ACIT, NEW DELHI vs. M/S DLF LTD., NEW DELHI

Page 1 of 144 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘B’: NEW DELHI) BEFORE SHRI A.T. VARKEY, JUDICIAL MEMBER and SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.2677/Del./2011 (ASSESSMENT YEAR: 2006-07) M/s. DLF Limited vs. Addl.CIT, DLF Centre, 9th Floor, Sansad Range 10, New Delhi Marg, New Delhi – 110 001. (PAN AAACD3494N) Appellant Respondent ITA No.3061/Del./2011 (ASSESSMENT YEAR: 2006-07) Addl.CIT, vs. M/s. DLF Limited Range 10, DLF Centre, 9th Floor, New Delhi Sansad Marg, New Delhi – 110 001. (PAN AACD3494N Appellant Respondent

Assesse by Shri R.S. Singhvi, Advocate

Page 2 of 144 Revenue by Shri Dileep Shivpuri, Special Counsel Date of hearing of appeal 27.01.2016 Date of pronouncement of order 11.03.2016

O R D E R PER PRASHANT MAHARISHI, ACCOUNTANT MEMBER: 01. These cross appeals are filed by the Assesse and Assessing Officer [Hereinafter Referred to as ‘AO’] against the order of the CIT (Appeals)-28, New Delhi dated 25.03.2011 for assessment year 2006-07 u/s 250 of The Income Tax Act, 1961[Hereinafter referred to as “the Act’]. 02. The brief facts of the case are that the assesse is a limited company which is engaged in the business of real estate which has multiple on-going projects of construction as well as it is also selling upon plots of land. Assesse filed its return of income on 30.11.2006 declaring total income of Rs.3,40,64,22,522/. Case of the assesse was selected for scrutiny and notice u/s 143(2) of the Act was issued on 29.09.2008. During the course of assessment proceedings, the AO issued a detailed questionnaire to the assesse based on audited balance sheet, profit & loss account and tax audit report u/ 44AB. The books of accounts of the assesse are maintained on Oracle Software System which was found to be complex by the AO. It was also noted by the AO that there is a change in the method of accounting. During the year to conform with the guidance note issued by ICAI, the AO found the accounting complex and, therefore, issued a show-cause notice for getting their accounts audited u/s 142(2A) for this year. The AO sent the details of complexities found in the books of accounts along with the reply of the assesse. A proposal was sent for conducting special audit u/s 142(2A) of the Act. Further, it was noted that a survey was also conducted u/s 133A of the Act at the company’s premises at P-39 (Basement), NDSE, Part II, New Delhi and certain documents were found. On 30.06.2008, CIT (A), Delhi IV granted approval of conducting the special audit of books of accounts of the assesse for this year. In accordance with that, a special auditor was appointed for conducting the special audit and submitted his report in Form No.6B of the Income-tax Rules, 1962 (hereinafter the Rules’). Finally, on 29.12.2008, the audit report was submitted which was in 13 volumes. Based on this audit report and further on submission of various documents, AO completed the assessment order u/s 144, 145 (3) read with section 142(2A) of the Act on 06.05.2009. In the assessment order, additions to the tune of Rs.10,15,99,67,581/- were made to the returned income of

Page 3 of 144 Rs.3,40,64,22,522/- making the assesse income of Rs.13,56,63,90,100/-. Out of the total addition of Rs.10,15,99,67,581/-, the addition to the extent of Rs.2,25,85,28,452/- has been made on protective basis and Rs.7,90,14,39,129/- on substantive basis. The issue wise addition to the returned income was made on account of 26 items which are tabulated at page nos.457 & 458 of the assessment order as under :- S.No. Terms of Head of Addition / Page No. of Amount Reference Disallowance assessment (Rs.) order 1. TOR – 1 Para Sale Cheque Account 35 47 3,92,27,313 1.18 Volume - II 2. TOR – 1 Para 1.6 Revenue recognition on sale of 47 67 5,41,75,304 Volume - II Land & Plots based on POCM 4. TOR – 1 Para Revenue recognition on 67 94 102,84,93,509 1.32 projects completed less than Volume – III 30% based on POCM – Summit and Mangolia 5. TOR – 1 Para Excess construction expenses 94 101 39,29,42,662 1.21 claimed in respect of old Volume – II projects 6. TOR – 1 Para Non Allocation of 111 116 14,55,37,400 1.27 Proportionate Overhead Volume – III Expenditure 8. TOR – 1 Para External Development Charges 117 129 69,42,99,923 1.29 (EDC) Volume – III & X 9. TOR – 1 Para Internal Development Charges 130 141 4,82,44,524 1.30 (IDC) Volume – III 141 143 22,83,72,935 10. TOR – 1 Para Loss from Divisions not 143 146 10,34,915 1.26 functioning Volume – III 11. TOR – 3 Volume Grand Mall Project u/s 146 157 16,95,67,085 –IV 40A(2)(b) 12. TOR – 5Volume Capitalization of Interest 157 178 119,15,13,955 – IV PAGE – 67 expenses as per AS-16 13. TOR – 9 Volume Brokerage expenses for 178 188 20,87,70,567 – V various Projects Brokerage paid for Amex 188 192 64,39,262 Building 14. TOR – 8 Volume Excess Depreciation on 192 194 9,14,277 – V Constructed Building Revenue recognition on Saket 194 198 13,24,00,000 Court Yard 15. TOR – 13 Revenue recognition on the 198 320 222,56,87,056 Volume – VIIA – basis of POCM Working for 8 VIID projects

Page 4 of 144 16. TOR – 15 & 20 Reclassification of Income 321 326 8,15,68,758 Volume – VIII from House property Reconciliation of rental 326 329 4,49,85,573 income with TDS Certificate Notional Income from House 330 346 3,27,52,542 properties 17. TOR – 20 Compensation paid to Shriram 346 353 1,16,99,500 Volume – VIII School Withdrawal of 30% deduction 35,09,850 u/s 24 18. TOR – 30 Expenditure on account of 353 354 14,49,123 Volume – IX Provision for gratuity u/s 43B 19. TOR – 29 Disallowance u/s 14A read 354 360 16,47,55,000 Volume – IX with Rule 8D 20. Term of Capitalization of Revenue 360 362 2,13,94,580 Reference No.31, Expenditure Volume X 21. TOR – 35 Late Construction Charges 363 367 1,88,81,388 Volume – X 22. TOR – 33 Prior Period Expenses 367 369 20,99,510 Volume – X 23. TOR – 36 Recognition of Revenue on 369 397 Volume – X Various Components of Sale consideration A) Rebate on installments 380 381 7,00,67,242 B) Contingency Deposit C) Interest free Security 381 382 4,94,00,549 Deposit D) Registration Charges 382 386 8,09,92,427 E) Indirect Taxes Recovered F) Closing Credit Balance in 386 387 18,66,82,603 Allotment code No.10141A001 387 387 29,65,179 387 397 35,08,31,012 24. TOR – 6 Volume Deemed dividend 2(22)(e) – IV Table – 1 397 420 2,57,970 420 420 30,23,187 421 429 12,60,00,000 Deemed dividend 2(22)(e) 429 437 225,85,28,452 Table-2 25. As per Digital Excess Expenditure to be 437 451 1,94,78,536 working files Disallowed submitted by auditors in CD Expenditure in the nature of 1,93,38,906 being personal expenditure

Page 5 of 144 Expenditure to be disallowed 6,50,000 on account of brokerage paid Expenditure in the nature of deferred revenue expenditure 1,47,70,222 Expenditure on account bidding for modernization of Mumbai / Delhi Airport Expenditure where bills are not 13,48,804 in the name of company Expenditure Allocation 1,77,32,060 26. As per Form – Provision for gratuity u/s 49,81,625 6B 40A(7) 1,02,786 Expenditure u/s 40A(3) Rs.5,13,934/- x 20 / 100 20,99,510 Prior period expenses Total 1015,99,67,581 03. Aggrieved by the impugned assessment order, the assesse filed appeal before the CIT (A) and submitted voluminous details. The assesse also filed an application under rule 46A of the Rules seeking admission of additional evidences vide letters dated 07.10.2009 and 10.03.2010 which were in turn sent by CIT (A) to the AO and the AO submitted his comments vide letter dated 14.10.2009 and assesse filed its rejoinder vide letter dated 04.11.2009. The ld. CIT (A) admitted the additional evidences considering the facts and circumstances of the case. Before the CIT (A), it was contended by the assesse that addition to the tune of Rs.450.38 crores are arising out of doubt addition and accounting errors. Such details are available at pages 22 & 23 of the order of the CIT (A). The assesse further submitted that additions of six items are covered in favour of the assesse by the order of ITAT in the case of the assesse itself or by the orders of the AO in succeeding or preceding assessment years. Before ld. CIT (A), the assesse in all raised 34 effective grounds of appeal which were disposed off by the ld. CIT (A) vide his order dated 25.03.2011. Vide his order, ld. CIT (A) confirmed some of the additions and deleted some of the additions. Mostly on the additions deleted by the CIT (A), the revenue is in appeal and against the additions confirmed by the CIT (A), the assesse is in appeal. Therefore, it resulted in cross appeals. 04. Assesse has raised following grounds of appeal

Page 6 of 144 “1. These facts were on record, calculation filed, remand asked for, the AO did not dispute the calculation. In such circumstances, the CIT (A) was wrong in asking the AO to again verify the working in respect of these disallowances. 2. That the learned CIT (A) has failed to appreciate that the CIT(A) has no power to set aside any fact of his order to the AO and, therefore, unless The CIT(A) found the calculations to be wrong, he had no option but to order relief. The facts of the order wherein CIT(A) has set aside for again verifying the figures is bad in law and be deleted and full relief to be allowed to the appellant company. 3. That the learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in setting aside the disallowance made by AD u/s 14A of the Income-tax Act, 1961. [Page 175-184 of CIT (A)'s Order] 3.1 That the learned CIT (A) had all the details and had such details verified from AO in remand to decide the issue and had set aside although the same could not legally be set aside. 3.2 That the learned CIT(A) has failed to appreciate that no interest, administrative or any other expenditure was incurred by the appellant in relation to investments during the assessment year 2006-07 That the learned CIT(A) ought to have held that no amount of interest, administrative or other expenditure was disallowable u/s 14A of the Income-tax Act, 1961. 3.3 That the learned CIT(A) has erred grossly in applying section 14A of the Act without appreciating that this section has no application to the present case. 3.4 That the learned CIT(A) ought to have held that no disallowance u/s 14A can be made on the facts & circumstances of the appellant's case and hence erred in setting aside the issue and directing the AO to verify and compute the disallowance under sec 14A of the Act. 3.5 That the learned CIT (A) failed to appreciate the submissions of the appellant that there is no nexus between borrowed funds & investments. 3.6 Without prejudice to above, the learned CIT(A) has erred in law, on facts and in circumstance of the case in not appreciating that for the purpose the of making disallowance u/s 14A of the Act the assessing officer, having regard to accounts of the

Page 7 of 144 assesse for previous year, has to be not satisfied with - (a) the correctness of the claim of the expenditure made by the assesse or (b) the claim made by the assesse that no expenditure has been incurred in relation to income which does not form part of the total income under the Act, for such previous year, as mandated by section 14A of the Act. 3.7 That the learned CIT (A) has not appreciated that no such finding on satisfaction, as amended by law, has been recorded by the Assessing Officer and as such provisions of section 14A of the Act cannot be invoked. 4. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in rejecting the books of account of the appellant company and invoking the provisions of section 145(3) of the Income Tax Act, 1961, on wholly illegal and untenable grounds by treating the appellant's grounds as infructuous. [Page 24-25 of CIT (A)'s Order] 5. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in directing the assesse to get the accounts audited under section 142(2A) of the I.T. Act, 1961, by the Special Auditors and dismissing the appellant's appeal on this ground as infructuous. [Page 25 of CIT (A)'s Order] 5.1 The learned CIT(A) ought to have held that no genuine cause existed for ordering Special Audit u/s 142(2A) of the Income Tax Act as assesse's accounts were not complex and these accounts were being maintained for the last so many years. 6. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.3,67,27,062/- out of total addition of Rs.3,92,27,313/- made by the Assessing Officer in respect of credit balance in Stale Cheques Account as on 31.03.2006 by holding the same as outstanding for a very long period and in the nature of trading receipts. [Page 25-31 of CIT (A)'s Order] 7. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.5,41,75,304/- made by the Assessing Officer on account of revenue recognition in respect of sale of

Page 8 of 144 land and plots based on POCM (Percentage Of Completion Method) by changing the appellant's method of accounting. [Page 31-35 of CIT (A)'s Order] 7.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the immediately subsequent year relevant to assessment year 2007-08 and has, as such, resulted into double taxation of the same income. [Page 33 and 35 of CIT (A)'s Order] 7.2 That without prejudice, the learned CIT(A) ought to have given directions to exclude this amount from the taxable income of A.Y. 2007-08 if the same has been found taxable in the current year. 8. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.78,77,80,921/- out of total addition of Rs.102,84,93,509/- made by the Assessing Officer on account of revenue recognition on projects completed less than 30% based on POCM- namely Summit and Magnolia projects rejecting the submissions of the appellant that POCM method could not be applied to these projects because even the construction work was not started before 31st March, 2006. 8.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the subsequent years and has, as such, resulted into double taxation of the same income. [Page 36-53 of CIT (A)'s Order] 8.2 That the learned CIT(A) has erred in directing the AO to verify the details filed with AO and in confirming the addition as the CIT(A) has no such power to set a-side the part of addition made by AO. [Page 53 of CIT (A)'s Order] 8.3 That without prejudice, the learned CIT(A) ought to have directed to exclude the amount of Rs.78,77,80,921/- from taxable income of A.Y. 2007 -08 or subsequent years if it was to be held that amount is taxable in the assessment year under appeal. 9. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of interest expenditure of Rs.27,45,OO,OOO/- out of total disallowance of interest expenditure of Rs.119, 15, 13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans for specific projects were

Page 9 of 144 utilized for such projects only and by drawing a formula that 1/3rd of advances have been given out of own funds and 2/3rd of advances have been given out of borrowed funds. [Page 90-109 of CIT (A)'s Order] 9.1 That the learned CIT(A) has grossly erred in law in directing for verification by the AD on part of the interest expenditure amounting to Rs.27.45 Crores although the AD had already given his remand as duly noted in Para 17.35 of CIT(A)'s order. 9.2 That the learned CIT(A) completely failed to appreciate that no borrowed funds were utilized to finance its activities to buy land or for meeting construction expenses because receipts from customers were more than the expenditure incurred on these construction projects. 9.3 That the learned CIT (A) has drawn an artificial formula to confirm the part of the addition of Rs.27.45 Crores out of interest payment. 9.4 That the learned CIT (A) failed to appreciate that there was no net interest expenditure as the amount of interest received amounting to Rs. 138.57 crores were in fact more than the amount of interest expenditure amounting to Rs. 136.00 crores. 9.5 That without prejudice, the learned CIT(A) failed to give directions to allow the interest on the basis of POCM method against the respective projects either during the year and in the subsequent years where revenues are recognized. 10. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.64,39,262/- on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building. [Page 109-116 of CIT (A)'s Order] 11. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.42,86,05,986/- out of total addition of Rs.222,56,87,056/- on account of revenue recognition on the basis of percentage of completion method (POCM) in respect of ICON Project after including IDC. [Page 122-153 of CIT (A)'s Order] 11.1 That the learned CIT(A) has erred in directing the AO to verify the details/information filed with AO and in confirming the addition as the CIT(A) has no such power to set a- side the part of addition made by AO. [Page 152 of CIT (A)'s Order]

Page 10 of 144 11.2 That without prejudice, the learned CIT(A) failed to give appropriate directions to allow the claim in the subsequent years in which the appellant had itself accounted for the revenue in respect of the ICON project. 12. That learned CIT (A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.35,09,850/- on account of statutory deduction u/s 24 in respect of amount received from Shriram School and shown under the head 'Income from House Property' by holding that the appellant is not the owner of this property and the rental income cannot be computed under the head 'Income from House Property'. [Page 166-173 of CIT (A)'s Order] 12.1 That the learned CIT(A) has erred in directing the AO to verify the facts and in confirming the disallowance as the CIT(A) has no such power to set a-side the addition made by AO. [Page 173 of CIT (A)'s Order] 13. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.14,49,123/- for expenditure on account of Provision of gratuity u/s 40A(7) of the Income-tax Act, 1961. [Page 173-175 of CIT (A)'s Order] 14. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.84,12,762/- out of total disallowance of Rs.2,13,94,580/- in respect of the following items by treating the same as capital in nature and erred in not considering the fact that these expenses are on account of legal and professional charges, repair & maintenance expenses incurred in the normal day to day course of business and the same deserve not to be capitalized:- SR Particulars Amount (Rs.) 1 Expenditure for registration of Trade Mark 10,08,774 and Brand Logo 2 Expenditure for Repair & Maintenance of 55,18,338 Guest House, Mussoorie 3 Expenditure for consultancy expenses in 1,50,000 connection with purchase of aircraft.

Page 11 of 144 4 Expenditure for purchase of shares of 10,85,650 Edward Keventer (Successors) Pvt. Ltd. out of total expenditure of 5 Proposed merger of DLF Power Limited 6,50,000 and DLF Phase IV Commercial Developers Ltd. Total : 84,12,762

Page 12 of 144 17. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.1,02,786/- by holding the same as cash payment in excess of Rs.20,000/-- and not allowable u/s 40A(3) the Income-tax Act, 1961. [Page 254-256 of CIT (A)'s Order] 18. That the order passed by the learned CIT (Appeals) is bad in law as well as wrong on facts and erroneous in points of law and right is reserved to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing.” 05. Ground Nos.1 and 2 are general in nature. No arguments against and for them have been advanced by the parties and therefore they are dismissed. 06. Ground No.3 of the assessee’s appeal is against the disallowance of Rs.16,47,55, 000/- made by the AO u/s 14A of the Act applying the formula laid down under Rule 8D of the Income Tax Rules, 1962 and which has been set aside by CIT (A) to the file of AO for verification of complete facts and to compute the amount of expenditure which has been incurred in relation to the exempt income and then make disallowance. The assesse has raised following grounds :- “3. That the learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in setting aside the disallowance made by AD u/s 14A of the Income-tax Act, 1961. [Page 175-184 of CIT(A)'s Order] 3.1 That the learned CIT(A) had all the details and had such details verified from AO in remand to decide the issue and had set aside although the same could not legally be set aside. 3.2 That the learned CIT(A) has failed to appreciate that no interest, administrative or any other expenditure was incurred by the appellant in relation to investments during the assessment year 2006-07.That the learned CIT(A) ought to have held that no amount of interest, administrative or other expenditure was disallowable u/s 14A of the Income-tax Act, 1961. 3.3 That the learned CIT(A) has erred grossly in applying section 14A of the Act without appreciating that this section has no application to the present case. 3.4 That the learned CIT(A) ought to have held that no disallowance u/s 14A can be made on the facts & circumstances of the appellant's case and hence erred in setting aside the issue and directing the AO to verify and compute the disallowance under sec 14A of the Act. 3.5 That the learned CIT(A) failed to appreciate the submissions of the appellant that there is no nexus between borrowed funds & investments.

Page 13 of 144 3.6 Without prejudice to above, the learned CIT(A) has erred in law, on facts and in circumstance of the case in not appreciating that for the purpose the of making disallowance u/s 14A of the Act the assessing officer, having regard to accounts of the assesse for previous year, has to be not satisfied with - (a) the correctness of the claim of the expenditure made by the assesse or (b) the claim made by the assesse that no expenditure has been incurred in relation to income which does not form part of the total income under the Act, for such previous year, as mandated by section 14A of the Act. 3.7 That the learned CIT(A) has not appreciated that no such finding on satisfaction, as amended by law, has been recorded by the Assessing Officer and as such provisions of section 14A of the Act cannot be invoked. “ 07. Brief facts of the case are that assesse has earned income of Rs. 48869000/- as share of profit from firms which is exempt u/s 10(2A) of the Act. During the course of assessment proceeding, AO asked assesse to work out disallowance u/s 14A of the Act. Assesse vide letter dated 26.03.2009 submitted working of such disallowance of Rs. 1,87,35,000/- made by assesse in computation of total income. The AO rejected the disallowance made by assesse as according to him it was not in accordance with rule8D of the Income tax Rules 1962. Therefore he applied the provisions of rule 8D and disallowed a sum of Rs 16,47,55,000/-providing working of such disallowance at page no 359-360 of the assessment order. Composition of expenses for such disallowance, AO has computed interest disallowance of Rs1450.67 lakhs and other expenditure of Rs 196.89 lakhs. Ld. AO has worked out interest disallowance on proportionate basis. He worked out total interest expenditure other than direct interest expenditure incurred by the assesse at Rs. 13598.23 lakhs. He further took the average value of investments yielding exempt incomeofRs393777.52 lakhs. He then worked out total average investment of the company by summing amount of investments in fixed assets, investments and current assets and loans and advances of Rs 369116.03 lakhs resulting in to proportionate indirect interest expenditure of Rs. 1450.67 lakhs (39377.52*13598.23/369113.03 lakhs). He further added to this 0.5 % of the average of tax-free income yielding investment of Rs 39377.52 lakhs amounting to Rs. 196.89 lakhs. Therefore, AO made total disallowance of interest of Rs.1450.67 lakhs and expenditure of Rs.196.89 lakhs totalling to Rs.1647.55 lakhs u/s 14A of the Act. 08. Assesse carried the matter before the CIT (A) raising several contentions, however, CIT (A) holding that Rule 8D of the Income tax Rules does not apply for the impugned assessment year set aside the whole issue back to the file of the AO in view of the decision of Hon’ble Bombay High Court in the case of Godrej and Boyce Manufacturing Ltd. Vs. DCIT [328

Page 14 of 144 ITR 81] to disallow expenditure u/s 14A on reasonable basis or method after verifying all the relevant facts and affording reasonable opportunity of hearing to assess. Pursuant to that order, the AR submitted that until today, AO has not passed any order. Therefore, the assesse is in appeal before us against this order of CIT (A) against setting aside the issue. 09. Before us, ld. AR for the assesse contended that : (i) For invoking provisions of section 14A the Act and imputing any disallowance by AO, he is required to satisfy himself that disallowance made by assesse is incorrect having regard to the books of accounts of the assesse and then only AO is empowered to work out any disallowance u/s 14A of the Act. He submitted that assesse itself has disallowed Rs. 1,87,35,000/- . AO has not stated that this disallowance is incorrect but he has rejected it, as it was not in accordance with Rule 8 D of the IT Rules 1962. He submitted that according to section 14A (2) of the Act satisfaction of AO with this aspect is mandatory and there is no such satisfaction recorded by the AO in the assessment order and, therefore, any disallowance made by him is not proper. He relied up on the decision of Honourable Delhi High court in case of CIT V Taikisha Engineering India Ltd [2015] 54 taxmann.com 109 (Delhi). (ii) He further stated that the this appeal is for AY 2006-07 and AO applied Rule 8D of the Income tax rules 1962 which is applicable from AY 2008-09 as held by Hon’ble Bombay High Court in the case of Godrej and Boyce Manufacturing Ltd. (supra) and, therefore, the disallowance made by AO invoking Rule 8D for AY 2006-07 is not correct. (iii) He submitted that assesse has invested as on 31.03.2006 Rs.49 crores in partnership firms and Rs.505 crores in various private limited companies. The assesse has not earned any dividend income from those private limited companies. However, during the year, it has earned profits from the partnership firms only which is exempt by virtue of the provisions of section 10(2A) of the Act. From those partnership firms, the assesse has earned profit of Rs.4,88,69,000/- as shown in Schedule 15 of the profit & loss account. This was the only exempt income earned by the assesse. It was submitted that these partnership firms are formed for holding of land for the purposes of real estate business of the company. Further, it was submitted that investment of Rs.505 crores as at 31.03.2006 has been made in several private limited companies for the purposes of holding land in those companies because of restrictions provided under Urban Land Ceiling Act at that moment. Therefore, the contention of the ld. AR for the assesse is that these investments are strategic investment for the purpose of real estate business of the assesse and, therefore, no disallowances can be made u/s 14A of the act on these investments. He submitted that assesse does not have any

Page 15 of 144 intention to earn any tax free dividend form those companies or to earn any exempt income from these partnership firms. For this relied on the decision of Honourable Delhi high court in case of i. CIT v. Holcim India P. Ltd. (ITA No. 486/2014) [Delhi]. ii. CIT .v. Oriental Engineers Pvt. Ltd (Delhi)(HC) ( 605/2012, Dt. 15.01.2013) where in it is held that expenditure on acquiring shares out of “commercial expediency” & to earn taxable income cannot be disallowed by invoking rule 8D of the IT rules 1962. (iv) The Assessing Officer has made only general observation and not recorded any finding that there is any nexus between borrowed funds and investment in shares and partnership firm and disallowance was made on the mechanical basis. In any case, investments in subsidiaries and firms are part of business activities, the claim of interest is permissible deduction under section 36(1) (iii) of the IT Act, 1961. He submitted that there is no nexus between the interests bearing funds invested in tax- free income generating investments such as partnership firms or private limited companies. He stated interest free funds available with the assesse as at 31.03.2006 in the form of share capital of Rs.40 crores and reserve & surplus of Rs.607 crores. He also stated that investment made allegedly in private limited companies and partnership firms is Rs.505 crores and Rs.49 crores respectively totaling to Rs.554 crores (wrongly mentioned at page 178 of the order of CIT (A) as Rs.614 crores) which generates or likely to generate tax free income. Therefore, the assesse has excess interest free funds of Rs.93crores (Rs 647crores minus Rs 554crores). Therefore according to him interest free funds exceeds investment in tax-free income generating investments, hence no disallowance on account of interest expenditure can be made. For this proposition he relied on the decisions of honorable Supreme Court in ACIT v. Tulip Star Hotels Ltd. (Supreme Court) (CC 7138-7140/2012) and honorable Bombay high court in CIT v. HDFC Bank Ltd. (2014) 107 DTR (Bom) 140 and CIT Vs. Reliance Utilities & Power Ltd. 178 Taxman 135/313 ITR 340/221 CTR (Bom.) 435 etc. (v) The next argument advanced was that profit from the firm in the hands of the assesse partner is doubly taxed income and is not exempt income. For this, he relied on the Circular No.636-dated 31.08.1992 wherein CBDT has held that the profits from the firm are doubly taxed income. Therefore, it was his contention that profits from the partnership firms are taxable and investment thereon cannot be taken in to consideration for any disallowance u/s 14A of the Act.

Page 16 of 144 (vi) Further, it is also submitted in respect of investment in subsidiary companies, that no tax free income is earned during the year as demonstrated from the chart showing the exempt income during the year. Therefore he submitted that these investments should be excluded for working out any disallowance on account of other expenditure also. He further submitted that it is settled legal position that no disallowance u/s 14A can be made in the absence of receipt of any exempt income, for this he referred several high court and tribunal decisions some of them are as under :- a) CIT v. Holcim India P. Ltd. (ITA No. 486/2014) [ Delhi High Court], b) CIT vs. Lakhani Marketing (P&H High Court) [ITA NO. 970/2008] (Dtd. 02.04.14), c) CIT vs. Cortech Energy Pvt. Ltd (Gujarat High Court)45 taxmann.com 116 , d) CIT vs. Shivam Motors (P) Ltd (Allahabad High Court) [ITA no. 88/2014] (dtd. 05.05.14), e) CIT vs. M/s. Delite Enterprises (Bombay High Court) [ITA No/ 110/2009] (dtd. 26.02.2009), f) REI Agro Ltd. v. DCIT (ITAT Kolkata) [ITA No.1331 & 1423/Kol/2011]

(vii) He further relied on the decision of Hon’ble Delhi High Court in the case of Cheminvest Limited V CIT 378 ITR 33 ( del) where Hon’ble Delhi High Court, reversing the decision of Special Bench of ITAT, has held that if there is no income from investments no disallowance u/s 14A can be made. Based on this decision, he submitted that on strategic investment in shares of private limited companies, the assesse company earned no exempt income in the relevant previous year and since the genuineness of the expenditure incurred by the assesse on interest account as well as the purposes of investments in these companies is not in doubt, the disallowance u/s 14A cannot be made. For this, he relied on the decision of Hon’ble Delhi High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA Nos. 486/2014 and 299/2014 order dated 05.09.2014 and para no.19 of the order of the Hon’ble Delhi High Court in the case of Cheminvest Limited (supra). He further submitted that for the purposes of working of any disallowance u/s 14A of the Act, only investments which have yielded tax free income is required to be considered and not those investments on which no income is earned. He submitted that those investments are to be excluded for working out disallowance of expenditure as well as interest. Hence according to him for the working out any disallowance u/s 14A of the Act, only investments, which are otherwise not excludible, from which tax free income is earned during the

Page 17 of 144 year are required to be taken as base for disallowance of an expenditure. In this case, it is already contended that no interest disallowance is called for, if any expenditure other than interest is disallowed only such amount of investments should be considered which has resulted in to exempt income. (viii) He further submitted that there is no nexus between the interest bearing funds invested in tax free income yielding investments. He relied on the decision of Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Reliance Utilities & Power Ltd. - (2009) 178 Taxman 135 (Bom) where in absence of nexus, the assesse should be given benefit of interest free funds available with it presumed to have been invested in assets wherever income is exempt. 10. Ld. DR submitted that (i) There is no grievance on the issue that Rule 8D does not apply for AY 2006-07 and, therefore, it is not contested. (ii) Further, he submitted that CIT (A) in para 24.9.1 has set aside the matter back to the file of the AO to compute the disallowance after verifying complete facts and figures and then the disallowance may be worked out. It was his contention that when the matter has been set aside to the file of the AO where opportunity was obviously would be given to the assesse to raise all plausible grounds; therefore assesse is not aggrieved by this finding of CIT (A). He submitted that mere setting aside an issue to the file of the AO in view of the decision of Hon’ble Bombay High Court for working out the disallowance cannot be said that issue is decided against the assesse. (iii) The next argument advanced by the ld. DR is that partner and partnership firms are separate entities for the purpose of taxation, therefore, it cannot be said that share from the partnership firm is doubly taxed income. He took us to the provisions of section 10(2A) of the Act showing that whatever is disallowed in the hands of the partnership firm is exempt in the hands of the partners and whatever is allowed in the hands of the partnership firm is taxed in the hands of the partners. Therefore, there is no double taxation on such income. He submitted that reliance placed by Ld. AR on the CBDT circular is misplaced. (iv) He further submitted that strategic investments are required to be excluded is not a proposition enshrined in the provisions of section 14A of the Act. The strategic investments are also made for earning of profit and, therefore, their exclusion for working of disallowance u/s 14A of the Act is incorrect.

Page 18 of 144 11. In rejoinder, the ld. AR of the assesse submitted that though the issue is remanded by the CIT (A) to the file of the AO but pursuant to that order till date no order has been passed by the AO. He submitted that when the full details are available with the CIT (A) with leading judicial precedents of High courts then it is incorrect for an appellate authority to set aside the issue to the file of lower authorities and when such lower authorities do not pass order on those directions of appellate authority, appellant is seriously aggrieved with this. He further submitted that setting aside by the CIT (A) to the file of AO is also not proper when complete details are available with the CIT (A). He submitted that setting aside is a futile exercise and therefore assesse is aggrieved by the order of CIT (A). 12. We have considered the rival contentions and perused the relevant paper books filed by the ld. AR and relevant decisions cited before us. Assesse has made investments in tax free income earning investments as under :- Investments As at ( Rs. in lakhs ) 31.3.2006 31.3.2005 31.3.2004 Unquoted Shares of 505 133 133 companies Partnership Firms 49 41 45 Total 554 174 178 Assesse has earned tax free income as under:- Assessment Year Particulars 2006-07 2005-06 2004-05 Share of Profit 4,88,69,429 9,81,36,794 8,84,32,899 from Partnership Firms (net) Exempt income - - - from subsidiary companies Other Exempt - - 10,000 Income (Dividend) Total 4,88,69,429 9,81,36,794

Page 19 of 144 8,84,42,899 13. With the above facts we proceed to decide the each of the relevant arguments advanced by the parties as under :- (i) It is fairly conceded by the ld. DR that the provisions of Rule 8D of The Income tax Rules 1962 is applicable form AY 2008-09 and not in AY 2006-07 and therefore is not applicable to the impugned assessment year in the appeal. Therefore, we confirm the order of CIT (A) that disallowance, according to Rule 8D of the Income Tax Rules 1962 cannot be made in the case of the assesse for this year. (ii) It is also the matter of contention before us that AO has not at all recorded his satisfaction regarding incorrectness of the claim of the disallowance made by the assesse which is mandatory u/s 14A (2) of the Act . It is a matter of record that that assesse has worked out disallowance u/s 14A of Rs. 1,87,35,000/- and Ld. AO has rejected the disallowance made by assesse on the sole ground that disallowance computed by the assesse is not in accordance with Rule 8D of the Income tax Rules 1962. On perusal of the assessment order, we do not find that the AO has recorded any satisfaction regarding the correctness or otherwise of the expenditure disallowed by the assesse. Therefore, in our view, without this mandatory exercise not conducted by the AO, no disallowance can be imputed u/s A of the act by Assessing officer on its own. Our view is also supported by the decision of Honourable Delhi High Court in the case of Maxopp Investment Ltd. V. CIT [2011] 347 ITR 272 (Delhi) has held that “29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assesse, is not satisfied with the correctness of the claim of the assesse in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not

Page 20 of 144 satisfied with the correctness of the claim of the assesse in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assesse in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assesse claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assesse specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub- section (3) applies to cases where the assesse asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assesse in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assesse, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assesse with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same.” [Underline supplied by us] Further Honourable Delhi high court in case of CIT V Taikisha Engineering India Ltd[2015] 54 taxmann.com 109 (Delhi) has also held as under:- “17. More important and relevant for us are the observations in Godrej and Boyce Mfg. Co. Ltd. (supra) on requirement and stipulation of satisfaction being recorded by the Assessing Officer with reference to the

Page 21 of 144 accounts under Section 14(2) of the Act and Rule 8D(1) of the Rules. It was observed:- "Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the assesse, having regard to the accounts of the assesse. When a statute postulates the satisfaction of the Assessing Officer "Courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated". (M. A. Rasheed v. State of Kerala [1974] AIR 1974 SC 2249*). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assesse a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assesse, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under sub-section (2) of section 14A. As we shall note shortly hereafter, sub- rule (1) of rule 8D has also incorporated the essential requirements of sub-section (2) of section 14A before the Assessing Officer proceeds to apply the method prescribed under sub-rule (2)." 18. It is in this context we feel that the findings recorded by the CIT (A) and the Tribunal are appropriate and relevant. The clear findings are that the assesse had sufficient funds for making investments in shares and

Page 22 of 144 mutual funds. The said findings coupled with the failure of the Assessing Officer to hold and record his satisfaction clinches the issue in favour of the respondent assesse and against the Revenue. The self or voluntary deductions made by the assesse were not rejected and held to be unsatisfactory, on examination of accounts. Judgments in Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) would be relevant if the satisfaction of the Assessing Officer is in issue, and such question of satisfaction is with reference to the accounts. 19. However, the decisions relied upon by the Tribunal in the case of Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) could not be now applicable, if we apply and compute the disallowance under Rule 8D of the Rules. The said Rule in sub Rule (2) specifically prescribes the mode and method for computing the disallowance under Section 14A of the Act. Thus, the interpretation of clause (ii) to sub Rule (2) to Rule 8D of the Rules by the CIT(A) and the Tribunal is not sustainable. The said clause expressly states that where the assesse has incurred expenditure by way of interest in the previous year and the interest paid is not directly attributable to any particular income or receipt then the formula prescribed would apply. Under clause (ii) to Rule 8D(2) of the Rules, the Assessing Officer is required to examine whether the assesse has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income or receipt. In case the interest paid was directly attributable to any particular income or receipt, then the interest on loan amount to this extent or in entirety as the case may be, has to be excluded for making computation as per the formula prescribed. Pertinently, the amount to be disallowed as expenditure relatable to exempt income, under sub Rule (2) is the aggregate of the amount under clause (i), clause (ii) and clause (iii). Clause (i) relates to direct expenditure relating to income forming part of the total income and under clause (iii) an amount equal to 0.5% of the average amount of value of investment, appearing in the balance sheet on the first day and the last day of the assesse has to be disallowed.

