DCIT 22(2), NAVI MUMBAI V. SAI DEVELOPERS, MUMBAI

ITA 3810/MUM/2011

• Counselvise Citation: 381019914 RSA 2011
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-05-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 10-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAURYA PRATAP
• Keywords: Principle of natural justice
• Section: 143(3); 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 4049/ MUM./201 1 ( / ASSESSMENT YEAR : 2001 02 ) M/S. SAI DEVELOPERS 23, KAILAS NAGAR M.G. ROAD, GHATKOPAR (E) MUMBAI 400 077 .. / APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 22(2), VASHI RLY. STN. BUILDING COMPLEX, VASHI, NAVI MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAA A S0048F . / ITA NO. 3810/ MUM./201 1 ( / ASSESSMENT YEAR : 2001 02 ) INCOME TA X OFFICER , WARD 22(2)(3) C/O DCIT, 22(2) NAVI MUMBAI .. / APPELLANT V/S M/S. SAI DEVELOPERS 23, KAILAS NAGAR M.G. ROAD, GHATKOPAR (E) MUMBAI 400 077 .... / RESPONDENT ./ PERMANENT A CCOUNT NUMBER AAA A S0048F / ASSESSEE BY : DR. K. SHIVARAM, SR. COUNSEL A/W MR. RAHUL K. HAKANI / REVENUE BY : MR. MAURYA PRATAP / DATE OF HEARING 2 0 .0 5 .201 4 / DATE OF ORDE R 11.06.2014 M/S. SAI DEVELOPERS 2 / ORDER , / PER AMIT SHUKLA , J.M. THE SE CROSS APPEALS HAVE BEEN PREFERRED BY THE EITHER PARTY CHALLENGING THE IMPUGNED ORDER DATED 21 ST FEBRUARY 2011, PASSED BY THE LEARNED C OMMISSIONER (APPEALS) XXXIII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) R/W SECTION 254. 2 . SINCE THE ISSUES INVOLVED IN THESE CROSS APPEALS ARE INTER CONNECTED WHICH ARE ARISING OUT O F IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO. 4049/MUM./2011 , VIDE WHICH, F OLLOWING GROUNDS HAVE BEEN RAISED: 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER, IN GROSS VIOLATION OF THE PROVISIONS OF NATURAL JUSTICE AND WITHOUT TAKING INTO CONSIDERATION VARIOUS EVIDENCES FILED BEFORE HIM AND A.O, HENCE THE ADDITIONS CONFIRMED BY THE CIT(A) IS NOT ACCORDANCE WITH LAW HENCE, THE ADDITIONS MAY BE DELETED. 2. WITH PREJUDICE TO ABOVE THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF FOLLOWING EXPENSES IN THE RATIO OF PHASE 1 AREA AND PHASE II AREA WITH OUT APPRECIATING THAT ALL THE ABOVE EXPENSES WAS INCURRED DIRECTLY FOR PHASE 1 OF THE PROJECT ONLY AND HENCE ENTIRE EXPENSES BE ALLOWED AGAINST PROFITS OF PHASE 1 OF THE PROJECT. M/S. SAI DEVELOPERS 3 I) ROAD EXPENSES RS.21,31,854/ - II) LEGAL & PROFESSIONAL FEES RS. 1 ,2 4,624/ - III) LABOUR CHARGES RS.58,207/ - 3. THE LEARNED CIT(A) ERRED IN MAKING ENHANCEMENT OF DISALLOWANCE OF EXPENSES RELATING TO TDR BY RS.13,43,718/ - BY DISALLOWING LOSS OF RS.57,06,488/ - ON SALE OF TDR VIS - A - VIS DISALLOWANCE OF RS.43,62,770 / MADE B Y THE ASSESSING OFFICER ON THE GROUND OF WRONG ALLOCATION OF EXPENSES WITHOUT APPRECIATING THAT IN THE FACTS OF THE CASE LD. CIT(A) HAD NO JURISDICTION TO MAKE ENHANCEMENT AND EXERCISE OF SUCH JURISDICTION WAS BAD IN LAW AS IT WAS BEYOND THE DIRECTION OF H ON'BLE ITAT AND HENCE THE DISALLOWANCE OF LOSS ON SALE OF TDR OF RS. 57,06,4881 - MADE BY CIT(A) MAY BE DELETED. 3.1 WITHOUT PREJUDICE TO ABOVE THE LEARNED CIT(A) ERRED IN MAKING ENHANCEMENT OF DISALLOWANCE OF EXPENSES RELATING TO TDR BY RS.13,43,718/ - BY DISALLOWING LOSS OF RS.57,06,488/ - ON SALE OF TDR VIS - A - VIS DISALLOWANCE OF RS.43,62,7701 - MADE BY THE ASSESSING OFFICER ON THE GROUND OF WRONG ALLOCATION OF EXPENSES WITHOUT APPRECIATING THAT ALLOCATION OF EXPENSES TO TDR BY CIT(A) FOR CALCULATING THE LO SS IS ERRONEOUS AND HENCE THE DISALLOWANCE OF LOSS ON SALE OF TDR OF RS. 57,06,488/ - MADE BY THE CIT(A) MAY BE DELETED. 3.2 WITHOUT PREJUDICE TO ABOVE THE LEARNED CIT(A) ERRED IN MAKING ENHANCEMENT OF DISALLOWANCE OF EXPENSES RELATING TO TDR BY RS.13,43, 718/ - BY DISALLOWING LOSS OF RS.57,06,488/ - ON SALE OF TDR VIS - A - VIS DISALLOWANCE OF RS.43,62,770/ - MADE BY THE ASSESSING OFFICER ON THE GROUND OF WRONG ALLOCATION OF EXPENSES' WITHOUT APPRECIATING THAT THE LOSS ON SALE OF TDR OF RS.57,06,488/ - WAS BONAFID E AND IN THE COURSE OF BUSINESS AND PROFESSION & HENCE THE DISALLOWANCE OF RS.57,06,488/ - MADE BY THE LD. CIT(A) MAY BE DELETED. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234B WITHOUT GIVING AN OPPORTUNITY TO THE APPEL LANT, THE APPELLANT DENIES THE LIABILITY OF INTEREST UNDER SECTION 234B . 3 . AT THE OUTSET, THE LEARNED COUNSEL SUBMITTED THAT HE DID NOT WISH TO PRESS GROUND NO.1. ACCORDINGLY, GROUND NO.1, RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED . M/S. SAI DEVELOPERS 4 4 . BRIEF FACTS , QUA THE ISSUE RAISED IN GROUND NO.2 AND 3, ARE THAT THE ASSESSEE, WHICH IS AN AOP (ASSOCIATION OF PERSONS) IS A JOINT VENTURE OF M/S. SIDDHI VINAYAK ENTERPRISES AND M/S. ANANT CONSTRUCTION CO., AND IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF LAND AND CO NSTRUCTION OF BUILDING. IN THE YEAR 1994, IT HAD UNDERTAKEN THE CONSTRUCTION OF INDUSTRIAL UNIT IN PHASE I AND II ON THE PROPERTY AT VIKHROLI, HAVING AREA OF LAND ADMEASURING 36,166 SQ.MTRS. , BELONGING TO A CO OPERATIVE SOCIETY. PHASE I INVOLVED CONSTRUCTI ON O N THE AGGREGATE AREA OF 26,399 SQ.MTR. AND PHASE II WAS TO BE CONSTRUCTED LATER ON BALANCE 6,338 SQ.MTRS. PHASE I CONSISTED OF A PROJECT CALLED KAILAS INDUSTRIAL COMPLEX COMPRIS ING OF 342 UNITS IN SIX BUILDING AND ALSO BASIC INFRASTRUCTURE DEVELOPMEN T AND CONSTRUCTION OF APPROACH ROAD. PHASE II WAS TO BE DEVELOP ED SUBSEQUENTLY, WHEREIN THE CONSTRUCTION OF ONE BUILDING WAS TO BE DONE. THE PROJECT OF PHASE I STARTED ON 25 TH AUGUST 1994, AND WAS COMPLETED ON 2 ND FEBRUARY 2001, I.E., IN THE IMPUGNED ASSES SMENT YEAR WHICH CONSISTED OF SIX BUILDINGS WHICH WERE IDENTIFIED AS B , C , D , E , F AND G WINGS. SINCE THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD FOR RECOGNISING THE REVENUE, IT HAS SHOWN THE REVENUE OF ` 11,43,02,933, WHICH INCLUDED ` 8,82,90,651, FROM SALE OF UNITS OF PHASE I AND ` 2,60,12,282 FROM SALE PROCEEDS OF TDR. UP TO THE ASSESSMENT YEAR 2001 02, PROJECT RELATING TO PHASE II, HAD NOT STARTED. THE ASSESSEE HAD SHOWN ALL THE EXPENSES M/S. SAI DEVELOPERS 5 INCURRED DURING THE COMMENCEMENT AND COMPLE TION OF PHASE I, TO BE ALLOCATED FOR THE PHASE I ONLY , ON THE GROUND THAT THESE TWO PHASES WERE ENTIRELY DIFFERENT AND THE SAME CANNOT BE ALLOCATED TO PHASE II. IN THE RETURN OF INCOME FILED ON 31 ST OCTOBER 2001, THE ASSESSEE DECLARED INCOME OF ` 52,16,250 FROM PHASE I AFTER CLAIMING SET OFF OF CREDIT FORWARD AND UNABSORBED LOSS OF EARLIER YEAR OF ` 33,11,907. THUS, THE CURRENT YEAR INCOME SHOWN IN THE PROFIT & LOSS ACCOUNT WAS AT ` 85,28,161. AS AGAINST THE RETURNED INCOME, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF ` 1,63,59,205, AFTER ADDING THE VARIOUS EXPENSES ON THE GROUND THAT THE ASSESSEE HAS ALLOCATED ALL THE EXPENDITURE IN PHASE I AND THERE ARE CERTAIN EXPENSES WHICH ARE ALSO ATTRIBUTABLE TO PHASE II AND THAT THE ASSESSEE COULD NOT SUBSTANTIATE F ROM THE BOOKS OF ACCOUNT AND BILLS & VOUCHERS THAT EXPENSES WERE ONLY FOR PHASE I . THE FOLLOWING EXPENSES WERE DISALLOWED BY THE ASSESSING OFFICER OUT OF THE AMOUNT CLAIMED UNDER VARIOUS HEADS: S.NO. ITEMS OF EXP . / LOSS (ON AD HOC BASIS) AMOUNT DISALLOW ED AMOUNT CLAIMED 1. R OAD EXPENSES ON AD ` 25,00,000 ` 1,12,20,285 2. L EGAL AND PROFESSIONAL FEES ` 6,55,918 ` 31,44,918 3. L ABOUR CHARGES ` 3,06,356 ` 10,06,356 4. TDR LAND COST ` 40,76,950 ` 1,80,76,950 5. TDR EXPENSES ` 2,91,820 ` 15,91,820 ` 78,31,044 M/S. SAI DEVELOPERS 6 5 . IN THE FIRST APPEAL, THE SAID ADDITIONS WERE DELETED ON THE GROUND THAT THE EXPENDITURES DEBITED TO THE PROFIT & LOSS ACCOUNT WERE ONLY FOR THE PURPOSE OF PHASE I AND ALL THE EXPENDITURE INCURRED WERE FULLY VERIFIABLE FROM THE RECORDS. AGGRIEV ED BY THE SAID ORDER, THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE TRIBUNAL BEING ITA NO.757/ MUM./2006. THE TRIBUNAL, VIDE ORDER DATED 5 TH NOVEMBER 2008, SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AND RESTORED THE MATTER BACK TO THE FILE O F THE ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSING OFFICER SHALL ALLOCATE THE EXPENDITURE CLAIMED BY THE ASSESSEE TO BOTH THE PHASES I.E., PHASE I AND II AFTER VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE AND ON SOME RATIONAL BASIS. THE RELEV ANT OBSERVATIONS AND FINDINGS OF THE TRIBUNAL FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREIN BELOW: WE HAVE GONE THROUGH THE ORDERS CAREFULLY AND HEARD IN ATTENTION THE LEARNED COUNSELS . UNDISPUTEDLY, THE PROJECT CONSISTED OF MORE THAN ONE PHASE W HICH PHASE I WAS C OMPLETED IN THE PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR . AS PER THE ASSESSEE HIMSELF THE TOTAL AREA OF LAND WAS 32,736 SQ.MTRS. OF WHICH PHASE 1 LAND AREA CAME TO 26,398 SQ.MTRS. LEAVING THEREBY A BALANCE OF APPROX 6338 SQ.MTS . IN ITS SUBMISSION BEFORE LEARNED CIT(A) IT I S STATED BY THE ASSESSEE THAT THE PROPERTY WAS LAND LOCKED FROM ALL SIDES AND THEREFORE A ROAD WAS ESSENT I AL . THERE COULD ALSO BE NO DOUBT THAT THE ROAD WOULD BE BENEFICIAL ' AND NECESSARY NOT ONLY FOR PHASE I BU T FOR WHOLE OF THE PROJ E CT HENCE TO CHARGE ALL EXPENSES OF THE ROAD ON PHASE I, OR FOR THAT MATTER AN) EXPENSES FULLY TO PHASE I, WHEN PROJECT COMPLETION METHOD IS ADOPTED FOR RECOGNIZING REVENUE IS NOT APPROPRIATE . EXPENSES INCURRED HAS TO BE BIFURCATED BETWEEN OTHER PHASES IN PROGRESS . ASSESSEE ITSELF HAS ADMITTED IN I TS L ET TER DATED 7 TH OCTOBER, 2002 THAT THE COST OF DEVELOPMENT OF THE PROPERTY WHI CH B E GAN AROUND THE M/S. SAI DEVELOPERS 7 YEAR 1994 - 95 WAS IN PROGRESS . THEREFORE, IN OUR OPINION, NO FAULT CAN BE FOUND IF THE A.O. HAS DISALLOWED A PART OF THE EXPENSES AS NOT FOR PHASE 1 ALONE. NO DETAILS ARE SEEN PROVIDED BY THE ASSESSEE AS TO THE BALANCE PHASES OF THE PROJECT AND HOW MUCH OF THE EXPENSES COULD BE ALLOCATED TO SUCH BALANCE PHASES. THOUGH ONE OF THE REASONINGS G IVEN BY THE A.O WAS THAT BOOKS OF ACCOUNT, BILLS AND VOUCHERS WERE NOT PRODUCED , THE MAIN PLANK FOR THE DISALLOWANCE, AS IT COMES OUT FROM THE ASSESSMENT ORDER IS THAT THE EXPENSE CLAIMED WERE NOT CONFINED TO PHASE 1 ALONE , THOUGH REVENUE WAS RECOGNIZED FO R PHASE 1 ONLY. LD. CIT(A) HAS MISDIRECTED HIMSELF WHEN HE GAVE THE FINDING THAT EXPENSES WERE NOT BOGUS AND NO COGENT REASONING WAS GIVEN BY THE A.O. FOR THE DISALLOWANCE, WHEN THE MAIN PLANK ON WHICH DISALLOWANCES WERE MADE BY THE A.O. WAS THAT THE EXPEN SES WERE NOT PROPERLY ALLOCATED. THOUGH DISALLOWANCES FOR TDR LAND COST AND EXPENSES WERE MADE IN PROPORTION OF LAND AREA FOR OTHER ITEMS THESE WERE MADE IN PROPORTION OF LAND AREA FOR OTHER ITEMS THESE WERE MADE ON ESTIMATES. HOWEVER, AT THE SAME TIME WE FIND THAT, I N THE INTEREST OF JUSTICE, ASSESSEE SHOULD BE GIVEN A CHANCE TO EXPLAIN HOW SUCH EXPENSES SHOULD BE ALLOCATED B ETWEEN VARIOUS PHASES OF ITS PROJECT . THER E , I S ALSO A DISPUTE AS TO WHETHER THE BOOKS OF ACCOUNT , BILLS AND VOUCHERS WER E PRODUCED O R NOT. AGAINST ASSESSEE'S ASSERTION THA T IT HAD PRODUCED THE SAME , AO STATES THAT IT WAS NOT PRODUCED BEFORE HIM . LD. CIT(A) HAS NOTED THAT THERE WAS HARDLY ANY NOTINGS IN THE ORDER SHEET ENTRIES . AS FOR THE DECISION OF CO - ORD I NATE BENCH OF THIS TRIBUNA L I N THE CASE OF ACIT V/S M/S S I DDHIV I NAYAK ENTERPRISES (ITA NO.5878/M/05 DTD . 19 TH SEPTEMBER 2008), THE ADDITIONS WERE MADE ON A COMMON GROUND THAT ASSESSEE FAILED TO FURNISH THE DETAILS AND BOTH OF ACCOUNT, ' WHICH THE TRIBUNAL FOUND WAS WRONG ON FACTS. THIS HAS NO RELEVANT IN THE ABOVE FACTUAL MATRIX. TAKING ALL THE ABOVE FACTS AND CIRCUMSTANCES CONSIDERATION WE HEREBY SET ASIDE THE ORDERS OF BOTH L D CLT(A) AS WELL AS AO DIRECT THE AO TO FRAME THE ASSESSMENT AFRESH, AFTER GIVING AN OPPORTUNITY TO ASSESSEE TO PRODUCE THE BOOKS, VOUCHERS AND BILLS. AO SHALL ALLOCATE EXPENSES CLAIMED BY THE . ASSESSEE TO ITS COMPLETED PHASE . I A FTER VERIFICATION OF DETAILS FURNISHED BY IT ON A RATIONAL BASIS. 6 . IN PURSUANCE OF THE DIRECTION OF THE TRIBUNAL, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO ALLOCATE THE EXPENDITURE RELATING TO PHASE I ONLY, HOWEVER, THE ASSESSEE COULD NOT GIVE A PROPER BASIS FOR ALLOCATION M/S. SAI DEVELOPERS 8 OF EXPENSES AND, ACCORDINGLY, HE HELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESS MENT ORDER IS JUSTIFIED AND MADE THE SIMILAR DISALLOWANCE OF ` 78,71,044 ON THE SAME HEADS OF EXPENDITURE. 7 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS PLEADED BY THE ASSESSEE THAT ALL THESE EXPENSES INCURRED BY THE ASSESSEE WERE INCURRED FOR THE PHA SE I AND PHASE II HAD NOT YET COMMENCED EVEN IN THE SUBSEQUENT YEARS. THE ASSESSING OFFICER DID NOT VERIFY THE BOOKS OF ACCOUNT PRODUCED BEFORE HIM AND REACHED TO A WRONG CONCLUSION WITHOUT LOOKING INTO THE NATURE OF EXPENDITURE WHICH WERE PERTAINING TO PH ASE I ONLY. THE LEARNED COMMISSIONER (APPEALS) HELD THAT IN THE SECOND ROUND OF PROCEEDINGS, THE ASSESSING OFFICER WAS BOUND BY THE DIRECTION OF THE TRIBUNAL, WHEREIN THE TRIBUNAL HAS REJECTED THE ASSESSEES PLEA THAT NO ALLOCATION OF EXPENDITURE CAN BE MA DE TO PHASE II AND HAS GIVEN A CATEGORICAL DIRECTION THAT THE EXPENDITURE HAS TO BE ALLOCATED FOR BOTH THE PHASES ON A RATIONAL BASIS. SINCE THE ORDER OF THE TRIBUNAL HAS ATTAINED FINALITY, THE EXPENSES HAVE TO BE ALLOCATED. THUS, SHE HELD THAT THE EXPENDI TURE LIKE ROAD EXPENSES, LABOUR CHARGES, LEGAL & PROFESSIONAL FEE, HAVE TO BE ALLOCATED AS DONE BY THE ASSESSING OFFICER. SHE FURTHER OBSERVED THAT SINCE PHASE II HAS NOT COMMENCED, THEREFORE, THE CRITERIA OF TURNOVER OF PHASE II CANNOT BE WORKED OUT FOR A LLOCATING THE EXPENDITURE, THEREFORE, PROPORTIONATE AREA OF LAND M/S. SAI DEVELOPERS 9 PERTAINING TO PHASE I AND PHASE II SHOULD BE TAKEN AS RATIONAL BASIS. LOOKING TO THE FACT THAT PHASE I CONSTITUTED OF ` 26,398 SQ.MTRS. AND PHASE II CONSISTED OF 6,338 SQ.MTRS., THEREFORE, IN THE SAME RATIO, PROPORTIONATE DISALLOWANCE OF EXPENDITURE CAN BE MADE. THUS, SHE WORKED OUT 19% BASED ON THE RATIO OF THE LAND FOR ALLOCATING THE EXPENDITURE FOR PHASE II. HOWEVER, ALLOCATION OF EXPENSES IN RESPECT OF TDR, SHE ACCEPTED THE ASSESSEES CONT ENTION IN PRINCIPLE THAT DISALLOWANCE OF EXPENSES PERTAINING TO TDR CANNOT BE APPORTIONED. ACCORDINGLY, SHE ALLOCATED THE EXPENSES @ 19% ON OTHER HEADS OF EXPENSES . RELEVANT OBSERVATION OF THE LEARNED COMMISSIONER (APPEALS) ON THE ISSUE OF ALLOCATION OF EX PENSES, IS AS UNDER: HAVING ACCEPTED THIS STAND THE EXPENSES DEBITED FOR COMMON AMENITIES BELONGING TO THE PROJECT WHICH ARE ROAD EXPENSES DEBITED / CLAIMED AT RS. 1,12,20,285, LEGAL AND PROFESSIONAL FEES AT RS.6,55,918, LABOUR CHARGES RS.3,06,356/ - WHI LE BARRING TDR EXPENSES OF RS.2,91,820/ - AND TDR LAND COST OF RS.4,076,950/ - COULD HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER IN PROPORTION OF LAND AREA FOR THE REASON THAT 19% OF EXPENSES UNDER THESE HEADS ARE DEFINITELY NOT BELONGING TO PHASE - I. ACCOR DINGLY, THE DISALLOWANCE TO THE EXTENT OF 19% OUT OF ROAD EXPENSES RS.1,12,20,285/ - , LEGAL AND PROFESSIONAL FEES RS.6,55,918/ - , LABOUR CHARGES RS.3,06,356/ - , RS.2,31,854/ - , RS.124624/ - , RS.58,207/ - TOTALING TO RS.23,14,685/ - ARE SUSTAINED. 8 . THEREAFTER, THE LEARNED COMMISSIONER (APPEALS) DEALT THE ISSUE OF TDR SEPARATELY. THE BRIEF FACTS RELATING TO TDR ISSUE IS THAT THE ASSESSEE HAS BOUGHT THE TDR FROM MUMBAI MUNICIPAL CORPORATION IN M/S. SAI DEVELOPERS 10 LIEU OF CONSTRUCTING THE ROAD ADMEASURING 11,412 SQ.MTRS. IN RETURN, TD R WAS ALLOTTED FOR 11,396 SQ.MTRS. T HE ASSESSEE SOLD TH IS TDR AT ` 2,60,12,282, AGAINST WHICH THE ASSESSEE HAS CLAIMED TDR LAND COST AT ` 1,80,76,950 AND OTHER TDR EXPENSES. THE LEARNED COMMISSIONER (APPEALS) AGREED IN PRINCIPLE THAT THE ASSESSEE HAVING OF FERED ENTIRE SALE PROCEEDS OF THE TDR AS REVENUE IN THIS YEAR , THEREFORE, THE ASSESSEE IS ENTITLED FOR EXPENSES PERTAINING TO THE SAME WITHOUT ANY ALLOCATION . AFTER GIVING SUCH A FINDING / OBSERVATION, THE LEARNED COMMISSIONER (APPEALS) PROCEEDED TO EXAMIN E THE DETAILS OF TDR SALES MADE TO VARIOUS PARTIES AND NOTED THAT THE ASSESSEE HAD SOLD THE TDR TO DIFFERENT PERSONS AT DIFFERENT RATES. SHE HAS NOTED CERTAIN INSTANCES AT PAGE 7 AND 8 OF THE APPELLATE ORDER. APART FROM THAT, SHE ALSO OBSERVED THAT THE ASS ESSEE HAS INCURRED AN AMOUNT OF ` 20,50,000, AS LEGAL FEE TO ARCHITECT SEPARATELY UNDER THE HEAD TDR EXPENSES WHICH IS ALSO NOT JUSTIFIED. FROM THE ACCOUNTS, SHE FURTHER NOTED THAT THE TDR EXPENSES AMOUNTED TO ` 3,17,18,770 , AS AGAINST THE SALE OF ` 2,60,1 2,282, RESULTING INTO LOSS OF ` 57,06,488. LOOKING TO THE DISCREPANCIES IN THE DIFFERENTIAL SALE RATE TO DIFFERENT PARTIES AND HUGE AMOUNT INCURRED ON LEGAL FEE PAID TO ARCHITECT, SHE DISALLOWED THE ENTIRE LOSS CLAIMED BY THE ASSESSEE OF ` 57,06,488. THUS, IT RESULTED INTO ENHANCEMENT OF THE ASSESSEE INCOME. AS A RESULT OF THE APPELLATE ORDER, THE TOTAL DISALLOWANCE AGGREGATED TO ` 80,20,173. M/S. SAI DEVELOPERS 11 9 . BEFORE US, THE LEARNED SENIOR COUNSEL, DR. K. SHIVARAM, ON BEHALF OF THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT I NSOFAR AS GROUND S RELATING TO DISALLOWANCE ON ACCOUNT OF LEGAL AND PROFESSIONAL FEE OF ` 1,24,624 AND GROUND RELATING TO LABOUR CHARGES DISALLOWANCE OF ` 58,207, WHICH HAS BEEN RAISED VIDE GROUND NO.2(II) AND 2(III), ARE NOT PRESSED AS AMOUNT INVOLVED IS S MALL. ACCORDINGLY, THESE GROUNDS ARE DISMISSED AND DISALLOWANCES ARE CONFIRMED. 10 . REGARDING THE DISALLOWANCE OF ROAD EXPENSES, HE SUBMITTED THAT THE PROPERTY OF THE ASSESSEE IN WHICH PROJECT WAS UNDERTAKEN WAS A LAND LOCKED. THE MUNICIPAL CORPORATION OF MUM BAI REQUIRED THE ASSESSEE TO BUILD A ROAD FROM HIGHWAY UP TO THE PROPERTY , FOR WHICH THE ASSESSEE HAD TO MAKE THE PAYMENTS FOR GETTING THE RIGHT OF WAY TO VARIOUS PARTIES AND THEREAFTER, TO CONSTRUCT THE SAID ROAD. THE ASSESSEE HAS INCURRED TOTAL EXPENDITU RE OF ` 1,1220,285, ON CONSTRUCTION OF THE ROAD, OUT OF WHICH, S UM OF ` 12,20,285 WAS REIMBURSED TO THE ASSESSEE BY THE SOCIETY. THUS, THE ASSESSEE HAD CLAIMED DEDUCTION OF ` 1 CRO RE IN THE PROFIT & LOSS ACCOUNT ON CONSTRUCTION OF ROAD. THE ASSESSING OFFIC ER HAS DISALLOWED ` 25 LAKHS OUT OF ` 1 CRORE WHEREAS, THE LEARNED COMMISSIONER (APPEALS) HAS DISALLOWED 19% OF ` 1,12,20,285. THUS, PRIMA FACIE, THE DISALLOWANCE IF AT ALL WAS REQUIRED TO BE MADE THEN IT SHOULD BE @ 19% ON ` 1 CRORE. ON MERITS, HE SUBMITT ED THAT THE M/S. SAI DEVELOPERS 12 ASSESSEE HANDED OVER THE SAID R O A D TO THE BMC AND IN LIEU OF THAT THE ASSESSEE RECEIVED TDR OF 11,396 SQ.MTRS. THE ROAD WAS NECESSARY FOR HAVING ACCESS TO THE PROJECT AND THE PHASE I WAS A DISTINCT PROJECT, THEREFORE, THE ROAD EXPENDITURE WHICH WAS INCURRED IN THIS YEAR HAS TO BE TAKEN FOR PHASE I ONLY , BECAUSE PHASE II HA D NEVER COMMENCED AT ALL. WITHOUT THE ROAD, THE ASSESSEE COULD NOT HAVE DEVELOPED OR SOLD THE UNITS DEVELOPED IN PHASE I. MOREOVER, THE LEARNED COMMISSIONER (APPEALS) HAS HERSE LF ALLOCATED THE ENTIRE ROAD EXPENSES TO PHASE I FOR COMPUTING THE LOSS ON THE SALE OF TDR AND ROAD EXPENSES. THUS, NO DISALLOWANCE ON THE ALLOCATION OF ROAD CAN BE MADE. 11 . AS REGARDS THE DISALLOWANCE OF LOSS ON SALE OF TDR OF ` 57,06,488, MADE BY THE LEAR NED COMMISSIONER (APPEALS), THE LEARNED COUNSEL SUBMITTED THE SAME IS NOT SUSTAINABLE BECAUSE IT IS AN ENHANCEMENT MADE BY THE LEARNED COMMISSIONER (APPEALS) , WHICH IS NOT PERMISSIBLE IN THIS SECOND ROUND OF PROCEEDINGS WHICH ARE IN PURSUANCE OF THE ORDER OF THE TRIBUNAL. THE TRIBUNAL HAD NOT DIRECTED THE ASSESSING OFFICER TO DISALLOW THE LOSS ON THE SALE OF TDR , BUT ONLY TO ALLOCATE THE EXPENDITURE WITH REGARD TO EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT. THIS WAS NEITHER THE CASE OF THE DEPARTMENT IN ORIGINAL ASSESSMENT ORDER NOR IN THE LEARNED COMMISSIONER (APPEALS)S ORDER. THIS PROCEEDING IS IN PURSUANCE OF THE ORDER OF THE TRIBUNAL AND, THEREFORE, THE DISALLOWANCE OF LOSS ON THE SALE OF TDR IS WITHOUT M/S. SAI DEVELOPERS 13 JURISDICTION. IN SUPPORT OF HIS CONTENTION, HE STRONGLY RELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN MCORP GLOBAL P. LTD. V/S CIT, [2009] 309 ITR 434 (SC). ON MERITS, HE SUBMITTED THAT THE LEARNED COMMISSIONER (APPEALS) HAS ALREADY DISALLOWED THE ROAD EXPENSES @ 19% AND IF SUCH ROAD EXPE NSES ARE TO BE EXCLUDED WHILE COMPUTING THE PROFIT FROM THE SALE OF TDR, THEN, THE NET RESULT WOULD BE PROFIT BECAUSE THE ROAD EXPENSES HAVE BEEN DEBITED IN THE TDR ACCOUNT. THE LEARNED COMMISSIONER (APPEALS) HAS DOUBTED THE LOSS MAINLY ON THE GROUND THAT THE SALE OF TDR MADE TO MR. VIJAY M. PARIKH IS AT LOWER COST AND PAYMENT OF LEGAL FEES PAID TO M/S. DAISARIA & ASSOCIATE, IS NOT NECESSARY EXPENDITURE. SUCH A FINDING AND THE OBSERVATION OF THE LEARNED COMMISSIONER (APPEALS) IS PURELY BASED ON SURMISE / PR ESUMPTION AND THAT CANNOT BE THE BASIS OF DISALLOWANCE OF LOSS. MOREOVER, THE ASSESSEE HAS ALSO FILED AFFIDAVIT OF VARIOUS PERSONS TO WHOM TDR HAS BEEN SOLD. THE LEARNED COMMISSIONER (APPEALS) HAS NOT MADE ANY ENQUIRY FROM THE PURCHASES AND, THEREFORE, NO SUCH PRESUMPTION COULD HAVE BEEN DRAWN. THAT APART, THE PARTIES TO WHOM TDRS WERE SOLD ARE COMPLETELY UNRELATED TO THE ASSESSEE AND, THEREFORE, IT CANNOT BE HELD THAT THE RATES ON WHICH THE ASSESSEE HAD SOLD TDR ARE SUPPRESSED FOR EXTRANEOUS CONSIDERATION. THUS, HE SUBMITTED THAT SUCH A DISALLOWANCE MADE BY THE LEARNED COMMISSIONER (APPEALS) SHOULD BE DELETED. M/S. SAI DEVELOPERS 14 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT AS REGARDS PROPORTIONATE DISALLOWANCE ON ROAD EXPENSES ARE CONCERNED THE SAME HAS BEEN MADE ON THE BASIS O F THE DIRECTION OF THE TRIBUNAL, WHICH WAS TO WORK OUT SOME RATIONAL BASIS FOR THE ALLOCATION OF EXPENSES BETWEEN PHASE I AND PHASE II. THE ASSESSING OFFICER HAD ALLOCATED THE ROAD EXPENSES , ONLY WHEN THE ASSESSEE WAS UNABL E TO GIVE PROPER BASIS FOR ALLOCATION AND EXPENDITURE RELATING TO PHASE I AND HAS ALSO NOT GIVEN ANY DETAILS FROM THE BOOKS OF ACCOUNT. EVEN THE BASIS ADOPTED BY THE LEARNED COMMISSIONER (APPEALS) ON THE RATIO OF LAND ON WHICH PHASE I AND PHASE II, WAS DEV ELOPED IS NOT A CORRECT BASIS. IT SHOULD HAVE BEEN ON THE BASIS OF DETAILS FURNISHED BY THE ASSESSEE ONLY AS PER THE DIRECTIONS OF THE TRIBUNAL. SINCE THE ASSESSEE HAD NOT FURNISHED THE SAME, THEREFORE, THE ASSESSING OFFICERS ALLOCATION OF EXPENSES SHOULD BE UPHELD. IN ANY CASE, THE ALLOCATION OF EXPENSES MADE BY THE LEARNED COMMISSIONER (APPEALS) @ 19% SHOULD NOT BE DISTURBED IN THE ABSENCE OF ANY OTHER BASIS OR CRITERIA GIVEN BY THE ASSESSEE. AS REGARDS THE DISALLOWANCE OF LOSS OF SALE OF TDR, HE SUBMITT ED THAT THE LEARNED COMMISSIONER (APPEALS) WAS VERY MUCH WITHIN THE JURISDICTION TO EXAMINE THE ACCOUNTS OF THE TDR , BECAUSE THE ASSESSING OFFICER HAS NOT ALLOCATED THE EXPENDITURE ON ACCOUNT OF TDR AT ` 40,76,950 AND ALSO ` 2,91,820. WHEN THE LEARNED COMM ISSIONER (APPEALS) WAS EXAMINING THESE EXPENSES, THEN IT W AS REALISED THAT THE M/S. SAI DEVELOPERS 15 LOSS CLAIMED BY THE ASSESSEE IN THE TDR ACCOUNT IS NOT JUSTIFIED. REASONS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) FOR DISALLOWING THE LOSS IS QUITE JUSTIFIED, HE THUS STRONG LY RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). 13 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THIS IS THE SECOND ROUND OF PROCEEDINGS WHICH ARE IN PURSUANCE OF DIRECTIONS GIVEN BY THE TRIBUNAL VIDE ORDER DATED 5 TH NOVEMBER 2008. IN THE ORIGINAL ROUND OF PROCEEDINGS, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF EXPENDITURE UNDER VARIOUS HEADS WHICH WERE CLAIMED FOR PHASE I ALONE , ON THE GR OUND THAT THE ENTIRE EXPENDITURE CANNOT BE CLAIMED FOR PHASE I , BECAUSE THE ENTIRE LAND ON WHICH THE PROJECT WAS TO BE DEVELOPED WAS IN TWO PHASES AND SOME OF THE EXPENDITURES MUST BE ATTRIBUTABLE OR ALLOCABLE TO PHASE II , LOOKING TO THE NATURE OF THE EXPE NSES. IN THE FIRST APPELLATE PROCEEDINGS, THE LEARNED COMMISSIONER (APPEALS) DELETED THE SAID DISALLOWANCE. IN THE SECOND APPEAL, THE TRIBUNAL HAS UPHELD THE ALLOCATION OF EXPENSES MADE BY THE ASSESSING OFFICER BETWEEN TWO PHASES IN PRINCIPLE AND HELD THAT THE ENTIRE EXPENSES CANNOT BE APPORTIONED TO PHASE I ALONE . H OWEVER , THE MATTER WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH A CATEGORICAL DIRECTION THAT THE ASSESSING OFFICER SHALL ALLOCATE THE EXPENDITURE CLAIMED BY THE ASSESSEE TO ITS COMPLE TED PHASE I AFTER M/S. SAI DEVELOPERS 16 VERIFYING THE DETAILS FURNISHED BY THE ASSESSEE AND ON SOME RATIONAL BASIS. IN THE SECOND ROUND, THE ASSESSING OFFICER HAS REPEATED THE SAID DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS RELATING TO BIFURC ATION OF THE SAID EXPENSES , AS DIRECTED BY THE TRIBUNAL . THE ASSESSEES MAIN CONTENTION HAS BEEN THAT THE MAJOR PROJECT ON THE LAND RELATED TO PHASE I AND ALL THE ACTIVITIES AND THE EXPENDITURES WERE INCURRED FOR PHASE I ALONE. THE SECOND PHASE HA D NOT STA RTED EVEN IN THE SUBSEQUENT YEARS AND, THEREFORE, ALLOCATING ANY EXPENSES FOR PHASE II WHICH HAS NOT YET COMMENCED, WOULD NOT BE FEASIBLE. HENCE, NO DETAILS COULD HAVE BEEN FURNISHED FOR GIVING ANY BASIS FOR ALLOCATION. REGARDING THE ROAD EXPENSES , IT HAS BEEN SUBMITTED THAT THE SAME WERE NECESSARY FOR GETTING ACCESS TO THE PLOT AND SALE OF UNITS FOR THE PHASE I WHICH OTHERWISE WOULD NOT HAVE BEEN POSSIBLE WITHOUT ROAD. THE REVENUES CASE IS THAT THE TRIBUNAL HAS GIVEN A CATEGORICAL DIRECTION FOR ALLOCATION OF EXPENSES WHICH HAS TO BE DONE ON SOME RATIONAL BASIS. T HE DISALLOWANCE ON ACCOUNT OF ALLOCATION OF EXPENSES , WHICH WERE MADE BY THE ASSESSING OFFICER IN BOTH THE ROUNDS OF ASSESSMENT, WERE UNDER FIVE HEADS, WHICH ARE AS UNDER: OUT OF ROAD EXPENSES ` 25,00,000 OUT OF LEGAL & PROFESSIONAL FEES ` 6,55,918 OUT OF LABOUR CHARGES ` 3,06,356 OUT OF TDR EXPENSES ` 2,91,820 OUT OF TDR COST ` 40,70,950 M/S. SAI DEVELOPERS 17 14 . THESE EXPENSES HAVE BEEN REDUCED BY THE LEARNED COMMISSIONER (APPEALS) , AS DISCUSSED IN THE FORGOING PARA GRAPHS . INSOFAR AS THE LEGAL PROFESSIONAL FEES AND LABOUR CHARGES ARE CONCERNED, THE LEARNED COUNSEL HAS NOT PRESSED THESE GROUNDS AND, THEREFORE, THE ONLY DISALLOWANCE OF EXPENDITURE WHICH ARE TO BE EXAMINED ARE ON ACCOUNT OF ROAD EXPENSES AND TDR EXPENSE S. AS REGARDS THE NATURE OF ROAD EXPENSES ARE CONCERNED, THE FACTS ARE THAT THE ASSESSEE HAD CONSTRUCTED A ROAD FROM HIGHWAY UP TO THE PROPERTY ON WHICH THE ASSESSEE HAS DEVELOPED THE PROJECT. FOR THIS PURPOSE, THE ASSESSEE HAS INCURRED EXPENDITURE OF ` 1, 12,20,285, OUT OF WHICH ` 12,20,285, WAS REIMBURSED TO THE ASSESSEE AND ONLY S UM OF ` 1 CRORE HAS BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT . THE ROAD SO DEVELOPED BY THE ASSESSEE IN THIS YEAR WAS HANDED OVER TO THE MUMBAI MUNICIPAL CORPORATION , IN LIEU OF WHICH , THE ASSESSEE GOT TDR OF 11,396 SQ.MTRS. THE ASSESSEE HAS DEBITED THE SAID EXPENSES OF ROAD AGAINST THE SALE OF TDR , WHICH WAS SOLD AT ` 2,60,12,282, IN THIS YEAR, AND HAS BEEN TAKEN AS A REVENUE RECEIPT IN THIS YEAR ONLY . THE LEARNED COMMISSIONER (A PPEALS) HAS GIVEN A FINDING THAT INSOFAR AS THE EXPENSES CLAIMED AGAINST THE TDR, NO DISALLOWANCE SHOULD BE MADE, BECAUSE THE ENTIRE SALE PROCEEDS OF THE TDR HAS BEEN SHOWN AS REVENUE IN THIS YEAR AND THE ASSESSEE HAS SHOWN THE EXPENSES AGAINST THE TDR SEP ARATELY. AT THE SAME TIME, THE LEARNED COMMISSIONER (APPEALS) HAS DISALLOWED THE PROPORTIONATE M/S. SAI DEVELOPERS 18 DISALLOWANCE AT THE RATIO OF 19% WHICH HAS BEEN TAKEN ON THE RATIO OF AREA OF LAND FOR PHASE I AND II. 15 . NOW, T HE MAIN ISSUE BEFORE US IS , WHETHER THERE SHOULD B E ANY ALLOCATION OF ROAD EXPENDITURE OR NOT AND WHETHER THE LEARNED COMMISSIONER (APPEALS) IS JUSTIFIED IN ALLOCATING 19% OF THE ROAD EXPENSES ON ACCOUNT OF PHASE I AND II. APPARENTLY, ON THE FACE OF THE FACTS, DISCUSSED ABOVE, THE ROAD EXPENDITURE CANNOT BE ALLOCATED FOR PHASE II , FOR THE REASON THAT , FIRST LY, FOR DEVELOPING THE PLOT AND PARTICULARLY THE PHASE I , ROAD WAS REQUIRED TO BE CONSTRUCTED FOR GETTING ACC ESS TO THE PLOT WHICH WAS LAND LOCKED; S ECONDLY, THE SAID ROAD HAS BEEN HANDED OVER TO THE MUN ICIPAL CORPORATION OF MUMBAI FOR PUBLIC USE AT LARGE AND NOT FOR ASSESSEES PROJECT ALONE THAT THE ASSESSEE HAS RECEIVED THE TDRS. LASTLY, THE ENTIRE SALE PROCEEDS OF THE TDR HAS BEEN SHOWN AS REVENUE IN THIS YEAR AND AGAINST THE SAID REVENUE THE ASSESSEE HAS CLAIMED EXPENDITURE OF THE ENTIRE ROAD EXPENSES. THEREFORE, THERE CANNOT BE ANY BASIS FOR ALLOCATION OF ROAD EXPENSES TO THE PHASE II. THE EXPENSES HAS TO BE SEEN ON A MATCHING PRINCIPLE I.E., THE COST INCURRED FOR THE PURPOSE OF GENERATING THE REVEN UE. IF THE MATCHING PRINCIPLE IS TO BE APPLIED, THEN THE ENTIRE ROAD EXPENDITURE INCURRED IN THIS YEAR HAS TO BE ALLOWED FROM THE REVENUE RECEIPTS OF THE TDR DISCLOSED IN THIS YEAR, BECAUSE IT HAS BEEN SHOWN AGAINST TDR RECEIPTS. M/S. SAI DEVELOPERS 19 16 . HOWEVER, WE ARE COMPLET ELY REFRAINING OURSELVES TO THE AFORESAID FINDING S AND RESTRICT OURSELVES TO THE SCOPE OF THIS PROCEEDING WHICH IS STRICTLY CIRCUMSCRIBED BY THE DIRECTIONS OF THE TRIBUNAL , WHEREIN THE TRIBUNAL HAS CATEGORICALLY OPINED THAT THE ENTIRE EXPENSES INCLUDING RO AD EXPENSES HAVE TO BE ALLOCATED ON SOME RATIONAL BASIS FOR BOTH THE PHASES . THIS ORDER OF THE TRIBUNAL HAS ATTAINED FINALITY. FOLLOWING THE MANDATE OF THE TRIBUNALS DIRECTION, T HE LEARNED COMMISSIONER (APPEALS) HAS WORKED OUT THE RATIO AFTER TAKING INTO ACCOUNT THE TOTAL LAND AREA OF THE PROJECT WHICH WAS 32,736 SQ.MTRS. AND THEREAFTER, WORKED OUT THE PROPORTION OF THE LAND AREA FOR PHASE I WHICH WAS 26,398 SQ.MTRS. AND LAND AREA FOR PHASE II WHICH WAS 6,338 SQ.MTRS. THUS, THE RATIO WORKED OUT @ 19%. SUCH A BASIS OF ALLOCATION OF EXPENSES @ 19% AS APPLIED BY THE LEARNED COMMISSIONER (APPEALS) SEEMS TO BE QUITE REASONABLE AND RATIONAL BASIS IN THE ABSENCE OF OTHER MATERIAL OR CRITERIA FOR ALLOCATION FOR THE PURPOSE OF MAKING THE ALLOCATION OF THE EXPENSES B ETWEEN PHASE I AND PHASE II. HOWEVER, THE DISALLOWANCE OF 19% ON THE ROAD EXPENSES SHOULD BE RESTRICTED TO NET EXPENDITURE INCURRED BY THE ASSESSEE I.E., ` 1 CRORE AND NOT ` 1,12,20,280, BECAUSE THE ASSESSEE GOT THE REIMBURS E MENT OF ` 12,20,285. THUS, THE DISALLOWANCE ON ACCOUNT OF ROAD EXPENSES SHOULD BE RESTRICTED TO ` 19 LAKHS. M/S. SAI DEVELOPERS 20 17 . NOW, COMING TO THE DISALLOWANCE OF LOSS ON SALE OF TDR OF ` 57,06,488. AS STATED EARLIER, SUCH A DISALLOWANCE OF LOSS ON ACCOUNT OF TDR WAS NOT THE SUBJECT MATTER OF EITHER THE O RIGINAL ASSESSMENT PROCEEDINGS OR THE MANDATE OF THE TRIBUNAL ORDER. IN THE ORIGINAL ROUND OF PROCEEDINGS, THE DISALLOWANCE OF TDR WAS MADE BY THE ASSESSING OFFICER ON SOME ESTIMATE BASIS AND IN THIS ROUND ALSO, THE SAME HAS BEEN REPEATED. FOR THE PURPOSE OF ALLOCATION OF TDR EXPENSES, THE LEARNED COMMISSIONER (APPEALS) HAD ALREADY DISALLOWED 19% OF THE ROAD EXP ENDITURE , WHICH WE HAVE ALSO CONFIRMED. THE OTHER EXPENDITURE , WHICH HAS BEEN CLAIMED IN THE TDR ACCOUNT, HAS BEEN DISTURBED BY THE LEARNED COMMISSI ONER (APPEALS) ON ACCOUNT OF DISALLOWANCE OF THE TOTAL LOSS. THE ACCOUNT OF THE TDR SHOWN BY THE ASSESSEE WAS AS UNDER: SALE PROCEEDS OF TDR ` 2,60,12,282 LESS: ROAD EXPENSES ` 1,00,00,000 TDR AND COST ` 1,80,76,950 TDR EXPENSES ` 15,91,820 LEGAL & PROFESSIONAL FEES PERTAINING TO TDR ` 20,50,000 (` 3,17,18,770) LOSS FROM SALE OF TDR ( ` 57,06,488 ) 18 . THE BASIS ON WHICH THE LOSS HAS BEEN DISALLOWED BY THE LEARNED COMMISSIONER (APPEALS) IS NEITHER SUSTAINABLE ON FACTS NOR IN LAW. B ECAUSE ON FACTS, THE REASON S ADOPTED BY THE LEARNED COMMISSIONER M/S. SAI DEVELOPERS 21 (APPEALS) , FIRSTLY, THAT THE SALE OF TDR TO ONE MR. VIJAY M. PARK I H IS AT LOWER COST IS WITHOUT ANY ENQUIRY OR ANY ADVERSE MATERIAL ON RECORD THAT THE ASSESSEE HAS SUPPRESSED THE SALE MADE TO THIS APRTY ; SECO NDLY, TO HOLD THAT THE PAYMENT OF LEGAL FEE IS NOT A NECESSARY EXPENDITURE IS AGAIN BASED ON SURMISES THAT TO BE WITHOUT ANY ENQUIRY OR BASED ON SOME EVIDENCE. EVEN UNDER THE LAW, THE LEARNED COMMISSIONER (APPEALS) CANNOT DISALLOW THE LOSS IN THIS ROUND OF PROCEEDINGS , WHICH IS IN PURSUANCE OF TRIBUNALS ORDER , ISSUING SPECIFIC DIRECTIONS, WHICH ARE ONLY IN RELATION TO ALLOCATION OF EXPENDITURE. W HEN THE ASSESSMENT ITSELF IS PASSED GIVING EFFECT TO THE CATEGORICAL DIRECTION OF THE TRIBUNAL, THEN IN PURSUANC E OF SUCH DIRECTIONS, THE ASSESSMENT HAS TO BE CONFINED WITHIN THAT LIMIT. THE LEARNED COMMISSIONER (APPEALS) COULD NOT HAVE TRANSGRESSED BEYOND THE DIRECTION AND THE SCOPE OF THE TRIBUNALS ORDER. THUS, ON BOTH THE COUNTS, THE LEARNED COMMISSIONER (APPEAL S) COULD NOT HAVE GO NE TO DISALLOW THE ENTIRE LOSS IN THE TDR ACCOUNT , WHICH WAS NOT THE SUBJECT MATTER OF EARLIER PROCEEDINGS . IN ANY CASE, ALREADY THE ROAD EXPENDITURE HAS BEEN DISALLOWED ON THE BASIS OF PROPORTIONATE ALLOCATION BETWEEN PHASE I AND PHASE II AND S UCH A ROAD EXPENSE IS A PART OF TDR ONLY, THEREFORE, NO SEPARATE DISALLOWANCE UNDER THE HEAD TDR COST OR EXPENDITURE , SHOULD BE MADE. THUS, THE DISALLOWANCE OF LOSS OF ` 57,06,488, AS MADE BY THE LEARNED COMMISSIONER (APPEALS), CANNOT BE SUSTAIN ED AND M/S. SAI DEVELOPERS 22 THE SAME IS DIRECTED TO BE DELETED. THUS, GROUND NO.2 AND 3, RAISED BY THE ASSESSEE STAND PARTLY ALLOWED. 19 . GROUND NO.4, RELATES LEVY OF INTEREST UNDER SECTION 234B. 20 . BOTH THE PARTIES ADMITTED BEFORE US THAT THIS GROUND IS CONSEQUENTIAL IN NATURE. AC CORDINGLY, WE DIRECT THE ASSESSING OFFICER TO GIVE CONSEQUENTIAL EFFECT WHILE RE COMPUTING THE INCOME OF THE ASSESSEE KEEPING IN VIEW OUR FINDINGS GIVEN ABOVE AND IN ACCORDANCE WITH THE PROVISIONS OF LAW. 21 . 2 1 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. WE NOW, TAKE UP REVENUES APPEAL IN ITA NO. 3810/MUM./2011 , VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS E RRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: - (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN RESTRICTING DISALLOWANCE OF EXPENSES TO 19% BASED ON LAND AREA ALLOCATION IN T HE ABSENCE OF ANY DETAILS OF EXPENSES RELATING TO PH . I & II. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE ABOVE DISALLOWANCE AFTER FAILING TO APPRECIATE THE FACT THAT THE DIRECTIONS CONTAINED M THE H ON'BLE ITAT'S JUDGMENT ITA NO.757/M/2006 DTD.05/11/2008 WHEREBY THE A.O. WAS REQUIRED TO ALLOCATE EXPENSES ON RATIONAL BASIS AFTER THE M/S. SAI DEVELOPERS 23 ASSESSEE PRODUCE THE BOOKS AND EXPLAIN ITS CASE WERE NOT FULFILLED BY THE ASSESSEE. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE ABOVE DISALLOWANCE AFTER FAILING TO APPRECIATE THE FACT THAT THE DIRECTIONS CONTAINED M THE HON'BLE ITAT'S JUDGMENT ITA NO.757/M/2006 DTD. 05/11/2008 WERE FURTHER RATIFIED BY THE HON'BLE ITAT M ITS ORDER NO.M.A./246/MUM/2009 DTD. 24/07/2009 FOR A.Y. 2001 - 02 WHILE DISPOSING THE ASSESSEE'S MISCELLANEOUS APPLICATION. (4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE COULD NOT SUBSTA NTIATE ITS CLAIM TOWARDS TOR EXPENSES AND COST BECAUSE OF WHICH THE A.O. COULD NOT BIFURCATE THESE EXPENSES PHASE WISE. 22 . BOTH THE PARTIES ADMITTED BEFORE US THAT THE ISSUE ARISING OUT OF THE AFORESAID GROUND S HA VE ALREADY BEEN DISCUSSED IN DETAIL IN ASS ESSEES APPEAL AND, THEREFORE, IN VIEW OF OUR FINDINGS GIVEN THEREIN, THESE GROUND RAISED BY THE REVENUE ARE NOT SUSTAINABLE, AS WE HAVE ALREADY UPHELD THE BASIS FOR ALLOCATION OF EXPENDITURE, AS MADE BY THE LEARNED COMMISSIONER (APPEALS). THUS, THESE GROU NDS RAISED BY THE REVENUE ARE TREATED AS DISMISSED. 23 . 2 3 . IN THE RESULT, REVENUES APPEAL IS DISMISSED . M/S. SAI DEVELOPERS 24 24 . , 2 4 . TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWE D AND REVENUES APPEAL IS DISMISSED. 11 TH JUNE 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 11 TH JUNE 2014 SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 11 TH JUNE 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CI TY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI M/S. SAI DEVELOPERS 25 DATE INITIAL ORIGINAL DICTATION PAID IS EN CLOSED AT THE END OF FILE 1. DRAFT DICTATED ON 5.6.2014 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 9.6.2014 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 10.6.2014 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 10.6.2014 JM/AM 5. APPROVE D DRAFT COMES TO THE SR.PS/PS 12.6.2014 SR.PS 6. DATE OF PRONOUNCEMENT 11.6.2014 SR.PS 7. FILE SENT TO THE BENCH CLERK 16.6.2014 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER , / / 19997 98 2000 01 / / / / / / / / / /