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2016 (3) TMI 417 - ITAT DELHI

2016 (3) TMI 417 - ITAT DELHI - TMI - Disallowance towards the cost of land - Held that:- On probing amount of the work in progress the AO has come to know that these expenses have not all been incurred by the assessee and on perusal of the sale deed AO has stated that sale consideration is inclusive of all rights. Therefore in this case AO is disputing the closing stock of the earlier years also. In view of the above facts and circumstances of the case we are of the view that learned Commission .....

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ls)-XXI, New Delhi for the Assessment Year 2009-10 raising following grounds of appeal:- 1. That learned Commissioner of Income Tax (Appeals) XXI, New Delhi has grossly erred both in law and on facts in sustaining a disallowance of sum of ₹ 6,73,76,070/- representing expenditure incurred on licence fees, external development charges and conversion charges of land and held to be not forming part of cost of land for computing the profit on sale of commercial block by the appellant company. 1 .....

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reciate the factual and legal position that once an expenditure had been incurred, the same necessarily had to be adopted as part of cost of land of the appellant company and allowed as necessary deduction while computing the profit on sale of commercial block by the appellant company. 1.3 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that Memorandum of Understanding dated 1.04.2007 specifically provided that cost incurred by transferor companies towards lic .....

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on record and thus, perverse, wholly unjustified and unsustainable. 1.5 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the disallowance of ₹ 17,53,00,007/- representing expenditure incurred on development of building in the financial year 2007-08 relevant to assessment year 2008-09. 1.6 That the learned Commissioner of Income Tax (Appeals) while upholding the disallowance has overlooked that contention that since such expenditure .....

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ing dated 1.04.2007 and, paid by account payee cheques supported by bills/vouchers and duly debited in books of accounts, which have been accepted as such and therefore, the addition sustained is altogether misconceived, misplaced and unsustainable. 2.3 That the finding of the learned Commissioner of Income Tax (Appeals) that expenditure has been incurred between 28.3.2003 (date of purchase) and 313.2008 (end of the financial year) is factually incorrect, contrary to record duly established that .....

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of ₹ 2,15,34,711/- which is not leviable at all on the facts of the appellant company. 2. Brief facts of the case are that the assessee is a limited company which derived its income from property development. For the year it filed its return of income on 21.03.2011 declaring a loss of ₹ 2,86,91,730/- and assessment u/s 143(3) was completed on 30th December 2011 by making two adjustments i.e. (1) disallowance of ₹ 6,73,76,070/- being difference between the cost adopted by the a .....

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₹ 6,73,76,070/- being expenditure incurred by the assessee on license fees, the external development charges and conversion charges of land as according to AO they cannot be forming part of cost of land for computing the profit on sale of commercial complex by the appellant company. The brief facts of this grounds is that during the year the assessee company sold a commercial property at Block B, Gurgaon vide conveyance deed dated 06.03.2009 for ₹ 7,72,04,000/-. The property was sold .....

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ld during the year and therefore the ld AO asked for the detail of cost and expenses incurred by the assessee which can be deducted from the sale price of the land for determining the profit. The assessee was granted to deduction of cost of land and stamp duty including additional stamp duty paid by the assessee. However the ld. AO did not consider an amount of ₹ 8,42,23500/- incurred for licence fees, ₹ 3,40,22,446/- incurred as external development charges and ₹ 1,84,77,777/- .....

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e this property to one M/s. Unitech Hospital Developers Pvt. Ltd. which was cancelled and sale was made to the assessee. The original sellers prior to the sale of land applied for approval of construction of commercial complex of the said land and paid an amount ₹ 13,67,23,723/- pertaining to licence fees, conversion charges and external development charges. This amount was paid by the seller to the Director, country planning Haryana on 25.03.2008. The sale deed was executed of the land in .....

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rores. This cost was bifurcated by the assessee having been incurred in two year i.e. Assessment Year 2008-09 and 2009-10 for Block A of ₹ 54.04 crores and for Block B ₹ 21.46 cores. As during FY 2008-09 i.e. AY 2009-10, Block A was sold for ₹ 61.76 acres against this the assessee deducted cost of land of ₹ 10.94 based on the total built up area and cost of building of ₹ 54.04 crores and thereby showing a profit of ₹ 3.22 crores. The ld AO did not consider lic .....

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h is ₹ 10,94,10,910/- and as per AO it is ₹ 4,20,27,377/-. In this regard, Ld.AR of the appellant has submitted that the figure taken by the AO is totally misconceived as such expenditure was incurred by the vendor prior to the sale of the land to the appellant and it could not be a ground to allege or conclude that such expenditure has been incurred for approval of construction of commercial complex and it was not eligible as business expenditure of the appellant company. In this re .....

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gone through the submission and findings of the AO in this regard. In fact, AO's finding is based on sale deed dated 28.3.2008, wherein, cost of land has been taken at ₹ 8,56,12,2807-which is inclusive of stamp duty and additional stamp duty. So in Para 3.7 of the assessment order AO has meticulously worked out the proportionate cost of land after taking into account each and every expenditure. Case laws relied by the Ld.AR of the appellant are distinguishable on facts. After consideri .....

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e PB. b. As assessee has shown the above cost of the property as inventory as at 31.3.2008, It was argued that AO was bound to accept the opening cost of such land which is already incurred and accounted for in the books of the earlier years. It was further submitted such cost of land should be granted as deduction even if such cost was not paid by the appellant. He specifically relied on the decision of Hon ble Supreme Court 318 ITR 204 in case of VKJ Builders and contractors Pvt. Ltd. Vs. CIT. .....

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nd facts placed before us. It is important to look at MOU entered between (1) Unitech business parks ltd, (2) unitech developers and hotels Pvt. Ltd and (3) Unitech Hospitality service ltd. According to this agreement it is stated that united business park ltd is the owner of the licensed land which was purchased by it from Unitech Ltd on 31-August-2004. On 30.3.2006 Unitech business park ltd further entered into the agreement to sale this property to Unitech Developers and Hotels Pvt. Ltd for & .....

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eed based on this MOU. Therefore for the exact consideration and cost of land the only relevant documents required to be seen is the sale deed executed between the assessee and Unitech business parks ltd. This sale deed dated 25.03.2008 which is filed in the PB 89-91. According to that sale deed the total consideration for 3.398 acre of land was ₹ 716 lacs and stamp duty paid of ₹ 4296,000/-. On reading of the sale deed we could not find any reference of the amount of license fees et .....

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antages, passages, pathways, permission grants whatsoever attached or annexed to the said land. 2. That the VENDEE has paid the aforesaid total consideration of ₹ 7,16,00,000/-(Rupees Seven Crore Sixteen Lac Only) vide cheque No.856317 dated 25.03.2008 drawn on Canara Bank, Nehru Place, New Delhi to the VENDOR, the receipt whereof the VENDOR hereby admits and acknowledges. 3. That hereafter the VENDOR Company is not left with any right, lien or claim of any nature whatsoever in the said la .....

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tc., which may be levied in future shall be borne and paid by the VENDEE. 6. That all expenses, incurred on registration of this Sale Deed including Stamp Duty and other charges have been borne and paid by the Vendee. 7. According to paragraph No.5 of that sale deed of tax levies assessment demand or charges which are levied in respect of the said plot of land paid up to the date of Sale deed are to be paid by the vendor and after that by the assessee. Contrary to the statement made by the asses .....

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as recorded the cost of external development charges and license fees in the books of account by crediting it to some other parties account and showing it as work in progress i.e. opening stock , it cannot be granted as deduction from the sales price of the land when ( 1) the cost has been incurred by the other party, (2) the sales deed proves otherwise, ( 3) MOU relied up on by the assessee does not support the argument of the assessee. LD AR has argued vehemently that the assessee has already .....

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e, this argument deserves to be dismissed. Fact before the Supreme Court in case cited before us is quite different. The Hon ble Supreme Court has held that according to the principle of accountancy that the figure of the closing stock of the earlier years does form the opening stock of the next year and it cannot be questioned in the subsequent year. Off course, there cannot be any question on acceptance of this accounting principle. However Hon ble Supreme Court was not concerned the issue lik .....

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eed AO has stated that sale consideration is inclusive of all rights. Therefore in this case AO is disputing the closing stock of the earlier years also. In view of the above facts and circumstances of the case we are of the view that learned Commissioner of Income-tax (Appeals) has rightly confirmed that disallowance of ₹ 6,73,76,070/- towards the cost of land , we confirm the order of learned Commissioner of Income-tax (Appeals) and dismiss the ground No.1 of the appeal of the assessee. .....

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period of ₹ 17.53 lacs it was also observed by AO that all these expenses are incurred prior to the purchase of the land by the assessee. The AO further supported his disallowance relying on the sale deed executed on 28th March 2008 wherein on the 3rd Para it is clearly stated that vacant plot of land has been sold to the assessee alternatively it was stated by AO that sale to the assessee was in respect of land only therefore there is no construction on that land till the date of sale of .....

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t the land was purchased on 28th March 2003 and previous year ended on 31.03.2008. These expenses have been incurred and therefore the expenditure of ₹ 1753 lacs is prior to the purchase of the land. The ld AR contended same arguments which were raised before the learned Commissioner of Income-tax (Appeals) and in the same manner that the capital work in progress showing the opening stock cannot be disturbed by AO. The ld DR on the relied on the order of lower authorities. 9. We have caref .....

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