DCIT Circle 1 (1), V. Aditya Properties Pvt LTd,

ITA 492/DEL/2007

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6374 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-02-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 01-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAGAN SOD
• Keywords: Notional interest; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.492/DEL/2007 ASSESSMENT YEAR : 2004-05 DCIT, M/S ADITYA PROPERTIES (P) LTD., CIRCLE-1 (1), 6, COMMUNITY CENTRE, SAKET, NEW DELHI. V. NEW DELHI. AND CROSS OBJECTION NO.119/DEL/2008 IN I.T.A. NO.492/DEL/2007 ASSESSMENT YEAR : 2004-05 M/S ADITYA PROPERTIES DCIT, (P) LTD. SAKET, CIRCLE-1( 1), NEW DELHI. V. NEW DELHI. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACA AAACA AAACA AAACA- -- -8228 8228 8228 8228- -- -P PP P DEPARTMENT BY : SHRI GAGAN SOD, DR. ASSESSEE BY : SHRI GAUTAM JAIN, C.A. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A) DATED 29.11.2006. THE ASSESSEE HAS ALSO FILED CRO SS OBJECTIONS AGAINST THE ACTION OF LD CIT(A) BY WHICH HE UPHELD ONE OF THE ADDITIONS MADE BY THE ASSESSING OFFICER. THE FIRST ADDITION DELET ED BY LD CIT(A) IS WITH RESPECT TO ADDITION OF ` .38.,62 LAKHS WHICH THE ASSESSING OFFICER HAD MADE ON ACCOUNT OF THE FACT THAT AS PER AGREEMEN T WITH M/S DCM ESTATES & INFRASTRUCTURES LTD. (DEIL), THE ASSESSEE WAS ENTI TLED TO INTEREST ON ADVANCES MADE BY IT BUT IT HAD NOT ACCOUN TED FOR IT ON ITA NO492/DEL/07 2 ACCRUAL BASIS. THE FACTS REGARDING THIS ADDITION ARE TH AT ASSESSEE HAD INVESTED AN AMOUNT OF ` .1,93,10,000/- BY WAY OF INVESTMENT IN DEIL FOR PURCHASE OF FLATS IN DCM TECHNO PLAZA, BARA HINDU RAO , DELHI. IT WAS AGREED BETWEEN THE ASSESSEE AND DEIL THAT IN CASE SALE IS NOT EXECUTED THEN DEIL WILL PAY INTEREST ON THE AMOUNT A DVANCED @ 20% P.A. M/S DEIL DID NOT PAY INTEREST AND HAD EXPRESSED ITS INABILITY TO PAY INTEREST ON THE OUTSTANDING BALANCE AND THEREFORE THE ASSESSEE COMPANY ALSO DID NOT PROVIDE INTEREST ACCRUED AS INCOM E FOR THE YEAR. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE WAS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING AND WAS FOLLOWING PROJ ECT COMPLETION METHOD, THE INTEREST HAD ACCRUED TO IT AND IT WAS LIA BLE TO BE TAXED. THEREFORE, HE MADE AN ADDITION OF ` .38.62 LAKHS. 2. THE SECOND ADDITION OF ` .28,96,500/- WAS MADE AS THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD ADVANCED THE AMOUNT O F ` .1,93,10,000/- TO M/S DEIL OUT OF MONEY BORROWED ON WHICH HEAVY AMOUNT OF INTEREST WAS PAID. THEREFORE, HE MADE THE A DDITION APPLYING NOTIONAL INTEREST RATE OF 15% PER ANNUM. 3. THE THIRD ADDITION OF ` .1,85,324/- WAS MADE BY THE ASSESSING OFFICER AS HE HELD THAT COMMISSION PAID BY THE ASSESSEE W AS NOT JUSTIFIED AS HE OBSERVED THAT BILLS ISSUED BY THE PAYEES REVEALED THAT THE COMMISSION WAS PAID TO THEM BY M/S UNITECH LTD. AND NOT BY ASSESSEE. 4 AGGRIEVED WITH THE ORDER, THE ASSESSEE FILED APPEAL B EFORE LD CIT(A). THE LD CIT(A) AFTER GOING THROUGH THE VARIO US SUBMISSIONS OF THE ASSESSEE ALLOWED RELIEF TO THE ASSESSEE BY HOLDING AS U NDER:- REGARDING IST ADDITION: REGARDING IST ADDITION: REGARDING IST ADDITION: REGARDING IST ADDITION: IN THE PRESENT CASE WE SEE THAT: I) THE ADVANCES WERE GIVEN BY THE APPELLANT COMPANY TO THE DEIL. ITA NO492/DEL/07 3 II) THE PURPOSE OF GIVING ADVANCE WAS TO PURCHASE UNIT OF PROPERTY OF DEIL. III) DUE TO COURT ORDER THE DEIL COULD NOT ALLOT UNITS. IV) THE HON'BLE HIGH COURT OF DELHI RESTRAINED THE DEIL FROM SELLING DISPOSING OR CREATING ANY THIRD PARTY RIGHTS IN THE PROJECT AND THE SALE AGREEMENT WILL BE EXECUTED ONLY AFTER THE RESTRAINT ORDER IS VACATED BY THE HIGH COURT OF DELHI . IN THE EVENT THE RESTRAINT ORDER IS NOT VACATED WITHIN SIX MO NTHS FROM THE DATE OF PAYMENT OF THE ADVANCE, THE COMPAN Y WILL NOT HAVE ANY LIEN IN SALE OF PROPERTY AND WILL BE EN TITLED TO COLLECT PRINCIPAL AMOUNT ALONG WITH INTEREST OF 20% PER ANNUM. V) THE DEIL INFORMED THE APPELLANT COMPANY THAT THEY A RE NOT IN A POSITION TO PAY OR PROVIDE INTEREST ON THE ADVANCES. VI) IN SUBSEQUENT YEARS THE APPELLANT COMPANY HAD NEVER CANCELLED THE BOOKING. AT THE SAME TIME DEIL HAS NEVE R STOPPED RECOGNIZING THE LIEN OF THE APPELLANT COMPAN Y ON THE SAID UNITS. ON THE CONTRARY BOTH THE COMPANIES HAVE M ADE TRANSACTIONS TO STRENGTHEN THE LIEN ON THESE UNITS WHICH IS EVIDENT FROM THE DOCUMENTS FILED DURING THE APPEAL PROCEEDINGS. CONSIDERING THE FACTS OF THE ISSUE, JUDICIAL PRONOUNCEM ENTS OF THE HON'BLE SUPREME COURT LANGUAGE OF AS-9 AND THE SEQUENCE OF FACTS AS NARRATED ABOVE, IT IS HELD THAT TH ERE WAS NO ACCRUAL OF ANY REAL INCOME AND THE AMOUNT ADDED AS ACCRUED INTEREST IS THEREFORE DELETED. REGARDING 2 REGARDING 2 REGARDING 2 REGARDING 2 ND NDND ND ADDITION: ADDITION: ADDITION: ADDITION: ITA NO492/DEL/07 4 I HAVE CONSIDERED THE FINDINGS OF ASSESSING OFFICER AND A LSO THE CONTENTIONS OF THE APPELLANT FURNISHED IN THE WRITT EN SUBMISSIONS. I AM CONVINCED THAT THE CASE LAW IN THE CASE OF WALL STREET CONSTRUCTION LTD. V. JCIT 2006 IS NOT APPLICABLE IN THIS CASE BECAUSE THE INVESTMENT WAS NOT IN A PROJECT THAT HAS NO T COME UP FOR SALE DURING THE PREVIOUS YEAR UNDER CONSIDERATI ON. ONE IMPORTANT FACT HAS BEEN LEFT TO BE APPRECIATED T HAT APPELLANT HAS A SHARE CAPITAL OF `.11,00,01,000/- AND RESERVE AN D SURPLUS OF ` .2,70,79,906/- TOTALING TO ` .13,71,79,906/-. THIS HUGE AMOUNT ON WHICH NO INTEREST HAS BEEN PAID IS SUFFICIENT ENOUGH TO COVER THE ADVANCE GIVEN TO DEIL FOR BOOKING THE UNITS. THIS IS ALSO CORRECT THAT NEITHER INTEREST ON THE AMOUN T BORROWED WAS CLAIMED AS REVENUE EXPENDITURE NOR THE AMOUNT WAS PROVIDED AS REVENUE EXPENDITURE. IT IS ALSO A FACT THAT APPELLANT HAS CLAIMED AN AMOUN T OF ` .1,41,122/- AS INTEREST IN THE RETURN FILED. HENCE BY NO STRETCH OF IMAGINATION AN AMOUNT OF ` .28,96,500/- CAN BE DISALLOWED OUT OF THE CLAIMED AMOUNT OF ` .1,41,122/-. ON THE BASIS OF THESE FACTS IT IS CONCLUDED THAT THE SHAR E CAPITAL AND RESERVE & SURPLUS OF ` .13,71,79,906/- WAS SUFFICIENT FOR GIVING ADVANCE. SINCE NO INTEREST WAS PAYABLE ON THI S AMOUNT OF SHARE CAPITAL AND RESERVE & SURPLUS NO DISALLOWANCE OF I NTEREST IS WARRANTED. AS A RESULT THE ADDITION OF ` .28,96,500/- IS DELETED. REGARDING 3 REGARDING 3 REGARDING 3 REGARDING 3 RD RDRD RD ADDITION ADDITION ADDITION ADDITION ON ACCOUNT OF BROKERAGE: ON ACCOUNT OF BROKERAGE: ON ACCOUNT OF BROKERAGE: ON ACCOUNT OF BROKERAGE: A SUM OF ` .1,85,324/- WAS DISALLOWED OUT OF BROKERAGE PAID TO SHRI VINAY JAIN AND SHRI RS DHINGRA IN THE ABSENCE O F ANY CONFIRMATION BY THE ASSESSING OFFICER. WHILE PASSING THE ORDER THE LD ASSESSING OFFICER HAS IGNORED ALL THE FACTS AND SUBMISSIONS OF THE CASE. WE HAD ALREADY PLACED ON RECORD S THAT THE APPELLANT HAD STARTED ITS BUSINESS WITH THE COLLABO RATION OF ITA NO492/DEL/07 5 UNITECH LTD. THERE WAS AN AGREEMENT BETWEEN THE APPE LLANT COMPANY AND UNITECH LTD. FOR THE AUTHORIZATION TO U NITECH LTD. TO SELL/TRANSFER ON BEHALF OF THE APPELLANT COMPANY. IT WAS ALSO AGREED BETWEEN THE TWO COMPANIES THAT ALL PERMISSIONS, APPROVALS, NOCS WHEREVER REQUIRED, INCLUDING NOC IN FORM 37(1) U/S 269 UC OF THE IT ACT SHALL BE OBTAINED BY T HE UNITECH LTD. ACCORDINGLY, THE CONCERNED BUSINESS PARTIES HAVE TO DEA L WITH UNITECH LTD. IN VIEW OF THESE THE TWO BROKERS NAMELY SHRI VINAY JAIN AND SHRI RS DHINGRA HAS ISSUED THE BILLS IN THE N AME OF UNITECH LTD. BUT THESE ARE NEVER CHARGED TO UNITECH LTD AND HAD BEEN PROVIDED ONLY IN THE BOOKS OF APPELLANT COMPANY . WHEN CALLED FOR THE APPELLANT PRODUCED THE BOOKS OF ACCOUNTS TO SHOW THAT THE AMOUNT OF BROKERAGE OF ` .1,85,324/- WAS PAID TO SHRI VINAY JAIN AND SHRI RS DHINGRA. THIS IS ALSO A FA CT THAT THE APPELLANT COMPANY HAD IN AGREEMENT WITH UNITECH LTD . AUTHORIZING THE UNITECH LTD TO SALE/TRANSFER ON BEHAL F OF THE APPELLANT COMPANY. THE COPY OF THE AGREEMENT IS ON T HE RECORD. THE NAME OF UNITECH LTD. ON THE CONCERNED BILLS MAKE S NO DIFFERENCE AS THE AMOUNT OF BROKERAGE WAS ULTIMATELY PAID BY THE APPELLANT COMPANY. THE NATURE OF SERVICES RENDERED B Y THE BROKERS IS EVIDENT FROM THE AGREEMENT AND BILLS. ON TH E BASIS OF THESE FACTS THE ADDITION IS DELETED. 5. AGGRIEVED WITH THE ORDER THE REVENUE IS IN APPEAL BEFORE US. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION AGAINST UPHOLDING O F ONE OF THE ADDITION AMOUNTING TO ` .5,16,393/-. 6 AT THE OUTSET, THE LD DR INVITED OUR ATTENTION TO THE ASSESSMENT ORDER AND SUBMITTED THAT ASSESSEE HAD ADVANCED THE AMOUN T AND IT WAS ENTITLED TO INTEREST @ 20% AND SINCE IT WAS FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING THE INTEREST GOT ACCRUED TO IT AN D THEREFORE THE ITA NO492/DEL/07 6 ASSESSING OFFICER HAD RIGHTLY MADE THE ADDITION FOR INT EREST NOT TAKEN INTO AQCCOUNT BY THE ASSESSEE AS ITS INTEREST INCOME. ARGU ING UPON 2 ND & THIRD ADDITION, THE LD DR RELIED UPON THE ASSESSMENT ORDER. 7. THE LD AR REGARDING FIRST DISALLOWANCE INVITED OUR ATTENTION TO PAPER BOOK PAGES 24 TO 26 WHERE AN ORDER U/S 143(3) W AS PLACED FOR ASSESSMENT YEAR 2006-07 IN THE ASSESSEES OWN CASE AND SUBMITT ED THAT NO SUCH ADDITION WAS MADE BY THE ASSESSING OFFICER W ITH RESPECT TO ACCRUED INCOME THOUGH FACTS WERE SAME. IN THIS RESP ECT HE INVITED OUR ATTENTION TO PAPER BOOK PAGE 20 WHERE THE ASSESSEE IN ITS NOTES TO ACCOUNT TO BALANCE SHEET AT POINT NO.3 HAD MENTIONED THE FACT REGARDING ADVANCES. HE FURTHER TOOK US TO PAGE 78 WHE RE A COPY OF AGREEMENT WAS PLACED AND INVITED OUR ATTENTION TO CL AUSE (2) WITH THE PROPOSITION THAT ASSESSEE WAS ENTITLED TO INTEREST ONLY IN THE EVENT OF CANCELLATION OF AGREEMENT AND IT WAS SUBMITTED THAT AGREEMENT IN THE PRESENT CASE WAS NOT CANCELLED. THE LD AR FURTHER RELI ED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. EXCEL INDUSTRIES LTD. WITH THE PROPOSITION THAT NO TAX CAN B E LEVIED ON ANY HYPOTHETICAL INCOME AND INCOME BECOMES ACCRUED ONLY WHEN IT BECOMES DUE AND IT BECOMES LIABILITY OF OTHER PARTIES TO PAY AND THE PROBABILITY AND IMPROBABILITY OF REALIZATION IS TO B E CONSIDERED IN A REALISTIC MANNER. HE FURTHER POINTED OUT THAT IT WAS LAID DOWN THAT THE ASSESSING OFFICER MUST TAKE A PRAGMATIC VIEW AND SHOULD N OT ADOPT PEDANTIC APPROACH. IN VIEW OF ALL THESE FACTS AND CIR CUMSTANCES THE LD AR ARGUED THAT LD CIT(A) HAS RIGHTLY APPRECIATED THE FACTS OF THE CASE AND HAS RIGHTLY DELETED THE ADDITION. 8. REGARDING SECOND ADDITION, THE LD AR INVITED OUR ATTENTION TO PAPER BOOK PAGE 3 WHERE A BREAK UP OF SHARE CAPITAL, RESERVE & SURPLUS FOR THE LAST FIVE YEARS WAS PLACED. HE INVITED O UR ATTENTION TO THE FACT THAT THE AMOUNT OF SHARE CAPITAL ALONG WIT H THE RESERVE WAS MUCH MORE THAN THE AMOUNT OF LOAN TO UNITECH LTD. A ND THEREFORE HE ITA NO492/DEL/07 7 ARGUED THAT LD CIT(A) HAS RIGHTLY APPRECIATED THE AV AILABILITY OF SURPLUS FUNDS AND HAD RIGHTLY DELETED THE ADDITION. 9. REGARDING THIRD ADDITION THE LD AR SUBMITTED THAT THOUGH BILLS WERE RAISED AGAINST UNITECH LTD. BUT THE AMOUNT WAS P AYABLE BY THE ASSESSEE AND LD CIT(A) HAS ALLOWED RELIEF AFTER FINDING THE SUBMISSIONS OF ASSESSEE AS CORRECT. 10. AS REGARDS CROSS OBJECTIONS FILED BY ASSESSEE, THE LD AR SUBMITTED THAT HE IS NOT INTERESTED IN PRESSING THE SAME. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ADDITION ON ACCOUNT OF ` .38.62 LAKHS ON ACCOUNT OF NOTIONAL INTEREST WAS NOT JUSTIFIED AS THE ASSESSEE HAD NOT EARNED ANY INCOM E AS M/S DEIL HAD ALREADY EXPRESSED ITS INABILITY TO PAY THE IN TEREST. IT IS CORRECT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOU NTING AND UNDER NORMAL CIRCUMSTANCES IT HAD TO PROVIDE FOR INTE REST INCOME RECEIVABLE FROM M/S DEIL BUT SINCE THE ASSESSEE WAS AWARE OF THE FACT THAT IT WILL NOT RECEIVE ANY INCOME AS INTEREST, THER EFORE, FOLLOWING CONSERVATIVE POLICY OF NOT TAKING INTO ACCOUNT ANY I NCOME WHICH IS UNCERTAIN DID NOT MAKE ANY PROVISION FOR INTEREST INC OME AND LD CIT(A) HAD RIGHTLY APPRECIATED THE FACTS. REGARDING SECOND ADDITION, WE FIND THAT ASSESSEE HAD ABOUT ` .12.77 CRORES OF SHARE CAPITAL AND RESERVE AT THE CLOSE OF THE ASSESSMENT YEAR 2002-03 WHEREAS THE LOA N TO UNITECH LTD. IS ONLY TO THE EXTENT OF ` .8.05 CRORES. THE LD CIT(A) HAS RIGHTLY APPRECIATED ABOUT SURPLUS FUNDS AVAILABLE WITH THE ASSESSE E AND THEREFORE HAS RIGHTLY DELETED THE ADDITION. REGARDIN G THIRD ADDITION OF BROKERAGE WE FIND NO FORCE IN THE ARGUMENT OF LD DR AND LD CIT(A) HAS RIGHTLY APPRECIATED THE FACTS AND ALLOWED THE RELIEF . IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 12. REGARDING CROSS OBJECTION THE LD AR DID NOT PRESS T HE SAME. ITA NO492/DEL/07 8 13. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVE NUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. 14. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD DA Y OF MAY, 2014. SD/- SD/- (I.C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 23.05.2014. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 27.2.2014 DATE OF DICTATION 15.5.2014 DATE OF TYPING 16.5.2014 DATE OF ORDER SIGNED BY 23.5.2014 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.