2014 (8) TMI 423 - HC - Income Tax

Restriction of land development expenses Held that - The Tribunal in assessee s own case was of the view that there is a mistake apparent on record - the total disallowance including the offer made by the assessee should not exceed 10% of the land development expenses incurred in cash by the assessee - in any of the the assessment years in case the offer made by the assessee is more than 10% of land development expenses incurred in cash - assessee is also not aggrieved by the subsequent order passed by the Tribunal Decided against Revenue. Interest free funds disallowed No evidence for advances given Held that - The Tribunal in assessee s own case was of the view that the Department has not produced before the Court any iota of material rebutting the finding arrived at by the Tribunal revenue has also not pointed out any specific error of law committed by the Tribunal monies have not been advanced during the year and they were advanced in earlier years out of interest free funds and, therefore, there is no diversion of borrowed funds by the assessee for non-business purposes - Decided against Revenue. Depreciation on roads and electrical fittings Held that - The roads connect the various amusement rides within the park with one another CIT(A) as well as the Tribunal proceeded on the basis that the roads are not adjunct to any buildings and it cannot be classified under buildings for depreciation purposes - A reading of the provision makes it clear that building includes roads, bridges, culverts, wells and tubewells - The provision is not restricted to only roads adjacent to buildings CIT(A) as well as the Tribunal have not considered the aspect fell into error in accepting the assessee's plea that 20% depreciation on roads and electrical fittings should be allowed - the AO was justified in restricting depreciation to 10% and 15% - Decided in favour of Revenue. Drawings by the Directors debited under the head sales promotion and travelling expenses Held that - There is a clear admission by the Director that the personal expenses are met out of the bank accounts of the assessee only - credit card expenses, foreign travel expenses of directors, household expenses, etc. are debited under the head Sales Promotion and Travelling Expenses in the VGP Housing (P) Ltd / VGP & Co Pvt Ltd books of account the issue relating to deleting the addition on account of drawings of directors should be considered by the AO on merits based on materials to be produced by the assessee thus, the matter is remitted back to the AO Decided in favour of Revenue.

Summary

Issues Involved:
1. Disallowance of land development expenses.
2. Deletion of interest disallowance.
3. Depreciation on roads and electrical fittings.
4. Addition on account of drawings of directors.

Issue-wise Detailed Analysis:

1. Disallowance of Land Development Expenses:

The Tribunal directed the Assessing Officer to restrict the disallowance of expenses towards land development incurred in cash to 10%, including the offer made by the assessee. The Revenue's plea was that the Tribunal should not have included the offer made by the assessee within the 10% disallowance limit. However, this was clarified by the Tribunal in a subsequent order dated 7.6.2013, stating that if the offer made by the assessee exceeds 10%, the disallowance should be restricted to the offer made by the assessee. In view of this clarification, the substantial questions of law (1) and (2) do not require further consideration.

2. Deletion of Interest Disallowance:

The Assessing Officer disallowed interest on the grounds that the assessee extended loans to its group companies without interest. The Commissioner of Income Tax (Appeals) deleted the disallowance, stating that the advances were made in earlier years out of interest-free funds. The Tribunal confirmed this, noting that a similar issue had been resolved in favor of the assessee in a previous case, which the Revenue did not appeal. The Department failed to provide any material to rebut the Tribunal's findings. Therefore, this substantial question of law is answered against the Revenue.

3. Depreciation on Roads and Electrical Fittings:

The Assessing Officer restricted depreciation to 10% and 15%, but the Commissioner of Income Tax (Appeals) allowed 20% depreciation, relying on judicial precedents. The Tribunal upheld this decision. However, the Court noted that the relevant provision in Old Appendix-I includes roads under buildings for depreciation purposes, which was not considered by the lower authorities. Consequently, the Court held that the Assessing Officer was justified in restricting depreciation to 10% and 15%, answering this substantial question of law in favor of the Revenue.

4. Addition on Account of Drawings of Directors:

The Commissioner of Income Tax (Appeals) and the Tribunal accepted the assessee's contention that the drawings were debited to the partnership firm and shown as recoverable. However, the Court found a clear contradiction between the Director's statement, which admitted that personal expenses were met from the company's accounts, and the findings of the appellate authorities. The Court remanded the issue to the Assessing Officer to be decided on merits based on materials to be produced by the assessee, thus requiring further examination.

Conclusion:

The appeals are disposed of with the substantial questions of law answered as detailed above. No costs were awarded, and related petitions were closed.