compared to the assessee company considering the similar line of business. 12.10 In view of the same it can be inferred that a part of overhead expenses relatable to the two entities sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidered for POCM. The details of such expenditure was furnished to the Assessing Officer at page No.1 of appellant's letter dated 31.3.2011. The amount of overhead expenditure forming part of development cost comes to Rs. 13,12,65,162/-. This expenditure includes the overhead expenses incurred by the DLF Infocity Developer (Chennai) Ltd. In the case of M/s. DLF Cyber City Developers Ltd, it is noted that the main project was only development of SEZ project at Sector 25 Gurgaon. Besides, the above project this company has only rental income. The administrative activity in this company is also minimal and hence there is no need of allocation of any further overheads. This Company is again self sufficient and has its own resources to carry out the activity and hence no further allocation is required. Apart from the above, the company had incurred overhead expenditure which formed part of the development cost which has been considered for POCM. The details of such expenditure was furnished to the Assessing Officer at page No.2 of appellant's letter dated 31.3.2011. The total cost of the overhead expenditure forming part of development cost is Rs. 9,73,06,213/-. This expenditure incl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtisements, printing and stationery, security charges, leave encashment and salary and wages are not apportioned to group companies and, therefore, AO disallowed 70% of those expenditure amounting to Rs. 14,55,37,401/-. It is not the case of the AO that these amount of expenditure are not incurred by the assessee and further veracity of those expenditure have also not been doubted. The only reason for disallowance is that assessee has not allocated this expenditure to its various group companies and, therefore, AO was of the view that this expenditure has not been incurred wholly and exclusively for the business purpose of the company. On perusal of the expenditure and the orders of the lower authorities, it is apparent that the director's salary is being paid to the directors of the company including a commission thereof is for the purpose of managing the business of the DLF - assessee. Further, for the protection of the interest of the company even if the directors have given their time for looking after other group activities it is merely a shareholders' activity. Furthermore, the advertisements, salary and wages, leave encashment expenditure and printing expenses etc. are all p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....storey buildings, commercial complexes etc. During the year, the appellant has incurred certain expenditure on market study, feasibility report and viability report on possibility of developing SEZ projects at various locations like Jaipur, Bhuvaneshwar, Gandhinagar, Ambala, Ludhiana, West Bengal, etc. On these studies, the appellant has incurred an expenditure of Rs. 1,26,11,958/-. In the assessment proceedings these expenses have been treated as pre-operative expenses by the ASSESSING OFFICER. It is claimed by the appellant that conducting feasibility and viability study for developing SEZ was not a new line of business but it was expansion/extension of the same line of business. Development of SEZ is very akin development of commercial projects which falls within the objectives of the MOA of the appellant company. Any expenditure incurred for expansion or extension of same line of business with complete unity of control, common fund and with the common management is a revenue expenditure and same cannot be held as capital expenditure. The feasibility and viability study was to extend the business of the appellant in same line, therefore, the expenditure incurred on such study is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the real estate development. The tender fees paid for bidding of modernization 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 act. The decision cited by the AR of the appellant has held that the when the assessee proposed to set up new project which had inextricable linkage with the existing business of the assessee, The proposed business was not an individual business but vertical expansion of the existing business and Thus, the test of existing business with common administration and common fund was met. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Honourable Delhi high court in case of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del) we reverse the order of CIT (A) and delete the disallowance of Rs. 1,47,70, ,222/- on account of tender fees for modernisation of airports. Therefore ground no 16 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6,300.00 PROF. FEES IN CONNECTION WITH IMPLEMENTATION AND ACQUISITION OF CYPRUS HOLDING COMPANY, INCLUDING ASSISTANCE IN ACQUISITION & IMPLEMENTATION OF CYPRUS HOLDING COMPANY. Legal & Professional 161,236.60 OUT OF POCKET EXPENSES FOR TRAVEL TO CYPRUS Legal & Professional 1,067,420.00 PROF. FEES IN RESPECT OF CROSS BORDER INVESTMENT STRUCTURING FOR HOSPITALITY BUSINESS EVALUATION FOR SETTING UP AN OFFSHORE COMPANY FOR ACQUIRING 141. Ld. CIT (A) has deleted the addition in the following manner: "23.11 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, and various judicial pronouncements relied upon by the appellant and my own order for AY 2007-08 in the case of the appellant company wherein the issue was decided in favour of the appellant. It is seen that the appellant is engaged in the business of developing real estate like development of plots, multi storey buildings, commercial complexes etc. During the year, the appellant has incurred certain expenditure on legal and professional fees paid for drafting the joint venture agreements, preparing draft report for Gujral Design Plus Valuation, Purchase of preferential shares by DAL Si....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Therefore, expenses relating to such projects cannot be capitalized and has to be allowed as revenue expenditure as these expenses have been incurred wholly and exclusively for the business requirement of the appellant company. The Assessing Officer was not justified in treating these expenses as pre-operative expenses and same is to be capitalized. The question of capitalization does not arise as these expenses were incurred on legal and professional advice and preparing joint venture agreements. However, after the feasibility and viability study these proposed joint ventures or valuation reports were not found suitable for carrying out further investments and same were abandoned. The expenses were incurred for extension of same line business and such expenses has to be allowed as revenue expenditure. In view of the above, the disallowance made by the ASSESSING OFFICER on account of capitalisation of such expenses cannot be sustained. Therefore, respectfully following the decisions of jurisdictional High Court and my own order for AY 2007-08 in appellant's case (Page 229-237), the disallowance of Rs. 1,30,38,853/- made by the Assessing Officer on this account is deleted." 142.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is seen from the certificates that amounts which were to be paid by the appellant during the year of Rs. 40,13,838/- + Rs. 15,98,984/- in respect of M/s DLF Qutub Enclave Complex Educational Charitable Trust and M/s DLF Qutub Enclave Complex Medical Charitable Trust respectively were clearly mentioned in the column "amount of rent expected to be realized during F.Y. 2007-08". These certificates were signed by ITO, TDS Ward 49(4), New Delhi and same were filed before me from page 458 to 461 of Paper Book Volume II of the appellant's submission dated 29.11.2012. The certificates issued by ITO 49(4) cover the amounts to be paid during F.Y. 2007-08 and he has clearly mentioned in the certificate "amount of rent expected to be realized during F.Y. 2007-08". The language of certificate is clear and it covers the amount paid during the year. In view of the above, it is established that the certificates issued by the ITO were meant for the entire amount mentioned in the certificates. The ASSESSING OFFICER has not appreciated the certificates issued by the ITO, TDS Ward 49(4), New Delhi, in its proper prospective and disallowance of Rs. 7,37,222/- made on account of Non Deduction of TDS was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....48. Thus in view of the above similar finding given in the earlier year on identical set of facts, as a matter of consistency we do not find any infirmity in the order of the ld. CIT(A) as noted above, therefore, ground raised by the Revenue is dismissed. 149. In ground no.17, the Revenue has challenged the deletion of addition of Rs. 9,94,187/- on account of reconciliation of rental income as per TDS certificates and withdrawal of TDS credit of Rs. 7,12,257/-. 150. Ld. Assessing Officer on the basis of comments of the Special Auditors if there was a difference of Rs. 984249/- between rental incomes as per the TDS certificate issued by the tenant a rental income of the tenant shown by the company. The assessee's contention was that the tenant while issuing the TDS certificate for the A.Y. 2008-09 had issued TDS certificate for 13 months including the period of April 2008 and a confirmatory letter from the tenant was enclosed with the reply. The company has further stated that the said income of Rs. 9,84,249/- was offered by them for taxation in the subsequent year relevant to A.Y. 2009-10. In the Special Audit report it was mentioned that the company in reply to the special aud....
X X X X Extracts X X X X
X X X X Extracts X X X X
....correct in the absence of any contrary evidence brought on record of the assessee, thereby an amount of Rs. 4,36,0191- (Rs. 2,17,242+ Rs. 2,18,777/-) is to be added to the income of the assessee on account of income from house property and deduction U/s 24 in respect of repairs @ 30% is allowable on the same which comes to Rs. 1,30,806/-. The total amount of addition under this head comes to Rs. 3,05,213/-. Total addition made was Rs. 9,94,187/- Rs. 6,88,074/- + Rs. 3,05,213/-) 152. Ld. CIT(A) has deleted the addition in the following manner: "26.5 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, various judicial pronouncement relied upon by the appellant, order of CIT (A) XVIII for AY 2006-07 and my own order for AY 2007-08 in appellant's own case wherein I have decided this issue in favour of the appellant. It is seen that as per the reconciliation submitted by the appelant, the difference in income as per books of account and TDS certificates is on account of either the payee deducted the excess TDS or part of the income has been booked in the subsequent year since the rents was increased or adjusted against the future rent. It is not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the arguments of the AR, I find that so far as the AO's denial of the credit of TDS of Rs. 7,12,257/- on the advanced rent received during the year from American Express Bank, Accenture Services Private Limited, Sumitomo Corporation India Pvt. Ltd. and Bank of America is concerned, it is seen that income of advance rent has been offered in F.Y. 2008-09. However, the TDS deducted on such rent has been claimed during the year in view of the TDS certificates issued by the tenant. The appellant is following mercantile system of accounting, therefore, advance rent received for F.Y. 2008-09 cannot be taken into consideration this year and same was recognized as income in F.Y. 2008-09. However, the TDS has been claimed on the basis of income recognized in the next year since the TDS certificates pertains to the accounting year 2007-08. It is further noted that this issue is covered in favour of the appellant by the judicial pronouncements in the case of Smt. Pushpa Vijoy vs. ACIT and Pashupati Acrylon Limited vs. CBDT and orders of CIT(Appeals) in appellant's own case for the assessment years 2006-07 and 2007-08. Since income has been offered for this TDS certificate, therefore, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee is eligible for credit of tax deduction at source. The ld. CIT (A) has dealt with this issue in para 22.15 as under:- "22.15 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." 