TaxTMI 
TaxTMI 
2021 (11) TMI 413
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....of Rs. 1,23,87,552/- under the reason that interest bearing funds had been utilised for acquiring the shares of subsidiary company; 1.1 Without prejudice to Ground No.1.0 a prayer is made to direct Ld. AO to allow the capitalization of interest of Rs. 1,23,87,552/- to investment in shares; 2.0 On facts and circumstances of the case and in law, Ld. CIT(A), having accepted the brokerage paid of Rs. 1,24,64,408/- as directly related to sale of flats, however erred in confirming the disallowance of such brokerage since corresponding sales were not recognized as revenue income during the year; 3.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in sustaining the addition of surplus earned on sale of TDR of Rs. 3,25,71,195/- thereafter enhancing such income at Rs. 5,56,12,975/-, though appellant had claimed that such surplus on TDR is to be reduced from Work-in-progress (WIP) of the housing project; 3.1 Without prejudice to Ground No.3.0, Ld. CIT(A) having taxed the profit on sale of TDR of Rs. 5,56,12,975/- as business income, ought to have directed the Ld. AO to correspondingly increase the work-in-progress (WIP), since such surpl....
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.....03.2012 subject to verification of the genuineness of the said expenses. As regards the addition of the profit on sale of TDR of Rs. 3,25,71,195/- that was made by the A.O, the CIT(A) rejected the assessee"s claim that the profit/surplus arising therefrom was not liable to be assessed in its hands and was rightly reduced from the WIP i.e the project cost. It was observed by the CIT(A) that as the profit derived on sale of TDR had no inextricable nexus with the construction activity of the assessee, therefore, the aforesaid treatment of the profit on sale of TDR in its books of accounts was not correct. Observing that though the assessee had earned a profit of Rs. 5,56,12,975/- from the sale of TDR, however, the A.O had on an estimate basis made an addition of only Rs. 3,25,71,198/-, the A.O after putting the assessee to notice enhanced the addition by an amount of Rs. 2,30,41,777/-. As regards the disallowance u/s 36(1)(iii) by the A.O of the assessee"s claim for deduction of interest expenditure of Rs. 59 lac pertaining to the interest free loans that were advanced by the assessee to its subsidiary company, viz. CCPL, the CIT(A) finding favor with the contentions of the assessee ....
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....er, our attention was drawn to the letters dated 20.02.2018 and 24.02.2018 that were filed by Mr. Yashwardhan Goenka (supra) with the Dy. Commissioner of Police, Bandra seeking his intervention for filing of a FIR concerning certain persons who were allegedly involved in the abduction of his father. Also, the ld. A.R took us through another letter dated 07.03.2019 that was addressed by Mr. Yashwardhan Pramod Goenka to the Dy. Commissioner of Police, Andheri wherein he had followed up the matter and had sought information as regards the progress in respect of the aforesaid matter. The ld. A.R also took us through a letter addressed by Mr. Sharad Pawar, Member of Parliament, dated 20.02.2018 to the Minister of External Affairs, wherein he had requested that a direction be given to the Embassy in Maputo, Mozambique to get information about Mr. Pramod Goenka. Further, the ld. A.R took us through the extracts of the various newspapers, viz. Times of India, Mumbai Mirror etc. wherein the news about kidnapping of Mr. Pramod Goenka was published. Our attention was also drawn by the ld. A.R to the intelligence report concerning the kidnapping of Mr. Pramod Goenka. It was submitted by the ld....
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....ghtful consideration, we find that there are justifiable reasons which had led to the delay on the part of the assessee in filing the present appeal. As observed by us hereinabove, the fact that Shri Pramod Goenka i.e father of Shri Yashwardhan Pramod Goenka, Managing Director of the assessee company was abducted during his visit to Mozambique, East Africa stands duly substantiated on the basis of the exhaustive documents that have been filed by the assessee before us. Apart from that, we find that the aforesaid factual position is duly supported by the "affidavit" of Shri Yashwardhan Pramod Goenka, wherein he had clearly deposed the aforementioned facts. Further, we also find substantial force in the claim of the assessee that due to the closure of the construction activities of its ongoing housing projects he was threatened by the investors, buyers and civil contractors who had pressurized him to honor his financial commitments, which had further added to the agony he was already undergoing. In the totality of the aforesaid facts, we are of the considered view that it can safely be concluded that the circumstances prevailing at the end of the assessee clearly justifies the delay ....
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.... proposed by the assessee to sell the said shares in future. Accordingly, the A.O was of the view that the interest paid by the assessee on the amount borrowed for acquiring the shares of CCPL was to be capitalized as a part of the cost of the shares, which thereafter on its sale would result to lower amount of capital gain in the hands of the assessee. 10. On appeal the CIT(A) did not find any infirmity in the view taken by the A.O. It was observed by the CIT(A) that the reliance placed by the assessee on the judgment of the Hon"ble Supreme Court in the case of S.A. Builders Limited Vs. CIT(Appeals) & Anr. (2007) 288 ITR 1 (SC) being distinguishable on facts would thus not assist its case. It was observed by the CIT(A) that while for in the case of S.A. Builders (supra) as the assessee had given interest free loan to its subsidiary for the latter"s business purposes, therefore, it was considering the said fact that the Hon"ble Apex Court had held that the interest expenditure on the funds borrowed by the assessee could not be disallowed. On the contrary, it was observed by the CIT(A) that the assessee in the present case had purchased the shares of CCPL from a third party and h....
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....y the assessee in CCPL and the copy of its bank accounts at Page No. 5 -10 of APB. It was further submitted by the ld. A.R that no part of the interest on borrowed capital was disallowed by the department in its case for the preceding year during which the shares of CCPL were purchased/acquired. It was further submitted by the ld. A.R that as the assessee had sufficient own funds to justify the investment made in purchase of shares of CCPL, therefore, no part of the interest on borrowed capital was liable to be disallowed. In order to support his aforesaid claim the ld. A.R had drawn our attention to the "balance sheet" of the assessee company on 31.03.2012. It was submitted by the ld. A.R that the assessee company had sufficient self-owned funds of Rs. 72.42 crore on 31.03.2011 which had increased to an amount of Rs. 103.45 crores on 31.03.2012. Backed by the aforesaid facts, it was the claim of the ld. A.R that as the investment of Rs. 20.44 crores made in purchase of shares of CCPL could safely be related to the self-owned funds available with the assessee, therefore, no part of the interest expenditure on the borrowed funds was liable to be disallowed. In support of his aforesa....
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....of the interest expenditure u/s 36(1)(iii) could have been disallowed. We, thus, set-aside the order of the CIT(A) and vacate the disallowance of Rs. 1,23,87,552/- made by the A.O u/s 36(1)(iii) of the Act. The Ground of appeal No. 1 is allowed in terms of our aforesaid observations. 13. As the ld. A.R had stated that the ground of appeal No. 1.1 is not being pressed, therefore, as per his concession the Ground of appeal No. 1.1 is dismissed as not pressed. 14. We shall now advert to the assessee"s grievance that the CIT(A) had erred in upholding the disallowance of the assessee"s claim for deduction of brokerage & commission expenses of Rs. 1,24,64,408/-, for the reason, that no corresponding sales were recognized as revenue/income by the assessee company during the year under consideration. As is discernible from the assessment order, the assessee had in its books of accounts shown brokerage and commission charges of Rs. 1,24,64,408/- i.e selling expenses for units forming part of the projects undertaken for development and construction as "prepaid expenses". However, the same were claimed as a deduction by the assessee while computing its income for the year under consider....
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....iness. It was the claim of the ld. A.R that as the brokerage and commission expenses are in the nature of selling expenses, therefore, the same could not be included for valuing the project W.I.P cost. In order to buttress his aforesaid claim the ld. A.R had relied on AS-7 - Para 8.4 to Para 8.8. Adverting to Para 8.7 of AS-7, it was submitted by the ld. A.R that the same, inter alia, provided that as "selling costs" were in the nature of costs that were though related to the activities of the contractor generally, but cannot be related to specific contracts, therefore, the same were allowable as a deduction. Referring to the Para 8.8 of AS-7, it was submitted by the ld. A.R that it was therein specifically provided that brokerage expenses being in the nature of selling costs were to be excluded from the accumulated contract costs. In order to support his aforesaid claim the ld. A.R had relied on the judgment of the Hon"ble High Court of Delhi in the case of PCIT-3 Vs. DLF Home Developers Ltd. (2020) 114 taxman.com 97 (Del). It was submitted by the ld. A.R that the Hon"ble High Court in its aforesaid order, had observed, that expenses incurred on brokerage and commission on booking....
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....it is a matter of fact borne from the record that the assessee had shown the brokerage and commission expenses as prepaid expense in its audited accounts. However, the assessee had claimed the aforesaid expenses as a deduction while computing its income for the year under consideration. Insofar the claim of the revenue that the assessee"s claim for deduction was liable to be rejected, for the reason, that it had itself reflected the same as prepaid expenses, the same does not find favor with us. As stated by the ld. A.R, and rightly so, as held by the Hon"ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Ltd. Vs. CIT (1971) 82 ITR 365 (SC) the accounting entries made by an assessee are not conclusive for the purpose of determining its entitlement for claim of an expenditure. Also the Hon"ble Supreme Court in the case of CIT Vs. British Paints Limited (1991) 188 ITR 44 (SC), has held, that it is not only the right but the duty of the Assessing Officer to act in exercise of his statutory power and reject the accounting system adopted by the assessee for determining what, in his opinion, is the correct taxable income. Backed by our aforesaid observations, we are un....
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....epted the assessee"s contentions and set aside the disallowance. At the outset, we notice that the assessee"s explanation clearly suited is as follows:- "In this connection it is submitted that brokerage and commission :s nut a direct expenses for acquiring to specific property but it is in fact financial cost/selling expenses and is fully allowable in the year in which the same is incurred. The property brokers who have rendered their services to obtain advances on booking of properties are entitled to the payment of commission in terms of agreement entered into with them. Therefore, the expenses incurred on brokerage and commission on booking of properties being a finance/selling expenses are allowable in full. On this point where in the addition on account has been deleted. Your attention is also drawn to order dt. 20.7.1994 of Hon'ble ITAT, New Delhi For the assessment year 1983-84 of the Income-tax wherein an additional ground taken by the Deptt. for inclusion of the amount of brokerage and commission in the sale promotion expenses u/s 37(2)(a) have been dismissed. We understand that the Deptt. has not filed any reference application in the High Court against this....
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....ect at Thane, therefore, it had purchased the TDR"s from the market in the prior years. It was further stated that due to certain factors the management of the company considering the stage of development of its aforesaid project had carried out a technical evaluation of the TDR"s in hand, and being of the view that certain quantity of TDR"s would not be required for a certain period of time had thus decided to liquidate the same and re-purchase it as and when it was so required. As per "Schedule-21" (project expenses) of the audited accounts the assessee had reduced the project cost i.e WIP cost of the project by the aforesaid amount of sale proceeds of TDR. On being called upon to put forth an explanation as regards its aforesaid accounting treatment, the assessee justified the reduction of the sale consideration of Rs. 13,02,84,774/- from the project cost i.e WIP for the reason, viz. (i).that its intention for liquidating the surplus TDR"s was not to trade in the same but to make available funds for the project; and (ii). that on repurchase the TDR"s would again form part of the cost of its project i.e WIP cost. However, the A.O was not persuaded to accept the aforesaid claim of....
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....5 1,23,09,056 TDR 3 10.12.2011 4,469 5,92,55,000 23.02.2012 1629 3,88,18,535 2,15,99,104 1,72,19,431 Total 7,482.75 11,05,12,157 4642.75 12,84,69,236 7,28,56,261 5,56,12,975 23. Observing, that the assessee had on sale of TDR"s made a profit of Rs. 5,56,12,975/- while for the A.O had made an addition of only Rs. 3,25,71,198/-,the CIT(A) vide his "Show cause" notice dated 08.02.2019 called upon the assessee to explain as to why the addition of the profit on sale of TDR"s may not be enhanced by an amount of Rs. 2,30,41,777/-. In rebuttal, the assessee tried to impress upon the CIT(A) that the profit on the sale of TDR"s was not liable to be brought to tax and was rightly reduced from the cost of project i.e WIP cost. However, the CIT(A) was not inclined to accept the aforesaid explanation of the assessee. As regards the reliance that was placed by the assessee on the order of the ITAT, Mumbai in the case of ACIT Vs. Skylark Build (2011) 48 SOT 306 (Mum), the same was found to be distinguishable on facts by the CIT(A). It was observed by the CIT(A) that in the case of Skylark Build (supra) as the TDR"s were earn....
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....erved that as the TDR had a direct nexus with the development work, therefore, on sale of the same the assessee who was following project completion method was correct in reducing the sale proceeds of the said TDR from the work-in-progress. Also, reliance was placed by the ld. A.R on the order of ITAT, Mumbai Bench "E" in the case of ACIT vs. Skylark Build (2011) 15 taxman.com 213 (Mum). It was submitted by the ld. A.R that the Tribunal in its aforesaid order had taken a similar view and had concluded that as TDR receipt was directly linked to the execution of the project, therefore, before the completion of the project the income from sale of TDR or any other such receipt being inextricably linked to the project would only go to reduce the cost of the project. It was submitted by the ld. A.R that the Tribunal in its aforesaid order had approved the reduction of the TDR sale proceeds from the project cost i.e WIP cost. Further, reliance was placed by the ld. A.R on the judgment of the Hon"ble Supreme Court in the case of CIT Vs. Bokaro Steel Ltd. (1999) 263 ITR 315 (SC). It was submitted by the ld. A.R that the Hon"ble Supreme Court in its aforesaid judgment had observed, that if t....
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.... at an amount of Rs. 3,25,77,195/- and brought the same to tax in the hands of the assessee. On appeal, the CIT(A) approved the view taken by the A.O and concurred with him that the profit/surplus on sale of the TDR"s was liable to assessed in the hands of the assessee. As the assessee had furnished with the CIT(A) the requisite cost- details of the TDR"s and had quantified the profit/surplus arising from their sale at an amount of Rs. 5,56,12,975/-, therefore, he had after putting the assessee to notice u/s 251(2) of the Act enhanced the addition of the profit on sale of TDR"s from an amount of Rs. 3,75,77,198/- to an amount of Rs. 5,56,2,975/-. 27. After deliberating at length on the issue in hand, we find substantial force in the view taken by the lower authorities that as the transaction of sale of TDR"s that were purchased by the assessee from market in prior years was nothing but sale of its stock-in-trade, therefore, the profit/surplus arising therefrom was liable to be brought to tax in its hands as its business income. Admittedly, the TDR"s in question were purchased by the assessee for loading onto its residential project at Thane and the same formed part of its stock-....
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....istinguishable on facts would not assist the case of the assessee. In the said case the assessee was in receipt of income from letting out quarters to employees of contractors who were engaged in construction of assessee"s plant, hire charges for letting out plant and machinery to contractors, interest on amounts advanced to them and royalty received from them for allowing excavation of stones, etc. It was in the backdrop of the aforesaid facts that the Hon"ble Apex Court had observed, that as the said receipts were inextricably linked with the process of setting up of the plant and machinery of the assessee, therefore, the same were in the nature of capital receipts which would go to reduce the cost of construction and cannot be taxed as income. However, as in the case before us the purchase and sale of the TDR"s in question are in no way inextricably linked or interwoven with the assessee"s residential project at Thane, therefore, the profit/surplus on sale of the same clearly being a sale of stock-in-trade had rightly been brought to tax by the lower authorities as its business income. We, thus, finding no infirmity in the view taken by the CIT(A) who had principally concurred w....
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....in the books of assessee. 3. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in setting aside the order of the AO on the issue of expenses claimed by the assessee to be allowed as W.I.P without considering the provisions of the Act which does not provide such pouter to the Ld. ClT(A). 4. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred deleting the addition of Rs. 70,09,252/- on account of depreciation on office equipments, vehicles etc. with directions to include the depreciation stated to be linked to the project as part of W.I.P. without appreciating that there was no revenue from any activity in the books the assessee. 5. Whether on the facts and in circumstances of the case and in law, the Ld.CIT(A) erred deleting the addition of Rs. 4,82,51,174/- on account of various expenditures by considering the same to be administrative expenses by merely relying on the Guidance note of ICAI issued for real estate Developers ignoring the fact that there was no such activity to incur such, expenses. 6. The appellant prays that the order of the Ld. CIT(A) on the grounds be set a....
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.... 59,00,000/-. In our considered view, as the aforesaid interest free loan advanced by the assessee company to its WOS, viz. CCPL was undeniably utilized by the latter for the purpose of its business, therefore, the CIT(A) by relying on the judgment of the Hon"ble Supreme Court in the case of S.A. Builders Ltd. (supra) had rightly held that no part of the assessee"s claim for deduction of interest expenditure pertaining to the interest free loan given by the assessee to its subsidiary company, viz. CCPL could have been made. Accordingly, finding no infirmity in the view taken by the CIT(A) we uphold the same. The Ground of appeal No. 1 raised by the revenue is dismissed. 34. We shall now advert to the claim of the revenue that the CIT(A) had erred in directing that the brokerage and commission of expenses of Rs. 1,24,64,408/- be treated as part of the project cost of the assessee company. As we had while disposing off the assessee"s appeal observed that the brokerage and commission expenses of Rs. 1,24,64,408/- had rightly been claimed by the assessee as a revenue expenditure, therefore, the aforesaid claim of the revenue is rendered as infructuous. The Grounds of appeal Nos. 2 &....
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....y in the view taken by the CIT(A) we uphold the same. The Ground of appeal No. 4 raised by the revenue is dismissed in terms of our aforesaid observations. 36. We shall now deal with the claim of the revenue that the CIT(A) had erred in vacating the disallowance of the assessee"s claim for deduction of administrative expenses amounting to Rs. 4,82,51,174/- by simply relying on the guidance note of ICAI issued for real estate developers, failing to appreciate that there was no such activity to incur such expenses. 37. As is discernible from the assessment order the assessee had debited various expenditure in its Profit and loss account, as under: Nature of Expenditure Debiting P &L A/c Rs. Disallowance in Computation Balance claimed as allowable Employee Benefit Expenses 1,72,48,542 Nil 1,72,48,542 Finance Cost 1,84,15,283 1,09,78,003 74,37,288 Depreciation 31,30,136 31,30,136 Nil Other expenses 3,47,56,984 52,91,640 2,94,65,344 Total 5,41,51,174 As the A.O had already disallowed the assessee"s claim for deduction of interest expenditure of Rs. 59,00,000/- (supra), therefore, the balance a....
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....well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. After deliberating at length on the issue in hand, we find substantial force in the claim of the ld. A.R that as the aforesaid expenses in question do not form part of the project cost i.e WIP cost, therefore, the same for the purpose of computing the income of the assessee are to be allowed as a deduction in the year in which they were incurred. We find no infirmity in the reliance placed by the CIT(A) on the "Guidance Note for Accounting for Real Estate transactions (Revised 2012)", wherein Para 2.4 of the same, inter alia, provides that the general administrative costs, research and development costs, depreciation on idle plant & equipment etc. are not to be considered as part of construction costs and development costs. Apart from that, we are of the considered view that the CIT(A) had rightly observed that the expenses which form part of the project cost i.e WIP cost are specifically listed in Para Nos. 2.3 & Para No. 2.5 of the "Guidance Note on Real Estate Transactions (Revised 2012)". We, thus, finding no infirmity in the view taken by the C....