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Facts
The assessee claimed deduction under section 80IB(10) of the Income Tax Act, which the AO reduced by proportionally allocating certain expenses. The CIT(A) partially allowed the assessee's appeal. The assessee also challenged an addition based on the Notional Annual Letting Value of unsold properties.
Held
The Tribunal upheld the CIT(A)'s decision regarding the reallocation of advertisement, professional charges, and director's meeting fees. The ground regarding directors travelling expenses was dismissed. The issue of Notional Annual Letting Value of unsold flats was partly allowed, while the same for farm lands was restored to the AO. The disallowance under section 14A was directed to be restricted to the extent of exempt income.
Key Issues
Whether proportional allocation of expenses to eligible projects is permissible for deduction u/s 80IB(10)? Whether Notional Annual Letting Value of unsold stock-in-trade is includible? Whether disallowance u/s 14A can exceed exempt income?
Sections Cited
80IB(10), 14A, 8D, 22
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Income Tax Appellate Tribunal, DELHI BENCH “A”, DELHI
Before: SHRI VIKAS AWASTHY&
Assessee by : Shri Rohit Jain & Ms. Manisha Sharma, Advocates & Shri Jitendra Bhati, Chartered Accountant Department by: Shri Ashish Tripathi, Sr. DR सुनवाई क� ितिथ/ Date of hearing : 13/03/2025 घोषणा क� ितिथ/ Date of pronouncement : : 12/06/2025 आदेश/ORDER PER VIKAS AWASTHY, JM: These six appeals by the assessee for AY 2008-09 to 2013-14 are taken up together for adjudication as the issues involved in all these appeals emanate from identical set of facts.
(A.Y.2008-09) & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) 2. For the sake of convenience, appeal of the assessee for AY 2008-09 is taken up as a lead case, hence, the facts are narrated from the said appeal. ITA No. 2627/DEL/2013 (A.Y.2008-09) 3. This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals)-XXXI, New Delhi (hereinafter referred to as 'the CIT(A)') dated 28.02.2013. The assessee has raised as many as nine grounds in appeal. The gist of issues raised by the assessee in appeal is as under:- A. Ground no. 1 to 4 of appeal: Reduction of deduction claimed by the assessee u/s. 80IB(10) of the Income Tax Act,1961(hereinafter referred to as ‘the Act’) on account of proportionate allocation of following expenses to eligible projects in the ratio of sales: (i) Advertisement expenses; (ii) Professional charges; (iii) Directors meeting Fee; & (iv) Directors traveling expenses. B. Ground no. 5 of appeal: Addition of Rs.64,98,414/- on account of Notional Annual letting Value of unsold vacant flats and commercial spaces held as stock in trade. C. Ground no. 6 to 9 of appeal are general in nature.
Shri Rohit Jain, appearing on behalf of the assessee submitted that during the relevant assessment year, the assessee had claimed deduction u/s. 80IB(10) of the Act amounting to Rs.8,19,13,284/- in respect of following projects:
(A.Y.2008-09) & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) Projects Amount of deduction claimed (in Rs.) Ansal Court Yard-Agra Housing Project, Agra, UP 1,99,54,115 Nest Homes (Ahsiana) Group Housing Project, 48,74,012 Lucknow Ansal Courtyard-Meerut Housing Project 3,97,05,722 Ansal Woodbury Apartments-Zirakpur Group Housing 1,73,79,435 Project Total 8,19,13,284 The Assessing Officer (AO) proportionally allocated certain expenses viz: Professional Charges, Directors Fees, Directors Foreign Travel Expenditure and Advertisement Expenditure, in the ratio of sales to the aforesaid eligible projects and disallowed the claim of deduction u/s.80IB(10) of the Act to the extent of Rs.52,88,622/-. The assessee carried the issue in appeal before the CIT(A). The First Appellate Authority upheld the action of AO in allocating expenses to the eligible projects. However, the CIT(A) granted part relief to the assessee by excluded certain expenses on the ground that they relate to other projects and not the eligible projects, in the following manner:-
S.No Expenses considered for Amount of expenses as Amount of expenses as allocation considered by AO considered by CIT(A) 1. Advertisement & Publicity 47,62,182 39,52,200 2. Professional Charges 1,50,44,822 1,25,60,552 3. Directors meeting fees 13,60,000 13,60,000 4. Director’s traveling 24,67,372 12,33,685/- expenses 4.1. Aggrieved by the aforesaid findings of the CIT(A), the Revenue and the assessee filed cross appeals before the Tribunal. The Department’s appeal in was dismissed by the Tribunal on account of low tax effect. Thus, the issues raised by the assessee in its appeal only survive for adjudication. The ld. Counsel furnished written submissions on the grounds raised by the assessee in grounds of appeal no. 1 to 4. Nevertheless, the ld. Counsel fairly conceded that in so far as (A.Y.2008-09) & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) expenditure towards Advertisement, Professional Charges and Directors Meeting Fee are concerned the same have been decided against the assessee by the Tribunal in Department’s appeal in ITA No. 2731/Del/2010 and CO of the assessee in CO No.222/Del/2010 for AY 2007-08 decided on 26.07.2024. 4.2. With regard to Directors traveling expenses, the ld. Counsel submits that though this issue was also decided against the assessee by the Tribunal in AY 2007-08 vide order dated 26.07.2024 (supra), however, in assessment years up to AY 2006-07, the AO has been allowing deduction u/s. 80IB(10) of the Act without making any disallowance on account of Directors traveling expenses. Therefore, the principle of consistency demand that no disallowance should be made on account of Directors traveling expense. In support of his submissions, he placed reliance on the decisions rendered in the case of CIT vs. Excel Industries Ltd. 358 ITR 295 and Radhasoami Satsang vs. CIT, 193 ITR 321 (SC). He further submitted that the AO for the first time in AY 2007-08 allocated aforesaid expenses to various eligible projects in the sales ratio. On appeal, the CIT(A) deleted 50% of Directors traveling expenses. On further appeal, the Tribunal vide order dated 26.07.2024(supra) upheld the order of CIT(A) and dismissed the issue in assessee’s CO. The ld. Counsel submits that while adjudicating the issue, the Tribunal failed to appreciate that only expenditure directly attributable to the eligible project is required to be allocated while computing deduction u/s. 80IB(10) of the Act, thus, the order of Tribunal needs reconsideration. 4.3. With regard to issue raised in Ground of appeal no. 5 relating to determination of Notional Annual Letting Value of residential units held as stock in trade, the ld. Counsel fairly stated that this issue has been decided against the assessee by the Hon’ble Delhi High Court in the case of CIT vs. Ansal Housing Finance and Leasing Company ltd. 354 (A.Y.2008-09) ITA Nos. 1695 & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) ITR 180. However, in respect of farm lands on which no residential unit has been constructed no Notional Annual Rental Value can be attributed. Thus, he pleaded for excluding farm lands from the provisions of section 22 of the Act. He pointed that to examine whether there is any construction or building on farm lands, the issue was set aside by the Tribunal for fresh consideration in appeal by the Revenue in ITA No. 1254/Del/2009 for AY 2005-06, title ACIT vs. Ansal Housing & Construction Ltd decided on 28.03.2017. The issue can be restored back to the AO for verification and grant of relief in accordance with the aforesaid Tribunal order.
5. Shri Ashish Tripathi, representing the department vehemently defended findings of the AO and the findings of the CIT(A) to the extent additions/disallowances were confirmed. The ld. DR submitted that the issues raised by the assessee in appeal are squarely covered in favour of the Department by the order of Tribunal in assessee’s own case in preceding assessment years.
6. Both sides heard, orders of the authorities below examined. The first issue raised by the assessee in appeal assailing pro-rata allocation of expenditure on the basis of sales resulting in reduction of deduction u/s. 80IB(10) of the Act. The AO while re- computing assessee’s claim of deduction u/s. 80IB(10) of the Act, reallocated advertisement expenses, professional charges, directors meeting fee and directors travelling expenses to eligible projects. In First appeal, the CIT(A) upheld findings of the AO in allocating expenditure on pro rata basis in the ratio of sales. However, the CIT(A) granted part relief to the assessee after excluding certain expenditure from advertisement expenses, professional charges and directors travelling expenditure. We find that the Coordinate Bench in assessee’s own case for AY 2007-08 in and CO No. 222/Del/2010 (supra) has considered the identical issue (A.Y.2008-09) ITA Nos. 1695 & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) and has upheld findings of the CIT(A) in allocation of expenditure in the ratio of sales to other projects. Hence, in so far reallocation of advertisement expenses, professional charges and directors meeting fee on pro rata basis in ratio of sales, we find no infirmity in the order of CIT(A), ergo, the same is upheld. Consequently, ground no. 1, 2 & 3 of appeal are dismissed.
7. As regards directors travelling expenses, the ld. Counsel for the assessee has pointed that in the preceding assessment years i.e. upto AY 2006-07, the AO has allowed the deduction u/s. 80IB(10) of the Act. It is only in the immediate preceding assessment year i.e. AY 2007-08, the issue has been decided against the assessee. When the issue was raised before the Tribunal, the Tribunal upheld findings of the CIT(A). We find that there is no material change in the impugned assessment year. Hence, we see no reason to take a different view. The ground no. 4 of appeal is dismissed, accordingly.
8. In ground no. 5 of appeal, the assessee has assailed addition based on Notional Annual Letting Value of unsold vacant flats held as stock in trade. The ld. counsel has pointed that the AO while determining the Notional Annual Letting Value has also included part of farm land on which there is no construction. The ld. Counsel has fairly conceded that in so far as vacant residential flat and commercial spaces held as stock in trade, the issue is squarely covered against the assessee by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Ansal Housing Finance Leasing Company reported as 354 ITR 180 (Del.) In so far as determination of Notional Annual Letting Value on farm lands, we find that in AY 2005-06 in (supra) in assessee’s own case the Tribunal has restored the issue back to the AO with following directions:
(A.Y.2008-09) & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) “38. We find that no findings have been recorded in this regard by lower revenue authorities, as to whether annual letting value could be determined in respect of such farm lands in terms of section 22 or not. We may observe that if there was no building on farm lands then it will not come within the ambit of section 22. On this aspect, the Assessing Officer is directed to examine the issue afresh.” We deem it appropriate to restore the issue of re-examination of Notional Annual Letting Value on farm lands to the AO in terms of aforesaid directions of the Tribunal. In the result, ground no. 5 of appeal is partly allowed for statistical purpose in the terms aforesaid.
Grounds of appeal
no. 6 to 9 are general in nature, hence, require no separate adjudication.
10. In the result, appeal of the assessee is partly allowed for statistical purpose. & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13)
11. Both the sides unanimously stated that the issues raised in these appeals emanate from identical set of facts and grounds of appeal are also identical except for the amounts. The submissions already made for AY 2008-09 would equally apply to these assessment years.
12. Since, the issues raised in the instant appeals have already been considered by us, while adjudicating the appeal of assessee for AY 2008-09, the findings given by us while adjudicating the said appeal would mutatis mutandis apply to appeals of the assessee for AY 2009-10 to 2012-13.
(A.Y.2008-09) & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) 13. In the result, for partly of reasons appeals of the assessee are partly allowed for statistical purpose. ITA No. 1473/DEL/2017 (A.Y.2013-14) 14. In AY 2013-14, the first two issues raised by the assessee in appeal are identical to the one already considered by us, while deciding appeal of the assessee for AY 2008- 09. Therefore, the findings given by us on the issues of reduction of deduction u/s. 80IB(10) of the Act on account of proportionate allocation of expenses to eligible projects in the ratio of sales and Notional Annual Letting Value of flats and commercial units held as stock in trade would mutatis mutandis apply in the impugned assessment year, as well.
In addition to the above two issues, the assessee in ground no. 3 of appeal has assailed addition of Rs.10,82,952/- made u/s. 14A r.w.r 8D of the Income Tax Rules, 1963. The ld. Counsel for the assessee submits that the assessee has made investments in subsidiary companies and also in Shares and Mutual Funds. During the year relevant to the assessment year under appeal, the assessee had earned dividend income of Rs.2940/- on Mutual Funds. No suo moto disallowance was made by the assessee for earning exempt income. In assessment proceedings, the AO invoked the provisions of Rule 8D(2)(iii) r.w.s. 14A and made disallowance of Rs.10,82,952/- being 0.5% of the average value of investments. The assessee carried the issue in appeal before the CIT(A), but remained unsuccessful. The ld. Counsel for the assessee submitted that in the first place no satisfaction as envisaged u/s. 14A(2) of the Act was recorded by the AO. Therefore, the disallowance made by the AO is liable to be deleted. Without prejudice to the primary submissions, the ld. Counsel submits that the disallowance (A.Y.2008-09) & 1696/DEL/2016(A.Ys.2009-10 & 2010-11) ITA Nos. 195 & 196/DEL/2015 (A.Ys.2011-12 & 2012-13) ITA No. 1473/DEL/2017 (A.Y.2013-14) u/s. 14A of the Act may be restricted to the extent of exempt income earned by the assessee during the relevant period.
Per contra, the ld. DR supported findings of the AO and the CIT(A) on this issue and prayed for dismissing the ground raised
by the assessee.
17. Both sides heard. Undisputedly, the assessee earned dividend income of Rs. 2940/- only during the relevant period. It is no more res integra that disallowance u/s. 14A of the Act cannot exceed the exempt income earned. Without further delving into assessee’s primary argument, we direct the AO to restrict disallowance u/s. 14A of the Act to the extent of exempt income earned by the assessee. The alternate prayer made by the assessee is accepted, consequently ground no. 3 of appeal is allowed protanto.
18. In the result, appeal of the assessee is partly allowed.
19. To sum up: Years Result 2627/DEL/2013 2008-09 to 2012-13 Partly Allowed for Statistical Purpose 1695 & 1696/DEL/2016 195 & 196/DEL/2015 1473/Del/2017 2013-14 Partly Allowed Order pronounced in the open court on Thursday the 12th day of June, 2025.