2019 (11) TMI 754 - AT - Income Tax

Addition emanating from the provisions of Sec.50C - difference in agreed sale consideration reflected by the assessee and stamp duty valuation - HELD THAT - It is undisputed fact the sole project being carried out by the assessee was substantially completed which is evidenced by the inspection carried out by the department at the project site. In fact, the assessee has not even contested the same before us. There would be no quarrel on the point that the income from the project was rightly brought to tax by AO during the year under consideration and no interference, in this regard, would be required from our side. So far as the difference in agreed sale consideration reflected by the assessee and stamp duty valuation is concerned, we find that nothing has been brought on record by Ld. AO that the assessee was in receipt of higher sale consideration than reflected by the assessee in its books of accounts. Clearly, the provisions of Section 43CA as well as Sec 50C were not applicable to the year under consideration. However, the perusal of quantum assessment order would establish that either of these sections have not been invoked by Ld. AO. Onus was on assessee to establish that the agreement value received by the assessee as sale consideration was the fair market value of the inventory being sold by the assessee. The assessee remained unsuccessful in demonstrating the same. In fact, the assessee did not offer any income / loss from the project only on the pretext that certain issues were pending with relevant authorities. The obligation to offer the income from the project would not be dependent on the settlement of the litigation and the same could not be allowed to be postponed till indefinite period of time. The revenue could not be deprived-off its legitimate dues particularly when the project was substantially sold-off and the occupation was already granted as way back as FY 2006-07 2007-08. Therefore, the conduct of the assessee do not inspire us to confirm the stand of Ld. first appellate authority, in this regard. In our opinion, the assessee was duty bound to furnish proper explanation regarding sale of inventories at less than stamp duty valuation. Quantum of expenditure is concerned, since the correct income of the project was to be ascertained, the assessee would be entitled for actual expenditure incurred on the project and estimated expenditure which were likely to be incurred provided the expenditure had crystallized during the year and there was reasonable certainty of outflow of the same. Nothing concrete, in this regard, emanates from the quantum assessment order as well as appellate order. Restore the matter back to the file of Ld. AO to ascertain the correct income of the assessee earned from the said project and reframe the assessment after affording reasonable opportunity of being heard to the assessee. The assessee is directed to substantiate his claim, in this regard, including explanation for sale of flat at less than stamp duty valuation.

Issues Involved:
1. Whether the project was complete and if the revenue and profits should be recognized.
2. Whether the sale consideration of flats should be substituted with the stamp duty valuation.
3. Whether the provisions made towards payments to MHADA, Collector's Office, and Professional Fees for litigation are allowable as deductions.
4. Whether the residual expenditure incurred on the project in subsequent financial years is allowable.

Detailed Analysis:

Issue 1: Project Completion and Revenue Recognition
The primary issue was whether the project was complete and if the revenue and profits should be recognized. The assessee argued that the project was not complete due to pending litigation with state authorities and the absence of an occupation certificate. However, the appellate authority found that the physical project was complete, flats were sold, and possession was handed over to buyers in FY 2006-07 and 2007-08. The litigation was related to additional monetary demands and not the physical completion of the project. Therefore, the project was deemed complete, and profits had to be recognized. The appellate authority upheld the AO's decision to bring the project's income to tax during the year under consideration.

Issue 2: Substitution of Sale Consideration with Stamp Duty Valuation
The AO substituted the sale consideration of flats with the stamp duty valuation, implying the application of Section 50C. The appellate authority noted that Section 50C applies to capital assets, whereas the flats were stock in trade. The provisions of Section 43CA, applicable from AY 2014-15, were also not relevant for the year under consideration. The appellate authority cited the case of Neelkamal Realtors & Erectors India Pvt Ltd, where it was held that Section 50C does not apply to stock in trade. Consequently, the addition made by the AO of ?14.78 Crores was deleted, and the sale consideration as per agreements was upheld.

Issue 3: Allowability of Provisions for Payments to MHADA, Collector's Office, and Professional Fees for Litigation
The assessee made provisions for payments to MHADA, Collector's Office, and Professional Fees for litigation, totaling ?8.46 Crores. The appellate authority disallowed the provisions for MHADA and the Collector's Office as they were not directly related to the project's completion and were contingent liabilities. However, the provision for occupancy charges was allowed as it was directly related to obtaining the occupation certificate. The provision for professional fees for litigation was disallowed due to a lack of supporting evidence.

Issue 4: Residual Expenditure Incurred in Subsequent Financial Years
The AO disallowed the residual expenditure incurred on the project in FY 2012-13, 2013-14, and 2014-15, totaling ?30.91 Lakhs, as it was not incurred in the present assessment year. The appellate authority upheld this decision, stating that the residual expenditure should be claimed in the year it was actually incurred.

Conclusion:
The appellate authority directed the AO to assess the income from the project at ?43,47,242 after considering the allowable provisions and disallowed the residual expenditure. The revenue's appeal and the assessee's cross-objections were partly allowed for statistical purposes, with the matter restored to the AO to ascertain the correct income from the project and reframe the assessment after affording a reasonable opportunity of being heard to the assessee. The assessee was directed to substantiate its claim, including an explanation for selling flats at less than stamp duty valuation. The order was pronounced on 13th November 2019.

← Previous Next →