2023 (7) TMI 1572 - AT - Income Tax

Deduction claim u/s 80IAB - HELD THAT - In the assessee s own case for A.Y. 2008-09 2019 (6) TMI 1288 - ITAT DELHI the issue has been considered by the Tribunal as it arose for the first time in A.Y. 2008-09. It can be appreciated in the findings of the Coordinate Bench that a reasoned finding has been given including the fact that in the group concern cases on identical circumstances and similar reasoning given by the AO the Tribunal has allowed the claim of deduction u/s 80IAB. Accordingly the Bench is inclined to reject ground no. 1. Revenue recognition as per POCM - In assessee s own case for A.Y. 2006-07 2016 (3) TMI 679 - ITAT DELHI issue has been considered against the Revenue. It can be observed that in A.Y. 2006-07 the issues are restored to the files of Ld. AO to make further inquiries in respect of Mangolia project and Summit project. However the adoption of POCM was approved. Further in A.Y. 2008-09 the department s appeal had again raised the issue and taken into consideration the determination of issue in favour of the assessee by the Tribunal in assessee s own case for A.Y. 2006-07. The Co-ordinate Bench had decided the issue against the Revenue. In the present A.Y. the para 9.2 of the order of the Ld. CIT(A) shows he has followed the findings in favour of the assessee by its predecessor by A.Y. 2009-10. In the light of aforesaid the adoption of POCM cannot be interfered and the ground is rejected. Capitalization of the interest - The issue is covered in favour of the assessee vide assessee in assessee s own case for A.Y. 2006-07 2016 (3) TMI 679 - ITAT DELHI we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Lokhandwala Constructions Industries Ltd. 2003 (1) TMI 93 - BOMBAY HIGH COURT and Reliance Utilities Power limited 2009 (1) TMI 4 - BOMBAY HIGH COURT We reverse the order of the CIT (A) confirming the disallowance of expenditure and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act. Addition brokerage and commission - In assessee s own case for A.Y. 2008-09 2019 (6) TMI 1288 - ITAT DELHI the issue has been again determined in favour of the assessee following assessee s own case judgement of the Tribunal for A.Y. 2006-07. The Bench is of considered opinion there is no error in findings of Ld. CIT(A) following findings of the Tribunal in assessee s own case for A.Y. 2006-07 which have attained finality. Accordingly the ground is decided against the Revenue. Addition on account of net contingency deposits - The issue has been considered in the case of assessee for A.Y. 2006-07 2016 (3) TMI 679 - ITAT DELHI by the Tribunal deciding in favour of the assessee. The Ld. CIT(A) has taken into account the fact that this issue has been decided in favour of the assessee for A.Y. 2006-07 by the Tribunal and no further appeal to the High Court has been filed. Further he observed that the issue has been examined by his predecessor in A.Y. 2009-10 and the addition made by Ld. AO was deleted. Ld. AR has pointed out that Assessing Officer himself has not made addition on this issue in A.Y. 2016- 17. Thus following the Tribunal s findings for A.Y. 2006-07 there is no substance in the ground as raised the same is decided against Revenue. Addition on account of non-allocation of proportionate over head expenditure to other group entities - The issue has been decided in favour of the assessee for A.Y. 2012-13 and 2013-14 2021 (9) TMI 1409 - ITAT DELHI we find that the basis adopted by the assessing officer while making disallowance of expenses in the hands of the assessee on account of allocation of overheads to group concerns is static and borrowed from earlier years assessment orders. Further as this issue has already been decided by Coordinate bench in A.Y. 2006-07 to 2011-12 wherein the disallowance was deleted. Addition u/s 14A r.w.r. 8D - CIT(A) has considered the fact that assessee had made his own disallowance for which Assessing Officer has not recorded his satisfaction about disallowance so made by the appellant and relying judgment of Maxopp Investment Ltd 2011 (11) TMI 267 - DELHI HIGH COURT benefitted the assessee. As the same being settled proposition of law requires no interference. The ground is rejected. Notional rent on the properties lying vacant during the year allowed. Depreciation claimed on DLF Central Building allowed. Personal nature expenses attributed to the use of helicopter and aircraft expenses treating them as not incurred wholly exclusively for business purpose - CIT(A) taking into account the nature of business activity of the assessee considered the observations of AO not sustainable and further holding that if any expenditure is identified as personal expenditure incurred on the directors and other employees it would fall within the meaning perquisite and is taxed accordingly. In assessee s own case for A.Y. 2010-11 2020 (10) TMI 77 - ITAT DELHI the issue has been considered and decided in favour of the assessee Addition made by AO on account of carbon credits deleted holding the same to be a capital receipt. Addition on account of short/non-allocation of proportionate overhead expenditure to windmills at Gujrat and Karnatak - As decided in own case A.Y. 2012- 13 and 2013-14 2021 (9) TMI 1409 - ITAT DELHI we find that assessing officer has not given any basis for making impugned disallowance and the only reasoning behind the allocation of expense is that windmill units have not claimed any expenses on account of finance establishment or general admin cost. AR has drawn our attention to form 10CCB which contained complete working of profit and claim of various expenses incurred for running these units. It is self evident that separate set of books of account are maintained for respective windmill unit at Gujarat and Karnataka. In these circumstances unless there is some material or conclusive finding on record that books of account of these units are not correct or expenses pertaining to these units have not been claimed there could be no case of any notional allocation of expenses in the ratio of income. The assessment order is silent on this aspect and merely contains working of disallowance by allocation expenses in the ratio of income which in our view is not sustainable. At this juncture it is pertinent to make reference to decision of Translam Ltd 2014 (10) TMI 544 - ALLAHABAD HIGH COURT wherein it was held that assessing officer is bound to point out defect in separate books of account of units before disputing the correctness of income/loss declared therein Disallowance of prior period expenses - CIT(A) has taken into consideration the fact that the liability to pay the expense has incurred and arisen during the year therefore the same was allowable as expenses. In the assessee s own case for A.Y. 2006-07 2016 (3) TMI 679 - ITAT DELHI the issue has been decided in favour of the assessee and Ld. AR has pointed out that department has not preferred any appeal on this issue before Hon ble High Court and AO himself has not made disallowance on this issue in A.Y. 2016-17. Thus following the Tribunal s findings for A.Y. 2006-07 there is no substance in the ground the same is rejected.

2025 (5) TMI 740 - AT

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in these appeals arising under the Income Tax Act, 1961, relate to the correctness of additions and disallowances made by the Assessing Officer (AO) and the subsequent deletions or restrictions thereof by the Commissioner of Income Tax (Appeals) [CIT(A)]. The key issues include:

Whether the deduction claimed under section 80IAB is rightly disallowed by the AO.
Whether the adoption of the Percentage of Completion Method (POCM) for revenue recognition by the assessee is permissible.
Whether capitalization of interest expenses is justified or disallowable under section 36(1)(iii) of the Act.
Whether brokerage and commission expenses are rightly disallowed.
Whether additions on account of net contingency deposits are justified.
Whether proportionate overhead expenditure should be allocated to other group entities and disallowance made for non-allocation.
Whether disallowance under section 14A read with Rule 8D is justified and the extent thereof.
Whether business income is rightly recharacterized as income from house property.
Whether notional rent on vacant properties is taxable.
Whether depreciation claimed on certain buildings is allowable.
Whether expenses of personal nature, specifically helicopter and aircraft expenses, are rightly disallowed.
Whether income from carbon credits is taxable as business income or capital receipt.
Whether disallowance on account of short or non-allocation of overhead expenditure to windmill units is justified.
Whether prior period expenses are allowable or require disallowance.

2. ISSUE-WISE DETAILED ANALYSIS

Deduction under Section 80IAB (Ground No. 1)

The AO disallowed deduction claimed under section 80IAB. However, the Tribunal relied on its earlier decisions in the assessee's own case for A.Y. 2008-09, where identical facts were considered and the deduction was allowed. The reasoning included consideration of group concerns and similar circumstances where the deduction was permitted. The Revenue failed to distinguish facts or law. Accordingly, the Tribunal upheld the CIT(A)'s deletion of the addition, rejecting the Revenue's ground.

