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2015 (1) TMI 967 - AT - Income TaxDisallowance of assessee s claim for deduction under S.80IB(10) - apportionment of indirect expenses - Held that - It is no doubt true that the turnover of the project involving only sale of land cannot be equated with or compared with the turnover of the project which involved construction and sale of a commercial or residential building for the purpose of apportionment of indirect expenses incurred by the assessee company in the construction Division and this position is not disputed even by the learned counsel for the assessee. At the same time, it is also true that it cannot be said that the activity involving purchase and sale of land does not require incurring of any indirect expense, which mainly involved general administrative expenses and this position is not disputed even by the Learned Departmental Representative. In this situation, neither the apportionment of indirect expenses made by the assessee on the basis of sales nor the apportionment of indirect expenses made by the Assessing Officer on the basis of sales but excluding the sale of land, can be said to be correct. Thus it would be fair and reasonable to make such apportionment of indirect expenses in the ratio of 4 1 in the case of turnover of projects involving construction and sale of commercial and residential buildings, and projects involving only sale of lands. It means that the turnover of sale of land should be taken only to the extent of 25% while making the apportionment of indirect cost to different projects and based on such apportionment, the profit of different projects eligible for deduction under S.80IB has to be worked out. Accordingly, we direct the AO to recompute the deduction allowable to the assessee under S.80IB - Decided partly in favour of assessee. Addition on account of interest income - assessee had completed FCCB issue - Held that - there being no nexus between the interest income received by the assessee on bank deposits and the expenses incurred in connection with FCCB issue, the netting of interest income against such expenditure as done by the assessee is not permissible and the learned counsel for the assessee has also not been able to establish before us any such nexus. We therefore find no justifiable reason to interfere with the impugned order of the learned CIT(A) confirming the addition made by the Assessing Officer to the total income of the assessee on account of interest income received on bank deposits, treating the same as receipt of revenue nature taxable in the hands of the assessee. - Decided against assessee. Apportionment of managerial commission between the construction and hospitality Divisions - Held that - As rightly submitted by the Learned Departmental Representative, the basis of allocation of managerial commission of ₹ 2.93 crores out of total of ₹ 5.45 Crores to the Hospitality Division in spite of lower turnover and loss shown by the said Division has not explained by the assessee before the authorities below and even at the time of hearing before us, the learned counsel for the assessee has not been able to explain any such basis satisfactorily. As rightly observed by the learned CIT(A) in his impugned order, managerial commission is generally paid on the basis of performance of the company as reflected in the profitability and since the Hospitality Division had suffered a loss for the year under consideration, there was no justification on the part of the assessee to allocate more managerial commission to the Hospitality Division and less to the Construction Division, which was performing better and earning good profits. As rightly submitted by the learned Departmental Representative, this was done apparently by the assessee to show more profit in Construction Division, in order to claim more deduction under S.80IA. As such, having regard to all the facts and circumstances of the case, we are of the view that allocation of managerial commission done by the authorities below on the basis of sales of the two Divisions of the assessee is fair and reasonable. - Decided against assessee. Disallowance of interest - Held that - In the absence of any documentary evidence, we agree with the learned CIT(A) that the claim of the assessee for such commercial expediency is not substantiated by the documentary evidence and it is thus a case of diversion of interest bearing borrowed funds by the assessee to give interest free advances to its subsidiaries, other than for business purposes, as rightly held by the Assessing Officer. The interest attributable to such advances thus was rightly disallowed by the Assessing Officer, and we find no infirmity in the impugned order of the learned CIT(A) confirming the said disallowance. - Decided against assessee. Adoption of sale consideration - addition was made u/s. 69 - Held that - The learned CIT(A) restricted the addition of ₹ 72,67,000 made by the Assessing Officer under S.69 to ₹ 60 lakhs, but without dealing with the argument of the assessee that extra consideration allegedly received by the assessee on sale of land could not be added under S.69. Moreover, the consideration received by the assessee against the sale of land, as stated in the relevant agreement, was ₹ 16,87,500 and not ₹ 56 lakhs as taken by the learned CIT(A), while sustaining the addition to the extent of ₹ 60 lakhs and relying on this sale consideration mentioned in the relevant sale deed, the Revenue has raised an issue in its appeal that the learned CIT(A) should have enhanced the income of the assessee on this issue. The learned counsel for the assessee has also raised the plea that the amount of addition made by the Assessing Officer and sustained by the learned CIT(A) is based on the statement of Shri G.Nageswra Reddy recorded during the course of survey, but the copy of the said statement was never made available to the assessee before using the same as evidence against the assessee to make the impugned addition. Thus we consider it fair and proper and in the in the interests of justice to set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh - Decided in favour of assessee for statistical purposes. Difference in total income - CIT(A) reduced the hedging loss of ₹ 4.86 crores from the returned income as acception addition evidence of assessee - Held that - As rightly submitted by the Learned Departmental Representative, the claim of the assessee for hedging loss of ₹ 4.,86 crores made for the first time before the learned CIT(A) was accepted by him, without giving any opportunity to the Assessing Officer to verify the same in the light of the relevant details furnished by the assessee in this regard as well as the evidence filed in support. Thus there is clear violation of Rule 46A of the Income-tax Rules 1962 by the learned CIT(A), while giving relief to the assessee on this issue and this position is not disputed even by the learned counsel for the assessee at the time of hearing before us - matter is restored to the file of the Assessing Officer for deciding the same afresh. - Decided in favour of revenue for statisticl purposes. Disallowance u/s 14A read with Rule 8D - CIT(A) deleted addition - Held that - All the facts and figures furnished by the assessee before the learned CIT(A) and relied upon by him to give relief to the assessee on this issue, were not furnished before the Assessing Officer during the course of assessment proceedings and the Assessing Officer therefore had no opportunity to verify the same.We find merit in this contention of the Learned Departmental Representative. Accordingly, we set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer for the limited purpose of verifying the stand of the assessee that sufficient own funds were available with it for making the investments in the shares of other companies and that the interest bearing borrowed funds were not utilised for making such investments. If the claim of the assessee is found to be correct on such verification, the Assessing Officer shall not make any disallowance under S.14A. - Decided in fvaour of revenue for statistical purposes.
Issues Involved:
1. Disallowance of deduction under S.80IB(10) 2. Addition of interest income 3. Apportionment of managerial commission 4. Apportionment of indirect costs 5. Disallowance of interest on advances to subsidiaries 6. Addition based on alleged extra consideration for land sale 7. Acceptance of hedging loss claim without verification 8. Disallowance under S.14A Detailed Analysis: 1. Disallowance of Deduction under S.80IB(10): The assessee's claim for deduction under S.80IB(10) was disallowed by the Assessing Officer (AO) to the extent of Rs. 59,49,280. The AO found that the total sales included land-related sales, which had negligible indirect costs. Consequently, the AO reallocated indirect costs excluding land sales, resulting in reduced eligible deduction. The CIT(A) upheld this reallocation. However, the Tribunal found that neither the assessee's nor the AO's method was correct and directed a fair apportionment in the ratio of 4:1 for construction projects versus land sales, directing the AO to recompute the deduction. 2. Addition of Interest Income: The AO added Rs. 14,39,614 as interest income received on bank deposits made from FCCB proceeds, treating it as revenue receipt. The CIT(A) confirmed this addition. The Tribunal upheld the decision, agreeing that there was no nexus between the interest income and FCCB expenditure, dismissing the assessee's appeal on this ground. 3. Apportionment of Managerial Commission: For assessment year 2007-08, the AO reallocated managerial commission between the Hospitality and Construction Divisions based on sales, as the Hospitality Division, despite lower turnover and losses, was allocated a higher commission. The CIT(A) upheld this reallocation. The Tribunal agreed, noting the lack of justification for the higher allocation to the Hospitality Division, and dismissed the assessee's appeal on this issue. 4. Apportionment of Indirect Costs: The issue of apportioning indirect costs for computing deduction under S.80IB was similar across multiple years. The Tribunal followed its decision for 2006-07, directing the AO to consider only 25% of land sales turnover for apportioning indirect costs and recompute the eligible deduction, partly allowing the appeals. 5. Disallowance of Interest on Advances to Subsidiaries: The AO disallowed interest attributable to interest-free advances given to subsidiaries, finding no commercial expediency. The CIT(A) confirmed this disallowance. The Tribunal upheld the decision, noting the lack of documentary evidence to support the assessee's claim of commercial expediency, dismissing the assessee's appeal on this ground. 6. Addition Based on Alleged Extra Consideration for Land Sale: The AO added Rs. 72,67,000 as unexplained investment based on a third party's statement during a survey. The CIT(A) found a factual inaccuracy and reduced the addition to Rs. 60,00,000. The Tribunal found contradictions in the AO's findings and the sale agreements, setting aside the CIT(A)'s order and remanding the matter to the AO for fresh verification and decision. 7. Acceptance of Hedging Loss Claim Without Verification: The CIT(A) accepted the assessee's claim for hedging loss, reducing the returned income without giving the AO a chance to verify the claim. The Tribunal found this in violation of Rule 46A and remanded the matter to the AO for verification and fresh decision. 8. Disallowance under S.14A: The AO disallowed Rs. 2,42,49,117 under S.14A, attributing interest expenditure to investments in shares. The CIT(A) deleted the disallowance, finding no nexus between borrowed funds and investments. The Tribunal remanded the matter to the AO to verify the assessee's claim of using own funds for investments and decide afresh. Conclusion: - The assessee's appeal for 2006-07 was partly allowed. - Cross appeals for 2007-08 were partly allowed for statistical purposes. - Revenue's appeal for 2008-09 was partly allowed. - Revenue's appeal for 2009-10 was allowed for statistical purposes.
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