2022 (9) TMI 100 - AT - Income Tax

Gain on sale of Project - LTCG or business income - bifurcating the sale proceeds - sale of land treated as business profits by the assessee - bifurcating the sale proceeds of Project RMT-I (Profits on sale of land offered under LTCG and the profits on sale of flats offered as business profits) - HELD THAT - As has been done in the assessment year 2008-09 2019 (1) TMI 1987 - ITAT CHENNAI the Assessing Officer continued to assess the income derived from the land of project RMT-II as business income in the assessment years 2009-10 to 2011-12 including the assessment year 2012-13 under consideration. As the Coordinate Benches of the Tribunal has remitted the matter back to the file of the Assessing Officer, we also remit the matter back to the file of the Assessing Officer for fresh consideration for the assessment year 2012-13. Thus, the ground raised by the Revenue is allowed for statistical purposes. Addition towards reworking of cost of construction - difference of cost of construction adopted by the assessee and the cost of construction calculated by the Assessing Officer - HELD THAT - CIT(A) has observed that the calculation carried out by the Assessing officer in the impugned assessment order, the expenditure incurred towards construction of flats has been rightly considered on proportionate basis whereas, the assessee has considered the entire amount which are not in accordance with the facts of the case. Hence, the Ld. CIT(A) has held that the discrepancy arrived at by the assessee is not correct and accordingly, the discrepancy worked out by the Assessing Officer was confirmed. In view of the above facts, we find no infirmity in the order passed by the Ld. CIT(A) on this issue and accordingly, the ground raised by the assessee is dismissed. Disallowance u/s 14A r.w. Rule 8D - income from dividend is exempted from tax and assessee had claimed certain business expenses, however, the assessee has not admitted any expenses attributable to the earning of exempt income, accordingly, by applying the provisions of Rule 8D, the Assessing Officer determined the expenses attributable to earning of exempt income - HELD THAT - CIT(A) has observed that the provisions of section 14A contemplate those expenses which the assessee may have incurred towards the investment attributable to exempt income - as observed that the expenses of personal in nature do not fall within the ambit of section 14A - CIT(A) rightly confirmed the disallowance made u/s 14A - no infirmity in the order passed by the Ld. CIT(A) on this issue. Accordingly, the ground raised by the assessee is dismissed.

Summary

Issues Involved:
1. Treatment of income from the sale of land as business income or capital gains.
2. Confirmation of addition towards reworking of cost of construction.
3. Disallowance under section 14A read with Rule 8D for expenses attributable to earning exempt income.

Issue-wise Detailed Analysis:

1. Treatment of Income from Sale of Land:
The primary issue was whether the profits from the sale of undivided share of land (UDS) in the project "Rani Meyyammai Towers Phase II" should be treated as business income or long-term capital gains (LTCG). The Department argued that the land was a current asset and thus, the sale should be treated as business income. The assessee contended that the land was inherited and should be treated as a capital asset, with profits from its sale classified as LTCG, similar to the treatment in the earlier project (RMT-I).

The Assessing Officer (AO) treated the sale as business income, asserting that the land was utilized for business purposes. However, the Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, treating the profits as LTCG. The Tribunal noted that in previous assessment years (2008-09 to 2011-12), similar issues were remitted back to the AO for fresh examination. Consequently, the Tribunal remitted the matter back to the AO for fresh consideration for the assessment year 2012-13, allowing the Revenue's ground for statistical purposes.

2. Confirmation of Addition towards Reworking of Cost of Construction:
The second issue involved the confirmation of an addition of Rs. 65,03,724/- towards reworking the cost of construction. The AO observed discrepancies in the cost of construction of flats sold by the assessee in Rani Meyyammai Towers Phase II. The AO reworked the cost based on proportionate expenses and added Rs. 36,92,919/- to the closing stock, resulting in a difference of Rs. 65,03,724/- between the assessee's reported cost and the AO's calculation.

The CIT(A) confirmed the AO's disallowance, stating that the assessee's calculation was not in accordance with the facts. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order and dismissing the assessee's ground.

3. Disallowance under Section 14A read with Rule 8D:
The third issue was the disallowance of Rs. 24,00,193/- under section 14A read with Rule 8D for expenses attributable to earning exempt income. The AO noted that the assessee had significant investments and earned substantial dividend income, which was exempt from tax. However, the assessee did not allocate any expenses towards earning this exempt income. Applying Rule 8D, the AO calculated the disallowance.

The CIT(A) confirmed the disallowance, rejecting the assessee's argument that personal expenses disallowed in the computation of total income should be considered. The Tribunal agreed with the CIT(A), stating that personal expenses do not fall within the ambit of section 14A, and upheld the disallowance, dismissing the assessee's ground.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes by remitting the issue of the treatment of income from the sale of land back to the AO for fresh consideration. The Tribunal dismissed the assessee's appeal regarding the addition towards reworking of cost of construction and the disallowance under section 14A read with Rule 8D. The order was pronounced on August 3, 2022, in Chennai.