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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by revenue is directed against the order of learned Commissioner (Appeals)-56 Mumbai, dated 09.05.2023 for the assessment year (AY) 2013-
The assessee has raised four grounds of appeal.
(1) On the facts and in the circumstances of the case, the ld. CIT(A) erred in restricting the addition of ‘on-money’ to 25% without properly appreciating the facts of the case. (2) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 116,92,92,850/- received from M/s Thirdscroll Holdings Ltd in respect of the amount received on issuance of CCD and equity. (3) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 32,63,37,484/- towards interest paid on debenture. (4) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 8,18,714/- as disallowances of business expenses i.e. site expenses, miscellaneous expenses, travelling expenses and sales promotion expenses, without appreciating the facts of the case.
Brief facts of the case as extracted from the orders of lower authorities are that a search action under section 132 was carried out on Omkar Realtors and Developers Private Limited and others group on 3rdJune 2015 at their business premises and various residential premises of its Directors and key persons. This group is engaged in the real estate development and construction in different parts of Mumbai City, focus on slum redevelopment.
Assessee Company is one of the group companies of Omkar group. During the search action, various evidences in the form of cash generation, on money and cash loans, was found and seized. The statement of various key persons of this group was recorded. Consequent upon search action, notice under section 153A was issued to the assessee. The assessee in response to notice under section 153A, filed its return of income declaring nil income including current year loss of ₹ 14.49 Crore. The assessing officer after serving notice under section 143(2) proceedsfor assessment. During assessment, the assessing officer noted that assessment in this case was originally barred by limitation on 31 December 2017. It was further recorded that as per Audit report on Form 3CEB, the assessee reported international transaction with its associated enterprises. The assessing officer further noted that matter was referred to transfer pricing officer (TPO) for computation of arm’s-length price (ALP). The transfer pricing officer furnished his report and on the basis of report of TPO and an on his observation the assessing officer made addition of ₹ 149.56 Crore in Para-7 of assessment order. Addition of Rs. 116.92 Crore on issuing Compulsory Convertible Debenture(CCD) and of Rs. 32.63 lacs as interest on CCD.For appreciation of facts related with the additions made by the assessing officer in a proper manner, contents of para-7, 7.1 and 7.3 is extracted below;
The assessing officer further noted that in profit and loss account the assessee has shown substantial expenses under various head such as site expenses, miscellaneous expenses, travelling and conveyance expenses, sales promotion expenses and interest on TDS. The assessing officer issued show cause notice through order sheet dated 7thDecember 2018 directing the assessee to furnish supporting evidence and voucher to substantiate such expenses. The assessing officer recorded that assessee filed its written submission on 21 December 2018 but not produced any cogent documentary evidence in support of such expenditure. The assessing officer thus made disallowance of site expenses of ₹ 63,971/-, miscellaneous expenses of ₹1,57,869/-, travelling and convince expenses of ₹ 1,002,44/-, sale promotion expenses of ₹ 4,96,630/-. All expenses were disallowed by taking view that such expenditure is not incurred wholly and exclusively for the purpose of business as assessee has not brought any material on record to substantiate such expenditure. The assessing officer also disallowed interest on TDS of ₹ 3,95,663/-.
The assessing officer further noted that during search action on assessee group on 3rdJune 2015, it was established that on the basis of various evidences found during the course of search action that assessee is in practice of accepting on money from its customer for sale of residential Flats in various project over and above the sale consideration booked by the assessee in their books of account. The evidence gathered during the search actionconsists of numerous papers;excel seats found at the residence and office of key employees of group like Yogesh Begrecha, Lena Jain, Vishal Joshi. The assessing officer by referring the statement of such persons held that on the basis of various facts and admissions by key persons including Chairman of Omkar group it was established beyond doubt that they were accepting on money in various real estate deals. The assessing officer prepared summary of on money in various project of ₹ 105.41 Crore. It was further recorded that the group has filed application before Income Tax Settlement Commission wherein they have admitted receipt of own money.
On the basis of aforesaid observation, the assessing officer recorded that Assessee Company had sold around 600 flats since financial year 2011-12 to financial year 2015-16, further flats were sold at variable prices. The assessing officer took his view that on money declared in the flagship company has relevance in case of assessee, therefore all presumption and combination was applied by assessing officer to evaluate on money and issued a show cause notice to the assessee wide show cause notice dated 01stDecember 2017. Contents of show cause notice is recorded in para 9.5 of assessment order. In the show cause notice the assessing officer recorded that he has also verified the rate on website of 99acre for Film city road for various financial years and asked as to why such rate be not considered as minimum sale price per square feet for the flats sold by the assessee. In response to show cause notice, the assessee filed its reply dated 4th December 2017. The contents of reply of assessee is recorded in para 9.6 of assessment order. The assessee in its reply besides explaining the fact that they are carrying out construction activity in the project at Malad. During the course of search action, certain evidence in the nature of receipt of on money was found from the premises of Group Company. These evidences which reflects the total cash received top ₹ 2.02 Crore was accordingly declared by Kamal Kishore Gupta while recording his statement on 4th June 2015. The saidon money was also considered while filing return of income for assessment year 2016-17 in response to notice under section 153A, wherein the profit from the said on-money at the rate of 15% was offered as income.
It was further submitted that present assessment is carried out pursuant to search action. It is settled position in law the additions in case of search assessment should be made only on the basis of evidence found at the time of search and not on the basis of presumption and estimation. The on money component in the booking with various buyers cannot be presumed unless direct and cogent evidence are found. In the present case, seized material has been found only to the tune of ₹ 2.02 Crore in respect of few bookings and therefore, on money cannot be estimated and extrapolated at the higher amount in respect of other booking also. The said seized material reflects that on money was received only in respect of some of deals carried on by the assessee company. In absence of any evidence, cash component of on money cannot be presumed in respect of other deals carried out by assessee in various years. On the basis of such contention the assessee stated that on money should not be extrapolated. The assessee also relied on various case laws which have been recorded in the part of submissions. The assessee in its without prejudice contention stated that estimation of on money is being made on the basis of rates available on the website that is www.99 acres.com. The rates adopted in the show cause notice are not only unreasonable but based on several hypothetical presumptions. The rate of sales mentioned on such a website cannot be considered as the market rate to ascertain the established sale value of the flats sold by assessee. The rate shown on the website merely reflects some hypothetical rates and offer made by various parties. The offers placed by the sellers and buyers cannot be considered as the prevailing market rate. The reply of assessee was not accepted by assessing officer. The assessing officer in para 9.7 of his order recorded that extrapolation in case of assessee company is being carried out by taking reference prices from the website 99 acres.com for the corresponding period. The assessing officer of his own reduced 20% to compensate all odds that it preferred location charges floor rise etc, and thereby on his working provided on page No. 15 and 16 of the assessment order, worked out the alleged-on money figure of ₹ 87,38,695/- and added to the income of assessee.
Aggrieved, by the additions in the assessment order, the assessee filed appeal before Commissioner (Appeals). Before Commissioner (Appeals), the assessee filed detailed written submission on all the additions.The submissions of the assessee on the addition on the basis of transfer pricing adjustment of Rs. 116.92 Crore are recorded at page No. 8 to 19 of order of ld CIT(A). The ld CIT(A) on considering the submissions of assessee allowed full relief to the assessee on this issue. The ld CIT(A) while allowing relief to the assessee held that this issue is covered in favour of assessee in assesses own case for AY 2012-13. The ld CIT(A) also recorded that during the appellate proceeding, the assessee submitted that during assessment proceeding vide its letter dated 10th February 2017, furnished various details explaining receipt of funds from Thirdscroll Holding Limited and Azapel Holding Private Limited. It was explained that CCD and equity shares were issued pursuant to the investment cum shareholders agreement dated 4th November 2011 executed between the assessee company Thirdscroll Holding Limited and Azapel Holding Private Limited. The funds were received after taking necessary permission and complying various applicable laws. The inward remittance from foreign investor was disclosed by way of the declaration filed before Reserve Bank of India (RBI) inForeign Currency-Gross Provisional Return(FC-GPR). Before assessing officer