2020 (9) TMI 1239 - AT - Income Tax

Disallowance of expenses as personal in nature - HELD THAT - the company cannot have any personal expenditure as it is a distinct assessable entity is per definition of person u/s 2 (31) of the act. Such is also the mandate of the decision of Honourable Gujarat High Court in 2001 (7) TMI 70 - GUJARAT HIGH COURT -CIT-A has also followed the same. In view of this we do not find any infirmity in the order of the learned CIT-A in deleting the disallowance is of expenses. Accordingly ground number 16 of the appeal is dismissed. Addition on account of carbon credits - HELD THAT - As decided in case of Andhra Pradesh High Court 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT deleting the addition on account of Carbon credit receipt holding the same to be a capital receipt. Accordingly ground as dismissed. Disallowance of legal and professional expenses paid - AO disallowed the above expenditure holding that the assessee has failed to prove the business expediency and further as there is no clause in the agreement which describes the nature of services rendered by that service provider - HELD THAT - CIT-A following the decision of the honourable Delhi High Court 2001 (9) TMI 48 - DELHI HIGH COURT allowed the claim of the assessee. He further held that the term commercial expediency is to be judged from the angle of the assessee/businessman. With respect to the provision of the services he also held that services have been availed by the assessee in earlier years also. Accordingly he deleted the disallowance. DR could not controvert the decision of the learned and CIT-A. We also find that when the expenditure has been allowed to the assessee in earlier year no new facts are coming into the knowledge of the assessing officer which proves otherwise the agreement supports the payment the recipient was providing services to the company he was also an employee of the group concern and the services of that gentleman availed by the assessee during the year the disallowance has rightly been deleted.

Issues Involved:
1. Addition on account of notional rent.
2. Disallowance of legal and professional expenses.
3. Deduction u/s 80IAB of the Income Tax Act.
4. Allocation of expenses from non-SEZ to SEZ projects.
5. Revenue recognition as per POCM.
6. Interest capitalization.
7. Brokerage and commission disallowance.
8. Contingency deposits.
9. Interest-free security deposit.
10. Registration charges received from customers.
11. Non-allocation of proportionate overheads to group companies.
12. Disallowance u/s 14A.
13. Reclassification of income from house property.
14. Notional rental income on vacant/leased properties.
15. Recalculation of depreciation.
16. Disallowance of prior period expenses.
17. Capital nature of certain expenses.
18. Disallowance of personal nature expenses.
19. Notional interest undercharged.
20. Carbon credit addition.
21. Legal and professional expenses paid to Mr. Ajay Khanna.
22. Non-allocation of proportionate overhead expenditure to windmills.

Detailed Analysis:

1. Addition on account of notional rent:
The assessee contested the addition of Rs. 6,48,480/- made by the AO on account of notional rent where security deposits were received but no rental income was shown. The Tribunal noted that this issue was already covered in favor of the assessee by previous orders for assessment years 2006-07 and 2008-09. The Tribunal reiterated that the rental income was assigned to DLF Services Ltd. for maintenance services, and the income was taxed in the hands of DLF Services Ltd., resulting in no loss to the revenue. Consequently, the Tribunal allowed this ground in favor of the assessee.

2. Disallowance of legal and professional expenses:
The assessee argued that out of the disallowed amount of Rs. 86,35,131/-, Rs. 79,73,331/- had already been added back in its computation of total income, and the remaining Rs. 6,61,800/- was revenue expenditure. The Tribunal referred to its decision for the assessment year 2010-11 and directed the AO to verify the computation to avoid double disallowance. This ground was set aside for further examination.

3. Deduction u/s 80IAB of the Income Tax Act:
The AO's appeal regarding the deletion of the addition of Rs. 156,70,77,979/- u/s 80IAB was dismissed. The Tribunal noted that this issue was covered in the assessee's favor by previous orders for assessment years 2008-09 and 2010-11.

4. Allocation of expenses from non-SEZ to SEZ projects:
The AO's appeal on the deletion of disallowances of Rs. 81,02,00,000/- was dismissed, as the issue was covered by previous orders and no new facts were presented.

5. Revenue recognition as per POCM:
The AO's appeal on the deletion of disallowance of Rs. 164,38,15,240/- was dismissed, following the Tribunal's earlier decisions.

6. Interest capitalization:
The AO's appeal on the deletion of disallowance of Rs. 128,03,19,000/- was dismissed, as the issue was previously decided in favor of the assessee.

7. Brokerage and commission disallowance:
The AO's appeal on the deletion of disallowance of Rs. 8,42,19,546/- was dismissed, as the Tribunal had previously decided this issue in favor of the assessee.

8. Contingency deposits:
The AO's appeal on the deletion of addition of Rs. 2,13,314/- was dismissed, following earlier Tribunal decisions.

9. Interest-free security deposit:
The AO's appeal on the deletion of addition of Rs. 8,73,812/- was dismissed, as the issue was covered by previous orders.

10. Registration charges received from customers:
The AO's appeal on the deletion of addition of Rs. 4,54,78,414/- was dismissed, following earlier Tribunal decisions.

11. Non-allocation of proportionate overheads to group companies:
The AO's appeal on the deletion of addition of Rs. 9,99,09,626/- was dismissed, as the issue was covered by previous orders.

12. Disallowance u/s 14A:
The AO's appeal on the deletion of addition of Rs. 232,30,96,000/- was dismissed, as the Tribunal had previously decided this issue in favor of the assessee.

13. Reclassification of income from house property:
The AO's appeal on the deletion of addition of Rs. 14,27,57,756/- was dismissed, following earlier Tribunal decisions.

14. Notional rental income on vacant/leased properties:
The AO's appeal on the deletion of addition of Rs. 8,49,930/- was dismissed, as the issue was covered by previous orders.

15. Recalculation of depreciation:
The AO's appeal on the deletion of addition of Rs. 5,01,672/- was dismissed, following earlier Tribunal decisions.

16. Disallowance of prior period expenses:
The AO's appeal on the deletion of addition of Rs. 87,65,346/- was dismissed, as the issue was covered by previous orders.

17. Capital nature of certain expenses:
The AO's appeal on the deletion of addition of Rs. 6,66,91,587/- was dismissed, following earlier Tribunal decisions.

18. Disallowance of personal nature expenses:
The AO's appeal on the deletion of addition of Rs. 23,440,014/- was dismissed. The Tribunal noted that a company cannot have personal expenses, and the disallowance was not justified.

19. Notional interest undercharged:
The AO's appeal on the deletion of addition of Rs. 257,90,00,000/- was dismissed, as the issue was previously decided in favor of the assessee.

20. Carbon credit addition:
The AO's appeal on the addition of Rs. 1,22,34,040/- was dismissed. The Tribunal followed the decision of the Andhra Pradesh High Court, which held that income from carbon credits is a capital receipt and not taxable as business income.

21. Legal and professional expenses paid to Mr. Ajay Khanna:
The AO's appeal on the disallowance of Rs. 3,00,00,000/- was dismissed. The Tribunal found that the expenses were justified, supported by an agreement, and had been allowed in earlier years without any new adverse facts.

22. Non-allocation of proportionate overhead expenditure to windmills:
The AO's appeal on the deletion of addition of Rs. 6,22,00,000/- was dismissed, as the issue was covered by previous orders.

Conclusion:
The appeals filed by the assessee and the AO for the assessment year 2011-12 were disposed of accordingly, with the majority of the AO's grounds being dismissed and the assessee's grounds being allowed or set aside for verification. The Tribunal's order was pronounced in the open court on 29/09/2020.

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