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2020 (1) TMI 458
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....observing that the Assessing Officer could have drawn adverse inference regarding unsubstantiated purchases to the extent of Rs. 17,76,06,532/- for the relevant assessment year, in respect of parties from whom confirmations were not received before the conclusion of assessment proceedings. 1.2 That the CIT(A) erred on facts and in law in not admitting and considering the confirmations received from 23 parties on the ground that- (i) the appellant had exhausted opportunity to file the said confirmations at an earlier stage; (ii) Revenue had no opportunity to examine/rebut the said evidences. 2. That the CIT(A) erred on facts and in law in holding that the disbursement of income as per the revenue sharing agreement with EMLL, was not diversion of income by overriding the title, but application of income. 2.1 That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant. 2.2 That the CIT(A) erred on facts and in law in not allowing....
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.... 5. In ITA No. 6114/Del/2014, the assessee has raised following grounds: "1. That the Commissioner of Income-tax (Appeals) ["CIT(A)"] erred on facts and in law in sustaining disallowance of purchases to the extent of Rs. 1,68,17,082/- for relevant assessment year, in respect of parties from whom confirmations were not received directly by the Assessing Officer during the course of assessment proceedings. 2. That the CIT(A) erred on facts and in law in following the order for assessment years 2009-10 and 2010-11 and holding that the disbursement of income as per the revenue sharing agreement with EMLL, was not diversion of income by overriding the title, but application of income. 2.1 That the CIT(A) erred on facts and in law in not appreciating that in essence, under the arrangement between the parties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant. 2.2 That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the ap....
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....rties, the entire project was awarded and executed on the strength of EMLL and EMLL had, in fact, paid 75% of the total consideration to the appellant. 3. That the CIT(A) erred on facts and in law in not allowing deduction of expenditure incurred towards services obtained from EMLL, at 25% of revenue, actually paid as per the terms agreed between the appellant and EMLL, and instead allowing deduction of cost/expenses incurred by EMLL in providing support to the appellant. 4. That the CIT(A) erred on facts and in law in adopting its own method of computing reasonable expenditure that ought to have been incurred by the appellant in relation to services obtained from EMLL, which is not permissible in law. " 8. In ITA No. 2001/Del/2014, the revenue has raised following grounds: "1. The order of ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case, the ld. CIT (A) has erred in deleting the addition of Rs. 65.46 crores made by the Assessing Officer on account of wrong budgeted estimated used in POCM. 3. On that facts and circumstances of the case, the ld. CIT (A) has erred in law in deleting the additio....
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....253/Del/2017, the revenue has raised following grounds: "1. The order of ld. CIT (A) is not correct in law and facts. 2. That on the facts and circumstances of the case, the ld. CIT (A) has erred in deleting the addition of Rs. 9,11,79,858/- made by the AO on account of 'Sham Agreement'. 3. That on the facts and circumstances of the case, the ld. CIT (A) has erred in directing the AO to compute the income of the assessee for the year under consideration based on his findings." 12. Ground Nos. 1 & 1.2 of the assessee deals with adverse inference drawn by the AO regarding the unsubstantiated purchases and not considering the confirmations with regard to the purchases filed by them during the assessment proceedings. 13. The ld. AR argued that the conclusion of the ld. CIT (A) as unsubstantiated purchases of Rs. 17.76 crores as well as not considering the confirmations received and filed from 23 parties cannot be accepted as proper reconciliation and the details of the payments for the purchases have been duly submitted. He has referred to various parties, namely Kohler India Co. Pvt. Ltd., Rashtriya Ispat Nigam Ltd., Steel Authority of India Ltd., Indo....
