Isg Estate Pvt. Ltd., New Delhi vs Assessee

ITA NOS.1532 & 1756/Del/2013

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "C", NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. No. 1532/Del/2013 A.Y. : 2006-07 ACIT, M/S ISG ESTATE (P) CENTRAL CIRCLE-23, LTD., Room No. 359, ARA M-11, MIDDLE CIRCLE, Centre, CANNAUGHT PLACE, Jhandewalan Extension, NEW DELHI - 110 001 New Delhi - 110055 (PAN: AAAC17996N) (APPELLANT) (RESPONDENT) AND I.T.A. NO. 1756/Del/2013 A.Y. : 2006-07 M/S ISG ESTATE (P) ACIT, LTD., CENTRAL CIRCLE-23, M-11, MIDDLE CIRCLE, Room No. 359, ARA CANNAUGHT PLACE, Centre, NEW DELHI - 110 001 Jhandewalan (PAN: AAAC17996N) Extension, New Delhi - 110055 (APPELLANT) (RESPONDENT)

Department by : Sh. Robin Rawal, Sr. DR Assessee by : Sh. V.S. Rastogi, A.R.

Date of Hearing : 20-1-2015

Date of Order : 23-1-2015

ORDER

PER H.S. SIDHU : JM

These are the Cross Appeals filed by the Revenue as well as Assessee emanate out of Order dated 24.12.2012 passed by the Ld. CIT(A)-XXXIII)- New Delhi pertaining to assessment year 2006-07.

2. The grounds raised in the Revenue's Appeal 1532/Del/2013 (AY. 2006-07) reads as under:-

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"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.

26,69,785/-, made by the AO on account of interest on PDCs paid out of books of account.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 20,09,701/-, made by the AO in view of the provisions of Section 37(1) of the Income Tax Act, 1961 on account of additional payment in violation of Stamp Duty Act, 1899.

3. The facts in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 1,00,000/-, made by the AO in view of the provisions of section 2(22)(e) of the Income Tax Act, 1961 on account of deemed dividend.

4. The order of the CIT(A) is erroneous and is not tenable on facts and in law.

5. The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal."

3. The grounds raised in the Assesee's Appeal No. 1756/Del/2013 (A.Y. 2006-07) read as under:-

"1. That on the facts and circumstances of the case and in law the CIT(A) erred in rejecting appellant's contention that assessment order made by Assessing Officer was bad in law and void ab-initio on the ground that it ought to have been made u/s 153C of the Income Tax Act, and not, as was done u/s 143(3}/147 of the Income Tax Act.

2. That without prejudice, on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the

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assumption of jurisdiction u/s 147 by the Assessing Officer and in making the assessment in pursuance thereof, without dealing with appellant's objections on merits.

2.1That the CIT(A} having given a finding that no seized material obtained from the search of BPTP Group of cases (no search having been made on the appellant) belonged to the appellant, clearly erred in yet upholding the action u/s 147 taken in the hands of the appellant based on such seized material.

3. That on the facts and circumstances of the case and in law the CIT(A) erred in holding to quote, 'that seized documents definitely proves that interest is paid on PDC' despite-

i. that the seized record on the basis of which above finding was given, even according to his own finding by the CIT(A), did not belong to the appellant and,

ii. that no enquiries were made from any of the alleged recipients of the interest and none was confronted with relevant document(s) .

3.1 That the finding of the CIT(A} is based on mere surmises and conjectures without proof and corroboration by independent evidence.

4. That on the facts and circumstances of the case and in law the CIT{A} erred in not accepting the appellant's contention that Additional Payments having not been claimed as deduction by appellant, no disallowance could, have been made in the hands of the appellant.

4.1 That without prejudice the ClT{A} erred in upholding the disallowance of Additional Payments made to the recipients

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who were not the owners of land and to the payment made in cash.

4.2That without prejudice the CIT{A} erred in not himself quantifying the addition to be made.

4.3That without prejudice the CIT{A} did not deal with the following specific ground No 4.1:-

"4.1. That the learned Assessing Officer has erred in making an addition of Rs.20,09,701/- on account of additional payments as recorded in books of account of appellant company as against amount of Rs.18,03,701/- paid on account of additional payment and recorded in books of accounts."

5. That on the facts and circumstances of the case and in law the CIT{A) erred in upholding the disallowance u/s 40A(3) in respect of which no deduction was claimed by the appellant.

5.1 That even on merits the disallowance was not justified.

6. That the orders passed by the Assessing Officer and Commissioner of

Income Tax (Appeals)-XXXIII, New Delhi are bad in law and void ab-initio.

7. The appellant craves permission to add, amend, alter or vary all or any grounds of appeal on or before the date of hearing of the appeal."

4. The facts narrated by the revenue authority are not disputed by both parties, therefore, no need to repeat the same for the sake of convenience. The AO completed the assessment u/s 143(3)/147 of the Income Tax Act, 1961 on 24.12.2010 and made the various additions.

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5. Against the order of the AO dated 24/12/2010 assessee filed an appeal before the Id. First Appellate Authority who vide impugned order dated 24/12/2012 partly allowed the appeal of the assessee. Now the Revenue and Assessee is aggrieved against the impugned order and filed their respective appeals.

ASSESSEE'S APPEAL

6. Ld. Counsel of the assessee filed a Paper Book containing the pages 1 to 143 having the details viz. synopsis; copy of assessment order; copy of ITAT orders and Delhi High Court orders. Ld. Counsel of the assessee during the hearing stated that he is not pressing the Grounds NO. 1, 2, 2.1, 3, 6 & 7 raised by the assessee in its appeal. Hence, the Ground No. 1, 2, 2.1, 3, 6 & 7 raised by the Assesee are dismissed as not pressed.

7. With regard to ground No. 4, 4.1, 4.2 & 4.3 raised by the assessee. Ld. Counsel of the assessee has submitted that the AO had made a disallowance of Rs.20,09,701/- u/s 37 on account of additional payments for the purchase of land. The assessee had challenged before the CIT(A) that the deduction of the purchase of land having not been claimed by the appellant, no disallowance could be made. The CIT(A) did not accept this contention viz., that the assessee having not claimed the deduction no disallowance could be made. He however, gave certain directions to quantify the disallowance to be made. As per these directions while giving appeal effect the entire claim of Rs.20,09,701/- is to be allowed.

7.1 He further submitted that the contention in Ground No. 4 however, is that the assessee having not claimed the expenditure, the same cannot be disallowed. Similar disallowance was made in the case of Westland Developers Pvt. Ltd for the AY 2006-07 and was partly confirmed by the CIT(A). The Hon'ble Tribunal vide order referred to supra deleted the addition vide para 13 passed in ITA No.1752/Del2/013 in the case of Westland Developers Pvt. Ltd. vs. ACIT (Page 67 of the Paper Book). Copy of the ITAT order is at page 34-68 of the PB. For the sake of convenience

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the issue raised in Ground No. 3 and finding of the Tribunal in Para 13 of the said order is reproduced as under:-

"13. We have heard the rival submissions and perused the material available on record. The case law relied upon by the parties has been taken into consideration. On a consideration of the same we are of the view that since in the facts of the present case the material issue is that the said expenditure was never claimed as assessee's business expenditure the occasion to make a disallowance of the same does not arise. On this fact there is no dispute as admittedly the expenditure was not claimed as an expense by the assessee and consequently has not been routed through its P&L A/c. In the circumstances, the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise. The reasoning and finding given while considering the arguments qua Ground No-4 would fully apply here also. The difference that here the entire amount is added u/s 37 as opposed to part of the expenditure disallowed U/S 40A(3) is not so material as the finding is arrived at taking cognizance of the material fact that herein also no such claim of expenditure has been made. The fact that the additional payments were warranted in order to avoid potential disputes amongst the claimants of the land holding which have been passed through to the land holders from generation to generation wherein there may be informal arrangements of ownership and or the payments were for commercial expediency to facilitate peaceful possession and registration of the land holding; where by the time Registry was made the landholders felt a higher payment was necessitated due to increase in value are issues which are not required to

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be addressed in the present proceedings. Ground No-3 on the facts available on record considering the judicial precedent referred to in detail while deciding Ground No-4 has to be decided in favour of the assessee."

7.2 Ld. Counsel of the assessee further submitted that since the facts in the present case are identical to the facts in the case of M/s Westland Developers Pvt. Ltd., he prayed that no disallowance could be made u/s. 37 as no expenditure was claimed and Ground no. 4 may be allowed.

7.3 Ld. Counsel of the assesee further submitted that another case of a group company viz. M/s Glitz Builders and Promoters Pvt. Ltd. similar disallowance has been deleted by the ITAT vide order dated 2.12.2015 in ITA No. 1747/Del/2013 vide para no. 10. (copy at pages 138-143).

8. Ld. DR did not have any raised any objection to the aforesaid proposition of the ld. Counsel of the assessee.

9. We have heard the both parties and perused the relevant record available with us specially the impugned order passed by the Revenue Authorities; Paper Book filed by the assessee, we find considerable cogency in the contention of the ld. Counsel of the assessee that the issue raised in ground no. 4 is squarely covered by the Order dated 22.8.2014 of the ITAT, Delhi 'H' Bench passed in ITA No. 1752/Del/2013 (A.Y. 2006-07) in the case of M/s Westland Developers Pvt. Ltd., vs. ACIT wherein the Tribunal held that "Ground No. 3 on the facts available on record considering the judicial precedent referred to in detail wile deciding Ground NO. 4 has to be decided in favor of the assessee." Respectfully following the precedent as aforesaid, we allow this ground of the assessee. We find that in view of the above decision, the Ground No. 4.1, 4.2 and 4.3 become inconsequential.

10. With regard to ground No. 5 & 5.1 raised by the assessee relating to disallowance of Rs. 1,00,000/- made u/s. 40A(3) and confirmed by the CIT(A). Ld. Counsel of the assessee has submitted that a similar disallowance was made by the AO in Westland Developers Pvt. Ltd. ( a

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group company) (copy at pages 6-14 of the Paper Book) and was confirmed by the CIT(A). He further submitted that the Tribunal dealt with the matter at length vide order dated 22.8.2014 passed in ITA No. 1752/Del/2013 (A.Y. 2006-07)in Para No. 10.10 at page 29 of the Order in the case of M/s Westland Developers Pvt. Ltd., vs. ACIT. He further submitted that the facts of the present case are identical to the facts of the case of Westland Developers Pvt. Ltd. (Supra) and also stated that since the matter is fully covered by the order of the ITAT as aforesaid, the disallowance may kindly be deleted.

10.1 Ld. Counsel of the assesee further submitted that another case of a group company viz. M/s Glitz Builders and Promoters Pvt. Ltd. similar disallowance has been deleted by the ITAT vide order dated 2.12.2015 in ITA No. 1747/Del/2013 vide para no. 10. (copy at pages 138-143).

11. Ld. DR did not have any raised any objection to the aforesaid proposition of the ld. Counsel of the assessee.

12. We have heard the both parties and perused the relevant record available with us specially the impugned order passed by the Revenue Authorities; Paper Book filed by the assessee, we find considerable cogency in the contention of the ld. Counsel of the assessee that the issue raised in ground no. 5 is squarely covered by the Order dated 22.8.2014 of the ITAT, Delhi 'H' Bench passed in ITA No. 1752/Del/2013 (A.Y. 2006-07) in the case of M/s Westland Developers Pvt. Ltd., vs. ACIT wherein the Tribunal held that "Accordingly, on a consideration of the peculiar facts and circumstances of the case and the judgments relied upon considering the relevant provision of the Act namely Section 40A(3), we hold for the detailed reasons given hereinabove that Section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed and the assessee has successfully demonstrated that the payment were reimbursement made by CWPPL. Accordingly, Ground No. 4 is allowed." Respectfully following the precedent as aforesaid, we allow this ground of the assessee.

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13. In the result, the appeal filed by the Assessee stands partly allowed.

REVENUE'S APPEAL

14. As regards ground No. 1 raised by the Revenue relating to deletion of addition of Rs. 26,69,785/- made by the AO on account of interest on PDCs paid out of books of account is concerned, it is was submitted by the Ld. Counsel of the assessee that this was the interest calculated @ 15% p.m. on PDCs from the date of issue (sale deed) to the date of encashment. We find that CIT(A) held in para 5.4 at page 17 of his order that "If it is not possible to work out the extension of PDCs in each case then A.0. is directed to recomputed interest on P DCs after six months from date of issue of PDCs i.e. date of sale, as six months is taken as reasonable period for giving PDC as per sale deed". Ld. Counsel of the assessee further submitted that since the PDCs were encashed in less than six months from the date of issue, entire interest of Rs.26,69,785/- was deleted in pursuance to the order of CIT(A). Copy of appeal effect by way of revised Tax Computation is enclosed at page 98-99 of the PB. He further submitted that the the matter in the present appeal is covered by the order of the Tribunal 'C' Bench Delhi in the case of a sister concern viz., M/s IAG Promoters and Developers Pvt. Ltd dated 31.10.2014 passed in ITA No. 1674/De1l13 & 1765/De1l13 for AY 2008-09. (Extract copy is enclosed at pages 69-73 of the PB. Ld. Counsel for the assessee stated that the facts of the case of M/s IAG Promoters and Developers Pvt. Ltd (supra) are identical to the facts of the case of the assesse and both companies are group/sister companies.

15. Ld. DR did not have any raised any objection to the aforesaid proposition of the ld. Counsel of the assessee.

16. We have heard the both parties and perused the relevant record available with us specially the impugned order passed by the Revenue Authorities; Paper Book filed by the assessee, we find considerable cogency in the contention of the ld. Counsel of the assessee that the

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issue raised in ground no. 1 raised in the Revenue's Appeal is squarely covered by the Order dated 31.10.2014 of the ITAT, Delhi 'C' Bench passed in ITA No. 1756/Del/2013 (A.Y. 2008-09) in the case of M/s IAG Promoter & Developers (P) Ltd. vs. ACIT wherein the Tribunal held vide para no. 3 at page 5 as under:-

"The CIT(A) directed to recalculate the interest on PDCs and there was a sound logic for such direction. His direction is based on material found and seized at the time of search. In view of the above, we do not find any justification to interfere with the order of learned CIT(A) in this regard and accordingly, we reject ground no.1 of the Revenue's appeal."

