TMI Blog2021 (8) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ELD THAT:- Both the parties fairly agreed that this issue is now settled by the judgments of CIT v. BSES Yamuna Power Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT] and in the case of Birla Soft Ltd. [ 2014 (2) TMI 1343 - SC ORDER] - Respectfully, following these judgments, it is held that CIT (A) s order on this issue does not need any interference and is hereby upheld. The Ground No. 3 raised by the department is accordingly dismissed. Disallowance of Foreign Tour Expenses of wife of one of the Directors of the company - HELD THAT:- As decided in judgment of Hon ble Gujarat High Court in the case of Sayaji Iron Engineering Ltd. [ 2001 (7) TMI 70 - GUJARAT HIGH COURT] to claim that there cannot be any personal element in the hands of the corporate entity and disallowance made by the AO was wholly unjustified - Decided against revenue. Losses claimed in respect of Dwaraka Project - According to the Department, these losses had been worked out by the assessee on estimated basis and in an unscientific manner - main reason given by the Assessing Officer was that very small amount of expenditure had been incurred by the assessee on the project till Assessment Year 2008-09 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh their personal credit cards and the element of personal nature in such expenses cannot be ruled out - AO disallowed 20% of the total expenses debited under the head Sale Promotion on that reasoning on an estimated and adhoc basis - HELD THAT:- CIT (A) correctly observed that company is an artificial legal entity and incapable of incurring any personal expenses. For this legal proposition, the Ld. CIT (A) followed the judgment of Hon ble Gujarat high Court in the case of Sayaji Iron Engineering Co. . [ 2001 (7) TMI 70 - GUJARAT HIGH COURT] - Decided against revenue. Addition of bad debts written off - AO disallowed on account of bad debts written off, which mainly represented the advances given to various parties who were suppliers of the assessee in the ordinary course of its business - AO disallowed this amount on the plea that the amount written off are not covered u/s 36(1)(vii) - CIT (A) deleted this disallowance by holding that if the advances given to the supplier and the expected goods and services are not received against such advances and become irrecoverable, the same represent business loss u/s 28 and are allowable u/s 37 even if the same are not allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were heard together and this common order is passed dealing with the various issues raised by the department as well as the assessee. We will first take up the appeal for the A.Y. 2008-09 filed both by the assessee as well as the department. ITA NO. 898/DEL/2013 A. Y. 2008-09 2. At the outset, the Ld. Counsel for the assessee, Mr. Pradeep Dinodia stated that assessee does not want to press the solitary ground raised by it in its appeal pertaining to disallowance of ₹ 7,90,230/- on account of replacement fund in view of the findings of Ld. CIT(A) on this issue. In the written synopsis dated 25.06.2021 filed online, the assessee has opted not to press the solitary ground raised in this appeal. In view of this submission of the assessee, the appeal filed by the assessee being ITA No. 898/Del/2013 is treated as dismissed. The appeal of the assessee is dismissed. ITA No. 1348/Del/2013 A. Y. 2008-09 3. Now we shall deal with the departmental appeal as above. The facts in brief are that assessee filed its Return of Income for A. Y. 2008-09 declaring an income of ₹ 23,90,50,763/- on 30.09.2008. The case of the assessee was picked up for scrutiny and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors and liability of the assessee has ceased to exist. The Ld. CIT-DR relied upon the findings of AO as contained in the assessment order. 6. The Ld. AR of the assessee submitted that addition made by the AO is not as per law and provisions of section 41 of the Income Tax Act. In the synopsis dated 25.06.2021 filed online the assessee has submitted on this issue as under:- It was submitted before the CIT (Appeals) that the facts of the assessee s case were not at par with T V Sundaram judgment and it was also explained that the subsequent judgment Hon ble Supreme Court in the case of CIT Vs. Singauli Sugar Works (236 ITR 518) have explained the provisions of Section 41(1) and has clearly laid down the proposition that simply on expiry of the period of the limitation under the Limitation Act could not extinguish the debt and provisions of Section 41(1) are not attracted. (PB- 80-87). It was further explained that these clarifications by Hon ble Supreme Court has subsequently been accepted by the Ho ble Punjab Haryana High Court in the case of CIT Vs. Smt. Sita Devi Juneja (187 Taxman 96) and also in CIT Vs. G P International (186 Taxman 229). The reference was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machinery. The assessee claimed depreciation @ 60%/30% for these items depending upon the period of acquisition is more than 180 days and less than 180 days but AO restricted the claim to 15%/7.5% and worked out a disallowance of ₹ 72,199/-. At the time of hearing, both the parties fairly agreed that this issue is now settled by the judgments of Hon ble Delhi High Court and eventually Hon ble Supreme Court in the case of CIT v. BSES Yamuna Power Ltd. [358 ITR 47 (Delhi)] and in the case of Birla Soft Ltd. [TS-82-SC-2014]. Respectfully, following these judgments, it is held that CIT (A) s order on this issue does not need any interference and is hereby upheld. The Ground No. 3 raised by the department is accordingly dismissed. 10. Ground No. 4. This ground has been raised by the revenue against the relief allowed by the Ld. CIT (A) on account of disallowance made by the AO towards the Foreign Tour Expenses of wife of one of the Directors of the company. The AO in the Assessment Order observed that when Mr. Aveneesh Sood travelled overseas his wife Mrs. Tithi Sood also travelled. On being required to explain, the assessee claimed before the AO that Mrs. Tithi Sood was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is squarely covered in favor of the assessee by an order of this Tribunal in ITA No. 4832/Del/2014 in A. Y. 2010-11. Respectfully following the said order, we dismiss this ground of appeal of the department and confirm the order of Ld. CIT (A) on this issue. Ground No. 4 of the Department is dismissed. 15. GROUND NO. 5: This Ground of Appeal has been raised by the Department against the relief allowed by the CIT (A) in respect of losses claimed by the assessee amounting to ₹ 18.52 Crores in respect of Dwaraka Project. According to the Department, these losses had been worked out by the assessee on estimated basis and in an unscientific manner. 16. The facts pertaining to this issue as noted and discussed at Pages 1 to 12 of Assessing Officer s Order for A. Y. 2008-09 are that, auditors had given a Note No. 2 in the audit accounts that loss of ₹ 18.52 Crores has been written off in a commercial project as the estimated total contract cost and revenue indicate a loss. Picking up a thread from this note, the Assessing Officer was of the view that such loss was claimed on estimated basis on which the Assessing Officer required the assessee to explain the basis of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 451). d. Hon ble Supreme Court and Hon ble Delhi High Court in the case of CIT Vs. Woodward Governor of India Pvt. Ltd. (Supra) 312 ITR 254 (SC). 17. On the proposition that reasonably estimated liability on the date of drawing the accounts has to be accounted for and are legally allowable, following judgments are relied upon: a. Supreme Court in the case of Bharat Earth Movers (2004) 245 ITR 428 (SC). b. Metal Box Company of India Ltd. V. Their Workmen (1969) 73 ITR 53 (SC). c. Calcutta Co. Ltd. V. CIT (1959) 37 ITR 1 (SC). d. CIT V. Insilco Ltd. 179 Taxman 5 (Delhi) 18. Thereafter, the Assessing Officer required the assessee to explain the basis of computation of loss which was furnished. Similarly, other details as required by the AO in respect of total salable area, total area actually sold and agreed sales realization in respect of area sold, total unsold area and the rate at which such unsold area has been estimated were called for which were also furnished by the assessee as recorded by the AO at Page No. 7 of his Order. The complete details of total project cost at ₹ 176.10 Crores were given Page 6 of AO s Order. Similarly, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has opined that the entire dispute is about the allocation of loss in these 5 assessment years during which the project was completed i.e. Assessment Year 2008-09 to Assessment Year 2012-13. The learned CIT DR submitted that the Order of Assessment for Assessment Year 2009-10 will also have to be read along with the Order of Assessment for Assessment Year 2008-09 because learned CIT(A) has considered the entire period during which this project continued and allocated the total losses over the period of 5 years under the POCM method. To that extent the submissions being made by Ld. CIT-DR as well as by Ld. AR on this issue shall also cover Ground No. 2 raised by the department in A. Y. 2009-10 in ITA No. 1349/Del/2013. 24. The learned DR brought certain facts to our notice wherein it was submitted that whereas in Assessment Year 2008-09 the assessee claimed the total estimated cost of this project at ₹ 176.10 Crore and total estimated revenues at ₹ 157.58 Crores and determined the loss at ₹ 18.52 Crores, going forward for Assessment Year 2009-10 while revising the cost of this project at ₹ 173.26 Crores, the assessee estimated the sale value at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er should be restored back to the file of CIT (A) for examining this aspect and then render his findings on the issue to determine the losses claimed by the assessee. Selling the space at heavy discounted price of 31.5% as against 5% discount which the learned AO has accepted and granted over the last sale price to independent party was the only reason, which according to learned CIT-DR has caused losses to the assessee over and above, what the AO has determined by taking a cumulative view for Assessment Year 2008-09 till Assessment Year 2009-10. The learned CIT-DR concluded his submissions by reiterating his earlier submissions that the matter should be restored back to the file of CIT (A) for adjudication on the issue of sale price of the unsold area which has been sold in Assessment Year 2009-10 to a sister concern at a hefty discount of 31.5% which according to the learned AO and Department should not exceed 5% as has been fairly given by the AO. 26. Mr. Pradeep Dinodia Ld. Counsel appearing on behalf of the assessee submitted with reference to the ground raised by the department on this issue that the only grievance which the department has on this issue is about the estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract. AO s reasoning in the assessment order that only about 30% area has been booked has no relevance in view of the aforesaid clauses in AS-7. It has been submitted that the learned CIT (A) has categorically held that Accounting Standards prescribed by the CBDT are required to be followed. To buttress these submissions, the learned AR has referred to and relied upon various judgments, some of which are as under: a. Jacobs Engineering India Pvt. Ltd. Vs. ACIT (ITA No. 335/Mum./2007 336/Mum./2007). b. Hon ble Bombay Tribunal in the case of Mazagaon Dock Limited Vs. JCIT (29 SOT 356). c. Hon ble Delhi High Court in the case of CIT vs. Woodward Governor of India Private Limited (294 ITR 451). d. Hon ble Supreme Court and Hon ble Delhi High Court in the case of CIT Vs. Woodward Governor of India Pvt. Ltd. (Supra) 312 ITR 254 (SC) 29. Similarly the learned AR submitted that, whether the estimates of the project cost made by the assessee were realistic based on the relevant costs or not and in case the AO had any doubt about the said cost, he should have gone for independent valuation as has been held by Hon ble Delhi High Court in the case of CIT V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, j and k at Page 32 to 33 of the learned CIT (A) s Order which for the sake of ready reference are reproduced as under: h. All remaining spaces were booked on down payment basis by NPHREPL and are eligible for major discounts. No commission was paid/payable on these bookings; no further expenses were required to be incurred for Advertisement and other marketing activities. Further, the company has anticipated substantial saving in inventory carrying cost in the shape of interest. i. Purchase price in the case of NPHREPL has been accepted by the same AO and no adverse inference has been drawn in that case. j. Based on same purchase price, income earned by NPHREPL in subsequent years has also been assessed and brought to tax by same AO. k. Assessee company has taken prudent decision to sell the spaces at best possible rate to save interest cost and other recurring expenses. 32. Our specific attention was drawn to the submissions dated 09.10.2012 made before the learned CIT(A) in Assessment Year 2009-10 which are available at Paper Book Pages 54 to 88 wherein the detailed submissions and reasons of losses in this project has been explained. 33. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated at ₹ 176.1 Crores in A. Y. 2008-09, about 70% of the cost was represented by the value of land at ₹ 122.98 Crores. When there is substantial drop in the market value of land which is also sold as part and parcel of any space constructed by the assessee, the loss is inevitable. It was undisputedly demonstrated before the Ld. AO as well as before Ld. CIT (A) that there was drop of about 40% in the land prices as was evidenced from the reserved price of the land which was sought to be auctioned by the DDA. All the supporting evidence on this issue had been filed which are uncontroverted it was submitted. 34. On the specific issue of allowing 31.5% discount to the sister concern, the AR of the assessee submitted that in view of the deteriorating real estate market heavy borrowed funds were involved in the project which was affecting the entire future growth of the company. The assessee company worked out a formula to offer discount on bulk sale to a sister concern, who was having sufficient surplus funds. Such discounts were worked out as under: Discount for Bulk booking on down payment basis 24% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that both the assessee as well as the sister concern were assessed by the same AO simultaneously around the same time. Assessment Order of the assessee for A. Y. 2009-10 is dated 29.12.2011 passed by DCIT, Central Circle-6, New Delhi and assessment order of NPHRPL for A.Y. 2009-10 is dated 12.12.2011 by the same AO i.e. DCIT, Central Circle-6, New Delhi. It has been submitted that if the Ld. AO has accepted the purchase price of the same item in NPHRPL, there is no reason to alter sale price of the assessee. The AR submitted that tax rates of both the companies are same and hence there is no tax leakage viewed from any angle. 37. The Ld. AR further submitted that the provisions of section 40A (2)(b) have been wrongly relied upon by the Ld. AO because section 40A(2)(b) is applicable to expenses incurred and not on the sales transactions. Bonafide sales made cannot be adversely viewed and sales amount actually realized cannot be questioned by the AO. Reliance for this proposition was made by the Ld. AR on the judgment of Hon ble Supreme Court in the case of A. Raman Co. as reported in 67 ITR 11 (SC). 38. It is also submitted by Ld. AR that there is no dispute on costs incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting that the order passed by Ld. CIT (A) deserves to be upheld on all counts. If order of Ld. CIT (A) is upheld, then assessee s cross appeal in A. Y. 2009-10 restricting the loss claimed in ITR at ₹ 25.48 to ₹ 19.1 Crores as per allocation of loss done by Ld. CIT(A) in his order, will also have to be dismissed because assessee has been granted the differential loss in the next 3 assessment order i.e. A. Y. 2010-11, 2011-12 and 2012-13 in the appeal effect orders by the AO. DECISION 41. We have heard both the parties and perused the relevant material referred to us at time of hearing on the issue of allowability of loss on the Dwarka Project. Succinctly, the facts as noted from the assessment orders passed by the Ld. AO are that in A. Y. 2008-09, it is seen that the AO was of the view that Dwarka Project will not return losses which view of the AO stood changed when he passed assessment order for A. Y. 2009-10. Against the cumulative loss of ₹ 44 Crores till A. Y. 2009-10 out of which assessee claimed ₹ 18.52 Crores in A.Y. 2008-09 and balance ₹ 25.48 Crores in A. Y. 2009-10, the AO calculated and accepted the loss of ₹ 14.98 Crores an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period were substantially falling down. Under the circumstances it is only the last realized price which could have been taken the basis for valuing the sale price realization for the unsold stock for the purpose of considering the sales realization under the POCM method, which in our view, had been correctly done by the assessee in A. Y. 2008-09. The facts and figures given by the assessee regarding the downward trend in the property prices are unconverted and unchallenged. There is no evidence on record brought out by the AO or by Ld. CIT-DR before us that the claim of the assessee about the downfall the real estate sector was not correct. Therefore, all the reasons or grounds on which loss of ₹ 18.52 Crores was disallowed by the AO in A. Y. 2008-09 have no substratum to stand. The only reason for working out the losses in A. Y. 2008-09 and A. Y. 2009-10 as also submitted by Ld. CIT-DR, is that the AO was of the view that 31.5% discount allowed by the assessee while selling major area to its sister concern in A. Y. 2009-10 is not justified and only 5% discount would have been sufficient. 43. The other aspects of the issue that POCM method is applicable, As-7 is applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of 31.5%. Carrying cost of stock, commission expenses, selling expenses such as advertisements and other administrative expenses/estimated by the assessee have not been refuted either by the AO or Ld. CIT-DR before us and remain uncontroverted and unchallenged. Whereas assessee had given a detailed explanation about giving 31.5% discount on unsold stock, how AO estimated the discount figure of 5% is not reasoned by the AO in the assessment order and is a mere guess work. Such an adhoc approach adopted by the Ld. AO has no basis and cannot be sustained. How the business affairs are to be conducted and what is the best for the business has to be judged by a businessman and how much discount was required to be given in a given situation has to be decided by the business. As long as the transactions are genuine and actually carried out, no faults can be found simply because the parties to the transaction are related. Courts across the country have time and again reiterated these principles. AO cannot judge these transactions sitting in the arm s chair of a businessman. Reasonableness of expenditure, the test of commercial expediency would be required to be judged from the point of vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as transactions between the transacting parties are genuine, no challenge can be thrown to the prices decided between the parties. The AO has subsequently in A. Y. 2010-11, 2011-12 and 2012-13 accepted both the cost of the project and the sales actually realized in line with the previous year s estimation. 47. A cumulative appreciation of all the facts and legal position as gathered and applicable to the facts of this case on this ground would lead to a natural conclusion that AO was not justified in disallowing losses in A. Y. 2008-09 and also in A. Y. 2009-10. 48. Now next issue which is required to be considered by us as to whether the order of Ld. CIT (A) requires any change vis - vis total losses of this project having been allocated in the manner indicated by him in his order. The Ld. Counsel of the assessee has claimed that as per the losses allocated by Ld. CIT(A) ₹ 32.90 Crores was required to be allowed in A.Y. 2008-09 only as against ₹ 18.52 Crores claimed by the assessee in its ITR. However, Ld. CIT (A) has restricted the losses in A. Y. 2008-09 to the extent of ₹ 18.52 Crores and reallocated major part of this loss in A. Y. 2009-10. As per the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst Ground No. 2 for A. Y. 2008-09 in ITA No. 1348/Del/2013. Since all the facts, reasons of the AO while making disallowance as well as the grounds on which relief has been granted on this issue by the Ld. CIT(A) are identical, we dismiss this ground of appeal raised by the department in line of our order for A. Y. 2008-09 (supra). 52. Ground No. 4. This ground of appeal has been raised for deleting the disallowance on account of excessive depreciation on Printers UPS. Both the parties have agreed that the reasoning of the AO while making the disallowance as well as the grounds on which the Ld. CIT(A) has granted relief are similar to Ground No. 3 for A. Y. 2008-09 in ITA No. 1348/Del/2013. This issue has already been decided by us in Ground No. 3 of the department for A. Y. 2008-09 (supra). On the identical reasoning, we dismiss this ground of appeal of the department. Appeal No. 899/Del/2013 A. Y. 2009-10 53. The assessee has filed cross appeal against the order of CIT (A) on account of the fact that assessee claimed a total loss of ₹ 25.48 Crores in A. Y. 2009-10. Out of this, the Ld. CIT (A) allowed the loss of ₹ 19.1 Crores as per POCM method and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, appeal of the department for A. Y. 2011-12 being ITA no. 5776/Del/2014 is dismissed. ITA No. 2083/Del/2015 A. Y. 2012-13 58. Ground No. 1 raised by the department in this year is general and does not require any adjudication. 59. Ground No. 2: This ground has been raised against deletion of ₹ 1,38,740/- on account of sale promotion expenses which was made by the AO. This disallowance was made by the AO on the reasoning that directors of the company had incurred these expenses through their personal credit cards and the element of personal nature in such expenses cannot be ruled out. The AO disallowed 20% of the total expenses debited under the head Sale Promotion on that reasoning on an estimated and adhoc basis. 60. The Ld. CIT (A) deleted this disallowance made by the Ld. AO by following his own order for the A. Y. 2010-11. The Ld. CIT (A) observed that company is an artificial legal entity and incapable of incurring any personal expenses. For this legal proposition, the Ld. CIT (A) followed the judgment of Hon ble Gujarat high Court in the case of Sayaji Iron Engineering Co. v. CIT 172 CTR 339. 61. It is noticed that this issue also came up befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 which are being decided simultaneously in this order itself. Since the order of Ld. CIT(A) for A. Y. 2008-09 and 2009-10 has been upheld in toto. The ground of appeal raised by the department on this issue is dismissed. Needless to mention that as already observed in the earlier part of our order, the department has allowed similar relief to the assessee in A. Y. 2010-11 following the same order of Ld. CIT (A) and has not filed any appeal against such order. This ground of appeal is consequential to the orders passed by us for A. Y. 2008-09 and 2009-10 (supra), therefore needs to be dismissed. ITA No. 1704/Del/2015 A. Y. 2012-13 65. The solitary ground raised by the assessee in this appeal pertains to disallowance of ₹ 10,47,025/- incurred by the assessee during the year as ground rent on lease hold properties to L DO. According to the AO this amount is not allowable u/s 43B of the Income Tax Act and shall be allowed only in the year in which this is actually paid by the assessee. The Ld. CIT (A) has concurred with the views of the Ld. AO by holding that although the nature of payments specified is not covered by clause (b) to (f) of section 43B, but it may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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