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....ramRoad, Opp Nehru Nagar Perungudi, Chennai 600096 - 5,75,66,590 11,93,243 5,87,59,833 16 M/S Furncraft, 2^nd Floor, 125, Shahpurjat, New Delhi-110049 - 3,74,12,218 3,74,12,218 17 M/s MK-Furncraft Pvt Ltd 2nd Floor, 125, Shahpurjat, New Delhi-110060 - 1,72,91,865 23,64,494 1,96,56,359 18 M/S H8i Rjohnson (i) Ltd 501, Surya Kiran Building, k. marg, Connaught Place, New Delhi-110001 - 5,65,817 5,65,817 19 M/s Mahabir Marble Works, TEES Dara Pul, Near Sapna Cinema, Khanalampur- 247001 - 12,07,334 12,07,334 20 M/s Pixel Moasic India, Ho no.325,3^rd FLOOR, Ring Road, Mall Outer Ring Road. New Delhi- 110085 - 13,79,244 13,79,244 21 M/s Sakha Engineers Pvt Ltd. 2nd Floor, Gulmohar House, 161, B/4. Gautam Nagar, Yusuf Sarai, New Delhi-110049 - 89,79,644 12,68,717 1,02,48,361 22 M/s Sintex Industries Ltd A-38, Second Floor, Mohan Co-operative Industrial Estate, Main Mathura Road New Delhi-110044 - 1,18,81,020 1,18,81,020 23 M/s Root Cooling SYSTEM,C 66/1, Okhla Industrial Area, Phase-2, New Delhi-110020 - ....
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....ents etc., should be resorted to DDA for the Commonwealth Games Village (CGV). The DDA, in turn, constituted a High Powered Committee (HPC) to oversee the developments relating to construction activities of the CWG. The Request for Qualification (RFQ) for the CGV project was issued on 02.12.2006 wherein 11 parties were short-listed and notified by DDA. The Request for Proposal (RFP) for the project was issued on 24.04.2007 fixing reserve price at Rs. 300 crore and net worth of the bidder at Rs. 100 crore, and requiring security deposit of Rs. 10 crore and performance guarantee of Rs. 500 crore. However, the HLC agreed in its meeting dated 07.06.2007 that in view of the declining real estate market, the key elements determining viability of the project, i.e. upfront reserve price of Rs. 300 crore, 50% share of the apartments and the performance Bank. Guarantee of Rs. 500 crore, made the project financially unviable and therefore decided to reduce DDA's share from 50% to 1/3rd and performance Bank Guarantee from Rs. 500 crore to Rs. 400 crore, besides certain other concessions. However, the upfront reserve price at Rs. 300 crore was not changed. An addendum to the RFP was issued on 0....
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....Based on the above calculation, the assessee based on accounting standard 9 recognized revenue of Rs. 317.71 crores for the relevant assessment year. The Assessing Officer challenged the estimated construction cost of Rs. 1027.06 crores. Based on the Shunglu Committee report, the AO held that the entire construction work was subcontracted to an entity namely, Ahluwalia Construction India Ltd. (ACIL) at Rs. 2875 per sq. ft. Based on that, the AO held that the total construction cost cannot exceed to Rs. 752.35 crores and accordingly estimated project cost was worked to Rs. 1322.71 crores against Rs. 1597.43 crores estimated by the assessee. Due to this reduction in estimated costs, the Percentage completion was worked out to 69.32% instead of 57.40% computed by the assessee. Accordingly, the revenue of the assessee was reworked to Rs. 511.59 crores by stating that the assessee has under stated its revenue by Rs. 193.87 crores. Hence, the Assessing Officer made an addition of Rs. 87.97 crores to the income of the assessee. 21. After relying on Shunglu Committee Report, the AO observed that the Assessee has sub-contracted the entire construction work to ACIL at Rs. 2,875 per sq. Ft....
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....e borne by Emaar MFG was Rs. 2875/- per Sq. feet only. If the same rate is applied to the total plinth area of 26,16,878.60 Sq. feet as mentioned in the Evaluation Committee recommendations, the total construction cost works out to Rs. 752.35 Crs only. The Evaluation Committee has however considered the construction contract cost at Rs. 1168.21 Crs as worked out by the financial expert K.N Goyal & Co. Thus, the construction cost considered was wrongly padded by Rs. 415.86 Crs (i.e. Rs. 1158.21 Crs - 752.35 Crs). C. The total project cost, therefore, should have been Rs. 1224 Cr instead of Rs. 1639.86 Crs as worked out by the HLC consultant. D. Emaar MGF Construction Private Ltd. has borrowed funds from SBI, Overseas Branch Javvahar Vyapar Bhavan, New Delhi. In the proposal submitted, the total project cost has been shown at Rs. 1264 Cr, which corresponds to the project cost computed by HLC's consultant after considering the construction cost of Rs. 752.35 Cr. It is pertinent to note that in the projections submitted to the bank, namely SBI, for availing loans, the per square feet cost of construction has been reckoned at Rs. 2600/- per square feet, which also ....
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....es Rs. 511.59.crores Total Area of the project 17,49,099 sq. feet Area Sold 5,58,715 sq. feet % Area sold 5,58,715 sq. feet/17,49,099 sq. feet * 100 31.9400% Actual Cost Incurred 9,170,320,049 Cost to be Recognized in P&L account 2,929,056,938 (39.94% of Rs. 9,170,320,049/-) The comparative position of the income and cost computed above vis-a-vis the income and cost recognized by the assessee in its P&L account is tabulated as under: Particulars As per audited accounts for A.Y. 2009-10 As computed in the assessment order Difference Turnover/Income 423,61,84,544 (-) 105,90,46,136 317,71,38,408 511,59,00,000 393,87,61,592 Cost of sales 292,47,76,002 (-) 42,80,936 292,90,56,938 292,47,76,002 Negligible 18. From above, it can be seen that revenue to the extent of Rs. 193,87,61,592/- has been under-declared by the assessee. Out of this, Rs. 87,97,15,456/- pertains to under-statement due to variance in budgeted cost of the CWGV project and Rs. 105,90,46,136/- is due to sharing of revenue with the holding company Emaar MGF Land Ltd. The understatement of Rs. 87.97 crores is because the assessee has compute....
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.....43 crores. This estimate seems to be on the higher side, especially with respect to the construction cost of Rs. 1027.06 crores. The assessee did not furnish correct, break up of this cost in spite of specific requisitioning of the same. In order to verify the genuineness and bonafides of the budgeted construction cost reliance was placed by AO on the details collected both from the assessee as well as from other sources including the Shunglu Committee Report (HLC) dated 4th March, 2011. Shunglu Committee was examining the issue of purchase of 333 flats by DDA from the assessee company. The Shunglu Committee was examining the bonafides of the transaction as well as determining whether the purchase price of Rs. 11,000/- per square feet was justified or not. The Sunglu Committee examined both these issues on the basis of documents available on record such as the consultants engaged by DDA for evaluating the correct market price of the flats being purchased. The Shunglu Committee thereafter compared these reports against independent evaluation by consultants engaged by the Shunglu Committee and found that the price of Rs. 11,000/- per square feet paid by DDA for purchase of ....
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....e, elevators, DG sets, flooring, bathroom fittings are supplied by Emaar MGF Construction Pvt. Ltd. to the contractor the per sq. ft. price decided amongst the parties shall get proportionately reduced. In other words the cost to Emaar MGF Construction Pvt. Ltd. could not have exceed Rs. 2875/- per sq. ft. under any circumstance as per the agreement referred to above). (Ref Pg 589/ Dept Paper Book) The maximum construction cost in accordance with the development agreement which was to be borne by Emaar MGF was Rs. 2875/- per Sq. feet only. If the same rate is applied to the total plinth area of 26,16,878.60 Sq. feet as mentioned in the Evaluation Committee recommendations, the total construction -cost works out to Rs. 752.35 Cr only. The Evaluation Committee has however considered the construction contract cost at Rs. 1168.21 Cr as worked out by the financial expert K.N. Goyal & Co. Thus, the construction cost considered was wrongly padded by Rs. 415.86 Cr (i.e. Rs. 1168.21 Cr-752.35 Cr) Emaar MGF Construction Pvt. Ltd borrowed funds from SBI, overseas Branch, Jawahar Vyapar Bhavan, New Delhi. In the proposal submitted, the total project cost has been shown at Rs.....
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.... 7. Painting in Servant Room and Utility Room Oil Bound Distemper Instead on oil bound Plastic Emulsion is provided. 8. Terrace Treatment Brick coba with precast terrazzo tile finish In addition to Brick coba Thermal insulation is provided. 9. ACP & Fins Not in RFP Aluminium composite Panel is provided in Elevational Areas of Tower 10. Aluminium Curtail Wall in Top floors of Towers Only Al. Windows Provided in all towers at Top Floors 11. Masonry Brick Masonry as per RFP Autoclaved Aerated Concrete Blocks and Fly Ash Bricks are being used. 12. Sky Lights Poly carbonate sheet Laminated Glass 13. Modular Kitchens Not mentioned Provided in all kitchens 14. Lifts 2 in each tower Addl. Provided 15. Basement Ventilation System Not considered System is provided for huge basement 16. Basement Ventilation Tunnel Not considered Addl. Provided 17. Other MEP Items for Addl. Basement Area 781466 Sft System is provided for huge Basement of 1543177 Sft. 18. Soil There was no provision or disclosure on the fact that the soil was soft Piling was done to make t....
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....sing Officer has not disturbed other cost in the budgetary estimate or cost actually incurred in other areas other than cost of construction. He has only replaced Rs. 1027.06 crores being cost of construction estimated by the assessee by Rs. 752.35 crores which is based on cost of construction of Rs. 2875 per square feet. This rate ignores several other payments which the assessee had to make for purchase of steel and cement provided to ACIL or used directly to complete the project when ACIL has abandoned it. He argued that the cost of steel and cement has risen much by the time, the construction started compare to the time of preparation of estimates. In fact, upto 31st March 2009, the actual expenditure of Rs. 486.48 crores incurred on cost of construction includes payment to ACIL of Rs. 308.84 crores and payment to others of Rs. 177.66 crores. He argued that a number of payments were made to other parties too in addition to payment made to ACIL. It is, therefore, incorrect to confine to the budgetary estimate only on the basis of money paid / payable to ACIL. It was also submitted that actual expenditure including on cost of construction upto 31.12.2011 was Rs. 1532.12 crores wh....
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.... incurred by the appellant. • The total estimation of the budgeted costs made by the appellant in the relevant previous year also matches the total actual cost incurred on the Project upon completion. • In that view of the matter, considering that additional expenses were actually incurred by the appellant due to aforesaid cumulative reasons, which exceeded the original target price of Rs. 2875 per sq. ft. agreed with ACIL, the same were required to be recognized and included in the total estimated/budgeted costs of the Project, for the purpose of recognizing revenues and expenses as per POCM. 30. Further, the ld. AR brought our attention to the break-up of expenditure incurred by the assessee by way of payment to ACIL. S. No. Particulars Upto 31^st March, 2009 Upto 31^st March 2010 1. Cost incurred towards payment to ACIL Rs. 313.25 Cr Rs. 605.68 Cr 2. Cost incurred towards payment to other sub-contractors on account of supply of "owners material". Rs. 168.52 Cr Rs. 332.63 Cr 31. It was argued that the assessee supplied "owners material" and made payments to sub-contractors appointed by the assessee, due to ....
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....ot be ruled out. The Assessing Officer ultimately held and calculated the difference in POCM based on the budgeted cost and the payments made to EMLL. Nowhere, the method of accounting standard followed by the assessee has been disputed, in fact, no grounds could be brought out by the Assessing Officer to alter the percentage shown by the assessee except the document of estimated cost. The Assessing Officer held that the estimated cost of the project computed by the assessee at Rs. 1597.43 crores was higher by approximately Rs. 270 crores on account of cost of construction computed at Rs. 1027 crores. The AO's conclusion that the total construction cost cannot exceed Rs. 752.35 crores and hence total estimated project cost worked out to Rs. 1322.71 crores against Rs. 1597.43 crores estimated by the assessee cannot be accepted. This reduction in estimated expenditure consequently resulted in working of POCM at 69.32% instead of 57.40%. This resulted in the absolute figure of Rs. 87.97 crores rise in the estimated income of the assessee which is not without any tangible basis and hence cannot be accepted. The AO's contention that the negligible profit declared by the assessee warrant....
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....inancial support to carry out the project of construction of flats at Common Wealth Games village (herein after referred to as 'CWG Village') as per terms and specifications laid down by DDA. There was a consortium of four companies which bid in the auction to win the project. The assessee has then floated as a special purpose vehicle for completing this project. For providing financial security to the assessee and guarantees to the financial institutions and DDA the holding company secured 25% revenue from the sale proceeds of the flats. The collaboration agreement was accordingly drafted and executed. The share of revenue to the holding company was declared in its return of income and assessed by the department accordingly. 36. The Assessing Officer has taxed that 25% share of the holding company in the hands of the assessee by disregarding the collaboration agreement. The facts as submitted before the Assessing Officer are as under: "i. The Assessee is a company established under the laws of India. The assessee is engaged in the business of promotion, construction, development and sale of integrated township, residential and commercial multi-storey building, flats, s....
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....d of the following: • Emaar PJSC, UAE • EMLL • MGF Developments • Discover Estates vii. A copy of the resolution from all the four members of the consortium which authorizes the company to enter into consortium are enclosed as Annexure K. viii. The modus operandi for execution of the project was worked out within the guidelines specified for the execution of the project by DDA. The following structure was designed and followed: • A special purpose vehicle EMCPL will be incorporated. It will be the legal entity in whose name the entire project will be executed and delivered. The responsibilities of the bidder will all be borne by EMCPL. • EMCPL will execute the construction work, appoint sub-contractors, ensure agreed quality of the work, be responsible for time-over-runs etc. • EMLL will provide capital and quasi-capital to EMCPL and stand guarantor to the funds borrowed by EMCPL. It will also stand guarantor for the performance guarantees furnished in turn by EMCPL to DDA. • EMLL took the commercial risk also related to delay in completion of project, dro....
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....the party of the second part will primarily be utilized to meet the initial fund requirements of the project, including the payment to Delhi Development Authority (DDA) and to meet day to day fund requirement for the project. v. That it is mutually agreed by and between the parties that the party of the first part shall reimburse to the party of the second part the average capital carrying cost of the party of the second part which will range anywhere between 5% to 7% of the quasi capital or deposits/advances contributed, by the party of the second part to the corpus of the project to be computed in the manner as mutually agreed between the parties...... xi That the party of the first part hereby agreed that in consideration of the various capital covenants highlighted above along with assuming inherent and associates risks embedded in the project, to compensate the party of the second part, by way of attribution of 25% of the gross revenue accrued through sale of project stock computed on the percentage of completion achieved as ascertained at the end of the year in favour of the party of the second part. It is also agreed that the party of the second part shall ....
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.... of the gross revenue accrued through sale of CWG Project stock computed on the basis of percentage of completion achieved at the end of every year. It was also agreed that such attribution is to take place only if the project stands completed to the extent of either or above 30% of the total project completion, being the threshold limit at which the revenue is to be recognized by the assessee. 39. Role of EMLL as financial and commercial risk-bearer: EMLL was to be duly consulted for appointment or nomination of the directors or officer bearers: EMLL to be duly consulted in respect of mortgage /lien /encumbrance /charge on any of the assets or other rights in the projects; EMLL to be consulted with respect to prices or other terms and conditions of the sale of stock or other rights in the project; Books of accounts may be inspected by EMLL. EMLL acting as a financial collaborator, similar to the funding by banks/financial institutions, EMLL also sought to control the operations of assessee company in relation to project being funded by EMLL. This control of operations of the assessee is to protect the funds advanced by way of creating an unde....
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.... 43. The supports which were provided by EMLL to the assessee are summarized as under: i. EMLL provided funds to the extent of Rs. 221 crores which was used to pay Rs. 321 crores to DDA. Such money was paid by EMLL. The balance Rs. 1,00,00,00,000 was paid by the assessee out of borrowed funds. The loan was given by bank under guarantee by EMLL. ii. In accordance with the bid requirement, EMLL paid original bid amount along with a bank guarantee of Rs. 400 crores which was also arranged by EMLL either directly or by providing corporate guarantee. iii. Further, it is also important to note that Board of Directors (BoD) of EMLL has approved and agreed to provide financial support to the assessee company as and when required. iv. EMLL stood guarantor for loans from the financial institutions for the assessee EMCPL, where the guarantee in the form of Corporate Guarantee was given by EMLL. v. EMLL took the commercial risk, also related to delay in completion of project, drop in sales and financial crunch. vi. EMLL made direct intervention by way of infusion of capital/quasi capital as and when EMCPL faced a credit crunch from lenders....
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....ng transfer of 25% of the gross revenue is nothing but sham and is arranged to reduce tax liability (of the assessee company) and is a colourable device. (iii) Contents of the agreement dated 08.05.2008 mentioned in schedule 19 of the balance sheet are contradictory to the contents of agreement dated 07.04.2008. In spite of repeated opportunities, the assessee failed to furnish the agreement dated 08.05.2008. (iv) The holding company was already paid interest cost towards deployments of funds and hence adequately compensated. (v) Inherent and associated risks claimed by the holding company are only a bogey. It is not understood what kind of Inherent and associated risks embedded, in the project are being assumed by the holding company. (vi) The holding company is virtually holding entire share holding of assessee Company. It was responsible for arranging the funds for the CWGV project. By virtue of being owner of the assessee company the holding company has already assumed the inherent risks associated with the project. (vii) The manner of accounting treatment of the said, sum of Rs. 105,90,46,740 is also dubious as much as the same has ....
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....s of the business affairs of the assessee. The arguments and the counter-arguments are as under: Sl.No. Arguments of the DR Counter arguments of the AR 1. Reliance upon agreement dated 07.04.2008 is an afterthought. This document never existed and surfaced for the first time during present assessment proceedings. The cop of the agreement has been provided/submitted to the AO during the course of assessment proceedings on 29.11.2011. There was no earlier occasion for the assessee to submit/provide the same. On the other hand, the agreement was executed on a stamp paper which was purchased prior to 07.04.2008 and the agreement was signed by the parties on that date. An affidacit of the director of the holding company to this effect has also been executed. 2. Agreement dated 07.04.2008 is sham and transactions between assessee company and its holding company involving transfer of 25% of the gross revenue is nothing but sham and is arranged to reduce tax liability (of the assessee company) and is a colourable device. There is no material to show that the agreement is intended to reduce tax liability of the assessee company. In fact, had the entire contract be....
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.... terms of contract (iii) to stand as a guarantor before DDA and the financial institution (iv) the contract was awarded on the basis of goodwill of the holding company and fulfillment of technical qualification in the bid which, only holding company possessed.. The assessee was a newly created and hence could not boast of experience and technical qualification required to bid in the contest (v) Bid security and reserve price could only be provided by the holding company (vi) Net worth required to compete in the bid could be possessed only by the holding company (vii) Only holding company was capable of fulfilling post bidding compliance as stated above (In the statement of facts) Further, the cost of capital provided by the holding company to the assessee was not commensurate with the market rate. The rate of interest on which money could be borrowed ranges from 15% to 24% whereas the holding company charged only a nominal rate ranging from 5% to 7%, Hence, it is incorrect to draw inference that holding company was adequately compensated. 4. The manner of accounting treatment of the said sum of Rs. 1,05.90.46,740 is also dubious as much as the same has been reduced from the t....
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.... the holding company has played prior to bidding and after bidding. At the cost of repetition, it is submitted that the holding company had played following role: (i) Pre-bidding stage i. Bid security of Rs. 10 crs to be deposited ii. The bidder should have a net worth of Rs. 100 crs iii. The reserve price for the bid was Rs. 300 crs (ii) Post-bidding stage i. Technically qualified bidder to provide 25% of the quoted upfront amount less any bid security (EMCPL bid Rs. 321 crs) ii. Technically qualified bidder to provide balance 75% of the quoted upfront amount within 3 days of award of the bid (EMCPL bid Rs. 321 crs) iii. Technically qualified bidder to provide performance guarantee of Rs. 400 crs. iv. Seed capital/working capital for the project where estimated cost was Rs. 1550 crs to Rs. 1650 crs 7. Holding company does not take responsibility for any loss or default committed by assessee during the course of execution or completion of the project. The holding company is giving the guarantee to the financial institutions and DDA. Then any loss incurred by the assessee which finally translates into non-repayment of loan to the financial institutions due to the project re....
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....le. It is not for charging the lower rate of interest and thereafter compensating it by revenue sharing, but it is the case of taking risk and guarantees and arranging the finance and taking risk therefore, the holding company shared the revenue. In fact, the creation of the assessee but for commercial expediency has pave the way for payment of taxes, which could have otherwise avoided, if the project was to be completed by the holding company on its own. 10. The transaction is hit by provisions of Section 40a(2)(b). Relied on the ld. CIT (A)'s order. 11. The ld. DR relied on the case of Chamundi Winary and Distillery in ITA 155/2016 (Karnataka HC)- Diversion of income by transfer of overriding title at source Case specific. Even the Court reiterated that the issue depends upon facts and circumstances of each and individual case whether in those circumstances it would amount to a diversion of income by overriding title at source. No law has been laid down which can be applied to othercases. 46. Heard the arguments of both the parties and perused the material available on record. 47. We find that the assessee is under the obligation to part away with the sour....
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....a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not; a case in which by an overriding charge the assessee became only a collector of another's income.'' In Dalmia Cement Ltd. v. CIT [1999] 104 Taxman 97/237 ITR 617 (SC) assessee-owner of factory had, by an agreement dated 24.07.1962, agreed to sell same to 'M' and agreement, provided that profit from factories from 30.09.1962 would be for benefit of transferee on completion of sale transaction, though actual transfer of factory had taken place on 30.09.1964, income pertaining to period 01.10.1962 to 30.09.1964 could not be assessed in assessee's hands as it stood diverted by overridi....
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....om the working of the two cement factories situated in Pakistan for the year October 1, 1962 to September 30, 1963, and for the year October 1, 1963 to September 30, 1964, were not taxable in the hands of the assessee-company." The Hon'ble Kerala High Court in Sarala Devi (K.) (Smt.) Vs. Commissioner of Income-tax 1996 222 ITR 211 (Ker) held that it nature of obligation which is a decisive factor. It held as under: "In order to determine whether there has been a diversion of income by overriding title the true test is whether the amount Sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There difference between an amount which a person is obliged to apply out of his income and an amount which by the nature obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before, it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It....
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.... c) The reserve price for the bid was Rs. 300 crores Post-bidding d) Technically qualified bidder to provide 25% of the quoted upfront amount less any bid security (EMCPL bid Rs. 321 crs) e) Technically qualified bidder to provide balance 75% of the quoted upfront amount within 3 days of award of the bid (EMCPL bid Rs. 321 crores) f) Technically qualified bidder to provide performance guarantee of Rs. 400 crores g) Seed capital / working capital for the project where estimated cost was Rs. 1550 crores. Date Amount in INR Purpose 03-M-07 25,50,00,000 Amount Paid for DDA as Earnest Money for Commonwealth Game Village 04-Aug-07 60,37,50,000 amount Paid for DDA Selection of Project Developers for construction of residential Project of Commonwealth Games Village- 04-Aug-07 60,00,00,000 amount Paid for DDA Selection of Project Developers for construction of residential Project of Commonwealth Games Village- 14-Jun-07 10,00,00,000 Amount Paid for submission of the RFP for Residential Project Commonwealth Games, 2010 Village. 02-Jul-07 44,75,00,000 Amount Paid for DDA as Earnest Money for C....
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....on the Special bench of ITAT in Lal Sons enterprise 89 ITD 25 (Del). The Assessing Officer admits that the said decision was given in the context of computation of deduction under section 80HHC however the ratio laid down in those decisions is clear in as much as interest income from surplus funds parked in FDRs / Investments is assessable under the head income from "Other sources". 55. Before us during the arguments, the ld. DR strongly supported the case of the revenue and further relied on the Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs Commissioner Of Income Tax (1997) 141 CTR 387 (SC). She argued that the interest income has no nexus with the business and therefore has to be assessed under the head income from 'other sources'. 56. The ld. AR argued that the assessee company is a SPV floated for the purpose of one project which has no funds of its own and all the funds have been provided by the holding company with interest. He argued that since a part of the same funds were deposited in the bank as FDR and investment the direct nexus is established. Hence, it should be treated as part of business income. 57. Heard the arguments of both the parties and perused the....