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2016 (3) TMI 679 - ITAT DELHI

2016 (3) TMI 679 - ITAT DELHI - TMI - Disallowance u/s 14A r.w.r 8D - Held that:- We have also noted that assessee has worked out disallowance on its own of ₹ 1,87,35,000/-. 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 assessee on its own. - Decided in favour of assessee in part

Addition in respect of credit balance in Stale Cheques Account - .....

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same is not chargeable to tax u/s 41(1)or section 28. Therefore we reverse the finding of the CIT (A) and deleted the addition made on account of credit balance 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 .....

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nterest 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 refundable to resident welfare associations. CIT (A) relying on the decision in the case of CIT vs. Goel Gases Pvt. Ltd. (1990 (5) TMI .....

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talization 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 been given out of the borrowed funds - Held that:- Presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by ado .....

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unt of brokerage expenses for AMEX Building by holding that the same relating to renting of building - Held that:- Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by the tenant. For renting of the property brokerage cannot be said to be charged that has been created against property for enjoying the rights and at be .....

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ccount 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 l .....

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um from the assessment u/s 143(3) of that year.- Decided in favour of assessee

Disallowance of interest expenditure - disallowance 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 been given out of the borrowed funds - Held that:- Presumption is to be assume .....

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iture and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act.- Decided in favour of assessee

Disallowance on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building - Held that:- Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by th .....

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s 23 or u/s 24 of the Act. Hence, we confirm the order of the CIT (A) confirming the disallowance - Decided against assessee

Disallowance of expenditure - revenue v/s capital - Held that:- Amount paid for registration of trademark - the issue is squarely covered in favour of the assesse See CIT vs. Finlay Mills Ltd. [1951 (10) TMI 1 - SUPREME Court] wherein allowed the expenditure as revenue expenditure pertaining to the first time registration of the trademark.- Decided in favour of .....

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t ] 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 pa .....

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mpanies is in furtherance of the business of the company. Therefore it cannot be said that expenditure incurred by the assessee for due diligence of investments in furtherance of its business is capital in nature.- Decided against assessee

Disallowance of expenditure is expenses relating to proposed merger with wholly owned subsidiary company - Held that:- Hon Supreme court has held in Commissioner of Income Tax vs. Bombay Dyeing and Manufacturing Company Ltd [1996 (2) TMI 8 - SUPREME .....

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o be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2009 (9) TMI 635 - Delhi High Court ] we reverse the order of CIT (A) and delete the disallowance on account of tender fees for modernisation of airports. - Decided in favour of assessee

Disallowance as cash payment in excess of ₹ 20,000/-and not allowable u/s 40A(3) - Held .....

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T (A) relying upon the decision of ITAT, Delhi Bench in the case of Nestle 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

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djustment 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 A33P038-000-03 - Held that:- We confirm the order of the CIT (A) in deleting the addition on both the counts i.e. one that it is part of the work in progress and already considered by the income computation of th .....

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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 has been added. 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 ledger .....

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ability. In view of this, we confirm the order of the CIT (A) in deleting the addition - Decided in favour of assessee

Addition on on a/c of Savitri Cinema as no business activities were carried out during the year - Held that:- The expenditure has been incurred on the maintenance, security charges, etc. with respect to a cinema division of the assessee. The AO disallowed this expenditure holding that it is for the maintenance of capital asset and, therefore, they are capital expendit .....

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/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 .....

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Additions on a/c of capitalization of Interest expenses as per AS-16 - Held that:- The part of the disallowance has been deleted by the CIT (A) out of interest expenditure and part of it is confirmed. Against this amount which is confirmed, the assessee is in appeal as per ground no9 of the assessee's appeal and against deletion of ₹ 91,70,13,955/- revenue is in appeal on this ground. We have already given our finding regarding allowability of this interest expenditure while dec .....

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tion of 30% u/s 24A of the Act is chargeable to tax as such or is chargeable to tax under the head business income as assessed by AO - Held that:- the assessee company is a developer and hence, the decision of Hon'ble Supreme Court in the case of Chennai Properties [2015 (5) TMI 46 - SUPREME COURT ] 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 IT .....

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ade only at the time of payment or credit in the books of payer of rent as prescribed u/s 194I of the Act. The timing between the taxability of rental income under the head income from house property and timing of tax deduction at source can be different as both the sections have different intentions, objects and purposes. In view of the above 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.
< .....

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n 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 .....

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are of the view that there is no infirmity in the order - Decided in favour of assessee

Disallowance being prior period expenses - Held that:- The reliance on CIT vs. Modipan Ltd. - [ 2010(12) TMI 836 - Delhi High Court ] 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 .....

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positors 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.- Decided in favour of assessee

Addition of amount received by the assessee company from the customers for execution of conveyance deed - Held that:- 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 .....

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iness 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 .....

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ure 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 property and not tenant in case the property is rented. Therefore we do not find any infirmity in the order of CIT (A) in deleting disallowance - Decided in favour of assessee

Disallowance of legal and professional expenses in respect of amalgamation - Held that:- Hon Supreme .....

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MEMBER For the Petitioner : Shri R.S. Singhvi, Advocate For the Respondent : Shri Dileep Shivpuri, Special Counsel ORDER PER PRASHANT MAHARISHI, ACCOUNTANT MEMBER: 01. These cross appeals are filed by the Assesse and Assessing Officer [Hereinafter Referred to as 'AO'] against the order of the CIT (Appeals)-28, New Delhi dated 25.03.2011 for assessment year 2006-07 u/s 250 of The Income Tax Act, 1961[Hereinafter referred to as "the Act']. 02. The brief facts of the case are that .....

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ited balance sheet, profit & loss account and tax audit report u/ 44AB. The books of accounts of the assesse are maintained on Oracle Software System which was found to be complex by the AO. It was also noted by the AO that there is a change in the method of accounting. During the year to conform with the guidance note issued by ICAI, the AO found the accounting complex and, therefore, issued a show-cause notice for getting their accounts audited u/s 142(2A) for this year. The AO sent the de .....

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hat, 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 .....

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e Head of Addition / Disallowance Page No. of assessment order Amount (Rs.) 1. TOR - 1 Para 1.18 Volume - II Sale Cheque Account 35 47 3,92,27,313 2. TOR - 1 Para 1.6 Volume - II Revenue recognition on sale of Land & Plots based on POCM 47 67 5,41,75,304 4. TOR - 1 Para 1.32 Volume - III Revenue recognition on projects completed less than 30% based on POCM - Summit and Mangolia 67 94 102,84,93,509 5. TOR - 1 Para 1.21 Volume - II Excess construction expenses claimed in respect of old project .....

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085 12. TOR - 5Volume - IV PAGE - 67 Capitalization of Interest expenses as per AS-16 157 178 119,15,13,955 13. 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 .....

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lowance u/s 14A read with Rule 8D 354 360 16,47,55,000 20. Term of Reference No.31, Volume X Capitalization of Revenue Expenditure 360 362 2,13,94,580 21. TOR - 35 Volume - X Late Construction Charges 363 367 1,88,81,388 22. TOR - 33 Volume - X Prior Period Expenses 367 369 20,99,510 23. TOR - 36 Volume - X Recognition of Revenue on Various Components of Sale consideration A) Rebate on installments B) Contingency Deposit C) Interest free Security Deposit D) Registration Charges E) Indirect Taxes .....

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rsonal expenditure Expenditure to be disallowed on account of brokerage paid Expenditure in the nature of deferred revenue expenditure Expenditure on account 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 49,81,6 .....

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CIT (A) admitted the additional evidences considering the facts and circumstances of the case. Before the CIT (A), it was contended by the assesse that addition to the tune of ₹ 450.38 crores are arising out of doubt addition and accounting errors. Such details are available at pages 22 & 23 of the order of the CIT (A). The assesse further submitted that additions of six items are covered in favour of the assesse by the order of ITAT in the case of the assesse itself or by the orders o .....

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sesse has raised following grounds of appeal "1. These facts were on record, calculation filed, remand asked for, the AO did not dispute the calculation. In such circumstances, the CIT (A) was wrong in asking the AO to again verify the working in respect of these disallowances. 2. That the learned CIT (A) has failed to appreciate that the CIT(A) has no power to set aside any fact of his order to the AO and, therefore, unless The CIT(A) found the calculations to be wrong, he had no option bu .....

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verified from AO in remand to decide the issue and had set aside although 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 .....

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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 expendi .....

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ase 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] 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 Assessing Officer in directin .....

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red in law and on the facts and in the circumstances of the appellant's case in confirming the addition of ₹ 3,67,27,062/- out of total addition of ₹ 3,92,27,313/- made by the Assessing Officer in respect of credit balance in Stale Cheques Account as on 31.03.2006 by holding the same as outstanding for a very long period and in the nature of trading receipts. [Page 25-31 of CIT (A)'s Order] 7. That learned CIT (A) has grossly erred in law and on the facts and in the circumsta .....

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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 ͅ .....

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n 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 .....

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that there is no direct nexus which can be established to hold that the loans for specific projects were utilized for such projects only and by drawing a formula that 1/3rd of advances have been given out of own funds and 2/3rd of advances have been given out of borrowed funds. [Page 90-109 of CIT (A)'s Order] 9.1 That the learned CIT(A) has grossly erred in law in directing for verification by the AD on part of the interest expenditure amounting to ₹ 27.45 Crores although the AD had a .....

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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 were 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. 10. That .....

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tion 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, .....

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House Property' by holding that the appellant is not the owner of this property and the rental income cannot be computed under the head 'Income from House Property'. [Page 166-173 of CIT (A)'s Order] 12.1 That the learned CIT(A) has erred in directing the AO to verify the facts and in confirming the disallowance as the CIT(A) has no such power to set a-side the addition made by AO. [Page 173 of CIT (A)'s Order] 13. That learned CIT(A) has grossly erred in law and on the facts .....

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reating 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 Particulars Amount (Rs.) 1 Expenditure for registration of Trade Mark and Brand Logo 10,08,774 2 Expenditure for Repair & Maintenance of Guest House, Mussoorie 55,18,338 3 Expenditure for consultancy expenses in con .....

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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 appel .....

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. [Page 243-254 of CIT (A)'s Order] 16.1 That the learned CIT (A) has failed to appreciate that bidding for such projects was in line with the business of the company and there was a unity of funds, management & control with the existing business of the company as the business was same, no disallowance was called for. 16.2 That learned CIT (A) ought to have appreciated that the business of the appellant remains construction/ whether it constructs houses, commercial places like malls, air .....

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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." 05. Ground Nos.1 and 2 are general in nature. No arguments against and for them have been advanced by the parties and therefore they are dismissed. 06. Ground No.3 of the assessee's appeal is against the disallowance of ₹ 16,47,55, 000/- made by the AO u/s 14A of the Act applying the formula laid down .....

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e-tax Act, 1961. [Page 175-184 of CIT(A)'s Order] 3.1 That the learned CIT(A) had all the details and had such details verified from AO in remand to decide the issue and had set aside although 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 o .....

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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 .....

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oked." 07. Brief facts of the case are that assesse has earned income of ₹ 48869000/- as share of profit from firms which is exempt u/s 10(2A) of the Act. During the course of assessment proceeding, AO asked assesse to work out disallowance u/s 14A of the Act. Assesse vide letter dated 26.03.2009 submitted working of such disallowance of ₹ 1,87,35,000/- made by assesse in computation of total income. The AO rejected the disallowance made by assesse as according to him it was not .....

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ther than direct interest expenditure incurred by the assesse at ₹ 13598.23 lakhs. He further took the average value of investments yielding exempt income of ₹ 393777.52 lakhs. He then worked out total average investment of the company by summing amount of investments in fixed assets, investments and current assets and loans and advances of ₹ 369116.03 lakhs resulting in to proportionate indirect interest expenditure of ₹ 1450.67 lakhs (39377.52*13598.23/369113.03 lakhs). .....

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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 orde .....

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is disallowance is incorrect but he has rejected it, as it was not in accordance with Rule 8 D of the IT Rules 1962. He submitted that according to section 14A (2) of the Act satisfaction of AO with this aspect is mandatory and there is no such satisfaction recorded by the AO in the assessment order and, therefore, any disallowance made by him is not proper. He relied up on the decision of Honourable Delhi High court in case of CIT V Taikisha Engineering India Ltd [2015] 54 taxmann.com 109 (Delh .....

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panies. The assesse has not earned any dividend income from those private limited companies. However, during the year, it has earned profits from the partnership firms only which is exempt by virtue of the provisions of section 10(2A) of the Act. From those partnership firms, the assesse has earned profit of ₹ 4,88,69,000/- as shown in Schedule 15 of the profit & loss account. This was the only exempt income earned by the assesse. It was submitted that these partnership firms are forme .....

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se and, therefore, no disallowances can be made u/s 14A of the act on these investments. He submitted that assesse does not have any intention to earn any tax free dividend form those companies or to earn any exempt income from these partnership firms. For this relied on the decision of Honourable Delhi high court in case of i. CIT v. Holcim India 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 expendit .....

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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 p .....

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erest expenditure can be made. For this proposition he relied on the decisions of honorable Supreme Court in ACIT v. Tulip Star Hotels Ltd. (Supreme Court) (CC 7138-7140/2012) and honorable Bombay high court in CIT v. HDFC Bank Ltd. (2014) 107 DTR (Bom) 140 and CIT Vs. Reliance Utilities & Power Ltd. 178 Taxman 135/313 ITR 340/221 CTR (Bom.) 435 etc. (v) The next argument advanced was that profit from the firm in the hands of the assesse partner is doubly taxed income and is not exempt incom .....

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the exempt income during the year. Therefore he submitted that these investments should be excluded for working out any disallowance on account of other expenditure also. He further submitted that it is settled legal position that no disallowance u/s 14A can be made in the absence of receipt of any exempt income, for this he referred several high court and tribunal decisions some of them are as under :- a) CIT v. Holcim India P. Ltd. (ITA No. 486/2014) [ Delhi High Court], b) CIT vs. Lakhani Mar .....

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ted 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 i .....

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ee income is required to be considered and not those investments on which no income is earned. He submitted that those investments are to be excluded for working out disallowance of expenditure as well as interest. Hence according to him for the working out any disallowance u/s 14A of the Act, only investments, which are otherwise not excludible, from which tax free income is earned during the year are required to be taken as base for disallowance of an expenditure. In this case, it is already c .....

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(Bom) where in absence of nexus, the assesse should be given benefit of interest free funds available with it presumed to have been invested in assets wherever income is exempt. 10. Ld. DR submitted that (i) There is no grievance on the issue that Rule 8D does not apply for AY 2006-07 and, therefore, it is not contested. (ii) Further, he submitted that CIT (A) in para 24.9.1 has set aside the matter back to the file of the AO to compute the disallowance after verifying complete facts and figure .....

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se. (iii) The next argument advanced by the ld. DR is that partner and partnership firms are separate entities for the purpose of taxation, therefore, it cannot be said that share from the partnership firm is doubly taxed income. He took us to the provisions of section 10(2A) of the Act showing that whatever is disallowed in the hands of the partnership firm is exempt in the hands of the partners and whatever is allowed in the hands of the partnership firm is taxed in the hands of the partners. .....

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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 t .....

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at (Rs. in lakhs) 31.3.2006 31.3.2005 31.3.2004 Unquoted Shares of companies 505 133 133 Partnership Firms 49 41 45 Total 554 174 178 Assesse has earned tax free income as under:- Particulars Assessment Year 2006-07 2005-06 2004-05 Share of Profit from Partnership Firms (net) 4,88,69,429 9,81,36,794 8,84,32,899 Exempt income from subsidiary companies - Other Exempt Income (Dividend) - 10,000 Total 4,88,69,429 9,81,36,794 8,84,42,899 13. With the above facts we proceed to decide the each of the .....

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re us that AO has not at all recorded his satisfaction regarding incorrectness of the claim of the disallowance made by the assesse which is mandatory u/s 14A (2) of the Act . It is a matter of record that that assesse has worked out disallowance u/s 14A 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 .....

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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 the claim of the assesse in respect of such ex .....

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a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assesse in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assesse claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In o .....

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mbark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assesse, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed me .....

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e 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 con .....

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1974 SC 2249*). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assesse a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assesse, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under art .....

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gs are that the assesse had sufficient funds for making investments in shares and mutual funds. The said findings coupled with the failure of the Assessing Officer to hold and record his satisfaction clinches the issue in favour of the respondent assesse and against the Revenue. The self or voluntary deductions made by the assesse were not rejected and held to be unsatisfactory, on examination of accounts. Judgments in Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy .....

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D of the Rules. The said Rule in sub Rule (2) specifically prescribes the mode and method for computing the disallowance under Section 14A of the Act. Thus, the interpretation of clause (ii) to sub Rule (2) to Rule 8D of the Rules by the CIT(A) and the Tribunal is not sustainable. The said clause expressly states that where the assesse has incurred expenditure by way of interest in the previous year and the interest paid is not directly attributable to any particular income or receipt then the f .....

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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 ha .....

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Assessing Officer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the recomputation. Therefore, the respondent assesse would succeed and the appeal should be dismissed." Therefore on this ground, amongst others, we are of the view that no disallowance u/s 14A can be made by AO. (iii) Ld. AO he has made the proportionate disallowance of interest of ₹ 1450.67 lakhs applying the formulae of the total interest in proportion to total investments of the assesse and then der .....

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fund available to the extent of share capital of ₹ 40 crores and reserves and surplus amounting toRs.607 crores making total available interest free funds at ₹ 647 crores,. Against that, assesse has invested in unquoted equity shares of subsidiary companies and investment in partnership firms of ₹ 505 crores and ₹ 49 crores respectively, which makes total tax-free income generating investment of ₹ 554 Crores. Apparently, the interest free funds available of ₹ .....

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of the interest-free fund generated or available with 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 a .....

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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 the act can be made. (iv) Regarding the arguments of the parties that investments in companies, group concern is for the purposes of the business and therefore the investments made in unquoted equity shares of various subsidiary companies or assoc .....

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er in to the holding of land or the projects. Investment in all those subsidiary companies, which is amounting to ₹ 505 crores as at 31.03.2006 are part of the strategic business investment of the company. It is not disputed by the rival parties that assesse has controlling interest in those companies. On this issue ld. CIT (A) has observed at Page 105 Para 17.39 as under :- "Admittedly, income from subsidiary is from "profit or gains of business" i.e. Loans and advances giv .....

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and CIT vs. Oriental Engineering Pvt. Ltd. In ITA 605/2012 dated 15.01.2013 further several decisions of various coordinate benches were also advanced. Principle enunciated by all these decision is that in case the investment is for the purposes of the business but not to earn tax-free income such as dividend etc. disallowance cannot be made. It is further stated before us that coordinate Bench of ITAT, Mumbai in the case of Garware wallropes Ltd V ACIT in ITA No.5408/Mum./2012 in para no 2.4 h .....

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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 pri .....

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investment in them is not for the controlling stake in those companies and these investments are not made for the purpose of the business of company. On conjoint reading of all these decisions cited before us, we are of the view that expenditure of interest as well as other expenditure cannot be disallowed u/s 14A of the act because of i. Investment made by the assesse in those subsidiaries companies where assesse has admittedly controlling stake. ii. Real-estate is the business of the assesse a .....

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e held so accordingly. (v) It is also an admitted fact that on the investments made by the assesse in various subsidiaries and group companies no dividend income is received during the year. Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT reported in 378 ITR 33 has held that there should be an actual receipt of income for making any disallowance u/s 14A of the act with respect to such investments. Provisions of section 14A envisage that there should be an actual receipt of income, which .....

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on these investments. (vi) Investment in partnership firms has yielded tax-free income during year of ₹ 4,88,69,429/- which is noted at page no.180 of the order of the CIT (A).It is an admitted fact that whole of such income has arisen 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 .....

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xempt 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 u/s 14A of the act. According to the table of CIT (A) at page .....

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than interest expenditure related to earning of tax free income being share of profit from the partnership firm after recording his satisfaction on incorrectness of the disallowance made by Assesse. Therefore we are of the view that if the rate suggested in Rule 8D(iii) of 0.5% on the average investment for working out disallowance of other expenditure other than interest it will end whole controversy. In fact, on this proposition, ld. AR of the assesse also agreed and Ld. DR did not contest it. .....

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he issue to the file of the AO, assesse cannot be said to be agreed by that order. We are not in a position to reconcile ourselves with the argument of the ld. DR when despite the appellate order of CIT (A) passed on 21.03.2011 till the date of hearing i.e. even after five years, the appeal effect order making the disallowance has not been made by the AO. In view of this, we are of the view that by setting aside the issue to the file of the AO by CIT (A) matter has not been attended and addresse .....

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ase 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, whi .....

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all the relevant materials were before the Tribunal. To our mind, it appears that the Tribunal has adopted an easy course in remanding the matter. The remand was superfluous when the parties have argued the matter at length. To characterize the order of the Collector as laconic is not correct since he has written a detailed order including reference to relevant case law. The Tribunal has adopted an easy course of remanding the matter to Collector, when it could have decided the same. The remand .....

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ic facts necessary for the disposal of the matter are already on record and further if these facts appear in the order of the lower tax authorities. (3) In the case of Maharani Kanak Kumar Sahibav.CIT [1955] 28 ITR 462 (Pat.) - Remand should only be made in very rare cases and should be used sparingly and only in cases where the Tribunal, after examination of material already placed on record by way of evidence, takes a view that it is not possible for it to make a just order - Surinder Pal Verm .....

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pt in special circumstances, be reopened and retired. In a recent decision their Lordships of the Supreme Court laid down that power to order retrial after remand, where there had already been a trial on evidence before the court of first instance, cannot be exercised merely because the Appellate Court is of the view that the parties who could lead better evidence in the Court of first instance have failed to do so." (5) In the case of Ghasi Ram Dayanand v. CST 92 STC 478 at the rate of 480 .....

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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 .....

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ne in mind that litigants in our country have to wait for long to have fruit of legal action and expect the Tribunal to decide on merit. It is, therefore, all the more necessary that matter should be decided on merit without allowing one of the parties before the Tribunal to have another inning, particularly when such party had full opportunity to establish its case. Unnecessary remands, when relevant evidence is on record, belies litigant's legitimate expectations and is to be deprecated. H .....

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equires a change and when issue is not attended for half a decade even when all evidences, judicial precedents, principles of taxation are available, the issue requires to be decided on merit which we are duty bound to perform. Therefore, we reverse the finding of ld. CIT (A) for setting aside the issue to the file of the AO for working out disallowance u/s 14A of the Act. Therefore we hold that there cannot be disallowance u/s 14A of the act on the basis of arriving cumulative facts that (i) in .....

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e 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 o .....

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earned 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 directing the assesse to get the accounts audited under section 142(2A) of the I.T. Act, 1961, by the Special Auditors and dismissing the appellant's appeal on this ground as infructuous. [Page 25 of CIT(A)'s Order] 5.1 The learned CIT(A) ought to have held that no genuine cause existed for ordering Special Audit u/s 142(2A) of .....

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tion of ₹ 3,92,27,313/- made by the Assessing Officer in respect of credit balance in Stale Cheques Account as on 31.03.2006 by holding the same as outstanding for a very long period and in the nature of trading receipts. [Page 25-31 of CIT(A)'s Order]" 19. This ground is against confirming the addition of ₹ 3,67,27,062/- out of the total addition of ₹ 3,92,27,313/- made by the AO in respect of credit balance in stale cheque account as on 31.03.2006 by holding that the .....

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e account was tabulated by the AO at page 39 of the assessment order. As on 01.04.2005 an amount of ₹ 5,18,75,677/- was found outstanding, ₹ 38,04,671/- was an additional transferred to this account and ₹ 1,64,53,036/- was subtraction (clearance of cheques from the bank account ) to that account resulting in credit balance of ₹ 3,92,27,312/-. Some of the cheques which were mentioned out of this account were outstanding for more than 3 years and it's balance is ₹ .....

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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 .....

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ion of ₹ 3,92,27,313/-. 21. Assesse carried the matter before the CIT(A) who in turn deleted the addition to the extent of ₹ 18,21,798/- but confirmed the addition of ₹ 3,67,27,062/-. The CIT (A) has granted relief to the extent of whatever cheques cleared from the bank account of the assesse subsequently. The CIT (A) also deleted the addition of ₹ 6,78,463/- which is to be transferred to investor protection fund account. Balance amounts were confirmed by CIT (A) because .....

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herefore for the control purposes, these entries have been passed in the books of accounts. These accounting entries have been accepted in past several years and in none of the years, the revenue has rejected it. The method of accounting is within the knowledge of the income tax department who is assessing the assesse u/s 143(3) for all those years and has accepted it in past. To support his contention, he drew our attention to page 39 of the assessment order where the details of such stale cheq .....

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77; 3.92 crores is shown in the balance sheet of the company giving the full list of the parties with the names and addresses is available 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 .....

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der 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 by the CIT (A) is correct as those cheques are outstanding for more than 3 years. It was also stated that case laws relied upon by the assesse do not apply to the facts of t .....

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se liabilities are already accepted by the assesse in its balance sheet with full particulars and therefore assesse is duty bound to honour those cheques as and when they are depositing in the bank or presented to the assesse for revalidation. He further drew our attention to the decision of Hon'ble Gujarat High Court submitted in his synopsis stating that the facts of this case and the ratio laid down is properly applicable and the outstanding liability cannot be treated as revenue trading .....

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ecorded by above while recording the facts of this ground, it is apparent that this stale account cheque is appearing in the balance sheet of the company and details with the name, address, cheque numbers, date of cheque and the party to whom it is issued is available on record. The accounting entry by debiting the bank account and credited in the stale cheque account is an accepted corporate accounting practices for the controlling of dayto- day bank balance and reconciling it with the balance .....

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t 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 .....

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e name of various parties whose existence is not doubted and it is also admitted that they have not waived their right to receive this amount and assesse is showing this amount in its balance sheet as liability and has not written it back to the profit and loss account of the assesse. Further there are regular addition and subtraction from these accounts which shows that the liabilities do exist and are continuing. It is not at all the case of the revenue that cheques have not been handed over t .....

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on looking at the movement of the account tabulated in the assessment order that stale cheque account is just an accounting entry for the control purposes. Ld. CIT (A) has confirmed this addition merely because these cheques are outstanding for long period and, therefore, it has become a trading receipt is erroneous. The first reason is that it is not at all the receipt of any sum by the assesse but it is just an accounting entry; the second reason is the inflow of the cheque or outflow of the m .....

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iability in stale cheque account by showing it into the balance sheet. Therefore, it cannot be said that by action on both the parties, the liability has extinguished. Furthermore, the AO could not find any evidence that the parties to whom the cheques have not been issued and not presented in the bank account of the assesse 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 sta .....

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ct. 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 los .....

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ation 1-For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.]" (Underlining ours) We may straightaway clarify that Expla .....

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ned some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The argumen .....

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ves 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 ca .....

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s 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 an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law". In our opinion, this rule should be applied to the interpretation and understanding of the words "remission" and "cessation" used in the section. 13. In Bombay Dye .....

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ed by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th Edition, page 383, are directly in point: " At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from it .....

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to be exposed to action by the creditor."(underlining ours) This was also the view taken by the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited company. In respect of the assessment year 1965-66, it tran .....

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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 Co .....

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contended before us that since a period of more than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under Section 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Guja .....

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41 may not be relevant after substitution of the said clause by the Finance Act, 1992 with effect from 1st April, 1993, by which the words "some benefit in respect of such trading liability by way of remission or cessation thereof" were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have r .....

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y. The Supreme Court noticed a judgment of the Bombay High Court in J.K. Chemicals Ltd. v. CIT (19966) 62 ITR 34 in which it was explained as to what could bring out a cessation or remission of the assessee's liability. The observations of the Bombay High Court 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 assess .....

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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 the mere fact of the expiry o .....

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t the above observations of the Bombay High Court were quoted by the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court: "This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same." To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing and Manufac .....

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lity remained unpaid and this fact formed the basis of the contention of the revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of Section 41(1). In the case before us, the identical contention has been taken on behalf of the revenue, though the period for which the amount remained unpaid .....

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re 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 .....

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igned by the directors constitutes an acknowledgement of the debt. In Mahabir Cold Storage v.CIT (1991) 188 ITR 91, the Supreme Court held: "The entries in the books of accounts of the appellant would amount to an acknowledgement of the liability to Messrs. Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt." In several judgments of this Court, this legal position has been a .....

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would constitute an acknowledgement within the meaning of Section 18 of the Limitation Act. In Rishi Pal Gupta v. S.J. Knitting & Finishing Mills Pvt. Ltd. 73 (1998) DLT 593, the same view was taken. The last two decisions were cited by Geeta Mittal, J. in S.C. Gupta v. Allied Beverages Company Pvt. Ltd. (decided on 30/4/2007) and it was held that the acknowledgement made by a company in its balance sheet has the effect of extending the period of limitation for the purposes of Section 18 of .....

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March, 2002 of the accounts of the sundry creditors amounts to an acknowledgement of the debts in their favour for the purposes of Section 18 of the Limitation Act. The assessee's liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law. 18. The judgment of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) was followed and applied by a three Judges Bench of the Supreme Court in Chief Com .....

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7/- 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 t .....

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in issues which had a bearing on the liability to pay purchase tax which still remained disputed between the assessee and the sales tax department. 19. Since strong reliance was placed by the learned standing counsel for the income tax department on the judgment of the Supreme Court in CIT vs. T.V. Sundaram Iyengar & Sons (supra), it is necessary to refer to the same in some detail. In that case, the ITO found that for the assessment years 1982-83 and 1983-84 the assessee had transferred amo .....

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tors arose on account of trading transactions, it had the character of income and had to be added to the total income for tax purposes. The CIT(A) and the Tribunal deleted the additions holding that neither section 41(1) nor section 28 applied, as the amounts represented excess trading advances given by the customers to the assessee and that since at the time they were received they were capital receipts they could not change character and become assessable as revenue receipts. At the instance o .....

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t, in the words of the court itself (page 347 of 222 ITR) was that "even though the deposits 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 fix .....

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cter, 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 received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money .....

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essee did was the commonsense way of dealing with the amounts." 20. It may at once be noticed that the decision cannot be understood as explaining the conditions of applicability of section 41(1) of the Act, for the simple reason that the section was not invoked by the revenue authorities in that case and there was a finding of the appellate authorities to the effect that neither section 41(1) nor section 28 was attracted to that case. That was a case of certain deposits being received by t .....

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d not explain why the balance was taken to its profit and loss account even though the money belonged to somebody else. It was in these circumstances that the Supreme Court applied a common sense view of the matter and held that the assessee had become richer by the amount transferred to the profit and loss account. The matter was thus decided on general principles and on the footing that the assessee committed and overt act indicating that it had appropriated the balances in the deposit amounts .....

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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 .....

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ity being earlier allowed as a deduction and which is sought to be recalled under Section 41(1) of the Act. At the cost of repetition it may be added that in CIT Vs. Kesaria Tea Co. Ltd. (supra) the revenue sought to raise the argument based on the judgment of the Supreme Court in CIT Vs. T.V. Sundaram Iyengar (supra), but it was rejected by the Supreme Court holding that the decision was of no relevance to the question involved in the case before them, which was about the applicability of Secti .....

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ection 41(1) was invoked to tax amounts that were unilaterally written back to the profit and loss account of the assessee, this Court had applied the judgment of the Supreme Court in CIT Vs. T.V. Sundaram Iyengar (supra) to hold that the unclaimed liabilities written back were taxable under Section 41(1). A perusal of question No.3 referred to this Court under Section 256(1) of the Act shows that there is a specific reference to Section 41(1) of the Act. However, this judgment cannot be invoked .....

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ney or not, arising from business or the exercise of a profession" shall be chargeable to income tax under the head "profits and gains of business or profession". He submitted that since the amounts remained unpaid to the sundry creditors for a period of 4 years or more, the monies were available 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. .....

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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) sp .....

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n, where the assessee maintains accounts in the mercantile system of accounting. Thus, it may be seen that Section 10(2A) of the Indian Income Tax Act, 1922 and Section 41(1) of the present Act of 1961 were intended only to govern a particular factual situation. Section 28(iv), on the other hand, is a general provision which brings to assessment the value of any benefit or perquisite arising to the assessee from the business carried on by him. If, as contended before us by the learned standing c .....

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n element of uncertainty or subjectiveness in ascertaining as to what would be the lapse of time that would be necessary to render a liability to pay the creditors ineffective, which would result in an alleged benefit to the assessee. Moreover, if after the taxing of the amount u/s 28(iv) on the ground that considerable time has elapsed from the date of the debt during which the assessee had the benefit of the monies in his business, it is found that in another later year the creditor has recove .....

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essation 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 .....

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respect of which he has obtained a deduction in an earlier year in computing the business income, should be governed by Section 41(1) which is the specific provision governing the factual situation and not by Section 28(iv). This way there would be no conflict between the two provisions and both will be given effect to." 26. In view of the above decision of honourable high court where in the whole issue of outstanding liability outstanding for many years is discussed and then following the .....

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nly reason that they are outstanding for more than three years. 27. In the result, this ground no.6 of the assessee's appeal is allowed. 28. Ground No.7 of the appeal of the assesse is as under :- "7. 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 ₹ 5,41,75,304/- made by the Assessing Officer on account of revenue recognition in respect of sale of land and plots based on POCM (Percent .....

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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." 29. This ground is against the order of the CIT (A) confirming the addition of ₹ 5,41,75,304/- on account of revenue recognition of sale of plot and land. Brief facts of the case are that till assessment year 2005-06, the company was recognising the revenue of constructed properties wherein the sale deed are registered in favour of the buyer, theref .....

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hat 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 .....

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sesse has changed its method of accounting from completed contract method to percentage completion method and for the sale of land of plot, there is no change in the method of accounting, now also, it is recognising revenue at the time of registration of sale deed. This fact is available at pageno.48 of the assessment order. During FY 2006-07 i.e. AY 2007-08assesse sold a plot of land at DLF City Phase 1 - 5, an agricultural land for ₹ 7,36,29,188/- cost of which is ₹ 3,73,03,478/- a .....

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this as income of AY 2006-07 i.e. the impugned current assessment year. Admittedly both these plots do not have any significant development project cost. Against this, the assesse preferred appeal before CIT (A) who in turn confirmed the addition. The CIT (A) was of the view that though there is a change in method of accounting of constructed projects of the assesse, there is no logic as to why the same accounting practices of changed method with respect to sale of land and plots should not be f .....

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stand of the assesse is inconsistent as from AY 2007-08, assesse himself has also adopted the policy 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 foll .....

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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 4 mentioned in that Guidance Note are fulfilled. According to that revenue is required to be recognised only if all significant risk and rewards of ownership are effectively transferred to the seller. Coupled with this, the .....

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in not in case of plot of land. For this, he relied upon the decision of Hon'ble Supreme Court in the case of Real Estate Developers and Services Limited vs. CIT - 307 ITR 202 wherein it is held that on sale of land income accrues to the seller on execution of conveyance deed in favour of buyer and not before. He stated that as the conveyance deed in these two properties is executed in the next year, hence according to this decision, it is rightly offered for taxation in the year in which c .....

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that as the income has already been offered for taxation in AY 2007-08, if the addition is sustained in this year and it will result into double taxation. To further strengthen his argument, he relied on the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. - 358 ITR 295 wherein it is held that as the income has already been taxed in the subsequent year, revenue has not been deprived of any tax and the rate of the tax in both the years is same. For this reason also, the .....

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ale 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 .....

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further submitted that it is not the simple plots of land which are sold by the assesse but are developed plots of land and, therefore, provisions of Accounting Standard - 7 and 9 both are applicable. He further stated that all risk and reward of the plot of land passes to the buyer, according to the Guidance Note issued by the ICAI, even though possession is not handed over, full consideration is not received and conveyance deed is not executed. He submitted that in these two plots of land, ri .....

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rect taxable profit every year. He heavily relied on para 9.12 of the order of CIT (A) and urged that the impugned addition of ₹ 5,41,75,304/- may be confirmed. 32. In rejoinder, ld. AR of the assesse submitted that Accounting Standard-7 does not apply to the real estate developer and for this, he relied on the decision of M/s. Mittal Investment Corporation vs. ACIT - ITA No.1652/Mum./2009 dated 13.08.2010, Paras buildtech India Private Limited V CIT [ ITA No 602/2015] [18-11-2015], Hon .....

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equired to be deleted. 33. We have carefully considered the rival contentions. The brief facts of this issue are that in case of property mentioned at page no.58 of the assessment order of plots of land sale deed for which execution of conveyance 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 f .....

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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 Schedule No.24 policy of revenue recognition on sale .....

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esse accepted by the revenue, a different method of accounting other than that cannot be thrust upon the assesse. Reasons for thrusting this method of accounting for sale of plot of land are that (1) there is change in method of accounting of constructed properties and (2) tax is deferred by the assesse from AY 2006-07 to AY 2007-08. It is required to be tested that though the method of accounting is being consistently followed by the assess whether it is the right method from which correct prof .....

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e the development activity is significant and if the projects meet the criteria specified in paragraphs 3.3 and 5.1 above, the percentage completion method is used to account for such sales." In para no 4 of this guidance note it is provided that:- "4. Application of principles of AS 9 in respect of sale of goods to a real estate project 4.1 The application of principles of AS 9 in respect of sale of goods requires recognition of revenues on completion of the transaction/activity when .....

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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 recogni .....

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and reward' of the property coupled with the conditions agreed between the buyer and the seller has not undergone any material change. Therefore, we are of the opinion that Guidance Note revised by the ICAI in 2012 has persuasive value for deciding revenue recognition concept in case of the assesse in this ground of appeal. Ld. DR, during the course of hearing, agreed that on these principles, the agreements executed by the assesse with the buyer needs to be examined and, therefore, ld. DR .....

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rges or other Government levies on prorate basis along with other purchasers which would be incorporated in the sale or conveyance deed executed by the seller in favour of the purchaser. Therefore, this is an obligation cast on the buyer which would be decided at the time of execution of sale deed. According to Condition No.5, the seller will have the right to effect alteration in the lay out plan and if there is a reduction arising out of this the seller would be liable to refund the amount of .....

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ull consideration is paid by buyer, interest free maintenance security is recovered from buyer, full cost of stamp paper or registration charges and other dues payable in this agreement paid by buyer. Till the possession of plot is given the seller remains in effective possession and control of the property further there is also uncertainty about the exact area of the land to be transferred as the area may reduce and seller is bound to refund the amount collected to that extent. Therefore, merel .....

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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 th .....

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reliance on the provision of section 53A of transfer of property of the goods, according to the Transfer of Property Act, cannot be applied for determination of the revenue on sale of products, goods, real estate, etc. Commercially, the revenue needs to be recognized when the risk and reward of the property, goods or products, have been transferred from the seller to the buyer. Hence, in our opinion, AO is not correct on accounting principles in recognizing revenue of the assesse of ₹ 5,4 .....

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sse on the date of execution of the tripartite agreement when the full consideration of the building was received by the assesse and, according to the assesse, the income accrued in the year in which the sale deed is executed. In that case, Hon'ble Supreme Court has held that under the Act, according to section 145 of the Act, it is always open to the department to insist on the change in method of accounting followed by the assesse over years if the method of accounting employed by the asse .....

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upreme 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 .....

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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 different revenue recognition method for sale of products of different characteristics and marketability. Admittedly, assesse is permitted to have different revenue recognition policy for sale of plot of land compared to sale of constructed properties. Only condition is that correct profit is required to be de .....

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the law. Therefore, relying on the decision of Hon'ble Supreme Court in case of Realest Builders and Services ltd 307 ITR 202 (SC), we are of the view that income of the assesse on sale of plot of land cannot be taxed in this year. The reliance placed upon by the ld. AR on the decision of Hon'ble Supreme court in the case of CIT vs. Excel Industries (supra) is apposite as in both the years i.e. AY 2007-08 and 2006-07, the rate of tax remained the same and the revenue has not been depriv .....

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7-08 and revenue has not reduced that sum from the assessment u/s 143(3) of that year. 34. Therefore, ground no.7 of the appeal of the assesse is allowed. 35. Ground No.8 of the appeal is as under :- "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 project .....

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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 y .....

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ore 31.03.2006. 37. The CIT (A) has rejected the contention of the assesse that income generated from this project has already been offered for taxation in subsequent years and would result in double taxation. Further, assesse is aggrieved because CIT (A) has directed AO to verify the details filed before him. The assesse was also aggrieved that CIT (A) has not given any direction to the AO for exclusion of the amount of ₹ 78,77,80,921/- from taxable income of subsequent years as it is con .....

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/- and from Summit Project of ₹ 11,45,52,376/-. The contention of the assesse is that construction of these two projects based on the percentage completion method has not reached threshold requirement of 30% as on 31.03.2006. It was submitted that profits of these projects are offered for taxation in subsequent years when the threshold yardsticks of 30% in terms of accounting policy of the assesse is achieved. Against this, AO was of the view that assesse has himself incurred expenses on l .....

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rejected all the contentions and held that Accounting Standard 9 issued by the ICAI and according to that Accounting Standard, there is no justification for the assesse 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 cha .....

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n 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 practice is being followed and accepted by the revenue. His next argument was that there is no doubt about the correctness of the profit of th .....

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that the special auditor has stated that those superficial yardstick of 30% of cost incurred has not been prescribed anywhere in the publication of the ICAI, however considering the spirit of the publication, it is accepted from every assesse to calculate the correct amount of revenue for recognition under the project completion method. However, assesse who is not in the business of construction is required to estimate reliably correct amount of revenue of the respective year. The auditor furth .....

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he threshold limit of 30% going by the industry claims, prudence and followed the same consistency and, therefore, there is no postponement of tax. In nutshell, the ld. AR argued that it is an opinion of the expert on accounting practices for AY 2010-11 which has been accepted by the revenue that 30% threshold limit is as per the industry norms, provisions and consistency, same should not be disturbed in this year. 40. Against this, ld. DR submitted that the CIT (A) as well as the AO has correct .....

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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 pri .....

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total project cost incurred up to this year or not. Before that we would like to address the issue of threshold percentages determined by the assesse of 30 % instead of 25 % provided in the guidance note on accounting for real estate transactions issued by ICAI in 2012. Firstly assesse has submitted the instances where in the identical facts and circumstances there is trade practice of adopting threshold of 30 % of the achievement of total project cost for commencement of recognising of revenue .....

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ances. (ii) Approval of plans, designs, etc. (iii) Title to land or other rights to development/ construction. (iv) Change in land use (b) When the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure 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. (c) At least 25% of the saleable .....

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n be recognised with respect to these 8 agreements." According to the above guidance note the revenue of the project can be recognised only when the above conditions specified therein. According to one of the conditions specified there in is reasonable level of development is not achieved if the expenditure 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 .....

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nd 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 .....

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ine the income of both these projects on percentage completion method in this year; (iv) To give appropriate relief in subsequent years, if any income is taxed on these projects in those years; (v) If the project cost incurred up to this year has not crossed threshold of 30% limit of the total project cost estimated then to delete the addition of ₹ 1,02,84,93,509/-. While deciding this issue AO may however keep in mind the principle laid down by honourable Supreme court in case of CIT v. E .....

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119,15,13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans for specific projects were utilized for such projects only and by drawing a formula that 1/3rd of advances have been given out of own funds and 2/3rd of advances have been given out of borrowed funds. [Page 90-109 of CIT(A)'s Order] 9.1 That the learned CIT(A) has grossly erred in law in directing for verification by the AD on part of the .....

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he 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 .....

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ven out of own funds and 2/3rd of the advances have been given out of the borrowed funds. Assesse was further aggrieved that despite of information available in assessment order and in the remand report of the assesse, still CIT (A) has set aside the ground to the file of the AO for verification The assesse was also aggrieved by the non-appreciation of facts by CIT (A) that borrowed funds have not been utilized for buying of land or meeting of construction expenses because receipts from the cust .....

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curred by the assesse. Alternatively, it was also stated that CIT (A) did not give direction to allow this interest expenditure based on the percentage completion method against respective projects in this year or in subsequent years, when revenue is recognized. 45. Briefly stated, the facts are that during the year, assessee has incurred total finance charges of ₹ 1,19,56,56,108/- on fixed period loans and other interest amounting to ₹ 16,41,67,222/- . The interest on loan is paid f .....

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harged to the profit and loss account. According to the AO, as the loan from ICICI Bank Ltd. of ₹ 300 crores is taken for project development in its 100% subsidiary company which has acquired 23 acre plot. Further, assesse has taken loan from GE Services and India Limited for the purpose of Icon and Summit projects. Therefore, according to him, these loans are taken for the construction projects which remains unallocated and, therefore, required to be capitalized. He held that ₹ 1,19 .....

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losing 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 .....

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expenditure of ₹ 49.46 crores shall be capitalized. The findings of CIT (A) based on the special auditors' report in para no 17.39 were as under :- (a) There is no diversion of interest bearing funds for non-business purposes. (b) Amounts advanced to subsidiaries that are also in the business of real estate and therefore amount advanced to subsidiaries are a part of the business model of the appellant. (c) Funds given to subsidiaries of the assesse company are at the rates of interest .....

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13955/- is required to be capitalised because purposes of the part of the borrowings is for purchase of land and construction purposes and there is no nexus of the funds. (g) Average Interest free funds are available to the assesse of ₹ 159254 lacs and total interest bearing funds are ₹ 182350 lacs and cost of the project as at 31.3.2006 is ₹ 351.78 crores. Net interest expenditure is ₹ 49.46 crores. Amount invested in group entities is ₹ 132.27 Crores. Based on abo .....

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AR submitted 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 aft .....

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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 further relied on the decision of Hon'ble Supreme Court in the case of DCIT vs. Core Health Care Limited - 298 ITR 194 (SC) wherein Hon'ble Supreme Court has stated that provisions of section 36(1)(iii) has to be read on its own term and it is a code by itself. The Hon'ble Supreme Court f .....

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respect to accounting of capitalization of the borrowing cost according to Accounting Standard 16 issued by ICAI which does not apply to inventory and even if it applies, the provision of law should prevail when there is conflict between accounting standard and the taxation laws while deciding issue under the Income Tax. Even otherwise, whole controversy is of academic nature as there is no dispute that all the borrowed funds have been used for the business and even if part of interest is capita .....

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of interest has always been allowed in the preceding years and there is no change in facts of the case and nature of claim. He also argued that whole controversy is of academic nature as there is no dispute that all the borrowed funds have been used for the business and even if part of interest is capitalised by linking the same with recognition of revenue, the claim of interest so capitalised is to be allowed as deduction in the AY 2007-08 as entire receipt was duly subjected to tax in the AY 2 .....

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ment 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 .....

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ng costs according to Accounting Standard 16 issues by ICAI. We have perused notes attached to financial statements and we are of opinion that these notes have arisen in the financial statement of the assesse because of the issue of applicability of Accounting Standard 16 issued by the ICAI. According to Accounting Standard 1 i.e. disclosure of accounting policies, each and every company is required to disclose the accounting policy with respect to various significant income, expenditure and ass .....

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unts as per AS -16. Therefore we do not agree with the arguments of AR that AS -16 does not apply to inventory. However, those are the provisions which are applicable for the maintenance of the accounts of the company and interest is allowable according to provisions of section 36(1) (iii) of the act. Further according to us, the provisions of Accounting Standards and provisions of the Act are two different set of regulations and while deciding this issue, it is well settled judicial precedent t .....

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acquisition of an asset whether capitalized in books of accounts or not for any period beginning from the date on which the capital asset was borrowed for acquisition of the asset till the date on 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 it .....

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urt 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 section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referr .....

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eous. In the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes of deciding the claim of deduction under section 10(2)(iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a buil .....

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ed to deduction under section 36(1)(iii) of the Act. That, while adjudicating the claim for deduction under section 36(1)(iii) of the Act, the nature of the expense - whether the expense was on capital account or revenue account - was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That, the utilization of the capital was irrelevant for the purposes of adjudicating the claim for deduction under section 36( .....

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lies 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. .....

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.75 crores u/s 36(1) (iii) of the Act. The alternative argument of the assesse regarding adoption of any artificial formula for the purpose of computing interest disallowance. Ld. CIT (A) has presumed proportion of utilisation of funds in absence of the nexus holding that assesse has used mixed funds. Honourable Bombay High court in case of CIT V Reliance Utilities & Power limited 313 ITR 340 has held that "The principle therefore would be that if there are funds available both interest .....

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y following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [131 taxman 810] and CIT V Reliance Utilities & Power limited [313 ITR 340]. We reverse the order of the CIT (A) confirming the disallowance of expenditure of ₹ 27.40 crores and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act. 50. In the result, ground no.9 of the appeal is allowed. 51. Ground No.10 of the appeal is as under :- "10. That learned CI .....

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ng of building. 53. Brief facts of this ground are that the assesse has claimed expenditure of ₹ 64,39,262/- on account of brokerage paid for Amex Signature. On query by the AO, the assesse submitted that it has paid CB Richard Asia Limited by bill dated 12.07.2005 as a professional fees for releasing of Phase No.1 2,45,000 sq. to American Express Ltd. at DLF City, Phase 5, Gurgaon. It was submitted that this amount has been paid for the services rendered relating to premises rented to Ame .....

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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. Ther .....

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further relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Piccadilly Hotels Limited. 56. We have carefully considered the rival contentions. The case of the assesse is that u/s 23(1) (b) for the purpose of determination of annual letting value of the property envisages that the property which has been let out then the actual rent received or receivable is taken as rental income. The phrase actual rent received or receivable means the actual rent received or rec .....

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about the taxes levied by the local authority. Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by the tenant. For renting of the property brokerage cannot be said to be charged that has been created against property for enjoying the rights and at best, it is application of income earned. For such expenses as brokera .....

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. 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 .....

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,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. 60. During the year, the assesse has not recognised any revenue on this "ICON" Project. On query by the AO, it was submitted by the assesse that the percentage of completion in case of this project has not been reached to the extent of 30% of the total project cost and, therefore, according to the Guidance Note issued b .....

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er submitted that in the alternative, if such addition is upheld, a direction may be issued to allow relief in AY 2007-08, the year in which entire receipt was subjected to tax in AY 2007-08. 61. Ld. DR submitted that the issue involved in this ground is identical to the ground no.8 of the appeal of the assesse where it has been prayed for setting aside to the file of AO for working out income chargeable to tax in this year only if threshold of the 30% of the total project cost incurred is made .....

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allowance of ₹ 35,09,850/- on account of statutory deduction u/s 24 in respect of amount received from Shriram School and shown under the head 'Income from House Property' by holding that the appellant is not the owner of this property and the rental income cannot be computed under the head 'Income from House Property'. [Page 166-173 of CIT(A)'s Order] 12.1 That the learned CIT(A) has erred in directing the AO to verify the facts and in confirming the disallowance as th .....

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5 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 .....

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urchase of shares of Edward Keventer (Successors)Pvt. Ltd. out of total expenditure of 10,85,650 5 Proposed merger of DLF Power Limited and DLF Phase IV Commercial Developers Ltd. 6,50,000 Total : 84,12,762 68. This ground is against disallowance of expenses of ₹ 84,12,762/- confirmed by the CIT (A) out of the total disallowance of ₹ 2,13,94,580/- with respect to various expenditure. 69. The first issue of disallowance is an amount of ₹ 10,08,774/- is paid for registration of t .....

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vs. Finlay Mills Limited - 20 ITR 475 (SC) as well as the decision of Hon'ble Gujarat High Court in the case of CIT vs. Arvind Ltd. - 237 ITR 415. It was further pressed that Hon'ble Madras High Court in the case of Erode Transports Private Ltd. vs. CIT in 71 ITR 283 (Madras) has also held that registration of trademark is allowable expenditure. 71. Against this, ld. DR relied on the orders of the AO and CIT (A). 72. We have carefully considered this ground of appeal and we are of the vi .....

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demark 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. Be .....

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n held that expenditure on repairs of guest house is allowable u/s 30 of the Act. It was further submitted that that the amount of expenditure is not in doubt. He further relied on the decision of Hon'ble Bombay High Court in the case of M/s Greaves Cotton and Company Ltd. vs. CIT and also Hon'ble Allahabad High Court in the case of Kanpur Dyeing and Painting vs. CIT - 75 ITR 686. 75. Against this, ld. DR relied on page no.363 of the order of the AO. He also supported the order of the CI .....

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r :- "5. The distinction between repair and reconstruction is quite narrow and the meaning attributable to the word "repair" depends upon the facts and circumstances of the case. It is generally understood that repair involves renewal; renewal of a part; of a subordinate part... repair is restoration by renewal. The size and importance of the work involved are to be considered. In the context of a building, its roof will be a subordinate part of it and, therefore, its replacement .....

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of the premises is replaced, prima facie, it will be a case of repair. The identity of the entire asset as a whole is not affected at all. The works carried out contribute to the better and safer utilisation of the existing business asset. These works effected, if considered in proportion to the entire business premises, 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 c .....

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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 .....

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3 (1) of the Act, which is eligible for depreciation as and when the asset is put to use. 78. Ld. AR submitted that as the expenses are part of the regular business activities, same is to be considered as permissible deduction. Ld. DR Relied up on the order of CIT (A). 79. We have carefully considered the rival contention and we do not find any 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 .....

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t of the investment and therefore, in the nature of capital expenditure. 81. Before us the Ld. AR submitted that expenses which is conducted for due diligence of business activities is to be considered as part of running business and there is no case for capitalization of the same. Ld. DR relied on the orders of lower authorities. 82. We have carefully considered the rival contention. Assesse has made investments in subsidiaries and is in the business of real estate where in it has invested larg .....

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apital 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 profes .....

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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." 88. This ground of appeal is against the addition of ₹ 31241768/-being old balance received by as .....

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t and misconceived. He submitted that AO and CIT(A) have not made reference to any section of the Act under which addition was made and as the liability is recognised in the books and no deduction was claimed in the earlier years, same cannot be added to the income of the assessee in this year. He further submitted that that addition sustained by the CIT(A) is without proper appreciation of facts and provisions of the law. The allotment money represents application money from prospective buyers .....

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Outstanding balance in the allotment account is refundable application money to the customers who were not allotted any property and as such there is no case of any income relating to such outstanding balance in the allotment account. It is not the case of the Assessing Officer and CIT(A) that there was actual allotment or transfer of application money to project receipt account of the business and such, there is no case of any presumed receipt in respect of credit balance in the allotment accou .....

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on 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 .....

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led to appreciate that bidding for such projects was in line with the business of the company and there was a unity of funds, management & control with the existing business of the company as the business was same, no disallowance was called for. 16.2 That learned CIT(A) ought to have appreciated that the business of the appellant remains construction/ whether it constructs houses, commercial places like malls, airports etc." 93. This ground of appeal against the confirmation of disallo .....

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ed in modernization of Airport which is a new and specialized line of business. 94. Ld. AR submitted that the appellant company is engaged in the business of development of real estate and modernization of any existing real estate project is part of its objects and activities and as such the basis of disallowance is factually incorrect and misconceived. He submitted that revenue has not disputed the genuineness of the expenses and in the light of fact that expenses were incurred in the normal co .....

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elopment of real estate. Therefore according to us the expenditure 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 com .....

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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 holding the same as cash payment in excess of ₹ 20,000/-and not allowable u/s 40A(3) the Income-tax Act, 1961. [Page 254-256 of CIT(A)'s Order]" 98. Brief facts of the case are that that there is no discussion in the as .....

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; 20,000/- was made otherwise than by a cross cheque or the bank draft and hence 20% of the expenditure was disallowed under Section 40A (3). CIT (A) confirmed this disallowance holding that the cash payment to employee is not covered by the exception in Rule 6DD of the Income Tax Rules. Therefore, the disallowance of ₹ 1,02,786/-, being mandatory and not covered by Rule 6DD. 99. Ld. AR submitted that appellant itself has already added ₹ 42,803/- out of total disallowance of ₹ .....

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ements to the employees towards travelling and medical expenses etc.. Further, payment to the employees towards reimbursement of expenses is not covered u/s 40A(3).Even otherwise, there is no case of any single payment exceeding ₹ 20,000/- and as such no disallowance is called for u/s. 40A(3) of the Income Tax Act, 1961. 100. Ld. DR relied on the orders of lower authorities and submitted that there cannot be any objection on setting aside this issue to the file of AO. 101. We have carefull .....

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ong 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 .....

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mit and Magnolia project, without giving any reasoning. Further that on the facts & Circumstances the ld. CIT(A) erred by directing the AO to verify the IDC allocation to above mentioned two projects and upholding the additions up to ₹ 78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT(A) has the effect of setting aside the order which was not permissible as per I T Act. 3. That on the facts & Circumstances of the case the ld. CIT(A) erred i .....

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/- on a/c of Non allocation of proportionate overhead expenses. 5 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. 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. 6 That on the facts & Circumstances of the case the ld. CIT( .....

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(in IDC sub-ledger account). 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. 8 That on the facts & Circumstances of the case the ld. CIT(A) erred 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 a .....

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56 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. ft. even though there was no basis for deriving .....

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the findings of special auditor as well as AO that the payments were made in excessive to fair market value to the company which falls within the purview of section 40A(2). 13. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 91,70,13,955/- on a/c of capitalization of Interest expenses as per AS-16 in spite of the fact that it was clear from the findings of special auditor as well as AO that the interest bearing funds were utilized for a .....

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377; 13,24,00,000/- on a/c of Revenue recognition of Saket Court Yard in spite of the fact that it was clearly established by the AO as well as auditors that by manipulating book of account the assessee company had postponed its income. 16. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 179,70,81,070/- out of addition made by the AO to the tune of ₹ 222,56,87,056/- by recognizing the revenue on POCM method based on the detailed w .....

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r 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 ad .....

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A) erred in deleting the additions of ₹ 1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the facts of the case that the 0 disallowed the same in light of the prohibition created by the arbitration award." 21. That on the facts & Circumstance of the case the ld. CIT(A) erred in directing to allow the credit for TDS amounting to ₹ 26,25,369/- (subject to verification) in spite of the fact that the payme1lt received by the Assessee company was not leg .....

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& Circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 1,04,56,937/- being project expenses which should have been capitalized by the assessee company because these a related to the acquisition of new projects. 24. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 22,31,806/- without going through the details of the same and accepting the same at the face value of assessee company. 25. That on the facts & .....

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; 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. 28. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of ₹ 8,09,92,427/- on a/c of Interest free security deposit, ignoring the facts that these were proved to be non-refundable and the Hon'ble Punjab & Haryana High Court held the same to be unreasonable. 29. That o .....

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,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 additi .....

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s attracting the provisions of section 2(22)(e) of the Act." 33. That on the facts & circumstances of the case the Id CIT(A) erred in deleting the addition of ₹ 34,84,265/- on a/c of deemed dividend in spite of fact that said amount was advanced by MIs DLF Financial Services ltd (DFCL) to the assessee company, and the assessee company was a holding company of DFCL, and thus attracting the provisions of section 2(22)(e) of the Act. 34. That on the facts & circumstances of the c .....

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e case of Kishanchand (supra) was squarely applicable in this case. 35. That on the facts & circumstances of the case the ld. 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. 36. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of ₹ .....

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deleting the disallowance of ₹ 13,48,804/- 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 exp .....

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ale 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 appeal of the assessee regarding stale cheques. Ld. AR also contended the same arguments and they have contended in the ground no.6 of the assessee's appeal. 108. The only difference in the ground of the revenue is that it is contesting the deletion made by the CIT (A) of th .....

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eting the addition of ₹ 25,00,251/- under the head stale cheque account. Therefore, ground no.1 of the revenue's appeal is dismissed. 109. Ground no 2 of the appeal of revenue is as under :- "2. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 24,07,12,588/- based on percentage or completion method (POCM) in Summit and Magnolia project, without giving any reasoning. Further that on the facts & Circumstances the ld.CIT(A .....

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ing. Further that on the facts and circumstances the ld. CIT (A) erred by directing the AO to verify the IDC allocation to above mentioned two projects and upholding the additions up to ₹ 78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT (A) has the effect of setting aside the order which was not permissible as per IT Act. 111. We have heard the rival contentions of the parties. Regarding taxability of these two projects was also the ground no 8 of .....

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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 .....

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essee had failed to rebut the findings given by the auditors. 114. Ld. DR submitted that the addition fRs.3,92,94,262/- has been made because the assessee could not submit the details of these expenditure. He relied heavily on pages 96 & 97 of the assessment order. To substantiate his arguments, he relied on the decision of CIT vs. Calcutta Discount Company Ltd. - 19 ITR 181 (SC); Laxmi Rattan Cotton Mills - 73 ITR 634 (SC); Rajiv Tandan vs. DCIT - 164 taxman 271 (Del.); and Schinder Electri .....

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le. No expenditure has been incurred during the year but these are debit expenditure account of the old completed projects. As the credit entries of these accounts have been taxed in this year due to the change of the method of accounting the debit balance also is required to be adjusted. Therefore, there is no under-statement of income of the assessee. 116. We have carefully considered the rival contentions as well as the orders of the lower authorities. Because of the change of the method of a .....

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n registered in favour of the buyers. As revenue has been recognised due to change in method of accounting which is bonafide and not doubted by revenue the relevant debit entries pertaining to those projects are claimed by the 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 re .....

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f 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 firstly, these are not the expenses which have been incurred during the yea .....

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ncurred during this year. In view of this, the decisions cited by the ld. DR that no bills etc. have been submitted is not acceptable. Therefore, we confirm the deletion of addition of ₹ 30,16,44,316/-.Another addition of ₹ 9,12,98,346/- is also pertaining to the provision of construction account of Regency Project. This amount is forming part of the opening stock of that project for which the expenses etc. have been incurred in the past year. These amounts have not been debited by t .....

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s for these projects have not been submitted. As it is evident that it is part of opening balance of Project Regency there cannot be any bills for the current year, therefore, the argument of the ld. DR regarding nonproduction of bills and vouchers cannot be accepted. Moreover, the AO has added for the only reason that these expenses are prior period expenses and cannot be granted as deduction though it was not considered that income received in the earlier years is being charged to tax in this .....

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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 groun .....

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to Directors is that each and every company has its own board of Director, hence, these expenses cannot be allocated to group companies. Further assessee company is holding 100% shareholding and lesser percentage in hundreds of group companies directly and indirectly through their 100% subsidiary companies which are in turn hold major shares in various group companies. According to AO Board of M/s DLF Limited is the major brain and decision making centre for the whole group rather the necessity .....

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o day affairs of these companies by the assessee will be an incorrect proposition. it is held that assessee has claimed excess expenditure to the tune of ₹ 14,55,37,400/- which should have been rightfully apportioned to various subsidiary companies. Hence, the amount of ₹ 14,55.37,400/- is being disallowed as expenditure not relatable to the business of the assesse and therefore is added to the income of the assesse. On appeal before CIT (A) the disallowance is deleted and therefore .....

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contentions. The brief fact is that certain overhead expenses incurred by the assessee have been apportioned to the other group companies for the reason that by incurring those expenses, the assessee has passed on some benefit to those companies. The amount of 75% of that expenditure has been transferred to the group companies and 30% of that expenditure is borne by the assessee company. During the course of assessment proceedings, the AO found that an amount of ₹ 20,79,10,574/- expenditu .....

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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 t .....

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rtain expenditure by the assesse for the purpose of his business may result into some indirect benefit to the group companies but that cannot be the ground for disallowance of that expenditure in the hands of the assesse. The CIT (A) relying upon the decision of ITAT, Delhi Bench in the case of Nestle India Ltd. vs. DICT - 27 SOT 9 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 th .....

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evelopment Charges. 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." 123. Ground No.5 is against deleting the additions of ₹ 37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the add .....

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ation 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 co .....

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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. In the remand report submitted by the AO before the CIT (A), it was not controverted that the charts submitted by the assessee considering all the acc .....

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has given one more opportunity over and above the opportunity of assessment and remand proceedings for verification of these details, cannot be said that it is against the revenue. In fact, according to us, it is in favour of the revenue. Further, in the appeal effect order passed by the AO on 20.11.20121, after verification of these facts, the AO has deleted the addition pursuant to the order of the CIT (A) after verification. In view of these facts, we are of the view that the addition on acco .....

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ify the working submitted by the assessee and simultaneously deleting the additions. 128. Ground No.6 is against deleting the additions of ₹ 30,16,44,316/- on a/c of provision for construction account-Regency Park account No.A33P038-000-03. 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. 129. Ld. DR submitted that an amount of ₹ 30,16,44,316/- is on account of provision of c .....

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edit 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 wor .....

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ground no.3 of the appeal of the revenue. Therefore, this also amounts to double taxation in the hands of the assessee. Further, the CIT (A) has directed to verify the working submitted by the assessee for verification that various entries have been included as contended by the assessee or not. Vide order dated 20.11.2012, after verification confirming the figure, the AO has passed the appeal effect order and deleted the addition. Therefore, we confirm the order of the CIT (A) in deleting the a .....

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under :- "7 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of ₹ 21,39,996/- on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account). 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." 133. Ground No.7 is against deleting the additions of ₹ 21,39,996/- on a/c of not disclosing .....

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credit balances of these projects are already included as part of the income and expenditure for the tax purposes. 135. We have carefully considered the rival contentions. This amount has 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 .....

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sessee 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 as under :- 8 That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of PO .....

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iation or working to show that auditor wrongly picked up only the credit side of sum ledger. 138. Ld. DR advanced same arguments as advanced in grounds no.6 & 7 of the revenue's appeal. The arguments of the ld. AR were also same. Ld. AR also submitted that this is a double addition as the same addition has been considered by the AO at pages 47 to 67 of the assessment order. 139. We have considered the rival contentions. We have already held that the method of accounting for the sale of p .....

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ideration of ₹ 56,08,588/-. This leaves the balance of ₹ 1,23,81,979/- being advance received from the customers towards the sale of plot for which conveyance deed has not been executed. It is not disputed that revenue on these plots has already been recognised by the assessee in AY 2007- 08. As we have already held that assessee has correctly offered the revenue on the sale of plot and land at the time of execution of sale deed, we are of the view that the addition of ₹ 1,23,8 .....

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0. 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, debit .....

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7, debiting ₹ 17,29,99,721/-, ₹ 1.22 Crore, ₹ 5 Crore and ₹ 25.60 Lacs respectively. 142. Ld. DR submitted that the AO has made the addition of ₹ 22,83,72,935/- pertaining to various expenditure as they are without any basis; therefore, he vehemently submitted that the assessee has failed to substantiate the true nature and extent of the liability outstanding as at 31.03.2006 which rightly added. 143. Ld. AR for the assessee submitted that these are the provisions m .....

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V.No. Date Description Amount (Rs.) 1 JV542 31.03.2003 Estimated Development Cost. 17,29,99.721/- 2 1V373 31.03.2006 Provision of IDC PH - V booked against the shortfall in W/off on conveyancing FY 2005-06. 1,22,41,224/- 3 JV456 31.03.2006 Provision of IDCPh - V booked against the shortfall in W/off on sale FY 2005-06. 5,00,18,803/- 4 JV 467 31.03.2006 Provision for FY 2005-06. 25,60,429/- 5 Vol.-X TOR 35 31.03.2006(*) Bill of Devyani International Oct- March-2004. 15,59,858/- The AO was of the .....

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06. 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 .....

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framed u/s 143 (3) as stated by the parties, this liability did not arise during the year and in any way it is an ascertained liability. In view of this, we confirm the order of the CIT (A) in deleting the addition of ₹ 22,83,72,935/- on account of various provisions made as outstanding on 31.03.2006 in the books of the assessee as these liabilities are ascertained and accrued and not claimed as deduction during this year but is already allowed as deduction in earlier years. Therefore, gr .....

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t. basis in this matter. 146. Ground No.10 is against 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. ft. even though there was no basis for deriving IDC on a per sq. ft. basis in this matter. 147. Ld. DR relied on the order of the AO and stated that the provision of IDC of ₹ 6,22,60, .....

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nd these expenditure are in the nature of fees etc. levied by the revenue. Further, he submitted that this amount has already been included in JV No.456 and JV No.373. He submitted that these amounts have already been included in the disallowance made by the AO of ₹ 22,83,72,935/-, therefore, it is a duplicate addition. 149. We have carefully considered the rival contentions. We have perused the relevant orders of AO as well as the CIT (A). This amount is already included in the addition m .....

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t 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 accepti .....

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pended due to some litigation and the licences under Cinematography Act have been issued on 12.01.2009 and occupation certificates also obtained. Therefore, the expenditure is rightly allowable to the assessee. It was further submitted that now the theatre is running. 154. We have carefully considered the rival contentions. The expenditure has been incurred on the maintenance, security charges, etc. with respect to a cinema division of the assessee. The AO disallowed this expenditure holding tha .....

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ce of ₹ 10,34,915/- by the CIT (A) as the expenditure was incurred by the assessee on assets which could not be utilised due to litigation and now as stated is in operation. Therefore, ground no.11 of the appeal of the revenue is dismissed. 155. Ground no 12 of the appeal is as under :- 12. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of ₹ 16,95,67,085/- on a/c of Grand Mall project u/s 40A(2)(b) in spite of the fact that it was clea .....

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ew of section 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). H .....

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dered 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/- by invoking the provisions of section 40A(2)(b) of the Act. The first addition of ₹ 52,12,758/- is made on account of understatement of profit form DLF Grand Mall Project. The details of the working of this amount are given at page no.148 of the assessment order. The brief fact is that in ter .....

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. According to him, the assessee should have earned ₹ 10,42,55,181/- and, therefore, there is a difference of ₹ 52,12,758/- between the profit earned by the assessee and estimated profit determined by the AO and hence, this addition is made in the hands of the assessee under section 40A(2)(b) of the Act. 160. The next addition of ₹ 16,43,54,327/- is on account of returned income of DLF Home Developers Ltd. on the basis of POCM working for AY 2006-07 in its return of income. How .....

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ed the provisions of section 40A(2)(b). According to which, an expenditure incurred by the assessee for which payment has been made to the related party, AO is required to prove that such payment is excessive and for turning this conclusion, the AO has to obtain the fair market value of the product transacted for which the payment is made is required to be proved. From the assessment order, we could not find an observation or a finding of AO about what was the fair market value of the product fo .....

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93 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' .....

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es not apply to the transactions between the holding and subsidiary company. In the result, the ground no.12 of the appeal is dismissed. 161. Ground no 13 of the appeal is as under :- 13. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of ₹ 91,70,13,955/- on a/c of capitalization of Interest expenses as per AS-16 in spite of the fact that it was clear from the findings of special auditor as well as AO that the interest bearing funds were util .....

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e's appeal in ground no 9. Ld. AR also submitted the same. 164. We have carefully considered the orders of the lower authorities below. The part of the disallowance has been deleted by the CIT (A) out of interest expenditure and part of it is confirmed. Against this amount which is confirmed, the assessee is in appeal as per ground no9 of the assessee's appeal and against deletion of ₹ 91,70,13,955/- revenue is in appeal on this ground. We have already given our finding regarding a .....

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n the facts & Circumstances of the case the ld. CIT(A) erred in 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 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 .....

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ding 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 assessment order. The AO has not followed this decision as it could not be verified whether the issue has been taken up by the depart .....

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erved by the CIT (A), these expenses related to brokerage of flats as part of selling expenses and, therefore, cannot be included in the cost of construction for the purpose of value of closing stock of WIP and in view of Accounting Standards issued by the ICAI. Respectfully following the decision of Honourable high court in case of CIT V DLF universal Limited in ITA no 1136/2009 dated 16.04.2015 while deciding ground no 4 of the appeal of the revenue honourable high court has held that expendit .....

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0,567/- on account of brokerage expenses for sale of various properties. Therefore, ground no.14 is dismissed. 170. Ground no 15 of the appeal is a s under :- 16. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of ₹ 179,70,81,070/- out of addition made by the AO to the tune of ₹ 222,56,87,056/- by recognizing the revenue on POCM method based on the detailed working of the Special Auditor who had mentioned that the assessee had wrongly i .....

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y 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 yea .....

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ansferred to stock in trade. Furthermore, the assessee has actually received security deposit of ₹ 8.11 crores where assessee wished to earn rental income from this asset. Further for AY 2007-08, the transfer of this asset from capital asset to stock in trade was not doubted and taxation on sale of this property is accepted in AY 2007- 08 as bonafide. The addition was deleted. Further, the AO has taxed the entire amount of sale consideration received in respect of net profit. Before us, ex .....

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ing the year. In the result, ground no.15 of the appeal of the revenue is dismissed. 175. Ground no 16 of the appeal is as under :- 16. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of ₹ 179,70,81,070/- out of addition made by the AO to the tune of ₹ 222,56,87,056/- by recognizing the revenue on POCM method based on the detailed working of the Special Auditor who had mentioned that the assessee had wrongly implemented the new accounti .....

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efore us that this issue is also interlinked with the ground no.8 of the assessee's appeal. 178. We have carefully considered the rival contentions. In ground no.8 of the assessee's appeal, the ground is set aside to the file of the AO as per directions contained therein. We also set aside this ground of appeal of the revenue to the 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 th .....

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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 de .....

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shown by the assessee after claiming the deduction of 30% u/s 24A of the Act is chargeable to tax as such or is chargeable to tax under the head business income as assed by AO. Undisputedly, the assessee is a builder and developer. It has given several properties on rent and rent income has been shown as income from house property and claiming their under the statutory deductions u/s 24 of the Act. The AO is of the view that assessee has characterised this income as income from house property a .....

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e Bench of the ITAT has decided this issue as under:- "10. The Assessing Officer made addition of ₹ 4,51,86,148/- on account of reclassification of income from house property and income from other sources. The addition has arisen due to disallowance of standard deduction of 30% claimed by the assessee u/s 24(a) of the I.T. Act, as a result of reclassification of the income from house property to income from other sources. 11. The Ld. AR pointed out that the issue raised is also covere .....

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r 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 o .....

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has furnished the receipt of house tax payment with respect to above said properties belong to appellant and owned by it. It is noticed that the Assessing Officer has made the addition by reclassifying the income by relying upon various judgments. However, there is no dispute on the facts noted above. Taking into consideration the order of Hon'ble ITAT in the appellant's own case for earlier and the decision in CIT vs. National & Grindlays Bank Limited (Supra) and CIT (A)'s order .....

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the Assessing Officer of ₹ 4,51,86,148/ -is deleted." 14. We note that the contention of the assessee on the issue remained that as per the section 22 of the I. T. Act following three conditions are required to assess the income from house property under the head "income from house property: i) That the property should consist of any building, land appurtenant hereto. ii) The assessee is the owner of such building, and iii) Such building is not occupied by the assessee for the p .....

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rs. We are of the view that the Ld. CIT (A) has rightly decided the issue in favour of the assessee with direction to treat the income from such properties as income from house property and to allow deduction u/s 24(a) of the Act. The first appellate order in this regard is thus upheld. Ground No.2 is accordingly rejected." 184. Further, Ld. DR has relied upon the decision of Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. vs. CIT in Civil Appeal No.4494/2004 .....

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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 coor .....

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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. 186. This ground of appeal is against deleting the addition 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 as .....

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ddition was deleted and therefore revenue is in appeal. 187. Ld. DR submitted that the addition of ₹ 4,49,85,573/- has been rightly made under the head income from house property because, according to Ld. DR, income has to be offered in the year in which TDS is deducted and not vice-versa. 188. Against this, Ld. AR relied on the decision of CIT(A) wherein CIT(A) has directed the AO to verify the reconciliation statement and subject to such verification, he has deleted the addition. 189. We .....

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ouse property amounting to ₹ 1,92,79,531/- , and addition of ₹ 4,49,85,573/- is made. The 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 be .....

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e 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. 2007-08 during the current year. The AO is directed to verify this and reduce the TDS credit for the current year correspondingly." 190. We do not find any infirmity in the order of CIT(A) and als .....

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Tax deduction at source is required to be made only at the time of payment or credit in the books of payer of rent as prescribed u/s 194I of the Act. The timing between the taxability of rental income under the head income from house property and timing of tax deduction at source can be different as both the sections have different intentions, objects and purposes. In view of the above facts, we confirm the order of CIT(A) in deleting the addition of ₹ 4,49,85,573/- with a direction to AO .....

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alue 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 ." 192. Ground No.19 is against deleting the additions of ₹ 3,27,52,542/- on a/c of enhancement in annual value amounting t .....

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d. 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 ha .....

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that no discrepancy in the rental income accounted for in the books of account as compared to lease agreements was found by the AO. All the tenants are large companies of repute. None of the agreements have been proved to be sham by the A.O. In my opinion, bonafide legally binding commercial agreements between the assessee and third parties cannot be disregarded and terms changed whimsically and without any logic as done by the A.O. In view of this factual position, the addition of ₹ 3,22 .....

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/s. DLF Office Developers vs. ACIT (supra). In view of this, the second part of the addition of ₹ 4,68,350/- is also deleted. 21.35 Hence, the appellant is granted total relief of ₹ 3,27,52,542/- (3,22,84,192 + 4,68,350). " 194. Ld. DR submitted that in respect of vacant properties, the ALV is to be computed and, therefore, AO has rightly taxed the income of the vacant properties. He vehemently supported the order of the AO. 195. Ld. AR submitted that in assessee's own case .....

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61,251/- on account of notional rent/ additional annual letting value (ALB) u/s 23(1) (a) of the Income tax Act,1961, in respect of vacant properties. The details of the addition as per the assessment order is as under: - DLF City Centre Rs.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 .....

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he 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 the Ld. CIT (A) has decided the issue in favour of the assessee narrating the observation made in the cited decisions in case of M/s DLF Office Developers vs. ACIT (Supra) and other that where there was an intention to let out the house property and assessee took steps to let it but could not get suitable tenant, .....

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f rebuttal of above aspect of the facts in the case of present assessee, we are of the view, that the Ld. CIT (A) has rightly decided the issue in favour of the assessee taking assistance of the cited decisions before him. We find that the Ld. CIT (A) has discussed the issue in appeal and has passed a speaking order, which is being reproduced hereunder: 7.15 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and various judicial pronouncements available on th .....

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llant's group concerns M/s DLF Office Developers Vs. ACIT reported in 23 SOT 19 (Del) and orders of CIT(Appeals) in appellant's own case for the Assessment years 2006-07, 2007-08 & 2008-09. It is observed that" where there was an intention to let out the house property and assessee took steps to let it but could not get suitable tenant, in such cases the annual value will have to be worked out under section 23(l)(c) of the IT Act and according to this clause, if the actual rent .....

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eived 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 parti .....

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se that appellant has received some under hand rent from the tenants. In this regard the Assessing Officer has not brought any evidence on record and no enquiry in this direction was conducted by him. Therefore, assuming the rent for all properties based on the highest lease agreement was not justifiable. As regards Assessing Officer's reliance on various judgments in the assessment order, it is seen that the facts of the said judgments are squarely different with that of the appellant's .....

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udicial pronouncements are identical with the facts of the appellant's case. Therefore, ratio of the said judgment is squarely applicable to the facts of the appellant's case. Hence, the notional addition made by the Assessing Officer of ₹ 3,02,61,251/- under the head "income from house property" on account of notional income u/s 23(1) (a) of the Income Tax Act is deleted." 22. We find that the first appellate order on the issue as discussed above is reasonable and v .....

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ing the additions of ₹ 1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the facts of the case that the 0 disallowed the same in light of the prohibition created 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 submitte .....

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ional 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 u/s 24. These rental incomes in fact belong to DLF Qutab Enclave Complex Educational Charitable Trust w.e.f. 01.04 .....

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vs. Rajendra Prasad Modi as under :- "22.14 Now coming to disallowance of compensation amount of ₹ 1,16,99,500/- paid by the appellant to the owner of the property for earning of the income from the property named as Shriram School Building is concerned, it is noted that the AO himself has observed at page 354 of the assessment order that "With these remarks, ₹ 1,16,99,500/- is being taken out from the income of the assessee". By respectfully following the judgment in .....

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f the case the ld. CIT(A) erred in directing to allow the credit for TDS amounting to ₹ 26,25,369/- (subject to verification) in spite of the fact that the payment received by the Assessee company was not legally right. 205. Ld. DR relied on the order of the AO and stated that the payment received by the assessee company was legally not right and, therefore, TDS cannot be granted as credit amounting to ₹ 26,25,369/-. 206. Ld. AR relied on the order of the CIT (A). 207. We have carefu .....

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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 & Circum .....

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lowance u/s 14A of the Act which is also part of ground no 3 of the assessee's appeal. 211. We have carefully considered the rival contentions and we have already decided the issue of disallowance u/s 14A in the appeal of the assessee vide ground no 3 deleting the disallowance made by AO. Hence, we decide this ground of appeal of the revenue accordingly. Ground No.22 is dismissed 212. Ground No.23 is as under :- 23. That on the facts & Circumstances of the case the ld. CIT(A) erred in de .....

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us projects, revenue from which has not been recognized and these projects are still under construction or at a preparatory stage. Since the projects have not been commissioned nor revenue from the same have been recognized, the expenditure incurred in relation to the same needs to be capitalized as a part of project cost and the same can be claimed as an expenditure when the project is completed and the revenue is recognized. AO was also of the view that the expenses are in the nature of capita .....

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onducting feasibility and viability of construction project at different locations, since the assessee is engaged in the real estate business, the feasibility study was in connection with existing business of the appellant and therefore it is held that the claim is allowable as a revenue expenditure. Consequently, the impugned addition of ₹ 1,04,56,937/- on this count was deleted. Therefore revenue is in appeal . 214. Ld. DR submitted that these expenditure are capital in nature, therefore .....

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ruction 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 .....

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ed to customers it is noted that this expenditure is rebate allowed to customers of plot/constructed properties on account of early payment of purchase price instalments. Therefore, the claim made by the assessee is allowable as revenue expenditure. Consequently, the impugned disallowance made on this count by the AO is deleted. 219. Ld. DR submitted that the amount of ₹ 22,31,806/- is capital in nature. Ld. AR submitted that these expenditure are in case of discount given to the various b .....

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le expenditure. In the result, the ground no.24 of the revenue's appeal is dismissed. 221. Ground No.25 is as under :- 25. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 1,88,81,388/- (Correct amount should be ₹ 2,11,93,472/-) being late construction charges received by the assessee company during the year which should have been credited by the assessee company in his receipts for the year. 222. Ground No.25 is against deletin .....

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n 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 .....

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rt order, the Assessee Company has no right to collect the late construction charges from its customer. However, the Assessee company has filed an appeal in the Supreme Court against this order and the recognition of income on account of late construction charges will be determined based on & after the ruling of the Supreme Court. Ld. AO was of the view that A perusal of the order of the Honourable P & H High Court dated 23.08.2002 it shows that this agreement compelling the buyers to pa .....

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collected by the assessee despite the above decision of Hon'ble Punjab & Haryana High Court. Since the amount is a brand to the assessee in respective years they need to be taxed. 224. Against this, ld. AR submitted that w.e.f. 19.11.2000, the Hon'ble Supreme Court has decided this issue and after that the assessee has started offering this income. Further it was submitted that this issue is covered in favour of assessee vide order of Hon'ble ITAT 'B' Bench, dated 30.04. .....

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(A) has decided this issue after considering the judgment of Hon'ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 wherein it is held that if the assessee acquires a right to receive the income the said income has accrued to him. As till the decision of Hon'ble Supreme Court assessee did not have right to receive that income and even though that amount was collected, it becomes a liability on the assessee towards the customers. The CIT (A) has further c .....

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s 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 .....

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ay be received later on it being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody... Unless and until there is created in favour of assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him." 26.12 In view of the above binding principle, it has to be held that the amount of late construction charges cannot be said to have acc .....

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88/- made by the AO is not sustainable. The same is, therefore, deleted." 226. We have noted that identical issue has been decided by the coordinate bench of ITAT in case of Nilgiri Cultivations Pvt Ltd V ACIT for AY 2006-07 in ITA no 4634 & 4635/Del/2011 dated 30.4.2012 where in while deciding the issue in ground no 1 of the appeal addition of late construction charges received from customers shown under the head sundry creditors is income which has accrued to the assesse or not, It is .....

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this case was clarified in A.Y. 2011-12 only" Accounting standard 9 issued by ICAI on revenue Recognition also satisfies the accounting policy of the company that when the 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 .....

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xpenses 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 of reimbursement of travelling expenses of ₹ 18.51 Lakhs were incurred by employees in connection with his proceeding on lea .....

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xpenditure are not allowable to the assessee and further the details of such expenditure are also not available as the bills were not submitted by the employee they had been accrued during the year. 230. Ld. AR submitted that these expenditure are related to the LTA claim of the assessee and claim of the employees with respect to telephone and conveyance expenses. They have been settled during the year and hence same are not prior period expenses. 231. We have carefully considered the rival cont .....

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t. It is irrespective of the time when employee has actual travelled. In same way, the telephone and conveyance expenses are also reimbursement of the expenditure which would be determining the claim of the employees and admitted by the employer. The special auditor has held so because of the reason that the actual travelling has taken in the previous year. Naturally, it is a matter of common sense for the purpose of LTA claim, the travelling of the employees is prior to the claims submitted by .....

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re 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 .....

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constantly. However AO was of the view that it is an absurd proposition to say that if any person is continuing not to show a trading receipt for taxation purposes then it becomes an established accounting standard and hence cannot be questioned by the department once found through a procedure u/s 142(2A) of the Income Tax Act,. As per the details filed by the assessee on page -124 of their letter dated 06.03.2009 the amount of 4,94,00,549/- is the closing balance as on 31.03.2006 and the same .....

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nt of ₹ 4,94,00,549/- is added in to the assessee income. On Appeal before CIT (A) it was deleted as balance in contingency amount amounting to ₹ 4,94,00,550/- received from customers was in terms of contractual obligation, it is noted from the details furnished by the appellant that there is regular movement in this account and large amount have actually been discharged from time to time in performance of the contractual obligation. Therefore revenue is in appeal before us. 234. Ld. .....

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r submitted that it is not that the amount is outstanding for a long time but is a contingency deposit to cover additional charges which may be demanded by the state authorities and is collected at specified rates. It is adjusted in the end at the time of incurring expenditure. This is a practice continuously followed by the assessee and accepted 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 .....

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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 c .....

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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 of ₹ 4,94,00,550/-. on account of security deposits. In the result, the ground no.27 of the revenue's appeal is dismissed. 237. Ground no 28 of the appeal is as under :- 28. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made b .....

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and it is collected from the buyers in terms of clause 32 (b) of sale agreement entered into with the buyers. He further stated that it is not the case that it is a static account but it is evident that in March 2006, ₹ 23,22,822/- has been refunded. He refuted the charge that it is a part of the sale consideration. He further stated that none of the deposit has been forfeited and it is not the case of the AO that any of the depositors are not available. He, therefore, stated that deposit .....

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nce. 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 acce .....

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nd thus should have been forfeited by the assessee company. 242. Ground No.29 is against 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. 243. Ld. DR submitted the same arguments as advanced in ground nos.27 & 28 of the revenue's appeal. L .....

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wing for registration. He further stressed that large amount could not be utilized because of restriction on registration imposed by the Government on 17.12.2002 which is also on record. This restriction has been withdrawn only on 27.03.2009 and after withdrawal of the restriction appellant has been approaching buyers to come forward for registration. The correspondence is on record. He further argued that real nature of this balance is that it does not belong to us and has been correctly shown .....

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rity deposit is not a trading receipt. c. CIT vs. Goyal Gases Pvt. Ltd. (1991) 188 ITR 216 (Del) wherein it has been held that security deposit received does not belong to assessee as the money remains as that of customer. Therefore it is not a revenue receipt. 244. We have carefully considered the rival contentions. It is noted that this is the amount which is collected by the buyers with specific object of getting exclusion of conveyance deed in favour of the buyer. In fact, it is an advance c .....

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half 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 registrat .....

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this aspect was dealt with by the AO in his assessment order and was conclusively established to be credit balance. 246. Ground No.30 is against 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 conclus .....

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count of rebate on instalments credited to the buyers account. He refuted the claim that as there is only debit balance it cannot be charged to tax. 249. We have carefully considered the rival contentions. The CIT (A) has noted that this is factual mistake in the assessment order where AO has considered erroneously the debit balance in the account as credit balance. Therefore, debit balance cannot be added as income of the assessee as it is arising out of rebate on sales. It partakes the charact .....

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7; 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. 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 i .....

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ssee'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. In view of this, this amount is only an advance received by the assessee, therefore, this addition cannot be made in the hands of the assessee till the execution of the conveyance deed. So far as AY 2006-07 .....

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the revenue's appeal. We also reverse the order of the CIT (A) for the only reason that this is not now a double and duplicate addition. In the result, this ground of appeal is decided accordingly. 254. Ground No 32 to 35 is as under 32. That on the facts & circumstance of the case the ld. CIT(A) erred in deleting the addition of ₹ 2,57,970/- on a/c of deemed dividend in spite of fact that said amount was advanced by MIs DLF Commercial Developers ltd (DCDL) to the assessee company .....

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) of the Act. 34. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the addition of ₹ 12,60,00,000/- on a/c of deemed dividend in spite of fact that said amount was advanced by M/s Bhoruka Financial Services Ltd to the assessee Company, and the assessee company was a holding company of M/s DLF Commercial Development Ltd, which was holding 98.73% shares of Bhoruka Financial Services Ltd and in this manner being subsidiary of the subsidiary, it was fiduciary .....

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tion 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 dat .....

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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. 257. Ground No 33 is against deleting the addition of ₹ 34,84,265/- on a/c .....

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000/-against sale of property . this assertion of assessee is supported by the copies of relevant agreement filed before AO. Ld. AO rejected the contention of the assessee holding that as the sale purchase agreement are not registered agreements and finally those agreements got cancelled further AO was also of the view that these advances are not for the purposes of business and out of the total loan amount of ₹ 3484265/- the amount of ₹ 3023187/- is the extent of available reserves .....

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hat company. Ld. AO was of the view that as assessee holds 100 % 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. 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. .....

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nding 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 from Schedule 7 of the Balance Sheet of the appellant company that it does not hold any share in the borrowing company namely Anjuli Builders Pvt Ltd. Therefore it can also not be said that the payment has been made .....

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vident from the financial statements of borrower company enclosed at page 59- 68 In fact the money had been paid to the borrower by the lending company out of loan given by the appellant company the same has been evident from the financial statement of lending company enclosed at page 289-308 It is further submitted that payment i.e. IC-Loan is carrying interest @ 8% p.a. and therefore there is no benefit is being given by the lending company to the borrowing company. 2. DLF Commercial Developer .....

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DCDL 100% DCDL 1.27% Public Holding 98.73% of DCDL 4.20% of Roadtech Cons. 95.80% of DCDL 100% DCDL 100% DCDL 100% DCDL 100% DCDL In this case the loan had been advanced by shareholder to the company whereas the requirement of section 2(22)(e) is that the loan should have been given by the company to its shareholder. This primary condition is not fulfilled in this case and the transaction in any case cannot be brought within the provision of Section 2(22)(e). It is stated in the table 2 of at pa .....

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velopers (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 D .....

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pany to DLF Info City Developers(Chd) Pvt 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 companies enclosed at page 69-218 In fact the money had been paid by the lending company to borrower out of loan given by the appellant company. The same has been evident from the financial statement of lending company enclosed at page 309- 334 3. DLF Home De .....

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en by the company to its shareholder. This primary condition is not fulfilled in this case and the transaction in any case cannot be brought within the provision of Section 2(22)(e). The observation of the Ld AO in column 3 of table 2 that "DLF Ltd Holds more than 20% shares in Ayushi B&D P. Ltd and other companies Via subsidiary companies of DLF Ltd" is factually incorrect as explained below. The borrower namely Ayushi B&D P. Ltd and other companies is not a shareholder of len .....

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hat 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 th .....

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e books of DLF Golf resort Ltd (vol 33 page 12132-12140). DLF Commercial Developers Ltd had entered into an agreement(Vol 33 Page 12024-12027) with DLF Golf Resort Ltd under which the DLF Golf Resort runs the Golf club on behalf of the DLF Commercial Developers Ltd, subject to a charge of 2% of the total expenditure. Details along with copy of the agreement were enclosed of our letter dated 20.04.2009 (Vol 33 Page 12073). The amount of ₹ 69,71,34,285 is the closing balance of security depo .....

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re 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 Commercial Developers 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 DLF Commercial Developers Ltd and other co .....

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one of these transactions are covered by the definition of deemed dividend as loan has neither been received 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 bor .....

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d. 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 assessee is able to establish that such advances were not taken as loan and these were business receipts in the ordinary course of business then those amounts would not fall within the scope of .....

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d could be considered only when advancing company is in the business of money lending. Since the appellant is in the business of real estate and the money from the companies in the table - 1 hereinabove were in respect of normal business, it would show that the money was received by the appellant in the normal course of business. The AO has also not brought any contrary material on record. 29.43 Taking into consideration the material on record and respectfully following the judgment of Hon'b .....

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settled that as held in the case of CIT Vs. Vadis All Lulu Bahia 86 ITR 2 (S.C.) that deeming provisions creating legal friction are to be strictly construed. The only reason noted by the A.O. for making the protective addition of the amount of ₹ 225,77,97,142/- as given in Table 2 of the assessment order page 409 is on the ground that the relationship between the assessee and the borrowing companies was fiduciary in the nature and hence the provisions of Section 2 (22) (e) were applicabl .....

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end 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( .....

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es in DLF Retail Developers Ltd., at all. There is no relationship of the payee of being a shareholder of the payer. After all, on first principle, dividend or deemed dividend can only be brought to tax when a payment is made by a company to its shareholder in the garb of a loan. This fact is wholly absent in the instant case. The appellant is neither the payee, nor a common shareholder of the payer and payee company having requisite number of shares to be eligible to caught in the mischief of s .....

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dividend or deemed dividend, therefore, does not arise. Therefore, in my opinion, there is no merit in making the protective assessment in the hands of the appellant in this case. 29.48 Coming to the next case at serial No.3, again, here the payer is the shareholder i.e. the person who has advanced loan is the shareholder and not the other way round. In my opinion, therefore, the question of making protective assessment in the hands of the appellant does not arise. 29.49 At serial No. 4, DLF Co .....

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hemently supported the findings of ld. AO and also relied on various decisions as under a) Navnitlal C Jhaveri Vs K K sen 56 ITR 198 (SC) b) CIT V Mukundray K Shah 290 ITR 433 (SC) c) Star chemicals Private limited v CIT 203 ITR 11 (Bom) d) Sadhna Textiles Mills Pvt ltd V CIT 188 ITR 318 (Bom) 263. Before us the Ld.AR submitted as under with respect to above transactions:- i) Regarding transaction of deposits from customers of DLF Commercial Developers Ltd. (DCDL) DLF Commercial Developers Ltd. .....

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opers 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 .....

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nst purchase of property. Reliance is placed on Sunil Sethi vs. DCIT, Company, Circle 1(1), New Delhi, (2008) 26 SOT 95 (Del) wherein it is held that amount given for business purpose of the company i.e. to purchase a suitable business premises, the amount in question could not be considered as deemed dividend. Regarding the Second transaction of ₹ 29,75,000/- was received by the appellant against sale of property to payer company, i.e. DLF Financial Services Limited. It is submitted that .....

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5) 274 ITR 609 (AAR) Wherein it is held that the amount given for business purpose of the company could not be considered to be deemed dividend. In view of the view, it was submitted that the aforesaid addition of ₹ 30,23,187/- made u/s 2(22) (e) has been correctly deleted by the CIT (A) and there is no justification to interfere with the order CIT (A) on this issue. In view of the view, it is submitted that the aforesaid addition of ₹ 2,57,970/- made u/s 2(22) (e) has been correctly .....

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3 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 f .....

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f Hon'ble Delhi High Court in the case of CIT V Ankitech Pvt. Ltd.[2011] 11 taxmann.com 100 (Delhi). He further relied on the decision of AR CIT V A R Mangnetics Private Limited - 220 taxman 209.[Delhi] 264. We have carefully considered the rival contentions. We discuss the each of the issue as under :- (i) Regarding ₹ 257950/- received from the customers of DCDL assessee is the holding company of the lender DCDL. DCDL had on the date of giving these loans to the parent assessee compan .....

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ty 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. Hence there is no loan from subsidiary to the holding company. Hence to this amount the provisions of section 2 (22) (e) cannot be applied. (ii) Regarding the sum of Rs .34,84,265/- on a/ .....

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5000/- against sale of property. This assertion of assessee is supported by the copies of relevant agreement filed before AO. It was also submitted by the assessee before CIT (A) that it is incorrect assumption of facts by ld. AO that subsequently agreements of purchase of property were cancelled. Hence these advances are for the business purposes. Hon Punjab & Haryana high court in CIT v Amrik singh [2015] 56 taxmann.com 460/231 Taxman 731 (Punj. & Har.) has held that "6. A perusal .....

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, 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 .....

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sessee 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 .....

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ind no reason whether in law or in fact to interfere with these findings of facts, which are neither perverse nor arbitrary. The question of law is, therefore, answered against the revenue and the appeal is dismissed." SLP against this decision has been dismissed in [2015] 62 taxmann.com 213 (SC). Therefore it is evident that in absence of the finding that the agreements are smoke screen created by the assessee it is now established position of law that provisions of section 2(22) (e) canno .....

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n deleting the addition of ₹ 3023187/-. (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 hold .....

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rcon (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 Sanjay Bhaskar held more than 50.49 per cent of the shares in Arcon (India) Pvt. Ltd. and also held 99.98 per cent of Shares in the respondent-assessee. The aforesaid addition made under section 2(22)(e) was upheld by the Commissioner of Income-tax (App .....

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voking section 2 (22) ( e) of the Act. Therefore this amount also cannot be taxed u/s 2(22) ( e) of the act as these are business advances. (iv) Regarding the addition on protective basis it is accepted fact that assessee is not a registered shareholder of these companies who advanced loan to other companies. It is also not established that assessee is the beneficiary of these loans. Honourable Delhi high court has held in case of CIT V C J Internationals Limited 372 ITR 364 ( Del) as under :- & .....

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ts own path by stating as follows: - "Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under section 2 (22) (e) of the Act. We have to keep in mind that this legal provision relates to 'dividend'. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to 'shareholder& .....

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n-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 p .....

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er of shares' referred to in the first limb of section 2 (22) (e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provision of section 2 (22) (e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the first limb of the provisions of section 2 (22) (e) will not apply." 13. It is, therefore, clear that in the absence of any find .....

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entity or not. This is not the case where it is considering the advances with the business purposes. Same is the case with the other decisions n relied up on by the ld. DR. However all these decisions do not apply in case of advances made with a business purposes. As already stated that decision of Honourable Punjab and Haryana High court in case of CIT V Amrik Singh (Supra) all these decisions become irrelevant in case of business advances. (vi) Therefore as the assessee is not a shareholders o .....

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e IT Act . 267. These expenditure are incurred by the assessee on travelling expenses and other expenses in the nature of entertainment expenses, broadband expenses etc. for directors at their residences , entertainment 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 .....

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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 disallowed by AO. Against this Ld. AR relied on the order of CIT (A). 269. We have .....

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llowance. In the Result ground no 36 of the appeal is dismissed. 270. Ground No 37 of the appeal is as under :- 37. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the disallowance of ₹ 1,93,38,906/- on a/c of brokerage, maintenance and professional charges paid to group companies which were either not legal or capital in nature as it was given for providing necessary information about land across India. 271. Ground No.37 is against deleting the disallowa .....

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₹ 96,34.580/- and ₹ 25,05.315- on -account of professional charges paid to Delanco Real Estate, a subsidiary of a company as being in capital in nature as it was allegedly given for providing necessary information about land across India. For Which no evidences was submitted regarding rendering of the services. Therefore making total addition on these account of ₹ 1,93.38,906/-. Ld. CIT (A) has deleted this addition holding that :- "30.12 As regards disallowance of ₹ .....

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tate 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 L .....

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. We have noted that payments of maintenance charge are not illegal payment and further the amount paid for survey about the land. The details of these expenses are noted at page no 442-443 of the assessment order where the explanation given by the assessee before AO is also reproduced. In view of this we do not find any infirmity in the order of CIT (A) in deleting this disallowance. In the result ground no 37 of the appeal is dismissed. 273. Ground No 38 of the appeal is as under :- 38. That o .....

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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. The details of these expenses are at page no 445 of the assessment order where in the bills are in nature of electricity bills of the property taken on rent. AO disallowed it as the bills are not in the e name of the assessee. CIT (A) deleted this disallowance 275. Ld. DR supported the order of the A .....

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f the appeal is dismissed. 277. Ground no 39 of the appeal is a s under :- 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. 278. Ground No.39 is against deleting the proportionate disallowance of ₹ 1,77,32,060/- made by the AO on the ground that benefit of these expenditures were enjoyed by th .....

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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 in .....

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