TMI Blog2021 (5) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... t made to the recipient of income is unreasonable or excessive. In fact, the ld CIT(A) has noted that the assessee has paid commission to this party @ 1% whereas commission to other brokers is paid @2%. Therefore it is apparent that conditions satisfied u/s 40A(2) of classifying expenditure as excessive or unreasonable is not satisfied as the comparable market rate for same services provided by unrelated parties are higher. In view of this, we do not find any infirmity in the order of the ld CIT(A) in deleting the above disallowance - Decided in favour of assessee. Capital gain computation - Disallowance on account of cost of improvement while calculating the capital gain earned by the assessee - HELD THAT:- Cost of development was paid to Associated Infrastructure Company for cost of development of the land at the rate of ₹ 200 per sq ft as per tripartite arrangement dated 29.04.2008. The ld CIT(A) considered the agreement and referred to the clauses of agreement at para 5.3. It was noted that the above amount of cost of development was integral part of the development and therefore, it cannot be ignored and disallowed. The purchase agreement itself contains the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or incidental expenditure was disallowed. The ld AO noted this fact and recorded his satisfaction that the claim of the assessee is that it has not incurred any expenditure in earning the exempt income is incorrect. Thus no fault can be found with the action of the ld AO in applying provision of Rule 8 D as it satisfied the condition laid down u/s 14A (2) of the act. As far as the issue of interest expenditure is concerned, it is apparent that assessee has huge interest free funds in form of share capital and free reserve of approximately ₹ 983 crores against the investment in equity shares of ₹ 53 crores. Therefore, in absence of any contrary evidence, the presumption lies in favour of the assessee that investment in such equity shares have been made out of interest free funds. The ld CIT(A) has deleted the same on this basis only. In view of this we do not find any infirmity in the order of the ld CIT(A) in so far as the deleting the disallowance on account of interest. It is also not the claim of the ld AO that the assessee has utilized interest-bearing funds for making investment in the equity shares. So far as the issue of other expenditure there is no just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on facts to the extent as stated above. 3. The revenue in its appeal in ITA No. 3432/Del/2016 has raised the following grounds of appeal:- 1. Ld. CIT(A) has erred on fact and in law in deleting the addition u/s 40A(2)(b) of the Act of ₹ 8308348/- made by the Assessing Officer on account of payment made to related party M/s DLF Home Developers Ltd. 2. Ld.CIT(A) has erred on fact and in law in deleting the addition of 2,38,26,486/- made by the Assessing Officer on account of payment claimed to be made to Associated Infrastructure Company(AIC) for construction of compound wall, leveling of land, construction of labour quarter etc. when the assessee had not furnished any documentary evidence of development work actually done on the land during assessment proceedings. 3. Ld. CIT(A) has erred on fact and in law in deleting the addition of ₹ 1.72.72,980/- made by the Assessing Officer on account of brokerage paid to M/s Totem Infrastructure Pvt. Ltd., on sale of land at Vadora as the asessee had failed to produce any agreement with M/s Totem Infrastructure Ltd for any such arrangement during assessment proceedings. 4. Ld. CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of collection received from customers on account of project Capital Green Phase 1. The assessee has deducted tax at source on the same. The DLF Home Developers is a subsidiary company of the assessee company and therefore, claim of the assessee is that provision of section 40A(2)(b) do not apply to such payment. The said payment being made by the developers assessee for arranging and organizing the collection from customers on behalf of the assessee as marketing right of the project lies with DLF Home Developers only. The ld AO held that the assessee has not incurred these expenses to meet legitimate needs of the business. Therefore, he applied the provisions of section 40A(2)(a) and held that the expenditure made by the assessee are excessive in nature. The ld CIT(A) deleted the above disallowances. 10. Fact shows that the assessee has made payment to the parties for three bills. Two bills have been made dated 30.09.2010 amounting to ₹ 1.40 crores and ₹ 39.18 lakhs. The third bills was paid as per bill dated 31.03.2011 of ₹ 83,08,348/-. The ld AO has disallowed amount involved in last bill but has allowed the earlier two bills despite the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of ₹ 2,38,26,486/- for which major portion is cost for development as per agreement dated 29.04.2008 at ₹ 2,26,10,196/-. Small petty expenses of leveling etc were also incurred. The cost of development was paid to Associated Infrastructure Company for cost of development of the land at the rate of ₹ 200 per sq ft as per tripartite arrangement dated 29.04.2008. The ld CIT(A) considered the agreement and referred to the clauses of agreement at para 5.3. It was noted that the above amount of cost of development was integral part of the development and therefore, it cannot be ignored and disallowed. The purchase agreement itself contains the provisions for development of land at the behest of the Vendor. It was also carried in the books of accounts of earlier years. Therefore, there is no justification for the ld AO to disallow the same. Accordingly, we confirm the order of the ld CIT(A) in deleting the addition of ₹ 2,38,26,486/- as cost on improvement for the land sold. Accordingly, the ground No. 2 of the appeal of the ld AO is dismissed. 13. The ground No. 3 is against the deletion of addition of ₹ 1,72,72,980/- on account of broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the ld CIT(A) in deleting the above disallowances. Accordingly, ground No. 3 of the appeal of the ld AO is dismissed. 15. Ground No. 4 and 5 of the appeal of the ld AO and ground No. 1 to 3 of the appeal of the assessee are on the issue of disallowance made u/s 14A of the Act. The facts shows that the assessee has made investment in shares to the tune of ₹ 53.51 crores and during the year assessee has received the dividend of ₹ 22,34,355/-, which is exempt income u/ 10 (34) of the act. The ld AO noted that the assessee has made interest payment and has also incurred certain expenditure. Therfore according to him, the assessee has incurred proportionate expenditure for earning exempt income. Therefore, disallowances u/s 14A of the Act is required to be made. During the assessment proceedings, the assessee offered voluntarily disallowances made under Rule 8D of ₹ 6,23,210/- being 50% of salary of ₹ 12,46,542/- on one of the employee for disallowances. However, assessee did not make any disallowance in the return of income u/s 14A of the act. As assessee has offered disallowances during assessment proceedings, The ld AO recording his sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee did not given any basis for allocating 50% of the salary of one person. No other corresponding expenditure or incidental expenditure was disallowed. The ld AO noted this fact and recorded his satisfaction that the claim of the assessee is that it has not incurred any expenditure in earning the exempt income is incorrect. Thus no fault can be found with the action of the ld AO in applying provision of Rule 8 D as it satisfied the condition laid down u/s 14A (2) of the act. As far as the issue of interest expenditure is concerned, it is apparent that assessee has huge interest free funds in form of share capital and free reserve of approximately ₹ 983 crores against the investment in equity shares of ₹ 53 crores. Therefore, in absence of any contrary evidence, the presumption lies in favour of the assessee that investment in such equity shares have been made out of interest free funds. The ld CIT(A) has deleted the same on this basis only. The judicial precedents also now support this claim of the assessee. Hon. Delhi High court in CIT V Taikisha Eng Co Ltd [2015] 54 taxmann.com 109 (Delhi)/[2015] 229 Taxman 143 (Delhi)/[2015] 370 ITR 338 (Delhi)/[2015] 275 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income' that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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