TMI Blog2016 (3) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... ance in stale cheque account for the only reason that they are outstanding for more than three years. - Decided in favour of assessee Addition of amount received from customers in terms of contractual obligation - Held that:- These are the security deposits which would be utilised in performance of the contractual obligation of the assessee towards those buyers. Anyway, it is not the case of the AO that these receipts have been received during the year, it is also not the case that the payers or the depositors are unidentified and it is not the case of the AO that these amounts have been paid by the buyers without any obligation on the assessee to perform by providing the services. In view of this, we confirm the order of CIT (A) in deleting the addition - Decided in favour of assessee Addition made on a/c of Interest free security deposit - Held that:- It is a fact that these deposits are received in terms of sale agreement for customers as security deposit till the formation of condominium and society. These deposits are taken as a safeguard to defray the maintenance expenditure of the society and to keep these deposits for insurance premium and maintenance. They are refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, payment of brokerage cannot be allowed as deduction either u/s 23 or u/s 24 of the Act. Hence, we confirm the order of the CIT (A) confirming the disallowance - Decided against assessee Addition on account of revenue recognition in respect of sale of land and plots based on POCM (Percentage Of Completion Method) by changing the appellant's method of accounting - Held that:- In absence of demonstration by the AO about the allegedly incorrect method of accounting, we are of the view that exercise of taxing this income in AY 2006-07 as well as in AY 2007-08 it amounted to double taxation which is not permitted under the law. Therefore, relying on the decision of Realest Builders and Services ltd (2008 (5) TMI 6 - SUPREME COURT ), we are of the view that income of the assessee on sale of plot of land cannot be taxed in this year. It becomes a futile exercise when there is no loss of revenue involved. In view of this, we reverse the decision of CIT (A) and delete the addition on account of profits on sale of land and plots which are registered in favour of the buyer in AY 2007-08 and income of the identical amount is offered for taxation in AY 2007-08 and revenue has not reduced t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertaining to the first time registration of the trademark.- Decided in favour of assessee Disallowance of repairs and maintenance of guest-house at Mussoorie - Held that:- In this case the construction expenditure of compound wall has been held to be of capital in nature only on the ground that the expenditure resulted in enduring benefit. We are of the view that this is not the only test for holding that expenditure is capital in nature. Hon. Karnataka High court in Commissioner Of Income-Tax vs. B.V. Ramachandrappa And Sons [1991 (1) TMI 67 - KARNATAKA High Court ] wherein held disallowance of expenditure on compound wall on repairs and maintenance of guest house only on the sole ground of enduring benefit test cannot be upheld. In view of this we reverse the decision of CIT (A) and delete the disallowance on account of repairs and maintenance of guest house.- Decided in favour of assessee Disallowance of consultancy expenses in connection with purchase of aircraft - Held that:- No infirmity in the order of CIT (A) holding that the amount paid for consultancy fees for purchase of aircraft which is a fixed asset cannot be allowed as revenue expenditure. Therefore we confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India Ltd. vs. DICT [2007 (4) TMI 299 - ITAT DELHI-F ] has deleted the addition. We do not find any infirmity in the order of the CIT (A) and revenue could not controvert the fact of any expenditure with instances that these are not incurred by the assesse wholly and exclusively for the purposes of the business of the assessee. - Decided in favour of assessee Addition on a/c of opening balances in construction account - External Development Charges - Held that:- Project wise details of the construction expenses showing opening balances as at 01.04.2005 are added as income of the assessee without granting credit for the debit entries. Merely picking up some ledger balances and excluding some ledger balances addition has been made by the AO. Merely because there are some ledgers of the main ledger account, it cannot be said that they are income of the assessee when they have been already considered by adjustment of the main ledger account. Therefore, we do not find any infirmity in the order of the CIT (A) and none has been pointed out by the ld. DR.unsustainable - Decided in favour of assessee Additions on a/c of provision for construction account - Regency Park account no A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by ld. AR before CIT (A) that various licences are in place and now before us that the cinema division is functioning, therefore, keeping all these facts in mind, we confirm the deletion of disallowance - Decided in favour of assessee Additions on a/c of Grand Mall project u/s 40A(2)(b) - Held that:- When the assessee is a company, the person to whom it has to make payment in order to attract the sale provision is any director of the company or any relative of the director. Admittedly, in this case, the payment is made to the subsidiary company and not to any director or any relative of the said direction. As the alleged transaction by the AO is between holding company and subsidiary company, the transactions between the holding company and a subsidiary company are not hit by the provisions of section 40A(2)(b) of the Act. In view of this, we confirm the order of CIT (A) in deleting the additions/disallowances of ₹ 16,95,66,085/- under section 40A(2)(b) of the Act on three counts - (a) there is no determination of AO by the market value of the transaction; and (b) the expenditure determined by the AO is incorrect; and (c) section 40A(2)(b) does not apply to the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve facts, we confirm the order of CIT(A) in deleting the addition with a direction to AO for verification of the statement submitted by the assessee. Credit on TDS denied - Held that:- As the rental income has been assessed under the head "income from other sources" and since the TDS relates to the very same income, the credit for the said TDS cannot be logically denied. Addition being project expenses - Held that:- The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee - Decided in favour of assessee Addition being late construction charges received by the assessee company - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness purposes of the assessee as the nature of these transaction is receipt of amount from customers of DLF commercials developers limited in respect to sale of property by DLF Commercial developers limited. Ld. AR has further stated that in fact appellant has given loan to this party and balance receivable prior to the amount received on behalf of the customer of that company was ₹ 2046054553/-. Therefore in fact there is debit balance of that party in the books of the assessee and it is not correct that assessee has received any sum as loan from DLF Commercial |Developers Limited. Addition on a/c of deemed dividend - Held that:- As the assessee is not a shareholders of the lender companies deemed dividend cannot be taxed in the hands of the assessee u/s 2 (22) (e) of the Act on protective basis. Therefore we confirm the order of CIT (A) - Decided in favour of assessee Disallowance of electricity expenses - Held that:- Most of these expenses are in the nature of electricity expenses of the property taken on rent by the assessee that was explained to the AO by assessee however same were disallowed. Naturally the electricity bill would be in the name of owner of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was sent for conducting special audit u/s 142(2A) of the Act. Further, it was noted that a survey was also conducted u/s 133A of the Act at the company's premises at P-39 (Basement), NDSE, Part II, New Delhi and certain documents were found. On 30.06.2008, CIT (A), Delhi IV granted approval of conducting the special audit of books of accounts of the assesse for this year. In accordance with that, a special auditor was appointed for conducting the special audit and submitted his report in Form No.6B of the Income-tax Rules, 1962 (hereinafter the Rules'). Finally, on 29.12.2008, the audit report was submitted which was in 13 volumes. Based on this audit report and further on submission of various documents, AO completed the assessment order u/s 144, 145 (3) read with section 142(2A) of the Act on 06.05.2009. In the assessment order, additions to the tune of ₹ 10,15,99,67,581/- were made to the returned income of ₹ 3,40,64,22,522/- making the assesse income of ₹ 13,56,63,90,100/-. Out of the total addition of ₹ 10,15,99,67,581/-, the addition to the extent of ₹ 2,25,85,28,452/- has been made on protective basis and ₹ 7,90,14,39,129/- on su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . TOR - 9 Volume - V Brokerage expenses for various Projects Brokerage paid for Amex Building 178 188 188 192 20,87,70,567 64,39,262 14. TOR - 8 Volume - V Excess Depreciation on Constructed Building Revenue recognition on Saket Court Yard 192 194 194 198 9,14,277 13,24,00,000 15. TOR - 13 Volume - VIIA - VIID Revenue recognition on the basis of POCM Working for 8 projects 198 320 222,56,87,056 16. TOR - 15 20 Volume - VIII Reclassification of Income from House property Reconciliation of rental income with TDS Certificate Notional Income from House properties 321 326 330 326 329 346 8,15,68,758 4,49,85,573 3,27,52,542 17. TOR - 20 Volume - VIII Compensation paid to Shrira ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bidding for modernization of Mumbai / Delhi Airport Expenditure where bills are not in the name of company Expenditure Allocation 437 451 1,94,78,536 1,93,38,906 6,50,000 1,47,70,222 13,48,804 1,77,32,060 26. As per Form - 6B Provision for gratuity u/s 40A(7) Expenditure u/s 40A(3) ₹ 5,13,934/- x 20 / 100 Prior period expenses 49,81,625 1,02,786 20,99,510 Total 1015,99,67,581 03. Aggrieved by the impugned assessment order, the assesse filed appeal before the CIT (A) and submitted voluminous details. The assesse also filed an application under rule 46A of the Rules seeking admission of additional evidences vide letters dated 07.10.2009 and 10.03.2010 which were in turn sent by CIT (A) to the AO and the AO submitted his comments vide letter dated 14.10.2009 and assesse filed its rejoinder vide letter dated 04.11.2009. The ld. CIT (A) admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative or other expenditure was disallowable u/s 14A of the Income-tax Act, 1961. 3.3 That the learned CIT(A) has erred grossly in applying section 14A of the Act without appreciating that this section has no application to the present case. 3.4 That the learned CIT(A) ought to have held that no disallowance u/s 14A can be made on the facts circumstances of the appellant's case and hence erred in setting aside the issue and directing the AO to verify and compute the disallowance under sec 14A of the Act. 3.5 That the learned CIT (A) failed to appreciate the submissions of the appellant that there is no nexus between borrowed funds investments. 3.6 Without prejudice to above, the learned CIT(A) has erred in law, on facts and in circumstance of the case in not appreciating that for the purpose the of making disallowance u/s 14A of the Act the assessing officer, having regard to accounts of the assesse for previous year, has to be not satisfied with - (a) the correctness of the claim of the expenditure made by the assesse or (b) the claim made by the assesse that no expenditure has been incurred in relation to income which does not form part of the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the appellant in the immediately subsequent year relevant to assessment year 2007-08 and has, as such, resulted into double taxation of the same income. [Page 33 and 35 of CIT (A)'s Order] 7.2 That without prejudice, the learned CIT(A) ought to have given directions to exclude this amount from the taxable income of A.Y. 2007-08 if the same has been found taxable in the current year. 8. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of ₹ 78,77,80,921/- out of total addition of ₹ 102,84,93,509/- made by the Assessing Officer on account of revenue recognition on projects completed less than 30% based on POCM- namely Summit and Magnolia projects rejecting the submissions of the appellant that POCM method could not be applied to these projects because even the construction work was not started before 31st March, 2006. 8.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the subsequent years and has, as such, resulted into double taxation of the same income. [Pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of ₹ 64,39,262/- on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building. [Page 109-116 of CIT (A)'s Order] 11. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of ₹ 42,86,05,986/- out of total addition of ₹ 222,56,87,056/- on account of revenue recognition on the basis of percentage of completion method (POCM) in respect of ICON Project after including IDC. [Page 122-153 of CIT (A)'s Order] 11.1 That the learned CIT(A) has erred in directing the AO to verify the details/information filed with AO and in confirming the addition as the CIT(A) has no such power to set aside the part of addition made by AO. [Page 152 of CIT (A)'s Order] Page 10 of 144 11.2 That without prejudice, the learned CIT(A) failed to give appropriate directions to allow the claim in the subsequent years in which the appellant had itself accounted for the revenue in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopers Ltd. 6,50,000 Total : 84,12,762 15. That learned CIT (A) has grossly erred in law and on facts and in the circumstances of the appellant's case in confirming the addition of ₹ 3,12,41,768/- out of total addition of ₹ 35,08,31,012/- on account of closing credit balance in Allotment A/c Code No.10141A001 by holding that these are old balances received by the appellant from its customers and they are more than 10 years old. [Page 204-218 of CIT (A)'s Order] 15.1 That without prejudice, the learned CIT (A) ought to have issued directions to exclude the amount, if the appellant itself recognized the same as its income in subsequent years. 16. That learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant's case in confirming the disallowance of ₹ 1,47,70,222/- on account of expenditure for bidding for modernization of Mumbai and Delhi Airports by holding that the appellant is in the business of real estate development which consists of development and sale of apartments and has never been engaged in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the same could not legally be set aside. 3.2 That the learned CIT(A) has failed to appreciate that no interest, administrative or any other expenditure was incurred by the appellant in relation to investments during the assessment year 2006-07.That the learned CIT(A) ought to have held that no amount of interest, administrative or other expenditure was disallowable u/s 14A of the Income-tax Act, 1961. 3.3 That the learned CIT(A) has erred grossly in applying section 14A of the Act without appreciating that this section has no application to the present case. 3.4 That the learned CIT(A) ought to have held that no disallowance u/s 14A can be made on the facts circumstances of the appellant's case and hence erred in setting aside the issue and directing the AO to verify and compute the disallowance under sec 14A of the Act. 3.5 That the learned CIT(A) failed to appreciate the submissions of the appellant that there is no nexus between borrowed funds investments. 3.6 Without prejudice to above, the learned CIT(A) has erred in law, on facts and in circumstance of the case in not appreciating that for the purpose the of making disallowance u/s 14A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 1647.55 lakhs u/s 14A of the Act. 08. Assesse carried the matter before the CIT (A) raising several contentions, however, CIT (A) holding that Rule 8D of the Income tax Rules does not apply for the impugned assessment year set aside the whole issue back to the file of the AO in view of the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Ltd. Vs. DCIT [328 ITR 81] to disallow expenditure u/s 14A on reasonable basis or method after verifying all the relevant facts and affording reasonable opportunity of hearing to assess. Pursuant to that order, the AR submitted that until today, AO has not passed any order. Therefore, the assesse is in appeal before us against this order of CIT (A) against setting aside the issue. 09. Before us, ld. AR for the assesse contended that : (i) For invoking provisions of section 14A the Act and imputing any disallowance by AO, he is required to satisfy himself that disallowance made by assesse is incorrect having regard to the books of accounts of the assesse and then only AO is empowered to work out any disallowance u/s 14A of the Act. He submitted that assesse itself has disallowed ₹ 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a P. Ltd. (ITA No. 486/2014) [Delhi] . ii. CIT .v. Oriental Engineers Pvt. Ltd (Delhi)(HC) ( 605/2012, Dt. 15.01.2013) where in it is held that expenditure on acquiring shares out of commercial expediency to earn taxable income cannot be disallowed by invoking rule 8D of the IT rules 1962. (iv) The Assessing Officer has made only general observation and not recorded any finding that there is any nexus between borrowed funds and investment in shares and partnership firm and disallowance was made on the mechanical basis. In any case, investments in subsidiaries and firms are part of business activities, the claim of interest is permissible deduction under section 36(1) (iii) of the IT Act, 1961. He submitted that there is no nexus between the interests bearing funds invested in taxfree income generating investments such as partnership firms or private limited companies. He stated interest free funds available with the assesse as at 31.03.2006 in the form of share capital of ₹ 40 crores and reserve surplus of ₹ 607 crores. He also stated that investment made allegedly in private limited companies and partnership firms is ₹ 505 crores and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the decision of Hon'ble Delhi High Court in the case of Cheminvest Limited V CIT 378 ITR 33 ( del) where Hon'ble Delhi High Court, reversing the decision of Special Bench of ITAT, has held that if there is no income from investments no disallowance u/s 14A can be made. Based on this decision, he submitted that on strategic investment in shares of private limited companies, the assesse company earned no exempt income in the relevant previous year and since the genuineness of the expenditure incurred by the assesse on interest account as well as the purposes of investments in these companies is not in doubt, the disallowance u/s 14A cannot be made. For this, he relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA Nos. 486/2014 and 299/2014 order dated 05.09.2014 and para no.19 of the order of the Hon'ble Delhi High Court in the case of Cheminvest Limited (supra). He further submitted that for the purposes of working of any disallowance u/s 14A of the Act, only investments which have yielded tax free income is required to be considered and not those investments on which no income is earned. He submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners. Therefore, there is no double taxation on such income. He submitted that reliance placed by Ld. AR on the CBDT circular is misplaced. (iv) He further submitted that strategic investments are required to be excluded is not a proposition enshrined in the provisions of section 14A of the Act. The strategic investments are also made for earning of profit and, therefore, their exclusion for working of disallowance u/s 14A of the Act is incorrect. 11. In rejoinder, the ld. AR of the assesse submitted that though the issue is remanded by the CIT (A) to the file of the AO but pursuant to that order till date no order has been passed by the AO. He submitted that when the full details are available with the CIT (A) with leading judicial precedents of High courts then it is incorrect for an appellate authority to set aside the issue to the file of lower authorities and when such lower authorities do not pass order on those directions of appellate authority, appellant is seriously aggrieved with this. He further submitted that setting aside by the CIT (A) to the file of AO is also not proper when complete details are available with the CIT (A). He submitted that setting asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,87,35,000/- and Ld. AO has rejected the disallowance made by assesse on the sole ground that disallowance computed by the assesse is not in accordance with Rule 8D of the Income tax Rules 1962. On perusal of the assessment order, we do not find that the AO has recorded any satisfaction regarding the correctness or otherwise of the expenditure disallowed by the assesse. Therefore, in our view, without this mandatory exercise not conducted by the AO, no disallowance can be imputed u/s A of the act by Assessing officer on its own. Our view is also supported by the decision of Honourable Delhi High Court in the case of Maxopp Investment Ltd. V. CIT [2011] 347 ITR 272 (Delhi) has held that- 29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assesse, is not satisfied with the correctness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT V Taikisha Engineering India Ltd[2015] 54 taxmann.com 109 (Delhi) has also held as under:- 17. More important and relevant for us are the observations in Godrej and Boyce Mfg. Co. Ltd. (supra) on requirement and stipulation of satisfaction being recorded by the Assessing Officer with reference to the accounts under Section 14(2) of the Act and Rule 8D(1) of the Rules. It was observed:- Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the assesse, having regard to the accounts of the assesse. When a statute postulates the satisfaction of the Assessing Officer Courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated . (M. A. Rasheed v. State of Kerala [1974] AIR 1974 SC 2249*). A decision by the Assessing Officer has to be ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y particular income or receipt then the formula prescribed would apply. Under clause (ii) to Rule 8D(2) of the Rules, the Assessing Officer is required to examine whether the assesse has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income or receipt. In case the interest paid was directly attributable to any particular income or receipt, then the interest on loan amount to this extent or in entirety as the case may be, has to be excluded for making computation as per the formula prescribed. Pertinently, the amount to be disallowed as expenditure relatable to exempt income, under sub Rule (2) is the aggregate of the amount under clause (i), clause (ii) and clause (iii). Clause (i) relates to direct expenditure relating to income forming part of the total income and under clause (iii) an amount equal to 0.5% of the average amount of value of investment, appearing in the balance sheet on the first day and the last day of the assesse has to be disallowed. 20. However, in the present case we need not refer to sub Rule (2) to Rule 8D of the Rules as conditions mentioned in sub Section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT. Though above decision was rendered in context to allowance of interest u/s 36(1) (iii) of the act , however honourable Bombay high court in case of HDFC bank limited [WP 1753 of 2016][dated 25.02.2016] has approved ratio of this decision while adjudicating on disallowance u/s 14A of the Act. Therefore the applicability of the above proposition rendered in context to Section 36(1) (iii) of the act equally applies to provisions of section 14A of the Act. According to that decision, if interest free funds available with assesse are more than non-interest bearing advances or investment, the nexus is required to be proved by the revenue for making any disallowance and in absence of such nexus the presumption is to be drawn that investments in tax free income yielding investments has been made out of interest free funds available with the assesse. Therefore, respectfully following that decision of Hon'ble Bombay High Court, no disallowance on account of interest expenditure u/s 14A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assesse would have incurred any administrative expenses in holding these investments. The AO has not brought on record any material to show that the assesse has incurred any expenditure in relation to the income which does not form part of the total income. Assesse has also made investments in group concerns with a business object and also hold controlling interest but not in the shares of any unrelated party which shows that primary object of investment is for holding controlling stake in the group concern and furthering the business of the assesse. It is not the dominant object of the assesse to earn dividend from investments in private limited/ limited companies and to earn share of profit from partnership firms. According to the assesse dominant object of the assesse investing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isen out of investment in partnership firm and its share of the assesse from the firm which is exempt u/s 10(2A) of the Act. Admittedly, there is an exempt income, which is arising from the investment in partnership firm. We have already held that there cannot be disallowance on account of interest in view of interest free funds exceeding investment in securities earning tax free income. Therefore, the question arises before us is that whether disallowance of other expenditure is required to be made with respect to investments in partnership firm which has yielded tax free income u/s 10(2A) of the Act. This issue has been answered by Special Bench of ITAT in the case of Vishnu Anant Mahajan vs. ACIT 16 ITR (Trb) 621 (Ahd.)(SB) [137 ITD 189] that where exempt income is derived from partnership firm u/s 10 (2A) of the act, provisions of section 14A can be invoked for disallowance of expenditure. In that decision special bench of ITAT has considered all the arguments advanced before us and therefore in view of this decision these arguments are rejected. However, admittedly some expenditure is required to be disallowed as assesse himself has stated and made on its own some disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in an open ended manner with our direction of computing disallowance u/s 14A of the Act. We are conscious of the decision of the coordinate Bench of ITAT in the case of Zuari Leasing and finance corporation Limited V ITO 112 ITD 205 (Del.)(TM) wherein in para no. 9 and 10 it has been held that 9. I have given careful thought to the rival submissions of the parties. As noted earlier, the learned Accountant Member has remanded the matter to the Assessing Officer, whereas the learned Judicial Member, in his proposed order, has directed that disallowance of bad debt be deleted. Therefore, the first question to be examined relates to the principles, which are to be followed by the appellate authorities while exercising discretion to remand the matter. For above proposition, I would like to quote and rely upon the following decisions :- (1) In the case of M.G. Shahani Co. (Delhi) Ltd. v. Collector of Central Excise 1994 (73) ELT 3 (SC) it is observed :- The complaint of the appellant before us, for which we find sufficient justification, is that the Tribunal should have itself gone through the evidence and rendered a finding because all the relevant materials w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. (5) In the case of Ghasi Ram Dayanand v. CST 92 STC 478 at the rate of 480, 481 (All.), it has been held that remand cannot be made for the purpose of de novo trial for permitting the parties to adduce fresh evidence to fill up lacuna or to decide a point when material is already on record. (6)Powers of the Tribunal in the matter of setting aside an assessment are large and wide, but these powers cannot be exercised to allow the Assessing Officer an opportunity to patch up the week parts of his case and to fill up the omission by giving another innings- Asstt. CIT v. Anima Investment Ltd. [2000] 73 ITD 125 (Delhi) Asstt.CIT v. Arunodoi Apartments (P.)Ltd. [2002] 123 Taxman 48 (Gau.)(Mag.) Smt. Neena Syal v. Asstt.CIT [1999] 70 ITD 62 (Chd.). (7)The Courts have held that appeals are not to be decided for giving 'one more innings' to the lower authorities in the appellate jurisdiction. Rajesh Babubhai Damania v. CIT [2001] 251 ITR 5411 (Guj.) CIT v. Harikishan Jethalal Patel [1987] 168 ITR 4722 (Guj.). Remand not for the benefit of the party seeking it to fill up gaps. 10. It is clear from above that primary power, rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87,35,000/-. Therefore, in the end, we reverse the order of CIT (A) and direct the AO to restrict the disallowance u/s 14A of the Act to ₹ 1,87,35,000/-, which disallowance has been made by assesse on its own.. In the result, ground no.3 of the appeal of the assesse is allowed with above direction. 14. Ground No 4 of the appeal is as under :- 4. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in rejecting the books of account of the appellant company and invoking the provisions of section 145(3) of the Income Tax Act, 1961, on wholly illegal and untenable grounds by treating the appellant's grounds as infructuous. [Page 24-25 of CIT(A)'s Order] 15. This ground of appeal is not pressed by the assesse. Therefore, that ground of appeal is dismissed. 16. Ground no 5 of the appeal is against the special audit u/s 142(2A) of the act and assesse has raised following grounds of appeal 5. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts is that the cheques are issued to the vendors/ buyers originally by debiting the vendors account and consequently, credited to the various bank accounts from which cheques are issued. Later on, at the close of the year, when these cheques are not cleared because of any reason because of non-presentation by the parties in their banks the entry is passed in the books of accounts by crediting stale cheque account and debiting the bank account. Therefore, in nutshell, on non-clearing of those cheques in the bank account of assesse for the control purpose, stale cheque account is credited by effecting the bank accounts. It does not have any outflow or inflow of the money but merely a control account. From those stale accounts as soon as any cheque is cleared, an entry is passed by debiting the stale cheque account and crediting the bank account. This event occurs when these cheques are presented by the parties in their bank accounts for clearance. During the FY 2005-06, ₹ 38,04,671/- amount of such cheques were transferred in stale cheques account and an amount of ₹ 1,64,53,036/- has cleared on account of presentation of those stale cheques by various vendors. During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable on record. It is, therefore, submitted that it is an admitted liability of the assesse and therefore it cannot be said to be income of the assesse. He further submitted that the addition is made u/s 41(1) of the Act. Assesse has not claimed any deduction of this sum and therefore provisions of section 41(1) cannot be applied. Therefore, there is no provision in the Income tax act by which this sum can be taxed as income. He further argued that according to the rule of consistency and on the basis of the burden of proof which is on revenue in this case, no addition should have been made. 23. Against this, the ld. DR submitted that though addition cannot be made in the case of the assesse by invoking the provisions of section 41(1) of the Act but these amounts are all advances and initial money receipts of the assesse. He relied very heavily on the order of the AO and various case laws relied upon. He vehemently submitted that the issue is squarely covered in favour of the revenue as per the decision of Hon'ble Delhi High Court in the case of CIT vs. State Trading Corporation of India Ltd. - 247 ITR 114. In the end, he painstakingly argued that the addition confirmed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bank account after the due date prescribed under the Negotiable Instrument Act or for the reason that those cheques have become ineligible for clearance then they can be identified and subsequent validation etc. or any other corrective measure can be initiated. It is not the case of the AO that the details of those stale cheques with respect to the party, amount, date of issue of cheque, bank from which it is issued, is not available and the parties have waived their right to receive these sums. Furthermore, we fail to understand that accounting entries, which are passed in the books of accounts for the purpose of better control of the account and which is a practice being followed by various large corporate when there are voluminous banking transactions, can generate an income which is chargeable to tax. It is also incomprehensible that cheques are issued to the vendors who could not for reasons best known to them did not present the cheques in those bank accounts can create an income chargeable to tax in the hands of the assesse company who has issued the cheques. We are mindful of the fact that these cheques are outstanding for more than three years but nonetheless the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esse do not exist. Further, the accounting entries also show that there is no income occurring during the year in the hands of the assesse as during the year addition to that stale cheque account is only ₹ 38,04,671/- and assesse has shown a clearing during the year of ₹ 1,64,53,036/- from that account. Honourable Delhi high court in case of Commissioner of Income-tax v. Shri Vardhman Overseas Ltd. [2012] 343 ITR 408 (Del) where in honourable High court was concerned with amounts paid for expenses remaining outstanding in the books for more than 4 years has held that:- 11. The question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below:- Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee ( hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seems to us that it is not enough that the assessee derives some benefit in respect of such trading liability, but it is also essential that such benefit arises by way of remission or cessation of the liability. The words in clause (a) viz., some benefit in respect of such trading liability by way of remission or cessation thereof should be read as a whole and not in the manner suggested by the learned standing counsel. 12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words remission and cessation are legal terms and have to be interpreted accordingly. In State of Madras v. Gannon Dunkerley Co., AIR 1958, SC 560, Venkatarama AiyyarJ. explained the general rule of construction that words used in statutes must be taken in their legal sense and observed:- The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Officer found that a sum of 1,29,000/- out of the above amount repayment deposits and advances which were paid back by the assessee. He, therefore, deducted this amount from the amount of 3,45,000/- and the balance of 2,56,529/- was brought to assessment under Section 41(1) of the Act. The assessee appealed unsuccessfully to the Appellate Assistant Commissioner and thereafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within Section 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court [reported as CIT v. Sugauli Sugar Works (P) Ltd. (1983) 140 ITR 286]. The revenue carried the matter in the appeal to the Supreme Court. The contention of the revenue (as noted at page 520 of 236 ITR) was that on the facts of the case, the liability came to an end as a period of more than 20 years had elapsed and the creditors had not taken any steps to recover the amount and consequently there was a cessation of the debt which would bring the matter wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the judgment cited above are as under:- The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his own unilateral act, can bring about the cessation or remission of his liability. Remission has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt -the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills' case [1963] 49 ITR 578 (Bom) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. 17. In the case before us, as rightly pointed out by the Tribunal, the assessee has not transferred the said amount from the creditors' account to its profit and loss account. The liability was shown in the balance sheet as on 31st March, 2002. The assessee being a limited company, this amounted to acknowledging the debts in favour of the creditors. Section 18 of the Limitation Act, 1963 provides for effect of acknowledgement in writing. It says where before the expiration of the prescribed period for a suit in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, a fresh period of limitation shall commence from the time when the acknowledgement was so signed. In an early case, in England, in Jones vs. Bellgrove Properties, (1949) 2KB 700, it was held that a statement in a balance sheet of a company presented to a creditor- share holder of the company and duly signed by the directors constitutes an acknowledgement of the debt. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Chief Commissioner of Income Tax v. Kesaria Tea Co.Ltd.(supra). The assessee in this case was engaged in the business of tea, spices etc. and made provision in its account for the years from 1978 to 1981 for the purchase tax liability. The tax liability was in dispute with the sales tax department. In the previous year relevant to the assessment year 1985-86, on the basis of an order in the Kerala State's Special Leave Petition filed before the Supreme Court, the assessee wrote back a sum of 14,65,997/- out of the provision for the purchase tax liability. The assessing officer brought this amount to tax under Section 41(1). On appeal, the CIT(Appeals) held that only an amount of 1,25,46,534/- could be brought to tax under Section 41(1). On further appeal by the assessee, the Tribunal held that even this amount could not be brought to tax since the sales tax department was pursuing the matter even as late as in 1993 and cases were still pending decision before the sales tax authorities and that the matter had not been concluded by the decision of the Kerala High Court. The Tribunal thus held that there was no extinguishment of the statutory liability and, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were of capital nature at the point of time of receipt by the assessee, could their character change by efflux of time? The Supreme Court thereafter referred to several authorities including the celebrated decision of the Court of Appeal in England in the case of Morley v Tattersall (1939) 7 ITR 316, and the test propounded by Lord Greene in that case that the taxability of the receipt was fixed with reference to its character at the moment it was received and not at any subsequent point of time and not because the recipient treated it subsequently in his income account as his own, and also to some decisions of courts in India in which the principle was applied and ultimately held as under: In other words, the principle appears to be that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. In the present case, the money was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically deals with amounts that were allowed as deduction in the past assessments as trading liabilities, which in a later year cease or are remitted by the creditors. If and when there is evidence in a particular later year to show that the liability has ceased or has been remitted, the same can be brought to tax as provided in Section 41(1). In this manner the statute prescribes that a deduction for a trading liability allowed earlier can be brought to tax on the ground that the liability to pay the same has been remitted or ceased. 21. Another distinguishing feature in the present case is that the sundry creditors continue to be shown in the assessee's balance sheet as on 31.3.2002. In the case before the Supreme Court in CIT Vs. T.V.Sundaram Iyengar (supra), the assessee took a positive step of transferring the unclaimed balances in the deposit accounts to its profit and loss account, an act, which was considered to be of considerable significance in demonstrating the intention of the assessee to appropriate the money belonging to the depositors as its own monies. That case was dealing with items of receipt received in the course of the business of the assessee, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee in its business which amounted to a benefit arising from the business carried on by the assessee. The contention seems attractive at first blush but cannot bear scrutiny. The provisions of Section 41(1) have been specifically incorporated in the Act to cover a particular fact situation. The section applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is simple. It is a provision intended to ensure that the assessee does not get away with a double benefit once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. In CIT, Mysore v. Lakshmamma, (1964) 52 ITR 789 Hegde, J., (as he then was) speaking for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors remained unpaid by the assessee for more than 20 years and there was practically a cessation of the debt which resulted in a benefit to the assessee which should be brought to tax under Section 41(1). This argument was not given effect to by the Supreme Court, nor did it consider fit to apply Section 28(iv). It is a well settled rule of interpretation of statutes that a construction that reduces one of the two provisions in a statute to a useless lumber or a dead letter would not amount to a harmonious construction and that a familiar approach in such cases is to find out which one of the two provisions is a special provision made to govern a certain situation and to exclude that situation from the applicability of the general provision. If we apply this rule of interpretation to the case before us, we must necessarily hold that while Section 28(iv) would apply generally to all benefits or perquisites which arise to the assessee from the business carried on by him, the benefit which he obtains by way of remission or cessation of a trading liability in a later year, in respect of which he has obtained a deduction in an earlier year in computing the business income, should be gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the sales were recognised of the constructed properties and plot of land both at the time of registration in favour of the buyer. This method was accepted by revenue for year to year. From this assessment year, the company has changed its method of accounting for constructed properties from completed contract method to percentage completion method in terms of Accounting Standard - 9 issued by ICAI and notified by Ministry of Corporate Affairs. The company has adopted the accounting policy that unless threshold of 30% of the project is not reached, the revenue from that project is not to be recognised. For this, in the annual account of the company, in Note No.5 (a) of Schedule 25 it was mentioned that pursuant to the Guidance Note on recognition of revenue of real estate developers issued by ICAI, the company has changed the accounting policy for recognising revenue in respect of constructed properties including those covered under agreement to sell, commercial space, etc. entered into and subsidiary, coordinating companies from the year of registration of the sale deeds of the property to percentage completion method. Further, Schedule 24 of the financial statement also show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy of recognising revenue from the year of execution of sale deed to the year in which the risk and reward of the plot and land is passed on effectively. According to the CIT (A), this practice of the assesse has deferred the tax liability in respect of the profits of sale of land and plots and, therefore, he confirmed the addition. 30. Before us, ld. AR submitted as under :- a) The assesse is following the practice of showing income arising on sale of plot and land as and when the conveyance deed is executed in favour of the buyer. This is an accepted method of accounting in case of sale of open plot of land. This practice is being followed by the assesse year to year for past several years and same has been accepted by the revenue in past. b) He submitted that the change in policy is with respect to construction of real estate properties and not with respect to sale of plot of land. c) He submitted that Accounting Standing - 7 issued by the ICAI applies to only construction contracts and not to the sale of open plots of land. d) He further submitted that Guidance Note for recognition of the revenue is required to be recognised when conditions stated in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to submit that the assesse is entitled to change its method of accounting and such change is revenue neutral. He further submitted that no fault can be found with the assesse in changing the method of accounting on sale of plot in subsequent years. He submitted that in subsequent years, it is not held that method of accounting change for sale of plot from AY 2007-08 is not acceptable to the revenue. i) He further argued that it is always the prerogative of the assesse to change the method of accounting provided it is bona fide. Revenue in no case can thrust upon assesse to change its method of accounting in the year prior to the change made by the assesse. He further stated that the change of method of accounting is bonafide and neither AO nor CIT (A) has stated that change in the method is with malafide intention. It was further his argument that here, the assesse has not changed the method of accounting but revenue is thrusting upon the assesse change in method of accounting which is not permitted by law. 31. Against this, ld. DR submitted that assesse is required to offer its profit for taxation on consistent method of accounting and not at the whims and fancies of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed and handing over of the possession is in FY 2006- 07 relevant to AY 2007-08 and profit thereon of ₹ 5,41,75,304/- is earned by the assesse and offered for taxation in that year. Now, AO has taxed this income in this impugned assessment year for the reason that for the constructed properties, assesse has changed method of accounting in this year from project completion method to percentage completion method. However, there is no change in the method of accounting of sale of plot of land which hitherto followed by the assesse from year to year as and when sale deeds are executed. There is no dispute that this income has been offered for taxation by assesse inAY2007-08 and AO has also not reduced this income from the assessed income of the assesse for AY 2007-08. Therefore, the limited dispute remains in this ground is that whether the income of sale of plot shall be taxed in this year or has been rightly offered by assesse in AY 2007-08. According to the method of accounting changed during the year which has been shown in the audited balance sheet at Schedule No.25, Note No.5(a) relates to constructed properties only and not for plot of land. According to Note No.6 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership; (b) The seller has effectively handed over possession of the real estate unit to the buyer forming part of the transaction; (c) No significant uncertainty exists regarding the amount of consideration that will be derived from the real estate sales;and (d) It is not unreasonable to expect ultimate collection of revenue from buyers. 4.3 Where transfer of legal title is a condition precedent to the buyer taking on the significant risks and rewards of ownership and accepting significant completion of the seller's obligation, revenue should not be recognised till such time legal title is validly transferred to the buyer. Therefore regarding these two plots of land in question if the conditions mentioned in para4.2 is fulfilled the revenue should be recognised. We are conscious that though this guidance of revenue recognition is issued by ICAI in February 2012 and the issue here is required to be decided in AY 2006-07 even then we are convinced that the principle of accounting and revenue recognition which are based on 'transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as the area may reduce and seller is bound to refund the amount collected to that extent. Therefore, merely payment of whole of the sale price cannot expose buyer the full risk and reward of the plot. More so possession of the plot apparently is coupled with many condition and after that only the agreement reaches finality. Therefore, on the conjoint reading of whole of the agreement, it is apparent that there are several conditions attached to the sale of plot of land and on completion of them only the buyer gets right to get that property registered in his name. The agreement to sell also does not prescribe that prior to the execution of sale deed and on execution of agreement to sell, the possession of the property is transferred. Therefore it is apparent that full 'risk and reward' of the plot is transferred to the buyer only at the time of execution of sale deed by the seller in favour of buyer and after that nothing is required to be done for this property from either side. At present there are many obligations on the seller as well as the buyer. In view of this, we are of the opinion that seller has not handed over possession of the real estate unit to the buyer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Supreme Court further stated that otherwise, the entire exercise is revenue neutral. Applying the principles laid down by the decision of Hon'ble Supreme Court, we are of the opinion that the assesse has followed correct method of revenue recognition on sale of plot of land which is in accordance with Guidance Note issued by the ICAI considering the aspects of transfer of risk and reward. Secondly, the method of accounting is consistently followed by the assesse and accepted by the revenue in past years. Thirdly, the revenue itself has taxed this income in AY 2007-08 U/S 143(3) and not reducing this income from that year gives a presumption that it had also accepted taxability of this sum for AY 2007-08. Fourthly, AO has not demonstrated that how the method of accounting employed by the assesse is incorrect but merely has gone on presumption that as there is a change by assesse in method of accounting followed for constructed properties from projection completion basis to percentage completion basis, the same should also be applied in case of sale of plot of land which are unconstructed. We could not find any provision in the Act which prohibits assesse from adopting di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions of the appellant that POCM method could not be applied to these projects because even the construction work was not started before 31st March, 2006. 8.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the subsequent years and has, as such, resulted into double taxation of the same income. [Page 36-53 of CIT(A)'s Order] 8.2 That the learned CIT(A) has erred in directing the AO to verify the details filed with AO and in confirming the addition as the CIT(A) has no such power to set a-side the part of addition made by AO. [Page 53 of CIT(A)'s Order] 8.3 That without prejudice, the learned CIT(A) ought to have directed to exclude the amount of ₹ 78,77,80,921/- from taxable income of A.Y. 2007 -08 or subsequent years if it was to be held that amount is taxable in the assessment year under appeal. 36. These grounds of appeal are against confirmation of the addition of ₹ 78,77,80,921/- out of the total addition of ₹ 1,02,84,93,509/- made by the AO on account of revenue recognition on projects completed less than 30% based on perce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to adopt a benchmark of 30% for recognition of the revenue and, therefore, made a total addition of ₹ 72,32,38,796/- from Mangolia Project and ₹ 30,52,54,713/- from Summit Project. The assesse carried the matter before the CIT (A) who in principle agreed with the contention of the assesse that internal development charges allocated to these projects have not been considered should be included in the cost of project and, therefore, upholding the addition on the principle restricting the addition to the extent of ₹ 62,68,85,221/- on account of Mangolia Project and ₹ 16,08,95,700/- from Summit Project. Aggrieved by this, the assesse is in appeal before us. 39. Before us, ld. AR submitted that assesse has correctly laid down a threshold limit of 30% which is in accordance with the principles laid down in the Guidance Note issued by the ICAI. He submitted that though the Guidance Note prescribes the percentage of threshold as 25%, however, the assesse based on the prevalent practices in the trade has adopted it @ 30% as threshold. For this, he submitted that assesse has given sufficiently large number of comparable developers' case where identical pract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he threshold limit of 30% of the total cost of the project, the revenue should not be recognized. He submitted that as the AO has not examined that whether these projects have crossed the threshold limit of 30% or not, this ground of appeal should be set aside to the file of the AO for determination of income accordingly. 41. To this argument, the ld. AR submitted that it has been accepted by the lower authorities that both the projects have not exceeded the threshold of 30% for the purpose of revenue recognition and, therefore, he stated that the revenue cannot be recognized. However, he also fairly agreed that though data available at page 69 to 71 of the assessment order, according to which both the projects are at the very primitive stage i.e. Mangolia Project at approximately 10 - 12% and Summit Project is also less than 20%. However, he agreed that there is no objection from the assesse side to determine the threshold limit of 30% of the total project cost for the purpose of revenue recognition. 42. We have carefully considered the rival contentions and also given a careful thought to the offer of ld. DR for setting aside this ground of appeal to the file of the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred on construction and development costs is less than 25 % of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. Therefore the threshold suggested by ICAI is the minimum threshold and it is not prohibited that looking to the business conditions assesse cannot fix up higher threshold. More so when the assesse has stated that many identical companies are also following similar threshold of 30 % of the total project cost, no fault can be found with the estimate made by the assesse. It is also undisputed that in subsequent years the special auditor appointed by revenue has accepted the threshold of 30 % adopted by assesse and AO has accepted the same. In view of above we are of the opinion that assesse has rightly accepted the threshold of 30 % of achievement of total project cost for commencement of revenue recognition. Further the working of the total project should also include all types of development charges required to be included in the same. Ld. AR has stated that the details of percentage of completion of project are available in the assessment order itself. However after careful consideration and agreed by both the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the expenditure incurred on these construction projects. 9.3 That the learned CIT(A) has drawn an artificial formula to confirm the part of the addition of ₹ 27.45 Crores out of interest payment. 9.4 That the learned CIT(A) failed to appreciate that there was no net interest expenditure as the amount of interest received amounting to ₹ 138.57 crores was in fact more than the amount of interest expenditure amounting to ₹ 136.00 crores. 9.5 That without prejudice, the learned CIT(A) failed to give directions to allow the interest on the basis of POCM method against the respective projects either during the year and in the subsequent years where revenues are recognized. 44. This ground is against the confirmation by CIT (A) of disallowance of interest expenditure of ₹ 27,45,00,000/- out of total disallowance of expenditure of ₹ 1,19,15,13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans are utilized for specific projects only and adopting a formula that 1/3rd of the advance has been given out of own funds and 2/3rd of the advances have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be capitalized. He held that ₹ 1,19,15,13,155/- is the borrowing cost i.e. attributable for acquisition of construction of qualifying assets and required to be capitalized. The AO further rejected the contention of the assesse that the amount of interest paid should be adjusted against interest income earned u/s 57 of the Act for the reason that income that is offered is taxed as business income and not as an income from other sources and secondly, the land for which these advances have been given are part of the inventory i.e. closing stock of the assesse. Aggrieved by this, assesse carried this matter in appeal before the CIT (A) who in turn deleted the addition of ₹ 91,70,13,955/- but confirmed the disallowance of ₹ 27.45 crores. The main reason for the confirmation of the disallowance advanced by CIT (A) is that part of the interest on borrowed funds is for the construction of the project and the amount borrowed is mixed up with own funds and interest free funds. Thus, there is no direct nexus which can be established to hold that loans for which the money was borrowed were utilized for such projects or not. Therefore, he devised a formula that one port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the CIT (A) should have considered the netting of principal as interest earned by the assesse is more than the interest expenditure incurred by the assesse. He submitted that in assessee's own case for AY 2007- 08, the CIT (A) has accepted this but for this year, he has not accepted the plea of the assesse. He drew attention to para no.9.6 where identical issue has been considered by the CIT (A). He argued that CIT (A) has accepted the concept of netting of and moreover after considering the decision of Hon'ble Supreme Court in the case of SA Builders, wherein Hon'ble Supreme Court has held that there is no diversion of money for non-business purposes and loans to subsidiaries are at higher rates then rates of borrowings paid by the assesse. He further submitted that Accounting Standard 16 issued by ICAI does not have any application on the facts of the case. The next argument was that the case of the assesse is covered by the decision of Hon'ble Delhi High Court in the case of CIT vs. Tulip Star Hotels Limited wherein if the interest expenditure is incurred for the purpose of business the deduction should be allowed u/s 36(1)(iii) of the Act. He furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted. 47. Against this, ld. DR submitted that the assesse has utilized funds for the purpose of the project. As the funds are utilized for the purchase of land and construction expenditure of specific project, the expenditure is not of the revenue in nature and, therefore, the same has been rightly disallowed. He further submitted that AO has given detailed reasoning for each and every argument advanced by the assesse for the purpose of making disallowances and the CIT (A) also has worked out the nexus of the funds in a reasonable manner. It was also one of his argument that the disallowances have been based on well accepted principles of capitalization of borrowing cost in accordance with Accounting Standard issued by the ICAI in Accounting Standard 16. He, therefore, submitted that the disallowance confirmed by the CIT (A) is correct. 48. In rejoinder, ld. AR submitted that now the issue is squarely covered in favour of the assesse in view of the decision of Hon'ble Supreme Court in the case of Hero Cycles Limited vs. CIT reported in 63 taxman.com 308 (SC). He also relied on the decision of Hon'ble Supreme Court in the case of DCIT vs. Core Healthcare Limited (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which such asset was put to use shall not be allowed as deduction. The deduction is to be disallowed even if the interest is capitalized in the books of accounts or not. Hon'ble Supreme Court in the case of Core Healthcare [298 ITR 194] has held that provisions of section 36(1)(iii) is a code in itself. In the present case, the interest paid by the assesse is not for the purpose of acquisition of any capital asset but for its inventory. We do not find any restriction in provisions contained u/s 36(1)(iii) which provides that the interest can be disallowed if incurred for the purpose of inventory as provided under Accounting Standard 16. Apparently, in this case, there is no allegation that interest is not paid on capital borrowed for the purpose of the business. Hon'ble Mumbai High Court in the case of CIT vs. Lokhandwala Constructions Industries Ltd. [ 131 taxman 810] has held as under :- 4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case. Further, in the following decisions of various coordinate Benches, the deduction of interest has been allowed u/s 36(1)(iii) even where the assesse has followed the projection completion method :- (i) ACIT vs. Tata Housing Development Company Ltd. - 45 SOT 9 (Bom.); (ii) DCIT vs. Thakar Developers - 115 TTJ 841 (Pune); (iii) DCIT vs. K. Raheja Pvt. Ltd. - 2006-TIOL-220-ITAT-MUM; (iv) K. Raheja Development Corporation vs. DCIT in ITA No.240/Bang./97 dated 22.09.1997 - In this case, reference application filed by the Department has also been rejected by the Hon'ble Karnataka High Court vide its order dated 08.11.2000 in Civil Petition No.832/2000 (IT). Before us, ld. DR could not cite any decision against the claim of the assesse, therefore, respectfully following the decision of Hon'ble Bombay High Court and as well as various coordinate Benches, cited above, we do not concur with the view of CIT (A) on disallowance of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aon. It was submitted that this amount has been paid for the services rendered relating to premises rented to American Express Ltd. The AO disallowed this expenditure holding that it does not pertain to any business activity during the year and should have been capitalised. Therefore, brokerage was disallowed and added to the income of the assesse. On appeal before the CIT (A), he confirmed the disallowance holding that brokerage expenses are paid for renting of building and same is not allowable deduction u/s 24 of the Act. 54. Ld. AR for the assesse submitted that the said sum is in respect of brokerage paid for renting of the premises, income of which is chargeable to tax under the head property. There is no dispute about the genuineness of the claim of the expenses and as brokerage charges create an override charge on receipt of the rent. The rental income is required to be considered after adjustment of the brokerage. He further argued that provisions of section 23 as per which the annual value has been defined as standard rent or actual rent received or receivable, whichever is higher. Therefore, he submitted that actual rent in the case of the assesse should be after dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as under :- 11. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of ₹ 42,86,05,986/- out of total addition of ₹ 222,56,87,056/- on account of revenue recognition on the basis of percentage of completion method (POCM) in respect of ICON Project after including IDC. [Page 122-153 of CIT(A)'s Order] 11.1 That the learned CIT(A) has erred in directing the AO to verify the details/information filed with AO and in confirming the addition as the CIT(A) has no such power to set a-side the part of addition made by AO. [Page 152 of CIT(A)'s Order] 11.2 That without prejudice, the learned CIT(A) failed to give appropriate directions to allow the claim in the subsequent years in which the appellant had itself accounted for the revenue in respect of the ICON project. 