17. Respectfully following the precedent as aforesaid, we dismiss this ground of the Revenue's appeal.

18. As regards ground No. 2 raised by the Revenue relating to deletion of addition of Rs. 20,09,701/- made by the AO in view of the provisions of Section 37(1) of the I.T. Act, 1961 on account of additional payment of Section 37(1) of Stamp Duty Act, 1989 is concerned. For this addition, we have already decided the similar issue in the Assesse's Appeal as aforesaid vide para no. 9 in favor of the assessee, hence, this ground of appeal raised by the Revenue stands dismissed.

19. As regards ground No. 3 raised by the Revenue relating to deletion of addition of Rs. 1,10,000/- made by the AO in view of the provisions of section 2(22)(e) of the I.T. Act, 1961 on account of deemed dividend. We find that Ld. Counsel of the assesee in this regard submitted that the this issue is squarely covered by the decision of the Hon'ble High Court of Delhi in the case of CIT vs. M/s Ankitech Pvt. Ltd. [2011] 11 Taxmann.com 100 (Delhi) vide order dated 11.5.2011 and hence, the issue raised by the Revenue may be dismissed.

20. Ld. DR did not have any raised any objection to the aforesaid proposition of the ld. Counsel of the assessee.

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21. We have heard the both parties and perused the relevant record available with us specially the impugned order passed by the Revenue Authorities; Paper Book filed by the assessee, we find considerable cogency in the contention of the ld. Counsel of the assessee that the issue raised in ground no. 3 raised in the Revenue's Appeal is squarely covered by the Order of the Hon'ble Delhi High Court in the case of CIT vs. M/s Ankitech Pvt. Ltd. (340 ITR 14) and also reported in [2011] 11 Taxmann.com 100 (Delhi) vide order dated 11.5.2011 wherein the Hon'ble Court has held as under:-

"According to section 2(22)(e) of the Income Tax Act, 1961, the following conditions are to be satisfied : (i) the payer company must be a closely held company; (ii) it applies to any sum paid by way of loan or advance during the year to the following persons : (a) a shareholder holding at least 10 of the voting power in the payer company; (b) a company in which such share holder has at least 20 per cent of the voting power; (c) a concern (other than company) in which such share holder has at least 20 per cent interest; (iii) the payer company has accumulated profits on the date of any such payment and the payment is out of accumulated profits; (iv) the payment of loan or advance is not in the course of ordinary business activities. By a deeming provision it is the definition of dividend which is enlarged. The legal fiction does not extend to "shareholder". The fiction is not to be extended further for broadening the concept of shareholders. Circular No. 495, dated September, 22, 1987, issued by the Central Board of Direct Taxes is not binding on the High Court.

During the assessment proceedings, the Assessing Officer noticed that the assessee company had received advances of Rs. 6,32,72,265/- by way of book entry from a company, JGPL and the share holders having substantial interest in the assesee company also had 10 per cent of the voting power in JGPL. The Assessing Officer was of the view that as the two Guptas were members holding substantial interest in JGPL which had provided loans and advances to the assessee company and these very persons had substantial interest in the assessee company, for the purpose of section 2(22)(e) of the Act the amount received by the assessee from JGPL which constituted "advances and loans" would be treated as deemed dividend within the meaning of

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section 2(22)(e) of the Act and added the amount to the income of the assesssee. The Tribunal deleted the addition. On Appeal to the High Court: Held, dismissing the appeals, that the Tribunal was correct in law in deleting the addition of Rs. 6,32,72,265/- made by the Assessing Officer in the hands of the assesee company under section 2(22)(e)."

22. Keeping in view the aforesaid decision of the Hon'ble Delhi High Court, we find considerable cogency in the contention of the Ld. Counsel of the assessee that the issue in dispute in the present case has been squarely covered in favor of the assessee by the decision of the Hon'ble Delhi High Court in CIT vs. Ankitech P Ltd. (Supra). Respectfully following the precedent as aforesaid, we dismiss this ground of the appeal raised by the Revenue. In the result, the Appeal filed by the Revenue stands dismissed.

23. In the result, the Appeal filed by the Assessee stands partly allowed and appeal filed by the Revenue stands dismissed.

Order pronounced in the Open Court 23-1-2015.

Sd/- Sd/-

[S.V. MEHROTRA] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date 23/1/2015

"SRBHATNAGAR" Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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