Income Tax Appellate Tribunal - Mumbai
Indraprastha Premises P. Ltd, Mumbai vs Department Of Income Tax on 26 November, 2010
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'आई'
आई' मंुबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" BENCH, MUMBAI
सव ी वजयपाल राव,
राव या.स
या स एवं एन.
एन के. बलै या,
या लेखा सद य ।
BEFORE SHRI VIJAY PAL RAO, JM & SHRI N. K. BILLAIYA,
BILLAIYA, AM
आयकर अपील सं./I.T
I.T.A.
I.T .A. No.1491/Mum/2011
No. 1491/Mum/2011
( नधारण वष / Assessment Year :2006-07)
आयकर अपील सं./I.T.A.
I.T.A. No.2952/Mum/2011
No. 2952/Mum/2011
( नधारण वष / Assessment Year :2007-08)
M/s Indraprastha Premises बनाम/
बनाम ACIT, Central Circle-
Pvt. Ltd., 17/18, Jeshtharam 15&16, 4 t h Floor, Aaykar
Vs.
Baug, T. T. Circle, Dadar, Bhavan, M. K. Ro ad,
Mumbai-400014 Mumbai-400020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACI3367D
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
आयकर अपील सं./I.T.A.
I.T.A. No.978
No. 978/Mum/2011
978 /Mum/2011
( नधारण वष / Assessment Year :2006-07)
ACIT, Central Circle- बनाम/
बनाम M/s Indraprastha Premises
15&16, 4 t h Floor, Aaykar Pvt. Ltd., 17/18, Jeshtharam
Vs.
Bhavan, M. K. Ro ad, Baug, T. T. Circle, Dadar,
Mumbai-400020 Mumbai-400014
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACI3367D
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
अपीलाथ ओर से / Appellant by : Shri Rajiv Khandelwal
यथ क ओर से/Respondent by : Shri O. P. Singh
सनवाई
ु क तार ख / D at e o f H e a ri n g : 5th September 2013
घोषणा क तार ख/D
ख a te O f P ro n o u n c e m e n t: 25th September 2013
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
These cross appeals for the assessment year 2006-07 are directed against the order dated 26.11.2010 of Commissioner of Income Tax(Appeals) and appeal by the assessee for the assessment 2 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises year 2007-08 is directed against the order dated 17.1.2011 of Commissioner of Income Tax(Appeals).
2. The assessee has raised common grounds in the appeals for both the years. The grounds raised for the assessment year 2006-07 are as under:
"1. On the facts and circumstances of the case and in law the ld. CIT(A) erred in confirming the addition of ` 12,39,223/- made by the AO on account of profit from sale of plot.
2. On the facts and circumstances of the case and in law the ld. CIT(A) erred in confirming the addition of ` 1,50,036/- made by the AO on account of MSEB & society deposit and maintenance charges etc."
3. Ground No. 1 regarding addition on account of profit from sale of plots. The assessee is engaged in the business of development and sale of plots. The search and seizure action u/s 132(1) of the Act was conducted on 22.9.2005 in the case of the assessee as well as in the group concerns of the assessee. The assessment up to the assessment year 2005-06 have been completed u/s 143(3) r.w.s 153A of the Income Tax Act. For the assessment year under consideration the assessee filed return of income on 29.10.2007 admitting total income of ` 12,34,918/-. During the year the assessee has shown to have sold plots of land at Pune for ` 37,79,000/-, the details of which have been given by the AO as under:
3
ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises Name Description of plot Area (in sq. Sale Other dues ft) consideration to MSEB (in `) Society & Maintenance Gulab Rao Plot No. 600 3009 2,50,000 37,509 Shah 215/1/218/219/277/1 23.3.2006 Bhalekar Plot No. 647 3008.51 6,17,000 37,509 Popat 215/1/218/219/277/1 18.7.2006 Nitin Barai Plot No. 52 12200 24,40,000 37,509 1.4.2005 215/1/218/219/277/1 Hadapsar Taluka, Harachi, Pune Total 18217.51 33,07,000 1,12,527
4. The AO noted that the assessee worked out the cost of these plots sold as per Schedule 'K' of the balance sheet at ` 21,76,558/-. During the course of assessment proceedings the assessee filed the details of cost of plots wherein the assessee calculated the cost of the plots sold @ ` 40.24 per sq.ft. on area of 18217.51 sq.ft. The assessee has also added 10% of the amount received during the year in the cost of plots. The assessee has submitted that the 10% of the sale proceeds to be paid by the assessee the assignor as per the agreement dated 30.10.1991. The Assessing Officer has observed that the cost has been calculated by the assessee by adding 10% of the sale proceeds realised during the year whereas the profit on sale of land which took place during the year has to be calculated by deducting the cost of that land from the sale proceeds. The AO estimated the cost of land @ ` 20 per sq.ft. and further 10% of sale proceeds in respect of the plots sold during the year. Accordingly, the AO calculated the cost of the land sold during the year at ` 26,11,960/- and consequently an addition of ` 4 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises 12,39,223/- was made. On appeal, the CIT(A) has confirmed the action of the AO.
5. Before us the Ld. AR has submitted that the cost of the land has been worked out by the assessee as per the working given at page 1 of the paper book. He has pointed out that the cost of the plot comprises two components i.e: i) the development cost as it is the opening balance of stock of plots ii) 10% of the receipts during the year as per the agreement dated 30.10.1991.
6. The Ld. AR has further submitted that the cost of the plots @ ` 40.24 per sq.ft. has been taken by the assessee as per the opening stock which has been accepted by the Assessing Officer for all the assessment years from 2000-01 to 2005-06 framed u/s 153A. As regards the 10% of the receipts during the year the Ld. AR of the assessee has submitted that as per the agreement the assessee has to pay 10% of the realisation of the sale proceeds which means any advance receipt in respect of future sale as well as the receipt in respect of previous sale has to be taken into consideration for calculating the payment of 10% of the receipt as per the agreement. Thus, the Ld. AR has contended that when the cost of the land has been accepted by the AO for all six years completed prior to this assessment year then the AO cannot disturb the same in the year under consideration. The Ld. AR has filed the copy of the assessment orders for all six assessment years framed u/s 153A. He has referred 5 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises the acknowledgement of return of income for earlier years and submitted that the cost of land calculated by the assessee at ` 40.24 per sq.ft. has been accepted by the Assessing Officer in the earlier six years. He has further contended that the cost of land has been worked out by the assessee on the basis of opening stock which was accepted by the revenue in the earlier years.
7. The Ld. AR has referred clause 10.3 of the agreement dated 30.10.1991 and submitted that the assessee had to pay to the assignor an amount equal to 10% of the sale proceeds that may be realised by the assessee from the prospective buyers of plots, bungalow, shops etc. The assessee is following this method of 10% of the total receipts during the year to calculate the cost of land for the purpose of working out the profit from the sale of plots and shop etc. He has referred the total receipts during the year at ` 1,20,11,910/- at page 1 and details of the receipt at page 57-62 of the paper book and submitted that the assessee has received these payments during the year under consideration and as per the terms of the agreement 10% of the said amount comes to ` 12,01,191/-. Thus, the Ld. AR has submitted that the assessee has explained the computation of cost of land which has been accepted by the AO in the earlier years.
8. On the other hand, the Ld. DR has submitted that the Assessing Officer furnish the detail of purchase and sale of land for working out the cost of the land. He has further submitted that in the absence of 6 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises the necessary details the authorities below are justified in adopting the cost of land at ` 20 sq.ft. As regards the 10% of the sale during the year the Ld. DR has submitted that for computation of profit from the sale of plots, the cost of 10% of sale proceeds can be taken into account only in respect of the sale affected during the year. The sale for the earlier year and subsequent year cannot be taken into account for cost against the sale of the year under consideration. He has relied upon the orders of the authorities below.
