TaxTMI 
TaxTMI 
2022 (11) TMI 1409
X X X X Extracts X X X X
X X X X Extracts X X X X
....en filed by the assessee challenging the impugned order dated 28/02/2019, passed by the learned CIT(A), for the assessment year 2013-14. 4. In this appeal, the assessee has raised the following grounds: "1. On the facts and circumstances of the case and in 17,62 law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with regards to disallowance u/s. 14A of the Income Tax Act, 1961 of Rs. 54,33,62,192/- in relation to exempt income earned during the year under consideration. It is submitted that the disallowance made by the learned assessing officer is incorrect. Without prejudice to the above, it is submitted that no amount of interest on secured loan should be taken into consideration while making disallowance u/s. 14A r.w.r. 8D of the Income Tax Rules, 1962 for the year under consideration. Further it is submitted that the net interest expenses of Rs. 79,31,65,273/- (Interest expenses of Rs. 94,67,75,590 /-(except interest on secured loan) minus interest income of Rs. 15,36,10,317/-) should only be considered for working of disallowance u/s. 14A r.w.r. 8D of the Income Tax Rules, 1962 for the year under consideration. It is therefore pray....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 143(3) of the Act computed the total income of the assessee at Rs. 20,62,41,284, after making certain disallowances/additions. In further appeal, learned CIT(A) vide impugned order dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us. 6. The issue arising in ground No. 1, raised in assessee's appeal, is pertaining to disallowance under section 14A r/w Rule 8D of the Income Tax Rules, 1962. 7. The brief facts of the case pertaining to this issue are: During the course of assessment proceedings, the assessee was asked to show cause why the disallowance under section 14A of the Act be not made. In response, assessee submitted that it has already disallowed Rs. 7,49,654, under section 14A for the year under consideration. However, in absence of any details of the expenses disallowed by the assessee under section 14A of the Act and the basis of computing the above disallowance, the AO vide order passed under section 143(3) of the Act made the disallowance of Rs. 54,33,62,192, under section 14A r/w Rule 8D. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....round No. 2, raised in assessee's appeal, is pertaining to the disallowance of interest expenses. 13. The brief facts of the case pertaining to this issue are: During the year, the assessee incurred finance cost of Rs. 108,75,77,612 out of which Rs. 6,69,81,882 was allocated to those contracts of which construction has been completed and the balance interest of Rs. 102,05,95,730 was debited to the profit and loss account and not capitalised to work in progress ('WIP'). During the course of assessment proceedings, the assessee was asked to show cause as to why the balance interest should not be disallowed as revenue expenditure and capitalised to the WIP. In response, the assessee submitted that it has followed the accounting policy for recognition and capitalisation of borrowing cost which is as per the Accounting Standards ('AS') 16. Therefore, the said interest expenses are not transferred to WIP and debited to the profit and loss account. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that there is a direct nexus between the borrowed fund and the projects undertaken and therefore the interest of the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the details of the projects to which these funds were applied. Thus, the borrowing of funds for the purpose of business has not been doubted by any of the lower authorities. The assessee has now produced before us the details of parties from whom the loan was availed and projects as well as the purpose for which the loan was utilized. 18. In this regard, it is relevant to note that the Hon'ble jurisdictional High Court in CIT vs Lokhandwala Constructions Inds. Ltd., (2003) 260 ITR 579 (Bom.), in case of a builder held that where the loan was obtained for the project of construction of flats, which is stock in trade, the assessee is entitled to deduction under section 36(1)(iii) of the Act in respect of interest expenditure on such loans. The Hon'ble Court further held that while adjudicating the claim of deduction under section 36(1)(iii) of the Act the nature of the expense, whether the expense was on capital account or revenue account was irrelevant, as the section itself says that interest paid by the assessee on capital borrowed is allowable as a deduction. 19. In the present case, undisputedly funds were borrowed for the purpose of the projects undertaken by the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion expenses are selling and marketing expenses and are incurred by the company irrespective of whether a project is implemented or not. It was further submitted that these costs are incurred by the assessee under all circumstances during the entire tenure of carrying on business operations and these costs are not associated with any particular project. In support of its submission, learned AR placed reliance upon the decision of the coordinate bench of the Tribunal in DCIT vs Rustomjee Evershine joint-venture private Ltd, ITA No. 5613/Mum/2014. 23. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 24. We have considered the rival submissions and perused the material available on record. The assessee claims that the commission expenses incurred by the assessee are not in respect of any particular project and these expenses are required to be incurred under all circumstances while carrying on the business. Further, as per AS 7 para 19 selling costs cannot be attributed to contract activity and the same cannot be allocated to the contract and therefore are to be excluded from the cost of the construction contract. We find that para 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ised the following additional ground: "Additional Ground No. 1- On the facts and in the circumstances of the case and in law, the Ld. AO has erred in not allowing the Interest on late payment of TDS of Rs. 6,01,236 debited to profit and loss account" 28. As the issue raised by the assessee, by way of additional ground of appeal, is a legal issue that can be decided based on material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon'ble Supreme Court in NTPC Ltd v/s CIT: 229 ITR 383. 29. The brief facts of the case pertaining to aforesaid two grounds are: During the year under consideration, assessee debited Rs. 89,54,967 towards interest on delayed payments of TDS, VAT, WCT, etc. The assessee was asked to justify the claim of these expenditures under provisions of section 37 of the Act. The assessee, in response, submitted the following breakup of interest of Rs. 89,54,967: Nature of Interest Amount (in Rs.) Late Payment Interest - Prof Tax 28,297 Late Payment Interest - Service tax 33,73,409 Late Payment Interest - TDS 6,01,236 Interest - others 48,53,314 Late Payment I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een filed by the assessee challenging the impugned order dated 31/10/2019 passed by the learned CIT(A), for the assessment year 2014-15. 35. In this appeal, the assessee has raised the following grounds: "1. On the facts and circumstances of the case and in 96,32,258 law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with regards to disallowance u/s. 14A of the Income Tax Act, 1961 of Rs. 2,83,38,504/- in relation to exempt income earned during the year under consideration. It is submitted that the disallowance made by the learned assessing officer is incorrect. Without prejudice to the above, it is submitted that no amount of interest on secured loan should be taken into consideration while making disallowance u/s. 14A r.w.r. 8D of the Income Tax Rules, 1962 for the year under consideration. Further it is submitted that the net interest expenses of Rs. 39,32,08,170/- (Interest expenses of Rs. 63,02,29,058 /-(except interest on secured loan) minus interest income of Rs. 23,70,20,888 /-) should only be considered for working of disallowance u/s. 14A r.w.r. 8D of the Income Tax Rules,1962 for the year under consideration, It is therefore ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aining to this issue are: During the year under consideration, the assessee earned a dividend income of Rs. 75,048 which was claimed as exempt. From the perusal of the financial statement of the assessee, it was observed that the assessee has debited an amount of Rs. 24,29,09,528 as interest on the loan. Further, as per the balance sheet of the assessee, the total investment is Rs. 75,26,83,846. Vide order dated 20/12/2016 passed under section 143(3) of the Act the AO computed the disallowance under section 14A r/w Rule 8D at Rs. 3,72,65,887. Since the assessee has already disallowed Rs. 89,27,383 under section 14A, the disallowance as computed by the AO was accordingly restricted to a balance amount of Rs. 2,83,28,504. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 40. During the hearing, learned AR submitted that disallowance under section 14A should be restricted to the exempt income earned by the assessee during the year. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 41. We have considered the rival submissions and perused ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to not taking the approval from Principal Commissioner of Income Tax for conversion of limited scrutiny case to complete scrutiny case. 3. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to disallowance of interest expenses of Rs.65,32,97,664/- as not admissible to be claimed as expenses and added the same to the WIP of the Project. It is submitted that the appellant has capitalized finance cost on the basis of project inflows, project outflows, cumulative fund utilization and hence the part of the finance cost is debited to P and L account and not capitalized to Work In progress account. Without Prejudice to the above it is submitted that the appellant company has offered the income on the basis of the percentage completion method during the year under consideration and therefore proportionate allowance of interest expenses should be allowed during the year under consideration. It is therefore prayed that necessary direction should be given in this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2015 declaring total income at a loss of Rs. 41,80,08,944. The return filed by the assessee was selected for scrutiny under CASS under the limited scrutiny category and accordingly notice under section 143(2) was issued and duly served upon the assessee. Subsequently, notice under section 142(1) of the Act was issued and duly served to the assessee. The assessee in its appeal before the learned CIT(A) challenged the additions made by the AO being outside the purview of limited scrutiny under CASS. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue by observing as under: "Clearly, point No. 3 "Low Net Profit or Loss Shown from Large Gross Receipts" and also point No. 4 "Large Other Expenses Claimed in Profit & Loss Account" would cover the expenses relating to interest and commission and verifiability u/s. 14A. Hence it is abundantly clear that AO has not transgressed outside the jurisdiction of CASS criteria. Hence there was also no requirement to take approval from the Pr. CIT as the additions made by AO are well within the issues identified by CASS for the impugned scrutiny assessment. Hence ground No. 1 and 2 of assessee's appea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....additions made by the AO are covered under aforesaid point (iii) and (iv) of the CASS reasons and the scope of enquiry by the AO was also limited to the verification of the aforesaid aspects. Therefore, we find no infirmity in the impugned order passed on this issue. As a result, grounds No. 1 and 2 raised in assessee's appeal are dismissed. 52. The issue arising in ground No. 3 is pertaining to the disallowance of interest expenses. Since a similar issue has already been decided in assessee's appeal being ITA No. 3004/Mum./2019, therefore, our findings/conclusion rendered in said appeal shall apply mutatis mutandis. Accordingly, ground No. 3 raised in assessee's appeal is allowed. 53. The issue arising in ground No. 4, is pertaining to disallowance of commission expenses. Since a similar issue has already been decided in assessee's appeal being ITA No. 3004/Mum./2019, therefore, our findings/conclusion rendered in said appeal shall apply mutatis mutandis. Accordingly, ground No. 4 raised in assessee's appeal is dismissed. 54. The issue arising in ground No. 5, is pertaining to disallowance under section 14A of the Act. In this regard, it is the plea of the assessee that disallo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to the above it is submitted that the appellant company has offered the income on the basis of the percentage completion method during the year under consideration and therefore proportionate allowance of selling and marketing expenses should be allowed during the year under consideration. It is therefore prayed that necessary direction should be given in this regard. 4. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to disallowance of Other expenses of Rs. 28,12,425/- as not admissible to be claimed as expenses and added the same to the WIP of the Project. Without Prejudice to the above it is submitted that the appellant company has offered the income on the basis of the percentage completion method during the year under consideration and therefore proportionate allowance of Other expenses should be allowed during the year under consideration. It is therefore prayed that necessary direction should be given in this regard. 5. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal." 58. The issue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erstwhile entity i.e. Rustomjee Constructions Private Ltd. Thereafter, the scrutiny proceedings were commenced upon issuance of notice under section 143(2) issued on 28/09/2016, and thereafter various details were sought from the assessee vide notice issued under 142(1) of the Act. It is the plea of the assessee that vide notice dated 25/04/2017 issued under section 230(5) of the Companies Act, 2013 the income tax authorities were informed about the continuation of the proceeding of the merger before the Hon'ble NCLT. Apart from the aforesaid notice no other documents or correspondence has been placed on record to show that the assessee has intimated to the AO about the culmination of the merger proceedings and passing of the final order regarding the merger by the Hon'ble NCLT. We further find that even after the order dated 14/09/2017 passed by the Hon'ble NCLT approving the scheme of merger of M/s Rustomjee Constructions Private Limited with Keystone Realtors Private Ltd., the assessee filed its reply before the AO in the name of the erstwhile entity i.e. M/s Rustomjee Constructions Private Limited. The aforesaid fact is evident from the submission dated 18/09/2017 and 16/11/201....