TaxTMI 
TaxTMI 
2026 (1) TMI 1111
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.... the addition of Rs. 11,65,62,770/- made by the AO on account of disallowance of expenses under the heads Advertising Cost, Business Promotion, Commission paid on bookings and Interest claimed, without appreciating the facts that the assessee had not recognized the revenue on the basis of 'Percentage Completion Method' during the year under consideration. 2. Whether on facts and circumstances of the case and in law, ld. CIT(A)- 3, Noida has erred in deleting the addition of Rs. 11,65,62,770/- ignoring the fact that the assessee was required to recognize the revenue in compliance with the accounting standard and guidance note issued by the ICAL. 3. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs. 1,10,13,206/- on account of disallowance of interest expenditure, disregarding the facts that the assessee during the course of assessment proceedings failed to substantiate the direct nexus between the interest expenditure incurred and the income earned by it by utilizing the borrowed funds. 4. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in....
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....xpenses claimed under the above heads are required to be disallowed and added to the total income of the assessee, hence, added a sum of Rs. 11,65,62,770/- to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. Ld. CIT (A), after going through the detailed submissions and assessment order, allowed the grounds of assessee. 5. At the time of hearing, ld. DR of Revenue submitted that the assessee had declared loss during the year by claiming various expenditures even though it has not declared any revenue. The assessee is following percentage completion method of accounting. Therefore, when they have not declared any revenue, there is no corresponding expenditure that should have been declared. There is no matching principle adopted by the assessee, he submitted that the expenses like advertisement, business promotion, commission and interest expenditures are relating to the project under consideration. The assessee should have capitalized the same or charged to the project WIP. 6. On the other hand, ld. AR of the assessee submitted that the ld. CIT(A) at page no.34 of the impugned order, deleted ....
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.... Income Tax, Mumbai vs. Macrotech Developers Ltd. reported at [2021] 133 taxman.com 321(Mumbai-Trib.) * ITAT Tribunal Bench of Banglore in the case of India Build Villas Development (P.) Ltd. vs. Deputy Commissioner of Income-Tax, Circle 3(1)(1), Banglore reported at [2018] 98 taxman.com 187 (Banglore Trib.) * Hon'ble Supreme Court of India in the case of Principal Commissioner of Income Tax-3 vs. DLF Home Developers Ltd. reported at [2020] 114 taxmann.com 98 (SC) * Hon'ble High Court of Delhi in the case of Commissioner of Income Tax vs. Somnath Buildtech (P.) Ltd. reported at [2023] 146 taxmann.com 472(Delhi) * Hon'ble High Court of Delhi in the case of Gopal Das Estates & Housing (P.) Ltd. vs. Commissioner of Income Tax reported at [2019] 103 taxmann.com 334(Delhi) * ITAT Tribunal Bench C of Mumbai in the case of PRL Developers (P.) Ltd. vs. ACIT reported at [2024] 164 taxman.com 328 (Mumbai-Trib) * ITAT Tribunal Bench 'B' in the case of Deputy Commissioner of Income Tax, Mumbai vs. Macrotech Developers Ltd. reported at [2021] 133 taxman.com 321(Mumbai-Trib.) * ITAT Tribunal Bench of Banglore in the case of India Bui....
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.... it is a matter of record that the genuineness of the expenditure was never doubted by the Assessing Officer. In fact in the assessment order, the AO has disallowed the claim only for the reason of non-booking of sales (Refer page no.27 of PB and internal para no.3.6 of CIT(A) order). Further, the Ld. CIT(A), at internal page no.34 of the CIT(A) order, has specifically observed and highlighted that the genuineness of the payment was never disputed by the Assessing Officer. Therefore, ground no.4 raised by the department is factually incorrect and unsustainable. 7. Considered the rival submissions and material placed on record. We observed that the assessee is in the business of promotion and development of real estate. The assessee is following the method of percentage completion method and obligated to follow the mandatory accounting policies and guidance note published by the ICAI. We observed that the assessee is following the same. As per which, the assessee had to declare and recognize the revenue unless it reaches 25% of the estimated project cost or revenue, in this case, the assessee had not reached the mandatory level, hence not recognized the revenue in this impugned y....
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....mounting to Rs. 57,06,000, the same are allowable as a deduction under the provisions of section 37(1) of the Income Tax Act, 1961 (for short 'the Act'). These expenses form part of the total amount of Rs. 1,10,13,206 as claimed by the assessee in the profit and loss account. He submitted that the findings of the Ld. CIT(A) affirming this position are recorded at internal page no. 37-38 of the CIT(A)'s appellate order. He submitted that ld. CIT(A) while giving the relief has placed reliance upon the following judicial precedents, wherein it has been consistently held by various courts that debenture issue expenses are allowable as revenue expenditure under section 37(1) of the Act: * Hon'ble High Court of Gujarat in the case of Assistant Commissioner of Income-tax vs. VXL India Ltd. reported at 54 taxmann.com 103 (Gujarat) * Hon'ble High Court of Madras in the case of Commissioner of Income-tax vs. First Leasing Co. of India Ltd. reported at 304 ITR 67 (Madras) * Hon'ble High Court of Rajasthan in the case of Commissioner of Income tax, Udaipur vs. Secure Meters Ltd. reported at [2008] 175 Taxman 567 (Rajasthan) * Hon'ble High Cou....
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....e matter is, that the Hon'ble Supreme Court in India Cement Ltd. 's case (supra) has clearly excluded this aspect from consideration, by holding, that it is irrelevant to consider the object, with which the loan was obtained. Admittedly the debentures when issued is a loan, and therefore, whether it is convertible, or non-convertible, does not militate against the nature of the debenture, being loan, and therefore, the expenditure incurred would be admissible as revenue expenditure." 14. Respectfully following the same, we are inclined to allow the expenditure claimed by the assessee, the Court held that there is no distinction between the convertible or non convertible debentures, it is in the nature of loan only. Therefore, we are inclined to allow the claim of the assessee and accordingly, we are inclined to partly allow the ground raised by the Revenue in this regard. 15. With regard to Ground No.5 regarding reduction of Project Cost by Notional Interest of Rs. 17.30 crores on Interest Free Advances to subsidiaries, Ld DR submitted that the assessee had given 1923 crores to its sister concern. He objected to the findings of Ld CIT(A) that he merely accepted the su....
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....nbsp; 16.1. Further he submitted that from a bare perusal of the chart, it can be observed that the majority of the interest-free advances were sourced from non-interest-bearing funds except for advances to Solace Projects Pvt. Ltd.(subsidiary) and Ace Infracity Developers Ltd., which were purely in the nature of business advances, there is no case made out for charging notional interest on business advance. 16.2. Further he submitted that with regard to consistency in AY 2014-15, it is also a matter of record that major advance was given to Solace Projects Pvt Ltd. in assessment year 2014-15 and the said fact has been examined by the AO in AY 2014-15 and has considered the same as business advances. In this regard, he submitted that the copy of assessment order in AY 2014-15 is placed at page no. 63-65 of the PB. Further he submitted that the interest on such advances had already been capitalized in the relevant year. 16.3. Further he submitted that without prejudice, attention is invited to page 45 of the CIT(A)'s order, which clearly reflects that the interest has already been capitalized in the case of Solace and Ace Infracity Developers Pvt. Ltd. Accordingly....
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....nclined to direct the AO disallow the interest based on the cost of capital to the assessee rather than applying notional interest of 12%. However, the same cannot increase the amount of interest actually claimed by the assessee. In the result, the grounds raised by the Revenue are partly allowed. 19. With regard to Ground No.6 regarding deletion of addition u/s 14A, Ld DR submitted that the assessee had submitted before the first appellate authority that it has invested in shares out of interest free funds, he wondered how the funds received from customer are interest free, it is business funds, it has interest burden of funds utilized in the project. He submitted that the amount invested in shares which yields exempt income to the extent of Rs. 182,48,400, the relevant interest be disallowed. 20. On the other hand, ld. AR of the assessee submitted that the AO has invoked the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (for short 'the Rules') by taking into consideration non-current investments amounting to Rs. 131,85,48,400. Based on this, the AO computed a notional disallowance of interest expenditure by applying Rule 8D(2)(ii), arr....
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....lly submitted that the investments in shares were made during the financial years 2011-12 and 2013-14. These investments were made entirely out of interest-free funds and not from any interest-bearing borrowings and referred Chart reproduced at internal page No. 18-19 of CIT(A) order) This fact has been consistently reflected in the financial statements and was also examined in earlier assessments. Hence, the allegation made in the said ground is factually incorrect and devoid of merit. (vii) Without prejudice to above, disallowance on account of interest can't exceed the actual interest expenditure debited to the profit and loss account amounting to Rs. 44,06,849/-. (viii) The facts of the present case are fully covered by various judicial pronouncements where the courts have held that sec 14A is not applicable where income is taxable :- * Hon'ble Supreme Court of India in the case of Maxopp Investment Ltd. vs. Commissioner of Income Tax, New Delhi reported at [2018] 91 taxmann.com 154 (SC)[Refer page no.66-82 of Case Law PB Index and internal page no.43 of CIT(A) order] * Hon'ble Supreme Court of India in the case of Principal Commissio....
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....he Assessing Officer has made an addition of Rs. 58,28,229 under section 40(a)(ia) of the Act. This figure has been computed based on TDS of Rs. 19,42,473/- which was deposited after the close of the financial year. The Assessing Officer applied a reverse calculation method to determine the corresponding expenditure, arriving at a gross payment of Rs. 1,94,27,730 and disallowed 30% thereof, resulting in the disallowance of Rs. 58,28,229. In this regard, he submitted that following computation and reasoning as per para 5 of internal pages 7-8 of the assessment order:- Statutory dues paid as on 17.04.2015 and 30.04.2015 (A) Rs. 84,29,609/- Statutory dues as per Balance Sheet (B) Rs. 64,86,866/- Difference C=(A-B) Rs. 19,42,473/- Reverse Calculation D=C/10% Rs. 1,94,22,730/- Disallowance @30% of D E=D*30% Rs. 58,28,229/- 24. He submitted that in appeal before the ld. CIT (A), the ld. CIT(A) at Page No.47-48 of the impugned order has duly noticed the facts as under: 25. That the amount of statutory dues paid, totalling Rs. 84,29,609, includes an amount of Rs. 7,56,410 paid towards Works Contract Tax (WC) in Haryana, and the remaining R....
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....deration. The AO cannot resort to reverse mechanism to determine the amount to be disallowable. It should be based on actual payable amount. Therefore, we do not inclined to disturb the findings of Ld CIT(A). In the result, ground raised by the Revenue is dismissed. 30. In the result, appeal filed by the revenue is partly allowed. 31. With regard to appeals for the AYs 2016-17, the relevant grounds of appeal are as under: "1. Whether on facts and circumstances of the case and in law, Ld. CIT(A3), Noida has erred in deleting the addition of Rs. 5,53,68,957/- made by the AO on account of disallowance of expenses under the heads Advertising Cost, Business Promotion, Commission paid on bookings and interest claimed, without appreciating the facts that the assessee had not recognised the revenue on the basis of 'Percentage Completion Method' during the year under consideration. 2. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs. 5,53,68,957/-, ignoring the fact that the assessee was required to recognize the revenue in compliance with the accounting standard and guidance note issued by the IC....