9. We have considered the rival submissions as well as relevant material on record. There was a search and seizure action on 29.9.2005 in the case of the assessee and other group concerns. Therefore, the assessment for the six years up to the assessment year 2005-06 were framed u/s 153A r.w.s 143(3) of the Income Tax Act. There are two aspects of this issue viz. (i) the cost of land and (ii) the liability of 10% of the realisation of sale proceeds as per clause 10(3) of the agreement dated 30.10.1991. The assessee worked out the cost of plot by taking the opening stock of plots. The AO rejected the developments cost @ ` 40.24 per sq.ft. adopted by the assessee. Instead the AO took development cost of land at ` 20 per sq.ft. The assessee has given the working of cost of plots at page no. 1 of the paper book as under:
STOCK OF PLOTS AS ON 31st MARCH, 2006 PARTICULARS AREA VALUE Opening Stock Plots 49840 2005615 40.24107143 7 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises Shops 278.5 242295 870 2247910 Less: Sales of Plot 18217.5 733073 (Working) Sale of Ship 278.5 242295 ___________________________ Closing Stock 31622.5 1272542 WORKINGS TOTAL COST 2005615 40.24 TOTAL AREA 49840 Sale value at cost 40.24*18217.51 __________ 733073 COGS 10% RECEIPTS DURING THE YEAR TAKEN TO COGS AS PER AGREEMENT COST OF PLOTS SLD 733,073.00 ADD: 10% OF RECEIPTS DURING THE YEAR ON PLOTS 1,201,191.00 ADD: SHOPS 2,176,559.00
10. It is clear from the details of the working above that the assessee took the opening stock of the plots as the basis for cost of plots sold during the year. The AO has not pointed out any defect or the opening stock taken in the working is incorrect and not accepted in the earlier years. When the plots and shops sold during the year are only from the opening stock then in view of the fact that the cost of plot accepted in all six years prior to this year in the assessment u/s 153A, the same cannot be disturbed in this year. Even otherwise the AO adopted the cost of plot on estimation at ` 20 per sq.ft. without any basis. This estimation of the AO is not justified when the assessee has given a working and taken the cost as per opening stock.
11. As regards the liability of 10% of realisation during the year is concerned it is pertinent to note that as per clause 10(3) of the 8 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises agreement dated 30.10.1991, the assessee is required to pay 10% of realisation of sale proceeds. In other words if a sale took place during the year but the amount has not been fully received then only that part of the sale consideration which has been received during the year could be taken into consideration for this purpose. Similarly, as it is clear from the language of the agreement that the realisation from the prospective buyers would be taken into consideration for calculating 10% of the sale proceeds. Thus, what is to be considered is the total realisation during the year and not the sale alone during the year as taken by the AO. If the action of the AO is accepted it would lead to disturb the uniform and consistent method of computation of income and will result in double addition in respect of the amount received in the earlier year but the sale took place in this year. When the assessee is following the consistent method of computation the cost as per the agreement then after accepting the same for last six years it cannot be disturbed in this year. Accordingly we set aside the orders of the authorities below qua this issue and consequently the addition made on account of cost of plots is deleted.
12. Ground No. 2 regarding addition on account of receipt for MSEB deposits, society deposit and maintenance charges etc. During the assessment proceedings the AO noted that the assessee has taken Maharashtra State Electricity Board (MSEB) deposits, society deposit and maintenance charges of ` 37,509/- from each party to whom it had 9 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises sold land during the year. Since the assessee has not accounted these receipts while working out the profits from the land sold, the AO has made an addition of ` 1,50,036/- as income from other sources. On appeal, the CIT(A) has confirmed the addition made by the AO on the ground that the assessee has failed to show that the money collected were spent for the stated purpose.
13. Before us the Ld. AR of the assessee has submitted that the assessee is responsible for completing legal formalities, society formation, electricity and water connection for the proposed society and also responsible for maintenance and payment of charges and taxes on behalf of the society as per the terms of the agreement. For these purposes the assessee accepted the deposits from the buyers of plot. The Ld. AR has further pointed out that the assessee has categorically submitted before the authorities below that it is maintaining a separate bank account wherein the deposits received from the buyers have been deposited and the expenses relating to the legal charges, society formation, electricity connection, water connection and maintenance charges are also incurred from the said bank account. The Ld. AR has contended that on completion of the project and on formation of the society, the assessee is required to handover the balance amount, if any, lying in the aforesaid account to the society and short fall, if any, may be recovered from the society.
Thus, the Ld. AR has submitted that the deposits received from the 10 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises buyers are not income in the hands of the assessee and that the assessee has received the deposit from the buyers/purchasers for discharging their obligations. In support of his contention he has relied upon the decision of this Tribunal in case of Suresh Kumar Khurana Vs DCIT 15 SOT 486 and submitted that the amount received from the purchasers by the assessee for discharging obligations and kept in separate account is not a assessable income of the assessee.
14. On the other hand, the Ld. DR has relied upon the order of the CIT(A) and submitted that when the assessee failed to produce the evidence to show that the collected amount were spent for the stated purpose then the same is rightly treated as income of the assessee.
15. We have considered the rival submissions as well as relevant material on record. The amount of ` 37,509/- has been received by the assessee from each of the buyer/party on account of electricity, legal charges, share application money, entrance fee, registration fee of new society and maintenance charges. Thus, it is clear that these amounts were received by the assessee for discharging the obligations of the buyers in respect of formation of societies and other expenditure in this connection. The assessee is maintaining a separate bank account for keeping the deposit received from the buyers to spend towards the deposits with MSEB for electricity connection, legal expenses for formation of society, application money, entrance fee and maintenance charges etc. These amounts have been received by the assessee as 11 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises per the terms of the agreement stipulated in clause 14 and 15 as under:
"14. Payment of deposit and other amounts:
The plot purchaser shall on or before taking delivery of possession of the said plot keep deposited with the promoter the amounts as mentioned in clause No.1 of this agreement for keeping the following expenses:
(a) For legal charges, share money, application and entrance fees and for formation, registration of a new society/ or sub society or division or conversion of existing society etc. and/or for all items which are more particularly described in the Schedule IV hereunder given.
(b) The projected maintenance charges in advance towards proportionate share in taxes, maintenance charges, and expenses and/or all items mentioned in Schedule IV hereunder1 given.
(c) The projected charges towards MSEB deposits, incidental expenses etc. and/ or for all items mentioned in Schedule IV hereunder given.
The purchases is aware that the promoter has already incurred expenses from time to time towards meeting the expenses as above which shall also be accounted and be reimbursed to the promoters and the purchase shall not claim any interest on the deposit so paid by him/ her which shall remain with the promoters till the entire project is completed in all respects.
After paying all the, above expenses to above referred heads, the promoters will transfer the balance amount to the society or may demand difference between actual expenses and the deposit paid by purchaser from the society.
15. Maintenance of accounts of sums received as advance or deposit from the Plot purchaser.
The promoter shall maintain separate accounts in respect of sums received by the promoter from the Unit purchaser as advance or deposits, sums received on account of the share capital for the promotion of the cooperative society or a company or towards the outgoing legal charges and 12 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises shall utilize the amounts for the purposes for which they have been received."
16. It is clear from the terms of the agreement that the assessee has received this amount under the obligation of agreement and in the capacity of trustee. The balance if any at the completion of project and formation of society shall be refunded. In view of the facts and circumstances of the case it cannot be treated as income of the assessee. This amount is required to be spent for specific purposes and balance is refundable, therefore, the actual expenditure would not change the character of the receipt/deposit kept in separate bank account. In case of Suresh Kumar Khurana Vs DCIT (supra) the Co- ordinate Bench of this Tribunal in para 7 and 8 has decided a similar issue as under:
"7. Learned Departmental Representative has not been able to produce any material which controverts the factual aspects, or other material with regard to the nature of transaction, embedded in the above letter. In any event, it was all along the case of the assessee that the money received by him from the assessee is a conditional receipt with corresponding obligation to account for the same to the principal. Not only that there was no material before any of the authorities below to give findings to the contrary of assessee's contentions, the CIT(A) has gone to the extent of holding that the assessee will be entitled to the deduction in the year in which he actually makes payments in respect of the related liabilities, as and when they so arise. There are two significant aspects of the matter. First that the CIT(A) proceeds on the fallacy that a receipt, even if it is attached with an obligation to account for the same to his principal, can be treated as income. It is elementary that what can be termed as an income is only such a receipt which comes without any corresponding obligations to us it in a particular manner or to refund the same. Unless a gain is earned or accrued, in money or 13 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises money's worth, it cannot be said to be an income. In the case before us, the gain has not crystallized because the money received by the assessee, as at the material point of time, was not earned or accrued by the assessee. There is no material on record, save and except for the inferences drawn by the Assessing Officer, to even suggest that the assessee had a right to keep the balance money with him in his own right. As a matter of fact, the evidence filed before us shows that the assessee did not have any right to keep the balance, but he had an obligation to refund the balance to the principal. Second important aspect of the matter is that the authorities below have clearly erred in holding that Hon'ble Supreme Court's judgment in the cases of Chowringhee Sales Bureau (P.) Ltd. v. CIT [19731 87 ITR 542 and Indian Molasses Co. Ltd. v. C1T [1959] 37 ITR 66 apply on the facts of the present case. In the case of Chowringhee Sales Bureau (P.) Ltd. (supra), Hon'ble Supreme Court was in seisin of a situation in which while the auctioneer was issuing cash memos by including the amount of sales tax, but declining to pay the same to the exchequer or to refund the same to the seller. It was the contention of the assessee that he is not liable to pay the same as he was not the seller, but only an auctioneer, and yet he collected the sales tax from the persons to whom the auctioned goods was sold. It was on the facts that Their Lordships held that the receipt in question was a trading receipt. While holding so, Their Lordships observed as follows:
"It is apparent from the order of the AAC and has not been disputed before us in the present case that the cash memos issued by the appellant to the purchasers in the auction sale that it was appellant who was shown as the seller. The amount realized by the appellant from the purchaser included sales tax. The appellant, however, did not pay the sales tax to the actual owner of the goods auctioned because statutory liability to pay the sales tax was of the appellant. The appellant company did not also deposit the amount realized by it as sales tax in the State exchequer because it took the position that the statutory provision creating that liability upon it was not valid. As the amount of sales tax was received by the appellant in its character as auctioneer, the amount in our view, should beheld as trading or business receipt. The appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government."14
ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises It is difficult to comprehend as to how the above stated views of the Hon'ble Supreme Court can be perceived as an authority of the proposition that, irrespective of assessee's obligation and willingness to account for a receipt, the same can be treated as of income nature. In the case before Their Lordships, it was the stand of the assessee that he is not liable to pay the amount collected from the customers. In the case before us, it is consistent stand of the assessee that the amount received by the assessee was a receipt in trust and for a specific purpose. We, therefore reject the reliance of the authorities below on the Hon'ble Supreme Court's judgment in the case of Chowringhee Sales Bureau (P.) Ltd. (supra). Similarly, as far as Indian Molassess Co. Ltd.'s case (supra) is concerned, the same has no application in the matter either. This case deals with the question whether or not deduction of a liability, which was held to be a contingent liability on the facts of that case, can be allowed as a deduction. We are not really concerned with the deductibility of expenditure because the expenditure, in respect of the disbursements made by the assessee before us, will in fact be expenditure of the principal and not the assessee.
8. For the reasons set out above, we are of the considered view that the authorities below did not have cogent basis for coming to the conclusion that Rs. 18,18,228 lying to the credit of the assessee's principal constituted income of the assessee. As the assessee was accountable to his principal in respect of this amount, and as this amount was not an unfettered receipt in the hands of the assessee, it could not be said to be income of the assessee. The addition sustained by the CIT(A), therefore, deserves to be deleted. However, the Assessing Officer is at liberty to tax the same in case this amount was subsequently, if so, the principal waived the liability of the assessee to account for or refund the same. Subject to these observations, the grievance of the assessee is upheld. The Assessing Officer is, accordingly, directed to delete the impugned addition."
17. In view of the above discussion we hold that the amount received by the assessee in the capacity of trustee for carrying out the expenditure on behalf of the buyers/society cannot be treated as income. Accordingly, the addition made on this account is deleted. 15
ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises In appeal ITA No. 978/M/2009
18. The Revenue has raised the following grounds as under:
"1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) is justified in deleting the addition of ` 37,12,439/- made on account of disallowance interest holding that since similar disallowance has not made for the earlier years, no disallowance can be made in the current year without appreciating the legal position that every assessment year is an independent Assessment Year.
2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the above disallowance without appreciating the fact that there is no evidence that advances were given for the purposes of business, as per proviso to section 36(1)(iii), interest is required to be capitalized since the advances were given for acquisition for capital asset."
19. During the year the assessee has debited interest on unsecured loan to the tune of ` 37,12,439/-. The AO noted that this interest has been paid to unsecured loan of ` 2.51 crores taken from Shri V. T. Gala and Vijay Grihanirman Pvt. Ltd. The AO disallowed the interest on the ground that the assessee has utilised this amount for giving advances for purchase of plots for future projects. On appeal, the CIT(A) has deleted the addition on the ground that these loans were not taken during the year but these loans were taken in the earlier years and the interest expenses on these loans were allowed as business expenditure in the earlier years.
20. Before us the Ld. DR has strongly relied upon the order of the Assessing Officer. On the other hand, the Ld. AR has submitted that no 16 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises loan has been taken during the year under consideration. Further the amount has been utilised for the purpose of the business of the assessee and therefore, it is an allowable expenditure u/s 36(1)(iii) of the Income Tax Act. He has supported the order of the CIT(A) and submitted that during the year under consideration the outstanding unsecured loan has been reduced from 2.97crores to 2.51 crores therefore, the assessee has repaid the loan and not taken any fresh loan. The Ld. AR has further submitted that the Assessing Officer while passing the assessment order u/s 153A for the assessment years 2000- 01 to 2005-06 has allowed the claim of the assessee u/s 36(1)(iii) of the Income Tax Act.
21. We have considered the rival submissions as well as relevant material on record. There is no dispute that no new loan was taken by the assessee during the previous year relevant to the assessment year under consideration. Further we note that the AO disallowed the interest on the ground that the advances were given by the assessee for the purpose of purchase of plots for future projects. This ground of the Assessing Officer on the face of it is not sustainable because the advances were given for the purpose of the business of the assessee being purchase and sale of plots. If the ground of the AO for rejecting the interest expenditure is accepted then all payments given in advance for purchase of goods would not be treated as expenditure for business purpose. Even if the reasoning of the AO is accepted then the 17 ITA No.1491, 978 & 2952/M/2011 Indraprastha Premises amount which is kept idle would also not illegible for interest expenditure. In the facts and the circumstances of the case we do not find any reason to interfere with the order of the CIT(A) qua this issue.
22. In the result, the appeals of the assessee are allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open Court on this 25th day of September 2013 Sd/- Sd/-
(एन. के. बलै या) ( वजयपाल राव)
लेखा सद य या यक सद य
(N. K. BILLAIYA) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 25th September 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai