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2015 (5) TMI 930 - ITAT HYDERABAD

2015 (5) TMI 930 - ITAT HYDERABAD - TMI - Transfer pricing adjustment - DRP directing AO to delete the disallowance made on account of transfer pricing adjustment involving payment of share application money - Held that:- This issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for assessment year 2008-09 wherein it was held by the Tribunal relying on its earlier decision in the case of Vijay Electricals Ltd. V/s. Addl. CIT (2013 (7) TMI 804 .....

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tions of the assessee company with its AE, involving payment of share application money - Decided in favour of assesse.

Disallowance of expenditure incurred on staff welfare and others - DRP allowed the claim - Held that:- Similar issue was involved in the case of the assessee for the assessment year 2008-09 wherein held that the department cannot disallow the expenditure merely because there is a clerical error in the bills produced by the assessee towards the expenditure.It was held .....

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such expenditure - Respectfully following the said decision of the coordinate bench of this Tribunal in assessee’s own case,we uphold the impugned order of the Dispute Resolution Panel - Decided against revenue.

Disallowance of expenditure for which payments were made in cash - DRP directing the Assessing Officer to restrict the disallowance only to the extent of 10% - Held that:- this issue is also squarely covered by the decision of the Tribunal in assessee’s own case for assessmen .....

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nt year 2008-09 in as much as the assessee company had interest free funds in the form of customer advances amounting to ₹ 556.36 crores and debentures and CCDs amounting to ₹ 600 cores, which were sufficient to give the interest free advances to the subsidiaries as well as other companies. - Decided against revenue.

Disallowance of expenditure for construction work - DRP allowed the claim - Held that:- The issue involved in the year under consideration as well as all the .....

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stances, we are inclined to allow the claim of the assesse - Decided against revenue.

Income recognition - change in the method of recognition of income based on registration of agreements for sale or completion of possession and consequential reversal of revenue on cancellations/legal cases - Held that:- As relating to the estimation of budgeted cost for the purpose of determining percentage of completion of project, the same is squarely covered by the decision of the Tribunal in ass .....

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econd aspect of the issue relating to the change in the method of recognition of income adopted by the assessee company, In the present case, as a result of extra-ordinary events witnessed by the Satyam group of companies to which the assessee company belonged in the month of January, 2009, there was uncertainty with regard to the completion of project by the assessee company and delivery of units booked. Keeping in view this uncertainty, some of the agreement holders tendered applications for c .....

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ration of agreements for sale or handing over of possession of the units, as the same enabled it to assess the ultimate collection with reasonable certainty. As such, considering all the facts of the case, we are of the view that the learned DRP was fully justified in directing the Assessing Officer to accept the change in the method of revenue recognition adopted by the assessee and consequential reversal of revenue on the basis of the cancellations/legal cases, and upholding its order giving r .....

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t claimed by the other group companies, in whose names the relevant bills are issued, the same may be allowed as deduction in the case of the assesse - Decided against revenue.

Disallowance under S.40(a)(ia) - default on the part of the assessee to deduct tax at the rate of 1% for the payments made to Maytas Infra P. Ltd., instead of 2% - Held that:- As decided in CIT V/s. S.K.Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] the provisions of S.40(a)(ia) are applicable for non-deduc .....

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194C - held that:- As it is observed that a similar issue was involved in assessee’s own case for assessment year 2008-09 wherein Tribunal restored this matter to the file of the Assessing Officer with a direction to verify as to whether corresponding interest was duly offered to tax by MIL in its return of income and tax thereon was also duly paid. The Assessing Officer was directed by the Tribunal that if it is found on such verification that tax has already been paid by the payee, on the inte .....

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GTAP AND AND SHRI SAKTIJIT DEY, JJ. For The Appellant : Shri D.Sudhakar Rao CIT-DR For The Respondent : Shri S.Rama Rao ORDER Per P.M.Jagtap, Accountant Member : This appeal is preferred by the revenue against the order dated 30.7.2014 passed by the Dispute Resolution Panel(DRP) under S.144C(5) read with S.144C(8) of the Income Tax Act,1961. 2. In ground No.1, Revenue has challenged the action of the learned Dispute Resolution Panel in directing the ing Officer to delete the disallowance of S .....

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4,98,75,451. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has made an investment of ₹ 52,68,08,490 in the share application money of its wholly owned subsidiary, M/s. Maytas Properties M.E.(FZE) Pvt. Ltd., Duibai. Keeping in view that this transaction was in the nature of the international transaction entered into by the assessee company with its AE, a reference was made by the Assessing Officer to the TPO for determining its Arm s .....

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addition on account of TP adjustment was proposed to be made by the Assessing Officer in the t assessment order, the assessee raised an objection before the Dispute Resolution Panel, who directed the Assessing Officer not to make such addition on account of TP adjustment by relying on the decision of the Tribunal in assessee s own case for the assessment year 2008-09 vide its order dated 6.6.2014 in ITA No.1404/Hyd/2014, wherein it was held that the transaction of the assessee company with its A .....

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d by the Tribunal relying on its earlier decision in the case of Vijay Electricals Ltd. V/s. Addl. CIT (2013)36.taxmann.com.396(Hyd-Trib)), that the amount representing investment made by the assessee company in share capital of its subsidiary outside India was not in the nature of international transaction, as referred to in S.92B of the Act, and therefore, Transfer Pricing provisions were not applicable to such transactions. Respectfully following the said decision of the coordinate bench of t .....

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directing the Assessing Officer to allow the expenditure incurred by the assessee on staff welfare and others amounting to ₹ 6,02,730 and ₹ 25,19,832 respectively 6. During the year under consideration, the assessee company had claimed an expenditure of ₹ 6,02,730 on distribution of gifts and ₹ 13,21,000 on account of provision for LTA and ₹ 11,98,832 on account of prepaid insurance. As found by the Assessing Officer during the course of assessment proceedings, the .....

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diture on the basis of the relevant bills and vouchers raised in its name or not and if it is found that there is no such double claim, the expenditure claimed by the assessee should be allowed. 7. At the time of hearing, the learned representatives of both the sides have agreed that a similar issue was involved in the case of the assessee for the assessment year 2008-09 and vide its order dated 6.6.2014 (supra), the Tribunal has decided the same holding that the department cannot disallow the e .....

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n that there is no such double claim, the Assessing Officer was directed by the Tribunal to allow the claim of the assessee of such expenditure. Respectfully following the said decision of the coordinate bench of this Tribunal in assessee s own case for assessment year 2008-09 on similar issue, we uphold the impugned order of the Dispute Resolution Panel, setting aside this issue to the file of the Assessing Officer for deciding the same afresh as per the same directions as given by the Tribunal .....

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; 20,000 otherwise than by crossed cheque or bank draft. As these payments aggregating to ₹ 1,03,32,278 were clearly hit by the provisions of S.40A(3), the assessee was called upon by the Assessing Officer to offer its explanation in the mater. The explanation offered by the assessee in this matter, however, was not found acceptable by the Assessing Officer. Accordingly, he proposed to disallow the expenditure of ₹ 1,03,32,278 by invoking the provisions of S.40A(3). He also observed .....

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sustainable. As regards the disallowance of the said expenditure made by the Assessing Officer alternatively as per the provisions of S.37(1), it was held by the Tribunal that such expenditure claimed by the assessee, which was otherwise genuine, could not be disallowed entirely for want of vouchers. It was held by the Tribunal that it would be fair and reasonable in the facts of the case to disallow relevant expenditure to the extent of 10% for the unverifiable element. Following the decision o .....

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lar issue involved in the year under consideration, i.e. assessment year 2009-10. Respectfully following the said decision of the coordinate bench of this Tribunal in assessee s own case for assessment year 2008-09 on similar issue, we uphold the impugned order of the Dispute Resolution Panel directing the Assessing Officer to make disallowance of the amount of expenditure only to the extent of 10%. Ground No.2 of the Revenue s appeal is accordingly dismissed. 11. In ground No.4, the Revenue has .....

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cer that the assessee company has advanced certain amounts to its subsidiaries free of interest. He therefore, worked out the interest which the assessee company ought to have charged to its subsidiaries on such advances on notional basis at ₹ 4,08,33,638 and disallowance to that extent was proposed to be made by him out of the interest expenditure claimed by the assessee. It was also noticed by the Assessing Officer that the assessee has given loans and advances to seven other companies, .....

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ing the disallowance proposed to be made by the Assessing Officer out of the interest expenditure, the DRP found that a similar disallowance made out of interest in assessee s own case for assessment year 2008-09 was deleted by the Tribunal vide its order dated 6.6.2014 (supra) involving similar facts and circumstances. Accordingly, following the said decision of the Tribunal, the learned DRP directed the Assessing Officer not to make any disallowance out of interest expenditure claimed by the a .....

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give the interest free advances to the subsidiaries as well as other companies. He has also submitted that all these advances were given by the assessee company during the course of its regular business and nexus of these advances with the business of the assessee was duly explained before the Assessing Officer. He has contended that the facts involved in the year under consideration thus are similar to that of assessment year 2008-09, for which a similar issue has already been decided by the Tr .....

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g borrowed funds were used by the assessee for non-business purposes. However, the assessee made a plea before us that it is having enough own funds in the form of share capital, reserves and surplus, interest free e from customers and deposits and the funds were diverted to the sister concern for business purpose which are in the similar nature of business of the assessee. Being so, it cannot be considered that the assessee used the interest bearing funds for non-business purposes. The assessee .....

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e to the assessee, notional interest cannot be disallowed on the reason that assessee should have d its non-interest bearing funds for the purpose of business instead of using borrowed funds. The AO cannot sit in the arm chair of businessman and decide what the assessee has to do to maximize its profit. In our opinion, the judgment relied upon by the learned AR of the assessee in the case of A Builders (supra) and also coordinate bench decision in the case of SSPDL Ltd. Vs. DCIT, 24 ITR(Trib.)(H .....

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s own case for assessment year 2008-09. The same giving relief to the assessee on this issue is accordingly upheld and the ground No.4 of the Revenue s appeal is dismissed. 16. In ground No.5, Revenue has challenged the action of the learned DRP in giving direction to the Assessing Officer to restrict the disallowance on account of total expenditure of ₹ 5,59,97,114 only to the extent of 10% of such expenditure for which payment is found to be made in cash. 17. In their Audit Report, the S .....

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y the assessee to dispute the said disallowance, the learned DRP found that a similar issue involved in assessee s own case for assessment year 2008-09 was decided by the Tribunal vide its order dated 6.6.2014, whereby the Assessing Officer was directed to allow the expenses found to be paid by cheques on verification and to make a disallowance of 10% of the balance expenses, which are found to be made in cash. Following the said decision of the Tribunal for assessment year 2008-09, the DRP dire .....

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to be made by cheque and to make 10% disallowance out of the balance expenses which are found to be paid in cash. We therefore, find no justifiable reason to interfere with the order of the DRP directing the Assessing Officer to decide a similar issue involved in the year under consideration, as per the same directions as given by the Tribunal in assessment year 2008-09. The same is therefore, upheld on this issue, dismissing ground No.5 of the Revenue s appeal. 19. In ground no.6, the Revenue h .....

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the assessee company to M/s. Maytas Infra P. Ltd., there was no requirement for entrusting any construction work to M/s. Chourasia Construction. He therefore, held that the payment claimed to be made by the assessee to M/s. Chourasia Construction was not a genuine payment and the same did not represent the expenditure wholly and exclusively incurred by the assessee company for the purpose of its business. Accordingly, the amount of ₹ 6,67,03,479 claimed by the assessee was proposed to be .....

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assessee s own case for assessment year 2008-09, the DRP directed the Assessing Officer to allow the expenditure claimed by the assessee on account of payment made to M/s. Chourasia Construction. 22. At the time of hearing, learned representatives of both the sides have agreed that this issue is also squarely covered by the decision of the Tribunal rendered in assessee s own case for assessment year 2008-09, wherein a similar issue has been decided by the Tribunal in favour of the assessee vide .....

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ia Construction company in respect of this expenditure. The expenditure incurred by the assessee cannot be disallowed on mere presumptions and surmises and it is necessary to ring on record the evidence to suggest that payment is not genuine. In the present case, there is a valid agreement between the assessee and M/s Chourasia Constructions company and they have rendered services and payment was made. It is not the case of the revenue authorities that particulars of person to whom the amounts w .....

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sion. In the present case, assessee has fulfilled requirement of the provisions of section 37 of the IT Act. The claim of payment to subcontractor by the assessee is not disqualified for deduction under the Act. Now coming to the next question as to whether the expenditure is capital or not, we are of the opinion that the expenditure is not a capital expenditure since the assessee did not acquire any capital asset and the payment is also not in the nature of personal expenditure and not brought .....

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the transferees no doubt gained control of the company. But one important fact of the case was that n r the transferor nor the transferee derived any direct benefit out of the payment of retrenchment compensation to the employees even though such retrenchment might have facilitated the transfer of shares. It is also not the case of the Department that the payment was excessive. That there a substantial reduction in the wage bill in the future years as a consequence of retrenchment was also not .....

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nses of the assessee, and (iii) had been laid out or expended wholly and exclusively for the purposes of his business, profession or vocation. Even assuming that the motive behind the payment of retrenchment compensation was that the terms of the agreement of the sale of shares should be satisfied, as long as the amount had been laid out or expended wholly and exclusively for the purpose of e business of the assessee, there appears to be no good reason for denying the benefit of s. 10(2)(xv) to .....

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ec., 1955, the company had by passing the resolution incurred liability to pay retrenchment compensation and compensation for termination of service. On account of the said resolution, the total value of the assets of the company was reduced by the amount payable to the employees by way of compensation. It is natural that the purchaser of the shares would ordi y claim reduction in the consideration payable for the shares by the amount which the company had undertaken to pay as assets of the comp .....

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de whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and it s incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by e expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10( .....

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e payment of compensation was made with an oblique motive and without regard to commercial consideration or expediency. Hence, amount d to directors and employees is allowable as a deduction." Further, it is also noticed that the dispute went before the Court and MOU was filed before the Court, which is placed on record at pages 234, 225 & 204 of the paper book. It is also brought on record that Maytas Infra Ltd. is not carried on any work of this and there is no overlapping of work. Co .....

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are similar to assessment year 2008-09, we respectfully follow the decision of the coordinate bench of the Tribunal and uphold the impugned order of the DRP giving relief to the assessee on this issue. Ground no.6 of the Revenue s appeal is accordingly dismissed. 23. In ground No.7. Revenue has challenged the action of the DRP in directing the Assessing Officer to accept the income as recognized by the assessee by adopting a change in the method of rcognition of income based on registration of a .....

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revised to ₹ 584.72 and ₹ 816.86 crores in Assessment year 2008-09 and 2009-10 respectively. As a result of increase in the budgeted cost of construction, the percentage of work completion was reduced in assessment year 2008-09 and as well as in the year under consideration i.e. 2009-10. Consequently, there was reversal of revenue. The previous year relevant to assessment year 2009-10 also witnessed some extraordinary events creating uncertainty in the progress of work of the projec .....

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nts for sale adopted in the earlier years. The revenue recognised in the earlier years on the basis of execution of agreements for sale was also reversed by the assessee company in the year under consideration on the basis of cancellation of agreements for sale, as sought by some of the agreement holders. All these aspects affected the revenue of the assessee company for assessment year 2009-10 adversely and the revenue recognized by the assessee finally worked out at a negative figure of ₹ .....

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claim of the assessee for such escalation and calculation of less percentage completion based on such escalation could not be accepted. He held that the percentage completion for assessment year 2009-10, therefore, has to be calculated based on the budgeted cost as estimated originally for reckoning the income of the assessee company. 26. As regards the change in the method adopted by the assessee company in the year under consideration to recognize the revenue only on the basis of registration .....

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ed to refund any amount in the wake of cancellation of agreements for sale sought by some customers by filing legal cases. It was also found by the Assessing Officer that the collection of amount from the customers was to the tune of 87% of the agreements for sale entered into by the assessee company. According to the Assessing Officer, there was no uncertainty with regard to the amounts already received from the customers and consequently, no reversal of income could justifiably be made on the .....

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₹ 437.33 crores. 27. The income computed by the Assessing Officer at ₹ 228.17 crores as against its declared income at a negative figure of ₹ 41.67 crores was challenged by the assessee by way of an objection raised before the Dispute Resolution Panel. The learned DRP found that a similar issue involved in assessee s own case was already decided by the Tribunal in assessment year 2008-09 vide its order dated 6.6.2014 (supra), wherein the method of accounting followed by the ass .....

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his issue relying on the decision of the Tribunal in assessee s own case for assessment year 2008-09, wherein the issue was considered and decided by the Tribunal vide paragraph No.47 and 48 of its order which read as under- 47. We have heard both the parties, perused the record and gone through the orders of the authorities below. In this case, admittedly the assessee is engaged in the business of construction of residential plots and houses and the revenue from construction is recognized on th .....

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on the basis of revised estimate thereby DR pleaded that it is selfserving budget to reduce the tax liability. It is a normal feature in construction activity that cost gets escalated in view of increase in price of construction materials. The Department has not doubted the fact of increase in cost and has stated that assessee's books of account does not represent the true picture of the actual works completed by the assessee and wholly relied on the special auditor's report. The other .....

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in the present case it is not possible to hold that income actually accrued to the assessee as estimated by the AO. Once the assessee recognized the income in accordance with the accounting standard and in terms of the agreements the assessee entered into, revenue authorities cannot disturb the same. AO cannot substitute the assessment to say that assessee has postponed the tax liability. There is no ic deviation in the method of accounting followed by the assessee regarding recognition of incom .....

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ss, it cannot be said that it has acted in a manner in which no reasonable person can act. The guidance note accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made. Non-recognit .....

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ount as soon as there is a possibility, howsoever uncertain, of such losses being incurred. The provisions of section 145(1) are subject to, inter alia, mandate of AS-1 which also prescribes that Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies'. In the name of compliance with section 145(1 .....

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9;s present case, we are of the view that the authorities below are not justified in bringing the impugned notional income to tax. 47.1 In view of the above, in our opinion, unless and until the department has proved that agreement executed by the assessee with M/s Maytas Infra Ltd., is collusive agreement, the agreement cannot be rejected as both are different assessees and it is to be followed in true spirit. In our opinion, the method followed by the AO is not correct. Our view is fortified b .....

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sfer the title in the property. Till such time, it cannot be said that the parties involved in are ready to perform the contract. In the t case, neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration. When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale .....

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have to see all surrounding circumstances to decide accrual of income to the assessee. Looking at the prevailing circumstances in the present case, it is not possible to hold that income has actually accrued to the assessee. When consideration is not determinable with reasonable certainty, the assessee is justified in postponing recognition of income and it is appropriate to recognise the income only when it is reasonably certain that the ultimate realisation is possible. Being so, revenue coul .....

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te his assessment to say that th assessee has postponed the tax liability. There is no ic deviation in the method followed by the assessee regarding recognising of income. However, the AO was of the opinion that there is basic flaw in the method followed by the assessee to recognise the income. When there is no deviation in recognising the income by the assessee, the AO cannot recompute the profit of the assessee by observing that there is basic flaw in the method followed by the assessee. 45. I .....

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33 TTJ (Chennai) 595 wherein the Tribunal Chennai Bench held as under: "9. We are unable to agree with the contentions of the learned Departmental Representative that the transaction of transfer is complete by applying the provisions of s. 53A of Transfer of Property Act on the date when the possession of the property was handed over to the developer as per the development agreement dt. 1st Sept., 2003. Sec. 53A of the Transfer of Property Act does not provide the conditions for transfer bu .....

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y law, the transferor is barred from enforcing against the transferee any right in respect of the property other than the right expressly provided by the terms of the contract. Under the IT Act, 1961 by inserting cls. (v) and (vi) of s. 2(47), the definition of the term transfer includes the transaction which fulfils the conditions provided under s. 53A of Transfer of Property Act. Therefore, s. 53A of the IT Act, 1961 (sic-Transfer of Property Act) is borrowed only with respect to the transfer .....

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herwise transferred. Therefore, the time of chargeability to income-tax of capital gain arising from the conversion of capital asset to stock-in-trade is the point when the stock-intrade is sold or otherwise transferred, whereas the chargeability of capital gain under s. 45 of the IT Act, 1961 from transfer of capital asset shall be in the previous year in which the transfer took place including the transfer as provided under s. 2(47) of the IT Act, 1961. The sale/transfer of stock-in-trade cann .....

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lment of certain conditions provided therein but does not provide that even on fulfilment of that condition the transfer is complete. As per provision of s. 53A of the Transfer of Property Act when a right is created in favour of the transferee which cannot be defeated, otherwise then by the terms and conditions expressly provided in the contract itself. 10. From the development agreement dt. 1st Sept., 2003 as well as the supplementary agreement dt. 23rd Dec., 2003, the assessee handed over the .....

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, the possession was handed over for carrying out the construction work by the developer and there is no other document except th development agreement which transfers the title of the property to the developer. In the absence of the transfer of the title of the property and any consideration at the time of development agreement, the handing over of the possession was merely a temporary measure for carrying out the construction work by the developer and the exclusive possession of the property i .....

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property which is stock-in- trade or otherwise transfer as provided in the Transfer of Property Act. We agree with the contentions of the learned Authorized Representative of the assessee that the meaning of the words, "otherwise transferred", in s. 45(2), should be according to its ordinary popular and natural sense, and it should not include a transaction referred to under sub-cl. (v) of sub-s. (47) of s. 2 of the IT Act, 1961 in relation to a 'capital asset'. no stretch of i .....

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unless the title of the property is passed on to the purchaser, there cannot be a sale or transfer of immovable property, since in the present case the question is whether the handing over of the possession under the development agreement of the property which is stock-in-trade of the assessee can be treated as a transfer by applying the definition of transfer in s. 2(47) of the IT Act, 1961. As we have already stated earlier that in the case of stock-in-trade, the definition of transfer under .....

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sessee has agreed only for a portion of the constructed property for sale for the purpose of recovery of the cost of construction and margin of the developer. The assessee has executed all the sale deeds for transfer of the constructed apartments in favour of the end-user/purchaser, therefore the transfer of the proportionate land took place only when the assessee transferred the construction property by way sale deeds and offered the business income which was accepted by the Department. In any .....

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land and building into stock-in-trade proportionately into the previous years in which the constructed property was sold by the assessee or retained for self-use and corresponding business income was offered." (b) B.L. Subbaraya vs. DCIT, 9 SOT 297 (Bang) wherein the Bangalore Bench of the Tribunal held as under: "8. The fact which is undisputed is that the entire settlement is still a subject-matter of dispute being sub judice and there is no finality attained even during the year un .....

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of the partnership firm M/s Electronics & Controls was taken over by a private limited company, M/s Electronics & Electronics Power Systems (P) Ltd. The said winding up petition came to be dismissed by the Hon'ble High Court of Karnataka on 2nd March, 2000 on e plea that there was no sum due from the company inasmuch as the settlement was between the assessee and the individual, Smt. Sundari Ramachandran. Subsequently, the assessee instituted a suit for recovery of the amount terms o .....

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firm, M/s Electronics Controls. Therefore, having regard to the binding nature of judgment of the Hon'ble Supreme Court in the case of Hindustan Housing & Land Development Trust Ltd. (supra), to the proposition that where an amount was in dispute, it could not be t d as income, we do not find any infirmity in the conclusion of the CIT(A) that a sum of ₹ 77,00,000 cannot be brought to tax during the year under consideration as the matter had not attained finality. However, the CIT(A .....

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fter perusing the material available on record, I am not inclined to concur with the finding of the CIT(A), because the assessee had entered into the development agreement with M/s Arora Builders (Sukhmani Construction). The FSI on the said lot was revised, but the project could not be completed. Therefore, at the cost of this hardship no interest was paid by the owner to the assessee company on its deposit at the rate of 12 per cent per annum of the same amount. It is undisputed fact that the a .....

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terialized. The assessee has pointed out that because of non-availability of FSI on the said plot of land for which the assessee had entered into development agreement with M/s Arora Builders (Sukhmani Construction), the assessee company could not develop the said property in view of the statutory restrictions and, therefore, the whole project has become unviable to continue. Hence, no interest had accrued to the assessee in the year under consideration. Accordingly, the addition of ₹ 4,99 .....

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al of the records and the subsequent events leading to the amalgamation establishes that the debenture issuing company has been under serious financial crisis and the impugned resolutions passed to the effect of waiver of interest are reliable. Regarding the requirement of the resolution to be registered u/s 106 r.w.s. 192 of the Companies Act as observed by the Ld.CIT(A), it is pertinent to mention that the said provisions are not applicable as the resolutions passed by the debenture issuing co .....

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is extracted hereunder: A) that merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it. B) earning of the income, whether actual or notional, to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides not to charge interest in order to safeguard the principal amount and ensure its recovery, it cannot be said that he has acted in a manner in which no reasonable person can act. C) .....

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ty of the principal outstanding itself was doubtful, is legally correct under the mercantile system of accounting, when the same is in accordance with AS-I notified by the Government E) It is one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization while all anticipated losses are taken into account as s .....

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, it cannot be open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, th assessee was justified in following the policy of not recognizing these interest revenues till the point of time when the uncertainty to realize the revenues vanished. " As the principles laid down in recognizing the income equally applies to the facts of t .....

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t find any infirmity in the order of the CIT(A) and the same is confirmed. Grounds taken by the Revenue are rejected and the appeal is dismissed. 48. Since the issue under consideration is identical to that of the said case, following the decision of the Tribunal in the said case, it is to be held that real income to be taxed an not notional income and accordingly, we delete the addition made. This ground is allowed. 29. At the time of hearing before us, the Learned Departmental Representative h .....

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he basis of cancellation/legal cases. He has contended that although the first aspect relating to the budgeted cost of the project was involved in the assessee s own case for assessment year 2008-09, the second aspect relating to the change in the method of recognition of revenue was not involved in assessment year 2008-09 and the Tribunal therefore, had no occasion to give any finding thereon. The Learned Departmental Representative has contended that this issue has arisen for the first time in .....

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ered Accountants of India(ICAI). The learned Departmental Representative, however, has not agreed with this contention of tedhe learned counsel for the assessee and proceed to make submissions to support the view as taken by the Assessing Officer initially in the draft assessment order while rejecting the change adopted by the assessee company to recognise the income for assessment year 2009-10. 30. The Learned Departmental Representative has submitted that the assessee company having entered in .....

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year 2008-09, merely because of the cancellation of agreements for sale as sought by the agreement holders in some cases during the year under consideration. He has contended that such unilateral cancellation cannot create any uncertainty in the recognition of income of the assessee company, unless and until the assessee company also agrees for such cancellation. He has contended that there was however, no such mutual agreement for cancellation of agreements for sale and since the assessee comp .....

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itnessed during the month of January, 2009 in the entire Satyam group as a whole resulted in uncertainty in the execution of project undertaken by the assessee as a result of which some of the agreement holders sought cancellation of the units booked by them, by filing applications as well as by lodging cases in the court of law. He has submitted that the advances paid by them under the agreements for sale were also demanded back, and subsequently, their stand was not only upheld by the National .....

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d 9, the assessee company was fully justified in changing the method of recognition of revenue as well as reversing the revenue recognized earlier on the basis of execution of agreement for sale, which were sought to be cancelled by some of the agreement holders during the year under consideration. He has contended that such reversal of income in any case cannot be construed as a loss to the assessee company, as there is bound to be a corresponding increase in the closing work in progress, since .....

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in it was held that the percentage of completion is required to be worked out on the basis of budgeted cost of construction, as revised from time to time, depending on the facts of the case. Respectfully following the said decision of the Tribunal in assessee s own case for assessment year 2008-09, relevant portion of which is extracted hereinabove, we uphold the impugned order of the DRP on this aspect of the matter. 33. As regards the second aspect of the issue relating to the change in the me .....

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ndered while deciding the first aspect of the matter is applicable even in relation to the second aspect, as both these aspects involve the claim of the assessee based on prudential norms of revenue recognition, which is duly supported by the Accounting Standards issued by the ICAI. The relevant observations of the Tribunal in this context as recorded in paragraph 47 of its order dated 6.6.2014 (supra) are reproduced below- 47. ......It is also a fact that assessee has recognized the income in a .....

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the assessment to say that assessee has postponed the tax liability. There is no basic deviation in the method of accounting followed by the assessee regarding recognition of income. Being so, the AO cannot dispute the profit of the assessee by observing there is a flaw in the method followed by the assessee. Further, merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it as estimated by AO. Earning of the income, whether actual .....

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volved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made. Nonrecognition of income on the ground that the income had not really accrued is legally correct under the mercantile system of accounting, when the same is in accordance with AS-I notified by the Government. It is one of the fundamental principles of accounting that, as a measur of prudence and following the principle of conse .....

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s of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies'. In the name of compliance with section 145(1), it cannot be open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the assessee was justified in following the policy of not recognizing these reve .....

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r of the assessee, reliance was heavily placed by the Tribunal on the relevant Accounting Standard which provided for prudential norms of revenue recognition. The Tribunal also took note of the uncertainty involved in revenue recognition and held that in terms of the Guidance Note issued by the ICAI, it was appropriate to recognise the Revenue in such cases only when it became reasonably certain that ultimate collection would be made. The Tribunal also held that non-recognition of income on the .....

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is concerned, it is observed that the claim of the assessee for change in the method of recognizing the revenue on the basis of registration of agreements for sale or handing over possession of the units to the agreement holders is also based on prudential norms of revenue recognition and the same is supported by Accounting Standard 9, which clearly states that the key criterion for determining when to recognize the revenue from a transaction involving sale is that the seller has transferred the .....

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As per AS-9, recognition of revenue requires that revenue is measurable and that at the time of sale, it would not be unreasonable to expect ultimate collection. Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, Revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. When t .....

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January, 2009, there was uncertainty with regard to the completion of project by the assessee company and delivery of units booked. Keeping in view this uncertainty, some of the agreement holders tendered applications for cancellation of the units booked and demanded refund of the advances paid. Some of the agreement holders also filed cases against the assessee company for cancellation the agreements and refund of the amounts paid by them. The ultimate collection from these agreement holders th .....

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ecuted and for refund of the advances already paid created uncertainty relating to collectability which arose even after the execution of the agreements for sale, and this uncertainty was also provided for by the assessee by reversing the income already recognized on the basis of execution of the agreements for sale. The change in the method of recognition of income, as adopted by the assessee company in the year under consideration as well as the consequent reversal of income on the basis of ca .....

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ational Consumer Disputes Redressal Commission, New Delhi (vide order at pages 56 to 87 of the assessee s paper-book) subsequently allowed the claim of the agreement holders seeking cancellation of the agreements for sale and also directed the assessee company to refund the amounts paid by them along with interest, and even the SLP filed by the assessee against the order of the National Consumer Dispute Redressal Commission was dismissed by the Hon ble Supreme Court. These subsequent events clea .....

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o accept the change in the method of revenue recognition adopted by the assessee and consequential reversal of revenue on the basis of the cancellations/legal cases, and upholding its order giving relief to the assessee on this issue, we dismiss ground No.7 of the Revenue s appeal. 39. During the course of appellate proceedings before the Tribunal, the Revenue has raised three additional grounds and also filed an application seeking admission thereof. Since all the issues raised in those additio .....

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by the Assessing Officer on the ground that the bills produced by the assessee company in support of the said expenses were not in its name, but were in the name of other group companies, it is observed that a similar issue as involved in ground No.2 originally raised in the appeal of the Revenue has already decided by us in the foregoing portion of this order by following the decision of the coordinate bench in assessee s own case for assessment year 2008- 9. Following the said decision, we uph .....

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ground No2. relating to the disallowance of ₹ 59,84,34,562 proposed to be made by the Assessing Officer under S.40(a)(ia) for the alleged default on the part of the assessee to deduct tax at the rate of 1% for the payments made to Maytas Infra P. Ltd., instead of 2%, it is observed that this issue is squarely covered by the decision of the Hon'ble Calcutta High Court in the case of CIT V/s. S.K.Tekriwal (ITA No.183 of l2012 dated 10.12.2012) wherein it was held that the provisions of S .....

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