ACIT, New Delhi V. M/s. New Line Developers Pvt. Ltd., New Delhi

ITA 733/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6401 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R M MEHTA
• Keywords: Notional interest

Judgement Text

1 ITA NO. 733/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AN D SMT SUCHITRA KAMBLE, JUDICIAL MEMBER I.T.A .NO. 733/DEL/2014 (ASSESSMENT YEAR-2009-10) DEPTT BY SH. RAJESH KUMAR, SR. DR ASSESSEE BY SH. R. M. MEHTA, AR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 29/11/2013 PASSED BY CIT(A)-XVI, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF [NOTIO NAL] INTEREST OF RS.1,57,56,000/- ON THE DEPOSIT MONEY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS ERRED IN DELETING THE ABOVE ADDITION BY NOT APPRECI ATING THE FACT THAT THE ASSESSEE HAS FULL RIGHT TO RECOVER THE DEPOSIT AMOUNT AS PER THER SPECIFIC CLAUSE MENTIONED IN JOINT VENTURE AGREEME NT WITH M/S DELHI TOWERS LTD. AND M/S ANSAL PROPERITIES & INFRA STRUCTURE LTD. ACIT CIRCLE-13(1) NEW DELHI (APPELLANT) VS NEW LINE DEVELOPERS PVT. LTD. 11 TH FLOOR, NARAIN MANZIL 23, BARAKHAMBA ROAD NEW DELHI AACCN3847R (RESPONDENT) DATE OF HEARING 16.03.2017 DATE OF PRONOUNCEMENT 20. 03.2017 2 ITA NO. 733/DEL/2014 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS ERRED IN DELETING THE ABOVE ADDITION BY NOT APPRECI ATING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS ERRED IN DELETING THE ABOVE ADDITION BY NOT APPRECI ATING THE FACT THAT THE ARBITRATION CLAUSE WAS INVOKED ONLY AFTER THE I SSUANCE OF STATUTORY NOTICE U/S 143(2) OF THE ACT AND QUERIES RAISED IN THIS REGARD. 3. THE ASSESSEE IS ENGAGED IN BUSINESS OF REAL ESTATE DEVELOPMENT AND ENTERS INTO A JOINT CONSTRUCTION AND DEVELOPMENT AG REEMENT (JCDA) WITH DELHI TOWERS LTD. (DTL), THE PROMOTERS OF TIME SQUA RE MEGA CITY PROJECTS LTD. (PROMOTERS) AND ANSAL PROPERTIES & INFRASTRUCTURE L TD. (APIL) FOR THE PURPOSES OF DEVELOPING A TOWNSHIP MEASURING 205 ACRES ON THE CHANDIGARH-LUDHIANA ROAD. AS PER THE JCDA, THE PROMOTERS REQUISITE APP ROVALS FROM THE GOVERNMENT OF PUNJAB AND WERE ALSO REQUIRED TO ADVA NCE AMOUNTS TO THE FARMERS FOR THE PURCHASE OF THE PROJECT LANDS. THE ASSESSEE WAS REQUIRED TO PLACE A SUM OF RS.57.25 CRORES AS A COMMITMENT DEPO SIT WHICH WAS TO BE TREATED PARTLY AS SHARE APPLICATION MONEY TOWARDS A LLOTMENT OF EQUITY SHARES AND PARTLY TOWARDS PREFERENCE SHARES OR AS A LOAN. THE PROMOTERS DEFAULTED ON THEIR PART EXPRESSING INABILITY TO CONTINUE WITH TH E PROJECT AS THEY CITED FROM FINANCIAL PROBLEM PROMOTERS GAVE POST DATED CHEQUES AMOUNTING TO RS.28.83 CRORES WHICH WAS SUBSEQUENTLY BOUNCED ON ACCOUNT OF INSUFFICIENT FUNDS. COMPLAINTS AGAINST THE PROMOTERS WERE MADE TO THE V ARIOUS AUTHORITIES WHICH FAIL TO GIVE ANY RESPONSE BY INVOKING THE ARBITRATI ON CLAUSE IN THE JCDA. THE ASSESSEE APPOINTED THEIR INDIVIDUAL ARBITRATORS AND SEND NOTICE TO THE PROCEEDINGS TO THE PROMOTERS WHO FAIL TO ACQUAINT T HEIR ARBITRARY. THE FACTUAL POSITION AS OF TODAY IS THAT THE ASSESSEE ALONG WIT H APIL AND TDL HAS FILED A PETITION U/S 482 OF THE CODE OF CRIMINAL PROCEDURE BEFORE THE HONBLE HIGH COURT OF PUNJAB & HARYANA, WHEREBY THE PETITIONERS PRAYED FOR AN INVESTIGATION/ ENQUIRY INTO THE OFFENCES, FRAUD AND CHEATING, CRIMINAL BREACH OF TRUST AND CRIMINAL CONSPIRACY AGAINST THE DIRECTORS OF THE PROMOTERS BY AN INDEPENDENT AGENCY. THE ASSESSEE WAS ASKED TO EXPL AIN BY THE ASSESSING 3 ITA NO. 733/DEL/2014 OFFICER VIDE AS NEITHER CHARGE ANY INTEREST NOR MA DE ANY EFFORTS TO RECOVER THE DEPOSIT MONEY. THE ASSESSEE GAVE DETAIL REPLY TO T HE SAME. THE A.O HELD THAT CHARGING OF NOTIONAL INTEREST WAS A DELIBERATE ACT OF THE ASSESSEE FOR NOT RECOVERING ITS DUES AND NOT CHARGING ANY INTEREST F ROM PROMOTERS. ACCORDINGLY, INTEREST AT 12% ON THE OUTSTANDING AMOUNT OF RS. 13 .13 CRORE I.E. RS.1,57,56,000/- WAS TREATED AS INCOME OF THE ASSES SEE FOR THE ASSESSMENT YEAR 2009-10. 4. AGGRIEVED BY THE SAME, THE ASSESSEE FILED APPEAL BEFORE THE CIT (A). THE CIT (A) OBSERVED THAT PERUSAL OF THE CLAUSES OF THE JOINT CONSTRUCTION AND DEVELOPMENT AGREEMENT DATED 21/3/2007 CLEARLY STATE S THAT THERE IS NO CLAUSE IN THE AGREEMENT FOR CHARGING OF INTEREST ON DEPOSI T OR ADVANCE TOWARDS THE COST OF THE PROJECT ESTIMATED TO BE AROUND RS.162.9 6 CRORES, THE PROJECT WAS NOT MATERIALIZE AND AN AMOUNT OF RS. 13.13 CRORE WAS OU TSTANDING WITH DTA. THUS, THE DEPOSITION IS MADE NOT ON INTEREST AND TH ERE IS NO ACCRUAL OF INTEREST INCOME. THE CIT(A) FURTHER OBSERVED THAT IT WAS AL SO NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAD ACTUALLY COLLECTED A NY INTEREST ON THE COMMITMENT DEPOSIT. FOR THAT NO FINDING WAS GIVEN BY THE ASSESSING OFFICER. THEREFORE, THE SAID ADDITION WAS DELETED BY THE CIT (A). BY DELETING IT THE CIT(A) ALSO RELIED ON THE JUDGMENT OF HON'BLE SUPREME COUR T IN CASE OF CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144, JUDGMENT OF HO NBLE GOWAHATI HIGH COURT IN STRAIGHTWAYS CONSTRUCTION CO PVT. LTD VS. CIT 199 ITR 702 & HONBLE MADRAS HIGH COURT IN CIT VS. RAMASWAMY NAIDU 35 ITR 33. 5. THE LD. DR SUBMITTED THAT THE AGREEMENT CLEARLY PROVIDES REFUND OF THE DEPOSITS MADE BY THE ASSESSEE WITHIN THE 30 DAYS OF ACCRUED PERIOD WHICH ENDED AS PER THE AGREEMENT ON 30/9/2007. THE ASSES SEE HAS DELIBERATELY TRIED NOT TO RECOVER ITS DUES OR CHARGE ANY INTEREST FROM THE DTL. THE LD. DR FURTHER SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE ADD ITION ON ACCOUNT OF NOTIONAL INTEREST ON THE DEPOSIT MONEY, THOUGH THE ASSESSEE HAS FULL RIGHT TO RECOVER THE DEPOSIT. THE LD. AR RELIED UPON THE ORDER OF THE C IT(A) AND SUBMITTED THAT 4 ITA NO. 733/DEL/2014 THERE IS NOT CLAUSE FOR CHARGING INTEREST ON THE CO MMITMENT DEPOSIT WHICH WAS TO BE ADJUSTED AGAINST ALLOTMENT OF EQUITY SHARES /REFERENCE SHARES. THE PROMOTERS OF TIME SPARE EXPRESS THEIR INABILITY TO CONTINUE WITH THEIR PROJECT THE POST DATED CHEQUES FOR RE-PAYMENT OF THE AMOUNT ADVANCE TO THEM WERE RETURN UNPAID DUE TO INSUFFICIENT FUNDS. THE COMPL AINTS WERE MADE BY THE ASSESSEE TO THE HIGH FUNCTIONARIES IN THE GOVERNMEN T OF PUNJAB WITH NO RESPONSE INCLUDE. THE ASSESSEE ALSO INVOKES THE AR BITRATION CLAUSE BY APPOINTING ARBITRATORS ON THEIR SIDES BUT THE PROMO TER FAIL TO APPOINT THEIR ARBITRATOR. AS A LAST RESORT PARTIES ALSO FILED PE TITION BEFORE THE HON'BLE HIGH COURT OF PUNJAB & HARYANA WHEREIN INVESTIGATION IS PRAYED. THUS, THE ASSESSEE HAS TAKEN UTMOST STEPS TO RECOVER ITS COMM ITMENT DEPOSITS SINCE THERE IS NOT CLAUSE FOR INTEREST THE ASSESSEE CANN OT CLAIM THE SAME BEFORE ANY OTHER AUTHORITIES BESIDES THE JUDGMENTS RELIED BY T HE CIT(A) IN ITS ORDER. THE ASSESSEE ALSO RELIED UPON THE JURISDICTIONAL HIGH C OURT JUDGMENT IE. HONBLE DELHI HIGH COURT IN CASE OF M/S SHIVANANDAN BUILDCO N PVT. LTD. VS. COMMISSIONER OF INCOME TAX (JUDGMENT DATED 30.04.20 15 IN W.P. (C) 6265/13 & 6326/13). 6. WE HAVE HEARD BOTH THE PARTIES. THIS APPEAL IS FILED BY THE REVENUE ONLY ON ONE ISSUE I.E OF NOTIONAL INTEREST ON COMMITMENT DEPOSIT. THOUGH THE LD. DR SUBMITTED THAT THE AGREEMENT CLEARLY PROVIDES REFUN D OF THE DEPOSITS MADE BY THE ASSESSEE WITHIN 30 DAYS OF THE AGGRIEVED PERIOD , BUT HE COULD NOT POINT OUT ANY CLAUSE TO THE EFFECT OF DELAYED PAYMENT OR NON REFUND OF DEPOSITS AFTER THE PERIOD OF 30 DAYS WILL CALCULATE THE INTEREST THERE ON. THE LD. DR ALSO HAS NOT CONTROVERTED THE DECISIONS CITED BY THE CIT(A) IN H IS ORDER AS WELL AS BY THE LD. AR BEFORE US. IT IS PERTINENT TO NOTE THAT THE ASS ESSEE HAS TAKEN ALL THE STEPS TO RECOVER THE NON REFUND OF THE COMMITMENT DEPOSIT WH EN THERE IS AN ABSENCE OF CLAUSE SPECIFIC IN THE AGREEMENT FOR INTEREST WHEN THERE IS A DELAYED IN PAYMENTS OR DEPOSITS. THE ASSESSEE HAS NO STAND TO ASK FOR THE SAME INCLUDING THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF SHIVANANDAN BUILDCON HELD THAT IN THE ABSENCE OF ANY SPECIFIC P ROVISION UNDER WHICH THE SO 5 ITA NO. 733/DEL/2014 CALLED NOTIONAL INCOME ON ADVANCES COULD BE BROUGHT O TAX IN IDENTICAL CASE DECIDED BY THE GAUHATI HIGH COURT IN CASE OF HIGHWA YS CONSTRUCTION COMPANY PVT. LTD. THE HONBLE HIGH COURT HELD THAT:- THERE IS NO FINDING OF FACT TO THE EFFECT THAT ACT UALLY THE LOAN HAD BEEN GRANTED TO THE MANAGING DIRECTOR OR ANY OTHER PERSO N ON INTEREST, OR THAT INTEREST HAD ACTUALLY BEEN COLLECTED AND THE COLLEC TION OF THE INTEREST WAS NOT REFLECTED IN THE ACCOUNTS. THE FINDING OF THE INCOME TAX OFFICER IS THAT THE ASSESSEE OUGHT TO HAVE COLLECTED INTEREST. IN OTHER WORDS, THE VIEW OF THE INCOME TAX OFFICER, WHICH HAS BEEN ACCEPTED BY THE TRIBUNAL, WAS THAT THE ASSESSEE, AS A GOOD BUSINESS CONCERN, SHOULD NO T HAVE GRATED INTEREST- FREE LOAN, OR SHOULD HAVE INSISTED ON PAYMENT OF IN TEREST. IF THE ASSESSEE HAD NOT BARGAINED FOR INTEREST, OR HAD NOT COLLECTE D INTEREST WE FAIL TO SEE HOW THE INCOME TAX AUTHORITIES CAN FIX A NOTIONAL I NTEREST AS DUE, OR COLLECTED BY THE ASSESSEE. OUR ATTENTION HAS NOT B EEN INVITED TO ANY PROVISION OF THE INCOME TAX ACT EMPOWERING THE INCO ME TAX AUTHORITIES TO INCLUDE IN THE INCOME, INTEREST WHICH WAS NOT DUE O R NOT COLLECTED. IN THIS VIEW, WE ANSWER QUESTION NO. (II) IN THE NEGATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. IN THE PRESENT CASE ALSO THERE IS NOTHING TO SHO W THAT THE ASSESSEE RECEIVED ANY INTEREST OF THE COMPANY TO WHOM THE LO AN WAS GIVEN OR ADVANCE WAS GIVEN INCLUDING PAID INTEREST TO THE ASSESSEE. THE SAME WAS ALSO NOT REFLECTED IN THE ACCOUNTS THE FINDINGS OF THE ASSES SING OFFICER THAT THE ASSESSEE DELIBERATELY FAIL TO RECOVER THE SAME HAS ALSO NOT STANDING WHEN THE ASSESSEE HAS TAKEN ALL ALTERNATIVE DESPITE RESOLUTIONS METHO D AS WELL AS THE COURT/LEGAL METHODS. THEREFORE, THE CIT(A) IS RIGHTLY ALLOWED THE APPEAL OF THE ASSESSEE, THERE IS NO NEED TO INTERFERE THE FINDINGS GIVEN BY THE CIT(A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20TH OF MARCH, 2017. SD/- SD/- (J.SUDHAKAR REDDY) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBE R DATED: 20/03/2017 6 ITA NO. 733/DEL/2014 *R.NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 16/03/2017 SR. PS 2. DRAFT PLACED BEFORE AUTHOR 17/03/2017 SR. PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20.03.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 20.03.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.