TaxTMI 
TaxTMI 
2024 (11) TMI 313
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....ssessee 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 finalization of annual accounts. Hence, there would be al....
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....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 verification by the ld AO. The ld AR made a statement from the bar that no addition was made by the ld ....
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....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 Delhi High Court in assessee's own case has been stayed by the Hon'ble Supreme Court. In these....
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....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 case for AY 2002-03. This issue has been decided in favour of the assessee by observing as under:- "6. Along....
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....ition 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 made by the ld AO in the sum of Rs.1,69,91,000/- on account of expenditure on grants- in-aid. 7.1. We have heard the rival submissions and perused the ma....
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....ely 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 in the form of grant- in-aid vis-à-vis the payee institutions stand clearly established. We find a sum of Rs.1,69,91,000/- is debited to profit and loss....
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.... 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 following the judicial precedents relied upon hereinabove, we hold that assessee would be entitled for deduction in respect of grant-in-aid expended by it on the ground that same are to be ....
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....d 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 account of financial impact due to change in accounting policy in respect of revenue recognition of application fee, front end fees, administrative fee and processing fee of loans (hereinafter collectively....
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....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, even though such decision was taken with retrospective effect. Evidently, the appellant is a company incorporated under Companies Act 1956. As per Accounting Standards, it follows mercantile system of accounting. Therefore, even th....
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....licy, 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 accordance with provisions of the Companies Act, 1956. In view of this, the Assessee was in clear error of law by not adding back the aforesaid amount of Rs. 1.28crores in the computation of Total Income for the purposes of I.T. Act. This error of law is further aggr....
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.... 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 of the Supreme Court in Excel Industries Limited (supra). The observations made in Paragraph Nos. 18 and 19 of the said case are of relevance, and the same read as 17. "First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji ....
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....ue 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 note: "4. The assessee had submitted that in respect of overdue charges, the assessee-company, keeping in line with the norms of the Reserve Bank of India as well as the credit rating agency, has been assessee is admitting income only on cash basis. The assessee-company has also placed reliance upon the Accounting Standard 9 of ICAl whi....
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.... 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. Similarly, the Supreme Court in its decision in Virtual Soft System Ltd. (supra), considered the question as to whether the deduction on account of lease equalization charges from the leasing rental income can be allowed under Income-tax Act on the basis of guidance note issued by the ICAI. Answering this question, it was held that the Court may take help of external aids such as the I....
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....ibed 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 according to the principles of law. Moreover, the rule of interpretation says that when internal aid is not available then for the proper interpretation of the statute, the court may take the help of external aid. If a term is not defined in a statute then its meaning can be taken as is prevalent in ordinary or commercial parlance. Hence, we do not find any force in the contentions of the Revenue that the account....
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....ation 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 Appellant is in line with the settled position of law as laid down by the Supreme Court and other High Courts as well as the AS-9. There was no reasonable certainty of the realization of the amount of Rs 1.28 crores, and that since it follows the mercantile system of accounting, the same can be treated as an income only if it had convincingly accrued. The amount here is not determinable and there is no certainty about the same, since it remains uncertain whether the bo....
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....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 in profits in the computation of the total income, and added it as income in the subsequent assessment year, which has been accepted by the AO. The change is, thus, revenue neutral. The reliance placed by the Revenue upon the decision of the Supreme Court in CIT v. United Provinces Electric Supply Co. [2000] 110 Taxman 134/244 ITR 764, is misplaced. The dispute in the said case was with respect to the interpretation of the provisions of the Electricity Act, and the addi....
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....l/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 for AY 2010-11, the decision rendered by us for ground No. 7 in assessee's appeal shall apply with equal force for ground No. 2 in revenue appeal. Hence, ground No. 2 raised by the assessee is dismissed. 17. Ground No. 1 is challenging the deletion of addition on account of capitalization of financial charges written off. 17.1. We have heard the rival submissions and perused the material available on record. The ld AO observed that the assessee has claimed deduction of Rs.2,47,66,000/- as fin....
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....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 is allowable as revenue expenditure: (1) CIT v. East India Hotels Ltd. [2001] 252 ITR 860 (Cal); (ii) CIT v. ITC Hotels Ltd. [2011] 334 ITR 109 (Karn); (iii) CIT v. South India Corporation (Agencies) Ltd. [2007] 290 ITR 217 (Mad); and (iv) CIT v. First Leasing Co. of India Ltd. [2008] 304 ITR 67 (Mad). In addition to the above judgments, we also have the judgment of the Rajasthan High Court in CIT v. Secure Meters Ltd. [2010] 321 ITR 611 (Raj) against which the special leave petition filed by the Revenue w....
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....vidences 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 and brokerage payment had been booked for the previous years. Significant sum of the above prior period expenses arose from the said deduction being interest on public deposit scheme of Rs. 7.35 crore and brokerage on public deposit scheme of Rs. 0.36 crore (approximately 7.35+0.36=7.71 crore). Reference may be made to the letter of the statutory auditors dated 11.8.2004 in the application for additional evidence and the internal noting referring the same at page 1-3 of the said document. 20.2. Though the ld DR vehemently argued that these additional evidences do not s....
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....e 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 the order of the Commissioner of Income Tax (Appeals)-4, New Delhi [hereinafter referred to as 'ld. CIT(A)', in short] in Appeal No. 367/13- 14/CIT(A)-4 dated 26.03.2015 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 11.02.2014 by the Assessing Officer, Addl. CIT, Range-12, New Delhi (hereinafter referred to as 'ld. AO'). 25. Ground No. 1 raised by the assessee is challenging the confirmation of disallowance of Rs. 4,98,75,665/- on account of expenses on Corporate Social Responsibilities (CSR). 25.1. We have heard the riva....
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....y 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 37(1) of the Act specifically prohibits allowability of deduction of expenditure incurred by an assessee on the activity relating to CSR referred to section 135 of the Companies Act, 2013. But we find that this Explanation 2 was introduced by Finance (No.2 ) Act, 2014 w.e.f. 01.04.2015 and hence cannot be made applicable for the year under consideration. Hence, the allowability of the expenditure should be determined based on the fact whether it had resulted in overall welfare / benefit of the society at large. Reliance in this regard is placed on the decision of Hon'ble Madras High Court in the case of CIT Vs. Madras Refineries repo....
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....f 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 Hon'ble Jurisdictional High Court in case of PCIT Vs. PEC Ltd reported in 451 ITR 136 (Delhi) wherein, it was held that amendment by way of Explanation 2 to section 37(1) of the Act w.e.f. 01.04.2015 was prospective in nature and thus CSR expenditure incurred prior 01.04.2015 was to be allowed. 25.5. In view of the aforesaid observations, the ground No. 1 raised by the assessee is allowed. 26. Ground No. 2 raised by the assessee is challenging the disallowance of prior period expenditure of Rs. 4,26,772/-. 26.1. We have heard the rival submissions and perused the material available on record. The ld AO had disallowed this prior period expenditure as the ....
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....s 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 MCD. 29.1. We have heard the rival submissions and perused the material available on record. The ld AO observed that there is dispute between MCD and assessee company in respect of charging of property tax on a property admeasuring 17.6 acres developed by the assessee at Andrews Ganj, New Delhi on behalf of Govt. of India in terms of purported lease deed executed between Land Development Officer (LDO), Ministry of Urban Development and HUDCO dated 04.07.1997. MCD raised various bills for levy of property tax from the date of possession and the reply by the LDO to MCD was that the said land was allotted to the assessee for development of community centre on behalf of the Government and, therefore, no property tax shoul....
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....able 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 was deleted by the ld CIT(A) and the revenue did not prefer any appeal before this Tribunal. Having accepted this situation in AY 2006-07 the revenue cannot have any grievance on the same issue in the year under consideration. Applying the principles of consistency as decided by the Hon'ble Supreme Court in the case of PCIT Vs. Maruti Suzuki India Ltd reported in 416 ITR 613 (SC), we hold that the interest income cannot be brought to tax in the sum of Rs. 2.15 cores in the hands of the assessee. Accordingly, ground No. 9 raised by the assessee is allowed. 30. In the result, the appeal of the assessee in ITA No. 3262/Del/20115 for AY 2011-12 is partly allowed for statistical purposes. ITA No. 3905/Del/2015 for AY 2011-12 (Revenue's appeal) 31.....