59. These grounds are against the confirmation of the addition of ₹ 42,86,05,986/- out of the total addition of ₹ 2,22,56,87,056/- on account of revenue recognition on the basis of percentage of completion method in respect of ICON Project after including the internal development cost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Page 173 of CIT(A)'s Order] 64. This ground was not pressed by the assesse and therefore dismissed. 65. Ground no 13 of the appeal is as under :- 13. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of ₹ 14,49,123/- for expenditure on account of Provision of gratuity u/s 40A(7) of the Income-tax Act, 1961. [Page 173-175 of CIT(A)'s Order] 66. This ground of appeal is not pressed by assesse and, therefore, they are dismissed. 67. Ground No.14 of the appeal is as under :- 14. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of ₹ 84,12,762/- out of total disallowance of ₹ 2,13,94,580/- in respect of the following items by treating the same as capital in nature and erred in not considering the fact that these expenses are on account of legal and professional charges, repair maintenance expenses incurred in the normal day to day course of business and the same deserve not to be capitalized:- SR No. Particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue expenditure pertaining to the first time registration of the trademark. Therefore, respectfully following the decision of Hon'ble Supreme Court, we reverse the order of the CIT (A) to the extent of disallowance of ₹ 10,08,774/- incurred for registration of trademark of the assesse. 73. The next disallowance for expenditure was on account of ₹ 55,18,838/- incurred by the assesse on repairs and maintenance of guest-house at Mussoorie. It is noted from the details that such expenditure has been incurred for construction of a boundary wall and, therefore, the AO has disallowed this expenditure holding that it has resulted into an enduring benefit to the assesse and, therefore, is a capital expenditure. The CIT (A) confirmed the disallowance. 74. Before us, the assesse submitted that these expenses are repair expenses and are not capital in nature. It was submitted that it is the current repairs which has been incurred by the assesse and there is no addition to the value of the guest house but merely a compound wall is constructed. It was further submitted that the issue is covered in favour of the assesse by the decision of Hon'ble Gujarat High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be of significant replacement so as to alter the character of the business premises. Therefore, we are of the opinion that the view taken by the Appellate Tribunal is correct in law. 18. From the foregoing, it is clear that the proposition stated by us at the commencement of this order is supported by the various decisions of the Supreme Court and there cannot be any single rigid formula to find out whether a particular expenditure is revenue in nature or capital and that the expenditure was incurred to obtain a benefit of an enduring nature is not the sole test in every case. The facts and circumstances of each case, read in the background of the assessee's business and other activities, will have to be examined. Therefore respectfully following the decision of Honourable Karnataka high court we are of the view that disallowance of expenditure on compound wall of ₹ 5518838/- on repairs and maintenance of guest house only on the sole ground of enduring benefit test cannot be upheld. In view of this we reverse the decision of CIT (A) and delete the disallowance on account of repairs and maintenance of guest house. 77. Next item of expenditure was & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- with wholly owned subsidiary company. Ld. AO and CIT (A) are of the view that this is capital expenditure and hence disallowed. 84. Before us LD AR submitted that these expenses have been incurred as a matter of business and commercial expediency and part of business reorganization and as such same is permissible deduction under the law. Ld. DR relied on the orders of lower authorities. 85. We have carefully considered the rival contentions. Hon Supreme court has held in Commissioner of Income Tax vs. Bombay Dyeing and Manufacturing Company Ltd [ 219 ITR 521] that legal and professional expenses in respect of amalgamation were allowable as revenue expenditure. Therefore we reverse the finding of CIT (A) and delete the disallowance of ₹ 6,50,000/-. 86. Ground no 14 of the appeal is partly allowed. 87. Ground no 15 is as under - 15. That learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant's case in confirming the addition of ₹ 3,12,41,768/- out of total addition of ₹ 35,08,31,012/- on account of closing credit balance in Allotment A/c Code No.10141A001 by holding that these are old balances receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment account. 90. Ld. DR. relied on the orders of lower authorities and submitted that when the accounts are old for 10 years they are trading receipts and are rightly taxed. 91. We have carefully considered the rival contention. Facts remains that as the balance are very old the amount is added to the income of the assessee. We have already decided the similar addition in this appeal in ground no 6 of this appeal. The facts and reasons for addition are identical. In that ground we have deleted the addition on the basis of decision of Honourable Delhi high court in Commissioner of Income-tax v. Shri Vardhman Overseas Ltd. [2012] 343 ITR 408 (Del). Therefore for the same reason we delete this addition and reverse the orders of CIT (A). In the result ground no 15 of the appeal is allowed. 92. Ground No 16 is as under :- 16. That learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant's case in confirming the disallowance of ₹ 1,47,70,222/- on account of expenditure for bidding for modernization of Mumbai and Delhi Airports by holding that the appellant is in the business of real estate development which consists of devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if incurred for the tender fees same is allowable u/s 37(1) of the act. The decision cited by the AR of the appellant has held that the when the assesse proposed to set up new project which had inextricable linkage with the existing business of the assesse, The proposed business was not an individual business but vertical expansion of the existing business and Thus, the test of existing business with common administration and common fund was met. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Honourable Delhi high court in case of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del) we reverse the order of CIT (A) and delete the disallowance of ₹ 1,47,70, ,222/- on account of tender fees for modernisation of airports. Therefore ground no 16 of the appeal is allowed. 97. Ground No 17 of the appeal is as under :- 17. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of ₹ 1,02,786/- by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice this ground is set aside to the file of the AO with a direction to verify the contention raised by assesse and decide the issue afresh. In the result this ground is allowed with above directions. 102. Ground No 18 of the appeal is as under :- '18. That the order passed by the learned CIT (Appeals) is bad in law as well as wrong on facts and erroneous in points of law and right is reserved to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing. 103. This ground of appeal is general in nature and therefore not pressed by the AR of the appellant and therefore dismissed. 104. In the result appeal of the assesse is partly allowed. 105. Now we take up the appeal of the revenue where in following grounds of appeal are raised. 1. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 25,00,251/- under the head Stale Cheque Account in spite of the fact that the payments were neither made nor ascertained by the Assessee up to 31.03.2006. 2. That on the facts Circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in deleting the additions of POCM method adopted for AY 2006-07 which was needed to be applied to the credit balance of ₹ 1,23,81,979/- in spite of the fact that the Assessee has not given any reconciliation or working to show that auditor wrongly picked up only the credit side of sum ledger. 9 That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 22,83,72,935/- treating that this was not an ascertainable liability and the assessee company has also made payments of the same in subsequent years without appreciating the fact that the AO as well as Auditor has specifically pointed out that assessee had debited a provision on 31.03.2006, vide journal voucher No.- 542, 373, 456 and 467, debiting ₹ 17,29,99,721/-, ₹ 1.22 Crore, ₹ 5 Crore and ₹ 25.60 Lacs respectively. 10. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 4,82,44,524/- treating the same as double addition without appreciating the fact that the assessee company was including Internal Development Charges (IDC) as a part of its budgeted cost on the basis of ₹ 161 per sq. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal as well as factual issue mentioned in the assessment order where the AO has discussed nature of income from each and classified it under proper head of Income. 18. That on the facts circumstance of the case the ld. CIT (A) erred in deleting the additions of ₹ 4,49,85,573/- on a/c of Reconciliation of rental income with TDS certificates in spite of the fact that the assessee company was unable to produce proper justification regarding the discrepancies noticed by the Special Auditor and confronted to the assessee company by the AO. 19. That on the facts circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 3,27,52,542/- on a/c of enhancement in annual value amounting to ₹ 3,22,84,192/- and by making addition of notional rent of properties that remained vacant for a part of the previous year amounting to ₹ 4,68,350/- ignoring the facts of the case and wrongly relying upon the decision of Hon'ble ITAT in spite of the fact that the jurisdictional High Court has favoured the revenue on similar issue . 20. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court held the same to be unreasonable. 29. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of ₹ 18,66,82,603/- being the amount received by the assessee company from the customers for execution of conveyance deed in favour of customers which was in the nature of liability ceased to exist and thus should have been forfeited by the assessee company. 30. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of ₹ 7,00,67,242/- being credit balances in various accounts by treating them as trading receipts and wrongly accepting the assessee's ground that instead of credit balance there was debit balance in accounts ignoring the fact that this aspect was dealt with by the AO in his assessment order and was conclusively established to be credit balance. 31. That on the facts circumstance of the case the ld. CIT(A) erred in restricting the addition to the tune of ₹ 3,12,41,768/- only out of addition ₹ 35,08,31,012/-, shown as Closing Credit Balances in Allotment Account which, though proved to be non-refundable, was not offered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,48,804/- made by the AO because the vouchers/bills against such expenditure were not in the name of assessee company and thus it was not established that such expenses were laid out wholly and exclusively for the purpose of the business of the assessee company. 39. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the proportionate disallowance of ₹ 1,77,32,060/- made by the AO on the ground that benefit of these expenditures were enjoyed by the group companies also. 40. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of ₹ 6,50,000/- made by the AO on the ground that neither any details nor any bill / vouchers were produced before him. 41. The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 106. Ground No.1 is against the deletion of addition of ₹ 25,00,251/- under the head 'Stale Cheque' Account in spite of the fact that the payments were neither made nor ascertained by the assessee up to 31.03.2006. 107. Ld. DR contended the same arguments which were advanced by him in ground no.6 of the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining threshold of 30 % of incurring the total project cost of these projects for commencement of revenue recognition. Therefore the parties also requested to set aside this issue to the file of the AO as this is a connected issue. Therefore in the interest of justice we set aside this ground of appeal of the revenue to the file of the AO and to decide afresh according to our directions contained therein. In the result Ground No 2 of the appeal of the revenue is allowed with directions.. 112. Ground no 3 of the appeal is as under :- 3. That on the facts Circumstances of the case the ld.CIT(A) erred in deleting the disallowances of ₹ 39,29,42,662/- considering this as an accounting mistake although these expenses were on a/c of provision for construction account- Regency Park account, whereas these were prima facia prior period expenses as per detailed working made by the auditors about which the assessee had failed to rebut the findings given by the auditors. 113. This ground of appeal is against the Ground No.3 is against deleting the disallowances of ₹ 39,29,42,662/- considering this as an accounting mistake although these expenses were on a/c of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee as explained. None of this expenditure is incurred during the year but is claimed as expenditure for the year in view of the revenue being recognised of these projects in this year. The AO has erred in taking only the opening credit balance of these projects as revenue income, however, not considering the debit balance of these ledgers as expenses based on the percentage completion method when the whole project is completed. The credit ledger balance and debit ledger balance of those projects need to be taken into to work out the profitability of those projects when there is a change in the method of accounting this year. It is unfair on the part of the AO to only include the credit balances of those projects as income and to exclude the debit balances of those projects. The addition of ₹ 30,16,94,316/- is identical on that basis. The CIT (A) has considered these aspects and has deleted the addition. The ld. DR could not point out any infirmity in the order of the CIT (A).Further, regarding the argument of the ld. DR that assessee has not produced the details of expenditure with bills and vouchers of expenses incurred during the year. We fail to understand this as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior period expense nor incurred during the year but are forming part of the taxable profit and loss of the assessee only because of the reason that assessee has changed its method of accounting from project completion method to percentage completion method. Therefore, we confirm the order of CIT (A) in deleting the addition of ₹ 39,29,42,662/-. In the result ground no 3 of the appeal is dismissed. 117. Ground no 4 of the appeal of the revenue is as under :- 4. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of ₹ 14,55,37,400/- on a/c of Non allocation of proportionate overhead expenses 118. This ground is against deleting the disallowances of ₹ 14,55,37,400/- on a/c of nonallocation of proportionate overhead expenses. According to AO assessee has all directly allocable common overheads have been allocated to relevant projects of the group companies. Only overheads not directly attributable to the projects of the group companies have not been allocated. Hence according to him these expenses should also have been allocated. He rejected the contention of assesse for not allocating payment to Directors is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment proceedings, the AO found that an amount of ₹ 20,79,10,574/- expenditure pertaining to payment to Directors, advertisements, printing and stationery, security charges, leave encashment and salary and wages are not apportioned to group companies and, therefore, AO disallowed 70% of those expenditure amounting to ₹ 14,55,37,401/-. It is not the case of the AO that these amount of expenditure are not incurred by the assessee and further veracity of those expenditure have also not been doubted. The only reason for disallowance is that assessee has not allocated this expenditure to its various group companies and, therefore, AO was of the view that this expenditure has not been incurred wholly and exclusively for the business purpose of the company. On perusal of the expenditure and the orders of the lower authorities, it is apparent that the director's salary is being paid to the directors of the company including a commission thereof is for the purpose of managing the business of the DLF - assessee. Further, for the protection of the interest of the company even if the directors have given their time for looking after other group activities it is merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same, the AO has deleted the addition. 126. We have carefully considered the rival contentions. The brief facts of the case are that there is construction account with respect of 13 projects which has a credit balance of ₹ 37,81,33,632/- tabulated at page 123 of the assessment order. The assessee explained before the AO that these credit balances are not appearing in the books of accounts of the assessee but auditor has only picked up the credit side of such ledgers without considering the debit balance in the part of those ledgers. The explanation was submitted before the AO but he did not consider this and made an addition of opening credit balance of ₹ 37,81,33,632/-. In fact, the CIT (A) has considered this aspect and has held that there is an opening debit balance of ₹ 66,27,71,032/- which has been ignored by the AO. Project wise details of the construction expenses showing opening balances as at 01.04.2005 are added as income of the assessee without granting credit for the debit entries. Merely picking up some ledger balances and excluding some ledger balances addition has been made by the AO. Merely because there are some ledgers of the main ledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee and, therefore, AO has rightly charged this amount as income of the assessee. 130. Against this, ld. AR submitted that the CIT (A) has granted relief to the assessee after considering the fact that on account of the Regency Park Project income, the credit balances have been booked and chosen by the AO. This is not the excess collection received by the assessee but part of the opening credit balances of the construction sub-ledgers and both the opening debit balances and credit balances have been taken together and are reflected in closing balance in construction work-in-progress account as on 31.03.2006. Therefore, despite the WIP account already taken into profit and loss account, once account taking the credit balances of WIP account ignoring the debit balances, the addition cannot be made. 131. We have carefully considered the rival contentions. It is apparent that when work-in-progress account of a particular project contains several debit entries, several credit entries and net effect of that WIP account has already been taken into profit loss account for computation of taxable income of the assessee, no further addition can be made in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been included in the stock account shown in the balance sheet of the company at Schedule 8 incorporating the main ledger. Further, the credit balance accounts with respect to the Qutab Enclave plot of two ledgers where there is a credit balance amount involved to ₹ 21,39,996/- has been added. The details are available at page 123 of the assessment order under the heading IDC account showing credit balances. These balances have been taken by the AO from the subledgers and not the main ledger. The main ledger balance already been accounted for on net of basis as stock account. Therefore, the addition is made by AO on ignoring net balance of the main ledger but picking the credit balances of the individual sub ledgers is not acceptable. This is also not excess collection received by the assessee but merely the credit entries of some of the account of WIP account. Therefore, we confirm the order of CIT (A) in deleting the addition of ₹ 21,39,996/- made on account of non-disclosure of credit balance in some sub-ledgers accounts i.e. IDC account showing credit balances. Hence, ground no.7 of the revenue's appeal is dismissed. 136. Ground no 8 of the appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore this income cannot be recognised in AY 2006-07 when it is already offered for taxation in AY 2007-08 on following the correct method of accounting. Therefore, ground no.8 of the appeal of the revenue is dismissed. 140. Ground no 9 of the appeal is as under :- 9 That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 22,83,72,935/- treating that this was not an ascertainable liability and the assessee company has also made payments of the same in subsequent years without appreciating the fact that the AO as well as Auditor has specifically pointed out that assessee had debited a provision on 31.03.2006, vide journal voucher No.- 542, 373, 456 and 467, debiting ₹ 17,29,99,721/-, ₹ 1.22 Crore, ₹ 5 Crore and ₹ 25.60 Lacs respectively. 141. Ground No.9 is against deleting the additions of ₹ 22,83,72,935/- treating that this was not an ascertainable liability and the assessee company has also made payments of the same in subsequent years without appreciating the fact that the AO as well as Auditor has specifically pointed out that assessee had debited a provision on 31.03.2006, vide journal vouc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it has already been crystallised. Regarding the amount of ₹ 5,70,25,405/- for provision for internal development cost provided for as at 31.03.2006. This amount has been credited as at 31.03.2006 as provided for in the books of account as an expenditure. The AO has not doubted the expenditure but merely taxed the liability as it is outstanding in the books of account. Therefore, it cannot be stated that these are the unascertained liabilities. Further the amount of ₹ 25,60,429/- is an audit fee provision payable to the auditors and, therefore, also it cannot be said that it is unascertained liability as the audit has been conducted as provision has been made. The last amount is the bill of Devyani International Limited pertaining to October to March 2004 of ₹ 15,59,858/-. This amount is related to the compensation payable to the Devyani International Ltd. for settlement of litigation. This liability has been credited in 31.03.2004 and not in 31.03.2006. These expenditure did not arise in the current year but the liability has been carried forward since 2004. As the assessments of the previous years have already been framed u/s 143 (3) as stated by the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the CIT (A). This amount is already included in the addition made by the AO in ground no.9 of the revenue's appeal. In ground no.9, item no.2 vide JV No.373 dated 31.03.2006 related to the provision of IDC expenses of ₹ 1,22,41,224/- and item no.3 vide JV No.456 dated 31.03.2006 of ₹ 5,00,18,803/- total to ₹ 6,22,60,027/-. In this ground, instead of adding the full amount, the AO has granted deduction of actual expenses incurred of ₹ 1,40,15,503/- thereby a net addition of ₹ 4,82,44,524/- and, therefore, it is apparent that in ground no.9, the addition contested of ₹ 6,22,60,027/- and in ground no.10, the addition is contested of ₹ 4,82,44,524/- pertaining to the same items. Therefore, it is a double addition. Hence, we confirm the deletion of addition of ₹ 4,82,45,524/-. Ground No.10 is dismissed. 150. Ground no 11 is as under :- 11. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 10,34,915/- on a/c of Savitri Cinema even after accepting the fact that no business activities were carried out during the year. 151. Ground No.11 is against deleting the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 40A(2). 157. Ld. DR submitted that the assessee has passed the taxable profit from this net profit and loss account to its associate concern and, therefore, the provisions of section 40A(2)(b) of the Act are applicable as the relationship between the other identity with the assessee is of holding him subsidiary company. It was further submitted that profitability of the other identity as well as the assessee entity are irrelevant for examining the provisions of section 40A(2)(b). He vehemently supported the order of disallowance of ₹ 16,95,67,085/- being amount paid for Grand Mall. 158. Ld. AR for the assessee submitted that the provisions of section 40A(2)(b) cannot be applied in case of holding company and subsidiary company. For this, he submitted the decision of Hon'ble Karnataka High Court in the case of CIT vs. Raman Boards Limited in ITA No.8/2007 dated 01.04.2013. He further relied on the CBDT Circular No.6P dated 06.07.1968. 159. We have carefully considered the rival contentions. On perusal of the order of the AO, it turns out that the addition is made of two amounts i.e. one amount of ₹ 52,12,759/- and second amount of ₹ 16,43,54,327 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, the AO derives the fair market value he cannot determine that the payment is excessive or unreasonable. The AO has not done this exercise in both those additions. Further, Hon'ble Karnataka High Court in the case of CIT vs. Raman Goods Ltd. in ITA No.8/2007 dated 01.04.2003 following the decision of Hon'ble Bombay High Court in the case of CIT vs. V.S. Dempo and Company Ltd. - 196 taxman 193 has held that when the assessee is a company, the person to whom it has to make payment in order to attract the sale provision is any director of the company or any relative of the director. Admittedly, in this case, the payment is made to the subsidiary company and not to any director or any relative of the said direction. As the alleged transaction by the AO is between holding company and subsidiary company, we respectfully following the decision of Hon'ble Bombay High Court and Hon'ble Karnataka High Court held that the transactions between the holding company and a subsidiary company are not hit by the provisions of section 40A(2)(b) of the Act. In view of this, we confirm the order of CIT (A) in deleting the additions/disallowances of ₹ 16,95,66,085/- under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure 166. Ground No.14 is against deleting the disallowances of ₹ 20,87,70,567/- on a/c of brokerage charges in spite of the fact that no revenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure. 167. Ld. DR submitted that the AO has rightly disallowed the expenditure of brokerage amounting to ₹ 20,87,70,567/- pertaining to projects where now revenue has been recognised. 168. Ld. AR submitted that this issue is covered in favour of the assessee in its own case for AY 1993-94 by the decision of Hon Delhi high court in case of the assesse in ITA 1136/2009 dated 16.04.2015 where in while deciding ground no 4 of that appeal hon High court has held that these expenses are allowable.. Therefore, it should be followed. 169. We have carefully considered the rival contentions. We have also perused the order of ITAT in assessee's own case for AY 1984-85 submitted before us by the ld. AR. This decision has also been considered by the AO at page 188 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as auditors that by manipulating books of account the assessee company had postponed its income. 172. Ld. DR submitted that Saket Courtyard project is not the fixed asset of the assessee company but stock-in-trade of the assessee company and, therefore, the assessee has capped this asset as fixed asset is incorrect and it has to be taken as stock-in-trade. He, therefore, supported the order of the AO. 173. Ld. AR for the assessee submitted that Saket Courtyard Project is being fixed asset of the assessee company, hence the amount has been shown correctly as capital work in progress. It was further submitted that there is no sale deed executed by the assessee in favour of the buyers therefore, it cannot be taxed during this year. Further, he has stated that as in AY 2007-08, the project is recognised from fixed asset to business asset and in AY 2007-08 this transfer has been not disputed by the AO and the profit of it already taxed in that year. The addition has rightly been deleted by the CIT (A). 174. We have carefully considered the rival submissions. The CIT (A) has deleted this addition for the reason that in AY 2006-07 this property was shown under the head capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e file of the AO with the same direction. In the result, the ground no.16 is allowed accordingly. 179. Ground no 17 of the appeal is as under :- 17. That on the facts circumstances of the case the ld.CIT( ) erred in deleting the additions of ₹ 8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issue mentioned in the assessment order where the AO has discussed nature of income from each and classified it under proper head of Income. 180. Ground No.17 is against deleting the additions of ₹ 8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issues mentioned in the assessment order where the AO has discussed nature of Income from each every property and classified it under proper head of Income. This addition is on account of reclassification of 'Income from House Property' to 'Income from Business of Profession' in respect of DLF Centre Building and other properties given on rent. 181. Ld. DR submitted that this issue is now covered in favour of the assessee by the decision of Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case in this regard during the year under appeal. 12. The Ld. Departmental Representative on the other hand tried to justify the assessment order on the issue. 13. We find that the Ld. CIT (A) has discussed the issue in detail and has given its finding in this regard in para no.6.14 of the first appellate order, reproduced hereunder: 6.14 I have considered the submission of the appellant, observation of the Assessing Officer and decision of Hon'ble ITAT for A. Y 1996-97 in appellant's own case and order of Commissioner of Income Tax (Appeals) XVIII for A. Y 2006-07 and my own orders for A. Y. 2007-08 and A. Y. 2008-09 in appellant's own case wherein this issue was decided in favour of the appellant. It is seen that the issue in this ground is covered in favour of the appellant by the order of Hon'ble ITAT in appellant's own case for AY 1996-97. The appellant has received income from the house properties owned by it and such properties are reflecting in balance sheet as stock in trade. The appellant has furnished the receipt of house tax payment with respect to above said properties belong to appellant and owned by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court has held that letting out of the properties is in fact the business of the assessee. We have gone through the decision of Hon'ble Supreme Court and we are of the view that this decision favours the argument of the assessee. At page 4 of the decision, the Hon'ble Supreme Court has considered the judgement of that court in East India Housing and Land Trust Ltd. The court has considered that decision that where the main objection the company is buying and developing land and properties and promoting and developing markets and some rent is turned out of that, the character of that income shall be income from house property. Therefore, in this case too, the assessee company is a developer and hence, the decision of Hon'ble Supreme Court in the case of Chennai Properties is rendered in the context of the company which is formed with the main object of renting up of the properties. In view of the above, respectfully following the decision of coordinate Bench of the ITAT in the case of assessee for AY 2005-06, we confirm the order of CIT(A) in taxing the rental income as income from house property. In the result the ground no.17 of the revenue's appeal is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has dealt with this issue in para 21.23 at page no.163 of his order as under:- 21.23 I have carefully considered the assessment order, remand report of the AO and the submissions made by the ld. AR. As per reconciliation submitted by the assessee, the difference in income as per books of account and TDS certificates is on account of advance rent received during the year which has been accounted for by the appellant in the next year to which the advance rent received this year pertains. Since the assessee is following mercantile system of accounting, the advance rent has been accounted for in the period to which it pertains. However, as far as credit for tax deducted at source is concerned, I am of the view that following the matching concept, it is allowable in the same assessment year in which the income is recognised. In view of the above, the AO is directed to verify the reconciliation statement furnished by the assessee, and subject to such verification, the addition of ₹ 4,49,85,573/- is deleted as it cannot be recognised as income in the current year. Consequently, the appellant cannot be allowed credit for TDS relating to the advance rent shown in A.Y. 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying upon the decision of Hon'ble ITAT in spite of the fact that the jurisdictional High Court has favoured the revenue on similar issue . 193. Ld. CIT (A) has dealt with this issue as under :- 21.32 I have carefully considered the assessment order and the submissions made by the ld. AR. From the details and other material on record, it is noted that the addition of ₹ 3,27,52,542/- comprises addition of ₹ 3,22,84,192/- by enhancement in the annual value by applying highest rent on all properties and secondly making addition of ₹ 4,68,350/- on account of notional rent of property that remained vacant for a part of the previous year. 21.33 So far as the addition of ₹ 3,22,84,192/- on account of applying highest rent on properties concerned, the AO had relied on the decision in the case of CIT vs. Smt. Bhagwati Devi (supra). In that case, the property had been rented out to related parties as at substantially lower rates as compared to the rate at which similar properties were rented out to unrelated parties. In the present case, none of the property has been leased to related parties and therefore, the ratio of the judgment in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,36,01,310/- - DLF Commercial Shopping Complex ₹ 27,21,360/- DLF Corporate Park Rs.1,69,07,688/- Rs.4,32,30,358/- Less: Standard Deduction u/s 24(1) Rs.1,29,69,107/- Rs.3,02,61,250/- 17. The Ld. CIT (A) has deleted the addition after discussing the case of the assessee in detail and following the decision cited before him in this regard including decision of 'D' Bench of the Tribunal on an identical issue in the assessee's group concern M/s DLF Office Developers vs. ACIT reported in 23 SOT 19 (Del) and first appellate orders in the assessee's own case for the assessment years 2006-07, 2007-08 and 2008-09. 18. In support of the ground the Ld. Departmental Representative has basically placed reliance on the assessment order. 19. The Ld. AR on the other hand reiterated the submissions made before the Ld. CIT (A) and the decisions cited and relied upon before him. 20. Considering the above submission, we find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property in order to compute the income from property. In the case of appellant, the appellant had intention to let such properties but could not get suitable tenant. In such a situation, the AL V will be Nil as per provision of section 23(1)(c) of the IT Act. Section 23(1)(a) r.w.s 23(1)(c) clearly provides that if the property remain vacant wholly or partly during the year, then actual rent received or receivable will be taken as the ALV of such properties. In the case of appellant the property is remained vacant, therefore, the ALV of such properties will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. The decision of the Assessing Officer was not justified. As regards, the Assessing Officer's decision of computing the notional rent based on highest rent in respect of each building, it is seen that the properties have been given to various parties which are not related to the appellant and some of them are of International repute like GE Capital, KPMG. The rent has been charged based on the location of the property, area of lease property and timing of lease agreement. It is seen that appellant has filed copies of the all lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the arbitration award. 199. Ground No.20 is against deleting the additions of ₹ 1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the fact of the case that the AO disallowed the same in light of the prohibition created by the arbitration award. 200. Ld. DR submitted that income is charged to tax for earning income from property named as Shriram School Building and there is no provision for granting this deduction u/s 57(3) of the Act as it is not incurred for earning of the income under the head other sources. 201. Against this, ld. AR submitted that this amount is paid to the owner of the property for earning of the income. He stated that it is a pass through transaction and the identical amount of the sum has been transferred to DLF Qutab Enclave Educational Charitable Trust. 202. We have carefully considered the rival contentions. The facts of the issue are that compensation of ₹ 1,16,99,500/- is paid by the assessee to the owner of the property from the property i.e. Shriram School Building. The original income was shown by the assessee under the head income from house property and claimed deduction of ₹ 116.99 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .15 So far as the AO's denial of the credit of TDS of ₹ 26,25,369/- on the income received from Shriram School is concerned, I find that as the rental income has been assessed under the head income from other sources and since the TDS relates to the very same income, the credit for the said TDS cannot be logically denied. Therefore, the AO is directed to allow credit of TDS of ₹ 26,25,369/-, after due verification. 208. Further, the ld. CIT (A) has asked the AO to make necessary verification; therefore, we confirm the order of the CIT (A) and dismiss ground no.21 of the revenue's appeal. 209. Ground no 22 of the appeal is as under :- 22. That on the facts Circumstances of the case the ld. CIT(A) erred in directing the AO to verify the complete facts and figures with regard to disallowance u/s 14A read with Rule 8D and compute the amount of expenditure which has been incurred in relation to the exempt income and disallow the same. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 210. Ld. DR and ld. AR both agreed that this issue relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted. Therefore revenue is in appeal . 214. Ld. DR submitted that these expenditure are capital in nature, therefore, vehemently supported the order of the AO and submitted that the addition may be confirmed. 215. Ld. AR relied on the order of the CIT (A) deleting the addition. 216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee. Hence, we confirm the order of CIT (A) and delete this ground of revenue's appeal. 217. Ground no 24 is as under :- 24. That on the facts Circumstances of the case the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extension fee from the buyers of the plots on the ground of nonconstruction of building and in absence of any legal sanction for doing so assessee cannot indirectly impose penalty on the plot holder. The order of the Director Town and Country Planning upheld and was declared to be not ultra vires of the act. Further it was submitted by the assessee regarding late construction charges are received from customers / plot holders are under litigation in the Supreme Court. The decision is pending before the Supreme Court, as such, it cannot be accrued as income of the assessee company. In earlier years, late construction charges have been shown as income in the year of receipts and alter the order of Hon'ble High Court was received; the said late construction charges have been shown as an liability. As if the Supreme Court decides that the assessee company cannot collect the said charges, then all these charges will be returned to the concerned customers in the future year. In this regard, it may be noted that as per the High Court order, the Assessee Company has no right to collect the late construction charges from its customer. However, the Assessee company has filed an appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t up to September 2002, the appellant has treated collection of late construction charges as its income and from October 2002 onward, the appellant has not been treated the receipts of late construction charges as its income, in view of the matter being under litigation. The assessee himself has stated that if the Hon'ble Supreme Court decides that the assessee cannot collect late construction charges then only charges will be returned to concerned customers. It is noted that as per the High Court order, the assessee company had no right to collect late construction charges from its customers. However, the Supreme Court by its order dated 19.11.2010 has set aside the order of the High Court and therefore, it cannot be said that receipts in question are not accrued income. As the order of the Hon'ble Supreme Court is dated 19.11.2010 the amount collected is the income for financial year 2010-11. 26.11 An amount cannot be said to accrue unless enforceable debt is created in favour of assessee. Reference can be made to the judgment of Hon'ble Supreme Court in the case of E.D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27. Their Lordships at page 51 observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue is saddled with uncertainties same should not be recognised till the uncertainties are resolved. Therefore following the decision of coordinate bench as well as the accounting standard 9 of ICAI we are of the view that assesse has correctly recognised revenue in the year the issue attained certainty. Therefore on perusal of the decision of CIT (A) we are of the view that there is no infirmity in the order . Hence we confirm the order of CIT (A) and dismiss ground no 25 of the appeal. 227. Ground No 26 of the appeal is as under :- 26. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of ₹ 20,99,510/- being prior period expenses. 228. Ld. AO has disallowed the sum of the employee reimbursement holding these expenses are of the nature of prior period expenses and because the bills were not submitted by the employees and hence it did not accrue during the year. No factual details of these bills were given. In light of this the claim of the assessee is rejected and amount of ₹ 20,99,510/- is added of income of the assessee On appeal before CIT (A) he deleted the disallowance holding that expenditure in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al High Court in the case of CIT vs. Shriram Piston - 174 taxman 147, the disallowance is deleted. The reliance of the ld. AR on the decision of Hon'ble Delhi High Court in CIT vs. Modipan Ltd. - 334 ITR 102 is also apt as the expenditure are settled during the year. Further genuineness of these expenditure is not in doubt and allowabaility of these expenditure is also not in question except classifying them as prior period expenses and there is no difference in rate of taxes for respective years. In the result, we confirm the order of the CIT (A) in deleting the addition of ₹ 22,98,510/- on account of prior period expenditure. In the result, ground no.26 of the revenue's appeal is dismissed. 232. Ground No 27 of the appeal is as under :- 27. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 4,94,00,550/- received from customers in terms of contractual obligation. 233. Brief facts are that before AO assessee submitted that these are refundable deposits and are shown as liabilities in the balance sheet and hence it cannot be treated as part of sale. In past also no such addition has been made on this accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the revenue in past. He further stated that a large amount has actually been utilised from time to time in performance of the contractual obligation. His argument was that each and every receipt cannot be charged to tax unless it partakes the character of revenue receipt without any obligation for payment. 236. We have carefully considered the rival contentions. This amount has been collected by the assessee at predetermined rate from the buyers which has obligation to incur expenditure on account of contingent nature for the projects. It is not a fact that this amount has not been utilised as it is evident that in March 2006, assessee has incurred the cost of ₹ 9.87 crores. Furthermore, in the preceding two years as well as succeeding two years, the assessee has incurred expenditure out of this sum. We agree with the contention of the ld. AR that each and every receipt cannot be charged to tax unless it partakes the character of revenue. Further, we also agree with the observation of the ld. DR that receipts if revenue in nature and camouflaged as deposits cannot escape the taxation. In between these two use, facts of the case show that there is a regular movement in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to keep these deposits for insurance premium and maintenance. They are refundable to resident welfare associations. CIT (A) relying on the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Goel Gases Pvt. Ltd. - 188 ITR 216 (Del.) held that security deposit cannot be charged to tax as an income. In view of this, we do not find any infirmity in the order of the CIT (A) when deposits are with a purpose, the depositors are identified, there is a regular method of accounting adopted in past for treatment of this income which is accepted by the revenue and there is an obligation cast upon the assessee. Hence, ground no.28 of the revenue's appeal is dismissed. 241. Ground No 29 of the appeal is as under :- 29. That on the facts Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of ₹ 18,66,82,603/- being the amount received by the assessee company from the customers for execution of conveyance deed in favour of customers which was in the nature of liability ceased to exist and thus should have been forfeited by the assessee company. 242. Ground No.29 is against deleting the addition made by the AO of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from the buyer towards registration charges with the office of the Registrar for conveyance deed registration. At the time of registration, assessee incurs this expenditure by debiting to this account of that particular customer. The total receipt of registration charges is identified with respect to each of the buyer and there are movement in respective accounts. In fact, it is a past through cost collected by the assessee from the buyer to be incurred by assessee on behalf of the buyer. In view of these facts, these receipts cannot partake character of the revenue in the hands of the assessee. It is also not the case of the AO that the depositors are not identified and despite the conveyance deed executed by the assessee, the amount has not been incurred. In absence of this finding, it is not possible to confirm the disallowance. Therefore, we confirm the order of the CIT (A) in deleting the addition of ₹ 18,66,82,603/- being credit balance of registration charges received from the customers. Ground No.29 of the revenue's appeal is dismissed. 245. Ground No 30 of the appeal is as under :- 30. That on the facts Circumstances of the case the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-refundable, was not offered by the assessee company as income. 251. Ground No.31is against restricting the addition to the tune of ₹ 3,12,41,768/- only out of addition ₹ 35,08,31,012/-, shown as Closing Credit Balances in Allotment Account which, though proved to be non-refundable, was not offered by the assessee company as income. 252. This issue is regarding revenue recognition in case of sale of land and plots has been decided in ground no.15 of the assessee's appeal, therefore, ld. DR as well as ld. AR agreed that decision taken in ground no.15 of the assessee's appeal shall dealt with this addition. Ld. AR further submitted that if it is decided against the assessee, it would amount to double addition in the hands of the assessee. 253. We have carefully considered the rival contentions and we are also of the view that it is covered by ground no.15 of the assessee's appeal which is against revenue recognition in case of sale of plot and land. We have already held in the case of revenue recognition in case of sale of land and plots that it should be chargeable to tax only in the year in which the sale deed is executed after giving our reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) erred in deleting the addition of ₹ 225,85,28,452/- on a/c of deemed dividend (on protective basis) without appreciating the facts and various case laws discussed by the AO in the assessment order which were squarely applicable in this case 255. All these grounds relate to common issue of taxation of deemed dividend and therefore these are argued by the parties on similar lines. 256. Brief facts of the ground no 32 is that there are some loan transaction between DLF Commercial Developers Ltd. (DCDL) has given some loans to the assessee company. Assessee is the holding company of the lender DCDL. DCDL had on the date of giving these loans to the parent assessee company who is holding 100% share in this company there was reserve and surplus of ₹ 216,05,69,000/- and on various dates mentioned ₹ 2,57,970/- were advance by the company DCDL to the shareholders DLF Ltd. Hence this amount created a debit balance on the date and is therefore according to AO it is liable for taxation under 2(22) (e) of the act. On appeal before CIT (A) who deleted the addition holding that the amount is for the business purposes of the assessee as the nature of these tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied. AO further ignored the sales agreement as self-serving documents. 259. Regarding the amount of ₹ 225,77,97,142/- the facts are tabulated as under for clear picture of the transactions and rival arguments. Sl. No. Loan/ Advances Paid by Loan/ Advances Paid by Amount Shareholding In the payee Company At Column No.3 Assessee's arguments 1. DLF Retail Developers Ltd. Anjuli Builders Pvt. Ltd. 1,00,00,000 100% of DLF Home Dev. Ltd. The observation of the Ld AO in column 3 of table 2 of that DLF Universal is holding Company of Anjuli Builders Pvt Ltd Via DLF Home Developers Ltd is factually incorrect as explained below. The borrower namely Anjuli Builders Pvt Ltd is not a shareholder of lending company i.e. DLF Retail Developer Ltd. A copy of the annual return filed by the lending company with the registrar of the companies shows no shareholding by the borrowing company. Therefore this transaction is not covered by the section 2(22) (e). Secondly it will be noted that fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be brought within the provision of Section 2(22)(e). It is stated in the table 2 of at page 403 of the assessment order that DLF Ltd. holds shares in these companies more than 50% (as these companies are subsidiaries of DLF Ltd.). This statement is factually incorrect as will be seen from the Schedule 7(Vol 33 Page 12030) that the companies mentioned in the second column (loans paid to) namely - DLF Info City Developers(Chd) Pvt. Ltd. and other companies mentioned are not subsidiaries of DLF Ltd. DLF Ltd. do not hold any share in these companies. The borrower namely DLF Info City Developers (Chd) Pvt Ltd and other companies are not a shareholder of lending company i.e. DLF Commercial Developer Ltd. A copy of the annual return filed by the lending company with the registrar of the companies (Page 27- 38) shows no shareholding by the borrowing company. Therefore this transaction is not covered by the section 2(22) (e). Secondly it will be noted that from Schedule 7 of the Balance Sheet of the appellant company that it does not hold any share in the borrowing company namely DLF Info City Developers (Chd) Pvt Ltd. and other companies Therefore it can also not be said tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet of the appellant company that it does not hold any share in the borrowing company namely Ayushi B D P. Ltd and other companies. Therefore it can also not be said that the payment has been made to a concern in which shareholder is a member and in which he has a substantial interest. Thirdly the money borrowed by the Ayushi B D P. Ltd and other companies has been used by the borrowing company for its business and therefore though the appellant is a the holding company of the lending company it can not be said that the payment by the lending company to Ayushi B D P. Ltd and other companies is on the behalf of or for the benefit of the appellant as there is no payment by the borrower to the appellant. The same is evident from the financial statements of borrower company enclosed at page 219- 288 In fact the money had been paid by the lending company to the borrower out of loan given by the appellant company. Same has been evident from the financial statement of lending company enclosed at page 335-350. 4. DLF Gold Resorts Pvt. Ltd. DLF Commercial Developers Ltd. 66,13,530 100% DLF Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assesse and assesse also do not hold any shares in borrowing companies except in case of DLF commercial Developers Private Limited which is 100 % subsidiary of the assesse. In case of transaction in that company it was arguments of assesse before AO was that these are the business transactions. According to AO as the relationship between the assesse company and the subsidiaries borrowing companies are in the nature of fiduciary relationship and therefore the amount is taxed in the hands of the assesse on protective basis. Therefore AO held that this amount shall be chargeable to tax in the hands of the assesse despite it being not a registered shareholder of the company. 260. Ld. CIT (A) deleted the addition with respect to ground no 32 to 34 as under :- 29.42 I have carefully considered the assessment order, remand report of the AO and the submissions made by the ld. AR. From the judgment of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Ambassador Travels Pvt. Ltd. (2008) 173 Taxman 407 (Delhi), it is clear that if advance is taken by an assessee, who is otherwise covered by Section 2(22)(e) for treating such advances as deemed dividend, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Vadi Lal Lalu Bhai (supra) and on the decision in the case of ACIT Vs. Bhomik Colour (Pvt. ) Ltd. 2009 118 ITD (ITAT - Mumbai - SB) and in view of the fact that the appellant was not a shareholder in the lending company, I find that the sum of ₹ 225,77,97,142/- cannot be treated as deem dividend under Section 2 (22) (e) and hence the addition of ₹ 225,77,97,142/- is deleted. 29.46 Further, as per the facts as discussed above, the advance was not to the appellant company and neither to a company in which the assessee had any shares i.e. the payee was neither the appellant nor a company in which the appellant had any shares. Therefore, the addition cannot be made in terms of section 2(22) (e) of the Income Tax Act. I find that the AO has misconstrued the provisions of section 2(22) (e) in the second part for making the protective addition of ₹ 225,77,97,142/-. Section 2(22) (e) provides Dividend includes any payment by a company by way of advance or loan to a shareholder .. . In this case, the undisputed facts as per charts reproduced in this order show that in serial No.2 DLF Retail Developers Ltd., had given an advance to Anjali Builders. Here, Anj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted as under with respect to above transactions:- i) Regarding transaction of deposits from customers of DLF Commercial Developers Ltd. (DCDL) DLF Commercial Developers Ltd. and the Assesse, it is submitted that these payments were received by the Assesse directly from the customers in respect of sale by DLF Commercial Developers Ltd. and therefore, these balances appear as amounts payable to DLF Commercial Developers Ltd. Without prejudice, it is submitted that the Assessee had given loan of ₹ 204,60,54,553/- to DLF Commercial Developers Ltd. and after making adjustment of the impugned payments, the amount of loan given by the Assessee to DLF Commercial Developers Ltd. was in excess of the amount of the impugned transactions and therefore, Section 2(22) (e) is not attracted. This position is evident from material on record referred to by the learned CIT (A) in para 29.5 at page 219 of the CIT (A)'s order. ii) With regard to transaction at SL.No.2 of ₹ 30,23,187/- between DLF Financial Services Ltd. and the Assessee, it is submitted that these are business transactions in respect of booking of property for which the payment was made by DLF Financial Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, he relied on the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Ambassador Travel Ltd. - 173 taxman 407; iv) He further submitted that in most of the cases, the assessee company is not the shareholder and, therefore, the deemed dividend can be taxed only in the hands of a registered shareholders and the lender. For this, he drew our attention to shareholdings patterns of various lenders as well as the borrowers at page no.409 to 420 of the assessment order. v) He further submitted that in case of DLF Commercial Developers Ltd., the assessee has given more money then what it received from that company. vi) He further stated that the money is representing the book entry against purchase of agreement of various properties and, therefore, it cannot be charged to tax u/s 2(22) (e) of the Act. He relied on the decision of Sunil Sethi vs. DCIT - 26 SOT 95 (Del.). Regarding the contention that book entries cannot be taxed, he relied on the decision of Hon'ble Delhi High Court in CIT vs. Raj Kumar - 181 taxman 155 (Del.). vii) He further submitted that according to the decision of Hon'ble Delhi High Court in the case of CIT V Ankitech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Punj. Har.) has held that 6. A perusal of the facts and the above extract reveals that the revenue failed to adduce any evidence to prove that the transaction between the assessee and the company was a mere smoke screen to cover a surreptitious payment of money to a share holder. M/s Nexo Products (India) received certain export orders but was not in a position to execute the orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. The Company, therefore, entered into an agreement, dated 1.8.2007 with the assessee to install plant and machinery at his premises to enable the assessee to do job work for the company, at 10% below the prevailing market rate. The Assessing Officer did not doubt this agreement or these facts. The assessee having proved a tangible business expediency between the assessee and the company, the question of invoking Section 2(22) (e) of the Act does not arise. The Income Tax Appellate Tribunal has after considering these facts rightly held that as the assessee has proved business expediency the advance is not covered by Section 2(22) (e) of the Act. We find no reason whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Regarding addition of ₹ 126000000/-in respect of loan received by assessee from Bourka Financial services limited. Assessee has submitted before AO that the payments is against the booking of property to substantiate this assessee submitted the copy of the agreements as well as the balance sheet of Bhoruka Financial services Limited showing that assessee does not hold any share in that company. Ld. AO was of the view that as assessee holds 1000 % shares in DLF Commercial Developers Limited and DLF commercial developers Limited holds 98.74 % shares of Bhoruka Limited therefore the condition of 10 % holding in payee company and 20 in recipient company is satisfied. Further honourable Delhi High court in case of CIT V A R magnetic Limited 2013 ] 40 taxmann.com 392 (Delhi) Commissioner of Incometax v.AR Magnetics (P.) Ltd. has held as under :- 2. The respondent-assessee is a company and had received loan from another company Arcon (India) Pvt. Ltd. The respondent-assessee is not a shareholder in Arcon (India) Pvt. Ltd. The Assessing Officer, however, made an addition by invoking the provisions of deemed dividend under section 2(22)(e) of the Act on the ground that one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 2 (22) (e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under section 2 (22) (e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a share holder/member of the payer company. Therefore, under no circumstances, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsel for the Revenue would stand answered, once we look into the matter from this perspective. 12. Later, with respect to the mandatory need to fulfil both preconditions which are conjunctive and not dis-conjunctive, as is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt expenses of the guest of the company and business delegates in the nature of food stay and other incidental expenses. AO has treated these expenditure as personal expenditure and applied the provision of section 40A (2) of the act and disallowed it. On Appeal CIT (A)allowed these expenses holding as under 30.11 I have carefully considered the assessment order, remand report and the submissions made by the Ld. AR. With regard to disallowance of revenue expenses of ₹ 1,94,78,538/- disallowed by the AO by holding such expenses being in the nature of personal expenditure disallowable u/s 40A(2) of the Act, it is noted that these expenses are for official journey by the officers of the company, and other expenses in the nature of entertainment of official guests and broad band charges etc. for official use. These expenses have been found to have been incurred only an exclusively for the purpose of business and are therefore, not disallowable u/s 40A(2) of the Act. The impugned amount of ₹ 1,94,78,538/- is, therefore, deleted. 268. Before us Ld. DR relied on the order of AO and submitted that these expenditure are personal expenditure in nature and are rightly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by it and for which maintenance services are rendered by the payee group company. Besides the payment to group company this amount includes professional charges paid to Delanco Real Estate Pvt. Ltd. for providing professional services about the land building. Since the appellant is in the business of real estate development such services are related to the business activities of the appellant and therefore, disallowance of ₹ 1,93,38,906/- made by the AO is deleted. 272. We have carefully considered the rival contentions. The amount of ₹ 1,93,38,906/- is paid to various associate concerns as professional charges. ₹ 71,99,011/- are paid to DLF Services Limited on account of maintenance charges in view of Hon'ble Punjab Haryana High Court holding that these expenses are illegal. Further, the payment of ₹ 96,34,580/- and ₹ 25,05,315/- paid to subsidiary company were also disallowed in absence of the services rendered. The CIT (A) has held that these are maintenance charges paid to the assessee group companies and professional service charges with regard to payment made to subsidiary company on account of real estate business. We have noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,77,32,060/- made by the AO on the ground that benefit of these expenditures were enjoyed by the group companies also. Disallowance of ₹ 1,77,32,060/- by the AO on the ground that the benefit of this expenditure has been received by the group companies and therefore, proportionate expenses are disallowable 279. Ld DR Relied up on the order of AO and Learned AR relied on the order of CIT (A). 280. We have carefully considered the rival contentions. Ld. CIT (A) has deleted the addition as under :- 30.16 Regarding disallowance of ₹ 1,77,32,060/- by the AO on the ground that the benefit of this expenditure has been received by the group companies and therefore, proportionate expenses are disallowable. It is noted that this is a double disallowance, as detailed in the earlier part of my order, and therefore, this disallowance is also deleted. 30.17 I have considered the facts on record, observations of the AO in the assessment order and written submissions of the appellant. From the details and other material on record, it is noticed that these expenses have been incurred by the appellant wholly and exclusively for the purpose of his business and are a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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