DCIT, New Delhi V. M/s. Ajay Enterprises Pvt. Ltd., New Delhi

ITA 5776/DEL/2014

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9458 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K KAPOOR
• Keywords: Depreciation; Bad and doubtful debts; Commercial expediency
• Section: 43B; 143(3); 201; 43; 73; 72; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI DR. B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. NO.899/DEL/2013 & 1704/DEL/2015 ASSESSMENT YEAR: 2009-10 & 2012-13 AJAY ENTERPRISES PVT. LTD., 8 TH FLOOR, EROS CORPORATE TOWER, NEHRU PLACE, NEW DELHI. VS. DCIT, CENTRAL CIRCLE-6, NEW DELHI. TAN/PAN: AAACA1967D (APPELLANT) (RESPONDENT) I.T.A. NO.1348 & 1349/DEL/2013, 5776/DEL/2014 & 2083/DEL/2015 ASSESSMENT YEAR: 2008-09, 2009-10, 2011-12 & 2012-13 DCIT, CENTRAL CIRCLE-6, NEW DELHI VS. AJAY ENTERPRISES PVT. LTD., 8 TH FLOOR, EROS CORPORATE TOWER, NEHRU PLACE, NEW DELHI. TAN/PAN: AAACA1967D (APPELLANT) (APPELLANT) APPELLANT BY: S/SHRI PRADEEP DINODIA & R.K. KAPOOR, CA RESPONDENT BY: DATE OF HEARING: 28 06 2021 DATE OF PRONOUNCEMENT: 30 07 2021 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID BATCH OF APPEALS HAS BEEN FILE D BY THE DEPARTMENT AND THE ASSESSEE ARISING OUT OF SEPARATE ORDERS OF LD. CIT (APPEALS) FOR THE QUANTUM OF ASSESSMENT PAS SED U/S 143(3) FOR THE AFOREMENTIONED YEARS. SINCE MOST OF THE ISSUES ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 2 INVOLVED ARE COMMON, ARISING OUT OF IDENTICAL SET O F FACTS, THEREFORE, ALL THESE APPEALS WERE HEARD TOGETHER AN D THIS COMMON ORDER IS PASSED DEALING WITH THE VARIOUS ISS UES RAISED BY THE DEPARTMENT AS WELL AS THE ASSESSEE. W E WILL FIRST TAKE UP THE APPEAL FOR THE A.Y. 2008-09 FILED BOTH BY THE ASSESSEE AS WELL AS THE DEPARTMENT. ITA NO. 898/DEL/2013 A. Y. 2008-09 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, MR. PRADEEP DINODIA STATED THAT ASSESSEE DOES NOT WANT TO PRESS THE SOLITARY GROUND RAISED BY IT IN ITS APPEAL PERT AINING TO DISALLOWANCE OF RS. 7,90,230/- ON ACCOUNT OF REPLAC EMENT FUND IN VIEW OF THE FINDINGS OF LD. CIT(A) ON THIS ISSUE. IN THE WRITTEN SYNOPSIS DATED 25.06.2021 FILED ONLINE, THE ASSESSEE HAS OPTED NOT TO PRESS THE SOLITARY GROUND RAISED I N THIS APPEAL. IN VIEW OF THIS SUBMISSION OF THE ASSESSEE , THE APPEAL FILED BY THE ASSESSEE BEING ITA NO. 898/DEL/2013 IS TREATED AS DISMISSED. THE APPEAL OF THE ASSESSEE IS DISMIS SED. ITA NO. 1348/DEL/2013 A. Y. 2008-09 3. NOW WE SHALL DEAL WITH THE DEPARTMENTAL APPEAL AS ABOVE. THE FACTS IN BRIEF ARE THAT ASSESSEE FILED ITS RETURN OF INCOME FOR A. Y. 2008-09 DECLARING AN INCOME OF RS. 23,90,50,763/- ON 30.09.2008. THE CASE OF THE ASSE SSEE WAS PICKED UP FOR SCRUTINY AND ASSESSMENT ORDER DATED 31.12.2010 U/S 143(3) OF THE INCOME TAX ACT WAS PAS SED AT A TAXABLE INCOME OF RS. 42,48,16,084/- BY MAKING VARI OUS ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 3 DISALLOWANCES AS PER THE SAID ORDER. IN THE APPEAL BEFORE LD. CIT (A), THE ASSESSEE WAS ALLOWED RELIEF AS PER THE DETAILED ORDER DATED 07.12.2012 PASSED BY THE LD. CIT(A)-1, NEW DELHI. AGAINST WHICH THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GROUNDS OF APPEA L IN THIS ASSESSMENT YEAR I.E. A. Y. 2008-09:- I. THE ORDER OF LD. CIT(A) IS NOT CORRECT IN LAW AND ON FACTS. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 93,040/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CESSATI ON OF LIABILITY U/S 41(1)/28 OF THE INCOME TAX ACT, 1961. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS. 72,199/- ON ACCOUNT OF EXCESSIVE DEPRECIATION ON PRINTERS/UPS. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANC E OF FOREIGN TRAVELLING EXPENSES TO RS, 2,00,000/-. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOWING THE A SSESSEES CLAIM OF LOSSES AMOUNTING TO RS. 18,52,00,000/- IN THE DWARKA PROJECT DESPITE THE FACT THAT THE LOSSES WOR KED OUT BY THE ASSESSEE WAS ON ESTIMATE BASIS AND UNSCIENTI FIC. VI. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F THE HEARING OF THE APPEAL. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 4 4. GROUND NO. 1 & 6 AS ABOVE ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION 5. GROUND NO. 2 RAISED BY THE DEPARTMENT PERTAINS TO AN ADDITION MADE BY THE LD. AO AMOUNTING TO RS. 93,040 /- U/S 41(1)/28 OF THE INCOME TAX ACT. THE LD. CIT-DR, SH . SATPAL GHULATI BY REFERRING TO THE ORDER OF ASSESSMENT SUB MITTED THAT THIS ADDITION WAS MADE ON THE GROUND THAT CERT AIN TRADE CREDITORS/LIABILITIES WERE APPEARING IN THE BALANCE SHEET FOR MORE THAN 3 YEARS. THE SAME, ACCORDING TO AO/DEPART MENT, HAVE CEASED TO EXIST AND REPRESENTED REMISSION OF L IABILITY LIABLE TO BE TAXED U/S41(1) OF THE INCOME TAX ACT. THE LD. AO RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF CIT V/S T. V. SUNDRAM IYENGER & SONS LTD. [222 ITR 344 (SC)] TO COME TO THE CONCLUSION THAT ASSESSEE IS NOT REQUIRED TO PAY SUCH CREDITORS AND LIABILITY OF THE ASSESSEE HAS CEASED TO EXIST. THE LD. CIT-DR RELIED UPON TH E FINDINGS OF AO AS CONTAINED IN THE ASSESSMENT ORDER. 6. THE LD. AR OF THE ASSESSEE SUBMITTED THAT ADDITI ON MADE BY THE AO IS NOT AS PER LAW AND PROVISIONS OF SECTI ON 41 OF THE INCOME TAX ACT. IN THE SYNOPSIS DATED 25.06.2021 FI LED ONLINE THE ASSESSEE HAS SUBMITTED ON THIS ISSUE AS UNDER:- IT WAS SUBMITTED BEFORE THE CIT (APPEALS) THAT THE FACTS OF THE ASSESSEES CASE WERE NOT AT PAR WITH T V SUNDAR AM JUDGMENT AND IT WAS ALSO EXPLAINED THAT THE SUBSEQU ENT JUDGMENT HONBLE SUPREME COURT IN THE CASE OF CIT VS. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 5 SINGAULI SUGAR WORKS (236 ITR 518) HAVE EXPLAINED THE PROVISIONS OF SECTION 41(1) AND HAS CLEARLY LAID DO WN THE PROPOSITION THAT SIMPLY ON EXPIRY OF THE PERIOD OF THE LIMITATION UNDER THE LIMITATION ACT COULD NOT EXTIN GUISH THE DEBT AND PROVISIONS OF SECTION 41(1) ARE NOT ATTRAC TED. (PB- 80-87). IT WAS FURTHER EXPLAINED THAT THESE CLARIFICATIO NS BY HONBLE SUPREME COURT HAS SUBSEQUENTLY BEEN ACCE PTED BY THE HOBLE PUNJAB & HARYANA HIGH COURT IN THE CA SE OF CIT VS. SMT. SITA DEVI JUNEJA (187 TAXMAN 96) AND ALSO IN CIT VS. G P INTERNATIONAL (186 TAXMAN 229) . THE REFERENCE WAS ALSO MADE TO THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAIPUR JEWELERS (EXPORTS) (187 TAXMAN 169) FOR HIGHLIGHTING THAT SO LONG AS THERE IS NO CESSION OF LIABILITY BY WRITING IT B ACK IN THE BOOKS OF THE ASSESSEE, NO ADDITION CAN BE MADE U/S 41(1) OF THE INCOME TAX ACT. THE LD. CIT (APPEALS) ON APPR ECIATION OF ALL THE FACTS HAS ALLOWED THE RELIEF. APART FROM THE JUDGMENTS RELIED UPON IN THE ORDER O F CIT (APPEALS), IT IS RESPECTFULLY SUBMITTED THAT THE HO NBLE DELHI HIGH COURT HAS REITERATED THESE PROVISIONS IN THE C ASE OF CIT VS. JAIN EXPORTS LIMITED (2013 TIOL 449- HIGH COURT DELHI) . IT HAS FURTHER BEEN CLARIFIED IN THE SAID JUDGMENT THAT SO LONG AS THE LIABILITIES ARE DISCLO SED AND APPEARING IN THE AUDITED BALANCE SHEET, THE SAME CA NNOT BE TREATED AS CESSATION OF LIABILITY AND CANNOT BE ADD ED BACK AS INCOME U/S 41(1) OF THE INCOME TAX ACT. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 6 SIMILARLY GUJARAT HIGH COURT HAS HELD IN THE CASE O F CIT VS. NITIN S. GARG (208 TAXMAN 16) THAT SO LONG AS ASSESSEE CONTINUES TO SHOW ADMITTED AMOUNT AS LIABILITIES IN THE BALANCE SHEET, THE SAME COULD NOT BE TREATED AS CES SATION OF LIABILITY. HONBLE DELHI ITAT IN THE CASE OF ITO V. HERO GLOBAL DESIGN LIMITED 2019-TIOL-460-ITAT-DEL HAS HELD THAT PROVISIONS OF SECTION 41(1) ARE NOT ATTRACTED IF TH ERE IS NO EVIDENCE TO SUGGEST THE CESSION OR REMISSION OF TRA DING LIABILITY. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RELEVA NT FINDING GIVEN IN THE IMPUGNED ORDER. ADMITTEDLY, TH E LIABILITIES/CREDITORS CONTINUE TO APPEAR IN THE AUD ITED ACCOUNTS OF THE ASSESSEE AS ON 31.03.2008 AND ASSES SEE HAS NOT WRITTEN BACK THESE AMOUNTS. HONBLE SUPREME CO URT IN THE CASE OF CIT VS. SINGAULI SUGAR WORKS (SUPRA) HAVE EXPLAINED THE PROVISIONS OF SECTION 41(1) AND HAS H ELD THAT SO LONG LIABILITIES ARE CONTINUOUSLY SHOWN AND ADMITTE D IN THE AUDITED ACCOUNTS, THE SAME DO NOT CEASE TO EXIST. 8. IN OUR VIEW, THE LD. CIT (A) HAS TAKEN A CORRECT LEGAL VIEW OF THE MATTER AND HAS CORRECTLY DELETED THE ADDITIO N. WE UPHOLD THE ACTION OF CIT (A) ON THIS ISSUE AND DISM ISS THIS GROUND OF APPEAL OF THE DEPARTMENT. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 7 9. GROUND NO. 3 RAISED BY THE DEPARTMENT IS REGARDING THE DEPRECIATION OF ACCOUNT OF COMPUTER PERIPHERALS SUC H AS PRINTERS AND UPS ETC. THE AO HAS REDUCED THE CLAIM OF DEPRECIATION BY AN AMOUNT OF RS. 72,199/- BY TREATI NG THE COMPUTER PERIPHERALS SUCH AS PRINTERS AND UPS AS OR DINARY ITEMS OF PLANT AND MACHINERY. THE ASSESSEE CLAIMED DEPRECIATION @ 60%/30% FOR THESE ITEMS DEPENDING UP ON THE PERIOD OF ACQUISITION IS MORE THAN 180 DAYS AND LES S THAN 180 DAYS BUT AO RESTRICTED THE CLAIM TO 15%/7.5% AND WO RKED OUT A DISALLOWANCE OF RS. 72,199/-. AT THE TIME OF HEARING, BOTH THE PARTIES FAIRLY AGREED THAT THIS ISSUE IS N OW SETTLED BY THE JUDGMENTS OF HONBLE DELHI HIGH COURT AND EVENT UALLY HONBLE SUPREME COURT IN THE CASE OF CIT V. BSES YAMUNA POWER LTD. [358 ITR 47 (DELHI)] AND IN THE CASE OF BIRLA SOFT LTD. [TS-82-SC-2014]. RESPECTFULLY, FOLLOWING THESE JUDGMENTS, IT IS HELD THAT CIT (A)S ORDER ON THIS I SSUE DOES NOT NEED ANY INTERFERENCE AND IS HEREBY UPHELD. TH E GROUND NO. 3 RAISED BY THE DEPARTMENT IS ACCORDINGLY DISMISSED. 10. GROUND NO. 4. THIS GROUND HAS BEEN RAISED BY THE REVENUE AGAINST THE RELIEF ALLOWED BY THE LD. CIT ( A) ON ACCOUNT OF DISALLOWANCE MADE BY THE AO TOWARDS THE FOREIGN TOUR EXPENSES OF WIFE OF ONE OF THE DIRECTORS OF TH E COMPANY. THE AO IN THE ASSESSMENT ORDER OBSERVED THAT WHEN M R. AVENEESH SOOD TRAVELLED OVERSEAS HIS WIFE MRS. TITH I SOOD ALSO TRAVELLED. ON BEING REQUIRED TO EXPLAIN, THE ASSESS EE CLAIMED BEFORE THE AO THAT MRS. TITHI SOOD WAS ALSO AN EMPL OYEE OF ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 8 THE COMPANY AND THESE TRAVELS WERE UNDERTAKEN FOR T HE BUSINESS PURPOSE OF THE COMPANY. IT WAS ALSO SUBMI TTED THAT THESE EXPENSES IN ANY CASE HAVE ALSO BEEN CONSIDERE D FOR THE PURPOSES OF PAYMENT OF FRINGE BENEFIT OF TAX. NO P ART OF THE DISALLOWANCE OF THESE EXPENSES CAN BE MADE UNDER TH E PROVISION OF INCOME TAX LAWS. HOWEVER, AO WAS NOT SATISFIED AND HE DISALLOWED THE AIR TICKET EXPENSES ALONG WIT H 50% OF THE EXPENSES OF FOREIGN TRAVELLING OF THE DIRECTOR AS HAVING BEEN INCURRED ON WIFE OF THE DIRECTOR WHICH AS PER THE ASSESSMENT ORDER WORKED OUT TO BE RS. 4,00,082/-. 11. BEFORE THE LD. CIT (A), ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LD. AO. THE LD . CIT(A) ON APPRECIATION OF ALL THE FACTS HAS HELD THAT SINC E WIFE OF THE DIRECTOR WAS ALSO AN EMPLOYEE OF THE COMPANY, AT TH E SAME TIME, SOME PERSONAL ELEMENT OF THE EXPENSES CANNOT BE RULED OUT, HE RESTRICTED THE DISALLOWANCE TO RS. 2,00,000 /- ON AN ESTIMATION BASIS AND ALLOWED RELIEF TO THE ASSESSEE FOR THE BALANCE AMOUNT OF RS. 2,00,082/-. 12. THE LD. DR MADE REFERENCE TO THE ORDER OF AO AN D RELIED UPON THE SAME. HOWEVER, THE LD. AR OF THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT AN IDENTICAL ISSUE CAME BEFORE HONBLE ITAT IN ASSESSEES OWN CASE FOR THE A. Y. 2 010-11, WHERE ALSO THE DISALLOWANCE MADE BY THE LD. AO WAS RESTRICTED TO ABOUT 50% OF THE DISALLOWANCE BY LD. CIT (A) AND HONBLE ITAT HAS UPHELD THE SAID ORDER OF LD. CIT ( A). THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 9 ASSESSEE ALSO REFERRED TO AND RELIED UPON THE JUDGM ENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING LTD. 253 ITR 749 (GUJARAT) TO CLAIM THAT THERE CANNOT BE ANY PERSONAL ELEMENT IN THE HANDS OF THE CORPORATE ENTITY AND DISALLOWANCE MADE BY THE AO WAS WHOLLY UNJUSTIFIED. REFERENCE WAS ALSO MADE TO THE CASE OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT PATIALA VS. ROAD MASTER INDUSTRIES OF INDIA (P) LTD. 2009-TIOL- 446- HC-P&H TO SUBMIT THAT ONCE AN FBT HAS BEEN PAID ON THE AMOUNT, WHICH FACT IS UNDISPUTED, NO OTHER DISALLOW ANCE CAN BE MADE UNDER THE PROVISIONS OF INCOME TAX ACT. 13. HOWEVER, ON A SPECIFIC QUERY BEING MADE BY THE BENCH, IT WAS CLARIFIED THAT ASSESSEE IS NOT IN APPEAL ON THIS ISSUE AND HAS ALSO ACCEPTED THE ORDER OF LD. CIT(A) ON TH IS ISSUE BY ACCEPTING THE DISALLOWANCE OF RS. 2,00,000/- ON THI S ACCOUNT. 14. HAVING HEARD THE PARTIES, WE FIND THAT THIS ISS UE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE BY AN ORD ER OF THIS TRIBUNAL IN ITA NO. 4832/DEL/2014 IN A. Y. 2010-11. RESPECTFULLY FOLLOWING THE SAID ORDER, WE DISMISS T HIS GROUND OF APPEAL OF THE DEPARTMENT AND CONFIRM THE ORDER O F LD. CIT (A) ON THIS ISSUE. GROUND NO. 4 OF THE DEPARTMENT IS DISMISSED. 15. GROUND NO. 5: THIS GROUND OF APPEAL HAS BEEN RAISED BY THE DEPARTMENT AGAINST THE RELIEF ALLOWED BY THE CIT (A) IN RESPECT OF LOSSES CLAIMED BY THE ASSESSEE AMOUNTING TO ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 10 RS.18.52 CRORES IN RESPECT OF DWARAKA PROJECT. ACC ORDING TO THE DEPARTMENT, THESE LOSSES HAD BEEN WORKED OUT BY THE ASSESSEE ON ESTIMATED BASIS AND IN AN UNSCIENTIFIC MANNER. 16. THE FACTS PERTAINING TO THIS ISSUE AS NOTED AND DISCUSSED AT PAGES 1 TO 12 OF ASSESSING OFFICERS ORDER FOR A. Y. 2008-09 ARE THAT, AUDITORS HAD GIVEN A NOTE NO. 2 IN THE AUDIT ACCOUNTS THAT LOSS OF RS.18.52 CRORES HAS BEEN WRIT TEN OFF IN A COMMERCIAL PROJECT AS THE ESTIMATED TOTAL CONTRACT COST AND REVENUE INDICATE A LOSS. PICKING UP A THREAD FROM T HIS NOTE, THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH LOS S WAS CLAIMED ON ESTIMATED BASIS ON WHICH THE ASSESSING O FFICER REQUIRED THE ASSESSEE TO EXPLAIN THE BASIS OF CLAIM ING LOSS WITH NECESSARY DETAILS AND SUPPORTING DOCUMENTS. IN RESPONSE TO SUCH REQUIREMENTS OF THE ASSESSING OFFI CER, THE ASSESSEE EXPLAINED THAT IT HAD ACQUIRED A PLOT FOR DEVELOPING A COMMERCIAL SITE IN AUCTION FROM THE DDA FOR WHICH T HE TOTAL COST CAME TO BE RS.122.98 CRORES. THERE IS NO DISPU TE ON THIS. IT WAS FURTHER EXPLAINED THAT ASSESSEE PROPOSED TO DEVELOP A SHOPPING MALL FOR WHICH INITIALLY THERE WAS A GOOD RESPONSE FROM THE PUBLIC. HOWEVER, THERE WAS SUDDEN FALL IN THE DEMAND OF REAL ESTATE PROPERTIES IN VIEW OF SUB-PR IME CRISIS IN USA AND BECAUSE OF GLOBAL RECESSION. IT WAS FURT HER EXPLAINED THAT MOST OF THE LARGE CORPORATE HOUSES P OSTPONED THEIR PROPOSED ACQUISITIONS AND SUDDENLY THE AVAILA BILITY OF SPACE IN THE REAL ESTATE MARKET EXCEEDED THAN THE D EMAND DUE TO WHICH THERE WAS SUDDEN AND UNCONTROLLABLE CR ASH IN THE MARKET PRICES. IT WAS FURTHER EXPLAINED THAT AN OTHER ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 11 GROUP COMPANY WHO HAD ALSO ACQUIRED ANOTHER PLOT IN THE AUCTION, OPTED TO SURRENDER THE PLOT TO DDA AT A HU GE LOSS. HOWEVER, TO KEEP A FACE AND REPUTATION INTACT IN TH E MARKET, THE ASSESSEE OPTED TO CONTINUE THE PROJECT. IT WAS FURTHER EXPLAINED THE LOSS HAS BEEN CALCULATED AND CLAIMED IN ACCORDANCE WITH THE ACCOUNTING STANDARD-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE PR OJECT COST AND REVENUES AS COMPUTED IN ACCORDANCE WITH THE SAI D ACCOUNTING STANDARDS WERE ALSO FILED WITH THE ASSES SING OFFICER. IT WAS EXPLAINED THAT PERCENTAGE OF COMPLE TION METHOD (POCM IN SHORT) HAS BEEN CONSISTENTLY FOLLOW ED BY ASSESSEE IN RESPECT OF ALL ITS PROJECTS IN THE PAST AND EVEN IN THE CURRENT YEAR IN RESPECT OF ALL ITS OTHER PROJEC TS. IT WAS EXPLAINED TO THE AO THAT SALES AND COST HAVE BEEN E STIMATED ON THE BASIS OF PERCENTAGE COMPLETION METHOD. RELYI NG UPON THE EXTRACTS FROM THE ACCOUNTING STANDARD 7, IT WAS HIGHLIGHTED TO CONTEND THAT THE LOSS CLAIMED WAS IN ACCORDANCE WITH THE ACCEPTED RULES AND LAW ON THIS ISSUE. THE ASSESSEE FURTHER RELIED UPON CERTAIN JUDGMENTS WHICH HAD DECIDED THE ISSUE OF ACCOUNTING FOR PROJECT LOS S BASED ON ACCOUNTING STANDARD 7, SOME OF WHICH ARE AS UNDER:- A. JACOBS ENGINEERING INDIA PVT. LTD. VS. ACIT (ITA NO. 335/MUM./2007 & 336/MUM./2007). B. HONBLE BOMBAY TRIBUNAL IN THE CASE OF MAZAGAON DOCK LIMITED VS. JCIT (29 SOT 356). ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 12 C. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR OF INDIA PRIVATE LIMITED (294 ITR 451). D. HONBLE SUPREME COURT AND HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR OF INDIA PVT. LTD. (SUPRA) 312 ITR 254 (SC). 17. ON THE PROPOSITION THAT REASONABLY ESTIMATED LI ABILITY ON THE DATE OF DRAWING THE ACCOUNTS HAS TO BE ACCOUNTE D FOR AND ARE LEGALLY ALLOWABLE, FOLLOWING JUDGMENTS ARE RELI ED UPON: A. SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (2004) 245 ITR 428 (SC). B. METAL BOX COMPANY OF INDIA LTD. V. THEIR WORKMEN (1969) 73 ITR 53 (SC). C. CALCUTTA CO. LTD. V. CIT (1959) 37 ITR 1 (SC). D. CIT V. INSILCO LTD. 179 TAXMAN 5 (DELHI) 18. THEREAFTER, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE BASIS OF COMPUTATION OF LOSS WHICH WAS FURNISHED. SIMILARLY, OTHER DETAILS AS REQUIRED BY THE AO IN R ESPECT OF TOTAL SALABLE AREA, TOTAL AREA ACTUALLY SOLD AND AG REED SALES REALIZATION IN RESPECT OF AREA SOLD, TOTAL UNSOLD A REA AND THE RATE AT WHICH SUCH UNSOLD AREA HAS BEEN ESTIMATED W ERE CALLED FOR WHICH WERE ALSO FURNISHED BY THE ASSESSE E AS RECORDED BY THE AO AT PAGE NO. 7 OF HIS ORDER. THE COMPLETE DETAILS OF TOTAL PROJECT COST AT RS.176.10 CRORES W ERE GIVEN PAGE 6 OF AOS ORDER. SIMILARLY, TOTAL ESTIMATED SALES REV ENUE CALCULATED AT RS.157.58 CRORES WERE GIVEN PAGE 7 CO LUMN 10 ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 13 OF HIS ORDER. THE DIFFERENCE BETWEEN ESTIMATED PROJ ECT REVENUE AND PROJECT COST, BEING RS. 18.52 CRORES WA S CLAIMED AS LOSS IN A.Y. 2008-09 AS PER ACCOUNTING STANDARD- 7. THEREAFTER, THE AO CALLED FOR FURTHER INFORMATION I N RESPECT OF THE SAID PROJECT DETAILS WHICH WAS ALL SUBMITTED TO THE AO. 19. THE MAIN REASON GIVEN BY THE ASSESSING OFFICER WAS THAT VERY SMALL AMOUNT OF EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE ON THE PROJECT TILL ASSESSMENT YEAR 2008-0 9 AND ONLY 30% OF THE AREA IN RESPECT OF THAT PROJECT HAD ACTU ALLY BEEN BOOKED BY THE ASSESSEE AND NECESSARY REVENUE HAD BE EN RECOGNIZED IN RESPECT OF THE SAME. THIS ASPECT HAS BEEN RECORDED BY THE AO IN POINT NO. 6 AT PAGE 10 OF HIS ORDER. THE OTHER REASONING OF THE AO WAS THAT IN ARRIVING AT ESTIMATED LOSS BY THE ASSESSEE, THE SALE VALUE ADOP TED FOR UNSOLD AREA OF THE PROJECT BY THE ASSESSEE WAS LOWE R THAN THE RATES AT WHICH THE ASSESSEE HAD ACTUALLY SOLD PART OF THE PROJECT DURING THE YEAR UNDER CONSIDERATION. THE AS SESSING OFFICER THEREAFTER NOTED THE FACTS AND FIGURES GIVE N BY THE ASSESSEE AT PARA 10 PAGE 11 OF HIS ORDER. 20. THE AO HELD THAT IF AVERAGE RATE OF THE ACTUAL AREA SOLD DURING THE YEAR BY THE ASSESSEE WERE TO BE CONSIDER ED FOR THE UNSOLD SPACE/AREA THEN THE SALES REALIZATION COMES OUT TO RS.197.55 CRORES AS AGAINST RS.157.58 CRORES ESTIMA TED BY THE ASSESSEE. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 14 21. THE ASSESSING OFFICER DID NOT MAKE ANY SERIOUS CHALLENGE TO THE COST ESTIMATES OF THE PROJECT WHIC H WAS ESTIMATED BY THE ASSESSEE AT RS.176.10 CRORES. 22. THE ASSESSING OFFICER WORKED OUT THE ESTIMATED SALE PRICE OF UN-BOOKED/UNSOLD AREA AT RS.197.54 CRORES BASED ON THE RATES ON WHICH THE ASSESSEE HAS ACTUALLY BOOKED THE SPACE DURING THE YEAR AS AGAINST RS.157.58 CRORES C LAIMED BY THE ASSESSEE. THE ASSESSING OFFICER, THUS, WAS OF T HE VIEW THAT THE DWARAKA PROJECT WILL NOT RESULT INTO LOSSES AS CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME BUT IS LIKELY TO RESULT INTO PROFITS. HE, THEREFORE, DISALLOWED THE LOSS OF RS. 18.52 CRORES CLAIMED BY THE ASSESSEE. 23. THE LEARNED CIT DR, SHRI SATPAL GULATI AT THE O UTSET BY REFERRING TO PARA 4.5, PAGE 33 OF THE LEARNED CIT (A)S ORDER SUBMITTED THAT THE ADJUDICATION DONE BY THE LEARNED CIT(A) IS BASED ON ERRONEOUS UNDERSTANDING WHEREIN THE LEARNE D CIT(A) HAS OPINED THAT THE ENTIRE DISPUTE IS ABOUT THE ALL OCATION OF LOSS IN THESE 5 ASSESSMENT YEARS DURING WHICH THE P ROJECT WAS COMPLETED I.E. ASSESSMENT YEAR 2008-09 TO ASSESSMEN T YEAR 2012-13. THE LEARNED CIT DR SUBMITTED THAT THE ORDE R OF ASSESSMENT FOR ASSESSMENT YEAR 2009-10 WILL ALSO HA VE TO BE READ ALONG WITH THE ORDER OF ASSESSMENT FOR ASSESSM ENT YEAR 2008-09 BECAUSE LEARNED CIT(A) HAS CONSIDERED THE E NTIRE PERIOD DURING WHICH THIS PROJECT CONTINUED AND ALLO CATED THE TOTAL LOSSES OVER THE PERIOD OF 5 YEARS UNDER THE P OCM METHOD. TO THAT EXTENT THE SUBMISSIONS BEING MADE B Y LD. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 15 CIT-DR AS WELL AS BY LD. AR ON THIS ISSUE SHALL ALS O COVER GROUND NO. 2 RAISED BY THE DEPARTMENT IN A. Y. 2009 -10 IN ITA NO. 1349/DEL/2013. 24. THE LEARNED DR BROUGHT CERTAIN FACTS TO OUR NO TICE WHEREIN IT WAS SUBMITTED THAT WHEREAS IN ASSESSMENT YEAR 2008-09 THE ASSESSEE CLAIMED THE TOTAL ESTIMATED CO ST OF THIS PROJECT AT RS.176.10 CRORE AND TOTAL ESTIMATED REVE NUES AT RS.157.58 CRORES AND DETERMINED THE LOSS AT RS.18.5 2 CRORES, GOING FORWARD FOR ASSESSMENT YEAR 2009-10 WHILE REV ISING THE COST OF THIS PROJECT AT RS.173.26 CRORES, THE ASSES SEE ESTIMATED THE SALE VALUE AT RS.129.26 CRORES. IT WA S SUBMITTED THAT ALTHOUGH THE COST ESTIMATES MADE BY THE ASSESSEE IN THESE TWO YEARS HAS SLIGHTLY REDUCED AN D THERE IS NO REAL CHALLENGE GIVEN BY THE ASSESSING OFFICER TO SUCH COST ESTIMATES, IT IS THE SALES REALIZATION VALUE WHICH HAS SHARPLY DIPPED FROM THE LAST YEAR AS PER ASSESSEES OWN EST IMATES WHICH WAS AT RS.157.58 CRORES IN A. Y. 2008-09 TO R S.129.26 CRORES IN ASSESSMENT YEAR 2009-10. THE LEARNED CIT DR TOOK US THROUGH THE ASSESSMENT ORDER FOR 2009-10 AN D SUBMITTED THAT ALTHOUGH THE LEARNED ASSESSING OFFIC ER IN ASSESSMENT YEAR 2008-09 WAS OF THE VIEW THAT THE DW ARAKA PROJECT WOULD NOT RUN INTO LOSS, BUT IN ASSESSMENT YEAR 2009- 10 HE HAS ACCEPTED THE FACT THAT THE PROJECT MAY RU N INTO LOSSES AND AGAINST THE TOTAL LOSSES OF RS.44 CRORES ESTIMATED BY THE ASSESSEE CUMULATIVELY (ASSESSMENT YEAR 2008- 09 AT RS.18.52 CRORES AND FOR ASSESSMENT YEAR 2009-10 AT RS.25.48 CRORES), THE LEARNED ASSESSING OFFICER HAS ACCEPTED ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 16 THE LOSSES FROM THIS PROJECT AT RS.14.98 CRORES AND DISALLOWED THE BALANCE LOSSES. THE BALANCE LOSSES OF RS.29.02 CRORES WERE DISALLOWED IN ASSESSMENT YEAR 2008-09 AT RS.18 .52 CRORES AND IN ASSESSMENT YEAR 2009-10 AT RS.10.50 C RORES. THE LEARNED CIT DR SUBMITTED THAT THE CUMULATIVE LO SSES OF RS.44 CRORES IN TWO YEARS WERE MAINLY ON ACCOUNT OF THE FACT THAT THE ASSESSEE SOLD MAJOR PART OF THE UNSOLD AREA AT A HIGHLY DISCOUNT PRICE OF 31.5% TO ITS SISTER CONCER N NAMELY NEHRU PLACE HOTELS REAL ESTATE PVT. LTD. (NPHREPL) WHICH ACCORDING TO THE ASSESSING OFFICER WAS A COMPANY CO VERED U/S 40A (2)(B) OF THE INCOME TAX ACT. THE ISSUE OF ALLO WING DISCOUNT TO THE SISTER CONCERN HAS BEEN DISCUSSED I N A. Y. 2009-10 ONLY BECAUSE ENTIRE UNSOLD AREA WAS SOLD BY THE ASSESSEE TO ITS SISTER CONCERN IN A.Y. 2009-10. IT WAS SUBMITTED THAT OUT OF THE TOTAL SALEABLE AREA OF 81 ,644 SQ. FT., ONLY 26,765 SQ. FT. WAS SOLD TO OUTSIDE PARTIES IN A. Y. 2008- 09 AND A. Y. 2009-10 AND REMAINING AREA OF 54,879 S Q. FT. WAS SOLD TO THE RELATED PARTY ON WHICH HEAVY DISCOU NT OF 31.5% HAS BEEN GRANTED. BY REFERRING TO THE FINDING S OF LEARNED CIT(A) IN PARA 4.5 OF HIS ORDER, THE LEARNE D DR SUBMITTED THAT THE CIT(A) DID NOT ADDRESS THE ISSUE OF HEAVY DISCOUNT OF 31.5% GIVEN BY ASSESSEE WHILE SELLING T HE MAJOR SPACE TO ITS SISTER CONCERN. 25. UNDER THE CIRCUMSTANCES, THE LEARNED CIT-DR REQ UESTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF CIT (A) FOR EXAMINING THIS ASPECT AND THEN RENDER HIS FINDI NGS ON THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 17 ISSUE TO DETERMINE THE LOSSES CLAIMED BY THE ASSESS EE. SELLING THE SPACE AT HEAVY DISCOUNTED PRICE OF 31.5% AS AGA INST 5% DISCOUNT WHICH THE LEARNED AO HAS ACCEPTED AND GRAN TED OVER THE LAST SALE PRICE TO INDEPENDENT PARTY WAS THE ON LY REASON, WHICH ACCORDING TO LEARNED CIT-DR HAS CAUSED LOSSES TO THE ASSESSEE OVER AND ABOVE, WHAT THE AO HAS DETERMINED BY TAKING A CUMULATIVE VIEW FOR ASSESSMENT YEAR 2008-0 9 TILL ASSESSMENT YEAR 2009-10. THE LEARNED CIT-DR CONCLU DED HIS SUBMISSIONS BY REITERATING HIS EARLIER SUBMISSIONS THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF CIT ( A) FOR ADJUDICATION ON THE ISSUE OF SALE PRICE OF THE UNSO LD AREA WHICH HAS BEEN SOLD IN ASSESSMENT YEAR 2009-10 TO A SISTER CONCERN AT A HEFTY DISCOUNT OF 31.5% WHICH ACCORDIN G TO THE LEARNED AO AND DEPARTMENT SHOULD NOT EXCEED 5% AS H AS BEEN FAIRLY GIVEN BY THE AO. 26. MR. PRADEEP DINODIA LD. COUNSEL APPEARING ON BE HALF OF THE ASSESSEE SUBMITTED WITH REFERENCE TO THE GROUND RAISED BY THE DEPARTMENT ON THIS ISSUE THAT THE ONLY GRIEVANC E WHICH THE DEPARTMENT HAS ON THIS ISSUE IS ABOUT THE ESTIM ATED AND UNSCIENTIFIC NATURE OF LOSSES. GROUND NO. 5 OF THE DEPARTMENT IS REPRODUCED FOR THE SAKE OF READY REFERENCE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOWING THE ASSES SEES CLAIM OF LOSSES AMOUNTING TO RS. 18,52,00,000/- IN THE DWARKA PROJECT DESPITE THE FACT THAT THE LOSSES WOR KED OUT BY THE ASSESSEE WAS ON ESTIMATE BASIS AND UNSCIENTI FIC. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 18 27. BY DRAWING OUR ATTENTION TO THE AFORESAID GROUN D, HE SUBMITTED THAT THERE IS NO CHALLENGE EITHER TO THE COSTS INCURRED BY THE ASSESSEE OR THE SALES MADE BY THE A SSESSEE AS HAS BEEN MADE OUT IN THE SUBMISSIONS BY THE LEARNED CIT- DR. THE LEARNED AR HAS SUBMITTED THAT THE GROUND R AISED BY THE DEPARTMENT IS MISCONCEIVED IN AS MUCH AS THAT T HE METHOD EMPLOYED BY THE ASSESSEE, I.E., POCM READ WI TH ACCOUNTING STANDARD-7 TALKS OF ESTIMATES ONLY. IT H AS BEEN SUBMITTED THAT THERE IS NO DISPUTE ON THE METHOD EM PLOYED BY THE ASSESSEE OR THE APPLICABILITY OF ACCOUNTING STANDARD-7 TO THE FACTS OF THE ASSESSEES CASE. OUR ATTENTION WAS DRAWN TO VARIOUS CLAUSES OF ACCOUNTING STANDARD-7, A COPY OF WHICH HAS BEEN FILED IN THE PAPER BOOK AT PAGES 262 TO 280. REFERRING TO THE PARAGRAPHS 31, 34 AND MOST IMPORTA NTLY PARAGRAPHS 35 AND 36, IT HAS BEEN SUBMITTED THAT TH E VERY BASIS OF WORKING OUT AND CLAIMING THE LOSSES IN ASS ESSMENT YEAR 2008-09 OR IN OTHER ASSESSMENT YEARS ARE DEPEN DENT UPON ESTIMATES AS PER ACCOUNTING STANDARD-7. PARAG RAPHS 35 AND 36 OF THE ACCOUNTING STANDARD WERE SPECIFICA LLY HIGHLIGHTED, WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED: 35. WHEN IT IS PROBABLE THAT TOTAL CONTRACT COSTS WILL EXCEED TOTAL CONTRACT REVENUE, THE EXPECTED LOSS SH OULD BE RECOGNIZED AS AN EXPENSES IMMEDIATELY. 36. THE AMOUNT OF SUCH A LOSS IS DETERMINED IRRESP ECTIVE OF: ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 19 A. WHETHER OR NOT WORK HAS COMMENCED ON THE CONTRACT; B. THE STAGE OF COMPLETION OF CONTRACT ACTIVITY, OR C. THE AMOUNT OF PROFITS EXPECTED TO ARISE ON OTHER CO NTRACTS WHICH ARE NOT TREATED AS A SINGLE CONSTRUCTION CONT RACT IN ACCORDANCE WITH PARAGRAPH 8. 28. DRAWING SUPPORT FROM THE AFORESAID PARAGRAPHS, IT HAS BEEN SUBMITTED THAT WHEN THE LOSSES ARE PROBABLE FR OM THE CONTRACT REVENUE THEN SUCH LOSSES ARE REQUIRED TO B E CLAIMED IMMEDIATELY IRRESPECTIVE OF THE FACT WHETHER OR NOT THE WORK HAS COMMENCED ON THE CONTRACT OR NOT OR WHATEVER MA Y BE THE STAGE OF COMPLETION OF THE CONTRACT. AOS REAS ONING IN THE ASSESSMENT ORDER THAT ONLY ABOUT 30% AREA HAS BEEN BOOKED HAS NO RELEVANCE IN VIEW OF THE AFORESAID CLAUSES I N AS-7. IT HAS BEEN SUBMITTED THAT THE LEARNED CIT (A) HAS CAT EGORICALLY HELD THAT ACCOUNTING STANDARDS PRESCRIBED BY THE CB DT ARE REQUIRED TO BE FOLLOWED. TO BUTTRESS THESE SUBMISSI ONS, THE LEARNED AR HAS REFERRED TO AND RELIED UPON VARIOUS JUDGMENTS, SOME OF WHICH ARE AS UNDER: A. JACOBS ENGINEERING INDIA PVT. LTD. VS. ACIT (ITA NO. 335/MUM./2007 & 336/MUM./2007). B. HONBLE BOMBAY TRIBUNAL IN THE CASE OF MAZAGAON DOCK LIMITED VS. JCIT (29 SOT 356). C. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR OF INDIA PRIVATE LIMITED (294 ITR 451). ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 20 D. HONBLE SUPREME COURT AND HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR OF INDIA PVT. LTD. (SUPRA) 312 ITR 254 (SC) 29. SIMILARLY THE LEARNED AR SUBMITTED THAT, WHETHE R THE ESTIMATES OF THE PROJECT COST MADE BY THE ASSESSEE WERE REALISTIC BASED ON THE RELEVANT COSTS OR NOT AND IN CASE THE AO HAD ANY DOUBT ABOUT THE SAID COST, HE SHOULD HAVE G ONE FOR INDEPENDENT VALUATION AS HAS BEEN HELD BY HONBLE D ELHI HIGH COURT IN THE CASE OF CIT VS. TRIVENI ENGG. & INDUSTRIES LIMITED (2011) 196 TAXMAN 94 (DELHI) AFTER CONSIDER ING THE RATIO LAID DOWN BY APEX COURT IN CALCUTTA CO. L TD. VS. CIT (1956) 37 ITR 1 (SC). BUT, THIS, ACCORDING TO AR, WAS NOT REQUIRED BECAUSE THE LD. AO HAS ACCEPTED THE CO ST ESTIMATES AND IT IS ONLY THE REALIZATION OF REVENUE WHICH HAS BEEN ALTERED BY THE LD. AO, BOTH IN A. Y. 2008-09 A ND A. Y. 2009-10 BY MAKING HIS OWN ESTIMATES OF SALES AS AGA INST THE ESTIMATION DONE BY THE ASSESSEE. 30. THE LEARNED AR THUS REQUESTED THAT THE GROUND R AISED BY THE DEPARTMENT HAVING NO CONNECTION WITH THE ESTIMA TED COST OR ESTIMATED SALE PRICE OR ON THE LOSSES ESTIMATED BY THE ASSESSEE AND CLAIMED IN THE ITRS IS REQUIRED TO BE DISMISSED ON THIS BASIS ALONE. 31. THE LEARNED AR FURTHER SUBMITTED THAT THE VERSI ON OF LEARNED CIT-DR THAT THE CIT (A) DID NOT CONSIDER AB OUT THE AOS VIEWS OF ALLOWING HEFTY DISCOUNT IS NOT CORREC T. IT HAS ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 21 BEEN SUBMITTED THAT THE LEARNED CIT(A) HAS TOOK INT O CONSIDERATION EACH AND EVERY ASPECT OF THIS MATTER AND HAS CORRECTLY ARRIVED AT CONCLUSION WHICH HAS BEEN DRAW N BY HIM ON THE GIVEN FACTS OF THIS CASE. OUR SPECIFIC ATTEN TION WAS DRAWN TO THE ORDER OF LEARNED CIT (A) FOR THE ASSES SMENT YEAR 2008-09 FROM WHERE IT WAS POINTED OUT THAT THE LEAR NED CIT(A) HAS REPRODUCED THE ORDER OF THE LEARNED AO A S WELL AS THE DETAILED SUBMISSIONS OF THE ASSESSEE IN HIS ORD ER. AT PAGE 19 OF THE LEARNED CIT (A)S ORDER, THE ESTIMATED SA LE PRICE OF THE PROJECT IN ASSESSMENT YEAR 2008-09 WHICH WAS MA DE BY THE ASSESSEE AT RS.157.45 CRORES HAS BEEN NOTED. A S AGAINST THIS, THE ESTIMATED SALE PRICE OF THE PROJECT WHICH WAS TAKEN BY THE AO AT RS.197.55 CRORES FOR THE ASSESSMENT YE AR 2008- 09 HAS ALSO BEEN NOTED. SIMILARLY THE ACTUAL SALE P RICE REALIZED IN THE PROJECT IN SUBSEQUENT YEAR I.E. ASS ESSMENT YEAR 2009-10 AT RS.129.26 CRORES HAS BEEN DULY NOTE D. HE ALSO SUBMITTED THAT IN PARA 4.4 OF THE LEARNED CIT(A)S ORDER AT PAGE-31, THE SUBMISSIONS WHICH WERE MADE BY THE ASSESSEE IN ASSESSMENT YEAR 2009-10 HAVE ALSO BEEN NOTED AND RECORDED BY THE LEARNED CIT(A) WHICH, INTER-ALI A, CONTAINS THE EXPLANATION ABOUT SELLING THE REMAINING SPACE A T DOWN PAYMENT BASIS TO NEHRU PLACE HOTELS REAL ESTATE PVT . LTD. AND JUSTIFICATION OF ALLOWING DISCOUNT WHILE MAKING THIS SALE. THE JUSTIFICATION AND EXPLANATION OF MAKING SALES TO REM AINING UNSOLD SPACE HAS BEEN EXPLAINED IN PARAGRAPHS H, I, J AND K AT PAGE 32 TO 33 OF THE LEARNED CIT (A)S ORDER WHI CH FOR THE SAKE OF READY REFERENCE ARE REPRODUCED AS UNDER: ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 22 H. ALL REMAINING SPACES WERE BOOKED ON DOWN PAYMENT BASIS BY NPHREPL AND ARE ELIGIBLE FOR MAJOR DISCOUN TS. NO COMMISSION WAS PAID/PAYABLE ON THESE BOOKINGS; NO FURTHER EXPENSES WERE REQUIRED TO BE INCURRED FOR ADVERTISEMENT AND OTHER MARKETING ACTIVITIES. FURT HER, THE COMPANY HAS ANTICIPATED SUBSTANTIAL SAVING IN INVEN TORY CARRYING COST IN THE SHAPE OF INTEREST. I. PURCHASE PRICE IN THE CASE OF NPHREPL HAS BEEN ACCEPTED BY THE SAME AO AND NO ADVERSE INFERENCE HA S BEEN DRAWN IN THAT CASE. J. BASED ON SAME PURCHASE PRICE, INCOME EARNED BY NPHREPL IN SUBSEQUENT YEARS HAS ALSO BEEN ASSESSED AND BROUGHT TO TAX BY SAME AO. K. ASSESSEE COMPANY HAS TAKEN PRUDENT DECISION TO SELL THE SPACES AT BEST POSSIBLE RATE TO SAVE INTEREST C OST AND OTHER RECURRING EXPENSES. 32. OUR SPECIFIC ATTENTION WAS DRAWN TO THE SUBMISS IONS DATED 09.10.2012 MADE BEFORE THE LEARNED CIT(A) IN ASSESSMENT YEAR 2009-10 WHICH ARE AVAILABLE AT PAPE R BOOK PAGES 54 TO 88 WHEREIN THE DETAILED SUBMISSIONS AND REASONS OF LOSSES IN THIS PROJECT HAS BEEN EXPLAINED. 33. THE LEARNED AR SUBMITTED THAT THE ASSESSEE PURC HASED A PLOT IN AUCTION FROM DDA IN JANUARY, 2007 WHEN THE REAL ESTATE MARKET WAS AT ITS PEAK, FOR A COST OF RS.122 .98 CRORES. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 23 THERE IS NO DISPUTE ON THIS FACT. IT HAS BEEN CLAIM ED THAT THERE WAS A SUDDEN DOWN FALL IN THE REAL ESTATE DUE TO SUB PRIME CRISIS IN SEPTEMBER, 2007 IN USA. BANKS AND FINANCIAL INSTITUTIONS WERE UNWILLING TO FINANCE ANY INSTITUT ION RELATED TO REAL ESTATE AND THERE WAS FEAR IN THE REAL ESTAT E MARKET FOR SUSTAINING LARGER PROJECTS. DUE TO SUCH GLOBAL CRIS IS, MOST OF THE REAL ESTATE SECTOR PROJECTS WERE PUT ON HOLD. R EAL ESTATE SECTOR WAS BADLY AFFECTED AS WAS ALSO WITNESSED BY THE SHARP FALL IN THE REALITY INDICES. INTERNATIONAL REAL EST ATE TRANSACTIONS DIPPED BY 46% BY JULY, 2008 AND SLIDIN G REALITY SECTOR FORCED THE REALTORS TO RENEGOTIATE RENTALS A ND ALL THE CONTRACTORS AND BUILDERS WERE SLASHING THE PRICES. FUTURE INDICATION ABOUT THE REAL ESTATE SECTOR WAS ALSO PR OJECTED TO BE BAD. MAJOR REALITY DEVELOPERS AND CONTRACTORS S LASHED THEIR PRICES. DEMAND IN THE REAL ESTATE SECTOR DIP PED BY ABOUT 50% BOTH IN THE PREMIUM AND MIDDLE SEGMENT. D DA AUCTIONED ABOUT 29 PLOTS AROUND THAT PERIOD. OUT OF THESE 29 PLOTS, CONSTRUCTION NEVER STARTED ON 18 PLOTS. TWO PLOTS WERE SURRENDERED BY THE PERSONS WHO GOT THE SAME IN AUCT ION. ONE OF THE PLOTS SURRENDERED WAS BY AN ASSOCIATE CO NCERN OF THE COMPANY NAMELY, R.C. SOOD & CO. PVT. LTD. AND L OSS OF ABOVE RS.30 CRORES WAS INCURRED ON SURRENDER. THE S AME LOSS WAS DULY ACCEPTED BY THE SAME AO IN ASSOCIATE COMPA NY CASE. IT HAS BEEN SUBMITTED THAT THE BUYERS WHO TOO K THE SPACE WITH THE ASSESSEE ALSO STARTED DEFAULTING IN MAKING PAYMENTS. FURTHER, BOOKING OF THE SPACE BECAME VERY SLOW. WHEREAS DURING ASSESSMENT YEAR 2008-09 25.475 SQ. F T. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 24 WHICH WAS ABOUT 30% OF THE SPACE, CONSTRUCTED BY TH E ASSESSEE WAS BOOKED, IN ASSESSMENT YEAR 2009-10 ONL Y 3,212 SQ. FT. WAS BOOKED TO THE INDEPENDENT PARTIES WHICH WAS ABOUT JUST 6% ABOVE THE UNSOLD SPACE OF THE PROJECT . NOT ONLY THE REAL SECTOR WAS ADVERSELY AFFECTED, EVEN THE CO MPANIES DEALING IN CONSUMER GOODS STARTED GIVING HEAVY DISC OUNT BETWEEN 40 TO 60% TO CLEAR OF THEIR INVENTORIES. AL L THE AFORESAID ASSERTIONS MADE BY THE ASSESSEE WERE DULY SUPPORTED BY RELEVANT EVIDENCES BY WAY OF NEWSPAPER CUTTING AND WITH REFERENCE TO RELEVANT WEBSITES IT IS SUBMI TTED. IT WAS SUBMITTED THAT AFTER THE TOTAL COST OF THE PROJECT ESTIMATED AT RS. 176.1 CRORES IN A. Y. 2008-09, ABOUT 70% OF THE COST WAS REPRESENTED BY THE VALUE OF LAND AT RS. 122.98 CROR ES. WHEN THERE IS SUBSTANTIAL DROP IN THE MARKET VALUE OF LA ND WHICH IS ALSO SOLD AS PART AND PARCEL OF ANY SPACE CONSTRUCT ED BY THE ASSESSEE, THE LOSS IS INEVITABLE. IT WAS UNDISPUTED LY DEMONSTRATED BEFORE THE LD. AO AS WELL AS BEFORE LD . CIT (A) THAT THERE WAS DROP OF ABOUT 40% IN THE LAND PRICES AS WAS EVIDENCED FROM THE RESERVED PRICE OF THE LAND WHICH WAS SOUGHT TO BE AUCTIONED BY THE DDA. ALL THE SUPPORTI NG EVIDENCE ON THIS ISSUE HAD BEEN FILED WHICH ARE UNCONTROVERTED IT WAS SUBMITTED. 34. ON THE SPECIFIC ISSUE OF ALLOWING 31.5% DISCOUN T TO THE SISTER CONCERN, THE AR OF THE ASSESSEE SUBMITTED TH AT IN VIEW OF THE DETERIORATING REAL ESTATE MARKET HEAVY BORRO WED FUNDS WERE INVOLVED IN THE PROJECT WHICH WAS AFFECTING TH E ENTIRE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 25 FUTURE GROWTH OF THE COMPANY. THE ASSESSEE COMPANY WORKED OUT A FORMULA TO OFFER DISCOUNT ON BULK SALE TO A S ISTER CONCERN, WHO WAS HAVING SUFFICIENT SURPLUS FUNDS. SUCH DISCOUNTS WERE WORKED OUT AS UNDER: DISCOUNT FOR BULK BOOKING ON DOWN PAYMENT BASIS 24% ADVERTISEMENT AND OTHER SELLING EXPENSES 3% COMMISSION 5% OTHER OVERHEADS 1% 33% 35. LD. AR SUBMITTED THAT EACH AND EVERY ITEM WHICH WENT INTO MAKING OF THE AFORESAID CALCULATION OF 33%, AG AINST WHICH ASSESSEE OFFERED ON 31.5%, WAS DECIDED BY A WELL-RE ASONED AND SOUND BASIS ON COMMERCIAL BASIS. HE SUBMITTED T HAT AVERAGE CARRYING TIME OF INVENTORY OF THE ASSESSEE IS ABOUT 2 YEARS AND ASSESSEE WAS PAYING INTEREST TO THE BANK VARYING BETWEEN 12.5% TO 16% AS SUPPORTED FROM THE PAPER BO OK PAGES 233 TO 240. IT WAS POINTED OUT THAT INTEREST ON LOAN OBTAINED FROM HOUSING DEVELOPMENT FINANCE CORPORATI ON LTD. FOR THE PERIOD 01.04.2007 TO 31.03.2008 WAS @ 12.5% AS WITNESSED FROM PAPER BOOK PAGES 233 TO 236 WHICH WENT UP TO 15.75 TO 16% IN THE FINANCIAL YEAR 2008-09 RELEV ANT TO A. Y. 2009-10 (PAPER BOOK PAGES 237 TO 240). THE ASSESSEE WHILE DETERMINING THE DISCOUNT OF 24% ON THIS COUNT TOOK A VERY CONSERVATIVE VIEW. SIMILARLY AS REGARDS COMMISSION PAID TO AGENTS AND OTHER SELLING EXPENSES, ASSESSEE EXPLAIN ED FROM THE PAPER BOOK THAT SUCH EXPENSES WERE ACTUALLY INC URRED BY THE ASSESSEE AS WAS EVIDENT FROM SAMPLE SUPPORTING BILLS OF ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 26 COMMISSION PAID @ 5% TO CERTAIN BOOKING AGENTS REFE RRED TO AND FILED AT PAPER BOOK PAGES 225 TO 227. SIMILARL Y, ADVERTISEMENT COST OF ABOUT 3% IS INCURRED BY THE A SSESSEE WHICH IS SUPPORTED BY BILLS ETC. AS SEEN FROM PAPER BOOK PAGES 228 TO 232. OTHER OVERHEADS OF 1% WERE ALSO CALCULATED ON A REASONABLE BASIS. IT WAS SUBMITTED THAT THERE IS NO DISPUTE ON ALL SUCH COSTS WHICH THE ASSESSEE HAS AC TUALLY INCURRED AND ALSO ALLOWED BY THE LD. AO IN THE RESP ECTIVE YEAR OF INCURRENCE. 36. THE LD. AR FURTHER SUBMITTED THAT SALES TO THE SISTER CONCERN AT THE DISCOUNTED PRICE OF 31.5% WAS A PRUD ENT BUSINESS DECISION. IN ANY CASE SUCH SALE WAS ACCEP TED IN THE ASSESSMENT OF THE SAID SISTER CONCERN BY THE SAME A SSESSING OFFICER. A COPY OF ASSESSMENT ORDER FOR A. Y. 2009 -10 AND A. Y. 2010-11 IN THE CASE OF NEHRU PLACE HOTEL & REAL ESTATES (P) LTD. DATED 12.12.2011 AND 04.07.2012 PASSED BY THE SAME ASSESSING OFFICER I.E. DCIT, CENTRAL CIRCLE-6, NEW DELHI WAS REFERRED TO AS FILED IN PAPER BOOK AT PAGES 245 ONWARDS OF THE PAPER BOOK ACCOMPANIED BY THE COMPUTATION OF IN COME. IT HAS BEEN SUBMITTED THAT BOTH THE ASSESSEE AS WEL L AS THE SISTER CONCERN WERE ASSESSED BY THE SAME AO SIMULTA NEOUSLY AROUND THE SAME TIME. ASSESSMENT ORDER OF THE ASSE SSEE FOR A. Y. 2009-10 IS DATED 29.12.2011 PASSED BY DCIT, C ENTRAL CIRCLE-6, NEW DELHI AND ASSESSMENT ORDER OF NPHRPL FOR A.Y. 2009-10 IS DATED 12.12.2011 BY THE SAME AO I.E. DCI T, CENTRAL CIRCLE-6, NEW DELHI. IT HAS BEEN SUBMITTED THAT IF THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 27 LD. AO HAS ACCEPTED THE PURCHASE PRICE OF THE SAME ITEM IN NPHRPL, THERE IS NO REASON TO ALTER SALE PRICE OF T HE ASSESSEE. THE AR SUBMITTED THAT TAX RATES OF BOTH THE COMPANI ES ARE SAME AND HENCE THERE IS NO TAX LEAKAGE VIEWED FROM ANY ANGLE. 37. THE LD. AR FURTHER SUBMITTED THAT THE PROVISION S OF SECTION 40A (2)(B) HAVE BEEN WRONGLY RELIED UPON BY THE LD. AO BECAUSE SECTION 40A(2)(B) IS APPLICABLE TO EXPEN SES INCURRED AND NOT ON THE SALES TRANSACTIONS. BONAFID E SALES MADE CANNOT BE ADVERSELY VIEWED AND SALES AMOUNT AC TUALLY REALIZED CANNOT BE QUESTIONED BY THE AO. RELIANCE FOR THIS PROPOSITION WAS MADE BY THE LD. AR ON THE JUDGMENT O F HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. AS REPORTED IN 67 ITR 11 (SC). 38. IT IS ALSO SUBMITTED BY LD. AR THAT THERE IS NO DISPUTE ON COSTS INCURRED BY THE ASSESSEE ON THIS PROJECT. SI MILARLY THE SALE PRICE REALIZED BY THE ASSESSEE HAS ALSO BEEN A CCEPTED BY THE LD. AO IN ALL SUBSEQUENT ASSESSMENT YEARS I.E. A. Y. 2010- 11, A. Y. 2011-12 AND A. Y. 2012-13, WHICH IS THE P ERIOD DURING WHICH THIS PROJECT OF DWARKA MALL RAN AND CO MPLETED. ONCE THE SAME SALE PRICE HAS ACTUALLY BEEN ACCEPTED BY THE REVENUE IN SUBSEQUENT YEAR AND FURTHER LOSS CLAIMED IN THESE SUBSEQUENT YEARS ALSO ALLOWED, THERE IS NO REASON T O QUESTION THE SAME DURING THESE TWO YEARS, IT HAS BEEN SUBMIT TED. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 28 39. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT ALTHOUGH LD. CIT (A) SHOULD HAVE ALLOWED THE COMPLE TE LOSS OF RS. 45.72 CRORES ON THIS PROJECT IN THE ASSESSMENT YEAR 2008- 09 ITSELF IN ACCORDANCE WITH AS-7 READ WITH CLAUSE 35 & 36, YET ALLOCATION OF LOSS DONE BY HIM IN VARIOUS YEARS DID NOT ADVERSELY AFFECT THE ASSESSEE OR THE REVENUE BECAUS E TAX RATES IN ALL THE YEARS WAS SAME AND ASSESSEE HAS ALWAYS B EEN A TAX PAYING COMPANY IN ALL THESE YEARS. THUS, IT WAS SUB MITTED THAT THE LD. CIT (A)S ORDER IS A WELL-REASONED ORD ER AND DOES NOT LEAVE ANY ASPECT OF THE ISSUE UNTOUCHED AS CLAI MED BY THE LD. CIT-DR AND THIS ORDER HAS ALSO BEEN ACTED UPON BY THE DEPARTMENT IN A. Y. 2010-11. FURTHER, ASSESSEE CLAI MED NO LOSS FROM THIS PROJECT IN A. Y. 2010-11 IN ITS ITR. YET, IN APPEAL BEFORE CIT (A), A CLAIM WAS PREFERRED TO ALL OW THE LOSS ALLOCATED BY THE LD. CIT (A) AS PER HIS ORDER FOR A . Y. 2008-09. THIS CLAIM WAS ALLOWED BY LD. CIT (A) AND AO ALLOWE D SUCH LOSS IN APPEAL EFFECT ORDER, A COPY OF WHICH WAS RE FERRED AND FILED AT PAGES 376-377 OF PAPER BOOK. THE DEPARTMEN T HAS NOT FILED ANY APPEAL ON THIS ISSUE IN A.Y. 2010-11 AND GRANTED DEDUCTION OF LOSS OF RS. 2.8 CRORES AS WAS ALLOCATE D BY LD. CIT (A) IN HIS ORDER FOR A. Y. 2008-09. THIS, ACCORDING TO LD. AR, MEANS THAT DEPARTMENT HAS NO GRIEVANCE ON THIS ORDE R OF LD. CIT (A) FOR A. Y. 2008-09. SIMILARLY, A QUERY WAS R AISED FROM THE BENCH FOR THE A. Y. 2011-12, WHEREIN HONBLE BE NCH NOTED THAT THERE IS NO SUCH DISALLOWANCE IN THE ASS ESSMENT ORDER FOR RS. 2.51 CRORES FOR WHICH A GROUND HAS BE EN RAISED IN ITA NO. 5776/DEL/2014 BY THE DEPARTMENT. LD. CIT-DR ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 29 CLARIFIED THAT SUCH GROUND IS ALSO LINKED WITH THE ORDER OF LD. CIT (A) IN A. Y. 2008-09 AND THERE IS NO DISCUSSION ON THE ISSUE IN THE ASSESSMENT ORDER FOR A. Y. 2011-12. 40. THE LD. AR CONCLUDED HIS ARGUMENTS BY SUBMITTIN G THAT THE ORDER PASSED BY LD. CIT (A) DESERVES TO BE UPHE LD ON ALL COUNTS. IF ORDER OF LD. CIT (A) IS UPHELD, THEN AS SESSEES CROSS APPEAL IN A. Y. 2009-10 RESTRICTING THE LOSS CLAIME D IN ITR AT RS. 25.48 TO RS. 19.1 CRORES AS PER ALLOCATION OF L OSS DONE BY LD. CIT(A) IN HIS ORDER, WILL ALSO HAVE TO BE DISMI SSED BECAUSE ASSESSEE HAS BEEN GRANTED THE DIFFERENTIAL LOSS IN THE NEXT 3 ASSESSMENT ORDER I.E. A. Y. 2010-11, 2011-12 AND 20 12-13 IN THE APPEAL EFFECT ORDERS BY THE AO. DECISION 41. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E RELEVANT MATERIAL REFERRED TO US AT TIME OF HEARING ON THE ISSUE OF ALLOWABILITY OF LOSS ON THE DWARKA PROJECT. SUCC INCTLY, THE FACTS AS NOTED FROM THE ASSESSMENT ORDERS PASSED BY THE LD. AO ARE THAT IN A. Y. 2008-09, IT IS SEEN THAT THE A O WAS OF THE VIEW THAT DWARKA PROJECT WILL NOT RETURN LOSSES WHI CH VIEW OF THE AO STOOD CHANGED WHEN HE PASSED ASSESSMENT ORDE R FOR A. Y. 2009-10. AGAINST THE CUMULATIVE LOSS OF RS. 4 4 CRORES TILL A. Y. 2009-10 OUT OF WHICH ASSESSEE CLAIMED RS . 18.52 CRORES IN A.Y. 2008-09 AND BALANCE RS. 25.48 CRORES IN A. Y. 2009-10, THE AO CALCULATED AND ACCEPTED THE LOSS OF RS. 14.98 CRORES AND DISALLOWED BALANCE LOSS OF RS. 29. 02 CRORES IN THESE TWO YEARS BEING RS. 18.52 CRORES IN A. Y. 2008-09 ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 30 AND RS. 10.50 CRORES IN A. Y. 2009-10. IT IS OBSERV ED AND ALSO HAS BEEN ADMITTED BY BOTH THE PARTIES BEFORE US THA T, THERE IS NO DISPUTE ON THE COST ESTIMATES BY THE ASSESSEE. C OST ESTIMATES ON THE DWARKA PROJECT HAVE VERY MINOR VAR IATIONS OVER THE YEARS AND HAVE RATHER REDUCED FROM RS. 176 .1 CRORES AS ESTIMATED IN A. Y. 2008-09 TO RS. 173.26 CRORES IN NEXT TWO YEARS AND FRUCTIFIED AT RS. 174.98 CRORES IN TH E FINAL YEAR I.E. A. Y. 2012-13 WHEN THIS PROJECT WAS FINALLY CL OSED. THE AO HAS NOT CHALLENGED THE COST ESTIMATES. HOWEVER, WHA T THE AO HAD DONE TO DISALLOW THE CLAIM OF LOSSES IN THESE T WO YEARS IS THAT HE HAS CHANGED THE SALES ESTIMATES AND MADE HI S OWN ESTIMATES ABOUT THE POSSIBLE SALE REALIZATIONS. 42. IN A. Y. 2008-09, WHEN ASSESSEE ESTIMATED ITS R EALIZABLE SALES VALUE AT RS. 157.45 CRORES INCLUDING THE AREA ALREADY BOOKED, THE LD. AO ESTIMATED THE SAME TO BE AT RS. 197.54 CRORES AS IS SEEN FORM PAGE 7 OF AOS ORDER. THE DI FFERENCE IN ARRIVING AT THESE ESTIMATES HAS ARISEN ON ACCOUNT O F THE FACT THAT ASSESSEE HAD VALUED THE ESTIMATED SALES REALIZ ATION OF UNSOLD AREA OF THE SPACE CONSTRUCTED BY IT ON THE B ASIS OF LATEST RATE AT WHICH SOME SPACE WAS BOOKED BUT AO A DOPTED AN AVERAGE RATE OF SPACE FOR WHICH ABOUT 30% OF PRO PERTY WAS ACTUALLY BOOKED BY THE ASSESSEE DURING A. Y. 2008-0 9. THE ASSESSEE HAS ESTIMATED THE SALE REALIZATION OF THE UNSOLD AREA ON A CONSERVATIVE BASIS BY RELYING ON THE PRINCIPL E OF PRUDENCE, BECAUSE REALTY SECTOR AS SATED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE WAS UNDERGOING THROUGH TUR MOIL AND ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 31 BADLY AFFECTED DUE TO GLOBAL TREND AND SUB-PRIME CR ISIS IN USA WHICH ADVERSELY AFFECTED THE REAL ESTATE SECTOR GLO BALLY. IN OUR VIEW, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN EST IMATING THE SALES REALIZATION AT RS. 197.54 CRORES IN A. Y. 200 8-09 BASED ON THE AVERAGE RATES AT WHICH THE SOME OF THE SPACE WAS BOOKED IN A. Y. 2008-09. IN A SCENARIO, WHERE ADMI TTEDLY THE PRICES OF PROPERTIES WERE CRASHING AVERAGING RATES OF ESTIMATED SALES WAS NOT PROPER. AVERAGING PRINCIPLE S CAN BE APPLIED WHERE CONDITIONALITY OF COMPARABLE CASES AR E MORE OR LESS STATIC AND ARE NOT CHANGING. ON THE FACTS AS B ROUGHT ON RECORD, THERE IS NO DENIAL OF THE CONTENTIONS OF TH E ASSESSEE THAT PROPERTY PRICES DURING THE PERIOD WERE SUBSTAN TIALLY FALLING DOWN. UNDER THE CIRCUMSTANCES IT IS ONLY TH E LAST REALIZED PRICE WHICH COULD HAVE BEEN TAKEN THE BASI S FOR VALUING THE SALE PRICE REALIZATION FOR THE UNSOLD S TOCK FOR THE PURPOSE OF CONSIDERING THE SALES REALIZATION UNDER THE POCM METHOD, WHICH IN OUR VIEW, HAD BEEN CORRECTLY DONE BY THE ASSESSEE IN A. Y. 2008-09. THE FACTS AND FIGURES G IVEN BY THE ASSESSEE REGARDING THE DOWNWARD TREND IN THE PROPER TY PRICES ARE UNCONVERTED AND UNCHALLENGED. THERE IS NO EVIDE NCE ON RECORD BROUGHT OUT BY THE AO OR BY LD. CIT-DR BEFOR E US THAT THE CLAIM OF THE ASSESSEE ABOUT THE DOWNFALL THE RE AL ESTATE SECTOR WAS NOT CORRECT. THEREFORE, ALL THE REASONS OR GROUNDS ON WHICH LOSS OF RS. 18.52 CRORES WAS DISALLOWED BY THE AO IN A. Y. 2008-09 HAVE NO SUBSTRATUM TO STAND. THE ONL Y REASON FOR WORKING OUT THE LOSSES IN A. Y. 2008-09 AND A. Y. 2009-10 AS ALSO SUBMITTED BY LD. CIT-DR, IS THAT THE AO WAS OF THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 32 VIEW THAT 31.5% DISCOUNT ALLOWED BY THE ASSESSEE WH ILE SELLING MAJOR AREA TO ITS SISTER CONCERN IN A. Y. 20 09-10 IS NOT JUSTIFIED AND ONLY 5% DISCOUNT WOULD HAVE BEEN SUFFI CIENT. 43. THE OTHER ASPECTS OF THE ISSUE THAT POCM METHO D IS APPLICABLE, AS-7 IS APPLICABLE, IS ALSO NOT IN DISP UTE. IN FACT, AS ALREADY NOTED ABOVE, IN THE POCM METHOD APPLIED BY THE ASSESSEE, THE AO HAS MERELY SUBSTITUTED THE ESTIMAT ED SALES IN A. Y. 2008-09 AND ENHANCED THE SALE PRICE ACTUAL LY REALIZED BY THE ASSESSEE IN A. Y. 2009-10 AND IN SUBSEQUENT 3 YEARS, THE COST AND SALES VALUE HAVE BEEN ACCEPTED BY THE AO HIMSELF I.E. IN A. Y. 2010-11, 2011-12 AND 2012-13. 44. THE LD. COUNSEL OF THE ASSESSEE HAS GIVEN ELABO RATE JUSTIFICATION FOR ALLOWING THE DISCOUNT TO THE SISTE R CONCERN WHICH IS SUPPORTED FROM THE DOCUMENTS FILED IN THE PAPER BOOK AND AVAILABLE ON RECORDS. ALL THE DETAILS AND EXPLANATION FILED BY THE ASSESSEE ABOUT MAJOR CRISIS IN THE REA L ESTATE MARKET DURING THAT PERIOD, FALLING INDICES OF REALI TY SECTOR, ATMOSPHERE OF FEAR AND CRASHING OF REALITY PRICES, DDA SLASHING ITS FLOOR PRICES OF SIMILAR PROPERTIES BY ABOUT 40% FROM RS. 118.21 CRORES IN MARCH 2009 TO RS. 70.93 C RORES IN 2010 AND 2011, BUT STILL NO BUYERS OF SIMILAR PROPE RTY IN DWARKA ITSELF WHICH ASSESSEES MALL WAS CONSTRUCTED ARE UNCONTROVERTED. ALL SUCH SUBMISSIONS AND CLAIMS ARE DULY SUPPORTED BY ALL THE RELEVANT EVIDENCES. IT IS NOTI CED THAT DDA MADE AN OPEN OFFER OF PLOT NO. 9 MEASURING 5976 SQ. METERS ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 33 SITUATED AT CITY CENTRE, DWARKA, SECTOR-14, DELHI I NITIALLY FROM 13.03.2009 TO 30.03.2009 FOR A FLOOR PRICE O R S. 118.21 CRORES. THE SAME VERY PLOT WAS AGAIN OFFERED FOR PU BLIC AUCTION FROM 01.10.10 TO 20.10.2010 BUT FOR A RESER VE PRICE OF RS. 70.93 CRORES BUT REMAINED UNSOLD. YET ANOTHER A TTEMPT BY THE DDA TO SELL THE SAME PLOT WAS MADE VIDE PUBL IC OFFER DURING 11.02.2011 TO 08.03.2011 AGAIN FOR RS. 70.93 CRORES. THIS SINGLE INSTANCE CLEARLY PROVES THE ASSESSEES VERSION OF DOWNWARD TREND IN THE REAL ESTATE SECTOR. DDA HAD TO SLASH THE PRICES BY ABOUT 40% ON THE COMMERCIAL LAND. VIE WED FROM THIS ANGLE, THE ASSESSEE WHO ADMITTEDLY PURCHASED T HE PLOT THROUGH AUCTION FROM DDA FOR THE AUCTION PRICE OF R S. 111.12 CRORES HAD INCURRED HIGH COSTS BY ABOUT RS. 44.45 C RORES, WHICH CANNOT BE DISPUTED. SIMILARLY THERE IS NO DIS PUTE THAT ANOTHER SISTER CONCERN NAMELY R. C. SOOD & CO. PVT. LTD. SURRENDERED PLOT AND INCURRED LOSSES OF ABOUT RS. 3 0 CRORES. ALL THESE INSTANCES DO JUSTIFY THE ACTION OF THE ASS ESSEE IN MAKING LOSSES ON THE DWARKA PROJECT. 45. SIMILARLY ASSESSEE HAD GIVEN A DETAILED BASIS O F DETERMINING AND ARRIVING AT THE DISCOUNT OF 31.5%. CARRYING COST OF STOCK, COMMISSION EXPENSES, SELLING EXPENSE S SUCH AS ADVERTISEMENTS AND OTHER ADMINISTRATIVE EXPENSES/ES TIMATED BY THE ASSESSEE HAVE NOT BEEN REFUTED EITHER BY THE AO OR LD. CIT-DR BEFORE US AND REMAIN UNCONTROVERTED AND UNCHALLENGED. WHEREAS ASSESSEE HAD GIVEN A DETAILED EXPLANATION ABOUT GIVING 31.5% DISCOUNT ON UNSOLD S TOCK, ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 34 HOW AO ESTIMATED THE DISCOUNT FIGURE OF 5% IS NOT R EASONED BY THE AO IN THE ASSESSMENT ORDER AND IS A MERE GUE SS WORK. SUCH AN ADHOC APPROACH ADOPTED BY THE LD. AO HAS NO BASIS AND CANNOT BE SUSTAINED. HOW THE BUSINESS AFFAIRS A RE TO BE CONDUCTED AND WHAT IS THE BEST FOR THE BUSINESS HAS TO BE JUDGED BY A BUSINESSMAN AND HOW MUCH DISCOUNT WAS REQUIRED TO BE GIVEN IN A GIVEN SITUATION HAS TO BE DECIDED BY THE BUSINESS. AS LONG AS THE TRANSACTIONS ARE GENUI NE AND ACTUALLY CARRIED OUT, NO FAULTS CAN BE FOUND SIMPLY BECAUSE THE PARTIES TO THE TRANSACTION ARE RELATED. COURTS ACROSS THE COUNTRY HAVE TIME AND AGAIN REITERATED THESE PRINCI PLES. AO CANNOT JUDGE THESE TRANSACTIONS SITTING IN THE ARMS CHAIR OF A BUSINESSMAN. REASONABLENESS OF EXPENDITURE, THE TES T OF COMMERCIAL EXPEDIENCY WOULD BE REQUIRED TO BE JUDGE D FROM THE POINT OF VIEW OF A BUSINESSMAN AS HAS BEEN HELD IN MANY OF THE JUDGMENTS SOME OF WHICH ARE AS UNDER:- A. CIT VS. PANIPAT WOOLEN & GENERAL MILLS LIMITED 103 ITR 66 (SC) B. SASOON J. DAVID & NCO. PVT. LTD. VS. CIT 118 ITR 261 (SC). C. CIT VS. WALCHAND & CO. 65 ITR 381 (SC). D. J. K. WOOLEN MILLS VS. CIT 72 ITR 612 (SC). E. ALUMINIUM CORPORATION VS. CIT 86 ITR 11 (SC). F. CIT VS. DELHI SAFE DEPOSIT 133 ITR 756 (SC). G. SA BUILDERS LTD. VS. CIT 288 ITR 1 (SC). ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 35 46. THE ONLY REASON GIVEN BY THE LD. AO THAT SALES IN A. Y. 2009-10 TO THE SISTER CONCERN ARE COVERED U/S 40A ( 2)(B) OF THE INCOME TAX ACT. WE FAIL TO APPRECIATE THIS REAS ONING AND CONCERN OF THE AO. AS RIGHTLY POINTED OUT BY LD. C OUNSEL AND DULY ACKNOWLEDGED BY LD. CIT-DR THAT PROVISIONS OF SECTION 40A(2)(B) CANNOT BE APPLIED TO THE TRANSACTION OF S ALES OR INCOME. THESE PROVISIONS ARE APPLICABLE WHEN ASSESS EE INCURS EXPENDITURE, THE EXPENDITURE INCURRED BY THE ASSESS EE BEING COSTS OF THE PROJECT HAVE ALL BEEN ACCEPTED BY THE REVENUE. WE ALSO NOTICE THAT PROVISIONS OF SECTION 40A(2)(B) COULD HAVE BEEN RELEVANT IN THE HANDS OF NPHRPL WHO PURCHASED THIS SPACE FROM THE ASSESSEE BUT THAT WAS POSSIBLE ONLY IF NPHRPL HAD PAID TO ASSESSEE MORE PRICE THAN THE MARKET PRI CE OF SIMILAR SPACE. ON THE CONTRARY, HERE THE ALLEGATION OF THE AO IS OTHER WAY ROUND, I.E., ASSESSEE HAS SOLD IT CHEA PER AT A DISCOUNT. THEREFORE, PROVISIONS OF SECTION 40A (2)( B) WOULD NOT BEEN APPLICABLE EVEN IN NPHRPL. ERGO, IN OUR VIEW N OTHING ADVERSE TURNS OUT AGAINST THE TRANSACTIONS OF SALE/ PURCHASE BETWEEN THE RELATED CONCERNS AS ALLEGED BY THE LD. AO AND CONSEQUENTIALLY NOTHING ADVERSE CAN BE INFERRED FRO M ALLOWING DISCOUNT BY THE ASSESSEE WHILE AFFECTING THE SALES TO ITS SISTER CONCERN IN A. Y. 2009-10. WE ARE ALSO AT TANDEM WI TH THE ARGUMENTS OF LD. COUNSEL THAT AMOUNT OF SALES AMOUN T ACTUALLY REALIZED BY THE ASSESSEE CANNOT BE ARTIFIC IALLY ENHANCED AS HAS BEEN HOLD BY HONBLE SUPREME COURT IN THE CASE OF A. RAMAN & CO. 67 ITR 11 (SC). THAT THE TRANSACTION BETWEEN THE RELATED PARTIES IS GENUINE IS NOT IN DI SPUTE. THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 36 LD. AO HAS ALSO ACCEPTED THIS ASPECT AND THE ONLY R EASON FOR RESTRICTING THE CUMULATIVE LOSS OF RS. 44 CRORES IN A. Y. 2008- 09 AND A. Y. 2009-10 AS NOTED FROM ASSESSMENT ORDER FOR A. Y. 2009-10 IS THE REDUCTION OF DISCOUNT ACTUALLY AL LOWED BY ASSESSEE @ 31.5% TO 5%. THEREFORE, SO LONG AS TRAN SACTIONS BETWEEN THE TRANSACTING PARTIES ARE GENUINE, NO CHA LLENGE CAN BE THROWN TO THE PRICES DECIDED BETWEEN THE PARTIES . THE AO HAS SUBSEQUENTLY IN A. Y. 2010-11, 2011-12 AND 2012 -13 ACCEPTED BOTH THE COST OF THE PROJECT AND THE SALES ACTUALLY REALIZED IN LINE WITH THE PREVIOUS YEARS ESTIMATIO N. 47. A CUMULATIVE APPRECIATION OF ALL THE FACTS AND LEGAL POSITION AS GATHERED AND APPLICABLE TO THE FACTS OF THIS CASE ON THIS GROUND WOULD LEAD TO A NATURAL CONCLUSION T HAT AO WAS NOT JUSTIFIED IN DISALLOWING LOSSES IN A. Y. 200 8-09 AND ALSO IN A. Y. 2009-10. 48. NOW NEXT ISSUE WHICH IS REQUIRED TO BE CONSIDER ED BY US AS TO WHETHER THE ORDER OF LD. CIT (A) REQUIRES ANY CHANGE VIS- -VIS TOTAL LOSSES OF THIS PROJECT HAVING BEEN ALLO CATED IN THE MANNER INDICATED BY HIM IN HIS ORDER. THE LD. COUNS EL OF THE ASSESSEE HAS CLAIMED THAT AS PER THE LOSSES ALLOCAT ED BY LD. CIT(A) RS. 32.90 CRORES WAS REQUIRED TO BE ALLOWED IN A.Y. 2008-09 ONLY AS AGAINST RS. 18.52 CRORES CLAIMED BY THE ASSESSEE IN ITS ITR. HOWEVER, LD. CIT (A) HAS REST RICTED THE LOSSES IN A. Y. 2008-09 TO THE EXTENT OF RS. 18.52 CRORES AND REALLOCATED MAJOR PART OF THIS LOSS IN A. Y. 2009-1 0. AS PER THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 37 ORDER OF LD. CIT (A), THE ASSESSEE SHOULD HAVE BEEN ALLOWED AND WAS ELIGIBLE TO THE LOSS OF RS. 4.70 CRORES IN A. Y. 2009- 10 AS AGAINST RS. 25.48 CRORES CLAIMED BY HIM IN IT S ITR. HOWEVER, LD. CIT (A) DETERMINED THE LOSS ALLOWABLE IN A. Y. 2009-10 AT RS. 19.10 CRORES. IF THE SUBMISSION OF L D. COUNSEL IS FULLY ACCEPTED, THEN IT WOULD MEAN LOT OF RECTIF ICATION ORDERS ETC. WILL HAVE TO BE PASSED. SINCE THE ASSESSEE AS WELL AS DEPARTMENT HAS ALREADY ACTED UPON THE ORDER OF LD. CIT (A) BY FILLING APPEALS AND CROSS-APPEALS AND KEEPING IN VI EW THE FACT THAT TAX RATES IN EACH OF THESE YEARS WAS THE SAME AS ALSO ADMITTED BY THE LD. AR, WE FEEL THAT NO USEFUL PURP OSE WILL BE SERVED TO ACCEPT THIS SETTLED ASSESSMENT HISTORY OF THE ASSESSEE. WE, THEREFORE, ARE OF THE VIEW THAT ALLOC ATION DONE BY LD. CIT(A) FOR THE TOTAL LOSSES OF RS. 45.72 CRO RES INCURRED BY THE ASSESSEE OVER THE PERIOD OF PROJECT RUNNING INTO 5 YEARS STARTED FROM A. Y. 2008-09 TO A. Y. 2012-13, WHICH ALLOCATION AS ALREADY CLARIFIED HAS BEEN ACTED UPON BOTH BY TH E ASSESSEE AS WELL BY THE DEPARTMENT, THERE IS NO REASON FOR U S TO GIVE ANY DIRECTIONS ON THIS SUBMISSION OF THE ASSESSEE A ND ACTION OF LD. CIT(A) ON THIS ISSUE OF ALLOCATING THE LOSSE S TO VARIOUS YEARS IS FOUND JUSTIFIED AND IS HEREBY UPHELD. ACCOR DINGLY, IN VIEW OF OUR AFORESAID REASONING, GROUNDS OF APPEAL RAISED BY THE DEPARTMENT BEING GROUND NO. 5 IN A. Y. 2008-09 AND GROUND NO. 2 IN A. Y. 2009-10 ARE DISMISSED. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 38 APPEAL NO. 1349/DEL/2013 A. Y. 2009-10 49. GROUND NO. 1 & 5 RAISED BY THE DEPARTMENT IN THE MEMORANDUM OF APPEAL, ARE GENERAL IN NATURE AND DOE S NOT REQUIRE ANY SPECIFIC ADJUDICATION. 50. GROUND NO. 2 PERTAINS TO THE ISSUE OF LOSSES IN THE DWARKA PROJECT. WE HAVE ALREADY, WHILE DEALING WITH GROUND NO. 5 FOR A. Y. 2008-09 RAISED BY THE DEPARTMENT, H EARD THE ISSUE AND RENDERED OUR JUDGMENT ON THE SAME IN ITA NO. 1348/DEL/2013 . OUR FINDING GIVEN ABOVE WILL APPLY MUTATIS MUTANDIS. THIS GROUND OF APPEAL ALSO STANDS DISMISS ED IN VIEW OF OUR FINDINGS IN THE SAID APPEAL 51. GROUND NO. 3 HAS BEEN RAISED BY THE DEPARTMENT IN THIS YEAR VIDE WHICH, THE LD. CIT(A) HAS DELETED THE ADD ITIONS OF RS. 1,32,355/- MADE BY THE ASSESSING OFFICER U/S 41 (1)/28 OF THE INCOME TAX ACT. BOTH THE PARTIES FAIRLY AGREED THAT FACTS AND CIRCUMSTANCES AS WELL AS SUBMISSIONS OF BOTH TH E PARTIES ARE IDENTICAL AS HAS BEEN MADE AGAINST GROUND NO. 2 FOR A. Y. 2008-09 IN ITA NO. 1348/DEL/2013 . SINCE ALL THE FACTS, REASONS OF THE AO WHILE MAKING DISALLOWANCE AS WELL AS THE GROUNDS ON WHICH RELIEF HAS BEEN GRANTED ON THIS IS SUE BY THE LD. CIT(A) ARE IDENTICAL, WE DISMISS THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IN LINE OF OUR ORDER FOR A . Y. 2008-09 (SUPRA). ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 39 52. GROUND NO. 4. THIS GROUND OF APPEAL HAS BEEN RAISED FOR DELETING THE DISALLOWANCE ON ACCOUNT OF EXCESSI VE DEPRECIATION ON PRINTERS & UPS. BOTH THE PARTIES H AVE AGREED THAT THE REASONING OF THE AO WHILE MAKING THE DISAL LOWANCE AS WELL AS THE GROUNDS ON WHICH THE LD. CIT(A) HAS GRANTED RELIEF ARE SIMILAR TO GROUND NO. 3 FOR A. Y. 2008-09 IN ITA NO. 1348/DEL/2013 . THIS ISSUE HAS ALREADY BEEN DECIDED BY US IN GROUND NO. 3 OF THE DEPARTMENT FOR A. Y. 2008-09 (SUPRA). ON THE IDENTICAL REASONING, WE DISMISS THIS GROUND OF APPEAL OF THE DEPARTMENT. APPEAL NO. 899/DEL/2013 A. Y. 2009-10 53. THE ASSESSEE HAS FILED CROSS APPEAL AGAINST THE ORDER OF CIT (A) ON ACCOUNT OF THE FACT THAT ASSESSEE CLAIME D A TOTAL LOSS OF RS. 25.48 CRORES IN A. Y. 2009-10. OUT OF THIS, THE LD. CIT (A) ALLOWED THE LOSS OF RS. 19.1 CRORES AS PER POCM METHOD AND THE BALANCE LOSS WERE ALLOCATED TO BE AL LOWABLE IN A. Y. 2010-11 TO A. Y. 2012-13. THE APPEALS FILED B Y THE DEPARTMENT IN A. Y. 2011-12 AND 2012-13, WHICH ARE BEING SIMULTANEOUSLY HEARD ALSO CLARIFY THIS POSITION THA T ASSESSEE CLAIMED THESE BALANCE LOSSES IN A. Y. 2010-11 TO A. Y. 2012- 13 IN APPEALS FILED BEFORE CIT(A), WHICH THE LD. CI T(A) HAS ALLOWED FOLLOWING HIS OWN ORDER IN A. Y. 2008-09. 54. IN OUR VIEW, NO GRIEVANCE IS LEFT WITH THE ASSE SSEE TO PURSUE THIS GROUND. ASSESSEE HAS ALSO SUBMITTED THA T IF ORDER ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 40 OF LD. CIT (A) IN A. Y. 2008-09 IS UPHELD IN TOTO T HEN THIS GROUND OF APPEAL RAISED BY THE ASSESSEE SHALL BECOM E INFRUCTUOUS. SINCE, WE HAVE UPHELD THE ORDER AND FI NDINGS OF LD. CIT (A) IN A.Y. 2008-09 AND A. Y. 2009-10, THI S GROUND OF APPEAL RAISED BY THE ASSESSEE DOES NOT SURVIVE. 55. THEREFORE, ASSESSEES APPEAL 899/DEL/2013 IS HEREBY DISMISSED. APPEAL NO. 5776/DEL/2014 A. Y. 2011-12 56. THE SOLITARY GROUND RAISED BY THE DEPARTMENT IN A. Y. 2011-12 PERTAINS TO THE RELIEF ALLOWED BY THE LD. C IT(A) AMOUNTING TO RS. 2,51,00,000/- ON ACCOUNT OF LOSSES IN THE DWARKA PROJECT. THE ASSESSMENT ORDER DOES NOT MAKE ANY MENTION OF THIS ITEM AND THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER ON THIS ISSUE. ON BEING ENQUIRED, IT HAS BEEN EXPLAINED THAT THIS RELIEF WAS SOUGHT BY THE A SSESSEE FROM THE ASSESSING OFFICER PURSUANT TO THE ORDER DO NE BY LD. CIT(A) IN APPEAL NO. 4/14-15 DATED 08.08.2014 ON ACCOUNT OF THE LOSS OF DWARKA PROJECT AS PER CIT(A)S ORDER FO R A. Y. 2008-09. IT HAS BEEN SUBMITTED THAT ASSESSEE CLAIM ED A LOSS OF RS. 0.79 LACS IN ITS ITR WHICH WAS ALLOWED BY TH E LD. AO BUT IN THE APPEAL FILED BEFORE THE LD. CIT (A), ADD ITIONAL CLAIM OF RS. 2.51 CRORES WAS MADE AS PER THE ALLOCATION O F LOSSES DONE BY LD. CIT (A) IN HIS ORDER FOR A. Y. 2008-09. THE LD. CIT (A) HAS ALLOCATED THE LOSS ON THIS PROJECT TO THE E XTENT OF RS. 3.3 CRORES IN THIS YEAR. THE DIFFERENTIAL AMOUNT OF LOSS AS PER ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 41 CIT(A)S ORDER WAS CLAIMED IN THE APPEAL FILED BEFO RE LD. CIT(A). 57. SINCE THIS GROUND OF APPEAL ALSO ARISES FROM TH E ORDER OF LD. CIT (A) FOR A. Y. 2008-09, WHICH ORDER HAS BEEN UPHELD BY US IN A. Y. 2008-09 IN ITA NO. 1348/DEL/2013 READ WITH ITA NO. 1349/DEL/2013 FOR A. Y. 2008-09 AND A. Y. 2009-10 RESPECTIVELY. THIS GROUND OF APPEAL RAISED BY THE D EPARTMENT IS CONSEQUENTIAL TO THOSE ORDERS AND IS REQUIRED TO BE DISMISSED. HENCE, APPEAL OF THE DEPARTMENT FOR A. Y. 2011-12 BEING ITA NO. 5776/DEL/2014 IS DISMISSED. ITA NO. 2083/DEL/2015 A. Y. 2012-13 58. GROUND NO. 1 RAISED BY THE DEPARTMENT IN THIS YEAR IS GENERAL AND DOES NOT REQUIRE ANY ADJUDICATION. 59. GROUND NO. 2: THIS GROUND HAS BEEN RAISED AGAINST DELETION OF RS. 1,38,740/- ON ACCOUNT OF SALE PROMO TION EXPENSES WHICH WAS MADE BY THE AO. THIS DISALLOWAN CE WAS MADE BY THE AO ON THE REASONING THAT DIRECTORS OF T HE COMPANY HAD INCURRED THESE EXPENSES THROUGH THEIR P ERSONAL CREDIT CARDS AND THE ELEMENT OF PERSONAL NATURE IN SUCH EXPENSES CANNOT BE RULED OUT. THE AO DISALLOWED 20 % OF THE TOTAL EXPENSES DEBITED UNDER THE HEAD SALE PROMOTI ON ON THAT REASONING ON AN ESTIMATED AND ADHOC BASIS. 60. THE LD. CIT (A) DELETED THIS DISALLOWANCE MADE BY THE LD. AO BY FOLLOWING HIS OWN ORDER FOR THE A. Y. 201 0-11. THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 42 LD. CIT (A) OBSERVED THAT COMPANY IS AN ARTIFICIAL LEGAL ENTITY AND INCAPABLE OF INCURRING ANY PERSONAL EXPENSES. FOR THIS LEGAL PROPOSITION, THE LD. CIT (A) FOLLOWED THE JUD GMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. V. CIT 172 CTR 339. 61. IT IS NOTICED THAT THIS ISSUE ALSO CAME UP BEFO RE HONBLE ITAT IN ASSESSEES OWN CASE IN ITA NO. 4832/DEL/2014 IN A. Y. 2010-11, WHEREIN HONBLE ITAT HAS UPHELD THE ORD ER OF LD. CIT (A) IN A. Y. 2010-11. A COPY OF THIS ORDER HAS BEEN FILED BEFORE US. SINCE THE ISSUE INVOLVED AND THE FACTS A S WELL AS LAW ON THIS ISSUE ARE IDENTICAL, RESPECTFULLY FOLLO WING THE JUDGMENT OF HONBLE ITAT IN ASSESSEES OWN CASE IN I TA NO. 4832/DEL/2014 FOR A. Y. 2010-11, WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND DISMISS THIS GROUND OF THE DEPARTMENT. 62. GROUND NO. 3: THIS GROUND HAS BEEN RAISED BY THE DEPARTMENT TOWARDS BAD DEBTS WRITTEN OFF. THE LD. A O DISALLOWED A SUM OF RS. 15,11,300/- ON ACCOUNT OF B AD DEBTS WRITTEN OFF, WHICH MAINLY REPRESENTED THE ADVANCES GIVEN TO VARIOUS PARTIES WHO WERE SUPPLIERS OF THE ASSESSEE IN THE ORDINARY COURSE OF ITS BUSINESS. THE LD. AO DISALLO WED THIS AMOUNT ON THE PLEA THAT THE AMOUNT WRITTEN OFF ARE NOT COVERED U/S 36(1)(VII) OF THE INCOME TAX ACT. ACCO RDING TO AO SUCH WRITE-OFF DONT FALL WITHIN THE PURVIEW OF SEC TION 36(1)(VII) OF THE INCOME TAX ACT. THE LD. CIT (A) DELETED THIS ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 43 DISALLOWANCE BY HOLDING THAT IF THE ADVANCES GIVEN TO THE SUPPLIER AND THE EXPECTED GOODS AND SERVICES ARE NO T RECEIVED AGAINST SUCH ADVANCES AND BECOME IRRECOVERABLE, THE SAME REPRESENT BUSINESS LOSS U/S 28 AND ARE ALLOWABLE U/ S 37 EVEN IF THE SAME ARE NOT ALLOWABLE U/S 36(1)(VII) OF THE INCOME TAX ACT. 63. AT THE TIME OF HEARING BOTH THE PARTIES FAIRLY AGREED THAT THE ORDER OF CIT (A) DOES NOT NEED ANY INFERENCE. WE ALSO FIND SUPPORT ON THIS ISSUE FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA V/S CIT 34 ITR 10, WHEREIN IT HAS BEEN HELD THAT AMOUNTS ADVANCED IN T HE ORDINARY COURSE OF BUSINESS WHICH BECOME IRRECOVERA BLE ARE ALLOWABLE AS BUSINESS LOSSES. THE ORDER OF LD. CIT( A), THEREFORE, ON THIS ISSUE IS UPHELD AND THIS GROUND OF APPEAL OF THE DEPARTMENT IS DISMISSED. 64. GROUND NO. 4: THIS GROUND RAISED BY THE DEPARTMENT PERTAINS TO THE LOSS ON ACCOUNT OF DWARKA PROJECT. THIS ISSUE HAS NOT BEEN DISCUSSED IN THE ASSESSMENT ORDER AS W AS THE CASE IN A. Y. 2011-12 AND ARISES FROM THE ADDITIONA L CLAIM MADE BY THE ASSESSEE IN ITS APPEAL TO LD. CIT(A) WH O HAS BY FOLLOWING HIS OWN ORDER IN A. Y. 2008-09 ALLOWED TH IS RELIEF TO THE ASSESSEE. THE FACTS OF THIS MATTER HAVE ALREADY BEEN ELABORATELY DISCUSSED IN APPEAL OF THE ASSESSEE IN ITA NO. 1348/DEL/2013 AND ITA NO. 1349/DEL/2013 WHICH ARE BEING DECIDED SIMULTANEOUSLY IN THIS ORDER ITSELF. SINCE THE ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 44 ORDER OF LD. CIT(A) FOR A. Y. 2008-09 AND 2009-10 H AS BEEN UPHELD IN TOTO. THE GROUND OF APPEAL RAISED BY THE DEPARTMENT ON THIS ISSUE IS DISMISSED. NEEDLESS TO MENTION THAT AS ALREADY OBSERVED IN THE EARLIER PART OF OUR ORDER, THE DEPARTMENT HAS ALLOWED SIMILAR RELIEF TO THE ASSESS EE IN A. Y. 2010-11 FOLLOWING THE SAME ORDER OF LD. CIT (A) AND HAS NOT FILED ANY APPEAL AGAINST SUCH ORDER. THIS GROUND O F APPEAL IS CONSEQUENTIAL TO THE ORDERS PASSED BY US FOR A. Y. 2008-09 AND 2009-10 (SUPRA), THEREFORE NEEDS TO BE DISMISSE D. ITA NO. 1704/DEL/2015 A. Y. 2012-13 65. THE SOLITARY GROUND RAISED BY THE ASSESSEE IN T HIS APPEAL PERTAINS TO DISALLOWANCE OF RS. 10,47,025/- INCURRE D BY THE ASSESSEE DURING THE YEAR AS GROUND RENT ON LEASE HO LD PROPERTIES TO L& DO. ACCORDING TO THE AO THIS AMOU NT IS NOT ALLOWABLE U/S 43B OF THE INCOME TAX ACT AND SHALL B E ALLOWED ONLY IN THE YEAR IN WHICH THIS IS ACTUALLY PAID BY THE ASSESSEE. THE LD. CIT (A) HAS CONCURRED WITH THE VIEWS OF THE LD. AO BY HOLDING THAT ALTHOUGH THE NATURE OF PAYMENTS SPECIF IED IS NOT COVERED BY CLAUSE (B) TO (F) OF SECTION 43B, BUT IT MAY BE COVERED UNDER CLAUSE (A) OF SECTION 43B, WHICH TALK S OF ANY SOME PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, C ESS OR FEE BY WHATEVER NAME CALLED UNDER ANY LAW FOR THE TIME BEING IN FORCE. THUS, ACCORDING TO LD. CIT (A) GROUND RENT PAYABLE TO L&DO FALLS IN THIS CLAUSE AND HE HAS UPHELD THE DIS ALLOWANCE MADE BY THE AO. ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 45 66. BEFORE US, THE LD. AR SUBMITTED THAT THE PROVIS ION OF SECTION 43B IS NOT APPLICABLE TO THE SAID NATURE OF PAYMENT. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THIS TR IBUNAL IN THE CASE OF K. NARENDRA V/S ACIT AS REPORTED IN 77 TTJ 76 (DEL). A COPY OF THIS JUDGMENT HAS BEEN FILED BEFORE US. IN THAT CASE ALSO, THE ISSUE INVOLVED WAS WHETHER THE AMOUN T PAYABLE FOR MISUSE OF PREMISES AND ILLEGAL CONSTRUCTION WAS ALLOWABLE OR NOT. THE NATURE OF SUCH AMOUNT, I.E., AMOUNT PAY ABLE TOWARDS MISUSE OF PREMISES AND ILLEGAL CONSTRUCTION WAS HELD TO BE IN THE NATURE OF GROUND RENT BY FOLLOWING THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF GULAB SINGH & SONS (P) LTD. V. CIT 94 ITR 537 (DELHI). IT WAS AMONGST OTHERS HELD THAT GROUND RENT DOES NOT COME UNDER AN Y ITEMS MENTIONED IN THE VARIOUS CLAUSES OF SECTION 43B. AL THOUGH THE MAIN ISSUE IN THAT CASE WAS OF ALLOWABILITY OF SUCH AMOUNT U/S 24 OF THE INCOME TAX ACT BUT STILL THE ISSUE OF ALLOWABILITY OF GROUND RENT FROM THE PERSPECTIVE OF SECTION 43B WAS ALSO CONSIDERED AND IT WAS HELD THAT GROUND RENT IS NOT DISALLOWABLE BY APPLYING THE PROVISION OF SECTION 4 3B. RELEVANT FINDINGS OF THE JUDGMENT OF HONBLE DELHI ITAT IN THE CASE OF K. NARENDRA (SUPRA) ON THIS ISSUE ARE AS UNDER:- WE HAVE ALSO PERUSED THE PROVISIONS OF SECTION 43B OF THE ACT. UNDER SECTION 43B OF THE ACT, CERTAIN DEDUCTI ONS ARE ALLOWABLE ONLY IF THE SUMS HAVE BEEN ACTUALLY PAID. SUCH ITEMS ARE MENTIONED IN CLAUSE (A) TO (E) OF THIS SE CTION. GROUND-RENT DOES NOT COME UNDER ANY OF THE ITEMS ITA. .899, 1348, 1349-D-2013, 5776-D-2014, 2083-D-2 015, 1704-D-2015 46 MENTIONED IN VARIOUS CLAUSES OF SECTION 43B OF THE ACT. SO, NO DISALLOWANCE ON ACCOUNT OF DAMAGES DEMANDED BY L&DO FOR MISUSE OF THE PREMISES COULD BE MADE EVEN UNDER SECTION 43B OF THE ACT. CONSIDERING THE FACTS AS A WHOLE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF AMOUNT PAYABLE TO L&DO FOR MISUSE OF THE PREMISES UNDER SE CTION 24(1)(V) OF THE ACT. THE AO IS, THEREFORE, DIRECTED TO ALLOW THE SAME IN ALL THE SIX APPEAL SECTION. THUS, THIS GROU ND OF APPEAL FOR ALL THE SIX YEARS. 67. RESPECTFULLY FOLLOWING THE SAID JUDGMENT OF THI S ITAT IN THE CASE OF K. NARENDRA (SUPRA) WE HOLD THAT THE PROVISION OF SECTION 43B ARE NOT APPLICABLE TO THE GROUND RENT A ND DISALLOWANCE MADE BY THE AO AND UPHELD BY LD. CIT(A ) IS HEREBY DIRECTED TO BE DELETED. 68. IN NUTSHELL, ITA NO. 2083/DEL/2015 FOR A. Y. 2012-13 BEING DEPARTMENT APPEAL IS DISMISSED AND APPEAL OF THE ASSESSEE IN ITA NO. 1704/DEL/2015 FOR A. Y. 2012-13 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2021. SD/- SD/- [DR. B.R.R. KUMAR] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH JULY, 2021 PKK