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2019 (4) TMI 562

come earned by the assessee, no disallowance can be made u/s 14 A as held by the honourable Delhi High Court in case of Cheminvest vs CIT [2015 (9) TMI 238 - DELHI HIGH COURT]. Therefore, respectfully following the decision of the honourable Delhi High Court no disallowance can be made u/s 14 A of the income tax act in case of the assessee wherein it has not earned any exempt income. Accordingly the orders of the lower authorities are reversed and the learned assessing officer is directed to delete the above disallowance. - Addition account of unchanged S. Creditors u/s 41(1) - unchanged in the creditors for last 3 years - assessee company is a public limited company and - All the amount of the creditors in the financial statement of the company had itself admitted liabilities - HELD THAT:- merely because such creditors are stagnant the liabilities do not ceased to exist. Hence no addition can be made under section 41 (1) as held by the honourable Supreme Court in COMMISSIONER OF INCOME-TAX VERSUS SUGAULI SUGAR WORKS PVT. LIMITED [1999 (2) TMI 5 - SUPREME COURT] and the honourable Delhi High Court in CIT VERSUS HOTLINE ELECTRONICS LTD [2011 (12) TMI 90 - DELHI HIGH COURT]. - .....

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aim in accordance with law after affording proper opportunity of hearing to the assessee. - ITA No. 4757/Del/2015, ITA No. 5145/Del/2015 - 5-4-2019 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Rajesh Arora, CA For the Revenue : Shri K. Hauthang, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. These are the cross appeals filed by the assessee and the learned AO against the order of The Commissioner Of Income Tax (Appeals) - 9, New Delhi dated 24/3/2015 for AY 2011-12. 2. The brief facts of the case show that assessee is a company engaged in the business of real estate development and related activities during the year under consideration. Assessee filed its return of income under section 139 (4) of the act on 30/3/2012 declaring income of INR 86348010/- . However, the assessee paid taxes under the provisions of section 115JB of the act. The return of the assessee was picked up for scrutiny and the learned assessing officer passed an assessment order u/s 143 (3) on 26/2/2014 at the assessed income of ₹ 119118713/-. The learned assessing officer disallowance u/s 14 A of the act of INR 2304177/-, addition of ₹ 4147 .....

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the purpose of the business and has not utilized the above borrowing for making investment in those equity shares. It was further stated that assessee has the reserve and surpluses of 34 9, 00, 00,000 which is more than sufficient to make the investment during the year. Assessee also submitted that it does not have any exempt income and therefore there cannot be any disallowance u/s 14 A of the act. The learned AO considered the submission of the assessee and stated that it is not acceptable, as assessee has failed to prove the sources of the investment made in the tax-free dividend yielding investment. The learned AO also rejected the explanation of the assessee that it did not have any exempt income relying on the decision of the special bench of the ITAT. Therefore the disallowance u/s 14A applying rule 8D computed the interest disallowance of INR 1 577693 and other expenditure of INR 7 26484, thereby, computing total disallowance of INR 2304177/- . 5. On appeal before the learned CIT - A the reasons given by the learned assessing officer were upheld. The learned CIT - A also relied upon the decision of the honourable Delhi High Court in case of Maxopp Ltd vs CIT 203 taxman 364 .....

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d that there are so many unchanged in the creditors for last 3 years and therefore the authorised representative was asked to show cause why the same should not be treated as a liability ceased to exist. The assessee submitted the list of such creditors, explained that party wise position, submitted that since the assessee company is a public limited company, and listed on stock exchange all the documents of the company are public documents. All the amount of the creditors in the financial statement of the company had itself admitted liabilities and therefore it cannot be written off without mutual consent with the creditors because any creditor can shoot the company for the balance due to him. Hence, there are some creditors, which are stagnant from last 3 years cannot be written off without the consent of the creditors. The learned AO noted that there are 10 parties whose outstanding balance is INR 1098998/- which remained unchanged from financial year 2008 - 09 until 2010 - 11. Therefore, the learned AO noted that as assessee has failed to provide any confirmation from the above parties and in some of the cases the addressee is provided were also not complete. Therefore, the lea .....

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nt of payment of compensation. Brief facts of the expenditure shows that in the profit and loss account the assessee has claimed general and miscellaneous expenditure of INR 3 1873458 out of which it includes compensation payment of INR 2 6227500/-. The learned assessing officer noted that the assessee has debited these expenses to the profit and loss account, which are related to project expenses, and since the assessee is following project completion, method the same should not be allowed as expenditure in the profit and loss account for the year. The assessee explained that assessee was to launch some plot development and group housing schemes for which the company mobilized section of investors to invest in such properties. To attract them, plots in the group housing were offered at a very attractive price. However later on it was claimed that the company realized that it would not be viable for the company to deliver the project properties at such a low price and that if the company holds the stock the same can give better results in future. Consequently as a business decision, these investors were given exit after duly paying them the compensation on investment made by them. .....

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oject. Therefore, the above project cost of the new project should have included the cost of this compensation payment made. Even otherwise it was stated that there is no details available that how this compensation has been paid by the assessee to those investors. 17. The learned authorised representative 1st referred to the submission made by the assessee before the learned assessing officer and the learned CIT - A. He further stated that the issue has been considered in the case of DCIT vs vatika Township private limited 36 taxmann.com 283 by the coordinate bench where the identical compensation has been allowed. He further placed reliance on coordinate bench decision in case of M/s Gopaldas Estate and housing Ltd for assessment year 1997 - 98 wherein the above compensation was allowed as revenue expenditure. Therefore he submitted that the above said amount of compensation paid by the assessee for upcoming future project which was abandoned cannot be debited to the work in progress as there was no work in progress in respect of such project which could be charged to revenue in a percentage completion basis. He therefore submitted that the issue is not squarely covered in favour .....

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age completion method or project completion method. Further before us the assessee has submitted a paper book wherein at page number 46 the assessee has given a list of 45 persons to whom the sum of ₹ 26227500/- was paid as compensation. The claim of the assessee is that the project has been abandoned for which the booking has been taken by these investors and therefore over and above the amount invested they have been paid the compensation. However neither the assessing officer nor the learned CIT - A has verified that for which project the bookings were accepted and on what terms and whether the above compensation is the cost of the new project or not. It is also not known that what kind of property was booked by these investors. This is pertinent for the reason that claim of the assessee is that it has accepted the booking for plots and the group housing but later on in the same year it was found that the same is not viable. All these things happened in the one financial year. Therefore, it is necessary for the revenue authorities to look at the reasons for abandoning the project in such a short time. Naturally if the bookings are made for the plots in the group housing sc .....

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lied upon by the learned authorised representative of the coordinate bench does not apply to the facts of the case. 20. The second decision relied upon by the learned authorised representative is of Gopaldas estate and housing private limited of the coordinate bench. The above decision has reached the honourable Delhi High Court and the decision has been rendered in 103 taxmann.com 334 on 20/03/2019. In that particular decision the honourable Delhi High Court has noted that, the assessee developed 17-storied building and assessee follows the completed contract method. The project was completed in assessment year 95 - 96 and the assessee also paid compensation and 95 - 96 therefore the honourable High Court held that as the project itself has been completed in the same year it should be allowed in that year. Further as per para number 5 of the order this shows the fact that the spaces were allotted to various person who had been surrendering them for various reasons. Those persons have invested the money, which remained with the assessee for a number of years, and therefore they were compensated for the loss of the interest income on such investment. Further in para number 25 there .....

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