Delhi High Court - Orders
Pr. Commissioner Of Income Tax -Central ... vs Emaar Mgf Construction Pvt. Ltd on 27 May, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~22 & 23
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 710/2023
PR. COMMISSIONER OF INCOME
TAX -CENTRAL -1 ..... Appellant
Through: Mr. Ruchir Bhatia, SSC with
Mr. Anant Mann, JSC.
versus
EMAAR MGF CONSTRUCTION PVT. LTD. ..... Respondent
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aniket D. Agrawal, Mr.
Deepesh Jain & Mr. Abhisek
Singhvi, Advs.
23
+ ITA 745/2023
PR. COMMISSIONER OF INCOME
TAX -CENTRAL -1 ..... Appellant
Through: Mr. Ruchir Bhatia, SSC with
Mr. Anant Mann, JSC.
versus
EMAAR MGF CONSTRUCTION PVT. LTD. ..... Respondent
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aniket D. Agrawal, Mr.
Deepesh Jain & Mr. Abhisek
Singhvi, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 27.05.2024 CM 63254/2023 (460 Days Delay in Refiling) in ITA 710/2023 CM 63881/2023 (460 Days Delay in Refiling) in ITA 745/2023 Bearing in mind the disclosures made, the delay of 460 days' in re-filing the appeals is condoned.
ITA 710/2023 & 745/2023 Page 1 of 8This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:31 Applications stand disposed of.
ITA 710/2023 ITA 745/20231. The Principal Commissioner impugns the order of the Income Tax Appellate Tribunal ["Tribunal"] dated 26 December 2019 and has proposed the following questions of law for our consideration:
"2.1 Whether the ld. ITAT is justified in law and in fact in deleting the addition of Rs.157.33 crores taking resort to the holding that the ld. AO has not rejected the books of account though the Ld. AO has thoroughly discussed the issue before making the addition? 2.2 Whether the Id. ITAT is justified in law and in fact in deleting the addition mentioned above without appreciating the provision of section 292B of the I.T. Act. 1961?
2.3 Whether Id. ITAT is justified in law and in fact in deleting the above mentioned addition by taking estimated construction cost of Rs. 1076 Crores instead of Rs.750 Crores as the same was estimated from the factual information available with the Ld. AO and the Assessee could not confront the same during the assessment proceedings?
2.4 Whether the Id. ITAT is justified in law and in fact in deleting the addition of Rs.211,23,81,220/- made on account of application of income by holding that disbursement of income as per the Revenue sharing Agreement with EMLL (M/s Emmar Land Ltd.) was diversion of income by overriding the title and not the application of income though the Id. ITAT has not appreciated the fact that in the Agreement dated 14.09.2007 between the assessee and the DDA nothing has been mentioned above the funds to be raised on behalf of the Assessee's parent company? 2.5 Whether the Id. ITAT is erred in law and in fact in deleting the addition made on account of application of income in interpreting the case law of CIT Vs Sitaladas Tirathadas, (1961) 41 ITR 367, 374-5 (SC) & Ors. and in holding that disbursement of income as per the Revenue sharing Agreement with EMLL (M/s Emmar Land Ltd. ) was diversion of income by overriding the title and not the application of income though the ld. ITAT has not appreciated the fact that in the Agreement dated 14.09.2017 between the assessee and the DDA nothing has been mentioned about the funds to be raised on behalf of the assessee's parent company?"
2. The principal two issues which were canvassed on the appeals were firstly with respect to the Tribunal proceeding on the premise ITA 710/2023 & 745/2023 Page 2 of 8 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:31 that the addition of INR 157.33 crores [ITA 710/2023] and INR 51.6 crores [ITA 745/2023] would not sustain since the books of account had not been rejected.
3. The other question which appears to arise was as set out in proposed question 2.4, and pertains to the application of income in terms of the Revenue Sharing Agreement ["RSA"] which existed between the respondent-assessee and M/s Emaar Land Private Ltd.
4. On the aspect of rejection of books, we find that the Assessing Officer ["AO"] had in Para 17.6 categorically observed as follows:
"17.6 Further, the assessee has shown sundry creditors at Rs. 99,68,32,820/- out of which sale & distribution is appearing at Rs. 188,18,134/-. This amount do not bear the name of the parties to whom payable and appears to be more like 'provisions of expenditure', which has not yet incurred hence cannot be allowed and expenditure to this extent will be disallowed and added to the income of the assessee.
In view of the above, the accounts maintained & submitted by the assessee is not correct and, therefore, liable to be rejected u/s. 145 of the l.T. Act, as it has claimed bogus expenses to enhance the cost and to reduce the profit. The above transactions clearly depict the malafide intent of the assessee to enhance the cost and evade the tax. Therefore, the books of accounts submitted by the assessee are such from which the true and correct profit cannot be deduced and, therefore, rejected.
5. It is thus manifest that the Tribunal has clearly acted and proceeded on an incorrect premise.
6. As we view the following conclusions which have come to be rendered by the Tribunal, we are prima facie convinced that it has proceeded on a wholly incorrect basis that the books of accounts had not been rejected. This becomes apparent when we read Para 34, which is extracted hereinbelow:
"34. Primarily, we find that the addition has been made solely based on Shunglu Committee Report. The object of the Shunglu Committee was to determine, if the purchase of 333 additional flats ITA 710/2023 & 745/2023 Page 3 of 8 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:32 by DDA was according to the norms/ rules and had not caused any loss to the exchequer. Its object was not to determine the cost or expenditure to the assessee, indeed, the assessee was never called to the proceedings of the Shunglu Committee, nor was any input / clarification taken from the assessee. It can also' be find that another government agency, the Labour Commissioner, has accepted the cost of the assessee for the purpose of levy of labour cess on the CGV project. What is primarily 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 materials. The issue of the purchase of materials is also dealt in this order while dealing with the ground taken up by the assessee relating to purchase of material. There is no dispute about the difference between the estimated specifications and executed specifications. Hence, incurring of additional expenditure over and above the contract given to the ACIL can be accepted. Further, after the departure of ACIL from the execution of the work, the same has been completed by resorting to the completion by other agencies. The increase in the cost of cement and steel cannot be ruled out. The Assessing Officer ultimately held and calculated the difference in POCM based on the budgeted cost and the payments made to EMLL. Nowhere, the method of accounting standard followed by the assessee has been disputed, in fact, no grounds could be brought out by the Assessing Officer to alter the percentage shown by the assessee except the document 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 AO's conclusion that the total consideration cost cannot exceed Rs. 752.35 crores and hence total estimated project cost worked out to Rs. 1322.71 crores against Rs. 1579.43 crores estimated by the assessee cannot be accepted. This reduction in estimated expenditure consequently resulted in working of POCM at 69.32% instead of 57.40%. This resulted in the absolute figure of Rs.87.97 crores rise in the estimated income of the assessee which is not without any tangible basis and hence cannot be accepted. The AO's contention that the negligible profit declared by the assessee warrants the alteration in POCM is also cannot 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 discrepancies or defects pointed out in the books of account and further that they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed. The profits declared by the assessee cannot be altered. Similarly, the Hon'ble Delhi Court in the case of Winner Constructions Pvt. Ltd.ITA 710/2023 & 745/2023 Page 4 of 8
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:32 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 cannot be rejected. System of accounting adopted by the assessee cannot be rejected 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 constructed 230,689.33 sq. mt. against the approved built up area of 205,140 sq. mt. In that case, it is a natural corollary that the cost incurred for construction of the plots would be more than the estimated cost. The fact that the DDA purchased the flats for Rs.11,000 per sq. ft. and sold in auction @ Rs.24,000 per sq. ft. has been ignored by the Assessing Officer and took a fixed stance that the cost of construction cannot be more than RSs2875 per sq. ft. The factor such as increase in the input cost, exit of the main contract, change in the specification are not considered by the Assessing Officer. In the instant case, there has been no evidence of inflation of purchase, the Assessing Officer has not rejected the books of account, the accounts have been accepted but altered the profits based on the estimated project cost. This cannot be said to be legally tenable. The re-computation and the consequent addition made by the Assessing Officer is hereby directed to be deleted."
7. Proceeding then to the RSA, we find that it was the undisputed position that the respondent-assessee was a Special Purpose Vehicle ["SPV"] which had come to be incorporated by a consortium of partners. Its shareholding pattern is evidenced from a reading of Paras 17 and 18 of the facts as recorded by the Tribunal and are extracted hereinbelow:
"17. The assessee company is a special purpose vehicle (SPV) incorporated primarily to execute the CGV project at New Delhi for the purpose of housing the athletes and officials participating in the CWG 2010. The promoters of the assessee company and its share-holding originally at the time of bidding for the RFP for CWG 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%.
(ill) 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. Subsequently, the ITA 710/2023 & 745/2023 Page 5 of 8 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:32 equity structure of the SPY underwent some modification and 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%"
8. The Tribunal taking note of the aforesaid, has on this aspect, ultimately come to the following conclusions:
"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 obligation attached and income is applied as per assessee's own choice after it accrues, it will not be a case of diversion by superior title as no superior title existed. In diversion, there is no marking by the assessee of a particular income but a charge is created upon his property being source of income. A charge created voluntarily for own purpose cannot be claimed as diversion. If there is an obligation before an income accrues and the assessee is under compulsion to discharge his obligation, it would be a case of diversion by superior title but, where there is no compulsion and no pre-existing obligation, but it is assessee's choice 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 assessee 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 company. Thus, we hold that the revenue sharing agreement entered with the holding company by the assessee is diversion of income by overriding title. The revenue's contention that the entire transaction is sham and aimed at only to divert the income to EMLL cannot be said to be correct based 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 crores
c) The reserve price for the bid was Rs. 300 crores Post-bidding ITA 710/2023 & 745/2023 Page 6 of 8 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:32
d) Technically qualified bidder to provide 25% of the 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 (EMCPL bid Rs. 321 crores)
f) Technically qualified bidder to provide performance guarantee of Rs. 400 crores.
g) Seed capital/ working capital for the project where 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 crores which was also arranged by EMLL by providing corporate guarantee. Detail of loan raised and bank guarantee provided is as under:
Lender Project Bank Total Security
Loan (INR Guarantee Credit given to
ITA 710/2023 & 745/2023 Page 7 of 8
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:32 in crores) Facility Facility Lenders (INR in crores) State Bank 150 300 450 Assignment of India of State Bank 50 50 100 Development of Patiala Right and HDFC Ltd. 50 - 50 Corporate Guarantee of EMLL Land HSBC -- 50 50 Corporate Guarantee of EMLL Land Total 250 400 600
9. We thus find that once the underlying structure and the composition of the consortium as well as the expenditure incurred by the constituents thereof, was neither doubted nor disputed, the issue which is sought to be canvassed on proposed question 2.4 would clearly give rise to no substantial question of law.
10. Accordingly, the appeals shall stand admitted on question 2.1 only which reads thus:
2.1 Whether the Tribunal is justified in law and on facts in deleting the addition of INR 157.33 crores [ITA 710/2023] and INR 51.6 crores [ITA 745/2023] by taking resort to the finding that the AO has not rejected the books of account, though the AO has thoroughly discussed the issue before making the addition?
11. Let the appeals be re-notified for 19.09.2024.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
MAY 27, 2024/kk ITA 710/2023 & 745/2023 Page 8 of 8 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/05/2024 at 20:44:32