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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-2’ NEW DELHI
PER SUCHITRA KAMBLE, JM
This appeal is filed against the order u/s 143(3) of the Income Tax Act, 1961 passed by DCIT, Circle 27(1), New Delhi vide order dated 31.10.2008 for assessment year 2014-15.
The grounds of appeal are as under :
“1. The order passed by the Ld. Assessing Officer (“Ld. AO”) under Section 143(3) r.w.s. 144A of the Act in compliance of the order/directions dated 07.09.2018 passed by the Ld. DRP, is bad in law and on the facts and circumstances of the case. 2. The Ld. AO has erred in law and on the facts and circumstances of the case in making additions of Rs. 1,89,23,86,405/- to the returned income of
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the Appellant. 3. The Ld. AO has grossly erred in fact in making an addition of a notional interest of Rs. 23,62,84,965/- u/s 36(1)(iii) alleging the share application money to be interest free advances. 4. The Ld. AO has grossly erred in fact in making a disallowance of notional interest of Rs. 101,91,12,590/- on the interest free loans advanced by the appellant to its subsidiaries and making addition of the same u/s 36(1)(iii). 5. The Ld. AO has grossly erred in disallowing the standard deduction of 30% claimed by the appellant u/s 24 amounting to Rs. 1,37,85,280/- by erroneously treating the same as business income. 6. The Ld. AO has grossly erred in making a transfer pricing addition of Rs. 50,58,12,728/- towards the Guarantee Fee. 7. The Ld. AO has erred in fact and on law in making addition of Rs. 1,59,76,505/- of the provision for doubtful debts/ advances. 8. The Ld. AO has erred in fact and on law in making disallowance of Rs. 73,876/- being loss on sale of long-term investment. 9. The Ld. AO has erred in fact and on law in making disallowance of Rs. 12,06,963/- being loss on disposal of tangible fixed assets. 10. The Ld. AO has erred in making disallowance of Rs. 8,388/- being provision for diminution in the value of current assets. 11. The Ld. AO grossly erred in fact and on law in making disallowance of Rs. 9,98,57,685/- u/s 36(1)(va) of the employee’s contribution towards Provident Fund, Pension Fund and EsI and in treating the same as income of the appellant u/s 2(24)(x). 12. The Ld. AO has erred in fact and on law in making adhoc disallowance of Rs. 1,03,425/- (being 50%n of the expenses claimed) with respect to Computer Terminal Bill. 13. The Ld. AO has erred in fact and on law in making disallowance to the tune of Rs. 1,64,000/- of the bad debts/advances written off. 14. The above grounds of appeals are independent and without prejudice to one another. 15. The appellant may be allowed to add/ withdraw or amend any
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ground of appeal at the time of hearing.”
The assessee is into the business of Construction and development of Real Estate Projects in National Capital Region (NCR). The Company has a diversified product mix comprising residential, commercial, IT Parks, Retails, Amusement parks and hotels. The core business of the company is Real Estate. The company has many real estate projects all over India ranging from residential to commercial, retail, hospitality, entertainment hubs and slum rehabilitation. In addition, company was in the process of developing notified SEZ jointly owned with Unitech Corporate Park Plc. (UCP). In addition, company is providing consultancy related to management of its joint venture projects. The Company has construction business in civil construction and infrastructure projects as one of its business segment. The assessee company e-filed its return of income declaring total income of Rs. 1,44,87,49,671/- for the assessment year 2014-15 on 30.11.2014. The case was selected for complete scrutiny. Accordingly, statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued on 01.09.2015 and served upon the assessee company. Questionnaire dated 09.08.2016 u/s 142(1) of the Act was sent to the assessee company calling for details, submissions and explanations. In response to the notice issued, CA/ Authorized Representative appeared on behalf of the assessee company and attended assessment proceedings from time to time as well as filed submissions and necessary details before the Assessing Officer. Reference was made to the Additional CIT, Range 27, New Delhi to determine the arms length price in respect of specified domestic transactions undertaken by the assessee during the financial year 2013-14. The Transfer Pricing Officer (TPO) proposed certain adjustments in the income of the assessee to the extent of Rs. 85,56,17,291/- on account of guarantee that should have been charged by the assessee. The draft assessment order was passed on 29.12.2017 by the Assessing Officer. Being aggrieved by the said, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP passed directions on 07.09.2018 and directed the Assessing Officer to delete certain additions made by the
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Assessing Officer in the draft Assessment Order. The Assessing Officer by following the directions of the DRP made various additions thereby assessing income at Rs. 3,34,11,36,080/-.
Being aggrieved by the assessment order, the assessee filed present appeal before us.
The Ld. AR submitted that as regards ground nos. 1 and 2 the same are general in nature. The Ld. AR further submitted that as regards ground nos. 7, 8, 9, 10, 12 and 13 the same are not pressed.
As Ground nos. 1 and 2 are general in nature, the same are dismissed. As the Ld. AR is not pressing ground nos. 7, 8, 9, 10, 12 and 13 the said grounds are hereby dismissed.
As regards ground no. 3 relating to notional interest disallowance on share application for an amount of Rs. 23,62,84,965/-, the Ld. AR submitted that the said ground is covered in assessee’s favour by the Tribunal’s decision in assessment year 2007-08, 2012-13, 2013-14 and 2011-12 in assessee’s own case (ITA Nos. 1905, 1906 & 1907/Del/2017 for A.Y. 2007-08, 2012-13 & 2013-14 order dated 24.07.2019 and ITA No. 6585/Del/2015 for A.Y. 2011-12 order dated 12.02.2019)
The Ld. DR did not object or controvert the submissions of the Ld. AR.
We have heard both the parties and perused all the relevant material available on record. The Tribunal in assessment year 2011-12 in assessee’s own case bearing ITA no. 6585/Del/2015 and 311/Del/2016 order dated 12.02.2019 held as under :- “21. Further, if at all such disallowance is being made on notional and hypothetical basis treating share application money as advance or interest free loan, then AO also needs to take into consideration, whether assessee company has sufficient surplus fund or not; and if surplus fund exceeded
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the amount of advance, then again, no notional interest or disallowance can be made. Here it is undisputed fact that assessee company has more than Rs. 9281.87 crores of accumulated reserves and during the year itself its reserves have increased by Rs.1379 crores and amount of share application money advance was only Rs. 245.34 crores. Thus, in such circumstances, presumption is always in the favour of the assessee that these are advances out of surplus funds only and such presumption has been laid down by the Hon’ble Jurisdictional High Court in the case of CIT vs. Max India Ltd. (P&H) High Court, reported in 398 ITR 209. Thus, under the facts and circumstances of this case, we hold that no disallowance can be made. In so far as reliance placed on earlier year orders, Ld. Counsel has brought on record that the revenue’s appeals for the Asstt. Year 2009- 10 and 2010-11 have been dismissed by the Tribunal by quashing the assessments on the ground of limitation. Thus, on merits we hold that no addition is called for and consequently the ground no. 4 to 4.2 is treated as allowed.” In the present Assessment Year 2014-15 the facts remain the same. The assessee company had adequate surplus/owned funds through which these investment in share application money were made. Since, the issue is identical in the present year, Ground no. 3 is allowed.
As regards ground no. 4 relating to notional interest disallowance on advance to subsidiaries for an amount of Rs. 101,91,12,590/-, the Ld. AR submitted that this ground is also covered in favour of the assessee by the decision of the Tribunal for assessment year 2011-12.
The Ld. DR could not controvert the same.
We have heard both the parties and perused the relevant material available on record. The Tribunal in assessment year 2011-12 held as under:- “30. After considering the rival submissions and relevant finding given in the impugned orders, we find that nowhere the AO has rebutted the
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contention of the assessee that these advances to sister concerns were for business purpose or for commercial expediency nor he has tried to establish the nexus between the money advanced from the borrowed funds or has asked the assessee to establish that such advance has been given out of surplus or interest through fund. Here in this case the subsidiary companies/concerns to whom money have been advanced were also engaged in real estate business with whom assessee company had entered into joint venture for various projects. Once such a contention of the assessee has not been rebutted or refuted by the AO, then it has to be accepted that such an advance was for the business purpose. Accordingly, we hold that such an advance was for commercial expediency and therefore, no disallowance could have been made in view of the judgment of Hon’ble Supreme Court in the case of SA Builders Ltd. vs CIT(A) 288 ITR 1(SC). 31. It is further noticed that the assessee company had huge surplus funds which far exceeded the advances; and therefore, without their being a nexus proved by the AO that only borrowed funds were advanced, then presumption can be drawn that such advances have been given out of interest free funds. This view is now well supported by various judgments, like; CIT vs. Reliance Utilities Ltd. reported in 313 ITR 340 (Bom); and CIT vs. Max India Ltd., reported in 398 ITR 209 (P&H). Accordingly, such a disallowance is deleted on this ground also.” In the present year as well, the assessee company had huge surplus funds which far exceeded the advances; and therefore, without there being a nexus proved by the Assessing Officer that only borrowed funds were advanced, then presumption can be drawn that such advances have been given out of interest free funds. Thus, Ground No. 4 is allowed.
As regards ground no. 5 relating to house property income treated as business income and disallowance u/s 24 for an amount of Rs. 1,37,85,280/- , the Ld. AR submitted that the said issue is also covered in favour of the assessee by the order of the Tribunal for assessment year 2011-12.
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The Ld. DR submitted that whether the house property income treated as business income and whether the assessee claimed depreciation on the same or not has to be verified. Therefore, the issue may be remanded back to the file of Assessing Officer.
We have heard both the parties and perused the relevant material available on record. From the perusal of the assessment order the contention of the revenue as to whether the depreciation was claimed or not by the assessee needs to be verified. Though, the decision of the Tribunal in assessment year 2011-12 is in favour of the assessee, the factual aspect in the present assessment year has to be verified by the Assessing Officer. Therefore, we remand back this issue to the file of the Assessing Officer to verify this disallowance in the context of business income and depreciation claimed by the assessee thereof. Needless to say the assessee be given opportunity of hearing by following principles of natural justice. Therefore, ground no. 5 is partly allowed for statistical purposes.
As regards ground no. 6 relating to transfer pricing adjustment on account of corporate guarantee issued by the assessee for an amount of Rs. 50,58,12,728/-, the Ld. AR submitted that this issue as to whether corporate guarantee is an international transaction or not is not covered in assessee’s favour by the Coordinate Bench of Delhi Tribunal in case of Fresenius Kabi Oncology Ltd. [2019] 106 taxmann.com 403. The Ld. AR further submitted that it is in the nature of share holder activity and thus there is no requirement of charging any guarantee fee on the same. The Ld. AR relied upon the OECD guidelines, Australian Guidelines and various judicial pronouncements. The Ld. AR submitted that the provision of corporate guarantee though in order u/s 92B of the Act by way of management does not have any profit and loss in the instant case and would not be held as international transaction / specified domestic transaction as per section 92B and 92BA of the Act. The Ld. AR further submitted that without prejudice to the above submissions, following the decision of the Hon’ble Bombay High Court in case of CIT vs. Asian Paints
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Ltd. [2016] 75 taxmann.com 152 (Bom.) wherein corporate guarantee fee of 0.25 was found to be reasonable, the same fee be adopted to the arm’s length fee for the assessee.
The Ld. DR relied upon the order of the TPO and assessment order. The Ld. DR submitted if the rate has to be determined the same should be remanded back to the file of the Assessing Officer/TPO.
We have heard both the parties and perused the relevant material available on record. The issue as to whether corporate guarantee is an international transaction or not is decided against the assessee by the Tribunal in case of Fresenius Kabi Oncology Ltd.(supra). It is an admitted fact that the borrower lacked resources and the credibility as standalone entities to service funds/ loans so raised to carry out business activities that require intensive capital outlays. The AE was without any creditworthiness in spite of the assets sought to be bought as there were no factor to comfort the lenders to grant commercial loans at competitive rates as held by the TPO/DRP. Thus, the DRP was right in holding that the said transaction is International Transactions. But as regards the rate is concerned by following the decision in case of Fresenius Kabi Oncology Ltd. (Supra) we remand back this issue to the file of the Assessing Officer/TPO with the direction that the same should be taken as 1%. Therefore, Ground no. 6 is partly allowed for statistical purpose.
As regards Ground no. 11 in respect of disallowance under section 36(1)(va) read with section 2(24)(x) for an amount of Rs. 9,98,57,685/-, the Ld. AR submitted that the same is decided in favour of the assessee vide decision in assessee’s own case for assessment year 2007-08 vide order dated 24.07.2019 being ITA No. 1905/Del/2017. 20. The Ld. DR could not controvert the same.
We have heard both the parties and perused the relevant material available on record. The Tribunal in assessment year 2007-08 held as
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under:- “28. Lastly turning to the ground no. 4 in ITA no. 4781/Del/2017, it relates to the addition of Rs. 4,85,65,343/- on account of late deposit of PF. Ltd. CIT(A) deleted the same by following the decision of the Hon’ble Supreme Court in the case of CIT vs. Vinay Cements Ltd. (2007) 213 CTR (SC) 268 and the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. AIMIL Ltd. 188 taxman 265 (Delhi). No fact is brought to our notice which renders these two decisions inapplicable to the facts of the case on hand are as to how the Ld. CIT(A) went wrong in following the decision in these 2 cases. We, therefore, do not find any illegality or irregularity in the conclusion reached by the Ld. CIT(A) on this aspect and, therefore, while upholding the same and dismiss this ground of appeal.” The facts are identical in the present Assessment Year as well. The said amount cannot be treated as income of the assessee as the same was statutory payments. The issue covered in favour of the assessee by decision of the Tribunal for A.Y. 2007-08 in assessee’s own case. Therefore ground no. 11 is allowed.
In result appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the Open Court on 10th October, 2019.
Sd/- Sd/- (R.K.PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 10/10/2019 *Binita*