2016 (3) TMI 417 - AT - Income Tax

Disallowance towards the cost of land - Held that - On probing amount of the work in progress the AO has come to know that these expenses have not all been incurred by the assessee and on perusal of the sale deed AO has stated that sale consideration is inclusive of all rights. Therefore in this case AO is disputing the closing stock of the earlier years also. In view of the above facts and circumstances of the case we are of the view that learned Commissioner of Income-tax (Appeals) has rightly confirmed that disallowance towards the cost of land - Decided against assessee

Summary

Issues Involved:
1. Disallowance of Rs. 6,73,76,070/- representing expenditure incurred on license fees, external development charges, and conversion charges of land.
2. Disallowance of Rs. 17,53,00,007/- representing expenditure incurred on the development of the building in the financial year 2007-08.
3. Confirmation of levy of interest u/s 234B of the Income Tax Act amounting to Rs. 2,15,34,711/-.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 6,73,76,070/-:
The assessee challenged the disallowance of Rs. 6,73,76,070/- incurred on license fees, external development charges, and conversion charges, arguing these should form part of the cost of land for computing profit on the sale of a commercial block. The Assessing Officer (AO) did not consider these expenses as part of the cost of land since they were incurred prior to the purchase of the land. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the sale deed dated 28.03.2008 included the cost of land at Rs. 8,56,12,280/- inclusive of stamp duty, and the AO meticulously worked out the proportionate cost of land. The CIT(A) found no infirmity in the AO's order, confirming the addition of Rs. 6,73,76,070/-. The Tribunal agreed with the CIT(A), emphasizing that the MOU and sale deed did not support the assessee's claim that these costs should be included in the cost of land. Therefore, the Tribunal upheld the disallowance.

2. Disallowance of Rs. 17,53,00,007/-:
The assessee contested the disallowance of Rs. 17,53,00,007/- representing expenditure incurred on the development of the building, arguing that this expenditure was incurred in the financial year 2007-08 and should not be disallowed. The AO disallowed the expenditure, noting that it was incurred prior to the purchase of the land and within a short period of four days. The CIT(A) confirmed the AO's decision, stating that the expenditure was incurred before the registration of the sale deed. The Tribunal found that the facts required detailed verification, particularly regarding the possession date and the expenditure incurred. The Tribunal set aside this issue to the AO for fresh consideration, directing the AO to verify the correct date of possession and the genuineness of the expenditure.

3. Confirmation of Levy of Interest u/s 234B:
The assessee also challenged the confirmation of interest levied under section 234B of the Income Tax Act amounting to Rs. 2,15,34,711/-. The Tribunal noted that this issue was consequential in nature and dismissed the ground.

Conclusion:
The Tribunal partly allowed the appeal of the assessee. The disallowance of Rs. 6,73,76,070/- was upheld, while the issue of disallowance of Rs. 17,53,00,007/- was remanded back to the AO for fresh consideration. The confirmation of interest under section 234B was dismissed as consequential. The order was pronounced in the open court on 07/03/2016.