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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & SMT SUCHITRA KAMBLE
This appeal is filed by the Revenue against the order dated 29/11/2013 passed by CIT(A)-XVI, New Delhi.
The grounds of appeal are as follows:
“1. On the facts and in the circumstances of the case the Ld.CIT(A) has erred in deleting the addition on account of [notional] interest of Rs.1,57,56,000/- on the deposit money.
2. On the facts and in the circumstances of the case the Ld.CIT(A) has erred in deleting the above addition by not appreciating the fact that the assessee has full right to recover the deposit amount as per ther specific clause mentioned in Joint Venture Agreement with M/s Delhi Towers Ltd. and M/s Ansal Properities & Infrastructure Ltd.
On the facts and in the circumstances of the case the Ld.CIT(A) has erred in deleting the above addition by not appreciating the fact that the assessee is following mercantile system of accounting.
On the facts and in the circumstances of the case the Ld.CIT(A) has erred in deleting the above addition by not appreciating the fact that the arbitration clause was invoked only after the issuance of Statutory Notice u/s 143(2) of the Act and queries raised in this regard.” 3. The assessee is engaged in business of real estate development and enters into a Joint Construction and Development agreement (JCDA) with Delhi Towers Ltd. (DTL), the promoters of Time Square Mega City Projects Ltd. (Promoters) and Ansal Properties & Infrastructure Ltd. (APIL) for the purposes of developing a township measuring 205 acres on the Chandigarh-Ludhiana Road. As per the JCDA, the Promoters requisite approvals from the Government of Punjab and were also required to advance amounts to the farmers for the purchase of the project lands. The assessee was required to place a sum of Rs.57.25 crores as a commitment deposit which was to be treated partly as share application money towards allotment of equity shares and partly towards preference shares or as a loan. The promoters defaulted on their part expressing inability to continue with the project as they cited from financial problem promoters gave post dated cheques amounting to Rs.28.83 crores which was subsequently bounced on account of insufficient funds. Complaints against the promoters were made to the various authorities which fail to give any response by invoking the arbitration clause in the JCDA. The assessee appointed their individual arbitrators and send notice to the proceedings to the promoters who fail to acquaint their arbitrary. The factual position as of today is that the assessee along with APIL and TDL has filed a petition u/s 482 of the Code of Criminal Procedure before the Hon’ble High Court of Punjab & Haryana, whereby the petitioners prayed for an investigation/ enquiry into the offences, fraud and cheating, criminal breach of trust and criminal conspiracy against the Directors of the Promoters by an independent agency. The assessee was asked to explain by the Assessing Officer vide as neither charge any interest nor made any efforts to recover the deposit money. The assessee gave detail reply to the same. The A.O held that charging of notional interest was a deliberate act of the assessee for not recovering its dues and not charging any interest from promoters. Accordingly, interest at 12% on the outstanding amount of Rs. 13.13 crore i.e. Rs.1,57,56,000/- was treated as income of the assessee for the Assessment Year 2009-10.
4. Aggrieved by the same, the assessee filed appeal before the CIT (A). The CIT (A) observed that perusal of the clauses of the Joint Construction and Development Agreement dated 21/3/2007 clearly states that there is no clause in the agreement for charging of interest on deposit or advance towards the cost of the project estimated to be around Rs.162.96 crores, the project was not materialize and an amount of Rs. 13.13 crore was outstanding with DTA. Thus, the deposition is made not on interest and there is no accrual of interest income. The CIT(A) further observed that it was also not the case of the assessee that the assessee had actually collected any interest on the commitment deposit. For that no finding was given by the Assessing Officer. Therefore, the said addition was deleted by the CIT(A). By deleting it the CIT(A) also relied on the judgment of Hon'ble Supreme Court in case of CIT Vs. Shoorji Vallabhdas & Co. 46 ITR 144, judgment of Hon’ble Gowahati High Court in Straightways Construction Co Pvt. Ltd Vs. CIT 199 ITR 702 & Hon’ble Madras High Court in CIT Vs. Ramaswamy Naidu 35 ITR 33.
The Ld. DR submitted that the agreement clearly provides refund of the deposits made by the assessee within the 30 days of accrued period which ended as per the agreement on 30/9/2007. The assessee has deliberately tried not to recover its dues or charge any interest from the DTL. The Ld. DR further submitted that the CIT(A) erred in deleting the addition on account of notional interest on the deposit money, though the assessee has full right to recover the deposit. The Ld. AR relied upon the order of the CIT(A) and submitted that there is not Clause for charging interest on the commitment deposit which was to be adjusted against allotment of equity shares/reference shares. The promoters of time spare express their inability to continue with their project the post dated cheques for re-payment of the amount advance to them were return unpaid due to insufficient funds. The complaints were made by the assessee to the high functionaries in the government of Punjab with no response include. The assessee also invokes the arbitration clause by appointing arbitrators on their sides but the promoter fail to appoint their arbitrator. As a last resort parties also filed petition before the Hon'ble High Court of Punjab & Haryana wherein investigation is prayed. Thus, the assessee has taken utmost steps to recover its commitment deposits since there is not clause for interest the assessee cannot claim the same before any other authorities besides the judgments relied by the CIT(A) in its order. The assessee also relied upon the Jurisdictional High Court judgment ie. Hon’ble Delhi High Court in case of M/s Shivanandan Buildcon Pvt. Ltd. Vs. Commissioner of Income Tax (judgment dated 30.04.2015 in W.P. (C) 6265/13 & 6326/13).
We have heard both the parties. This appeal is filed by the Revenue only on one issue i.e of notional interest on commitment deposit. Though the Ld. DR submitted that the agreement clearly provides refund of the deposits made by the assessee within 30 days of the aggrieved period, but he could not point out any Clause to the effect of delayed payment or non refund of deposits after the period of 30 days will calculate the interest thereon. The Ld. DR also has not controverted the decisions cited by the CIT(A) in his order as well as by the Ld. AR before us. It is pertinent to note that the assessee has taken all the steps to recover the non refund of the commitment deposit when there is an absence of clause specific in the agreement for interest when there is a delayed in payments or deposits. The assessee has no stand to ask for the same including the Hon’ble Jurisdictional High Court in case of Shivanandan Buildcon held that in the absence of any specific provision under which the so called notional income on advances could be brought o tax in identical case decided by the Gauhati High Court in case of Highways Construction Company Pvt. Ltd. The Hon’ble High Court held that:-
There is no finding of fact to the effect that actually the loan had been granted to the managing director or any other person on interest, or that interest had actually been collected and the collection of the interest was not reflected in the accounts. The finding of the Income Tax Officer is that the assessee ought to have collected interest. In other words, the view of the Income Tax Officer, which has been accepted by the Tribunal, was that the assessee, as a good business concern, should not have grated interest- free loan, or should have insisted on payment of interest. If the assessee had not bargained for interest, or had not collected interest we fail to see how the Income Tax authorities can fix a notional interest as due, or collected by the assessee. Our attention has not been invited to any provision of the Income Tax Act empowering the Income Tax authorities to include in the income, interest which was not due or not collected. In this view, we answer question No. (ii) in the negative, that is, in favour of the assessee and against the Revenue.
In the present case also there is nothing to show that the assessee received any interest of the company to whom the loan was given or advance was given including paid interest to the assessee. The same was also not reflected in the accounts the findings of the Assessing Officer that the assessee deliberately fail to recover the same has also not standing when the assessee has taken all alternative despite resolutions method as well as the Court/Legal Methods. Therefore, the CIT(A) is rightly allowed the appeal of the assessee, there is no need to interfere the findings given by the CIT(A).
In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open court on 20th of March, 2017.