DCIT, New Delhi V. M/s DLF Commercial Developers Ltd., New Delhi

ITA 1388/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3211 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1388/DEL/2013 ASSESSMENT YEAR : 2008-09 DCIT, CIRCLE-10(1), NEW DELHI. VS. M/S DLF COMMERCIAL DEVELOPERS LTD., 9 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI. PAN: AABCD9619C ITA NO.960/DEL/2013 ASSESSMENT YEAR : 2008-09 M/S DLF COMMERCIAL DEVELOPERS LTD., 9 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI. PAN: AABCD9619C VS. DCIT, CIRCLE-10(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. SINGHVI, CA DEPARTMENT BY : MS RACHNA SINGH, CIT, DR ITA NOS.1388 & 960/DEL/2013 2 DATE OF HEARING : 28.02.2018 DATE OF PRONOUNCEMENT : 01.03.2018 ORDER PER R.S. SYAL, VP: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 19.12.2012 IN RELATION TO THE ASSESSMENT YEAR 2008- 09. 2. THE FIRST GROUND OF THE REVENUES APPEAL AND THE FIRST EFFECTIVE GROUND OF THE ASSESSEES APPEAL IS AGAINST DISALLOW ANCE U/S 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). 3. BRIEFLY STATED, THE FACTS OF THESE GROUNDS ARE T HAT THE ASSESSEE IS ENGAGED IN VARIOUS ACTIVITIES INCLUDING REAL ESTATE DEVELOPMENT, LEASING OF CONSTRUCTED PROPERTIES, RUNNING AND MAINTENANCE OF GOLF COURSE AND POWER GENERATION ETC. TAX FREE DIVIDEND INCOME OF RS.97, 211/- WAS SHOWN ALONG WITH EXEMPT PROFIT FROM PARTNERSHIP FIRM AMOUNTING TO RS.51,35,895/-. THE ASSESSEE WAS CALLED UPON TO EXPLAIN THE REASONS FOR NOT OFFERING ANY DISALLOWANCE U/S 14A. IT WAS SUBMITTED ON BEHALF O F THE ASSESSEE THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND, AS SUCH , THERE COULD BE NO ITA NOS.1388 & 960/DEL/2013 3 DISALLOWANCE OF INTEREST. THE ASSESSING OFFICER DI D NOT AGREE WITH THE ASSESSEES CONTENTION AND INVOKED THE PROVISIONS OF RULE 8D AFTER RECORDING SATISFACTION THAT: THE CONTENTION OF THE ASSESSEE THAT NO EXPENSE WAS INCURRED IN EARNING TAX FREE INCOME WAS NOT SUBSTA NTIATED BY ANY FACTUAL EVIDENCE IN THIS REGARD. APPLYING THE PROVISIONS O F RULE 8D, THE ASSESSING OFFICER COMPUTED DISALLOWANCE U/S 14A TO THE TUNE O F RS.15,77,74,000/-. THE LD. CIT(A) OBSERVED ON PAGE 14 OF THE IMPUGNED ORDER THAT INVESTMENT IN SHARES ETC. STOOD AT RS.46,033.76 LAC AS AGAINST SHARE CAPITAL AND RESERVE AND SURPLUS TO THE TUNE OF RS.1,64,967.58 LAC. APP LYING CERTAIN FORMULA, HE COMPUTED DISALLOWANCE OF INTEREST UNDER RULE 8D(2)( II) AT RS.6.33 CRORE. AFTER ADDING 1/2% OF THE AVERAGE VALUE OF INVESTMEN TS UNDER RULE 8D(2)(III) AT RS.225.47 LAC, THE LD. CIT(A) COMPU TED CONFIRMATION OF ADDITION U/S 14A AT RS.858.47 LAC. BOTH THE SIDES A RE AGGRIEVED IN RESPECT OF THEIR RESPECTIVE STANDS. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IN SO FAR AS THE DISALLOWANCE OF INTEREST U NDER RULE 8D(2)(II) IS CONCERNED, WE FIND THAT THE INVESTMENTS, YIELDING E XEMPT INCOME, ARE ONLY TO THE TUNE OF RS.4603.76 LAC AS AGAINST SHARE CAPI TAL AND RESERVE AND ITA NOS.1388 & 960/DEL/2013 4 SURPLUS ETC. AMOUNTING TO RS.1,64,967.58 LAC. THUS , IT IS EVIDENT THAT THE AMOUNT OF SHARE CAPITAL ALONG WITH RESERVE AND SURP LUS IS FAR IN EXCESS OF INVESTMENT IN SHARES ETC. YIELDING EXEMPT INCOME. 5. SECTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST OF THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS OR PROFESSION. THE ESSENCE OF THIS PROVISION IS THAT THE INTEREST SHOULD BE ALLOWED SO LONG AS THE CAPITAL BORROWED, ON WHICH S UCH INTEREST IS PAID, IS USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IF , HOWEVER, AN ASSESSEE IS HAVING ITS OWN INTEREST FREE SURPLUS FUNDS AND SUCH FUNDS ARE UTILISED AS INTEREST FREE ADVANCES EVEN FOR A NON-BUSINESS PURP OSE, THERE CANNOT BE ANY DISALLOWANCE OF INTEREST PAID ON INTEREST BEARING L OANS. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , HAS HELD THAT WHERE AN ASSESSEE POSSESSED SUFFICI ENT INTEREST FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER C ONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND, THEREFORE, NO PART OF INTEREST ON BORROWINGS COULD BE DISALLOWED ON THE BASIS THAT TH E INVESTMENTS WERE ITA NOS.1388 & 960/DEL/2013 5 MADE OUT OF INTEREST BEARING FUNDS. IN THAT CASE, T HE AO RECORDED A FINDING THAT A SUM OF RS.213 CRORE WAS INVESTED BY THE ASSE SSEE OUT OF ITS OWN FUNDS AND RS.1.74 CRORE OUT OF BORROWED FUNDS. ACCO RDINGLY, DISALLOWANCE OF INTEREST WAS MADE TO THE TUNE OF RS.2.40 CRORE. THE ASSESSEE ARGUED THAT NO PART OF INTEREST BEARING FUNDS HAD GONE INTO INV ESTMENT IN THOSE TWO COMPANIES IN RESPECT OF WHICH THE AO MADE DISALLOWA NCE OF INTEREST. IT WAS ALSO ARGUED THAT INCOME FROM OPERATIONS OF THE COMP ANY WAS RS.418.04 CRORE AND THE ASSESSEE HAD ALSO RAISED CAPITAL OF R S.7.90 CRORE, APART FROM RECEIVING INTEREST FREE DEPOSIT OF RS.10.03 CRORE. THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE BALAN CE-SHEET OF THE ASSESSEE ADEQUATELY DEPICTED THAT THERE WERE ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING INVESTMENT. THE LD. CIT(A) GOT CONVINCED WITH THE ASSESSEES SUBMISSIONS AND DELETED THE ADDITION. BE FORE THE TRIBUNAL, IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE SHAREHO LDERS FUNDS WERE UTILIZED FOR THE PURCHASE OF ITS ASSETS AND HENCE T HE ASSESSEE WAS LEFT WITH NO RESERVE OR OWN FUNDS FOR MAKING INVESTMENT IN TH E SISTER CONCERN. THUS, IT WAS ARGUED THAT THE BORROWED FUNDS HAD BEEN UTIL IZED FOR THE PURPOSE OF MAKING INVESTMENT IN THE SISTER CONCERN AND THE DIS ALLOWANCE OF INTEREST ITA NOS.1388 & 960/DEL/2013 6 WAS RIGHTLY CALLED FOR. THE TRIBUNAL, ON APPRECIATI ON OF FACTS, RECORDED A FINDING THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF I TS OWN FOR MAKING INVESTMENT WITHOUT USING THE INTEREST BEARING FUNDS . ACCORDINGLY, THE ORDER OF CIT(A) WAS UPHELD. WHEN THE MATTER CAME UP BEFOR E THE HONBLE HIGH COURT, IT WAS CONTENDED BY THE DEPARTMENT THAT THE SHAREHOLDERS FUNDS STOOD UTILIZED IN THE PURCHASE OF FIXED ASSETS AND HENCE COULD NOT BE CONSTRUED AS AVAILABLE FOR INVESTMENT IN SISTER CON CERN. REPELLING THIS CONTENTION, THE HONBLE HIGH COURT OBSERVED THAT : IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTE ND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUND TO THE TUNE OF OVER RS. 172 CRORE WAS UTILIZED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BAL ANCE-SHEET AS ON MARCH 31, 1999, IS FALLACIOUS. IN UPHOLDING THE ORDER OF THE TRIBUNAL, THE HONBLE HIGH COURT HELD THAT: IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND A T THE SAME TIME THE ASSESSEE HAD RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE . THEREAFTER, THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC) AND ALSO THE JUDGMENT OF THE HONBLE ITA NOS.1388 & 960/DEL/2013 7 CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 134 ITR 219 (CAL) WERE CONSIDERED. IT WAS FINALLY CONCLUDED THAT: THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE ARE FUNDS AVAILAB LE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WO ULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GEN ERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENT . CONSEQUENTLY THE INTEREST WAS HELD TO BE DEDUCTIB LE IN FULL. 6. FROM THE ABOVE JUDGMENT, IT IS MANIFEST THAT THERE CAN BE NO PRESUMPTION THAT THE SHAREHOLDERS FUND OF A COMPAN Y WAS UTILIZED FOR PURCHASE OF FIXED ASSETS. IF AN ASSESSEE HAS INTERE ST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL, THEN THE PR ESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AT I TS DISPOSAL. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DEHI HIGH COURT IN CIT VS. TIN BOX COMPANY (2003) 260 ITR 637 (DEL) , HOLDING THAT WHEN THE CAPITAL AND INTEREST FREE UNSECURED LOANS WITH THE ASSESSEE FAR EXCEEDED THE INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERN, DISALLOWANCE O F PART OF INTEREST OUT OF TOTAL INTEREST PAID BY THE ASSESSEE TO THE BANK WAS NOT JUSTIFIED. ITA NOS.1388 & 960/DEL/2013 8 7. APPLYING THE ABOVE PROPOSITION IN THE CONTEXT OF SECTION 14A, THE HON'BLE KARNATAKA HIGH COURT IN CIT & ANR VS. MICROLABS (2016) 383 ITR 490 (KAR) HAS HELD THAT WHEN INVESTMENTS ARE MADE FROM COMMON POOL AND NON-INTEREST BEARING FUNDS ARE MORE THAN THE INVEST MENT IN TAX FREE SECURITIES, NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A CAN BE MADE. THIS VIEW HAS BEEN TAKEN BY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 515 (BOM) . IT IS FURTHER OBSERVED THAT THIS ISSUE IS NO MOR E RES INTEGRA IN VIEW OF THE RECENT JUDGMENT DELIVERED BY THE HON'BLE SUP REME COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC), IN WHICH IT HAS BEEN HELD THAT WHEN INTEREST FREE F UNDS IN THE FORM OF SHARE CAPITAL AND RESERVES ARE MORE THAN INVESTMENTS, THE N NO DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A. 8. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE F IND THAT THE ASSESSEES SHARE CAPITAL ALONG WITH RESERVE AND SURPLUS IS MAN Y TIMES HIGHER THAN THE AMOUNT INVESTED IN SHARES ETC. YIELDING EXEMPT INCO ME. APPLYING THE RATIO OF THE ABOVE REFERRED DECISIONS, WE ARE OF THE CONS IDERED OPINION THAT NO DISALLOWANCE CAN BE SUSTAINED UNDER RULE 8D(2)(II). ITA NOS.1388 & 960/DEL/2013 9 9. TURNING TO CLAUSE (III) OF RULE 8D(2), IT IS NOT ED THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) COMPUTED/CONFIRMED DI SALLOWANCE U/S 8D(2)(III) @ % OF THE AVERAGE VALUE OF INVESTMENTS . THE HON'BLE JURISDICTIONAL HIGH COURT IN ACB INDIA LTD. VS. ACIT (2015) 374 ITR 108 (DEL) HAS HELD THAT VALUE OF TAX EXEMPT INVESTMENTS SHO ULD BE CONSIDERED INSTEAD OF TOTAL INVESTMENTS FOR ADOPTING AVERAGE V ALUE OF INVESTMENTS OF INCOME WHICH IS NOT PART OF THE TOTAL INCOME. THE EFFECT OF THIS DECISION IS THAT WHILE MAKING DISALLOWANCE UNDER RULE 8D(2)(III ), IT IS ONLY THE AVERAGE OF THOSE INVESTMENTS WHICH HAVE YIELDED EXE MPT INCOME ARE TO BE TAKEN INTO CONSIDERATION AND NOT THE AVERAGE OF ALL INVESTMENTS. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS SEEN THAT T HE DISALLOWANCE HAS BEEN MADE IN IGNORANCE OF THE ABOVE MANDATE OF LAW AS AP PROVED BY THE HONBLE DELHI HIGH COURT. WE, THEREFORE, SET ASIDE THE IMPU GNED ORDER AND DIRECT THE COMPUTATION OF CORRECT AMOUNT OF DISALLOWANCE U NDER CLAUSE (III) OF RULE 8D(2) ACCORDINGLY. 10. IT IS MADE CLEAR THAT IF THE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2) EXCEEDS THE AMOUNT OF EXEMPT INCOME, THEN, TH E DISALLOWANCE SHOULD ITA NOS.1388 & 960/DEL/2013 10 BE RESTRICTED TO SUCH INCOME ALONE. IF, HOWEVER, T HIS EXERCISE RESULTS IN SOME FURTHER RELIEF TO THE ASSESSEE, THE SAME SHOUL D BE GRANTED. 11. THE NEXT ISSUE RAISED IN THE REVENUES APPEAL I S AGAINST THE DELETION OF ADDITION OF RS.1,28,58,591/- MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF NON-REFUNDABLE MEMBERSHIP FEE. THE ASSESSEE REC EIVED RS.9,43,17,471/- AS NON-REFUNDABLE MEMBERSHIP FEES. HOWEVER, ONLY A SUM OF RS.8,14,58,880/- WAS RECOGNIZED AS INCOME. THE ASS ESSING OFFICER MADE ADDITION FOR THE REMAINING AMOUNT OF RS.1,28,58,591 /- BY RELYING ON THE VIEW TAKEN BY HIM FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 IN ASSESSEES OWN CASE. THE LD. CIT(A) DELETED THE AD DITION BY RELYING ON THE ORDERS PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. THE REVENUE IS AGGRIEVE D AGAINST SUCH DELETION OF ADDITION. 12. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSIN G THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE LD. CIT(A) HAS D ELETED THE ADDITION BY RELYING ON THE ORDERS PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08. THE LD. A R SUBMITTED THAT THE ITA NOS.1388 & 960/DEL/2013 11 ORDER PASSED BY THE TRIBUNAL FOR THE ASSESSMENT YEA R 2006-07 HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT AND, FURTHER , THE SLP FILED BY THE REVENUE HAS BEEN DISMISSED. THIS POSITION HAS NOT B EEN CONTROVERTED BY THE LD. DR. IN VIEW OF THE FACT THAT THE LD. CIT(A) DE LETED THE ADDITION BY RELYING ON THE TRIBUNAL ORDER, RESPECTFULLY FOLLOWI NG THE PRECEDENT, WE UPHOLD HIS DECISION ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 13. GROUND NO.3 IS AGAINST THE DELETION OF DISALLOW ANCE OF RS.28,36,740/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF BROKERAGE EXPENSES. THE ASSESSING OFFICER NOTICED THAT THE A SSESSEE WAS RECOGNIZING INCOME ON THE BASIS OF `PERCENTAGE OF COMPLETION ME THOD. INVOKING THE MATCHING PRINCIPLE, THE ASSESSING OFFICER HELD THAT THE BROKERAGE PAID WAS ALSO TO BE CORRELATED WITH THE REVENUE DECLARED FRO M VARIOUS PROJECTS. THIS RESULTED INTO AN ADDITION OF RS.28,36,740/-. THE L D. CIT(A) DELETED THE ADDITION. 14. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT SIMILAR ISSUE WAS RAI SED IN DLF LTD.S CASE, WHICH IS ASSESSEES SISTER CONCERN. VIDE ORDER DAT ED 11.03.2016, WHOSE ITA NOS.1388 & 960/DEL/2013 12 COPY HAS BEEN PLACED ON RECORD, THE TRIBUNAL IN ITA NO.2677 & 3061/DEL/201 HAS DELETED SUCH ADDITION BY RELYING O N THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF DLF UNIVERS AL LTD. SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTANT GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEES SISTER CONCERN FOR THE ASSESSMENT YEAR 2006-07, WE HOLD THAT THE ADDITION HAS BEEN RIGHTLY DELETED. THE IMPUGNED ORDER IS CO UNTENANCED TO THIS EXTENT. 15. THE NEXT GROUND OF THE REVENUES APPEAL AND THE ONLY OTHER GROUND WHICH SURVIVES IN THE ASSESSEES APPEAL IS AGAINST ADDITION ON ACCOUNT OF BROKERAGE/DEMAT CHARGES. THE FACTS APROPOS THIS IS SUE ARE THAT THE ASSESSEE PAID BROKERAGE OF RS.5.45 LAC TO IL & FS LTD. AND R S.80,030/- TO M/S ZUARI INVESTMENTS LTD. TOWARDS TRANSACTION CHARGES FOR IN VESTMENT TRANSACTIONS. THE ASSESSING OFFICER HELD THAT THESE TWO AMOUNTS T OTALING TO RS.6,25,299/- WERE NOT DEDUCTIBLE AS THESE RELATED TO SALE AND PU RCHASE OF SHARES WHICH WAS NOT THE ASSESSEES BUSINESS. THE LD. CIT(A) HE LD THAT BROKERAGE OF RS.5.45 LAC WAS PAID FOR SELLING THE INVESTMENTS AN D, HENCE, THE SAME SHOULD BE REDUCED FROM THE SALE PROCEEDS IN TERMS O F SECTION 48(1) OF THE ITA NOS.1388 & 960/DEL/2013 13 ACT. AS REGARDS TRANSACTION/DEMAT CHARGES OF RS.80 ,030/- PAID TO ZUARI INVESTMENTS LTD., THE LD. CIT(A) HELD THAT THE SAME COULD NOT BE ALLOWED AS DEDUCTION AS IT WAS FOR INVESTMENT ACTIVITY IN SHAR ES. BOTH THE SIDES ARE IN APPEAL ON THEIR RESPECTIVE STANDS. 16. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT IS PALPABLE THAT SECTION 48(1) OF THE A CT PROVIDES FOR DEDUCTING EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER OF SHARES FROM THE FULL VALUE OF CONSIDERATION RECE IVED IN THE COMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS. SINCE THE BROKERAGE OF RS.5.45 LAC WAS PAID IN CONNECTION WITH SHARES, THE SAME HA S, INTER ALIA , TO BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF CAPITAL GAIN IN TERMS OF SECTION 48(1) OF THE ACT. AS REGARDS THE PAYMENT OF DEMAND CHARGES OF RS.80,030/- WE FIND THAT THE SAME CANNOT BE ALLOWED AS DEDUCTIO N IN THE COMPUTATION OF BUSINESS INCOME AS THE INVESTMENT ACTIVITY IN SHARE S CARRIED ON BY THE ASSESSEE IS NOT OF THE TRADING NATURE. WE, THEREFO RE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. BOTH THE GROUNDS STAND DISMIS SED. ITA NOS.1388 & 960/DEL/2013 14 17. GROUND NO.5 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.10 LAC MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON PROJECT NOT COMMENCE D. THE ASSESSEE PAID A SUM OF RS.10 LAC TO IL & FS FOR PRE-FEASIBILITY S TUDY FOR INTEGRATED INDO- JAPANESE ENCLAVE PROJECT WHICH WAS CLAIMED AS DEDUC TION. THE ASSESSING OFFICER HELD THAT SUCH AMOUNT WAS TO BE TREATED AS COST OF PROJECT AND, HENCE, CAPITALIZED. HE, THEREFORE, MADE DISALLOWAN CE OF RS.10 LAC WHICH THE LD. CIT(A) DELETED IN THE FIRST APPEAL. 18. HAVING HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE CAME UP FOR CONS IDERATION BEFORE THE TRIBUNAL IN THE AFORE-NOTED CASE OF DLF LTD. THE T RIBUNAL, AFTER CONSIDERING ALL THE RELEVANT ARGUMENTS, HAS CONFIRM ED THE DELETION OF ADDITION IN THE FIRST APPEAL. RELEVANT DISCUSSION HAS BEEN MADE IN PARAS 212 TO 216 OF THE TRIBUNAL ORDER. SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTANT GROUND ARE SIMILAR TO THOSE ALREADY CONSIDE RED AND DECIDED BY THE TRIBUNAL, RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER ON THIS SCORE. THIS GROUND FAILS. ITA NOS.1388 & 960/DEL/2013 15 19. GROUND NO.6 IS AGAINST THE DELETION OF ADDITION OF RS.101,15,115/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF EXCESSIVE BROKERAGE. THE ASSESSEE PAID BROKERAGE OF RS.34,64 ,892/- TO M/S GAURAV ASSOCIATES FOR FACILITATING RENTING OF PREMISES. A FURTHER SUM OF RS.75,60,312/- WAS PAID TO DTZ INTERNATIONAL PROPER TY ADVISORS PVT. LTD., FOR FACILITATING RENTING OF PREMISES. THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE ENTERED INTO MARKETING AND LEASE MANAG EMENT SERVICE AGREEMENT WITH DLF ESTATES PVT. LTD., TO PROVIDE MA RKETING SERVICES AND IN LIEU OF THAT THE ASSESSEE WAS ENTITLED TO RECEIVE R S.10 PER SQ. FT. PER YEAR AS MANAGEMENT AND CONSULTANCY CHARGES. CONSIDERING TH E FACT THAT THE ASSESSEE PAID BROKERAGE @ RS.75 PER SQ. FT. TO M/S GAURAV ASSOCIATES AND RS.76/RS.80 PER SQ. FT. TO M/S DTZ INTERNATIONAL PR OPERTY ADVISORS PVT. LTD., THE AO OPINED THAT DEDUCTION SHOULD BE ALLOW ED IN THIS YEAR AT THE RATE OF RS.10 PER SQ. FT. PER ANNUM, BEING THE AMOU NT RECEIVED AS INCOME. THE BALANCE AMOUNT WAS HELD TO BE ALLOWABLE IN THE SUCCEEDING YEARS WHEN THE INCOME WOULD BE SHOWN BY THE ASSESSEE COMPANY. THIS LED TO THE MAKING OF AN ADDITION OF RS.1,01,15,115/-. THE LD. CIT(A) DELETED THE ADDITION. ITA NOS.1388 & 960/DEL/2013 16 20. HAVING HEARD BOTH THE SIDES AND PERUSED RELEVAN T MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSESSING OFFICER HAS NOT D OUBTED THE GENUINENESS OF BROKERAGE PAID TO GAURAV ASSOCIATES AND M/S DTZ INT ERNATIONAL PROPERTY ADVISORS LTD. HIS POINT OF VIEW IS THAT THE DEDUCT ION ON ACCOUNT OF BROKERAGE SHOULD BE ALLOWED ONLY TO THE EXTENT OF I NCOME EARNED IN THIS YEAR AND THE REMAINING AMOUNT OF BROKERAGE SHOULD B E ADJUSTED AGAINST THE INCOME IN SUCCEEDING YEARS. WE ARE UNABLE TO APPRE CIATE THIS STAND POINT OF THE ASSESSING OFFICER. OBVIOUSLY, WHEN AN EXPENDIT URE HAS BEEN INCURRED ON ACCOUNT OF BROKERAGE FOR LETTING OUT OF PROPERTY , THE SAME HAS TO BE ALLOWED AS DEDUCTION IN THE YEAR OF INCURRING/PAYME NT ITSELF. IT IS NOT PERMISSIBLE TO ALLOW EXPENSE ON ACCOUNT OF BROKERAG E TO THE EXTENT OF INCOME EARNED DURING THE YEAR AND THEN CARRY FORWAR D SUCH UNABSORBED EXPENDITURE TO THE SUCCEEDING YEARS FOR SET OFF AGA INST THE FUTURE INCOME. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LD. CI T(A) ON THIS SCORE. THIS GROUND IS NOT ALLOWED. 21. THE LAST GROUND OF THE REVENUES APPEAL IS AGAI NST THE DELETION OF ADDITION OF RS.10,99,46,632/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PARTIAL DISALLOWANCE OF DEDUCTION U/S 80IAB OF THE ACT. ITA NOS.1388 & 960/DEL/2013 17 22. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE TH AT THE ASSESSEE CLAIMED DEDUCTION OF RS.584.93 CRORE U/S 80IAB IN RESPECT O F PROFIT FROM HYDERABAD SEZ PROJECT. IT WAS OBSERVED THAT THE FO LLOWING EXPENSES WERE DEBITED TO THE PROFIT & LOSS ACCOUNT WHICH WERE NOT FULLY/PARTLY ALLOCATED IN THE COMPUTATION OF PROFITS OF HYDERABAD SEZ PROJ ECT:- A. ESTABLISHMENT CHARGES RS.2712.36. LACS B. FINANCE CHARGES RS.8575.81 LACS C. OTHER EXPENSES RS.4242.01 LACS D. DEPRECIATION RS.753.80 LACS 23. AS REGARDS THE ESTABLISHMENT EXPENSES, THE ASSE SSING OFFICER FOUND THAT THERE WAS ESTABLISHMENT COST OF RS.4.92 CRORE IN RESPECT OF SENIOR MANAGEMENT. THE SAME, IN HIS OPINION, WAS REQUIRED TO BE ALLOCATED TO THE SEZ ACTIVITY IN THE RATIO OF TURNOVER OF THIS ACTIV ITY TO OTHER ACTIVITIES. FINANCE CHARGES OF RS.8575.81 LAC WERE ALLOCATED BY THE ASSESSEE EXCLUSIVELY TO NON-SEZ UNITS. SIMILARLY, DEPRECIAT ION OF RS.753.80 LACS WAS ALSO CLAIMED AS DEDUCTION IN RESPECT OF NON-SEZ UNITS. ONLY RS.55.18 LAC OUT OF `OTHER EXPENSES OF RS.4242.01 LAC WAS ALLOCATED TO SEZ PROJECT ITA NOS.1388 & 960/DEL/2013 18 AND RS.4186.83 LAC TO NON-SEZ ACTIVITIES. APPLYING THE RATIO OF TURNOVER OF SEZ ACTIVITY VIS--VIS OTHER ACTIVITIES AS 65/35, T HE ASSESSING OFFICER RE- ALLOCATED THE EXPENSES WHICH RESULTED INTO REDUCTIO N IN THE AMOUNT OF DEDUCTION U/S 80IAB TO RS.573.95 CRORE FROM THE ORI GINALLY COMPUTED BY THE ASSESSEE AT RS.584.93 CRORE. THE LD. CIT(A) DE LETED THE ADDITION BY OBSERVING THAT THE ASSESSEE HAD GIVEN DETAILS OF HE AD-WISE EXPENSES INCURRED BY THE SEZ AND NON-SEZ ACTIVITIES AND THE SAME WAS REQUIRED TO BE ACCEPTED. THAT IS HOW THE DISALLOWANCE OF DEDUC TION OF RS.10.99 CRORE WAS DELETED. THE REVENUE IS AGGRIEVED AGAINST SUCH DELETION. 24. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE FACTS NARRATED ABO VE THAT THE ASSESSEE ALLOCATED MAJOR PORTION OF THE ABOVE REFERRED EXPEN SES TO NON-SEZ UNITS, WHICH LED TO THE INCREASE IN THE AMOUNT OF PROFIT F ROM THE SEZ UNIT. IF CERTAIN COMMON EXPENSES ARE INCURRED, THESE ARE REQ UIRED TO BE ALLOCATED TO BOTH SEZ AND NON-SEZ UNITS ON SOME RATIONAL BASIS. THE LD. CIT(A) HAS DELETED THE ADDITION BY OBSERVING THAT THE ASSESSEE GAVE DETAILS OF HEAD- WISE EXPENSES INCURRED ON SEZ AND NON-SEZ UNITS WHI CH COULD NOT BE BRUSHED ASIDE. IN OUR CONSIDERED OPINION, WHEN COM MON EXPENSES ARE ITA NOS.1388 & 960/DEL/2013 19 INCURRED, A REASONABLE PROPORTION ALLOCABLE TO SEZ UNIT IS REQUIRED TO BE DEBITED TO THE PROFIT & LOSS ACCOUNT OF SUCH ELIGIB LE SEZ UNIT, SO THAT PROPER AMOUNT OF PROFITS RELATABLE TO THE SEZ UNITS AND THE RESULTANT DEDUCTION COULD BE COMPUTED. IN THE GIVEN CIRCUMST ANCES, WE ARE OF THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE WOULD M EET ADEQUATELY IF THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE M ATTER IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR DECIDING THIS ISSUE A FRESH AS PER LAW, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 25. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.201 8. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 01 ST MARCH, 2018. DK ITA NOS.1388 & 960/DEL/2013 20 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.