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TMI Blog2018 (10) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... son to accept the same for this Assessment Year. Thus, we direct the Assessing Officer to accept the revised computation of cost of TDR after verification. Subject to verification claim of the assessee is allowed. Disallowance of unabsorbed cost of TDR while computing income u/s.115JB - Held that:- We find that the Lower Authorities have not examined the claim of the assessee and no findings have been given by the Lower Authorities on this issue. Keeping in view the submissions of the assessee and also our decision in ground No.2 above while computing the income under normal provisions of the Act, we feel it appropriate to restore this issue to the file of the Assessing Officer who shall examine the claim of the assessee and allow in accordance with law. This ground is allowed for statistical purpose. Disallowing the deduction of unrealized cost debited to P&L account while computing the income under normal provisions of the Act and also while computing the book profits u/s. 115JB - Held that:- Hon’ble Karnataka High Court in the case of Asia Power Projects (P.) Ltd., v. DCIT [2014 (10) TMI 109 - KARNATAKA HIGH COURT] while considering the allowability of expenditure on aband ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere stock in trade of the assessee - Held that:- In order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in-trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the financial year in which a completion certificate is obtained from the competent authority. In view of the above amendment to section 23, we are not adverting to the case laws relied on by the Ld. counsel and Ld. DR. In the instant case, the assessee is a builder and developer. The issue of taxability is with regard to 51 unsold flats. The AY is 2012-13. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we set aside the order of the Ld. CIT(A) and allow the ground of appeal. - ITA. No. 5986/MUM/2017 - - - Dated:- 10-9-2018 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER Assessee by : Shri Dr. K. Shivaram Shri Rahul K. Hakan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the sale of TDR which would result in reduction of profit of sale of TDR and consequent claim of Deduction u/s. 80-IA(4) of the Act. 6. On appeal Ld.CIT(A) sustained the action of the Assessing Officer in not allowing the claim of the assessee. Reiterating the contentions raised by the assessee, Assessing Officer in his Assessment Order observed that the details were not furnished. Ld. CIT(A) also further observed that the Tribunal though passed order on 25.09.2013 in assessee s own case accepting the revised computing cost of sale of TDR in A.Ys: 2009-10 and 2010-11 and 2012-13 and consequential orders passed giving effect to the Tribunal Order allowing the revised unabsorbed cost of sale of TDR. But, subsequently the Principal CIT, Central 3, Mumbai in exercising of his revisionary jurisdiction u/sec. 263 of the Act set-aside the aforesaid orders dated 24.06.2014 and 31.03.2015 i.e. giving effect order of Tribunal for the A.Ys. 2009 -10, 2010 - 11 and 2012 -13 directing the Assessing Officer to pass fresh orders after making proper enquiries, verification and bringing on record relevant material regarding unabsorbed cost of TDR. 7. Before us, Ld. Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost was accepted by AO in AY 2009-10,2010-11 and 2012-13. 10. Ld. Counsel for the assessee further submitted that during this year both A.O. and CIT(A) disallowed the unabsorbed cost of TDR pertaining to AY 2013-2014 of ₹ 104 crores. The Ld.CIT(A) also held that orders of AY 2009-10,2010-11 and 2012-13 were revised u/s 263. 11. Ld. Counsel for the assessee referring to Page No. 914 of the Paper Book submitted that the Tribunal by order dated 01.09.2017 in ITA.No. 2780/Mum/2016 to 2782/Mum/2016 quashed the order u/s 263 passed by the Principle CIT, Central-3, Mumbai who directed to revise the order giving effect to the Tribunal order. Therefore, it is submitted since u/s.263 order has been quashed by the Tribunal the revised TDR cost allowed by the Assessing Office consequent to the order passed by the Tribunal stands. Therefore, he submitted that sustaining the order of the Assessing Officer by the Ld. CIT(A) on this ground does not arise. 12. Ld. Counsel for the assessee further referring to Page Nos. 880 to 913 of the Paper Book submitted that in ITAT Order for A.Y. 2009-10 and A.Y. 2010-11 wherein ITAT directed Assessing Officer to consider the revised cost. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case laws relied on and the written submissions filed before us. We notice that in the course of the assessment proceedings the assessee by letter dated 04th Jan, 2016 the detailed submission was made justifying the deduction of unabsorbed cost of TDR as under: Justification regarding reducing unabsorbed cost of TDR of ₹ 104,25,74,531/- from net Profit for calculating book profit u/s. 115JB: - In this regard we wish to state that. The Airport Authority of India (AAI), had entered into a Public Private Partnership joint venture in the name of Mumbai International Airport Pvt. Ltd. (MIAL) as a part of the expansion, development, improvement and renovation of the CSlL Airport, Mumbai and as a consequence, AAI entered into an Operation, Management, Development Agreement (OMUA) with MIAL on 04.04.2006. The primary necessity for the commencement of the airport modernization project was. the evacuation of approximately 276 acres of airport land, encroached by slums. The said responsibility of evacuation and rehabilitation was entrusted by MIAL to the assessee vide Slum Rehabilitation Agreement dated 15.10.2007. In accordance with this agreement for the evacuation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the termination of the contract, HDIL was longer entitled to the commercial FSI at the airport land. Consequently, the entire, accounting methodology based on estimates, which was founded on the premise, that at the end there was a tangible commercial outcome, was in need to be revisited. At the same lime our client's appeal proceedings was completed before Hon ble ITAT, Mumbai Wherein, the Hon'ble ITAT, Mumbai, in its immense wisdom, aptly comprehended the dilemma of the assessee company. Due to the frustration of the profit making apparatus in the entire scheme of things, the Hon'ble ITAT, in the interest of justice, has restored the issue back to your precede for his kind consideration of the revised cost of sale of TDR. The assessee company, complied the instructions of the Hon'ble ITAT, in letter and spirit, submitted the revised cost of TDR per sq. ft., based on actual expenditure incurred from F.Y. 2007-08 to F.Y. 2012-13. Unlike the costs filed in the original return of income, which were based on estimates, the assessee company had then substantiate the working with concrete, tangible costs actually incurred. Copy of detailed calculation of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Sir, based on above contention and factual aspect, your precede after being satisfied with the computational accuracy of our calculation, has allowed the revised Unabsorbed Cost of TDR to the Assessee Company for the A.Y. 2009-10 A.Y. 2010-11 and accordingly has also given an effect in the Original Assessment Order vide Order Giving Effect to ITAT s order. Therefore, your honour is also kindly requested to allow the same for the year under consideration. (Reply to Point no. 24 of notice u/s 142(1) of Income tax act, 1961 dated 11.09.2015). 17. We also observe that the assessee has furnished the breakup of the revised cost of TDR which was arrived at as under: - Housing Development Infrastructure A.Y. 2013-14 F.Y. 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Cost 29,100,904,883 Less:- Cost of sale of previous year 9,034,779.44 27,420,126,014 Balance area/cost (0.00) 1,680,778,869 Project F.Y 2012- 13(Actual) Premier Area (Sq ft) TDR Sale Cost of Sales Profit/ (Loss) Revised cost Cost recognized in P/L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revised cost - Cost recognized in P/L - Therefore, Unabsorbed cost - Kilburn-Nahur Project :- Majestic Tower F.Y. 2012-13 Computation of Cost of TDR Estimate Particulars Area (sq. ft.) Rate /sq.ft. Amount (Actual) Cost of land 179,399.00 913,449,947 Cost of Construction 887,860.25 1,100 1,311,671,893 Approval Other Charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has given complete details of tenancy / claims / FSI / development rights of the land, details of cost of material consumed etc., before the Assessing Officer. Therefore, the contentions of the Assessing Officer that the assessee has not provided details is contrary to the record. In any case the issue whether the assessee is entitled to claim the revised unabsorbed cost of TDR as expenses and in view of the fact that the contract entered into with Mumbai International Airport Pvt. Limited by the assessee for development of the Airport has been cancelled on 06.02.2013, has been the subject matter of appeal for the A.Y 2009-10 and 2010-11 and the Tribunal by order dated 25.09.2013 directed the Assessing Officer to consider the revised cost of TDR and allow the same observing as under: 37. Ground No. 3. 4 5 relate to the income from sale of TDR arising from Slum Rehabilitation activity of airport project. It is the claim of the assesses that the sale of said TDR cannot be assessed in the year under consideration. In so far as Airport project is concerned, the cost of land at Rs, 1.900 crores far exceeds the amount realized from sale of TDR of ₹ 265 crores wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 105,65 crores was credited to Profit and loss account and accordingly deduction u/s. 80IA(4) was claimed in the computation of total income. 37.3. In alternative, the assessee also claimed that if its claim of deduction u/s. 80IA(4) is not allowed, then the sale value of the TDR should be reduced from WIP as the assessee is following project completion method. The AO denied the claim of deduction u/s. 80IA(4) and also rejected the alternative claim of the assessee as per the findings given at clause-(v) on page 52 of the assessment order. According to the AO, the assessee has failed to comply with the conditions laid down u/s. 80IA(4) of the Act and further the income against which deduction is claimed cannot be said to be derived from the Airport Project. 37.4. Rejecting the alternative contention of the assessee, the AO observed that the assessee itself has credited the P L account by the amount received by it on account of sale of TDR. By doing this, the assessee itself has considered that the sum relates to the year under consideration and has also claimed u/s. 80IA(4) of the Act. Therefore, now the assessee cannot say that since the project has not been comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair opportunity of being heard to the assessee. The assessee is directed to substantiate its claim by bringing any relevant material which was not submitted in the earlier proceedings. The AO is also free to collect any relevant information as per the provisions of law and after giving due opportunity of being heard to the assessee. Ground No. 3, 4 5 is allowed for statistical purposes. 19. Therefore, as could be seen from the above the Tribunal held that the very basis of the claim of deduction u/s. 80IA(4) of the Act do not exist, the claim of deduction u/s 80IA(4) cannot be entertained and therefore such claim is rejected subject to outcome of arbitration proceedings. It was also held that the profit arising out of the TDR has to be recomputed in line with the revised computation of cost of sale of TDR as filed by the assessee and directed the Assessing Officer to consider the revised computation of cost of sale of TDR after giving a reasonable and fair opportunity of being heard. We also find that the Tribunal by order dated 01.09.2017 in ITA No.2780/Mum/2017 to 2782/Mum/2017 quashed the order passed u/s. 263 of the Act by the Principal CIT, Central-3, Mumbai for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that, in the present case also assessee has shown these expenses under WIP/ deferred Revenue and the expenses are actually incurred. Hence, he submitted that assessee had rightly claimed it as reduction from WIP. Thus, Ld. Counsel for the assessee requested to direct Assessing Officer to allow the claim of the assessee. 21. Ld. DR vehemently supported the orders of the authorities below and filed written submissions. 22. We have heard the rival submissions and perused the orders of the authorities below. We find that the Lower Authorities have not examined the claim of the assessee and no findings have been given by the Lower Authorities on this issue. In the circumstances, keeping in view the submissions of the assessee and also our decision in ground No.2 above while computing the income under normal provisions of the Act, we feel it appropriate to restore this issue to the file of the Assessing Officer who shall examine the claim of the assessee and allow in accordance with law. This ground is allowed for statistical purpose. 23. Ground No. 4 5: The issue in Ground No. 4 5 relates to upholding the action of the Assessing Officer in disallowing the deduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made before the Ld. CIT(A), however both the Authorities have disallowed the claim under the normal provisions of the Act as well as while computing book profits holding that expenditure is only contingent and liability did not crystalize during this Assessment Year, without appreciating the submissions made before them. Ld. Counsel for the assessee relied on the decision of the Hon'ble Karnataka High Court in the case of Asia Power Projects (P.) Ltd. v. DCIT [370 ITR 257]. 27. Ld. DR vehemently supported the orders of the Authorities below and filed written submissions. 28. We have heard the rival submissions and perused the orders of the authorities below, the written submissions and the case laws relied on. We observe from the Assessment Order that the Assessing Officer denied the claim of the assessee being write off of unrealized cost of TDR observing that details have not been furnished and the assessee has not explained why the unabsorbed cost was not claimed in the original return and claimed in the revised return. The Assessing officer was also of the view that since the assessee disputed the termination of the contract by MIAL the expenditure debited to P L acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather than deferring the income recognition, the assessee company, following the principles of AS - 9 Revenue Recognition, opted for booking the profits accrued from the Sale of TDRs and claiming the matching expenditure, The profit so computed would reduce the unabsorbed cost of attaining the final goal of commercial FSI available at the airport land on completion of the rehabilitation process. Since, both the said benefits and the associated costs were futuristic, without being able to be crystallized in absolute numbers, the assessee company had no alternative but to make probable estimates. Based on acquisition price of land surrendered to SRA, cost of obtaining relevant approvals and expenses to be incurred for construction of rehabilitation buildings, the assessee company determined an estimate cost of ₹ 650/- per sq. ft The proportionate expenses, corresponding to the sale of TDR was booked and the resultant profit was claimed as deduction u/s. 80IA(4)) But due to certain unfavorable turn of events, MIAL vide letter dated 06.02.2013. terminated its above mentioned Slum Rehabilitation Agreement dated 15.10.2007 entered into with the assesses company, HDIL. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revised computation of cost of sale of TDR has been accepted by A.O. presiding your kind selves after due application of mind in earlier Assessment Years i.e. A.Y. 2009-10 and A.Y. 2010-11 and subsequent A.Y. 2012-13. Sir, based on above contention and factual aspect, your precede after being satisfied with the computational accuracy of our calculation, has allowed the revised Unabsorbed Cost of TDR to the Assessee Company for the A.Y. 2009-10 A.Y. 2010-11 and accordingly has also given an effect in the Original Assessment Order vide order Giving Effect to ITAT's order. Furthermore, on being served the notice of termination of contract of Mumbai International Airport Ltd, on Assessee Company for Mumbai International Airport project claiming unsubstantiated charges, which was being challenged by Assesses Company. The Assessee Company was being advised by its legal counsel that such notice of termination was not tenable in the court of law and had initiated legal remedies available to it. The board of the Assessee company following its conservative accounting policy had written off unrealized costs in the books of accounts, which is being incurred by the Assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the airport land, rather than deferring the income recognition, the assessee company, following the principles of AS - 9 Revenue Recognition, opted for booking the profits accrued from the Sale of TDRs and claiming the matching expenditure. The profit so computed would reduce the unabsorbed cost of attaining the final goal of commercial FSI available at the airport land on completion of the rehabilitation process. Since, both the said benefits and the associated costs were futuristic, without being able to be crystallized in absolute numbers; the assesses company had no alternative but to make probable estimates. Based on acquisition price of land surrendered to SRA, cost of obtaining relevant approvals and expenses to be incurred for construction of rehabilitation buildings, the assessee company determined an estimate cost of Rs, 650/- per sq, ft. The proportionate expenses, corresponding to the sale of TDR was booked and the resultant profit was claimed as deduction u/s, 80IA (4) during the A.Y, 2009-10, 2010-11 2011-12. But due to certain unfavorable turn of events, MIAL vide letter dated 06.02.2013, terminated its above mentioned Slum Rehabilitation Agreement dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y A.O, presiding your kind selves after due application of mind in earlier Asst. Years i.e. A,Y. 2009-10 and AX 2010-11 and subsequent A.Y. 2012- 13. Sir, based on above contention and factual aspect, your precede after being satisfied with the computational accuracy of our calculation, has allowed the revised Unabsorbed Cost of TDR to the Assessee Company for the A.Y. 2009-10 A.Y. 2010-11 and accordingly has also given an effect in the Original Assessment Order vide Order Giving Effect to ITAT's order. Furthermore, on being served the notice of termination of contract of Mumbai International Airport Ltd, on Assessee Company for Mumbai International Airport project claiming unsubstantiated charges, which was being challenged by Assesses Company. The Assessee Company was being advised by its legal counsel that such notice of termination was not tenable in the court of law and had initiated legal remedies available to it. The Board of Directors the Assessee company following its conservative accounting policy had written off unrealized costs in the books of accounts, which is being incurred by the Assessee company during the fulfillment of contract in due faith of completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of exceptional items amounting to ₹ 441,98 crores claimed in Profit Loss Account may please be allowed. 30. We also observe that a detailed working of the unrealized cost of completed units and uncompleted units was furnished before the Assessing Officer which is at Page Nos.427 and 428 and the assessee has written off the cost in relation to the completed units out of completed units cost of ₹ 441.98 crores out of the total cost of 709.49 crores. 31. Therefore, the contentions of the Lower Authorities that the details were not furnished and no explanation has been given appears to be not correct. The reason given by the Assessing Officer for denying the claim is that the expenditure is contingent. This also appears to be not correct for the reason that the assessee has already incurred the expenses in the books of accounts but only thing is the said expenditure was not charged to P L account but was debited to work in progress account since the MIAL terminated the contract during this year. 32. We also observe from the Paper Book in Page No. 380 that MIAL issued termination letter dated 06.02.2013 for termination of Slum Rehabilitation Agreement dated 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement Agreement arrived at is not only in the best interest of the parties but will also serve public interest. 3. Parties as well as their solicitors agree that the award be signed and pronounced here in Kolkata. We accordingly pass this award, on the terms of the Settlement Agreement dated September 8, 2016. The said agreement forms a part of this Award and is annexed to this Award. All the disputes between the parties are thus settled on the terms contained in the Settlement Agreement dated September 8, 2016. 4. This Award is made here in Kolkata on September 19, 2016 and signed by the two Arbitrators of the Tribunal and is being sent to Justice A. M. Ahmadi for obtaining his signature. 33. Further, on a perusal of the Settlement Agreement, we noticed that both the parties agreed for termination of the contract on mutual agreement with effect from the termination letter dated 06.02.2013 and the termination is valid and binding on both the parties from that date. Relevant clauses of the settlement agreement are as under: - Mutual Covenants: 1. The Parties hereto accept and agree that the SR Contract is terminated by mutual agreement of the Parties wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the Project, and shall not rely on, or refer to, the Project in any brochure, memorandum, prospectus or any corporate communication whatsoever. HDIL agrees to indemnify, defend and hold harmless MIAL against all losses, expenses, claims and liabilities incurred or suffered by MIAL due to HDIL acting on behalf of MIAL. 7. HDIL shall not make any claim or interfere or challenge, any scheme or effort of rehabilitation initiated by MIAL or Government of Maharashtra or any statutory authority or body, either directly or through a third party, for removal and rehabilitation of slums/ slum dwellers from the Encroached Airport Land (as defined in the SR Contract). HDIL shall not raise any objection if the rehabilitation units constructed by HDIL pursuant to the Letters of Intent issued by the Slum Rehabilitation Authority on the basis of the SR Contract are used by the Government for rehabilitation of slum dwellers from the Encroached Airport Land (as defined in the SR Contract). HDIL will have no financial liabilities of any nature whatsoever in this respect. 8. The Parties, for themselves and on behalf of their respective affiliates, successors and assigns, fully and fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn based only on the Arbitral Award which was passed on 19.09.2016 without going into the clauses of Award, Settlement Agreement and the termination letter. The question as to whether the liability crystalized, when the termination letter issued on 06.02.2013 in view of the Settlement Agreement and Arbitral award was never examined by Lower Authorities. Lower Authorities have not examined the clauses of the Settlement Agreement and Award to find out when the liability crystallized i.e., on 06.02.2013 when the termination letter was given or on 19.09.2016 when final Award was passed by the Arbitral Tribunal. In the circumstances, we are of the considered view that the Lower Authorities have to examine all the clauses of the settlement agreement vis- -vis Arbitral Award and the termination letter before concluding that the liability did not crystallized during this Assessment Year. 35. Further, the Hon ble Karnataka High Court in the case of Asia Power Projects (P.) Ltd., v. DCIT [370 ITR 257] while considering the allowability of expenditure on abandoned projects, it was held that even though the assessee invoked arbitration clause and pending the expenditure on abandoned project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowable u/s 35AD interest expenses should be allowed u/s. 36(1)(iii) other expenses u/s. 37(1) of the Act, as the contract is terminated and said expenses are allowable as deduction. He placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIBA of India Ltd. v. CIT [202 ITR 01] and Khaitan chemicals Fertilizers Ltd., [326 ITR 114] in support of the above submissions. 42. Ld. DR vehemently supported the orders of the authorities below and filed written submissions. 43. We have heard the rival submissions and perused the orders of the authorities below and the case laws relied on and the written submissions. We find that the alternative contention of the assessee that if deduction u/s 35AD is not allowable the said expenditure is to be allowed u/s 37(1) of the Act was not considered by the Ld. CIT(A). Ld. Counsel for the assessee fairly submitted that the alternative claim was not made before the Assessing Officer. It is submitted that assessee is only making the alternative claim before the Tribunal. In view of the decisions referred by the Ld. Counsel for the assessee, we are of the view that the alternative claim of the assessee shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not related to any business transaction and not in the nature of business advances. Advances were made to subsidiaries not for the purpose of assessee s business. He also observed that, no justification was furnished treating interest income of NCD as business income instead of other sources. It was also observed that assessee has invested ideal funds in NCD and also given interest bearing loans to its subsidiaries and such investments in NCD cannot be considered as normal business of the assessee. Similarly interest bearing loans have been given to the subsidiary and interest income is earned thereon and the transaction with the subsidiary is not in the normal course of business and there is no business arrangement in the form of joint venture or profit sharing with the subsidiary company and therefore the entire interest income received by the assessee from the NCD s are from subsidiary was treated as income under the head of other sources by the Assessing Officer and consequently interest income expenditure to the extent of ₹ 89.83 crores claimed by the assessee was disallowed. 49. On appeal the Ld.CIT(A) sustained the action of the Assessing Officer in assessing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge: first, whether the disclosure of interest income on NCD and interest from subsidiary by the appellant as 'income from Other Sources' in the original return of income represented an ''omission or wrong statement within the meaning of Section 139(5) of the Act which could be corrected by filing a revised return declaring the aforesaid Income as 'Business Income and secondly, whether by Its true nature and character, the aforesaid income Is properly assessable as 'Income from Other Sources' or as 'Business Income'. 8.3.2 It Is proposed at the outset to deal with the first question. It Is pertinent to note that the appellant had declared total income of ₹ 66,08,53,800/- under normal provisions of the Act and book profit of ₹ 20,37,91,742/-u/s.115JB in the original return of Income filed on 30.09.2013. However, in the revised return of Income filed on 31.10.2013, the appellant declared total income at Rs.-Nil under normal provisions of the Act and book profit of Rs. NIll u/s.115JB of the Act. Thus, the net effect of filing the revised return claiming the aforesaid income as 'Business Income' was that the 'Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as business income the appellant essentially raised a Legal claim in respect of the aforesaid Income which did not envisage either any omission or wrong statement. The act of the appellant in changing the head of income in respect of aforesaid items of interest from income from other sources' In the original return to business income in the revised return was a matter Involving legal interpretation which could not be regarded as an omission or wrong statement so as to be covered within the ambit of section 139(5) of the Act Moreover, the filing of revised return showing the aforesaid Interest income under the head business income could not be said to be bona fide In so far as it had the effect of substantially reducing the taxable income of the appellant for the A.Y. under consideration. Reliance Is placed in this regard on the judgment of Hon'ble Delhi High. Court in the case Of Golden Insulation Engg. Ltd. v. C1T 305 ITR 427 (Del) wherein the assessee changed the method of valuation of closing stock in the revised return because the method adopted did not reflect the correct state of affairs. The result of change in the method of valuation was that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely making mention of an Incidental or ancillary object (clause 10) of its MoA will not by itself lead to the inference that he appellant was engaged in the business of financing or money lending. It is a matter of record that the appellant has not obtained any licence Of permission from the Reserve Bank of India For carrying; on the business of financing: The appellant has not placed on record any resolution of the Board of for carrying on the business of money-lending. The appellant has failed to any material on record to show that it was carrying on the business of financing or money-lending in a systematic and organized manner. The appellant's reliance in this regard on the incidental/ ancillary object clause 10 on page 3 of the memorandum of association is of no avail. Secondly, the appellant company has also not made it known to outsiders that they are in financing business so as to develop the business. There is nothing on record to show that money had been advanced to any outsider. And finally, it is noticed from, the record that debenture Interest income or ₹ 63,57,53.425/- was earned by the appellant from one of its subsidiaries, namely. Guruashish Construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant's claim for deduction of interest expenses of ₹ 89,83,69,633/- u/s, 57(iii) of the ACT. It is noticed from the record that the aforesaid disallowance of Interest expenses was made by The A.O. as neither details of such Interest expenses were provided nor was the nexus of interest expenses with the earning of interest income established. In the course of appellate proceedings, it is submitted that the appellant had furnished details of interest expenses of ₹ 567,77,06,676/-before the A.O. vide letter dated 09.10.2015. The appellant has placed the same on record at pages 163 to 165 of the paper book filed before me. However, merely furnishing details of gross finance expenses of ₹ 567,77,06,676/- is not sufficient to claim deduction of Interest expenses of ₹ 89,83,69,633/- u/s.57(iii) of the Act. In the course of appellate proceedings, the appellant furnished specific details of interest expenses of ₹ 89,83,69,633/- vide submission dated 08.03.2017. A perusal of the details of fianc /interest expenses aggregating to ₹ 89,83,69,633/- reveals that these include interest on overdraft (Rs.62.10 Crores), penal interest on debentures (Rs.13.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the making or earning of the income and the option depends upon personal Considerations or motives of the assessee, the expenditure Incurred in consequence of the exercise of such option cannot be treated as an allowable deduction. If, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, direct or indirect, but not remote, between the expenditure incurred and the income earned, the expenditure must be treated as an allowable deduction. The question whether the expenditure was laid out or expended for making or earning the Income must be decided on the facts of each case, the final conclusion being one of law. 8.3.9 On application of aforesaid legal propositions to the facts of the present case, the inescapable conclusion is that the appellant has failed to discharge the onus u/s.57(iii) to prove with The help of relevant evidences and concrete materials that the aforesaid Interest expenses were laid out wholly and exclusively for the purpose of making or earning the Interest income. It is pertinent to note that the appellant has been providing different details of interest expenses at different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld.CIT(A) and the reasoning given therein, we do not find any infirmity in the order passed by the Ld.CIT(A). Hence ground nos. 9, 11 12 are dismissed. 54. Ground No. 10 is relating to the direction given to the Assessing officer to verify the double addition of ₹ 19.41 crores being interest received from subsidiary namely Ravijyot Finance and Leasing Pvt. Ltd. 55. At the time of hearing Ld. Counsel for the assessee submitted that this ground is not pressed and the same may be disposed off accordingly, Hence, this ground is dismissed as not pressed. 56. Ground No. 13 is relating to upholding the action of the Assessing Officer to disallow the capitalization of expenses by reducing work in progress on account of compensation paid to MIAL. 57. Briefly stated the facts are that, in the course of the assessment proceedings Assessing Officer noticed that assessee claimed ₹ 29.86 crores towards compensation expenses. Assessee was required to explain the same and it was submitted by the assessee that expenses of ₹ 25 Crores include compensation paid to MIAL on account of invoking of bank guarantee by MIAL. The Assessing Officer however reducing the said e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashed. In view of the fact that the respondent was incurring losses, it decided not to utilize the export entitlement which led APEC to encash the bank guarantee. The respondent recorded the said payment as penalty in it Books of Accounts and claimed deduction under Section 37(1) of the Act the Income-tax Act, 1961(the Act ). Before the Assessing Officer, the respondent contended that nomenclature of penalty was erroneous as the payment made to AEPC was compensatory in nature and thus allowable as deduction under Section 37(1) of the Act. However, the Assessing Officer did not accept the same and concluded that the forfeiture was in the nature of penalty and disallowed the expenses under section 37(1) of the Act in view of the explanation thereto. On appeal, the CIT(A) deleted the disallowance and allowed the l. On further appeal by the Revenue, the Tribunal confirmed the order of the CIT(A) and in particular, his findings of facts. 3. The contention of the revenue is that forfeiture/encashment of the bank guarantee is penal in nature and therefore, cannot be allowed as expenses under Section 37(1) of the Act in view of the explanation. Consequently, according to the revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, the nature of payment is not supported by documentary evidences like proof of payment and agreement, receipts, vouchers etc., On appeal ld. CIT(A) sustained the same. 64. With regard to the development charges, it is the observation of the Ld. Assessing officer that the complete details in respect of development charges incurred by the assessee company were called for and assessee failed to furnish details as called for. It was observed by the Assessing Officer that only at the fag end of the assessment on 22.03.2016 only a part details were submitted. It was observed by the Assessing Officer that the development charges were claimed to be revenue expenditure and it represent reimbursement made from withdrawal from the bank account being pocket expenses incurred at various offices and sites of the assessee company. The Ld.CIT(A) sustained the disallowance of development charges for want of the specific details and nature of expenditure for which the expenditure was incurred. 65. Ld. Counsel for the assessee referring to the Page No 411 of the paper book, reiterated the submission made before the Lower Authorities. The Ld. Counsel for the assessee further referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the whole or any part of the previous year, the annual value of such property or part of the property, for the period upto one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall 78 be taken to be nil. The amendment is prospective and will apply in relation to AY 18-19 and subsequent years. [Memorandum explaining provisions (2017) 391 ITR 177 (St).] 73. Ld. DR strongly placed reliance on the orders of the Authorities below. 74. We have heard the rival submissions and perused the orders of the authorities below and the case laws relied on. We find that the issue is decided by the Coordinate Bench in favour of the assessee in the case of Runwal Construction v. ACIT (supra) following the decision of the Hon'ble Gujarat High court in the cast of CIT v. Neha Builders (supra) holding as under: - 3. The brief facts of the case are that the assessees, engaged in the business of builders and developers, filed return of income for A.Y. 2012-13. The assessment was completed under Section 143(3) of Income Tax Act, 1961 (hereinafter the Act ) and while completing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. (supra) 7. We have heard the rival submissions and perused the orders of the authorities below and the decisions relied upon. It is an undisputed fact that the assessees are in the business of builders, developers and construction. Both the assessees have constructed various projects and the projects were treated as stock in trade in the books of account. Flats sold by the assessees were assessed under the head income from business . There were certain unsold flats in stock in trade which the AO treated as property assessable under the head income from house property and computed notional annual letting value on such unsold flats placing reliance on the decision in the case of Ansal Housing Finance Leasing Co. Ltd. (supra). The action of the AO was upheld by the learned CIT(A). 8. The Hon'ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. (supra) considered the question whether the rental income received from any property in the construction business can be claimed under the head income from property even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Housing Finance Leasing Co. Ltd. (supra) which the AO relied upon and the decision of the Hon'ble Supreme Court in the case of Chennai Properties Investments Ltd. vs. CIT reported in 373 ITR 673, held that unsold flats which are in stock in trade should be assessed under the head business income and there is no justification in estimating rental income from those flats and notionally computing annual letting value under Section 23 of the Act. While holding so the Coordinate Bench observed as under: - 3. The ld. AR placed the order of Bombay Tribunal in the case of M/s Perfect Scale Company Pvt. Ltd., ITA Nos.3228 to 3234/Mum/2013, order dated 6-9- 2013, wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the IT Act. 4. On the other hand, ld. DR relied on the order of Hon ble Delhi High Court in the case of Ansal Housing Finance Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property. 5. We have considered rival contentions and perused the record. The issue under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the AO to delete the addition made under Section 23 of the Act as income from house property. 75. Similarly, the Coordinate Bench in the case of Progressive Homes v. ACIT in ITA.No. 5082/Mum/2016 dated 16.05.2018 held as under: - 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The following sub-section (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 01.04.2018: (5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to nil. Thus, in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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