POWERNETICS EQUIPMENT INDIA P LTD, MUMBAI V. DCIT 13(1)(2), MUMBAI

ITA 1393/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9180 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 28-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Question of law; Fair market value; Set aside
• Section: 143(3); 50C; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJEET SINGH, JUDICIAL MEMBER ITA NO.1393/M/2017 ASSESSMENT YEAR: 2012-13 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD., 7C, BINDYA, BANDRA RECLAMATION, BANDRA (W), MUMBAI-400 050 PAN: AAACP9311Q VS. DCIT 13(1)(2), AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI HARI S. RAHEJA, A.R. REVENUE BY : SHRI ABI RAMA KARTIKEYAN, D.R. DATE OF HEARING : 06.03.2019 DATE OF PRONOUNCEMENT : 26.03.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 16.12.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT (APPEALS) WAS NOT HOLDING THAT THE PROVISIONS OF S. 50C ARE APPLICABLE TO THE SALE TRANSACTION S THE COMPOSITE TRANSACTION OF LAND AND BUILDING. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO ADOPT THE SALE VALUE OF THE LAND AT RS. 2,42,87,930 /- AND THAT OF THE BUILDING AT RS. 3,36,59,570/-. ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (APPEALS) ERRED IN CONFIRMING THE APPLICABILITY OF THE PROVISIONS OF S. 50C OF THE INCOME-TAX ACT 1961, INSPITE OF THE FACT THAT THE D IFFERENCE BETWEEN THE FMV OF RS. 5,79,47,500/- AND THE SALE CONSIDERATION OF RS: 5,2 5,00,0007- IS LESS THAN 10% AND HELD BY VARIOUS DECISIONS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT (APPEALS) GROSSLY ERRED IN NOT APPLYING THE LAND RA TE OF RS. 15,960/- PER SQ. MT. AS PER MIDC AND INSTEAD WORKING OUT THE MARKET VALUE O F LAND BY SOME ARBITRARY PROPORTIONATE METHOD AT RS.2,42,87,930/- AND THAT O F THE BUILDING AT RS.3,36,59,570/-. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT (APPEALS) ERRED IN REJECTING THE APPELLANT'S/CLAIM IN RESPECT OF THE WRITE OFF OF PROJECT EXPENSES AMOUNTING TO RS.3,02,372/-. 6. THE APPELLANT CRAVES LEAVE TO, ADD TO, ALTER, MO DIFY, DELETE AND/OR CHANGE ALL OR ANY ABOVE GROUNDS OR BEFORE THE HEARING OF THE A PPEAL. 3. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE ORDER OF LD. CIT(A) UPHOLDING THE ORDER OF AO WHEREIN THE PROVIS IONS OF SECTION 50C OF THE ACT HAS BEEN HELD TO BE APPLICAB LE TO THE ASSESSEES CASE IGNORING THE FACT THAT THE ASSESSE E WAS HAVING ONLY LEASEHOLD RIGHTS IN THE PROPERTY. THE ASSESSE E HAS ALSO CHALLENGED BY WAY OF GROUND NO 3 THE CONFIRMATION O F APPLICABILITY OF PROVISIONS OF SECTION 50C OF THE A CT DESPITE THE FACT THAT DIFFERENCE BETWEEN FAIR MARKET VALUE OF RS.5,79,47,500/- AND ACTUAL SALE CONSIDERATION OF RS.5,25,00,000/- IS LESS THAN 10%. IN THE GROUND N O.4, THE ASSESSEE HAS CHALLENGED THE ORDER OF LD. CIT(A) IN NOT APPLYING THE RATE AT RS.1,596/- AS PER SQR. MTR. AS PER MIDC TO THE LAND AND CALCULATED THE MARKET VALUE OF THE LAND BY ARBI TRARY METHOD AT RS.2,42,87,930/- AND THAT OF THE BUILDING AT RS.3,36,59,570/-. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED T HE RETURN OF INCOME AT RS.27,912/- DECLARING A LOSS OF RS.85,06, 067/- WHICH ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 3 WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE REAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE DULY ISSUED AND SERVED UPON THE ASSESS EE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERV ED THAT ASSESSEE HAS SHOWN INCOME FROM CAPITAL GAIN DURING THE YEAR AND ACCORDINGLY CALLED UPON THE ASSESSEE TO FURNISH THE SALE AGREEMENT AND OTHER DOCUMENTS RELATING THE SALE OF PROPERTY. THE AO AFTER PERUSAL OF THE SALE AGREEMENT NOTICED THAT STAMP VALUATION OF THE PROPERTY ADMEASURING 3600 SQ. MTR. PLOT NO.EL- 179 IN THE TTC INDUSTRIAL AREA WAS RS.5,79,47,500/- AS AGAINST THE SALE CONSIDERATION SHOWN BY THE ASSESSEE OF RS.5,25,00,000/- AND THEREFORE APPLIED THE PROVISIO NS OF SECTION 50C OF THE ACT TAKING THE VALUE AS PER THE STAMP VA LUATION AUTHORITY AS DEEMED CONSIDERATION. THE AO ALSO NOT ED THAT ASSESSEE HAS REDUCED RS.2,25,69,464/- ON ACCOUNT OF UNPAID MORTGAGE LOAN WHILE COMPUTING THE CAPITAL GAIN WHIC H WAS NOT ALLOWABLE. FINALLY THE AO COMPUTED THE CAPITAL GAI N AFTER REJECTING THE REPLY OF THE ASSESSEE AS UNDER: SALE PRICE AS PER SECTION 50C. LESS; RS. 5,79, 47,500/- (I.E. AS PER STAMP DUTY VALUATION) LESS; INDEXED COST OF LAND RS. 1,33,82,663/- LESS: OPENING WDV OF BUILDING RS. 1,15,57,936/- RS. 2.49,40,599/- TAXABLE CAPITAL GAIN RS. 3,30,06,901/ 5. THE ASSESSMENT WAS FRAMED VIDE ORDER DATED 13.03 .2015 PASSED UNDER SECTION 143(3) OF THE ACT BY ADDING IN COME FROM CAPITAL GAIN OF RS.3,30,67,901/-. 6. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE TOOK AN ADDITIONAL GROUND CHALLENGING THE ORDER OF AO ON TH E GROUND THAT THE PROPERTY IN QUESTION WHICH WAS SOLD FOR A CONSIDERATION OF RS.5,25,00,000/- WAS A LEASEHOLD PROPERTY AND AS SESSEE WAS ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 4 NOT THE ABSOLUTE OWNER OF THE SAID PROPERTY AND THE REFORE THE PROVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLIC ABLE TO THE SALE OF LEASE RIGHTS. THE LD. CIT(A) ,AFTER ADMITTING T HE ADDITIONAL GROUND, DISMISSED THE APPEAL OF THE ASSESSEE BY OBS ERVING AND HOLDING AS UNDER: 4.7. I AM UNABLE TO ACCEPT THE CONTENTION THAT SEC TION 50C DOES NOT APPLY SINCE THE LAND WAS LEASED FROM MIDC. HERE THE TRANSFER IS OF A COMPOSITE PROPERTY COMPRISING OF LAND AND BUILDING AND NOT MERELY THE LEASE OF LAND. AS PER THE APPELLANT'S BOOKS THE VALUE WAS WDV OF RS 115,57,93 6 FOR THE BUILDING AND RS 83,38,927 FOR THE LAND. I FIND THAT ON SIMILAR FACT S THE HON'BLE ITAT MUMBAI BENCH IN THE DECISION REPORTED IN [2013] 33 TAXMANN.COM 491 (MUMBAI - TRIB.) IN THE I TAT MUMBAI BENCH 'E' IN THE CASE OF SHAVO NORGREN (P.) LTD. V. DEPUTV COMMISSIONER OF INCOME-TAX, CIRCLE 3(3) DECEMBER 14, 2012 HELD THAT SECTION 50C IS APPLICAB LE. THE HEAD NOTES READS AS FOLLOWS. NOT ONLY THE ABOVE, AS SEEN FROM DEEDS OF ASSIGNMEN T, ASSESSEE TRANSFERRED THE RIGHTS IN THE PLOTS AS WELL AS RIGHTS IN THE BUILDI NG, SINCE THERE IS BUILDING INVOLVED IN THIS ASSIGNMENT, THE TRANSFER OF PROPERTY IN QUESTI ON DO ATTRACT PROVISIONS OF SECTION 50C AND, THEREFORE, ASSESSEES CONTENTION ON THIS C ANNOT BE ACCEPTED. AS SEEN FROM THE MARKING GIVEN IN THE 'SCHEDULED PROPERTY' IN TH E DEED OF TRANSFER SUBSTANTIAL PORTION WAS COVERED BY THE BUILDING THEREON AND AS SEEN FROM THE MOU, ASSESSEE SEEMS TO BE DEVELOPING THE PROPERTY BY UTILIZING TH E DEVELOPMENT RIGHTS. IN VIEW OF THIS, SINCE BOTH LAND AND BUILDING WERE ASSIGNED BY THESE DEEDS, PROVISIONS OF SECTION 50C ARE ATTRACTED IN THIS CASE. [PARA 18] IN PARA 18 THE FOLLOWING IS STATED '18, NOT ONLY THE ABOVE, AS SEEN FROM DEEDS OF ASSI GNMENT, ASSESSEE TRANSFERRED THE RIGHTS IN THE PLOTS AS WELL AS RIGH TS IN THE BUILDING, SINCE THERE IS BUILDING INVOLVED IN THIS ASSIGNMENT, WE A RE OF THE OPINION THAT THE TRANSFER OF PROPERTY IN QUESTION DO ATTRACT PROVISI ONS OF SECTION 50C AND THEREFORE, ASSESSEE'S CONTENTION ON THIS CANNOT BE ACCEPTED. AS SEEN FROM THE MARKING GIVEN IN THE 'SCHEDULED PROPERTY' IN TH E DEED OF TRANSFER SUBSTANTIAL PORTION WAS COVERED BY THE BUILDING THE REON AND AS SEEN FROM THE MOU, ASSESSEE SEEMS TO BE DEVELOPING THE PROPER TY BY UTILIZING THE DEVELOPMENT RIGHTS. IN VIEW OF THIS, SINCE BOTH LAN D AND BUILDING WERE ASSIGNED BY THESE DEEDS, WE ARE OF THE OPINION THAT PROVISIONS OF SECTION 50C ARE ATTRACTED IN THIS CASE. AS SEEN FROM THE RE PORT OF THE VALUATION PLACED ON RECORD FROM PAGE NOS. 95 TO 99 THE VALUAT ION REPORT ALSO INDICATE THAT THE VALUATION WAS UNDERTAKEN AS PLOT OF LAND A ND NOT AS 'LEASEHOLD RIGHTS'. THIS ALSO SUPPORTS OUR OPINION THAT ASSESS EE HAS MORE THAN LEASEHOLD RIGHTS ON THE PLOT OF LAND' 4.8 IN THIS DECISION THE CASE OF ATUL G. PURANIK V. ITO (2011) 132 ITD 499/11 TAXMANN.COM 92 (MUM) AND ITO V. PRADEEP STEEL RE-RO LLING MILLS (P.) LTD. (IT ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 5 APPEAL NO.341 (MUM) OF 2010, CITED BY THE APPELLANT BEFORE ME WERE CONSIDERED. THE ADDITIONAL GROUND AND GROUND OF APPEAL NO 1 IS THEREFORE DISMISSED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ONLY ISSUE IN GROUND NO .1 IS AGAINST THE ORDER OF LD. CIT(A) UPHOLDING THE ORDER OF AO O N THE APPLICATION OF PROVISIONS OF SECTION 50C OF THE ACT IN THE CASE OF SALE OF LEASEHOLD RIGHTS. THE CASE OF THE ASSESSEE IS SQUARELY COVERED IN ITS FAVOUR BY THE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. GREEN HOTELS AND ESTATES PVT. LTD. & ORS . IN ITA NO.735 OF 2014 VIDE ORDER DATED 24.02.2016 WHEREIN THE IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL WAS UPH ELD BY THE HIGH COURT BY DISMISSING THE APPEAL OF THE REVENUE. THE RELEVANT OBSERVATION OF THE HIGH COURT IS AS UNDER: 2. THE REVENUE URGES THE FOLLOWING QUESTION OF LAW FOR OUR CONSIDERATION: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDER OF TH E CIT(A) IN DELETING THE ADDITION OF LONG TERMCAPITAL GAIN OF RS.80,58,000/ ON THE GROUND THAT PROVISIONS OFSECTION 50C OF THE IT ACT, 1961 WERE N OT APPLICABLE TO TRANSFEROF LAND AND BUILDING, BEING A LEASEHOLD PRO PERTY? 3.THE IMPUGNED ORDER OF THE TRIBUNAL HAS DISMISSED THE REVENUE'S APPEAL FROM THE ORDER DATED 15 JUNE 2012 PASSED BY THE COM MISSIONER OF INCOME TAX (APPEALS). THE ISSUE BEFORE THE TRIBUNAL WAS WH ETHER SECTION 50C OF THE ACT WOULD BE APPLICABLE TO TRANSFER OF LEASEHOLD RI GHTS IN LAND AND BUILDINGS. THE IMPUGNED ORDER OF THE TRIBUNAL FOLLOWED ITS DEC ISION IN ATUL G. PURANIK VS. ITO (ITANO.3051/MUM/2010) DECIDED ON 13 MAY 201 1 WHICH HELD THAT SECTION50C IS NOT APPLICABLE WHILE COMPUTING CAPITA L GAINS ON TRANSFER OF LEASEHOLD RIGHTS IN LAND AND BUILDINGS.4.MR. KOTANG ALE, LEARNED COUNSEL FOR THE REVENUE, STATES THAT THE REVENUE HAS NOT PREFER RED ANY APPEAL AGAINST THE DECISION OF THE TRIBUNAL IN THE CASE OF ATUL PU RANIK (SUPRA). THUS, IT COULD BE INFERRED THAT IT HAS BEEN ACCEPTED. OUR COURT IN DIT VS. CREDIT AGRICOLE INDOSUEZ377 ITR 102 (DEALING WITH TRIBUNAL ORDER) A ND THE APEX COURT IN UOI VS. SATISH P. SHAH 249 ITR 221 (DEALING WITH HI GH COURT ORDER) HAS LAID DOWN THE SALUTARY PRINCIPLE THAT WHERE THE REVENUE HAS ACCEPTED THE DECISION OF THE COURT/TRIBUNAL ON AN ISSUE OF LAW A ND NOT CHALLENGED IT IN APPEAL, THEN A SUBSEQUENT DECISION FOLLOWING THE EA RLIER DECISION CANNOT BE CHALLENGED. FURTHER, IT IS NOT THE REVENUE'S CASE B EFORE US THAT THEREARE ANY DISTINGUISHING FEATURES EITHER IN FACTS OR IN LAW I N THE PRESENTAPPEAL FROM THAT ARISING IN THE CASE OF ATUL PURANIK (SUPRA). 5 .IN THE ABOVE VIEW, THE ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 6 QUESTION AS FRAMED BY THE REVENUEDOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 8. SIMILARLY, IN THE CASE OF FARID GUL MOHAMMAD VS. ITO IN ITA NO.5136/M/2014 DATED 16.03.2016, THE CO-ORDINAT E BENCH OF THE TRIBUNAL HAS HELD THAT PROVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLICABLE TO THE TRANSFER OF LEASEHOLD RIG HTS CONSIDERING THE DECISION RELIED BY THE LD. CIT(A) IN THE CASE O F SHAVO NORGARVEN PVT. LTD. VS. DCIT CIRCLE-3(3) AS REPORTE D IN (2013) 33 TAXMANN.COM 491 (TRIB.-MUM). WE, THEREFORE, RESPEC TFULLY FOLLOWING THE HONBLE BOMBAY HIGH COURT DECISION AN D COORDINATE BENCH DECISION ON THE ISSUE HOLD THAT PR OVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLICABLE TO THE TR ANSFER OF LEASEHOLD RIGHTS AND ACCORDINGLY SET ASIDE THE ORDE R OF LD. CIT(A) ON THIS ISSUE. THE GROUND NO. 1 OF APPEAL OF THE AS SESSEE IS ALLOWED AND AO IS DIRECTED TO TAKE THE SALE CONSIDE RATION AT RS.5,25,00,000/- FOR THE TRANSFER OF LEASEHOLD RIGH T AND CALCULATE THE CAPITAL GAIN ACCORDINGLY. 9. THE GROUND NO.2 IS NOT PRESSED BY THE LD. A.R. A T THE TIME OF HEARING AND THEREFORE DISMISSED AS NOT PRESSED. 10. THE ISSUE IN GROUND NO.3 IS THAT THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AS PER STAMP VALUATION AUTHORITY AND THE SALE CONSIDERATION IS LESS THAN 10% AND THEREFORE THE PR OVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLICABLE. SINCE W E HAVE ALREADY DECIDED THE ISSUE THAT PROVISIONS OF SECTION 50C OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE, THEREFORE THIS GROU ND IS INFRUCTUOUS AND NEEDS NO ADJUDICATION. ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 7 11. THE ISSUE IN GROUND NO.4 IS AGAINST THE ORDER O F LD. CIT(A) IN NOT APPLYING THE RATE OF RS.15,960/- PER SQ. MT R. WHICH IS AS PER MIDC A GOVT BODY AND INSTEAD CALCULATING THE M ARKET VALUE ARBITRARILY OF THE LAND AT RS.2,42,87,930/- AND BUILDING AT RS.3,36,59,570/-. 12. THE FACTS IN BRIEF ARE THAT IN THE ASSESSMENT P ROCEEDINGS THE AO CALCULATED THE CAPITAL GAIN BY TAKING THE IN DEX COST OF LAND AT RS.1,33,02,663/- AND THE OPENING WDV OF BUIL DING AT RS.1,15,57,936 /- AGGREGATING TO RS.2,49,40,599/- THEREBY COMPUTING THE TAXABLE CAPITAL GAIN AT RS.3,30,06,90 1/-. 13. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) BI FURCATED THE SALE PROCEEDS IN THE RATIO OF BOOK VALUE OF LAND AN D BUILDING THEREBY DIVIDING THE SALE CONSIDERATION BETWEEN LAN D AND BUILDING AT RS.2,42,87,930/- AND RS.3,36,59,570/- R ESPECTIVELY BY OBSERVING AND HOLDING AS UNDER: 4.10. THIS RATE TRANSLATES TO RS 574,56,000/- FOR 3600 SQ. MTS . OF PLOT WHOSE BOOK VALUE WAS RS 83,38,927/-AND ADOPTING THE SAME WOULD MEAN THAT THE BUILDING SALE VALUE WAS ONLY RS 4,91,500/- FOR BUILT UP AREA OF 1 325 SQ.MTS. WHOSE WDV WAS RS 115,57,936/- WHICH IS HIGHLY IMPROBABLE IT IS FUR THER NOTED THAT THE VALUATION AS PER MIDC ALSO CORROBORATES THE MARKET VALUE OF THE PROPERTY SOLD WHICH IS MUCH HIGHER THAN THE STATED CONSIDERATION. HOWEVER, THER E IS CERTAINLY MERIT IN THE CONTENTION THAT SINCE LAND VALUE IS SHOWN SEPARATEL Y IN THE BALANCE SHEET, AS AN ASSET ON WHICH NO DEPRECIATION IS CLAIMED, THE TRAN SFER SHOULD GIVE RISE TO LONG TERM CAPITAL GAINS. IN THE PRESENT CASE WHERE SALES CONS IDERATION IS A COMPOSITE ONE, A MORE REASONABLE BASIS WOULD BE TO BIFURCATE IT IN T HE RATIO OF THE BOOK VALUE OF LAND AND BUILDINGS. THUS, THE SALES VALUE OF LAND IS TO BE TAKEN AS RS 242,87,930/- AND FOR BUILDING RS 3,36,59,570/- THE ASSESSING OFFICER IS DIRECTED TO ADOPT THESE VALUES AND COMPUTE GAIN FOR LAND SEPARATELY ALLOWING INDEXATIO N WHICH WILL BE LONG TERM CAPITAL GAIN AND FOR BUILDING IT WILL BE SHORT TERM CAPITAL GAIN. THE WDV OF BUILDING WILL BE VERIFIED FROM RECORDS AS THE SAME IS NOT RE ADILY VERIFIABLE FROM THE COPY OF AUDITED ACCOUNTS FILED. GROUNDS OF APPEAL 2 AND 3 A RE PARTLY ALLOWED. 14. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE SALE CONSI DERATION HAS BEEN APPORTIONED BETWEEN LAND AND BUILDING IN THE R ATIO OF BOOK ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 8 VALUE OF THESE ASSETS IN THE BOOKS OF ACCOUNTS. WE FIND MERIT IN THE CONTENTIONS OF THE LD. A.R. THAT THE APPORTIONM ENT OF SALE CONSIDERATION IS NOT FAIR AND PROPER AS IT WAS BASE D UPON SUBJECTIVITY AND ARBITRARINESS ESPECIALLY DUE TO TH E FACT THAT THE LAND HAS HUGE VALUE WHEREAS THE BUILDING HAS A VERY MEAGER VALUE THEREFORE THE SAME SHOULD BE ADOPTED BY APPLY ING AN OBJECTIVE AND SCIENTIFIC METHOD. THE LD. A.R. SUGG ESTED THAT THE MORE OBJECTIVE AND SCIENTIFIC METHOD. THE LD. A.R. SUGGESTED THAT THE MORE OBJECTIVE AND SCIENTIFIC METHOD SHOUL D BE APPLIED TO DETERMINE THE VALUE OF THE LAND AND BUILDING. T HE LD. A.R. ALSO SUBMITTED THAT THE SQR. MTR. RATE AS PER MIDC A GOVERNMENT BODY IS RS.15,960/- PER SQT. MTR WHICH I S THE MOST RELIABLE AND OBJECTIVE RATE. ACCORDING TO THE SAID RATE THE VALUE OF THE LAND COMES TO RS.5,74,56,000/- FOR THE SAID LEASEHOLD PLOT ADMEASURING 3600 SQR. MTR. IN OUR OPINION IT WOULD BE FAIR AND PROPER IF THE VALUE ASSIGNED TO THE BUILDING IS TAKEN AT RS.1,15,58,000/- THE BOOK VALUE OF THE BUILDING AND THE BALANCE OF RS.4,09,42,000/- IS ATTRIBUTED TO THE LAND WHIC H IS EVEN LOWER TO VALUATION AS PER MIDC RATE. ACCORDINGLY, WE DIRECT THE AO TO TAKE THE SALE CONSIDERATION FOR LAND AT RS.4, 09,42,000/- FOR THE LAND AND RS.1,15,58,000/- FOR THE BUILDING AS THERE IS NO OBJECTIVE AND FAIR BASIS FOR ALLOCATION OF THE SALE CONSIDERATION OTHER THAN THIS. ACCORDINGLY, THE GROUND OF THE AS SESSEE IS ALLOWED. 15. THE ISSUE RAISED IN GROUND NO.5 IS AGAINST THE ORDER OF LD. CIT(A) REJECTING THE ASSESSEES CLAIM IN RESPECT OF WRITTEN OFF PROJECT EXPENSES AMOUNTING TO RS.3,03,02,372/-. ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 9 16. THE FACTS IN BRIEF ARE THAT THE AO DURING THE C OURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS D EBITED A SUM OF RS.3,02,372/- ON ACCOUNT OF PROJECT EXPENSES WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT AND ACCORDINGLY ASKED THE ASSESSEE TO PRODUCE THE DETAILS AND JUSTIFICATION THEREOF. IT WAS SUBMITTED BY THE ASSESSEE THAT IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRONIC UPS FOR RAILWAYS AND O THER SERVICES. SOMETIMES THE ASSESSEE INCUR EXPENSES ON THE PRODUC TS WHICH HAVE TO BE ABANDONED IN VIEW OF THE NON ACCEPTANCE THEREBY THE CUSTOMER. SO THE EXPENSES ARE WRITTEN OFF AS BEING RELATING BUSINESS OF THE ASSESSEE WHOLLY AND EXCLUSIVELY . T HE AO REJECTED THE REPLY OF THE ASSESSEE DATED 27.02.2015 AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE BY OBSERVING THAT THE SAID EXPENDITURE IS COVERED BY THE PROVISION OF SEC TION 35D OF THE ACT WHEREUNDER THE ASSESSEE IS ALLOWED THE AMOR TIZATION OF EXPENSES EQUAL TO 1/10 TH OF THE PROJECT EXPENDITURE INCURRED PRIOR TO THE COMMENCEMENT OF THE BUSINESS. HOWEVER , THE ASSESSEE HAS CLAIMED RS.3,02,372/- WHICH IS MORE TH AN 1/10 TH OF THE TOTAL PROJECT EXPENSES AND AO ALSO NOTED THA T IN THE PREVIOUS YEAR THE ASSESSEE CLAIMED RS.3,77,965/- WH ICH IS ALSO MORE THAN 10% OF THE PROJECT EXPENSES AND THERE IS NO CONSISTENCY IN THE TREATMENT OF THE ASSESSEE OF THE SE EXPENSES. 17. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AL SO DISMISSED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE AS SESSEES SUBMISSIONS BY OBSERVING AND HOLDING AS UNDER: 5.3. A PERUSAL OF THE COPY OF RETURN OF INCOME SHO WS THAT THE APPELLANT HAS NOT CLAIMED ANY DEDUCTION U/S 35D. IT ALSO APPEARS THAT THE ASSESSING OFFICER HAS MISTAKEN THE PROJECT EXPENSES WRITE OFF AS PRELIMIN ARY EXPENSES PRIOR TO COMMENCEMENT OF BUSINESS. IN THE BALANCE SHEET, THE EXPENSES ARE SHOWN UNDER THE HEAD OTHER CURRENT ASSETS AS PROJECT EXPENSES. THUS, THE APPELLANT HAS CAPITALIZED SUCH EXPENSES AND IS CLAIMING A PART OF IT EACH YEAR. IT APPEARS THAT THE ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 10 AMOUNT WAS CAPITALIZED IN AY 2009-10. IF THE PROJEC T FOR 180 KVA STATIC CONVERTER HAS BEEN KEPT ON HOLD BY THE CUSTOMER, THERE IS NO REASON TO CLAIM THE EXPENDITURE IN CURRENT YEAR. ACCORDINGLY, THE CLAIM IS NOT ALLO WABLE AS EXPENSE IN THE CURRENT YEAR. THE GROUND IS DISMISSED. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE FRO M THE PERUSAL OF THE ORDER OF AO THAT THE DISALLOWANCE WA S MADE FOR THE WANT OF CONSISTENCY IN THE BOOKS OF ACCOUNTS AS IN THE ASSESSMENT YEAR 2011-12, THE ASSESSEE CLAIMED RS.3, 77,965/- WHEREAS IN THE CURRENT YEAR THE ASSESSEE CLAIMED RS .3,02,372/- ON ACCOUNT OF PROJECT EXPENSES WRITTEN OFF. THE AO HELD THAT UNDER SECTION 35D OF THE ACT EQUAL TO THE 1/10 TH OF THE PROJECT EXPENSES INCURRED PRIOR TO COMMENCEMENT OF BUSINESS IS TO BE AMORTIZED AND BUT IT WAS NOT DONE. IN THE APPELLATE PROCEEDINGS LD. CIT(A) HAS GONE ON A DIFFERENT FOOTING BY OBSER VING THAT THE AO HAS MISTAKEN THE PROJECT EXPENSES WRITTEN OFF AS PRELIMINARY EXPENSES INCURRED PRIOR TO COMMENCEMENT OF BUSINESS . THE LD. CIT(A) NOTED THAT IN THE BALANCE SHEET THE SAID EXP ENSES WERE SHOWN UNDER THE HEAD PROJECT EXPENSES AND A PART OF EXPENDITURE IS BEING WRITTEN OFF EVERY YEAR. ACCOR DING TO LD. CIT(A) THE SAID EXPENDITURE WAS CAPITALIZED IN 2009 -10 AND IN CONNECTION WITH THE PROJECT FOR 180 KVA WHICH HAS BE EN KEPT ON HOLD BY THE CUSTOMER AND THUS THERE IS NO REASON TO CLAIM THE SAID EXPENDITURE AND THUS DISMISSED THE APPEAL OF T HE ASSESSEE. 19. BEFORE US THE LD. A.R. SUBMITTED THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRO NIC UPS FOR RAILWAYS AND OTHER SERVICES AND THEREFORE HAS TO MA KE SAMPLE IN THE FORM OF EDUCATIONAL ORDER FOR SOLICITING FURTHE R ORDERS IF THE PROJECT SUITS THE REQUIREMENTS OF THE CUSTOMERS. T HE LD. A.R. ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 11 SUBMITTED BEFORE US THAT THIS IS A ROUTINE COURSE O F ACTION OF BUSINESS OF THE ASSESSEE. THE LD. A.R. TOOK US THR OUGH THE PAGES 157, 158, 159 & 160 WHICH ARE THE COPIES OF S UPPLY ORDER BY THE INDIAN RAILWAYS FOR EDUCATIONAL ORDER SPECI FYING MAKE AND QUALITY. THE LD. A.R. SUBMITTED THAT IT IS NOT NECESSARY THAT THE PROJECT EXPENSES WHICH ARE INCURRED FOR MAKING THE UPS WOULD NECESSARILY RESULT INTO THE EARNING OF INCOME AND SOLICITING OF FURTHER ORDER. THEREFORE WHATEVER EXP ENSES ARE INCURRED ARE WRITTEN OFF OVER A PERIOD OF TIME. AC CORDINGLY, THE LD. A.R. SUBMITTED THAT IN THE CURRENT YEAR THE ASS ESSEE RECEIVED SOME ORDER FROM RAILWAYS ON WHICH IT HAS BEEN RS.30 ,33,720/- TOWARDS PREPARATION OF PROJECT WHICH DID NOT TAKE O FF. THE LD. A.R. SUBMITTED THAT THE RAILWAY CHANGED THE SPECIFI CATIONS IN RESPECT OF THE 180 KVA TRANSFORMER WHICH WAS LATER O N CHANGED TO 130 KVA TRANSFER AND THUS WHATEVER EXPENSES THE A SSESSEE INCURRED IT HAD DECIDED TO WRITE OFF 1/10 TH OF THE PROJECT EXPENSES CONSISTING OF THE FEASIBILITY AND VIABILIT Y EXPENSES OF THE PROJECT FOR THE RAILWAYS. THE LD. A.R. SUBMIT TED THAT THESE EXPENSES WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE AND TH EREFORE ADMISSIBLE. IT IS IMMATERIAL FOR THE PURPOSE OF AL LOWABILITY OF EXPENSES THAT 1/10 TH OF TOTAL EXPENSES IS NOT CLAIMED BY THE ASSESSEE. 20. THE LD. D.R., ON THE OTHER HAND, STRONGLY OBJEC TED TO THE REASONING FORWARDED BY THE LD. A.R. AND RELIED UPON THE ORDER OF LD CIT(A). 21. AFTER CONSIDERING THE FACTS ON RECORDS, WE ARE FULLY CONVINCED WITH THE CONTENTIONS OF THE LD. A.R. THAT THE EXPENSES ITA NO.1393/M/2017 M/S. POWERNETICS EQUIPMENT INDIA PVT. LTD. 12 ON THE ABOVE SAID ORDERS FOR PREPARATION OF PROJECT S AND FEASIBILITY ETC WHICH ARE ADMISSIBLE BUSINESS EXPE NSES TO BE WRITTEN OFF AGAINST THE REVENUE OF THE ASSESSEE. T HEREFORE, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY T HE LD. CIT(A) AND ACCORDINGLY HOLD THAT THE EXPENSES CLAIM ED BY THE ASSESSEE BY WAY OF WRITING THE PROJECT EXPENSES A P ART OF PROJECT EXPENSES ARE ALLOWED.ACCORDINGLY, WE SET ASIDE THE ORDER OF AUTHORITIES BELOW AND DIRECT THE AO TO ALLOW RS.3,0 2,000/-. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.03.2019. SD/- SD/- ( AMARJEET SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26.03.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.