2016 (2) TMI 1084 - AT - Income Tax

Addition on administrative charges on Andrews Ganj Project executed by the assessee for the Ministry of Urban Development, Government of India - Held that - During the year under consideration, the assessee has executed work of ₹ 10.50 crores in respect of Andew Ganj project , but there are no specific findings of authorities below that the work executed was related to community centre or towards residential project. If the work executed is not in respect of Community Centre, then addition cannot be sustained following the judgment of the Hon ble High Court in the case of assessee itself 2014 (11) TMI 17 - DELHI HIGH COURT . In the interest of natural justice, we feel appropriate to restore the matter to the file of the ld Assessing officer for verification of the fact as to whether the work executed during the year on the Andew Ganj project included any work towards Community Centre and if the answer is negative, no addition is warranted on the issue in dispute. Thus, we allow this ground of appeal for statistical purpose. Disallowance of prior period expenditure - Held that - We restore the matter to the file of the Assessing Officer and direct the assessee to furnish complete details of prior period expenses and explain the crystallization of the expenses in the year under consideration. The Assessing Officer is directed to examine the issue afresh. Disallowance of depreciation on estimated increase in cost of properties on account of stamp duty - Held that - In the facts of the case the actual cost of the properties acquired on the basis of agreements can t include the stamp duty or registration charges estimated at the rate of ten percent as same have not been expended or laid out during the year, accordingly, no depreciation on estimated stamp duty or registration charges can be allowed. In case of properties acquired on agreement, the assessee has treated its transfer as completed and the cost till the transfer of property is the actual cost for the purpose of block of assets. If the assessee incurs any cost subsequent to the completion of transfer of property, whether it is for stamp duty or registration charges, it will be an addition to the asset when actually incurred. The stamp duty and registration charges are levied according to the rates prevalent at time of registration, and when that event will happen is not certain in the case of the assessee and thus claiming depreciation on the basis of prior estimate of cost to the asset is not justified. We uphold the disallowance of claim of the depreciation on estimated stamp duty or registration. Disallowance of financial charges written off claimed in the computation of income - Held that - onsistent with the view taken for assessment year 2002-03 2014 (1) TMI 188 - ITAT DELHI we restore the matter to the file of Assessing Officer for fresh adjudication in accordance with law. In the result, this ground of appeal is allowed for statistical purposes. Disallowance u/s 14A - Held that - The recording of the said finding is a clear manifestation that the ld Assessing Officer was dissatisfied with the correctness of the claim of the assessee. We restore the matter to the file of the Assessing Officer for adjudication with the direction to decide the issue in view of the judgement of Jurisdictional High Court in the case of Maxopp Investment Ltd. and Ors. Vs. Commissioner of Income Tax (2011 (11) TMI 267 - Delhi High Court). Accordingly, this ground of appeal is allowed for statistical purposes. Disallowance of revenue de-recognition of the interest corresponding to bad and doubtful debts called as non-performing assets (NPAs) - Held that - We uphold the finding of the ld CIT(A) that the assessee is entitled to deduction as per Rule 6EB of the IT Rules only, but we have seen that the computation was not provided by the assessee during assessment , the ld Assessing Officer computed the disallowance on estimate basis only, thus , we restore the matter to the ld Assessing officer to compute the deduction strictly as per Rule 6EB of IT Rules and allow the deduction accordingly. The ground of the assessee is allowed for statistical purpose only. Addition being the income on account of wrong appropriation - Held that - Entire exercise of adjustment of recovery against the interest income or principal debt is a revenue neutral exercise. In view of above we uphold that in the case of the assessee no addition can be sustained towards appropriation of recovery from defaulting accounts. Accordingly, the ground of the assessee is allowed. Addition on account of change in the method of accounting in booking of expenditure related to forward contract - Held that - In the year under consideration, the assessee changed the method of charging of expenditure due to incorrect understanding of the guidelines of the ICAI, and in view of subsequent clarification , again in subsequent year, the assessee resorted to the old practice of spreading of expenses over the period of contract. The income has to be accrued as per the provisions of the Income-tax Act and there was no change of provisions in this regard for the year under consideration, and thus the action of the assessee in reducing the income by ₹ 1.25 crores was not justified. In our opinion, the ld CIT(A) has rightly sustained the disallowance Non considering the mistakes or omissions in the revised return of income filed by the assessee - Held that - In the case of the assessee the facts whether the change in income or expenditure was on account of change in method of accounting or otherwise is not clear from the facts brought on record by the lower authorities, and thus, we feel it appropriate to restore the matter back to the file of the ld Assessing Officer and decide the issue in accordance to the law. The ground of the appeal is accordingly allowed for statistical purpose. Disallowance of interest payable to the Government by treating the same as notional expenses - Held that - Assessee is entitled to deduct the interest in computing the income

Summary

Issues Involved:
1. Addition of administrative charges on Andrews Ganj Project.
2. Disallowance of prior period expenditure.
3. Disallowance of depreciation on estimated increase in cost of properties.
4. Disallowance of financial charges written off.
5. Disallowance under Section 14A of the Income Tax Act.
6. Disallowance of revenue de-recognition in accounts.
7. Addition on account of wrong appropriation.
8. Addition due to change in the method of accounting.
9. Non-consideration of mistakes in the revised return of income.
10. Disallowance of interest payable to the Government.
11. Mismatch in TDS claimed and credit allowed.
12. Benefit of Incremental Special Reserve on additions/disallowances.

Detailed Analysis:

1. Addition of Administrative Charges on Andrews Ganj Project:
The assessee challenged the addition of Rs. 15,75,000/- made by the Assessing Officer (AO) for administrative charges on the Andrews Ganj Project. The AO added administrative charges at 1.5% of the project cost, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal noted that the Hon'ble High Court had previously ruled in favor of the assessee, stating that no income accrued as the Government of India had not agreed to pay the administrative charges. The Tribunal restored the matter to the AO for verification of whether the work executed included the Community Centre, and if not, no addition was warranted.

2. Disallowance of Prior Period Expenditure:
The AO disallowed Rs. 65 lakhs as prior period expenditure, which was upheld by the CIT(A). The Tribunal noted that the issue was similar to a previous year where it was remanded for verification of whether the expenses crystallized in the year under consideration. The Tribunal restored the matter to the AO for fresh examination and directed the assessee to furnish complete details.

3. Disallowance of Depreciation on Estimated Increase in Cost of Properties:
The AO disallowed Rs. 30,20,512/- claimed as depreciation on estimated stamp duty and registration charges, considering it not part of the actual cost. The CIT(A) upheld this disallowance. The Tribunal agreed with the lower authorities, stating that estimated costs not expended during the year cannot be part of the actual cost, and thus, no depreciation on such estimates can be allowed.

4. Disallowance of Financial Charges Written Off:
The AO disallowed Rs. 3,07,77,527/- claimed as financial charges written off, considering it capital in nature. The CIT(A) upheld this disallowance. The Tribunal restored the matter to the AO for fresh adjudication, consistent with the view taken in earlier years where similar issues were remanded for verification.

5. Disallowance under Section 14A:
The AO disallowed Rs. 3,27,500/- under Section 14A, estimating 25% of the exempt dividend income. The CIT(A) upheld this disallowance. The Tribunal noted that the AO had recorded dissatisfaction with the assessee's claim and restored the matter to the AO for determination in line with the Jurisdictional High Court's judgment in Maxopp Investment Ltd.

6. Disallowance of Revenue De-recognition:
The AO disallowed Rs. 27,06,74,237/- being revenue de-recognition of interest on NPAs, following Rule 6EB of the Income Tax Rules. The CIT(A) upheld this disallowance. The Tribunal upheld the CIT(A)'s decision but restored the matter to the AO for proper computation as per Rule 6EB.

7. Addition on Account of Wrong Appropriation:
The AO added Rs. 4,30,19,888/- due to wrong appropriation of recovery amounts. The CIT(A) upheld this addition. The Tribunal held that the appropriation of recovery against interest or principal is a commercial decision and revenue-neutral, thus no addition can be sustained.

8. Addition Due to Change in Method of Accounting:
The AO added Rs. 1.25 crores due to a change in the method of accounting for forward contract expenses. The CIT(A) upheld this addition. The Tribunal agreed with the lower authorities, stating that the change was not justified, and upheld the disallowance.

9. Non-Consideration of Mistakes in Revised Return:
The AO did not consider the revised return filed under Section 139(5), stating it did not meet the conditions of omission or wrong statement. The CIT(A) upheld this view. The Tribunal restored the matter to the AO for verification and decision in accordance with the law.

10. Disallowance of Interest Payable to Government:
The Tribunal followed its earlier decision in the assessee's case for AY 2000-01, allowing the deduction of interest payable to the Government as it was a definite liability.

11. Mismatch in TDS Claimed and Credit Allowed:
The Tribunal restored the matter to the AO for verification of the TDS claim and directed that the credit be allowed if the corresponding income was shown in the return.

12. Benefit of Incremental Special Reserve on Additions/Disallowances:
The Tribunal restored the matter to the AO to allow enhanced deduction under Section 36(1)(viiia) if the claim of the assessee is finally settled.

Conclusion:
The appeals were partly allowed for statistical purposes, with several issues remanded to the AO for fresh adjudication and verification. The Tribunal emphasized adherence to legal provisions and proper verification of facts in each case.