DCIT 7(2), MUMBAI v. SWAN ENERGY LTD, MUMBAI

ITA 5442/MUM/2013 | 2008-2009
Pronouncement Date: 24-10-2016

Appeal Details

RSA Number 544219914 RSA 2013
Assessee PAN AABCS7890Q
Bench Mumbai
Appeal Number ITA 5442/MUM/2013
Duration Of Justice 3 year(s) 2 month(s) 15 day(s)
Appellant DCIT 7(2), MUMBAI
Respondent SWAN ENERGY LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-10-2016
Appeal Filed By Department
Bench Allotted E
Tribunal Order Date 24-10-2016
Assessment Year 2008-2009
Appeal Filed On 08-08-2013
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHRI R.C. SHARMA(ACCOUNTANT MEMBER) AND SHRI AMARJEE T SINGH (JUDICIAL MEMBER) ITA NO. 5 442/MUM/2013 ASSESSMENT YEAR: 20 08 - 09 DCIT 7(2) VS. SWAN ENERGY LTD. R.NO. 624 M.K. ROAD (FORMERLY SWAN MILLS LTD.) MUMBAI - 400020 6 FELTHAM HOUSE 2 ND FLOOR J.N. HERDIA MARG BALLARD ESTATE MUMBAI - 400001 PAN NO. AABCS7890Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI. H.N. SINGH ASSESSEE BY : SHRI. J.P. B AI RAGRA DATE OF HEARING : 0 7 /09/2016 DATE OF PRONOUNCEMENT : 24/10 /2016 O R D ER PER R.C. SHARMA ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) FOR THE AY 2008 - 09 IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 3. FACTS IN BRIEF ARE THAT THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF TEXTILES AND DEVELOPMENT OF PROPERTY. DURING THE COURSE OF ASSESSMENT AO TREATED INTEREST INCOME RECEIVED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES WHICH WAS OFFERED BY THE ASSESSEE AS INCOME FROM BUSINESS. 2 4. BY THE IMPUGNED ORDER LD. CIT(A) UPHELD THE CONTENTION OF THE ASSESSEE THAT INTEREST INCOME WAS TO BE TREATED AS INCOME FROM BUSINESS AFTER HAVING THE FOLLOWING OBSERVATION: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. DURING THE YEAR THE APPELLANT EARNED INTER EST INCOME OF RS. 2 56 44 218/ - WHICH WAS CLAIMED BY APPELLANT AS BUSINESS INCOME. THE SOURCE OF GENERATION OF SUCH INTEREST INCOME HAS BEEN EXPLAINED BY THE APPELLANT AS UNDER: - THE BOOKINGS AMOUNT / ADVANCE RECEIVED FROM THE BUYERS OF THE PROPERTY IS C REDITED TO AN ESCROW ACCOUNT JOINTLY OPERATED BY THE ASSESSEE COMPANY AND THE DEVELOPER PENINSULA LAND LTD. THE DISBURSEMENT FROM THIS ACCOUNT IS MONITORED BY THE MONITORING COMMITTEE CONSTITUTED BY THE STATE GOVERNMENT OF MAHARASHTRA TO MONITOR THE SALE A ND DEVELOPMENT OF LANDS BELONGING TO THE COTTON TEXTILE MILLS. THE COMMITTEE GIVES APPROVAL FOR DISBURSEMENT OF FUNDS FROM THE ESCROW ACCOUNT IN ITS MEETING WHICH IS HELD MONTHLY AND ON CERTAIN OCCASIONS IT WAS HELD AFTER A GAP OF 3 TO 4 MONTHS. DURING T HE PERIOD BETWEEN THE APPROVALS OF THE COMMITTEE THE FUNDS LYING IN THE ESCROW ACCOUNT GETS CONVERTED INTO FIXED DEPOSITS TO AVOID A FINANCIAL LOSS GENERATING INTEREST INCOME TO THE ASSESSEE COMPANY. THE AO HAS ALSO ACCEPTED THAT THE EXCESS BALANCE IN THE ACCOUNT OF THE APPELLANT WAS ON ACCOUNT OF ADVANCES RECEIVED FROM PARTIES WAS CONVERTED INTO FIXED DEPOSITS AND THE INTEREST INCOME WAS EARNED ON THE SAME. THE AO HAS ALSO ACCEPTED THAT THE APPELLANT WAS IN THE ACTIVITY OF CONSTRUCTION & DEVELOPMENT OF PROPERTIES AND THE EXCESS AMOUNT ( ON WHICH INTEREST WAS EARNED) WAS ON ACCOUNT OF ADVANCE RECEIVED FROM THE PARTIES. THUS IT WAS AN UNDISPUTED FACT THAT THE AMOUNT (ON WHICH INTEREST WAS EARNED) WAS BUS INESS RECEIPTS. IT WAS ALSO AN UNDISPUTED FACT THAT THE AMOUNT (ON WHICH INTEREST WAS EARNED) WAS NOT SURPLUS/IDLE FUNDS BUT WAS BOOKING AMOUNT O F CONSTRUCTION ACTIVITY WHICH COULD NOT BE APPROPRIATED BY THE APPELLANT WITHOUT THE APPROVAL OF THE COMMITTEE CONSTITUTED BY THE STATE GOVERNMENT OF MAHARASHTRA. PENDING APPROVAL OF SUCH COMMITTEE THE BOOKING FUNDS WERE AVAILABLE FOR EARNING THE INTEREST INCOME. THE QUESTION FOR CONSIDERATION IS AS TO WHETHER THIS INTEREST WAS ASSESSABLE UNDER THE HEAD BUSINESS INCOME AS CLAIMED BY THE APPELLANT OR UNDER THE HEAD INCOME FROM OTHER SOURCES AS HELD BY AO. IN THE CASE OF TUTICORIN ALKALINE CHEMICALS 227 ITR 172 (SC) THE INTEREST EARNED BEFORE COMMENCEMENT OF BUSINESS WAS HELD TO BE INCOME FRO OTHER SOURCES. IN THE CASE OF BOKARO STEEL LTD. 236 ITR 315 (SC) THE RENT RECEIVED FROM CONTRACTOR FOR HIRING ACCOMMODATION AND OTHER THINGS WERE HELD TO BE CAPITAL RECEIPTS DEDUCTIBLE FROM COST OF CONSTRUCTION. SUCH RENT WAS ALSO RECEIVED PRIOR TO COMMENCEMENT OF BUSINESS . IN THE CASE OF CIT VS. KARNAL CO - OP SUGAR MILLS 243 ITR 2(SC) INTEREST ON MONEY DEPOSITED TO OPEN LETTER OF CREDIT FOR PURCHASE OF MACHINERY WAS HELD TO BE CAPITAL RECEIPT TO BE CAPITALIZED WITH THE COST OF MACHINERY AND NOT ASSESSABLE AS INCOME FROM OT HER SOURCES. IN THE CASE OF BONGAIGAON REFINERY AND PETROCHEMICALS 251 ITR 329 (SC) THE INCOME RECEIVED IN THE PRE - COMMENCEMENT PERIOD WAS HELD NOT CHARGEABLE TO TAX TO BE ADJUSTED AGAINST PROJECT COST. IN THE CASE OF KARNATAKLA POWER CORPORATION 247 IT R 268 (SC) THE PRE - COMMENCEMENT PERIOD RECEIPTS WERE HELD TO BE ADJUSTABLE AGAINST CONSTRUCTION COST NOT CHARGEABLE TO TAX. IN THE CASE OF CONSOLIDATED FIBERS AND CHEMICALS 273 ITR 253 (CAL) THE ASSESSEE BORROWED FUNDS FOR CONSTRUCTIONS OF PROJECT AND I NVESTED THE SURPLUS AMOUNT IN SHORT TERM DEPOSIT. THE INTEREST INCOME WAS HELD AS ASSESSABLE UNDER THE HEAD BUSINESS INCOME. IN THE CASE OF CHANDANPUR SUGAR CO. LTD. 280 ITR 612 (ALL) INTEREST ON SHORT TERM DEPOSIT WAS HELD TO BE ASSESSABLE UNDER 3 THE H EAD INCOME FROM OTHER SOURCES. IN THE CASE OF CIT VS. LOK HOLDINGS 308 ITR 356(BOM) THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES AND RECEIVED ADVANCES FROM INTENDING PURCHASES. THE ASSESSEE TEMPORARILY INVESTED THE SURPLUS AMOUNTS WITH BANKS. THE INTEREST EARNED THEREON WAS HELD TO BE BUSINESS INCOME. IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. 315 ITR 255 (DEL) INTEREST ON SHARE CAPITAL PUT IN FIXED DEPOSITS DURING PREOPERATIVE PERIOD WAS HELD TO BE CAPITAL REC EIPT TO BE SET OFF AGAINST PREOPERATED EXPENSES. IN THE CASE OF DCIT VS. TIMES GUARANTY LTD (2010) 41 DTR (MUM)(SB) 193 THE SPL. BENCH MUMBAI I.T.A.T. HELD THAT IF SURPLUS FUNDS ARE DEPOSITED IN A BANK THE INTEREST INCOME PARTAKES THE CHARACTER OF INCOME FROM OTHER SOURCES IRRESPECTIVE OF THE NATURE OF ASSESSEE BUSINESS. IN THE CASE OF CIT VS. INDO SWISS JEWELS 284 ITR 389 WHEREIN HIGH COURT HELD THAT SHORT TERM INTER - CORPORATE DEPOSITS MADE OUT OF SURPLUS FUNDS KEPT FOR IMPORTING THE MACHINERY FOR BUSINESS PURPOSES HENCE THE INTEREST EARNED ON DEP OSITS HAD TO BE TREATED AS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES . IN THE CASE OF SNAM PROGETTI SPA VS. ADDL. CIT 133 ITR 70 THE DEL HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS ALSO BUSINESS INCOME. IN THE CASE OF CIT VS. TIRUPATI WOO LEN MILLS 193 ITR 252 MADRAS HIGH COURT IN THE CASE OF TAMILNADU DAIRY DEVELOPMENT 216 ITR 355 AND MUMBAI TRIBUNAL IN THE CASE OF ACIT VS. NIRU IMPEX HELD THAT THE INTEREST INCOME WAS BUSINESS INCOME. RECENTLY THE ITAT MUMBAI HAS DECIDED THE CASE OF M/S. WEST GUJARAT EXPRESSWAY LTD. VS. DCIT 10(1) IN ITA NO. 1284/MUM/2011/ - A.Y. 2007 - 08 ORDER DATED 27/02/2013. IN THIS CASE THE APPELLANT EARNED INTEREST OF RS. 46 21 295/ - OUT OF UNUTILIZED BORROWED FUNDS AFTER THE COMMENCEMENT OF BUSINESS AND WAS REDU CED FROM THE CAPITAL WORK - IN - PROGRESS TREATING THE INTEREST COST AS PART OF CAPITAL WIP. IN THIS CASE THERE WERE NO SURPLUS FUNDS AND THE UNUTILIZED BORROWINGS WERE TEMPORARILY PARKED FOR EARNING INTEREST INCOME. IT WAS CLAIMED THAT INTEREST INCOME WAS IN EXTRICABLY LINKED UP WITH SETTING UP OF PROJECT. THE ITAT CONSIDERED THE DECISION OF SPL. BENCH MUMBAI IN THE CASE OF TIMES GUARANTY (SUPRA) AND ALSO IN THE CASE OF VARUN SHIPPING CO. 334 ITR 262 AND HELD THAT THE ASSESSEE HAD EARNED INTEREST FROM BANK DEP OSITS TEMPORARILY MADE OUT OF BORROWED FUNDS WHICH HAS NOT BEEN UTILIZED IN THE BUSINESS. FOLLOWING THE DECISION OF BOMBAY HC IN THE CASE OF VARUN SHIPPING CO. THE INTEREST INCOME WAS HELD TO BE ASSESSABLE AS BUSINESS INCOME. I HAVE CONSIDERED THE DECIS IONS OF COURTS AND TRIBUNALS ON THIS ISSUE. THE INTEREST INCOME HAS BEEN EARNED BY THE APPELLANT AFTER THE COMMENCEMENT OF BUSINESS. THE FUNDS ON WHICH INTEREST INCOME WAS EARNED WERE ADMITTEDLY BUSINESS RECEIPTS (BOOKING AMOUNT OF CONSTRUCTION BUSINESS) . THESE FUNDS WERE NOT IDLE/SURPLUS FUNDS BUT WERE AVAILABLE (FOR EARNING INTEREST) ON ACCOUNT OF SPECIAL CIRCUMSTANCES. THUS APPELLANTS CASE WAS DIRECTLY COVERED BY THE DECISIONS OF COURTS AS MENTIONED ABOVE AND SPECIALLY BY THE DECISIONS OF BOMBAY HIGH COURT IN THE CASE OF LOK HOLDINGS AND VARUN SHIPPING CO. (SUPRA). THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF TIMES GUARANTEE WAS NOT APPLICABLE SINCE THE FUNDS WERE NOT SURPLUS FUNDS. THE AO IS THEREFORE DIRECTED TO ASSESS THE INTEREST INCOM E UNDER THE HEAD BUSINESS INCOME. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF BUILDINGS. THE ASSESSEE HAS EXECUTED A 4 DEVELOPMENT AGREEMEN T WITH M/S. PENINSULA LAND LTD. (PLL) TO DEVELOP COMPANY'S PROPERTIES IN MUMBAI. ACCORDINGLY ALL THE BOOKINGS AMOUNTS / ADVANCES RECEIVED FROM THE BUYERS OF THE PROPERTY ARE CREDITED TO AN ESCROW ACCOUNT JOINTLY OPERATED BY THE ASSESSEE COMPANY AND PLL. THE DISBURSEMENT FROM THIS ACCOUNT IS MONITORED BY THE MONITORING COMMITTEE CONSTITUTED BY THE STATE GOVERNMENT OF MAHARASHTRA TO MONITOR THE SALE AND DEVELOPMENT OF LANDS BELONGING TO THE COTTON TEXTILE MILLS. THE COMMITTEE GIVES APPROVAL FOR DISBURSEME NT OF FUNDS FROM THE ESCROW ACCOUNT IN ITS MEETING WHICH IS HELD MONTHLY AND ON CERTAIN OCCASIONS IT WAS HELD AFTER A GAP OF 3 TO 4 MONTHS. TO A VOID FINANCIAL LOSS THE FUNDS IYING IN THE ESCROW A/ C . ARE PUT INTO FIXED DEPOSITS WHEREBY ASSESSEE EARNS INTE REST INCOME PENDING RECEIPT OF APPROVALS OF THE COMMITTEE. THE BUSINESS OF THE ASSESSEE REQUIRES FUNDS. DURI NG THE YEAR THE ASSESSEE COMPANY HAS PAID INTEREST ON THE TERM LOAN TAKEN FOR CONSTRUCTION ACTIVITY AMOUNTING TO RS 2 042.19 LAK HS WHICH IS DEBITED TO THE CONSTRUCTION ACCOUNT IN PROGRESS - SCHEDULE 11 OF THE AUDITED STATEMENT OF ACCOUNTS. HAD THESE FUNDS BEEN MADE AVAILABL E IMMEDIATELY THE ASSESSEE COMPANY WOULD H AVE UTILIZED THE SAME FOR THE PURPOSE OF BUSINESS AND THEREBY REDUCED T HE INTEREST COST AND THE COST OF CONSTRUCTION. IF INTEREST PAID OF RS 2042.19 LAKHS IS SE T OFF AGAINST INTEREST RECEIVED OF RS 256.44 LAKHS THERE IS NET INTEREST PAYABLE AND NO INTEREST RECEIVED WILL REMA I N. 6. ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISIO N OF BOMBAY HIGH COURT IN THE CASE OF LOK HOLDINGS - 308 ITR 356 AND VARUN SHIPPING COMPANY 334 ITR 263 WHEREIN IT WAS HELD THAT ASSESSEE IS ENGAGED IN BUSINESS OF DEVELOPMENT OF PROPERTIES RECEIVED ADVANCE FROM INTENDING PURCHASER INTEREST EARNED THEREO N IS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES . RESPECTFULLY APPLYING THE PROPOSITION LAID DOWN BY JURISDICTIONAL HIGH COURT TO THE FACTS OF THE INSTANT CASE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR TREATING THE INTEREST INCOME AS I NCOME FROM BUSINESS. 5 7 . NEXT GRIEVANCE OF REVENUE RELATES TO DELETION OF ADDITIONAL 22% OF SHARE OF RENTAL RECEIPT BELONGING TO THE DEVELOPERS IN TERMS OF DEVELOPMENT AGREEMENT IN THE HANDS OF ASSESSEE. 8 . FACTS IN BRIEF ARE THAT THE ASSESSEE RECEIVED RENTAL INCOME ON LETTING OUT OF ONE COMMERCIAL COMPLEX KNOWN AS BUILDING - B IN KURLA MUMBAI. THE PROPERTY HAD BEEN DEVELOPED BY THE ASSESSEE ALONG WITH M/S PENINSULA LAND LTD. AND HAD BEEN LET OUT TO M/S ESSAR INFORMATION TECH LTD. THE APPELLAN T HAD RECEIVED A TOTAL AMOUNT OF RS. 5 42 67 742/ - AS RENTAL RECEIPT FROM THE SAME DURING THE YEAR. HOWEVER WHILE WORKING OUT THE INCOME FROM HOUSE PROPERTY THE ASSESSEE HAD REDUCED 22% OF THE RENTAL RECEIPTS AMOUNTING TO RS. 1 19 60 903/ - AND HAS OFFERE D THE REMAINING SUM AS RENTAL INCOME RECEIVED AND HAS WORKED OUT THE INCOME FROM HOUSE PROPERTY AT RS. 2 19 52 787/ - . 9 . IT WAS CONTENDED BEFORE THE AO THAT THE COMPANY IS IN THE LEGAL/CONTRACTUAL OBLIGATION TO TRANSFER BY OVERRIDING TITLE 22% OF ANY INCOM E EARNED ON THE PROPERTY BEING DEVELOPED TO THE PIRAMAL HOLDINGS LTD. (NOW KNOWN AS PENINSULA LAND LTD.). THE APPELLANT FURTHER EXPLAINED TO THE AO THAT AS PER CLAUSE SEVEN OF DEVELOPMENT AGREEMENT THE DEVELOPER SHALL BE ENTITLED TO A GROSS REVENUE SHARE CORRESPONDING TO 22% OF THE TOTAL AREA CONSTRUCTED (SALEABLE AREA) ON THE SAID PROPERTIES. HENCE IN VIEW OF THE AGREEMENT THE TREATMENT GIVEN BY THE APPELLANT COMPANY OF TREATING ONLY 78% OF INCOME TAXABLE IN THE HANDS OF APPELLANT COMPANY WAS APPROPRIA TE AND NO DIVERSE VIEW IN THIS BEHALF WAS WARRANTED. HOWEVER AO DID NOT AGGRIEVED WITH THE ASSESSEE S CONTENTION AND ADDED 22% ADDITIONAL SHARE OF RENTAL RECEIPT. BY THE IMPUGNED ORDER LD. CIT DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATION: 6 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE. THIS ISSUE WAS ALSO THERE IN APPELLANTS CASE IN AY 2009 - 10. THE ORIGINAL APPEAL FOR AY 2008 - 09 WAS FILED ON 25 - 01 - 2011 WHEREAS APPEAL FOR A.Y. 2009 - 10 WAS FILED ON 20/01/2012. THE APPEAL FOR AY 2008 - 09 WAS DIS MISSED BEING NOT SIGNED BY THE MANAGING DIRECTOR/DIRECTOR OF THE APPELLANT COMPANY. HOWEVER THE APPEAL ORDER FOR AY 2009 - 10 WAS PASSED ON 16/01/2013. IN THE APPEAL ORDER OF AY 2009 - 10 THE UNDERSIGNED DID NOT ACCEPT APPELLANTS CLAIM OF DIVERSION OF 22% O F RENTALS TO M/S PIRAMAL HOLDINGS LTD. THE UNDERSIGNED HELD THAT THE ENTIRE RENTAL RECEIPTS WERE TO BE ASSESSED IN THE HANDS OF APPELLANT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AGAINST THE APPEAL ORDER OF AY 2009 - 10 THE APPELLANT FILED APPEAL TO THE ITAT. THE ITAT E BENCH MUMBAI IN ITA NO. 596/MUM/2013 DATED 03/05/2013 HAS HELD THAT THUS BY VIRTUE OF SAME CLAUSE OF THE DEVELOPMENT AGREEMENT IF THE ASSESSING OFFICER IS ACCEPTING THE SALE ON NET BASIS I.E. REMOVING 22% OF THE SHARE OF DEVELOPER THEN BY THE SAME LOGIC THE RENTAL INCOME ALSO HAS TO BE ACCEPTED IN THE SAME PROPORTION I.E. NET OF 22% OF THE SHARE OF DEVELOPER. THUS FOR THIS REASON ALONE WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND ALLOW THE GROUN D RAISED BY THE ASSESSEE. THUS BY FOLLOWING THE ORDER OF ITAT THE AO IS DIRECTED TO ASSESS 78% OF RENTALS IN THE HANDS OF APPELLANT ALLOWING APPELLANTS CLAIM OF DIVERSION OF 22% OF RENTALS TO M/S PENINSULA LAND LTD. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. THE APPELLANT HAS ALSO CLAIMED FULL CREDIT OF TDS DEDUCTED BY THE LESSEE ON THE LEASE RENT PAID TO THE APPELLANT. THIS ISSUE WAS ALSO THERE IN AY 2009 - 10. IN APPEAL ORDER OF AY 2009 - 10 THE UNDERSIGNED DIRECTED TO THE AO TO ALLOWED FULL CREDIT O F TDS SINCE THE UNDERSIGNED HELD THAT THE ENTIRE LEASE RENT WAS ASSESSABLE IN THE HANDS OF THE APPELLANT. HOWEVER THE ITAT IN ITS ORDER PASSED FOR AY 2009 - 10 HAS DIRECTED THAT ONLY 78% OF LEASE RENT WAS ASSESSABLE IN THE HANDS OF THE APPELLANT SINCE 22% OF THE SAME DIVERTED TO M/S. PLL. I HAVE CONSIDERED THE FACTS OF THE CASE FOR THIS YEAR. THE DEDUCTOR HAS ISSUED THE TDS CERTIFICATE IN THE NAME OF THE APPELLANT. THE CREDIT OF TDS CAN BE TAKEN ONLY BY THE PERSON IN WHOSE NAME THE CERTIFICATE HAS BEEN ISSU ED I.E. BY THE APPELLANT. ON THE OTHER HAND M/S PLL HAVE CONFIRMED THAT THOUGH THEY HAVE RECEIVED 22% OF THE TOTAL RENT RECEIVABLE AMOUNT TO RS. 1 19 60 903/ - AND INCLUDED THE SAME IN THEIR INCOME BUT THEY HAVE NOT CLAIMED THE TDS CREDIT RELATING TO THE SAME. IN THE FACTS AND CIRCUMSTANCES THE APPELLANT IS ENTITLED FOR CREDIT OF FULL AMOUNT OF TDS IN THEIR HANDS. THE AO IS DIRECTED TO ALLOW FULL CREDIT OF TDS TO THE APPELLANT. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 10 . WE HAVE CONSIDERED RIVA L CONTENTIONS. THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 2010 DATED 16/01/2013. BY RELYING ON THE DECISION OF THE TRIBUNAL CIT(A) HAS DELETED THE ADDITION. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL WE CONFIRM THE FINDINGS RECORDED BY CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF RENTAL INCOME. 7 11. NEXT GRIEVANCE OF REVENUE RELATES TO DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT. 9. RIVAL CONTENTION HAVE BEEN HEARD AND RECORD PERUSED. 12 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED A SUM OF RS. 12 25 83 521/ - IN THE COMPUTATION O F INCOME AS ALLOWABLE U/S 40(A)(IA) ON THE GROUND THAT IT WAS DISALLOWED IN AY 2007 - 08. THE AO NOTICED THAT THE EXPENSES ON WHICH TDS WAS NOT DEDUCTED AND OFFERED AS INCOME IN AY 2007 - 08 WERE EXPENSES RELATED TO THE CONSTRUCTION ACTIVITY. AS THE APPELLANT HAD NOT OFFERED INCOME FROM THE PROJECT EITHER IN AY 2007 - 08 OR AY 2008 - 09 THE EXPENSES H A VE ALSO NOT BEEN PASSED TO P & L ACCOUNT AND THUS COULD NOT BE OFFERED AS INCOME (AS DONE IN AY 2007 - 08) AND ALSO COULD NOT BE CLAIMED AS AN EXPENDITURE (AS DONE IN THE CURRENT YEAR). HOWEVER T HE AO DID NOT ACCEPT APPELLANTS SUBMISSIONS HOLDING THAT THE APPELLANT HAD WRONGLY OFFERED THE AMOUNT OF RS. 12 25 83 521/ - IN AY 2007 - 08 AND IS CLAIMING THE SAME IN THE CURRENT YEAR ON TH E BASIS OF PAYMENT OF TDS ON THE S AME. HOWEVER AS THE EXPENDITURE DISALLOWED HAS NOT PASSED TO P&L ACCOUNT THE SAME CANNOT BE ALLOWED TO BE INCLUDED IN THE COMPUTATION OF INCOME. THE APPELLANT HAD IN ALL PROBABILITY RESORTED TO THIS TO SET OFF THE B/F BUSINESS LOSSES OF ASSESSMENT YEAR 1 999 - 00 IN THE AY 2007 - 08 AS THE SAME IS GETTING LAPSED IN THAT YEAR. THEREFORE THE AMOUNT OF RS. 12 25 83 521/ - CLAIMED IN THE COMPUTATION OF INCOME WAS DISALLOWED BY AO AND ADDED TO THE TOTAL INCOME OF THE YEAR. 1 3 . BY THE IMPUGNED ORDER LD. CIT(A) DE LETED THE DISALLOWANCE AFTER OBSERVING AS UNDER : 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE. I HAVE PERUSED THE BALANCE SHEET AND P& L ACCOUNT OF AY 2007 - 08 AND OBSERVED THAT THE APPELLANT HAS DEBITED CONSTRUCTION EXPENSES I.E. PURCHASE OF MATERIAL CONSTRUCTION MATERIAL CONSTRUCTION EXPENSES AND 8 VARIOUS OTHER EXPENSES IN P&L ACCOUNT. IN THE FACTS AND CIRCUMSTANCES THE AO'S OBSERVATION WAS INCORRECT THAT THE EXPENDITURE HAD NOT PASSED THROUGH P&L ACCOUNT. IT WAS AN ADMITTED FACT THAT IN AY 2007 - 08 THE APPELLANT WAS IN THE CONSTRUCTION ACTIVITY. IN AY 2007 - 08 THE APPELLANT OFFERED DISALLOWANCE OF RS. 12 25 83 521/ - U/S 40(A)(IA) OF THE ACT. IN AY 2007 - 08 AND 2008 - 09 THE APPELLANT HAD NOT OFFERED INCOME FROM CONSTRUCTION ACTIVITY SINCE IT WAS FOLLOWING PROJECT COMPLETION METHOD. EVEN IN PROJECT COMPLETION METHOD ALSO THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE WHEREVER THE PAYMENTS REQUIRED DEDUCTION OF TAX AT SOURCE. THE APPELLANT WAS IN THE CONSTRUCTION ACTIVITY AND IN ASSESSMENT OF AY 2007 - 08 THE AO HAD ACCEPTED THIS FACT AND HAD ALSO ACCEPTED SUCH OFFER OF DISALLOWANCE U/S 40(A)(IA). IN THE FACTS AND CIRCUMSTANCES IN T HE YEAR UNDER CONSIDERATION THE APPELLANT HAD RIGHTLY CLAIMED DEDUCTION OF RS. 12 25 83 521/ - ON TDS PAYMENT BASIS U/S 40(A)(A) OF THE ACT. WITHOUT PREJUDICE TO ABOVE FINDINGS THE DISALLOWANCE OF RS. 12 25 83 521/ - U/S 40(A)(IA) MADE BY AO IN ASSESSMENT ORDER HAD NO TAX EFFECT. HAD THE APPELLANT NOT CLAIMED DEDUCTION OF RS. 12 25 83 521/ - U/S 40(A)(IA) IN THE RETURN OF INCOME OF AY 2008 - 09 T HE RETURNED INCOME WOULD HAVE BEEN RS. 7 86 66 793/ - + RS. 12 25 83 521/ - WHICH WOULD HAVE GOT ADJUSTED IN THE BROUGHT FORWARD LOSSES OF AY 2000 - 01 OF RS. 23 35 95 694/ - . THE SET OFF OF B/F LOSSES OF AY 2000 - 01 COULD HAVE BEEN CLAIMED BY THE APPELLANT UPTO AY 2008 - 09 ONLY. IN VIEW OF ABOVE THE AO IS DIRECTED TO ALLOW APPELLANTS CLAIM OF DEDUCTION OF RS. 12 25 83 521/ - U/S 40(A)(IA) OF THE ACT. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 14. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT AS PER S CHEDULE 11 OF AUDITED PROFIT & LOSS ACCOUNT THE ASSESSEE COMPANY HAS DEBITED ALL THE EXPENSES INCURRED I.E. PURCHASE AND OTHER EXPENSES INCURRED TOWARDS CONSTRUCTION ACTIVITY TO THE PROFIT & LOSS A/ C. THE DETAILS OF OPERATING & OTHER EXPENSES TOT ALING TO RS.12 261 32 LACS IS ALSO GIVEN AND SIMILAR EXPENSES DEBITED IN THE EARLIER YEAR AGGREGATING TO RS.7536.58 LACS. THEREFORE THE FINDING OF THE AO THAT EXPENSES ON ACCOUNT OF WHICH TDS IS TO BE DEDUCTED ARE NOT PASSED THROUGH THE P&L A/C. IS OBVIO USLY WRONG. 15. WE ALSO FOUND THAT WHILE PASSING THE ASSESSMENT ORDER FOR A.Y.2007 - 08 U/S.143(3) DATED 17 - 12 - 2009 THE AO HAS ACCEPTED THE SAID DISALLOWANCE MADE U/S.40(A)(IA). THEREAFTER ON DEDUCTION AND PAYMENT OF TDS THE ASSESSEE HAS CLAIMED DEDUCTION OF EXPENSES DISALLOWED EARLIER OF RS.12 25 83 521/ - U/S. 40(A)(IA) IN A.Y.2008 - 09. 9 16. HAD THE ASSESSEE NOT CLAIMED DEDUCTION OF RS.12 25 83 521 UNDER SECTION 40(A)(IA) IN THE RETURN OF INCOME FOR AY2008 - 09 THE RETURNED INCOME WOULD HAVE BEEN RS.7 86 66 7 93 + RS. 12 25 83 521 = RS.20 12 50 314 WHICH WOULD HAVE GOT ADJUSTED AGAINST BROUGHT FORWARD LOSSES OF AY 2000 - 01 OF RS.23 35 95 694/ - WHICH IN ANY CASE WOULD LAPSE AFTER AY 2008 - 09. THE CIT(A) HAS DELETED THE ADDITION AFTER RECORDING DETAILED FINDING AT PARA 4.3 WHICH HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF CIT(A). 17. AO ALSO MADE AN ADDITION ON PROTECTIVE BASIS IN RESPECT OF INCOME ON SALE OF TDR RECEIPT. 18 . BY THE IMPUGNED ORDER LD. CIT(A) DELETED THE ADDITION AFTER OBSERVING AS UNDER : DURING APPELLATE PROCEEDINGS THE APPELLANT H A S FILED CONFIRMATION OF M/S PENINSULA LAND LTD. CONFIRMING PAYMENT OF RS. 11.60 CRORES BY THEM TO APPELLANT TOWARDS THEIR SHARE OF COST OF ADDITIONAL FSI TO BE UTILIZED IN THE REAL ESTATE DEVELOPMENT PROJECT. IN REMAND REPORT DATED 06/08/2012 THE AO HAS VERIFIED THE GENUINENESS OF THIS CONFIRMATION CERTIFICATE. 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE APPELLANT WAS OWNER OF LAND (MILL LAND) AT KURLA MUMBAI. BEING OWNER THE APPELLANT INTENDED FOR DEVELOPMENT OF SAID LAND FOR CONSTRUCTION OF BUILDINGS/FLATS/REAL ESTATE. THE APPELLANT(OWNER) ENTERED INTO DEVELOPMENT AGREEMENT WITH M/S PENINSULA LAND LTD. (PLL). AS PER AGREEMENT THE FSI TO THE EXTENT OF RS. 2 50 000/ - SQ. FT WAS TO BE ARRANGED BY THE DEVELOPER M/S. PLL AT THEIR OWN COST. THE CLAUSE 8B(XI) OF THE AGREEMENT IS AS UNDER: - IN THE EVENT THE DEVELOPERS REQUIRE TRANSFER OF DEVELOPMENT RIGHTS (T DR) BEYOND 2 50 000 SQ. FT. CONSUMPTION ON THE SAID LAND PROPERTIES THE OWNERS SHALL BE RESPONSIBLE TO PROCURE THE AFORESAID TDS AT THEIR OWN COST. 10 THUS THE DEVELOPER (PLL) WAS TO ARRANGE FSI/TDR AT THEIR OWN COST TO THE EXTENT OF 2 50 000 SQ. FT. THE FSI/TDR BEYOND THE EXTENT OF 2 50 000 SQ. FT. IF REQUIRED WAS TO BE ARRANGED BY THE APPELLANT(OWNER). IN THE PROJECT THE FSI/TDR CONSUMED WAS LESS THAN 2 50 000 SQ. FT WHICH CONSEQUENTLY RESULTED IN SAVING TO THE DEVELOPER (PLL) OR REDUCING THEIR (PLLS) COST ON ACCOUNT OF ARRANGING LESS FSI/TDR (2 50 000 SQ. FT. ( - ) FSI/TDR CONSUMED) FOR THE PROJECT. IN THE ENTIRE AGREEMENT THERE IS NO CLAUSE CLARIFYING THE SITUATION OF RIGHTS / LIABILITIES IF THE FSI/TDR CONSUMED IN THE PROJECT WOULD BE LESS THAN 2 50 000 SQ. FT. IN THE FACTS AND CIRCUMSTANCES IN STRICT SENSE THE DEVELOPER M/S. PLL COULD NOT HAVE BEEN LEGALLY ENFORCED BY THE APPELLANT FOR SHARING ITS SAVINGS(SAVING OF COST OF REDUCED FSI/TDR) TO SHARE ITS SAVING WITH THE APPELLANT BY AGREEING TO PAY RS. 20 CRORE TO THE APPELLANT. THUS IT COULD BE SAID TO BE A WINDFALL TO THE APPELLANT. M/S PLL THE DEVELOPER AGREED TO PAY RS. 20 CRORE TO THE APPELLANT (ACTUAL AMOUNT RECEIVED RS. 11.60 CRORE). THIS RECEIPT WAS ON ACCOUNT OF LESSER CONSUMPTION OF TDR. THUS THE RECEIPT WAS RELATING TO CONSTRUCTION ACTIVITY HAVING DIRECT NEXUS WITH THE APPELLANTS BUSINESS. HOWEVER IN MY VIEW IT COULD NOT HAVE BEEN REDUCED FROM THE WORK - IN - PROGRESS SINCE IT WAS A SORT OF WINDFALL TO THE APPELLANT. THE FSI/TDR WAS TO BE ARRANGED BY PLL AND THEREFORE LESS CONSUMPTION OF FSI/TDR DID NOT RESULT IN SAVING OF ANY EXPENDITURE OF THE APPELLANT. THEREFORE IT COULD NOT HAVE BEEN REDUCED FROM THE W.I.P. THE APPELLANT HAS CLAIMED THAT IT HAD OFFERED SUCH RECEIPTS AS INCOME FOR TAXATION AS AN ABUNDANT CAUTION. THE APPELLANT HAS CLAIMED THAT IT COULD HAVE REDUCED THE SAID RECEIPT FROM WORK - IN - PROGRESS THEREBY LOWERING COST OF PROJECT. HOWEVER IN MY VIEW THE SAID WINDFALL/RECEIPT COULD NOT HAVE BEEN REDUCED FROM THE WORK - IN - PR OGRESS FOR THE REASONS THAT SUCH WINDFALL WAS NOT RELATED TO ANY EXPENDITURE REQUIRED TO BE INCURRED BY THE APPELLANT. THE APPELLANTS ARGUMENT IS CORRECT THAT IT HAD OFFERED SUCH RECEIPT TAKING AN ABUNDANT CAUTION. HAD THE APPELLANT REDUCED THIS RECEIPT O F RS. 20 CRORES FROM THE WORK - IN - PROGRESS IN THAT CASE THE AO COULD HAVE TAKEN A STAND THAT SUCH RECEIPT WAS TAXABLE AS INCOME IN THE YEAR UNDER CONSIDERATION AND THE AO WOULD HAVE MADE SUCH ADDITION. THEREFORE THE APPELLANT HAS CORRECTLY OFFERED SUCH R ECEIPTS IN THE YEAR UNDER CONSIDERATION. THE AO WAS OF THE OPINION THAT SUCH RECEIPT OF 20 CRORES WAS ASSESSABLE ON COMPLETION OF PROJECT. WITHOUT PREJUDICE TO THIS FINDING THE AO HAS ASSESSED SUCH AMOUNT OF 20 CRORE IN THE HANDS OF THE APPELLANT ON PROT ECTIVE BASIS. THUS AS PER AO SUCH RECEIPT OF RS. 20 CRORES WAS ASSESSABLE ON SUBSTANTIVE BASIS AS AND WHEN THE INCOME OF PROJECT WAS OFFERED BY THE APPELLANT. I HAVE CONSIDERED THE A.OS THIS FINDING. IT HAS BEEN OBSERVED THAT THE APPELLANT HAS OFFERED INCOME FROM PROJECT PARTLY IN A.Y. 2009 - 10 A.Y. 2010 - 11 & IN SUBSEQUENT YEAR. THE ASSESSMENT OF A.Y. 2009 - 10 2010 - 11 ETC HAVE BEEN COMPLETED BY THE AO UNDER SCRUTINY U/S. 143(3) OF THE ACT. HOWEVER IN THE ASSESSMENT ORDER OF THESE YEARS NO ADDITION HA S BEEN MADE BY THE AO IN RESPE CT OF SUCH RECEIPT OF 20 CRORES. THUS IN A.Y. 2008 - 09 THE AO HELD THAT SUCH RECEIPT WAS ASSESSABLE IN 11 SUBSEQUENT YEAR. BUT AS EXPLAINED ABOVE IN SUBSEQUENT YEAR NO SUCH ADDITIONS HAS BEEN MADE. IN THE FACTS AND CIRCUMSTANC ES THE PROTECTIVE ADDITION MADE BY THE AO IN THE YEAR UNDER CONSIDERATION HAS ASSUMED THE CHARACTER OF SUBSTANTIVE ADDITION. THOUGH THE PROJECT WAS PARTLY COMPLETED IN THOSE SUBSEQUENT YEARS IN THE FACTS AND CIRCUMSTANCES IF THE YEAR UNDER CONSIDERATIO N I.E. IN A.Y. 2008 - 09 THE SAME WOULD REMAIN UNASSESSED / WOULD ECAPE ASSESSMENT ON ACCOUNT OF N ADDITION MADE IN SUBSEQUENT YEARS. THUS IN THE INTEREST OF REVENUE THIS RECEIPT OF RS. 20 CRORES IS REQUIRED TO BE ASSESSED IN THE YEAR UNDER CONSIDERATION ONLY. IN THE RESULT THE AO IS DIRECTED TO ASSESS SUCH RECEIPTS OF RS. 20 CRORES ON SUBSTANTIVE BASIS IN THE YEAR UNDER CONSIDERATION AS APPELLANTS BUSINESS INCOME. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 19 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT DURING THE YEAR THE ASSESSEE COMPANY HAS SHOWN INCOME OF RS.20 CRORES IN THE P&L A/C. AS RECEIVED FROM M/S. PLL. THE SAME WAS OFFERED TO TAX IN THE RETURN FILED FOR AY 2008 - 09. THE AO HAS DI SCUSSED THE ISSUE IN PARA 6 OF HIS ORDER AND HAS HELD AS FOLLOWS - (I) I N THE ASSESSMENT YEAR 2004 - 05 THE ASSESSEE COMPANY HAS RECEIVED 32 CRORES FROM PLL AND NOT OFFERED THE SAM E FOR TAX IN THAT YEAR ON THE GROUND THAT IT WILL BE OFFERED TO TAX AS AND WHEN THE PROJECT IS COMPLETED IN THAT CASE HOW THIS INCO M E OF RS 20 CRORES WHICH IS ALSO CONNECTED TO IS PROJECT IS OFFERED AS INCOME IN THIS YEAR? (II) HE HAS FURTHER HELD THAT THERE IS NO AGREEMENT BETWEEN THE ASSESSEE COMPANY AND PLL THE ASSESSEE H AS ONLY FILED THE LEDGER COPY OF PLL AS APPEARING IN THEIR BOOKS OF ACCOUNT AND AS PER THAT THE ASSESSEE COMPANY HAS RECEIVED RS 10 CRORES DURING THE YEAR. (III) THIS INCOME HAS BEEN OFFERED TO CLAIM THE SET OFF OF BROUGHT FORWARD BUSINESS LOSS FOR AY 200 0 - 01 WHICH WOULD GET TIME BARRED AFTER AY 2008 - 09. 20. IN VIEW OF THE ABOVE DISCUSSION AO ASSESSED THE AMOUNT ON PROTECTIVE BASIS AND OBSERVED THAT SAME IS TO BE TAXED ON SUBSTANTIVE BASIS IN THE YEAR WHEN THE 12 PROJECT IS COMPLETED AND INCOME ACCRUES TO TH E ASSESSEE COMPANY. AFTER GIVING DETAILED FINDING AT PARA 5.3 CIT(A) HAS DELETED THE PROTECTIVE ADDITION. 21. WE FOUND THAT THE ASSESSEE HAD ENTERED INTO A DEVELOPMENT AGREEMENT DATED 31 - 3 - 2004 WITH PIRAMAL HOLDINGS LTD. [NOW KNOWN AS PENINSULA LAND LTD. ( PLL) . AS PER THE SAID AGREEMENT PLL WILL BE ENTITLED TO 22% OF THE SALE PROCEEDS AND 78% WILL BELONG TO THE ASSESSEE COMPANY. IN THE DEVELOPMENT AGREEMENT ENTERED WITH PLL IT IS CLEARLY MENTIONED IN CLAUSE 8B(XI) THAT IT IS THE OBLIGATION OF THE DEVELOPE R TO ARRANGE AT ITS OWN COST FOR TRANSFER DEVELOPMENT RIGHTS TO THE EXTENT OF 2 50 000 SQ. FT. FOR THE CONSTRUCTION IN THE SAID PROPERTY AND IF THE TDR IS REQUIRED MORE THAN 2 50 000 SQ. FT. THE SAME SHALL BE PROVIDED BY THE ASSESSEE COMPANY. HOWEV ER DUR ING THE COURSE OF DEVELOPMENT THE PROJECT DID NOT REQUIRE ANY SUCH TDR AND ACCORDI NGLY AFTER DUE NEGOTIATIONS WITH PLL IT WAS AGREED THAT THEY SHALL PAY A SUM OF RS.20 CRORES TO THE ASSESSEE COMPANY ON ACCOUNT OF REDUCTION I N COSTS TO BE BORNE BY PLL AS PER THE OBLIGATIONS AGREED BETWEEN THE PARTIES. THE SAI D AMOUNT WAS SHOWN UNDER THE HEAD OTHER INCOME IN THE PROFIT & LOSS A / C AND WAS OFFERED TO TAX IN RETURN FILED FOR AY 2008 - 09 BEING YEAR OF ARRIVING AT THE SETTLEMENT AMOUNT. THOUGH THE ASSESSEE FOLLO WS PROJECT COMPLE T ION METHOD OF ACCOUNTING HOWEVER THE INCOME RS.20 CRORES WAS A WINDFALL TO THE ASSESSEE AS THE ASSESSEE DID NOT HAVE AN OBLIGATION TO ARRANGE THE TD R TO THE EXTENT OF 2 50 000 SQ FT AND HENCE THE SAME WAS NOT BE TREATED AS CONSTRUCTION E XPENSES FOR THE ASSESSEE . ACCORDINGLY THE SAID INCOME HAS NOT ARISEN DURING THE COURSE OF CONSTRUCTION ACTIVITY AND HENCE WAS CORRECTLY OFFERED IN THE YEAR OF ARRIVING AT THE SETTLEMENT BEING YEAR OF ACCRUAL . 22. THE CIT(A) HAS DELETED THE PROTECTIVE ADDIT ION SO MADE BY AO AFTER OBSERVING THAT THE DEVELOPER COULD NOT HAVE BEEN LEGALLY ENFORCED BY THE ASSESSEE FOR SHARING ITS SAVINGS (COST OF FSL /T DR). THUS THE INCOME OF RS 20 CRORES 13 RECEIVED FROM PLL COULD BE SAID TO BE A WINDFALL TO THE ASSESSEE . T HE FSL /T DR WAS TO BE ARRANGED BY PLL AND THE REFORE LESS CONSUMPTION OF FSL / T DR DID NOT RESULT IN SAVING OF ANY EXPENDITURE FOR THE ASSESSEE AND HENCE THE SAME COULD NOT HAVE BEEN REDUCED FROM WORK IN PROGRES S. IF THE RECEIPT OF 20 CRORES IS NOT TAXED IN AY CURRENT Y EAR UNDER CONSIDERATION IE AY 2008 - 09 THE SAME WOULD REMAIN UNASSESSED. 23. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR TAXING RS.20 CRORES O N SUBSTANTIVE BASIS DURING THE YEAR UNDER CONSIDERATION. 24 . AO ALSO DISALLOWED 25% OF FOREIGN TRANSACTION EXPENSES ON ADHOC BASIS. 25 . THE FACTS OF THE CASE WERE THAT THE APPELLANT CLAIMED FOREIGN TRAVEL EXPENSES OF RS. 8 82 130/ - . THE AO DISALLOWED THE SAME HOLDING THAT THE EXPENSES WERE NOT RELATED TO APPELLANTS BUSINESS. 26 . BY IMPUGNED ORDER CIT(A) DISALLOWED THE DISALLOWANCE AFTER OBSERVING AS UNDER: 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE. 6.3(A) IN RESPECT OF FOREIGN TRAVEL EXPENSES OF RS . 8 82 130/ - THOUGH THE AO HAS DISALLOWED THE FOREIGN TRAVEL EXPENSES BUT THE AO HAS NOT CLARIFIED AS TO HOW THE EXPENSES WERE NOT RELATED TO APPELLANTS BUSINESS. THE APPELLANT HAS FILED DETAILS OF TRAVELLING DETAILS AND SUPPORTING EVIDENCES OF VOUCHER S ETC. EXPLAINING THAT THE FOREIGN TOURS WERE CONDUCTED BY DIRECTORS AND OTHERS FOR DEVELOPMENT OF TEXTILE BUSINESS INVESTMENTS ETC. IN THE FACTS AND CIRCUMSTANCES THE APPELLANT HAS EXPLAINED THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS. T HE DISALLOWANCE MADE BY THE AO ON THIS ACCOUNT IS THEREFORE DELETED. 6.2(B) IN RESPECT OF LOCAL TRAVELLING EXPENSES THE APPELLANT HAS SATISFACTORILY EXPLAINED THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS OF TEXTILE WAREHOUSING EXPENSES WERE INCURRED ON LEGAL MATTERS. IN THE FACTS AND CIRCUMSTANCES THE APP ELLANT HAS SATISFACTORILY EXPLAINED THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS. THE DISALLOWANCE MADE BY THE AO IS THEREFORE DELETED. 14 IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 2 7 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND T HAT AO HAS DISALLOWED THE FOREIGN TRAVELLING EXPENSE OF RS.8 82 130/ - AND 75% OF REMAINING TRAVELLING EXPENSES I.E. 75% OF RS.10.88 LAKHS OF RS.8.16 LAKHS ON ADHOC BASIS BY HOLDING THAT THE SAME IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE. REGARDING LO CAL TRAVELLING EXPENSES IT HAS BEEN HELD BY THE AO THAT THE ASSESSEE COMPANY IS CARRYING ON THE BUSINESS ACTIVITY OF TRADING IN TEXTILE ON A SMALL SCALE AND MAJOR ACTIVITY OF THE ASSESSEE IS DEVELOPMENT OF PROPERTY AND FURTHER EXPENSES ARE INCURRED FOR DI RECTORS AND CONSULTANTS AND THEREFORE 75% OF THE EXPENSES ARE DISALLOWED AS THEY ARE NOT RELATED TO THE BUSINESS ACTIVITY OF THE TRADING IN TEXTILES. 28. BY THE IMPUGNED ORDER CIT(A) DELETED THE DISALLOWANCE AFTER RECORDING FINDING AT PARA 6.3 AS REPRODU CED ABOVE. FROM THE RECORD WE FOUND THAT IN VIEW OF THE ABOVE DISCUSSION ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE MADE ON ACCOUNT OF TRAVELLING EXPENSES. 2 9 . AO ALSO DISALLOWED RS. 1 55 00 000/ - DEBITED BY THE ASSESSEE UNDER TH E HEAD LEGAL / PROCESSING/ CONSULTATION FEES. 30 . THE FACTS OF THE CASE WERE THAT THE APPELLANT CLAIMED EXPENSES OF RS. 193.71 LAKHS AS LEGAL/PROCESSING/CONSULTATION FEES. THE ASSESSING OFFICER FOUND THAT MAJORITY OF EXPENSES HAD BEEN INCURRED FOR THE PRO PERTY WHICH WAS UNDER DEVELOPMENT. 3 1. BY THE IMPUGNED ORDER LD. CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER: 7.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE AO HAS MADE DISALLOWANCE OF EXPENSES HOLDING THAT THE EXPENSES WERE NOT RELATED T O THE TEXTILE BUSINESS OF THE 15 APPELLANT. THE AO INDIRECTLY ASSUMED THAT SUCH EXPENSES WERE INCURRED FOR THE PURPOSE OF APPELLANTS CONSTRUCTION ACTIVITY THE INCOME FROM WHICH WAS TO BE OFFERED IN SUBSEQUENT YEAR ON COMPLETION F PROJECT. HOWEVER THE APPEL LANT HAS SATISFACTORILY EXPLAINED THAT THE LEGAL/PROCESSING/CONSULTATION FEES RELATING TO CONSTRUCTION ACTIVITY WERE SEPARATELY DEBITED IN THE P&L A/C AND THOSE EXPENSES WERE CARRIED TO THE WORK - IN - PROGRESS OF CONSTRUCTION BUSINESS. THE APPELLANT HAS SATIS FACTORILY EXPLAINED THAT THE EXPENSES DISALLOWED BY THE AO WERE RELATED TO ITS TEXTILE BUSINESS WAREHOUSING BUSINESS ETC. AND THEREFORE WERE ALLOWABLE AS REVENUE EXPENSES OF THE YEAR UNDER CONSIDERATION. IN ITS SUBMISSIONS ABOVE THE APPELLANT HAS SATISF ACTORILY EXPLAINED THE JUSTIFICATION OF CLAIMING SUCH EXPENSES AGAINST ITS BUSINESS CARRIED OUT DURING THE YEAR. SUCH EXPENSES WERE NEITHER CAPITAL IN NATURE NOR PERSONAL. DEDUCTION OF THESE EXPENSES ARE THEREFORE ALLOWABLE TO THE APPELLANT U/S. 37(1)OF T HE ACT. THE DISALLOWANCE MADE BY THE AO IS THEREFORE DELETED. IN THE RESULT THIS GROUND IS ALLOWED. 32 . WE HAVE CONSIDERED THE RIVAL CONTENTION AND CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ASSESSEE HAD FILED DETAILS OF EXPENSES BEFORE THE AO. ALL THESE EXPENSES ARE PAID TO THE V ARIOUS PROFESSIONALS IN RELATION TO THE TEXTILE BUSINESS WAREHOUSING BUSINESS LEGAL MATTERS AND VARIOUS OTHER ADMINISTRATIVE WORK WHICH HAVE BEEN OUTSOURCED BY THE A SSESSEE COMPANY. I) THE LEGAL EXPENSES WERE PAID TOWARDS VARIOUS LEGAL AND PROFESSIONAL ADVICE GIVEN AND MAJORITY WAS PAID RETAINER SHIP CHARGES OF LEGAL ADVISORS OF THE ASSESSEE COMPANY. THE CONSULTATION CHARGES HAVE BEEN PAID TO VARIOUS CONSULTANTS TOWARDS ACCOUNTING TAXATION ADMINISTRATIVE AUDITING AND OTHER ROUTINE SERVICES. SINCE COMPANY HAS RETRENCHED ALL ITS WORK FO RCE ROUTINE OFFICE WORK IS BEING HANDLED BY THESE CONSULTANTS AND AS SUCH THESE PAYMENTS ARE MAINLY PAID TOWARDS RETENTION OF THESE PERSONNEL. THEIR FEES/REMUNERATION IS DEBITED UNDER THE HEAD CONSULTANCY CHARGES. 16 II) THE PROCESSING FEES ARE PAID TOWARDS DISBURSEMENT OF TERM LOAN. THESE KIND OF PROCESSING FEES ARE GENERALLY REQUIRED TO BE PAID TO BANKS OR OTHER PARTIES ARRANGING FOR FINANCE AND ARE VERY PECULIAR IN THE BUSINESS WORLD. III ) THE OTHER FEES INCLUDE CARBO N CREDIT CONSULTANCY CHARGES. THESE FEES WERE PAID TO CANTOR CORE INDIA PVT. LTD. FOR EXPLORING NEW BUSINESS OPPORTUNITIES. WE ALSO FOUND THAT THE EXPENSES WERE NOT PERSONAL OR CAPITAL IN NATURE AND THEREFORE SHOULD BE ALLO WED. ALL THESE PAYMENTS MADE TO VARIOUS CONSULTANTS RELATING TO THE CONSTRUCTION ACTIVITIES WERE DEBITED TO THE CONSTRUCTION EXPENSES A/C. AND WERE CARRIED FORWARD UNDER THE HEAD WORK IN PROGRESS. THE SAME CAN BE SEEN FROM SCHEDULE 11 OF THE AUDITED STATEMENT OF ACCOUNTS IN RESPECT OF PU RCHASE AND OTHER EXPENSES AND UNDER THE SAID HEAD THE FOLLOWING EXPENSES ARE DEBITED. (I) ARCHITECT FEES & CONSULTANCY CHARGES RS. 82.49 LACS (II) CONSULTANCY CHARGES RS. 133.41 LACS THEREFORE THE CONTENTION OF THE AO THAT THESE WERE RELATING TO TH E CONSTRUCTION ACTIVITY WAS NOT CORRECT. FURTHER THE AO HAS NOT DOUBTED THE INCURRING OF THESE EXPENSES AND ALL THESE PAYMENTS WHICH WERE MADE TO CONSULTANTS AND ADVOCATES WERE DULY SUPPORTED BY THEIR BILLS AND VOUCHERS AND COMPLETE DETAILS I.E. NAME ADD RESS AND PURPOSE FOR WHICH IT IS PAID WERE ALREADY GIVEN TO THE AO. IN VIEW OF THE ABOVE CIRCUMSTANCES THE DISALLOWANCE OF RS. 155 LAKHS OUT OF LEGAL PROFESSIONAL AND CONSULTANCY CHARGES MADE BY THE AO WAS NOT JUSTIFIED. EVEN THE AO HAS TABULATED THESE E XPENSES IN HIS ASSESSMENT ORDER ON THE VARIOUS PURPOSES FOR WHICH IT IS PAID. FROM THE ABOVE IT IS VERY CLEAR THAT THESE EXPENSES ARE INCURRED TOWARDS PAYMENT TO VARIOUS CONSULTANTS ADVOCATES ETC. DURING THE COURSE OF BUSINESS HENCE THEY ARE ALLOWABLE AS DEDUCTION U/S. 37 OF THE I.T. ACT. 17 33 . IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) FOR DELETING THE DISALLOWANCE OF LEGAL EXPENSES SO MADE BY THE AO. FURTHERMORE THE FINDINGS RECORDED BY THE LD. CIT(A) ARE AS PER MATERIAL ON RECORD WHICH HAS NOT BEEN CONTROVERTED BY THE LD. DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) 21. IN THE RESULT APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/10/ 2016. S D/ - SD/ - ( AMARJEET SINGH ) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 24/10/2016 AG (ON TOUR) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR ITAT MUMBAI 6. GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT MUMBAI