Income Tax Appellate Tribunal - Kolkata
Dhoot Developers Pvt Ltd, Kolkata vs Department Of Income Tax on 19 October, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH KOLKATA
BEFORE SHRI M. BALAGANESH, AM & SHRI S.S.VISWANETHRA RAVI, JM
IT(SS)A No.34/Kol/2013
( नधा रण वष / Assessment Year :2009-2010)
DCIT-CC-XIII, Kolkata Vs. M/s Dhoot Developers Pvt.
Ltd., 904-907, Time Tower,
M.G.Road, Sector-28,
Gurgaon-122002
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCD 5433 A
(अपीलाथ /Appellant) .. ( यथ / Respondent)
राज व क ओर से /Revenue by : Shri G.Mallikarjuna CIT DR
नधा रती क ओर से /Assessee by : Shri A.K.Tulsyan, FCA
सन
ु वाई क तार ख / Date of Hearing : 23/08/2016
घोषणा क तार ख/Date of Pronouncement 19/10/2016
आदे श / O R D E R
PER M.BALAGANESH, AM
This appeal of the assessee arises out of the order of Learned CIT(A)-III, New Delhi, in Appeal No.472/10-11/CIT(A)-III, dated 21.12.12 passed against the assessment framed u/s.153A/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act').
2. The Grounds 1 ,2 & 15 raised by the revenue are general in nature and does not require any adjudication.
3. The first issue to be decided in this appeal is as to whether the ld CITA is justified in accepting the allocation of interest to various projects as done by the assessee in the facts and circumstances of the case.
3.1. The brief facts of this issue is that the return of income for the Asst Year 2009-10 was filed by the assessee on 1.2.2010 declaring taxable income of Rs. 2,31,22,010/-. The assessee is one of the companies of Dhoot Group of Companies having Head Office at Delhi. The Dhoot Group is mainly involved in conceiving and developing real estate projects in different parts of the country. All the companies of Dhoot Group have 2 IT(SS)A No.34/13 their Head Office at 504, Ansal Bhawan, New Delhi, where a search u/s 132 of the Act was conducted along with the cases of Suncity Group on 25.9.2008. The ld AO observed that assessee company during the year had constructed and sold a commercial project named as 'Time Tower', wherein a loss of Rs. 3,12,36,632/- was disclosed by the assessee. The ld AO sought to analyse the reason for the loss. The assessee was asked to give the ledger account of expenditure incurred and to give quantitative details of the complete trading section and finally to give justification with regard to claim of interest and administrative expenditure against the 'Time Tower' Project. The ld AO observed that the assessee had raised loans from body corporate amounting to Rs. 34,79,08,640/- and has paid interest of Rs. 2,43,16,405/-. The assessee was running four different projects in various cities and to construct these projects, the assessee has raised loans from its group companies. The ld AO observed that the loans so raised has been utilized partially for the projects and partially for giving interest free advances and for making tax free investments. The ld AO observed that the interest has been paid on unsecured loans raised by the assessee and the said interest has been apportioned mainly in the Time Tower Project. The ld AO noticed that the assessee had charged the interest mainly on its 'Time Tower Project' and huge advances were given to its sister concerns without charging any interest. The ld AO also noticed that the assessee had no basis to allocate the interest expenditure in 80:20 ratio between 'Time Tower Project' and 'Satbari Project'. Accordingly, he held that the book results do not give the correct picture of profit and proceeded to reject the books of accounts in terms of section 145(3) of the Act. The ld AO on his own therefore allocated interest to 'Time Tower Project' @ 50% of 80% i.e effectively at 40% and made an addition of Rs. 2,07,62,848/- in the assessment.
3.2. Before the ld CITA , the assessee submitted that it is well accepted practice that the interest cost should be loaded to various projects based on fund utilization method. It was stated that the assessee has made 3 IT(SS)A No.34/13 payment out of loan funds on which interest is charged and such interest is properly capitalized on Time Tower Project, Satbari Project and Ghatkoper Project. It was also stated that the chart that the ld AO had reflected in his order regarding investment in various projects of Dhoot Group does not match with the books of account. The correct statement thereon was filed before the ld CITA. It was argued that the chart proves that the ld AO had not gone in depth and the assessment of investment of the assessee company. It was further stated that the ld AO had grossly misread the balance sheet of the assessee company and had failed to judge the nature of the items shown in the balance sheet. It was stated that in para 4.10 of the assessment order, the ld AO had shown a chart of interest paid and loaded on different project in different year. Rs. 69,00,000/- was shown as investment in land in Kolkata. It was stated that the amount is duly reflected in the Creditor Side of the Balance Sheet and the amount of Rs. 69,00,000/- comprises as amount received as advance from customer instead to investment of the assessee company. It was stated that in para 4.12 of the assessment order, the ld AO had shown a chart showing unsecured loan from body corporate as Rs. 34,79,08,640/- and its utilization as interest free advance to Kolkata Branch as Rs. 22,29,99,531/- and interest free advance to Mumbai as Rs.3,36,63,526/- and amount invested in securities whose income is exempted as Rs. 9,20,62,662/-. The actual fund utilization out of loan funds were furnished by the assessee before the ld CIT(A) .
3.3. The ld CITA on going through the submissions of the assessee and the papers filed before him held that the ld AO cannot disallow the interest more than what is charged to the profit and loss account. He observed that the assessee had paid interest of Rs. 2,43,16,405/- and out of which only Rs. 60,74,934/- was debited to profit and loss account and balance was charged to different projects, namely Time Tower Project (Rs. 81,27,908/- ) , Satbari Project (Rs. 94,69,171/-) and Ghatkoper Project 4 IT(SS)A No.34/13 (Rs. 6,60,580/-). The ld CIT(A) deleted the addition by observing as under:-
"7.3 It is seen that the appellant had a share capital and reserve fund of more than Rs.51 Crore and it is also further noticed that appellant has paid the business advances of Rs.25,66,63,057 which the AO treated as "Interest free loan to group companies".
When this issue was further examined during the appellate proceedings, it is seen that out of Rs. 25,66,63,057, a sum of Rs.3,36,63,526 is paid to various contractors who were undertaking the construction work of "Time Tower Project" and "Satbari Projects" and not to the appellant's group company as alleged by AO and it is also seen that Rs. 20,62,30,328 has been paid to Kolkata Metropolitan Development Authority pursuant to a JV agreement for constructing commercial complex at Kolkata. It is pertinent to mention here, that from the perusal of the bank statement it is observed that the said payment to Kolkata Metropolitan Development Authority is not made out of borrowed funds as alleged by the AO, but the payment is made out of the sale proceeds of the mutual funds received on 04.03.2008.
7.4 From the perusal of appellant's financial accounts it is seen that both the "Time Tower Project" and "Satbari Project" had the total cost of Rs. 83.63 Crores and Rs. 14.02 crore respectively, therefore I don't find any logic as to on what basis AO has come to the conclusion that only 40% of the interest cost should be apportioned to "Time Tower Project" as against 80% allocated by the appellant.
7.5 Hence, in view of the above stated facts, I hold that AO is not right in disallowing the interest of Rs.2,07,62,848 when actually only Rs.60,74,934 has been charged to Profit and Loss Account. Accordingly, the addition made by the AO deserves to be deleted."
3.4. Aggrieved, the revenue is in appeal before us on the following grounds :-
3. That the Ld. CIT (Appeals) erred in not appreciating the fact that apportioning every expense on ad hoc basis to a project does not reflect true income from a project.
4. That the Ld. CIT (Appeals) erred in not appreciating the fact that while the AO was liberal in accepting 80% of office expenses allocation to the Time Tower Project, the same was not necessarily right for other expenses.
5. That the Ld. CIT (A) was clearly in error of fact and law in not understanding that excessive finance charges were loaded to the Time Tower Project
6. That the Ld. CIT (A) erred on facts and in law in not correctly understanding the admitted facts on allocation of finance charges.5 IT(SS)A No.34/13
7. That the Ld. CIT (Appeals) erred in not appreciating the admitted facts on page 6 of his own order wherein only 30.80% of borrowed funds were utilised for the Time Tower Project.
8. That the Ld. CIT (Appeals) erred in not appreciating that the AO erred in allocating 40% of Rs.4,15,25,696/- interest cost amounting to Rs.2,07,62,848/- to Time Tower Project whereas it ought to have been no more than 30.80% or Rs.1,27,89,914/-
thereby he failed to decide that disallowance ought to have been Rs.2,87,35,781/- instead of Rs.2,07,62,848/-.
9. That the Ld. CIT (Appeals) erred in giving relief of Rs.2,07,62,848/- on account of interest expense having loaded to the Time Tower Project @40% when it ought not to have been more than 30.80% on admitted facts of the assessee.
10. That the Ld. CIT (Appeals) erred in not enhancing by an amount of Rs.79,72,933/- (Rs.2,87,35,781/ - - Rs.2,07,62,848/-) on account of excessive finance load allocated to the Time Tower Project.
11. That the Ld. CIT (Appeals) erred in understanding the meaning of Rs.60,74,934/ - interest debited to P&L account which is in addition to interest directly charged to different projects and cannot be the basis of disallowing excessive allocation of interest to the Time Tower Project.
3.5. The ld DR vehemently relied on the order of the ld AO and reiterated the findings of the ld AO . He stated that there is no scientific method of allocation of interest cost to various projects in the ratio of 80:20 between Time Tower and Satbari Projects. This is done only to reduce the taxable income of Time Tower Project. It cannot be brushed aside that the assessee by debiting excessive interest to Time Tower Project had declared huge loss thereon. Hence there was nothing wrong in the ld AO making examination for ascertaining the reason for the loss. In response to this, the ld AR argued that the ld AO is at liberty to examine the reason for the loss but had not brought any material on record to dispute the allocation of interest to various projects. Admittedly the assessee had allocated the interest cost to various projects based on actual utilization of borrowed funds to various projects. There is absolutely no basis for the ld AO to reject the books of accounts u/s 145(3) of the Act and disallow 50% of interest claimed by the assessee. He argued that the disallowance of the ld AO is very arbitrary in as much as it had exceeded even the interest debited in the profit and loss account. This itself goes to prove that the 6 IT(SS)A No.34/13 disallowance made has got no basis. This was rightly appreciated by the ld CITA and the addition was accordingly deleted.
3.6. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of pages 1 to 243. We find that the assessee out of total interest paid on borrowed funds had capitalized some portion to the various projects which were not completed. This was made based on actual fund utilized out of borrowed funds to various projects undertaken by the assessee. The remaining portion was charged off to profit and loss account. We find that there is absolutely no basis for disallowance of 50% of interest in the sum of Rs. 2.07 crores which was much more than what was even claimed by the assessee in the profit and loss account. We find that the assessee had filed fresh utilization of borrowed funds for various purposes including the projects before the ld CITA which was not subjected to any verification by the ld AO. We are in agreement with the argument of the ld AR that the allocation of interest to various projects based on actual utilization of borrowed funds towards various projects is more scientific and would result in true picture. We find that the entire workings of allocation of interest and utilization of funds requires re- examination by the ld AO in the proper perspective. Hence in the interest of justice and fairplay, we deem it fit and appropriate, to set aside this issue to the file of the ld AO, to decide this issue afresh, in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly the Grounds 3 to 11 raised by the revenue are allowed for statistical purposes.
4. The last ground to be decided in this appeal is as to whether the ld CITA justified in deleting the addition of Rs. 40 lacs made by the ld AO on account of undercharging of sales to group companies in the facts and circumstances of the case.
7 IT(SS)A No.34/134.1. The brief facts of this issue is that the ld AO observed that the sizeable portion of the sales of Rs. 52.52 crores has been made to group company i.e Dhoot Infrastructure Project Ltd and Essel Housing who contributed the land. The assessee was asked to give bifurcation of sale rate with respect to each sale and to furnish details of each sale which could not be furnished by the assessee. Accordingly the ld AO concluded that the underpricing of the sale amount to the group companies cannot be ruled out and held that the sale made to group companies would be covered u/s 40A(2)(b) of the Act . He also held that the huge sales are shown as Sundry Debtors under the name M/s Dhoot Infrastructure Projects Ltd and no interest is charged on these sundry debtors for belated payments. Hence he made an estimated addition of Rs. 40,00,000/- on account of undercharging of sales.
4.2. The assessee submitted that there was no sale made to Essel Housing who contributed the land. The assessee stated that the ld AO did not seek any information during the course of assessment proceedings. The ld CITA deleted the addition by observing as under:-
" On going through the details of total sales made by the appellant, it is seen that out of the total sales amounting to Rs.52,53,19,562, the appellant has made the sales of 6289 square feet to Dhoot Infrastructure at a selling price of Rs.5000 per square feet and 4879 square feet is sold at Rs.4950 per square feet and this rate of per square feet is the more than the rate charged from other 108 parties in number, to whom the appellant has sold the units, ranging from Rs.2,100 per square feet to Rs.4,500 per square feet.
In view of the above stated facts I don't see any reason of under pricing of sales made to group company, accordingly the addition of Rs.40 lacs deserves to be deleted."
4.3. Aggrieved, the revenue is in appeal before us on the following ground :-
13. That on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in deleting the addition made by the AO on account of under charging of sales made to group companies.
14. That on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in not considering the fact that no interest had been charged by the assessee on sundry debtors.8 IT(SS)A No.34/13
4.4. The ld DR vehemently relied on the order of the ld AO. The ld AR vehemently relied on the order of the ld CITA.
4.5. We have heard the rival submissions. We find that the ld CITA had given a finding on verification of the accounts of the assessee that the sales made to group companies were made at rates which are more than that made to others . This fact has not been controverted by the revenue before us. We find that the instant addition was made u/s 40(A)(2)(b) of the Act by the ld AO in respect of undercharging of sales made to group companies. We find that the provisions of section 40A(2)(b) of the Act only speaks about payments made by an assessee and not the sales made thereon. We hold that the said provisions have been wrongly invoked by the ld AO and the same cannot be made applicable in any stretch of imagination. We do not find any infirmity in the order of the ld CITA. Accordingly, the Grounds 13 & 14 raised by the revenue are dismissed.
5. In the result, the appeal of the revenue is partly allowed for statistical purposes.
Order pronounced in the open court on this 19/10/ 2016.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (M.BALAGANESH) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER कोलकाता /Kolkata; $दनांक Dated 19/10/2016 काश (म*ा/Prakash Mishra, न.स/ PS आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु4त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु4त / CIT
5. 5वभागीय त न8ध, आयकर अपील य अ8धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड फाईल / Guard file.
स या5पत त //True Copy// 9 IT(SS)A No.34/13 ु ार/ BY ORDER, आदे शानस उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपील&य अ'धकरण, कोलकाता / ITAT, कोलकाता