TMI Blog2008 (5) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... , it offers income from a particular project to tax only on completion of the project. During the previous year it completed two projects viz., "Madhuban" and "Millennium Gardens" and offered to tax income from the aforesaid two projects. 4. While computing its income from the aforesaid two projects, it claimed to have incurred the following expenditure and claimed the same as deduction : Madhuban Right of Way Rs. 1,58,00,000 FSI (Floor Space Index) Rs. 3,16,00,000 Millennium Gardens Right of Way Rs. 1,07,00,000 FSI (Floor Space Index) Rs. 2,56,00,000 5. The assessee purchased the right of way as well as FSI from M/s. Upvan Developers, a partnership firm, hereinafter referred to as "Upvan". Upvan was a partner of the assessee. Section 40A(2)( a ) of the Act provides as follows : "Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause ( b ) of this sub-section, and the [Assessing] Officer is of opinion that such expenditure is excessive or unr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of way acquired by the assessee. Purchase of FSI: Floor Space Index (FSI) is the permissible area of construction on a plot of land. The Development Control Regulations for Greater Bombay, 1991 regulates the FSI. The said regulations permit use of Transferable Development Rights (TDR) by purchase. Under the Maharashtra Regional and Town Planning Act, 1966 for carrying out rehabilitation of slums, the developer will be entitled to TDR, which is referred to as slum TDR. A person holding slum TDR or TDR simplicitor is entitled to sell the same. 9. Upvan was holding TDR, which they sold to the assessee. ( a ) For Madhuban : The assessee had a right to develop 2,248 sq. mts. They purchased 3,220 sq. mts. of TDR from Upvan and thus they could develop or construct additional built up area or achieve additional FSI on the plot of land on which Madhuban was developed. By an arrangement dated 17-5-2000, the assessee purchased 3,220 sq. mts. of FSI from Upvan for a consideration of Rs. 600 per sq. ft. or 25 per cent of the receipts for the additional FSI whichever is higher. ( b ) For Millennium : The assessee had a right to develop 988 sq. mts. They purchased 2779 sq.mts. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the Assessing Officer : (1)On the right of way, Upvan did not give an exclusive right of way to the assessee for both the projects. The right of way in both the cases was only a 9 meter wide access for which assessee paid Rs. 1.58 crores and Rs. 1.07 crores respectively. Upvan did not give up its right over the areas given as right of way. (2)The right of way was given only in the year when the project was completed and not in the earlier period. The arrangement was only with a view to reduce the income that was offered to tax when the project Madhuban and Millennium was completed. This was clear from the fact that the cost of the right of way was fixed, based on the receipts from the two projects. 14. Conclusion and disallowance : According to the Assessing Officer, the right of way in any case cannot be more than the cost of the land for which the right of way was being acquired. On the basis of this conclusion, the Assessing Officer disallowed the following sums : Madhuban : Cost of Land - Rs. 70,00,000 Cost of Right of way - Rs. 1,58,00,000 Excess of Rs. 88,00,000 was disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Cost of Right of Way Rs. 1,58,00,000 Rs. 1,07,00,000 Cost of land Rs. 2,28,00,000 Rs. 1,32,00,000 Area of land 35273 21381 = Rs. 646 per sq. ft. Rs. 617 per sq. ft. 17. In working out the cost as above, the CIT(A) held that the lands owned by the assessee, as it existed before acquiring the right of way was not a marketable commodity in the way in which the assessee marketed it later. Therefore, the cost of the right of way cannot be compared with Plots that were freely marketable. The cost of the plot as originally owned by the assessee together with the cost of right of way was the price on which the Assessing Officer should apply comparative yard-stock. The Assessing Officer s action in taking the Cost of Right of Way in isolation was not correct. Learned CIT(A) thereafter found that Rs. 900 per sq. ft. being the circle rate for stamp duty purposes was a comparable yardstick and if so compared, there was no excess payment by the assessee. Therefore, the addition was deleted by the CIT(A). 18. On the issue of cost of FSI, the CIT(A) held that slum TDR was not a comparable yardstick. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee did acquire benefit in the form of increased FSI. This is true with regard to the plot on which the project Millennium was deve-loped. A seller selling such right of way would certainly quote a price commensurate with the benefit, which the purchaser is likely to get. Therefore, the right of way cannot be valued de hors the value of the plot in respect of which the right of way is acquired. The value of the right of way as worked out by the assessee at Rs. 646 and Rs. 617 per sq. ft. for Madhuban and Millennium projects is, therefore, found acceptable. This compares favourably with the circle rates as prescribed by the Registration Department for stamp duty purposes, which is Rs. 900 per sq. ft. Therefore, we find no infirmity in the order of the CIT(A) deleting the addition made by the Assessing Officer. 23. As far as the purchase of the FSI is concerned, one aspect needs to be clarified at the outset The assessee purchased additional FSI from Upvan in the year 2000. The Agreement in this regard was made in the year 2001. The Assessing Officer seems to have doubted even the necessity of purchase of Additional FSI by the assessee. This was not correct. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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