M/s Malubu Estate Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 3295/DEL/2013

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6885 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARAMITA M BISWAS
• Assessee Lawyers: EK
• Keywords: Earning of tax free income; Notional interest
• Section: 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DLEHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.3299/DEL/2013 ASSESSMENT YEAR:2008-09 DCIT, CIRCLE 6(1), VS. MALIBU ESTATE PVT. LTD., NEW DELHI. 38, DDA COMMERCIAL COMPLEX, KAILASH COLONY EXTENSION, NEW DELHI. ITA NO. 4499/DEL/2013 ASSESSMENT YEAR:2009-10 ACIT, CIRCLE 6(1), VS. MALIBU ESTATE PVT. LTD., NEW DELHI. 38, DDA COMMERCIAL COMPLEX, JAMROODPUR, KAILASH COLONY EXTENSION, NEW DELHI. ITA NO. 4829/DEL/2015 ASSESSMENT YEAR:2010-11 DCIT, CENTRAL CIRCLE 20, VS. MALIBU ESTATE PVT. L TD., NEW DELHI. 38, DDA COMMERCIAL COMPLEX, KAILASH COLONY EXTENSION, NEW DELHI. ITA NOS. 5603, 5604 & 5605/DEL/2015 ASSESSMENT YEAR:2011-12, 2012-13 & 2013-14 DCIT, CENTRAL CIRCLE 8, VS. MALIBU ESTATE PVT. LTD ., NEW DELHI. 38, DDA COMMERCIAL COMPLEX, KAILASH COLONY EXTENSION, NEW DELHI. 2 ITA NO.3295 & 4534/DEL/2013 ASSESSMENT YEAR:2008-09 & 2009-10 MALIBU ESTATE PVT. LTD., VS. ADDL. CIT, RANGE-6, 38, DDA COMMERCIAL COMPLEX, NEW DELHI. KAILASH COLONY EXTENSION, JAMRUDPUR NEW DELHI. ITA NO. 3769/DEL/2015 ASSESSMENT YEAR:2010-11 MALIBU ESTATE PVT. LTD., VS. DCIT, CIRCLE 6(1), 38, DDA COMMERCIAL COMPLEX, NEW DELHI. KAILASH COLONY EXTENSION, JAMRUDPUR NEW DELHI. ITA NOS. 5482, 5483 & 5484/DEL/2015 ASSESSMENT YEAR:2011-12, 2012-13 & 2013-14 MALIBU ESTATE PVT. LTD., VS. ACIT, CENTRAL CIRCLE- 8, 38, DDA COMMERCIAL COMPLEX, NEW DELHI. KAILASH COLONY EXTENSION, JAMRUDPUR NEW DELHI. PAN : AAACM1120E (APPELLANT) (RESPONDENT) REVENUE BY : MS. PARAMITA M. BISWAS, CIT/DR ASSESSEE BY : SH. ANIL KUMAR CHOPRA, ADV. SH. PRAVEEN KUMAR, CA & SH. EKANSH GUPTA, CA DATE OF HEARING: 12/08/2021 DATE OF ORDER : 12/08/2021 ORDER 3 PER BENCH: AGGRIEVED BY THE ORDER DATED 28.03.2013 & 13.06.20 13 FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IX, NEW DELHI, ('LD. CIT(A)'), ORDER DATED 23.03.2015 PASSED BY LD. CIT(A)-6, DELH I FOR ASSESSMENT YEAR 2010-11 AND ORDERS DATED 31.07.2015 PASSED BY LD. C IT(A)-24, NEW DELHI FOR THE ASSESSMENT YEARS 2011-12 TO 2013-14 IN THE CASES OF MALIBU ESTATE PVT. LTD. (THE ASSESSEE), BOTH THE REVENUE AND THE ASSESSEE PREFERRED THESE CROSS APPEALS. 2. SINCE THE GROUNDS IN THE APPEALS OF THE REVENUE AND THE ASSESSEE ARE SUBSTANTIALLY SIMILAR, RAISING COMMON QUESTIONS OF LAW AND FACTS, ALL THESE APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. FOR CONVENIENCE, WE RECORD THE ATTENDING F ACTS RELATING TO THE ASSESSMENT YEARS 2008-09 AND 2009-10. ASSESSMENT YEARS 2008-09 & 2009-10: 3. BRIEF FACTS, RELATING TO THESE TWO ASSESSMENT YE ARS, ARE THAT THE ASSESSEE-COMPANY IS A DEVELOPER AND WAS INVOLVED IN DEVELOPING A TOWNSHIP IN GURGAON IN THE NAME OF MALIBU TOWN AS P ER THE TERMS OF LICENSE SANCTIONED BY THE DIRECTOR, TOWN AND COUNTR Y PLANNING, HARYANA. FOR THESE TWO ASSESSMENT YEARS, THE ASSESSEE FILED THEIR RETURNS OF INCOME AND DURING THE COURSE OF ASSESSMENTS, LD. AS SESSING OFFICER NOTED THAT THE ASSESSEE HAS RECOGNIZED THE REVENUE ON ACC OUNT OF SALE OF THE PLOTS WHERE THE PROPERTY WAS REGISTERED IN THE NAME OF THE BUYERS OR THE POSSESSION WAS GIVEN. ON THIS COUNT, LD. ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE SHOULD HAVE FOLLOWED THE PERCENTAGE OF COMPLETION (POC) METHOD INSTEAD. LEARNED ASSESSING OFFICER, THEREFORE, 4 AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE ON THIS ISSUE, RECORDED A FINDING THAT INASMUCH AS THE ASSESSEE DID NOT APPLY POC METHOD, THE ACCOUNTS DO NOT REFLECT THE TRUE STATE OF AFFAIRS A ND THEREFORE, A SUM OF RS.67,57,24,544/- FOR THE ASSESSMENT YEAR 2008-09 A ND RS.11,35,50,808/- FOR THE ASSESSMENT YEAR 2009-10 ESCAPED TAXATION AN D IT HAD TO BE ADDED TO THE INCOME OF THE ASSESSEE. 4. SECONDLY, LEARNED ASSESSING OFFICER NOTED THAT D URING THESE YEARS, THE ASSESSEE INVESTED A SUM OF RS.37.25 CRORES AND 75.77 CRORES IN ITS SUBSIDIARY COMPANY WANG INVESTMENT PVT. LTD. TOWARD S SHARE APPLICATION MONEY AND NO INTEREST WAS CHARGED ON SUCH MONEY WHE REAS THE ASSESSEE HAD SHOWN THE INTEREST EXPENSES TO THE TUNE OF RS.4 ,82,14,000/- FOR THE ASSESSMENT YEAR 2008-09 AND RS.3,01,97,000/- FOR TH E ASSESSMENT YEAR 2009-10 AND THEREFORE, THE ASSESSING OFFICER THOUGH T IT FIT TO ADD A SUM OF RS.4,27,74,000/- FOR THE ASSESSMENT YEAR 2008-09 AND RS.2,79,97,000/- FOR THE ASSESSMENT YEAR 2009-10 TO THE INCOME OF TH E ASSESSEE. 5. AGGRIEVED BY BOTH THE ADDITIONS, THE ASSESSEE PR EFERRED APPEALS BEFORE THE LD. CIT(A). LEARNED CIT(A) BY THE IMPUGN ED ORDERS GRANTED RELIEF TO THE ASSESSEE IN RESPECT OF THE ADDITION M ADE BY THE LEARNED ASSESSING OFFICER BY APPLYING POC METHOD. LD. CIT(A ), HOWEVER, UPHELD THE ADDITION OF DISALLOWANCE OF INTEREST IN RESPECT OF THE INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARIES, ON WHICH NO INTEREST WAS CHARGED BY THE ASSESSEE. 6. CHALLENGING THE DELETION OF ADDITION MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF APPLICATION OF POC METHOD, TH E REVENUE PREFERRED ITA NO. 3299 & 4499/DEL/2013; WHEREAS AGGRIEVED BY UPHOLDING OF THE ADDITION MADE BY THE LD. ASSESSING OFFICER ON ACCOU NT OF INTEREST NOT 5 CHARGED ON THE INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARIES, THE ASSESSEE PREFERRED ITA NO. 3295 & 4534/DEL/2013 FOR THESE TWO ASSESSMENT YEARS RESPECTIVELY. 7. IN SO FAR AS THE APPLICATION OF POC METHOD AND C ONSEQUENT ADDITIONS ARE CONCERNED, AT THE OUTSET, IT IS SUBMI TTED BY THE ASSESSEE THAT PRIOR TO THE ASSESSMENT YEAR 2006-07, THE METH OD OF ACCOUNTING BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE, BUT ADDIT ION WAS MADE BY THE ASSESSING OFFICER IN ASSESSEES OWN CASES FOR T HE ASSESSMENT YEASR 2006-07 AND 2007-08. WHEN THE MATTER TRAVELLED TO T HE TRIBUNAL, THE TRIBUNAL BY ORDER DATED 20.04.2012 FOR THE ASSESSME NT YEAR 2006-07 (ITA NO. 4085/DEL/2009 AND CO NO. 381/DEL/2009) AND FOLL OWING THE SAME BY ORDER DATED 13.12.2013 FOR THE ASSESSMENT YEAR 2007 -08 (ITA NO. 2778/DEL/2011), UPHELD THE CONTENTION OF THE ASSESS EE THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE WILL NOT RESULT IN DEFERMENT OF TAX AND THERE IS NO JUSTIFICATION FOR THE LD. AS SESSING OFFICER TO ADOPT POC METHOD FOR ONE YEAR ON SELECTIVE BASIS. 8. LEARNED AR FURTHER SUBMITTED THAT THE VIEW TAKEN BY THE TRIBUNAL IS UPHELD BY THE HONBLE HIGH COURT IN ITA NO. 213 OF 2015 BY ORDER DATED 18.03.2015 AND BY ACCEPTING THE SAME, SUBSEQUENTLY, THE DEPARTMENT MADE NO FURTHER ADDITIONS. 9. SO FAR AS THESE FACTS ARE CONCERNED, THEY REMAIN UN-CHALLENGED AND UN-IMPEACHED. SINCE THERE ARE NO COMPELLING RE ASONS TO DEVIATE FROM THIS CONSISTENT VIEW TAKEN BY THE TRIBUNAL AND HONBLE HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT THE FINDINGS OF THE LD. CIT(A) CANNOT BE FOUND FAULT WITH. ON THIS PREMISE, WE FIND THE G ROUNDS OF REVENUES APPEALS AS BEREFT OF MERITS AND CONSEQUENTLY DISMIS S THE SAME. 6 10. NOW, COMING TO THE GRIEVANCE OF THE ASSESSEE TH AT THE ADDITION BASED ON THE ASSUMPTION THAT THE INVESTMENT MADE BY THE ASSESSEE IN THE SUBSIDIARIES SHOULD HAVE CARRIED INTEREST AND C ONSEQUENTLY, ADDING NOTIONAL INTEREST IS BAD, THE MAIN PLANK OF ARGUMEN TS ADVANCED ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE POSSESSES SUFF ICIENT OWN FUNDS, THOUGH DEPOSITED IN THE SAME ACCOUNT WHERE BORROWED FUNDS BY WAY OF OVER DRAFT ALSO STOOD DEPOSITED, THEREFORE, THE PRE SUMPTION LIES THAT THE INVESTMENT MADE BY THE ASSESSEE IN THE SUBSIDIARIES , ARE OUT OF SUCH OWN FUNDS, WHICH DO NOT CARRY ANY INTEREST AND, THEREFO RE, NO DEEMED INTEREST COULD BE ADDED TO THE INCOME OF THE ASSESS EE. 11. ASSESSEE BROUGHT TO OUR ATTENTION THAT AT THE E ND OF ASSESSMENT YEAR 2008-09, AS ON 31.03.2008, THE SHARE CAPITAL O F THE ASSESSEE WAS RS.2.72 CRORES, RESERVES AND SURPLUSES WAS RS.41.93 CRORES WHEREAS THE INTEREST FREE DEPOSITS/ADVANCES MADE BY THE CUSTOME RS WERE TO THE TUNE OF RS.59.53 CRORES, COMING TO THE TOTAL OF RS.104.1 8 CRORES. SIMILARLY, FOR THE ASSESSMENT YEAR 2009-10, AS ON 31.03.2009, THE SHARE CAPITAL OF ASSESSEE WAS RS.2.72 CRORES, RESERVES AND SURPLUSES WERE TO THE TUNE OF RS.61.67 CRORES APART FROM INTEREST FREE DEPOSITS/A DVANCES MADE BY THE CUSTOMERS TO THE TUNE OF RS.54.29 CRORES, TOTAL OF WHICH COMES TO RS.118.68 CRORES. AS AGAINST THIS 104.18 CRORES FOR THE ASSESSMENT YEAR 2008-09 AND 118.68 CRORES FOR THE ASSESSMENT YEAR 2 009-10, THE ASSESSEE MADE INITIAL INVESTMENT OF RS.37.25 CRORES FOR THE ASSESSMENT YEAR 2008- 09 AND RS.75.77 CRORES FOR THE ASSESSMENT YEAR 2009 -10. THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE WITHDREW A PAR T OF THE ADVANCES IN THE ASSESSMENT YEAR 2008-09 AND AT THE END OF THE Y EAR, SUCH INVESTMENTS STOOD AT RS.28.20 CRORES. BE THAT AS IT MAY, IT REMAINS AN 7 ESTABLISHED FACT THAT FOR THE ASSESSMENT YEARS 2008 -09 AND 2009-10, AS AGAINST THE INTEREST FREE FUNDS IN THE HANDS OF THE ASSESSEE TO THE TUNE OF RS.104.18 CRORES AND 118.68 CORESS RESPECTIVELY, TH E ASSESSEE MADE INVESTMENTS ONLY TO THE TUNE OF RS.37.25 CRORES AND 75.77 CRORES RESPECTIVELY. IT GOES WITHOUT SAYING THAT FOR THESE TWO ASSESSMENT YEARS, THE OWN FUNDS OF THE ASSESSEE ARE IN FAR EXCESS OF THE INVESTMENTS MADE. 12. NOW, COMING TO THE DECISIONS CITED BY THE ASSES SEE, IN CIT VS. TIN BOX CO. 260 ITR 637 (DEL) AND CIT VS. BHARTI TELEVE NTURE LTD., 331 ITR 502 (DEL), FOLLOWED IN CIT VS. U.K. PAINTS LTD. BY ORDE R DATED 19.07.2011 IN ITA NOS. 1062/2009, 1826/2010 AND BATCH, IN THESE DECIS ION, THE HONBLE HIGH COURT HELD THAT WHEN THE ASSESSEE HAD SUBSTANT IAL CAPITAL AND INTEREST FREE FUNDS AVAILABLE WITH IT, WHICH FAR EX CEED THE INTEREST FREE ADVANCES TO THE SISTER CONCERN, THERE IS NO SCOPE T O MAKE ANY ADDITION, THOUGH THE ASSESSEE WAS MAINTAINING A BANK ACCOUNT WITH MIXED COMMON FUNDS, IN WHICH ALL DEPOSITS AND WITHDRAWALS WERE MADE. SIMILAR VIEW WAS TAKEN IN RELIANCE UTILITIES & POWER LIMITE D 313 ITR 340 (P&H). 13. WE, THEREFORE, BY RESPECTFULLY FOLLOWING THE AB OVE DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT, CONCLUDE THAT IN ASMUCH AS THE ASSESSEE IS HAVING ITS OWN FUNDS FAR EXCEEDING THE INVESTMEN TS MADE IN SUBSIDIARIES IN THE RELEVANT ASSESSMENT YEARS, ADDI NG OF DEEMED INTEREST DOES NOT ARISE AND WE, ACCORDINGLY, DIRECT THE LD. ASSESSING OFFICER TO DELETE SUCH ADDITIONS. OTHER ASSESSMENT YEARS: 14. IT IS SUBMITTED THAT IN THESE YEARS ALSO, THE G ROUNDS OF APPEAL OF ASSESSEE AND THE REVENUE ARE SUBSTANTIALLY THE SAME , AS INVOLVED IN THE ASSESSMENT YEARS 2008-09 AND 2009-10. IN VIEW OF TH E DECISIONS OF 8 HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR THE A SSESSMENT YEAR 2007- 08 IN ITA NO. 213/2015, BY ORDER DATED 18.03.2015, THE GROUNDS OF APPEAL OF THE REVENUE STAND COVERED AND BY FOLLOWIN G THE SAME WE DISMISS THE GROUNDS OF REVENUES APPEALS ON THIS IS SUE. 15. IN SO FAR AS GROUNDS NOS. 4 & 5 OF REVENUES AP PEAL FOR THE ASSESSMENT YEAR 2010-11 IS CONCERNED, IT REMAINS AN ADMITTED FACT THAT FOR ASSESSMENT YEAR, THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME AND THE LD. CIT(A) CATEGORICALLY RECORDED THAT A READIN G OF PROFIT & LOSS ACCOUNT AND BALANCE SHEET CLEARLY ESTABLISHES THAT NO DIVIDEND INCOME WAS RECEIVED AND CLAIMED AS EXEMPTION IN THAT ASSES SMENT YEAR. LD. CIT(A) FOLLOWED THE DECISION OF HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. HOLCIM (INDIA) P. LTD., (2014) TOL 1586 DEL IT) AND DELETED THE SAME. INASMUCH AS THE LD. CIT(A) FOLLOWED THE B INDING PRECEDENT RENDERED BY HONBLE JURISDICTIONAL HIGH COURT, THE SAME CANNOT BE FOUND FAULT WITH. THUS, THESE GROUNDS OF REVENUE IN APPEA L FOR A.Y. 2010-11, CHALLENGING THE DELETION OF DISALLOWANCE U/S. 14A O F THE INCOME-TAX ACT, 1961, ARE ALSO DISMISSED. 16. IN RESPECT OF ASSESSEES APPEALS FOR THESE YEAR S, NO FRESH INVESTMENT WAS MADE BY THE ASSESSEE IN SUBSIDIARIES AND ONLY THE INVESTMENTS MADE IN ASSESSMENT YEARS 2008-09 AND 20 09-10 CONTINUED TO BE HELD BY THE ASSESSEE. LEARNED ASSESSING OFFIC ER, HOWEVER, LOOKING AT THE CONTINUING INVESTMENTS AND NOT CHARGING ANY INTEREST THEREON, PROCEEDED TO ADD THE DEEMED INTEREST FOR THESE YEAR S ALSO. INASMUCH AS WE FIND FOR THE ASSESSMENT YEARS 2008-09 AND 2009-1 0 THAT THE AMOUNT INVESTED IN THE ASSESSMENT YEARS 2008-09 AND 2009-1 0 IS PRESUMED TO BE FROM OUT OF THE OWN FUNDS OF THE ASSESSEE, IT DOES NOT INVITE ANY ADDITION 9 OF DEEMED INTEREST EITHER IN THE ASSESSMENT YEARS 2 008-09 AND 2009-10 OR FOR ANY SUBSEQUENT YEAR. WE, THEREFORE, DIRECT T HE DELETION OF ADDITION OF DEEMED INTEREST FOR THESE YEARS ALSO. 17. IN VIEW OF OUR FINDING THAT THE ADDITION OF DEE MED INTEREST HAS TO BE DELETED, ANY ADJUDICATION OF THE ALTERNATIVE CLA IM OF THE ASSESSEE FOR NETTING OF INTEREST INCOME ON BANK FDRS, WHICH WERE COMPELLED BY BUSINESS NECESSITIES AND ACCRUED INTEREST AGAINST T HE INTEREST PAID, BECOMES ONLY ACADEMIC AND DOES NOT REQUIRE ANY ADJU DICATION. 18. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED AND THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 12 TH DAY OF AUGUST, 2021 DURING THE HEARING OF THE CASE. SD/- SD/- ( O.P. KANT) (K. NARSIMHA CHAR Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12 TH AUGUST, 2021 AKS