TMI Blog2020 (4) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s claim for deduction of interest, although the revenue was recognized only on project completion basis in subsequent year, was allowed in the year in which the claim of interest was made - as contended that the interest expenditure incurred during the year is claimed and allowable as expenses even though the same has been inventorised in the Books of Accounts, these contentions were accepted by the revenue and no objection has been raised by the Assessing Officer and the settlement commission has accepted these contentions of the assessee. This fact was also taken note by the CIT(A) in allowing the claim of the assessee. Therefore, since the revenue could not controvert the findings of the CIT(A) that the project constructed by the assessee for which the loans have been taken is not a stock in trade and also the other findings of the Ld.CIT(A), we do not find any valid reason to interfere with the findings of the Ld.CIT(A) and accordingly we sustain the order of the CIT(A) on this issue. Grounds raised by the revenue are rejected. Disallowance u/s. 14A r.w.r. 8D to the exempt income earned by the assessee - HELD THAT:- We find that Ld.CIT(A) restricted the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for the assessee and this income will form part of income from eligible business. Sale of the apartments vis- -vis the advances received for purchase of flats from the buyers are in extricable linked with eligible business of the assessee and therefore the amounts retained on cancellation of the apartments is nothing but business income and is eligible for deduction u/s. 80IB - when the assessee sells the apartments subsequently in later years which were cancelled by the buyers in earlier years the amounts forfeited/retained by the assessee on account of cancellations shall have to be reduced from the sale price and only on the balance sale consideration/income, the assessee is entitled for deduction u/s.80IB - we allow the claim of the assessee for deduction u/s.80IB(10) of the Act on the amounts received on cancellation of flats. Disallowance of business promotion expenses - expenses towards gold coin and bullion purchases by the assessee - HELD THAT:- The increase in volume of turnover from the previous year to the current year is at ₹.209 Crores. The expenses incurred by the assessee on its scheme for distribution of gold coins when compared to the volume of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for the purpose of construction of residential project borrowed interest bearing funds from group concerns, banks and financial institutions. Assessing Officer noticed that assessee paid interest of ₹.164.71 Crores and earned interest income of ₹.42.57 Crores and net interest expenses were shown at ₹.122.15 crores. Assessing Officer noticed that out of this ₹.122.15 crores the assessee capitalized an interest of ₹.105.13 crores and shown as work in progress. He further noticed that in the return of income interest of ₹.89.12 crores have been claimed as deduction out of this ₹.105.13 Crores which were capitalised in the Books of Accounts. The assessee was required to explain as to why interest expenses claimed in the return of income shall not be disallowed. The assessee submitted that interest expenses have been claimed as deduction in the year of incurrence as the interest is periodic cost and pertains to the year for which it belongs to. It was further submitted that the said interest is allowable as deduction u/s. 36(1)(iii) of the Act being interest pertaining to stock in trade of the assessee. Reliance was placed on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s actually paid or incurred. Further, the proviso introduced by the Finance Act 2003 prohibits the allowance of interest cost only if the borrowed funds have been utilized for acquisition of a capital asset even for existing business. In this case the borrowed funds have been utilized for stock in trade which is not a capital asset. The jurisdictional Bombay High Court in the case of Lokhandwala constructions Inds Ltd 260 ITR 579 held as under: in the instant case, it was dear that the assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28. The assessee had undertaken the project of construction of flats. Therefore, the loan was obtained for obtaining stock-in-trade. The project constituted the stock-in-trade of the assessee. The project did not constitute a fixed asset of the assessee. Since the assessee had received loan for obtaining stock-in-trade, it was entitled to deduction under section 36(1)(iii). While adjudicating the claim for deduction u/s 36(l)(iii), the nature of expenses, whether the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset....... Considering the above settled position in the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capital borrowed and utilized for business purposes in the year under consideration. Resultantly, we disapprove the decision of the Assessing Officer/CIT(Appeals) in transferring the interest expenditure to WIP account. Therefore, assessee is justified in debiting the same to the P L accounts of the respective assessment years. Thus, we order the Assessing Officer to accept the claim as made in the return of income. Accordingly, this part of the ground No. 1 is allowed in favour of the assessee The Hon'ble ITAT in the case of ITO vs Rohan states ITA number 7200/MUM/2010 held as under: 3.2 With regard to the interest expenditure, though the Accounting Standard -2 (AS-2) on the valuation of inventories issued by the Institute of Chartered Accountant of India (ICAI) would suggest that the interest expenditure ought to be taken into account in the valuation of invent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being rekoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus neither in doubt nor in dispute. Further, it may also be in place to state that section 36(l)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance. In fact, even going by the Revenue s stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is reproduced as under: 3.2 With regard to the interest expenditure............The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred, As such, what in our view would prevail Is the method of accounting being regularly followed by the assessee, i.e. on a year basis, The same also has the sanction nf law Inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay, Hon'ble Bombay High Court concluded that the interest expenditure relating to the borrowed capital is allowable u/s 36(l)(iii) of the Act. The relevant lines from the para 4 reads as under; that, while adjudicating the claim for deduction under section 36(l)(iii) of the Act the nature of expense 0- whether the expenditure was on capital account or revenue account was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of capital was the relevant for the purpose of adjudicating the claim of deduction under section 36(l)(iii) of the Act. (referring to the judgment in the case of Calico) It was laid down that where an assessee claims deduction of interest paid on the capital borrowed all that the assessee was to show that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset....../' Considering the above settled position In the matter we are of the opinion that the assessee is entitled to claim entire inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee. In view of the binding judgment of the jurisdictional High Court in the case of Lokhandwala constructions and also of the jurisdictional ITAT in the cases of Ashish Builders Private Ltd and Rohan Estate Private Ltd and also the various judicial pronouncements relied upon by the assessee the interest expenditure claimed by the assessee is held to be allowable, It is also to be mentioned here that during the proceedings before the Income Tax Settlement Commission, the AO had raised specific question in relation to claim on interest expenditure made by the appellant and reply was filed by the appellant explaining the same. Wherein the assessee explained that disallowance cannot be made u/s 36(l)(iii) of the Act, in view of the jurisdictional High Court's decision in the case of Lokhandwala Construction (supra). After considering the assessee's submissions, the AO accepted the same and did not raise objection in relation to interest claimed in the report u/s 245D (3) report filed before the ITSC. Further no disallowance/ adjustment was made by ITSC in relation to such interest claimed while passing the order. The addition made by the AO is directed to be deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any valid reason to interfere with the findings of the Ld.CIT(A) and accordingly we sustain the order of the Ld.CIT(A) on this issue. Grounds raised by the revenue are rejected. 8. Coming to Ground No. 3 of grounds of appeal of the revenue it relates to restricting the disallowance u/s. 14A of the Act to the exempt income earned by the assessee. 9. The Assessing Officer while completing the assessment applying Rule 8D made disallowance u/s. 14A of the Act at 80,75,718/-, though assessee made suomoto disallowance of ₹.54,01,967/- which is the entire exempt income earned by the assessee and claimed as deduction. 10. On appeal the Ld.CIT(A) restricted the disallowance only to the exempt income observing as under: - The submissions of the learned counsel have been carefully considered. It is the contention of the learned counsel that the investments made have been made out of own funds and that the own funds of the assessee are much more than the investments made. Further the investments have been made in the subsidiaries for strategic purpose and hence have to be excluded for disallowance under section 14 A. The learned counsel further relied upon the jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Income Tax Website. (b) On the facts and circumstances of the case and in law the learned Commissioner of Income Tax - Appeal ignored the fact that income tax return was revised to give effect to the order of Hon'ble Bombay High Court for merger of two companies with appellant Company. (c) On the facts and circumstances of the case and in law the learned Commissioner of Income Tax - Appeal ignored the fact that learned assessing officer considered only additional income and disallowances disclosed in the revised return and ignored additional expenses / allowances claimed in the revised return. 2(a) On the facts and circumstances of the case and in law the learned Commissioner of Income Tax - Appeal erred in confirming the disallowance of deduction claimed u/s 80IB of ₹ 7,32,04,923 on the ground that filing of original return was delayed by few minutes. (b) On the facts and circumstances of the case and in law the leaned AO erred in reducing the claim u/s 80-IB(10) by ₹ 38,18,880 in respect of amount received on cancellation of flats booked by the customers and the learned Commissioner of Income Tax - Appeal erred in not adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The submission of the assessee that due to technical error in uploading the return on the last date because of which the return got uploaded just after midnight with a delay of two minutes but for that the delay of filing is not intentional, has been rejected by the Assessing Officer observing that as per the provisions of Act the delay cannot be condoned. With these observations the Assessing Officer did not take cognizance of the revised return filed and the total income was assessed as per the original return filed for the purpose of computation of income for the year under consideration. Accordingly, the Assessing Officer made computation of income determining the total income at ₹.306,02,55,260/-. While arriving at this total income the Assessing Officer also considered ₹.4,05,74,337/- which are the suomoto additions/disallowance made by the assessee in its revised return of income, even though the revised return was ignored. This amount of ₹.4,05,74,337/- represents reduction in depreciation as per I.T. Act, disallowance u/s. 43C, interest on disallowed payments of TDS, interest on income tax. Apart from this the Assessing Officer made disallowance of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of filing of the return of income as 01.12.2014 instead of 30.11.2014. Ld. Counsel for the assessee further submitted that the delay in filing of original return by two minutes cannot be considered as malafide considering the fact that delay was on account of technical glitches and delay was by only two minutes. In this regard reliance was placed on the following decisions: ITO vs Mantangi Rubber Pvt Ltd (Delhi ITAT) (ITA No. 4498/Del/2013) dated 29 May 2015. Bombay Mercantile Co-op Bank [322 ITR 87] (Bombay High Court) Cosme Matias Menezes Pvt. Ltd., [379 ITR 31] (Bombay High Court) Lodhi Property Co. Ltd [323 ITR 441] (Delhi High Court) CBDT vs Regen Infrastructure (Writ Appeal No. 1314 of 2016) dated 01.11.2016. Himuda v. ACIT in ITA.No. 480, 481 972/CHD/2012 dated 10.05.2019 18. Ld. Counsel for the assessee further without prejudice to the above submits that, though the Assessing Officer has stated that revised return has not been considered for the purpose of computation of income, however the following disallowances which were made by the assessee in the revised return filed on 31.03.2016 were picked up and disallowed whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give effect to the merger of two entities as approved by the Hon'ble Bombay High Court. However, while completing the assessment the Assessing Officer ignored the revised return of income on the ground that the assessee filed original return of income belatedly as the return was filed only at 00:02 AM on 01.12.2014. Accordingly, Assessing Officer computed income of the assessee by denying the deduction u/s. 80IB(10) of the Act even though the Assessing Officer has quantified allowable deduction u/s. 80IB(10) of the Act, made disallowance u/s. 36(1)(iii) of the Act, disallowance u/s. 14A of the Act, disallowance of business promotion expenses. Apart from these disallowances the Assessing Officer considered even the suomoto adjustments i.e., the disallowance of ₹.4.0572 crores as made by the assessee in its revised return of income for disallowance while computing the income by the Assessing Officer. This shows the Assessing Officer in fact partly acted upon the revised return filed by considering the adjustments as made by the assessee for disallowance in the revised return. The Assessing Officer further conveniently ignored the deductions of ₹.8.165 crores clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the Petitioners based on the returns filed by the Petitioners but only considered whether the delay in filing such returns deserves to be condoned. Such returns and the claim of the Petitioners have to be examined by the Respondents on its own merits. 25. Hon'ble Delhi High Court in the case of Lodhi Property Co. Ltd. v. Under Secretary (ITA-II) Department of Revenue [323 ITR 441] observed as under: - 7. In view of the foregoing, it is absolutely clear that the submissions sought to be raised before us by the learned counsel for the respondent have specifically and categorically been rejected by the Karnataka High Court and the same have been accepted not only by the Board, but also by the Ministry of Law. We notice that a similar view has also been taken by the Bombay High Court in the case of Sitaldas K. Motwani v. Director General of Income-tax (International Taxation): 187 Taxman 44 (Bom). Consequently, agreeing with the Karnataka High Court, we are of the view that the Board has the power under Section 119 (2) to condone the delay in the case of a return which is filed late and where a claim for carry forward of losses is made. 8. Coming back t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith law. In other words, the statute has conferred discretion in the hands of the Board to admit of any claim which is made beyond the period specified for doing so and when once the discretion is conferred by a statute upon an authority, such a discretion is required to be exercised on sound lines. It is one of the important factors to be considered while dealing with an application seeking condonation of delay as to whether grave and irreparable injury or hardship will be caused to the person concerned and as to whether or not the interests of justice would be served better, in condoning the delay. In the instant case, there is no dispute or denial of the fact that the Return of Income filed by the Respondent/Assessee for the Assessment Year 2010-11, has been uploaded sometime past 00.00 hours on 15.10.2010. One can take judicial notice of the fact that uploading of Return requires not only an effort but also consumes sometime. If the Assessee has encountered certain hardship or difficulty in uploading his return, as alleged by him due to a technical snags in the website of the Income Tax Department due to the last hour rush of filing of Returns, the delay deserves to be condone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available as the mandatory requirement of section 80AC would not have been met. 4. Being aggrieved with the direction of ld. CIT(A), the department is in appeal before us and has taken following grounds of appeal: 1. The order of the learned CIT(Appeals) is erroneous and contrary to facts law. 2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in holding that if the uploading and submission of e-filed return by the assessee was completed by 30.09.2009 then the assessee will be get the benefit of deduction u/s 801e. 3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in deleting the addition the addition without giving AO opportunity for rebut as per rule 46A, as no remand report was called for in respect of verifying the electronic trial of filling the return from DIT (Systems). 4. That the order of the Ld. CIT(A) is erroneous and is not tenable on the facts and in law. 5. That the grounds of Appeal are without prejudice to each other. 6. The appellant craves leave to add, to alter, or amend on the ground of at the appeal raised above a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) s direction to the AO is concerned, we find that the assessee itself has clearly stated in its reply reproduced by AO in the assessment order, that the return was uploaded at 12.46 AM on 1-10-2009. Therefore, there was no necessity for restoring the matter to the file of AO for any verification. 10. In view of above discussion, the cross-objection filed by the assessee is allowed and, therefore, the department s appeal has become infructuous. However, since the AO has not examined the assessee s claim u/s 80IC in detail and has rejected the same only on the ground of delay in filing of the return, we restore the matter to the file of AO for examining the assessee s claim u/s 80IC. 28. In view of the above judicial pronouncements and also taking note of the fact that the delay is only of two minutes which was caused due to technical glitch and last hour of rush in the website, we direct the Assessing Officer to treat the original return filed by the assessee for the A.Y. 2014-15 as filed in time and consequently to consider the revised return of income filed by the assessee for the purpose of computing the income of the assessee. 29. Coming to Ground No. 2(a) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied deduction u/s. 80IB(10) of the Act observing that these charges cannot be said to be having direct nexus with the development of housing projects since it is neither part of the cost nor part of the sale receipts. He also observed that once the flat booking is cancelled the said flat is open for sale to some other buyer and sale receipts in respect of that flat would be accounted separately. Thus, the Assessing Officer restricted the claim for deduction allowable u/s. 80IB(10) of the Act to ₹.6,93,86,043/- by reducing the excess claim of ₹.80,73,660/- which is due to inadvertence of the assessee as admitted and also the cancellation Charges of ₹.38,18,880/- from the total claim made at ₹.8,12,78,353/-. In effect the Assessing Officer allowed the claim for deduction u/s. 80IB(10) of the Act by restricting the same to ₹.6,93,86,043/-. However, this was not allowed as deduction while computing the income as the original return was not filed within time. Since, we have directed the Assessing Officer to consider the original return filed with a delay of two minutes due to technical glitch as the return filed in time, we direct the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all have to be reduced from the sale price and only on the balance sale consideration/income, the assessee is entitled for deduction u/s.80IB of the Act. With these observations, we allow the claim of the assessee for deduction u/s.80IB(10) of the Act on the amounts received on cancellation of flats of ₹.38,18,880/-. Thus, Ground No. 2(b) is allowed. 36. Ground No.3 in grounds of appeal is relating to disallowance of business promotion expenses of ₹.2,04,51,610/-. 37. Briefly stated the facts are that, the Assessing Officer in the course of assessment proceedings noticed that assessee incurred business promotion expenses in the form of distribution of gold coins purchased at ₹.2,21,81,610/- from Raksha Bullion, Riddhi Siddhi Bullion, Tribhuvandas Bhomji Zaveri Venus Jewels. The assessee was asked to explain how the said purchases of Bullion and Jewellery is an allowable expense in relation to the business of the assessee. The assessee furnished copies of invoices for the bullion purchases from various parties and submitted that the same was incurred for the purpose of business. Not convinced with the submissions of the assessee the Assessing Officer di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the expenses were incurred for marketing and exhibition of various projects of the assessee overseas and as a result of their marketing efforts, the assessee has been able to sell around 70 flats to various overseas customers. It is further submitted that as a result of the festival offer marketing drive, the assessee was able to book higher sales of units/flats in the projects which were under construction. Therefore, it is submitted that the expenses incurred on gifts to customers is wholly and exclusively for the purpose of business of the assessee and the same is allowable deduction. 40. However, Ld. DR submits that the assessee could prove expenses only to the extent of ₹.17,30,000/- as submitted before the Ld.CIT(A) and therefore in the absence of any details furnished by the assessee the expenses were rightly disallowed by the Assessing Officer and as confirmed by the Ld.CIT(A). 41. We have heard the rival submissions, perused the orders of the authorities below. On a perusal of the order of the Assessing Officer we notice that the assessee furnished copies of invoices for purchase of the Gold coins/bullion made and there is no doubt that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Therefore, the increase in volume of turnover from the previous year to the current year is at ₹.209 Crores. The expenses incurred by the assessee on its scheme for distribution of gold coins when compared to the volume of business is very negligible. Therefore, since floating of scheme by the assessee is not in doubt at all, purchases of gold coins and bullion by the assessee from the parties is proved, incurring of expenses on the distribution of gold coins for the purpose of boosting the business of sale of flats by the assessee cannot be doubted. 44. Therefore, taking totality of facts and circumstances into considerations, we are of the view that the expenses incurred by the assessee towards distribution of gold coins/certificates etc., for promoting its business through a promotional scheme is nothing but expenses incurred wholly and exclusively for the purpose of business. Thus, we direct the Assessing Officer to delete the disallowance of ₹.2,04,51,610/- as confirmed by the Ld.CIT(A). This ground is allowed. 45. In the result, appeal of the Revenue is dismissed and appeal of the assessee is allowed. Order pronounced in the open court on the 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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