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2026 (2) TMI 861
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....24,72,099/- on account of interest expenditure. 3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 15,65,959/- on account of housekeeping and security expenses." 3. With regard to deletion of the addition of Rs. 8,54,250/- on account of commission expenses, the assessee had disputed the disallowance of made by the AO on account of commission expenses. On perusal of the assessment order, it is noted that this issue has been discussed in Para-47 to 53 of the assessment order. The AO noted that the assessee who is engaged in the business of giving properties on rent had paid commission to a single party Knight Frank (India) Pvt. Ltd. for arranging a new tenant for the assessee's property, as the original tenant later vacated the premises and the new tenant Azcom Info Solutions started lease term from 05.05.2016 i.e., in the succeeding year. While the AO accepted that the commission paid is linked with the business of the assessee and incurred during the relevant F.Y., he held that since the income from lease rent would accrue in the subsequent F.Y., the corresponding expense should also be accounted for....
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....ar may give a distorted picture of profit of a particular year. The claims of the assessee are found to be correct in the given facts and circumstances of the case. There is no dispute that the assessee is engaged in the business of giving properties on rent and therefore, the commission paid during the relevant F.Y. for arranging a new tenant is an expenditure incurred for the purpose of business. The AO has also accepted that the said expenditure is linked with the business of the assessee and has been incurred for the purpose of said business. There is logic in the stand of the assessee that the new tenant needs to be identified in advance so that there is no gap in the letting out of property falling vacant and the revenue can be maximized. It is noted that similar practice was carried out earlier also by the assessee as claimed, and thus this is a regular / normal business practice in this line of business. Further, the assessee has handed over the possession of property during the relevant financial year and the rent free period given is as per prevalent business practice to enable the demised property to be ready as per the requirements of the lessee. It is further ....
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....ty and reference can be made at Pg. 194-195 of the paper book where the relevant observations can be found. d. The amount was paid by the assessee on 19-05-2016 as per copy of bank account placed at Pg. 178 of the paper book. 7. Considered the submissions of both the parties and material placed on record. We observed that the assessee had incurred commission expenses for services obtained for finding a suitable tenant for the property, which was likely to be vacated. The AO did agree that the expenditure was incurred for the above purpose but since the assessee started receiving the rent only in the subsequent year, he was of the view that it should be booked as and when the income is earned, like matching principle. After considering the detailed findings of the Ld CIT(A), it is fact that the assessee is engaged in the business of giving properties on rent and the relevant new tenant has to be identified well in advance to have certainty of continuity in the tenancy. Since it is one of the normal business activities of the assessee, the commission paid is genuine expenditure which is not in dispute but only the timing of booking the expenditure. In our view, this busin....
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....90 crore and it had already held an opening investment of Rs. 14.09 crore at the beginning of this F.Y. 2014-15. Thus, the assessee held a total investment of Rs. 45,80,54,000/- in shares of UML at the beginning of the year, which have been transferred to TEIL in A.Y. 2016- 17 at NIL consideration for the alleged purpose of consolidating the holdings of UM group under a single entity. In Para-15, the AO held that the purpose of taking the unsecured loan from the past two years was a planned consolidation of the shares holding with a specific purpose in mind and the shares were bought accordingly. The whole transaction was planned over a three years with the purpose of booking the finance cost as an expense in the hand of the assessee for the purpose of setting it off against its huge rental income. The AO further stated that the AO did not have necessary information while passing assessment for A.Y. 2014-15 and 2015-16 and could not decipher such planned tax evasion, as it could not see through the future. The AO has stated that scheme of transaction was visible in F.Y. 2015-16, and hence deletion of addition of u/s 14A in earlier years by CIT(A) was not relevant. The AO accordingl....
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....hat such expenditure was not for the purpose of business. Further, the AO also referred to the provisions of section 37 of the Act and the decision of Hon'ble Supreme Court in the case of CIT Vs McDowells [1985 SCR (3)791] to hold that the impugned transaction was a scheme undertaken to evade the income tax and to color the transaction. Therefore, additionally and alternatively, the AO disallowed these interest expenses of Rs. 6,24,72,099/- u/s 37 of the I.T. Act. 9. Aggrieved assessee raised the issue before the ld. CIT (A) and the ld. CIT (A) deleted the addition by holding as under :- "The assessee has not taken any fresh loan or made any fresh investment during the relevant F.Y. and that the utilization of borrowed funds and purpose thereof stands examined in the assessment proceedings and appellate proceedings of earlier year A.Y. 2015-16. The assessee has claimed that the genuineness of such loans have been accepted in the appellate proceedings and also accepted to be taken for business purpose in the earlier years proceedings and that the earlier appellate orders have attained finality. In this regard, the assessee has placed reliance on the decision of Ld. CIT(A....
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....d placed reliance on the decision of S.A. Builders [288 ITR 1(SC)] in this regard. The Assessee has further pointed out that in A.Y. 2015-16, the AO had also made a dis-allowance of interest amounting to Rs. 17,86,740/- being excess interest as loan had been taken at a higher rate for the purpose of investment. The assessee had claimed that there was commercial expediency involved in taking fresh loans and making investment in shares of group companies and Ld. CIT(A) has deleted this disallowance made by the AO by accepting the contentions of the assessee. The Department did not file further appeal before Hon'ble ITAT and has referred to decision of Hon'ble ITAT for A.Y. 2015-16 - ITA No. 5889/DEL/2019 dated 05.09.2022. Therefore, the assessee has claimed that the AO is incorrect in taking any contrary stand in this year. The assessee has pointed out that in A.Y. 2015-16, it had explained that the source of investment of Rs. 45,80,54,000/- made in shares of group companies was sourced to the extent of Rs. 26,58,90,76/- out of its own capital (equity and free reserves) and this claim of the assessee was accepted by Ld. CIT(A) in A.Y. 2015-16. The assessee has quoted from th....
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....xpediency in an earlier year, it is not required to demonstrate the same every year. The assessee claimed that the facts of its case are different from that of CIT Vs R. Mohan (Madras High Court), which had been relied upon by the AO. The assessee has thus argued that in such circumstances, the disallowance u/s 36(1)(iii) of the Act by the AO after holding that interest has not been incurred for the purpose of business is not correct as per law.; With respect to alternate / additional disallowance u/s 37 of the Act of same amount of Rs. 6,24,72,099/- made by the AO after relying on a decision of Hon'ble Supreme Court in McDowells case, the assessee has disputed the claim of the AO regarding adoption of colorable device. The assessee has submitted that the claims of the assessee had been accepted in earlier year proceedings of A.Y. 2015-16 and not further agitated. The assessee has placed reliance on the decision of Hon'ble Supreme Court in the case of Shiv Raj Gupta Vs. CIT (2020) 425 ITR 420 (SC), S.A. Builders Ltd. (2007) 288 ITR 1 (SC) in this regard.; The assessee has further submitted that the order of Ld. CIT (A) for A.Y. 2015-16 was passed in April, 2019 an....
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....us becomes final, since there is no subsequent fresh loan taken or investments made during the relevant financial year and hence there is no change in the relevant facts as examined by appellate authorities in AY 2015-16. Hence the stand of the AO that the assessee is only engaged in rental business and such investments held are fully sourced from borrowed funds and further are not for business purpose is clearly against the decision of Ld. CIT(A) and Hon'ble ITAT in AY 2015-16. The assessee has rightly pointed out that the Department had not filed any appeal against this decision of Ld. CIT(A) on the issue of this addition of Rs 17,86,740/- (where it has been specifically held that investment in group concerns is a business purpose) before Hon'ble ITAT as only the issue of disallowance u/s 14A was raised before Hon'ble ITAT by the department, In para 15 and 16 of the assessment order, the AO has held that the full scheme of coloring the transactions was not visible earlier as the AO could not see the future, and that the said preplanned scheme of coloring the transactions to evade the taxes became visible only during the assessment proceedings of relevant AY 2016-17. Accordingly, ....
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....ed above) are found to be correct. The AO has held that the transfer of shares of UML by the assessee to TEIL at NIL consideration is a pre-planned activity and a colorable device to reduce taxes. The AO has also held that the transfer of shares of UML to TEIL can be business objective of the ultimate beneficiary, but not that of the assessee. In response to such stand of the AO, the assessee has stated that the transfer of shares of UML held by the assessee to TEIL by way of gift t is a step ahead for the said objective (as already accepted in AY 2015-16), which includes group reorganization for creating a holding company for UML Shareholding proposed to be used as a vehicle for future and in the alternative a step ahead for UML listing. The assessee has thus claimed that the said action of the assessee was for business purpose which included business expediency and has again relied upon the decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT - 288 ITR 1 - in this regard to claim that this decision is squarely applicable to the facts of the assessees case. It is noted that this decision was found applicable by learned CIT(A) in A.Y. 2015- 16 to the....
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....the carrying on the business. The above test in Atherton's case (supra) has been approved by this Court in several decisions e.g. Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1, CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 etc. In our opinion, the High Court as well as the Tribunal and other Income Tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. No doubt, as held in Madhav Prasad Jantia vs. CIT (supra), if the borrowed amount was donated for some sentimental or personal reasons and n....
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....t. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. vs. Commissioner of Wealth-Tax (1995) 215 ITR 582 also does not appear to be correct. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the ....
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....mmercial expediency. In this regard, Hon'ble Court also referred to the decision of Hon'ble Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 as per which once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case and further pointed out that no businessman can be compelled to maximize its profit. Therefore relying upon the decision of Hon'ble Supreme Court it is clear that even if the expenditure is incurred for the purpose of business of the group, and not necessarily of the assessee alone, then also the said expenditure is allowable on the grounds of commercial expediency, unless it is proved that such expenditure is incurred for personal purposes of the directors etc. The assessee has claimed that the investment in shares of group concerns and subsequent transfer was for the purpose of business, reorganizat....
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....xpediency as a prudent businessman. The AO has invoked the decision of Hon'ble Supreme Court in the case of CIT vs. McDowells 1985 SCR (3) 791 and made alternate disallowance u/s 37 of the IT Act by stating that assessee has entered into a pre-planned activity or scheme to evade taxes. In this regard, it is noted that the AO had not issued any show cause notice before holding that the assessee had entered into a scheme to color the transactions to evade tax in a preplanned manner and before invoking the decision of Hon'ble Supreme Court in the case of CIT vs. McDowells 1985 SCR (3) 791. The assessee has pointed out that the provisions of Section 47(iii) of the Income Tax Act are applicable with respect to transfer of shares of UML by way of gift. In this regard, it is noted that as per Section 47(iii) of the IT Act, certain transactions will not be regarded as transfer u/s. 45 which includes any transfer of a capital asset under a gift or will or an irrevocable trust. Thus, the provisions of Section 47(iii) are found applicable in the instant case. The assessee has rightly pointed out that such loss on transfer of shares of Rs. 45,80,54,000/- has not been claimed under nor....
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.... Rs. 6,24,72,099/- u/s 36(1)(iii) of the Act and alternatively u/s 37 of the Income Tax Act is not found to be correct and hence directed to be deleted. Hence Grounds of appeal No.2 & 3 are allowed." 10. At the time of hearing, ld. DR of the Revenue submitted that the interest expenses claimed by the assessee did not relate to the house property. The same cannot be allowed. In this regard, he heavily relied on the detailed finding of AO. 11. On the other hand, ld. AR of the assessee submitted that as under :- a. No fresh unsecured loan has been taken during the year under consideration i. Note no. 3 in audited financial at Pg. 60. Both loans are brought forward. ii. Note no. 19 (Pg. 64) showing financial cost which was Rs. 7,26,57,354/- as against financial cost of Rs. 6,55,91,474/-. iii. Reply of the assessee dated 28-11-2018 (Pg. 507-511) para 9 marked at Pg. 510. iv. Assessment order for AY 2014-15 (Pg. 236-241) no disallowance of interest is made Pg. 237. v. Assessment order AY 2015-16 (Pg. 203-212) disallowance made u/s 14A read with rule 8D of a sum of Rs. 3,81,71,231/- (Pg. 210) and addition of Rs. 17,86,740/- being....
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....ra 5 at Pg. 267)Dalmia Promoters Developers (Pg. 268-275 para 9 &12 at Pg. 273-274) Prem Kumar Chopra (Pg. 276-287 para 1,8 & 10 Pg. 276-277, 285-286)Reliance Utilities & Power Ltd (Pg. 288-290 para 6-10 Pg. 289-290)Reliance Industries Ltd (Pg. 291-294 para 6-7 Pg. 292). Reference to all these decisions and relevant extract therefrom has been made in the written submissions before CIT(A) at Pgs. 19-33 and reference may be made to all these submissions while adjudicating this ground. 12. Considered the rival submissions and material placed on record. We observed from the record that the assessee had continued with the loans acquired by it in the previous assessment years and the revenue had accepted the same loans in the past. In the immediate previous year, the assessee had invested in the non-current investments, the relevant interest claimed by the assessee was allowed. The above claim of the assessee was allowed by the first appellate authority and ratified by the ITAT in AY 2015-16. Further the assessee had made investment out of interest free funds available in the business. 13. The next issue raised by the AO is that the transfer of investment to the other sister concer....
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....n earlier year, the tenant had agreed to bear the expenditure till F.Y. 2014-15, but enforced the terms during the relevant F.Y. The AO asked the assessee to substantiate the claims by submitting copies of minutes of the meetings / correspondences etc. regarding the decision taken by the management to bear such expenses in this year, which the assessee failed to submit. The AO pointed out that decision making was lying with the common management and claim of the assessee that the tenant had enforced the contract this year seemed untenable. Accordingly, the AO allowed 10% upward revision on the expenses claimed by the assessee under this head in earlier F.Y. 2014-15, and thereafter disallowed the balance expenses by considering the same as disproportionate and not related to the business, as they are borne by the assessee on behalf of related party i.e. UML and not for its own business. 15. Aggrieved assessee has raised this issue before the ld. CIT (A) and the ld. CIT (A) deleted the addition by observing as under :- "The assessee in its submission before NFAC (as quoted above) has pointed out that the assessee has received substantial rent receipts of Rs. 10.63 crore a....
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....e the necessary services as can be seen from the terms of the deed as quoted by the assessee. Therefore the assessee has borne these expenses as a part of its contractual liability as a lessor, and has also received rental income and maintenance income as per the terms of the lease deed. The claim of the assessee that these expenses have been incurred wholly and exclusively for the purpose of business as required u/s 37 of the Act has not been rebutted with any factual evidence and hence the dis-allowance made by the AO on estimate basis after allowing only 10% upward revision to expenses of previous year is not found correct. Therefore, this addition of Rs. 15,65,959/- made by the AO u/s 37 of the Act is directed to be deleted. Therefore, ground no. 4 of appeal is treated as allowed." 16. At the time of hearing, ld. DR of the Revenue relied on the detailed findings of AO. 17. On the other hand, ld. AR of the assessee submitted as under :- a. The claim of the assessee regarding "housekeeping and security expenses" during the year under consideration is a sum of Rs. 34,04,978/- (comprising of Rs. 17,64,464/- on account of housekeeping and Rs. 16,40,514/- on account of....
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.... comparison to the previous year. He proceeded to disallow the additional expenses after allowing the 10% upward increase. On perusal of the terms of agreement with the tenant, even though the sister concern, the assessee lessor had to bear the security and house keeping expenses. It is fact on record that the AO did not dispute the genuineness of the expenses, he objected to bearing of the above said expenses by the assessee during the year under consideration as oppose to the previous wherein the sister concern itself borne the expenses. However, they have insisted to follow the relevant clause in agreement as per which the assessee had to bear the expenses. Considering the fact that the assessee receives substantial rent and as per the agreement, the assessee i.e., the lessor had to bear the above said expenses and the same was enforced the lessee, even though sister concern, it does not make any difference, the lessee will enforce the relevant clause. Therefore, we do not see any reason to disturb the findings of Ld CIT(A). In the result, ground raised by the Revenue is dismissed. 19. In the result, appeal filed by the Revenue is dismissed. 20. Now we take up assessee's a....
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....ich were never delivered to the assessee by M/s. Piyush developers till date as per the Income Tax Inspector report as discussed in the assessment order. The AO has pointed out that it was gathered as a result of inquiry that there were various legal complaints and suits pending against the builder and that the project has not been completed and no final sale or transfer of property has taken place. The AO has pointed out that the assessee has claimed sale consideration receipt during the relevant F.Y. of Rs. 2,49,46,128/- and Rs. 2,33,59,728/- and after claiming indexed cost of acquisition, the assessee has claimed to have incurred a long-term capital loss of Rs. 2,92,89,516/- which has been claimed as carry forward in the ITR filed for the relevant A.Y. The AO has quoted from this MOU dated 02.02.2016 ( on Rs. 100 E-Stamp Paper) - Page-1 - "However the Agreement to sell dated 1.05.2009 could not culminate into a sale deed with respect to the shop and therefore the parties have now decided to terminate/rescind the agreement dated 1.05.2009. ". Further, the AO has pointed out that on Page 2 of MoU, para 6, it has been stated that :-"The parties thus, have decided to can....
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....med that it was having undisputed rights in the assets and corresponding entries are duly accounted for in its books of accounts. The assessee has claimed that the buyers as per MOU dated 02.02.2016 have agreed to pay the price, and the said receivables in the name of Mrs. Bala Chabra and Mr. Susant Chabra are being shown in its accounts. Therefore, the assessee claimed that even though the property had not been transferred in the name of assessee through registered sale deed, the definition of capital asset is vast enough to cover rights of the assessee in the impugned property and further the assessee exercises right over the said assets in the capacity of owner of the said asset and relied upon certain decisions in this regard as quoted above in the assessee submission. The assessee has further relied upon certain decisions to claim that for applicability of section 54 of the Act, registration of documents is not imperative. The assessee, therefore, justify its claim of long-term capital loss. During the course of VC hearing, the assessee highlighted the relevant entries in its books of accounts to claim that property transactions had been duly reflected in its books of accounts....
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....wner of the impugned property at any point of time, since the impugned agreement to sale was unregistered document without any witnesses and was not a legally enforceable document which admittedly was never executed. Therefore, the case laws relied upon the assessee regarding claim of ownership of impugned property, holding rights in the impugned property and claimed that registration of document is not imperative are not applicable in the instant case, as the facts of this case are entirely different. In our case, the purchase and possession of property by the assessee has not been established and the original vendor, who is a related party Ms. Bala Chhabra has cancelled the agreement to sale dated 01.05.2009 (which has been acknowledged to be never executed) and refunded the payments received from the assessee (purchaser). Therefore, there is no transfer of capital assets as the assessee was not having ownership or possession thereof in the first place. Further, no rights in the impugned property can arise in absence of a legally enforceable document since the agreement to sale dated 01.05.2009 was not registered, not signed by witness and never executed in the first place. There....
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....ty no. 46 which is sale to Mr. Sushant Chhabra is evidenced by MOU dated 02-03-2016 (copy placed at Pg. 529-531 of the paperbook). The sale by the assessee in respect of property no. 47 which is sale to Mrs. Bala Chhabra is evidenced by MOU dated 02-03-2016 (copy placed at Pg. 532-534 of the paperbook). f. Reference is also made to Pg. 61 to note no. 10 of audited financials where a sum of Rs. 5,64,32,574/- is shown as receivable from Mr. Sushant Chhabra and a sum of Rs. 4,52,94,393/- is shown as receivable from Mrs. Bala Chhabra. The respective ledgers of these two persons namely Sh. Sushant Chhabra is at Pgs. 575-578 and for Mrs. Bala Chhabra is at Pgs. 571-574. g. The adjudication by the CIT(A) of this ground is in para 5.6.2 at Pg. 89-90 of his order whereby he has dismissed the claim of the assessee. h. The assessee is relying on the submissions made before the CIT(A) in para 27- 37(pgs. 41 to 48) and also decision relied upon in the cases of CIT vs. Podar Cement P. Ltd. (at Pgs. 592-613, para 52-53 at Pg. 612); Mysore Minerals Ltd vs. CIT (at Pg. 614-621 para 14); Balraj vs CIT (at Pg.622-624, para 3 at Pg. 623) in this case it has been held that fo....