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2017 (1) TMI 933 - AT - Income Tax


Issues Involved:
1. Deletion of the addition of ?2.65 crores on account of deemed income.
2. Deletion of addition of ?9.50 lakhs towards building number two of the police station building.

Issue-wise Detailed Analysis:

1. Deletion of the addition of ?2.65 crores on account of deemed income:

The primary issue revolves around the addition of ?2.65 crores made by the AO as deemed income. The assessee, a developer and contractor, had completed construction work on a reserved plot and received a portion of the land free of cost. The AO observed that the assessee did not offer any income from this project and capitalized the cost of the reserved land in the completed project. The AO contended that the assessee became the owner of the balance plot upon completing the construction and handing over the police quarters and station, and thus, the profit should be calculated based on the stamp duty valuation.

The FAA, however, held that the assessee was the owner of the land from the beginning and that the expenditure incurred for construction was to improve the right to develop the remaining land. The FAA concluded that no income had accrued at the stage of construction and handing over the police quarters, as the income would only accrue upon the sale of the developed property. The ITAT upheld the FAA's decision, stating that the AO was not justified in applying the ready reckoner rate for the year under consideration and that any taxable income would accrue at the stage of sale of the constructed portion.

2. Deletion of addition of ?9.50 lakhs towards building number two of the police station building:

The AO found that the assessee had incurred an expenditure of ?9.50 lakhs towards the construction of building number two of the police station. However, a spot visit revealed no construction activity, leading the AO to disallow the expenditure and reduce the work in progress by the same amount.

The FAA, upon review, noted that the AO did not provide evidence that the business had ceased to exist or that the expenses were not genuine. The FAA allowed the expenditure as part of the work in progress, except for specific disallowed amounts related to income tax and TDS. The ITAT agreed with the FAA, emphasizing that expenses incurred during a lull in business activities are common for developers and contractors, and such expenses cannot be disallowed if their genuineness is not in doubt.

Conclusion:

The appeal filed by the AO was dismissed, and the cross-objection filed by the assessee was deemed infructuous. The ITAT upheld the FAA's decisions on both counts, confirming that the additions made by the AO were not justified. The order was pronounced in the open court on 04th January 2017.

 

 

 

 

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