TMI Blog2023 (1) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... Coming to the facts of the present case, it is admitted position that the Assessee had undertaken redevelopment of the Old Building. Assessee was not the owner or either the land or the Old Building. On carrying out the redevelopment work the Assessee would have received some area in the new building in his capacity as the Developer. In order to resolve the deadlock the Assessee agreed to settle for a lesser area in the meeting held on 07.08.2006 which was attended by Deputy Chief Engineer, MBR RB who also signed the minutes of the meeting in this official capacity. In absence of any violation of specific provision of Maharashtra Housing Area Development Act, 1976 having been brought to our notice, we are not inclined to accept the contention of Revenue that the allotment of additional area to the tenants was contrary to law. The amount of area to be given to the tenants was agreed upon and finalized when the minutes of the meeting held on 07.08.2006 were recorded since Annexure A to the minutes of the meeting clearly provided for the details of the unit in the new building and the carpet area to be allotted to each tenant. Thus, the additional area that was allotted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 43CA of the I.T. Act, 1961 are wrongly invoked by the assessing officer, without appreciating the fact that the area give to the tenants by the assessee in excess if 753 Sq.ft. is nothing but a transfer of an asset held as stock in trade without any consideration and hence the stamp duty value for the additional area transferred needs to be added to the total income as per the provisions of Section 43CA of the I.T. Act, 1961. 2. Whether on facts and circumstances of the case, the Ld. CIT(A) is correct in allowing the deduction of interest cost u/s 36(i)(iii) of the I.T. Act, 1961 without appreciating the facts the assessee in following project completion method of accounting and during the previous year the assessee has not recognized any revenue to the P L account. Hence interest cost incurred also needs to be capitalized with the WIP. 3. The relevant facts in brief are that the Assessee filed its return of income for Assessment Year 2016-17 on 17.10.2016 declaring loss of INR 1,56,22,487/-. The case of the Assessee was selected for scrutiny, the Assessing Officer completed assessment under Section 143(3) of the Act vide Assessment Order, dated 30.12.2018, after mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Maharashtra Housing and Area Development Act, 1976. (MHADA) 9. Permanent Alternative Accommodation Agreement (PAAA) were executed between with the tenants in January 2002. However, even after lapse of 4 years, the Assessee was not able to undertake development work as some of the tenants wanted more carpet area. Some tenants were occupying more area in the Building as compared to area specified in the Approval and therefore, were not willing to part possession and/or accept units with lesser carpet area. In order to break the deadlock, a meeting was held on 07.08.2006 in the presence of Deputy Chief Engineer (S), MBR RB wherein a consensus was reached. The minutes of the meeting were recorded and signed by all present. Annexure A to the Minutes of the meeting specified the area agreed to be allotted to the tenants. The relevant extract of the minutes of the meeting recorded and signed by all those present read as under: In the presence of Deputy Chief Engineer MBR B, the tenants/occupants have unanimously agreed to the suggestion of the Owner/Developers to avoid the delay in implementation of the project: (a) To allot flats with additional area to erstwhile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute income in respect of the additional area allotted to the tenants by applying the provisions of Section 43CA of the Act. Taking the stamp duty value of the additional area as per the registered PAAA, the Assessing Officer made aggregate addition at INR 2,18,84,138/-. 12. In appeal before CIT(A) on this issue, it was contended by the Assessee that the Assessing Officer had erred in applying the provisions of Section 43CA of the Act. There was no sale or transfer. The area (including the additional area) was given to the tenants pursuant to the redevelopment of the Old Building. The transaction could be regarded as exchange which took place during the financial year 2005-06 when the tenants granted redevelopment rights to the Assessee and parted with possession of the area occupied in the Old Building in lieu of the allotment of area in the new building to be developed by the Assessee. The area (including the additional area) to be allotted to the tenants was pre-assigned as per the Approval and the meeting held on 07.08.2006 and therefore, could not have been treated as stock-in-trade of the Assessee available for sale to any customer. The allotment of the additional area to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were clearly attracted in the facts of the present case. The Assessee had transferred the additional area without any consideration. Since additional area constituted stock-in-trade of the Assessee, the stamp value of the additional area was to be adopted as full value of consideration in view of Section 43CA of the Act. Therefore, the Assessing Officer was correct for making addition of INR 2,18,84,138/-. Referring to paragraph 6.4 and 6.5 of the Assessment Order she submitted that the agreement between the tenants and the Assessee was in clear violation in terms of the Approval and therefore, could not be relied upon to avoid the tax liability by the Assessee. The additional area allotted to six tenants amounted to transfer of asset, being stock-in-trade of the Assessee, resulting profits taxable in the hands of the Assessee. In conclusion she submitted that the Assessing Officer was correct in invoking provisions of Section 43CA to compute the aforesaid profits and that the CIT(A) erred in deleting the addition by incorrectly interpreting provisions of Section 43CA of the Act. 16. Per contra, the Ld. Authorised Representative for the Assessee vehemently contended that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets in certain cases. 43CA.(1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1). (3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and and/or building and provided that for the purpose of computing income under the head Capital Gains' the stamp duty value shall be deemed to be the full value of consideration in cases where the sale consideration was below the stamp value. Therefore, corresponding provisions for computing income under the head profits and gains of business or profession were introduced by way of insertion of Section 43CA of the Act in case of transfer of asset (other than capital asset) being land and/or building. 20. Section 43CA of the Act creates a deeming fiction by which stamp value is taken as full value of consideration. The scope of a deeming provision has to be restricted to what is expressly stated in such a provision. We note that, both, Section 50C and 43CA use the expression land or building or both whereas Section 54D, 54G and 54GA use the expression land or building or any right in land or building . Therefore, the scope of deeming fiction contained in Section 43CA of the act would apply only in the case of transfer of asset (other than capital asset) being land or building or both and the same cannot be extended to cover any right in land or building. Accordingly, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or building', thereby supporting the distinction sought to be canvassed before us. On the contrary, the phraseology in section 50C(1) of the Act only covers 'land or building or both' and does not refer to any right in land or building . 11. Thus, the expression 'land or building' in its coverage is quite distinct from the expression 'any right in land or building'. The legislature, in its wisdom, has used the expression 'land or building or both' in section 50C(1) of the Act, and not the expression 'any right in land or building'. Therefore, the express use of one expression would exclude the other, a legal premise which is supported by the judgment of Hon'ble Supreme Court in the case of GVK Industries Ltd. (supra). In this view of the matter, in our considered opinion, the point sought to be raised by the assessee deserves to be upheld. Such a distinction also has found approval of the Hon'ble Bombay High Court in the case of Greenfield Hotels Estates (P.) Ltd. (supra) and other Tribunal decisions which have been referred to in the earlier part of this order. Apart from that, we find that a recent decision of our Coord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is hereby negated. 13. In view of the aforesaid factual position and in law, we find that the present transaction of six properties in question does not warrant invoking of section 50C(1) of the Act as the property in question is not of the nature covered by section 50C(1) of the Act. Therefore, on this point itself, we set aside the order of the ld. Commissioner of Income Tax(A) and direct the Assessing Officer to delete the addition. 21. To the same effect are decision of the Mumbai Bench of the Tribunal in the case of Atulji Puranik vs. ITO 12(1)(1): 11 taxmann.com 92 (Mumbai), wherein the Mumbai Bench of the Tribunal has held as under: 11.2 On going through the above provision, it transpires that where the full value of consideration shown to have been received or accruing on the transfer of an asset, being land or building of both, is less than the value adopted or assessed or assessable by stamp valuation authority, the value so adopted etc. shall, for the purposes of sec. 48, be deemed to be full value of consideration received or accruing as a result of such transfer. This section has been inserted by the Finance Act 2002 w.e.f. 01-04-2003 with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their legitimate field . In CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210 /[2005] 144 Taxman 855 (Bom), the Hon'ble jurisdictional High Court considered the facts of a case in which the assessee was a partner in a firm which was dissolved in the year 1984 and the assessee was allotted a flat towards the credit in the capital asset with the firm. The assessee showed the flat as capital asset in its books of account and depreciation was claimed and allowed from year to year. In the previous year relevant to asst. year 1992-93, the assessee sold the flat and invested the net sale proceeds in a scheme eligible u/s.54E of the Act and accordingly declared Nil income under the head 'Capital gains'. The AO formed the view that since the block of building ceased to exist on account of sale of flat during the year, the written down value of the flat was liable to be taken as cost of acquisition u/s.54E of the Act. He further held that since the assessee had availed depreciation on such asset, which was otherwise a long-term capital asset, the deeming provision u/s.50 would apply and it would be treated as capital gain on the sale of short-term capital asset and hence no benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee as the Assessee was never entitled to hold/sale the same. Thus, we concur with the CIT(A) that the area allotted to the tenants (including the additional area) cannot be regarded as stock-in-trade of the Assessee and therefore, the provisions of Section 43CA of the Act would not be attracted. In view of the aforesaid, we decline to interfere with the order passed by the CIT(A) on this issue. Ground No. 1 raised by the Revenue is, therefore, dismissed. Ground No. 2 24. Ground No. 2 is directed against the order of CIT(A) allowing deduction of interest expenditure of INR under Section 36(1)(iii) of the Act. 25. During the assessment proceedings the Assessing Officer noticed that the Assessee has claimed deduction for interest expenditure of INR 1,55,42,291/- while the Revenue offered during the entire year is NIL . The Assessee was asked to explain how the expenditure was allowable under the provision of the Act. Its reply was received by the Assessing Officer on 20.11.2018, the Assessee state that interest cost pertains to loan taken from M/s Bajaj Finance Limited which has been used for repaying original loan taken by the Assessee from shareholder and directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest cannot be allowed under Section 36(1)(iii) of the Act. 29. Per contra the Learned Authorised Representative for Assessee submitted that for the purpose of redevelopment of the building the Assessee had availed loan from the various lenders (including directors and shareholders) from time to time since 2006 and had used the same for the same for the construction project. Due to considerable delay in execution of the project, the funds borrowed from the lenders were blocked in the project for several years and the lenders were demanding repayment of their loan. As a result the Assessee had to avail loan form Bajaj Finance Limited for refinancing purpose. The amount borrowed from Bajaj Finance Limited was not used for any other purpose or for any personal purpose as allege by Assessing Officer. The loan was utilized for the purpose of business of the Assessee, and the Interest expenses were incurred wholly exclusively for the purpose of the business of the Assessee during the relevant previous year. The Assessee had produced before Assessing Officer, copy of the sanctioned letter, copy of bank statement and the fund utilization statement to show nexus and utilization of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate was obtained during the previous year 2014-15 relevant to the Assessment Year 2015-16. Though the Assessee has not offered any profits to tax during the Assessment Year 2016-17, deduction for interest of INR 1,55,42,291/- has been claimed by the Assessee as period cost under Section 36(1)(iii) of the Act. We note that the Assessee has undertaken only one redevelopment project. It is not disputed that interest cost is directly related to the project As per Accounting Standards 7 on Construction Contracts and Accounting Standard 16 on Borrowing Cost, the borrowing cost having direct nexus with the project needs to be treated as project cost and capitalized. However, we note that in the case of Lokhandwala Constructions (Supra) cited by the Learned Authorized Representative of the Assessee, the Hon ble Bombay High Court has held as under: 2. The assessee-company was engaged in the business of construction of buildings. As stated above, we are concerned with assessment year 1987-88. The assessee followed Mercantile System of Accounting. The assessee followed Modified Project Completion Method for computing its profits. The assessee had secured development rights from B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as capital expenditure and added to work-in-progress in spite of the fact that other expenses on project were being capitalised by the assessee itself and holding that the Commissioner of Income-tax was wrong in directing the Assessing Officer to disallow the said interest and treat the same as capital expenditure as a part of work-in-progress, thereby quashing the order under section 263 of the Act of the Commissioner of Income-tax ? Findings 4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as Kandivali Project ). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Representative's attention was invited to the decisions of the coordinate benches in the cases of Ashish Builders (P.) Ltd v. Asstt. CIT [IT Appeal No. 1566 (Mum.) of 2011, dated 23-9-2016], Dy. CIT v. Palava Dewellers (P.) Ltd. [IT Appeal No. 2147 (Mum.) of 2018, dated 20-2-2020], Kotle Patil Developers Ltd. v. DCIT [IT Appeal No. 80 (Pune) of 16, dated 15-11-2017] wherein on the same set of facts it is held that irrespective of the capitalization of interest, as part of WIP, on account of following percentage of completion method, and even after insertion of proviso to Section 36(1)(iii), the interest has been allowed as a deduction, learned Departmental Representative fairly accepted that the law has been so laid down by the coordinate benches, but then he points out that it will result in a double deduction for deduction of interest as also deduction of WIP at the pint of booking revenue. He submits that the matter should be remitted to the file of the Assessing Officer at least for this factual verification. In any event, he vehemently relies upon the stand of the Assessing Officer and submits that the deduction of interest should not be allowed under section 36(1)(iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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