TaxTMI 
TaxTMI 
2024 (10) TMI 652
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....ure and depreciation during the year under consideration even when the assessee had not disclosed revenue as it was following Complete Contract Method of accounting? 3. Whether in facts and circumstances of the case, Ld. Cit (A) is legally justified in not holding that application of Rule 8D of the Income Tax Rule, 1962 (the Rule) to compute quantum of disallowance u/s 14 A of the Income Tax Act 1961 (the Act) is mandatory? 4. Whether in facts and circumstances of the case, the Ld. CIT(A) is legally justified in not holding the disallowance u/s 14 A by ignoring legislative intend of section 14 A of the Act that disallowance u/s 14 A of the Act is not dependent upon earning of exempt income as explained vide CBDT Circular No. 5/2014 dated 10.02.2014? 5. Whether in facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 5,961/- u/s 14 A of the Act without considering legal principles that allowability or disallowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon'ble Supreme Court in case of CIT Vs Rajendra Prasad Moody (1978) 115 ITR 519? 6....
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....n nature, needs no separate adjudication hence, dismissed 7. Ground Nos. 3, 4 & 5 raised by the Revenue are inter-connected and against the deletion of addition made by the AO by invoking the provision of section 14A of the Act. . 8. Apropos to these grounds, Ld.CIT DR for the Revenue supported the orders of the authorities below and submitted that Ld.CIT(A) was not justified in deleting the addition. 9. On the other hand, Ld. Counsel for the assessee relied upon the order of Ld.CIT(A) and submitted that Ld.CIT(A) has followed the judicial pronouncements. He drew our attention to the finding of Ld.CIT(A). He further submitted that the assessee do not have income which does not part of the total income and has made no expenditure /claimed expenditure which has been incurred by the assessee for earning exempt income. He submitted that earning of exempt income is a pre-requisite for making disallowance by invoking provision of section 14A of the Act. Thus, the action of Ld.CIT(A) is justified in the present case. 10. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below.....
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....med by holding that the expression "does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year." Respectfully following the decision of the Jurisdictional High Court I am of the view that the claim of the appellant needs to be upheld. Therefore, provisions of Section 14A read with rule 8D are not applicable. Accordingly, disallowance of Rs 5,961/- is deleted. Charging of Interest u/s 234B and 234C is mandatory and consequential in nature and the AO is directed to take suitable action accordingly." 11. From the above finding, it is clear that Ld.CIT(A) had followed judicial pronouncements. Coupled with the fact that the Revenue has not brought any material suggesting that the contention of the assessee that the assessee do not have any income which does not part of the total income and did not make any expenditure/c....
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....and deposited by the appellant. Further the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (225) ITR 802 (SC) relied upon by the AO; in fact supports the case of the appellant because the Hon'ble Court has held that discounts on debentures to be paid at the time of maturity is revenue expenditure and is allowable proportionately over the life of the debentures. The appellant relied on the decision of Hon'ble High Court of Bombay in the case of C.I.T. vs. Lokhandwala Construction Inds. Ltd, wherein it has been held that Construction project undertaken by the assessee-builder constituted its stock-in-trade and the assessee was entitled to deduction under s. 36(1)(iii) in respect of interest on loan obtained for execution of said project. The relevant extract of the decision is as under:- "4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under s. 28 of the IT Act. In t....
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....her the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case." In the light of above facts and legal position, the claim of interest expenditure by the appellant cannot be deferred till the booking of revenue and allowed in the year of sale of property. It needs to be understood that in the case of business of a developer the construction of property is his stock-in-hand and the interest paid on the capital raised by the appellant in its business is finance charges and the same will not form cost of the property. I have carefully considered the observations of the Assessing Officer and submissions of the appellant and the judgments on the issue the addition of Rs. 42,87,770/- made on account of assured return paid on the advance payment to the appellant as per the agreed MOU with the buyers of property to be constructed and deduction of TDS u/s 194A on such assured return, treating the same as interest is therefore, allowable under section 36(1) (iii). Accordingly, addition of Rs 42,87,700/- is deleted and this ground is decided in favour of the appellant." 16. ....
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.... Madras Industrial Investment Corporation Ltd. (225 ITR 802) (SC) In that case, the Supreme Court had referred to this 'matching concept. It was held that ordinarily revenue expenditure incurred wholly or exclusively for the purpose of business, can be applied in the year in which it is incurred. However, the facts may justify spreading the expenditure and claiming it over a period of ensuing years, where allowing the entire expenditure in one year could give a very distorted picture of the profits of a particular year. The assured rental must have been paid on advances received from customers amounting to Rs. 13,88,46,123/- shown in note no. 6 of audited balance sheet. As the assessee is following the 'complete contract method' the expenditure related to any project should be allowed in the year in which the corresponding revenue is booked. During the current year the assessee has claimed the expenditure in the shape of assured rental, however, the corresponding revenue has not been booked. 6. It can be seen from above that there is no basis for claiming assured rentals in shape of interest because there is no corresponding revenue. The assessee has f....
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....con Pvt.Ltd. in ITA No.891/Del/2017, both dated 09.08.2023 wherein Hon'ble Tribunal has decided the issue by observing as under:- 9. "As regards the addition of Rs. 72,11,000/- on account of interest and rent expenses claimed by the assessee is concerned, it is submitted by the Ld. AR that this issue is squarely covered by the decision of the ITAT for the assessment year 2010-11 in assessee's own case decided in ITA No. 6141/Del/15 in Revenue's appeal wherein, it has been observed that "the payment made to the parties was verified by the Ld. CIT(A) and the funds received from these parties were received by way of cheques and same were utilized by the assessee for its business purposes for completing the project. The payment of assured return in the form of interest to Dinesh Nandini Ram Krishna Dalmia Foundation and assured rental to Sh. Arun Khanna and Kailash Khanna have been made after 6 deducting TDS, therefore, there is no dispute about incurring of expenditure. Since the funds received from these parties were on the basis of valid MOUs against booking of space and on the basis of fixed return plans offered by the assessee, hence the expenditure incurred was for comme....
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.... has grossly erred in making impugned additions purely on assumption basis. By making the impugned disallowance of INR 1,26,24,770/-, the AO has disallowed administrative expenses and staff cost. He contended that as per AS-7, the expenses are allowable as administration cost and staff cost incurred by the assessee, are not directly related to a construction of project and same are to be charged to profit and loss account. Thus, the contention of the assessee that administration cost and staff cost incurred by assessee which are not directly related to a construction of project are to be charged to the profit and loss account in the very same year. Ld. Counsel for the assessee placed reliance on following judicial pronouncements:- [i] "M/s. Lodha Palazzo, Mumbai vs ACIT, 15(1), Mumbai [2014] (12) TMI 1272, ITAT Mumbai dated 10.12.2014; [ii] M/s. Hiranandani Palace Gardens P.Ltd., Mumbai vs The ACIT (OSD), Mumbai [2015] (12) TMI 1649-ITAT Mumbai, dated 30.12.2015; [iii] ACIT-3(2)(2), Mumbai vs Palalce Garden Chennai SEZ Limited, [2019] (1) TMI 929-ITAT Mumbai dated 04.07.2018; and [iv] M/s. Macrotech Construction Pvt.Ltd. vs ACIT, Circle6(3) and C....
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....nandani Palace Gardens P.Ltd., Mumbai vs The ACIT (OSD), Mumbai [2015] (12) TMI 1649-ITAT Mumbai, dated 30.12.2015, the Co-ordinate Bench of the Tribunal decided the issue by observing as under:- 6. "Both the Ld. representatives of the parties have submitted that the issue is squarely covered by the above decision of the Tribunal. We find that rather the case of the assessee is on better footing as the assessee was carrying out different projects though at the same location, hence it was not a case of single project. Even otherwise the resultant income from the project is a loss even after capitalisation of expenditure by the AO to work in progress. Hence, there is no tax implication, so far as the year under consideration is concerned and the loss otherwise also has to be carried forward. Under such circumstances, it cannot be said that the assessee has adopted the above stated accounting method to avoid tax on income for the year under consideration. The assessee, thus, has followed the accounting method which has been consistently followed by it and which is as per the recognized principles of accounting. In view of the above discussion of the matter and following the a....