DCIT, New Delhi V. M/s. MRG Developers Pvt. Ltd., Delhi

ITA 4070/DEL/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7864 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 18-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P K MISHRA
• Keywords: Capital asset; Business income; Opportunity of being heard; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 143(3); 43; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA.NO.4070/DEL./2014 ASSESSMENT YEAR 2008-2009 THE DCIT, CENTRAL CIRCLE-16, NEW DELHI. VS., M/S. MRG DEVELOPERS PVT. LTD., K.P. BLOCK, PLOT CINEMA PACIFIC NORTH COMMUNITY CENTRE, PITAMPURA, DELHI. PAN AADCM4743Q (APP E L L ANT) (RESPONDENT) FOR REVENUE : MS. RAKHI VIMAL, SR. DR FOR ASSESSEE : SHRI P.K. MISHRA, C. A . DATE OF HEARING : 22 .0 1 .20 20 DATE OF PRONOUNCEMENT : 28 .0 1 .20 20 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IX, NEW DELHI, DATED 20.03.2014, FOR THE A.Y. 2008-2009. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 2 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. 3. ON GROUND NO.1, REVENUE CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.2,18,61,518/- MADE BY THE A.O. ON ACCOUNT OF ESTIMATED GROSS PROFIT AT 15% OF DEEMED SALES OF COMMERCIAL SPACE TO M/S. BANSAL CORPORATION LTD. 3.1. THE A.O. HAS MADE THE AFORESAID ADDITION ON ACCOUNT OF GROSS PROFIT @ 15% ON DEEMED SALES OF RS.14.57 CRORES. THE A.O. OBSERVED THAT ON THIS SALE ACCOUNTED FOR THE CURRENT YEAR, ASSESSEE WOULD HAVE TO PAY MAT WHICH HAVE BEEN SAVED BY SO-CALLED SALE IN PREVIOUS ASSESSMENT YEAR. THE AGREEMENT DATED 31.03.2007 IS AN ANTI-DATED DOCUMENT CREATED TO SHOW TRANSFER THOUGH NOT ACTUAL TRANSFER TOOK PLACE. FURTHER SALE AND PURCHASE CANNOT BE A UNILATERAL ACT, IT HAS TO BE BILATERAL ACT WHICH TOOK PLACE IN ASSESSMENT YEAR UNDER APPEAL. THE AGREEMENT IN QUESTION WAS MERELY AN ARRANGEMENT TO SHOW SALE IN PRECEDING ASSESSMENT YEAR AND NO PROFIT HAVE BEEN BOOKED IN ASSESSMENT YEAR UNDER APPEAL. THE A.O. ACCORDINGLY ESTIMATED THE PROFIT @ 15% ON SUCH SALE AND MADE THE ADDITION. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT 3 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. ADDITION IS WHOLLY WRONG. THE ASSESSEE HAS SOLD COMMERCIAL SPACE TO M/S. BANSAL CORPORATION LTD., FOR A SUM OF RS.14.57 CRORES IN PRECEDING A.Y. 2007-2008 THROUGH AN AGREEMENT DATED 31.03.2007. THUS, IT WAS RIGHTLY BOOKED AS SALE IN ASSESSMENT YEAR AND THIS FACT HAVE BEEN ACCEPTED BY THE A.O. IN THE ORDER UNDER SECTION 143(3) OF THE I.T. ACT, 1961. ALL DOCUMENTARY EVIDENCES WERE PRODUCED. THE ASSESSEE HAS FILED RETURN FOR THIS YEAR AND PAID THE MAT OF RS.8,24,808/- ON BOOK PROFIT, THEREFORE, THE ADDITION IS WITHOUT ANY BASIS. THE LD. CIT(A) FOUND THAT SALE HAVE NOT BEEN DISPUTED BY THE A.O. IN THE PRECEDING A.Y. 2007-2008, THEREFORE, FOLLOWING THE ORDER FOR THE A.Y. 2007-2008, DELETED THE ADDITION. 4. THE LD. D.R. CONTENDED THAT THE ORDER OF THE A.O. UNDER SECTION 143(3)FOR THE A.Y. 2007-2008 IS FILED AT PAGE NO.25 OF THE PB WHICH IS SILENT OF THIS MATTER IN ISSUE AND NO DISCUSSION HAVE BEEN MADE IN THE ORDER. THEREFORE, THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LD. CIT(A) BECAUSE A.O. HAS ALSO GIVEN FACTUAL FINDING OF FACT HOW THE 4 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. ISSUE IS NOT RELEVANT IN A.Y. 2007-2008 AND SUCH FACTS HAVE NOT BEEN CONSIDERED BY THE LD. CIT(A). 5. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE THOUGH REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW BUT ALSO SUGGESTED THAT THE MATTER COULD BE REMANDED TO THE LD. CIT(A) FOR CONSIDERATION AFRESH. 6. AFTER CONSIDERING THE MATTER IN ISSUE AND SUBMISSIONS OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE LD. CIT(A). A.O. HAD DISCUSSED THE ISSUE IN DETAIL AND HAS GIVEN A SPECIFIC FINDING OF FACT HOW THE CASE OF ASSESSEE WAS DISTINGUISHABLE FROM A.Y. 2007-2008. THE LD. CIT(A) DID NOT DISCUSS ANY OF THE FACT BROUGHT OUT BY THE A.O. IN THE IMPUGNED ORDER AND MERELY FOLLOWED ASSESSMENT ORDER FOR THE A.Y. 2007-2008 FOR THE PURPOSE OF DELETING THE ADDITION. THE ORDER FOR THE A.Y. 2007-2008 UNDER SECTION 143(3) IS PLACED ON RECORD WHICH IS SILENT WITH REGARD TO MATTER IN ISSUE. NO REASONS FOR DECISION HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER. THEREFORE, FACTUAL FINDING SHALL HAVE TO BE GIVEN BY THE LD. CIT(A) WHILE DELETING THE MATTER IN ISSUE. 5 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. THOUGH THE LD. CIT(A) MAY ALSO TAKEN INTO CONSIDERATION THE FACTS STATED IN THE A.Y. 2007-2008, BUT, SHALL HAVE TO GIVE SPECIFIC FINDING OF FACT WHILE DECIDING THE ADDITION ON THE ISSUE. BOTH THE PARTIES, THEREFORE, RIGHTLY SUGGESTED THAT THE MATTER MAY BE REMANDED TO THE FILE OF LD. CIT(A) FOR DECISION AFRESH, AS PER LAW. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER IN ISSUE TO THE FILE OF LD. CIT(A) WITH A DIRECTION TO RE-DECIDE THE SAME AS PER LAW, BY GIVING REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.1 OF THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. ON GROUND NO.2, THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.47 LAKHS MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF EXPENSES INCURRED ON ACCOUNT OF PROJECT AND CONSTRUCTION EXPENSES. THE A.O. TREATED THE SAID EXPENDITURE AS CAPITAL IN NATURE AND OBSERVED THAT ASSESSEE COMPANY HAS PAID FITMENT CHARGES OF RS.42 LAKHS AND FURTHER RS.5 LAKHS WAS PAID TO M/S. MARBLE HUT PVT. LTD., FOR COMPOSITE PANELS AND MS STEEL. THESE EXPENSES HAVE BEEN PAID AS AGREED FOR RENOVATION, CIVIL WORK AND INTERIOR OF 6 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. THE PREMISES AS REQUIRED FOR THE PURPOSE OF LEASING. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT A.O. MADE THIS ADDITION WITHOUT LOOKING INTO THE FACTS OF THE CASE. THE ASSESSEE IS IN THE BUSINESS OF PROMOTING AND DEVELOPING OF COMMERCIAL COMPLEXES. THE COMMERCIAL SHOP/SPACE DEVELOPED BY THE ASSESSEE REPRESENTS STOCK-IN-TRADE AND NO CAPITAL ASSET CAME INTO EXISTENCE. THE EXPENDITURE INCURRED ON DEVELOPMENT OF COMMERCIAL PROJECTS IS CHARGED TO P & L A/C WHICH ULTIMATELY GETS ALLOCATED TO THE PROJECTS AND CLOSING INVENTORIES IS VALUED ACCORDINGLY TAKING INTO ACCOUNT THE TOTAL EXPENDITURE INCURRED DURING THE YEAR. THEREFORE, EXPENDITURE ATTRIBUTED TO THE SALES MADE DURING THE YEAR ARE EXPENDITURE REVENUE IN NATURE AND CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE. THE A.O. WAS INFORMED THAT EVEN AFTER COMPLETION OF THE PROJECT, THE ASSESSEE WAS UNDER AN OBLIGATION TO MAINTAIN THE PREMISES DEVELOPED BY IT AND TO CARRY-OUT MINOR/MAJOR MODIFICATIONS TO SUIT THE CONVENIENCE OF THE SHOP OWNER AND PUBLIC AT LARGE AND TO MAINTAIN THE FOOTFALL IN COMMERCIAL COMPLEX. FURTHER AT TIMES DEVELOPERS HAS ALSO INCURRED EXPENDITURE IN THE FORM 7 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. OF FITMENT CHARGES TO BE PAID TO THE TENANTS FOR CHANGES/MODIFICATION TO BE CARRIED-OUT BY THEM ACCORDING TO THEIR NEED WITH REGARD TO INTERIOR/CEILINGS ETC., FOR THEIR BUSINESS NEEDS IN THE PREMISES TO BE LEASED-OUT. THESE FITMENT CHARGES ARE INCURRED FOR SOLICITING THE LEASE TRANSACTIONS. SINCE ASSESSEE HAS SHOWN BUSINESS INCOME, THEREFORE, THESE EXPENSES WERE REVENUE IN NATURE. THE ASSESSEE HAD DULY DEDUCTED TDS ON FITMENT CHARGES AND CLAIMED AS REVENUE EXPENDITURE. THE LD. CIT(A) ACCEPTED THE CONTENTION OF ASSESSEE BECAUSE ASSESSEE IS ENGAGED IN BUSINESS OF DEVELOPING AND PROMOTING COMMERCIAL COMPLEX AND THESE CONSTRUCTION EXPENSES RELATED TO SHOPS ARE STOCK- IN-TRADE WHICH COULD NOT BE CONSIDERED AS CAPITAL EXPENDITURE. THE LD. CIT(A) ACCORDINGLY DELETED THE ADDITION. 8. THE LD. D.R. RELIED UPON ORDERS OF THE A.O. AND SUBMITTED THAT LD. CIT(A) DID NOT DISCUSS THIS ISSUE IN DETAIL. 9. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT MODIFICATION WERE 8 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. MADE IN THE LEASED PROPERTY AS PER REQUIREMENT OF THE CUSTOMERS WHICH ARE REVENUE IN NATURE. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPING AND PROMOTING COMMERCIAL COMPLEXES. THE ASSESSEE EXPLAINED THAT IT IS UNDER OBLIGATION TO MAKE MINOR/MAJOR MODIFICATION TO SUIT THE CONVENIENCE OF THE LESSEE. THEREFORE, FITMENT CHARGES ARE INCURRED FOR BETTER OCCUPANCY BY THE CUSTOMERS. SINCE THE COST OF CONSTRUCTION IS PART OF STOCK-IN-TRADE AND INCOME HAVE BEEN OFFERED ACCORDINGLY, THEREFORE, IF THE FITMENT CHARGES ARE INCURRED FOR LEASED-OUT PREMISES, THE SAME WOULD BE REVENUE IN NATURE. NO NEW CAPITAL CAME INTO EXISTENCE AND NO SUCH FINDING HAVE BEEN GIVEN BY THE A.O. THEREFORE, CONSIDERING THE NATURE OF BUSINESS OF ASSESSEE, THE LD. CIT(A) CORRECTLY DELETED THE ADDITION BECAUSE THE EXPENDITURE IS RELATED TO THE BUSINESS INCOME OF THE ASSESSEE. GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 9 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. 11. ON GROUND NO.3, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.86,92,045/- ON ACCOUNT OF DISALLOWANCE OF INTEREST. 12. THE A.O. MADE THE ABOVE DISALLOWANCE OUT OF TOTAL INTEREST OF RS.1,96,48,636/- PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE DISALLOWANCE HAS BEEN MADE ON PROPORTIONATE BASIS INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE I.T. ACT AND RELYING UPON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD., 157 TAXMAN 257 (P & H). THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT ADDITION IS WHOLLY UNJUSTIFIED. THE ASSESSEE HAS NOT UTILISED ANY BORROWED FUNDS TO MAKE INVESTMENT THROUGH ADVANCE TO SISTER CONCERN. DETAILED CHART IS REPRODUCED IN THE APPELLATE ORDER WHICH WOULD SHOW THAT ASSESSEE HAD NOT UTILISED ITS BORROWED FUNDS TO MAKE ADVANCE TO THE SISTER CONCERN OR OTHER PARTIES. IN FACT, THE BORROWED FUNDS HAVE REDUCED FROM RS.19.33 CRORES AT THE BEGINNING OF THE YEAR TORS.8.74 CRORES AT THE CLOSE OF THE YEAR AND AMOUNT DUE FROM SISTER CONCERN HAVE BEEN REDUCED TO RS.2.44 CRORES FROM RS.18.46 10 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. CRORES AT THE BEGINNING OF THE YEAR. THEREFORE, BY NO STRETCH OF IMAGINATION, IT COULD BE CONCLUDED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS MADE INTEREST FREE ADVANCES OUT OF BORROWED FUNDS. IT WAS FURTHER SUBMITTED THAT JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD., (SUPRA) HAVE BEEN OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPROATION 168 TAXMAN 43 (SC) WHEREIN IT WAS HELD THAT THE INTEREST FREE LOANS AND ADVANCES TO THE SISTER CONCERN OUT OF OWN FUNDS IS NOT HIT BY THE PROVISIONS OF SECTION 36(1)(III) OF THE I.T. ACT, 1961. FURTHER NO NEXUS HAVE BEEN PROVED IF ADVANCES HAVE BEEN GIVEN OUT OF INTEREST BEARING FUNDS. THE LD. CIT(A), THEREFORE, DELETED THE ADDITION. 13. THE LD. D.R. RELIED UPON THE ORDER OF THE A.O. AND SUBMITTED THAT ADVANCE HAVE REDUCED IN ASSESSMENT YEAR UNDER APPEAL AND RELIED UPON THE FOLLOWING DECISIONS : 1. PUNJAB STAINLESS STEEL INDS. VS., CIT [2010] 324 ITR 396 (DEL.) 2. THUKRAL REGAL SHOES VS., CIT [2017] 391 ITR 119 (P&H) 11 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. 3. ABHISHEK INDUSTRIES LTD., VS., CIT [2006] 286 ITR 1 (P&H) 4. CIT VS., R MOHAN 2011 - TIOL - 687 - HC - MAD - IT. 5. CIT VS., CORNERSTONE EXPORTS (P.) LTD., [2016] 238 TAXMAN 465 (GUJARAT). 14. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) AND REFERRED TO B-46 WHICH IS DETAILS OF THE ADVANCE GIVEN TO THE PARTIES AND ALSO TO SHOW ASSESSEE HAS TOTAL SHARE CAPITAL AND RESERVE AND SURPLUS IN A SUM OF RS.15,78,50,000/- WHICH ARE SUFFICIENT TO GIVE LOANS TO THE SISTER CONCERN FOR BUSINESS PURPOSES. HE HAS RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS., RELIANCE INDUSTRIES LTD., 410 ITR 466 (SC) IN WHICH IT WAS HELD THAT IN VIEW OF THE FACT THAT INTEREST FREE FUNDS WERE AVAILABLE TO THE ASSESSEE WHICH WERE SUFFICIENT TO MEET ITS INVESTMENT IN SUBSIDIARY COMPANIES WERE JUSTIFIED IN ALLOWING ASSESSEES CLAIM FOR DEDUCTION. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. IT IS A FACT THAT SUBSTANTIAL ADVANCE WERE GIVEN IN PRECEDING 12 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. ASSESSMENT YEAR WHICH HAVE REDUCED IN ASSESSMENT YEAR UNDER APPEAL. THE ASSESSMENT IN PRECEDING A.Y. 2007-2008 HAVE BEEN MADE UNDER SECTION 143(3) IN WHICH NO DISALLOWANCE OUT OF INTEREST HAVE BEEN MADE. SINCE IN ASSESSMENT YEAR UNDER APPEAL, THE ADVANCE HAVE REDUCED SUBSTANTIALLY AND THAT ASSESSEE HAS SUFFICIENT FUNDS, THEREFORE, NO SUCH DISALLOWANCE COULD BE MADE AGAINST THE ASSESSEE. THE ISSUE IS, THEREFORE, COVERED BY JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE INDUSTRIES LTD., (SUPRA). FURTHER, A.O. HAS NOT PROVED ANY NEXUS WITH INTEREST FREE FUNDS GIVEN TO SISTER CONCERN OUT OF BORROWED FUNDS. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE LD. CIT(A) CORRECTLY DELETED THE ADDITION. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 16. IN THE RESULT, APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13 ITA.NO.4070/DEL./2014 M/S. MRG DEVELOPERS PVT. LTD., DELHI. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (O.P. KANT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED JANUARY, 2020 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT E BENCH 6. GUARD FILE // BY ORDER // ASST. REGISTRAR, ITAT, DELHI BENCHES, DELHI.