TaxTMI 
TaxTMI 
2021 (7) TMI 1447
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....27th November, 2014, which in turn has arisen from an order passed by the Assessing Officer under Section 143(3) of the Income- tax Act, 1961 (in short 'the Act') dated 25th March, 2013 pertaining to assessment year 2010-11. 3. In this appeal, the assessee has filed the following Grounds of Appeal along with original Memorandum of Appeal :- "1.1 That on the facts and in the circumstances of the case, the learned CIT(A) has erred in law in confirming the addition of notional Annual Letting Value of Rs.5,74,42,675/- (out of Rs.6,93,49,975/-) on closing stock of flats/spaces by following the Hon'ble Delhi High Court's decision in which various relevant facts were not fully brought out before their Lordships and therefore could not be considered by them. 1.2 That without prejudice to the Ground No.1.1 above, the appellant has also filed an appeal before the Apex Court which has been admitted and is pending for decision. 2. That without prejudice to the foregoing ground, the decision rendered by Hon'ble Delhi High Court related to the assessment year 1988-89 and rendered in the context of the provisions of section 23 as they existed prior to substitutio....
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....e Revenue had objected. Reliance is also placed on the decision of the Larger Bench (3 Member) of Hon'ble Supreme Court in National Thermal Power Co. Ltd., (1998) 229 ITR 383 (SC). 1.3 For the sake of clarity and convenience, the additional Grounds and the revised/reframed Grounds are merged and set-out as under. Revised and Additional Grounds of Appeal Notional Annual Letting Value (ALV) 1.1 That in the facts and circumstances of the case and in law, learned CIT(A) erred in upholding an addition of Rs.5,74,42,675/- (out of Rs.6,93,49,975/-) under the head 'income from house property' without appreciating that the properties in question were 'stock-in-trade' of the assessee's business and provisions relating to S.22 to S.26 of IT Act are not at all applicable to property forming part of stock-in-trade in the business of the Assessee as argued by the Revenue itself before the Hon'ble High Court in the case of Commissioner of Income Tax vs Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj) and approved by the Hon'ble High Court way back in 2006. 1.2 That in the facts and circumstances of the case, learned CIT(A) erred in upholding an addi....
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....ic necessities like electric fittings, pucca wall painting, completion certificates etc. (f) In upholding the addition without returning a finding of fact as to whether it was factually possible for the Assessee to take the risk of letting out unsold flats/spaces and asking the prospective buyer to wait till the tenant vacates the flat for it to be sold and given possession. (g) In not appreciating that even notional ALV needs to be arrived at based upon realities and actual facts on the ground and could not have been determined through a guess work. 1.4 That in the facts and circumstances of the case, learned CIT(A) erred in law as the amendment by way of insertion of sub-section (5) in section 23 of the Act vide the Finance Act, 2017 is prospective with effect from 01-04- 2018 enabling taxing of unsold flats/office spaces held as stock-in-trade and the post-amendment law cannot be applied to the pre-amendment assessment years, even if the income in respect of such properties is held to be assessable under the head, Income from House Property. Other Grounds Retained 2. That on the facts and circumstances of the case, the learned CIT(App....
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.... vacant properties and, according to him, the notional ALV of the said properties was assessable under the head 'income from house property'. The stand of the Assessing Officer is indeed supported by the judgment of Hon'ble Delhi High Court in assessee's own case. When assessee carried the matter in appeal before the learned CIT(A), he also affirmed the stand of the Assessing Officer in principle. However, he granted partial relief inasmuch as in respect of such properties where the completion certificates were not received, and/or the property units were under self-occupation for the purpose of business or such property units which were not in existence during the year, the CIT(A) directed that the ALV of such units be excluded from the computation of income. 7. Before us, the learned representative for the assessee firstly pointed out that so far as the original Grounds are concerned, the same relate to the action of the Assessing Officer in bringing to tax the ALV of the units and that the Additional Grounds sought to be raised are based on a plea that having regard to the fact that the property units in question were held as stock-in-trade and vacant, their assessability....
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....s of the same also. 10. Coming to the merits of the addition, which has been sustained by the learned CIT(A), in our view, we are in concurrence with the assertion made by the learned CIT-DR that the matter stands fully covered in favour of the Revenue even with regard to the plea of the assessee based on the judgment of Hon'ble Gujarat High Court in the case of Neha Builders P. Ltd. (supra). In fact, Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Company Ltd. (supra) considered the ratio of the judgment of Hon'ble Supreme Court in the case of Chennai Properties & Investments Limited (supra) and held that the same was not applicable to the facts of the case and, accordingly, had reiterated its earlier judgment on the instant issue in the case of Ansal Housing Finance & Leasing Company Ltd. (supra). Notably, assessee's own case was also clubbed with the case of Ansal Housing Finance & Leasing Company Ltd. (supra) before the Hon'ble High Court. Therefore, in this view of the matter, we find no merit in the plea raised by the assessee. Accordingly, the order of learned CIT(A) is liable to be affirmed. 11. Before parting, we may also mention here ....
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....ities below but has not seriously contested the prayer of the assessee. 15. Having considered the rival stands, in our view, the action of the lower authorities in denying the claim of the assessee for deduction under Section 80IA(4)(iii) of the Act cannot be faulted for the reasons ascribed in their respective orders. The requisite notification entitling the assessee for the deduction has been rejected by the CBDT, as is emerging from the record and therefore, we find no reason to interfere with the action of the lower authorities. The plea of the assessee that in case the notification is received in future in pursuance to assessee's review petition pending before the CBDT, it is sufficient to direct the Assessing Officer that in case, he is approached by the assessee with the requisite notification on a later date, he shall deal with the same in accordance with law. 16. With the above observations, the Ground of Appeal raised by the assessee is dismissed. 17. Insofar as ITA No.790/Del/2015 relating to assessment year 2010-11 is concerned, there is no other issue and accordingly, the same is dismissed as above. 18. Now, we take up the appeal of the assessee in ITA No.7....
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.... 3.2 That without prejudice to Ground No.3.1, the learned CIT(Appeals) erred in completing ignoring and not appreciating that the sum of Rs.9,46,22,358/- included heavy expenses incurred prior to taking the decision whether to go for issue of shares or explore other alternative financial avenues could not be disallowed as expenses incurred on the issue. The disallowance could at best be restricted to expenses incurred on the issue after opting for the avenue of going in for issue. 3.3 That without prejudice to the foregoing grounds that the disallowable expenses relating to issue amounted only to Rs.45,89,080 (Rs.23,14,080/- being stamp duty paid for issue of shares, Rs.15,000/- being cost of printing and stationery and Rs.11,30,000/- and Rs.11,30,000/- being fee paid to Stock Exchanges), the other expenses being not in relation to the issue of shares to Qualified Institutional Buyers could not be disallowed u/s 37(1) as capital expenditure. 3.4 That without prejudice to the foregoing grounds, the learned CIT(Appeals) should have in any case out of Rs.9,46,22,358/- allowed the sum of Rs.27,35,440/- being the expenses incurred prior to taking the decision o....
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....Rs.5,90,67,704/-) under the head 'income from house property' without appreciating that S.23 of the Income Tax Act 1961 has undergone amendment vide Finance c 2001 w.e.f. 1.4.2002 and old law cannot be applied to the year under consideration. 1.3. Without prejudice to the above ground no. 1.1, learned CIT(A) erred:- (a). In not appreciating that the question of taxation of ALV of unsold flats/office spaces, lying vacant and held as stock-in-trade, arises only when a finding is recorded, having regard to the objects of the Memorandum and Articles of Association of the Appellant- Company, that income from such unsold properties is liable to be taxed under the head 'Income from House Property', and not as Business Income in the light of the decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investments Ltd vs Commissioner of Income Tax Central II Tamil Nadu (in Civil Appeal Nos. 4491 to 4494 of 2004). (b) In not appreciating that without examining the Memorandum of Association (MOA) and its Object Clauses, it is not permissible to arrive at any finding or conclusion that income from unsold flats/office spaces, lyi....
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....Learned CIT(Appeals) has erred in disallowing the entire expenditure of Rs. 9,46,22,358/- u/s 37(1) as capital nature on the ground that the same related to issue of equity shares of the company to selected Qualified Institutional Buyers by applying the ratio of the Apex Court in Brook Bond India Limited vs. CIT (19.97) 225 ITR 798. He failed to appreciate that unlike in Brook Bond's case, the fund received by issue of shares was for increasing the working capital of the appellant and secondly, the issue was not a public issue but was restricted to a few Qualified Institutional Buyers only on negotiated terms. 2.2. That without prejudice to Ground No. 2.1, the Learned CIT(Appeals) erred in completely ignoring and not appreciating that the sum of Rs. 9,46,22,358/- included heavy expenses incurred prior to taking the decision whether to go for issue of shares or explore other alternative financial avenues could not be disallowed as expenses incurred on the issue. The disallowance could at best be restricted to expenses incurred on the issue after opting for the avenue of going in for issue. 2.3. That without prejudice to the foregoing grounds that the disallowab....
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....aforesaid expenditure was an allowable expenditure and that the same be allowed while computing the taxable income during the assessment proceedings. We find that the Assessing Officer, in paragraph 4 of the assessment order, has taken note of such assertion of the assessee but has rejected the claim for allowability of such expenditure. As per the Assessing Officer, any expenditure incurred in connection with the issue of shares for increasing capital by a company was in the nature of a capital expenditure, following the judgment of Hon'ble Supreme Court in the case of Brooke Bond India Limited Vs. CIT - (1997) 225 ITR 798 (SC) and, therefore, the same could not be allowed as a revenue expenditure while computing the taxable income. 23. Before the CIT(A) also, the assessee did not succeed inasmuch as the CIT(A) upheld the reliance placed by the Assessing Officer on the judgment of Hon'ble Supreme Court in the case of Brooke Bond India Limited (supra) for rejecting the instant claim. Before the learned CIT(A), assessee also raised an alternative plea whereby it was canvassed that the disallowance be scaled down to exclude the expenses incurred prior to the issue of equit....
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....r adjudication of the said plea are already on record and it is a legal issue, and, therefore, such a plea can be admitted for adjudication by the Tribunal. In support, reliance was placed on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Limited - [1998] 229 ITR 383 (SC). 25. On the other hand, learned CIT-DR appearing for the Revenue opposed the plea of the assessee to raise the fresh alternative plea based on Section 35D of the Act. Firstly, according to learned CIT-DR, the said claim is being raised at a late stage and that no formal Ground has been filed and therefore, such fresh alternate claim may not be admitted. Secondly, the learned CIT-DR reiterated that the ratio of the judgment of Hon'ble Supreme Court in the case of Brooke Bond India Limited (supra) treats the expenditure incurred on issue of equity shares as a capital expenditure and, therefore, the instant expenditure does not fall for consideration under Section 35D of the Act. Thirdly, it was pointed out that in the past two assessment years 2007-08 and 2008-09, the expenditure incurred on the issue of shares to QIBs was disallowed by the income-tax authorities, and the ....
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....essee following the precedents in the assessee's own case. Be that as it may, the more significant plea raised before us, and which was hitherto neither raised in the past years and nor before the lower authorities in the instant year, is the claim based on the provisions of Section 35D of the Act. Notably, Section 35D(1) of the Act permits deduction by way of amortization over a period of ten years of certain expenditure specified in Sub-section (2) thereof. So far as the instant plea of the assessee is concerned, it is primarily on the basis of the provisions of Section 35D(2)(c)(iv) whereby expenditure incurred in connection with the issue of public subscription of shares of a company of the nature specified therein, qualifies for amortization under Section 35D(1) of the Act. Insofar as the nature of the instant expenditure having been incurred in connection with the issue of shares is concerned, there is no dispute between the parties. It has been explained before us that the said plea came to be raised only after the Hon'ble Supreme Court in the case of Shasun Chemicals & Drugs Limited (supra). In the case of Shasun Chemicals & Drugs Limited (supra), the expenses on the pu....
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....nd Deccan Chronicle (supra), the new plea of the assessee, though based on Section 35D and not Section 37(1) as pursued earlier, is in essence in furtherance of assessee's earlier stand that the impugned is an allowable expenditure. The only difference is that for supporting its plea that the expenditure is deductible, Section 35D of the Act is being pressed into service, as distinct from the erstwhile plea of the expenditure being deductible under Section 37(1) of the Act. Therefore, the fresh plea based on Section 35D of the Act is very much interlinked with the original claim being pursued by the assessee and, in any case, having regard to the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Limited (supra), the said plea deserves to be admitted. Ostensibly, the Hon'ble Supreme Court in the case of National Thermal Power Co. Limited (supra) has laid down that a fresh plea which involves a pure point of law for which the necessary facts are already on record and which is bonafidely raised and is relevant to decide the tax liability of an assessee, should be allowed to be raised even for the first time before the appellate authorities. Having reg....
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....d towards public subscription of shares in the case of a company were allowable under Section 35D of the Act. In this context, the following discussion in the judgment of Hon'ble Supreme Court is relevant :- "13. In the Income Tax Return which was filed for the Assessment Year 1995-96 the assessee had claimed that it had incurred a sum of Rs.45,51,890/- towards the share issue expenses and had claimed 1/10th of the aforesaid share issue expenses under Section 35D of the Act from the Assessment Years 1995-96 to 2004-05. This claim of the assessee was found to be justified and allowable under the aforesaid provisions and on that basis l/10th share issue expenses was allowed under Section 35D of the Act. When it was again claimed for the Assessment Year 1996- 97, though it was disallowed and on directions of the Appellate Authority, the Assessing Officer made physical verification of the factory premises. He was satisfied that there was expansion of the facilities to the industrial undertaking of the assessee. It is on this satisfaction that for the Assessment Year 1996-97 also the expenses were allowed. Once, this position is accepted and the clock had started running in....
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....t-up by the assessee is that the expenditure incurred on issue of shares to QIBs is for public subscription of shares inasmuch as QIBs constitute 'Public Shareholders' and do not form part of 'Promoter Shareholders'. In support of this, the following discussion of the Coordinate Bench in the case of Yes Bank Limited (supra) is relevant :- "6.2. Further; we find that the appellant being a listed company is bound by Listing Agreement", which provides for the disclosure requirements for the share holding pattern of a listed company. As can be seen therefrom, there are only two categories of shareholders- "promoter/promoter group" and "public". For the definition of these terms in clause 35, reference is made to clause 40A of the Listing Agreement. As can be seen therefrom, Mutual Funds/Financial Institutions which are QIBs are classified under "public shareholding". The terms are defined in clause 40A of the SEBI Listing Agreement. Further, the listing agreement takes us to Securities Contracts (Regulation) Rules, 1957 (in short "SCRR"). Also Rule 19(2)(b) and Rule 19A of the SCRR provide that companies are required to maintain minimum public shareholding of 25% in c....
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.... the litigation and not achieve any substantive purpose. We have perused the assessment order and the discussion made by the Assessing Officer in this regard. In Paragraph 4, the Assessing Officer has discussed the plea of the assessee for allowability of expenses incurred in connection with issue of equity shares to QIBs. The submissions of the assessee, which have been reproduced by the Assessing Officer in the assessment order, inter-alia contain a reference to the Note appended with the return of income as well as the furnishing of details of the expenditure in question aggregating to Rs. 9,46,22,358/-. In fact, it has also been asserted in the submissions that the share placement document which was in the form of a printed booklet along with other documents in connection with the issue of shares was also furnished before the Assessing Officer. None of the assertions have been found to be wrong in any manner. The claim of the assessee has been negated by the Assessing Officer on a single point, i.e., that the expenditure in connection with the issuance of shares for increasing capital by a company is a capital expenditure following the judgment of Hon'ble Supreme Court in t....
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....nal Annual Letting Value of Rs.5,19,06,540/- (out of Rs.5,66,49,424/-) on closing stock of flats/spaces by following the Hon'ble Delhi High Court's decision in which various relevant facts were not fully brought out before their Lordships and therefore could not be considered by them. 1.2 That without prejudice to the Ground No.1.1 above, the appellant has also filed an appeal before the Apex Court which has been admitted and is pending for decision. 2. That without prejudice to the foregoing ground, the decision rendered y Hon'ble Delhi High Court related to the assessment year 1988-89 and rendered in the context of the provisions of section 23 as they existed prior to substitution by the Finance Act, 2001 w.e.f. 1.4.2002. The learned CIT(A) failed to consider the issue in the light of the amended provisions as applicable to the year under appeal which were substantially different. The issue should have been reconsidered and decided in the light of the amended provisions. 3.1 That on the facts and circumstances of the case, the learned CIT(Appeals) has erred in confirming the rejection of the appellant's claim that the surplus of Rs.70.06 crores aris....
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....ench (3 Member) of Hon'ble Supreme Court in National Thermal Power Co.Ltd., (1998) 229 ITR 383 (SC). 1.3 For the sake of clarity and convenience, the additional Grounds and the revised/reframed Grounds are merged and set-out as under. NOTIONAL ANNUAL LETTING VALUE (ALV). 1.1. That in the facts and circumstances of the case and in law, learned CIT(A) erred in upholding an addition of Rs. 5,19,06,540/- (out of Rs.5,66,49,424/-) under the head 'income from house property' without appreciating that the properties in question were 'stock-in-trade' of the assessee's business and provisions relating to S.22 to S.26 of IT Act are not at all applicable to property forming part of stock-in-trade in the business of the Assessee as argued by the Revenue itself before the Hon'ble High Court in the case of Commissioner Of Income Tax vs Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj) and approved by the Hon'ble High Court way back in 2006. 1.2. That in the facts and circumstances of the case, learned CIT(A) erred in upholding an addition of Rs. 5,19,06,540/- (out of Rs.5,66,49,424/-) under the head 'income from house property....
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....completion certificates etc. (f) In upholding the addition without returning a finding of fact as to whether it was factually possible for the Assessee to take the risk of letting out unsold flats / spaces and asking the prospective buyer to wait till the tenant vacates the flat for it to be sold and given possession. (g) In not appreciating that even notional ALV needs to be arrived at based upon realities and actual facts on the ground and could not have been determined through a guess work. 1.4 That in the facts and circumstances of the case, learned CIT(A) erred in law as the amendment by way of insertion of sub-section (5) in section 23 of I.T. Act vide the Finance Act, 2017 is prospective with effect from 01-04- 2018 enabling taxing of unsold flats/office spaces held as stock-in-trade and the post-amendment law cannot be applied to the pre-amendment assessment .ears, even if the income in respect of such properties is held to be assessable under the head, Income from House Property. SURPLUS AND SECTION 47(iv) 2.1. That in the facts and circumstances of the case, learned CIT(A) erred in confirming the rejection of the appellant'....
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....ssee is that the "transfer" in question is not exigible to the charge of capital gains under Section 45 of the Act. On this issue also, the assessee has revised the original Ground of Appeal but, in sum and substance, Ground No.3.2 in the original Memorandum of Appeal and Ground Nos.2.1 to 2.3 in the Revised Grounds of Appeal are substantially the same. 42. The relevant facts in this regard are that the assessee company was shortlisted by the Government of Uttar Pradesh for development of a Hi-Tech Township at Sultanpur Road, Lucknow under the Hi-Tech Township Policy of the Government of Uttar Pradesh of November, 2003. In terms thereof, assessee started construction of certain infrastructure which would hitherto be described as Trunk Infrastructure Assets (in short, TIA) since earlier years. During the year under consideration, the said TIA or the capital work in progress were transferred to one AAIL. It is to be noted that AAIL was a Special Purpose Vehicle (SPV) set up by the assessee as a 100% subsidiary for the development and maintenance of the infrastructure in the Sushant Golf City, i.e., the Hi-Tech Township being developed by the assessee in terms of the Award by the G....
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.... background, the learned Representative for the assessee vehemently pointed out that both the lower authorities have rejected the claim on superficial ground inasmuch as sufficient details were available before them to examine the justified claim of the assessee in terms of Section 47(iv) of the Act. It was pointed out that Section 47(iv) of the Act related to transfer of capital assets to a 100% Indian subsidiary which was the instant case. Referring to various material filed before the lower authorities including the Annual Financial Statements for the year under consideration, it was pointed out that the transferee being a 100% subsidiary i.e., AAIL and the transfer being of an infrastructure asset or capital work-in-progress, the conditions of Section 47(iv)(a) stood satisfied. 46. On the point of law, it was canvassed that the Coordinate Bench of the Delhi Tribunal in the case of Mother Diary Fruits & Veg.(P) Ltd. - (2011) 45 SOT 186 (Delhi), considered the transfer of a work-in-progress to a 100% subsidiary in the context of Section 47(iv) of the Act and concluded that such surplus was not chargeable to tax as capital gains. In this manner, the claim of the assessee for ex....
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.... We have carefully considered the rival submissions. Section 47(iv) of the Act prescribes that nothing contained in Section 45 shall apply to the transfers specified therein, which inter-alia include Subsection (4) enumerating transfer of a capital asset by a company to its subsidiary company. The only condition prescribed is that the holding company or its nominee shall hold the whole of the share capital of the subsidiary company and that the subsidiary company is an Indian company. 50. In the instant case, the transfer in question is of certain infrastructure assets or capital work-in-progress in terms of an Infrastructure & Maintenance Development Agreement dated 17th March, 2012 between the assessee and its subsidiary i.e., AAIL. We have perused the said Agreement dated 17th March, 2012 (supra) and note that it involves transfer of certain facilities constructed by the assessee at Sushant Golf City, a project which was being developed by the assessee in terms of an Award by the Government of Uttar Pradesh. In terms of the Agreement, it is seen that the assessee was awarded the project to develop Sushant Golf City spread over 3530 acres and in two parts viz., Mother City and....
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....s asset in terms of the Award by the Government of Uttar Pradesh. This Trunk Infrastructure was transferred to AAIL for the reason that the assessee desired that the infrastructure related work and its maintenance and servicing to end users by a Special Purpose Vehicle. The supporting infrastructure for linking the Trunk Infrastructure to end users was being developed by the assessee itself but through AAIL. Another important feature was that AAIL was not permitted to transfer the Trunk Infrastructure to any third party. 52. In terms of the aforesaid factual background, the case made out by the assessee is that the Trunk Infrastructure or the capital work-inprogress developed by it as on 1.4.2011 was transferred at fair market value to its 100% subsidiary AAIL resulting in a surplus of Rs. 17.05 crores. Although the said surplus was not excluded from the total income in the return of income, the claim of the assessee was that this surplus was exempt in terms of Section 47(iv) of the Act. Quite clearly, the Trunk Infrastructure assets which have been transferred in terms of the Agreement was a capital asset of the assessee because it was employed as a Profit earning apparatus. Th....