CONWOOD REALTY P. LTD., MUMBAI V. DY CIT -CIRCLE-12(1)(2), MUMBAI

ITA 727/MUM/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2336 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 07-05-2021
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Search and seizure; Opportunity of being heard; Period of limitation; Additional evidence; Question of law; Wholly owned subsidiary; Capital receipt; Revenue expenditure; Set aside
• Section: 143(3); 143(1); 143(2); 48; 13; 22

Judgement Text

ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI RAJESH KUMAR (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO. 727/MUM/2021 (ASSESSMENT YEAR: 2012 - 13 ) M/S CONWOOD REALTY PVT. LTD. YASHODHAM, D.B. HOUSE, GEN. A.K. VAIDYA MARG, GOREGAON (EAST), MUMBAI 400063 VS. DY. CIT, CIRCLE - 12(1)(2) AAYAKAR BHAVAN, 2 ND FLOOR, M.K. ROAD, MUMBAI 400020 PAN NO. AADCC2501Q ( ASSESSEE ) ( REVENUE ) ITA NO.6447/MUM/2019 C.O. NO. 55/MUM/2021 (ARISING OUT OF ITA NO. 6447/MUM/2019) (ASSESSMENT YEAR: 2012 - 13) ACIT, CIRCLE - 12(1)(2) R. NO. 128D, 1 ST FLOOR, AAYAKAR BHAVAN, CHURCHGATE, MUMBAI 400020 VS. M/S CONWOOD REALTY PVT. LTD. YASHODHAM, D.B. HOUSE, GEN. A.K. VAIDYA MARG, GOREGAON (EAST), MUMBAI 400063 PAN NO. AADCC2501Q (REVENUE) (ASSESSEE) ASSESSEE BY : SHRI PRAKASH JHUNJHUNWALA , A.R REVENUE BY : MS. SHREEKALA PARDESHI , D.R DATE OF HEARING : 29 /07/2021 D ATE OF PRONOUNC EMENT : 26 / 10 /2021 ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 2 ORDER PER RAVISH SOOD; JM : THE PRESENT CROSS - APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 20, MUMBAI, DATED 25.07.2019, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A . O U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 31.05.2015 FOR A.Y 2012 - 13. ALSO, THE ASSESSEE IS BEFORE US AS A CROSS - OBJECTOR. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE WHEREIN THE IMPUGNED ORDER HAS BEEN ASSAILED ON THE FOLLOW ING GROUNDS BEFORE US: 1.0 O N FACTS AND CIRCUMSTANCES OF THE CA SE AND IN L AW, LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF INTEREST U/S.36(1)(III) OF RS.1,23,87,552/ - UNDER THE REASON THAT INTEREST BEARING FUNDS HAD BEEN UTILISED FOR ACQUIRING THE SHARES OF SUBSIDIARY COMPANY; 1.1 WIT HOUT PREJUDICE TO GROUND NO.1.0 A P RAYER IS MADE TO DIRECT LD. AO TO ALLOW THE CAPITALIZ ATION OF INTEREST OF RS.1,23,87,552/ - TO INVESTMENT IN SHARES; 2.0 ON FACTS AND CIRCUMSTANCE S OF THE CASE AND IN LAW, LD. CIT( A), HAVING ACCEPTED THE BROKERAGE PAID OF RS.1,24,64,40 8/ - AS DIR ECTLY RELATED TO SALE OF FLATS, HOWEVER ERRED IN CONFIRMING THE DISAL LOWANCE OF SUCH BROKERAGE SINCE CORRESPONDING SALES WERE NOT RECOG NI Z ED AS REVENUE INCOME DURING THE YEAR; 3.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CI T(A) ERRED IN SUSTAINING THE ADDITION OF SURPLUS EARNED ON SALE OF TDR OF RS.3,25,71,195/ - THEREAFTER ENHANCING SUCH INCOME AT RS. 5,56,12,975/ - , THOUGH APPELLANT HAD CLAIMED THAT SUCH SURPLUS ON TDR IS TO BE REDUCED FROM W ORK - IN - PROGRESS (WIP) OF THE HOUSING PROJECT; 3.1 WITHOUT P REJUDICE TO GROUND NO.3.0, LD. CI T(A) HAVING TAXED THE PROFIT ON SALE OF TDR OF RS.5, 56 ,12, 975/ - AS BUSINESS INCOME , OUGHT TO HAVE DIRECTED THE LD. AO TO CORRESPONDINGLY INCREASE THE WORK - IN - PROG RESS (WIP), SINCE SUCH SURPLUS WAS REDUCED BY THE APPELLANT FROM WIP ACCOUNT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, AND/OR WITHDRAW ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUCTION OF REAL ESTATE HAD ON 30.09.2012 E - FILED ITS RETURN OF INCOME FOR A.Y 2012 - 13 DECLARING A LOSS OF RS.8,43,68,326/ - . THE RETURN OF ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 3 INCOME WAS INITIALLY PROCESSED AS SUCH U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT U/S 143(2) OF THE ACT. 3. THE A.O VIDE HIS ORDER PASSED U/S. 143(3), DATED 31.03.2015 ASSESSED THE INCOME OF THE ASSE SSEE COMPANY AT RS.3,42,15,260/ - AFTER INTER ALIA MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES: SR. NO. PARTICULARS AMOUNT 1. DISALLOWANCE OF INTEREST U/S. 36(1)(III). (INVESTMENT MADE BY THE ASSESSEE IN THE SHARES OF SUBSIDIARY COMPANY) RS.1,23,87,552/ - 2. DISALLOWANCE OF INTEREST U/S 36(1)(III) (FOR LOAN GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY) RS. 59,00,000/ - 3. DISALLOWANCE OF BROKERAGE AND COMMISSION RS.1,24,64,408/ - 4. DISALLOWANCE OF DEPRECIATION RS. 70,09,252/ - 5. DISALLOWANCE OF VARIOUS EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT. RS.4,82,51,174/ - 6. PROFIT ON SALE OF TDR RS.3,25,71,595/ - 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). I NSOFAR THE DISALLOWANCE OF INTEREST U/S 36(1)(III) PERTAINING TO THE INVESTMENT MADE BY THE AS S ESSEE IN THE SHARES OF ITS SUBSIDIARY COMPANY, VIZ. M/S CONSOLIDATED CROP PROTECTION PVT. LD. (CCPL) WAS CONCERNED, THE CIT(A) NOT FINDING FAVOR WITH THE CONTENTION S ADVANCED BY THE ASSESSEE UPH E LD THE SAME. AS REGARDS THE ASSESSEES CLAIM FOR DEDUCTION OF COMMISSION AND BROKERAGE EXPENSES OF RS.1,24,64,408/ - , THE CIT(A) TAKING COGNIZANCE OF THE FACT THAT THE CORRESPONDING SALES WERE NOT RECOGNIZED B Y THE ASSESSEE COMPANY AS ITS REVENUE/INCOME DURING THE YEAR UNDER CONSIDERATION CONFIRMED THE DISALLOWANCE MADE BY THE A.O. HOWEVER, T HE A LTERNATIVE CONTENTION OF THE ASSESSEE THAT THE AFORESAID EXPENSES BE TREATED AS PART OF ITS WORK - IN - PROGRESS (W . I . P) WAS PRINCIPALLY ACCEPTED BY THE CIT(A). ACCORDINGLY, THE CIT(A) DIRECTED THE A.O TO ADD THE AMOUNT OF THE BROKERAGE AND COMMISSION EXPE NSES FOR THE PURPOSE OF COMPUTING THE WI P I.E THE PROJECT COST ON 31.03.2012 SUBJECT TO VERIFICATION OF THE GENUINENESS OF THE SAID EXPENSES. AS REGARDS THE ADDITION OF THE PROFIT ON SALE OF TDR OF RS.3,25,71,195/ - THAT WAS MADE BY THE A.O, THE CIT(A) REJE CTED THE AS S ESSEES CLAIM THAT THE PROFIT /SURPLUS ARISING TH E REFROM WAS NOT LIABLE TO BE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 4 ASSESSED IN ITS HANDS AND WAS RIGHTLY REDUCED FROM THE WIP I.E THE PROJECT COST . IT WAS OBSERVED BY THE CIT(A) THAT AS THE PROFIT DERIVED ON SALE OF TDR HAD NO INEXTRICABL E NEXUS WITH THE CONSTRUCTION ACTIVITY OF THE ASSESSEE, THEREFORE, THE AFORESAID TREATMENT OF THE PROFIT ON SALE OF TDR IN ITS BOOKS OF ACCOUNTS WAS NOT CORRECT. OBSERVING THAT THOUGH THE ASSESSEE HAD EARNED A PROFIT OF RS. 5,56,12,975/ - FROM TH E SALE OF TDR , HOWEVER, THE A.O HAD ON AN ESTIMATE BASIS MADE AN ADDITION OF ONLY RS. 3,25,71,198/ - , THE A.O AFTER PUTTING THE ASSESSEE TO NOTICE ENHANCED THE ADDITION BY AN AMOUNT OF RS. 2,30,41,777/ - . AS REGARDS THE DISALLOWANCE U/S 36(1)(III) BY THE A.O OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE OF RS. 59 LAC PERTAINING TO THE INTEREST FREE LOANS THAT WERE ADVANCED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY, VIZ. CCPL , THE CIT(A) FINDING FAVOR WITH THE CONTENTIONS OF THE ASSESSEE VACATE D THE SAME. ALSO, THE DISALLOWANCE OF THE ASESSEES CLAIM FOR DEPRECIATION OF RS.70,09,252/ - ON OFFICE EQUIPMENTS, VEHICLES ETC. WAS VACATED BY THE CIT(A). ON A SIMILAR FOOTING , THE CIT(A) BEING OF THE VIEW THAT THE ASSESSEES CLAIM FOR DEDUCTION OF GENERA L ADMINISTRATIVE EXPENSES DID NOT FORM PART OF THE PROJECT EXPENSES AND WERE ALLOWABLE AS A DEDUCTION IN THE Y EAR IN WHICH TH EY WERE INCURRED, THUS, DELETED THE DISALLOWANCE OF RS. 4,83,51,174/ - MADE BY THE A.O. ACCORDINGLY, ON THE BASIS OF HIS AFORESAID O BSERVATIONS THE CIT(A) PARTLY ALLOWED THE APPEAL. 5. BEFORE PROCEEDING ANY FURTHER, WE MAY HEREIN OBSERVE THAT THE APPEAL FILED BY THE ASSESSEE INVOLVE S A DELAY OF 572 DAYS. IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE A SSESSEE THAT THE AFORESAID DELAY OF 572 DAYS AFTER EXCLUDING THE PERIOD OF COVID - 19 PANDEMIC WAS SCALED DOWN TO A PERIOD OF 154 DAYS. BE THAT AS IT MAY, THE LD. A.R HAD TAKEN US THROUGH THE MULTIPLE REASONS WHICH HAD LED TO THE DELAY IN FILING OF THE PRESENT APPEAL. IT WAS SUBMITTED BY THE LD. A.R THAT THE PRIMARY REASON LEADING TO THE DELAY IN QUESTION WAS THE FACT THAT THE FATHER OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY, VIZ. MR. PRAMOD KUMAR GOENKA WAS ABDUCTED AND KIDNAPPED DURING ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 5 HIS V ISIT TO MOZAMBIQUE, EAST AFRICA ON 17.02.2018. IT WAS SUBMITTED BY THE LD. A.R THAT DUE TO THE ABDUCTION OF HIS FATHER THE MANAGING DIRECTO R OF THE ASSESSEE COMPANY, VIZ. SHRI YASHWARDHAN PR A MOD GOENKA HAD REMAINED EXTREMELY DISTURBED AND IN FACT SLIPPED I N A MENTAL STATE OF DEPRESSION . IT WAS SUBMITTED BY THE LD. A.R THAT SHRI. YASHWARDHAN PR A MOD GOENKA HAD EXHAUSTED ALL HIS EFFORTS TO TRACE THE WHEREABOUTS OF HIS FATHER BY FILING POLICE COMPLAINT S, APPROACHING THE INDIAN HIGH COMMISSION AND MINISTRY OF EX TERNAL AFFAIRS. IN ORDER TO BUTTRESS HIS AFORESAID CONTENTION THE LD. A.R HAD TAKEN US THROUGH AN AFFIDAVIT THAT WAS FILED BY SHRI YASHWARDHAN PR A MOD GOENKA A/W HIS APPLICATION SEEKING CONDONATION OF THE DELAY INVOLVED IN FILING OF THE PRESENT APPEAL. TH E LD. A.R TOOK US THROUGH A LETTER THAT WAS ADDRESSED BY SHRI YASHWARDHAN PR A MOD GOENKA , DATED 19.02.2018 TO THE DY. COMMISSIONER OF POLICE, SAHAR POLICE STATION, MUMBAI, WHEREIN HE HAD LODGED A COMPLAINT AND HAD SOUGHT REGISTER ING OF A FIR ABOUT HIS FATHER I.E SHRI PRAMOD KUMAR GOENK HAVING GONE MISSING UPON LANDING AT MOZAMBIQUE , EAST AFRICA . FURTHER, OUR ATTENTION WAS DRAWN TO THE LETTERS DATED 20.02.2018 AND 24.02.2018 THAT WERE FILED BY MR. YASHWARDHAN GOENKA (SUPRA) WITH THE DY. COMMISSIONER OF POLICE, BANDRA SEEKING HIS INTERVENTION FOR FILING OF A FIR CONCERNING CERTAIN PERSONS WHO WERE ALLEGED LY INVOLVED IN THE ABDUCTION OF HIS FATHER. ALSO, THE LD. A.R TOOK US THROUGH ANOTHER LETTER DATED 07.03.2019 THAT WAS ADDRESSED BY MR. YASHWARDHAN P R A MOD GOENKA TO THE DY. COMMISSIONER OF POLICE, ANDHERI WHEREIN HE HAD FOLLOWED UP THE MATTER AND HAD SOUGHT INFORMATION AS REGARDS THE PROGRESS IN RESPECT OF THE AFORESAID MATTER . THE LD. A. R ALSO TOOK US THROUGH A LETTER ADDRESSED BY MR. SHARAD PAWAR, ME MBER OF PARLIAMENT , DATED 20.02.2018 TO THE MINISTER OF EXTERNAL AFFAIRS, WHERE IN HE HAD REQUESTED THAT A DIRECTION BE GIVEN TO THE EMBASSY IN MAPUTO, MOZAMBIQUE TO GET INFORMATION ABOUT MR. PRAMOD GOENKA. FURTHER, THE LD. A.R TOOK US THROUGH THE EXTRACTS OF THE VARIOUS NEWSPAPERS, VIZ. TIMES OF INDIA, MUMBA I MIRROR ETC. WHEREIN THE NEWS ABOUT KIDNAPPING OF MR. PR A MOD GOENKA WAS PUBLISHED. OUR ATTENTION WAS ALSO DRAWN BY THE LD. A.R TO THE INTELLIGENCE REPORT CONCERNING THE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 6 KIDNAPPING OF MR. PRAMOD GOENKA . IT WAS SUBMITTED BY THE LD. A.R THAT AS THE ASSESSEE UNDER THE AFORESAID UNFORTUNATE CIRCUMSTANCES DURING THE RELEVANT PERIOD OF TIME , AND THEREAFTER , HAD REMAINED EXTREMELY UPSET AND SLIPPED INTO DEPRESSION , THEREFORE, HE COULD NOT ATTEND TO HIS INCOME - TA X MATTERS . APART FROM THAT, IT WAS SUBMITTED BY THE LD. A.R THAT AS THE CONSTRUCTION ACTIVITIES OF THE ONGOING HOUSING PROJECT OF THE ASSESSEE DUE TO THE AFORESAID CIRCUMSTANCES HAD REMAINED COMPLETELY CLOSED, THEREFORE, HE WAS ALSO SUBJECTED TO THREATS BY THE INVESTOR S /BUYERS, C IVIL CONTRACTOR S ETC . FOR HONORING HIS FINANCIAL COMMITMENTS , WHICH HAD FURTHER ADDED TO HIS AGONY . I N ORDER TO FORTIFY HIS AFORESAID CLAIM THE LD. A.R HAD TAKEN US THROUGH THE RELEVANT PART OF THE AFFIDAVIT OF MR. YASHWARDHAN PR A MOD GOENKA. ALS O, IT WAS STATED BY THE LD. A.R, THAT APART FROM THE AFORESAID CIRCUMSTANCES WHICH HAD LED TO THE DELAY IN FILING OF THE PRESENT APPEAL, EVEN OTHERWISE , THE ASSESSEES CHARTERED ACCOUNTANT WHO WAS LOOKING AFTER ITS REGULAR INCOME - TAX MATTERS HAD FAILED TO ADVISE HIM ABOUT FILING OF THE APPEAL BEFORE THE TRIBUNAL. IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSESSEE WHO WAS NOT CONVERSANT WITH THE INCOME - TAX LAW HAD THEREAFTER ON LEARNING ABOUT ITS AFORESAID LAPSE IN FILING OF THE APPEAL WITHIN T HE STIPULATED TIME PERIOD APPOINTED ANOTHER COUNSEL AND HAD FILED THE SA ME ALONG WITH A PRAYER SEEKING CONDONATION OF THE DELAY THEREIN INVOLVED . OUR ATTENTION WAS DRAWN BY THE LD. A.R TO THE DEPOSITION OF SHRI YASHWARDHAN PR A MOD GOENKA IN SUPPORT OF THE AFORESAID FACT. I T WAS SUBMITTED BY THE LD. A.R THAT CONSIDERING THE AFOREMENTIONED UNFORTUNATE CIRCUMSTANCES THE DELAY INVOLVED IN FILING OF THE PRESENT APPEAL MAY BE CONDONED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHO RT D.R) DID NOT SERIOUSLY OBJECT TO THE SEEKING OF CONDONATION OF THE DELAY IN FILING OF THE PRESENT APPEAL BY THE ASSESSEE. ONLY CONTENTION THAT WAS RAISED BY THE LD. D.R WAS THAT THE ASSESSEES CLAIM THAT ITS CHARTERED ACCOUNTANT WHO WAS LOOKING AFTER THE AFFAIRS AT THE RELEVANT POINT OF TIME HAD NOT ADVISED HIM TO FILE THE APPEAL BEFORE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 7 THE TRIBUNAL WAS A TOTALLY UNSUBSTANTIATED CLAIM AND COULD NOT BE ACTED UPON IN THE ABSENCE OF ANY SUPPORTING MATERIAL. 7. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO T HE AFORESAID REQUEST OF THE ASSES S EE FOR CONDONATION OF THE DELAY INVOLVED IN FILING OF THE PRESENT APPEAL BEFORE US. AFTER GIVING A THOUGHTFUL CONSIDERATION , WE FIND THAT TH E RE ARE JUSTIFIABLE REASONS WHICH HAD LED TO THE DELAY ON THE PART OF THE ASSESSEE IN FILING THE PRESENT APPEAL . AS OBSERVED BY US HEREINABOVE, THE FACT THAT SHRI PRAMOD GOENKA I.E FATHER OF SHRI YASHWARDHAN PR A MOD GOENKA, MANAGING DIRECTOR OF THE ASSESSEE COMPANY WAS ABDUCTED DURING HIS VISIT TO MOZAMBIQUE, EAST AFRICA STANDS DULY SUBS TANTIATED ON THE BAS I S OF THE EXHAUSTIVE DOCUMENTS THAT HAVE BEEN FILED BY THE ASSESSEE BEFORE US. APART FROM THAT, WE FIND THAT THE AFORESAID FACTUAL POSITION IS DULY SUPPORTED BY THE AFFIDAVIT OF SHRI YASHWARDHAN PR A MOD GOENKA, WHEREIN HE HAD CLEARLY D EPOSED THE AFOREMENTIONED FACTS. FURTHER , WE ALSO FIND SUBSTANTIAL FORCE IN THE CLAIM OF THE ASSESSEE THAT DUE TO THE CLOSURE OF THE CONSTRUCTION ACTIVITIES OF ITS ONGOING HOUSING PROJECTS HE WAS THREATENED BY THE INVESTORS, BUYERS AND CIVIL CONTRACTORS WHO HAD PRESSURIZED HIM TO HONOR HIS FINANCIAL COMMITMENTS, WHICH HAD FURTHER ADDED TO THE AGONY HE WAS ALREADY UNDERGOING. IN THE TOTALITY OF THE AFORESAID FACTS, WE ARE OF THE CONSIDERED VIEW THAT IT CAN SAFELY BE CONCLUDED THAT THE CI RCUMSTANCES PREVAILING AT THE END OF THE ASSESSEE CLEARLY JUSTI FIES THE DELAY IN FILING OF THE PRESENT APPEAL B EFORE US. APART FROM THAT, THE FACT AS DEPOSED BY SHRI YASHWARDHAN PR A MOD GOENKA IN HIS AFFIDAVIT I.E THE ASSESSEES CHARTERED ACCOUNTANT WHO W AS LOOKING AFTER ITS INCOME - TAX AFFAIRS HAD NOT ADVISED HIM TO FILE THE APPEAL BEFORE THE TRIBUNAL FURTHER SUBSTANTIATES THE BONAFIDES DUE TO WHICH THE PRESENT APPEAL COULD NOT BE FILE D WITHIN THE PRESCRIBED PERIOD OF LIMITATION. BE THAT AS IT MAY, IN OUR CONSIDERED VIEW , AS THERE ARE JUSTIFIABLE REASONS EXPLAINING THE DELAY IN FILING OF THE PRESENT APPEAL BY THE ASSESSEE , WE , THUS, HOLD A STRONG CONVICTION THAT THE DELAY OF 573 DAYS INVOLVED IN FILING OF THE SAME MERITS TO BE CONDONED. ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 8 8. WE SHALL NOW ADVERT TO THE MERITS OF THE CASE INVO L V ED IN THE PRESENT APPEAL BEFORE US. 9. WE SHALL FIRST TAKE UP THE GRIEVANCE OF THE ASSESSEE THAT THE CIT(A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 1,23,87,552/ - U/S 36(1)(III) OF THE ACT. AS IS D ISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES, THE ASSESSEE HAD IN ITS BALANCE SHEET SHOWN AN AMOUNT OF R S .1,58,37,069/ - AS B ORROWING COST R EFERABLE TO I NVESTMENT IN E QUITY S HARES OF C ONSOLIDATED CROP PROTECTION PVT. LTD . ( N OTE 19 OF BALANCE SHEET). I N ITS COMPUTATION OF INCOME THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION OF INTEREST EXPENSES OF RS.1,23,87,552/ - (OUT OF THE S UM OF RS.1,58,37,069/ - ). ON A PERUSAL OF THE RECORDS, IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD RAISED A LOAN FOR ACQUIRING CERTAIN SHARES OF M/S CONSOLIDATED CROP PROTECTION PVT. LTD. ( FOR SHORT CCPL ) ON WHICH INTEREST OF RS.1,23,87,552/ - WAS PAID DURING THE YEAR UNDER CONSIDERATION. ON BEING QUERIED AS TO HOW THE AFORE SAID INTEREST OF RS.1,23,87,552/ - W AS ALLOWABLE AS A DEDUCTION, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAME PERTAINED TO THE LOAN THAT WAS RAISED BY IT FOR ACQUISITION OF SHARES OF THE AFOREMENTIONED COMPANY, I.E CCPL WHICH SUBSEQUENTLY HAD BECAME ITS WHOLLY OWNED SUBSIDIARY COMPANY. HOW EVER, THE A.O DID NOT FIND FAVOR WITH THE AFORESAID CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE BY THE ASSESSEE AND DISALLOWED THE SAME. IT WAS OBSERVED BY THE A.O TH A T THE ASSESSEE HAD NOT DEBITED THE AFORESAID INTEREST EXPENDITURE IN ITS P ROFIT AND LOSS ACCOUNT AND HAD SHOWN IT AS A CURRENT ASSET IN ITS BALANCE SHEET. IT WAS FURTHER NOTICED BY THE A.O THAT THOUGH THE ASSESSEE HAD ACQUIRED 100% SHAREHOLDING OF CCPL , HOWEVER, IT WAS PROPOSED BY THE ASSESSEE TO SELL THE SAID SHARES IN FUTURE. ACCORDINGLY, THE A.O WAS OF THE VIEW THAT THE INTEREST PAID BY THE ASSESSEE ON THE AMOUNT BORROWED FOR ACQUIRING THE SHARES OF CCPL WAS TO BE CAPITALIZED AS A PART OF THE COST OF THE SHARES , WHICH THEREAFTER ON ITS SALE WOULD RESULT TO LOW ER AMOUNT OF CAPITAL GAIN IN THE HANDS OF THE ASSESSEE. ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 9 10. ON APPEAL THE CIT(A) DID NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY THE A.O. IT WAS OBSERVED BY THE CIT(A) THAT THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS LIMITED VS. CIT(APPEALS) & ANR. (2007) 288 ITR 1 (SC) BEING DISTINGUISHABLE ON FACTS WOULD THUS NOT ASSIST ITS CASE. IT WAS OBSERVED BY THE CIT(A) THAT WHILE FOR IN THE CASE OF S.A. BUILDERS (SUPRA) AS THE ASSESSEE HAD GIVEN INTEREST FREE LOAN TO ITS SUBSIDIARY FOR THE LATTER S BUSINESS PURPOSES, THEREFORE, IT WAS CONSIDERING THE SAID FACT THAT THE HONBLE APEX COURT HAD HELD THAT THE INTEREST EXPENDITURE ON THE FUNDS BORROWED BY THE ASSESSEE COULD NOT BE DISALLOWED. ON THE CONTRARY, IT WAS OBSERVED BY THE CIT(A) THAT THE ASSESSEE IN THE PRESENT CASE HAD PURCHASED THE SHARES OF CCPL FROM A THIRD PARTY AND HAD GIVEN THE BORROWED FUNDS TO A THIRD PARTY UNLIKE AS IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) WHERE THE FUND S WERE MADE AVAILABLE TO T HE SUBSIDIARY COMPANY FOR ITS BUSINESS PURPOSES. ACCORDINGLY, IN THE BACKDROP OF HIS AFORESA ID DELIBERATIONS THE CIT(A) UPHELD T HE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE OF RS.1,29,83,552/ - U/S 36(1)(III) OF THE ACT. 11. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS CONSIDERED THE JUDICIAL PRONOUNCEMENTS THAT HAVE BEEN PRESSED INTO SERVICE BY THEM TO DR IVE HOME THEIR RESPECTIVE CONTENTIONS IN CONTEXT OF THE AFORESAID ISSUE IN HAND . IT IS THE CLAIM OF THE LD. A.R THAT THE ASSESSEE HAD ACQUIRED 100% SHAREHOLDING O F CCPL. IT WAS SUBMITTED BY THE LD. A.R THAT THE LOWER AUTHORITIES ON THE BASIS OF MISCONCEIVE D FACTS HAD DISALLOWED THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT. IT WAS SUBMITTED BY THE LD. A.R THAT THE LOWER AUTHORITIES HAD WRONGLY OBSERVED THAT THE ASSESSEE COMPANY HAD PLANNED THAT THE SHARE S OF CCPL WERE TO BE TRANSFERRED IN FUTURE . ALSO, IT WAS SUBMITTED BY THE LD. A.R THAT THE LOWER AUTHORITIES HAD ERRONEOUSLY OBSERVED THAT INVESTMENT IN SHARES WAS NOT THE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 10 BUSINESS OF THE ASSESSEE COMPANY. REBUTTING THE OBSERVATIONS OF THE LOWER AUTHORITIES, IT WAS SUBMITTED BY THE LD. A.R THAT THE INVESTMENT IN THE SHARES OF CCPL OF RS.20.44 CRORES WAS MADE BY THE ASSESSEE NOT DURING THE YEAR UNDER CONSIDERATION BUT IN THE PRECEDING YEARS. IN ORDER TO BUTTRESS HIS AFORESAID CLAIM THE LD. A.R HAD TAKEN US THROUGH P AGE 3 & 4 OF THE ASSESSEES PAPER BOOK (APB), WHICH REVEALED THAT THE INVESTMENT OF RS. 20.44 CRORE IN THE SHARES OF CCPL WAS REFLECTED AS AN OPENING BALANCE ON 01. 04.2011. FURTHER, IT WAS SUBMITTED BY THE LD. A.R THAT THE LOWER AUTHORITIES HAD FAILED TO APPRECIATE THAT THE INVESTMENT FOR ACQUIRING THE SHARES OF CCPL WAS MADE BY THE ASSESSEE OUT OF THE MIXED FUNDS THAT WERE AVAILABLE WITH IT IN THE BANK ACCOUNTS . IT WAS SUBMITTED BY THE LD. A.R THAT AS A MATTER OF FACT THE ACQUISITION OF SHARES OF CCPL WAS PRIMARILY SOURCED FROM THE MATURITY PROCEEDS OF ITS FIXED DEPOSITS HELD WITH ORIENTAL BANK OF COMMERCE, MUMBAI. IN ORDER TO DRIVE HOME HIS AFORESAID CLAIM THE LD. A .R HAD TAKEN US THROUGH THE INVESTMENTS THAT WERE MADE BY THE ASSESSEE IN CCPL AND THE COPY OF ITS BANK ACCOUNTS AT PAGE NO. 5 - 10 OF APB. IT WAS FURTHER SUBMITTED BY THE LD. A.R THAT NO PART OF THE INTEREST ON BORROWED CAPITAL WAS DISALLOWED BY THE DEPART MENT IN ITS CASE FOR THE PRECEDING YEAR DURING WH ICH THE SHARES OF CCPL WERE PURCHASED/ACQUIRED . IT WAS FURTHER SUBMITTED BY THE LD. A.R THAT AS THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO JUSTIFY THE INVESTMENT MADE IN PURCHASE OF SHARES OF CCPL , THEREFORE, NO PART OF THE INTEREST ON BORROWED CAPITAL WAS LIABLE TO BE DISALLOWED. IN ORDER TO SUPPORT HIS AFORESAID CLAIM THE LD. A.R HAD DRAWN OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE COMPANY ON 31.03.2012. IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSE SSEE COMPANY HAD SUFFICIENT SELF - OWNED FUNDS OF RS.72.42 CRORE ON 31.03.2011 WHICH HAD INCREASED TO AN AMOUNT OF RS. 103.45 CRORES ON 31.03.2012. BACKED BY THE AFORESAID FACTS, IT WAS THE CLAIM OF THE LD. A.R THAT AS THE INVESTMENT OF RS.20.44 CRORES MADE IN PURCHASE OF SHARES OF CCPL COULD SAFELY BE RELATED TO THE SELF - OWNED FUNDS AVAILABLE WITH THE ASSESSEE, THEREFORE, NO PART OF THE INTEREST EXPENDITURE ON THE BORROWED FUNDS WAS LIABLE TO BE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 11 DISALLOWED. IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R HAD RELIED ON THE JUDGMENTS OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) AND THAT OF CIT VS. RELIANCE UTILITY & POWER LIMITED (2009) 313 ITR 304 (BOM). 12. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIV E (FOR SHORT D.R) RELIED ON THE ORDER S OF THE LOWER AUTHORITIES. AFTER DELIBERATING AT LENGTH ON THE CONTENTION S ADVANCED BY THE LD. AUTHORIZED REPRESENTATIVE S FOR BOTH THE PARTIES , WE FIND SUBSTANTIAL FORCE IN THE CLAIM OF THE LD. A.R THAT AS THE ASESSS EE HAD SUFFICIENT SELF - OWNED FUNDS AVAILABLE WITH IT TO JUSTIFY THE INVESTMENT OF RS.20.44 CRORES MADE IN THE SHARE S OF ITS SUBSIDIARY COMPANY, VIZ. CCPL, THEREFORE, NO PART OF ITS CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE U/S 36(1)(III) WAS LIABLE TO BE DISALLOWED. AS OBSERVED BY US HEREINABOVE, THE ASSESSEE COMPANY HAD ACQUIRED/PURCHASED THE SHARES OF CCPL FROM A THIRD PARTY NOT DURING THE YEAR UNDER CONSIDERATION BUT ON 22.11.2010 I.E THE PERIOD RELEVANT TO THE IMMEDIATELY PRECEDING YEAR. AS IS DISCERN IBLE FROM THE RECORDS, THE INVESTMENT MADE BY THE ASSESSEE TOWARDS PURCHASE OF SHARES OF ITS SUBSIDIARY COMPANY WAS OUT OF ITS MIXED FUNDS, WHICH AS STATED BY THE LD. A.R, AND RIGHTLY SO, WERE PRIMARILY SOURCED OUT OF THE MATURITY PROCEEDS OF ITS FIXED DEP OSITS WITH ORIENTAL BANK OF COMMERCE, MUMBAI. AS OBSERVED BY US HEREINABOVE, IT IS A MATTER OF FACT BORNE FROM THE RECORD THAT THE ASSESSEE HAD SUFFICIENT SELF - OWNED FUNDS I.E RS.72.42 CRORESS (ON 31.03.2011) AND R S.103.45 CRORES (ON 31.03.2012) WHICH WOULD JUSTIFY THE INVESTMENTS MADE IN THE SHARES OF ITS SUBSIDIARY COMPANY, VIZ. CCPL. IN OUR CONSIDERED VIEW AS THE ASSESSEE HAD SUFFICIENT SELF - OWNED FUNDS TO MAKE INVESTMENTS IN THE SHARES OF ITS SUBSIDIARY COMPANY, VIZ. CCPL, THEREFORE, AS HELD BY THE HONBLE H IGH COURT OF BOMBAY IN THE CASE OF HDFC BANK LTD. (SUPRA) THAT IN CASE OF MIXED FUNDS I.E INTEREST BEARING BORROWED FUNDS AND THE SELF - OWNED FUNDS/INTEREST FREE FUNDS AVAILABLE WITH AN ASSESSEE, THE PRESUMPTION WOULD BE THAT THE INVESTMENT WAS MAD E BY THE ASSESSEE OUT OF ITS SELF - OWNED ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 12 FUNDS. W E ARE OF THE CONSIDERED VIEW THAT PURSUANT TO THE AVAILABILITY OF SUFFICIENT INTEREST FREE FUNDS WITH THE ASSESSEE TO JUSTIFY THE INVESTMENT OF RS. 20.44 CRORE MADE TOWARDS PURCHASE OF SHARES OF ITS SUBSIDIAR Y COMPANY, VIZ. CCPL , NO PART OF THE ASSESSEES CLAIM FOR DEDUCTION OF THE INTEREST EXPENDITURE U/S 36(1)(III) COULD HAVE BEEN D ISALLOWED. WE, THUS, SET - ASIDE THE ORDER OF THE CIT(A) AND VACATE THE DISALLOWANCE OF RS.1,23,87,552/ - MADE BY THE A.O U/S 36(1) (III) OF THE ACT. THE GROUND OF APPEAL NO. 1 IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. 13. AS THE LD. A.R HAD STATED THAT THE GROUND OF APPEAL NO. 1.1 IS NOT BEING PRESSED, THEREFORE, AS PER HIS CONCESSION THE G ROUND OF APPEAL NO. 1.1 IS DISMISSED AS NOT PRESSED. 14. WE SHALL NOW ADVERT TO THE ASSESSEES GRIEVANCE THAT THE CIT(A) HA D ERRED IN UPHOLDING THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF BROKERAGE & COMMISSION EXPENSES OF RS.1,24,64,408/ - , FOR THE REASON, THAT NO CORRESPONDING SALES WERE RECOGNIZED AS REVENUE / INCOME BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION. AS IS DISCERNIBLE FROM THE ASSESSMENT ORDER, THE ASSESSEE HAD IN ITS BOOKS OF ACCOUNTS SHOWN BROKERAGE AND COMMISSION CHARGES OF RS.1,24,64, 408/ - I.E SELLING EXPENSES FOR UNIT S FORMING PART OF THE PROJECTS UNDERTAKEN FOR DEVELOPMENT AND CONSTRUCTION AS PREPAID EXPENSES . HOWEVER, THE SAME WERE CLAIMED AS A DEDUCTION BY THE ASSESSEE WHILE COMPUTING ITS INCOME FOR THE YEAR UNDER CONSIDERATION, FOR THE REASON, THAT THE SAME REPRESENTED SELLING EXPENSES WHICH COULD NOT BE INCLUDED FOR VALU ING THE PROJECT COST I.E WIP COST . ON BEING CONFRONTED WITH ITS AFORESAID CLAIM WHICH MILITATED AGAINST THAT REFLECTED IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAD RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH J UTE MANUFACTURING COMPANY LTD. VS. CIT (1971) 82 ITR 365 (SC) AND SUBMITTED, THAT THE ACCOUNTING ENTRIES WERE NOT CONCLUSIVE FOR THE PURPOSE OF CLAIMING AN EXPENDITURE. HOWEVER, THE A.O WAS NOT PERSUADED TO ACCEPT THE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 13 AFORESAID CLAIM FOR DEDUCTION OF BROKERAG E AND COMMISSION EXPENDITURE THAT WAS RAISED BY THE ASSESSEE. OBSERVING, THAT THOUGH THE AFORESAID EXPENSES WERE AGAINST THE SALES , HOWEVER, THE ASSESSEE HAD NEITHER CREDITED ANY SALE IN ITS PROFIT AND LOSS ETC, NOR CLAIMED THE AFORESAID EXPENDITURE IN ITS P ROFIT AND LOSS ACCOUNT, THE A.O DISALLOWED THE ASSESSEES CLAIM FOR DEDUCTION OF BROKERAGE AND COMMISSION EXPENDITURE OF RS.1,24,64,408/ - . 