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TMI Blog2013 (11) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... was claimed towards cost of development in the case of Shri Sama Naresh. The returns were originally processed u/s 143(1) of the Act but subsequently selected for scrutiny as per board guidelines. Accordingly notices u/s 143(2) and 142(1) of the Act were issued. Sri Surya Prakash sold 10.60 acres of land to M/s. GSPCL for a total consideration of Rs.2,28,96,000/- and while deducting the cost of the asset, a sum of Rs.64 lakhs was included therein towards cost of development. Similarly, Sri Sama Naresh sold 5 acres of agricultural land to M/s. GSPCL for a total consideration of Rs.1,08,00,000/- and while deducting the cost of the assets, he added a sum of Rs.30 lakhs referable to cost of development of land sold. During the scrutiny proceedings, the assessees were asked to submit the details of amounts paid towards land development. The assessees submitted that the payments were made by cheque. Sri Surya Prakash and Naresh paid to two contractors i.e. Rolla Siva Sanadha Rao, Tallarevu and Sree Constructions, Kakinada from 19.06.2007 to 24.09.2007 whereas, the land was transferred to M/s. GSPCL on 11.6.2007. In this regard, the A.O. observed that the entire development appears to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment does not contain any such pre-condition. Under these circumstances, the assessees were again called upon to explain details of the expenditure incurred by the developers for each acre of land and how many acres were developed by each developer separately. In response thereto, the assessees submitted that they are brothers and the entire land belongs to them and situated at one place. They have just handed over the land to the developer with a request to level the land and in turn, the developers have done their work as per their convenience. Thereafter, as demanded by them, payment was made to them. From the above mentioned facts, the Ld. Assessing officer drew a conclusion that the assessees are not in a position to submit details of expenditure incurred per acre even after completion of the work and on the top of it, no evidence was produced regarding the necessity of undertaking the land filling activity. It may be noticed here that cost of development of land, which is wholly and exclusively necessary for the purpose of sale, can be added to the cost of land whereas, in the instant case, there was no evidence on record to prove that the land filling activity was done out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onwards he proceeded to estimate the expenditure, implying thereby that it was assumed that even in the absence of prior agreement between M/s. GSPCL and the assessees regarding development of land expenditure, if any, can be adjusted against capital gains. 6. Aggrieved by the order of the assessing officer, assessee preferred an appeal before the Tribunal. The case of the assessee is that the development expenditure, as claimed by the assessees, ought to have been allowed having regard to the fact that the payments were made by cheques and the factum of payment was not disputed. In the alternative, it was contended that the estimate of development expenditure is very low and the assessing officer should have enquired with appropriate authorities before estimating the expenditure. 7. The Ld. CIT(A) recorded the observations of the assessing officer with regard to the main aspect of the issue, i.e. development expenditure cannot be claimed as deduction since there is no agreement between M/s. GSPCL and the assessee but he did not give any finding on this aspect because the assessing officer merely estimated the expenditure and did not disallow the claim in its entirety. In this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the expenditure was inflated having regard to the fact that going by the ordinary human conduct, no person would allow a developer to charge the price of his choice without knowing the rate before hand, particularly when an expenditure claimed to have been incurred is so high. Ordinarily, in such transaction they should enter into an agreement and no prudent business man would incur such huge expenditure without an agreement/assurance in writing, particularly when the alleged expenditure in the case of both the parties put together is about Rs.1 crore. The Ld. D.R. submitted that all the payments were made after the date of sale. There was no agreement between the assessee and M/s. GSPCL to show that development of land is a condition precedent for sale of land. In fact there is no written agreement between the assessee and the developer also. Under the peculiar factual matrix, whether mere payment by cheque, after the date of sale, is a device or ruse to reduce the tax payment or not ought to have been looked into by the CIT(A) since his powers are co-terminus with that of the assessing officer and he has the power of enhancement also but despite the fact that substantial por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. accepted that in order to sell the land, the assessee had to fill the land which is termed as development expenditure. Though he has taken into consideration a comparable case, he proceeded on the assumption that the comparable case do not reflect the correct rate and by taking into consideration the nature of land held by the assessees herein, the A.O. concluded that expenditure up to Rs. 3 lakhs per acre is reasonable which in itself shows that filling activity had taken place. In fact, the payment having been made by cheque and developers having filed the returns of income and admitted that they have carried on development activity, it is not necessary for the Ld. CIT(A) to restore the matter to the file of the assessing officer. In fact, the CIT(A) has no power to set aside the matter. He also contended that the assessees should not be put to loss if the assessing officer chooses to pass a scanty order and in such cases, assessment order should not be set aside to make good the lacuna in the assessment orders. He thus strongly supported the orders passed by the Ld. CIT(A). 11. We have carefully considered the rival submissions and perused the record. The facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pelled to do so and such compulsion should be reflected in the sale deed. Similarly, even if the land had to be developed/filled in, nobody would be willing to incur generously 30% of the sale price that too without any agreement, either with the purchaser or with the developers. It is also necessary to notice that the developers, being business men, would not ordinarily take up such contracts without anything in writing and without any prior payment. The entire surrounding circumstances plainly go to prove that the assessing officer has correctly noticed the facts and arrived at a conclusion that development expenditure cannot be allowed as deduction u/s 48 of the Act. Merely because he has drifted from his main observations to estimate expenditure on adhoc basis and to generously allow the same as deduction the Ld. CIT(A), whose powers are co-terminus with that of the assessing officer, should not remain as a mute spectator of the game. In the case of Kapurchand Shrimal v. CIT A.P. 131 ITR 451 the apex court observed that an appellate authority has a jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate dire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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