TMI Blog2022 (11) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... A read with Rule 8D. As a result, ground No. 1 raised in assessee s appeal is allowed. Disallowance of interest expenses - AO disallowed the expenditure on the basis that interest expenditure has a direct nexus with the project undertaken and therefore same is to be allowed as business expenditure in the ratio of revenue offered from the project - HELD THAT:- Lokhandwala Constructions Inds. Ltd [ 2003 (1) TMI 93 - BOMBAY HIGH COURT] in case of a builder held that where the loan was obtained for the project of construction of flats, which is stock in trade, the assessee is entitled to deduction u/s 36(1)(iii) of the Act in respect of interest expenditure on such loans. In the present case, undisputedly funds were borrowed for the purpose of the projects undertaken by the assessee, and only based on accounting treatment, the claim of the assessee was denied. It is pertinent to note that the allowability of any deduction is to be decided based on the provisions of the Act. In the present case, since the funds were borrowed for the purpose of projects undertaken by the assessee, therefore, the interest paid on such borrowing is allowable u/s 36(1)(iii) in view of the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce u/s 14 A r/w Rule 8D - HELD THAT:- We find that Hon ble jurisdictional High Court in Nirved Traders (P.) Ltd. [ 2019 (4) TMI 1738 - BOMBAY HIGH COURT ] has held that disallowance under section 14A of the Act cannot be more than exempt income. Thus, respectfully following the aforesaid decision of the Hon ble jurisdictional High Court, we direct the AO to restrict the disallowance made under section 14A of the Act to the extent of exempt income earned by the assessee, during the year under consideration. As in assessee s appeal is partly allowed, while additional ground No. 1 is allowed. Scope of assessment proceedings in case of limited scrutiny - AR submitted that it was a limited scrutiny case and no approval was taken by the AO from CIT for expanding the scope of its jurisdiction - HELD THAT:- From the perusal of the record, it is evident that the AO vide assessment order passed under section 143(3) of the Act disallowed the interest expenditure and commission expenditure debited by the assessee in its profit and loss account. AO also made disallowance under section 14 A r/w Rule 8D after considering the interest expenditure debited to the profit and loss account. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004/Mum./2019 Assessee s appeal - A.Y. 2013 14 3. This appeal has been filed by the assessee challenging the impugned order dated 28/02/2019, passed by the learned CIT(A), for the assessment year 2013 14. 4. In this appeal, the assessee has raised the following grounds: 1. On the facts and circumstances of the case and in 17,62 law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with regards to disallowance u/s. 14A of the Income Tax Act, 1961 of Rs. 54,33,62,192/- in relation to exempt income earned during the year under consideration. It is submitted that the disallowance made by the learned assessing officer is incorrect. Without prejudice to the above, it is submitted that no amount of interest on secured loan should be taken into consideration while making disallowance u/s. 14A r.w.r. 8D of the Income Tax Rules, 1962 for the year under consideration. Further it is submitted that the net interest expenses of Rs. 79,31,65,273/- (Interest expenses of Rs. 94,67,75,590 /-(except interest on secured loan) minus interest income of Rs. 15,36,10,317/-) should only be considered for working of disallowance u/s. 14A r.w.r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued. The Assessing Officer ( AO') vide assessment order dated 30/03/2016, passed under section 143(3) of the Act computed the total income of the assessee at Rs. 20,62,41,284, after making certain disallowances/additions. In further appeal, learned CIT(A) vide impugned order dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us. 6. The issue arising in ground No. 1, raised in assessee s appeal, is pertaining to disallowance under section 14A r/w Rule 8D of the Income Tax Rules, 1962. 7. The brief facts of the case pertaining to this issue are: During the course of assessment proceedings, the assessee was asked to show cause why the disallowance under section 14A of the Act be not made. In response, assessee submitted that it has already disallowed Rs. 7,49,654, under section 14A for the year under consideration. However, in absence of any details of the expenses disallowed by the assessee under section 14A of the Act and the basis of computing the above disallowance, the AO vide order passed under section 143(3) of the Act made the disallowance of Rs. 54,33,62,192, under section 14A r/w Rule 8D. The learned CIT(A) vide i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14A read with Rule 8D. As a result, ground No. 1 raised in assessee s appeal is allowed. 12. The issue arising in ground No. 2, raised in assessee s appeal, is pertaining to the disallowance of interest expenses. 13. The brief facts of the case pertaining to this issue are: During the year, the assessee incurred finance cost of Rs. 108,75,77,612 out of which Rs. 6,69,81,882 was allocated to those contracts of which construction has been completed and the balance interest of Rs. 102,05,95,730 was debited to the profit and loss account and not capitalised to work in progress ( WIP'). During the course of assessment proceedings, the assessee was asked to show cause as to why the balance interest should not be disallowed as revenue expenditure and capitalised to the WIP. In response, the assessee submitted that it has followed the accounting policy for recognition and capitalisation of borrowing cost which is as per the Accounting Standards ( AS') 16. Therefore, the said interest expenses are not transferred to WIP and debited to the profit and loss account. The AO vide order passed under section 143(3) of the Act did not agree with the submissions of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific projects. However, as noted above, the learned CIT(A) dismissed the appeal filed by the assessee on this issue in absence of the details of the projects to which these funds were applied. Thus, the borrowing of funds for the purpose of business has not been doubted by any of the lower authorities. The assessee has now produced before us the details of parties from whom the loan was availed and projects as well as the purpose for which the loan was utilized. 18. In this regard, it is relevant to note that the Hon ble jurisdictional High Court in CIT vs Lokhandwala Constructions Inds. Ltd., (2003) 260 ITR 579 (Bom.), in case of a builder held that where the loan was obtained for the project of construction of flats, which is stock in trade, the assessee is entitled to deduction under section 36(1)(iii) of the Act in respect of interest expenditure on such loans. The Hon ble Court further held that while adjudicating the claim of deduction under section 36(1)(iii) of the Act the nature of the expense, whether the expense was on capital account or revenue account was irrelevant, as the section itself says that interest paid by the assessee on capital borrowed is allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 22. During the hearing, learned AR submitted that commission expenses are selling and marketing expenses and are incurred by the company irrespective of whether a project is implemented or not. It was further submitted that these costs are incurred by the assessee under all circumstances during the entire tenure of carrying on business operations and these costs are not associated with any particular project. In support of its submission, learned AR placed reliance upon the decision of the coordinate bench of the Tribunal in DCIT vs Rustomjee Evershine joint-venture private Ltd, ITA No. 5613/Mum/2014. 23. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 24. We have considered the rival submissions and perused the material available on record. The assessee claims that the commission expenses incurred by the assessee are not in respect of any particular project and these expenses are required to be incurred under all circumstances while carrying on the business. Further, as per AS 7 para 19 selling costs cannot be attributed to contract activity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s appeal, is pertaining to the disallowance of interest amounting to Rs. 48,53,314. 27. The assessee vide application dated 13/08/2022 has also raised the following additional ground: Additional Ground No. 1- On the facts and in the circumstances of the case and in law, the Ld. AO has erred in not allowing the Interest on late payment of TDS of Rs. 6,01,236 debited to profit and loss account 28. As the issue raised by the assessee, by way of additional ground of appeal, is a legal issue that can be decided based on material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon ble Supreme Court in NTPC Ltd v/s CIT: 229 ITR 383. 29. The brief facts of the case pertaining to aforesaid two grounds are: During the year under consideration, assessee debited Rs. 89,54,967 towards interest on delayed payments of TDS, VAT, WCT, etc. The assessee was asked to justify the claim of these expenditures under provisions of section 37 of the Act. The assessee, in response, submitted the following breakup of interest of Rs. 89,54,967: Nature of Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the AO on this issue. In any case, nothing has been brought on record to show that the said expenditure was incurred wholly and exclusively for the purpose of the business for being allowed under section 37 of the Act. Therefore, in view of the above, additional ground No. 1 raised by the assessee is dismissed. 33. In the result, the appeal by the assessee is partly allowed. ITA No. 611/Mum/2020 Assessee s appeal A.Y. 2014 15 34. This appeal has been filed by the assessee challenging the impugned order dated 31/10/2019 passed by the learned CIT(A), for the assessment year 2014 15. 35. In this appeal, the assessee has raised the following grounds: 1. On the facts and circumstances of the case and in 96,32,258 law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with regards to disallowance u/s. 14A of the Income Tax Act, 1961 of Rs. 2,83,38,504/- in relation to exempt income earned during the year under consideration. It is submitted that the disallowance made by the learned assessing officer is incorrect. Without prejudice to the above, it is submitted that no amount of interest on secured loan should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the issue raised by the assessee, by way of additional ground of appeal, is a legal issue that can be decided based on material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon ble Supreme Court in NTPC Ltd v/s CIT: 229 ITR 383. 38. The issue arising in ground No. 1 and additional ground No. 1 is pertaining to disallowance under section 14 A r/w Rule 8D. 39. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee earned a dividend income of Rs. 75,048 which was claimed as exempt. From the perusal of the financial statement of the assessee, it was observed that the assessee has debited an amount of Rs. 24,29,09,528 as interest on the loan. Further, as per the balance sheet of the assessee, the total investment is Rs. 75,26,83,846. Vide order dated 20/12/2016 passed under section 143(3) of the Act the AO computed the disallowance under section 14A r/w Rule 8D at Rs. 3,72,65,887. Since the assessee has already disallowed Rs. 89,27,383 under section 14A, the disallowance as computed by the AO was accordingly restricted to a bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disallowances/additions on account of Interest Expenses, Commission Cost and Disallowance u/s 14A of the Income tax Act,1961 which is outside the purview of limited scrutiny for the year under consideration. The Ld. AO has erred in exceeding his scope beyond his jurisdiction while completing the assessment in Limited. Scrutiny. Therefore, it is requested that the disallowances/additions made in the Assessment Order which are outside the purview of limited scrutiny should be deleted. 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to not taking the approval from Principal Commissioner of Income Tax for conversion of limited scrutiny case to complete scrutiny case. 3. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to disallowance of interest expenses of Rs.65,32,97,664/- as not admissible to be claimed as expenses and added the same to the WIP of the Project. It is submitted that the appellant has capitalized finance cost on the basis of project inflows, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntamount to double taxation. It is therefore submitted that necessary direction should be given in this regard. 6. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal. 47. The issue arising in grounds No. 1 and 2, raised in assessee s appeal, is pertaining to the scope of assessment proceedings in case of limited scrutiny. 48. The brief facts of the case pertaining to this issue are: For the year under consideration, the assessee filed its return of income on 30/09/2015 declaring total income at a loss of Rs. 41,80,08,944. The return filed by the assessee was selected for scrutiny under CASS under the limited scrutiny category and accordingly notice under section 143(2) was issued and duly served upon the assessee. Subsequently, notice under section 142(1) of the Act was issued and duly served to the assessee. The assessee in its appeal before the learned CIT(A) challenged the additions made by the AO being outside the purview of limited scrutiny under CASS. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue by observing as under: Clearly, point No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt. I v. large other expenses claimed in the Profit Loss a/c. . 51. From the perusal of the record, it is evident that the AO vide assessment order passed under section 143(3) of the Act disallowed the interest expenditure and commission expenditure debited by the assessee in its profit and loss account. The AO also made disallowance under section 14 A r/w Rule 8D after considering the interest expenditure debited to the profit and loss account. Thus, in view of the above, we are of the considered opinion that the additions made by the AO are covered under aforesaid point (iii) and (iv) of the CASS reasons and the scope of enquiry by the AO was also limited to the verification of the aforesaid aspects. Therefore, we find no infirmity in the impugned order passed on this issue. As a result, grounds No. 1 and 2 raised in assessee s appeal are dismissed. 52. The issue arising in ground No. 3 is pertaining to the disallowance of interest expenses. Since a similar issue has already been decided in assessee s appeal being ITA No. 3004/Mum./2019, therefore, our findings/conclusion rendered in said appeal shall apply mutatis mutandis. Accordingly, ground No. 3 raised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od during the year under consideration and therefore proportionate allowance of interest expenses should be allowed during the year under consideration. It is therefore prayed that necessary direction should be given in this regard. 3. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to disallowance of selling and marketing expenses of Rs. 88,49,739/- as not admissible to be claimed as expenses and added the same to the WIP of the Project. Without Prejudice to the above it is submitted that the appellant company has offered the income on the basis of the percentage completion method during the year under consideration and therefore proportionate allowance of selling and marketing expenses should be allowed during the year under consideration. It is therefore prayed that necessary direction should be given in this regard. 4. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the order of learned assessing officer with respect to disallowance of Other expenses of Rs. 28,12,425/- as not admissible to be claimed as expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while entity and thus the same is void ab initio. 61. On the other hand, learned DR vehemently relying upon the impugned order passed by the learned CIT(A) submitted that there is no communication by the assessee after the aforesaid notice informing about the culmination of proceedings before the Hon ble NCLT resulting in the merger of M/s Rustomjee Constructions Private Limited with Keystone Realtors Private Ltd. 62. We have considered the rival submissions and perused the material available on record. In the present case, the return of income was filed in the name of the erstwhile entity i.e. Rustomjee Constructions Private Ltd. Thereafter, the scrutiny proceedings were commenced upon issuance of notice under section 143(2) issued on 28/09/2016, and thereafter various details were sought from the assessee vide notice issued under 142(1) of the Act. It is the plea of the assessee that vide notice dated 25/04/2017 issued under section 230(5) of the Companies Act, 2013 the income tax authorities were informed about the continuation of the proceeding of the merger before the Hon ble NCLT. Apart from the aforesaid notice no other documents or correspondence has been placed on re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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