DCIT, NEW DELHI vs. M/S VIPUL INFRACON PVT. LTD., NEW DELHI

This appeal is filed by the Revenue against the order dated 20/07/2015 passed by CIT(A)-I, New Delhi for Assessment Year 2010-11.

2. The grounds of appeal are as under:-

“1. On the facts and in the circumstance of the case and in law the order passed by Ld CIT(A) is erroneous and the learned CIT(A) has erred (i) Has erred in deleting the addition of Rs.22,50,000/- and Rs.16,30,000/- made by AO on account of interest paid and disallowance of rent expenses respectively. (ii) Has erred in deleting the addition of Rs.1,09,17,200/- made by AO on account of disallowance of compensation expenses.

(iii) Has erred in deleting the addition of Rs.50,32,287/- made by AO on account of not disclosing maintenance income. 2. The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

3. The assessee was engaged in the real estate development in Gurgaon and Manesar. It has also received income from services of maintenance of the building. During the year under consideration, the appellant company has received income from sale of real estate and interest income. In the assessment order framed for this year, Assessing Officer has made addition on account of interest payment of Rs.22,50,000/- to M/s Dinesh Nandini Ram Krishna Dalmia Foundation on account of money received amounting to Rs.1.5 crores. Assessing Officer further added Rs. 16,50,500/- on account of assured return in the form of rent paid to Shri Arun Khanna and Kailash Khanna. The Assessing Officer treated these expenses not incurred for business purposes. The Assessing Officer also added Rs.1,09,17,200/- paid to various parties who had booked the units with the assessee. However, subsequent to the booking there was a change in the floor plan, therefore, certain parties who had booked units earlier had opted out from the booking and they were paid compensation. Such expenses were not allowed by the Assessing Officer on the ground that same were not incurred wholly & exclusively for business purposes. The Assessing Officer also added Rs.50,32,287/- on account of the service income not offered by the assessee for taxation pertaining to this year which was not taken into consideration in the A.Y. 2010-11 by the appellant. The Assessing Officer also disallowed Rs.2,56,169/- u/s 14A of the I.T. Act.

5. The Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs.22,50,000/- and Rs.16,30,000/- made by the Assessing Officer on account of interest paid and disallowance rent expenses. The Ld. DR submitted that these payments are doubtful and should be remanded back to the Assessing Officer as no proper evidences were submitted before the Assessing Officer.

“I have considered the submission of the appellant and observation of the Assessing Officer made in the assessment order. It is seen that the appellant has claimed interest payment of Rs.22,50,500/- to M/s Dinesh Nandini Ram Krishna Daimia Foundation and Rs. 16,30,500/- to Sh. Arun Khanna and Kailash Khanna. The appellant has claimed that the builders required huge amount of funds to build the projects. Such funds are not easily available in the form of loan as real estate market was running in recession for last so many years. Therefore, the appellant has to look for other avenues from where funds could be generated for construction purposes. Therefore, the appellant company has entered into an agreement with various buyers to raise the funds for completing the project. In order to raise the funds, the appellant has to provide investors, lenders, security of their funds and fixed returns which appellant had provided to them in the form of booking of space and assured amount of return in the form of interest or rent. The appellant has also claimed that this is a general practice in the market and in support of its contention it has submitted vide Annexure-1 of its submission wherein fixed return or assured rental plan has been offered by M/s ABC Buildcon Pvt. Ltd., M/s Supertech, Assotech Reality and Omex builders in National Capital Region. The appellant claimed that expenses incurred in the form of assured rental plan and assured interest are wholly and exclusively for the business purposes and the same are allowable u/s 37 of the I.T. Act. The appellant has submitted before Assessing Officer as well as before me that it has entered into an agreement with M/s Dinesh Nandini Ramkrishna Daimia for booking of space at ‘Vipul Tech Square’ on Main Golf Course Road, Sector-43, Gurgaon. While booking the space in said project the party i.e. M/s Dinesh Nandini Ram Krishna Daimia Foundation opted for the ‘investment return plan’ and paid Rs.1.5 crore to the appellant on 30.04.2008. For this appellant as well as M/s Dinesh Nandini Ram Krishna Daimia Foundation entered into an MOU on 09.06.2008. Copy of the said MOU is placed at page 48- SI of the Paper book. In this MOU, it is mentioned that appellant would pay guaranteed investment return to the investor at quarterly intervals. The guaranteed return was fixed at Rs.125/- per sq. ft per month as mentioned in clause (6) of the MOU. This guaranteed investment return was paid to the investor from 1st of May, 2008 till it was completed or leased out to some other party. The appellant has also filed copy of the Form No. 16A at page No. 61 of the paper book, wherein the appellant has deducted TDS on this payment u/s 194A of the I.T. Act. The TDS so deducted has been deposited to the Government account. The appellant claims that this guaranteed return investment has been paid to attract the much needed funds from the customers. If this scheme was not opted by the appellant, then appellant would have borrowed funds from the market and would have paid the interest. Therefore, the expenditure paid in the form of fixed return investment plan is for the purposes of business and same is allowable as business expenditure. Similarly, the appellant has paid assured rental to Sh. Arun Khanna and Kailash Khanna vide MOU dated 22.09.2008 filed at page No. 68-75 of the paper book. The appellant has received amount for booking in 'Vipul Tech Square' from Sh. Kailash Khanna of Rs.13,32,500/- on 22.09.2008, Rs.19,45,000/- on 23.09.2008 and Rs.21,57,500/- on 24.09.2008 against the booking of space. The similar amount on the very same dates has been received from Sh. Arun Khanna. Both the parties have opted the booking under "assured rental plan scheme". As per the MOU, Sh. Arun Khanna and Kailash Khanna invested in the 'Vipul Tech Square' and have advanced money to the appellant to the tune of Rs.54,35,000/- each on account of various spaces mentioned in the agreement. As per MOU, the appellant has agreed to pay assured rental to these parties from January 2009 till the completion or actual leasing of the space to the third party. The rate of assured return was 125/- per sq. ft. per month. It is submitted by the appellant that though the assured rental was to be paid to Sh. Kailash Khanna and Arun Khanna from January 2009, however, the appellant has requested to these parties that it is not possible to pay assured return from January 2009 and accordingly obtained waiver from these parties till March 2009. The copies of waiver obtained from Sh. Kailash Khanna and Arun Khanna are filed at page 80-85 of the paper book. The appellant has paid the assured rental to Sh. Kailash Khanna and Arun Khanna from April 2009 of Rs.16,30,498/- each. However, the amount paid from April to September 2009 as assured rental was debited to the 'work in progress' as the construction work was in progress and the assured rental paid from October 2009 to March 31, 2010 was claimed as expenditure in the Profit & Loss A/c. For payment of assured rent to these persons, the appellant has deducted TDS u/s 1941 of the I.T. Act as rent. The TDS certificate issued by the appellant are placed at Page 78 and 79 of the Paper book. It is seen that the appellant has capitalized Rs. 16,30,500/- paid till the month of September, 2009 and the balance payment of Rs. 16,30,500/- paid from October 2009 to 31st March, 2010 has been claimed as expenditure in the Profit & Loss A/c. Since, expenditure incurred by the appellant is for the purpose of business and for meeting its requirements for much needed funds. Therefore, the payment made by the appellant under the head assured rental plan is an allowable expenditure. It is seen that the payment made to these parties is fully verifiable and the funds received from these parties were received by way of cheques and same were utilized by the appellant for its business purposes for completing the project. The payments of assured return in the form of interest to Dinesh Nandini Ram Krishna Dalmia Foundation and assured rental to Sh. Arun Khanna and Kailash Khanna have been made after deducting TDS, therefore, there is no dispute about incurring of expenditure. Since, the funds received from these parties were on the basis of valid MOUs against booking of space and on the basis of fixed return plans offered by the appellant, hence the expenditure incurred was in furtherance of commercial expediency and meeting the fund requirement of the business. In view of the facts discussed above, the claim of the interest payment of Rs.22,50,500/- made to M/s Dinesh Nandini Ram Krishna Dalmia Foundation and assured rent paid to Sh. Kailash Khanna and Arun Khanna of Rs. 16,30,500/- are allowable expenditure. Accordingly, the disallowance made by the Assessing Officer of Rs.22,50,500/- and Rs.16,30,500/- is deleted. As a result, ground of appeal No. 1 and 2 are allowed.”

It is pertinent to note that the payment made to the parties was verified by the CIT(A) and the funds received from these parties were received by way of cheques and same were utilized by the assessee for its business purposes for completing the project. The payments of assured return in the form of interest to Dinesh Nandini Ram Krishna Dalmia Foundation and assured rental to Sh. Arun Khanna and Kailash Khanna have been made after deducting TDS, therefore, there is no dispute about incurring of expenditure. Since, the funds received from these parties were on the basis of valid MOUs against booking of space and on the basis of fixed return plans offered by the assessee, hence the expenditure incurred was for commercial expediency and is a requirement of the business. Thus the CIT(A) has given a detailed finding and there is no need to interfere with the same. Hence, Ground No. 1(i) of the revenue’s appeal is dismissed.

“I have considered the submission of the appellant and observation made by the AO in the assessment order. It is seen that appellant has claimed an expenditure of Rs. 1,09,17,200/- as compensation expenditure which was paid to the parties who have originally booked the space at 'Vipul Tech Square'. It is claimed by the appellant before the AO as well as before me that at the time of booking of units the layout of the building was in conceptual stage, however, on finalization of the layout there were certain changes in the floor plan. Because of change of the floor plan the existing buyers were reluctant to accept the space according to the revised layout plan and some of the buyers opted out from the booking and the appellant company had to pay compensation to such buyers to avoid litigation with the original buyers. It is claimed by the appellant that it has bought back the units from the following original buyers and paid compensation as under:

S.No. Name of the Party Amount (Rs.) Puneet Mago & Madhu Mago 23,07,600/-

1. 1. Anil Chauhan 20,00,000/- 2.

3. Ashok Kumar Mehta & Banu Mehta 29,52,000/- 4. Narinder Kumar Chopra 17,84,800/- 5 Sadharth Singh 3,10,400/- Kaushal Kumar Gupta & Swati Gupta 15,62,400/- 6. Total (Rs.) 1,09,17,200/-

The appellant has filed copies of the Memorandum of Termination of Agreement with the abovementioned parties which were entered into in the month of November, December, 2009 and January, 2010. These MTAs alongwith the copies of the cheques through which payments were made to these parties are placed from page 111 -132 of the paper book. The appellant has explained the reasons for cancellation of booking by the earlier buyers and subsequent sale of such units are as under:

4.1 Unit No. 318: There were two parts in Unit No.

4.2 The another part of this unit was allotted to Mr. Ashok Kr. Mehta having area as per the drawing, 1440 sq. ft. (P.B. Pg.193-198). This unit was mistakenly sold to other party also and accordingly one unit was sold to two persons. At the time of final settlement, it was observed that a mistake has happened and the appellant did not have any additional area to be given to this party in lieu of his entitlement. Therefore, to avoid unnecessary litigation which was not in the interest of anybody, appellant entered into an understanding with this party and an agreement for termination of the agreement was signed in the month of December, 2009 which is filed at page No. 122-124 of the paper book. As per this agreement, the unit was bought back by the appellant company from Sh. Ashok K. Mehta @ Rs.4800/- per sq. ft. The entire consideration was paid including the money received from Sh. Ashok K. Mehta. The differential amount of Rs.29,52,000/- was debited to compensation account.

Thus, the CIT(A) has given a detailed finding in respect of each unit which was doubted by the Assessing Officer. In fact, the expenditure incurred was wholly and exclusively for the business purposes, which was not refuted by the Assessing Officer during the assessment proceeding as well. Therefore, the Ground No. 1(ii) is dismissed.

“I have considered the submission of the appellant and observation of the Assessing Officer in the assessment order. It is seen that during the year the appellant had received maintenance income of Rs.50,27,287/- and TDS of Rs.99,998/- was deducted on the same. The appellant had claimed TDS of Rs.99,998/- in the A.Y. 2010-11 but at the same time inadvertently the income related to this TDS was not declared in the Profit & Loss A/c in the A.Y. 2010-11. It is claimed by the appellant that it has neither shown this maintenance income nor claimed the expenses connected to this income which were of Rs.49,31,321/- in the A.Y. 2010-11. It is claimed by the appellant that while merging the Trial Balance in which maintenance income and maintenance expensed were recorded, the same were left out to be taken in the Profit & Loss A/(L/The appellant offered this income in A.Y. 2011-12 for which the appellant has filed copy of computation of income at page no. 101-104. At page 104, which is Profit & Loss A/c for A.Y. 2011-12, the appellant has shown under the head "income items related to previous year" and offered Rs.1,00,966/- in P&L A/c. It is seen that the mistake was bona fide as this point was pointed out by the AO during the course of the assessment proceedings in F.Y. 2012-13 whereas the appellant had already taken steps to offer this income of Rs. 1,00,966/- in the A.Y. 2011-12 for which return of income was filed on 28.09.201I. During the course of the appellate proceedings, the appellant filed an application under Rule 46A of the I.T. Rules, 1962 on 25.02.2015 alongwith the paper book. The copy of the paper book along with the submission of the appellant was forwarded to the AO vide this office letter dated 10.03.2015. The Assessing Officer submitted his report vide his letter dated 20.03.2015. In this report it is mentioned by the Assessing Officer that at the time of assessment many opportunities were granted to the appellant for submitting the details of the maintenance expenses, however, no details were submitted by the appellant at that time. The AO has further mentioned that appellant had sufficient time to revise the return of income when this mistake was detected by him while finalizing the accounts for A.Y. 2011-12. The return of income for A.Y. 2011-12 was filed on 28.09.2011 whereas time to revise the return of income for A.Y. 2010-11 was available till 31.03.2012. Therefore, the appellant cannot get the benefit of admitting additional evidence at this stage. The AO-has enclosed the copies of the order sheet entries made by the AO for A.Y. 2010-11. I have examined the order sheet entries recorded by the AO, it is seen that there are sufficient opportunities granted to the appellant on various issues. However, the AO has not specifically asked about the expenses relating to maintenance in the proceedings. As regards the AO’s observation that it had sufficient time to revise the return of income for A.Y. 2010-11 after the mistake was detected, it is seen that appellant treated it as bona fide mistake and income relating to maintenance was offered in A.Y. 2011-12 by showing it as 'previous year item' in the Profit & Loss A/c. Therefore, the appellant bonafidely believed that once income is offered in subsequent year no harm is caused to the revenue as the rate of taxation is same in both the years. Therefore, the objections raised by the AO for not admitting the additional evidence on the ground that sufficient opportunities were provided to the appellant at the time of assessment and also there was sufficient time with the appellant for revising the return of income are not tenable and the same are rejected. The additional evidence filed by the appellant are admitted as it was a bona fide mistake. Therefore, the AO is directed to give credit of expenses of Rs.49,31,321/- against the maintenance income of Rs. 50,32,287/- and add the net income of Rs. 1,00,966/- in the A.Y. 2010-11. The Assessing Officer is also directed to pass a consequential order for A.Y. 2011-12 wherein the appellant has already offered income of Rs. 1,00,966/- which may be reduced to that extent in that assessment year. This ground of appeal is partly allowed.”

The CIT(A) has given a detailed reasons and despite not admitting additional evidences has taken cognizance that when the mistake was detected by the assessee relating to income in respect of maintenance the same was offered to tax in A.Y. 2011-12 by showing previous year item. Therefore, Ground No. 1(iii) of the revenue is dismissed.

Order pronounced in the Open Court on This 7th Day of November, 2019.