2024 (11) TMI 313 - AT - Income Tax

Disallowance of prior period expenses - Expenditure not pertaining to the year under consideration - HELD THAT - AR before us fairly submitted that let the details given by the assessee be examined by the ld AO as no finding whatsoever has been given by the ld AO with regard to each of such expenditure. It was always the case of the assessee that this expenditure get crystallized during the year or the details of the incurrence of the said expenditure were received after the completion of the audit of the earlier years. Both these categories of the expenditure were booked by the assessee as prior period expenditure. We find that the genuineness of the said expenditure is not doubted by the lower authorities. The prayer made by the ld AR before us is very fair and hence we deem it fit and appropriate to restore this issue to the file of the ld AO for verification of the fact as to whether the assessee had not claimed the very same expenditure in earlier year - Ground No. 1 raised by the assessee is allowed for statistical purposes. Addition of depreciation on estimated increase in cost of properties - AO observed that the assessee has accounted for estimated cost of 10% towards stamp duty/ registration charges in respect of properties where lease/ sub lease is yet to be executed and has provided depreciation on this addition - HELD THAT - We find that the issue is no longer res integra in view of the decision in assessee s own case where the very same issue has been remitted back to the file of the ld AO for de novo verification for AY 2003-04. We find that the Hon ble Jurisdictional High Court had restored the issue for verification by the ld AO. AR made a statement from the bar that no addition was made by the ld AO up to AY 2009-10 thereof. However, in the interest of justice, we feel it appropriate to restore this issue to the file of the ld AO - Ground No. 2 raised by the assessee is allowed for statistical purposes. Addition on account of revenue de-recognition in the books of the assessee - HELD THAT - The issue in dispute has been decided in favour of the assessee by the Hon'ble Supreme Court in the case of Vashisht Chay Vyapar 2018 (3) TMI 56 - SUPREME COURT But considering the application preferred by the assessee u/s 158A(1) of the Act dated 08.07.2020 in Form 8 which is maintainable, we deem it fit and appropriate to restore this issue to the file of the ld AO to decide based on the final outcome of Hon'ble Supreme Court in assessee s own case on the said issue. In our considered opinion, this would keep the interest of both the parties alive. Accordingly, Ground No. 3 raised by the assessee is allowed for statistical purposes. Addition on account of administrative charges of Andrews Ganj Project - assessee has not shown any income on account of administrative charges of Andrews Ganj Project - HELD THAT - We find that the issue is subject matter of consideration by the Hon ble Jurisdictional High Court in Income Tax Appeal 2014 (11) TMI 17 - DELHI HIGH COURT in assessee s own case for AY 2002-03 answered issue in favour of the appellant-assessee and against the Revenue as held it is an accepted position that the appellant-assessee had never received 1.5% administrative expenses in respect of the residential quarters in Andrews Ganj project. Clearly, therefore, the stand of the appellant-assessee that the notes of the meeting held on 7th September, 1995 related to the development of community centre complex at Andrews Ganj, New Delhi and not to residential quarters is correct. The aforesaid document has been misread. There was no accrual of income in case the Government of India had not agreed to pay any overhead expenses or administrative charges @ 1.5% in respect of residential quarters at Andrews Ganj Complex, New Delhi. Addition on account of expenditure on grants-in-aid - main contention of the ld AO is that expenditure incurred towards grant-in-aid are akin to donation paid by the assessee. Hence, the same cannot be treated as having been incurred wholly and exclusively for the purpose of business of the assessee, and hence not allowable as deduction - HELD THAT - We hold that assessee would be entitled for deduction in respect of grant-in-aid expended by it on the ground that same are to be construed as wholly and exclusively incurred for the purpose of business of the assessee. Accordingly, ground No. 5 raised by the assessee is allowed. Addition on account of revenue recognition on realization basis in respect of loan application fees, front-end fees, administrative fee and processing fees of loans as against accrual basis - HELD THAT - First of all loan processing/ front-end fees becomes payable to the company only when the loan is actually disbursed and not when the loan is sanctioned. There is no certainty as to when the concerned borrower would draw the loan amount from the assessee. Hence, taxing the loan processing fee, front-end fee etc on accrual basis would be wrong as there is no certainty of its realization. Further, C AG had also directed the assessee to recognize income respect of these services on realization basis instead of accrual basis by duly appreciating the fact that there is no certainty of its realization. Further, this is done only for Government borrowers by the assessee because the Government may choose not to draw the disbursement from the assessee, even though the loan is sanctioned to it. Depending upon the political climate, financial need and the financial strain that could be managed or tolerated by the particular Government, the decision to draw the sanctioned amount from the assessee company would be taken by the respective Government borrowers. All these factors are certainly beyond the reach and control of the assessee company. Hence, it could be safely concluded that there is no certainty of realization of the fees in the form of loan processing fees, application fee, front-end fee etc. Hence, we find that C AG had directly directed the assessee to recognize income on receipt basis in respect of these services qua Government borrowers. Further, we find that the issue in dispute is no longer res integra in view of the decision of the Hon ble Jurisdictional High Court in assessee s own case for Assessment Year 2007-08 reported in 2020 (2) TMI 372 - DELHI HIGH COURT . We find that there is no absolutely no basis at all for the revenue to tax a sum as it is made purely only on ad hoc basis - Ground raised by the assessee is hereby allowed. Disallowance u/s 14A - HELD THAT - We find that the assessee had derived exempt income and had duly offered the same to tax in the return of income itself. Hence, there was no exempt income claimed by the assessee at all warranting application of application of provision of Section 14A of the Act. See Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT Accordingly Ground raised by the assessee is allowed. Seeking correct TDS credit - This matter requires factual verification by the ld AO and accordingly the ld AO is directed to decide this issue in accordance with law after considering all the explanations and documents submitted by the assessee in support of its contention. Accordingly, Ground allowed for statistical purposes. Addition on account of capitalization of financial charges written off - assessee submitted that these financial expenses were incurred by it on account of deferred expenditure on the issue of bonds and term loans in its books of account whereas, the same were fully claimed as deduction in the year on incurrence for the purpose of computing the taxable income - HELD THAT - The issue in dispute is squarely covered by the decision of IRFC Ltd 2014 (6) TMI 224 - DELHI HIGH COURT held that respondent-assessee was/is a Government of India undertaking and was engaged in the business of leasing and financing to Indian Railways. It procured funds from various sources and acquired rolling stock which was leased to Indian Railways. The expenditure which was incurred on bonds was for ensuring finance and availability of funds for carrying out the business of finance and leasing. To procure and get funds in the form of bonds etc, some expenditure had to be incurred. These funds, when procured, were used for the business activities to earn income. It is not a case wherein the respondent-assessee was yet to set up or commence their business. The business, it is accepted, had commenced much earlier and not during the year in question. Disallowance made by the AO on account of prior period expenses - AR submitted additional evidences in terms of Rule 29 of the ITAT Rules, giving the complete break up of the prior period expenses together with an affidavit supporting the Rule 29 petition - HELD THAT - we find that these additional evidences at the first instance are required to be admitted as it would be relevant for adjudication of the appeal and moreover we find that all these correspondences are pertaining to year 2007 i.e. the additional evidences submitted by the assessee constitutes internal correspondences between officers of the assessee company giving certain authorization to book certain expenses. But we find that these authorization dates are in the year 2007 whereas the appeal before us pertains to AY 2004-05. Hence, it is very clear that the authorization were indeed obtained by the assessee company after the claim of deduction was made. Hence, there is no evidence has rightly pointed out by the ld DR that the liabilities had indeed crystallized during the year. Hence, the disallowance made by the ld AO on account of prior period expenses and confirmed by the ld CIT(A) is in order - Decided against assessee. Disallowance made u/s 14A - AO estimated 25% of the dividend income and made a disallowance u/s 14A of the Act on the assumption that it was the expenditure incurred by the assessee for the purpose of earning income - HELD THAT - We find that the year under consideration is prior to the introduction of Rule 8D of the Income Tax Rules, hence the computation mechanism provided in Rule 8D cannot be applied in the instant case - we direct the ld AO to disallow 1% of the dividend income as expenditure u/s 14A - Ground raised by the assessee is partly allowed. Disallowance on account of expenses on Corporate Social Responsibilities (CSR) - HELD THAT - The issue in dispute is clearly covered by the decision of PEC Ltd 2022 (12) TMI 759 - DELHI HIGH COURT wherein, it was held that amendment by way of Explanation 2 to section 37(1) of the Act w.e.f. 01.04.2015 was prospective in nature and thus CSR expenditure incurred prior 01.04.2015 was to be allowed. Disallowance of prior period expenditure - AO had disallowed this prior period expenditure as the assessee had not proved with cogent evidence with the said expenditure had been crystallized during the year so as to make it eligible for claiming deduction - HELD THAT - Before us, no arguments were advanced by the ld AR on the said issue. Hence, we hold that there is no further submission that is required to be made by the assessee with regard to this issue. Hence, we do not deem it fit to interfere in the order of the ld CIT(A) in this regard. Accordingly, ground raised by the assessee is dismissed. Disallowance of expenses u/s 14A - The law is very well settled by the decision of Maxopp Investments Ltd 2018 (3) TMI 805 - SUPREME COURT wherein, it has been held that the disallowance cannot be exceed exempt income. Since, the exempt income is only Rs. 21,06,000/-, the disallowance of expenditure cannot exceed the same. We direct the ld AO accordingly. Accordingly, ground is partly allowed. Addition on account of accrued interest receivables on account of advance paid on property tax to MCD - CIT(A) held that the assessee is a agency of the Govt of India and was held not liable to pay property tax in respect of community centre developed by the Govt and therefore, the interest recoverable from the property tax from the MCD becomes the assessee s income - HELD THAT - Before us, the ld AR stated that in AY 2006-07 the very same addition was deleted by the ld CIT(A) and the revenue did not prefer any appeal before this Tribunal. Having accepted this situation in AY 2006-07 the revenue cannot have any grievance on the same issue in the year under consideration. Applying the principles of consistency as decided by the Hon'ble Supreme Court in the case of PCIT Vs. Maruti Suzuki India Ltd 2019 (7) TMI 1449 - SUPREME COURT we hold that the interest income cannot be brought to tax in the sum in the hands of the assessee. Accordingly, ground raised by the assessee is allowed. Disallowance of expenses u/s 14A of the Act read with Rule 8D of the Rules, with regard to investment in bonds - We find that the ld CIT(A) had directed the ld AO to consider only those investments which yielded exempt income while computing the disallowance in terms of Rule 8D(2) of the Income Tax Rules, 1962. Admittedly the investment in bonds made by the assessee had yielded interest income to the assessee which is taxable receipt. Hence, the provisions of section 14A per se cannot be made applicable for the same. The error committed by the ld AO in this regard has been duly rectified by the ld CIT(A) in his order. Hence, we do not find any infirmity in the order of the ld CIT(A). Accordingly, the ground raised by the revenue is dismissed.

Summary

Issues Involved:

1. Disallowance of prior period expenses.
2. Addition due to depreciation on estimated increase in cost of properties.
3. Addition due to revenue de-recognition in books.
4. Addition of administrative charges of Andrews Ganj Project.
5. Addition of expenditure on grants-in-aid.
6. Revenue recognition on realization basis.
7. Disallowance under Section 14A of the Income Tax Act.
8. Correct TDS credit.
9. Incremental Special Reserve on additions/disallowances.
10. Disallowance of CSR expenses.
11. Accrued interest receivables on advance paid on property tax to MCD.

Detailed Analysis:

1. Disallowance of Prior Period Expenses:
- The assessee claimed Rs. 3 lakhs as prior period expenses, which were disallowed by the AO and upheld by the CIT(A). The Tribunal restored the issue to the AO for verification of whether these expenses were not claimed in earlier years. If not claimed, they should be allowed as a deduction.

2. Depreciation on Estimated Increase in Cost of Properties:
- The AO disallowed Rs. 18,06,443/- for excess depreciation due to estimated costs for stamp duty/registration charges. The Tribunal restored the issue to the AO for de novo verification following the High Court's directions in a previous case.

3. Revenue De-recognition:
- The assessee derecognized Rs. 3,75,67,456/- based on NHB guidelines for NPAs. The AO taxed it on an accrual basis, but the Tribunal restored the issue to the AO pending the Supreme Court's decision in a related case.

4. Administrative Charges of Andrews Ganj Project:
- The AO added Rs. 12,486/- for administrative charges, which was upheld by the CIT(A). The Tribunal deleted the addition following a High Court decision that administrative charges were not payable for residential quarters.

5. Expenditure on Grants-in-aid:
- The AO disallowed Rs. 1,69,91,000/- spent on grants-in-aid, treating it as a provision. The Tribunal allowed the deduction, noting the business nexus and referencing judicial precedents.

6. Revenue Recognition on Realization Basis:
- The AO added Rs. 1.50 crores for revenue recognized on a realization basis. The Tribunal allowed the assessee's method, citing a High Court decision that income should only be recognized when there is certainty of realization.

7. Disallowance under Section 14A:
- The AO disallowed Rs. 26,40,710/- under Section 14A. The Tribunal allowed the assessee's appeal, noting no exempt income was claimed, referencing the Era Infrastructure case.

8. Correct TDS Credit:
- The Tribunal directed the AO to verify and allow correct TDS credit based on the assessee's submissions.

9. Incremental Special Reserve:
- The issue was restored to the AO for determination based on the final income post-Tribunal order.

10. CSR Expenses:
- The AO disallowed Rs. 4,98,75,665/- for CSR expenses. The Tribunal allowed the deduction, noting CSR was mandated by a regulatory agency and referencing judicial decisions on CSR expenditures.

11. Accrued Interest Receivables:
- The AO added Rs. 2.15 crores as accrued interest on advance property tax. The Tribunal deleted the addition, citing consistency with a previous unchallenged decision for AY 2006-07.

Conclusion:

The Tribunal's decisions were largely in favor of the assessee, allowing several deductions and restoring issues for verification. The Tribunal emphasized the importance of factual verification, adherence to judicial precedents, and consistency with prior decisions.