DCIT, NEW DELHI vs. M/S. MAGNUM INTERNATIONAL TRADING COMPANY PVT. LTD., NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

“1. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in deleting the disallowance of claim of deduction of expenditure of Rs. 2,26,87,597/- and Rs. 5,22,74,3471- u/s 37 (1) of the Income Tax Act, 1961 (the Act) by ignoring a finding of facts recorded by the Assessing Officer (the AO) that the assessee had not recognized revenue earned by it from its customer on sale of real estate during year under consideration on the ground that it was following percentage completion method, accordingly, the assessee was not entitled claim deduction of expenditure of real estate business?

2. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in deleting the disallowance of claim of deduction of expenditure of Rs. 2,26,87,597/-

2 Magnum International Trading Company Pvt. Ltd and Rs. 5,22,74,347/- u/s 37(1) of the Act by ignoring a fact that the assessee had not even disclosed basis of capitalizing a part of total expenditure and claiming deduction of another part of total expenditure under percentage completion method followed by the assessee?

3. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in deleting the disallowance of claim of deduction of expenditure of Rs. 2,26,87,597/- and Rs. 5,22,74,3471- u/s 37(1) of the Act by accepting additional evidence even when the assessee had not fulfilled the condition as laid down under Rule 46A of the Income Tax Rule, 1962 (the Rule) and without affording opportunity of being heard to the Assessing Officer (the AO)?

4. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 5,53,840/- u/s 14A of the Act by ignoring provisions of section 14A of the act which stipulates mandatory computation of direct and indirect expenses relating to the income not forming the part of total income under all the clauses (i), (ii) and (iii) of Rule 8D (2) of the rule?

5. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 5,53,840/- u/s 14A of the Act by ignoring provisions of section 14A of the act on the presumption that the assessee had itself disallowed expenditure of Rs. 9,33,884/- under Rule 8D which was higher that amount disallowed by the AO by not taking into account finding of facts recorded by the AO that actual disallowance under Rule 8D was at Rs. 14,87,724/- and only excess amount of Rs. 5,53,840/- was disallowed by the AO?”

3 Magnum International Trading Company Pvt. Ltd against expenses of project under execution. The AO issued show cause to the assessee why not the remaining amount of Rs. 2.62 crores be disallowed as no revenue has been recognized by the assessee during the year from the project under execution. The assessee submitted that an amount of Rs. 40.37 lacs has already been added back in the computation of income. Hence, the AO disallowed an amount of Rs. 2.26 crores. The matter travelled to ld CIT(A). The ld CIT(A) held that development of real estate project that to efficiently carryout the above activities the appellant company has to employ personnel, incur administrative expenses marketing expenses and depreciation on assets employed for undertaking the above activities. Further the company has to co-ordinate and liaison with the Project Development company namely Alpha G Corp. Development Pvt. Ltd. for development of Group Housing project at sector - 84, Gurgaon which requires constant review of the various activities undertaken at various stages of construction. The ld CIT(A) further observed that the business of the appellant company was set up during AY 2010-11 which has been accepted by the AO u/s 143(3) wherein he has allowed the revenue expenses claimed in the Profit & Loss Account of the company. Copy of assessment order along with computation of income and audited annual accounts for the year ended 31.3.2010 has been examined by the ld CIT(A). Placing reliance on the following judgments, “1) Western India Vegetable Products Ltd 26 ITR 151 (Bom.) 2) CIT vs Whirlpool of India Ltd. 185 Taxman 387, 3) CIT vs Club Resorts (P) Ltd. 287 ITR 552 (Mad.) 4) Jcdecaux Advertising India Pvt Ltd. 166 TTJ 121 (Del) 5) Interlink Petroleum Ltd. 83 TTJ 274 (Ahd.)

4 Magnum International Trading Company Pvt. Ltd

6) Eitve Funds International India 162 Taxman 1 (Del)” the ld CIT(A) held that revenue expenses are allowable after the date of set up in terms of Section 3 of the Act.

i. TAT Delhi in the case of Darrameks Hotels & Co Developers Pvt. Ltd. - TS-548-ITAT-2022 (Del) ii. ITAT Delhi in the case of HMS Real Estate Pvt. Ltd.- (A.Y. 2012-13) iii. ITAT Delhi in the case of Hike Pvt. Ltd.- ITA No.2906/Del/2018 (A.Y. 2012-13) iv. High Court of Delhi in the case of Dhoomketu Builders & Development (P) Ltd. - 368 ITR 680 to (Delhi) we hereby decline to interfere with the order of the ld CIT(A) on this issue

Disallowance of expenditure u/s 14A : 6. The AO disallowed an amount of Rs. 5,53,840/- on account of expenses incurred u/s 14A of the Act in relation to income not includible in total income. The facts reveal that the assessee has disallowed Rs. 9,33,884/- which is higher than the disallowable amount of Rs. 9,20,219/-. There has been a calculation mistake by the AO in determining the average value

5 Magnum International Trading Company Pvt. Ltd of investments at Rs. 27,41,46,241/- instead of Rs. 16,06,44,980/-. Hence, we hold that no further disallowance is warranted on this ground.

Order Pronounced in the Open Court on 03/03/2023.