Gera Realty Estates, Pune V. Assistant Commissioner of Income-tax,Central Circle-1(3), Pune

ITSSA 76/PUN/2019

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0837 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 10-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-10-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARI KRISHAN
• Keywords: Business income; Principle of natural justice
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE „A‟ BENCHES:: PUNE BEFORE SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER& SHRI G.D. PADMAHSHALI, ACCOUNTANT MEMBER IT(SS)A No.76/PUN/2019 (A.Y. 2012-13) Gera Realty Estates (AOP), 200, Gera Plaza, Boat Club Road, Pune – 411 001 PAN: AAAAG 3713 H vs ACIT, Central Circle-1(3), Pune Appellant Respondent Assessee by : Shri Hari Krishan & Shri R.S. Soniminde, ITP Revenue by : Shri Keyur Patel, DR Date of hearing : 09/10/2023 Date of pronouncement : 11/10/2023 ORDER Per PARTHA SARATHI CHAUDHURY, JM: This appeal preferred by the assessee emanates from the order of Commissioner of Income Tax (Appeals)-11, Pune (for short, „CIT(A)‟), dated 18.02.2019 for A.Y.2012-13 as per the following revised grounds of appeal:- “1. The ld.CIT(A) has erred in confirming the disallowance of ₹ 47,43,333/- made by the AO out of the common amenity expenses (Common Services Expenses). Disallowance made by the AO and confirmed by the CIT(A) may be deleted. 2. The ld.CIT(A) has erred in confirming the disallowance of the deduction u/s. 80IB(10) of the Income Tax Act, in respect of the four flats, in building F of the Emerald city, Kharadi housing projects, for the reasons that, the built up area of each of these four flats has exceeded the upper limit of 1500 sq.ft. The disallowance may be deleted. 3. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal.” 2. In the first ground, the assessee is aggrieved with the IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 2 confirmation of disallowance of Rs. 47,44,333/- by the ld. CIT(A) as made by the Assessing Officer (AO) out of Common Services Expenses. 3. The relevant facts as appearing from the assessment order are as follows:- “6. Ongoing through the disclosure of transaction with related parties in Notes forming part of the Financial statements as at 31/03/2012, it is reported that an amount of Rs. 2,68,75,435/- has been paid to an enterprise having significant control. The payment of Rs.2,68,75,435/- ismade to GDPL on account of cost sharing.Ongoing through the records, it is found that the assessee is associate concern of Gera DevelopmentsPvt. Ltd. and is one of the entities of Gera Group. The payment is covered u/sec. 40A(2)(b) of the I.T.Act 1961. 6.1 The Gera Group is constructing a number of commercial/ residential projects under one umbrella. It is claimed that for administrative convenience all common indirect expenses (Common AmenityExpenses)are incurred by the parent company i.e. M/s GeraDevelopments Pvt. Ltd.,and the proportionate share of expenses is allocated to the various sister companies. 6.2 The details of payment made by the assessee to GDPL on account 0f Cost sharing and Construction cost incurred extracted from preceding Years reported in its final accounts are as under:- Construction Cost AY 2010 AY2011 AY2012 AY2013 Cost shoring payment to GDPL 13404821 31504890 26875435 34727232 Opening Work-in-progress 95620544 274623955 308019364 94349586 Add: Cost incurred during the year Land/Development Costs 8500 - 125643 38397897 Material Consumed 80793282 68367919 9585775 2476217 Contract Labour and Other Expenses 73042472 94774275 26945236 59482540 Administration and Other expenses 25159156 59983849 41640937 47691721 Subtotal 179003410 223126043 78297591 148048375 Percentage ratio of Cost sharing to Cost incurred during the year 7.48 14.11 34.32 23.45 IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 3 6.3 It can be seen from the above that the percentage ratio of Cost sharing to Cost incurred during the year is not consistent and it varies from 7.48% to 34.32%. The payment towards Cost sharing during the Previous year 2011-12 relevant to AY 2012-13 is 34.32% which increased by 26.84% and 20.21% as compared to payments made in AY 2010-11 and AY 2011-12 respectively. 6.4 The assessee in this regard has submitted a brief description of thecost incurred and basis of allocation of same which is reproduced as under 'Human Resource Costs- It includes basic salary and wages, perquisites, insurance payments, compensation, contribution to Provident Fund, Gratuity Fund, bonus, recruitment expenses. Human resource cost is apportioned on the basis of time spent/given by the employee on the projects. Office and administration expenses- It includes house- keeping charges, professional fees, membership fees, repairs, AMC charges. The same are bifurcated between the various entities on the basis of time being allocated by individuals to each project. Finance Charges- It includes interest on term loan, loan processing charges, bank guarantee cheques. General construction finance has been used to fund the project. No specific loan has been taken for individual project. The interest cost has been apportioned on the basis of funds utilized/allocated to each project. " 6.5 The submission made by the assessee is considered but cannotbe accepted. It is to be mentioned here that the assessee prior to AY 2013-14 was constructing Emerald city Kharadi North and Emerald City Southprojects eligible for deduction u/sec. 80IB(10).During the last quarter of F.Y.2011-12, the expenses on construction of new project i.e. Gera's Park View are incurred. Gera's Park View is a non 80IB(10) project. The Emerald City North and South project and Gera's Park View project are onthe land having same Survey Number. Therefore, the Cost of Construction would be similar except addition in Cost due to inflation. However, it is seen that the cost booked incurred for Gera's Park View are on the higher side and are unreasonable. In my considered opinion, the reasonable amount under CommonAmenity Expenses which needs to be allocated to the assessee should be 20% of the cost incurred by the assessee. Therefore, 20% of Rs. 7,82,97,591/- i.e. cost incurred which comes to Rs. IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 4 1,56,59,518/- is the allocable Common Amenity expenses to the assessee. Hence, the difference of Rs. 2,68,75,435/- and Rs.1,56,59,518/- which comes to Rs.1,12,15,917/- is disallowed treating the same as unreasonable. 6.6 During the course of assessment proceedings in the case of Gera Developments Pvt. Ltd for AY 2010-11, the details of expenses with amounts allocated to the associate concern and also the details of expenses in its books of accounts was furnished. Ongoing through the details in the case of Gera Developments Pvt. Ltd. for AY 2010-11, the picture emerging is tabulated as under: Allocation of expenses Particulars of expense Total Gera Sitapri expense Realty Properties GDPL Estates Pvt. Ltd. WIP P&L Total Employee's Cost ... -- 8880283 8880283 58406971 24593266 16053137 40646403 Repairs &Maintenance 3601015 501255 501255 1581129 1017375 2598504 Conveyance &Travelling 4227112 566457 566457 1961284 1132914 3094198 Communication expenses 1974968 264661 264661 913428 532218 1445646 Vehicle maintenance 1074144 143941 143941 498378 287884 786262 Miscellaneous expenses 3108822 295046 295046 1267955 1250775 2518730 Rent expenses 3262550 466079 466079 1398234 932158 2330392 legal &Professional Fees 5977952 714323 714323 1237402 3311904 4549306 Advt. &Marketing expenses 6622862 1295474 1295474 0 0 33451076 24518365 57969441 57.70467 42.29533 It can be seen from the above that Gera Developments Pvt. Ltd. on its allocated share of expenses accounts 57.70% to WIP and 42.30% is charged to Profit & Loss a/c. Therefore, for disallowing the unreasonable Common Amenity Expenses in the case of the assessee same ratio is adopted. 6.7 As discussed herein above, that in absence of any submission clarifying the Common Amenity Expenses with justification the difference amount which comes to Rs.1,12,15,917/- is disallowed for want of verification of expenses. An amount of Rs. 47,44,333/- which is 42.30% of the disallowance is added to the business income. 4. We have heard the submissions of the parties herein and have given considerable thought to the documents on record. We observe IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 5 from the aforestated facts and decision of the AO that so far as the details of payments made by the assessee to GDPL on account of cost sharing and construction cost incurred extracted from preceding years as reported in the final accounts, in the aforestated table the percentage ratio of cost sharing to the cost incurred during the relevant Assessment Year 2012-13 was 34.32%. Now, as compared to the percentage for A.Y. 2011-12, which was 14.11%, there has been a substantial increase in the relevant assessment year. However, the assessee has not given any basis for such allocation of cost and payment towards cost sharing during the relevant assessment year. We also observe that the table given at para 6.6 of the AO‟s order where allocation of expenses has been given and therein Gera Realty Estates and Sitapri Properties Pvt. Ltd. and therein under particulars of expenses relating to allocation of expenses were absolutely identical and same i.e. Rs.88,80,283/- for each of the said entities and again the assessee has not provided any basis for such details of expenses vis-a-vis the amounts allocated to the said concerns. Thereafter, the AO at para 6.7 states that since the assessee has not given any basis, any submission clarifying the common amenity expenses and that since no justification has been given, an amount of Rs. 47,44,333/- was disallowed and added to the business income of the assessee. The said percentage of disallowance comes to 42.30%. Therefore, as evident at the assessment proceedings, the assessee failed to provide IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 6 any justification regarding the percentage ratio of cost sharing to the cost incurred during the year and in absence of any justification by the assessee, the AO had made the said disallowance. We further observe that at the first appellate stage also, the assessee had failed to come out with specific reasoning and explanation of cost incurred and allocation of the same. Vide para 33 & 34, the ld. CIT(A) had observed that the AO had correctly pointed out that there was sharp increase in the allocation of expenses for A.Y. 2012-13 which was 34.32% as compared to 14.11% in just the preceding assessment year and the assessee had failed to explain the reason for such sharp increase in allocation of expenses before the AO as well as ld.CIT(A). That, in absence of details the ld. CIT(A) confirmed the disallowance made by the AO. We are of the considered view that in the case of the assessee, the cost was incurred and the basis of allocation had to be explained by the assessee and therefore it is the assessee who has to discharge the onus on it by justifying with documentary evidences and details and submitting them before the Department. In the present case, the assessee has not submitted any documentary evidences/ details neither before the AO nor ld. CIT(A). The Department has to adjudicate on merits and should be provided with an opportunity to examine the evidences to be furnished by the assessee to determine the claim of the assessee on their issue. Further, the Act is within the ambit of welfare legislation, and therefore, in the interest of justice, IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 7 we are of the considered view that one final opportunity should be given to the assessee to represent and justify its case on merits on this issue before the ld. CIT(A). In view thereof, we set aside the order of the ld. CIT(A) on this ground of addition of Rs.47,44,333/- and remand the said ground back to his file for adjudication as per law complying with principles of natural justice and at the same time, we direct the assessee to represent its case on merits by providing detailed documentary evidences and submissions as would be necessary and after examining and verifying the same as per law, the ld. CIT(A) shall come out with a speaking order. We order accordingly. Ground No.1 of the revised grounds of appeal stands allowed for statistical purposes only. 5. In ground No.2, the assessee is aggrieved with the confirmation of disallowance of deduction u/sec. 80IB(10) of the Act in respect of four flats in Block „F‟ of Gera‟s Emerald City, Kharadi for reason that the built up area of each of these four flats had exceeded the upper limit of 1500 sq.ft. 6. The relevant facts as appearing in the order of ld. CIT(A) on the issue are as follows:- 24. For the A.Y. 2012-13, it is gathered that the assessee has shown a sales of constructed units to the extent of Rs. 58,29,45,096/-. The claim of deduction u/sec. 80IB is of Rs.41,71,943/- and Rs.27,93,35,441/- against Gera’s Emerald City, Kharadi, North and Gera’s Emerald City, Kharadi, South respectively. The AO has noted that the assessee did not furnish the requisite details essential for verifying the quantum of deduction allowable u/sec. 80IB(10) before IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 8 allowing the claim made by the assessee in the return of income. It has not furnished separate accounts of the projects required for claiming deduction u/sec. 80IB(10). The AO has relied on the assessment proceedings for A.Y. 2011-12, wherein the AO had issued commission u/sec. 131(1)(d) of the Act to Shri Nitin Lele, registered valuer; to inspect the property and submit a report in line of the provisions u/sec. 80IB(10) claimed by the assessee on Emerald City Kharadi, North and South. As the registered valuer had noted that some flats exceeded the built up area of 15000 sq.ft. and these were in violation of clause (c) of section 80IB(10); the claim of deduction u/sec. 80IB(10) was rejected by the AO in A.Y. 2011-12. As no further submissions were made before the AO during the assessment proceedings for A.Y. 2012-13, relying on the assessment for A.Y. 2011-12, the AO denied the claim of deduction u/sec. 80IB of Rs. 28,35,07,384/- to the appellant for A.Y. 2012-13. 25. As the claim of deduction u/sec. 80IB during the year is with respect to the same project, i.e. Emerald City, Kharadi, North and South with respect to which CIT(A)-5 in the case of the appellant for A.Y. vide her order dated 12/05/2017 has already given a finding. As the facts are identical for the two years and the project involved is also the same. I am inclined to accept the findings of the ld. CIT(A)-5 in her order dated 12/05/2017 in the case of the appellant for A.Y. 2011- 12, the same shall apply for A.Y. 2012-13 as well.” 7. The ld. CIT(A) while deciding the issue has relied on the assessee‟s case for A.Y. 2011-12 and accordingly had applied the said decision for the present assessment year also. We find that in assessee‟s own case for A.Y. 2011-12, this Tribunal in ITA Nos. 2080 & 2050/PUN/2017, order dated 19/05/2022 on the very same issue has held that as per the report of DVO as sought by the AO, it was clearly stated that the said 10 flats exceeded the prescribed built up area of 1500 sq.ft. and accordingly held that the said window was includable in the built up area. Therefore, it was clear that the additional wall and box like window were included in the built up area which was above the prescribed built up area as required for claiming deduction u/sec. 80IB(10) of the Act. Accordingly, the assessee was denied claim of IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 9 deduction u/sec. 80IB(10) with regard to those said flats. The relevant para of the judgment is extracted for sake of completeness as follows:- “10. Heard both the parties and perused the material available on record. We find the contentions raised by the ld. AR were raised before both the authorities below. It was contended that the assessee erected an additional wall and a box like window instead of a regular window shed which was separated from the internal wall of the said residential unit with 6” cavity is not usable. In order to verify the same, the AO sought report from the DVO, who clearly stated the said 10 flats exceeding the prescribed built up area of 1500 sft. and particularly held that the said window is includable in the built up area. Therefore, it is clear the additional wall and box like window is to be included in the built up area which is above the prescribed built up area as required for claiming deduction u/s 80IB(10) of the Act. There is no dispute with regard to this position by the ld. AR. Therefore, we find no infirmity in the order of CIT(A) as it was thoroughly discussed from para No.6.10 to 6.12 of the impugned order. Thus, we hold that the assessee is not entitled to claim deduction u/s80I(10) of the Act and we completely agree with the reasons recorded by the CIT(A) and it is justified. Thus, ground No.1 raised by the assessee fails and is dismissed.” Therefore, this issue is no more res-integra and as already held by this Tribunal (supra), the assessee has exceeded the specified built up area in claiming deduction in terms of sec. 80IB(10)(c) of the Act and hence was not entitled for such claim. The four flats referred to in this ground before us were amongst the same 10 flats for which adjudication has been done by this Tribunal in the aforestated order. Therefore, respectfully following the said decision in assessee‟s own case (supra), this ground raised by the assessee fails and is dismissed. Ground No.2 of the revised grounds of appeal is dismissed. 8. Ground No.3 is general in nature. IT(SS)A No.76/PUN/2019 Gera Realty Estates (AOP) 10 9. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in open Court on 11 th October, 2023. Sd/- Sd/- (G.D. PADMAHSHALI) (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 11 th October, 2023 vr/- Copy to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT concerned. 4. The DR, ITAT, “A” Bench Pune. 5. Guard File. By Order // TRUE COPY // Senior Private Secretary ITAT, Pune.