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2016 (1) TMI 682

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..... n the nature of damages and not in the nature of interest. We, therefore, are of the view that the amount in question cannot be characterised as interest within the meaning of section 194A of the Act. Consequently there was no obligation on the part of the assessee to deduct tax at source. Consequently no disallowance could be made u/s 40(a)(ia) of the Act. We therefore direct the disallowance made by the AO and sustained by the CIT(A) should be deleted. - Decided in favour of assessee Addition on interest income in relation to the deposit lying the Government of West Bengal - accrual of income - Held that:- The plea of the assessee for not recognising the interest income has been on the basis that the State Government had not issued orders for payment/credit of interest to the interest bearing treasury account of the assessee. There is no allegation that the State Government has refused to pay interest on the treasury account maintained by the assessee. It cannot also be said that the interest in question cannot be recognised owing to denial by the State Government of its obligation to pay interest or for the reason that the State Government is unable to pay interest. In such .....

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..... een a method of accounting followed by the assessee was to recognise income only when registration of conveyance is completed in favour of the allottees. In fact the settled position in law is that a sale is complete only on registration of conveyance. The extended meaning of the definition “transfer” u/s 2(47) of the Act will not be applicable in the present case for the reason that sale of land by the assessee is sale of stock in trade and stock in trade is not a capital asset within the meaning of definition of the said term u/s 2(14) of the Act. The extended meaning of the definition “transfer” u/s 2(47) of the Act is applicable only to transfer of a capital asset. Besides the above we are of the view that the assessee has recognised this income from the sale of land in the subsequent year i.e. 2009-10. In the given facts and circumstances we are of the view that CIT(A) was fully justified in deleting the addition made by the AO - Decided in favour of assessee - ITA No.1739/Kol/2013, ITA Nos.1740&1741&1742/Kol/2013, ITA No.213/Kol/2012 & ITA No.113/Kol/2012 - - - Dated:- 2-12-2015 - SHRI N.V.VASUDEVAN, JM SHRI WASEEM AHMED, AM For the Petitioner : Shri Sanjay Bhatt .....

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..... ar period offered by State Bank of India. For the sake of ready reference clause (7) of the allotment letter is reproduced as below :- 7. Physical possession of the plot would be handed over only after full payment of the land price and registration of sale deed by the competent Authority. If, however, possession of plot is delayed by HIDCO by more than 6(six) from the schedule date of possession the Corporation shall pay interest on instalments already paid by the allottee during such extended period at the prevailing fixed term deposit rates for similar period offered by the State Bank of India. The assessee further explained that the nature of this payment was in fact the nature of damages and not in the nature of interest. 3.2. According to the AO the aforesaid payment was in the nature of payment of interest and therefore the assessee ought to have deducted tax at source at the time payment or credited to the account of the payee whichever is earlier as per the provision of section 194A of the Act. The AO was of the further view that since the assessee failed to deduct tax at source on the aforesaid sum the claim of the assessee for deduction of the aforesaid sum .....

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..... t Authority (supra). The ld. Counsel therefore submitted that there was no obligation of the deduction of tax at source on the part of the assessee u/s 194A of the Act. Consequently no disallowance of the aforesaid sum by invoking the provision of section 40(a)(ia) of the Act could be made. 4.1. The ld. DR drew our attention to the definition of interest u/s 2(28A) of the Act and submitted that the definition contemplates moneys borrowed or debt incurred including deposit claimed or other similar right or obligation. According to him the payment in dispute in this appeal could be attributed to a claim made by an allottee under a letter of allotment which could be termed as interest u/s 2(28A) of the Act. 5. We have carefully considered the rival submissions. The issue for consideration is as to whether the sum of ₹ 9,71,17,977/- which was a sum debited in the Profit and Loss account on account of obligation of the assessee to pay the allottees for the delay in delivery of possession of plots within the agreed time could be said to be interest. We have already noticed that there is no definition of interest u/s 194A of the Act which defines the expression interest . I .....

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..... Commissioner of Income-tax (Appeals) failed to appreciate that there has not been any accrual of interest income in the hands of the appellant. 6.1 The assessee receives grants from West Bengal State These grants are kept in treasury accounts. It is not in dispute that this account is an interest bearing account. The AO noticed that there was a sum of ₹ 3,58,00,000/- in treasury account which was reflected in the balance sheet under the head investments . According to the AO the assessee ought to have offered interest accrued on the deposit at the rates at which interest is general provided by the treasury namely 7.5% on ₹ 3.58 crores viz., a sum of ₹ 26,85,000/-. According to the AO the assessee was following mercantile system of accounting and therefore the assessee ought to have recognised the income on accrual basis and offered the same to tax. 6.2. The plea of the assessee was that though the account is interest bearing in spite of several reminders the treasury has not credited any interest and since no interest was coming from the treasury interest income is not recognised. The assessee also brought to the notice of the AO several correspondences .....

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..... intaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies 28[or by an authority or a board or a corpora-tion or any other body established or constituted under any Central or State Act;] 29[(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance wit .....

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..... asis of in principle approval without any necessary notification of the Govt. of West Bengal even assessee failed to produce any supporting documents to prove that it was mandated by the Govt. of West Bengal to develop infrastructure projects on Its own. From the details of works done it is clear that the assessee company is engaged in carrying out subsidiary works mainly. As no copy of written agreement as mandated u/s. 80IA(4) (b) of the LT. Act, 1961 was submitted either before the A.O. or before me I think A.O. was justified in disallowing deduction u/s 80IA of the I.T.Act, 1961, thus assessee s appeal on ground no.5 is dismissed. 9.2. Before us the ld. Counsel for the assesee drew our attention to the order of the CIT(A) for A.Y.2008-09 wherein the CIT(A) allowed the claim of the assessee for deduction u/s 80IA(4)(i) of the Act. The following are the relevant observation of the CIT(A) :- 7. Regarding ground nos. 1 to 4 relates to disallowance of deduction u/s 80IA of the I.T.Act, 1961 to the extent of ₹ 13,73,26,244/-. The appellant is a wholly owned public sector undertaking of Govt. of W.B. formed by notification dt. 19-04-1999 with the main object of developi .....

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..... Authorised Representative harped on the point that there was a notification by the State Govt. Empowering the assesse to develop or operate and maintain infrastructure facility which can be equated to agreement between the assessee and the State Govt.. We further notice that the condition for grant of deduction u/s.80IA(4)(i) of the Act is that the assessee should start operating and maintain the infrastructure facility. As rightly contended by the ld. DR, the CIT(A) in deciding the appeal for A.Y.2008-09 has not considered any of the aforesaid requirements for allowing deduction u/s 80IA(4)(i) of the Act. In the impugned order, the CIT(A) has only refused deduction that the conditions mentioned u/s 80IA(4)(b)(i) of the Act has not been satisfied. In the given circumstances, we are of the view that it is just and appropriate to set aside the order of CIT(A) and remand the question of allowing deduction u/s 80IA(4)(i) of the Act to the AO for fresh consideration. The AO will examine all the requirements for allowing the aforesaid deduction. The assessee will provide all the details to substantiate its claim for the aforesaid deduction for statistical purpose. Ground Nos. 5 and 6 ra .....

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..... e identical grounds 1 and 2 in ITA No.1739/Kol/2013 and ground nos.5 and 6 in this appeal are identical to ground nos. 3 and 4 in ITA NO.1739/Kol/2013. For the reasons stated therein ground nos. 3 and 4 are allowed and ground no.s 5 and 6 are dismissed. 22. In the result ITA No.1740/Kol/2013 of the assessee is partly allowed. ITA No.113/Kol/2012 and ITA No.213/Kol/2012 23. ITA No.113/Kol/2012 is an appeal by the assessee while ITA No.213/Kol/2012 is an appeal by the revenue. Both these appeals are directed against the order dated 04.11.2011 of CIT(A)-XII, Kolkata relating to A.Y.2008- 09. ITA No.113/Kol/2012 (Assessee s appeal)(A.Y.2008-09): 24. Ground Nos. 1 and 2 raised by the assessee is similar to ground nos. 1 and 2 raised by the assessee in ITA No.1739/Kol/2013 for A.Y.2005-06. While deciding the aforesaid ground in A.Y.2005-06 we have already held that the addition made by the AO and confirmed the CIT(A) cannot be sustained. For the reasons stated therein ground nos. 1 and 2 raised by the assessee in this appeal is allowed. 25. Ground Nos. 3 and 4 raised by the assessee read as follows : 3. That the Commissioner of Income-tax (Appeals) was wrong in .....

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..... #8377; 26.17 crore to the total income of the assessee. The assessee has accepted this addition and has not challenged the same before CIT(A) for A.Y.2007-08. 27.1. In the light of the factual background on the aforesaid issue, we are of the view that a sum of ₹ 26.17 crore was income of A.Y.2007-08 and has been taxed in the said assessment year and therefore cannot be taxed again in A.Y.2008-09. Accordingly ground nos. 3 and 4 raised by the assessee is allowed. 28. In the result ITA No.113/Kol/2012 of the assessee is allowed. ITA No.213/Kol/2012 (Revenue s appeal)(a.Y.2008-09) : 29. Ground No.1 raised by the revenue reads as follows :- 1. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the addition on account of under statement of profit amounting to ₹ 204.67 crore though the assessee had allotted and handed over the land. 30. As we have already seen that the assessee develops and sells land, flat etc. The assessee adopts a practice of recognising the income on sale of land and flats only when registration of conveyance is completed. The CAG commented in his report that since the assessee had allotted la .....

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..... AO. The ld. Counsel for the assessee relied on the order of the CIT(A). We are of the view that the order of the CIT(A) does not call for any interference. It is not disputed by the revenue that there has been a method of accounting followed by the assessee was to recognise income only when registration of conveyance is completed in favour of the allottees. In fact the settled position in law is that a sale is complete only on registration of conveyance. The extended meaning of the definition transfer u/s 2(47) of the Act will not be applicable in the present case for the reason that sale of land by the assessee is sale of stock in trade and stock in trade is not a capital asset within the meaning of definition of the said term u/s 2(14) of the Act. The extended meaning of the definition transfer u/s 2(47) of the Act is applicable only to transfer of a capital asset. Besides the above we are of the view that the assessee has recognised this income from the sale of land in the subsequent year i.e. 2009-10. In the given facts and circumstances we are of the view that CIT(A) was fully justified in deleting the addition made by the AO. Consequently ground No.1 raised by the revenue .....

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