ACIT, NEW DELHI vs. M/S GAHOI BUILDWELL PVT. LTD.,, NEW DELHI

We will first take up the appeal for the assessment year 2007-08 and the cross objections filed by the assessee, which reads as under:-

At the outset cross objections filed by the assessee are barred by limitation. In the petition for condonation of delay, the assessee has given following reasons:- “In the aforesaid matter, we beg for leave to make submission as under: 2. On receipt of CIT (A)'s order dated 17.1.2013, the appellant filed a petition for rectification/amendment U/s 154 with the Id. CIT (A) un-adjudicated. The said petition is yet to be disposed. 3. Thereafter, an appeal was filed by the Revenue being ITA No. 2710/Del/2013, on the first date of hearing on 5.11.2013, it was brought to the notice of Hon'ble Bench that 'Acknowledgement cum Notice' along with Form 36 is being received recently, i.e., on 21.10.2013 and respondent assessee intends to file cross objection and the case was adjourned for 18.3.2014. On 18.3.2014, Hon'ble Bench did not function and case got adjourned to 26.8.2014. 4. Intermittently, due to renovation work going on in the office of the counsel, related files of the assessee got dislocated, as the same were wrongly placed with old/dead files and could only be located in the first week of Aug'2014 during re-indexing of all the files in the office of the counsel.

Ld. DR had objected for condoning the delay of cross objection on the ground that resignation of VP Finance is not relevant as this event took place much after the expiry of limitation and reason of dislocation of file is of general nature. Therefore, there is no sufficient cause. 5. After considering the assessee’s petition for condonation of delay and objections raised by the Ld. DR, we find that the assessee did had reasonable cause for delay in filing of cross objection, particularly when due to renovation work going on in the office of the counsel the related files got dislocated, in support of which affidavit of the counsel has also been filed. Thus, it cannot be held that there were any latches on part of the assessee for filing the cross objections. The reason mentioned in the aforesaid petition do fall in the realm of reasonable cause, therefore, delay in filing of cross objections are condoned.

In the appeal for the assessment year 2007-08, original return was filed on 1.4.2008 showing loss of Rs. 2,48,53,260/-. Later on, search and seizure operation was carried on 19.1.2009 in Kurele Group including Assessee Company and accordingly, notice u/s 153A was issued on 30.11.2009. In response, the assessee company filed its return of income on 31.03.2010, incorporating the effect of merger of YMC Buildmore Pvt. Ltd., and consequently loss of Rs. 1,34,03,902/ was declared. Although tax was paid on book profit of Rs. 2,48,88,392 u/s 115JB. The AO also took cognizance of the said return of income filed in response to notice u/s 153A, however, while computing the assessed income has mentioned that income was filed at ‘nil’ on 13.04.2010. As pointed out from the records by the Ld. Counsel, that such a return was e-filed on 31.03.2010 declaring loss of Rs. 1,34,03,902 under the normal provision and book profit was declared at Rs. 2,48,88,392/-. AO while making the assessment and computing the assessed income has started with from ‘nil’ income stating that that same was assessed u/s 143(3), whereas admittedly as clarified by the parties, no assessment was made u/s 143(3). It appears that it is a typing mistake in the assessment order, firstly, no assessment was made u/s 143(3) earlier; and secondly, return was e-filed at a loss income as above. Hence, we hold that the base figure for computing the assessable income will start from Loss of Rs. 1,34,03,902/-. This precise ground has been raised by the assessee in its Cross Objection vide ground no. 2, which consequently is treated as allowed.

In so far as ground no. 1 of Cross Objection is concerned that, if no incriminating material was found during the search carried out from the assessee or has been referred to by the AO while making the additions, then Ld. CIT (A) should have held that none of the addition are sustainable, being beyond the scope of section 153A. Such a contention raised by the assessee is not sustainable, because, the 6

Other grounds raised by the assessee shall be discussed while deciding the appeal of the revenue on merits. Now we will come to the various issues and additions made by the AO which have been challenged by both the parties.

Before the Ld. CIT(A), the assessee first of all submitted that Ld. AO has even disallowed the brokerage and commission paid against the sale of property also, the bifurcation of which was given as under:-

Ld. CIT(A) duly appreciated such a contention and after verifying the material on record, held that the business of the assessee was to develop mall and to sell the same and unsold space in the interregnum period was to be rented out from which assessee is derives substantial rental income. The assessee during the year has declared net income from house property for Rs. 64,76,409/- and therefore, in so far as AO’s finding that brokerage and commission paid for leasing of the premise which is assessable under the head ‘income from house property’ same cannot be allowed. However, he directed the AO to delete the disallowance of brokerage and commission which was paid to the brokerage on sale of the units which assessee has shown under the head ‘business and profession’. Accordingly, he directed the AO to restrict the disallowance of brokerage and commission paid to the extent of rent on leasing and allowed the brokerage and commission on sale/ booking of space. 8

After hearing both the parties and on perusal of the relevant finding given in the impugned orders, we find before the AO assessee categorically stated that the brokerage and commission paid were for two kind of activities, firstly, one paid for booking of units/space and therefore, it was incurred during the course of carrying out activity of construction and sale of spaces in the mall. The second was with regard to leasing out the available space on lease rent for which again brokerage and commission has been paid. AO has erroneously treated the brokerage and commission paid under both heads as claimed towards income from house property, which on the facts has been found to be incorrect. It has already been demonstrated before the Ld. CIT(A), as incorporated above, that out of total claim of Rs. 82,83,587/-, the amount of Rs. 61,39,630/- was paid on account of sale of unit/property and hence the finding of the Ld. CIT(A) and the direction to the AO to delete the disallowance of brokerage & commission to the extent of sale of unit properties is affirmed. In so far as the brokerage paid for amount of Rs. 21,43,957/- which was claimed towards leasing of the properties, the same cannot be allowed, because the income from the house property has to be computed strictly in accordance with the items provided in section 24. Accordingly, the order of the Ld. CIT (A) is upheld and revenue’s ground No. 1 is dismissed and cross objection No. 3 as raised by the assessee is also dismissed.

After hearing both the parties and on perusal of the relevant material placed on record, we find that it is an undisputed fact that the amount of Rs. 17,65,000/- is not a fresh credit appearing in the books of accounts of the assessee. In fact, this amount of share application money was received by M/s Heaven Barter Ltd from M/s. Novaflex Cable Care System Ltd. in the earlier years i.e., during the financial year 2004-05 and 2005-06. Thus, the credit was appearing in the books of accounts of another entity, M/s. Heaven Barter Ltd. in the earlier year which got merged with the assessee company during the year under consideration. It was due to this merger the old credit had come into the books of assessee which cannot be reckoned credit appearing in the books of accounts for the relevant financial year and therefore, the deeming fiction of section 68 cannot be attracted. 10

Addition on account of interest of Rs. 7,48,856/-: As regards the addition on account of interest for delayed payment as per working in the seized documents, the AO noted that certain annexures were seized from the office premises of the assessee which revealed calculation of interest on delayed payment for a unit, F-31 which was worked out at 7,48,856/-, which was not declared by the assessee as its income. In response to the show cause notice, the assessee stated that it was a calculation made so as to pressurise the purchasers to release the payment due at the earliest. However, no interest has been released from the said party and finally in the year ending 31st March, 2008, the assessee company was forced to cancel the booking. In support, copy of account right from the financial year 2006-07 and 2007-08 was filed. However, the Ld. AO did not accept the assessee’s contention and held that since the document was found from the possession of the assessee, therefore, in terms of section 132(4A) the onus was upon the assessee, which it failed to discharge and thus, adverse presumption has to be drawn against the assessee. Ld. CIT (A) after considering the seized documents noted that it contained detailed of interest @ 24% per annum and certain other calculation which works out to Rs. 7,48,856/- for the period relevant to assessment year 2007-08. One important fact noted by him was that, nowhere it has been written or found anywhere else that such an interest was actually received. Once the assessee had contended that the said interest was not realized and it was merely to pressurise the purchaser to clear his dues, then assessee’s explanation cannot be rejected. Moreover, he held that, since booking itself was cancelled, then there was no point of interest being receivable to the assessee. Accordingly, he deleted the said addition. 11

After considering the relevant submissions and on perusal of the relevant finding given in the impugned orders as well as seized material referred to before us at the time of hearing, we find that there is rough noting of calculation of interest on account of delayed payment by the purchaser which assessee has calculated to be @ 24%. Nowhere, as held by the Ld. CIT(A), it has been found or there is even mention in any seized document that interest rate so calculated has been realised from the said party. The AO has made the addition on the ground that, section 132(4A) raises the presumption against the assessee if something has been found from the possession of the assessee during the course of search. However, first of all such a presumption u/s 132(4A) is a rebuttal presumption and it is applicable only in the cases where assessee tries to give explanation contrary to the evidence found during the course of search. Here in this case, assessee is not denying the possession of the seized material found, albeit has been pointed out that the seized material does not indicate any undisclosed income. It was only prepared to pressurise the buyers to make the due payment in time. In any case, if the booking itself was cancelled in subsequent year, then the whole accrual of interest itself gets vitiated and the income which has not been received by the assessee cannot be taxed, because, only such income can be taxed when the other party also acknowledges the payment to be made or debt towards the assessee. Thus, under these facts and circumstances Ld. CIT (A) has rightly deleted the said addition. Accordingly, the ground No. 3 raised by the revenue is dismissed.

Disallowance u/s 14A: Coming to the disallowance made u/s 14A read with rule 8D, The AO has made addition of Rs. 91,28,982/- after invoking Rule 8D, which admittedly was not applicable in the assessment year 2007-08. He has computed the disallowance u/s 8D 12

Before us Ld. Counsel for assessee, Shri Sanjay Kumar, first of all submitted that the provision of Rule 8D cannot be made applicable for the assessment year 2007-08 and in support he relied upon the judgment of Hon’ble Supreme Court in the case of CIT vs. Essar Teleholdings Ltd. reported in (2108) 401 ITR 445. Thus, the very basis for computing the disallowance is untenable in law. He further submitted that, it is a well settled principle that, if assessee has huge surplus interest free funds then it cannot be presumed that interest bearing funds have been diverted for the purpose of investment. Moreover, here in this case assessee has duly demonstrated before the authorities below that no interest bearing funds were ever been diverted for making these investments and therefore, such an interest has rightly been deleted by the Ld. CIT(A) Lastly, on the issue of 13

We have heard the rival submissions and also perused the relevant finding given in the impugned orders. In so far as first contention of the Ld. Counsel is concerned, that rule 8D is not applicable for the assessment year 2007-08, same now stands covered by the judgment of Hon’ble Supreme Court in the case of CIT vs. Essar Teleholdings Ltd. (supra) wherein it has been settled that disallowance u/s 14A cannot be computed under Rule 8D, prior to A.Y. 2008-09. Accordingly, the computation of disallowance under the Rule 8D for the A.Y. 2007-08 has to be rejected. Even otherwise also, in this year huge disallowance has been made on account of interest expenditure, which here in this case is an admitted fact that assessee company, as on 31st March 2007, had a huge surplus fund of more than Rs. 96.56 crores, as brought out by the Ld. CIT(A), which is sufficient to cover investment of Rs. 8.88 crores and accordingly, in view of settled principle laid down in various judgements, like CIT vs. Hero Cycles, [2010] 323 ITR, 158 (P& H); CIT vs. HDFC Bank Ltd. [2104 366 ITR 505 (Bom) & [2016] 383 ITR 589 (Bom), no disallowance can be made.

Disallowance of interest: In so far as the addition on account of disallowance of interest of Rs. 81,98,798/-, the facts in brief are that, the Ld. AO noted that assessee has made interest free advances to following parties: - (i) Agarwal Telecommunications (P) Ltd. Rs. 62,00,000/-. (ii) AGF Alfab Ltd. Rs. 92,58,058/-. (iii) Ajay Mishra, Rs. 17,00,000/-. (iv) Endless Media & Germs, Rs. 16,50,000/- lakhs. (v) Gahoi Chemicals, Rs. 65,00,000/-. (vi) Kurele Fragrance (P) Ltd., Rs. 50,00,000/-. (vii) Kurele Industries, Rs. 50,00,000/-. (viii) Kurele International. Rs. 73,00,000/-. (ix) Sunita Khetan. Rs. 12,40,000/- lakhs. (x) Y Uma Rani. Rs. 22,80,000/- lakhs.

However, Ld. AO, without examining the nature of advance, held that assessee failed to establish that interest bearing funds has not been utilised for the purpose of interest free advances and accordingly made disallowance of Rs. 81,98,798/-.

Ld. CIT (A) noted that assessee has given detailed reply wherein party-wise advances, purpose and source thereof was explained. Apart from that, it was also explained that in one case namely, M/s. Endless 16

After hearing both the parties, we find that the finding of the Ld. CIT(A) is borne out from the records that most of the interest free advances appearing in the books of the assessee company were on coming from the accounts of the merging companies who were not having interest burden. It was not an amount given by the assessee, albeit they have inherited the advances on account of merger of the companies with the assessee company. Therefore, there could not be allegation of giving any advance from assessee’s interest bearing fund. In another set of parties as evident from the above chart, the funds were mobilised/advances to the contractors for the purpose of construction business, which ostensibly was for the purpose of business, which got adjusted in the subsequent year. Further, one advance was given as investment in the business firm, wherein assessee was a partner. Thus, none of these advances can be held to interest free advances for non-business purpose or given out of interest-bearing funds. Hence, under these facts it cannot be held that any interest-bearing loan amount raised from the bank account has been diverted to make any interest free advances and therefore, there is no question of making any notional disallowance of interest. 17

Deemed Dividend: Lastly, coming to the issue of deemed dividend u/s 2(22)(e), AO while making the addition has made following observations: - “M/s. Appollo Traexim (P) Ltd. has made advances against booking of Space of M/s. YMC Buildmore (P) Ltd. amounting to Rs. 64863965/- during the year under consideration. Since the advances made ore still outstanding even Oil 31 03.2009 the assessee was asked to show cause as to why the advance made against booking of space may not be treated a deemed dividend in terms of provision of section 2(22)(e) of the I. T Act. 1961 as M/s. Appollo Traexim (P) Ltd. is deriving only rental income and is not engaged in the business of sale and purchase of commercial space. In response the assessee has submitted that advance has been made to purchase the space in V3S East Centre in the ordinary course of business of M/s Appollo Traexim (P) Ltd. The assessee's rely has been considered but found to be lacking any merit as M/s. Appollo Traexim (P) Ltd is not engaged in the business of dealing with commercial space. it is further seen that some of the units booked by M/s Appollo Traexim (P) Ltd. have been sold out to other parties in the succeeding years, on rates mostly lower than the one at which bookings for M/s Appollo Traexim (P) Ltd. was finalized. Sh. Y.C.Kurele is having share holding of more than 10% in both the companies i. e. M/s Appollo Traexim (P) Ltd. and M/s. Y C Buildmore (P) Ltd, therefore, provisions of section 2(22)(e) are squarely applicable in the instant case. The fact that no sale deed has been executed in favour of M/s. Appollo Traexim (P) Ltd. even after a passage of three years.

Before the Ld. CIT (A), it was submitted that, M/s. Appollo Traexim (P) Ltd., (a company in which Mr. Y.C. Kurele holds more than 10% of share capital), had paid a sum of Rs. 6,12,00,000/- by raising loan to M/s. Y.M.C. Buildmore Pvt. Ltd., (a company in which less than 1% paid up share capital was held by Mr. Y.C. Kurele) for booking of space in mall, ‘V3 5 East Centre’. Therefore, it was contended that assessee company was not a shareholder of M/s. Appollo Traexim (P) Ltd. as on the date of transaction, therefore, deeming provision of section 2(22)(e) cannot be invoked. Otherwise also, merely because a common shareholder is having substantive interest, will itself not attract deemed dividend provision, because the assessee should be the beneficial shareholder in the lender company. In support the judgement of Hon’ble Delhi High Court in the case of CIT vs. Ankitech (P) Ltd. vs. Ors (2012) 340 ITR 14 (Del) were relied upon. Further, there were certain mistakes committed by the AO while taking the figures of reserves and surplus for the purpose of calculating the profits. 19

Ld. CIT (A) after considering the entire gamut of facts noted that Shri Y.C Kurele does not have requisite percentage of shareholding companies, so as to put in the category of beneficiary shareholder. He further held that AO was entirely incorrect in concluding that shareholding of Shri Y.C. Kurele was more than 10% in both the companies, because, he had less than 1% shareholding in M/s. Y.M.C. Buildmore Pvt. Ltd. He also noted that the figures taken by the AO from the balance sheet on account of reserve on share premium account was not correct. Applying ratio of Hon’ble Delhi High Court in the case of CIT vs Ankitech (P) Ltd. (supra) he deleted the addition. Before us Ld. Counsel for the assessee, Shri Sanjay Kumar submitted that here in this case M/s. Appollo Traexim (P) Ltd. had given the payment to the assessee company for booking of space and hence it cannot be reckoned that in the nature of loans and advances filing within the purview of section 2(22)(e). Thus, such a payment for purchase of space is purely a business transaction which does not fall in the category of loans and advances as stipulated in section 2(22)(e). Apart from that, he submitted that from the list of shareholders of M/s. Appollo Traexim (P) Ltd., it can be seen that shareholding of Shri Y.C. Kurele was approximately 56.10% and his shareholding in M/s. Y.M.C. Buildmore Pvt. Ltd. was at 0.9%. Ld. AO has made addition on the ground that Shri Y.C. Kurele had more than 10% shareholding in Appolo Traexim (P) Ltd.; and also had substantial interest in Y.M.C. Buildmore (P) Ltd., which finding of the AO is not correct as Shri Y.C. Kurele did not have any substantial interest in YMC.

We have heard the rival submissions, perused the relevant finding given in the impugned order as well as material referred to before us at the time of hearing. From facts as noted by the AO in the impugned assessment order itself shows that, M/s. Appollo Traexim (P) Ltd. had made advances against booking of space to M/s. Y.M.C. 20

The last issue relates to addition of Rs. 10,20,212/- on account of certain expenses which as per the AO, bills and vouchers were not given. The brief facts qua the issue are that the AO from the details of expenses and the bills and vouchers submitted by the assessee with respect to certain parties and contractors noted that the vouchers did not mention the requisite information details like TIN No. Etc. The details of these parties were as under:- (i) H.P. Sales Co. (P) Ltd. Rs. 878486/- (ii) Keshav Singh Rs. 8875/- (iii) S.S. Constructions Rs. 100900/- (iv) Saurabh Ferro Concrete (P) Ltd. Rs. 31951/- ____________ Total Rs. 10,20,212/- In response to the show cause notice, it was submitted that payment to all the aforesaid parties have been made through account payee cheques and TDS have also been deducted. In support, copy of ledger account, bills and TDS certificates were filed. It was further pointed out that all the bills, bear the name, address, phone number of the contractor and suppliers, description of the goods supplied, nature of services rendered alongwith rates, measurements etc. In some of the

Ld. CIT(A)after considering entire facts, accepted the assessee’s explanation that, once the payment has been made through account paying cheque and the bills contain complete address alongwith the telephone number and on such payment TDS has been deducted, then without any requisite inquiry or any adverse material on record no such addition could have been made.

After hearing both the parties and on perusal of the relevant finding in the impugned orders, we find that the AO without any material on record or any inquiry conducted by him has simply disallowed the expenditure incurred during the course of the business, on the ground that the bills submitted by the assessee does not contain information like bill no. Tin No. It is a matter of record that these payments have been made through account payee cheques to the parties who were suppliers and contractors and on such payment, wherever applicable, TDS has also been deducted and deposited in the Government account. Nowhere, either the services or material supplied by them have been doubted based on inquiry or any adverse material coming on record. If the assessee has submitted the complete address, PAN No., telephone no. and in some of the cases, TIN No was also given, then in wake of such evidences, genuineness of the expenditure incurred during the course of business cannot be disallowed. We agree with the finding of the Ld. CIT (A) that once

In view of the finding given above, the appeal of the revenue is dismissed and the cross objections raised by the assessee is treated as partly allowed.

Now we will take up the appeal for the Asstt. Year 2008-09 wherein in various grounds of appeal the revenue has challenged following additions:- i) Depreciation on wind mill Rs. 28,79,999/-; ii) Direction of the Ld. CIT(A) to allow rent paid for Director’s residence after verification Rs. 22,80,000/-; iii) Disallowance of commitment charges Rs. 2,54,24,680/- ; iv) Disallowance u/s 14A r.w.r. 8D Rs. 2,76,169/-; v) Disallowance of interest Rs. 1,02,95,292/-; vi) Disallowance of expenses Rs. 6,40,726/-.

Depreciation on wind mill Rs. 28,79,999/-; The facts in brief qua the issue of disallowance of depreciation on windmill are that the assessee company has installed a Wind Mill Turbine at Kutch (Gujarat) at a cost of Rs. 8,99,99,840/- at the fag end of the year ending 31st March, 2007 . Assessee has claimed depreciation for the assessment year 2007-08 and onwards in the following manner:- S. Name of Asset Cost/WDV Depreciation WDV Rate of No. Depreciation

AO has not discussed this issue at all in the impugned assessment order. However this issue has been discussed by him in the assessment year 2007-08, wherein he has held that the windmill was installed on last day of the year and no revenue was generated. In that assessment year, the Ld. CIT (A) has held that depreciation on wind mill will not be allowed in 2007-08, however he has directed the AO to allow the same from assessment year 2008-09 onwards.

On perusal of the relevant finding given in the impugned orders as well as material referred to before us at the time of hearing, we find that it is not in dispute that the assessee has installed wind mill turbine on which assessee had made initial claim for depreciation in the assessment year 2007-08 on the ground that it was installed at the last day of the year 31st March, 2007 and consequently, depreciation was claimed on the ground that it was ready for use. However, said claim has not been allowed to the assessee company for the assessment year 2007-08 by the AO on the ground that there was no income from generation of electricity. Ld. CIT (A) too had disallowed the depreciation in assessment year 2007-08. However, the Ld. CIT (A) in that year had given direction to the AO that he should start allowing depreciation from Asst. Year 2008-09 onwards from the cost of wind mill, as assessee has started earning revenue from A.Y. 2008- 09. This fact has not been controverted by the department. Accordingly, when depreciation stood disallowed to the assessee company in Asstt. Year 2007-08, then WDV for the assessment year 2008-09 will get increase and consequently, the assessee would be entitled for depreciation on enhanced claim which will get increase in the following manner:- Particulars Consequential As claimed in ITR effect Position on Disallowance of Depreciation in A.Y. 2007- O8 8,99,99.840 8.99,99,840 1 Cost of the ‘Wind Mill Turbine ' in the F. Y. 2006- 07 i.e. A. Y. 2007-08 3,59.99,936 Less: Depn. @ 40% (A.Y. 2007-08) WDV as on 31.3.2007 5.39,99.904 8,99,99.940 4,31,99.923 7,19.99,872 Rs. 2,87,99.949 Less: Depn. @ 80% (A.Y. 2008-09)

Direction of the Ld. CIT (A) to allow rent paid for Director’s residence after verification Rs. 22,80,000/-; In so far as issue regarding the disallowance of expenditure of Rs. 22,80,000/- on account of rent paid for the property at Friends Colony, used as residence for Directors, the AO held that it is not clear, whether the rent paid for the premises at Friends Colony was used for the purpose of assessee’s business or not. Before the Ld. CIT (A), the assessee had contended that the said payment was paid towards residence of the Directors for the assessee company, namely, Y.C. Kurele and Shri Vinay Kurele and similar payment of rent was never disallowed in the earlier years or in the subsequent year. It was further submitted that Shri Y.C. Kurele who was the managing director of the assessee company was entitled to rent free accommodation at a concessional rent of Rs. 22,000/- per month and the remaining rent was to be paid by the company as per the agreement dated 23.5.2006. Ld. CIT (A) noted that it is a matter of record that this premise was used as the residence of the Directors of the company who were authorised to get the residence at the concessional rate in terms of their employment. The AO had made the addition without any inquiry or show cause notice. However, Ld. CIT (A) directed the AO to verify, whether these premises are used for the residence of Directors as per the terms of employment or not; and if that be so, then rent cannot be disallowed as it is used for the business purpose of the assessee company.

After considering the aforesaid findings given by the AO as well as by the Ld. CIT (A), we find that Ld. CIT (A) has mainly directed the AO to verify, whether the rent paid for the premises at New Friends Colony was used as a residence of Directors of the company or not; and whether such a usage was in terms of their employment or not. If company has provided accommodation on concessional rent to the Directors in terms of their employment, ostensibly such a payment is for the purpose of business. We do not find any infirmity in the directions given by the Ld. CIT (A) to the AO to verify this fact. Consequently the ground raised by the revenue is dismissed. 39. Disallowance of commitment charges Rs. 2,54,24,680/-; Coming to the disallowance of commitment charges, AO noted that assessee has debited expenses under the head ‘commitment charges’ of Rs. 2,54,24,680/-. In response to the show cause notice assessee has submitted as under:- 'Commitment charges are being paid, only in those cases wherever whole of the sale consideration has been received from the buyer. While booking space, at times Buyers are assured that they will get a minimum rent for the space booked by them, as and when the project is completed. By adopting this policy the assessee company is able to attract buyers and also a good price for space sold. At times it happens that the property 1 space is let out on a rent below the rent committed to the buyer. In such cases, the difference of rent committed vis-a-vis rent realized is paid by the assessee company so as to fulfil its commitment made earlier and the same is debited under the head "Commitment Charges ". As and when the rent starts coming at or above the committed rent, no further commitment charges are being paid.

Ld. AO held that these commitments are paid after the receipt of full amount of sale consideration from the buyer of the commercial unit/shop/space. Therefore, such a payment is made post sales which does not find place in the sale agreement made by the assessee company with the buyers. Hence such a payment made cannot be said to be related to the business. Accordingly, he disallowed the same. Before the Ld. CIT (A), assessee has explained that Assessee Company is engaged in selling space in the mall. At the time of booking space, the assessee gives assured return plan wherein assessee commits specified rent per square feet to the buyers from a specified date. Assessee also drew attention to allotment letter wherein there was a relevant clause No. 17 and 18 wherein it was agreed which read as under:- “17. The Allottee has accepted and hereby agreed that the Demised Premises shall be given on Lease to any Lessee on a rent of not less than Rs.190/- Per Sq. Ft on Super Area Per Month w.e.f. 1st April. 2007. 18. The Promoter hereby assures to the Allottee that the Allottee shall he entitled to receive rent from the Lessee which will start from 1st April 2007. If the lessee does not start to pay the rent or not intends to pay the rent from I" April 2007 then the Promoter shall pay the agreed rent to the Allottee. If there is delay in

Ld. CIT (A) on perusal of the allotment letter, noted that assessee company has to pay the buyer the deficit in assured lease rental to the buyer of the space. He quoted one of the clauses wherein assured monthly return of Rs. 190/ sq. ft. And in terms of such assured rental commitment, assessee has to pay the commitment charges and these were not mentioned in the sale deed, because it was nowhere connected with the levy of stamp duty. He further held that, these commitment charges were directly linked with the sale/allotment of space for which payment has not been doubted and accordingly, he allowed the same.

After considering the rival submissions and on perusal of the material placed on record, we find that the assessee in order to sell the space/shop in the mall has to lure to the customer for fixed return on his investment. Otherwise, it was very difficult to sell the space in the mall. Thus, its commitment charges were directly linked with the sale/ allotment of space and for commercial expediency. From the plain 31

Disallowance u/s 14A r.w.r. 8D Rs. 2,76,169/-; In so far as disallowance u/s 14A r.w.r. 8D is concerned, assessee has earned dividend income of Rs. 14,36,225/- which was mainly out of dividend income earned from merged companies. Ld. AO has made the disallowance of Rs. 3,28,246/- after invoking rule 8D. Before the Ld. CIT(A) the assessee had given the source of investment which stood in the merged balance sheet as on 31.4.2008 in the following manner :-

Before us Ld. Counsel for the assessee submitted that it is a matter of record that assessee had huge interest free funds in the shape of capital and reserve which were to the extent of Rs. 96.53 crores as on 31st March, 2007 and Rs. 136.18 crores as on 31.3.2008, which was far excess to the investment made of Rs. 2.01 crores Further, assessee had duly demonstrated that no interest bearing funds have been used for the purpose of making investment in shares and mutual funds. Ld. CIT (A) has already given a categorical finding after verifying from the record that all the 13 merging companies have made investment in the earlier years out of their own interest free funds. Thus, no disallowance of interest could have been made. On the issue of expenditure under rule 8D (iii), he submitted that AO has not given any reason or satisfaction for making such disallowance.

On the other hand, Ld. DR strongly relying upon the order of the AO, submitted that in so far as disallowance of indirect expenses is concerned, assessee has not suo moto disallowed any expenditure nor has explained as to why no such expenditure can be attributed for earning of exempt income. Thus disallowance is justified.

After considering the aforesaid submission and on perusal of the relevant material placed on record, we find that there is no rebuttal at any stage in so far as the assessee’s contention that, firstly, assessee itself had huge surplus interest free funds in the form of reserves and surplus which far exceeded the investment made; and secondly, no interest bearing funds were ever utilised for the purpose of making investment in shares and mutual funds; and lastly, all these investments were made earlier by the 13 merging companies out of their own interest free finds. Under these facts and circumstances, no addition, whatsoever on account of disallowance of interest can be made. However, in so far as disallowance u/s 8D(ii) is concerned, we agree with the contention of the Ld. DR that assessee has not been able to substantiate or give any explanation why no expenditure is attributable for the purpose of exempt income and therefore, disallowance made u/s 8D(2)(iii) is confirmed. Consequently, the appeal of the revenue as well as cross objection raised by the assessee on this score stands dismissed.

Disallowance of interest of Rs. 1,02,95,292/-; Coming to the issue of disallowance of interest, AO has noted that assessee has made interest free advances to the following parties :- (i) Endless Maintenance & Services (P) Ltd. Rs. 10489624/- (ii) Endless Media & Gems. Rs. 3650000/- (iii) Kurele Industries Rs. 50,00,000/- (iv) Kurele International Rs. 45,00,000/-

1.04.89.624 Ymc Buildmore Pvt. Ltd. For creating utilities in the Mall Endless Maintenance & Ser\'ices Pvt. Ltd. - - 2. Endless Media and Gems 36.50.000 Gahoi GBL is partner in the Buildwell firm 3. Kurele Industries Gahoi Buildwell Limited 50.00.000 Interest charged a : 9% PA 4. Kurele International 45.00.000 Gahoi Buildwell Ltd. Paid against their credit balance - _ ... 5. Pranav Gems Gahoi Buildwell Ltd. 26.50.000 Paid out of our own spare funds..

Thus, it was stated that no advance was given out of interest bearing funds. However Ld. AO has rejected the assessee’s explanation and held that merely stating that advance has been given by the amalgamating companies and not by the assessee, does not discharge the burden of establishing that funds have not been diverted from interest bearing funds.

Ld. CIT (A) has given following finding of facts:-

From the perusal of the relevant finding given by the AO and Ld. CIT (A), we first of all find that, precisely similar issue was involved for the assessment year 2007-08, wherein we have upheld the finding of the Ld. CIT (A) that most of the advances were in the nature of business advance and therefore, it cannot be treated as interest free advance given for the non business purpose; and secondly, there was no diversion of interest bearing loan in giving such advances. The aforesaid finding of the Ld. CIT (A) is based on appreciation of facts and records and therefore, such finding cannot be tinkered with and consequently ground raised by the revenue is dismissed.

Lastly, coming to the issue of disallowance of expenditure by the AO of Rs. 648726/- on account of that the bills and vouchers submitted by the assessee did not contain TIN / bill number.

Since similar issue was involved in the appeal for the assessment year 2007-08, wherein we have held that the assessee had submitted the bills raised by the contractors / material supplier which contain full address, phone number, nature of services rendered or good supplied and the payments have been made through account payee

Now coming to the grounds raised in cross objections by the assessee, we find that, the first issue raised is disallowance of Rs. 21,43,957/- on account of brokerage and commission paid for renting/leasing of property in the mall. Admittedly this issue is similar to ground No. 1 and ground No. 3 raised by the assessee in its cross objection. In view of our finding given above we hold that, brokerage and commission in so far as relating to sale/booking of space /shops same has to be allowed and brokerage and commission paid for leasing out the property, the income of which is assessable under the head ‘income from house property’, the same cannot be held to be allowed. Accordingly, AO is directed to disallow only that portion of brokerage and commission pertaining to the leasing of the property and allow the brokerage and commission paid for booking of shop/space. Consequently the ground raised by the assessee is partly allowed.

Coming to the issue as raised in ground no.3 for disallowance of Rs. 10,09,543/-, being loan incurred for registration of rent charges for the years in relation to the renting/leasing of property. Before us, Ld. Counsel submitted that major portion of the said expenditure was liable to be set off from sale of space/shops or to apply during the year so as to write off the expenses in subsequent years. The Ld. AO has disallowed these expenses on the ground that assessee has not given any proper submission as to why such registration charges should be allowed. Ld. CIT(A) has confirmed the addition on the ground that, since these registration charges have been paid for renting of ground floor space and such rental income is sustainable under the head

After considering the aforesaid submission and the finding given in the impugned order, we do not find any reason for allowing such expenditure, because, once the expenditure has been booked for the registration of lease rent agreement and the income is earned under the head ‘income from house property’, then such an expense cannot be allowed under section 24. Secondly, the alternate contention of the assessee also cannot be allowed, because, assessee itself has not capitalised such expenditure and therefore, there could be not be set off of such expenditure from the sale made in the subsequent year. Accordingly, this ground is dismissed.

Ground 4 relates to disallowance u/s 8D, which has already been decided above and the assessee’s ground has been dismissed.

Lastly, coming to the ground No. 5, with regard to disallowance of interest on the payment, Ld. Counsel has submitted that this payment again was made out of surplus fund and Ld. CIT (A) has given wrong finding of fact qua this advance that same was out of loan fund. When it is an admitted fact that Assessee Company had huge surplus fund, then there cannot be any presumption of diversion of loan fund. On perusal of the relevant facts brought on records, we find substance in the contention of the Ld. Counsel that, once assessee has huge interest free and surplus fund, then no disallowance of 38

Admittedly, ground No. 1 relates to depreciation on wind mill, which is similar to the assessment year 2008-09; and therefore, in

Coming to the grounds relating to brokerage and Commission, the same is similar to grounds raised for Asstt. Year 2008-09. Therefore, in view of the finding given above we direct the AO to restrict the disallowance of brokerage and commission to the extent of renting/leasing of the property and allow the brokerage and commission on sale/booking of space.

The issue of commitment charges is also of same as in Asstt. Year 2008-09; and in view of our finding given above, we uphold the deletion made by the Ld. CIT (A).

Again on this issue of disallowance u/s 14A r.w.r. 8D, admittedly, similar facts are permeating in this year also, therefore, in view of the finding given above, we uphold the deletion of interest expenditure 8D (2) (ii); and in so far as disallowance u/s 14A r.w.r. 8D (2) (iii) is concerned, same is affirmed.

Disallowance of interest is again similar to the issues raised in Astt. Years 2007-08 and 2008-09 and also there is no change in the fact that assessee had huge surplus fund available. Most of these advances have been found to be in the nature of business. Accordingly, in view of our finding given above, the disallowance of interest made by the AO is deleted.

Coming to the claim depreciation on site office at Bhikhaji Cama Place and Jammu Site office, AO has made addition solely on the ground that, both these premises do not find mention in the detail of business premises of the assessee company and it is seen that, AO has not even issued any show cause notice to the assessee in this regard. Ld. CIT (A) has directed the AO to allow depreciation after 40

We do not find any reason to tinker with such a direction as depreciation for both the offices have been allowed in the earlier years and here in this year, Ld. CIT(A) has merely given direction to verify, whether these offices were used for business purpose or not. Thus, there could be no grievance to the revenue and accordingly, the ground raised by the revenue is dismissed.

Now coming to the disallowance of loss, the facts in brief are that, the Ld. AO noted that, Shri Y.C. Kurele, Director of the assessee company in his statement of oath u/s 132(4) stated that the assessee company would be declaring; i) business income of Rs. 2.5 crores; ii) rental income of Rs. 2.5 crores; and iii) income from long term capital gains of Rs.5.8 crores. However, in the return of income the assessee has shown total income of Rs. 4,83,17,013/- and thereafter, has claimed business loss of Rs. 5,45,01,036/-. In response to the show cause notice assessee has stated as under:- “In relation to the statement given by Sh. Y.C. Kurele before the Investigation Wing on 24.2.2009 (copy of which has been made available to us recently), it is submitted that in response to question & answer No. 10 appearing at page 5 & 6 of the said statement, he has stated the estimated income of Gahoi Buildwell Ltd. for the financial year 2008-09 shall be Rs. 2.50 Crore from business from rent approximate Rs. 2.50 Crore, Long-term Capital gains Rs. 5.80 Crore and due taxes shall be paid on it. On reading the said statement as a whole, it will be seen that in question & answer appearing at page No. 3. 4 and 5 of the said statement, wherein he was shown the page No. 124, 123, 122, 6 41

Before the Ld. CIT (A) the assessee has clarified this issue in the following manner:- “62. At the outset it is submitted that the said addition is solely due to non-appraisal of facts and based on conjectures and surmises. Firstly, kind attention is invited to page No. 78-79 of PB, based upon which the said loss had been computed on a bare perusal of which it will be seen that all the transactions (except one transaction) falls In the period much prior to the date of search and even the transaction in the month of February, 2009 based on which loss of Rs. 59.50 lakhs has been computed took place on 4.2.2009 i.e. much prior to the dare of statement given by Shri YC Kurele on 24.2.2009. Further, all these transactions are not merely book entries and the same are duly backed by sums returned by cheque through proper banking channels and at time documents duly registered as sale deeds before the sub-registrar. Therefore, the allegations made by the AO are not supported by irrefutable evidence available on records as may he seen from the facts given below.

After considering the aforesaid statements and on perusal of the relevant material brought on record, we find that AO has noted that assessee has incurred loss in the following four months:- Month Amount (Rs.)

Coming to the issue of debit entries recorded in the rent received account, AO required the assessee to furnish the details of rental income declared; and in response to the show cause notice, assessee had submitted the details. From such details, AO noted that in case of six parties there was a loss claimed by the assessee in the following manner:- (i) Kotak Mahindra Bank Plot no. 10 Rs. (-)1,00,000/- (ii) Koutons (YMC) Plot no. 12 Rs. (-)153713/- (iii) Loreal (YMC) plot no. 12 Rs. (-)217200/- 48

Ld. CIT (A) duly appreciated the assessee’s contention and held that if the rent is reduced, then ALV itself gets reduced, unless proved otherwise. Accordingly, this loss is allowable.

After considering the submissions made by the parties and on perusal of the relevant findings given in the impugned order, we find that assessee company has made reversal of rent receivable for certain properties which relates to the period for which the property was not handed over to the tenants. Thus, the same were liable to be kept out of ALV under the provision of section 23(1)(c). Further in case of two properties, the same were sold subsequently and for that period the

Lastly, in so far as addition on account of sinking fund from customers is concerned, the AO noted that assessee has shown liability under the nomenclature of ‘sinking fund’ of Rs. 1,37,33,018/-. In response to the show cause notice, assessee has submitted that the ‘sinking fund’ is contributed by the unit holders of shopping malls which is kept as a reserve fund to meet part and equipments for structural repair, any kind of addition or alteration of the common facilities. It was in the nature of liability in the books of the assessee company which does not form part of sale consideration. Ld. AO however held that, since this amount has been received at the time of sale consideration, therefore, same should have been reflected as income in the profit and loss account and accordingly, he disallowed the said liability.

Before the Ld. CIT (A), Assessee has explained this issue in the following manner:- “7.3. In this relation the factual matrix is that in terms of allotment letter at the time of giving possession to the allottee(s). a maintenance agreement is being executed and as per Article 15 of said agreement a ‘Sinking Fund' is created for the purposes of replacement, refurbishment, up gradation, additions etc of any Plant & Machinery within the Mall including but not limited to

Ld. CIT(A) after considering the entire gamut of facts and material placed on record held that the sinking fund is not a revenue receipt in the hands of the assessee as it is a corpus fund for replacement, upgradation, etc. For upkeep and maintenance of common facilities of the building, and this has already been handed over to the maintenance agencies. Accordingly, he directed the AO to delete the said addition.

After hearing both the parties and on perusal of the relevant finding given in the impugned orders, it is seen that in the terms of allotment letter, at the time of handing over the shop to the allottee, a maintenance agreement is being executed between assessee company and the allottee and as per the said agreement, a ‘sinking fund’ is created for the purpose of replacement, upgradation, addition, repair of plant and machinery, etc., within the mall. This was collected at the time of allotment itself with the condition that same shall be utilised for the maintenance by the maintenance agency. Thus, when fund is collected under a specific covenant and assessee is merely the custodian/ trustee of these funds which was to be handed over to maintenance agency to be used for the maintenance of various common facilities, then same cannot be treated as part of the revenue or sale consideration of the assessee so as to be treated as income. The order of CIT (A) is in accordance of law and on facts, hence same is firmed. 79. In the result appeal of the revenue is dismissed. 53

Since the aforesaid grounds raised in the cross objections are exactly the same as raised in the cross objection for the Asstt. Year 2008-09, therefore, in view of our finding given therein, all these grounds are disposed off on similar lines and accordingly, the cross objections raised by the assessee are partly allowed. Order pronounced in the Open Court on 29th March , 2019. sd/- sd/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29/03/2019 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi