Income Tax Appellate Tribunal - Hyderabad
M/S. Hill County Properties Ltd.,, ... vs Department Of Income Tax on 19 March, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1404/Hyd/2013
Assessment Year: 2008-09
M/s Hill County Properties Ltd. vs. Addl. CIT
Hyderabad Central Circle
(PAN - AAECM 2732 Q) Hyderabad
(Appellant) (Respondent)
ITA No. 1373/Hyd/2013
Assessment Year: 2008-09
Addl. CIT vs. M/s Hill County Properties
Central Circle Ltd., Hyderabad
Hyderabad (PAN - AAECM 2732 Q)
(Appellant) (Respondent)
Assessee by: Shri S. Rama Rao
Revenue by: Shri P. Soma Sekhar Reddy
Date of hearing: 19.03.2014
Date of pronouncement: 06.06.2014
ORDER
PER CHANDRA POOJARI, A.M.:
These are the cross appeals directed against the order of Dispute Resolution Panel (DRP), Hyderabad, dated 30/07/2013 for the assessment year 2008-09.
2. The assessee has raised the following grounds of appeal:
1. On the facts and circumstances of the case the Hon'ble members of the Dispute Resolution Panel has erred in determining the total income of the Company at Rs 1,51,38,85,432/-.
2. On the facts and circumstances of the case the appellant prays that the learned Addl CIT, 2 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= under the instructions of the Learned Members of the Dispute Resolution Panel, hereinafter referred to as Learned Assessing Officer, has erred in adding an amount of Rs7,60,93,925/- u/s 37(1) as having not been incurred for the purpose of the business. It is prayed that the addition of Rs. 7,60,93,925/- may be deleted.
3. On the facts and circumstances of the case the appellant prays that the learned Assessing Officer, hereinafter referred to as Learned Assessing Officer, has erred in adding an amount of Rs. 2,04,08,005/- u/s 37(1) and 40A(3). It is prayed that the addition of Rs. 2,04,08,005/- may be deleted.
4. On the facts and circumstances of the case the appellant prays that the learned Assessing Officer has erred in adding an amount of Rs. 5,36,98,655/- as notional Interest on interest free advances made by the Company. It is prayed that the addition of Rs. 5,36,98,655/- may be deleted.
5. On the facts and circumstances of the case, the appellant prays that the learned Assessing Officer has erred in disallowing a depreciation amount of Rs. 10,10,475/- on assets owned by the Company. It is prayed that the disallowance of Rs. 10,10,475/- made by the Learned Assessing Officer be deleted.
6. On the facts and circumstances of the case, the appellant prays that the learned Assessing Officer has erred in disallowing the payments made by the appellant, amounting to Rs.
4,05,83,808/- to a sub-contractor towards execution of the Project. The appellant prays that the disallowance made by the Learned Assessing Officer be deleted.
7. On the facts and circumstances of the case, the appellant prays that the Learned Assessing Officer has erred in adding an amount of Rs. 111,68,96,593/- as short recognition of revenue on the construction project. The appellant prays that the addition made by the Learned Assessing Officer be deleted.
8. On the facts and circumstances of the case, the appellant prays that the Learned Assessing 3 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= Officer has erred in apportioning an amount of Rs. 77,00,485/- statutory and consultant charges towards amenities and hence reducing the deduction claim by Rs. 77,00.485/-. The appellant prays that the addition made by the Learned Assessing Officer be deleted.
9. On the facts and circumstances of the case, the appellant prays that the learned Assessing Officer has erred in making the disallowance u/s 40a(ia) of Rs. 1,46,14,505/-. The appellant prays that the addition made by the Learned Assessing Officer be deleted.
10. On the facts and circumstances of the case, the appellant prays that the Learned Assessing Officer has erred in adding an amount of Rs. 87,62,176/- u/s 14A. The appellant prays that the addition made by the learned Assessing Officer be deleted.
11. On the facts and circumstances of the case, the appellant prays that the Learned Assessing Officer has erred in adding an amount of Rs. 158,20.475/- u/s 37(1)/40(a)(ia). The appellant prays that the addition made by the learned Assessing Officer be deleted.
12. On the facts and circumstances of the case, the appellant prays that the Learned Assessing Officer has erred in adding an amount of Rs. 95,73,740/- u/s 92CA. The appellant prays that the addition made by the learned Assessing Officer be deleted."
3. Briefly the facts of the case are that the assessee company was incorporated originally as M/s Maytas Rajeswari Development Pvt. Ltd., on 20/05/2005, and was later renamed as 'Maytas Hill County Pvt. Ltd.' w.e.f. 28/12/2005 and as "Maytas Hill County Ltd." w.e.f. 20/12/2007. Subsequently, its name was again changed as 'Maytas Properties Ltd.' w.e.f. 31/12/2007. The company was promoted by the family of Shri B. Ramalinga Raju, the erstwhile chairman of M/s Satyam Computer Services Ltd. and is a flagship real estate company 4 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= presently undertaken the venture named 'Maytas Hill Country Project."
3.1 The assessee company has filed its return of income for the AY 2008-09 on 29/09/2008 declaring the income of Rs. 29,38,81,950/-. The return was processed u/s 143(1) on 14/09/2009, accepting the income returned by the assessee company. This case was selected for scrutiny u/s 143(3) of the IT Act, 1961 and accordingly notice u/s 143(2) dated 14/09/2009 was issued. On verification of records with reference to Schedule 6 and Schedule 10 to balance sheet of the Company as on 31/03/2008, it is noticed that the assessee company has made investment in its subsidiary company viz. M/s Maytas Properties M.E.(FZE) Pvt. Ltd., Dubai an amount of Rs.16,34,625/- & Rs.50,33,42,956/-. On further verification of loans and advances, it is noticed that Rs.50,33,42,956/- has been shown as share application money of the company in its subsidiary as mentioned above. As this transaction has bearing on profits, income, losses and assets of the company and is covered under the meaning of 'international transactions' as defined in section 92B of I.T. Act, 1961, a proposal has been made to the Commissioner of Income Tax (Central), Hyderabad, for approval, by the Assessing Officer vide letter dated 12.05.2010, to be referred to the Transfer Pricing Officer u/s 92CA of the Income Tax Act, 1961 for further examination. The CIT (Central), Hyderabad has accorded the approval for reference to Transfer Pricing Officer for determining Arms Length Price u/s 92CA of the Income Tax Act, 1961, vide letter in F. No. CIT (Central)/H/TP/10-ll, dated 20.05.2010. After obtaining the approval of the CIT (Central), Hyderabad, the case was referred to the Transfer Pricing Officer (TPO), vide this office letter dated 5 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= 24.05.2010, for determining the Arms Length Price on 05.10.2011, the Addl. Commissioner of Income Tax (Transfer Pricing), Hyderabad has passed an order u/s 92CA(3) of the Income Tax Act, 1961, determining the Arms Length Price in respect of the international transactions reported by the assessee, for the financial year relevant to the A.Y. 2008-09 and a copy of the said order was 05.10.2011, which was received by the Assessing Officer on 10.10.2011. The TPO, in his order, based on the information furnished by the assessee calculated the Arms Length Interest @1726% on the money advanced to its AE (Maytas Properties M.E. (FZE), Dubai) during the financial year, which works out to Rs.95,73,740/-.
3.2 Subsequently, a show cause notice was issued to the assessee along with a copy of the TPO's order dated 05.10.2011, vide office letter dated 11.10.2011 by the Assessing Officer. In the show cause notice, the assessee was asked as to why an amount of Rs. 95,73,740/- should not be adjusted/disallowed u/s 92CA of the Income Tax Act, 1961 as per the order of the Transfer Pricing Officer, while computing the total income of the assessee for the subject assessment year. There was no response from the assessee to show cause notice issued.
3.3 As there is a variation in income with in meaning of section 144C(1) due to the addition suggested by the TPO vide his order dated 05/10/2011 u/s 92CA(3), the draft of the proposed order has been prepared by the AO, as per the provisions of section 143(3) r.w.s. 144C of the Income Tax Act, 1961. In the draft order, the Assessing Officer has proposed additions/disallowances on account of Corporate Tax matters also along with the addition on account of Transfer Pricing adjustment as follows:
6 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= Computation of income & tax along with interest Rs. Income/loss declared by the assessee for the AY 2008 09 29,38,81,945 Less: Prior period items claimed by the assessee as the same were 14,51,59,353 considered while passing the assessment orders for the earlier years.
Adjusted income/loss as derived from the income/loss declared 14,87,22,592
by the assessee or
14,87,22,590
Rs.
Add: 01 Expenditure disallowed u/s 37(1) (as 4,44,53,544
discussed in para 10)
02 Disallowance u/s 37(1) u/s 40A(3) (as 2,04,08,005
discussed in Para 11)
03 Addition on account of notional interest (as 5,36,98,655
discussed in para 12)
04 Disallowance u/s 37(1) (as discussed in para 1,75,70,005
13)
05 Disallowance of depreciation (as discussed 10,10,475
in para 14)
06 Discussed under the head 'other works 4,05,83,808
contract given by assessee - M/s Chourasia Constructions & Infrastructure Pvt. Ltd. Disallowance u/s 37(1) (as discussed in para
15) 07 Addition on account of short recognition of 111,68,96,593 revenue (as discussed in para 17) 08 Addition on account of non apportionment 2,33,24,429 of statutory and consultancy charges on amenities (which ought to be capitalized but debited to P&L A/c is disallowed (as discussed in para 18) 09 Disallowance u/s 40(a)(ia) (as discussed in 8,55,911 para 21) 10 Disallowance u/s 40(a)(ia) (as discussed in 46,33,163 Para 22) 11 Disallowance u/s 37(1) (as discussed in para 2,83,62,623
22) 12 Disallowance u/s 40(a)(ia) (as discussed in 1,78,66,16,64 para 23) 9 13 Disallowance u/s 37(1) (as discussed in para 1,70,376
23) 14 Disallowance u/s 40(a)(ia) (as discussed in 14,80,251 para 24 15 Disallowance u/s 37(1) (as discussed in para 96,000
24) 16 Disallowance u/s 37(1) (as discussed in Para 1,00,000
25) 17 Disallowance u/s 40(a)(ia) (as discussed in 92,71,184 para 25) 18 Disallowance on account of Corpus Fund 7,98,589 (as discussed in para 26 19 Interest expenses to be disallowed u/s 14A 87,62,176 (as discussed in Para 27 20 Bonus/Exgratia to be disallowed u/s 1,58,20,475 37(1)/40(a)(ia) (as discussed in para 28) 21 Disallowance u/s 92CA (as discussed in 95,73,740 para 29) Total addition 318,32,09,241 Total assessed income 333,32,09,241 Tax & Interest on the assessed income Rs.
Tax thereon 99,99,62,772
SC 9,99,96,277
Add: E.C. 3,29,98,771
Total tax thereon 109,99,59,049
TDS 31,75,242
Less: Advance Tax 14,39,82,919
7 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
=================
Balance payable 98,57,99,759
Add: Interest u/s 234B 54,21,89,867
Interest u/s 234C 39,08,861
Add: Interest u/s 234D 57,75,554 55,18,74,282
Total tax including interest 153,76,74,041
Less: Self Assessment tax paid: 4,36,456
Balance tax payable 153,72,37,585
Less: Refund issued on 26/10/12 4,62,04,430\
Net Tax now payable 158,34,42,015
The assessee filed its objections to the draft assessment order before the Dispute Resolution Panel on 2.11.2012.
4. The DRP gave directions in respect of objections raised before the Panel as follows:
1. Ground No. 1 to 3 involving ALP adjustments of Rs.
95,73,740/- is confirmed.
2. Ground No. 4 i.e. objection regarding reference to Audit u/s. 142(2A) is rejected.
3. Ground No. 5 (i) Addition of Rs. 4,44,53,544/- is confirmed.
4. Ground No. 5(ii) Disallowance of Rs. 2,04,08,005/- is upheld.
5. Ground No. 5 (iii) Addition of Rs. 1,48,97,232/- is confirmed out of total addition of Rs. 1,75,70,005/-.
6. Ground No. 5(iv) Out of total addition of Rs. 2,83,62,623/-, addition of Rs. 46,33,.163/- and Rs. 1,88,12,703/- are confirmed.
7. Ground No. 5(v) Disallowance of Rs. 3,66,376/- is upheld.
8. Ground No. 6(i) Objection regarding double disallowance of Rs. 46,33,163/- is allowed.
9. Ground No. 6(ii) Objection regarding double disallowance of Rs. 18,09,246/ is rejected.
10. Ground No. 6(iii) Objection regarding double disallowance of Rs. 49,16,757/- is allowed.
8 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
11. Ground No. 6(iv) Objection regarding double disallowance of Rs. 71,000/- is allowed.
12. Ground No. 6(v) Objection regarding double disallowance of Rs. 1,45,753/· is allowed.
13. Ground No. 7 Disallowance of Rs. 4,05,83,808/- is upheld.
14. Ground No. 8 Disallowance of Rs. 46,33,163/- is upheld.
15. Ground No. 9 Disallowance of Rs. 178,66,16,649/- is deleted.
16. Ground No. 11 Disallowance of Rs. 91,25,431/- is confirmed. Ground No. 12 Disallowance of Rs. 14,80,251/- is deleted.
17. Ground No. 13 Disallowance of Rs. 5,36,98,655/- is confirmed.
18. Ground No. 14 disallowance of depreciation of Rs. 10,10,475/- is confirmed.
19. Ground No. 15 Addition of Rs. 111,68,96,593/- is confirmed.
20. Ground No. 16 Out of disallowance of Rs. 2,33,24,429/-, disallowance of Rs. 77,00,485/- is confirmed and the balance is deleted.
21. Ground No. 17 addition of Rs. 7,98,589/- is deleted.
22. Ground No. 18 Disallowance of Rs. 87,62,176/- u/s. 14A is confirmed.
23. Ground No. 19 Disallowance of Rs. 1,58,20,475/- is confirmed.
24. Ground No. 20 Objection regarding charging of interest is rejected.
5. Aggrieved by the order of the DRP, both the assessee and the revenue are in appeal before us:
9 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= ITA NO. 1404/Hyd/2013 (appeal by the assessee)
6. Ground No. 1 is pertaining to disallowance of expenditure u/s 37(1) of the Act.
7. Briefly, the facts relating to this issue are that during the proceedings before the Panel, the taxpayer has submitted that it has incurred Rs. 4,44,53,544/- in relation to advertisement, training, business promotion, architectural consultancy, land scraping, professional charges, printing and stationery, travelling and purchase of materials and since these expenses were incurred for the purpose of business the same should have been allowed. However, the AO made disallowance amounting to Rs. 3,82,34,425/- on account of the bills being in name of Maytas Properties Ltd or in the name of Maytas Properties Pvt. Ltd. and since the name of the assessee resemble its holding company, the vendors in some cases have mentioned the name of its holding company on the invoices raised by them. Since, it is a human error, the assessee pleaded that the expenditure should not be disallowed u/s. 37(1) of the Act.
7.1 The AO on the basis of the special audit report had issued a show cause notice to the assessee and requested it to submit its reply in the light of the observations made by the special auditors. After considering the reply of the assessee, the AO tabulated all the entries incorporating the assessee's response along with his comments and concluded that the expenditure to the extent of Rs. 4,44,53,544/- is disallowable u/s.37(1) of I.T. Act and while doing so, he has considered the disallowance made by the assessee in the computation of income and also the disallowance made by him on account of the transaction with M/s. Chaurasia Construction and 10 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= Infrastructure India Ltd. According to AO the assessee did not produce any bills in respect of expenses claimed either before the Special Auditors or before the AO. The bills produced before the AO were computer generated and also post-dated. Hence, AO observed that it cannot be relied as authentic evidence. The expenditure includes various items which are tabulated by the DRP in its order at pages 8 to 13. Thereafter, the DRP held as follows:
"The items of disallowances proposed and referred by assessee vide its letter dated 31.8.2012 at Sl.No. 9 to 20, 22 to 24, 26 to 33, 35 to 40 and 42 to 44 are on account of bills raised by vendors in the name of Maytas Properties Pvt. Ltd. which is a different entity. Assessee failed to file documentary evidences from the vendors in support of its claim. Assessee's reply before the DRP dated 26.7.2013 is as under:
• The assessee was incorporated on May 20, 2005 as Maytas Rajeshwari Private Limited. Thereafter the Company was renamed as Maytas Hill Country Private Limited with effect from December 28, 2005. The name was further changed to Maytas Hill County Limited w.e.f. December 20, 2007. Subsequently, the name was further changed to its current named Maytas Properties Limited w.e.f. December 31, 2007.
• Further, the name of the holding company of the assessee was changed from Maytas Properties Private Limited to Maytas Estates Private Limited.
• Copies of certificates evidencing the change in name have been attached herewith • In view of the fact that the name of assessee resembles its holding company, the vendors in some cases have mentioned the name of its holding company of the invoices raised by them.11 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= 7.2 The DRP observed that Maytas Properties Pvt. Ltd. and Maytas Properties Ltd are two different entities and any human error can be once or twice but not so many times covering huge payments and it is also surprising to note that the appellant had never tried to take up the issue with the vendors to correct their mistake and file the appropriate documentary evidence in support of its contention. In view of the facts stated above, the assessee's objection on this ground is rejected and the DRP upheld the proposed addition made by the AO amounting to Rs. 4,44,53,544/-.
8. Before us, the learned AR submitted that though the payment details are in the name of MPPL, which is a subsidiary company, it is accounted in the assessee's books of account and this expenditure is related to the assessee's business and there is no claim of this expenditure by MPPL.
The person, who had rendered the services or supplied mistakenly mentioned the name of the party as Maytas Properties Pvt. Ltd. in stead of Maytas Properties Ltd. and it is an human error and this being so, the expenditure to be allowed in the hands of the assessee. According to the learned AR, such mistake was caused on the reason that both the names resemble. Further, he submitted that even special auditor mentioned in his letter, which is placed on record at page 438 of the paper book, company name as Maytas Infra Ltd. instead of Maytas Properties Ltd. He also invited our attention to paper book at page 439 wherein the Auditor mentioned in his audit report as Maytas Properties Pvt. Ltd., which is wrong. He also drew our attention to summons issued by the DCIT, Circle - 9, Hyd, dated 25/07/2012, which is placed on record at page 435 of assessee's paper book wherein mentioned assessee's name as Maytas Properties Pvt. Ltd. instead of Maytas Properties Ltd. Accordingly, he submitted 12 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= that error should be condoned and the deduction towards business expenditure is to be allowed.
9. The learned DR, on the other hand, submitted that it is not a single isolated case, but, there are large number bills which are produced for claiming the expenditure contain the name of the parties as Maytas Properties Pvt. Ltd. in stead of Maytas Properties Ltd. He pointed out that these are two different entities and it cannot be said that human error so as to grant deduction towards business expenditure. The learned DR supported the order of DRP.
10. We have heard both the parties, perused the record as well as gone through the orders of the authorities. The assessee brought on record confirmation letter from Maytas Estate Pvt. Ltd. issued to the Maytas Properties Ltd. stating that Maytas Properties Ltd., whose name formerly was Maytas Estate Pvt. Ltd. wherein neither bills are raised for this expenditure nor accounted for the same in their books of account, which is placed on record at pages 125 & 126 of assessee's paper book. If there is no evidence with the department that there is a double claim of this expenditure one by Maytas Properties Pvt. Ltd. and another by Maytas Properties Ltd., the assessee company, the department cannot disallow the expenditure because the same is a clerical error in the bills produced by the assessee towards expenditure. If this expenditure is not claimed by Maytas Properties Pvt. Ltd., therefore, it is fair to grant deduction towards business expenditure in the hands of the present assessee M/s Maytas Properties Ltd. Accordingly, we remit this issue back to the file of the AO to cause enquiry whether M/s Maytas Properties Pvt. Ltd. claimed any expenditure towards the impugned bills and if 13 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= there is no double claim, the claim of the assessee has to be allowed. This issue is allowed for statistical purposes.
11. The next issue is pertaining to the disallowance of Rs. 1,75,70,005/-.
12. Briefly the facts relating to this issue are that the AO has discussed the reasons for disallowance in para 13 of his draft order. Referring' to each item of expenditure, the Assessing Officer has disallowed the same stating the following reasons:
a) No supporting evidence filed, hence disallowed u/s. 37(1)
b) In some cases there is short deduction of TDS
c) Certain expenditure not related to business of the assessee
d) Travelling charges reimbursed to others but bill raised in the name of Maytas Properties Private Limited and Maytas Hill County (P) Ltd.
12.1 The assessee's submissions before the Assessing Officer and before the DRP are the same which are as under:
a) The relevant documents in support of expenditure are available with the company
b) No disallowance can be made u/s. 40(a)(ia) on account of short deduction of TDS.
c) All expenditure including travelling expenditure are for the purpose of business
d) The bills raised in the name of Maytas Properties (P) Ltd. and Maytas Hill County Pvt. Ltd., are to be allowed as these expenses were incurred for business of the company.14 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= 12.2 After examining the assessee's submissions, so far disallowance u/s. 40(a)(ia) due to short deduction of TDS is concerned, the DRP following the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Tekriwal vide order dated 03.12.2012, directed the Assessing Officer to delete the proposed disallowance of Rs. 26,72,773/-. In respect of other items of disallowance, the DRP agreed with the Assessing Officer that the assessee has not filed proper supporting evidence to prove that these are allowable business expenditure. Hence, the addition of Rs. 1,48,97,232 (Rs. 1,75,70,005 - Rs.26,72,773) proposed in the draft order is upheld.
12.3 Against this, the assessee is in appeal before us.
13. We have heard both the parties on this issue. Before us, the learned AR pleaded that the issue may be remitted back to the file of the AO as the requisite evidence available with the assessee and it is also stated that since the office of the assessee has been shifted to another premises, the required information was misplaced, now it is available, which is material for deciding this issue. Considering the request of the assessee, we remit the issue back to the file of the AO for fresh consideration after examining the evidence that will be filed by the assessee before him. This ground is allowed for statistical purposes.
14. The next ground is pertaining to a) Rs. 1,48,97,232/- b) Rs. 1,63,76,773/- towards reimbursement of service tax to sub-contractor, c) Rs. 1,70,376/-, d) Rs. 96,000/- and e) Rs. 1,00,000/- towards pending bills misplaced.
15 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
15. As regards, the disallowance of Rs. 1,48,97,232/-, the facts are that the AO had discussed the reasons for disallowance in para 13 of his draft order. Referring to each item of expenditure, the AO has disallowed the same stating following reasons:
a) No supporting evidence filed, hence, disallowed u/s 37(1)
b) In some cases there is short deduction of TDS
c) Certain expenditure not related to business of the assessee
d) Travelling charges reimbursed to others but bill raised in the name of Maytas Properties Pvt.
Ltd. and Maytas Hill County (P) Ltd.
15.1 Before the DRP, the assessee reiterated the submissions as made before the AO, which are as follows:
a) The relevant documents in support of expenditure are available with the company
b) No disallowance can be made u/s 40(a)(ia) on account of short deduction of TDS.
c) All expenditure including travelling expenditure are for the purpose of business.
d) The bill raised in the name of Maytas Properties (P) Ltd and Maytas Hill County Pvt. Ltd. are to be allowed as these expenses were incurred for business of the company.
15.2 After considering the submissions of the assessee, so far as the disallowance u/s 40(a)(ia) due to short deduction of TDS is concerned, the DRP directed the AO to delete the proposed disallowance of Rs. 26,72,773 vide S.No. 2 to 25 of page 70 of draft order.
15.3 In respect of other items of disallowance, the DRP agreed with the AO that the assessee has not filed proper 16 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= supporting evidence to prove that these are allowable business expenditure and hence, upheld the addition of Rs. 1,48,97,232/- (Rs. 1,75,70,005-Rs. 26,72,773/-)
16. Aggrieved, the assessee is in appeal before us.
17. We have heard both the parties and perused the material on record. The reason for disallowing this expenditure is that the special auditor made an observation that no supporting evidence for these payments for establishing genuineness of the payment has been filed. Before us, the learned AR submitted that these payments were made through cheques and out of total payment of Rs. 1,75,70,005/-, the DRP accepted the payment of Rs. 26,72,773/- as genuine and there is no reason for disallowing of Rs. 1,48,97,232/-. The payment has been by way of cheque and being so the expenditure is to be allowed. Considering the request of the assessee's counsel, we are inclined to direct the AO not to disallow the payments which are made by way of cheque and in respect of cash expenses there is every chance of inflating the same. Accordingly, we direct the AO to disallow 10% of cash expenses made by cash payments. This ground is partly allowed.
18. As regards the addition of Rs. 1,63,76,773/-, the facts are that the AO had discussed the reasons for disallowance in para 22 of his draft order. Referring to each item of expenditure, the AO had disallowed the same stating the following reasons:
a) Assessee has not produced evidence to substantiate the claim with supporting details.
b) TDS not deducted from payment on which TDS is deductible.17 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
=================
19. On appeal, before the DRP, the assessee reiterated the submissions made before the AO, which are as under:
a) TDS provision not applicable on certain payments as these are meant for supply of materials.
b) The evidences are available with company in respect of expenditure claim.
c) There has been clerical mistakes in mentioning correct name in the full.
20. After considering the submissions of the assessee, so far as disallowance of Rs. 46,33,163/- u/s 40(a)(ia) is concerned, the DRP held that the disallowance is made due to non- deduction of TDS. The assessee's claim that TDS is not deductible in cases of supply of construction material, reimbursement of transport charges is not acceptable as the TDS is deductible u/s 194C on whole of contract which includes services and supply of material. Also the assessee should have deducted TDS on transportation charges. DRP was of the view that this disallowance is correctly made u/s 40(a)(ia) as it is a case of non-deduction of TDS. Therefore, the DRP confirmed the disallowance of Rs. 46,33,163/- made by the AO u/s 40(a)(ia) of the Act.
20.1 Regarding balance addition of Rs. 2,37,29,460/-, the DRP noted that the AO stated that no evidence in support of such expenditure is filed either before the Special Auditor or before the AO. The assessee's stand is that all the expenditure have been incurred for the purpose of business and the evidence is available with the company. In some cases, due to change of name, the bill has been wrongly raised in the name of other entities. The DRP held that there is no merit in assessee's claim for allowing deduction because the primary 18 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= evidence was not filed before the AO for his verification. Further, it is not clarified why the bills raised in the name of other entity, Maytas Properties Pvt. Ltd., is allowable as a deduction in the hands of the assessee company. Considering the facts, particularly, the non-production of evidence before the AO, the DRP confirmed the addition of Rs. 2,37,29,460/- made by the AO.
20.2 The DRP noted that in concluding para 22.5, the AO has committed a mistake by not reducing an amount of Rs. 46,33,163/- from total expenditure of Rs. 2,83,62,623/-. The AO has also not reduced Rs. 49,16,757/- because Rs. 49,16,757/- has already been added by the AO in para 15 of the draft assessment order which has been confirmed by us. Further, Rs. 23,64,930/- has been mentioned twice in para 22 of the order and disallowed. This is mentioned at S.No. 3 & 20 of para 22. Though the AO has mentioned that this is wrongly listed and should be excluded from disallowance, he has not excluded the same in final para 22.5. Therefore, out of the total disallowance, this amount needs to be reduced. Further, Rs. 71,000/- being expenditure towards investment in asset has been disallowed. Though as per page 73 of draft order depreciation on such amount has been disallowed as these are capital expenditure. Since the disallowance of depreciation is confirmed, there is no need for again disallowing the cost of the asset in the computation of total income. Accordingly, to sum up out of total amount of Rs. 2,83,62,623/-, the DRP directed the AO to delete the following amounts:
i) addition of Rs. 46,33,163/- which has been confirmed in para 4.4.3 of its order.
ii) Rs. 49,16,757/- which has already been confirmed by us 19 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
=================
iii) Rs. 23,64,930/- disallowance due to mistake in writing the item twice.
iv) Rs. 71,000/- as mentioned above.
21. Aggrieved, the assessee is in appeal before us.
22. We have heard both the parties and perused the record. The learned AR submitted that this amount represent reimbursement of service tax of sub-contractor and there is no claim of such expenditure in the hands of the MPPL and there cannot be any chance of addition in the hands of the assessee. The details of evidence regarding this payment is available with the assessee. Considering the plea of the assessee we remit the matter to the AO to see whether any double claim of this expenditure once in the hands of MPPL and another in the hands of the assessee. If there is no double claim, the said payment is to be allowed as a deduction while computing business income of the assessee if it is reimbursement of expenditure. This ground is partly allowed.
23. The next ground is with regard to disallowance of Rs. 96,000/- u/s 37(1) of the IT Act. This payment was disallowed on the reason that there was a short deduction of TDS u/s 194J of the Act. We find that the Hon'ble Calcutta High Court in the case of SK Tekriwala in ITA No. 183 of 2012, GA No. 2069 of 2012, Taxsutra.com affirmed that disallowance cannot be made u/s 40(a)(ia) of the IT Act in case of short deduction of tax due to bona-fide wrong application of tax provisions. In that case, the assessee deducted tax @1% u/s 194C(2) of the IT Act being payment made to sub-contractors. However, revenue contended that payments are in the nature of machinery hire charges falling under the head 'rent' u/s 194I of the Act and therefore, tax was deductable @ 10%. Since TDS 20 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= deducted at short and also under the each head the department disallowed proportionately by invoking provisions of 40(a)(ia) of the Act, it was held that there is nothing in the said section to treat, inter-alia, tax payer as defaulter where there is a shortfall in deduction. With regard to shortfall, it cannot be assumed that there is a default as deduction is not made as required by or under the Act. Section 40(a)(ia) refers only deduct TDS and pay to the Government Account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of deduction falling under various TDS provisions, the tax payer can be declared to be an assessee to be default in u/s 201 of the Act and no disallowance can be made by invoking provisions of section 40(a)(ia) of the Act.
23.1 In the case of CIT Vs. Chandabhoy and Jassobhoy, [2012] 49 SOT 448 (Mum), the Tribunal held as follows:
"Assessee has employed about 18 consultants with whom it entered into agreements for a period of two years renewable further at the option of either parties and they were paid fixed amounts without any share in the profit. These consultants are prohibited from taking any private assignments and worked full time with the assessee firm. There is no dispute with reference to the deduction of tax under section 192 and also the fact that in their individual assessments these payments were accepted as salary payments. It is also not disputed that the entire amount paid for 18 consultants is only an amount of Rs.26,75,535/-, which indicates that they are in employment and not professional consultants. It is also not the case that assessee has not deducted any amount. Assessee has indeed deducted tax u/s 192, Provisions of section 40(a)(ia) also do not apply as the said provision can be invoked only in the event of non deduction of tax but not for lesser deduction of tax."21 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= Accordingly, we direct the AO to allow the assessee claim at Rs. 96,000/-.
23.2 Regarding disallowance of Rs. 1,00,000/- due to misplacement bills, this issue is remitted to AO for fresh consideration and if the assessee is able to produce the bills, then the claim of the assessee is to be allowed.
24. Next ground is with regard to disallowance of Rs. 20,408,005/-on account of landscaping charges paid to farmers.
25. Briefly the facts relating to this ground are that the Assessing Officer has discussed this issue in para 11 of his draft order. In the course of Special Audit, the Auditor found that the assessee had paid Rs.2.04 crores towards landscaping charges through bearer cheque exceeding Rs.20,000/- to different persons. He opined that this attracted disallowance u/s 40A(3). When this issue was raised by the Assessing Officer, the assessee replied that the payments were made to farmers for purchase of nursery plants. Therefore, sec.40A(3) is not applicable. The Assessing Officer rejected this claim. In addition, the Assessing Officer was also of the view that the assessee is not eligible for deduction u/s. 37(1) as there is no satisfactory proof of genuineness of expenditure. Thus, the Assessing Officer has disallowed Rs.2,04,08,005/- u/s. 40A(3)/37(l).
26. Before the DRP, the assessee has reiterated the above argument advanced before the Assessing Officer. According to the assessee, it has incurred the expenditure by way of purchase of nursery plants from farmers and in few cases red soil and pesticides. The payment has been made through 22 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= bearer cheques. Since payment is made to farmers, sec. 40A(3) is not applicable. Further, regarding deficiencies in bills as pointed out by the Assessing Officer, the assessee submitted that the vendors are small nursery owners who do not maintain any prescribed books of accounts and documents. These persons are also not registered with any VAT or Excise Authorities. Therefore, the expenditure should be allowed u/s. 37(1) as these are genuine business expenditure.
27. After going through the details, the DRP observed that the entire expenditure booked under landscaping consists of expenditure towards purchase of nursery plants and in a very few cases for purchase of red soil and pesticides. The assessee had not disputed the fact of self generated bills without any serial number, VAT number, etc. It is also observed that most of the vouchers have been generated in computer. On going through the list of suppliers, it is seen that there are 6 to 7 suppliers who are paid regularly sums in thousands of rupees. Each of suppliers have sold more than Rs. 20 lakh each to the assessee company during the previous year. Further no address is mentioned against each supplier for which it is not possible to verify the bills claimed to be raised by them. This raises serious doubt about genuineness of such expenditure claim. Considering the above facts, the DRP was of the view that these expenditures cannot be allowed u/s 37(1) of the Act as the assessee failed to satisfactorily prove that these expenditure are incurred for the purpose of its business. The disallowance of Rs. 2,04,08,005/- was upheld by DRP. Since the DRP confirmed the addition u/s. 37(1), they have not expressed any opinion on disallowance u/s. 40A(3).
28. Before us, the learned AR submitted that these payments are necessary and the same are as per Rule 6DD(g) 23 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= of the IT Rules, therefore, for these payments 40A(3) is not applicable. Further, he submitted that these payments are genuine, hence provisions of section 37 are also not applicable. For this proposition, he relied on the following case laws:
1. CIT Vs. Green Gold Tea Farmers Pvt. Ltd., [2008] 299 ITR 262 (Uttarakhand)
2. CIT Vs. Soundarya Nursery, [2000] 241 ITR 530 (Mad.) 28.1 According to learned AR, the whole expenditure cannot be disallowed.
29. The learned DR, on the other hand, relied upon the order of the DRP.
30. We have heard the arguments of both the parties, perused the record and gone through the orders of the revenue authorities. In our opinion the reason for disallowance is regarding genuineness of expenditure. According to the lower authorities most of the payments are self-generated, which have high bill value and being so it was disallowed. Incurring of expenditure was not doubted by the Department, but, only quantum of expenditure is doubted. The expenditure is wholly and exclusively laid out for the purpose of business, therefore, the entire expenditure cannot be disallowed. Since the bills are self-generated, there is no conclusive proof that 100% of the expenditure is genuine. Hence, considering the facts and circumstances of the case, we direct the AO to disallow 10% of cash expenditure incurred by the assessee and there could be no disallowance if the assessee incurred the expenditure by cheque. Thus, this ground is partly allowed.24 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
=================
31. The next ground is with regard to the addition of Rs. 53,698,655/- on account of notional interest applied on business advances @ 10.50% to group and other associates.
32. Briefly facts relating to this ground are that the special auditors in their report have pointed out that the company gave loans and advances to land owning companies and other companies to which it is related and when a query was raised, the assessee stated that the loans and advances account mainly consists of advance given to Maytas Infra Ltd for mobilisation work to be adjusted against running account bills and also for acquiring land and development rights which is part of company's business and it has also got advances of Rs. 487 crores received from the customers against sale of the villas and apartments and stated that as per the decision of Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 as long as the assessee is having interest free funds, there is no necessity to establish the nexus between the interest free advances and loans advanced.
32.1 However, the AO after examining the cash flow statement has requested the assessee to provide the break-up of fund availability and interest liability thereon. The assessee vide letter dated 7-8-2012 gave a break-up of funds for giving loans and advances to related parties without charging any interest. The AO noted that except a few, all the other companies listed as third parties by the assessee are in the business of land holding or land development activities and in fact related to the Maytas group and the assessee could not establish that these advances were purely for business purposes and governed by the principle of independent party transactions. He noted that the very fact that M/s.MPL has exercised control over these companies subsequent to 25 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= forwarding of advances to expand its commercial interest squarely cover these advances within the scope of interest free advances to related parties. Accordingly, computed the interest foregone by the assessee on such advances at the bank rates by modifying the computation given by the assessee. The assessee has calculated notional interest of Rs. 1,91,34,626/- on monthly basis at 10.5% on proportionate interest free advances in respect of related parties and not third parties. The AO has calculated notional interest on the third parties and added Rs. 3,03,57,134/-. The Assessing Officer also added Rs. 2,03,20,973/- on account of interest receivable from MIPL (HO) and the notional interest of Rs. 30,20,548/- on the advances given to other land owning companies.
32.2 The DRP noted that the assessee started development of a mega project and for this it borrowed funds from financial institutions and also received advances from the customers and by any stretch of imagination these funds cannot be called as interest free funds but they are business funds and they should be utilised for the business of the assessee instead of that, diverting those funds for the "supposedly future plans of acquiring land parcels and land development rights" cannot be construed as for business purpose. As can be seen, the assessee has conceded that it has diverted funds to third parties which are both related and non-related parties and consented to the disallowance of interest in respect of the related parties but as observed from the documents filed that the non-related parties were also under the control of the assessee and need to be treated as related parties. The Assessing Officer has rightly added the interest receivable from the MIPL (HO) which the assessee failed to offer.
26 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= 32.3 Therefore, DRP was of the opinion that the AO has rightly added notional interest on account of interest bearing funds being diverted to the third parties which included related and 'unrelated' parties, to the total income and the proposed disallowance of Rs. 5,36,98,655/- was confirmed. Against this, the assessee is in appeal before us.
33. Before us, the learned AR relied on the following case laws:
1. SA Builders Vs. CIT(A) & Anr., 288 ITR 1 (SC)
2. CIT vs. Tulip Star Hotels Ltd., 338 ITR 482 (Del.)
3. CIT vs. Reliance Communication Info. Ltd. 260 CTR 159 (Bom.)
4. DCIT vs. Monsanto Holidays Pvt. Ltd., 134 ITD 189 (Mum.)
5. Pranik Shipping & Serving vs. ACIT 135 ITD 233 (Mum.)
6. Gupta Global Exim Pvt. Ltd. vs. Addl. CIT, 135 ITD 164 (Rajkot) 33.1 The AR submitted that there is fund received from share capital, unsecured loans, advance received from the contractor, interest free advances received by Assessee and convertible debentures and being so, there cannot be any disallowance towards notional interest.
34. We have heard both the parties and perused the record.
The revenue authorities disallowed the notional interest on the amounts advanced to sister concerns on the reason that interest bearing borrowed funds were used by the assessee for non-business purposes. However, the assessee made a plea before us that it is having enough own funds in the form of share capital, reserves and surplus, interest free advance from customers and deposits and the funds were diverted to the 27 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= sister concern for business purpose which are in the similar nature of business of the assessee. Being so, it cannot be considered that the assessee used the interest bearing funds for non-business purposes. The assessee also placed reliance on the judgment of the Hon'ble Supreme Court in the case of SA Builders Ltd., Vs. CIT, 288 ITR 1 (SC). In our opinion, before disallowance of notional interest it is incumbent upon AO to establish that there is a nexus between the amount diverted and interest incurred by the assessee. Even if assessee has diverted interest bearing funds to the sister concern, then it is business decision taken by the assessee to make such an investment and even if it has resulted no income to the assessee, notional interest cannot be disallowed on the reason that assessee should have used its non-interest bearing funds for the purpose of business instead of using borrowed funds. The AO cannot sit in the arm chair of businessman and decide what the assessee has to do to maximize its profit. In our opinion, the judgment relied upon by the learned AR of the assessee in the case of SA Builders (supra) and also coordinate bench decision in the case of SSPDL Ltd. Vs. DCIT, 24 ITR(Trib.)(Hyd.) 290 also support the case of the assessee. Accordingly, this ground is allowed.
35. The next ground is pertaining to disallowance of depreciation of Rs. 10,10,475/- as asset bills are not in the name of the MPL and drawn on MPPL.
36. Briefly, the facts relating to this ground are that this issue has been discussed in para 14 of the draft order. The Assessing Officer found that the assessee has claimed depreciation on assets which were supposed to have been acquired during the relevant previous year. However, the 28 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= assessee has not been able to furnish evidence like bills and vouchers in support of such investment in assets during the year. The Assessing Officer accordingly disallowed depreciation on the investment amounting to Rs.10,10,475/-.
37. After examining the objections raised by the assessee, the DRP held that the Assessing Officer has given a categorical finding that bills and vouchers were not produced in respect of the assets mentioned in para 14 of the draft order. Since, details are not filed, the DRP held that the Assessing Officer is justified in disallowing the depreciation of Rs.10,10,471/- . The disallowance is accordingly upheld by DRP. Against this, the assessee is in appeal before us.
38. We have heard both the parties, perused the record and gone through the orders of the revenue authorities. We find that the assets are appearing in the balance sheet of the assessee company and there is only a mistake in the bill with regard to name of the company. As held in earlier para 10 of this order, the issue is remitted to the file of the AO and after verification, due depreciation, may be allowed. This ground is allowed for statistical purposes.
39. The next issue is with regard to disallowance of Rs. 40,583,808/- u/s 37(1) on account of expenditure incurred on a/c of M/s. Chourasya Construction.
40. Briefly the facts relating to this ground are that it has been reported by the special audit that the assessee had claimed to have given only one contract for the construction of the Hill County project to M/s.Maytas Infra Ltd. Reference is invited to the agreement of sub-contract made between M/s. Maytas Hills County Private Limited and M/s. Maytas Infra 29 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= Private Limited. Clause 1.5 and 1.19 of the said agreement is reproduced as under:
Clause 1.5 (project): The "project" shall mean the construction, completion and commercial commissioning and total execution of the works.
Clause 1.19 (sub sub-contractrs) "sub sub- contractor" shall mean the persons, firms, companies or agencies who after approval of the contract have entered into a direct contract with the sub contractor in respect of any part of the works, and include the sub-contractors' legal representatives, successors and permitted assignee.
40.1 Before the AO it has been contended by assessee vide letter dt. 26-4-2012 that it had given contracts to others also and relied on some judicial decisions in its support. As per the agreement with MIPL, the entire contract has been given to MIPL and any sub-contract to be given to others have to be in accordance with the terms of agreement. The assessee has also claimed that the payment made to M/s. Chourasia Construc-
tion Co. was due to commercial expediency and relied on various judicial decisions such as the Supreme Court decision in M/s. SA Builders (supra). The AO observed that the revenue does not argue what expenditure should be incurred and how it should be incurred but it wants the assessee to establish the nexus between the expenditure and the business expediency with satisfactory evidence or explanation. In the present case, the assessee as per its own submission before the Special Auditors stated that it has given the entire contract to M/s. Maytas Infra and claimed to have paid the entire amount (this is supported by the agreement between the assessee and the MIP) to it but however, it could not substantiate as to what commercial expediency had led the assessee to make the 30 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= payment of Rs. 4,05,83,808 to M/s. Chourasia Construction Co.
41. Before the DRP, the assessee filed copy of 'agreement' between the assessee and M/s. Chourasia Construction Co. in which it has been stated that the contract document is in two volumes and filed copies of the two volumes. On verification of the documents, it is noted that it is nothing but a general tender document for the entire High Rise Building and it is also noted by DRP that the agreement has not been witnessed by anybody. As per the submissions filed before the AO and also before the DRP that M/s.Chourasia Construction Co. was a small time contractor based in Bangalore and it has been entrusted with the contract of excavation, refilling, anti-termite treatment etc. whereas the copy of agreement (dated 16.8.2007) along with the contract details given in the general tender document shows that the agreement was for the construction of High Rise Building and the account copy filed further shows that the works done were reinforcement of cement, concrete and reinforcement of steel works. The inconsistencies in the agreements of the assessee clearly shows that the claim of the contract payments made to M/s. Chourasia Construction Co. is not a genuine claim. The argument that it made payments and tax was deducted at 'source be considered can be considered only if the transaction as such is genuine and in the present case as observed as above, the very agreement on which payments were claimed to have been made appear to be non-genuine. Accordingly, the DRP came to the conclusion that the AO has rightly disallowed the expenditure claimed on account of payments to M/s. Chourasia Construction and Infrastructure Co. and confirmed the proposed addition of Rs. 40,583,808/- made in this regard.
31 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
42. Aggrieved, the assessee is in appeal before us.
43. We have heard both the parties, perused the record and gone through the orders of the revenue authorities. The DRP came to the conclusion that the agreement entered by the assessee is not genuine on the reason that M/s Chourasia Construction was a small time contractor based at Bangalore and there were certain inconsistencies in the agreement. No enquiry was carried on by the Department to suggest that there was no contract work carried on by M/s Chourasia Construction company in respect of this expenditure. The expenditure incurred by the assessee cannot be disallowed on mere presumptions and surmises and it is necessary to bring on record the evidence to suggest that payment is not genuine. In the present case, there is a valid agreement between the assessee and M/s Chourasia Constructions company and they have rendered services and payment was made. It is not the case of the revenue authorities that particulars of person to whom the amounts were paid could not be furnished. We are of the view that allowance or disallowance of a claim of business expenditure should depend upon the existence or otherwise of the following conditions:
1. Expenditure in question should not be of the nature described in the provisions of section 30 to 36.
2. Expenditure should not be of nature of capital expenditure and it should not be a personal expenditure.
3. Expenditure has been laid out for wholly and exclusively for the purpose of business or profession.
In the present case, assessee has fulfilled requirement of the provisions of section 37 of the IT Act. The claim of payment to subcontractor by the assessee is not disqualified for deduction 32 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= under the Act. Now coming to the next question as to whether the expenditure is capital or not, we are of the opinion that the expenditure is not a capital expenditure since the assessee did not acquire any capital asset and the payment is also not in the nature of personal expenditure and not brought any personal benefit to any employees or contractor of the assessee company. The expenditure incurred wholly and exclusively for the purpose of business. It was held in the case of Sassoon J. David, 118 ITR 261 (SC) by the Apex Court as under:
"In the instant case it is necessary to bear in mind that the company was neither dissolved nor was its business undertaking sold. It continued to exist as a juristic entity even after the transfer of its shares. On account of such transfer of shares, the transferees no doubt gained control of the company. But one important fact of the case was that neither the transferor nor the transferee derived any direct benefit out of the payment of retrenchment compensation to the employees even though such retrenchment might have facilitated the transfer of shares. It is also not the case of the Department that the payment was excessive. That there was a substantial reduction in the wage bill in the future years as a consequence of retrenchment was also not disputed. It is too late in the day to treat the expenditure incurred by a management in paying reasonable sums by way of gratuity, bonus, retrenchment compensation or compensation for termination of service as not business expenditure. In order to claim deduction under s. 10(2)(xv), an assessee had to show that the expenditure in question, (i) was not an allowance of the nature described in any of the cls. (i) to (xiv) of s. 10(2), (ii) was not in the nature of a capital expenditure or personal expenses of the assessee, and (iii) had been laid out or expended wholly and exclusively for the purposes of his business, profession or vocation. Even assuming that the motive behind the payment of retrenchment compensation was that the terms of the agreement of the sale of shares should be satisfied, as long as the amount had been laid out or expended wholly and exclusively for the purpose of the business of the assessee, 33 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= there appears to be no good reason for denying the benefit of s. 10(2)(xv) to the company if there is no other impediment to do so.
The company continued to function even after its control passed on to the hands of T and the expenditure in question was laid out for the purpose of the company's own trade and not for the trade of T who were only the shareholders of the company. As a result of the expenditure in question, the company was in fact benefited and it was possible for it to earn more profits as a consequence of the reduction in the wage bill. Subsequent to 31st Dec., 1955, the company had by passing the resolution incurred liability to pay retrenchment compensation and compensation for termination of service. On account of the said resolution, the total value of the assets of the company was reduced by the amount payable to the employees by way of compensation. It is natural that the purchaser of the shares would ordinarily claim reduction in the consideration payable for the shares by the amount which the company had undertaken to pay as assets of the company became reduced to that extent. It cannot, therefore, be said that T were in any way benefited financially by reason of the reduction in the consideration payable by them for the shares. The High Court was, therefore, in error in holding that the amount involved in the case did not satisfy the test applicable to the expenditure allowable under s. 10(2).
The expression "wholly and exclusively" used in s. 10(2)(xv) does not mean "necessarily". Ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) if it satisfies otherwise the tests laid down by law. In the instant case, it was the case of the company that many of the employees 34 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= were old and superfluous and the business could be carried on with a smaller number and the only way in which they could reduce the number was to terminate the services of all the employees by paying them compensation and thereafter reemploying some of them only. If the company felt that was a method which would enure to its benefit, it cannot be said that the payment of compensation was made with an oblique motive and without regard to commercial consideration or expediency. Hence, amount paid to directors and employees is allowable as a deduction."
Further, it is also noticed that the dispute went before the Court and MOU was filed before the Court, which is placed on record at pages 234, 225 & 204 of the paper book. It is also brought on record that Maytas Infra Ltd. is not carried on any work of this and there is no overlapping of work. Considering the above proposition, we find that the entire payment to sub- contractor shall not be disallowed as there is evidence on record for such payment. More so, the assessee has produced payment details and it has been subjected to tax deduction. Being so, considering the totality of the facts and circumstances, we are inclined to allow the claim of the assessee. This ground is allowed.
44. The next ground is with regard to taxation ignoring revised estimates. A disallowance of Rs. 1,116,896,593/- made as revenue short recognized, by ignoring revised estimates.
45. Briefly the facts relating to this ground are that this issue has been discussed in para 17 of the draft assessment order under the head 'addition on account of. short recognition of revenue'. According to the AO, the special auditors in their report u/s 142(2A) have pointed out that the assessee company has not fully recognized the revenue for subject previous year 2007-08 and the shortfall in revenue so 35 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= recognized is to be added to the total income. He, accordingly, added this short fall of revenue amounting to Rs. 111,68,96,593/- as per para 17.7 of the asst. order after considering the report of the special auditor and explanation filed by the assessee objecting to the above addition in course of the assessment proceedings. The assessee has objected the above additions before DRP as follows:
2.1 Accounting treatment in line with generally accepted accounting principles in India A.Y. 2006-07 - Rs. 410.33 cr.
A.Y. 2007-08 - Rs. 437.33 cr.
A.Y. 2008-09 - Rs. 584.72 cr.
It is submitted that the Assessee has recognized revenue for Asst. year 2008-09 on the basis of percentage of completion of the project, which has been arrived at by dividing the actual cost incurred up to the 31st March 2008 with the total estimated project cost of Rs. 584.72 cr.
• The Id.AO in the draft order, has wrongly considered the estimated project cost of Asst. year 2007-08 i.e. Rs. 437.33 cr. in arriving at the percentage of completion of project for Asst. Year 2008-09.
• It is submitted that the accounting treatment followed by the assessee in using the latest estimates of project cost is as per the generally accepted accounting principles (GAAP) in India. Accounting Standard 7 (AS 7) relating to accounting for 'Construction Contracts' issued by the Institute of Chartered Accountants of India (lCAI) clearly states that accounting for revenue from construction contracts under the 'Percentage of Completion' involves use of estimates.
• Para 37 of AS 7 clearly states that the estimates to be considered for the purpose of recognition of revenue on 'Percentage of Completion' method, the latest estimates are to be used. It also stipulates accounting for the change in estimate of total project cost as a change in accounting estimate to be 36 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= disclosed in the financial statements (refer annexure 7).
Hence, the accounting treatment adopted by the assessee is in line with the GAAP in India. The same has also been accepted by the statutory auditors of the assessee. Hence, the Id.AO has erred in considering the estimates of total project cost of A Y 2007-08 for determining the revenue for A Y 2008-09. Hence, the addition of income is liable to be deleted.
The AO stated in the draft order that the increase in total estimated project cost without consequent increase in saleable area of the project is not justified. It is respectfully submitted that the increase in total project cost is on account of increase in prices of material, labour, construction costs etc. and not on account of increase in built up area.
It is submitted that increase in costs cannot always result in a consequent increase in revenue and that the premise of the Id.AO is ill-founded and erroneous.
It is submitted that cost estimation is a common feature of most construction costs. It is a regular feature and not an anomaly. It may be noted that is on account of such common escalation of costs that the construction contracts are usually either entered into as a 'cost-plus' contracts. Fixed price contracts are not commonly found in the construction industry. Even in case of fixed price contracts, there is invariably a 'cost escalation clause' that provides for reimbursement of costs incurred in respect of subsequent increase in prices of material, labour etc. Cost escalation being the norm of the industry, it is wrong to contend that any increase in cost mutual result in an increase in output. Hence, it is prayed before the learned panel to strike down the contention of the Id.AO and direct the deletion of the addition made to the total income of the assessee for Asst. year 2008-09.' 37 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= Further, the Hon'ble High Court of A.P. also took cognizance of the non-completion of the Project in 2011 when a petition for winding of the assessee was filed. before it. Similarly, the consumer court of Andhra Pradesh also ruled against the assessee in 2012 on complaints filed before it by customers on account of non-completion of the project.' The Id.AO in the draft order, added Rs. 111.68 crores to the income of the assessee as income short recognized during the year. The cumulative revenue from the project offered to tax by the assessee up to Asst. year 2008-09 is Rs. 374.53 cr.
The Id.AO sought to tax cumulative revenue of Rs. 524 cr. in Asst. Year 2008-09 by making additions to the total income of the assessee for A Y 2008-09.
It is submitted that the revenue sought to be added to the income of the assessee for AY 2008-09 has accrued to the assessee in subsequent years and has been recognized by the assessee and has been offered to tax accordingly in those years.
To evidence the accounting of the income in subsequent years, the assessee has attached herewith a summary of year-an-year cumulative revenue recognized as against cumulative construction cost incurred up to that year (refer annexure 8) The cumulative revenue recognized up to FY 2012- 13 clearly evidences that the revenue sought to be taxed by theld.AO in AY 2008-09 has been recognized in subsequent years in accordance with the GAAP in India.
It is therefore respectfully submitted that the additions to the income of the assessee are not required since the income is being offered to tax in subsequent years by the assessee itself.
45.1 After perusing the report of Special Auditor and explanation of the assessee company, the DRP held that the proposed addition is based on the special audit report which has been accepted by the A.O. The assessee's objection is only 38 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= on one issue. While computing revenue for the year FY 2007- 08, following percentage completion method, the assessee has taken total estimated project cost at Rs. 584.72 crores whereas according to the A.O. and special auditor, it is Rs. 437.33 crores. The assessee has adopted total project cost for different years as under:
A.Y. Amount of project cost estimated
2006-07 Rs.410.33 crores
2007-08 Rs.437.33 crores
2008-09 Rs.584.72 crores.
45.2 It was observed by the DRP that according to the assessee, as per AS-7, the estimated project cost taken in earlier year can be increased in subsequent years during implementation of project, due to increase in prices of raw materials, labour cost and other construction costs. The Special Auditor and the A.O. have not accepted the increase in estimate of cost stating that there is no increase in saleable areas or no increase in revenue. The A.O. has observed as under:
"The basis for adopting this revision of Budget estimate by the assessee, is explained due to increase in the cost of project from year to year. However, it does not reflect the true picture of the actual works done and the percentage of completed work shown by the assessee in its books of account after revision of its budget expenses. This claim of the assessee is more of convenience any contrary to the spirit of accounting principle under accounting standard-7 as it telescopes the ,expenses significantly from year to year. By adopting this method, the current year percentage completion of independent houses of 82% gets further reduced in view of the increased budget estimates in the fy 2008-09, which, not only fails to correlate with physical completion of work but also stretches the work on project beyond a realistic time line".39 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= 45.3 It was further observed by the DRP that as per AS-7 (para 37), the estimated revenue and estimated cost can be increased. The relevant guidance is reproduced below.
"change in estimates: The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate (see accounting standard (AS) 5, Net profit or loss for the period, prior period items and changes in accounting policies). The changed estimates are used in determination of the amount of revenue and recognized in the statement of profit and loss in the period in which the change is made and in subsequent periods."
45.4 The DRP observed that the assessee can adopt a high estimate due to increase in cost of input. This need not always be matched by increase in revenue or increase in saleable area. The estimation is to be made on proper appreciation of facts and terms and conditions set out in the agreement between the developer and contractor. Such costs are to be allocated using methods that are systematic and rational. Coming to facts of the case, the assessee company developed Maytas Hill County Project. The project was to be executed by the Contractor, M/s. Maytas Infra Ltd. (MIL) for an estimated cost of Rs. 410 crores as per agreement dated 4.2.2006. MIL was a sister concern under the same management.
45.5 As per para 1.11.0 of the terms of this agreement "the contract value' shall mean the sums stated to (in order of the precedence) in the agreement (if any) or the letter of intent or the final offer letter or duly accepted by the contractor and the sub contractor subject to additions or deductions their 40 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= form as may be made under the provisions herein contained, in any of the contract documents or the contract".
45.6 Para 1.2 provides for escalation" as under:
"No escalation on any of the items shall be entertained except for the statutory revision as specified above. Also, price adjustment shall be effected for the items incorporating materials listed in appendix-l, based on invoices for purchase of materials by the subcontractor. The thus adjusted contract prices shall remain firm for a period of 90 days beyond the completion date of the particular work package after which sub contractor shall be entitled to claim on upward revision in quoted rates mutually agreed by contractor as compensation for delay and consequent extended stay on the site, provided, that the delay is attributable solely to the contractor".
45.7 The assessee company signed an amendment agreement on 02/09/2007 with MIL as under:
"This Amendment Agreement is executed on this 2nd day of September 2007 at Hyderabad by Maytas Infra Limited (formerly known as Maytas Infra Pvt. Ltd.) Whereas
1. Maytas Hill County Private Ltd. And Maytas Infra Limited (referred to as parties) have entered into a contract on 4th feb. 2006 by which Maytas Infa Ltd. As the sub-contractor to the Maytas Hill County Pvt. Ltd. Has agreed to execute certain works at Bachupally village, now entitled a Maytas Hill County Project for a value of Rs.410 crores.
2. Consequently, upon the change in certain technical specifications, partly to comply with the Government regulations and partly due to change in specifications, both the parties have re-worked on the bill of quantities based on actual site conditions and further based on detailed drawings received from the architects.41 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
=================
3. Both the parties therefore now agree that the contract value will now stand increased to Rs. 525 crores as per detailed bill of quantities attached to this amendment agreement.
4. Both the parties also agreed that the date for completing the project sholl stand extended up to 31st March 2009 as against 31st March 2008.
5. All other terms and conditions shall stand unaltered.
45.8 According to the DRP, it is clear that the conditions for increase in project cost as provided in para 1.11.0 and 1.12 of the Agreement are not fulfilled. As per amended agreement, the increase is due to change in technical specification, based on actual drawings received from architects and partly to comply with govt. Regulations and not on the basis of invoice for purchase of materials by the sub contractor. The effect of this change in specification on saleable area or on revenue estimate has not been explained by the assessee. Further, the details justifying the increase in project cost have not been filed before the special auditor or before the A.O. Both parties i.e., developer assessee and contractor are controlled by same management. In absence of details, the increase appears to be more of convenience between two related parties contrary to the accounting principle. DRP was of the view that the assessee company failed to substantiate the increase in estimation of construction cost.
45.9 There is objection regarding percentage of completion of project exceeding 100% which is not possible under any circumstance. This objection relates to completion independent homes. Since the estimation of cost and revenue covers the entire projects which includes independent home, apartments and other company asset, this objection is not accepted by DRP.42 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= 45.10 In view of the above, the DRP held that the A.O's action of re-computing revenue by rejecting assessee's estimate of cost at Rs. 584.72 crores is to be upheld and the proposed addition of Rs. 111,68,96,593/- is to be confirmed.
46. Against this, the assessee is in appeal before us.
47. We have heard both the parties, perused the record and gone through the orders of the authorities below. In this case, admittedly the assessee is engaged in the business of construction of residential plots and houses and the revenue from construction is recognized on the basis of percentage completion method. In the assessment year under consideration, project cost was increased and accordingly revised budget was made, which is as follows:
2006-07 - Rs. 410.33 crores
2007-08 - Rs. 437.33 crores
2008-09 - Rs. 484.72 crores
The assessee considered the revised budget to determine profit for the assessment year under consideration. According to the department, the percentage of work completed should be computed on the basis of original estimate and not on the basis of revised estimate thereby DR pleaded that it is self- serving budget to reduce the tax liability. It is a normal feature in construction activity that cost gets escalated in view of increase in price of construction materials. The Department has not doubted the fact of increase in cost and has stated that assessee's books of account does not represent the true picture of the actual works completed by the assessee and wholly relied on the special auditor's report. The other reason given by the AO is for changing the method of computation of 43 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= the profit though saleable area is not increased though the budget cost is increased. It is not necessary to increase saleable area when the cost of construction gone up due to various reasons. It is also a fact that assessee has recognized the income in accordance with the accounting standards. We have to see surrounding circumstances to decide accrual of income of the assessee. Looking at the prevailing circumstances of market in the present case it is not possible to hold that income actually accrued to the assessee as estimated by the AO. Once the assessee recognized the income in accordance with the accounting standard and in terms of the agreements the assessee entered into, revenue authorities cannot disturb the same. AO cannot substitute the assessment to say that assessee has postponed the tax liability. There is no basic deviation in the method of accounting followed by the assessee regarding recognition of income. Being so, the AO cannot dispute the profit of the assessee by observing there is a flaw in the method followed by the assessee. Further, merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it as estimated by AO. Earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides to change the budget in order to safeguard the business, it cannot be said that it has acted in a manner in which no reasonable person can act. The guidance note on accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be 44 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= made. Non-recognition of income on the ground that the income had not really accrued is legally correct under the mercantile system of accounting, when the same is in accordance with AS-I notified by the Government. It is one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. The provisions of section 145(1) are subject to, inter alia, mandate of AS-1 which also prescribes that Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies'. In the name of compliance with section 145(1), it cannot be open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the assessee was justified in following the policy of not recognizing these revenues till the point of time when the uncertainty to realize the revenues vanished. As the principles laid down in recognizing the income equally applies to the facts of the assessee's present case, we are of the view that the authorities below are not justified in bringing the impugned notional income to tax.
47.1 In view of the above, in our opinion, unless and until the department has proved that agreement executed by the assessee with M/s Maytas Infra Ltd., is collusive agreement, 45 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= the agreement cannot be rejected as both are different assessees and it is to be followed in true spirit. In our opinion, the method followed by the AO is not correct. Our view is fortified by the coordinate bench of Hyderabad in case of SP Real Estate in ITA Nos. 866 & 1058/Hyd/2010 order dated 13/02/2014 wherein the Bench held as follows:
"43. Considering all the above facts of the case, in our opinion, it is too early to assess business profit out of the sale of constructed area to M/s. Janapriya Engineers Syndicate. The assessee neither received substantial consideration or assets to be sold are ready for handing over the possession to the concerned parties so as to transfer the title in the property. Till such time, it cannot be said that the parties involved in are ready to perform the contract. In the present case, neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration. When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale will take place only after completion of construction and after assessee's share of property is identified. The proposed sale agreement cannot be put into action due to various litigations pending with various courts. Nobody can transfer title in a property when the property is not in existence. More so, when there is litigation pending on the same property and no profit can be anticipated when the agreement itself is subject matter of litigation. It is not possible to bring the same to tax. We have to see all surrounding circumstances to decide accrual of income to the assessee. Looking at the prevailing circumstances in the present case, it is not possible to hold that income has actually accrued to the assessee. When consideration is not determinable with reasonable certainty, the assessee is justified in postponing recognition of income and it is appropriate to recognise the income only when it is reasonably certain that the ultimate realisation is possible. Being so, revenue could be recognised at the time of sale or handing over of possession of 46 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= flats to the ultimate customers. The Department cannot thrust upon the assessee so as to tax the future income.
44. In our opinion, the assessee has recognised the income in accordance with the true terms of the agreement and if there is any inconsistency in recognising the income then only revenue authorities can disturb the same. Once the assessee recognised the income in accordance with the agreements, the AO cannot substitute his assessment to say that the assessee has postponed the tax liability. There is no basic deviation in the method followed by the assessee regarding recognising of income. However, the AO was of the opinion that there is basic flaw in the method followed by the assessee to recognise the income. When there is no deviation in recognising the income by the assessee, the AO cannot recompute the profit of the assessee by observing that there is basic flaw in the method followed by the assessee.
45. In our opinion, income arising out of sale of flats to M/s. Janapriya Engineers Syndicate in which constructed property was sold by the assessee, profit on such transaction is to be assessable not in the year of agreement and it should be assessable proportionately in the previous years in which the constructed area was sold by the assessee or constructed flats were handed over by the assessee to the buyers. This view of ours is supported by the following decisions:
(a) R. Gopinath (HUF) vs. ACIT, 133 TTJ (Chennai) 595 wherein the Tribunal Chennai Bench held as under:
"9. We are unable to agree with the contentions of the learned Departmental Representative that the transaction of transfer is complete by applying the provisions of s. 53A of Transfer of Property Act on the date when the possession of the property was handed over to the developer as per the development agreement dt. 1st Sept., 2003. Sec. 53A of the Transfer of Property Act does not provide the conditions for transfer but it provides protection to the transferee of any immovable property by a 47 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= written contract, the terms of which constitute the transfer and can be ascertained with reasonable certainty and the transferee as part performance of the contract has taken the possession of the property and has performed or willing to perform his part of contract, then even the said contract though required to be registered has not been registered and the transfer has not been completed in the manner prescribed therefore by law, the transferor is barred from enforcing against the transferee any right in respect of the property other than the right expressly provided by the terms of the contract. Under the IT Act, 1961 by inserting cls.
(v) and (vi) of s. 2(47), the definition of the term transfer includes the transaction which fulfils the conditions provided under s. 53A of Transfer of Property Act. Therefore, s. 53A of the IT Act, 1961 (sic-Transfer of Property Act) is borrowed only with respect to the transfer of capital asset as provided under s. 2(47) of the IT Act, 1961 and the same is not applicable in other cases which do not fall under s. 2(47) of the IT Act, 1961. Sec. 45(1) of the IT Act, 1961 deals with the profit and gain arising from the transfer of capital asset, whereas s. 45(2) deals with the profit or gain arising from the transfer by way of conversion of capital asset into stock-in-trade and shall be chargeable to income-
tax in the previous year in which such stock-in- trade is sold or otherwise transferred. Therefore, the time of chargeability to income-tax of capital gain arising from the conversion of capital asset to stock-in-trade is the point when the stock-in-trade is sold or otherwise transferred, whereas the chargeability of capital gain under s. 45 of the IT Act, 1961 from transfer of capital asset shall be in the previous year in which the transfer took place including the transfer as provided under s. 2(47) of the IT Act, 1961. The sale/transfer of stock-in-trade cannot be equated with the transfer of capital asset. The decisions relied upon by the learned Departmental Representative as well as the lower authorities are with respect to the transfer of capital asset under s. 2(47) of the IT Act, 1961 and not in respect of stock-in-trade. Therefore, these decisions are not relevant and applicable in the facts of the present case. As far as s. 53A of the Transfer of Property Act is concerned, the said section provides only a protection to the transferee on fulfilment of 48 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= certain conditions provided therein but does not provide that even on fulfilment of that condition the transfer is complete. As per provision of s. 53A of the Transfer of Property Act when a right is created in favour of the transferee which cannot be defeated, otherwise then by the terms and conditions expressly provided in the contract itself.
10. From the development agreement dt. 1st Sept., 2003 as well as the supplementary agreement dt. 23rd Dec., 2003, the assessee handed over the possession of the property for construction of residential apartments by the developer. The assessee did not receive any consideration for handing over the possession of the property to the developer but as per the agreement the assessee got the right to get the built-up area of 25,130 sq. ft. and proportionate car park as per Schs. E and E1 of the agreement and the rest of the constructed area was to be sold out for recovery of the cost and margin of the developer. From the development agreement, the possession was handed over for carrying out the construction work by the developer and there is no other document except the development agreement which transfers the title of the property to the developer. In the absence of the transfer of the title of the property and any consideration at the time of development agreement, the handing over of the possession was merely a temporary measure for carrying out the construction work by the developer and the exclusive possession of the property in legal sense remains with the assessee which was finally handed over at the time of execution of the sale deed of the constructed flats by the assessee. One cannot presume any intention in executing the documents between the parties other than what was stated or can be inferred reasonably from the documents itself. A regard must be given to the words used in the documents. The nature of the transaction between the parties by way of development agreement cannot be said to be a sale of immovable property which is stock-in- trade or otherwise transfer as provided in the Transfer of Property Act. We agree with the contentions of the learned Authorized Representative of the assessee that the meaning of the words, "otherwise transferred", in s. 45(2), should be according to its ordinary popular and 49 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= natural sense, and it should not include a transaction referred to under sub-cl. (v) of sub-s. (47) of s. 2 of the IT Act, 1961 in relation to a 'capital asset'. By no stretch of imagination, the said transaction can be termed as transfer more or less as sale. When the legal title and possession of the property were with the assessee, then the transfer of the said is not possible merely by allowing the developer to carry out the construction work.
13. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of immovable property as held by the Hon'ble apex Court in the case of Alapati Venkataramiah vs. CIT (supra). Until and unless the title of the property is passed on to the purchaser, there cannot be a sale or transfer of immovable property, since in the present case the question is whether the handing over of the possession under the development agreement of the property which is stock-in-trade of the assessee can be treated as a transfer by applying the definition of transfer in s. 2(47) of the IT Act, 1961. As we have already stated earlier that in the case of stock-in-trade, the definition of transfer under s. 2(47) of the IT Act, 1961 is not applicable, therefore, the contextual or the ordinary meaning of the word transfer is applicable in the present case.
15. In the present case, the business profit arises to the assessee on the sale of the stock-in-trade only when the constructed apartments were sold and not at the time when the development agreement was entered into. Moreover, in the development agreement, the assessee has not agreed for sale of the entire constructed property on the land, the assessee has agreed only for a portion of the constructed property for sale for the purpose of recovery of the cost of construction and margin of the developer. The assessee has executed all the sale deeds for transfer of the constructed apartments in favour of the end-user/purchaser, therefore the transfer of the proportionate land took place only when the assessee transferred the construction property by way of sale deeds and offered the business income which was accepted by the Department. In any case, when the assessee 50 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= has retained the portion of the land being proportionate to the constructed area to be retained by the assessee, then there is no question of transfer of the entire land to the developer. In view of the above discussion, we hold that the orders of the lower authorities, qua this issue are not sustainable on the facts as well as on law. We set aside the orders of the lower authorities, qua this issue and direct the AO to tax the capital gain arising from the conversion of the land and building into stock-in-trade proportionately into the previous years in which the constructed property was sold by the assessee or retained for self-use and corresponding business income was offered."
(b) B.L. Subbaraya vs. DCIT, 9 SOT 297 (Bang) wherein the Bangalore Bench of the Tribunal held as under:
"8. The fact which is undisputed is that the entire settlement is still a subject-matter of dispute being sub judice and there is no finality attained even during the year under consideration. This is clear from the following facts. Subsequent to the deed of settlement between the assessee and Smt. Sundari Ramachandran on 9th Aug., 1997, the disputes arose on its implementation. The assessee filed a company petition against M/s Electronics & Controls Power Systems (P) Ltd., under s. 433 of the Companies Act, 1956, seeking winding up for its failure to pay the dues to the assessee. Incidentally, subsequent to the deed of settlement dt. 9th Aug., 1997, the business of the partnership firm M/s Electronics & Controls was taken over by a private limited company, M/s Electronics & Electronics Power Systems (P) Ltd. The said winding up petition came to be dismissed by the Hon'ble High Court of Karnataka on 2nd March, 2000 on the plea that there was no sum due from the company inasmuch as the settlement was between the assessee and the individual, Smt. Sundari Ramachandran. Subsequently, the assessee instituted a suit for recovery of the amount in terms of the settlement before the Civil Court at Bangalore in O.S. No. 5898/2000, a copy of which is placed in the paper book filed before us. We also find from the paper book that the defendant, Smt. Sundari Ramachandran, has denied the existence and 51 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= execution of the said settlement agreement dt. 9th Aug., 1997 as been concocted/ fabricated. Therefore, undisputedly the entire settlement agreement dt. 9th Aug., 1997 is in jeopardy. Of course, the assessee has withdrawn a sum of Rs. 23 lakhs from the firm, M/s Electronics Controls. Therefore, having regard to the binding nature of judgment of the Hon'ble Supreme Court in the case of Hindustan Housing & Land Development Trust Ltd. (supra), to the proposition that where an amount was in dispute, it could not be treated as income, we do not find any infirmity in the conclusion of the CIT(A) that a sum of Rs. 77,00,000 cannot be brought to tax during the year under consideration as the matter had not attained finality. However, the CIT(A) went wrong in not applying the same principle to the amount of Rs. 23 lakhs received by the assessee. Even this amount of Rs. 23 lakhs is disputed and the right of the assessee in the said amount is inchoate and therefore, the same also cannot be brought to tax during the year under consideration."
(c) Bhavesh Estates (India) (P) Ltd. vs. ITO, 1 DTR (Mum) (Trib) 366 wherein the Mumbai 'SMC' Bench held as under:
"2.3 After going through the rival submissions and also after perusing the material available on record, I am not inclined to concur with the finding of the CIT(A), because the assessee had entered into the development agreement with M/s Arora Builders (Sukhmani Construction). The FSI on the said plot was revised, but the project could not be completed. Therefore, at the cost of this hardship no interest was paid by the owner to the assessee company on its deposit at the rate of 12 per cent per annum of the same amount. It is undisputed fact that the assessee had paid the amount of Rs. 99.90 lakhs as on 31st March., 2003, but no interest was paid to the assessee because the project was legally not feasible and due to legal restriction the whole amount invested might not have been realized in the said project. Accordingly, the owner did not make any payment to the assessee. Under the facts and circumstances, the assessee cannot be subjected to be taxed on notional income. There is nothing on record, to suggest that any such interest 52 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= income was materialized. The assessee has pointed out that because of non-availability of FSI on the said plot of land for which the assessee had entered into development agreement with M/s Arora Builders (Sukhmani Construction), the assessee company could not develop the said property in view of the statutory restrictions and, therefore, the whole project has become unviable to continue. Hence, no interest had accrued to the assessee in the year under consideration. Accordingly, the addition of Rs. 4,99,260 is directed to be deleted."
(d) M/s. Neon Solutions Pvt. Ltd. vs. ITO in ITA Nos. 5032/Mum/2011 and 6222/Mum/2012 order dated 30.04.2013, the Mumbai 'B' Bench of the Tribunal held as under:
"5. We have heard both the parties and perused the material on record. As regards the findings of the AO and the Ld.CIT(A) that various resolutions have been back dated and the same cannot be relied, in our view is based on presumptions and assumptions of the lower authorities as the perusal of the records and the subsequent events leading to the amalgamation establishes that the debenture issuing company has been under serious financial crisis and the impugned resolutions passed to the effect of waiver of interest are reliable. Regarding the requirement of the resolution to be registered u/s 106 r.w.s. 192 of the Companies Act as observed by the Ld.CIT(A), it is pertinent to mention that the said provisions are not applicable as the resolutions passed by the debenture issuing company do not fall under the resolutions prescribed by the provisions of section 192(4) of the Companies Act. Also in similar set of facts, the ITAT in the case of Riya Holdings Ltd in ITA Nos. 1119 to 1124/Mum/2011, where the present Account Member is also one of the parties to the said order, has directed the AO delete a similar amount of interest brought to tax. The relevant principles summarized by the ITAT in the said cases on the basis several judgments of the High Courts and Supreme Court is extracted hereunder:53 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= A) that merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it.
B) earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides not to charge interest in order to safeguard the principal amount and ensure its recovery, it cannot be said that he has acted in a manner in which no reasonable person can act.
C) The guidance note on accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made.
D) Non-recognition of income on the ground that the income had not really accrued as the realisability of the principal outstanding itself was doubtful, is legally correct under the mercantile system of accounting, when the same is in accordance with AS-I notified by the Government E) It is one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred.
F) The provisions of section 145(1) are subject to, inter alia, mandate of AS-1 which also prescribes that 'Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies'. In the name of compliance with section 145(1), it cannot be open to anyone to force 54 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the assessee was justified in following the policy of not recognizing these interest revenues till the point of time when the uncertainty to realize the revenues vanished. "
As the principles laid down in recognizing the income equally applies to the facts of the assessee's present case, we are of the view that the authorities below are not justified in bringing the impugned notional interest to tax. Accordingly, we delete the impugned additions. Thus, Ground no 1 is allowed."
46. In view of the above discussion, we are inclined to hold that the CIT(A) is justified in deleting the addition made by the AO as there is no income accrued to the assessee on the basis of agreement entered by the assessee with M/s. Janapriya Engineers Syndicate. We do not find any infirmity in the order of the CIT(A) and the same is confirmed. Grounds taken by the Revenue are rejected and the appeal is dismissed.
48. Since the issue under consideration is identical to that of the said case, following the decision of the Tribunal in the said case, it is to be held that real income to be taxed and not notional income and accordingly, we delete the addition made. This ground is allowed.
49. Next Ground is pertaining to the disallowance of Rs. 77,00,485/- on account of statutory and consultancy charges.
50. The AO disallowed Rs. 2,33,24,429/- on account of expenditure relating to statutory and consultancy charges on the ground that it is capital in nature. The assessee contended that no work was started on the amenities during the year under consideration and hence the entire cost incurred for statutory and consultancy charges being direct cost, are 55 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= towards independent houses and apartments. Alternatively, it is submitted that since the AO disallowed Rs. 1,56,23,944/- out of the claim of Rs. 2,33,24,429/- in the earlier assessment year Viz. AY 2007-08 and this amounts to double disallowance and therefore, the disallowance should be restricted to Rs. 77,00,485/- .
50.1 The DRP observed that the assessee has not made out any case as to how the statutory and consultancy charges incurred on account of the development of the amenities such as club house, school in commercial area are revenue in nature, the disallowance by the AO is justified. However, the alternate claim of the assessee that there was double disallowance has been verified with reference to the order u/s. 154 of IT Act passed for AY 2007-08 (a copy of which has been filed by the assessee), wherein the Assessing Officer had disallowed Rs. 1,56,23,944/- out of Rs. 2,33,24,429/-. In view of the above, the DRP held that since addition of Rs. 1,56,23,944/- again in this year amounts to double disallowance, the disallowance for this year is restricted to Rs. 77,00,485/-.
51. Aggrieved, the assessee is in appeal before us.
52. We have heard both the parties, perused the record and have gone through the orders of the authorities below. The contention of the assessee is that it is a revenue expenditure or otherwise if the expenditure is reduced to that extent, proportionate income to be reduced from P&L Account as the income generated from that expenditure is offered to tax. If this income related to this expenditure has gone to the P&L A/c, we direct the AO to allow proportionate expenditure. Accordingly, this ground is partly allowed.
56 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
53. Next ground is with regard to the disallowance of Rs. 91,25,431/- u/s 40(a)(ia) of the Act.
54. Briefly the facts relating to this ground are that this issue has been discussed in detail by Assessing Officer in para 25 of the draft order. As per the details stated by Assessing Officer in table 'A' of para 25.2, the assessee has claimed expenditure amounting to Rs. 93,71,184/- which includes Rs. 1,00,000/- (Rs. 50,000 + Rs. 50,000) paid to P. Vijaya Lakshmi and V. Dyumani on account of legal and professional charges. No evidence has been filed before the Assessing Officer and the same was disallowed u/s. 37(1) of the Act. The assessee has not objected for the disallowance of Rs. 1,00,000/-. Regarding balance amount of Rs. 92,71,184/-, the Assessing Officer has observed that the assessee has not deducted TDS u/s. 194J and therefore, disallowed the same.
54.1 Regarding professional charges paid to Maigrot Koenig amounting to Rs. 1,45,753/-, it is seen that this amount has been disallowed by the Assessing Officer as per para 10 of the draft assessment order which has been confirmed by DRP as per para 4.1.1. Since the amount has already been disallowed, there is no further disallowance. Accordingly DRP directed the Assessing Officer to delete the disallowance of Rs. 1,45,753/-.
54.2 The balance amount relates to audit remuneration and computer maintenance. TDS has not been deducted in respect of audit remuneration paid to M/s. SRB & Krishna and Prasad Associates amounting to Rs. 45,18,531/- and Rs. 44,94,400/-. It is stated by the assessee that the TDS has not deducted on these amounts during the year. However, such TDS has been deducted and paid in next year. In view of the above, the DRP held that for this asst. year the AO is justified in disallowing 57 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= the same u/s 40(a)(ia) of the Act and The disallowance of the above payments is therefore confirmed.
54.3 The DRP observed with regard to payment of Rs. 1,12,500/- as computer maintenance charges that the assessee has not deducted TDS on this amount paid to Soft Hard Technologies Pvt. Ltd., the Assessing Officer is justified in disallowing the same.
54.4 To sum up, out of disallowance of Rs. 92,71,184/- for which objection has been filed, disallowance to the extent of Rs. 91,25,431/- (Rs. 92,71,184 - Rs. 1,45,753) is confirmed by DRP.
55. Aggrieved, the assessee is in appeal before us.
56. We have heard both the parties, perused the record and gone through the orders of the authorities below. As held by the Delhi High Court in the case of CIT vs. Rajinder Kumar in Income Tax Appeal No. 65/2013 dated 1st July, 2013, the impugned amendment to section 40(a)(ia) which permits remittance of TDS to the Central Government account on or before the due date of filing return of income u/s. 139(1) of the Act is retrospective in nature. Same view has been taken by the jurisdictional High Court in the case of CIT vs. PEC Electricals Pvt. Ltd., in ITA No. 263 of 2013 dated 12.7.2013. Further, the Cochin Bench in the case of Antony D. Mundackal Vs. ACIT in ITA No. 38/Cochi/2013 vide order dated 29/11/2013 for AY 2009-10, held as under:
"7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us 58 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No. 433 dated 25-09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not make any difference. In the instant case, the assessee is repeatedly given works to the polishing people and hence the terms and conditions of the work would be clearly understood by both the parties. Accordingly, we reject this contention of the assessee and hold that the provisions of sec. 194C shall apply to the polishing works given by the assessee.
7.1 According to Ld AR, the assessee has acted as a conduit pipe in connection with the polishing works between the customers and the person doing polishing job. Accordingly, it was submitted that there is no profit element in the said transactions. The Ld AR further submitted that the assessee has included the cost of polishing works in the sale value of aluminium extrusions, without knowing tax implications. However, we notice that the assessee did not furnish any proof to substantiate the above said claims. The assessee, being a dealer in aluminium extrusions, has only supplied the products after carrying out the polishing works according to the taste and requirement of customers. It is only one of the many business techniques normally adopted by a business man to improve his sales, since it will be very difficult for customers to identify the polishing people and get the work done by themselves. Hence, we are of the view that it may not be correct to argue that the contract existed between the customers and the polishing people. In fact, the customer may not have any contact with the polishing people in this type of transactions. Hence, it is hard to believe the claim 59 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= of the assessee that he has acted as mere conduit pipe between the customers and polishing people. Accordingly, the claim that the assessee stands in a fiduciary capacity is also liable to be rejected. In this kind of factual situation, in our view, the existence or absence of profit element in the polishing works does not make any difference.
7.2 The Ld Counsel, by placing reliance on the decision of special bench in the case of Merylin Shipping and transports (supra) contended that the provisions of sec. 40(a)(ia) shall apply only to amount payable and not to the amount paid. However, the Hon'ble Gujarat High Court in the case of CIT Vs. Sikandar Khan N Tunvar (357 ITR
312) and the Hon'ble Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate (ITAT 20 of 2013) have held that the decision rendered by the Special Bench in the case of Merylin Shipping & Transports is not a good law. The Ld AR, however, placed reliance on the decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Merylin Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also.
7.3 The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd (supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the Act.
7.4 The last contention of the assessee is that the second proviso to sec. 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect from 1.4.2013 60 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= is clarificatory in nature and hence the benefit of the same should be applied retrospectively. However, the correctness of this contention has not been examined by the tax authorities. Hence, in the interest of natural justice, we are of the view that this contention of the assessee requires examination at the end of the assessing officer. Accordingly, we modify the order of the Ld CIT(A) and set aside this ground to the file of the assessing officer with the direction to examine the above said contention of the assessee and decide the same in accordance with the law, after affording necessary opportunity of being heard. We make it clear that we have, in effect, rejected all the contentions of the assessee except the ground relating to applicability of the second proviso to sec. 40(a)(ia) of the Act to the year under consideration."
56.1 The said view was followed by Pune Bench of ITAT in the case of Gaurimal Mahajan & Sons in ITA No. 1852/Pune/2012 for AY 2008-09 vide order dated 06/01/2014. 56.2 Following the decision of the coordinate bench of ITAT, Cochin in the case of Antony D. Mundackal Vs. ACIT(supra), we direct the Assessing Officer to see whether the recipient has paid tax or not on this payment and decide the issue in accordance with law. Further, short deduction of TDS and remittance of the same cannot be a reason for disallowance u/s 40(a)(ia) as held by the Hon'ble Calcutta High Court in the case of Tekriwal (supra). This ground is partly allowed for statistical purposes.
57. Next ground is pertaining to disallowance of Rs. 8,55,911/- on account of reimbursement made by the Assessee to MIPL towards cost incurred in relation to development activities.
58. Briefly the facts relating to this ground is that this issue is discussed in the draft assessment order at para 21. The 61 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= Assessing Officer found that certain journal entries were made against Maytas Infra Pvt. Ltd. which was claimed as expenditure and no TDS was deducted u/s. 194C He rejected assessee's contention that tax is not deductible on these and accordingly disallowed the amount of Rs. 8,55,911/- u/s. 40(a)(ia).
58.1 Before the DRP, objection raised before Assessing Officer is reiterated by the assessee. The DRP held that since the amount is claimed as an expenditure, the assessee was required to deduct TDS as per the provisions of see. 194C even if the claim is made through a journal entry. Since TDS was not deducted, Assessing Officer is justified in making disallowance u/s. 40(a)(ia). Therefore, the proposed addition of Rs. 8,55,911/- is upheld by DRP.
59. Aggrieved the assessee is in appeal before us.
60. This ground is similar to the earlier ground in paras 53 to 56.2, therefore, following the decision therein, we remit the issue to the file of the AO with identical directions.
61. Next ground is pertaining to disallowance of expenditure amounting to Rs. 46,33,163/- u/s 40(a)(ia) on the ground of non-deduction of taxes as per the provisions of the Act. This ground is similar to the earlier two grounds vide paras 53 to 60, therefore, this ground is remitted to the file of the AO with identical directions.
62. Next ground is pertaining to disallowance of interest expenditure of Rs. 87,62,176/- u/s 14A of the Act.
62 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
63. Briefly the facts relating to this ground are that during the AY 2008-09, the assessee had invested in Mutual Funds. The dividend income received from such investments was claimed to be exempt from tax. The assessee had taken loans from banks for which interest was paid and claimed as deduction amounting to Rs. 14,23,39,376/-. During the AY 2008-09 the assessee had received interest free advances of Rs. 487 crores from its customers and Rs. 600 crores by way of subscription towards CCDs. The assessee had not incurred any expenditure directly attributable to the activity of investing in mutual funds. The dividend income was a result of temporary parking of available funds without much involvement of human resources.
63.1 The contention that it had interest free funds which comprised of advanced of Rs. 487 crores from customers and also the subscription towards CCDs of Rs. 600 crores received cannot absolve the assessee of its liability u/s. 14A. The assessee though stated that it had interest free funds which were invested in the mutual funds, the same has not been supported by any documentary evidence such as cash flow statement and the contention that it did not incur any expenditure directly attributable to the activity of investing in mutual funds is devoid of any merit. The insertion of Rule 8D has been aimed at disallowing the expenditure incurred in respect of earning exempted income by following the formula contained therein and this amendment came into existence from AY 2008-09 i.e. the year under consideration. If the AO having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income u/s section 14A(2) or if the assessee claims that no expenditure has been incurred by them in 63 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= relation to income which does not form part of the total income section 14A(3), expenditure relatable to the exempted income needs to be disallowed.
63.2 The DRP held that the AO has clearly stated that the contention of the assessee is not acceptable in view of the fact that the interest expenses incurred on loans taken from various financial institutions which were subsequently invested in mutual funds and is therefore squarely covered u/s 14A. Since the AO has recorded his satisfaction that the assessee incurred expenditure for earning exempted income and followed the method/formula prescribed as per section 14A read with Rule 8D, the proposed disallowance of Rs. 87,62,176/- is upheld by DRP.
64. Aggrieved the assessee is in appeal before us.
65. We have heard both the parties, perused the record and have gone through the orders of the authorities below. This issue is similar to the issue discussed in paras 31 to 34 of this order, hence following our finding in para 34 of this order, this ground is allowed.
66. Next ground is pertaining to disallowance of Rs. 1,58,20,475/- u/s 40(a)(ia) on account of non-deduction of taxes on bonus provision payable to employees.
67. Since the assessee has not produced copies of evidences, viz., copy of TDS return showing details of TDS payment claimed to have been made in FY 2008-09 corresponding to the salary payment on which TDS has been made, the AO made the disallowance and the same was confirmed by the DRP.
64 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
68. We have heard both the parties, perused the record and gone through the orders of the authorities below. Section 40(a)(ia) is very clear which includes only interest, commission or brokerage, rent, royalty, fees for professional service or fees for technical services payable to resident or amount payable to contractor or sub-contractor and bonus to employees is not included under these provisions. Being so, provisions of section 40(a)(ia) cannot be invoked. This ground is allowed.
69. Next ground is pertaining to the addition of Rs. 95,73,740/- on account of 92CA of the Act.
70. Briefly the facts relating to this ground are that during the year, the assessee advanced Rs. 50,49,77,581/- to its wholly owned subsidiary (WOS), Maytas Properties M.E.F.Z.E., Dubai and did not charge any interest on this amount which has been advanced out of its interest bearing funds. Since the assessee did not charge any interest on this amount, the TPO on the reference made by the AddI.CIT, Central Range-I, Hyderabad has calculated the Arm's Length interest on the amount of Rs. 50,49,77,581/- advanced to the AE, as per the provisions of Sec. 92CA of IT Act.
70.1 Assessee objecting to the proposed additional before DRP contended that the investment of the said amount was by way of share application money and is not an international transaction and has the approval of the RBI as being share application money and has been sent through banking channels. It is further contended that it is in the nature of equity in the hands of subsidiary and that there is no provision in the Act empowering the TPO to re-characterize an investment in the form of equity as a debt. DRP held that this contention cannot be accepted and the TPO has already 65 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= considered all the objections at Para-8 of the TP order. It is noted from the submissions filed and the supporting documents that the RBI has not given any approval for the transaction in question. It has clearly mentioned that it has allotted the identification number for all the correspondence in regard to the overseas direct investment in a WOS in UAE and that the allotment of the identification number does not constitute an approval from the RBI for the investment made/to be made in the said WOS. And hence, the contention that it has got the approval from RBI to invest in the share application money in the WOS and thereby no TP analysis can be made in respect of the transaction in question has no merit. As rightly pointed out by the TPO, the role of the RBI is management of forex governed by FEMA and it does not e transactions pertain to loans or equities or whether they comply Arms Length principle or not.
70.2 The DRP observed that the contention that the TP analysis does not apply to investment in equity is also without any basis because the appellant has failed to show that the nature of the amount in question was equity not loan during special audit, TPO proceedings and during the proceedings before the Panel. Even while submissions filed before the Panel vide submissions dt. 5-2-2013 also, it was submitted that Maytas, Dubai is in the process of allotting shares to the assessee against the application money received in the F.Y 2007-08 and that means even after four years also the funds are parked with the AE which is nothing but a loan transaction and this has been diverted to the AE out of interest bearing funds of the assessee thereby interest has to be calculated at Arm's Length. The TPO applied the rate of yield on corporate bonds as bench mark taking into account the credit rating data obtained from CRISIL i.e., 17.26% and worked out the 66 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= Arm's Length interest at Rs. 95,73,7401-· The TPO has clearly discussed why he is not adopting LIBOR rate on the transaction which is reproduced as under:
70.3 Even otherwise, if a loan given to a foreign entity is to be bench marked with LlBOR, the following is to be the manner in which the arm's length price would be arrived at:
1. The prevailing rate of interest for foreign currency loans extended by bonks in Indio for companies with similar credit rating as that of the AE on standalone basis.
2. The additional transaction costs for the taxpayer to get similar loan by a Bank in India.
3. Adjustment needs to be made for the taxpayer as it is not into lending and borrowing money.
1. Banks spread their risk among various customers whereas the same is not possible for the taxpayer in its loan transactions. Thus, the taxpayer has higher risk than the banker in lending money to its related party.
4. Adjustment needs to be made for no security offered by the related party. Banks generally ask for security even for foreign currency loans.
But in the loan transaction between the 'taxpayer and the AE, there is no security provided by the AE to the taxpayer.
70.4 Assessee borrowed funds in Indian currency at the interest rates prevailing in India utilised by assessee for converting into foreign currency to advance interest free loan to its associate enterprise (AE) namely Mis. Maytas Properties, M.E.F.Z.E, Dubai. It is also fact that no shares were allotted till date in favour of the assessee against the interest free loan given to its AE. As the interest free loans advanced to AE are taken in India in Indian currency at the rates prevailing in India, the case laws relied upon by the assessee and the claim 67 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= of the LIBOR rate for computation of ALP are not applicable to the facts of the case. The TPO after obtaining information from CRISIL has concluded that the taxpayer falls in the grading range of BB to D which is for the cases where either there is no safety or the safety is inadequate and considering high risk involved adopted the rate by annualizing average yield for 'BB' rated bond for five years or more at 17.26%. It is noted that the advancement of the said amount to the AE is not supported by any guarantee or collateral and is therefore a very high risk transaction. Therefore, we are of the opinion that the TPO has correctly applied the rate of yield applicable to corporate bonds on the basis of CRISIL rating for computation of ALP.
70.5 In view of the facts stated above, the assessee's objections raised at ground nos. 1,2 & 3 were rejected and TPO's order was upheld and upheld the action by the DRP.
71. Aggrieved, assessee is in appeal before us.
72. We have heard both the parties, perused the record and have gone through the orders of the authorities below. Similar issue came up for consideration before this Tribunal in the case of Vijay Electricals Ltd. Vs. Addl. CIT, [2013] 36 Taxmann.com 386 (Hyd.-Trib.) wherein it has been held as follows:
"10. We have considered the rival submissions, perused the record and have gone through the orders of the authorities as well as decisions cited. In our opinion, the amount representing Rs. 2118.84 crores is towards investment in share capital of the subsidiaries outside India as the transactions are not in the nature of transactions referred to section 92-B of the IT Act and the transfer pricing provisions are not applicable as there is no income. Accordingly, we aside the order passed by the CIT u/s 263 and that of the AO is restored and the grounds raised by the assessee in this regard are allowed."68 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
================= 72.1 In view of the above, in our opinion impugned transaction cannot be considered u/s 92CA of the I.T. Act and accordingly, this ground is allowed.
73. In the result, appeal of the assessee in ITA No. 1404/Hyd/2013 is partly allowed.
ITA NO. 1373/HYD/2013 - by Revenue
74. The revenue has raised the following grounds in its appeal:
1. On the facts and in the circumstances of the case and, in law the DRP erred in deleting the disallowance of Rs. 178,66,16,649/- u/s 40(a)(ia) in respect of payments made to contractors.
2. On the facts and in the circumstances of the case and, in law, the DRP erred in deleting the disallowances made u/s 40(a)(ia) in respect of the following payments:
a) Rs. 26,72,773/-
b) Rs. 14,80,251/-
on the ground that the above mentioned payments were already disallowed u/s 37(1) without giving a finding regarding the disallowance of these payments u/s 40(a)(ia) of the Act.
75. The addition has been proposed on the basis of discussion made in para 23 of the draft asst. order. On the basis of special audit report u/s 142(2A), the AO found that in a number of cases of expenditure, the assessee has short deducted tax at source u/s 194C. The total amount of such expenditure comes to Rs.178.66 crores which has been disallowed u/s 40(a)(ia).
69 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= 75.1 In course of the asst. proceedings, when this issue was raised, the assessee has submitted the following objections.
"Without prejudice to the facts provided in para 9.2 and 9.4 above, it was submitted before the Id. AD that even in case of MIPL is considered as a contractor and tax to be withheld is 2.244% u/s 194C of the Act, the entire amount of expenditure cannot be disallowed u/s 40(a)(ia) of the Act on account of the following.
• The assessee has mode TDS at the rate of 1 % (plus applicable surcharge and education cess) on payments to MIPL.
• The Hon'ble Kolkata Tribunal in the case of SK Tekriwal (Infra) has held that the disallowance u/s 40(a)(ia) is not applicable in the case of short deduction of TDS. It was held that if there is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be mode u/s 40(a)(ia).
Similar view has been held in following judicial precedents:
Chandabhoy & Jassbhoy (Infra) Teja Constructions Vs. CIT (Infra) K.Srinivas Naidu Vs. Ass/. ClT (Infra) Jaipur Vidyut Vitran Nigam Ltd. VS.DCIT (Infra).
• Further, the special bench of the Visakhapatnam bench in the case of Merilyn Shipping & Transports (Infra) has held that the disallowance u/s 40(a)(ia) of the Act is not applicable to the amounts already paid, and that the disallowance should be restricted to amounts payable as on the year end.
In the instant case, as the amounts had already been paid by the assessee, the provisions of section 40(a)(ia) of the Act would not attract.
75.2 In course of the hearing before the DRP, the assessee has filed written submission in support of the above objection which is reproduced below:
70 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= "Development agreement is a "Contract for work"
and not a "Joint Venture agreement"
• The assessee wishes to respectfully submit that the Development Agreement (DA) entered into by the assessee with the Land Owning Companies (LoC) does not constitute a joint venture. The assessee is merely appointed as a developer for undertaking the development work relating to the Hill County Project.
• Further, the fact that the Assessee is a "Developer" under the DA does not debar the assessee from being a contractor within the meaning of section 194C(l) of the Act. In this regard, we wish to rely on the observations of the Hon'ble Income tax Appellate Tribunal (fTAT) in the case of Patel Engineering Ltd. Vs. DClT (2004 84 TIJ) (Mumbai) 646.
• Since, the work undertaken by the assessee under the DA constitute a contract for work uls 194C(1), the work sub-contracted to Maytas Infra Pvt. Ltd. (MIPL) constitutes a sub-contract. Hence, tax is to be deducted @1% u/s 194C(2) of the Act on the payments made to MIPL. Therefore, there is no instance of short deduction of taxes by the assessee.
• To evidence the deduction of tax at source at the rate of 1% u/s 194C(2) of the Act on amounts payable to MIPL. We have attached herewith the following proofs of deduction and remittance of tax @1%.
(i) Form 26AS of MIPL for AY 2008-09 (Refer Annexure l) (S No. 5 60 to 582 of the table for details of TDS deducted the assessee).
(ii) TDS certificates issued by the assessee to MIPL for A Y 2008-09 (refer Annexure-2.
(iii) Extracts of the return of income of MIPL for A Y 2008-09 wherein credit of the TDS deducted by the assessee has been claimed (refer Annexure 3) (S. No. 58 of the TDS schedule discloses the credit claimed by MIPL of the TDS deducted by the assessee during AY 2008-09).
71 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= 1.2 Agreement for construction entered into with buyers.
• Without prejudice to our submissions that the DA constitutes a contract for work u/s 192C(l) of the Act, we wishes to respectfully submit that the assessee has entered into an agreement for construction (AFC) with all the buyers of the Hill County Project.
• The AFC entered into with the customers is a contract of work u/s 194C(1) of the Act. This gives rise to the following two scenarios.
Where the buyer is liable to deduct tax u/s 194C(1) of the Act.
It is submitted that given the fact that the project consists of residential house property and not commercial property, an overwhelming majority of its customers are persons to whom the provisions of section 194C(1) of the Act do not apply. In the minority of cases where the buyer is a person to whom withholding provisions u/s 194C of the Act apply in relation to the AFC, the same constitutes the principal contract for work u/s 194C(1) of the Act.
The contract of the assessee with MIPL, being a sub-contract arising out of the AFC, is liable for tax withholding only under section 194C(2) of the Act. It is submitted that the Company has already deducted and remitted tax required us 194C(2) of the Act. Hence, there is no violation and no disallowance is liable to be made u/s 40(a)(ia) of the Act.
Where the buyer is not liable to deduct tax u/s 194C(1) of the Act.
Provisions of Section 194C(1) of the Act are not attracted where the payee is an individual or a HUF which is not subjected to tax audit u/s 44AB of the Act. Since a majority of the buyers are persons to whom the provisions of Section 194C do not apply, the principal contract, i.e., the AFC 72 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= does not fall within the purview of the provisions of Section 194C(1) of the Act.
Consequent to the non-applicability of provisions of section 194C to the principal contract i.e., the AFC, the sub-contract agreement entered into with MIPL does not attract tax withholding provisions u/s 194C(2) of the Act.
In this regard, we wish to rely of the CBDT Circle NO.l08 of 1973, wherein the CBDT, while clarifying the scope of provisions of section 194C, has stated that the provisions of section 194C(2) shall apply only where the principal contract is a contract for work u/s 194C(1). So where charge under section 194C(1) fails on the principal contract, there can be no withholding tax requirement u/s 194C(2) on the sub-contract arising out of such principal contract (Refer annexure 4 for a relevant extract of the circular).
Further, we wish to rely on the CBDT circular No.684 of 1994 wherein the CBDT has acknowledged in Para 51 that where the provisions of section 194C(1) of the Act are not attracted in relation to certain contracts, on any sub-contract arising from such contract, the provisions of section 194C(2) of the Act are also not attracted. Hence, there are no withholding tax obligations to be complied with. (refer annexure 5 for a relevant extract of the circular).
Hence, where the buyer is not liable to withhold taxes on the amounts payable under the AFC to the assessee, the assessee was not required to withhold any taxes on the amounts payable to MIPL. Therefore, no disallowance be mode u/s 40(a)(ia) of the Act on account of non-deduction of taxes.
1.3 No disallowance u/s 40(a)(ia) in case of short-deduction of taxes on a bonafide belief.
It is submitted that the provisions of section 40(a)(ia) of the Act are attracted only' in case of non-deduction of taxes and not in case of short deduction of taxes. Disallowance u/s 40(a)(ia) is 73 ITA Nos. 1404 & 1373/Hyd/13 Hill Country Properties Ltd.
================= warranted only in case of non-deduction of taxes at source.
The above contention has been upheld by the Hon'ble High Court of Calcutta in the case of CIT Vs. M/s. S. K. Tekriwal (ITA T NO.183 of 2012) wherein it was held as follows.
"Where tax is deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TOS, the provisions of section 40(ia)(ia) of The Act cannot be invoked.
The same contention has also been upheld in the following judgments of the Hon'ble ITAT.
Hero Motocorp Ltd. Vs. ACtT (ITA No. 1980/Del/2012) Apollo Tyres Ltd. Vs. DCtT (ITA No.31/ Coch/ 2010) DCIT Vs. Chandabhoy and Jassobhoy (2012) 49 sot 448 (Mum) * Since the assessee has deducted and remitted taxes @1% u/s 194C(2} of the Act based on a bona fide belief that the same is the rate applicable in respect of payments to be made to MIPL, no disallowance u/s 40(a)(ia) is warranted on the same.
1.4 Disallowance u/s 40(a)(ia) to be proportionate to the extent of short deduction.
Without prejudice to our earlier submissions, it is submitted that the disallowance u/s 40(a)(ia), if any, is to be restricted only to the extent of short deduction of taxes.
The above contention has been upheld by the Hon'ble ITAT in the case of DClT Vs. Beekaylon Synthetics Ltd. (ITA No. 6506/M/08).
Hence, disallowance in respect of amounts payable to MIPL, if any, is to be restricted to the extent of short deduction of taxes.
1.5 Amount disallowed u/s 40(a)(ia) to be allowed when default is made good by the payee.
74 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
================= Without prejudice to our earlier submissions, it is submitted that where there is a default in withholding taxes, if the payee subsequently pays taxes on the amounts received by him and makes good the default, the payer is to be granted a deduction in respect of the amounts for which the default is made good.
This is by virtue of the amendment brought in by the Finance At 2012, to section 40(a)(ia) and section 201 of the Act. It is submitted that such amendments are curative in nature and rectify a defect in the law. As such, their effect shall be retrospective from the date of original provisions which are so amended.
- Allied Motors Pvt.Ltd. Vs. CIT [1997] 139 CTR (SC) 364)
- CIT Vs. Alom Extrusion Ltd., [2009] 227 CTR (SC) 417.
Hence, the amendments to sections 40(a){ia} and 201 of the Act vide Finance Act 2012 shall apply even for A Y 2008-09.
In the instant case, the payee, MIPL, has accounted for the amounts payable by the assessee as its income and has discharged its tax liability in respect thereof. The same is evidenced by the extracts from their return of income and financial statements and for A Y 2008-09 attached herewith (refer Annexures 3 for extracts of return of income of MIPL and Annexure 6 for financial statements of MIPL for FY 2007-08).
(please refer note NO.14.b.D.2 forming part of schedule 24 of the financial statements of MIPL for FY 2007-08).
76. After considering the above submissions, the DRP observed that as per the draft asst. order, according to the AO, in the following cases, there is short deduction of tax at source:
75 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
Amount TDS
Sl. Name of TDS paid/ dedu
AO's comments
No the party u/s credited cted
(RS) (Rs.)
1 Fountain 194C 435234 2266 Bill is available. This is
Heights case of short deduction of
TDS which has been made
at 0.52% instead of 2.244%
2 MIPL 194C 783871971 6028124 This is a case of short
deduction of TDS which
has been made at 0.76%
instead of 2.244%.
3 MIPL 194C 1002309444 7710092 This is a case of short
4174462 deduction of TDS which
has been made at 1.186%
instead of 2.244%
Since, there is short deduction of tax on the above payment, the AO held that tax at source has not been deducted as per provisions of section 194C, hence, the amount was added u/s 40(a)(ia).
76.1 The DRP observed that this issue of disallowance u/s 40(a)(ia) on account of short deduction of tax at source has been considered by different Courts.
76.2 In case of CIT Vs. SK Tekriwal (ITAT Kolkata) held as follows:
"this section 40(a)(ia) of the act refers only to the duty to deduct tax and pay to government .account. If there is a short fall due to any difference of opinion as to taxability of any item or the nature of payment falling under various TDS provisions, the assessee can be declared to be an assesseedefault /s 201 of the act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act."
This order of the Hon'ble ITAT, Kolkata was upheld by the Hon'ble High Court of Kolkata in their order dated 3rd December 2012.
76.3 The DRP observed that the said order of ITAT, Kolkata has also been followed in the following cases:
76 ITA Nos. 1404 & 1373/Hyd/13Hill Country Properties Ltd.
=================
(i) Apollo tyres ltd. Vs., DCIT Circle-1(l), Range-1 (ITAT Cochin) in ITA No. 31& 74/cochin/2010
(ii) Hero Motors Corpon Ltd. VS. Addl.CIT (ITA No. 1980/Delhi/2012) ITAT-C Bench, New Delhi
(iii) DCIT Vs. Chandabhoy and Jassobhoy (ITA No. 20/Mum/2010) 76.4 In view of the above discussion, the DRP directed the AO. to delete this proposed disallowance of Rs. 78,66,16,649/-.
77. Aggrieved, the revenue is in appeal before us.
78. After hearing the parties, perusing the record as well as the orders of the revenue authorities, we find that the Hon'ble Kolkata Tribunal in the case of SK Tekriwal (Infra) has held that the disallowance u/s 40(a)(ia) is not applicable in the case of short deduction of TDS. It was held that if there is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be mode u/s 40(a)(ia). In view of the above, we do not find any infirmity in the order of the DRP, hence, the same is hereby upheld dismissing the grounds raised by the revenue.
79. In the result, appeal of the revenue is dismissed.
80. To sum up, appeal of the assessee in ITA No. 1404/Hyd/2013 is partly allowed and appeal of the revenue in ITA No. 1373/Hyd/2013 is dismissed. Pronounced in the open court on 06th June, 2014 SSd/-Sd/-d/- Sd/-Sd/-Sd/-Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 06/06/2014
kv
77 ITA Nos. 1404 & 1373/Hyd/13
Hill Country Properties Ltd.
=================
Copy to:-
1. M/s Hill County Properties Ld., Bachupally, Hyderabad 500 072.
2. Addl. CIT, Central Range - 3, Hyderabad.
3. The DRP, Hyderabad
4. The CIT-(Central), Hyderabad.
5. The Departmental Representative, ITAT., Hyderabad.
1. ‡ãŠâ¹¾ãî›À ¹ãÀ Ñãì¦ãÊãñŒã¶ã ‡ãŠãè ãä¦ããä©ã ý 02.06.20 Date of Dictation 14
2. ã䪶ããâ‡ãŠ •ãºã ›âãä‡ãŠ¦ã ½ãÔããõªã Ñãì¦ãÊãñŒã¶ã 05.06.20 ªñ¶ãñÌããÊãñ ÔãªÔ¾ã ‡ãŠñ Ôã½ãàã ¼ãñ•ãã Øã¾ãã 14 ý Date on which the typed draft is placed before the Dictating Member
3. ã䪶ããâ‡ãŠ •ãºã ‚ã¶ãì½ããñã䪦㠽ãÔããõªã ÌããäÀÓŸ ãä¶ã•ããè ÔããäÞãÌã ‡ãŠñ ¹ããÔã ‚ãã¾ãã ý Date on which approved draft comes to Sr PS 4 ã䪶ããâ‡ãŠ •ãºã ¹ãŠñ¾ãÀ ‚ãã¡ÃÀ Ñãì¦ãÊãñŒã¶ã ªñ¶ãÌããÊãñ ÔãªÔ¾ã †Ìã⠂㶾ã ÔãªÔ¾ããñâ ‡ãŠñ ¹ããÔã ¼ãñ•ãã Øã¾ãã ý Date on which the fair Order is placed before the dictating Member and other Member 5 ã䪶ããâ‡ãŠ •ãºã ¹ãŠñ¾ãÀ ‚ãã¡ÃÀ ÌããäÀÓ› ãä¶ã•ããè ÔããäÞãÌã ‡ãŠñ ¼ãñ•ãã Øã¾ãã ýDate on which fair Order goes to the Sr. PS 6 ã䪶ããâ‡ãŠ •ãºã ¹ãŠãƒÃÊã Ìãã¹ãÔã ºãñâÞã ãäÊããä¹ã‡ãŠ ‡ãŠñ ¹ããÔã ¼ãñ•ããè Øã¾ããè ý Date on which the file goes to the Bench Clerk 7 ã䪶ããâ‡ãŠ •ãºã ¹ãŠãƒÃÊã ½ã쌾ã ãäÊããä¹ã‡ãŠ ‡ãŠñ ¹ããÔã ¼ãñ•ããè Øã¾ããèý Date on which file goes to the Head Clerk 8 ã䪶ããâ‡ãŠ •ãºã ¹ãŠãƒÊã ÔãÖã¾ã‡ãŠ ¹ãâ•ããè‡ãŠãÀ ‡ãŠñ ¹ããÔã ¼ãñ•ããè Øã¾ããè ý Date on which file goes to the Assistant Registrar 9 ‚ããä£ã‡ãŠÀ¥ã ‡ãŠñ ‚ããªñÍã ‡ãŠñ ¹ãÆñÓã¥ã ‡ãŠãè ãä¦ããä©ã ý Date of the dispatch of the Tribunal Order