2023 (8) TMI 215 - AT - Income Tax

Addition of amounts recoverable from members - cost of construction towards the redevelopment of the area of FSI acquired from the members and Marwah family - Assessee acquired development rights in property - main reasons for the revenue in the first round of appellate proceedings to disallow the expenses is that the cost of construction which is to be borne by the members should have been received by the assessee and that without showing the receipts the assessee is not entitled to claim the cost of construction towards development of the property as a deduction - HELD THAT - It is important to understand the way income and expenditure is earned / incurred in a redevelopment project. In assessee s case here the income to the assessee is arising out of two sources i.e. one consideration received from the additional space allotted to the existing members and second from the sale of 6 flats which the assessee got as part of the redevelopment. The expenditure towards the entire redevelopment should be borne by the assessee including for those flats to be allotted to the members because that is the consideration paid to the members for transferring the rights in the flats. Therefore we are unable to agree with the contention that the cost of construction should be borne by the members. Revenue to the assessee is from sale of additional space to existing members and from the sale of the additional flats assessee received from the development project. Real test for allowing the cost of construction is whether the assessee has accounted for both these revenues in the profit and loss account - From the perusal of materials submitted before us and also from the findings given by the CIT(A) after verification of details, it is clear that the assessee has accounted the revenue from the redevelopment project on completion of contract method and has claimed the expenses accordingly. No infirmity in the findings given by the CIT(A) while allowing the claim of the assessee. Assessee has correctly claimed the cost of construction towards the redevelopment of the area of FSI acquired from the members and Marwah family. No reason to interfere with the decision of the CIT(A) - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of amounts recoverable from members.
2. Admitting additional evidence without giving an opportunity for verification.
3. Verification of cost of construction receipts from members.

Summary:

Issue 1: Deletion of Addition on Account of Amounts Recoverable from Members
The primary issue was whether the Commissioner of Income-tax (Appeals) [CIT(A)] erred in deleting the addition of Rs. 8,72,05,981 made by the Assessing Officer (AO) on account of amounts receivable from the members of Nandadeep CHS. The CIT(A) had enhanced the income of the assessee by making a fresh disallowance of the said amount, which was later remanded by the ITAT for verification of the assessee's claim that the consideration for construction work was duly received from the members and properly accounted for. The CIT(A), after verifying the details submitted by the assessee, found that the receipts were properly accounted for and deleted the disallowance.

Issue 2: Admitting Additional Evidence Without Verification
The Revenue contended that the CIT(A) admitted additional evidence in the form of ledger accounts and other documents without giving the AO an opportunity for verification, in contravention of Rule 46A of the Income-tax Rules, 1962. The CIT(A) reviewed various submissions and evidences provided by the assessee, including statements of cost of construction recovered from flat owners, ledgers, agreements, and detailed notes to accounts of sales. The CIT(A) concluded that there was no mismatch of names and that the receipts were properly accounted for, thus deleting the disallowance.

Issue 3: Verification of Cost of Construction Receipts from Members
The ITAT had remanded the issue to the AO for limited verification of whether the consideration for construction work was received from the members and properly accounted for. The AO retained the disallowance, citing discrepancies in the details provided by the assessee. However, the CIT(A) found that the assessee had submitted necessary documents evidencing how the receipts/revenue from the project were accounted for. The CIT(A) concluded that the assessee had properly accounted for the receipts and allowed the cost of construction as a deduction.

Conclusion:
The ITAT upheld the CIT(A)'s decision, concluding that the assessee correctly claimed the cost of construction towards the redevelopment project and had properly accounted for the revenue from the project. The appeal of the Revenue was dismissed.

Order Pronounced: The appeal of the Revenue is dismissed. Order pronounced in the open court on 24/05/2023.