2018 (10) TMI 122 - AT - Income Tax

Disallowance of unabsorbed cost of TDR - computing the Profit on sale of TDR under normal provisions of the Act and computing the book profits u/s.115JB - Held that - For the A.Ys. 2009-10 and 2010-11 the Revenue though filed an appeal before the Hon ble High Court, the issue of whether the assessee is entitled to claim for revised cost of TDR is not agitated before the Hon ble High court and the Revenue accepted the decision of the Tribunal in holding that the profit arising out of the sale of TDR has to be recomputed in line with the revised computation of cost of sale of TDR as filed by the assessee. In the circumstances, and respectfully following the same in principle, we hold that the assessee is entitled to revise its cost of TDR and the same has to be recomputed in line with the revised computations of TDR as filed before the lower authorities. Since the revised cost of computation is prepared on same method as adopted in earlier years which was also accepted by Assessing Officer in earlier years while giving effect to ITAT order, we see no reason to accept the same for this Assessment Year. Thus, we direct the Assessing Officer to accept the revised computation of cost of TDR after verification. Subject to verification claim of the assessee is allowed. Disallowance of unabsorbed cost of TDR while computing income u/s.115JB - Held that - We find that the Lower Authorities have not examined the claim of the assessee and no findings have been given by the Lower Authorities on this issue. Keeping in view the submissions of the assessee and also our decision in ground No.2 above while computing the income under normal provisions of the Act, we feel it appropriate to restore this issue to the file of the Assessing Officer who shall examine the claim of the assessee and allow in accordance with law. This ground is allowed for statistical purpose. Disallowing the deduction of unrealized cost debited to P&L account while computing the income under normal provisions of the Act and also while computing the book profits u/s. 115JB - Held that - Hon ble Karnataka High Court in the case of Asia Power Projects (P.) Ltd., v. DCIT 2014 (10) TMI 109 - KARNATAKA HIGH COURT while considering the allowability of expenditure on abandoned projects, it was held that even though the assessee invoked arbitration clause and pending the expenditure on abandoned project should be allowed in the year in which the contract is terminated. We feel it appropriate to restore this issue to the file to the Assessing Officer who shall examine the whole issue in the light of the above observations and to decide in accordance with law while computing the income under normal provisions of Act as well as book profits u/s. 115JB of the Act. Needless to say that the Assessing Officer shall provide adequate opportunity of being heard to the assessee. Bank guarantee forfeiture by MIAL is an allowable expenditure. We find in the Assessment Order the Assessing Officer expressed a doubt as to whether this ₹ 25 Crores included in the unrealized cost of ₹ 441.93 crores or not. CIT(A) the assessee submitted that the said expenditure of ₹ 25 Crores does not form part of write off exceptional loss of ₹ 441.98 crores. In view of the above, following the decision of the Jurisdictional High Court, we hold that the bank guarantee forfeited is allowable business expenditure subject to verification of the Assessing Officer. This ground of the appeal is allowed. Disallow the capitalization of expenses by reducing the work in progress on account of payment made to tenants and development expenses - Held that - We find that the assessee has not substantiated its claim with complete details of expenditure and with supporting evidences. In the circumstances, we are of the view that this issue has to be examined afresh by the Assessing Officer. Thus we set aside this issue to the file of the Assessing Officer for denovo adjudication in accordance with law after providing adequate opportunity of being heard to the assessee. The assessee may produce necessary details to substantiate its claims. This ground is allowed for statistical purposes. Claim for set off of brought forward losses and unabsorbed depreciation - Held that - Set off of brought forward losses and unabsorbed depreciation are only consequential in nature, therefore we restore these grounds to the file of the Assessing Officer who shall examine and allow set off of brought forward losses and unabsorbed depreciation in accordance with law. This ground is allowed for statistical purpose. Deemed rental income on the properties which were stock in trade of the assessee - Held that - In order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in-trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the financial year in which a completion certificate is obtained from the competent authority. In view of the above amendment to section 23, we are not adverting to the case laws relied on by the Ld. counsel and Ld. DR. In the instant case, the assessee is a builder and developer. The issue of taxability is with regard to 51 unsold flats. The AY is 2012-13. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we set aside the order of the Ld. CIT(A) and allow the ground of appeal.

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3).
2. Disallowance of unabsorbed cost of TDR while computing profit on sale of TDR under normal provisions and book profits under Section 115JB.
3. Disallowance of unrealized cost while computing income under normal provisions and book profits under Section 115JB.
4. Deduction under Section 35AD or alternatively under Section 37(1).
5. Disallowance of employees' contributions to ESIC and Provident Fund.
6. Treatment of interest income from NCDs and subsidiaries and related disallowance of interest expenses.
7. Capitalization of expenses related to compensation paid to MIAL.
8. Capitalization of expenses related to payments made to tenants and development expenses.
9. Set off of brought forward losses and unabsorbed depreciation.
10. Deemed rental income on properties held as stock-in-trade.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The assessee initially contested the validity of the assessment order under Section 143(3) claiming it was bad in law and against the principles of natural justice. However, this ground was not pressed during the hearing and was dismissed as not pressed.

2. Disallowance of Unabsorbed Cost of TDR:
The assessee claimed a deduction for the unabsorbed cost of TDR, which was disallowed by the Assessing Officer and upheld by the CIT(A). The Tribunal observed that the assessee had provided detailed submissions justifying the deduction. The Tribunal noted that similar claims had been allowed in earlier years and directed the Assessing Officer to accept the revised computation of the cost of TDR after verification, allowing the ground in favor of the assessee.

3. Disallowance of Unrealized Cost:
The assessee wrote off unrealized costs due to the termination of a contract with MIAL. The Assessing Officer and CIT(A) disallowed the claim, considering it a contingent liability. The Tribunal found that the assessee had already incurred the expenses and that the termination of the contract was confirmed through an arbitral award. The Tribunal restored the issue to the Assessing Officer to re-examine the matter in light of the settlement agreement and arbitral award, allowing the ground for statistical purposes.

4. Deduction under Section 35AD or Section 37(1):
The assessee claimed a deduction under Section 35AD, which was disallowed by the Assessing Officer for lack of details. The CIT(A) also did not entertain the alternative claim under Section 37(1). The Tribunal restored the issue to the Assessing Officer to examine the alternative claim and decide in accordance with law, allowing the ground for statistical purposes.

5. Disallowance of Employees' Contributions to ESIC and Provident Fund:
The assessee claimed that all payments were made before the due date for filing the return of income. The Tribunal directed the Assessing Officer to allow the claim, following the decision in CIT v. Ghatge Patil Transport Ltd., allowing the ground in favor of the assessee.

6. Treatment of Interest Income and Related Disallowance:
The Assessing Officer treated interest income from NCDs and subsidiaries as income from other sources and disallowed related interest expenses. The CIT(A) upheld this treatment. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the grounds related to this issue.

7. Capitalization of Expenses Related to Compensation Paid to MIAL:
The assessee claimed expenses related to the forfeiture of a bank guarantee by MIAL. The Assessing Officer and CIT(A) disallowed the claim, considering it a contractual liability. The Tribunal, following the decision in CIT v. Ragalia Apparels P. Ltd., held that the forfeiture of the bank guarantee is an allowable business expenditure, subject to verification by the Assessing Officer, allowing the ground in favor of the assessee.

8. Capitalization of Expenses Related to Payments Made to Tenants and Development Expenses:
The Assessing Officer disallowed expenses related to payments made to tenants and development charges for lack of details. The CIT(A) upheld the disallowance. The Tribunal restored the issue to the Assessing Officer for re-examination, allowing the ground for statistical purposes.

9. Set Off of Brought Forward Losses and Unabsorbed Depreciation:
The Tribunal noted that the set-off of brought forward losses and unabsorbed depreciation is consequential in nature and restored the issue to the Assessing Officer to examine and allow in accordance with law, allowing the ground for statistical purposes.

10. Deemed Rental Income on Properties Held as Stock-in-Trade:
The Assessing Officer computed notional annual letting value on unsold flats held as stock-in-trade. The Tribunal, following the decision in CIT v. Neha Builders and other relevant cases, held that unsold flats held as stock-in-trade should be assessed under the head "income from business" and directed the deletion of the addition made under Section 23, allowing the ground in favor of the assessee.

Conclusion:
The Tribunal allowed several grounds in favor of the assessee, particularly those related to the disallowance of unabsorbed cost of TDR, unrealized cost, and deemed rental income on properties held as stock-in-trade. Other issues were restored to the Assessing Officer for re-examination, while some grounds were dismissed.