2014 (8) TMI 1037 - AT - Income Tax

Disallowance of expenses incurred as per an MOU towards development of property - Short Term Capital Gain (STCG) on the sale of Fursungi land at Pune - whether the claim of deduction for improvement of the land at Fursungi of ₹ 2,47,65,600/- which was restricted by the Ld. CIT(A) to ₹ 1,62,33,447/- for computation of Short Term Capital Gain is justified and directing the Assessing Officer to reduce ₹ 85,32,153/- from gross consideration as it was contractual liability on the assessee to do development of land as per MOU. - Held that - Assessing Officer has not discussed the issue in detail but adopted shortcut by disallowing the entire claim of expenditure by writing 5-6 lines. We find that the Ld. CIT(A) has in detail dealt with the issue and also narrated the relevant facts. In this case nowhere it is disputed that the assessee has sold the lands to the DSKDL but the solitary controversy is in respect of contractual liability on the assessee for carrying out development works on the said land as those lands were agricultural land, whereby the said land would be compatible for the project of the DSKDL which was initially SEZ project. It is stated that subsequently the DSKDL decided not to go with the SEZ project but decided to go with the Special Township Project and hence, the assessee was requested to withhold the further development. The assessee has produced the details of the expenditure on the said land before the Ld. CIT(A) to the extent of ₹ 1,62,33,447/- which has not been controverted before us only argument of the Revenue is that the said expenditure is incurred by the assessee not during the assessment year. It is true that the said MOU was not registered but at the same time it is also not disputed that the said MOU executed on the non-judicial stamp paper of ₹ 100/- copy placed at Page Nos. 46 to 52 of the Compilation . We also find that the Ld. CIT(A) has given the categorical finding that there was contractual obligation on the assessee to do the development and hence, to the extent of ₹ 1,62,33,447/- which were spent by the assessee up to 24- 01-2011, the Ld. CIT(A) allowed the claim of deduction to the assessee. In respect of the balance amount of ₹ 85,32,153/-, the same was directed to be reduced from the sale consideration for the reason that the higher consideration offered by the buyer of the land i.e. DSKDL was subject to the terms of development of the infrastructure like roads, leveling and other improvements etc. After giving our anxious consideration to the entirety of the facts, we are of the opinion that no interference is called for in the order of the Ld. CIT(A) - Decided against revenue

Summary

Issues Involved:
1. Whether the claim of deduction for improvement of the land at Fursungi of Rs. 2,47,65,600/- is justified.
2. Whether the direction to reduce Rs. 85,32,153/- from the gross consideration is justified.

Detailed Analysis:

1. Deduction for Improvement of Land:
The Revenue challenged the CIT(A)'s decision allowing the assessee's claim of deduction of Rs. 1,62,33,447/- for expenses incurred on land development as per an MOU. The Assessing Officer (AO) had initially disallowed the deduction, stating that the expenses were not allowable under Section 48 of the Income-tax Act, 1961, as they were mere estimates and not quantified in the Sale Deed or MOU. The CIT(A), however, concluded that the expenses incurred by the assessee to the extent of Rs. 1,62,33,447/- were to be allowed as a cost of the asset under Section 48. The CIT(A) reasoned that the development work was a contractual liability as per the MOU and that the expenses were incurred wholly and exclusively in connection with the transfer of the land.

2. Reduction of Rs. 85,32,153/- from Gross Consideration:
The CIT(A) also directed the AO to reduce Rs. 85,32,153/- from the sale consideration on account of a refund due to the change in the project from SEZ to Special Township, which led to the halting of further development work. The AO had argued that the expenditure was not incurred during the relevant assessment year and that the MOU was not mentioned in the final Sale Deed, indicating it was an afterthought. The CIT(A) found that the higher consideration was offered by the buyer (DSKDL) subject to the development of infrastructure, and thus, the unspent amount should be reduced from the sale consideration.

Findings and Conclusion:
The Tribunal upheld the CIT(A)'s decision, noting that the AO had not discussed the issue in detail and had adopted a shortcut by disallowing the entire claim. The Tribunal found that the development work was indeed a contractual obligation of the assessee and that the expenditure incurred up to Rs. 1,62,33,447/- was justified. The Tribunal also agreed with the CIT(A) that the unspent amount of Rs. 85,32,153/- should be reduced from the sale consideration, as the higher consideration was linked to the development work. The Tribunal referenced the case of Kalpataru Construction Vs. DCIT, where subsequent events were considered relevant for the computation of capital gains.

Final Judgment:
The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal and upholding the allowance of the deduction for the development expenses and the reduction of the unspent amount from the sale consideration. The judgment was pronounced in the open Court on 28-08-2014.