DLF Estate Developers Ltd. v. Asstt. CIT

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityPay channel expenses--The assessee company was engaged in the business of providing services relating to maintenance and management of immovable properties and other business auxiliary services in plotted area in various phases of DLF, City Gurgaon. In the assessment order passed for the year under consideration, the AO made various additions pertaining to interest charged on reimbursement account of DLF Ltd., addition on account of channel placement income and expenditure, addition related to disallowance of PF, ESI expenses, addition on account of provision of expenses but the Commissioner (Appeals) partly disallowed the appeal of the assessee in regard to disallowance on account of pay channel expenses. The assessee as well as the revenue preferred appeal before Tribunal. Held: As per explanation and submissions made by the assessee, the assessee, had sold his business to N, the owner of Regent Communication with effect from 1-8-2007 for which an agreement was executed on 31-3-2008, this fact had also not been disputed by the Revenue that the assessee sold his business as per agreement dated 31-3-2008 with effect from 1-8-2007. In the present case, undisputedly during financial year 2007-08, the sale of business of the assessee was in process and there could not be a cut-off date of expenditure, if expenditure had been incurred for the purpose of business and the same could not be recovered from the purchaser of the business, then the claim of the assessee could not be disallowed on proportionate and estimate basis and the same is allowable under section 37 of the Act. Hence, the AO was not justified in making part disallowance in this regard and the CIT(A) was not justified in upholding the same. Accordingly, grounds of the assessee were allowed and the AO was directed to delete the same disallowance and addition.

Income Tax Act, 1961, Section 37(1)

REFERRED : CIT v. Excel Industries Ltd. & Ors. (2013) 258 ITR 295 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

--Income --Chargeability Notional interest on loan--DR submitted that the AO noted that if average of opening and closing loans and advances due from DLF Ltd. is taken, then the average comes to Rs. 3,22,03,535 and the AO also noticed that DLF Ltd. has charged interest of 10 per cent to 13 per cent per annum up to 27-7-2007 and thereafter @ 6.5 per cent per annum, therefore, the AO in order to have a reasonableness in the chargeable rate of interest allowed 8 per cent per annum on the average of loans and advances which came to Rs. 25,76,282 and accordingly the same was added to the income of the assessee which had not been charged by the asses see company from M/s. DLF Limited. AR supported the impugned order and submitted that the assessee did not advance Rs. 6,04,13,577 to DLF Ltd., out of interest bearing funds but the same was pertaining to the services rendered by the assessee to DLF Ltd. and such amount had been paid by the DLF Limited to the assessee company in regular intervals and, therefore, no notional interest could be charged on such amount. The AR vehemently contended that the AO had not brought out any adverse material to the fact that there was no nexus between the loan taken by the assessee from DLF Limited for expansion of its business and the amount due to the DLF Ltd. out of services rendered. Held: The detail of unsecured loan account of DLF Limited in the books of assessee showed that DLF Ltd. had given unsecured loan for expansion of business of the assessee. At the same time, it was also observed that the assessee company rendered services to DLF Limited and amount was debited to DLF Ltd. in a separate service account and DLF Ltd. on this current account was regularly paying amount in regular intervals. In this situation, the CIT(A) rightly held that no notional interest could be charged on such amount without bringing out any nexus between the amount of unsecured loan given by DLF Ltd. to the assessee for expansion of business and amount due to the DLF Limited in separate service account, out of services rendered by the assessee company. In the instant case, the revenue had not brought out any fact or adverse material or evidence that the balance debit amount due to DLF Ltd. was actually a loan which was granted on interest or interest had actually been collected but the same was not recorded or reflected in the account of the assessee and in this situation, it could not be presumed that the assessee earned interest income which was actually received or due out of books of accounts of the assessee. As noticed that the amount picked up by the AO was actually the amount due on current service provided to DLF Ltd. by the assessee and the assessee received substantial amount therein in regular intervals. In view of above discussion, the AO made addition by taking a hypothetical approach and without any basis which was rightly deleted by the CIT(A) on the basis of conclusion arrived at after logical analysis of the details, evidence and submissions of the assessee. The probability or improbability of realisation had to be seen and considered in a realistic manner and no addition could be made in this regard without bringing out the fact that the interest really accrued to the assessee. Under these facts and circumstances, there was no reason to interfere with the impugned order in this regard and the same was upheld.

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