M/s Ansal Housing & Construction Ltd., New Delhi V. ITO, New Delhi

CO 222/DEL/2010

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0732 (ITAT-DELHI)
• Duration Of Justice: 13 year(s) 11 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-07-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-07-2024
• Assessment Year: 2007-2008
• Appeal Filed On: 08-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANISHA SHARMA; BRINGING ANY
• Keywords: Capital asset; Business income; Rule of consistency; Earning of tax free income; Additional evidence; Tax effect; Rule 8D; Set aside
• Section: 143(3); 14A; 80IB; 205; 80IA; 201; 251; 208; 192; 43; 48; 13; 22; 20

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “A” BENCH: NEW DELHI BEFORE SHRI G.S.PANNU, VICE PRESIDENT & SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.2731/Del/2010 [Assessment Year : 2007-08] DCIT, Central Circle-20, New Delhi. vs Ansal Housing & Construction Ltd., UGF-15, Indraprastha Building, 21, Barakhamba Road, New Delhi. PAN-AAACA0377R APPELLANT RESPONDENT C.O.No.222/Del/2010 [In ITA No.2731/Del/2010] [Assessment Year : 2007-08] Ansal Housing & Construction Ltd., UGF-15, Indraprastha Building, 21, Barakhamba Road, New Delhi. PAN-AAACA0377R vs DCIT, Central Circle-20, New Delhi. APPELLANT RESPONDENT Appellant by Ms. Kirti Sankratyayan, Sr.DR & Shri Kanv Bali, Sr. DR Respondent by Shri Ajay Vohra, Sr.Adv. & Ms. Manisha Sharma, Adv. Date of Hearing 24.07.2024 Date of Pronouncement 26.07.2024 ORDER PER KUL BHARAT, JM : The present appeal filed by the Revenue and the cross-objection by the assessee are directed against the order of Ld. CIT(A)-I, New Delhi dated 30.03.2010 for the assessment year 2007-08. For the sake of convenience, both the appeal and cross-objection were heard together and are being disposed off by way of consolidated order for brevity and convenience. Page | 2 2. First we take up the Revenue’s appeal in ITA No. 2731/Del/2010 [Assessment Year 2007-08]. The Revenue has raised following grounds of appeal:- 1. “The order of the Ld. CIT (Appeals) is not correct in law and facts. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts of the case in deleting the addition of Rs. 58,09,780/- made by AO on account of notional ALV in respect of unsold spaces/ flats treating the same as income from house property. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts of the case allowing part relief towards this allowance of deduction u/s 80-IB at Rs. 4,69,59,072/- made by AO by way of proportionate allocation various expenses to eligible projects where as such deduction is to be computed as if each eligible unit was an independent and only source of income as provided u/s 80- IA(5) of the income tax Act, 1961 and see 80-IB (13) of income tax Act, 1961. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts of the case in allowing part relief towards this allowance on deduction u/s 80-IB at Rs. 4,69,59,072/- by admitting additional details and evidences without affording any opportunity to AO in violation of provision of Rule 46A of income tax Rule 1962 and ignoring the request of AO in prescribed form ITNS -51 as required by Ld. CIT (A) before disposal of appeal. Page | 3 5. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts of the case in allowing part relief towards disallowance of deduction under section 80-IB in respect of three projects when there is substantial evidence that the assessee company had made investment to the extent of Rs.1,03,01,73,852/- prior to 1.4.1998 in all these projects as also admitted to have launched these projects in the Annual reports of 1996-97. 6. Whether there was any material evidence before Ld. CIT(A) to hold that the three projects were launched prior to 1.10.1998 and were completed on or before 31.03.2008. 7. On the facts and circumstances of the case, the Ld. IT(A) has erred in law and facts in denying set off losses in assessment year 2006-07 in East End and Green Glade-I Projects against profits of succeeding assessment year as per law. 8. On the facts and circumstances of the case, the Ld CIT(A) has erred in law and facts of the case in deleting addition by way of disallowance under section 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rule, 1962 and computation of disallowance under the Rule have been ignored by Ld. CIT(A). 9. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.” Page | 4 FACTS OF THE CASE 3. The facts giving rise to the present appeal are that the assessee company filed its return of income on 31.10.2007, declaring income of INR 37,49,44,929/- from business and profession. The case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (“the Act”) was framed vide order dated 15.12.2009. The Assessing Officer (“AO”) while framing the assessment, computed the income chargeable to tax at INR 42,85,94,707/-. Thereby, he made additions on three major issues i.e. INR 58,09,780/- on account of notional Annual Letting Value (“ALV”), in respect of vacant commercial/self-occupied capital assets, disallowance u/s 14A of the Act of INR 10,80,927/-, and disallowance of deduction u/s 80IB(10) of the Act to the extent of INR 4,69,59,072/-. Hence, he assessed income of assessee at INR 42,85,94,707/- against declared income at INR 37,49,44,929/-. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions, partly allowed the appeal for statistical purposes. Thereby, the Ld.CIT(A) deleted the disallowance made u/s 14A of the Act, addition made by the AO, qua the ALV of vacant properties amounting to INR 58,09,780/-. However, in respect of the disallowance of deduction u/s 80IB(10) of the Act, he Page | 5 partly allowed the claim of the assessee. Thereby, he reduced the disallowance of deduction u/s 80IB(10) of the Act out of total disallowance of INR 4,69,59,072/- by directing the AO to re-compute the disallowance on the basis of his finding in respect of allocation of various expenses on eligible projects. The Ld.CIT(A) deleted addition(s) related to ALV of vacant properties, disallowance u/s 14A of the Act and he substantially reduced disallowance of deduction u/s 80IB(10) of the Act, from INR 4,69,59,072/-. 5. Aggrieved against this, both the assessee and the Revenue have assailed the finding of Ld.CIT(A) in appeal and cross-objection respectively before this Tribunal. 6. Ground No.1 & 9 of Revenue’s appeal are general in nature, need no separate adjudication. 7. Ground No.2 is against the deleting the addition of INR 58,09,780/- made on account of notional ALV in respect of unsold spaces/flats treating the same as income from house property. 8. At the time of hearing, Ld. Sr. Counsel for the assessee, Shri Ajay Vohra, appearing on behalf of the assessee fairly conceded that the issue regarding ALV of residential units held as stock-in-trade being assessable under the head “income from house property” u/s 22 of Page | 6 the Act, stood decided against the assessee by the judgement of Hon’ble Delhi High Court in assessee’s own case for Assessment Years 1988-89 to 1998-99 reported in 354 ITR 180 (Del.HC). It was contended that the issue whether annual letting value of residential units held as stock in trade at the end of the year, was to be assessed under the head “income from house property” u/s 22 of the Act had been decided against the assessee by the Hon’ble Delhi High Court vide judgement dated 31.10.2012 in ITA Nos.18/1999, 56, 57, 105, 107, 109, 114, 177/2001, 88/2002, 111, 321, 498/2003, 227, 336, 529, 690/2004 and 212/2005 in assessee’s own case and other connected matters reported as CIT vs Ansal Housing Finance and Leasing Co.Ltd. 354 ITR 180. Further, he reiterated the submissions as made in the written submissions. He submitted that submissions made in chart may kindly be considered. For the sake of clarity, the submissions of the assessee are reproduced as under:- • AY 1994-95: 389 ITR 373 (Delhi High Court) (Refer, pages 41-45 of the PB-for AY 2007-08, relevant finding @ pg. no. 42-44) The Delhi High Court has summarily rejected the argument of the assessee that since the assessee is engaged in the business of real-estate, therefore, income arising from such activities including notional income on unsold flats/houses as at the end of the year (if any), would be taxable as business income, thereby ousting the Page | 7 applicability of section 22 read with section 23 of the Act, relating to taxation of income under the head 'income from house property' as held by the Supreme Court in the case of Chennai Properties & Investments Ltd. v. CIT: 373 ITR 673. It would, however, be pertinent to point out that the Supreme Court has admitted the Special Leave Petition filed by the assessee against the said decision of the High Court vide order dated 19.09.2016 passed in SLP (C) No. 26863/2016 reported in 243 Taxman 144, which is pending disposal. • AY 2005-06 and 2006-07: ITA No. 931 and 934 of 2017 (Delhi High Court) (Refer, pages 1-14 of the case law PB, relevant finding @ pg. no. 5-14) The Delhi High Court rejected the argument of the assessee that since the property was vacant for the whole of the previous year, the annual letting value thereof shall be taken to be nil in view of section 23(1)(c), on the ground that since the properties were held by the assessee as stock in trade and not for the purpose of letting out, 'vacancy allowance' provided under section 23(1)(c) of the Act could not be claimed. The Court also rejected the contention of the assessee that sub- section (5) inserted under section 23 of the Act, to provide for determination of notional ALV in case of real estate developers, had for the first time introduced the charge of notional ALV in cases where building etc. are held by such developer as stock-in- trade after the end of one year from the end of financial year in which the certificate of completion is obtained, was applicable from Page | 8 01.04.2018 and thus, was no charge of notional ALV in cases where building/ flats etc. were held as stock-in-trade. It would, however, be pertinent to point out that the Supreme Court has admitted the Special Leave Petition filed by the assessee against the said decision of the High Court which is reported at 256 Taxman 294 (SC), which is pending disposal. It is pertinent to point out that various Courts/Tribunals in the following cases have taken a different view: - In the following cases it has been held that notional annual letting value of unsold flats held as stock-in-trade by the assessee builder cannot be brought to tax under the head 'Income from House property': • CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj.) • Shivsagar Builders (P.) Ltd. v. ACIT: [2020] 185 ITD 684 (Delhi - Trib.) • Shree Balaji Ventures v. ITO in ITA No. 1914/Pun/2018 (Pune Trib.) • M/s Kanakia Spaces Pvt. Ltd. v. DCIT in ITA Nos. 7288 and 7289/Mum/2017 (Mum - Trib.) • M/s Runwal Constructions v. ACIT in ITA Nos. 5408 and 5409/Mum/2016 (Mum - Trib.) • ITO Vs. Arihant Estates Pvt. Ltd. in ITA No. 6037/Mum/2016 (Mum - Trib.) • M/s Sarang Property Developers Pvt. Ltd. v. ACIT in ITA No. 5620/Mum/2016 (Mum- Trib.) Page | 9 • Progressive Homes v. ACIT in ITA No. 5082/MUM/2016 (Mum - Trib.) • ACIT v. Haware Construction (P.) Ltd. in ITA Nos. 3172 & 33211Mum/2016 (Mum - Trib.) In the following cases, it has been held that where a residential property remained vacant throughout the year, annual letting value of such property shall be NIL in accordance with the provisions of section 23 (1)( c) of the Act • CIT v. Joy Jacob: 151 ITR 19 (Ker.) • Premsudha Exports (P.) Ltd. v. ACIT: 110 ITD 158 (Mum. Trib.) • Shakuntala Devi v. DDIT: 31 CCH 32 (Bang.) • Kamal Mishra v. ITO: 19 SOT 251 (Del.)