TaxTMI 
TaxTMI 
2026 (4) TMI 1465
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....f ALP Rs. 8,32,78,024/- ii. Addition on account of brokerage Rs. 1,50,56,760/- 1.1 In addition thereto the AO had treated a sum of Rs. 57,35,046/- as 'income from other sources' and had denied deduction under section 80IAB of the Act on the same in respect of four different receipts of income which were considered as business receipts by the assessee. 2. Brief facts of the case: During the year, the assessee was engaged in the business of developing commercial real estate property in India and was primarily involved in developing and leasing of investment property in information technology/information technology enabled services (IT/ITeS) Special Economic Zone ('SEZ'). The assessee was involved in the development of a project in Tikri, Gurugram which was notified as SEZ by the Government of India and was eligible to claim deduction of profits derived from the business of development and operation of SEZ under section 80IAB of the Act, for any ten consecutive years out of the fifteen-year period. The year under consideration is the first year of claim for deduction under section 80IAB of the Act. 2.1. During the captioned year, a reference was made by the A....
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....AO) amounting 10 INR 5,64,61,969 under section 92CA of the Income-tax Act, 1961 ('the Act)." 4.1 The assessee also filed a written submission w.r.t. the aforementioned grounds of appeal. 5. However, during the course of hearing before us, the assessee by way of an application filed on July 19, 2024 raised an additional ground of appeal wherein, without prejudice to the fact that the disallowances made by the TPO were not legally tenable submitted that the entire transfer pricing adjustment made in case of the assessee was bad in law (being expenditure undertaken with a person referred to in section 40A(2)(b) of the Act) with the omission of clause (i) from the definition of specified domestic transaction u/s 92BA of the Act by Finance Act, 2017 which the assessee claimed that it was retrospective in nature. The additional ground filed by the assessee is reproduced as under: "7. That on the facts and in the circumstances of the case and in law, the deletion of clause (i) of section 92BA by Finance Act, 2017, whereby any transaction in the form of expenditure undertaken with a person referred to in section 40A(2)(b) of the Act were omitted from the definition of sp....
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.... section 92BA of the Act by the Finance Act, 2017 w.e.f. April 01, 2017 whereby clause (i) of section 92BA of the Act relating to any expenditure in respect of which payment has been made or is to be made to a person referred in Section 40A(2)(b) of the Act was omitted. On account of such omission, the impugned transaction would not fall within the definition of specified domestic transaction. 11. Since clause (1) has been omitted from the statute, this particular clause shall be deemed not to be the statute since inception, unless there exists some saving clause or provision regarding the proceedings initiated or action taken under such clause. 12. In this regard, reliance is placed on the judgement of Hon'ble Supreme Court in the came of Kolhapur Canesugar Works Lid v. UOI wherein it was held that: "37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute-book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of section 6(1). If a provisio....
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.... Court in the witter of M/s. GE Thermometrias India Private Ltd., stated supra. As such we are of the considered view that first substantial question of low raised in the appeal by the revenue in respective appeal memorandum could not arise for consideration particularly when the said issue being no more res integra." 14. For the ready reference of your Honours, the relevant extract of order of Hon'ble Bangalore ITAT in the case of Texport Overseas (P.) Ltd. v. DCIT (IT(TP)A No. 1722/Bang/2017) are reproduced hereunder. 7. Having carefully examined the orders of authorities below in the light of rival submissions and relevant provisions and various judicial pronouncements, we find that by virtue of the insertion of section 92BA on the statute as per clause (1), any expenditure in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of Section 40A exceeds the prescribed limit, it would be a specified domestic transaction for which AO is required to make a reference to TPO under section 92CA of the Act for determination of the ALP. In the instant case. since the transaction exceeds the prescribed limit it b....
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....ht to be allowed to the Appellant on the enhanced income in view of CBDT Circular 37 of 2016 17. Reliance in this regard is placed on the judgements of various appellate authorities wherein it has been specifically held that if expenditure disallowed is related to the business activity against which Chapter VI-A deduction has been claimed (section 80IAB in the instant case), the corresponding deduction ought to be allowed on the enhanced income: ITO vs. Keval Construction ([2013] 33 taxmann.com 277 (Gujarat)) CIT vs. Sunil Vishwambharnath Tiwari (IT Appeal No. 2 of 2011) PCIT vs. Surya Merchants Ltd. (IT Appeal No. 248 of 2015) 18. In view of the above, even if disallowance is made under Section 40A(2)(b) of the Act, then the Appellant should be granted the corresponding deduction u/s 80IAB of the Act on the impugned enhanced income. (emphasis supplied by us) 6. The Ld. CIT(DR) relied upon the orders of the authorities below. 7. We have heard both the parties and perused the material available on record. As noted above, the assessee has raised an additional ground no. 7, in this appeal which is purely legal in nature. We further....
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....its order dated 22.12.2017 in this case i.e. Texport Overseas Pvt. Ltd. (supra) in IT(TP)A No.- 1722/Bang/2017 for A.Y. 2013-14 had held that while omitting the clause (i) of section 92BA, nothing was specified whether the proceeding initiated or action taken on this continue and therefore, the proceeding initiated or action taken under that clause would not survive at all. In view of these facts, the Tribunal held that the cognizance taken by the AO under section 92BA(i) and reference made to TPO under section 92CA was invalid and bad in law and therefore, the consequential order passed by the TPO and DRP were also not sustainable in the eyes of law. 7.4 Further, the Co-ordinate Bench of Tribunal in the case of DLF Urban Pvt. Ltd. Vide its order dated 08.04.2024 in ITA No.- 2078/Del/2022 and 1962/Del/2022, in respect of similar domestic transactions entered by the assessee in respect of 'Purchase of Development Right' also followed the decision of Karnataka High Court in the case of Texport Overseas Pvt. Ltd. (supra) and held that the additional ground raised by the assessee deserves to be allowed and consequently the whole exercise done by Ld. AO to bench mark the transaction ....
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....rovision, the substantive right of appeal vested in a party would not be taken away by holding the repeal to be retrospective. However, in the case in hand, a substantive provision, being infact a charging provision, has been omitted/deleted and consequently benefit of the same has to be given to the assessee. Thus, we are inclined to follow the Hon'ble Karnataka High Court judgement and, on that basis, the additional ground raised by the assessee deserves to be allowed and consequently the whole exercise done by ld. AO to bench mark the transaction of purchase of development right. stands being void." (emphasis supplied by us) 7.5 The adjustment of Rs. 8,32,78,024/- in the case of the assessee for AY 2013-14 was made under clause(i) of Section 92BA of the Act. Therefore, in view of identical position of law in this case of the assessee for AY 2013-14, as in the aforesaid cases as discussed above, respectfully following the same, we hold that the whole exercise of the AO to benchmark the transactions as referred in para no. 2.1 of this order and making an adjustment of Rs. 8,32,78,024/- is not sustainable in the eyes of law as the above orders have held that the deletion ....
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....d in the circumstance of the case and in law, the CIT (Appeals) has erred in confirming the action of the AO in denying direct and indirect benefits of any expense/depreciation resulting from payment of interest on ICD amounting to INR 2,41,34,449 which was capitalized to fixed assets." 8.1 The assessee submitted as under: "21. This ground is Not Pressed but the Appellant reserves the right to agitate the same as and when any disallowance in this regard is made. 8.2. Therefore, this ground is dismissed as not pressed in the present assessment year with the rights of the assessee kept open as submitted by it. 9. Ground 3 of the assessee's appeal is reproduced as under: "3 On the facts and circumstance of the case, the CIT (Appeals) has erred in confirming the action of the AO in disallowing an amount of INR 1,50,56,760 pertaining to brokerage expenses under section 37 of the Act. 9.1 The AO made the disallowance as under: "6. Disallowance of Brokerage: - 6.1 On perusal of P&L A/c, it was noted that during the year the assessee has incurred Rs. 1,50,56,760/- under the head 'Brokerage expenses'. Vide order sheet entry dated 20.12....
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....During the course of hearing, the Ld. Counsel submitted that this issue was squarely covered by the order dated 14.06.2023 of the coordinate Bench of the Tribunal in the case of Candor Kolkata One Hi-Tech Structures Private Limited (ITA No. 3879/Del/2018 and filed a written submission in this regard. The relevant extracts of the said order are reproduced as under: "22. During the year under consideration, the Appellant has paid brokerage fees to various parties totalling to INR 1,50,56,760 (Refer Page 199 to 204 of PB) which was disallowed by the AO and subsequently, the addition on this account was also upheld by the Ld. CIT(A) by stating that there is no nexus between the brokerage expense and the business carried out by the Appellant. 23. The Ld. AO/Ld. CIT(A) failed to appreciate that in the business of tenting properties, it is a general practice to engage brokers for finding tenants. Accordingly, any expense incurred with respect to the brokerage has direct nexus with the business carried out by the Appellant. 24. It is further submitted that the said issue is covered in favour of the Appellant passed by this Hon'ble Tribunal in the case of the ....
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....ication and its allowance as per law. Ground no. 3 of the appeal is partly allowed. 11. Ground no. 4 of the appeal is reproduced as under: 4. On the facts and circumstances of the case, and in law, the CIT (Appeals) has erred in: 4.1 confirming the action of the AO in re-classifying the income from car parking amounting to INR 12,15,000, interest income amounting to INR 38,83,379. permission charges amounting to INR 6,00,000 and license fee amounting to INR 36,667 under the head income from other sources, and 4.2 confirming the action of the AO in denial of deduction under section 80IAB of the Act on such incomes while re-classifying them to income from other sources. 12. The AO treated income of Rs. 57,35,046/- as 'income from other sources' and disallowed to be included in the 'income from Business and Profession'. The relevant discussions of the assessment order are reproduced as under: "7.1 The assessee has declared the following income as revenue from operation: - Income from B&P Income from operating lease rentals 80817698 Income from maintenance services 26078692 Interest from car....
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..... Car parking Rentals are received from even the visitors who come the offices of the occupants thereof such income cannot be considered as from SEZ activities. Therefore. This can be only considered as Miscellaneous Income. (b) In addition to above, the assessee company has also shown Interest Income as Other Operating Income namely Interest from car parking amounting to Rs. 12,15,000/-, Interest income of FD amounting to Rs. 38,83,379/-, Permission charges amounting to 600000/-and License Fee amounting to Rs. 36,667/- totalling to Rs. 57,35,046/- on which it has claimed deduction u/s 80IAB by including the same under the head 'Income from Business' Despite specific opportunity provided to the assessee company. No reply was submitted by it justify its claim for the said deduction. ....................xxx........................ (e) Accordingly, Interest from car parking amounting to Rs. 12,15,000/-, Interest income of FD amounting to Rs. 3,88,3379/-, Permission charges amounting to 600000/- and License Fee amounting to Rs. 36,667/- totalling to Rs. 57,35,046/- appearing in Statement of Profit & Loss is held as ineligible for deduction u/s 80IAB a....
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....Fixed Deposits 38,83,379 Permission Charges 6,00,000 License Fee 36,667 Total 57,35,046 28. With respect to the income from car parking, the Appellant humbly submits that it has leased out completed areas of the SEZ premises to various tenants and has earned operating lease rentals from the aforesaid property which represents the main component of the income reported by it. Incidental to the operating lease rental, the Appellant has also earned income from car parking rentals as business income. 29. The income earned from car parking rental has direct and immediate nexus with the lease rentals. The provision of car parking services is essential part of carrying out the business of development, operation and maintenance of SEZ. Alan, income by way of car parking is part of authorized activities as per instruction No go dated 15th March, 2010 issued by Government of India, Ministry of Commerce and Industry, Department of Commerce. Further, car parking has also been included as part of authorized operations in SEZ as per communication No. F 2/115/2005-EPZ Government of India, Ministry of Commerce and Industry, Department of Commerce (SEZ Section)....
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....nce on the judgement of the Hon'ble Apex Court in the case of Meghalaya Steels Ltd. vs. CIT [2016] 67 tazmann.com 158 (SC), the impugned addition was deleted. (refer para 6 & 7 at page 36-41 of CLC) b. Candor Kolkata One Hi-tech Structures Pvt. Ltd. vs. ACIT bearing ITA No. 6937/Del/2018 (refer pare 14 at page 47 of CLC) 34 With respect to the remaining income in the form of Permission Charges and License Fee, it is humbly submitted that the permission charges are one-time fer charged by the Appellant from Tata Communications Limited and Bharti Airtel Limited in relation to fibre entry in the SEZ premises of the Appellant for its tenant ie Genpact 35. The license fees charged by the Appellant from Bharti Airtel Limited is towards rentals for setting ap telecom towers SEZ premises of the Appellant for providing connectivity infrastructure to its tenants. Since such income has a direct nexus with the business carried out by the Appellant, accordingly the income derived is correctly classified as business income. 36. Accordingly, the impugned reclassification cannot be sustained and is liable to be deleted and hence benefit of deduction....