SAHANA BUILDERS DEVELOPERS PRIVATE LIMITED,MUMBAI vs. CIT(A) 52, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 2217/Mum/2021 (A.Y. 2013-14) M/s Sahana Builders & Developers Pvt. Ltd., 402, Plot No.54, Sagar Avenue, S.V. Road, Andheri (West), Mumbai-400058. PAN: AAHCS4782P ...... Appellant Vs. CIT(A)-52, 6th Floor, Aayakar Bhavan, M.K. Marg, Mumbai-400020. ..... Respondent ITA No. 2225/Mum/2021 (A.Y. 2013-14) Dy.CIT-4(2), Room No. 1918, 19th Floor, Air India Building, Nariman Point, Mumbai-400021. ..... Appellant Vs. M/s Sahana Builders & Developers Pvt. Ltd., 402, Plot No.54B, Junction of S.V. Road, & Lallubhai Park, Andheri (West), Mumbai-400058. PAN: AAHCS4782P ...... Respondent Appellant/Assessee by : Sh. Amit Bothra & Ms. Manish Chandak, AR Respondent/Revenue by : Sh. Soumendu Kumar Dash- Sr. DR

2 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. Date of hearing : 14/09/2022 Date of pronouncement : 12/12/2022 ORDER PER GAGAN GOYAL, A.M:

These appeals by assessee & Revenue are directed against the common order Commissioner of Income Tax (Appeals)-52, Mumbai [for short ‘CIT(A)’] vide common order dated 30.09.2021 for common Assessment Year (AY) 2013-14. We shall first take up appeal of Revenue as lead case. The Revenue has raised the following grounds of appeal: 1. “Whether on the facts and circumstances of the case and in law, the Ld. CITIA) has erred in deleting the addition made u/s 41(1) of the IT Act of Rs. 8,97,728/- without giving opportunity to the AO to examine the new details/evidences filed by the assessee before the Ld.CIT(A). 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in adjudicating that proportionate interest amounting to Rs.81,62,365/- paid to M/s Pawansut Dwellers Pvt. Ltd., should be allowed as deduction u/s 36(1)(ii) without appreciating the fact that the assessee despite being given opportunity, had failed to discharge the burden to prove that the entire loan taken from Pawansut Dwellers Pvt. Ltd. was utilized for business purposes and also, without giving the opportunity to AO to examine the additional evidences/details filed by the as per Rule 46A of the IT Rules, 1962, while deciding the issue. 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance u/s 14A of the IT Act to the extent of exempt income received by the assessee during the year under consideration without appreciating the Circular No.5 of 2014 dated 11.02.2014 of CBDT." 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)) has erred in deleting the addition of Rs. 3,40,487/- made by the Assessing Officer on account of notional income as income from house properties in respect of unsold units, held by the assessee as its stock in trade without appreciating the decision of the Hon'ble Apex court in the case of S. G. Mercantile Corpn. (P) Ltd v/s

3 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. C.I.T. AIR 1972 SC 732 and the decision of Hon'ble Delhi High Court in the case of CIT v/s Ansal Housing Finance & Leasing Company Ltd. 354 ITR 180.” 2. In ITA No. 2217/Mum/2021- the assessee has raised the following grounds of appeal: “1. THAT the learned Commissioner of Income Tax (Appeals) has erred in law as well as under the circumstances of the case in disallowing interest u/s 36(i)(iii) and/or u/s 37(1) of the Income tax Act, 1961 amounting to Rs 4,68,945/-. 2. THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstance of the case by disallowing TDS credit of Rs. 30,010/-. 3 THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstance of the case in disallowing interest u/s. 14A of the Income tax Act, 1961 amounting to Rs. 11,10,772/-. 4. THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstance of the case in disallowing handling charges amounting to Rs. 3,97.300/- and thereby reducing the value of closing work in progress. 5. THAT your appellant crave to modify, delete or make additional grounds of appeal at the time of hearing of appeal.

4 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. the sides felt aggrieved and hence this cross appeal is before us. We are adjudicating the appeal filed by the Revenue first (ITA NO. 2225/M/2021). 5. We have gone through the order of the AO, order of the Ld.CIT (A), and the submissions of the assessee along with paper-book. Ground wise discussion and our order will follow: 6. Ground No. 1 pertains to deletion of addition made u/s. 40(1)(i) of the Act amounting to Rs. 8,97,728/- without giving opportunity to the AO to examine the new details/evidence filed by the assessee before the Ld.CIT(A). This amount pertains to an advance received by assessee against the sale of one shop to Shri Sahim Nizarali Karovalia. This amount received by the assessee was shown under the head liability on account of advance against sales. During the assessment proceedings assessee submitted the ledger of the party for the period 01-04-2005 to 31-03-2007 and further submitted before the AO that the amount had already been written off in FY 2014-15. 7. The treatment given by the AO to this amount was factually and legally correct. As the AO added back the same to the income of the assessee u/s 40(1)(i) instead of Sec. 28. Sec. 40(1)(i) is applicable only in the cases of liabilities written off arisen out of any expenditure incurred and claimed by assessee whereas against this liability assessee hasn’t incurred any expense or purchase of any capital asset. Further before passing the assessment order i.e. 14-03-2016 very well before that assessee written off the same as income in FY 2014-15. We agree with the contentions of the Revenue that certain additional evidence/documents /submissions were filed by the assessee before the Ld.CIT (A) and not before the AO. But the ledger of the party and the nature of the transaction with Shri Sahim

