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TMI Blog2019 (11) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. 3. The aforesaid appeal by revenue for Assessment Year [in short referred to as 'AY'] 2012-13 contest the order of Ld. Commissioner of Income-Tax (Appeals)-28, Mumbai [in short referred to as 'CIT(A)'], Appeal No. CIT(A)-28/IT-253/ITO-17(2)(1)/2015-16 dated 03/06/2016 on certain grounds of appeal. The revenue has filed revised grounds of appeal on 09/05/2018 along with Form No. 36, which read as under: - 1. On the facts and circumstances of the case and in law Ld.CIT(A) has erred in directing to delete the addition of Rs. 14,78,00,145/- on the grounds that the addition emanating from the provisions of Sec.50C of the I.T.Act cannot be made in the case of a builder as the flats sold are their stock in trade and not Capital assets without appreciating the fact that the assessee firm has not substantiated with any documents, evidence and proof the reason for selling the residential/commercial units at less than stamp duty Authority Valuation including the reasons as to why the buyers of the residential/commercial units bought the said properties at less than the Value determined by the Sub Registrar and not disputed with the Stamp Duty Authority Valuation but paid the Stamp Dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings it transpired that the assessee was engaged in redevelopment of a property bearing C.S. No. 121 of Mazgaon division wherein the leasehold rights were obtained by the assessee in public auction of MCGM. The property consisted of slum dwellers and unauthorized occupants. The assessee was granted permission for re-development of the said property during the period 07/12/2001 to 31/12/2002. The said project was carried in the name and style of Jupiter at Nesbit Road, Mazgaon. Upon perusal of details / information, it transpired that the building was ready for occupation and all the flats were already sold. However, the assessee claimed that certain issues regarding the money paid to MHADA & state government were under dispute and therefore, the assessee did not offer any income for taxation purpose. The assessee admitted that although the building was ready for occupation but occupation certificate was not granted due to some pending finishing and civil works and legal hurdles raised by MHADA & State government. Both the authorities were stated to have raised certain demands which were under challenge before judicial authorities and therefore, the volume of sale and profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order dated 03/06/2016 wherein the issues were decided partly in assessee's favor by observing as under: - 5.DECISION: I have carefully considered the facts of the case, grounds of appeal and written submissions made before me. The controversy here is twofold. The 1st ground of appeal is against the action of the AO in holding that the project is complete and therefore the appellant should have recognized revenue and thereby profits from the same. The 2" ground is against the action of the AO in adopting the stamp duty valuation for all the sale agreements of the appellant which admittedly have been registered below the stamp duty value for all flats. 5.1 Ground 1: The AO has held the project to be complete therefore has recast the accounts of the appellant and recognized revenue and taxed the resultant profits. The case of the appellant is that the project cannot be held as complete as he does not have occupation certificate which is pending due to ongoing litigation with the State Govt authorities. The matter needs detailed examination on facts. The case of the appellant is that the project is not complete as there are pending litigation with the State Govt authorities rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e project is not complete and I agree with the AO that the project is complete and profits from the same have to be recognized. I accordingly dismiss ground 1. However, while on this issue, I find that the appellant has submitted a without prejudice computation of income before the AO. In the same, the sales are recognized at Rs. 17,10,86,600 and the WIP is Rs. 13,67,04,817 (upto 31.03.2012). The appellant has then reduced certain other expenses net of income incurred on the project in the subsequent years being FY 2012- 13 & 2013-14 as also FY 2014-15. These are expenses actually incurred in the books on the project. Over and above this, the appellant has made a provision for expenses of Rs. 2,32,75,980 being Collectors demand, Rs. 3,00,34,541 being Occupancy Charges, Rs. 5,64,00,000 being value of surplus area demanded by MHADA and a provision towards cost of litigation Rs. 50,00,000. The provisions made towards the 1st three demands are contested by the appellant in the High Court which has ordered status quo in the matter. The AO has allowed the provisions so made but disallowed the actual expenditure of FYs 2012-13 onwards. This action of the AO is not correct. I have examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these three amounts in the assessment order. Ground 1 is therefore dismissed. 5.2 Ground 2: This is against the action of the AO in holding that the sale consideration of the flats is to be adopted at the stamp duty valuation instead of the stated consideration as per agreement. The AO has discussed the matter in paras 15 to 18 of his order. It is an admitted fact that the flats have been sold by the appellant at stated consideration in the agreements which is lower than the stamp duty rates. There is also no dispute about the fact that the total of the agreed consideration is lesser than the stamp duty valuation by Rs. 14,78,00,145. When asked to explain as to why he has sold flats at rates lower than the stamp duty valuation, the appellant contended before the AO that as no sales have been made after 01/04/2014, the provisions of sec 43CA would not apply to the appellant. The case of the appellant therefore is that there is no provision I to substitute the full value of consideration at the stamp duty valuation in cases where the stock in trade being flats are agreed to be sold at a lower value. I find that the AO has not mentioned licit reasons why he is substituting stamp dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of selling of flats after construction. In the return of income for the assessment year 2009-10 it declared the net income arising from the sale of flats at Rs. 3.63 crores under the head 'Profits and gains of business or profession'. * The Assessing Officer noticed that there were variations in price charged by the assessee from various customers to whom the flats were sold. He, therefore, made an addition to the tune of Rs. 4.45 crores to the income of the assessee by applying the rate of another flat sold by it visa-vis the rate at which flat under view was sold. * On appeal, the Commissioner (Appeals) relying on the provisions of sections 50C and 56(2)(vii)(b)(ii) held that the market value of flats ought to have been considered instead of the actual sale consideration. He, therefore, sustained the addition at Rs. 8.53 crores. * On appeal to Tribunal: HELD -I * A bare perusal of the provision of section 50C indicates that where the consideration received on transfer of a capital asset, being land or building or both, is less than the stamp value, then for the purposes of section 48, the stamp value shall be considered as full value of consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a result of transfer, if the latter is lower than the former. The insertion of this provision by the ^Finance Act, 2013 with effect from 1-4-2014 makes it abundantly clear that the mandate of 43CA shall apply only with effect from assessment year 2014-15 and not before that. Therefore, the conclusion drawn by the Commissioner (Appeals) in invoking the provision of section 50C for sustaining the addition has no legal legs to stand on. [Para 7]. Section 56 lies in the residual head of income, i.e., 'Income from other sources'. Subsection (1), which is a general provision, provides that income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under this head, if it is not chargeable to income tax under any of the heads specified in sectibrj 14, items A to E. Sub-section (2) of section 56 deals with certain types of specific incomes which are chargeable under this residual head. Clause (vii) provides that where an individual or Hindu undivided family receives any immovable property for no consideration or a consideration which is less than the stamp duty value of the property by an amount exceeding rupees fif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was liable to be deleted Respectfully following the decision of the Hon'ble ITAT Mumbai cited supra and in view of the express provisions of sec 50C, I hold that the sale consideration cannot be substituted by the stamp duty valuation. The addition made by the AO of Rs. 14,78,00,145 is therefore deleted. Ground 2 is allowed. 5.3 Ground 3: This is against the action of the AO in disallowing the residual expenditure incurred on the project in FYs 2012-13, 2013-14 & 2014-15. The AO has held that the same not being incurred in the present AY cannot be allowed to the appellant. I am in agreement with the AO on this count. The residual expenditure net of income is Rs. 8,77,580 in FY 2012-13, Rs. 18,84,840 in FY 2013-14 & Rs. 3,28,723 in FY 2014-15. The residual expenditure has to be claimed in the year in which the same is actually incurred as no provision is made towards the same in the present AY. I therefore uphold the action of the AO in disallowing this expenditure. Ground 3 is dismissed. 5.4 Summing up, the profit from the project is to be computed as under:- Total Sales consideration as per agreements = Rs. 17,10,86,600 Less: WIP upto 31/03/2012 : =Rs. 13,67,04, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o offer the income from the project would not be dependent on the settlement of the litigation and the same could not be allowed to be postponed till indefinite period of time. The revenue could not be deprived-off its legitimate dues particularly when the project was substantially sold-off and the occupation was already granted as way back as FY 2006-07 & 2007-08. Therefore, the conduct of the assessee do not inspire us to confirm the stand of Ld. first appellate authority, in this regard. In our opinion, the assessee was duty bound to furnish proper explanation regarding sale of inventories at less than stamp duty valuation. 5.3 So far as the quantum of expenditure is concerned, since the correct income of the project was to be ascertained, the assessee would be entitled for actual expenditure incurred on the project and estimated expenditure which were likely to be incurred provided the expenditure had crystallized during the year and there was reasonable certainty of outflow of the same. Nothing concrete, in this regard, emanates from the quantum assessment order as well as appellate order. 5.4 In the background of above observations, we deem it fit to restore the matter bac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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