various documents were furnished such as bank statements showing the recipient of funds, certificate of foreign inward remittance from HDFC Bank intimation dated 13th August 2012 to Oriental Bank of commerce regarding receipt of foreign funds with CCD, Form No. FC-GPR submitted to Reserve Bank of India and Reserve Bank of India’s letter dated 23 November 2015 confirming receipt of foreign funds, tax residency certificate of Thirdscroll Holding Limited and Azapel Holding Private Limited. Further valuation report of Chartered Accountant for the purpose of issue of CCD, was also filed. The assessee also filed copies of bank statement, balance sheet, profit and loss account, shares application form, Board resolution in respect of investing companies. The debentures were issued through banking channels. Thus, the identity and creditworthiness of investor and genuineness of transaction was proved before assessing officer in respect of issuing of CCD. The assessee further submitted that assessing officer wrongly observed the debenture were issued at high premium, however, in fact, the debentures were issued at the face value of ₹ 1000/- and no premium was received. It was also submitted that in respect of share premium of ₹ 40/- per share issue to as Azapel Holdings Private Limited in financial year (FY)2011–12, for which addition was made by assessing officer and it has been deleted by CIT(Appeals) 51, Mumbai vide order dated 31 December 2018. The assessee also furnished the issue of share capital and debenture was capital account transaction and it was not the international transaction. Further, the receipt of share capital and CCD from non-resident was the capital received and not chargeable to tax. For these, the assessee has relied on CBDT instruction No. 02 of 2015 dated 29 January 2015 and the decision Bombay High Court in case of Vodafone Services Private Limited Versus Union of India reported in 368 ITR 1 (Bombay). The assessee also relied on several other cases. It was also contended by assessee that they were not required to prove the ‘source of the source’ of the amount received for convertible means CCD and equity shares as the provisions of amended section of 68 were effective from 1 April 2013. To support such contention the assessee relied upon the decision in case of CIT versus Gagandeep Infrastructure Private Limited (394 ITR 680).
On the basis of aforesaid submission, the learned CIT(Appeals) recorded that it is the contention of assessee that they have proved identity, creditworthiness of subscriber and genuineness of transaction and no addition could be made under section 68 in respect of amount received from CCD and equity shares. In support of such submission the assessee also relied upon certain case law. The learned CIT (Appeals) on considering the submission of assessee further noted that case of assessee is that in assessment year 2013- 14, Thirdscroll Holding Limited Cyprus has subscribed CCD issued by the assessee. Therefore, as per the decision of Mumbai Tribunal in TV-18 Broadcast Ltd versus ACIT (2022) 139 taxmen.com 469 Mumbai, the said transaction of issuance of CCD was to be considered the nature of quasi capital and CCD could not be considered as debt or debenture simplicitor for determination of arm length price adjustment. Thus, the adjustment made by TPO determining ALP of the transaction at Rs. Nill and consequent addition made by assessing officer in respect of amount received from Thirdscroll Holding Limited on issue of CCD is deleted.
On other aspect of the issue, the learned CIT (Appeals) noted that TPO has determined the ALP of transaction of the receipt of amount on issuance of CCD at Nill. TPO determined ALP at Nill for the reasons that assessee was not able to justify the identity and creditworthiness of the investor companies and genuineness of the transaction on the issue of CCD to Thirdscroll Holding ted. As per section 92C(1)of the Income Tax Act. The TPO is required to determine ALP of the transaction as per method prescribed therein. The TPO has not followed any of the prescribed method, i.e. CUP, Transaction Net Margin Method, Resale Price Method, Profit Split Method or any other method prescribed in the Act/ Rules. The TPO has merely doubted the identity and creditworthiness of the investor and genuineness of transaction. The learned CIT(Appeal) by referring the decision in case of LintasIndia (P) Ltd (2019)
107 taxmann.com 426 (Mumbai Trib) and in John Deere India (P) Ltd Vs ITO (2017) 82 taxmann.com 201 (Pune-Trib) wherein it was held that where TPOhad not proposed adjustment as per the procedure laid down under the transfer pricing provision, there was no merit in ad hoc disallowance of royalty. The learned CIT(Appeal) further held that TPO was bound to follow any of the method prescribed in section 92C(1) and Rule 10AB to determine ALP of the transaction, therefore the TPO was not justified in determining the ALP of the transaction on issue of CCD to Thirdscroll Holding Limited at Nill.
So far as other aspect of identity creditworthiness and genuineness of transaction of issuance of CCD and equity share is concerned, the learned CIT(Appeals) recorded that on identical issue in assesses own case for AY 2012-13, the assessing officer made similar addition of Rs. 137 crore in respect of amount received on account of issuance of CCD from Thirdscroll Holding Limited and equity shares to Azapel Holding Private Limited.
However, on appeal before learned CIT(Appeals), the additions were deleted and no further appeal is filed by revenue before Tribunal. The ld CIT(Appeals) also extracted relevant part of order of his predecessor. On the basis of such observation, the learned CIT(Appeals) deleted the entire addition of Rs. 116.92 Crore. It was ultimately held that transaction of issuance of CCD was a quasi-capital in nature, secondly TPO has not determined ALP by following any of the method prescribed under section 92C(1) read with Rule 10AB to determine ALP.
So far as other addition of Rs. 32,63,37,484/- on account of interest paid on debenture is concern, the submissions of assessee are recorded in para-8 of impugned order of learned CIT(Appeals). The learned CIT(Appeals) recorded that assessee in its written submission stated that that assessing officer erred in making addition of interest paid to debenture without appreciating the fact that debenture issued by the assessee for benchmarking was done as per internal CUP method, thus the addition may be deleted. The assessee also stated that they have provided sufficient evinces to prove the identity, capacity and creditworthiness in respect of funds s aggregating ₹ 116.92 crore. The assessing officer accepted all the documentary evidences available on record.
The learned CIT(Appeals) on considering the submission of assessee noted that this ground related to interest paid to CCD is consequential to the grounds related to the amount received for issuance of CCD toThirdscroll Holding Limited. Since the main ground of appeal was allowed in favour of assessee therefore, charging of interest is consequential. Further, it was also held that TPO has not rejected the method adopted by assessee to justify the transaction at ALP. On the aforesaid observation the learned CIT (Appeals) deleted the addition of interest.
9. On the disallowance of 25% of expenses, the submission of assessee is recorded in para-9 of order of CIT(Appeals). The learned CIT(Appeals) recorded that assessee contended that assessing officer disallowed site expenses, travelling expenses, sale promotion expenses without giving any cogent reasons or any basis, as to how he has disallowed all the above expenditure, which were incurred for the purpose of business. The disallowances were made on assumptions and presumption. The assessee also relied on certain case laws.
The learned CIT(Appeals) on considering the submission of assessee recorded that site expenses of ₹ 63,971, were in the nature of staff welfare and local purchases, was incurred wholly and exclusively for the purpose of business. Miscellaneous expenses of ₹ 1,57,869/- were also in the nature of sales pavilion maintenance and office related expenses. Thus, these expenses were also wholly and exclusively for the purpose of business.
Further travelling expenses of ₹ 1,00,244/- was related to the travelling for the purpose of business. The sale promotion expenses of ₹ 4,96,304/- in the nature of promotional activities for existing client for increasing sales therefore, the sale promotion expenses were also incurred wholly and exclusively for the purpose of business. The learned CIT(Appeals)also recorded that such expenditures were not in the nature of capital or personal and were expanded exclusively for the purpose of business. The learned CIT (Appeals) also referred the decision of Hon’ble Apex Court in case of CIT versus Malayalam Plantation Ltd (1960), 53 ITR 140-SC. On the basis of above findings, the learned CIT(Appeals) deleted such addition.
On the addition of on account of ‘on money’, the submissions of assessee are recorded in para 10 of order of learned CIT(Appeals). The learned CIT(Appeals)recorded that it is the contention of assessee that during the course of search action, certain loose papers were found and seized, reflecting noting of alleged ‘on money’ received by the assessee-group. The assessing officer observed the during course of search it was revealed that cash was to be accepted against sales of the units and subsequently received of ‘on money’, some part was brought into the books of account. Based onsuch facts that the group, the assessing officer noted that assessee is liable to tax on account of income arising from the receipt of ‘on money’. The assessing officer applied prevailing rate available from website www.99 acres.com and after reducing 20% to compensate all the odds with reference to specific flat,the working of ‘on money’ was determined by reducing the agreement value. The assessee also stated that during search certain evidence in the nature of receipt of on money was found from the business premises of the assessee. These evidences reflect the total cash receipt of ₹ 2.02 crore, which was declared by Kamal Kishore Gupta, while recording the statement. The said on-money was considered while filing the return of income for assessment year 2016-17. In response to notice under section 153A, wherein the profit from the said ‘on money’ at the rate of 15% was offered as income. It is also submitted that it is settled legal position in law that addition in case of search assessment should be made only on the basis of evidence found at the time of search and not on the basis of assumption and estimation. The on money components in the booking with all the buyers cannot be presumed unless direct and cogent evidence are found. In the present case incriminating material has been found only to the tune of Rs. 2.02 crore in respect of few bookings and therefore, on money cannot be estimated and extrapolated at the higher amount in respect of other booking also. The assessee also makes other submission that builders and developers are not allowed to sale the units below the market rate value as per the provision of section 43CA, wherein the value of sales as Stamp Valuation Authorities is held to be the premium value, in the event of sale made by developer at the lower rate. The assessee also stated that in assesses own case for assessment year 2012-13 the assessing officer made addition of on money of ₹ 40,41,471/-. Against the addition in the assessment order, the assessee filed appeal before CIT(Appeals),wherein the addition was restricted to 25% of such on money.
The learned CIT(Appeals) on considering the decision of his predecessor, and by extracted the relevant part thereof, in his order held that on identical issue of ‘on money’ in earlier assessment year, the addition was restricted to 25% of total on money. Therefore, the assessee was allowed similar relief.
Aggrieved by the relief allowed to the assessee, the revenue has filed present appeal before Tribunal.
We have heard the submission of learned commissioner of income tax- departmental representative (CIT-DR) for the revenue and the learned authorised Representative(AR) of the assessee.Ground 1 of the appeal relates to restricting the addition of on money to the extent of 25%. The learned CIT-DR for the revenue supported the order of assessing officer. The learned CIT-DR for the revenue submits that during the course of search action, sufficient evidence for receipt of on money was found. The assessing officer made addition on the basis of material found during the search action and the statement of one of the key persons of the assessee group. The learned CIT(Appeals) restricted the addition to the extent of 25% only by following the order of his predecessor in earlier assessment year. The ld CIT- DR for the revenue prayed for allowing her appeal.
14. Ground No.2, relates to addition on issuance of CCD and ground No. 3 relates to disallowance of interest on debenture. The learned CIT-DR for the revenue supported the order of assessing officer. The learned CIT-DR for the revenue submits that no valuation of shares was obtained by assessee before issuance of preferential CCD in favour of investor. The learned CIT (Appeals) allowed relief to the assessee on the basis of order of his predecessor in earlier assessment year. Each assessment year is separate and independent and principal of res-judicate is not applicable in income tax proceedings. The learned CIT-DR for the revenue prayed for restoring the order of assessing officer. The learned CIT-DR also supported the addition of interest paid on the venture, however accepted that this is consequential to the main issue of amount received against issuance of CCD and equity.
Ground No. 4 relates to disallowance of various expenses. The learned CIT- DR for the revenue supported the order of assessing officer and would submit that the assessee filed to substantiate that such expenditure was incurred wholly and exclusively for the purpose of business. The learned CIT-DR submits that order of assessing officer may be restored by reversing the finding of learned CIT (Appeals).
On the other hand, the learned AR of the assessee supported the order of learned CIT(Appeals) on all four grounds of appeal.On the addition of ‘on money, the learned AR of the assessee submits that a search action was carried out on ‘Omkar Group’ Mumbai. The assessee is Flagship Company of Omkar Group. On the basis of statement of promoter and other employee of Omkar group, the assessing officer estimated on money in the group. The main company of assessee group i.e. Omkar Relater and Developers Private Limited filed application before Income Tax Settlement Commission and paid tax on entire ‘own money’ of assessee group. The assessing officer, in case of assessee also computed addition of on money based on rates obtained from 99 acres website for assessment year 2012-13. After reducing the rate by 20%, the assessing officer extrapolated the figure for assessment year 2013- 14 to assessment year 2016-17 without any independent application of mind or analyses specific to assessment year under consideration as well as to subsequent assessment year as well. No incriminating material found in seizedmaterial indicating receipt of on money found for assessment year 2013-14. Despite absence of corroborative evidence, the assessing officer made arbitrary addition of ₹ 87,30,695/-solely on the basis of extrapolation.
The learned Commissioner (Appeals) restricted the addition to the extent of 25% of said addition thereby restricted to Rs. 21,84,741/-. Similar addition was made by assessing officer in earlier assessment year and on appeal by assessee before CIT(Appeals) the addition was restricted to 25%. To avoid e litigation, the assessee is not disputing such addition by filing further appeal therefore; appeal of revenue on this ground of appeal may be dismissed. To support his submission the learned AR of the assessee relied upon the decision in Union of India versus Satish Pannalal Shah (2001) 249 ITR 221- SC and CIT Vs J.K. Charitable Trust (2008) 308 ITR 161 SC and PCIT Versus Quest Investment Advisor Private Limited (2018) 409 ITR 545 (Bombay).
17. On the addition of ₹ 116.92 crore for issuance of CCD, the learned AR of the assessee submits that no equity shares were issued during the assessment year 2013-14. The assessee has received Rs. 116.92 Crore against issuing CCD. All the details and amount were duly provided, copies of which is also filed herewith. All such evidences were provided to the lower authorities the TPO and the assessing officer incorrectly drafted the addition without application of mind. Since no equity shares were issued in assessment year 2013-14 the claim made by departments lakes factual basis. The learned AR furnished the details of amount received against CCD received, rate of CCD, face value and the amount of CCD received by the assessee from 3rd April 2012 till 15 January 2013. The assessee issued CCD to Thirdscroll Holding Limited of face value of ₹ 1000/- at the rate of ₹ 1000/- and no premium was received. The learned CIT (Appeals) considered and examine the transaction of CCD issuance and concluded that CCD is cannot be classified purely as debt instrument for the purpose of determining ALP adjustment. The conclusion of learned CIT(Appeals) is based on the decision of coordinate bench of criminal in TV 18 broadcast Ltd versus CIT (supra), wherein similar view was taken regarding classification of CCD, thus it was admitted as a capital in nature and therefore no addition is required. Furthermore, as per section 92C(1) of the Income Tax Act and Rule 10AB the transfer pricing officer is required to determine ALP using prescribed method such as (CUP)comparable uncontrolled price method, transaction net margin method (TNMM), resale price method (RPM) or profit split method (PSM) or any other method. The TPO did not adopted any of the prescribed method but instead question the identity and creditworthiness of the investor and genuineness of transaction, which is beyond the scope of transfer pricing regulations. The TPO was strictly required to determine ALP in accordance with TP Regulation.
18. The ld AR of the assessee submits that learned CIT(Appeals) after considering the submissions and considering the order of his predecessor in assessment year 201-213 held that issuance of CCD was in the nature of capital transaction and accordingly deleted by following the decision of his predecessor. On the deletion of addition on account of interest toward CCD, the learned AR of the assessee submits that assessee receive aggregate amount of Rs. 249.50 crore from Thirdscroll Holding Limited, a company based in Cyprus during a by 2012- 13 and assessment year 2013 14. Details of funds received against the issuance of unsecured compulsory convertible debenture were issued against such money, out of which CCD of ₹ 132.57 crore were issued in assessment year 2012-13 and of ₹ 116.92 crore was issued in assessment year 2013 -14. The CCD carried an interest rate of 17.75% per annum. However, interest liability on these CCD has been booked a entirely in assessment year 2013-14. No interest expenses were recognised in the financial statement for assessment year 12-13. The rational of booking the interest expenses in assessment year 2013-14 is that allotment of CCD was completed in financial year 2012-13. As per accounting principle and term of the issuance, the interest liability was accrued and recognised in the years subsequent to the allotment i.e. in the year under consideration. During the assessment, the assessee submitted that benchmarking of the interest paid on debenture was done using internal method, one of the methods specified in Rule 10AB. The TPO just made a view that ALP of the loan received was determined at Nill and therefore, ALP of the interest paid on such loan should be Nill. The TPO has not rejected the method adopted by assessee to justify the transaction at ALP and also brought not record any other comparable to make adjustment in respect of interest paid by the assessee. Since the interest expenditure is consequential to the ground related to the amount received on issuance of CCD, the deletion of disallowance of interest on CCD should be upheld. To support his various submissions, the ld AR of the assessee relied on the following decisions; Equinox Business Park (P) Ltd Vs UOI (2015) 55 taxmann.com 222(Bom), PCIT Vs Aditya Birla Telecom Ltd (2019) 105 taxmann.com 206(Bom), Shell India Markets (P) Ltd (2014) 51 taxmann.com 519 (Bom), TV 18 Broadcast Limited Vs ACIT in & 2502/Mum/2021.
On the disallowance of various expenditure which is subject matter of ground No.4, the learned AR of the assessee supported the order of learned CIT(Appeals). The learned AR of the assessee submits that expenditure has been incurred by the assessee as allowable as it was incurred wholly and exclusively for the purpose of business and therefore allowable under section 37 of the Income Tax Act. The expenses include site expenses, miscellaneous expenses, travelling expenses and sale promotion expenses. All the additions disallowances/of expenses are deleted by learned CIT (Appeals), thus he supports his order. The landed AR of the assessee prayed for dismissal of the present appeal.
We have considered the submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by the learned AR of the assessee. Ground No.1 relates to restricting the addition of ‘on money’. We find that the assessing officer made addition by taking reference prices from the website 99 acres.com for the corresponding period and of his own reduced 20% to compensate all odds that it preferred location charges floor rise etc, and worked out the alleged-on money figure of ₹ 87,38,695/-. We find that the ld CIT(A) restricted the addition to the extent of 25% thereof by following the order of previous assessment year. We find that the assessing officer has not made addition on the basis of any evidence in his possession. Thus, on independent examination of facts of the present case, we do not find any justification for making addition on the basis of extrapolation, hence, we uphold the order of ld CIT(Appeals) with our additional observation. In the result, this ground of appeal is dismissed.
Ground No. 2 relates to deleting the addition of CCD and ground No,3 relates to addition of interest payment. We have recorded the basis of making both the additions and deletion thereof in preceding para, which is not repeated here. We find that the addition is not based on any evidence found during search action. Rather, the assessing officer while making reference recorded that assessment in this case has become time barred on 31.12.2017. Still on the basis of report in Form-3CEB, he made reference to TPO for determination of ALP of alleged international transaction. We find that ld CIT(Appeals) deleted both the additions by taking view that on identical issue in assesses own case for AY 2012-13, the assessing officer made similar addition of Rs. 137 crore in respect of amount received on account of issuance of CCD from Thirdscroll Holding Limited and equity shares to Azapel Holding Private Limited. However, on appeal before learned CIT(Appeals), the additions were deleted and no further appeal is filed by revenue before Tribunal. It was also held that firstly; transaction of issuance of CCD was a quasi-capital in nature, secondly TPO has not determined ALP by following any of the method prescribed under section 92C(1) read with Rule 10AB to determine ALP. So far as other addition of Rs. 32,63,37,484/- on account of interest paid on debenture is concern, interest paid to CCD is consequential to the grounds related to the amount received for issuance of CCD to Thirdscroll Holding Limited. Since the main ground of appeal was allowed in favour of assessee therefore, charging of interest is consequential.On independent consideration of facts, we further find that TPO has not adopted any of the method prescribed in section 92C(1) of Income Tax Act read with Rule 10AB of Income Tax Rules 1962. Thus, the adjustment suggested by TPO is not as per the mandate of law.
We find that Hon’ble Jurisdictional High Court in Equinox Business Park (P)
Ltd Vs Union of India (2015) 55 taxmann.com 222(Bom) held that issue of equity shares by assessee-company to its AE located abroad is on capital account and provisions of Chapter X would not apply to such transaction.
Further, in PCIT Vs Aditya Birla Telecom Ltd (2019) 105 taxmann.com 206(Bom) it was held that where investment in assess-company was made by US based global private investment group with the permission of Government Authorities, same could not be branded as shame transaction merely because it involve huge investment and investor would not earn any dividend income immediately and investment was divested to group companies by the assessee-company. In Shell India Markets (P) ltd Vs ACIT (supra) it was held by High Court that on issuance of shares by an Indian entity to its non-resident AEs, no income arise, hence, transfer pricing provisions under Chapter X would not be applicable. Hence, in view of factual and legal discussions, we affirm the order of ld CIT (Appeals) on our additional observations. In the result, the ground No. 2 & 3 of the appeal is dismissed.
Ground No.4 of the appeal relates to deleting the disallowance of various expenses. The assessing officer made disallowance of of site expenses of ₹ 63,971/-, miscellaneous expenses of ₹1,57,869/-, travelling and convince expenses of ₹ 1,002,44/-, sale promotion expenses of ₹ 4,96,630/-. All expenses were disallowed by taking view that such expenditure is not incurred wholly and exclusively for the purpose of business. The ld CIT(Appeals) allowed relief to the assessee by holding that all these expenses were incurred wholly and exclusively for the purpose of business.
Further, none of the expenses is capital or personal in nature. Before us, no contrary facts or law is brought to our notice to reverse the finding of first appellate authority. Hence, we do not find any reasons to interfere with the order of learned CIT(Appeals). In the result, this ground of appeal is also dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in open court on 30/05/2025.