5 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. Nizarali Karovalia were submitted before the AO also and AO chosen not to verify the nature of transaction and verify the claim of the assessee. 8. In these circumstances the order passed by Ld.CIT (A) is a correct evaluation of the facts and law. We don’t find any perversity in the order of Ld.CIT (A) and even if report of AO had been sought by Ld. CIT(A) it would not have been make any substantial change in the facts and law applicable. In the light of above, we found that findings of the Ld.CIT (A) are sustainable on this issue and it is not substantially material to give opportunity to the AO to examine the new details/ evidence filed by the assessee before the Ld.CIT (A). Resultantly Ground No. 1 raised by the Revenue is dismissed. 9. Ground No. 2 pertains to deletion of disallowances amounting to Rs 81,62,365/- claimed u/s 36(1)(iii) without giving the opportunity to the AO to examine the additional evidence/ details filed by the assessee as per Rule 46(A) of the I.T. Rules 1962. We have gone through the order of AO vide Para-3 of the assessment order and order of the Ld.CIT (A) vide Para-5 to Para 5.13. during assessment proceedings the AO noted that the assessee had offered an amount of Rs 2,09,20,371/- being interest on bank FDR and a further interest income of Rs 5,77,92,297/- on advances given to various group companies. The assessee had also paid interest of Rs 8,40,72,444 on advances/loans taken from M/s Pawnsut Dewellers Pvt. Ltd @ 16.25% (a group concern) AO alleged that loan taken from group concern @ 16.25% were provided two group concerns on interest ranging 9% to 15%. Consequently, he disallowed an amount of Rs 86, 31,310/- u/s 36(1)(iii).

6 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. “5.5 With respect to the utilization of the amount taken from Pawansut Dewellers Pvt. Ltd. on which interest of Rs. 16.25% has been paid, the assessee has submitted following table: Name of the Party Amount Repayment of earlier loan taken from Sahana Construction Pvt. Ltd. (including 36,08,04,531/- interest) Quantum Real Estate & Property Pvt. Ltd. 1,10,90,0000/- Against Vehicle loan (including interest) 5,13,134/- Pilot Construction Pvt. Ltd. 12,03,35,566/- Skylark Buildcon Pvt. Ltd. 6,40,20,588/- Sahana Properties & Resort P. Ltd. 1,27,50,000/- Sahana Dwellers Pvt. Ltd. 73,01,176/- Sahan Aviation Pvt. Ltd. 5,00,000/- Sudhakar M. Shetty 47,873/- Against expenses 11,49,977/- Loan to Nirmal Sahana Builders Pvt. Ltd. 10,00,000/- Total 57,95,12,845/-

7 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. 11. We have gone through both the orders i.e. AO and Ld.CIT (A). We found no new factual submissions have been entertained by the Ld.CIT (A). The facts on which Ld.CIT (A) acted the same were available on record before the AO also. Based on the same set of facts, Ld. CIT(A) relied on various judicial pronouncements submitted by the assessee and decided the issue on the basis of settled legal position. For application of law Ld.CIT (A) is not duty bound rather is not supposed to give any opportunity to the AO. In these circumstances we do not find any force in the contention of the Revenue and further held that as demonstrated vide Para 5.5 mentioned supra of the Ld.CIT(A) order it is established that the funds received by the assessee were used to repay earlier loans and to make investments in subsidiary/associated companies. This decision of the assessee is very well within the ambit of the definition “for the purpose of business”. We have gone through the submission of the assessee, case law relied upon and audited financials of the assessee and found assessees claim to correct. Resultantly we do not find any perversity in the order of Ld.CIT (A) hence sustained. Ground No.2 raised by the Revenue is dismissed. 12. Ground No. 3 pertains to deletion to disallowance under Sec. 14A of the I.T. Act to the extent of exempt income received by the assessee without appreciating the contents of circular no. 5 of 2014 issued by CBDT. During the year under consideration the assessee earned exempt income to the tune of Rs. 6, 46, 91,543/-. Against this exempted income assessee hasn’t offered Suo-moto any amount of disallowance under Sec. 14A. in this regard we have refereed Para 6.1.3 of the assessment order wherein AO took note of the fact that if assessee claims that no expenditure in respect of exempted income are made then disallowance is to be worked out mandatorily as per the norms prescribed under

8 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. Rule 8D and circular of CBDT mentioned (supra) in Para 6.2 we have observed the calculation of disallowance under Rule 8D made by the AO as under: a. Disallowance under Rule 8D2(i) -NIL b. Disallowance under Rule 8D2(ii)- 1,17,84,475/- c. Disallowance under Rule 8D2(iii)- 11,10,772/- 13. We have gone through the order of AO, order of Ld.CIT (A), board circular no-5 of 2014 dated 11-02-2014 and submissions of the assessee along with paper- book relied upon. It is pertinent to mention that the board circular mentioned supra may be binding on departmental authorities but can’t bind the assessee if the same is against the spirit of law and judicial pronouncement. We have gone through the amount of investments made by the assessee vis-à-vis the amount of assessees own fund i.e. Rs. 21.81 cr. and Rs. 42.30 cr. respectively. For the purposes of disallowance made under Rule 8D2(ii) we heavily relied upon the Hon’ble Jurisdictional high court in the case of Reliance Utilities and Power Ltd (2009) 313 ITR 340. With reference to the decision of the Hon’ble jurisdictional high court we found that no disallowance can be made under Rule 8D2 (ii) when assessees own fund is more than the amount of investments made. Assumption has to be drawn in favour of assessee that investments made is out of own funds whether interest bearing borrowed funds are there or not? 14. In view of the above we found that the board circular mentioned supra is of no help to the Revenue and keeping in view the decision of jurisdictional high court we do not find any perversity in the order of Ld.CIT (A). Resultantly Ground No. 3 raised by the Revenue is dismissed.

9 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. 15. Ground No. 4 pertains to deletion of the addition made by the AO on account of notional income as income from house property in respect of unsold units. During the assessment proceedings the AO noted that the company had a stock in trade of Rs. 4, 42, 37,916/- out of this Rs. 3, 85, 15,450/- related to land and Rs. 57, 22,466/- related to a shop. The assessee submitted that the shop is being used for the purposes of business and the income of the same business is being offered for tax. AO did not find the contentions of the assessee as acceptable one. 16. We have gone through the order of the AO, order of Ld.CIT (A), submission of the assessee along with paper book. We found that claim made by the assessee- that shop is being used for the purposes of business is not challenged by the AO and without bringing anything on record he straight away applied the deeming provisions of Sec. 22 of the act. It’s a basic principle of law that to apply any deeming provision onus is on the Revenue to proof assessee’s version other way around. In this case as assessee claimed that shop is being used for the purposes of business onus is on the AO to proof otherwise. There is nothing on record which demonstrates that any such action to prove otherwise has been taken by the AO. In the given situation the action of the AO is bad in law and rightly deleted by Ld.CIT (A). We sustain the order of Ld. CIT(A) and dismiss Ground no. 4 raised by the Revenue. 17. In the result appeal of the Revenue is fully dismissed. ITA No. 2217/Mum/2021 (A.Y. 2013-14) 18. Ground No.1 raised by assessee pertains to confirming disallowance under section 36(1)(iii) amounting to Rs. 4,68,945/-. This issue has already been

10 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. discussed in detail in Revenue’s appeal vide ITA No. 2225/Mum/2021 (supra). In this regard a complete analysis of the amounts taken from M/s Pawansut Dwellers Pvt. Ltd. has already been done vide Para- 9, 10 & 11 along with table furnished therein. The fact that the investment is being made in Nirmal Sahana Builders Pvt. Ltd. is a strategic investment and the same is for a company in same line of business as the assessee is. This fact is not under challenge. Further, despite of assessee’s submission that assessee has ample own funds, hence, it should be assumed that investment in Nirmal Sahana Builders Pvt. Ltd. is out of their own funds is not sustainable because as per the table discussed in para-9, 10 & 11, it is established the use of funds received from M/s Pawansut Dwellers Pvt. Ltd. and investment in M/s Nirmal Sahana Builders Pvt. Ltd. is also made out of the funds available from M/s Pawansut Dwellers Pvt. Ltd. 19. The only issue for our consideration remains the amount of interest to be disallowed. In this regard, we found force in the contentions of assessee that it borrowed funds @ 16.25% and provided the same to M/s Nirmal Sahana Builders Pvt. Ltd. @ 12%. So the difference amount (Rs. 1,62,500 - 1,20,000) of Rs. 42,500/- only can be disallowed under section 36(1)(iii) of the Act. Ground of appeal raised by assessee is partly allowed and directed to the AO to disallow amount of interest under section 36(1)(iii) of the Act to the extent of Rs. 42,500/- only and balance amount be deleted. In the result, Ground raised by assessee is partly allowed with a relief of Rs. 4,26,445/- (Rs. 4,68,945 – Rs. 42,500). 20. Ground No.2 pertains to disallowing TDS credit of Rs. 30,010/-. Facts of this matter is that assessee sold a flat in Juhu Project to M/s Kalyan Realty & Developers Ltd., the said Firm has deposited a sum of Rs. 14,70,560/- (Rs.

11 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. 15,00,570 – TDS of Rs. 30,010) as their contribution towards Maintenance Charges as the same amount was paid by them as Maintenance Charges, after deducting the TDS. But on the other hand, the receipts is not an income in the hand of assessee and the amount was kept in a separate Maintenance Account of Juhu residents out of which expenditure has been incurred on their behalf. 21. We have referred Page No. 9, 10 & 34 to 37 of the Paper Book reflecting Ledger Account for the same. Factually amount belongs to the Society for maintenance of Juhu Project, but the same is received by assessee as custodian. Now the issue is that assessee received the same as a Trustee and its not falling in the category of income of assessee but M/s Kalyan Realty & Developers Ltd. paid the same to assessee and deducted TDS also in the name of assessee. Money has already been deposited in the Account of exchequer and because of paucity of time the same cannot be received back either by M/s Kalyan Realty & Developers Ltd. or by assessee. In these circumstances, Ld. CIT (A) rightly held that income does not pertain to assessee but on the other hand, he should have allowed the claim of TDS to assessee despite the fact that corresponding income is not in assessee’s account. In view of above discussion, we hold that claim of TDs amounting to Rs. 30,010/- should be allowed to assessee despite the fact that there is no corresponding income in the hands of assessee. In the result, Ground No.2 raised by assessee is allowed. 22. Ground No.3 pertains to confirming addition under section 14A r.w.r. 8D(2)(iii) amounting to Rs. 11,10,772/-. In this regard, we have gone through the order of AO, order of the Ld. CIT(A) and submissions of assessee along with Paper Book. In our observation, the contentions of assessee on two grounds that while

12 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. applying Rule 8D(2)(iii) proper verification with reference to strategic investment and average value of the investment which has given rise to the income which does not form part of the total income is not properly considered and calculated on a wrong premises. 23. Relying on the contentions of assessee, referring relevant judicial pronouncements and orders of the authorities below, we found force in the contention of assessee. Resultantly, we restore this issue to the file of Ld. CIT(A) for re-consideration of the matter, keeping in view the settled legal position as contended by assessee after giving proper opportunity of being heard and dispose of the same within six months. This ground of appeal is allowed for statistical purposes. 24. Ground No.4 pertains to confirmation of disallowance of handling charges amounting to Rs. 3,97,300/-. We have gone through the order of AO, order of Ld. CIT(A) and submissions of assessee along with Paper Book. Assessee made payment to one Mr. Mahendra S. Bhondwalker for ongoing project as handling charges after deducting TDS and payment of same to Government A/c and debited the same to work-in-progress to authenticate this payment assessee produced copy of ledger A/c for the F.Y. 2011-12 and 2012-13, copies of bills raised by Mr. Mahendra S. Bhondwalker and also copy of his PAN Card. 25. Although notice issued under section 133(6) by the AO was not responded by Mr. Mahendra S. Bhondwalker, but the same persons claim in the previous year was allowed, hence, identity and genuineness is not under challenge. The only issue which remains to be settled is whether the expenditure is wholly and exclusively for the purposes of business, not personal in nature and not capital in

13 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. nature, this aspect has already been examined by the Department in the previous years in assessee’s own case. Principle of res-judicata is not applicable in the proceedings of Income-tax, but that does not mean that even a reasonable inference of previous year’s proceedings cannot be taken. In this case as discussed (supra) identity of the party, nature of the expense, relevant ledger confirmations, PAN Card and payment by Bank is already on record along with TDS Certificate and Department is very well placed to verify the same with the AO of Mr. Mahendra S. Bhondwalker. Secondly, assessee is not claiming this expense incurred against the Revenue of current year rather it is being capitalized to WIP which will simply defer the income of assessee in that case its a Revenue neutral transaction in substance. 26. With a pragmatic view of the whole situation, we do not see any sustainability in the action of authorities below. Resultantly, this disallowance is deleted and Ground No.4 of assessee is allowed. 27. In the result, appeal filed by assessee is partly allowed for statistical purposes. Order pronounced in the open court on 12th day of December, 2022.

Sd/- Sd/- (KULDIP SINGH) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 12/12/2022 SK, Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकर आयु�(अ)/The CIT(A)-

14 ITA No. 2217 & 2225/Mum/2021 M/s Sahana Builders & Developers Pvt. Ltd. 4. आयकर आयु� CIT 5. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai