DKP ENGINEERS & CONSTRUCTIONS P.LTD, MUMBAI V. ITO 10(2)(3), MUMBAI

CO 195/MUM/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7696 (ITAT-MUMBAI)
• Duration Of Justice: 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 22-08-2012
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: RAHUL K HAKANI; DR K SHIVARAM
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. MANMOHAN (VP) & SHRI RAJENDRA SING H (AM) I.T.A. NO. 7796/MUM/2010 (ASSESSMENT YEAR : 2006-07) ITO 10(2)(3) ROOM NO. 431, 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. DKP ENGINEERS & CONSTRUCTION P. LTD. 23, KAILASH NAGAR M.G. ROAD GHATKOPAR (EAST) MUMBAI-400 077. PAN/GIR NO. AAACJ3215H (APPELLANT) .. (RESPONDENT) C.O. NO. 195/MUM/2012 (ASSESSMENT YEAR : 2006-07) M/S. DKP ENGINEERS & CONSTRUCTION P. LTD. 23, KAILASH NAGAR M.G. ROAD GHATKOPAR (EAST) MUMBAI-400 077. VS. ITO 10(2)(3) ROOM NO. 431, 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. PAN/GIR NO. AAACJ3215H (APPELLANT) .. (RESPONDENT) ASSESSEE BY : DR.K. SHIVARAM & SHRI RAHUL K. HAKANI DEPARTMENT BY : SHRI AMARDEEP DATE OF HEARING : 29.8.2012 DATE OF PRONOUNCEMENT : 31.8.2012 O R D E R PER D. MANMOHAN (VP) :- THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 19.8.2010 PASSED BY LEARNED CIT(A)-21, MUMBAI AND THEY PERTAIN TO A.Y. 2006-07. 2. ASSESSEE-COMPANY IS ENGAGED IN CONSTRUCTION ACTI VITY. IN THE PROCESS IT HAD UNDERTAKEN TO DEVELOP THE D.P. ROAD LEADING TO VIKR OLI PROPERTY ON WHICH IT WAS TO M/S. DKP ENGINEERS & CONSTRUCTION P. LTD . 2 CONSTRUCT THE FLATS. UPON DEVELOPMENT OF THE SAID D .P. ROAD AT VIKROLI, AS PART OF THE PROJECT UNDERTAKEN, THE ASSESSEE BECAME ENTITLED TO TDR. ON 5.8.2005 THE ASSESSEE EARNED A SUM OF ` 91,99,992/- ON SALE OF THE SAID TDR. EXPENDITURE I NCURRED ON DEVELOPMENT OF THE ROAD WAS SHOWN AS PART OF THE PR OJECT AND THE INCOME ON SALE OF TDR WAS CREDITED TO WORK-IN-PROGRESS ACCOUNT WHICH HAD EFFECT OF REDUCING THE TOTAL EXPENDITURE INCURRED TILL THE END OF THE YEAR, ON T HE PROJECT UNDER DEVELOPMENT. 3. DURING THE COURSE OF SCRUTINY ASSESSMENT FOR ASS ESSMENT UNDER CONSIDERATION THE ASSESSING OFFICER WAS OF THE OPINION THAT THE S ALE PROCEEDS OF THE TDR IS LIABLE TO BE TAXED UNDER THE HEAD CAPITAL GAINS. IN RESPONS E TO THE SHOW-CAUSE NOTICE THE ASSESSEE SUBMITTED THAT IT HAD INCURRED A SUM OF ` 80,78,775/-TOWARDS ROAD DEVELOPMENT WHICH INCLUDES BMC CHARGES OF ` 67,84,840/-. TDR WAS GRANTED ONLY AS A RESULT OF THIS EXPENDITURE AND HENCE IT WAS ADJUS TED AGAINST EXPENDITURE. IN OTHER WORDS, DEVELOPMENT OF ROAD WAS A NECESSITY AND EXPE NDITURE WAS INCURRED OUT OF COMMERCIAL EXPEDIENCY, APART FROM THE FACT THAT THE ASSESSEE WAS ELIGIBLE FOR ASSURED TDR WHICH WOULD ENABLE IT TO REDUCE THE COST OF THE PROJECT. IT WAS ALSO SUBMITTED THAT IN THE IMMEDIATELY PROCEEDING YEAR EXPENDITURE INCURRED ON ROAD DEVELOPMENT WAS DEBITED TO THE WORK-IN-PROGRESS ACCOUNT AND MET HOD FOLLOWED BY THE ASSESSEE WAS ACCEPTED BY THE REVENUE. EVEN AS PER THE ACCOUNTING STANDARD-2 OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA SALE VALUE OF BY-PRO DUCT MAY BE DEDUCTED FROM THE COST OF PRODUCTION OF THE MAIN PRODUCT. ON A PARITY OF REASONING, IN THE INSTANT CASE, THE CONSTRUCTION PROJECT IS THE MAIN PRODUCT AND TH E TDR ARISING OUT OF THE DEVELOPMENT OF ROAD IS BY-PRODUCT AND SALE VALUE CO ULD BE DEDUCTED FROM THE COST OF THE PRODUCT. 4. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE. IN HIS OPINION THE IMPUGNED RECEIPT IS ASSESSABLE TO TAXED UNDER THE H EAD CAPITAL GAINS 5. AGGRIEVED THE ASSESSEE CONTENDED BEFORE LEARNED CIT(A) THAT IT FOLLOWED COMPLETION OF PROJECT METHOD AND ALL EXPENDITURE IN CURRED AS A PART OF THE MAIN PROJECT WAS DEBITED TO THE WORK-IN-PROGRESS AND AS SUCH INCOME RECEIVED ON SALE OF TDR WAS REDUCED FROM THE WORK-IN-PROGRESS WHICH DES ERVES TO BE ACCEPTED. EVEN OTHERWISE IT CAN, AT BEST, CAN BE TREATED AS BUSINE SS RECEIPT. DETAILED ARGUMENTS WERE ADVANCED BEFORE LEARNED CIT(A) AND RELIANCE WAS PLA CED UPON THE DECISION OF HON'BLE M/S. DKP ENGINEERS & CONSTRUCTION P. LTD . 3 APEX COURT IN THE CASE OF BOKARO STEEL LTD. VS. CIT (236 ITR 315) AND ORDERS OF ITAT, MUMBAI & DELHI BENCHES TO SUBMIT THAT THE SALE PROC EEDS OF TDR DESERVES TO BE REDUCED FROM WORK-IN-PROGRESS. 6. LEARNED CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE AND IN THIS REGARD HE OBSERVED AS UNDER :- 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE. THE APPELLANT WAS EARLIER KNOWN AS M/S. JUPITER SHARES AND SECURITIES P. LTD. ORIGINALLY, THE APPELLANT AND M/S. PATEL BUILDERS AND DEVELOPERS, MR. ANAND R AMCHANDRA NAIK, SOLE PROPRIETOR OF M/S. ANAND CONSTRUCTION CO., ROHAN PA PERS LTD. AND M/S. WOODEN- BOX MANUFACTURERS CO-OPERATIVE INDUSTRIAL ESTATE WE RE MEMBERS OF AOP, M/S. SAI DEVELOPERS WHICH WAS A JOINT VENTURE BETWEEN TH E PARTIES. ORIGINALLY M/S. WOODEN BOX MANUFACTURERS APPOINTED THE AOP M/S. SAI DEVELOPER FOR DEVELOPMENT OF THE SAID PROPERTY UNDER CONSIDERATIO N. THEREAFTER, THE DISPUTE AROSE AND SUIT NO. 1627 OF 2004 WAS FILED IN THE BO MBAY HIGH COURT. THEREAFTER, A CONSENT TERM WERE SIGNED BY THE PARTIES AND APPRO VED BY THE COURT. AS PER CONSENT TERM, THE APPELLANT I.E. DEFENDANT NO. 2IN THE NAME OF M/S. JUPITER SHARES AND SECURITIES P. LTD. TOOK OVER CERTAIN PAR TS OF THE PROJECTS INCLUDING THE PROJECT DISCUSSED IN THE ABOVE PAPERS. AS PER CLAUS E V)B(I) OF CONSENT TERM, THE DEVELOPMENT RIGHTS OF THE ENTIRE PLOT OF LAND WILL VEST EXCLUSIVELY WITH THE DEFENDANT NO. 2 I.E. TO THE APPELLANT. IT WAS FURTH ER AGREED IN THE SAID CLAUSE THAT THE APPELLANT I.E. DEFENDANT NO. 2 SHALL BE ENTITLE D TO THE ENTIRE FSI AND THE TDR ON THE SAID PLOT, ROAD AMENITY TDR AND THE SAME CAN BE USED AS BY THEM AS PERMISSIBLE UNDER THE LAW. THE DEFENDANT NO. 2 UNDE RTOOK THE RESPONSIBILITY TO DEVELOP THE ENTIRE INFRASTRUCTURE FOR THE SAID PLOT AND ALSO UNDERTOOK TO CONSTRUCT RESIDENTIAL PREMISES. SINCE, THE ENTIRE PLOT OF LAN D WAS BELONGING TO M/S. WOODEN-BOX MANUFACTURERS CO-OP. INDUSTRIAL ESTATE L TD., THEREFORE, THE TDR, IF ANY WAS TO BE GRANTED BY MUNICIPALITY, WAS TO BE GR ANTED IN THE NAME OF THIS SOCIETY. AS PER CLAUSE (VIII) OF THE CONSENT TERM, THE SOCIETY AGREED AND CONFIRMED THAT INCREASE IN FSI/TDR WHICH MAY BE AVA ILABLE AT ANY TIME SHALL PROPORTIONATELY BELONG TO PLAINTIFF NO. 2, DEFENDAN T NO. 2(APPELLANT) AND DEFENDANT NO. 3. SINCE THE PLOT WAS BELONGING IN TH E NAME OF THE SOCIETY, THEREFORE, THE MUNICIPAL CORPORATION ALLOTTED TDR I N THE NAME OF THE SOCIETY M/S. WOODEN-BOX MANUFACTURERS. AS PER THE CONSENT TERMS, THE SOCIETY TRANSFERRED THE SAME TO THE APPELLANT. THE APPELLANT SOLD THE S AID TDR IN THE OPEN MARKET AND ADJUSTED THE SALE PROCEEDS AGAINST THE WORK-IN- PROGRESS. THE QUESTION FOR CONSIDERATION IS WHETHER THE SALE PROCEEDS OF THE SAID TDS WERE ASSESSABLE SEPARATELY UNDER THE HEAD CAPITAL GAINS AS DONE BY THE ASSESSING OFFICER OR THE SAID SALE PROCEEDS WAS REQUIRED TO B E REDUCED FROM THE WORK-IN- PROGRESS AS CLAIMED BY THE APPELLANT. IN MY CONSIDE RED OPINION, THE GRANT OF SAID TDR WAS HAVING DIRECT NEXUS WITH THE WORK BEING DON E BY THE APPELLANT. THE SAID TDR COULD NOT HAVE BEEN ALLOTTED BY THE BM C HAD THERE BEEN NO PROJECT IN HAND. THE SAID TDR WAS ALLOTTED TO THE A PPELLANT ONLY BECAUSE OF DEVELOPMENT OF THE SAID ROAD. THEREFORE, THE APP ELLANTS CLAIM WAS CORRECT THAT THE TDR ACCRUED WAS INCIDENTAL TO THE DEVELOPMENT OF THE ROAD AND WERE DIRECTLY CONNECTED AND INCIDENTAL TO THE ENTIRE PROJECT M/S. DKP ENGINEERS & CONSTRUCTION P. LTD . 4 UNDERTAKEN. APPELLANTS CLAIM WAS CORRECT THAT THE AWARD OF SUC H TDR WENT TO REDUCE THE TOTAL COST OF THE PROJECT AND THEREFORE, WAS REQUIRED TO BE REDUCED FROM THE TOTAL COST OF THE PROJECT. THE APPELLANTS ARGUMENT IS ALSO CORRECT THAT THERE WAS NO LOSS TO THE REVENUE IN ALLOWING DEDUCTION OF THE SALE PROCEEDS OF TDR FROM THE WORK-IN- PROGRESS. SINCE THE SAME RESULTED INTO LOWERING OF THE COST OF CONSTRUCTION. CONSIDERING THE FACTS AND CIRCUMSTANCES DISCUSSED A BOVE, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT CORRECTLY RED UCED THE SALE PROCEEDS OF TDR FROM THE WORK-IN-PROGRESS. THE ASSESSING OFFICER IS DIRECTED TO ALLOW APPELLANTS CLAIM. THIS GROUND OF APPEAL IS ALLOWED. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. BY WAY OF AN ABUNDANT CAUTION ASSESSEE-COMPANY FILED CROSS OBJECTION, THOUGH BARR ED BY LIMITATION BY 66 DAYS. IN THE SAID CROSS OBJECTION THE ASSESSEE RAISED ALTERNATIV E PLEA THAT INCOME FROM SALE OF TDR CANNOT BE ASSESSED TO TAX UNDER THE HEAD CAPITAL G AINS AND IN THE ALTERNATIVE IT IS ASSESSABLE UNDER THE HEAD PROFIT AND GAINS OF BUSI NESS OR PROFESSION. A PETITION WAS ALSO FILED UNDER RULE 27 OF THE APPELLATE TRIBUNAL RULES TO SUPPORT THE STAND TAKEN BY THE ASSESSEE BEFORE LEARNED CIT(A). 8. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY REL IED UPON THE ORDER PASSED BY THE ASSESSING OFFICER WHEREAS LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE COMPANY FOLLOWED PROJECT COMPLETION METHOD. IN THE INSTANT CASE, AS PART OF THE PACKAGE OF DEVELOPMENT OF PROJECT, ASSESSEE HAD TO DEVELOP THE ROAD AND HENCE IT HAS DIRECT NEXUS WITH THE MAIN PROJECT AND ALLOTMENT OF TDR WAS ONLY ON ACCOUNT OF DEVELOPMENT OF THE SAID ROAD WHICH, IN TURN, WAS IN CIDENTAL TO THE DEVELOPMENT OF ROAD AS WELL AS CONNECTED TO THE MAIN PROJECT AND H ENCE ASSESSEE WAS JUSTIFIED IN REDUCING THE SALE PROCEEDS FROM THE WORK-IN-PROGRES S. HE THUS SUPPORTED THE ORDER PASSED BY LEARNED CIT(A). 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RECORD. ON A CONSPECTUS OF THE MATTER WE ARE OF THE VIEW THAT THE ORDER PASSED BY LEARNED CIT(A) DESERVES TO BE CONFIRMED. AS RIGHTLY OBSERVED BY LE ARNED CIT(A) TDR HAS A DIRECT NEXUS WITH THE DEVELOPMENT WORK AND HENCE IT IS INC IDENTAL TO THE ENTIRE PROJECT UNDERTAKEN. THEREFORE THE ASSESSEE WAS CORRECT IN R EDUCING THE SALE PROCEEDS FROM WORK-IN-PROGRESS. SINCE WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER PASSED BY LEARNED CIT(A), APPEAL FILED BY THE REVENUE IS DISMISSED. M/S. DKP ENGINEERS & CONSTRUCTION P. LTD . 5 10. LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITT ED THAT IN THE EVENT OF ACCEPTANCE OF THE STAND TAKEN BY LEARNED CIT(A) THE RE IS NO NEED TO CONSIDER ACADEMIC ISSUES URGED IN THE CROSS OBJECTION AS WELL AS BY W AY OF APPLICATION U/R. 27 OF THE APPELLATE TRIBUNAL RULES. ACCORDINGLY CROSS OBJECTI ON IS HEREBY DISMISSED AND APPLICATION FILED UNDER RULE 27 IS TREATED AS INFRU CTUOUS. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE AS W ELL AS CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.8.2012. SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER SD/- (D.MANMOHAN) VICE PRESIDENT MUMBAI; DATED 31/08/2012 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DEPARTMENTAL REPRESENTATIVE , ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( (( ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS