DCIT, CENTRAL CIRCLE 5(4), MUMBAI vs. HOUSING DEVELOPMENT & INFRASTRUCTURE LTD, MUMBAI

Since issues arising in these appeals are common and inter- connected and appeals pertain to same assessee, these were heard together and are being disposed of by this consolidated order for sake of convenience. Our observations and findings on each of the issue arrived at for the first year shall apply mutatis mutandis in respect of other years wherever applicable except when there is variation on fact or applicable law, for which specific observation and finding is given for that specific year.

At the outset, it is noted that respondent assessee has undergone insolvency proceedings before ld. National Company Law Tribunal (NCLT), Mumbai, which has appointed Shri Abhay N. Manudhane as Resolution Professional to manage affairs of assessee company. Taking note of this development and to bring correct facts on record, revenue has filed revised Form 36 in all the present appeals, incorporating particulars of Resolution Professional. Revised Form 36 filed in each of the aforesaid appeals are taken on record.

None appeared on behalf of the assessee to represent its case before us, despite service of notice of hearing. Since issues involved in these appeals are no longer res integra and are squarely covered by judicial precedents available on record, we found it appropriate to proceed with adjudication of these appeals on merits, with able assistance of ld. CIT-DR, more so since all the present appeals have been filed by the revenue.

Grounds raised by revenue in aforesaid five appeals, though differently worded for each assessment year, give rise to certain common and inter-connected issues. For sake of clarity and convenience of adjudication, issues arising for consideration in all the years, along with corresponding ground numbers raised for each assessment year, are tabulated hereunder:

We proceed to adjudicate the aforesaid issues in the sequence noted above, taking up facts of assessment year 2011-12 first, since findings recorded therein squarely cover identical issue arising for other assessment years under consideration.

Aggrieved, assessee carried the issue in appeal before ld. CIT(A). It was contended, inter alia, that since assessee had not earned or received any exempt income during year under consideration, provisions of section 14A r.w. Rule 8D would have no application, placing reliance on decision of Hon’ble Delhi High Court in Cheminvest Ltd. vs. CIT and various other decisions of Hon’ble High Courts, including Hon’ble jurisdictional Bombay High Court in Ballarpur Industries Ltd., and coordinate benches of Tribunal in L&T Power Development Ltd., DCIT vs. RKW Developers Pvt. Ltd. and Satyam Realtors Pvt. Ltd., holding consistently that no disallowance u/s.14A can be made in absence of any exempt income earned during relevant previous year. It was further contended that provisions of section 115JB do not provide for increasing book profit on account of disallowance computed u/s.14A r.w. Rule 8D, placing reliance, inter alia, on decision of coordinate bench in Awas Developers & Construction Pvt. Ltd., following Hon’ble Special Bench in ACIT vs. Vireet Investment Pvt. Ltd. (2017) 82 taxmann.com 415 (Del)(SB).

Ld. CIT(A), after considering submissions of assessee and material available on record noted that since assessee had admittedly not earned any exempt income during relevant previous year, question of disallowance of expenses u/s.14A r.w. Rule 8D would not arise and that ld. Assessing Officer was not justified in invoking provisions of Rule 8D and computing disallowance of Rs.50,42,572/- (correct amount being Rs.3,27,47,500/-) u/s.14A of Act. Said disallowance was accordingly directed to be deleted, both from total income computed under normal provisions of Act as well as from book profit computed u/s.115JB of Act. Disallowance so made by ld. AO was thus deleted by the ld. CIT(A).

Coming to applicability of disallowance u/s.14A to computation of book profit u/s.115JB, ld. CIT(A), in para 4.3.4, held that it is well settled that amount disallowable u/s.14A is covered under clause (f) of Explanation 1 to section 115JB(2), placing reliance on CIT vs. Goetze (India) Ltd. and Others, Dabur India Ltd. vs. ACIT and CIT vs. Dhanalakshmi Bank Ltd. However, ld. CIT(A) found merit in contention of assessee that no disallowance u/s.14A can be made in a year where no exempt income is earned, following decision of Hon’ble Delhi High Court in Cheminvest Ltd. (supra) and other decisions of Hon’ble High Courts holding that expression ‘does not form part of total income’ occurring in section 14A envisages an actual receipt of income not includible in total income during relevant previous year, for purpose of disallowing any expenditure in relation thereto. He, thus held in favor of the assessee on this aspect too.

We find that similar findings have been arrived at by ld. CIT(A) while adjudicating identical issue arising for assessment years 2013-14, 2014-15, 2015-16 and 2016-17, wherein disallowance made u/s.14A r.w. Rule 8D, as well as its consequential impact on book profit computed u/s.115JB, has been deleted, applying the very same reasoning as recorded for assessment year 2011-12, on facts obtaining in the respective assessment years.

Aggrieved by aforesaid common findings of ld. CIT(A) for all the years under consideration, revenue is in appeal before the Tribunal. Ld. CIT-DR supported order of ld. Assessing Officer and placed reliance on grounds raised in respective Form 36.

We have heard ld. CIT-DR and perused material placed on record, including findings recorded by ld. CIT(A) in impugned orders. It is by now well settled proposition of law that provisions of section 14A r.w. Rule 8D can be invoked only where assessee has, in fact, earned exempt income during relevant previous year. Where no exempt income is earned or received by assessee during year under consideration, no disallowance u/s.14A r.w. Rule 8D can be made, since there can be no question of attributing any expenditure to earning of exempt income which was never earned in the first place. This proposition stands settled by decision of Hon’ble Delhi High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del.) as well as decisions of various other Hon’ble High Courts, including Hon’ble Bombay High Court in Ballarpur Industries Ltd., Hon’ble Delhi High Court in CIT vs. Holcim India Pvt. Ltd. (2014) 272 CTR 282 (Del.), Hon’ble Gujarat High Court in CIT vs.

As regards applicability of disallowance u/s.14A while computing book profit u/s.115JB, we note that Special Bench of Hon’ble Tribunal in ACIT vs. Vireet Investment Pvt. Ltd. (supra) has held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation contemplated u/s.14A r.w. Rule 8D. Once it stands held, on facts, that disallowance itself u/s.14A is not warranted for want of any exempt income having been earned during relevant previous year, question of making corresponding addition to book profit computed u/s.115JB does not survive.

In light of aforesaid discussion and respectfully following decisions referred to above, we find no infirmity in order of ld. CIT(A) in deleting disallowance made u/s.14A r.w. Rule 8D, as well as in directing exclusion of said disallowance while computing book profit u/s.115JB, for all the years under consideration before us, namely, assessment years 2011-12, 2013-14, 2014-15, 2015-16 and 2016-17. Findings of ld. CIT(A) on this issue are, accordingly, upheld. Grounds raised by revenue on these issues for aforesaid assessment years stand dismissed.

This issue arises only for assessment year 2013-14, vide ground nos. (v) and (vi), which read as under: “(v) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the assessee has failed to prove that the hire charges were incurred wholly and exclusively for the purpose of business. (vi) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that where payment has been subjected to TDS, it is a conclusive evidence to hold that the said payment is genuine.”

Ld. Assessing Officer had disallowed hire charges claimed by assessee, being of view that assessee had failed to establish that same were incurred wholly and exclusively for purposes of business. Ld. CIT(A), on appreciation of material placed before him, including evidence of deduction of tax at source on aforesaid payments and other supporting documents furnished by assessee, deleted disallowance made by ld. Assessing Officer, holding that genuineness of impugned payments stood duly substantiated.

Before us, ld. CIT-DR could not bring any material on record to controvert findings recorded by ld. CIT(A), nor could he demonstrate that finding of fact arrived at by ld. CIT(A), on appreciation of evidence placed before him, suffers from any infirmity. While it is true that mere deduction of tax at source, by itself, would not be conclusive proof of genuineness of a payment, same is nevertheless a relevant piece of evidence, to be considered along with other material on record, in arriving at a finding on genuineness of expenditure. Having regard to totality of facts and finding of ld. CIT(A) that hire charges in question stood duly substantiated by assessee, we find no reason to interfere with same. Grounds (v) and (vi) raised by revenue for assessment year 2013- 14 are, accordingly, dismissed.

We take up facts of assessment year 2013-14. Brief facts are that, during assessment proceedings, it was noticed from balance sheet that finished goods valued at Rs.1,78,89,52,687/- were shown under head ‘Inventories’, in respect of which assessee had not offered any rental income. Ld. Assessing Officer called upon assessee to show cause as to why rental income of finished goods should not be estimated, in light of decision of Hon’ble Delhi High Court in CIT vs. Ansal Housing Finance & Leasing Co. Ltd. [(2013) 29 taxmann.com 303 (Del.)]. Assessee relied upon decision of coordinate bench in C.R. Developments Pvt. Ltd. vs. JCIT, pronounced on 13.05.2015, holding that estimated letting value of flats shown as stock-in-trade, which could not be sold, was required to be deleted. Ld. Assessing Officer, noting that decision relied upon by assessee had not attained finality, being in further appeal by department, distinguished same and proceeded to apply ratio of Ansal Housing Finance & Leasing Co. Ltd. (supra), also distinguishing reliance placed by assessee on Chennai Properties & Investments Ltd. vs. CIT (SC).

Ld. Assessing Officer excluded value of TDR and FSI amounting to Rs.34,72,77,188/- from total closing stock-in-trade of Rs.1,78,89,52,687/-, since same could not be let out, leaving finished stock of residential and commercial units at Dream Residential Projects and Dream Mall, Bhandup, at Rs.1,44,16,75,499/-. Applying rate of 8% of value of finished stock, following judgment of various High Courts and Tribunals, ld. Assessing Officer computed rental income/ALV at Rs.11,53,34,040/- and brought same to tax under head ‘Income from House Property’, following ratio of Ansal Housing Finance & Leasing Co.

Before ld. CIT(A), assessee reiterated reliance placed on C.R. Developments Pvt. Ltd. (supra) as also on decision of Hon’ble Supreme Court in Chennai Properties and Investments Ltd. vs. CIT (2015) 42 SCD 651. Without prejudice, it was further submitted that total area of Dreams Mall at Bhandup comprised basement area of 2,58,287 sq. ft., costing Rs.1,09,79,91,576/-, which, being incapable of being let out, ought to be excluded before applying rate of 8% for computing deemed rental income on unsold stock. Reliance in this regard was placed on decision of coordinate bench in Vishwanath Acharya vs. ACIT (2016) 67 taxmann.com 269 (Mum.)(Trib.). It was further submitted, in subsequent submission dated 29.03.2017, that plan of Dreams Commercial (Basement) was attempted to be filed before ld. Assessing Officer, but was not accepted and that ld. Assessing Officer had, in fact, accepted similar claim of assessee while framing assessment for assessment year 2014-15. For the purpose of quantum of addition on account of deemed rent, ld. CIT(A) restored the matter to file of ld. Assessing Officer for verification of claim of assessee for exclusion of value of basement parking area of Dreams Commercial Mall and directed ld. Assessing Officer to re-compute amount of deemed rent chargeable to tax u/s.23 of Act, after due verification of facts from record.

We find that similar issue, on identical facts, arises for assessment year 2015-16, vide ground nos. 5 and 6 raised by revenue. For that year, since factual position regarding basement area, its extent and its incapability of being let out already stood on record, ld. CIT(A), following same reasoning and principle as recorded for assessment year 2013-14, deleted entire addition of Rs.5,56,05,207/- made on account of Annual Letting Value of basement area, while otherwise upholding principle of taxability of deemed rental income in respect of unsold flats/units under head ‘Income from House Property’.

Aggrieved, revenue is in appeal before the Tribunal for both the years, on the ground that ld. CIT(A) has erred in not appreciating that basement area is part and parcel of house property and, thus, its ALV has to be considered for computation of deemed rental income.