Page 23 of 144 20. However, in the present case we need not refer to sub Rule (2) to Rule 8D of the Rules as conditions mentioned in sub Section (2) to Section 14A of the Act read with sub Rule (1) to Rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub Rule (2), without elucidating and explaining why the voluntary disallowance made by the assesse was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the re- computation. Therefore, the respondent assesse would succeed and the appeal should be dismissed.” [Underline supplied by us] Therefore on this ground, amongst others, we are of the view that no disallowance u/s 14A can be made by AO. (iii) Ld. AO he has made the proportionate disallowance of interest of Rs. 1450.67 lakhs applying the formulae of the total interest in proportion to total investments of the assesse and then deriving the amount relevant to the investments in companies and partnership firms. Therefore, it is apparent that there is no nexus established of interest bearing funds or non-interest bearing funds investment in the securities earning tax-free income. It is an admitted fact that assesse has interest free funds available as per the balance sheets submitted before us and tabulated by CIT (A) at page no.178 of his order. According to that statement, as at 31st March 2006, assesse has interest free fund available to the extent of share capital of Rs.40 crores and reserves and surplus amounting toRs.607 crores making total available interest free funds at Rs.647 crores,. Against that, assesse has invested in unquoted equity shares of subsidiary companies and investment in partnership firms of Rs.505 crores and Rs.49 crores respectively, which makes total tax-free income generating investment of Rs. 554 Crores. Apparently, the interest free funds available of Rs.647 crores exceeds against the investment generating tax-free income of Rs614 crores, therefore, according to us, no disallowance of interest expenditure u/s 14A can be made. Hon’ble Bombay High Court in the case of Reliance Utilities Limited reported in 313 ITR 340 ( Bom) has held that :- “10….. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available

Page 24 of 144 with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT.” Though above decision was rendered in context to allowance of interest u/s 36(1) (iii) of the act , however honourable Bombay high court in case of HDFC bank limited [WP 1753 of 2016][dated 25.02.2016] has approved ratio of this decision while adjudicating on disallowance u/s 14A of the Act. Therefore the applicability of the above proposition rendered in context to Section 36(1) (iii) of the act equally applies to provisions of section 14A of the Act. According to that decision, if interest free funds available with assesse are more than non-interest bearing advances or investment, the nexus is required to be proved by the revenue for making any disallowance and in absence of such nexus the presumption is to be drawn that investments in tax free income yielding investments has been made out of interest free funds available with the assesse. Therefore, respectfully following that decision of Hon’ble Bombay High Court, no disallowance on account of interest expenditure u/s 14A of the act can be made. (iv) Regarding the arguments of the parties that investments in companies, group concern is for the purposes of the business and therefore the investments made in unquoted equity shares of various subsidiary companies or associated companies should not be considered for making disallowance u/s 14A of the act. These investee companies are admittedly holding land, as assesse is engaged in the business of real estate as developer and is developing housing complexes, commercial complexes etc. Uncontroverted argument of the AR of the assesse was that all these investments are related to investment in real estate sector which is the sector in which assesse is engaged in to and all those investments have been invested further in to the holding of land or the projects. Investment in all those subsidiary companies, which is amounting to Rs.505 crores as at 31.03.2006 are part of the strategic business investment of the company. It is not disputed by the rival parties that assesse has controlling interest in those companies. On this issue ld. CIT (A) has observed at Page 105 Para 17.39 as under :- “Admittedly, income from subsidiary is from “profit or gains of business” i.e. Loans and advances given to subsidiaries in the normal

Page 25 of 144 course of carrying on business of the appellant. The appellant is in the business of real estate development either directly as well as indirectly through the subsidiary companies. Therefore, the act of passing on interest bearing monies to the subsidiaries is also a part of the business model of the appellant.” Before us, ld. AR has relied on the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Holcim India Pvt. Ltd. In ITA 486 /2014 and CIT vs. Oriental Engineering Pvt. Ltd. In ITA 605/2012 dated 15.01.2013 further several decisions of various coordinate benches were also advanced. Principle enunciated by all these decision is that in case the investment is for the purposes of the business but not to earn tax-free income such as dividend etc. disallowance cannot be made. It is further stated before us that coordinate Bench of ITAT, Mumbai in the case of Garware wallropes Ltd V ACIT in ITA No.5408/Mum./2012 in para no 2.4 has held that “We find merit and substance in the contention of the assesse on this point because the investment has been made by the assesse in the group concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assesse would have incurred any administrative expenses in holding these investments. The AO has not brought on record any material to show that the assesse has incurred any expenditure in relation to the income which does not form part of the total income.” Assesse has also made investments in group concerns with a business object and also hold controlling interest but not in the shares of any unrelated party which shows that primary object of investment is for holding controlling stake in the group concern and furthering the business of the assesse. It is not the dominant object of the assesse to earn dividend from investments in private limited/ limited companies and to earn share of profit from partnership firms. According to the assesse dominant object of the assesse investing in it is to further the real estate business of the appellant company. Before us, ld. DR could not show that the intention of the assesse of investment in them is not for the controlling stake in those companies and these investments are not made for the purpose of the

Page 26 of 144 business of company. On conjoint reading of all these decisions cited before us, we are of the view that expenditure of interest as well as other expenditure cannot be disallowed u/s 14A of the act because of i. Investment made by the assesse in those subsidiaries companies where assesse has admittedly controlling stake. ii. Real-estate is the business of the assesse and in turn investments made in the companies as well as partnership firm are also engaged in the real estate business, therefore such investment is in furtherance of the business of the assesse and is driven by the “ business expediency’ test . Therefore, we hold that provisions of section 14A the Act cannot be invoked for making any disallowance on strategic investments made by the assesse that is not with a view to earn any exempt income but for the business purposes of the assesse. We held so accordingly. (v) It is also an admitted fact that on the investments made by the assesse in various subsidiaries and group companies no dividend income is received during the year. Hon’ble Delhi High Court in Cheminvest Ltd. vs. CIT reported in 378 ITR 33 has held that there should be an actual receipt of income for making any disallowance u/s 14A of the act with respect to such investments. Provisions of section 14A envisage that there should be an actual receipt of income, which is exempt during the relevant previous year, and then only provisions of section 14A can be invoked. Admittedly, there is no income arising out of investments made in subsidiaries companies, group companies where assesse has controlling interest. Therefore we are of the view that these investments cannot be considered for working out disallowance of interest as well as other expenditure u/s 14A, therefore, according to us, no expenditure including interest expenditure shall also be disallowable on these investments. (vi) Investment in partnership firms has yielded tax-free income during year of Rs.4,88,69,429/- which is noted at page no.180 of the order of the CIT (A).It is an admitted fact that whole of such income has arisen out of investment in partnership firm and its share of the assesse from the firm which is exempt u/s 10(2A) of the Act. Admittedly, there is an exempt income, which is arising from the investment in partnership firm. We have already held that there cannot be disallowance on account of interest in view of interest free funds exceeding investment in securities earning tax free income. Therefore, the question arises before us is that whether disallowance of other expenditure is required to be made

Page 27 of 144 with respect to investments in partnership firm which has yielded tax free income u/s 10(2A) of the Act. This issue has been answered by Special Bench of ITAT in the case of Vishnu Anant Mahajan vs. ACIT 16 ITR(Trb) 621 (Ahd.)(SB) [137 ITD 189]that where exempt income is derived from partnership firm u/s 10 (2A) of the act, provisions of section 14A can be invoked for disallowance of expenditure. In that decision special bench of ITAT has considered all the arguments advanced before us and therefore in view of this decision these arguments are rejected. However, admittedly some expenditure is required to be disallowed as assesse himself has stated and made on its own some disallowance u/s 14A of the act. According to the table of CIT (A) at page 178, there is an investment of Rs.41 crores in such partnership as on 01.04.2005 and Rs.49 crores as at 31.03.2006 at the end of the assessment year, which gives an average of Rs.45 crores, therefore, appropriate amount of expenditure is required to be worked out for disallowance. Though we have already held that Rule 8D does not apply to this year, however, it would be mammoth exercise which would be required to be done by the AO to work out disallowance of the expenditure other than interest expenditure related to earning of tax free income being share of profit from the partnership firm after recording his satisfaction on incorrectness of the disallowance made by Assesse. Therefore we are of the view that if the rate suggested in Rule 8D(iii) of 0.5% on the average investment for working out disallowance of other expenditure other than interest it will end whole controversy. In fact, on this proposition, ld. AR of the assesse also agreed and Ld. DR did not contest it. Therefore, to this extent, in view of various judicial pronouncements and the decision of Special Bench of ITAT, disallowance on account of expenditure excluding interest expenditure on average investment in partnership firms be worked out @ 0.5% of Rs 45 crores which is amounting to Rs. 22,50,000/-. As the assesse has made higher disallowance then this amount, no separate disallowance on this account can be imputed. (vii) The argument of the ld. DR that as CIT (A) has only set aside the issue to the file of the AO, assesse cannot be said to be agreed by that order. We are not in a position to reconcile ourselves with the argument of the ld. DR when despite the appellate order of CIT (A) passed on 21.03.2011 till the date of hearing i.e. even after five years, the appeal effect order making the disallowance has not been made by the AO. In view of this, we are of the view that by setting aside the issue to the file of the AO by CIT (A) matter has not been attended and addressed for five years, makes assesse really aggrieved. Further, in spite of the fact that all

Page 28 of 144 relevant details were available before the CIT (A) we see no reason to set aside the issue to the file of AO. We are conscious of our duty as final fact finding authority and, therefore, we modify the direction of CIT (A) in setting aside the issue in an open ended manner with our direction of computing disallowance u/s 14A of the Act. We are conscious of the decision of the coordinate Bench of ITAT in the case of Zuari Leasing and finance corporation Limited V ITO 112 ITD 205 (Del.)(TM) wherein in para no. 9 and 10 it has been held that “9. I have given careful thought to the rival submissions of the parties. As noted earlier, the learned Accountant Member has remanded the matter to the Assessing Officer, whereas the learned Judicial Member, in his proposed order, has directed that disallowance of bad debt be deleted. Therefore, the first question to be examined relates to the principles, which are to be followed by the appellate authorities while exercising discretion to remand the matter. For above proposition, I would like to quote and rely upon the following decisions :— (1)In the case of M.G. Shahani & Co. (Delhi) Ltd. v. Collector of Central Excise 1994 (73) ELT 3 (SC) it is observed :— "The complaint of the appellant before us, for which we find sufficient justification, is that the Tribunal should have itself gone through the evidence and rendered a finding because all the relevant materials were before the Tribunal. To our mind, it appears that the Tribunal has adopted an easy course in remanding the matter. The remand was superfluous when the parties have argued the matter at length. To characterize the order of the Collector as laconic is not correct since he has written a detailed order including reference to relevant case law. The Tribunal has adopted an easy course of remanding the matter to Collector, when it could have decided the same. The remand was superfluous when the parties have argued the matter at length and relevant material for decision was available on record. The CEGAT should have itself analysed the evidence and given a factual conclusion." (2)In the case of United Commercial Bank v. CIT [1982] 137 ITR 4341 (Cal.) wherein it has been held that the Tribunal has power to remand a case for further investigation of facts but such power has to be exercised with

Page 29 of 144 proper discretion and it should not be exercised if all the basic facts necessary for the disposal of the matter are already on record and further if these facts appear in the order of the lower tax authorities. (3)In the case of Maharani Kanak Kumar Sahibav.CIT [1955] 28 ITR 462 (Pat.) - Remand should only be made in very rare cases and should be used sparingly and only in cases where the Tribunal, after examination of material already placed on record by way of evidence, takes a view that it is not possible for it to make a just order - Surinder Pal Verma v. Asstt. CIT [2004] 89 ITD 129 (Chd.) (TM). (4)In the case of Karnataka Wakf Board v. State of Karnataka AIR 1996 Kar. 55 at pages 63 & 64, it has been held that : "Where the party had an opportunity of adducing evidence in the case but with open eyes failed to adduce that evidence, the case should not be remanded to give a second chance to the party to adduce that evidence. The policy of the law is that once that matter has been fairly tried between the parties, it should not, except in special circumstances, be reopened and retired. In a recent decision their Lordships of the Supreme Court laid down that power to order retrial after remand, where there had already been a trial on evidence before the court of first instance, cannot be exercised merely because the Appellate Court is of the view that the parties who could lead better evidence in the Court of first instance have failed to do so." (5)In the case of Ghasi Ram Dayanand v. CST 92 STC 478 at the rate of 480, 481 (All.), it has been held that remand cannot be made for the purpose of de novo trial for permitting the parties to adduce fresh evidence to fill up lacuna or to decide a point when material is already on record. (6)Powers of the Tribunal in the matter of setting aside an assessment are large and wide, but these powers cannot be exercised to allow the Assessing Officer an opportunity to patch up the week parts of his case and to fill up the omission by giving another innings— Asstt. CIT v. Anima Investment Ltd. [2000] 73 ITD 125 (Delhi)

Page 30 of 144 Asstt.CIT v. Arunodoi Apartments (P.)Ltd. [2002] 123 Taxman 48 (Gau.)(Mag.) Smt. Neena Syal v. Asstt.CIT [1999] 70 ITD 62 (Chd.). (7)The Courts have held that appeals are not to be decided for giving ‘one more innings’ to the lower authorities in the appellate jurisdiction. -Rajesh Babubhai Damania v. CIT [2001] 251 ITR 5411 (Guj.) -CIT v. Harikishan Jethalal Patel [1987] 168 ITR 4722 (Guj.). Remand not for the benefit of the party seeking it to fill up gaps." 10. It is clear from above that primary power, rather obligation of the Tribunal, is to dispose of the appeal on merits. The incidental power to remand, is only an exception and should be sparingly used when it is not possible to dispose of the appeal for want of relevant evidence, lack of finding or investigation warranted by the circumstances of the case. Remand in a casual manner and for the sake of remand only or as a short cut, is totally prohibited. It has to be borne in mind that litigants in our country have to wait for long to have fruit of legal action and expect the Tribunal to decide on merit. It is, therefore, all the more necessary that matter should be decided on merit without allowing one of the parties before the Tribunal to have another inning, particularly when such party had full opportunity to establish its case. Unnecessary remands, when relevant evidence is on record, belies litigant’s legitimate expectations and is to be deprecated. Having regard to aforesaid principle, it is necessary to look into records to see whether there is sufficient material on record to dispose of the issue on merit and there is no need to remand the issue to provide a fresh inning to the revenue.” Ld. CIT (A) has remanded the matter in a causal and as a shortcut, which is totally prohibited. It has to be borne in mind that litigants in our country have to wait for a long time to have fruit of legal action. The situation now, according to us, requires a change and when issue is not attended for half a decade even when all evidences, judicial precedents, principles of taxation are available, the issue requires to be decided on merit which we are duty bound to perform. Therefore,

Page 31 of 144 we reverse the finding of ld. CIT (A) for setting aside the issue to the file of the AO for working out disallowance u/s 14A of the Act. Therefore we hold that there cannot be disallowance u/s 14A of the act on the basis of arriving cumulative facts that (i) in absence of satisfaction recorded by the AO u/s 14A (2) of the act (ii) interest free funds available in excess of investments in earning tax free securities, (iii) the investments in partnership firms and companies are for the business purposes of the assesse (iv) No dividend earned by the assesse on investments in unquoted share of the private limited companies. We have also noted that assesse has worked out disallowance on its own of Rs.1,87,35,000/-. Therefore, in the end, we reverse the order of CIT (A) and direct the AO to restrict the disallowance u/s 14A of the Act to Rs.1,87,35,000/-, which disallowance has been made by assesse on its own.. In the result, ground no.3 of the appeal of the assesse is allowed with above direction. 14. Ground No 4 of the appeal is as under :- “4. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in rejecting the books of account of the appellant company and invoking the provisions of section 145(3) of the Income Tax Act, 1961, on wholly illegal and untenable grounds by treating the appellant's grounds as infructuous. [Page 24-25 of CIT(A)'s Order] “ 15. This ground of appeal is not pressed by the assesse. Therefore, that ground of appeal is dismissed. 16. Ground no 5 of the appeal is against the special audit u/s 142(2A) of the act and assesse has raised following grounds of appeal “5. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the action of the Assessing Officer in directing the assesse to get the accounts audited under section 142(2A) of the I.T. Act,

Page 32 of 144 1961, by the Special Auditors and dismissing the appellant's appeal on this ground as infructuous. [Page 25 of CIT(A)'s Order] 5.1 The learned CIT(A) ought to have held that no genuine cause existed for ordering Special Audit u/s 142(2A) of the Income Tax Act as assessee's accounts were not complex and these accounts were being maintained for the last so many years.” 17. These grounds of appeal are not pressed at the time of hearing of appeal and therefore same is dismissed. 18. Ground no.6 of the appeal of the assesse is as under:- “6. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.3,67,27,062/- out of total addition of Rs.3,92,27,313/- made by the Assessing Officer in respect of credit balance in Stale Cheques Account as on 31.03.2006 by holding the same as outstanding for a very long period and in the nature of trading receipts. [Page 25-31 of CIT(A)'s Order]”

Page 33 of 144 cheques are not cleared because of any reason because of non-presentation by the parties in their banks the entry is passed in the books of accounts by crediting stale cheque account and debiting the bank account. Therefore, in nutshell, on non-clearing of those cheques in the bank account of assesse for the control purpose, stale cheque account is credited by effecting the bank accounts. It does not have any outflow or inflow of the money but merely a control account. From those stale accounts as soon as any cheque is cleared, an entry is passed by debiting the stale cheque account and crediting the bank account. This event occurs when these cheques are presented by the parties in their bank accounts for clearance. During the FY 2005-06, Rs.38,04,671/- amount of such cheques were transferred in stale cheques account and an amount of Rs.1,64,53,036/- has cleared on account of presentation of those stale cheques by various vendors. During the assessment proceedings, AO was not satisfied that these accounting transactions treated this amount as revenue receipt of the assesse because, according to him, this amount has a direct nexus with the sale or business of the assesse and thereby made an addition of Rs.3,92,27,313/-. 21. Assesse carried the matter before the CIT(A) who in turn deleted the addition to the extent of Rs.18,21,798/- but confirmed the addition of Rs.3,67,27,062/-. The CIT (A) has granted relief to the extent of whatever cheques cleared from the bank account of the assesse subsequently. The CIT (A) also deleted the addition of Rs. 6,78,463/- which is to be transferred to investor protection fund account. Balance amounts were confirmed by CIT (A) because most of the cheques were outstanding for clearance for more than three years. Therefore, he held confirming the view of the AO that these are in the nature of trading receipts. Against this confirmation of addition of Rs.3,67,27,062/-, the assesse is in appeal before us. 22. The ld. AR of the assesse submitted that the accounting entries shows that this amount is pertaining to the cheques issued to various parties and some have not been deposited by those parties in their bank account and therefore for the control purposes, these entries have been passed in the books of accounts. These accounting entries have been accepted in past several years and in none of the years, the revenue has rejected it. The method of accounting is within the knowledge of the income tax department who is assessing the assesse u/s 143(3) for all those years and has accepted it in past. To support his contention, he drew our attention to page 39 of the assessment order where the details of such stale cheques are given from AY 2002-03 to 2006-07. He further argued that there is an opening balance of Rs.5.18 crores as on 01.04.2005, which is reduced to Rs.3.92 crores at the end of the year, the only amount of addition during the year is Rs. 38.04 crores, and subtraction is Rs.1.64 crores. Therefore, there is no element of income during this year and the taxability of Rs.3.92 crores during this year is against the principles of taxation. He submitted that outstanding of

Page 34 of 144 Rs.3.92 crores is shown in the balance sheet of the company giving the full list of the parties with the names and addresses is available on record. It is, therefore, submitted that it is an admitted liability of the assesse and therefore it cannot be said to be income of the assesse. He further submitted that the addition is made u/s 41(1) of the Act. Assesse has not claimed any deduction of this sum and therefore provisions of section 41(1) cannot be applied. Therefore, there is no provision in the Income tax act by which this sum can be taxed as income. He further argued that according to the rule of consistency and on the basis of the burden of proof which is on revenue in this case, no addition should have been made. 23. Against this, the ld. DR submitted that though addition cannot be made in the case of the assesse by invoking the provisions of section 41(1) of the Act but these amounts are all advances and initial money receipts of the assesse. He relied very heavily on the order of the AO and various case laws relied upon. He vehemently submitted that the issue is squarely covered in favour of the revenue as per the decision of Hon’ble Delhi High Court in the case of CIT vs. State Trading Corporation of India Ltd. - 247 ITR 114. In the end, he painstakingly argued that the addition confirmed by the CIT (A) is correct as those cheques are outstanding for more than 3 years. It was also stated that case laws relied upon by the assesse do not apply to the facts of the case. He also tried to distinguish that the decision of CIT vs. G.K. Patel and company- 212 taxman 384 (Guj.) relied upon by the assesse for the argument that addition is unsustainable otherwise also as the income does not belong to the year under reference. He submitted that as the issue is decided u/s 41(1) which is already considered by the revenue cannot now come to the rescue of the assesse. 24. In rejoinder, ld. AR submitted that the amount of the liability is alive and continuing. These liabilities are already accepted by the assesse in its balance sheet with full particulars and therefore assesse is duty bound to honour those cheques as and when they are depositing in the bank or presented to the assesse for revalidation. He further drew our attention to the decision of Hon’ble Gujarat High Court submitted in his synopsis stating that the facts of this case and the ratio laid down is properly applicable and the outstanding liability cannot be treated as revenue trading receipt of the current year as they are carried forward for several years. He submitted this for the reason that merely because the cheques are outstanding for more than3 years not presented in the bank account of the assesse cannot become the income of the assesse in this year. Therefore, he submitted that addition confirmed by the CIT (A) is on erroneous reading of the facts and law. 25. We have carefully considered the rival contentions on this ground. As per the accounting practice already recorded by above while recording the facts of this ground, it is apparent that this stale account cheque is appearing in the balance sheet of the company and details with the name, address, cheque numbers, date of cheque and the party to whom it is issued is

Page 35 of 144 available on record. The accounting entry by debiting the bank account and credited in the stale cheque account is an accepted corporate accounting practices for the controlling of day- to-day bank balance and reconciling it with the balance shown by bank in the account of the assesse. The basic intent and object of maintaining this account is that assesse can identify the cheques which have been issued to various vendors and other parties if deposited by them in the bank account after the due date prescribed under the Negotiable Instrument Act or for the reason that those cheques have become ineligible for clearance then they can be identified and subsequent validation etc. or any other corrective measure can be initiated. It is not the case of the AO that the details of those stale cheques with respect to the party, amount, date of issue of cheque, bank from which it is issued, is not available and the parties have waived their right to receive these sums. Furthermore, we fail to understand that accounting entries, which are passed in the books of accounts for the purpose of better control of the account and which is a practice being followed by various large corporate when there are voluminous banking transactions, can generate an income which is chargeable to tax. It is also incomprehensible that cheques are issued to the vendors who could not for reasons best known to them did not present the cheques in those bank accounts can create an income chargeable to tax in the hands of the assesse company who has issued the cheques. We are mindful of the fact that these cheques are outstanding for more than three years but nonetheless the liability of the assesse company has not extinguished, the cheques issued in the name of various parties whose existence is not doubted and it is also admitted that they have not waived their right to receive this amount and assesse is showing this amount in its balance sheet as liability and has not written it back to the profit and loss account of the assesse. Further there are regular addition and subtraction from these accounts which shows that the liabilities do exist and are continuing. It is not at all the case of the revenue that cheques have not been handed over to the parties and are lying with the company. On a specific query from the Bench, it was accepted by the ld. DR that cheques are not lying with the company and it was confirmed by the ld. AR that cheques have already been issued in the past years to the respective parties. This statement is also appreciated on looking at the movement of the account tabulated in the assessment order that stale cheque account is just an accounting entry for the control purposes. This statement is also appreciated on looking at the movement of the account tabulated in the assessment order that stale cheque account is just an accounting entry for the control purposes. Ld. CIT (A) has confirmed this addition merely because these cheques are outstanding for long period and, therefore, it has become a trading receipt is erroneous. The first reason is that it is not at all the receipt of any sum by the assesse but it is just an accounting entry; the second reason is the inflow of the cheque or outflow of the money has not occurred during the year but in

Page 36 of 144 past; and thirdly, merely because the cheques have been issued to the parties before three years and has not been encashed by those parties cannot go against the assesse when full details of those parties along with the details of payments against which the cheques have been issued is available on record. Further, if the liability remains unpaid for more than three years cannot extinguish that liability because assesse is year on year confirming its liability in stale cheque account by showing it into the balance sheet. Therefore, it cannot be said that by action on both the parties, the liability has extinguished. Furthermore, the AO could not find any evidence that the parties to whom the cheques have not been issued and not presented in the bank account of the assesse do not exist. Further, the accounting entries also show that there is no income occurring during the year in the hands of the assesse as during the year addition to that stale cheque account is only Rs.38,04,671/- and assesse has shown a clearing during the year of Rs.1,64,53,036/- from that account. Honourable Delhi high court in case of Commissioner of Income-tax v. Shri Vardhman Overseas Ltd. [2012] 343 ITR 408 (Del) where in honourable High court was concerned with amounts paid for expenses remaining outstanding in the books for more than 4 years has held that:- “11. The question before us is limited to the applicability of Section 41(1) of the Act. The section in so far as it is relevant for our purpose is as below:- “Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee ( hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or xx xxxxxxxxxxxxxxxxxxxxxx [Explanation 1—For the purposes of this sub-section, the expression “loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof” shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.]”

Page 37 of 144 (Underlining ours) We may straightaway clarify that Explanation 1 which was inserted w.e.f. 1.4.1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee’s accounts. Therefore, as rightly pointed out by the learned standing counsel for the income tax department, the question has to be considered de hors Explanation 1 to Section 41(1). When we do so, what we find from clause (a) is that in order to invoke the section, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The argument of the learned standing counsel that the non- payment or non-discharge of the liability in favour of the sundry creditors resulted in “some benefit in respect of such trading liability” in a practical sense or common sense and, therefore, the section was rightly invoked, with respect, overlooks the words following the above quoted words, namely, “by way of remission or cessation thereof”. As a matter of construction, it seems to us that it is not enough that the assessee derives some benefit in respect of such trading liability, but it is also essential that such benefit arises “by way of” remission or cessation of the liability. The words in clause (a) viz., “some benefit in respect of such trading liability by way of remission or cessation thereof” should be read as a whole and not in the manner suggested by the learned standing counsel. 12. That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words “remission” and “cessation” are legal terms and have to be interpreted accordingly. In State of Madras v. Gannon Dunkerley& Co., AIR 1958, SC 560, Venkatarama AiyyarJ. explained the general rule of construction that words used in statutes must be taken in their legal sense and observed:- “The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting

Page 38 of 144 an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law”. In our opinion, this rule should be applied to the interpretation and understanding of the words “remission” and “cessation” used in the section. 13. In Bombay Dyeing & Manufacturing Co. Ltd. v. State of Bombay, AIR 1958 SC 328, the legal position was summarized by T.L.VenkataramaAiyar, J., in the following manner:- “It has been already mentioned that when a debt becomes time-barred, it does not become extinguished but only unenforceable in a Court of law. Indeed, it is on that footing that there can be statutory transfer of the debts due to the employees, and that is how the Board gets title to them. If then a debt subsists even after it is barred by limitation, the employer does not get, in law, a discharge therefrom. The modes in which an obligation under a contract becomes discharged are well-defined, and the bar of limitation is not one of them. The following passages in Anson’s Law of Contract, 19th Edition, page 383, are directly in point: “ At Common Law lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration. But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicaeutsi finis litium. The remedies are barred, though the right is not extinguished.” And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that requirement is the normal course he is not likely to be exposed to action by the creditor.”(underlining ours) This was also the view taken by the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra). 14. Since the Tribunal has relied on the judgment of the Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (supra) we may usefully refer to the decision in order to appreciate the controversy therein and the ratio laid down. That was a case of a private limited company. In respect of the assessment year 1965-66, it transferred a sum of 3,45,000/- from the suspense account running from 1946-47 to 1948-49 to the capital reserve account. The Income Tax Officer found that a sum of 1,29,000/- out of the above amount repayment deposits and advances which were paid back by the assessee. He, therefore, deducted this amount from the amount of 3,45,000/- and the balance of 2,56,529/- was brought to assessment under Section 41(1) of the Act. The

Page 39 of 144 assessee appealed unsuccessfully to the Appellate Assistant Commissioner and thereafter carried the matter in further appeal to the Tribunal. Its contention before the Tribunal was that the unilateral entry of transferring the amount from the suspense account to the capital reserve account would not bring the said amount within Section 41(1). The contention was accepted by the Tribunal whose decision was affirmed by the Calcutta High Court [reported as CIT v. Sugauli Sugar Works (P) Ltd. (1983) 140 ITR 286]. The revenue carried the matter in the appeal to the Supreme Court. The contention of the revenue (as noted at page 520 of 236 ITR) was that on the facts of the case, the liability came to an end as a period of more than 20 years had elapsed and the creditors had not taken any steps to recover the amount and consequently there was a cessation of the debt which would bring the matter within the scope of Section 41(1). It may be noted that the contention of the revenue in the case before us is precisely the same. To recapitulate, the learned standing counsel contended before us that since a period of more than 4 years has admittedly elapsed from the debt on which the debts were incurred and since the creditors had not taken any steps to recover the amount, there was a cessation of the debts which brought the matter under Section 41(1). Turning back to the judgment of the Supreme Court, we find that the judgment of the Calcutta High Court under appeal was affirmed for two reasons. The first reason was based on a judgment of the Full Bench of the Gujarat High Court in Commissioner of Income-Tax v. Bharat Iron and Steel Industries (1993) 199 ITR 67. It was held by the Supreme Court that the Gujarat High Court was right in saying that in order to attract taxability under Section 41(1) the assessee should have obtained, whether in cash or in any other manner whatsoever, any amount in respect of the loss or expenditure earlier allowed as a deduction. This part of the reasoning, in the light of the amended clause (a) of sub-section (1) of Section 41 may not be relevant after substitution of the said clause by the Finance Act, 1992 with effect from 1st April, 1993, by which the words “some benefit in respect of such trading liability by way of remission or cessation thereof” were inserted. After the amendment, therefore, it is not necessary that in respect of a trading liability earlier allowed as a deduction, the assessee should have received any amount, in cash or otherwise, but it is necessary that the assessee should have received “some benefit” in respect of such trading liability. However, we have already seen that this benefit in respect of trading liability should be “by way of remission or cessation of the liability”, after the

Page 40 of 144 amendment made to the clause with effect from 1st April, 1993. The second part of the reasoning of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) is based on the interpretation of the words “cessation or remission” of the trading liability. The Supreme Court noticed a judgment of the Bombay High Court in J.K. Chemicals Ltd. v. CIT (19966) 62 ITR 34 in which it was explained as to what could bring out a cessation or remission of the assessee’s liability. The observations of the Bombay High Court in the judgment cited above are as under:- “The question to be considered is whether the transfer of these entries brings about a remission or cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees. We fail to see how a debtor, by his own unilateral act, can bring about the cessation or remission of his liability. Remission has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt –the debtor making payment thereof to his creditor. Transfer of an entry is neither an agreement between the parties nor payment of the liability. We have already held in Kohinoor Mills’ case [1963] 49 ITR 578 (Bom) that the mere fact of the expiry of the period of limitation to enforce it, does not by itself constitute cessation of the liability. In the instant case, the liability being one relating to wages, salaries and bonus due by an employer to his employees in an industry, the provisions of the Industrial Disputes Act also are attracted and for the recovery of the dues from the employer, under section 33C(2) of the Industrial Disputes Act, no bar of limitation comes in the way of the employees. ” 15. The Supreme Court noticed that the above observations of the Bombay High Court were quoted by the Calcutta High Court in the judgment under appeal before them, and observed as under while upholding the judgment of the Calcutta High Court: “This judgment has been quoted by the High Court in the present case and followed. We have no hesitation to say that the reasoning is correct and we agree with the same.” To reinforce the conclusion, the Supreme Court also noticed its earlier judgment in Bombay Dyeing and

Page 41 of 144 Manufacturing Company Ltd. v. State of Bombay AIR 1958 SC 328 wherein it was held that the expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt. 16. In our opinion, the judgment of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) is a complete answer to the contention of the learned standing counsel. In the case before the Supreme Court for a period of almost 20 years the liability remained unpaid and this fact formed the basis of the contention of the revenue before the Supreme Court to the effect that having regard to the long lapse of time and in the absence of any steps taken by the creditors to recover the amount, it must be held that there was a cessation of the debts bringing the case within the scope of Section 41(1). In the case before us, the identical contention has been taken on behalf of the revenue, though the period for which the amount remained unpaid to the creditors is much less. It was held by the Supreme Court that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. 17. In the case before us, as rightly pointed out by the Tribunal, the assessee has not transferred the said amount from the creditors’ account to its profit and loss account. The liability was shown in the balance sheet as on 31st March, 2002. The assessee being a limited company, this amounted to acknowledging the debts in favour of the creditors. Section 18 of the Limitation Act, 1963 provides for effect of acknowledgement in writing. It says where before the expiration of the prescribed period for a suit in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, a fresh period of limitation shall commence from the time when the acknowledgement was so signed. In an early case, in England, in Jones vs. Bellgrove Properties, (1949) 2KB 700, it was held that a statement in a balance sheet of a company presented to a creditor- share holder of the company and duly signed by the directors constitutes an acknowledgement of the debt. In Mahabir Cold Storage v.CIT (1991) 188 ITR 91, the Supreme Court held: “The entries in the books of accounts of the

Page 42 of 144 appellant would amount to an acknowledgement of the liability to Messrs. Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt.” In several judgments of this Court, this legal position has been accepted. In Daya Chand UttamPrakash Jain vs. Santosh Devi Sharma 67 (1997) DLT 13, S.N.Kapoor J. applied the principle in a case where the primary question was whether a suit under Order 37 CPC could be filed on the basis of an acknowledgement. In Larsen &Tubro Ltd. v. Commercial Electric Works and Ors. 67 (1997) DLT 387 a Single Judge of this Court observed that it is well settled that a balance sheet of a company, where the defendants had shown a particular amount as due to the plaintiff, would constitute an acknowledgement within the meaning of Section 18 of the Limitation Act. In Rishi Pal Gupta v. S.J. Knitting & Finishing Mills Pvt. Ltd. 73 (1998) DLT 593, the same view was taken. The last two decisions were cited by Geeta Mittal, J. in S.C. Gupta v. Allied Beverages Company Pvt. Ltd. (decided on 30/4/2007) and it was held that the acknowledgement made by a company in its balance sheet has the effect of extending the period of limitation for the purposes of Section 18 of the Limitation Act. In Ambika Mills Ltd. Ahmedabad v. CIT Gujarat (1964) 54 ITR 167, it was further held that a debt shown in a balance sheet of a company amounts to an acknowledgement for the purpose of Section 19 of the Limitation Act and in order to be so, the balance sheet in which such acknowledgement is made need not be addressed to the creditors. In light of these authorities, it must be held that in the present case, the disclosure by the assessee company in its balance sheet as on 31st March, 2002 of the accounts of the sundry creditors amounts to an acknowledgement of the debts in their favour for the purposes of Section 18 of the Limitation Act. The assessee’s liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law. 18. The judgment of the Supreme Court in CIT v. Sugauli Sugar Works (P) Ltd. (supra) was followed and applied by a three Judges Bench of the Supreme Court in Chief Commissioner of Income Tax v. Kesaria Tea Co.Ltd.(supra). The assessee in this case was engaged in the business of tea, spices etc. and made provision in its account for the years from 1978 to 1981 for the purchase tax liability. The tax liability was in dispute with the sales tax department. In the previous year relevant to the assessment year 1985-86, on the basis of an order in the Kerala State’s Special Leave Petition filed before the Supreme

Page 43 of 144 Court, the assessee wrote back a sum of 14,65,997/- out of the provision for the purchase tax liability. The assessing officer brought this amount to tax under Section 41(1). On appeal, the CIT(Appeals) held that only an amount of 1,25,46,534/- could be brought to tax under Section 41(1). On further appeal by the assessee, the Tribunal held that even this amount could not be brought to tax since the sales tax department was pursuing the matter even as late as in 1993 and cases were still pending decision before the sales tax authorities and that the matter had not been concluded by the decision of the Kerala High Court. The Tribunal thus held that there was no extinguishment of the statutory liability and, therefore, the write back could not be assessed under Section 41(1). The Kerala High Court affirmed the decision of the Tribunal [(2000) 243 ITR 362]. The revenue carried the matter in appeal to the Supreme Court. Applying its earlier judgment in CIT v. Sugauli Sugar Works (P) Ltd. (supra) it was held that because there were certain issues which had a bearing on the liability to pay purchase tax which still remained disputed between the assessee and the sales tax department. 19. Since strong reliance was placed by the learned standing counsel for the income tax department on the judgment of the Supreme Court in CIT vs. T.V. Sundaram Iyengar & Sons (supra), it is necessary to refer to the same in some detail. In that case, the ITO found that for the assessment years 1982-83 and 1983-84 the assessee had transferred amounts of Rs.17,381 and Rs.38,975 respectively to its profit and loss accounts for the respective accounting years. However these amounts were not included in the total income in the returns filed by the assessee. It was explained that the amounts were payable by the assessee-company to its customers but since they were not claimed by them, they were transferred to the profit and loss account. The ITO rejected the explanation. He held that because the surplus in the accounts of the creditors arose on account of trading transactions, it had the character of income and had to be added to the total income for tax purposes. The CIT(A) and the Tribunal deleted the additions holding that neither section 41(1) nor section 28 applied, as the amounts represented excess trading advances given by the customers to the assessee and that since at the time they were received they were capital receipts they could not change character and become assessable as revenue receipts. At the instance of the revenue, the following question of law was referred to the High Court of Madras: “Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting

Page 44 of 144 the addition made by the Income-tax Officer representing unclaimed sundry credit balances written back to the profit and loss account by the assessee during the previous year relevant for the assessment year under consideration?” The question for decision which arose before the Supreme Court, in the words of the court itself (page 347 of 222 ITR) was that “even though the deposits were of capital nature at the point of time of receipt by the assessee, could their character change by efflux of time?” The Supreme Court thereafter referred to several authorities including the celebrated decision of the Court of Appeal in England in the case of Morley v Tattersall (1939) 7 ITR 316, and the test propounded by Lord Greene in that case that the taxability of the receipt was fixed with reference to its character at the moment it was received and not at any subsequent point of time and not because the recipient treated it subsequently in his income account as his own, and also to some decisions of courts in India in which the principle was applied and ultimately held as under: “In other words, the principle appears to be that if an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, commonsense demands that the amount should be treated as income of the assessee. In the present case, the money was received by the assessee in the course of carrying on his business. Although it was treated as deposit and was of capital nature at the point of time it was received, by efflux of time the money has become the assessee's own money. What remains after adjustment of the deposits has not been claimed by the customers. The claims of the customers have become barred by limitation. The assessee itself has treated the money as its own money and taken the amount to its profit and loss account. There is no explanation from the assessee why the surplus money was taken to its profit and loss account even if it was somebody else's money. In fact, as Atkinson J. pointed out that what the assessee did was the commonsense way of dealing with the amounts.” 20. It may at once be noticed that the decision cannot be understood as explaining the conditions of applicability of section 41(1) of the Act, for the simple reason that the section was not invoked by the revenue authorities in that case and there was a finding of the appellate authorities to the effect that neither section 41(1) nor section 28 was attracted to that case. That was a case

Page 45 of 144 of certain deposits being received by the assessee. At the time of the receipt they were admittedly treated as capital in nature, and the assessee credited them to separate accounts. In due course of time, they were depleted by adjustments made from time to time. The balance in the accounts remained unclaimed for a long time and in the accounts for the accounting periods relevant to the assessment years 1982-83 and 1983-84, the balance remaining in the accounts was taken to the credit of the profit and loss account. The assessee could not explain why the balance was taken to its profit and loss account even though the money belonged to somebody else. It was in these circumstances that the Supreme Court applied a common sense view of the matter and held that the assessee had become richer by the amount transferred to the profit and loss account. The matter was thus decided on general principles and on the footing that the assessee committed and overt act indicating that it had appropriated the balances in the deposit amounts belonging to its customers as its own monies and was not able to explain why it took the step. The general principles and the common sense point of view were applied to decide the case. Section 41(1) specifically deals with amounts that were allowed as deduction in the past assessments as trading liabilities, which in a later year cease or are remitted by the creditors. If and when there is evidence in a particular later year to show that the liability has ceased or has been remitted, the same can be brought to tax as provided in Section 41(1). In this manner the statute prescribes that a deduction for a trading liability allowed earlier can be brought to tax on the ground that the liability to pay the same has been remitted or ceased. 21. Another distinguishing feature in the present case is that the sundry creditors continue to be shown in the assessee’s balance sheet as on 31.3.2002. In the case before the Supreme Court in CIT Vs. T.V.Sundaram Iyengar (supra), the assessee took a positive step of transferring the unclaimed balances in the deposit accounts to its profit and loss account, an act, which was considered to be of considerable significance in demonstrating the intention of the assessee to appropriate the money belonging to the depositors as its own monies. That case was dealing with items of receipt received in the course of the business of the assessee, though of capital nature at the time when they were received. The present case is one of a trading liability being earlier allowed as a deduction and which is sought to be recalled under Section 41(1) of the Act. At the cost of repetition it may be added that in CIT

Page 46 of 144 Vs. Kesaria Tea Co. Ltd. (supra) the revenue sought to raise the argument based on the judgment of the Supreme Court in CIT Vs. T.V. Sundaram Iyengar (supra), but it was rejected by the Supreme Court holding that the decision was of no relevance to the question involved in the case before them, which was about the applicability of Section 41(1), and because the factual matrix and the provision of law considered therein were entirely different. For these reasons we are unable to give effect to the argument of the ld. standing counsel based on the judgment of the Supreme Court in CIT Vs. T.V. Sundaram Iyengar (supra). 22. The other judgment which the ld. standing counsel for the income tax department relied upon before us is of this Court in Jay Engineering Works Ltd. v. CIT (supra). A perusal of the judgment shows that though Section 41(1) was invoked to tax amounts that were unilaterally written back to the profit and loss account of the assessee, this Court had applied the judgment of the Supreme Court in CIT Vs. T.V. Sundaram Iyengar (supra) to hold that the unclaimed liabilities written back were taxable under Section 41(1). A perusal of question No.3 referred to this Court under Section 256(1) of the Act shows that there is a specific reference to Section 41(1) of the Act. However, this judgment cannot be invoked to the present case for the simple reason that in the present case, the assessee did not write back the sundry creditors to its profit and loss account, a finding which is not disputed by the Revenue. The judgment of this Court in Jay Engineering Works Ltd. v. CIT (supra) is therefore distinguishable. 23. In the course of his arguments, the learned standing counsel referred to Section 28(iv) of the Act, according to which “the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession” shall be chargeable to income tax under the head “profits and gains of business or profession”. He submitted that since the amounts remained unpaid to the sundry creditors for a period of 4 years or more, the monies were available to the assessee in its business which amounted to a benefit arising from the business carried on by the assessee. The contention seems attractive at first blush but cannot bear scrutiny. The provisions of Section 41(1) have been specifically incorporated in the Act to cover a particular fact situation. The section applies where a trading liability was allowed as a deduction in an earlier year in computing the business income of the assessee and the assessee has obtained a benefit in respect of

Page 47 of 144 such trading liability in a later year by way of remission or cessation of the liability. In such a case the section says that whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The principle behind the section is simple. It is a provision intended to ensure that the assessee does not get away with a double benefit once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with reference to the liability earlier allowed as a deduction. In CIT, Mysore v. Lakshmamma, (1964) 52 ITR 789 Hegde, J., (as he then was) speaking for the Mysore High Court observed that Section 10(2A) of the Indian Income Tax Act, 1922, which is the fore-runner of Section 41(1) of the present Act, was introduced w.e.f. 01.4.1955 to get over the judgment of the Bombay High Court in Mohsin Rehman Penkar v. CIT (1948) 16 ITR 183 holding that remission of a liability in a subsequent assessment year in respect of which the assessee had obtained a deduction in an earlier assessment year, can never become income for the purpose of taxation, where the assessee maintains accounts in the mercantile system of accounting. Thus, it may be seen that Section 10(2A) of the Indian Income Tax Act, 1922 and Section 41(1) of the present Act of 1961 were intended only to govern a particular factual situation. Section 28(iv), on the other hand, is a general provision which brings to assessment the value of any benefit or perquisite arising to the assessee from the business carried on by him. If, as contended before us by the learned standing counsel for the revenue, the alleged benefit enjoyed by the assessee by utilizing the amounts payable to the sundry creditors in its own business for a period of four years or more is to be brought to tax under Section 28(iv), notwithstanding that the conditions of Section 41(1), which govern the factual situation, are not satisfied, then it would render the latter section otiose or a dead letter. If we accept the argument of the learned standing counsel for the revenue, it would also introduce an element of uncertainty or subjectiveness in ascertaining as to what would be the lapse of time that would be necessary to render a liability to pay the creditors ineffective, which would result in an alleged benefit to the assessee. Moreover, if after the taxing of the amount u/s 28(iv) on the ground that considerable time has elapsed from the date of the debt during which the assessee had the benefit of the monies in his business, it is found that in another later year the creditor has recovered the money from the assessee, there is no provision in the Act to allow deduction for such payment. The

Page 48 of 144 section cannot be made subject to such vagaries or subjectiveness in its applicability. It is also necessary to bear in mind that in the case of CIT v. Sugauli Sugar Works (P) Ltd. (supra) a contention was in fact advanced before the Supreme Court on behalf of the revenue that the liability to the creditors remained unpaid by the assessee for more than 20 years and there was practically a cessation of the debt which resulted in a benefit to the assessee which should be brought to tax under Section 41(1). This argument was not given effect to by the Supreme Court, nor did it consider fit to apply Section 28(iv). It is a well settled rule of interpretation of statutes that a construction that reduces one of the two provisions in a statute to a useless lumber or a dead letter would not amount to a harmonious construction and that a familiar approach in such cases is to find out which one of the two provisions is a special provision made to govern a certain situation and to exclude that situation from the applicability of the general provision. If we apply this rule of interpretation to the case before us, we must necessarily hold that while Section 28(iv) would apply generally to all benefits or perquisites which arise to the assessee from the business carried on by him, the benefit which he obtains by way of remission or cessation of a trading liability in a later year, in respect of which he has obtained a deduction in an earlier year in computing the business income, should be governed by Section 41(1) which is the specific provision governing the factual situation and not by Section 28(iv). This way there would be no conflict between the two provisions and both will be given effect to.” 26. In view of the above decision of honourable high court where in the whole issue of outstanding liability outstanding for many years is discussed and then following the decision of honourable supreme court has held that merely because the liability is outstanding for a long time does not give any benefit to the assesse and same is not chargeable to tax u/s 41(1) of the act or section 28 of the act. Therefore respectfully following the decision of honourable Delhi high court and also on the facts of the case we reverse the finding of the CIT (A) and deleted the addition of Rs.3,67,27,062/- made on account of credit balance in stale cheque account for the only reason that they are outstanding for more than three years. 27. In the result, this ground no.6 of the assessee’s appeal is allowed. 28. Ground No.7 of the appeal of the assesse is as under :-

Page 49 of 144 “7. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.5,41,75,304/- made by the Assessing Officer on account of revenue recognition in respect of sale of land and plots based on POCM (Percentage Of Completion Method) by changing the appellant's method of accounting. [Page 31-35 of CIT(A)'s Order] 7.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the immediately subsequent year relevant to assessment year 2007-08 and has, as such, resulted into double taxation of the same income. [Page 33 and 35 of CIT(A)'s Order] 7.2 That without prejudice, the learned CIT(A) ought to have given directions to exclude this amount from the taxable income of A.Y. 2007-08 if the same has been found taxable in the current year.” 29. This ground is against the order of the CIT (A) confirming the addition of Rs.5,41,75,304/- on account of revenue recognition of sale of plot and land. Brief facts of the case are that till assessment year 2005-06, the company was recognising the revenue of constructed properties wherein the sale deed are registered in favour of the buyer, therefore, the sales were recognised of the constructed properties and plot of land both at the time of registration in favour of the buyer. This method was accepted by revenue for year to year. From this assessment year, the company has changed its method of accounting for constructed properties from completed contract method to percentage completion method in terms of Accounting Standard – 9 issued by ICAI and notified by Ministry of Corporate Affairs. The company has adopted the accounting policy that unless threshold of 30% of the project is not reached, the revenue from that project is not to be recognised. For this, in the annual account of the company, in Note No.5 (a) of Schedule 25 it was mentioned that pursuant to the Guidance Note on recognition of revenue of real estate developers issued by ICAI, the company has changed the accounting policy for recognising revenue in respect of constructed properties including those covered under agreement to sell, commercial space, etc. entered into and subsidiary, coordinating companies from the year of registration of the sale deeds of the property to percentage completion method. Further, Schedule 24 of the financial statement also showed that in Note No.6 that revenue from sale of land and plot is recognised in the financial year in which transfer is made by registration of sale deeds or otherwise in favour of the buyers. Therefore, it is apparent from the conjoint reading of these two notes that for the constructed properties, assesse has changed its method of

Page 50 of 144 accounting from completed contract method to percentage completion method and for the sale of land of plot, there is no change in the method of accounting, now also, it is recognising revenue at the time of registration of sale deed. This fact is available at pageno.48 of the assessment order. During FY 2006-07 i.e. AY 2007-08assesse sold a plot of land at DLF City Phase 1 – 5, an agricultural land for Rs.7,36,29,188/- cost of which is Rs.3,73,03,478/- and therefore, has shown profit in AY 2007-08 of Rs.3,63,25,710/-. Identically, a plot of land which is sold in FY 2006-07 i.e. AY 2007-08 being agricultural land for Rs.10,09,03,116/- and cost of which was Rs.8,30,53,522/- resulting into profit of Rs.1,78,49,594/- which was shown in AY 2007-08. Thus, from these two properties, an aggregate profit of Rs.5,41,75,304/- which was shown by the assesse in AY 2007-08 as tabulated at page no.58 of the assessment order, AO taxed this as income of AY 2006-07 i.e. the impugned current assessment year. Admittedly both these plots do not have any significant development project cost. Against this, the assesse preferred appeal before CIT (A) who in turn confirmed the addition. The CIT (A) was of the view that though there is a change in method of accounting of constructed projects of the assesse, there is no logic as to why the same accounting practices of changed method with respect to sale of land and plots should not be followed. He was also of the view that the assessee’s main business is real estate developer which includes both construction of projects and sale of land and plots. According to him, the Assesse does not have any right to pick and choose method of accounting and adopt percentage completion method from project completion method for constructed properties form this year and continue to recognise revenue on sale of land and plots on execution of conveyance deed. He was also of the view that the stand of the assesse is inconsistent as from AY 2007-08, assesse himself has also adopted the policy of recognising revenue from the year of execution of sale deed to the year in which the risk and reward of the plot and land is passed on effectively. According to the CIT (A), this practice of the assesse has deferred the tax liability in respect of the profits of sale of land and plots and, therefore, he confirmed the addition. 30. Before us, ld. AR submitted as under :- a) The assesse is following the practice of showing income arising on sale of plot and land as and when the conveyance deed is executed in favour of the buyer. This is an accepted method of accounting in case of sale of open plot of land. This practice is being followed by the assesse year to year for past several years and same has been accepted by the revenue in past. b) He submitted that the change in policy is with respect to construction of real estate properties and not with respect to sale of plot of land.

Page 51 of 144 c) He submitted that Accounting Standing – 7 issued by the ICAI applies to only construction contracts and not to the sale of open plots of land. d) He further submitted that Guidance Note for recognition of the revenue is required to be recognised when conditions stated in para 4 mentioned in that Guidance Note are fulfilled. According to that revenue is required to be recognised only if all significant risk and rewards of ownership are effectively transferred to the seller. Coupled with this, there has to be handing over of the possession of the real estate unit tote buyer. He submitted that in the above two cases, it is not the case of the revenue that the possession has been handed over and, therefore, according to the Guidance Note of the ICAI, the profit on these two plot of land did not accrue to the assesse during this year but in subsequent year when the sale deed is executed. e) He submitted that percentage completion method is applicable only in case of constructed projects and in not in case of plot of land. For this, he relied upon the decision of Hon’ble Supreme Court in the case of Real Estate Developers and Services Limited vs. CIT – 307 ITR 202 wherein it is held that on sale of land income accrues to the seller on execution of conveyance deed in favour of buyer and not before. He stated that as the conveyance deed in these two properties is executed in the next year, hence according to this decision, it is rightly offered for taxation in the year in which conveyance deed is executed. f) He submitted that in any case, assesse has already offered to tax this income in AY 2007-08 in which the registration of conveyance deed is made and has paid due tax in that year. Therefore, relying on the decision of Hon’ble Supreme Court in case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295, and fact of payment of tax in subsequent year, it is incorrect on the part of the CIT (A) to state that it is a technique to defer the taxes. g) His next argument is that as the income has already been offered for taxation in AY 2007-08, if the addition is sustained in this year and it will result into double taxation. To further strengthen his argument, he relied on the decision of Hon’ble Supreme Court in the case of Excel Industries Ltd. – 358 ITR 295 wherein it is held that as the income has already been taxed in the subsequent year, revenue has not been deprived of any tax and the rate of the tax in both the years is same. For this reason also, the addition deserves to be deleted. h) He further relied on the decision of Hon’ble Supreme Court in CIT vs. Billahari Investment Pvt. Ltd. – 299 ITR 1 (SC) to submit that the assesse is entitled to change its method of accounting and such change is revenue neutral. He further

Page 52 of 144 submitted that no fault can be found with the assesse in changing the method of accounting on sale of plot in subsequent years. He submitted that in subsequent years, it is not held that method of accounting change for sale of plot from AY 2007-08 is not acceptable to the revenue. i) He further argued that it is always the prerogative of the assesse to change the method of accounting provided it is bona fide. Revenue in no case can thrust upon assesse to change its method of accounting in the year prior to the change made by the assesse. He further stated that the change of method of accounting is bonafide and neither AO nor CIT (A) has stated that change in the method is with malafide intention. It was further his argument that here, the assesse has not changed the method of accounting but revenue is thrusting upon the assesse change in method of accounting which is not permitted by law. 31. Against this, ld. DR submitted that assesse is required to offer its profit for taxation on consistent method of accounting and not at the whims and fancies of the assesse. For this argument, he relied on the decision of Hon’ble Supreme Court in the case of CIT vs. British Paints Limited – 188 ITR 44 (SC). He further submitted that it is not the simple plots of land which are sold by the assesse but are developed plots of land and, therefore, provisions of Accounting Standard – 7 and 9 both are applicable. He further stated that all risk and reward of the plot of land passes to the buyer, according to the Guidance Note issued by the ICAI, even though possession is not handed over, full consideration is not received and conveyance deed is not executed. He submitted that in these two plots of land, risk and reward of the property has already been passed on to the buyers though possession may not be given. He further relied on Guidance Note of the ICAI issued in 2006 as well as issued in 2012 and submitted that both these Guidance Notes support the case of the revenue. Rebutting the argument of ld. AR on revenue neutrality, ld. DR submitted that concept of revenue neutrality cannot apply to method of accounting and assesse is duty bound to follow correct method of accounting to deduce the correct taxable profit every year. He heavily relied on para 9.12 of the order of CIT (A) and urged that the impugned addition of Rs. 5,41,75,304/- may be confirmed. 32. In rejoinder, ld. AR of the assesse submitted that Accounting Standard-7 does not apply to the real estate developer and for this, he relied on the decision of M/s. Mittal Investment Corporation vs. ACIT – ITA No.1652/Mum./2009 dated 13.08.2010, Paras buildtech India Private Limited V CIT [ ITA No 602/2015] [18-11-2015], Hon’ble Delhi High Court in paras 21 & 22, considered the revenue neutrality. He further relied on the decision of Hon’ble Delhi High Court in the case of CIT vs. SABH Infrastructure Ltd. Wherein it is held that project completion method cannot result in deferment of payment of tax. He further

Page 53 of 144 relied on the decision of Hon’ble ITAT, Delhi Bench in case of Ansal Landmark Township that if only the year of taxability is disputed and overall profitability is not disputed, the addition is required to be deleted. 33. We have carefully considered the rival contentions. The brief facts of this issue are that in case of property mentioned at page no.58 of the assessment order of plots of land sale deed for which execution of conveyance deed and handing over of the possession is in FY 2006- 07 relevant to AY 2007-08 and profit thereon of Rs.5,41,75,304/- is earned by the assesse and offered for taxation in that year. Now, AO has taxed this income in this impugned assessment year for the reason that for the constructed properties, assesse has changed method of accounting in this year from project completion method to percentage completion method. However, there is no change in the method of accounting of sale of plot of land which hitherto followed by the assesse from year to year as and when sale deeds are executed. There is no dispute that this income has been offered for taxation by assesse inAY2007-08 and AO has also not reduced this income from the assessed income of the assesse for AY 2007-08. Therefore, the limited dispute remains in this ground is that whether the income of sale of plot shall be taxed in this year or has been rightly offered by assesse in AY 2007-08. According to the method of accounting changed during the year which has been shown in the audited balance sheet at Schedule No.25, Note No.5(a) relates to constructed properties only and not for plot of land. According to Note No.6 in the Schedule No.24 policy of revenue recognition on sale of plots and land is recognized in the financial year in which transfer is made by registration of sale deeds in favour of the buyers. Therefore, it is apparent that there is no change in the policy of revenue recognition arising on sale of lands and plots. This method of revenue recognition is consistently followed by the assesse since past several years and accepted by the revenue without any dispute. Therefore, in our view, if the method of accounting which is consistently followed by the assesse accepted by the revenue, a different method of accounting other than that cannot be thrust upon the assesse. Reasons for thrusting this method of accounting for sale of plot of land are that (1) there is change in method of accounting of constructed properties and (2) tax is deferred by the assesse from AY 2006-07 to AY 2007-08. It is required to be tested that though the method of accounting is being consistently followed by the assess whether it is the right method from which correct profit can be deduced. Guidance for the same is available in the Guidance Note issued by the ICAI – ‘Guidance Note on Accounting For Real Estate Transactions’ issued in 2006 and subsequently revised in 2012 gives a guidance which is in para no 6 as under :- “6. Accounting for sale of land or plots

Page 54 of 144 A. Sale of plots of land without any development Revenue from sale of land or plots should be recognised when all the conditions in paragraph 4.2 above are met. B. Sale of developed plots Where the development activity is significant and if the projects meet the criteria specified in paragraphs 3.3 and 5.1 above, the percentage completion method is used to account for such sales.” In para no 4 of this guidance note it is provided that:- “4. Application of principles of AS 9 in respect of sale of goods to a real estate project 4.1 The application of principles of AS 9 in respect of sale of goods requires recognition of revenues on completion of the transaction/activity when the revenue recognition process in respect of a real estate project is completed as explained in paragraph 4.2 below. 4.2 The completion of the revenue recognition process is usually identified when the following conditions are satisfied: (a) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership; (b) The seller has effectively handed over possession of the real estate unit to the buyer forming part of the transaction; (c) No significant uncertainty exists regarding the amount of consideration that will be derived from the real estate sales; and (d) It is not unreasonable to expect ultimate collection of revenue from buyers.

Page 55 of 144 4.3 Where transfer of legal title is a condition precedent to the buyer taking on the significant risks and rewards of ownership and accepting significant completion of the seller’s obligation, revenue should not be recognised till such time legal title is validly transferred to the buyer.” Therefore regarding these two plots of land in question if the conditions mentioned in para 4.2 is fulfilled the revenue should be recognised. We are conscious that though this guidance of revenue recognition is issued by ICAI in February 2012 and the issue here is required to be decided in AY 2006-07 even then we are convinced that the principle of accounting and revenue recognition which are based on ‘transfer of risk and reward’ of the property coupled with the conditions agreed between the buyer and the seller has not undergone any material change. Therefore, we are of the opinion that Guidance Note revised by the ICAI in 2012 has persuasive value for deciding revenue recognition concept in case of the assesse in this ground of appeal. Ld. DR, during the course of hearing, agreed that on these principles, the agreements executed by the assesse with the buyer needs to be examined and, therefore, ld. DR produced before the Bench a draft agreement. However, on-going through this agreement, we noted that the agreement relates to sale of an apartment i.e. a constructed property and, therefore, same cannot be used for deciding this issue. Hence, ld. AR of the assesse was asked to produce a plot buyer’s agreement. According to that agreement, the purchase price of the plot is decided at the time of entering into the agreement. The purchaser is further enquired to pay for external development charges or other Government levies on prorate basis along with other purchasers which would be incorporated in the sale or conveyance deed executed by the seller in favour of the purchaser. Therefore, this is an obligation cast on the buyer which would be decided at the time of execution of sale deed. According to Condition No.5, the seller will have the right to effect alteration in the lay out plan and if there is a reduction arising out of this the seller would be liable to refund the amount of sale price paid to that extent. According to Condition No.7, it is provided that initial 20% sum paid by the buyer shall be considered as earnest money only which would be considered as advance against the sale of the plot. The right of the purchaser is not assignable or transferable without the written consent of the seller. According to the Condition No.22, the seller shall execute the sale deed in favour of the purchaser within reasonable time and after the plot has been finally demarcated, full consideration is paid by buyer, interest free maintenance security is recovered from buyer, full cost of stamp paper or registration charges and other dues payable in this agreement paid by buyer. Till the possession of plot is given the seller remains in effective possession and control of the property further there is also uncertainty about the exact area of the land to be transferred as the area may reduce and seller is bound to refund the amount collected to

Page 56 of 144 that extent. Therefore, merely payment of whole of the sale price cannot expose buyer the full risk and reward of the plot. More so possession of the plot apparently is coupled with many condition and after that only the agreement reaches finality. Therefore, on the conjoint reading of whole of the agreement, it is apparent that there are several conditions attached to the sale of plot of land and on completion of them only the buyer gets right to get that property registered in his name. The agreement to sell also does not prescribe that prior to the execution of sale deed and on execution of agreement to sell, the possession of the property is transferred. Therefore it is apparent that full ‘risk and reward’ of the plot is transferred to the buyer only at the time of execution of sale deed by the seller in favour of buyer and after that nothing is required to be done for this property from either side. At present there are many obligations on the seller as well as the buyer. In view of this, we are of the opinion that seller has not handed over possession of the real estate unit to the buyer during this year and further transfer of legal title is a condition precedent for taking over the significant risk and reward of the ownership by the buyer till the execution of sale deed, revenue cannot be recognized by the assesse. These events of execution of sale deed etc. has not happened during this year but admittedly in subsequent years, where assesse has already offered the amount for taxation. The reliance on the provision of section 53A of transfer of property of the goods, according to the Transfer of Property Act, cannot be applied for determination of the revenue on sale of products, goods, real estate, etc. Commercially, the revenue needs to be recognized when the risk and reward of the property, goods or products, have been transferred from the seller to the buyer. Hence, in our opinion, AO is not correct on accounting principles in recognizing revenue of the assesse of Rs.5,41,75,304/- in this year. Further, assesse as well as revenue both have relied heavily on the decision of Hon’ble Supreme Court in the case of Realest Builders and Services Limited 307 ITR 202. Hon’ble Supreme Court in that short decision has dealt with a controversy about the year in which the taxability arose in case of registration of sale deed in favour of the party or it accrued at the time of execution of tripartite agreement. According to the revenue, the income accrued to the assesse on the date of execution of the tripartite agreement when the full consideration of the building was received by the assesse and, according to the assesse, the income accrued in the year in which the sale deed is executed. In that case, Hon’ble Supreme Court has held that under the Act, according to section 145 of the Act, it is always open to the department to insist on the change in method of accounting followed by the assesse over years if the method of accounting employed by the assesse results in under-assessment of profit or net income. The Hon’ble Supreme Court also held that the rule of consistency accepted by the Hon’ble High Court in that decision is incorrect. It was further held that if the AO comes to a conclusion that there is an under-assessment of the profit, the AO must

Page 57 of 144 give facts and figures in that regard and also demonstrate to the court that impugned method of accounting adopted by the assesse results in under-assessment of profit. The Hon’ble Supreme Court further stated that otherwise, the entire exercise is revenue neutral. Applying the principles laid down by the decision of Hon’ble Supreme Court, we are of the opinion that the assesse has followed correct method of revenue recognition on sale of plot of land which is in accordance with Guidance Note issued by the ICAI considering the aspects of transfer of risk and reward. Secondly, the method of accounting is consistently followed by the assesse and accepted by the revenue in past years. Thirdly, the revenue itself has taxed this income in AY 2007-08 U/S 143(3) and not reducing this income from that year gives a presumption that it had also accepted taxability of this sum for AY 2007-08. Fourthly, AO has not demonstrated that how the method of accounting employed by the assesse is incorrect but merely has gone on presumption that as there is a change by assesse in method of accounting followed for constructed properties from projection completion basis to percentage completion basis, the same should also be applied in case of sale of plot of land which are unconstructed. We could not find any provision in the Act which prohibits assesse from adopting different revenue recognition method for sale of products of different characteristics and marketability. Admittedly, assesse is permitted to have different revenue recognition policy for sale of plot of land compared to sale of constructed properties. Only condition is that correct profit is required to be deduced from that method. Apparently revenue has not alleged that the profit would be different if the different accounting policy would be adopted and method adopted by assesse does not help in deducing the correct profit on sale of plot of land. Therefore, in absence of demonstration by the AO about the allegedly incorrect method of accounting, we are of the view that exercise of taxing this income in AY 2006-07 as well as in AY 2007-08 it amounted to double taxation which is not permitted under the law. Therefore, relying on the decision of Hon’ble Supreme Court in case of Realest Builders and Services ltd 307 ITR 202 (SC), we are of the view that income of the assesse on sale of plot of land cannot be taxed in this year. The reliance placed upon by the ld. AR on the decision of Hon’ble Supreme court in the case of CIT vs. Excel Industries (supra) is apposite as in both the years i.e. AY 2007-08 and 2006-07, the rate of tax remained the same and the revenue has not been deprived of its taxes. It becomes a futile exercise when there is no loss of revenue involved. The facts of the present ground clearly lead application of the principles laid down by the Hon’ble Supreme Court in that decision. In view of this, we reverse the decision of CIT (A) and delete the addition of Rs.5,41,75,304/- on account of profits on sale of land and plots which are registered in favour of the buyer in AY 2007-08 and income of the identical amount is offered for

Page 58 of 144 taxation in AY 2007-08 and revenue has not reduced that sum from the assessment u/s 143(3) of that year. 34. Therefore, ground no.7 of the appeal of the assesse is allowed. 35. Ground No.8 of the appeal is as under :- “8. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.78,77,80,921/- out of total addition of Rs.102,84,93,509/- made by the Assessing Officer on account of revenue recognition on projects completed less than 30% based on POCM- namely Summit and Magnolia projects rejecting the submissions of the appellant that POCM method could not be applied to these projects because even the construction work was not started before 31st March, 2006. 8.1 That the learned CIT(A) has also erred in not considering the fact that the same amount has already been offered for taxation by the appellant in the subsequent years and has, as such, resulted into double taxation of the same income. [Page 36-53 of CIT(A)'s Order] 8.2 That the learned CIT(A) has erred in directing the AO to verify the details filed with AO and in confirming the addition as the CIT(A) has no such power to set a-side the part of addition made by AO. [Page 53 of CIT(A)'s Order] 8.3 That without prejudice, the learned CIT(A) ought to have directed to exclude the amount of Rs.78,77,80,921/- from taxable income of A.Y. 2007 -08 or subsequent years if it was to be held that amount is taxable in the assessment year under appeal.” 36. These grounds of appeal are against confirmation of the addition of Rs.78,77,80,921/- out of the total addition of Rs.1,02,84,93,509/- made by the AO on account of revenue recognition on projects completed less than 30% based on percentage completion method, namely, Project Summit and Project Mangolia rejecting the submission of the assesse that percentage completion method cannot be applied to these projects because the construction work has not started before 31.03.2006. 37. The CIT (A) has rejected the contention of the assesse that income generated from this project has already been offered for taxation in subsequent years and would result in double taxation. Further, assesse is aggrieved because CIT (A) has directed AO to verify the details filed before him. The assesse was also aggrieved that CIT (A) has not given any direction to

Page 59 of 144 the AO for exclusion of the amount of Rs.78,77,80,921/- from taxable income of subsequent years as it is confirmed by him as income of this year. 38. The brief facts of this ground are that during the year, assesse has changed its method of accounting in case of constructed properties from completed project method to percentage completion method. It was noted by the AO that despite change in method of accounting, the assesse has not recognized any revenue on Mangolia Project as well as Summit Project. Therefore, the AO worked out a profit chargeable to tax from Mangolia Project of Rs.26,55,94,049/- and from Summit Project of Rs.11,45,52,376/-. The contention of the assesse is that construction of these two projects based on the percentage completion method has not reached threshold requirement of 30% as on 31.03.2006. It was submitted that profits of these projects are offered for taxation in subsequent years when the threshold yardsticks of 30% in terms of accounting policy of the assesse is achieved. Against this, AO was of the view that assesse has himself incurred expenses on land, such as, external development and construction cost on both these projects the revenue should have been recognized. Assesse further submitted that even the special auditor appointed by the revenue have also not recommended any recognition of revenue on Mangolia and Summit projects. The assesse submitted comparative data of other developers too where they are following threshold for starting of revenue recognition in development projects when 30% of the project is completed. However, the AO rejected all the contentions and held that Accounting Standard 9 issued by the ICAI and according to that Accounting Standard, there is no justification for the assesse to adopt a benchmark of 30% for recognition of the revenue and, therefore, made a total addition of Rs.72,32,38,796/- from Mangolia Project and Rs.30,52,54,713/- from Summit Project. The assesse carried the matter before the CIT (A) who in principle agreed with the contention of the assesse that internal development charges allocated to these projects have not been considered should be included in the cost of project and, therefore, upholding the addition on the principle restricting the addition to the extent of Rs.62,68,85,221/- on account of Mangolia Project and Rs.16,08,95,700/- from Summit Project. Aggrieved by this, the assesse is in appeal before us. 39. Before us, ld. AR submitted that assesse has correctly laid down a threshold limit of 30% which is in accordance with the principles laid down in the Guidance Note issued by the ICAI. He submitted that though the Guidance Note prescribes the percentage of threshold as 25%, however, the assesse based on the prevalent practices in the trade has adopted it @ 30% as threshold. For this, he submitted that assesse has given sufficiently large number of comparable developers’ case where identical practice is being followed and accepted by the revenue. His next argument was that there is no doubt about the correctness of the profit of these two projects. Merely revenue wants to prepone taxability of these projects from

Page 60 of 144 subsequent years to earlier year and this is a revenue neutral exercise. For this, he relied on the decisions of Hon’ble Supreme Court in the case of CIT vs. Billahari Investment Private Limited (supra). The next submission of the ld. AR was that in case of special audit of the assesse for AY 2010-11, revenue itself has accepted the criteria of 30% of threshold completion for revenue recognition. He submitted that the special auditor has stated that those superficial yardstick of 30% of cost incurred has not been prescribed anywhere in the publication of the ICAI, however considering the spirit of the publication, it is accepted from every assesse to calculate the correct amount of revenue for recognition under the project completion method. However, assesse who is not in the business of construction is required to estimate reliably correct amount of revenue of the respective year. The auditor further went to state that the company has initially fixed the threshold limit of 30% effect from AY 2006-07 for recognizing revenue and its method has been consistently followed by the company every year thereafter. Thereafter, auditor stated that, according to him, it is reasonable to adopt revenue under the Percentage of completion (POC) Method where the level of expenditure incurred is 30% or more of the estimated project cost. Hence, auditor was of the view that the assesse company has adopted the threshold limit of 30% going by the industry claims, prudence and followed the same consistency and, therefore, there is no postponement of tax. In nutshell, the ld. AR argued that it is an opinion of the expert on accounting practices for AY 2010-11 which has been accepted by the revenue that 30% threshold limit is as per the industry norms, provisions and consistency, same should not be disturbed in this year. 40. Against this, ld. DR submitted that the CIT (A) as well as the AO has correctly decided the issue and threshold limit of 30% is rejected by both the lower authorities. However, he fairly agreed that fixing such threshold limit is required in case of projects of such scale and if the total expenditure on those projects has not crossed the threshold limit of 30% of the total cost of the project, the revenue should not be recognized. He submitted that as the AO has not examined that whether these projects have crossed the threshold limit of 30% or not, this ground of appeal should be set aside to the file of the AO for determination of income accordingly. 41. To this argument, the ld. AR submitted that it has been accepted by the lower authorities that both the projects have not exceeded the threshold of 30% for the purpose of revenue recognition and, therefore, he stated that the revenue cannot be recognized. However, he also fairly agreed that though data available at page 69 to 71 of the assessment order, according to which both the projects are at the very primitive stage i.e. Mangolia Project at approximately 10 – 12% and Summit Project is also less than 20%. However, he agreed that

Page 61 of 144 there is no objection from the assesse side to determine the threshold limit of 30% of the total project cost for the purpose of revenue recognition. 42. We have carefully considered the rival contentions and also given a careful thought to the offer of ld. DR for setting aside this ground of appeal to the file of the AO for determination of threshold limit of 30% of the total project cost incurred up to this year or not. Before that we would like to address the issue of threshold percentages determined by the assesse of 30 % instead of 25 % provided in the guidance note on accounting for real estate transactions issued by ICAI in 2012. Firstly assesse has submitted the instances where in the identical facts and circumstances there is trade practice of adopting threshold of 30 % of the achievement of total project cost for commencement of recognising of revenue. According to that guidance note it is provided that “5.3 Further to the conditions in paragraph 5.2 there is a rebuttable presumption that the outcome of a real estate project can be estimated reliably and that revenue should be recognised under the percentage completion method only when the events in (a) to (d) below are completed. (a) All critical approvals necessary for commencement of the project have been obtained. These include, wherever applicable: (i) Environmental and other clearances. (ii) Approval of plans, designs, etc. (iii) Title to land or other rights to development/ construction. (iv) Change in land use (b) When the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25 % of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. (c) At least 25% of the saleable project area is secured by contracts or agreements with buyers. (d) At least 10 % of the total revenue as per the agreements of sale or any other legally enforceable documents are realised at the reporting date in

Page 62 of 144 respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate - If there are 10 Agreements of sale and 10 % of gross amount is realised in case of 8 agreements, revenue can be recognised with respect to these 8 agreements.”

According to the above guidance note the revenue of the project can be recognised only when the above conditions specified therein. According to one of the conditions specified there in is reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25 % of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. Therefore the threshold suggested by ICAI is the minimum threshold and it is not prohibited that looking to the business conditions assesse cannot fix up higher threshold. More so when the assesse has stated that many identical companies are also following similar threshold of 30 % of the total project cost, no fault can be found with the estimate made by the assesse. It is also undisputed that in subsequent years the special auditor appointed by revenue has accepted the threshold of 30 % adopted by assesse and AO has accepted the same. In view of above we are of the opinion that assesse has rightly accepted the threshold of 30 % of achievement of total project cost for commencement of revenue recognition. Further the working of the total project should also include all types of development charges required to be included in the same. Ld. AR has stated that the details of percentage of completion of project are available in the assessment order itself. However after careful consideration and agreed by both the parties, we set aside this issue to the file of the AO to determine with respect to Magnolia Project and Summit Project following :- (i) To determine the total project cost of both these projects including the cost of internal and external development charges of the project (ii) To determine whether the actual cost of expenditure incurred up to 31.03.2006 is less than 30% of the total project cost estimated by the assesse; (iii) If the threshold limit of 30% is crossed then to determine the income of both these projects on percentage completion method in this year; (iv) To give appropriate relief in subsequent years, if any income is taxed on these projects in those years;

Page 63 of 144 (v) If the project cost incurred up to this year has not crossed threshold of 30% limit of the total project cost estimated then to delete the addition of Rs.1,02,84,93,509/-. While deciding this issue AO may however keep in mind the principle laid down by honourable Supreme court in case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295, if AO is satisfied that issue is revenue neutral the matter may be set at rest. Therefore, ground no.8 of the appeal is allowed with above direction 43. Ground No.9 of the appeal is as under :- “9. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of interest expenditure of Rs.27,45,OO,OOO/- out of total disallowance of interest expenditure of Rs.119,15,13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans for specific projects were utilized for such projects only and by drawing a formula that 1/3rd of advances have been given out of own funds and 2/3rd of advances have been given out of borrowed funds. [Page 90-109 of CIT(A)'s Order] 9.1 That the learned CIT(A) has grossly erred in law in directing for verification by the AD on part of the interest expenditure amounting to Rs.27.45 Crores although the AD had already given his remand as duly noted in Para 17.35 of CIT(A)'s order. 9.2 That the learned CIT(A) completely failed to appreciate that no borrowed funds were utilized to finance its activities to buy land or for meeting construction expenses because receipts from customers were more than the expenditure incurred on these construction projects. 9.3 That the learned CIT(A) has drawn an artificial formula to confirm the part of the addition of Rs.27.45 Crores out of interest payment. 9.4 That the learned CIT(A) failed to appreciate that there was no net interest expenditure as the amount of interest received amounting to Rs 138.57 crores was in fact more than the amount of interest expenditure amounting to Rs. 136.00 crores.

Page 64 of 144 9.5 That without prejudice, the learned CIT(A) failed to give directions to allow the interest on the basis of POCM method against the respective projects either during the year and in the subsequent years where revenues are recognized.” 44. This ground is against the confirmation by CIT (A) of disallowance of interest expenditure of Rs.27,45,00,000/- out of total disallowance of expenditure of Rs.1,19,15,13,955/- on account of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans are utilized for specific projects only and adopting a formula that 1/3rd of the advance has been given out of own funds and 2/3rd of the advances have been given out of the borrowed funds. Assesse was further aggrieved that despite of information available in assessment order and in the remand report of the assesse, still CIT (A) has set aside the ground to the file of the AO for verification The assesse was also aggrieved by the non-appreciation of facts by CIT (A) that borrowed funds have not been utilized for buying of land or meeting of construction expenses because receipts from the customers being advanced against sale are more than the expenditure incurred on those projects. The assesse is also against application of adopting artificial formula of bifurcation of borrowed fund and own fund. The assesse has also taken an alternative ground that the CIT (A) failed to appreciate that the interest income earned by the assesse is Rs.138.57 crores whereas the interest expenditure is only Rs.136 crores and, therefore, on netting principle there is no interest expenditure incurred by the assesse. Alternatively, it was also stated that CIT (A) did not give direction to allow this interest expenditure based on the percentage completion method against respective projects in this year or in subsequent years, when revenue is recognized. 45. Briefly stated, the facts are that during the year, assesse has incurred total finance charges of Rs.1,19,56,56,108/- on fixed period loans and other interest amounting to Rs.16,41,67,222/- . The interest on loan is paid for acquisition of land and for financing the project undertaken by the assesse. The AO took note of the accounting policy of the assesse mentioned in Schedule 24 of the balance sheet wherein it is mentioned that borrowing costs that are attributable to the acquisition or construction of qualifying assets are capitalized as part of the cost of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the profit and loss account. According to the AO, as the loan from ICICI Bank Ltd. of Rs.300 crores is taken for project development in its 100% subsidiary company which has acquired 23 acre plot. Further, assesse has taken loan from GE Services and India Limited for the purpose of Icon and Summit projects. Therefore, according to him, these loans are taken for the construction projects which remains unallocated and, therefore, required to be capitalized. He held that Rs.1,19,15,13,155/- is the borrowing cost i.e. attributable for acquisition of

Page 65 of 144 construction of qualifying assets and required to be capitalized. The AO further rejected the contention of the assesse that the amount of interest paid should be adjusted against interest income earned u/s 57 of the Act for the reason that income that is offered is taxed as business income and not as an income from other sources and secondly, the land for which these advances have been given are part of the inventory i.e. closing stock of the assesse. Aggrieved by this, assesse carried this matter in appeal before the CIT (A) who in turn deleted the addition of Rs.91,70,13,955/- but confirmed the disallowance of Rs.27.45 crores. The main reason for the confirmation of the disallowance advanced by CIT (A) is that part of the interest on borrowed funds is for the construction of the project and the amount borrowed is mixed up with own funds and interest free funds. Thus, there is no direct nexus which can be established to hold that loans for which the money was borrowed were utilized for such projects or not. Therefore, he devised a formula that one portion out of three shall be considered being interest free funds available and two portions shall be considered as interest bearing funds. By applying this formula, he held that out of Rs.1,19,15,13,155/-, Rs.70.10 crores of the interest is pertaining to interest earned on loans and advances to group entities and, therefore, net interest expenditure of Rs.49.46 crores shall be capitalized. The findings of CIT (A) based on the special auditors’ report in para no 17.39 were as under :- (a) There is no diversion of interest bearing funds for non-business purposes. (b) Amounts advanced to subsidiaries that are also in the business of real estate and therefore amount advanced to subsidiaries are a part of the business model of the appellant. (c) Funds given to subsidiaries of the assesse company are at the rates of interest higher than the rates of interest of borrowings. (d) Appellant has a mixed account of funds and there is no nexus of the interest bearing funds and utilisation thereof. (e) Appellant has earned interest income of Rs 1322714859/- and has interest expenditure of Rs. 1195422543/-. Income is charged to tax under the head profits and gains of business and expenses are also claimed as deduction u/s 36(1) 9iii) as business expenditure. (f) That part of the interest expenditure of Rs 1191513955/- is required to be capitalised because purposes of the part of the borrowings is for purchase of land and construction purposes and there is no nexus of the funds. (g) Average Interest free funds are available to the assesse of Rs. 159254 lacs and total interest bearing funds are Rs. 182350 lacs and cost of the project as at 31.3.2006 is Rs. 351.78 crores. Net interest expenditure is Rs. 49.46 crores. Amount invested in group entities is Rs 132.27 Crores.

Page 66 of 144 Based on above as in AY 2006-07, 44.51% of the revenue is recognized out of total cost of project of Rs.351.78 crores, he proportionately worked out that Rs.22.01 crores being 44.51% of Rs.49.46 crores shall be interest expenditure allowable as deduction to the assesse. The balance of Rs.27.45 crores, he held that this interest expenditure is required to be capitalized towards non-recognition of proportionate revenue from the projects. 46. Advancing argument against this ground, the ld. AR submitted that the CIT (A) should have considered the netting of principal as interest earned by the assesse is more than the interest expenditure incurred by the assesse. He submitted that in assessee’s own case for AY 2007- 08, the CIT (A) has accepted this but for this year, he has not accepted the plea of the assesse. He drew attention to para no.9.6 where identical issue has been considered by the CIT (A). He argued that CIT (A) has accepted the concept of netting of and moreover after considering the decision of Hon’ble Supreme Court in the case of SA Builders, wherein Hon’ble Supreme Court has held that there is no diversion of money for non-business purposes and loans to subsidiaries are at higher rates then rates of borrowings paid by the assesse. He further submitted that Accounting Standard 16 issued by ICAI does not have any application on the facts of the case. The next argument was that the case of the assesse is covered by the decision of Hon’ble Delhi High Court in the case of CIT vs. Tulip Star Hotels Limited wherein if the interest expenditure is incurred for the purpose of business the deduction should be allowed u/s 36(1)(iii) of the Act. He further relied on the decision of Hon’ble Supreme Court in the case of DCIT vs. Core Health Care Limited – 298 ITR 194 (SC) wherein Hon’ble Supreme Court has stated that provisions of section 36(1)(iii) has to be read on its own term and it is a code by itself. The Hon’ble Supreme Court further held that it does not make any difference whether the capital is borrowed for revenue purposes or for acquisition of capital assets, requirement of section is that the assesse must borrow capital for the purposes of its business. Therefore, he submitted that as in the case of assesse, the borrowing is for the purposes of business of the company, full deduction should have been allowed u/s 36(1)(iii) of the Act. He further stated that borrowing cost policy of the assesse is mentioned with respect to accounting of capitalization of the borrowing cost according to Accounting Standard 16 issued by ICAI which does not apply to inventory and even if it applies, the provision of law should prevail when there is conflict between accounting standard and the taxation laws while deciding issue under the Income Tax. Even otherwise, whole controversy is of academic nature as there is no dispute that all the borrowed funds have been used for the business and even if part of interest is capitalised by linking the same with recognition of revenue, the claim of interest so capitalised is to be allowed as deduction in the AY 2007-08 as entire receipt was duly subjected to tax in the

Page 67 of 144 AY 2007-08. He further submitted that the finding of the CIT(A) in the year under reference being not in conformity with accounting and legal principles, the same has not been approved by the successor CIT(A) in the assesse’s own case for A.Y. 2007-08. He submitted that in the past years identical claim of interest has always been allowed in the preceding years and there is no change in facts of the case and nature of claim. He also argued that whole controversy is of academic nature as there is no dispute that all the borrowed funds have been used for the business and even if part of interest is capitalised by linking the same with recognition of revenue, the claim of interest so capitalised is to be allowed as deduction in the AY 2007-08 as entire receipt was duly subjected to tax in the AY 2007-08Therefore, he submitted that the disallowance confirmed by CIT (A) of Rs.27.45 crores may be deleted. 47. Against this, ld. DR submitted that the assesse has utilized funds for the purpose of the project. As the funds are utilized for the purchase of land and construction expenditure of specific project, the expenditure is not of the revenue in nature and, therefore, the same has been rightly disallowed. He further submitted that AO has given detailed reasoning for each and every argument advanced by the assesse for the purpose of making disallowances and the CIT (A) also has worked out the nexus of the funds in a reasonable manner. It was also one of his argument that the disallowances have been based on well accepted principles of capitalization of borrowing cost in accordance with Accounting Standard issued by the ICAI in Accounting Standard 16. He, therefore, submitted that the disallowance confirmed by the CIT (A) is correct. 48. In rejoinder, ld. AR submitted that now the issue is squarely covered in favour of the assesse in view of the decision of Hon’ble Supreme Court in the case of Hero Cycles Limited vs. CIT reported in 63 taxman.com 308 (SC). He also relied on the decision of Hon’ble Supreme Court in the case of DCIT vs. Core Healthcare Limited (supra). 49. We have carefully considered the rival contentions. It appears that the AO has made this addition mainly because of note mentioned by assesse in its accounting policies with respect to borrowing costs according to Accounting Standard 16 issues by ICAI. We have perused notes attached to financial statements and we are of opinion that these notes have arisen in the financial statement of the assesse because of the issue of applicability of Accounting Standard 16 issued by the ICAI. According to Accounting Standard 1 i.e. disclosure of accounting policies, each and every company is required to disclose the accounting policy with respect to various significant income, expenditure and assets and liabilities etc. applicable to it. Borrowing cost is also one of them. ICAI has issued Accounting Standard 16 Accounting for Borrowing Cost wherein it is provided that in case of interest expenditure incurred by the company, it is required to be capitalized if the borrowing is

Page 68 of 144 related to the qualifying assets. In this case the inventory is a qualifying assets as it is held for more than 12 months and therefore interest attributable to it is required to be capitalised in the books of accounts as per AS -16. Therefore we do not agree with the arguments of AR that AS -16 does not apply to inventory. However, those are the provisions which are applicable for the maintenance of the accounts of the company and interest is allowable according to provisions of section 36(1) (iii) of the act. Further according to us, the provisions of Accounting Standards and provisions of the Act are two different set of regulations and while deciding this issue, it is well settled judicial precedent that is if there is a contradiction between the two, the provisions of the Act shall prevail. Provisions of section 36(1)(iii) provides that the amount of interest paid in respect of capital borrowed for the purposes of the business or profession deduction is required to be allowed. Proviso inserted w.e.f. 01.04.2004 is the only restriction if condition laid down u/s 36(1) (iii) are satisfied by the assesse. The proviso says that any amount of the interest paid in respect of capital borrowed for acquisition of an asset whether capitalized in books of accounts or not for any period beginning from the date on which the capital asset was borrowed for acquisition of the asset till the date on which such asset was put to use shall not be allowed as deduction. The deduction is to be disallowed even if the interest is capitalized in the books of accounts or not. Hon’ble Supreme Court in the case of Core Healthcare [298 ITR 194] has held that provisions of section 36(1)(iii) is a code in itself. In the present case, the interest paid by the assesse is not for the purpose of acquisition of any capital asset but for its inventory. We do not find any restriction in provisions contained u/s 36(1)(iii) which provides that the interest can be disallowed if incurred for the purpose of inventory as provided under Accounting Standard 16. Apparently, in this case, there is no allegation that interest is not paid on capital borrowed for the purpose of the business. Hon’ble Mumbai High Court in the case of CIT vs. Lokhandwala Constructions Industries Ltd. [ 131 taxman 810] has held as under :- “4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. In the case of India Cements

Page 69 of 144 Ltd. v. CIT [1966] 60 ITR 52 , it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes of deciding the claim of deduction under section 10(2)(iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the Project of construction of flats under the Kandivali Project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali Project constituted the stock-in-trade of the assessee. That, the Project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under section 36(1)(iii). Since the assessee had received loan for obtaining stock-in-trade (Kandivali Project), the assessee was entitled to deduction under section 36(1)(iii) of the Act. That, while adjudicating the claim for deduction under section 36(1)(iii) of the Act, the nature of the expense - whether the expense was on capital account or revenue account - was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That, the utilization of the capital was irrelevant for the purposes of adjudicating the claim for deduction under section 36(1)(iii) of the Act - Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom.). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case.” Further, in the following decisions of various coordinate Benches, the deduction of interest has been allowed u/s 36(1)(iii) even where the assesse has followed the projection completion method :- (i) ACIT vs. Tata Housing Development Company Ltd. – 45 SOT 9 (Bom.); (ii) DCIT vs. Thakar Developers – 115 TTJ 841 (Pune); (iii) DCIT vs. K. Raheja Pvt. Ltd. – (2006) TIOL 220 ITAT-MUM.; (iv) K. Raheja Development Corporation vs. DCIT in ITA No.240/Bang./97 dated 22.09.1997 - In this case, reference application filed by the Department has also been rejected by the Hon’ble Karnataka High Court vide its order dated 08.11.2000 in Civil Petition No.832/2000 (IT).

Page 70 of 144 Before us, ld. DR could not cite any decision against the claim of the assesse, therefore, respectfully following the decision of Hon’ble Bombay High Court and as well as various coordinate Benches, cited above, we do not concur with the view of CIT (A) on disallowance of interest of RS.24.75 crores u/s 36(1) (iii) of the Act. The alternative argument of the assesse regarding adoption of any artificial formula for the purpose of computing interest disallowance. Ld. CIT (A) has presumed proportion of utilisation of funds in absence of the nexus holding that assesse has used mixed funds. Honourable Bombay High court in case of CIT V Reliance Utilities & Power limited 313 ITR 340 has held that “The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments.” Therefore we are of the view that presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [ 131 taxman 810] and CIT V Reliance Utilities & Power limited [313 ITR 340] We reverse the order of the CIT (A) confirming the disallowance of expenditure of Rs.27.40 crores and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act. 50. In the result, ground no.9 of the appeal is allowed. 51. Ground No.10 of the appeal is as under :- “10. That learned CIT(A) has grossly erred in law and on the facts and in the 1circumstances of the appellant's case in confirming the disallowance of Rs.64,39,262/- on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building. [Page 109-116 of CIT(A)'s Order]” 52. This ground is against the order of the CIT (A) confirming the disallowance of Rs.64,39,262/- on account of brokerage expenses for Amex Building by holding the same is related to renting of building. 53. Brief facts of this ground are that the assesse has claimed expenditure of Rs.64,39,262/- on account of brokerage paid for Amex Signature. On query by the AO, the assesse submitted that it has paid CB Richard Asia Limited by bill dated 12.07.2005 as a professional fees for

Page 71 of 144 releasing of Phase No.1 2,45,000 sq. to American Express Ltd. at DLF City, Phase 5, Gurgaon. It was submitted that this amount has been paid for the services rendered relating to premises rented to American Express Ltd. The AO disallowed this expenditure holding that it does not pertain to any business activity during the year and should have been capitalised. Therefore, brokerage was disallowed and added to the income of the assesse. On appeal before the CIT (A), he confirmed the disallowance holding that brokerage expenses are paid for renting of building and same is not allowable deduction u/s 24 of the Act. 54. Ld. AR for the assesse submitted that the said sum is in respect of brokerage paid for renting of the premises, income of which is chargeable to tax under the head property. There is no dispute about the genuineness of the claim of the expenses and as brokerage charges create an override charge on receipt of the rent. The rental income is required to be considered after adjustment of the brokerage. He further argued that provisions of section 23 as per which the annual value has been defined as standard rent or actual rent received or receivable, whichever is higher. Therefore, he submitted that actual rent in the case of the assesse should be after deduction of brokerage charges on receipt of the rent. He further canvassed that real income is required to be taxed and as the brokerage is directly related to the income of rent receivable, deduction should be granted either u/s 23 or under the head of the business income. 55. Ld. DR relied on the order of the AO and CIT (A) and submitted that there is no such deduction provided u/s 23 or section 24 of the Act. He further relied on the decision of Hon’ble Punjab & Haryana High Court in the case of Piccadilly Hotels Limited. 56. We have carefully considered the rival contentions. The case of the assesse is that u/s 23(1) (b) for the purpose of determination of annual letting value of the property envisages that the property which has been let out then the actual rent received or receivable is taken as rental income. The phrase actual rent received or receivable means the actual rent received or receivable in the hands of the assesse. We could not digest such a plea of the assesse because what is contemplated u/s 23 is that the annual value of the property which is let out should be the portion of the rent received or receivable by the owner from the tenant or the licence. The first and foremost condition is that it should be in the nature of rent mutually agreed upon between the two parties in the enjoyment of the property let out in lieu of the rent. The only deduction i.e. envisages is about the taxes levied by the local authority. Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by the tenant. For renting of the property brokerage cannot be said to be charged that has been created against property for enjoying

Page 72 of 144 the rights and at best, it is application of income earned. For such expenses as brokerage etc. is held to be allowable then there are number of other expenses which also can be held to be allowable which is against the mandate of the law laid down for computation of the income for house property. Therefore, payment of brokerage cannot be allowed as deduction either u/s 23 or u/s 24 of the Act. Hence, we confirm the order of the CIT (A) confirming the disallowance of Rs.64,39,262/-. 57. In the result, this ground of appeal is dismissed. 58. Ground No.11 is as under :- “11. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.42,86,05,986/- out of total addition of Rs.222,56,87,056/- on account of revenue recognition on the basis of percentage of completion method (POCM) in respect of ICON Project after including IDC. [Page 122-153 of CIT(A)'s Order] 11.1 That the learned CIT(A) has erred in directing the AO to verify the details/information filed with AO and in confirming the addition as the CIT(A) has no such power to set a-side the part of addition made by AO. [Page 152 of CIT(A)'s Order] 11.2 That without prejudice, the learned CIT(A) failed to give appropriate directions to allow the claim in the subsequent years in which the appellant had itself accounted for the revenue in respect of the ICON project.” 59. These grounds are against the confirmation of the addition of Rs.42,86,05,986/- out of the total addition of Rs.2,22,56,87,056/- on account of revenue recognition on the basis of percentage of completion method in respect of ICON Project after including the internal development cost. 60. During the year, the assesse has not recognised any revenue on this “ICON” Project. On query by the AO, it was submitted by the assesse that the percentage of completion in case of this project has not been reached to the extent of 30% of the total project cost and, therefore, according to the Guidance Note issued by the ICAI, no revenue is recognised. The arguments advanced by the assesse were same as they have advanced arguments in the case of non-recognition of revenue in case of Mangolia Project as well as Summit Project. It was further submitted that the profit in respect of Icon Project has already been offered to tax in subsequent years. Therefore, firstly, it will amount to double taxation and secondly, it is against accepted method of accounting regularly followed in subsequent years. It was

Page 73 of 144 further submitted that in the alternative, if such addition is upheld, a direction may be issued to allow relief in AY 2007-08, the year in which entire receipt was subjected to tax in AY 2007-08. 61. Ld. DR submitted that the issue involved in this ground is identical to the ground no.8 of the appeal of the assesse where it has been prayed for setting aside to the file of AO for working out income chargeable to tax in this year only if threshold of the 30% of the total project cost incurred is made up to 31.03.2006. To this, ld. AR agreed. 62. Therefore, in view of this, we direct the AO to follow the same direction as has been given in ground no.8 of this appeal of the assesse with respect to Summit Project and Manoglia Project. Therefore, ground no.11 of the appeal is allowed with above direction. 63. Grounds No.12 of the appeal is as under :- “12. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.35,09,850/- on account of statutory deduction u/s 24 in respect of amount received from Shriram School and shown under the head 'Income from House Property' by holding that the appellant is not the owner of this property and the rental income cannot be computed under the head 'Income from House Property'. [Page 166-173 of CIT(A)'s Order] 12.1 That the learned CIT(A) has erred in directing the AO to verify the facts and in confirming the disallowance as the CIT(A) has no such power to set a-side the addition made by AO. [Page 173 of CIT(A)'s Order] 64. This ground was not pressed by the assesse and therefore dismissed. 65. Ground no 13 of the appeal is as under :- “13. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.14,49,123/- for expenditure on account of Provision of gratuity u/s 40A(7) of the Income-tax Act, 1961. [Page 173-175 of CIT(A)'s Order]” 66. This ground of appeal is not pressed by assesse and, therefore, they are dismissed. 67. Ground No.14 of the appeal is as under :- “14. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.84,12,762/- out of total disallowance of Rs.2,13,94,580/- in respect of the following items by treating the same as capital in nature and erred in not considering the fact that these expenses are on account

Page 74 of 144 of legal and professional charges, repair & maintenance expenses incurred in the normal day to day course of business and the same deserve not to be capitalized:- SR No. Particulars Amount (Rs.) 1 Expenditure for registration of Trade 10,08,774 Mark and Brand Logo 2 Expenditure for Repair & 55,18,338 Maintenance of Guest House, Mussoorie 3 Expenditure for consultancy expenses 1,50,000 in connection with purchase of aircraft. 4 Expenditure for purchase of shares of 10,85,650 Edward Keventer (Successors)Pvt. Ltd. out of total expenditure of 5 Proposed merger of DLF Power 6,50,000 Limited and DLF Phase IV Commercial Developers Ltd. Total : 84,12,762

Page 75 of 144 expenditure as revenue expenditure pertaining to the first time registration of the trademark. Therefore, respectfully following the decision of Hon’ble Supreme Court, we reverse the order of the CIT (A) to the extent of disallowance of Rs.10,08,774/- incurred for registration of trademark of the assesse. 73. The next disallowance for expenditure was on account of Rs.55,18,838/- incurred by the assesse on repairs and maintenance of guest-house at Mussoorie. It is noted from the details that such expenditure has been incurred for construction of a boundary wall and, therefore, the AO has disallowed this expenditure holding that it has resulted into an enduring benefit to the assesse and, therefore, is a capital expenditure. The CIT (A) confirmed the disallowance. 74. Before us, the assesse submitted that these expenses are repair expenses and are not capital in nature. It was submitted that it is the current repairs which has been incurred by the assesse and there is no addition to the value of the guest house but merely a compound wall is constructed. It was further submitted that the issue is covered in favour of the assesse by the decision of Hon’ble Gujarat High Court in the case of CIT vs. Maharana Mills Ltd (1994) 208 ITR 972 (Guj)wherein it has been held that expenditure on repairs of guest house is allowable u/s 30 of the Act. It was further submitted that that the amount of expenditure is not in doubt. He further relied on the decision of Hon’ble Bombay High Court in the case of M/s Greaves Cotton and Company Ltd. vs. CIT and also Hon’ble Allahabad High Court in the case of Kanpur Dyeing and Painting vs. CIT – 75 ITR 686. 75. Against this, ld. DR relied on page no.363 of the order of the AO. He also supported the order of the CIT (A). 76. We have carefully considered the rival contention. In this case the construction expenditure of compound wall has been held to be of capital in nature only on the ground that the expenditure resulted in enduring benefit. We are of the view that this is not the only test for holding that expenditure is capital in nature. Hon. Karnataka High court in Commissioner Of Income-Tax vs. B.V. Ramachandrappa And Sons [191 ITR 34] [Karn] while deciding the issue of compound wall has held as under :- “5. The distinction between repair and reconstruction is quite narrow and the meaning attributable to the word "repair" depends upon the facts and circumstances of the case. It is generally understood that repair involves renewal; renewal of a part; of a subordinate part... repair is restoration by renewal. The size and importance of the work involved are to be considered. In the context of a building, its roof will be a subordinate part of it and, therefore, its replacement by asbestos sheets, in the place of a thatched roof should normally be understood as repair. The purpose of the fence around the business

Page 76 of 144 premises is to prevent trespassers and thieves from entering; the dominant purpose is to safeguard the property in the premises, the materials in the premises are certainly part of the business assets of the assessee. In this context, the compound wall cannot be treated in isolation. It is to be understood as part of the business premises and when only a part of the premises is replaced, prima facie, it will be a case of repair. The identity of the entire asset as a whole is not affected at all. The works carried out contribute to the better and safer utilisation of the existing business asset. These works effected, if considered in proportion to the entire business premises, will not be of significant replacement so as to alter the character of the business premises. Therefore, we are of the opinion that the view taken by the Appellate Tribunal is correct in law.” “18. From the foregoing, it is clear that the proposition stated by us at the commencement of this order is supported by the various decisions of the Supreme Court and there cannot be any single rigid formula to find out whether a particular expenditure is revenue in nature or capital and that the expenditure was incurred to obtain a benefit of an enduring nature is not the sole test in every case. The facts and circumstances of each case, read in the background of the assessee's business and other activities, will have to be examined.” Therefore respectfully following the decision of Honourable Karnataka high court we are of the view that disallowance of expenditure on compound wall of Rs 5518838/- on repairs and maintenance of guest house only on the sole ground of enduring benefit test cannot be upheld. In view of this we reverse the decision of CIT (A) and delete the disallowance on account of repairs and maintenance of guest house.

Page 77 of 144 78. Ld. AR submitted that as the expenses are part of the regular business activities, same is to be considered as permissible deduction. Ld. DR Relied up on the order of CIT (A). 79. We have carefully considered the rival contention and we do not find any infirmity in the order of CIT (A) holding that the amount paid for consultancy fees for purchase of aircraft which is a fixed asset cannot be allowed as revenue expenditure. Therefore we confirm the order of CIT (A) on this count. 80. The next disallowance is pertaining to expenses incurred for purchase of shares of Edward Keventer (Successors) Pvt. Ltd. . Ld. AO disallowed the same holding to be capital expenditure of Rs 10,85,650/-. CIT (A) confirmed the disallowance holding that expenses have been incurred towards conducting due diligence of certain companies in which the shares were proposed to be purchased. This expenditure is also cost of the investment and therefore, in the nature of capital expenditure. 81. Before us the Ld. AR submitted that expenses which is conducted for due diligence of business activities is to be considered as part of running business and there is no case for capitalization of the same. Ld. DR relied on the orders of lower authorities. 82. We have carefully considered the rival contention. Assesse has made investments in subsidiaries and is in the business of real estate where in it has invested large sums in those companies. Professional fees paid for due diligence in case of one of the companies is in furtherance of the business of the company. Therefore it cannot be said that expenditure incurred by the assessee for due diligence of investments in furtherance of its business is capital in nature. 83. Next item of disallowance of expenditure is expenses relating to proposed merger of Rs. 6,50,000/- with wholly owned subsidiary company. Ld. AO and CIT (A) are of the view that this is capital expenditure and hence disallowed. 84. Before us LD AR submitted that these expenses have been incurred as a matter of business and commercial expediency and part of business reorganization and as such same is permissible deduction under the law. Ld. DR relied on the orders of lower authorities. 85. We have carefully considered the rival contentions. Hon Supreme court has held in Commissioner of Income Tax vs. Bombay Dyeing and Manufacturing Company Ltd [ 219 ITR 521] that legal and professional expenses in respect of amalgamation were allowable as revenue expenditure. Therefore we reverse the finding of CIT (A) and delete the disallowance of Rs 6,50,000/-. 86. Ground no 14 of the appeal is partly allowed. 87. Ground no 15 is as under – “15. That learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant's case in confirming the addition of

Page 78 of 144 Rs.3,12,41,768/- out of total addition of Rs.35,08,31,012/- on account of closing credit balance in Allotment A/c Code No.10141A001 by holding that these are old balances received by the appellant from its customers and they are more than 10 years old. [Page 204-218 of CIT(A)'s Order] 15.1 That without prejudice, the learned CIT(A) ought to have issued directions to exclude the amount, if the appellant itself recognized the same as its income in subsequent years.” 88. This ground of appeal is against the addition of Rs31241768/-being old balance received by assesse from its customers which are more than 10 years old. Originally the Assessing Officer made addition to the extent of Rs. 35,08,31,012/- out of which the CIT(A) allowed relief to the extent of Rs. 31,95,89,244/- and balance amount to the extent of Rs. 3,12,41,768/- was confirmed. 89. Ld. AR submitted that at the outset, that these are old carry forward balances and part of running account and as such basis of addition in the year under reference is factually and legally incorrect and misconceived. He submitted that AO and CIT(A) have not made reference to any section of the Act under which addition was made and as the liability is recognised in the books and no deduction was claimed in the earlier years, same cannot be added to the income of the assessee in this year. He further submitted that that addition sustained by the CIT(A) is without proper appreciation of facts and provisions of the law. The allotment money represents application money from prospective buyers in respect of on- going projects of the appellant. On the basis of application money, no legal title is acquired by the applicant till the allotment is made. After the allotment to the applicant, the allotment money is transferred to the project receipt account and same is considered as trading receipt of the business. There is no dispute about correctness of system and entries in the accounts. The CIT(A) in the finding extracted in para 28.13 have brought out the relevant particulars on record . Outstanding balance in the allotment account is refundable application money to the customers who were not allotted any property and as such there is no case of any income relating to such outstanding balance in the allotment account. It is not the case of the Assessing Officer and CIT(A) that there was actual allotment or transfer of application money to project receipt account of the business and such, there is no case of any presumed receipt in respect of credit balance in the allotment account. 90. Ld. DR. relied on the orders of lower authorities and submitted that when the accounts are old for 10 years they are trading receipts and are rightly taxed. 91. We have carefully considered the rival contention. Facts remains that as the balance are very old the amount is added to the income of the assessee. We have already decided the

Page 79 of 144 similar addition in this appeal in ground no 6 of this appeal. The facts and reasons for addition are identical. In that ground we have deleted the addition on the basis of decision of Honourable Delhi high court in Commissioner of Income-tax v. Shri Vardhman Overseas Ltd. [2012] 343 ITR 408 (Del). Therefore for the same reason we delete this addition and reverse the orders of CIT (A). In the result ground no 15 of the appeal is allowed. 92. Ground No 16 is as under :- “16. That learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.1,47,70,222/- on account of expenditure for bidding for modernization of Mumbai and Delhi Airports by holding that the appellant is in the business of real estate development which consists of development and sale of apartments and has never been engaged in the modernization of Airport which is a new and specialized line of business and this tender fees paid for the same is not connected with the existing line of business of the appellant. [Page 243-254 of CIT(A)'s Order] 16.1 That the learned CIT(A) has failed to appreciate that bidding for such projects was in line with the business of the company and there was a unity of funds, management & control with the existing business of the company as the business was same, no disallowance was called for. 16.2 That learned CIT(A) ought to have appreciated that the business of the appellant remains construction/ whether it constructs houses, commercial places like malls, airports etc.” 93. This ground of appeal against the confirmation of disallowance of Rs. Rs.1,47,70,222/- on account of expenditure for bidding of modernisation of airports. ld. AO disallowed the same in absence of proper information whereas CIT (A) confirmed the disallowance as expenses are incurred by the appellant on account of tender fees for bidding for contract for modernization of Airports, and in his opinion appellant company is in the business of real estate development which consists of development and sale of plots and apartments and has never been engaged in modernization of Airport which is a new and specialized line of business.

Page 80 of 144 94. Ld. AR submitted that the appellant company is engaged in the business of development of real estate and modernization of any existing real estate project is part of its objects and activities and as such the basis of disallowance is factually incorrect and misconceived. He submitted that revenue has not disputed the genuineness of the expenses and in the light of fact that expenses were incurred in the normal course of business, the same is permissible deduction. He relied on the decision of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del). 95. Ld. DR relied on the orders of lower authorities. 96. We have carefully considered the rival contention . Admittedly assessee is in business s of the real estate development. The tender fees paid for bidding of modernisation of airport cannot be said to be the new line of business but it is the same line of business i.e. of development of real estate. Therefore according to us the expenditure if incurred for the tender fees same is allowable u/s 37(1) of the act. The decision cited by the AR of the appellant has held that the when the assesse proposed to set up new project which had inextricable linkage with the existing business of the assesse, The proposed business was not an individual business but vertical expansion of the existing business and Thus, the test of existing business with common administration and common fund was met. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Honourable Delhi high court in case of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del) we reverse the order of CIT (A) and delete the disallowance of Rs 1,47,70, ,222/- on account of tender fees for modernisation of airports. Therefore ground no 16 of the appeal is allowed. 97. Ground No 17 of the appeal is as under :- “17. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance of Rs.1,02,786/- by holding the same as cash payment in excess of Rs.20,000/-and not allowable u/s 40A(3) the Income-tax Act, 1961. [Page 254-256 of CIT(A)'s Order]” 98. Brief facts of the case are that that there is no discussion in the assessment order for the disallowance. The Assessing Officer disallowed the aforesaid amount in the computation vide Sl.No.26 (2nd item) of page 458 of the assessment order. However, the Special auditors at page 22 of their report in form 6 (B) had made observations in respect of this item in the

Page 81 of 144 table enclosed with the Special auditor’s report at Vol. I Part I, Page 22. They have observed that the appellant incurred expenditure totalling to Rs.5,13,934/, where payment in excess of Rs.20,000/- was made otherwise than by a cross cheque or the bank draft and hence 20% of the expenditure was disallowed under Section 40A (3). CIT (A) confirmed this disallowance holding that the cash payment to employee is not covered by the exception in Rule 6DD of the Income Tax Rules. Therefore, the disallowance of Rs.1,02,786/-, being mandatory and not covered by Rule 6DD. 99. Ld. AR submitted that appellant itself has already added Rs. 42,803/- out of total disallowance of Rs. 1,02,786/- and as such there is no case for any such disallowance. The factual position to this effect is corroborated from para 31.3 & 31.4 (page 254) of the CIT(A)’s order. In view of the above position, there is no case of any disallowance. However, if necessary, Assessing Officer may be directed to verify the factual position to this effect and give appropriate relief. He submitted regarding balance amount of disallowance of Rs. 59,984/-, that most of these payments were reimbursements to the employees towards travelling and medical expenses etc.. Further, payment to the employees towards reimbursement of expenses is not covered u/s 40A(3).Even otherwise, there is no case of any single payment exceeding Rs. 20,000/- and as such no disallowance is called for u/s. 40A(3) of the Income Tax Act, 1961. 100. Ld. DR relied on the orders of lower authorities and submitted that there cannot be any objection on setting aside this issue to the file of AO. 101. We have carefully considered the rival contentions. In view of the agreement between both the parties that correct facts have not come on the record therefore in the interest of justice this ground is set aside to the file of the AO with a direction to verify the contention raised by assesse and decide the issue afresh. In the result this ground is allowed with above directions. 102. Ground No 18 of the appeal is as under :- ‘18. That the order passed by the learned CIT (Appeals) is bad in law as well as wrong on facts and erroneous in points of law and right is reserved to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing.” 103. This ground of appeal is general in nature and therefore not pressed by the AR of the appellant and therefore dismissed. 104. In the result appeal of the assesse is partly allowed. 105. Now we take up the appeal of the revenue where in following grounds of appeal are raised.

Page 82 of 144 1. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.25,00,251/- under the head "Stale Cheque" Account in spite of the fact that the payments were neither made nor ascertained by the Assessee up to 31.03.2006. 2. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.24,07,12,588/- based on percentage or completion method (POCM) in Summit and Magnolia project, without giving any reasoning. Further that on the facts & Circumstances the ld. CIT(A) erred by directing the AO to verify the IDC allocation to above mentioned two projects and upholding the additions up to Rs.78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT(A) has the effect of setting aside the order which was not permissible as per I T Act. 3. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of Rs.39,29,42,662/- considering this as an accounting mistake although these expenses were on a/c of provision for construction account- Regency Park account, whereas these were prima facia prior period expenses as per detailed working made by the auditors about which the assessee had failed to rebut the findings given by the auditors. 4. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of Rs.14,55,37,400/- on a/c of Non allocation of proportionate overhead expenses. 5 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 6 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.30,16,44,316/- on a/c of provision for construction account- Regency Park account no A33P038-000-03. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 7 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.21,39,996/- on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account). Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 8 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of POCM method adopted for AY 2006-07 which was needed to be applied to the credit balance of Rs.1,23,81,979/- in spite of the fact that the Assessee has not given any reconciliation or working to show that auditor wrongly picked up only the credit side of sum ledger.

Page 83 of 144 9 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.22,83,72,935/- treating that this was not an ascertainable liability and the assessee company has also made payments of the same in subsequent years without appreciating the fact that the AO as well as Auditor has specifically pointed out that assessee had debited a provision on 31.03.2006, vide journal voucher No.- 542, 373, 456 and 467, debiting Rs.17,29,99,721/-, Rs.1.22 Crore, Rs.5 Crore and Rs. 25.60 Lacs respectively. 10. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.4,82,44,524/- treating the same as double addition without appreciating the fact that the assessee company was including Internal Development Charges (IDC) as a part of its budgeted cost on the basis of Rs.161 per sq. ft. even though there was no basis for deriving IDC all a per sq. ft. basis in this matter. 11. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.10,34,915/- on a/c of Savitri Cinema even after accepting the fact that no business activities were carried out during the year. 12. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.16,95,67,085/- on a/c of Grand Mall project u/s 40A(2)(b) in spite of the fact that it was clear from the findings of special auditor as well as AO that the payments were made in excessive to fair market value to the company which falls within the purview of section 40A(2). 13. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.91,70,13,955/- on a/c of capitalization of Interest expenses as per AS-16 in spite of the fact that it was clear from the findings of special auditor as well as AO that the interest bearing funds were utilized for acquisition of land or for financing development cost of projects. 14. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of Rs.20,87,70,567/- on a/c of brokerage charges in spite of the fact that no revenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure. 15. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.13,24,00,000/- on a/c of Revenue recognition of Saket Court Yard in spite of the fact that it was clearly established by the AO as well as auditors that by manipulating book of account the assessee company had postponed its income. 16. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.179,70,81,070/- out of addition made by the AO to the tune of Rs.222,56,87,056/- by recognizing the revenue on POCM method based on

Page 84 of 144 the detailed working of the Special Auditor who had mentioned that the assessee had wrongly implemented the new accounting standards in its various projects. 17. That on the facts & circumstances of the case the ld. CIT( ) erred in deleting the additions of Rs.8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issue mentioned in the assessment order where the AO has discussed nature of income from each and classified it under proper head of Income. 18. That on the facts & circumstance of the case the ld. CIT (A) erred in deleting the additions of Rs.4,49,85,573/- on a/c of Reconciliation of rental income with TDS certificates in spite of the fact that the assessee company was unable to produce proper justification regarding the discrepancies noticed by the Special Auditor and confronted to the assessee company by the AO. 19. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.3,27,52,542/- on a/c of enhancement in annual value amounting to Rs.3,22,84,192/- and by making addition of notional rent of properties that remained vacant for a part of the previous year amounting to Rs.4,68,350/- ignoring the facts of the case and wrongly relying upon the decision of Hon'ble ITAT in spite of the fact that the jurisdictional High Court has favoured the revenue on similar issue . 20. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the facts of the case that the 0 disallowed the same in light of the prohibition created by the arbitration award." 21. That on the facts & Circumstance of the case the ld. CIT(A) erred in directing to allow the credit for TDS amounting to Rs.26,25,369/- (subject to verification) in spite of the fact that the payme1lt received by the Assessee company was not legally right. 22. That on the facts & Circumstances of the case the ld. CIT(A) erred in directing the AO to verify the complete facts and figures with regard to disallowance u/s 14A read with Rule 8D and compute the amount of expenditure which has been incurred in relation to the exempt income and disallow the same. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 23. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.1,04,56,937/- being project expenses which should have been capitalized by the assessee company because these a related to the acquisition of new projects.

Page 85 of 144 24. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.22,31,806/- without going through the details of the same and accepting the same at the face value of assessee company. 25. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.1,88,81,388/- (Correct amount should be Rs.2,11,93,472/-) being late construction charges received by the assessee company during the year which should have been credited by the assessee company in his receipts for the year. 26. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.20,99,510/- being prior period expenses. 27. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.4,94,00,550/- received from customers in terms of contractual obligation. 28. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs.8,09,92,427/- on a/c of Interest free security deposit, ignoring the facts that these were proved to be non-refundable and the Hon'ble Punjab & Haryana High Court held the same to be unreasonable. 29. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs.18,66,82,603/- being the amount received by the assessee company from the customers for execution of conveyance deed in favour of customers which was in the nature of liability ceased to exist and thus should have been forfeited by the assessee company. 30. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs.7,00,67,242/- being credit balances in various accounts by treating them as trading receipts and wrongly accepting the assessee's ground that instead of credit balance there was debit balance in accounts ignoring the fact that this aspect was dealt with by the AO in his assessment order and was conclusively established to be credit balance. 31. That on the facts & circumstance of the case the ld. CIT(A) erred in restricting the addition to the tune of Rs.3,12,41,768/- only out of addition Rs. 35,08,31,012/-, shown as Closing Credit Balances in Allotment Account which, though proved to be non-refundable, was not offered by the assessee company as income. 32. That on the facts & circumstance of the case the ld. CIT(A) erred in deleting the addition of Rs.2,57,970/- on a/c of deemed dividend in spite of fact that said amount was advanced by MIs DLF Commercial Developers ltd (DCDL) to the assessee company and the assessee company was a holding company of DCDL, and thus attracting the provisions of section 2(22)(e) of the Act."

Page 86 of 144 33. That on the facts & circumstances of the case the Id CIT(A) erred in deleting the addition of Rs.34,84,265/- on a/c of deemed dividend in spite of fact that said amount was advanced by MIs DLF Financial Services ltd (DFCL) to the assessee company, and the assessee company was a holding company of DFCL, and thus attracting the provisions of section 2(22)(e) of the Act. 34. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.12,60,00,000/- on a/c of deemed dividend in spite of fact that said amount was advanced by M/s Bhoruka Financial Services Ltd to the assessee Company, and the assessee company was a holding company of M/s DLF Commercial Development Ltd, which was holding 98.73% shares of Bhoruka Financial Services Ltd and in this manner being subsidiary of the subsidiary, it was fiduciary in nature. Therefore the ratio laid down by the Apex Court in the case of Kishanchand (supra) was squarely applicable in this case. 35. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.225,85,28,452/- on a/c of deemed dividend (on protective basis) without appreciating the facts and various case laws discussed by the AO in the assessment order which were squarely applicable in this case. 36. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.1,94,78,538/- on a/c of personal expenditure made by the AO u/s 40A(2) of the IT Act . 37. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.1,93,38,906/- on a/c of brokerage, maintenance and professional charges paid to group companies which were either not legal or capital in nature as it was given for providing necessary information about land across India. 38. That on the facts & circumstance of the case the ld. CIT(A) erred in deleting the disallowance of Rs.13,48,804/- made by the AO because the vouchers/bills against such expenditure were not in the name of assessee company and thus it was not established that such expenses were laid out wholly and exclusively for the purpose of the business of the assessee company. 39. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the proportionate disallowance of Rs.1,77,32,060/- made by the AO on the ground that benefit of these expenditures were enjoyed by the group companies also. 40. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.6,50,000/- made by the AO on the ground that neither any details nor any bill / vouchers were produced before him.

Page 87 of 144 41. The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 106. Ground No.1 is against the deletion of addition of Rs.25,00,251/- under the head ‘Stale Cheque’ Account in spite of the fact that the payments were neither made nor ascertained by the assessee up to 31.03.2006. 107. Ld. DR contended the same arguments which were advanced by him in ground no.6 of the appeal of the assessee regarding stale cheques. Ld. AR also contended the same arguments and they have contended in the ground no.6 of the assessee’s appeal. 108. The only difference in the ground of the revenue is that it is contesting the deletion made by the CIT (A) of the cheques which have been cleared subsequently to the extent of Rs.25,00,251/-. While deciding ground no.6 of the appeal of the assessee as per our finding, we have deleted addition of Rs.3,92,27,313/- as per reasoning given therein. Further CIT (A) has deleted the addition of Rs. 25,00,251/- on the ground that these cheques have been subsequently cleared in favour of the parties to whom they have been issued. Following the same reasoning, we confirm the order of the CIT (A) in deleting the addition of Rs.25,00,251/- under the head stale cheque account. Therefore, ground no.1 of the revenue’s appeal is dismissed. 109. Ground no 2 of the appeal of revenue is as under :- “2. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.24,07,12,588/- based on percentage or completion method (POCM) in Summit and Magnolia project, without giving any reasoning. Further that on the facts & Circumstances the ld.CIT(A) erred by directing the AO to verify the IDC allocation to above mentioned two projects and upholding the additions up to Rs.78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT(A) has the effect of setting aside the order which was not permissible as per I T Act.” 110. Ground No.2 is against the deletion of addition of Rs.24,07,12,588/- based on percentage or completion method (POCM) in Summit and Magnolia project, without

Page 88 of 144 giving any reasoning. Further that on the facts and circumstances the ld. CIT (A) erred by directing the AO to verify the IDC allocation to above mentioned two projects and upholding the additions up to Rs.78,77,80,921/- subject to such verification of the AO whereas such direction of the ld. CIT (A) has the effect of setting aside the order which was not permissible as per IT Act. 111. We have heard the rival contentions of the parties. Regarding taxability of these two projects was also the ground no 8 of the appeal of the assesse. While this ground of appeal on the request of both the parties we have set aside the issue of determining threshold of 30 % of incurring the total project cost of these projects for commencement of revenue recognition. Therefore the parties also requested to set aside this issue to the file of the AO as this is a connected issue. Therefore in the interest of justice we set aside this ground of appeal of the revenue to the file of the AO and to decide afresh according to our directions contained therein. In the result Ground No 2 of the appeal of the revenue is allowed with directions.. 112. Ground no 3 of the appeal is as under :- “3. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the disallowances of Rs.39,29,42,662/- considering this as an accounting mistake although these expenses were on a/c of provision for construction account- Regency Park account, whereas these were prima facia prior period expenses as per detailed working made by the auditors about which the assessee had failed to rebut the findings given by the auditors.” 113. This ground of appeal is against the Ground No.3 is against deleting the disallowances of Rs.39,29,42,662/- considering this as an accounting mistake although these expenses were on a/c of provision for construction account- Regency Park account, whereas these were prima facia prior period expenses as per detailed working made by the auditors about which the assessee had failed to rebut the findings given by the auditors. 114. Ld. DR submitted that the addition fRs.3,92,94,262/- has been made because the assessee could not submit the details of these expenditure. He relied heavily on pages 96 & 97 of the assessment order. To substantiate his arguments, he relied on the decision of CIT vs. Calcutta Discount Company Ltd. – 19 ITR 181 (SC); Laxmi Rattan Cotton Mills – 73 ITR 634 (SC); Rajiv Tandan vs. DCIT – 164taxman 271 (Del.); and Schinder Electrical Industries – 171 taxman 177. His main submission was that without the evidence, the expenditure cannot be allowed. 115. Against this, ld. AR submitted that these are the expenditure which have been incurred in the past year, the details of each project is given at page 97 of the assessment order passed on

Page 89 of 144 which the addition of Rs.30,16,44,316/- has been made and all these projects are pertaining to the previous years. Full details of construction expenses are already available on the file. No expenditure has been incurred during the year but these are debit expenditure account of the old completed projects. As the credit entries of these accounts have been taxed in this year due to the change of the method of accounting the debit balance also is required to be adjusted. Therefore, there is no under-statement of income of the assessee. 116. We have carefully considered the rival contentions as well as the orders of the lower authorities. Because of the change of the method of accounting and as per the matching concept assesse has recognised the goods sold as well as the cost of those goods sold in the profit and loss account as all the projects have been completed in the earlier years. Details of those projects are tabulated on page no.97 of the assessment order which shows that these projects are pertaining to period 1990 to 2004. The assessee has accounted for revenue in this year of the constructed properties even when the conveyance of those properties has not been registered in favour of the buyers. As revenue has been recognised due to change in method of accounting which is bonafide and not doubted by revenue the relevant debit entries pertaining to those projects are claimed by the assessee as explained. None of this expenditure is incurred during the year but is claimed as expenditure for the year in view of the revenue being recognised of these projects in this year. The AO has erred in taking only the opening credit balance of these projects as revenue income, however, not considering the debit balance of these ledgers as expenses based on the percentage completion method when the whole project is completed. The credit ledger balance and debit ledger balance of those projects need to be taken into to work out the profitability of those projects when there is a change in the method of accounting this year. It is unfair on the part of the AO to only include the credit balances of those projects as income and to exclude the debit balances of those projects. The addition of Rs.30,16,94,316/- is identical on that basis. The CIT (A) has considered these aspects and has deleted the addition. The ld. DR could not point out any infirmity in the order of the CIT (A).Further, regarding the argument of the ld. DR that assessee has not produced the details of expenditure with bills and vouchers of expenses incurred during the year. We fail to understand this as firstly, these are not the expenses which have been incurred during the year but are forming the part of the profit and loss to be taxed only because of the change in the method of accounting adopted by the assessee during the year. The assessee has been assessed in past u/s 143 (3) of the Act wherein the expenditure have been accounted and only the balance of that expenditure accounting is carried forward from year to year and now adjusted in the taxable income of the assessee. Therefore, there cannot be any vouchers and bills for this year as expenses have not been incurred during this year. In view of this, the decisions cited by the ld. DR that no bills etc.

Page 90 of 144 have been submitted is not acceptable. Therefore, we confirm the deletion of addition of Rs.30,16,44,316/-.Another addition of Rs.9,12,98,346/- is also pertaining to the provision of construction account of Regency Project. This amount is forming part of the opening stock of that project for which the expenses etc. have been incurred in the past year. These amounts have not been debited by the assessee and no claim has been made for deduction. It was submitted that opening balance of the construction of the project was Rs.1,21,40,02,826/- which included the amount of Rs.9,12,98,346/-. These facts have not been controverted by the AO in its remand report. The income of this project has already been taxed. Therefore, the debit balance of this account is also required to be granted. Before us, the ld. DR did not submit any other argument other than that the bills and vouchers for these projects have not been submitted. As it is evident that it is part of opening balance of Project Regency there cannot be any bills for the current year, therefore, the argument of the ld. DR regarding non- production of bills and vouchers cannot be accepted. Moreover, the AO has added for the only reason that these expenses are prior period expenses and cannot be granted as deduction though it was not considered that income received in the earlier years is being charged to tax in this year because of percentage completion method. According to the matching concept if the credit balances of various projects are charged to tax as a natural corollary the debit of those projects which represent the expenditure incurred in the previous years are definitely required to be allowed as deduction. They are neither prior period expense nor incurred during the year but are forming part of the taxable profit and loss of the assessee only because of the reason that assessee has changed its method of accounting from project completion method to percentage completion method. Therefore, we confirm the order of CIT (A) in deleting the addition of Rs.39,29,42,662/-. In the result ground no 3 of the appeal is dismissed. 117. Ground no 4 of the appeal of the revenue is as under :- 4. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of Rs.14,55,37,400/- on a/c of Non allocation of proportionate overhead expenses 118. This ground is against deleting the disallowances of Rs.14,55,37,400/- on a/c of non- allocation of proportionate overhead expenses. According to AO assessee has all directly allocable common overheads have been allocated to relevant projects of the group companies. Only overheads not directly attributable to the projects of the group companies have not been allocated. Hence according to him these expenses should also have been allocated. He rejected the contention of assesse for not allocating payment to Directors is that each and every company has its own board of Director, hence, these expenses cannot be allocated to group companies. Further assessee company is holding 100% shareholding and lesser

Page 91 of 144 percentage in hundreds of group companies directly and indirectly through their 100% subsidiary companies which are in turn hold major shares in various group companies. According to AO Board of M/s DLF Limited is the major brain and decision making centre for the whole group rather the necessity for the creation of so many sister companies is primarily due to the fact that the parent company cannot hold all the land purchased in their own name due to applicability of Land Ceiling Act in various states. Further All the subsidiaries are created to hold land and will statutorily require a share holders and working Directors in absence of which formulation of a company cannot be done. But to say that these companies are independently working and there is no contribution or control in day to day affairs of these companies by the assessee will be an incorrect proposition. it is held that assessee has claimed excess expenditure to the tune of Rs.14,55,37,400/- which should have been rightfully apportioned to various subsidiary companies. Hence, the amount of Rs.14,55.37,400/- is being disallowed as expenditure not relatable to the business of the assesse and therefore is added to the income of the assesse. On appeal before CIT (A) the disallowance is deleted and therefore revenue is in appeal. 119. Before us, ld. DR submitted two arguments that the expenses are not related to the business of the assessee and it should be apportioned to the respective projects. 120. Against this, the ld. AR submitted that the CIT (A) has considered the claim of the assessee considering the nature of each of the expenditure and held that these are allowable to the assessee even if there is an incidental benefit accrued to the other party. 121. We have carefully considered the rival contentions. The brief fact is that certain overhead expenses incurred by the assessee have been apportioned to the other group companies for the reason that by incurring those expenses, the assessee has passed on some benefit to those companies. The amount of 75% of that expenditure has been transferred to the group companies and 30% of that expenditure is borne by the assessee company. During the course of assessment proceedings, the AO found that an amount of Rs.20,79,10,574/- expenditure pertaining to payment to Directors, advertisements, printing and stationery, security charges, leave encashment and salary and wages are not apportioned to group companies and, therefore, AO disallowed 70% of those expenditure amounting to Rs.14,55,37,401/-. It is not the case of the AO that these amount of expenditure are not incurred by the assessee and further veracity of those expenditure have also not been doubted. The only reason for disallowance is that assessee has not allocated this expenditure to its various group companies and, therefore, AO was of the view that this expenditure has not been incurred wholly and exclusively for the business purpose of the company. On perusal of the expenditure and the orders of the lower authorities, it is apparent that the director’s salary is being paid to the directors of the company including a commission thereof is for the purpose of managing the

Page 92 of 144 business of the DLF – assessee. Further, for the protection of the interest of the company even if the directors have given their time for looking after other group activities it is merely a shareholders’ activity. Furthermore, the advertisements, salary and wages, leave encashment expenditure and printing expenses etc. are all pertaining to the business of the company. No evidence / instances have been cited by AO that any of this expenditure has not been incurred by the company and they are not related to the business of the assesse. It may happen that by incurring certain expenditure by the assesse for the purpose of his business may result into some indirect benefit to the group companies but that cannot be the ground for disallowance of that expenditure in the hands of the assesse. The CIT (A) relying upon the decision of ITAT, Delhi Bench in the case of Nestle India Ltd. vs. DICT – 27 SOT 9 has deleted the addition. We do not find any infirmity in the order of the CIT (A) and revenue could not controvert the fact of any expenditure with instances that these are not incurred by the assesse wholly and exclusively for the purposes of the business of the assessee. Hence, we confirm the order of the CIT (A) deleting the addition of Rs.14,55,37,400/-. Ground No.4 of the revenue’s appeal is dismissed. 122. Ground no 5 of the appeal is as under :- “5 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. Further the ld.CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions.” 123. Ground No.5 is against deleting the additions of Rs.37,81,33,639/- made on a/c of opening balances in construction account - External Development Charges. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 124. The only objection of the ld. DR on this account is that the CIT (A) has set aside this ground to verify the working submitted by the ld. AR. His only contention is that CIT (A) does not have power to remand it back to the file of the AO. 125. Against this, ld. AR submitted that CIT (A) has deleted the addition in on principle but just for the purpose of verifying the amount of Rs.37,81,33,639/-. The CIT (A) sent it back for verification. He further submitted that after verification of the same, the AO has deleted the addition. 126. We have carefully considered the rival contentions. The brief facts of the case are that there is construction account with respect of 13 projects which has a credit balance of Rs.37,81,33,632/- tabulated at page 123 of the assessment order. The assessee explained before the AO that these credit balances are not appearing in the books of accounts of the

Page 93 of 144 assessee but auditor has only picked up the credit side of such ledgers without considering the debit balance in the part of those ledgers. The explanation was submitted before the AO but he did not consider this and made an addition of opening credit balance of Rs.37,81,33,632/-. In fact, the CIT (A) has considered this aspect and has held that there is an opening debit balance of Rs.66,27,71,032/- which has been ignored by the AO. Project wise details of the construction expenses showing opening balances as at 01.04.2005 are added as income of the assessee without granting credit for the debit entries. Merely picking up some ledger balances and excluding some ledger balances addition has been made by the AO. Merely there are some ledgers of the main ledger account, it cannot be said that they are income of the assessee when they have been already considered by adjustment of the main ledger account. In the remand report submitted by the AO before the CIT (A), it was not controverted that the charts submitted by the assessee considering all the accounts of the trial balance and which was also before the AO vide its letter dated 27.03.2009 is incorrect in any manner. Therefore, we do not find any infirmity in the order of the CIT (A) and none has been pointed out by the ld. DR. Now coming to the argument of the ld. DR that the CIT (A) has set aside this aspect about the verification of the amount to the AO is beyond his powers. We disagree with the argument of the ld. DR and without commenting on that much, we are of the view that CIT (A) has given one more opportunity over and above the opportunity of assessment and remand proceedings for verification of these details, cannot be said that it is against the revenue. In fact, according to us, it is in favour of the revenue. Further, in the appeal effect order passed by the AO on 20.11.20121, after verification of these facts, the AO has deleted the addition pursuant to the order of the CIT (A) after verification . In view of the above facts, we are of the view that the addition on account of Rs.37,81,33,639/- is unsustainable and hence we confirm the order of CIT (A) on this ground. Therefore, ground no.5 of the revenue’s appeal is dismissed. 127. Ground no 6 of the appeal is as under :- 6 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.30,16,44,316/- on a/c of provision for construction account- Regency Park account no A33P038-000-03. Further the ld.CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 128. Ground No.6 is against deleting the additions of Rs.30,16,44,316/- on a/c of provision for construction account-Regency Park account No.A33P038-000-03. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 129. Ld. DR submitted that an amount of Rs.30,16,44,316/- is on account of provision of construction amount of the Regency Park Project. He submitted that this is extra money

Page 94 of 144 received by the assessee and, therefore, AO has rightly charged this amount as income of the assessee. 130. Against this, ld. AR submitted that the CIT (A) has granted relief to the assessee after considering the fact that on account of the Regency Park Project income, the credit balances have been booked and chosen by the AO. This is not the excess collection received by the assessee but part of the opening credit balances of the construction sub-ledgers and both the opening debit balances and credit balances have been taken together and are reflected in closing balance in construction work-in-progress account as on 31.03.2006. Therefore, despite the WIP account already taken into profit and loss account, once account taking the credit balances of WIP account ignoring the debit balances, the addition cannot be made. 131. We have carefully considered the rival contentions. It is apparent that when work-in-progress account of a particular project contains several debit entries, several credit entries and net effect of that WIP account has already been taken into profit & loss account for computation of taxable income of the assessee, no further addition can be made in the hands of the assessee on account of individual credit balances which are forming the part of the WIP account. Furthermore, it is apparent that these additions are part of the additions already contented by the revenue in ground no.3 of the appeal of the revenue. Therefore, this also amounts to double taxation in the hands of the assessee. Further, the CIT (A) has directed to verify the working submitted by the assessee for verification that various entries have been included as contended by the assessee or not. Vide order dated 20.11.2012, after verification confirming the figure, the AO has passed the appeal effect order and deleted the addition. Therefore, we confirm the order of the CIT (A) in deleting the addition of Rs.30,16,44,136/- on both the counts i.e. one that it is part of the work in progress and already considered by the income computation of the assessee; and secondly, it is a double addition made by the AO. Thirdly AO himself has deleted the addition after satisfying himself on verification of details as directed by CIT (A). Therefore this addition cannot be sustained. Hence, Ground No.6 of the revenue’s appeal is dismissed. 132. Ground No 7 of the appeal of the revenue is as under :- “7 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.21,39,996/- on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account). Further the ld.CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions.” 133. Ground No.7 is against deleting the additions of Rs.21,39,996/- on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account). Further the Id

Page 95 of 144 CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 134. Ld. DR for the revenue submitted that this is excess money collected by the assessee. Against this LD AR submitted that it is the part of the stock entry and ignoring debit balances, only credit balances are considered by AO whereas the net effect of debit and credit balances of these projects are already included as part of the income and expenditure for the tax purposes. 135. We have carefully considered the rival contentions. This amount has already been included in the stock account shown in the balance sheet of the company at Schedule 8 incorporating the main ledger. Further, the credit balance accounts with respect to the Qutab Enclave plot of two ledgers where there is a credit balance amount involved to Rs.21,39,996/- has been added. The details are available at page 123 of the assessment order under the heading IDC account showing credit balances. These balances have been taken by the AO from the sub- ledgers and not the main ledger. The main ledger balance already been accounted for on net of basis as stock account. Therefore, the addition is made by AO on ignoring net balance of the main ledger but picking the credit balances of the individual sub ledgers is not acceptable. This is also not excess collection received by the assessee but merely the credit entries of some of the account of WIP account. Therefore, we confirm the order of CIT (A) in deleting the addition of Rs.21,39,996/- made on account of non-disclosure of credit balance in some sub-ledgers accounts i.e. IDC account showing credit balances. Hence, ground no.7 of the revenue’s appeal is dismissed. 136. Ground no 8 of the appeal is as under :- 8 That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of POCM method adopted for AY 2006-07 which was needed to be applied to the credit balance of Rs.1,23,81,979/- in spite of the fact that the Assessee has not given any reconciliation or working to show that auditor wrongly picked up only the credit side of sum ledger.

Page 96 of 144 139. We have considered the rival contentions. We have already held that the method of accounting for the sale of plot is unchanged and assessee has correctly deduced the profit at the time of the registration of the sale deed. This amount relates to realisation from the customers against the sale of plot for the period up to 31.03.2005. The detailed back up of the closing balances is that up to 31.03.2006 assessee has received Rs.1,79,90,567/- from customers towards the sale of the plot. Out of this amount conveyance deed has been executed in FY 2005-06 and revenue has been recognised of that sale consideration of Rs.56,08,588/-. This leaves the balance of Rs.1,23,81,979/- being advance received from the customers towards the sale of plot for which conveyance deed has not been executed. It is not disputed that revenue on these plots has already been recognised by the assessee in AY 2007- 08. As we have already held that assessee has correctly offered the revenue on the sale of plot and land at the time of execution of sale deed, we are of the view that the addition of Rs.1,23,81,979/- cannot be made in the hands of the assessee in AY 2006-07. Therefore, we confirm the order of CIT (A) on the ground that firstly it is a double addition made and secondly as the sale of plot of land is chargeable to tax at the time of execution of the sale deed and therefore this income cannot be recognised in AY 2006-07 when it is already offered for taxation in AY 2007-08 on following the correct method of accounting. Therefore, ground no.8 of the appeal of the revenue is dismissed. 140. Ground no 9 of the appeal is as under :- 9 That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.22,83,72,935/- treating that this was not an ascertainable liability and the assessee company has also made payments of the same in subsequent years without appreciating the fact that the AO as well as Auditor has specifically pointed out that assessee had debited a provision on 31.03.2006, vide journal voucher No.- 542, 373, 456 and 467, debiting Rs.17,29,99,721/-, Rs.1.22 Crore, Rs.5 Crore and Rs. 25.60 Lacs respectively. 141. Ground No.9 is against deleting the additions of Rs.22,83,72,935/- treating that this was not an ascertainable liability and the assessee company has also made payments of the same in subsequent years without appreciating the fact that the AO as well as Auditor has specifically pointed out that assessee had debited a provision on 31.03.2006, vide journal voucher 0 - 542, 373, 456 and 467, debiting Rs.17,29,99,721/-, Rs.1.22 Crore, Rs.5 Crore and Rs. 25.60 Lacs respectively. 142. Ld. DR submitted that the AO has made the addition of Rs.22,83,72,935/- pertaining to various expenditure as they are without any basis; therefore, he vehemently submitted that the assessee has failed to substantiate the true nature and extent of the liability outstanding as at 31.03.2006 which rightly added.

Page 97 of 144 143. Ld. AR for the assessee submitted that these are the provisions made against the shortfall of expenditure of sales booked during AY 2006-07. Against this, substantial expenditure has been incurred and they have been discharged fully. These liabilities are not unascertained but are ascertained liabilities. 144. We have carefully considered the rival contentions. The AO has picked up certain general voucher accounting entries passed by the books of accounts. These accounting entries are tabulated at page nos.142 to 143 of the assessment order as under :- S. V.No. Date Description Amount (Rs.) No. 1 JV542 31.03.2003 Estimated Development Cost. 17,29,99.721/- 2 1V373 3 1.03.2006 Provision of IDC PH — V booked 1,22,41,224/- against the shortfall in W/off on conveyancing FY 2005-06. 3 JV456 31.03.2006 Provision of IDCPh — V booked 5,00,18,803/- against the shortfall in W/off on sale FY 2005-06. 4 JV 467 31.03.2006 Provision for FY 2005-06. 25,60,429/- 5 Vol.-X TOR 31.03.2006(*) Bill of Devyani International Oct- 15,59,858/- March-2004. 35 The AO was of the view that these are without any basis and merely provided as liability. Therefore, he has made the addition. The amount of Rs.22,83,72,235/- is consisting of provision of estimated development cost of Rs.17,29,99,721/- which has been already spent up to 31.12.2008, therefore, these amount cannot be treated as unascertained liability as it has already been crystallised. Regarding the amount of Rs.5,70,25,405/- for provision for internal development cost provided for as at 31.03.2006. This amount has been credited as at 31.03.2006 as provided for in the books of account as an expenditure. The AO has not doubted the expenditure but merely taxed the liability as it is outstanding in the books of account. Therefore, it cannot be stated that these are the unascertained liabilities. Further the amount of Rs.25,60,429/- is an audit fee provision payable to the auditors and, therefore, also it cannot be said that it is unascertained liability as the audit has been conducted as provision has been made. The last amount is the bill of Devyani International Limited pertaining to October to March 2004 of Rs.15,59,858/-. This amount is related to the compensation payable to the Devyani International Ltd. for settlement of litigation. This liability has been credited in 31.03.2004 and not in 31.03.2006. These expenditure did not arise in the current year but the liability has been carried forward since 2004. As the assessments of the previous years have already been framed u/s 143 (3) as stated by the parties, this liability did not arise

Page 98 of 144 during the year and in any way it is an ascertained liability. In view of this, we confirm the order of the CIT (A) in deleting the addition of RS.22,83,72,935/- on account of various provisions made as outstanding on 31.03.2006 in the books of the assessee as these liabilities are ascertained and accrued and not claimed as deduction during this year but is already allowed as deduction in earlier years. Therefore, ground no.9 of the revenue’s appeal is dismissed. 145. Ground no 10 of the appeal is as under :- 10. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of Rs.4,82,44,524/- treating the same as double addition without appreciating the fact that the assessee company was including Internal Development Charges (IDC) as a part of its budgeted cost on the basis of Rs.161 per sq. ft. even though there was no basis for deriving IDC all a per sq. ft. basis in this matter. 146. Ground No.10 is against deleting the additions of Rs.4,82,44,524/- treating the same as double addition without appreciating the fact that the assessee company was including Internal Development Charges (IDC) as a part of its budgeted cost on the basis of Rs. 161 per sq. ft. even though there was no basis for deriving IDC on a per sq. ft. basis in this matter. 147. Ld. DR relied on the order of the AO and stated that the provision of IDC of Rs.6,22,60,027/- has been made and out of which the actual expenses incurred is only Rs.1,40,15,503/- and, therefore, the expenditure provision of Rs.4.82 crores has been added by the AO. 148. Against this, ld. AR submitted that IDC is an integral cost and is payable according to the licences issued by Director of Town and Country Planning and as the projects are executed in Haryana, it is part of the budgeted cost as per the Haryana Development and Regulation of Urban Area Rules, 1976 (HDRUAR) and these expenditure are in the nature of fees etc. levied by the revenue. Further, he submitted that this amount has already been included in JV No.456 and JV No.373. He submitted that these amounts have already been included in the disallowance made by the AO of Rs.22,83,72,935/-, therefore, it is a duplicate addition. 149. We have carefully considered the rival contentions. We have perused the relevant orders of AO as well as the CIT (A). This amount is already included in the addition made by the AO in ground no.9 of the revenue’s appeal. In ground no.9, item no.2 vide JV No.373 dated 31.03.2006 related to the provision of IDC expenses of Rs.1,22,41,224/- and item no.3 vide JV No.456 dated 31.03.2006 of Rs.5,00,18,803/- total to Rs.6,22,60,027/-. In this ground, instead of adding the full amount, the AO has granted deduction of actual expenses incurred of Rs.1,40,15,503/- thereby a net addition of Rs.4,82,44,524/- and, therefore, it is apparent that in ground no.9, the addition contested of Rs.6,22,60,027/- and in ground no.10, the addition is contested of Rs.4,82,44,524/- pertaining to the same items. Therefore, it is a

Page 99 of 144 double addition. Hence, we confirm the deletion of addition of Rs.4,82,45,524/-. Ground No.10 is dismissed. 150. Ground no 11 is as under :- 11. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.10,34,915/- on a/c of Savitri Cinema even after accepting the fact that no business activities were carried out during the year. 151. Ground No.11 is against deleting the additions of Rs.10,34,915/- on a/c of Savitri Cinema even after accepting the fact that no business activities were carried out during the year. 152. Ld. DR submitted that Savitri Cinema expenditure of Rs.10,34,914/- is on account of business being closed and, therefore, the expenditure is not allowable. 153. Against this, ld. AR submitted that earlier operations were suspended due to some litigation and the licences under Cinematography Act have been issued on 12.01.2009 and occupation certificates also obtained. Therefore, the expenditure is rightly allowable to the assessee. It was further submitted that now the theatre is running. 154. We have carefully considered the rival contentions. The expenditure has been incurred on the maintenance, security charges, etc. with respect to a cinema division of the assessee. The AO disallowed this expenditure holding that it is for the maintenance of capital asset and, therefore, they are capital expenditure. The CIT (A) has deleted the disallowance holding that it is not the cessation of the business of the assessee but it is temporarily lull/suspension of the business of the assessee due to litigation. As stated by ld. AR before CIT (A) that various licences are in place and now before us that the cinema division is functioning, therefore, keeping all these facts in mind, we confirm the deletion of disallowance of Rs.10,34,915/- by the CIT (A) as the expenditure was incurred by the assessee on assets which could not be utilised due to litigation and now as stated is in operation. Therefore, ground no.11 of the appeal of the revenue is dismissed. 155. Ground no 12 of the appeal is as under :- 12. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of Rs.16,95,67,085/- on a/c of Grand Mall project u/s 40A(2)(b) in spite of the fact that it was clear from the findings of special auditor as well as AO that the payments were made in excessive to fair market value to the company which falls within the purview of section 40A(2). 156. Ground No.12 is against deleting the additions of Rs 16,95,67,085/= on account of Grand Mall project u/s 40A(2)(b) in spite of the fact that it was clear from the findings of special

Page 100 of 144 auditor as well as AO that the payments were made in excessive to fair market value to the company which falls within the purview of section 40A(2). 157. Ld. DR submitted that the assessee has passed the taxable profit from this net profit and loss account to its associate concern and, therefore, the provisions of section 40A(2)(b) of the Act are applicable as the relationship between the other identity with the assessee is of holding him subsidiary company. It was further submitted that profitability of the other identity as well as the assessee entity are irrelevant for examining the provisions of section 40A(2)(b). He vehemently supported the order of disallowance of Rs.16,95,67,085/- being amount paid for Grand Mall. 158. Ld. AR for the assessee submitted that the provisions of section 40A(2)(b) cannot be applied in case of holding company and subsidiary company. For this, he submitted the decision of Hon’ble Karnataka High Court in the case of CIT vs. Raman Boards Limited in ITA No.8/2007 dated 01.04.2013. He further relied on the CBDT Circular No.6P dated 06.07.1968. 159. We have carefully considered the rival contentions. On perusal of the order of the AO, it turns out that the addition is made of two amounts i.e. one amount of rs.52,12,759/- and second amount of Rs.16,43,54,327/- by invoking the provisions of section 40A(2)(b) of the Act. The first addition of Rs.52,12,758/- is made on account of understatement of profit form DLF Grand Mall Project. The details of the working of this amount are given at page no.148 of the assessment order. The brief fact is that in terms of agreement dated 03.07.2002, the assessee acquired 2 lakhs sq.ft. of area from Woodbee Construction Ltd., Grand Mall for Rs.70 crores. These amounts were paid to DLF Home Developers Pvt. Ltd. which is a subsidiary of the assessee company. On reading of the Agreement, AO came to the conclusion that it is a device for not paying the taxes. Therefore, the assessee has shown the profit from Grand Mall Project according to percentage completion method of Rs.9,90,42,423/- for AY 2006-07. According to him, the assessee should have earned Rs.10,42,55,181/- and, therefore, there is a difference of Rs.52,12,758/- between the profit earned by the assessee and estimated profit determined by the AO and hence, this addition is made in the hands of the assessee under section 40A(2)(b) of the Act. 160. The next addition of Rs.16,43,54,327/- is on account of returned income of DLF Home Developers Ltd. on the basis of POCM working for AY 2006-07 in its return of income. However, the AO was of the view that this profit has been shown by DLF Home Developers Limited and, therefore, the provisions of section 40A(2)(b) triggers and the disallowance has been rightly made. The AO solely disallowed this amount u/s section 40A(2)(b) for two reasons i.e. (a) on DLF Grand Mall the profit should have been higher by Rs.52,12,758/-; and (b) a profit of Rs.16,43,54,327/- meant to be DLF Home Developers Limited, which is

Page 101 of 144 subsidiary of the assessee company. We have perused the provisions of section 40A(2)(b). According to which, an expenditure incurred by the assessee for which payment has been made to the related party, AO is required to prove that such payment is excessive and for turning this conclusion, the AO has to obtain the fair market value of the product transacted for which the payment is made is required to be proved. From the assessment order, we could not find an observation or a finding of AO about what was the fair market value of the product for which the transaction has been entered into and payment has been made to a related party. Unless, the AO derives the fair market value he cannot determine that the payment is excessive or unreasonable. The AO has not done this exercise in both those additions. Further, Hon’ble Karnataka High Court in the case of CIT vs. Raman Goods Ltd. in ITA No.8/2007 dated 01.04.2003 following the decision of Hon’ble Bombay High Court in the case of CIT vs. V.S. Dempo and Company Ltd. – 196 taxman 193 has held that when the assessee is a company, the person to whom it has to make payment in order to attract the sale provision is any director of the company or any relative of the director. Admittedly, in this case, the payment is made to the subsidiary company and not to any director or any relative of the said direction. As the alleged transaction by the AO is between holding company and subsidiary company, we respectfully following the decision of Hon’ble Bombay High Court and Hon’ble Karnataka High Court held that the transactions between the holding company and a subsidiary company are not hit by the provisions of section 40A(2)(b) of the Act. In view of this, we confirm the order of CIT (A) in deleting the additions/disallowances of Rs.16,95,66,085/- under section 40A(2)(b) of the Act on three counts – (a) there is no determination of AO by the market value of the transaction; and (b) the expenditure determined by the AO is incorrect; and (c) section 40A(2)(b) does not apply to the transactions between the holding and subsidiary company. In the result, the ground no.12 of the appeal is dismissed. 161. Ground no 13 of the appeal is as under :- 13. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of Rs.91,70,13,955/- on a/c of capitalization of Interest expenses as per AS-16 in spite of the fact that it was clear from the findings of special auditor as well as AO that the interest bearing funds were utilized for acquisition of land or for financing development cost of projects 162. Ground No.13 is against deleting the additions of Rs.91,70,13,955/- on a/c of capitalization of Interest expenses as per AS-16 in spite of the fact that it was clear from the findings of special auditor as well as AO that the interest bearing funds were utilized for acquisition of land or for financing development cost of projects.

Page 102 of 144 163. Ld. DR submitted that this issue has already been argued in case of assessee’s appeal in ground no 9. Ld. AR also submitted the same. 164. We have carefully considered the orders of the lower authorities below. The part of the disallowance has been deleted by the CIT (A) out of interest expenditure and part of it is confirmed. Against this amount which is confirmed, the assessee is in appeal as per ground no9 of the assessee’s appeal and against deletion of Rs.91,70,13,955/- revenue is in appeal on this ground. We have already given our finding regarding allowability of this interest expenditure while deciding ground no.9 of the assessee’s appeal wherein we have directed to delete the disallowance of interest expenditure based on the decision of honourable Bombay high court. Therefore, we confirm the order of the CIT (A) in deleting the addition of Rs.91,70,13,955/- on account of interest expenditure. In the result, ground no.13 of the revenue’s appeal is dismissed. 165. Ground no 14 of the appeal of revenue is as under :- 14. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowances of Rs.20,87,70,567/- on a/c of brokerage charges in spite of the fact that no revenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure 166. Ground No.14 is against deleting the disallowances of Rs.20,87,70,567/- on a/c of brokerage charges in spite of the fact that no revenue was recognized on the ground that the project was under completion but even then the assessee company had claimed the expenditure. 167. Ld. DR submitted that the AO has rightly disallowed the expenditure of brokerage amounting to Rs.20,87,70,567/- pertaining to projects where now revenue has been recognised. 168. Ld. AR submitted that this issue is covered in favour of the assessee in its own case for AY 1993-94 by the decision of Hon Delhi high court in case of the assesse in ITA 1136/2009 dated 16.04.2015 where in while deciding ground no 4 of that appeal hon High court has held that these expenses are allowable.. Therefore, it should be followed. 169. We have carefully considered the rival contentions. We have also perused the order of ITAT in assessee’s own case for AY 1984-85 submitted before us by the ld. AR. This decision has also been considered by the AO at page 188 of the assessment order. The AO has not followed this decision as it could not be verified whether the issue has been taken up by the department before the Hon’ble Delhi High Court or not. Before us, ld. DR also could not point out that why this decision cannot be followed nor we could find any reason for not following the same by AO except that whether it is accepted by the department or not is not verified. Ld. CIT (A) has also deleted the addition following the order of coordinate Bench of

Page 103 of 144 ITAT for AY 1984-85 in the case of the assessee. Merely because the decision is not accepted by revenue disallowance has been made. As observed by the CIT (A), these expenses related to brokerage of flats as part of selling expenses and, therefore, cannot be included in the cost of construction for the purpose of value of closing stock of WIP and in view of Accounting Standards issued by the ICAI. Respectfully following the decision of Honourable high court in case of CIT V DLF universal Limited in ITA no 1136/2009 dated 16.04.2015 while deciding ground no 4 of the appeal of the revenue honourable high court has held that expenditure towards brokerage and commission paid to brokers for booking and sale of certain properties is allowable firstly in view f the facts that assessee’s treatment of such expenditure has been decided in favour of the assesse and revenue has not challenged it and secondly such expenditure are allowable. In view of the above facts and following the decision of coordinate Bench as facts are not distinguished by revenue, we confirm the order of CIT (A) in deleting the addition of Rs.20,87,70,567/- on account of brokerage expenses for sale of various properties. Therefore, ground no.14 is dismissed. 170. Ground no 15 of the appeal is a s under :- 16. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of Rs.179,70,81,070/- out of addition made by the AO to the tune of Rs.222,56,87,056/- by recognizing the revenue on POCM method based on the detailed working of the Special Auditor who had mentioned that the assessee had wrongly implemented the new accounting standards in its various projects. 171. Ground No.15 is against deleting the additions of Rs.13,24,00,000/- on a/c of Revenue recognition of Saket Court Yard in spite of the fact that it was clearly established by the AO as well as auditors that by manipulating books of account the assessee company had postponed its income. 172. Ld. DR submitted that Saket Courtyard project is not the fixed asset of the assessee company but stock-in-trade of the assessee company and, therefore, the assessee has capped this asset as fixed asset is incorrect and it has to be taken as stock-in-trade. He, therefore, supported the order of the AO. 173. Ld. AR for the assessee submitted that Saket Courtyard Project is being fixed asset of the assessee company, hence the amount has been shown correctly as capital work in progress. It was further submitted that there is no sale deed executed by the assessee in favour of the buyers therefore, it cannot be taxed during this year. Further, he has stated that as in AY 2007-08, the project is recognised from fixed asset to business asset and in AY 2007-08 this transfer has been not disputed by the AO and the profit of it already taxed in that year. The addition has rightly been deleted by the CIT (A).

Page 104 of 144 174. We have carefully considered the rival submissions. The CIT (A) has deleted this addition for the reason that in AY 2006-07 this property was shown under the head capital work in progress and in A Y 2007-08 this was transferred to stock in trade. Furthermore, the assessee has actually received security deposit of Rs.8.11 crores where assessee wished to earn rental income from this asset. Further for AY 2007-08, the transfer of this asset from capital asset to stock in trade was not doubted and taxation on sale of this property is accepted in AY 2007- 08 as bonafide. The addition was deleted. Further, the AO has taxed the entire amount of sale consideration received in respect of net profit. Before us, except stating that this property is stock in trade of the assessee, no other arguments were advanced to show that how the decision of the CIT (A) is incorrect. Furthermore, whereas in subsequent assessment year the AO himself has accepted the transfer of this asset from capital work in progress to the inventory i.e. stock in trade, it cannot be said that the addition is required to be made in this year. Therefore, we confirm the order of CIT (A) in deleting the addition of Rs.13.24 crores during the year. In the result, ground no.15 of the appeal of the revenue is dismissed. 175. Ground no 16 of the appeal is as under :- 16. That on the facts & Circumstances of the case the ld.CIT(A) erred in deleting the additions of Rs.179,70,81,070/- out of addition made by the AO to the tune of Rs.222,56,87,056/- by recognizing the revenue on POCM method based on the detailed working of the Special Auditor who had mentioned that the assessee had wrongly implemented the new accounting standards in its various projects. 176. Ground No.16 is against That on the facts & circumstances of the case the ld.CIT(A) erred in deleting the additions of Rs.179,70,100/- out of addition made by the AO to the tune of Rs.222,56,87,056/- by recognizing the revenue on POCM method based on the detailed working of the Special Auditor who had mentioned that the assessee had wrongly implemented the new accounting standards in its various projects. 177. Ld. DR and ld. AR submitted before us that this issue is also interlinked with the ground no.8 of the assessee’s appeal. 178. We have carefully considered the rival contentions. In ground no.8 of the assessee’s appeal, the ground is set aside to the file of the AO as per directions contained therein. We also set aside this ground of appeal of the revenue to the file of the AO with the same direction. In the result, the ground no.16 is allowed accordingly. 179. Ground no 17 of the appeal is as under :- 17. That on the facts & circumstances of the case the ld.CIT( ) erred in deleting the additions of Rs.8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issue mentioned in the

Page 105 of 144 assessment order where the AO has discussed nature of income from each and classified it under proper head of Income. 180. Ground No.17 is against deleting the additions of Rs.8,15,68,758/- on a/c of reclassification of Income from House Property without appreciating the legal as well as factual issues mentioned in the assessment order where the AO has discussed nature of Income from each & every property and classified it under proper head of Income. This addition is on account of reclassification of ‘Income from House Property’ to ‘Income from Business of Profession’ in respect of DLF Centre Building and other properties given on rent. 181. Ld. DR submitted that this issue is now covered in favour of the assessee by the decision of Hon’ble Supreme Court in the case of Chennai Properties and Investments Ltd. 182. Against this, Ld. AR submitted the decision of Hon’ble Karnataka High Court in the case of Neha Builders Pvt. Ltd. He further submitted that in case of assessee itself in AY 2005-06, ITAT has decided this issue in favour of assessee and therefore it is covered in favour of assessee. 183. We have carefully considered the arrival contentions. The brief issue is whether the income from house property shown by the assessee after claiming the deduction of 30% u/s 24A of the Act is chargeable to tax as such or is chargeable to tax under the head business income as assed by AO. Undisputedly, the assessee is a builder and developer. It has given several properties on rent and rent income has been shown as income from house property and claiming their under the statutory deductions u/s 24 of the Act. The AO is of the view that assessee has characterised this income as income from house property and therefore has claimed excess deduction of Rs.8,15,68,758/- . The CIT(A) has deleted this issue following the decision of coordinate Bench of the ITAT in case of the assessee for AY 2005-06 in ITA No.3561/Del/2013. The ITAT has considered this issue in favour of the assessee holding that rental income derived by the assessee from its properties are chargeable to tax under the head ‘Income from house property’ and assessee is eligible for deduction u/s 24A of the Act. The coordinate Bench of the ITAT has decided this issue as under:- “10. The Assessing Officer made addition of Rs.4,51,86,148/- on account of reclassification of income from house property and income from other sources. The addition has arisen due to disallowance of standard deduction of 30% claimed by the assessee u/s 24(a) of the I.T. Act, as a result of reclassification of the income from house property to income from other sources. 11. The Ld. AR pointed out that the issue raised is also covered by the decision of the Tribunal in the case of assessee itself for the assessment year 2001-02 in ITA No.3377/Del/2000 and for the assessment year 1996-97 in ITA No.3522/Del/2000. He pointed out further that the first appellate authority

Page 106 of 144 has also decided the issue in favour of the assessee in the case assessee itself of the assessment years 2006-07, 2007-08 & 2008-09. He submitted further that there is no change in the facts and circumstances of the case in this regard during the year under appeal. 12. The Ld. Departmental Representative on the other hand tried to justify the assessment order on the issue. 13. We find that the Ld. CIT (A) has discussed the issue in detail and has given its finding in this regard in para no.6.14 of the first appellate order, reproduced hereunder: “6.14 I have considered the submission of the appellant, observation of the Assessing Officer and decision of Hon’ble ITAT for A. Y 1996-97 in appellant’s own case and order of Commissioner of Income Tax (Appeals) XVIII for A. Y 2006-07 and my own orders for A. Y. 2007-08 and A. Y. 2008-09 in appellant’s own case wherein this issue was decided in favour of the appellant. It is seen that the issue in this ground is covered in favour of the appellant by the order of Hon’ble ITAT in appellant’s own case for AY 1996-97. The appellant has received income from the house properties owned by it and such properties are reflecting in balance sheet as stock in trade. The appellant has furnished the receipt of house tax payment with respect to above said properties belong to appellant and owned by it. It is noticed that the Assessing Officer has made the addition by reclassifying the income by relying upon various judgments. However, there is no dispute on the facts noted above. Taking into consideration the order of Hon’ble ITAT in the appellant’s own case for earlier and the decision in CIT vs. National & Grindlays Bank Limited (Supra) and CIT (A)’s order for the immediately succeeding years relevant to AY 2006-07, 2007-08 and 2008-09 in appellant’s own case, the income received from the properties owned by the appellant’s own case, the income received from the properties owned by the appellant and shown in the balance sheet as income from house property. Assessing Officer is directed to treat the income from such properties as income from “house property” and allow deduction u/s 24(a) of the IT Act. Hence, the addition made by the Assessing Officer of Rs.4,51,86,148/ -is deleted.” 14. We note that the contention of the assessee on the issue remained that as per the section 22 of the I. T. Act following three conditions are required to assess the income from house property under the head “income from house property: i) That the property should consist of any building, land appurtenant hereto. ii) The assessee is the owner of such building, and iii) Such building is not occupied by the assessee for the purpose of any business or occupation. 15. Since, there was no dispute on the fact that the assessee is owner of all the properties and that the rental income was derived from such properties and section 22 of the I. T. Act does not say anywhere that property should be held as investments as the basis of assessing the income from other sources. Considering these facts, related to provisions of law and decision of the

Page 107 of 144 Tribunal of the issue in the case of the assessee itself in other assessment years. We are of the view that the Ld. CIT (A) has rightly decided the issue in favour of the assessee with direction to treat the income from such properties as income from house property and to allow deduction u/s 24(a) of the Act. The first appellate order in this regard is thus upheld. Ground No.2 is accordingly rejected.”

Page 108 of 144 Statutory deduction u/s 24 of the Income Tax Act @ 30% from such amount of Rs.1,92,79,531/- thereby making an addition of Rs. 4,49,85,573/-. On appeal before CIT (A) this addition was deleted and therefore revenue is in appeal. 187. Ld. DR submitted that the addition of Rs.4,49,85,573/- has been rightly made under the head income from house property because, according to Ld. DR, income has to be offered in the year in which TDS is deducted and not vice-versa. 188. Against this, Ld. AR relied on the decision of CIT(A) wherein CIT(A) has directed the AO to verify the reconciliation statement and subject to such verification, he has deleted the addition. 189. We have carefully considered the rival contentions. The fact of the case is that amount of income shown in the TDS certificate did not match with the income from house property shown by the assessee. According to the AO, as per the TDS certificate, the rental income is Rs.19,87,55,011/- whereas income shown by the assessee is Rs.13,44,89,907/- thereby there is a difference of Rs.6,42,65,105/-. After deducting there from 30% as standard statutory deduction for computing income from house property amounting to Rs.1,92,79,531/- , and addition of Rs.4,49,85,573/- is made. The CIT(A) has dealt with this issue in para 21.23 at page no.163 of his order as under:- “21.23 I have carefully considered the assessment order, remand report of the AO and the submissions made by the ld. AR. As per reconciliation submitted by the assessee, the difference in income as per books of account and TDS certificates is on account of advance rent received during the year which has been accounted for by the appellant in the next year to which the advance rent received this year pertains. Since the assessee is following mercantile system of accounting, the advance rent has been accounted for in the period to which it pertains. However, as far as credit for tax deducted at source is concerned, I am of the view that following the matching concept, it is allowable in the same assessment year in which the income is recognised. In view of the above, the AO is directed to verify the reconciliation statement furnished by the assessee, and subject to such verification, the addition of Rs. 4,49,85,573/- is deleted as it cannot be recognised as income in the current year. Consequently, the appellant cannot be allowed credit for TDS relating to the advance rent shown in A.Y. 2007-08 during the current year. The AO is directed to verify this and reduce the TDS credit for the current year correspondingly.” 190. We do not find any infirmity in the order of CIT(A) and also none has been pointed out by the Ld. DR. We have come across the argument of the Ld. DR that assessee is required to show income in the year in which TDS is made is not acceptable to us so far as chargeability of income under the income from house property is concerned. According to us the income from house property does not follow any method of accounting but is chargeable to tax on annual letting value basis of the property irrespective of the receipt of the rent or advance

Page 109 of 144 receipt of rent. Tax deduction at source is required to be made only at the time of payment or credit in the books of payer of rent as prescribed u/s 194I of the Act. The timing between the taxability of rental income under the head income from house property and timing of tax deduction at source can be different as both the sections have different intentions, objects and purposes. In view of the above facts, we confirm the order of CIT(A) in deleting the addition of Rs.4,49,85,573/- with a direction to AO for verification of the statement submitted by the assessee. Furthermore, the AO vide his order dated 20.11.2012 in order to give effect to the appeal of the CIT(A)’s order has already made the deletion of the amount after verification. Hence ground no 18 of the appeal is dismissed. 191. Ground No 19 of the appeal is as under :- “19. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.3,27,52,542/- on a/c of enhancement in annual value amounting to Rs.3,22,84,192/- and by making addition of notional rent of properties that remained vacant for a part of the previous year amounting to Rs.4,68,350/- ignoring the facts of the case and wrongly relying upon the decision of Hon'ble ITAT in spite of the fact that the jurisdictional High Court has favoured the revenue on similar issue .” 192. Ground No.19 is against deleting the additions of Rs.3,27,52,542/- on a/c of enhancement in annual value amounting to Rs.3,22,84,192/- and by making addition of notional rent of properties that remained vacant for a part of the previous year amounting to Rs.4,68,350/- ignoring the fact of the case and wrongly relying upon the decision of Hon'ble ITAT in spite of the fact that the jurisdictional High Court has favoured the revenue on similar issue . 193. Ld. CIT (A) has dealt with this issue as under :- “21.32 I have carefully considered the assessment order and the submissions made by the ld. AR. From the details and other material on record, it is noted that the addition of Rs.3,27,52,542/- comprises addition of Rs.3,22,84,192/- by enhancement in the annual value by applying highest rent on all properties and secondly making addition of Rs.4,68,350/- on account of notional rent of property that remained vacant for a part of the previous year. 21.33 So far as the addition of Rs.3,22,84,192/- on account of applying highest rent on properties concerned, the AO had relied on the decision in the case of CIT vs. Smt. Bhagwati Devi (supra). In that case, the property had been rented out to related parties as at substantially lower rates as compared to the rate at which similar properties were rented out to unrelated parties. In the present case, none of the property has been leased to related parties and therefore, the ratio of the judgment in the case of CIT vs. Smt. Bhagwati Devi (supra) is not applicable to the facts of the present case. It is also noted that no discrepancy in the rental income accounted for in the books of account as compared to lease agreements was found by the AO. All the tenants are large companies of repute. None of the agreements have been proved to be sham by the A.O. In my opinion, bonafide legally binding commercial agreements between the assessee and third parties cannot be disregarded and terms changed whimsically and without any logic as done by the A.O. In view of this factual position, the addition of Rs.3,22,84,192/- is deleted.

Page 110 of 144 21.34 Now, coming to the second part of the addition of Rs.4,68,350/- on account of notional rent of properties that remained vacant for a part of the previous year, the provisions of Section 23(1)(c) of the Act is very clear and no notional rental income can be computed for any property that remained vacant for any part of the previous year. Further, this issue is covered in favour of the appellant by judgment in the case of one of the appellant’s group concern, M/s. DLF Office Developers vs. ACIT (supra). In view of this, the second part of the addition of Rs.4,68,350/- is also deleted. 21.35 Hence, the appellant is granted total relief of Rs.3,27,52,542/- (3,22,84,192 + 4,68,350). “ 194. Ld. DR submitted that in respect of vacant properties, the ALV is to be computed and, therefore, AO has rightly taxed the income of the vacant properties. He vehemently supported the order of the AO. 195. Ld. AR submitted that in assessee’s own case for AY 2005-06, this issue has been decided vide ground no.3 of the appeal. He further submitted that there is no change in the facts and circumstances of the case. 196. We have carefully considered the rival contentions. We have also perused the order of the coordinate Bench of the ITAT in ITA No.3561/Del/2013 wherein ground no.3 have considered the identical issue where in para no 16 to 23 addition is deleted by ITAT as under :-- “16. The Assessing Officer made an addition of Rs.3,02,61,251/- on account of notional rent/ additional annual letting value (ALB) u/s 23(1) (a) of the Income tax Act,1961, in respect of vacant properties. The details of the addition as per the assessment order is as under: - DLF City Centre Rs.2,36,01,310/- - DLF Commercial Shopping Complex Rs. 27,21,360/- DLF Corporate Park Rs.1,69,07,688/- Rs.4,32,30,358/- Less: Standard Deduction u/s 24(1) Rs.1,29,69,107/- Rs.3,02,61,250/- 17. The Ld. CIT (A) has deleted the addition after discussing the case of the assessee in detail and following the decision cited before him in this regard including decision of ‘D’ Bench of the Tribunal on an identical issue in the assessee’s group concern M/s DLF Office Developers vs. ACIT reported in 23 SOT 19 (Del) and first appellate orders in the assessee’s own case for the assessment years 2006-07, 2007-08 and 2008-09. 18. In support of the ground the Ld. Departmental Representative has basically placed reliance on the assessment order. 19. The Ld. AR on the other hand reiterated the submissions made before the Ld. CIT (A) and the decisions cited and relied upon before him.

Page 111 of 144 20. Considering the above submission, we find that the Ld. CIT (A) has decided the issue in favour of the assessee narrating the observation made in the cited decisions in case of M/s DLF Office Developers vs. ACIT (Supra) and other that where there was an intention to let out the house property and assessee took steps to let it but could not get suitable tenant, in such cases the annual value have to be worked out u/s 23(1) (c) of the IT Act and according to this clause if the actual rent received/ receivable during the year is Nil then that has to be taken as annual value of the property in order to compute the income from property. He has accordingly held that in case of the assessee where the property remained vacant then the ALV of such property will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. 21. In absence of rebuttal of above aspect of the facts in the case of present assessee, we are of the view, that the Ld. CIT (A) has rightly decided the issue in favour of the assessee taking assistance of the cited decisions before him. We find that the Ld. CIT (A) has discussed the issue in appeal and has passed a speaking order, which is being reproduced hereunder: 7.15 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and various judicial pronouncements available on the issue and order of Commissioner of Income Tax (Appeals)-XVIII for AY 2006-07 and my own orders for A Y 2007-08 & 2008-09 in the case of appellant wherein this issue was decided in favour of appellant. It is seen that impugned addition made on account of notional rent on properties that remained vacant for part of the previous year, the AR reiterated submissions made before the AO and emphasized that the matter is covered in favour of the appellant by judgment in the case of one of the appellant's group concerns M/s DLF Office Developers Vs. ACIT reported in 23 SOT 19 (Del) and orders of CIT(Appeals) in appellant's own case for the Assessment years 2006-07, 2007-08 & 2008-09. It is observed that" where there was an intention to let out the house property and assessee took steps to let it but could not get suitable tenant, in such cases the annual value will have to be worked out under section 23(l)(c) of the IT Act and according to this clause, if the actual rent received / receivable during the year is Nil then that has to be taken as annual value of the property in order to compute the income from property. " In the case of appellant, the appellant had intention to let such properties but could not get suitable tenant. In such a situation, the AL V will be Nil as per provision of section 23(1)(c) of the IT Act. Section 23(1)(a) r.w.s 23(1)(c) clearly provides that if the property remain vacant wholly or partly during the year, then actual rent received or receivable will be taken as the ALV of such properties. In the case of appellant the property is remained vacant, therefore, the ALV of such properties will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. The decision of the Assessing Officer was not justified. As regards, the Assessing Officer’s decision of computing the notional rent based on highest rent in respect of each building, it is seen that the properties have been given to various parties which are not related to the appellant and some of them are of International repute like GE Capital, KPMG. The rent has been charged based on the location of the property, area of lease property and timing of lease agreement. It is seen that appellant has filed copies of the all lease agreement before Assessing Officer for verification and no discrepancy in

Page 112 of 144 the rental income in the books of accounts, as compared to the lease agreement was pointed out by the Assessing Officer. It is not the case that appellant has received some under hand rent from the tenants. In this regard the Assessing Officer has not brought any evidence on record and no enquiry in this direction was conducted by him. Therefore, assuming the rent for all properties based on the highest lease agreement was not justifiable. As regards Assessing Officer’s reliance on various judgments in the assessment order, it is seen that the facts of the said judgments are squarely different with that of the appellant’s case. In the case of appellant, none of the properties have been rented out/leased to the related parties. Therefore, the ratio of the said judgment cannot be applied in the appellant case. In view of the above, the bonafide lease agreement between the appellant and third parties cannot be disregarded without having any adverse information in this regard and based on conjectures and surmises. Hence, the addition made by the Assessing Officer on this issued is deleted. Facts of the above cited judicial pronouncements are identical with the facts of the appellant’s case. Therefore, ratio of the said judgment is squarely applicable to the facts of the appellant’s case. Hence, the notional addition made by the Assessing Officer of Rs. 3,02,61,251/- under the head “income from house property” on account of notional income u/s 23(1) (a) of the Income Tax Act is deleted.” 22. We find that the first appellate order on the issue as discussed above is reasonable and view supported with this decision. Hence, we are not inclined to interfere with the order, the same is upheld. Ground no.3 is accordingly rejected.” 197. Therefore, following the decision of the coordinate Bench of the ITAT in the case of the assessee for AY 2005-06 , the addition of Rs.3,27,52,542/-is deleted. In the result, ground no.19 is dismissed. 198. Ground no 20 of the appeal is as under :- “20. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the additions of Rs.1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the facts of the case that the 0 disallowed the same in light of the prohibition created by the arbitration award.” 199. Ground No.20 is against deleting the additions of Rs.1,16,99,500/- on a/c of deduction allowable u/s 57(iii) of the Act ignoring the fact of the case that the AO disallowed the same in light of the prohibition created the arbitration award. 200. Ld. DR submitted that income is charged to tax for earning income from property named as Shriram School Building and there is no provision for granting this deduction u/s 57(3) of the Act as it is not incurred for earning of the income under the head other sources. 201. Against this, ld. AR submitted that this amount is paid to the owner of the property for earning of the income. He stated that it is a pass through transaction and the identical amount of the sum has been transferred to DLF Qutab Enclave Educational Charitable Trust. 202. We have carefully considered the rival contentions. The facts of the issue are that compensation of Rs.1,16,99,500/- is paid by the assessee to the owner of the property from

Page 113 of 144 the property i.e. Shriram School Building. The original income was shown by the assessee under the head income from house property and claimed deduction of Rs.116.99 lakhs u/s 24. These rental incomes in fact belong to DLF Qutab Enclave Complex Educational Charitable Trust w.e.f. 01.04.1994. Therefore, Shriram School continued to pay rent to the assessee company who in turn paid the same amount to the aforesaid trust naming it as compensation. The AO in turn has taken out this income offered under the head income from house property and made an addition of Rs.35,09,850/- being 30% deduction on income from house property. The CIT (A) has in turn granted the deduction of this sum u/s 57(iii) of the Act following the decision of Hon’ble Supreme Court in the case of CIT vs. Rajendra Prasad Modi as under :- “22.14 Now coming to disallowance of compensation amount of Rs.1,16,99,500/- paid by the appellant to the owner of the property for earning of the income from the property named as Shriram School Building is concerned, it is noted that the AO himself has observed at page 354 of the assessment order that "With these remarks, Rs.1,16,99,500/- is being taken out from the income of the assessee". By respectfully following the judgment in the case of CIT vs. Rajendra Prasad Moodi (supra), the deduction of Rs.1,16,99,500/- being the amount actually incurred by the assessee for earning of the income is allowed u/s 57(iii) of the Act, the impugned addition of Rs.1,16,99,500/- is deleted.” 203. We do not find any infirmity in the order of the CIT (A) and, therefore, we confirm his order and ground no.20 of the appeal is dismissed. 204. Ground no 21 of the appeal is as under :- 21. That on the facts & Circumstance of the case the ld. CIT(A) erred in directing to allow the credit for TDS amounting to Rs.26,25,369/- (subject to verification) in spite of the fact that the payment received by the Assessee company was not legally right. 205. Ld. DR relied on the order of the AO and stated that the payment received by the assessee company was legally not right and, therefore, TDS cannot be granted as credit amounting to Rs.26,25,369/-. 206. Ld. AR relied on the order of the CIT (A). 207. We have carefully considered the rival contentions. As the income itself has been treated as taxable in the hands of the assessee u/s 56 of the Act, therefore, the assessee is eligible for credit of tax deduction at source. The ld. CIT (A) has dealt with this issue in para 22.15 as under :- “22.15 So far as the AO’s denial of the credit of TDS of Rs.26,25,369/- on the income received from Shriram School is concerned, I find that as the rental income has been assessed under the head “income from other sources” and since the TDS relates to the very same income, the credit for

Page 114 of 144 the said TDS cannot be logically denied. Therefore, the AO is directed to allow credit of TDS of Rs.26,25,369/-, after due verification. “ 208. Further, the ld. CIT (A) has asked the AO to make necessary verification; therefore, we confirm the order of the CIT (A) and dismiss ground no.21 of the revenue’s appeal. 209. Ground no 22 of the appeal is as under :- 22. That on the facts & Circumstances of the case the ld. CIT(A) erred in directing the AO to verify the complete facts and figures with regard to disallowance u/s 14A read with Rule 8D and compute the amount of expenditure which has been incurred in relation to the exempt income and disallow the same. Further the ld. CIT(A) has contradicted himself by directing the AO to verify the working submitted by the assessee and simultaneously deleting the additions. 210. Ld. DR and ld. AR both agreed that this issue relates to disallowance u/s 14A of the Act which is also part of ground no 3 of the assessee’s appeal. 211. We have carefully considered the rival contentions and we have already decided the issue of disallowance u/s 14A in the appeal of the assessee vide ground no 3 deleting the disallowance made by AO. Hence, we decide this ground of appeal of the revenue accordingly. Ground No.22 is dismissed 212. Ground No.23 is as under :- 23. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.1,04,56,937/- being project expenses which should have been capitalized by the assessee company because these a related to the acquisition of new projects. 213. Ground No.23 is against deleting the addition of Rs.1,04,56,937/- being project expenses which should have been capitalized by the assessee company because these are related to the acquisition of new projects. According to AO all the expenses claimed as revenue are in respect of payments made for various projects, revenue from which has not been recognized and these projects are still under construction or at a preparatory stage. Since the projects have not been commissioned nor revenue from the same have been recognized, the expenditure incurred in relation to the same needs to be capitalized as a part of project cost and the same can be claimed as an expenditure when the project is completed and the revenue is recognized. AO was also of the view that the expenses are in the nature of capital like for acquisition of Dalmia land at Chanakyapuri, then expenditure for acquisition of share of M/s Edward Keventor (Successor) (P) Ltd. expenditure for merger of M/s DLF Power with assessee companies etc. Hence all these expense are in the nature of capital and are being therefore disallowed. Addition of Rs.2,13,94,580/- on this account is made to the income of the assessee. Against this CIT (A) in appeal has held that disallowance of

Page 115 of 144 Rs.1,04,56,937/- incurred by the assessee on conducting feasibility and viability of construction project at different locations, since the assessee is engaged in the real estate business, the feasibility study was in connection with existing business of the appellant and therefore it is held that the claim is allowable as a revenue expenditure. Consequently, the impugned addition of Rs.1,04,56,937/- on this count was deleted. Therefore revenue is in appeal . 214. Ld. DR submitted that these expenditure are capital in nature, therefore, vehemently supported the order of the AO and submitted that the addition may be confirmed. 215. Ld. AR relied on the order of the CIT (A) deleting the addition. 216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee. Hence, we confirm the order of CIT (A) and delete this ground of revenue’s appeal. 217. Ground no 24 is as under :- 24. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.22,31,806/- without going through the details of the same and accepting the same at the face value of assessee company. Ld. AO has disallowed this sum of Rs. 2231806/- on account of Rebate on construction 218. projects allowed to customers holding that same is capital expenditure However Ld. CIT (A) held that revenue expenditure in respect of rebate on construction project allowed to customers it is noted that this expenditure is rebate allowed to customers of plot/constructed properties on account of early payment of purchase price instalments. Therefore, the claim made by the assessee is allowable as revenue expenditure. Consequently, the impugned disallowance made on this count by the AO is deleted. 219. Ld. DR submitted that the amount of Rs.22,31,806/- is capital in nature. Ld. AR submitted that these expenditure are in case of discount given to the various buyers of the plots or constructed properties and it is stated to be rebate on extra charges allowed to customers. He further submitted that the name itself shows that these expenditure is revenue in nature.

Page 116 of 144 220. We have carefully considered the rival contentions. We do not find any infirmity in the order of the ld. CIT (A). Ld. DR also could not point out any infirmity. Admittedly, the amount of expenditure is not a capital expenditure but it is a rebate on the sale price, hence it is an allowable expenditure. In the result, the ground no.24 of the revenue’s appeal is dismissed.

Page 117 of 144 and therefore an amount of Rs.1,88,81,388/- computed as per the chart submitted by the assessee was added in to the assessee income. On appeal before supreme court Ld. CIT (A) deleted the addition against which revenue is in appeal. 223. Ld. DR submitted that according to the decision of the Hon’ble Punjab & Haryana High Court, the assessee is not authorised to charge late construction fee from the buyers. This amount is collected by the assessee despite the above decision of Hon’ble Punjab & Haryana High Court. Since the amount is a brand to the assessee in respective years they need to be taxed. 224. Against this, ld. AR submitted that w.e.f. 19.11.2000, the Hon’ble Supreme Court has decided this issue and after that the assessee has started offering this income. Further it was submitted that this issue is covered in favour of assessee vide order of Hon’ble ITAT ‘B’ Bench, dated 30.04.2012 in ITA No.4634 & 4635/Del/2011 in the case of one of the group company of assessee, namely, Nilgiri Cultivations Private Limited for A.Y. 2006-07 and 2007-08. 225. We have carefully considered the rival contentions. It is an admitted fact that the assessee is receiving late construction charges from customers which is under dispute before the Hon’ble Punjab & Haryana High Court and that litigation was settled vide order dated 19.11.2000 of Hon’ble Supreme Court. The ld. CIT (A) has decided this issue after considering the judgment of Hon’ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27wherein it is held that if the assessee acquires a right to receive the income the said income has accrued to him. As till the decision of Hon’ble Supreme Court assessee did not have right to receive that income and even though that amount was collected, it becomes a liability on the assessee towards the customers. The CIT (A) has further considered this issue in entirety as under :- “26.10 It is observed that up to September 2002, the appellant has treated collection of late construction charges as its income and from October 2002 onward, the appellant has not been treated the receipts of late construction charges as its income, in view of the matter being under litigation. The assessee himself has stated that if the Hon’ble Supreme Court decides that the assessee cannot collect late construction charges then only charges will be returned to concerned customers. It is noted that as per the High Court order, the assessee company had no right to collect late construction charges from its customers. However, the Supreme Court by its order dated 19.11.2010 has set aside the order of the High Court and therefore, it cannot be said that receipts in question are not accrued income. As the order of the Hon’ble Supreme Court is dated 19.11.2010 the amount collected is the income for financial year 2010-11. 26.11 An amount cannot be said to accrue unless enforceable debt is created in favour of assessee. Reference can be made to the judgment of Hon’ble Supreme Court in the case of E.D.

Page 118 of 144 Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27. Their Lordships at page 51 observed as under : “That the words ‘arising or accruing’ are general words descriptive of a right to receive profits... If the assessee acquires a right to receive the income, the income can be said to have accrued to him. Though it may be received later on it being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody... Unless and until there is created in favour of assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.” 26.12 In view of the above binding principle, it has to be held that the amount of late construction charges cannot be said to have accrued to assessee unless the assessee acquires a right to receive it. A right to receive can be said to be created in favour of assessee on 19.11.2010 when the order of the Hon’ble Supreme Court is passed and till that date revenue cannot be legally recognized. During the hearing, I was informed by the ld. AR that this income has been recognized in the current financial year (F.Y. 2010-11) after receiving the judgement of the Supreme Court. 26.13 Accordingly, the addition of Rs.1,88,81,388/- made by the AO is not sustainable. The same is, therefore, deleted.” 226. We have noted that identical issue has been decided by the coordinate bench of ITAT in case of Nilgiri Cultivations Pvt Ltd V ACIT for AY 2006-07 in ITA no 4634 & 4635/Del/2011 dated 30.4.2012 where in while deciding the issue in ground no 1 of the appeal addition of late construction charges received from customers shown under the head sundry creditors is income which has accrued to the assesse or not, It is held that “7.1 Assesse as following a prudent and consistent accounting policy which was necessitated by the order of Honourable Punjab And Haryana High court. The assesse offered the entire amount as its income on settlement of disputes by the Honourable Supreme court. Therefore, we hold that the assesse was acting on prudent and consistent accounting policy. Going by this accounting policy, the income cannot be recognised unless it is free from impending and binding litigation which in this case was clarified in A.Y. 2011-12 only” Accounting standard 9 issued by ICAI on revenue Recognition also satisfies the accounting policy of the company that when the revenue is saddled with uncertainties same should not be recognised till the uncertainties are resolved. Therefore following the decision of coordinate bench as well as the accounting standard 9 of ICAI we are of the view that assesse has correctly recognised revenue in the year the issue attained certainty. Therefore on perusal of the decision of CIT (A) we are of the view that there is no infirmity in the order . Hence we confirm the order of CIT (A) and dismiss ground no 25 of the appeal.

Page 119 of 144 227. Ground No 26 of the appeal is as under :- 26. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.20,99,510/- being prior period expenses. 228. Ld. AO has disallowed the sum of the employee reimbursement holding these expenses are of the nature of prior period expenses and because the bills were not submitted by the employees and hence it did not accrue during the year. No factual details of these bills were given. In light of this the claim of the assessee is rejected and amount of Rs.20,99,510/- is added of income of the assessee On appeal before CIT (A) he deleted the disallowance holding that expenditure in respect of reimbursement of travelling expenses of Rs.18.51 Lakhs were incurred by employees in connection with his proceeding on leave and Rs.0.63 Lakhs were incurred by employees for telephone and conveyance expenses in performance of their official duty. The claim for reimbursement along with the supporting bills and claim forms were received by the appellant from the employees during the current year only. Therefore following the decision of the jurisdictional High Court in the case of CIT vs. Shriram Pistons and Rings Ltd. He deleted the disallowance of Rs. 20,99,510/- . 229. Ld. DR submitted that prior period expenditure are not allowable to the assessee and further the details of such expenditure are also not available as the bills were not submitted by the employee they had been accrued during the year. 230. Ld. AR submitted that these expenditure are related to the LTA claim of the assessee and claim of the employees with respect to telephone and conveyance expenses. They have been settled during the year and hence same are not prior period expenses. 231. We have carefully considered the rival contentions. Rs.18.51 lakhs were regarding to the leave travel assistance claims of the assessee an Rs.63 lakhs were on account of reimbursement and telephone and conveyance expenses of the assessee. These expenses were disallowed by the AO. The details of these expenses are enclosed as per Annexure ‘A’ at page 101 along with explanatory statement. These bills are pertaining to the regular staff of the employees and are payable and paid at the time of settlement of their entitlement. It is irrespective of the time when employee has actual travelled. In same way, the telephone and conveyance expenses are also reimbursement of the expenditure which would be determining the claim of the employees and admitted by the employer. The special auditor has held so because of the reason that the actual travelling has taken in the previous year. Naturally, it is a matter of common sense for the purpose of LTA claim, the travelling of the employees is prior to the claims submitted by the employees. The CIT (A) has specifically dealt with one instance in para 27.3 of his order. After verification of the details, it was received by the assessee from its employees during this period and after following the decision of Hon’ble

Page 120 of 144 jurisdictional High Court in the case of CIT vs. Shriram Piston – 174 taxman 147, the disallowance is deleted. The reliance of the ld. AR on the decision of Hon’ble Delhi High Court in CIT vs. Modipan Ltd. - 334 ITR 102 is also apt as the expenditure are settled during the year. Further genuineness of these expenditure is not in doubt and allowabaility of these expenditure is also not in question except classifying them as prior period expenses and there is no difference in rate of taxes for respective years. In the result, we confirm the order of the CIT (A) in deleting the addition of Rs.22,98,510/- on account of prior period expenditure. In the result, ground no.26 of the revenue’s appeal is dismissed. 232. Ground No 27 of the appeal is as under :- 27. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.4,94,00,550/- received from customers in terms of contractual obligation. 233. Brief facts are that before AO assessee submitted that these are refundable deposits and are shown as liabilities in the balance sheet and hence it cannot be treated as part of sale. In past also no such addition has been made on this account and this method of account is being followed constantly. However AO was of the view that it is an absurd proposition to say that if any person is continuing not to show a trading receipt for taxation purposes then it becomes an established accounting standard and hence cannot be questioned by the department once found through a procedure u/s 142(2A) of the Income Tax Act,. As per the details filed by the assessee on page -124 of their letter dated 06.03.2009 the amount of 4,94,00,549/- is the closing balance as on 31.03.2006 and the same balance continues till 31.03.2008 with minor changes showing a closing balance of 4,95,59,952/- with the figures in majority of the scheme remaining same even after two years. Therefore AO was of the view that it is clearly established that this amount was taken from the customers as part of the total sale price to meet out various contingent expenditure. In case of no contingency coming this amount has not been paid back and was never intended to be paid back to the customers. Therefore an amount of Rs.4,94,00,549/- is added in to the assessee income. On Appeal before CIT (A) it was deleted as balance in contingency amount amounting to Rs. 4,94,00,550/- received from customers was in terms of contractual obligation, it is noted from the details furnished by the appellant that there is regular movement in this account and large amount have actually been discharged from time to time in performance of the contractual obligation. Therefore revenue is in appeal before us. 234. Ld. DR stated that this amount is a trading receipt which is shown as liability for a long time. He submitted that this amount is in fact a trading receipt and is part of the sale consideration and, therefore, should be charged to tax. He further stated that it was never intended to be paid back to the depositor.

Page 121 of 144 235. In response, the ld. AR submitted that this is a contingency deposit received from the various customers, details of which party-wise, amount-wise, period-wise is available. He further submitted that it is not that the amount is outstanding for a long time but is a contingency deposit to cover additional charges which may be demanded by the state authorities and is collected at specified rates. It is adjusted in the end at the time of incurring expenditure. This is a practice continuously followed by the assessee and accepted by the revenue in past. He further stated that a large amount has actually been utilised from time to time in performance of the contractual obligation. His argument was that each and every receipt cannot be charged to tax unless it partakes the character of revenue receipt without any obligation for payment. 236. We have carefully considered the rival contentions. This amount has been collected by the assessee at predetermined rate from the buyers which has obligation to incur expenditure on account of contingent nature for the projects. It is not a fact that this amount has not been utilised as it is evident that in March 2006, assessee has incurred the cost of Rs.9.87 crores. Furthermore, in the preceding two years as well as succeeding two years, the assessee has incurred expenditure out of this sum. We agree with the contention of the ld. AR that each and every receipt cannot be charged to tax unless it partakes the character of revenue. Further, we also agree with the observation of the ld. DR that receipts if revenue in nature and camouflaged as deposits cannot escape the taxation. In between these two use, facts of the case show that there is a regular movement in this account and expenditure of Rs.9.87 crores as noted by the CIT (A) has been incurred. Therefore, we are of the view that these are the security deposits which would be utilised in performance of the contractual obligation of the assessee towards those buyers. Anyway, it is not the case of the AO that these receipts have been received during the year, it is also not the case that the payers or the depositors are unidentified and it is not the case of the AO that these amounts have been paid by the buyers without any obligation on the assessee to perform by providing the services. In view of this, we confirm the order of CIT (A) in deleting the addition of Rs. 4,94,00,550/-. on account of security deposits. In the result, the ground no.27 of the revenue’s appeal is dismissed. 237. Ground no 28 of the appeal is as under :- 28. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs.8,09,92,427/- on a/c of Interest free security deposit, ignoring the facts that these were proved to be non-refundable and the Hon'ble Punjab & Haryana High Court held the same to be unreasonable

Page 122 of 144 238. Ld. DR submitted that it is the part of the sale consideration and, therefore, it has been rightly charged to tax. The same arguments as advanced by the ld. DR were also advanced for this ground. 239. Against this, ld. AR submitted that this is purely a security deposit and it is collected from the buyers in terms of clause 32 (b) of sale agreement entered into with the buyers. He further stated that it is not the case that it is a static account but it is evident that in March 2006, Rs.23,22,822/- has been refunded. He refuted the charge that it is a part of the sale consideration. He further stated that none of the deposit has been forfeited and it is not the case of the AO that any of the depositors are not available. He, therefore, stated that deposit cannot be treated as income. He further relied on the decision of Nilgirir Cultivations Pvt Ltd V ACIT [ITA 4634 & 4635/Del/2011 ]. 240. We have carefully considered the rival contentions. It is a fact that these deposits are received in terms of sale agreement for customers as security deposit till the formation of condominium and society. These deposits are taken as a safeguard to defray the maintenance expenditure of the society and to keep these deposits for insurance premium and maintenance. They are refundable to resident welfare associations. CIT (A) relying on the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Goel Gases Pvt. Ltd. – 188 ITR 216 (Del.) held that security deposit cannot be charged to tax as an income. In view of this, we do not find any infirmity in the order of the CIT (A) when deposits are with a purpose, the depositors are identified, there is a regular method of accounting adopted in past for treatment of this income which is accepted by the revenue and there is an obligation cast upon the assessee. Hence, ground no.28 of the revenue’s appeal is dismissed. 241. Ground No 29 of the appeal is as under :- 29. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs.18,66,82,603/- being the amount received by the assessee company from the customers for execution of conveyance deed in favour of customers which was in the nature of liability ceased to exist and thus should have been forfeited by the assessee company. 242. Ground No.29 is against deleting the addition made by the AO of Rs.18,66,82,603/- being the amount received by the assessee company from the customers for execution of conveyance deed in favour of customers which was in the nature of liability ceased to exist and thus should have been forfeited by the assessee company. 243. Ld. DR submitted the same arguments as advanced in ground nos.27 & 28 of the revenue’s appeal. Ld. AR also put-forth the same arguments stating that The correct amount is Rs.16,39,04,989/-. Further the amount has been spent in the subsequent period for execution of conveyance deeds and hence, these are not old outstanding amounts. He submitted that

Page 123 of 144 complete details of amounts received and its subsequent utilization for the purpose of registration subsequent to 31.3.2006 are on record. The appellant’s letters to customers, which are on record, shows that it has been regularly following for registration. He further stressed that large amount could not be utilized because of restriction on registration imposed by the Government on 17.12.2002 which is also on record. This restriction has been withdrawn only on 27.03.2009 and after withdrawal of the restriction appellant has been approaching buyers to come forward for registration. The correspondence is on record. He further argued that real nature of this balance is that it does not belong to us and has been correctly shown as liability in the balance sheet. Accounting method consistently followed and accepted in assessments in the past. The assessee has never apportioned this money to its income in the past. He further supported his arguments by relying on following decisions :- a. ACIT vs. Shri Netar Krishna Sehgal Pvt. Ltd. (1983) 141 ITR 681 Delhi, wherein it has been held that all receipts are not income. b. CIT vs. Madurai Soap Drinks Pvt. Ltd. (2005) 146 Taxman 572 (Mad) wherein it has been held that the security deposit is not a trading receipt. c. CIT vs. Goyal Gases Pvt. Ltd. (1991) 188 ITR 216 (Del) wherein it has been held that security deposit received does not belong to assessee as the money remains as that of customer. Therefore it is not a revenue receipt. 244. We have carefully considered the rival contentions. It is noted that this is the amount which is collected by the buyers with specific object of getting exclusion of conveyance deed in favour of the buyer. In fact, it is an advance collected by the assessee from the buyer towards registration charges with the office of the Registrar for conveyance deed registration. At the time of registration, assessee incurs this expenditure by debiting to this account of that particular customer. The total receipt of registration charges is identified with respect to each of the buyer and there are movement in respective accounts. In fact, it is a past through cost collected by the assessee from the buyer to be incurred by assessee on behalf of the buyer. In view of these facts, these receipts cannot partake character of the revenue in the hands of the assessee. It is also not the case of the AO that the depositors are not identified and despite the conveyance deed executed by the assessee, the amount has not been incurred. In absence of this finding, it is not possible to confirm the disallowance. Therefore, we confirm the order of the CIT (A) in deleting the addition of Rs.18,66,82,603/- being credit balance of registration charges received from the customers. Ground No.29 of the revenue’s appeal is dismissed. 245. Ground No 30 of the appeal is as under :- 30. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the addition made by the AO of Rs.7,00,67,242/- being credit balances in various accounts by treating them as trading receipts and wrongly accepting the assessee's ground that instead of credit balance there was debit balance in accounts ignoring the fact that this aspect was dealt with by the AO in his assessment order and was conclusively established to be credit balance.

Page 124 of 144 246. Ground No.30 is against deleting the addition made by the AO of Rs.7,00,67,242/- being credit balances in various accounts by treating them as trading receipts and wrongly accepting the assessee's ground that instead of credit balance there was debit balance in accounts ignoring the fact that this aspect was dealt with by the AO in his assessment order and was conclusively established to be credit balance". 247. Ld. DR contended that this amount represents the income of the assessee and debit balance cannot be set off against this amount. He supported the order of the ld. AO on this count. 248. Against this, ld. AR submitted that in fact, there is a factual error in the assessment which CIT (A) has considered. He submitted that according to the trial balance, there is a debit balance in this account of Rs.10,42,95,745/-. This debit balance is on account of rebate on instalments credited to the buyers account. He refuted the claim that as there is only debit balance it cannot be charged to tax. 249. We have carefully considered the rival contentions. The CIT (A) has noted that this is factual mistake in the assessment order where AO has considered erroneously the debit balance in the account as credit balance. Therefore, debit balance cannot be added as income of the assessee as it is arising out of rebate on sales. It partakes the character of discount and, therefore, it is an expense of the company being debit balance and not income of the assessee. In view of this, we confirm the order of CIT (A) and delete the disallowance of Rs.7,00,67,242/-. In the result, ground no.30 of the revenue’s appeal is dismissed. 250. Ground No 31 of the appeal is as under :- 31. That on the facts & circumstance of the case the ld. CIT(A) erred in restricting the addition to the tune of Rs.3,12,41,768/- only out of addition Rs. 35,08,31,012/-, shown as Closing Credit Balances in Allotment Account which, though proved to be non-refundable, was not offered by the assessee company as income. 251. Ground No.31is against restricting the addition to the tune of Rs.3,12,41,768/- only out of addition Rs.35,08,31,012/-, shown as Closing Credit Balances in Allotment Account which, though proved to be non-refundable, was not offered by the assessee company as income. 252. This issue is regarding revenue recognition in case of sale of land and plots has been decided in ground no.15 of the assessee’s appeal, therefore, ld. DR as well as ld. AR agreed that decision taken in ground no.15 of the assessee’s appeal shall dealt with this addition. Ld. AR further submitted that if it is decided against the assessee, it would amount to double addition in the hands of the assessee. 253. We have carefully considered the rival contentions and we are also of the view that it is covered by ground no.15 of the assessee’s appeal which is against revenue recognition in case of sale of plot and land. We have already held in the case of revenue recognition in case of sale of land and plots that it should be chargeable to tax only in the year in which the sale

Page 125 of 144 deed is executed after giving our reasons. In view of this, this amount is only an advance received by the assessee, therefore, this addition cannot be made in the hands of the assessee till the execution of the conveyance deed. So far as AY 2006-07 is concerned, we have upheld the accounting method of the assessee. Accordingly, this addition cannot be made in the hands of the assessee for this year. Furthermore, the CIT (A) has already considered it as a double and duplicate deduction while considering the sale of plot and land etc. is required to be taxed in the year in which risk and reward passes out in view of the percentage completion method. As per our decision in ground no.15 of the appeal of the assessee, we dismiss ground no.31 of the revenue’s appeal. We also reverse the order of the CIT (A) for the only reason that this is not now a double and duplicate addition. In the result, this ground of appeal is decided accordingly. 254. Ground No 32 to 35 is as under 32. That on the facts & circumstance of the case the ld. CIT(A) erred in deleting the addition of Rs.2,57,970/- on a/c of deemed dividend in spite of fact that said amount was advanced by MIs DLF Commercial Developers ltd (DCDL) to the assessee company and the assessee company was a holding company of DCDL, and thus attracting the provisions of section 2(22)(e) of the Act." 33. That on the facts & circumstances of the case the Id CIT(A) erred in deleting the addition of Rs.34,84,265/- on a/c of deemed dividend in spite of fact that said amount was advanced by MIs DLF Financial Services ltd (DFCL) to the assessee company, and the assessee company was a holding company of DFCL, and thus attracting the provisions of section 2(22)(e) of the Act. 34. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.12,60,00,000/- on a/c of deemed dividend in spite of fact that said amount was advanced by M/s Bhoruka Financial Services Ltd to the assessee Company, and the assessee company was a holding company of M/s DLF Commercial Development Ltd, which was holding 98.73% shares of Bhoruka Financial Services Ltd and in this manner being subsidiary of the subsidiary, it was fiduciary in nature. Therefore the ratio laid down by the Apex Court in the case of Kishanchand (supra) was squarely applicable in this case. 35. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the addition of Rs.225,85,28,452/- on a/c of deemed dividend (on protective basis) without appreciating the facts and various case laws discussed by the AO in the assessment order which were squarely applicable in this case 255. All these grounds relate to common issue of taxation of deemed dividend and therefore these are argued by the parties on similar lines. 256. Brief facts of the ground no 32 is that there are some loan transaction between DLF Commercial Developers Ltd. (DCDL) has given some loans to the assessee company.

Page 126 of 144 Assessee is the holding company of the lender DCDL. DCDL had on the date of giving these loans to the parent assessee company who is holding 100% share in this company there was reserve and surplus of Rs.216,05,69,000/- and on various dates mentioned Rs.2,57,970/- were advance by the company DCDL to the shareholders DLF Ltd. Hence this amount created a debit balance on the date and is therefore according to AO it is liable for taxation under 2(22) (e) of the act. On appeal before CIT (A) who deleted the addition holding that the amount is for the business purposes of the assessee as the nature of these transaction is receipt of amount from customers of DLF commercials developers limited in respect to sale of property by DLF Commercial developers limited. Ld. AR has further stated that in fact appellant has given loan to this party and balance receivable prior to the amount received on behalf of the customer of that company was RS 2046054553/-. Therefore in fact there is debit balance of that party in the books of the assessee and it is not correct that assessee has received any sum as loan from DLF Commercial |Developers Limited. 257. Ground No 33 is against deleting the addition of Rs.34,84,265/- on a/c of deemed dividend in spite of fact that said amount was advanced by M/s DLF Financial Services ltd (DFCL) to the assessee company, and the assessee company was a holding company of DFCL, and thus attracting the provisions of section 2(22)(e) of the Act. In fact this amount is Rs 3023187/- and not 3484265/- as per page no 422 of assessment order. AR submitted that this sum is in two parts i.e. (1) Rs 509265/- is representing book entry against purchase of property and (2) Rs 2975000/-against sale of property . this assertion of assessee is supported by the copies of relevant agreement filed before AO. Ld. AO rejected the contention of the assessee holding that as the sale purchase agreement are not registered agreements and finally those agreements got cancelled further AO was also of the view that these advances are not for the purposes of business and out of the total loan amount of Rs 3484265/- the amount of Rs 3023187/- is the extent of available reserves in the lender company therefore Rs 3023187/- is taxed u/s 2(22) (e) of the Act. 258. Ground No 34 is against the addition of Rs 126000000/-in respect of loan received by assessee from Bhoruka Financial services limited. Assessee has submitted before AO that the payments is against the booking of property to substantiate this assessee submitted the copy of the agreements as well as the balance sheet of Bhoruka Financial services Limited showing that assessee does not hold any share in that company. Ld. AO was of the view that as assessee holds 100 % shares in DLF Commercial Developers Limited and DLF commercial developers Limited holds 98.74 % shares of Bhoruka Limited therefore the condition of 10 % holding in payee

Page 127 of 144 company and 20 in recipient company is satisfied. AO further ignored the sales agreement as self-serving documents. 259. Regarding the amount of Rs 225,77,97,142/- the facts are tabulated as under for clear picture of the transactions and rival arguments. Sl. Loan/ Loan/ Amount Shareholding Assessee’s arguments No. Advances Advances In the payee Paid by Paid by Company At Column No.3 1. DLF Retail Anjuli 1,00,00,000 100% of The observation of the Ld AO in column Developers Builders DLF Home 3 of table 2 of that "DLF Universal is Ltd. Pvt. Ltd. Dev. Ltd. holding Company of Anjuli Builders Pvt Ltd Via DLF Home Developers Ltd" is factually incorrect as explained below. The borrower namely Anjuli Builders Pvt Ltd is not a shareholder of lending company i.e. DLF Retail Developer Ltd. A copy of the annual return filed by the lending company with the registrar of the companies shows no shareholding by the borrowing company. Therefore this transaction is not covered by the section 2(22) (e). Secondly it will be noted that from Schedule 7 of the Balance Sheet of the appellant company that it does not hold any share in the borrowing company namely Anjuli Builders Pvt Ltd. Therefore it can also not be said that the payment has been made to a concern in which shareholder is a member and in which he has a substantial interest. Thirdly the money borrowed by the Anjuli Builders Pvt Ltd has been used by the borrowing company for its business and therefore though the appellant is a the holding company of the lending company it can not be said that the payment by the lending company to Anjuli Builders Pvt Ltd is on the behalf of or for the benefit of the appellant as there is no payment by the borrower to the appellant. The same is evident from the financial statements of borrower company enclosed at page 59- 68 In fact the money had been paid to the borrower by the lending company out of loan given by the appellant company the same has been evident from the financial statement of lending company enclosed at page 289-308 It is further submitted that payment i.e. IC-Loan is carrying interest @ 8% p.a. and therefore there is no benefit is being given by the lending company to the

Page 128 of 144 borrowing company. 2. DLF DLF Info 7,11,38,000 2.5% of In this case the loan had been advanced by Commercial City Dev. Chandigarh shareholder to the company whereas the Developers (Chd.) Ltd. Adm. 97.5% requirement of section 2(22)(e) is that the Ltd. of DCDL loan should have been given by the company to its shareholder. This primary DLF Info 62,86,73,000 100% of condition is not fulfilled in this case and City Dev. DCDL the transaction in any case cannot be (Kolkata) brought within the provision of Section Ltd. 2(22)(e). It is stated in the table 2 of at page 403 of the assessment order that DLF Info 74,50,47,000 100% of DLF Ltd. holds shares in these companies City Dev. DCDL more than 50% (as these companies are (Chennai) subsidiaries of DLF Ltd.). This statement Ltd. is factually incorrect as will be seen from the Schedule 7(Vol 33 Page 12030) that DLF Info 5,16,000 100% of the companies mentioned in the second City Dev. DCDL column (loans paid to) namely - DLF Info (Hyd.) Ltd. City Developers(Chd) Pvt. Ltd. and other companies mentioned are not subsidiaries DLF Info 6,69,000 100% DCDL of DLF Ltd. DLF Ltd. do not hold any City Dev. share in these companies. (Bang.) Ltd. The borrower namely DLF Info City Bhoruka Developers (Chd) Pvt Ltd and other Fin. 2,52,90,000 1.27% companies are not a shareholder of Services Public lending company i.e. DLF Commercial Ltd. Holding Developer Ltd. A copy of the annual 98.73% of return filed by the lending company with DCDL the registrar of the companies (Page 27- GKS Hsg. 38) shows no shareholding by the Ltd. 93,95,000 4.20% of borrowing company. Therefore this Roadtech transaction is not covered by the section Cons. 2(22) (e). Secondly it will be noted that 95.80% of from Schedule 7 of the Balance Sheet of DCDL the appellant company that it does not Roadtech hold any share in the borrowing company Const.P. 20,37,000 100% DCDL namely DLF Info City Developers (Chd) Ltd. Pvt Ltd. and other companies Therefore it can also not be said that the payment has Shivajimarg been made to a concern in which Properties 67,85,51,000 100% DCDL shareholder is a member and in which he Ltd. has a substantial interest. Passion Thirdly the money borrowed by the DLF B&D P. 4,97,000 100% DCDL Info City Developers Pvt(Chd) Ltd and Ltd. other companies has been used by the borrowing company for its business and DLF Real therefore though the appellant being the Estate Ltd. 1,50,14,000 100% DCDL holding company of the lending company it can not be said that the payment by the lending company to DLF Info City Developers(Chd) Pvt Ltd and other companies is on the behalf of or for the benefit of the appellant as there is no payment by the borrower to the appellant. The same is evident from the financial statements of borrower companies

Page 129 of 144 enclosed at page 69-218 In fact the money had been paid by the lending company to borrower out of loan given by the appellant company. The same has been evident from the financial statement of lending company enclosed at page 309- 334 3. DLF Home Ayushi 100% In this case the loan had been advanced by Developer B&D P. DHDL shareholder to the company whereas the Ltd. Ltd. requirement of section 2(22)(e) is that the loan should have been given by the Amishi 100% company to its shareholder. This primary B&D P. DHDL condition is not fulfilled in this case and Ltd. the transaction in any case cannot be brought within the provision of Section Belden 100% 2(22)(e). The observation of the Ld AO in Homes DHDL column 3 of table 2 that "DLF Ltd Holds P.Ltd. more than 20% shares in Ayushi B&D P. Ltd and other companies Via subsidiary Carlton 100% companies of DLF Ltd" is factually Real Estate DHDL incorrect as explained below. The P. Ltd. borrower namely Ayushi B&D P. Ltd and other companies is not a shareholder of Wellington 100% lending company i.e. DLF Home Real Estate DHDL Developer Ltd. A copy of the annual P. Ltd. return filed by the lending company with the registrar of the companies (Page 39- Royalton 100% 48) shows no shareholding by the B&D P. DHDL borrowing company. Therefore this Ltd. transaction is not covered by the section 2(22) (e). Secondly it will be noted that Ananti 100% from Schedule 7 of the Balance Sheet of Build & DHDL the appellant company that it does not Cons. P. hold any share in the borrowing company Ltd. namely Ayushi B&D P. Ltd and other companies. Therefore it can also not be Passion 100% said that the payment has been made to a B&D P. DHDL concern in which shareholder is a member Ltd. and in which he has a substantial interest. Thirdly the money borrowed by the 8,06,14,612 Ayushi B&D P. Ltd and other companies has been used by the borrowing company for its business and therefore though the appellant is a the holding company of the lending company it can not be said that the payment by the lending company to Ayushi B&D P. Ltd and other companies is on the behalf of or for the benefit of the appellant as there is no payment by the borrower to the appellant. The same is evident from the financial statements of borrower company enclosed at page 219- 288 In fact the money had been paid by the lending company to the borrower out of loan given by the appellant company. Same has been evident from the financial statement of lending company enclosed at page 335-350.

Page 130 of 144 Sub-total 225,11,83,612 Sl.No.1 to 3 4. DLF Gold DLF 66,13,530 100% DLF Copies of account of DLF Commercial Resorts Pvt. Commercial Ltd. Developers Ltd in the books of DLF Golf Ltd. Developers resort Ltd (vol 33 page 12132-12140). Ltd. DLF Commercial Developers Ltd had entered into an agreement(Vol 33 Page 12024-12027) with DLF Golf Resort Ltd under which the DLF Golf Resort runs the Golf club on behalf of the DLF Commercial Developers Ltd, subject to a charge of 2% of the total expenditure. Details along with copy of the agreement were enclosed of our letter dated 20.04.2009 (Vol 33 Page 12073). The amount of Rs.69,71,34,285 is the closing balance of security deposit received by the DLF Commercial Developers Ltd as per agreement dated 1.5.1999. Therefore it is not a loan transaction but a business transaction. The borrower namely DLF Commercial Developers Ltd is not a shareholder of lending company i.e. DLF Golf Resort P Ltd the financial statement of lending company is enclosed at page 351-370. A copy of the annual return filed by the lending company with the registrar of the companies (Page 49-58) shows no shareholding by the borrowing company. Therefore this transaction is not covered by the section 2(22) (e). Secondly it will be noted that from Schedule 7 of the Balance Sheet of the appellant company that it does not hold any share in the borrowing company namely DLF Commercial Developers Ltd and other companies. Therefore it can also not be said that the payment has been made to a concern in which shareholder is a member and in which he has a substantial interest. Thirdly the money borrowed by the DLF Commercial Developers Ltd and other companies has been used by the borrowing company for its business and therefore though the appellant is a holding company of the lending company it can not be said that the payment by the lending company to DLF Commercial Developers Ltd and other companies is on the behalf of or for the benefit of the appellant as there is no payment by the borrower to the appellant. Sub-total 66,13,530 Sl.No.4 Grand – 225,77,97,142 Total Sl.No.1 to 4

Page 131 of 144

Regarding above transactions assesse contended before OA that none of these transactions are covered by the definition of deemed dividend as loan has neither been received by the assesse and assesse also do not hold any shares in borrowing companies except in case of DLF commercial Developers Private Limited which is 100 % subsidiary of the assesse. In case of transaction in that company it was arguments of assesse before AO was that these are the business transactions. According to AO as the relationship between the assesse company and the subsidiaries borrowing companies are in the nature of fiduciary relationship and therefore the amount is taxed in the hands of the assesse on protective basis. Therefore AO held that this amount shall be chargeable to tax in the hands of the assesse despite it being not a registered shareholder of the company. 260. Ld. CIT (A) deleted the addition with respect to ground no 32 to 34 as under :- “29.42 I have carefully considered the assessment order, remand report of the AO and the submissions made by the ld. AR. From the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Ambassador Travels Pvt. Ltd. (2008) 173 Taxman 407 (Delhi), it is clear that if advance is taken by an assessee, who is otherwise covered by Section 2(22)(e) for treating such advances as deemed dividend, and the assessee is able to establish that such advances were not taken as loan and these were business receipts in the ordinary course of business then those amounts would not fall within the scope of deemed dividend. The contentions of the appellant have not been disputed by the AO. The AO has himself noted at page No. 415 of the assessment order that there were no disputes on the facts of the case as submitted by the assessee and what was remaining to be seen was whether the provisions of Section 2(22)(e) were applicable to these transactions or not. The AO has observed that the contention of the assessee that these were business advances and hence not covered by the scope of deemed dividend could be considered only when advancing company is in the business of money lending. Since the appellant is in the business of real estate and the money from the companies in the table - 1 hereinabove were in respect of normal business, it would show that the money was received by the appellant in the normal course of business. The AO has also not brought any contrary material on record. 29.43 Taking into consideration the material on record and respectfully following the judgment of Hon’ble Jurisdictional High Court in the

Page 132 of 144 case of CIT Vs. Ambassador Travels (supra), I allow this ground and delete the addition of Rs.12,92,81,157/- as given in Table 1 at page 402-403 of the assessment order.” 261. Ld. CIT (A) deleted the addition of Rs 2257797142/- made in the hands of the assesse on protective basis as under :- “29.44 Further, after considering the facts and the submissions of the appellant, it is clear that Section 2 (22) (e) enacts a legal fiction It is well settled that as held in the case of CIT Vs. Vadis All Lulu Bahia 86 ITR 2 (S.C.) that deeming provisions creating legal friction are to be strictly construed. The only reason noted by the A.O. for making the protective addition of the amount of Rs.225,77,97,142/- as given in Table 2 of the assessment order page 409 is on the ground that the relationship between the assessee and the borrowing companies was fiduciary in the nature and hence the provisions of Section 2 (22) (e) were applicable, even though the advances were received by companies other than the assessee. 29.45 Applying the principle of strict construction as laid down by the Hon’ble Supreme Court in the case of CIT Vs. Vadi Lal Lalu Bhai (supra) and on the decision in the case of ACIT Vs. Bhomik Colour (Pvt. ) Ltd. 2009 118 ITD (ITAT – Mumbai – SB) and in view of the fact that the appellant was not a shareholder in the lending company, I find that the sum of Rs. 225,77,97,142/- cannot be treated as deem dividend under Section 2 (22) (e) and hence the addition of Rs. 225,77,97,142/- is deleted. 29.46 Further, as per the facts as discussed above, the advance was not to the appellant company and neither to a company in which the assessee had any shares i.e. the payee was neither the appellant nor a company in which the appellant had any shares. Therefore, the addition cannot be made in terms of section 2(22) (e) of the Income Tax Act. I find that the AO has misconstrued the provisions of section 2(22) (e) in the second part for making the protective addition of Rs. 225,77,97,142/-. Section 2(22) (e) provides “Dividend includes any payment by a company…………by way of advance or loan to a shareholder……………..”. In this case, the undisputed facts as per charts reproduced in this order show that in serial No.2 DLF Retail Developers Ltd., had given an advance to Anjali Builders. Here, Anjali Builders did not hold any shares in DLF Retail Developers Ltd., at all. There is no relationship of the payee of being a shareholder of the payer. After all, on first principle, dividend or deemed dividend can only be brought to tax when a payment is made by a company to its shareholder in the garb of a loan. This fact is wholly absent in the instant case. The appellant is neither the payee, nor a common shareholder of the payer and payee company having requisite number of shares to be eligible to caught in the mischief of section 2(22) (e) of the Act. Therefore, in my opinion, the question of protective addition in the hands of the appellant does not arise. 29.47 Now we come to serial No.2, i.e. loans have been advanced by DLF Commercial Developers Ltd., (DCDL) to various companies. All these companies did not have any share whatsoever in DCDL. But DCDL held substantial shares in the payee companies. Here is the case where the

Page 133 of 144 shareholder has given money by way of loans or advance to the companies. The question of dividend or deemed dividend, therefore, does not arise. Therefore, in my opinion, there is no merit in making the protective assessment in the hands of the appellant in this case. 29.48 Coming to the next case at serial No.3, again, here the payer is the shareholder i.e. the person who has advanced loan is the shareholder and not the other way round. In my opinion, therefore, the question of making protective assessment in the hands of the appellant does not arise. 29.49 At serial No. 4, DLF Commercial Developers Ltd does not hold any shares in DLF Golf Resorts Pvt. Ltd. Therefore, the question of deemed dividend does not arise. Further, in this case it is also established that the transaction is in the regular course of business. 29.50 In my opinion, therefore, the question of protective addition on account of deemed dividend in the second part of this order amounting to Rs. 225,77,97,042/- in the hands of the appellant does not arise and the same is deleted.” 262. Ld. DR vehemently supported the findings of ld. AO and also relied on various decisions as under a) Navnitlal C Jhaveri Vs K K sen 56 ITR 198 (SC) b) CIT V Mukundray K Shah 290 ITR 433 (SC) c) Star chemicals Private limited v CIT 203 ITR 11 (Bom) d) Sadhna Textiles Mills Pvt ltd V CIT 188 ITR 318 (Bom) 263. Before us the Ld.AR submitted as under with respect to above transactions:- i) Regarding transaction of deposits from customers of DLF Commercial Developers Ltd. (DCDL) DLF Commercial Developers Ltd. and the Assesse, it is submitted that these payments were received by the Assesse directly from the customers in respect of sale by DLF Commercial Developers Ltd. and therefore, these balances appear as amounts payable to DLF Commercial Developers Ltd. Without prejudice, it is submitted that the Assessee had given loan of Rs.204,60,54,553/- to DLF Commercial Developers Ltd. and after making adjustment of the impugned payments, the amount of loan given by the Assessee to DLF Commercial Developers Ltd. was in excess of the amount of the impugned transactions and therefore, Section 2(22) (e) is not attracted. This position is evident from material on record referred to by the learned CIT (A) in para 29.5 at page 219 of the CIT (A)’s order. ii) With regard to transaction at SL.No.2 of Rs.30,23,187/- between DLF Financial Services Ltd. and the Assessee, it is submitted that these are business transactions in respect of booking of property for which the payment was made by DLF Financial Services Ltd. to the Assessee. Being business transactions, it is submitted that these are not Deemed Dividend. Reliance is placed on the judgment in the case of CIT Vs. Ambassador Travels Pvt. Ltd. (2008) 173 Taxman 407 (Delhi). It is

Page 134 of 144 further submitted that transaction of Rs.5,09,265/- was merely a book entry and there was no flow of money as the book entry of Rs.7,59,265/- was netted of by Rs.2,50,000/- paid by DLF Limited to DLF Financial Services Ltd. as advance against purchase of property. Reliance is placed on Sunil Sethi vs. DCIT, Company, Circle 1(1), New Delhi, (2008) 26 SOT 95 (Del) wherein it is held that amount given for business purpose of the company i.e. to purchase a suitable business premises, the amount in question could not be considered as deemed dividend. Regarding the Second transaction of Rs.29,75,000/- was received by the appellant against sale of property to payer company, i.e. DLF Financial Services Limited. It is submitted that the money received in the ordinary course of business is not a loan or advance and would not come within the purview of deemed dividend u/s 2(22) (e). Reliance is placed on :- - CIT Vs. Raj Kumar (2009) 181 Taxman 155 (Del) - CIT Vs. Ambassador Travels Pvt. Ltd. (2008) 173 Taxman 407 (Del) - CIT vs. Creative Dying and Printing Pvt. Ltd. (2009) 318 ITR 476 (Del) (the SLP filed by the Revenue has been dismissed by the Supreme Court) - CIT vs. F. Praveen (2008) 220 CTR 639 (Mad). - Madura Coats Pvt. Ltd. (2005) 274 ITR 609 (AAR) Wherein it is held that the amount given for business purpose of the company could not be considered to be deemed dividend. In view of the view, it was submitted that the aforesaid addition of Rs.30,23,187/- made u/s 2(22) (e) has been correctly deleted by the CIT (A) and there is no justification to interfere with the order CIT (A) on this issue. In view of the view, it is submitted that the aforesaid addition of Rs.2,57,970/- made u/s 2(22) (e) has been correctly deleted by the CIT (A) and there is no justification to interfere with the order CIT (A) on this issue. iii) That all these advances are given to its subsidiaries or associate concerns. These are in the nature of business advances, therefore, provisions of section 2(22) (e) cannot be made applicable as if it is in the ordinary course of the business of the company. For this, he relied on the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Ambassador Travel Ltd. – 173 taxman 407; iv) He further submitted that in most of the cases, the assessee company is not the shareholder and, therefore, the deemed dividend can be taxed only in the hands of a registered shareholders and the lender. For this, he drew our attention to shareholdings patterns of various lenders as well as the borrowers at page no.409 to 420 of the assessment order.

Page 135 of 144 v) He further submitted that in case of DLF Commercial Developers Ltd., the assessee has given more money then what it received from that company. vi) He further stated that the money is representing the book entry against purchase of agreement of various properties and, therefore, it cannot be charged to tax u/s 2(22) (e) of the Act. He relied on the decision of Sunil Sethi vs. DCIT – 26 SOT 95 (Del.). Regarding the contention that book entries cannot be taxed, he relied on the decision of Hon’ble Delhi High Court in CIT vs. Raj Kumar – 181 taxman 155 (Del.). vii) He further submitted that according to the decision of Hon’ble Delhi High Court in the case of CIT V Ankitech Pvt. Ltd.[2011] 11 taxmann.com 100 (Delhi). He further relied on the decision of AR CIT V A R Mangnetics Private Limited – 220 taxman 209.[Delhi] 264. We have carefully considered the rival contentions. We discuss the each of the issue as under :- (i) Regarding Rs 257950/- received from the customers of DCDL assessee is the holding company of the lender DCDL. DCDL had on the date of giving these loans to the parent assessee company who is holding 100% share in this company there was reserve and surplus of Rs.216,05,69,000/- and on various dates mentioned Rs.2,57,970/- were advance by the company DCDL to the shareholders DLF Ltd. It is an accepted fact that this amount is for the business purposes as receipt of amount from customers of DLF commercials developers limited in respect to sale of property by DLF Commercial developers limited. Ld. AR has further stated that in fact appellant has given loan to this party and balance receivable prior to the amount received on behalf of the customer of that company was RS 2046054553/-. Therefore in fact there is debit balance of that party in the books of the assessee and it is not correct that assessee has received any sum as loan from DLF Commercial |Developers Limited. Hence there is no loan from subsidiary to the holding company. Hence to this amount the provisions of section 2 (22) (e) cannot be applied. (ii) Regarding the sum of Rs .34,84,265/- on a/c of deemed dividend in spite of fact that said amount was advanced by M/s DLF Financial Services ltd (DFCL) to the assessee company, and the assessee company was a holding company of DFCL, and thus attracting the provisions of section 2(22)(e) of the Act. In fact this amount is Rs 3023187/- and not 3484265/- as per page no 422 of assessment order. AR submitted that this sum is in two parts i.e. (1) Rs 509265/- is representing book entry against purchase of property and (2) Rs 2975000/-

Page 136 of 144 against sale of property. This assertion of assessee is supported by the copies of relevant agreement filed before AO. It was also submitted by the assessee before CIT (A) that it is incorrect assumption of facts by ld. AO that subsequently agreements of purchase of property were cancelled. Hence these advances are for the business purposes. Hon Punjab & Haryana high court in CIT v Amrik singh [2015] 56 taxmann.com 460/231 Taxman 731 (Punj. & Har.) has held that “6. A perusal of the facts and the above extract reveals that the revenue failed to adduce any evidence to prove that the transaction between the assessee and the company was a mere smoke screen to cover a surreptitious payment of money to a share holder. M/s Nexo Products (India) received certain export orders but was not in a position to execute the orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. The Company, therefore, entered into an agreement, dated 1.8.2007 with the assessee to install plant and machinery at his premises to enable the assessee to do job work for the company, at 10% below the prevailing market rate. The Assessing Officer did not doubt this agreement or these facts. The assessee having proved a tangible business expediency between the assessee and the company, the question of invoking Section 2(22) (e) of the Act does not arise. The Income Tax Appellate Tribunal has after considering these facts rightly held that as the assessee has proved business expediency the advance is not covered by Section 2(22) (e) of the Act. We find no reason whether in law or in fact to interfere with these findings of facts, which are neither perverse nor arbitrary. The question of law is, therefore, answered against the revenue and the appeal is dismissed.” SLP against this decision has been dismissed in [2015] 62 taxmann.com 213 (SC). Therefore it is evident that in absence of the finding that the agreements are smoke screen created by the assessee it is now established position of law that provisions of section 2(22) ( e) cannot be invoked in case of business advances. In this case there is an agreement for transaction of property for which agreement is entered in to between the parties and further such agreement has not been cancelled and AO has not rebutted this facts in remand report it is accepted fact that the advances are business advances. Therefore as held in the decision of Punjab and Haryana High court decision this amounts cannot be taxed u/s 2(22) ( e) of the act. Hence we confirm the decision of CIT (A) in deleting the addition of Rs. 3023187/-.

Page 137 of 144 (iii) Regarding addition of Rs 126000000/-in respect of loan received by assessee from Bourka Financial services limited. Assessee has submitted before AO that the payments is against the booking of property to substantiate this assessee submitted the copy of the agreements as well as the balance sheet of Bhoruka Financial services Limited showing that assessee does not hold any share in that company. Ld. AO was of the view that as assessee holds 1000 % shares in DLF Commercial Developers Limited and DLF commercial developers Limited holds 98.74 % shares of Bhoruka Limited therefore the condition of 10 % holding in payee company and 20 in recipient company is satisfied. Further honourable Delhi High court in case of CIT V A R magnetic Limited 2013 ] 40 taxmann.com 392 (Delhi) Commissioner of Income- tax v.AR Magnetics (P.) Ltd. has held as under :- “2. The respondent-assessee is a company and had received loan from another company Arcon (India) Pvt. Ltd. The respondent-assessee is not a shareholder in Arcon (India) Pvt. Ltd. The Assessing Officer, however, made an addition by invoking the provisions of deemed dividend under section 2(22)(e) of the Act on the ground that one Sanjay Bhaskar held more than 50.49 per cent of the shares in Arcon (India) Pvt. Ltd. and also held 99.98 per cent of Shares in the respondent-assessee. The aforesaid addition made under section 2(22)(e) was upheld by the Commissioner of Income-tax (Appeals). 3. The Tribunal has, however, deleted the said addition following decision of the jurisdictional High Court in CIT v. Ankitech (P.) Ltd. [2011] 199 Taxman 341/11 taxmann.com 100/[2012] 340 ITR 14 (Delhi). The said decision has been held that deemed dividend provisions cannot be invoked in such cases because the shareholders are common.” Therefore for the reason that the business advances have not been disputed by the AO and further merely common shareholding cannot be the cause for invoking section 2 (22) ( e) of the Act. Therefore this amount also cannot be taxed u/s 2(22) ( e) of the act as these are business advances. (iv) Regarding the addition on protective basis it is accepted fact that assessee is not a registered shareholder of these companies who advanced loan to other companies. It is also not established that assessee is the beneficiary

Page 138 of 144 of these loans. Honourable Delhi high court has held in case of CIT V C J Internationals Limited 372 ITR 364 ( Del) as under :-

“11. So far as the question on the merits, i.e., applicability of Section 2 (22) (e) goes we are of the opinion that on both counts, the Revenue has to fail. Concededly, the individual Harjit Kaur was not a shareholder of the present assessee but rather the shareholder of another concern which held shares in assessee company. In Ankitech (P.) Ltd. (supra) - and later in National Travel Service, the Court underlines the need to limit the application of a fiction which otherwise would follow its own path by stating as follows: — "Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under section 2 (22) (e) of the Act. We have to keep in mind that this legal provision relates to 'dividend'. Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to 'shareholder'. When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under section 2 (22) (e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under section 2 (22) (e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a share holder/member of the payer company. Therefore, under no circumstances, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsel for the Revenue would stand answered, once we look into the matter from this perspective."

Page 139 of 144 12. Later, with respect to the mandatory need to fulfil both pre- conditions which are conjunctive and not dis-conjunctive, as is now sought to be argued by the Revenue, too, Ankitech (P.) Ltd. (supra) was decisive: "The expression 'shareholder being a person who is the beneficial owner of shares' referred to in the first limb of section 2 (22) (e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provision of section 2 (22) (e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the first limb of the provisions of section 2 (22) (e) will not apply." 13. It is, therefore, clear that in the absence of any finding that Harjit Kaur owned the shares in terms of Section 201A or was beneficial owner in terms of such provision - on both counts - the findings being adverse to the Revenue, no question of law arises.” (v) Further the decision relied up on by the Ld. DR on Star Chemicals Limited V CIT 203 ITR 11 ( Bom ) was not on the issue of business advances. Further decision of Sadhana Textile Mills P Limited V CIT 188 ITR 318 (Bom) was whether the provision of section 2 (22) (e) applies to a corporate entity or not. This is not the case where it is considering the advances with the business purposes. Same is the case with the other decisions n relied up on by the ld. DR. However all these decisions do not apply in case of advances made with a business purposes. As already stated that decision of Honourable Punjab and Haryana High court in case of CIT V Amrik Singh ( Supra) all these decisions become irrelevant in case of business advances. (vi) Therefore as the assessee is not a shareholders of the lender companies deemed dividend cannot be taxed in the hands of the assessee u/s 2 (22) (e) of the Act on protective basis. Therefore we confirm the order of CIT (A). 265. In view of the above facts the ground no 32 to 35 of the appeal are dismissed. 266. The ground no 36 of the appeal is as under :-

Page 140 of 144 36. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.1,94,78,538/- on a/c of personal expenditure made by the AO u/s 40A(2) of the IT Act . 267. These expenditure are incurred by the assessee on travelling expenses and other expenses in the nature of entertainment expenses, broadband expenses etc. for directors at their residences , entertainment expenses of the guest of the company and business delegates in the nature of food stay and other incidental expenses. AO has treated these expenditure as personal expenditure and applied the provision of section 40A (2) of the act and disallowed it. On Appeal CIT (A)allowed these expenses holding as under “30.11 I have carefully considered the assessment order, remand report and the submissions made by the Ld. AR. With regard to disallowance of revenue expenses of Rs.1,94,78,538/- disallowed by the AO by holding such expenses being in the nature of personal expenditure disallowable u/s 40A(2) of the Act, it is noted that these expenses are for official journey by the officers of the company, and other expenses in the nature of entertainment of official guests and broad band charges etc. for official use. These expenses have been found to have been incurred only an exclusively for the purpose of business and are therefore, not disallowable u/s 40A(2) of the Act. The impugned amount of Rs.1,94,78,538/- is, therefore, deleted. “ 268. Before us Ld. DR relied on the order of AO and submitted that these expenditure are personal expenditure in nature and are rightly disallowed by AO. Against this Ld. AR relied on the order of CIT (A). 269. We have carefully considered the detail of expenditure stated at page no 439 to 442 of the assessment order. Expenses incurred are in the nature of broadband charges, travelling expenses of directors, entertainment expenses of the guests of the companies. It also includes foreign travel expenses of directors where foreign tour report is also submitted by the assessee before AO. No infirmity in the order of ld. CIT (A) was pointed out and therefore we confirm the findings of CIT (A) in deleting this disallowance. In the Result ground no 36 of the appeal is dismissed. 270. Ground No 37 of the appeal is as under :- 37. That on the facts & circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.1,93,38,906/- on a/c of brokerage, maintenance and professional charges paid to group companies which were either not legal or capital in nature as it was given for providing necessary information about land across India. 271. Ground No.37 is against deleting the disallowance of Rs.1,93,38,906/-/- on a/c of brokerage, maintenance and professional charges paid to group companies which were either not legal or

Page 141 of 144 capital in nature as it was given for providing necessary information about land across India. Main reason for disallowance is that Expenditure paid to DLF Services Ltd. on account of maintenance charges is being disallowed keeping in view the judgement of the Honourable P & H High Court holding that these expenses are illegal in nature amounting to Rs.96,34.580/- and Rs.25,05.315- on -account of professional charges paid to Delanco Real Estate, a subsidiary of a company as being in capital in nature as it was allegedly given for providing necessary information about land across India. For Which no evidences was submitted regarding rendering of the services. Therefore making total addition on these account of Rs.1,93.38,906/-. Ld. CIT (A) has deleted this addition holding that :- “30.12 As regards disallowance of Rs.1,93,38,906/- in respect of expenditure held by the AO to be in the nature of personal expenditure it is noted that this amount is brokerage and maintenance charges paid by the assessee to its group company. It is noted that these are maintenance charges paid by the appellant in respect of various buildings owned by it and for which maintenance services are rendered by the payee group company. Besides the payment to group company this amount includes professional charges paid to Delanco Real Estate Pvt. Ltd. for providing professional services about the land & building. Since the appellant is in the business of real estate development such services are related to the business activities of the appellant and therefore, disallowance of Rs.1,93,38,906/- made by the AO is deleted.

Page 142 of 144 company and thus it was not established that such expenses were laid out wholly and exclusively for the purpose of the business of the assessee company. 274. Ground No.38 is against deleting the disallowance of Rs.13,48,804/- made b the AO because the vouchers/bills against such expenditure were not in the name of assessee company and thus it was not established that such expenses were laid out wholly and exclusively for the purpose of the business of the assessee company. The details of these expenses are at page no 445 of the assessment order where in the bills are in nature of electricity bills of the property taken on rent. AO disallowed it as the bills are not in the e name of the assessee. CIT (A) deleted this disallowance 275. Ld. DR supported the order of the AO whereas ld. AR supported the order of the CIT (A). 276. We have noted that most of these expenses are in the nature of electricity expenses of the property taken on rent by the assessee that was explained to the AO by assessee however same were disallowed. Naturally the electricity bill would be in the name of owner of the property and not tenant in case the property is rented. Therefore we do not find any infirmity in the order of CIT (A) in deleting disallowance. In the result ground no 38 of the appeal is dismissed. 277. Ground no 39 of the appeal is a s under :- 39. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the proportionate disallowance of Rs.1,77,32,060/- made by the AO on the ground that benefit of these expenditures were enjoyed by the group companies also. 278. Ground No.39 is against deleting the proportionate disallowance of Rs.1,77,32,060/- made by the AO on the ground that benefit of these expenditures were enjoyed by the group companies also. Disallowance of Rs.1,77,32,060/- by the AO on the ground that the benefit of this expenditure has been received by the group companies and therefore, proportionate expenses are disallowable 279. Ld DR Relied up on the order of AO and Learned AR relied on the order of CIT (A). 280. We have carefully considered the rival contentions. Ld. CIT (A) has deleted the addition as under :- “30.16 Regarding disallowance of Rs.1,77,32,060/- by the AO on the ground that the benefit of this expenditure has been received by the group companies and therefore, proportionate expenses are disallowable. It is noted that this is a double disallowance, as detailed in the earlier part of my order, and therefore, this disallowance is also deleted.

Page 143 of 144 30.17 I have considered the facts on record, observations of the AO in the assessment order and written submissions of the appellant. From the details and other material on record, it is noticed that these expenses have been incurred by the appellant wholly and exclusively for the purpose of his business and are allowable deduction u/s 37(1) of the Income Tax Act. It is also noted that there is a double disallowance to the extent of Rs.1,77,32,060/-. The AO has not disputed the factual position contained in the submissions of the appellant in his comment on the grounds of appeal and the submissions of the appellant. Considering the above, the addition of Rs.1,77,32,060/- is deleted.” Ld. DR could not point out any infirmity in the order of CIT (A). Therefore we 281. confirm the order of CIT (A) where in disallowance of Rs 1,77,32,060/- is deleted. In the result ground no 39 of the appeal is deleted. 282. Ground No 40 of the appeal is as under :- 40. That on the facts & Circumstances of the case the ld. CIT(A) erred in deleting the disallowance of Rs.6,50,000/- made by the AO on the ground that neither any details nor any bill / vouchers were produced before him. 283. Ground No.40 is against deleting the disallowance of Rs.6,50,000/- made by the AO on the ground that neither any detail nor any bill/ vouchers were produced before him. 284. Ld DR relied on the order of AO and Ld. AR relied on the order of CIT (A) . 285. On looking at the expenses of Rs 6,50,000/- it is on account of the amalgamation of assessee with DLF power limited. We have carefully considered the rival contentions. Hon Supreme court has held in Commissioner of Income Tax vs. Bombay Dyeing and Manufacturing Company Ltd [ 219 ITR 521] that legal and professional expenses in respect of amalgamation were allowable as revenue expenditure and are allowable. . Therefore we confirm the finding of CIT (A) and delete the disallowance of Rs 6,50,000/-. Ground no 40 of the appeal is dismissed. 286. In the result appeal of the revenue is partly allowed. Order pronounced in open court on this 11th day of March, 2016. Sd/- Sd/- (A.T.VARKEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 11th day of March, 2016/TS

Page 144 of 144 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-28, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.