K Raheja IT Park (Hyderabad) Pvt. Ltd., Hyderabad V. Dy.CIT, Circle-2(1), Hyderabad

MA 72/HYD/2014

• Counselvise Citation: [2014] 124 COUNSELVISE.COM (IT) 2080 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 23-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital receipt; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER MA NO. 72/HYD/2014 IN ITA NO. 1324/HYD/13 A.Y. 2006-07 MA NO. 73/HYD/2014 IN ITA NO. 1325/HYD/13 A.Y. 2007-08 M/S. K. RAHEJA IT PARK (HYDERABAD) PVT. LTD. HYDERABAD PAN: AACCK1914G VS. THE DEPUTY CIT CIRCLE-2(1) HYDERABAD APPELLANT RESPONDENT APPLICANT BY: SRI JITENDRA JAIN RESPONDENT BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 0 9 .0 5 .201 4 DATE OF PRONOUNCEMENT: 06.06.2014 O R D E R PER CHANDRA POOJARI, AM: BY THESE TWO MISCELLANEOUS APPLICATIONS, THE ASSESSEE IS SEEKING RECTIFICATION IN THE ORDER OF T HE TRIBUNAL IN ITA NOS. 1324 AND 1325/HYD/2013 DATED 21.3.2014. 2. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE WHICH INCLUDES DEVELOPI NG, OPERATING AND MANAGING AN INDUSTRIAL PARK IN HYDERA BAD. THE ASSESSEE HAS DEVELOPED AN INDUSTRIAL PARK AT MINDSPACE IN MADHAPUR, HYDERABAD COMPRISING AN INTEGRATED COMPLEX OF COMMERCIAL BUILDINGS WHICH HA VE BEEN LET OUT TO VARIOUS TENANTS. COST INCURRED ON THE CONSTRUCTION AND DEVELOPMENT OF THE IT PARK HAS BEE N MA NOS. 72 & 73/HYD/2014 M /S. K. RAHEJA IT PARK (HYD) PVT. LTD. ============================= 2 CAPITALIZED IN THE ASSESSEE'S BOOKS OF ACCOUNT UNDE R FIXED ASSETS. THE ASSESSEE WAS ALLOTTED LAND BY THE ANDH RA PRADESH GOVERNMENT FOR DEVELOPMENT OF THE IT PARK. COST OF THE LAND WAS DETERMINED AT RS 54.57 CRORES, BUT WAS SUBJECT TO A REBATE AS PER THE G.O. MS 27 (ICT POLI CIES 2002) ISSUED BY GOVT OF AP AND CLAUSE 6.4 & 6.5 OF MEMORANDUM OF AGREEMENT ENTERED WITH GOVT OF AP. T HE ASSESSEE IS ENTITLED TO REBATE ON LAND COST OF RS 2 0,000/- PER EVERY JOB CREATED WITHIN THE SPECIFIED PERIOD B Y THE ASSESSEE OR BY SUBSEQUENT ACQUIRER/LESSEE/ LICENSEE OF THE SAID LAND/PROPERTIES DEVELOPED ON THE SAID LAND . IF THE REBATE AT THE END OF THE SPECIFIED PERIOD WAS L ESS THAN THE COST OF THE LAND, THEN SUCH SHORTFALL WOULD BE PAYABLE BY THE ASSESSEE, TO THE GOVT OF AP AT THE END OF TH E SPECIFIED PERIOD. 3. THE AR SUBMITTED THAT NO COST IN RESPECT OF ALLOTMENT OF LAND WAS RECORDED IN EITHER THE PROFIT AND LOSS ACCOUNT AND/OR IN THE BALANCE SHEET OF THE ASS ESSEE AT THE TIME OF ALLOTMENT OR THEREAFTER; IT BEING CO NFIDENT OF BEING ENTITLED TO THE FULL AMOUNT OF REBATE. TO SE CURE PERFORMANCE OF ITS OBLIGATIONS, HOWEVER, THE GOVT O F AP HAD SOUGHT A BANK GUARANTEE FROM THE ASSESSEE, OF A N AMOUNT EQUIVALENT TO COST OF LAND I.E., RS 54.57 CR ORES. THIS BANK GUARANTEE WAS DULY FURNISHED, AND WAS TO BE RELEASED PRO-RATA BASED ON THE REBATE ON THE COST O F LAND ACCRUING TO THE ASSESSEE EVERY FINANCIAL YEAR DURIN G THE SPECIFIED PERIOD. DURING THE FINANCIAL YEAR RELEVAN T TO AY 2006-07, 1,536 JOBS WERE CREATED IN THE IT PARK, AN D ACCORDINGLY, THE ASSESSEE WAS ENTITLED TO A PRO-RAT A REBATE ON THE COST OF LAND AMOUNTING TO RS 30,720,000. BA SED ON THIS, THE BANK GUARANTEE AMOUNTING TO RS 30,720, 000 MA NOS. 72 & 73/HYD/2014 M /S. K. RAHEJA IT PARK (HYD) PVT. LTD. ============================= 3 WAS RELEASED BY THE GOVT OF AP. IT IS THIS RELEASE OF THE BANK GUARANTEE WHICH IS THE SUBJECT MATTER OF DISPU TE BEFORE THE TRIBUNAL. THE HON'BLE TRIBUNAL HAS DISCU SSED THIS ISSUE IN PARA 10.1 TO 10.3 OF ITS ORDER AND HA S COME TO A CONCLUSION THAT THE SAID RELEASE OF BANK GUARA NTEE CONSTITUTES A REVENUE RECEIPT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. 4. ACCORDING TO THE AR, THE TRIBUNAL HELD THAT IF A SUBSIDY OR GRANT IS GIVEN TO RECOUP REVENUE EXPENDI TURE, IT WILL TAKE COLOUR OF A REVENUE RECEIPT, IF NOT, IT W OULD BE A CAPITAL RECEIPT. ACCORDING TO THE AR, IN THE PRESE NT CASE, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND LEASING OF LAND AND BUILDING AND ARE THE TRADING ASSETS OF THE ASSESSEE. IT IS EVIDENT FROM THE COPY OF THE BALAN CE SHEET FILED BY THE ASSESSEE FOR THE YEAR ENDED 31/03/2006 AS PER SCHEDULE VI-K, THE ASSESSEE'S TOTAL EXPENDITURE ON LAND IS RS 1,610,805,902/- WHICH IS AS FOLLOWS AND NOT CHARGED TO PROFIT AND LOSS A/C. : LAND AND LAND RELATED EXPENSES - RS 7,336,54 7 MATERIAL CONSUMED - RS 403,720,338 OTHER BUILDING ACCESSORIES - RS 664,650,096 CONTRACTUAL PAYMENTS - RS 411,541,202 OTHER EXPENSES - RS 123,557,719 TOTAL - RS 1,610,805,902 5. THE AR SUBMITTED THAT CORRELATING THE PRINCIPLES ESPOUSED IN PARA 10.1 TO THE OBSERVATIONS CITED IN PARA 10.2, THE TRIBUNAL, IN PARA 10.3 HAS CONCLUDED AS U NDER: 'WHEN THE LAND IS TREATED BY THE ASSESSEE AS STOCK-IN-TRADE AND THE EXPENDITURE RELATING TO THE LAND IS TREATED AS REVENUE EXPENDITURE, THE CONCESSION RECEIVED BY THE ASSESSEE WITH MA NOS. 72 & 73/HYD/2014 M /S. K. RAHEJA IT PARK (HYD) PVT. LTD. ============================= 4 REFERENCE TO THE LAND CANNOT BE TREATED AS A CAPITAL RECEIPT, BUT, IT WOULD BE TREATED AS A REVENUE RECEIPT. IN OTHER WORDS, WHEN THE LAND WAS ADMITTEDLY RELATING TO THE TRADING ACTIVITIES OF THE ASSESSEE, THE CONCESSION RECEIVED IN RELATION TO THE LAND, THE COST OF THE LAND TO BE TAKEN INTO ACCOUNT IN COMPUTING THE PROFITS AND GAINS OF THE ASSESSEE.' 6. THE AR SUBMITTED THAT THE TRIBUNAL HAS ERRED IN OBSERVING THAT THE ASSESSEE HAS DEBITED A SUM OF RS 1,610,805,902 TO THE P&L ACCOUNT TOWARDS LAND AND OTHER RELATED EXPENSES. IT IS SUBMITTED THAT THE L AND AND LAND RELATED EXPENSES UNDER SCHEDULE K AS MENTIONED ABOVE DO NOT INCLUDE ANY AMOUNT TOWARDS ALLOTMENT O F LAND. THE EXPENSES INCLUDED THERE IN ARE IN THE NA TURE OF STAMP DUTY & REGISTRATION FEES INCURRED FOR REGISTR ATION OF TITLE DEEDS AND THE BANK GUARANTEE COMMISSION. NOTE S TO ACCOUNTS ALSO DO NOT STATE THAT ANY AMOUNT FOR ALLO TMENT OF LAND IS RECORDED IN THE ACCOUNTS. IT IS THEREFO RE SUBMITTED THAT THE BASIS OF THE TRIBUNAL'S REASONIN G IN PARA 10.2, THAT THE ASSESSEE HAS DEBITED THE EXPEND ITURE TO THE P&L ACCOUNT AND FURTHER DRAWING INFERENCE TH AT THE THERE WOULD BE ADJUSTMENT OF THE SUBSIDY AGAINS T THE AMOUNT PAYABLE AND THEREBY COMING TO A CONCLUSION T HAT IT IS A REVENUE RECEIPT IS BASED ON ERRONEOUS UNDERSTANDING OF THE FACTS. 7. THE AR SUBMITTED THAT SINCE THE ALLOTMENT OF LAND AND THE PRICE PAYABLE AT THE END OF THE SPECIFIED P ERIOD AFTER FACTORING THE NOTIONAL SUBSIDY IS NOT RECORDE D IN THE BOOKS OF ACCOUNTS, ANY REDUCTION IN SUCH PRICE BY V IRTUE OF THE BASIS OF THE HON'BLE TRIBUNAL'S REASONING TH AT THE SUM OF RS 30,720,000 IS A RECEIPT, MUCH LESS A REVE NUE RECEIPT, CONSTITUTES A MISTAKE APPARENT FROM RECORD AND MA NOS. 72 & 73/HYD/2014 M /S. K. RAHEJA IT PARK (HYD) PVT. LTD. ============================= 5 THEREFORE OUGHT TO BE RECTIFIED. HAD IT BEEN THE CA SE THAT THE ASSESSEE HAD CLAIMED ANY BENEFIT ON ACCOUNT OF THE LAND COST, BY ADDING SUCH COST TO THE VALUE OF ITS 'INVENTORY', OR BY CHARGING SUCH COST TO ITS P&L AC COUNT, THEN, IT WOULD HAVE BEEN APPROPRIATE TO TREAT THE R ELEASE AND/OR THE REBATE AS ITS REVENUE RECEIPT. HOWEVER, AS HIGHLIGHTED IN THE FOREGOING PARAGRAPHS, THIS IS NO T THE CASE. IN FACT, TREATING THE RELEASE AS A REVENUE RE CEIPT WOULD TANTAMOUNT TO DOUBLE TAXATION AS, ON SALE OF LAND / BUILDING OR THE IT PARK, IT WOULD NOT BE GETTING AN Y DEDUCTION FOR THE COST OF LAND, SUCH COST NEVER HAV ING BEEN RECORDED IN ITS BOOKS. TO THAT EXTENT IT WOULD PAY INCOME-TAX TO THE EXTENT OF THE FULL CONSIDERATION THAT IS ATTRIBUTABLE TO THE LAND. ON COMPLETION OF SPECIFI C PERIOD, THE ASSESSEE HAS SUBMITTED A LIST OF EMPLOYMENT GENERATED TO GOVT. OF AP WHICH IS STILL UNDER VERIF ICATION. ALL THE JOBS CLAIMED RELATE TO THE EMPLOYMENT GENER ATED BY THE LESSEE/LICENSEE OF THE ASSESSEE, THUS IT IS PERTINENT TO NOTE THAT EVEN IN REMOTE SENSE, THE REBATE WILL NOT TANTAMOUNT TO REDUCTION OF THE EMPLOYEE COST. ACCORDINGLY, HE PRAYED THAT APPROPRIATE CORRECTION IS TO BE MADE IN THE ORDER OF THE TRIBUNAL. 8. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THERE IS NO MISTAKE APPARENT FROM RECORD SO AS TO R ECTIFY THE SAME. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE MAIN CONTENT ION OF THE ASSESSEE'S COUNSEL IS THAT THE ASSESSEE HAS NOT DEBITED ANY EXPENSES RELATING TO THE ALLOTMENT OF L AND UNDER SCHEDULE-K AND THE ASSESSEE INCURRED NO COST FOR MA NOS. 72 & 73/HYD/2014 M /S. K. RAHEJA IT PARK (HYD) PVT. LTD. ============================= 6 THE LAND ALLOTMENT. THE EXPENSES REFLECTED IN SCHE DULE-K ARE IN THE NATURE OF STAMP DUTY, REGISTRATION FEE I NCURRED FOR REGISTRATION OF TITLE DEED AND BANK GUARANTEE COMMISSION. THIS DOES NOT TANTAMOUNT TO INCURRING OF ANY EXPENDITURE TOWARDS ALLOTMENT OF LAND BY THE GOVERNMENT. FURTHER, IT WAS SUBMITTED THAT SINCE T HE ASSESSEE HAS OFFERED THE GROSS AMOUNT ON SALE OF LA ND/ BUILDING/IT PARK AS REVENUE RECEIPT FOR TAXATION PU RPOSES AND THERE IS NO DEDUCTION OF LAND COST FROM IT, TAX ING THE COST OF THE LAND ONCE AGAIN AMOUNTS TO DOUBLE TAXAT ION. WE FIND FORCE IN THIS ARGUMENT OF THE COUNSEL. ACCORDINGLY, IF THE ASSESSEE IS NOT CHARGING COST O F LAND TO THE PROFIT AND LOSS A/C., AND OFFERED THE RECEIPT F ROM SALE OF LAND/BUILDING/IT PARK AS REVENUE RECEIPT, THEN T HE CLAIM OF THE ASSESSEE COULD BE ALLOWED. IN VIEW OF THIS, WE DIRECT THE AO TO VERIFY WHETHER THE ASSESSEE HAS CH ARGED ANY COST INCURRED FOR ALLOTMENT OF LAND IN ITS BOOK S OF ACCOUNT AS AN EXPENDITURE AND IF IT IS NOT CHARGED ANY EXPENDITURE TOWARDS ALLOTMENT OF LAND TO PROFIT AND LOSS A/C., THEN THE CLAIM OF THE ASSESSEE IS TO BE ALLOW ED. WITH THIS OBSERVATION, THERE WILL NOT BE ANY CHANGE IN T HE FINAL RESULT OF THE ORDER OF THE TRIBUNAL THAT IS 'REVENU E APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES '. 10. IN THE RESULT, BOTH THE MAS FILED BY THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JUNE, 2014 SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 6 TH JUNE, 2014 TPRAO MA NOS. 72 & 73/HYD/2014 M /S. K. RAHEJA IT PARK (HYD) PVT. LTD. ============================= 7 COPY FORWARDED TO: 1. M/S. K. RAHEJA IT PARK (HYD) PVT. LTD., 64 (PART) MINDSPACE, CYBERABAD, APIIC SOFTWARE UNIT LAYOUT, MADHAPUR, HYDERABAD-500 081. 2. THE DCIT, CIRCLE-2(1), 8 TH FLOOR, B-BLOCK, IT TOWERS, HYDERABAD. 3. THE CIT(A)-III, HYDERABAD. 4. THE CIT-II, HYDERABAD. 5. THE DR 'B' BENCH, ITAT, HYDERABAD