TaxTMI 
TaxTMI 
2024 (11) TMI 313
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.... of the both the parties, the appeal of the assessee for AY 2010-11 in ITA No. 3261/Del/2015 is taken up first. 3. The Ground No. 1 raised by the assessee is challenging the confirmation of disallowance of Rs. 3 lakhs on account of prior period expenses. 3.1. We have heard the rival submissions and perused the material available on record. The return of income for AY 2010-11 was filed by the assessee company on 28.09.2010 declaring total income of Rs. 789,09,90,414/-. The assessee company is engaged in the business of providing finance for development of housing and infrastructure projects. During the course of assessment proceedings, the assessee claimed expenditure pertaining to earlier years amounting to Rs. 3 lakhs as deduction. The assessee was asked to explain why those expenditure of Rs. 3 lakhs not pertaining to the year under consideration be not disallowed in the assessment. In response, the assessee submitted that the entire expenditure have been crystallized during the year under consideration ; that the assessee is a massive organization and located in multiple locations and that the exercise of collation of data does not get completed before the time of finaliza....
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..... 4. Ground No. 2 raised by the assessee is challenging the confirmation of addition of Rs. 18,06,443/- on account of depreciation on estimated increase in cost of properties. 4.1. We have heard the rival submissions and perused the material available on record. The ld AO observed that the assessee has accounted for estimated cost of 10% towards stamp duty/ registration charges in respect of properties where lease/ sub lease is yet to be executed and has provided depreciation on this addition. The assessee submitted chart showing the amount capitalized on this account. The ld AO on going through the said chart found that the assessee had claimed excess depreciation of Rs. 18,06,443/- by following the similar disallowance made in the earlier years. This action of the ld AO was upheld by the ld CIT(A). 4.2. We find that the issue is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in assessee's own case where the very same issue has been remitted back to the file of the ld AO for de novo verification in ITA No. 207/2015 dated 17.05.2015 for AY 2003-04. We find that the Hon'ble Jurisdictional High Court had restored the issue for verifica....
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....urt for AYs 2005-06 to 2009-10 and the said decision of Hon'ble Jurisdictional High Court has been stayed by the Hon'ble Supreme Court vide its order dated 06.08.2018. Hence, the said issue is sub judice before the Hon'ble Supreme Court in assessee's own case. Meanwhile, the very same issue of taxability of interest income on accrual basis in respect of non performing assets was subject matter of consideration in yet another decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Vashisht Chay Vyapar reported in 330 ITR 440 (Del) and the same was decided in favour of the assessee stating that the interest income is to be taxed only on receipt basis in respect of NPA. We find that this decision of Hon'ble Jurisdictional High Court in 330 ITR 440 (Del) has been approved by the Hon'ble Supreme Court reported in 410 ITR 244 (SC). Hence, we are in a situation where the issue in dispute has been actually settled in favour of the assessee by the decision of the Hon'ble Supreme Court in 410 ITR 244 (SC), but in assessee's own case, the same issue has been decided against the assessee by the Hon'ble Jurisdictional High Court. The said decision of Hon'ble....
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.... year under consideration, the assessee has not shown any income on account of administrative charges of Andrews Ganj Project. The amount of work done at Andrews Ganj Project during the year was Rs. 8,32,427/-. As per the terms on which the project was allotted to the assessee, the assessee was to be reimbursed the cost of project, interest on the funds utilized in the project and 1.5% of project cost as administrative charges. In the earlier years, the assessee was accounting for administrative charges. However, in AY 2001-02, the assessee reversed the administrative charges on the basis that on completion of the commercial portion of the complex, no further administrative charges were payable to it by the Ministry of Urban Development. This stand of the assessee was rejected AY 2008-09. Accordingly, the AO made an estimated addition of Rs. 12,486/- on account administrative charges income calculated @1.5 of project cost during year of Rs. 8,32,427/-. This action of the ld AO was upheld by the ld CIT(A). 6.2. We find that the issue is subject matter of consideration by the Hon'ble Jurisdictional High Court in Income Tax Appeal No. 339/2014 dated 27.10.2014 in assessee's own cas....
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....acts now elucidated and accepted by the Revenue, we are not inclined to pass an order of remit. It would be a formality. It is an accepted position that the appellant-assessee had never received 1.5% administrative expenses in respect of the residential quarters in Andrews Ganj project. Clearly, therefore, the stand of the appellant-assessee that the notes of the meeting held on 7th September, 1995 related to the development of community centre complex at Andrews Ganj, New Delhi and not to residential quarters is correct. The aforesaid document has been misread. There was no accrual of income in case the Government of India had not agreed to pay any overhead expenses or administrative charges @ 1.5% in respect of residential quarters at Andrews Ganj Complex, New Delhi. 11. The question of law is accordingly answered in favour of the appellant-assessee and against the Revenue. Addition of Rs. 35,57,615/- is deleted. The appeal is disposed of. In the facts of the case, there is order as to costs." 6.3. Respectfully following the same, the ground no. 4 raised by the assessee is allowed. 7. Ground No. 5 raised by the assessee is challenging the confirmation of addition m....
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....so observed that the assessee does not recognize the grants received from Central or State Government Departments / Ministries as its income and as it is merely a pass through entity in respect of such grants/ subsidies. Hence, it cannot claim expenditure as deduction while computing its business income. 7.3. We find that the issue in dispute is only with regard to claim of deduction in respect of grant-in-aid expended by the assessee. Out of sum of Rs.1,69,91,000/-, a sum of Rs.85,38,247/- was unpaid before the end of the previous year and the remaining sum was duly paid by the assessee. We find that the ld CIT(A) had approached the entire issue in a completely tangential way that the assessee had not shown the grants and subsidies received as its income. Factually, no grants/ subsidies were received by the assessee at all. Pursuant to the payment made by the assessee, it is given ex officio position in the payee institutions. The payee institution's predominant activities is to ensure capacity building in housing and urban development sector and assessee's main activity is financing in housing and urban development sector. Hence, the business nexus of the expenditure incurred ....
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....nataka and incurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which is the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of "business expenditure". Hence, the orders passed by the authorities would not stand the test of law and is liable to be set aside. 30. However, it requires to be noticed that while examining the claim for deduction under Section 37(1) of the Act the assessing officer would not blindly or only on the say of the assessee accept the claim. In other words, assessing officer would be required to scrutinise and examine as to whether said deduction claimed for having incurred the expenditure has been incurred and only on being satisfied that expenditure so incurred is relatable to the work undertaken by the assessee namely, only on nexus being established, assessing officer would be required to allow such expenditure under Section 37(1) of the Act and not otherwise." 7.5. In view of the aforesaid observations and respectfully follo....
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....y the assessee because the Government may choose not to draw the disbursement from the assessee, even though the loan is sanctioned to it. Depending upon the political climate, financial need and the financial strain that could be managed or tolerated by the particular Government, the decision to draw the sanctioned amount from the assessee company would be taken by the respective Government borrowers. All these factors are certainly beyond the reach and control of the assessee company. Hence, it could be safely concluded that there is no certainty of realization of the fees in the form of loan processing fees, application fee, front-end fee etc. Hence, we find that C&AG had directly directed the assessee to recognize income on receipt basis in respect of these services qua Government borrowers. Further, we find that the issue in dispute is no longer res integra in view of the decision of the Hon'ble Jurisdictional High Court in assessee's own case for Assessment Year 2007-08 reported in 421 ITR 599 (Del). The relevant operative portion of the said order are reproduced herein below:- "QUESTION III: 20. The next question pertains to addition of Rs. 1.28 crores on a....
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....ereby changed the accounting policy and recognized the revenue in respect thereof on receipt basis. I find that the CAG audit party had raised the observation that accounting of such receipts at the time of signing of loan agreement was not in conformity with the Accounting Standard 9 to which the appellant company had assured vide letter dated 06-11-2006 that the accounting policy shall be reviewed in F. Y.2006-07. Subsequently, in the Board meeting of the appellant company of September, 2007, the following resolution was passed: "Resolved that the changes in accounting policy from the year 2006- 07 be and are hereby approved as detailed in the agenda item" The detailed note for comparing existing policy and the revised policy shows that the Board of the company took this decision by assuming that there was no financial impact and there was only change in language. However, the very basis of this decision that there was no financial impact was incorrect, as the proposed change had resulted in reduction in the taxable profit under the Income-tax Act, 1961 Further, AO's observation that the decision was taken only after the F. Y. is over was also note-worthy, e....
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....rsuance of observation of Audit Party of Comptroller& Auditor General ("CAG" for short), even then, statutory provisions under 1.T. Act will prevail over any observation/objection/remark of Audit Party of CAG. Moreover, despite having changed the accounting policy, in pursuance of observation of Audit Party & CAG, the Assessee would have added back the aforesaid amount of Rs. 1.28 crores in the computation of Total Income for Income-tax purposes. That would have ensured compliance with statutory provisions under I.T. Act, as well as with observation of Audit Party & CAG. The Assessee is a company incorporated under the Companies Act, 1956 and follows mercantile system of accounting. An Assessee company registered under the Companies Act, 1956 is required to maintain accounts in accordance with provisions of The Companies Act, 1956. However, the profits computed in this manner need not necessarily be the same as Total Income for the purposes of I.T. Act. The computation of Total Income for the purposes of Income- tax Act requires giving effect to statutory provisions under I.T. Act, by making necessary adjustments/modifications/alterations/variations to profits compounded in accorda....
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....Bharat Aluminium Co. Ltd. [2010] 187 Taxman 111(Delhi); CIT v. Virtual Soft Systems Ltd. [2018] 92 taxmann.com 370/255 Taxman 352/404 ITR 409 (SC); CIT v. Woodward Governor India (P.) Ltd. [2007] 162 Taxman 60/294 ITR 451 (Delhi) and CIT v. Excel Industries Ltd. [2013] 38 taxmann.com 100/219 Taxman 379/358 ITR 295 (SC). 24. Mr. Zoheb Hossain and Mr. Deepak Anand, learned counsels for the revenue, on the other hand urged that the assessee was required to make the book of accounts in accordance with the provisions of the Companies Act, 1956. However, profits computed as per the provisions of the Companies Act need not necessarily be the same as Total Income for the purposes of Income-tax Act. The computation of total income requires giving effect to statutory provisions under the Act by making necessary adjustments. Appellant has erred by not adding back the amount of Rs. 1.28 crores and therefore, the findings of the tax authorities are in consonance with the provisions of the Act and the judicial pronouncements on this issue. 25. We will first reflect on the decisions and viewpoints expressed by the courts on this issue. The appellant has relied upon the judgment ....
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.... entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialize and its money value is therefore not the income of the assessee." [Emphasis Supplied]" 26. The factual situation in the said case is quite similar to the case in hand. In the aforenoted case, the question was with respect to assessee's entitlement to benefits under the „advance license" as well as under the 'duty entitlement passbook'. The Court observed that there was no corresponding liability on the customs authority to pass the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance; the benefits represent a hypothetical income which may or may not materialize and its money value is not the income of the assessee. 27. In CIT v. Annamalai Finance Ltd. [2010] 186 Taxman 296/[2009] 319 ITR 196 (Mad.) judgment relied upon by the appellant, the following observations are essential to....
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....f the agreements which enable the assessee-company to demand overdue charges is only an enabling provision and that enabling provision does not guarantee the collection of overdue charges. It only gives a cause of action to the assessee. In such cases it is very difficult to recognize income against overdue charges. We are, therefore, of the considered opinion that the Tribunal has rightly deleted the additions made towards overdue charges, acknowledging the change of method of accounting of overdue interest alone on cash basis." [Emphasis Supplied] 28. The Court in the above noted case was considering the question regarding the overdue charges payable by parties concerned to the assessee when they make defaults in paying the installment as per the schedule of payments. It was held that the clause in the agreement which allows the assessee to demand such charges is only an enabling Clause, and does not guarantee the collection of the overdue charges and when the installment itself is overdue and not collected/realised, there is no basis for making out a case that the additional overdue charges payable by the parties would be collectable with certainty. Similarl....
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....ent case, the relevant assessment year is 1999-2000. The main contention of the Revenue is that the respondent cannot be allowed to claim deduction regarding lease equalisation charges since as such there is no express provision regarding such deduction in the IT Act. However, it is apt to note here that the respondent can be charged only on real income which can be calculated only after applying the prescribed method. The IT Act is silent on such deduction. For such calculation, it is obvious that the respondent has to take course of Guidance Note prescribed by the ICAI if it is available. Only after applying such method which is prescribed in the Guidance Note, the respondent can show fair and real income which is liable to tax under the IT Act. Therefore, it is wrong to say that the respondent claimed deduction by virtue of Guidance Note rather it only applied the method of bifurcation as prescribed by the expert team of ICAI. Further, a conjoint reading of section 145 of the IT Act read with section 211 (unamended) of the Companies Act makes it clear that the respondent is entitled to do such bifurcation and in our view there is no illegality in such bifurcation as it is accord....
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....sequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised." 30. Let's now advert to the facts of the case, before we express our views. The appellant's income on account of the fees did not accrue with certainty on the date of signing of the loan agreement. The income fell due only when the loan was disbursed, as the fee was to be collected at that stage. It cannot be said that on the date of signing, the income accrued in conformity with the mercantile system and AS-9 adopted by the appellant. The contention of the Appel....
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....ed accrued, the addition would have been permissible. However, to determine this, in our opinion, the treatment given in the assessee's books of account would not be necessary, but would be dependent on the answer to the question as to whether the income has indeed accrued, having regard to the test as discussed hereinabove. The question whether real income has materialized or not has to be scrutinized, having regard to the commercial and business certainties and realities of the situation in which the assessee is positioned, and not with reference to system of accounting. The answer to such decision would then relate to the chargeable accounting year in which such profits actually arose and assessee would be liable to tax accordingly. Applying this yardstick, we do not find that any income accrued at the point of mere execution of the agreement and, thus, the income did not accrue in the relevant AY. The financial impact has since been factored in the subsequent year. 31. We also find merit in the submissions of the appellant that the change in accounting policy is a result of the audit objection raised by CAG on 10th October, 2006. The appellant has claimed deduction....
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.... post this Tribunal order. Accordingly, ground No. 9 is restored to the file of the ld AO and allowed for statistical purposes. 12. Ground No. 10 raised by the assessee was stated to be not pressed by the ld AR at the time of hearing. The same is reckoned as a statement made from the Bar and accordingly dismissed as not pressed. 13. Ground No. 11 is general in nature and does not require any specific adjudication. 14. In the result, the appeal of the assessee in ITA No. 3261/Del/2015 is partly allowed for statistical purposes. ITA No. 3904/Del/2015 for AY 2010-11(Revenue' appeal) 15. The appeal in ITA No.3904/Del/2015 for AY 2010-11, arises out of the order of the Commissioner of Income Tax (Appeals)-XV, New Delhi [hereinafter referred to as 'ld. CIT(A)', in short] in Appeal No. 153/13- 14/CIT(A)-XV dated 24.03.2015 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 30.03.2013 by the Assessing Officer, Addl. CIT, New Delhi (hereinafter referred to as 'ld. AO'). 16. Ground No. 2 raised by the revenue is identical with ground No. 7 of the appeal raised by the assessee in ITA No. 3261/Del/2015 fo....
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....ettled that expenditure incurred in connection with the issue of debentures or obtaining loan is revenue expenditure. Reference in this connection may be made to the leading judgment of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC). The question before us, however, is whether it is a debenture issue or an issue of share capital involving the strengthening of the capital base of the company. Though it prima facie appears that there are sufficient facts to indicate that what was contemplated was an issue of shares to the Mauritius company under the investor agreement which would result in strengthening of the assessee's capital base, having regard to the judgments cited on behalf of the assessee, in which it has been held that despite indications to the effect that the debentures are to be converted in the near future into equity shares, the expenditure incurred should be allowed as revenue expenditure on the basis of the factual position obtaining at the time of the debenture issue, we are not inclined to take a different view. The following cases have been cited on behalf of the assessee in support of the view that even in such a situation the expenditure....
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....y the assessee challenging the confirmation of disallowance made by the ld AO on account of prior period expenses. 20.1. We have heard the rival submissions and perused the material available on record. A sum of Rs.8,13,00,000/- stood claimed as deduction on account of prior period expenses by the assessee which was sought to be disallowed by the ld AO on the ground that assessee had not submitted any evidence to prove that these expenses had crystallized during the year. This action of the ld AO was upheld by the ld CIT(A). The ld AR before us submitted additional evidences in terms of Rule 29 of the ITAT Rules, vide letter dated 22.03.2024 giving the complete break up of the prior period expenses together with an affidavit supporting the Rule 29 petition. The assessee is a multi-locational and a massive organization, having multiple regional offices. During the financial year 2001-02, the public deposit scheme of the assessee was decentralized. However, post decentralization, the regional offices did not make any provisions for any such interest or brokerage payable on 1st April. Consequently, as per the advice from the statutory auditor, necessary provision for such interest ....
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....tta High Court in the case of CIT vs M/s R.R.Sen & Brothers P Ltd in GA No. 3019 of 2012 in ITAT NO. 243 of 2012 dated 4.1.2013 had held as under:- "The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under income tax. The tribunal has computed expenditure at 1% of such dividend income, which, according to them, is the thumb rule applied consistently. We find no reason to interfere. The appeal is dismissed." 21.2. Respectfully following the said decision, we direct the ld AO to disallow 1% of the dividend income as expenditure u/s 14A of the Act. Accordingly, Ground No. 2 raised by the assessee is partly allowed. 22. Ground No. 3 raised by the assessee is similar to ground No. 1 raised for Assessment year 2010-11. Hence, the issue is set aside to the file of ld AO by considering it as consequential as was done in AY 2010-11. 23. In the result, the appeal of the assessee in ITA No. 7625/Del/2018 for Assessment Year 2004-05 is partly allowed for statistical purposes. ITA No. 3262/Del/2015 for AY 2011-12 (Assessee's appeal) 24. The appeal in ITA No.3262/Del/2015 for AY 2011-12, arises out of ....
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....The ld AO observed that assessee's business is only to provide finance for development of housing and infrastructure project and to earn interest income thereon and not to disburse finance free of cost/ house free of cost. Accordingly, he held that the said expenditure cannot be construed as having being incurred wholly and exclusively for the purpose of business of the assessee and proceeded to disallow the entire CSR expenditure in the assessment. It is pertinent to note that CSR is mandated by regulatory agency, Department of Public Enterprises. Hence, an expenditure which is incurred as per the mandate of the regulatory authority by a particular assessee cannot be construed as not incurred wholly and exclusively for the purpose of the business. The assessee has sought to follow the dictates of regulatory authority mandating the assessee to incur certain expenses on account of CSR for a particular purpose. What is required to be seen here is whether that expenditure incurred by the assessee result in overall welfare of the society at large. It is pertinent to note that the assessment year involved herein is AY 2011-12. We are conscious of the fact that Explanation 2 to section 3....
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....ka and incurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which is the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of "business expenditure". Hence, the orders passed by the authorities would not stand the test of law and is liable to be set aside. 30. However, it requires to be noticed that while examining the claim for deduction under Section 37(1) of the Act the assessing officer would not blindly or only on the say of the assessee accept the claim. In other words, assessing officer would be required to scrutinise and examine as to whether said deduction claimed for having incurred the expenditure has been incurred and only on being satisfied that expenditure so incurred is relatable to the work undertaken by the assessee namely, only on nexus being established, assessing officer would be required to allow such expenditure under Section 37(1) of the Act and not otherwise." 25.4. The issue in dispute is clearly covered by the decision of the ....
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.... the Income Tax Rules applying 2nd and 3rd limb thereon and made disallowance of Rs. 86,52,12,831/-. The ld CIT(A) observed that the ld AO had also considered investment in bonds averaging to Rs. 1407.50 which had fetched interest income of Rs. 137.01 crores which is taxable interest income in the hands of the assessee. Accordingly, the ld CIT(A) directed the ld AO to exclude Rs. 1407.50 crores while computing the average value of investments and recompute the disallowance thereon which worked out to Rs. 25,56,653/-. Against this action of the ld CIT(A), both assessee as well as revenue are in appeal before us. The law is very well settled by the decision of the Hon'ble Supreme Court in case of Maxopp Investments Ltd Vs. CIT 402 ITR 640 (SC) wherein, it has been held that the disallowance cannot be exceed exempt income. Since, the exempt income is only Rs. 21,06,000/-, the disallowance of expenditure cannot exceed the same. We direct the ld AO accordingly. Accordingly, ground No. 7 is partly allowed. 29. Ground No. 9 raised by the assessee is challenging the addition of Rs. 2.15 crores on account of accrued interest receivables on account of advance paid on property tax to M....
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.... observed that the interest income had accrued to the assessee and hence, the assessee had to suffer taxation on the interest income and made an addition of Rs. 2.15 crores in the hands of the assessee. Before the ld CIT(A), the assessee furnished the details of deposits made with MCD in terms of directions of Hon'ble Supreme Court as under:- Date of Release Amount (In Rs. ) 21/05/1999 3,00,00,000.00 11/10/1999 4,00,00,000.00 12/11/1999 4,00,00,000.00 31/03/2000 6,98,40,809.00 Total 17,98,40,809.00 29.2. The ld CIT(A) held that the assessee is a agency of the Govt of India and was held not liable to pay property tax in respect of community centre developed by the Govt and therefore, the interest recoverable from the property tax from the MCD becomes the assessee's income. The ld CIT(A) observed that land on which the project was developed was transferred in the name of the assessee by the Govt and exemption from property tax was given by Hon'ble Supreme Court on the ground that such project was for the Govt. Accordingly, he upheld the action of the ld AO. 29.3. Before us, the ld AR stated that in AY 2006-07 the very same addition wa....