TMI Blog2015 (11) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. In the given case, the AO has not given any finding in respect of fair market rate of interest paid by the assessee. Under these facts, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. - Decided against revenue. Valuation of opening stock and closing stock of V- 6 Type SB/12-5 Water Pump and V-6 Type SB/12-6 Water Pump - contention of the assessee is that the difference in the opening and closing stock was due to change in the material utilized for manufacturing of the pump and, therefore, naturally cost of manufacture would decrease - Held that:- The Assessing Officer has simply compared the valuation of items in the opening stock and closing stock without appreciating the difference in the quality of raw material used in the manufacture of submersible pumps which was changed from gun metal to stainless steel. It shows that the Assessing Officer has not taken into consideration the full facts with regard to valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that during the course of assessment proceedings, the assessee failed to substantiate the valuation of the closing stock with supporting evidences and the Id. C1T(A) has based his decision on new evidences which were not furnished before the AO. 3. The Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 61,33,566/- made by the AO on account of profit from Suryarath scheme, without property appreciating the facts of the case and the material brought on record by the AO. 3.2 In doing so, the Ld. C1T(A) has erred in law and on facts in not appreciating that as per the agreement, M/s. Maniar Developers had exercised full supervisory and financial control as far as the development and construction of Suryarath bungalows scheme was concerned and therefore the AO had rightly held that M/s. Maniar Developers was not only a contractor but was the developer of the scheme and whatever profit had been earned in the said scheme was the profit M/s. Maniar Developers and not the profit of the said Cooperative Housing Society. 4. The Ld. C1T(A)-XX, Ahmedabad has erred in law and on facts in deleting the addition of ₹ 12,15,933/- mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary, the deposits from the nonrelated parties were accepted as short term basis. 4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We are unable to accept the contention of the ld.counsel for the assessee that on short-term deposits, the assessee had paid at a lower rate of interest. The ld.CIT(A) deleted the addition on the basis that the Tribunal has allowed the interest even @18% and @ 24% respectively. We are of the view that the AO has to point out not merely on the basis of inter se payment of interest, but the prevalent market rate. As per provisions of section 40A(2)(a) of the Act, the disallowance can be made where the assessee incurs any expenditure in respect of payment has been or is to be made to any person referred to in clause (b) of this subsection, and the AO is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange in the valuation is in respect of neck-ring and impeller. Even the product literature submitted by the appellant (P.40 to 43) also shows the change in the product mix. It is the contention of the appellant that in the competitive market and to satisfy the needs of the customers, it has to reduce its cost by changing the quality of the rawmaterial to a cheaper one. I am also inclined to accept the contention of the appellant that the valuation of items of stock would not be the same in both the years and the G.P. Rate is not an indicator of the increase in cost price because it may be offset by corresponding increase in the sale price. The appellant has supported the valuation of stock by submitting the xerox copies of purchase bills as pointed out in his reply dated 27-11-09. Even otherwise, the appellant is assessed to tax at the maximum marginal rate year after year and the increase in valuation of closing stock would be revenue neutral by corresponding increase in the opening stock for the next year by such amount. The Assessing Officer has simply compared the valuation of items in the opening stock and closing stock without appreciating the difference in the quality of ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopers is given the task of raising necessary finances, preparation of plans and its approval, plotting of the land and construction of flat / unit /shops . Clause-4- M/s Maniar Developers will introduce new members and collect land fees, development fees, legal fees and any other amount from the members so introduced at its discretion and M/s Maniar Developers will not take consent of the society in this regard and will not be bound by any suggestion of the society. Clause-5 - M/s Maniar Developer is entitled to allot /sale the plots/units to the members at the rate decided by M/s Maniar Developer. All the financial transaction with the members will be conducted by M/s Maniar Developer and it will be entitled to use the money received from the member as per its will and discretion. Suryarath Bunglows Co-op. Housing Socty. Ltd. will not have any share he money so received from the members and society will not ask for any accounts of money so received. Clause -8 - For building construction, M/s Maniar Developers can give contract or sub-contract to any person or contractor at its discretion and all the financial transactions with contractor or sub-contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore what ever profit has been earned in the Suryarath Bunglows scheme are the profit of M/s Maniar Developers and not the profit of Suryarath Bunglows Co-operative Society Ltd. However, the assessee has not offered any profit earned from the scheme for taxation. Instead of showing profit from the Suryarath Bunglows scheme, the assessee has shown development charges @ 10%. In the development agreement, there is no mention of paying development fees @ 10% to M/s Maniar Developers by Suryarath Bunglows Co-operative Housing Society Ltd.It is not explained of what is 10% received as development fees. On perusal of P L A/c for A.Y 2007-08, it is seen that the assessee has shown interest income only and no development fees have been shown as shown in the books of accounts. The interest income is received from the bank on deposit of scheme deposit fees and maintenance fees. Vide letter dated 27/11/2009, the assessee has submitted that in Suryarath Bunglows scheme it has constructed 107 units including 79 bunglows and 28 shops. Upto 31/03/2007, the M/s Maniar Developers has collected ₹ 6,99,39,404/- from the members to whom bunglows/shops have been sold. M/s Maniar Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % in its books of account and has not disclosed the profit earned in this scheme. The assessee has not provided the year wise details of receipts from various members but it has provided the year wise payments made to Suryarath Cooperative Hosing Society Ltd.. In absence of the year wise details of receipts, it is difficult to arrive the exact profit earned by M/s Maniar Developers on the scheme. On comparison of the balance sheet as at 31/3/2006 and 31/3/2007 it is seen that M/s Maniar Developers has shown liability of ₹ 70,42,104/- as at 31/3/2006 and liability of ₹ 1,90,01,439 as at 31/3/2007. During the year, M/s Maniar Devlepoers has paid ₹ 2,00,000/- to Suryarath Bunglows Co-operative Housing Society Ltd. and there is liability of ₹ 1,90,01,439/- a on 31/3/07. Thus , during the year M/-s Maniar Developers has received ₹ 1,21,59,335/- ( ₹ 1,90,01,439 + ₹ 2,00,000 - ₹ 70,42,104) from various members on sale of bunglows/shops. It is submitted by the assessee that upto 31/3/2007 M/s Maniar Developers has paid ₹ 4,46,35,000/- to Suryarath Cooperative Hosing Society Ltd. and there is liability of ₹ 1,90,01,439/- as on 31/3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd given findings in paras-6.2 to 6.6 of his order, which are in the following terms:- 6.2 I have considered the submissions made and the evidences produced by the appellant in light of the findings given by the AO in his assessment order. It is noticed that the AO has included the so-called profit from the said Scheme in the hands of the appellant mainly for the reason that the appellant exercised full managerial and financial control as regards the development and construction of the Scheme. However, the AO has failed to appreciate that the appellant was entrusted such control by virtue of a development agreement and unless the said arrangement is found to be sham or bogus, the appellant is nothing more than an agent of the Society so as to carry out the work or the activities entrusted to him by the Society. The development agreement simply does not transfer or vest title of the assets of the Society with the Developer. It only permits the Developer to carry out various activities as enumerated in the agreement. It is noticed from the said development agreement that the appellant was supposed to carry out various activities in f relation to development of scheme and in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of working out income but it is not correct in view of the payments made by the Members towards various other items like, land, infrastructure development and cost, expenses, etc. Even the audited balance sheet of the said Society as on 31-03-07 shows that the land cost was ₹ 4,95,83,022/- and the building construction work was ₹ 3,87,61,227/- as against which land and building contribution from members was only ₹ 1,47,48,118/- and scheme deposits was ₹ 6,99,60,615/-. In short, the addition of ₹ 61,33,566/- worked out by the AO in relation to the entire Scheme which was carried out during A.Y. 2003-04 to 2006-07 is not justified. 6.4 In my view of the matter, even the development charges worked out by the AO at ₹ 12,59,933/- being 10% of this year's collection of ₹ 1,21,59,335/- is not correct because the said amount represents collection from various Members transferred by journal entry to the .account of the Society and thus, it has no relevance or bearing to the development activity carried out by the appellant so as to estimate profit out of it. The perusal of ledger account of the Society from books of M/s. Mania ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention that M/s. Maniar Developers was entitled to 10% of the total receipts from Suryarath Scheme, as development charges, hence 10% of the total collection of ₹ 1,21,59,335/- from various members i.e., ₹ 12,15,933/-was treated as income of the appellant. This contention of the Assessing Officer is not correct because the appellant was entitled to development charges only on the construction cost as per the resolution of the society from time to time, it has no relevance with the collections from the members. This year, no construction was carried out by the appellant, 6.6 In view of the aforesaid facts and circumstances of the case, I hold that the AO was not justified in holding the development charges at 10% of the total receipts from the Members as well as making addition of the entire difference of ₹ 61,33,566/- as well as ₹ 12,15,933/- to the total income of the appellant in this year and hence, both the additions are hereby deleted. 8.2. The aforesaid findings of the ld.CIT(A) is not controverted by the Revenue by placing any material on record, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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