Applewoods Estate Pvt. Ltd., Ahmedabad V. The DCIT, Circle-1(1)(1), Ahmedabad

ITA 198/AHD/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8406 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 23-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AP ARNA AGRAWAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Earning of tax free income; Proportionate interest; Valuation report; Competent authority; Rule 8D; Set aside
• Section: 143(3); 14A; 133(6); 250; 6

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO. 198/AHD/2018 ( ASSESSMENT YEAR : 2012-13) APPLEWOODS ESTATE PVT. LTD. 16, ABHISHREE CORPORATE COMPLEX, AAMBLI BOPAL ROAD, AHMEDABAD 380058 / VS. DCIT CRICLE-1(1)(1), AHMEDABAD ./ ./ PAN/GIR NO. : AAGCA6838B ( APPELLANT ) .. ( RE SPONDENT ) & ./ I.T.A. NO. 600/AHD/2018 ( ASSESSMENT YEAR : 2012-13) DCIT CRICLE-1(1)(1), AHMEDABAD / VS. APPLEWOODS ESTATE PVT. LTD. 16, ABHISHREE CORPORATE COMPLEX, OPP: MADHURYA RESTAURANT, BRTS STOP, ISCON-AMBLI ROAD, AHMEDABAD 380058 ( APPELLANT ) .. ( RESPONDENT ) / ASSESSEE BY : SHRI S. N. SOPARKAR, A.R. / REVENUE BY : SMT. APARNA AGRAWAL, CIT. D.R. DATE OF HEARING 04/07/2019 ! / DATE OF PRONOUNCEMENT 17/07/2019 ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 2 - / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY REVENUE AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS)-1, AHMEDABAD (CIT(A) IN SHORT), DAT ED 28.12.2017 EMANATING FROM THE ASSESSMENT ORDER DATED 30.03.201 5 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOM E TAX ACT, 1961 (THE ACT) CONCERNING ASSESSMENT YEAR 2012-13. 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: 1. THE LD. CTT (A) ERRED IN LAW AND ON FACTS IN CO NFIRMING ADDITION OF RS. 86,11,74,085/- OUT OF TOTAL ADDITION OF RS. 107 ,17, 79, 584/- MADE BY AO TO THE CLOSING STOCK OF LAND. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING VIEW TAKEN BY AO THAT PROPORTIONATE LAND COST ALLOWABLE ON SALE TO C O- DEVELOPER IS TO BE WORKED OUT BASED UPON AREA OF LAND AVAILABLE AND NOT UPON AREA OF FS1 AVAILABLE. 3. LD. CIT (A) ERRED IN LAW AND ON FACTS IN RECASTI NG TRADING A/C OF LAND TO CONFIRM ADDITION TO CLOSING STOCK OF LAND O N THE ALLEGED GROUND THAT THE APPELLANT CHANGED METHOD OF ACCOUNT ING, VALUATION OF CLOSING STOCK & ALLOCATION OF COST TO PROFIT & L OSS A/C IN SUBSEQUENT YEAR. 4. LD. CIT (A) ERRED IN LAW AND ON FACTS DIRECTING AO TO RECOMPUTE ALLOCATION OF AUDA CHARGES, FCCD INTEREST & TOWNSHI P INFRA EXPENSES BASED UPON AREA OF LAND SOLD AND NOT AS AL LOCATED BY APPELLANT ON THE BASIS OF FST AREA. 5. WITHOUT PREJUDICE TO THE ABOVE CONTENTION THAT W ORKING OF CLOSING STOCK OF LAND AS PER APPELLANT BE ACCEPTED, LD CIT (A) OUGHT TO HAVE DIRECTED AO THAT ADDITION TO CLOSING STOCK BE ALLOW ED AS OPENING STOCK OF THE NEXT YEAR. 6. LD. CIT (A) ERRED IN LAW AND ON FACTS CONFIRMING DISALLOWANCE BY AO OF RS.19,48,142/- ADMINISTRATIVE EXPENSES U/S 14 A RWR 8D OF THE ACT. 7. LEVY OF INTEREST U/S 234A/B/C & D OF THE ACT IS NOT JUSTIFIED. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 3 - 3. GROUNDS OF APPEAL RAISED BY REVENUE ARE ALSO REP RODUCED HEREUNDER: (1) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DIRECTING THE AO TO CONSIDER THE TOTAL AREA OF LAND AT 3,91,261 S Q.MTRS AS AGAINST THE ACTUAL AREA OF 5,11,707 SQ.MTRS ADOPTED BY THE AO. (2) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN HOLDING THAT 1,20,446 [5.11,707 LESS 3,91,261] SQ.MTRS OF LAND H AS TO BE EXCLUDED FOR THE COMPUTATION OF PER SQ.MTR LAND COST EVEN WHILE HOLDING IN PARA 2.7.4 THAT ONLY 25,587 SQ.MTRS OF LAND HAS BEEN SURRENDER ED TO LOCAL AUTHORITIES FOR PUBLIC AMENITIES. (3) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS BY DIRECTING EXCLUSION OF 1,20,446 SQ.MTRS OF LAND IN COMPUTATIO N OF COST OF LAND, WHICH LEADS 10 INFLATION IN LAND COST LEADING TO LO WER PROFITS ON SALE EVEN WHILE ALL OTHER ASSOCIATED EXPENDITURE CONTINUE TO BE DEBITED AND CLAIMED. (4) THAT THE DIRECTIONS OF THE LD. C1T(A) IS CONTRA RY IN NATURE TO EXCLUDE 120,446 SQ.MTRS OF LAND EVEN WHILE DIRECTIN G THE AO TO ALLOW TOWNSHIP INFRA EXPENSES IN PARA 2.7.6 OF HIS ORDER. (5) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DIRECTING THE AO TO REDUCE THE ADDITION MADE ON ACCOUNT OF EXCESS CLAIM OF COST OF LAND FROM RS.107,27,79,584/- TO RS.86,11,74,085/-. (6) THAT THE. LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DIRECTING THE AO TO ADOPT THE LAND AREA AS 3,91,261 SQ.MTRS INSTE AD OF 5,11,707 SQ.MTS IN RESPECT OF OTHER EXPENSES [AUDA CHARGES, FCCD IN TEREST, TOWNSHIP INFRA EXPENSES] (7) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DIRECTING THE AO TO EXAMINE THE CLAIM OF ASSESSES THAT TOWNSHIP I NFRA EXPENDITURE WAS RS.60,00,00,000 INSTEAD OF RS.24,74,44,843/-. (8) THAT THE LD. C1T(A) HAS ERRED IN LAW AND ON FAC TS IN GIVING DIRECTIONS TO THE AO IN PARA 2.7.6(II) OF HIS ORDER FOR ALLOCATION OF CERTAIN FSI EXPENSES DESPITE GIVING A FINDING THAT THE BREA KUP OF SUCH EXPENDITURE WAS NOT PROVIDED IN APPELLATE PROCEEDINGS OR ASSESS MENT PROCEEDINGS. (9) THAT THE LD. C1T(A) HAS ERRED IN LAW AND ON FA CTS IN RESTRICTING TIN DISALLOWANCE MADE N/S 14AFROM RS.46,81,276/- TO RS. 19,48,142/-. 4. GROUND NOS. 1 TO 4 OF THE ASSESSEES APPEAL AND GROUND NOS. 1 TO 8 OF THE REVENUES APPEAL CONCERN CORRECTNESS OF CLAIM OF COST OF SALES AND CLOSING VALUE OF LAND OWING TO TRANSFER OF CO-DEVELOPMENT RIGHTS. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 4 - 5. AS NOTED FROM CASE RECORDS, THE ASSESSEE IS A PR IVATE LIMITED COMPANY, ENGAGED IN THE DEVELOPMENT OF TOWNSHIP KNO WN AS 'APPLEWOODS. THE RETURN OF INCOME FOR AY 2012-13 W AS FILED ON 30.09.2012 SHOWING LOSS OF RS.7,01,72,900/-. IT WA S NOTICED BY THE AO IN THE COURSE OF SCRUTINY PROCEEDINGS THAT THE A SSESSEE HAS PURCHASED 511707 SQ. MTR. OF LAND FOR THE PURPOSE O F DEVELOPMENT OF TOWNSHIP AND ALSO APPLIED FOR THE DEVELOPMENT OF SA ME UNDER REGULATION FOR RESIDENTIAL TOWNSHIP-2009. THE AUTHO RITY GRANTED PERMISSION VIDE THEIR LETTER DATED 28.05.2010. THE ASSESSEE HAD PREPARED THE CONSTRUCTION PLAN AS PER THE TERMS OF REGULATION FOR RESIDENTIAL TOWNSHIP 2009 WHICH WAS APPROVED BY THE AUTHORITY AND AS PER THE APPROVED PLAN WHICH HAD BEEN PREPARED IN TERMS OF TOWNSHIP REGULATIONS:- (A) THE ASSESSEE HAS PROVIDED FOR 120446 SQ. MTR. LAND FOR THE PURPOSE OF PARK, SCHOOL, HOSPITAL, CROSSOVER ROAD E TC.' AND ONLY BALANCE LAND AREA OF 391261 SQ. MTRS. IS AVAILABLE FOR COMMERCIAL EXPLOITATION. OUT OF THE AFORESAID LAND OF 120446 S Q MTR., 25,587.47 SQ MTR. HAS ALREADY BEEN SURRENDERED BY THE ASSESSEE T O LOCAL AUTHORITIES FOR PUBLIC PURPOSE AMENITIES LIKE SCHOOL, HOSPITAL AND PUBLIC AMENITIES AS PER CLAUSE 9.2 OF REGULATIONS FOR TOWNSHIP 2009 AND THE BALANCE LAND IS TO BE DEVELOPED AS CROSS OVER ROAD AND PUBL IC GARDEN. (B) ON THE AVAILABLE AREA OF LAND GLOBAL FSI OF 65 42064 SQ. FT IS GRANTED. ACCORDINGLY, THE ASSESSEE PLANNED AND DEVE LOPED IN THE WAY THAT ON SOME AREA HIGH-RISE BUILDINGS ARE ERECTED A ND ON SOME AREA HORIZONTAL DEVELOPMENT IS MADE AND THE SAME IS UNDE R PROCESS. IN THE PROCESS, DEVELOPER HAS TO ENSURE THAT TOTAL CONSTRU CTION ON THE ENTIRE PIECE OF LAND DOES NOT EXCEED PERMISSIBLE FSI I.E. 6542064 SQ. FT. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 5 - 5.1 DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE HAS SOLD 2698000 SQ. FT OF FSI FOR RS.250 CRORES TO CO-DEVEL OPER M/S GOYAL SAFAL DEVELOPER AS PER AGREEMENT EXECUTED ON 11.05. 2011, OUT OF GLOBAL FSI AVAILABLE OF 6542064 SQ. FT. AND THE LAN D OF 82200 SQ. MTR IN RELATION THERETO WAS DEMARCATED FOR CO-DEVELOPME NT BY GOYAL SAFAL DEVELOPER. 5.2 THE ASSESSEE WORKED OUT COST OF FSI SOLD AT RS. 253,27,75,176/-, WHICH COMPRISES OF THE FOLLOWING: (I) LAND COST RS. 175,58,59,666/- (II) AUDA CHARGES FOR CO-DEVELOPMENT SALE RS. 23,45,80,784/- (III) FCCD INTEREST FOR CO-DEVELOPMENT SALE RS. 29,48,89,883/- (IV) TOWNSHIP INFRA EXP. FOR CO-DEVELOPMENT SALE RS. 24,74,44,843/- ---------------------- RS.253,27,75,176/- THE ASSESSING OFFICER ASKED TO JUSTIFY THE COST OF SALES TO WHICH THE ASSESSEE VIDE LETTER DATED 11.03.201.5 SU BMITTED DETAILED REPLY IN RESPECT THEREOF. 5.2.1 REGARDING COST OF LAND OF RS.L75,58,59,666./- . IT WAS EXPLAINED THAT THE SAME IS WORKED OUT IN PROPORTION TO FSI SO LD I.E. 26,98,000 SQ. FT. TO TOTAL GLOBAL FSI AVAILABLE OF ENTIRE LAND, W HICH IS 65,42,064 SQ. FT., WHICH COMES TO 41.24% OF TOTAL FSI. THE COST O F ENTIRE FSI AVAILABLE ON LAND IS OF RS.425,75,78,322/- AND 41.2 4% THEREOF COMES TO RS. 175,58,59,666/-, WHICH IS THE COST OF THE FS I SOLD. THE ATTENTION IS INVITED TO CLAUSE 3 OF CO-DEVELOPMENT AGREEMENT WHICH CLEARLY MENTIONS THAT THE DEVELOPER I.E. AEPL WILL ENSURE A VAILABILITY OF ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 6 - 26,98,000 SQ FT OF FSI TO CO-DEVELOPERS. CLANS 10 ( B) OF THE CO- DEVELOPMENT AGREEMENT ALSO MENTIONS THAT IN CASE DE VELOPER COULD FOR ANY REASON MAKE LESSER FSI AVAILABLE TO CO-DEVE LOPER, THEN CONSIDERATION SHALL STAND REDUCED @ RS 927 PER SQ F T OF SUCH DEFICIENCY. 5.2.2 REGARDING AUDA CHARGES FOR CO-DEVELOPMENT SAL E OF RS.23,45,80,784/-, THE ASSESSEE EXPLAINED THAT THE SAID CHARGES IS ALLOCATED IN PROPORTION TO THE TOTAL FSI AVAILABLE TO FSI RELATING TO FSI SOLD ON A PARTICULAR LAND AREA. THE TOTAL AUDA CHAR GES INCURRED ARE OF RS.56,88,07,450/- AND 41.24% THEREOF COMES TO RS.23 ,45,80,784/-, WHICH PERTAINS TO FSI SOLD. 5.2.3 SIMILARLY, REGARDING THE FCCD INTEREST FOR CO -DEVELOPMENT SALE OF RS.29,48,89,883/-, THE ASSESSEE STATED THAT FCCD INTEREST PAID FOR ENTIRE LAND IS ALSO TAKEN IN PROPORTION TO THE FSI SOLD. THE TOTAL FCCD INTEREST HAS BEEN PAID ON ENTIRE FSI AVAILABLE ON L AND IS OF RS.71,50.43,918/- TILL THE DATE OF SALE OF FSI LO C O-DEVELOPERS AND 41.24% THEREOF IS ALLOCATED TOWARDS COST OF SALES I.E. RS.29,48,89,883/-. 5.2.4 REGARDING TOWNSHIP INFRA EXPENSES FOR CO-DEVE LOPMENT SALE OF RS.24,74,44,843/-, THE ASSESSEE EXPLAINED THAT THE ASSESSEE IS DEVELOPING APPLEWOODS TOWNSHIP ON THE LAND AREA OF 511707 SQ. MTR AND FOR THAT PURPOSE, ASSESSEE HAS INCURRED TOTAL E XPENSES OF RS.60 CRORES. IT WAS AGREED WITH THE PURCHASER NAMELY-GOY AL SAFAL DEVELOPERS THAT FOR FSI SOLD, THE NECESSARY TOWNSHI P INFRASTRUCTURE WILL BE CARRIED OUT BY APPLEWOODS ESTATE PVT LTD. T HIS IS ALSO MENTIONED IN CO-DEVELOPMENT AGREEMENT. ACCORDINGLY, THE EXPENDITURE OF RS.24,74,44.843/- HAS BEEN CLAIMED AS COST OF S ALES. THE ATTENTION IS INVITED TO CLAUSE 10( C ) OF THE CO- D EVELOPMENT ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 7 - AGREEMENT WHICH MENTIONS THAT SALE CONSIDERATION OF RS 250 CRORES INTER ALIA INCLUDES COST OF TOWNSHIP INFRASTRUCTURE . 5.2.5 THE ASSESSEE SUBMITTED BEFORE THE ASSESSING O FFICER THAT FROM THE ABOVE. IT IS ESTABLISHED BEYOND DOUBT THAT COS T OF SALES WORKED OUT IS DIRECTLY RELATED TO SALE OF CO-DEVELOPMENT R IGHT AMOUNTING TO RS.250 CRORES, AND THEREFORE, THE ASSESSEE REQUESTE D NOT TO MAKE ANY DISALLOWANCE OUT OF SAID EXPENDITURE. IT WAS FURTHE R EXPLAINED THAT TOTAL GLOBAL FSI AVAILABLE IS OF 65,42,064 SQ. FT O N TOTAL LAND OF 5,11,707 SQ, MTR. IN OTHER WORDS, THE TOTAL PERMIS SIBLE CONSTRUCTION ON THE ENTIRE LAND OF 5,11,707 SQ. MTR. IS LIMITED TO ONLY 65,42,064 SQ. FT. THE VALUE OF THE LAUD IS DERIVED FROM THE PERMISSIB LE CONSTRUCTIONS ONLY. IT MAY BE NOTED THAT THE VALUE OF LAND DIF FERS FROM ITS USES AND ALSO THE PERMISSIBILITY OF CONSTRUCTION E.G. THE VA LUE OF AGRICULTURAL LAND WOULD' BE DIFFERENT FROM THE VALUE OF NON-AGRI CULTURAL LAND, SO ALSO VALUE OF EQUAL AREA OF PLOT OPPOSITE TO EACH O THER FALLING UNDER DIFFERENT ONES LIKE RL AND R2 WOULD BE DIFFERENT BE CAUSE THE PERMISSIBLE CONSTRUCTION IN R2 ZONE IS HIGHER THAN THE PERMISSIBLE CONSTRUCTION AREA IN R2 ZONE, AND THEREFORE, THE VA LUE OF THE LAND FALLING IN RL ZONE WOULD ALWAYS BE HIGHER THAN THE VALUE OF THE LAND UNDER R2. THE ATTENTION IS INVITED TO CO-DEVELOPMEN T AGREEMENT WHERE IT HAS BEEN VERY CLEARLY MENTIONED THAT WE HAVE SOL D 26,98,000 SQ. FT OF FSI AS AGAINST THE TOTAL AVAILABLE FSI OF 65,42, 064 SQ. FT. THUS, ON THE BALANCE LAND, APPLEWOODS IS NOT ENTITLED TO CON STRUCT ANYTHING MORE THAN THE BALANCE FSI I.E. 65,42,064 SQ. FT LES S 26,98,000 SQ. FT. I.E. 38,44,064 SQ. FT. ONLY. THUS, THE VALUE OF B ALANCE LAND AVAILABLE TO APPLEWOODS ESTATE PVT. LTD. ACCORDINGLY GOES DOW N PROPORTIONATELY. IN VIEW OF THIS, THE WORKING OF CO ST OF LAND TAKEN IN PROPORTION TO FSI SOLD VIS-A-VIS TOTAL FSI AVAILABL E IS CORRECT. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 8 - 5.3 THE AFORESAID EXPLANATION SUBMITTED BY THE ASSE SSEE IN THE LETTER DATED 11.03.2015 WAS NOT FOUND TO BE ACCEPTABLE BY THE ASSESSING OFFICER FOR THE REASONS SLATED BY HIM IN THE ASSESS MENT ORDER, WHICH ARE AS UNDER: 'A) THE ASSESSES COMPANY IS ENGAGED IN THE BUSINES S OF DEVELOPMENT OF INTEGRATED TOWNSHIP COMPRISING OF COMMERCIAL & RESI DENTIAL DEVELOPMENT. B) THE ASSESSEE COMPANY PURCHASED THE LAND AND NO T ONLY FLOOR SPACE INDEX (FSI FOR SHORT). FSI COMES TO VIRTUE OF PURCH ASE OF LAND C) THE RULES GOVERNING FSI CHANGES FROM TIME TO T IME AND THEREFORE, THE FSI AVAILABLE ON A PARTICULAR AREA OF LAND MAY VARY FROM TIME SO TIME. THE PRESENT FSI FOR THE SAID AREA MAY BE D IFFERENT FROM WHAT IF WAS AT THE TIME OF EXECUTION OF CO-DEVELOPM ENT AGREEMENT. D) IT WAS SPECIFICALLY BEEN MENTIONED IN THE CO-DE VELOPMENT AGREEMENT THAT THE CO-DEVELOPER M/S. GOYAL SAFAL DE VELOPER, IS ENTITLED TO DEVELOP A PART OF THE LAND ADMEASURING 32,200 SQ. MTRS. WHICH HAS FURTHER SPECIFICALLY DESCRIBED IN THE SCH EDULE. 2 OF THE CO-DEVELOPMENT AGREEMENT AND HAS ALSO BEEN IDENTIFI ED VIDE CERTAIN SURVEY NUMBERS AND ALSO DEMARCATED IN THE M AP ANNEXED AT PAGE 7 OF THE CO-DEVELOPMENT AGREEMENT, WHICH APPAR ENTLY SHOWS THAT THE LAND DEEMED TO BE TRANSFERRED OR SOLD IS O NLY 82,200 SQ METERS AND NOT 2,11,027 SQ. ML. BEING 41.24% OF TOT AL LAND OF 5,11,707 SQ. MTRS. AVAILABLE WITH THE ASSESSEE COMP ANY. E) THE ONUS IS ON THE ASSESSEE COMPANY TO PROVE T HAT IT HAS SOLD LAND ADMEASURING 2,11,027 SQ. MTRS VALUED AT RS.175,58,5 9,666/- WHICH IT HAS REDUCED FROM THE OPENING WIP OF THE LAND WIT HOUT SELLING/TRANSFERRING THE SAME. F) THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL ON RECORD TO ESTABLISH THAT, IT HAS NO RIGHT ON THE LAND ADMEASURING 2,11, 027 SQ. MTRS., (MORE PARTICULARLY LAND ADMEASURING 128828 SQ. MT ( 211027 SQ. MT - 8200 SQ MT.), WHICH IT CLAIMED TO BE INTEGRAL PAR T OF FSL SOLD AND HAS REDUCED FROM STOCK OF LAND. NONE OF THE DOCUMEN T FURNISHED BY THE ASSESSEE COMPANY DURING THE COURSE OF HEARING H AS ESTABLISHED THE CONTENTION OF THE ASSESSEE COMPANY, THAT IF HAS TRANSFERRED OR DEEMED TO BE TRANSFERRED THE LAND ADMEASURING 2,11, 027 SQ. METERS IN RESPECT OF FSI SOLD. G) THE CONTENTION OF THE ASSESSEE COMPANY THAT SI NCE IT HAS SOLD FSI OF 2698000 SQ. FT AND HENCE THE COMPANY IS ENTITLED TO REDUCE THE COST OF LAND IN PROPORTION TO TOTAL FSI AVAILABLE AND SO LD TO THE CO- DEVELOPER, IS WITHOUT ANY BASIS.' IN VIEW OF THE ABOVE, THE ASSESSING OFFICER VIDE HI S LETTER DATED 23.03.2015 ASKED THE ASSESSEE TO FURNISH FURTHER DE TAILS MENTIONED IN ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 9 - THE SAID LETTER. IN RESPONSE TO THE SAME, THE ASSES SEE VIDE LETTER DATED 25.03.2015 SUBMITTED THE DETAILS SOUGHT FOR BY THE ASSESSING OFFICER. 5.3.1 IN THE SAID LETTER, THE ASSESSEE EXPLAINED TH AT THE INFORMATION ASKED FOR F.Y. 2012-13 AND 2013-14 IS NOT RELEVANT TO THE ON-GOING ASSESSMENT PROCEEDINGS. THE ASSESSEE FURTHER EXPLAI NED THAT THE NATURE OF THE TRANSACTION FOR THE FINANCIAL YEAR 2011-12 I S NOT COMPARABLE WITH THE TRANSACTIONS CARRIED OUT DURING THE FINANC IAL YEARS 2012-13 AND 2013-14. DURING THE FINANCIAL YEAR 2011-12, THE ASSESSEE HAS SOLD 26,98,000 SQ. FT OF FSI, IN TERMS OF CO-DEVELOPMENT AGREEMENT OUT OF TOTAL AVAILABLE FSI OF 65,42,064 SQ. FT. THIS WAS T HE ONLY TRANSACTION WITH REGARD TO SALE OF FSI BY THE ASSESSEE. THE ASS ESSEE CONTINUES TO THE OWNER OF THE LAND IN TERMS OF CO-DEVELOPMENT AG REEMENT AS WELL AS IN LAND REVENUE RECORD. AFTER PURCHASE OF FSI, M/S. GOYAL SAFAL DEVELOPER WILL CO-DEVELOP THE DEMARCATED AREA BY CO NSTRUCTING RESIDENTIAL APARTMENTS AT ITS OWN COST AND SELLING TO FINAL CUSTOMERS. M/S. GOYAL SAFAL DEVELOPERS WILL RECEIVE THE AGREED CONSIDERATION FROM THE CUSTOMERS. THE ASSESSEE WILL NOT RECEIVE A NY FURTHER CONSIDERATION FROM THESE CUSTOMERS HOWEVER IT WILL JOIN AS AN OWNER TO SALE DEED IN TERMS OF CO-DEVELOPMENT AGREEMENT. AFTER SALE OF FSI TO GOYAL SAFAL DEVELOPERS, THE CO MPANY IS LEFT OUT WITH REDUCED FSI ON REMAINING LAND. THE COMPANY HAS TO CONSTRUCT THE VILLAS, RESIDENTIAL APARTMENTS, AFFORDABLE HOUS ING FOR ECONOMICALLY WEAKER SECTION, COMMERCIAL OFFICES AND SHOPS AS PER THE APPROVED MASTER PLAN BY AUDA, THE COMPANY IS ALSO REQUIRED T O LEAVE SPACE FOR PUBLIC GARDEN, PUBLIC ROAD, SCHOOL AND HOSPITAL S ETC AS PER TOWNSHIP REGULATIONS 2009. DURING THE FINANCIAL YEA RS 2012-13 UND 2013-14, THE COMPANY HAS SOLD THE CONSTRUCTED PROPE RTY ALONG WITH LAND DIRECTLY TO ITS CUSTOMERS. CUSTOMERS ARE TRANS FERRED THE BUILT PROPERTY ALONG WITH PROPORTIONATE UNDIVIDED SHARE I N THE LAND I.E. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 10 - VILLAS, RESIDENTIAL APARTMENTS, COMMERCIAL SHOPS AN D OFFICES. FROM THE TOTAL COST OF LAND, CONSTRUCTION AND OTHER WIP THE COMPANY HAS REDUCED THE COST ATTRIBUTABLE TO SALE OF FSI AND ON LY REDUCED COST HAS BEEN ALLOCATED TOWARDS SALE OF PROPERTIES DURING SU BSEQUENT YEARS. THUS, THE NATURE OF TRANSACTIONS IN SUBSEQUENT YEAR S ARE TOTALLY DIFFERENT FROM THE TRANSACTION CARRIED OUT DURING T HE FINANCIAL YEAR 2011-12. HOWEVER, WITHOUT PREJUDICE, THE DETAILS OF SALE AS CALLED FOR THE FINANCIAL YEARS 2012-13 AND 2013-14 WERE GIVEN IN THE STATEMENT ENCLOSED ALONG WITH COPIES OF SALE DEEDS. THE DETAI LS FOR F.Y. 2012-13 IS AS UNDER: PARTICU LARS LAND AREA (IN SQ. MT) AMOUNT LAN D AREA (IN SQ MT) AMOUN T LAND AREA (IN SQ. MT) AMOUNT LAND AREA (IN SQ. MT) AMONT COST OF LAND 309061 2501718656 4271 3320200 0 30479 0 246851 6656 CONST. WIP 1285816731 11313 70056 3390818 9 238327 8598 COST OF MATERIA L 29213003 4525542 28 409547 78 3816748389 489275 0031 5.3.2 IN RESPONSE TO SHOW CAUSE BY THE ASSESSING OF FICER AS TO WHY THE CLAIM OF REDUCTION OF VALUE OF STOCK OF LAND IN EXC ESS OF PROPORTIONATE VALUE OF LAND ADMEASURING 82,200 SQ. METERS SHOULD NOT BE DISALLOWED, THE ASSESSEE SUBMITTED THAT M/S. GOYAL SAFAL DEVELO PERS HAVE BEEN GIVEN LIGHT TO CO-DEVELOP BY TO INFER THAT THE LAND ADMEASURING 82,200 SQ. MTRS., DEMARCATED FOR THE PURPOSE OF UTILIZATIO N OF FSI BY CO- DEVELOPER HAD BEEN SOLD TO M/S. GOYAL SAFAL DEVELOP ERS. IT WILL BE APPRECIATED THAT IN TERMS OF MATCHING CONCEPT ALL T HE RELATED COST FOR EARNING THE REVENUE HAS TO BE CONSIDERED TO DETERMI NE THE PROFIT / LOSS FROM ANY TRANSACTION. THUS THE ASSESSEE HAS PROPERL Y CLAIMED PROPORTIONATE COST OF FSI FROM SALE CONSIDERATION. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 11 - 5.3.3 IT WAS FURTHER SUBMITTED THAT THE AGREEMENT W ITH M/S. GOYAL SAFAL DEVELOPER IS FOR CO-DEVELOPMENT AND ACCORDING LY STAMP DUTY APPLICABLE FOR CO-DEVELOPMENT @ 1% HAS BEEN PAID AN D ACCEPTED BY STAMP-AUTHORITIES WHEREAS IN CASE OF SALE OF LAND S TAMP DUTY @ 4.9% IS TO BE PAID. THE OBSERVATION OF THE ASSESSING OFF ICER REGARDING ALLOWING PROPORTIONATE COST TO THE AREA OF LAND UND ER CO-DEVELOPMENT IS NOT CORRECT. IT WAS ALSO POINTED OUT THAT THE P REVAILING JANTRI VALUE OF THE LAND (VALUE ADOPTED BY STAMP AUTHORITIES) IS RS.2750 PER SQ MTRS. ONLY. THIS ITSELF PROVES THAT THE SALE CONSID ERATION HAS BEEN RECEIVED ON THE BASIS OF FSI ONLY. THE CO-DEVELOPER , OTHERWISE, WOULD HAVE BEEN ELIGIBLE TO DEVELOP 10,50,753 SQ. FT. OF FSI ONLY ON 82.200 SQ. MTR. OF LAND WHEREAS THE COMPANY HAS PERMITTED 26,98,000 SQ. FT. OF FSI. THUS THE CONSIDERATION PAID BY THE CO-DEVEL OPER IS TOWARDS UTILIZATION OF FSI ONLY AND CONSEQUENTLY COST IN RE LATION THERETO IS TO BE WORKED OUT IN PROPORTION TO FSI AND NOT WITH REF ERENCE TO AREA OF LAND. 5.4 AFTER THE ABOVE REFERRED SUBMISSION, THE ASSES SING OFFICER VIDE LETTER DATED 26.03.2015 FINALLY SHOW CAUSED AS TO W HY THE CLAIM OF REDUCTION OF STOCK AS WELL US VALUE OF LAND AT THE RATE OF 41.24% OF TOTAL LAND VALUE WITHOUT SELLING, AND ALLOCATING TO CO-DEVELOPER BE NOT DISALLOWED. IN RESPONSE TO THE SAID NOTICE, THE ASS ESSEE VIDE LETTER DATED 27.03.2015 SUBMITTED DETAILED EXPLANATION. 5.4.1 THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS PURCHASED 511707 SQ. MTRS. OF LAND AND AS PER THE TOWNSHIP POLICY, T HE COPY OF WHICH HAS BEEN FURNISHED TO THE ASSESSING OFFICER VIDE OU R LETTER DATED 20.03.2015, THE ASSESSEE IS REQUIRED TO RESERVE ARE AS FOR SCHOOLS, HOSPITALS, PUBLIC GARDEN, PUBLIC ROAD ETC. IN TERMS OF THE GUIDELINE THE COMPANY, HAS DEDUCTED 120446 SQ. MTR. OF KIND FOR T HE SAID PURPOSES. ON THE BALANCE LAND OF 391261 SQ. MTR. AVAILABLE FO R COMMERCIAL ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 12 - DEVELOPMENT FSI OF 6542064 WAS APPROVED BY AUDA. TH E COMPANY VIDE ITS AGREEMENT DATED 11.05.2011 HAS SOLD 269800 0 SQ. FT. OF FSI TO GOYAL SAFAL DEVELOPER DURING THE F.Y. 2011-12. AT T HE COST OF REPETITION THE ASSESSEE IS ONCE AGAIN REITERATING T HAT THE VALUE OF THE LAND IS DERIVED FROM THE PERMISSIBLE CONSTRUCTION O NLY. THOUGH THE INFORMATION FOR THE F.Y. 2012-13 AND 2013-14 IS NOT RELEVANT LO THE ON-GOING ASSESSMENT, HOWEVER, AS DESIRED BY THE ASS ESSING OFFICER AND WITHOUT PREJUDICE, IT WAS SUBMITTED THAT THE OP ENING LAND AND FSI AVAILABLE AS ON 01.04.2012 IS 309061 SQ. MTR AND 38 44064 SQ. FT OF FSI RESPECTIVELY. THE QUANTITATIVE RECONCILIATION WAS A LSO GIVEN AS HEREUNDER: PARTICULARS LAND IN SQ.MTR FSI IN SQ. FT. BALANCE AS ON 01.04.2011 511707 6542064 LESS: AREA FOR CROSS OVER INFRASTRUCTURE, ROA DS/SCHOOL, HOSPITAL, PUBLIC AMENITIES AND PUBLIC GARDEN AS PER TOWNSHIP REGULATIONS. 120446 -- AREA AVAILABLE FOR COMMERCIAL EXPLOITATION 391261 6542064 LESS :AREA TRANSFERRED TO CO- DEVELOPER 82200 2698000 BALANCE AS ON 31.03.2012 309061 3844064 AREA OF VILLA SOLD DURING F.Y.2012- 13 4271 28370 BALANCE AS ON 31.03.2013 304790 3815694 AREA OF VILLA SOLD DURING F.Y.20 13- 14 366 2976 BALANCE AS ON 31.03.2013 304424 3812718 FURTHER, ASSESSEE EXPLAINED THAT THE VALUE OF STOCK OF LAND OF RS.250.17 CRORES AS ON 31.03.2012 IS WORKED OUT AS UNDER: ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 13 - VALUE OF OPENING STOCK OF FS1 AS ON 01.04.201 RS.425.76 CRORES LESS: COST OF FSI SOLD RS.175.59 CRORES CLOSING STOCK OF FSI AS ON 31.03.2012 RS.250.17 CRO RES THUS, FROM THE ABOVE IT WILL BE APPRECIATED THAT TH E VALUE OF CLOSING STOCK IS CORRECTLY WORKED OUT BY THE COMPANY ON MAT CHING CONCEPT IN ACCORDANCE WITH THE ACCOUNTING POLICY REGULARLY EMP LOYED, AND THEREFORE, IT IS IN COMPLIANCE WITH SEC.145(3) OF T HE I.T. ACT, 1961. 5.4.2 THE ASSESSEE EXPLAINED THAT THE AREA AND VALU E OF LAND AS OPENING STOCK FOR F.Y. 2012-13, RELEVANT TO ASST. Y EAR 2013-14, HAS BEEN ARRIVED AT AFTER DEDUCTING THE AREA OF FSI SOL D DURING F.Y. 2011- 12, AND THEREFORE, THE QUESTION OF DISALLOWANCE OF CLAIM OF REDUCTION OF STOCK AS WELL AS VALUE OF LAND DOES NOT ARISE. 5.5 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS REDUCED AREA OF 120446 SQ. MTRS. FROM STOCK OF LAND BEING AREA FOR CROSSOVER ROAD, SCHOOL, HOSPITAL, PU BLIC GARDEN, PUBLIC ROAD ETC. AND ACCORDING TO HIM, THIS IS AN AFTERTHO UGHT STORY WHERE, IN FACT FROM THE BEGINNING OF THE ASSESSMENT PROCEEDIN GS, THE ASSESSEE SUBMITTED THAT AS PER THE TOWNSHIP REGULATION, CERT AIN LAND IS TO BE RESERVED OUT OF TOTAL AREA AND THIS CANNOT BE AFTER THOUGHT STORY. THE CHART OF STOCK OF LAND WAS SUBMITTED FOR BETTER UND ERSTANDING OF PHYSICAL AREA OF LAND AVAILABLE YEAR WISE AND IN SU CH PROJECT LAND WHICH IS RESERVED FOR THE PARTICULAR PURPOSES, THE COST OF WHICH HAS TO BE LOADED ON THE BALANCE LAND AVAILABLE FOR EXPLOIT ATION. 5.6 THE ASSESSING OFFICER HAS FURTHER OBSERVED AS UNDER: '* FURTHER, IN THE SAID TABLE, THE ASSESSEE COMPA NY IS REDUCING THE LAND ADMEASURING 82,200 SQ. ML. UNDER NOMENCLATURE 'AREA TRANSFERRED TO CO-DEVELOPER', WHICH SHOWS THAT THE AREA OF LAND TRANSFERRED TO CO-DEVELOPER IS ONLY 82,200 SQ. MTR. THEREFORE, IT CANNOT REDUCE THE COST OF LAND @ 41.24% OF THE TOTA L LAND. MORE INTERESTINGLY, AS CAN BE SEEN FROM THE TABLE OF THE ASSESSEE'S ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 14 - SUBMISSION THAT, IN THE SUBSEQUENT PERIODS I.E. F.Y .2012-13 AND 2013-14, THE ASSESSEE COMPANY HAS STATED TO HAVE SO LD AREA OF VILLA. * THE ASSESSEE'S SUBMISSION DTD.27.03.2015 WHEREIN IT HAS REDUCED LAND ADMEASURING 120446 SQ. MT IN AN ATTEMPT TO REC ONCILE THE APPARENT INCONSISTENCIES IN VALUATION OF CLOSING ST OCK OF LAND, IS ALSO CONTRADICTORY 10 ITS EARLIER STAND WHEREIN THE ASSESSEE COMPANY HAS CLAIMED TOTAL COST OF LAND ADMEASURING 211027.96 SQ. MTR. AGAINST SALE OF FSI WHEREIN THE LAND COMPONENT TRANSFERRED WAS ONLY 82200 SQ. MT. IN THIS BACKDROP, THE ASSESS EE'S SUBMISSION IS AGAIN FOUND CONTRADICTORY AND LOPSIDED. BY AVER AGING THE COST OF FSI AND LAND AND BY WAY OF INACCURATE-REPRESENTA TION OF FACT, THE ASSESSEE COMPANY HAS TRIED TO DEFER THE REVENUE . NEITHER THE VALUATION OF FSI NOR OF LAND HAS BEEN FOUND CORRECT AND CONSISTENT TO THE ACCOUNTING METHOD FOLLOWED BY IT. THIS ISSUE HAS DISCUSSED IN DETAIL UNDER HEAD 'REBUTTAL OF ASSESSEE COMPANY'S C ONTENTION'. 5.7 THE ASSESSING OFFICER ALSO ISSUED NOTICE U/S. 133(6) TO CO- DEVELOPER VIZ. GOYAL SAFAL DEVELOPER AND THE CO-DEV ELOPER HAS ALSO CONFIRMED THAT AS PER THE AGREEMENT DATED 11.05.201 1 THEY HAVE BEEN ALLOWED TO DEVELOP AND CONSTRUCT RESIDENTIAL BUILDI NG, APARTMENT ETC. BY UTILIZING MAXIMUM FSI OF 2698000 SQ. FT. IN COMP LIANCE OF REGULATORY PROVISION ON THE PART OF LAND ADMEASURIN G 82,200 SQ.MTRS. THIS HAS BEEN INTERPRETED BY THE ASSESSING OFFICER OTHERWISE STATING THAT ASSESSEE HAS CLAIMED TO HAVE SOLD FSI OF 26980 00 WOULD BE UTILIZED AT A GIVEN PLOT OF LAND ADMEASURING 82.200 SQ. MTR AND IN VIEW OF THIS ALSO, THE ASSESSEE'S CONTENTION THAT IT HAS SOLD/TRANSFERRED 41.24% OF TOTAL LAND IS MISGUIDING AND NOT FOUND CO RRECT, AND ACCORDINGLY, ALSO CLAIM OF THE ASSESSEE OF COST OF SALE OF LAND AMOUNTING TO RS. 175.58 CRORES IS NOT FOUND ALLOWAB LE. 5.8 SIMILARLY, THE AO HAS RESTRICTED THE CLAIM OF O THER EXPENSES AT 16.06% WHICH HAS RESULTED IN FOLLOWING DISALLOWANCE S; AUDA CHARGES RS.14,32,30,308/- FCCD INTEREST FOR CO-DEVELOPMENT SALE RS.18,0 0,53,830/- TOWNSHIP INFRA EXP FOR CO-DEVELOPMENT SALE RS.20, 77,05,201/- -------------------- RS.53,09,89,339/- ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 15 - 5.9 WHILE CALCULATING EXCESS CLAIM OF EXPENSES, THE ASSESSING OFFICER HAS TAKEN TOWNSHIP INFRA EXPENSES FOR CO-DE VELOPMENT SALE AS RS.24,74,44,843/- AND THE TOTAL EXPENSES INCURRED I S MENTIONED AT RS.24,74,44,843/-. THE ASSESSEE VIDE LETTER DATED 1 3.03.2015 AND 20.03.2015 SUBMITTED THAT THE TOTAL EXPENDITURE UND ER THIS HEAD- INCURRED IS OF RS.60 CRORES AND 41.24% COMES TO RS. 24,74,44,843/-. THE ASSESSING OFFICER HAS ALLOWED 16.06%. AND THERE FORE, ALLOWABLE EXPENSES COMES TO RS.9,63,60,000/-; WHEREAS ALLOWAB LE EXPENDITURE WORKED OUT BY THE ASSESSING OFFICER IS 3,97,39,642/ -, WHICH IS 16.06% OF RS.24,74,44,843/-. THUS, THE ASSESSING OFFICER H AS MADE EXCESS DISALLOWANCE OUT OF SUCH EXPENDITURE BY RS.5,66,20, 358/- (RS,9,63,60,000/- -RS.3,97,39,642/-). 6. THE AO THUS ESSENTIALLY CHALLENGED THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AND HELD THAT REDUCTION OF THE LAND COST IN PROPORTION TO THE FSI IS NOT TENABLE BECAUSE THE CH ANGE IN THE RULES OF FSI WOULD NEVER ALTER THE COST OF THE LAND IN THE BOOKS OF THE ASSESSEE COMPANY TO REDUCE THE COST OF LAND WITHOUT SELLING THE SAME AND SUCH METHOD IS NOT IN TUNE WITH THE PROVISIONS OF THE AC T. THE BOOKS OF THE ASSESSEE COMPANY DO NOT REFLECT THE VALUE OF THE FS I TO SHOW THE VALUE OF LAND. THE VALUE OF LAND HAS BEEN ARRIVED AT BY INCLUDING COST OF PURCHASE OF LAND PLUS COST OF DEVELOPMENT INCURRED AND NOT BY THE VALUE OF FSI. THE CLAIM OF ASSESSEE COMPANY TOWARD S REDUCED VALUE OF LAND COST HELD AS CLOSING STOCK WAS NOT FOUND JU STIFIED. THE AO ACCORDINGLY RE-VALUED THE CLOSING VALUE OF LAND IN PROPORTION TO 16.06% OF AREA OF LAND PARTED ALONGWITH TRANSFER OF CO-DEVELOPMENT RIGHT. THE VALUE OF CLOSING STOCK OF LAND WAS THUS FOUND TO BE UNDERVALUED BY RS.1,07,17,79,584/- WHEN REWORKED HA VING REGARD TO PROPORTION TO AREA TRANSFERRED AS AGAINST PROPORTIO N OF FSI TRANSFER. THE AO ACCORDINGLY ADDED THE SAME OF RS. 1,07,17,79 ,584/- TO THE TOTAL INCOME OF THE ASSESSEE ON THIS SCORE. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 16 - 7. AS NOTED ABOVE, THE ASSESSEE SIMILARLY ALLOCATED THE AUDA CHARGES @ 41.24% IN PROPORTION OF FSI CLAIMED TO H AVE SOLD. LIKEWISE, THE FCCD INTEREST SALE WAS FOUND TO BE ALLOCATED TOWARDS COST OF SALE @ 41.24% IN PROPORTION TO AREA OF FS I CLAIMED TO HAVE BEEN SOLD. THE TOWNSHIP INFRA EXPENSES WAS ALSO FOUND TO BE SIMILARLY AGGREGATED TO COST OF SALE @ 41.24% APP LYING THE PROPORTION OF FSI TO SUCH COSTS. THE AO HELD THAT THE ASSESSEE COMPANY IS ENTITLED TO CLAIM SUCH EXPENSES TOWARDS COST OF SALES @ 16.06% INSTEAD OF 41.24% WHICH HAS BEEN WRONGLY CLA IMED. ACCORDINGLY, THE CLAIM IN EXCESS OF 16.06% ON ACCOU NT OF OTHER EXPENSES WAS FOUND TO BE NOT PERMISSIBLE. 7.1 THE AO RE-COMPUTED THE COST OF SALES AND OTHE R INCIDENTAL EXPENSES ON THE BASIS OF GEOGRAPHICAL AREA. THE WO RKING OF CLOSING WIP OF THE ASSESSEE AS PER ITS BOOKS IS REPRODUCED HEREUNDER FOR READY REFERENCE: PARTICULARS AMT RS AMT RS OPENING WIP LAND 4257578322 CONSTRUCTION 1257290289 5514868611 ADD: CONSTRUCTION EXPENSES DURING THE YEAR 834654955 (AS PER SCHEDULE 18) LESS: COST OF SATES LAND 1755859666 AUDA CHARGES FOR CO DEVELOPMENT SALE 234580784 FCCD INTEREST FOR CO DEVELOPMENT SALE 294889883 TOWNSHIP INFRA EXPENSES FOR CO DEVELOPMENT SALE 247444843 2532775176 CLOSING WP LAND 2501718656 CONSTRUCTION 1315029734 3816748390 AMOUNT AS PER BALANCE SHEET SCHEDULE 12 3816748389 ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 17 - 7.2 THE AGGREGATE AMOUNT OF RS.53,09,89,339/- ADDED TO THE COST OF SALE IN EXCESS OF 16.06% WAS THUS FOUND NOT ALLOWA BLE. THE AO ACCORDINGLY ADDED THE SAME ALSO TO THE TOTAL INCOME OF THE ASSESSEE. 8. AGGRIEVED BY THE REDUCTION OF COST OF SALES OF LAND AND CONSEQUENT INCREASE IN THE CLOSING VALUE OF LAND IN PROPORTION OF GEOGRAPHICAL AREA SHARED RESULTING IN ADDITIONS OF RS.1,07,17,79,584/- AS WELL AS REDUCTION OF ALLOCATION OF EXPENSES TOWA RDS AUDA CHARGES, FCD INTEREST EXPENSES AND TOWNSHIP INFRA EXPENSES F OR CO- DEVELOPMENT SALE AMOUNTING TO RS.53,09,89,339/-, TH E ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 8.1 THE CIT(A) RE-VISITED THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD AND REDUCED THE ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK COMPUTED BY AO AT RS.1,0 7,17,79,584/- TO RS.86,11,74,085/-. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER: 2.7 I HAVE GONE THROUGH THE FACTS AND SUBMISSIONS O F THE APPELLANT CAREFULLY. THE BRIEF FACTS OF THE CASE ARE THAT APP ELLANT IS OWNER OF LAND OF 5,11,707 SQ. MTRS., WHICH IS SITUATED IN TH E VILLAGE SARKHEJ SANATHAL AND FALLS WITHIN THE LIMITS OF AHMEDABAD U RBAN DEVELOPMENT AUTHORITY (AUDA). DURING THE YEAR UNDER CONSIDERATION, APPELLANT HAS SHOWN REVENUE FROM OPE RATION FOR RS.250 CRORES UNDER THE HEAD 'CO-DEVELOPMENT RIGHTS ' IN SCHEDULE - 16 OF PROFIT & LOSS ACCOUNT. DURING THE COURSE OF A SSESSMENT PROCEEDINGS APPELLANT HAS SUBMITTED CO-DEVELOPMENT AGREEMENT DATED 11TH MAY, 2011 EXECUTED WITH GOYAL-SAFAL DEVE LOPERS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, APPELLANT HAS SUBMITTED WORKING OF DOSING WIP AS UNDER:- PARTICULARS AMT RS AMT RS OPENING WIP:- LAND 4257578322 CONSTRUCTION 1257290289 5514868611 ADD: CONSTRUCTION EXPENSES DURING THE YEAR 834654955 (AS PER SCHEDULE 18) ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 18 - LESS: COST OF SALES LAND 1755859666 AUDA CHARGES FOR CO- DEVELOPMENT SALE 234580784 FCCD INTEREST FOR CO- DEVELOPMENT SALE 294889883 TOWNSHIP INFRA EXPENSES FOR CO-DEVELOPMENT SALE 247444843 2532775176 CLOSING WIP LAND 2501718656 CONSTRUCTION 1315029734 3816748390 AMOUNT AS PER BALANCE SHEET SCHEDULE 12 3816748389 AS CAN BE SEEN FROM THE TABLE ABOVE, AS SUBMITTED B Y THE ASSESSEE COMPANY, THE ASSESSEE COMPANY HAS SHOWN OPENING VAL UE OF LAND TO THE TUNE OF RS.425.75 CRORES AND COST OF CONSTRUCTI ON OF RS.125.72 CRORES TOTALING TO RS.551.48 CRORES. FURTHER, THE A SSESSEE HAS CLAIMED CONSTRUCTION EXPENSES OF RS.83.46 CRORES. A S PER THE P&L ACCOUNT, AS AGAINST THE REVENUE OF RS.250 CRORES, T HE ASSESSEE COMPANY HAS CLAIMED COST OF SALE OF LAND AMOUNTING TO RS.175.58 CRORES, AUDA CHARGES FOR CO-DEVELOPMENT SALE RS.23. 45 CRORES, FCCD INTEREST FOR CO-DEVELOPMENT SALE RS.29.48 CROR ES AND FURTHER TOWNSHIP INFRA EXPENSES FOR CO-DEVELOPMENT SALE RS. 24.74 CRORES. AFTER DEDUCTING OF THE SAID EXPENSES ON ACCOUNT OF COST OF SALES, THE CLOSING WIP OF LAND HAS BEEN REDUCED TO RS.250,17 C RORES AND CONSTRUCTION COST OF RS.131.50 CRORES. THUS, THE CL OSING WIP COMES TOTALING TO RS.381.67 CRORES. 2.7.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WEL L AS APPELLATE PROCEEDINGS, APPELLANT HAS CLAIMED THAT T OTAL GLOBAL FSI AVAILABLE ON ABOVE LAND IS 65,42,075 SQ. FT., OUT O F WHICH IT HAS SOLD FSI OF 26,98,000 SQ. FT. (LAND OF 82,200 SQ. MTR) T O GOYAL-SAFAL DEVELOPERS BY AGREEMENT REFERRED SUPRA. AS FSI SOLD TO SAID COMPANY REPRESENTS 41.24% OF TOTAL FSI AVAILABLE WI TH APPELLANT (26,98,000 / 65,42,075), PROPORTIONATE LAND COST AN D OTHER EXPENDITURE WERE CLAIMED IN PROFIT & LOSS ACCOUNT. IT CAN BE SEEN FROM ABOVE CHART THAT TOTAL LAND COST WAS 425.76 CR ORES AS ON 1 ST APRIL, 2011 AND LAND COST TRANSFERRED TO PROFIT & L OSS ACCOUNT IS RS. 175.58 CRORES WHICH IS 41.24% OF TOTAL FSI SOLD BY APPELLANT. THE APPELLANT HAS SIMILARLY CLAIMED INTEREST EXPENSES, AUDA CHARGES AND TOWNSHIP INFRA EXPENSES IN PROFIT & LOSS ACCOUN T. 2.7.2 WHILE PASSING THE ASSESSMENT ORDER, THE AO HA S REFERRED TO CO- DEVELOPMENT AGREEMENT ENTERED WITH GOYAL-SAFAT DEVE LOPER, WHEREIN IT IS STATED THAT LAND ADMEASURING 82,200 SQ. MTR., IS SOLD TO SAID ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 19 - PARTY- THE AO HAS REFERRED TO VARIOUS CLAUSES OF TH E AGREEMENT INCLUDING CLAUSE NO. 6, 8, 9, 10, 26 AND 51 AND CON TENDED THAT ASSESSES COMPANY, THOUGH, HAS CLAIMED TO HAVE SOLD FSI OF 26,98,000 SQ. FT., IT IS SPECIFICALLY STATED THAT CO-DEVELOPM ENT LAND TO UTILIZE SUCH FSI IS 82,200 SQ. MTR., OF LAND HENCE APPELLAN T IS NOT JUSTIFIED IN CLAIMING EXPENDITURE IN PROPORTION TO FSI SOLD T O GLOBAL FST AVAILABLE WITH IT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, APPELL ANT HAS ALSO CLAIMED THAT OUT OF TOTAL LAND OF 5,11,707 SQ. MTR., LAND OF 1,20,446 SQ. MTR., IS FOR AREAS FOR SCHOOLS, HOSPIT AL, PUBLIC GARDEN, ETC. THE AO HAS ALSO ASKED APPELLANT TO SUBMIT THE VALUATION OF CLOSING STOCK FOR SUBSEQUENT ASSESSMENT YEAR, WHERE IN APPELLANT HAS SHOWN COST OF LAND AT RS.250-17 CRORES WHICH IS SIM ILAR TO VALUE SHOWN IN CLOSING WIP AS ON 31ST MARCH, 2012 AND SAI D CHART IS ALREADY REPRODUCED HEREIN ABOVE. THE APPELLANT HAS ALSO STATED THAT TOTAL AVAILABLE LAND AS ON 1SL APRIL, 2013 IS 3.09, 061 SQ. MTR. (5,11707 - 1,20446 BEING COMMON AREA FOR DEVELOPMEN T - 82,200 BEING LAND SOLD TO CO-DEVELOPER). IN SUBSEQUENT ASSESSMENT YEAR APPELLANT HAS VALUED CLOSING STOCK AS WELL AS AMOUN T TO BE CHARGED IN PROFIT & LOSS ACCOUNT IN RATIO OF AREA OF LAND S OLD IN PROPORTION TO BALANCE AREA OF LAND AS ON 1ST APRIL, 2013 AND S UCH RATIO IS DIFFERENT IN COMPARISON WITH CURRENT ASSESSMENT YEA R WHEREIN EXPENDITURE IS CLAIMED IN P&L ACCOUNT BASED ON FSI SOLD. AS APPELLANT HAS VALUED CLOSING STOCK ON DIFFERENT BAS IS, AO HAS HELD THAT CLOSING STOCK IS REQUIRED TO BE VALUED BASED U PON AREA OF LAND REMAINING WITH ASSESSEE AND NOT BASED UPON AVAILABL E FSI, THE AO HAS ALSO REJECTED APPELLANT'S CLAIM FOR AREA OF LAN D BEING 1,20,446 SQ. MTR., REQUIRED FOR CROSS-OVER INFRASTRUCTURE, R OADS, SCHOOLS, ETC. ON THIS BASIS, HE HAS VALUED THE CLOSING STOCK OF L AND AS UNDER- TRADING ACCOUNT OF LAND AS A PART OF INVENTORY PARTICULARS SQ. MTRS. VALUE (RS.) COST WORKED OUT PER SQ. MTR. OPENING STOCK OF LAND (A) 511707 4257578322 8320 PURCHASE OF LAND(B) 0 0 0 CO- DEVELOPMENT LAND ALLOCATED TO SALE OF CO- DEVELOPMENT RIGHT (FSI) AS PER AGREEMENT (C) 82200 1755859666 N.A. THE CLOSING STOCK OF LAND (SHOULD BE VALUED AT ORIGINAL COST RS. 8320/- PER SQ. MTR. AS PER THE METHOD REGULARLY EMPLOY ED BY THE ASSESSES OR AS PER CONSISTENT ACCOUNTING POLICY AND AS-2)(D) 429507 3573498240 8320 CLOSING STOCK OF LAND AS VALUED BY THE ASSESSES IN VALUATION OF CLOSING STOCK AS PER BOOKS 429507 2501718656 5825 ADDITION IN CLOSING STOCK 107,17,79,584 ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 20 - ON THIS BASIS AO HAS MADE ADDITION OF RS.107,17,79, 584/- WHILE COMPUTING TOTAL INCOME. THE AO HAS A/SO MADE SEPARA TE ADDITION OF RS.53,09,89,339/- WITH RESPECT TO ALLOCATION OF AUD A CHARGES, FCCD INTEREST AND TOWNSHIP INFRA EXPENSES, AS UNDER: SR. NO. NATURE OF EXPENSES TOTAL EXPENSES EXPENSES CLAIMED BY THE ASSESSEE 41.24% ALLOWABLE EXPENSES 16.06% EXCESS EXPENSES CLAIMED BY THE ASSESSEE 1 AUDA CHARGES FOR CO- DEVELOPMENT SALE 568807450 234580784 91350476 143230308 2 FCCD INTEREST FOR CO- DEVELOPMENT SALE 715043918 294889883 114836053 180053830 3 TOWNSHIP INFRA EXPENSES FOR CO-DEVELOPMENT SATE 247444843 247444843 (CLAIMED @100%) 39739642 207705201 TOTAL IN RS. 530989339 2.7.3 DURING THE COURSE OF APPELLATE PROCEEDINGS, A PPELLANT HAS ARGUED THAT IT HAS PURCHASED THE LAND FOR THE PURPO SE OF TOWNSHIP DEVELOPMENT AND AUTHORITY GRANTED PERMISSION ON 28 TH MAY, 2010, THE APPELLANT HAS PREPARED THE CONSTRUCTION PLAN AS PER TERMS OF REGULATION FOR RESIDENTIAL TOWNSHIP - 2009, WHICH I S APPROVED BY AUTHORITY AS PER WHICH APPELLANT HAS PROVIDED 1,20, 446 SQ. MTR., OF LAND FOR THE PURPOSE OF PARK, SCHOOL, HOSPITAL, ETC ., HENCE AVAILABLE LAND FOR COMMERCIAL EXPLOITATION IS 3,91,261 SQ. MT R. IT WAS ALSO SUBMITTED BY APPELLANT THAT TOTAL GLOBAL FSI OF ABO VE LAND IS RS. 65,42,064 SQ. FT., OUT OF WHICH IT HAS SOLD 26,98,0 00 SQ. FT. FSI TO GOYAL-SAFAL DEVELOPER THE APPELLANT HAS REFERRED TO VARIOUS CLAUSES OF DEVELOPMENT AGREEMENT WHEREIN HE HAS REFERRED TO CLAUSE NO. 3 OF THE AGREEMENT WHICH STATES THAT APPELLANT HAS TRANS FERRED 26,98,000 SQ. FT., FSI TO CO-DEVELOPER AND IN CLAUSE - 10(B) IT IS STATED THAT IF DEVELOPER COULD NOT TRANSFER AGREED FSI TO CO-DEVEL OPER, CONSIDERATION WOULD BE REDUCED BY RS.927 PER SQ. FT ., FSI. THE APPELLANT HAS ARGUED THAT PURPOSE OF ACQUIRING LAND AND DEVELOPMENT OF TOWNSHIP IS TO UTILIZE FSI EMBEDDED IN THE LAND AND DEVELOPMENT CANNOT EXCEED TOTAL GLOBAL FSI SANCTION ED BY THE PLAN. WHEN ASSESSES HAS SOLD PART OF SUCH FSI, COST ATTRI BUTABLE TO SUCH FSI PASSES ON TO THE CO-DEVELOPER AS APPELLANT CAN DEVELOP OR SELL REMAINING FSI ONLY IRRESPECTIVE OF THE AREA OF THE LAND. THE APPELLANT HAS ALSO CLAIMED THAT IN VIEW OF SUCH FAC TS IT WAS CORRECT IN CLAIMING COST OF LAND AND OTHER EXPENDITURE IN T HE RATIO OF FSI SOLD TO GLOBAL FSI AVAILABLE WITH IT. THE APPELLANT HAS ALSO ARGUED THAT ONCE FSI IS SOLD, SALE PROCEED IS RECEIVED, AP PELLANT IS LEFT WITH BALANCE FSI HENCE WHAT IS DETERMINED IS PROFIT ON F SI AND NOT PROFIT ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 21 - ON LAND. IN ITS ALTERNATE ARGUMENT, APPELLANT HAS A /SO CONTENDED THAT WHILE MAKING DISALLOWANCE OUT OF TOWNSHIP AND INFRA EXPENDITURE, AO HAS ALLOWED EXPENDITURE OF 16.06 % OF RS.24,74,4 4,843 I.E. RS.3,97,39,642 AND BALANCE EXPENDITURE IS DISALLOWE D. IT WAS SUBMITTED THAT TOTAL TOWNSHIP INFRA EXPENDITURE IS RUPEES SIXTY CRORES AND APPELLANT HAS CLAIMED EXPENDITURE OF RS.24.74 C RORES IN P&L ACCOUNT I.E. 41.24 % BEING AREA OF FSI SOLD AND EVE N IF WORKING OF AO IS ACCEPTED, ALLOCATION WORKS OUT TO RS. 9.63 CR ORES I.E. 16.06% OF RS. 60,00,00,000. 2.7.4 ON CAREFUL CONSIDERATION OF ENTIRE FACTS IT I S OBSERVED THAT APPELLANT HAS ACQUIRED THE LAND FOR DEVELOPMENT OF A TOWNSHIP. IT IS OBSERVED THAT APPELLANT HAS ACQUIRED TOTAL LAND OF 5,11,707 SQ.MTR., AND AS PER TOWNSHIP POLICY, COPY OF WHICH IS FURNIS HED TO AO VIDE LETTER DATED 20TH MARCH, 2015, COMPANY WAS REQUIRED TO RESERVE AREAS FOR SCHOOL, HOSPITAL, PUBLIC GARDEN, PUBLIC R OAD, ETC., END AS PER SAID GUIDELINES, ASSESSEE HAS TO KEEP LAND FOR SUCH RESERVATION AT 1,20,446 SQ. MTR. THESE DETAILS ARE ALREADY ON RECO RD OF AO AND CANNOT BE TERMED AS AFTERTHOUGHT AS SAME IS SUPPORT ED BY TOWNSHIP POLICY AND APPELLANT HAS ALREADY SURRENDERED 25,587 SQ. MTR. OF LAND TO LOCAL AUTHORITIES FOR PUBLIC AMENITIES. CONSIDER ING THESE FACTS AVAILABLE LAND AREA FOR ANY DEVELOPMENT AND COMMERC IAL EXPLOITATION IS 3,91,261 SQ. MTR., AND NOT 5,11,707 SQ. MTR., CO NSIDERED BY AO. THUS, LAND COST OF 3,91,261 SQ. MTR., ISFORRS.425. 76 CRORES. THE APPELLANT HAS NOT ACQUIRED FSI ON ACQUISITION O F THE LAND. ONCE THE LAND IS PURCHASED, APPELLANT OBTAINS FSI W HICH IS EQUIVALENT TO LAND AREA. HOWEVER, ASSESSEE CAN ACQU IRE ADDITIONAL FSI BY PAYING PREMIUM RATES TO CONCERNED AUTHORITIE S AND MAXIMUM FSI AVAILABLE ON PLOT OF LAND IS 1.5. THUS, LAND CO ST PAID BY APPELLANT IS FOR AREA OF LAND AND NOT FOR OBTAINING GLOBAL FSI OF 65,42,064 SQ. FT., BEING MAXIMUM FSI AVAILABLE AS P ER TOWNSHIP PLANNING SCHEME. THE APPELLANT HAS OBTAINED SUCH FS I ONLY BY MAKING PAYMENT WHICH IS OVER AND ABOVE LAND COST. T HESE EXPENDITURE ARE SEPARATELY DEBITED BY APPELLANT AND SAME IS NOT FORMING PART OF LAND COST OF RS.425.75 CRORES EVEN RULES GOVERNING FSI CHANGE FROM TIME TO TIME AND FSI AVAILABLE MAY BE DIFFERENT WHEN LAND WAS PURCHASED AND WHEN TOWNSHIP PLAN SCHE ME IS PLACED ON RECORD HENCE LAND COST AS ON PARTICULAR DATE CAN NOT BE MEASURED ON THE BASIS OF AVERAGE FSI COST BUT IS REQUIRED TO BE MEASURED ON THE BASIS OF AVERAGE RATE FOR SQUARE METRE OF LAND. THE MAJOR DISPUTE BETWEEN AO AND APPELLANT IS REGAR DING ALLOCATION OF COST OF LAND AND OTHER EXPENDITURE AG AINST AREA OF LAND SOLD TO CO-DEVELOPER DURING THE YEAR. THE APPELLANT HAS CLAIMED COST BASED UPON AREA OF FSI SOLD IN PROPORTION TO TOTAL FSI AVAILABLE WITH IT WHEREAS THE AO HAS ALLOCATED SUCH COST BASED UPO N AREA OF LAND SOLD IN PROPORTION TO TOTAL AREA OF LAND AVAILABLE. THE AO HAS CONSIDERED THE TOTAL AREA OF LAND AT 5,11,707 SQ. M TR, BUT AS DISCUSSED HEREIN ABOVE, AREA FOR CROSSOVER INFRASTR UCTURE AND PUBLIC ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 22 - AMENITIES AS PER TOWNSHIP PLANNING SCHEME IS 1,20,4 46 SQ. MTR., AND APPELLANT IS LEFT WITH AREA FOR COMMERCIAL EXPLOITA TION OF 3,91,261 SQ. MTR. (5,11,707- 1,20,446). IT IS OBSERVED THAT, AS DISCUSSED IN PRECEDING PARA , APPELLANT HAS PURCHASED THE LAND AND NOT THE FSI. FSI AND ADD ITIONAL FSI OBTAINED BY APPELLANT IS CONSEQUENT TO LAND PURCHAS E BY IT AND AS SUCH NORMAL FSI DOES NOT HAVE ANY COST. IT IS OBSER VED THAT EVEN IF ANY ASSESSEE DOES NOT USE MAXIMUM AVAILABLE FSI WIT H IT, SUCH FSI LAPSES HENCE SALE CONSIDERATION RECEIVED BY ANY ASS ESSEE IS TOWARDS LAND AND ONLY PROPORTIONATE LAND COST IS AVAILABLE AS EXPENDITURE AGAINST SUCH SALE VALUE. IF ASSESSEE HAS 1,00,000 S Q. MTR OF LAND, ON WHICH GLOBAL FSI AVAILABLE IS 1,50,000 SQ. FT., AND ASSESSEE TRANSFERS 60,000 SQ. MTR., OF LAND WITH FSI OF 1,00,000, PROP ORTIONATE LAND COST ALLOWABLE WOULD BE WORKED OUT, BASED UPON AREA OF L AND AND NOT BASED UPON AREA OF FSI SOLD. THE APPELLANT HAS ARGUED THAT BY ENTERING INTO CO-D EVELOPMENT AGREEMENT APPELLANT REMAINED WITH BALANCE FSI ONLY HENCE COST OF LAND TO BE DEBITED IN PROFIT & LOSS ACCOUNT IS TO B E WORKED OUT BASED UPON AREA OF FSI SOLD CANNOT BE ACCEPTED AS AFTER E NTERING INTO CO- DEVELOPMENT AGREEMENT, APPELLANT IS REMAINED WITH R EMAINING AREA OF LAND WHEREIN IT CAN UTILIZE REMAINING FSI AVAILA BLE WITH IT WHICH MEANS THAT FSI GOES WITH LAND. AS PER DEVELOPMENT A GREEMENT EXECUTED WITH CO-DEVELOPER IT HAS BEEN SPECIFICALLY STATED THAT CO- DEVELOPER HAS APPROACHED THE DEVELOPER WITH OFFER C O-DEVELOPMENT OF PART OF TOWNSHIP LAND ADMEASURING 82,200 SQ. MTR., (REFER TO CLAUSE - 6) WHICH SUPPORTS THE CONTENTION OF AO THAT COST TO BE ALLOCATED IN PROFIT & LOSS ACCOUNT SHOULD BE BASED UPON AREA OF LAND SOLD. THOUGH, AS PER DEVELOPMENT AGREEMENT SALE CONSIDERA TION IS FIXED UPON AREA OF FSI SOLD, BUT SUCH LAND CONSIDERATION IN FACT REPRESENTS AREA OF LAND SOLD AS CO-DEVELOPER AS PER CLAUSE - 6 HAS APPROACHED THE APPELLANT FOR DEVELOPMENT OF LAND OF 82,200 SQ. MTR. THE COMPUTATION OF SALE CONSIDERATION BASED UPON FSI IS ONE OF THE METHODS OF ARRIVING AT TOTAL SALE VALUE BUT THE FAC T REMAINS THAT APPELLANT HAS RECEIVED RS.250 CRORES FOR SALE OF AR EA OF 82,200 SQ. MTR. OF LAND. EVEN IN CLAUSE - 26 OF THE DEVELOPMEN T AGREEMENT, IT IS SPECIFICALLY STATED THAT DEVELOPER IS ENTITLED AND EXPECTED TO DEVELOP THE BALANCE LAND IN TERMS OF REGULATORY PROVISIONS AND NOWHERE IS IT STATED THAT SAME IS BASED UPON REMAINING FSI. EVEN CLAUSE - 51 OF THE AGREEMENT BEARS THE TITLE AS 'RIGHTS IN PERPETU ITY OF DEVELOPER ON CO-DEVELOPMENT LAND' WHEREIN IT HAS BEEN MENTIONED THAT DEVELOPER SHALL HAVE A RIGHT TO INSPECT, MAINTAIN, OPERATE, R EPAIR, REPLACE OR SUBSTITUTE ANY INFRASTRUCTURE FACILITY ON THE CO-DE VELOPMENT LAND WITHOUT AFFECTING ADVERSELY CO-DEVELOPER'S FSI WHIC H MEANS THAT FSI SOLD TO CO-DEVELOPER IS ONLY LIMITED TO CO-DEVELOPM ENT LAND ON WHICH FSI IS TO BE UTILIZED. EVEN CLAUSE-12(D)(II) STATES THAT NO CO- DEVELOPMENT LAND WILL BE USED, SACRIFICED OR PROVID ED FOR TOWNSHIP INFRASTRUCTURE WHICH MEANS THAT LAND PERTAINING TO FSI OF 26,98,000 ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 23 - SQ FT., IS ONLY 82,200 SQ. MTR., HENCE REDUCING LAN D COST BASED UPON AREA OF FSI SOLD CANNOT BE ACCEPTED. DURING THE COURSE OF APPELLATE HEARING THE APPELLAN T HAS REFERRED TO CLAUSE - 7 AND CLAUSE - 20 OF DEVELOPME NT AGREEMENT WHEREIN IT IS STATED THAT CO-DEVELOPMENT LAND SHALL CONTINUE TO VEST WITH DEVELOPER I.E. APPELLANT. HOWEVER, WHEN ENTIRE AGREEMENT AS A WHOLE IS CONSIDERED IT IS VERY CLEAR THAT CO-DEVELO PER IS DEVELOPING AREA OF LAND OF 82,200 SQ. MTR. AND DEVELOPER IS EN TITLED AND EXPECTED TO DEVELOP BALANCE LAND ONLY. ONCE THE APP ELLANT HAS HANDED OVER THE POSSESSION OF LAND OF 82,200 SQ. MT R., FOR AGREED CONSIDERATION OF RS, 250 CRORES. APPELLANT IS NOT E NTITLED FOR ANY FURTHER CONSIDERATION AND HAD APPELLANT CONTINUED T O BE OWNER OF THE LAND, AS ARGUED BY APPELLANT, APPELLANT WOULD HAVE BEEN ENTITLED TO FURTHER CONSIDERATION AS AND WHEN AREA DEVELOPED BY CO-OWNERS ARE SOLD. IT IS SETTLED LEGAL LAW THAT ENTIRE AGREEMENT NEED TO BE READ AS A WHOLE AND CANNOT BE READ IN PARTS. IT IS OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO HAS ASKED APPELLANT TO SUBMIT THE V ALUATION OF CLOSING STOCK AS ADOPTED IN TWO SUBSEQUENT FINANCIA L YEARS I.E. FY 2012-13 AND 2013-14. IT IS OBSERVED THAT WHILE ARRI VING AT OPENING STOCK OF LAND, APPELLANT HAS ADOPTED LAND VALUE AT RS.250,18 CRORES WHICH IS SAME VALUE AS ON 31ST MARCH, 2012 ARRIVED AT AFTER REDUCING PROPORTIONATE FSI ATTRIBUTABLE TO FSI SOLD TO CO DE VELOPER OUT TOTAL FSI AVAILABLE WITH APPELLANT. HOWEVER, APPELLANT HA S SHOWN LAND AREA AS ON 01/4/2012 AT 3,09,061 SQ METER AS AGAINS T REMAINING FSI AVAILABLE WITH IT FOR 3,09,061 SQMETER. BOTH LAND I N SQ METER AND FSI ARE AS UNDER: PARTICULARS LAND IN SQ. MTR FSI IN SQ. FT. BALANCE AS ON 01.04.2011 511707 6542064 LESS: AREA FOR CROSS OVER INFRASTRUCTURE, ROADS/SCHOOL, HOSPITAL, PUBLIC AMENITIES AND PUBLIC GARDEN AS PER TOWNSHIP REGULATIONS. 120446 AREA AVAILA BLE FOR COMMERCIAL EXPLOITATION 391261 6542064 LESS :AREA TRANSFERRED TO CO-DEVELOPER 82200 2698000 BALANCE AS ON 31.03.2012 309061 3844064 AREA OF VILLA SOLD DURING F.Y 2012-13 4271 28370 BALANCE AS ON 31 .03.2013 304790 3815694 AREA OF VILLA SOLD DURING F.Y.2013-14 366 2976 BALANCE AS ON 31.03.2014 304424 3612718 IT IS ALSO OBSERVED THAT IN FY 2012-13, APPELLANT H AS SOLD VILLA OF 4271 SQ METERS (28370 SQ FT FSI). HOWEVER, WHILE CH ARGING COST OF ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 24 - LAND IN PROFIT & LOSS ACCOUNT, APPELLANT HAS NOT DE BITED PROPIONATE COST OF FSI BUT CHARGED COST BASED UPON AREA OF LAN D SOLD. HAD APPELLANT DEBITED COST OF LAND AS PER FSI SOLD, LAN D COST TO BE CHARGED TO PROFIT & LOSS ACCOUNT WOULD HAVE BEEN RS . 1,08,48,752/- (2501718656/ 6542064*28370) AS AGAINST RS 3,32,02,0 00/- CHARGED BY APPELLANT WHICH SHOWS THAT APPELLANT HAS CHANGED THE METHOD OF ACCOUNTING, VALUATION OF CLOSING STOCK AND ALLOCATI ON OF COST TO PROFIT & LOSS ACCOUNT IN SUBSEQUENT YEAR. THE APPEL LANT IS NOT CONSISTENT IN ITS METHOD OF ACCOUNT. WHEN COST TO B E CHARGED IN PROFIT & LOSS ACCOUNT BASED UPON FSI METHOD RESULTI NG IN TO LOWER COST AND INCREASE IN PROFIT, APPELLANT HAS CHARGED THE COST BASED UPON AREA OF LAND SOD. THE APPELLANT HAS CLAIMED TH AT IT HAS CLAIMED THE COST AS PER MATCHING COST CONCEPT BUT FACT IS T HAT APPELLANT HAS NOT PURCHASED FSI AND SOLD IT DIRECTLY, IT HAS ACQU IRED THE LAND AND MATCHING COST NEED TO BE BASED UPON PROPORTIONATE A REA OF LAND SOLD AND EVEN METHODOLOGY ADOPTED BY APPELLANT IN SUBSEQ UENT YEAR CLEARLY SHOWS THAT BARRING CURRENT ASSESSMENT YEAR, IT ITSELF HAS APPROACHED FOR ALLOCATING COST ON THE BASIS OF AREA SOLD. 2.7.5 CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE, IT IS OBSERVED THAT APPELLANT WAS HAVING 3,91,261 SQ. MTR., OF LAN D FOR RS.425.76 CRORES WHICH MEANS THAT AVERAGE COST OF LAND WAS RS .10,881 PERSQ. MTR. CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE, COST TO BE CHARGED TO PROFIT & LOSS ACCOUNT WOULD BE BASED UPON AREA O F LAND SOLD AS WORKED OUT BELOW:- TRADING ACCOUNT OF LAND AS A PART OF INVENTORY PARTICULARS SQ. MTRS. VALUE (RS.) COST WORKED OUT PER SQ. MT. OPENING STOCK OF LAND(A) 511707 4257578322 8320 LESS: LESS: AREA FOR CROSS OVER INFRASTRUCTURE, ROADS/SCHOOL, HOSPITAL, PUBLIC AMENITIES AND PUBLIC GARDEN AS PER TOWNSHIP REGULATIONS. 120446 0 0 AREA AVAILABLE FOR COMMERCIAL EXPLOITATION 391261 4257578322 10881 CO- DEVELOPMENT LAND ALLOCATED TO SALE OF CO- DEVELOPMENT RIGHT /FS/J AS PER AGREEMENT (C) 82200 1755859666 N.A. THE CLOSING STOCK OF LAND (SHOULD BE VALUED AT ORIGINAL COST RS. 8320/- PER SQ. MT. AS PER THE METHOD REGULARLY 309061 3362892741 10881 ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 25 - EMPLOYED BY THE ASSESSES OR AS PER CONSISTENT ACCOUNTING POLICY AND AS-2)(D) CLOSING STOCK OF LAND AS VALUED BY THE ASSESSEE IN VALUATION OF CLOSING STOCK AS PER BOOKS 429507 2501718656 5825 ADDITION IN CLOSING STOCK 88,11,74,08 5 THUS, ADDITION IN CLOSING STOCK OF LAND MADE BY AO FOR RS 107,17,79,584/- IS REDUCED TO RS. 86,11,74,085/-. 2.7.6 SO FAR AS ALLOCATION OF OTHER EXPENDITURE BEI NG AUDA CHARGES, FCCD INTEREST AND TOWNSHIP INFRA EXPENSES, APPELLAN T HAS ALLOCATED EXPENDITURE IN PROFIT & LOSS ACCOUNT BASED UPON FSI AREA SOLD WHICH IS SIMILAR TO ALLOCATION OF LAND COST WHEREAS AO HA S ALLOCATED THE EXPENDITURE BASED UPON AREA OF LAND SOLD. CONSIDERI NG THE FACTS DISCUSSED HEREIN ABOVE AND METHODOLOGY ADOPTED IN P RECEDING PARA, AO IS DIRECTED TO RE COMPUTE ALLOCATION CONSIDERING TOTAL AREA OF LAND AT 3,91.261 SQ. MTR AS AGAINST 5,11,707 SQ. MT R AND AS APPELLANT HAS SOLD AREA OF 82,200 SQ METER DURING THE YEAR, P ROPORTIONATE COST WOUID BE IN RATIO OF 21.00% (82.200/3,91,261) AND N OT 16.06% ADOPTED BY AO SUBJECT TO FOLLOWING OBSERVATIONS:- (I) WHILE ALLOCATING TOWNSHIP INFRA EXPENDITURE, AO HAS CONSIDERED TOTAL EXPENDITURE INCURRED BY APPELLANT AT RS 24,74,44,843/- WHEREAS APPELLANT HAS CLAIMED SUCH EXPENDITURE AT RS 60,00,00,000/- HENCE AO IS DIRECT ED TO VERIFY CORRECT AMOUNT OF EXPENDITURE INCURRED BY APPELLANT AND ALLOCATE 21% OF SUCH EXPENDITURE IN PROFIT & LOSS A CCOUNT. (II) THE APPELLANT HAS OBTAINED ADDITIONAL FSI BY MAKING PAYMENT TO AUDA AND EXACT BREAK UP OF SUCH EXPENDITURE HAS NOT BEEN PROVIDED IN APPELLATE PROCEEDINGS OR ASSESSMENT PRO CEEDINGS. AS APPELLANT HAS OBTAINED ADDITIONAL FSI BASED UPON PAYMENT MADE BY IT, EXPENDITURE INCURRED ON OBTAINING GLOBA L FSI IS LINKED WITH FS! OBTAINED BY APPELLANT AND SUCH PAYM ENT HAS NO LINK WITH LAND AREA HENCE AO IS DIRECTED TO ALLOCAT E SUCH EXPENDITURE IN RATIO OF FS! SOLD DURING THE YEAR IN PROPORTION OF TOTAL FSI AVAILABLE WITH IT AND RECOMPUTE CLOSIN G WIP IN CASE OF APPELLANT. THUS, ALL THE RELATED GROUNDS OF APPEAL REGARDING A LLOCATION OF LAND & OTHER COST TO PROFIT & LOSS ACCOUNT AND VALU ATION OF CLOSING STOCK IS PARTLY ALLOWED . ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 26 - 8.2 THE CIT(A) THUS WHILE UPHOLDING THE ADDITIONS M ADE BY THE AO IN PRINCIPLE REDUCED THE QUANTUM OF ADDITION FROM 1 ,07,27,79,584/- TO RS.86,11,74,085/- ON THE GROUND THAT AN AREA OF 120 446 SQ. MTRS. OF LAND REQUIRES TO BE EXCLUDED FOR THE COMPUTATION OF PER SQ.MTRS. OF LAND COST SINCE SUCH AREA IS ATTRIBUTABLE TO CROSS OVER INFRASTRUCTURE, ROADS, SCHOOLS, HOSPITALS, PUBLIC GARDEN AND OTHER PUBLIC AMENITIES AS PER TOWNSHIP PLANNING SCHEME CONCERNING THE TOTAL L AND AREA. THE CIT(A) THUS ACCEPTED THE PLEA OF THE ASSESSEE THAT THE ASSESSEE WAS LEFT WITH THE AREA ADMEASURING 391261 SQ. MTR. (511 707 120446) ONLY FOR COMMERCIAL EXPLOITATION. THE CIT(A), HOWE VER, SUSTAINED THE ADJUSTMENTS MADE BY AO TOWARDS COST OF SALES AND CLOSING VALUE OF LAND ADOPTING THE GEOGRAPHICAL BASIS SAVE AND EX CEPT ALLOWANCE GIVEN FOR LAND UTILIZED FOR COMMON INFRA FACILITIES . THE ALLOCATION OF COSTS INCURRED AND CAPITALIZED TO COST OF SALES W AS SIMILARLY APPROVED AS PER NET GEOGRAPHICAL AREA AVAILABLE FOR DEVELOPMENT OF PROJECT. 9. AGGRIEVED BY THE PARTIAL RELIEF GRANTED BY THE C IT(A), BOTH THE ASSESSEE AND REVENUE IS IN APPEAL BEFORE THE TRIBUN AL. 10. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEA RNED SENIOR COUNSEL FOR THE ASSESSEE BROADLY REITERATED THE FAC TS PLACED BEFORE THE LOWER AUTHORITIES AND CONTENDED THAT THE ACTION OF THE REVENUE AUTHORITIES ARE DRIVEN BY THE MIS-CONCEPTION OF FAC TS AND WRONG APPLICATION OF LAW. TO BEGIN WITH, THE LEARNED SEN IOR COUNSEL PRESENTED TWO TABULATIONS REPRODUCED HEREUNDER FOR BETTER APPRECIATION OF FACTS: STATEMENT OF WORKING OF OPENING AND CLOSING STOCK F OR F.Y. 2011-12 PARTICULARS AREA COST OF LAND COST OF AUDA COST OF FCCD INTEREST COST OF CONSTRUCTION TOTAL LAND (SQ FSI (SQ FT) AMOUNT IN RS. AMOUNT IN RS. AMOUNT IN RS. AMOUNT IN RS. AMOUNT IN RS. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 27 - MTRS) OPENING STOCK (GROSS) 511707 6542064 4257578322 568807450 642835052 45647 787 5514868611 LESS: AREA ATTRIBUTABLE TO PG/PPI 120446 - - OPENING STOCK (NET) 391261 6542064 4257578322 568807450 642835052 45647 787 5514868611 ADD: EXPENDITURE INCURRED DURING THE YEAR 20591643 323237107 490826205 834654955 LESS: TRANSFERRED TO CO DEVELOPER 82200 2698000 1755859666 234580784 294889883 247444 843 2532775177 REMAINING STOCK FOR APPLEWOODS 309061 3844064 2501718656 354818309 671182276 28902 9149 3816748389 NOTE: THE COST TRANSFERRED TO CO DEVELOPER IS AT 4 1.24% BECAUSE FSI TRANSFERRED TO THEM (2698000 SQ.FT.) IS 41.24% OF THE TOTAL FSI AVAILABLE (6542064 SQ. FT.) VALUE OF CLOSING SQ.FT. PER SQ. FT OF FSI 650.80 92 .30 174.60 75.19 992.89 833.3 THE MARKET PRICE AS PER VALUATION REPORT PER SQ FT OF FSI STATEMENT OF WORKING OF OPENING AND CLOSING STOCK F OR F.Y. 2011-12 PARTICULARS AREA COST OF LAND COST OF AUDA COST OF FCCD INTEREST COST OF CONSTRUCTION TOTAL LAND (SQ MTRS) FSI (SQ FT) AMOUNT IN RS. AMOUNT IN RS. AMOUNT IN RS. AMOUNT IN RS. AMOUNT IN RS. OPENING STOCK (GROSS) 511707 6542064 4257578322 568807450 642835052 45647 787 5514868611 LESS: AREA ATTRIBUTABLE TO PG/PPI - - OPENING STOCK (NET) 511707 6542064 4257578322 568807450 642835052 45647 787 5514868611 ADD: EXPENDITURE INCURRED DURING THE YEAR 20591643 323237107 490826205 834654955 LESS: TRANSFERRED TO CO DEVELOPER 82200 2698000 683932286 91372548 114863799 10371608 8 993884720 REMAINING STOCK FOR APPLEWOODS 429507 3844064 3573646036 498026545 851208360 43275 7904 5355638846 NOTE: THE COST TRANSFERRED TO CO DEVELOPER IS AT 1 6.06% BECAUSE LAND TRANSFERRED TO THEM (82200 SQ.FT.) IS 16.06% OF THE TOTAL LAND AVAILABLE (511707 SQ. FT.) VALUE OF CLOSING STOCK ON THE BASIS OF LAND 8320.34 1159.53 1981.83 1007.57 12 469.27 9000 THE MARKET PRICE AS PER VALUATION REPORT PER SQ MT R ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 28 - 10.1 EXPLAINING OF RATIONAL FOR SALE OF 26,98,000 S Q.FT. OF FSI AT A CONSIDERATION OF RS.250 CRORES TO CO-DEVELOPER, THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE DEVEL OPMENT OF ENTIRE SANCTIONED FSI OF 65,42,064 SQ.FT. WHICH IS QUITE A BIG AREA WAS FAR CHALLENGING AND DIFFICULT FOR A NEW ENTRANT IN THE FIELD OF REAL ESTATE. THE ASSESSEE HAS PURCHASED THE AREA BY BORROWING HU GE AMOUNT OF RS.418.62 CRORES IN THE FORM OF DEBENTURE AT A STIF F INTEREST RATE OF 15 TO 16% PER ANNUM ENTAILING STEEP FINANCIAL INTEREST BURDEN IN THE VICINITY OF RS.65 CRORES. THUS, IN THE OVERALL INT EREST IN THE PROJECT, IT WAS FOUND ESSENTIAL TO GENERATE LIQUIDITY AND REDUC E FINANCIAL COSTS EVEN IF IT HAS RESULTED IN SOME LOSSES. THE SALE O F FSI HELPED IN CUTTING DOWN INTEREST COSTS. 10.2 THE LEARNED SENIOR COUNSEL THEREAFTER REFERRED TO THE REGULATION FOR RESIDENTIAL TOWNSHIP 2009 ISSUED BY THE URBAN D EVELOPMENT & URBAN HOUSING DEVELOPMENT DEPARTMENT TO APPRAISE IT S SALIENT FEATURES, SUCH AS, THE OBLIGATION ASSOCIATED TO THE CONSTRUCTION OF THE PROJECT IN THE FORM OF CROSS OVER INFRASTRUCTURE AN D ROAD TO BE PROVIDED AS PER THE SPECIFICATION OF THE COMPETENT AUTHORITY INCLUDING ROAD OF PRESCRIBED WIDTH OPEN SPACE, AMENITIES IN T HE FORM OF SCHOOL, HOSPITAL, PARK AND GARDENS CATERING TO THE TOWNSHIP AND MANY OTHER OBLIGATIONS. REFERRING TO CLAUSE NO.3.9 OF THE TOW NSHIP REGULATIONS, THE LEARNED SENIOR COUNSEL POINTED OUT THAT THE ASS ESSEE OR CO- DEVELOPER COULD NOT HAVE USED THE WHOLE OF THE LAND AREA AND WAS UNDER STATUTORY OBLIGATION TO KEEP ASIDE A PORTION OF THE LAND TOWARDS VARIOUS INFRASTRUCTURE FACILITIES AND THEREFORE, TH E CIT(A) HAS RIGHTLY TAKEN COGNIZANCE OF SUCH FACTS, HOWEVER, IN LIMITED MANNER. THE LEARNED SENIOR COUNSEL EMPHASIZED THAT IT IS THE PE RMISSIBLE CONSTRUCTION GATHERED IN THE NAME OF FSI AVAILABLE TO THE TOWNSHIP WHICH WILL DETERMINE THE COST OF LAND AND IN ABSENC E OF FSI, THE LAND IS EFFECTIVELY WORTHLESS. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 29 - 10.3 THE LEARNED AR NEXT CONTENDED THAT THE AO COMM ITTED SERIOUS ERROR IN APPRECIATING THE CONTENTS OF THE DEVELOPME NT AGREEMENT. IT WAS STRENUOUSLY POINTED OUT THAT THE ASSESSEE HAS O NLY SOLD 26,98,000 SQ.FT. OF FSI IN TERMS OF CO-DEVELOPMENT AGREEMENT OUT OF TOTAL AVAILABLE FSI OF 65,42,064 SQ.FT. WITHOUT ANY SALE OF LAND PER SE . THE ASSESSEE CONTINUES TO BE OWNER OF LAND IN TERMS OF CO-DEVELOPMENT AGREEMENT AS WELL AS IN LAND REVENUE RECORD. IT WA S AGREED THAT AFTER PURCHASE OF FSI, THE CO-DEVELOPER M/S. GOYAL SAFAL DEVELOPERS WILL CO-DEVELOP THE EARMARKED AREA BY CONSTRUCTING RESID ENTIAL APARTMENTS AT ITS OWN COSTS AND SELLING TO FINAL CUSTOMERS. T HE CO-DEVELOPER WOULD BE ENTITLED TO RECEIVE AGREED CONSIDERATION F ROM THE CUSTOMERS WITHOUT ANY SHARE OF THE ASSESSEE THEREIN. HOWEVER , THE ASSESSEE WOULD BE REQUIRED TO JOIN AS AN OWNER OF THE SALE D EED IN TERMS OF CO- DEVELOPMENT AGREEMENT. IN TERMS OF THE CO-DEVELOPME NT AGREEMENT, THE ASSESSEE IS LEFT WITH REDUCED FSI ON THE REMAIN ING LAND AFTER SALE OF STIPULATED FSI. ON THE REMAINING LAND AT DISPOS AL, THE ASSESSEE WAS LEFT WITH THE LIMITED OPTION TO CONSTRUCT THE VILLA S, AFFORDABLE HOUSING FOR ECONOMICALLY WEAKER SECTION, COMMERCIAL OFFICES AND SHOPS WITHIN THE RESIDUAL FSI LEFT AS PER THE APPROVED MASTER PL AN BY AUDA. IN THE GIVEN SET OF ARRANGEMENT, THE TOTAL COST OF REMAINI NG LAND, AND CONSTRUCTION WIP WAS SUITABLY REDUCED HAVING REGARD TO THE COST ATTRIBUTABLE TO SALE OF FSI AND ONLY REDUCED COST H AS BEEN ALLOCATED TOWARDS SALE OF PROPERTIES BY THE ASSESSEE IN THE S UBSEQUENT YEARS. THE LEARNED SENIOR COUNSEL THUS SUBMITTED THAT THE ASSESSEE HAS RECEIVED CONSIDERATION OF RS.250 CRORES FROM THE CO -DEVELOPER FOR THE PURPOSE OF SALE OF CO-DEVELOPMENT RIGHT ALONE. THE ASSESSEE HAS INCURRED RS.2,53,27,75,176/- TOWARDS COSTS OF SALE S TO GENERATE SUCH REVENUE. 10.4 THE LEARNED SENIOR COUNSEL SUBMITTED THAT THE REDUCTION OF VALUE OF CLOSING STOCK OF LAND IN PROPORTION TO LAND AREA TO THE CO-DEVELOPER ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 30 - WOULD NOT FAIRLY YIELD TRUE PROFITS AS THE CO-DEVEL OPER WAS GIVEN RIGHT TO CO-DEVELOP AND CONSTRUCT APARTMENTS ON THE BASIS OF APPROVED MASTER PLAN FOR UTILIZATION OF FSI OF 26,98,000 SQ FT. ALLOCATED AS AGAINST TOTAL AVAILABLE FSI OF 65,42,064 SQ.FT. AS FURTHER CONTENDED, IT WAS INCORRECT FOR THE REVENUE TO INFER THAT THE LAN D ADMEASURING 82,200 SQ.MTR. DEMARCATED FOR THE PURPOSE OF UTILIZ ATION OF FSI BY CO- DEVELOPER HAS BEEN SOLD TO GOYAL SAFAL DEVELOPERS. 10.5 THE LEARNED SENIOR COUNSEL NEXT REFERRED TO DO CTRINE OF MATCHING CONCEPT AND CONTENDED THAT IN TERMS OF S UCH DOCTRINE, ALL THE RELATED COSTS FOR EARNING THE REVENUE HAS TO BE NECESSARILY CONSIDERED TO DETERMINE THE PROFIT/LOSS FROM ANY TR ANSACTION. IT WAS THUS BEFITTING FOR THE COMPANY TO COMPUTE THE COST S OF SALES IN PROPORTION TO THE FSI ARE SOLD FROM SALE CONSIDERAT ION DETERMINED ON THE BASIS OF FSI SOLD AND NOT AREA SOLD. IN ELABOR ATION, THE LEARNED COUNSEL SUBMITTED THAT THE CO-DEVELOPMENT AGREEMENT HAS ATTRACTED CONCESSIONAL STAMP DUTY OF 1% AS AGAINST APPLICABLE STAMP DUTY OF 4.9% PAYABLE ON SALE OF LAND. IT WAS THUS ARGUED T HAT THE COST OF SALE OF LAND CANNOT BE VALUED IN PROPORTION TO AREA BUT WILL HAVE TO BE COMPUTED IN PROPORTION TO THE FSI. IT WAS THEREAFT ER CANVASSED THAT THE TOTAL CONSIDERATION OF RS.250 CRORE RECEIVED, I F CALCULATED ON THE BASIS OF AREA OF LAND OF 82,200 SQ.MTR., WOULD RESU LT IN VALUE OF CONSIDERATION OF LAND AT RS.3,04,136/- PER SQ. MTR. AS AGAINST THE CIRCLE RATE/JANTRI RATE OF LAND (VALUE ADOPTED BY S TAMP DUTY) WHICH IS RS.2750/- PER SQ. MTR. ONLY. THIS ITSELF PROVES TH AT THE SALE CONSIDERATION HAS BEEN RECEIVED ON THE BASIS OF FSI ONLY. THE LEARNED SENIOR COUNSEL ALSO POINTED OUT THAT IF THE SALE VA LUE OF RS.3,04,136/- PER SQ.MTR. OF LAND IS APPLIED TO THE ENTIRE AREA O F TOWNSHIP OF 5,11,707 SQ.MTR., THE TOTAL VALUE OF LAND OF TOWNSH IP WOULD COME TO A WHOPPING FIGURE OF RS.1556.29 CRORES WHICH IS PRIMA FACIE UNREALISTIC TO THE HILT. COUPLED WITH THIS, IF THE FSI IS TO B E ALLOCATED ON THE BASIS ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 31 - OF GEOGRAPHICAL AREA ONLY, A CO-DEVELOPER WILL BE E NTITLED TO DEVELOP ONLY 10,50,753 SQ. FT. OF FSI ON AREA OF 82,200 SQ. MTR. OF LAND EARMARKED WHEREAS ASSESSEE HAS PERMITTED THE UTILIZ ATION OF 2698000 SQ.FT. AREA OF LAND. IT IS THUS OBVIOUS THAT THE C ONSIDERATION PAID BY CO-DEVELOPER IS TOWARDS UTILIZATION OF FSI ONLY AND CONSEQUENTLY, COSTS IN RELATION THERETO HAS TO BE NECESSARILY WOR KED OUT IN PROPORTION TO FSI AND NOT WITH REFERENCE TO GEOGRAPHICAL AREA OF LAND. IT WAS THUS CONTENDED THAT THE COST OF FSI SOLD HAS BEEN CORREC TLY WORKED OUT AND THERE WAS NO CASE WHATSOEVER FOR THE REVENUE TO EMB ARK UPON THE ADDITIONS BASED ON GEOGRAPHICAL AREA. 11. THE LEARNED DR FOR THE REVENUE, ON THE OTHER HA ND, RELIED UPON THE ORDERS OF THE AO AND CIT(A) AND CONTENDED IN FU RTHERANCE THAT THE TANGIBLE AREA PARTED WITH THE CO-DEVELOPER IS ASCER TAINABLE AND THEREFORE, THE COST OF LAND AND COST OF CLOSING STO CK REQUIRES TO BE VALUED IN PROPORTION TO THE GEOGRAPHICAL AREA OF TO WNSHIP/ENTIRE LAND. IT WAS CONTENDED THAT AREA OF LAND TRANSFERRED TO C O-DEVELOPER IS ONLY 16.06% OF TOTAL AREA AND THEREFORE COST OF SALES OF SUCH AREA CANNOT BE DETERMINED IN PROPORTION TO FSI @ 41.24%. THE AC COUNTING OF VALUE OF COSTS OF LAND HAS TO BE DONE ON THE BASIS OF AREA TRANSFERRED RATHER THAN FSI TRANSFERRED. THE LEARNED DR ALSO C ONTENDED THAT CIT(A) HAS WRONGLY GIVEN PARTIAL RELIEF TO ASSESSEE BY TAKING COGNIZANCE OF OPEN AREA OF 120446 SQ. MTR. TOWARDS INFRA FACILITIES. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ASSESSMENT ORDER AS WELL AS THE FIRST APPELLATE ORDER. WE HAVE ALSO PERUSED THE MATERIAL REFERRED TO AND RELIED UPON BY THE RESPECTIVE SIDES IN TERMS OF RULE 18(6) OF THE ITAT RULES, 196 3. TO UNDERSTAND THE CONTROVERSY IN HAND, IT WOULD BE APPROPRIATE TO RECORD THE WORKING OF CLOSING WIP OF THE ASSESSEE DISPUTED BY REVENUE FOR EASY REFERENCE. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 32 - PARTICULARS AMT RS AMT RS AREA (SQ.MTRS.) FSI (SQ.FT.) OPENING WIP LAND 4257578322 511707 6542075 CONSTRUCTION 1257290289 5514868611 ADD: CONSTRUCTION EXPENSES DURING THE YEAR 834654955 (AS PER SCHEDULE 18) LESS: COST OF SALES LAND ( RS. 425.75 CR X 41.24%) 1755859666 82200 (16.06%) 2698000 (41.24%) AUDA CHARGES FOR CO DEVELOPMENT SALE 234580784 FCCD INTEREST FOR CO DEVELOPMENT SALE 294889883 TOWNSHIP INFRA EXPENSES FOR CO DEVELOPMENT SALE 247444843 2532775176 CLOSING WP LAND (RS.425.75 - 175.58) 2501718656 4,29,507 38,44,075 CONSTRUCTION 1315029734 3816748390 AMOUNT AS PER BALANCE SHEET SCHEDULE 12 3816748389 12.1 AS CAN BE SEEN FROM THE TABULATED STATEMENT, T HE ASSESSEE DURING THE ASSESSMENT YEAR IN QUESTION HAS RECOGNIZED REVE NUE OPERATION INCOME TO THE TUNE OF RS.250 CRORES IN RESPECT OF S ALE OF CO- DEVELOPMENT RIGHTS ON A PORTION OF LAND DEMARCATED FOR THIS PURPOSE. IT IS THE CASE OF THE ASSESSEE THAT IT IS IN POSSES SION OF HUGE CHUNK OF LAND PARCELS ADMEASURING 511707 SQ.MTR. IN THE VILL AGE OF SARKHEJ- SANATHAL LOCATED AT SPRING ROAD, AHMEDABAD. IT IS THE CASE OF THE ASSESSEE THAT IT IS ENTITLED TO FSI OF 6542075 SQ. FT. THEREON FOR DEVELOPMENT AND CONSTRUCTION WORK ON SUCH TOWNSHIP AREA. IN KEEPING WITH THE OBJECT OF DEVELOPMENT AND CONSTRUCTION OF PROJECT, THE ASSESSEE ENTERED INTO A CO-DEVELOPMENT AGREEMENT DA TED 11.05.2011 WITH CO-DEVELOPER NAMELY GOYAL SAFAL DEVELOPERS W HEREBY A PART OF TOWNSHIP LAND ADMEASURING APPROXIMATELY 82200 SQ.MT R. WAS DEMARCATED FOR THE PURPOSE OF DEVELOPMENT AND CONST RUCTION OF RESIDENTIAL APARTMENTS BUILDINGS BY THE CO-DEVELOP ER UTILIZING ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 33 - MAXIMUM FSI OF 26,98,000 SQ.FT. AS SANCTIONED BY TH E LOCAL AUTHORITY. IT IS THUS THE CASE OF THE ASSESSEE THAT WHILE ONLY 16.06% OF LAND AREA HAS BEEN DEMARCATED FOR THE PURPOSE OF DEVELOPMENT BY CO-DEVELOPER, THE FSI TO THE TUNE OF 41.24% OF THE TOTAL FSI HAS BEEN UTILIZED BY CO- DEVELOPER FOR CONSTRUCTION IN THE TOWNSHIP AREA. T HE ASSESSEE HAS RECEIVED AN AGREED CONSIDERATION OF RS.250 CRORES F ROM THE CO- DEVELOPER IN LIEU OF PARTIAL SURRENDER OF ITS DEVEL OPMENT RIGHTS IN FAVOUR OF THE CO-DEVELOPER. IT IS ALSO THE CASE OF THE ASSESSEE THAT APART FROM 16.06% OF GEOGRAPHICAL LAND AREA DEMARCA TED FOR DEVELOPMENT AND CONSTRUCTION BY THE CO-DEVELOPER, T HE ASSESSEE WAS ALSO UNDER OBLIGATION TO CREATE INFRASTRUCTURE FACI LITIES IN THE FORM OF ROADS, HOSPITALS, SCHOOLS, GARDEN ETC. AS PER THE S ANCTIONED MASTER PLAN WHICH WOULD CONSUME ANOTHER LAND AREA OF APPROX.120 446 SQ.MTRS. FROM THE GROSS TOWNSHIP AREA. THUS WHILE RECOGNIZI NG THE SALE CONSIDERATION RECEIVED BY THE DEVELOPER ASSESSEE FR OM THE CO- DEVELOPER, THE ASSESSEE HAS APPORTIONED THE COST O F SALES AS ATTRIBUTABLE TO REVENUE RECEIPT IN PROPORTION TO FS I SOLD I.E. 41.24% OF THE TOTAL VALUE OF LAND OF THE TOWNSHIP RATHER THAN IN PROPORTION TO THE GEOGRAPHICAL AREA OF 16.06% DEMARCATED IN FAVOUR OF THE DEVELOPER FOR THIS PURPOSES. IT IS THE CASE OF THE ASSESSEE THAT THE COST OF SALES TO BE RECOGNIZED AND DEDUCTED AGAINST THE REVENUE GENE RATED FROM SALE OF CO-DEVELOPMENT LAND REQUIRES TO BE EVALUATED IN PRO PORTION TO FSI ON THE PREMISE THAT WHAT HAS BEEN SOLD IS FSI RIGHTS A ND NOT LAND AREA PER SE . IT IS CANVASSED THAT THE COST OF SALES AND THE CONSEQUENT CLOSING STOCK OF LAND IN TERMS OF MONETARY VALUE REQUIRES TO BE RECOGNIZED ON THE BASIS OF FSI INBUILT AND EMBEDDED TO THE TOTAL TOWNSHIP LAND AND NOT ON THE BASIS OF GEOGRAPHICAL AREA AS WHAT IS INTRINSIC TO THE LAND VALUE IS THE ENTITLEMENT OF F SI AVAILABLE FOR CONSTRUCTION AND THE LAND WOULD BE NEARLY WORTHLESS IN THE ABSENCE OF ANY RIGHT TO DEVELOPMENT AND CONSTRUCTION THEREON. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 34 - 12.2 THE ESSENTIAL CONTROVERSY BETWEEN THE ASSESSEE AND REVENUE REVOLVES TOWARD METHOD OF ASCERTAINMENT OF VALUE OF COST OF SALES TO BE DEDUCTED FROM SALE CONSIDERATION RECEIVED AND CO NSEQUENT VALUE OF CLOSING LAND AREA. 12.3 THE TOTAL VALUE OF LAND AREA OF THE TOWNSHIP S TANDS AT RS.425.75 CRORES (ADMEASURING 511707 SQ.MTRS.; 6542075 SQ. FT . IN TERMS OF FSI). THE ASSESSEE HAS ASSIGNED COST OF SALES OF THE LA ND AT RS.175.58 CRORES (AND OTHER INCIDENTAL CHARGES TO BE DEALT WI TH SEPARATELY) WHICH REPRESENTS 41.24% OF THE TOTAL COST OF TOWNSHIP LAN D (425.75 CRORES X 41.24% = 175.58 CRORES). AS A CONSEQUENCE, THE CLO SING VALUE OF LAND DETERMINED BY THE ASSESSEE STANDS AT RS.250.17 CROR ES (SALE CONSIDERATION RS.425.75 CRORES LESS COST OF SALE S RS.175.58 CRORES). 12.4 THE REVENUE, ON THE OTHER HAND, IS IN QUARREL FOR SUCH METHOD OF ASCERTAINMENT OF VALUE OF COST OF SALES IN PROPOR TION OF FSI TRANSFERRED (41.24%) AND CONSEQUENTIAL VALUE OF CLO SING STOCK OF REMAINING LAND. THE REVENUE SEEKS THE ASCERTAINMEN T OF COST OF SALES OF LAND TO BE IN PROPORTION TO GEOGRAPHICAL AREA ALLOCATED TO THE CO-DEVELOPER AND RATHER THAN FSI ALLOCATED. THE C OST OF SALESACCORDING TO THE REVENUE SHOULD BE 16.06% OF THE TOTAL OPENING VALUE OF TOWNSHIP LAND OF RS.425.75 CRORES INSTEAD OF 41.24% APPLIED BY THE ASSESSEE HAVING REGARD TO THE FSI ALIENATED. THIS WOULD RESULT IN DIFFERENCE OF RS.1,07,17,79,584/- IN THE VALUE O F COST OF SALES. ACCORDING TO THE AO, THE COST OF THE SALE OF LAND T RANSFERRED TO CO- DEVELOPER HAS BEEN OVERSTATED TO THIS EXTENT AND CO NSEQUENTLY CLOSING VALUE OF REMAINING LAND IN POSSESSION OF THE ASSESS EE HAS BEEN UNDERSTATED TO THE SAME EXTENT. THE BUSINESS INCOM E DEDUCED BY THE ASSESSEE ON SALE OF CO-DEVELOPMENT RIGHTS IS THUS A LLEGED TO BE UNDERSTATED BY RS.107.17 CRORES. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 35 - 12.5 APPLYING THE SAME ANALOGY, THE AO HAS REDUCED THE ALLOCATION OF AUDA CHARGES FOR CO-DEVELOPMENT, FCCD INTEREST, TOW NSHIP INFRA EXPENSES FROM 41.24% TO 16.06% ALLEGING EXCESS EXPE NSES CLAIMED BY THE ASSESSEE TO THE TUNE OF RS.53,09,89,339/- FOR D ETERMINATION OF AGGREGATE COST OF SALES. THE AO THUS HAS INCREAS ED THE ASSESSED INCOME BY RS.1,07,17,79,584/- ON ACCOUNT OF ALLEGED OVERSTATEMENT OF VALUE OF COST OF SALES OF LAND ASSIGNED BY THE AS SESSEE AND ALSO MADE ANOTHER DISALLOWANCE ON ACCOUNT OF EXCESS CLAI M OF INCIDENTAL EXPENSES CLUBBED TO THE COST OF SALES AMOUNTING T O RS.53,09,89,339/- DISPUTING THE APPORTIONMENT MADE IN TERMS OF FSI AVAILABLE RATHER THAN GEOGRAPHICAL AREA. 13. THE CIT(A) IN THE FIRST APPEAL HAS GRANTED PART IAL RELIEF TO THE ASSESSEE AND REDUCED THE ADDITION TOWARDS UNDERSTAT EMENT OF CLOSING STOCK OF LAND AND OVER STATEMENT OF COST OF SALES OF LAND FROM RS.1,07,17,79,584/- TO RS.86,11,74,035/-. FOR MAKI NG SUCH REDUCTION IN THE ADDITIONS MADE BY THE AO, THE CIT(A) RECOGNI ZED THE AREA AGREED TO BE ALLOCATED FOR THE PURPOSES OF CROSS OV ER INFRASTRUCTURE, ROADS, SCHOOL, HOSPITAL, GARDENS, PUBLIC AMENITIES, AS PER TOWNSHIP REGULATION. SUCH LAND AREA IN GEOGRAPHICAL TERMS W AS WORKED OUT AT 120446 SQ.MTR. AND THEREFORE, THE AVAILABLE AREA RE MAINING FOR COMMERCIAL EXPLOITATION WAS WORKED OUT TO 391261 SQ .MTR. (511707 SQ.MTR. 120446 SQ.MTR.). IT WAS THUS OBSERVED BY THE CIT(A) THAT PROPORTIONATE COST OF SALES SHOULD BE WORKED OUT AT THE ADJUSTED RATIO OF 21% (HAVING REGARD TO THE NET AREA AVAILAB LE AFTER CONSUMPTION TOWARDS INFRA FACILITIES FOR COMMERCIAL EXPLOITATION) AS AGAINST 16.06% ADOPTED BY THE AO HAVING REGARD TO T HE GROSS AREA OF 511707 SQ.MTR. THE CIT(A) ALSO DIRECTED THE AO TO GRANT RELIEF ON SIMILAR LINES IN RESPECT OF INCIDENTAL EXPENDITURE TO BE ALLOCATED TO COST OF SALES BY APPLYING RATIO OF 21% TO THE TOT AL COSTS INCURRED ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 36 - INSTEAD OF 16.06% APPLIED BY AO. THE AFORESAID ACT ION OF THE CIT(A) HAS INVITED THE DISSATISFACTION TO BOTH ASSESSEE AN D REVENUE. 14. TO ADDRESS CONTROVERSY, WE FIRST REFER TO THE S TATE POLICY ON TOWN PLANNING IN THE STATE OF GUJARAT DATED 28.05.2010. AS PER THE TOWNSHIP POLICY, CERTAIN PRESCRIBED AREA IS REQUIRE D TO BE UTILIZED BY WAY OF OPEN SPACE AND INFRASTRUCTURE FACILITY TO CA RRY OUT DEVELOPMENT WORK. THE ASSESSEE HAS ENTERED INTO CO-DEVELOPMENT AGREEMENT SUBSEQUENT TO SUCH POLICY ON 11.05.2011. ON A READ ING OF THE AGREEMENT, IT IS ALSO EVIDENT THAT WHAT HAS BEEN PE RMITTED BY THE DEVELOPER ASSESSEE TO THE CO-DEVELOPER IS PUTTING U P CONSTRUCTION OF APARTMENT TOWERS ON 16.06% AREA ALLOCATED IN THIS R EGARD AND FOR UTILIZATION OF FSI TO THE EXTENT OF 41.24%. SIGNI FICANTLY, THE AGREEMENT NOWHERE STATES ANY SALE OF LAND IN FAVOUR OF THE CO- DEVELOPER. WHAT HAS BEEN ALIENATED IS THE PERMISSI ON TO PUT UP CONSTRUCTION TO THE EXTENT OF FSI ALIENATED IN THIS REGARD AS PER THE APPROVED MASTER PLAN. CONSEQUENTLY, IT IS NOT DIFF ICULT TO INFER THAT THE VALUE OF CONSIDERATION RECEIVED IS TOWARDS SALE OF FSI PER SE AND NOT TOWARDS DEMARCATION AND SALE OF LAND. THIS BEI NG SO THE COST OF SALES ATTRIBUTABLE TO LAND REQUIRES TO BE ASSIGNED IN TERMS OF GLOBAL FSI AVAILABLE IN THE TOTAL TOWNSHIP AREA IN PROPORT ION TO FSI SOLD. IT IS NOT IN DISPUTE THAT FSI OF 65,42,075 SQ.FT. WAS STA TED TO BE AVAILABLE AT THE DISPOSAL OF THE ASSESSEE FOR THE PURPOSES OF CO NSTRUCTION AND DEVELOPMENT ON THE TOTAL TOWNSHIP AREA OF 511707 SQ .MTR. OUT OF THE AFORESAID FSI 65,42,075 SQ.FT., THE ASSESSEE HAS SO LD FSI OF 26,98,000 SQ. FT. (41.24% OF GLOBAL FSI) TO THE CO-DEVELOPMEN T BY WAY OF CO- DEVELOPMENT AGREEMENT WHICH FETCHED THE REVENUE OF RS.250 CRORES. THUS, WHEN THE COST OF SALES COMPUTED FOR DEDUCTI ON IN TERMS OF FSI IN THE SAME MANNER AS THE SALES REVENUE FETCHED IN TERMS OF FSI, WE DO NOT SEE ANY ERROR IN THE COST ASSIGNED AS PER FSI VIS--VIS FSI SOLD. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 37 - 15. SIGNIFICANTLY, AS PER CLAUSE 10(B) OF THE CO-DE VELOPMENT AGREEMENT, IT WAS THE CONTRACTUAL OBLIGATION OF THE DEVELOPER ASSESSEE TO ENABLE THE CO-DEVELOPER TO UTILIZE FSI OF 26,98, 000 SQ.FT. AND IN THE EVENT OF ANY REGULATORY HURDLE IN THIS REGARD RESUL TING IN LESSER UTILIZING OF FSI BY THE CO-DEVELOPER, THE DEVELOPER ASSESSEE WAS REQUIRED TO REFUND THE SALE CONSIDERATION TO THE EX TENT OF LESSER UTILIZATION. THIS CLEARLY UNDERLINES THE FACT THAT THE ASSESSEE HAS ESSENTIALLY SOLD FSI EMBEDDED IN THE GLOBAL AREA OF TOWNSHIP AND DISPROPORTIONATE TO THE AREA OF LAND ALLOCATED TO T HE CO-DEVELOPER FOR PUTTING UP CONSTRUCTION AND DEVELOPMENT. THUS, THE VALUE ATTACHED TO THE FSI IS AT THE CORE OF THE CONTRACT FOR DETERMIN ATION OF THE SALE CONSIDERATION. HENCE, AS A LOGICAL COROLLARY, THE COST OF SALES IS ALSO REQUIRED TO BE BASED IN SAME MANNER I.E. IN TE RMS OF FSI SOLD VIS- -VIS GLOBAL FSI AVAILABLE. 16. AT THIS JUNCTURE, WE TAKE NOTE OF THE CONTENTIO N ON BEHALF OF THE REVENUE THAT WHAT HAS BEEN PURCHASED BY THE ASSESSE E IS LAND AND NOT FSI AND THEREFORE, THE COST OF SALES AND CLOSING STOCK SHOULD BE RECOGNIZED ON THE BASIS OF GEOGRAPHICAL AREA REGARD LESS OF FSI. WE ALSO TAKE NOTE OF THE DECISION OF THE CO-ORDINATE B ENCH IN THE CASE OF ITO VS. STATE BANK OF INDIA STAFF VAIBHAV CO-OP HSG . LTD. ITA NO. 5324/MUM/2016 DATED 19.06.2019 FOR THE PROPOSITION THAT NO ALLOCATION OF COST IS INVOLVED IN ACQUIRING THE FSI RIGHTS WHICH IS UNDER TRANSFER AND CONSEQUENTLY, THE COST OF SALES CANNOT BE RECOGNIZED IN PROPORTION TO FSI. WE SEE INHERENT F ALLACY IN SUCH LINE OF ARGUMENT. THE DECISION RENDERED BY THE CO-ORDIN ATE BENCH WAS IN ALTOGETHER DIFFERENT CONTEXT FOR DETERMINATION OF C HARGEABLE CAPITAL GAINS AND QUANTIFICATION THEREOF. THE FSI ENTITLED TO THE ASSESSEE AND ATTACHED TO THE GLOBAL LAND THAT SOLD THEREAFTER HA S TO BE ASSIGNED COST INCURRED IN PROPORTION TO THE QUANTITY OF FSI SOLD. THE DOCTRINE OF MATCHING CONCEPT FOR DETERMINATION OF TRUE PROFITS ARISING FROM A ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 38 - TRANSACTION IS ONE OF THE RUDIMENTARY PRINCIPLES OF ACCOUNTANCY. THE COST OF SALES HAS TO BE DETERMINED IN THE SAME MA NNER AS APPLICABLE TO THE DETERMINATION OF THE SALE REVENUE. WHERE TH E SALE REVENUE HAS BEEN RECOGNIZED ON THE BASIS OF FSI SOLD, THE COSTS OF FSI ALSO NEEDS TO BE DETERMINED ON THE SAME PRINCIPLES. THE DETER MINATION OF COST OF SALES IN TERMS OF GEOGRAPHICAL AREA WOULD GIVE TOTALLY DISTORTED PICTURE, IF PERMITTED. 17. VIEWED DIFFERENTLY, VIDE PARA NO. 10.4 (SUPRA) THE ASSESSEE HAS SUCCESSFULLY DEMONSTRATED THAT VALUE OF CONSIDERATI ON OF LAND WOULD BE WORKED OUT AT AN ASTRONOMICALLY HIGH FIGURE OF RS.3 ,04,136/- PER SQ. MTR. OF LAND VIS--VIS RS.2750/- PER SQ. MTR. ASSIGNED BY THE STAMP AUTHORITIES, IF THE METHOD SUGGESTED BY THE REVENUE FOR ALLOCATION OF COST ON THE BASIS OF LAND AREA IS ACCEPTED. THIS C RUCIAL ASPECT ALSO REINFORCES THE CLAIM OF THE ASSESSEE THAT THE COST OF SALES REQUIRES TO BE DETERMINED ON THE BASIS OF FSI ALLOCATED VIS--VIS GLOBAL FSI REGARDLESS OF LESSER AREA ALLOCATED FOR PUTTING UP CONSTRUCTION. 18. IN THE LIGHT OF FORGOING DISCUSSION, WE HAVE NO HESITATION TO SET ASIDE THE ORDER OF THE CIT(A) AND REVERSE THE ACTIO N OF THE AO. WE FIND CONSIDERABLE MERIT IN THE PLEA RAISED BY THE A SSESSEE FOR COMPUTATION OF COST OF SALES OF LAND AND INCIDENT AL COSTS TOWARDS AUDA CHARGES ETC. ON THE PARAMETERS OF FSI SOLD AS COMPUTED BY THE ASSESSEE. THE ADDITIONS MADE BY THE AO TOWARDS ALL EGED SUPPRESSION OF PROFIT ARISING FROM SALE OF LAND AND EXCESS CLAI M OF INCIDENTAL EXPENSES ATTRIBUTABLE TO SUCH SALE ARE THEREFORE RE VERSED. 19. GROUND NO.1 TO 5 OF THE ASSESSEES APPEAL CONCE RNING THE AFORESAID GRIEVANCES ARE THEREFORE ALLOWED. ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 39 - 20. AS A COROLLARY AND IN THE CONVERSE, THE REVENUE S GROUND NOS. 1 TO 8 ASSAILING THE ACTION OF THE CIT(A) IN GRANTING PARTIAL RELIEF IS ALSO FOUND TO BE WITHOUT MERIT AND ACCORDINGLY DISMISSED . 21. THE SECOND ISSUE RAISED BY WAY OF GROUND NO.6 O F THE ASSESSEES APPEAL AND GROUND NO.9 OF THE REVENUES APPEAL CONC ERNS DISALLOWANCE MADE UNDER S.14A OF THE ACT. 22. THE FACTS CONCERNING THE ISSUE ARE THAT THE ASS ESSEE HAS DECLARED EXEMPT INCOME EARNED BY WAY OF DIVIDEND AMOUNTING T O RS.2,19,33,064/- FROM INVESTMENTS MADE. THE ASSESS EE HOWEVER HAS NOT DISALLOWED ANY EXPENDITURE RELATABLE TO THE EXE MPT INCOME. THE AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND COMPUTED DISALLOWANCE BY APPLYING STATUTORY FORMULA AS AVAIL ABLE UNDER RULE 8D OF THE IT RULES. A DISALLOWANCE OF RS.27,33,134/- WAS MADE ON ACCOUNT OF INTEREST EXPENDITURE ATTRIBUTABLE TO EXE MPT INCOME IN TERMS OF RULE 8D(2)(II) OF THE I.T. RULES. FURTHER, A DI SALLOWANCE OF RS.19,48,142/- WAS MADE TOWARDS ADMINISTRATIVE AND GENERAL EXPENSES UNDER RULE 8D(2)(III) BY APPLYING 0.5% OF AVERAGE V ALUE OF INVESTMENTS GIVING RISE TO THE EXEMPT INCOME. AN A GGREGATE DISALLOWANCE OF RS.46,81,276/- WAS THUS MADE BY THE AO UNDER S.14A OF THE ACT. 23. IN THE FIRST APPEAL, THE CIT(A) FOUND THAT THE ASSESSEE HAS HUGE OWN FUNDS AND INTEREST FREE CAPITAL/RESERVES (RS.16 1.83 CRORES) FAR IN EXCESS TO COVER UP CORRESPONDING INVESTMENTS OF RS. 12.87CRORES. THUS, APPLYING THE PRINCIPLES LAID DOWN IN THE CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM.); C IT VS. GUJARAT STATE FERTILIZERS & CHEMICALS LTD. TAX APPEAL NO. 1 26 OF 2013 JUDGMENT DATED 25.06.2013 (GUJARAT), THE CIT(A) DEL ETED THE DISALLOWANCE MADE TOWARDS PROPORTIONATE INTEREST EX PENDITURE ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 40 - AMOUNTING TO RS.27,33,134/- COMPUTED UNDER RULE 8D( 2)(II) BUT HOWEVER RETAINED THE DISALLOWANCE TOWARDS ADMINISTR ATIVE EXPENDITURE OF RS.19,48,142/- COMPUTED UNDER RULE 8D(2)(III). 24. THE REVENUE HAS CHALLENGED THE ACTION OF THE CI T(A) FOR DELETING THE DISALLOWANCE OF INTEREST CARRIED OUT U NDER RULE 8D(2)(II) WHEREAS THE ASSESSEE HAS ALSO CHALLENGED THE RETENT ION OF DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III) OF THE IT RULES. 25. ON PERUSAL OF THE DOCUMENTARY EVIDENCES AND ON PERUSAL OF THE ORDER OF THE CIT(A), WE FIND THAT THE CIT(A) HAS RI GHTLY APPROACHED THE ISSUE AND DELETED THE PROPORTIONATE DISALLOWANC E OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) ON THE GROUND THAT INVESTMENT IN SHARES GIVING RISE TO EXEMPT INCOME IS FAR LOWER TH AN CORRESPONDING INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE BY WAY OF CAPITAL AND RESERVES. THEREFORE, THE PRESUMPTION WOULD NATURAL LY ARISE IN FAVOUR OF THE ASSESSEE FOR DEEMED UTILIZATION OF INTEREST FREE FUNDS FOR INVESTMENTS YIELDING TAX FREE INCOME IN PREFERENCE TO THE BORROWED FUNDS AS LAID DOWN IN PLETHORA OF JUDICIAL PRECEDEN TS. THEREFORE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A) . THE GRIEVANCE OF THE REVENUE ON THIS SCORE THUS CANNOT BE ENTERTAINE D. 26. GROUND NO.9 OF THE REVENUES APPEAL IS DISMISSE D. 27. TURNING TO THE CROSS GRIEVANCE OF THE ASSESSEE TOWARDS SUSTENANCE OF DISALLOWANCE OF ADMINISTRATIVE EXPEND ITURE COMPUTED UNDER RULE 8D(2)(III) R.W. SECTION 14A OF THE ACT, WE OBSERVE THAT THE REVENUE AUTHORITIES HAVE RIGHTLY INVOKED FORMULA UN DER RULE 8D(2)(III) FOR DISALLOWANCE OF MANAGEMENT AND GENERAL EXPENSES DEEMED TO BE ATTRIBUTABLE TO EARN THE TAX FREE INCOME. HOWEVER, THE DISALLOWANCE IS REQUIRED TO BE COMPUTED HAVING REGARD TO THE INVEST MENTS WHICH HAS ITA NOS. 198 & 600/AHD/18 [APPLEWOOD ESTATE PVT. LTD.] A.Y.2012-13 - 41 - ACTUALLY YIELDED EXEMPT INCOME INSTEAD OF GROSS INV ESTMENTS IN CONSONANCE WITH THE DECISION OF THE SPECIAL BENCH I N ACIT VS. VIREET INVESTMENTS LTD. 165 ITD 27 (DELHI-TRIB.) (SB) AS RELIED UPON ON BEHALF OF THE ASSESSEE. THE ISSUE IS THEREFORE REM ITTED BACK TO THE FILE OF THE AO FOR RE-COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES WITH REFERENCE TO AVERAGE INVESTMENTS WHI CH HAVE ACTUALLY YIELDED EXEMPT INCOME TO THE ASSESSEE. 28. GROUND NO.6 OF THE ASSESSEES APPEAL IS ACCORDI NGLY ALLOWED IN PART. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 198/AHD/2018 IS PARTLY ALLOWED WHEREAS REVENUES APPEAL IN ITA NO. 600/AHD/2018 IS DISMISSED. SD/- SD/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 17/07/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 / GUARD FILE. BY ORDER / 3 /4 ()!3 45' THIS ORDER PRONOUNCED IN OPEN COURT ON 17/07/20 19