2017 (3) TMI 1668 - AT - Income Tax

Disallowing deduction of depreciation, employees expenditure and general administrative expenses - Held that - No business activity was undertaken by the assessee so as to generate revenue inasmuch as neither golf course was ready nor any membership was enrolled nor any business activity was undertaken. Assessee was at a very early stage of completion of golf courses, therefore, it cannot be held that assessee s business activity had commenced. Find merit in the arguments of the learned DR that expenses connected with office, personal, administrative expenses cannot be allowed to the assesseee, they are to be capitalized. Revenue s appeal is allowed. Allocation of expenditure - headwise allocation to land proportion - Held that - CIT(A) s order exceeds this tribunal s observations from going beyond headwise allocation to land proportion. We observe in these facts that the said proportion formula is not a full proof one as both these are distinct projects of residential township and a championship golf course. We thus direct the Assessing Officer to strictly allocate expenditure in question proratawise of the two projects without taking into account the land component therein. He shall finalize the consequential computation going by the gross amount of expenditure vis- -vis the two heads and the proportion involved therein. The assessee s third substantive ground in all of its appeal is accordingly accepted for statistical purposes Capitalization of expenditure disallowed on account of non commencement of business - Held that - CIT(A) has erred in not specifically adjudicating its plea that if the above stated expenditure had to be disallowed on account of non commencement of business and it ought to be capitalized, corresponding income of each assessment year has to be directed to be adjusted against such cost of the two projects. Learned Departmental Representative fails to dispute the above non-adjudication in the CIT(A) s order. We however are of the opinion that this issue requires a detailed adjudication at assessing authority s level first Additions of unexplained investments - Held that - CIT(A) has already examined Assessing Officer s conclusions in light of assessee s disclosure during search as spread over to various assessment years to be already more than the amounts in question. Assessing Officer presumed the assessee to have paid the on money in question in respect of all of its land purchased regardless of the survey nos involved and also without indicating any evidence collected during search buttressing such an assumption. Ms. Bhalla fails to indicate any evidence in the case file which could lead us to a conclusion that the assessee has actually paid any on money in respect of all the land purchases. We thus find no merit in Revenue s argument even quoting Section 292(C) of the Act. Shri Soparkar at this stage states very fairly that the assessee does not wish to press for its pleadings in the above cross objections keeping in mind the fact that we have already upheld CIT(A) s order deleting the impugned additions in principle.

Summary

Issues Involved:
1. Legality of Section 153A proceedings.
2. Disallowance of depreciation, employees' expenditure, and general administrative expenses.
3. Allocation of expenses as work-in-progress related to a township project.
4. Adjustment of corresponding income against disallowed expenses.
5. Interest under Section 234B.
6. Unaccounted transactions of land purchases.
7. Treatment of additions based on seized papers.

Detailed Analysis:

1. Legality of Section 153A Proceedings:
The assessee did not press for the challenge to the legality of Section 153A proceedings for the impugned assessment years. Therefore, this ground was declined as not pressed.

2. Disallowance of Depreciation, Employees' Expenditure, and General Administrative Expenses:
The assessee challenged the disallowance of various expenses, including depreciation, employees' expenditure, and general administrative expenses. The facts reveal that the assessee, a company incorporated for real estate business, was developing a golf course and township. The Assessing Officer disallowed these expenses, treating them as pre-operative and to be capitalized. The CIT(A) upheld this disallowance, and the tribunal's earlier decision had attained finality. The tribunal found no reason to disturb the CIT(A)'s conclusion, stating that the business activity had not commenced as only two out of 18 holes in the golf course were developed, which were not useful for any commercial activity. Therefore, the assessee's expenses were treated as pre-operative and to be capitalized.

3. Allocation of Expenses as Work-in-Progress Related to a Township Project:
The assessee argued that the entire expenditure should be added as work-in-progress value for the township project, not just 2/3rd as directed by the CIT(A). The CIT(A) had allocated expenses based on the proportion of land area covered by the township and golf course projects (2/3rd and 1/3rd, respectively). The tribunal directed the Assessing Officer to allocate the expenses strictly prorata-wise between the two projects without considering the land component. This ground was accepted for statistical purposes.

4. Adjustment of Corresponding Income Against Disallowed Expenses:
The assessee contended that if the expenses were disallowed and capitalized, the corresponding income of each assessment year should be adjusted against the cost of the two projects. The tribunal noted that the CIT(A) had not adjudicated this plea. The issue was remanded to the Assessing Officer for detailed adjudication, with directions to afford the assessee an adequate opportunity of hearing. This ground was accepted for statistical purposes.

5. Interest Under Section 234B:
The issue of interest under Section 234B was treated as consequential, as stated by both parties.

6. Unaccounted Transactions of Land Purchases:
The Revenue's appeals challenged the deletion of additions related to unaccounted transactions of land purchases. The CIT(A) had deleted these additions, finding that the Assessing Officer's conclusions were based on assumptions and lacked corroborative evidence. The tribunal upheld the CIT(A)'s findings, noting that the Assessing Officer presumed unaccounted payments without evidence and that the assessee's disclosure during the search covered the amounts in question. The Revenue's appeals were dismissed.

7. Treatment of Additions Based on Seized Papers:
The assessee's cross objections argued that the CIT(A) erred in treating the plea that the addition could not exceed amounts from loose papers as infructuous. The tribunal found that the CIT(A) had already examined the issue and deleted the additions based on the lack of evidence. The assessee did not press for its cross objections, and they were rendered infructuous.

Conclusion:
The assessee's five appeals were partly accepted for statistical purposes, and the Revenue's two appeals were dismissed. The assessee's cross objections were rendered infructuous as not pressed.