(Further appeal dismissed by the High Court) • Ms. Priyananki Singh Sood v. ACIT: [2019] 174 ITD 371 (Delhi - Trib.) • ITO v. Metaoxide (P.) Ltd. - [2018] 170 ITD 235 (Mumbai - Trib.) • Raj Landmark (P.) Ltd. v. ITO - [2018] 172 ITD 339 (Jaipur ITAT) • Sachin R. Tendulkar v. 172 ITD 266 (Mumbai - Trib.) • Sonu Realtors (P.) Ltd. v. DCIT: [2018] 173 ITD 82 (Mumbai - Trib.) • Saif Ali Khan Pataudi v. ACIT: [2018] 172 ITD 345 (Mumbai - Trib.) Page | 10 • ACIT v. Dr. Prabha Sanghi: 139 ITD 504 (Del.) • Vikas Keshav Garud v. ITO: 160 ITD 7 (Pune. Trib.) • S.M. Chandrashekar v. ITO: 76 taxman.com 278 (Bang. Trib.) • Bengal DCL Housing Development Co. Ltd. vs. Dy. CIT: 201 TTJ 353 (Kol. Trib.) Without prejudice, it is respectfully submitted that notional ALV cannot be computed for the unsold stock since the flats/space are not in a habitable condition. To make it habitable, the owners have to incur some expense like wood work, fixing of lights and taking electricity connection etc. It is pertinent to mention here that the electricity connection is being applied in the name of the owner who purchases the flat or commercial space from the assessee. The flats/commercial space lying in stock do not have any electricity connection and thus are not in habitable condition. [Refer, Shree Nirmal Commercial Ltd. v. CIT 193 ITR 694 (Bom.), Shyam Sunder Behl v. ADIT: 147 Taxman 1 (Amritsar)(Mag.), S.M. Chandrashekar v. ITO: 76 taxman.com 278 (Bang. Trib.), ACIT v. Dr. Amrit Lal Adlakha: (2006) 105 TTJ Asr. 271] It is further pertinent to point out that the properties at S. No. 13 and 14 (Refer pg. no. 26 of the PB) are merely farm lands on which no residential unit has been constructed, which are outside the purview of section 22 of the Act. It would be pertinent to point out that the aforesaid issue, whether any building was constructed on farm lands was set-aside by Delhi Bench of the Tribunal to the file of assessing officer for fresh examination in assessee's own case for assessment years 2004-05 to 2006-07 [Refer, Order dated 28.03.2017 of Delhi Bench of Tribunal (ITA No. Page | 11 ITA Nos. 3193/Del/2008, 1248/Del/2009, 1254/Del/2009 and 1576/Del/2010 placed at pg. no. 107-138 of PB, relevant finding @ pg. no. 135, para 38)] That apart, and further without prejudice to the aforesaid, the rate adopted by the assessing officer in respect of farm lands @ 2500 per acre per month is highly arbitrary, excessive and divorced from all realities and probabilities of the case. In view of the aforesaid, it is respectfully submitted that the action of the assessing officer in computing notional ALV in respect of the inhabitable vacant premises is not correct in law.” 8.1. He contended that many units were not habitable and such unit cannot be subjected to tax. Further, properties at Sl.No.13 and 14 at page No.26 of Paper Book, were merely farm lands which are outside of the purview of section 22 of the Act. Such properties could not be subjected to income tax. 9. On the contrary, Ld.Sr.DR for the Revenue opposed these submissions and submitted that now the issue stands decided against the assessee by the judgement of Hon’ble Delhi High Court in assessee’s own case which is also approved by the Hon’ble Apex Court. Thus, the contrary view of Ld.CIT(A) should not be sustained. He placed reliance on the Judgment of Hon’ble Supreme Court rendered in assessee’s own case for the earlier years. Therefore, the finding recorded by the AO in assessment order deserves to be upheld and Page | 12 decision of Ld.CIT(A) deserves to be set aside, being contrary to the binding precedents on the issue. 10. We have heard the rival contentions and perused the material available on record and gone through the orders of the authorities below. So far the question of taxability of ALV qua house properties/commercial space is concerned, there is no dispute that under the identical facts in the assessee’s own case pertaining to Assessment Years 1988-89 to 1998-99, the Hon’ble Jurisdictional High Court has decided the issue against the assessee. The contention of the assessee that the flats were not habitable therefore, notional ALV could not have been computed. It is seen that no such contention was made before the authorities below. Moreover, no material is placed before this Tribunal, supporting the contention. Since, under the identical facts, the Hon’ble Delhi High Court has already decided the issue against the assessee and the view of the Hon’ble High Court of Delhi has been affirmed by the Hon’ble Supreme Court therefore, the finding of Ld. CIT(A) cannot be sustained and same deserved to be reversed. Hence, the order of Ld.CIT(A) on the issue of taxability of vacant house property/ commercial space is hereby, set aside and the corresponding finding by the AO are sustained. Except the claim of the assessee that the properties Page | 13 mentioned at Sl.Nos.13 and 14 at page No.26 of Paper Book were merely farm lands and no house properties were constructed thereon, would be outside the purview of section 22 of the Act. However, the Ld.CIT(A) has deleted the impugned addition without giving specific finding regarding the properties being vacant farm land and there was no construction of house property by the assessee. Therefore, the issue of taxability of properties claimed as being vacant farm lands needs verification by the AO for ascertaining the correctness of the claim that no house/building was constructed on such lands. Thus the issue is hereby, restored to AO. If it is found true that during the relevant time, no house property/commercial space were constructed thereon. No addition would be called for. Thus, Ground No.2 of the Revenue’s appeal is partly allowed, in the terms indicated herein before. 11. Ground Nos.3 to 6 of Revenue’s appeal are against the substantial relief granted by the Ld.CIT(A) in respect of allocation of various expenses to eligible projects on the basis sales ratio for computing allowance of deduction u/s 80IB(10) of the Act. The Revenue has also assailed admission of additional evidences in contravention of Rule 46A of the Income Tax Rules, 1962. Thus, the issues raised by the Revenue against the correctness of the impugned Page | 14 order can be broadly divided in two parts; firstly, the deduction qua three projects that as per the AO, were not eligible for deduction and secondly, the allocation of various expenses to eligible projects for determining the correct figure of deduction admissible u/s 80IB(10) of the Act to the assessee. 12. Ld. Sr. DR for the Revenue vehemently argued that Ld.CIT(A) was not justified in allowing substantial relief to the assessee, under the facts of the present case. He averred that the deduction u/s 80IB(10) of the Act, should not have been allowed to the assessee. He heavily relied on the assessment order. Ld. Sr. DR submitted that AO had examined the issue elaborately and his finding is based on facts. He has rightly allocated the expenses to eligible projects. Moreover, the Ld.CIT(A) considered the additional evidences without giving adequate opportunity to the assessing authority to rebut the same. Ld.Sr.DR submitted that it cannot be presumed that there was no role of head office in execution of the projects. Therefore, no expenditure could be allocated to the eligible projects out of head office expenses claimed by the assessee. Ld. Sr. DR contended that assessee is not entitled for deduction u/s 80IB(10) of the Act in respect of the expenditure related to head office. In sum and substance, Ld.Sr.DR for the Revenue relied on assessment order and stated that the deduction u/s 80IB(10) of the Page | 15 Act would be allowable to the expenses related to eligible projects but not to the ineligible projects and the expenditure related to such projects can be allowed. No other expenses can be loaded to eligible project. Further, the Ld. Sr.DR. for the Revenue contended in respect of the professional charges that the assessee company incurred expenditure of INR 3,09,90,572/- towards legal and professional charges. Hence, the AO had rightly allocated the professional charges on pro-rata basis on the ratio of each eligible projects. 13. On the other hand, Ld. Senior Counsel for the assessee, Shri Ajay Vohra opposed these submissions and submitted that the authorities below did not appreciated the facts in right perspective. He contended that AO failed to bring any defect into the separate accounts prepared by the Assessee for each project. Hence, the allocation made by the AO is arbitrary and unjustified. 14. Ld.Sr. Counsel for the assessee pointed out that by way of Ground Nos. 3 & 4, the Revenue has challenged against the part relief granted by the Ld.CIT(A) in respect of allocation of various expenses to the eligible projects. The AO allocated various expenses to the eligible projects in ratio of sales and consequently, proposed disallowance of deduction of INR 3,59,98,438/- in respect of all nine projects. But having considered that out of nine projects, he had already Page | 16 disallowed the entire claim of deduction in respect of three projects namely, Avantika Aakriti, Golf Link I and Golf Link II, by treating for not eligible for deduction, the AO restricted disallowance on the six projects only for an amount of INR 3,45,09,112/-. He submitted that Ld.CIT(A) following the decision of Tribunal in assessee’s own case for the year 2001-02 has rightly allowed deduction on three projects excluding six units out this project. However, Ld.CIT(A) partly upheld the action of AO in respect of allocation of the expenses to the eligible projects and reducing deduction claimed by the assessee qua such eligible project. The contention of the assessee in this regard is that the assessee company had been maintaining separate books of accounts in respect of each eligible project which is duly supported by the Audit Report in Form 10CCB. All direct or indirect expenditures having direct nexus with the eligible projects, were added to the cost of the said project. Hence, it was submitted the expenditure which was not directly attributable to the eligible project, cannot be apportioned to that project while computing deductions available under the Act. 15. Ld. Counsel for the assessee placed reliance on the judgement of Hon’ble Karnatka High Court in the case of CIT vs Mineral Enterprises Ltd. 310 CTR 612 (Kar.) and the judgement of Hon’ble Page | 17 Bombay High Court in the case of CIT vs Hindustan Lever Ltd. 221 Taxman 71 (Bom.). Thus, it was prayed that no allocation should have been made. He submitted that Ld. Deputy Commissioner has allocated following expenses on pro rata basis in sales ratio on the projects eligible for deduction u/s 80IB(10) of Income Tax Act:- a) Advertisement & Publicity Rs.6,03,86,813/- b) Interest on Borrowed Capital Rs.16,60,41,925/- c) Professional Charges Rs.3,09,90,572/- d) Director Fee Rs.9,65,000/- e) Director’s Travelling Rs.28,14,141/- 15.1. Further, it was submitted that in respect of allocation of advertisement and publicity expenses, the assessee company had incurred expenditure of INR 6,03,86,813/- under the head “Advertisement & Publicity Expenses”. Out of the aforesaid total expenditure, expenditure of INR 2,97,95,338/- was directly related to the projects. It was added back to the cost of construction or debited to stand alone in Profit & Loss Account of such projects. The remaining amount of INR 3,05,91,425/- being not related to said projects in progress or eligible units, was debited to the Profit & Loss Account under the head “Administrative Expenses”. The AO considered the total advertisement expenses of INR 6,03,86,813/- as common expenditure disregarding that the assessee had already Page | 18 allocated expenditure to the tune of INR 2,97,95,338/- to the respective housing projects and allocated the entire advertisement expenditure to various eligible projects in the ratio of sales of each project. On further appeal, the Ld.CIT(A) allowed relief qua allocation of advertisement expenditure to the extent of INR 2,97,95,338/-. Considering that such expenditure was debited to the cost of construction of respective projects, not warranting further allocation to the profit of eligible unit. With respect to remaining expenses, Ld.CIT(A) upheld the action of AO in treating the same, to be common expenditure, warranting allocation to eligible projects in sales ratio. However, ld.CIT(A) observed that since advertisement expenditure incurred during the relevant year was abnormally high vis-a-vis earlier year, Ld.CIT(A) took average advertisement expenses of Assessment Years 2005-06, 2006-07 and 2008-09, amounting to INR 38,22,503/- and allocated the same to the eligible projects in sales ratio. The contention of the assessee is that the assessee maintained separate books of accounts in respect of eligible projects and all the expenses, including advertisement expenses, having direct relation to such project(s) were already allocated/debited in the independent books. It was contended that the total amount allocated to the project in respect of advertisement cost was INR 54,17,999/-. It was further Page | 19 submitted that all the projects were substantially complete and already sold out which did not requiring any further advertisement expenditure to be incurred on part of the assessee. The direct advertisement expenditure, if any, was already identified and allocated to such projects in the earlier year(s) as well as during the year under consideration. It was submitted that so far the advertisement expenditure aggregating to INR 3,05,91,425/- debited to Profit & Loss Account, pertained to the promotion of future business and under construction projects of the assessee company which had no nexus with the eligible projects, being substantially sold in earlier years itself. The said expenditure also included expenditure on advertisement of financial results, staff recruitment, brand building which was mainly carried out to raise deposits from public, which was to be utilized for other business/future projects of the assessee, not warranting allocation to the eligible projects which were financially and operationally independent and self-sufficient. Thus, he contended that under the facts of the present case, there was no need of allocation of advertisement expenses. 15.2. It was contended in respect of allocation of interest on borrowed capital that a sum of INR 8,20,91,514/- being interest cost directly identifiable and attributable to housing projects was already Page | 20 allocated/debited in the independent books/ added to cost of construction account. The balance borrowing cost of INR 8,39,50,411/- being not related to the projects was debited to the Profit & Loss Account. The AO allocated entire interest expenditure of INR 16,60,41,925/- on pro-rata basis in the ratio of sales against projects eligible for deduction under section 80IB(10) of the Act and accordingly, reduced the deduction claimed by the assessee under that section by a sum of INR 2,27,97,559/-. Ld.CIT(A) deleted the allocation of interest expenditure made by the AO holding that the assessee had not used borrowed funds for investment in such eligible projects and that most of the eligible projects were complete and/or were running in surplus i.e. internal accruals from the projects was higher than the investment made in such projects. 15.3. It was contended on behalf of the assessee that during the year under consideration, the assessee had incurred interest expenditure of INR 16,60,41,925/-. The assessee had maintained separate books of accounts in respect of eligible projects and thus, interest expenses of INR 8,20,91,514/-, having direct relation to such project(s) were already allocated/debited in the independent books. The balance interest cost of INR 8,39,50,411/- represent interest cost which was not directly identified to any project inasmuch as the same related to Page | 21 projects which were under conceptualization stage or were not identifiable or where the assessee expected abnormal delays in obtaining approval therefore, i.e. where the land acquisition was slow or projects were kept in abeyance due to certain legal/market related consideration. Such borrowing cost was shown as period cost under the head “interest expenses”. It is contended on behalf of the assessee that the assessee company had claimed deduction u/s 80IB(10) of the Act in respect of nine projects eligible for deduction. Out of these nine projects, seven projects were already completed or were more than 90% completed as at the beginning of the financial year. It was submitted that these projects were self-contained and had surplus funds. Infact, on perusal of head office account in the balance sheet of each unit, the eligible units, had advanced funds to head-office, instead of borrowing funds from head-office. There was no nexus of interest expenditure to be attributed to such projects. Ld.CIT(A) pointed out the details submitted alongwith chart. Therefore, he strongly supported the order of Ld.CIT(A). In support of the contention that where opening advances/investment have been accepted to be made out of interest free funds, no part of the interest bearing borrowed funds can be attributed to such investments/advances. Reliance placed on the judgment of Page | 22 Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd. vs DCIT 394 ITR 449 (SC); judgement of Hon’ble Karnatka High Court in the case of CIT vs Sridev Enterprises 192 ITR 165 (Kar.); and CIT vs Givo Ltd. in ITA No.941/2020 (Del.Trib.). 16. On the contrary, Ld. Sr. Counsel for the assessee, Shri Ajay Vohra, opposed the submissions of the Revenue and reiterated the submission made in the written synopsis. For the sake of clarity, the written synopsis of the assessee is reproduced as under:- Sl.No. Ground of Appeal A.O. Pg.No . CIT(A) Pg.No. Remarks 3. Reduction of deduction under section 80IB(10) of the Act on account of proportionate allocation of following expenses to eligible projects in sales ratio (Departmental appeal and CO of assessee) * Advertisement expenses (Ground of appeal No.3 of Departmental appeal and ground no.1 of CO filed by the assessee) * Interest expenses (Ground of appeal no.3 of Departmental appeal) * Professional charges Ground of appeal no.3 of Departmental appeal and ground no.2 of CO filed by the assessee). *Directors 9-9 28-29 AO In the assessment order, the assessing officer proportionately allocated following expenses to the eligible projects in ratio or sales and consequently proposed disallowance of deduction Rs.3,59,98,438 for all nine projects. However, considering that out of the 9 projects, the assessing officer had already disallowed the entire claim of deduction in respect of the 3 eligible projects namely Avantika Aakriti, Golf l.ink I and Golf Link-II, the AO restricted disallowance on the aforesaid ground to 6 projects only for an amount of Rs.3,45,09,112/-. Eligible Project Sales Ratio (%) Particulars of expenses allocated to eligible projects in sales ratio Advertiseme nt & Publicity (Rs.6,03,86,8 13) Interest expenses (Rs.16,60,41,92 5) Professional Charges (Rs.3,09,90,57 2) Directors’s meeting fees (Rs.9,65,00 0) Director’s travelling expenses (Rs28,14,14 1) Total Avantika Aakriti Housing Project 0.19 % 1,14,735 3,15,480 58,880 1,830 5,850 4,96,775 Golf Link I Housing Project, Greater Noida, UP 0.24 1,44,928 3,98,500 74,377 2,316 6,750 6,26,871 Golf Link- II Housing Project, Gautam Budh Nagar, UP 0.14 84,540 2,32,460 43,390 1,350 3,940 3,65,680 Green Glade-II Housing Project, Gautam Budh Nagar, UP 0.23 1,38,890 3,81,890 71,278 2,220 6,470 6,00,758 Green Glade-I Housing Project, Greater Noida, UP 0.37 2,23,430 6,14,355 1,14,665 3,750 10,410 9,66,610 Page | 23 meeting fee (Ground no.3 of CO filed by the assessee) * Directors travelling expenses (Ground of appeal no.3 of departmental appeal) Nest Homes (Ahsiana) Group Housing Project, Lucknow 0.9 5,43,481 14,94,377 2,78,915 8,685 25,327 23,50,785 Whispering Meadows (Mulund) Housing Project, Mumbai 4.7 28,38,180 78,03,970 14,56,556 45,355 1,32,261 1,22,76,32 2 Ansal Court Yard-Agra Housing Project, Agra, UP 3.88 23,43,008 64,42,426 12,02,434 3,667 10,693 1,00,02,22 8 East End Loni Housing Project, Ghaziabad 3.08 18,59,913 51,14,091 9,54,510 2,97,220 86,675 83,12,409 Total 14.03 82,91,105 2,27,97,559 42,55,005 3,66,393 2,88,376 3,59,98,43 8 CIT(A) The CIT(A) upheld the aforesaid action of the assessing officer in allocating expenses to the eligible projects and thereby reducing deduction claimed by the assessee qua such eligible project. However, the CIT(A) provided certain relief to the assessee by excluding certain expenses on the ground of being not related to eligible projects. Submission In this regard, it is, at the outset, respectfully submitted that the assessee company is maintaining separate books of accounts in respect of each eligible project, which is duly supported by the Audit Report in Form 10CCB. All direct or indirect expenditure having direct nexus with the eligible projects, are added to the cost of the said project. In that view of the matter, an expenditure which is not directly attributable to the eligible project, cannot be apportioned to that project while computing deductions available under the Act. Reliance in this regard, is placed on the decision of the Karnataka High Court in the case of CIT v. Mineral Enterprises Ltd.: 310 CTR 612 (Kar.) wherein the Court held that since the assessee had maintained separate accounts for eligible unit and non-eligible units, the assessee was not justified in computing profits of both the units on the basis of allocation of proportionate expenditures in the ratio of their respective turnover to combined turnover. Reliance in this regard, is placed on the decision of the Bombay High Court in the case of CIT v. Hindustan Lever Ltd.: 221 Taxman 71 wherein the Court held since the assessee had maintained separate accounts for eligible and non-eligible units, the administrative expenses being common expenses incurred in general towards the well-being of the business could not be proportionately distributed among various units individually on basis of respective turnover for purpose of calculation of deductions. To the same effect is the decision of the Ahmedabad bench of the Tribunal in the case of Transpek Silox Industry Ltd. v. ACIT: ITA. No: 3021/Ahd/2013. Similarly, the Courts in the following cases have held that unless the expenditure incurred on the R & D work relates to the undertaking/unit in question, the same cannot be apportioned to it on hypothetical basis: • Zandu Pharmaceuticals Works Limited v. CIT: 350 ITR 366 (Born.) • Bush Boake Allen (India) Ltd. v. CIT: 273 ITR 152 (Mad.) It is further submitted that all the impugned eligible projects were launched in earlier years which stood substantially sold out and were nearing completion during the year under consideration. The details of launch of the project and percentage of completion as at the end of the relevant assessment year are as under: S.No . Name of the eligible Project Year of lauch of the project (FY) Stage of completion of the project Relevant pg.no. of Form No.10CCB 1. Avantika akriti Housing Project 1997-98 100% 140 & 143 2. East End Loni Housing Project 2000-01 100% 151 & 155 3. Golf Link-I Housing Project 1997-98 100% 163 & 167 4. Green Glade I Housing Project 1997-98 100% 174 & 178 5. Golf Link-II Housing Project 1997-98 100% 186 & 190 Page | 24 6. Green Glade II Housing Project 2001-02 100% 197 & 201 7. Agra Courtyard Housing Project 2006-07 66.31% 208 & 212 8. Nest Housing Project 2004-05 100% 220 & 225 9. Whispering Meadows-Mulund Housing Project 1995-96 79.88% 232 & 237 Attention is also invited to the sales due summary of the aforesaid eligible projects enclosed in Supp. paperbook at pg. no. 314-329 showing that the projects were sold-out. In view of the above, considering that the aforesaid projects stood substantially sold out in the earlier year(s), the same were financially and operationally independent from head-office and other projects. Further, separate and independent books of accounts were maintained for said projects and all the direct and indirect expenses including borrowing, advertisement cost relating to such projects was allocated in the respective books of accounts. Accordingly, no further expenses incurred at head office had relation with the said projects warranting allocation to the eligible units, which can be further appreciated by examining the nature of each expense allocated by the assessing officer in the impugned order hereunder: Re (I) : Advertisement and publicity expenses: (Ground of appeal no. 3 of Departmental appeal and ground no. 1 of CO filed by the assessee) During the relevant year, the assessee company had incurred expenditure of Rs.6,03,86,813/- under the head 'Advertisement & Publicity Expenses'. Out of the aforesaid total expenditure, expenditure of Rs.2,97,95,338/- , being directly related to the projects was added to the Cost of Construction or debited to stand alone profit & loss account of such projects (Refer Schedule -12 of the Balance Heet at pg. no. 15 of the PB). The remaining amount of Rs.3,05,91,425/-, being not related to said projects in progress or eligible units, was debited to the profit and loss account under the head 'Administrative Expenses' (Refer Schedule-14 of the Balance Heet. no. 16 of the PB). The AO considered the total advertisement expenses of Rs.6,03,86,813/- as common expenditure disregarding that the assessee had already allocated expenditure to the tune of Rs.2,97,95,338/- to the respective housing projects and allocated the entire advertisement expenditure to various eligible projects in the ratio of sales of each project. On further appeal, the CIT(A) allowed relief qua allocation of advertisement expenditure to the extent of Rs.2,97,95,338/- considering that such expenditure was debited to cost of construction of respective projects, not warranting further allocation to the profit of eligible unit. With respect to remaining expenses, the CIT(A) upheld the action of the AO in treating the same to be common expenditure, warranting allocation to eligible projects in sales ratio. However, the CIT(A) observed that since advertisement expenditure incurred during the relevant year was abnormally high vis-a-vis earlier year due to advertisement placed for fund raising through Qualified Institutional Placement, the CIT(A) took average advertisement expense of assessment years 2005-06, 2006-07 and 2008-09, amounting to, Rs. 38,22,503/- and allocated the same to eligible projects in sales ratio. Submission It is submitted that the assessee maintains separate books of accounts in respect of eligible projects and all the expenses, including advertisement expenses, having direct relation to such project(s) were already allocated/debited in the independent books. During the year, the assessee had following projects, which were eligible for deduction under section 80- IB(10) of the Act. The details of said project and the amount of advertisement expenses allocated to each eligible project since launch thereof is as under:- S.No. Name of the eligible Project Stage of completion of the project Relevant pg.no. of Form No.10CCB Advertisement cost allocated to the project since launch thereof 1. Avantika akriti Housing Project 100% 143 Rs.4,89,905 2. East End Loni Housing Project 100% 155 Rs.15,41,244 3. Golf Link-I Housing Project 100% 167 Rs.5,73,332 4. Green Glade I Housing Project 100% 178 Rs.9,01,825 5. Golf Link-II Housing Project 100% 190 Rs.2,72,890 6. Green Glade II Housing Project 100% 201 Rs.4,88,800 7. Agra Courtyard Housing Project 66.31% 212 Rs.6,46,768 8. Nest Housing Project 100% 225 Rs.6,386 9. Whispering Meadows-Mulund Housing Project 79.88% 237 Rs.4,96,849 Total Rs.54,17,999 Page | 25 On perusal of the above, it would be appreciated that all the above projects were substantially complete and already sold out, not requiring any further advertisement expenditure 10 he incurred on part of the assessee. The direct advertisement expenditure, if any, was already identified and allocated 10 such projects in the earlier year(s) as well as during the year under consideration. As regards the advertisement expenditure, aggregating to Rs.3,05,91,425/-, debited to profit & loss account, the same pertained to promotion of future business and under construction projects of the assessee company, which had no nexus with the eligible projects, being substantially sold in earlier years itself. The said expenditure also included expenditure on advertisement of financial results, staff recruitment, brand building which was mainly carried out to raise deposits from public, which was to be utilized for other business/ future projects of the assessee, not warranting allocation to the eligible projects which were financially and operationally independent & self-sufficient. Re (II): Interest on borrowed capital (Ground of appeal no.3 of Departmental appeal) The assessee company has been duly following AS- 16 for accounting of interest cost (Refer, point no. 10 of Schedule 16 of Balance Heet at pg. no.17 of PB) and a sum of Rs.8,20,91 ,514/- being interest cost directly identifiable and attributable to housing projects was already allocated/debited in the independent books/added to cost of construction account (Refer Schedule-12 of the Balance Heet at pg. no. 15 of the PB). The balance borrowing cost of Rs.8,39,50,411/- being not related to the projects was debited to the profit and loss account (Refer Schedule-14 of the Balance Heet at pg. no. 16 of the PB). The AO allocated entire interest expenditure of Rs.16,60,41 ,925/- on pro rata basis in the ratio of sales against projects eligible for deduction under section 80IB(10) of the Act, and accordingly, reduced the deduction claimed by the assessee under that section by a sum of Rs.2,27,97,559. The CIT(A) deleted the allocation of interest expenditure made by the AO holding that the assessee had not used borrowed funds for investment in such eligible projects and that most of the eligible projects were complete and/or were running in surplus i.e. internal accruals from the projects was higher than the investment made in such projects. Submission During the year under consideration, the assessee had incurred interest expenditure of Rs.16,60,41 ,925/-. It is submitted that the assessee maintains separate books of accounts in respect of eligible projects and thus, interest expenses of Rs.8,20,91,514/-, having direct relation to such project(s) were already allocated/debited in the independent books. The balance interest cost of Rs.8,39,50,411/- represented interest cost which was not directly identified to any project inasmuch as the same related to projects which were under conceptualization stage or were not identifiable or where the assessee expected abnormal delays in obtaining approval therefor i.e. where the land acquisition was slow or projects were kept in abeyance due to certain legal/market related considerations. Such borrowing cost was shown as period cost under the head interest expenses in Schedule -15 of the Balance Heet.(Refer pg. 16 of the PB). As stated above, the assessee company had claimed deduction under section 80- IB(10) of the Act in respect of nine projects eligible for deduction. Out of these nine projects, seven projects were either already complete or were more than 90% complete as at the beginning of the financial year under reference, not requiring any further investment during the current year. Such projects, it is respectfully submitted, were self-contained and had surplus funds. In fact, on perusal of head-office account in the balance Heet of each unit, the eligible units, had advanced funds to head-office, instead of borrowing funds from head-office. Accordingly, in the absence of any borrowings from head-office, there was no nexus of interest expenditure to be attributed to such projects. The details of surplus amount receivable by the eligible units from the head office as on 31.03.2007 is as under: S.No. Name of the eligible Project Balance Heet at pg.no. of Paper Book Amount received from head office as on 31.03.2007 P& L/Reserve balance 1. Avantika akriti Housing Project 148 Rs.3,19,62,966 Rs.5,40,62,006 2. East End Loni Housing Project 160 Rs.4,09,06,562 Rs.6,51,62,560 3. Golf Link-I Housing Project 171 Rs.6,86,10,748 Rs.6,57,30,549 4. Green Glade I Housing Project 183 Rs.2,60,32,469 Rs.3,02,64,888 5. Golf Link-II Housing Project 194 Rs.2,60,50,901 Rs.2,57,55,980 6. Green Glade II Housing Project 205 Rs.1,66,70,608 Rs.1,75,61,692 7. Agra Courtyard Housing Project 217 Rs.2,43,44,786 Rs.3,35,22,785 8. Nest Housing Project 229 Rs.3,55,41,492 Rs.3,79,73,340 9. Whispering Meadows-Mulund Housing Project 241 Rs.7,36,86,281.52 Rs.3,34,79,627.36 Further, no disallowance / allocation of interest expenditure was made in respect of these projects in the initial /earlier years, and, therefore, opening investments in such projects stood accepted to be out of Page | 26 surplus/interest free funds. Reliance in this regard is placed on the following decisions wherein it has been held that where opening advance/investments have been accepted to be made out of interest free funds, no part of the interest-bearing borrowed funds can be attributed to such investments/advances: • Godrej & Boyce Manufacturing Company Ltd. v. DCIT: 394 ITR 449 (SC) • CIT v. Sridev Enterprises: 192 ITR 165 (Kar.) • CIT vs. Givo Ltd.: ITA No. 94112010 (Del.) • CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd.: 221 Taxman 479 (Guj.) • Punjab Woolcombers Ltd. v. ACIT: (2004) 1 SOT 114 (Chand) • Meenakshi Synthetics vs CIT: 84 ITD 563 (Lucknow) • GR Agencies vs ITO; 79 TTJ 496 (Lucknow) In view of the above, it is respectfully submitted that there was no warrant to allocate any interest expenditure incurred by the Head Office to the eligible units since no part of interest-bearing funds were utilized for making investment or for undertaking regular operations in the eligible unit. It may be appreciated that the assessing officer has allocated interest expense purely on ad-hoc basis by considering the same as common expenditure without reaching a finding or establishing that borrowed funds have nexus with such units. Reliance in this regard, is placed on the following decisions, wherein the Tribunal had deleted ad-hoc allocation of interest expenditure made by the assessing officer, without establishing nexus of borrowed funds with the eligible unit: • CIT v. Hindustan Lever Ltd.: 343 ITR 161 (Born. HC) • Canon India Pvt. Ltd. v. DCIT: ITA No.3497and 3374/Del/l0 (Del Trib.) • ACIT v. Heela foam Ltd.: ITA No.: ITA No. 3832/DELl2009 (Del Trib.) • Wockhardt Limited v. ACIT: ITA No. 3991/Mum/2005, 6323/Mum/2010 (Mum. Trib.) • ACIT vs Glenrnark Pharmaceutical Ltd: ITA No. 1654/Mum/2016 (Mum. Trib.) Specific reliance in this regard, is placed on the decision of the Pune Bench of the Tribunal in the case of Nyati Builders (P) Ltd. vs. DCIT: ITA No. 619/PN/2011, wherein the Tribunal held that interest expenditure can be allocated only if the corresponding loans were actually utilized towards project eligible for deduction under section 80-IB(10) of the Act and the assessing officer cannot arbitrarily allocate the same on the basis of the sales effected by the respective projects, without establishing nexus of loans qua eligible projects. In view of the above, the assessing officer erred in considering the interest expenditure as common expenditure and attributing the same towards eligible unit without appreciating that there was nexus of borrowed funds to such unit. It is also pertinent to point out that the assessing officer has made allocation of interest cost to eligible projects in AY 2008- 09, 2009-10 which were deleted by the CIT(A) and although the Department had challenged the order of CIT(A) for AY 2008-09 in appeal which was dismissed by the Tribunal vide order dated 02.09.2019 on account of low tax effect, no appeal on this issue has been filed in A Y 2009-10. No allocation of interest expenditure has been made by the assessing officer in AYs 2010-11 to 2012-13. For the aforesaid cumulative reasons, there is no warrant to allocate interest cost to the projects qualified for deduction under section 80IB(10) of the Act. Re (III) : Professional charges Ground of appeal no. 3 of Departmental appeal and ground no. 2 of CO filed by the assessee) During the relevant year, the assessee company incurred an expenditure of Rs.3,09,90,572/- towards legal and professional charges. The details of said expenditure is as under: (i) Legal and Professional Charges (IT, law matters) Rs.9,90,200/- (ii) Legal & Professional Charges (Others) Rs.l ,95, 18,387/- (iii) Legal & Professional Charges (Retainers hip ) Rs.l,04,23,153/- (iv) Legal & Professional Charges (Architect Fee) Rs.67,500/- Since the said expenditure was not related to projects eligible for deduction under section 8OIB ( 10) of the Act, the same were not allocated to the said projects. The AO, however, allocated the aforesaid expenses incurred on professional charges on pro-rata basis in the ratio of sales of each eligible project. The CIT(A), however, on analyzing the details of professional charges held that expenditure only to the extent of RS.1,04,23,153/- being retainership charges paid to various professionals for looking after legal cases of the company ought to be allocated to the eligible units. The Assessee as well as Revenue has challenged the aforesaid order of the CIT(A). Submission From perusal of the details of the professional charges enclosed in the PB at pg. no. 255-269, it would be appreciated that the assessee incurred expenditure on account of the following: • Legal and Professional Charges (IT, law matters) includes payment to Advocates for Page | 27 representing income tax related matters pending before various forums like IT AT or High Court for the years 92-93 to 97-98 which was not related to any project eligible for deduction under section 80IB(10) of the Act (which have commenced only from A Y 1998-1999 and onwards), and thus, the same cannot be allocated to the said eligible projects; • Legal & Professional Charges (Others) includes payments made to consultants for arranging finance for the company in relation to various non-eligible projects or expenses incurred at corporate level viz., Audit fees, software payments etc. • Legal & Professional Charges (Retainership) includes retainership charges paid to various professionals who were involved in general litigation of the company for protecting its title over land or consultancy charges paid to Ravi Ahuja in relation to the Mumbai project. • Legal & Professional Charges (Architect Fee) includes Architect fee pertaining to projects at Muzaffar Nagar and Meerut, which were not eligible for deduction under section 80IB(10) of the Act; the same could not be allocated to the eligible projects. Since the aforesaid expenses did not pertain to the eligible projects, the same were not allocated to the said projects while computing deduction under section 80-IB(10) of the Act. In view of the above, since the expenses incurred under the head professional charges were not related to the projects qualified for deduction under section 80IB(1O) of Act, no allocation of such expenditure to the said eligible projects is warranted. Re (IV) : Directors meeting fee Ground no. 3 of CO filed by the assessee The AO has allocated director's meeting fee amounting to Rs.9,65,000/- to the projects eligible for deduction under section 80IB(10) on prorata basis in the ratio of sales, which was upheld by the CIT(A). In this regard, it is respectfully submitted that the assessee company is a widely held listed company and as per the requirement of Companies Act, every public listed company has to hold four general meeting of directors and also an annual general meeting of shareholders. Conducting the aforesaid meetings is a statutory obligation imposed on the assessee company under the Company Law and thus, the assessee has to conduct such meetings irrespective of whether the assessee is undertaking any projects eligible for deduction under section 80IB(1 0) of the Act. No issue, relating activities of the eligible project, was discussed in the said meetings. In view of above, allocation of Director's meeting fee expenses to the eligible projects is not warranted. Re (V) : Directors travelling expenses (Ground of appeal no. 3 of Departmental appeal) The AO allocated Rs.28,14,141/- being the expenses incurred on foreign travelling to the projects eligible for deduction under section 80IB-(10) of Act. The details of foreign travelling expenses are placed at Pg. no. 270 of the PB. It is pertinent to note that the foreign travelling expenditure were mainly incurred for travel to Thailand which were in relation to non-eligible projects at Mumbai. On perusal of the details, the CIT(A) held that no allocation of the said expenses was warranted since the assessee was maintaining separate books of accounts and the eligible projects were not benefitted from the foreign visit of the directors. Re: Principle of consistency Even otherwise, it is respectfully submitted that the assessing officer had in earlier assessment years allowed the deduction under section 80-IB(10) of the Act after due application of mind and no disallowance has ever been made on account of allocation of any expenses shown under the head' Administrative Expenses' in earlier years. Thus keeping in view of law of consistency the allocation made by the Ld. Assessing Officer is liable to be deleted. Reliance in this regard is placed on the following decisions: • CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) • Radhasoami Satsang v. CIT: 193 ITR 321 (SC) • DIT (E) v. Apparel Export Promotion Council: 244 ITR 734 (Del) • CIT v. Neo Polypack (P) Ltd: 245 ITR 492 (Del.) • CIT v. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.) • DIT v. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.) • CIT v. P. KhrishnaWarrier: 208 ITR 823 (Ker) • CIT v Harishchandra Gupta 132 ITR 799 (Ori) • CIT v. SewaBharti Haryana Pradesh: 325 ITR 599 (P&H) • CIT v. Rajasthan Breweries Limited.: ITA 889/2009 (Del) - SLP dismissed vide SLP (CC) No. 137912014 by the Hon'ble Supreme Court on 07.02.2014. In that view of the matter, the assessee is entitled for deduction under section 80-IB(10) of the Act and thus, the grounds of appeal raised by the Department deserves to be dismissed and the CO filed by the assessee deserves to be allowed.” Page | 28 17. We have heard the rival contentions and perused the material available on record. It is pertinent to note that the assessee had claimed deduction u/s 80IB(10) of the Act at INR 12,88,63,163/-. The AO during the course of assessment proceedings called upon the assessee to file following details and explanation:- (a) “Particulars of interest paid / payable in respect of (a) HDFC loan of Rs.22.5 Crores to finance projects at Ajmer, Jaipur and Meerut and (b) HDFC Loan of Rs. 20 Crores to finance projects at Agra and bank certificate to substantiate the claim. (b) The component of expenditure on advertisement at Rs. 3,05,91,425/- in respect of new projects in respect of deduction under section 80IB(10) of Income Tax Act 1961 has been claimed as it was the prime objective of advertisement to promote new projects. (c) Details and explanations regarding deduction claimed under section 80IB(10) at Rs.12,88,63,163/- in respect of certain projects :- (a) Certificates of approval of projects by Appropriate Authority to substantiate commencement of projects before stipulated date. (b) Certificate of completion of projects by Appropriate Authority to substantiate completion of projects before stipulated date. (c) Statutory certificate by Chartered Accountant as prescribed. (d) Explanation regarding higher profitability at Rs. 12,88,63,163/- against sales in projects subject to deduction under section 80- Page | 29 IB(10) at Rs. 25,34,44,798/- and explanation why other income of Rs. 6,32,718/- included in such claim of deduction. (e) Explanation why loss of Rs. 18,37,161/- in East End and Rs. 27,03,645/- in Green Grade projects in assessment year 2006-07, be not set off in assessment year 2007-08 against profits computed under section 80IB(10). (f) Explanation why profits of projects of Avantika Akriti, Golf Link - I & II commenced prior to 1.10.1998, be not excluded from deduction under section 80-IB(10) of Income Tax Act 1961. (g) Why administrative and interest expenses in Profit and loss account of the assessee company in respect of all business activities as per tax audit report be not allocated to profits computed in respect of projects claimed as covered under section 80-IB(10) in various projects that various expenses have been incorrectly. It is not the modus operandi that Directors of other staff does not work for such projects or vehicles, computers or other assets of the assessee company are denied for use for such projects or such projects are not financed. The assessee company was required to compute such profits and gains from projects after allocation of expenses to each project and compute the deduction.” 18. In response thereto, the assessee filed its explanation. The AO observed that the assessee company had shown a sum of INR 12,88,63,163/- (deduction u/s 80IB(10) of the Act) against sale of INR 25,34,44,798/- in respect of eligible projects as against total income of INR 50,38,08,091/- against overall total sale of INR 1,84,61,22,989/-. Before AO, it was stated that the assessee prepared Page | 30 its accounts on percentage completion method. By percentage profit, it was stated by the assessee that in the eligible projects, profitability varied from 18.43% to 53.55% like in the case of East End Loni & Green Glade I Housing Projects, there were negative profit during Financial Year 2005-06. The AO considered the explanation of the assessee and observed that the argument that no interest was allocable to any project whose profits are claimed as exempt u/s 80IB(10) of the Act, such argument was not supported by the financial statement of the assessee company. Further, the AO was of the view that as per letters of Chartered Accountants, it was noticed that the assessee company had been making expenditure on the project even before 31.03.1996 as was evident from letters of approvals. It was also observed that the substantial expenditure of INR 1,03,01,73,852/- had been incurred prior to 01.10.1998 in respect of three projects namely, Gold Link Project I & II and Avantika Aakriti. The AO observed that from the chart of project cost, in different Assessment Years prior to subsequent Assessment Years as expenditure prior to 01.10.1998 of three projects of INR 103 crores by filling of pits, leveling of land, construction of road, wells, laying of sewerage and electricity lines whereas cost of INR 158 crores including above INR 103 crores was spent on entire project. Therefore, the AO Page | 31 computed the profit of the project at INR 8,36,04,091/- as against profits claimed at INR 12,88,63,163/-. Further, disallowance of INR 15,00,000/- was made on adhoc basis towards infringement of prescribed conditions relating to flats constructed having area more than specified limit. Accordingly, the AO allowed deduction of INR 8,21,04,091/- u/s 80IB(10) of the Act and disallowed at INR 4,69,59,072/-. However, Ld.CIT(A) reduced the disallowance by observing that the assessee filed a chart showing capital work in progress on its ongoing projects. A sum of INR 2,97,95,338/- was incurred on “Advertisement and Publicity” was already allocated to different ongoing projects as shown in Schedule 12 of the balance sheet. He was of the view that expenditure on advertisement which has already been allocated to different projects cannot be reallocated. However, he considered that a sum of Rs.38,22,503/- being average of advertisement expenses incurred during Assessment Years 2005- 06, 2006-07 and 2008-09 should be allocated on pro-rata basis in the sales ratio u/s 80IB(10) of the Act on eligible projects. In respect of “Interest on borrowed capital”, the Ld.CIT(A) has given a finding that investment made u/s 80IB(10) of the Act was negative. Most of the projects eligible for deduction u/s 80IB(10) of the Act, were more than 90% completed prior to 01.04.2006 and were running in surplus. Page | 32 Therefore, he was of the view that no allocation should be made out of interest on borrowed funds. Further, in respect of “Professional Charges”, the assessee company had incurred a sum of INR 3,09,90,572/- under the head ‘professional charges’. Out of total amount, the Ld.CIT(A) was of the view that a sum of INR 1,04,23,153/- being retainer ship charges paid to various professionals who looked after legal cases etc. should be allocated on pro-rate basis in the ratio of sales on all projects eligible for deduction u/s 80IB(10) of the Act. It is recorded by the Ld.CIT(A) that other professional expenses amounting to INR 2,05,08,587/- cannot be allocated to projects eligible for deduction u/s 80IB(10) of the Act with the eligible projects being not related to eligible projects. In respect of “Director Meeting Fee”, the AO allocated a sum of INR 9,65,000/-. This finding was sustained by Ld.CIT(A) and the explanation of the assessee was rejected. In respect of “Director’s Travelling expenses”, the AO allocated a sum of INR 28,14,141/- on pro-rata basis in the ratio of sales, to the eligible projects out of foreign travelling of Directors. It was stated before Ld.CIT(A) that the expenses related to foreign travelling and in any way, not related to eligible projects u/s 80IB(10) of the Act. The Ld.CIT(A) accepted the contention of the assessee and held that no expenses related to Page | 33 Director’s travelling should be allocated to projects eligible for deduction u/s 80IB(10) of the Act. Thus, Ld.CIT(A) ruled that out of advertisement and publicity expenses only a sum of INR 38,22,503/- be allocated out of interest expenses on borrowed capital, no allocation was required to be made, out of professional charges a sum of INR 1,04,23,153/- and Director Meeting Fee of INR 9,65,000/- was to be allocated. The AO was therefore, directed to allocate the expenses on each head as decided by the Ld.CIT(A) and recompute the disallowance of deduction u/s 80IB(10) of the Act. 19. In this backdrop, now we need to examine the correctness of the decision of Ld.CIT(A) about the allocation of various expenses to the eligible projects. The preliminary objections of the assessee against allocation of expenses is that the assessee company has been maintaining separate books of accounts, qua the eligible projects which is duly supported by the audit report in Form No.10CCB. All direct and indirect expenditure having direct nexus with the eligible projects have already been added to the cost of the said project. It is contended that the expenditure which is not directly, attributable to the eligible projects ought not to be apportioned to that project while computing deduction available under the Act. In support of this Page | 34 contention, reliance was placed on following judicial pronouncements:- [i] CIT vs Mineral Enterprises Ltd. 310 CTR 612 (Kar.HC); [ii] CIT vs Hindustan Lever Ltd. 221 Taxman 71 (Bom.HC); and [iii] Transpek Silox Industry Ltd. in ITA no.3021/Ahd./2013. 20. It was further submitted that all the eligible projects in question were launched in earlier years which stood substantially sold out and were nearing completion during the year under appeal. Ld. Counsel for the assessee drew our attention to the status of the project and also summary of the eligible projects by pointing out to supplementary Paper Book pages No.314 to 329 to buttress the contention that the projects were sold out. It was further contended that since the projects stood substantially sold out in earlier years, the same were financially and operationally independent from head-office and other projects. Further, separate and independent books of accounts were maintained for said projects and all the direct and indirect expenses including borrowing, advertisement cost relating to such projects were allocated in the respective books of accounts. Therefore, it was urged that no further expenses were incurred at head office in relation with the said projects warranting allocation to the eligible units, which was further appreciated by examining the nature of each expense allocated by the Assessing Officer. The contention of the assessee is Page | 35 that since all the direct and indirect expenses are already added into the cost of the said projects therefore, no allocation is warranted. We find that Ld. CIT(A) has deeply considered the facts and submissions of the assessee in respect of the allocation of advertisement and publicity expenses and returned finding on fact that the expenditure incurred in current year could not be compared for allocation purpose, the average expenses on advertisement incurred during Assessment Years 2005-06, 2006-07 & 2008-09 should be taken into consideration. We are of the considered view that this finding of Ld.CIT(A) is correct because the benefit of advertisement by the assessee in earlier years i.e. 2005-06, 2006-07 & 2008-09, would also certainly pass on to the year under consideration. Therefore, Ld.CIT(A) has rightly allocated expenditure on pro-rata basis in the sale ratio u/s 80IB(10) of the Act, amounting to INR 38,22,503/-. Hence, no interference is called for on this issue. In respect of disallowance of interest on the borrowed capital, Ld.CIT(A) has given a finding on fact that most of the projects are eligible for deduction u/s 80IB(10) of the Act, are more than 90% completed prior to 01.04.2006 and were running in surplus. Therefore, no allocation should have been made qua the interest on borrowed funds on all projects where section 80IB(10) of the Act, was Page | 36 claimed as internal accrual being higher than the investment. This finding of Ld.CIT(A) is not rebutted by the Revenue by bringing any contrary material therefore, we do not see any reason to interfere in the same. So far, decision of the Ld.CIT(A) in allocating the expenses of meeting fee of Directors, we are of the view that Ld.CIT(A) has rightly given a finding that such fee related to meetings of the Directors and such meeting issues related to eligible projects would also be subject matter. The assessee has not furnished Minutes of Board meeting to support its contention that no agenda related to the eligible projects was discussed in these meetings. In the absence of such evidence, we do not see any merit in the contention of the assessee. Further, Ld. CIT(A) in respect of Director’s travelling has given a finding that foreign travelling by the Directors was not related to any eligible projects. This finding is not rebutted by the Revenue by placing any contrary material on records. Therefore, we do not see any reason to interfere into the finding of Ld. CIT(A). Hence, the Ground Nos. 3 to 6 of appeal of Revenue against deletion of allocation of expenses to eligible project are dismissed. 21. Ground No.7 raised by the Revenue is against allowing setting off losses against profits of succeeding years. Page | 37 22. Ld. Sr. DR for the Revenue supported the assessment order and submitted that the Ld.CIT(A) grossly erred in allowing the first setting off against the profits from other eligible projects and holding that balance if any need to be carried forward for set off against the income of the eligible projects. Hence, he contended that the claim of the assessee relating to setting off of loss of INR 45,40,806/- for earlier years was erroneously allowed in the projects qualified for deduction u/s 80IB(10) of the Act against the other income. The AO was directed to allow set off of loss of eligible projects against the income of the eligible units in Assessment Year 2006-07. 23. Per contra, Ld. Senior Counsel for the assessee supported the findings of Ld.CIT(A) and reiterated the submissions as made in written synopsis. The relevant contents of the written synopsis of the assessee are reproduced as under:- “During assessment year 2006-07, the assessee company suffered loss in the following two projects, eligible for deduction under section 80IB(10) of the Act:- • East End Loni Housing Project Rs. 18,37,161/- • Green Glade I Housing Project Rs. 27,03,645/- The aforesaid loss stood set off against profits of the company as a whole. During the relevant assessment year, the AO held that loss Page | 38 relating to AY 2006-07 ought to have been carried forward and set off against the profits of the eligible unit in the relevant year. The CIT(A) held that, since deduction under section 80-IB(10) of the Act has been allowed in respect of the other eligible projects in the appellate proceedings for AY 2006-07, the loss of eligible unit ought to be set off against the profits of the other eligible unit in AY 2006-07 itself. The amount of loss so set-off shall not be carry forward and set-off against profits of eligible unit for the year under consideration. In this regard, it is respectfully submitted that losses of earlier years which had already been set off against other income in earlier years, cannot be notionally set off again while computing current income admissible for deduction for the relevant year. Reliance is placed on the following decisions rendered in context of section 80IA of the Act: • CIT v. Eastman Spinning Mills P. Ltd.: 372 ITR 88 (Mad.) • CIT V. TTK Pharma Limited: T.C.(A) No.298 of 2004 (Mad.) • Velayudhaswamy Spinning Mills (P.) Ltd. v. ACIT: 340 ITR 477 (Mad.)- Revenue’s SLP dismissed in [2017]244 Taxman 58 (SC) • Eastman Exports Global Clothing (P.) Ltd.: 371 ITR 1 (Mad.) • CIT v. Ramraj Handlooms: Tax Case (Appeal) No. 301 of 2015 (Mad.) • Prasad Productions v. DCIT: Tax Case (Appeal) No. 524 of 2008 (Mad.) • CIT vs Sh. Anil H. Lad: 45 taxmann.com 98 (Kar.) Page | 39 • CIT V. Mewar Oil & General Mills Ltd: 271 ITR 311 (Raj.) • ACIT v. Intex: 154 ITD 365 (Chennai) • DCIT v. ITC Ltd.: 154 ITD 136 (Kol.) In that view of the matter, losses of earlier years which had already been set off against other income in earlier years, could not be notionally set off again while computing current income admissible for deduction under section 80-IB(10) of the Act during the relevant year. In that view of the matter, the ground of appeal raised by the Department deserves to be dismissed.” 24. We have heard the rival contentions and perused the material available on record. We find merit into the contention of Ld. Counsel for the assessee that losses of earlier years which had already been set off against other income in earlier years, could not be notionally set off again while computing current income admissible for deduction u/s 80IB(10) of the Act during relevant year. In the light of binding precedent cited by the Ld. Counsel for the assessee wherein it has been held that “loss if already absorbed against the profit of other eligible project could not be notionally brought forward”. The Revenue has not brought any contrary material to rebut the contention that losses of earlier year which had already been set off against the income of the eligible projects in earlier years could not be notionally brought forward. Therefore, we do not see any reason to disturb the Page | 40 findings of Ld.CIT(A), the same is hereby affirmed. Thus, Ground No.7 raised by the Revenue is dismissed. 25. Ground No.8 raised by the Revenue is against the deleting of addition u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962. 26. Ld.Sr.DR for the Revenue supported the assessment order and relied upon the finding of the AO. 27. Per contra, Ld. Senior Counsel for the assessee supported the findings of Ld.CIT(A) and reiterated the submissions as made in written synopsis. The relevant contents of the written synopsis of the assessee are reproduced as under:- “During the relevant year, the assessee had incurred interest expenditure of Rs.8,39,50,411/- and earned exempt dividend income of Rs.1,17,28,021/- from mutual funds and from shares of Capital Cars Pvt. Ltd. (Refer details of dividend placed at pg. no. 273 of the PB). AO In the assessment order, the AO disallowed interest expenses incurred on public deposit to the extent of Rs. 10,80,927 by invoking section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (‘the Rules). Page | 41 CIT(A) The CIT(A) deleted the disallowance made by the AO under section 14A of the Act on the ground that no expenditure has been pointed by the AO for earning the exempt income. Accordingly, since the AO had failed to establish any nexus between the funds borrowed from public deposits and the exempt income earned by the assessee, disallowance under section 14A of the Act was not warranted. Submission At the outset, it is respectfully submitted that provisions of Rule 8D are not applicable for the relevant assessment year. Reliance is placed on the following decisions wherein it has been held that Rule 8D is prospective in operation and cannot be applied to any assessment years prior to assessment year 2008-09: - CIT v. Essar Teleholdings Ltd.: 401 ITR 445 (SC) - Maxopp Investment Ltd. v. CIT: 402 ITR 640 (SC) That apart, it is respectfully submitted that section 14A of the Act can apply at best to an expenditure incurred in relation to income which does not form part of the total income. The provisions of section 14A clearly postulates disallowance of expenditure only in a case where it is proved that the expenses incurred have a real relationship with the income which does not form part of the total income. In the absence of such nexus being established, it is not open to the assessing officer to disallow any part of the expenditure on proportionate basis. Reliance in this regard is placed on following decisions: - CIT vs. Walfort Share & Stock Brokers: 326 ITR 1 (SC) Page | 42 - Godrej & Boyce Mfg. Co. Ltd. v. CIT: 394 ITR 449 (SC) - Maxopp Investment Ltd. v. CIT: 402 ITR 640 (SC) affirming decision of the Delhi High Court in Maxopp Investment Ltd. vs. CIT: 347 ITR 272 (Del.) - CIT vs. Hero Cycles: 323 ITR 518 (P&H) - CIT v. Metalman Auto P. Ltd.: 336 ITR 434 (P&H) - CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom.) - CIT v. Torrent Power Ltd.: 363 ITR 474 (Guj). As regards old investment, it is respectfully submitted that such investment has been accepted to be made out of interest free funds inasmuch as no disallowance under section 14A of the Act was made in respect thereof in preceding assessment years. It is pertinent to note that the opening investments stood at Rs. 13.45 crores and the opening reserves stood at Rs.80.02, which were sufficient for making investment in the securities wherefrom the assessee has earned tax exempt income. Reliance in this regard is placed on the following decisions wherein it has been held that where opening advance/investments have been accepted to be made out of interest free funds, no part of the interest bearing borrowed funds can be attributed to such investments/advances: - Godrej & Boyce Manufacturing Company Ltd. v. DCIT: 394 ITR 449 (SC) - CIT v. Sridev Enterprises: 192 ITR 165 (Kar.) - CIT vs. Givo Ltd.: ITA No. 941/2010 (Del.) Page | 43 The fresh investment, it is respectfully submitted, has been made from surplus funds available with the assessee and not from borrowed funds. It is pertinent to note that the net increase in the balance of General Reserve, Security Premium Account, accumulated profits was Rs.55.74 crores (Refer pg. no. 7 of the PB) whereas net investment made during the year amounted to Rs.26.10 Crores. (Refer pg. no. 5 of the PB). Thus, the assessee company was having sufficient interest free funds for making investment in the securities wherefrom the assessee has earned tax exempt income. Reliance in this regard is placed on the following decisions wherein it has been held that where assessee had sufficient funds/ deposits for advancing interest free loans or making investment in shares, etc., and there is nothing on record to show that borrowed funds have been directly utilized for such purpose, a presumption in favour of the assessee can be drawn that investment in shares/ securities capable of yielding tax exempt income had been made out of interest-free funds available with the assessee: - South Indian Bank Ltd. & Others v. CIT: Civil Appeal No. 9606 of 2011(SC) - CIT vs. Reliance Industries Limited: 410 ITR 466 (SC) - East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 (SC) - Indian Explosives Ltd. V. CIT: 147 ITR 392 (Cal.) - Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal.) - approved by Supreme Court in the case of East India - Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 Page | 44 - CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom.) - CIT v. M/s Ashok Commercial Enterprises: ITA No. 2985 of 2009 (Bom) - Gurdas Garg v. CIT: ITA No.413 of 2014 (P&H) - Bright enterprises Pvt Ltd. v. CIT: 381 ITR 107 (P&H) - PCIT v. Basti Sugar Mills Co. Ltd.: ITA No. 205 OF 2018 (Del HC) - PCIT v. Reebok India Company: [2018] 259 Taxman 100 (Delhi) Applying the aforesaid principle of investment, the Courts and various benches of the Tribunal have, in the following decisions, deleted disallowance made under section 14A of the Act: - CIT v. UTI Bank Ltd: 215 Taxman 8 (Guj.)[SLP dismissed vide order dated 07.02.2014 in Civil Appeal No. 468/2014 - CIT v. Max India Ltd: 388 ITR 81 (P&H) - H.T. Media Limited v. PCIT: 399 ITR 576 (Delhi) - HDFC Bank Ltd v. DCIT: 366 ITR 505 (Bom) - HDFC Bank Ltd v. DCIT: 383 ITR 529 (Bom) - CIT v. Abhishek Industries Ltd : 380 ITR 652 (P&H) - Lubi Submersibles Ltd.: ITA No.868 of 2010 (Guj.) - CIT Y. Gujarat Power Corporation Ltd. : 352 ITR 583 (Guj) - CIT v. Torrent Power Ltd.: 363 ITR 474 (Guj) In view of above, it is respectfully submitted that no part of interest expenditure can be disallowed under section 14A of the Act. It is also pertinent to point out that the assessing officer has not made Page | 45 any disallowance under section 14A of the Act in any preceding or succeeding assessment years. In that view of the matter, the ground of appeal raised by the Department deserves to be dismissed.” 28. We have heard the rival contentions and perused the material available on record. The Ld.CIT(A) deleted the addition by following the judgement of Hon’ble Delhi High Court rendered in the case of CIT, Delhi vs Hindustan Tin Works Ltd. [2010] 187 Taxman 298 (Del.). The Ld.CIT(A) was of the view that no disallowance u/s 14A of the Act should be made in the case of the assessee company as the AO was unable to establish any link between fund borrowed from public deposits and the fund that was used for the purpose of earning of exempt income. We do not find fault with this finding of Ld.CIT(A), even before this Tribunal, no material is furnished suggesting that the investments were made out of borrowed fund and/or any expenditure related to earning of exempt income is debited to profit and loss account by the assessee. In the absence of such evidence, we do not see any merit in the grounds of appeal raised before us. Hence, the same is hereby rejected. 29. In the result, the appeal of the Revenue in ITA No.2731/Del/2010 is partly allowed. Page | 46 Cross-objection No.222/Del/2010 [Assessment Year 2007-08] 30. Now, we take up Cross-objection No.222/Del/2010 [Assessment Year 2007-08] filed by the assessee. The assessee has raised following grounds of appeal:- 1. “That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that advertisement expenses, to the extent of Rs.38,22,503/- (computed by taking average of advertisement expenses of last three years), which are not directly related to ‘housing projects’, eligible for deduction under section 80IB(10) of the Income Tax Act, 1961 (‘the Act’), needed to be allocated on pro-rata basis against profits of such ‘housing projects’, while computing deduction under the aforesaid section. 2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding that expenses of Rs.1,04,23,153/- incurred on account of retainership fee paid to various professionals to handle legal cases of the company, which were not directly relatable to ‘housing projects’ eligible for deduction under section 80IB of the Act, needed to be allocated on pro-rata basis against profits of such projects, while computing deduction under the aforesaid section. 3. That the Commissioner of Income Tax erred on facts and in law in upholding the pro-rata allocation of Director’s meeting fee to the profits of projects eligible for deduction under section 80IB(10) of the Act. Page | 47 The appellant company craves leave to add, amend, alter or vary from the aforesaid grounds of appeal at or before the time of hearing.” 31. Ground No.1 of cross-objection is regarding allocation of expenses related to advertisement and publicity expenses. 32. Ld. Sr. Counsel appearing on behalf of the assessee reiterated the submissions made in written synopsis. He contended that Ld.CIT(A) erred in allocating the advertisement expenses, on average basis. 33. Per contra, Ld. Sr. DR for the Revenue opposed these submissions and relied on the finding of the AO on this issue. 34. We have considered the rival contentions of the parties and perused the material available on record. The issue regarding allocation of expenses related to advertisement and publicity expenses has been elaborately dealt in Revenue’s appeal in ITA No.2731/Del/2010 (supra) wherein we have confirmed the finding of Ld. CIT(A). For the same reasoning, Ground No.1 raised by the assessee in this cross-objection is therefore, rejected. 35. Ground No.2 is against upholding of allocation of retainership fee. Page | 48 36. Ld. Sr. Counsel for the assessee vehemently argued that the Ld.CIT(A) grossly erred in allocation the retainership fee amounting to INR 1,04,23,123/- to eligible projects. He contended this expenditure ought not to have been attributed to the eligible projects as the assessee has been maintaining separate books of accounts for each eligible projects. Further, he reiterated the submissions as made in the written synopsis. 37. On the contrary, Ld. Sr. DR for the Revenue opposed these submissions and supported the assessment order. 38. We have considered the rival contentions and perused the material available on record. We do not see any merit into the contention of the assessee that no services were rendered qua the eligible projects. No detail has been filed regarding nature and scope of services rendered to the assessee by the retainers. In the absence of such evidences, we do not find fault in the finding of Ld.CIT(A), the same is hereby affirmed. Ground No.2 of the cross-objection raised by the assessee, is rejected. 39. Ground No.3 of the cross-objection is against the allocation of Director’s meeting fee. Page | 49 40. Ld. Sr. Counsel for the assessee argued that the authorities below grossly erred in allocating of the expenses related to Director’s meeting fee. He contended that the separate books of accounts are maintained for each eligible project. The expenses are not directly attributable to the eligible projects. Moreover, no agenda related to eligible projects was discussed. 41. On the contrary, Ld. Sr. DR for the Revenue vehemently opposed these submissions. Ld. Sr. DR submitted that the contention of Ld. Sr. Counsel for the assessee is mere assertion without supported by any evidence. 42. We have heard the rival contentions and perused the material available on record. Undisputedly, the assessee has not furnished any evidence supporting its contention that no agenda related to eligible projects was discussed. In our considered view, it is highly improbable that no agenda related to eligible projects was discussed in Director’s meeting. The assessee has not furnished any register recording minutes of Director’s meeting. Therefore, in the absence of the same, it cannot be definitely concluded that no agenda was discussed related to eligible projects. Therefore, Ground No.3 raised by the assessee in the cross-objection is rejected. Page | 50 43. In the result, the cross-objection filed by the assessee is dismissed. 44. In the final result, the appeal of the Revenue is partly allowed and cross-objection filed by the assessee is dismissed. Order pronounced in the open Court on 26 th July, 2024. Sd/- Sd/- (G.S.PANNU) (KUL BHARAT) VICE PRESIDENT JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI