M/s. Unitech Realty Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3970/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7024 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 08-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR SR DR
• Keywords: Business income; Principle of natural justice; Deemed dividend; Notional interest; Revenue expenditure; Set aside
• Section: 2(22)(e); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.3970/DEL/2016 (ASSESSMENT YEAR: 2011-12) M/S UNITECH REALTY PVT. LTD. 6, COMMUNITY CENTRE, SAKET, NEW DELHI-110017 PAN AAACR 4290E VS. DY.CIT, CIRCLE 18(1), NOW CIRCLE-27(1), NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY MS. KANIKA JAIN, ADV. RESPONDENT BY SH. SARAS KUMAR, SR-DR DATE OF HEARING 23.06.2020 DATE OF PRONOUNCEMENT 31.08.2020 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST OR DER DATED 05.05.2016 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-22, NEW DELHI {CIT(A)} FOR ASSESSMENT YEAR 2011-12. 2.0 THE BRIEF FACTS OF THE CASE ARE AS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF 2 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT REAL ESTATE DEVELOPMENT. THE RETURN OF INCOME WAS FI LED DECLARING TOTAL INCOME OF RS. 41,12,96,510/- THE CASE WAS SELE CTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, APART FROM OTHER TWO ISSUES, THE ASSESSING OFFICER (AO) NOTED T HAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.60,84,530/- ON ACCOU NT OF COMPLETED PROJECTS- (UNIWORLD GARDEN-1). THE ASSESSE E WAS ASKED TO FURNISH JUSTIFICATION FOR ALLOWABILITY OF SUCH EX PENDITURE RELATED TO COMPLETED PROJECTS. IT WAS THE ASSESSEES CONTENT ION THAT SINCE SOME OF THE WORK OF THE PROJECT UNIWORLD GARDEN-1COU LD NOT BE COMPLETED WITHIN THE YEAR ENDING 31 ST MARCH, 2009 (THE YEAR IN WHICH THE PROJECT WAS TREATED AS COMPLETE BY THE AO), THE REMAINING WORK AS PER THE AGREEMENT WITH THE CUSTOMER S COULD ONLY BE COMPLETED DURING THE YEAR UNDER CONSIDERATION. H OWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CON TENTION AND NOTED THAT SINCE THE UNIWORLD GARDEN-1 PROJECT WAS COMPLETED IN ASSESSMENT YEAR 2009-10, THERE WAS NO SCOPE FOR ALLO WABILITY OF ANY OTHER EXPENDITURE OR LOSS IN THE CURRENT YEAR F ROM THE SAID PROJECT. ACCORDINGLY, AN AMOUNT OF RS.60,84,530/- WA S ADDED TO THE INCOME OF THE ASSESSEE. 3 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT 2.1 APART FROM THIS, IT WAS ALSO NOTICED THAT THE ASSESSEE HAD ADVANCED INTEREST FREE ADVANCES TO THE HOLDING COMP ANY M/S UNITECH LTD. THE ASSESSING OFFICER WAS OF THE OPIN ION THAT NON- CHARGING OF INTEREST ON THE SUM ADVANCED BY THE ASS ESSEE COMPANY TO ITS HOLDING COMPANY WAS A COLORABLE DEVICE TO RE DUCE ITS INCOME AND CONSEQUENTLY ITS TAXES. THE ASSESSING OFFICER P ROCEEDED TO MAKE AN ADDITION OF RS.15,14,28,410/- TOWARDS INTER EST FOREGONE I.E. @ 15%. THE AO ALSO PROCEEDED TO TAX INTEREST O N FDRS UNDER INCOME FROM OTHER SOURCES ALTHOUGH THE ASSESSEE H AD SHOWN THE SAME UNDER INCOME FROM BUSINESS. THE ASSESSMENT WA S COMPLETED AT AN INCOME OF RS.57,28,82,530/- . 2.2 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIR ST APPELLATE AUTHORITY CHALLENGING THE VARIOUS ADDITIO NS. THE ASSESSEES APPEAL WAS PARTLY ALLOWED BY THE LD. CIT (A). THE LD. CIT (A) CONFIRMED THE DISALLOWANCE OF RS.60,84,530/- PE RTAINING TO UNIWORLD GARDEN-1 PROJECT. THE LD. CIT (A) ALSO DIRE CTED THE DELETION OF NOTIONAL INTEREST OF RS.15.14,28,410/- ON ACCOUNT OF INTEREST FREE ADVANCE GIVEN TO THE HOLDING COMPANY. HOWEVER, THE LD. CIT (A) DIRECTED THAT SINCE THE ASSESSEE COMPAN Y HAD FREE 4 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT RESERVES OF 39.30 CRORES, THE HOLDING COMPANY WOULD BE LIABLE TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX A CT, 1961 (HEREINAFTER CALLED THE ACT.) IN THE HANDS OF THE HOLDING COMPANY WITH RESPECT TO THE INTEREST FREE ADVANCES. THE LD. CIT (A) ALSO UPHELD THE ASSESSING OFFICER VIEW THAT INTEREST ON FDRS SHOULD BE TAXED UNDER THE HEAD OF INCOME FROM OTHER SOURCES. 2.3 NOW, THE ASSESSEE IS BEFORE THIS TRIBUNAL CHALL ENGING THE ORDER OF THE LD. FIRST APPELLATE AUTHORITY BY RAISI NG THE FOLLOWING GROUNDS OF APPEAL: 1) THAT ORDER MADE U/S 250 OF THE INCOME TAX ACT DATED 05/05/2016 BY THE LEARNED CIT (APPEALS)-22 IS ERRONEOUS IN NATURE AS HE HAS CONFIRMED SOME OF THE ADDITIONS MADE BY THE LD. AO WHICH WERE ARBITRARY A ND UNCALLED FOR. 2) THAT THE DISALLOWANCE A SUM OF RS 60,84,5 30/- OUT OF EXPENSES RELATING TO UNIWORLD GARDEN- (UG-1) IS AGA INST THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE BECAUSE IF THE PROJECT IS MAINLY COMPLETED ON COMPLETION CONTRACT METHOD, IT DOESNT MEAN THAT RESIDUAL EXPENSES RELATED WITH TH AT PROJECT CANT BE ACCOUNTED FOR IN THE ENSUING YEAR. EVEN THE MATCHING PRINCIPLES OF ACCOUNTING AS STATED BY THE LD CIT (A) IN HIS APPELLATE ORDER NEVER MANDATORILY REQUIRE TH AT RESIDUAL AND INCIDENTAL EXPENSES OF THE PROJECT WHI CH WAS MAINLY COMPLETED IN THE IMMEDIATELY PRECEDING YEAR CANT BE ACCOUNTED FOR IN THE IMMEDIATELY SUCCEEDING YEAR. 3) THAT TREATMENT OF INTEREST ON FD AS BUS INESS INCOME IS UNJUST AND UNCALLED FOR AS FDRS WERE MADE FOR 5 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT PROCUREMENT OF BANK GUARANTEES WHICH WERE INCIDENTA L TO BUSINESS OBJECTIVES AND IT WAS NEVER THE LUXURY TO PARK THE SURPLUS FUNDS IN THE BANKS. SINCE THE FDRS WERE MA DE FOR FURTHERANCE AND SMOOTH RUNNING OF THE DAY TO DAY BU SINESS OF THE ASSESSEE COMPANY THEREFORE INTEREST ON FDRS MIGHT HAVE BEEN TREATED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. IN THE LIGHT OF ABOVE SAID FACTS, IT IS PRAYED THAT THE ADDITIONS UPHELD BY THE LD. CIT (A)-22 MAY KINDLY B E SET ASIDE. 3.0 AT THE OUTSET, THE LD. AUTHORIZED REPRESENTATI VE SUBMITTED THAT THE GROUND NO.3 CHALLENGING THE TREA TMENT OF INTEREST ON FDRS AS INCOME FROM OTHER SOURCES WAS NO T BEING PRESSED. ACCORDINGLY, THIS GROUND IS DISMISSED AS N OT HAVING BEING PRESSED. 3.1 WITH RESPECT TO GROUND NO.2, THE LD. AUTHORIZE D REPRESENTATIVE SUBMITTED THAT THE DISALLOWANCE OF RS .60,84,530/- BEING EXPENSES RELATING TO THE UNIWORLD GARDEN-1 PR OJECT WAS AGAINST THE PRINCIPAL OF EQUITY AND NATURAL JUSTICE BECAUSE EVEN IF THE PROJECT HAD BEEN COMPLETED ON COMPLETION CONTRA CT METHOD, IT DID NOT MEAN THAT THE RESIDUAL AND INCIDENTAL EXPEN SES RELATED TO THE PROJECT CANNOT BE ACCOUNTED FOR IN THE SUCCEEDI NG YEAR. IT WAS SUBMITTED THAT, UNDISPUTEDLY, THE ASSESSEE IS FOLLO WING THE 6 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT COMPLETED CONTRACT METHOD BUT THE IMPUGNED EXPENDIT URE WAS GENERAL IN NATURE AND DID NOT IMPACT THE RECOGNITIO N OF REVENUE IN ASSESSMENT YEAR 2010-11. IT WAS SUBMITTED THAT SINCE , IT WAS IN THE NATURE OF GENERAL EXPENDITURE, SUCH EXPENDITURE HAD TO BE RECORDED ONLY WHEN IT WAS ACTUALLY INCURRED AS IT COULD NOT HA VE BEEN FACTORED EARLIER WHEN THE PROJECT WAS COMPLETED. TH E LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE CASE LAWS RELIED U PON THE LD. FIRST APPELLATE AUTHORITY WHILE CONFIRMING THE ADDIT ION WAS MISAPPLICATION OF LAW. THE LD. AUTHORIZED REPRESENTA TIVE ALSO RELIED ON NUMEROUS JUDICIAL PRECEDENTS TO BUTTRESS THE CLA IM THAT THE DISALLOWANCE EXPENDITURE HAD BEEN INCORRECTLY UPHELD BY THE LD. CIT (A). 4.0 PER CONTRA, THE LD. SR. DEPARTMENTAL REPRESEN TATIVE (DR) PLACED RELIANCE ON THE CONCURRENT FINDINGS OF BOTH THE LOWER AUTHORITIES I.E. THE ASSESSING OFFICER AND THE LD. CIT (A) AND VEHEMENTLY ARGUED THAT THE DISALLOWANCE HAD BEEN RIG HTLY MADE BECAUSE AS PER THE ASSESSEES OWN ADMITTANCE AND FAC TS ON RECORDS, THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD AND, THEREFORE, EXPENDITURE WHICH HAD BEEN INCURRED SUBSE QUENT TO THE 7 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT COMPLETION OF THE PROJECT COULD NOT BE ALLOWED UNDE R THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF THE LOWER AUTHORITIES. A PERUSAL OF THE ASSESSMENT ORDER SHO WS THAT THE SOLE GROUND FOR DISALLOWANCE OF THE IMPUGNED EXPENDITURE BY THE ASSESSING OFFICER WAS THE REASON THAT SINCE THE CONC ERNED PROJECT HAD BEEN COMPLETED IN ASSESSMENT YEAR 2010-11 ITSEL F, ANY EXPENDITURE INCURRED ON THE SAID PROJECT SUBSEQUENT TO ITS COMPLETION COULD NOT BE ALLOWED. THE LD. CIT (A), WH ILE UPHOLDING THE DISALLOWANCE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TAPARIA TOOLS LTD. VS. JOINT COMMISSIONER OF INCOME TAX, REPORTED IN [2003] 260 ITR 102 (BOMBAY ) AND HELD THAT THE IMPUGNED EXPENDITURE COULD NOT BE ALLOWED AS THE RECEIPTS FROM THE CONCERNED PROJECT HAD ALREADY BEEN OFFERED TO TAX IN THE EARLIER ASSESSMENT YEAR. HOWE VER, WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF GOPAL DAS ESTATES & HOUSING PVT. LTD. VS. CIT REPORTED IN [2019] 103 TA XMANN.COM 334 8 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT (DELHI) HAS HELD THAT IN THE CASE OF AN ASSESSEE FOLLOWING COMPLETED CONTRACT METHOD, THE EXPENDITURE INCURRED SUBSEQUEN T TO THE COMPLETION OF THE PROJECT HAD TO BE ALLOWED AS REVE NUE EXPENDITURE. IN THIS CASE, THE ASSESSEE WAS ENGAGED IN CONSTRUCTI ON AND SALE OF COMMERCIAL SPACE AND FOLLOWED COMPLETED CONTRACT ME THOD OF ACCOUNTING. WHEN THE PROJECT WAS STILL UNDER CONSTRU CTION, INTEREST EXPENDITURE WAS CAPITALIZED AND ONCE THE PROJECT WAS COMPLETED, THE SAID EXPENDITURE WAS CLAIMED AS REVENUE EXPENDIT URE. THIS WAS DISPUTED BY THE DEPARTMENT. THE HONBLE DELHI HIGH COURT HELD THAT FOR THE ASSESSEE FOLLOWING THE COMPLETED CONTRA CT METHOD, THE EXPENDITURE INCURRED SUBSEQUENT TO THE COMPLETION O F THE PROJECT HAD TO BE ALLOWED ONLY AS REVENUE EXPENDITURE. 5.1 IT IS NOT IN DISPUTE THAT THIS EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE. ALSO IT REMAINS UNDISPUTE D THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSES OF THE BUS INESS OF THE ASSESSEE. THEREFORE, IT IS OUR CONSIDERED OPINION T HAT EVEN THOUGH THE ASSESSEE HAS BEEN FOLLOWING THE COMPLETED CONTRA CT METHOD OF ACCOUNTING, THE ASSESSEES CLAIM FOR ALLOWANCE OF EX PENDITURE PERTAINING TO THE PROJECT UNIWORLD GARDEN-1 DESERVES TO BE ALLOWED 9 ITA NO.3970/DEL/2016 M/S UNITECH REALITY PVT . LTD. VS. DCIT DURING THE YEAR UNDER CONSIDERATION, NOTWITHSTANDING THE FACT THAT THE PROJECT HAD ALREADY BEEN COMPLETED IN THE IMMED IATELY PRECEDING ASSESSMENT YEAR. FOR THIS, WE DRAW SUPPORT FROM THE JUDGMENT WITH THE HONBLE DELHI HIGH COURT IN THE CASE OF GOPAL DAS VS. CIT (SUPRA) AS MENTIONED IN THE PRECEDING PARAGRAPH. ACCORDINGLY, THE ORDER OF THE LD. CIT (A) ON THE IS SUE IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE. 5.2 GROUND NO.1 OF THE ASSESSEES APPEAL IS GENERA L IN NATURE NOT REQUIRING ANY SPECIFIC ADJUDICATION. 6.0 IN THE FINAL RESULT, THE APPEAL OF THE AS SESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED ON 31/08/2020. SD/- SD/- (PRASHANT MAHARISHI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31/08/2020 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI