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2011 (4) TMI 935 - AT - Income TaxAssessee engaged in construction activity - Purchased TDR for Rs. 1.43 crores Property mortgaged against term loan of Rs 2 crores Difference between TDR rates & Value in mortgage deed taken as unexplained investment A.O. took market rates of industrial buildings for computation of addition - Held that - A.O. while examining the AIR transaction has mixed up the AIR transaction of 2 crores with purchase of TDR of Rs 1.43 crores and consequently made erroneous conclusion that there is undisclosed investment within the meaning of Sec. 69B. There is a wide variation between value of TDR and value of fully constructed industrial building and the two values are not comparable. Therefore, addition made by A.O. adopting rate of fully constructed unit as provided in Stamp Duty Ready Reckoner for rate of purchase of TDR and stating the difference in both rates multiplied by area as undisclosed investment in purchase of TDR is erroneous. Decided against the Revenue
Issues: Valuation of Transferable Development Rights (TDR) for tax assessment purposes
Issue 1: Valuation of TDR and undisclosed investment The case involved the valuation of Transferable Development Rights (TDR) purchased by the assessee for a construction project. The Assessing Officer (AO) concluded that the assessee had made an unexplained investment based on a comparison between the cost of TDR purchased and the value reflected in the mortgage deed. The AO made an addition under sec.69B for the undisclosed investment. However, the CIT (A) held that the AO's valuation method was incorrect as the Stamp Duty Ready Reckoner does not provide rates for TDR. The CIT (A) noted that the appellant had explained the sources of purchase of TDR and had executed a mortgage deed for a term loan secured against immovable properties. The CIT (A) directed the AO to delete the addition, stating that the assessee had adequately explained the sources of investment in TDR, and thus no addition was warranted under sec.69B. Issue 2: Misinterpretation of transactions by the Assessing Officer The AO had erroneously mixed up the Annual Information Report (AIR) transaction of Rs. 2 crores for the creation of a mortgage with the purchase of TDR amounting to Rs. 1,43,04,413. This led to an incorrect conclusion by the AO that there was undisclosed investment under sec.69B. The AO further erred in calculating the addition by adopting the rate of fully constructed units from the Stamp Duty Ready Reckoner for the TDR purchase, which was not an appropriate valuation method for TDR. The AO failed to recognize that TDR rates are influenced by market forces and are not listed in the Reckoner. The Tribunal confirmed the CIT (A)'s order, emphasizing the incorrect basis used by the AO for determining TDR rates and upheld the deletion of the addition, dismissing the Revenue's appeal. This judgment highlights the importance of correctly valuing assets like TDR for tax assessment purposes and the significance of understanding the specific nature of transactions to avoid misinterpretations that could lead to erroneous conclusions and additions in tax assessments.
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