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TMI Blog2024 (10) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... terest - HELD THAT:- Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of money borrowed or debt incurred by the assessee . Thus, Tribunal in the case of M/s. Vipul Infracon Pvt. [ 2023 (8) TMI 670 - ITAT DELHI] has under the identical facts and the issue has ruled in favour of the assessee. The Revenue has not brought to our our notice any other binding precedent that may impel us for deviating from the decision of the Co-ordinate Bench. We therefore, respectfully following the decision of the Co-ordinate Bench of the Tribunal hereby affirm the impugned order on the issue and reject the plea of the Revenue. Addition of administrative expenses and staff cost - Assessee contended that as per AS-7, the expenses are allowable as administration cost and staff cost incurred by the assessee, are not directly related to a construction of project and same are to be charged to profit and loss account - Revenue submitted that CIT(A) was not justified in deleting the addition as it is admitted fact that the assessee is followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HARAT, JM : The present appeal filed by the Revenue is directed against the order passed by Ld.CIT(A)-6, Delhi dated 02.12.2016 for the assessment year 2012- 13. 2. The Revenue has raised following grounds of appeal:- 1. Whether in facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of Rs. 42,87,770/-, Rs. 1,26,24,770/- and Rs. 7,63,807/- on account of expenditure and depreciation respectively relating to construction activity in the year even when the assessee had not offered income during the year under consideration following Complete contract Method of accounting? 2. Whether in facts and circumstances of the case, the Ld. CIT(A) is legally justified in allowing expenditure and depreciation during the year under consideration even when the assessee had not disclosed revenue as it was following Complete Contract Method of accounting? 3. Whether in facts and circumstances of the case, Ld. Cit (A) is legally justified in not holding that application of Rule 8D of the Income Tax Rule, 1962 (the Rule) to compute quantum of disallowance u/s 14 A of the Income Tax Act 1961 (the Act) is mandatory? 4. Whether in facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed and assessed income at INR 3,02,86,080/- against the declared income at INR 1,20,22,329/-. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions, partly allowed the appeal of the assessee. Thereby, he deleted the additions related to the addition of INR 6,00,000/- in respect of ROC fee, disallowance u/s 14A of the Act depreciation, proportionate disallowance of expenditure and rental income. In sum and substance, Ld.CIT(A) deleted all the additions made by the AO. 5. Aggrieved against the order of Ld.CIT(A), the Revenue preferred appeal before this Tribunal. 6. Ground No.6 raised by the Revenue is general in nature, needs no separate adjudication hence, dismissed 7. Ground Nos. 3, 4 5 raised by the Revenue are inter-connected and against the deletion of addition made by the AO by invoking the provision of section 14A of the Act. . 8. Apropos to these grounds, Ld.CIT DR for the Revenue supported the orders of the authorities below and submitted that Ld.CIT(A) was not justified in deleting the addition. 9. On the other hand, Ld. Counsel for the assessee relied upon the order of Ld.CIT(A) and submitted that Ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 45 taxmann.com 116 (Gujarat) for the assessment year 2009-10 and the Hon'ble High Court of Bombay in the case of CIT vs. Delite Enterprises have also held that assessee had not claimed any exempt income in this year, in such a situation section 14A could have no application in the case of appellant. The similar controversy has been addressed by the Hon'ble High Court of Delhi in the case of M/s Cheminvest Limited vs CIT-378 ITR 0033 wherein the court has analysed the meaning of exempt income as enumerated in Sec 14A of the Act. The Hon'ble Court held as under: the question framed by holding that the expression does not form part of the total income in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Respectfully following the decision of the Jurisdictional High Court I am of the view that the claim of the appellant needs to be upheld. Therefore, provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that the nature of business of the appellant is developer. The project being built by the appellant is his stock in trade till the same is sold out. The appellant raises loans while entering an MOU with the prospective buyer for purchase of property which is to be constructed. The prospective buyer in return is offered assured return against the deposit made till the property is transferred to him as per the MOU. This assured rental due to the prospective buyer is interest as per Section 2(28A) and TDS under section 194A has been deducted and deposited by the appellant. Further the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (225) ITR 802 (SC) relied upon by the AO; in fact supports the case of the appellant because the Hon'ble Court has held that discounts on debentures to be paid at the time of maturity is revenue expenditure and is allowable proportionately over the life of the debentures. The appellant relied on the decision of Hon'ble High Court of Bombay in the case of C.I.T. vs. Lokhandwala Construction Inds. Ltd, wherein it has been held that Construction project undertaken by the assessee-builder consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital was irrelevant for the purposes of adjudicating the claim for deduction under s. 36(1)(iii) of the Act (see judgment of the Bombay High Court in the case of Calico Dyeing Printing Works vs. CIT (1958) 34 ITR 265 (Bom)). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case. In the light of above facts and legal position, the claim of interest expenditure by the appellant cannot be deferred till the booking of revenue and allowed in the year of sale of property. It needs to be understood that in the case of business of a developer the construction of property is his stock-in-hand and the interest paid on the capital raised by the appellant in its business is finance charges and the same will not form cost of the property. I have carefully considered the observations of the Assessing Officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an accounting practice whereby expenses are recognized in the same accounting period as the related revenues are recognized. The matching concept thus helps avoid misstating earnings for a period. The matching concept, or matching principle, is not an alternative to accrual accounting, but rather a fundamental element of it. This argument is based on the judgment of the Apex Court in Madras Industrial Investment Corporation Ltd. (225 ITR 802) (SC) In that case, the Supreme Court had referred to this 'matching concept. It was held that ordinarily revenue expenditure incurred wholly or exclusively for the purpose of business, can be applied in the year in which it is incurred. However, the facts may justify spreading the expenditure and claiming it over a period of ensuing years, where allowing the entire expenditure in one year could give a very distorted picture of the profits of a particular year. The assured rental must have been paid on advances received from customers amounting to Rs. 13,88,46,123/- shown in note no. 6 of audited balance sheet. As the assessee is following the 'complete contract method' the expenditure related to any project should be allowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right or obligation) and includes any service fee or other charge in respect of money borrowed or debt incurred by the assessee . The Coordinate Bench of this Tribunal rendered in the cases of M/s. Vipul Infracon Pvt. Ltd. vs Addl. CIT, Range-17, New Delhi in ITA No.6480/Del/2016 and ACIT, Circle-26(2), New Delhi vs M/s. Vipul Infracon Pvt.Ltd. in ITA No.891/Del/2017, both dated 09.08.2023 wherein Hon ble Tribunal has decided the issue by observing as under:- 9. As regards the addition of Rs. 72,11,000/- on account of interest and rent expenses claimed by the assessee is concerned, it is submitted by the Ld. AR that this issue is squarely covered by the decision of the ITAT for the assessment year 2010-11 in assessee s own case decided in ITA No. 6141/Del/15 in Revenue s appeal wherein, it has been observed that the payment made to the parties was verified by the Ld. CIT(A) and the funds received from these parties were received by way of cheques and same were utilized by the assessee for its business purposes for completing the project. The payment of assured return in the form of interest to Dinesh Nandini Ram Krishna Dalmia Foundation and assured rental to Sh. Arun Khanna and K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that in the absence of Revenue being offered by the assessee, no expenditure would be allowable. Ld. CIT DR for the Revenue thus, rely on the findings of the AO. 21. On the other hand, Ld. Counsel for the assessee opposed these sub missions and supported the order of Ld.CIT(A). He contended that the AO has grossly erred in making impugned additions purely on assumption basis. By making the impugned disallowance of INR 1,26,24,770/-, the AO has disallowed administrative expenses and staff cost. He contended that as per AS-7, the expenses are allowable as administration cost and staff cost incurred by the assessee, are not directly related to a construction of project and same are to be charged to profit and loss account. Thus, the contention of the assessee that administration cost and staff cost incurred by assessee which are not directly related to a construction of project are to be charged to the profit and loss account in the very same year. Ld. Counsel for the assessee placed reliance on following judicial pronouncements:- [i] M/s. Lodha Palazzo, Mumbai vs ACIT, 15(1), Mumbai [2014] (12) TMI 1272, ITAT Mumbai dated 10.12.2014; [ii] M/s. Hiranandani Palace Gardens P.L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch and development costs for which reimbursement is not specified in the contract; and (d) depreciation of idle plant and equipment that is not used on a particular contract. 24. Similarly in the case of M/s. Hiranandani Palace Gardens P.Ltd., Mumbai vs The ACIT (OSD), Mumbai [2015] (12) TMI 1649-ITAT Mumbai, dated 30.12.2015, the Co-ordinate Bench of the Tribunal decided the issue by observing as under:- 6. Both the Ld. representatives of the parties have submitted that the issue is squarely covered by the above decision of the Tribunal. We find that rather the case of the assessee is on better footing as the assessee was carrying out different projects though at the same location, hence it was not a case of single project. Even otherwise the resultant income from the project is a loss even after capitalisation of expenditure by the AO to work in progress. Hence, there is no tax implication, so far as the year under consideration is concerned and the loss otherwise also has to be carried forward. Under such circumstances, it cannot be said that the assessee has adopted the above stated accounting method to avoid tax on income for the year under consideration. The assessee, thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the Assessee and it should be used for the business or profession. Both the conditions are satisfied here. Personal use of the car cannot fetter the granting of statutory allowance. Therefore the disallowance made on account of depreciation is deleted. Based on the facts of the case, submissions made by the assessee and the legal position on the issue, I am convinced that the disallowance of depreciation made by the AO by applying a percentage to eligible amount of depreciation is not well founded. Therefore, the aforesaid addition made by the AO amounting to Rs. 7,45,247/- is hereby deleted. 29. Ld. Counsel for the assessee further submitted that the assessee had calculated depreciation of INR 7,63,807/- on computers, office equipment, vehicles etc. which are used for the purpose of business and the same is evident from schedule of fixed assets and depreciation has been computed as per provision of section 32 of the Act. 30. The above finding on facts, Ld.CIT(A) is not controverted by the Revenue by bringing any adverse materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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