TaxTMI 
TaxTMI 
2022 (7) TMI 1254
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....76 being 50% of payment of marketing expenses paid to Lodha Developers UK Limited for lack of evidences. 3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of regularization charges Rs. 1,58,42,172 treating the same as penalty towards infringement of law. 4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of write off of non-refundable security deposit of Rs. 61,21,854 for electric connections as revenue expenditure." 3. Assessee vide letter dated 05th November, 2019 filed additional ground, which is reproduced below: - "Reversal of provision of Rs. 69966000 in relation to Transferable Development Rights ('TDR') 1. Erred in not reducing the reversal of provision of Rs.6,99,66,000 from the total income of the Assessee without appreciating that the provision was disallowed in the year in which the provision was created i.e. AY 2013-14 and hence the same amount should not be charged to tax twice; 2. Without prejudice to the above, the learned AO should be directed to allow the provision of Rs.6,99,66,000 in the ye....
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.... assessee submitted that the loss on account of foreign exchange fluctuation to the assessee should be allowed u/s. 37(1) of the Act, in this regard he submitted the below submissions: a) Mark to market forex fluctuation loss incurred by the assessee is revenue expenditure allowable u/s 37(1) (i). Woodward Governor India Pvt Ltd (SC) (Civil appeal No. 2206 and 2214 ETC of 2009 dated 8 April 2009) (Refer Page to of the paperbook) (ii). M/s. Reliance Communications Limited [ITA No. 2915/Mum/2012 dated 5 February 2013] (Refer Page 265 to 305 of the paperbook) (iii). Ninestars information Technologies Pvt. Ltd. (ITA 2503/Chy/2018) dated 28 February 2020 (Refer Page 261 to 264 of the paperpook) (iv). HSBC Data Processing Electronic India Pvt Ltd (ITA 2388/Hyd/2018) dated 17 July 2020 (Refer Page 306 to 327 of the paperbook) (v). Lupin Limited (ITA 7513/Mum/2014) dated 26 October 2016 (Refer Page 328 to 334 of the paperbook) b) The above decisions are after considering the CBDT Instructions 3/2010 dated 23 March 2010 and thereby the reliance placed by CIT(A) is not correct and as held by above judicial precedents, mark to mar....
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....nt AY, these bonds were redeemed and the actual loss incurred due to exchange fluctuations. The assessee normally would have claimed the loss in the subsequent AY, since it has anticipated the loss by monitoring rate fluctuations (the Mark to Market), it predicted possible loss and it booked the loss prudently. We observe that the courts have held that the Mark to Market losses are revenue in nature and it should be treated as such. In the given case, the assessee has booked the loss in two parts and once part claimed in the present AY and balance part of actual loss was claimed in the subsequent AY. It is needless to say that the loss was allowed by the Assessing Officer in the subsequent AY as revenue. Therefore, the loss claimed by the assessee is part of actual loss and it may look as claimed on the basis of provision but it is part of actual loss. Therefore, in our considered view, the loss claimed by the assessee in this AY is claimable u/s 37 of the Act. Hence, we direct the AO to allow the foreign exchange loss claimed by the assessee. Accordingly, the ground raised by the assessee is allowed. 13. Coming to the Ground No.2 which is in respect of disallowance of Rs..23,96....
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....t made by Lodha Novel was accounted and claimed as expenses by the Assessee. The copy of the order of Merger is enclosed at page 129 to 133 of additional evidence. In this regard, Ld. counsel for the assessee submitted that no addition can be made on the basis of mere surmise and conjecture. Reliance in this regard is placed on the following judgements: a) Lalchand Bhagat Ambica Ram Vs CIT (1959) 37 ITR 288 (SC) b) Sayaji Iron & Engg Co. (253 ITR 749) (Guj HC) (Refer Page 342 to 345 of the paper book) 17. Ld. Counsel for the assessee submitted that no ad hoc disallowance can be made for expenses incurred for purpose of business without giving any basis of estimation. Reliance in this regard is placed on the following judgements: - a) Palava Dwellers Pvt Ltd (group company) in ITA 2147/M/2018 vide order dated 20 February 2020 (Refer Page 467 to 207 Of the paper book) b) M/s son & Johnson Ltd (ITA No. 9437/Mum/2004) dated 15 February 2013 (Refer Page 346 to 363 of the paper book) c) Pearl Farben Chem (P) Ltd (1122/M/2010) dated 12 November 2010 (Mum) d) S.S.P (P.) Ltd (202 Taxman 386) (P&H HC) 18. Ld. DR vehemently supported....
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....ses. In the result the appeal filed by the assessee is allowed for statistical purposes." 20. Facts being identical, respectfully following the above said decision in assessee's own case for the A.Y. 2013-14, we restore this ground to the file of the Assessing Officer for denovo consideration and after due verification of the evidences submitted the expenses may be allowed, it is needless to say that proper opportunity of being heard to the assessee. We allow this ground of the assessee for statistical purpose. 21. Coming to the Ground No. 3 which is in respect of Disallowance of Rs..1,58,42,172 on account of regularization charges by treating the same as penalty towards infringement of law. 22. Brief facts relating to above ground are, during the year under consideration, the assessee had made payment of Rs..1,58,42,172 to Thane Municipal Corporation ('TMC') as regularization fees in order to regularize the construction of the projects. The Assessing Officer disallowed the same on the basis that any expenditure which has been incurred for any purpose which is an offence or which is prohibited by law shall not be allowed as deduction. The Ld.CIT(A) had upheld the ....
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....ge 386 to 394 of paperbook) (iv). Oberoi Realty Ltd (ITA 1050/M/2013) dated 4 November 2015 (Refer page 373 to 379 of paperbook). 25. Ld. Counsel for the assessee submitted that in the present case, the amount paid on account of regularization fee for getting post facto approval is compensatory in nature and therefore is deductible u/s. 37(1) of the Act and prayed that the impugned disallowance be deleted and the same be allowed as deduction. 26. Ld.DR vehemently supported the orders of the authorities below. 27. Considered the rival submissions and material placed on record, we observe that assessee paid regularization charges in order to regularize certain deviations in the construction projects. In the similar situation, the Hyderabad Bench decided the exactly similar compounding charges in favour of the assessee in the case of Keerthi Estates (P.) ltd. v. DCIT in ITA.No. 271/HYD/2016 dated 09.08.2017, for the sake of clarity, it is reproduced below: - "8. Considered the rival submissions and perused the material facts on record as well as gone through the decisions cited at bar. The assessee has paid compounding fine to regularise the building plan. T....
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....dable security deposits of Rs..61,21,854/- for electric connections as revenue expenditure. 30. Brief facts relating to the above ground are, Assessee had paid non-refundable security deposits for electricity connections for the constructions projects undertaken. The Assessing Officer made disallowance of the entire expenditure incurred on the ground that no documentary evidence was submitted to substantiate the claim of payment of non-refundable deposits. The CIT(A) upheld the disallowance made by Assessing Officer. 31. Ld. Counsel for the assessee submitted that the Assessee as a part of the routine business activity requires electricity connection for the construction activity and also provides electric connections to the flats and offices constructed by the Assessee in addition to other services and amenities. The electric connections are provided on payment of certain non-refundable deposits to be made with the electricity company. This is a regular practice followed in the real estate industry. Further, the Assessee is no longer entitled to receive the electricity deposit which is paid for the connection of flats and offices once the flats or offices are handed over to ....
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....e not allowable. In view of the same there has been double disallowance. 37. Learned Counsel for the assessee submitted that the provision for the purchase of Transferable Development nights (TDR) amounting to Rs..6,99,66,000/ was created in A.Y. 2013-14, and subsequently reversed the entire provision made in the current year and offered the amount to tax (Refer page 1 to 44 of the financials in the paper book). Since the Assessing Officer has disallowed the provision created in AY 2013-14, directions should be given to Assessing Officer to reduce the income offered to tax in current year. Copy of the order is enclosed at page 159 to 162 of additional evidence. Ld. Counsel for the assessee prays that the amount of provision should not be taxed as it has been disallowed in earlier years and accordingly suitable directions to be given to Assessing Officer to reduce the income offered to tax in current year. 38. Ld.DR vehemently supported the orders of the authorities below. However, he accepted this issue may be remitted to the file of Assessing Officer to verify. 39. Considered the rival submissions and material placed on record, we observe from the submissions of the asses....
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....d. CIT(A) erred in deleting the addition of Rs.15,17,14,879/- made by the Assessing Officer u/s 14A r.w.r. 8D while computing the book profit under clause (f) of Explanation I to section I1S5JB 2 o the Act.?" 43. After considering the rival submissions, it is noticed that in assessee's own case relating to the A.Y. 2015-16, identical grounds were raised and the same were adjudicated by this Tribunal in ITA.No. 68/Mum/2016 dated 28.03.2022 (in which this bench was party to the order), observing as under: - "12. We heard the rival submissions and perused the material available on record. We find the grievance of the revenue that the CIT(A) erred in deleting the addition u/sec.36(1)(iii) of the Act relying on the decision of Honble High Court of Bombay. We find the Coordinate Bench of the Honble Tribunal in the assessee's group case M/s. Palava Dwellers Pvt Ltd & Lodha Developers Ltd ITA No. 2147/Mum/2018 & 2348/Mum/2018 for the A.Y 2014-15 has dealt on the same issue in the revenue appeal, were the similar grounds of appeal are raised and observed at page 2 Para 3 as under:- 1. In so far as Ground Nos. 1 and 2 are concerned, briefly stated the facts are that, the....
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....and also the decision of the Special Bench in the case of M/s. Wall Street Construction Limited (supra). 4. We have heard the rival submissions, perused the orders of the authorities below and case laws relied on. This aspect of the matter has been elaborately considered by the Ld.CIT(A) with reference to the averments of the Assessing Officer and considering the submissions of the assessee and 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....
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....he 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. 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 th....
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....oject 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)(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 wa....
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....rms 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 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 d....
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.... Rs.5,33,28,399/-. /Assessee contends that the above said expenditure is fully allowable in the year under consideration. In this regard, assessee relied on various ITA No. 80/PUN/2016 M/s Kolte Patil Developers Ltd., decisions. This issue is relevant for AYs/appeals under consideration. We shall take up expenditure-account wise adjudication in the following paragraphs: "A) Interest 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.....
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....nd thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus nether in doubt nor in dispute. Further, it may also be in place to state that section 36(l)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is 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 o....
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.... case involves the payment of interest of Rs.8,19,23,638/-, the interest paid to debenture holders, Financial institutions, Unsecured loan etc. It is not the case of the Revenue that the interest claim of Rs.3,00,57,566/- and related capital borrowed was not utilized by the assessee for business purposes of the assessee." However, the case of Wall Street 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 int....
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.... of capital borrowed for the purpose of business or profession. It was further submitted that the construction and development having commenced, the business is in operation, therefore, interest is allowable u/s. 36(1)(iii) of the Act. It was also further brought to the notice of the Assessing Officer that in the case of CIT v. Lokandwala constructions Industries Ltd., [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 t....