SAPPHIRE LAND DEVELOPMENT P. LTD.,MUMBAI vs. ACIT, CC-5(4), MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM)

8. (1) (OSD), Mumbai Pronounced on 13-05-2015. c) The Learned CIT (A) has erred in law & on facts in upholding the Learned AO's action of relying on the decision of Hon'ble Delhi high Court in the case of Ansal Housing & Leasing Co Ltd (2013). 6) The Appellant craves leave to add to and/ or amend and/ or delete and/ or modify and/ or alter the aforesaid grounds of appeal as and when the occasion demands. 7) All the aforesaid grounds of appeal are independent, in the alternative and without prejudice to one another.”

Considered the submissions of the Ld.DR and perused the material 5. placed on record, orders of the authorities below. On perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and partly sustained the addition made by the Assessing Officer. While holding so, the Ld.CIT(A) observed as under: - “5.3. I have considered the submissions carefully. The appellant has claimed exempt income comprising dividends totaling to Rs.306,000 but has not made any suomotu disallowance u/s 14A. Further during the year the appellant has made several new investments notably Rs. 540 lakhs in Privilege Airways P. Ltd., and Rs. 30.88 lakhs in Suansa Power P. Ltd. It has sold investments during the year also and the closing total of investments is slightly lower than the opening balance. The sale of investments have resulted in losses. It has incurred administrative expenses of Rs. 1400 lakhs, Thus, it is clear that the all the essential elements for invoking the provisions of section 14A are present in this case. It is thus found that the appellant had no justification for claiming that it had incurred no direct or indirect expenditure for earning the exempt (A.Y: 2013-14) M/s. Sapphire Land Development Pvt. Ltd., income and considering the disallowance u/s 14A at Rs.NIL and such claim made by the appellant was not at all in consonance with the provisions of Rule 8D. There can be no doubt that part of the administrative expenses incurred by the appellant is also attributable to the management of its huge investments yielding tax- free income. Thus, it is clear that having regard to the accounts of the appellant, the A.O. would have had.no valid reason to be satisfied with the correctness of the claim of the appellant for 'NIL' disallowance u/s. 14A and, consequently, he would have been required to determine the amount of expenses attributable to the earning of exempt income in accordance with the method prescribed in Rule 8D. In view of these facts and circumstances, the satisfaction of the A.O. as regards the incorrectness of claim of 'NIL disallowance u/s.14A made by the appellant is deemed to have been arrived at through the exercise of examination of accounts of the appellant carried out at the appellate stage. Thus, the plea taken by the appellant regarding absence of A.O.'s satisfaction is rejected. As regards the argument that investments in most of the unlisted companies are for acquiring and retaining control, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT has rejected this contention. The appellant has accepted that the demat expenses of Rs 30,269/- can be considered as direct expenses. Hence disallowance as per Rule 8D (2)(i) is taken at Rs30,269/- The alternative argument that the disallowance cannot exceed the exempt income has support of judicial decisions. The same is accepted. Hence the disallowance u/s 14A is restricted to Rs.306,000/-. Ground of appeal no 2 is partly allowed. …… ….. 6.3. I have considered the submissions carefully. This is a legacy issue coming from earlier years. In preceding assessment year 2012- 13, the Ld.CIT(A) decided the issue as under. 6.3.1 I have considered the submissions of the appellant and perused the materials available on record. The question for adjudication is whether the A.O. was justified in disallowing depreciation of Rs. 10,83,326/- claimed on 3 vehicles registered in the names of 3 individuals/employees of associate company and consequently reducing the WDV of vehicles in the block of assets. It is well-established that in order to claim depreciation u/s.32(1) of the Act, the onus lies on the assessee to prove with the help of cogent material that the fixed asset in question was owned by the assessee and used for the purpose of business. In the instant case, it is a matter of record that the three vehicles were registered not (A.Y: 2013-14) M/s. Sapphire Land Development Pvt. Ltd., in the name of the appellant but in the names of three individuals who were employees of group concerns of the appellants. The appellant cannot be allowed depreciation on the said three vehicles merely because the payment was made by it or the three individuals were authorized under a board resolution to purchase cars on behalf of the appellant company. It is very clear from the record that the appellant is not the registered owner of the three vehicles in question. Nor has the appellant been able to adduce any cogent documentary evidence to show that the three individuals/employees of group concerns were partly engaged for the projects of the appellant company. Even assuming (for the sake of argument only) that it was so, the appellant has not submitted any valid explanation as to why the vehicles in question had to be registered in their names when the appellant wanted to claim ownership over the said cars. There is nothing on record to show that the ownership of aforesaid vehicles could not be registered in the name of the appellant due to certain restrictions, compulsions or exigencies. 6.3.2 The A.O. is found to have rightly placed reliance on the decision of the Hon'ble ITAT, Mumbai Bench in the case of Edwise Consultants Pvt. Ltd. cited above. The decision of the Hon'ble Tribunal was reached after distinguishing the judicial precedents in cases reported in 201 ITR 995 (Bom), 235 ITR 158 (All) and 106 Taxman 166 (SC). The relevant extract of the aforesaid decision of Hon'ble Tribunal is reproduced as under: - 7. ……………. Only because the said cars have been shown in the balance sheet or books of account as asset of the company, that does not mean that the company has become the owner of the same. As held by the Supreme Court in the case of Mysore Minerals Ltd. (supra), owner is one who is entitled to own the property to the exclusion of the others. In the present case, the assessee company. cannot be said to be holding the property to the exclusion of the Directors especially when the cars are not only purchased in the name of the Directors but also they are the registered owners of the cars. The said Directors of the assessee company have not sold or transferred the cars to the company itself. ………. But where a person who claims himself to be the owner of the property he does not …….. purchase the property in its own name and never makes any efforts for getting its ownership or title transferred in its own name, rather allows deliberately its title registration in the name of other person cannot claim its ownership to the exclusion of the said registered (A.Y: 2013-14) M/s. Sapphire Land Development Pvt. Ltd., owner/purchaser of the property. The purchase of the cars in the name of other persons by the assessee company itself implies that the assessee company treated the said persons as owner of the property and did not want to exercise its domain over the property. Merely because the company has shown the cars as its assets in the books of account, cannot put it into the definition of owner of the cars to the exclusion of the legal/registered owners of the cars. Under such circumstances, the company cannot be said to the owner of the cars even in the light of the extended definition of ownership u/s.32(1) of the I.T. Act (emphasis supplied)." In view of aforesaid discussion, no fault can be found with the action of the A.O. in disallowing depreciation of Rs. 10,83,326/- on the said three vehicles not registered in the name of the appellant company. As a consequence, the A.O. was also justified in reducing the block of vehicles to be carried forward at Rs.6,01,98,435/- as against Rs.6,74,26,955/- claimed in the return of income. It is pertinent to mention that identical issue arising in the case of the appellant in the immediately preceding A.Y.2011-12 has already been decided by the undersigned against the appellant vide separate order dated 31.10.2016 in Appeal No.CIT(A)-53/ACCC 5(4)/IT-325/2014-15. Since there is no change in either the facts or the law relating to the issue, the action of the A.O. in disallowing the excess depreciation and in re-computing the WDV of cars to be carried forward is held to be in accordance with law in the A.Y. under consideration also. Hence, Grounds bearing Nos.3 and 4 taken up by the appellant are found to be devoid of merit and are accordingly dismissed." The facts before me are same and further I am in agreement with the decision of AY 2012-13. Hence grounds of appeal no 3 and 4 are dismissed. …… 7.5. I have considered the submissions of the appellant and perused the materials available on record. I am in agreement with the A.O.'s finding that the appellant has failed to furnish cogent evidence and credible explanation in order to prove that the aforesaid Yacht expenses were incurred in connection with the business undertaken by the appellant company. On the contrary, an analysis of the written submissions of the appellant clearly brings out that the said Yacht expenses were actually incurred in connection with the business of the group concern, namely, VPPL. It is not the appellant but VPPL which was awarded the Concession Agreement (A.Y: 2013-14) M/s. Sapphire Land Development Pvt. Ltd., in March, 2008 to build a multi-purpose common user port entirely at the risk, cost, charges and expenses of VPPL on BOOST basis at Vijaydurg. Distt. Sindhudurg. The appellant is not even a shareholder in VPPL. Again, it is not the appellant but VPPL which had used the high speed vessel for carrying out on-site investigations, surveys and studies for the purpose of submitting the Detailed Project Report to the Maharashtra Maritime Board (MMB). It is once again not the appellant but VPPL which was set up as a Special Purpose Vehicle (SPV) for the development of an all- weather port. Although the appellant claims to have entered into an MoU with VPPL during F.Y.2007-08, it has not placed on record copy of the same so as to allow proper appreciation of the agreed terms and conditions as well as rights and obligations of each party thereunder. Considerations of business prudence and commercial expediency dictate that a related concern of the assessee is liable to adequately compensate the latter for any costs or expenses incurred on behalf of the former. Therefore, the appellant can by no stretch of imagination claim deduction u/s.37(1) of Yacht expenses incurred on behalf of or in connection with the business activities undertaken by a related or group concern. It is noticed that similar disallowance made by the A.O. in the A.Y.2011-12 and AY 2012-13 were upheld in first appeal vide order dated 31.10.2016 and 26.5.2017. Since there is no change in either the facts or the law relating to this issue and the appellant has once again failed to discharge the onus of proving that the Yacht expenses in question were incurred for the purpose of the business carried on by it, no fault can be found with the action of the A.O. in disallowing the same. Thus, the disallowance of Yacht expenses of Rs. 1,20,35,695/-made by the A.O. is upheld in the A.Y. under appeal also. Ground No.5 of the present appeal is accordingly found to be devoid of substance and is hence dismissed. ….. 8.3. I have considered the submissions carefully. The assessing officer has made the addition in respect of deemed rental on unsold flats on the basis of the Hon'ble Delhi High Court decision in the case of Ansal Housing Finance & Leasing Co. Ltd. It was held The levy of income tax in the case of one holding house property is premised not on whether the assesse carries on business as landlord but on ownership. The incidence of charge is because of ownership. In every case, the Court has to discern the intention of the assessee; in that case, the intention of the assesse was to hold properties till they are sold. The capacity of being owner was not diminished one whit because the assessee carried on business of developing, building, and selling flats in housing estates. The argument that income tax is levied not on actual receipts (which never arose in that (A.Y: 2013-14) M/s. Sapphire Land Development Pvt. Ltd., case) but on notional basis i.e. ALV and that it is, therefore, not sanctioned by law is meritless. As far as the alternative argument that the assesse itself is the occupier because it holds the property till it is sold, is concerned, there is no merit in the submission. It is not mere passive possession of flats which will qualify as "own" occupation for business purposes, Rather, on the contrary, the intention of the law makers was that "occupation" signifies an active use of the property in as much as such property should be used for the purpose of business. This decision has not be overturned by the Apex court. Hence no fault can be found in the assessing officer taxing deemed rental income in respect of unsold flats. The addition is upheld and ground of appeal no 6 is dismissed. …… Additional grounds of appeal:

10. The additional ground 1 is in respect of the disallowance of claim of Rs.3,57,961/- towards provision for bonus u/s.43B of the Income Tax Act, 1961. In the assessment proceedings when query was raised, the AR accepted the error and accepted the disallowance. In the appellate proceedings, no submissions as to facts or arguments were filed. The ground is therefore dismissed.

11. The additional ground 2 is in respect of the disallowance of claim of 10% of car expenses of Rs.48,67,670/- i.e. 4,86,767/- and 10% of travelling expenses of Rs.50,91,286/- i.e. 5,09,129/-. On examination of details the assessing officer found some of the expenses as not relating to business and some were not supported by evidence. In the appellate proceedings, no submissions as to facts or arguments were filed. The ground is therefore dismissed.

12. The additional ground 3 is in respect of the addition of interest on I.T. Refund to the tune of Rs. 16,596/-. The assessing officer noted that as per ITS data there was interest income on IT refund of Rs. 84,337 but the assesse had offered only Rs. 67,741 as income. Hence the short offer of Rs 16,596/- was added to returned income. In the appellate proceedings, no submissions as to facts or arguments were filed. The ground is therefore dismissed.”

6. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any reason to interfere with the findings of (A.Y: 2013-14) M/s. Sapphire Land Development Pvt. Ltd., the Ld.CIT(A) especially when there is no representation from the assessee side. Accordingly, appeal filed by the assessee is dismissed.

Order pronounced in the open court on 31st January, 2023.