DEPUTY COMMISSIONER OF INCOME TAX Vs. ADITYA PROPERTIES (P) LTD.
LAWS(IT)-2014-5-64
INCOME TAX APPELLATE TRIBUNAL
Decided on May 23,2014

Appellant
VERSUS
Respondents

JUDGEMENT

TS KAPOOR,AM. - (1.) THIS is an appeal filed by the revenue against the order of Ld CIT(A) dated 29.11.2006. The assessee has also filed cross objections against the action of Ld CIT(A) by which he upheld one of the additions made by the Assessing Officer. The first addition deleted by Ld CIT(A) is with respect to addition of Rs.38.,62 lakhs which the Assessing Officer had made on account of the fact that as per agreement with M/s DCM Estates & Infrastructures Ltd. (DEIL), the assessee was entitled to interest on advances made by it but it had not accounted for it on accrual basis. The facts regarding this addition are that assessee had invested an amount of Rs.1,93,10,000/ - by way of investment in DEIL for purchase of flats in DCM Techno Plaza, Bara Hindu Rao, Delhi. It was agreed between the assessee and DEIL that in case sale is not executed then DEIL will pay interest on the amount advanced @ 20% p.a. M/s DEIL did not pay interest and had expressed its inability to pay interest on the outstanding balance and therefore the assessee company also did not provide interest accrued as income for the year. The Assessing Officer held that since the assessee was following mercantile system of accounting and was following project completion method, the interest had accrued to it and it was liable to be taxed. Therefore, he made an addition of Rs.38.62 lakhs.
(2.) THE second addition of Rs.28,96,500/ - was made as the Assessing Officer observed that assessee had advanced the amount of Rs.1,93,10,000/ - to M/s DEIL out of money borrowed on which heavy amount of interest was paid. Therefore, he made the addition applying notional interest rate of 15% per annum.
(3.) THE third addition of Rs.1,85,324/ - was made by the Assessing Officer as he held that commission paid by the assessee was not justified as he observed that bills issued by the payees revealed that the commission was paid to them by M/s Unitech Ltd. and not by assessee. Aggrieved with the order, the assessee filed appeal before Ld CIT(A). The Ld CIT(A) after going through the various submissions of the assessee allowed relief to the assessee by holding as under: - "Regarding Ist addition: In the present case we see that: i) The advances were given by the appellant company to the DEIL. ii) The purpose of giving advance was to purchase unit of property of DEIL. iii) Due to court order the DEIL could not allot units. iv) The Hon'ble High Court of Delhi restrained the DEIL from selling disposing or creating any third party rights in the project and the sale agreement will be executed only after the restraint order is vacated by the High court of Delhi. In the event the restraint order is not vacated within six months from the date of payment of the advance, the company will not have any lien in sale of property and will be entitled to collect principal amount along with interest of 20% per annum. v) The DEIL informed the appellant company that they are not in a position to pay or provide interest on the advances. vi) In subsequent years the appellant company had never cancelled the booking. At the same time DEIL has never stopped recognizing the lien of the appellant company on the said units. On the contrary both the companies have made transactions to strengthen the lien on these units which is evident from the documents filed during the appeal proceedings. Considering the facts of the issue, judicial pronouncements of the Hon'ble Supreme Court language of AS - 9 and the sequence of facts as narrated above, it is held that there was no accrual of any real income and the amount added as accrued interest is therefore deleted." Regarding 2nd addition: I have considered the findings of Assessing Officer and also the contentions of the appellant furnished in the written submissions. I am convinced that the case law in the case of Wall Street Construction Ltd. v. JCIT 2006 is not applicable in this case because the investment was not in a project that has not come up for sale during the previous year under consideration. One important fact has been left to be appreciated that appellant has a share capital of Rs.11,00,01,000/ - and reserve and surplus of Rs.2,70,79,906/ - totaling to Rs.13,71,79,906/ -. This huge amount on which no interest has been paid is sufficient enough to cover the advance given to DEIL for booking the units. This is also correct that neither interest on the amount borrowed was claimed as revenue expenditure nor the amount was provided as revenue expenditure. It is also a fact that appellant has claimed an amount of Rs.1,41,122/ - as interest in the return filed. Hence by no stretch of imagination an amount of Rs.28,96,500/ - can be disallowed out of the claimed amount of Rs.1,41,122/ -. On the basis of these facts it is concluded that the share capital and reserve and surplus of Rs.13,71,79,906/ - was sufficient for giving advance. Since no interest was payable on this amount of share capital and reserve and surplus no disallowance of interest is warranted. As a result the addition of Rs.28,96,500/ - is deleted. Regarding 3rd addition on account of brokerage: A sum of Rs.1,85,324/ - was disallowed out of brokerage paid to Shri Vinay Jain and Shri RS Dhingra in the absence of any confirmation by the Assessing Officer. While passing the order the Ld Assessing Officer has ignored all the facts and submissions of the case. We had already placed on records that the appellant had started its business with the collaboration of Unitech Ltd. There was an agreement between the appellant company and Unitech Ltd. for the authorization to Unitech Ltd. to sell/transfer on behalf of the appellant company. It was also agreed between the two companies that all permissions, approvals, NOC's wherever required, including NOC in Form 37(1) u/s 269 UC of the IT Act shall be obtained by the Unitech Ltd. Accordingly, the concerned business parties have to deal with Unitech Ltd. In view of these the two brokers namely Shri Vinay Jain and Shri RS Dhingra has issued the bills in the name of Unitech Ltd. But these are never charged to Unitech Ltd and had been provided only in the books of appellant company. When called for the appellant produced the books of accounts to show that the amount of brokerage of Rs.1,85,324/ - was paid to Shri Vinay Jain and Shri RS Dhingra. This is also a fact that the appellant company had in agreement with Unitech Ltd. authorizing the Unitech Ltd to sale/transfer on behalf of the appellant company. The copy of the agreement is on the record. The name of Unitech Ltd. on the concerned bills makes no difference as the amount of brokerage was ultimately paid by the appellant company. The nature of services rendered by the brokers is evident from the agreement and bills. On the basis of these facts the addition is deleted. " ;


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