2018 (10) TMI 586 - AT - Income Tax

Accrual of income - Addition on account of transfer of development rights - receipt of advances - Held that - The assessee-company rightly contended that income from transfer of development rights would accrue as per I.T. Act when assessee-company would receive approval for construction for specified FAR area from GDA. Unless and until it does not receive the approval from GDA, income would not accrue to the assessee-company. - Decided in favor of assessee. Addition on account of transfer of development rights - allowable expenditure - Chargeability and accruability of value of development rights together with land - following the rule of consistency - Held that - The assessee-company maintained books of account on the same accounting pattern as have been maintained in earlier years and the offering of the income as per sanctioned FSI have been accepted by the Tribunal in A.Y. 2008-2009. When the assessee-company followed the same accounting system in subsequent year and accepted by the A.O, there is no reason for the A.O. to deviate from the same. CIT(A) has not given any independent finding with regard to claim of the expenditure made by assessee-company as against proportionate income offered for taxation. No fault have been found in the accounting system followed by assessee-company. No material have been produced by the Revenue to rebut the contention of the assessee-company. No justification to disallow the expenses claimed by the assessee-company being cost of the land and development expenses incurred by the assessee-company. - Decided in favour of assessee. Deemed dividend addition u/s 2(22)(e) - Held that - As perusing the relevant records, it reveals that they are in the form of current and inter banking accounts and contain both types of entries i.e. giving and taking the amount and appear to be a current account and cannot be considered as loans and advances as contemplated u/s 2(22)(e) of the IT Act. The identical issue have been decided by the Tribunal in the case of assessee and other group concerns. Following the same, we are of the view that the amount in question could not be treated as deemed dividend under section 2(22)(e). - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition on account of Development Rights
2. Disallowance of Expenses
3. Addition under Section 2(22)(e) of the Income Tax Act, 1961 (Deemed Dividend)

Issue-wise Detailed Analysis:

1. Addition on account of Development Rights:
The assessee challenged the addition of ?62,59,639/- made by the AO on account of development rights. The AO observed an increase of ?3.52 crores in "Advances Received" against development rights in the balance-sheet and treated it as income, deducting the cost of land purchased during the year. The assessee contended that the income from development rights would accrue only when the approval from the Ghaziabad Development Authority (GDA) is received. The Tribunal found that the issue was covered by its earlier decision for A.Y. 2008-2009, where it was held that income from development rights accrues only upon receiving necessary approvals from GDA. Since the agreements were unregistered, the provisions of Section 2(47)(v) of the IT Act were not applicable. The Tribunal set aside the addition, concluding that the income did not accrue during the assessment year under appeal.

2. Disallowance of Expenses:
The assessee claimed expenses of ?2,30,88,128/- against the income of ?3,89,29,660/- offered for taxation on account of sanctioned FSI. The AO disallowed the expenses, but the Tribunal noted that the assessee had consistently offered income and claimed proportionate expenses as per sanctioned FSI in subsequent years, which were accepted by the AO. The Tribunal found no justification for disallowing the expenses, especially since the income from development rights for A.Y. 2008-2009 had been deleted. The Tribunal allowed the appeal, directing that the claimed expenses be allowed.

3. Addition under Section 2(22)(e) of the Income Tax Act, 1961 (Deemed Dividend):
The AO treated advances received from group companies as deemed dividend under Section 2(22)(e) to the extent of ?47,08,000/-. The assessee argued that the advances were for business purposes and not for the benefit of shareholders. The Tribunal, referring to its earlier decision, held that the amounts received were for business transactions and not loans or advances as contemplated under Section 2(22)(e). The Tribunal noted that the amounts were utilized for real estate development and not for the benefit of shareholders. Consequently, the addition was deleted.

Conclusion:
The Tribunal allowed all the appeals, setting aside the additions made on account of development rights, disallowance of expenses, and deemed dividend under Section 2(22)(e). The decisions were based on the principles that income from development rights accrues upon receiving necessary approvals, business expenses are allowable against offered income, and advances for business purposes do not constitute deemed dividend.