COUNTRYWIDE PROMOTERS PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

The present appeals have been filed by the revenue and the assessee against the orders of the ld. CIT(A)-XXXII, New Delhi dated 16.07.2013.

ITA Nos. 6343 & 6304/Del/2013 2 Countrywide Promoters Pvt. Ltd. companies on 15.11.2007. Assessment in the case of the assessee has been completed u/s 153A.

“2. We will first take up Revenue’s appeal in which following grounds have been raised:-

“1. On the facts and in the circumstances of the case, the CIT(A.) has erred in deleting the addition of Rs. 27,11,797/ made by the Assessing Officer on account of interest on PDCs paid out of books of account.

ITA Nos. 6343 & 6304/Del/2013 3 Countrywide Promoters Pvt. Ltd. 2. On the facts and in the circumstances of the case, the CIT(A) has erred, in deleting the addition of Rs. 1,05,86,958/- made by the Assessing Officer in view of the provisions of Section 37(1) of the Income Tax Act, 1961 on account of additional payment in violation of Stamp Duty Act, 1899.

ITA Nos. 6343 & 6304/Del/2013 4 Countrywide Promoters Pvt. Ltd. amount to be added at Rs.27,11,797/-. The detailed discussion of the Assessing Officer in this regard appears from pages 2 to 12 of the assessment order.

(i) The analysis of the seized documents reveals that interest has been paid on PDCs and there are vouchers found which proves that recipient has signed on vouchers for receipt of the interest and the amounts are specific with calculation of 15% per annum.

(ii) There is a clear evidence of receipt of interest for extension of period of PDCs and the arguments of the assessee that the calculation of interest of PDCs has been considered while entering into the agreement holds some logic but when the date of PDCs are extended, definitely the recipient will demand for some additional compensation in the form of interest. There is evidence which proves that interest is paid from the date of sale to date of encashment of PDCs. However there is concrete evidence in the form of seized material to show that interest is paid and received by seller on the extension of PDGs. Thus, interest on PDCs to the extent of extended period appears to be quite reasonable and logical and accordingly, he held that interest, of PDCs either a sale consideration or additional payment may be recomputed to the extent of extended period of PDCs by the Assessing Officer and to the extent that the extension made by the Assessing Officer.

ii) This formula and arrangement is applicable in all the group companies of BPTP as they are closely linked.

ITA Nos. 6343 & 6304/Del/2013 5 Countrywide Promoters Pvt. Ltd. (iv) Lastly, he concluded as under:

“If it is not possible to work out the extension of PDCs in each case then Assessing Officer, is directed to recomputed interest on PDCs after six months from date of issue of PDCs i.e. date of sale, as six months is taken as reasonable period for giving PDC as per sale deed. This view is formed, on the basis the statement of Sh. Chhotu Ram whim says that normally PDCs are given for 8 to 10 months. Further Id. AR has also submitted few Sale Deed in respect of some of Seized record in the case of Ramvati Beeroete where the interest working is made after 9/15 months. Taking these facts into consideration, it would be proper to compute interest after 6 months from date of sale on conservative side. Accordingly this ground is partly allowed.

“We have heard the arguments of both the sides and perused, relevant material placed before us. At the outset, the ground raised by the Revenue is misconceived because learned CIT(A) has not deleted

ITA Nos. 6343 & 6304/Del/2013 6 Countrywide Promoters Pvt. Ltd. the addition of Rs.75,06,625/- but has only directed to recalculate the interest We have carefully, gone through the order of the learned CIT(A) and also the submissions of both, the parties and we do not find any infirmity in the order of the learned CIT (A). After examining the loose papers Seized at the time of search at the assessee’s premises, it was noticed that interest is paid on the PDCs only during the period of extension of PDCs and, therefore, he directed the Assessing Officer to re-compute the interest on PDCs at the time of extension of the PDCs. He has further observed that if it is not possible to work out the extension of PDCs in each case, then the Assessing Officer is directed to recomputed interest on PDCs after six months from the date of Issue of the PDCs. Therefore, the ground of appeal of the Revenue that the CIT(A) deleted the addition of Rs.75,06,625/- made by the Assessing Officer on account of interest on PDCs is factually incorrect and contrary to the order of the CIT(A). The CIT(A) directed to recalculate the interest on PDCs and there was a sound logic for such direction. His direction is based on material found and seized at the time of search, in view of the above, we do not find any justification to interfere with the order of learned CIT(A) in this regard and accordingly, we reject ground No. 1 of the Revenue's appeal.”

Thus, he submitted that this issue stands squarely covered by Tribunal order, therefore, the ground raised by the Revenue should be dismissed.

ITA Nos. 6343 & 6304/Del/2013 7 Countrywide Promoters Pvt. Ltd. considering the entire gamut of material and explanation of the assessee that there was some extension of reasonable time for giving the PDCs as mentioned in the sale deed itself. The reasonable period too has been worked out by him on the basis of material only as gathered during the course of search. Hence such a direction of Ld. CIT (A) to compute the interest after six month from the date of sale cannot be altered without any contrary material. Further, this issue stands squarely covered by the various decisions of the Tribunal in the group companies as relied upon by the Id. counsel. Hence in view of binding judicial precedents on the same set of facts, we do not any merit on the ground raised by the Revenue and hence, same is dismissed.

ITA Nos. 6343 & 6304/Del/2013 8 Countrywide Promoters Pvt. Ltd. thirdly, often payments are made through PDCs and at the time of encashment there is considerable escalation in prices and therefore, there is always raise in the claim for the compensation of delayed payment; fourthly, the additional compensations are given for tube wells, trees and other super structure etc., as per demand made by the land owners; fifthly, the payments have been made for commercial expediency and alt the payments are genuine; sixthly, the cyclostyled receipts does not results in roads in the genuineness and factum of payments; and lastly, the additional payments should not be considered for purchase of land but it is an extra expenditure for obtaining the title of the land.

ITA Nos. 6343 & 6304/Del/2013 9 Countrywide Promoters Pvt. Ltd. record allowed the said expenditure as business expenditure.

i. M/s. Glitz Builders and Promoters Pvt. Ltd., 1747/Del/2013 & 1406/Del/2013 dated 02.01.2015 for the A.Y. 2006-07; ii. M/s. ISG Estate Pvt. Ltd. 1532/Del/2013 and 1756/Del/2013 dated 3.1.2015 for the A.Y. 2006-07; iii. M/s. Business Park Promoters Pvt. Ltd., in ITA No. 1404/Del/2013 & 1732/Del/2013 for the A.Y. 2006- 07.

He submitted that in all, these eases the Tribunal has held that since the assessee has neither claimed any income from purchase and sale of land nor has debited any expenditure on such purchases, therefore, there is no question of any disallowance. The assessee’s income is only on account of

ITA Nos. 6343 & 6304/Del/2013 10 Countrywide Promoters Pvt. Ltd. commission which is fixed @ Rs. 35,000/- per acre. The income from operation itself was Rs.8.08 lacs and cost on such operations was only Rs. 6.74. lacs. Thus, there is no question of disallowing any expenditure which has not been claimed.

“We have heard the rival submissions and perused the material available on record. The case law relied upon by the parties has been taken into consideration. On a consideration of the same we are of the view that since in the facts of the present case the material issue is that the said expenditure was

ITA Nos. 6343 & 6304/Del/2013 11 Countrywide Promoters Pvt. Ltd. never claimed as assessee’s business expenditure the occasion to make a disallowance of the same does not arise. On this fact there is no dispute as admittedly, the expenditure was never claimed as an expense by the assessee and consequently has not been routed through its P&L A/c. In the circumstances, the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise. The reasoning and finding given while considering the arguments qua Ground No- 4 would fully, apply here also. The difference that here the entire amount is added u/s 37 as opposed to part of the expenditure disallowed u/s 40A(3) is not so material as the finding is arrived at taking cognizance of the material fact that hereto also no such claim of expenditure has been made. The fact that the additional payments were warranted in order to avoid potential disputes amongst the claimants off the land holding which have been passed through to die land holders from generation to generation wherein there may be informal arrangements of ownership and or the payments were for commercial expediency to facilitate peaceful possession and registration of the land holding; where by the time Registry was made the landholders felt a higher payment was necessitated due to increase in value are issues which are not required to be addressed in the present proceedings. Ground No.-3 on the facts available on record, considering the judicial precedent referred to in detail while deciding Ground No.-4 has to be decided in favour of the assessee.”

ITA Nos. 6343 & 6304/Del/2013 12 Countrywide Promoters Pvt. Ltd. 7. Further, it was also adjudicated in the appeal of the assessee for the assessment year 2007-08 in the case of Green Valley Tower Pvt. Ltd. in ITA No. 1750/Del/2013 vide order dated 15.01.2021. For the sake of ready reference, the relevant part of the said order is reproduced as under:

“9.0 Coming to assessee’s appeal for AY 2007-08, it is seen that in the assessment order, lots of seized documents are mentioned while making the addition in respect of interest paid on post dated cheques. However, nowhere has the AO stated that these seized documents belonged to the assessee. The Ld. CIT (A) has analysed all these seized documents and has given a categorical finding that none of the seized documents mentioned in assessment order belong to the assessee. It is clear from this that the AO has used documents which belonged to other assessees for making the addition in the hands of assessee. Further, the AO has neither called any of the vendors of land nor recorded any statement to arrive at the correct facts. Under such circumstances, question arises as to whether additions can be made in absence of any document/s or any adverse statement/s simply on the basis of suspicion and assumption that the assessee might have also paid interest on post dated cheques given towards purchase of land. This issue is settled by the co-ordinate bench in case of Westland Developers Pvt. Ltd. in ITA no. 1757/Del/2013 vide order dated 23.11.2015 wherein it was held by the Tribunal that in absence of any cogent, definite material which belonged to the assessee or any evidence demonstrating the payment of interest by the assessee on PDCs, reasons recorded for initiation of proceedings u/s 147 were not in consonance with law having been based on mere suppositions, surmises and extrapolation of material seized. The bench completely discarded the argument of AO and Ld. CIT (A) of common management and the assessee belonging to the same group and held that it cannot be equated with existence of incriminating seized material belonging to the assessee. In this case also,

ITA Nos. 6343 & 6304/Del/2013 13 Countrywide Promoters Pvt. Ltd. there is no seized document found which belongs to the assessee and it is so confirmed by the Ld. CIT (A) also in his order. No statement of any vendors of land is recorded by the AO. Statement of Shri Chottu Ram is referred to although the assessee has denied to have purchased any land from Shri Chottu Ram. The statement of Shri Chottu Ram was not even provided to the assessee. In our view, the statement of Shri Chottu Ram cannot be made as the basis for taking adverse inference without the assessee even having been confronted with it. Reliance is placed on the judgment of the Hon’ble Supreme Court in M/s Andaman Timber Industries vs. Commissioner of Central Excise wherein it was held that order becomes null if based merely on statement of witness without allowing opportunity to cross examine them. None of the vendors of land and the alleged recipients of interest paid by the assessee were examined by AO who would have confirmed of having received any such interest. It is the basic principle of law that unless there is a corroborative evidence, no addition can be made in an assessment. Reliance is placed on the judgment of the Hon’ble Supreme Court in case of Dhakeshwari Cotton Mills Ltd. vs. CIT 26 ITR 775(SC), Omar Salay Mohd. Salay vs. CIT 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram vs. CIT 37 ITR 288 (SC) wherein it is held by the Hon’ble Supreme Court that there must be something more than mere suspicion in support of an assessment and mere suspicion cannot take the place for the purpose of passing an order of assessment.

9.0.1 The issue of the alleged payment of interest by the assessee is covered by the judgment of the Hon’ble Jurisdictional (Delhi) High Court in case of CIT vs. Lubtec India Ltd. reported in 311 ITR 175 ( Delhi) (2009) wherein it was held by the Hon’ble Delhi High Court that where there was nothing to show that expenditure in question was in fact incurred by assessee and assesese had denied having incurred expenditure and had contended that it did not have that kind of money, no addition on account of such expenditure could be made to assessee’s income. The issue of alleged payment of interest by

ITA Nos. 6343 & 6304/Del/2013 14 Countrywide Promoters Pvt. Ltd. the assessee is also covered by the decision of Hon’ble Delhi High Court in the case of CIT vs. Ved Prakash Choudhary reported in 169 taxman 130 (Delhi) (2008) wherein the addition was deleted as there was no corroborative evidence to show that there was in fact transfer of money. Accordingly, considering the facts of the case and judicial pronouncements as discussed above, the Ground nos. 2 & 3 relating to addition confirmed by the Ld. CIT (A) in respect of interest paid on post-dated cheques outside the books is deleted.

9.1 Ground of Appeal no. 5 is related to disallowance u/s 40A(3) of Income Tax Act, 1961 of Rs.12,31,160/- in respect of cash payment made by the assessee for purchase of land. The Ld. AR has submitted that the assessee has not claimed the amount paid for purchase of land as amount paid is neither debited to the Profit & Loss a/c nor claimed as deduction in the Computation of Taxable income as the assessee has received reimbursement of amount from M/s Countrywide Promoters Pvt. Ltd. He has further stated that the issue is covered by the decision of the co-ordinate bench of the ITAT ‘H’ bench, New Delhi in case of M/s West Land Developers Pvt. Ltd. in ITA no. 1752/Del/2013 vide order dated 22.08.2014. He has further stated that no appeal was filed by the department against this order before the Hon’ble Delhi High Court. It has further been stated that this issue is decided in favour of various assesses by the co-ordinate benches of the Tribunal in 31 other appeals of group companies of BPTP. On the other hand, the Ld. Sr. DR has placed reliance on the concurrent findings of the lower authorities. It is seen that the issue of disallowance u/s 40A (3) is decided by several co- ordinate benches in various cases of group companies of BPTP in favour of the respective assessees by taking the view that issue of disallowance of expenses does not arise as the amount paid for purchase of land is neither debited to the Profit & loss a/c nor claimed as expenditure in the Computation of taxable income as the assesses have got reimbursements of the amounts paid for

ITA Nos. 6343 & 6304/Del/2013 15 Countrywide Promoters Pvt. Ltd. purchase of land from M/s Countrywide Promoters Pvt. Ltd. on assignment of development rights in land purchased by assesses in favour of M/s Countrywide Promoters Pvt. Ltd. This issue was first decided in the case of M/s West Land Developers Pvt. Ltd. in ITA no. 1752/Del/2013 vide order dated 22.08.2014 and later on in more than 30 other cases of BPTP group on identical facts. Therefore, respectfully following the decision/s of the co-ordinate benches on the issue of disallowance u/s 40A (3) and following the rules of precedence and consistency, the disallowance made by the AO of Rs.12,31,160/- is hereby deleted.”

Disallowance u/s 40A(3):

ITA Nos. 6343 & 6304/Del/2013 16 Countrywide Promoters Pvt. Ltd. 40A (3). Accordingly, the assessee vide order sheet entry dated 1-12-2008, has been asked to explain as to why not the provisions of section 40A (3) may not be applied to the expenditure incurred by it in cash for acquiring land from the farmers/ villagers and the same may not be disallowed to the extent of 20% as provided in the supra section.

“(i) The appellant is in the business of real estate development as per its auditors report.

(ii) Land purchased by appellant company is stock in trade in its hand.

(iii) The appellant receives Rs. 40,000 per acre of Land, therefore the appellant company is in business of real estate & therefore cost of Land is indirect Expense in its hand.

ITA Nos. 6343 & 6304/Del/2013 17 Countrywide Promoters Pvt. Ltd. (iv) The A.O. has placed reliance on the applicability of See 40A(3) on the decision of Supreme Court in the case of Attar Singh Gurumukh Singh Vs. ITO 191 ITR 667.

(v) He held that Rule 6DD is not applicable as that rule only gives non application of Section 40A(3) in fulfillment of Specific condition.”

“Based on the aforesaid Agreement the assessee purchased land for which the (M/s BPTP Ltd.) has reimbursed all costs and expenses with respect to the acquisition of the said land and also in conformity with the Collaboration Agreement the assessee has received fees calculated @ Rs. 40,000/- per acre, which is duly credited to the Profit and Loss Account as the income.

Section 40A applies to expenses or payments not deductible in certain circumstances. It starts with the non-obstante clause providing that the provisions of the section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head ‘Profit and gains of business or profession.’ Sub-

ITA Nos. 6343 & 6304/Del/2013 18 Countrywide Promoters Pvt. Ltd. section (3) of Section 40A is an exception to the deductibility of expenditure under the computation provisions of ‘Profits and gains of business or profession.’ Thus axiomatically what does not fall within the computation of income will not attract the provisions of section 40A (3).”

i) CIT Vs Motilal Khatri (2008) 218 ITR 602 (Raj) ii) CIT, Faridabad Vs Alpha Toyo Ltd. (2008) 174 Taxman 427 (Puri and Haryana) iii) CIT Vs Banwari Lai Bansidhar 229 ITR 229 (All)

ITA Nos. 6343 & 6304/Del/2013 19 Countrywide Promoters Pvt. Ltd.

“10.10. We have also taken ourselves through the judgment of the Jurisdictional High Court in the case of CIT vs Industrial Engineering Projects Pvt. Ltd. (cited supra) which has been relied upon before us for the proposition that reimbursement of expenses cannot be treated to be a Revenue receipt. How the judgment of the Apex Court in

ITA Nos. 6343 & 6304/Del/2013 20 Countrywide Promoters Pvt. Ltd. Tuticorin Alkali Chemicals & Fertilizers is applicable to the facts of the present case has not been set out in the order of the authorities nor has the Ld. DR been able to address the applicability of the said judgment to the issue at hand. We have taken ourselves through the said judgment and seen that it proceeds on entirety different facts and circumstances and has no applicability to the facts of the present case. Consequently, it is seen that from the ratio of the judgments relied upon before the CIT(A) and also before us which have been discussed in the earlier part of this order no arguments have been advanced by the Revenue so as to contend how they are not applicable to the case at hand, no distinguishing fact, circumstance or position of law has been relied upon so as to come to a contrary finding than the one arrived at. Accordingly on a consideration of the peculiar facts and circumstances of the case and the judgments relied upon considering the relevant provision of the Act namely Section 40A(3), we hold for the detailed reasons given hereinabove that Section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed and the assessee has successfully demonstrated that the payment were reimbursement made by CWPPL. Accordingly Ground No.4 is allowed. ”

10.5 As facts of case of assessee are similar and identical to the various cases decided by coordinate benches of Tribunal, New Delhi details of which are given above where similar disallowance by following the order in case of M/s Westland Developers Pvt. Ltd. (supra) as aforesaid is deleted by various coordinate benches of the Tribunal, New Delhi, the ground No. 5 is allowed and disallowance of cash payment made under section 40A(3) is deleted as assessee has not claimed any deduction in respect of cash payment made.”

ITA Nos. 6343 & 6304/Del/2013 21 Countrywide Promoters Pvt. Ltd. not debited to P&L account of the assessee, no disallowance u/s 40A(3) is called for.

Addition of account of seized material:

ITA Nos. 6343 & 6304/Del/2013 22 Countrywide Promoters Pvt. Ltd. 22. Page 28 of Annexure A-3 of Annexure A-9/Party BO-III

The addition of Rs.1,52,25,000/- has been made on account of PDC of Rs.1,40,00,000/- and notional interest of Rs.12,25,000/- Since, the issue of PDC has already been dealt on merits of the case, we hereby hold that no notional interest on such amount can be upheld. The interest calculated on the PDC by the AO is without any basis or evidence. Hence, we direct the addition made by the AO be deleted.

Sd/- Sd/- (K. N. Chary) (Dr. B. R. R. Kumar) Judicial Member Accountant Member . Dated: 04/05/2021 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR