Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI AMARJIT SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 3491/Mum/2019 (A.Y: 2015-16) M/s Tata Housing Vs. DCIT – 8(3)(1) Development Company Room No. 615, Ltd.,E Block, Voltas Aayakar Bhavan, Compound, TB Kadam MK Marg, Marg, Chinchpokli, Mumbai – 400020. Mumbai – 400033. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. :AAACT0191Q Appellant .. Respondent ITA No. 3533/Mum/2019 (A.Y: 2015-16) DCIT – 8(3)(1) Vs. M/s. Tata Housing Room No. 615, Aayakar Development Company Bhavan, Ltd.,E Block, Voltas MK Marg, Compound, TB Kadam Mumbai – 400020. Marg, Chinchpokli, Mumbai – 400033. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. :AAACT0191Q Appellant .. Respondent
Assessee by : Shri.Madhur Agarwal.AR Revenue by : Shri.Ajay Kumar. CIT DR Date of Hearing 27.06.2022 Date of Pronouncement 29.06.2022 आदेश / O R D E R PER BENCH:
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 2 -
The cross appeal is filed by the assessee and revenue against the order of the Commissioner of Income Tax (Appeals)-14, Mumbai passed u/s 143(3) and 250 of the Act. We shall take up the revenue appeal as lead case and facts narrated.
ITA No. 3533/Mum/2019, A.Y 2015-16
The revenue has raised the following grounds of appeal
The Ld. CIT(A, has grossly erred in allowing the interest paid on borrowings of Rs. 57,42,29,615/- claimed by the assessee u/s. 36(1) (ili) of the I. T. Act relying upon, the judgment of Lokhandwala Construction Inds. Ltd. 2. The Ld. CIT(A) has grossly erred in appreciating the facts that the facts of M/s Lokhandwala Construction Inds, Ltd are distinguishable from the facts of the case of the assessee. 3. The Ld. CIT(A) has grossly erred in appreciating the facts that the assessee had failed to prove the direct nexus of the Investments with the Capital Reserve and Surplus available in the balance sheet of the assessee. 4 The Ld. CIT(A) has grossly erred in directing to consider only exempt income yielding investment for computing the disallowance under rule 8D(2) (iii).
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 3 -
Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in directing the AO to delete the upward adjustment of disallowance computed u/s 14A while computing profit u/s 115JB relying upon the decision of Special bench of Hon 'ble ITAT in the case of Vireet Investment Pt Ltd wherein the department has not accepted the decision and filed the further appeal before Hon 'ble Delhi High Court.
The Ld. CIT(A) has grossly erred in allowing the benefit of presumption that investment are sourced from own funds(following the HDFC Bank Ltd vs. DCIT & Othrs) ignoring the fact that assessee did not furnish the fund flow statement.
The brief facts of the case are that the assessee company is engaged in the business of real estate developers, developing residential and commercial areas, identification of land project conceptualizing and designing development management and marking. The assessee has filed the return of income for the A.Y 2015-16 on 30.11.2015 disclosing a total loss of Rs.14,22,68,330/-, subsequently the assessee has filed the revised return of income on 31.03.2017 disclosing a total loss of Rs.137,99,37,932/-.The assessee has explained the reasons for filing the
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 4 -
revised return of income in respect of merger of two wholly owned subsidiary companies as per the scheme of amalgamation approved by the Hon’ble Bombay High Court on 27.04.2015 effective from appointed date as on 01.04.2014. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act was issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and furnished the details and the case was discussed. The A.O on perusal of the financial statements found that the assessee has claimed interest expenditure u/s 36(1)(iii) of the Act in the revised computation of income and the Assessing officer (A.O) has issued notice for the clarifications.
Whereas the assessee has filed the explanations on 13.12.2017 referred at Para 5.2 of the order explaining the reasons for including the interest amount in capital work in progress claimed by the assessee u/s 36(1)(iii) of the Act. The assessee has submitted further details considering the provisions and the decisions of the Hon’ble Tribunals and the CIT(A). But the A.O was not satisfied with the explanations in respect of the claim and has
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 5 -
disallowed the interest expenditure overlooking the facts and the submissions of the assessee that it has claimed the interest deduction u/s 36(1)(iii) of the Act in the computation of income Whereas the similar claim was made in the computation of income in the earlier years and the appeal was allowed by the CIT(A) relying on the decision of the Hon’ble High Court of Mumbai in the case of CIT Vs. Lokhandwala Constructions Ind Ltd., [2003] 260 ITR 0579 .Since the revenue has not accepted the earlier ITAT decision and has challenged in appeal before the High Court of Bombay, the A.O is of the opinion that the claim cannot be allowed and made a disallowance of interest expenditure u/s 36(1)(iii) of the Act of Rs. 57.42 crores.
4.(ii) The second disputed issue is in respect of disallowance u/s 14A r.w Rule 8D, the assessee has made suo-moto disallowance u/s 14A of the Act of Rs. 10,118/- and the A.O. has issued the show cause notice.Whereas the assessee has filed the submissions on 18.12.2017 explaining that the assessee has received dividend income of Rs.1,89,606/- and has made suo-moto disallowance in respect of Demat
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 6 -
charges of Rs.5118/- and administrative cost of Rs. 5000 for earning exempt income in the computation of income. The A.O has dealt on the submissions of the assessee and finally is of the opinion that the provisions of Sec. 14A r.w.r 8D(2) has to be invoked. The A.O. considering the facts that the assessee is having investments as per the balance sheet, has relied on the details, financial statements and judicial decisions and has worked out the disallowance u/s 14A r.w.r 8D(ii) of Rs.18,45,13,117/- and disallowance u/s 8D(2)(iii) of Rs.3,09,08,500/- and total aggregating to Rs. 21,54,21,617/-. Since the assessee has made the suo-moto disallowance of Rs. 10,118/- further disallowance of u/s 14A r.w.r 8D(2)(ii) &(iii) of I T Rules worked out to Rs 21,54,11,499/- and assessed the total loss of Rs. 48,69,57,490/- and passed the order u/s 143(3) of the Act dated 29.12.2017.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) considered the submissions, findings of the AO and the assessee’s own cases for earlier years and the judicial decisions on both the grounds of appeal with respect to
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 7 -
deduction U/sec36(1)(iii) of the Act and the disallowance u/s 14A r.w.r8D(2) and allowed in favour of the assessee. Whereas in respect of other grounds of appeal, the CIT(A) has granted partial relief and partly allowed the assessee appeal. Aggrieved by the CIT(A) order the assessee and the revenue has filed an appeal before the Honble Tribunal.
At the time of hearing in the revenue appeal, the Ld.DR submitted that the CIT(A) has erred in granting the relief to the assessee in the two grounds of appeal and the decisions relied by the CIT(A) are distinguishable on facts. In respect of disallowance u/s 14A r.w.r 8D(2) the Ld. DR submitted that the assessee has erred in not submitting the details and the CIT(A) erred in directing to consider only exempt income yielding investment for computation of disallowance under Rule 8D(2)(iii) and the presumptions that the own funds are more than the loan funds cannot be accepted in full and supported the order of the A.O .
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 8 -
Contra, the Ld. AR submitted that the claim u/s 36(1)(iii) of the Act and the applicability of the provisions U/sec14A r.w.r 8D2 of the I T rules was decided in favour of the assessee by the Honble Tribunal and substantiated the submissions with the judicial decisions and voluminous paper book.
We heard the rival submissions and perused the material on record. On the first disputed issue, the Ld.DR emphasized that the CIT(A) has erred in granting relief to the assessee by allowing deduction u/s 36(1)(iii) of the Act overlooking the facts. The contentions of the Ld.DR are that the revenue has challenged the decisions of the Hon’ble Tribunal before the Hon’ble High Court of Mumbai and are pending. At this juncture, we consider it appropriate to refer to the findings of the CIT(A) on this disputed issue, dealt at page 4 Para 4.1 to 4.2 of the order read as under:
4.1 Appellant’s Submission: During the appellant proceedings the appellant made submissions which is as under: Our submission in this regard is as below:
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 9 -
The appellant carries out business of real estate development and during the course of business, it is required to borrow funds. Such borrowings are inevitable without which, large projects cannot be undertaken. In the business of the appellant, interest incurred is treated as finance cost. The borrowings made for the specific projects are tied to that particular project but funds are generally borrowed i.e. not towards any specific project, and hence are treated as incurred for the purpose of business of the appellant company uls 36(1) (ili) of the ITA. Wherever the assessee's borrowings are project specific, the interest on such borrowings is not claimed u/s 36(1 Nili) of ITA but is loaded to the project.
The sums borrowed are utilized on various projects under constructions. We mention here that the appellant follows Percentage Completion Method (%CM') in its books of accounts while it files its return of income on Completed Contract Method ('CCM') regularly since inception. This method of accounting has been accepted during the course of assessment as the Bombay High court in appellant's own case has upheld the method of accounting followed by the appellant consistently. Kindly appreciate no further appeal is preferred by the Revenue against the said order. Also, the AO in the assessment proceedings from AY 2010-11 accepts the return filed by the assessee and no further addition is made on this ground of method of accounting.
Further, the appellant has borrowings which are generally not project specific. In the books of accounts, the appellant allocates interest on its borrowings to various projects following a scientific method whereby the interest is attributed to a project based on the
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 10 -
capitalifunds used by the project as there is no direct basis of allocating interest to projects because the borrowings are not project specific. Interest is apportioned to Projects on its deficit of the cash flow (eg. net of the sales etc as inflow and project cost as outflow). The weighted average cost of borrowing is computed on monthly basis and this rate is applied on the project net deficit cash flow to calculate the interest apportionment. Accordingly, during Assessment Year 2015-16, the appellant company incurred interest expenditure of Rs. 217.86/- crore (reflected in Profit and loss account of FY 2014-15) out of which Rs. 126.80/- crore was claimed as revenue expenditure and Rs. 91.06/- crore was apportioned to projects in the books of accounts. Kindly appreciate for those borrowings which are general in nature and not project specific, appellant claims interest on payment basis in Income tax return every year. As stated above, appellant follows the CM of accounting for each project wherein the profits of a project are offered in the year of its completion. However in the books of accounts, profits are offered on %CM of each project and further the Work in progress (WIP') of each project is loaded with interest allocated as explained above. In the year of project completion for income tax following CM, the WIP is transferred to cost of sales thus the interest is claimed in the year of project completion. Whereas appellant claims interest on payment basis in its return of income. Thus, on completion of a project, appellant offers to tax all interest loaded to such cost of sales as it would have already claimed such interest on payment basis u/s 36(1) (il) of ITA. Further where the borrowings are specific to a particular project, the appellant suo moto allocates the interest expenditure to WIP of the project in the year in which
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 11 -
such interest is incurred and claims the same as a part of cost of sales in its return of income when such project is completed and offered to tax as per the CM. This method is consistently followed by the appellant for tax purpose. In addition to the above, the appellant claims interest paid to scheduled banks on payment basis in its return of income as followed by it every year consistently and in accordancewith the provisions of section 36(1) (ili) of the ITA which was also upheld by ITAT and CIT(A) in appellant's own case for earlier years. Copy of ITAT orders for AY 1997-98 to 1999-2000, AY 2000-01 & 2002- 03, AY 2004-05, AY 2005-06, AY 2007-08 and AY 2008- 09 are enclosed herewith as Annexure-1, 2 and 3. Also, the department is not appeal to the High Court on this ground in the earlier years. Further, we draw your honors kind attention to the provisions of section 36(1) (ill) of ITA which is read as under "36/1) The deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- i)................. (ii)………….. (iii) the amount of the interest paid in respect of capital borrowed for the purpose of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction".
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 12 -
Explanation - Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;" (Emphasis supplied) From the above, your honors will appreciate that the interest is to be allowed as a deduction under section 36(1) (ill) of ITA if the capital borrowed is used for the purpose of business or profession of the appellant. Further, we would also draw your honors attention to section 43B of ITA which is reads as follows: "43B. Notwithstanding anything contained in any other provision of this Act a deduction otherwise allowable under this Act in respect of- [(a)…………. (b)…………. (c)…………. [(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution for a State financial corporation or a State industrial investment corporation], in accordance with the terms and conditions of the agreement governing such loan or borrowing (, or] [(e) any sum payable by the assessee as interest on any [loan or advances] from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan [or advances],] [or] [(f).. ..
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 13 -
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him (Emphasis supplied) From the above, it is pertinent to note that interest paid on borrowed capital is allowed as deduction in computing total income of the appellant in the previous year in which such sum is paid. Further, on combined reading of section 36(1) (ili) and section 43B, your honorwill appreciate if the following conditions are futiled the interest expenditure shall be allowed as deduction in the computing total income: a. Capital borrowed is used for the purpose of business and profession of the appellant b. Interest should have been paid on such borrowed capital. In the instant case, appellant borrowed funds for the purpose of business carried on by it i.e. real estate business. Since the appellant company has a general line of credit and borrowings are not project specific, we submit that section 36(1) (ili) of ITA is applicable and the interest expenditure of Rs. 57.42/- crore to the extent it is general in nature is incurred and claimed, should be allowed in accordance with provisions of section 36(1) (ili) of the ITA. Further, appellant has specific project related borrowings of Rs. 33.64 crore (91.06 core - 57.42 crore) which is capitalized to WIP and not claimed by appellant during the year. Thus, in books of accounts, the appellant does not claim the entire interest as a deductible expenditure for the year. Rather to the extent the funds
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 14 -
are availed by project/ or the borrowings are specific, the same are added to capital WIP. Thus, in the Profit/Loss account interest cost is reflected as follows: Total Interest 217.86 crore Less: - Allocated to work-in-progress 91.06 crore Charged to Profit/loss 126.80 crore During the year under consideration, the appellant has paid a sum of Rs. 217.86/- as interest on borrowed funds. Rs. 91.06/- crore has been apportioned to projects in the books öf accounts as explained above on utilisation basis. However, for income tax purposes, to the extent the borrowings are general in nature and not project specific, the appellant claims the same to be deductible u/s 36(1) (ili) r.w.s. 43B of ITA. Accordingly, interest of Rs. 57.42/- crore not being project specific is claimed as Interest expenditure u/s 36(1)(ili) r.w. s 43B of ITA in the return of income. We may say that the appellant consistently claims interest in its return of income on payment basis year after year which the assessing officer has disallowed in various earlier years. This is subsequently allowed by the CIT(A)/ ITAT. The assessing officer, however relying upon the decision of Hon'ble ITAT, Calcutta in the case of JCT Ltd. vs. ACIT [1998] 65 ITD 169 (cal.) has rejected appellant's claim of interest allowability u/s 36(1) (ili) of ITA on payment basis of Rs. 57.42/- crore. Kindly appreciate that his predecessor's in AY 1997-98 has also relied on the Calcutta ITAT decision will disallowing the claim of interest and the Hon'ble ITAT in the appellants own case has allowed the interest expenditure. Relevant para of the ITAT order is as under:
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 15 -
"Ground No. 2 is against the action of CIT(A) in allowing deduction of Rs. 9,88,03,025/- for interest u/s. 36(1 (ili) of the Act. The AO noticed that the assessee company changed its method of recognizing profits from the completed contract method to the percentage of completion of method. Consequently, the assessee's recognition of profits has changed. The AO was of the view that the assessee's method of following the completed contract method was not acceptable. Hence, the assessee's claim of interest expenditure of Rs. 9,88,03,025/- u/s. 36(1) (ili), which was made on the basis of accounting standard VIl of ICAl, was rejected by the AO by following the judgment of ITAT in the case of JCT Ltd, 65 LTD 169(Cal). Before the CIT(A), the assessee followed the judgment of Bombay High Court in the case of CIT vs. 3)Lokhandwala Construction Industries Ltd. vide Income tax appeal No. 101 and 2001 dated 15.1.2003, wherein the Hon'ble Bombay High Court upheld the stand of the assessee that interest on borrowings for the purpose of the business is allowable us. 36(1) (lil) and it will not go to the work in progress. The CIT(A) followed the said judgment and directed the AO to delete the disallowance of Rs.9.88.03.025/- We have heard the learned representatives of the parties and perused the record. Since the CITIA) followed the judgment of jurisdictional High Court in the case of Lokhandwala Construction Industries Ltd and directed the AO to delete the disallowance, we do not find any infirmity in the action of the CIT(A) and hence, we uphold the order of CIT(A) on this count." Kindly appreciate AO has chosen to merely follow his predecessors without appreciating that the ITAT in appellant's own case for the said years has allowed the
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 16 -
interest expenditure in favor of the appellant and the department has not preferred an higher appeal to the Bombay High Court. Under these circumstances the assessing officer ought to have accepted the ITAT's order more so when he had the order of ITAT for AY 1997-98 to 1999-2000 and AY 2000-01 & 2002-03 was placed before him. Further, the copy of ITAT order dated 02.11.2018 is placed at Annexure 4Awherein also it can be seen that department has not preferred an appeal on the ground of interest u/s. 36(1) (ili) of the ITA. Copy of CIT(A) order for AY 2012-13 allowing ground of interest u/s. 36(1) lili) of the ITA is enclosed herewith as Annexure 5. Further, in support of our contention of claim of deduction u/s. 36(1) (ill) r.w.s 43B of the ITA we place reliance on following judicial pronouncement: The Bombay High Court in the case of Tata Chemicals Ltd. [(2002) 256 ITR 395] had occasion to consider the matter of capitalization of interest in the books of accounts and appellants claim U/s. 36(1)(ili) of the Income Tax Act, 1961 and relying on the various judicial pronouncements on the matter of Hon'ble Supreme Court and High Court particularly recent one in the case of Veecumsees vs. CIT [(1966) 220 ITR 185 (SC)], CIT Vs. Veermani Industries [216 ITR 607 (SC)I, Waterfall Estate Vs. CIT [219 ITR 563 (SC)] had held that the interest on borrowings for the purposes of business is allowable deduction U/s. 36(1) (ili) irrespective of its Capitalisation in the books and the similar ratio was also independently laid down in the case of Gwalior Rayons (Grasim Industries) and hence the payment as in the past be allowed as revenue expenditure. We would further like to mention here that the SLP by the department against the Bombay High Court decision in case of Tata Chemicals has been rejected by the Hon'ble Supreme Court. Your
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 17 -
honors kind attention is drawn to the decision of Supreme Court in case of Veecumsees Vs. CIT (supra) wherein it was held that even in the new line of business which has no nexus with the existing business is carried on with the borrowed funds, deduction U/s. 36(1) (ili) cannot be denied to the appellant. The appellants case would be a better case in the sense that interest is paid for loans taken for appellants own business. Further the Hon'ble Supreme Court has another occasion to deal with an issue where funds were borrowed for the purpose of buying new plant and machinery, such machinery was not put to use, the expenditure on payment of interest on borrowing is allowable U/s. 36(1) (li) i.e. the borrowings should be for the purpose of business CIT VS. Associated Fibre & Rubber Industries Pvt. Ltd [236 IT 471]. Thereafter, Hon'ble Bombay High Court applying the decision of Calico Dyeing & Printing works Vs CIT [(1958) 34 ITR 265] held in CIT v/s. Lokhandwala Constructions India Ltd. [2003] 260 ITR 0579] that ..while adjudicating the claim for deduction u/s. 36(1) (li) of the Act, the nature of Expenses - whether the expenses was on capital account or on revenue account – was & irrelevant as the section itself says that interest paid by the appellant on the capital borrowed by the appellant was an item of deduction. That, the utilization of the capital was irrelevant for the purposes of adjudicating the claim for deduction us. 36(1) lili) of the Act." Further, the Mumbai Tribunal in case of Paranjape Griha Nirman P. Ltd V/s, CIT SR 50 In ITA No. 2398/Mum/2001 dated 4.4.2006 has, following the Mumbai High Court's decision allowed the interest as an expenses u/s. 36(1) (ili) of ITA. Even in the case [2006) 102 ITD 0414- Joint Commissioner of Income-tax SR-6, Mumbai vs. K. Raheja(P.) Ltd. [Mumbai] where appellant was following completed contract method for returning its income, its claim of finance cost as a
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 18 -
period cost in nature of interest was allowable in the year in which it was incurred or accrued, in accordance with AS - 7 issued by the ICAl. Further the ITAT in appellant's own case has upheld appellant's view. Copy of order for AY 1997-98 to AY 1999-2000 and AY 2000-01 and AY 2002- 2003,AY 2004-05, Assessment Year 2005-06, AY 2007-08 and AY 2008-09 are enclosed herewith as Annexure 1, 2 and 3. The ITAT's view is based on the decision of Hon'ble Bombay High Court in case of CIT Vs. Lokhandwala Construction Ind. Ltd(supra). Further in appellant's own case for AY 2010-11, AY 2012-13, 2013- 14 and AY 2014-15, your predecessors have allowed the claim u/s 36(1)(ili) of ITA. Copy of the CIT (A) order for AY 2010-11, AY 2012-13, 2013-14 and AY 2014-15 are enclosed at Annexure 4, 5, 6 and respectively. In light of our above submission and orders of ITAT for earlier years and for the fact that department is not in further appeal to the ITAT order, we request your honors to kindly allow the interest expenditure of Rs. 57,42,29,615/- claimed u/s. 36(1)(ili) of the ITA. 4.2 Decision: I have considered the submission made by the appellant and the reasons recorded by the AO. I'm in agreement with the submission of the appellant that the issue under consideration is covered by the decision of honourable Tribunal in the case of the appellant for AY 1997-98 to AY 1999-2000 and AY 2000-01 and AY 2002- 2003, AY 2004-05, AY 2005-06, AY 2007-08 and AY 2008-09. The honourable Tribunal has deleted the addition made by the AO in these years following the decision of Hon'ble Bombay High Court in case of CIT Vs. Lokhandwala Construction Inds. Ltd (supra). Respectfully following the same, the disallowance of interest expenditure amounting
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 19 -
to Rs. 57,42,29,615 /- made by the AO is directed to be deleted.
The Ld.AR substantiated the submissions relying on the decision in the assessee’s own case for A.Y 2013-14 2014-15 in ITA No. 837 & 838/Mum/2018 order dated 20.07.2020 at Para 2 to 6 which is read as under:
Ground Nos. 1 and 2 of Revenue’s appeal for A.Y. 2013-14 and A.Y.2014-15 relates to deletion of disallowance made u/s. 36(1)(iii) of the Act. 3. Ld. Counsel for the assessee, at the outset submits that this issue has been decided in favour of the assessee by the Coordinate Bench of the Tribunal in assessee’s own case for the earlier assessment years and both authorities below followed early year’s orders while deciding the issue. 4. Ld. DR fairly submitted that the issue has been decided by the Tribunal which has been followed by the Ld.CIT(A). 5. We have heard the rival submissions, perused the orders of the authorities below. We find that the issue has been decided in favour of the assessee in ITA.No. 2664/Mum/2012 dated 01.05.2015 for the A.Y.2004-05 wherein the Tribunal held as under: - “2. We will first take up assessee’s appeal for the A.Y. 2004-05, being ITA.No. 2664/Mum/2012 in various grounds of appeal, the assessee has mainly challenged the disallowance of interest u/s.36(1)(iii) and
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 20 -
disallowance of expenditure u/s.14A. The brief facts of the case are that the assessee-company is engaged in the business of Real Estate Development in Mumbai and other cities. At the outset the Ld. Senior counsel, Shri Dinesh Vyas submitted that both the issues are covered in favour of the assessee by the orders of the Tribunal in assessee's own case for the earlier years. Regarding disallowance of interest u/s. 36(1)(iii), he submitted that Ld. CIT(A) has directed the AO to restrict the claim of interest u/s. 36(1)(iii) to that for the project completed during the relevant previous year only and held that AO should follow the same reasoning as given by him in his appellate order for the AY 2005-06. In AY 2005-06, the assessee had contended that it had claimed interest on payment basis u/s. 36(1)(iii), whereas the Ld. CIT(A) held as under: "3.2. I have considered the submissions of the Ld. Counsel and in this case, it is clear that the decision of Hon ’ble IT AT Mumbai Special Bench in Wall Street construction (supra) is very clear on this issue that although the 'interest Paid/incurred” is of a revenue nature - it only the year of allowability that is in dispute. Not its allowability per se i.e. the expenditure is allowable being of a “revenue nature” but in the case of project completion method” it has to be allowed only when the project is complete and revenue/income is recognized by the appellant - i.e. it has to be matched with the corresponding income and when there is no reorganization of income then there can be no allowability of the corresponding expenditure - otherwise it would result in distortion of the matching principle - as held by Hon’ble Bombay High Court in the case of Taparia Tools 260 ITR 102 (Bom) - therefore, since it cannot be linked with the recognization of revenue - in a project completion
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 21 -
method - it cannot be allowed till the project is complete and revenue recognized - thus this ground of appeal is dismissed. Reliance placed by Ld. Counsel on the following decisions: (i) Tata Chemicals Ltd. 256 ITR 395 (ii) CIT Vs. Lokhandwala Constructions India Ltd. (2003) 260 ITR 579.
(iii) Paranjape Griha Ninnan P. Ltd. Vs. Jt. C1T Spl Rg, 50 in ITA No. 2398/Mum/2001 dated 04-04-2006.
(iv) Jt. CIT Spl Rg. 6 Vs. K. Raheja (P) Ltd. 102ITD 414. Is of no avail because in all these cases what has been decided is the fact of allowability of 'interest” as a 'period cost - which is not in doubt here- what is assailed is that 'project completion method ” its time of allow ability is only when the project is complete and revenue therefrom recognized.
Hence, this ground of appeal is dismissed.
Thus, the Ld. CIT(A) had decided the issue on the basis of Bombay High Court decision in the case of Taparia Tools 260 ITR 102, which now stands overruled by Hon'ble Supreme Court vide judgment and order dated 23.03.2015 in the case of Taparia Tools Vs. JCIT [(reported in (2015) 92 CCH 123) (SC)], wherein the Hon'ble Supreme Court held that if the assessee's claims the revenue expenditure in the year in which it has been paid then same cannot denied on the ground that matching revenue is also to be shown in this year. Moreover, this issue have always been decided in favour of the assessee by the Tribunal, right from the AY 1993- 94 onwards.
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 22 -
After hearing both the parties, we find that the assessee has been following completed contract method i.e. "project completion method". This method of accounting has been accepted by the Tribunal in AY 1997- 98 and 1999-2000 and also the same has been upheld by the Hon'ble Bombay High Court in the earlier years. The assessee has been claiming interest expenses u/s. 36(1)(iii) on payment basis on the loans which are mainly for business and not project specific. The Ld. CIT(A) has directed to restrict the claim of interest to that on the project completion during the relevant previous year and held that it is to be allowed only when the project is complete and revenue/income is recognized by the assessee, because it is then it has to be matched with the corresponding income. If there is no recognition of income, then there cannot be allowability of corresponding expenditure.
Before us, Ld, Senior Counsel, Mr. Dinesh Vyas had submitted that the assessee has taken loan for overall business and not for a particular project. In any case, the revenue expenditure should be allowed in the year in which assessee has claimed and cannot be deferred for subsequent years based on revenue matching principle. We agree with the contention of the Ld. Counsel, firstly that Hon'ble Supreme Court in the case of Taparia Tools, now have clearly held that if the revenue expenditure has been incurred in a particular year and assessee claims that expenditure in that year, the revenue 5 ITA NOs. 837 & 838/MUM/2018 CO. NOs. 154 & 153/MUM/2019 M/s. Tata Housing Development Co. Ltd., cannot deny the expenditure and it has to be allowed; Secondly, the loans are not project specific and it is undisputedly a revenue expenditure and same has to be allowed in the year it has been incurred irrespective of the fact that, whether
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 23 -
the assessee is following "project completion method". Otherwise also, this issue stands allowed in favour of the assessee by the Tribunal in assessee's own case right from the AYs 1993-94 to AY 2002-03. Thus, respectfully following the earlier years precedence and the decision of Hon'ble Supreme Court in Taparia Tools, we direct the AO to allow the interest claimed by assessee during the year. In the result, ground no. 1 has raised by the assessee stands allowed.” 6. Respectfully following the said order, we sustain the order of the Ld.CIT(A) and reject the grounds raised by the Revenue. 10. On the second disputed issue, The Ld.DR submitted that the CIT(A) has erred in granting relief under Rule 14A r.w.r 8D overlooking the fact that the assessee is having dividend yielding investments and the facts were not brought on record. We find the CIT(A) has dealt on the issues and granted the relief referred at page 19 Para 5.2 of the order read as under:
5.2Decision:- I have considered the submission made by the appellant and the reasons recorded by the AO. It is seen from para- 5.2 of the assessment order that the appellant did not furnish before the AO any details to show as to how it arrived at figure of Rs.5000 as expenditure incurred for earning exempt income. In view of this there was no question of AO accepting the same to be correct
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 24 -
expenditure incurred by the appellant for earning the exempt income. By making disallowance of Rs. 5000, the appellant has itself admitted that some expenditure was incurred for earning exempt income and since correctness of computation made by the appellant was not proved before the AO, the AO has correctly applied Rule 8D for determining the disallowance to be made under section 14A of the IT Act. There is no doubt about the fact that investment decisions are complex decisions and such decisions are taken at the level of management of the company. Moreover, other regular the staff is also required for implementing these decisions and keeping a watch over the investments and updating the management about them from time to time. Accordingly, a part of administrative and establishment expenditure is clearly attributable to earning exempt income. A part of bank charges would also be attributable to this activity. In absence of any separate details being kept by the appellant for expenditure incurred for earning exempt income, the same has to be determined in accordance with Rule 8D. Therefore, application of Rule 8D for determining the expenditure incurred for earning exempt income is upheld. So far as interest disallowance of Rs. 18,45,13,117/- made by the AO under Rule 8D(2)() is concerned, I am in agreement with the claim of the appellant that the same was not called for in view of the fact that closing value of investments was Rs. 2,94,05,00,000/- whereas share capital and reserves and surplus available with the appellant were Rs. 41,27,50,00,000/-. In view of the unambiguous findings of honourable Bombay High Court in the case of HDFC Bank Ltd Vs DCIT (2016] 383 ITR 529 (Bombay), disallowance of Rs. 18,45,13,117 /- made by the AO under Rule 8D(2) (Li) is directed to be deleted.
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 25 -
Disallowance made by the AO under Rule 8D(2) (ili) is Rs. 3,09,08,500/- and the appellant has requested that only those investment should be considered for making disallowance under rule 8D(2) (i) which have yielded exempt income. I'm in agreement with the submission of the appellant that the issue under consideration is covered by the decision of honourable Tribunal in the case of the appellant for AY 2012-13. The honourable Tribunal has following the decision of Hon'ble Special Bench of ITAT Delhi in the case of Vireet Investment (P) Ltd. (2017) 82 Taxmann.com 415 (DEL-Trib.) (SB) held that Investments earning exempt income are only to be considered for computing disallowance under Rule 8D(2) (ili) of the IT Rules. Following the same, the disallowance under Rule 8D(2) (ili) works out to Rs. 9530/- (19,06,084 + 19,06,084) /2 x 0.05%). As the appellant has suo moto disallowed Rs. 5000/- further disallowance is restricted to ( Rs. 4530/- only and balance disallowance of Rs. 3,09,03,970/- is directed to be deleted, This ground of appeal is partly allowed.
The Ld. AR submitted that this issue was decided in favour of the assessee in the earlier years in respect of Rule 8D(2)(ii) and 8D(2)(iii) of I T Rules in assessee’s own case in ITA No. 837 & 838/Mum/2018 order dated 20.07.2020 for the A.Y 2013-14 & 2014-15 dealt at page 5 Para 7 to 12 of the order which is read as under:
Similarly, Ground Nos. 3 and 4 of the revenue’s appeals are common for the A.Y. 2013-14 and A.Y. 2014-
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 26 -
15 and they relate to partly deleting the disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules. 8. Briefly stated the facts are, the Assessing Officer while completing the assessments for the A.Y. 2013-14 and 2014-15 computed the disallowance u/s. 14A r.w. Rule 8D and made disallowance of interest under Rule 8D(2)(ii) and expenses being 0.5% of average investments under Rule 8D(2)(iii) of I.T. Rules. The Ld.CIT(A) deleted the interest disallowance made under Rule 8D(2)(ii) and restricted the disallowance made under Rule 8D(2)(iii) of I.T. Rules to the amount of exempt income earned by the assessee during the year. 9. Ld. DR vehemently supported the orders of the Assessing Officer. 10. Ld. Counsel for the assessee submits that Ld.CIT(A) deleted the disallowance of interest as the assessee has its own funds much more than the investments and followed the decision of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd., v. DCIT [383 ITR 529]. Learned Counsel for the assessee submitted that in the cross objections filed by the assessee it challenged the order of the Ld.CIT(A) in restricting the disallowance to the exempt income. Ld. Counsel for the assessee submits that the ratio of the decision of the Special Bench of the Delhi Tribunal in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27] may be followed and only those investments which yielded exempt income may be considered for computing the disallowance. 11. We have heard the rival submissions, perused the orders of the authorities below. In so far as the interest disallowance is concerned we find that the Ld.CIT(A) following the decision of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd., v. DCIT (supra) directed the Assessing Officer to delete the disallowance as the
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 27 -
assessee was having closing value of investments at ₹.5,66,19,52,810/- and whereas the share capital and reserves and surplus available with the assessee were at ₹.9,38,74,21,699/-. Thus, since the assessee was having more surplus funds than the closing value of investments we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance under Rule 8D(2)(ii) of I.T. Rules, the same is sustained. 12. Coming to the disallowance under Rule 8D(2)(iii) of I.T. Rules, the Ld.CIT(A) restricted the disallowance to the exempt income earned by the assessee during the year. Ld. Counsel for the assessee before us pleaded that in view of the decision of the Special Bench of Delhi Tribunal in the case of ACIT v. Vireet Investments Private Limited (supra) only those investments which yielded dividend income should be considered for the purpose of computing the disallowance. We direct the Assessing Officer to apply the ratio of the decision of the Special Bench of the Delhi Tribunal in the case of ACIT v. Vireet Investments Private Limited (supra) and compute the disallowance accordingly. 13. In the result, appeals of the Revenue are dismissed and cross objections filed by the assessee are partly allowed.
We find that the CIT(A) has relied on the facts, circumstances, provisions of the Act, judicial decisions and granted the relief as discussed in the above paragraphs. Further, the Ld. DR could not controvert the findings of the CIT(A) with any cogent material or information to take different view.
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 28 -
Accordingly we do not find any infirmity in the order of the CIT(A) on these disputed issues, which is a reasoned and logical order passed relying on the judicial decisions. Accordingly, the uphold the decision of the CIT(A) on the two disputed issues and dismiss the grounds of appeal of the Revenue.
In the result, the appeal filed by the revenue is dismissed.
ITA 3533/Mum/2019, A.Y 2015-16
The assessee has raised the following grounds of appeal:
On the facts and in circumstances of the case, the Ld. CIT(A) grossly erred in confirming the levy of interest u/s. 234B and 234C of Rs. 92,02,864/- and Rs. 11,14,103/- respectively (considering that credit for prepaid taxes would be given in the order giving effect) 15. At time of hearing, the Ld. AR submitted that the CIT(A) has erred in overlooking the facts that the assessee is engaged in the business of construction and development works and following the percentage completion method (PCM). Further, the assessee has not anticipated that there will be increase in income due to merger of entities and therefore the interest
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 29 -
u/s 234B& 234C of the Act are to be recalculated. We find that there are no submissions made by the assessee before the A.O on this particular interest issue and it has emanated from the ground of appeal raised before the CIT(A).Contra, the Ld. DR supported the order of the CIT(A) on this disputed issue.
We heard the rival submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the Ld. AR that the interest charged u/s 234B & 234 C of the Act are to be calculated based on the facts that the assessee has been fallowing the percentage completion method (PCM). Whereas the assessee has filed the revised return of income considering merger of two wholly owned subsidiaries M/s Gurgaon Infrastructure Pvt Ltd & M/S Landscape Structure Pvt Ltd, and also demerger of M/s Gurgaon undertaking of Ardent Properties Pvt Ltd (Transferor company) into the assessee company being a transferee company as per scheme approved by the Hon’ble Bombay High Court on 29.04.2016 with effective date as on 01.04.2014. The main contentions of the Ld. AR are that the assessee has not anticipated that there will be
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 30 -
increase in income and if there was no merger, the income would have been taxed independently and the interest calculations will be lower. On perusal of the CIT(A) order, we found that the CIT(A) has considered the facts and has dealt at Para 8.1 & 8.2 of the order as under:
8.1 Appellant's Submission:-
During the appellate proceedings the appellant made submission which is as under:-
In this regard, we submit that as per the tax computation provided by AO, interest us 234B is R$. 4,53,66,651 and u/s 234C is Rs. 57,57,474. In this regard, we would like to state that Subsidiaries of the appellant, M/s. Gurgaon Infrastructure Private Limited, Landscape Structure Private Limited and Gurgaon undertaking of Ardent Properties Private Limited have been merged with the appellant. The scheme of merger was approved by the Hon'ble High Court on 29/04/2016. As per the provision of scheme, merger is to be given effect in the books with retrospective effect from 01/04/2014. As such, the increase in income of appellant is not due to any fault of appellant but due to compliance of order of Hon'ble High Court and thus, appellant should not be penalized for same. It was not possible for the appellant to estimate the income and pay advance tax as the scheme was approved after the close of financial year.
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 31 -
In support of our above contention, we place reliance on the order of Mumbai Hon'ble ITAT rendered in the case of Great Offshore Limited vs. DCIT ITA No.5221/Mum/2010(Copy of the decision is attached as Annexure 10) wherein ITAT held as under:
"9. We have considered the rival submissions and perused the materials available on records. After going the records and the order of the first appellate authority, we note that the demerger became effective from appointed date of 01.04.2005 by the order of Hon'ble High Court of Bombay vide order dated 31.08.2006 exhibited at page no 42 to 44 of the paper book no 1,filed by the assessee, thereby vesting and transferring the offshore business of the demerged company M/S Great Easter Shipping Co Ltd to the assessee. It is noteworthy that of scheme of demerger was originally sanctioned by the High Court order dated 03.02.2006 however the assignment of contracts in favour of the assessee could not be done within a period of six months and therefore extension was sought which was finally sanctioned on 31.08.2006 as mentioned supra. Thereafter the scheme was adopted by the assessee company on 16. 10.2006 taking over all the entire offshore division with all assets, liabilities, contracts rights and obligations etc. We also note that the assessee filed return of income on 30.11.2006 declaring an income of Rs. 11,22, 72,762/- by paying self-assessment tax of Rs. 1,30,00,000/- after adjusting TDS of Rs. 2,61,54,656/- without paying interest u/s 234B and 234C of the Act. We also note that the first appellate authority upheld the order of the assessing officer by holding that the demerged company did not transfer the advance tax paid it on behalf of the assessee and hence the interest u/s 234 B & C was
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 32 -
chargeable and thus rejected the submissions of the assessee's counsel which was Great Offshore Limited incorporated in para 3.2 by CIT(A) and also incorporated his finding on para 3.3 of the said order. Since the scheme was approved after the close of the financial year the assessee could not have estimated its income and pay the advance tax on st the same. We are in agreement with the arguments of the ld AR on this issue.
Further the case of the assessee is squarely covered the decisions in the case of Prime Securities Ltd. Vs ACIT (Inv.) (333 TR 464) and Ultratech Cement Ltd. Vs. DCIT (ITA Nos 7646,7647,7735 and 7736/Mum/2007. The Hon'ble Bombay High court in the case of Prime Securities Vs ACIT has held that in order to charge interest under section us 234B, there has to be default on the part of the assessee in estimating the advance tax and payment thereof as per the provisions of section 209r.W. s/ 210 of the Act. Once the default is attributed to the assessee, then the charging of interest becomes mandatory. The ratio decendie in the said decision was that where it was not possible for the assessee to have anticipated the events during the year which took place after the close of year, there was no default on the part of the assessee and consequently interest uls 234B could not to be charged. In the case of Ultratech Cement Ltd Vs DCIT, the Tribunal held that in the scheme of demerger, it was not possible for the assessee to estimate the income and pay the advance tax as the scheme was approved after the close of the financial year. We, therefore, respectfully following the above decisions reverse the order passed by the first appellate authority on this point and decide the issue in favour of the assessee."
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 33 -
(Emphasis supplied) In light of above, we pray before vour honours to issue directions to AO to recalculate the interest u/s 234B and 234C in light of the above jurisdictional ITAT's decision. 8.2 Decision:- So far as the fifth ground of appeal, challenging the charging of interest under section 234B & 234C, is concerned, I'm not in agreement with the contention of the appellant. Even though the scheme of merger has been approved by the High Court on 29/04/2016, the same is effective from the "Appointed Date" proposed in the "Scheme of Arrangement" filed by the appellant i.e. 01/04/2014. It is very common for the High Court to approve the scheme of mergers/ demerger from the "Appointed Date" proposed in the "Scheme of Arrangement" filed by the petitioners. Therefore, the appellant cannot claim that the effective date of merger came out of blue and it could not have anticipated the date of merger. The appellant and the merged entities were aware of the Appointed Date as well as the financial results of the entities getting merged. When the financial liability of payment of tax/advance tax was known, the appellant could have ensured that the merging entities paid sufficient amount of advance tax, credit for which was transferred to the appellant at the time of demerger. It is not the case of the appellant that any unexpected income has arisen to the appellant/entities which have merged into that the appellant and tax liability for the same could not have been estimated at the time of payment of advance tax. Therefore, I'm of the opinion that the AO has correctly charged interest under section 234B & 234C of the IT Act because the appellant has failed to prove that merged entities could not have anticipated the (8197 advance tax liability on account of merger and
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 34 -
therefore, could not have paid correct amount of advance tax. However, the AO is directed to recalculate the interest chargeable under the sections after giving effect to this appellate order. For statistical purposes, this ground of appeal is treated as partly allowed. So far as decisions quoted by the appellant are concerned, they are of no help to the appellant because they are based on different set of facts. The appellant has not filed any evidence to show that facts of the case of the appellant were similar to those of these decisions.
On perusal of the facts, information and the submissions of the Ld.AR, we find that the assessee s contentions are that the interest need not be calculated u/s 234B& 234C of the Act in respect of the unanticipated income due to the merger of entities. We are not in a position to understand the reasoning, whereas in the case of merger or amalgamation, the assessee takes the control of all the assets and liabilities including the losses and profits. We find that the CIT(A) has dealt on the facts and restored the issue to the file of the AO to recalculate the interest. We considering the principles of natural justice, overall facts and circumstances provide one more opportunity to the assessee on this issue before the AO and the assessee should provide
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 35 -
details of merger entities and the advance tax liability of the merged entities and the rationality of chargeability of interest. Accordingly, we restore the disputed issue to the file of the Assessing officer with the additional directions and allow the grounds of appeal of the assessee for statistical purposes.
In the result, the appeal filed by the assessee ITA No 3491/Mum/2019 is allowed for statistical purposes and the appeal filed by the revenue in ITA. No 3533/Mum/2019 is dismissed.
Order pronounced in the open court on 29.06.2022.
Sd/- Sd/- (AMARJIT SINGH) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 29.06.2022
KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, Mumbai / DR, ITAT, Mumbai 5.
ITA No. 3491 & 3533/Mum/2019 Tata Housing Development Co. Ltd, Mumbai - 36 -
गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai