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Facts
The Revenue appealed against the Ld. CIT(A)'s order for AY 2015-16 and 2016-17, which had deleted various additions made by the Assessing Officer (AO) to M/s. Bright Buildtech Pvt. Ltd., a real estate developer. The additions pertained to disallowance of business expenses (advertising, business promotion, commission, interest), notional interest on interest-free advances to subsidiaries, disallowance under Section 14A, and disallowance under Section 40(a)(ia) for TDS default. The AO had disallowed these expenses claiming that the assessee, following the Percentage Completion Method (POCM), had not recognized revenue during the year, or that there was a lack of nexus between expenditure and income, or non-compliance with accounting standards and TDS provisions.
Held
The Tribunal upheld the Ld. CIT(A)'s deletion of disallowances for advertising, business promotion, commission, and project-related interest expenses, noting their genuineness and revenue nature as per ICAI guidance. It also upheld the deletion of notional interest on advances to subsidiaries, finding them as business advances from non-interest-bearing funds or already capitalized. The Section 14A disallowance was also deleted as investments were from interest-free funds or yielded taxable income. However, regarding interest on Non-Convertible Debentures (NCDs), the Tribunal directed the AO to capitalize it as it financed existing projects, while allowing debenture issue expenses as revenue expenditure under Section 37(1). The disallowance under Section 40(a)(ia) for TDS default was dismissed as tax was timely deposited and in excess.
Key Issues
1. Whether various business expenditures (advertisement, promotion, commission, interest) by a real estate developer should be capitalized as project cost or allowed as revenue expenditure when no revenue is recognized under the Percentage Completion Method (POCM). 2. Whether interest on Non-Convertible Debentures (NCDs) and debenture issue expenses are revenue or capital in nature, and whether notional interest can be disallowed on interest-free advances to subsidiaries. 3. The applicability of Section 14A read with Rule 8D for disallowing expenditure incurred for earning exempt income, particularly when investments are made from interest-free funds or yield taxable income. 4. Whether disallowance under Section 40(a)(ia) is warranted for TDS default if tax is deposited timely, even if through a reverse calculation by the AO.
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Income Tax Appellate Tribunal, DELHI BENCHES ‘E’: NEW DELHI.
Before: SHRIS.RIFAUR RAHMAN & SHRI YOGESH KUMAR U.S.
(Assessment Year: 2016-17) DCIT, vs. M/s. Bright Buildtech Pvt. Ltd., Central Circle 1, Noida Flat No.14, Ground Floor, DDA MIG Suraj Apartment, PulPehladPur, New Delhi – 110 044. (PAN :AACCB7981J) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Kapoor, Advocate Shri Virsain Aggarwal, AR REVENUE BY : Shri Abhijeet Kumar, Sr. DR Date of Hearing : 09.10.2025 Date of Order : 22.12.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The Revenue has filed appeals against the order of the Learned Commissioner of Income-tax (Appeals)-3, Noida [“Ld. CIT(A)”, for short] dated 18.12.2024 for the Assessment Years 2015-16 & 2016-17.
Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the revenue’s appeal being for AY 2015-16 as lead case to adjudicate the issues under consideration and the Revenue has raised the following grounds of appeal :-
1. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3,Noida has erred in deleting the addition of Rs.11,65,62,770/- made by the AO on account of disallowance of expenses under the heads Advertising Cost, Business Promotion, Commission paid on bookings and Interest claimed, without appreciating the facts that the assessee had not recognized the revenue on the basis of 'Percentage Completion Method' during the year under consideration.
2. Whether on facts and circumstances of the case and in law, ld. CIT(A)- 3, Noida has erred in deleting the addition of Rs.11,65,62,770/- ignoring the fact that the assessee was required to recognize the revenue in compliance with the accounting standard and guidance note issued by the ICAL.
Sections Cited
14A, 37(1), 40(a)(ia), 147, 148, 195, Rule 8D
AI-generated summary — verify with the full judgment below
3. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs.1,10,13,206/- on account of disallowance of interest expenditure, disregarding the facts that the assessee during the course of assessment proceedings failed to substantiate the direct nexus between the interest expenditure incurred and the income earned by it by utilizing the borrowed funds.
4. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the above additions without appreciating the fact that there was no justification in incurring the huge expenditure on advertisement and payment of commission as the assessee failed to prove the business expediency and actual services rendered by the persons/parties to whom such commission was paid. Hence, the AO was fully justified in disallowing the expenditure keeping in view of the facts that no revenue was recognized by the assessee during the year under consideration.
5. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the disallowance of notional interest of Rs.17,30,11,440/- on interest free advances of Rs.1,92,23,49,370/ which resulted reduction in the cost of projects, disregarding the facts t hat the assessee failed to furnish satisfactory explanation to justify its act for not charging of any interest on interest bearing funds given to its subsidiaries.
6. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3. Noida has erred in deleting the disallowance of Rs.4,23,34,430/- in view of provisions of sections 14A of the Act, which resulted reduction in the cost of projects, by not considering the facts that the assessee during the course of assessment proceedings completely failed to justify that investments in shares were made out of non interest bearing funds.
7. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs.58,28.229/- due to non deduction of TDS on payment of Rs.194,27,730/-in view of provisions of sections 40(a)(ia) of the Act, without appreciating the facts that the assessee did not produce documentary evidence to substantiate that due TDS was deducted and deposited into government account.”
3. With regard to Ground Nos.1, 2 & 4 regarding disallowance of business expenditures of Rs.11,65,62,770/- by treating the same as cost of project, the Assessing Officer observed that no sales of plots/ constructed properties, have been effected during the relevant year, hence the expenses of Advertisement Rs.7,95,55,363/-, business promotion Rs.81,94,201/-, commission Rs.1,78,00,000/- and interest Rs.1,10,13,206/- totaling to Rs.11,65,62,770/- cannot be allowed as a business expenditure and expenses form part of cost of project. Therefore, he observed that the expenses claimed under the above heads are required to be disallowed and added to the total income of the assessee, hence, added a sum of Rs.11,65,62,770/- to the total income of the assessee.
4. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. Ld. CIT (A), after going through the detailed submissions and assessment order, allowed the grounds of assessee.
At the time of hearing, ld. DR of Revenue submitted that the assessee had declared loss during the year by claiming various expenditures even though it has not declared any revenue. The assessee is following percentage completion method of accounting. Therefore, when they have not declared any revenue, there is no corresponding expenditure that should have been declared. There is no matching principle adopted by the assessee, he submitted that the expenses like advertisement, business promotion, commission and interest expenditures are relating to the project under consideration. The assessee should have capitalized the same or charged to the project WIP.
On the other hand, ld. AR of the assessee submitted that the ld. CIT(A) at page no.34 of the impugned order, deleted the said addition on the basis of following analysis:- i. Genuineness of Expenditure Not Disputed:The AO has not disputed the genuineness of the expenditure incurred by the assessee. ii. Nature of Expenditure – Revenue and Allowable under P&L: The expenditure incurred on advertisement, business promotion, and commission is administrative in nature. Such expenses are not attributable to the cost of the project and, therefore, cannot form part of the project cost. The ld. CIT(A) has rightly relied upon
Para 2.4 of the Guidance Note on Accounting for Real Estate Para 2.4 of the Guidance Note on Accounting for Real Estate Para 2.4 of the Guidance Note on Accounting for Real Estate Transactions issued by the Institute of Chartered Accountants Transactions issued by the Institute of Chartered Accountants Transactions issued by the Institute of Chartered Accountants of India (ICAI) of India (ICAI), in holding that these expenses are allowable as in holding that these expenses are allowable as revenue expenditure and rightly debited to the Profit & Lo revenue expenditure and rightly debited to the Profit & Lo revenue expenditure and rightly debited to the Profit & Loss Account. The relevant para 2.4 of Guidance Note is reproduced The relevant para 2.4 of Guidance Note is reproduced The relevant para 2.4 of Guidance Note is reproduced for the sake of brevity as under : the sake of brevity as under :- iii. The CIT(A) has also mentioned that the AO has not given any The CIT(A) has also mentioned that the AO has not given any The CIT(A) has also mentioned that the AO has not given any reason for treating the expenses as Cost of Project. reason for treating the expenses as Cost of Project. iv. Ld. CIT (A) relied upon Ld. CIT (A) relied upon the following judicial precedents wherein judicial precedents wherein the Hon’ble Courts have categorically held that selling costs shall the Hon’ble Courts have categorically held that selling costs shall the Hon’ble Courts have categorically held that selling costs shall not form part of the cost of the project. The relevant citations are as not form part of the cost of the project. The relevant citations are as not form part of the cost of the project. The relevant citations are as under: Hon’ble Supreme Court of India in the case of Principal Hon’ble Supreme Court of India in the case of Principal Hon’ble Supreme Court of India in the case of Principal Commissioner of Income Ta Commissioner of Income Tax-3 vs. DLF Home Developers 3 vs. DLF Home Developers Ltd. reported at [2020] 114 taxmann.com 98 (SC) Ltd. reported at [2020] 114 taxmann.com 98 (SC) Ltd. reported at [2020] 114 taxmann.com 98 (SC)
Hon’ble High Court of Delhi in the case of Commissioner of Income Tax vs. Somnath Buildtech (P.) Ltd. reported at [2023] 146 taxmann.com 472(Delhi) Hon’ble High Court of Delhi in the case of Gopal Das Estates & Housing (P.) Ltd. vs. Commissioner of Income Tax reported at [2019] 103 taxmann.com 334(Delhi) ITAT Tribunal Bench C of Mumbai in the case of PRL Developers (P.) Ltd. vs. ACIT reported at [2024] 164 taxman.com 328 (Mumbai-Trib) ITAT Tribunal Bench ‘B’ in the case of Deputy Commissioner of Income Tax, Mumbai vs. Macrotech Developers Ltd. reported at [2021] 133 taxman.com 321(Mumbai-Trib.) ITAT Tribunal Bench of Banglore in the case of India Build Villas Development (P.) Ltd. vs. Deputy Commissioner of Income-Tax, Circle 3(1)(1), Banglore reported at [2018] 98 taxman.com 187 (Banglore Trib.) Hon’ble Supreme Court of India in the case of Principal Commissioner of Income Tax-3 vs. DLF Home Developers Ltd. reported at [2020] 114 taxmann.com 98 (SC)
Hon’ble High Court of Delhi in the case of Commissioner of Income Tax vs. Somnath Buildtech (P.) Ltd. reported at [2023] 146 taxmann.com 472(Delhi) Hon’ble High Court of Delhi in the case of Gopal Das Estates & Housing (P.) Ltd. vs. Commissioner of Income Tax reported at [2019] 103 taxmann.com 334(Delhi) ITAT Tribunal Bench C of Mumbai in the case of PRL Developers (P.) Ltd. vs. ACIT reported at [2024] 164 taxman.com 328 (Mumbai-Trib) ITAT Tribunal Bench ‘B’ in the case of Deputy Commissioner of Income Tax, Mumbai vs. Macrotech Developers Ltd. reported at [2021] 133 taxman.com 321(Mumbai-Trib.) ITAT Tribunal Bench of Banglore in the case of India Build Villas Development (P.) Ltd. vs. Deputy Commissioner of Income-Tax, Circle 3(1)(1), Banglore reported at [2018] 98 taxman.com 187 (Banglore Trib.)
6.1 Further, ld. AR submitted that in the light of the above, submission in respect of each ground is given below :
A. Submission in respect of Ground No.1-. Non-Recognition of Revenue under POCM That the Ground No. 1 raised by the Department, challenging the deletion of the addition of ₹11,65,62,770 on the basis of which the assessee failed to recognize revenue in accordance with the applicable Accounting Standards, is misplaced. It is most respectfully submitted that the assessee has duly complied with the prescribed revenue recognition norms, including the application of the Percentage of Completion Method (POCM), as mandated under the relevant Accounting Standard. This position has also been accepted by the AO at internal para 3.4 ,page no. 26 of PAPER BOOK and CIT(A) at internal Page No. 34 of CIT(A) order. Therefore, the assertion that there was non-compliance with the POCM method is factually incorrect and not sustainable.
B. Ground No.2-Non-Adherence to ICAI Standards on Revenue Recognition That Ground No. 2 raised by the Department is misconceived. The assessee has correctly deferred the recognition of revenue in accordance with the Guidance Note on Revenue Recognition issued by the Institute of Chartered Accountants of India (ICAI). It is a matter of record that one of the mandatory conditions, i.e., incurring 25% or more of the total estimated project cost, had not been fulfilled. Accordingly, revenue on the sale of apartments was not recognized. This treatment has not been disputed by the AO (refer internal para 3.4, pages 26–27 of the Paper Book). Likewise, the Ld. CIT(A) has also accepted this contention (refer internal page 34 of the CIT(A)’s order). Hence, the ground raised by the Department alleging incorrect revenue recognition is factually baseless, devoid of merit, and irrelevant to the present case. C. Ground No.4- Disallowance of Advertisement & Commission Expenses for Lack of Business Expediency That the Department, in Ground No. 4, has alleged that the assessee failed to prove the business expediency and actual services rendered by the recipient to whom such commission and cost related to advertisement was paid. However, it is a matter of record that the genuineness of the expenditure was never doubted by the Assessing Officer. In fact in the assessment order , the AO has disallowed the claim only for the reason of non-booking of sales (Refer page no.27 of PB and internal para no.3.6 of CIT(A) order). Further, the Ld. CIT(A), at internal page no.34 of the CIT(A) order, has specifically observed and highlighted that the genuineness of the payment was never disputed by the Assessing Officer. Therefore, ground no.4 raised by the department is factually incorrect and unsustainable.
Considered the rival submissions and material placed on record. We observed that the assessee is in the business of promotion and development of real estate. The assessee is following the method of percentage completion method and obligated to follow the mandatory accounting policies and guidance note published by the ICAI. We observed that the assessee is following the same. As per which, the assessee had to declare and recognize the revenue unless it reaches 25% of the estimated project cost or revenue, in this case, the assessee had not reached the mandatory level, hence not recognized the revenue in this impugned year. The AO disallowed the expenses on the basis that assessee had not declared any revenue this year. We observed that the AO had disallowed expenses like advertisement, business promotion and commission expenses. As per the para 2.4 of the guidance note issued by the ICAI, the assessee should not consider pat of construction costs and development cost relating to selling costs. Accordingly, the assessee had treated the same as time cost and claimed the same as expenditure. Therefore, Ld CIT(A) had rightly concluded the issue under consideration and allowed the same in favour of the assessee.
With regard to ground no.3 regarding failure to substantiate nexus of interest expenditure incurred with income, Ld DR submitted that with regard to interest on NCD, this should have capitalized and expenditure on the NCD, assessee should have claimed as deferred revenue expenditure during the life of the debenture. In this regard he relied on the following case law: (i) Gotan Lime Syndicate vs. CIT - 25 ITR 533 (ii) DCIT vs. ATV Projects India Limited - 84 ITD 470 25 On the other hand, the ld. AR of the assessee submitted that that the interest expenses claimed in the Profit & Loss account includes debenture issue expenses amounting to Rs.57,06,000 is duly explained as under Particulars Amount (Rs.) Internal Page no. of CIT(A) order Interest on Non-Convertible Debentures (NCDs) 4406849 37 Debenture Issue Expenses 5706000 37 Total 10112849 Thus, he submitted that the assessee has claimed interest of Rs.44,06,849 and not Rs.1,01,12,849, as alleged by the AO. Moreover, the actual interest expenditure including debenture issue expenses works out to Rs.10112849 as against addition of Rs.1,10,13,260. The said facts are verified by the CIT(A) and referred to internal page no.38 of the impugned order.
10.1 He submitted that it is a matter of record that against the interest claimed at Rs.44,06,849, the assessee has considered the corresponding interest income of Rs.82,14,530 to the profit and loss account. The same facts have been acknowledged and verified by the CIT(A) at internal page no. 37 of CIT(A) order. Therefore, the observation made by the Department in this ground is factually incorrect and devoid of merit.
10.2 Further he submitted that as regards the debenture issue expenses amounting to Rs.57,06,000, the same are allowable as a deduction under the provisions of section 37(1) of the Income Tax Act, 1961 (for short ‘the Act’). These expenses form part of the total amount of Rs.1,10,13,206 as claimed by the assessee in the profit and loss account. He submitted that the findings of the Ld. CIT(A) affirming this position are recorded at internal page no. 37-38 of the CIT(A)’s appellate order. He submitted that ld. CIT(A) while giving the relief has placed reliance upon the following judicial precedents, wherein it has been consistently held by various courts that debenture issue expenses are allowable as revenue expenditure under section 37(1) of the Act:
Hon'ble High Court of Gujarat in the case of Assistant Commissioner of Income-tax vs. VXL India Ltd. reported at 54taxmann.com103 (Gujarat) Hon'ble High Court of Madras in the case of Commissioner of Income-tax vs. First Leasing Co. of India Ltd. reported at 304 ITR 67 (Madras) Hon'ble High Court of Rajasthan in the case of Commissioner of Income- tax, Udaipur vs. Secure Meters Ltd. reported at [2008] 175 Taxman 567 (Rajasthan) Hon'ble High Court of Kerala in the case of Apollo Tyres Ltd. vs. Assistant Commissioner of Income Tax, Central Circle-II, New Delhi reported at [2020] 122 taxmann.com 72 (Kerala)
Hon'ble High Court of Madras in the case of Commissioner of Income-tax vs. Southern Petrochemical Industries Corporation Ltd. reported at [2009] 3111TR202 (Madras)
In view of his above submissions, ld. AR pleaded that this ground may be dismissed and order of the ld. CIT (A) on this issue be upheld.
Considered the rival submissions and material placed on record. With regard to interest expenditure, it is submitted that the disallowance of interest amount includes interest on NCD’s (Rs.44.07 lakhs) and debenture issue expenses (Rs.57.06 lakhs). We observed that the debentures are a loan and whole of the debenture was issued to finance the existing project. The assessee had capitalized the same during the previous year and the claim that it has earned interest income cannot be genuine reason not to capitalize the same. In our view, the interest expenditure should be capitalized, nothing was brought on record to show that the funds were utilized other than the project. Therefore, we are inclined to direct the AO to disallow the same.
With regard to debenture issue expenditure, we observed that Hon’ble High Court of Rajasthan held as under: “9. At this stage it was contended by the learned counsel for the revenue, that a distinction should be drawn between the convertible, and non- convertible debentures, inasmuch as if the debenture is converted into shares, then it partakes the character of capital, and in that event, the expenditure would not be revenue expenditure, and would be capital expenditure. Learned counsel for the assessee informs, that though it has not come on record so far, but as a matter of fact the debentures issued were of convertible nature. Then, the learned counsel for the assessee argued, relying upon the judgment of Calcutta High Court, in CIT v. East India Hotels Ltd.[2001] 252 ITR 860 , that the expenditure incurred, even in raising loan by convertible debenture would also be admissible as revenue expenditure. The Calcutta High Court had adopted the reasoning, that conversion of debentures results into repayment of loan, and issuance of shares. This is one aspect of the matter. In our view, the other more important aspect of the matter is, that the Hon'ble Supreme Court in India Cement Ltd. 's case (supra) has clearly excluded this aspect from consideration, by holding, that it is irrelevant to consider the object, with which the loan was obtained. Admittedly the debentures when issued is a loan, and therefore, whether it is convertible, or non-convertible, does not militate against the nature of the debenture, being loan, and therefore, the expenditure incurred would be admissible as revenue expenditure.”
Respectfully following the same, we are inclined to allow the expenditure claimed by the assessee, the Court held that there is no distinction between the convertible or non convertible debentures, it is in the nature of loan only. Therefore, we are inclined to allow the claim of the assessee and accordingly, we are inclined to partly allow the ground raised
by the Revenue in this regard.
15. With regard to Ground No.5 regarding reduction of Project Cost by Notional Interest of Rs.17.30 crores on Interest Free Advances to subsidiaries, Ld DR submitted that the assessee had given 1923 crores to its sister concern. He objected to the findings of Ld CIT(A) that he merely accepted the submissions of the assessee that it is out of non- interest bearing funds. He submitted that the assessee had not proved the business exigencies to transfer such huge funds to its sister concern. He further submitted that he had remanded the matter to AO but gave very little time to respond. He prayed that the disallowance proposed by the AO may be sustained.
On the other hand, ld. AR of the assessee brought to our notice that the Assessing Officer observed that interest-free advances amounting to Rs.1,92,23,49,370 as per note no.19 of audit report were made during the year and no interest was charged thereon. However, the Assessing Officer failed to appreciate that all such advances were in the nature of business advances, and there was no statutory or contractual requirement to charge interest on the same. Despite this, the Assessing Officer proceeded to compute notional interest at the rate of 12% per annum for three-fourths of the financial year, thereby arriving at a hypothetical figure of Rs.17,30,11,440. The methodology adopted is purely presumptive and devoid of any examination of the actual source of funds used for advancing such amounts, particularly whether the same were used for business. The AO erred in reducing such notional interest from the cost of project. He further brought to our notice that the ld. CIT(A) had directed the assessee to submit a source-wise chart detailing the nature and funding of the interest-free advances. In compliance, the said source chart was duly submitted and is reproduced at internal page no. 45 of the CIT(A)’s order. It is further submitted that this chart was also forwarded by the ld. CIT(A) to the Assessing Officer for his comments. However, no response or adverse remarks were furnished by the Assessing Officer on the same. The relevant chart at internal page no. 45 of the CIT(A)’s order is tabulated below :
Particulars Amount Source Treatment Purpose Page no. of CIT(A) Order Solace Projects Private 160,02,17,300 Interest Capitalised Advance given 45 Limited Bearing for Railway Funds project to subsidiary Ace Infracity Developers 1,00,00,000 Interest Capitalised Business 45 Private limited Bearing Purpose Funds Others 31,21,32,069 Not from NA Business 45 Interest Purpose Bearing Funds Total 192,23,49,369 16.1. Further he submitted that from a bare perusal of the chart, it can be observed that the majority of the interest-free advances were sourced from non-interest-bearing funds except for advances to Solace Projects Pvt. Ltd.(subsidiary) and Ace Infracity Developers Ltd., which were purely in the nature of business advances, there is no case made out for charging notional interest on business advance.
16.2. Further he submitted that with regard to consistency in AY 2014-15, it is also a matter of record that major advance was given to Solace Projects Pvt Ltd. in assessment year 2014–15 and the said fact has been examined by the AO in AY2014-15 and has considered the same as business advances. In this regard, he submitted that the copy of assessment order in AY 2014-15 is placed at page no. 63-65 of the PB. Further he submitted that the interest on such advances had already been capitalized in the relevant year. 16.3. Further he submitted that without prejudice, attention is invited to page 45 of the CIT(A)’s order, which clearly reflects that the interest has already been capitalized in the case of Solace and Ace Infracity Developers Pvt. Ltd. Accordingly, once the interest stood capitalized, there was no occasion or justification for reduction in cost of project as the same was given for business purpose. Therefore, there is no justification for making reduction in the current year cost of project, particularly when the advances are demonstrably in the nature of business advances. It is not a case of diversion of interest-bearing funds, and as such, the disallowance is both factually and legally untenable. 16.4. He further submitted that the Department has wrongly stated that the ld. CIT(A) erred in deleting the disallowance of notional interest. In this regard, it is most respectfully submitted that the assessee has not claimed any interest expenditure in P& L Account hence, as such the question of disallowance does not arise. He submitted that the Assessing Officer has merely attempted to reduce the cost of the project by imputing notional interest, which is factually incorrect. It is pertinent to mention that the major portion of the advances was made to the Solace Projects Pvt. Ltd., which was a business advance, and this position has already been accepted by the Assessing Officer in the assessment for A.Y. 2014–15. The interest cost has duly been capitalized in that year and not claimed in P&L Account. Therefore, taking a contrary view in the current assessment year is inconsistent and unjustified. Accordingly, the Ld. CIT(A) has rightly deleted the disallowance and correctly upheld the assessee’s accounting treatment with respect to the cost of the project. Thus, he pleaded to delete this ground of appeal and uphold the order of the ld. CIT (A) on this issue.
17. Considered the rival submissions and material placed on record. We observed that the assessee had given interest bearing funds to Solace Projects and Ace Infracity for business purpose and the same was already capitalized in their books of account. The same was appreciated by the Ld CIT(A) at the page no.45 of the impugned order. The other funds given to other sister concerns, which is Rs. 31.21 crores, we noticed that there is no interest free funds available in the business. It can be seen from the Balance Sheet submitted before us, for the sake of brevity, it is reproduced below :-
18. There are only negative shareholder funds. It was further submitted that the assessee was having interest free unsecured loans. Therefore, we are inclined to direct the AO disallow the interest based on the cost of capital to the assessee rather than applying notional interest of 12%. However, the same cannot increase the amount of interest actually claimed by the assessee. In the result, the grounds raised by the Revenue are partly allowed.
19. With regard to Ground No.6 regarding deletion of addition u/s 14A, Ld DR submitted that the assessee had submitted before the first appellate authority that it has invested in shares out of interest free funds, he wondered how the funds received from customer are interest free, it is business funds, it has interest burden of funds utilized in the project. He submitted that the amount invested in shares which yields exempt income to the extent of Rs. 182,48,400, the relevant interest be disallowed.
20. On the other hand, ld. AR of the assessee submitted that the AO has invoked the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (for short ‘the Rules’) by taking into consideration non-current investments amounting to Rs.131,85,48,400. Based on this, the AO computed a notional disallowance of interest expenditure by applying Rule 8D(2)(ii), arriving at a figure of Rs.4,23,34,430, which was accordingly reduced from the cost of the project. In appeal before the ld. CIT (A), the ld. CIT(A) at internal page no. 42 of the impugned order observed that:- (i) That Section 14A was enacted to curb the practice of claiming deductions on expenditure incurred in relation to income which does not form part of the total income. (ii) In the present case, it was noted that the investments in shares were made during Financial Years 2011–12 and 2013-14 out of the assessee’s own interest-free funds and referred internal Page No. 42 of CIT(A) order). (iii) Further it was observed that the assessment for A.Y. 2014–15 has already been completed under Section 147 vide order dated 24.05.2024, wherein the issue has been examined and no addition of interest by applying provisions of sec 14A was made and referred internal page no. 43 of the impugned order. Accordingly, the ld. CIT(A) deleted the disallowance under section 14A by holding that the provision was not applicable to investments made in the said financial years. (iv) With regard to the balance investment in debentures, it was observed that the investment in debentures was made during the Financial Year 2014–15, i.e., the year under consideration (Refer internal page No. 42 of CIT(A) order). These debentures yielded taxable interest income and not exempt income and referred internal page No. 40 of CIT(A) order. Accordingly, the provisions of Section 14A have no application either for the deemed interest attributed to investments made during the year or to earlier investments. It is also pertinent to note that, as in earlier years, sufficient interest-free funds were available with the assessee. Hence, no disallowance under Section 14A was warranted. (v) That the Assessing Officer, while making the addition, has failed to appreciate that the total interest debited in the profit and loss account amounts to Rs.44,06,849, against which interest income has been credited in the P&L account to the tune of Rs.82,14,530 and referred internal page No. 37 of the CIT(A) order).Therefore, the question of interest-free advances or notional disallowance does not arise. (vi) That the Department, in Ground No. 6, has wrongly alleged that the appellant failed to justify the investment in shares. In this regard, it is respectfully submitted that the investments in shares were made during the financial years 2011–12 and 2013–14. These investments were made entirely out of interest-free funds and not from any interest-bearing borrowings and referred Chart reproduced at internal page No. 18-19 of CIT(A) order) This fact has been consistently reflected in the financial statements and was also examined in earlier assessments. Hence, the allegation made in the said ground is factually incorrect and devoid of merit. (vii) Without prejudice to above, disallowance on account of interest can’t exceed the actual interest expenditure debited to the profit and loss account amounting to Rs. 44,06,849/-. (viii) The facts of the present case are fully covered by various judicial pronouncements where the courts have held that sec 14A is not applicable where income is taxable :-
Hon'ble Supreme Court of India in the case of Maxopp Investment Ltd. vs. Commissioner of Income Tax, New Delhi reported at [2018] 91 taxmann.com 154 (SC)[Refer page no.66-82 of Case Law PB Index and internal page no.43 of CIT(A) order] Hon'ble Supreme Court of India in the case of Principal Commissioner of Income-tax vs. Shapoorji Pallonji and Co. Ltd. reported at [2024] 164 taxmann. com 708 (SC) [Refer page no.83-84 of Case Law PB Index and internal page no.43 of CIT(A) order] Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Nirma Chemical Works (P.) Ltd. reported at [2024] 164 taxmann.com 380 (Gujarat) [Refer page no.85-88 of Case Law PB Index and internal page no.43 of CIT(A) order] Hon'ble HIGH COURT OF BOMBAY in the case of Principal Commissioner of Income-tax-3 vs Reliance Ports and Terminals Ltd. reported at [2020] 114 taxmann.com 529 (Bombay) [Refer page no.89-90 of Case Law PB Index and internal page no.44 of CIT(A) order]
Considered the rival submissions and material placed on record. We observed that the assessee basically submitted that it has interest free funds available in the business out of interest free unsecured loans and advances from customers, further these investments were made previous assessment years, not during the impugned AY, the revenue continue accept the same in the previous assessment years. After careful consideration of the facts on record, we observed that shares of shimmer developers were invested out of advance from customers and other investments in shares were out of interest free unsecured loans. The funds out of customer advances are relating to the funds of the business, the regular funds employed in the business are out of interest bearing funds, any funds invested out of business are interest bearing funds only not out of interest free funds available in the business. As directed in the issue of notional interest free funds in the above paragraph, we direct the AO to consider the interest actually claim by the assessee and calculate the interest employed for investment in shares particularly the shares of Shimmer Developers P Ltd, the same should be restricted to the extent actually claimed by the assessee after adjusting for the interest employed towards the disallowance made by the AO on the notional interest. Therefore, the ground raised
by the Revenue is partly allowed.
22. With regard to Ground No.7 regarding erroneous deletion of addition for TDS default, Ld DR relied on the findings of AO and submitted the assessee has not deducted TDS on the sum of Rs. 58.28 lakhs.
23. On the other hand, Ld. AR of the assessee submitted that the Assessing Officer has made an addition of Rs.58,28,229 under section 40(a)(ia) of the Act. This figure has been computed based on TDS of Rs.19,42,473/- which was deposited after the close of the financial year. The Assessing Officer applied a reverse calculation method to determine the corresponding expenditure, arriving at a gross payment of Rs.1,94,27,730 and disallowed 30% thereof, resulting in the disallowance of Rs.58,28,229. In this regard, he submitted that following computation and reasoning as per para 5 of internal pages 7–8 of the assessment order:- Statutory dues paid as on (A) Rs.84,29,609 17.04.2015 and 30.04.2015 Statutory dues as per Balance Sheet (B) Rs.64,86,866 Difference C=(A-B) Rs.19,42,473/- Reverse Calculation D=C/10% Rs.1,94,22,730/- Disallowance @30% of D E=D*30% Rs.58,28,229/-
He submitted that in appeal before the ld. CIT (A), the ld. CIT(A) at Page No.47-48 of the impugned order has duly noticed the facts as under: 25. That the amount of statutory dues paid, totalling Rs.84,29,609, includes an amount of Rs.7,56,410 paid towards Works Contract Tax (WC) in Haryana, and the remaining Rs.76,73,219 pertains to TDS on interest paid under section 195 of the Act.
That the total interest payment on which tax was required to be deducted at source amounted to Rs.2,76,43,835. Considering the fact that the said interest was paid to a non-resident, namely Clear Horizon Investments Pvt. Ltd., the applicable rate of TDS was 15% as per the provisions of the Act read with the relevant DTAA. Accordingly, the correct amount of TDS works out to Rs.41,46,575 (15% of Rs.2,76,43,835), whereas the assessee has already deposited a higher amount of Rs.76,73,219, resulting in an excess deposit of Rs.35,29,624. Therefore, the difference computed by the Assessing Officer through a reverse calculation method is arbitrary, devoid of merit, and legally untenable.
That the tax was duly deposited within the prescribed due date under the relevant provisions of the Income Tax Act i.e. 30.11.2015. Hence, no disallowance under section 40(a)(ia) is warranted. The Ld. CIT(A), at page no. 47 of the appellate order, has categorically concluded that this is a case of excess TDS deposit and not one of delayed deposit. Accordingly, the addition and disallowance made by the Assessing Officer were rightly deleted by the CIT(A) 28. That in ground no.7, it has been wrongly stated that no documentary evidence was submitted in respect of the statutory dues paid before the Assessing Officer. In this regard, it is respectfully submitted that the necessary details along with supporting documents were duly furnished necessary details along with supporting documents were duly furnished necessary details along with supporting documents were duly furnished during the course of appellant proceedings vide reply dated 23 during the course of appellant proceedings vide reply dated 23 during the course of appellant proceedings vide reply dated 23-Feb-2021.
Details of Challan paid for WCT Haryana Details of Challan paid for WCT Haryana Date Amount Page No. of reply Page No. of reply 17.04.2015 707502 14 17.04.2015 34263 15 17.04.2015 14525 16 Total 756290 Details of Challan paid u/s 195 Details of Challan paid u/s 195 Date Amount Page No. of reply Page No. of reply 30.04.2015 7673219 17 Furthermore, the Department has exceeded the scope of its allegation by epartment has exceeded the scope of its allegation by epartment has exceeded the scope of its allegation by relying upon assertions beyond the findings recorded in the assessment upon assertions beyond the findings recorded in the assessment upon assertions beyond the findings recorded in the assessment order, which is impermissible in law. order, which is impermissible in law.
Considered the rival submissions and material placed on record. Considered the rival submissions and material placed on record. Considered the rival submissions and material placed on record. We considered the detailed findings of Ld CIT(A) and found that the issue considered the detailed findings of Ld CIT(A) and found that the issue considered the detailed findings of Ld CIT(A) and found that the issue was rightly adjudicated by him based on the facts that the assessee had icated by him based on the facts that the assessee had icated by him based on the facts that the assessee had deposited excess rather than delay in remitting the tax collection under consideration. The AO cannot resort to reverse mechanism to determine the amount to be disallowable. It should be based on actual payable amount. Therefore, we do not inclined to disturb the findings of Ld CIT(A). In the result, ground raised
by the Revenue is dismissed.
30. In the result, appeal filed by the revenue is partly allowed.
31. With regard to appeals for the AYs 2016-17, the relevant grounds of appeal are as under:
1. Whether on facts and circumstances of the case and in law, Ld. CIT(A3), Noida has erred in deleting the addition of Rs.5,53,68,957/- made by the AO on account of disallowance of expenses under the heads Advertising Cost, Business Promotion, Commission paid on bookings and interest claimed, without appreciating the facts that the assessee had not recognised the revenue on the basis of ‘Percentage Completion Method’ during the year under consideration.
2. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the addition of Rs.5,53,68,957/-, ignoring the fact that the assessee was required to recognize the revenue in compliance with the accounting standard and guidance note issued by the ICAI.
3. Whether on facts and circumstances of the case and in law, Ld. CIT(A) -3, Noida has erred in deleting the addition of Rs.1,90,45,404/ on account of disallowance of interest expenditure, disregarding the facts that the assessee during the course of assessment proceedings failed to substantiate the direct nexus between the interest expenditure incurred and the income earned from investment made in Non-Convertible Debentures (NCDs) of Lotus Greens Construction Pvt Ltd.
4. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-3, Noida has erred in deleting the above additions, without appreciating the fact that there was no justification in incurring the huge expenditure on advertisement and payment of Commission as the assessee failed to prove the business expediency and actual services rendered by the persons/parties to whom such commission was paid. Hence, the AO was fully justified in disallowing the expenditure keeping in view of the facts that no revenue was recognized by the assessee during the year under consideration.”
32. Since the facts and grounds raised are exactly similar to AY 2017-18, our findings in AY 2015-16 are applicable mutatis mutandis in Assessment Years 2016-17.
33. Accordingly, the appeals filed by the Revenue for Assessment Years 2015-16 & 2016-17 are partly allowed. Order pronounced in the open court on this 22nd day of December, 2025.