ACIT, New Delhi V. M/s Gahoi Buildwell Pvt. Ltd., New Delhi

ITA 2710/DEL/2013

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7649 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J K MI SHRA
• Keywords: Business income; Depreciation; Search and seizure; Document seized; Earning of tax free income; Reasonable cause; Deemed dividend; Notional interest; Commercial expediency; Condonation of delay; Documents seized; TDS; Rule 8D
• Section: 143(3); 153A; 2(22)(e); 14A; 68; 154; 15

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NOS. 2702, 2703, 2710/DEL/2013 ASSESSMENT YEARS 2007-08, 2008-09 & 2009-10, ACIT CENT. CIRCLE 23 NEW DELHI. VS. GAHOI BUILDWELL PVT. LTD. (NOW KNOWN AS V3S INFRATECH P LTD. EARLIER KNOWN AS ANKUR DISTRIBUTORS P. LTD. A-20, NARAINA INDUSTRIAL AREA, PHASE- 1, NARAINA NEW DELHI PAN AABCG9474A (APPELLANT) (RESPONDENT) CO NOS.205, 204, 203/DEL-2014 ASSTT. YEARS 2007-08, 2008-09 & 2009-10 GAHOI BUILDWELL PVT. LTD. (NOW KNOWN AS V3S INFRATECH P LTD. EARLIER KNOWN AS ANKUR DISTRIBUTORS P. LTD. A-20, NARAINA INDUSTRIAL AREA, PHASE-1, NARAINA NEW DELHI PAN AABCG9474A VS. ACIT CENT. CIRCLE 23 NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI J.K. MISHRA, DR ASSESSEE BY : SHRI SANJAY KUMAR,CA SHRI AJAY KUMAR DUBEY, CA SHRI AKARSH GARG, ADVOCATE DATE OF HEARING 14/03 /201 9 DATE OF PRONOUNCEMENT 2 9 / 03 / 2019 2 O R D E R PER BENCH: THE AFORESAID APPEALS HAVE BEEN FILED BY THE DEPARTMENT AND CROSS OBJECTIONS BY THE ASSESSEE AGAINST SEPARATE IMPUGNED ORDERS DATED 17.1.2013 FOR THE ASSESSMENT YEAR 2007-08; ORDER DATED 22.1.2013 FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10, PASSED BY LD. CIT (APPEALS)- XXXIII, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 153A/143(3); 143(3). SINCE ISSUES INVOLVED IN ALL THE APPEALS ARE BY AND LARGE COMMON, ARISING OUT OF SIMILAR SET OF FACTS, THEREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. BY WAY OF SNAP SHOT, THE ISSUES AND THE DELETION OF ADDITIONS CHALLENGED BY THE REVENUE IN THE RESPECTIVE APPEALS CAN BE SUMMARISED IN THE FOLLOWING MANNER:- SI. NO. PARTICULARS AY 2007-08 2710/D/13 AY 2008-09 2703/D/13 AY 2009-10 2702/D/13 1. BROKERAGE AND COMMISSION 160,41,570 [GOA NO. 1] - 22,97,392 [GOA NO. 2] 2. ADDITION U/S 68 17,65,000 [GOA NO. 2] 3. INTEREST FOR DELAYED PAYMENT, AS PER WORKING IN SEIZED DOCUMENTS 7,48,856 [GOA NO. 3] ~ 4. DISALLOWANCE U/S 14A R.W.R. 8D 289,07,016 [GOA NO. 4] 3,28,246 [GOA NO. 4] 33,28,230 [GOA NO. 4] 5. DISALLOWANCE OF INTEREST 81,98,798 [GOA NO. 5] 1,02,95,292 [GOA NO. 5] 32,58,548 6. DEEMED DIVIDEND U/S 2(22)(E) 5,95,27,614 [GOA NO. 6] - 7. EXPENSES FOR WHICH BILLS / VOUCHERS FURNISHED SEEMS TO BE IN-GENUINE 10,20,212 [GOA NO. 7] 6,48,726 [GOA NO. 6] 8. DEPRECIATION ON WIND MILL 3,59,99,936 [GOA NO. 1] NOT QUANTIFIED [GOA NO. 1] 9. RENT PAID FOR DIRECTORS RESIDENCE, DIRECTED TO ALLOW AFTER VERIFICATION 22,80,000 3 10. COMMITMENT CHARGES 2,54,24,680 [GOA NO. 3] 2,19,47,951 [GOA NO. 3] 11. DEPN. TO BE ALLOWED AFTER VERIFICATION ON BHIKAJI CAMA AND - 7,68,370 [GOA NO. 6] 12. DISALLOWANCE OF LOSS - 5,15,34,000 [GOA NO. 7] 13. DEBIT ENTRIES IN THE RENT RECEIVED A/C 5,73,598 [GOA NO. 8] 14. SINKING FUND FROM CUSTOMERS 1,37,33,018 [GOA NO. 9] 15. GENERAL [GOA NO.8 & 9] [GOA NO.7 & 8] [GOA NO. 10 & 11] 2. WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2007-08 AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE, WHICH READS AS UNDER:- 1. BECAUSE ON A DUE CONSIDERATION OF LAW, FACTS AND CIRCUMSTANCES OF THE CASE, PARTICULARLY / DISALLOWANCES IN ASSESSMENT FRAMED U/S 153A OF THE ACT, WHEN NO INCRIMINATING MATERIAL WAS FOUND DURING THE GLOBAL SEARCH CARRIED OUT ON THE ASSESSEE OR REFERRED TO FOR MAKING ADDITION THE LD. CIT(A) SHOULD HAVE HELD THAT NONE OF THE ADDITION MADE ARE SUSTAINABLE IN THE PRESENT CASE. 2. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS TERMING THE GROUND FOR NON-CONSIDERATION OF RETURNED LOSS OF RS. 1,34,03,902 BY THE ASSESSING OFFICER AS GENERAL IN NATURE. 3. BECAUSE THE ID. CIT (A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 21,43,957 BEING WHOLE OF THE BROKERAGE AND COMMISSION PAID FOR RENTING / LEASING OF PROPERTY IN THE MALL, THOUGH MAJOR PORTION OF THE SAID EXPENDITURE WAS LIABLE TO BE SET-OFF FROM SALE OF SPACE/SHOPS OR CAPITALIZED DURING THE 4 YEAR, SO AS TO BE CARRIED FORWARD, SET-OFF OR WRITTEN OFF AS EXPENSE IN SUBSEQUENT YEARS. 4. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 2,21,965 UNDER SECTION 14A OF THE IT ACT, 1961 READ WITH CLAUSE (III) OF SUB-RULE (2) OF RULE 8D OF INCOME-TAX RULES, 1962. 3. AT THE OUTSET CROSS OBJECTIONS FILED BY THE ASSESSEE ARE BARRED BY LIMITATION. IN THE PETITION FOR CONDONATION OF DELAY, THE ASSESSEE HAS GIVEN FOLLOWING REASONS:- IN THE AFORESAID MATTER, WE BEG FOR LEAVE TO MAKE SUBMISSION AS UNDER: 2. ON RECEIPT OF CIT (A)'S ORDER DATED 17.1.2013, THE APPELLANT FILED A PETITION FOR RECTIFICATION/AMENDMENT U/S 154 WITH THE ID. CIT (A) UN-ADJUDICATED. THE SAID PETITION IS YET TO BE DISPOSED. 3. THEREAFTER, AN APPEAL WAS FILED BY THE REVENUE BEING ITA NO. 2710/DEL/2013, ON THE FIRST DATE OF HEARING ON 5.11.2013, IT WAS BROUGHT TO THE NOTICE OF HON'BLE BENCH THAT 'ACKNOWLEDGEMENT CUM NOTICE' ALONG WITH FORM 36 IS BEING RECEIVED RECENTLY, I.E., ON 21.10.2013 AND RESPONDENT ASSESSEE INTENDS TO FILE CROSS OBJECTION AND THE CASE WAS ADJOURNED FOR 18.3.2014. ON 18.3.2014, HON'BLE BENCH DID NOT FUNCTION AND CASE GOT ADJOURNED TO 26.8.2014. 4. INTERMITTENTLY, DUE TO RENOVATION WORK GOING ON IN THE OFFICE OF THE COUNSEL, RELATED FILES OF THE ASSESSEE GOT DISLOCATED, AS THE SAME WERE WRONGLY PLACED WITH OLD/DEAD FILES AND COULD ONLY BE LOCATED IN THE FIRST WEEK OF AUG'2014 DURING RE-INDEXING OF ALL THE FILES IN THE OFFICE OF THE COUNSEL. 5 5. BESIDES THIS, VP-FINANCE OF THE RESPONDENT ASSESSEE COMPANY NAMELY CA RAJNISH KHANNA, WHO WAS LOOKING AFTER ALL THE TAXATION MATTERS OF THE GROUP, LEFT THE ASSESSEE COMPANY, FINALLY W.E.F. 22.4.2014. 6. IT IS UNDER THESE CIRCUMSTANCES THAT CROSS-OBJECTION WHICH WAS DUE TO BE FILED BY 20.11.2013 COULD NOT BE FILED IN TIME AND THE SAME WAS FILED ON 19.08.2014 WITH A DELAY OF AROUND NINE MONTHS. 7. IN VIEW OF AFORESAID NARRATION OF FACTS AND CIRCUMSTANCES, IT IS SUBMITTED THAT DELAY IN FILING CROSS-OBJECTIONS HAS OCCURRED SOLELY DUE TO BONA FIDE REASONS BEYOND THE CONTROL OF THE RESPONDENT ASSESSEE COMPANY AND IT IS VERY HUMBLY PRAYED THAT THE SAID DELAY BE CONDONED TO SERVE THE ENDS OF JUSTICE. 4. LD. DR HAD OBJECTED FOR CONDONING THE DELAY OF CROSS OBJECTION ON THE GROUND THAT RESIGNATION OF VP FINANCE IS NOT RELEVANT AS THIS EVENT TOOK PLACE MUCH AFTER THE EXPIRY OF LIMITATION AND REASON OF DISLOCATION OF FILE IS OF GENERAL NATURE. THEREFORE, THERE IS NO SUFFICIENT CAUSE. 5. AFTER CONSIDERING THE ASSESSEES PETITION FOR CONDONATION OF DELAY AND OBJECTIONS RAISED BY THE LD. DR, WE FIND THAT THE ASSESSEE DID HAD REASONABLE CAUSE FOR DELAY IN FILING OF CROSS OBJECTION, PARTICULARLY WHEN DUE TO RENOVATION WORK GOING ON IN THE OFFICE OF THE COUNSEL THE RELATED FILES GOT DISLOCATED, IN SUPPORT OF WHICH AFFIDAVIT OF THE COUNSEL HAS ALSO BEEN FILED. THUS, IT CANNOT BE HELD THAT THERE WERE ANY LATCHES ON PART OF THE ASSESSEE FOR FILING THE CROSS OBJECTIONS. THE REASON MENTIONED IN THE AFORESAID PETITION DO FALL IN THE REALM OF REASONABLE CAUSE, THEREFORE, DELAY IN FILING OF CROSS OBJECTIONS ARE CONDONED. 6 6. IN THE APPEAL FOR THE ASSESSMENT YEAR 2007-08, ORIGINAL RETURN WAS FILED ON 1.4.2008 SHOWING LOSS OF RS. 2,48,53,260/-. LATER ON, SEARCH AND SEIZURE OPERATION WAS CARRIED ON 19.1.2009 IN KURELE GROUP INCLUDING ASSESSEE COMPANY AND ACCORDINGLY, NOTICE U/S 153A WAS ISSUED ON 30.11.2009. IN RESPONSE, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31.03.2010, INCORPORATING THE EFFECT OF MERGER OF YMC BUILDMORE PVT. LTD., AND CONSEQUENTLY LOSS OF RS. 1,34,03,902/ WAS DECLARED. ALTHOUGH TAX WAS PAID ON BOOK PROFIT OF RS. 2,48,88,392 U/S 115JB. THE AO ALSO TOOK COGNIZANCE OF THE SAID RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 153A, HOWEVER, WHILE COMPUTING THE ASSESSED INCOME HAS MENTIONED THAT INCOME WAS FILED AT NIL ON 13.04.2010. AS POINTED OUT FROM THE RECORDS BY THE LD. COUNSEL, THAT SUCH A RETURN WAS E-FILED ON 31.03.2010 DECLARING LOSS OF RS. 1,34,03,902 UNDER THE NORMAL PROVISION AND BOOK PROFIT WAS DECLARED AT RS. 2,48,88,392/-. AO WHILE MAKING THE ASSESSMENT AND COMPUTING THE ASSESSED INCOME HAS STARTED WITH FROM NIL INCOME STATING THAT THAT SAME WAS ASSESSED U/S 143(3), WHEREAS ADMITTEDLY AS CLARIFIED BY THE PARTIES, NO ASSESSMENT WAS MADE U/S 143(3). IT APPEARS THAT IT IS A TYPING MISTAKE IN THE ASSESSMENT ORDER, FIRSTLY, NO ASSESSMENT WAS MADE U/S 143(3) EARLIER; AND SECONDLY, RETURN WAS E-FILED AT A LOSS INCOME AS ABOVE. HENCE, WE HOLD THAT THE BASE FIGURE FOR COMPUTING THE ASSESSABLE INCOME WILL START FROM LOSS OF RS. 1,34,03,902/-. THIS PRECISE GROUND HAS BEEN RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION VIDE GROUND NO. 2, WHICH CONSEQUENTLY IS TREATED AS ALLOWED. 7. IN SO FAR AS GROUND NO. 1 OF CROSS OBJECTION IS CONCERNED THAT, IF NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH CARRIED OUT FROM THE ASSESSEE OR HAS BEEN REFERRED TO BY THE AO WHILE MAKING THE ADDITIONS, THEN LD. CIT (A) SHOULD HAVE HELD THAT NONE OF THE ADDITION ARE SUSTAINABLE, BEING BEYOND THE SCOPE OF SECTION 153A. SUCH A CONTENTION RAISED BY THE ASSESSEE IS NOT SUSTAINABLE, BECAUSE, THE 7 ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 WAS FILED ON 01.04.2008 AND NOTICE U/S 143(2) COULD HAVE BEEN ISSUED UP TILL 30.09.2009, I.E., AFTER THE EXPIRY OF 6 MONTHS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE RETURN IS FURNISHED. THE SEARCH TOOK PLACE ON 19.1.2009. THUS, IN VIEW OF SECOND PROVISO TO SECTION 153A, ASSESSMENT FOR SUCH A RETURN WAS PENDING ON THE DATE OF SEARCH, I.E., TIME LIMIT FOR ISSUANCE OF NOTICE U/S 143(2) HAD NOT EXPIRED AND ASSESSMENT HAD NOT ATTAINED FINALITY. HENCE, IT HAS TO RECKONED AS ABATED ASSESSMENT, WHEREBY AO CAN ASSESS OR REASSESS ANY INCOME, EITHER BASED ON RETURN OF INCOME OR SEARCH MATERIAL. THUS, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 8. OTHER GROUNDS RAISED BY THE ASSESSEE SHALL BE DISCUSSED WHILE DECIDING THE APPEAL OF THE REVENUE ON MERITS. NOW WE WILL COME TO THE VARIOUS ISSUES AND ADDITIONS MADE BY THE AO WHICH HAVE BEEN CHALLENGED BY BOTH THE PARTIES. 9. BROKERAGE AND COMMISSION : LD. AO FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT NOTED THAT ASSESSEE HAS CLAIMED EXPENSES OF RS. 82,83,587/- DEBITED UNDER THE HEAD BROKERAGE AND COMMISSION WHICH HAS BEEN PAID FOR LEASING OF THE PROPERTIES, WHEREAS THE INCOME FROM SUCH PROPERTIES HAS BEEN DECLARED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ACCORDINGLY, THE ASSESSEE WAS REQUIRED TO JUSTIFY AS TO WHY THE EXPENSES UNDER THE HEAD BROKERAGE AND COMMISSION SHOULD NOT BE DISALLOWED. IN RESPONSE THE ASSESSEE SUBMITTED THAT THE PAYMENT OF BROKERAGE WAS MADE FOR VARIOUS UNITS GIVEN ON LEASE FOR GETTING THE CO-BUYERS WHICH IS PART OF THE BUSINESS MODEL OF THE ASSESSEE COMPANY AND FOR THE SAME PURPOSE IT HAS BEEN PAYING BROKERAGE TO LEASE OUT THE PROPERTIES SO AS TO ASSURE THE BUYERS TO GET THE INVESTMENT. HENCE SUCH EXPENSES HAVE BEEN DEBITED FOR THE PURPOSE OF BUSINESS. HOWEVER, THE LD. AO HELD THAT SINCE INCOME HAS 8 BEEN DECLARED UNDER THE HEAD INCOME FROM HOUSE PROPERTY WHICH IS SEPARATE FROM BUSINESS AND PROFESSION AND THEREFORE, ONLY DEDUCTION AVAILABLE UNDER THE HEAD HOUSE PROPERTY IS U/S 24. ACCORDINGLY, HE HAS DISALLOWED THE ENTIRE SUM OF RS. 82,83,587/-. 10. BEFORE THE LD. CIT(A), THE ASSESSEE FIRST OF ALL SUBMITTED THAT LD. AO HAS EVEN DISALLOWED THE BROKERAGE AND COMMISSION PAID AGAINST THE SALE OF PROPERTY ALSO, THE BIFURCATION OF WHICH WAS GIVEN AS UNDER:- PARTICULARS GBL(DELHI) GBL(MUMBAI) YMC TOTAL ON SALE 383 7570 2204000 6041570 ON LEASE (RENT) 1565697 578260 2143957 ON OTHERS 28060 70000 98060 TO TAL RS. 5431327 70000 2782260 8283587 THUS, OUT OF THE TOTAL DISALLOWANCE OF 82.83 LACS, DISALLOWANCE OF AMOUNT OF RS. 61,39,630/- IS NOT CORRECT. 11. LD. CIT(A) DULY APPRECIATED SUCH A CONTENTION AND AFTER VERIFYING THE MATERIAL ON RECORD, HELD THAT THE BUSINESS OF THE ASSESSEE WAS TO DEVELOP MALL AND TO SELL THE SAME AND UNSOLD SPACE IN THE INTERREGNUM PERIOD WAS TO BE RENTED OUT FROM WHICH ASSESSEE IS DERIVES SUBSTANTIAL RENTAL INCOME. THE ASSESSEE DURING THE YEAR HAS DECLARED NET INCOME FROM HOUSE PROPERTY FOR RS. 64,76,409/- AND THEREFORE, IN SO FAR AS AOS FINDING THAT BROKERAGE AND COMMISSION PAID FOR LEASING OF THE PREMISE WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY SAME CANNOT BE ALLOWED. HOWEVER, HE DIRECTED THE AO TO DELETE THE DISALLOWANCE OF BROKERAGE AND COMMISSION WHICH WAS PAID TO THE BROKERAGE ON SALE OF THE UNITS WHICH ASSESSEE HAS SHOWN UNDER THE HEAD BUSINESS AND PROFESSION. ACCORDINGLY, HE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE OF BROKERAGE AND COMMISSION PAID TO THE EXTENT OF RENT ON LEASING AND ALLOWED THE BROKERAGE AND COMMISSION ON SALE/ BOOKING OF SPACE. 9 12. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, WE FIND BEFORE THE AO ASSESSEE CATEGORICALLY STATED THAT THE BROKERAGE AND COMMISSION PAID WERE FOR TWO KIND OF ACTIVITIES, FIRSTLY, ONE PAID FOR BOOKING OF UNITS/SPACE AND THEREFORE, IT WAS INCURRED DURING THE COURSE OF CARRYING OUT ACTIVITY OF CONSTRUCTION AND SALE OF SPACES IN THE MALL. THE SECOND WAS WITH REGARD TO LEASING OUT THE AVAILABLE SPACE ON LEASE RENT FOR WHICH AGAIN BROKERAGE AND COMMISSION HAS BEEN PAID. AO HAS ERRONEOUSLY TREATED THE BROKERAGE AND COMMISSION PAID UNDER BOTH HEADS AS CLAIMED TOWARDS INCOME FROM HOUSE PROPERTY, WHICH ON THE FACTS HAS BEEN FOUND TO BE INCORRECT. IT HAS ALREADY BEEN DEMONSTRATED BEFORE THE LD. CIT(A), AS INCORPORATED ABOVE, THAT OUT OF TOTAL CLAIM OF RS. 82,83,587/-, THE AMOUNT OF RS. 61,39,630/- WAS PAID ON ACCOUNT OF SALE OF UNIT/PROPERTY AND HENCE THE FINDING OF THE LD. CIT(A) AND THE DIRECTION TO THE AO TO DELETE THE DISALLOWANCE OF BROKERAGE & COMMISSION TO THE EXTENT OF SALE OF UNIT PROPERTIES IS AFFIRMED. IN SO FAR AS THE BROKERAGE PAID FOR AMOUNT OF RS. 21,43,957/- WHICH WAS CLAIMED TOWARDS LEASING OF THE PROPERTIES, THE SAME CANNOT BE ALLOWED, BECAUSE THE INCOME FROM THE HOUSE PROPERTY HAS TO BE COMPUTED STRICTLY IN ACCORDANCE WITH THE ITEMS PROVIDED IN SECTION 24. ACCORDINGLY, THE ORDER OF THE LD. CIT (A) IS UPHELD AND REVENUES GROUND NO. 1 IS DISMISSED AND CROSS OBJECTION NO. 3 AS RAISED BY THE ASSESSEE IS ALSO DISMISSED. 13. SHARE APPLICATION MONEY OF RS. 17,60,000/ -: IN SO FAR AS ADDITION OF RS. 17,60,000/- ON ACCOUNT OF SHARE APPLICATION MONEY RECEIVED FROM M/S. NOVAFLEX CABLE CARE SYSTEM LTD., THE AO HAS MADE ADDITION ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE SHARE APPLICANT. THE ASSESSEES CASE BEFORE THE AO WAS THAT THE SAID AMOUNT RECEIVED BY M/S HEAVEN BARTER LTD FROM M/S. NOVAFLEX CABLE CARE SYSTEM LTD. 10 AND WAS OPENING BALANCE IN THE BOOKS OF M/S HEAVEN BARTER LTD. WHICH COMPANY LATER ON WAS MERGED WITH THE ASSESSEE COMPANY AND THEREFORE, IT CANNOT BE RECKONED AS CREDITS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THIS YEAR SO AS TO WARRANT ANY ADDITION UNDER THE DEEMING PROVISION OF SECTION 68. AGAIN, BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT RS. 17,55,000/- WAS RECEIVED IN THE EARLIER YEARS AND NOT IN THE YEAR UNDER APPEAL AND IN SUPPORT THE COPY OF LEDGER ACCOUNT OF M/S. NOVAFLEX CABLE CARE SYSTEM LTD. FOR THE FINANCIAL YEAR 2004-05 AND 2005-06 IN THE BOOKS OF M/S. HEAVEN BARTER LTD. WAS FILED. LD. CIT(A) AFTER CONSIDERING THESE MATERIAL FACTS BROUGHT ON RECORD BEFORE THE AO AS WELL AS DURING THE COURSE OF APPELLATE PROCEEDINGS, CONCLUDED THAT THE SHARE APPLICATION MONEY HAS BEEN RECEIVED DURING THE FINANCIAL YEAR 2004-05 AND 2005-06 IN THE BOOKS OF HEAVEN BARTER LTD. WHICH WAS MERGED WITH THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION. SUCH AN OLD CREDIT ON ACCOUNT OF MERGER CANNOT BE TREATED AS FRESH CREDIT. THUS, ON THIS GROUND HE HAS DELETED THE SAID ADDITION. 14. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RELEVANT MATERIAL PLACED ON RECORD, WE FIND THAT IT IS AN UNDISPUTED FACT THAT THE AMOUNT OF RS. 17,65,000/- IS NOT A FRESH CREDIT APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IN FACT, THIS AMOUNT OF SHARE APPLICATION MONEY WAS RECEIVED BY M/S HEAVEN BARTER LTD FROM M/S. NOVAFLEX CABLE CARE SYSTEM LTD. IN THE EARLIER YEARS I.E., DURING THE FINANCIAL YEAR 2004-05 AND 2005-06. THUS, THE CREDIT WAS APPEARING IN THE BOOKS OF ACCOUNTS OF ANOTHER ENTITY, M/S. HEAVEN BARTER LTD. IN THE EARLIER YEAR WHICH GOT MERGED WITH THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION. IT WAS DUE TO THIS MERGER THE OLD CREDIT HAD COME INTO THE BOOKS OF ASSESSEE WHICH CANNOT BE RECKONED CREDIT APPEARING IN THE BOOKS OF ACCOUNTS FOR THE RELEVANT FINANCIAL YEAR AND THEREFORE, THE DEEMING FICTION OF SECTION 68 CANNOT BE ATTRACTED. 11 ACCORDINGLY, ON THIS SCORE, THE ORDER OF THE LD. CIT (A) IS AFFIRMED AND CONSEQUENTLY REVENUES GROUND NO. 2 IS DISMISSED. 15. ADDITION ON ACCOUNT OF INTEREST OF RS. 7,48,856/-: AS REGARDS THE ADDITION ON ACCOUNT OF INTEREST FOR DELAYED PAYMENT AS PER WORKING IN THE SEIZED DOCUMENTS, THE AO NOTED THAT CERTAIN ANNEXURES WERE SEIZED FROM THE OFFICE PREMISES OF THE ASSESSEE WHICH REVEALED CALCULATION OF INTEREST ON DELAYED PAYMENT FOR A UNIT, F-31 WHICH WAS WORKED OUT AT 7,48,856/-, WHICH WAS NOT DECLARED BY THE ASSESSEE AS ITS INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE STATED THAT IT WAS A CALCULATION MADE SO AS TO PRESSURISE THE PURCHASERS TO RELEASE THE PAYMENT DUE AT THE EARLIEST. HOWEVER, NO INTEREST HAS BEEN RELEASED FROM THE SAID PARTY AND FINALLY IN THE YEAR ENDING 31 ST MARCH, 2008, THE ASSESSEE COMPANY WAS FORCED TO CANCEL THE BOOKING. IN SUPPORT, COPY OF ACCOUNT RIGHT FROM THE FINANCIAL YEAR 2006-07 AND 2007-08 WAS FILED. HOWEVER, THE LD. AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND HELD THAT SINCE THE DOCUMENT WAS FOUND FROM THE POSSESSION OF THE ASSESSEE, THEREFORE, IN TERMS OF SECTION 132(4A) THE ONUS WAS UPON THE ASSESSEE, WHICH IT FAILED TO DISCHARGE AND THUS, ADVERSE PRESUMPTION HAS TO BE DRAWN AGAINST THE ASSESSEE. LD. CIT (A) AFTER CONSIDERING THE SEIZED DOCUMENTS NOTED THAT IT CONTAINED DETAILED OF INTEREST @ 24% PER ANNUM AND CERTAIN OTHER CALCULATION WHICH WORKS OUT TO RS. 7,48,856/- FOR THE PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08. ONE IMPORTANT FACT NOTED BY HIM WAS THAT, NOWHERE IT HAS BEEN WRITTEN OR FOUND ANYWHERE ELSE THAT SUCH AN INTEREST WAS ACTUALLY RECEIVED. ONCE THE ASSESSEE HAD CONTENDED THAT THE SAID INTEREST WAS NOT REALIZED AND IT WAS MERELY TO PRESSURISE THE PURCHASER TO CLEAR HIS DUES, THEN ASSESSEES EXPLANATION CANNOT BE REJECTED. MOREOVER, HE HELD THAT, SINCE BOOKING ITSELF WAS CANCELLED, THEN THERE WAS NO POINT OF INTEREST BEING RECEIVABLE TO THE ASSESSEE. ACCORDINGLY, HE DELETED THE SAID ADDITION. 12 16. AFTER CONSIDERING THE RELEVANT SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS SEIZED MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING, WE FIND THAT THERE IS ROUGH NOTING OF CALCULATION OF INTEREST ON ACCOUNT OF DELAYED PAYMENT BY THE PURCHASER WHICH ASSESSEE HAS CALCULATED TO BE @ 24%. NOWHERE, AS HELD BY THE LD. CIT(A), IT HAS BEEN FOUND OR THERE IS EVEN MENTION IN ANY SEIZED DOCUMENT THAT INTEREST RATE SO CALCULATED HAS BEEN REALISED FROM THE SAID PARTY. THE AO HAS MADE THE ADDITION ON THE GROUND THAT, SECTION 132(4A) RAISES THE PRESUMPTION AGAINST THE ASSESSEE IF SOMETHING HAS BEEN FOUND FROM THE POSSESSION OF THE ASSESSEE DURING THE COURSE OF SEARCH. HOWEVER, FIRST OF ALL SUCH A PRESUMPTION U/S 132(4A) IS A REBUTTAL PRESUMPTION AND IT IS APPLICABLE ONLY IN THE CASES WHERE ASSESSEE TRIES TO GIVE EXPLANATION CONTRARY TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH. HERE IN THIS CASE, ASSESSEE IS NOT DENYING THE POSSESSION OF THE SEIZED MATERIAL FOUND, ALBEIT HAS BEEN POINTED OUT THAT THE SEIZED MATERIAL DOES NOT INDICATE ANY UNDISCLOSED INCOME. IT WAS ONLY PREPARED TO PRESSURISE THE BUYERS TO MAKE THE DUE PAYMENT IN TIME. IN ANY CASE, IF THE BOOKING ITSELF WAS CANCELLED IN SUBSEQUENT YEAR, THEN THE WHOLE ACCRUAL OF INTEREST ITSELF GETS VITIATED AND THE INCOME WHICH HAS NOT BEEN RECEIVED BY THE ASSESSEE CANNOT BE TAXED, BECAUSE, ONLY SUCH INCOME CAN BE TAXED WHEN THE OTHER PARTY ALSO ACKNOWLEDGES THE PAYMENT TO BE MADE OR DEBT TOWARDS THE ASSESSEE. THUS, UNDER THESE FACTS AND CIRCUMSTANCES LD. CIT (A) HAS RIGHTLY DELETED THE SAID ADDITION. ACCORDINGLY, THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 17. DISALLOWANCE U/S 14A: COMING TO THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D, THE AO HAS MADE ADDITION OF RS. 91,28,982/- AFTER INVOKING RULE 8D, WHICH ADMITTEDLY WAS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007-08. HE HAS COMPUTED THE DISALLOWANCE U/S 8D 13 (II) AT RS. 89,07,016/- ON ACCOUNT OF INTEREST EXPENDITURE; AND RS. 2,21,965/- UNDER RULE 8D2(III). THE ASSESSEE HAS MADE INVESTMENT IN UNQUOTED EQUITY SHARES OF RS. 1,55,02,500/-; AND IN MUTUAL FUNDS OF RS. 7,32,83,808/-. BEFORE THE AUTHORITIES BELOW, ASSESSEE HAS STATED THAT, FIRSTLY, AO HAS WRONGLY TAKEN THE AVERAGE OF TOTAL ASSETS AND IF SUCH MISTAKE IS CORRECTED, THEN UNDER RULE 8D 2(II) DISALLOWANCE WILL WORK OUT TO RS. 8,90,702/- ONLY. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS HUGE INTEREST FREE FUNDS IN THE FORM OF CAPITAL RESERVES WHICH WAS AROUND RS. 27.90 CRORES AS ON 31 ST MARCH, 2006 AND RS. 96.53 CRORES AS ON 31 ST MARCH, 2007, WHICH WAS FAR EXCESS THAN INVESTMENT OF RS. 8.88 CRORES AS ON 31 ST MARCH, 2007. HENCE, NO DISALLOWANCE OF INTEREST COULD HAVE BEEN MADE. LD. CIT (A) HAS GIVEN PART RELIEF WHEREIN HE HAS CONFIRMED THE DISALLOWANCE UNDER RULE 8D (2) (III)OF RS. 2,21,966/- AND DELETED THE DISALLOWANCE OF INTEREST AFTER RECORDING A DETAILED FINDING ABOUT THE AVAILABILITY OF SURPLUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND ALSO EXAMINED THE UTILIZATION OF LOAN FOR THE BUSINESS PURPOSE. 18. BEFORE US LD. COUNSEL FOR ASSESSEE, SHRI SANJAY KUMAR, FIRST OF ALL SUBMITTED THAT THE PROVISION OF RULE 8D CANNOT BE MADE APPLICABLE FOR THE ASSESSMENT YEAR 2007-08 AND IN SUPPORT HE RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. ESSAR TELEHOLDINGS LTD. REPORTED IN (2108) 401 ITR 445 . THUS, THE VERY BASIS FOR COMPUTING THE DISALLOWANCE IS UNTENABLE IN LAW. HE FURTHER SUBMITTED THAT, IT IS A WELL SETTLED PRINCIPLE THAT, IF ASSESSEE HAS HUGE SURPLUS INTEREST FREE FUNDS THEN IT CANNOT BE PRESUMED THAT INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR THE PURPOSE OF INVESTMENT. MOREOVER, HERE IN THIS CASE ASSESSEE HAS DULY DEMONSTRATED BEFORE THE AUTHORITIES BELOW THAT NO INTEREST BEARING FUNDS WERE EVER BEEN DIVERTED FOR MAKING THESE INVESTMENTS AND THEREFORE, SUCH AN INTEREST HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A) LASTLY, ON THE ISSUE OF 14 DISALLOWANCE INDIRECT EXPENSES UNDER RULE 8D (2)(III), BY WAY OF ALTERNATIVE PLEA, HE SUBMITTED THAT, IN SO FAR AS INVESTMENT IN UNQUOTED EQUITY SHARES IS CONCERNED, SAME CANNOT BE TAKEN FOR THE PURPOSE OF CALCULATING THE AVERAGE OF THE TOTAL ASSETS, BECAUSE, ADMITTEDLY NO EXEMPT INCOME HAS BEEN DERIVED BY THE ASSESSEE FROM THESE SHARES AND IN SUPPORT, HE RELIED UPON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF ACB INDIA LTD. VS. ACIT, REPORTED IN (2015) 374 ITR 108. FURTHER, IN SO FAR AS INVESTMENTS IN MUTUAL FUNDS ARE CONCERNED, HE SAID THAT SOME REASONABLE BASIS CAN BE APPLIED. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. IN SO FAR AS FIRST CONTENTION OF THE LD. COUNSEL IS CONCERNED, THAT RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR 2007-08, SAME NOW STANDS COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. ESSAR TELEHOLDINGS LTD. (SUPRA) WHEREIN IT HAS BEEN SETTLED THAT DISALLOWANCE U/S 14A CANNOT BE COMPUTED UNDER RULE 8D, PRIOR TO A.Y. 2008-09. ACCORDINGLY, THE COMPUTATION OF DISALLOWANCE UNDER THE RULE 8D FOR THE A.Y. 2007-08 HAS TO BE REJECTED. EVEN OTHERWISE ALSO, IN THIS YEAR HUGE DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF INTEREST EXPENDITURE, WHICH HERE IN THIS CASE IS AN ADMITTED FACT THAT ASSESSEE COMPANY, AS ON 31 ST MARCH 2007, HAD A HUGE SURPLUS FUND OF MORE THAN RS. 96.56 CRORES, AS BROUGHT OUT BY THE LD. CIT(A), WHICH IS SUFFICIENT TO COVER INVESTMENT OF RS. 8.88 CRORES AND ACCORDINGLY, IN VIEW OF SETTLED PRINCIPLE LAID DOWN IN VARIOUS JUDGEMENTS, LIKE CIT VS. HERO CYCLES, [2010] 323 ITR, 158 (P& H); CIT VS. HDFC BANK LTD. [2104 366 ITR 505 (BOM) & [2016] 383 ITR 589 (BOM), NO DISALLOWANCE CAN BE MADE. 15 19.1 IN SO FAR AS WHAT SHOULD BE THE REASONABLE BASIS FOR DISALLOWANCE PRIOR TO THE APPLICABILITY OF RULE 8D, WE FIND THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 82,41,610/-, WHICH ARE MOSTLY FROM MUTUAL FUNDS. FOR DEPLOYMENT OF FUNDS AND MONITORING OF SUCH INVESTMENTS, IT WOULD BE REASONABLE TO ESTIMATE EXPENDITURE OF RS. 1,00,000/- ON ACCOUNT OF SALARY OF THE CONCERNED PERSONS LOOKING AFTER THE MUTUAL FUNDS. ACCORDINGLY, THE DISALLOWANCE U/S 14A IS RESTRICTED TO RS. 1 LAC AND CONSEQUENTLY, THE REVENUES APPEAL IS DISMISSED AND ASSESSEES CROSS OBJECTION NO. 4 IS PARTLY ALLOWED. 20. DISALLOWANCE OF INTEREST : IN SO FAR AS THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST OF RS. 81,98,798/-, THE FACTS IN BRIEF ARE THAT, THE LD. AO NOTED THAT ASSESSEE HAS MADE INTEREST FREE ADVANCES TO FOLLOWING PARTIES: - (I) AGARWAL TELECOMMUNICATIONS (P) LTD. RS. 62,00,000/-. (II) AGF ALFAB LTD. RS. 92,58,058/-. (III) AJAY MISHRA, RS. 17,00,000/-. (IV) ENDLESS MEDIA & GERMS, RS. 16,50,000/- LAKHS. (V) GAHOI CHEMICALS, RS. 65,00,000/-. (VI) KURELE FRAGRANCE (P) LTD., RS. 50,00,000/-. (VII) KURELE INDUSTRIES, RS. 50,00,000/-. (VIII) KURELE INTERNATIONAL. RS. 73,00,000/-. (IX) SUNITA KHETAN. RS. 12,40,000/- LAKHS. (X) Y UMA RANI. RS. 22,80,000/- LAKHS. IN RESPONSE TO THE SHOW CAUSE NOTICE ASSESSEE HAS GIVEN THE DETAILS OF INTEREST FREE LOANS AND ADVANCES AND DETAILED ANALYSIS OF EACH AND EVERY ADVANCE WHICH WAS SUMMARISED AS UNDER: - 16 SI. NAME OF PARTY AMOUNT FROM WHERE PURPOSE 1 AGARWAL TELECOMMUNICATION (P) LTD. 62.00.000 PRIYARANJAN SALES (P) LTD. ON MERGER, NOT GIVEN BY GAHOI BUILDWELL (P) LTD. 2 AGV ALFAB LTD. 92,58,058 YMC BUILDMORE (P) LTD. MOBILISATION AND OTHER ADVANCE TO CONTRACTOR AND ADJUSTED IN NEXT YEAR 3 AJAY MISHR A 17, 00,000 YMC BUILDMORE (P) LTD. MOBILISATION AND OTHER ADVANCE TO CONTRACTOR AND ADJUSTED IN NEXT YEAR. 4 ENDLESS MEDIA & GEMS 16,50,000 GAHOI BUILDWELL LTD. PARTNER IN THE FIRM 5 GAHOI CHEMICALS (?) LTD. 65.00,000 ANKUR DISTRIBUTORS (?) LTD, ON MERGER NOT, GIVEN BY GAHOI BUILDWELL (P) LTD. 6 KURELE FRAGRANCES (?) LTD. 50.00,000 GAHOI BUILDWELL LTD. ON MERGER NOT GIVEN BY GAHOI BUILDWELL (P) LTD. 7. KURELE INDUSTRIES 50,00,000 GAHOI BUILDWELL LTD. INTEREST RECD. FROM THE PARTY @ 9% P. A. 8 KURELE INTERN ATIONAL 73,00,000 ANKUR DISTRIBUTORS LTD. ON MERGER NOT GIVEN BY GAHOI BUILDWELL (P) LTD. 9 SUNITA KHETAN 12,40.000 HEAVEN BARTER LTD. ON MERGER NOT GIVEN BY GAHOI BUILDWELL 10 Y UMA RANI 22,80,000 PADAMPAT GOPALKRISHAN RAMAPATI ORG. LTD. ON MERGER, NOT GIVEN BY GAHOI BUILDWELL 21. HOWEVER, LD. AO, WITHOUT EXAMINING THE NATURE OF ADVANCE, HELD THAT ASSESSEE FAILED TO ESTABLISH THAT INTEREST BEARING FUNDS HAS NOT BEEN UTILISED FOR THE PURPOSE OF INTEREST FREE ADVANCES AND ACCORDINGLY MADE DISALLOWANCE OF RS. 81,98,798/-. 22. LD. CIT (A) NOTED THAT ASSESSEE HAS GIVEN DETAILED REPLY WHEREIN PARTY-WISE ADVANCES, PURPOSE AND SOURCE THEREOF WAS EXPLAINED. APART FROM THAT, IT WAS ALSO EXPLAINED THAT IN ONE CASE NAMELY, M/S. ENDLESS 17 MEDIA & GEMS, ASSESSEE COMPANY WAS A PARTNER, THEREFORE, IT WAS NOT ANY KIND OF INTEREST FREE ADVANCE, BUT WAS IN THE NATURE OF BUSINESS INVESTMENT. AFTER TAKING INTO CONSIDERATION THE ENTIRE MATERIAL PLACED ON RECORD AND ASSESSEES EXPLANATION, LD. CIT (A) NOTED THAT AO HAS NOT DOUBTED THAT IN MOST OF THE CASES, INTEREST FREE ADVANCE GIVEN TO VARIOUS PARTIES WERE GIVEN BY MERGING COMPANY WHO WERE NOT HAVING ANY INTEREST BURDEN. THEREFORE, QUESTION OF DIVERTING INTEREST-BEARING FUND FOR GIVING ADVANCES. IN SOME CASES, ADVANCE WAS GIVEN FOR MOBILISATION TO THE CONTRACTORS WHICH WERE PURELY FOR THE PURPOSE OF BUSINESS. AFTER ANALYSING EACH AND EVERY ADVANCE, LD. CIT(A) HAS DELETED THE SAID ADDITION. 23. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE FINDING OF THE LD. CIT(A) IS BORNE OUT FROM THE RECORDS THAT MOST OF THE INTEREST FREE ADVANCES APPEARING IN THE BOOKS OF THE ASSESSEE COMPANY WERE ON COMING FROM THE ACCOUNTS OF THE MERGING COMPANIES WHO WERE NOT HAVING INTEREST BURDEN. IT WAS NOT AN AMOUNT GIVEN BY THE ASSESSEE, ALBEIT THEY HAVE INHERITED THE ADVANCES ON ACCOUNT OF MERGER OF THE COMPANIES WITH THE ASSESSEE COMPANY. THEREFORE, THERE COULD NOT BE ALLEGATION OF GIVING ANY ADVANCE FROM ASSESSEES INTEREST BEARING FUND. IN ANOTHER SET OF PARTIES AS EVIDENT FROM THE ABOVE CHART, THE FUNDS WERE MOBILISED/ADVANCES TO THE CONTRACTORS FOR THE PURPOSE OF CONSTRUCTION BUSINESS, WHICH OSTENSIBLY WAS FOR THE PURPOSE OF BUSINESS, WHICH GOT ADJUSTED IN THE SUBSEQUENT YEAR. FURTHER, ONE ADVANCE WAS GIVEN AS INVESTMENT IN THE BUSINESS FIRM, WHEREIN ASSESSEE WAS A PARTNER. THUS, NONE OF THESE ADVANCES CAN BE HELD TO INTEREST FREE ADVANCES FOR NON-BUSINESS PURPOSE OR GIVEN OUT OF INTEREST-BEARING FUNDS. HENCE, UNDER THESE FACTS IT CANNOT BE HELD THAT ANY INTEREST-BEARING LOAN AMOUNT RAISED FROM THE BANK ACCOUNT HAS BEEN DIVERTED TO MAKE ANY INTEREST FREE ADVANCES AND THEREFORE, THERE IS NO QUESTION OF MAKING ANY NOTIONAL DISALLOWANCE OF INTEREST. 18 ACCORDINGLY, ORDER OF LD. CIT (A) IS UPHELD AND THE GROUND OF THE REVENUE IS DISMISSED. 24. DEEMED DIVIDEND : LASTLY, COMING TO THE ISSUE OF DEEMED DIVIDEND U/S 2(22)(E), AO WHILE MAKING THE ADDITION HAS MADE FOLLOWING OBSERVATIONS: - M/S. APPOLLO TRAEXIM (P) LTD. HAS MADE ADVANCES AGAINST BOOKING OF SPACE OF M/S. YMC BUILDMORE (P) LTD. AMOUNTING TO RS. 64863965/- DURING THE YEAR UNDER CONSIDERATION. SINCE THE ADVANCES MADE ORE STILL OUTSTANDING EVEN OIL 31 03.2009 THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ADVANCE MADE AGAINST BOOKING OF SPACE MAY NOT BE TREATED A DEEMED DIVIDEND IN TERMS OF PROVISION OF SECTION 2(22)(E) OF THE I. T ACT. 1961 AS M/S. APPOLLO TRAEXIM (P) LTD. IS DERIVING ONLY RENTAL INCOME AND IS NOT ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF COMMERCIAL SPACE. IN RESPONSE THE ASSESSEE HAS SUBMITTED THAT ADVANCE HAS BEEN MADE TO PURCHASE THE SPACE IN V3S EAST CENTRE IN THE ORDINARY COURSE OF BUSINESS OF M/S APPOLLO TRAEXIM (P) LTD. THE ASSESSEE'S RELY HAS BEEN CONSIDERED BUT FOUND TO BE LACKING ANY MERIT AS M/S. APPOLLO TRAEXIM (P) LTD IS NOT ENGAGED IN THE BUSINESS OF DEALING WITH COMMERCIAL SPACE. IT IS FURTHER SEEN THAT SOME OF THE UNITS BOOKED BY M/S APPOLLO TRAEXIM (P) LTD. HAVE BEEN SOLD OUT TO OTHER PARTIES IN THE SUCCEEDING YEARS, ON RATES MOSTLY LOWER THAN THE ONE AT WHICH BOOKINGS FOR M/S APPOLLO TRAEXIM (P) LTD. WAS FINALIZED. SH. Y.C.KURELE IS HAVING SHARE HOLDING OF MORE THAN 10% IN BOTH THE COMPANIES I. E. M/S APPOLLO TRAEXIM (P) LTD. AND M/S. Y C BUILDMORE (P) LTD, THEREFORE, PROVISIONS OF SECTION 2(22)(E) ARE SQUARELY APPLICABLE IN THE INSTANT CASE. THE FACT THAT NO SALE DEED HAS BEEN EXECUTED IN FAVOUR OF M/S. APPOLLO TRAEXIM (P) LTD. EVEN AFTER A PASSAGE OF THREE YEARS. 19 AND WHEN THE SPACE BOOKED HAS BEEN SOLD TO THIRD PARTIES, ESTABLISHES THAT THE ADVANCES RECEIVED FROM M/S APPOLLO TRAEXIM (P) LTD. WERE ONLY IN THE GARB OF ADVANCE AGAINST BOOKING, WHEREAS THE ADVANCES MADE ARE NO DIFFERENT FROM THE LOANS AND ADVANCES ATTRACTING THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT, 1961. THEREFORE, THE SUMS RECEIVED BY M/S. Y.M.C. BUILDMORE (P) LTD. (WHICH HAS BEEN AMALGAMATED WITH THE ASSESSEE COMPANY WITH EFFECT FROM 01-04-2006 ARE BEING TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF PROVISIONS OF SECTION 2(22)(E) OF THE I. T. ACT. 1961 TO THE EXTENT OF ACCUMULATED PROFITS IN THE ASSESSEE COMPANY WHICH IS RS. 595276]4/- WHICH IS BEING ASSESSED IN THE HANDS OF THE RECIPIENT OF THE DEEMED DIVIDEND, I.E. THE ASSESSEE COMPANY. 25. BEFORE THE LD. CIT (A), IT WAS SUBMITTED THAT, M/S. APPOLLO TRAEXIM (P) LTD., (A COMPANY IN WHICH MR. Y.C. KURELE HOLDS MORE THAN 10% OF SHARE CAPITAL), HAD PAID A SUM OF RS. 6,12,00,000/- BY RAISING LOAN TO M/S. Y.M.C. BUILDMORE PVT. LTD., (A COMPANY IN WHICH LESS THAN 1% PAID UP SHARE CAPITAL WAS HELD BY MR. Y.C. KURELE) FOR BOOKING OF SPACE IN MALL, V3 5 EAST CENTRE. THEREFORE, IT WAS CONTENDED THAT ASSESSEE COMPANY WAS NOT A SHAREHOLDER OF M/S. APPOLLO TRAEXIM (P) LTD. AS ON THE DATE OF TRANSACTION, THEREFORE, DEEMING PROVISION OF SECTION 2(22)(E) CANNOT BE INVOKED. OTHERWISE ALSO, MERELY BECAUSE A COMMON SHAREHOLDER IS HAVING SUBSTANTIVE INTEREST, WILL ITSELF NOT ATTRACT DEEMED DIVIDEND PROVISION, BECAUSE THE ASSESSEE SHOULD BE THE BENEFICIAL SHAREHOLDER IN THE LENDER COMPANY. IN SUPPORT THE JUDGEMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH (P) LTD. VS. ORS (2012) 340 ITR 14 (DEL) WERE RELIED UPON. FURTHER, THERE WERE CERTAIN MISTAKES COMMITTED BY THE AO WHILE TAKING THE FIGURES OF RESERVES AND SURPLUS FOR THE PURPOSE OF CALCULATING THE PROFITS. 20 26. LD. CIT (A) AFTER CONSIDERING THE ENTIRE GAMUT OF FACTS NOTED THAT SHRI Y.C KURELE DOES NOT HAVE REQUISITE PERCENTAGE OF SHAREHOLDING COMPANIES, SO AS TO PUT IN THE CATEGORY OF BENEFICIARY SHAREHOLDER. HE FURTHER HELD THAT AO WAS ENTIRELY INCORRECT IN CONCLUDING THAT SHAREHOLDING OF SHRI Y.C. KURELE WAS MORE THAN 10% IN BOTH THE COMPANIES, BECAUSE, HE HAD LESS THAN 1% SHAREHOLDING IN M/S. Y.M.C. BUILDMORE PVT. LTD. HE ALSO NOTED THAT THE FIGURES TAKEN BY THE AO FROM THE BALANCE SHEET ON ACCOUNT OF RESERVE ON SHARE PREMIUM ACCOUNT WAS NOT CORRECT. APPLYING RATIO OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS ANKITECH (P) LTD. (SUPRA) HE DELETED THE ADDITION. BEFORE US LD. COUNSEL FOR THE ASSESSEE, SHRI SANJAY KUMAR SUBMITTED THAT HERE IN THIS CASE M/S. APPOLLO TRAEXIM (P) LTD. HAD GIVEN THE PAYMENT TO THE ASSESSEE COMPANY FOR BOOKING OF SPACE AND HENCE IT CANNOT BE RECKONED THAT IN THE NATURE OF LOANS AND ADVANCES FILING WITHIN THE PURVIEW OF SECTION 2(22)(E). THUS, SUCH A PAYMENT FOR PURCHASE OF SPACE IS PURELY A BUSINESS TRANSACTION WHICH DOES NOT FALL IN THE CATEGORY OF LOANS AND ADVANCES AS STIPULATED IN SECTION 2(22)(E). APART FROM THAT, HE SUBMITTED THAT FROM THE LIST OF SHAREHOLDERS OF M/S. APPOLLO TRAEXIM (P) LTD., IT CAN BE SEEN THAT SHAREHOLDING OF SHRI Y.C. KURELE WAS APPROXIMATELY 56.10% AND HIS SHAREHOLDING IN M/S. Y.M.C. BUILDMORE PVT. LTD. WAS AT 0.9%. LD. AO HAS MADE ADDITION ON THE GROUND THAT SHRI Y.C. KURELE HAD MORE THAN 10% SHAREHOLDING IN APPOLO TRAEXIM (P) LTD.; AND ALSO HAD SUBSTANTIAL INTEREST IN Y.M.C. BUILDMORE (P) LTD., WHICH FINDING OF THE AO IS NOT CORRECT AS SHRI Y.C. KURELE DID NOT HAVE ANY SUBSTANTIAL INTEREST IN YMC. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING. FROM FACTS AS NOTED BY THE AO IN THE IMPUGNED ASSESSMENT ORDER ITSELF SHOWS THAT, M/S. APPOLLO TRAEXIM (P) LTD. HAD MADE ADVANCES AGAINST BOOKING OF SPACE TO M/S. Y.M.C. 21 BUILDMORE PVT. LTD. AMOUNTING TO RS. 6,48,63,965/-, WHICH WAS PURELY A COMMERCIAL TRANSACTION. AS CULLED OUT FROM THE RECORD, M/S. Y.M.C. BUILDMORE PVT. LTD. WAS LATER ON MERGED WITH THE ASSESSEE COMPANY. SUCH AN ADVANCE HAS COME IN THE BOOKS OF THE ASSESSEE BY WAY OF MERGER. SUCH A PAYMENT FOR BOOKING OF SPACE IN THE MALL HAS BEEN TREATED AS DEEMED DIVIDEND BY THE AO U/S 2(22)(E), WHICH CANNOT BE IN MANNER BE RECKONED AS ADVANCE OR LOAN IN THE NATURE OF DEEMED DIVIDEND. AO HAS FURTHER HELD THAT SHRI Y.C. KURELE WAS HAVING SHAREHOLDING OF MORE THAN 10% IN BOTH THE COMPANIES, WHICH FACT HAS BEEN FOUND TO BE INCORRECT BY THE LD. CIT (A) AS HE WAS NOT HOLDING SUBSTANTIAL SHARE IN YMC BUILDMORE LTD. FIRST OF ALL, FOR INVOKING THE DEEMING FICTION OF SECTION 2(22)(E), ONE HAS TO SEE, WHETHER THE NATURE OF PAYMENT FALLS WITHIN THE CATEGORY OF LOANS OR ADVANCES WHICH CAN BE TREATED TO BE PAYMENT OUT OF ACCUMULATED PROFITS AND IS IN THE NATURE OF DIVIDEND. IF THE PAYMENT HAS BEEN MADE FOR BOOKING OF SPACE / UNIT IN A MALL, THEN IT IS PURELY A COMMERCIAL AND BUSINESS TRANSACTION; AND NOW IN VIEW OF THE CLARIFICATION GIVEN BY THE CBDT CIRCULAR NO. 19/2017 DATED 12 TH JUNE, 2017, ANY ADVANCES GIVEN FOR COMMERCIAL AND BUSINESS TRANSACTION CANNOT BE BROUGHT WITHIN THE MISCHIEF OF DEEMED DIVIDEND. THUS, ON THIS GROUND ALONE THE DEEMING FICTION OF SECTION 2(22)(E) COULD NOT HAVE BEEN INVOKED. OTHERWISE ALSO, FOR INVOKING THE PROVISION OF DEEMED DIVIDEND, IT IS SINE-QUA-NON THAT THE PAYMENT MADE BY A COMPANY TO A PERSON SHOULD BE A BENEFICIAL OWNER OF THE SHARES HOLDING NOT LESS THAN 10% OF THE VOTING POWER. ADMITTEDLY, M/S Y.M.C. BUILDMORE (P) LTD. WAS NEVER A SHAREHOLDER IN APPOLLO TRAEXIM (P) LTD. NOT ONLY THAT, THE INFERENCE DRAWN BY THE AO THAT ONE SHRI Y.C. KURELE WAS HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANIES IS ALSO NOT CORRECT, BECAUSE HE HAD ONLY 0.9% SHAREHOLDING IN M/S. Y.M.C. BUILDMORE (P) LTD. HENCE, THIS PREMISE OF THE AO FOR INVOKING THE PROVISION OF DEEMED DIVIDEND HAS NO LEGS TO STAND. THUS, 22 ON BOTH THESE COUNTS THE ADDITION U/S 2(22)(E) COULD NOT HAVE BEEN MADE. HERE IN THIS CASE, LD. CIT(A) HAS NOT STRAIGHTAWAY DELETED THE ADDITION, IN FACT HE HAS GIVEN THE DIRECTION TO THE AO TO VERIFY, WHETHER RECIPIENT COMPANY I.E. M/S. Y.M.C. BUILDMORE (P) LTD. WHICH HAS NOW BEEN MERGED WITH THE ASSESSEE COMPANY IS A REGISTERED SHAREHOLDER OF THE SAID COMPANY OR NOT. WE DO NOT FIND ANY INFIRMITY IN SUCH A DIRECTION WHICH IS PURELY IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE ON THIS SCORE IS DISMISSED. 28. THE LAST ISSUE RELATES TO ADDITION OF RS. 10,20,212/- ON ACCOUNT OF CERTAIN EXPENSES WHICH AS PER THE AO, BILLS AND VOUCHERS WERE NOT GIVEN. THE BRIEF FACTS QUA THE ISSUE ARE THAT THE AO FROM THE DETAILS OF EXPENSES AND THE BILLS AND VOUCHERS SUBMITTED BY THE ASSESSEE WITH RESPECT TO CERTAIN PARTIES AND CONTRACTORS NOTED THAT THE VOUCHERS DID NOT MENTION THE REQUISITE INFORMATION DETAILS LIKE TIN NO. ETC. THE DETAILS OF THESE PARTIES WERE AS UNDER:- (I) H.P. SALES CO. (P) LTD. RS. 878486/- (II) KESHAV SINGH RS. 8875/- (III) S.S. CONSTRUCTIONS RS. 100900/- (IV) SAURABH FERRO CONCRETE (P) LTD. RS. 31951/- ____________ TOTAL RS. 10,20,212/- IN RESPONSE TO THE SHOW CAUSE NOTICE, IT WAS SUBMITTED THAT PAYMENT TO ALL THE AFORESAID PARTIES HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES AND TDS HAVE ALSO BEEN DEDUCTED. IN SUPPORT, COPY OF LEDGER ACCOUNT, BILLS AND TDS CERTIFICATES WERE FILED. IT WAS FURTHER POINTED OUT THAT ALL THE BILLS, BEAR THE NAME, ADDRESS, PHONE NUMBER OF THE CONTRACTOR AND SUPPLIERS, DESCRIPTION OF THE GOODS SUPPLIED, NATURE OF SERVICES RENDERED ALONGWITH RATES, MEASUREMENTS ETC. IN SOME OF THE 23 CASES, DETAILS OF TIN NUMBER AND ALSO PAN NUMBER WERE SUBMITTED. THUS, WITHOUT THEIR BEING ANY CONTRARY MATERIAL, NO DISALLOWANCE OF EXPENSES COULD HAVE BEEN MADE. IN SUPPORT STRONG RELIANCE WAS PLACED BY THE SUPREME COURT IN THE CASE OF UMA CHARAN SHAW & ORS. VS. CIT (1959) 37 ITR 271 (SC). HOWEVER, THE LD. AO HAD CONFIRMED THE SAID ADDITION. SIMPLY ON THE GROUND OF BILLS DOES NOT CONTAIN THE REQUISITE DETAILS LIKE TIN NO. BILL NO. ETC. 29. LD. CIT(A)AFTER CONSIDERING ENTIRE FACTS, ACCEPTED THE ASSESSEES EXPLANATION THAT, ONCE THE PAYMENT HAS BEEN MADE THROUGH ACCOUNT PAYING CHEQUE AND THE BILLS CONTAIN COMPLETE ADDRESS ALONGWITH THE TELEPHONE NUMBER AND ON SUCH PAYMENT TDS HAS BEEN DEDUCTED, THEN WITHOUT ANY REQUISITE INQUIRY OR ANY ADVERSE MATERIAL ON RECORD NO SUCH ADDITION COULD HAVE BEEN MADE. 30. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING IN THE IMPUGNED ORDERS, WE FIND THAT THE AO WITHOUT ANY MATERIAL ON RECORD OR ANY INQUIRY CONDUCTED BY HIM HAS SIMPLY DISALLOWED THE EXPENDITURE INCURRED DURING THE COURSE OF THE BUSINESS, ON THE GROUND THAT THE BILLS SUBMITTED BY THE ASSESSEE DOES NOT CONTAIN INFORMATION LIKE BILL NO. TIN NO. IT IS A MATTER OF RECORD THAT THESE PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES TO THE PARTIES WHO WERE SUPPLIERS AND CONTRACTORS AND ON SUCH PAYMENT, WHEREVER APPLICABLE, TDS HAS ALSO BEEN DEDUCTED AND DEPOSITED IN THE GOVERNMENT ACCOUNT. NOWHERE, EITHER THE SERVICES OR MATERIAL SUPPLIED BY THEM HAVE BEEN DOUBTED BASED ON INQUIRY OR ANY ADVERSE MATERIAL COMING ON RECORD. IF THE ASSESSEE HAS SUBMITTED THE COMPLETE ADDRESS, PAN NO., TELEPHONE NO. AND IN SOME OF THE CASES, TIN NO WAS ALSO GIVEN, THEN IN WAKE OF SUCH EVIDENCES, GENUINENESS OF THE EXPENDITURE INCURRED DURING THE COURSE OF BUSINESS CANNOT BE DISALLOWED. WE AGREE WITH THE FINDING OF THE LD. CIT (A) THAT ONCE 24 ASSESSEE HAS DISCHARGED ITS ONUS BY PROVIDING THE COPY OF BILLS CONTAINING ENTIRE DETAILS WITH TELEPHONE NO. AND PAYMENT HAS BEEN MADE THROUGH BANKING CHANNEL AFTER HAVING TDS, THEN NO DISALLOWANCE CAN BE MADE. ACCORDINGLY, ORDER OF THE LD. CIT (A) IS AFFIRMED AND A GROUND RAISED BY THE REVENUE IS DISMISSED. 31. IN VIEW OF THE FINDING GIVEN ABOVE, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. A.Y. 2008-09: 32. NOW WE WILL TAKE UP THE APPEAL FOR THE ASSTT. YEAR 2008-09 WHEREIN IN VARIOUS GROUNDS OF APPEAL THE REVENUE HAS CHALLENGED FOLLOWING ADDITIONS:- I) DEPRECIATION ON WIND MILL RS. 28,79,999/-; II) DIRECTION OF THE LD. CIT(A) TO ALLOW RENT PAID FOR DIRECTORS RESIDENCE AFTER VERIFICATION RS. 22,80,000/-; III) DISALLOWANCE OF COMMITMENT CHARGES RS. 2,54,24,680/- ; IV) DISALLOWANCE U/S 14A R.W.R. 8D RS. 2,76,169/-; V) DISALLOWANCE OF INTEREST RS. 1,02,95,292/-; VI) DISALLOWANCE OF EXPENSES RS. 6,40,726/-. IN THE CROSS OBJECTIONS THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 21,47,197 BEING WHOLE OF THE BROKERAGE AND COMMISSION PAID FOR RENTING / LEASING OF PROPERTY IN THE MALL, THOUGH MAJOR PORTION OF THE SAID EXPENDITURE WAS LIABLE TO BE SET-OFF FROM SALE OF SPACE/SHOPS OR CAPITALIZED DURING THE YEAR, SO AS TO BE 25 CARRIED FORWARD, SET-OFF OR WRITTEN OFF AS EXPENSE IN SUBSEQUENT YEARS. 2. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 10,09,543 BEING WHOLE OF THE REGISTRATION/STAMP CHARGES PAID FOR EXECUTING LEASE AGREEMENTS FOR 9 YEARS IN RELATION TO RENTING / LEASING OF PROPERTY IN THE MALL, THOUGH MAJOR PORTION OF THE SAID EXPENDITURE WAS LIABLE TO BE SET-OFF FROM SALE OF SPACE/SHOPS OR CAPITALIZED DURING THE YEAR, SO AS TO BE CARRIED FORWARD, SET-OFF OR WRITTEN OFF AS EXPENSE IN SUBSEQUENT YEARS. 3. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE SET-OFF OF PART OF EXPENDITURE INCURRED ON RENTING / LEASING OF PROPERTY IN THE MALL WHICH WAS DISALLOWED IN A.Y. 2007-08 AND WAS LIABLE TO BE SET-OFF ON SALE OF SUCH SPACE/SHOPS DURING THE YEAR. 4. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 52,077 UNDER SECTION 14A OF THE IT ACT, 1961 READ WITH CLAUSE (III) OF SUB-RULE (2) OF RULE 80 OF INCOME-TAX RULES, 1962. 5. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION OF RS. 3,18,000 ON ACCOUNT OF NOTIONAL INTEREST RECEIVABLE @ 12% ON RS. 26.50 LACS FROM M/S PRANAV GEMS. 33. AT THE OUTSET, CROSS OBJECTIONS FILED BY THE ASSESSEE IS BARRED BY LIMITATION FOR WHICH SIMILAR OBJECTION HAS BEEN RAISED BY THE LD. DR AS WAS TAKEN IN THE APPEAL FOR THE ASSESSMENT YEAR 2007-08. IN VIEW OF 26 THE FINDING GIVEN THEREIN, WE CONDONE THE DELAY IN FILING OF CROSS OBJECTIONS AS THERE WERE BONAFIDE REASONS. 34. DEPRECIATION ON WIND MILL RS. 28,79,999/-; THE FACTS IN BRIEF QUA THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON WINDMILL ARE THAT THE ASSESSEE COMPANY HAS INSTALLED A WIND MILL TURBINE AT KUTCH (GUJARAT) AT A COST OF RS. 8,99,99,840/- AT THE FAG END OF THE YEAR ENDING 31 ST MARCH, 2007 . ASSESSEE HAS CLAIMED DEPRECIATION FOR THE ASSESSMENT YEAR 2007-08 AND ONWARDS IN THE FOLLOWING MANNER:- S. NO. NAME OF ASSET RATE OF DEPRECIATION COST/WDV DEPRECIATION WDV 1 WIND M ILL TURBINE IN F.Y. 2006-07 I.E. A Y. 2007-08 80% 8,99,99,840 3,59,99,936 5.39.99.904 IN F. Y. 2007-08 I.E. A Y. 2008-09 80% 5,39,99,904 4.31,99.923 1,07,99,981 IN F.Y 2008-09 I.E. A Y 2009-10 80% 1.07,99.981 86.39.985 21.59.996 35. AO HAS NOT DISCUSSED THIS ISSUE AT ALL IN THE IMPUGNED ASSESSMENT ORDER. HOWEVER THIS ISSUE HAS BEEN DISCUSSED BY HIM IN THE ASSESSMENT YEAR 2007-08, WHEREIN HE HAS HELD THAT THE WINDMILL WAS INSTALLED ON LAST DAY OF THE YEAR AND NO REVENUE WAS GENERATED. IN THAT ASSESSMENT YEAR, THE LD. CIT (A) HAS HELD THAT DEPRECIATION ON WIND MILL WILL NOT BE ALLOWED IN 2007-08, HOWEVER HE HAS DIRECTED THE AO TO ALLOW THE SAME FROM ASSESSMENT YEAR 2008-09 ONWARDS. 27 36. ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING, WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INSTALLED WIND MILL TURBINE ON WHICH ASSESSEE HAD MADE INITIAL CLAIM FOR DEPRECIATION IN THE ASSESSMENT YEAR 2007-08 ON THE GROUND THAT IT WAS INSTALLED AT THE LAST DAY OF THE YEAR 31 ST MARCH, 2007 AND CONSEQUENTLY, DEPRECIATION WAS CLAIMED ON THE GROUND THAT IT WAS READY FOR USE. HOWEVER, SAID CLAIM HAS NOT BEEN ALLOWED TO THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2007-08 BY THE AO ON THE GROUND THAT THERE WAS NO INCOME FROM GENERATION OF ELECTRICITY. LD. CIT (A) TOO HAD DISALLOWED THE DEPRECIATION IN ASSESSMENT YEAR 2007-08. HOWEVER, THE LD. CIT (A) IN THAT YEAR HAD GIVEN DIRECTION TO THE AO THAT HE SHOULD START ALLOWING DEPRECIATION FROM ASST. YEAR 2008-09 ONWARDS FROM THE COST OF WIND MILL, AS ASSESSEE HAS STARTED EARNING REVENUE FROM A.Y. 2008- 09. THIS FACT HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. ACCORDINGLY, WHEN DEPRECIATION STOOD DISALLOWED TO THE ASSESSEE COMPANY IN ASSTT. YEAR 2007-08, THEN WDV FOR THE ASSESSMENT YEAR 2008-09 WILL GET INCREASE AND CONSEQUENTLY, THE ASSESSEE WOULD BE ENTITLED FOR DEPRECIATION ON ENHANCED CLAIM WHICH WILL GET INCREASE IN THE FOLLOWING MANNER:- PARTICULARS AS CLAIMED IN ITR POSITION ON DISALLOWANCE OF DEPRECIATION IN A.Y. 2007- O8 CONSEQUENTIAL EFFECT 1 COST OF THE WIND MILL TURBINE ' IN THE F. Y. 2006- 07 I.E. A. Y. 2007-08 8,99,99.840 8.99,99,840 LESS: DEPN. @ 40% (A.Y. 2007-08) 3,59.99,936 WDV AS ON 31.3.2007 5.39,99.904 8 ,99,99.940 LESS: DEPN. @ 80% (A.Y. 2008-09) 4,31,99.923 7,19.99,872 RS. 2,87,99.949 28 WDV AS ON 31.3.2008 1,07,99,981 1,79,99,968 : LESS: DEPN. @ 80% (A. Y. 2009-10) 86.36,985 1.43,99,974 RS. 57,59,991 WDV AS ON 31.3.2009 21.59.996 35.99,994 THUS, THE GROUND RAISED BY THE DEPARTMENT STANDS DISMISSED. 37. DIRECTION OF THE LD. CIT (A) TO ALLOW RENT PAID FOR DIRECTORS RESIDENCE AFTER VERIFICATION RS. 22,80,000/-; IN SO FAR AS ISSUE REGARDING THE DISALLOWANCE OF EXPENDITURE OF RS. 22,80,000/- ON ACCOUNT OF RENT PAID FOR THE PROPERTY AT FRIENDS COLONY, USED AS RESIDENCE FOR DIRECTORS, THE AO HELD THAT IT IS NOT CLEAR, WHETHER THE RENT PAID FOR THE PREMISES AT FRIENDS COLONY WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS OR NOT. BEFORE THE LD. CIT (A), THE ASSESSEE HAD CONTENDED THAT THE SAID PAYMENT WAS PAID TOWARDS RESIDENCE OF THE DIRECTORS FOR THE ASSESSEE COMPANY, NAMELY, Y.C. KURELE AND SHRI VINAY KURELE AND SIMILAR PAYMENT OF RENT WAS NEVER DISALLOWED IN THE EARLIER YEARS OR IN THE SUBSEQUENT YEAR. IT WAS FURTHER SUBMITTED THAT SHRI Y.C. KURELE WHO WAS THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY WAS ENTITLED TO RENT FREE ACCOMMODATION AT A CONCESSIONAL RENT OF RS. 22,000/- PER MONTH AND THE REMAINING RENT WAS TO BE PAID BY THE COMPANY AS PER THE AGREEMENT DATED 23.5.2006. LD. CIT (A) NOTED THAT IT IS A MATTER OF RECORD THAT THIS PREMISE WAS USED AS THE RESIDENCE OF THE DIRECTORS OF THE COMPANY WHO WERE AUTHORISED TO GET THE RESIDENCE AT THE CONCESSIONAL RATE IN TERMS OF THEIR EMPLOYMENT. THE AO HAD MADE THE ADDITION WITHOUT ANY INQUIRY OR SHOW CAUSE NOTICE. HOWEVER, LD. CIT (A) DIRECTED THE AO TO VERIFY, WHETHER THESE PREMISES ARE USED FOR THE RESIDENCE OF DIRECTORS AS PER THE TERMS OF EMPLOYMENT OR NOT; AND IF THAT BE SO, THEN RENT CANNOT BE DISALLOWED AS IT IS USED FOR THE BUSINESS PURPOSE OF THE ASSESSEE COMPANY. 29 38. AFTER CONSIDERING THE AFORESAID FINDINGS GIVEN BY THE AO AS WELL AS BY THE LD. CIT (A), WE FIND THAT LD. CIT (A) HAS MAINLY DIRECTED THE AO TO VERIFY, WHETHER THE RENT PAID FOR THE PREMISES AT NEW FRIENDS COLONY WAS USED AS A RESIDENCE OF DIRECTORS OF THE COMPANY OR NOT; AND WHETHER SUCH A USAGE WAS IN TERMS OF THEIR EMPLOYMENT OR NOT. IF COMPANY HAS PROVIDED ACCOMMODATION ON CONCESSIONAL RENT TO THE DIRECTORS IN TERMS OF THEIR EMPLOYMENT, OSTENSIBLY SUCH A PAYMENT IS FOR THE PURPOSE OF BUSINESS. WE DO NOT FIND ANY INFIRMITY IN THE DIRECTIONS GIVEN BY THE LD. CIT (A) TO THE AO TO VERIFY THIS FACT. CONSEQUENTLY THE GROUND RAISED BY THE REVENUE IS DISMISSED. 39. DISALLOWANCE OF COMMITMENT CHARGES RS. 2,54,24,680/-; COMING TO THE DISALLOWANCE OF COMMITMENT CHARGES, AO NOTED THAT ASSESSEE HAS DEBITED EXPENSES UNDER THE HEAD COMMITMENT CHARGES OF RS. 2,54,24,680/-. IN RESPONSE TO THE SHOW CAUSE NOTICE ASSESSEE HAS SUBMITTED AS UNDER:- 'COMMITMENT CHARGES ARE BEING PAID, ONLY IN THOSE CASES WHEREVER WHOLE OF THE SALE CONSIDERATION HAS BEEN RECEIVED FROM THE BUYER. WHILE BOOKING SPACE, AT TIMES BUYERS ARE ASSURED THAT THEY WILL GET A MINIMUM RENT FOR THE SPACE BOOKED BY THEM, AS AND WHEN THE PROJECT IS COMPLETED. BY ADOPTING THIS POLICY THE ASSESSEE COMPANY IS ABLE TO ATTRACT BUYERS AND ALSO A GOOD PRICE FOR SPACE SOLD. AT TIMES IT HAPPENS THAT THE PROPERTY 1 SPACE IS LET OUT ON A RENT BELOW THE RENT COMMITTED TO THE BUYER. IN SUCH CASES, THE DIFFERENCE OF RENT COMMITTED VIS-A-VIS RENT REALIZED IS PAID BY THE ASSESSEE COMPANY SO AS TO FULFIL ITS COMMITMENT MADE EARLIER AND THE SAME IS DEBITED UNDER THE HEAD 'COMMITMENT CHARGES '. AS AND WHEN THE RENT STARTS COMING AT OR ABOVE THE COMMITTED RENT, NO FURTHER COMMITMENT CHARGES ARE BEING PAID. 30 ON PERUSAL OF THE ABOVE, IT WILL BE SEEN THAT THE EXPENSES SO INCURRED ARE WHOLLY, DUE TO THE BUSINESS MODEL ADOPTED BY THE ASSESSEE COMPANY FOR BUSINESS PURPOSES AND ACCORDINGLY THE WHOLE OF THE EXPENDITURE IS REVENUE IS NATURE AND THEREFORE, FULLY ALLOWABLE AS EXPENDITURE U/S 37 OF INCOME TAX ACT, 1961. FROM THE ABOVE REPLY, IT IS CLEAR THAT THE SO CALLED COMMITMENT CHARGES ARE PAID AFTER THE ALLOTMENT/ SALE IS DONE. 40. LD. AO HELD THAT THESE COMMITMENTS ARE PAID AFTER THE RECEIPT OF FULL AMOUNT OF SALE CONSIDERATION FROM THE BUYER OF THE COMMERCIAL UNIT/SHOP/SPACE. THEREFORE, SUCH A PAYMENT IS MADE POST SALES WHICH DOES NOT FIND PLACE IN THE SALE AGREEMENT MADE BY THE ASSESSEE COMPANY WITH THE BUYERS. HENCE SUCH A PAYMENT MADE CANNOT BE SAID TO BE RELATED TO THE BUSINESS. ACCORDINGLY, HE DISALLOWED THE SAME. BEFORE THE LD. CIT (A), ASSESSEE HAS EXPLAINED THAT ASSESSEE COMPANY IS ENGAGED IN SELLING SPACE IN THE MALL. AT THE TIME OF BOOKING SPACE, THE ASSESSEE GIVES ASSURED RETURN PLAN WHEREIN ASSESSEE COMMITS SPECIFIED RENT PER SQUARE FEET TO THE BUYERS FROM A SPECIFIED DATE. ASSESSEE ALSO DREW ATTENTION TO ALLOTMENT LETTER WHEREIN THERE WAS A RELEVANT CLAUSE NO. 17 AND 18 WHEREIN IT WAS AGREED WHICH READ AS UNDER:- 17. THE ALLOTTEE HAS ACCEPTED AND HEREBY AGREED THAT THE DEMISED PREMISES SHALL BE GIVEN ON LEASE TO ANY LESSEE ON A RENT OF NOT LESS THAN RS.190/- PER SQ. FT ON SUPER AREA PER MONTH W.E.F. 1ST APRIL. 2007. 18. THE PROMOTER HEREBY ASSURES TO THE ALLOTTEE THAT THE ALLOTTEE SHALL HE ENTITLED TO RECEIVE RENT FROM THE LESSEE WHICH WILL START FROM 1 ST APRIL 2007. IF THE LESSEE DOES NOT START TO PAY THE RENT OR NOT INTENDS TO PAY THE RENT FROM I' APRIL 2007 THEN THE PROMOTER SHALL PAY THE AGREED RENT TO THE ALLOTTEE. IF THERE IS DELAY IN 31 HANDING OVER POSSESSION BY THE PROMOTER THEN IN THAT CASE ALSO THE PROMOTER SHALL PAY THE RENT FROM APRIL I, 2007. IT IS HEREBY AGREED THAT MAINTENANCE CHARGES SHALL HE PAID BY THE TENANT LESSEE OF THE PREMISES, HOWEVER MAINTENANCE CHARGES SHALL BE PAID BY THE ALLOTTEE FOR THE PERIOD IN WHICH THE SHOP IS NOT OCCUPIED BY THE TENANT LESSEE AND WILL HE CHARGED @ 50% LEVIABLE ON VACANT PROPERTY FOR FIRST THREE (3) YEARS. THUS, THE ASSESSEE WAS REQUIRED TO PAY THE COMMITMENT CHARGES IN THE SITUATION WHEREIN, SPACE IS NOT LEASED OUT FROM THE SPECIFIED DATE FOR WHICH ASSESSEE HAS TO COMPENSATE TO THE BUYER TO THE EXTENT OF RENT SPECIFIED TILL THE SPACE IS LEASED OUT AND SPACE IS LEASED OUT BELOW THE RENT. THUS, IT WAS SUBMITTED THAT SUCH AN EXPENDITURE INCURRED WAS PURELY FOR THE PURPOSE OF BUSINESS. 41. LD. CIT (A) ON PERUSAL OF THE ALLOTMENT LETTER, NOTED THAT ASSESSEE COMPANY HAS TO PAY THE BUYER THE DEFICIT IN ASSURED LEASE RENTAL TO THE BUYER OF THE SPACE. HE QUOTED ONE OF THE CLAUSES WHEREIN ASSURED MONTHLY RETURN OF RS. 190/ SQ. FT. AND IN TERMS OF SUCH ASSURED RENTAL COMMITMENT, ASSESSEE HAS TO PAY THE COMMITMENT CHARGES AND THESE WERE NOT MENTIONED IN THE SALE DEED, BECAUSE IT WAS NOWHERE CONNECTED WITH THE LEVY OF STAMP DUTY. HE FURTHER HELD THAT, THESE COMMITMENT CHARGES WERE DIRECTLY LINKED WITH THE SALE/ALLOTMENT OF SPACE FOR WHICH PAYMENT HAS NOT BEEN DOUBTED AND ACCORDINGLY, HE ALLOWED THE SAME. 42. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE MATERIAL PLACED ON RECORD, WE FIND THAT THE ASSESSEE IN ORDER TO SELL THE SPACE/SHOP IN THE MALL HAS TO LURE TO THE CUSTOMER FOR FIXED RETURN ON HIS INVESTMENT. OTHERWISE, IT WAS VERY DIFFICULT TO SELL THE SPACE IN THE MALL. THUS, ITS COMMITMENT CHARGES WERE DIRECTLY LINKED WITH THE SALE/ ALLOTMENT OF SPACE AND FOR COMMERCIAL EXPEDIENCY. FROM THE PLAIN 32 READING OF THE RELEVANT AGREEMENT BETWEEN THE PARTIES IN THE ALLOTMENT LETTER AS INCORPORATED ABOVE, IT IS CLEAR THAT ASSESSEE COMPANY HAD ASSURED TO THE ALLOTTEE THAT HE SHALL BE ENTITLED TO RECEIVE RENT FROM A PARTICULAR DATE AND IF HE DOES NOT GET THE RENT THEN ASSESSEE HAD AGREED TO PAY THE RENT TO THE ALLOTTEE. HOWEVER, THE MAINTENANCE CHARGES WERE PAID BY THE ALLOTTEE. IT WAS IN TERMS OF THIS ALLOTMENT LETTER, ASSESSEE WAS PAYING THE COMMITMENT CHARGES TO THE BUYERS AND SUCH A PAYMENT BY THE ASSESSEE HAS NOT BEEN DOUBTED. IF ASSESSEE HAS MADE A PAYMENT IN CONSIDERATION OF COMMERCIAL AND BUSINESS EXPEDIENCY DULLY SUPPORTED BY WRITTEN/ALLOTMENT LETTER, THEN WE DO NOT FIND ANY REASON WHY SUCH A DISALLOWANCE SHOULD BE MADE. ACCORDINGLY, THE DELETION OF SUCH DISALLOWANCE MADE BY THE LD. CIT (A) IS AFFIRMED AND CONSEQUENTLY GROUND RAISED BY THE REVENUE IS DISMISSED. 43. DISALLOWANCE U/S 14A R.W.R. 8D RS. 2,76,169/-; IN SO FAR AS DISALLOWANCE U/S 14A R.W.R. 8D IS CONCERNED, ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 14,36,225/- WHICH WAS MAINLY OUT OF DIVIDEND INCOME EARNED FROM MERGED COMPANIES. LD. AO HAS MADE THE DISALLOWANCE OF RS. 3,28,246/- AFTER INVOKING RULE 8D. BEFORE THE LD. CIT(A) THE ASSESSEE HAD GIVEN THE SOURCE OF INVESTMENT WHICH STOOD IN THE MERGED BALANCE SHEET AS ON 31.4.2008 IN THE FOLLOWING MANNER :- SI INVESTMENTS MADE BY THE MADE BY THE MADE BY MADE BY TOTAL AS AT T OTAL AS AT NO 13 MERGED CO S. YMC MERGED CO. YOGUM DEVELOPER PVT. LTD. APPELLANT 31.3.2008 31.3.200 7 (AT IN UNQUOTED SHARES 1.55,02.500 -- 1.55.02.500 1.55.02,500 ( B) UNITS OF MUTUAL FUND 36,26.085 9.65.373 45.91.458 7,32,83,808 TOTAL RS. 1,91.28,585 9.65.373 _ 2. 00.9 3 958 8, 87,86,308 33 IT WAS FURTHER SUBMITTED THAT SEPARATE BOOKS OF ACCOUNTS AND BANK ACCOUNT WAS MAINTAINED BY ALL THE MERGING COMPANIES AND THESE INVESTMENTS WERE MADE BY THEM OUT OF THEIR OWN INTEREST FREE FUNDS AND IN SUPPORT DETAILS OF THE INTEREST FREE FUNDS FROM THE BALANCE SHEET WAS ALSO GIVEN. ASSESSEE HAD ALSO EXPLAINED THAT THE SECURED LOANS TAKEN BY THE ASSESSEE WAS USED PURELY FOR THE PURPOSE OF BUSINESS. LD. CIT (A), AFTER CONSIDERING THE ENTIRE FACTS AND MATERIAL PLACED ON RECORD, NOTED THAT, THE FIRST CATEGORY OF INVESTMENT IN UNQUOTED SHARES AND MUTUAL FUND ARE OUT OF 13 MERGING COMPANIES WHO HAD INVESTED OUT OF THEIR OWN FUND AND THEY DO NOT HAVE ANY INTEREST BEARING FUND, THEREFORE, IT CANNOT BE HELD THAT INTEREST BEARING FUND HAVE BEEN DIVERTED FOR MAKING INVESTMENT. AFTER DETAILED FINDING, HE HELD THAT NO INTEREST BEARING FUNDS HAVE BEEN DIVERTED EITHER BY THE ASSESSEE OR MERGING COMPANIES FOR MAKING INVESTMENT WHICH HAD EARNED EXEMPT INCOME. HOWEVER, HE HAS CONFIRMED THE DISALLOWANCE OF INDIRECT EXPENSES UNDER CLAUSE (III) OF RULE 8D. 44. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS A MATTER OF RECORD THAT ASSESSEE HAD HUGE INTEREST FREE FUNDS IN THE SHAPE OF CAPITAL AND RESERVE WHICH WERE TO THE EXTENT OF RS. 96.53 CRORES AS ON 31 ST MARCH, 2007 AND RS. 136.18 CRORES AS ON 31.3.2008, WHICH WAS FAR EXCESS TO THE INVESTMENT MADE OF RS. 2.01 CRORES FURTHER, ASSESSEE HAD DULY DEMONSTRATED THAT NO INTEREST BEARING FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES AND MUTUAL FUNDS. LD. CIT (A) HAS ALREADY GIVEN A CATEGORICAL FINDING AFTER VERIFYING FROM THE RECORD THAT ALL THE 13 MERGING COMPANIES HAVE MADE INVESTMENT IN THE EARLIER YEARS OUT OF THEIR OWN INTEREST FREE FUNDS. THUS, NO DISALLOWANCE OF INTEREST COULD HAVE BEEN MADE. ON THE ISSUE OF EXPENDITURE UNDER RULE 8D (III), HE SUBMITTED THAT AO HAS NOT GIVEN ANY REASON OR SATISFACTION FOR MAKING SUCH DISALLOWANCE. 34 45. ON THE OTHER HAND, LD. DR STRONGLY RELYING UPON THE ORDER OF THE AO, SUBMITTED THAT IN SO FAR AS DISALLOWANCE OF INDIRECT EXPENSES IS CONCERNED, ASSESSEE HAS NOT SUO MOTO DISALLOWED ANY EXPENDITURE NOR HAS EXPLAINED AS TO WHY NO SUCH EXPENDITURE CAN BE ATTRIBUTED FOR EARNING OF EXEMPT INCOME. THUS DISALLOWANCE IS JUSTIFIED. 46. AFTER CONSIDERING THE AFORESAID SUBMISSION AND ON PERUSAL OF THE RELEVANT MATERIAL PLACED ON RECORD, WE FIND THAT THERE IS NO REBUTTAL AT ANY STAGE IN SO FAR AS THE ASSESSEES CONTENTION THAT, FIRSTLY , ASSESSEE ITSELF HAD HUGE SURPLUS INTEREST FREE FUNDS IN THE FORM OF RESERVES AND SURPLUS WHICH FAR EXCEEDED THE INVESTMENT MADE; AND SECONDLY , NO INTEREST BEARING FUNDS WERE EVER UTILISED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES AND MUTUAL FUNDS; AND LASTLY , ALL THESE INVESTMENTS WERE MADE EARLIER BY THE 13 MERGING COMPANIES OUT OF THEIR OWN INTEREST FREE FINDS. UNDER THESE FACTS AND CIRCUMSTANCES, NO ADDITION, WHATSOEVER ON ACCOUNT OF DISALLOWANCE OF INTEREST CAN BE MADE. HOWEVER, IN SO FAR AS DISALLOWANCE U/S 8D(II) IS CONCERNED, WE AGREE WITH THE CONTENTION OF THE LD. DR THAT ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE OR GIVE ANY EXPLANATION WHY NO EXPENDITURE IS ATTRIBUTABLE FOR THE PURPOSE OF EXEMPT INCOME AND THEREFORE, DISALLOWANCE MADE U/S 8D(2)(III) IS CONFIRMED. CONSEQUENTLY, THE APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION RAISED BY THE ASSESSEE ON THIS SCORE STANDS DISMISSED. 47. DISALLOWANCE OF INTEREST OF RS. 1,02,95,292/-; COMING TO THE ISSUE OF DISALLOWANCE OF INTEREST, AO HAS NOTED THAT ASSESSEE HAS MADE INTEREST FREE ADVANCES TO THE FOLLOWING PARTIES :- (I) ENDLESS MAINTENANCE & SERVICES (P) LTD. RS. 10489624/- (II) ENDLESS MEDIA & GEMS. RS. 3650000/- (III) KURELE INDUSTRIES RS. 50,00,000/- (IV) KURELE INTERNATIONAL RS. 45,00,000/- 35 (V) PRANAV GEMS RS. 26,50,000/- IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE HAS GIVEN ANALYSIS OF THESE ADVANCES IN THE FOLLOWING MANNER:- SI. NO. NAME OF PARTY AMOUNT FROM WHERE PURPOSE 1. ENDLESS MAINTENANCE & SER\'ICES PVT. LTD. 1.04.89.624 YMC BUILDMORE PVT. LTD. FOR CREATING UTILITIES IN THE MALL - - 2. ENDLESS MEDIA AND GEMS 36.50.000 GAHOI BUILDWELL GBL IS PARTNER IN THE FIRM 3. KURELE INDUSTRIES 50.00.000 GAHOI BUILDWELL LIMITED INTEREST CHARGED A : 9% PA 4. KURELE INTERNATIONAL - _ ... 45.00.000 GAHOI BUILDWELL LTD. PAID AGAINST THEIR CREDIT BALANCE 5. PRANAV GEMS 26.50.000 GAHOI BUILDWELL LTD. PAID OUT OF OUR OWN SPARE FUNDS.. 48. THUS, IT WAS STATED THAT NO ADVANCE WAS GIVEN OUT OF INTEREST BEARING FUNDS. HOWEVER LD. AO HAS REJECTED THE ASSESSEES EXPLANATION AND HELD THAT MERELY STATING THAT ADVANCE HAS BEEN GIVEN BY THE AMALGAMATING COMPANIES AND NOT BY THE ASSESSEE, DOES NOT DISCHARGE THE BURDEN OF ESTABLISHING THAT FUNDS HAVE NOT BEEN DIVERTED FROM INTEREST BEARING FUNDS. 49. LD. CIT (A) HAS GIVEN FOLLOWING FINDING OF FACTS:- 1) ADVANCE TO FIRST PARTY I.E. M/S ENDLESS MAINTENANCE AND SERVICES (P) LTD. ADVANCE IS GIVEN FOR CREATING UTILITIES IN THE MALL. THEREFORE, A BUSINESS ADVANCE. 2) ADVANCE TO SECOND PARTY NAMELY. M/S ENDLESS MEDIA AND GEMS THE APPELLANT ITSELF IS A PARTNER, THEREFORE, A BUSINESS ADVANCE. 36 3) ADVANCE TO M/S KRURELE INTERNATIONAL IS PAID AGAINST THEIR CREDIT BALANCE. THEREFORE OF INTEREST BEARING LOAN IS NOT POSSIBLE. 4) IN CASE OF M/S PRANAV GEMS ADVANCE IS RS. 26,50,000/-.LD. AR CLAIMS IT TO BE OUT OF ITS OWN FUND. IN THIS CASE THERE IS A CHANCE FOR DIVERTING THE INTEREST BEARING FUND. THEREFORE, INTEREST AT THE RATE OF 12% OF THIS ADVANCE ( RS. 3,18,000) IS ESTIMATED AS UTILIZED OUT OR TOTAL INTEREST PAID FOR INTEREST FREE ADVANCE. IN VIEW OF THE ABOVE ADDITION OF RS. 3,18,000/- FOR INTEREST FREE ADVANCE IS UPHELD AND ASSESSING OFFICER IS DIRECTED TO DELETE THE BALANCE ADDITION. AS A RESULT, THIS GROUND IS PARTLY ALLOWED. 50. FROM THE PERUSAL OF THE RELEVANT FINDING GIVEN BY THE AO AND LD. CIT (A), WE FIRST OF ALL FIND THAT, PRECISELY SIMILAR ISSUE WAS INVOLVED FOR THE ASSESSMENT YEAR 2007-08, WHEREIN WE HAVE UPHELD THE FINDING OF THE LD. CIT (A) THAT MOST OF THE ADVANCES WERE IN THE NATURE OF BUSINESS ADVANCE AND THEREFORE, IT CANNOT BE TREATED AS INTEREST FREE ADVANCE GIVEN FOR THE NON BUSINESS PURPOSE; AND SECONDLY, THERE WAS NO DIVERSION OF INTEREST BEARING LOAN IN GIVING SUCH ADVANCES. THE AFORESAID FINDING OF THE LD. CIT (A) IS BASED ON APPRECIATION OF FACTS AND RECORDS AND THEREFORE, SUCH FINDING CANNOT BE TINKERED WITH AND CONSEQUENTLY GROUND RAISED BY THE REVENUE IS DISMISSED. 51. LASTLY, COMING TO THE ISSUE OF DISALLOWANCE OF EXPENDITURE BY THE AO OF RS. 648726/- ON ACCOUNT OF THAT THE BILLS AND VOUCHERS SUBMITTED BY THE ASSESSEE DID NOT CONTAIN TIN / BILL NUMBER. 52. SINCE SIMILAR ISSUE WAS INVOLVED IN THE APPEAL FOR THE ASSESSMENT YEAR 2007-08, WHEREIN WE HAVE HELD THAT THE ASSESSEE HAD SUBMITTED THE BILLS RAISED BY THE CONTRACTORS / MATERIAL SUPPLIER WHICH CONTAIN FULL ADDRESS, PHONE NUMBER, NATURE OF SERVICES RENDERED OR GOOD SUPPLIED AND THE PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE 37 CHEQUE AFTER DEDUCTING THE TDS AND WITHOUT THEIR BEING ANY INQUIRY BY THE AO OR ANY ADVERSE MATERIAL ON RECORD, NO SUCH DISALLOWANCE CAN BE MADE. ACCORDINGLY GROUND RAISED BY THE REVENUE IS DISMISSED. 53. NOW COMING TO THE GROUNDS RAISED IN CROSS OBJECTIONS BY THE ASSESSEE, WE FIND THAT, THE FIRST ISSUE RAISED IS DISALLOWANCE OF RS. 21,43,957/- ON ACCOUNT OF BROKERAGE AND COMMISSION PAID FOR RENTING/LEASING OF PROPERTY IN THE MALL. ADMITTEDLY THIS ISSUE IS SIMILAR TO GROUND NO. 1 AND GROUND NO. 3 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. IN VIEW OF OUR FINDING GIVEN ABOVE WE HOLD THAT, BROKERAGE AND COMMISSION IN SO FAR AS RELATING TO SALE/BOOKING OF SPACE /SHOPS SAME HAS TO BE ALLOWED AND BROKERAGE AND COMMISSION PAID FOR LEASING OUT THE PROPERTY, THE INCOME OF WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE SAME CANNOT BE HELD TO BE ALLOWED. ACCORDINGLY, AO IS DIRECTED TO DISALLOW ONLY THAT PORTION OF BROKERAGE AND COMMISSION PERTAINING TO THE LEASING OF THE PROPERTY AND ALLOW THE BROKERAGE AND COMMISSION PAID FOR BOOKING OF SHOP/SPACE. CONSEQUENTLY THE GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 54. COMING TO THE ISSUE AS RAISED IN GROUND NO.3 FOR DISALLOWANCE OF RS. 10,09,543/-, BEING LOAN INCURRED FOR REGISTRATION OF RENT CHARGES FOR THE YEARS IN RELATION TO THE RENTING/LEASING OF PROPERTY. BEFORE US, LD. COUNSEL SUBMITTED THAT MAJOR PORTION OF THE SAID EXPENDITURE WAS LIABLE TO BE SET OFF FROM SALE OF SPACE/SHOPS OR TO APPLY DURING THE YEAR SO AS TO WRITE OFF THE EXPENSES IN SUBSEQUENT YEARS. THE LD. AO HAS DISALLOWED THESE EXPENSES ON THE GROUND THAT ASSESSEE HAS NOT GIVEN ANY PROPER SUBMISSION AS TO WHY SUCH REGISTRATION CHARGES SHOULD BE ALLOWED. LD. CIT(A) HAS CONFIRMED THE ADDITION ON THE GROUND THAT, SINCE THESE REGISTRATION CHARGES HAVE BEEN PAID FOR RENTING OF GROUND FLOOR SPACE AND SUCH RENTAL INCOME IS SUSTAINABLE UNDER THE HEAD 38 INCOME FROM HOUSE PROPERTY AND THEREFORE, NO SUCH EXPENDITURE CAN BE ALLOWED. BEFORE US LD. COUNSEL SUBMITTED THAT ASSESSEE HAS TO PAY REGISTRATION CHARGES FOR LEASE RENTAL AGREEMENTS WHICH ARE ENTERED FOR SUBSTANTIAL PERIOD LIKE MORE THAN 9 YEARS AND THEREFORE SUCH EXPENDITURE HAS TO BE ALLOWED. ALTERNATIVELY, HE SUBMITTED THAT LATER ON SOME OF THESE PROPERTIES WERE SOLD OUT AND THEREFORE, AS AND WHEN THESE PROPERTIES ARE SOLD, THEN ON PRO RATA BASIS THIS EXPENDITURE NEEDS TO BE ALLOWED FROM THE SALE OF SUCH PROPERTY. 55. AFTER CONSIDERING THE AFORESAID SUBMISSION AND THE FINDING GIVEN IN THE IMPUGNED ORDER, WE DO NOT FIND ANY REASON FOR ALLOWING SUCH EXPENDITURE, BECAUSE, ONCE THE EXPENDITURE HAS BEEN BOOKED FOR THE REGISTRATION OF LEASE RENT AGREEMENT AND THE INCOME IS EARNED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THEN SUCH AN EXPENSE CANNOT BE ALLOWED UNDER SECTION 24. SECONDLY, THE ALTERNATE CONTENTION OF THE ASSESSEE ALSO CANNOT BE ALLOWED, BECAUSE, ASSESSEE ITSELF HAS NOT CAPITALISED SUCH EXPENDITURE AND THEREFORE, THERE COULD BE NOT BE SET OFF OF SUCH EXPENDITURE FROM THE SALE MADE IN THE SUBSEQUENT YEAR. ACCORDINGLY, THIS GROUND IS DISMISSED. 56. GROUND 4 RELATES TO DISALLOWANCE U/S 8D, WHICH HAS ALREADY BEEN DECIDED ABOVE AND THE ASSESSEES GROUND HAS BEEN DISMISSED. 57. LASTLY, COMING TO THE GROUND NO. 5, WITH REGARD TO DISALLOWANCE OF INTEREST ON THE PAYMENT, LD. COUNSEL HAS SUBMITTED THAT THIS PAYMENT AGAIN WAS MADE OUT OF SURPLUS FUND AND LD. CIT (A) HAS GIVEN WRONG FINDING OF FACT QUA THIS ADVANCE THAT SAME WAS OUT OF LOAN FUND. WHEN IT IS AN ADMITTED FACT THAT ASSESSEE COMPANY HAD HUGE SURPLUS FUND, THEN THERE CANNOT BE ANY PRESUMPTION OF DIVERSION OF LOAN FUND. ON PERUSAL OF THE RELEVANT FACTS BROUGHT ON RECORDS, WE FIND SUBSTANCE IN THE CONTENTION OF THE LD. COUNSEL THAT, ONCE ASSESSEE HAS HUGE INTEREST FREE AND SURPLUS FUND, THEN NO DISALLOWANCE OF 39 INTEREST CAN BE MADE SIMPLY ON THE GROUND THAT LOAN AMOUNT COULD HAVE BEEN DIVERTED FOR MAKING SUCH AN ADVANCE TO THE PARTIES. WE HAVE ALREADY GIVEN SIMILAR FINDING ABOVE ALLOWING THE CONTENTION OF THE ASSESSEE. ACCORDINGLY, THE DISALLOWANCE SUSTAINED BY THE LD. CIT (A) IS DELETED. IN THE RESULT CROSS OBJECTIONS OF THE ASSESSEE IS PARTLY ALLOWED. A.Y.2009-10: 58. COMING TO THE APPEAL FOR THE ASSTT. YEAR 2009-10, THE REVENUE HAS RAISED FOLLOWING ISSUES IN VARIOUS GROUNDS OF APPEAL:- GOA NO. PARTICULARS DELETED BY CIT (A) (RS.) 1. DEPRECIATION ON WIND MILL: 57,59,991 2. BROKERAGE & COMMISSION: 87,500 3. COMMITMENT CHARGES: 2,19,47,951 4. DISALLOWANCE U/S 14A: 2,76,169 5. DISALLOWANCE OF INTEREST: 32,58,548 6. CIT(A) DIRECTION TO ALLOW 7,68,370 CLAIM OF DEPRECIATION ON BHIKHAJI CAMA PLACE AND JAMMU SITE OFFICE AFTER VERIFICATION. 7. DISALLOWANCE OF LOSS: 5,15,34,000 8. DEBIT ENTRIES IN THE RENT 5,73,898 RECEIVED ACCOUNT: 9. SINKING FUND FROM BUYERS 1,37,33,018 59. ADMITTEDLY, GROUND NO. 1 RELATES TO DEPRECIATION ON WIND MILL, WHICH IS SIMILAR TO THE ASSESSMENT YEAR 2008-09; AND THEREFORE, IN 40 VIEW OF THE FINDING GIVEN ABOVE, WE DIRECT THE AO TO ALLOW DEPRECIATION AT A HIGHER WDV. 60. COMING TO THE GROUNDS RELATING TO BROKERAGE AND COMMISSION, THE SAME IS SIMILAR TO GROUNDS RAISED FOR ASSTT. YEAR 2008-09. THEREFORE, IN VIEW OF THE FINDING GIVEN ABOVE WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF BROKERAGE AND COMMISSION TO THE EXTENT OF RENTING/LEASING OF THE PROPERTY AND ALLOW THE BROKERAGE AND COMMISSION ON SALE/BOOKING OF SPACE. 61. THE ISSUE OF COMMITMENT CHARGES IS ALSO OF SAME AS IN ASSTT. YEAR 2008-09; AND IN VIEW OF OUR FINDING GIVEN ABOVE, WE UPHOLD THE DELETION MADE BY THE LD. CIT (A). 62. AGAIN ON THIS ISSUE OF DISALLOWANCE U/S 14A R.W.R. 8D, ADMITTEDLY, SIMILAR FACTS ARE PERMEATING IN THIS YEAR ALSO, THEREFORE, IN VIEW OF THE FINDING GIVEN ABOVE, WE UPHOLD THE DELETION OF INTEREST EXPENDITURE 8D (2) (II); AND IN SO FAR AS DISALLOWANCE U/S 14A R.W.R. 8D (2) (III) IS CONCERNED, SAME IS AFFIRMED. 63. DISALLOWANCE OF INTEREST IS AGAIN SIMILAR TO THE ISSUES RAISED IN ASTT. YEARS 2007-08 AND 2008-09 AND ALSO THERE IS NO CHANGE IN THE FACT THAT ASSESSEE HAD HUGE SURPLUS FUND AVAILABLE. MOST OF THESE ADVANCES HAVE BEEN FOUND TO BE IN THE NATURE OF BUSINESS. ACCORDINGLY, IN VIEW OF OUR FINDING GIVEN ABOVE, THE DISALLOWANCE OF INTEREST MADE BY THE AO IS DELETED. 64. COMING TO THE CLAIM DEPRECIATION ON SITE OFFICE AT BHIKHAJI CAMA PLACE AND JAMMU SITE OFFICE, AO HAS MADE ADDITION SOLELY ON THE GROUND THAT, BOTH THESE PREMISES DO NOT FIND MENTION IN THE DETAIL OF BUSINESS PREMISES OF THE ASSESSEE COMPANY AND IT IS SEEN THAT, AO HAS NOT EVEN ISSUED ANY SHOW CAUSE NOTICE TO THE ASSESSEE IN THIS REGARD. LD. CIT (A) HAS DIRECTED THE AO TO ALLOW DEPRECIATION AFTER 41 VERIFYING THE FACT, WHETHER IT IS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE OR NOT; AND ONCE IT IS FOUND SO, THEN DEPRECIATION SHOULD BE ALLOWED. 65. WE DO NOT FIND ANY REASON TO TINKER WITH SUCH A DIRECTION AS DEPRECIATION FOR BOTH THE OFFICES HAVE BEEN ALLOWED IN THE EARLIER YEARS AND HERE IN THIS YEAR, LD. CIT(A) HAS MERELY GIVEN DIRECTION TO VERIFY, WHETHER THESE OFFICES WERE USED FOR BUSINESS PURPOSE OR NOT. THUS, THERE COULD BE NO GRIEVANCE TO THE REVENUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 66. NOW COMING TO THE DISALLOWANCE OF LOSS, THE FACTS IN BRIEF ARE THAT, THE LD. AO NOTED THAT, SHRI Y.C. KURELE, DIRECTOR OF THE ASSESSEE COMPANY IN HIS STATEMENT OF OATH U/S 132(4) STATED THAT THE ASSESSEE COMPANY WOULD BE DECLARING; I) BUSINESS INCOME OF RS. 2.5 CRORES; II) RENTAL INCOME OF RS. 2.5 CRORES; AND III) INCOME FROM LONG TERM CAPITAL GAINS OF RS.5.8 CRORES. HOWEVER, IN THE RETURN OF INCOME THE ASSESSEE HAS SHOWN TOTAL INCOME OF RS. 4,83,17,013/- AND THEREAFTER, HAS CLAIMED BUSINESS LOSS OF RS. 5,45,01,036/-. IN RESPONSE TO THE SHOW CAUSE NOTICE ASSESSEE HAS STATED AS UNDER:- IN RELATION TO THE STATEMENT GIVEN BY SH. Y.C. KURELE BEFORE THE INVESTIGATION WING ON 24.2.2009 (COPY OF WHICH HAS BEEN MADE AVAILABLE TO US RECENTLY), IT IS SUBMITTED THAT IN RESPONSE TO QUESTION & ANSWER NO. 10 APPEARING AT PAGE 5 & 6 OF THE SAID STATEMENT, HE HAS STATED THE ESTIMATED INCOME OF GAHOI BUILDWELL LTD. FOR THE FINANCIAL YEAR 2008-09 SHALL BE RS. 2.50 CRORE FROM BUSINESS FROM RENT APPROXIMATE RS. 2.50 CRORE, LONG-TERM CAPITAL GAINS RS. 5.80 CRORE AND DUE TAXES SHALL BE PAID ON IT. ON READING THE SAID STATEMENT AS A WHOLE, IT WILL BE SEEN THAT IN QUESTION & ANSWER APPEARING AT PAGE NO. 3. 4 AND 5 OF THE SAID STATEMENT, WHEREIN HE WAS SHOWN THE PAGE NO. 124, 123, 122, 6 42 AND 3 OF ANNEXURE A-28 OF PARTY PX-11 (NARAINA), HE WAS TOLD THE VARIOUS FIGURES OF PROFIT AND INCOME FROM SALE OF SHARES AMOUNTING TO RS. 5.88 CRORES. IN REPLY HE HAS VERY CATEGORICALLY STATED THAT SO FAR AS THE BUSINESS INCOME IS CONCERNED, IT CAN BE ARRIVED AT ONLY AFTER COMPILATION OF RECORDS OF ALL BRANCHES AND DIVISIONS AND BEFORE THAT IT IS NOT POSSIBLE TO ARRIVE AT THE FIGURE OF ACTUAL PROFIT / LOSS AND ALL THE TRANSACTIONS ARE DULY RECORDED IN THE SEIZED RECORDS/DATA. WHEN THE FIGURES OF INCOME GIVEN BY HIM ARE READ WITH THE 'DOCUMENTS SHOWN TO HIM, IT WILL BE EVIDENT THAT HE ONLY GAVE THE APPROXIMATE/ESTIMATED FIGURE OF INCOME BASED ON THE FIGURES SHOWN TO HIM. HOWEVER, ON COMPILATION OF ALL THE RECORDS AS WERE AVAILABLE AT THAT TIME AND AFTER INCORPORATING THE TRANSACTIONS OF SUBSEQUENT PERIOD UP TO 31.3.2009, SO FAR AS THE BUSINESS INCOME IS CONCERNED THERE IS A LOSS OF RS.5.33 CRORES, HOWEVER, IN RESPECT OF OTHER INCOME THE INCOME DECLARED IS EVEN MORE. THEREFORE, NO ADVERSE INFERENCE MAY PLEASE BE DRAWN ON THE BASIS OF ESTIMATE OF INCOME GIVEN. 67. LD. AO ASKED THE ASSESSEE TO FURNISH MONTH WISE AND PARTY-WISE DETAILS OF INCOME FROM OPERATIONS AND COST OF OPERATIONS AND FROM SUCH REPLY, HE NOTED THAT ASSESSEE HAS CLAIMED LOSS OF RS. 27,84,000/, 2,40,00,000/-, RS. 1,88,00,000/-, AND RS. 59,50,000/- IN THE MONTH OF MAY 2008, SEP 2008, NOV. 2008 AND FEB. 2009 RESPECTIVELY. THE ASSESSEE IN RESPONSE SUBMITTED THAT AT MANY OCCASION THERE WERE REVERSAL OF SALES DUE TO RENEGOTIATION OF PRICE SO AS TO AVOID THE PAYMENT OF COMMITMENT CHARGES. IN SUCH CASES, SALES HAVE BEEN DEBITED BY THE AMOUNT OF REDUCED PRICE OR IN THE CASE OF CANCELLATION OF BOOKING ITSELF, BY THE AMOUNT OF SALE VALUE BOOKED EARLIER. THE PRACTICE OF PASSING REVERSAL ENTRY OF SALE WAS IN ACCORDANCE WITH THE METHOD OF RECOGNISING THE REVENUE BY THE ASSESSEE COMPANY I.E., 43 PERCENTAGE OF COMPLETION OF METHOD. HOWEVER, THE AO HELD THAT ASSESSEE HAS ERRONEOUSLY RECOGNISED REVENUE FOR WHICH IT HAS MADE SALES AT PRICE MUCH LOWER THAN THE PREVAILING PRICES AND NO PRUDENT BUSINESSMAN WOULD ADOPT SUCH AN ERRONEOUS PRACTICE OR SELL PROPERTY AT A PRICE MUCH LOWER THAN WHAT THE PROPERTY WOULD FETCH IN OPEN MARKET. THUS, HE HELD THAT ASSESSEE IS MERELY MAKING A BOOK ENTRY TO MANIPULATE THE ACCOUNTS AND THE LOSS SO CREATED BY SUCH ACCOUNTING STANDARD CANNOT BE ALLOWED. ACCORDINGLY HE MADE AN ADDITION OF RS. 5,15,34,000/-. 68. BEFORE THE LD. CIT (A) THE ASSESSEE HAS CLARIFIED THIS ISSUE IN THE FOLLOWING MANNER:- 62. AT THE OUTSET IT IS SUBMITTED THAT THE SAID ADDITION IS SOLELY DUE TO NON-APPRAISAL OF FACTS AND BASED ON CONJECTURES AND SURMISES. FIRSTLY, KIND ATTENTION IS INVITED TO PAGE NO. 78-79 OF PB, BASED UPON WHICH THE SAID LOSS HAD BEEN COMPUTED ON A BARE PERUSAL OF WHICH IT WILL BE SEEN THAT ALL THE TRANSACTIONS (EXCEPT ONE TRANSACTION) FALLS IN THE PERIOD MUCH PRIOR TO THE DATE OF SEARCH AND EVEN THE TRANSACTION IN THE MONTH OF FEBRUARY, 2009 BASED ON WHICH LOSS OF RS. 59.50 LAKHS HAS BEEN COMPUTED TOOK PLACE ON 4.2.2009 I.E. MUCH PRIOR TO THE DARE OF STATEMENT GIVEN BY SHRI YC KURELE ON 24.2.2009. FURTHER, ALL THESE TRANSACTIONS ARE NOT MERELY BOOK ENTRIES AND THE SAME ARE DULY BACKED BY SUMS RETURNED BY CHEQUE THROUGH PROPER BANKING CHANNELS AND AT TIME DOCUMENTS DULY REGISTERED AS SALE DEEDS BEFORE THE SUB-REGISTRAR. THEREFORE, THE ALLEGATIONS MADE BY THE AO ARE NOT SUPPORTED BY IRREFUTABLE EVIDENCE AVAILABLE ON RECORDS AS MAY HE SEEN FROM THE FACTS GIVEN BELOW. 44 63. BASED ON THE MONTHLY FIGURES AS MENTIONED BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER, THE APPELLANT BEGS FOR LEAVE TO FURNISH THE DETAILS AS UNDER:- S. NO. DATE UNIT NO. AMOUNT REASONS 1 31.05.2008 F-100 21.84.000 THE UNIT WAS SOLD UNDER THE COMMITMENT THAT RENTAL @ RS. 190 - PER SQ. FT ON SUPER AREA OF 910 SQ. FT WOULD BE REED. BY THE BUYER. AS THE ORIGINAL LESSOR HACKED OUT. THE APPELLANT HAD TO PAY THE COMMITMENT \ CHARGES TO THE BUYER FROM 1.4.2007 TO SUBSEQUENTLY, THE PROPERTY WAS LET OUT @ 170/ - PER SQ. FT ONLY. THUS, TO HONOUR THE COMMITMENT AS ALSO TO SAVE THE COMMITMENT CHARGES, THE APPELLANT HAD TO AGREE FOR A REDUCTION IN THE SALE PRICE OF THE UNIT BY RS. 21.84,200 , BEING THE PROPORTIONATE REDUCTION. OUT OF THE SAID AMOUNT RS. 18,38,200 WAS REFUNDED ON BY 1.5.2008 BY 2 CHEQUES OF RS 9.19.100 EACH AND BALANCE WAS ADJUSTED WITH OPENING DEBIT BALANCE. 2. 1.5.2008 G-19 6.00,000 THE AMOUNT REPRESENTS BALANCE RECOVERABLE FOR THE SALE OF THE UNIT. THIS AMOUNT WAS RECEIVED BY CHEQUE ON 4.12.2009 AND 31.3.2010 27,84,000 MONTH OF SEPTEMBER, 2008 3. 29 9.2008 F-104 2,40,00,000 THE SAID UNIT HOOKED BY SMT MANJULATA KURELE FOR RS. 2.40.00.000 AND ON HER REQUEST THE ALLOTMENT WAS CANCELLED. FURTHER, THE SAID UNIT WAS SOLD ON 31.10.2008. ALSO THE PAYMENTS RECEIVED ON THIS ACCOUNT WERE REFUNDED VIDE CHEQUE NO. 879190 DT. 29 9 2008 DRAWN ON KARNATAKA BANK LTD. THUS NEITHER THERE WAS ANY REVERSAL OF REVENUE ON ACCOUNT OF UNCERTAINTY OF REALIZATION NOR COULD THE REVERSAL HE SAID TO BE AN AFTERTHOUGHT AS EVEN THE FUNDS STOOD REALIZED IN THE HANK OF THE APPELLANT BEFORE THE SALE WAS COMPLETED. DETAILS OF PAYMENT RECEIVED APPEAR AT PAGE 79AA-79B OF PB 2,40,00,000 45 MONTH OF NOVEMBER, 2008 4. 31.12.2008/ 26.11.2008 G - 42, 43 & 44 2,10,00,000 THE ASSESSEE HAS SOLD THESE UNITS FOR RS. 2,10,00,000/ - AND FULL CONSIDERATION WAS RECEIVED. THEREAFTER AT THE REQUEST OF THE BUYERS THE ALLOTMENT WAS CANCELLED AND THE FULL AMOUNT WAS REFUNDED BY 6 CHEQUES OF RS. 35,00,000 EACH ON 26.11.2008. ALSO A SON DATE, THE UNITS STAND SOLD. 5. 10.11.2008/ 18.11.2008 G-21 (-)22,00,000 DURING THIS MONTH, ASSESSEE HAS RECEIVED RS. 22,00,000 FROM BUYER OF THIS UNIT, WHICH WERE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT 1,88,00,000 MONTH OF FEBRUARY - 2009 6 4.2.2009 F-43 & F-44 59,50,000 THE APPELLANT HAD SOLD THIS UNITS FOR RS. 59,50,000 AND FULL PAYMENT HAD BEEN RECEIVED. THEREAFTER AT THE REQUEST OF THE BUYER THE ALLOTMENT WAS CANCELLED AND THE FULL AMOUNT WAS REFUNDED BY 2 CHEQUES OF RS. 29,75,000 EACH ON 4.2.2009. ALSO AS ON DATE, THE UNITS STAND SOLD. IN THIS REGARD, IT DESERVES A SPECIFIC MENTION HERE THAT SEARCH AND SEIZURE OPERATION WAS CONDUCTED AT THE PREMISES OF THE APPELLANT ON 19.1.2009 AND VARIOUS DOCUMENTS WERE SEIZED INCLUDING THE HARD DISKS ON WHICH THE ACCOUNTING DATA OF THE APPELLANT WAS STORED WHEREIN REGULAR BOOKS OF ACCOUNTS WERE MAINTAINED AND ALL THE TRANSACTIONS UP TO THE DATE OF SEARCH STOOD DULY ACCOUNTED IN THE AND ENTERED IN THE SEIZED BOOKS, ACCORDINGLY CANNOT COULD NOT BE TERMED AS AFTERTHOUGHT. 64. ON PERUSAL OF THE OBSERVATIONS MADE BY THE ASSESSING OFFICER, IT WILL BE SEEN THAT THE WHILE MAKING THE SAID ADDITION IT WAS STATED THAT THE ABOVE MENTIONED FIGURES WERE AN AFTERTHOUGHT AND ALSO THAT THE LOSS WAS INCURRED BETWEEN THE DATE WHEN MR. Y.C. KURELE HAD GIVEN A STATEMENT ON OATH I.E. 24.2.2009 AND THE CLOSE OF THE YEAR I.E. 31.3.2009. IN THIS REGARD THE APPELLANT BEGS TO SUBMIT THAT ALL THE PAYMENTS IN RESPECT OF THE ABOVE MENTIONED UNITS WERE MADE BEFORE 24.2.2009 AND WERE MADE BY CHEQUE. 46 THUS THERE REMAINS NO ROOM FOR THOUGHT THAT THE REVERSALS WERE AN AFTERTHOUGHT. A DETAILED CHART SHOWING THE UNIT WISE DETAILS OF THE PAYMENT MADE APPEARS AT PAGE 79A-79B OF PB. 65. IN VIEW OF THE SUBMISSIONS MADE ABOVE, THE ADDITION MADE IS WHOLLY ERRONEOUS AND DESERVES TO BE DELETED. 69. LD. CIT(A) NOTED THAT ASSESSEE HAS GIVEN UNIT WISE DETAILS FOR ALL THE FOUR MONTHS WHERE SALE IS REVERSED AND APPRECIATED THAT REVERSAL OF SALE IS NOT A MERE BOOK ENTRY BUT THE PAYMENT HAS BEEN MADE BY CHEQUE FOR SUCH REVERSAL OF THE PURCHASER. ALL THE CANCELLATIONS OF THE SALE FOR SAID FOUR MONTHS WERE MADE PRIOR TO THE DATE OF STATEMENT OF SHRI Y.C. KURELE AND ENTIRE BOOKS OF ACCOUNTS OF ASSESSEE WERE SEIZED BY THE DEPARTMENT AND THEREFORE, THERE IS NO QUESTION OF MANIPULATING THE BOOKS OF ACCOUNTS. HE FURTHER HELD THAT STATEMENT OF SHRI Y.C. KURELE WAS CONDITIONAL AS HE HAS CLEARLY STATED THAT EXACT BUSINESS INCOME WILL BE ASCERTAINED AFTER COMPILATION OF ALL BOOKS OF ACCOUNTS AND HE HAS NOT DISCLOSED ANY OUTSIDE BOOK PROFIT. HIS STATEMENT DOES NOT SUPPORT THE DEVIATION FROM BOOK RESULT. THE CANCELLATIONS OF SALE WERE PARTS OF BOOKS OF ACCOUNTS WHICH WHERE WERE SEIZED BY THE DEPARTMENTS AND THESE ARE MERE BOOK ENTRIES BUT PAYMENT WERE ACTUALLY RETUR5NED THROUGH CHEQUES. THUS, HE DELETED THE ADDITION MADE BY THE AO. 70. AFTER CONSIDERING THE AFORESAID STATEMENTS AND ON PERUSAL OF THE RELEVANT MATERIAL BROUGHT ON RECORD, WE FIND THAT AO HAS NOTED THAT ASSESSEE HAS INCURRED LOSS IN THE FOLLOWING FOUR MONTHS:- MONTH AMOUNT (RS.) MAY 2008 27,84,000 SEPTEMBER 2008 2,40,00,000 47 NOVEMBER 2008 1,88,00,000 FEBRUARY 2009 59,50,000 TOTAL 5,15,34,000 HE ALSO HELD THAT, SINCE THE DIRECTOR OF THE ASSESSEE COMPANY IN HIS STATEMENT DURING THE COURSE OF SEARCH HAS ACCEPTED TO DECLARE BUSINESS PROFIT FOR CERTAIN AMOUNT WHICH HAS NOT BEEN DONE AND ON THIS PREMISE, HE HELD THAT THE LOSS IN THESE FOUR MONTHS IS NOTHING BUT BOOK ENTRY TO MANIPULATE THE ACCOUNTS AND THE LOSS SHOWN IS NOT IN TERMS OF ACCOUNTING STANDARDS. THE ASSESSEE BEFORE THE AO HAS DULY EXPLAINED THAT IT HAS BOOKED THE SALES OF VARIOUS UNITS OF THE MALL IN ITS BOOKS OF ACCOUNTS AND LATER ON DUE TO CERTAIN REASONS, THE SALES HAVE BEEN CANCELLED AND CHEQUES HAVE BEEN RETURNED TO THE PARTIES AND CORRESPONDINGLY ENTRIES HAVE BEEN REVERSED IN THE BOOKS OF ACCOUNT. EXACT REASONS HAVE BEEN GIVEN BEFORE THE LD. CIT(A) ALSO, WHICH HAS BEEN INCORPORATED ABOVE, WHEREIN IT HAS BEEN STATED THAT, EARLIER ASSESSEE HAS AGREED TO SELL THE SPACE UNDER THE COMMITMENT OF RENTAL INCOME @ RS. 190/- PER SQ. FT. THE PROPERTY WAS LATER ON FOUND TO BE FETCHING ONLY @ RS. 170/- PER SQ. FT., AND SINCE ASSESSEE HAD TO HONOUR ITS COMMITMENT CHARGES, THEREFORE, IT HAS AGREED FOR REDUCTION OF THE SALE PRICE OF THE UNIT BY CERTAIN AMOUNT. DUE TO THIS REASON, LATER ON IT HAD TO REFUND THE BOOKING OF THE SALES AMOUNT. CANCELLATION OF ALLOTMENT WAS MUTUALLY AGREED WITH THE PARTIES AND LATER ON AT THE REQUEST OF THE PARTY, THE PAYMENT RECEIVED WERE REFUNDED BACK FOR WHICH ENTIRE DETAILS WERE GIVEN. THE NARRATION OF EACH AND EVERY INSTANCE HAS BEEN INCORPORATED ABOVE, WHICH HAS NOT BEEN REBUTTED BY THE DEPARTMENT AT ANY STAGE. IT HAS BEEN RIGHTLY HELD BY THE LD. CIT (A), THAT NO ADVERSE INFERENCE CAN BE DRAWN FROM THE STATEMENT OF THE 48 DIRECTOR, BECAUSE IN HIS STATEMENT, HE HAS CATEGORICALLY STATED THAT EXACT BUSINESS INCOME CAN BE COMPUTED ONLY AFTER THE COMPLETION OF ACCOUNTS OF VARIOUS UNITS OF THE ASSESSEE COMPANY. EVEN THE LOSSES INCURRED IN FOUR MONTHS WERE MUCH PRIOR TO THE DATE OF SEARCH. ONCE THE CANCELLATION OF SALE IS AN ACCEPTED FACT ON THE GROUND THAT PAYMENT OF COMMITMENT CHARGES WOULD BE PAYABLE TO THE SELLER ON ACCOUNT OF ASSURED LEASE RENTAL INCOME, THEN REASON FOR SUCH CANCELLATION CANNOT BE DOUBTED, UNLESS CONTRARY MATERIAL HAS BEEN FOUND DURING THE COURSE OF SEARCH OR POST SEARCH INQUIRY. IN ANY CASE, AO CANNOT EXAMINE PROFIT AND LOSS ACCOUNT ON MONTH TO MONTH BASIS AND HE HAS TO SEE THE POSITION AS ON LAST DAY OF FINANCIAL YEAR. HERE IN THIS CASE, THE FACTUM OF BOOKING OF SALES IN THE BOOKS OF ACCOUNTS IN THE EARLIER YEAR OR A PRIOR PERIOD HAS NOT BEEN DOUBTED AND ACTUAL CANCELLATION OF SUCH SALE WHICH IS EVIDENT FROM PAYMENT MADE THROUGH PAYING CHEQUES IS NOT IN DISPUTE, THEN REVERSAL OF SUCH SALE IN THE BOOKS CANNOT BE TREATED AS LOSS BY THE AO. ACCORDINGLY, ADDITION ON THIS SCORE DELETED BY THE LD. CIT (A) IS BASED ON CORRECT APPRECIATION OF FACTS AND IT HAS NO CO-RELATION AT ALL WITH THE STATEMENT OF SHRI Y.C. KURELE, DIRECTOR OF THE COMPANY. CONSEQUENTLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 71. COMING TO THE ISSUE OF DEBIT ENTRIES RECORDED IN THE RENT RECEIVED ACCOUNT, AO REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF RENTAL INCOME DECLARED; AND IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE HAD SUBMITTED THE DETAILS. FROM SUCH DETAILS, AO NOTED THAT IN CASE OF SIX PARTIES THERE WAS A LOSS CLAIMED BY THE ASSESSEE IN THE FOLLOWING MANNER:- (I) KOTAK MAHINDRA BANK PLOT NO. 10 RS. (-)1,00,000/- (II) KOUTONS (YMC) PLOT NO. 12 RS. (-)153713/- (III) LOREAL (YMC) PLOT NO. 12 RS. (-)217200/- 49 (IV) NUMERO UNO (YMC) PLOT NO. 12 RS. (-)48750/- (V) PEPE JEANS (YMC) PLOT NO. 12 RS. (-)41559/- (VI) STRAPS (YMC) PLOT NO. 12 RS. (-)212676/- _____________ TOTAL RS. (-)573898/- ______________ 72. IT WAS SUBMITTED BY THE ASSESSEE THAT DUE TO STEEP FALL IN THE BUSINESS SCENARIO, VARIOUS TENANTS OF THE MALL HAVE SHOWED THEIR INABILITY TO CONTINUE ON THE SAME RENT AS WAS NEGOTIATED WITH THEM EARLIER. THE ASSESSEE COMPANY TRIED TO POSTPONE THE NEGOTIATION BY LOWERING THE RENT PAYABLE BY THE TENANTS TO THE EXTENT POSSIBLE. HOWEVER, DUE TO POOR AVAILABILITY OF NEW TENANTS AND TO CONSIDER THE GENUINE DEMAND OF TENANTS, ASSESSEE COMPANY WAS COMPEL TO RENEGOTIATE AND REDUCE THE RENT AND AT TIMES RETROSPECTIVELY. SINCE ASSESSEE HAS RENEGOTIATED THE RENT AND RENT RECEIVABLE IS SHOWN ON ACCRUED BASIS, THEREFORE, WHEREVER SUCH RENT WAS RENEGOTIATED, DEBIT ENTRIES WERE MADE IN THE ACCOUNT. LD. AO HAS HELD THAT SUCH RENTAL LOSS CANNOT BE ALLOWED AS PER THE PROVISION OF SECTIONS 22 AND 23. 73. LD. CIT (A) DULY APPRECIATED THE ASSESSEES CONTENTION AND HELD THAT IF THE RENT IS REDUCED, THEN ALV ITSELF GETS REDUCED, UNLESS PROVED OTHERWISE. ACCORDINGLY, THIS LOSS IS ALLOWABLE. 74. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER, WE FIND THAT ASSESSEE COMPANY HAS MADE REVERSAL OF RENT RECEIVABLE FOR CERTAIN PROPERTIES WHICH RELATES TO THE PERIOD FOR WHICH THE PROPERTY WAS NOT HANDED OVER TO THE TENANTS. THUS, THE SAME WERE LIABLE TO BE KEPT OUT OF ALV UNDER THE PROVISION OF SECTION 23(1)(C). FURTHER IN CASE OF TWO PROPERTIES, THE SAME WERE SOLD SUBSEQUENTLY AND FOR THAT PERIOD THE 50 RENT WAS REVERSED IN THE BOOKS. THUS, RENTAL INCOME WAS NOT CHARGEABLE IN THE HANDS OF THE ASSESSEE AT ALL. FURTHER, IF ASSESSEE HAS BEING SHOWN RENT ON ACCRUED BASIS AND RENT HAS NOT BEEN REALISED FOR VARIOUS REASONS AND CORRESPONDING DEBIT ENTRIES HAVE BEEN MADE, THEN THERE CANNOT BE DEEMED RENTAL INCOME OF THE AMOUNT OF REVERSAL OF DEBIT ENTRIES. ACCORDINGLY, THE DELETION OF SUCH ADDITION MADE BY THE AO IS AFFIRMED AND CONSEQUENTLY THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 75. LASTLY, IN SO FAR AS ADDITION ON ACCOUNT OF SINKING FUND FROM CUSTOMERS IS CONCERNED, THE AO NOTED THAT ASSESSEE HAS SHOWN LIABILITY UNDER THE NOMENCLATURE OF SINKING FUND OF RS. 1,37,33,018/-. IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE HAS SUBMITTED THAT THE SINKING FUND IS CONTRIBUTED BY THE UNIT HOLDERS OF SHOPPING MALLS WHICH IS KEPT AS A RESERVE FUND TO MEET PART AND EQUIPMENTS FOR STRUCTURAL REPAIR, ANY KIND OF ADDITION OR ALTERATION OF THE COMMON FACILITIES. IT WAS IN THE NATURE OF LIABILITY IN THE BOOKS OF THE ASSESSEE COMPANY WHICH DOES NOT FORM PART OF SALE CONSIDERATION. LD. AO HOWEVER HELD THAT, SINCE THIS AMOUNT HAS BEEN RECEIVED AT THE TIME OF SALE CONSIDERATION, THEREFORE, SAME SHOULD HAVE BEEN REFLECTED AS INCOME IN THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY, HE DISALLOWED THE SAID LIABILITY. 76. BEFORE THE LD. CIT (A), ASSESSEE HAS EXPLAINED THIS ISSUE IN THE FOLLOWING MANNER:- 7.3. IN THIS RELATION THE FACTUAL MATRIX IS THAT IN TERMS OF ALLOTMENT LETTER AT THE TIME OF GIVING POSSESSION TO THE ALLOTTEE(S). A MAINTENANCE AGREEMENT IS BEING EXECUTED AND AS PER ARTICLE 15 OF SAID AGREEMENT A SINKING FUND' IS CREATED FOR THE PURPOSES OF REPLACEMENT, REFURBISHMENT, UP GRADATION, ADDITIONS ETC OF ANY PLANT & MACHINERY WITHIN THE MALL INCLUDING BUT NOT LIMITED TO 51 ELECTRIC SUB-STATIONS. PUMPS, ANY OTHER PLANT EQUIPMENT OF CAPITAL NATURE ETC. THE SAID ARTICLE 15 OF THE MAINTENANCE AGREEMENT, COPY OF WHICH APPEARS AT PAGE 175-192 OF PB, READS US UNDER: 'ARTICLE 15 SINKING FUND 'THE OWNER HEREBY AGREES TO PAY RS.100/- (RS. ONE HUNDRED) PER SQ.FT. OF SUPER AREA OF THE UNIT TO THE PROMOTER FOR EIGHT (8 ) YEARS IN ADVANCE TOWARDS SINKING FUND AND THE SAME SHALL IS UTILIZED BY THE COMPANY FOR THE PURPOSE OF REPLACEMENT, UPGRADATION. ADDITIONS, ETC. OF ANY PLANT & MACHINERY WITHIN THE SAID BUILDING INCLUDING BUT NOT LIMITED TO AIR CONDITIONING PLANTS, LIFTS. ESCALATORS, DG SETS, ELECTRIC SUB STATIONS, PUMPS, FIRE FIGHTING EQUIPMENT ANY OTHER PLANT EQUIPMENT OF CAPITAL NATURE, ETC. THE COMPANY SHALL HAVE THE SOLE AUTHORITY TO DECIDE THE NECESSITY OF SUCH REPLACEMENT, UP GRADATION, ADDITIONS, ETC. INCLUDING ITS TIMING OR COST THEREOF AND THE OWNER SHALL HAVE NO OBJECTION FOR THE SAME. THREE MONTHS BEFORE THE EXPIRY OF THE EIGHT YEARS, THE OWNERS SHALL PAY THE REVISED AMOUNT OF SINKING FUND AS MAY BE DEMANDED BY THE COMPANY AT THAT TIME. THE PROMOTER SHALL OPEN AND OPERATE A SEPARATE BANK ACCOUNT AND ALL THE MONEY COLLECTED TOWARDS SINKING FUND HALL BE DEPOSITED IN THE SAID ACCOUNT. WHENEVER THE PROPERTY MANAGER FEELS IT NECESSARY TO UTILIZE THE SINKING FUND IT WILL SUBMIT A DETAILED QUOTATION WITH REASONS FOR SUCH NECESSITY WITH THE COMPANY AND THE PROMOTER SHALL RELEASE THE FUND ACCORDINGLY ON ADVISE OF THE COMPANY. 7.4. ON PERUSAL OF ABOVE, IT WILL BE SEEN THAT OR THE RELEVANT POINT OF TIME SAID SINKING FUND WAS BEING COLLECTED IN THE NAME OF APPELLANT, HOWEVER, THE SAME WAS TO BE UTILIZED BY THE 52 MAINTENANCE AGENCY PROPERTY MANAGER FOR THE PURPOSES AS SPECIFIED IN ARTICLE 15 WITHIN THE BUILDING (MALL) ONLY. THUS, IT IS APPARENT THAT FUNDS COLLECTED AS SINKING FUND' ARE RECEIVED BY THE APPELLANT UNDER A SPECIFIC COVENANT AND IT IS MERELY THE CUSTODIAN OF THESE FUNDS AND THE SAME ARE TO BE HANDED OVER TO THE MAINTENANCE AGENCY OR PROPERLY MANAGER TO BE USED IN THE MAINTENANCE OF VARIOUS COMMON FACILITIES IN THE BUILDING DEVELOPED BY IT, FOR WHICH THESE FUNDS ARE COLLECTED FROM THIS. IT FOLLOWS THAT AT NO POINT OF TIME, PROPERTY IN THESE FUNDS HAD PASSED ON TO THE APPELLANT AS IF IT IS ITS OWN MONEY. THEREFORE, THE ISSUE OF ITS TAXABILITY IN ITS HAND DOES NOT ARISE AT ALL. FURTHER, IT IS BROUGHT TO YOUR KIND NOTICE THAT FUNDS TO THE EXTENT OF RS. 73, 00, 000 STOOD ALREADY ADVANCED TO M/S ENDLESS MAINTENANCE SERVICES PVT. LTD. TO BE UTILIZED FOR CREATING/ MAINTAINING UTILITIES IN THE MALL. FURTHER, NO PART OF EXPENSES ON THIS SCORE HAS BEEN CLAIMED AS EXPENDITURE BY THE APPETENT 7.5. KIND ATTENTION IS ALSO DRAWN TO THE SECOND PARA OF THE ABOVE REFERRED ARTICLE 15 ON PERUSAL OF WHICH IT WILL BE CLEAR THAT THE RECEIPT OF SINKING FUND IS A RECURRING EVENT TAKING PLACE EVEN AFTER THE COMPLETION O] SALE FINAL SETTLEMENT OF SALE CONSIDERATION. HENCE, EVEN A PLAIN READING OF THE SAID ARTICLE ITSELF GOES ON TO PROVE THAT THE SINKING FUND WAS NOT ONLY TO HE RECEIVED AT THE LIME OF FIRST SALE BUT WAS ALSO TO BE MAINTAINED SUBSEQUENTLY FOR THE MAINTENANCE AND THUS PROPER FUNCTIONING OF THE MALL. 7.6. IN VIEW OF THE SUBMISSION MADE ABOVE, THE SUMS RECEIVED TOWARDS 'SINKING FUND' CANNOT HE CONSIDERED US PART OF SALE CONSIDERATION A THE APPELLANT WAS ONLY A CUSTODIAN OF THE 'E FUNDS AND NO PART OF EXPENDITURE INCURRED ON MAINTENANCE OF THE SAID BUILDING OUT OF THESE FUNDS HAS EVER BEEN CLAIMED AS BUSINESS 53 EXPENDITURE. THE FACT THAT THE SINKING FUND WAS FOR MAINTENANCE OF TILE MALL IS FURTHER SUBSTANTIATED FROM THE FACT THAT MAJOR PART OF THE FUNDS STOOD TRANSFERRED TO MAINTENANCE AGENCY I.E. TO M/S ENDLESS MAINTENANCE SERVICES PVT. LTD. ACCORDINGLY. IMPUGNED ADDITION DESERVES TO BE DELETED. 77. LD. CIT(A) AFTER CONSIDERING THE ENTIRE GAMUT OF FACTS AND MATERIAL PLACED ON RECORD HELD THAT THE SINKING FUND IS NOT A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE AS IT IS A CORPUS FUND FOR REPLACEMENT, UPGRADATION, ETC. FOR UPKEEP AND MAINTENANCE OF COMMON FACILITIES OF THE BUILDING, AND THIS HAS ALREADY BEEN HANDED OVER TO THE MAINTENANCE AGENCIES. ACCORDINGLY, HE DIRECTED THE AO TO DELETE THE SAID ADDITION. 78. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, IT IS SEEN THAT IN THE TERMS OF ALLOTMENT LETTER, AT THE TIME OF HANDING OVER THE SHOP TO THE ALLOTTEE, A MAINTENANCE AGREEMENT IS BEING EXECUTED BETWEEN ASSESSEE COMPANY AND THE ALLOTTEE AND AS PER THE SAID AGREEMENT, A SINKING FUND IS CREATED FOR THE PURPOSE OF REPLACEMENT, UPGRADATION, ADDITION, REPAIR OF PLANT AND MACHINERY, ETC., WITHIN THE MALL. THIS WAS COLLECTED AT THE TIME OF ALLOTMENT ITSELF WITH THE CONDITION THAT SAME SHALL BE UTILISED FOR THE MAINTENANCE BY THE MAINTENANCE AGENCY. THUS, WHEN FUND IS COLLECTED UNDER A SPECIFIC COVENANT AND ASSESSEE IS MERELY THE CUSTODIAN/ TRUSTEE OF THESE FUNDS WHICH WAS TO BE HANDED OVER TO MAINTENANCE AGENCY TO BE USED FOR THE MAINTENANCE OF VARIOUS COMMON FACILITIES, THEN SAME CANNOT BE TREATED AS PART OF THE REVENUE OR SALE CONSIDERATION OF THE ASSESSEE SO AS TO BE TREATED AS INCOME. THE ORDER OF CIT (A) IS IN ACCORDANCE OF LAW AND ON FACTS, HENCE SAME IS FIRMED. 79. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 54 CROSS OBJECTION FOR THE ASSTT. YEAR 2009-10 80. THE GROUNDS RAISED IN THE CROSS OBJECTIONS FOR THE ASSESSMENT YEAR 2009-10 ARE AS UNDER:- 1. BECAUSE THE ID. CIT (A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 22,09,892 BEING WHOLE OF THE BROKERAGE AND COMMISSION PAID FOR RENTING / LEASING OF PROPERTY IN THE MALL, THOUGH MAJOR PORTION OF THE SAID EXPENDITURE WAS LIABLE TO BE SET-OFF FROM SALE OF SPACE/SHOPS OR CAPITALIZED DURING THE YEAR, SO AS TO BE CARRIED FORWARD, SET-OFF OR WRITTEN OFF AS EXPENSE IN SUBSEQUENT YEARS. 2. BECAUSE THE ID. C!T(A) HAS ERRED IN LAW AND ON FACTS IN NOT GIVING CLEAR FINDING AS TO THE DELETION OF RS. 87,500 BEING THE EXPENDITURE INCURRED ON BROKERAGE / COMMISSION FOR TAKING THE SPACE ON RENT BY THE ASSESSEE COMPANY FOR ITS OWN USE WHICH STOOD INCLUDED IN THE LARGER FIGURE OF 22,97,392. 3. BECAUSE THE ID. C!T(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE SET-OFF OF PART OF EXPENDITURE INCURRED ON RENTING / LEASING OF PROPERTY IN THE MALL, WHICH WAS DISALLOWED IN A.Y. 2007-08 OR 2008-09 AND WAS LIABLE TO BE SET-OFF ON SALE OF SUCH SPACE/SHOPS DURING THE YEAR. 4. BECAUSE THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 92,970 UNDER SECTION 14A OF THE !T ACT, 1961 READ WITH CLAUSE (III) OF SUB-RULE (2) OF RULE 8D OF INCOME-TAX RULES, 1962. 5. BECAUSE THE ID. C!T(A) HAS ERRED IN LAW AND ON FACTS IN COMPUTING AND SUSTAINING THE ADDITION OF RS. 3,18,000 ON ACCOUNT OF NOTIONAL INTEREST RECEIVABLE @ 12% ON RS. 26.50 LACS FROM M/S PRANAV GEMS. 55 81. SINCE THE AFORESAID GROUNDS RAISED IN THE CROSS OBJECTIONS ARE EXACTLY THE SAME AS RAISED IN THE CROSS OBJECTION FOR THE ASSTT. YEAR 2008-09, THEREFORE, IN VIEW OF OUR FINDING GIVEN THEREIN, ALL THESE GROUNDS ARE DISPOSED OFF ON SIMILAR LINES AND ACCORDINGLY, THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH , 2019. SD/- SD/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/03/2019 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI