TMI Blog2021 (11) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... kerage commission expenses - no corresponding sales were recognized as revenue/income by the assessee company during the year under consideration - HELD THAT:- Admittedly, it is a matter of fact borne from the record that the assessee had shown the brokerage and commission expenses as prepaid expense in its audited accounts. However, the assessee had claimed the aforesaid expenses as a deduction while computing its income for the year under consideration. Insofar the claim of the revenue that the assessee s claim for deduction was liable to be rejected, for the reason, that it had itself reflected the same as prepaid expenses, the same does not find favor with us. Hon ble Supreme Court in the case of CIT Vs. British Paints Limited [ 1990 (12) TMI 2 - SUPREME COURT] has held, that it is not only the right but the duty of the Assessing Officer to act in exercise of his statutory power and reject the accounting system adopted by the assessee for determining what, in his opinion, is the correct taxable income - we are unable to persuade ourselves to accept the aforesaid claim of the revenue that as the assessee had reflected the aforesaid expenses as prepaid expenses and had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, then, the Closing WIP be increased by the amount of the sale proceeds of the TDR's - As the view taken by the lower authorities that the profit/surplus on the sale of TDR s is to be assessed as the business income of the assessee has been approved by us, therefore, we herein direct the A.O to increase the value of the Closing WIP to the extent of the cost of the TDR s whose corresponding sale consideration was reduced by the assessee from the WIP cost i.e the project cost. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee. Depreciation on office equipments, vehicles etc. - As assessee who was engaged in the business of a builder developer had not recognized any income from such development activity during the year under consideration, the A.O declined his claim for depreciation - HELD THAT:- As observed by the CIT(A), and rightly so, unlike the depreciation on assets which are directly linked to the project and are to be included in the project cost i.e WIP cost; depreciation on office equipments, computers, fixtures and furniture and vehicles which are used for ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest u/s.36(1)(iii) of ₹ 1,23,87,552/- under the reason that interest bearing funds had been utilised for acquiring the shares of subsidiary company; 1.1 Without prejudice to Ground No.1.0 a prayer is made to direct Ld. AO to allow the capitalization of interest of ₹ 1,23,87,552/- to investment in shares; 2.0 On facts and circumstances of the case and in law, Ld. CIT(A), having accepted the brokerage paid of ₹ 1,24,64,408/- as directly related to sale of flats, however erred in confirming the disallowance of such brokerage since corresponding sales were not recognized as revenue income during the year; 3.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in sustaining the addition of surplus earned on sale of TDR of ₹ 3,25,71,195/- thereafter enhancing such income at ₹ 5,56,12,975/-, though appellant had claimed that such surplus on TDR is to be reduced from Work-in-progress (WIP) of the housing project; 3.1 Without prejudice to Ground No.3.0, Ld. CIT(A) having taxed the profit on sale of TDR of ₹ 5,56,12,975/- as business income, ought to have directed the Ld. AO to correspondingly increase the work-in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company as its revenue/income during the year under consideration confirmed the disallowance made by the A.O. However, the alternative contention of the assessee that the aforesaid expenses be treated as part of its work-in-progress (W.I.P) was principally accepted by the CIT(A). Accordingly, the CIT(A) directed the A.O to add the amount of the brokerage and commission expenses for the purpose of computing the WIP i.e the project cost on 31.03.2012 subject to verification of the genuineness of the said expenses. As regards the addition of the profit on sale of TDR of ₹ 3,25,71,195/- that was made by the A.O, the CIT(A) rejected the assessee s claim that the profit/surplus arising therefrom was not liable to be assessed in its hands and was rightly reduced from the WIP i.e the project cost. It was observed by the CIT(A) that as the profit derived on sale of TDR had no inextricable nexus with the construction activity of the assessee, therefore, the aforesaid treatment of the profit on sale of TDR in its books of accounts was not correct. Observing that though the assessee had earned a profit of ₹ 5,56,12,975/- from the sale of TDR, however, the A.O had on an estimate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Yashwardhan Pramod Goenka a/w his application seeking condonation of the delay involved in filing of the present appeal. The ld. A.R took us through a letter that was addressed by Shri Yashwardhan Pramod Goenka, dated 19.02.2018 to the Dy. Commissioner of Police, Sahar Police Station, Mumbai, wherein he had lodged a complaint and had sought registering of a FIR about his father i.e Shri Pramod Kumar Goenk having gone missing upon landing at Mozambique, East Africa. Further, our attention was drawn to the letters dated 20.02.2018 and 24.02.2018 that were filed by Mr. Yashwardhan Goenka (supra) with the Dy. Commissioner of Police, Bandra seeking his intervention for filing of a FIR concerning certain persons who were allegedly involved in the abduction of his father. Also, the ld. A.R took us through another letter dated 07.03.2019 that was addressed by Mr. Yashwardhan Pramod Goenka to the Dy. Commissioner of Police, Andheri wherein he had followed up the matter and had sought information as regards the progress in respect of the aforesaid matter. The ld. A.R also took us through a letter addressed by Mr. Sharad Pawar, Member of Parliament, dated 20.02.2018 to the Minister of Extern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that the assessee s claim that its chartered accountant who was looking after the affairs at the relevant point of time had not advised him to file the appeal before the Tribunal was a totally unsubstantiated claim and could not be acted upon in the absence of any supporting material. 7. We have given a thoughtful consideration to the aforesaid request of the assessee for condonation of the delay involved in filing of the present appeal before us. After giving a thoughtful consideration, we find that there are justifiable reasons which had led to the delay on the part of the assessee in filing the present appeal. As observed by us hereinabove, the fact that Shri Pramod Goenka i.e father of Shri Yashwardhan Pramod Goenka, Managing Director of the assessee company was abducted during his visit to Mozambique, East Africa stands duly substantiated on the basis of the exhaustive documents that have been filed by the assessee before us. Apart from that, we find that the aforesaid factual position is duly supported by the affidavit of Shri Yashwardhan Pramod Goenka, wherein he had clearly deposed the aforementioned facts. Further, we also find substantial force in the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which subsequently had became its wholly owned subsidiary company. However, the A.O did not find favor with the aforesaid claim for deduction of interest expenditure by the assessee and disallowed the same. It was observed by the A.O that the assessee had not debited the aforesaid interest expenditure in its Profit and loss account and had shown it as a current asset in its balance sheet. It was further noticed by the A.O that though the assessee had acquired 100% shareholding of CCPL, however, it was proposed by the assessee to sell the said shares in future. Accordingly, the A.O was of the view that the interest paid by the assessee on the amount borrowed for acquiring the shares of CCPL was to be capitalized as a part of the cost of the shares, which thereafter on its sale would result to lower amount of capital gain in the hands of the assessee. 10. On appeal the CIT(A) did not find any infirmity in the view taken by the A.O. It was observed by the CIT(A) that the reliance placed by the assessee on the judgment of the Hon ble Supreme Court in the case of S.A. Builders Limited Vs. CIT(Appeals) Anr. (2007) 288 ITR 1 (SC) being distinguishable on facts would thus not assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A.R that the lower authorities had failed to appreciate that the investment for acquiring the shares of CCPL was made by the assessee out of the mixed funds that were available with it in the bank accounts. It was submitted by the ld. A.R that as a matter of fact the acquisition of shares of CCPL was primarily sourced from the maturity proceeds of its fixed deposits held with Oriental Bank of Commerce, Mumbai. In order to drive home his aforesaid claim the ld. A.R had taken us through the investments that were made by the assessee in CCPL and the copy of its bank accounts at Page No. 5 -10 of APB. It was further submitted by the ld. A.R that no part of the interest on borrowed capital was disallowed by the department in its case for the preceding year during which the shares of CCPL were purchased/acquired. It was further submitted by the ld. A.R that as the assessee had sufficient own funds to justify the investment made in purchase of shares of CCPL, therefore, no part of the interest on borrowed capital was liable to be disallowed. In order to support his aforesaid claim the ld. A.R had drawn our attention to the balance sheet of the assessee company on 31.03.2012. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of HDFC Bank Ltd. (supra) that in case of mixed funds i.e interest bearing borrowed funds and the self-owned funds/interest free funds available with an assessee, the presumption would be that the investment was made by the assessee out of its self-owned funds. We are of the considered view that pursuant to the availability of sufficient interest free funds with the assessee to justify the investment of ₹ 20.44 crore made towards purchase of shares of its subsidiary company, viz. CCPL, no part of the assessee s claim for deduction of the interest expenditure u/s 36(1)(iii) could have been disallowed. We, thus, set-aside the order of the CIT(A) and vacate the disallowance of ₹ 1,23,87,552/- made by the A.O u/s 36(1)(iii) of the Act. The Ground of appeal No. 1 is allowed in terms of our aforesaid observations. 13. As the ld. A.R had stated that the ground of appeal No. 1.1 is not being pressed, therefore, as per his concession the Ground of appeal No. 1.1 is dismissed as not pressed. 14. We shall now advert to the assessee s grievance that the CIT(A) had erred in upholding the disallowance of the assessee s claim for deduction of brokerage commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31.03.2012 though, subject to verification of the genuineness of the said expenses. 16. Before us, it was submitted by the ld. A.R that as the brokerage expenses are finance/selling expenses, therefore, they have to be allowed in full as a revenue expenditure despite the fact that the assessee might not have generated any revenue from sale of flats/office premises during the year under consideration. It was submitted by the ld. A.R that the assessee as a builder/developer of real estate had to incur brokerage and commission expenses in the normal course of its business. It was the claim of the ld. A.R that as the brokerage and commission expenses are in the nature of selling expenses, therefore, the same could not be included for valuing the project W.I.P cost. In order to buttress his aforesaid claim the ld. A.R had relied on AS-7 Para 8.4 to Para 8.8. Adverting to Para 8.7 of AS-7, it was submitted by the ld. A.R that the same, inter alia, provided that as selling costs were in the nature of costs that were though related to the activities of the contractor generally, but cannot be related to specific contracts, therefore, the same were allowable as a deduction. Refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction while computing the assessee s income. Apart from that, it was submitted by the ld. D.R that the assessee itself had reflected the aforesaid expenses as prepaid expenses and had not debited the same in its Profit and loss account for the year under consideration. 18. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Admittedly, it is a matter of fact borne from the record that the assessee had shown the brokerage and commission expenses as prepaid expense in its audited accounts. However, the assessee had claimed the aforesaid expenses as a deduction while computing its income for the year under consideration. Insofar the claim of the revenue that the assessee s claim for deduction was liable to be rejected, for the reason, that it had itself reflected the same as prepaid expenses, the same does not find favor with us. As stated by the ld. A.R, and rightly so, as held by the Hon ble Supreme Court in the case of Kedarnath Jute Manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Universal Limited (supra) this Conn after framing questions with respect to allowance under brokerage and commission claimed the assessee in the context of percentage completion method adopted by it held as follows: 8. The assessee had claimed ₹ 61,78,414/- as expenditure towards brokerage and commission. The amount was paid to its brokers for booking and sale of certain properties during the assessment year. The Assessing Officer disallowed this expenditure on the ground that during the conveyance of the sale deeds were not executed. The CIT(A) and ITAT accepted the assessee s contentions and set aside the disallowance. At the outset, we notice that the assessee s explanation clearly suited is as follows:- In this connection it is submitted that brokerage and commission :s nut a direct expenses for acquiring to specific property but it is in fact financial cost/selling expenses and is fully allowable in the year in which the same is incurred. The property brokers who have rendered their services to obtain advances on booking of properties are entitled to the payment of commission in terms of agreement entered into with them. Therefore, the expenses incurred on br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able Development Rights (TDR) of ₹ 3,25,71,195/-, but had further erred in enhancing the said addition to an amount of ₹ 5,56,72,975/-. During the course of the assessment proceedings, it was observed by the A.O that the assessee had sold certain quantity of TDR s that were purchased from the market in the preceding years. It was noticed by him that the TDR s were sold by the assessee during the year for a consideration of ₹ 13,02,84,774/-. As per Note 29 of the notes to the accounts it was the claim of the assessee that as it was constructing a residential project at Thane, therefore, it had purchased the TDR s from the market in the prior years. It was further stated that due to certain factors the management of the company considering the stage of development of its aforesaid project had carried out a technical evaluation of the TDR s in hand, and being of the view that certain quantity of TDR s would not be required for a certain period of time had thus decided to liquidate the same and re-purchase it as and when it was so required. As per Schedule-21 (project expenses) of the audited accounts the assessee had reduced the project cost i.e WIP cost of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld again form part of its project cost. The CIT(A) directed the assessee to furnish the details as regards the profits from transactions in TDR s which was furnished by the assessee as under : Particulars Date Quantity in Sq. mt. Total cost Date of sale TDR sold in sq.Mt. Sale proceeds net of brokerage Proportionate cost Profit/Loss TDR 1 08.10.2009 1000 75,96,000 10.12.2011 1000 2,95,10,490 75,96,000 2,19,14,490 TDR 2 22.09.2010 2,013.75 4,36,61,157 10.12.2011 1600 4,78,31,155 4,36,61,157 1,64,79,054 15.12.2011 413.75 1,23,09,056 TDR 3 10.12.2011 4,469 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 5,56,12,975/- that was earned by the assessee from sale of TDR s was liable to be assessed as its business income during the year under consideration. 24. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions in context of the aforesaid issue in question. On a perusal of the record, we find that the TDR s purchased by the assessee from the market were added by him in the respective years to the project cost i.e WIP cost. On the other hand, on sale of the TDR s during the year under consideration i.e. A.Y 2012-13 the assessee had reduced the project cost i.e the WIP cost by the amount of sale consideration i.e ₹ 13,02,84,774/-. It was submitted by the ld. A.R that as the TDR s formed part of its project cost i.e WIP cost, therefore, as and when the same is sold it is to be reduced from the project-WIP. In order to support his aforesaid claim the ld. A.R had relied on the order of a co-ordinate bench of the Tribunal, viz. ITAT D bench, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authorities. Our attention was specifically drawn by the ld. D.R to Para 8.1 to Para 8.3 of the assessment order. 26. Controversy involved qua the issue in question hinges around the solitary aspect i.e as to whether or not the surplus/profit on the sale of TDR s by the assessee was liable to be brought to tax in its hands, as claimed by the revenue; or was to be reduced from the project cost i.e WIP cost, as claimed by the assessee. The TDR s were over the years i.e A.Y 2011-12 to A.Y 2012-13 purchased by the assessee from the market for loading onto its residential project at Thane. TDR s as and when purchased formed part of the project cost i.e WIP cost of the assesse s residential project at Thane. On sale of the TDR s, we find that the assessee adopted a similar approach and reduced the sale consideration of ₹ 13,02,84,774/- from the project cost i.e WIP cost. Rebutting the aforesaid accounting treatment the A.O was of the view that as the sale of TDR s was nothing but a sale of stock-in-trade by the assessee, therefore, the profit/surplus arising therefrom was liable to be brought to tax in its hands during the year of sale. As the details regarding the corresp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same does not merit acceptance. In a case where the TDR is earned by an assessee i.e a builder and developer in the course of execution of its project, then, undeniably the said TDR would be inextricably linked or in fact interwoven and intertwined with the project, and the sale of the same cannot be divorced and therein considered on a standalone basis i.e separately from the project. In cases relied upon by the ld. A.R, viz. M/s DKP Engineers Constructions Pvt. Ltd. (supra) and Skylark Build (supra) the TDR that were sold were earned by the said respective assessee s from their project; unlike the case of the assessee before us who had purchased the same from market. In our considered view, both the lower authorities had rightly observed that as the assessee had purchased the TDR s from market, therefore, the same could by no means be held to be inextricably linked or interwoven with its residential project at Thane. Accordingly, we concur with the view taken by both the lower authorities that as the sale of TDR s in the case of the assessee before us was nothing but a simpliciter sale of stock-in-trade by the assessee, therefore, the profit/surplus arising therefrom was liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncrease the value of the Closing WIP to the extent of the cost of the TDR s whose corresponding sale consideration was reduced by the assessee from the WIP cost i.e the project cost. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee. The Ground of appeal No. 3 is partly allowed in terms of our aforesaid observations. 29. The appeal of the assessee is allowed in terms of our aforesaid observations. ITA No. 6447/Mum/2019 A.Y. 2012-13 30. We shall now take up the appeal filed by the revenue. The revenue has assailed the impugned order on the following grounds before us: 1. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of interest expenses amounting to ₹ 59,00,000/- attributable to the interest free loans by relying upon the decision of Apex Court in the case of M/s. S. A. Builders without appreciating the facts of the assessee company is quite distinguishable from the facts of M/s. S. A. Builders. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in accepting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad by way of additional evidence under Rule 46A of the Income Tax Rules, 1962 furnished the balance sheet of its subsidiary company, viz. CCPL which substantiated the aforesaid factual position. On being confronted with the aforesaid claim of the assessee the A.O failed to rebut the same. Accordingly, the CIT(A) observing that the subsidiary company of the assessee, viz. CCPL had utilized the interest free loan received from its holding company i.e the assessee company for its business purposes, therefore, followed the judgment of the Hon ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT Anr. (2007) 288 ITR 1 (SC) and vacated the disallowance of the assessee s claim for deduction of interest expenditure of ₹ 59,00,000/-. 33. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid contention. Admittedly, it is a matter of fact borne from record that the assessee company had advanced an interest free loan of ₹ 12,88,22,551/- to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r developer had not recognized any income from such development activity during the year under consideration, the A.O declined his claim for depreciation. On appeal, the CIT(A) vacated the disallowance made by the A.O, observing as under : 6.4.1. I have considered the rival contentions. The AR of the appellant submitted that these assets (furniture, computer, office equipment) are located at office premise at Dynamics House, Yashodham, Gen. A.K Vaidya Marg, Goregaon (E), Mumbai. He submitted that thee assets have no direct nexus with the 2 projects carried on by the appellant. The AO s contention that the depreciation is not allowable if the income from the project is not offered for tax is not correct. Depreciation on those assets which are directly linked to the project are to be included in the WIP. On the contrary, depreciation on office equipments, computers, fixtures and furniture and vehicles which are used for administrative work will not form part of WIP and are allowable separately. I, therefore, direct the A.O to allow depreciation of ₹ 70,29,252/- claimed by the appellant. In the result, ground of appeal no. 3 is allowed. We have given a thoughtful c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, therefore, it was not entitled to claim the aforementioned expenses as a deduction. It was observed by the A.O that as the only business of the assessee was to develop the project, therefore, now when the corresponding income from the project was not credited in its Profit and loss account, there was no reason that any expenditure incurred for the purpose of development of the project be allowed as a deduction. It was observed by the A.O that the amount of ₹ 91.49 crore that was received by the assessee against the sale of the projects were reflected as advances in its books of accounts, which proved that the project of the assessee was significantly booked and uncertainty had significantly reduced. In sum and substance, the A.O was of the view that the allowing of the aforesaid claim of expenditure of the assessee without any corresponding income defeated the very purpose of matching principle. Accordingly, the A.O disallowed the assessee s claim for deduction of the aforesaid expenses of ₹ 4,82,51,174/-. 38. On appeal, the CIT(A) relying on Para No. 2.4 of the Guidance Note for Accounting for Real Estate transactions (Revised 2012) observed, that the Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said extent. The Ground of appeal No. 5 raised by the revenue is dismissed. 40. The Grounds of appeal Nos. 6 7 being general are dismissed as not pressed. 41. The appeal filed by the revenue is dismissed. C.O No. 55/Mum/2019 A.Y. 2012-13 42. The assessee in its cross-objection had objected to the order passed by the CIT(A) before us. On a perusal of the respective grounds raised by the assessee in its aforesaid cross objection, we find that they pertain to the same issues which have been raised by the assessee in its appeal, viz. ITA No. 727/Mum/2021 that had been adjudicated by us hereinabove. On being confronted by the aforesaid facts, the ld. A.R submitted that in case the delay involved in the filing of the appeal is condoned, then, the aforementioned cross-objections would not be pressed by him. 43. As we have condoned the delay involved in the appeal filed by the assessee before us and have disposed off the issues therein raised on merits, therefore, in the backdrop of the aforesaid concession of the ld. A.R the cross-objections filed by the assessee are dismissed as not pressed. 44. The cross-objections filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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