9911796707
TMI Blog2017 (11) TMI 381X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of complexities in the books of accounts, the AO issued directions dated 05.11.2009 for special audit as per provisions of section 142(2A) of the Income tax Act, 1961. The appellant challenged the order u/s 142(2A ) before Hon'ble Delhi High Court. The Hon'ble High Court issued directions to the AO to pass a reasoned and speaking order for ordering special audit u/s 142(2A) which was rightfully obeyed by the AO and a fresh order dated 08.12.2009 was passed directing the appellant to furnish special audit report within 60 days from the receipt of the said order. Finally, special audit report was furnished by the appellant on 27.05.2010 to the AO. 3. Subsequently, the assessment was completed on the basis of special audit report vide order dated 07.10.2010 passed u/s 143(3) of the Act. The AO computed total income at Rs. 750,38,90,009/- as against returned income of Rs. 568,54,69,980/- by making various additions and disallowance to the extent of Rs. 181,84,20,029/-. The issue wise additions to the returned income are tabulated as under : S. No. Terms of reference Head of Addition / Disallowance Page No. Amount From To (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS credit Rs. 11,07,190 411 418 *** 31 TOR-28 Reclassification of income from House property 418 430 7,87,31,326.00 32 TOR-28 Notional rental income 431 452 3,28,52,595.00 33 TOR-28 Reconciliation of TDS with rental income. 452 456 5,41,734.00 34 Withdrawal of TDS on rental income Rs. 41,764/- 35 TOR-28 Withdrawal of TDS credit Rs. 41,764 456 457 *** 36 TOR-28 Notional Rent where security deposit received 457 464 12,60,000.00 37 TOR-32 Sale price of shares 464 475 1,36,81,610.00 38 TOR-33 Interest on Income Tax Refund 476 479 23,48,996.00 39 TOR-33 Bills not in the name of the company 479 483 65,08,264.00 40 TOR-3 Recalculation of depreciation as last year excess deprecition was disallowed. 484 485 8,09,837.00 TOTAL 1,81,84,20,029.00 4. Aggrieved by the assessment order, the assessee filed an appeal before CIT(A) on various grounds in respect of which elaborate submissions and supporting documents were filed. The appeal was disposed off by CIT(A) vide its order dated 29.05.2012 in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law and on the facts and in the circumstances of the appellant's case in confirming the net disallowance of Rs. 26,05,808/- (i.e. after allowing depreciation @ 15% on gross disallowance of Rs. 28,17,090/- which works out to Rs. 2,11,282/-) made by the Assessing Officer on account of capitalisation of cost of replacement of some parts of two DG sets ( such as fuel tank, batteries with lead and common base material etc.) charged as revenue expenditure. [ Page 237-239 of CIT(A)'s order]. 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 net disallowance of Rs. 51,51,360/- (i.e. after allowing depreciation @ 40% on gross disallowance of Rs. 85,85,599/- which works out to Rs. 34,34,239/-) made by the Assessing Officer on account of interest expenses on Aircraft to be capitalized. [Page 246-250 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 net addition of Rs. 12,60,000/- (i.e. after allowing standard deduction @ 30% on gross addition of Rs. 18,00,000/- which works out to Rs. 5,40,000/-) made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Capitalization of interest. 8. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 171233363/- made by the AO on a/c of disallowance of brokerage & commission. 9. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 339987217/- made by the AO on a/c of disallowance of revenue recognition as per POCM. 10. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 16138767/- made by the AO on a/c of disallowance on account of late construction chargers revenue recognition as per POCM. 11. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 44566/- made by the AO on a/c of disallowance on Net contingency deposit. 12. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 24064/- made by the AO on a/c of disallowance of net interest free security deposit. 13. Whether the CIT(A) under the facts and circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 4934000/- made by the AO on a/c of disallowance of expenditure u/s 40(a)(ia) of the Act, 1961 for non deduction of TDS on Domestic payments on amount received from Shriram School land subsequently reimbursed to DLF Qutub Enclave Complex Edu. Charitable Trust. 25 Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 2708664/- made by the AO on a/c of disallowance of expenditure u/s 40(a)(ia) of the Act, 1961 for non deduction of TDS on payments to M/s. DLF Qutub Enclave Complex Medical Charitable Trust. 26. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 4200000/- made by the AO on a/c of disallowance of expenditure u/s 40(a)(ia) of the Act, 1961 for non deduction of Domestic payments towards consultancy fees paid for soil investigation at Goa Site. 27. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 1107190/- made by the AO on a/c of withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon in the said order. Sh. R.S. Singhvi, counsel appearing on behalf of the assessee pointed out that substantial issues arising out of revenue's appeal are covered in favour of assessee and to buttress his contention he filed a brief chart demonstrating the issues involved and how they are covered by the order of Tribunal. 8. Now we first take up the appeal of the assessee. 8.1 Ground No. 1 is against disallowance of Rs. 2,01,07,405/- being claim of Internal development charges (IDC) in respect of project at Greater Kailash Part I & II. The assessing officer has considered the disallowance on proportionate basis as per actual sales effected during the year. The disallowance made by AO was upheld by the CIT(A). 8.2 The relevant observations and finding of AO from Pages 212 to 215 are as under: "On this issue the special auditor has specifically observed the assessee is holding some land in Greater Kailash which are clearly identifiable separately and total area of land held is 18.10 acres. The details of land held has been given in the special audit report. The assessee has shown total amount of IDC expenditure aggregating Rs. 7,95,35,569/- out of this Rs. 2,84,68,129/- pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore shelter fees was also claimed as expenditure on sale of land even though the shelter fees was not pertaining to the land sold. The argument of the assessee is not acceptable since the lands located at Greater Kailash - I are clearly and separately identifiable and accordingly the expenses which are pertaining to specific lands are not allowable against other lands. The assessee has not disputed the fact that shelter fees claimed on pro rata basis was pertaining to E and W block lands and not N block land which was sold. Accordingly, the cumulated security expenses aggregating Rs. 2,84,68,129/- are allowable on a pro-rata basis, to the extent to which they relate to the lands sold/transferred during A.Y. 2007-08. The total area of land sold/transferred during the year is 9.545 acres out of total area of 18.10 acres. In percentage terms the area sold/transferred during A.Y. 2007-08 comes to 52.73% (9.545 acres/18.10 acres x 100). Hence, 52.73% of Rs. 2,84,68,129/- which comes to Rs. 1,50,12,613/- is allowable during A.Y. 2007-08 against the claim of Rs. 3,51,20,018/- made by the assessee company and the balance amount of Rs. 2,01,07,405/- is being disallowed since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07. It is seen that facts of the last year's case are completely different with that of this issue, therefore, the same is not covered with the last year's CIT(A) Order. As such the contention of the appellant's AR is rejected. 8.4 The arguments forwarded by the Ld. Counsel appearing on behalf of the assessee are summarized as under : a. It was contended that the appellant has incurred internal development cost in respect of various projects including project at Greater Kailash Part I and II. The total cost incurred in respect of Greater Kailash project as on 31.03.2007 is Rs. 7,95,35,569/-. b. There is no dispute about genuineness and admissibility of claim of Internal Development Cost (IDC). However, the AO has disallowed proportionate claim of IDC relating to Greater Kailash project with reference to actual sale effected during the year. c. It was explained that the revenue from sale of these lands is recognized as per matching concept in which the cost of land sold is determined by computing per acre cost of the land and adjusting the same against the proportionate land sold. d. Similarly, the claim of IDC is also proportionately recognized on the basis of act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious blocks in Greater Kailash, Part-II which were under development by the appellant. It was submitted that these expenses are for the development of whole area and not specific to property sold. There is no dispute that these expenses are of revenue nature and permissible deduction under the law as Assessing Officer himself has allowed part of the expenses which are attributable to property sold during the year. 11. The CIT DR supported the order of AO & CIT(A) and argued that AO and CIT(A) have considered the disallowance on the basis of sound accounting principles and in order to determine the correct assessable income. 12. After going through the facts of the case and submission of the appellant, we are of the view that these are business expenses for development of various projects under execution and same could not be related to particular area or apartment and as such the Assessing Officer is not justified in considering the admissibility of part of the expenses on proportionate basis. Further, this disallowance is revenue natural as the appellant has sold the properties in the subsequent years and taking into consideration the principle laid down by Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were utilized for making investment for earning exempt income, no disallowance under section 14A is warranted. However it needs to be noted that after the insertion of Rule 8D, not much choice is left as regards the computation of proportionate expenses incurred for earning the exempt income. From the return of Income filed by the assessee it is evident that no such working has been carried out. But such a situation cannot exist. In other words there is bound to be some expenditure pertaining to earning of exempt income. Since the assessee has failed to carry out the computation exercise, provisions of section 14A are attracted. The said section provides that the where the assessing officer is not satisfied with the correctness of the claim of the assessee, he may work out the same on his own. For carrying out such working Rule 8D has been introduced in the Income Tax Rules. Therefore, it is held that computation of proportionate disallowance of expenses will have to be made as per the formulae prescribed in Rule 8D. It has been discussed in the Special Audit Report that part of Interest expenditure has been capitalised and the balance interest expenditure should be reckoned f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from which does not form part of total income. 64,287.62 C The average of total assets as appearing in the balance sheet 8,11,166.72 Total Assets: As on 31.03.2007 As on 31.03.2006 Fixed Assts 99,360.24 53,639.65 Investments 76,917.35 139,728.29 Current Assets, Loans & Advances 9,43,844.94 308,842.97 Total Assets 11,20,122.53 5,02,210.91 Average (Total Assets as on 31.03.2007 + Total Assets as on 31.03.2006)/2) 8,11,166.72 Value of investment, income from which does not form part of total income. As on 31.03.2007 As on 31.03.2006 Value of investment as on 31.03.2007 Value of investment as on 31.03.2006 Value of Shares 58,826.20 56,513.64 Debentures 0 78,355.17 Partnership firm 8,375.92 4,859.48 Other (Belaire receivable trust and Reliance Liquid Fund) 9,715.23 0 Total 76,917.35 139,728.29 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans taken by the appellant company on which interest is paid were related to the construction projects being undertaken by the appellant company and advanced to other group entities. Therefore, interest on such loan cannot be considered for disallowance u/s 14A. The loan taken in making investments in the shares of M/s Edward Keventor (Successor) Pvt. Ltd can be considered for making disallowance u/s 14A of the IT Act which worked out as under:- Amount(Crore/Rs.) 1 Expenditure directly relating to the exempted income - 2 Amount of expenditure by way of interest other than the amount of interest included in point No.1. (directly related to exempted income) (A x B / C) 1.45 Disallowance u/s 14A ( 1 + 2 ) 1.45 A Amount of expenditure by way of interest other than the amount of interest included in point No.1. (directly related to exempted 26.76 income) B Average of value of investment, income from which does not form part of total income. 438.92 C The averag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be sustained. However, considering the facts of the case and investment made by the appellant for earning exempt income out of borrowed fund, and payment of interest, the disallowance has been worked to the tune of Rs. 4.66 crore. Therefore, addition on this issue, made by the ASSESSING OFFICER u/s 14A is restricted to Rs. 4.66 crore. As a result, the appellant gets a relief of Rs. 22,56,75,000/-" 16. Ld. counsel for the assessee submitted at the very outset that this very ground is covered in favour of assessee by the order of Tribunal for AY 2006-07. It was further argued that in absence of any change in facts, the observations and finding of Tribunal in order for AY 2006-07 are fully relevant and applicable to the present case. In support of his contention, the ld. counsel also placed on record the working of net disallowance u/s 14A in accordance with order of Tribunal. The relevant working is extracted as under : Average investment in Partnership Firms Opening as on 01/04/2006 = Rs. 49 cr Closing as on 31/03/2007 = Rs. 84 cr Total Rs. 133 cr Average investment = Rs. 66.50 cr Disallowance being 0.5% of Rs. 66.50 cr = 33.25 lakhs 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was brought on record. 21. In the ultimate analyses, we are of the view that the issue is fully and squarely covered by order of ITAT for A.Y. 2006-07 and accordingly disallowance is confirmed to the extent of Rs. 33.25 lakhs. The Assessing Officer may give necessary effect so as to restrict the disallowance to Rs. 33.25 lakhs. 22. Ground No. 3 is against disallowance and capitalization of Rs. 26,05,808/- expanded on repair and maintenance of Generator sets. The AO has disallowed the claim of expenditure on the ground that same is in the nature of capital expenditure not allowable u/s 37 of the Act. 23. The relevant observation and finding of AO and CIT(A) are extracted hereunder : Observation and Conclusion of AO's Order (Page 352-356 of the Assessment Order) "The Special Auditors have reported that : "23.11 The Assessee Company has incurred Rs. 28,17,090/- vide 1st RA bill dated 17.02.2007 WC 10 of M/s HI TECH ENGINEERS & CONSULTANTS on account of purchase of 2 No.'s D.G. sets installed at Shopping Mall - Office. The aforesaid expenditure incurred on account of purchase of 2 No.'s D.G. sets has been charged as revenue expenditure under the head Repair & Maintenance - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acements cannot be considered under current repairs and such replacement of worn out parts are not current repairs and has to be considered as capital expenditure. In this regard the ASSESSING OFFICER has placed reliance on the judgment of Hon'ble Supreme Court in the case of CIT vs. Sarvana Spinning Mills Pvt. Ltd. 293 ITR 201 (SC). The judgment is squarely applicable on the facts of the appellant's case. Hence, the expenditure incurred on DG Sets of Rs. 28,17,090/- is held as capital expenditure and the decision of the ASSESSING OFFICER is confirmed. 25. The ld. counsel for the assessee put forth detailed arguments and contended that the expense in dispute are in the nature of routine repair and maintenance expenses connected to DG sets used in commercial complexes. The ld. counsel stressed on the fact that the expenses are not for purchase of new DG sets but were only of repair and maintenance of existing DG sets. Our attention was also drawn to copy of bills enclosed at Paperbook Page 69-72. Reference was also made to following case laws : a. CIT vs Mahalakshmi Textile Mills Limited 66 ITR 710 (SC) b. CIT v. Modi Industries Ltd. 197 Taxman 76 (Delhi HC) c. CIT vs. Chowg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould only be available after the asset is put to use for the purpose of business. 30. The relevant observation and finding of AO and CIT(A) are as under : Observation and Conclusion of AO (page 366-387 of the Assessment Order) "The Special Auditors vide point no.'s 23.2 to 23.9 on page no.'s 64 to 189 of Vol. No. X of their Special Audit Report have reported that interest on loan taken for acquiring the Aircraft upto the date of Aircraft being actually put to use needs to be capitalised. The relevant extracts in this regard from the Special Audit Report are reproduced below: "23.2 As per the terms of reference, the scope of audit can be divided into two broad categories - (I) whether the asset capitalized is correct with reference to the date for the purpose of claiming depreciation; and (ii) Whether any capital expenditure is claimed as revenue expenditure. One of the major items capitalized during the year is in relation to purchase of an aircraft. The aircraft is stated to be purchased on 3rd July 2006. The company has claimed depreciation for whole of the year, on the cost of Aircraft and 50 % in respect of Customs duty paid. It is stated that the aircraft was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not be allowable as deduction. In this case as per the assessee's own admission the aircraft was first put to use on 16.08.2006. Therefore the deduction of interest is allowable only from 16.08.2006 i.e. the date from which aircraft was first put to use. The assessee has claimed deduction on loan taken from GE capital Services from July 06 and consequently the deduction of interest for the period 01.07.2006 to 15.08.2006 is disallowed. The same is calculated as under : Interest for July 06 58,08,496/- Interest till 15.08.2006 Calculated Proportionately (Total Interest for Aug Rs. 55,54,207/-) 27,77,103/- 85,85,599/- The interest of Rs. 85,85,599 till 15.08.2006 is disallowed and capitalised since the aircraft was put to use from 16.08.2006. The assessee would be entitled to depreciation on this amount on the rate applicable to aircraft. The rate of depreciation of aircraft is 40% and depreciation allowable comes to Rs. 34,34,239/-. The interest disallowed is Rs. 88,54,351/- and depreciation allowable is Rs. 35,41,740/-, the net disallowance would come to Rs. 51,51,360/-. Finding and conclusion of CIT(A) [ Para 27.7, page 249-250 of CIT(A)'s Order] : 27.7 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee opposed the order of AO and CIT(A) and argued that the claim of interest is in accordance with provisions of section 36(1)(iii) and settled legal principle. It was contended that the observation of the AO are factually incorrect and not based on documentary evidences placed on record. Ld. Counsel took us though detailed chart of flight operation details placed at Paperbook Pg 102-179 and contended that the aircraft was put into operation in the month of July 2006 itself and it took first flight on 13.07.2006. It was also submitted that the aircraft was being used for trial run and commercial purposes during the said period and as such the assessing was not justified in disallowing the claim of interest for the intervening period starting from 01.07.2006 to 15.08.2006. 32. Ld. Counsel also made reference to the decision of Hon'ble Supreme Court in the case of DCIT v. Core Health Care ltd. [2008] 298 ITR 194 (SC) for the proposition that interest on loan taken for acquisition of capital asset is an allowable deduction u/s 36(1)(iii) of the Act. 33. On the other hand, Ld DR relied upon the orders of AO and CIT(A). 34. We have heard the rival submissions and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observation and finding of AO and CIT(A) are as under : Observations and Conclusion of AO at Pages 463-464 of the Assessment Order. "From the reply filed by the assessee it emerges that in four cases in DLF City Centre Mall kiosks have given on rent, the rental agreements for the same filed by the assessee are between DLF Ltd and tenants. The rent received against these agreements has not been reflected in the taxable income of the company even though the security deposit received from these tenants has been shown by the company in their books. The assessee in their reply have stated that the rental income from these tenants have been shown by DLF Services Ltd. a subsidiary of the assessee. The reason for income being shown by DLF Services Ltd as given by the assessee is that DLF Services Ltd being the agency responsible to maintain the building were authorised to received rent to meet its cost of maintenance of building even though the security deposit was received by the assessee company. This contention of the assessee is not acceptable since the place is owned by DLF Ltd, the rental agreement with the tenants for kiosks is entered into with DLF Ltd. and security deposit aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SESSING OFFICER and various cases relied upon by the appellant in this regard. It is seen that properties given on rent to Belgique Chocolatiers, Swastik Food Solutions, Royal Touch, Vrinka Overseas Pvt. Ltd, owned by the appellant company. It is also seen that lease agreements for giving these properties on rent have been entered into between the appellant and said parties. The deposit received from such parties of Rs. 18,40,260/- has been credited by the appellant in its books of accounts. It is claimed by the appellant that the rent receivable from such parties was assigned to DLF Services Ltd., a company who has been assigned with the responsibility of building to meet the cost of maintenance of building. It is seen that no agreement in this regard has been furnished by the appellant and the income has been diverted through overriding titles which is not allowable in law. Therefore, the rental income pertaining to the appellant of Rs. 18,00,000/- received from four parties is to be taxed in the hands of the appellant. As a result the addition made by the ASSESSING OFFICER of Rs. 12,60,000/- after allowing 30% deduction from the rent income is confirmed." 40. Ld. Counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. has being subjected to tax in the case of M/s. DLF Services Ltd. and there is no case of subjecting the same income again in the case of appellant. In this connection, the appellant made reference to decision of Supreme Court in the case of M/s. Ashish Plastic Industries Vs. ACIT 373 ITR 45, as per which same income cannot be subjected to tax again in the case of the appellant. 44. The Ld. CIT DR supported the order of the Assessing Officer and CIT(A). 45. After hearing both the parties, we are of the view that the appellant assigned DLF Services Ltd. right to recover lease rent for maintenance and upkeep services of Mall and as such there was a genuine business arrangement between the parties. If the lease income is considered as chargeable to tax in the case of appellant, the appellant may be eligible for claim of expenses on account of maintenance of Mall which was owned and run by the appellant and as such appellant has not derived any tax benefit on the basis of such arrangement and for diversion of lease rent. It is further relevant to take note of the fact that such lease rent has been subjected to tax in case of M/s. DLF Services Ltd. 46. After considering the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee submitted that the issue is covered in favour of assessee by the order of Tribunal in immediately preceding AY 2006-07. 55. We have gone through order of AO & CIT(A). It is noticed that the issue of prior period was adjudicated by ITAT for A.Y. 2006-07 vide para 227-231 of the consolidated order. The Ld.AR submitted that claim of prior period was on the basis of liability crystallised during the year and same is on the basis of regular system of accounting followed by the appellant. In the light of order of ITAT and detailed finding recorded by CIT(A), no interference is called for in the order of the CIT(A) and this ground of the revenue is dismissed. 56. Ground No. 3 is against deletion of disallowance of interest to the extent of Rs. 4,19,00,000/-u/s 36(1)(iii) of the Act. The AO made the proportionate disallowance of interest on the ground that the assessee has advanced interest bearing funds to its sister concerns. As the assessee is having common pool of funds, the AO considered proportionate disallowance of interest. The CIT(A) after going through the submissions of the assessee has given a categorical finding that the interest income declared by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on decided that the land owning process be assigned to an intermediary namely, DLF Commercial Projects Corporation (DCPC), since the number of land owning companies kept on growing with the increased requirement of land. The nature of advance of Rs. 743.77 crores is similar in character to advance given to DCPC. The assessee has capitalised interest on advance given to DCPC in the financial statements as mentioned above and accordingly the interest on advance of Rs. 743.73 crores from 31st August 2006 to 15 November 2006 is to be capitalised and disallowed accordingly. The interest amount calculated comes to Rs. 15,88,17,344/-. The rate of interest has been taken at 10.25% which is the same rate as being paid on loans taken from banks by the company. It is further noted that the amount of Rs. 15.88 crores is included in the total interest expenditure of Rs. 267.84 crores claimed in the P&L Account in respect of fixed period loans. The case of the assessee is peculiar where mixed funds in the form of interest bearing and interest free funds are available. The funds available in business have been utilised for twin purposes- firstly for carrying out the activity of real estate dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportionate netting against the interest income earned and credited in the P&L Account. Such an exercise in respect of all the above issues has been collectively carried out later in page Nos 106 to 111 and the quantum of disallowance has been worked out separately for each issue. In respect of this issue the disallowance works out to Rs. 4,19,00,000/- . Observation and finding of CIT(A [Para 5.10 at Page 55 to 58 of CIT(A)'s Order] 5.10 I have considered the submission of the appellant, observation of the Special Auditors & ASSESSING OFFICER and various judicial pronouncements cited by the appellant on this issue. It is seen that the appellant company is engaged in the business of real estate and it is normal practice of the appellant company to buy the land through its associate concerns. The appellant company was regularly advancing money to its associate companies to enable them to purchase the land for appellant company. In this particular case, the 27 land owning companies were not able to purchase land for the appellant company, therefore, the amount was refunded after 2 ½ months from the date of receipt of the money. It is seen from the documents filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 284.51 crores. As such the interest received is much more than the interest claimed in the profit and loss account by the appellant. Therefore, it cannot be said that appellant has diverted interest bearing funds to reduce its tax liability. The formula devised by the ASSESSING OFFICER of mixed funds to work out proportionate notional disallowance of interest is not based on any scientific method. When interest payment claimed by the appellant is less than the interest income offered in the profit and loss account, there was no justification to work out any formula of mixed funds theory which is based on permutation and computation. Hence, the notional interest cannot be estimated and cannot be disallowed on such advances. Therefore, the disallowance of Rs. 4.19 crore is deleted. Commissioner of Income-tax,Madurai v. J. Chelladurai 17 taxmann.com 73 (MAD) IT: Since there is no provision of law to charge notional income, any addition made by Assessing Officer on account of notional interest on amount advanced to charitable trust is not sustainable Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1995-96 - During relevant previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. To consider whether one should allow deduction under section 36(1)(iii) of interest paid by the appellant on amount borrowed by it for advancing to a sister concern, the authorities and the courts should examine the purpose for which the appellant advanced the money and what the sister concern did with the money. That the borrowed amount is not utilized by the appellant in its own business but had been advanced as interest free loan to its sister concern is not relevant. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits." The facts of the appellant's case are identical with the facts of the above cited judicial pronouncements. Therefore, ratio of the said judgments is squarely applicable to the appellant's case. Hence, the proportionate notional disallowance of interest of Rs. 4.19 crore made by the ASSESSING OFFICER is deleted. 58. The ld. CIT DR relied upon the finding of the AO whereas the ld. Counsel for the assessee argued that this issue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lization of interest in respect of Project Keventor Lane at Sardar Patel Marg, New Delhi. 64. The relevant finding and observation of AO and CIT(A) are extracted as under : Observation of assessing officer Pages 70 to 73 of the Assessment Order) "The observations and findings in the Special Audit Report and the reply furnished by the assessee have been considered by me. The undisputed fact which emerges is that the Assessee Company has taken Rupee Term Loan of Rs. 370 crores from ICICI Bank for re-financing the acquisition cost & part financing the development cost of the Project - Keventor Lane at Sardar Patel Marg, New Delhi. (Copy of facility agreement is enclosed at Annexure 9 at Page No 180 of the Special Audit Report Volume- IV). The interest cost on the said loan is Rs. 26.76 crores which is included under the finance charges and claimed in the profit & loss Account during the financial year 2006-07. However, the revenue from the Keventor Lane project has not been recognized so far till financial Year ending 2007. The reply of the assessee is that according to AS-16 issued by ICAI, and with reference to para 14 and 16 of the said Accounting Standard interest cost fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received from customers. The amount received by assessee in respect of various construction projects by way of advance from customers are also interest free funds available. These amounts are also utilized either for construction projects or for giving advance to subsidiaries. Thus, there is no direct nexus which can be established to hold that the loans for specific projects were utilized for such projects only. The own funds or other funds available to the assessee by way of interest free funds are mixed up with the borrowed funds and the utilization of such funds for uncompleted residential projects or for the commercial projects or for granting loan / advances to group concerns cannot be correlated. On the basis of above discussion, a proposition/formula can be laid down that if an assessee is having interest-free funds, in the form of capital, reserves and other funds without interest bearing related to business on one side and interest bearing borrowed funds on other side, the loans/advances given to group entities have come from both types of funds i.e. interest bearing funds and interest free funds in the same proportion. There are various issues on which disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talized and has to be debited to the P&L a/c, as the interest expenditure pertaining to this project is wholly and exclusively for the business purposes of the appellant. It is also seen that shares of M/s Edward Keventor (Successor) Pvt. Ltd. were purchased in F.Y. 2005-06 related to A.Y. 2006-07 and loan was sanctioned by ICICI Bank for Rs. 370 crore for acquiring the shares of this company. This issue was examined by the Special Auditor as well as ASSESSING OFFICER in assessment year 2006-07 and considering the business module of the appellant and para 14 and 16 of AS-16, no interest was capitalized on this issue in that year. There is no change in the facts and circumstances of this issue in the year under consideration. Hence, interest cannot be capitalized. Further, the appellant has made investment of Rs. 438.92 crore for acquiring shares of Edward Keventor (Successor) Pvt. Ltd. The investment has already been considered by the ASSESSING OFFICER while working out the disallowance of interest u/s 14A. Therefore, further capitalization of interest on this issue will amount to double addition. Otherwise also from the details filed by the appellant, it is seen that appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough order of ITAT for the preceding assessment year. The ITAT has allowed relief after taking into consideration decision of Supreme Court in the case of Core Health Care Ltd. (supra). Further, the CIT(A) has considered this issue in great detail and observed that the appellant has declared higher interest receipt then the claim of interest as expenditure and even on the basis of mixed fund theory, there is no case of any adverse revenue implication. Considering the detailed finding recorded by CIT(A) and order of the ITAT in the assessee's own case, no interference is called for in the order of CIT(A) and accordingly this ground of revenue is dismissed. 67. Ground no. 6 is against deletion of disallowance of Rs. 45,92,000/- on account of capitalization of interest in respect of Project Star Tower Silokhera. The AO has considered the disallowance on the same basis as in Ground No. 5 of the revenue. The CIT(A) has deleted the disallowance on the basis of similar reasoning as extracted by us while deciding Ground no. 5 of the revenue's appeal. 68. The ld.CIT DR relied upon the order of AO whereas the ld. Counsel for the assessee stated that this issue is identical to that involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue is dismissed. 73. Ground No. 9 is against deletion of addition of Rs. 33,99,87,217/- on account of enhancement of revenue under POCM method. The addition is further bifurcated into two parts, the first part of addition is of Rs. 26.79 crores which is computed by substituting budgeted Internal Development Cost (IDC) with actual IDC and the second part if Rs. 7.21 crores on account of expenses not reckoned for computing the actual IDC. The AO has relied upon observations of special auditor in reaching the conclusion that budgeted IDC declared by the assessee in computing revenue under POCM is inflated. The CIT(A) deleted the addition by observing that POCM system of accounting followed by the assessee is a recognised method as per which budgeted IDC forms part of overall cost of the project. 74. The ld. CIT DR relied upon order of AO whereas the ld counsel for the assessee supported the finding of CIT(A). 75. We have carefully considered the nature of controversy and gone through the order of the Assessing Officer and CIT(A). There is no dispute that the appellant is following POCM method for recognition of revenue and claim of expenses. There is no dispute to the effect that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preceding AY 2006-07 wherein the addition has been deleted by the tribunal. 78. The issue of late construction charges is also covered by order of the ITAT for A.Y. 2006-07. The revenue has not disputed factual position to this effect. In any case, the issue being revenue neutral as the appellant itself has offered this amount in F.Y. 2010-11. There is thus no merit in the ground of the revenue and same is dismissed. 79. Ground No. 11 is against deletion of addition of Rs. 44,566/- on account of net contingency deposit received by the assessee. The AO has made the addition on the basis of assessment order in AY 2006-07. Further is held by the AO that the contingency deposit is in the nature of security deposit and same remaining unspent is assessable as income of the assessee. The CIT(A) has deleted the addition on the ground that the contingency deposit is collected for specific purpose and under contractual obligation and same cannot be treated as income of the assessee. 80. The ld. CIT DR relied upon the order of AO. On the other hand, the ld. Counsel for the assessee submitted that issue is covered in favour of assessee by the order of tribunal in immediately preceding AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is regular movement and as such the same are not assessable as income of the assessee. 86. The ld. CIT DR relied upon the order of AO. On the other hand, the ld. Counsel for the assessee submitted that issue is covered in favour of assessee by the order of tribunal in immediately preceding AY 2006-07 wherein the addition has been deleted by the tribunal. 87. We have heard the rival submission and considered the order of the ITAT for A.Y. 2006-07. Whereas the Ld. AR relied on the order of ITAT, the ld.CIT DR has relied on order of the AO, However, the ld.CIT DR was fair enough to accept that this issue is covered in favour of the assessee vide order of ITAT for A.Y. 2006-07. In view of the above position, no interference is called for in the order of CIT(A) and accordingly this ground of revenue is dismissed. 88. Ground No. 14 is against deletion of addition of Rs. 3,66,56,071/- on account of closing credit balance of initial deposits account. This represents amount collected from prospective customers which is later transferred towards allotment money or refunded to the customers. The AO has relied upon the observation of Special Auditor and has held that the accounting tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ITAT for A.Y. 2006-07. Whereas the Ld. AR relied on the order of ITAT, the ld.CIT DR has relied on order of the AO, However, the ld.CIT DR was fair enough to accept that this issue is covered in favour of the assessee vide order of ITAT for A.Y. 2006-07. In view of the above position, no interference is called for in the order of CIT(A) and accordingly this ground of revenue is dismissed. 94. Ground No. 16 is against deletion of disallowance of Rs. 3,66,66,458/- on account of non allocation of expenses incurred on behalf of M/s. Galaxy Mercantiles Ltd.. The brief facts of the case are that assessee raised a debit note on M/s. Galaxy Mercantiles Ltd. for these expenses which was non accepted and refused by the said party and consequently the assessee claimed the same as its business expenses. The AO has disallowed the claim on sole ground that same does not pertain to the assessee. The CIT(A) granted relief by holding as under : "19.12 I have considered the submission of the appellant, observation of the Assessing Officer and various judicial pronouncement available on the issue. It is seen that M/s. Galaxy Mercantiles Limited was a joint venture between the appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee is allowable u/s 37 of the Act. Reliance was also placed on decision of Tribunal in immediately preceding AY 2006-07 in which while deciding the issue of allocation of expenses the court held that genuine business expenses are allowable inspite of the fact that certain indirect benefit has accrued to sister concern. 96. We have carefully considered the grounds on the basis of which AO has made impugned disallowance. The CIT(A) has deleted the disallowance on the ground that these are business expenses and permissible deduction under the law. As per the facts on record, there was a joint venture for a project between appellant and M/s. Galaxy Mercantile Ltd. In respect of such joint venture, appellant incurred various expenses as referred to by CIT(A). The genuineness of expenses has not been disputed by the AO. However, the AO has considered the disallowance on the ground that these expenses were incurred on behalf of M/s. Galaxy Mercantile Ltd. and appellant has not been able to recover the same inspite of raising a debit note against the said party. The CIT(A) observed that these expenses were incurred as a part of business expenses and in the capacity as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with Ground No. 2 of the assessee's appeal and our finding vide Para 9.5 is relevant for this ground as well. 101. Ground no. 19 is against deletion of disallowance of Rs. 1,60,000/- u/s 43B on account of claim of unpaid liability of Punjab VAT. The AO has considered the disallowance on technical ground that evidence of payment submitted by the assessee are not stamped/acknowledged by the state authorities. The CIT(A) after verification of facts and documents deleted the addition. 102. The ld. CIT DR relied upon the order of AO. On the other hand, the ld. Counsel for the assessee supported the order of CIT(A) and submitted that there is no case of any unpaid liability in terms of provisions of section 43B of the Act. In the light of finding of CIT(A) that claim is in accordance with provisions of sec. 43B of the Act, no interference is called for in the order of CIT(A) and this ground of revenue is dismissed. 103. Ground No. 20 is against deletion of disallowance of Rs. 1,81,95,513/- on account of pre-operative expenses. The claim of expenses is towards carrying out feasibility study and market study in respect of setting up and development of SEZ project. The AO has made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order of tribunal in immediately preceding AY 2006-07 wherein the addition of similar ground has been deleted by the tribunal. It was further argued that assessee is one of biggest real estate company in India carrying our variety of activities. It was submitted that setting up of and development of SEZ is integral part of overall business activity of the assessee and as such the observation of AO are principally wrong and not based on correct appreciation of facts of the case. 105. We have heard the rival submission and considered the order of the ITAT for A.Y. 2006-07. Whereas the Ld. AR relied on the order of ITAT, the ld.CIT DR has relied on order of the AO, However, the ld.CIT DR was fair enough to accept that this issue is covered in favour of the assessee vide order of ITAT for A.Y. 2006-07. In view of the above position, no interference is called for in the order of CIT(A) and accordingly this ground of revenue is dismissed. 106. Ground No.21 is against deletion of disallowance of Rs. 1,79,83,814/- on account of expenses on projects not commenced. The AO has considered the disallowance on the ground that expenses incurred in connection with projects at inception s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to such projects cannot be capitalize and has to be allowed as revenue expenditure as these expenses have been incurred wholly and exclusively for the business requirement of the appellant company. In view of the above, the disallowance made by the ASSESSING OFFICER of such expenses cannot be sustained. Therefore, respectfully following the decisions of jurisdictional High Court, the disallowance of Rs. 1,79,83,814/- made by the Assessing Officer on this account is deleted. 107. The ld. CIT DR relied upon the order of AO. On the other hand, the ld. Counsel for the assessee submitted that issue is covered in favour of assessee by the order of tribunal in immediately preceding AY 2006-07 wherein the addition of similar ground has been deleted by the tribunal. It was further argued that assessee that genuineness of expenses is not in dispute and same have been incurred during the regular course of business. 108. We have heard the rival submission and considered the order of the ITAT for A.Y. 2006-07. Whereas the Ld. AR relied on the order of ITAT, the ld.CIT DR has relied on order of the AO, However, the ld.CIT DR was fair enough to accept that this issue is covered in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at judgment of Hon'ble Bombay High Court in the case of CIT vs. Sessa Goa Ltd. stands overruled in view of the fact that, Hon'ble Supreme Court has approved the judgment of Hon'ble Bombay High Court in the case of Bombay Burmah Trading Corp. Ltd. Vs. CIT 145 ITR 793 (BOM) wherein the expenses relating to issue of bonus shares was treated as revenue expenditure. In the case of Sessa Goa Ltd., the earlier decision of Bombay High Court was overruled by the same High Court. However, subsequent to the Sessa Goa judgment of Bombay High Court which was delivered in the Month of August, 2005, the Hon'ble Supreme Court in the case of CIT vs. General Insurance Corp. which was delivered in September 2006 has held that expenses relating to issuance of bonus shares is a revenue expenditure. Therefore, the judgment of Hon'ble Bombay High Court in the case of Sessa Goa Ltd. is no more a good judgment and judgment of Hon'ble Supreme Court which was delivered on later date will prevail. Subsequent to Hon'ble Supreme Court judgment in the case of CIT vs. General Insurance Corp., the Hon'ble Rajasthan High Court in the case of CIT Vs. Secure Meters Ltd. 221 CTR 405 has held that even if debentures we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plated joint venture agreement with Hilton International, the said services though utilized in India have not been performed in India. The assessee has further relied on Article 15 of DTAA with USA and stated that on reading of the Article 15 it emerged that services rendered by a resident of USA shall be taxable in India only if such non-resident has a fixed base regularly available to him in India and such person's stay in India exceeds 90 days in the relevant taxable year. It is emphatically stated that none of the partners/employees of Paul, Hastings, Janofsky & Walker LLP were in India for more than 90 days during the relevant taxable year nor did they have any fixed base in India regularly available to them. Thus, the DTAA exempts such legal services from being taxed in the other contracting State which is India in this case. Based on this the assessee has concluded that the income of the non-resident though chargeable to tax under the domestic Indian law is exempt from tax as per the Indo-US DTAA. On this argument of the assessee on reading of DTAA with USA it emerges that the payment made by the assessee to Paul, Hastings, Janofsky & Walker LLP for assisting in the contempl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee may be able to carry out such risk assessments in the future itself. Thus, the non-resident has made available no knowledge or technology or skill to the assessee as such that it would fall within the definition of 'fees for technical services' as per the Indo-Singapore DTAA. The assessee's argument on this ground is not acceptable since control risk has through their expert knowledge carried out a risk assessment in India and based on their work issued a report and provided consultancy services to the assessee. The report issued by them is property of the assessee company and can be used by them any manner. Control Rick Group by issuing report has made available to the assessee company their knowledge and technical skill through the contents of their report. The services rendered by them is therefore covered in the definition of technical and consultancy services as contemplated in Article 12 of DTAA with Singapore. It is further observed that U/S 195(1) and obligations on the part of the persons that responsible for paying to non-residence arises on payment of non-residence recipient in respect of other goods/services supplied by the non-residence which the reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arise in India. Therefore, the services rendered by Paul Hastings, Janofsky and Walker LLP to the appellant company shall fall within the ambit of section 9(1)(vii) of the Act. It is seen that once a particular income of non-resident is chargeable to tax in India, it is to be seen whether double taxation avoidance agreement between the country of residence of the non resident and India allowed any relief from such double taxation. M/s Paul Hastings, Janofsky and Walker LLP is a resident of USA and thus the provision Indo-US DTAA shall apply. The legal services rendered to the appellant were rendered by the firm of individuals and not a company as is evident from the copies of invoice, which is a limited liability partnership firm, which is covered by Article 15 of Indo-US DTAA. The provision of article 15 are reproduced hereunder:- "ARTICLE 15 - Independent Personal Services 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d furnishing of services as envisaged by section 9(1)(vii). It is submitted by the appellant that mere issue of a report does not lead to any technical/consultancy services being rendered by a non resident to the appellant. In this regard, the appellant has relied upon the Bombay High Court judgment in the case of Diamond Services International Pvt. Ltd. vs. UOI 304 ITR 201 [2008]. It is submitted by the appellant that even if the said remittance is treated as technical services as per section 9(1)(vii), the chargebility of such services needs to be examine with reference to Indo-Singapore-DTAA. As per the said DTAA the fees payable for technical services is covered by Article 12 of the Indo-Singapore-DTAA. The provision of Article-12 of said DTAA are reproduced hereunder:- "4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature [including the provisions of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the ld. Counsel for the assessee argued that the consultancy services provided by M/s. M/s. Paul, Hastings, Janofsky & Walker LLP are not covered under article 12 of India US DTAA as the make available condition is not satisfied. It was vehemently argued that technical or consultancy services obtained from any entity in US must be made available to resident of India in order to attract TDS provisions in terms of provisions of section 195 read with Article 12 of the DTAA. In support of this contention, the ld counsel placed reliance on latest decision of Mumbai ITAT in the case of Linklaters LLP v. DCIT [2017] 79 taxmann.com 12. It was also argued that even in case the services rendered falls under article 15 of the DTAA, still there would not be any case of TDS since the service provider does not have any PE in India and neither any personnel has stayed for period more than 90 days in India. 116. With respect to disallowance of Rs. 43,02,192/ being payment made to Control Risks Group (S) Pte Ltd, a Singapore based company, the ld counsel submitted that the payments are for issuance of risk assessment report which is not made available to assessee in India. It was stressed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been paid to the trust without deduction of TDS. The AO has made the disallowance u/s 40(a)(ia) of the Act. The CIT(A) has deleted the disallowance on the ground that the said entry is merely a pass through entry and assessee has not claimed any deduction in profit and loss a/c. The relevant finding of CIT(A) is as under : "29.12 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and provisions of section 40(a)(ia) of the IT Act. It is seen that appellant was owner of property on which school building was constructed. This school building alongwith land was given on rent to M/s Shriram School, Gurgaon vide lease deed dated 27.12.2000. There was some dispute about the holdings of the property within the group companies. Therefore, the said property was the subject matter of an arbitration. As per arbitration award dated 29.10.2001, copy of which is filed at page 73 to 129 of the appellant's submission dated 08.05.2012, the said property was awarded in favour of DLF Qutub Enclave Complex Educational Charitable Trust. Therefore, the rent received from the Shri Ram School was the income of the above said trust. However, since the lease deed was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, observation of the ASSESSING OFFICER and the certificates issued by ITO TDS Ward 49(4), New Delhi. It is seen from the certificates which were issued on 06.11.2006 that amount which were to be paid by the appellant during the year of Rs. 28,70,484 + Rs. 6,75,408 and Rs. 590976/- + Rs. 506556/- in respect of M/s DLF Qutub Enclave Complex Educational Charitable Trust and M/s DLF Qutub Enclave Complex Medical Charitable Trust respectively was clearly mentioned in the column "amount of rent expected to be realized during F.Y. 2006-07". These certificates were signed by ITO TDS Ward 49(4), New Delhi and same are filed before me from page 170 to 175 of the appellant's submission dated 08.05.2012. In view of the above it is established that the certificates issued by the ITO were meant for the entire amount mentioned in the certificates and not for the amount payable/paid for the months November 2006 to March, 2007. The ASSESSING OFFICER has not appreciated the certificates issued by the ITO TDS Ward 49(4), New Delhi, in its proper prospective and disallowance of Rs. 27,08,664/- made on account of Non Deduction of TDS was not justified. Hence, the same is deleted." 123. The ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS, the claim of the assessee is legally sustainable. 129. The ld. CIT DR relied upon the order of AO. On the other hand, the ld. Counsel for the assessee argued that as the TDS has been deducted and deposited on assessee's PAN and rental income being transferred by way of overriding title, the assessee is eligible to claim the TDS. 130. We have considered the rival submissions. The Assessing Officer has not allowed the benefit of claim of TDS which is in respect of rental income from Shri Ram School. The Assessing Officer observed that as the rent has not been offered as income by the appellant, it is not entitle to claim of TDS. The CIT(A) has allowed relief on the ground that rent has been transferred to DLF Qutub Enclave Complex Educational Charitable Trust, but as TDS is in the name of appellant, benefit of same is to be allowed to appellant. We are not impressed with the finding of the CIT(A). The appellant having transferred the rent to DLF Qutub Enclave Complex Educational Charitable Trust, the TDS is also required to be transferred. The claim of TDS is directly related to the issue of rent. If the rent belongs to another entity, the TDS is also to be transferred and to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 136. We have heard the rival submission and considered the order of the ITAT for A.Y. 2006-07. Whereas the Ld. AR relied on the order of ITAT, the ld. CIT DR has relied on order of the AO. However, the ld. CIT DR was fair enough to accept that this issue is covered in favour of the assessee vide order of ITAT for A.Y. 2006-07. In view of the above position, no interference is called for in the order of CIT(A) and accordingly this ground of revenue is dismissed. 137. Ground No. 30 is against deletion of addition of Rs. 5,14,734/- on account of mismatch in TDS certificates. The AO has made the addition purely on the basis of working submitted by Special Auditor in which this amount was considered as additional rental income after allowing deduction @ 30% u/s 24 of the Act. The CIT(A) deleted the addition by observing as under : "35.13 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and various judicial pronouncement relied upon by the appellant. It is seen that as per the reconciliation submitted by the appellant, the difference in income as per books of account and TDS certificates is on account of either the payee deducted the excess T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at the time of payment, the same cannot be made basis for considering any addition. It was further submitted that the disallowance of TDS credit is revenue neutral exercise as the assessee has paid taxes on such advance rent in subsequent AY 2008-09. 142. We have heard the rival submission and considered the order of the ITAT for A.Y. 2006-07. Whereas the Ld. AR relied on the order of ITAT, the ld. CIT DR has relied on order of the AO. However, the ld.CIT DR was fair enough to accept that this issue is covered in favour of the assessee vide order of ITAT for A.Y. 2006-07. In view of the above position, no interference is called for in the order of CIT(A) and accordingly this ground of revenue is dismissed. 143. Ground No. 32 is against deletion of addition of Rs. 1,36,81,610/- on account of substitution of sale price of shares by NAV of the shares of Diwakar Estates Ltd. and Monishka Builders & Developers Pvt. Ltd.. The relevant observation and finding of AO and CIT(A) are extracted hereunder : Observation and finding of AO (Page 474 to 475 of the assessment order) "I have considered the reply of the assessee and find that the argument of company for justification in sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Y. 2005-06 at the face value of Rs. 10 each. Similary the shares of Diwakar Estates Pvt. Ltd. were purchased in F.Y. 2003-04 of Rs. 10 per share. The appellant has sold shares of these companies to DLF Home Developers Ltd another subsidiary of the company at par. In the assessment proceedings, the ASSESSING OFFICER has held that NAV of the shares of Monishka Builders and Developers Pvt. Ltd. as on 31.03.2007 was Rs. 184.47/- similarly the NAV of the shares of Diwakar Estates Pvt. Ltd. was Rs. 6359.53/- as on 31.03.2007. Therefore, for calculating the capital gain ASSESSING OFFICER adopted the NAV as fair market value of the shares transferred during the F.Y. 2006-07 and added capital gain of Rs. 1,36,81,610/- to the appellant's income. It is claimed by the appellant that shares have been sold to the group company at Rs. 10/- per share and there was no income on account of sale of these shares. It is also claimed by the appellant that it is not the case that any underhand payment has been received by the appellant. The appellant has also contended that actual sales consideration cannot be replaced by the Fair Market Value. In the appellate proceedings it was submitted by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from sale of transactions. Hence, the Assessing Officer was not justified in substituting the sale price of shares of Diwakar Estates Pvt. Ltd. and Monishka Builders and Developers Pvt. Ltd. at Rs. 6359. 53 and Rs. 184.47/- respectively per share as against Rs. 10/- per share received by the appellant. Hence the estimation of long term capital gain of Rs. 1,36,81,610/- was not justified and deleted. In support of my above decision reliance is placed on following judicial pronouncements. K.P. Varghese vs. Income-tax Officer [1981] 7 TAXMAN 13 (SC) Commissioner of Income-tax vs. Shivakami Co. (P.) Ltd. [1986] 25 TAXMAN 80K (SC) Commissioner of Income-tax v. Smt. Nandini Nopany [1998] 230 ITR 679 (CAL.) The facts of the above cited judicial pronouncements are identical with the facts of the appellant's case. Therefore the ratio of the said judgments is squarely applicable to the appellant's case. Hence the long term capital gain estimated by the ASSESSING OFFICER by substituting the sale price with NAV as against the actual sale price of Rs. 10/- per share of Diwakar Estates Pvt. Ltd. and Monishka Builders and Developers Pvt. Ltd. was not correct, therefore addition on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to the employees and other group companies. As explained by the appellant that Jhandewalan Property belong to the appellant since so many years but same was given on rent to M/s DCM Ltd. and Nestle India Pvt. Ltd. When the said property was given on rent those companies took electricity connection and water connection on their name. Though the property has been vacated by those tenants and being used by the appellant but the electricity and water connection is still running in their names. These expenses have been incurred wholly and exclusively for the business purposes of the appellant as these premises are being used by the appellant for its office purposes. Merely because the water and electricity bills are in the name of earlier tenants the same cannot be disallowed. It is also submitted by the appellant that water and electricity bill in the name of Raisina Cold Storage are also being utilized by the appellant for its business purposes. This company has been merged with the appellant, therefore, these expenses also pertains to the appellant's business purposes. The reimbursement made to the employees and group companies for the expenses incurred by them on behalf of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) of the Income Tax Act which provides that in the case of assets acquired before the previous year written down value means the actual cost to the appellant less all depreciation actually allowed under the Act. From the facts and the judgment of Hon'ble Supreme Court in the case of CIT vs. Doomdooma India Limited (2009) 178 Taxman 261 (SC), it is clear that the depreciation is to be allowed on the basis of actual WDV and same cannot be reduced on notional basis for the period for which property was not used for business purposes and no depreciation was claimed on such part of the property. From the facts as narrated above and respectfully following the judgment of Hon'ble Supreme Court in the case of CIT vs. Doomdooma India Limited (2009) 178 Taxman 261 (SC) and the judgment of the CIT(A)-XVIII in the case of the appellant for A.Y. 2006-07, the disallowance of depreciation of Rs. 8,09,837/- made by the ASSESSING OFFICER is deleted." 150. The ld. CIT DR relied upon the order of AO. On the other hand, the ld. Counsel for the assessee supported the order of CIT(A). It was further argued similar disallowance was made in preceding AY 2006-07 and the deletion of such disallowance by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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