ACIT, NEW DELHI V. M/S. PGF LTD., CHANDIGARH

ITA 2137/DEL/2010

AI Insights

The case involves three appeals by the Revenue against M/s PGF Ltd concerning the assessment years 2004-05, 2005-06, and 2006-07. The primary issues revolved around the disallowance of certain financial costs and expenditures claimed by the assessee, which the Assessing Officer had initially disallowed. The CIT(A) had allowed these claims, which the Revenue contested in the Tribunal. The Tribunal examined each ground of appeal, considering the arguments and evidence presented, and upheld the CIT(A)'s decisions, leading to the dismissal of the Revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669315 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Other Referred Cases: S.A. Builders vs. CIT, Dalmia Cement vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMER SINGH MEENA
• Assessee Lawyers: SOMIL AGARWAL
• Keywords: Business income
• Section: 37(1)

Judgement Text

"ITA No. 2135/DEL/2010 [A.Y 2004-05] ITA No. 2136/DEL/2010 [A.Y 2005-06] ITA No. 2137/DEL/2010 [A.Y 2006-07] The A.C.I.T Vs. M/s PGF Ltd Page 1 of 13 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘F’ BENCH, NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 2135/DEL/2010 [A.Y 2004-05] ITA No. 2136/DEL/2010 [A.Y 2005-06] ITA No. 2137/DEL/2010 [A.Y 2006-07] The A.C.I.T Vs. M/s PGF Ltd Central Circle - 4 [Formerly M/s Pearls Green New Delhi Forest [Ltd], New Delhi SCO, 1042-43, Sector -22C Chandigarh PAN: AABCP 2805 N (Appellant) Respondent) Assessee By : Shri Somil Agarwal, Adv Shri Deepesh Garg, Adv Department By : Shri Sumer Singh Meena, CIT- DR Date of Hearing : 30.04.2025 Date of Pronouncement : 27.06.2025 ORDER PER NAVEEN CHANDRA, AM :- The above captioned three appeals by the Revenue are directed against three separate orders of the ld. CIT(A)-III, New Delhi dated 16.02.2010 for A.Ys 2004-05 to 2006-07 respectively. ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 2 of 13 2. Since these three appeals pertaining to same assessee and involve common issues, they were heard together they are disposed of by this common order for the sake of convenience and brevity. Revenue appeal: ITA No. 2135/DEL/2010 [A.Y. 2004-05] 3. Ground No. 1 pertains to deletion of disallowance of Rs. 2,93,08,907/- made by the Assessing Officer by allocating the said amount on account of interest income to be capitalized to the joint venture accounts. 4. The ld. counsel for the assessee heavily relied on the CIT(A) while the ld. DR relied on the orders of the authorities below. 5. We have heard the rival submissions and have perused the relevant material on record. We find that the CIT(A) has arrived at his decision as under: 4.3 I have carefully considered the facts of the case and the submissions made by the Counsel of the appellant. The appellant is engaged in multi facet businesses like real estate, commercial land, timber, spices etc. The funds used for the business are sourced from the investors to whom on an average yield of 14.1% is paid by the company. ***** It is clear from the submissions that funds for dealing in real estate, commercial land, timber and spices have been sourced ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 3 of 13 from the investors. It is observed that the Vappellant had debited total interest of Rs. 55,68,17,999/- to the Profit & loss account and out of this interest of Rs. 2,93,08,907/- is claimed to be paid for the purpose of business in real estate, commercial land and spices etc. @ 10%. Whereas the fact is that the investors are paid at average rate of 14.1%. The CIT(A), relying on the decision of the Hon'ble Supreme Court in the case of S.A. Builders reported in 288 ITR 001 held that : 4.3 Adverting back to the facts of the case, it is clear from the submissions made by the appellant before the A.O. that borrowed funds have been used for business purposes and income therefrom has been offered for the taxation. The appellant had worked out interest of Rs. 2,93,08,907/- directly attributable to the business activities. The A.O. had not rebutted the contention of the appellant which was summarily rejected. In view of the totality of facts and circumstances, it is held that interest of Rs. 2,93,08,907/- is expended for the business activity and rightly claimed as deduction u/s 36(1)(iii) of the Act. The A.O. is directed to allow the claim of the interest.” 6. We have heard the rival submissions made and have carefully perused the materials on record. It is an admitted fact that the assessee is engaged in various activities like real estate, commercial land, spices etc for which he has procured funds from various investors at an average cost of 14.1%. The assessee has worked out the interest on proportionate basis at Rs 2,93,08,907/- on the funds borrowed for this particular business activity. We find that the same is directly related to the ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 4 of 13 business activity of the assessee and is allowable under 36(1)(iii) of the Income Tax Act. We are therefore not inclined to interfere with the decision of the CIT(A). Ground 1 of the Revenue is dismissed. 7. Ground No. 2 pertains to the deletion of disallowance of expenditure of Rs. 62,22,908/- made by the Assessing Officer by disallowing finance cost of advancing loan to policy holder. The assessee had earned interest of Rs. 1,02,61,763/- on loan extended to policy holders and offered the same as income for the year under consideration. However, the Assessing Officer rejected the finance cost of Rs 62,22,908/- claimed by the assessee for borrowing the funds given on loan to policy holders. When the assessee went in appeal before the ld. CIT(A), he held the same as an allowable expenditure u/s 36(1)(iii) of the Act and directed the Assessing Officer to allow the claim of interest of Rs. 62,22,908/- on loan to joint venture. 8. Aggrieved, the Revenue is in appeal against the action of the ld. CIT(A). 10. We have heard the rival submissions and have perused the relevant material on record. We find that the assessee has offered the interest ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 5 of 13 of Rs. 1,02,61,763/- earned on loan extended to the policy holders for the year under consideration. We find that the Assessing Officer disallowed the finance cost for the borrowed funds used for the purpose of advancing the loan to the policy holders, without assigning any reasons. We find that the ld. CIT(A) allowed the claim of the assessee as an allowable expenditure u/s 36(1)(iii) of the Act. We are of the considered view that in the instant factual matrix, the ld. CIT(A) was justified in holding that the finance cost was incurred to earn interest and the Assessing Officer rejected the claim of the assessee summarily without rebutting the details filed during the assessment proceedings. We, therefore, do not find any flaw in the findings of the ld. CIT(A). Ground No. 2. Is dismissed. 11. Ground No. 3 pertains to the deletion of disallowance of Rs. 4,01,44,183/- on account of common management expenses. Briefly, the facts are that the assessee had incurred a sum of Rs. 28,59,43,123/- as management and other expenses which included direct and indirect expenses. However, the Assessing Officer while allocating management expenses, disallowed the indirect management expenditure of Rs. 4,01,44,183/-. ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 6 of 13 12. When the assessee went in appeal before the ld. CIT(A), the ld. CIT(A) relying on the decision of the Hon'ble Delhi High Court in the case of Dalmia Cement 121 Taxmann 706, allowed the appeal of the assessee holding as under: “6.3 I have carefully considered the facts of the case and the submissions made by the Counsel of the appellant. It is observed that during the year under consideration the appellant had incurred management expenditure of Rs. 28,59,43,123/-. The Assessing Officer disallowed the indirect expenditure of Rs. 401,44,183/- allocated to the business activity where taxable income has been earned and offered for the taxation. The Assessing Officer had considered the expenditure on the basis of sales. It is verified from the submissions that the Joint venture activity was not in operation during the year. This fact is even admitted by the A.O. in her order in para 16. It is further observed that during the year the appellant had started dealing in new activity of purchase and sale of land. The appellant for this purpose had collected Rs. 801,17,15,813/- from the investors and purchased the land at various locations. During the year sales worth Rs. 109,15,84,576/- of the land have been made to the customers. It is not the case of the A.O. that the expenditure incurred by the appellant is not genuine. The submissions made before the A.O. make it clear that the expenditure made by the appellant clearly falls in the purview of section 37(1) of the Act as incurred wholly and exclusively for the purpose of business”. 13. Aggrieved, the Revenue is in appeal before us. 14. We have heard the rival submissions and have perused the relevant material on record. We are of the considered view that the ld. CIT(A) ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 7 of 13 was justified in holding that the indirect management expenditure was made by the assessee wholly and exclusively for the purpose of business and direct the Assessing Officer to allow the claim of indirect management expenditure of Rs. 4,01,44,183/-. We, therefore, decline to interfere with the findings of the ld. CIT(A). Ground No. 3 is dismissed. 15. Ground No. 4 relates to the action of the ld. CIT(A) in deleting the disallowance of Rs. 2,52,36,513/- made by the Assessing Officer against the land development expenditure claim of the company. Briefly the facts are the assessee has paid Rs. 2,52,36,513/- to M/s A.I. Estates to carryout work as specified in agreement between the assessee and M/s A.I. Estates which included land survey and levelling; fencing; installation of diesel pumps/motors; construction of motorable road etc. The said company provided all these services and received payment for services rendered as per agreement dated 21st April 2003. 16. The Assessing Officer during the course of assessment proceedings, required the assessee to furnish the details of payment and other details like nature of services rendered by AI Estates. The assessing officer held that the assessee is located in Delhi while the services were performed ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 8 of 13 at Tamilnadu and therefore the same is doubtful. Accordingly, the assessing officer required the assessee to produce the said party for verification. As the assessee could not produce the party, the Assessing Officer disallowed the expenditure amounting to Rs. 2,52,316.513/- and added the same to the income of the assessee. 17. Aggrieved, the assessee went in appeal before the ld. CIT(A) who deleted the disallowance made by the Assessing Officer. 18. Now the aggrieved Revenue is in appeal before us. 19. We have heard the rival submissions and have perused the relevant material on record. We find that the Assessing Officer disallowed the payment of Rs. 2,52,36,513/- for non-production of A.I. Estates for examination. It is the say of the ld. counsel for the assessee that the said party could not be produced due to the short notice of 7 days. We find that the company is having office in Delhi whereas the services were rendered in Tamil Nadu. We further find that the ld. CIT(A) observed that the services were provided by the company and payment for the services rendered was made as per the agreement and the bills were raised by the concerned company. Therefore, there is no scope for ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 9 of 13 doubt or suspicion regarding the services rendered. We also find that the Assessing Officer has not brought any positive material or evidence to indicate that there is no services rendered. The ld. CIT(A) is quite justified in holding that merely because of the subjective satisfaction that the company is based in Delhi and not capable of providing services in Tamil Nadu would not give jurisdiction under the peculiar facts of the case to disallow the genuine expenditure. In view of the above discussion, we uphold the findings of the ld. CIT(A) and dismiss Ground No. 4. 20. Ground No. 5 is general. 21. As a result, the appeal of the Revenue is dismissed. Revenue appeal: ITA No. 2136/DEL/2010 [A.Y. 2005-06] 22. Ground No. 1 pertaining to disallowance of finance cost of advancing loan to policy holders has been discussed and decided by us while dealing with Ground No. 2 hereinabove in A.Y 2004-05. In light of our discussion and decision thereon, we dismiss Ground No 1. ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 10 of 13 23. Ground No. 2 pertaining to disallowance of land development expenditure claim of the company has been discussed and decided by us while dealing with Ground No. 4 hereinabove in A.Y 2004-05. In light of our discussion and decision thereon, we dismiss Ground No 2. 24. Ground No. 3 pertains to disallowance of Rs. 1,49,35,377/- on account of financial cost to earn late fee from customers. The Assessing Officer considered the receipt of late fee from joint venturers as business income as per the directions of the ITAT in A.Y 1998-99. However, the Assessing Officer did not allow financial cost to earn late fees from policy holders. 25. Aggrieved the assessee went in appeal before the ld. CIT(A) who directed the Assessing Officer to allow the claim of interest of Rs. 1,49,35,377/-. 26. Now the revenue is aggrieved and has come in appeal before us. 27. After considering the facts and circumstances, we find that the amount of Rs. 2,01,25,285/- is credited as business receipt whereas the payment of interest on deposits received by the company has not been ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 11 of 13 considered by the Assessing Officer. The Assessing Officer has not given any specific finding for the said disallowance. We, therefore, are of the considered view that the ld. CIT(A) was justified in allowing the claim of interest and decline to interfere with his order. Ground No. 3 of the Revenue is dismissed. 28. Ground No. 4 is general. 29. As a result, the appeal of the Revenue is dismissed. Revenue appeal: ITA No. 2137/DEL/2010 (AY 2006-07) 30. Ground No. 1 pertains to deletion of disallowance of Rs. 13,10,05,000/- made by the Assessing Officer by allocating and capitalizing the same to the joint venture accounts. This issue has been discussed and decided by us while dealing with Ground No. 1 hereinabove in A.Y 2004-05. In light of our discussion and decision thereon, we dismiss Ground No 1. 31. Ground Nos. 2 and 3 are general in nature. ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 12 of 13 32. As a result, the appeal of the Revenue is dismissed. 33. In the result, appeals of Revenue in ITA Nos. 2135, 2136 and 2137/DEL/2024 stand dismissed. Order pronounced in open court on 27.06.2025. Sd/- Sd/- [SATBEER SINGH GODARA] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 27th JUNE, 2025. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi ITA Nos. 2135 to 2137 /DEL/2010 M/s PGF Ltd [A.Y 2004-05 to 2006-07] Page 13 of 13 Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order "