9911796707
TMI Blog2014 (7) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 without 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. I) Road Expenses Rs. 21,31,854/- II) Legal & Professional fees Rs. 1,24,624/- 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 by 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 Hon'ble ITAT and hence the disallowance of loss on sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The project of Phase-I started on 25th August 1994, and was completed on 2nd February 2001, i.e., in the impugned assessment 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 Rs. 11,43,02,933, which included Rs. 8,82,90,651, from sale of units of Phase-I and Rs. 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 incurred during the commencement and completion 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 31st October 2001, the assessee declared income of Rs. 52,16,250 from Phase-I after claiming set-off of credit forward and unabsorbed loss of earlier year of Rs. 33,11,907. Thus, the current year income shown in the Profit & Loss account was at Rs. 85,28,161. As against the returned income, the assessment was completed at an income of Rs. 1,63,59,205, after adding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 its letter dated 7th October, 2002 that the cost of development of the property which began around the 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 given 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 for 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 expenses were not properly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer was bound by the direction of the Tribunal, wherein the Tribunal has rejected the assessee's plea that no allocation of expenditure can be made 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 expenditure 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 allocating the expenditure, therefore, proportionate area of land pertaining to Phase-I and Phase-II should be taken as rational basis. Looking to the fact that Phase-I constituted of Rs. 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 assessee's contention in principle th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le rate to different parties and huge amount incurred on legal fee paid to architect, she disallowed the entire loss claimed by the assessee of Rs. 57,06,488. Thus, it resulted into enhancement of the assessee income. As a result of the appellate order, the total disallowance aggregated to Rs. 80,20,173. 9. Before us, the learned Senior Counsel, Dr. K. Shivaram, on behalf of the assessee, at the outset, submitted that insofar as grounds relating to disallowance on account of legal and professional fee of Rs. 1,24,624 and ground relating to labour charges disallowance of Rs. 58,207, which has been raised vide ground no.2(ii) and 2(iii), are not pressed as amount involved is small. 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 Mumbai 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 / presumption 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. 12. The learned Departmental Representative, on the other hand, submitted that as regards proportionate disallowance on road expenses are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. However, 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 completed Phase-I after 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 bifurcation of the said expenses, as directed by the Tribunal. The assessee's 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 had not started 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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, firstly, for developing the plot and particularly the Phase-I, road was required to be constructed for getting access to the plot which was land locked; secondly, the said road has been handed over to the municipal corporation of Mumbai for public use at large and not for assessee's 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 revenue. 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. 16. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Rs. 3,17,18,770) Loss from sale of TDR (Rs. 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. Because on facts, the reasons adopted by the learned Commissioner (Appeals), firstly, that the sale of TDR to one Mr. Vijay M. Parkih 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; secondly, 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 Tribunal's order, issuing specific directions, which are only in relation to allocation of expenditure. When the assessment itself is passed giving effect to the categorical direction of the Tribunal, then in pursuance 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 Tribunal's order. Thus, on both ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