We have heard ld. CIT-DR and perused findings of ld. CIT(A). Grievance of revenue, in substance, is confined to exclusion of value of basement area from computation of notional rent, on the footing that basement area is part and parcel of house property. We find that basement area in question, being incapable of being let out on facts on record, could not legitimately form part of finished stock for purposes of estimating notional annual letting value under head ‘Income from House Property’. For assessment year 2013-14, ld. CIT(A) has restored limited question of verification of quantum of basement area to file of ld. Assessing Officer, which course of action is reasonable and does not, in any manner, prejudice interest of revenue, since ld. Assessing Officer remains at liberty to verify said claim on facts and re-compute addition accordingly. For assessment year 2015-16, having regard to fact that quantum of basement area already stood verified/accepted in preceding proceedings, ld. CIT(A) was justified in deleting addition made on this count. We, therefore, find no infirmity in findings of ld. CIT(A) for either of the two years and uphold same. Grounds raised by revenue on this issue for assessment years 2013-14 and 2015-16 are, accordingly, dismissed.

This issue arises only for assessment year 2013-14, vide ground no. (viii), which reads as under: “On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the Bombay High Court’s decision in the case Raymond Ltd [21 taxman.com 60] was in the context of provisions of section 115JA and not 115 JB of the Act, and thus not applicable in present case.”

Brief facts are that during course of assessment proceedings, assessee was called upon to show cause as to why amount of unabsorbed cost of TDR of Rs.1,04,25,74,531/- and Debenture Redemption Reserve of Rs.1,44,72,90,000/-, reduced from net profit for purposes of computing book profit u/s.115JB, should not be excluded. Ld. Assessing Officer, being of view that final accounts of assessee, having been duly approved by shareholders, had to be considered as such for purposes of computing book profit u/s.115JB and finding reasoning of assessee in this regard not tenable, re-computed book profit by ignoring aforesaid reduction claimed by assessee.

Before ld. CIT(A), as regards Debenture Redemption Reserve of Rs.1,44,72,90,000/-, assessee placed reliance on decision of Hon’ble Supreme Court in National Rayon Corporation Ltd. vs. CIT (1997) 227 ITR 764 (SC) wherein it was held that mere fact that a Debenture Redemption Reserve is labelled as a reserve does not render it a reserve in true sense of that concept and that an amount set apart to meet a known liability is not a reserve. Reliance was also placed on decision of coordinate bench of Tribunal in Raymond Ltd. vs. JCIT [ITA No.4235/Mum/2000], which had applied aforesaid ratio of National Rayon Corporation Ltd. (supra) and which, on further appeal by revenue, came to be upheld by Hon’ble jurisdictional Bombay High Court in CIT-2, Mumbai vs. Raymond Ltd. (2012) 21 taxmann.com 60 (Bom.) wherein it was held that mere fact of a Debenture Redemption Reserve being labelled as a reserve would not render it a reserve in true sense or meaning of that concept and that an amount retained to provide for a known liability is not a reserve, so that no substantial question of law arose from decision of Tribunal to that effect. Reliance was also placed on decision of Hon’ble Supreme Court in Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 (SC) holding that once accounts of assessee, prepared as per Companies Act and duly certified by authorities under said Act, it is not open to ld. Assessing Officer to make changes therein for purposes of computation of book profit, except to extent expressly permitted under relevant Explanation to section 115JB.

On the issue of exclusion of Debenture Redemption Reserve of Rs.1,44,72,90,000/-, ld. CIT(A) held that issue stood covered in favour of assessee by judgment of Hon’ble jurisdictional Bombay High Court in Raymond Ltd. (supra), which, applying ratio of Hon’ble Supreme Court in National Rayon Corporation Ltd. (supra) had held that liability to redeem debentures arises the moment money is borrowed by issuing debentures and that though loan may not be repayable in year of account, obligation to repay is a present obligation. Any money set apart to redeem debentures has, therefore, to be treated as money set apart to meet a known or ascertained liability and cannot be regarded as a ‘reserve’ for purposes of Schedule VI to Companies Act, 1956. Ld. CIT(A) accordingly held that ratio of Raymond Ltd. (supra) squarely applied to facts of present case and that amount of Rs.1,44,72,90,000/- set apart by assessee as Debenture Redemption Reserve, not being a ‘reserve’ within meaning of Explanation 1(b) to section 115JB, could not be added to net profit for computing book profit u/s.115JB. It was further held that same would also not be covered under Explanation 1(c) to section 115JB, since Debenture Redemption Reserve has been held to be in nature of an ascertained or known liability. Ld. Assessing Officer was, accordingly, directed to re-compute book profit u/s.115JB after excluding amount of Rs.1,44,72,90,000/- set apart as Debenture Redemption Reserve.

Aggrieved, revenue is in appeal before the Tribunal, contending that decision of Hon’ble Bombay High Court in Raymond Ltd. (supra) was rendered in context of provisions of erstwhile section 115JA and not section 115JB, and was, therefore, not applicable to facts of present case.

We have heard ld. CIT-DR and given careful consideration to rival contentions. We find that provisions of section 115JA and section 115JB, insofar as treatment of ‘reserve’ under respective Explanations is concerned, are, in all material respects, pari materia. Ratio laid down by Hon’ble jurisdictional High Court in Raymond Ltd. (supra), being that an amount set apart to meet an ascertained or known liability, such as liability to redeem debentures, does not partake character of a ‘reserve’ merely because it is so labelled in accounts of a company, is a proposition of general application and is not restricted in its application to erstwhile provisions of section 115JA alone. Mere difference in section number, without any material difference in relevant statutory language defining what constitutes a ‘reserve’ for purposes of said provisions, cannot be a ground to hold ratio of aforesaid decision of Hon’ble jurisdictional High Court to be inapplicable to computation of book profit u/s.115JB. We find that ld. CIT(A) has correctly applied ratio of Raymond Ltd. (supra), being binding decision of Hon’ble jurisdictional High Court, read with ratio of Hon’ble Supreme Court in National Rayon Corporation Ltd. (supra), in holding that Debenture Redemption Reserve of Rs.1,44,72,90,000/- set apart by assessee, being in nature of a known or ascertained liability, could not be added back to net profit for purposes of computing book profit u/s.115JB. We, therefore, find no infirmity in findings of ld. CIT(A) on this issue, and same are upheld. Ground (viii) raised by revenue for assessment year 2013-14 is, accordingly, dismissed.

This issue arises only for assessment year 2014-15, vide ground no.1, which reads as under: “On the facts and in the circumstances of the case and in law, the Id. CIT(A) has failed to appreciate that the disallowance made by the assessing officer was on account of delayed payment of PF & ESIC being Employee’ Contribution, was u/s 36(1)(va) r.w.s. 2(24)(x), by the assessing Officer and not u/s 43B r.w.s. 36(1)(va) as held by him.”

Brief facts are that ld. Assessing Officer disallowed employees’ contribution to Provident Fund and ESIC, u/s.36(1)(va) r.w.s.2(24)(x) of Act, for reason that same had not been deposited by assessee within due date prescribed under relevant PF and ESIC legislation. Ld. CIT(A), proceeding on footing that disallowance was governed by provisions of section 43B r.w.s.36(1)(va) and that benefit of payment before due date of filing of return of income u/s.139(1) was available to assessee, deleted disallowance made by ld. Assessing Officer.

Revenue is in appeal, contending that ld. CIT(A) failed to appreciate correct basis of disallowance made by ld. Assessing Officer, being u/s.36(1)(va) r.w.s.2(24)(x) and erroneously proceeded on footing that same was governed by section 43B r.w.s.36(1)(va).

We have heard ld. CIT-DR. This issue is no longer res integra. Hon’ble Supreme Court, in Checkmate Services P. Ltd. vs. CIT (2022) 448 ITR 518 (SC) has authoritatively settled controversy surrounding allowability of belated deposit of employees’ contribution to PF/ESIC, holding that employees’ contribution, being in nature of amount deducted from wages/salary of employees and held in trust by employer, must be deposited by employer within due date prescribed under relevant PF/ESIC legislation, failing which same is liable to be treated as income of employer u/s.2(24)(x) of Act and disallowed u/s.36(1)(va) thereof. Hon’ble Supreme Court further held that benefit of extended due date u/s.43B, being payment before due date of filing of return of income u/s.139(1), is available only in respect of employer’s own contribution and has no application to employees’ contribution governed by section 36(1)(va).

Since disallowance made by ld. Assessing Officer in present case was admittedly on account of delayed deposit of employees’ contribution to PF/ESIC, being governed by provisions of section 36(1)(va) r.w.s.2(24)(x) and not by provisions of section 43B, finding of ld. CIT(A), proceeding on an incorrect premise, cannot be sustained in light of authoritative pronouncement of Hon’ble Supreme Court in Checkmate Services P. Ltd. (supra). We, accordingly, set aside order of ld. CIT(A) on this issue and restore disallowance made by ld. Assessing Officer on account of delayed deposit of employees’ contribution to PF/ESIC. Ground no.1 raised by revenue for assessment year 2014-15 is, accordingly, allowed.

This issue arises only for assessment year 2016-17, vide ground no.1, which reads as under:

Brief facts, as noted from the impugned order are that finished goods valued at Rs.3,14,34,96,101/- were shown under head ‘Inventories’, in respect of which assessee had not offered any rental income. Following approach adopted in assessee’s own case for assessment years 2014-15 and 2015-16 and distinguishing decision of Hon’ble Supreme Court in Chennai Properties & Investments Ltd. vs. CIT (supra) on facts, ld. Assessing Officer computed rental income/ALV of finished stock lying unsold, after excluding value of TDR, FSI and basement area of Dreams Project, at Rs.18,51,41,384/-, being 8% of remaining finished stock valued at Rs.2,31,42,67,311/- and brought same to tax under head ‘Income from House Property’.

At the first appellate stage, in paras 4.7 and 4.8, ld. CIT(A) took note of subsequent submission of assessee dated 23.07.2019, placing reliance on order of Hon’ble Tribunal in assessee’s own case, being HDIL vs. CIT, ITA No.5986/Mum/2017, for assessment year 2013-14, dated 10.09.2018, wherein, vide point Nos.74 to 77 of said order, this Tribunal had deleted identical addition made by ld. Assessing Officer on account of deemed rent under head ‘Income from House Property’. Ld. CIT(A) further noted that same view had thereafter also been followed by him in assessee’s own case for assessment year 2015-16, vide appellate order dated 12.12.2018. Ld. CIT(A) respectfully following said decision of this Tribunal in assessee’s own case (supra) held that ground raised by assessee stood covered in its favor and, accordingly, deleted the addition of Rs.12,95,98,969/- on account of Annual Letting Value of unsold flats/units. Aggrieved, revenue is in appeal before the Tribunal.

We have heard ld. CIT-DR and perused findings of ld. CIT(A) as well as order of coordinate bench of Tribunal in assessee’s own case for assessment year 2013-14 in ITA No.5986/Mum/2017, dated 10.09.2018, relied upon by ld. CIT(A). It is well settled that principle of judicial consistency requires that, in absence of any change in facts or in law, a view consistently taken by Tribunal in assessee’s own case in preceding years ought not to be departed from, more particularly where such view stands accepted by revenue and has not been shown to have been upset by any higher forum. Since coordinate bench of Tribunal has, in assessee’s own case for assessment year 2013-14, on similar facts, held that addition made on account of deemed rent, under head ‘Income from House Property’, in respect of unsold flats held as stock- in-trade, is not sustainable and same view has been consistently followed by ld. CIT(A) in assessee’s case for assessment year 2015-16 as well, we find no infirmity in ld. CIT(A) following said binding precedent in assessee’s own case while adjudicating identical issue for assessment year 2016-17 as well. Findings of ld. CIT(A) on this issue are, accordingly, upheld. Ground no.1 raised by revenue is accordingly, dismissed.

In the result, appeal of revenue for – a) assessment year 2011-12 is dismissed b) assessment year 2013-14 is dismissed c) assessment year 2014-15 is partly allowed d) assessment year 2015-16 is dismissed e) assessment year 2016-17 is dismissed