TaxTMI 
TaxTMI 
2024 (7) TMI 1485
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....cumstances of the case, the Ld. CIT(A) has erred in law and facts of the case in deleting the addition of Rs. 58,09,780/- made by AO on account of notional ALV in respect of unsold spaces/ flats treating the same as income from house property. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts of the case allowing part relief towards this allowance of deduction u/s 80-IB at Rs. 4,69,59,072/- made by AO by way of proportionate allocation various expenses to eligible projects where as such deduction is to be computed as if each eligible unit was an independent and only source of income as provided u/s 80- IA(5) of the income tax Act, 1961 and see 80-IB (13) of income tax Act, 1961. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts of the case in allowing part relief towards this allowance on deduction u/s 80-IB at Rs. 4,69,59,072/- by admitting additional details and evidences without affording any opportunity to AO in violation of provision of Rule 46A of income tax Rule 1962 and ignoring the request of AO in prescribed form ITNS -51 as required by Ld. CIT (A) before disposal of appeal. ....
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....sions, partly allowed the appeal for statistical purposes. Thereby, the Ld.CIT(A) deleted the disallowance made u/s 14A of the Act, addition made by the AO, qua the ALV of vacant properties amounting to INR 58,09,780/-. However, in respect of the disallowance of deduction u/s 80IB(10) of the Act, he partly allowed the claim of the assessee. Thereby, he reduced the disallowance of deduction u/s 80IB(10) of the Act out of total disallowance of INR 4,69,59,072/- by directing the AO to re-compute the disallowance on the basis of his finding in respect of allocation of various expenses on eligible projects. The Ld.CIT(A) deleted addition(s) related to ALV of vacant properties, disallowance u/s 14A of the Act and he substantially reduced disallowance of deduction u/s 80IB(10) of the Act, from INR 4,69,59,072/-. 5. Aggrieved against this, both the assessee and the Revenue have assailed the finding of Ld.CIT(A) in appeal and cross-objection respectively before this Tribunal. 6. Ground No.1 & 9 of Revenue's appeal are general in nature, need no separate adjudication. 7. Ground No.2 is against the deleting the addition of INR 58,09,780/- made on account of notional ALV in respect of....
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....17 (Delhi High Court) (Refer, pages 1-14 of the case law PB, relevant finding @ pg. no. 5-14) The Delhi High Court rejected the argument of the assessee that since the property was vacant for the whole of the previous year, the annual letting value thereof shall be taken to be nil in view of section 23(1)(c), on the ground that since the properties were held by the assessee as stock in trade and not for the purpose of letting out, 'vacancy allowance' provided under section 23(1)(c) of the Act could not be claimed. The Court also rejected the contention of the assessee that subsection (5) inserted under section 23 of the Act, to provide for determination of notional ALV in case of real estate developers, had for the first time introduced the charge of notional ALV in cases where building etc. are held by such developer as stock-in-trade after the end of one year from the end of financial year in which the certificate of completion is obtained, was applicable from 01.04.2018 and thus, was no charge of notional ALV in cases where building/ flats etc. were held as stock-in-trade. It would, however, be pertinent to point out that the Supreme Court has ....
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....O: 76 taxman.com 278 (Bang. Trib.) * Bengal DCL Housing Development Co. Ltd. vs. Dy. CIT: 201 TTJ 353 (Kol. Trib.) Without prejudice, it is respectfully submitted that notional ALV cannot be computed for the unsold stock since the flats/space are not in a habitable condition. To make it habitable, the owners have to incur some expense like wood work, fixing of lights and taking electricity connection etc. It is pertinent to mention here that the electricity connection is being applied in the name of the owner who purchases the flat or commercial space from the assessee. The flats/commercial space lying in stock do not have any electricity connection and thus are not in habitable condition. [Refer, Shree Nirmal Commercial Ltd. v. CIT 193 ITR 694 (Bom.), Shyam Sunder Behl v. ADIT: 147 Taxman 1 (Amritsar)(Mag.), S.M. Chandrashekar v. ITO: 76 taxman.com 278 (Bang. Trib.), ACIT v. Dr. Amrit Lal Adlakha: (2006) 105 TTJ Asr. 271] It is further pertinent to point out that the properties at S. No. 13 and 14 (Refer pg. no. 26 of the PB) are merely farm lands on which no residential unit has been constructed, which are outside the purview of section 22 of the Act. I....
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.... ALV could not have been computed. It is seen that no such contention was made before the authorities below. Moreover, no material is placed before this Tribunal, supporting the contention. Since, under the identical facts, the Hon'ble Delhi High Court has already decided the issue against the assessee and the view of the Hon'ble High Court of Delhi has been affirmed by the Hon'ble Supreme Court therefore, the finding of Ld. CIT(A) cannot be sustained and same deserved to be reversed. Hence, the order of Ld.CIT(A) on the issue of taxability of vacant house property/ commercial space is hereby, set aside and the corresponding finding by the AO are sustained. Except the claim of the assessee that the properties mentioned at Sl.Nos.13 and 14 at page No.26 of Paper Book were merely farm lands and no house properties were constructed thereon, would be outside the purview of section 22 of the Act. However, the Ld.CIT(A) has deleted the impugned addition without giving specific finding regarding the properties being vacant farm land and there was no construction of house property by the assessee. Therefore, the issue of taxability of properties claimed as being vacant farm lands needs ver....
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....the expenditure related to such projects can be allowed. No other expenses can be loaded to eligible project. Further, the Ld. Sr.DR. for the Revenue contended in respect of the professional charges that the assessee company incurred expenditure of INR 3,09,90,572/- towards legal and professional charges. Hence, the AO had rightly allocated the professional charges on pro-rata basis on the ratio of each eligible projects. 13. On the other hand, Ld. Senior Counsel for the assessee, Shri Ajay Vohra opposed these submissions and submitted that the authorities below did not appreciated the facts in right perspective. He contended that AO failed to bring any defect into the separate accounts prepared by the Assessee for each project. Hence, the allocation made by the AO is arbitrary and unjustified. 14. Ld.Sr. Counsel for the assessee pointed out that by way of Ground Nos. 3 & 4, the Revenue has challenged against the part relief granted by the Ld.CIT(A) in respect of allocation of various expenses to the eligible projects. The AO allocated various expenses to the eligible projects in ratio of sales and consequently, proposed disallowance of deduction of INR 3,59,98,438/- in respe....
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....ck to the cost of construction or debited to stand alone in Profit & Loss Account of such projects. The remaining amount of INR 3,05,91,425/- being not related to said projects in progress or eligible units, was debited to the Profit & Loss Account under the head "Administrative Expenses". The AO considered the total advertisement expenses of INR 6,03,86,813/- as common expenditure disregarding that the assessee had already allocated expenditure to the tune of INR 2,97,95,338/- to the respective housing projects and allocated the entire advertisement expenditure to various eligible projects in the ratio of sales of each project. On further appeal, the Ld.CIT(A) allowed relief qua allocation of advertisement expenditure to the extent of INR 2,97,95,338/-. Considering that such expenditure was debited to the cost of construction of respective projects, not warranting further allocation to the profit of eligible unit. With respect to remaining expenses, Ld.CIT(A) upheld the action of AO in treating the same, to be common expenditure, warranting allocation to eligible projects in sales ratio. However, ld.CIT(A) observed that since advertisement expenditure incurred during the relevant ....
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....on 80IB(10) of the Act and accordingly, reduced the deduction claimed by the assessee under that section by a sum of INR 2,27,97,559/-. Ld.CIT(A) deleted the allocation of interest expenditure made by the AO holding that the assessee had not used borrowed funds for investment in such eligible projects and that most of the eligible projects were complete and/or were running in surplus i.e. internal accruals from the projects was higher than the investment made in such projects. 15.3. It was contended on behalf of the assessee that during the year under consideration, the assessee had incurred interest expenditure of INR 16,60,41,925/-. The assessee had maintained separate books of accounts in respect of eligible projects and thus, interest expenses of INR 8,20,91,514/-, having direct relation to such project(s) were already allocated/debited in the independent books. The balance interest cost of INR 8,39,50,411/- represent interest cost which was not directly identified to any project inasmuch as the same related to projects which were under conceptualization stage or were not identifiable or where the assessee expected abnormal delays in obtaining approval therefore, i.e. where ....