154. Thus in view of the aforesaid finding of the Tribunal, the ground raised by the Revenue is dismissed. 155. In ground no.18, the Revenue has challenged the deletion of addition of Rs. 9,4,52,455/- on account of reclassification of income from house property to income from business and profession. 156. Ld. Assessing Officer had noted the following observation of the Special Auditor that following properties have been reflected as fixed assets i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Shops at Grand Mall, Gurgaon 1,30,32,412.00 e) Other rent 1 9,18,123.00 1,61,91,748.00 Less: Statutory Deduction @ 30 % 1,13,34,224.00 48,57,524.00 2. INCOME FROM BUSINESS & PROFESSION a) Corporate Park 8,46,69,205.00 b) Shops at Centre Point, Faridabad 7,15,586.00 c) Le Milennia Supermart, Windsor Court, Ph-IV, Gurgaon 7,17,876.00 d) Le Milennia Supermart, Carlton Estate, Ph-IV, Gurgaon 1,02,600.00 e) Rent / License Fee for Appartments at DLF City, Gurgaon 16,63,333.00 f) Shops at DLF City Centre, Gurgaon 9,49,912.00 g) Shops at Ridgewood Estate 7,50,000.00 h) American Express Bank Ltd., Phase-V, DLF City Gurgaon 5,89,25,991.00 i) Felicite Builders & Construction Pvt. Ltd., I-E, Jhandewalan 88,000.00 j) DLF Centre, Sansad Marg, New Delhi 19,39, 85,629.00 Less: Expenses- House Tax Paid 31,35,08,184.00 2,90,59,948.00 16,49,25,681.00 TOTAL INCOME a) Income from House Property Shown in Computation of Income 32,48,42,408.00 b) Income under stated by the Company 23,07,89,953.00 (a) - (b) 9,40,52,455 In view of the above a sum of Rs. 9,40,52,455/- has been under stated by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies 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. In view of the above, respectfully following the decision of coordinate Bench of the ITAT in the case of assessee for AY 2005-06, we confirm the order of CIT(A) in taxing the rental income as income from house property. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceived 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." 164. The Tribunal also in assessee's own case for Assessment Year 2006-07 has dismissed the Revenue's appeal after observing and holding as under: "196. We have carefully considered the rival contentions. We have also perused the order of the coordinate Bench of the ITAT in ITA No.3561/Del/2013 wherein ground no.3 have considered the identical issue where in para no 16 to 23 addition is deleted by ITAT as under :- "16. The Assessing Officer made an addition of Rs. 3,02,61,251/- on account of notional rent/ additional annual letting value (ALB) u/s 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/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....properties that remained vacant for part of the previous year, the AR reiterated submissions made before the AO and emphasized that the matter is covered in favour of the appellant by judgment in the case of one of the appellant's group concerns M/s DLF Office Developers Vs. ACIT reported in 23 SOT 19 (Del) and orders of CIT(Appeals) in appellant's own case for the Assessment years 2006-07, 2007-08 & 2008-09. It is observed that "where there was an intention to let out the house property and assessee took steps to let it but could not get suitable tenant, in such cases the annual value will have to be worked out under section 23(l)(c) of the IT Act and according to this clause, if the actual rent received / receivable during the year is Nil then that has to be taken as 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 act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the first appellate order on the issue as discussed above is reasonable and view supported with this decision. Hence, we are not inclined to interfere with the order, the same is upheld. Ground no.3 is accordingly rejected." 197. Therefore, following the decision of the coordinate Bench of the ITAT in the case of the assessee for AY 2005-06 , the addition of Rs. 3,27,52,542/-is deleted. In the result, ground no.19 is dismissed." 165. Once this issue has been consistently decided in favour of the assessee, then in this year, without any change in material facts no different view can be taken. Respectfully following the aforesaid decision of the Tribunal, we dismiss the ground raised by the Revenue. 166. In ground no.20, the Revenue has challenged the deletion of addition Rs. 7,17,794/- on account of depreciation claimed on DLF Centre Building. 167. The Assessing Officer on the basis of Special Audit Report observed that assessee company has charged excess depreciation of Rs. 914277/- on certain portion in respect of building on DLF Center which was earlier let out but during the Assessment Year the same has been converted into self occupied already therefore excess dep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the parties. The CIT(A) has observed that this very issue arose in the preceding year and relief allowed at the first appellate stage was accepted by the revenue as no appeal was filed against the same before ITAT. In the light of above position and as per the decision of Hon'ble Supreme Court in the case of CIT v. J K Charitable Trust [2008] 308 ITR 161 (SC), the revenue could not be permitted to agitate the very same issue in the year under reference. Accordingly, the order of CIT(A) is confirmed." 170. In view of the above, this issue is decided against the Revenue. 171. In ground no.21, the Revenue has challenged the deletion of addition of Rs. 58,50,162/-on account of disallowance of expenses where bills are not in the name of the company. 172. The Assessing Officer has made the disallowance on the ground that no documentary evidences have been filed in respect to certain expenses as bills does not contain the name of the assessee company. 173. Ld. CIT(A) has deleted the addition in the following manner: ""32.7 I have considered the facts available on records and the contention of the appellant and order of CIT (A) XVIII for AY 2006-07 and my own order for AY 2007-0....