Unitech Acacia Projects Pvt. Ltd. Vs ACIT (ITAT Delhi)
Delhi ITAT: Section 40(a)(ia) Disallowance Cannot Extend to Interest Capitalised as Work-in-Progres
In a batch of appeals involving Unitech Acacia Projects Pvt. Ltd., the Delhi ITAT held that section 40(a)(ia) applies only to expenditure claimed in the Profit & Loss Account and cannot be invoked in respect of interest that has been capitalised as Work-in-Progress (WIP). The Tribunal also dealt with TDS liability on lease rent paid to NOIDA and related authorities and the consequential interest under section 201(1A).
On the issue of TDS on annual lease rent paid to NOIDA, GNOIDA and YEIDA, the Tribunal upheld the assessee’s liability to deduct tax under section 194-I. However, following the CIT(A)’s directions, it held that interest under section 201(1A) should be computed only up to the date on which the deductee (NOIDA) filed its return of income. Accordingly, the assessee’s appeals for AYs 2008-09 and 2012-13 were partly allowed.
The Revenue’s appeal challenging the relief granted in respect of NOIDA was dismissed. The Tribunal held that the Revenue’s reliance on Adityapur Area Development Authority was misplaced because the controversy did not turn on section 10(20A); rather, the assessee’s case rested on a different statutory footing.
For AY 2015-16, the Assessing Officer had disallowed ₹5.11 crore u/s 40(a)(ia) for delayed deduction/deposit of TDS on interest paid to Unitech Ltd. The assessee explained that it followed the Percentage of Completion Method (POCM) and had debited only a part of the interest to the Profit & Loss Account, while the balance had been capitalised to Work-in-Progress. It had also voluntarily disallowed 30% of the revenue expenditure as required by section 40(a)(ia).
Accepting the assessee’s contention, the Tribunal relied on the decisions of the Mumbai ITAT in Saat Rasta Properties Pvt. Ltd. and the Kolkata ITAT in Saltee Properties Pvt. Ltd., which hold that section 40(a)(ia) cannot disallow expenditure that has never been claimed as a revenue deduction in the Profit & Loss Account. Since the capitalised interest formed part of inventory and was not claimed as an expenditure, no disallowance could be made in respect of that portion. The assessee’s appeal for AY 2015-16 was therefore allowed.
Cases Discussed
- Saat Rasta Properties Pvt. Ltd. (ITAT Mumbai), ITA No. 2464/Mum/2024
- CIT(TDS), Kanpur vs. Canara Bank (SC), Civil Appeal No. 6020 of 2018 (judgment dated 02.07.2018)
- M/s. Rajesh Projects India Pvt. Ltd., decision dated 16.02.2017
- DCIT Vs Saltee Properties Pvt. Ltd. (ITAT Kolkata), ITA No. 856/Kol/2014
- Adityapur Area Development Authority vs. UOI & Others (SC), 283 ITR 97
- NOIDA, Writ Petition No. 1338/2005, judgment dated 28.02.2011
FULL TEXT OF THE ORDER OF ITAT DELHI
The above captioned ITA No. 4527/Del/2017 filed by the appellant/assessee is against order dated 28.04.2017 of the Ld. Commissioner of Income Tax (Appeals)-41, New Delhi (hereinafter referred to as ‘the CIT(A)’) u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of order dated 28.03.2014 of Ld. AO/DCIT, TDS, Circle 51(1), New Delhi u/s 201(1)/201(1A) of the Act (hereinafter referred to as ‘the AO’) for A.Y. 2008-09.
1.1 ITA No. 4526/Del/2017 filed by the Assessee and ITA No. 4561/Del/2017 filed by the revenue are against order dated 27.04.2017 of the Ld. Commissioner of income Tax (A)-41, New Delhi u/s 250(6) of the Act arising out of order dated 31.03.2014 of ld. AO / DCIT u/s 201(1)/201(1A) of the Act for A.Y. 2012-13.
1.2 ITA No. 7798/Del/2018 filed by the assessee is against order dated 19.09.2018 of Ld. Commissioner of Income Tax (Appeals)-9, New Delhi arising out of assessment order dated 15.12.2017 of Ld. AO/ACIT, Circle 27(1), New Delhi u/s 143(3) of the Act for A.Y. 2015-16.
2. ITA No. 4527/Del/2017 raises following grounds of appeal:
“1) The order passed by the Learned Commissioner of Income Tax (Appeals) (“Ld. CIT(A)”) under Section 250(6) of the Act is bad in law and on the facts and circumstances of the case.
2) The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order of the Ld. Assessing Officer in holding the appellant liable to deduct tax at source under section 194-1 of the Act while making payments to New Okhla Industrial Development Authority (‘NOIDA’), Greater Noida Industrial Development Authority (‘GNOIDA’) and Yamuna Expressway Industrial Development Authority (‘YEIDA’).
3) The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order of the Ld. Assessing Officer imposing interest liability under section 201(1A) of the Act upon the appellant.
4) The Ld. CIT(A) has failed to appreciate that since income of NOIDA, GNIDA and YEIDA was exempt under section 10(20A) of the Act, the appellant was even otherwise not obliged to deduct tax at source under section 194-1 of the Act.
5) The above grounds of appeals are independent and without prejudice to one another.
6) The appellant may be allowed to add / withdraw or amend any ground of appeal at the time of hearing.”
3. Ld. Authorized Representative for appellant/assessee submitted that —
“The Assessee acquired two pieces of land from NOIDA vide lease agreements dated 03-03-2008 and 503,43,25,000/-27-03-2008 for consideration of Rs. and Rs. 378,04,37,800/- respectively, aggregating to Rs 881,47,62,800/-as one time premium.
In addition to one time premium, the assessee had to pay annual lease rent @1% of the one time premium, so the Assessee also paid a sum of Rs. 8,81,47,628/- as annual lease rent but did not deduct any TDS on the advice of the NOIDA that NOIDA being an authority incorporated under the State Act, hence income is not taxable in view of section 10(20A).
The Assessee filed appeal before this Hon’ble Tribunal claiming that income of NOIDA is not taxable in view of section 10(20A) of the Income Tax Act, 1961, hence, the Assessee is not liable to deduct tax at all.
Therefore, the Assessee contended that the interest restricted by the CIT(A) u/s 201(1A) is also not justified.
In view of the provisions of Income tax Act, 1961, findings of the CIT(A) are correct. Therefore, as stated by the CIT(A), the Assessee is liable to pay interest u/s 201(1A) for 6 months only i.e. from April 2008 to September 2008 (i.e. the date of filing the ITR by NOIDA.) The AO may kindly be directed to compute the interest accordingly, if not done so far.”
4. Ld. Departmental Representative submitted that Ld. CIT(A) directed to Ld. AO to recalculate the interest u/s 201(1A) of the Act from the date on which tax was deductible till the date of filing of return by the appellant/assessee.
5. From examination of record in light of above submissions, it is crystal clear that Ld. CIT(A) vide order dated 28.07.2014 directed to Ld. AO to recalculate the interest u/s 201(1A) from the date on which tax was deductible till the date of filing of return by the deductee/assessee. Ld. Representative for assessee has pleaded the findings of ld. CIT(A) has correct. The assessee pleaded to pay tax u/s 201(1A) for six months only i.e. from April, 2008 to September, 2008 i.e. date of filing of ITR by Noida. As such, Ld. AO is directed to compute the interest accordingly. Therefore, grounds of appeal are partly accepted. In the result,ITA No. 4527/Del/2017 filed by the assessee is partly allowed.
6. Cross appeals filed by the Assessee and Revenue raised following grounds:
6.1 ITA No. 4526/Del/2017, A.Y. 2012-13 filed by the Assessee
“1. The order passed by the Learned Commissioner of Income Tax (Appeals) (“Ld. CIT(A)”) under Section 250(6) of the Act is bad in law and on the facts and circumstances of the case.
2. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order of the Ld. Assessing Officer in holding the appellant liable to deduct tax at source under section 194-1 of the Act while making payments to New Okhla Industrial Development Authority (‘NOIDA’), Greater Noida Industrial Development Authority (‘GNOIDA’) and Yamuna Expressway Industrial Development Authority (‘YEIDA’).
3. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case in upholding the order of the Ld. Assessing Officer imposing interest liability under section 201(1A) of the Act upon the appellant.
4. The Ld. CIT(A) has failed to appreciate that since income of NOIDA, GNIDA and YEIDA was exempt under section 10(20A) of the Act, the appellant was even otherwise not obliged to deduct tax at source under section 194-I of the Act.
5. The above grounds of appeals are independent and without prejudice to one another.
6. The appellant may be allowed to add / withdraw or amend any ground of appeal at the time of hearing.”
6.2 ITA No. 4561/Del/2017, A.Y. 2011-12 filed by the Revenue
1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in holding that the NOIDA/Greater NOIDA is covered under the exemption from TDS in view of provisions of section 194A(3)(iii) (f) read with Notification No. 3489 dated 20.10.1970, and ignoring the Hon’ble Allahabad High Court’s decision dated 28/02/2011 in Writ Petition No 1338/2005 in the case of NOIDA wherein it has been held that NOIDA is not a local authority within the meaning of section 10(20 of the Income Tax Act, 1961 hence, not eligible for exemption from TDS u/s 194A(3)(iii)(f) of the Income Tax Act, 1961?
2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was justified in placing reliance on the Jurisdictional High Courts decision dated 16.02.2017 in the case of M/s Rajesh Projects India Pvt Ltd., which is apparently not only in contradiction of the judgement of the Hon’ble Allahabad High Court in Writ Petition No 1338/2005 dated 28.02.2011 but also the decision of the Hon’ble Supreme Court in Adityapur Area Development Authority vs UOI & Others 283 ITR 97?
3. Whether on the facts and in the circumstances on the case and in law, the CIT(A) was justified in holding that the assessee was not liable to deduct tax at source on payment on interest to NOIDA?
4. That the order of the CIT(A) being erroneous in law and on facts in respect of interest to NOIDA needs to be vacated and the order of the ACIT be restored.
5. That the appellant craves leave to add or demand any one or more of the ground of the appeal as stated above as and when need for doing so may arise.”
7. Ld. Authorized Representative for appellant/assessee submitted that grounds of appeal Nos. 1,5 and 6 are general in nature. Grounds of appeal No. 2 to 4 are regarding non-deduction of TDS on annual lease rent by the assessee. The issue pertains two companies i.e. two companies i.e. Unitech Hi-Tech Developers Ltd. and CIG Infrastructure Pvt Ltd. acquired one plot of land from NOIDA vide lease deed dated 28-12-2006 read with correction deed dated 07-08-2008 for a consideration of Rs. 16,22,84,12,160/- as one time premium for development of residential and industrial sectors in NOIDA. One of the conditions of NOIDA was to form a Special Purpose Vehicle (SPV) of the development work. Hence, both the companies formed one SPV namely Unitech Acacia Projects Ltd. (Appellant Assesee). The Assessee filed appeal before this Hon’ble Tribunal claiming that income of NOIDA is not taxable in view of section 10(20A) of the Income tax Act, 1961, hence, the Assessee is not liable to deduct tax at all. Therefore, the Assessee contended that the interest restricted by the CIT(A) u/s 201(1A) is also not justified.
7.1 The Revenue is in appeal (Appeal no. ITA 4561/Del/2017) before this Hon’ble Tribunal. The Revenue has relied upon the judgment of Hon’ble Supreme Court in Adityapur Area Development Authority Vs UOI. In fact, the judgment of Adityapur (supra) is on the issue of section 10(20A) read with article 269 of the constitution, which is not the case at present. The Assessee is accepting this contention of the Revenue that provision of section 10(20A) are not applicable to the Assessee. However, the Assessee is covered by the notification issued u/s 194A(3)(iii)(f). In the latest case of CIT(TDS), Kanpur, vs. Canara Bank, Hon’ble Apex Court in Civil Appeal No. 6020 of 2018 (date of judgment 02.07.2018) uphold decision of Allahabad High Court. Copy of the judgment is attached.
8. Ld. Departmental Representative submitted that Ld. CIT(A) was not justified in placing reliance on Jurisdictional High Court decision dated 16.02.2017 in case titled as M/s. Rajesh Projects India Pvt. Ltd., which was contrary judgement of Hon’ble High Court in Writ Petition No. 1338/2005 dated 28.02.2011 but also the decision of the Hon’ble Supreme Court in Adityapur Area Development Authority vs. UOI & Others 283 ITR 97.
9. From appraisal of record it is evident that Ld. CIT(A) vide impugned order dated 27.04.2017 upheld order of ld. AO in holding that the assessee is liable to deduct tax at source u/s 194-I of the act while making payments to New Okhla Industrial Development Authority (‘NOIDA’), Greater Noida Industrial Development Authority (‘GNOIDA’) and Yamuna Expressway Industrial Development Authority (‘YEIDA’). Ld. CIT(A) in para No. 4.16 directed to Ld. AO to recalculate interest u/s 201(1A) from the date on which the tax was deductible till the date of filing return by the deductee i.e. Noida. Ld. Representative for assessee pleaded that the findings of Ld. CIT(A) restricting interest u/s 201(1A) of the Act are justified. Accordingly, Grounds of appeal Nos. 2 to 4 are partly accepted. In the result, ITA No. 4526/Del/2017 of the assessee is partly allowed.
9.1 The Revenue has challenged reliance of decision dated 16.02.2017 in M/s. Rajesh Projects India Pvt. Ltd. being contrary to decision of Hon’ble Supreme Court in Adityapur Area Development Authority vs. UOI cases. The challenge is devoid of merit, since the provision of Section 10(20A) of the Act are not applicable to the case of assessee. Therefore, the grounds of appeal of Revenue are untenable. In the result, the appeal ITA No. 4561/Del/2017 of Revenue is dismissed.
10. ITA No. 7798/Del/2018 raises following grounds:
“1. The order passed by the Learned Commissioner of Income Tax (Appeals)-9 (“Ld. CIT(A)”) under Section 250 of the Act is bad in law and on the facts and circumstances of the case.
2. The Ld. CIT(A) has erred in iaw and on the facts and circumstances of the case in upholding the order passed by the Ld. Assessing Officer (“Ld. AO”) thereby making a disallowance of Rs.5,11,18,217/from the returned loss of the Appellant of interest u/s 40(a) (1a) on ground of non-deduction of IDS on the interest paid to Unitech Ltd.)
3. Without prejudice, the Ld. CIT(A) has grossly erred in not appreciating the fact that the Appellant had voluntarily disallowed a sum of Rs.19,769,338/-(being 30% of Rs.65,897,794/-, as per AS-7) from the proportionate interest disallowed on which TDS is not paid, thereby resulting in double disallowance of the said sum.
4. The above grounds of appeals are independent and without prejudice to one another.
5. The appellant may be allowed to add/withdraw or amend any ground of appeal at the time of hearing.”
11. Ld. Authorized Representative for appellant/assessee submitted that
“The Assessee is engaged in the T business of real estate development. c During the year under consideration, d the Assessee paid interest on loan o amounting to Rs. 17,03,94,058/- to (E Unitech Limited. However, the L Assessee could not pay TDS on time.
The Assessee have been using in Percentage of Completion Method S-(POCM) for recognising income & expenses as per accounting policy po mentioned in the Notes to the Accounts of the company which is W also as per accounting standard issued by the ICAI. Accordingly, the Assessee company charged interest to the tune of Rs. 6,56,99,294/- to profit & loss account and balance interest capitalized and taken to the work-in -progress (inventory). requirement of section 40(a)(ia), the Assessee suo motto disallowed 30% of the interest debited to profit & loss account on which TDS was not paid in time i.e. 1,97,69,338/- being 30% of Rs. 6,56,99,294/-.
1. It is a fact that the Assessee has recognized income and expense in accordance with the Percentage of Completion Method (POCM) which is regularly employed and also as per accounting standard issued by the ICAI.
2. It is also a fact that as per COPM, the Assessee had suo-motto disallowed interest expenses charged to revenue @ 30% as required by section 40(a)(ia) of the Income tax Act, 1961.
3. It is well accepted that no expense can be disallowed which has never been charged to the profit & loss account.
4. Hon’ble Mumbai ITAT in the case of Saat Rasta Properties Pvt Ltd (ITA No. 2464/Mum/2024) held that:
“5.2 In the instant case, the amounts in question were not debited to P&L account and not claimed as revenue expenditure by the assessee which capitalized it the books as Work-In-Progress. Whether the assessee may be subject to any proceeding under the Act for non- deduction of tax at source, is not a subject matter of proceeding under section 143(3) or 144 of the Income Tax Act and it is altogether separate proceedings under that chapter. The provision of section 40(a) is only an additional measure to enforce the compliance of Chapter XVIIB of the Act, by disallowing an expenditure which is otherwise allowable under the provisions of the Act. Therefore, the question of disallowance under section 40(a) arises only when an expenditure is claimed by the assessee without deducting the tax at source as per the provisions of Chapter-XVIIB of the Act. Hence, the action of the ld.AO in disallowing the amount of Rs.4.23,87,490/- from WIP is patently incorrect application of law and was rightly deleted by the ld.CIT(A) Finding no infirmity in his decision, we uphold the deletion.”
Copy of the order is attached herewith.
5. Hon’ble Kolkata ITAT in the case of DCIT Vs Saltee Properties Pvt Ltd (ITA no. 856/Kol/2014) held that:
“7. We have heard the rival submissions of both the parties and perused the materials available on record. It is the admitted fact that the assessee has no deducted any TDS on the impugned expenses on the ground that the relevant expenses were capitalized as work in progress. Since the expenses has not been claimed in the profit and loss account, the question of any disallowance under section 40(a)(ia) of the Act does not arise.”
12. Ld. Departmental Representative relied on impugned order.
13. From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. CIT(A) vide order dated 19.09.2018 upheld the order of ld. AO by making disallowance of Rs. 5,11,18,217/- from the returned loss of appellant/assessee of interest u/s 40(a)(ia) on the ground of non-deduction of TDS on interest paid to M/s. Unitech Ltd. The assessee has challenged disallowance of whole of the interest on which TDS which was deposited late without considering the fact that a portion of the interest has been charged to the P&L account and balance carried over to inventory.
13.1 A co-ordinate Bench in Mumbai ITAT in the case of Saat Rasta Properties Pvt. Ltd. and Kolkata ITAT in the case of Saltee Properties Pvt. Ltd. observed that expenses not claimed in P&L account the question of any disallowance u/s 40(a)(ia) of the Act did not arise.
14. In view of above material fact by respectfully following the judicial precedents, the grounds of appeal of assessee are accepted. In the result, the appeal ITA No. 7798/Del/2018 filed by the assessee is allowed.
15. We summarize the results as under:
(1) ITA No. 4527/Del/2017 filed by the assessee is partly allowed.
(2) ITA No. 4526/Del/2017 filed by the Assessee is partly allowed.
(3) ITA No. 4561/Del/2017 filed by the Revenue is dismissed.
(4) ITA No. 7798/Del/2018 filed by the Assessee is allowed.
Order pronounced in the open court on 05.08.2026
