TaxTMI 
TaxTMI 
2019 (6) TMI 1288
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....lowance of expenses u/s. 40(a)(ia) for non deduction of TDS on 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 f....
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.... 20.10 I have considered the submission of the appellant, observation of the ASSESSING 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....
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....der Rule 8D(2)(iii). He submitted that investment in the share of M/s. Edward Keventor Pvt. Ltd. was purely a strategic 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 - P....
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....rategic investments are concerned, the same cannot be removed for the purpose of calculating the disallowance in view of the judgment of Hon'ble Supreme Court in the case of Maxopp Investment Ltd v/s CIT, 402 ITR 640 (SC). He further submitted that the assessee has to establish the nexus and the link between 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.....
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....ient to meet its investment, then it can be presumed that the investment have been made from interest free fund available with the assessee and not from the borrowed funds. Thus, no disallowance of interest can be made. 11.1 In so far as disallowance made under Rule 8D2(iii), one of the plea raised by the learned 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....
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....section 194-C for deduction of TDS. The arbitrator had also awarded interest for delay in payment of running bills as determined under claim no. 2 and this payment is purely in the nature of interest covered under section 194A for deduction of TDS. The assessee has failed to deduct TDS on payment of Rs. 1,29,52,790 as discussed above and the 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 dat....
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....4 (Bom.) 2. Madhusudan Shrikrishna v. Emkay Exports [2010] 188 Taxman 195 (Bom.) 3. Gold Crest Exports vs. ITO (ITAT Mum) (ITA No.442/Mum/2009) 17. Alternatively, he submitted that in view of proviso to Section 201(1) read with proviso to Section 40(a)(ia) no disallowance should be made with M/s. Petron Civil Engineering Pvt. Ltd. Assessee has offered this amount 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 complete....
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....f a judgment decree and is part of a judgment debt, and therefore, in such a case, assessee was not liable to deduct TDS either u/s.194C or u/s.194A. Thus, on this reasoning, we hold that there was no obligation to deduct TDS on the payment made to M/s. Petron Engineering P. Ltd. in accordance with arbitration award. Accordingly, this issue is allowed in favour of the assessee. 21. Coming 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....
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....genuine business arrangement between the parties. If the lease income is considered as chargeable to tax in the case of appellant, the appellant may be eligible for claim of expenses on account of maintenance of Mall which was owned and run by the appellant and as such appellant has not derived any tax benefit on the basis of such arrangement and for diversion of lease rent. It is further relevant to take note of 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 duri....
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....mount and has not put forth any argument in terms of provisions of section 36(l)(iii) of the Income Tax Act. The only argument raised by the assessee is that it had followed AS-16 which is not acceptable. Accordingly interest expenditure of Rs. 1,99,18,538/- is capitalised. However depreciation @ 40% (for half year) is allowed and the total disallowance of interest expenditure would be Rs. 1,19,51,123/-. 24.7 As regard the processing fees the 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....
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....sue relates to addition on account of interest on late deposit of TDS. 33. The facts in brief are that the ld. Assessing Officer on the basis of comments made by the Special Auditor observed that interest of Rs. 28,79,372/- paid on late deposit of TDS has been claimed against interest received on income tax refund and the interest payment on late deposit of TDS is not allowable expenditure. In response to the show cause notice, the assessee relied upon the judgment 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 pa....
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....Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue." In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to 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 o....
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....saged u/s. 201(1A) which is not in the nature of penalty albeit it is more on account of delayed tax, deposited by the assessee on behalf of the deductee, i.e., other party for which the interest is charged. The amount of TDS represents the amount of income tax which is payable by the party on whose behalf the deductor has deducted the tax and pays to the Government Exchequer. The TDS amount does not represent tax liability of the assessee albeit it is the tax of the other party, but it has to be paid by the assessee. 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 ....
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.... the expenditure incurred in that connection is not in any way connected with preserving or promoting the business of the assessee. The liability in the case of payment of income-tax and interest for delayed payment of income-tax or advance tax arises n the computation of the profits and gains of business". The Court further held that: "Under the IT Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not a permissible deduction under s. 37, any interest payable 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....
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.... vs. Ahmedabad Cotton Manufacturing Co. Ltd. (1993) 115 CTR (SC) 401 (1994) 205 ITR 163 (SC) : TC 17R.848. In all these cases, the Court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure. 11. The ratio of those cases is not applicable here. Income-tax is not allowable as business expenditure. The amount deducted as tax is not 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 t....
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....pitalization of expenses on SEZ Projects not commenced. - Rs. 1,26,11,958/-; 15. Deletion of addition on account of disallowance of expenses on projects not commenced. - Rs. 1,30,38,853/-; 16. Deletion of addition on account of disallowance of expenditure U/s 40(a)(i)(a) of the I.T. Act for non-deduction of TDS on payment to two Trusts. - Rs. 7,37,222. 17. Deletion of addition on account of reconciliation of rental income as per TDS Certificates and withdrawal of TDS credit:- Rs. 9,94,187/-; and Deletion of withdrawal of credit of TDS Rs. 712257/-; 18. Deletion of addition on account of reclassification 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, ....
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....laims of the assessee an Rs. 63 lakhs were on account of reimbursement and telephone and conveyance expenses of the assessee. These expenses were disallowed by the AO. The details of these expenses are enclosed as per Annexure 'A' at page 101 along with explanatory statement. These bills are pertaining to the regular staff of the employees and are payable and paid at the time of settlement of their entitlement. It is irrespective of the time when employee has actual travelled. In same way, the telephone and conveyance expenses are also reimbursement of the expenditure which would be determining the claim of the employees and admitted by the employer. 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....
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....the assessee fraudulently. 49. On the other hand, assessee's reply was that the approval granted by the Board of approval for SEZ has remained untouched despite of the High Court order, and therefore, assessee under the law was entitled for claim of deduction u/s.80IAB. However, the ld. Assessing Officer rejected the said contention and held that the approvals of Board of Approval were granted at the time when High Court order was not pronounced, i.e., on 11.02.2011. Apart from that, the ld. Assessing Officer also proceeded to examine the claim on merits. The relevant observations of the AO in this regard can be summarised as under: - * Section 80-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 t....
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....opment and therefore not eligible for deduction. Further, the Co-developer i.e. DLF Assets Ltd. has reflected the same as "Fixed Assets" in its books of accounts and not as "Business Asset". Thus, looking at it from another angle, please explain why the aforesaid transaction involving transfer/sale of constructed buildings from DLF Ltd. to DLF Assets Ltd. should not be treated as income/loss from capital gains. You may also explain that if the transaction is treated as capital gain, then how such income which would be a non business income can be claimed as being eligible for deduction under section 80IAB. * It was also observed by him that income tax deduction U/s 80IB is 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....
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....land owned by the appellant in Sector-30 of Gurgaon was notified by the Govt. of India for establishment of SEZ, the authorized operations to be undertaken in the proposed SEZ were approved by the Board of approvals, the co-developer agreement dated 20.03.2008 executed with the co-developer contemplating transfer of bare shells to the co-developer for an agreed development consideration has been duly approved by the Board of approvals, the DAPL has been approved as a co-developer. The transfer of bare shells to the co-developer has been approved as an authorized operation by the Board of Approvals and the disclaimer contained in clause 3(xvii) of approval letter dated 01.06.2009 applies only to transfer 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 lett....
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....s v. State of Punjab, AIR 1961 SC 1570. Therefore, in view of the above judicial pronouncements, land is an independent, identifiable asset, and continues to remain identifiable even after construction of the building. 8.27 I have gone through these judgments and am of the considered view that there is a force in the arguments of the AR as the land and building are independent identifiable assets. It is a common practice in India that one person owns a land and the other owns the superstructure built thereon. Keeping in view these facts and circumstances and the legal position, the appellant has not violated any of the conditions as provided under the SEZ Rules. 8.28 Ground Nos.4.1.7, 4.1.8, 4.1.9, 4.1.10 & 4.1.11 - 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 ove....
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.... which is prescribed for calculating profits and gains of business of real estate developer under the mandatory accounting standard issued by the Institute of Chartered Accountants of India. The Assessing Officer's observations by referring to the classification of assets shown by the co-developer was a sale of capital asset subjected to capital gain is against the very principle of the Act when the bare shell buildings were neither part of capital work in progress nor fixed assets of the appellant. A perusal of the assessment order reveals that the Assessing Officer has not categorically held the income of the appellant under the head 'Capital Gains' as no such specific addition has been made. The Assessing Officer has only made her observations without prejudice 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 cap....
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....y in a year or average of multiple years. Such method of valuation is in conformity with the basis adopted for capitalisation of net maintainable rent as per Rule- 3 of Schedule III of the Wealth Tax Act. Therefore, when the transfer of bare shells has been permitted as an authorized operation by the Board of Approvals, the application of lease period becomes redundant. Considering the above, there is neither any question for treating 1/49th of development consideration as income of one year for the purpose of deduction U/s 80 IAB nor for the purpose of disregarding balance income filed by the appellant during the year. The appellant has further contended that if the observations of the Assessing Officer are accepted in as much as the transfer of bare shell buildings is not an 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 G....
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.... 1961. It has been stated that despite the fact that the SEZ Project was not in operation in earlier years but still these routine expenses have all along been allowed to the appellant while computing the total income for respective years. The appellant has filed a comparative chart of expenses incurred and claimed by the appellant during the year as well as in the preceding year to show that the expenses have been all along allowed. The appellant has also contended that similar issue arose in the case of M/s DLF Commercial Developers Ltd. for AY 2008-09 and the same has been deleted in appeal vide order dated 19.12.2012 in Appeal No.71/12-13. 8.31 I have considered the submissions of the appellant and have perused the details filed by the appellant on this issue. It is seen that the allocation made 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 expens....
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....the Impugned orders of the ITAT are set-aside and are remitted for fresh consideration by the ITAT in accordance with the law. All rights and contentions of the parties are reserved." 54. He further submitted that in order to ascertain the nature of income, it is necessary to examine the relevant issues as per SEZ Act and Rules which according to him should be analyzed as under: i. In the schedule 13 of the Audit Report under the head "Related party disclosures" DLF Assets Pvt. Ltd., the codeveloper, has been stated to be entity under the subsidiary companies. The entire income claimed to be exempt under section 80 IAB has been shown as received on account of sale of buildings to this related party. ii. The commercial terms for sale to DLF Assets Pvt. Ltd (DAPL) were decided by the Memorandum of understanding for 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....
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....ll in this category. vii. Section 9 of SEZ Act clearly define duties, powers and functions of Board of Approval (BOA) which includes granting of approval or rejecting proposal or modifying such proposals for establishment of SEZ. viii. It is very relevant to note that transfer of buildings by the developer to the co-developer was considered by the BoA as against the spirit of SEZ as pointed out by the Department of Revenue and agreed to by BOA unanimously. (i.e. it is not the business of development of SEZ.) This is the reason that BOA has put the condition of examination of the issue of taxability after determining the nature of income by the Assessing Officer. In this respect minutes of 32nd meeting and of 34th meeting of SEZ BOA held on 23rd February 2009 and 19th June 2009, which discussed the assessee company's case as one of the co-developer, are very important 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 building....
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....ons and drawbacks. Sale or transfer of assets is not an authorized operation and therefore income from such operation would not be eligible for exemption as per notification no. S.O.1846 (E) dated 27th October 2006. Copy of the Notification dated 2Th October 2006 is enclosed with these submissions. xii. That the copy of CBDT letter dated 26th May 2009 is on page 210 of the paper book II filed by the assessee counsel. Para 4 of the letter clearly states that approval will have no bearing on tax treatment of income arising out of such transaction which will be decided as per the relevant provisions of the Income Tax Act." 55. If these issues are examined in detail then following facts are established: a. "That the assessee company has not developed the SEZ rather only constructed the buildings. The deduction u/s 80- IAB is available only in the case of development of SEZ. Mere construction of Bare shell buildings 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 d....
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....develop the SEZ later on, how can we say that the SEZ has been developed and why should the deduction be allowed to the assessee company at this stage where the development of SEZ has not been done. Allowing the deduction at the stage of construction of bare shell building would be against the provisions of SEZ and Income Tax Act. 56. Thus, he submitted that assessee's income from sale of assets is not eligible for deduction u/s.80IAB and once it is established that the transfer of buildings to co-developer is not a business activity and the income from such transfer is not business income, it is clear that sale of such buildings, in the nature of capital assets, has generated capital gains and, therefore, income shown by the assessee on this count has to be treated as capital gains. In this respect the most important aspect to be examined is whether by co-developer agreement entered in the Financial Year 2007-08, the transfer of the building can be deemed to be 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 ye....
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.... Bench of Bombay High Court speaking through S.H. Kapadia, J in Chaturbhuj Dwarkadas v. CIT are apposite: We quote the same: If the Contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability. Further, if 'possession' referred to in clause (v) is to be understood as exclusive possession of the transferee/developer, then, the very purpose of the amendment expanding the definition of transfer for the purpose of capital gains may be defeated. The reason is this: the owner of the property can very well contend, as is being contended in the present case, that the developer will have such exclusive possession in his own right only after the entire amount is paid to the owner to the last pie. There is then a possibility of staggering the last installment of a small amount to a distant date may be, when the entire building 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 inde....
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....here is a specific sales consideration, which has been fixed for this transaction. d) The transfer of building is absolute and as per clause 7.1 of the Co- Developer Agreement dated 20.03.2008, the Co- Developer shall have exclusive rights to let, sub-let, mortgage, or to allow use of all or any part of the SEZ buildings in accordance with the SEZ Act, on such terms and conditions as the Co-developer may impose and agreed to. In the amended clause 2.4 to the addendum to MOU also it has been made clear that Co-developer shall own the bare shell buildings and shall continue to own warm shell building also. e) Sale of buildings is not one of authorized operations in the SEZ as per the notification dated 27th October, 2006 issued by the Ministry of Commerce and Industry, Govt, of India. f) As the sale of bare shell buildings to the co-developer, i.e. DLF Commercial Developers Ltd. in accordance with the codeveloper agreement, is against the spirit of SEZ Act & Rules and is not one of the authorized operations 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-develope....
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....ricity may be required for the purposes of the industrial undertaking, the deposit required for is supply is a step removed from the business of industrial undertaking. Held accordingly, that interest derived by the industrial undertaking of the assessee on the deposits made with the Electricity Board for supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction under Section 80HH. COMMISSIONER OF INCOME TAX V. STERLING FOODS - (1999) 237 ITR 579 (SC) Hon'ble Supreme Court held that there must be, for the application of the words "derived from', a direct nexus between the profits and gains and the industrial undertaking. Copies of the Judgments are enclosed with these submissions." 59. He further referred to the Supreme Court's judgment in the case of Commissioner of Custom vs. Dileep Kumar & Co. (supra) wherein it was held that tax exemption has to be interpreted wherein the benefit of doubt should go in favour of the Revenue and also referred to observations of Their Lordships in ....
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....p a sector specific SEZ for IT/ITES sector at Sector 30, Silokhera, Gurgaon. An area of 12.06 Hectares and an additional area of 2.96 Hectares were notified by the Ministry of Commerce & Industry, vide notifications dated 06.12.2006 & 19.03.2007. * The authorized operations to be undertaken by the assessee were also approved by a separate approval by the Govt. of India, Ministry of Commerce & Industry (SEZ Section) vide letter dated 14.02.2007. * The assessee entered into a MOU dated 29.01.2007 with the co-developer and filed the copy of the MOU for the approval before the Board of Approvals. * An addendum thereto was also entered into amending the terms of the original MOU on 23.04.2007. * The authorized operations to be taken up by the codeveloper in the said Silokhera SEZ was also approved by the Ministry of Commerce & Industry (SEZ Section) vide letter dated 22.05.2007 which included development of office space also (Warm Shell). * In order to consolidate the MOU and addendums thereto a co-developer agreement was entered into between the assessee and DLF Assets Pvt. Ltd. on 20.03.2008 which was also filed before the Board of approval....
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....g a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which a Special Economic Zone has been notified by the Central Government: Provided that where in computing the total income of any undertaking, being a Developer for any assessment year, its profits and gains had not been included by application of the provisions of sub-section (13) of section 80-IA, the undertaking being the Developer shall be entitled to deduction referred to in this section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in subsection (1) or sub-section (2), as the case ma....
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....ns that could be carried out by M/s. DLF Assets P. Ltd. which inter-alia included development of warm shell. v. The MOU dated 29/01/2007 got culminated into definitive agreement dated 20/03/2008 which was duly considered while granting approval to M/s. DLF Assets P. Ltd. vide letter dated 01/06/2009. vi. That assessee further sought clarifications vide letter dated 10/01/2011 from Ministry of Commerce and Industry, Government of India (SEZ Section) which were answered by letter dated 18/01/2011 wherein it was categorically stated that lease of land to co-developer is permissible under Rule 11(9) of SEZ Rules. It was further clarified by the Ministry that Co-developer can acquire / purchase building on the leased land to perform approved operations. Moreover, the transaction envisaged in the MOU and agreement with M/s. DLF Assets P. Ltd. has been specifically approved in reply to Query No.6 & 7 of the said letter. This position was once again clarified in reply dated 20/01/2011. vii. The BOA also sought clarification from CBDT regarding activity proposed to be carried out by the assessee and co-developer and CBDT duly approved by the same vide letter dated....
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....loper and in such a situation there would arise no occasion to charge any income tax or give any consequential benefit u/s.80IAB. Thus, the reasoning given by the ld. CIT (A) to reject this ground is affirmed and is upheld. 68. Now coming to the Assessing Officer's reasoning that transfer of a building cannot be considered as activity of development of SEZ, and therefore, profit arising from such transfer is not eligible for deduction u/s.80IAB; and lease of land for further 30 years to M/s. DLF Asset Ltd. tantamount to transfer of land. All these reasoning of the ld. Assessing Officer at the threshold cannot be entertained or appreciated, in view of series of approvals from 'Board of Approval', which is a body authorised by the statute and by the Govt. of India. Assessing Officer has mainly considered/examined the issue of disallowance of claim of deduction on the ground that activity of developing of building and subsequent transfer of bare shell to co-developer is not the authorized operation under SEZ Act. As stated above, before undertaking the activity of development of SEZ, the assessee has obtained approvals from time to time so as to comply strictly within the provision....
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....rship of the land remains with the assessee and there is no case of transfer of land. Rule 11(9) of SEZ Rules, 2006 only prohibits sale of land and same is not applicable in the case of lease. This position is also corroborated from specific reply of BOA in letter dated 18.01.2011 and 20.01.2011. This clarification issued by BOA clearly clinches the issue in favour of the assessee, because BOA in clear words and terms has clarified the legality and permissibility of transaction of bare shell building to co-developers and lease of land in terms of provision of SEZ Act, 2005. Thus, any doubts regarding authorized operation have been set at rest by BOA. Hence, the allegations of the Assessing Officer are totally misconceived and are rejected. 70. The ld. CIT(A) vide his finding recorded in paragraph 8.17 to 8.27 had specifically referred to the minutes of BOA meets as well as comments obtained from CBDT with regard to the lease of land. The Director CBDT vide letter dated 26.05.2009 has conveyed its approval for the project under consideration with the right to examine the taxability of income arising from such transaction under the Income Tax Act. The BOA only after considering th....
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....t consideration but also the basis for determining the same. 71. The entire controversy as to whether the transfer of bare shell buildings to the Co-developer was an Authorized operation or not as highlighted by the Ld. Counsel before us, has been set at rest by further clarifications dated 18.01.2011 and 20.01.2011 issued by the Ministry of Commerce. In our opinion, the Revenue authorities do not have jurisdiction to question the validity or the legality of 'authorized operations' once it has been approved by the Board of Approval/Central Government under a statute and any attempt to dispute the same would be contrary to the provisions of the SEZ Act, which has an overriding effect. In the garb of disclaimer, the AO cannot usurp the functions of the Board of Approval and sit over the judgement on what constitutes an authorized operation within the meaning of SEZ Act/SEZ Rules. Merely because a deduction is allowed to transferee developer in respect of profits derived from operation and maintenance would not lead to inference that the deduction for development of a SEZ would not be available to the developer. The mandate of Section 80IAB is that a developer is entitled to deduct....
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....ess activity and the income from such transfer cannot be treated as business income. In fact, it is a sale of a building in the nature of capital asset. The contention raised on behalf of the Revenue in the facts of the present case cannot be sustained because all the conditions laid down under the SEZ Act have been examined minutely by the authorized authority, i.e., Board of Approval. Once assessee has been notified as developer under the SEZ Act and his activity has been approved by BOA and the SEZ in which the assessee has carried out its business activity has been notified under the SEZ Act, 2005 then profits derived from business of development, operation and maintenance of a SEZ has to be taken from such activity and consequently is entitled for claim of deduction u/s.80IAB. 74. Thus, in view of our reasoning given above, we hold that Assessing Officer was not justified in denying the benefit of deduction u/s.80IAB arising from sale of bare shell building to co-developer. 75. Before us, learned counsel for the assessee has also pointed out that in a group concern, this Tribunal in the case of DLF Info City Developer (Chennai) Ltd. and M/s. DLF Cyber City Developers Ltd....
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....and determining factor whether the asset is held as stock or capital asset. In the present case, the assessee moved an application for setting up of SEZ project which was duly approved as Developer by BOA. The cost incurred on development of bare shell building was disclosed as stock and revenue was recognized as per POCM. Under these circumstances, the income from sale of building is purely in the nature of business income. The assessee is engaged in organized activity of development of infrastructure facility in SEZ and as such operations ostensibly are in the nature of business in terms of section 2(13) of the Income tax Act, 1961. Thus, re-characterising the income as short-term capital gain by the AO is rejected. 78. Coming to another alternative finding of the ld. Assessing Officer that, since the land has been leased for 49 years, therefore, the income from sale of bare shell building should also be bifurcated and proportionate recognized over a period of 49 years. We find that the Ld. CIT (A) has discussed this issue in detail and has held that the lease is only in respect of land and same cannot be applied on transfer of building. In any case, the recognition of revenue....
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....81,42,828 3,74,00,432 2,92,57,604 6,34,73,181 38,56,76,277 Royalton 7,15,12,958 7,97,19,390 82,06,432 1,43,28,160 4,88,79,491 Pinnacle 45,32,46,474 49,38,96,094 4,06,49,620 4,39,97,615 28,41,42,051 Icon 38,56,98,510 41,54,67,530 2,97,69,020 4,05,73,424 93,46,81,602 Summit 67,87,31,045 69,82,35,605 1,95,04,559 1,28,23,779 - Magnolias 526,66,86,898 5,36,95,65,201 10,28,78,303 2,17,22,670 - The Belaire 322,94,28,422 3,29,92,89,020 6,98,60,598 1,55,03,253 - The Park Place 250,38,47,408 2,570,346,411 66,499,003 - - Wellington (49,17,634) (4,917,634) - - - Princeton (59, 02,013) (5,902,013) - - - Carlton (38,99,436) (3,899,436) - - - Total Phase-V (A) 1223,98,82,978 12,66,72,44,430 42,73,61,452 33,99,21,573 2,15,54,13,334 DLF City Court 9,33,58,702 94,652,773 1,294,071 - - CourtYard Office 6,37,92,669 6,38,23,974 31,305 65,641 - Rajarhat Kolkata 59,75,03,936 597,503,936 - ....
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....ent charges, * construction costs and development/ construction materials, Internal Development Charges are incurred towards amount spent on roads, parks, water supply, electricity and other facilities required for habitation inside the peripheral of a colony. Since the expenditure is common for total colony and cannot be directly correlated with the particular project or Building, the total internal development charges (IDC) are required to be apportioned on some scientific basis over the projects. The availability of approach road, sewage and other infrastructure facilities are an essential part of sale transaction and therefore, it is a liability committed by the appellant at the very initial stage of sale of property itself. Without the provision of these infrastructure facilities, the constructed building cannot be habitable and no customer may even buy the property of the appellant without these essential facilities. Thus, there is a direct nexus between the sale price and the expenditure to be incurred on these infrastructure facilities by the appellant. The sale revenue as well as expenditure on internal development works is inextricably linked with each o....
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....which have been deleted by CIT (A) as well as ITAT and no further appeal has been filed by the department. From A.Y. 2001-02 to 2005-06, no additions have also been made on this issue except in A.Y. 2002-03 wherein an addition of Rs. 4,43,994/- was made, which was deleted by CIT(A). It is also seen that Hon'ble ITAT in the appellant's own case has held that appellant can claim upto 30% as IDC cost of the budgeted sales. It may be seen that revised IDC of Rs. 236.05 crore claimed by the appellant for Phase-V project is less than the 30% of budgeted sales as stated supra. It is also seen that budgeted cost of the IDC has been accepted in A.Y. 2004-05 and 2005-06 in the appellant's case. It may be seen that IDC is an integral part of the cost of the project and based on these estimates, the project has been approved by the Director Town and Country Planning, Govt. of Haryana. If there is no provision for IDC in the project then, appellant's project may not be approved by the Director Town and Country Planning, Haryana. It is also an accepted fact that whenever project is taken for development, initially flats are constructed and thereafter the basic infrastructure facilities ....
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....the same was furnished before me by the appellant vide its submission dated 29.11.2012 at page No.91 of Paper Book (Volume II). It was submitted that no liability has been accrued or arisen upto 31.3.2008. On perusal of this summary, it will be appreciated that all these bills were for over lapped period beginning in the previous year and continuing in the subsequent year. Obviously, the bills were received after the close of the year and after receipt of such bills due verification of the work was done. After verification and measurement of the work done, bills were approved. Till that date no expenditure accrues or arises and that date falls in the subsequent financial year. The company consistently follows the policy of accruing and booking costs on the basis of the date on which bills were approved and verified which can only be after the date of receipt of the bill. In the opening balance also, similar policy has been adopted. This is the only possible way for accounting. The law does not require the assessee to do the impossible. The Hon'ble Chhattisgarh High Court in the latest judgment reported in 323 ITR 252 (Chhattisgarh) in the case of Beekay Engineering Corporation has ....
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....d to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years it cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year. . . ." (p. 531) Further reliance was placed on the judgment in the case of National Agricultural Co-operative Federation of India Ltd. vs. Jt. CIT (2008) 304 ITR (AT) 303 (Delhi) wherein it has been held that the liability is deductible only when it crystallizes into an ascertained liability. In this case as per an arbitration award interest was payable by the assessee on the sum awarded only up to the date of award of the arbitrator. Thereafter, a decree was passed by the High Court, for further interest on amount of award from the date of the award by the arbitrator till the date of payment, after the end of the accounting year. In the circumstances of the case it was held by the Hon'ble jurisdictional Tribunal that there was no liability to pay inte....
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....he bills of contract work, material and labour work only after proper verification of receipt of material, work done by the labours and measurement of the work done by the concerned person. Once it is certified of having material received upto the desired standard and quantity, and work done by the labour and contractor upto proper satisfaction, then only the liability is crystallized and entered into the books of account. The various bills of material, labour and contract mentioned by the Special Auditors and ASSESSING OFFICER, as pertaining to the F.Y. 2007-08 were, in fact, crystallized during the F.Y. 2008-09 and on the basis of same rightly accounted for in F.Y. 2008-09. The cost of Rs. 3,39,77,973/- pertaining to labour charges, contract and material which was accounted for in F.Y. 2008-09 on the basis of crystallization of liability cannot be preponed from assessment year 2009-10 to the current Assessment Year 2008-09. Again, this attempt and exercise made by the Special Auditors and the ASSESSING OFFICER is revenue neutral and it would make no difference to the Revenue except resulting in increased administrative work load of shifting expenses from one year to another. In m....
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....hese expenses should have been claimed in the previous year. The Commissioner (Appeals) confirmed this view whereas the Tribunal reversed the order and allowed those expenses. On appeal : Held, dismissing the appeal, that even when the assessee was following the mercantile system of accounting, the explanation furnished by the assessee was that the expenses were not booked due to non-receipt of details, information thereof on time, which was beyond the control of the assessee. It was also explained that these expenses to the tune of Rs. 41.95 lakhs were marginal as compared to the enormous size of the assessee-company. It was also explained that as per the accounting policy followed by the assessee, such expenses were booked in the year in which they were settled for payment. The Tribunal went into the details of each and every such expense and recorded the finding of fact that all these expenses were settled during this year. It was also recorded that more than 50 per cent. of expenses could be claimed only on actual payment, as they were covered under section 43B(d) of the Income-tax Act, 1961. The assessee also informed that even in the earlier year, the assessee had sh....
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....opment is not achieved if the expenditure incurred on construction and development costs is less than 25 % of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. (c) At least 25% of the saleable project area is secured by contracts or agreements with buyers. (d) At least 10 % of the total revenue as per the agreements of sale or any other legally enforceable documents are realised at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate - If there are 10 Agreements of sale and 10 % of gross amount is realised in case of 8 agreements, revenue can be recognised with respect to these 8 agreements." According to the above guidance note the revenue of the project can be recognised only when the above conditions specified therein. According to one of the conditions specified there in is reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25 % of the construction and development costs as defined....
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....favour of the assessee and revenue's appeal is consequently, dismissed. 88. The next issue relates the deletion of addition on account of disallowance of interest pertaining to loan for M/s. Edward Keventer Project by capitalizing the same. This issue too stands covered by the decision of the Tribunal in assessee's own case for Assessment Year 2006-07. 89. Ld. Assessing Officer noted that the assessee had 52% of the funds in the business were borrowed fund and 48% were non-interest-bearing fund. He held that, on the advances given to sister concerns, the presumption can be drawn that the 52% of the funds could have been given for advances to the sister concern for earning interest income. In other words, as per the AO netting of interest to the extent of 52% of Rs. 412.84 crore can be allowed. The resultant figure of Rs. 34.86 crore, i.e., Rs. 249.54 crores (-) Rs. 214.68 crores being 52% of Rs. 412.84 crores have to be apportioned in the following manner: (Rs. in Crores) Particulars Gross Intt Intt. to be netted off Net Interest to be disallowed Remarks Project - Keventer 7.93 6.83 1.10 No revenue recognised hence entire amount to be....
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....s) Pvt. Ltd. during the F.Y. 2005-06 for Rs. 438.92 crores. Out of this an amount of Rs. 370 crore was sanctioned by the ICICI Bank as loan to finance the acquisition of Edward Keventor (Successors) Pvt. Ltd. The appellant is in the business of real estate and following Percentage of Completion Method for recognition of its revenue. If the project has commenced, then interest related to such project is capitalized over the project. However, if project has not commenced, no interest can be capitalized in terms of para-14 and 16 of accounting standard AS-16. In the instant case, the Land and Development Officer has not sanctioned the conversion of this land 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 use from 'dairy farming' to 'residential'. The Writ Petition filed against the order of Land & Development Officer, Ministry of Urban Development, Union of India, is pending before Hon'ble Delhi High Court. Therefore, no development activity could be carried out on this land. In view of the accounting para 14 and 16 of AS-16, the interest pertaining....
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....s used interest bearing funds for making investments in Edward Keventor project. The formula devised by the ASSESSING OFFICER of mixed funds to work out proportionate notional disallowance of interest is not based on any scientific method. When interest payment claimed by the appellant is less than the interest income offered in the profit and loss account, there was no justification to work out any formula based on mixed funds theory which is based on permutation and computation. The case of the appellant is interest neutral; therefore, notional interest cannot be capitalized on Edward Keventor Project. Further, It is also noted that this issue is covered in favour of appellant vide my order dated 29.05.2012 in appeal No.66/2010-11 in appellant's own case for A.Y. 2006-07 (at page Nos.69-77). Hence the disallowance of interest expenses and capitalization of interest of Rs. 1,10,00,000/- is deleted." 92. The Tribunal has deleted the said addition after observing and holding as under: "49. We have carefully considered the rival contentions. It appears that the AO has made this addition mainly because of note mentioned by assessee in its accounting policies with respect t....
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.... in the case of Core Healthcare [298 ITR 194] has held that provisions of section 36(1)(iii) is a code in itself. In the present case, the interest paid by the assessee is not for the purpose of acquisition of any capital asset but for its inventory. We do not find any restriction in provisions contained u/s 36(1)(iii) which provides that the interest can be disallowed if incurred for the purpose of inventory as provided under Accounting Standard 16. Apparently, in this case, there is no allegation that interest is not paid on capital borrowed for the purpose of the business. Hon'ble Mumbai High Court in the case of CIT vs. Lokhandwala Constructions Industries Ltd. [ 131 taxman 810] has held as under: - "4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loa....
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....o the facts of this case." Further, in the following decisions of various coordinate Benches, the deduction of interest has been allowed u/s 36(1)(iii) even where the assessee has followed the projection completion method:- (i) ACIT vs. Tata Housing Development Company Ltd. - 45 SOT 9 (Bom.); (ii) DCIT vs. Thakar Developers - 115 TTJ 841 (Pune); (iii) DCIT vs. K. Raheja Pvt. Ltd. - (2006) TIOL 220 ITAT-MUM.; (iv) K. Raheja Development Corporation vs. DCIT in ITA No.240/Bang./97 dated 22.09.1997 - In this case, reference application filed by the Department has also been rejected by the Hon'ble Karnataka High Court vide its order dated 08.11.2000 in Civil Petition No.832/2000 (IT). Before us, ld. DR could not cite any decision against the claim of the assessee, therefore, respectfully following the decision of Hon'ble Bombay High Court and as well as various coordinate Benches, cited above, we do not concur with the view of CIT (A) on disallowance of interest of Rs. 24.75 crores u/s 36(1) (iii) of the Act. The alternative argument of the assessee regarding adoption of any artificial formula for the purpose of computing interest di....
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.... (Rs. in crores) Particulars Cost of Total Project as on 31.03.2008 % value of projects Net Interest Expenditure % of Revenue recognised for A.Y. 0809 Interest Expenditure allowable in the proportion of revenue recognised Interest expenditure to be capitalized towards non- recognition of proportionate revenue from projects Phase - V Gurgaon Project 1,529.55 100.00 33.76 76.50 25.83 7.93 95. After detailed discussion, AO held that the interest to the extent of Rs. 7.39 crore is in the nature of borrowing cost attributable to the acquisition or construction of qualifying assets and hence these expenses needs to be capitalized and is not allowable as revenue expenditure. 96. Ld. CIT(A) has deleted the addition after observing as under: "11.12 I have considered the submission of the appellant and observation of the Special Auditors as well as ASSESSING OFFICER and order of CIT (A)-XVIII for AY 2006-07 and my own order for AY 2007-08 in appellant's own case wherein this issue was decided in favour of appellant. It is seen that ASSESSING OFFICER has further capitalized an amount of Rs. 7,93,....
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....ans to subsidiaries are on interest at rates more than the rate of interest paid on borrowings. * The proviso to section 36(1)(iii) is not applicable as: 1. The building under construction are not capital asset 2. These are stock in trade 3. Any borrowing for stock in trade can never be capitalized. * Accounting standard AS-(16) has no application. * Accounting Standards cannot override the provisions of Income Tax Act. In view of the above, it is held that capitalization of interest of Rs. 7,93,00,000/- on notional basis done by the assessing officer based on various permutation and computation was not justified and same is deleted." 97. This issue too has been decided in favour of the assessee after detailed discussion by the Tribunal and the relevant observation of the Tribunal reads as under: "49. We have carefully considered the rival contentions. It appears that the AO has made this addition mainly because of note mentioned by assessee in its accounting policies with respect to borrowing costs according to Accounting Standard 16 issues by ICAI. We have perused notes attached to financial statements and....
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....case, the interest paid by the assessee is not for the purpose of acquisition of any capital asset but for its inventory. We do not find any restriction in provisions contained u/s 36(1)(iii) which provides that the interest can be disallowed if incurred for the purpose of inventory as provided under Accounting Standard 16. Apparently, in this case, there is no allegation that interest is not paid on capital borrowed for the purpose of the business. Hon'ble Mumbai High Court in the case of CIT vs. Lokhandwala Constructions Industries Ltd. [ 131 taxman 810] has held as under :- "4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rig....
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.... has been allowed u/s 36(1)(iii) even where the assesse has followed the projection completion method :- (i) ACIT vs. Tata Housing Development Company Ltd. - 45 SOT 9 (Bom.); (ii) DCIT vs. Thakar Developers - 115 TTJ 841 (Pune); (iii) DCIT vs. K. Raheja Pvt. Ltd. - (2006) TIOL 220 ITAT-MUM.; (iv) K. Raheja Development Corporation vs. DCIT in ITA No.240/Bang./97 dated 22.09.1997 - In this case, reference application filed by the Department has also been rejected by the Hon'ble Karnataka High Court vide its order dated 08.11.2000 in Civil Petition No.832/2000 (IT). Before us, ld. DR could not cite any decision against the claim of the assesse, therefore, respectfully following the decision of Hon'ble Bombay High Court and as well as various coordinate Benches, cited above, we do not concur with the view of CIT (A) on disallowance of interest of Rs. 24.75 crores u/s 36(1) (iii) of the Act. The alternative argument of the assesse regarding adoption of any artificial formula for the purpose of computing interest disallowance. Ld. CIT (A) has presumed proportion of utilisation of funds in absence of the nexus holding that assesse has used mixe....
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.... started. He further held liability of expenditure for the purpose of determining the taxable income is determined by the Income Tax Act and not by the accounting standard. He also made reference to the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT, (1997) 225 ITR 0802 (SC) and out of total claim of Rs. 10,63,46,742/-, he made disallowance of Rs. 3,64,25,771/-. 101. Ld. CIT(A) has discussed the issue in detail and has allowed part relief after observing and holding as under: "13.20 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, accounting standard AS-2 & AS-7 and judgment of ITAT in earlier years and CIT (Appeals) in appellant's own case for A.Yrs. 2006-07 and 2007-08. It is seen that as per para-19 of AS-7, it is mentioned that the selling cost cannot be attributed to contract activity or cannot be allocated to a contract under construction. Even as per AS-2 "Valuation of Inventory" issued by ICAI, it is seen that selling and distribution cost cannot be considered as part of the cost of inventory and such expense has to recognized in the period in which they are incur....
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....equent years. The ASSESSING OFFICER has relied upon the Supreme Court judgment in the case of Madras Industrial Investment Corp. 225 ITR 802. (SC), and has held that the expenses have to be spread over in several years if the benefit of such expenditure is continued in the ensuing years. The facts of this judgment cannot be applied to the appellant's case as Brokerage and Commission linked with the services rendered by the brokers to the appellant for selling the flats and other properties. There is a nexus between the expenses and services rendered which cannot be spread to several years. The benefit of the brokerage and commission is related to a particular property or flat sold and it cannot be extended to other properties. Therefore, brokerage expenses cannot be postponed for the future years. Therefore, ratio of the said judgment is not applicable in the case of appellant. 13.21 The appellant has placed reliance on the decision of the jurisdictional High Court in the case of Nokia Corporation vs. DIT, Delhi, 2007, 162 Taxman 369 (Delhi), wherein it is held that even if the Department has filed further appeal against the last order, which is in favour of the a....
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....by AO except that whether it is accepted by the department or not is not verified. Ld. CIT (A) has also deleted the addition following the order of coordinate Bench of ITAT for AY 1984- 85 in the case of the assessee. Merely because the decision is not accepted by revenue disallowance has been made. As observed by the CIT (A), these expenses related to brokerage of flats as part of selling expenses and, therefore, cannot be included in the cost of construction for the purpose of value of closing stock of WIP and in view of Accounting Standards issued by the ICAI. Respectfully following the decision of Honourable high court in case of CIT V DLF universal Limited in ITA no 1136/2009 dated 16.04.2015 while deciding ground no 4 of the appeal of the revenue honourable high court has held that expenditure towards brokerage and commission paid to brokers for booking and sale of certain properties is allowable firstly in view f the facts that assessee's treatment of such expenditure has been decided in favour of the assessee and revenue has not challenged it and secondly such expenditure are allowable. In view of the above facts and following the decision of coordinate Bench as facts are n....
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....t to receive has been created in favour of appellant on 19.11.2010. Therefore, the entire amount has been offered as income in F.Y. 2010-11 relevant to A.Y. 2011-12. In view of the above, the appellant has rightly not offered the late construction charges as its income in the relevant year. It has further been noticed that this issue of treatment of late construction charges has been decided in favour of the appellant vide order dated 25.03.2011 passed by learned CIT(A)- XVIII, New Delhi, in appeal No.35/2010-11 for A.Y. 2006-07 (page Nos. 204-218 of the said order) and by me vide order dated 29.05.2012, in appeal No.66/2010-11 for A.Y. 2007-08 (page Nos. 146-149 of the said order) respectively in appellant's own case. Accordingly, the addition of Rs. 1,88,81,388/- made by the AO is not sustainable. The same is, therefore, deleted." 106. This issue has been dealt in detail by the Tribunal in assessee's own case for Assessment Year 2006-07 wherein this issue has been decided in favour of the assessee in the following manner: "225. We have carefully considered the rival contentions. It is an admitted fact that the assessee is receiving late construction charges f....
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....due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him." 26.12 In view of the above binding principle, it has to be held that the amount of late construction charges cannot be said to have accrued to assessee unless the assessee acquires a right to receive it. A right to receive can be said to be created in favour of assessee on 19.11.2010 when the order of the Hon'ble Supreme Court is passed and till that date revenue cannot be legally recognized. During the hearing, I was informed by the ld. AR that this income has been recognized in the current financial year (F.Y. 2010-11) after receiving the judgement of the Supreme Court. 26.13 Accordingly, the addition of Rs. 1,88,81,388/- made by the AO is not sustainable. The same is, therefore, deleted." 226. We have noted that identical issue has been decided by the coordinate bench of ITAT in case of Nilgiri Cultivations Pvt Ltd V ACIT for AY 2006-07 in ITA no 4634 & 4635/Del/2011 dated 30.4.2012 where in while deciding the issue in ground no 1 of the appeal addition of late construction charges received from customers shown under the head sundry ....
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....or any demand from Govt. of Haryana on account of development or providing external services to the plot/flat holders. Therefore, such deposits were kept in a separate account and shown under the head 'liability'. These receipts are not trading receipts of the appellant and same have been received to meet out any unforeseeable liability which may occur in future. In the event of non spending of this amount on any liability, such deposits were required to be refunded to the owners of the plot/flat holders. Since these deposits have been collected for specific purposes, therefore, the same cannot be treated as receipts of the appellant and same cannot be taxed in the head of the appellant as 'trading receipts'. It is also seen from this deposit account that there is a regular movement of funds and large amounts have been incurred on account of meeting the contingent liabilities like fixing of transformers, laying of electric of line and other demands from Govt. of Haryana. Since this deposit account is maintained for performance of contractual obligations as per clause- 4 of the agreement to sell entered with the respective customers, the same cannot be treated as trading receipts of....
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....is amount to the buyers, and therefore, this amount is income generated by the assessee which should be liable to be taxed. 113. Ld. CIT(A) has deleted the addition made by the Assessing Officer in the following manner: "16.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, decision of CIT (Appeals) for A.Y. 2006-07 and A.Y. 2007-08 which have decided this issue in favour of the appellant company and various judicial pronouncements available on the issue. It is seen that that these deposits were received in terms of sale agreement from customers as interest free security deposits on account of buyers obligation to regularly pay to the appellant or any other agency appointed by the appellant in respect of insurance premium, maintenance etc. These amounts are refundable to customers/ resident associations, once a society or association is formed. In the agreement to sell, it is specifically mentioned that these interest free deposits were taken from the customers to meet certain future liabilities like insurance premium and maintenance charges of the building. For these receipts, a separate account is maintained and as and when the ....
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....re and execute Conveyance Deed in favour of the buyer only after receiving the full payment of the total price of the property, parking space, all security deposits, registration charges etc. If the buyer is in default of any of the payment, then the company can withhold the registration of the Conveyance Deed in favour of the buyer till the full payment is made by the buyer. This clause means an obligation on the buyer to undertake the Conveyance Deed within the time stipulated by the company, failing which, in terms of clause 12 of the Agreement, the company can cancel the allotment and forfeit the amount received from the buyer. The assessee's contention before the Assessing Officer was that real nature of the balance is that buyers have paid advance bills to the assessee and accordingly this has been shown as liability in the balance-sheet and this method has been consistently followed by the assessee in the earlier assessment years. However, the ld. Assessing Officer held that these are not correct fact because similarly additions have been made in the Assessment Years 2006-07 and 2007-08 by the Assessing Officer. The Assessing Officer has also accompanied the assessee company....
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....under the head 'Current Liability' as the same does not belong to the appellant. The appellant is a custodian of this amount which ultimately is to be paid to the Government. As observed by the Special Auditors that out of an amount of Rs. 24.76 crore received during the year, an amount of Rs. 16.29 crore has been spent on registration charges. This shows that there is a regular movement of funds by way of credit or debit in this account which has been utilized for registration of conveyance deed in favour of the customers. Hence, the assessing officer was not justified in treating the registration charges as appellant's income. Hence, the addition of Rs. 8,49,20,884/- made by the ASSESSING OFFICER is deleted." 119. We find that similar issue was decided by the Tribunal in assessee's own case in Assessment Year 2007-08 has dismissed the Revenue's appeal after observing and holding as under: "244. We have carefully considered the rival contentions. It is noted that this is the amount which is collected by the buyers with specific object of getting exclusion of conveyance deed in favour of the buyer. In fact, it is an advance collected by the assessee from the buyer towar....
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....see itself has stated that the amount in respect of indirect taxes are a part of sale price, therefore, it is clear that the amounts are in the nature of income and should be recognised as income of the financial year in which the same is received from the customers instead of being shown under the head of liability in the books of accounts. Moreover, the expenditure on taxes is allowed on payment basis and in this case since the assessee has received indirect taxes, therefore, it is to be treated as income of the assessee. The assessee may claim the expenditure against the indirect taxes recognised as income in the books, in the year of deposit of the same with the concerned department. With these remarks, an amount of Rs. 1,81,15,047.75 being the indirect tax received during the year but not shown as income for the Assessment Year 2008-09 was added by the Assessing Officer to the income of the assessee. 123. Ld. CIT (A) has deleted the addition in the following manner: 18.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, decision of CIT (A)-XVIII for A.Y. 2006-07 in appellant's own case which has been decided in favour of the a....
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....the Assessing Officer required the assessee as to why the expenditure of Rs. 15,02,99,365/- benefit of which has accrued to the group entities like, DLF Infocity developers (Chennai Limited) and DLF Cyber City Developers Ltd. be apportioned to them and correspondingly the same should be disallowed in the hands of the assessee. In response, the assessee has submitted the detail reply and submitted that if income expenditure has been incurred on behalf of company, the same have been duly recovered from those companies specifically and assessee has not debited to the P&L account. For the specific expenses which were debited to the concern group companies there is no expenditure which pertains to other group companies and all the expenses debited in the P&L account are related to the business of the assessee. Even the Special auditors have not been pointed out even a single voucher pertaining to other group company which has been wrongly debited to the P & L account of the assessee. Regarding overhead allocation the assessee has submitted as under: a. That the assessee company has not developed the SEZ rather only constructed the buildings. The deduction u/s 80-IAB is availabl....
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....eveloper shall be treated as owner of the bare shell building and the warm shell building after additions etc and will have exclusive rights to let, mortgage, or allow use of all or any part of buildings. e. That if the deduction u/s 80-IAB is allowed to the assessee company in this case and the Co-developer does not develop the SEZ later on , how can we say that the SEZ has been developed and why should the deduction be allowed to the assessee company at this stage where the development of SEZ has not been done . Allowing the deduction at the stage of construction of bare shell building would be against the provisions of SEZ and Income Tax Act. 127. Ld. Assessing Officer after considering the assessee's reply had observed as under: "12.5 The reply of the assessee has been considered and from the reply it emerges that the assessee has stated that it is a listed company and not incurred any expenditure on behalf of its associated companies. The assessee company has argued that in case of both the companies to which the expenses have been allocated the main project undertaken by the two companies is development of SEZ and hence administrative activities in these ....
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....xpenditure 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 benefitted the associated companies of the assessee who are in similar line of business as that of the assessee and in the past also the assessee itself had allocated certain expenditure to its associated companies. The assessee has also mentioned certain citations regarding business expediency and stated that the expenses must be incidental to the business of the assessee. The question here is that the expenses incurred by the assessee have benefitted the associated concerns and therefore the same are to be apportioned to the associated concerns. The associated concerns during the year have developed SEZ and the assessee company during the year had also earned income from development of SEZ but there is substantial variance in the level of expenses incurred and accordingly some expenses are to be attributable for the benefit of associated concerns since there is similar line of business. The associated concerns has claimed 100% deduction u/s 80IAB and therefore by transferring the expenses of associated concerns to the asse....
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.... 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 stand in the books of the assessee. Since the benefit of such expenditure does not accrue to the assessee but to the two group entities also, the expenditure of Rs. 15,02,99,365/- as worked out by the special auditors is disallowed." 128. Ld. CIT(A) has deleted the addition in the following manner: "19.22 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, order of the CIT (A)-XVIII for the A.Y. 2006-07 and my own order for A.Y. 2007-08 wherein this issue has been decided in favour of the appellant, and various case laws relied upon by the appellant on this issue. It is seen that appellant company was allocating over head expenses to its associate companies till October 2006. However, after October 2006, the appellant company stopped allocating overhead expenses to its group companies and transferred the concerned staff, who were previously looking after the affairs of group entities, to the respective entities. After October 2006, the group entities started incurring ....
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....sing 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 includes the overhead expenses incurred by the DLF Cybercity Developer Ltd. 19.23 Hence, it is clear that no benefit has accrued to group companies namely DLF Info City Developers (Chennai) Ltd. and DLF Cyber City Developers Ltd from the expenses of Rs. 150,299,365/-, as these expenses were exclusively for the business of the appellant company. There was no justification for disallowing these expenses. The ASSESSING OFFICER as well as Special Auditors have not brought any material on record which can prove that expenditure debited in the P&L account of the appellant company was not incurred for the bonafide business needs of the appellant company. The appellant company is main group company and expenditure incurred in this company are bound to be higher and in the process of incurring such expenditure if other group companies derived some benefit from such expenses, the expenditure cannot be allocated to the companies who have also derived some benefit. The genuineness of the impugned expenditure....
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.... 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 pertaining to the business of the company. No evidence / instances have been cited by AO that any of this expenditure has not been incurred by the company and they are not related to the business of the assessee. It may happen that by incurring certain expenditure by the assessee for the purpose of his business may result into some indirect benefit to the group companies but that cannot be the ground for disallowance of that expenditure in the hands of the assessee. The CIT (A) relying upon the decision of ITAT, Delhi Bench in the case of Nestle India Ltd. vs. DICT - 27 SOT 9 has deleted the addition. We do not find any infirmity in the order of the CIT (A) and revenue could not controvert the fact of any expenditure with instances that these are not incurred by the assessee wholly and exclusively for the purposes of the business of the assessee. Hence, we confirm the order of the CIT (A) deleting the addition of Rs. 14,55,37,400/-. Ground No.4 of the revenue's appeal is dismissed." 130....
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....ue 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 revenue expenditure and by exploring the possibility of obtaining/developing or extension of the existing business at various stations identified, the appellant was only planning to expand its business and no new asset much less capital asset have been created. 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 conducting feasibility and viability study of taking various projects at the stations mentioned above. However, after the feasibility and viability study these places were not found suitable for developing SEZ Projects and same were abandoned. The expenses were incurred for extension of same line business and such expenses have to be allowed as revenue expenditure. Therefore, respectfully following the decisions of jurisdictional High Court and my own order for AY 2007-08 in appellant's own case (Page 222-229), the di....
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..... 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 of the appeal is allowed." " 216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee. Hence, we confirm the order of CIT (A) and delete this ground of revenue's appeal." 138. Since on the similar issue the Tribunal has accepted the assessee's contention, therefore, consistent with the same view, we affirm t....
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....s, 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 Singapore from Lehmen Brothers, drafting of memorandum corporation with Fraport AG for joint venture and airport projects, acquisition of companies, advice taken for cross border investments etc and other expenses on feasibility and viability of the various projects. It is seen that the appellant has paid these expenses for taking legal and professional advice on the issues mentioned above and have paid Rs. 1,30,38,853/- to the various parties for services rendered by them. In the assessment proceedings these expenses have been treated as capital expenditure by the ASSESSING OFFICER. It is claimed by the appellant that expenses incurred on legal and professional fees paid for drafting the joint venture agreements, preparing draft report for Gujral Design Plus Valuation, Purchase of preferencial shares by DAL Singapore from Lehmen Brothers, drafting of memorandum corporation with Fraport AG for j....
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....isation 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. We find that the Tribunal also in Assessment Year 2006-07 has dismissed the Revenue's appeal after observing and holding as under: "216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee. Hence, we confirm the order of CIT (A) and....
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....at 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 not justified. Hence, the same is deleted." 147. The Tribunal also in assessee's own case in Assessment Year 2007-08 has dismissed the Revenue's appeal after observing and holding as under: "122. Ground no. 25 is against deletion of disallowance of Rs. 27,08,664/- u/s 40(a)(ia) on account of non deduction of TDS on payments made to two trusts. The AO has made the disallowance on the ground that the assessee has not produced certificate u/s 197 and as such the payment made by it were liable for TDS deduction. The CIT(A) delete the disallowance by recording following finding : "30.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and the certificates issued by ITO TDS Ward 49(4), New Delhi. It is seen from the certificates which were issued on 06.11.2006 that amount which were to be paid by the appellant during the ye....
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....od 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 auditors on this issue had mentioned that Emirates had issued a wrong certificate and a clarificatory letter was being obtained from them. Based on the same the Special Auditors had in the report had commented that the assessee company had not furnished any clarificatory letter from Emirates and if the same is furnished during the course of assessment proceedings, the same may be considered. The letter furnished by the assessee company now has been seen and in the letter the tenant has given details of TDS deducted by them during the Financial Year 2007-08 and in the end it has been mentioned in the letter that: "Please note that no excess TDS have been deducted as mentioned in your email." 151. Ld. Assessing Officer observed from the details of TDS deducted by Emirates during the financial year 2007-08 as per the letter is exactly same as the amount appearin....
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....t. 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 noted that all incomes have been recorded by the appellant either in the next year or in the earlier year. It is observed 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. In view of the above, the addition of Rs. 9,94,187/- made by the Assessing Officer is deleted as no rental income has escaped from the taxation. The addition made by the ASSESSING OFFICER is revenue neutral, therefore, no cognizance of the same is taken. 26.7 Item (C)-Ground Nos.21.5 -Withdrawal of Credit of TDS-Rs. 7,12,257/- It was submitted that while verifying the details of income viza- viz the incomes shown by various payees on the TDS certificates, the....
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....07-08. 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 credit for the same cannot be denied and the credit has to be allowed of Rs. Rs. 7,12,257/- during the year under consideration. Therefore, the ASSESSING OFFICER is directed to allow TDS credit of Rs. Rs. 7,12,257/- . Hence, the appellant get total relief of Rs. 9,94,187/- on account of reconciliation of rental income as per TDS certificates viz-a-viz books of accounts for and withdrawal of TDS credits of Rs. 7,12,257/-" 153. We find that the Tribunal also in assessee's own case in Assessment Year 2006-07 has dismissed the Revenue's appeal after observing and holding as under: "190. We do not find any infirmity in the order of CIT(A) and also none has been pointed out by the Ld. DR. We have come across the argument of the Ld. DR that assessee is required to show income in the year in which TDS is made is no....
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....al, 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 in the balance sheet as on 31st March, 2008 and also noted their comments in the following manner: Properties reflected as Fixed Assets in the Balance Sheet:- S. No. Name of the property 1. DLF, Centre, Sansad Marg, New Delhi (Partly held as office). 2. 40F Cannaught Place New Delhi. 3. Shops at Belvedere Park, Gurgaon (CWIP) 4. Shops at Belvedere Tower, Gurgaon (CWIP) 5. Shops at Grand Mall, Gurgaon (CWIP) Copy of fixed assets register in substantiation of the above is enclosed as Annexure "A" (Page 15). b) Properties shown as current assets:- S. No. Name of the property 1. Corporate Park. 2. Shops at Centre Point Faridabad. 3. Le Millennia Supermart, Windsor Court, Phase -V, Gurgaon. 4. Le Millennia Supermar....
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....00.00 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 the company by including it as income from House Property instead of Business Income/Income from other Sources." 157. Ld. Assessing Officer based on similar observation and following the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders, 296 ITR 661, reiterated the addition and computation made by the Special Auditor. 158. Ld. CIT (A) has deleted the addition in the following manner: "27.13 I have considered the submission of the appellant and observation of the ASSESSING OFFICER and decision of Hon'ble ITAT for A.Y. 1996-97....
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....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. In the result the ground no.17 of the revenue's appeal is dismissed." 160. Since this issue has been dealt by the Tribunal in various years, therefore, consistent with the view taken, the order of the ld. CIT (A) has confirmed and consequently the Revenue's ground is dismissed. 161. In ground no.19, the Revenue has challenged the deletion of addition of Rs. 12,28,340/- on account of disallowance of notional rent/additional annual letting value in respect of the vacant property. 162. Ld. Assessing Officer noted that Special Auditor has pointe....
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....ed 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/s 24(1) Rs. 1,29,69,107/- Rs. 3,02,61,250/- 17. The Ld. CIT (A) has deleted the addition after discussing the case of the assessee in detail and following the decision cited before him in this regard including decision of 'D' Bench of the Tribunal on an identical issue in the assessee's group concern M/s DLF Office Developers vs. ACIT reported in 23 SOT 19 (Del) and first appellate orders in the assessee's own case for the assessment years 2006-07, 2007-08 and 2008-09. 1....
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....ion 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 actual rent received or receivable will be taken as the ALV of such properties. In the case of appellant the property is remained vacant, therefore, the ALV of such properties will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. The decision of the Assessing Officer was not justified. As regards, the Assessing Officer's decision of computing the notional rent based on highest rent in respect of each building, it is s....
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....d." 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 depreciation has been charged since the assessee has claimed depreciation existing on 01.04.1999 whereas depreciation is allowable on WVS on 01.04.2005 the Assessing Officer worked out the excess depreciation of Rs. 8,03,807/-. 168. Ld. CIT(A) has deleted the addition in the following manner: "30.7 I have considered the submission of the appellant and observation of the ASSESSING OFFICER and order of CIT (A) XVIII for AY ....
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....me 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 2007-08 in appellant's own case where this issue was decided in favour of the appellant company. It is observed that the impugned disallowance of expenditure of Rs. 58,50,162/- have been made on the ground that the bills are not in the name of appellant. It is observed from pages 403 to 406 of the assessment order that the appellant has explained each and every item of expenditure in detail. It is seen that these....