Emaar MGF Construction Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 913/DEL/2017

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9822 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 16-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: I P BANSAL
• Keywords: Gross profit estimation; Business income; Transfer pricing; Maximum Marginal Rate; Diversion of income; Commercial expediency; TDS; Capital Gains
• Section: 143(3); 80HHC; 40(a)(ia); 250; 43; 48; 13; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. H. S. SIDHU, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1731/DEL/2014 : ASSTT. YEAR : 2009-10 ITA NO. 1732/DEL/2014 : ASSTT. YEAR : 2010-11 ITA NO. 6114/DEL/2014 : ASSTT. YEAR : 2011-12 EMMAR MGF CONSTRUCTION PVT. LTD., FIRST FLOOR, ECE HOUSE, 28, KASTURBA GANDHI MARG, NEW DELHI - 110001 VS ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-7, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCE7912K ITA NO. 2001/DEL/2014 : ASSTT. YEAR : 2009-10 ITA NO. 2002/DEL/2014 : ASSTT. YEAR : 2010-11 ITA NO. 5827/DEL/2014 : ASSTT. YEAR : 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-7, NEW DELHI VS EMMAR MGF CONSTRUCTION PVT. LTD., FIRST FLOOR, ECE HOUSE, 28, KASTURBA GANDHI MARG, NEW DELHI-110001 (APPELLANT) (RESPONDENT) PAN NO. AABCE7912K ITA NO. 913/DEL/2017 : ASSTT. YEAR : 2013-14 ITA NO. 914/DEL/2017 : ASSTT. YEAR : 2014-15 EMMAR MGF CONSTRUCTION PVT. LTD., FIRST FLOOR, ECE HOUSE, 28, KASTURBA GANDHI MARG, NEW DELHI-110001 VS ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AABCE7912K ITA NO. 1253/DEL/2017 : ASSTT. YEAR : 2013-14 ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, NEW DELHI VS EMMAR MGF CONSTRUCTION PVT. LTD., FIRST FLOOR, ECE HOUSE, 28, KASTURBA GANDHI MARG, NEW DELHI - 110001 (APPELLANT) (RESPONDENT) PAN NO. AABCE7912K ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 2 ASSESSEE BY : SH. I. P. BANSAL, ADV. & SH. VIVEK BANSAL, ADV. REVENUE BY : MS. NIDHI SRIVASTAVA, CIT DR DATE OF HEARING: 17.12.2019 DATE OF PRONOUNCEMENT: 26.12.2019 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDERS OF THE LD. CIT (A)-1 DATED 13.01 .2014, 28.08.2014 & ORDERS OF THE LD. CIT (A)-23 DATED 22. 12.2016 AND THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAIN ST THE ORDERS OF THE LD. CIT (A)-1 DATED 13.01.2014, 28.08.2014 A ND ORDER OF THE LD. CIT (A)-23 DATED 22.12.2016, NEW DELHI. 2. SINCE, THE ISSUES INVOLVED IN BOTH THE APPEALS A RE COMMON, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY COMMON ORDER. 3. IN ITA NO. 1731/DEL/2014, THE ASSESSEE HAS RAISE D FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)] ERRED ON FACTS AND IN LAW IN OBSERVING T HAT THE ASSESSING OFFICER COULD HAVE DRAWN ADVERSE INFERENC E REGARDING UNSUBSTANTIATED PURCHASES TO THE EXTENT OF RS.17,76 ,06,532/- FOR THE RELEVANT ASSESSMENT YEAR, IN RESPECT OF PAR TIES FROM WHOM CONFIRMATIONS WERE NOT RECEIVED BEFORE THE CON CLUSION OF ASSESSMENT PROCEEDINGS. 1.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T ADMITTING AND CONSIDERING THE CONFIRMATIONS RECEIVED FROM 23 PARTIES ON THE GROUND THAT- (I) THE APPELLANT HAD EXHAUSTED OPPORTUNITY TO FILE THE SAID CONFIRMATIONS AT AN EARLIER STAGE; ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 3 (II) REVENUE HAD NO OPPORTUNITY TO EXAMINE/REBUT TH E SAID EVIDENCES. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT THE DISBURSEMENT OF INCOME AS PER THE REVENUE SHARING A GREEMENT WITH EMLL, WAS NOT DIVERSION OF INCOME BY OVERRIDIN G THE TITLE, BUT APPLICATION OF INCOME. 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT IN ESSENCE, UNDER THE ARRANGEMENT BETWEEN THE PARTIES, THE ENTIRE PROJECT WAS AWARDED AND EXE CUTED ON THE STRENGTH OF EMLL AND EMLL HAD, IN FACT, PAID 75 % OF THE TOTAL CONSIDERATION TO THE APPELLANT. 2.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T ALLOWING DEDUCTION OF EXPENDITURE INCURRED TOWARDS SERVICES OBTAINED FROM EMLL, AT 25% OF REVENUE, ACTUALLY PAID AS PER THE TERMS AGREED BETWEEN THE APPELLANT AND EMLL, AND INSTEAD ALLOWING DEDUCTION OF COST/EXPENSES INCURRED BY EMLL IN PROV IDING SUPPORT TO THE APPELLANT. 2.3 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN AD OPTING ITS OWN METHOD OF COMPUTING REASONABLE EXPENDITURE THAT OUGHT TO HAVE BEEN INCURRED BY THE APPELLANT IN RELATION TO SERVICES OBTAINED FROM EMLL, WHICH IS NOT PERMISSIBLE IN LAW . 4. IN ITA NO. 1732/DEL/2014, THE ASSESSEE HAS RAISE D FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)] ERRED ON FACTS AND IN LAW IN OBSERVING T HAT THE ASSESSING OFFICER COULD HAVE DRAWN ADVERSE INFERENC E REGARDING UNSUBSTANTIATED PURCHASES TO THE EXTENT OF RS.56,79 ,06,899/- FOR THE RELEVANT ASSESSMENT YEAR, IN RESPECT OF PAR TIES FROM WHOM CONFIRMATIONS WERE NOT RECEIVED BEFORE THE CON CLUSION OF ASSESSMENT PROCEEDINGS. 1.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T ADMITTING AND CONSIDERING THE CONFIRMATIONS RECEIVED FROM 23 PARTIES ON THE GROUND THAT- ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 4 (I) THE APPELLANT HAD EXHAUSTED OPPORTUNITY TO FILE THE SAID CONFIRMATIONS AT AN EARLIER STAGE; (II) REVENUE HAD NO OPPORTUNITY TO EXAMINE/REBUT TH E SAID EVIDENCES. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT THE DISBURSEMENT OF INCOME AS PER THE REVENUE SHARING A GREEMENT WITH EMLL, WAS NOT DIVERSION OF INCOME BY OVERRIDIN G THE TITLE, BUT APPLICATION OF INCOME. 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT IN ESSENCE, UNDER THE ARRANGEMENT BETWEEN THE PARTIES, THE ENTIRE PROJECT WAS AWARDED AND EXE CUTED ON THE STRENGTH OF EMLL AND EMLL HAD, IN FACT, PAID 75 % OF THE TOTAL CONSIDERATION TO THE APPELLANT. 2.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T ALLOWING DEDUCTION OF EXPENDITURE INCURRED TOWARDS SERVICES OBTAINED FROM EMLL, AT 25% OF REVENUE, ACTUALLY PAID AS PER THE TERMS AGREED BETWEEN THE APPELLANT AND EMLL, AND INSTEAD ALLOWING DEDUCTION OF COST/EXPENSES INCURRED BY EMLL IN PROV IDING SUPPORT TO THE APPELLANT. 2.3 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN AD OPTING ITS OWN METHOD OF COMPUTING REASONABLE EXPENDITURE THAT OUGHT TO HAVE BEEN INCURRED BY THE APPELLANT IN RELATION TO SERVICES OBTAINED FROM EMLL, WHICH IS NOT PERMISSIBLE IN LAW . 5. IN ITA NO. 6114/DEL/2014, THE ASSESSEE HAS RAISE D FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) [CIT(A)] ERRED ON FACTS AND IN LAW IN SUSTAINING DISALLOWANCE OF PURCHASES TO THE EXTENT OF RS.1,68,17,082/- FOR RELEVANT ASSESSMENT YEAR, IN RESPECT OF PARTIES FROM WHOM CONFIRMATIONS WERE NOT RECEIVED DIRECTLY BY THE ASS ESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS . 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN FOL LOWING THE ORDER FOR ASSESSMENT YEARS 2009-10 AND 2010-11 AND HOLDING THAT THE DISBURSEMENT OF INCOME AS PER THE REVENUE SHARING ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 5 AGREEMENT WITH EMLL, WAS NOT DIVERSION OF INCOME BY OVERRIDING THE TITLE, BUT APPLICATION OF INCOME. 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT IN ESSENCE, UNDER THE ARRANGEMENT BETWEEN THE PARTIES, THE ENTIRE PROJECT WAS AWARDED AND EXE CUTED ON THE STRENGTH OF EMLL AND EMLL HAD, IN FACT, PAID 75 % OF THE TOTAL CONSIDERATION TO THE APPELLANT. 2.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T ALLOWING DEDUCTION OF EXPENDITURE INCURRED TOWARDS SERVICES OBTAINED FROM EMLL, AT 25% OF REVENUE, ACTUALLY PAID AS PER THE TERMS AGREED BETWEEN THE APPELLANT AND EMLL, AND INSTEAD ALLOWING DEDUCTION OF COST/EXPENSES INCURRED BY EMLL IN PROV IDING SUPPORT TO THE APPELLANT. 2.3 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN AD OPTING ITS OWN METHOD OF COMPUTING REASONABLE EXPENDITURE THAT OUGHT TO HAVE BEEN INCURRED BY THE APPELLANT IN RELATION TO SERVICES OBTAINED FROM EMLL, WHICH IS NOT PERMISSIBLE IN LAW . 6. IN ITA NO. 913/DEL/2017, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS)-2 3, NEW DELHI (HEREINAFTER REFERRED TO AS CIT(A)) HAS ERR ED ON FACTS AND IN LAW IN FOLLOWING THE ORDER FOR ASSESSMENT YE ARS 2009- 10, 2010-11, 2011-12 AND 2012-13 AND HOLDING THAT T HE DISBURSEMENT OF INCOME AS PER THE REVENUE SHARING A GREEMENT WITH M/S EMMAR MGF LAND LTD. (HEREINAFTER REFERRED TO EMLL), WAS NOT DIVERSION OF INCOME BY OVERRIDING THE TITLE , BUT APPLICATION OF INCOME. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IN ESSENCE, UNDER THE ARRANGEMENT BETWEEN THE PARTIES, THE ENTIRE PROJECT WAS AWARDED AND EXECUTED ON THE STRENGTH OF EMLL AND EMLL HAD, IN FACT, PAID 75% OF THE TOTAL CONSIDERATION TO THE APPELLANT. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF EXPENDITURE INCURRED TOWARDS SERVICES OBTAINED FROM EMLL, AT 25% OF REVENUE, ACTUALLY PAID AS PER THE TERMS ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 6 AGREED BETWEEN THE APPELLANT AND EMLL, AND INSTEAD ALLOWING DEDUCTION OF COST/EXPENSES INCURRED BY EMLL IN PROV IDING SUPPORT TO THE APPELLANT. 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN ADO PTING ITS OWN METHOD OF COMPUTING REASONABLE EXPENDITURE THAT OUG HT TO HAVE BEEN INCURRED BY THE APPELLANT IN RELATION TO SERVICES OBTAINED FROM EMLL, WHICH IS NOT PERMISSIBLE IN LAW . 7. IN ITA NO. 914/DEL/2017, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS)-2 3, NEW DELHI (HEREINAFTER REFERRED TO AS CIT(A)) HAS ERR ED ON FACTS AND IN LAW IN FOLLOWING THE ORDER FOR ASSESSMENT YE ARS 2009- 10, 2010-11, 2011-12 AND 2012-13 AND HOLDING THAT T HE DISBURSEMENT OF INCOME AS PER THE REVENUE SHARING A GREEMENT WITH M/S EMMAR MGF LAND LTD. (HEREINAFTER REFERRED TO EMLL), WAS NOT DIVERSION OF INCOME BY OVERRIDING THE TITLE , BUT APPLICATION OF INCOME. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IN ESSENCE, UNDER THE ARRANGEMENT BETWEEN THE PARTIES, THE ENTIRE PROJECT WAS AWARDED AND EXECUTED ON THE STRENGTH OF EMLL AND EMLL HAD, IN FACT, PAID 75% OF THE TOTAL CONSIDERATION TO THE APPELLANT. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF EXPENDITURE INCURRED TOWARDS SERVICES OBTAINED FROM EMLL, AT 25% OF REVENUE, ACTUALLY PAID AS PER THE TERMS AGREED BETWEEN THE APPELLANT AND EMLL, AND INSTEAD ALLOWING DEDUCTION OF COST/EXPENSES INCURRED BY EMLL IN PROV IDING SUPPORT TO THE APPELLANT. 4. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN ADO PTING ITS OWN METHOD OF COMPUTING REASONABLE EXPENDITURE THAT OUG HT TO HAVE BEEN INCURRED BY THE APPELLANT IN RELATION TO SERVICES OBTAINED FROM EMLL, WHICH IS NOT PERMISSIBLE IN LAW . 8. IN ITA NO. 2001/DEL/2014, THE REVENUE HAS RAISED FOLLOWING GROUNDS: ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 7 1. THE ORDER OF LD. CIT (A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.65.46 CROR ES MADE BY THE ASSESSING OFFICER ON ACCOUNT OF WRONG BUDGETED ESTIMATED USED IN POCM. 3. ON THAT FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.105 ,90,50,000/- MADE BY THE AO ON ACCOUNT OF SHAM TRANSACTION. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DELETED THE ADDITION OF RS.2,33 ,47,177/- MADE BY THE AO UNDER THE HEAD INCOME FROM OTHER SOU RCES AS AGAINST CLAIMED AS NETTED OFF AGAINST PROJECT COST. 9. IN ITA NO. 2002/DEL/2014, THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1. THE ORDER OF LD. CIT (A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.RS.100.54 CRORES MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INFLATED/BO GUS CONSTRUCTION COST. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.211 ,23,81,220/- MADE BY THE AO ON ACCOUNT OF SHAM AGREEMENT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASES, THE LD. CIT (A) HAS ERRED IN LAW IN DETERMINATION OF BUSINESS INCOM E FOR A.YS. 2009-10 AND 2011-12. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.6,5 4,80,690/- UNDER THE HEAD INCOME FROM OTHER SOURCES & CAPITAL GAIN. 10. IN ITA NO. 5827/DEL/2014, THE REVENUE HAS RAISE D FOLLOWING GROUNDS: ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 8 1. THE ORDER OF LD. CIT (A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.49,91,82,9 18/- OUT OF TOTAL ADDITION OF RS.51,60,00,000/- MADE BY THE ASS ESSING OFFICER ON ACCOUNT OF INFLATED/BOGUS CONSTRUCTION COST. 3. ON THAT FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.108 ,20,56,857/- MADE BY THE AO ON ACCOUNT OF SHAM TRANSACTION. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DIRECTING THE AO TO DETERMINE T HE BUSINESS INCOME OF THE ASSESSEE BASED ON FINDINGS FOR A.Y. 2 009-10 AND 2010-11. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW IN DIRECTING THE AO TO TREAT CERTA IN INCOMES AMOUNTING TO RS.2,08,06,019/- AS BUSINESS INCOME IN STEAD OF CAPITAL GAINS AND INCOME FROM OTHER SOURCES (INTERE ST ON MARGIN MONEY OF RS.49,66,039/-, GAIN ON SALE OF CUR RENT INVESTMENT RS.1,45,10,435/- AND INCOME FROM SCRAP S ALES RS.13,29,545/-. 11. IN ITA NO. 1253/DEL/2017, THE REVENUE HAS RAISE D FOLLOWING GROUNDS: 1. THE ORDER OF LD. CIT (A) IS NOT CORRECT IN LAW AND FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.9,11,7 9,858/- MADE BY THE AO ON ACCOUNT OF SHAM AGREEMENT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN DIRECTING THE AO TO COMPUTE THE IN COME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION BASED ON HIS FINDINGS. 12. GROUND NOS. 1 & 1.2 OF THE ASSESSEE DEALS WITH ADVERSE INFERENCE DRAWN BY THE AO REGARDING THE UNSUBSTANTIATED PURCH ASES AND NOT ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 9 CONSIDERING THE CONFIRMATIONS WITH REGARD TO THE PU RCHASES FILED BY THEM DURING THE ASSESSMENT PROCEEDINGS. 13. THE LD. AR ARGUED THAT THE CONCLUSION OF THE LD . CIT (A) AS UNSUBSTANTIATED PURCHASES OF RS.17.76 CRORES AS WEL L AS NOT CONSIDERING THE CONFIRMATIONS RECEIVED AND FILED FROM 23 PARTIE S CANNOT BE ACCEPTED AS PROPER RECONCILIATION AND THE DETAILS OF THE PAYMEN TS FOR THE PURCHASES HAVE BEEN DULY SUBMITTED. HE HAS REFERRED TO VARIOU S PARTIES, NAMELY KOHLER INDIA CO. PVT. LTD., RASHTRIYA ISPAT NIGAM L TD., STEEL AUTHORITY OF INDIA LTD., INDO ALUSYS INDUSTRIES LTD., SUDHIR POW ER PROJECTS PVT. LTD. AND OTHERS WHICH HAVE NOT BEEN CONSIDERED BY THE LD. CI T (A) INSPITE OF ALL THEIR EVIDENCES. THE DETAILS OF THE PURCHASES FOR W HICH THE EVIDENCES HAVE BEEN SUBMITTED AT A LATER DATE, NOT EXAMINED BY THE REVENUE ARE AS UNDER: S. NO. NAME OF THE PARTY AY 2009 -10 AY 2010 -11 AY 2011 -12 TOTAL 1 M/S ADON SYSTEM & SOLUTION PVT. LTD, A- 28 SECTOR 16, NOIDA -201307 6,87,228 - - 6,87,228 2 M/S AMRIT STONES,& SUPPLIERS SASTRI NAGAR COLONY, HEAD POST OFFICE ROAD, JALORE 13,57,096 51,99,597 - 65,56,693 3 M/S B.N. TRADERS, 249, COMMERCIEL COMPLES, CYCLE MARKET, JHANDEWALAN, NEW DELHI - 110055 1,74,24,033 1,74,24,033 4 M/S DAGA TRADING COMPANY PVT LTD Y- 162, LOHA MANDI NARAINA, NEW DELHI- 110028 4,86,90,325 4,86,90,325 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 10 5 M/S DEES GRANITE & MARBLES, GI- 674, CHOPAKI INDUSTRIAL AREA, TEHSIL - TIJARA. DISST- ALWAR TIJARA 21,79,294 1,25,95,400 1,45,69,539 2,93,44,233 6 M/S KHANNA BROTHERS, B 276, NEHRU ROAD, NIIT FARIDABAD-121001 55,98,156 - - 55,98,156 7 M/S LINK MARBLE & GRANITIES P LTD 99, DIAMOND NEST 1ST FLOOR, UNIT NO. 103, BDA MAIN ROAD, BANGLORE 6,66,97,551 11,92,44,540 46,22,065 19,05,64,156 8 M/S PARRYWARE ROCA PVT LTD, 2ND FLOOR JEEVAN DEEP BUILDING 10, PARLIAMENT STREET, NEW DELHI- 110001 35,04,662 70,97,519 1,06,02,181 9 M/S. PG INDUSTRY LTD, C1, RING ROAD, RAJOURI GARDEN, NEW DELHI-110027 17,11,413 ' . 17,11,413 10 M/S S.K TRADIND COMPANY F- 22, GROUND FLOOR SHAHPUR JTT, NEW DELHI-110049 22,62,294 22,62,294 11 M/S VIKRANT ISPAT UDYOG,113/8 NAVYUG MARKET FLOOR GHAZIABAD-201001 2,51,24,561 5,71,02,883 24,33,824 8,46,61,268 12 M/S A & A MODULAR SYSTEM, 149- 150, VILLAGE, SAINSIWALA BAROTIWALA.TEHSIL, DISST, SOLAN-174103 - 11,80,34,068 36,11,647 12,16,45,715 13 M/S C.PASSOCIATE PVT LTDF- 5/209, DDA BUILDING NO.5, 2ND FLOOR. DISTRICT CENTRE, JANAKPURI -110058 - 2,22,31,062 2,22,31,062 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 11 14 M/S EURO CERAMICS LTD, BOSTON HOUSE, GROUND FLOOR, SUREN ROAD, CHAKALA, ANDHERI (E) MUMBAI - 1,93,'56,645 9,05,972 2,02,62,617 15 M/S. FAREWOOD INDUSTRIES LTD, 4/605, OLD MAHABALIPURAMROAD, OPP NEHRU NAGAR PERUNGUDI, CHENNAI 600096 - 5,75,66,590 11,93,243 5,87,59,833 16 M/S FURNCRAFT, 2ND FLOOR, 125, SHAHPURJAT, NEW DELHI-110049 - 3,74,12,218 3,74,12,218 17 M/S MK- FURNCRAFT PVT LTD 2ND FLOOR, 125, SHAHPURJAT, NEW DELHI-110060 - 1,72,91,865 23,64,494 1,96,56,359 18 M/S H8I RJOHNSON I() LTD 501, SURYA KIRAN BUILDING, K. MARG, CONNAUGHT PLACE, NEW DELHI-110001 - 5,65,817 5,65,817 19 M/S MAHABIR MARBLE WORKS, TEES DARA PUL, NEAR SAPNA CINEMA, KHANALAMPUR- 247001 - 12,07,334 12,07,334 20 M/S PIXEL MOASIC INDIA, HO NO.325,3RD FLOOR, RING ROAD, MALL OUTER RING ROAD. NEW DELHI- 110085 - 13,79,244 13,79,244 21 M/S SAKHA ENGINEERS PVT LTD. 2ND FLOOR, GULMOHAR HOUSE, 161, B/4. GAUTAM NAGAR, YUSUF SARAI, NEW DELHI-110049 - 89,79,644 12,68,717 1,02,48,361 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 12 22 M/S SINTEX INDUSTRIES LTD A- 38, SECOND FLOOR, MOHAN CO-OPERATIVE INDUSTRIAL ESTATE, MAIN MATHURA ROAD NEW DELHI-110044 - 1,18,81,020 1,18,81,020 23 M/S ROOT COOLING SYSTEM,C 66/1, OKHLA INDUSTRIAL AREA, PHASE - 2, NEW DELHI-110020 - 5,26,35,615 40,22,363 5,66,57,978 TOTAL(A) 17,52,36,613 54,92,15,244 3,55,57,681 76,00,09,538 LIST OF REMAINING PARTIES FROM WHOM CONFIRMATION COULD NOT BE FURNISHED 24 M/S ADITYA STONES, HS-38, KAILASH COLONY, NEW DELHI. 10,30,297 1,28,39,474 9,27,796 1,47,97,567 25 M/S ARIHANT TRAILER SERVICES, 7259/4 AJENDRA MARKET PREM NAGAR, SHASTRI NAGAR DELHI-110007 13,39,622 - 13,39,622 26 M/S KOHINOOR GRANITES, BHAGLI SINDHIAN BHINMAL ROAD, JALORE- 343001 - 20,04,181 - 20,04,181 27 M/S ROCKLAND DEVELOPERS & ENGINEERS, D-8, BASEMENT STREET NO.1 LAXMI NAGAR DELHI-110092 - 38,48,000 - 38,48,000 TOTAL(B) 23,69,919 1,86,91,655 9,27,796 2,19,89,370 TOTAL(A+B=C) 17,76,06,532 56,79,06,899 3,64,85,47 7 78,19,98,908 ADD: TRANSACTION PERTAINING TO FY 2007 - 08 (D) - 4,75,95,711 TOTAL ADDITION AS PER CIT(A) ORDER(C+D) 82,95,94,619 14. THE LD. DR, ON THE OTHER HAND, ARGUED THAT THE REVENUE NEVER HAD THE OPPORTUNITY OF EXAMINING THE CONFIRMATIONS FILE D AT A LATER STAGE AND HENCE IN THE FITNESS OF THINGS, THE MATTER SHOULD B E ALLOWED TO BE EXAMINED BY THE ASSESSING OFFICER. THE LD. AR DID N OT OBJECT TO THE PROPOSAL. HENCE, THE INTEREST OF THE JUSTICE, THE M ATTER IS BEING REFERRED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CONDUCT ENQUIRIES, ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 13 INVESTIGATION AS DEEMED FIT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT AND TAKE A DECISION REGARDING THE AL LOWABILITY OF THIS EXPENDITURE BASED ON THE OUTCOME OF THE ENQUIRIES. 15. GROUND NO. 2 OF THE REVENUE PERTAINS TO THE DEL ETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF WRONG B UDGETED ESTIMATES USED IN PERCENTAGE OF COMPLETION METHOD (POCM). 16. THE FACTS RELEVANT TO THE ISSUE CULLED FROM THE RECORD ARE AS UNDER: BACKGROUND OF THE CASE IS THAT THE GROUP OF MINISTE RS CONSTITUTED BY THE GOVERNMENT OF INDIA FOR COORDINATING THE WORK RELAT ING TO ORGANIZATION OF THE COMMONWEALTH GAMES (CWG) 2010 DECIDED ON 04.01. 2006, INTER ALIA, THAT PUBLIC PRIVATE PARTICIPATION (PPP) MODEL, WHIC H PROJECTED A GOVERNMENT FUNDING OF RS.293 CRORES FOR DEVELOPMENT WORKS AND TEMPORARY OVER LAY AND DELHI DEVELOPMENT AUTHORITY (DDA) / PRIVATE FUNDING FOR RS.662 CRORE FOR DEVELOPMENT OF HOTEL / RESIDENTIAL APARTMENTS ETC., SHOULD BE RESORTED TO DDA FOR THE COMMONWEALT H GAMES VILLAGE (CGV). THE DDA, IN TURN, CONSTITUTED A HIGH POWERED COMMITTEE (HPC) TO OVERSEE THE DEVELOPMENTS RELATING TO CONSTRUCTION A CTIVITIES OF THE CWG. THE REQUEST FOR QUALIFICATION (RFQ) FOR THE CGV PRO JECT WAS ISSUED ON 02.12.2006 WHEREIN 11 PARTIES WERE SHORT-LISTED AND NOTIFIED BY DDA. THE REQUEST FOR PROPOSAL (RFP) FOR THE PROJECT WAS ISSU ED ON 24.04.2007 FIXING RESERVE PRICE AT RS.300 CRORE AND NET WORTH OF THE BIDDER AT RS.100 CRORE, AND REQUIRING SECURITY DEPOSIT OF RS.10 CRORE AND P ERFORMANCE GUARANTEE OF RS.500 CRORE. HOWEVER, THE HLC AGREED IN ITS MEE TING DATED 07.06.2007 THAT IN VIEW OF THE DECLINING REAL ESTAT E MARKET, THE KEY ELEMENTS DETERMINING VIABILITY OF THE PROJECT, I.E. UPFRONT RESERVE PRICE OF RS.300 CRORE, 50% SHARE OF THE APARTMENTS AND THE P ERFORMANCE BANK. GUARANTEE OF RS.500 CRORE, MADE THE PROJECT FINANCI ALLY UNVIABLE AND THEREFORE DECIDED TO REDUCE DDAS SHARE FROM 50% TO 1/3RD AND ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 14 PERFORMANCE BANK GUARANTEE FROM RS.500 CRORE TO RS. 400 CRORE, BESIDES CERTAIN OTHER CONCESSIONS. HOWEVER, THE UPFRONT RES ERVE PRICE AT RS.300 CRORE WAS NOT CHANGED. AN ADDENDUM TO THE RFP WAS I SSUED ON 08.06.2007. ONLY TWO BIDS WERE RECEIVED IN RESPONSE TO THE RFP - FROM M/S DLF LTD. AND M/S EMAAR MGF CONSORTIUM. THE DLF BID WAS REJECTED IN THE TECHNICAL EVALUATION. EMAAR-MGF WAS AWARDED THE CONTRACT AT UPFRONT PAYMENT BID OF RS.321 CRORE. 17. THE ASSESSEE COMPANY IS A SPECIAL PURPOSE VEHI CLE (SPV) INCORPORATED PRIMARILY TO EXECUTE THE CGV PROJECT A T NEW DELHI FOR THE PURPOSE OF HOUSING THE ATHLETES AND OFFICIALS PARTI CIPATING IN THE CWG 2010. THE PROMOTERS OF THE ASSESSEE COMPANY AND ITS SHARE-HOLDING ORIGINALLY AT THE TIME OF BIDDING FOR THE RFP FOR C WG 2010 (LETTER DATED 15.06.2007 ADDRESSED TO DDA) WERE AS UNDER: (I) EMAAR PROPERTIES PJSC, DUBAI - 26% (II) EMAAR MGF LAND PRIVATE LIMITED - 25% (III) MGF DEVELOPMENTS LIMITED - 25% (IV) DISCOVERY ESTATES LIMITED - 24% 18. THUS, AT INCORPORATION, 51% EQUITY WAS OWNED BY EMAAR GROUP OF DUBAI AND 49% BY THE MGF GROUP OF DELHI. SUBSEQUENT LY, THE EQUITY STRUCTURE OF THE SPY UNDERWENT SOME MODIFICATION AN D THE EQUITY OWNERSHIP BECAME AS UNDER: (I) EMAAR MGF LAND LIMITED (EMLL) - 53.99% (II) EMAAR HOLDINGS LIMITED - 26.04% (III) MGF DEVELOPMENTS LIMITED - 18.49% (IV) DISCOVERY ESTATES LIMITED - 1.48% 19. THE ASSESSING OFFICER DURING THE COURSE OF ASSE SSMENT PROCEEDINGS HAD CALLED FOR THE DETAIL OF ESTIMATED COST AND THE ACTUAL COST INCURRED IN THE SPECIFIED FORMAT. FOLLOWING ARE THE DETAILS WHI CH WERE FILED DURING THE COURSE OF THE ASSESSMENT REGARDING ESTIMATED COST A ND THE ACTUAL COST: COMPUTATION OF RECOGNITION OF COST INCURRED FOR TH E FINANCIAL YEAR 2008-09. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 15 PARTICULARS ES TIMATED COST COST INCURRED TILL MAR 09 LAND COST 3,504,716,858 3,210,000,000 ARCHITECTURAL & CONSULTANCY 303,940,263 258,167,847 PROJECT INFRASTRUCTURE 50,860,645 35,948,339 SECURITY 20,720,167 8,138,874 CONSTRUCTION COST 10,270,619,191 4,865,072,470 FINANCE & INTEREST OF CWG 826,289,133 482,755,297 SUBVENTION INTEREST 190,153,059 - BANK GUARANTEE/LC CHARGES 58,535,414 23,497,769 INTEREST FROM EM'GF 335,939,104 258,569,803 ADMIN & OVERHEAD. 89,476,232 28,347,214 CONTINGENCIES 323,068,881 - TOTAL 15,974,318,947 9,170,497,613 INTEREST INCOME (23,347,117) G. TOTAL 9,147,150,496 20. BASED ON THE ABOVE CALCULATION, THE ASSESSEE BA SED ON ACCOUNTING STANDARD 9 RECOGNIZED REVENUE OF RS.317.71 CRORES F OR THE RELEVANT ASSESSMENT YEAR. THE ASSESSING OFFICER CHALLENGED T HE ESTIMATED CONSTRUCTION COST OF RS.1027.06 CRORES. BASED ON TH E SHUNGLU COMMITTEE REPORT, THE AO HELD THAT THE ENTIRE CONSTRUCTION WO RK WAS SUBCONTRACTED TO AN ENTITY NAMELY, AHLUWALIA CONSTRUCTION INDIA LTD. (ACIL) AT RS.2875 PER SQ. FT. BASED ON THAT, THE AO HELD THAT THE TOTAL C ONSTRUCTION COST CANNOT EXCEED TO RS.752.35 CRORES AND ACCORDINGLY ESTIMATE D PROJECT COST WAS WORKED TO RS.1322.71 CRORES AGAINST RS. 1597.43 CRO RES ESTIMATED BY THE ASSESSEE. DUE TO THIS REDUCTION IN ESTIMATED COSTS, THE PERCENTAGE COMPLETION WAS WORKED OUT TO 69.32% INSTEAD OF 57.4 0% COMPUTED BY THE ASSESSEE. ACCORDINGLY, THE REVENUE OF THE ASSES SEE WAS REWORKED TO RS.511.59 CRORES BY STATING THAT THE ASSESSEE HAS UNDER STATED ITS ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 16 REVENUE BY RS. 193.87 CRORES. HENCE, THE ASSESSING OFFICER MADE AN ADDITION OF RS.87.97 CRORES TO THE INCOME OF THE AS SESSEE. 21. AFTER RELYING ON SHUNGLU COMMITTEE REPORT, THE AO OBSERVED THAT THE ASSESSEE HAS SUB-CONTRACTED THE ENTIRE CONSTRU CTION WORK TO ACIL AT RS.2,875 PER SQ. FT. AND ON THAT BASIS, HE INFERRED THAT THE ASSESSEE HAS ALSO INFLATED ITS ESTIMATED COST BY RS.87.97 CRORES SINCE THERE WAS NO ESCALATION IN THE CONTRACT WITH ACIL. THE CONTENTIO N OF THE AO THAT THE COST CANNOT BE MORE THAN RS.2,875 PER SQUARE FEET A S PER AGREEMENT WITH ACIL. 22. FOR THE SAKE OF READY REFERENCE, THE RELEVANT P OINTS MADE BY THE AO WHILE AMENDING THE POCM AND THE CONSEQUENT ADDITION IS REPRODUCED BELOW: 16A.THE ENTIRE CONSTRUCTION AND DEVELOPMENT WORK O F RESIDENTIAL FACILITY AND RESIDENTIAL APARTMENTS WAS AWARDED TO AHLUWALIA CONTRACTS (I) LTD. BY EMAAR MGF CONSTRUCT ION PRIVATE LTD. VIDE PROJECT DEVELOPMENT AGREEMENT DATED 10TH JULY 2008, ON COST PRICE BASIS WITH A TARGET PRICE CAP O F RS.2875/- PER SQ. FT. ON ACTUAL ACHIEVEMENT OF FAR. IT WAS SP ECIFICALLY AGREED UPON VIDE CLAUSE 6 OF THE CONTRACT THAT IN N O CASE THE PRICE OF RS.2875/- SHALL EXCEED AT THE COMPLETION O F THE PROJECT FOR ENTIRE SCOPE OF WORK. THE CONTRACT PRICE INCLUD ED PAYMENT FOR SUPPLY OF ALL LABOUR, EQUIPMENTS, MATERIALS, PL ANT & MACHINERY, TOOLS, TRANSPORTATIONS, FRAMEWORK, SCAFF OLDING, CONSTRUCTION OF CIVIL WORKS AND ALL APPLICABLE TAXE S INCLUDING WCT, DUTIES, OCTROI, LEVIES, ROYALTIES, FEES, INSUR ANCE PREMIUMS, CONTRIBUTIONS TOWARDS EMPLOYEES BENEFITS, DISTRIBUT ION OF POWER AND WATER AND ALL SERVICES AND ACTIVITIES CONSTITUT ING THE SCOPE OF WORK BUT EXCLUDING SERVICE TAX AND LABOUR CESS. THE CONTRACT PRICE ALSO INCLUDED THE CONTRACTOR'S ESTABLISHMENT, INFRASTRUCTURE, OVER HEADS AND ALL OTHER CHARGES AN D GENERALLY NECESSARY FOR THE PROPER EXECUTION AND COMPLETION O F THE WORK. PRICE ESCALATION / VARIATION WAS NOT ALLOWED. FURTH ER A CO-JOINT READING OF CLAUSE 6 (F) & (J) MAKES IT ABUNDANTLY C LEAR THAT IF CERTAIN MATERIAL VIZ. REINFORCED STEEL STRUCTURE, E LEVATORS, DG ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 17 SETS, FLOORING, BATHROOM FITTINGS ARE SUPPLIED BY E MAAR MGF CONSTRUCTION PVT. LTD. TO THE CONTRACTOR THE PER SQ UARE FEET PRICE DECIDED AMONGST THE PARTIES SHALL GET PROPORT IONATELY REDUCED. IN OTHER WORDS, THE COST TO EMAAR MGF CONS TRUCTION PVT. LTD. COULD NOT HAVE EXCEEDED RS.2875/- PER SQ FEET UNDER ANY CIRCUMSTANCES AS PER THE AGREEMENT REFERRED TO ABOVE. (REFERENCE CLAUSE 6 OF THE AGREEMENT DATED 10.7.20 08 EXECUTED BETWEEN THE ASSESSEE COMPANY AND AHLUWALIA CONTRACTS (INDIA) LTD.) B. THE MAXIMUM CONSTRUCTION COST IN ACCORDANCE WITH THE DEVELOPMENT AGREEMENT WHICH WAS TO BE BORNE BY EMAA R MFG WAS RS.2875/- PER SQ. FEET ONLY. IF THE SAME RATE I S APPLIED TO THE TOTAL PLINTH AREA OF 26,16,878.60 SQ. FEET AS M ENTIONED IN THE EVALUATION COMMITTEE RECOMMENDATIONS, THE TOTAL CONSTRUCTION COST WORKS OUT TO RS.752.35 CRS ONLY. THE EVALUATION COMMITTEE HAS HOWEVER CONSIDERED THE CON STRUCTION CONTRACT COST AT RS.1168.21 CRS AS WORKED OUT BY TH E FINANCIAL EXPERT K.N GOYAL & CO. THUS, THE CONSTRUCTION COST CONSIDERED WAS WRONGLY PADDED BY RS.415.86 CRS (I.E. RS.1158.2 1 CRS - 752.35 CRS). C. THE TOTAL PROJECT COST, THEREFORE, SHOULD HAVE B EEN RS.1224 CR INSTEAD OF RS 1639.86 CRS AS WORKED OUT BY THE H LC CONSULTANT. D. EMAAR MGF CONSTRUCTION PRIVATE LTD. HAS BORROWED FUNDS FROM SBI, OVERSEAS BRANCH JAVVAHAR VYAPAR BHAVAN, N EW DELHI. IN THE PROPOSAL SUBMITTED, THE TOTAL PROJECT COST HAS BEEN SHOWN AT RS.1264 CR, WHICH CORRESPONDS TO THE PROJECT COST COMPUTED BY HLC'S CONSULTANT AFTER CONSIDERING THE CONSTRUCTION COST OF RS.752.35 CR. IT IS PERTINENT TO NOTE THAT IN THE PROJECTIONS SUBMITTED TO THE BANK, NAMELY SBI, FOR AVAILING LOANS, THE PER SQUARE FEET COST OF CONSTRUCTION HAS BEEN RECKONED AT RS.2600/- PER SQUARE FEET, WHICH ALSO M ORE OR LESS MATCHES WITH; THE PER SQUARE FEET COST OF RS.2875/- MENTIONED IN AGREEMENT WITH AHLUWALIA CONTRACTS (I) LTD. E. IN ORDER TO FURTHER VALIDATE THE ABOVE DISCUSSED DATA PERTAINING TO ASCERTAINMENT OF ACTUAL CONSTRUCTION COST, POSITION REGARDING ACTUAL PAYMENTS MADE / BILLS PROVIDED BY EMAAR CONSTRUCTION (P) LTD. IN RESPECT OF AHLUWALIA CONTR ACTS (I) LTD., WERE VERIFIED BY HLC'S CONSULTANT FROM THE TDS RETU RNS FILED BY ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 18 EMAAR MGF CONSTRUCTION (P) LTD. SCRUTINY OF T.D.S R ETURNS FOR FY 07-08, 08-09 & 09-10 REVEALED THAT GROSS BILLS R AISED BY AHLUWALIA CONTRACTS (I) LTD. TO EMAAR CONSTRUCTION (P) LTD AMOUNTED TO ONLY APPROX. RS.600 CRORES. THEREFORE, LOOKED AT FROM THIS DIMENSION, EVEN THE BILLINGS MADE BY AHLU WALIA CONTRACTS (I) LTD AND IN TURN, PAYMENTS MADE BY EMA AR MGF CONSTRUCTION (P) LTD. ARE ONLY RS.600 CRORES, APPRO X., WHICH IS WAY BELOW THE PROJECTED CONSTRUCTION COST OF RS.116 8.21 CRORES RECKONED IN THE NOTE PUT UP TO THE EVALUATIO N COMMITTEE. 17. IN VIEW OF ABOVE, IT IS HELD THAT THE BUDGETED COST OF PROJECT RECKONED BY THE ASSESSEE AT RS.1597.43 CROR ES IS NOT CORRECT AND HAS IN FACT BEEN INFLATED BY APPROX. RS .400 CRORES. THE ESTIMATED COST OF CONSTRUCTION OF RS.1027.06 CR ORES IS INFLATED. THE REVENUE TO BE RECOGNIZED UNDER POCM I S THEREFORE RECOMPUTED BY ADOPTING THE COST OF CONSTRUCTION AT RS.752.35 CRORES AS DETERMINED BY HLC'S CONSULTANT. THE RE-CO MPUTATION IS BEING MADE AS UNDER: COMPUTATION OF RECOGNITION OF COST INSURED FOR MAR 09 PARTICULARS ESTIMATED COST MAR 09 COST INCURRED TILL - MAR 09 LAND COST 3,504,716,858 3,210,000,000 ARCHITECTURAL & CONSULTANCY 303,940,263 258,167,847 PROJECT INFRASTRUCTURE 50,860,645 35,948,339 SECURITY 20,720,167 8,138,374 CONSTRUCTION COST 7,523,500,000 4,864,894,906 FINANCE & INTEREST OF CWG 826,289,133 482,755,297 RS :V - ; ?,' ' SUBVENTION INTEREST 190,153,059 BANK GUARANTEE / LC CHARGES 58,535,414 23,497,769 INTEREST FROM EMGF 335,939,104 258,569,803 ADMIN & OVERHEAD 89,476,232 28,347,214 CONTINGENCIES 323,068,881 TOTAL 13,227,199,756 ' * : V5 9,170,320,049 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 19 POC (COST INCURRED/ESTIMATED COST) 9,170,320,049/13 ,227,199,756 = 69.3293% AGREEMENT EXECUTED RS. 737.91 CRORES REVENUE TO BE RECOGNIZED: 69.3293% OF RS. 737.91 CR ORES RS. 511.59.CRORES TOTAL AREA OF THE PROJECT 17,49,099 SQ. FEET AREA SOLD 5,58,715 SQ. FEET % AREA SOLD 5,58,715 SQ. FEET/17,49,099 SQ. FEET * 100 31.9400% ACTUAL COST INCURRED 9,170,320,049 COST TO BE RECOGNIZED IN P&L ACCOUNT 2,929,056, 938 (39.94% OF RS. 9,170,320,049/-) THE COMPARATIVE POSITION OF THE INCOME AND COST COM PUTED ABOVE VIS-A-VIS THE INCOME AND COST RECOGNIZED BY T HE ASSESSEE IN ITS P&L ACCOUNT IS TABULATED AS UNDER: PARTICULARS AS PER AUDITED ACCOUNTS FOR A.Y. 2009-10 AS COMPUTED IN THE ASSESSMENT ORDER DIFFERENCE TURNOVER/INCOME 423,61,84,544 (-) 105,90,46,136 317,71,38,408 511,59,00,000 393,87,61,592 COST OF SALES 292,47,76,002 (-) 42,80,936 292,90,56,938 292,47,76,002 NEGLIGIBLE 18. FROM ABOVE, IT CAN BE SEEN THAT REVENUE TO THE EXTENT OF RS.193,87,61,592/- HAS BEEN UNDER-DECLARED BY THE A SSESSEE. OUT OF THIS, RS.87,97,15,456/- PERTAINS TO UNDER-ST ATEMENT DUE TO VARIANCE IN BUDGETED COST OF THE CWGV PROJECT AN D RS.105,90,46,136/- IS DUE TO SHARING OF REVENUE WIT H THE HOLDING COMPANY EMAAR MGF LAND LTD. THE UNDERSTATEM ENT OF RS.87.97 CRORES IS BECAUSE THE ASSESSEE HAS COMPUTE D THE LEVEL OF COMPLETION OF THE PROJECT AT 57.4078 % WHE REAS THE SAME HAS BEEN COMPUTED AT 69.3293 % IN THE ASSESSME NT ORDER ON THE BASIS OF DETAILED REASONS GIVEN ABOVE. HENCE, THE DIFFERENCE OF RS.87,97,15,456/- ON ACCOUNT OF EXCES S BUDGETED COST DECLARED BY THE ASSESSEE IS HEREBY ADDED TO TH E INCOME OF ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 20 THE ASSESSEE. THE ALLOWABILITY OR OTHERWISE OF RS.105,90,46,136/- PASSED ON THE ASSESSEE COMPANY T O ITS HOLDING COMPANY NAMELY EMAAR MGF LAND LTD. BY REDUC ING IT FROM TURNOVER IS BEING SEPARATELY DISCUSSED IN SUBS EQUENT PART OF THIS ASSESSMENT ORDER. 23. DURING THE ARGUMENTS BEFORE US, THE LD. DR SUBM ITTED HER ARGUMENTS IN WRITING WHICH IS AS UNDER: CONSTRUCTION OF EXCESS FAR THE SITE SELECTED FOR THE CWG VILLAGE HAD AN APPROV ED FAR OF 1.67 INITIALLY, WHICH WAS INCREASED TO AN FAR OF 2.00 BY THE DELHI CITY MASTER PLAN 2021 WHICH CAME INTO FORCE EFFECTIVE FORM 07 TH FEBRUARY, 2007. HE PROJECT WAS, THUS, APPROVED WITH A BUILT-UP AREA OF 2,05,140 SQUARE METERS BY THE BUILDING SECTION OF DDA ON 18 TH MARCH, 2008. (PARA 4.26 OF THE REPORT). HOWEVER, AN ACTUAL FAR OF 2,30,689.33 SQUARE METERS WAS BUILT AS PER THE PLAN SUBMITTED BY EMAAR MGF FOR OBTAINING COMPL ETION CERTIFICATE FROM DDA. THE DEVELOPER, THEREFORE, CONSTRUCTED AN AREA OF 25,549.33 SQUARE METERS IN EXCESS OF THE APPROVED PLANS. THIS WAS ALMOST 12.5% MORE THAN THE APPROVED FAR. EXCESS COST OF PROJECT THE ASSESSEE COMPANY ADOPTED PERCENTAGE OF COMPLETI ON METHOD (POCM) OF ACCOUNTING FOR RECOGNITION OF REVENUE FRO M REAL ESTATE PROJECT BEING EXECUTED I.E. CWGV PROJECT. AS PER TH E POCM METHOD OF ACCOUNTING, THE REVENUE OF PROJECT IS RECOGNIZED BA SED UPON THE PERCENTAGE OF COMPLETION ACHIEVED AT THE END OF THE FINANCIAL YEAR. UNDER THE POCM METHOD, THE PROJECT REVENUE IS MATCH ED WITH PROJECT COST INCURRED IN REACHING STAGE OF COMPLETION, RESU LTING IN REPORTING OF ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 21 REVENUE, EXPENSES AND PROFIT WHICH CAN BE ATTRIBUTE D TO THE PROPORTION OF WORK COMPLETED. ACCOUNTING POLICY OF THE ASSESSE E COMPANY REGARDING THE METHOD AND PROCEDURE OF RECOGNIZING R EVENUE FROM VARIOUS PROJECTS UNDER CONSTRUCTION IS STATED IN SC HEDULE 19 FORMING PART OF THE AUDITED BALANCE SHEET AS ON 31.03.2009. THE POLICY FOR REVENUE RECOGNITION AS PER POINT NO. 2 (H) IS ON PA GE 16 OF DEPARTMENTAL PAPER BOOK. THE ASSESSEE COMPANY IS CLAIMING THE ESTIMATED COST OF PROJECT TO BE RS. 1597.43 CRORES. THIS ESTIMATE SEEMS TO BE ON TH E HIGHER SIDE, ESPECIALLY WITH RESPECT TO THE CONSTRUCTION COST OF RS. 1027.06 CRORES. THE ASSESSEE DID NOT FURNISH CORRECT, BREAK UP OF T HIS COST IN SPITE OF SPECIFIC REQUISITIONING OF THE SAME. IN ORDER TO VE RIFY THE GENUINENESS AND BONAFIDES OF THE BUDGETED CONSTRUCTION COST REL IANCE WAS PLACED BY AO ON THE DETAILS COLLECTED BOTH FROM THE ASSESSEE AS WELL AS FROM OTHER SOURCES INCLUDING THE SHUNGLU COMMITTEE REPOR T (HLC) DATED 4 TH MARCH, 2011. SHUNGLU COMMITTEE WAS EXAMINING THE ISSUE OF PURCHA SE OF 333 FLATS BY DDA FROM THE ASSESSEE COMPANY. THE SHUNGLU COMMI TTEE WAS EXAMINING THE BONAFIDES OF THE TRANSACTION AS WELL AS DETERMINING WHETHER THE PURCHASE PRICE OF RS. 11,000/- PER SQUA RE FEET WAS JUSTIFIED OR NOT. THE SUNGLU COMMITTEE EXAMINED BOT H THESE ISSUES ON THE BASIS OF DOCUMENTS AVAILABLE ON RECORD SUCH AS THE CONSULTANTS ENGAGED BY DDA FOR EVALUATING THE CORRECT MARKET PR ICE OF THE FLATS BEING PURCHASED. THE SHUNGLU COMMITTEE THEREAFTER C OMPARED THESE REPORTS AGAINST INDEPENDENT EVALUATION BY CONSULTAN TS ENGAGED BY THE SHUNGLU COMMITTEE AND FOUND THAT THE PRICE OF RS. 1 1,000/- PER SQUARE FEET PAID BY DDA FOR PURCHASE OF 333 FLATS WAS HIGH LY EXAGGERATED. IT IS IN THIS CONTEXT THAT THE FINDINGS ARRIVED AT BY THE SHUNGLU COMMITTEE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 22 DETERMINING THE COST OF CONSTRUCTION OF THE CWGV PR OJECT BECOME RELEVANT AND IMPORTANT FOR THE PURPOSE OF PRESENT A SSESSMENT PROCEEDING. THE RELEVANT PART OF THE SHUNGLU COMMIT TEE REPORT, PARTICULARLY OF THE CONSULTANT APPOINTED BY THE COM MITTEE IS ANNEXED TO THE ORDER AS ANNEXURE A. PROJECT COST CALCULATION THE ENTIRE WORK OF THE PROJECT WAS GIVEN BY THE ASS ESSEE TO M/S. AHLUWALIA CONSTRUCTION (INDIA) LTD. (HENCE FORTH RE FERRED TO AS ACIL). IN FACT, IT IS SEEN THAT THE SAID WORKS CONTRACT WA S EXECUTED BETWEEN EMAAR MGF CONSTRUCTION PVT. LTD. AND AHLUWALIA CONT RACTS (INDIA) LTD. THE ASSESSEE HAS APPLIED FOR LOAN TO STATE BANK OF INDIA AND THE PROPOSAL SUBMITTED HAS BEEN EXAMINED. THE TDS RETUR NS OF THE ASSESSEE FOR THE RELEVANT PERIOD AND THE PROJECT RE PORT SUBMITTED BY THE DEVELOPER TO SBI WHILE SEEKING LOANS WERE ALSO EXAMINED. MARSHALLING OF FACTS: THE ENTIRE CONSTRUCTION AND DEVELOPMENT WORK OF RES IDENTIAL FACILITY AND RESIDENTIAL APARTMENTS WAS AWARDED TO AHLUWALIA CONTRACTS (I) LTD. BY EMAAR MGF CONSTRUCTION PRIVATE LTD. VIDE PROJECT DEVELOPMENT AGREEMENT DATED 10 TH JULY 2008, ON COST PRICE BASIS WITH A TARGET PRICE CAP OF RS. 2875/- PER SQ. FT. ON ACTUAL ACHIEVEMENT OF FAR. IT WAS SPECIFICALLY AGREED UPON VIDE CLAUSE 6 OF THE CONTR ACT THAT IN NO CASE THE PRICE OF RS. 2875/- SHALL EXCEED AT THE COMPLET ION OF THE PROJECT FOR ENTIRE SCOPE OF WORK. THE CONTRACT PRICE INCLUDED P AYMENT FOR SUPPLY OF ALL LABOUR, EQUIPMENT, MATERIALS, PLANT & MACHINERY , TOOLS, TRANSPORTATIONS, FRAMEWORK, SCAFFOLDING, CONSTRUCTI ON OF CIVIL WORKS AND ALL APPLICABLE TAXES INCLUDING WCT, DUTIES, OCTROI, LEVIES, ROYALTIES, FEES, ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 23 INSURANCE PREMIUMS, CONTRIBUTIONS TOWARDS EMPLOYEES BENEFIT, DISTRIBUTION OF POWER AND WATER AND ALL SERVICES AN D ACTIVITIES CONSTITUTING THE SCOPE OF WORK BUT EXCLUDING SERVIC ES TAX AND LABOUR CESS. THE CONTRACT PRICE ALSO INCLUDED THE CONTRACT OR'S ESTABLISHMENT, INFRASTRUCTURE, OVERHEADS AND ALL OTHER CHARGES GEN ERALLY NECESSARY FOR THE PROPER EXECUTION AND COMPLETION OF THE WORK. (R EFERENCE PAGE 588 DEPARTMENTAL PAPER BOOK) PRICE ESCALATION/VARIATION WAS NOT ALLOWED. FURTHER , A JOINT READING OF CLAUSE 6 (F) & (J) MAKES IT ABUNDANTLY CLEAR THAT I F CERTAIN MATERIAL VIZ. REINFORCED STEEL STRUCTURE, ELEVATORS, DG SETS, FLO ORING, BATHROOM FITTINGS ARE SUPPLIED BY EMAAR MGF CONSTRUCTION PVT . LTD. TO THE CONTRACTOR THE PER SQ. FT. PRICE DECIDED AMONGST TH E PARTIES SHALL GET PROPORTIONATELY REDUCED. IN OTHER WORDS THE COST TO EMAAR MGF CONSTRUCTION PVT. LTD. COULD NOT HAVE EXCEED RS.287 5/- PER SQ. FT. UNDER ANY CIRCUMSTANCE AS PER THE AGREEMENT REFERRE D TO ABOVE). (REF PG 589/ DEPT PAPER BOOK) THE MAXIMUM CONSTRUCTION COST IN ACCORDANCE WITH TH E DEVELOPMENT AGREEMENT WHICH WAS TO BE BORNE BY EMAAR MGF WAS RS . 2875/- PER SQ. FEET ONLY. IF THE SAME RATE IS APPLIED TO THE T OTAL PLINTH AREA OF 26,16,878.60 SQ. FEET AS MENTIONED IN THE EVALUATIO N COMMITTEE RECOMMENDATIONS, THE TOTAL CONSTRUCTION -COST WORKS OUT TO RS. 752.35 CR ONLY. THE EVALUATION COMMITTEE HAS HOWEVER CONSI DERED THE CONSTRUCTION CONTRACT COST AT RS. 1168.21 CR AS WOR KED OUT BY THE FINANCIAL EXPERT K.N. GOYAL & CO. THUS, THE CONSTRU CTION COST CONSIDERED WAS WRONGLY PADDED BY RS 415.86 CR (I.E. RS. 1168.2 1 CR-752.35 CR) EMAAR MGF CONSTRUCTION PVT. LTD BORROWED FUNDS FROM SBI, OVERSEAS BRANCH, JAWAHAR VYAPAR BHAVAN, NEW DELHI. IN THE PR OPOSAL SUBMITTED, ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 24 THE TOTAL PROJECT COST HAS BEEN SHOWN AT RS 1264 CR , WHICH CORRESPONDS TO THE PROJECT COST COMPUTED BY HLC'S CONSULTANT AF TER CONSIDERING THE CONSTRUCTION COST OF RS 752.35 CR. IT IS PERTINENT TO NOTE THAT IN THE PROJECTIONS SUBMITTED TO THE BANK, NAMELY SBI, FOR AVAILING LOANS, THE PER SQUARE FEET COST OF CONSTRUCTION HAS BEEN RECKO NED AT RS 2600/- PER SQUARE FEET, WHICH ALSO MORE OR LESS MATCHES WI TH THE PER SQUARE FEET COST OF RS 2875/- MENTIONED IN AGREEMENT WITH AHLUWALIA CONTRACTS (I) LTD. IN ORDER TO FURTHER VALIDATE THE ABOVE DISCUSSED DA TE PERTAINING TO ASCERTAINMENT OF ACTUAL CONSTRUCTION COST, POSITION REGARDING ACTUAL PAYMENTS MADE/ BILLS PROVIDED FOR BY EMAAR CONSTRUC TIONS (P) LTD IN RESPECT OF AHLUWALIA CONTRACTS (I) LTD, WERE VERIFI ED BY HLC'S CONSULTANT FROM THE TDS RETURNS FILED BY EMAAR MGF CONSTRUCTION (P) LTD. SCRUTINY OF T.D.S RETURNS OF FY07-08,08-09 & 0 9-10 REVEALED THAT GROSS BILLS RAISED BY AHLUWALIA CONTRACTS (I) LTD T O EMAAR CONTRUCTIONS(P) LTD AMOUNTED TO ONLY APPROX. RS 600 CRORES WHICH IS WAY BELOW THE PROJECTED CONSTRUCTION COST OF RS.116 8.21 CRORES RECKONED IN THE NOTE PUT UP TO THE EVALUATION COMMI TTEE. 24. REBUTTING THE ABOVE ARGUMENTS, THE LD. AR SUBMI TTED THAT THERE HAVE BEEN MORE ENLARGEMENT IN THE SCOPE AND SPECIFI CATION IN COST AS PER THE ESTIMATE AND AS PER THE EXECUTION WHICH IS AS U NDER: S.NO. DESCRIPTION OF ITEM PDA / RFP AS PER EXECUTION 1. TOILETS - FLOORING & CLADDING IMPORTED CERAMIC TILES / VITRIFIED TILES IMPORTED MARBLE / IMPORTED SANDWICH TILES 2. COMMON TOILETS NO. OF TOILET IN AN APARTMENT SHALL BE TOTAL NO. OF BED ROOM IN THAT APARTMENT MINUS 1 ALL BED ROOMS ARE HAVING INDEPENDENT ATTACHED TOILETS. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 25 3. SERVANT TOILETS NOTHING MENTIONED ABOUT THIS TOILET UNDER ACCOMMODATION REQUIREMENT ALL UNITS ARE PROVIDED WITH SERVANT ROOM TOILET 4. POWDER ROOM NO. OF TOILET IN AN APARTMENT SHALL BE TOTAL NO. OF HEEL ROOM IN THAT APARTMENT MINUS 1. HENCE, NO PROVISION FOR POWDER ROOM. ALL 5 BED ROOM & 4 BED ROOM UNITS ARE PROVIDED WITH POWDER ROOM 5. MASTER BED ROOM WASH BASIN, LAVATORY, SHOWER, MIRRORS, GEYSERS GLASS SHOWERS IN ONE OF THE BATHROOMS OF EACH UNIT IN ALL MASTER BED ROOM 2 WASH BASINS ARE PROVIDED. 6. FALSE CEILING & BULK HEADS NOT CONSIDERED IN SPECIFICATION AND REQUIREMENTS. PROVIDED WHEREVER THE VRV PIPINGS ARE EXPOSED AND IN LOWER GROUND UNITS. 7. PAINTING IN SERVANT ROOM AND UTILITY ROOM OIL BOUND DISTEMPER INSTEAD ON OIL BOUND PLASTIC EMULSION IS PROVIDED. 8. TERRACE TREATMENT BRICK COBA WITH PRECAST TERRAZZO TILE FINISH IN ADDITION TO BRICK COBA THERMAL INSULATION IS PROVIDED. 9. ACP & FINS NOT IN RFP ALUMINIUM COMPOSITE PANEL IS PROVIDED IN ELEVATIONAL AREAS OF TOWER 10. ALUMINIUM CURTAIL WALL IN TOP FLOORS OF TOWERS ONLY AL. WINDOWS PROVIDED IN ALL TOWERS AT TOP FLOORS 11. MASONRY BRICK MASONRY AS PER RFP AUTOCLAVED AERATED CONCRETE BLOCKS AND FLY ASH BRICKS ARE BEING USED. 12. SKY LIGHTS POLY CARBONATE SHEET LAMINATED GLASS 13. MODULAR KITCHENS NOT MENTIONED PROVIDED IN ALL KITCHENS 14. LIFTS 2 IN EACH TOWER ADDL. PROVIDED 15. BASEMENT VENTILATION SYSTEM NOT CONSIDERED SYSTEM IS PROVIDED FOR HUGE BASEMENT ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 26 16. BASEMENT VENTILATION TUNNEL NOT CONSIDERED ADDL. PROVIDED 17. OTHER MEP ITEMS FOR ADDL. BASEMENT AREA 781466 SFT SYSTEM IS PROVIDED FOR HUGE BASEMENT OF 1543177 SFT. 18. SOIL THERE WAS NO PROVISION OR DISCLOSURE ON THE FACT THAT THE SOIL WAS SOFT PILING WAS DONE TO MAKE THE SOIL HARDER, WHICH RESULTED IN INCREASE OF SCOPE OF WORK. 19. BASEMENT THERE WAS NO PROVISION FOR BUILDING OF THE BASEMENT. BASEMENT WAS BUILD. 25. IT WAS ARGUED THAT DUE TO THE VARIOUS CHANGES, THE ESTIMATE HAS BEEN INCREASED. FURTHER, IN ABSOLUTE FINANCIAL TERM IT WAS ARGUED THAT THE ESTIMATED COST IN THE COST INCURRED IS AS UNDER: PARTICULARS ESTIMATED COST COST INCURRED PTD DEC-11 LAND COST 3,583,745,556 3,583,745,556 ARCHITECTURAL & CONSULTANCY 298,596,389 276,070,980 CONSTRUCTION COST 10,810,213,351 10,050,914,160 PROJECT INFRASTRUCTURE 47,468,970 48,016,217 SECURITY 16,819,027 16,955,075 ADMIN & OVERHEAD 94,218,062 56,932,803 PERSONNEL COST 85,929,433 85,929,433 FINANCE & INTEREST OF CWG 786,890,632 786,890,633 BANK GUARANTEE/LC CHARGES 52,660,563 52,660,563 SUBVENTION INTEREST 89,074,464 89,074,463 INTEREST FROM EMGF 273,981,085 273,981,087 TOTAL 16,139,597,533 15,321,170,971 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 27 26. IT WAS ARGUED THAT THE ACCOUNTS HAVE BEEN MAINT AINED AS PER THE ACCOUNTING STANDARDS AND NO DEFECT IN RELATION TO S ECTION 145(2) OR SECTION 145(3) HAS BEEN FOUND OUT BY THE REVENUE AU THORITIES. 27. IT IS FURTHER SUBMITTED THAT THE BUDGETARY EXPE NDITURE ON THE PROJECT IS RS. 1597.43 CRORES AS ON 31ST MARCH 2009 AND ACT UAL EXPENDITURE UPTO THIS DATE IS RS. 917.03 CRORES. THIS WILL YIELD A R ATIO FOR POCM AT 57.40% (RS. 917.03 / 1597.43 X 100 = 57.40%). IN THIS BUDG ETARY ESTIMATE OF EXPENDITURE CONSTRUCTION COST HAS BEEN TAKEN AT RS. 1027.06 CRORES. THUS, OTHER BUDGETARY COST OF THE PROJECT COMES OUT TO BE RS. 570.37 CRORES (RS. 1597.43 - RS. 1027.06). HOWEVER, BY ADOPTING COST O F CONSTRUCTION AT RS. 2875 PER SQUARE FEET, TOTAL COST OF CONSTRUCTION HA S BEEN WORKED OUT BY AO AT RS. 752.34 CRORES. THE SAME AMOUNT HAS BEEN T AKEN AS BUDGETARY ESTIMATE BY HIM AND INCLUDED IN THE OTHER COST TO W ORK OUT TOTAL BUDGETARY COST AT RS. 1322.71 CRORES (RS. 752.34 + RS. 570.37 ), THIS FIGURE HAS BEEN USED BY AO AS DENOMINATOR TO DETERMINE RATIO OF POC M AT 69.32% (RS. 917.03 / 1322.71 X 100 = 69.32%). IT HAS LEAD TO A HIGH RATIO OF ALLOCABLE REVENUE WHICH IS INCORRECT AS PER ACCOUNTING PRINCI PLES BECAUSE ONE HAS ONLY TO ADOPT BUDGETARY ESTIMATE OF TOTAL EXPENDITU RE AND NOT PART OF THE BUDGETARY EXPENDITURE. 28. IT WAS FURTHER ARGUED THAT THE ASSESSING OFFICE R HAS NOT DISTURBED OTHER COST IN THE BUDGETARY ESTIMATE OR COST ACTUAL LY INCURRED IN OTHER AREAS OTHER THAN COST OF CONSTRUCTION. HE HAS ONLY REPLACED RS. 1027.06 CRORES BEING COST OF CONSTRUCTION ESTIMATED BY THE ASSESSEE BY RS. 752.35 CRORES WHICH IS BASED ON COST OF CONSTRUCTION OF RS . 2875 PER SQUARE FEET. THIS RATE IGNORES SEVERAL OTHER PAYMENTS WHICH THE ASSESSEE HAD TO MAKE FOR PURCHASE OF STEEL AND CEMENT PROVIDED TO ACIL O R USED DIRECTLY TO COMPLETE THE PROJECT WHEN ACIL HAS ABANDONED IT. HE ARGUED THAT THE COST OF STEEL AND CEMENT HAS RISEN MUCH BY THE TIME, THE CONSTRUCTION STARTED ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 28 COMPARE TO THE TIME OF PREPARATION OF ESTIMATES. IN FACT, UPTO 31ST MARCH 2009, THE ACTUAL EXPENDITURE OF RS. 486.48 CRORES I NCURRED ON COST OF CONSTRUCTION INCLUDES PAYMENT TO ACIL OF RS. 308.84 CRORES AND PAYMENT TO OTHERS OF RS. 177.66 CRORES. HE ARGUED THAT A NU MBER OF PAYMENTS WERE MADE TO OTHER PARTIES TOO IN ADDITION TO PAYME NT MADE TO ACIL. IT IS, THEREFORE, INCORRECT TO CONFINE TO THE BUDGETARY ES TIMATE ONLY ON THE BASIS OF MONEY PAID / PAYABLE TO ACIL. IT WAS ALSO SUBMIT TED THAT ACTUAL EXPENDITURE INCLUDING ON COST OF CONSTRUCTION UPTO 31.12.2011 WAS RS. 1532.12 CRORES WHICH IS ALMOST MATCHING WITH THE BU DGETARY ESTIMATE OF RS. 1597.43 CRORES. THEREFORE, HE ARGUED THAT BUDGE TARY ESTIMATE SHOULD NOT BE DISTURBED. HE ARGUED THAT THE ADDITION WAS S OLELY BASED ON THE REPORT OF SHUNGLU COMMITTEE WITHOUT BRINGING ANY IO TA OF DIFFERENCES FACTUALLY. 29. THE OTHER REASONS CANVASSED BY THE LD. DR REGAR DING THE INCREASE IN COST IS AS UNDER: SUBSTANTIAL WASTAGES AT SITE, ESPECIALLY COSTLY ITE MS LIKE, MARBLE, STEEL ETC., WHICH LED TO INCREASE IN INCURRENCE OF ADDITIONAL COSTS ON ACCOUNT OF OWNERS MATERIAL SUPPLIED BY THE APPELLAN T; SUBSTANTIAL/ABNORMAL INCREASE IN PRICE OF STEEL AS ENVISAGED IN THE RFP VIS-A-VIS ACTUAL, COST INCURRED BY THE APPELLAN T, WHICH WAS TOTALLY UNANTICIPATED; ACIL DID NOT COMPLETE THE PROJECT IN ENTIRETY STOPP ED WORK IN DECEMBER 2009 AND WAS FORCED TO LEAVE BY DDA ON 28- AUG-2010. ACCORDINGLY, THE APPELLANT HAD TO INCUR ADDITIONAL EXPENDITURE OVER AND ABOVE THE PAYMENTS ALREADY MADE TO ACIL, AFTER EXIT OF ACIL. ACIL HAS, IN FACT, INVOKED ARBITRATION PROCEEDINGS AND HAS RAISED CLAIMS AGAINST THE APPELLANT FOR REIMBURSEMENT OF A DDITIONAL AMOUNT FOR ALLEGED WORK CARRIED OUT IN THE PROJECT, WHICH HAS NOT BEEN ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 29 ACCEPTED BY THE APPELLANT. THE APPELLANT, ON THE OT HER HAND, HAS RAISED THE COUNTER CLAIM ON ACIL FOR REFUND OF THE ADDITIONAL; PAYMENTS MADE TO ACIL ON ACCOUNT OF, INTER ALIA, SH ORT ADJUSTMENT OF OWNERS MATERIAL SUPPLIED BY THE APPELLANT TO ACI L AND LIQUIDATED DAMAGES ON ACCOUNT OF DEFECTIVE / DEFICIENT WORK CA RRIED OUT BY ACIL ALONG WITH INTEREST THEREON, FOR WHICH THE APPELLAN T HAD TO INCUR EXTRA COST TO REMEDY THE DEFECTIVE WORK DONE BY AGI L AND TO POMP LEFTY THE PENDING/UNFINISHED WORK, SO AS TO HAND OV ER THE PROJECT IN TIME. IT IS A MATTER OF RECORD THAT THE APPELLANT HAD INC URRED THE AFORESAID ADDITIONAL COSTS, WHICH RESULTED IN INCREASE IN THE OVERALL COST OF THE PROJECT, WHICH WAS DULY CONSIDERED BY THE FINANCIAL CONSULTANT APPOINTED BY THE DDA BEFORE PURCHASING ADDITIONAL F LATS FROM THE APPELLANT AT RS.11,000 PER SQ. FT., WHILE BAILING O UT THE APPELLANT FROM FINANCIAL DISTRESS AND PROVIDING FUNDS TO THE APPELLANT, IN ORDER TO COMPLETE THE PROJECT WITHIN THE STIPULATED TIME LIMITS. THE SAID FACT WAS ALSO ACCEPTED BY THE LABOUR COMMISSIONER I N THE ASSESSMENT ORDER PASSED, WHILE LEVYING LABOUR CESS ON THE TOTAL CONSTRUCTION COST INCURRED BY THE APPELLANT. THE TOTAL ESTIMATION OF THE BUDGETED COSTS MADE BY THE APPELLANT IN THE RELEVANT PREVIOUS YEAR ALSO MATCHES THE TOTAL A CTUAL COST INCURRED ON THE PROJECT UPON COMPLETION. IN THAT VIEW OF THE MATTER, CONSIDERING THAT ADDITI ONAL EXPENSES WERE ACTUALLY INCURRED BY THE APPELLANT DUE TO AFOR ESAID CUMULATIVE REASONS, WHICH EXCEEDED THE ORIGINAL TARGET PRICE O F RS.2875 PER SQ. FT. AGREED WITH ACIL, THE SAME WERE REQUIRED TO BE RECOGNIZED AND INCLUDED IN THE TOTAL ESTIMATED/BUDGETED COSTS OF T HE PROJECT, FOR THE PURPOSE OF RECOGNIZING REVENUES AND EXPENSES AS PER POCM. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 30 30. FURTHER, THE LD. AR BROUGHT OUR ATTENTION TO TH E BREAK-UP OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF PAYM ENT TO ACIL. S. NO. PARTICULARS UPTO 31 ST MARCH, 2009 UPTO 31 ST MARCH 2010 1. COST INCURRED TOWARDS PAYMENT TO ACIL RS. 313.25 CR RS. 605.68 CR 2 . COST INCURRED TOWARDS PAYMENT TO OTHER SUB-CONTRACTORS ON ACCOUNT OF SUPPLY OF 'OWNERS MATERIAL. RS.1 68.52 CR RS. 332.63 CR 31. IT WAS ARGUED THAT THE ASSESSEE SUPPLIED OWNER S MATERIAL AND MADE PAYMENTS TO SUB-CONTRACTORS APPOINTED BY THE A SSESSEE, DUE TO LIABILITY OF ACIL TO COMPLETE THE WORK IN TIME TO T HE TUNE OF RS. 168.52 CRORES UPTO 31.03.2009 AND OF RS.332.63 CRORES UPTO 31.3.2010. 32. ALTHOUGH, ACIL WAS TO REDUCE THE COST OF OWNER S MATERIAL SUPPLIED BY THE ASSESSEE FROM THE TOTAL COST OF THE WORK CA RRIED OUT BY THE FORMER IN THE BILLS RAISED, ACIL DID NOT GIVE FULL CREDIT OF THE AFORESAID TOTAL ACTUAL COSTS INCURRED BY THE ASSESSEE ON ACCOUNT OF SUPPL Y OF OWNERS MATERIAL. IT MAY BE POINTED OUT THAT THE ASSESSEE HAD INCURRE D ACTUAL ADDITIONAL EXPENDITURE OF RS. 332.63 CRORES UPTO 31.3.2010 ON ACCOUNT OF SUPPLY OF OWNERS MATERIAL, WHEREAS ACIL GAVE TOTAL CREDIT OF RS. 177.23 CRORES ONLY, IN ITS BILLS WITH RESPECT TO THE ABOVE. THUS, HE AR GUED THAT THERE WERE DISPUTE WITH ACIL. 33. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 34. PRIMARILY, WE FIND THAT THE ADDITION HAS BEEN M ADE SOLELY BASED ON THE SHUNGLU COMMITTEE REPORT. THE OBJECT OF THE SHU NGLU COMMITTEE WAS TO DETERMINE, IF THE PURCHASE OF 333 ADDITIONAL FLA TS BY DDA WAS ACCORDING TO THE NORMS / RULES AND HAD NOT CAUSED ANY LOSS TO THE EXCHEQUER. ITS ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 31 OBJECT WAS NOT TO DETERMINE THE COST OR EXPENDITURE TO THE ASSESSEE, INDEED, THE ASSESSEE WAS NEVER CALLED TO THE PROCEE DINGS OF THE SHUNGLU COMMITTEE, NOR WAS ANY INPUT / CLARIFICATION TAKEN FROM THE ASSESSEE. IT CAN ALSO BE FIND THAT ANOTHER GOVERNMENT AGENCY, TH E LABOUR COMMISSIONER, HAS ACCEPTED THE COST OF THE ASSESSEE FOR THE PURPOSE OF LEVY OF LABOUR CESS ON THE CGV PROJECT. WHAT IS PRI MARILY REQUIRED IS TO PROVE THE INFLATION IN THE COST OF CONSTRUCTION IS TO DETERMINE, INVESTIGATE AND PROVE WHETHER ANY EXPENDITURE CLAIMED IN THE P& L ACCOUNT OR SAID TO BE INCURRED FOR CONSTRUCTION ARE BOGUS OR INFLATED. THIS INFLATION COULD BE EITHER ON PAYMENT OF SUB-CONTRACTORS OR COST OF MAT ERIALS. THE ISSUE OF THE PURCHASE OF MATERIALS IS ALSO DEALT IN THIS ORDER W HILE DEALING WITH THE GROUND TAKEN UP BY THE ASSESSEE RELATING TO PURCHAS E OF MATERIAL. THERE IS NO DISPUTE ABOUT THE DIFFERENCE BETWEEN THE ESTIMAT ED SPECIFICATIONS AND EXECUTED SPECIFICATIONS. HENCE, INCURRING OF ADDITI ONAL EXPENDITURE OVER AND ABOVE THE CONTRACT GIVEN TO THE ACIL CAN BE ACC EPTED. FURTHER, AFTER THE DEPARTURE OF ACIL FROM THE EXECUTION OF THE WOR K, THE SAME HAS BEEN COMPLETED BY RESORTING TO THE COMPLETION BY OTHER A GENCIES. THE INCREASE IN THE COST OF CEMENT AND STEEL CANNOT BE RULED OUT . THE ASSESSING OFFICER ULTIMATELY HELD AND CALCULATED THE DIFFERENCE IN PO CM BASED ON THE BUDGETED COST AND THE PAYMENTS MADE TO EMLL. NOWHER E, THE METHOD OF ACCOUNTING STANDARD FOLLOWED BY THE ASSESSEE HAS BE EN DISPUTED, IN FACT, NO GROUNDS COULD BE BROUGHT OUT BY THE ASSESSING OF FICER TO ALTER THE PERCENTAGE SHOWN BY THE ASSESSEE EXCEPT THE DOCUMEN T OF ESTIMATED COST. THE ASSESSING OFFICER HELD THAT THE ESTIMATED COST OF THE PROJECT COMPUTED BY THE ASSESSEE AT RS.1597.43 CRORES WAS HIGHER BY APPROXIMATELY RS.270 CRORES ON ACCOUNT OF COST OF CONSTRUCTION COMPUTED AT RS.1027 CRORES. THE AOS CONCLUSION THAT THE TOTAL CONSTRUCTION COST CA NNOT EXCEED RS.752.35 CRORES AND HENCE TOTAL ESTIMATED PROJECT COST WORKE D OUT TO RS.1322.71 CRORES AGAINST RS.1597.43 CRORES ESTIMATED BY THE A SSESSEE CANNOT BE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 32 ACCEPTED. THIS REDUCTION IN ESTIMATED EXPENDITURE C ONSEQUENTLY RESULTED IN WORKING OF POCM AT 69.32% INSTEAD OF 57.40%. THIS R ESULTED IN THE ABSOLUTE FIGURE OF RS.87.97 CRORES RISE IN THE ESTI MATED INCOME OF THE ASSESSEE WHICH IS NOT WITHOUT ANY TANGIBLE BASIS AN D HENCE CANNOT BE ACCEPTED. THE AOS CONTENTION THAT THE NEGLIGIBLE P ROFIT DECLARED BY THE ASSESSEE WARRANTS THE ALTERATION IN POCM IS ALSO CA NNOT BE ACCEPTED. WE ALSO RELY ON THE JUDGMENT OF CIT VS VIKRAM PLASTICS 239 ITR 161 (GUJ.) WHEREIN IT HAS BEEN HELD THAT, WHERE NO DISCREPANCI ES OR DEFECTS POINTED OUT IN THE BOOKS OF ACCOUNT AND FURTHER THAT THEY W ERE REGULARLY MAINTAINED AND ALSO ON THE FINDING THAT THERE WAS N O MATERIAL BROUGHT ON RECORD TO ESTABLISH THAT PURCHASES OR EXPENSES WERE INFLATED OR SALES SUPPRESSED. THE PROFITS DECLARED BY THE ASSESSEE CA NNOT BE ALTERED. SIMILARLY, THE HONBLE DELHI COURT IN THE CASE OF W INNER CONSTRUCTIONS PVT. LTD. IN ITA 796/2011 HELD THAT LOW GROSS PROFIT OR NET PROFIT MAY BE A GROUND ARE REASON TO CONDUCT DETAILED AND THOROUGH INVESTIGATION AND VERIFICATION BUT ON THAT STAND ALONE THE PROFITS CA NNOT BE REJECTED. SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE CANNOT BE REJ ECTED ON THE GROUNDS THAT GROSS PROFIT DISCLOSED BY THE ASSESSEE WAS LOW . IT IS ALSO A FACT AND AS SUBMITTED BY THE REVENUE THAT THE ASSESSEE HAD CONS TRUCTED 230,689.33 SQ. MT. AGAINST THE APPROVED BUILT UP AREA OF 205,1 40 SQ. MT. IN THAT CASE, IT IS A NATURAL COROLLARY THAT THE COST INCURRED FO R CONSTRUCTION OF THE PLOTS WOULD BE MORE THAN THE ESTIMATED COST. THE FACT THA T THE DDA PURCHASED THE FLATS FOR RS.11,000 PER SQ. FT. AND SOLD IN AUC TION @ RS.24,000 PER SQ. FT. HAS BEEN IGNORED BY THE ASSESSING OFFICER AND T OOK A FIXED STANCE THAT THE COST OF CONSTRUCTION CANNOT BE MORE THAN RSS287 5 PER SQ. FT. THE FACTOR SUCH AS INCREASE IN THE INPUT COST, EXIT OF THE MAIN CONTRACTOR, CHANGE IN THE SPECIFICATION ARE NOT CONSIDERED BY T HE ASSESSING OFFICER. IN THE INSTANT CASE, THERE HAS BEEN NO EVIDENCE OF INF LATION OF PURCHASES, THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACC OUNT, THE ACCOUNTS HAVE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 33 BEEN ACCEPTED BUT ALTERED THE PROFITS BASED ON THE ESTIMATED PROJECT COST. THIS CANNOT BE SAID TO BE LEGALLY TENABLE. THE RE-C OMPUTATION AND THE CONSEQUENT ADDITION MADE BY THE ASSESSING OFFICER I S HEREBY DIRECTED TO BE DELETED. 35. REGARDING THE ADDITION OF RS. 105.90 CRORES TAK EN UP AT GROUND NO. 3 OF THE REVENUES APPEAL AND GROUND 2.1 & 2.2 OF T HE ASSESSEES APPEAL: THE FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT ASSESSEE COMPANY (HEREIN AFTER REFERRED TO AS EMCPL) HAD TO ENTER INTO A COL LABORATION AGREEMENT WITH ITS HOLDING COMPANY VIZ., M/S EMAAR MGF LAND L IMITED (HEREIN AFTER REFERRED TO AS EMLL) DATED 07.04.2008 FOR PROVIDI NG TECHNICAL AND FINANCIAL SUPPORT TO CARRY OUT THE PROJECT OF CONST RUCTION OF FLATS AT COMMON WEALTH GAMES VILLAGE (HEREIN AFTER REFERRED TO AS CWG VILLAGE) AS PER TERMS AND SPECIFICATIONS LAID DOWN BY DDA. T HERE WAS A CONSORTIUM OF FOUR COMPANIES WHICH BID IN THE AUCTION TO WIN T HE PROJECT. THE ASSESSEE HAS THEN FLOATED AS A SPECIAL PURPOSE VEHI CLE FOR COMPLETING THIS PROJECT. FOR PROVIDING FINANCIAL SECURITY TO THE AS SESSEE AND GUARANTEES TO THE FINANCIAL INSTITUTIONS AND DDA THE HOLDING COMP ANY SECURED 25% REVENUE FROM THE SALE PROCEEDS OF THE FLATS. THE CO LLABORATION AGREEMENT WAS ACCORDINGLY DRAFTED AND EXECUTED. THE SHARE OF REVENUE TO THE HOLDING COMPANY WAS DECLARED IN ITS RETURN OF INCOME AND AS SESSED BY THE DEPARTMENT ACCORDINGLY. 36. THE ASSESSING OFFICER HAS TAXED THAT 25% SHARE OF THE HOLDING COMPANY IN THE HANDS OF THE ASSESSEE BY DISREGARDIN G THE COLLABORATION AGREEMENT. THE FACTS AS SUBMITTED BEFORE THE ASSESS ING OFFICER ARE AS UNDER: I. THE ASSESSEE IS A COMPANY ESTABLISHED UNDER TH E LAWS OF INDIA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTION, C ONSTRUCTION, ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 34 DEVELOPMENT AND SALE OF INTEGRATED TOWNSHIP, RESIDE NTIAL AND COMMERCIAL MULTI-STOREY BUILDING, FLATS, SHOPPING MALLS, IT PA RK, HOTELS AND APARTMENTS. II. THE ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2009-10 ON SEPTEMBER 30, 2011 DECLARING A TOTAL INCOME OF RS.7 5,239,325. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY UNDER SE CTION 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2009-10, THE ASSESSEE FURNISHED DOCUMENTS/ INFORMATION/ CLARIFIC ATIONS REQUESTED BY THE AO. SUBSEQUENTLY, THE AO COMPLETED THE ASSESSME NT AND ISSUED AN ORDER UNDER SECTION 143(3) OF THE ACT WHEREIN HE HA S MADE THE IMPUGNED ADDITIONS TO ASSESSEES TOTAL RETURNED INCOME. III. THE MINISTRY OF SPORTS AND YOUTH AFFAIRS AWARD ED THE PRESTIGIOUS CONTRACT OF CONSTRUCTION OF COMMONWEALTH GAMES VILL AGE TO DELHI DEVELOPMENT AUTHORITY. THE PROJECT WAS LOCATED WITH IN THE REVENUE LIMITS OF VILLAGE CHIRAG JANUBI, NEAR AKSHARDHAM TEMPLE AT NOIDA CROSSING ON LAND MEASURING ABOUT 11 HECTRES. IV. THE CONTRACT WAS A PROJECT OF GREAT NATIONAL IM PORTANCE AND CONSEQUENTLY DDA DECIDED TO DEVELOP THIS PROJECT UN DER A PUBLIC PRIVATE PARTNERSHIP (PPP) MODEL. THE PARTNERSHIP IN THIS PRESTIGIOUS PROJECT MEANT A GREAT LEAP FOR ANY PRIVATE DEVELOPER, NOT O NLY COMMERCIALLY BUT ALSO AS DEMONSTRATION OF ITS QUALITY AND EXECUTION CAPABILITIES. V. THE DDA RELEASED A REQUEST FOR PROPOSAL ON 2007. IT DETAILED THE TECHNO-COMMERCIAL REQUIREMENTS OF THE PROJECT THAT WERE SUPPOSED TO BE MET BY THE PRIVATE PARTNER. THE SALIENT FEATURES OF THE MINIMUM COMMERCIAL REQUIREMENTS TO BE FULFILLED BY THE BIDD ER WERE AS UNDER: PRE-BIDDING STAGE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 35 A) BID SECURITY OF RS. 10 CRORES TO BE DEPOSITED B) THE BIDDER SHOULD HAVE A NET WORTH OF RS. 100 C RORES C) THE RESERVE PRICE FOR THE BID WAS RS. 300 CRORE S POST-BIDDING STAGE A) TECHNICALLY QUALIFIED BIDDER TO PROVIDE 25% OF THE QUOTED UPFRONT AMOUNT LESS ANY BID SECURITY (EMCPL BID RS.321 CROR ES) B) TECHNICALLY QUALIFIED BIDDER TO PROVIDE BALANCE 75% OF THE QUOTED UPFRONT AMOUNT WITHIN 3 DAYS OF AWARD OF THE BID (E MCPL BID RS.321 CRORES) C) TECHNICALLY QUALIFIED BIDDER TO PROVIDE PERFORMA NCE GUARANTEE OF RS.400 CRORES D) SEED CAPITAL / WORKING CAPITAL FOR THE PROJECT WHERE ESTIMATED COST WAS RS.1550 CRORES TO RS.1650 CRORES. VI. IN THIS BACK-DROP A CONSORTIUM OF DEVELOPERS LE D BY M/S EMAAR PJSC UAE SUBMITTED ITS BID. THE CONSORTIUM COMPRISED OF THE FOLLOWING: EMAAR PJSC, UAE EMLL MGF DEVELOPMENTS DISCOVER ESTATES VII. A COPY OF THE RESOLUTION FROM ALL THE FOUR ME MBERS OF THE CONSORTIUM WHICH AUTHORIZES THE COMPANY TO ENTER IN TO CONSORTIUM ARE ENCLOSED AS ANNEXURE K. VIII. THE MODUS OPERANDI FOR EXECUTION OF THE PROJ ECT WAS WORKED OUT WITHIN THE GUIDELINES SPECIFIED FOR THE EXECUTION O F THE PROJECT BY DDA. THE FOLLOWING STRUCTURE WAS DESIGNED AND FOLLOWED: ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 36 A SPECIAL PURPOSE VEHICLE EMCPL WILL BE INCORPORATE D. IT WILL BE THE LEGAL ENTITY IN WHOSE NAME THE ENTIRE PROJECT WILL BE EXECUTED AND DELIVERED. THE RESPONSIBILITIES OF THE BIDDER WILL ALL BE BORNE BY EMCPL. EMCPL WILL EXECUTE THE CONSTRUCTION WORK, APPOINT S UB-CONTRACTORS, ENSURE AGREED QUALITY OF THE WORK, BE RESPONSIBLE F OR TIME-OVER-RUNS ETC. EMLL WILL PROVIDE CAPITAL AND QUASI-CAPITAL TO EMCP L AND STAND GUARANTOR TO THE FUNDS BORROWED BY EMCPL. IT WILL A LSO STAND GUARANTOR FOR THE PERFORMANCE GUARANTEES FURNISHED IN TURN BY EMCPL TO DDA. EMLL TOOK THE COMMERCIAL RISK ALSO RELATED TO DELAY IN COMPLETION OF PROJECT, DROP IN SALES AND FINANCIAL CRUNCH. IX. THE CONSORTIUM COMPRISING OF THE ABOVE FOUR COM PANIES ENTERED INTO AN UNDERSTANDING TO REPRESENT THE CONSORTIUM BEFORE DDA AND OTHER AUTHORITIES IN THE FORM OF A COMPANY WHICH WAS A SP ECIAL PURPOSE VEHICLE TO EXECUTE THE PROJECT AWARDED BY DDA TO THE CONSOR TIUM, TOOK A LEGAL SHAPE IN THE FORM OF ASSESSEE COMPANY. THUS, THE AS SESSEE COMPANY IS NOTHING BUT THE CONSORTIUM IN THE LEGAL FORM. SUBSE QUENTLY, THE CONSORTIUM HAS MADE CORRESPONDENCE WITH DDA IN RESP ECT OF THE PROJECT THROUGH THIS LEGAL FORM I.E., THE ASSESSEE COMPANY. A COPY OF THE LETTER ADDRESSED BY THE CONSORTIUM TO DDA AND ALSO MENTION ING THAT ASSESSEE COMPANY IS A LEGAL FORM OF CONSORTIUM IS ENCLOSED A S ANNEXURE L. X. AT THE TIME OF ARRIVING AT THE UNDERSTANDING TO CREATE THE LEGAL ENTITY OF THE CONSORTIUM I.E., ASSESSEE COMPANY IT WAS MUT UALLY AGREED AMONG THE MEMBERS OF THE CONSORTIUM THAT M/S EMAAR MGF LA ND PRIVATE LIMITED WILL PROVIDE ENTIRE FINANCE AND GUARANTEES AND IN L IEU THEREOF IT WILL TAKE 25% OF THE REVENUE OUT OF THE SALE PROCEEDS OF THE PROJECT. IN ORDER, TO ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 37 GIVE A LEGAL SHAPE TO THIS UNDERSTANDING A COLLABO RATION AGREEMENT WAS DRAFTED AND EXECUTED ON 07.04.2008. 37. EMCPL ENTERED INTO A COLLABORATION AGREEMENT DA TED 7 APRIL, 2008 WITH EMLL. THE SNIPPETS OF THE AGREEMENT BETWEEN EM CPL (THE ASSESSEE) AND EMLL ARE AS UNDER: I. THAT IT IS AGREED BETWEEN THE PARTIES THAT THE TOTAL ESTIMATED COST OF THE ABOVE STATED PROJECT WILL BE IN THE RANGE OF RS . 1550 TO 1650 CRORES SPREAD OVER A PERIOD OF THREE YEARS. II THAT THE PARTY OF THE SECOND PART HAS AGREED TO SECURE INITIAL AND VITAL FUNDS REQUIREMENTS OF THE PROJECT BY WAY OF E QUITY CAPITAL CONTRIBUTION AND ALSO BY WAY OF QUASI EQUITY IN THE SHAPE OF DEPOSITS / ADVANCES FOR WHICH IT HAS AGREED TO PROVIDE A SUM N OT EXCEEDING 40% OF THE TOTAL ESTIMATED COST OF THE PROJECT AS STATED I N CLAUSE (I) ABOVE. III THAT IT HAS BEEN AGREED THAT THE ABOVE STATED INFUSION / AVAILABILITY OF THE FUNDS WILL BE MADE AVAILABLE ON THE BASIS OF VARIOUS STAGES OF THE PROJECT (AS MADE AVAILABLE TILL DATE), PRIMARILY FO R INITIAL STAGES AND THE BALANCE COST REQUIRED FOR THE EXECUTION OF THE PROJ ECT WILL BE FUNDED THROUGH BORROWINGS FROM THIRD PARTIES AND ACCRUALS / REVENUES EMANATING FROM THE SAID PROJECT. IV THAT IT HAS THEREFORE BEEN AGREED THAT THE CONT RIBUTION OF THE PARTY OF THE SECOND PART WILL PRIMARILY BE UTILIZED TO ME ET THE INITIAL FUND REQUIREMENTS OF THE PROJECT, INCLUDING THE PAYMENT TO DELHI DEVELOPMENT AUTHORITY (DDA) AND TO MEET DAY TO DAY FUND REQUIRE MENT FOR THE PROJECT. V. THAT IT IS MUTUALLY AGREED BY AND BETWEEN THE PA RTIES THAT THE PARTY OF THE FIRST PART SHALL REIMBURSE TO THE PARTY OF THE SECOND PART THE AVERAGE CAPITAL CARRYING COST OF THE PARTY OF THE SECOND PA RT WHICH WILL RANGE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 38 ANYWHERE BETWEEN 5% TO 7% OF THE QUASI CAPITAL OR D EPOSITS/ADVANCES CONTRIBUTED, BY THE PARTY OF THE SECOND PART TO THE CORPUS OF THE PROJECT TO BE COMPUTED IN THE MANNER AS MUTUALLY AGREED BETWEE N THE PARTIES XI THAT THE PARTY OF THE FIRST PART HEREBY AGREED T HAT IN CONSIDERATION OF THE VARIOUS CAPITAL COVENANTS HIGHLIGHTED ABOVE ALO NG WITH ASSUMING INHERENT AND ASSOCIATES RISKS EMBEDDED IN THE PROJE CT, TO COMPENSATE THE PARTY OF THE SECOND PART, BY WAY OF ATTRIBUTION OF 25% OF THE GROSS REVENUE ACCRUED THROUGH SALE OF PROJECT STOCK COMPU TED ON THE PERCENTAGE OF COMPLETION ACHIEVED AS ASCERTAINED AT THE END OF THE YEAR IN FAVOUR OF THE PARTY OF THE SECOND PART. IT IS ALSO AGREED THAT THE PARTY OF THE SECOND PART SHALL BE ELIGIBLE FOR SUCH ATTRIBUT ION ONLY IF PROJECT STANDS COMPLETED TO THE EXTENT OF EITHER OR ABOVE 30% OF T HE TOTAL PROJECT COMPLETION, BEING THE THRESHOLD LIMIT AT WHICH THE REVENUE IS RECOGNIZED BY THE PARTY OF THE FIRST PART. XII THAT IT IS ALSO AGREED BETWEEN THE PARTIES THAT IN THE EVENT OF BULK/INSTITUTIONAL SALES, THE ENTITLEMENT OF THE PARTY OF THE SECOND PART IN TERMS OF CONSIDERATION/COMPENSATION MENTIONED IN CLAUSE (XI) SUPRA, SHALL STAND VARIED AND WILL DEPEND OIL THE TERMS AN D CONDITIONS OF SUCH SALE. SUCH VARIED COMPENSATION TO THE PARTY OF THE SECOND PART BY THE PARTY OF THE FIRST PART WILL BE MUTUALLY DECIDED ON LY AFTER THE COMPLETION OF SUCH BULK/INSTITUTIONAL SALES. MISCELLANEOUS A) THAT IT IS MUTUALLY AGREED THAT THERE EXISTS CL EAR DEMARCATION OF THE ROLES AND RESPONSIBILITIES OF THE PARTIES OF THIS C OLLABORATION; THE PARTY OF THE FIRST PART BEING EXCLUSIVE DEVELOPER AND EXECUT OR AND THE PARTY OF THE SECOND PART BEING FINANCIAL COLLABORATOR FOR SUCCES SFUL COMPLETION OF THE PROJECT. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 39 FROM THE TERMS OF THE AGREEMENT, THERE IS A CLEAR D EMARCATION OF THE ROLES AND RESPONSIBILITIES OF THE ASSESSEE AND EMLL WHERE BY THE ASSESSEE IS AN EXCLUSIVE DEVELOPER AND EXECUTOR AND EMLL IS COMMER CIAL AND FINANCIAL COLLABORATOR. THE COST ESTIMATED FOR THE CWG PROJECT WAS TO RANGE BETWEEN RS.1550 TO 1650 CRORES. THE ESTIMATED COST WAS TO SPREAD OVER A PERIOD OF THREE YEARS. REFERRING TO THE PRE-CONDITIONS MENTIONED IN THE BID, M/S EMAAR MGF LAND LIMITED AGREED TO SECURE INITIAL AND VITAL FOND REQUIREMENTS OF THE PROJECT BY WAY OF EQUITY CAPITAL CONTRIBUTION A ND ALSO BY WAY OF QUASI EQUITY IN THE SHAPE OF DEPOSITS / ADVANCES FOR WHIC H IT HAS AGREED TO PROVIDE A SUM NOT EXCEEDING 40% OF THE TOTAL ESTIMA TED COST OF THE PROJECT AS STATED ABOVE. THE FUNDS INFUSION, DIRECTLY AND INDIRECTLY, HAPPEN ED THROUGHOUT THE PROJECT EXECUTION STAGE EVIDENCING CONTINUOUS AND A CTIVE INVOLVEMENT OF EMGFL AS COMMERCIAL AND FINANCIAL COLLABORATOR FOR THE PROJECT. THE AGREEMENT BETWEEN ASSESSEE AND EMLL PROVIDED TH AT EMCPL WAS ALSO PROVIDES TO EMLL, THE AVERAGE CAPITAL CARRYING COST OF RANGING BETWEEN 5% TO 7% OF THE QUASI CAPITAL OR DEPOSITS / ADVANCES C ONTRIBUTED BY EMLL. 38. THEREFORE CONSIDERING THE CAPITAL CONTRIBUTION MADE BY EMLL, THE ASSESSEE ALSO AGREED TO COMPENSATE EMLL BY WAY OF A TTRIBUTION OF 25% OF THE GROSS REVENUE ACCRUED THROUGH SALE OF CWG PROJE CT STOCK COMPUTED ON THE BASIS OF PERCENTAGE OF COMPLETION ACHIEVED AT T HE END OF EVERY YEAR. IT WAS ALSO AGREED THAT SUCH ATTRIBUTION IS TO TAKE PL ACE ONLY IF THE PROJECT STANDS COMPLETED TO THE EXTENT OF EITHER OR ABOVE 3 0% OF THE TOTAL PROJECT COMPLETION, BEING THE THRESHOLD LIMIT AT WHICH THE REVENUE IS TO BE RECOGNIZED BY THE ASSESSEE. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 40 39. ROLE OF EMLL AS FINANCIAL AND COMMERCIAL RISK-B EARER: EMLL WAS TO BE DULY CONSULTED FOR APPOINTMENT OR NO MINATION OF THE DIRECTORS OR OFFICER BEARERS: EMLL TO BE DULY CONSULTED IN RESPECT OF MORTGAGE /L IEN /ENCUMBRANCE /CHARGE ON ANY OF THE ASSETS OR OTHER RIGHTS IN THE PROJECTS; EMLL TO BE CONSULTED WITH RESPECT TO PRICES OR OTHE R TERMS AND CONDITIONS OF THE SALE OF STOCK OR OTHER RIGHTS IN THE PROJECT ; BOOKS OF ACCOUNTS MAY BE INSPECTED BY EMLL. EMLL ACTING AS A FINANCIAL COLLABORATOR, SIMILAR TO THE FUNDING BY BANKS/FINANCIAL INSTITUTIONS, EMLL ALSO SOUGHT TO C ONTROL THE OPERATIONS OF ASSESSEE COMPANY IN RELATION TO PROJECT BEING FUNDE D BY EMLL. THIS CONTROL OF OPERATIONS OF THE ASSESSEE IS TO PROTECT THE FUNDS ADVANCED BY WAY OF CREATING AN UNDERLYING SECURITY. 40. THUS, IT IS SEEN THAT FUNDING OF CWG PROJECT BY EMLL IS IN NATURE OF UNSECURED COMMERCIAL/FINANCIAL COLLABORATION WHEREB Y IN CONSIDERATION OF THE CAPITAL INFUSION AND OTHER COVENANTS, THE LENDE R IS BEING COMPENSATED THROUGH REVENUE SHARING. COMMERCIAL JUSTIFICATION OF EMLLS INVOLVEMENT 41. THE ASSESSEE COMPANY WAS A SPECIAL PURPOSE VEHI CLE (SPV) CREATED TO EXECUTE CWG PROJECT AS ONE OF MAIN CONDITIONS OF CWG PROJECT WAS THAT IT SHOULD BE UNDERTAKEN BY AN SPV. SPV COULD NOT UN DERTAKE SUCH A LARGE PROJECT WITHOUT FINANCIAL SUPPORT FROM EITHER ITS S HAREHOLDER OR ANY EXTERNAL PARTY. AT THE TIME OF BIDDING ITSELF, EMLL PROVIDED FUNDS TO THE EXTENT OF RS.221 CRORES WHICH WAS USED TO PAY RS.32 1 CRORES TO DDA. MONIES PAID BY EMLL ARE AS UNDER: ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 41 DATE AMOUNT IN INR PURPOSE 03-M-07 25,50,00,000 AMOUNT PAID FOR DDA AS EARNEST MONEY FOR COMMONWEALTH GAME VILLAGE 04-AUG-07 60,37,50,000 AMOUNT PAID FOR DDA SELECTION OF PROJECT DEVELOPERS FOR CONSTRUCTION OF RESIDENTIAL PROJECT OF COMMONWEALTH GAMES VILLAGE 04-AUG-07 60,00,00,000 AMOUNT PAID FOR DDA SELECTION OF PROJECT DEVELOPERS FOR CONSTRUCTION OF RESIDENTIAL PROJECT OF COMMONWEALTH GAMES VILLAGE 14-JUN-07 10,00,00,000 AMOUNT PAID FOR SUBMISSION OF THE RFP FOR RESIDENTIAL PROJECT COMMONWEALTH GAMES, 2010 VILLAGE. 02-JUL-07 44,75,00,000 AMOUNT PAID FOR DDA AS EARNEST MONEY FOR COMMONWEALTH GAME VILLAGE 05-SEP-07 20,37,50,000 ADVANCE PAID FOR DDA FOR COMMONWEALTH GAME TOTAL 221,00,00,000 42. THE BALANCE RS.1,00,00,00,000 WAS PAID BY EMCPL OUT OF BORROWED FUNDS. THE LOAN WAS GIVEN BY BANK UNDER GUARANTEE B Y EMLL. FURTHER, IN ACCORDANCE WITH BID THE REQUIREMENT, EMLL PAID ORIG INAL BID AMOUNT ALONG WITH A BANK GUARANTEE OF RS.400 CRORES WHICH WAS AL SO ARRANGED BY EMLL EITHER DIRECTLY OR BY PROVIDING CORPORATE GUARANTEE . DETAIL OF LOAN RAISED AND BANK GUARANTEE PROVIDED IS AS UNDER: LENDER PROJECT LOAN (INR IN CRORES) BANK GUARANTEE FACILITY (INR IN CRORES) TOTAL CREDIT FACILITY SECURITY GIVEN TO LENDERS STATE BANK OF INDIA 150 300 450 ASSIGNMENT OF DEVELOPMENT RIGHT AND CORPORATE GUARANTEE OF EMLL LAND STATE BANK: OF PATIALA . 50 50 100 HDFC LTD. 50 - 50 HSBC - 50 50 CORPORATE GUARANTEE OF EMLL LAND TOTAL 250 400 650 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 42 43. THE SUPPORTS WHICH WERE PROVIDED BY EMLL TO THE ASSESSEE ARE SUMMARIZED AS UNDER: I. EMLL PROVIDED FUNDS TO THE EXTENT OF RS. 221 CRO RES WHICH WAS USED TO PAY RS. 321 CRORES TO DDA. SUCH MONEY WAS PAID B Y EMLL. THE BALANCE RS. 1,00,00,00,000 WAS PAID BY THE ASSESSEE OUT OF BORROWED FUNDS. THE LOAN WAS GIVEN BY BANK UNDER GUARANTEE BY EMLL. II. IN ACCORDANCE WITH THE BID REQUIREMENT, EMLL PA ID ORIGINAL BID AMOUNT ALONG WITH A BANK GUARANTEE OF RS. 400 CRORE S WHICH WAS ALSO ARRANGED BY EMLL EITHER DIRECTLY OR BY PROVIDING CO RPORATE GUARANTEE. III. FURTHER, IT IS ALSO IMPORTANT TO NOTE THAT BOA RD OF DIRECTORS (BOD) OF EMLL HAS APPROVED AND AGREED TO PROVIDE FINANCIAL S UPPORT TO THE ASSESSEE COMPANY AS AND WHEN REQUIRED. IV. EMLL STOOD GUARANTOR FOR LOANS FROM THE FINANCI AL INSTITUTIONS FOR THE ASSESSEE EMCPL, WHERE THE GUARANTEE IN THE FORM OF CORPORATE GUARANTEE WAS GIVEN BY EMLL. V. EMLL TOOK THE COMMERCIAL RISK, ALSO RELATED TO D ELAY IN COMPLETION OF PROJECT, DROP IN SALES AND FINANCIAL CRUNCH. VI. EMLL MADE DIRECT INTERVENTION BY WAY OF INFUSIO N OF CAPITAL/QUASI CAPITAL AS AND WHEN EMCPL FACED A CREDIT CRUNCH FRO M LENDERS SIDE. THE CONTRIBUTION MADE BY EMLL AS ON MARCH 31, 2009 STOO D AT RS.270 CRS. VII. THE DDA INVOKED, BANK GUARANTEE OF . 183 CRS A ND EMLL PROVIDED THE FOLLOWING CONTRIBUTION TO MEET THE OBLIGATION O F EMCPL TOWARDS THE GUARANTOR BANKS: - RS. 11,41,000 ON OCTOBER 30,2010; - RS. 29,07,00,000 ON NOVEMBER 4, 2010; ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 43 - RS. 25,00,00,000 ON OCTOBER 27, 2010; - RS. 42,00,000 ON OCTOBER 31,2010; AND - RS. 1,25,03,000 ON OCTOBER 31,2010 FURTHER, RS.70 CRORES HAS BEEN FUNDED THROUGH OVERD RAFT LIMITS ALLOWED TO ASSESSEE ON THE BASIS OF CORPORATE GUARANTEE GIVEN BY EMLL. SUBSEQUENT TO DISPUTE WITH DDA, THE MATTER IS IN AR BITRATION AND ONCE THE LIABILITY ON THE MATTER CRYSTALLIZES IN CASE ASSESS EE LOSES THE ARBITRATION, IT IS POSSIBLE THAT A LOSS OF ENTIRE RS. 183 CRORES WI LL BE BORNE BY EMLL. SINCE, THE LAND FOR THE CWG CONTRACT WAS OWNED BY D DA, THEREFORE THE ASSESSEE DID NOT HAVE ANY ASSET WHICH COULD HAVE BE EN MORTGAGED WITH THE FINANCIAL INSTITUTIONS TO ARRANGE THE FUNDS FOR THE PROJECTS. HENCE, EMLL HAD PROVIDED THE ENTIRE NECESSARY GUARANTEE TO THE FINANCIAL INSTITUTIONS FOR SECURING FUNDS FROM THEM. VIII. THE RISK WAS TO BE SHARED MAINLY BY 2 ENTITIE S, EMCPL & EMLL, THE FORMER FROM THE PERSPECTIVE OF EXECUTION OF THE PRO JECT CONSTRUCTION WORK, AND THE LATTER FROM PERSPECTIVE OF BEARING ALL THE RISK RELATED TO PRICE FLUCTUATIONS, LACK OF SALES, CREDIT CRUNCH, COMMERC IAL LIABILITY DUE TO NON- EXECUTION/SLOW EXECUTION OF THE PROJECT ETC. OR IN A NUTSHELL, THE COMMERCIAL RISK ASSOCIATED WITH THE PROJECT. IX. IT WAS THEREFORE LOGICAL, THAT THE COMPANIES TH AT HAVE UNDERTAKEN THE RISK JOINTLY SHOULD ALSO SHARE COMMENSURATE RET URNS EMANATING FROM THE PROJECT. THE TERMS OF THE RISK AND RETURN SHARI NG OUGHT TO THE SPELLED OUT AB-INITIO TO PROVIDE CLARITY FOR ALL FUTURE TRA NSACTIONS BETWEEN THE TWO ENTITIES EMCPL AND EMLL, WHO ALSO HAPPENED TO BE IN A SUBSIDIARY AND HOLDING COMPANY RELATIONSHIP. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 44 44. THE AO RAISED THE FOLLOWING ARGUMENTS WHILE MAK ING THE DISALLOWANCE: (I) RELIANCE UPON AGREEMENT DATED 07.04.2008 IS AN AFTERTHOUGHT. THIS DOCUMENT NEVER EXISTED AND SURFACED FOR THE FIRST T IME DURING PRESENT ASSESSMENT PROCEEDINGS. (II) AGREEMENT DATED 07.04.2008 IS SHAM AND TRANSA CTIONS BETWEEN ASSESSEE COMPANY AND ITS HOLDING COMPANY INVOLVING TRANSFER OF 25% OF THE GROSS REVENUE IS NOTHING BUT SHAM AND IS ARRANG ED TO REDUCE TAX LIABILITY (OF THE ASSESSEE COMPANY) AND IS A COLOUR ABLE DEVICE. (III) CONTENTS OF THE AGREEMENT DATED 08.05.2008 ME NTIONED IN SCHEDULE 19 OF THE BALANCE SHEET ARE CONTRADICTORY TO THE CO NTENTS OF AGREEMENT DATED 07.04.2008. IN SPITE OF REPEATED OPPORTUNITIE S, THE ASSESSEE FAILED TO FURNISH THE AGREEMENT DATED 08.05.2008. (IV) THE HOLDING COMPANY WAS ALREADY PAID INTEREST COST TOWARDS DEPLOYMENTS OF FUNDS AND HENCE ADEQUATELY COMPENSAT ED. (V) INHERENT AND ASSOCIATED RISKS CLAIMED BY THE HO LDING COMPANY ARE ONLY A BOGEY. IT IS NOT UNDERSTOOD WHAT KIND OF INH ERENT AND ASSOCIATED RISKS EMBEDDED, IN THE PROJECT ARE BEING ASSUMED BY THE HOLDING COMPANY. (VI) THE HOLDING COMPANY IS VIRTUALLY HOLDING ENTIR E SHARE HOLDING OF ASSESSEE COMPANY. IT WAS RESPONSIBLE FOR ARRANGING THE FUNDS FOR THE CWGV PROJECT. BY VIRTUE OF BEING OWNER OF THE ASSES SEE COMPANY THE HOLDING COMPANY HAS ALREADY ASSUMED THE INHERENT RI SKS ASSOCIATED WITH THE PROJECT. (VII) THE MANNER OF ACCOUNTING TREATMENT OF THE SAI D, SUM OF RS.105,90,46,740 IS ALSO DUBIOUS AS MUCH AS THE SAM E HAS BEEN REDUCED FROM THE TURNOVER INSTEAD OF DEBITING IT SEPARATELY IN THE P/L ACCOUNT. (VIII) NO TDS HAS BEEN DEDUCTED FROM THIS PAYMENT AND THEREFORE EVEN THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOUL D GET ATTRACTED. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 45 (IX) THE SAID AMOUNT HAS BEEN SHOWN AS LIABILITY IN THE BOOKS AT THE END OF THE YEAR AND. THEREFORE THERE IS NO MOVEMENT OF FUNDS. (X) THE CLAIM OF REVENUE SHARING IS DISALLOWABLE U NDER SECTION 40( A)(2)(B) OF THE ACT AS HOLDING COMPANY WITH WHICH R EVENUE OF 25% WAS SHARED IS HAVING SUBSTANTIAL INTEREST IN THE ASSESS EE COMPANY AS PER THIS SECTION. (XI) THE REVENUE SHARED AT 25% IS NOT ONLY EXCESSI VELY HIGH BUT ALSO NOT BACKED BY RENDITION OF TANGIBLE SERVICES. (XII) THE OBLIGATION OF THE HOLDING COMPANY IS VERY GENERAL IN NATURE. IT HAS NOT BEEN SPECIFIED AS TO EXACTLY WHAT EFFORTS W ERE MADE BY AND WHAT FUNCTIONS WERE DISCHARGED BY THE HOLDING COMPANY. (XIII) NO REAL VALUE ADDITION HAS BEEN PROVIDED BY THE HOLDING COMPANY AS ENTIRE WORK, WAS OUTSOURCED TO AHLUWALIA CONTRAC TS (INDIA) LIMITED. (XIV) IT IS NOT EXPLAINED AS TO WHAT SERVICES WERE RENDERED BY THE HOLDING COMPANY IN THE MARKETING AND SELLING OF FLATS AS TH E ASSESSEE COMPANY HAS SEPARATELY INCURRED EXPENSES @ 2% OF THE SALE P RICE TO VARIOUS MARKETING AGENTS FOR SALE OF FLATS. (XV) HOLDING COMPANY DOES NOT TAKE RESPONSIBILITY F OR ANY LOSS OR DEFAULT COMMITTED BY ASSESSEE CO. DURING THE COURSE OF EXEC UTION OR COMPLETION OF THE PROJECT. (XVI) FOR GETTING FINANCE FOR EXECUTION, OF THE PR OJECT THE ASSESSEE COMPANY HAS COMPROMISED ITS ENTIRE PROFITS WHICH IT WOULD HAVE EARNED FROM THE PROJECT. (XVII) AS THERE IS NO INDEPENDENT CONSIDERATION FO R REVENUE SHARING, AS FOR PROVIDING FINANCE INTEREST IS BEING CHARGED, THE AG REEMENT FOR REVENUE SHARING IS NOT VALID UNDER INDIAN CONTRACT ACT 1872 . THERE IS NO VALID CONTRACT IN THE EYES OF LAW. (XVIII) INTEREST PAYMENT (ON FINANCE PROVIDED BY H OLDING COMPANY TO THE ASSESSEE COMPANY) IS DELIBERATELY KEPT LOW (@ 5 TO 7 %) TO CAMOUFLAGE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 46 REVENUE SHARING WITH CLEAR INTENTION OF WIPING OFF THE PROFITS OF THE ASSESSEE COMPANY BY ADJUSTING BROUGHT FORWARD LOSSE S OF THE HOLDING COMPANY (XIX) THE COLLABORATION AGREEMENT HAS NOT BEEN ENT ERED INTO AT ARMS LENGTH PRICE. 45. BEFORE US, THE LD. DR AND LD. AR ARGUED EXTENSI VELY ABOUT THE VARIOUS ASPECTS OF THE BUSINESS AFFAIRS OF THE ASSE SSEE. THE ARGUMENTS AND THE COUNTER-ARGUMENTS ARE AS UNDER: SL. NO. ARGUMENTS OF THE DR COUNTER ARGUMENTS OF THE AR 1. RELIANCE UPON AGREEMENT DATED 07.04.2008 IS AN AFTERTHOUGHT. THIS DOCUMENT NEVER EXISTED AND SURFACED FOR THE FIRST TIME DURING PRESENT ASSESSMENT PROCEEDINGS. THE COP OF THE AGREEMENT HAS BEEN PROVIDED/SUBMITTED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 29.11.2011. THERE WAS NO EARLIER OCCASION FOR THE ASSESSEE TO SUBMIT/PROVIDE THE SAME. ON THE OTHER HAND, THE AGREEMENT WAS EXECUTED ON A STAMP PAPER WHICH WAS PURCHASED PRIOR TO 07.04.2008 AND THE AGREEMENT WAS SIGNED BY THE PARTIES ON THAT DATE. AN AFFIDACIT OF THE DIRECTOR OF THE HOLDING COMPANY TO THIS EFFECT HAS ALSO BEEN EXECUTED. 2. AGREEMENT DATED 07.04.2008 IS SHAM AND TRANSACTIONS BETWEEN ASSESSEE COMPANY AND ITS HOLDING COMPANY INVOLVING TRANSFER OF 25% OF THE GROSS EVENUE IS NOTHING BUT SHAM AND IS ARRANGED TO REDUCE TAX LIABILITY (OF THE ASSESSEE COMPANY) AND IS A COLOURABLE DEVICE. THERE IS NO MATERIAL TO SHOW THAT THE AGREEMENT IS INTENDED TO REDUCE TAX LIABILITY OF THE ASSESSEE COMPANY. IN FACT, HAD THE ENTIRE CONTRACT BEEN EXECUTED BY THE HOLDING COMPANY THAN THE PROFIT ARISING FROM THE CONTRACT WOULD HAVE BEEN ABSORBED IN THE LOSSES BROUGHT FORWARD FROM EARLIER YEARS. THERE WAS NOTHING TO PREVENT THE HOLDING COMPANY TO GET THE CONTRACT IN HIS NAME AND EXECUTE IT IN HIS NAME. BUT FOR THE PURPOSES OF SATISFACTION OF DDA AND OTHER CONTRACTEES, IT WAS CONSIDERED NECESSARY TO FLOAT A COMMON SPECIAL PURPOSE VEHICLE (SPV) AND ACCORDINGLY THE ASSESSEE COMPANY WAS FLOATED WITH MAJORITY SHARES HELD BY HOLDING COMPANY. SIMILARLY, THERE IS ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 47 NO MATERIAL ON RECORD TO HOLD THAT AGREEMENT IS A COLOURABLE DEVICE. BOTH THE COMPANIES (THE ASSESSEE AND HOLDING COMPANY) ARE ASSESSED AT THE SAME RATE OF TAX. THERE IS AS SUCH NO TAX SAVING OR TAX AVOIDANCE. HOLDING COMPANY IS ASSESSED TO TAX. THE SHARE OF REVENUE HAS BEEN DULY DECLARED IN ITS RETURN OF INCOME BY THE HOLDING COMPANY. WHERE MONEY WAS RECEIVED FOR COMMENCEMENT OF BUSINESS FOR WHICH PART OF PROFIT (45%) WAS PARTED AWAY BY THE ASSESSEE TO THE FINANCIER INSTEAD OF PAYING INTEREST TO HIM ON THE FUNDS PROVIDED BY HIM, TRANSACTION WAS NOT HELD AS A COLOURABLE DEVICE. HONBLE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME-TAX VS. V. G. SIDDARTHA [2010] 322 ITR 0365 - (KAR) HELD THAT: WHEN THE REVENUE HAS ACCEPTED THE RETURN FILED BY M/S. MYSORE AMAL-GAMATED COFFEE ESTATES P. LTD., WE ARE OF THE OPINION, THAT THE REVENUE CANNOT REJECT THE RETURN FILED BY THE ASSESSEE, ON THE GROUND THAT IT IS A SHAM AND COLOURABLE TRANSACTION. IF THE TRANSACTION IS HELD TO BE A SHAM AND COLOURABLE TRANSACTION, THE REVENUE CANNOT TREAT THE SAID TRANSACTION AS GENUINE SO FAR AS IT RELATES TO ONE ASSESSEE AND REJECTED THE SAME IN CASE OF THE OTHER ASSESSEE. WHEN BOTH OF THEM ARE PARTIES, THE TRANSACTION OF BOTH THE PARTIES SHOULD HAVE BEEN REJECTED BY THE REVENUE. 3. THE HOLDING COMPANY WAS ALREADY PAID INTEREST COST TOWARDS DEPLOYMENTS OF FUNDS AND HENCE ADEQUATELY COMPENSATED. IT IS INCORRECT TO PRESUME THAT RELATIONSHIP BETWEEN, THE ASSESSEE AND THE HOLDING COMPANY WAS LIMITED TO THE RELATIONSHIP OF BORROWER AND LENDER ONLY. THE ASSESSEE WAS FLOATED AS A SPECIAL PURPOSE VEHICLE BY THE HOLDING COMPANY TO COMPLETE THE CONTRACT OF CONSTRUCTION OF CWG VILLAGE. IT WAS HOLDING COMPANYS RESPONSIBILITY TO (I) ARRANGE THE INFRASTRUCTURE, FINANCE AND ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 48 MANPOWER (II) TO KEEP THE CONTRACTEE I.E., DDA APPRAISE OF THE DEVELOPMENT AND ENSURE FULFILLMENT OF THE TERMS OF CONTRACT (III) TO STAND AS A GUARANTOR BEFORE DDA AND THE FINANCIAL INSTITUTION (IV) THE CONTRACT WAS AWARDED ON THE BASIS OF GOODWILL OF THE HOLDING COMPANY AND FULFILLMENT OF TECHNICAL QUALIFICATION IN THE BID WHICH, ONLY HOLDING COMPANY POSSESSED.. THE ASSESSEE WAS A NEWLY CREATED AND HENCE COULD NOT BOAST OF EXPERIENCE AND TECHNICAL QUALIFICATION REQUIRED TO BID IN THE CONTEST (V) BID SECURITY AND RESERVE PRICE COULD ONLY BE PROVIDED BY THE HOLDING COMPANY (VI) NET WORTH REQUIRED TO COMPETE IN THE BID COULD BE POSSESSED ONLY BY THE HOLDING COMPANY (VII) ONLY HOLDING COMPANY WAS CAPABLE OF FULFILLING POST BIDDING COMPLIANCE AS STATED ABOVE (IN THE STATEMENT OF FACTS) FURTHER, THE COST OF CAPITAL PROVIDED BY THE HOLDING COMPANY TO THE ASSESSEE WAS NOT COMMENSURATE WITH THE MARKET RATE. THE RATE OF INTEREST ON WHICH MONEY COULD BE BORROWED RANGES FROM 15% TO 24% WHEREAS THE HOLDING COMPANY CHARGED ONLY A NOMINAL RATE RANGING FROM 5% TO 7%, HENCE, IT IS INCORRECT TO DRAW INFERENCE THAT HOLDING COMPANY WAS ADEQUATELY COMPENSATED. 4. THE MANNER OF ACCOUNTING TREATMENT OF THE SAID SUM OF RS. 1,05.90.46,740 IS ALSO DUBIOUS AS MUCH AS THE SAME HAS BEEN REDUCED FROM THE TURNOVER INSTEAD OF DEBITING IT SEPARATELY IN THE P./L ACCOUNT. THE SUM OF RS. 1,05,90,46,740 IS NOT EXPENDITURE AND HENCE COULD NOT HAVE BEEN DEBITED IN THE P/L ACCOUNT. IT IS NOT A CHARGE ON PROFITS. IT IS NOT A DIVISION OF INCOME. IT IS SHARING OF REVENUE BETWEEN TWO CO-WORKERS. ONE IS HANDLING THE EXECUTION OF PROJECT AND OTHER IS HANDLING FINANCES AND GUARANTEES WHICH IS EQUALLY ESSENTIAL IN THE SUCCESSFUL COMPLETION OF THE PROJECT. SHARING OF REVENUE IS DIVERSION BY A SUPERIOR TITLE. THEY COULD HAVE SHARED OUT OF NET PROFITS BUT IT IS FOR THE BUSINESSMEN TO DECIDE THE TERMS AT WHICH THEY INTEND TO ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 49 PROCEED. THERE IS NOTHING ILLEGAL IN SHARING THE REVENUE. THEY COULD HAVE EVEN SHARED THE CONTRACT INTERSE AND COMPLETED THE PART OF THE PROJECT. THE SHARING OF THE INCOME AND THEREFORE A DEBIT TO THE P/L ACCOUNT IS NOT THE ONLY BASIS AVAILABLE TO THE BUSINESSMEN TO SETTLE THEIR TERMS. THEREFORE, IT IS NOT ACCEPTABLE TO HOLD THE TERMS OF SETTLEMENT BETWEEN ASSESSEE AND HOLDING COMPANY AS DUBIOUS PARTICULARLY WHEN THERE IS NO MATERIAL TO DOUBT ITS GENUINENESS. 5. THE SAID AMOUNT HAS BEEN, SHOWN AS LIABILITY IN THE BOOKS AT THE END OF THE YEAR AND THEREFORE THERE IS NO MOVEMENT OF FUNDS. IT HAS NO CONSEQUENCE OVER THE GENUINENESS OF THE AGREEMENT OR REVENUE SHARING BETWEEN THE ASSESSEE AND ITS HOLDING COMPANY. WHETHER PAYMENT IS ACTUALLY MADE IN. THE CURRENT YEAR FULLY OR PARTLY OR NO PAYMENT IS MADE THIS YEAR WILL NOT HAVE ANY EFFECT ON THE LEGAL RELATIONSHIP AS PER THE AGREEMENT DATED 07.04.2008. EVEN WHERE EXPENDITURE IS CLAIMED AGAINST PROFITS WHAT IS REQUIRED TO SHOW IS THAT LIABILITY HAS ARISEN AND. CLAIM OF THE OTHER PARTY HAS ACCRUED. IN MERCANTILE SYSTEM OF ACCOUNTING, THE POINT OF TIME AT WHICH INCOME OR LIABILITY ACCRUES IS THE POINT AT WHICH INCOME HAS TO BE CHARGED OR CLAIM OF EXPENDITURE HAS TO BE ALLOWED. 6. THE REVENUE SHARED AT 25% IS NOT ONLY EXCESSIVELY HIGH BUT ALSO NOT BACKED BY RENDITION OF TANGIBLE SERVICES. WHAT IS TO BE CONSIDERED IS THE VALUE OF THE GUARANTEE AND RISK UNDER TAKEN BY THE HOLDING COMPANY AND UTILIZATION OF ITS TECHNICAL COMPETENCE AND INITIAL SECURITY IN BID FURNISHED TO THE DDA. WITHOUT INVOLVEMENT OF THE HOLDING COMPANY IN THE CONSORTIUM, THE PROJECT COULD NOT HAVE BEEN WON FROM THE DDA. WHILE STATING THE FACTS ABOVE, WE HAVE ALREADY HIGHLIGHTED AS TO WHAT SERVICES HAVE BEEN, RENDERED AND WHAT ROLE THE HOLDING COMPANY HAS PLAYED PRIOR TO BIDDING AND AFTER BIDDING. AT THE COST OF REPETITION, IT IS SUBMITTED THAT THE HOLDING COMPANY HAD PLAYED FOLLOWING ROLE: (I) PRE-BIDDING STAGE I. BID SECURITY OF RS.10 CRS TO BE DEPOSITED II. THE BIDDER SHOULD HAVE A NET WORTH OF RS.100 CRS ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 50 III. THE RESERVE PRICE FOR THE BID WAS RS.300 CRS (II) POST-BIDDING STAGE I. TECHNICALLY QUALIFIED BIDDER TO PROVIDE 25% OF THE QUOTED UPFRONT AMOUNT LESS ANY BID SECURITY (EMCPL BID RS 321 CRS) II. TECHNICALLY QUALIFIED BIDDER TO PROVIDE BALANCE 75% OF THE QUOTED UPFRONT AMOUNT WITHIN 3 DAYS OF AWARD OF THE BID (EMCPL BID RS 321 CRS) III. TECHNICALLY QUALIFIED BIDDER TO PROVIDE PERFORMANCE GUARANTEE OF RS.400 CRS. IV. SEED CAPITAL/WORKING CAPITAL FOR THE PROJECT WHERE ESTIMATED COST WAS RS.1550 CRS TO RS.1650 CRS 7. HOLDING COMPANY DOES NOT TAKE RESPONSIBILITY FOR ANY LOSS OR DEFAULT COMMITTED BY ASSESSEE DURING THE COURSE OF EXECUTION OR COMPLETION OF THE PROJECT. THE HOLDING COMPANY IS GIVING THE GUARANTEE TO THE FINANCIAL INSTITUTIONS AND DDA. THEN ANY LOSS INCURRED BY THE ASSESSEE WHICH FINALLY TRANSLATES INTO NON- REPAYMENT OF LOAN TO THE FINANCIAL INSTITUTIONS DUE TO THE PROJECT REMAINING INCOMPLETE RESULTING INTO FAILURE OF AGREEMENT WITH DDA; THEN THE GUARANTEE GIVEN BY THE HOLDING COMPANY WOULD BE FORFEITED AND WHICH CAN CAUSE IRREPARABLE DAMAGE TO ITS FINANCE AND REPUTATION THEREFORE, IT IS INCORRECT TO SAY THAT THE HOLDING COMPANY HAS NOT TAKEN ANY RESPONSIBILITY FOR LOSS INCURRED BY THE ASSESSEE. IT IS NOT THE SHARING OF THE PROFIT AND LOSS, BUT IT IS THE TAKING TOTAL RESPONSIBILITY OF MEETING OUT THE LOSS TO THE FINANCIAL INSTITUTIONS OR TO THE DDA ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE COMPANY IN SUCCESSFUL COMPLETION OF THE PROJECT. 8. FOR GETTING FINANCE FOR EXECUTION OF THE PROJECT THE ASSESSEE HAS COMPROMISED ITS ENTIRE PROFITS WHICH IT WOULD HAVE EARNED FROM THE PROJECT. IN FACT, IT IS OTHER WAY ROUND. IF THE HOLDING COMPANY WANTED TO GET THE PROJECT IN ITS NAME AND EXECUTE IT PERSONALLY IT COULD HAVE DONE SO AND HOLD THE ENTIRE PROFIT TO ITSELF. BY CREATING THE ASSESSEE, IT IS THE HOLDING COMPANY WHICH HAS PRACTICALLY COMPROMISED PROFITS BY SHARING 75% OF THE REVENUE WITH THE ASSESSEE. IF THE ENTIRE REVENUE WOULD HAVE COME TO THE COFFERS OF THE HOLDING COMPANY, THEN THE PROFITS ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 51 ARISING FROM THE PROJECT WOULD HAVE BEEN, ABSORBED BY ACCUMULATED LOSSES AND HOLDING COMPANY WOULD NOT HAVE TO PAY ANY TAX. IN FACT, BY CREATING THIS STRUCTURE, THE HOLDING COMPANY HAS PAVED THE WAY FOR PAYING TAXES. 9. INTEREST PAYMENT (ON FINANCE PROVIDED BY HOLDING COMPANY TO THE ASSESSEE) IS DELIBERATELY KEPT LOW @ 5 TO 7 %) TO CAMOUFLAGE REVENUE SHARING WITH CLEAR INTENTION OF WIPING OFF THE PROFITS OF THE ASSESSEE BY ADJUSTING BROUGHT FORWARD LOSSES OF THE HOLDING COMPANY. THE HOLDING COMPANY BEING A MAJOR SHARE HOLDER, IT HAS CHARGED LOWER RATE OF INTEREST. NOTHING COULD HAVE PREVENTED THE HOLDING COMPANY TO CHARGE THE INTEREST AT MARKET RATE OF 15% - 24% AND COULD HAVE STILL SHARED THE REVENUE. THE REVENUE SHARING IS ON ACCOUNT OF THE GUARANTEES AND OVERALL RISKS UNDERTAKEN BY THE HOLDING COMPANY ON FAILURE OF THE ASSESSEE, EITHER ON IN- COMPLETION OF THE PROJECT, OR DELAY IN THE PROJECT, OR INCURRING OF LOSSES, OR FAILURE TO COLLECT REVENUE BY DISPOSING OF FLATS OR DUE TO SOME OTHER REASONS. SINCE THE ASSESSEE DID NOT HAVE ASSETS AND IT WAS THE NET WORTH OF HOLDING COMPANY, ON WHOSE GUARANTEE, THE DDA & FINANCIAL INSTITUTIONS WERE SATISFIED, THE REVENUE SHARING BY THE HOLDING COMPANY WAS EVEN OTHERWISE, JUSTIFIABLE. IT IS NOT FOR CHARGING THE LOWER RATE OF INTEREST AND THEREAFTER COMPENSATING IT BY REVENUE SHARING, BUT IT IS THE CASE OF TAKING RISK AND GUARANTEES AND ARRANGING THE FINANCE AND TAKING RISK THEREFORE, THE HOLDING COMPANY SHARED THE REVENUE. IN FACT, THE CREATION OF THE ASSESSEE BUT FOR COMMERCIAL EXPEDIENCY HAS PAVE THE WAY FOR PAYMENT OF TAXES, WHICH COULD HAVE OTHERWISE AVOIDED, IF THE PROJECT WAS TO BE COMPLETED BY THE HOLDING COMPANY ON ITS OWN. 10. THE TRANSACTION IS HIT BY PROVISIONS OF SECTION 40A(2)(B). RELIED ON THE LD. CIT (A)S ORDER. ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 52 11. THE LD. DR RELIED ON THE CASE OF CHAMUNDI WINARY AND DISTILLERY IN ITA 155/2016 (KARNATAKA HC)- DIVERSION OF INCOME BY TRANSFER OF OVERRIDING TITLE AT SOURCE CASE SPECIFIC. EVEN THE COURT REITERATED THAT THE ISSUE DEPENDS UPON FACTS AND CIRCUMSTANCES OF EACH AND INDIVIDUAL CASE WHETHER IN THOSE CIRCUMSTANCES IT WOULD AMOUNT TO A DIVERSION OF INCOME BY OVERRIDING TITLE AT SOURCE. NO LAW HAS BEEN LAID DOWN WHICH CAN BE APPLIED TO OTHER CASES. 46. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 47. WE FIND THAT THE ASSESSEE IS UNDER THE OBLIGATI ON TO PART AWAY WITH THE SOURCE OF INCOME TO THE HOLDING COMPANY AND IT WAS NOT ITS VOLITION ALONE, TO GIVE AWAY THE REVENUE THAT COULD HAVE BEE N OTHERWISE ACCRUED TO THEM. AN AGREEMENT ENTERED INTO BY THE HOLDING C OMPANY WITH THE ASSESSEE FOR PROVIDING FINANCIAL SECURITY COVER AND TO PART AWAY 25% SALES PROCEEDS WAS CLEARLY A CASE OF DIVISION OF SOURCE O F INCOME BETWEEN THE HOLDING COMPANY AND THE ASSESSEE. THE FLATS TO BE CONSTRUCTED, BY THE ASSESSEE COMPANY WERE THE SOURCE OF INCOME AND THE HOLDING COMPANY HAD CREATED A LIEN OVER 25% FOR A QUID PRO QUO THER EOF AND THEREFORE TOOK AWAY 25% SHARES FROM THE SALE PROCEEDS. IT IS NOT A CASE THAT THE ENTIRE SALE PROCEEDS OF FLATS AND THEREFORE, THE INCOME TH ERE FROM WOULD HAVE ACCRUED TO THE ASSESSEE AND 25% THEREOF HAD BEEN AP PLIED OR GIVEN AWAY BY THE ASSESSEE TO THE HOLDING COMPANY. THE ASSESSE E ACTS AS A COLLECTOR OF REVENUE FOR THE HOLDING COMPANY OF THE RECEIPT T O THE EXTENT OF 25% OF THE SALE PROCEEDS. THE 25% BELONGS TO THE HOLDING C OMPANY BY VIRTUE OF THE CONTRIBUTIONS MADE AND THE AGREEMENT ENTERED. 48. THE RELEVANT JUDGMENTS RELATING TO DIVERSION OF INCOME BY OVERRIDING TILE ARE AS UNDER: ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 53 IN CIT VS. SITALDAS TIRATHDAS [1961] 041 ITR 0367 (SC) HONBLE APEX COURT HELD THAT, AN OBLIGATION] TO APPLY INCOME IN A PARTICULAR WAY BEFORE IT WAS RECEIVED OR BEFORE IT WAS ACCRUED OR ARISEN TO THE ASSESSEE, RESULTS IN DIVERSION OF INCOME; BUT WHERE THERE IS AN OBLIGATION TO APPLY AN INCOME WHICH HAS ACCRUED OR ARISEN OR RECEIVED, IT WOULD AMOUNT TO MERELY APPORTIONMENT OF INCOME. IT OBSERVED AS UNDER: IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUN T SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS H IS INCOME. OBLIGATIONS, NO DOUBT, THERE APE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED M APPLY OUT OF HIS INCOME AND AM AMOUNT WHICH BY THE NATURE OF THE OBL IGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE AS SESSEE. WHERE BY THE OBLIGATION INCOME IS DIVERTED BEFORE IT REAC HES THE ASSESSEE, IT IS DEDUCTIBLE; BUT WHERE THE INCOME REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES T HE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW, IT I S THE FIRST HIND OF PAYMENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECO ND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTH ER A PORTION OF ONES OWN INCOME, WHICH HAS BEEN RECEIVED AND IS SI NCE APPLIED. THE FIRST IS A CASE IN WHICH THE INCOME NEVER REACH ES THE ASSESSEE, WHO EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME, BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT IS PAYABLE. IN OUR OPINION, THE PRESENT CASE IS ONE IN WHICH TH E WIFE AND CHILDREN OF THE ASSESSEE WHO CONTINUED TO BE MEMBER S OF THE FAMILY RECEIVED A PORTION OF THE INCOME OF THE ASSE SSEE, AFTER THE ASSESSEE HAD RECEIVED THE INCOME AS HIS OWN. THE CA SE IS ONE OF APPLICATION OF A PORTION OF THE INCOME TO DISCHARGE AN OBLIGATION AND NOT; A CASE IN WHICH BY AN OVERRIDING CHARGE TH E ASSESSEE BECAME ONLY A COLLECTOR OF ANOTHERS INCOME. IN DALMIA CEMENT LTD. V. CIT [1999] 104 TAXMAN 97/2 37 ITR 617 (SC) ASSESSEE-OWNER OF FACTORY HAD, BY AN AGREEMENT DATED 24.07.1962, AGREED TO SELL SAME TO M AND AGREEMEN T, PROVIDED THAT PROFIT FROM FACTORIES FROM 30.09.1962 WOULD BE FOR BENEFIT OF TRANSFEREE ON COMPLETION OF SALE TRANSACTION, THOUG H ACTUAL TRANSFER OF ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 54 FACTORY HAD TAKEN PLACE ON 30.09.1964, INCOME PERTA INING TO PERIOD 01.10.1962 TO 30.09.1964 COULD NOT BE ASSESSED IN A SSESSEES HANDS AS IT STOOD DIVERTED BY OVERRIDING TITLE. IT. HELD THAT IF THERE IS AN AGREEMENT BEFORE THE SALE TRANSACTION TAKES PLACE T O THE EFFECT THAT THIS TRANSACTION WILL GO TO THE ACCOUNT OF ANOTHER PERSON AND NOT TO THE ACCOUNT OF ASSESSEE COMPANY, THEN, THE INCOME WOULD STAND DIVERTED BY AN OVERRIDING TITLE AS A MATTER OF FACT, EVEN BE FORE THE ACCRUAL. THE HONBLE APEX COURT HELD AS UNDER: HELD, REVERSING THE DECISION OF THE HIGH COURT, TH AT THE PROFITS STOOD DIVERTED TO THE PURCHASER IN TERMS OF AND IN. ACCOR DANCE WITH THE AGREEMENT DATED JULY 24, 1962, READ WITH THE SUPPLE MENTAL AGREEMENT DATED NOVEMBER 2, 1962, AND THE DATE OF A CTUAL TRANSFER OF THE FACTORY IN QUESTION WHICH, IN FACT, HAD TAKEN P LACE ON SEPTEMBER 30, 1964, DID NOT ALTER THE SITUATION. THE INCOME S TOOD DIVERTED BY AN OVERRIDING- TITLE AS A MATTER OF FACT EVEN BEFORE T HE ACCRUAL. THERE WAS NO QUESTION OF ENABLING THE ASSESSEE TO RETAIN THE PROFIT IN ITS OWN HAND, AFTER THE 'SALE AGREEMENT'. THE SALE TRANSACT ION HAD TAKEN PLACE AND BY REASON OF THE EVENT AND IN TERMS OF THE PROV ISIONS OF THE AGREEMENT, THE QUESTION OF TRACING THE PROFIT IN TH E HANDS OF THE ASSESSEE DID NOT AND COULD NOT ARISE. IN ANY EVENT PROFITS OF A BUSINESS DO NOT ACCRUE FROM DAY TO DAY BUT AT THE E ND OF THE ACCOUNTING YEAR. PROFITS WERE ASCERTAINED ON SEPTEM BER 30, 1964, WHEN THE PROPERTY WAS TRANSFERRED AND AS SUCH FOR T HE YEAR 1965-66 THE QUESTION OF PROFIT ACCRUING TO THE ASSESSEE DID NOT ARISE. SECTION 60 HAS ITS APPLICATION ONLY TO A CASE WHERE INCOME ACCRUES TO THE TRANSFEREE BUT THE INCOME-EARNING ASSET OR SOURCE O F INCOME REMAINS WITH THE TRANSFEROR. IN THIS CASE, THE VERY EXISTEN CE OF THE AGREEMENT TO TRANSFER DATED JULY 24, 1962, RULED OUT AND TOTA LLY EXCLUDED THE APPLICATION OF SECTION 60. THERE APPEARED TO BE CLE AR INCONSISTENCY BETWEEN THE ASSESSMENT OF CAPITAL GAINS ON THE TRAN SFER OF THE FACTORIES ON THE ONE HAND AND THE FINDING OF ACCRUA L OF INCOME SINCE THE COMPUTATION OF CAPITAL GAINS WERE AFFECTED BY T REATING THE GROSS AMOUNT OF CONSIDERATION AS THE SALE PRICE. THE INCO ME-TAX OFFICER THUS BY IMPLICATION ACCEPTED THE PROFITS AS BELONGING TO THE TRANSFEREE AND NOT THE TRANSFEROR-OTHERWISE, THE NET AMOUNT PAID A LONE OUGHT TO HAVE BEEN TAKEN AS THE SALE PRICE. THE HIGH COURT'S JUDG MENT, THEREFORE, ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 55 NOT ONLY SUFFERED FROM APPARENT INCONSISTENCY BUT O N A TOTALITY OF THE SITUATION WAS INHERENTLY CONTRADICTORY. THE PROFITS ARISING FROM THE WORKING OF THE TWO CEMENT FACTORIES SITUATED IN PAK ISTAN FOR THE YEAR OCTOBER 1, 1962 TO SEPTEMBER 30, 1963, AND FOR THE YEAR OCTOBER 1, 1963 TO SEPTEMBER 30, 1964, WERE NOT TAXABLE IN THE HANDS OF THE ASSESSEE-COMPANY. THE HONBLE KERALA HIGH COURT IN SARALA DEVI (K.) ( SMT.) VS. COMMISSIONER OF INCOME-TAX 1996 222 ITR 211 (KER) H ELD THAT IT NATURE OF OBLIGATION WHICH IS A DECISIVE FACTOR. IT HELD AS UNDER: IN ORDER TO DETERMINE WHETHER THERE HAS BEEN A DI VERSION OF INCOME BY OVERRIDING TITLE THE TRUE TEST IS WHETHER THE AM OUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACHED THE ASSESSEE AS H IS INCOME. OBLIGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. THERE DI FFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HI S INCOME AND AN AMOUNT WHICH BY THE NATURE OBLIGATION CANNOT BE SAI D TO BE A PART OF THE INCOME OF THE ASSESSEE. WHERE BY THE OBLIGATION INCOME IS DIVERTED BEFORE, IT REACHES THE ASSESSEE, IT IS DED UCTIBLE; BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUE NCE, IN LAW, DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WH ICH CAN TRULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAYMENT IS M ERELY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONES OWN IN COME, WHICH HAS BEEN RECEIVED AND IS SINCE APPLIED. THE FIRST IS A CASE IN WHICH INCOME NEVER REACHES THE ASSESSEE, WHO EVEN IF HE WERE TO FEET IT, DOES SO, NOT AS PART OF HIS INCOME, BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT IS PAYABLE. 49. FROM THE FACTS OF THE CASE, IT CAN BE SAID THAT WHERE A SUPERIOR TITLE IS CREATED BEFORE ANY INCOME ACCRUES OR ARISES, IT WOULD BE THE DIVERSION OF INCOME BY OVERRIDING TITLE BUT WHERE THERE IS NO OB LIGATION ATTACHED AND INCOME IS APPLIED AS PER ASSESSEES OWN CHOICE AFTE R IT ACCRUES, IT WILL NOT BE A CASE OF DIVERSION BY SUPERIOR TITLE AS NO SUPE RIOR TITLE EXISTED. IN DIVERSION, THERE IS NO EARMARKING BY THE ASSESSEE O F A PARTICULAR INCOME BUT A CHARGE IS CREATED UPON HIS PROPERTY BEING SOU RCE OF INCOME. A ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 56 CHARGE CREATED VOLUNTARILY FOR OWN PURPOSE CANNOT B E CLAIMED AS DIVERSION. IF THERE IS AN OBLIGATION BEFORE AN INCO ME ACCRUES AND THE ASSESSEE IS UNDER COMPULSION TO DISCHARGE HIS OBLIG ATION, IT WOULD BE A CASE OF DIVERSION BY SUPERIOR TITLE BUT, WHERE THER E IS NO COMPULSION AND NO PRE-EXISTING OBLIGATION, BUT IT IS ASSESSEES CH OICE TO CREATE AN OBLIGATION ON HIMSELF EITHER BEFORE INCOME RECEIVED , ACCRUES OF ARISEN OR THEREAFTER, IT WOULD ONLY BE A CASE OF APPLICATION OF INCOME. A COMPULSION AT SOURCE IMPOSED BY A THIRD PARTY IS NECESSARY TO CREATE A SUPERIOR TITLE. JUST BECAUSE DIVERTED INCOME IS COLLECTED BY THE AS SESSEE HIMSELF FOR AND ON BEHALF OF THE BENEFICIARY; IT CANNOT BE INFERRED THAT IT WAS ONLY AN APPLICATION AND NOT DIVERSION. IN THE INSTANT CASE, THE ASSESSEE HAS BEEN OBLIGATED BY VIRTUE OF THE AGREEMENT TO DIVERT THE INCOME AT SOURCE AND ALSO FOR THE CONTRIBUTIONS MADE BY THE HOLDING COMP ANY. THUS, WE HOLD THAT THE REVENUE SHARING AGREEMENT ENTERED WITH THE HOLDING COMPANY BY THE ASSESSEE IS DIVERSION OF INCOME BY OVERRIDING T ITLE. THE REVENUES CONTENTION THAT THE ENTIRE TRANSACTION IS SHAM AND AIMED AT ONLY TO DIVERT THE INCOME TO EMLL CANNOT BE SAID TO BE CORRECT BAS ED ON THE FACTS AND THE JUDICIAL PRONOUNCEMENTS. WE HAVE CONSIDERED THE CONTRIBUTIONS BY THE HOLDING COMPANY WHICH IS AS UNDER: PRE-BIDDING A) BID SECURITY OF RS. 10 CRORES TO BE DEPOSITED B) THE BIDDER SHOULD HAVE A NET WORTH OF RS. 100 C RORES C) THE RESERVE PRICE FOR THE BID WAS RS. 300 CRORE S POST-BIDDING D) TECHNICALLY QUALIFIED BIDDER TO PROVIDE 25% OF T HE QUOTED UPFRONT AMOUNT LESS ANY BID SECURITY (EMCPL BID RS 321 CRS) E) TECHNICALLY QUALIFIED BIDDER TO PROVIDE BALANCE 75% OF THE QUOTED UPFRONT AMOUNT WITHIN 3 DAYS OF AWARD OF THE BID (E MCPL BID RS. 321 CRORES) F) TECHNICALLY QUALIFIED BIDDER TO PROVIDE PERFORMA NCE GUARANTEE OF RS. 400 CRORES ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 57 G) SEED CAPITAL / WORKING CAPITAL FOR THE PROJECT W HERE ESTIMATED COST WAS RS. 1550 CRORES. DATE AMOUNT IN INR PURPOSE 03-M-07 25,50,00,000 AMOUNT PAID FOR DDA AS EARNEST MONEY FOR COMMONWEALTH GAME VILLAGE 04 - AUG - 07 60,37,50,000 AMOUNT PAID FOR DDA SELECTION OF PROJECT DEVELOPERS FOR CONSTRUCTION OF RESIDENTIAL PROJECT OF COMMONWEALTH GAMES VILLAGE- 04-AUG-07 60,00,00,000 AMOUNT PAID FOR DDA SELECTION OF PROJECT DEVELOPERS FOR CONSTRUCTION OF RESIDENTIAL PROJECT OF COMMONWEALTH GAMES VILLAGE- 14-JUN-07 10,00,00,000 AMOUNT PAID FOR SUBMISSION OF THE RFP FOR RESIDENTIAL PROJECT COMMONWEALTH GAMES, 2010 VILLAGE. 02-JUL-07 44,75,00,000 AMOUNT PAID FOR DDA AS EARNEST MONEY FOR COMMONWEALTH GAME VILLAGE 05-SEP-07 20,37,50,000 ADVANCE PAID FOR DDA FOR COMMONWEALTH GAME TOTAL 221,00,00,000 50. FURTHER, IN ACCORDANCE WITH BID THE REQUIREMENT , EMLL PAID ORIGINAL BID AMOUNT ALONG WITH A BANK GUARANTEE OF RS. 400 C RORES WHICH WAS ALSO ARRANGED BY EMLL BY PROVIDING CORPORATE GUARANTEE. DETAIL OF LOAN RAISED AND BANK GUARANTEE PROVIDED IS AS UNDER: LENDER PROJECT LOAN (INR IN CRORES) BANK GUARANTEE FACILITY (INR IN CRORES) TOTAL CREDIT FACILITY SECURITY GIVEN TO LENDERS STATE BANK OF INDIA 150 300 450 ASSIGNMENT OF DEVELOPMENT RIGHT AND CORPORATE GUARANTEE OF EMLL LAND STATE BANK: OF PATIALA . 50 50 100 HDFC LTD. 50 - 50 HSBC - 50 50 CORPORATE GUARANTEE OF EMLL LAND TOTAL 250 400 650 ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 58 51. THUS, KEEPING IN VIEW THE ENTIRE FACTUM OF THE CASE, WE HEREBY HOLD THAT THE PAYMENT MADE TO EMLL IS OBLIGATORY AND DIV ERSION OF INCOME BY OVERRIDING TITLE. THE REVENUE CONTENTION THAT THIS IS A SHAM TRANSACTION CANNOT BE ACCEPTED IN VIEW OF THE CONTRIBUTION MADE BY THE EMLL AND ALSO KEEPING IN VIEW THAT THE AMOUNTS HAVE BEEN DULY OFF ERED TO TAXATION IN THEIR RESPECTIVE ENTITIES. THE GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS DISMISSED AND GROUND NO. 2 OF THE APPEAL OF THE ASS ESSEE IS ALLOWED. 52. THE GROUND NO. 4 OF THE REVENUE APPEAL: THE ASS ESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO BY TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FR OM BUSINESS THEREBY NOT ALLOWING THE ASSESSEE TO REDUCE THE SAME FROM THE PROJECT COST. THE AO IN HIS ASSESSMENT ORDER HAS ALLEGED THAT INTERES T HAS BEEN NETTED OFF AGAINST PROJECT COST WHICH IS NOT PERMISSIBLE HENCE IT SHOULD BE TAXED UNDER HEAD INCOME FROM OTHER SOURCES. 53. THE FACTS TAKEN FROM THE RECORD ARE AS UNDER: THE ASSESSEE HAS SHOWN A SUM OF RS.2,33,47,117 AS I NTEREST INCOME WHICH HAS BEEN REDUCED FROM TOTAL COST INCURRED UPT O MARCH 2009 AT RS.917,16,70,049 LEAVING NET EXPENDITURE AT RS.914, 83,22,932 UPTO MARCH 2009. 54. THE ASSESSING OFFICER HAS TAKEN A VIEW THAT SUC H NETTING IS NOT PERMISSIBLE AS INTEREST INCOME HAS TO BE SEPARATELY SHOWN UNDER HEAD INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN COMMISSIONER OF INCO ME-TAX VS. SHRI RAM HONDA POWER EQUIP(2007) 289 ITR 475 (DEI) AND ON TH E SPECIAL BENCH OF ITAT IN LAL SONS ENTERPRISE 89 ITD 25 (DEL). THE AS SESSING OFFICER ADMITS THAT THE SAID DECISION WAS GIVEN IN THE CONTEXT OF COMPUTATION OF DEDUCTION UNDER SECTION 80HHC HOWEVER THE RATIO LAI D DOWN IN THOSE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 59 DECISIONS IS CLEAR IN AS MUCH AS INTEREST INCOME FR OM SURPLUS FUNDS PARKED IN FDRS / INVESTMENTS IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 55. BEFORE US DURING THE ARGUMENTS, THE LD. DR STRO NGLY SUPPORTED THE CASE OF THE REVENUE AND FURTHER RELIED ON THE TUTIC ORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS COMMISSIONER OF INCOME TAX (199 7) 141 CTR 387 (SC). SHE ARGUED THAT THE INTEREST INCOME HAS NO NEXUS WI TH THE BUSINESS AND THEREFORE HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 56. THE LD. AR ARGUED THAT THE ASSESSEE COMPANY IS A SPV FLOATED FOR THE PURPOSE OF ONE PROJECT WHICH HAS NO FUNDS OF IT S OWN AND ALL THE FUNDS HAVE BEEN PROVIDED BY THE HOLDING COMPANY WITH INTE REST. HE ARGUED THAT SINCE A PART OF THE SAME FUNDS WERE DEPOSITED IN TH E BANK AS FDR AND INVESTMENT THE DIRECT NEXUS IS ESTABLISHED. HENCE, IT SHOULD BE TREATED AS PART OF BUSINESS INCOME. 57. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDER OF THE LD. CIT (A) WHILE DEALING WITH THIS ISSUE. THE RELEVANT PART IS AS UNDER: THE APPELLANT REDUCED THE COST OF PROJECT BY THE AMOUNT OF INTEREST INCOME EARNED THROUGH TEMPORARY DEPLOYMENT OF LOANS/REVENUES IN FDRS. IF THE SAID AMOUNT IS CHARG ED TO TAX UNDER THE HEAD OTHER SOURCES, THE INTEREST EXPENDIT URE WILL INCREASE AND THE BUSINESS INCOME OF THE APPELLANT WOULD GET REDUCED ACCORDINGLY. THE ONLY BUSINESS OF THE APPEL LANT COMPANY IS THE CGV PROJECT AND ALL FUNDS ARE RAISED FOR AND REALIZED FROM THIS PROJECT ONLY. THEREFORE, TEMPORA RY DEPLOYMENT OF FUNDS IN FINANCIAL INVESTMENTS AND IN COME GENERATED THEREFROM IS INEXTRICABLY LINKED TO AND A BY-PRODUCT OF THE BUSINESS OF THE APPELLANT. THEREFORE, SUCH I NCOME IS TO BE TREATED AS PART OF BUSINESS INCOME OF THE APPELL ANT. THERE IS NO BASIS OR JUSTIFICATION TO CHARGE SUCH INCOME UND ER THE HEAD OTHER SOURCES. FURTHER, THERE WOULD NOT BE ANY IMPA CT ON THE TAXABLE INCOME OF THE APPELLANT AS EITHER THE INCOM E UNDER THE ITA NOS. 1731, 1732, 2001, 2002, 5827 & 6114/DEL/2014 ITA NOS. 913, 914 & 1253/DEL/2017 EMAAR MGF CONSTRUCTION PVT. LTD. 60 HEAD INCOME FROM BUSINESS WILL DECREASE OR THE IN CREASED BUSINESS LOSS WILL BE SET OFF AGAINST INCOME FROM OTHER SOURCES U/S 71. ACCORDINGLY, THESE GROUNDS OF APPEAL ARE AL LOWED. THE ADDITION MADE IS DELETED. 58. HAVING CONSIDERED THE FACTS OF THE CASE, SECTIO NS 56, 57 AND THE PROVISIONS RELATING TO SECTION 28, SECTION 36 & 37, AND THE PROVISIONS OF SECTION 71 OF THE INCOME TAX ACT, 1961 AND THE JUDG MENTS ON THE ISSUE, WE HEREBY HOLD THAT IN THE INSTANT CASE WHERE THE A SSESSEE IS TAXED AT THE MAXIMUM MARGINAL RATE, THE ADDITION WOULD BE REVENU E NEUTRAL. HENCE, WE DECLINE TO INTERFERE WITH THE LOGICAL ORDER OF T HE LD. CIT (A). 59. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/12/2019. SD/- SD/- (H. S. SIDHU) (DR . B. R. R. KUMAR) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATED: 26/12/2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR