TMI Blog2019 (6) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... om the borrowed funds. Thus, no disallowance of interest can be made. Disallowance made under Rule 8D(2)(iii) as relying on ACB India Ltd vs. ACIT [ 2015 (4) TMI 224 - DELHI HIGH COURT] we direct AO only to include those investments while computing the average investments which have yielded exempt income, i.e., investment made in the partnership firm and mutual fund only, because investment made on unquoted shares have not yielded any exempt income. The calculation of average investment in partnership firm and mutual fund has been given by the learned counsel as has been incorporated above and accordingly we direct the AO to verify the same and work out the disallowance of 0.5%. Accordingly, appeal of the assessee is partly allowed. TDS u/s 194C - Disallowance u/s.40(a)(ia) for non-deduction of TDS on payment to Petron Civil Engineering Ltd - HELD THAT:- As decided in ISLAMIC INVESTMENT CO. VERSUS UNION OF INDIA AND ANOTHER. [ 2002 (3) TMI 3 - BOMBAY HIGH COURT] Interest paid in pursuance of decree of the Court which has to be discharged under the said decree, then it assumes the character of the judgment debt and hence judgment debtor is not liable to deduct tax at sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et and same too has to capitalization only. Accordingly, we agree with the contention raised by the ld. Special Counsel that this cannot be allowed separately u/s.37. Accordingly, ground raised by the assessee is dismissed. Addition on account of interest on late deposit of TDS - HELD THAT:- As decided in NARAYANI ISPAT PVT. LTD. [ 2017 (10) TMI 67 - ITAT KOLKATA] TDS amount is in the nature of tax of the deductee, i.e., other party and not that of the assessee and as such the interest on late deposit of TDS is allowable expenses u/s.37 of the Act. Disallowance of prior period expenses - HELD THAT:- Similar issue has arisen in assessee s own case for assessment year 2006-07 wherein the Tribunal has allowed the same nature of expenditures, after observing case of MODIPON LTD. (NO. 1) [ 2010 (12) TMI 836 - DELHI HIGH COURT] Disallowance of SEZ deduction u/s 80IAB - ownership of land on which SEZ has been developed is in dispute in view of decision of Hon'ble Punjab and Haryana High Court, and therefore, such a claim is inadmissible - HELD THAT:- The case of assessee has been that the land has been given on lease for a period of 30 years and lease rentals per a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment of infrastructure facility in SEZ and as such operations ostensibly are in the nature of business in terms of section 2(13). Thus, re-characterising the income as short-term capital gain by the AO is rejected. Disallowance of proportionate deduction - alternative finding AO that, since the land has been leased for 49 years, therefore, the income from sale of bare shell building should also be bifurcated and proportionate recognized over a period of 49 years - CIT (A) has discussed this issue in detail and has held that the lease is only in respect of land and same cannot be applied on transfer of building. In any case, the recognition of revenue relating to real estate projects is governed by AS-7 and the assessee has been consistently following POCM which has accepted by the Tribunal in assessee s own case for AY 2006-07. Hence, such a reasoning of the AO to disallow proportionate deduction cannot be sustained. Disallowance of Revenue recognition as per percentage of completion method (POCM) - HELD THAT:- This issue stands covered in favour of the assessee by the Tribunal in assessee s own case for the Assessment Year 2006-07 . Disallowance of interest pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the order of Honourable Punjab And Haryana High court. The assessee offered the entire amount as its income on settlement of disputes by the Honourable Supreme Court. Therefore, we hold that the assessee was acting on prudent and consistent accounting policy. 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 assessee has correctly recognised revenue in the year the issue attained certainty. Therefore on perusal of the decision of CIT (A) we are of the view that there is no infirmity in the order. Addition on account of net contingency deposit received - HELD THAT:- As decided in assessee's own case these are the security deposits which would be utilised in performance of the contractual obligation of the assessee towards those buyers. Anyway, it is not the case of the AO that these receipts have been received during the year, it is also not the case that the payers or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified. In any case, this amount has been subsequently paid and therefore, it cannot be treated as income in this year. Accordingly, the order of the ld. CIT (A) is affirmed. Disallowance /capitalization of preoperative expenses (on SEZ projects not commenced) - HELD THAT:- As decided in assessee own case the assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee. Hence, we confirm the order of CIT (A) and delete this ground of revenue s appeal Disallowance of expenses on projects not commenced - HELD THAT:- The assessee has incurred this expenditure on proportionate and feasibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K Charitable Trust 2008 (11) TMI 8 - SUPREME COURT] the revenue could not be permitted to agitate the very same issue in the year under reference Disallowance of expenses where bills are not in the name of the company - HELD THAT:- The bulk of expenses are in the nature of electricity and water expenses for which the name of erstwhile tenant has been mentioned. Similar issue was involved in the earlier year also, therefore, respectfully following the precedence this issue is decided in favour of the assessee and against the Revenue. Accordingly, the Revenue s grounds are dismissed. - I.T.A. No. 2126/DEL/2013 And I.T.A. No. 2749/DEL/2013 - - - Dated:- 27-5-2019 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ORDER PER AMIT SHUKLA, JM; The aforesaid cross appeals have been filed by the assessee as well as by the Revenue against impugned order dated 12.02.2013 passed by ld. CIT (Appeals)-XIII, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2008-09. We will first take up the assessee s appeal being ITA No.2126/D/2013, wherein the assessee in various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning the exempt income on the ground that the same has not been substantiated by the assessee for documentary evidences. He further rejected the assessee s contention that it has received interest at ₹ 426.08 crores against the interest expenditure claimed of ₹ 425.61 crores and the borrowed funds were used for giving loan to other subsidiary companies at a higher interest rate, therefore, the interest on which sums have been borrowed and assessee has not made any expenditure on earning interest free income or exempt income to warrant any disallowance, on the ground that same also remained unsubstantiated. AO further observed that assessee-company has not been able to establish flow of funds or any nexus. The assessee s contention is based on the presumption that entire investments have been made from the interest free funds available in the balance sheet as the assessee has not establish only flow of funds from its bank account into investment and establish that same is from interest free funds available only. He accordingly worked out the disallowance of 29.42 crore on account of interest expenditure under Rule 8D(2) and further made disallowance of administrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessors) Pvt. Ltd. for acquiring shares of said company. The appellant had paid ₹ 7.93 crore as interest on the loan taken from ICICI Bank which has been specifically taken for making investment in shares of M/s Edward Keventor (Successors) Pvt. Ltd. (page 203 of AO s Order). The other loans 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 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.l. (directly related to exempted income) (A x B / C) 0.54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: (Rs. in crores) 31.03.08 31.03.07 31.03.06 31.03.05 31.03.04 - Quoted Mutual Funds 31 10 - - - - Quoted Shares - Unquoted Shares 1633 588 565 133 133 - Partnership Firm 90 84 49 41 45 (b) Details of exempt income: Particulars Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Opening as on 01/04/2007 = ₹ 84+10 cr. Closing as on 31/03/2008 = ₹ 90+31 cr Total ₹ 215 cr Average investment = ₹ 107.50 cr. Disallowance being 0.5% of ₹ 107.50 cr. = 53.75 lakhs. 9. Before us, ld. Special Counsel appearing on behalf of the Revenue strongly relied upon the order of the Assessing Officer and further submitted that in so far as strategic investments are concerned, the same cannot be removed for the purpose of calculating the disallowance in view of the judgment of Hon'ble Supreme Court in the case of Maxopp Investment Ltd v/s CIT, 402 ITR 640 (SC). He further submitted that the assessee has to establish the nexus and the link between the borrowed funds and its utilization so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, we find that, not only the ld. CIT (A) has properly examined the utilization of interest bearing funds for the assessee which was purely for the purpose of business but also from the bare perusal of the balance sheet, it is seen that the interest free funds available with the assessee in the form of reserves and surplus far exceeds the total investment made in shares/partnership firms including the investment made in the shares of M/s. Edward Keventor P. Ltd. which has been stated to be strategic investment. If that is so, then no disallowance u/s.14A can be made. This proposition has now been confirmed by the Hon'ble Supreme Court in the case of CIT vs. Reliance Industries Ltd. in civil appeal no.10 to 13 of 2019 judgment and order dated 23rd March, 2019, wherein the Hon'ble Supreme Court has upheld the proposition that if assessee has interest free funds available sufficient to meet its investment, then it can be presumed that the investment have been made from interest free fund available with the assessee and not from the borrowed funds. Thus, no disallowance of interest can be made. 11.1 In so far as disallowance made under Rule 8D2(iii), o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated in the nature of compensation and as such the same does not fall in the category of normal payment made against any contractual work and accordingly not liable for TDS. A perusal of the arbitration award shows that the award of ₹ 1,29,52,790/- has been determined as under: Claim No. 1 45,00,000.00 Claim No. 2 44,54,100.00 Interest Amount 39,98,690.00 1,29,52,790.00 Claim No. 1 was refund of ₹ 45,00,000.00 retained by DLF Ltd. Claim No. 2 of ₹ 44.54.100.0 is in respect of payment due against 36th final bill and the Interest amount of ₹ 39.98.690.0 was calculated @ 10% per annum on ₹ 44,54,100.00 from 01.03.1998 till 28.02.2008. This clearly shows that the payment made against claim No. 1 and claim No. 2 was against running bills raised by Petron Civil Engg which were disputed by DLF Ltd. The payment made against claim no. 1 and claim no. 2 is contractual payment and covered with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t : ₹ 39,98,690 Total : ₹ 1,29,52,790 The appellant made the payment of the said amount as per terms of arbitration award which was decreed by the court and accepted by both the parties. The assessing officer has considered the disallowance u/s 40(a)(ia) on the ground that appellant should have deducted TDS u/s 194C at the time of payment of amount mentioned in Claim No.l and 2 u/s 194A on interest component. 16. Ld. Counsel submitted that both the authorities have failed to consider the nature and character of the payment because, firstly, assessee has denied its liability towards M/s. Petron Civil Engineering Pvt. Ltd. and there was claim and counter claim by both the parties and it could not be said that final payment of the decreed amount is in the nature of contractual charges especially when assessee has disputed the bill and in return has demanded damages. Such arbitration award for compensation cannot be said to be under a contract or in pursuance of contract, and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and both the parties had made claim and counter claim from each other and the Arbitral Tribunal has given award in favour of the sub-contractor, then such an award assumes the character of a judgment debt ; and when an amount becomes a part of judgment debt, then it loses its original character and becomes a judgment debt. In such a situation, judgment debtor is not liable to deduct tax at source either on the amount of the award or a decree including the interest component of the decree/award, because it cannot be said to be arising out of a contract or any income/interest accruing any provision of the Act. The Hon'ble Supreme Court in the case of All India Reported Ltd. vs. Ramchandra D. Datar, AIR 1961 SC 943, has held that, where any amount becomes a part of the judgment debt, it loses its original character and assumes a character of the judgment debt and once such an amount assumes a character of the judgment debt, the decree passed by the civil court must be executed. This principle has been followed by the Hon'ble Bombay High Court in the case of Islamic Investment Co. vs. UOI (supra) and Madhusudan Shrikrishna vs. Emkay Exports (supra). In both the judgment, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival submissions and perused the material on record. The ground is regarding addition of ₹ 12,60,000/- as rental income. The Assessing Officer observed that the assessee was owner of Kiosks installed at Malls which were leased to various parties at the lease rent of ₹ 18,00,000/- per annum. The Assessing Officer after accepting statutory deduction of 30%, considered the net rental income at ₹ 12,60,000/-. The CIT(A) confirmed the finding of the Assessing Officer. 43. The appellant contended that M/s. DLF Services Ltd. was appointed as maintenance agency for upkeep and maintenance of Mall, owned and run by appellant. For maintenance services being rendered by DLF Services Ltd., the appellant assigned the lease rental to DLF Services Ltd. as part of maintenance cost. The appellant contended that the diversion of lease rent was towards reimbursement of maintenance services rendered by M/s. DLF Services Ltd. and as such diversion was towards provisions of maintenance services. It was further contended that the rental income as diverted to DLF Services Ltd. has being subjected to tax in the case of M/s. DLF Services Ltd. and there is no case of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st and finance charges were charged in the P L account in respect of loan taken for windmill projects, and also date-wise details of loan fund and own fund used in the windmill project, the ld. Assessing Officer held that claim of interest and processing charges @ 40% needs to be capitalized in view of the proviso to Section 36(1)(iii) read with Explanation 8 to Section 43(1) of the Act. The relevant observation of the Assessing Officer in this regard reads as under: 24.5 The reply of the assessee has been considered and the only contention of the assessee is that the interest expenditure has been claimed according to the AS-16. However it is to be observed that a particular expenditure is allowable as per the Income Tax Act and the allowability of expenditure is not governed by Accounting Standards. The allowability of interest expenditure is governed by section 36(l)(iii) of the Income Tax Act and it clearly states that: (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st disallowance ₹ 1,19,51,123 Processing Fees Disallowance ₹ 96,00,000 Total ₹ 2,15,51,123/- 28. Ld. CIT(A) too has confirmed the said addition. 29. Before us, learned counsel for the assessee submitted that there is no ground or justification for capitalizing the claim of loan processing charges to the extent of ₹ 96 lac out of claim of ₹ 1,60,00,000/- as the same is allowable u/s.37 and proviso to Section 36(1)(iii) read with Explanation 8 of Section 43(1) is only applicable in respect of claim of interest and not on loan processing charges. Thus, this amount should be allowed out of total disallowance made by the Assessing Officer. 30. On the other hand, ld. Special counsel submitted that the processing charges paid to the bank is part of the same loan agreement and if interest is to be capitalized then processing charges cannot be segregated to be allowed separately. 31. After considering the rivals submissions and on pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on income-tax refund and balance amount was offered as interest income. The interest paid on late payment of TDS is not an allowable expenditure u/s 37 of the IT Act. This is not an expenditure wholly and exclusively for the purposes of the business of the appellant company, therefore same is not an allowable expenditure. Hence, the disallowance of set off of interest payment on late deposit of TDS against the interest received on income tax refund was justified and same is confirmed. 35. Before us the learned counsel submitted that in an identical issue, ITAT Kolkata Bench in the case of DCIT vs. M/s. Narayani Ispat Pvt. Ltd., ITA No.2127/Kol/2014, order dated 30.08.2017 wherein it was held that TDS amount is in the nature of tax of the deductee, i.e., other party and not that of the assessee and as such the interest on late deposit of TDS is allowable expenses u/s.37 of the Act. In support, following observations and findings of the Tribunal in para 7 was referred: - ...in the case before us the interest was paid for delayed payment of service tax TDS. The interest for the delay in making the payment of service tax TDS is compensatory in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own by the Hon ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand. Thus, in our considered view, the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1 of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s.37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of the ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed. 36. Before us, the ld. Special Counsel for the revenue submitted that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowable as business expenditure. The relevant observation of the Hon'ble Court reads as under: The liability for deduction of tax arises by reason of the provisions of the Act. Under s. 201, the consequence of failure to comply with the same renders that person liable to be deemed as an assessee in default with all the consequences attached thereto. The liability to pay interest on the amount not deducted or deducted but not paid is directly related to the failure to deduct or remit the amount. The amount required to be deducted is the amount payable as income-tax. The interest paid for the period of delay takes colour from the nature of the principal amount required to be paid, but not paid within time. The principal amount here would be the income-tax and the interest payable for delayed payment is the consequence of failure to pay the tax and in the circumstances, in the nature of a penalty though not described as such in sub-s. (1A) of s. 201 of the Act. The fact that the income-tax required to be remitted was not income-tax payable by the assessee, but is ultimately for the benefit of and to the credit of the recipient of the income on whose behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mi Sugar Mills Co. (supra), had claimed deduction of interest paid on arrears of sugarcane cess. The payment of sugarcane cess, as it was observed by the Court in the case of Bharat Commerce Industries (supra), is very much a part of the assessee's business expense and any interest on arrears of cess would, therefore, take colour from the cess which is payable, that it was an indirect tax which had to be paid in the course of carrying on business. 7. Learned counsel for the assessee placed reliance on the judgment of the apex Court in the case Mahalakshmi Sugar Mills Co. (supra). As pointed out by the apex Court in its later judgment in the case of Bharat Commerce Industries (supra), the cess which was considered in the case of Mahalakshmi Sugar Mills Co. (supra) was an indirect tax payable in the course of the business of the assessee and the interest paid on the arrears of the cess took colour from the cess which was paid. 8. Learned counsel for the Revenue also referred to the decisions of the Bombay High Court in the case of Ferro Alloys Corpn. Ltd, vs. CIT (1992) 196 ITR 406 (Bom) : TC 17R.817 and the decision of the Calcutta High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure. 39. Since, this is the only judgment of the Hon'ble High Court brought to our notice and no contrary decision of any High Court has been cited by from the side of the assessee, therefore, as judicial precedence we are persuaded to follow the same and accordingly, we hold that such an interest on late payment of deposit of TDS cannot be allowed as expenditure u/s.37. Consequently, this issue is decided against the assessee. Department s appeal: 40. Now, we come to the Revenue s appeal wherein the Revenue has challenged various additions. 1. Deletion of addition on account of disallowance of prior period expenses - ₹ 55,36,471/-; 2. Deletion of addition on account of disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Deletion of addition on account of disallowance/capitalization of expenses on SEZ Projects not commenced. - ₹ 1,26,11,958/-; 15. Deletion of addition on account of disallowance of expenses on projects not commenced. - ₹ 1,30,38,853/-; 16. Deletion of addition on account of disallowance of expenditure U/s 40(a)(i)(a) of the I.T. Act for non-deduction of TDS on payment to two Trusts. ₹ 7,37,222. 17. Deletion of addition on account of reconciliation of rental income as per TDS Certificates and withdrawal of TDS credit:- ₹ 9,94,187/-; and Deletion of withdrawal of credit of TDS ₹ 712257/-; 18. Deletion of addition on account of reclassification of income from income from house property to income from business and profession.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year, therefore, all these expenses were crystallized during the year. Ld. Assessing Officer, however, disallowed the amount of ₹ 55,36,471/- which was on account reimbursement relating to employee s; and legal and professional expenses. 43. Ld. CIT(A) relying upon the judgment of Hon'ble Delhi High Court in the case of CIT vs. Modipon Ltd., 334 ITR 102 (Del) has allowed the appeal. 44. After considering the rival submissions, we find that precisely similar issue has arisen in assessee s own case for assessment year 2006-07 wherein the Tribunal has allowed the same nature of expenditures, after observing and holding as under: 231. We have carefully considered the rival contentions. ₹ 18.51 lakhs were regarding to the leave travel assistance claims of the assessee an ₹ 63 lakhs were on account of reimbursement and telephone and conveyance expenses of the assessee. These expenses were disallowed by the AO. The details of these expenses are enclosed as per Annexure A at page 101 along with explanatory statement. These bills are pertaining to the regular staff of the employees and are payable and paid at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IAB. 48. Ld. Assessing Officer after considering the assessee s submission in this regard and strongly relying upon the judgment and order dated 03.02.2011 passed by Hon'ble Punjab and Haryana High Court in respect of assessee s land, came to the conclusion that the acquisition of land for development of SEZ has been held by the Hon'ble High Court to be illegal and the Court s order strike to the very root of the notification issued under the SEZ Act, 2005 for the development of SEZ, and therefore, SEZ itself becomes illegal from the date of inception. According to the AO, under section 80IAB, the deduction is available only in respect of profits and gains by an undertaking or enterprise engaged in the development of SEZ, but the assessee-company is not entitled for claim of deduction u/s.80IAB, because land on which SEZ has been constructed has been found to be acquired by the assessee fraudulently. 49. On the other hand, assessee s reply was that the approval granted by the Board of approval for SEZ has remained untouched despite of the High Court order, and therefore, assessee under the law was entitled for claim of deduction u/s.80IAB. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the profits arising from the activity of transfer/sale of constructed buildings in the SEZ notified land by DLF Ltd. to DLF Assets Ltd. will qualify for deduction under section 80 IAB. * Transactions undertaken between DLF Ltd. and DLF Assets Ltd. amount to transfer of bare shell buildings between the two entities. Why nature of income derived from the co-developer agreement should not be treated as onetime income arising from transfer of assets and why the transaction should not be treated as sold. In this connection, you may note that the Addendum to co-developer agreement clearly states that on expiry of term of lease, the co-developer shall make best efforts to dispose off the warm shell which further shows that he has complete and unfettered rights over the buildings thereby implying that the assessee has basically sold the bare shells to the co-developer and as a result of such sale generated income from the business of development and therefore not eligible for deduction. Further, the Co-developer i.e. DLF Assets Ltd. has reflected the same as Fixed Assets in its books of accounts and not as Business Asset . Thus, looking at it from another angle, plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ums commensurate with the sale value of the land as is evidence from para-4 of the letter dtd. 26.05.2009 sent by the Director (ITA-1) CBDT to the Department of Commerce and Industry. Thus, the disclaimer vide point 3 (XVII) of the co-developer approval letter, on which the Assessing Officer has relied upon is not applicable to the transfer of bare shells and coldshells for a consideration. The transfer of bareshells and coldshells for a consideration was approved as authorized operations as per the approval issued by Board of Approvals. The Ministry of Commerce in their clarification issued on 18.01.2011 has explicitly clarified that all leases of land are subjected to general condition contained in para 3(xvii) of letter dated 01.06.2009 and this general condition is applicable to the terms and conditions of the land lease agreement only. 8.26 Keeping in view, the discussions above it is clear that the appellant has been duly approved by the Board of Approvals as a developer, the land owned by the appellant in Sector-30 of Gurgaon was notified by the Govt. of India for establishment of SEZ, the authorized operations to be undertaken in the proposed SEZ were appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has stated that the Indian Law recognizes separate ownership of the land and building and this position has been recognized by various High Courts including the Hon ble Supreme Court wherein it has been held that the maxim, what is annexed to the soil goes with the soil has not been accepted as an absolute rule of law of this country. In the following judgments the Hon ble Courts have held that a person who bonafidely puts up constructions on land belonging to others with their permission would not be a trespasser, nor would the buildings so constructed vest in the owner of the land. (i) Park View Enterprises Vs State Govt. of Tamil Nadu [1991] 189 ITR 192. (ii) The Privy Council in Narayan Das Khettry v. Jatindra Nath Roy Chowdhry, AIR 1927 PC 135, has also taken the view that having regard to the law in India it is possible to have separation of ownership of the building from the ownership of the land. (iii) This view of the Privy Council was approved by the Supreme Court in Bishan Das v. State of Punjab, AIR 1961 SC 1570. Therefore, in view of the above judicial pronouncements, land is an independent, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icially recognized preposition that in case of contracts or business of construction, in order to ascertain the income, one need not wait till the contract is completed. The Assessing Officer however cannot apply any other method for recognizing the revenue and has to accept the accounting policy followed by the appellant, therefore, when the appellant has recognized the income following percentage of completion method as per AS-7 issued by the Institute of Chartered Accountants of India, the profits derived on account of development considerations of bare shells would constitute the profits and gains derived from business of developing any Special Economic Zone within the meaning of Section 80 IAB of the Act. The claim of deduction U/s 80 IAB is a valid claim considering the overall facts of the case. The accounting treatment of warm shells by the co-developer in its books of accounts as an asset would not make any difference as far as the appellant is concerned. The admitted fact remains that the appellant has computed its income under the Percentage of Completion Method (POCM) which is prescribed for calculating profits and gains of business of real estate deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Assessing Officer notwithstanding with her decision holding the income from transfer of bare shells as income from capital gains has further held that even if the income from transfer of bare shell was to be treated as development income from SEZ, the entire income was relatable to 49 years spread over the period of 49 years lease. From the discussions in earlier paragraphs it is an admitted fact that the appellant has leased out only the land. The bare shell buildings have not been leased out but transferred to the co-developer for a agreed consideration which has been approved by the Board of Approvals. Therefore, to link the transfer consideration of bare shells with the period of lease of land is totally irrelevant in the facts of the appellant s case. It is a fact that the appellant has adopted rent capitalization method for determining the development consideration of bare shells but the period of lease is again irrelevant in such determination because the rent capitalization method includes theory of determination of market value of building having regard to net operating income yielded by the property in a year or average of multiple years. Such method o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of tax holiday U/s 80 IAB of the Income Tax Act, 1961, the appellant has got its accounts audited from an independent accountant specifically for quantification of the deduction admissible to the appellant. It is a statutory requirement that the independent auditor has to certify the computation of deduction admissible U/s 80 IAB of the Income Tax Act, 1961. The appellant has brought to my notice the statutory report in Form No.10 CCB dated 29.09.2008 which has also been filed in the paper book wherein the deduction has been computed at ₹ 1119,06,82,702/-. The AR has also contended that the tax auditors also while finalizing the report U/s 44 AB of the Act have verified the deduction admissible to the appellant U/s 80 IAB and has certified the same in the Tax Audit Report. It has been contended that the appellant is a pioneer in the real estate business and had been executing projects for more than six decades. The expenditure under various heads proposed to be allocated to the SEZ Project by the Special Auditors had all along been incurred by the appellant over the years and have been allowed to it under the provisions of the Income Tax Act, 1961. It h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependently done and set aside the matter back to the file of the Tribunal to decide afresh and in accordance with law. The relevant observation of the Hon'ble High Court reads as under: In the present appeals, the ITAT has merely followed the decision rendered in a previous order. The earlier decision in this regard is the one rendered in 2007-08 in the case of DLF Infocity Developers (Chennai) Ltd. There, the Assessing Officers' (AO) order granting deduction u/s 80IAR was interfered with by the CIT(A) u/s 263 of the Income Tax Act, 1961 . The ITAT proceeded to set-aside the order, holding on merits that the assessee was entitled to the deduction claimed. That order has been followed on merits by the ITAT in the current A. Y 2009-10 and 2010-11. This Court is of the opinion that the ITAT's decision merely reproduced that CIT(A) 's judgement and has not analysed independently, in either of the AYs the applicability of Section 80IAB towards the education claimed in the light of the transactions reported and the documents disclosed. Furthermore, those facts have also to be analysed in the light of the provisions of SEZ Act, 2005, which the ITAT has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv. It is seen that section 3(8) of SEZ Act specifically states that the Central Government may prescribe the requirements for establishment, namely: a. The minimum area of land and other terms and conditions subject to which Board shall approve, modify or reject any proposal received by it under sub section(2) to (4); and b. the terms and conditions, subject to which the Developer shall undertake the authorized operations and entitlements. v. Further section 3(11) of SEZ Act while referring to the agreement between developer and co-developer stipulates that section 3(8) quoted above shall apply to the said proposal. Thus, the condition regarding examination of taxability of the transactions by Assessing officer is one of the main requirements subject to which the Co-developer agreement has been approved by competent authority. vi. Section 7 of SEZ Act further restricts the exemptions of Developer from taxes, duties of cess to any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area thus clearly specifying the activities for which exemption from tax will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prevalent Income Tax Act and Rules. The Assessing Officer, will have the right to examine the taxability of these amounts under the income tax Act. Copy of Minutes of 32nd Meeting and 34th Meeting of BOA are enclosed with these Submissions. ix. Section 27 of the SEZ Act which deals with provisions of Income Tax Act, 1961 to apply with certain modification in relation to Developers and entrepreneurs clearly states that the provisions of the Income Tax Act, as in the force, for the time being, shall apply to, or in relation to, the Developer or entrepreneur for carrying on the authorized operations in a SEZ. The notification for IT SEZ's authorized operations does not include sale of building from which income has been shown by the assessee company on which deduction u/s 80IAB has been claimed. x. Rule 11(10) of SEZ Rules 2006 specifies that the developer shall not sell the land in a SEZ. As sale of land is prohibited and the land has been given to co-developer through an arrangement of lease of land which is nothing but a ploy to overcome this prohibition. This is the reason that BOA said such arrangement was against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of assets, the assessee has found a way to overcome this prohibition by creating 49 years lease in favour of co-developer. It is pertinent to note that the lease deed is renewable further and thus effectively transferring the land also. Para 2.3 and 5.1 of the Lease Deed clearly allows the parties to renew the lease deed. Thus, the assessee company has transferred the land in actual sense and substance of this present transaction means sale of land. In most of the cases, substance of the transaction and its form are one and the same. However, the substance can be different from the form of the transaction in many cases. In the present case, the assessing officer has rightly gone for the substance of the transaction and disallowed the deduction u/s 80-IAB claimed by the assessee company as the lease deed is mere eye wash and actual transaction was sale of land which is clearly not permissible under SEZ Act. Relevant paras of Lease deed are at page 135 136 of the Paper Book II filed by the Counsel of the assessee. d. The transfer of building is absolute and as per the amended agreement and lease deed , Co-developer shall be treated as owner of the bare shell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges have gone into detailed examination of the issue and applicability of provisions section 2(47)(v). To make the issue clearer, it is relevant to reproduce some relevant paragraphs as under: There is no doubt that the agreement to transfer the entire right, title and interest of the owners for a consideration specified in the agreement and in accordance with the terms thereof answers the description of a contract falling within the scope of section 53-A of the Transfer of Property Act. The crucial question then arises - at what point of time the transaction allowing the taking of possession in partperformance of such contract had taken place. Incidentally it raises the question as to how the expression 'transaction' is to be understood. One view that could possibly be taken is that the execution of the agreement under the terms of which the purchaser is enabled to take possession even before the execution of conveyance deed is itself the 'transaction' contemplated by section 2(47)(v). It is enough if the agreement/contract falling within the description of Section 53-A provides for taking possession at some stage before the ownership is transferred in a manner kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession on payment of all the installments in entirety for the purpose of determining the date of transfer. While on the point of possession, we would like to clarify one more aspect. What is spoken to in clause (v) of section 2(47) is the 'transaction' which involves allowing the possession to be taken. By means of such transaction, a transferee like a developer is allowed to undertake development work on the land by assuming general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. The actual date of taking physical possession or the instances of possessory acts exercised is not very relevant. The ascertainment of such date, if called for, leads to complicated inquiries, which may frustrate the objective of the legislative provision. Relying upon the aforesaid decision, he submitted that income received during the year from sale of assets to the developer is taxable under the head Short Term Capital Gain in Assessment Year 2008-09 due to following reasons. a) The co-developer agreement, giving full ownership rights over buildings to co-developers, was signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions contained in Section 80IAB, he submitted that the word derived is very crucial in appreciating any kind of deduction which would fall within the ambit of the said provision. Here, in this case, the source of income is a sale of bare shell of the building and there is no question of development of SEZ. The same has been done by co-developer. In support, he has also relied upon the following decisions. CYBER PEARL INFORMATION TECHNOLOGY PARK P. LTD V. INCOME TAX OFFICER- (2017) 399 ITR 310(Mad) Hon'ble Madras High Court held that the consistent view of the courts has been that wherever, in such like sections, the expression derived is used, as against attributable to , the width and the amplitude is narrower. Therefore, courts have held consistently that in order to come to a conclusion as to whether such pro fits or gains, i.e., income, would be amenable to deduction, the effective source of such income is to be looked at. Once, it is found that the income is derived from a secondary source, which is not the effective source, it falls outside the purview of such like provisions, which provide for deductions with purpose of giving fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of deduction u/s.80IAB in respect of profit arising from sale of bare shell building in SEZ by assessee to M/s. DLF Pvt. Ltd. As a part of its business activities, the assessee has undertaken to develop SEZ project in a Govt. designate Special Economic Zone after obtaining requisite approval under SEZ Act and SEZ Rules in terms of provisions of Section 80IAB of the Income Tax Act. As brought on record, assessee had undertaken to develop SEZ project which was duly approved by Government of India and later on had entered into MOU with co-developer, wherein it was agreed that assessee shall develop the bare shell building and transfer to M/s. DLF Pvt. Ltd. (co-developer) for further development and lease of the same to eligible tenants. It was also agreed that land on which building was to be constructed will not be sold to the co-developer, M/s. DLF Ltd. but will be leased out for a definite period. It was the profit from such developmental activity, amounting to ₹ 11,19,06,82,702/- arising from transfer of bare shell building was claimed as deduction u/s.80IAB, after obtaining the approvals from Board of Approvals, Ministry of Commerce and Industry , Government of India in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such the profit arising from such transfer is not eligible for deduction u/s 80IAB. The activity of development and sale of building is neither an authorized operation under SEZ Act nor approved by competent authority. Further, lease of land for 30 years to M/s. DLF Asset Ltd. tantamount to transfer of land which is an impermissible activity in terms of Rule 11(9) of SEZ Rules, 2006. (Which AO has wrongly construed the period of lease as 49 Years) C. Isolated transaction of sale of building is assessable under the head income from capital gain and as such the provisions of section 80IAB are not applicable. Further, as the purchaser M/s. DLF Asset Ltd. has shown the said bare shell building as fixed asset in its Balance Sheet, the same constitute capital asset of the appellant and as such profit arising from sale of bare shell is in the nature of Short-Term Capital Gain. D. Alternatively, the profit from the project should be apportioned and spread over 49 years (correct figure 30 years) and as such only the proportionate claim of deduction u/s 80IAB is allowable. 63. The SEZ Act, 2005 defines co-developer as a person, who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not so transferred to the transferee Developer. (3) The provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA shall apply to the Special Economic Zones for the purpose of allowing deductions under sub-section (1). Explanation-For the purposes of this section, Developer and Special Economic Zone shall have the same meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005. 64. Ergo, the benefit u/s.80IAB is eligible only in respect of project approved by Board of Approval under the aegis of Ministry of Commerce and Industry and once the approval is granted by BOA, the statutory benefit has to be granted so as to give effect to such approval. The SEZ Act, 2005 has been enacted as a self-contained code and is a Special Act which has an overriding effect on any other Act including the Income Tax Act, 1961, in view of provision of Section 51 and r.w.s. 27 of the SEZ Act 2005. 65. Before us, the learned counsel has given the sequence of various approvals which are quite relevant for examining the claim of the assessee, which are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im is inadmissible. In this connection, learned counsel before us has clarified that assessee was a bona fide purchaser of the property in respect of which approval for development of SEZ project was duly granted by Government of India. In any case, the Hon ble P H High Court has not commented upon SEZ Project developed on said piece of land and the decision will not at all affect the right of the assessee. In these circumstances, the decision of P H High Court shall have no bearing on the claim of deduction u/s 80IAB of the Act particularly when the infrastructure project has already been executed and completed. In any case, the order of P H High Court pronounced on 03/02/2011 was challenged before Supreme Court by the assessee and other parties and now the Hon ble Supreme Court vide order dated 20/06/2011 has stayed the operation of judgment of P H High Court and therefore, the adverse inference on the basis of order of P H High Court is not sustainable. He clarified that assessment order was passed on 27/04/2011, i.e., before passing of the order by the Hon ble Supreme Court and thus, the observation of the assessing officer is no longer relevant and this controversy has no legs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SEZ Act and income must be derived from business of developing SEZ notified under the SEZ Act, 2005. Here in this case, all the conditions stood satisfied and Assessing Officer has also not pointed out as to which of the conditions have not been fulfilled. Likewise, in the present case, it is an undisputed fact that, firstly, the area has been notified as Special Economic Zone vide notification dated 06.12.2006 and 19.03.2007; secondly, the assessee has been approved as Developer by BOA vide letter dated 25.10.2006 and 14.12.2007; and lastly, the operation of developing of building has been approved as authorized operations and as such the income has been derived from developing and sale of bare shell building in SEZ. The term Developing a Special Economic Zone has to be seen in terms of authorized operations specified by BOA under the SEZ Act, 2005. Though Income Tax Act does not define the term Developing a Special Economic Zone , however, the meaning of the same has to be deduced from the SEZ Act. Here, in this case, not only the BOA has recognized the existence of SEZ but has also approved the activity of developing and transfer of bare shell as authorized operation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Income tax Act, 1961. It was specifically pointed out by the Ld. Counsel that there was nothing in the minutes of meetings of Board of Approval held on 23.02.2009 and 19.06.2009, indicating that there was any objection with regard to proposed transfer of bare shells by the assessee to Co-developer. The assessing officer has relied upon clause (xvii) of Para 3 of letter dated 01.06.2009 while reaching to the erroneous conclusion that taxability of entire transaction is open for examination and assessment. However, it is seen that the assessing officer in fact has failed to appreciate the above clause in right perspective and has attempted to make use of the same for justifying the denial of claim of deduction u/s 80IAB of the Act. It is pertinent to note here that clause (xvii) of Para 3 is only with regard to terms and conditions of lease agreement and same cannot be inferred to dispute the transaction of transfer of bare shell building and profit arising therefrom. In the present case, the assessee has claimed deduction of profit from sale of bare shell building and as such the clause relating to issue of taxability of lease income is of no help to the revenue. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of bare shells to the Co-developer for a development consideration by the Board of Approval, the business activity carried out by the assessee pursuant to such approvals constitute business of Developing a Special Economic Zone within the meaning of Section 80IAB of the Act. Under section 80IAB, the AO s authority is limited to examine whether the provisions of section 80IAB read along with the relevant Rules have been complied or not. For instance, some of the conditions as stipulated in the section which the AO may examine may include: - - Whether the assessee is a developer under the SEZ Act and is in the business of developing a SEZ. -The SEZ has been notified on or after the 1st day of April 2005 under the Special Economic Zone Act, 2005. -Whether the profits have been derived from the business of development, operation and maintenance of a SEZ. 72. The case of assessee has been that the land has been given on lease for a period of 30 years and lease rentals per annum are being received over a period of lease term on annual basis and not up-front for all the years under the lease. The disclaimer conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same reasoning were given by the Assessing Officer in these cases wherein the Tribunal after analyzing the provision of SEZ Act, 2005 and on exactly similar set of activities have held that assessee is eligible for deduction u/s.80IAB because they were in consonance not only under the SEZ but also BOA has approved such activities. 77. The Assessing Officer as an alternative has also held that isolated transaction of sale of building is assessable under the head income from capital gain , and therefore, provision of Section 80IAB is not applicable and since the purchaser M/s. DLF Ltd. has shown the bare shell building as fixed assets with balance-sheet, therefore, the same constitutes the capital assets of the assessee and thus, the profit arising from sale of bare shell is in the nature of Short Term Capital Gain. The aforesaid observations of the ld. Assessing Officer cannot be accepted because assessee is engaged assessee is engaged in the business of real estate and the building in SEZ has been shown as stock-in-trade on which revenue has been recognized as per Percentage Completion method (POCM) prescribed under AS-7. The SEZ project was part of regular busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow proportionate deduction cannot be sustained. 79. Thus, in view of our finding given above, the order of the ld. CIT (A) in allowing the claim of benefit u/s.80IAB is confirmed and consequently the ground raised by the Revenue is dismissed. 80. Lastly, in so far as the reliance placed by the Ld. Spl. Counsel for the revenue that the Hon ble High Court in the case of one of the sister concerns, has set-aside the issue for deciding on merits while upholding the revision us/s 263 by the CIT, is also sans any merits, because, nowhere the Hon ble High Court has adversely commented on the claim of deduction u/s 80IAB on merits. In fact, matter has been restored back to the Tribunal to decide the issue on merits afresh after considering all the facts and the relevant provisions of SEZ Act, which we have already discussed in detail. Thus, reliance placed by the Revenue to draw any adverse inference on merits cannot be sustained. 81. The next issue relates to deletion of addition on account of disallowance of Revenue recognition as per percentage of completion method (POCM) of ₹ 42,92,17,872/-. 82. At the outset, lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,05,73,424 93,46,81,602 Summit 67,87,31,045 69,82,35,605 1,95,04,559 1,28,23,779 - Magnolias 526,66,86,898 5,36,95,65,201 10,28,78,303 2,17,22,670 - The Belaire 322,94,28,422 3,29,92,89,020 6,98,60,598 1,55,03,253 - The Park Place 250,38,47,408 2,570,346,411 66,499,003 - - Wellington (49,17,634) (4,917,634) - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Park 33,75,82,954 337,582,954 - - - Grand Mall - - - - - Exclusive Floors - - - - 6,95,96,807 Moulsary Arcade - - - - 6,76,915 Total (B) 173,72,54,633 1,73,90,55,150 18,56,420 65,641 7,02,73,722 Net Total (A+B) 13,97,71,37,609 14,40,62,99,580 42,92,17,872 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rastructure facilities are an essential part of sale transaction and therefore, it is a liability committed by the appellant at the very initial stage of sale of property itself. Without the provision of these infrastructure facilities, the constructed building cannot be habitable and no customer may even buy the property of the appellant without these essential facilities. Thus, there is a direct nexus between the sale price and the expenditure to be incurred on these infrastructure facilities by the appellant. The sale revenue as well as expenditure on internal development works is inextricably linked with each other and, since the estimated revenue includes charges for internal development work, the corresponding estimated expenditure on internal development work also has to be taken into consideration in the total cost to be incurred. In other words, internal Development Work is inbuilt in the total estimated revenue; the corresponding expenditure has to be necessarily included in the total cost to be incurred. The appellant is bound to apply the matching principles i.e. matching revenue with cost to be incurred to earn the revenue. On this principle alone and by itself the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... budgeted sales as stated supra. It is also seen that budgeted cost of the IDC has been accepted in A.Y. 2004-05 and 2005-06 in the appellant s case. It may be seen that IDC is an integral part of the cost of the project and based on these estimates, the project has been approved by the Director Town and Country Planning, Govt. of Haryana. If there is no provision for IDC in the project then, appellant s project may not be approved by the Director Town and Country Planning, Haryana. It is also an accepted fact that whenever project is taken for development, initially flats are constructed and thereafter the basic infrastructure facilities like roads, sewage, lightning, park, water supply line etc. are developed. Therefore, the observation of the ASSESSING OFFICER that only ₹ 60.39 (36.07 + 24.32) crore have been spent on IDC till 31.03.2008 cannot be given much weightage and provision of such facilities has to be taken into account as part of budgeted cost. Merely because the contract for internal development work has not been awarded in the current assessment year or in the absence of actual payment of IDC, cannot lead the revision of the IDC cost from its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verification of the work was done. After verification and measurement of the work done, bills were approved. Till that date no expenditure accrues or arises and that date falls in the subsequent financial year. The company consistently follows the policy of accruing and booking costs on the basis of the date on which bills were approved and verified which can only be after the date of receipt of the bill. In the opening balance also, similar policy has been adopted. This is the only possible way for accounting. The law does not require the assessee to do the impossible. The Hon ble Chhattisgarh High Court in the latest judgment reported in 323 ITR 252 (Chhattisgarh) in the case of Beekay Engineering Corporation has decided the similar issue. Head Note of the said judgment is reproduced for your ready reference as under:- The assessee entered into a contract for doing job works and made a payment of ₹ 1,36,767 to B in respect of certain jobs done by it from December 1988 to June 1989. The bills were raised by the party in the month of August 1989. According to the assessee, as it was not aware of the actual liability on the last date of the accounting perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year. . . . (p. 531) Further reliance was placed on the judgment in the case of National Agricultural Co-operative Federation of India Ltd. vs. Jt. CIT (2008) 304 ITR (AT) 303 (Delhi) wherein it has been held that the liability is deductible only when it crystallizes into an ascertained liability. In this case as per an arbitration award interest was payable by the assessee on the sum awarded only up to the date of award of the arbitrator. Thereafter, a decree was passed by the High Court, for further interest on amount of award from the date of the award by the arbitrator till the date of payment, after the end of the accounting year. In the circumstances of the case it was held by the Hon ble jurisdictional Tribunal that there was no liability to pay interest after the award of the arbitrator and such liability arose only after the decree of the High Court. Thus, the liability to pay future interest had crystallized in the next assessment year and not in the assessment year in question and hence the deduction was not allowable in the current assessment year. Reliance was also placed on the judgment in the case of CIT v Shri Ram Pistons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the liability is crystallized and entered into the books of account. The various bills of material, labour and contract mentioned by the Special Auditors and ASSESSING OFFICER, as pertaining to the F.Y. 2007-08 were, in fact, crystallized during the F.Y. 2008-09 and on the basis of same rightly accounted for in F.Y. 2008-09. The cost of ₹ 3,39,77,973/- pertaining to labour charges, contract and material which was accounted for in F.Y. 2008-09 on the basis of crystallization of liability cannot be preponed from assessment year 2009-10 to the current Assessment Year 2008-09. Again, this attempt and exercise made by the Special Auditors and the ASSESSING OFFICER is revenue neutral and it would make no difference to the Revenue except resulting in increased administrative work load of shifting expenses from one year to another. In my view, it is only a futile exercise and consequently, the addition based on the said increase of cost of construction is deleted. In this regard, reliance is placed on the judgment of Hon ble Chattisgarh High Court in the case of Beekay Engineering Corporation India 323 ITR 252 (Chattisgarh). The head note of the same is reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was following the mercantile system of accounting, the explanation furnished by the assessee was that the expenses were not booked due to non-receipt of details, information thereof on time, which was beyond the control of the assessee. It was also explained that these expenses to the tune of ₹ 41.95 lakhs were marginal as compared to the enormous size of the assessee-company. It was also explained that as per the accounting policy followed by the assessee, such expenses were booked in the year in which they were settled for payment. The Tribunal went into the details of each and every such expense and recorded the finding of fact that all these expenses were settled during this year. It was also recorded that more than 50 per cent. of expenses could be claimed only on actual payment, as they were covered under section 43B(d) of the Income-tax Act, 1961. The assessee also informed that even in the earlier year, the assessee had shown positive income and paid tax thereon. Therefore there was no loss of revenue. Had this expense been allowed in the previous year, the assessee would have paid less tax. There was no necessity to interfere with the order of the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. (c) At least 25% of the saleable project area is secured by contracts or agreements with buyers. (d) At least 10 % of the total revenue as per the agreements of sale or any other legally enforceable documents are realised at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate - If there are 10 Agreements of sale and 10 % of gross amount is realised in case of 8 agreements, revenue can 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 threshold suggested by ICAI is the minim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue s appeal is consequently, dismissed. 88. The next issue relates the deletion of addition on account of disallowance of interest pertaining to loan for M/s. Edward Keventer Project by capitalizing the same. This issue too stands covered by the decision of the Tribunal in assessee s own case for Assessment Year 2006-07. 89. Ld. Assessing Officer noted that the assessee had 52% of the funds in the business were borrowed fund and 48% were non-interest-bearing fund. He held that, on the advances given to sister concerns, the presumption can be drawn that the 52% of the funds could have been given for advances to the sister concern for earning interest income. In other words, as per the AO netting of interest to the extent of 52% of ₹ 412.84 crore can be allowed. The resultant figure of ₹ 34.86 crore, i.e., ₹ 249.54 crores (-) ₹ 214.68 crores being 52% of ₹ 412.84 crores have to be apportioned in the following manner: (Rs. in Crores) Particulars Gross Intt Intt. to be netted off Net Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,09,489 14,67,273 Proportion of funds (rounded off) 52% 48% 100% Amount (Rs. in crores) Total fixed period loan interest debited to P L Account for the year ended 31.3.2007. 249.54 Less: - 52% of interest earned on loans/advances to Group entities i.e. ₹ 412.84 lacs 214.68 Net interest expenditure eligible for capitalization 34.86 S. No Issue/Particulars Amount (Rs.) (crores) Inter-se % 1. Interest on Project- Keventer Lane 7.93 3.18 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased in F.Y. 2005-06 related to A.Y. 2006-07 and loan was sanctioned by ICICI Bank for ₹ 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 ₹ 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. 10.11 Otherwise also from the details filed by the appellant, it is seen that appellant has paid total interest of ₹ 604.43 crores on fixed period loans during the year. Out of this, interest to the extent of ₹ 354.89 crores have been capitalized over the projects. As a result, the total interest cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assets and liabilities etc. applicable to it. Borrowing cost is also one of them. ICAI has issued Accounting Standard 16 Accounting for Borrowing Cost wherein it is provided that in case of interest expenditure incurred by the company, it is required to be capitalized if the borrowing is related to the qualifying assets. In this case the inventory is a qualifying assets as it is held for more than 12 months and therefore interest attributable to it is required to be capitalised in the books of accounts 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 differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. 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 Incometax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the Project of construction of flats under the Kandivali Project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali Project constituted the stock-in-trade of the assessee. That, the Project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under section 36(1)(iii). Since the assessee had received loan for obtaining stock-in-trade (Kandivali Project), the assessee was entitled to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay 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-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. Therefore, we are of the view that presumption is to be assumed in favour of the assessee and not against assessee. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore, respectfully following decisions of Honorable 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. 93. Since, similar facts and reasons for disallowance is permeating in this year also, therefore, respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the submission of the appellant and observation of the Special Auditors as well as ASSESSING OFFICER and order of CIT (A)-XVIII for AY 2006-07 and my own order for AY 2007-08 in appellant s own case wherein this issue was decided in favour of appellant. It is seen that ASSESSING OFFICER has further capitalized an amount of ₹ 7,93,00,000/- towards ongoing projects. This capitalization is over and above the amount already capitalized by the appellant to the extent of ₹ 354.43 crores which relates to the loan taken for fixed period term loan. It is seen that appellant has claimed total interest expenditure of ₹ 604.43 crores on fixed period term loan, out of which it has capitalized ₹ 354.43 crores over the ongoing projects and has claimed interest of ₹ 249.54 crores on fixed period term loan. The appellant has also claimed ₹ 176.06 crores as interest on bank overdraft. Thus, the total interest payment claimed in the P L A/c comes to ₹ 425.60 crores. As against this appellant has offered interest received from banks, customers, loans to subsidiaries and associates to the tune of ₹ 411.99 crore in the profit and loss account. If the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e too has been decided in favour of the assessee after detailed discussion by the Tribunal and the relevant observation of the Tribunal reads as under: 49. We have carefully considered the rival contentions. It appears that the AO has made this addition mainly because of note mentioned by assessee in its accounting policies with respect to borrowing 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 assessee 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 assets and liabilities etc. applicable to it. Borrowing cost is also one of them. ICAI has issued Accounting Standard 16 Accounting for Borrowing Cost wherein it is provided that in case of interest expenditure incurred by the company, it is required to be capitalized if the borrowing is related to the qualifying assets. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 referred to, for the sake of brevity, as Kandivali Project ). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the claim of the assesse, therefore, respectfully following the decision of Hon ble Bombay High Court and as well as various coordinate Benches, cited above, we do not concur with the view of CIT (A) on disallowance of interest of ₹ 24.75 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-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. Therefore we are of the view 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the submission of the appellant, observation of the ASSESSING OFFICER, accounting standard AS-2 AS-7 and judgment of ITAT in earlier years and CIT (Appeals) in appellant s own case for A.Yrs. 2006-07 and 2007-08. It is seen that as per para-19 of AS-7, it is mentioned that the selling cost cannot be attributed to contract activity or cannot be allocated to a contract under construction. Even as per AS-2 Valuation of Inventory issued by ICAI, it is seen that selling and distribution cost cannot be considered as part of the cost of inventory and such expense has to recognized in the period in which they are incurred. The cost which can be attributed /allocated over the inventory should comprise all the cost of purchase, cost of conversion and other cost incurred in bringing the inventory to their present location and condition. In the case of construction activities the cost of purchase of land and construction cost can only be attributed over the project. The brokerage expenses are purely a selling cost and cannot form a part of inventory. In view of the accounting standard, the brokerage expenses being a selling cost cannot be capitalized with the cost of inventory a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses and services rendered which cannot be spread to several years. The benefit of the brokerage and commission is related to a particular property or flat sold and it cannot be extended to other properties. Therefore, brokerage expenses cannot be postponed for the future years. Therefore, ratio of the said judgment is not applicable in the case of appellant. 13.21 The appellant has placed reliance on the decision of the jurisdictional High Court in the case of Nokia Corporation vs. DIT, Delhi, 2007, 162 Taxman 369 (Delhi), wherein it is held that even if the Department has filed further appeal against the last order, which is in favour of the appellant, the last order is judicially binding on the subordinate authority. Hence, respectfully following the order of the Hon ble Income Tax appellate Tribunal for AY 1984-85 and the order of CIT(Appeals) for the immediately preceding years relevant to the Assessment Years 2006-07 and 2007-08 in appellant s own case. In view of the above, the addition to the extent of ₹ 2,99,74,600/-(₹ 2,82,93,983 + ₹ 16,80,717) pertaining to payment of brokerage and commission is deleted. 13.22 However, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 expenditure towards brokerage and commission paid to brokers for booking and sale of certain properties is allowable firstly in view f the facts that assessee s treatment of such expenditure has been decided in favour of the assessee and revenue has not challenged it and secondly such expenditure are allowable. In view of the above facts and following the decision of coordinate Bench as facts are not distinguished by revenue, we confirm the order of CIT (A) in deleting the addition of ₹ 20,87,70,567/- on account of brokerage expenses for sale of various properties. Therefore, ground no.14 is dismissed. 103. Thus, in view of the aforesaid precedence of the earlier year this issue is decided in favour of the assessee. 104. In ground no.7, the Revenue has challenged the deletion of addition on account of late co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the appellant vide order dated 25.03.2011 passed by learned CIT(A)- XVIII, New Delhi, in appeal No.35/2010-11 for A.Y. 2006-07 (page Nos. 204-218 of the said order) and by me vide order dated 29.05.2012, in appeal No.66/2010-11 for A.Y. 2007-08 (page Nos. 146-149 of the said order) respectively in appellant s own case. Accordingly, the addition of ₹ 1,88,81,388/- made by the AO is not sustainable. The same is, therefore, deleted. 106. This issue has been dealt in detail by the Tribunal in assessee s own case for Assessment Year 2006-07 wherein this issue has been decided in favour of the assessee in the following manner: 225. We have carefully considered the rival contentions. It is an admitted fact that the assessee is receiving late construction charges from customers which is under dispute before the Hon ble Punjab Haryana High Court and that litigation was settled vide order dated 19.11.2000 of Hon ble Supreme Court. The ld. CIT (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 27wherein it is held that if the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A right to receive can be said to be created in favour of assessee on 19.11.2010 when the order of the Hon ble Supreme Court is passed and till that date revenue cannot be legally recognized. During the hearing, I was informed by the ld. AR that this income has been recognized in the current financial year (F.Y. 2010-11) after receiving the judgement of the Supreme Court. 26.13 Accordingly, the addition of ₹ 1,88,81,388/- 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 assessee or not, It is held that 7.1 Assessee as following a prudent and consistent accounting policy which was necessitated by the order of Honourable Punjab And Haryana High court. The assessee offered the entire amount as its income on settlem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading receipts of the appellant and same have been received to meet out any unforeseeable liability which may occur in future. In the event of non spending of this amount on any liability, such deposits were required to be refunded to the owners of the plot/flat holders. Since these deposits have been collected for specific purposes, therefore, the same cannot be treated as receipts of the appellant and same cannot be taxed in the head of the appellant as trading receipts . It is also seen from this deposit account that there is a regular movement of funds and large amounts have been incurred on account of meeting the contingent liabilities like fixing of transformers, laying of electric of line and other demands from Govt. of Haryana. Since this deposit account is maintained for performance of contractual obligations as per clause- 4 of the agreement to sell entered with the respective customers, the same cannot be treated as trading receipts of the appellant. Hence, the addition on account of these receipts amounting to ₹ 1,14,837/- is deleted. 110. The Tribunal also in Assessment Year 2006-07 has dismissed the Revenue s appeal after observing and hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made by the Assessing Officer in the following manner: 16.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, decision of CIT (Appeals) for A.Y. 2006-07 and A.Y. 2007-08 which have decided this issue in favour of the appellant company and various judicial pronouncements available on the issue. It is seen that that these deposits were received in terms of sale agreement from customers as interest free security deposits on account of buyers obligation to regularly pay to the appellant or any other agency appointed by the appellant in respect of insurance premium, maintenance etc. These amounts are refundable to customers/ resident associations, once a society or association is formed. In the agreement to sell, it is specifically mentioned that these interest free deposits were taken from the customers to meet certain future liabilities like insurance premium and maintenance charges of the building. For these receipts, a separate account is maintained and as and when the buildings or the complex is handed over to the resident association or condominium association such deposits are handed over to them for maintaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull payment of the total price of the property, parking space, all security deposits, registration charges etc. If the buyer is in default of any of the payment, then the company can withhold the registration of the Conveyance Deed in favour of the buyer till the full payment is made by the buyer. This clause means an obligation on the buyer to undertake the Conveyance Deed within the time stipulated by the company, failing which, in terms of clause 12 of the Agreement, the company can cancel the allotment and forfeit the amount received from the buyer. The assessee s contention before the Assessing Officer was that real nature of the balance is that buyers have paid advance bills to the assessee and accordingly this has been shown as liability in the balance-sheet and this method has been consistently followed by the assessee in the earlier assessment years. However, the ld. Assessing Officer held that these are not correct fact because similarly additions have been made in the Assessment Years 2006-07 and 2007-08 by the Assessing Officer. The Assessing Officer has also accompanied the assessee company has furnished company-wise, propertywise of the persons from whom registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belong to the appellant. The appellant is a custodian of this amount which ultimately is to be paid to the Government. As observed by the Special Auditors that out of an amount of ₹ 24.76 crore received during the year, an amount of ₹ 16.29 crore has been spent on registration charges. This shows that there is a regular movement of funds by way of credit or debit in this account which has been utilized for registration of conveyance deed in favour of the customers. Hence, the assessing officer was not justified in treating the registration charges as appellant s income. Hence, the addition of ₹ 8,49,20,884/- made by the ASSESSING OFFICER is deleted. 119. We find that similar issue was decided by the Tribunal in assessee s own case in Assessment Year 2007-08 has dismissed the Revenue s appeal after observing and holding as under: 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 collected by the assessee from the buyer towards registration charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer held that as the assessee itself has stated that the amount in respect of indirect taxes are a part of sale price, therefore, it is clear that the amounts are in the nature of income and should be recognised as income of the financial year in which the same is received from the customers instead of being shown under the head of liability in the books of accounts. Moreover, the expenditure on taxes is allowed on payment basis and in this case since the assessee has received indirect taxes, therefore, it is to be treated as income of the assessee. The assessee may claim the expenditure against the indirect taxes recognised as income in the books, in the year of deposit of the same with the concerned department. With these remarks, an amount of ₹ 1,81,15,047.75 being the indirect tax received during the year but not shown as income for the Assessment Year 2008-09 was added by the Assessing Officer to the income of the assessee. 123. Ld. CIT (A) has deleted the addition in the following manner: 18.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, decision of CIT (A)-XVIII for A.Y. 2006-07 in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to group concern were benefitting from such expenditure. Based on the observations of the Special Auditors, the Assessing Officer required the assessee as to why the expenditure of ₹ 15,02,99,365/- benefit of which has accrued to the group entities like, DLF Infocity developers (Chennai Limited) and DLF Cyber City Developers Ltd. be apportioned to them and correspondingly the same should be disallowed in the hands of the assessee. In response, the assessee has submitted the detail reply and submitted that if income expenditure has been incurred on behalf of company, the same have been duly recovered from those companies specifically and assessee has not debited to the P L account. For the specific expenses which were debited to the concern group companies there is no expenditure which pertains to other group companies and all the expenses debited in the P L account are related to the business of the assessee. Even the Special auditors have not been pointed out even a single voucher pertaining to other group company which has been wrongly debited to the P L account of the assessee. Regarding overhead allocation the assessee has submitted as under: a. That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Counsel of the assessee. d. The transfer of building is absolute and as per the amended agreement and lease deed, Co-developer shall be treated as owner of the bare shell building and the warm shell building after additions etc and will have exclusive rights to let, mortgage, or allow use of all or any part of buildings. e. That if the deduction u/s 80-IAB is allowed to the assessee company in this case and the Co-developer does not develop the SEZ later on , how can we say that the SEZ has been developed and why should the deduction be allowed to the assessee company at this stage where the development of SEZ has not been done . Allowing the deduction at the stage of construction of bare shell building would be against the provisions of SEZ and Income Tax Act. 127. Ld. Assessing Officer after considering the assessee s reply had observed as under: 12.5 The reply of the assessee has been considered and from the reply it emerges that the assessee has stated that it is a listed company and not incurred any expenditure on behalf of its associated companies. The assessee company has argued that in case of both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntary evidence. 12.8 The assessee has relied on certain citations wherein it has been held that expenses incurred for business requirement are allowable and any incidental benefit arising to a third party out of such expenditure cannot be made basis for disallowing the same. These citations are not relevant in the present case since the expenses incurred by the assessee have benefitted the associated companies of the assessee who are in similar line of business as that of the assessee and in the past also the assessee itself had allocated certain expenditure to its associated companies. The assessee has also mentioned certain citations regarding business expediency and stated that the expenses must be incidental to the business of the assessee. The question here is that the expenses incurred by the assessee have benefitted the associated concerns and therefore the same are to be apportioned to the associated concerns. The associated concerns during the year have developed SEZ and the assessee company during the year had also earned income from development of SEZ but there is substantial variance in the level of expenses incurred and accordingly some expenses are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively for its benefit and had not benefitted the associated concerns. The assessee has not been able to convincingly explain the extremely low level of administrative overhead expenditure incurred by the two associated concerns as compared to the assessee company considering the similar line of business. 12.10 In view of the same it can be inferred that a part of overhead expenses relatable to the two entities stand in the books of the assessee. Since the benefit of such expenditure does not accrue to the assessee but to the two group entities also, the expenditure of ₹ 15,02,99,365/- as worked out by the special auditors is disallowed. 128. Ld. CIT(A) has deleted the addition in the following manner: 19.22 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, order of the CIT (A)-XVIII for the A.Y. 2006-07 and my own order for A.Y. 2007-08 wherein this issue has been decided in favour of the appellant, and various case laws relied upon by the appellant on this issue. It is seen that appellant company was allocating over head expenses to its associate companies till October 2006. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficient and has its own resources to carry out the activity and hence no further allocation is required. Apart from the above, the company had incurred overhead expenditure which formed part of the development cost which has been considered for POCM. The details of such expenditure was furnished to the Assessing Officer at page No.2 of appellant s letter dated 31.3.2011. The total cost of the overhead expenditure forming part of development cost is ₹ 9,73,06,213/-. This expenditure includes the overhead expenses incurred by the DLF Cybercity Developer Ltd. 19.23 Hence, it is clear that no benefit has accrued to group companies namely DLF Info City Developers (Chennai) Ltd. and DLF Cyber City Developers Ltd from the expenses of ₹ 150,299,365/-, as these expenses were exclusively for the business of the appellant company. There was no justification for disallowing these expenses. The ASSESSING OFFICER as well as Special Auditors have not brought any material on record which can prove that expenditure debited in the P L account of the appellant company was not incurred for the bonafide business needs of the appellant company. The appellant company is main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On perusal of the expenditure and the orders of the lower authorities, it is apparent that the director s salary is being paid to the directors of the company including a commission thereof is for the purpose of managing the business of the DLF assessee. Further, for the protection of the interest of the company even if the directors have given their time for looking after other group activities it is merely a shareholders activity. Furthermore, the advertisements, salary and wages, leave encashment expenditure and printing expenses etc. are all pertaining to the business of the company. No evidence / instances have been cited by AO that any of this expenditure has not been incurred by the company and they are not related to the business of the assessee. It may happen that by incurring certain expenditure by the assessee 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 assessee. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that conducting feasibility and viability study for developing SEZ was not a new line of business but it was expansion/extension of the same line of business. Development of SEZ is very akin development of commercial projects which falls within the objectives of the MOA of the appellant company. Any expenditure incurred for expansion or extension of same line of business with complete unity of control, common fund and with the common management is a revenue expenditure and same cannot be held as capital expenditure. The feasibility and viability study was to extend the business of the appellant in same line, therefore, the expenditure incurred on such study is revenue expenditure and by exploring the possibility of obtaining/developing or extension of the existing business at various stations identified, the appellant was only planning to expand its business and no new asset much less capital asset have been created. The Assessing Officer was not justified in treating these expenses as pre-operative expenses and same is to be capitalized. The question of capitalization does not arise as these expenses were incurred on conducting feasibility and viability study of taking various pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing business of the assessee, The proposed business was not an individual business but vertical expansion of the existing business and Thus, the test of existing business with common administration and common fund was met. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Honourable Delhi high court in case of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del) we reverse the order of CIT (A) and delete the disallowance of ₹ 1,47,70, ,222/- on account of tender fees for modernisation of airports. Therefore ground no 16 of the appeal is allowed. 216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional 505,620.00 FEES FOR VALUATION OF GUJRAL DESIGN PLUS OVERSEAS PVT LTD. For buying stake in company. Legal Professional 1,966,300.00 PROF. FEES IN CONNECTION WITH IMPLEMENTATION AND ACQUISITION OF CYPRUS HOLDING COMPANY, INCLUDING ASSISTANCE IN ACQUISITION IMPLEMENTATION OF CYPRUS HOLDING COMPANY. Legal Professional 161,236.60 OUT OF POCKET EXPENSES FOR TRAVEL TO CYPRUS Legal Professional 1,067,420.00 PROF. FEES IN RESPECT OF CROSS BORDER INVESTMENT STRUCTURING FOR HOSPITALITY BUSINESS EVALUATION FOR SETTING UP AN OFFSHORE COMPANY FOR ACQUIRING 141. Ld. CIT (A) has deleted the addition in the following manner: 23.11 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, and various judicial pronouncements relied upon by the appellant and my own order for AY 2007-08 in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OA of the appellant company. Any expenditure incurred for the projects to be undertaken in future and viability of such projects are business expenditure and same has to be allowed as revenue expenditure. The question of capitalization of such expenses arises only when such projects actually commence are in existence, but there are certain projects for which various expenses were incurred before their intended commencement but due to some reasons, such projects could not be commenced. Therefore, expenses relating to such projects cannot be capitalized 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. The Assessing Officer was not justified in treating these expenses as pre-operative expenses and same is to be capitalized. The question of capitalization does not arise as these expenses were incurred on legal and professional advice and preparing joint venture agreements. However, after the feasibility and viability study these proposed joint ventures or valuation reports were not found suitable for carrying out further investments and same were abandoned. The expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer held that assessee has made the payment of an amount more than what has been specified in the certificate issued u/s.197 and excess amount of ₹ 7,37,322/- has been disallowed by him u/s.40(ia). 146. Ld. CIT (A) has deleted the addition in the following manner: 25.10 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and the certificates issued by ITO, TDS Ward 49(4), New Delhi. It is noted that this issue is covered in favour of appellant by my own order for AY 2007-08 in appellant s own case as mentioned above. It is seen from the certificates that amounts which were to be paid by the appellant during the year of ₹ 40,13,838/- + ₹ 15,98,984/- in respect of M/s DLF Qutub Enclave Complex Educational Charitable Trust and M/s DLF Qutub Enclave Complex Medical Charitable Trust respectively were clearly mentioned in the column amount of rent expected to be realized during F.Y. 2007-08 . These certificates were signed by ITO, TDS Ward 49(4), New Delhi and same were filed before me from page 458 to 461 of Paper Book Volume II of the appellant s submission dated 29.11.2012. The certificates issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 27,08,664/- made on account of Non Deduction of TDS was not justified. Hence, the same is deleted. 123. The ld. CIT DR relied upon the order of ITO whereas the ld. Counsel for the assessee supported the order of CIT(A). 124. We have gone through the order of the CIT(A) and noticed that the relief was allowed by CIT(A) after taking into consideration certificate issued by ITO, TDS Ward-49(4), New Delhi and as such there is no default on the part of the assessee in not deducting TDS on such payment. The order of the CIT (A) is based on proper appreciation of facts and there is thus no justification for any interference and this ground of revenue is dismissed. 148. Thus in view of the above similar finding given in the earlier year on identical set of facts, as a matter of consistency we do not find any infirmity in the order of the ld. CIT(A) as noted above, therefore, ground raised by the Revenue is dismissed. 149. In ground no.17, the Revenue has challenged the deletion of addition of ₹ 9,94,187/- on account of reconciliation of rental income as per TDS certificates and withdrawal of TDS credit of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer was arrived at ₹ 6,88,974/-. Assessing Officer further observed that, from the reply of the assessee company it is observed that ₹ 2,17,242 in respect of Oracle India Pvt. Ltd ₹ 2,18,777/- in respect of KPMG represent the TDS deducted by the party in respect of previous financial year for which income has already been declared by the assessee company in the earlier years. Whereas actually these amounts represent the difference in income declared by the company vis-a-vis TDS certificate issued. Further it is also worthwhile to note here that the submission of the assessee company is not backed by any substantiating document. It is observed that the reply of the assessee is general and vague; therefore, computation made by the Special Auditors is treated to be correct in the absence of any contrary evidence brought on record of the assessee, thereby an amount of ₹ 4,36,0191- (₹ 2,17,242+ ₹ 2,18,777/-) is to be added to the income of the assessee on account of income from house property and deduction U/s 24 in respect of repairs @ 30% is allowable on the same which comes to ₹ 1,30,806/-. The total amount of addition under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the appellant either in this year or has been adjusted in the subsequent year. As already reported by the Special Auditors on page 45 to 48 of Volume IX of the Special Auditor, it is evident that the appellant company has offered the income in respect of TDS amounting to ₹ 7,12,257/- during the next financial year 2008-09 relevant to A.Y. 2009-10. The appellant submitted that it is a matter of record that all incomes have been offered for taxation either in this year or has been adjusted in the subsequent year. The appellant without prejudice further submitted that if TDS credit as above is not allowed during the year under appeal, the same may kindly be directed to the allowed in the next assessment year i.e. A.Y. 2009-10 as held by Assessing Officer herself in the assessment order in para No.19.6 on page 354. 26.8 After going through the material available on record and the arguments of the AR, I find that so far as the AO s denial of the credit of TDS of ₹ 7,12,257/- on the advanced rent received during the year from American Express Bank, Accenture Services Private Limited, Sumitomo Corporation India Pvt. Ltd. and Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 for verification of the statement submitted by the assessee. Furthermore, the AO vide his order dated 20.11.2012 in order to give effect to the appeal of the CIT(A) s order has already made the deletion of the amount after verification. Hence ground no 18 of the appeal is dismissed. 2. As regards withdrawal of credit of TDS, it is submitted that this issue is fully covered in favour of the assessee vide ITAT s Order dated 11.03.2016 in Assessee s own case for AY 2006-07 in ITA No.3061/Del/2011(Para 204-208, Page 113- 114). The relevant finding is extracted hereunder : 207. We have carefully considered the rival contentions. As the income itself has been treated as taxable in the hands of the assessee u/s 56 of the Act, therefore, the assessee is eligible for credit of tax deduction at source. The ld. CIT (A) has dealt with this issue in para 22.15 as under:- 22.15 So far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Le Millennia Supermart, Windsor Court, Phase -V, Gurgaon. 4. Le Millennia Supermart, Carlton Estate, Phase -V, Gurgaon. 5. Apartments at DLF City, Gurgaon. 6. Shop at DLF City Centre, Gurgaon. 7. Shops at Ridgewood Estate. 8. DLF Centre, Sansad Marg, New Delhi (Partly held as SIT). 9. American Express bank Ltd. Phase - V, DLF City, Gurgaon. 10. Felicite Builders Constructions Pvt. Ltd., I-E, Jhandewalan Copy of the finalization schedule of Balance Sheet in substantiation of the above is enclosed as Annexure B (page No. 16). Out of the properties mentioned in (b) above the property mentioned at S1. No.8 is not treated as owned by the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,17,876.00 d) Le Milennia Supermart, Carlton Estate, Ph-IV, Gurgaon 1,02,600.00 e) Rent / License Fee for Appartments at DLF City, Gurgaon 16,63,333.00 f) Shops at DLF City Centre, Gurgaon 9,49,912.00 g) Shops at Ridgewood Estate 7,50,000.00 h) American Express Bank Ltd., Phase-V, DLF City Gurgaon 5,89,25,991.00 i) Felicite Builders Construction Pvt. Ltd., I-E, Jhandewalan 88,000.00 j) DLF Centre, Sansad Marg, New Delhi 19,39, 85,629.00 Less: Expenses- House Tax Paid 31,35,08,184.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preceding years relevant to AY 2006-07 2007-08 in appellant s own case, the income received from the properties owned by the appellant and shown in the balance sheet has to be assessed as income from house property. Therefore, the ASSESSING OFFICER is directed to treat the income from such properties as income from house property and allow deduction u/s 24(a) of the IT Act. Hence, the addition made by the ASSESSING OFFICER of ₹ 9,40,52,455/- is deleted. 159. The Tribunal in assessee s own case for Assessment Year 2006-07 has dismissed the Revenue s appeal after observing and holding as under: 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 wherein Hon ble Supreme Court has held that letting out of the properties is in fact the business of the assessee. We have gone through the decision of Hon ble Supreme Court and we are of the view that this decision favours the argument of the assessee. At page 4 of the decision, the Hon ble Supreme Court has considered the judgement of that court in East India Housing and Land Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessment years 2006-07 and 2007- 08. 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(1)(c) of the IT Act and according to this clause, if the actual rent received /receivable during the year is Nil then that has to be taken as annual value of the property in order to compute the income from property. In the case of appellant, the appellant had intention to let such properties but could not get suitable tenant. In such a situation, the ALV will be Nil as per provision of section 23(1)(c) of the IT Act. Section 23(1)(a) r.w.s 23(1)(c) clearly provides that if the property remain vacant wholly or partly during the party, then actual rent received or receivable will be taken as the ALV of such properties. In the case of appellant the property is remained vacant, therefore, the ALV of such properties will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. The decision of the ASSESSING OFFICER was not justified. 164. The Tribunal also in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k steps to let it but could not get suitable tenant, in such cases the annual value have to be worked out u/s 23(1) (c) of the IT Act and according to this clause if the actual rent received/ receivable during the year is Nil then that has to be taken as annual value of the property in order to compute the income from property. He has accordingly held that in case of the assessee where the property remained vacant then the ALV of such property will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. 21. In absence of 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 the issue and order of Commissioner of Income Tax (Appeals)-XVIII for AY 2006-07 and my own orders for A Y 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case 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 case. In the case of appellant, none of the properties have been rented out/leased to the related parties. Therefore, the ratio of the said judgment cannot be applied in the appellant case. In view of the above, the bonafide lease agreement between the appellant and third parties cannot be disregarded without having any adverse information in this regard and based on conjectures and surmises. Hence, the addition made by the Assessing Officer on this issued is deleted. Facts of the above cited judicial 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Property after allowing deductions permissible under Section 24 of the Income Tax Act. Deductions by way of depreciation allowance are dealt in section 32 of the Income Tax Act which provides for allowing depreciation on the basis of Written Down Value of the assets under section 32(1)(ii). The definition of the word written down value is in section 43(6)(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 (Appeals) in the case of the appellant fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 name. 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 pertaining to Raisina Cold Storage are also being utilized by the appellant as property in the name of said company is in the possession of the appellant. This company has been merged with the appellant, therefore, these expenses also pertain to the appellant s and therefore, incurred only for the business purposes of the appellant. The reimbursement made to the group companies and employees of the appellant company for the expenses incurred by them on behalf of the appellant also pertains to the appellant as these expenses were incurred on behalf of the appellant for its busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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