"IN THE INCOME TAX APPELLATE TRIBUNAL \n DELHI BENCH ‘F’, NEW DELHI \n \n BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND \n DR. MITHA LAL MEENA, ACCOUNTANT MEMBER \n \n ITA No.4591/Del/2009 \n \n \n Assessment Year: 1998-99 \n \nACIT, Central Circle-4, \nNew Delhi \n \n \nVs. PGF Ltd., \nSCO 1042-43, Sector 22-B, \nChandigarh \nPAN No. AABCP2805N \n (APPELLANT) \n \n (RESPONDENT) \n \n \nAppellant by \nS/Shri \nRakesh \nGupta, \nSomail \nAgarwal & Deepesh Garg, Advs. \nRespondent by \nMs. Harpreet Kaur Hansra, Sr. DR \n \n \nDate of hearing: \n 09/01/2025 \nDate of Pronouncement: \n 21/03/2025 \n \nORDER \nPer Mitha Lal Meena, A.M.: \n \nThis appeal by Revenue is directed against the order dated \n18.09.2009 passed by the Commissioner of Income-Tax (Appeal)-III, \nNew Delhi [hereinafter referred to as “CIT(A)” which arises out of the \nassessment \norder \ndated \n28.12.2007 \npassed \nunder \nSections \n\n2 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n254/143(3) of the Income Tax Act 1961 [hereinafter referred as ‘the \nAct’], in respect to assessment year 1998-99. \n2. \nThe grounds of appeal taken by the assessee are as follows: \n1. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the disallowance of \nRs. 20,14,798/- made by the AO, which was claimed as expenditure \nu/s 57 of the Act. \n \n2. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the disallowance of \nRs. 97,98,293/- made by the AO against the claim of interest to the \nunit holders by the assessee. \n \n3. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in directing the AO to allocate \ndepreciation of Rs. 1,36,326/- from common assets to investment \ndivision. \n \n4. \nWhether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the disallowance of \nRs. 44,91,325/- claimed as direct expense against Timber business. \n \n5. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the disallowance of \nRs. 1,45,65,466/- claimed as financial expense allocated to Timber \nbusiness. \n \n6. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in directing the AO to allocate \ndepreciation of Rs. 80,464/- from common assets to Timber division. \n \n7. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the disallowance of \nRs. 79,06,353/- claimed as financial expense allocated to Commercial \nLand Activities. \n\n3 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n \n8. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in directing the AO to allocate \ndepreciation of Rs. 21,992/- from common assets to Commercial Land \nAssets. \n \n9. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in directing the AO to allow the \nassessee to debit the balance written off amounting to Rs. 42,59,641/- \nto Joint Venture Development Account as the same has become bad. \n \n10. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the addition of Rs. \n32,75,457/-made by the AO on account of unclaimed credits related to \njoint venture activity. \n \n11. Whether on the facts and in the circumstances of the case, the \nCIT(A) has erred in law and on facts in deleting the disallowance of \nRs. 3,95,377/- claimed as traveling expenses incurred by the Director. \n \n12. The order of the CIT(A) is erroneous and not tenable in law and on \nfacts. \n \n13. The appellant craves leave to add, alter or amend any/all of the \ngrounds of appeal before or during the course of the hearing of the \nappeal. \n \n3. \nHeard both the sides, perused the record, assessment order, \nimpugned order, and Tribunal order. The Ld. DR vehemently relied on the \nassessment order in support of the grounds of appeal. In the 1st round of \nappeal, the ITAT, Chandigarh Bench vide order dated 3rd January 2007 \nrestored the matter to the Assessing Officer vide order dated 3rd January \n2007 by observing as under: - \n \n\n4 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n\"In the present case, the assessee has made fixed deposits with the \nbank and earned interest thereon. The earning of interest from banks \nis not the business activities of the assessee. The interest so earned is \nassessable under the head income from other sources. So, however, \nthe assessee would be entitled to deduction u/s 57 of the Act in \nrespect of any expenditure which is established to fall within the \ncategory of deduction so provided under the statute. Since the \nassessee did not have any opportunity to claim deduction u/s 57, we \nconsider it appropriate to restore this issue to the file of the Assessing \nOfficer with a direction to consider the claim of the assessee for \ndeduction if so made in the light of evidence that may be produced by \nthe assessee in this regard. We direct accordingly. \n \nThe grounds No. 3 and 4 of appeal of the revenue read as under: - \nThe Id CIT(A) has further erred in directing the Assessing Officer to \nrecompute the income/loss in timber business after allowing the \nexpenses of Rs. 96,53,543/- (1653453+1000000+70000) which were \ndisallowed by the Assessing Officer while computing the business \nincome from timber at Rs. 26, 14,698/- after disallowing interest \n(including cost of raising funds) amounting to Rs. 1,53,03,636/- \nbecause these expenses are not established to be directly relatable to \ntimber trade. \n \nThe Id CIT(A) has further erred in directing the Assessing Officer to \nrecomputed the income/ loss from sale of commercial land after \nallowing the expenses amounting to Rs. 35,00,000/- (30.00,000/-\n+5,00,000) towards interest and common expenses respectively) \nwhich were not allowed by the Assessing Officer while computing the \nincome from sale of commercial land at Rs. 9,51,217/- and has not \nallowed common administrative expenses and cost of borrowing being \nnot direct expenditure. \n \nSince we have restored the issue to the file of the Assessing Officer in \nregard to computation of income from various receipts, the issue \n\n5 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nrelating to determination of business income from timberfrading and \nfrom sale of commercial land is also restored to the file of the \nAssessing Officer for the purpose of fresh determination after giving \nreasonable opportunity of being heard. \n4. \nBriefly the facts are that the company is engaged in various business \nactivities. During the year relevant, the company collects deposits from the \npublic which are termed as Joint venture funds. The company has \npurchased land in its own name. As per the scheme, the company is \nsupposed to carry on agricultural operations on the land so purchased and \nthe yield from the same would be passed on to the investors. The company \nhas formulated various plans seeking deposits from the investors. As per \nsome of the schemes, the depositors are assured of particular rate of return \nin the form of yield on the amounts deposited by them in certain schemes of \nthe company to the depositors. For the year under consideration, the \nappellant company has filed the return of income showing agricultural \nincome of Rs. 1,82,84,541/- During the scrutiny of the accounts of the \nappellant, the A.O. made different additions which were deleted in the 1st \nround and the 2nd round as well by the Ld. CIT (A)’s after considering the \nsubmission of the assessee and remand report of the AO. The issues raised \nby the department are discussed and adjudicated ground wise in the \nfollowing paras. \n\n6 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n5. \nIn ground no.1 the revenue objected to the CIT(A)’s decision in \ndeleting the disallowance of Rs. 20,14,798/- made by the AO, which was \nclaimed as expenditure u/s 57 of the Act. \n5.1 \nThe Ld. CIT (A) after considering the facts of the case and the \nsubmissions made by the Counsel of the appellant, observed that was a \nmatter of record that the appellant was having income of Rs. 2,55,90,914/- \nand against that the appellant had claimed expenditure of Rs. 20,14,798/-. \nThe bills and vouchers regarding the claim of the expenditure were \nproduced before the A.O. for the verification. However, the A.O. treated the \nentire details as adhoc without rebutting the contention of the appellant.The \nLd. CIT (A) had referred to sub-clause Ill of section 57 of the Act read as \nunder: - \n………. .any other expenditure (not being in the nature of \ncapital expenditure) laid out or expended wholly and \nexclusively for the purpose of making or earning such \nincome. \" \n \n5.2 \nThe plain reading of the sub-clause makes it clear that any \nexpenditure which is not capital in nature and is incurred/ expended wholly \nand exclusively for the purpose of making or earning of income is to be \nallowed as deduction. The documentary evidence filed by the appellant \n\n7 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nmakes it further clear that expenditure of Rs. 20, 14,798/- is incurred for \nearning of income of Rs. 2,55,90,914/ which the department failed to rebut-. \nIn view of that matter the decision of the Ld. CIT(A) in directing the AO to \nallow the claim keeping was in the line with the directions of the Hon'ble \nITAT in the case of the appellant. \n5.3 \nAccordingly, the Ld. CIT (A) we hold that the CIT (A) was justified in \ndeleting the disallowance of Rs. Rs. 20, 14,798/- made u/s 57 of the Act. \nThus, the 1st ground is rejected. \n6. \nIn ground no. 2, the revenue challenged the CIT(A) decision in \ndeleting the disallowance of Rs. 97,98,293/- made by the AO against the \nclaim of interest to the unit holders by the assessee. \n6.1 \nFrom the record, we find that during the year, the company has \nreceived Rs. 1,32,03,373/- as late fee from the depositors 19% whereas the \ncompany has paid interest to the depositors 14.1%. The A.O. has not \nallocated any interest to the unit holders whereas the fact is that Rs. 97,98, \n293/- is clearly to be allocated to the unit holders as payment of interest \nw.e.f. the due date of deposit. It is observed that the A.O. has allocated \ninterest of Rs. 40,36,582/- to the business activity as the interest on loan to \nunit holders and the remaining interest is added to the Joint Venture \nDevelopment Account to be capitalized. The Counsel of the appellant \n\n8 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nsubmitted the chart and documents regarding the Unit Holders Scheme \nbefore the CIT (A) demonstrating that the company has been paying interest \n@ 14.1% to the unit holders on the deposits received from them w.e.f. the \ndue date when the deposit is due and the company is charging interest @ \n19% on the period of default for which an amount of Rs. 1,32,03,373/- has \nbeen credited to Profit and Loss A/c. The assessee filed complete details \nregarding the unit holders before the A.O. However, the same was not \nrebutted. The Ld. CIT (A) has discussed all the details and observed from \nthe details that an amount of Rs. 1,32,03,373/- is credited as a business \nreceipt whereas the payment of interest on deposit received by the company \nhas not been considered. \n6.2 \nIn our view, the CIT (A) was justified in deleting the addition of Rs. \n97,98, 293/- is clearly to be allocated to the unit holders as payment of \ninterest w.e.f. the due date of deposit. Which has not been not dealt with by \nthe AO with reference to the submission of the assessee either in the \nassessment proceedings or in the remand report. Thus, the 2nd ground of \nthe revenue is rejected. \n7. \nIn ground no.3 revenue challenged the CIT(A) decision in directing the \nAO to allocate depreciation of Rs. 1,36,326/- from common assets to \ninvestment division. \n\n9 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n7.1 \nWe find that the total depreciation on common assets amounts to Rs. \n1,48,47,813/- (Chart submitted) and proportionately an amount of Rs. \n1,36,326/- may be allocated to this division. From the chart with reference to \naccounts, the Ld. CIT (A) has rightly observed that the company has \nclaimed total depreciation of Rs. 1,48,47,813/- on common assets where the \nclaim made by the Counsel was well reasoned. Accordingly, the CIT (A) was \njustified in directing the A.O. in allocating a depreciation of Rs. 1,36,326/- \nfrom the common assets to this division. Thus, the 3rd ground is also \nrejected. \n8. \nIn Ground No. 4,5 and 6 department challenged the CIT(A) in deleting \nthe disallowance of Rs. 44,91,325/- claimed as direct expense, \n1,45,65,466/- and financial expense against Timber Division and directing \nthe AO to allocate depreciation of Rs. 80,464/- from common assets to \nTimber division. \n 8.1 The Ld. CIT (A) restricted appellant claim of direct expenses of Rs. \n55,99,624/- on account of timber activity to Rs. 44,91 ,325/- as directly \nallocated to the timber business because the A.O. has not allocated any \ndirect expenditure to the timber business. The CIT (A) observed that all the \nbills for this expenditure were produced for verification before the A.O. even \nthough without adversely commenting on the same, the AO did not allow \n\n10 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nany deduction. It is apparently clear that the expenditure has been made \nwholly and exclusively for the timber business. Since, the A.O. has not given \nan finding for not allowing the genuine expenditure which is incurred for \ntrading activity in timber. Thus, we find no error in the order of the Ld. CIT \n(A) in directing to allow the claim of direct expenses of Rs. 44,91,325/- \nagainst the claim of Rs. 55,99,624/-. \n8.2 \nSimilarly, the CIT (A) after considering the facts of the case observed \nthat the A.O. has not considered the overwhelming evidence submitted by \nthe appellant in regard to interest cost allocable to the timber business. \nFurther the documents submitted during the assessment proceedings have \nnot been rebutted. The A.O. has brushed aside the crucial details of the \nfunds deployed for the timber activity and allocated no finance cost to the \nbusiness activity in timber. Thus, the CIT (A) has been justified in observing \nfrom the details submitted that interest cost of Rs. 1,45,65,466/- is to be \nallocated to the timber business. \n8.3 The counsel of the appellant further submitted from the chart that \nshows the depreciation of Rs. 80,464/- pertain to the Timber division out of \nthe depreciation claimed on common assets amounts to Rs. 1,48,47,813/- \nand accordingly, the CIT (A) directed the AO to allocate proportionate \ndepreciation of Rs. 80,464/- from the common assets to timber division. \n\n11 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nAccordingly, we find no infirmity the decision of the CIT (A) to the facts on \nrecord in directing the AO to grant relief as regards to Timber division. Thus, \nground No. 4,5, and 6 are rejected. \n9. \nIn ground no. 7 and 8 revenue challenged CIT(A)’s order in deleting \nthe disallowance of Rs. 79,06,353/- claimed as financial expense allocated \nto Commercial Land Activities and directing the AO to allocate depreciation \nof Rs. 21,992/- from common assets to Commercial Land Assets. \n9.1 \nThe Ld. CIT(A) stated that the total financial expenses of Rs. \n24,08,15,492/- debited to the Profit & Loss account contains an amount of \nRs. 79,06,353/- which was incurred for the business of sale and purchase of \ncommercial land and he has observed that the documents submitted before \nthe A.O. showing the details of funds used for the sale and purchase of land \nbut the A.O. has not given any finding in this regard. The CIT (A) has also \nsent the submissions of the Counsel to the A.O. for his comments. In the \nreport, the A.O. vide letter dated 03.09.2009 submitted that the matter may \nbe decided on the merits. From the Chart, it is seen that the details of funds \nused for the business of commercial land and that interest cost of Rs. \n79,06,353/- is allocable to the business activity carried on commercial land. \n9.2 \nIn our view, the Ld. CIT (A) has been justified in directing the A.O. to \n\n12 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nallow the claim of financial expenses of Rs. 79,06,353/- towards business \nactivity in sale and purchase of commercial land. \n9.3 \nAs regards another linked issue of allowability of proportionate \ndepreciation on commercial land activity that out of total depreciation on \ncommon \nassets \namounts \nto \nRs. \n1,48,47,813/-, \na \nproportionately \ndepreciation of Rs. 21 ,992/- may be allocated to this commercial land \ndivision. From the details filed, depreciation of Rs. 21,992/- pertains to this \ncommercial land division. In our view, the Ld. CIT (A) was justified in \ndirecting the A.O. to allocate depreciation of Rs. 21 ,992/-. Thus, ground no. \n7 & 8 of the revenue are rejected. \n10. \nIn ground no. 9 and 10, the department challenged the decion of CIT \n(A) in directing the AO to allow the assessee to debit the balance written off \namounting to Rs. 42,59,641/- to Joint Venture Development Account as the \nsame has become bad and deletion of the addition of Rs. 32,75,457/-made \nby the AO on account of unclaimed credits related to joint venture activity. \n10.1 Having carefully considered the facts and arguments of both the sides \nwe observed that the disputed amount of Rs. 42,59,641/- pertains to Joint \nVenture account. The CIT (A) was justified in directing the A.O. to allow the \nappellant to debit this amount to Joint Venture Development Account as the \nsame has become bad. \n\n13 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n10.2 As regards invoking the provisions of section 41 (1) of the Act by the \nAO, the CIT (A) observed that this section specifies that the profit arising on \naccount of cessation/remission of any liability or any benefit thus accruing to \nthe assessee only under the head \"Profits and Gains of Business or \nProfession\" irrespective of the nature of business and its expenses or \notherwise. This amount therefore stands chargeable to tax as business \nincome. This has also been confirmed by the Hon'ble ITA T in paragraph No. \n8 at Page No. 10 & 11. In accordance with the directions of Hon'ble ITA T, an \namount of Rs. 32, 75,457/- is added to income under the head income from \nbusiness and profession. However, it is checked from the details that the \namount was debited to the Joint Venture Development Account. If the \namount is no more payable, the same should be credited to the Joint \nVenture Development Account. Thus, in our view, there is no scope for \ninvoking the provisions of section 41(1) of the Act. Thus, ground no. 9 and \n10 are rejected. \n11. \nLastly the department objected to the decision of the CIT(A) in deleting \nthe disallowance of Rs. 3,95,377/- claimed as travelling expenses incurred \nby the Director. \n11.1 The Counsel of the appellant contended that a sum of Rs. 3,95,377/- \nhas been disallowed being travelling expenses incurred by the Director Sh. \n\n14 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \nN.S. Bhangoo. The Ld. CIT (A) observed that this expenditure was purely a \nbusiness expenditure and allowable u/s 37(1) of the Act and the department \nfailed to rebut in remand report dated 03.09.2009 before CIT (A) and before \nus. \n11.2 Having carefully considered the facts and the submissions of both the \nsides we find that the expenditure was incurred for the traveling of the \nDirector. The relevant vouchers furnished before the AO, in this regard show \nthat the expenditure was made in connection with traveling of the Director. \nThus, the disputed expenditure was neither personal nor capital in nature. It \nwas not the case of the Department that the AO doubted the genuineness of \nthe expenses. The A.O. purely relied on the report of the Special Auditor. \nThe perusal of the details filed shows that the expenses were incurred \nwholly and exclusively for the purpose of business. The Hon'ble Delhi High \nCourt in the case of CIT Vs. MIS Dalmia Cement (Bharat) Ltd. reported in \n254 ITR 377 as relied by the Ld. CIT(A), has observed that one cannot \napply an empirical or subjective standard to the business expenditure. This \nhas to be judged from the point of view of a businessman. In our view, \nconsidering the evidence on record, the addition made by the A.O. is, rightly \ndeleted by the CIT(A). \n\n15 \nITA No.4591/Del/2009 \n \n \n Assessment Year: 1988-99 \n \n \n \n12. \nIn the backdrop of the aforesaid discussion, we find no infirmity or \nperversity in the impugned order to the facts on record and therefore, the \ndecision of the Ld. CIT (A) is sustained. \n \n \nOrder pronounced on 21/03/2025 in accordance with the Rule \n34(4) of Income Tax (Appellate Tribunal) Rules, 1963. \n \n \n \n \nSd/- Sd/- \n (VIKAS AWASTHY) (DR. MITHA LAL MEENA) \n JUDICIAL MEMBER ACCOUNTANT MEMBER \n \n \n*Mohan Lal* \nDated: 21.03.2025 \n \nCopy forwarded to: \n1.Appellant \n2.Respondent \n3.CIT \n4.CIT(Appeals) \n` \n5.DR: ITAT \n \n \n \n \n \n ASSISTANT REGISTRAR \nITAT NEW DELHI \n"