Revenue Recognition under Percentage of Completion Method (POCM) (Ground No. 2)

The AO added income on account of revenue recognition as per POCM. The Tribunal referred to its earlier decision in the assessee's own case for A.Y. 2006-07, where POCM adoption was approved, subject to certain inquiries. The CIT(A) followed this precedent and the earlier findings in favour of the assessee for A.Y. 2009-10. The Revenue failed to provide any contrary evidence or legal basis to interfere. Therefore, the Tribunal upheld the CIT(A)'s order allowing the POCM method.

Capitalization of Interest Expenses (Ground No. 3)

This issue involved disallowance of interest expenses capitalized by the assessee. The Tribunal extensively analyzed the matter, relying on its own prior decisions for A.Y. 2006-07 and 2008-09, and various judicial precedents including decisions of the Bombay High Court and coordinate Benches. The key points of analysis included:

The proviso to section 36(1)(iii) disallows interest deduction on capital borrowed for acquisition of capital assets during the period before the asset is put to use. However, in this case, the interest related to inventory (stock-in-trade), not capital assets.
Accounting Standard 16 (AS-16) requires capitalization of borrowing costs on qualifying assets, but the provisions of the Income Tax Act prevail over accounting standards.
Loans were used for business purposes, including advances to subsidiaries, and interest income earned on such loans was offered to tax, negating any diversion of funds for non-business purposes.
Judicial precedents such as CIT vs. Lokhandwala Constructions Industries Ltd. and Calico Dyeing & Printing Works v. CIT were cited to establish that interest paid on capital borrowed for business purposes, including for stock-in-trade, is allowable.
The Tribunal rejected the AO's adhoc disallowance and artificial formula for proportionate disallowance, emphasizing presumption in favour of the assessee where mixed funds are used.

Accordingly, the Tribunal confirmed the deletion of the addition related to capitalization of interest.

Brokerage and Commission Expenses (Ground No. 4)

The AO's disallowance of brokerage and commission was deleted by the CIT(A), relying on the Tribunal's earlier orders in the assessee's own case for A.Y. 2006-07 and 2008-09. The AO himself did not make any disallowance for A.Y. 2016-17. The Tribunal found no error in the CIT(A)'s findings and rejected the Revenue's ground.

Net Contingency Deposits (Ground No. 5)

The issue was considered in the assessee's own case for A.Y. 2006-07, where the Tribunal ruled in favour of the assessee. The CIT(A) followed the same reasoning and deleted the addition. The AO did not make any addition on this issue for A.Y. 2016-17. The Tribunal upheld the deletion.

Non-allocation of Proportionate Overhead Expenditure to Group Entities (Ground No. 6)

The AO disallowed expenses for non-allocation of overheads to other group entities. The CIT(A) deleted the addition based on prior findings in the assessee's own case for A.Y. 2006-07 to 2011-12 and subsequent years. The Tribunal agreed that the AO's disallowance was based on static reasoning borrowed from earlier years and rejected the Revenue's ground.

Disallowance under Section 14A read with Rule 8D (Ground No. 7)

The CIT(A) restricted the addition under section 14A read with Rule 8D to a nominal amount, relying on settled legal principles and the decision in Maxopp Investment Ltd. vs. CIT. The AO had not recorded satisfaction for disallowance beyond the amount self-disallowed by the assessee. The Tribunal found no reason to interfere with the CIT(A)'s order.

Recharacterization of Business Income as Income from House Property (Ground No. 8)

The CIT(A) followed the findings of predecessor authorities and the Tribunal's earlier decisions in the assessee's own case for A.Y. 1996-97 and 2006-07, which held that the income was rightly treated as business income. The Tribunal upheld the deletion of the addition.

Notional Rent on Vacant Properties (Ground No. 9)

The CIT(A) deleted the addition based on earlier findings in the assessee's own case for A.Y. 2005-06 and 2009-10. The AO himself did not make any addition for A.Y. 2016-17. The Tribunal upheld the deletion.

Depreciation on DLF Central Building (Ground No. 10)

The CIT(A) deleted the addition following prior orders for A.Y. 2006-07 to 2011-12. The Revenue had not challenged the relief in higher forums and the AO did not make any addition for A.Y. 2016-17. The Tribunal found no merit in the Revenue's ground.

Personal Nature Expenses - Helicopter and Aircraft (Ground No. 11)

The CIT(A) rejected the AO's disallowance of helicopter and aircraft expenses, holding that such expenses were incurred wholly and exclusively for business purposes, given the nature of the assessee's business involving frequent travel of directors, executives, and consultants across multiple project sites in India and abroad. The Tribunal relied on the decision in Sayaji Iron and Engineering Co. Ltd. and the assessee's own case for A.Y. 2010-11 and 2011-12, which upheld the business purpose of such expenses. The Revenue failed to cite any contrary authority. The Tribunal dismissed the ground.

Carbon Credits (Ground No. 12)

The AO added income on account of carbon credits, treating it as business income. The CIT(A) deleted the addition relying on judicial decisions including the Andhra Pradesh High Court ruling in Commissioner of Income Tax vs. My Home Power Ltd., which held that carbon credits are capital receipts arising from environmental concerns and not business income. The Tribunal upheld the deletion.

Short/Non-allocation of Overhead Expenditure to Windmills (Ground No. 13)

The AO disallowed expenditure on the ground that the assessee did not allocate establishment, finance, and general administrative expenses to windmill units in Gujarat and Karnataka, which claimed deduction under section 80IA. The CIT(A) deleted the disallowance after noting that separate books of accounts were maintained for the windmill units, and all operational, general, and administrative expenses were debited to respective divisions. The AO's adhoc allocation based on income ratio was found unsustainable, especially as the AO failed to point out any defect in the separate books of account. The Tribunal relied on the Allahabad High Court decision in CIT v. Translam Ltd., which requires the AO to identify defects in separate books before making such disallowances. The Tribunal upheld the CIT(A)'s deletion.

Prior Period Expenses (Ground No. 14)

The AO disallowed prior period expenses. The CIT(A) allowed them, holding that the liability arose and was payable during the relevant year. The Tribunal relied on earlier decisions in the assessee's own case for A.Y. 2006-07 and noted that the Revenue had not challenged the relief in higher forums. The AO did not make any addition for A.Y. 2016-17. The Tribunal rejected the Revenue's ground.

3. SIGNIFICANT HOLDINGS

The Tribunal, following consistent precedents and the principle of judicial discipline, upheld the CIT(A)'s orders deleting or restricting the additions made by the AO across multiple grounds. The following core principles and determinations were established:

Deduction under Section 80IAB: The assessee is entitled to claim deduction under section 80IAB where the conditions are met, and the Revenue cannot disallow such deduction without distinguishing facts or law from earlier decisions.
Revenue Recognition by POCM: The adoption of Percentage of Completion Method for revenue recognition in real estate business is permissible and not liable to interference where approved in earlier assessments.
Capitalization of Interest: Interest paid on capital borrowed for business purposes, including inventory, is allowable under section 36(1)(iii). The proviso disallowing interest applies only to capital assets, not stock-in-trade. Accounting standards cannot override the Income Tax Act provisions.
Disallowance of Expenses: Expenses such as brokerage, commission, contingency deposits, and proportionate overheads must be disallowed only if there is concrete evidence of non-allocation or non-incurrence. Mere adhoc or formula-based disallowance without basis is unsustainable.
Section 14A Disallowance: Disallowance under section 14A read with Rule 8D requires satisfaction of AO and cannot be arbitrary. Self-disallowance by the assessee limits the scope of further disallowance.
Characterization of Income: Business income cannot be recharacterized as income from house property or vice versa without sound basis. Similarly, carbon credits represent capital receipts arising from environmental concerns, not business income.
Personal Expenses: Expenses incurred for business purposes, including travel by aircraft and helicopter for executives and directors, are allowable. Personal expenditure identified on individuals is taxable as perquisite, not disallowable as business expense.
Separate Books of Account: Where separate books of account are maintained for different business units or divisions, the AO must point out defects before making disallowances on account of non-allocation of expenses.
Prior Period Expenses: Expenses relating to prior periods are allowable if the liability arises in the current year and is payable.