15. ON APPEAL, THE CIT(A) AFTER DELIBERATING AT LENGTH ON THE CONTENTIONS THAT WERE ADVANCED BY THE ASSESSEE WAS HO WEVER NOT INCLINED TO ACCEPT THE SAME. OBSERVING, THAT THE BROKERAGE AND COMMISSION EXPENDITURE WAS DIRECTLY RELATED TO THE SALE OF FLATS AND OFFICE PREMISES, THE CIT(A) CONCURRED WITH THE VIEW TAKEN BY THE A.O THAT AS THE ASSESSEE HAD NOT RECORDED ANY SAL E DURING THE YEAR UNDER CONSIDERATION, THEREFORE, NO EXPENDITURE TOWARDS BROKERAGE AND COMMISSION COULD HAVE BEEN ALLOWED WHILE COMPUTING ITS INCOME. HOWEVER, THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THE AFORE SAID EXPENSES BE CONSIDERED AS A PART OF THE W . I . P COST OF THE PROJECT WAS PRINCIPALLY ACCEPTED BY THE CIT(A). ACCORDINGLY, THE CIT(A) DIRECTED THE A.O TO ADD THE COMMISSION AND BROKERAGE EXPENSES TO THE W . I . P COST OF THE ASSESSEE S PROJECT ON 31.03.2012 THOUGH , SUBJECT TO VERIFICATION OF THE GENUINE NESS OF THE SAID EXPENSES. 16. BEFORE US, IT WAS SUBMITTED BY THE LD. A.R THAT AS THE BROKERAGE EXPENSES ARE FINANCE/SELLING EXPENSES, THEREFORE, THEY HAVE TO BE ALLOWED IN FULL AS A REVENUE EXPENDITURE DESPITE THE FACT THAT THE ASSESSEE MIGHT NOT HAVE GE NERATED ANY REVENUE FROM SALE O F FLATS /O FFICE PREMISES DURING THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED BY THE LD. A.R THAT THE ASSESSEE AS A BUILDER/DEVELOPER OF REAL ESTATE HAD TO INCUR BROKERAGE AND COMMISSION EXPENSES IN THE NORMAL COURSE OF ITS BUSINESS. I T WAS THE CLAIM OF THE LD. A.R THAT AS THE BROKERAGE AND COMMISSION EXPENSES ARE IN THE NATURE OF SELLING EXPENSES, THEREFORE, THE SAME COULD NOT BE INCLUDED FOR VALU ING THE PROJECT W . I . P COST . IN ORDER TO BUTTRESS HIS AFORESAID CLAIM TH E LD. A.R HAD RELIED ON AS - 7 ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 14 PARA 8.4 TO PARA 8.8. ADVERTING TO PARA 8.7 OF AS - 7 , IT WAS SUBMITTED BY THE LD. A.R THAT THE SAME , INTER ALIA, PROVIDED THAT AS SELLING COSTS WERE IN THE NATURE OF COSTS THAT WERE THOUGH RELATED TO THE ACTIVITIES OF THE CO NTRACTOR GENERALLY, BUT CANNOT BE RELATED TO SPECIFIC CONTRACTS, THEREFORE, THE SAME WERE ALLOWABLE AS A DEDUCTION . REFERRING TO THE PARA 8.8 OF AS - 7 , IT WAS SUBMITTED BY THE LD. A.R THAT IT WAS THEREIN SPECIFICALLY PROVIDED THAT BROKERAGE EXPENSES BEING I N THE NATURE OF SELLING COSTS WERE TO BE EXCLUDED FROM THE ACCUMULATED CONTRACT COSTS. IN ORDER TO SUPPORT HIS AFORESAID CLAIM THE LD. A.R HAD RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF PCIT - 3 VS. DLF HOME DEVELOPERS LTD. (202 0) 114 TAXMAN.COM 97 (DEL). IT WAS SUBMITTED BY THE LD. A.R THAT THE HONBLE HIGH COURT IN ITS AFORESAID ORDER , HAD OBSERVED , THAT EXPENSES INCURRED ON BROKERAGE AND COMMISSION O N BOOKING OF PROPERTIES BEING IN THE NATURE OF FINANCE/SELLING EXPENSES WERE ALLOWABLE IN FULL, DESPITE THE FACT THAT NO REVENUE FROM SALE OF PROPERTIES WAS RECOGNIZED DURING THE YEAR. IT WAS SUBMITTED BY THE LD. A.R THAT THE AFORESAID JUDGMENT OF THE HONBLE HIGH COURT OF DELHI HAD THEREAFTER BEEN UPHELD BY THE HONBLE SUPREME COU RT IN PCIT - 3 VS. DLF HOME DEVELOPERS LTD. (2020) 114 TAXMAN.COM 9 8 (DEL). ALSO, RELIANCE WAS PLACED BY THE LD. A.R ON THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF GOPAL D AS ES TATE S & HOUSING PVT. LTD. VS. CIT (2019) 412 ITR 489 (DEL). IT WAS SUBMITTED BY THE LD. A.R THAT THE HONBLE HIGH COURT IN ITS AFORESAID ORDER , HAD OBSERVED , THAT THE EXPENDITURE INCURRED ON ADVERTISING BE ING NECESSARY FOR PROMOTION OF THE ASSESSEES BUSINESS WAS TO BE ALLOWED AS A B USINESS EXPENDITURE. ACCORDINGLY, T HE LD. A.R DRAWING AN ANALOGY FROM THE AFORESAID ORDER SUBMITTED , THAT ON THE SAME LINE THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS BROKERAGE AND COMMISSION THAT WAS INDISPENSABLY REQUIRED TO BE INCURRED FOR RUNNING OF ITS BUSINESS WAS TO BE ALLOWED A S A BUSINESS EXPENDITURE. ALSO, SUPPORT WAS DRAWN BY THE LD. A.R FROM THE G UIDANCE N OTE FOR A CCOUNTING FOR R EAL E STATE TRANSACTIONS ( R EVISED 2012) . REFERRING TO PARA 2 . 4 OF THE AFORESAID G UIDANCE NOTE IT WAS SUBMITTED BY THE LD. A.R THAT IT WAS THEREIN ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 15 SPECIFICALLY PROVIDED THAT SELLING COSTS SHOULD NOT BE CONSIDERED AS PART OF CON STRUCTION COSTS AND DEVELOPMENT COSTS. 17. PER CONTRA, THE LD. D.R RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY THE LD. D.R THAT AS THE ASSESSEE HAD NOT R ECOGNIZED ANY REVENUE FROM SALE OF PROPERTIES DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THE LOWER AUTHORITIES HAD RIGHTLY CONCLUDED THAT THE BROKERAGE AND COMMISSION EXPENDITURE COULD NOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE ASSESSEES INCO ME. APART FROM THAT, IT WAS SUBMITTED BY THE LD. D.R THAT THE ASSESSEE ITSELF HAD REFLECTED THE AFORESAID EXPENSES AS PREPAID EXPENSES AND HAD NOT DEBITED THE SAME IN ITS P ROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. 18. WE HAVE HEARD THE LD. A UTHORI Z ED REPRESENTATIVE S FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS CONSIDERED THE JUDICIAL PRONOUNCEMENTS THAT HAVE BEEN PRESSED INTO SERVICE BY THEM TO DRIVE HOME THEIR RESPECTIVE CONTENTIONS. ADMITTEDLY, IT IS A MATTER OF FACT BORNE FROM THE RECORD THAT THE ASSESSEE HAD SHOWN THE BROKERAGE AND COMMISSION EXPENSES AS PREPAID EXPENS E IN ITS AUDIT ED ACCOUNTS. HOWEVER, THE ASSESSEE HAD CLAIMED THE AFORE SAID EXPENSES AS A DEDUCTION WHILE COMPUTING ITS INCOME FOR THE YEAR UNDER CONSIDERATION. INSOFAR THE CLAIM OF THE REVENUE THAT THE ASSESSEES CLAIM FOR DEDUCTION WAS LIABLE TO BE REJECT ED, FOR THE REASON, THAT IT HAD ITSELF REFLECTED THE SAME AS PREPAID EXPENSES, THE SAME DO ES NOT FIND FAVOR WITH US. AS STATED BY THE LD. A.R , AND RIGHTLY SO, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH J UTE MANUFACTURING COMPANY LTD. VS. CIT (1971) 82 ITR 365 (SC) THE ACCOUNTING ENTRIES MADE BY AN ASSESSEE ARE NOT CONCLUSIVE FOR THE PURPOSE OF DETERMINING ITS ENTITLEMENT FOR CLAIM OF AN EXPENDITURE. ALSO THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS LIMITED (1991) 188 I TR 44 (SC), HA S HELD, THAT I T IS NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSESSING OFFICER TO ACT IN EXERCISE OF HIS STATUTORY POWER AND REJECT THE ACCOUNTING SYSTEM ADOPTED BY THE ASSESSEE FOR DETERMINING WHAT, ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 16 IN HIS OPINION, IS THE CORRECT TAXABLE INCOME . BACKED BY OUR AFORESAID OBSERVATIONS , WE ARE UNABLE TO PERSUADE OURSELVES TO ACCEPT THE AFORESAID CLAIM OF THE REVENUE THAT AS THE ASSESSEE HAD REFLECTED THE AFORESAID EXPENSES AS PREPAID EXPENSES AND HAD NOT DEBITED THE SAME IN ITS P ROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, THUS, FOR THE SAID STANDALONE REASON ITS CLAIM FOR DEDUCTION OF THE SAME WAS NOT TO BE AC C EPTED. 19. APROPOS THE M ERITS OF THE ASSESSEES CLAIM FOR DEDUCTION OF BROKERAGE AND COMMISSION EXPENSES, W E FIND , THAT IT IS THE CLAIM OF THE ASSESSEE , THAT AS THE SA I D EXPENSES ARE IN THE NATURE OF SELLING EXPENSES WHICH CANNOT BE INCLUDED FOR VALUING THE PROJECT WORK - IN - PROGRESS, THEREFORE, THE SAME WERE RIGHTLY CLAIMED AS A DEDUCTION FOR COMPUTING ITS INCOME FOR THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED VIEW THE AFORESAID CLAIM OF THE ASSESSEE IS DULY SUPPORTED BY THE G UIDANCE N OTE O N A CCOUNTING FOR R EAL E STATE TRANSACTIONS ( R EVISED 2012) , WHEREIN AT PARA 2.4(B) IT IS PROVIDED THAT SELLING COST S ARE NOT TO BE CONSIDERED AS PART OF THE CONSTRUCTION COST S AND DEVELOPMENT COSTS. IN FACT, WE FIND THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE O F PRINCIPAL COMMISSIONER OF INCOME - TAX VS. DLF HOME DEVELOPERS LTD. (2019) 411 ITR 378 (DEL). IN ITS AFORESAID ORDE R THE HONBLE HIGH COURT HAD OBSERVED THAT AS B ROKERAGE AND COMMISSION EXPENSES ARE NOT A DIRECT EXPENSE FOR ACQUIRING A SPECIFIC PROPERTY BUT IT IS IN FACT A FINANCIAL COST/SELLING EXPENSE, THUS, THE SAME ARE FULLY ALLOWABLE IN THE YEAR IN WHICH THEY ARE INCURRED. FOR THE SAKE OF CLARITY THE RELEVANT OBSERVATION S OF THE HONBLE HIGH COURT ARE REPRODUCED AS UNDER : 3. SO FAR AS THE QUESTION OF BROKERAGE IS CONCERNED, THE ISSUE STANDS COVERED IN ITA NO.54/2019 DECIDED ON 2 3 01.2019. THE COURT HAD THEN OBSERVED AS UNDER: - IN DLF UNIVERSAL LIMITED (SUPRA) THIS CONN AFTER FRAMING QUESTIONS WITH RESPECT TO ALLOWANCE UNDER BROKERAGE AND COMMISSION CLAIMED THE ASSESSEE IN THE CONTEXT OF PERCENTAGE COMPLET ION METHOD ADOPTED BY I T HELD AS F OLLOWS: 8. THE ASS ESSEE HAD CLAIMED RS.61,78,414/ - AS EXPENDITURE TOWARDS BROKERAGE AND COMMISSION . THE AMOUNT WAS PAID TO ITS BROKERS FOR ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 17 BOOKING AND SALE OF CERTAIN PROPERTIES DURING THE ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THIS EXPENDITURE ON THE G ROUND THAT DURING THE CONVEYANCE OF THE SA LE DEEDS WERE NO T EXECUTED. THE CIT(A) AND ITAT ACCEPTED THE ASSESSEES CONTENTIONS AND SET ASIDE THE DISALLOWANCE. AT THE OUTSET, WE NOTICE THAT T HE ASS ESSEE S EXPLANATION CL EARLY SUITED IS AS FOLLOWS: - 'IN THIS CONNECTION IT IS SUBMITTED THAT BROKERAGE AND COMMISSION :S NUT A DIRECT EXPENSES FOR ACQUIRING TO SPECIFIC PROPERTY BUT IT IS IN FACT FINANCIAL COST/SELLING EXPENSES AND IS FULLY ALLOWABLE IN THE Y EAR IN WHIC H THE SAME IS INCURRED. THE PROPERTY BROKERS WHO HAVE RENDERED THEIR SERVICES TO OBTAIN ADVANCES ON BOOK IN G OF PROPERTIES ARE ENTITLED TO THE PAYMENT OF COMMISSION IN TERMS OF AGREEMENT ENTERED INTO WITH THE M. THEREFORE , T HE EXPENSES INCURRED ON BROKERAGE AND COMMISSION ON BOOKING OF PROPERTIES BEING A FINANCE/SELLING EXPENSES ARE ALLOWABLE IN FULL. ON THI S POINT WHERE IN THE ADDITION ON ACCOUNT HAS BEEN DELETED. YOUR ATTENTION IS ALSO DRAWN TO ORDER DT. 20. 7.1994 OF HON'BLE ITAT, NEW DELH I FOR THE ASSESSMENT YEAR 1983 - 8 4 OF THE INCOME - TA X WHEREIN AN ADDITIONAL GROUND TAKEN BY THE DEPTT. FOR INCLUSION O F THE AMOUNT OF BROKERAGE AND COMM ISSIO N IN THE SAL E PROMOTION EXPENSES U/S 37(2)( A) HAVE BEEN DISM ISSED. WE UNDERSTAND THAT THE DE PT T. HAS N OT F ILED ANY REFERENCE APPLICATION IN THE HIGH COURT AGAINST THIS ORDER. 9. IT IN NOT DISPUTED BY THE REVENUE THAT FOR THE OTHER YEARS, THE ASSESSEE'S TREATMENT OF SUCH EXPENSES HA D BEEN IN HIS FAVOUR AN D THE REVENUE HAS NOT CHOSEN TO CHALLENGE IT EVEN OTHERWISE, WE ARC OF THE OPINION THAT SUCH EXPENDI T URE HAS TO BE ALLOWED. THE QUESTION OF LAW IS CONSEQ UENTLY ANSWER ED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 20. WE FIND THAT THE AFORESAID JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF DLF HOME DEVELOPER S LTD. (SUPRA) HAD THEREAFTER BEEN UPHELD BY THE HONBLE SUPREME COURT IN PCIT - 3 VS . DLF H OME DEVELOPER LTD. (2020) 114 TAXMAN.COM 98 (SC) AND THE SPECIAL LEAVE PETITION (SLP) FILED BY THE REVENUE HAD BEEN DISMISSED. ALSO, AS NOTICED BY US HEREINABOVE, A SIMILAR VIEW HAD BEEN TAKEN BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF GOPAL D AS ES TATE S & HOUSING (P) LTD. VS. DCIT (2019) 412 ITR 489 (DEL). IT WAS OBSERVED BY THE H ONBLE HIGH COURT THAT IN CASE OF AN ASSESSEE ENGAGED IN REAL ESTATE BUSINESS, THE EXPENDITURE INCURRED ON ADVERTISING AND PUBLICITY BEING NECESSARY FOR PROMOTION OF BUS INESS WAS TO BE ALLOWED AS BUSINESS EXPENDITURE. WE, THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONSIDERED VIEW THAT AS THE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 18 COMMISSION AND BROKERAGE EXPENSE INCURRED BY THE ASSESSEE COMPANY ARE IN THE NATURE OF FINANCE/SELLING EXPENSES, THEREF ORE, THE SAME WERE ALLOWABLE AS A REVENUE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE HEREIN VACATE THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF BROKERAGE AND COMMISSION EXPENSES OF RS.1,24,64,408/ - . THE GROUND OF APPEAL N O. 2 IS ALLOWED. 21. WE SHALL NOW TAKE UP THE GRIEVANCE OF THE ASSESSEE THAT THE CIT(A) HAD ERRED IN LAW AND THE FACTS OF THE CASE IN NOT ONLY SUSTAINING THE ADDITION MADE BY THE A.O QUA THE SURPLUS EARNED ON SALE OF TRANSFERABLE DEVELOPMENT RIGHTS ( TDR ) O F RS.3,25,71,195/ - , BUT HAD FURTHER ERRED IN ENHANCING THE SAID ADDITION TO AN AMOUNT OF RS.5,56,72,975/ - . DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD SOLD CERTAIN QUANTITY OF TDR S THAT WERE PURCHASED FROM THE MARKET IN THE PRECEDING YEARS. IT WAS NOTICED BY HIM THAT THE TDR S WERE SOLD BY THE ASSESSEE DURING THE YEAR FOR A CONSIDERATION OF RS. 13,02,84,774/ - . AS PER NOTE 29 OF THE NOTES TO THE ACCOUNTS IT WAS THE CLAIM OF THE ASS ESSEE THAT AS IT WAS CONSTRUCTING A RESIDENTIAL PROJECT AT THANE, THEREFORE, IT HAD PURCHASED THE TDR S FROM THE MARKET IN THE PRIOR YEARS. IT WAS FURTHER STATED THAT DUE TO CERTAIN FACTORS THE MANAGEMENT OF THE COMPANY CONSIDERING THE STAGE OF DEVELOPMENT OF ITS AFORESAID PROJECT HAD CARRIED OUT A TECHNICAL EVALUATION OF THE TDR S IN HAND, AND BEING OF THE VIEW THAT CERTAIN QUANTITY OF TDR S WOULD NOT BE REQUIRED FOR A CERTAIN PERIOD OF TIME HAD THUS DECIDED TO LIQUIDATE THE SAME AND RE - PURCHASE IT AS AND WHEN IT WAS SO REQUIRED . AS PER S CHEDULE - 21 (PROJECT EXPENSES) OF THE AUDIT ED ACCOUNTS THE ASSESSEE HAD REDUCED THE PROJECT COST I.E WIP COST OF THE PROJECT BY THE AFORESAID AMOUNT OF SALE PROCEEDS OF TDR. ON BEING CALLED UPON TO PUT FORTH AN EXPLANATION AS REGARDS ITS AFORESAID ACCOUNTING TREATMENT , THE AS S ESSEE JUSTIFIED THE REDUCTION OF THE SALE CONSIDERATION OF RS. 13,02,84,774/ - FROM THE PROJECT COST I.E WIP FOR THE REASON , VIZ. (I).THAT ITS INTENTION FOR LIQUID ATING ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 19 THE SURPLUS TDR S WAS NOT TO TRADE IN THE SAME BUT TO MAKE AVAILABLE FUNDS FOR THE PROJECT; AND (II). THAT ON REPURCHASE THE TDR S WOULD AGAIN FORM PART OF THE COST OF ITS PROJECT I.E WIP COST . HOWEVER, THE A.O WAS NOT PERSUADED TO ACCEPT THE AFORESA ID CLAIM OF THE ASSESSEE. ON BEING QUERIED AS TO WHY THE PROFIT /SURPLUS ARISING ON THE SALE OF TDR S MAY NOT BE BROUGHT TO TAX IN ITS HANDS THE ASSESSEE RELIED ON ITS EXPLANATION IN NOTE 29 OF ITS NOTES TO THE ACCOUNT S . IT WAS OBSERVED BY THE A.O THAT TH E ASSESSEE WHO WAS A BUILDER AND DEVELOPER HAD PURCHASED THE TDR S FOR LOADING ON ITS PROJECT FOR WHICH DEVELOPMENT WAS BEING UNDERTAKEN . IT WAS NOTICED BY THE A.O THAT THE ASSESSEE HAD PURCHASED TDR OF RS.27.58 CRORE DURING THE YEAR ENDED 31.03.2011 AND TDR OF RS.6.10 CRORE DURING THE YEAR ENDED 31.03.2012. OBSERVING, THAT AS THE TDR S BEING A PART AND PARCEL OF THE PROJECT COST WAS THE STOCK - IN - TRADE OF THE ASSESSEE, THE A.O WAS OF THE VIEW THAT THE PROFIT EARNED FROM THE SALE OF THE SAME WAS LIABLE TO B E ASSESSED AS ITS BUSINESS INCOME . AS THE ASSESSEE HAD FAILED TO FURNISH THE DETAILS AS REGARDS THE CORRESPONDING COST OF TDR S THAT WERE SOLD DURING THE YEAR, THEREFORE, THE A.O ESTIMATED THE PROFIT @ 25% OF THE SALE VALUE OF THE TDR S AND MADE AN ADDITIO N OF RS.3,25,71,195/ - (25% OF RS.13,02,84,774/ - ). 22. ON APPEAL, THE CIT(A) DID NOT FIND FAVOR WITH THE CONTENTIONS OF THE ASSESSEE THAT THE PROFIT /SURPLUS ON THE SALE OF TDR S WAS NOT LIABLE TO BE ASSESSED AS ITS BUSINESS INCOME AND PRINCIPALLY CONCURRED WITH THE VIEW TAKEN BY THE A.O. BEFORE THE CIT(A) THE ASSESSEE REITERATED ITS CLAIM THAT AS THE TDR S WERE PURCHASED FOR THE PURPOSE OF ITS CONSTRUCTION BUSINESS AND FORM ED PART OF ITS PROJECT COST , THEREFORE, THE SALE CONSIDERATION OF THE SURPLUS TDR S TH AT WERE FOR THE TIME BEING NOT REQUIRED AND WERE LIQUIDATED WITH AN INTENTION OF MAKING FUNDS AVAILABLE FOR THE SAID PROJECT WERE RIGHTLY REDUCED FROM THE WIP COST I.E THE PROJECT COST. IT WAS THE CLAIM OF THE ASSESSEE THAT THE TDR S AS AND WHEN PURCHASED WOULD AGAIN FORM PART OF ITS PROJECT COST. T HE CIT(A) DIRECTED THE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 20 ASSESSEE TO FURNISH THE DETAILS AS REGARDS THE PROFITS FROM TRANSACTION S IN TDR S WHICH WAS FURNISHED BY THE ASSESSEE AS UNDER : PARTICULARS DATE QUANTITY IN SQ. MT . TOTAL COST DATE OF SALE TDR SOLD IN SQ.MT. SALE PROCEEDS NET OF BROKERAGE PROPORTIONATE COST PROFIT/LOSS TDR 1 08.10.2009 1 000 75,96,000 10.12.2011 1000 2,95,10,490 75,96,000 2,19,14,490 TDR 2 22. 0 9.2010 2,013.75 4,36,61,157 10.12.2011 1600 4,78,31,155 4,36,61,157 1,64,79,054 15.12.2011 413.75 1,23,09,056 TDR 3 10.12.2011 4,469 5,92,55,000 23.02.2012 1629 3,88,18,535 2,15,99,104 1,72,19,431 TOTAL 7,482.75 11,05,12,157 4642.75 12,84,69,236 7,28,56,261 5,56,12,975 23. OBSERVING, THAT THE ASSESSEE HAD ON SALE OF TDRS MADE A PROFIT OF RS.5,56,12,975/ - WHILE FOR THE A.O HAD MADE AN ADDITION OF ONLY RS.3,25,71,198/ - ,THE CIT(A) VIDE HIS SHOW CAUSE NOTICE DATED 08.02.2019 CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE A DDITION OF THE PROFIT ON SALE OF TDR S MAY NOT BE ENHANCED BY AN AMOUNT OF RS.2,30,41,777/ - . IN REBUTTAL, THE ASSESSEE TRIED TO IMPRESS UPON THE CIT(A) THAT THE PROFIT ON THE SALE OF TDR S WAS NOT LIABLE TO BE BROUGHT TO TAX AND WAS RIGHTLY REDUCED FROM TH E COST OF PROJECT I.E WIP COST . HOWEVER, THE CIT(A) WAS NOT INCLINED TO ACCEPT THE AFORESAID EXPLANATION OF THE ASSESSEE. AS REGARDS THE RELIANCE THAT WAS PLACED BY THE ASSESSEE ON THE ORDER OF THE ITAT, MUMBAI IN THE CASE OF A CIT VS. SKYLA R K BUILD (2011) 48 SOT 306 (MUM) , THE SAME WAS FOUND TO BE DISTINGUISHABLE ON FACTS BY THE CIT(A). IT WAS OBSERVED BY THE CIT(A) THAT IN THE CASE OF SKYLA R K BUILD (SUPRA) AS THE TDR S WERE EARNED BY THE ASSESSEE WHILE EXECUTING THE PROJECT AND WERE INEXTRICABLY LINKED WITH THE PROJECT, THEREFORE, THE TRIBUNAL FINDING THAT THE SALE PROCEEDS OF THE TDR WERE DIRECTLY RELATABLE TO THE PROJECT HAD FOR THE SAID REASON APPROVED THE REDUCTION OF THE SALE PROCEE D S OF THE TDR FROM THE PROJECT COST I.E WIP COST . I T WAS OBSERVED BY THE CIT(A) THAT UNLIKE AS IN THE CASE OF SKYLARK BUILD ( SUPRA) , IN THE CASE OF THE PRESENT ASSESSEE THE TDR S WERE PURCHASED FROM THE MARKET AND HAD NO NEXUS WITH ITS PROJECT. AFTER EXHAUSTIVE DELIBERATIONS , THE CIT(A) CONCLUDED THAT A S THE TDR S IN THE CASE OF THE ASSESSEE BEFORE HIM HAD NO INEXTRICABLE NEX U S WITH ITS CONSTRUCTION ACTIVITY, THEREFORE, THE PROFIT /SURPLUS EARNED FROM THE SALE OF THE SAME WAS LIABLE TO BE INDEPENDENTLY BROUGHT TO TAX IN ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 21 ITS HANDS. BACKED BY HIS AFORESAID OBSERVATIONS, THE CIT(A) REJECTED THE ASSESSEES CLAIM FOR REDUCTION OF THE SURPLUS ON TRANSFER OF THE TDR S FROM THE WIP I.E PROJECT COST . ACCORDINGLY, THE CIT(A) CONCLUDED THAT THE PROFIT OF RS. 5,56,12,975/ - THAT WAS EARNED BY THE ASSE SSEE FROM SALE OF TDR S WAS LIABLE TO BE ASSESSED AS ITS BUSINESS INCOME DURING THE YEAR UNDER CONSIDERATION . 24. WE HAVE HEARD THE LD. AUTHORI Z ED REPRESENTATIVE S FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS CONSIDERED THE JUDICIAL PRONOUNCEMENTS THAT HAVE BEEN PRESSED INTO SERVICE BY THEM TO DRIVE HOME THEIR RESPECTIVE CONTENTIONS I N CONTEXT OF THE AFORESAID ISSUE IN QUESTION. ON A PERUSAL OF THE RECORD , WE FIND THAT THE TDR S PURCHASED BY THE ASSESSEE FROM THE MARKET WERE ADDED BY HIM IN THE RESPECTIVE YEARS TO THE PROJECT COST I.E WIP COST. ON THE OTHER HAND, ON SALE OF THE TDR S DURING THE YEA R UNDER CONSIDERATION I.E. A.Y 2012 - 13 THE ASSESSEE HAD REDUCED THE PROJECT COST I.E THE WIP COST BY THE AMOUNT OF SALE CONSIDERATION I.E RS.13,02,84,774/ - . IT WAS SUBMITTED BY THE LD. A.R THAT AS THE TDR S FORM ED PART OF ITS PROJECT COST I.E WIP COST , THE REFORE, AS AND WHEN THE SAME IS SOLD IT IS TO BE REDUCED FROM THE PROJECT - WIP. IN ORDER TO SUPPORT HIS AFORESAID CLAIM THE LD. A.R HAD RELIED ON THE ORDER OF A CO - ORDINATE BENCH OF THE TRIBUNAL, VIZ. ITAT D BENCH, MUMBAI, IN ITO - 10(2)(3) VS. M/S DKP ENGI NEERS & CONSTRUCTIONS PVT. LTD. ITA NO. 7796/MUM/2010, DATED 31.08.2012. IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL IN ITS SAID ORDER HAD OBSERVED THAT AS THE TDR HAD A DIRECT NEXUS WITH THE DEVELOPMENT WORK, THEREFORE, ON SALE OF THE SAME THE ASSES SEE WHO WAS FOLLOWING PROJECT COMPLETION METHOD WAS CORRECT IN REDUCING THE SALE PROCEEDS OF THE SAID TDR FROM THE WORK - IN - PROGRESS. ALSO, RELIANCE WAS PLACED BY THE LD. A.R ON THE ORDER OF ITAT , MUMBAI BENCH E IN THE CASE OF ACIT VS. SKYLA R K BUILD (2011 ) 15 TAXMAN.COM 213 (MUM). IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL IN ITS AFORESAID ORDER HAD TAK EN A SIMILAR VIEW AND HAD CONCLUDED THAT AS TDR RECEIPT WAS DIRECTLY LINKED TO THE EXECUTION OF THE PROJECT , ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 22 THEREFORE, BEFORE THE COMPLETION OF THE PROJECT THE INCOME FROM SALE OF TDR OR ANY OTHER SUCH RECEIPT BEING INEXTRICABLY LINKED TO THE PROJECT WOULD ONLY GO TO REDUCE THE COST OF THE PROJECT. IT WAS SUBMITTED BY THE LD. A.R THAT THE TRIBUNAL IN ITS AFORESAID ORDER HA D APPROVED THE REDUCTION OF THE TDR SALE PROCEEDS FROM THE PROJECT COST I.E WIP COST . FURTHER, RELIANCE WAS PLACED BY THE LD. A.R ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V S . BO KARO STEEL LTD. (1999) 263 ITR 315 (SC). IT WAS SUBMITTE D BY THE LD. A.R THAT THE HONBLE SUPREME COURT IN ITS AFORESAID JUDGMENT HAD OBSERVED, THAT IF THE ASSESSEE BEFORE THE COMMENCEMENT OF ITS PROJECT RECEIVED ANY AMOUNTS WHICH WERE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP OF ITS PLANT AND MACHINER Y THEN , SUCH RECEIPTS WOULD GO TO REDUCE THE COST OF ITS ASSETS AND BEING IN THE NATURE OF CAPITAL RECEIPTS COULD NOT BE TAXED AS ITS INCOME. FURTHER, THE LD. A.R TOOK US THROUGH THE RELEVANT EXTRACTS OF A DEED OF TRANSFER OF TDR, DATED 21.10.2009 THAT WAS EXECUTED BY THE ASSESSEE REGARDING A TDR ADMEASURING 1000 SQ. MTRS. T HAT WAS PURCHASED WITH RESPECT TO DEVELOPMENT OF ITS RESIDENTIAL PROJECT AT THANE. O N THE BASIS OF HIS AFORESAID CONTENTIONS , IT WAS SUBMITTED BY THE LD. A.R THAT THE LOWER AUTHORITIES H AD ERRED IN DISLODGING THE ASSESSEES WELL FOUNDED CLAIM THAT THE PROFIT/ SURPLUS FROM TRANSFER OF TDR BEING INEXTRICABLY LINKED TO ITS PROJECT COST I.E THE WIP COST WAS THUS LIABLE TO BE REDUCED FROM THE SAME AND COULD NOT ON A STANDALONE BASIS BE SUBJECTE D TO TAX IN ITS HANDS. 25. PER CONTRA, THE LD. D.R RELIED ON THE ORDER S OF THE LOWER AUTHORITIES. OUR ATTENTION WAS SPECIFICALLY DRAWN BY THE LD. D.R TO PARA 8 .1 TO PARA 8.3 OF THE ASSESSMENT ORDER. 26. C ONTROVERSY INVOLVED QUA THE ISSUE IN QUESTION HINGES AROUND THE SOLITARY ASPECT I.E AS TO WHETHER OR NOT THE SURPLUS/PROFIT ON THE SALE OF TDR S BY THE ASSESSEE WAS LIABLE TO BE BROUGHT TO TAX IN ITS HANDS , AS CLAIMED BY THE REVENUE ; OR WAS TO BE REDUCED FROM THE PROJECT COST I.E WIP COST , AS CLAIMED BY THE ASSESSEE. T HE TDR S WERE OVER THE YEARS I.E A.Y 2011 - 12 TO A.Y 2012 - 13 ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 23 PURCHASED BY THE ASSESSEE FROM THE MARKET FOR LOADING ONTO ITS RESIDENTIAL PROJECT AT THANE. TDR S AS AND WHEN PURCHASED FORMED PART OF THE PROJECT COST I.E WIP COST OF THE ASSESSE S RESIDENTIAL PROJECT AT THANE . ON SALE OF THE TDR S , WE FIND THAT THE ASSESSEE ADOPTED A SIMILAR APPROACH AND REDUCED THE SALE CONSIDERATION OF RS.13,02,84,774/ - FROM THE PROJECT COST I.E WIP COST . REBUTTING THE AFORESAID ACCOUNTING TREATME NT THE A.O WAS OF THE VIEW THAT AS THE SALE OF TDR S WAS NOTHING BUT A SALE OF STOCK - IN - TRADE BY THE ASSESSEE, THEREFORE, THE PROFIT/SURPLUS ARISING THEREFROM WAS LIABLE TO BE BROUGHT TO TAX IN ITS HANDS DURING THE YEAR OF SALE. AS THE DETAILS REGARDING THE CORRESPONDING COST OF THE TDR S THAT WERE SOLD BY THE ASSESSEE FOR A CONSIDERATION OF RS.13,02,84,774/ - WERE NOT FORTHCOMING , THEREFORE, THE A.O ESTIMATED THE PROFIT @ 25% OF THE SALE CONSIDERATION I.E AT AN AMOUNT OF RS. 3,25,77,195/ - AND BROUGHT THE SAME TO TAX IN THE HANDS OF THE ASSESSEE. ON APPEAL , THE CIT(A) APPROVED THE VIEW TAKEN BY THE A.O AND CONCURRED WITH HIM THAT THE PROFIT/SURPLUS ON SALE OF THE TDR S WAS LIABLE TO ASSESSED IN THE HANDS OF THE ASSESSEE. A S THE ASSESSEE HAD FURNISHED WITH THE CIT(A) THE REQUISITE COST - DETAILS OF THE TDR S AND HAD QUANTIFIED THE PROFIT /SURPLUS ARISING FROM THEIR SALE AT AN AMOUNT OF RS.5,56,12,975/ - , THEREFORE, HE HAD AFTER PUTTING THE ASSESSEE TO NOTICE U/S 251(2) OF THE ACT ENHANCED THE ADD ITION OF THE PROFIT ON SALE OF TDRS FROM AN AMOUNT OF RS.3,75,77,198/ - TO AN AMOUNT OF RS.5,56,2,975/ - . 27. AFTER DELIBERATING AT LENGTH ON THE ISSUE IN HAND , WE FIND SUBSTANTIAL FORCE IN THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT AS THE TRANSACTION OF SALE OF TDR S THAT WERE PURCHASED BY THE ASSESSEE FROM MARKET IN PRIOR YEARS WAS NOTHING BUT SALE OF ITS STOCK - IN - TRADE, THEREFORE, THE PROFIT/SURPLUS ARISING THEREFROM WAS LIABLE TO BE BROUGHT TO TAX IN ITS HANDS AS ITS BUSINESS INCOME. ADMITTEDLY, THE T DR S IN QUESTION WERE PURCHASED BY THE ASSESSEE FOR LOADING ONTO ITS RESIDENTIAL PROJECT AT THANE AND THE SAME FORMED PART OF ITS STOCK - IN - TRADE. ALSO, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING ON PROJECT ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 24 PERCENTAGE COMPLETION METHOD FOR ITS RESIDENTIAL PROJECT AT THANE. AS OBSERVED BY US HEREINABOVE, IT WAS THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES, AS WELL AS BEFORE US, THAT AS THE SALE OF THE SURPLUS TDR S WAS CARRIED OUT NOT WITH AN INTENTI ON TO TRADE IN THE SAME BUT TO MAKE FUNDS AVAILABLE FOR THE PROJECT , THEREFORE, THE SALE PROCEEDS OF THE TDR S WAS RIGHTLY REDUCED FROM THE PROJECT COST I.E WIP COST. IT WAS, THUS, THE CLAIM OF THE ASSESSEE THAT AS IT WAS NOT IN THE BUSINESS OF PURCHASE AN D SALE OF TDR S , THEREFORE, THE SURPLUS/PROFIT ON THE SALE OF TDR S IN QUESTION COULD NOT HAVE BEEN DIVORCED FROM ITS PROJECT , VIZ. RESIDENTIAL PROJECT AT THANE AND SEPARATELY ASSESSED AS ITS INCOME FOR THE YEAR UNDER CONSIDERATION. AT THE FIRST BLUSH THE AFORESAID CLAIM OF THE ASSESSEE WAS THOUGH FOUND TO BE CONVINCING, HOWEVER, WE ARE AFRAID THAT THE SAME DOES NOT MERIT ACCEPTANCE . IN A CASE WHERE THE TDR IS EARNED BY AN ASSESSEE I.E A BUILDER AND DEVELOPER IN THE COURSE OF EXECUTION OF ITS PROJECT, THEN, UNDENIABLY THE SAID TDR WOULD BE INEXTRICABLY LINKED OR IN FACT INTERWOVEN AND INTERTWINED WITH THE PROJECT , AND THE SALE OF THE SAME CANNOT BE DIVORCED AND THEREIN CONSIDERED ON A STANDALONE BASIS I.E SEPARATE LY FROM THE PROJECT. IN CASES RELIED UPON BY THE LD. A.R, VIZ. M/S DKP ENGINEERS & CONSTRUCTIONS PVT. LTD. (SUPRA) AND SKYLARK BUILD (SUPRA) THE TDR THAT WERE SOLD WERE EARNED BY THE SAID RESPECTIVE ASSESSEES FROM THEIR PROJECT ; UNLIKE THE CASE OF THE ASSESSEE BEFORE US WHO HAD PURCHASED THE SAME FR OM MARKET. IN OUR CONSIDERED VIEW, BOTH THE LOWER AUTHORITIES HAD RIGHTLY OBSERVED THAT AS THE ASSESSEE HAD PURCHASED THE TDRS FROM MARKET, THEREFORE, THE SAME COULD BY NO MEANS BE HELD TO BE INEXTRICABLY LINKED OR INTERWOVEN WITH ITS RESIDENTIAL PROJECT AT THANE . ACCORDINGLY, WE CONCUR WITH THE VIEW TAKEN BY BOTH THE LOWER AUTHORITIES THAT AS THE SALE OF TDR S IN THE CASE OF THE ASSESSEE BEFORE US WAS NOTHING BUT A SIMPLICITER SALE OF STOCK - IN - TRADE BY THE ASSESSEE, THEREFORE, THE PROFIT/SURPLUS ARISING T HEREFROM WAS LIABLE TO BE ASSESSED AS ITS BUSINESS INCOME. AS REGARDS THE RELIANCE PLACED BY THE LD. A.R ON THE JUDGMENT OF THE HONBLE SUP R EME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (1999) 236 ITR 315 (SC), THE SAME TOO BEING DISTINGUISHABLE ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 25 ON F ACTS WOULD NOT ASSIST THE CASE OF THE ASSESSEE. IN THE SAID CASE THE ASSESSEE WAS IN RECEIPT OF INCOME FROM LETTING OUT QUARTERS TO EMPLOYEES OF CONTRACTORS WHO WERE ENGAGED IN CONSTRUCTION OF ASSESSEES PLANT, HIRE CHARGES FOR LETTING OUT PLANT AND MACHIN ERY TO CONTRACTORS, INTEREST ON AMOUNTS ADVANCED TO THEM AND ROYALTY RECEIVED FROM THEM FOR ALLOWING EXCAVATION OF STONES, ETC. IT WAS IN THE BACKDROP OF THE AFORESAID FACTS THAT THE HONBLE APEX COURT HAD OBSERVED, THAT AS THE SAID RECEIPTS WERE INEXTRICA BLY LINKED WITH THE PROCESS OF SETTING UP OF THE PLANT AND MACHINERY OF THE ASSESSEE, THEREFORE, THE SAME WERE IN THE NATURE OF CAPITAL RECEIPTS WHICH WOULD GO TO REDUCE THE COST OF CONSTRUCTION AND CANNOT BE TAXED AS INCOME. HOWEVER, AS IN THE CASE BEFORE US THE PURCHASE AND SALE OF THE TDR S IN QUESTION ARE IN NO WAY INEXTRICABLY LINKED OR INTERWOVEN WITH THE ASSESSEES RESIDENTIAL PROJECT AT THANE, THEREFORE, THE PROFIT/SURPLUS ON SALE OF THE SAME CLEARLY BEING A SALE OF STOCK - IN - TRADE HAD RIGHTLY BEEN B ROUGHT TO TAX BY THE LOWER AUTHORITIES AS ITS BUSINESS INCOME. WE, THUS, FINDING NO INFIRMITY IN THE VIEW TAKEN BY THE CIT(A) WHO HAD PRINCIPALLY CONCURRED WITH THE VIEW TAKEN BY THE A.O UPHOLD HIS ORDER TO THE SAID EXTENT. 28. WE SHALL NOW TAKE UP THE AL TERNATIVE CLAIM OF THE LD. A.R THAT IF THE PROFIT/SURPLUS FROM SALE OF TDR S IS HELD TO BE TAXABLE AS BUSINESS INCOME OF THE ASSESSEE, THEN, THE CLOSING WIP BE INCREASED BY THE AMOUNT OF THE SALE PROCEED S OF THE TDR S I.E RS. 13,02,84,774/ - . ELABORATING ON HIS AFORESAID CONTENTION, IT WAS SUBMITTED BY THE LD. A.R THAT AS IT HAD REDUCED THE PROJECT COST I.E WIP BY THE SALE CONSIDERATION OF TDRS, THEREFORE, IF THE PROFIT/SURPLUS ARISING THEREFROM IS TO BE ASSESSED AS ITS B USINESS INCOME, THEN, THE CLOSING WIP OUGHT TO BE INCREASED BY THE AMOUNT OF SUCH SALE CONSIDERATION. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID CLAIM OF THE LD. A.R. AS THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE PROFIT/SURPLUS ON T HE SALE OF TDR S IS TO BE ASSESSED AS THE BUSINESS INCOME OF THE ASSESSEE HAS BEEN APPROVED BY US, THEREFORE, WE HEREIN DIRECT THE A.O TO INCREASE THE VALUE OF THE CLOSING WIP TO ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 26 THE EXTENT OF THE COST OF THE TDR S WHOSE CORRESPONDING SALE CONSIDERATIO N WAS REDUCED BY THE ASSESSEE FROM THE WIP COST I.E THE PROJECT COST . NEEDLESS TO SAY, THE A.O SHALL IN THE COURSE OF THE SET - ASIDE PROCEEDINGS AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND OF APPEAL NO. 3 IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS . 2 9 . THE APPEAL OF THE AS S ESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ITA NO. 6447/MUM/2019 A.Y. 2012 - 13 30 . WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE. THE REVENUE HAS ASSAILED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS BEFORE US: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF INTEREST EXPENSES AMOUNTING TO RS.59,00,000/ - ATTRIBUTABLE TO THE INTEREST FREE LOANS BY RELYING UPON THE DECISION OF APEX COURT IN THE CASE OF M/S. S. A. BUILDERS WI THOUT APPRECIATING THE FACTS OF THE ASSESSEE COMPANY IS QUITE DISTINGUISHABLE FROM THE FACTS OF M/S. S. A. BUILDERS . 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW , THE LD. CIT( A) ERRED IN ACCEPTING THE ASSESSEE'S CONTENTION OF CONSIDERING THE EXPENSES CLAIMED ON ACCOUNT OF BROKERAGE AND COMMISSION OF RS. 1,24,64,408/ - BE TREATED AS PART OF WIP WHEN THE LD. CIT( A) HIMSEL F CONFIRMED THAT THERE IS NO REVENUE FRONT BUS INESS IN THE BOOKS OF ASSESSEE. 3. WHETHER ON THE FACTS AND I N CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT( A) ERRED IN SETTING ASIDE THE ORDER OF THE AO ON THE ISSUE OF EXPENSES CLAIMED BY THE ASSESSEE TO BE ALLOWED AS W.I.P WITHOUT CONSIDERING THE PROVISIONS OF THE ACT WHICH DOES NOT PROVIDE SUCH POUTER TO THE LD. CLT(A) . 4. WHETHER ON THE FACTS AND IN CIRCUM STANCES OF THE CASE AND IN LAW, THE LD. CIT( A ) ERRED DELETING THE ADDITION OF RS. 70,09 ,252/ - ON ACCOUNT OF DEPRECIATION ON O FFICE EQUIPMENTS, VEHICLES ETC. WITH DIRECTIONS TO INCLUDE THE DEPRECIATION STATED TO BE LINKED TO THE PROJECT AS PART OF W.I.P. WITHOUT APPRECIATING THAT THERE WAS NO REVENUE FROM ANY ACTIVITY IN THE BOOKS THE ASSESSEE. 5. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD.CIT(A) ERRED DELETING THE ADDITION OF RS .4, 82,51,174/ - ON A CCOUNT OF VARIOUS EXPENDITUR ES BY CONSIDERING THE SAME TO BE ADMINISTRATIVE EXPENSES BY MERELY RELY ING ON THE GUIDANCE NOTE OF I CA I ISSUED FOR REAL ESTATE DEVELOPERS IGNORING THE FACT THAT THERE WAS NO SUCH ACTIVITY TO INCUR SUCH , EXPENSES. ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 27 6. THE APPELLANT PRAY S THAT T HE ORDER OF THE LD. CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A GROUND WHICH MAY BE NECESSARY . 3 1 . WE SHALL FIRST TAKE UP THE CLAIM OF THE REVENUE THAT THE CIT(A) HAD ERRED IN DELETING THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENSES OF RS.59,00,000/ - U/S 36(1)(III) OF THE ACT. AS IS DISCERNIBLE FROM THE ASSESSMENT ORDER, THE ASSESSEE HAD DEBITED IN ITS P ROFIT AND LOSS ACCOUNT INTEREST EXPENDITURE OF RS.1,84,15,283/ - . OBSERVING, THAT THE ASSESSEE HAD ADVANCED INTEREST FREE LOAN OF RS.12,88,22,551/ - TO ITS SUBSIDIARY COMPANY, VIZ. CCPL THE A.O HAD DISALLOWED THE CORRESPONDING IN TEREST EXPENDITURE OF RS.59,00,000/ - . 3 2 . ON APPEAL , THE CIT(A) OBSERVED THAT THE LOAN ADVANCED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY, VIZ. CCPL WAS USED BY LATTER IN ITS BUSINESS OF DEVELOPMENT OF REAL ESTATE. IN FACT, THE ASSESSEE VIDE ITS LETTER DA TED 01.02.2019 HAD BY WAY OF ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1962 FURNISHED THE BALANCE SHEET OF ITS SUBSIDIARY COMPANY , VIZ. CCPL WHICH SUBSTANTIATE D THE AFORESAID FACTUAL POSITION. ON BEING CONFRONTED WITH THE AFORESAID CL AIM OF THE ASSESSEE THE A.O FAILED TO REBUT THE SAME . ACCORDINGLY, THE CIT(A) OBSERVING THAT THE SUBSIDIARY COMPANY OF THE ASSESSEE, VIZ. CCPL HAD UTILIZED THE INTEREST FREE LOAN RECEIVED FROM ITS HOLDING COMPANY I.E THE ASSESSEE COMPANY FOR IT S BUSINESS PURPOSES, THEREFORE, FOLLOWED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT & ANR. (2007) 28 8 ITR 1 (SC) AND VACATED THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE OF RS.59,00,000/ - . 3 3 . WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS CONSIDERED THE JUDICIAL PRONOUNCEMENTS THAT HAVE BEEN PRESSED INTO ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 28 SERVICE BY THE LD. A.R TO DRIVE HOME HIS AFORESAID CONTENTION . ADMITTEDLY, IT IS A MATTER OF FACT BORNE FROM RECORD THAT THE ASSESSEE COMPANY HAD ADVANCED AN INTEREST FREE LOAN OF RS.12,88,22,551/ - TO ITS WHOLLY OWNED SUBSIDIARY COMPANY, VIZ. CCPL. OBSERVING, THAT PART OF THE IN TEREST BEARING FUNDS HA D BEEN DIVERTED BY THE ASSESSEE AS AN INTEREST FREE ADVANCE TO ITS WOS, VIZ. CCPL , THE A.O HAD DISALLOWED THE CORRESPONDING INTEREST EXPENDITURE OF RS.59,00,000/ - . IN OUR CONSIDERED VIEW , AS THE AFORESAID INTEREST FREE LOAN ADVANCED BY THE ASSESSEE COMPANY TO ITS WOS , VIZ. CCPL WAS UNDENIABLY UTILIZED BY THE LATTER FOR THE PURPOSE OF ITS BUSINESS, THEREFORE, THE CIT (A) BY RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) HAD RIGHTLY HELD TH AT NO PART OF THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE PERTAINING TO THE INTEREST FREE LOAN GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY, VIZ. CCPL COULD HAVE BEEN MADE. ACCORDINGLY, FINDING NO INFIRMITY IN THE VIEW TAKEN BY THE CIT(A) WE UPH O LD THE SAME. THE G ROUND OF APPEAL NO. 1 RAISED BY THE REVENUE IS DISMISSED. 3 4 . WE SHALL NOW ADVERT TO THE CLAIM OF THE REVENUE THAT THE CIT(A) HAD ERRED IN DIRECTING THAT THE BROKERAGE AND COMMISSION OF EXPENSES OF RS.1,24,64,408/ - BE TREATED AS PART OF THE PROJECT COST OF THE ASSESSEE COMPANY. AS WE HA D WHILE DISPOSING OFF THE ASSESSEES APPEAL OBSERVED THAT THE BROKERAGE AND COMMISSION EXPENSES OF RS.1,24,64,408/ - HAD RIGHTLY BEEN CLAIMED BY THE ASSES S EE AS A REVENUE EXPENDITURE, THEREFORE, THE AFORESAID CLAIM OF THE REVENUE IS RENDERED AS INFRUCTUOUS. THE GROUND S OF APPEAL NO S . 2 & 3 ARE DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 3 5 . WE SHALL NOW TAKE UP THE CLAIM OF THE REVENUE THAT THE CIT(A) HAD ERRED IN LAW AND THE FA C TS OF THE CASE IN DELETING THE ADDITION OF RS. 70,09,252/ - ON ACCOUNT OF DEPRECIATION O N OFFICE EQUIPMENTS, VEHICLE S ETC. ON A PERUSAL OF THE ORDER S OF THE LOWER AUTHORITIES, WE FIND THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 70,09,252/ - ON THE FOLL OWING BLOCK OF ASSETS : ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 29 ASSETS DEPRECIATION (RS.) COMPUTER 4,67,632/ - FURNITURE & FIXTURE 13,80,316/ - OFFICE EQUIPMENT 5,51.286/ - VEHICLES 46,10,018/ - TOTAL 70,09,252/ - OBSERVING, THAT THE ASSESSEE WHO WAS ENGAGED IN THE BUSINESS OF A BUILDER & DEVELOPER HAD NOT RECOGNIZED ANY INCOME FROM SUCH DEVELOPMENT ACTIVITY DURING THE YEAR UN DER CONSIDERATION, THE A.O DECLINED HIS CLAIM FOR DEPRECIATION. ON APPEAL, THE CIT(A) VACATED THE DISALLOWANCE MADE BY THE A.O , OBSERVING AS UNDER : 6.4.1. I HAVE CONSIDERED THE RIVAL CONTENTIONS. THE AR OF THE APPELLANT SUBMITTED THAT THESE ASSETS (FURNITURE, COMPUTER, OFFICE EQUIPMENT) ARE LOCATED AT OFFICE PREMISE AT DYNAMICS HOUSE, YASHODHAM, GEN. A.K VAIDYA MARG, GOREGAON (E), MUMBAI. HE SUBMITTE D THAT THEE ASSETS HAVE NO DIRECT NEXUS WITH THE 2 PROJECTS CARRIED ON BY THE APPELLANT. THE AOS CONTENTION THAT THE DEPRECIATION IS NOT ALLOWABLE IF THE INCOME FROM THE PROJECT IS NOT OFFER E D FOR TAX IS NOT CORRECT. DEPRECIATION ON THOSE ASSETS WHICH ARE DIRECTLY LINKED TO THE PROJECT ARE TO BE INCLUDED IN THE WIP. ON THE CONTRARY, DEPRECIATION ON OFFI C E EQUIPMENTS, COMPUTERS, FIXTURES AND FURNITURE AND VEHICLES WHICH ARE USED FOR ADMINISTRATIVE WORK WILL NOT FORM PART OF WIP AND ARE ALLOWABLE SEPARATELY. I, THEREFORE, DIRECT THE A.O TO ALLOW DEPRECIATION OF RS. 70,29,252/ - CLAIMED BY THE APPELLANT. IN THE RESULT, GROUND OF APPEAL NO. 3 IS ALLOWED. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE AFORESAID OBSERVATIONS OF THE CIT(A) AND CONCUR WITH THE VI EW TAKEN BY HIM. AS OBSERVED BY THE CIT(A), AND RIGHTLY SO, UNLIKE THE DEPRECIATION ON ASSETS WHICH ARE DIRECTLY LINKED TO THE PROJECT AND ARE TO BE INCLUDED I N THE PROJECT COST I.E WIP COST; DEPRECIATION ON OFFICE EQUIPMENTS, COMPUTERS, FIXTURES AND FURNI TURE AND VEHICLES WHICH ARE USED FOR ADMINISTRATIVE WORK WILL NOT FORM PART OF SUCH PROJECT COST AND WOULD BE SEPARATELY ALLOWED AS A DEDUCTION. ACCORDINGLY, FINDING NO INFIRMITY IN THE VIEW ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 30 TAKEN BY THE CIT(A) WE UPHOLD THE SAME. THE GROUND OF APPEAL NO. 4 RAISED BY THE REVENUE IS DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 3 6 . WE SHALL NOW DEAL WITH THE CLAIM OF THE REVENUE THAT THE CIT(A) HAD ERRED IN VACATING THE DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF ADMINISTRATIVE EXPENSES AMOUNTING TO RS.4 ,82,51,174/ - BY SIMPLY RELYING ON THE GUIDANCE NOTE OF ICAI ISSUED FOR REAL ESTATE DEVELOPERS, FAILING TO APPRECIATE THAT THERE WAS NO SUCH ACTIVITY TO INCUR SUCH EXPENSES. 3 7 . AS IS DISCERNIBLE FROM THE ASSESS MENT ORDER THE ASSESSEE HAD DEBITED VARIOUS EXPENDITURE IN ITS P ROFIT AND LOSS ACCOUNT, AS UNDER: NATURE OF EXPENDITURE DEBITING P &L A/C RS. DISALLOWANCE IN COMPUTATION BALANCE CLAIMED AS ALLOWABLE EMPLOYEE BENEFIT EXPENSES 1,72,48,542 NIL 1,72,48,542 FINANCE COST 1,84,15,283 1,09,78,003 74,37,288 DEPRECIATION 31,30,136 31,30,136 NIL OTHER EXPENSES 3,47,56,984 52,91,640 2,94,65,344 TOTAL 5,41,51,174 AS T HE A.O HAD ALREADY DISALLOWED THE ASSESSEES CLAIM FOR DEDUCTION OF INTEREST EXPENDITURE OF RS.59,00,000/ - (SUPRA), THEREFORE, THE BALANCE AMOUNT OF THE ASSESSEES CLAIM FOR EXPENDITURE OF RS.4,82,51,174/ - WAS DISALLOWED BY HIM. ON A PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE A.O WAS OF THE VIEW THAT AS THE ASSESSEE HAD NOT CREDITED ANY INCOME IN ITS P ROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, THEREFORE, IT WAS NOT ENTITLED TO CLAIM THE AFOREMENTIONED EXPENSES AS A DEDUCTION. IT WAS OBSERVED BY THE A.O THAT AS THE ONLY BUSINESS OF THE ASSESSEE WAS TO DEVELOP THE PROJECT, THEREFORE, NOW WHEN THE CORRESPONDING INCOME FROM THE PROJECT WAS NOT CREDITED IN ITS P ROFIT AND LOSS ACCOUNT , THERE WAS NO REASON THAT ANY EXPENDITURE INCURRED FOR THE PURPOSE OF DEVELOPMENT OF THE PROJECT BE ALLOWED AS A DEDUCTION. I T WAS OBSER VED BY THE A.O THAT THE AMOUNT OF RS.91.49 CRORE THAT WAS RECEIVED BY THE ASSESSEE AGAINST THE SALE OF THE PROJECTS WERE REFLECTED AS ADVANCE S IN ITS BOOKS OF ACCOUNTS, ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 31 WHICH PROVE D THAT THE PROJECT OF THE ASSESSEE WAS SIGNIFICANTLY BOOKED AND UNCERTAINTY HAD SIGNIFICANTLY REDUCED. IN SUM AND SUBSTANCE, THE A . O WAS OF THE VIEW THAT THE ALLOWING OF THE AFORESAID CLAIM OF EXPENDITURE OF THE ASSESSEE WITHOUT ANY CORRESPONDING INCOME DEFEATED THE VERY P URPO SE OF MATCHING PRINCIPLE. ACCORDINGLY, THE A.O DISALLOW ED THE ASSESSEES CLAIM FOR DEDUCTION OF THE AFORESAID EXPENSES OF RS.4,82,51,174/ - . 3 8 . ON APPEAL, THE CIT(A) RELYING ON P ARA NO. 2.4 OF THE G UIDANCE N OTE FOR ACCOUNTING FOR R EAL E STATE T RANSACTIONS (REVISED 2012 ) OBSERVED , THAT THE GE NERAL ADMINISTRATIVE COSTS WERE NOT TO FORM PART OF THE PROJECT EXPENSES AND WERE ALLOWABLE AS A DEDUCTION IN THE YEAR IN WHICH THEY ACCRUED . ALSO, IT WAS OBSERVED BY HIM THAT THE EXPENSES WHICH FORM ED PART OF THE PROJECT COST WERE LISTED IN P ARA NOS. 2.3 & PAR A NO. 2.5 OF THE GUIDANCE NOTE ON REAL ESTATE TRANSACTIONS (REVISED 2012 ) . ACCORDINGLY, THE CIT(A) C ONCLUDED THAT THE GENERAL ADMINISTRATIVE EXPENSES OF RS.4,82,51,174/ - WHICH COMPRISED OF VIZ. E MPLOYEE B ENEFIT E XPENSES; F INANCE COST; DEPRECIATION AND OTHER EXPENSES WERE NOT TO FORM PART OF THE PROJECT COST I.E WIP COST AND WERE ALLOWABLE AS A DEDUCTION IN THE YEAR IN WHICH THOSE HAVE BEEN INCURRED . T HE CIT(A) BACKED BY HIS AFORESAID DELIBERATIONS VACATED THE ADDITION OF RS .4 , 82,51,174/ - MADE BY THE A.O . 3 9 . WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS CONSIDERED THE JUDICIAL PRONOUNCEMENTS THAT HAVE BEEN P RESSED INTO SERVICE BY THEM TO DRIVE HOME THEIR RESPECTIVE CONTENTIONS. AFTER DELIBERATING AT LENGTH ON THE ISSUE IN HAND, WE FIND SUBSTANTIAL FORCE IN THE CLAIM OF THE LD. A.R THAT AS THE AFORESAID EXPENSES IN QUESTION D O NOT FORM PART OF THE PROJECT COST I.E WIP COST , THEREFORE, THE SAME FOR THE PURPOSE OF COMPUTING THE INCOME OF THE ASSESSEE ARE TO BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH THEY WERE INCURRED. W E FIND NO INFIRMITY I N THE RELIANCE PLACED BY THE CIT(A) ON THE GUIDANCE NOTE FOR ACCOUNTING FOR REAL ESTATE TRANSACTIONS (REVISED 2012) , ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 32 WHEREIN PARA 2.4 OF THE SAME , INTER ALIA , PROVIDES THAT THE GENERAL ADMINISTRATIVE COSTS, RESEARCH AND DEVELOPMENT COSTS , DEPRECIATION O N IDLE PLANT & EQUIPMENT ETC . ARE NOT TO BE CONSIDERED AS PART OF CONSTRUCTION COST S AND DEVELOPMENT COSTS. APART FROM THAT, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAD RIGHTLY OBSERVED THAT THE EXPENSES WHICH FORM PART OF THE PROJECT COST I.E WIP COST ARE SPECIFICALLY LISTED IN PARA NOS. 2.3 & PARA NO. 2.5 OF THE GUIDANCE NOTE ON REAL ESTATE TRANSACTIONS (REVISED 2012 ) . WE, THUS, FINDING NO INFIRMITY IN THE VIEW TAKEN BY THE CIT(A) WHO BY RELYING ON THE GUIDANCE NOTE FOR ACCOUNTING FOR REAL ESTATE TRANSACTIONS (REVISED 2012) HAD RIGHTLY VACATED THE DISA LLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF GENERAL ADMINISTRATIVE EXPENSES OF RS.4,82,51,174/ - UPHOLD HIS ORDER TO THE SAID EXTENT. THE GROUND OF APPEAL NO. 5 RAISED BY THE REVENUE IS DISMISSED. 40 . THE G ROUND S OF APPEAL NO S . 6 & 7 BEING GENERAL AR E DISMISSED AS NOT PRESSED. 4 1 . THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O NO. 55/MUM/2019 A.Y. 2012 - 13 4 2 . THE ASSESSEE IN ITS CROSS - OBJECTION HAD OBJECTED TO THE ORDER PASSED BY THE CIT(A) BEFORE US. ON A PERUSAL OF THE RESPECTIVE GROUND S RAISED BY THE ASSESSEE IN ITS AFORESAID CROSS OBJECTION, WE FIND THAT THEY PERTAIN TO THE SAME ISSUE S WHICH HAVE BEEN RAISED BY THE ASSESSEE IN ITS APPEAL, VIZ. ITA NO. 727/MUM/2021 THAT HA D BEEN ADJUDICATED BY US HEREINABOVE. ON BEING C ONFRONTED BY THE AFORESAID FACTS, THE LD. A.R SUBMITTED THAT IN CASE THE DELAY INVOLVED IN THE FILING OF THE APPEAL IS CONDONED , THEN , THE AFOREMENTIONED CROSS - OBJECTION S WOULD NOT BE PRESSED BY HIM. 4 3 . AS WE HAVE CONDONE D THE DELAY INVOLVED IN THE APPEAL FILED BY THE ASSESSEE BEFORE US AND HAVE DISPOSED OFF THE ISSUE S THEREIN RAISED ON MERITS, ITA NO.727/MUM/2021 & 6447/MUM/2019 & C.O. 55/M/2021 M/S CONWOOD REALTY PVT. LTD. VS. DCIT, CIRCLE 12(1)(2) 33 THEREFORE, IN THE BACKDROP OF THE AFORESAID CONCESSION OF THE LD. A.R THE CROSS - OBJECTION S FILED BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 4 4 . THE C ROSS - OBJECTION S FILED BY THE ASSESSEE ARE DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. 4 5 . RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 727/MUM/2021 IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATION WHILE FOR ITS CROSS - OBJECTION NO. 55/ MUM/2021 AND THE APPEAL OF THE REVENUE IN ITA NO. 6447/MUM/2019 ARE DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 26 . 10 .2021 . SD/ - SD/ - ( RAJESH KUMAR ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 26 . 10 .2021 ** PS: ROHIT COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI