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2020 (4) TMI 842 - AT - Income TaxAddition u/s 36(1)(iii) - interest pertaining to stock in trade of the assessee - HELD THAT - In the proceedings before the settlement commission the assessee claimed interest expenses and as per the order dated 28.07.2014 of the settlement commission and during verification proceedings u/s. 245D(3) assessee informed the AO that interest as claimed in the computation of income on ground of interest expenses retained in inventory is deductible under provisions of section 36(1)(iii) - the said amount of interest paid was in respect of capital borrowed for the purpose of business or profession. As further submitted that the construction and development having commenced, the business is in operation, therefore, interest is allowable u/s. 36(1)(iii) As brought to the notice of the AO that in the case of CIT v. Lokandwala constructions Industries Ltd., 2003 (1) TMI 93 - BOMBAY HIGH COURT the assessee s claim for deduction of interest, although the revenue was recognized only on project completion basis in subsequent year, was allowed in the year in which the claim of interest was made - as contended that the interest expenditure incurred during the year is claimed and allowable as expenses even though the same has been inventorised in the Books of Accounts, these contentions were accepted by the revenue and no objection has been raised by the Assessing Officer and the settlement commission has accepted these contentions of the assessee. This fact was also taken note by the CIT(A) in allowing the claim of the assessee. Therefore, since the revenue could not controvert the findings of the CIT(A) that the project constructed by the assessee for which the loans have been taken is not a stock in trade and also the other findings of the Ld.CIT(A), we do not find any valid reason to interfere with the findings of the Ld.CIT(A) and accordingly we sustain the order of the CIT(A) on this issue. Grounds raised by the revenue are rejected. Disallowance u/s. 14A r.w.r. 8D to the exempt income earned by the assessee - HELD THAT - We find that Ld.CIT(A) restricted the disallowance u/s. 14A of the Act to the exempt income earned by the assessee following the decision of the Hon'ble Madras High Court in the case of Shiva Industries Holdings Ltd v. ACIT 2011 (5) TMI 451 - ITAT, CHENNAI and the decision of Daga Global Chemical Pvt. Ltd., v. ACIT 2015 (1) TMI 1204 - ITAT MUMBAI . This bench is consistently holding that, the disallowance u/s. 14A of the Act shall not be more than the exempt income and shall be restricted to the exempt income earned by the assessee. Thus, the decision of the Ld.CIT(A) is in tune with the consistent view of this Tribunal. Hence we do not find any infirmity in the order passed by the Ld.CIT(A). This ground of the revenue is dismissed. Non-cognizance of the revised return of Income filed by the appellant on 31st March 2015 - filing of original return was delayed by few minutes - non considering the revised return on the ground that the original return filed by the assessee is a nonest and is a belated return - HELD THAT - Delay is only of two minutes which was caused due to technical glitch and last hour of rush in the website, we direct the Assessing Officer to treat the original return filed by the assessee for the A.Y. 2014-15 as filed in time and consequently to consider the revised return of income filed by the assessee for the purpose of computing the income of the assessee. Disallowance of deduction claimed u/s. 80IB - HELD THAT - AO restricted the claim for deduction allowable u/s. 80IB(10) by reducing the excess claim which is due to inadvertence of the assessee as admitted and also the cancellation Charges from the total claim made - HELD THAT - Since, we have directed the Assessing Officer to consider the original return filed with a delay of two minutes due to technical glitch as the return filed in time, we direct the Assessing Officer to allow the deduction as quantified by him in the Assessment Order at ₹.6,93,86,043/. Thus, Ground No.2(a) is allowed. Deduction u/s. 80IB on the cancellation charges - HELD THAT - Assessee is a builder and developer and the apartments constructed by the assessee are its stock in trade. When the buyer advances monies to the assessee for booking the flats, it is nothing but part of sale consideration and when subsequently if cancellation happens such amounts were forfeited and not refunded. These amounts cannot become a miscellaneous income for the assessee and this income will form part of income from eligible business. Sale of the apartments vis- -vis the advances received for purchase of flats from the buyers are in extricable linked with eligible business of the assessee and therefore the amounts retained on cancellation of the apartments is nothing but business income and is eligible for deduction u/s. 80IB - when the assessee sells the apartments subsequently in later years which were cancelled by the buyers in earlier years the amounts forfeited/retained by the assessee on account of cancellations shall have to be reduced from the sale price and only on the balance sale consideration/income, the assessee is entitled for deduction u/s.80IB - we allow the claim of the assessee for deduction u/s.80IB(10) of the Act on the amounts received on cancellation of flats. Disallowance of business promotion expenses - expenses towards gold coin and bullion purchases by the assessee - HELD THAT - The increase in volume of turnover from the previous year to the current year is at ₹.209 Crores. The expenses incurred by the assessee on its scheme for distribution of gold coins when compared to the volume of business is very negligible. Therefore, since floating of scheme by the assessee is not in doubt at all, purchases of gold coins and bullion by the assessee from the parties is proved, incurring of expenses on the distribution of gold coins for the purpose of boosting the business of sale of flats by the assessee cannot be doubted - We are of the view that the expenses incurred by the assessee towards distribution of gold coins/certificates etc., for promoting its business through a promotional scheme is nothing but expenses incurred wholly and exclusively for the purpose of business. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition u/s 36(1)(iii) by the CIT(A). 2. Deletion of addition u/s 14A r.w.r 8D by the CIT(A). 3. Non-cognizance of the revised return of income. 4. Disallowance of deduction claimed u/s 80IB. 5. Disallowance of business promotion expenses. Issue-wise Detailed Analysis: 1. Deletion of Addition u/s 36(1)(iii): The Assessing Officer (AO) disallowed the interest expenses claimed by the assessee, arguing that the interest should be capitalized to inventory and allowed only in the year the corresponding income is offered to tax, as per the Special Bench decision in the case of M/s. Wall Street Construction Limited. The CIT(A) allowed the deduction of interest, relying on the jurisdictional High Court decision in CIT v. Lokhandwala Construction Industries Ltd., which held that interest on loans for stock-in-trade is deductible under section 36(1)(iii). The Tribunal upheld the CIT(A)’s decision, noting that the assessee’s projects constituted stock-in-trade and not capital assets, making the interest deductible under section 36(1)(iii). 2. Deletion of Addition u/s 14A r.w.r 8D: The AO made a disallowance u/s 14A of ?80,75,718/- applying Rule 8D, though the assessee had made a suomoto disallowance of ?54,01,967/-, which was the entire exempt income. The CIT(A) restricted the disallowance to the exempt income, citing the jurisdictional ITAT decision in Daga Global Chemical Private Ltd. The Tribunal upheld the CIT(A)’s decision, maintaining that disallowance u/s 14A should not exceed the exempt income earned by the assessee. 3. Non-cognizance of the Revised Return of Income: The assessee's original return was delayed by two minutes due to technical glitches, leading the AO to disregard the revised return. The CIT(A) confirmed the AO's action. The Tribunal, however, directed the AO to treat the original return as filed on time, considering the delay was minimal and due to technical issues, referencing several judicial precedents that advocate a justice-oriented approach over a pedantic one. 4. Disallowance of Deduction Claimed u/s 80IB: The AO disallowed the deduction u/s 80IB, citing the original return was not filed within the prescribed time. The Tribunal, after directing the AO to consider the original return as timely filed, instructed the AO to allow the deduction as quantified in the assessment order. Additionally, the Tribunal allowed the deduction on cancellation charges received from customers, ruling these as part of the business income eligible for deduction u/s 80IB, provided such amounts are adjusted against future sales. 5. Disallowance of Business Promotion Expenses: The AO disallowed business promotion expenses related to the distribution of gold coins, doubting their business purpose. The CIT(A) partially allowed the expenses. The Tribunal, however, allowed the entire claimed amount, recognizing the expenses as legitimate business promotion costs, necessary for boosting sales in a competitive market, and supported by sufficient evidence of the promotional scheme. Conclusion: The Tribunal upheld the CIT(A)’s decisions on the issues of interest deduction and disallowance under section 14A, directed the AO to consider the original return as timely filed and allow the revised return’s claims, allowed the deduction u/s 80IB including on cancellation charges, and accepted the business promotion expenses as fully deductible.
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