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TMI Blog2020 (10) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed / added back Rs. 19,15,695/- u/s 14A. [Page 101-115 of CIT(A)'s Order] 2.1 That learned CIT(A) has grossly erred in law and on the facts in confirming the net addition of Rs. 7,69,038/- [i.e. after allowing standard deduction @ 30% on gross addition of Rs. 10,98,626/- which works out to Rs. 3,29,588/-] made by the Assessing Officer on account of notional rent, whereas in fact the appellant has not received any rental income from these tenants. [Page 136-140 CIT(A)'s Order] 2.2 That learned CIT(A) has grossly erred in law and on the facts in not appreciating the fact that the taxable income means real income and not a fictional income. 3. That learned CIT(A) has grossly erred on the facts and in law in confirming the disallowance made by the Assessing Officer to the Rs. 20,42,053/- on account of registration fee for the Gujarat and Karnataka windmills by treating the same as capital in nature. [Page 151-177 of CIT(A)'s Order] 4. That the appellant reserves its right to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the grounds hereinbefore appearing. 3. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income T-ax(Appeals) has erred in law and on the facts of the case in deleting the addition of Rs. 6,29,430/- on account of notional rental income on vacant properties. 13. The Commissioner of Income Tax(Appeals) has erred in law and on the facts of the case in deleting the addition of Rs. 5,64,961/- on account of recalculation of depreciation in respect of earlier let out DLF Centre Building, now converted to self occupied property. 14. The Commissioner of Income Tax(Appeals) has erred in law and on the facts of the case in deleting the addition of Rs. 4,75,95,830/- made by the AO on account of disallowance of prior period expenses. 15. The Commissioner of Income Tax(Appeals) has erred in law and on the facts of the case in restricting the disallowance to Rs. 20,42,053/- as against the disallowance of Rs. 735,03,187/- made by the Assessing Officer on account of disallowance of capital expenses. 16. The Commissioner of Income Tax(Appeals) has erred in law and on the facts of the case in deleting the addition of Rs. 4,96,29,551/- on account of expenses not incurred wholly and exclusively for the business purposes under different heads by holding them being personal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative vehemently supported the order of the learned assessing officer. The learned authorised representative submitted a detailed chart and submitted that except ground number 16 of the appeal all other grounds are covered by the decision of the coordinate bench dated 27th of May 2019 ITA number 2749/del/2013 for assessment year 2008 - 09 in favour of the assessee. He therefore submitted that the coordinate bench order needs to be followed. We have carefully considered the rival arguments and also considered the decision of the coordinate bench for assessment year 2008 - 09 in case of the assessee. We also found that most of the issues are squarely covered by the decision of that assessment year of the coordinate bench. 6. Ground number one of the appeal is with respect to allowing the deduction of Rs. 1 78,61,73,799/- u/s 80 IA B of the income tax act. Both the parties agreed that same is covered by the decision of the coordinate bench in assessee's own case for assessment year 2008 - 09 wherein ground number two of that appeal covers this issue. The coordinate bench has decided this issue as Under:- "Disallowance of SEZ deduction u/s 80IAB. 46. The next issue relates to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the sale of buildings can take place without the sale of land. Also explain that how any income arising from such transfer of assets is covered under section 80-IAB and eligible for deduction. * The SEZ Act notifies specified authorized operations which alone qualify for exemptions, deductions. Please explain how sale of constructed buildings can be classified as authorized operations eligible for deduction under section 80-IAB especially with reference to the Notification No. SO/1846(E) dated 27.10.2006 and also with reference to the approval dated 14.02.2007 granted by Government of India, Ministry of Commerce & Industry. * A modified approval dated 01.06.2009 was granted by Board of Approval, SEZ to codeveloper i.e. DLF Assets Ltd. after taking into account the Co-developer agreement dated 20.03.2008. It has been stated in the aforesaid approval that the transactions were approved subject to the condition that as per terms and conditions of lease agreement between developer and co-developer will not have any bearing on the treatment of income by way of lease / rentals / down payment / premium etc. for the purpose of assessment under the prevalent Income Tax Rules. The AO w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome received by the assessee company in any one financial year. 50. In light of above observations of the AO, assessee made detail submissions with regard to the specific queries raised by the Assessing Officer which has been noted and dealt by him from paragraph 2.20 to 2.41 of the assessment order. However, ld. Assessing Officer apparently without adverting to the various points and issues raised by the assessee, held that the claim of deduction u/s.80IAB is not allowable predominantly in view of the fact that Hon'ble Punjab and Haryana High Court has held that acquisition of SEZ land was illegal and also the sale of building to a cobuilder is neither a business activity nor one of the authorized operations of SEZ. Accordingly, he denied entire claim of deduction and added the same to the income of the assessee. 51. In the first appeal, Ld. CIT (A) after considering the entire gamut of materials placed on record and after detailed discussion has allowed the assessee's claim. The relevant finding and observations are as under: - 8.25 From the clarifications dated 18.01.2011 & 10.01.2011 issued by the Ministry as well as the correspondence between the Ministry of Commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclaimer condition mentioned in the codeveloper approval letter dated 01.06.2009 is primarily put in by the Board of approvals in the approvals to put a curb on the wrong practices of leasing the land for long periods and receiving onetime payment in the form of lease rental/down payments/premiums etc. which tantamount to sale of land in the guise of long term lease. The appellant has obtained requisite approval from the Board of Approvals by disclosing all facts. The entire controversy as to whether the transfer of bare shell buildings to the co-developer was an authorized operation has been set at rest by the correspondence made between the Ministry of Commerce and Department of Revenue and also by clarification letters issued, dated 18.01.2011 & 20.01.2011 by Ministry of Commerce. I am satisfied that all the conditions as required to be satisfied under the SEZ Act/Rules are fulfilled and the appellant is an approved developer for all intent and purpose of Section 80 IAB of the Act. Consequent upon approval granted by the Board of Approvals for the transfer of bare shells to the co-developer for a consideration is an authorized operation and income derived from such transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be spread over the period of 49 years. The appellant has contended without prejudice to the other grounds that if the contentions of the Assessing Officer are accepted that either the appellant was not the lawful owner of the land on which SEZ has been set up or sale of bare shell buildings by the appellant was impermissible then the amount received by the appellant has to be refunded to the co-developer. The appellant has contended that it had been engaged in the business of real estate and the development of such commercial projects is the main object of the appellant. The appellant had been following the Percentage of Completion Method (POCM) for recognizing revenue of various projects as per the Accounting Standards issued by the Institute of Chartered Accountants of India and it has been accepted by the department since inception. It is a matter of record that the Assessing Officer herself has accepted such incomes as business income of all the projects developed by the appellant even during the year under consideration. It is seen that the appellant has been following mercantile system of accounting and has been recognizing the revenue in accordance with the Accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock in trade is specifically excluded from the definition of 'Capital Asset' Under section 2(14) of the Act. The development of the bare shell buildings in the SEZ and subsequent transfer thereof cannot be considered as giving rise to short term capital gain considering the business of the appellant and accounting treatment adopted in the books of account irrespective of the treatment by the codeveloper in the books of accounts as fixed assets. The observations of the Assessing Officer on this issue are erroneous, legally untenable and misdirected in holding that the income can be assessed as capital gains. I have gone through the judicial rulings relied upon by the appellant in support to its claim. Further, the appellant has disputed the decision of the Assessing Officer in holding that the development income was relatable to 49 years of lease period and only 1/49th could have been earned by the appellant in one year. The appellant has contended that having held so the Assessing Officer ought to have allowed a deduction of Rs. 22,83,81,280/-U/s 80 IAB and excluded the remaining income pertaining to the subsequent years for the computation thereby resulting in no addition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observation of the Assessing Officer wherein the Assessing Officer held that without prejudice to the disallowance made U/s 80 IAB, if at any higher appellate stage the assessee is allowed deduction U/s 80 IAB of the IT Act, then the quantum of deduction is to be reduced by Rs. 24,20,98,512/- on the basis of findings given by the Special Auditors in para 3.15 to 3.22 at page Nos.25-29 in Volume-IIIA of the Special Audit Report. The appellant has contended that the Assessing Officer has made these observations on the basis of Special Audit Report wherein the Special Auditors have stated that there is short allocation of overheads to the SEZ Division. The Special Auditors proposed that some expenses ought to have been allocated to the SEZ project out of the other non-SEZ project. The AR of the appellant has drawn my attention to the details filed during the course of assessment proceedings as well as before the Special Auditors. These details have been filed in the paper book at pages 258-271. The AR of the appellant has vehemently argued that the appellant is a listed company and its accounts are subjected to various checks and audits. Particularly for claim of tax holiday U/s 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and some material has to be brought on record to justify such reallocation of expenses for working out deduction U/s 80 IAB. It is seen that this issue has been considered by me while passing the appellate order dated 19.12.2012 in appeal No.71/12-13 in the case of DLF Commercial Developers Ltd. where the similar disallowance has been directed to be deleted. In view of the factual position, the Assessing Officer is directed to allow the deduction U/s 80 IAB as claimed by the appellant in the return of income without making any reallocation." 52. The Ld. Spl. Counsel appearing on behalf of the Revenue, after referring to the facts as noted in the assessment order, also summarised the findings of the AO given from pages 31 to 81 of the assessment order, in his written submissions. 53. At the outset, he submitted that in the Assessment Year 2009-10, the Hon'ble High Court in the case of DLF Commercial Developers Ltd., (2018) 92 Taxmann.com 10 has remanded the matter to the Tribunal analyzed the case in the light of the provision of SEZ Act, 2005 which Tribunal has not independently done and set aside the matter back to the file of the Tribunal to decide afresh and in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that the intention was to transfer both land and buildings to the codeveloper, particularly when they realized that sale of land in SEZ was not permitted. This fact can be vouched from point 3 of the facts of the case mentioned above. Combined reading of all the clauses of Co-Developer Agreement and Lease deed clearly shows that the intention of the assessee company was to sell land to their related company and they have booked business income out of the transaction. Thereafter the deduction u/s 80-IAB has been claimed out of the business income which should not be allowed for the reason that sale of land is not permitted as per SEZ Act and Rules. iii. When the Board of Approval (BoA) later examined this issue, they were of the categorical view that transfer and handover of buildings on payment of development consideration was against the spirit of SEZ. This issue will be discussed in detail later. The fact remains that the assessee merely built the structure and sold the same to the codeveloper. iv. It is seen that section 3(8) of SEZ Act specifically states that the Central Government may prescribe the requirements for establishment, namely: a. The minimum area of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 it was decided to defer the 4 proposals of co-developers in respect of same Developer, i.e., M/s DLF Limited as the representative of the DoR pointed out that the co-developer agreement refers to transfer and hand over deeds which states that co-developer shall be the owner of the SEZ buildings on payment of development consideration, which is against the spirit of SEZ Act and Rules. Following this observation, the proposals were deferred and it was decided to examine the case on file. DoC examined these proposals on file in consultation with CBDT and the agreements were revised by the co-developer. The proposals were approved subject to the condition that particular terms and conditions of lease agreement will not have any bearing on the treatment of income by way of lease rentals/down payment/premium etc. for the purpose of assessment under the prevalent Income Tax Act and Rules. The Assessing Officer, will have the right to examine the taxability of these amounts under the income tax Act. " Copy of Minutes of 32nd Meeting and 34th Meeting of BOA are enclosed with these Submissions. ix. Section 27 of the SEZ Act which deals with provisions of Income Tax Act, 1961 to appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on giving one time income from transfer of capital assets. It is very clear from the Co- Developer agreement and lease deed that the intention on the part of the assessee company, from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. Co-developer agreement and lease deed very clearly shows that the developer has sold the land and building and loses all rights over these transferred capital assets and the relinquishment of right is irrevocable. c. Though SEZ Act prohibits for sale of land thereby implicitly denying any benefit to a developer who is basically interested in deriving income by transfer of assets, the assessee has found a way to overcome this prohibition by creating 49 years lease in favour of co-developer. It is pertinent to note that the lease deed is renewable further and thus effectively transferring the land also. Para 2.3 and 5.1 of the Lease Deed clearly allows the parties to renew the lease deed. Thus, the assessee company has transferred the land in actual sense and substance of this present transaction means sale of land. In most of the cases, substance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by AAR Tribunal in the case of Mr. Jasbir Singh Sarkaria (2007) 294 ITR196, it was held that the transaction of the nature referred to in clause (v) of section 2(47) had taken place on a particular date, the actual date of taking physical possession need not be probed into. It is enough if the transferee has by virtue of that transaction a right to enter upon and exercise the acts of possession effectively. It was further held that to attract clause (v) of section 2(47), it is not necessary that the entire sale consideration up to the last installment should be received by the owner. In the above-mentioned case the judges have gone into detailed examination of the issue and applicability of provisions section 2(47)(v). To make the issue clearer, it is relevant to reproduce some relevant paragraphs as under: "There is no doubt that the agreement to transfer the entire right, title and interest of the owners for a consideration specified in the agreement and in accordance with the terms thereof answers the description of a contract falling within the scope of section 53-A of the Transfer of Property Act. The crucial question then arises - at what point of time the transaction allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o allow this situation to linger for long as the process of transfer of flats to the prospective purchasers will get delayed. At the same time, the other side of the picture cannot be overlooked. There is a possibility of the owner with the connivance of the transferee postponing the payment of capital gain tax on the ostensible ground that the entire consideration has not been received and some balance is left. The mischief sought to be remedied, will then perpetuate. We are, therefore of the view that possession given to the developers need not ripen itself into exclusive possession on payment of all the installments in entirety for the purpose of determining the date of transfer. While on the point of possession, we would like to clarify one more aspect. What is spoken to in clause (v) of section 2(47) is the 'transaction' which involves allowing the possession to be taken. By means of such transaction, a transferee like a developer is allowed to undertake development work on the land by assuming general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. The actual date of taking physical possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one time income from transfer of capital assets. It is very clear from the agreement that the intention from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. CO-developer agreement is very clearly showing that the developer loses all rights over these assets and the relinquishment of right is irrevocable." 58. Referring to the provisions contained in Section 80IAB, he submitted that the word 'derived' is very crucial in appreciating any kind of deduction which would fall within the ambit of the said provision. Here, in this case, the source of income is a sale of bare shell of the building and there is no question of development of SEZ. The same has been done by co-developer. In support, he has also relied upon the following decisions. "CYBER PEARL INFORMATION TECHNOLOGY PARK P. LTD V. INCOME TAX OFFICER- (2017) 399 ITR 310(Mad) Hon'ble Madras High Court held that the consistent view of the courts has been that wherever, in such like sections, the expression "derived" is used, as against "attributable to", the width and the amplitude is narrower. Therefore, courts have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various arguments and point-wise rebuttal of ld. Special counsel in his written submissions. 61. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. The main issue is with regard to allowability of claim of deduction u/s.80IAB in respect of profit arising from sale of bare shell building in SEZ by assessee to M/s. DLF Pvt. Ltd. As a part of its business activities, the assessee has undertaken to develop SEZ project in a Govt. designate Special Economic Zone after obtaining requisite approval under SEZ Act and SEZ Rules in terms of provisions of Section 80IAB of the Income Tax Act. As brought on record, assessee had undertaken to develop SEZ project which was duly approved by Government of India and later on had entered into MOU with codeveloper, wherein it was agreed that assessee shall develop the bare shell building and transfer to M/s. DLF Pvt. Ltd. (co-developer) for further development and lease of the same to eligible tenants. It was also agreed that land on which building was to be constructed will not be sold to the co-developer, M/s. DLF Ltd. but will be leased out for a defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s inadmissible in absence existence of SEZ project. B. Transfer of building cannot be considered as activity of development of SEZ and as such the profit arising from such transfer is not eligible for deduction u/s 80IAB. The activity of development and sale of building is neither an authorized operation under SEZ Act nor approved by competent authority. Further, lease of land for 30 years to M/s. DLF Asset Ltd. tantamount to transfer of land which is an impermissible activity in terms of Rule 11(9) of SEZ Rules, 2006. (Which AO has wrongly construed the period of lease as 49 Years) C. Isolated transaction of sale of building is assessable under the head income from capital gain and as such the provisions of section 80IAB are not applicable. Further, as the purchaser M/s. DLF Asset Ltd. has shown the said bare shell building as fixed asset in its Balance Sheet, the same constitute capital asset of the appellant and as such profit arising from sale of bare shell is in the nature of Short-Term Capital Gain. D. Alternatively, the profit from the project should be apportioned and spread over 49 years (correct figure 30 years) and as such only the proportionate claim of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d maintenance were not so transferred to the transferee Developer. (3) The provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA shall apply to the Special Economic Zones for the purpose of allowing deductions under sub-section (1). Explanation-For the purposes of this section, "Developer" and "Special Economic Zone" shall have the same meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005." 64. Ergo, the benefit u/s.80IAB is eligible only in respect of project approved by Board of Approval under the aegis of Ministry of Commerce and Industry and once the approval is granted by BOA, the statutory benefit has to be granted so as to give effect to such approval. The SEZ Act, 2005 has been enacted as a self-contained code and is a Special Act which has an overriding effect on any other Act including the Income Tax Act, 1961, in view of provision of Section 51 and r.w.s. 27 of the SEZ Act 2005. 65. Before us, the learned counsel has given the sequence of various approvals which are quite relevant for examining the claim of the assessee, which are as under: i. That SEZ project undertaken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproval for development of SEZ project was duly granted by Government of India. In any case, the Hon'ble P&H High Court has not commented upon SEZ Project developed on said piece of land and the decision will not at all affect the right of the assessee. In these circumstances, the decision of P&H High Court shall have no bearing on the claim of deduction u/s 80IAB of the Act particularly when the infrastructure project has already been executed and completed. In any case, the order of P&H High Court pronounced on 03/02/2011 was challenged before Supreme Court by the assessee and other parties and now the Hon'ble Supreme Court vide order dated 20/06/2011 has stayed the operation of judgment of P&H High Court and therefore, the adverse inference on the basis of order of P&H High Court is not sustainable. He clarified that assessment order was passed on 27/04/2011, i.e., before passing of the order by the Hon'ble Supreme Court and thus, the observation of the assessing officer is no longer relevant and this controversy has no legs to stand. 67. We find that, even the ld. CIT (A) has considered this fact in light of the judgment of the Hon'ble Supreme Court and on this basis has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not pointed out as to which of the conditions have not been fulfilled. Likewise, in the present case, it is an undisputed fact that, firstly, the area has been notified as Special Economic Zone vide notification dated 06.12.2006 and 19.03.2007; secondly, the assessee has been approved as Developer by BOA vide letter dated 25.10.2006 and 14.12.2007; and lastly, the operation of developing of building has been approved as authorized operations and as such the income has been derived from developing and sale of bare shell building in SEZ. The term 'Developing a Special Economic Zone' has to be seen in terms of authorized operations specified by BOA under the SEZ Act, 2005. Though Income Tax Act does not define the term 'Developing a Special Economic Zone', however, the meaning of the same has to be deduced from the SEZ Act. Here, in this case, not only the BOA has recognized the existence of SEZ but has also approved the activity of developing and transfer of bare shell as authorized operation of developing of SEZ and assessee has been recognized as developer. Accordingly, all the conditions spelt out in Section 80IAB stands fulfilled. 69. The Assessing Officer has also draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as any objection with regard to proposed transfer of bare shells by the assessee to Codeveloper. The assessing officer has relied upon clause (xvii) of Para 3 of letter dated 01.06.2009 while reaching to the erroneous conclusion that taxability of entire transaction is open for examination and assessment. However, it is seen that the assessing officer in fact has failed to appreciate the above clause in right perspective and has attempted to make use of the same for justifying the denial of claim of deduction u/s 80IAB of the Act. It is pertinent to note here that clause (xvii) of Para 3 is only with regard to terms and conditions of lease agreement and same cannot be inferred to dispute the transaction of transfer of bare shell building and profit arising therefrom. In the present case, the assessee has claimed deduction of profit from sale of bare shell building and as such the clause relating to issue of taxability of lease income is of no help to the revenue. The CIT(A) has given express finding on this issue vide para 8.25 of his order which is quite relevant and allay the charge of the AO. Further, it is seen that the Disclaimer Clause in approval dated 01.06.2009 granted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Zone' within the meaning of Section 80IAB of the Act. Under section 80IAB, the AO's authority is limited to examine whether the provisions of section 80IAB read along with the relevant Rules have been complied or not. For instance, some of the conditions as stipulated in the section which the AO may examine may include: - -Whether the assessee is a developer under the SEZ Act and is in the business of developing a SEZ. -The SEZ has been notified on or after the 1st day of April 2005 under the Special Economic Zone Act, 2005. -Whether the profits have been derived from the business of development, operation and maintenance of a SEZ. 72. The case of assessee has been that the land has been given on lease for a period of 30 years and lease rentals per annum are being received over a period of lease term on annual basis and not up-front for all the years under the lease. The disclaimer condition mentioned in clause 3(xvii) of the approval letter dated 01.06.2009 does not give any additional power to the AO to examine the taxability of the transaction of hand over and transfer of bare shells but has to be restricted only to examine the transaction of lease of Land, as expressl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer as an alternative has also held that isolated transaction of sale of building is assessable under the head 'income from capital gain', and therefore, provision of Section 80IAB is not applicable and since the purchaser M/s. DLF Ltd. has shown the bare shell building as fixed assets with balance-sheet, therefore, the same constitutes the capital assets of the assessee and thus, the profit arising from sale of bare shell is in the nature of Short Term Capital Gain. The aforesaid observations of the ld. Assessing Officer cannot be accepted because assessee is engaged assessee is engaged in the business of real estate and the building in SEZ has been shown as stock-in-trade on which revenue has been recognized as per Percentage Completion method (POCM) prescribed under AS-7. The SEZ project was part of regular business activity of the assessee and as such there is no case to treat this transaction in different context so as to re-characterize income under the head capital gain merely to defeat the claim of deduction based on requisite approval and provisions of section 80IAB. In fact, even during the year under reference, AO has considered various other projects under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of one of the sister concerns, has set-aside the issue for deciding on merits while upholding the revision us/s 263 by the CIT, is also sans any merits, because, nowhere the Hon'ble High Court has adversely commented on the claim of deduction u/s 80IAB on merits. In fact, matter has been restored back to the Tribunal to decide the issue on merits afresh after considering all the facts and the relevant provisions of SEZ Act, which we have already discussed in detail. Thus, reliance placed by the Revenue to draw any adverse inference on merits cannot be sustained." 7. The learned departmental representative could not show was any reason to deviate from the order of the coordinate bench. The learned CIT - A has also decided the issue accordingly in favour of the assessee. In view of this ground number one of the appeal is dismissed and the order of the learned CIT appeal is confirmed to that extent. 8. The ground number two is with respect to the deletion of addition on account of disallowance of deduction for short allocation of overheads to SEZ division of Rs. 93,02,00,000. Both the parties agreed that the CIT - A has deleted the identical addition on this issue for assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment of SEZ. Mere construction of Bare shell buildings will allow the assessee the deduction u/s 80-IAB. Section 80-IAB states that profit and gains derived from business of developing SEZ. Thus, the deduction is only available once the SEZ is developed and it cannot be allowed before the stage of development of SEZ. b. Sale of buildings to the co-developer is neither an activity of development of SEZ nor one of the authorized operations for SEZ notified by the competent authority. It is an isolated transaction giving one time income from transfer of capital assets. It is very clear from the Co- Developer agreement and lease deed that the intention on the part of the assessee company, from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. Co-developer agreement and lease deed very clearly shows that the developer has sold the land and building and loses all rights over these transferred capital assets and the relinquishment of right is irrevocable. c. Though SEZ Act prohibits for sale of land thereby implicitly denying any benefit to a developer who is basically interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of further overheads. Both these companies have incurred overhead expenditure which formed part of development cost considered in POCM. This argument of the company is not tenable as the two companies DLF Info City Developers (Chennai) Ltd and DLF Cyber City Developer Ltd. during the Asstt. year 2008-09 had earned development income of Rs. 1,68,686.15 lacs and Rs. 1,63,049.03 lacs respectively and against the same the overhead expenditure shown by these companies is Rs. 71.58 lacs and Rs. 1,194.51 lacs respectively. In fact, in case of DLF Cyber City Developers, the expenditure of Rs. 1194.51 lacs includes commission and brokerage expenditure of Rs. 1155.79 Lacs and if this is reduced then the overhead expenditure incurred would be just Rs. 38.72 Lacs. It is difficult to imagine that the two companies earning development income of Rs. 168686 lacs and Rs. 163049 lacs would have incurred overhead expenditure of Rs. 71.58 lac and 38.72 lacs only. This clearly points to the fact that these two companies must have benefitted from the overhead expenditure incurred by DLF Ltd. In the previous year's also DLF Ltd has itself allocated overhead expenditure to its associated concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated companies. 12.9The assessee has also cited judgement in the case of Nestle India Limited Vs DCIT (2009) 27 SOT 9(Delhi). In this case it was held that the assessee company had incurred expenditure on account of advertisement and sales promotion in respect of only those products in which the Indian company dealing in. Thus, the expenditure had been incurred to promote sales in India. Therefore, those expenses were incurred wholly and exclusively for the purpose of business of the assessee. In this case the associated concerns of Nestle India are situated outside India and it was easily established by Nestle that the advertisement expenses were incurred in respect of products dealt by the Indian company. However, in the case of the assessee the line of business of the assessee company and its associated concerns is identical and therefore the percentage of overhead expenditure incurred by the assessee and its associated concerns would be similar. The Special Auditor in their report have reported that DLF Ltd have incurred administrative overheads of 3.18% of the total turnover but in the case of DLF Info City Developers (Chennai) Ltd. the company has incurred administrativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of Special Audit. It is seen that there are certain heads of expenses which were exclusively pertaining to the appellant company and could not have been allocated to the other group entities. It is also seen from the Special Audit report that the Special Auditors have not brought out any instance of expenditure specifically pertaining to other group companies but has been claimed in the profit and loss account of appellant company during the year. The allocation made out by the Special Auditors was based on the presumption without bringing any material on record. No allocation of overheads is needed in the case of M/s. DLF Info City Developers (Chennai) Ltd. and DLF Cyber City Developers Ltd. because these subsidiaries have their own resources and are meeting out their expenses own their own. In the case of M/s DLF Info City Developers (Chennai) Ltd. it is seen that this company has only one project that is the development of SEZ at Chennai. The only activity in this company is the development of SEZ building and the administrative activity is bare minimum and hence there was no requirement of the allocation of further expenses. Apart from the above the company had incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed above, it cannot be denied that the said expenditure was not incurred wholly and exclusively for the purpose of the appellant's business. Further, as argued by the learned AR that all the above group companies of the appellant are subject to tax at the same rate and hence shifting of such expenditure from appellant company to other group companies would be futile and revenue neutral exercise. Considering the above, the impugned disallowance of Rs. 15,02,99,365/- made by the Assessing Officer cannot be sustained. The same is, therefore, deleted." 129. The Tribunal in Assessment Year 2006-07 has dismissed the Revenue's appeal on this issue after observing and holding as under: "121. We have carefully considered the rival contentions. The brief fact is that certain overhead expenses incurred by the assessee have been apportioned to the other group companies for the reason that by incurring those expenses, the assessee has passed on some benefit to those companies. The amount of 75% of that expenditure has been transferred to the group companies and 30% of that expenditure is borne by the assessee company. During the course of assessment proceedings, the AO found that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, respectfully following the same, the Revenue's ground is dismissed." As the revenue could not dispute that the issue is covered by the decision of the coordinate bench, we respectfully following the decision of the coordinate bench dismissed ground number two of the appeal and confirm the order of the learned CIT - A to that extent. 9. Ground number three of the appeal is with respect to the deletion of addition on account of estimated ITC charges and P commencement of the construction cost. Both the parties confirm that this issue is covered by the paragraph number 81/87 of the order of the coordinate bench for assessment year 2008 - 09 as Under:- "86. We find that the similar issue was also involved before this Tribunal in the appeal for the Assessment Year 2006-07, wherein the Tribunal has decided this issue in favour the assessee in the following manner: "42. We have carefully considered the rival contentions and also given a careful thought to the offer of ld. DR for setting aside this ground of appeal to the file of the AO for determination of threshold limit of 30% of the total project cost incurred up to this year or not. Before that we would like to address the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore the threshold suggested by ICAI is the minimum threshold and it is not prohibited that looking to the business conditions assessee cannot fix up higher threshold. More so when the assessee has stated that many identical companies are also following similar threshold of 30 % of the total project cost, no fault can be found with the estimate made by the assessee. It is also undisputed that in subsequent years the special auditor appointed by revenue has accepted the threshold of 30 % adopted by assessee and AO has accepted the same. In view of above we are of the opinion that assessee has rightly accepted the threshold of 30 % of achievement of total project cost for commencement of revenue recognition. Further the working of the total project should also include all types of development charges required to be included in the same. Ld. AR has stated that the details of percentage of completion of project are available in the assessment order itself. However after careful consideration and agreed by both the parties, we set aside this issue to the file of the AO to determine with respect to Magnolia Project and Summit Project following :- (i) To determine the total projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we are of opinion that these notes have arisen in the financial statement of the assessee because of the issue of applicability of Accounting Standard 16 issued by the ICAI. According to Accounting Standard 1 i.e. disclosure of accounting policies, each and every company is required to disclose the accounting policy with respect to various significant income, expenditure and assets and liabilities etc. applicable to it. Borrowing cost is also one of them. ICAI has issued Accounting Standard 16 Accounting for Borrowing Cost wherein it is provided that in case of interest expenditure incurred by the company, it is required to be capitalized if the borrowing is related to the qualifying assets. In this case the inventory is a qualifying assets as it is held for more than 12 months and therefore interest attributable to it is required to be capitalized in the books of accounts as per AS -16. Therefore we do not agree with the arguments of AR that AS -16 does not apply to inventory. However, those are the provisions which are applicable for the maintenance of the accounts of the company and interest is allowable according to provisions of section 36(1) (iii) of the act. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. In the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 , it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes of deciding the claim of deduction under section 10(2)(iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the Project of construction of flats under the Kandivali Project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali Project constituted the stock-in-trade of the assessee. That, the Project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under section 36(1)(iii). Since the assessee had received l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in case of CIT V Reliance Utilities & Power limited 313 ITR 340 has held that "The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments." Therefore we are of the view that presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [ 131 taxman 810] and CIT V Reliance Utilities & Power limited [313 ITR 340] We reverse the order of the CIT (A) confirming the disallowance of expenditure of Rs. 27.40 crores and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act." 98. Accordingly, respectfully following the aforesaid precedence which is applicable on the facts of the present year also, we decide this issue in favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting standard AS-2 & AS-7 and judgment of ITAT in earlier years and CIT (Appeals) in appellant's own case for A.Yrs. 2006-07 and 2007-08. It is seen that as per para-19 of AS-7, it is mentioned that the selling cost cannot be attributed to contract activity or cannot be allocated to a contract under construction. Even as per AS-2 "Valuation of Inventory" issued by ICAI, it is seen that selling and distribution cost cannot be considered as part of the cost of inventory and such expense has to recognized in the period in which they are incurred. The cost which can be attributed /allocated over the inventory should comprise all the cost of purchase, cost of conversion and other cost incurred in bringing the inventory to their present location and condition. In the case of construction activities the cost of purchase of land and construction cost can only be attributed over the project. The brokerage expenses are purely a selling cost and cannot form a part of inventory. In view of the accounting standard, the brokerage expenses being a selling cost cannot be capitalized with the cost of inventory and cannot be allocated to the construction activity. During the year the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to a particular property or flat sold and it cannot be extended to other properties. Therefore, brokerage expenses cannot be postponed for the future years. Therefore, ratio of the said judgment is not applicable in the case of appellant. 13.21 The appellant has placed reliance on the decision of the jurisdictional High Court in the case of Nokia Corporation vs. DIT, Delhi, 2007, 162 Taxman 369 (Delhi), wherein it is held that even if the Department has filed further appeal against the last order, which is in favour of the appellant, the last order is judicially binding on the subordinate authority. Hence, respectfully following the order of the Hon'ble Income Tax appellate Tribunal for AY 1984-85 and the order of CIT(Appeals) for the immediately preceding years relevant to the Assessment Years 2006-07 and 2007-08 in appellant's own case. In view of the above, the addition to the extent of Rs. 2,99,74,600/-(Rs. 2,82,93,983 + Rs. 16,80,717) pertaining to payment of brokerage and commission is deleted. 13.22 However, expenses of Rs. 64,51,161/- pertains to brokerage paid for giving property on lease. These brokerage expenses have been incurred for giving the Grand Mall and To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2009 dated 16.04.2015 while deciding ground no 4 of the appeal of the revenue honourable high court has held that expenditure towards brokerage and commission paid to brokers for booking and sale of certain properties is allowable firstly in view f the facts that assessee's treatment of such expenditure has been decided in favour of the assessee and revenue has not challenged it and secondly such expenditure are allowable. In view of the above facts and following the decision of coordinate Bench as facts are not distinguished by revenue, we confirm the order of CIT (A) in deleting the addition of Rs. 20,87,70,567/- on account of brokerage expenses for sale of various properties. Therefore, ground no.14 is dismissed." 103. Thus, in view of the aforesaid precedence of the earlier year this issue is decided in favour of the assessee." Therefore respectfully following the decision of the coordinate bench we dismiss ground number five of the appeal of the learned assessing officer and confirmed the order of the learned CIT - A to that extent. 12. The ground number six is with respect to the deletion of addition on account of disallowance of net contingency deposit. This issue is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingent liabilities like fixing of transformers, laying of electric of line and other demands from Govt. of Haryana. Since this deposit account is maintained for performance of contractual obligations as per clause- 4 of the agreement to sell entered with the respective customers, the same cannot be treated as trading receipts of the appellant. Hence, the addition on account of these receipts amounting to Rs. 1,14,837/- is deleted." 110. The Tribunal also in Assessment Year 2006-07 has dismissed the Revenue's appeal after observing and holding as under: "236. We have carefully considered the rival contentions. This amount has been collected by the assessee at predetermined rate from the buyers which has obligation to incur expenditure on "account of contingent nature for the projects. It is not a fact that this amount has not been utilised as it is evident that in March 2006, assessee has incurred the cost of Rs. 9.87 crores. Furthermore, in the preceding two years as well as succeeding two years, the assessee has incurred expenditure out of this sum. We agree with the contention of the ld. AR that each and every receipt cannot be charged to tax unless it partakes the character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack this amount to the buyers, and therefore, this amount is income generated by the assessee which should be liable to be taxed. 113. Ld. CIT(A) has deleted the addition made by the Assessing Officer in the following manner: "16.9 I have considered the submission of the appellant, observation of the ASSESSING OFFICER, decision of CIT (Appeals) for A.Y. 2006-07 and A.Y. 2007-08 which have decided this issue in favour of the appellant company and various judicial pronouncements available on the issue. It is seen that that these deposits were received in terms of sale agreement from customers as interest free security deposits on account of buyers obligation to regularly pay to the appellant or any other agency appointed by the appellant in respect of insurance premium, maintenance etc. These amounts are refundable to customers/ resident associations, once a society or association is formed. In the agreement to sell, it is specifically mentioned that these interest free deposits were taken from the customers to meet certain future liabilities like insurance premium and maintenance charges of the building. For these receipts, a separate account is maintained and as and when the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by the order of the coordinate bench for assessment year 2008 - 09 wherein it followed the decision of the coordinate bench in assessee's own case for assessment year 2006 - 07 and the revenue has not prefer any appeal against that order and further the learned assessing officer himself has not made any addition on this issue from assessment year 2012 - 13 onwards and therefore the issue becomes conclusively decided in favour of the assessee. These facts are not disputed by the learned departmental representative. The coordinate bench decided this issue as Under:- "116. The next issue relates to deletion of addition on account of net registration charges received at Rs. 8,49,20,884/-. 117. Ld. Assessing Officer noted that as per clause 13 of the 'Buyers' agreement', it is mentioned that the company along with subsidiary company will prepare and execute Conveyance Deed in favour of the buyer only after receiving the full payment of the total price of the property, parking space, all security deposits, registration charges etc. If the buyer is in default of any of the payment, then the company can withhold the registration of the Conveyance Deed in favour of the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch charges and actual registration of the flat/plot. Before actual registration takes place, the appellant has to pay stamp charges or it has to get the documents franking for the stamp charges. Therefore, after payment of franking/stamp charges a date is fixed for registration of the property. This procedure takes time, therefore, the amount received on account of registration charges are credited in the account maintained under the head 'registration charges'. These registration charges have been shown as liability in the balance sheet of the appellant. It is also seen that some time registration charges are received from the customers but actual registration could not takes place due to non availability of person concerned or for want of other formalities or documents. Therefore, the money received in this account is kept in a separate account under the head 'Current Liability' as the same does not belong to the appellant. The appellant is a custodian of this amount which ultimately is to be paid to the Government. As observed by the Special Auditors that out of an amount of Rs. 24.76 crore received during the year, an amount of Rs. 16.29 crore has been spent on registration ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd further, no addition has been made from Assessment Year 2012-13 onwards. In view of the Tribunal order and as a matter of consistency, in this year also we delete the said addition." Therefore respectfully following the decision of the coordinate bench we confirm the order of the learned CIT - A deleting the addition of Rs. 6,34,45,144/- and dismiss ground number eight of the appeal. 15. Ground number nine of the appeal is with respect to the deletion of disallowance on account of expenses towards non-allocation of override to group companies. The learned assessing officer has disallowed the sum of Rs. 62,452,456/- the learned authorised representative submitted that this issue is covered in favour of the assessee by the order of the coordinate bench for assessment year 2008 - 09 in assessee's own case wherein the coordinate bench followed the decision of the ITAT in assessee's own case for assessment year 2006 - 07 and against that order of the revenue has not preferred any appeal before the honourable High Court. Further the learned assessing officer himself has also not made any addition on this issue from assessment year 2012 - 13 onwards. The learned departmental represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital assets. It is very clear from the Co- Developer agreement and lease deed that the intention on the part of the assessee company, from the very beginning was to construct and sale the buildings as a onetime activity. Such isolated transaction can never be termed as business activity. Co-developer agreement and lease deed very clearly shows that the developer has sold the land and building and loses all rights over these transferred capital assets and the relinquishment of right is irrevocable. c. Though SEZ Act prohibits for sale of land thereby implicitly denying any benefit to a developer who is basically interested in deriving income by transfer of assets, the assessee has found a way to overcome this prohibition by creating 49 years lease in favour of co-developer. It is pertinent to note that the lease deed is renewable further and thus effectively transferring the land also. Para 2.3 and 5.1 of the Lease Deed clearly allows the parties to renew the lease deed. Thus, the assessee company has transferred the land in actual sense and substance of this present transaction means sale of land. In most of the cases, substance of the transaction and its form are one and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pers, the expenditure of Rs. 1194.51 lacs includes commission and brokerage expenditure of Rs. 1155.79 Lacs and if this is reduced then the overhead expenditure incurred would be just Rs. 38.72 Lacs. It is difficult to imagine that the two companies earning development income of Rs. 168686 lacs and Rs. 163049 lacs would have incurred overhead expenditure of Rs. 71.58 lac and 38.72 lacs only. This clearly points to the fact that these two companies must have benefitted from the overhead expenditure incurred by DLF Ltd. In the previous year's also DLF Ltd has itself allocated overhead expenditure to its associated concerns. 12.6 The assessee has contended that revenue impact of whole of this exercise is revenue neutral since if certain amount of expenses is held to be allocable to group entities, the same will have to be allowed in the hands of those entities. In this respect the point to be observed is that the two companies identified by the Special Auditors which had incurred negligible overheads have earned income from development of SEZ and claimed deduction equal to 100% of profit earned on SEZ development u/s 801AB, hence the argument of the assessee that this exercise w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India and it was easily established by Nestle that the advertisement expenses were incurred in respect of products dealt by the Indian company. However, in the case of the assessee the line of business of the assessee company and its associated concerns is identical and therefore the percentage of overhead expenditure incurred by the assessee and its associated concerns would be similar. The Special Auditor in their report have reported that DLF Ltd have incurred administrative overheads of 3.18% of the total turnover but in the case of DLF Info City Developers (Chennai) Ltd. the company has incurred administrative overheads of Rs. 71.58 Lacs against development income of Rs. 168686 Lacs which is just 0.042% of total turnover and DLF Cyber City Developers Ltd have incurred administrative overheads of Rs. 38.72 Lacs (after reducing brokerage and commission) against development income of Rs. 163049 Lacs which is just 0.023% of total turnover. The line of business of the assessee company and associated concern being identical, the proportion of overhead expenditure to the level of business should also be similar but as mentioned above there is substantial variance in the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record. No allocation of overheads is needed in the case of M/s. DLF Info City Developers (Chennai) Ltd. and DLF Cyber City Developers Ltd. because these subsidiaries have their own resources and are meeting out their expenses own their own. In the case of M/s DLF Info City Developers (Chennai) Ltd. it is seen that this company has only one project that is the development of SEZ at Chennai. The only activity in this company is the development of SEZ building and the administrative activity is bare minimum and hence there was no requirement of the allocation of further expenses. Apart from the above the company had incurred overhead expenditure which formed part of the development cost which has been considered for POCM. The details of such expenditure was furnished to the Assessing Officer at page No.1 of appellant's letter dated 31.3.2011. The amount of overhead expenditure forming part of development cost comes to Rs. 13,12,65,162/-. This expenditure includes the overhead expenses incurred by the DLF Infocity Developer (Chennai) Ltd. In the case of M/s. DLF Cyber City Developers Ltd, it is noted that the main project was only development of SEZ project at Sector 25 Gurgaon. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 129. The Tribunal in Assessment Year 2006-07 has dismissed the Revenue's appeal on this issue after observing and holding as under: "121. We have carefully considered the rival contentions. The brief fact is that certain overhead expenses incurred by the assessee have been apportioned to the other group companies for the reason that by incurring those expenses, the assessee has passed on some benefit to those companies. The amount of 75% of that expenditure has been transferred to the group companies and 30% of that expenditure is borne by the assessee company. During the course of assessment proceedings, the AO found that an amount of Rs. 20,79,10,574/- expenditure pertaining to payment to Directors, advertisements, printing and stationery, security charges, leave encashment and salary and wages are not apportioned to group companies and, therefore, AO disallowed 70% of those expenditure amounting to Rs. 14,55,37,401/-. It is not the case of the AO that these amount of expenditure are not incurred by the assessee and further veracity of those expenditure have also not been doubted. The only reason for disallowance is that assessee has not allocated this expenditure to its variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. The assessee has challenged it stating that the learned assessing officer has not recorded any satisfaction with respect to the disallowance offered by the assessee and therefore the only addition is required to be deleted. The learned assessing officer has disallowed Rs. 1,326,681,000 u/s 14 A of the act read with rule 8D of the income tax rules. The AO observed that the investment in partnership firm's and in shares of the companies in mutual funds the income of is exempt has been made out of the interest yielding funds and therefore there is a direct nexus between the funds borrowed in the investment made. The AO has further noted that apart from the interest disallowance of Rs. 11,138.83 lakhs the disallowance of administrative expenditure amounting to Rs. 2146.13 lakhs has also been made. The learned assessing officer as per showcause notice dated 1/11/2012 and 4/8/2014 required the appellant to show cause as to why the disallowance should not be made u/s 14 A read with rule 8D of the act. The assessee has submitted that on its own it has disallowed a sum of Rs. 1,815,695 on account of expenses in admissible u/s 14 A of the income tax act. Assessee has also submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 A of the act. The learned assessing officer has only given a general observation. The issue is squarely covered by the decision of the honourable Delhi High Court in case of Eicher Motors Ltd. v. Commissioner of Income-tax-III* [2017] 86 taxmann.com 49 (Delhi)/[2017] 250 Taxman 532 (Delhi)/[2017] 398 ITR 51 (Delhi) "13. As regards the disallowance of expenditure for earning exempt income in terms of Section 14A of the Act, the settled legal position is that the AO had to record reasons for disagreeing with the submission of the Assessee that it had incurred no expenditure for earning such exempt income. This is plain even from Rule 8D (1) which requires the AO to mandatorily record his satisfaction that the claim made by the Assessee that no expenditure has been incurred is incorrect "having regard to the accounts of the assessee." In this case, a perusal of the AO's reasoning shows that the AO has merely conjectured that there is an inbuilt cost even in passive investment as also incidental expenditure like collection, telephone, follow up etc., The AO thus concludes that the expenses are embedded as indirect expenses. This is not as per the requirements of Rule 8D. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation made by the Special Auditor. 158. Ld. CIT (A) has deleted the addition in the following manner: "27.13 I have considered the submission of the appellant and observation of the ASSESSING OFFICER and decision of Hon'ble ITAT for A.Y. 1996-97 in appellant's own case and decision of the Hon'ble CIT(A)-XVIII for A.Y. 2006-07 and my own decision in appellant's own case for A.Y. 2007-08. It is seen that the issue in this ground is covered in favour of the appellant by the order of Hon'ble ITAT in appellant's own case for AY 1996-97. The appellant has received income from the properties owned by it and such properties are reflecting in balance sheet as stock in trade. The appellant has furnished the receipt of house tax payment with respect to above said properties during the course of assessment proceedings which establish that said properties belong to appellant and owned by it. It is noticed that the Assessing Officer has made the addition by reclassifying the income by relying upon the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. (supra). However, there is no dispute on the facts noted above. Taking into consideration the order of Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the decision of the coordinate bench we dismiss ground number 11 of the appeal accordingly. 20. Ground number 12 of the appeal is against the deletion of addition on account of notional rent/additional annual lighting value in respect of the vacant and leased out properties amounting to Rs. 629,430/-. Both the parties agreed that this issue is also covered in favour of the assessee by the decision of the coordinate bench for assessment year 2008 - 09 wherein it has been decided as Under:- "161. In ground no.19, the Revenue has challenged the deletion of addition of Rs. 12,28,340/- on account of disallowance of notional rent/additional annual letting value in respect of the vacant property. 162. Ld. Assessing Officer noted that Special Auditor has pointed out that number of immovable property owned by the assessee were lying vacant and notional rent in respect of such properties has been worked out at Rs. 12,28,340/-. 163. Ld. CIT (A) has deleted the addition in the following manner: "28.13 I have considered the submission of the appellant, observation of the ASSESSING OFFICER and various judicial pronouncements available on the issue and order of Commissioner of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order is as under: - - DLF City Centre Rs. 2,36,01,310/- - DLF Commercial Shopping Complex Rs. 27,21,360/- DLF Corporate Park Rs. 1,69,07,688/- Rs. 4,32,30,358/- Less: Standard Deduction u/s 24(1) Rs. 1,29,69,107/- Rs. 3,02,61,250/- 17. The Ld. CIT (A) has deleted the addition after discussing the case of the assessee in detail and following the decision cited before him in this regard including decision of 'D' Bench of the Tribunal on an identical issue in the assessee's group concern M/s DLF Office Developers vs. ACIT reported in 23 SOT 19 (Del) and first appellate orders in the assessee's own case for the assessment years 2006-07, 2007-08 and 2008-09. 18. In support of the ground the Ld. Departmental Representative has basically placed reliance on the assessment order. 19. The Ld. AR on the other hand reiterated the submissions made before the Ld. CIT (A) and the decisions cited and relied upon before him. 20. Considering the above submission, we find that the Ld. CIT (A) has decided the issue in favour of the assessee narrating the observation made in the cited decisions in case of M/s DLF Office Developers vs. ACIT (Supra) and other th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, the AL V will be Nil as per provision of section 23(1)(c) of the IT Act. Section 23(1)(a) r.w.s 23(1)(c) clearly provides that if the property remain vacant wholly or partly during the year, then actual rent received or receivable will be taken as the ALV of such properties. In the case of appellant the property is remained vacant, therefore, the ALV of such properties will be Nil. Hence, no notional rent can be estimated in the case of vacant properties. The decision of the Assessing Officer was not justified. As regards, the Assessing Officer's decision of computing the notional rent based on highest rent in respect of each building, it is seen that the properties have been given to various parties which are not related to the appellant and some of them are of International repute like GE Capital, KPMG. The rent has been charged based on the location of the property, area of lease property and timing of lease agreement. It is seen that appellant has filed copies of the all lease agreement before Assessing Officer for verification and no discrepancy in the rental income in the books of accounts, as compared to the lease agreement was pointed out by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical to the issue in assessee's own case for assessment year 2008 - 09 wherein the coordinate bench has deleted the above disallowance confirming the order of the learned CIT - A as Under:- "166. In ground no.20, the Revenue has challenged the deletion of addition Rs. 7,17,794/- on account of depreciation claimed on DLF Centre Building. 167. The Assessing Officer on the basis of Special Audit Report observed that assessee company has charged excess depreciation of Rs. 914277/- on certain portion in respect of building on DLF Center which was earlier let out but during the Assessment Year the same has been converted into self occupied already therefore excess depreciation has been charged since the assessee has claimed depreciation existing on 01.04.1999 whereas depreciation is allowable on WVS on 01.04.2005 the Assessing Officer worked out the excess depreciation of Rs. 8,03,807/-. 168. Ld. CIT(A) has deleted the addition in the following manner: "30.7 I have considered the submission of the appellant and observation of the ASSESSING OFFICER and order of CIT (A) XVIII for AY 2006-07 and my own order for AY 2007-08 in appellant's case, where this issue was decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above, this issue is decided against the Revenue." Therefore respectfully following the decision of the coordinate bench we dismiss ground number 13 of the appeal. 22. Ground number 14 is against the deletion of addition on account of prior period expenditure. Both the parties confirm that this issue is identical to the order of the coordinate bench for assessment year 2008 - 09 wherein the coordinate bench followed the order in case of the assessee for assessment year 2006 - 07 and the revenue has not referred further appeal before the honourable High Court and AO himself has not made any disallowances on this issue with respect to the assessment year 2016 - 17 onwards. The coordinate bench decided this issue as Under:- "42. In so far as the first issue is concerned, the facts in brief are that the Special Auditors have pointed out that assessee has claimed prior period expenses amounting to Rs. 70,12,062/- on the basis of which, ld. Assessing Officer issued a show cause notice to the assessee. In response, the assessee submitted that first of all, an amount of Rs. 14,63,017/- was on account of purchase of assets being the cost of office equipment and computers and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditor has held so because of the reason that the actual travelling has taken in the previous year. Naturally, it is a matter of common sense for the purpose of LTA claim, the travelling of the employees is prior to the claims submitted by the employees. The CIT (A) has specifically dealt with one instance in para 27.3 of his order. After verification of the details, it was received by the assessee from its employees during this period and after following the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Shriram Piston - 174 taxman 147, the disallowance is deleted. The reliance of the ld. AR on the decision of Hon'ble Delhi High Court in CIT vs. Modipan Ltd. - 334 ITR 102 is also apt as the expenditure are settled during the year. Further genuineness of these expenditure is not in doubt and allowabaility of these expenditure is also not in question except classifying them as prior period expenses and there is no difference in rate of taxes for respective years. In the result, we confirm the order of the CIT (A) in deleting the addition of Rs. 22,98,510/- on account of prior period expenditure. In the result, ground no.26 of the revenue's appeal is dismissed." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,26,11,958/-. In the assessment proceedings these expenses have been treated as pre-operative expenses by the ASSESSING OFFICER. It is claimed by the appellant that conducting feasibility and viability study for developing SEZ was not a new line of business but it was expansion/extension of the same line of business. Development of SEZ is very akin development of commercial projects which falls within the objectives of the MOA of the appellant company. Any expenditure incurred for expansion or extension of same line of business with complete unity of control, common fund and with the common management is a revenue expenditure and same cannot be held as capital expenditure. The feasibility and viability study was to extend the business of the appellant in same line, therefore, the expenditure incurred on such study is revenue expenditure and by exploring the possibility of obtaining/developing or extension of the existing business at various stations identified, the appellant was only planning to expand its business and no new asset much less capital asset have been created. The Assessing Officer was not justified in treating these expenses as pre-operative expenses and same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant has held that the when the assessee proposed to set up new project which had inextricable linkage with the existing business of the assessee, The proposed business was not an individual business but vertical expansion of the existing business and Thus, the test of existing business with common administration and common fund was met. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Honourable Delhi high court in case of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2011] 333 ITR 18 (del) we reverse the order of CIT (A) and delete the disallowance of Rs. 1,47,70, ,222/- on account of tender fees for modernisation of airports. Therefore ground no 16 of the appeal is allowed." " 216. We have carefully considered the rival contentions. The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 49,629,551 and operational expenditure of Rs. 387,449,073/-. This issue has been raised by the learned assessing officer wherein he disallowed the expenditure of the above sum considering the same as a personal in nature and disallowed 66.6% of the expenditure amounting to Rs. 387,449,073 on the maintenance of the aircraft and helicopter observing that assessee has not proved business expediency of the expenditure and those expenditure appeal to be personal in nature. The learned CIT - A has dealt with this issue at para number 23 of his order at page number 177 - 196 noting that assessee is engaged in the business of development of real estate and it is one of the largest realistic developer in the field of colonization and township developments all over the country the procurement of the various material is source from the various countries across the globe. The company takes technical assistance/know-how from the repeated technical consultants globally. The company requires two flights directors, senior executives, ingenious and consultants both on its rolls and hired in India and abroad which various project sites located all over the country. Due to the frequency of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 69.31 crores. The learned CIT appeal noted that the order of the assessment passed by the assessing officer wherein it has been held that the company is close to its subsidiaries at the rate of 6.5% in most of the cases and 12 - 14% in case of some of the advances. The company has taken loan from the banks and other financial institution where the weighted average interest cost is 9 - 9.5 % and therefore the disallowance has been made. He deleted the disallowance holding that in the instant case the learned assessing officer has not raised the question regarding the capital borrowed for the purposes of the business. The only objection is that the borrowing is at the rate higher than the amount of interest charged from its subsidiaries. He deleted the disallowance relying on the decision of the honourable Supreme Court in case of SA builders (288 ITR 1) and M/s Taparia Tools V JCIT wherein he noted that the honourable Supreme Court has observed that while examining the allowability of deduction of the interest the AO is required to consider the genuineness of the business borrowing and that the borrowing was for the purposes of the business and not an illusionary and coloura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d while deciding ground number 10 of the appeal of the learned assessing officer. Accordingly ground number one of the appeal is allowed. 32. Ground number 2 of the appeal is with respect to the confirmation of the addition on account of notional rent whether security deposit received but no rental income has been shown. The learned authorised representative submitted that identical issue arose in case of the assessee for assessment year 2008 - 09 wherein this issue has been decided by the coordinate bench in favour of the assessee and therefore same needs to be followed. The learned departmental representative relied upon the order of the lower authorities. We have carefully considered the rival contention and find that this issue is covered in favour of the assessee by the decision of the coordinate bench in assessee's own case for assessment year 2008 - 09 is per paragraph number 21 - 24 of the order. In the present case the disallowance confirmed by the learned CIT - A is of Rs. 769,038. We do not find any distinction between the issue before the coordinate bench for assessment year 2008 - 09 and the issue in the impugned appeal. The coordinate bench decided this issue as Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iversion was towards provisions of maintenance services. It was further contended that the rental income as diverted to DLF Services Ltd. has being subjected to tax in the case of M/s. DLF Services Ltd. and there is no case of subjecting the same income again in the case of appellant. In this connection, the appellant made reference to decision of Supreme Court in the case of M/s. Ashish Plastic Industries Vs. ACIT 373 ITR 45, as per which same income cannot be subjected to tax again in the case of the appellant. 44. The Ld. CIT DR supported the order of the Assessing Officer and CIT(A). 45. After hearing both the parties, we are of the view that the appellant assigned DLF Services Ltd. right to recover lease rent for maintenance and upkeep services of Mall and as such there was a genuine business arrangement between the parties. If the lease income is considered as chargeable to tax in the case of appellant, the appellant may be eligible for claim of expenses on account of maintenance of Mall which was owned and run by the appellant and as such appellant has not derived any tax benefit on the basis of such arrangement and for diversion of lease rent. It is further relevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to the extent of Rs. 6,449,477/- as is permissible deduction as revenue expenditure." 36. The learned authorised representative submitted that this issue is interlinked to the ground of various expenditure disallowed by the ld learned assessing officer and dealt with by the learned CIT - A at paragraph number 24.1 of the order. It was submitted that this ground is left inadvertently at the time of filing of the original appeal. He therefore submitted that in the interest of justice same may be admitted. He further submitted that assessee has preferred an application u/s 154 before the assessing officer pointing out that the disallowance of Rs. 1, 16,31,062 already includes a sum of Rs. 5,181,585 disallowed by the assessee in its return of income. Therefore it was submitted that the only grievances that the learned assessing officer should have looked into the application made by the assessee. 37. The learned departmental representative vehemently objected to the same and stated that now the assessee cannot raise this ground of appeal. He further stated that it requires fresh examination also. He further stated that there is no evidence available that the assessee has itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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