$ 11 * IN HIGH COURT OF DELHI AT NEW DELHI % DECIDED ON: 16.04.2015 + ITA 1136/2009 COMMISSIONER OF INCOME TAX DELHI IV ..... Appellant Through: Mr. N.P. Sahni, Sr. Standing Counsel with Mr. Nitin Gulati, Jr. Standing Counsel. versus DLF UNIVERSAL LTD. ..... Respondent Through: Ms. Kavita Jha with Mr. Vaibhav Kulkarni, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA S.RAVINDRA BHAT, J. (OPEN COURT) 1. following questions of law arise for consideration: 1. Whether Income Tax Appellate Tribunal was correct in law in deleting addition made by Assessing Officer of `1,15,57,034/- on account of Hundi Discounting charges? 2. Whether Income Tax Appellate Tribunal was correct in law in deleting addition of `1,00,97,108 made by Assessing Officer on account of net amount of current assets of manufacturing division transferred to its subsidiary company? 3. Whether ITAT erred in upholding decision of Commissioner of Income Tax (Appeals) whereby addition made by Assessing Officer on account of notional interest amounting to `47,85,650/- was deleted? ITA 1136/2009 Page 1 4. Whether ITAT erred in upholding decision of Commissioner of Income Tax (Appeals) whereby addition of `61,78,414/- made by Assessing Officer on account of expenses on Brokerage and Commission was deleted? Question No.1 2. facts in respect of this question are that assessee had claimed as revenue expenditure sum of `1,15,57,034/- for AY 1993-94 in its returns. These were charges paid to assessee s bank, American Express Ltd., towards hundi discounting facilities. In course of its business operation, contractors used to submit bills which were discounted on facilities afforded by banker. AO was of opinion that this was used to finance its construction work in Qutub Enclave Complex and consequently could not have been treated as revenue expenditure but had to be necessarily capitalised, since it went towards augmenting stock in trade. CIT (Appeals) confirmed this decision. ITAT in its order (para 45 and 45.1) was of opinion that view taken by lower authorities was erroneous. In doing so, ITAT was persuaded by fact that for all previous years and subsequent years hundi discounting charges were treated as period cost and charged to revenue account on year to year basis. department had enabled this and allowed matters to become final. ITAT also noticed that hundi discounting charges was different nomenclature of interest paid which is governed by Section 36(1)(iii) of Act. ITAT noted definition of interest in Section 2(28A). impugned order took note of Supreme Court judgment in Madhav ITA 1136/2009 Page 2 Prasad Jatia V. CIT (118 ITR 200) to say that three conditions had to be satisfied to claim deduction in respect of interest on borrowed capital and that expression for purpose of business under Section 36(1)(iii) and Section 37 is wider than expression for purpose of earning income, profits and gains under Section 57(iii). Therefore, it was held that interest paid for purpose of or in course of carrying on business is allowable in year in which liability arose. This Court is also of opinion that given dictates of consistency, view adopted by ITAT is fair and reasonable. Having regard to reasoning adopted by ITAT, this Court finds no cause to interfere with as it is in conformity with judgment of Supreme Court in Madhav Prasad Jatia s case (supra). question of law framed has to be answered in favour of assessee and against revenue. Question No.2 3. During assessment year, assessee had transferred part of its manufacturing unit to sister concern and as consideration allotted shares to extent of agreed value. net fixed value of assets (at book value) was `1,39,89,734/-. net current assets were at `2,02,40,560/-. total value of assets thus was `3,42,30,294/-. As against these assets, secured loan to extent of `1,01,43,452/- existed in assessee s books. consideration, therefore, claimed from sister concern - in lieu of which shares were allotted - was `2,40,86,842/-. Assessing Officer after noticing these facts, took in to account net current assets of assessee (`2,02,40,560/-) and also balance sheets reflecting ITA 1136/2009 Page 3 current assets such as inventories, sundry debits, bank balance etc. He thereafter concluded that since transaction was not brought into P&L Account, net gain was at `1,00,97,108/- which was transferred to sister concern. This amount was sought to be brought to tax. CIT (A) confirmed this addition. ITAT set aside orders of lower authorities on basis of following reasoning: - 51. We have heard both parties at length and perused papers documents referred to. We have carefully perused orders of AO and CIT (A) and papers on record. transaction has been done at cost i.e. book value. Income or profit accrues only if anything over and above book value i.e. cost is paid by transferor to transferee. Mere realisation of assets or changing asset from one form to another form do not give rise to income or profit, unless something over and above cost of such assets is realized, e.g., if bank Fix Deposits are converted in cash or cash on hand is converted to acquire any asset, do not give rise to income. However, in this case, as noted above there being no payment in excess of cost being paid either in form of cash or shares by transferee, wholly owned subsidiary company, to transferor i.e. assessee in this case, question of brining anything to tax does not arise. There is no evidence of anything more having passed between parties than consideration allotted as shares to assessee. Accordingly, we delete addition of Rs.1,00,97,198/- made on this account. 4. This Court has considered submissions of parties. What appears to have escaped attention of AO is that at stage of valuation of assets transferred itself, book value of fixed assets transferred was taken into consideration. Additionally, ITA 1136/2009 Page 4 entire net current assets too were valued and transferred. It was aggregate of book value and net current value which constituted sale price of `2,02,40,560/-towards which shares were in fact allotted. Given these facts, AO appears to have assumed that other liabilities and assets too had been transferred - which was inaccurate assumption. CIT (A) too appears to have ignored this important feature. Given these factors, no fault can be found with ITAT s conclusion that regardless of how assessee treated transaction, i.e., either reflecting in P&L account or omitting to do so, in sum, no gain or income arises which can be brought to tax. question of law is answered in favour of assessee and against Revenue. Question No.3 5. Assessing Officer added back sum of `47,85,650/- during assessment year on ground that assessee had not claimed any interest towards advance of `2,65,86,781/- to its subsidiary companies. AO had inter alia also considered certain amounts paid towards income tax liabilities of such subsidiaries companies. assessee s appeal was accepted by CIT (A) who noticed that for all previous years commencing from AY 1984-85 to 1991-92, such advances had been accepted and additions not made. CIT (A) also recorded as follows: - However, appellant has placed before me copies of relevant bank accounts to show that these advances have not been made out of borrowed funds. There is no nexus between borrowed funds on which interest is being paid by appellant and moneys advanced to ITA 1136/2009 Page 5 subsidiaries. There cannot be any ground for charging and notional income to tax. However, proportionate interest could be disallowed if borrowed funds had been diverted for non-business purposes. This is not case. fact that even day-to-day expenses of these subsidiaries including their tax liabilities are me by appellant company only shows unity of control and management and interlacing of funds. CIT (A) s order was confirmed by ITAT in impugned order. 6. Learned counsel for Revenue urges that no material was placed before AO to support contention that advances were made from assessee s own funds and that in these circumstances, CIT (A) fell into error in considering fresh materials. submissions appear to be attractive considering that CIT (A) has stated that appellant placed before him copies of relevant bank accounts. However, this Court sitting in second appeal against decision of lower authorities has to be circumspect in such matters. This ground does not appear to have been urged before ITAT articulating that CIT (A) omitted to give any opportunity to it to re-examine such materials. Such ground also does not appear to have been urged during hearing. Furthermore, this has not been raised as ground of appeal before this Court. In circumstances, we see no reason to depart from rule of consistency which is also accepted in all previous years. 7. question of law is, therefore, answered in favour of assessee and against Revenue. ITA 1136/2009 Page 6 Question No.4 8. assessee had claimed `61,78,414/- as expenditure towards brokerage and commission. amount was paid to its brokers for booking and sale of certain properties during assessment year. Assessing Officer disallowed this expenditure on ground that during year conveyance of sale deeds were not executed. CIT (A) and ITAT accepted assessee s contentions and set aside disallowance. At outset, we notice that assessee s explanation clearly stated is as follows: - In this connection it is submitted that brokerage and commission is not direct expenses for acquiring to specific property but it is in fact financial cost/selling expenses and is fully allowable in year in which same is incurred. property brokers who have rendered their services to obtain advances on booking of properties are entitled to payment of commission in terms of agreement entered into with them. Therefore, expenses incurred on brokerage and commission on booking of properties being finance/selling expenses are allowable in full. In this connection your attention is invited to various orders of CIT (A) on this point where in addition on account has been deleted. Your attention is also drawn to order dt. 20.7.1994 of Hon ble ITAT, New Delhi for assessment year 1983-84 of Income-tax wherein additional ground taken by Deptt. for inclusion of amount of brokerage and commission in sales promotion expenses u/s 37(2)(a) have been dismissed. We understand that Deptt. has not filed any reference application in High Court against this order. 9. It is not disputed by Revenue that for other years, assessee s treatment of such expenses has been in his favour and Revenue has not chosen to challenge it. Even otherwise, we are of ITA 1136/2009 Page 7 opinion that such expenditure has to be allowed. question of law is consequently answered in favour of assessee and against Revenue. 10. Since all four questions have been answered against Revenue, appeal has to fail and is accordingly dismissed. S. RAVINDRA BHAT (JUDGE) R.K. GAUBA (JUDGE) APRIL 16, 2015 /vikas/ ITA 1136/2009 Page 8 Commissioner of Income Tax, Delhi IV v. DLF Universal Ltd