AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (4) TMI 842
X X X X Extracts X X X X
X X X X Extracts X X X X
....Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 89,11,71,622/- relied upon the decision of the judgment of the jurisdictional High Court in the case of Lokhandwala Construction Inds Ltd 260 ITR 579 the same were rendered before the proviso to section 36(1)(iii) has been inserted vide Finance Act 2003." 3. "Whether on the fact and the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 80,75,718/- made by the Assessing Officer u/s 14A r.w.r 8D and limiting the disallowance made by the Assessing Officer to the extent exempt income of the assessee as claimed not to the expenditure as per rule." 3. In so far as Ground Nos. 1 and 2 are concerned, briefly stated the facts are that, the Assessing Officer while completing the assessment on 30.12.2016 u/s.143(3) of the Act noticed that assessee for the purpose of construction of residential project borrowed interest bearing funds from group concerns, banks and financial institutions. Assessing Officer noticed that assessee paid interest of Rs..164.71 Crores and earned interest income of Rs..42.57 Crores and net interest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Lokandwala Construction Industries Ltd., (supra) and various other decision and allowed the claim of the assessee observing as under: - "The submissions of the learned counsel have been carefully considered. According to the learned counsel the interest claimed by the assessee is a period cost and has to be allowed under section 36 (1) (iii) of the Act. The assessee has relied upon the judgment of the apex court in the case of the Taparia tools Ltd vs. DCIT (2015) 272 ITR 605 wherein the Supreme Court held that the only aspect which needed examination was as to whether the provisions of section 36 (1) (iii) read with section 43 (2) of the act was satisfied or not. Once these are satisfied there is no question of denying the benefit of deduction in the year in which such an amount was actually paid or incurred. Further, the proviso introduced by the Finance Act 2003 prohibits the allowance of interest cost only if the borrowed funds have been utilized for acquisition of a capital asset even for existing business. In this case the borrowed funds have been utilized for stock in trade which is not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith regard to the interest expenditure,...........The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded that the interest expenditure relating to the borrowed capital is allowable u/s 36(l)(iii) of the Act. The relevant lines from the para 4 reads as under; "that, while adjudicating the claim for deduction under section 36(l)(iii) of the Act the nature of expense 0- whether the expenditure was on capital account or revenue account - was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of capital was the relevant for the purpose of adjudicating the claim of deduction under section 36(l)(iii) of the Act. (referring to the judgment in the case of Calico) It was laid down that where an assessee claims deduction of interest paid on the capital borrowed all that the assessee was to show that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset......." Considering the above settled position in the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capital ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the Instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terest on unsecured loans and fixed deposits: It is the claim of the assessee that the entire interest expenditure is allowable as it is a time related fixed finance cost on the borrowed capital. The claim of the assessee should be allowed In full in view of the various decisions on this issue. To start with, we perused the order of the Tribunal in the case of Rohan Estates Pvt. Ltd. (supra) which is one of the sister concerns of the assessee. We perused the para 3.2 of the said order of the Tribunal and find it Is a self explanatory and the decision of the Tribunal supports the case of the assessee. Under comparable facts of the assessee, interest cost was allowed in favor of the assessee relying on binding jurisdictional High Court judgment in the case of M/s Lokhandwala Construction Industries Ltd. (supra). For the sake of completeness of this order we extract relevant para 3.2 of the order which is reproduced as under: "3.2 With regard to the interest expenditure............The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance." We have also perused the said binding High Court judgment in the case of M/s Lokhandwala Construction inds. Ltd. (supra) and find the same is relevant for the following conclusion - "construction project undertaken by the assessee builder constituted its stock in trade and the assessee was entitled to deduction under section 36(l)(iii) of the Act in respect of the interest on the loan obtained for execution of said project/' Relying on the another judgment of Hon'ble Bombay High Court in the case of Calico Dying and Printing Works 34 ITR 265 Bombay, Hon'ble Bombay High Court concluded that the interest expenditure relating to the borrowed capital is allowable u/s 36(l)(iii) of the Act. The relevant lines from the para 4 reads as under; "that, while adjudicating the claim for deduction under section 36(l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t construction is one where the assessee was following project completion method and therefore the ITAT held that the interest cost shall be debited to work in progress and allowed to be claimed as deduction only in the year in which the corresponding income is offered to tax. In the instant case, the assessee is following percentage completion method (POCM) of therefore the judgment of Wall Street construction is not applicable to this case. The assessee is following percentage completion and offers a part of the revenue every year depending upon the percentage of completion. The funds have been borrowed for the purpose of construction and have gone into the projects of the assessee which are stock in trade and not capital asset of the assessee. Therefore, the amendment brought in the Act with effect from 2003 by way of introducing the proviso to section 36 (1) (iii) also does not affect the facts of the case of the assessee. In view of the binding judgment of the jurisdictional High Court in the case of Lokhandwala constructions and also of the jurisdictional ITAT in the cases of Ashish Builders Private Ltd and Rohan Estate Private Ltd and also the various judicial pronouncements....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., [131 Taxman 810] the assessee's claim for deduction of interest, although the revenue was recognized only on project completion basis in subsequent year, was allowed in the year in which the claim of interest was made. Thus, it was contended that the interest expenditure incurred during the year is claimed and allowable as expenses even though the same has been inventorised in the Books of Accounts. These contentions were accepted by the revenue and no objection has been raised by the Assessing Officer and the settlement commission has accepted these contentions of the assessee. This fact was also taken note by the Ld.CIT(A) in allowing the claim of the assessee. Therefore, since the revenue could not controvert the findings of the Ld.CIT(A) that the project constructed by the assessee for which the loans have been taken is not a stock in trade and also the other findings of the Ld.CIT(A), we do not find any valid reason to interfere with the findings of the Ld.CIT(A) and accordingly we sustain the order of the Ld.CIT(A) on this issue. Grounds raised by the revenue are rejected. 8. Coming to Ground No. 3 of grounds of appeal of the revenue it relates to restricting the disallo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce u/s. 14A of the Act shall not be more than the exempt income and shall be restricted to the exempt income earned by the assessee. Thus, the decision of the Ld.CIT(A) is in tune with the consistent view of this Tribunal. Hence we do not find any infirmity in the order passed by the Ld.CIT(A). This ground of the revenue is dismissed. ITA.No. 2348/MUM/2018 (A.Y: 2014-15) 12. Coming to the appeal of the assessee the following grounds have been raised: - "1(a) On the facts and circumstances of the case and in law, the learned Commissioner of Income tax - Appeal erred in confirming the non-cognizance of the revised return of Income filed by the appellant on 31st March 2015, on the ground that filing of original return was delayed by few minutes. The learned CIT(A) erred in appreciating the fact the original return was delayed by few minutes due to technical glitches in the Income Tax Website. (b) On the facts and circumstances of the case and in law the learned Commissioner of Income Tax - Appeal ignored the fact that income tax return was revised to give effect to the order of Hon'ble Bombay High Court for merger of two companies with appellant Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee filed revised return of income on 31.03.2016 declaring income at Rs..196,14,10,368/- under normal provisions of the Act for giving effect to the order of the Hon'ble Bombay High Court which approved the merger of Mahavir Build Estate Limited and Galaxy Premises Private Limited with the assessee w.e.f. 01st April, 2013 and also to rectify certain clerical errors. 15. The assessment was completed u/s. 143(3) of the Act on 30.12.2016 and the Assessing Officer determined the income of the assessee at Rs..306,02,55,260/- under the normal provisions of the Act and book profits at Rs..291,18,35,338/-. While completing the assessment the Assessing Officer ignored the revised return of income filed by the assessee on the ground that assessee has not filed its original return within time prescribed as per the provisions of section 139(1) of the Act. The submission of the assessee that due to technical error in uploading the return on the last date because of which the return got uploaded just after midnight with a delay of two minutes but for that the delay of filing is not intentional, has been rejected by the Assessing Officer observing that as per the provisions of Act t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urn was not filed within the due date prescribed under section 139(1) of the Act. However, Assessing Officer while making assessment, has considered the additional disallowances made by the Assessee in the revise return at Rs..4.05 crores and has rejected/ignored the additional deduction/expenses of Rs..8.17 crores claimed by the Assessee. Referring to Page No. 57 of the Paper book which is the copy of acknowledgment received from the Income-tax Department, Ld. Counsel for the assessee further submits that assessee could not upload the return of income till late on the night of 30.11.2014 i.e. the due date for filing return of income for the subject A.Y. 2014-15, and the return got uploaded at 00.02 AM on 01.12.2014 due to which the acknowledgement in the system of Tax Authorities was reflecting date of filing of the return of income as 01.12.2014 instead of 30.11.2014. Ld. Counsel for the assessee further submitted that the delay in filing of original return by two minutes cannot be considered as malafide considering the fact that delay was on account of technical glitches and delay was by only two minutes. In this regard reliance was placed on the following decisions: * ITO vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he rival submissions, perused the orders of the authorities below and the decisions relied on. In this case the assessee filed its return of income on the last day of filing of return i.e. on 30.11.2014. However, due to technical glitch and last hour rush on the website the return got uploaded past midnight by 00:02AM on 01.11.2014. Thus, the return was delayed by two minutes. Subsequently the assessee filed revised return of income on 31.03.2016 making some adjustments and also to give effect to the merger of two entities as approved by the Hon'ble Bombay High Court. However, while completing the assessment the Assessing Officer ignored the revised return of income on the ground that the assessee filed original return of income belatedly as the return was filed only at 00:02 AM on 01.12.2014. Accordingly, Assessing Officer computed income of the assessee by denying the deduction u/s. 80IB(10) of the Act even though the Assessing Officer has quantified allowable deduction u/s. 80IB(10) of the Act, made disallowance u/s. 36(1)(iii) of the Act, disallowance u/s. 14A of the Act, disallowance of business promotion expenses. Apart from these disallowances the Assessing Officer co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... approach of the Respondents in refusing to condone the delay is a pedantic which, if allowed to stand, would result in great hardship to the Petitioners for no fault of the Petitioners. The Petitioners have also produced the hard copy to show that in fact such return in Form - 1 were filed on 31.03.2008 which was admittedly the last date for filing such returns. This factual aspects have not been disputed by the Respondents. Needless to say, we have not examined the merits of the claim of the Petitioners based on the returns filed by the Petitioners but only considered whether the delay in filing such returns deserves to be condoned. Such returns and the claim of the Petitioners have to be examined by the Respondents on its own merits." 25. Hon'ble Delhi High Court in the case of Lodhi Property Co. Ltd. v. Under Secretary (ITA-II) Department of Revenue [323 ITR 441] observed as under: - "7. In view of the foregoing, it is absolutely clear that the submissions sought to be raised before us by the learned counsel for the respondent have specifically and categorically been rejected by the Karnataka High Court and the same have been accepted not only by the Board, but ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se facts the Hon'ble Division Bench of the Madras High Court on a writ appeal held as under: "6. It is appropriate to notice that under Section 119(2)(b) of the Income Tax Act, the Central Board Direct Taxes has been empowered "to admit an application or claim for exemption, deduction, refund * any other relief under the Act, after the expiry of the period specified by or under the Act by making such an application or claim and deal with the same on merits in accordance with law." In other words, the statute has conferred discretion in the hands of the Board to admit of any claim which is made beyond the period specified for doing so and when once the discretion is conferred by a statute upon an authority, such a discretion is required to be exercised on sound lines. It is one of the important factors to be considered while dealing with an application seeking condonation of delay as to whether grave and irreparable injury or hardship will be caused to the person concerned and as to whether or not the interests of justice would be served better, in condoning the delay. In the instant case, there is no dispute or denial of the fact that the Return of Income filed by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld that the return was filed on time and all the related benefits shall then be made available to the appellant. The AO is thus directed to obtain the electronic trail of filing of the return from DIT(Systems). If the return was duly uploaded and set into transmission by 30-09- 2009 then the AO is directed to give the benefits of Section 80IC. In case it is seen that the return was duly uploaded and set into transmission sonly by 01-10-2009 then the benefit of section 80IC shall not be available as the mandatory requirement of section 80AC would not have been met." 4. Being aggrieved with the direction of ld. CIT(A), the department is in appeal before us and has taken following grounds of appeal: "1. The order of the learned CIT(Appeals) is erroneous and contrary to facts & law. 2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in holding that if the uploading and submission of e-filed return by the assessee was completed by 30.09.2009 then the assessee will be get the benefit of deduction u/s 801e. 3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, time limit for filing the return of income is neither inflexible nor inelastic. Thus, the provisions of section 80AC are directory and even the Board may, under the provision of section 119, condone the delay in order to avoid undue hardship. 8. In the present case it cannot be said that the delay was, in any manner, mala fide. On the contrary, the assessee was vigilant enough to file the return at the midnight. We, therefore, condone the delay in filing the return. 9. As far as ld. CIT(A)'s direction to the AO is concerned, we find that the assessee itself has clearly stated in its reply reproduced by AO in the assessment order, that the return was uploaded at 12.46 AM on 1-10-2009. Therefore, there was no necessity for restoring the matter to the file of AO for any verification. 10. In view of above discussion, the cross-objection filed by the assessee is allowed and, therefore, the department's appeal has become infructuous. However, since the AO has not examined the assessee's claim u/s 80IC in detail and has rejected the same only on the ground of delay in filing of the return, we restore the matter to the file of AO for examining the assessee's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pts should be considered as profits not eligible for deduction u/s. 80IB of the Act, to which assessee has replied that the said income is directly relating to its eligible projects. Not convinced with the submissions of the assessee the Assessing Officer placing reliance on the decision of the Hon'ble Apex court in the case of Pandian Chemicals Ltd and CIT v. Sterling Foods [104 Taxman 204] treated these charges received on cancellation of flats as miscellaneous income and denied deduction u/s. 80IB(10) of the Act observing that these charges cannot be said to be having direct nexus with the development of housing projects since it is neither part of the cost nor part of the sale receipts. He also observed that once the flat booking is cancelled the said flat is open for sale to some other buyer and sale receipts in respect of that flat would be accounted separately. Thus, the Assessing Officer restricted the claim for deduction allowable u/s. 80IB(10) of the Act to Rs..6,93,86,043/- by reducing the excess claim of Rs..80,73,660/- which is due to inadvertence of the assessee as admitted and also the cancellation Charges of Rs..38,18,880/- from the total claim made at Rs..8,12,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h eligible business of the assessee and therefore the amounts retained on cancellation of the apartments is nothing but business income and is eligible for deduction u/s. 80IB of the Act. The case laws relied on by the assessee also supports the contention of the assessee. However, when the assessee sells the apartments subsequently in later years which were cancelled by the buyers in earlier years the amounts forfeited/retained by the assessee on account of cancellations shall have to be reduced from the sale price and only on the balance sale consideration/income, the assessee is entitled for deduction u/s.80IB of the Act. With these observations, we allow the claim of the assessee for deduction u/s.80IB(10) of the Act on the amounts received on cancellation of flats of Rs..38,18,880/-. Thus, Ground No. 2(b) is allowed. 36. Ground No.3 in grounds of appeal is relating to disallowance of business promotion expenses of Rs..2,04,51,610/-. 37. Briefly stated the facts are that, the Assessing Officer in the course of assessment proceedings noticed that assessee incurred business promotion expenses in the form of distribution of gold coins purchased at Rs..2,21,81,610/- from Raks....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the assessee further referring to Page Nos. 58 to 65 of the Paper Book submitted that assessee had made advertisement for gold festival scheme to attract customers. Further, the management had prepared one internal presentation to lay down plan how this scheme will run and what all offers should be made to the customers and the copy of advertisement broacher and internal presentation were placed in Paper Book. It is further submitted that the expenses were incurred for marketing and exhibition of various projects of the assessee overseas and as a result of their marketing efforts, the assessee has been able to sell around 70 flats to various overseas customers. It is further submitted that as a result of the festival offer marketing drive, the assessee was able to book higher sales of units/flats in the projects which were under construction. Therefore, it is submitted that the expenses incurred on gifts to customers is wholly and exclusively for the purpose of business of the assessee and the same is allowable deduction. 40. However, Ld. DR submits that the assessee could prove expenses only to the extent of Rs..17,30,000/- as submitted before the Ld.CIT(A) and therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....long with supporting bills, vouchers, there is no reason for making such adhoc disallowance. The A.O. is directed to allow the expenses of Rs. 1,64,792/-." 43. The total expenses towards gold coin and bullion purchases by the assessee was Rs..2,21,81,610/- and the assessee's turnover for the year ended 31.03.2014 stood at Rs..1708 Crores as against Rs..1499 Crores as on 31.03.2013. Therefore, the increase in volume of turnover from the previous year to the current year is at Rs..209 Crores. The expenses incurred by the assessee on its scheme for distribution of gold coins when compared to the volume of business is very negligible. Therefore, since floating of scheme by the assessee is not in doubt at all, purchases of gold coins and bullion by the assessee from the parties is proved, incurring of expenses on the distribution of gold coins for the purpose of boosting the business of sale of flats by the assessee cannot be doubted. 44. Therefore, taking totality of facts and circumstances into considerations, we are of the view that the expenses incurred by the assessee towards distribution of gold coins/certificates etc., for promoting its business through a promotional scheme....