DY.CIT CENTRAL CIR-6(4) , MUMBAI V. M/S. CITRA PROPERTIES LTD, MUMBAI

ITA 100/MUM/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3385 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2016-2017
• Appeal Filed On: 18-01-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Income from undisclosed sources; Bogus
• Section: 147; 68; 37; 143(3); 142(1); 115JB; 37(1); 143(1); 143(2); 13; 153; 101

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “H”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No.100/M/2022 Assessment Year: 2016-17 Dy. Commissioner of Income Tax, Central Circle-6(4), Room No.1925, 19 th Floor, Air India Building, Nariman Point, Mumbai - 400021 Vs. M/s. Citra Properties Ltd., M-62 & 63, 1 st Floor, Connaught Place, New Delhi – 110001 PAN: AADCC 0776B (Appellant) (Respondent) Present for: Assessee by : Shri K. Gopal, A.R. & Shri Om Kandalkar, A.R. Revenue by : Shri K.C. Kanojiya, D.R. Date of Hearing : 13 . 07 . 2022 Date of Pronouncement : 25 . 08 . 2022 O R D E R Per : Kuldip Singh, Judicial Member: The appellant, Dy. Commissioner of Income Tax, Mumbai (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 21.10.2021 passed by Commissioner of Income Tax (Appeals)-54, Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2016-17 on the grounds inter alia that :- “1. On the facts and in the circumstances of the case, whether the learned Ld.CIT(A) was right in allowing the disallowance of Advertisement, Sales and Marketing Expenses of Rs.5,13,68,651/-, ITA No.100/M/2022 M/s. Citra Properties Ltd. 2 without appreciating the fact that no income from the stated business activity of real estate development was offered by the assessee during the year under consideration and, the said business expenses cannot be allowed against any other source of income. 2. On the facts and in the circumstances of the case, whether the learned CIT(A) was right in deleting the addition of Advertisement, Sales and Marketing Expenses of Rs.5,13,68,651/-, from the WIP account, since these are expenses related to the stated business activity of real estate development. 3. On the facts and in the circumstances of the case, whether the learned CIT(A) was justified in relying upon the decision of the Hon'ble Income Tax Settlement Commission under section 245D(4) of the Income tax Act, 1961, dated 30.04.2019, in the case of 16 other Indiabulls Group entities which has been challenged before the Hon'ble High Court by the revenue, in Writ Petition No. 330 of 2020. 4. On the facts and in the circumstances of the case, whether the learned CIT(A) was right in restricting the receipts from on-money to 35% of the total receipts, relying upon the order of the Hon'ble Income Tax Settlement Commission under section 245D(4) of the Income tax Act, 1961, dated 30.04.2019, without considering that the 16 entities of the Indiabulls Group had not made true and full disclosure before the Hon'ble Commission. 5. On the facts and in the circumstances of the case, whether the learned CIT(A) was right in deleting the addition on account of extrapolation of on-money, relying upon the order of the Hon'ble Income Tax Settlement Commission under section 245D(4) of the Income tax Act, 1961, dated 30.04.2019, which has been challenged before the Hon'ble High Court by the revenue, in Writ Petition No. 330 of 2020, primarily on this issue. 4. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be." 2. Briefly stated facts necessary for adjudication of the controversy at hand are: the assessee company is into the business of real estate project and other related auxiliary activities. Initially the return filed by the assessee declaring net loss of Rs.4,96,32,441/- and book loss under section 115JB of the Income Tax Act, 1961 (for short ‘the Act’) at Rs.4,95,59,244/- which was revised on 03.09.2016 declaring loss under section 115JB at Rs.4,95,59,244/- under section 143(1) of the Act. Subsequently, on ITA No.100/M/2022 M/s. Citra Properties Ltd. 3 the basis of search action carried out in case of Indiabulls group on 13.07.2016 the case of the assessee company was centralized and notice under section 153 dated 09.08.2017 was served upon the assessee and in response to which the assessee filed the return of income declaring loss of Rs.4,39,76,595/- and book loss under section 115JB of the Act at Rs.4,95,59,244/-. Then notice under section 143(2) and 142(1) of the Act along with questionnaire was served upon the assessee. Assessing Officer (AO) noticed that the assessee has not offered any income from project sale but in the Profit & Loss account assessee claimed advertising, sales and marketing expenses to the tune of Rs.5,13,68,651/- under the head “other expenses”. On failure of the assessee to file any detail or explanation and any income recognition from the project AO proceeded to disallow expenses of Rs.5,13,68,651/-. AO also disallowed the expenses claimed by the assessee against “on money” and treated the entire amount of Rs.2,92,36,175/- as unaccounted income of the assessee under section 68 of the Act and added the same to the income of the assessee and taxed under section 115JB of the Act @ 30%. AO accordingly framed the assessment under section 143(3) read with section 147 of the Act. 3. Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order the Revenue has come up before the Tribunal by way of filing present appeal. 4. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light ITA No.100/M/2022 M/s. Citra Properties Ltd. 4 of the facts and circumstances of the case and law applicable thereto. Ground Nos.1 & 2 5. Undisputedly the assessee has claimed advertising sales and marketing expenses to the tune of Rs.5,13,68,651/- under the head “other expenses”. AO disallowed the same on the ground that the assessee has failed to justify its allowability as revenue expenses. However, the Ld. CIT(A) deleted the disallowance made by the AO by returning following findings: “7.3 The findings of the AO in the assessment order and the submission made by the appellant has been considered. During the year, the appellant has incurred expenses of Rs.5,13,68,6517- on advertisement, marketing and sales activity. The appellant has submitted that the AO has not doubted the genuineness of these expenses and merely disallowed the expenses in the absence of any revenue earned by the appellant. It is also submitted that the advertisement, marketing and sales expenses are linked with sales and they do not part of the cost of the project. The appellant has further relied upon (CDS Rules, which has been notified by CBDT.The appellant has further submitted that the advertisement expenses are allowable as expenditure in section 37 of the Income-tax Act, 1961 for which the appellant has relied upon the decision in the case of Citi Financial Consumer Finance Ltd. vs. Commissioner of Income-tax, New Delhi, B.K.Khanna& Co. (P) Ltd. vs. CIT(2001), Commissioner of Income-tax vs. Monto Motors Ltd, (ITA No.978/2011) and /TO vs. Selene Construction Limited [ITA No.3385/Del/2014]. The AO has not given any specific reason for disallowance of advertisement, sales and marketing expenses. The only reason for making such disallowance is that no income has been earned by the appellant during the year. The finding of the AO is based on wrong interpretation of the facts of the case. Any expenditure which is incurred for the business purpose is allowable as business expenditure u/s.37 of the Income-tax Act, 1961. The AO has not doubted the genuineness of the expenses incurred. Even though no income is earned from the business during the year, the business expenditure which is otherwise allowable has to be allowed. In the case of the appellant, the business of the appellant has started and the expenses have been incurred in relation to the normal course of the business. ITA No.100/M/2022 M/s. Citra Properties Ltd. 5 In the case of CIT v. New Savan Sugar &Gur Refining Co. Ltd. [1990] 185 ITR 564 (Cal.), the Hon'ble court has held that it is for the Tribunal to decide whether the expenditure is wholly incurred for the purpose of keeping the assessee company in operation and earning income in as much as the concept 'wholly' pertains to quantum of the money expended. Even if a particular expenditure is un-remunerative, such expenditure is nonetheless a proper deduction, if such expenditure is made wholly and exclusively for the purposes of earning such income. [Para 2.5] The High Court of Gujarat, in the case of Smt. VrrmatiRamkrishnav. CIT [1981] 131 ITR 659 (GUJ.) has analyzed the statutory language and laid down various principles, in various decided cases and made propositions about allowability of the expenditure. The Hon'ble Gujarat High Court has held as under: ". . . In view of the decision of the same High Court in Smt. PadmavatiJaikrishna v. CIT [1975] 101 ITR 153, the interest on loan taken by the assessee to meet her personal expenses and tax liability was not deductible in computing the assessee's income under the head 'Other sources". On a comparison of the language of section 37(1) and section 57( Hi), it becomes clear that the scope of the former section is essentially wider than that of the latter. The word 'business used in section 37(1) in association with the expression "for the purposes of" is a word of wide connotation. In the context of a taxing statute, the word 'business' would signify an organised and continuous course of commercial activity, which is carried on with the end in view of making or earning profits. Under section 37(1), therefore, the connection has to be established between the expenditure incurred and the activity undertaken by the assessee with such object. As against this, section 57(7/7) uses the expression "for the purpose of in conjunction with the words "making or earning of income" from "other sources". The nexus thereunder must, therefore, be between the expenditure incurred and the income earned and not between the expenditure incurred and the activity which is the source of the income. It is thus clear that whereas any expenditure which is incurred in order indirectly to facilitate the carrying on of a systematic activity which qualifies as business may be deductible under section 37(1), similar expenditure incurred in order indirectly to facilitate the carrying on of the activity producing income would not be allowable under section 57(iii). The implication of section 57(iii) is, therefore, on its plain terms narrower than that of section 37(1). It is for this reason that the decisions ITA No.100/M/2022 M/s. Citra Properties Ltd. 6 given in the context of section 37(1) cannot be straightaway applied to cases falling under section 57(iii). On an analysis of the statutory language and principles laid down in the decided cases referred to above, the following propositions clearly emerge: (i)in order to decide whether an expenditure is a permissible deduction under section 57(iii), the nature of the expenditure must be examined; (ii)the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee; (iii)the expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning "income from other sources"; (iv)the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say the expenditure should not have been incurred for such purpose as , also for another purpose, or for a mixed purpose; (v)the distinction between purpose and motive must a/ways be borne in mind in this connection, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations weighing in the mind of the assessee in incurring the expenditure; (vi)if the assessee has no option except to incur the expenditure in order to make the earning of the income possible, such as when he has to incur legal expense for preserving and maintaining the source of income, then, undoubtedly, such expenditure would be an allowable deduction; however, where the assessee has an option and the option which he exercises has no connection with the making or earning of the income and the option depends upon personal considerations or motives of the assessee, the expenditure incurred in consequence of the exercise of such option cannot be treated as an allowable deduction; (vii)it is not necessary, however, that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income; (viii)if, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, ITA No.100/M/2022 M/s. Citra Properties Ltd. 7 direct or indirect, but not remote, between the expenditure incurred and the income earned, the expenditure must be treated as an allowable deduction; (ix)it would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on of the activity which is the source of the income; the nexus must necessarily be between the expenditure incurred and the income earned; (x)it is not necessary to show that the expenditure was a profitable one or that in fact income was earned; (xi)the test is not whether the assesses benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bona fide for making or earning the income; (xii)the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being one of law..." In view of the above, the disallowance of advertisement, sales and marketing expenses and its capitalization in WIP by the AO is not accordance with law. Accordingly, the disallowance of advertisement, sales and marketing expenses made by the AO is deleted. The AO is directed not to add the advertisement, sales and marketing expenses to WIP.” 6. We have perused the order passed by the Ld. CIT(A) who has deleted the addition on the premise that any expenditure which is incurred for the business purpose is allowable as business expenditure under section 37 of the Act qua which AO has not doubted the genuineness of the expenses. Earning of any income during the year is not necessary to allow the business expenditure particularly when the expenses have been incurred in the normal course of business. The Ld. CIT(A) relied upon the order passed by Hon’ble Kolkata High Court as well as Hon’ble Gujarat High Court wherein the basic principles as to allowability of the business expenditure claimed by the assessee has been discussed. It is held by the Hon’ble High Court that it is not necessary to show that the ITA No.100/M/2022 M/s. Citra Properties Ltd. 8 expenditure was a profitable one or that in fact income was earned. So we are of the considered view that though the income has been earned from the business during the year the business expenditure, the genuineness of which have otherwise not been disputed by the AO, are allowable one having been incurred in relation to the normal course of business. So we find no illegality or perversity in the impugned findings returned by the Ld. CIT(A). Accordingly, ground Nos.1 & 2 are decided against the Revenue. Ground Nos.3, 4 & 5 7. The Ld. CIT(A) partly deleted the addition made by the AO on account of unaccounted money from “on money” earned by the assessee by deleting 65% of the total addition and by retaining 35% of total on-money by following the order dated 30.04.2019 passed by the Ld. Disputes Settlement Commission under section 245D(4) of the Act by returning following findings: “8.3.3 The Hon'ble Settlement Commission has passed final order u/s.245D(4) on 30.04.2019 in the case of 16 entities of the Indiabulls Group. The Settlement has determined the additional income after the discussing and deciding all the issues, including the issues of On-money, Bogus Billing and Cash loans given and taken, which came up before the Commission. In para 11.4.2 of the 245D(4) order, the Settlement Commission has decided the issue of on-money. In respect of income earned from On-money and cash generated out of bogus billing, the Commission observed that certain outgoings recorded in CTR were clearly for non-business purpose and could be categorized as illegal or non permissible in law. Accordingly, the applicants have come forward to offer an income of 35% of cash receipt / cash generated as against the offer made in the Settlement Applications @ 10%. Thus, the profit rate of 35% was accepted by the applicants on On-Money working of Rs. 325 Cr and Bogus billing of 1244.94 Crore. Accordingly, Profit from On-Money and Bogus billing has been determined by the omission at Rs.531,67,75,0007- as against the profit of Rs. 151,91,00,0007- offered in the applications. Further, the Commission held that considering the peak amount of loan of Rs.236.05 Crore, which is also generated out of same receipt, the total income out of cash so generated/receipts of Rs.1519 Crore came to ITA No.100/M/2022 M/s. Citra Properties Ltd. 9 Rs.830.90 Crore, considering the offer in original petition of Rs.494.53 crores and additional offer made of Rs.405 crores (excluding the on-money on sale of plot of land of Rs.50.27 crores and TP adjustment of Rs.18.36 crores - totaling to Rs.68.63 crores). Thus, the net profit percentage comes to almost 55% of cash so generated / received. Thus, 35% of total on-money has been fianlised by the Settlement Commission to determine the unaccounted income from on-money. Further, the Hon'ble Settlement Commission in the order u/s.245D(4) dated 30.04.2019 has also discussed the issue regarding extrapolation of on-money. In respect of extrapolation of on-money, in para 11.2.2 of the order, the Hon'ble Settlement Commission has held that no case has been made by the department for extrapolation of on-money. Therefore, extrapolation of on-money in the settlement application for various years is reasonable on the basis of evidences seized during the search and subsequent enquiries made by the department. 8.3.4 The facts of the case of the appellant are similar to the facts of the case of the other applicants of the group before the Hon'ble Settlement Commission. In view of the above discussion and the findings of the Hon'ble Settlement Commission in the order u/s.245D(4) dated 30.04.2019,the quantum of unaccounted money from On-money would also be 35% of the total On-money. Thus, the addition of total on-money of Rs.2,92,36,175/- is restricted to 35% of total on-money, which comes to Rs.1,02.32,661/- and the balance addition of Rs.1,90,03,513/- is deleted. Further, respectfully following the order of the Hon’ble Settlement Commission in other group cases of the Indiabulls group, the addition of Rs.10,80,55,464/- in respect of extrapolation of on- money is deleted. ” 8. Bare perusal of the aforesaid findings returned by the Ld. CIT(A) goes to prove that the same have been returned by thrashing the facts in the light of the order passed by Ld. Disputes Settlement Commission wherein Ld. Commission has taken note of the fact that “in respect of the income earned from “on money” and cash generated out of bogus billing, the Ld. Commission observed that certain out goings recorded in CTR were clearly for non business purpose and could be categorized as illegal or non permissible in ITA No.100/M/2022 M/s. Citra Properties Ltd. 10 law. Ld. Disputes Settlement Commission during the settlement proceedings has accepted the offer made by the assessee to treat the income of 35% of cash receipt/cash generated as against the offer made in the settlement application @ 10% by thrashing the facts and keeping in view the component of profit from “on money” and “bogus billing”. 9. Following the order passed by Ld. Disputes Settlement Commission the Ld. CIT(A) restricted the addition to the extent of 35% of the total “on money”. Revenue has challenged the order passed by the Ld. CIT(A) on the only ground that the order passed by Ld. Disputes Settlement Commission under section 244D(4) of the Act is lying challenged before the Hon’ble High Court in writ petition No.330 of 2020. We are of the considered view that when any of the order passed by the Revenue Authority has not been stayed and which was otherwise be subjected to the final decision to be made by the higher forum the order passed by Ld. CIT(A) by following the order passed by Ld. Disputes Settlement Commission cannot be faulted with. So we uphold the order passed by the Ld. CIT(A) and as such ground Nos.3, 4 & 5 are determined against the Revenue. 10. In view of what has been discussed above, present appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 25.08.2022. Sd/- Sd/- (GAGAN GOYAL) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 25.08.2022. * Kishore, Sr. P.S. ITA No.100/M/2022 M/s. Citra Properties Ltd. 11 Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai.