TMI Blog2021 (9) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognized from various projects - disallowance and capitalization of interest was computed as per formula suggested by Special Auditor in preceding years - HELD THAT:- It is noted that the issue of capitalization of interest is a recurring issue and has been extensively dealt with first appellate authority and Coordinate bench in favour of assessee in preceding years wherein it has been held that notional capitalization of interest is not permissible particularly when the assessee has already capitalized interest pertaining to projects under execution. There is nothing on record to show that facts and the basis of disallowance in the year under consideration is different from that in preceding years. As the issue of capitalization of interest has been decided by the Coordinate bench in preceding years. Disallowance of brokerage expense - HELD THAT:- The action of assessing officer in treating brokerage as part of cost under POCM method has been deprecated by the Coordinate bench in orders passed for AY 2006-07 to 2011-12 wherein it has been held that brokerage expenses are allowable in the year of incurring and same cannot be associated with construction cost. It has been stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Property. Addition on account of rent on properties lying vacant during the year under reference - HELD THAT:- It is not in dispute that addition in the year under reference is based on assessment order for AY 2006-07 to 2011-12 and has come up for consideration before Coordinate bench. Further, the Ld. Counsel for the assessee has submitted that that the deletion of identical addition in AY 2006-07 by Coordinate Bench has been accepted by the revenue and no further appeal has been filed before High Court on this issue. In fact, the assessing officer has not made any addition on this issue in AY 2016-17. Disallowance of depreciation of building DLF Centre - HELD THAT:- As the issue of depreciation is recurring issue based on recalculated WDV and same having been decided by Coordinate bench in preceding years, disallowance of depreciation was deleted as per finding recorded . Disallowance of expense on ground of prior period expenses - HELD THAT:- On perusal of assessment order, it is observed that expenses disallowed are of routine nature for example advertisement, insurance, travelling and conveyance, legal professional, sales promotion, repair and maintenance e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rent in respect of kiosks let out to tenants - assessee is not recognizing the rental in its hand on the basis of mutual arrangement with maintenance company M/s. DLF Services ltd. which is providing maintenance and upkeep services in the Mall - HELD THAT:- We find that this very issue came up before the Coordinate bench while deciding the appeal for AY 2007-08 [ 2017 (11) TMI 381 - ITAT DELHI] wherein it was held that mutual arrangement created an overriding title resulting in diversion of rental income in favour of M/s. DLF Services Ltd. and as such the same cannot be taxed again in the hands of the assessee. Disallowance u/s 14A r.w.r. 8D - assessee has made suo moto disallowance being salary to an employee looking after the work of investment which are mainly continuing from earlier years - HELD THAT:- As decided in own case [ 2020 (10) TMI 77 - ITAT DELHI] AO has nowhere recorded its dissatisfaction regarding suo moto disallowance made by the assessee and the entire discussion revolves around quantum of investment appearing in the balance sheet. Moreover, the assessing officer has overlooked the availability of interest free own funds and so-called observation regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comfort. Ostensible both the terms are used in the said letter issued by the bank which is creating doubt over the real nature of the transaction. In fact, the order of TPO is silent on this aspect and TPO has proceeded on the ground that assessee has provided corporate guarantee. We are of the considered view that the issue requires reconsideration at the level of TPO. Accordingly the adjustment made by the assessing officer is set-aside and the matter is restored to the file of TPO with the direction to examine the nature is assistance given to AE i.e. letter of comfort or corporate guarantee. Also, as noted above, in case the arrangement is in the nature of corporate guarantee, ALP, if any should be determined on the basis of FAR analysis and employing CUP method. Needless to say, that assessee should be afforded opportunity to furnish necessary explanation/clarification. - I.T.As. No.5940 & 5941/DEL/2017 And Cos. No.5 & 6/DEL/2021 - - - Dated:- 10-9-2021 - Shri Amit Shukla, Judicial Member And Prashant Maharishi, Accountant Member For the Appellant : Shri Surender Pal, CIT-DR For the Respondent : S/Shri R.S. Singhvi Satyajeet Goel, CA ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prior period. 11) Ld. Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the addition of ₹ 23,11,00,3671- made by the AO on account of personal in nature. 12) Ld Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the addition of ₹ 1,59,02,00,000/- made by the AO on account of notional interest from the subsidiaries. 13) Ld. Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the addition of ₹ 14,64,00,000/- made by the AO on account of short non-allocation of proportionate overhead expenditure to windmills at Gujarat and Karnataka. 14) Ld. Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the addition of ₹ 9,52,53,136)- made by the AO on account of carbon credits which is claimed by the company. 15) Ld. Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the addition of ₹ 2,48,86,268/- made by the AO on account of adjustment towards Arm's Length Price. 3. On the other hand, the cross-objection of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g recorded in assessment order passed for AY 2011-12, made addition of ₹ 204,73,12,536/- on account of understatement of profit due to change in POCM method. 6.2 The First appellate authority vide finding recorded at Page 16-24 Para 8.1 to 8.2 deleted the addition after observing that this very issue has been decided in preceding years from AY 2006-07 to 2011-12. It was concluded by CIT(A) that since there was increase in Saleable area of Phase- V, Gurgaon project after requisite approval from local authorities, the assessing officer was not justified in restricting the apportionment of IDC only to previously launched area and rework the profit under POCM method. 6.3 We have considered the orders of the sub-ordinate authorities and find that the basis of addition in the year under reference is identical to that in preceding years. In fact, the assessing officer himself has followed the observation of Special Auditor in AY 2009-10 and finding recorded in the assessment order for AY 2011-12. As the issue of reworking of profit under POCM on the basis of re-apportionment of IDC has been decided by the Coordinate bench in preceding years, the same is decided as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stated by Ld. AR that the deletion of disallowance in AY 2006-07 by Coordinate Bench has been accepted by the revenue and no further appeal has been filed before High Court on this issue. In fact, the assessing officer has accepted the claim in AY 2016-17. As this ground is subject matter of adjudication by the Coordinate bench in preceding years, the same is decided as per the table given in para 19 of this order. 9.1 Ground No. 4 is directed against deletion of addition of ₹ 38,08,624/- on account of net interest free maintenance security deposits. The assessing officer vide finding recorded at Para 4.5 and 4.6 of the assessment order was of the opinion that maintenance charges collected by the assessee is in the nature of income. 9.2 The first appellant authority deleted the addition after following the CIT(A) order for AY 2009-10. 9.3 We have considered the entire facts and perused the orders of lower authorities. It is noted that the assessee is collecting interest free maintenance security deposit from customers for meeting out future liabilities such as insurance premium and maintenance charges of the buildings. The amount so collected is hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 Para 7.11 of the assessment order, the reclassification has been done in line with assessment order for AY 2006-07 to 2011-12. The assessing officer is of the view that rental income earned on properties shown as stock under current asset is assessable as business income and not income from house property. 11.2 The CIT(A) concurred with order of CIT(A) passed in appeal for preceding years and ordered the deletion of addition. 11.3 We have considered the assessment order, order of CIT(A) and order passed by Coordinate Bench in preceding years. We find that this issue has been dealt with by Coordinate bench in AY 2005-06 to 2011-12 wherein the addition was deleted by holding that lease income from asset lying under current asset is also assessable under the head Income from House Property. Accordingly, this ground is also decided as per table given in para 19 of this order. 12.1 Ground No. 8 is against deletion of addition of ₹ 5,27,018/- made on account of rent on properties lying vacant during the year under reference. The assessing officer on the basis of view taken in AY 2006-07 to 2011-12, made addition of notional rent in respect of properties liste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of prior period expenses. The assessing officer on the basis of tax audit report noted that claim of various expenses enumerated at Page 79 Para 11.2 of the assessment order pertains to earlier years and hence not allowable in the year under reference. 14.2 The CIT(A) vide finding recorded at para 18.1 held that liability in respect of claim of expenses crystallized during the year under reference and merely because the expense relates earlier year would not affect the admissibility of the claim. 14.3 We have considered the orders passed by subordinate authorities. It is noted that assessing officer has primarily relied upon reporting in tax audit report and there is no finding with regard to actual nature of expenses so disallowed or whether the liability towards the same crystallized in the year under consideration. On perusal of assessment order, it is observed that expenses disallowed are of routine nature for example advertisement, insurance, travelling and conveyance, legal professional, sales promotion, repair and maintenance etc.. The genuineness of these expenses is not in dispute. Further, the CIT(A) has given a clear finding that liability to pay expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounting to ₹ 387,449,073 on the maintenance of the aircraft and helicopter observing that assessee has not proved business expediency of the expenditure and those expenditure appeal to be personal in nature. The learned CIT A has dealt with this issue at para number 23 of his order at page number 177 196 noting that assessee is engaged in the business of development of real estate and it is one of the largest realistic developer in the field of colonization and township developments all over the country the procurement of the various material is source from the various countries across the globe. The company takes technical assistance/know-how from the repeated technical consultants globally. The company requires two flights directors, senior executives, ingenious and consultants both on its rolls and hired in India and abroad which various project sites located all over the country. Due to the frequency of such transportation the company deemed it fit to acquire the aircraft and helicopter rather than only hire such services. Therefore the expenditure on maintenance and operation of the helicopter and aircraft and chartering of aircraft and other routine expenditure wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the interest so charged is less than that charged by the banks/financial institutions on loans taken by the assessee. We find that there is no provision in the Income tax Act which warrants addition of interest on notional basis and as such the order of CIT(A) deleting the addition is well reasoned. In fact, it is not the case of the assessing office that money borrowed from the banks and its subsequent utilization is not for the purpose of business and as such we see no rationale behind charging of additional interest on notional basis on money advanced to group concerns. We further find that this very issue has came up for consideration before Coordinate bench in assessee s own case for AY 2010-11 in ITA No. 4793/D/15 wherein the addition was deleted as per following finding: 26. The issue before us that the learned assessing officer has made the addition of ₹ 693,100,000 on account of short charging of interest from the subsidiaries and further disallowed a sum of ₹ 455,15,030 on account of not charging of interest on loans given to related parties for business purposes. The main reason for the disallowances that the assessee has given funds borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt. The assessee has claimed that carbon credits are in the nature of capital receipt not taxable under the I.T. Act. 17.2 The CIT(A) deleted the addition by placing reliance on the decision of Hon ble Andhra Pradesh High Court in the case of CIT v. My Home Power Ltd. 365 ITR 82 wherein it was held the income from sale of carbon credits is a capital receipt. The CIT(A) further made reference to decisions of Coordinate benches of ITAT. 17.3 We find that in assessee s own case for AY 2011-12 in ITA No. 4794/D/15, the Coordinate bench has decided this issue in favour of assessee on the basis of decision of Hon ble Andhra Pradesh High Court in the case of My Home Power ltd. (Supra). The relevant finding is reproduced hereunder: 15. Ground number 19 of the appeal is with respect to the addition on account of carbon credits amounting to ₹ 122,34,040/ . The assessee has submitted that this issue is squarely covered in favour of the assessee by the decision of the honourable Andhra Pradesh High Court in Commissioner of income tax versus my home Power Ltd 365 ITR 82. Assessee has claimed the above sum as a capital receipt whereas the learned assessing officer has ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its hands and same has duly been taxed in the hands of the actual recipient M/s. DLF Services Ltd. 18.2 However, the AO and CIT(A) disagreed with the contention of the assessee and considered addition on the ground that since the security deposit from these kiosks has been received by the assessee, the rental income arising from the same is taxable in its hands only. 18.3 We find that this very issue came up before the Coordinate bench while deciding the appeal for AY 2007-08 in ITA No. 3846/D/12) wherein it was held that mutual arrangement created an overriding title resulting in diversion of rental income in favour of M/s. DLF Services Ltd. and as such the same cannot be taxed again in the hands of the assessee. 45. After hearing both the parties, we are of the view that the appellant assigned DLF Services Ltd. right to recover lease rent for maintenance and upkeep services of Mall and as such there was a genuine business arrangement between the parties. If the lease income is considered as chargeable to tax in the case of appellant, the appellant may be eligible for claim of expenses on account of maintenance of Mall which was owned and run by the appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital in nature which CIT appeal allowed in favour of the assesse holding it to be revenue in nature Paragraph 94-98 covers the issue in favour of the assessee Paranumber 10 Para number 13 of the order Dismissed 3 Disallowance on account of brokerage and commission expenditure deleted b the learned CIT-A Decided in favour of the assesse as per paragraph number 99- 103 Decided in favour of the assesse as per paragraph number 11 of the order Para number 13 of the order Dismissed 4 Deletion of disallowance on account of net interest free security deposit Covered in favour of the assessee as per paragraph number 112-115 Covered in favour of the assessee as per paragraph number 13 Para number 13 of the order Dismissed 5 Deletion of disallowance on account of non-allocation of overhead to group compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee by paragraph number 25-26 of the order.25-26 of the order. Para number 13 of the order Dismissed 14 Deletion of addition on account of carbon credits -- -- Para number 15 of the order Dismissed Cross Objection of the assessee (CO No. 6 of 2021) 1 Addition of notional rent on kiosks Decided in favour of the assesse as per paragraph number 21-24 Covered in favour of the assessee by paragraph number 32 of the order. Covered in favour of the assessee by paragraph number 7-10 of the order. Allowed 20. However, we deem it fit to adjudicate in detail the grounds for which specific arguments were advanced by the both the sides including the grounds which are not directly covered by the orders of Coordinate bench. 21.1 Ground No. 6 of the revenue s appeal is against deletion of disallowance of ₹ 2,77,16,42,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gone through the material on record. As noted above, the assessee has made suo moto disallowance of ₹ 6,61,871/- being salary to an employee looking after the work of investment which are mainly continuing from earlier years. The assessing officer made enhanced disallowance u/s 14A after invoking Rule 8D(2)(ii) and (iii). The CIT(A) deleted the disallowance u/s 14A by holding as under: 13.4 I find that section 14A(2) provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act and section 14A(3) provides that, the provisions of sub section (2) shall apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act . While a lot of emphasis is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer has overlooked the availability of interest free own funds and so-called observation regarding claim of interest expenses is unsubstantiated and not based on books of account of the assessee. The CIT(A) has given a specific finding that no part of interest bearing funds were used for making investment yielding exempt income. In these circumstances, we are constrained to observe the satisfaction recorded by the assessing officer fails to pass the test laid down by Supreme Court and does not provide valid basis for invocation of rule 8D. We find that identical issue came up for consideration before Coordinate bench in the case of assessee for immediately preceding AY 2011-12 (ITA No. 4794/D/15) and AY 2010- 11 (ITA No.4793/D/15) wherein the disallowance was deleted by observing that satisfaction recorded by the assessing officer is invalid. The satisfaction recorded in present case is ad-verbatim that in AY 2010-11 and 2011-12. The finding of coordinate bench in AY 2010-11 is reproduced hereunder for ready reference: 18. We have carefully considered the rival contention and perused the orders of the lower authorities. Apparently in this case the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter to CIT (A). 14. Accordingly, both the questions are answered in favour of the Assessee and against the Revenue. The impugned order of the ITAT and the consequential order of the AO dated 28/30th December 2016 are hereby set aside but without any order as to costs. Therefore respectfully following the decision of Honourable Delhi High Court, we direct the learned assessing officer to delete the disallowances u/s 14 A of the act by invoking rule 8D without recording of satisfaction. Accordingly ground number 10 of the appeal of the learned assessing officer is dismissed and ground number one of the appeal of the assessee is allowed. In the light of finding recorded in aforesaid para and respectfully following the order of Coordinate bench, we find no reasons to interfere with order of CIT(A) deleting the disallowance u/s 14A r.w.r 8D and same is upheld. 22.1 Ground No.13 is in respect of deletion of disallowance of expenditure to the tune of ₹ 14,64,00,000/- on account of short/non-allocation of proportionate overhead expenditure to windmill unit in Gujarat and Karnataka. The assessing officer made the disallowance on the ground that the windmil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure in regard to the establishment, finance and general administrative expenses. By doing so; the Assessing Officer allocated ₹ 3.90 crore to the windmill in Karnataka and Rs.:10.74 crore to windmill in Gujarat. It is pertinent to note that the operations and maintenance of the windmills has been outsourced by the company to M/s Suzlon Infrastructure Services Ltd. and M/s. Evercan India Ltd. who submit the quarterly bills to the company for the operation and maintenance of the windmills. The company has only incurred expenditure in connection with insurance and rebate for the early payment to the parties. There is no linkage and justification for the allocation of any expenses to the windmill project, no expenditure claimed in the taxable income can be linked with the windmill project. In view of the above, it is clear that no, expenditure can be allocated to the windmill project. Both the divisions have maintained the separate books of accounts and all the expenditure in the nature of operational and general and administrative expenses have been debited to the respective divisions. There is no force in the argument of the Assessing Officer that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DLF Global Hospitality Ltd., Cyprus. The Transfer pricing officer after rejecting the contention of the assessee that rendering corporate guarantee is not an international transaction u/s 92B, considered adjustment u/s 92C after benchmarking the same @ 0.3750% p.a. being 50% of the interest saved. 23.2 The respondent succeeded before CIT(A) which deleted the addition by holding that corporate guarantree is not an international transaction in terms of section 92B of the Income Tax Act, 1961. 23.3 The Ld. DR disputed that finding of CIT(A) and argued that giving of corporate guarantee to bank on behalf of AE results in saving of interest in the hands of the AE. Further, as per amendment brought in by Finance Act, 2012 in section 92B, the rendering of Corporate guarantee is an international transaction as per clause (c) of Explanation to section 92B of the Act. It was accordingly argued that TPO has rightly benchmarked the transaction for the purpose of transfer pricing adjustment after applying interest saving approach. 23.4 The Ld. AR reiterated the arguments advanced before CIT(A) and supported the order of CIT(A). It was argued that giving corporate guarantee to ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any contrary decision of jurisdiction High Court or any other High Court. Based on contents of communication of Standard Chartered Bank dated 22nd January, 2015, it is clear that AE was able to obtain loan at concessional rate of interest, however, it is pertinent to first ascertain the true nature and character of assistance give by assessee to its AE i.e. whether its a case of comfort letter or corporate guarantee. We may make it clear that in case of letter of comfort, there may not be any financial implication as far as assessee is concerned which in turn will take the entire issue out of purview of section 92B of the Act. Further, in case it is concluded that assessee has provided corporate guarantee, adjustment based on provisions of section 92C is required in light of decision of Hon ble Madras High Court in the case of PCIT v. Redington (India) Ltd. (Supra). 26. Keeping in view the totality of facts, we are of the considered view that the issue requires reconsideration at the level of TPO. Accordingly the adjustment made by the assessing officer is set-aside and the matter is restored to the file of TPO with the direction to examine the nature is assistance g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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