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....nses (Ground of appeal no.3 of departmental appeal) 9-9 28-29 AO In the assessment order, the assessing officer proportionately allocated following expenses to the eligible projects in ratio or sales and consequently proposed disallowance of deduction Rs. 3,59,98,438 for all nine projects. However, considering that out of the 9 projects, the assessing officer had already disallowed the entire claim of deduction in respect of the 3 eligible projects namely Avantika Aakriti, Golf link I and Golf Link-II, the AO restricted disallowance on the aforesaid ground to 6 projects only for an amount of Rs. 3,45,09,112/-. Eligible Project Sales Ratio (%) Particulars of expenses allocated to eligible projects in sales ratio Advertiseme nt & Publicity (Rs. 6,03,86,8 13) Interest expenses (Rs. 16,60,41,92 5) Professional Charges (Rs. 3,09,90,57 2) Directors's meeting fees (Rs. 9,65,00 0) Director's travelling expenses (Rs. 28,14,14 1) Total Avantika Aakriti Housing Project 0.19 % 1,14,735 3,15,480 58,880 1,830 5,850 4,96,775 Golf Link I Housing Project, Greater Noida, UP 0.24 1,44,928 3,98,500 74,377 2,31....
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....er. Reliance in this regard, is placed on the decision of the Bombay High Court in the case of CIT v. Hindustan Lever Ltd.: 221 Taxman 71 wherein the Court held since the assessee had maintained separate accounts for eligible and non-eligible units, the administrative expenses being common expenses incurred in general towards the well-being of the business could not be proportionately distributed among various units individually on basis of respective turnover for purpose of calculation of deductions. To the same effect is the decision of the Ahmedabad bench of the Tribunal in the case of Transpek Silox Industry Ltd. v. ACIT: ITA. No: 3021/Ahd/2013. Similarly, the Courts in the following cases have held that unless the expenditure incurred on the R & D work relates to the undertaking/unit in question, the same cannot be apportioned to it on hypothetical basis: * Zandu Pharmaceuticals Works Limited v. CIT: 350 ITR 366 (Born.) * Bush Boake Allen (India) Ltd. v. CIT: 273 ITR 152 (Mad.) It is further submitted that all the impugned eligible projects were launched in earlier years which stood substantially sold out and were nearing completion during the yea....
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.... -12 of the Balance Heet at pg. no. 15 of the PB). The remaining amount of Rs. 3,05,91,425/-, being not related to said projects in progress or eligible units, was debited to the profit and loss account under the head 'Administrative Expenses' (Refer Schedule-14 of the Balance Heet. no. 16 of the PB). The AO considered the total advertisement expenses of Rs. 6,03,86,813/- as common expenditure disregarding that the assessee had already allocated expenditure to the tune of Rs. 2,97,95,338/- to the respective housing projects and allocated the entire advertisement expenditure to various eligible projects in the ratio of sales of each project. On further appeal, the CIT(A) allowed relief qua allocation of advertisement expenditure to the extent of Rs. 2,97,95,338/- considering that such expenditure was debited to cost of construction of respective projects, not warranting further allocation to the profit of eligible unit. With respect to remaining expenses, the CIT(A) upheld the action of the AO in treating the same to be common expenditure, warranting allocation to eligible projects in sales ratio. However, the CIT(A) observed that since advertisement expenditure incurr....
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....g substantially sold in earlier years itself. The said expenditure also included expenditure on advertisement of financial results, staff recruitment, brand building which was mainly carried out to raise deposits from public, which was to be utilized for other business/ future projects of the assessee, not warranting allocation to the eligible projects which were financially and operationally independent & self-sufficient. Re (II): Interest on borrowed capital (Ground of appeal no.3 of Departmental appeal) The assessee company has been duly following AS- 16 for accounting of interest cost (Refer, point no. 10 of Schedule 16 of Balance Heet at pg. no.17 of PB) and a sum of Rs. 8,20,91 ,514/- being interest cost directly identifiable and attributable to housing projects was already allocated/debited in the independent books/added to cost of construction account (Refer Schedule-12 of the Balance Heet at pg. no. 15 of the PB). The balance borrowing cost of Rs. 8,39,50,411/- being not related to the projects was debited to the profit and loss account (Refer Schedule-14 of the Balance Heet at pg. no. 16 of the PB). The AO allocated entire interest expenditure of Rs. 16,60,41 ....
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....as on 31.03.2007 is as under: S.No. Name of the eligible Project Balance Heet at pg.no. of Paper Book Amount received from head office as on 31.03.2007 P& L/Reserve balance 1. Avantika akriti Housing Project 148 Rs. 3,19,62,966 Rs. 5,40,62,006 2. East End Loni Housing Project 160 Rs. 4,09,06,562 Rs. 6,51,62,560 3. Golf Link-I Housing Project 171 Rs. 6,86,10,748 Rs. 6,57,30,549 4. Green Glade I Housing Project 183 Rs. 2,60,32,469 Rs. 3,02,64,888 5. Golf Link-II Housing Project 194 Rs. 2,60,50,901 Rs. 2,57,55,980 6. Green Glade II Housing Project 205 Rs. 1,66,70,608 Rs. 1,75,61,692 7. Agra Courtyard Housing Project 217 Rs. 2,43,44,786 Rs. 3,35,22,785 8. Nest Housing Project 229 Rs. 3,55,41,492 Rs. 3,79,73,340 9. Whispering Meadows-Mulund Housing Project 241 Rs. 7,36,86,281.52 Rs. 3,34,79,627.36 Further, no disallowance / allocation of interest expenditure was made in respect of these projects in the initial /earlier years, and, therefore, opening investments in such projects stood accepted to be out of surplus/interest free funds. ....
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....ects, without establishing nexus of loans qua eligible projects. In view of the above, the assessing officer erred in considering the interest expenditure as common expenditure and attributing the same towards eligible unit without appreciating that there was nexus of borrowed funds to such unit. It is also pertinent to point out that the assessing officer has made allocation of interest cost to eligible projects in AY 2008- 09, 2009-10 which were deleted by the CIT(A) and although the Department had challenged the order of CIT(A) for AY 2008-09 in appeal which was dismissed by the Tribunal vide order dated 02.09.2019 on account of low tax effect, no appeal on this issue has been filed in A Y 2009-10. No allocation of interest expenditure has been made by the assessing officer in AYs 2010-11 to 2012-13. For the aforesaid cumulative reasons, there is no warrant to allocate interest cost to the projects qualified for deduction under section 80IB(10) of the Act. Re (III) : Professional charges Ground of appeal no. 3 of Departmental appeal and ground no. 2 of CO filed by the assessee) During the relevant year, the assessee company incurred an expenditure of Rs. 3,09,9....
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....gible for deduction under section 80IB(10) of the Act; the same could not be allocated to the eligible projects. Since the aforesaid expenses did not pertain to the eligible projects, the same were not allocated to the said projects while computing deduction under section 80-IB(10) of the Act. In view of the above, since the expenses incurred under the head professional charges were not related to the projects qualified for deduction under section 80IB(1O) of Act, no allocation of such expenditure to the said eligible projects is warranted. Re (IV) : Directors meeting fee Ground no. 3 of CO filed by the assessee The AO has allocated director's meeting fee amounting to Rs. 9,65,000/- to the projects eligible for deduction under section 80IB(10) on prorata basis in the ratio of sales, which was upheld by the CIT(A). In this regard, it is respectfully submitted that the assessee company is a widely held listed company and as per the requirement of Companies Act, every public listed company has to hold four general meeting of directors and also an annual general meeting of shareholders. Conducting the aforesaid meetings is a statutory obligation imposed on the assess....
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....he Hon'ble Supreme Court on 07.02.2014. In that view of the matter, the assessee is entitled for deduction under section 80-IB(10) of the Act and thus, the grounds of appeal raised by the Department deserves to be dismissed and the CO filed by the assessee deserves to be allowed." 17. We have heard the rival contentions and perused the material available on record. It is pertinent to note that the assessee had claimed deduction u/s 80IB(10) of the Act at INR 12,88,63,163/-. The AO during the course of assessment proceedings called upon the assessee to file following details and explanation:- (a) "Particulars of interest paid / payable in respect of (a) HDFC loan of Rs. 22.5 Crores to finance projects at Ajmer, Jaipur and Meerut and (b) HDFC Loan of Rs. 20 Crores to finance projects at Agra and bank certificate to substantiate the claim. (b) The component of expenditure on advertisement at Rs. 3,05,91,425/- in respect of new projects in respect of deduction under section 80IB(10) of Income Tax Act 1961 has been claimed as it was the prime objective of advertisement to promote new projects. (c) Details and explanations regarding deduction claimed ....
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....% like in the case of East End Loni & Green Glade I Housing Projects, there were negative profit during Financial Year 2005-06. The AO considered the explanation of the assessee and observed that the argument that no interest was allocable to any project whose profits are claimed as exempt u/s 80IB(10) of the Act, such argument was not supported by the financial statement of the assessee company. Further, the AO was of the view that as per letters of Chartered Accountants, it was noticed that the assessee company had been making expenditure on the project even before 31.03.1996 as was evident from letters of approvals. It was also observed that the substantial expenditure of INR 1,03,01,73,852/- had been incurred prior to 01.10.1998 in respect of three projects namely, Gold Link Project I & II and Avantika Aakriti. The AO observed that from the chart of project cost, in different Assessment Years prior to subsequent Assessment Years as expenditure prior to 01.10.1998 of three projects of INR 103 crores by filling of pits, leveling of land, construction of road, wells, laying of sewerage and electricity lines whereas cost of INR 158 crores including above INR 103 crores was spent on....
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....ct of "Director's Travelling expenses", the AO allocated a sum of INR 28,14,141/- on pro-rata basis in the ratio of sales, to the eligible projects out of foreign travelling of Directors. It was stated before Ld.CIT(A) that the expenses related to foreign travelling and in any way, not related to eligible projects u/s 80IB(10) of the Act. The Ld.CIT(A) accepted the contention of the assessee and held that no expenses related to Director's travelling should be allocated to projects eligible for deduction u/s 80IB(10) of the Act. Thus, Ld.CIT(A) ruled that out of advertisement and publicity expenses only a sum of INR 38,22,503/- be allocated out of interest expenses on borrowed capital, no allocation was required to be made, out of professional charges a sum of INR 1,04,23,153/- and Director Meeting Fee of INR 9,65,000/- was to be allocated. The AO was therefore, directed to allocate the expenses on each head as decided by the Ld.CIT(A) and recompute the disallowance of deduction u/s 80IB(10) of the Act. 19. In this backdrop, now we need to examine the correctness of the decision of Ld.CIT(A) about the allocation of various expenses to the eligible projects. The preliminary object....
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....not be compared for allocation purpose, the average expenses on advertisement incurred during Assessment Years 2005-06, 2006-07 & 2008-09 should be taken into consideration. We are of the considered view that this finding of Ld.CIT(A) is correct because the benefit of advertisement by the assessee in earlier years i.e. 2005-06, 2006-07 & 2008-09, would also certainly pass on to the year under consideration. Therefore, Ld.CIT(A) has rightly allocated expenditure on pro-rata basis in the sale ratio u/s 80IB(10) of the Act, amounting to INR 38,22,503/-. Hence, no interference is called for on this issue. In respect of disallowance of interest on the borrowed capital, Ld.CIT(A) has given a finding on fact that most of the projects are eligible for deduction u/s 80IB(10) of the Act, are more than 90% completed prior to 01.04.2006 and were running in surplus. Therefore, no allocation should have been made qua the interest on borrowed funds on all projects where section 80IB(10) of the Act, was claimed as internal accrual being higher than the investment. This finding of Ld.CIT(A) is not rebutted by the Revenue by bringing any contrary material therefore, we do not see any reason to inter....
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....ompany as a whole. During the relevant assessment year, the AO held that loss relating to AY 2006-07 ought to have been carried forward and set off against the profits of the eligible unit in the relevant year. The CIT(A) held that, since deduction under section 80-IB(10) of the Act has been allowed in respect of the other eligible projects in the appellate proceedings for AY 2006-07, the loss of eligible unit ought to be set off against the profits of the other eligible unit in AY 2006-07 itself. The amount of loss so set-off shall not be carry forward and set-off against profits of eligible unit for the year under consideration. In this regard, it is respectfully submitted that losses of earlier years which had already been set off against other income in earlier years, cannot be notionally set off again while computing current income admissible for deduction for the relevant year. Reliance is placed on the following decisions rendered in context of section 80IA of the Act: * CIT v. Eastman Spinning Mills P. Ltd.: 372 ITR 88 (Mad.) * CIT V. TTK Pharma Limited: T.C.(A) No.298 of 2004 (Mad.) * Velayudhaswamy Spinning Mills (P.) Ltd. v. A....
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....as under:- "During the relevant year, the assessee had incurred interest expenditure of Rs. 8,39,50,411/- and earned exempt dividend income of Rs. 1,17,28,021/- from mutual funds and from shares of Capital Cars Pvt. Ltd. (Refer details of dividend placed at pg. no. 273 of the PB). AO In the assessment order, the AO disallowed interest expenses incurred on public deposit to the extent of Rs. 10,80,927 by invoking section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 ('the Rules). CIT(A) The CIT(A) deleted the disallowance made by the AO under section 14A of the Act on the ground that no expenditure has been pointed by the AO for earning the exempt income. Accordingly, since the AO had failed to establish any nexus between the funds borrowed from public deposits and the exempt income earned by the assessee, disallowance under section 14A of the Act was not warranted. Submission At the outset, it is respectfully submitted that provisions of Rule 8D are not applicable for the relevant assessment year. Reliance is placed on the following decisions wherein it has been held that Rule 8D is prospective in opera....
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....s been made from surplus funds available with the assessee and not from borrowed funds. It is pertinent to note that the net increase in the balance of General Reserve, Security Premium Account, accumulated profits was Rs. 55.74 crores (Refer pg. no. 7 of the PB) whereas net investment made during the year amounted to Rs. 26.10 Crores. (Refer pg. no. 5 of the PB). Thus, the assessee company was having sufficient interest free funds for making investment in the securities wherefrom the assessee has earned tax exempt income. Reliance in this regard is placed on the following decisions wherein it has been held that where assessee had sufficient funds/ deposits for advancing interest free loans or making investment in shares, etc., and there is nothing on record to show that borrowed funds have been directly utilized for such purpose, a presumption in favour of the assessee can be drawn that investment in shares/ securities capable of yielding tax exempt income had been made out of interest-free funds available with the assessee: - South Indian Bank Ltd. & Others v. CIT: Civil Appeal No. 9606 of 2011(SC) - CIT vs. Reliance Industries Limited: 410 ITR 466 (SC)....
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....osits and the fund that was used for the purpose of earning of exempt income. We do not find fault with this finding of Ld.CIT(A), even before this Tribunal, no material is furnished suggesting that the investments were made out of borrowed fund and/or any expenditure related to earning of exempt income is debited to profit and loss account by the assessee. In the absence of such evidence, we do not see any merit in the grounds of appeal raised before us. Hence, the same is hereby rejected. 29. In the result, the appeal of the Revenue in ITA No.2731/Del/2010 is partly allowed. Cross-objection No.222/Del/2010 [Assessment Year 2007-08] 30. Now, we take up Cross-objection No.222/Del/2010 [Assessment Year 2007-08] filed by the assessee. The assessee has raised following grounds of appeal:- 1. "That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that advertisement expenses, to the extent of Rs. 38,22,503/- (computed by taking average of advertisement expenses of last three years), which are not directly related to 'housing projects', eligible for deduction under section 80IB(10) of the Income Tax Act, 1961 ('the Act'), needed to be all....