ACIT, CHENNAI V. M/s. Xs Real Properties Ltd., CHENNAI

ITA 1194/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61065 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 16-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHANDANA RAMACHANDRAN
• Assessee Lawyers: S SRIDHAR
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1194/MDS/2010 (ASSESSMENT YEAR : 2001-02) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3), CHENNAI - 600 034 . (APPELLANT) V. M/S XS REAL PROPERTIES LTD., 12, SOUTH MADA STREET, SRINAGAR COLONY, SAIDAPET, CHENNAI - 600 015. PAN : AAACX0030G (RESPONDENT) APPELLANT BY : SMT. CHANDANA RAMACHANDRAN, CIT-DR RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 11.04.2012 DATE OF PRONOUNCEMENT : 30.04.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO TREA T THE EXPENDITURE ON COST OF LAND AS AN ALLOWABLE EXPENSE WHILE WORKING OUT THE INCOME OF THE ASSESSEE. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, ENGAGED I N THE BUSINESS OF PROPERTY DEVELOPMENT, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT 2 I.T.A. NO. 1194/MDS/10 YEAR ADMITTING AN INCOME OF ` 90,350/-. THE RETURN ORIGINALLY PROCESSED UNDER SECTION 143(1) OF INCOME-TAX ACT, 1961 (IN SH ORT 'THE ACT') WAS SUBJECTED TO A REOPENING UNDER SECTION 147 OF THE A CT. DURING THE COURSE OF ASSESSMENT, ASSESSING OFFICER NOTED THAT THE DEVELOPMENT AGREEMENT EXECUTED BY THE ASSESSEE WITH OWNERS AND AGREEMENT ENTERED WITH PROSPECTIVE CUSTOMERS FOR FLATS, CLEAR LY MENTIONED THAT THE LAND ON WHICH THE APARTMENTS WERE CONSTRUCTED, BELO NGED TO THE OWNERS. AS PER THE A.O., ASSESSEE HAD ENTERED INTO AN AGREE MENT WITH LAND OWNERS AND THROUGH SUCH AGREEMENT, THE LAND OWNERS HAD CONFERRED ON THE ASSESSEE, THE RIGHT TO NOMINATE PERSONS FOR THE PURCHASE OF INDIVIDUAL SHARES AND LAND OWNERS HAD ALSO GIVEN TH E ASSESSEE THE RIGHT TO DEVELOP THE LAND BY CONSTRUCTING FLATS. A.O. CA ME TO A CONCLUSION FROM THE AGREEMENTS THAT THE COST OF INDIVIDUAL SHA RE OF LAND WAS PAYABLE BY THE CUSTOMERS DIRECTLY TO THE OWNERS AND THE ONLY POWER WITH THE ASSESSEE AS A DEVELOPER, WAS TO NOMINATE THE UL TIMATE CUSTOMERS. AGAIN, AS PER THE A.O., THE PROPERTY DEVELOPMENT CO ST NEVER INCLUDED IN THE COST OF LAND. HE, THEREFORE, CAME TO A CONCL USION THAT THE CLAIM OF EXPENDITURE OF ` 1,76,93,370/- ON COST OF LAND COULD NOT BE ALLOWED . THIS AMOUNT WAS THEREFORE ADDED BACK IN THE ASSESSMENT M ADE. 3. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT IT HAD ENTERED INTO JOINT VENTURE AGREEMEN T WITH OWNERS ON 3 I.T.A. NO. 1194/MDS/10 28.11.1996 SUPPLEMENTED BY A CONFIRMATION DEED DATE D 21.1.2007 AND AS PER THE SAID DOCUMENTS, ASSESSEE HAD TO DEVELOP AND BUILD THE ENTIRE PROJECT AT ITS OWN COST AND AS CONSIDERATION THEREO F WAS TO ALLOT 30% OF SUCH BUILT-UP AREA TO THE LAND OWNERS, FREE OF COST IN LIEU OF THE 70% OF THE LAND PARTED BY THE LAND OWNERS. IN OTHER WORDS , AS PER THE ASSESSEE, 30% OF THE BUILDING COST REPRESENTED 70% OF THE LAND COST. THE SALE PRICE REALIZED FROM THE ULTIMATE PURCHASER S OF THE FLATS WAS ENTIRELY FOR THE ASSESSEE. 30% OF THE BUILDING COS T BEING EQUIVALENT TO THE VALUE OF 70% LAND, WAS CHARGED BY THE ASSESSEE TO ITS PROFIT & LOSS ACCOUNT, SINCE THIS WAS THE AMOUNT OF CONSIDERATION DUE TO THE LAND OWNERS. ACCORDING TO ASSESSEE, IT HAD SOLD ONLY 70 % OF THE CONSTRUCTED AREA AND REALIZED FULL AMOUNTS FROM ULTIMATE CUSTOM ERS. THE LAND COST REPRESENTED BY 30% OF TOTAL COST OF CONSTRUCTION AN D THIS WAS RIGHTFULLY CHARGED TO ITS PROFIT & LOSS ACCOUNT. LD. CIT(APPE ALS) WAS IMPRESSED BY THESE CONTENTIONS. ACCORDING TO HIM, ASSESSEE H AD PASSED APPROPRIATE ENTRIES BY CREDITING BUILDING EXPENSES BY ` 1,76,93,370/-, AND DEBITING THE LAND COST BY AN EQUAL AMOUNT. AS PER LD. CIT(APPEALS), THE LAND COST AS PER THE WORK-OUT GIVEN BY THE ASSE SSEE, RELATED ONLY TO COST OF BUILT-UP AREA ALLOTTED TO LAND OWNERS IN LI EU OF THE LAND SOLD AND ASSESSEE HAD PASSED APPROPRIATE JOURNAL ENTRIES TO CAPTURE THE SAID TRANSACTION AND IT WAS ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE. HE, THEREFORE, DELETED THE ADDITION. 4 I.T.A. NO. 1194/MDS/10 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT AS PER THE AGREEMENT B ETWEEN THE ASSESSEE AND ULTIMATE PURCHASERS OF THE FLATS, THE VALUE OF LAND PASSED FROM THE PURCHASERS OF THE FLATS TO THE OWNERS OF T HE LAND AND NOT TO THE ASSESSEE. FOR THIS REASON, THE ASSESSING OFFICER D ISALLOWED THE CLAIM OF LAND COST. ACCORDING TO LEARNED D.R., THE PURCHASE RS OF THE FLATS HAD PAID THE COST OF THE LAND DIRECTLY TO THE LAND OWNE RS AND ASSESSEE HAD NO HAND IN THE SAID TRANSACTION. ASSESSEE COULD ON LY CHARGE IN ITS ACCOUNT THE EXPENSES FOR THE CONSTRUCTION AND NOTHI NG MORE. ASSESSEE HAD RECEIVED ONLY COST OF THE FLATS FROM THE ULTIMA TE PURCHASERS AND THEREFORE, LAND COST COULD NOT BE CHARGED AS A PART OF ITS EXPENSES. LEARNED D.R., THEREFORE, SUBMITTED THAT THE ADDITIO N WAS WRONGLY DELETED BY THE LD. CIT(APPEALS) WITHOUT PROPERLY APPRECIATI NG THE FACTS. 5. PER CONTRA, LEARNED A.R., STRONGLY SUPPORTING TH E ORDER OF LD. CIT(APPEALS), SUBMITTED THAT PAPER-BOOK PAGE 133 FI LED BY THE ASSESSEE CLEARLY GAVE HOW THE SUM OF ` 1,76,93,370/- WAS ARRIVED AT. ACCORDING TO HIM, THE TOTAL COST OF LAND OWNERS SHARE OF THE BUILDING AGGREGATED WITH THE MONEY PAID TO THE LAND OWNERS CAME TO ` 2,66,20,856/-. OUT OF THE SAID AMOUNT, ` 1,76,93,371/- WAS CHARGED IN ITS PROFIT & LOSS ACCOUNT FOR PREVIOUS YEAR 2000-01 AND BALANCE SUM O F ` 89,27,485/- WAS CHARGED TO PROFIT & LOSS ACCOUNT IN THE ASSESSM ENT YEAR 2001-02. 5 I.T.A. NO. 1194/MDS/10 BY ENTERING INTO THE DEVELOPMENT AGREEMENT WITH LAN D OWNERS, WHAT THE ASSESSEE RECEIVED WAS ONLY 70% OF THE LAND, WHEREAS 30% OF THE LAND REMAINED WITH THE OWNERS. EFFECTIVELY, THEREFORE, AS PER THE LEARNED A.R., WHAT WAS RECEIVED BY THE ASSESSEE WAS 70% OF THE LAND IN LIEU OF WHICH IT HAD TO MAKE CONSTRUCTION IN 30% OF THE LAN D WHICH REMAINED WITH THE OWNERS. THIS WAS THE COST OF THE LAND INS OFAR AS ASSESSEE WAS CONCERNED. THEREFORE, IT HAD RIGHTFULLY CHARGED TH E COST OF THE LAND IN ITS BOOKS. LEARNED A.R. ALSO SUBMITTED THAT THE AMOUNT S IN RESPECT OF THE LAND WERE ALSO RECEIVED BY THE ASSESSEE FROM THE UL TIMATE PURCHASERS OF THE FLATS, AND NEVER PASSED ON TO THE OWNERS. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSEE HAD ENTERED INTO TWO AGREEMENTS WITH OWNER S, ONE DATED 28.11.1996 PLACED AT PAPER-BOOK PAGES 24-52 AND SUP PLEMENTARY AGREEMENT DATED 24.1.2001 PLACED AT PAPER-BOOK PAGE S 64-68. ACCORDING TO ASSESSEE, AS PER THE SUPPLEMENTARY JOI NT AGREEMENT, AMOUNT OF ` 79,26,600/- WAS PAID BY THE ASSESSEE TO THE LAND O WNERS. ASSESSEE HAD CONSTRUCTED THE BUILDING IN THE LAND A S A WHOLE AND 30% OF SUCH CONSTRUCTED AREA AND 30% OF THE LAND BELONG ED TO THE OWNERS AND THEREFORE, THE COST OF CONSTRUCTION IN SUCH 30% OF THE LAND, REPRESENTED THE VALUE OF THE 70% OF THE LAND ON WHI CH ASSESSEE COULD CONSTRUCT AND SELL THE FLATS. HOWEVER, THE MODE I N WHICH THE VALUE OF 6 I.T.A. NO. 1194/MDS/10 CONSTRUCTION HAS BEEN ARRIVED AT IS NOT CLEAR. IN THE SUPPLEMENTARY JOINT AGREEMENT, THE AMOUNT MENTIONED AS DIRECT PAYMENT I S ` 79,26,600/-. HOWEVER, AS PER PAPER-BOOK PAGE 133, THE DETAILS OF COST ARRIVED AT BY THE ASSESSEE IS AS UNDER:- TOTAL COST OF BUILDI NG AS PER SCHEDULE C OF FINAL AGREEMENT LAND OWNERS SHARE OF 24,258 SQ.FT. CONSTRUCTED AREA @ ` 583.83/- PER SQ.FT. ` 1,41,62,500/- AMOUNT PAID TO LAND OWNERS BY XS REAL (FOR 13,756 SQ.FT.) ` 1,24,58,356/- TOTAL ` 2 ,66,20,856 / - WE GIVE BELOW THE BREAK-UP OF ` 2,66,20,856/- IN THE BOOKS OF ACCOUNTS: COST OF LAND DEBITED TO PROFIT & LOSS ACCOUNT IN 2000- 01 ` 1,76,93,371/- COST OF LAND DEBITED TO PROFIT & LOSS ACCOUNT IN 2001- 02 ` 89,27,485/- RECONCILIATION OF BUILT-UP AREA TOTAL AGREED BUILT-UP AREA TO BE ALLOTTED TO THE FI RST PARTY AND OTHER CO-OWNERS AS PER THE JOINT VENTURE AGREEMENT 30% OF BUILT-UP AREA APPROVED BY CMDA 133395 0.3 40019 SQ. FT. LESS: TOTAL BUILT-UP AREA TO BE RETAINED BY THE SECOND PAR TY (IN LIEU OF MONEY PAID TO THE CO-OWNERS BY THE SECO ND PARTY) FROM OUT OF THE BUILT-UP AREA TO BE HANDED O VER BY THE SECOND PARTY TO THE CO-OWNERS (TOTAL AMOUNT MENTIONED IN C-4 CONVERTED INTO BUILT- UP AREA AT THE RATE OF 833 PER SQ.FT AS PER CLAUSE 12 OF THE JOINT VENTURE AGREEMENT DATED 28.11.1996 13756 SQ.FT. PAYMENT OF ` 1,60,000/- BY CHEQUE NO.247092 DATED 14.02.2003 TO ONE OF THE FIRST PARTY TOWARDS VALUE OF FRACTIONAL BUILT-UP AREA TAKEN BY THE SECOND PARTY (AS 7 I.T.A. NO. 1194/MDS/10 PER CLAUSE 7 B (II) OF THE MEMORANDUM OF SETTLEMENT DATED 14.02.2003 342 SQ. FT. PAYMENT OF ` 16,55,000/- BY THE SECOND PARTY TO ONE OF THE FIRST PARTY TOWARDS VALUE OF FRACTIONAL BUIL T-UP AREA TAKEN BY THE SECOND PARTY ( AS PER CLAUSE 7 B ( II) OF THE MEMORANDUM OF SETTLEMENT DATED 14.02.2003 1663 SQ.FT. TOTAL BUILT-UP AREA ALLOTTED TO THE FIRST PARTY AFTE R DEDUCTING THE AREA RETAINED BY THE SECOND PARTY 24258 SQ.FT. NEITHER THE A.O. NOR THE CIT(APPEALS) HAS GONE THRO UGH THE WORK-OUT FURNISHED BY THE ASSESSEE, AND VERIFIED IT WITH THE BOOKS OF ACCOUNTS, IN ORDER TO DECIDE WHETHER THE CLAIM IS PROPERLY SUPPO RTED BY EVIDENCE. THE AMOUNT SHOWN BY THE ASSESSEE AS PAID TO THE LAN D OWNERS THOUGH MENTIONED IN THE SUPPLEMENTARY AGREEMENT, DOES NOT FIND A MENTION IN THE ABOVE WORK-OUT. THEREFORE, WHETHER SUCH AMOUNT CAN BE CONSIDERED AS PART OF THE COST OF THE LAND HAS TO B E VERIFIED. WE ARE OF THE OPINION THAT THE MATTERS REQUIRES A RE-VISIT BY THE A.O. ASSESSEE CAN CLAIM COST OF THE LAND TO THE EXTENT OF COST OF 30% OF BUILDING CONSTRUCTION IN ACCORDANCE WITH THE DEVELOPMENT AGR EEMENT AND NOTHING MORE. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHO RITIES BELOW AND REMIT THE ISSUE BACK TO THE FILE OF A.O. FOR CONSIDERATIO N AFRESH FOR CORRECTLY WORKING OUT OF COST OF 30% OF THE LAND FOR ALLOWANC E THEREOF. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. 8 I.T.A. NO. 1194/MDS/10 THE ORDER WAS PRONOUNCED IN THE COURT ON 30 TH APRIL, 2012. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH APRIL, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE