TaxTMI 
TaxTMI 
2026 (9) TMI 906
X X X X Extracts X X X X
X X X X Extracts X X X X
....2015-16, 22.12.2018 for AY 2016-17 by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as 'ld. AO'). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. Both the parties mutually agreed that the appeal of the assessee for the Assessment Year 2013-14 in ITA No. 4606/Del/2025 may be taken as the lead case. ` 2. The Ground Nos. 2 to 4 raised by the assessee in Assessment Year 2013-14 are challenging the addition made in under section 56(2)(viib) of the Act in respect of excess share premium over the fair market value. 3. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of development of Information Technology Special Economic Zone (SEZ) project at Gurugram and derives income from leasing of commercial buildings constructed in the SEZ. The assessee is a co-developer of the SEZ project pursuant to the approval granted by the Department of Commerce under the Ministry of Commerce and Industry, Government of India. In the year 2009, an Indian resident individual Shri V C Bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alue or not. The assessee was asked to justify the same. The assessee submitted that it had allotted equity shares to its existing shareholders (both resident and non-resident) at Rs. 100 per share which includes premium of Rs. 90 per share. The assessee submitted that equity funds are to be used for commercial building for earning the rentals. It was submitted that the share issue price for resident and non-resident shareholders were the same at Rs. 100 per share. The non-resident shareholder followed RBI guidelines for investment in real estate in India. It was submitted that the funds are received only from the existing shareholders. It was submitted that the shares were allotted at Rs. 100 per share with a premium of Rs. 90 per share based on the valuation done using Discounted Cash Flow (DCF) Method in accordance with Rule 11UA of the Income Tax Rules. The assessee submitted the allotment of shares to both resident and non-resident shareholders by way of the following table:- SI. No Name of shareholder & Status % Holding as on 14.2012 additional equity shares issued in FY 12-13 (crs) FV Sh Premium Total Amount in Rs. crs % Holding as on 14.2013 Holdi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taken from bank and Rs. 57 crores was received from shareholders. It was projected that this rental business will earn a positive cash inflow of Rs. 24 crores per annum initially and then increase progressively over the years based on market conditions. The initial lease term is of 30 years with renewal options. The building is star rated and one of the top buildings in SEZ area of Gurugram. Gurugram is house to many fortune 500 companies and commercial rentals was a promising business. On trial basis, the assessee company just developed 4.17 acres out of 64 acres of SEZ land. The value per share has been arrived at Rs. 100 per share based on potential rental income for 5,50,000 square feet area on DCF method . Based on DCF valuation of Rs. 100 per share, both the non-resident and resident shareholders subscribed to the shares of the assessee company by investing Rs. 31.41 crores and Rs. 22.33 crores respectively. The non-resident shareholder i.e. Ascendas is one of the Asia's largest diversified real estate groups with a global AUM of over 136 billion dollars as of December 2024 and Shri V C Burman, co-promoter of Dabur India Limited, have a proven track record of integrity a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Delhi High Court in the case of PCIT vs Cinestaan Entertainment Pvt. Ltd. reported in 433 ITR 82 (Del) had observed that the learned AO cannot match actual performance with the projections and therefore, this approach lacks material foundation and is irrational since the valuation made by the assessee is intrinsically based on the projections which can be affected by various factors. It was also held that valuer makes the forecast or approximation based on the potential valuation of the business. Hence, the learned AO cannot rework the projections at the time of assessment by replacing the projections with the actuals for the purpose of rejecting the DCF method adopted by the assessee. 8. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we direct the Learned AO to delete the addition made under section 56(2)(viib) of the Act in respect of shares issued a premium of Rs. 90 per share for the Assessment Year 2013-14. Accordingly, the Ground Nos. 2 to 4 raised by the assessee are allowed. 9. Since relief is granted to the assessee on merits, the adjudication of Ground No. 1 for the Assessment Year 2013-14 become ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e number CA / 2490 /75 has also been accompanied with the application for occupancy certificate mentioned as above. The building completion certificate i.e. Form BR - IV(B) was also placed on record. It was submitted that the occupancy certificate has been allotted on the basis of the report submitted by the licensed architect Mr. Rajinder Kumar and the same was inspected by Mr. Anand Mittal, nominated architect by the Department. The Developer again made an application for grant of occupancy certificate in the name of co-developer i.e. Dr. Fresh SEZ Phase 1 private limited vide its letter dated 23-09-2013, because the earlier application was applied in the name of developer only instead of in the name of both the companies. 15. As stated earlier, the loan borrowed from banks has been utilized for construction of commercial buildings. The interest cost and other cost which is included in the 'financial expenses' in the total sum of Rs. 11,81,48,116 is not eligible for capitalization as per the Accounting Standard 16 (AS-16) [ 'Borrowing Costs'] issued by the Institute of Chartered Accountants of India (ICAI). As per clause 19 of AS-16, which relates to cessation of capitalizatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the claim of deduction of the assessee in the assessment. 17. Before the Learned CIT(A), the assessee contended that the borrowing had been utilized only for business purposes and that the commercial project had substantially been completed. The business had already commenced; the expenditure represented normal business finance cost and that the proviso to section 36(1)(iii) of the Act would not be attracted at all in the instant case. The assessee further contended that commercial readiness and business use cannot be made dependent exclusively upon the date of issuance of the occupancy certificate. The Learned CIT(A) held that the Learned AO had proceeded primarily on the basis that occupancy certificate had been issued only in March 2015. The Learned CIT(A) held that the absence of occupancy certificate was not decisive of the question whether the asset had been put to use for the purpose of business ; the project had reached a stage where it formed part of the business infrastructure of the assessee. With these observations, the Learned CIT(A) held that the interest on loan upto the date of occupancy certificate i.e. upto 18-3-2015 is required to be capitalized and since th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of existing business or since the business activity is not capable of commercial exploitation here. With these observations, the Learned AO noted that the expenditure was intrinsically connected with the commercial project which was yet to become functional and consequently proceeded to disallow the same. 22. The Learned CIT(A) noted that the advertisement expenditure had been incurred in the ordinary course of its business with the object of marketing the commercial space developed by the company. The said expenditure is to be construed as wholly and exclusively incurred for the purpose of business of the assessee as a normal business outlay allowable under Section 37(1) of the Act. The Learned CIT(A) noted that the allowability of advertisement expenditure could not be made dependent solely upon the date of issuance of the occupancy certificate. Aggrieved, the revenue is in appeal before us. 23. On perusal of the audited financial statements of the assessee company which are placed on record by the Learned AO, we find that the revenue had allowed all other business expenditure claimed by the assessee as a deduction and had sought to disallow only the advertisement and mar....