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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SH. PRASHANT MAHARISHI & SH. K. N. CHARY
PER PRASHANT MAHARISHI, AM: 01. These are the cross appeals filed by the assessee as well as The Deputy Commissioner Of Income Tax, Circle 7 (1)), New Delhi (the Learned Assessing Officer/AO) against the order of Commissioner Of Income Tax (Appeals) – 3, New Delhi (the learned that CIT A) dated 7 May 2015 for assessment year 2011- 12 . 02. The assessee in its appeal in ITA number 4159/Del/2015 has raised following grounds of appeal. ITA No.4159/Del/2015 1.1 That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant’s case in confirming the net addition of Rs.6,48,480/- [i.e. after allowing standard deduction @ 30% on gross addition of Rs.9,26,400/- which works out to Rs.2,77,920/-] made by the Assessing Officer on account of notional rent, whereas in fact the appellant has not received any rental income from these tenants. [Page 165-170 of CIT(A)’s Order] 1.2 That learned CIT(A) has grossly erred in law and on the facts in not appreciating the fact that the taxable income means real income and not a fictional income.
2. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant’s case in confirming the disallowance of Rs.86,35,131/- out of legal and professional expenses by treating them capital expenditure in nature ignoring the fact that the appellant had itself added back in its computation of total income an amount of Rs.79,73,331/- out of Rs.86,35,1131- and balance amount to the extent of Rs.6,61,800/- is permissible deduction as revenue expenditure. [Page 230-239 of CIT(A)’s Order] 3. That the appellant reserves its right to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing.
The learned AO in ITA number 4794/del/2015 has raised following grounds of appeal.
The Commissioner of Income Tax(Appeals) has erred in law and on the facts 1. of the case in allowing deduction of Rs. 156,70,77,979/- u/s 80IAB of the Act, The Commissioner of Income Tax(Appeals) has erred in law and on the facts 2. of the case in deleting in disallowances made by Assessing Officer of Rs. 81,02,00,000/- on account expenses to be allocated from non SEZ projects to SEZ projects . The Commissioner of Income Tax(Appeals) has erred in law and on the facts 3. of the case in deleting disallowance of Rs 164,38,15,240/- on account of revenue recognition as per POCM. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 4. of the case in deleting the disallowance of Rs. 128,03,19,000/- on account of interest capitalization? The Commissioner of Income Tax(Appeals) has erred in law and on the facts 5. of the case in deleting the disallowance of Rs. 8,42,19,546/- on account of Brokerage & Commission. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 6. of the case in deleting the addition of Rs. 2,13,314/- on account of contingency deposits received during the year. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 7. of the case in deleting the addition of Rs. 8,73,812/- on account interest free security deposit. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 8. of the case in deleting the addition of Rs. 4,54,78,414/- on account of registration charges received from customers. The Commissioner of Income Tax(Appeals) has erred in law and on the 9. facts of the case in deleting the addition of Rs. 9,99,09,626/- on account of non allocation of proportionate overheads to group companies. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 10. of the case in deleting the addition of Rs. 232,30,96,000/- made by AO u/s 14A of the I.T.Act, 1961 read with Rule 8D of the Income Tax Rule, 1962. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 11. of the case in directing the AO to treat income of Rs.14,27,57,756/- as income from House Property . The Commissioner of Income Tax(Appeals) has erred in law and on the facts 12. of the case in deleting the addition of Rs. 8,49,930/- on account of notional rental income on vacant/leased properties. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 13. of the case in deleting the addition of Rs. 5,01,672/- on account of recalculation of depreciation. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 14. of the case in deleting the addition of Rs. 87,65,346/- made by the AO on account of disallowance of prior period expenses. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 15. of the case in deleting the addition of Rs. 6,66,91,587/- made by the AO by holding them to be in capital nature. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 16. of the case in deleting the addition of Rs. 2,34,40,014/- made by AO under different heads by holding them being personal in nature. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 17. of the case in deleting the addition of Rs. 45,15,42,738/- on account of disallowance of expenses for operation and maintenance of helicopter and air craft not being wholly & exclusively for business purpose. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 18. of the case in deleting the addition of Rs. 257,90,00,000/- on account of notional interest under charged by the assessee. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 19. of the case in deleting the addition of Rs. 1,22,34,040/- on account of carbon credit. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 20. of the case in deleting the addition of Rs. 3,00,00,000/- made by AO on account of disallowance of legal and professional expenses paid by the assessee company to Mr. Ajay Khanna. The Commissioner of Income Tax(Appeals) has erred in law and on the facts 21. of the case in deleting the addition of Rs.6,22,00,000/- on account of short / non allocation of proportionate overhead expenditure to windmills at Gujarat and Karnataka. The appellant craves to leave, to add, alter or amend any ground of appeal
22. raised above before or during the course of hearing.
04. Brief facts of the case shows that assessee is a company which is engaged in the business of real estate development. It filed its return of income on 29/9/2011 declaring an income of ₹ 8886954800/- The assessment was completed by the learned assessing officer u/s 143 (3) rws 142 (2A) of the act per order of assessment dated 31/3/2014 . The total income of the assessee was assessed at Rs. 19307716985/- . Total additions/ disallowances of Rs. 10432269625/- were made to total income.
05. Aggrieved by the order of the learned assessing officer, the appellant preferred an appeal before the learned CIT – A passed an order partly allowing the appeal of the assessee on 7th of May 2015. Therefore with respect to the additions deleted by the learned CIT – A, the learned AO is aggrieved and with respect to the addition confirmed by him, the assessee is aggrieved and therefore both are in appeal before us.
06. The learned authorised representative has submitted that in case of appeal of the learned assessing officer all the grounds are covered in favour of the assessee as per order of the coordinate bench for assessment year 2008 – 09 in ITA number 2749 – Del – 2013 dated 27/5/2019. He further submitted that the coordinate bench for assessment year 2008 – 09 followed the order for assessment year 2006 – 07 dated 11 March 2016 in case of the assessee. He submitted that on almost all of the issues the revenue did not prefer any appeal before the honourable High Court and the issues have crystallized and reached the finality in favour of the assessee. Even otherwise he submitted that the issues are covered in favour of the assessee by the decision of the coordinate bench. He submitted that only new issue that remains to be adjudicated in this appeal is ground number 16 which relates to the disallowance of expenses on account of same not incurred only and exclusively for the business purposes and held them to be of personal nature in case of the assessee amounting to ₹ 23,440,014/– and ground number 20 wherein the disallowance out of legal and professional expenses paid to Mr. Ajay Khanna of ₹ 3 crores is concerned. He otherwise submitted that there is no other issue in the appeal of the AO which are not decided in favour of the assessee. He therefore submitted that his arguments are supporting the orders of the coordinate bench and the learned CIT – A who has allowed the claim of the assessee.
7. Coming to the appeal of the assessee the learned authorised representative submitted that ground number one with respect to the addition made by the learned assessing officer on account of notional rent whether security deposit is received but no rental income is shown wherein the learned assessing officer has made the addition of ₹ 648,480/– is already covered in favour of the assessee by the order of the coordinate bench for assessment year 2008 – 09 dated 27/5/2019 which followed the order of the coordinate bench in assessee’s own case for assessment year 2006 – 07 which was rendered on 11th of March 2016. With respect to the second ground of the appeal he submitted that there is a double addition to the extent of ₹ 7,973,331 which has already been disallowed by the assessee in its return of income. He submitted that the out of the total disallowance confirmed by the learned CIT – A of ₹ 8 635131/– there is a double addition to the extent of ₹ 7 973331/–. He otherwise stated that the balance expenditure is also revenue in nature.
The learned departmental representative referring to the appeal of the learned assessing officer submitted that the most of the issues have been covered in assessee’s own case by the order of the coordinate bench for earlier years. However he submitted that he vehemently supports the order of the learned assessing officer on all these issues.
With respect to the appeal of the assessee he submitted that though ground number one has already been decided in case of the assessee for earlier years where there is an addition on account of notional rent with respect to the security deposit is received by the assessee but no rental income has been shown he supports the order of the learned CIT – A. With respect to ground number two he submitted that if there is a double disallowance, same can be verified by the assessing officer from the competition of the total income.
On the above submission made by the respective parties we proceed to decide the appeal of assessee first. The ground number 1 of the appeal of assessee is against the net addition confirmed by the learned CIT – A on account of notional rent where security deposit received but rental income is not shown by the assessee. The resultant addition made by the learned assessing officer is of ₹ 648,480/–. The learned CIT – A also confirmed the same wide para number 19.2 of his order. The learned authorised representative submitted that this issue is covered in hair of the assessee as per the order of the coordinate bench in assessee’s own case for assessment year 2008 – 09 at para number 21 – 24. The coordinate bench dealt with this issue following the order in case of assessee for assessment year 2006 – 07 and 2007 – 08 as Under; – “21. Coming to the issue of addition on account on notional rent where security deposits were received but no rental was shown, amounting to ₹ 10,91,270/-. It has been pointed out by both the parties that this issue now stands covered in favour of the assessee by the Tribunal in assessee’s own case for the Assessment Year 2007-08 vide order dated 01.11.2017 in ITA No.3846/D/2012.
The addition has been made on the ground that assessee despite being owner of the Kiosks has not disclosed rental income in its books and the same has been transferred to M/s. DLF Services Ltd. by over riding title. M/s. DLF Services Ltd is providing maintenance and upkeep services of the mall including Kiosks. In return for consideration for these services, the appellant vide authority letter dated 12/12/2005 has granted M/s DLF Services Ltd., right to recover the rental receipts from the third parties using said Kiosks. Assessee has not claimed any expenditure in the name of M/s DLF Services Ltd. in connection with maintenance services of the mall. In view of above arrangement, M/s. DLF Services Ltd. is showing the receipts from the Kiosk as a part of its income which is duly subjected to tax in its hands and accordingly there is no loss to the revenue.
This precise issue had come up for consideration before the Tribunal in assessee’s own case in the earlier year, wherein it has been observed and held as under: ‘42. We have heard the rival submissions and perused the material on record. The ground is regarding addition of ₹ 12,60,000/- as rental income. The Assessing Officer observed that the assessee was owner of Kiosks installed at Malls which were leased to various parties at the lease rent of ₹ 18,00,000/- per annum. The Assessing Officer after accepting statutory deduction of 30%, considered the net rental income at ₹ 12,60,000/-. The CIT(A) confirmed the finding of the Assessing Officer.
The appellant contended that M/s. DLF Services Ltd. was appointed as maintenance agency for upkeep and maintenance of Mall, owned and run by appellant. For maintenance services being rendered by DLF Services Ltd., the appellant assigned the lease rental to DLF Services Ltd. as part of maintenance cost. The appellant contended that the diversion of lease rent was towards reimbursement of maintenance services rendered by M/s. DLF Services Ltd. and as such diversion was towards provisions of maintenance services. It was further contended that the rental income as diverted to DLF Services Ltd. has being subjected to tax in the case of M/s. DLF Services Ltd. and there is no case of subjecting the same income again in the case of appellant. In this connection, the appellant made reference to decision of Supreme Court in the case of M/s. Ashish Plastic Industries Vs. ACIT 373 ITR 45, as per which same income cannot be subjected to tax again in the case of the appellant.
The Ld. CIT DR supported the order of the Assessing Officer and CIT(A).
After hearing both the parties, we are of the view that the appellant assigned DLF Services Ltd. right to recover lease rent for maintenance and upkeep services of Mall and as such there was a genuine business arrangement between the parties. If the lease income is considered as chargeable to tax in the case of appellant, the appellant may be eligible for claim of expenses on account of maintenance of Mall which was owned and run by the appellant and as such appellant has not derived any tax benefit on the basis of such arrangement and for diversion of lease rent. It is further relevant to take note of the fact that such lease rent has been subjected to tax in case of M/s. DLF Services Ltd.
After considering the facts of the case, we are of the view that there is no justification for addition of ₹ 12,60,000/- as same was towards business obligation and for specific services rendered by M/s. DLF Services Ltd. and accordingly the impugned disallowance is directed to be deleted.”
Thus, following the aforesaid precedence in assessee’s own case, we decide this issue in favour of the assessee and the impugned addition is directed to be deleted.” Therefore respectfully following the decision of the coordinate bench, ground number one of the appeal is allowed.
Ground number 2 of the appeal is against the confirmation of the disallowance of expenses out of legal and professional expenses by treating them as a capital expenditure amounting to ₹ 8,635,131/–. The claim of the assessee is that out of these expenses assessee itself has disallowed a sum of ₹ 7,973,331 in its return of income and balance is also of revenue nature. Identical issue has been decided by us in additional ground raised
by the assessee in ITA number 4187/del/2015 for assessment year 2000 –
11. This has been dealt with by us in paragraph number 35 – 39 of the order of even date. As per that order we have set aside this issue back to the file of the learned assessing officer for further examination with respect to examination of the computation of total income which is claimed by the assessee to have resulted into double disallowance. Therefore with similar direction, we allow ground number two of the appeal accordingly.
12. In the result appeal of the assessee in ITA number 4159/del/2015 for assessment year 2011 – 12 is allowed for statistical purposes.
13. Now we take up the appeal of the learned assessing officer. We have also identically decided the appeal of the learned assessing officer for assessment year 2010 – 11 on identical facts and circumstances by the order of the even date. Therefore, for all the grounds which are covered by that order we make a reference to the relevant paragraph of that order and decided the grounds in this appeal which are covered by that order by making reference to the paragraph number and our decision as Under:- Gr Particular of the Ground Issue Issue on our No covered by identical facts decision ITA Order and on Dated circumstances grounds 27/5/2019 dealt with in following for AY order of even the order 2008-09 date for AY of AY 2010-11 2008-09 1 Deletion of addition on Covered by Covered by Dismissed account of deduction u/s 80 IA para para number B of the income tax act number 46 six and seven – 80 of the of the order order 2 Disallowance deleted by CIT – Para Para number 8 Dismissed and A with respect to short number 125 21 location of overhead SEZs at page division number 138 of the order. Further revenue did not prefer any appeal before the higher forum. 3 Disallowance deleted on Para Para number 9 Dismissed account of revenue recognition number 81 of the order Under POCM – 87 of the order 4 Holding that interest Paragraph Paragraph Dismissed expenditure is capital in nature 94 – 98 number 10 which CIT appeal allowed in covers the favour of the assessee holding issue in it to be revenue in nature favour of the assessee 5 Disallowance on account of Decided in Decided in Dismissed brokerage and commission favour of favour of the expenditure deleted by the the assessee assessee by learned CIT – A as per paragraph paragraph number 11 of number 99 the order – 103 6 Deletion of disallowance on Decided in Decided in Dismissed account of net contingency favour of favour of the deposit assessee as assessee as per per paragraph paragraph number 12 number 108 - 111 7 Deletion of disallowance on Covered in Covered in Dismissed account of net interest free favour of favour of security deposit the assessee assessee by per paragraph paragraph number 13 number 112 – 115 8 Deletion of disallowance of Decided in Decided in Dismissed net registration charges favour of favour of assessee by assessee per paragraph paragraph number 116 number 14 – 120 9 Deletion of disallowance on Decided in Decided by Dismissed account of non-allocation of favour of paragraph overhead is to group assessee by number 15 in companies paragraph favour of number 125 assessee – 130 10 Deletion of disallowance u/s Decided in Decided in Dismissed 14 A favour of favour of the assessee by assessee as per paragraph paragraph number 131 number 16 –
– 132 18 11 Deletion of Decided in – Dismissed disallowance/reclassification favour of of income of income from assessee as house property to income from per business and profession paragraph number 155 – 160 12 Deletion of addition on Decided in Decided in Dismissed account of notional favour of favour of the rent/additional annual letting the assessee assessee as per value in respect of the vacant as per paragraph and least out premises paragraph number 20 of number 161 the order – 165 13 Deletion of disallowance of Decided in Decided in Dismissed depreciation on DLF Centre favour of favour of the building the assessee assessee as per by paragraph paragraph number 21 number 166 – 170 14 Deletion of disallowance on Decided in Decided in Dismissed account of prior period favour of favour of the expenditure the assessee assessee is for as per paragraph paragraph number 22 number 42 – 45 15 Deletion of addition on Decided in – Dismissed account of capitalization of favour of legal and professional the assessee expenses on assessee SEZ by projects paragraph number 139 – 143 17 Disallowance of expenses for – Allowed in Dismissed operation and maintenance of favour of the helicopter and aircraft assessee as per expenditure not been fully and paragraph exclusively incurred for the number 24 purposes of the business dealing with ground number 16 and 17 18 Deletion of addition on – Covered in Dismissed account of notional interest favour of the income for interest income assessee by short book paragraph number 25 – 26 of the order
Now we come to ground number 16 of the appeal which is against the disallowance of expenses deleted by the learned CIT – A holding that these expenditure are personal in nature. The brief fact of the case shows that the disallowance has been made by the learned assessing officer holding that same is personal expenditure of employees and therefore same is not allowable as deduction. The identical issue has been dealt with by us as per ground number 16 and 17 of the appeal of the learned assessing officer for assessment year 2000 – 11 as per paragraph number 24 wherein we have held that the company cannot have any personal expenditure as it is a distinct assessable entity is per definition of person u/s 2 (31) of the act. Such is also the mandate of the decision of Honourable Gujarat High Court in 253 ITR 749. The learned CIT – A has also followed the same. In view of this we do not find any infirmity in the order of the learned CIT – A in deleting the disallowance is of expenses of ₹ 23,440,014. Accordingly ground number 16 of the appeal is dismissed.
Ground number 19 of the appeal is with respect to the addition on account of carbon credits amounting to Rs. 122,34,040/–. The assessee has submitted that this issue is squarely covered in favour of the assessee by the decision of the honourable on the per the High Court in Commissioner of income tax versus my home Power Ltd 365 ITR 82. Assessee has claimed the above sum as a capital receipt whereas the learned assessing officer has made the addition on the ground that the decision of the coordinate bench in case of my home Power Ltd dated 2 November 2012 has not been accepted by the revenue and is further challenged. Now we find that above decision has been confirmed by the honourable Andhra Pradesh High Court in [2014] 46 taxmann.com 314 (Andhra Pradesh)/[2014] 225 Taxman 8 (Andhra Pradesh)(MAG.)/[2014] 365 ITR 82 (Andhra Pradesh)/[2015] 276 CTR 92 (Andhra Pradesh wherein it has been held that:- “3. We have considered the aforesaid submission and we are unable to accept the same, as the learned Tribunal has factually found that "Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns." We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.” The learned departmental representative could not controvert the above decision and therefore respectfully following the decision of the honourable Andhra Pradesh High Court we confirm the order of the learned CIT – A in deleting the addition of Rs. 122,34,040 on account of Carbon credit receipt holding the same to be a capital receipt. Accordingly ground number 19 of the appeal is dismissed.
Ground number 20 of the appeal is with respect to the disallowance of legal and professional expenses paid to one Mr. Ajaykumar Khanna. The learned assessing officer has disallowed the above expenditure holding that the assessee has failed to prove the business expediency and further as there is no clause in the agreement which describes the nature of services rendered by that service provider. However the learned CIT – A noted that the evidence produced by the assessee showing the copy of the agreement filed during the assessment proceedings. The learned assessing officer disputed the above agreement stating that this service provider has been appointed as an advisor and is providing wider range of construction and other business activities. Recipient of the above income was stated to be providing legal and professional services to the assessee and same was paid as a return shall fees for the period 1 April 2010 2/31 of March 2011. The main reason for disallowance of this expenditure by the learned assessing officer is that there was no clause in the agreement regarding the nature of services rendered and the business expediency has not been proved by the assessee. The learned CIT – A on examination of the same agreement held that the terms and condition and the scope of the work is clearly mentioned in the agreement. He further noted a fact that the service recipient was one of the employees of a group company as its managing director and therefore due to his continuous ill-health he left the services and was engaged by the assessee company as a consultant on retainer basis. The assessee further claimed before the learned CIT – A that these expenses have already been allowed in the earlier years and therefore same cannot now be disallowed without any new facts coming to the knowledge of the assessing officer. The learned CIT – A following the decision of the honourable Delhi High Court in 254 ITR 377 allowed the claim of the assessee. He further held that the term commercial expediency is to be judged from the angle of the assessee/businessman. With respect to the provision of the services he also held that services have been availed by the assessee in earlier years also. Accordingly he deleted the disallowance. The learned departmental representative could not controvert the decision of the learned and CIT – A. We also find that when the expenditure has been allowed to the assessee in earlier year, no new facts are coming into the knowledge of the assessing officer which proves otherwise, the agreement supports the payment, the recipient was providing services to the company, he was also an employee of the group concern and the services of that gentleman availed by the assessee during the year the disallowance has rightly been deleted. Accordingly ground number 20 of the appeal of the learned assessing officer is dismissed.
Ground number 22 is general in nature and therefore same is dismissed.
In the result ITA number 4794/del/2015 filed by the learned assessing officer for assessment year 2011 – 12 is dismissed.
In the result appeal filed by the assessee as well as the learned assessing officer for assessment year 2011 – 12 are disposed of accordingly. Order pronounced in the open court on 29/09/2020.