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2023 (11) TMI 535 - AT - Income TaxProfits on sale of Flats - disallowance in respect of additional cost of Tower I to V on the ground that the claim of additional cost was not settled among the parties - HELD THAT - AO while making the addition has relied on the response received to the notice u/s 133(6) of the Act where GPL has informed that they have accounted an estimated cost of Rs. 3,166/- for the entire project. However, it is noticed that GPL vide letter dated 01/12/2008 has communicated a rate of Rs. 3,599/- per sq.ft. It is also noticed that the average cost per sq.ft. claimed by the assessee for the assessment year 2010-11 works out to Rs. 3,438/-. We, therefore, see merit in the submissions of the Ld.AR that the cost of construction as given by GPL keeps changing from time to time and that what the assessee for the year under consideration has taken as cost is less than the average rate communicated vide letter dated 01/12/2008 submitted by GPL. It is also noticed that the final cost of construction agreed between the assessee and GPL as per the supplementary agreement dated 31.03.2014 as per the agreement is Rs. 4,118/-. We see no infirmity in the cost of construction claimed by the assessee for the year under consideration at Rs. 3438/- per sq.ft. which is below the average rate communicated by GPL and the final rate agreed with GPL. Accordingly, we hold that the disallowance of Rs. 10,32,70,436/- be deleted. The appeal of the assessee is allowed. Disallowance of cost of land for the reason that the land was vacant and as per the ULC regulations certain area of the land in excess of the limits prescribed under ULC - HELD THAT - CIT(A) in his order for AY 2009-10 2016 (10) TMI 1390 - ITAT MUMBAI has given a clear finding that the land was not vacant as on the valuation date of 01.04.81 (since the factory building was there) and that the status as on the valuation date is what needs to be considered for the purpose of valuation by relying on the decision of the Bombay High Court in Lady Hirabai's Case 1988 (12) TMI 12 - BOMBAY HIGH COURT It is also noticed from the perusal of records that the revenue in the appeal filed before the Tribunal for AY 2009-10 had not raised any specific ground in this regard and therefore we see merit in the submission of the ld AR that the issue has reached finality. Considering the facts of the present case, we see no reason to interfere with the decision of the CIT(A) in allowing the claim of cost of acquisition at Rs. 260 based on the valuation report. Accordingly this ground of the revenue is dismissed. Allowability of Interest on loans u/s 36(1)(iii) - CIT(A) allowed the claim of the assessee for the reason that the interest is paid wholly and exclusively for the purpose of business and, therefore, allowable u/s 36(1)(iii) - HELD THAT - As noticed that the assessee has paid the interest on the loan taken from HDFC Bank which was borrowed for the purpose of settling employee dues so that the vacant land without any encumbrance can be handed over to the developer. Therefore we see merit in the submission that the interest is claimed as part of development cost since as per the terms of the agreement the assessee is required to given a clear and marketable title of the land to the developer. As settled position that interest cost incurred towards acquisition of the clear title of the property can be claimed as part of cost of acquisition. In the light of these discussions we uphold the decision of CIT(A) in allowing the claim of interest cost as part of development cost while computing the income. Appeal of the assessee is allowed and appeal of the revenue is partly allowed.
Issues Involved:
1. Disallowance of additional cost of construction. 2. Difference in revenue booked by the assessee and GPL. 3. Long-term capital gain on conversion of land into stock-in-trade. 4. Disallowance of interest expenditure as development cost. 5. Disallowance of depreciation on building. 6. Disallowance of foreign travel expenses. 7. Additional ground raised by the assessee regarding additional cost disallowed in A.Y. 2009-10. Summary: 1. Disallowance of Additional Cost of Construction: The assessee, a public limited company, followed the percentage completion method for a real estate project with Godrej Properties Limited (GPL). The Assessing Officer (AO) disallowed Rs. 10,32,70,436/- due to discrepancies in the cost of construction claimed by the assessee. The CIT(A) confirmed this disallowance. However, the Tribunal found merit in the assessee's claim, noting that the cost of construction claimed was lower than the average rate communicated by GPL and the final rate agreed upon. Thus, the disallowance of Rs. 10,32,70,436/- was deleted. 2. Difference in Revenue Booked by the Assessee and GPL: The AO made an addition of Rs. 1,85,70,000/- due to differences in revenue booked by the assessee and GPL. The CIT(A) partially allowed the appeal, reducing the addition to Rs. 49,25,630/-. The Tribunal did not specifically address this issue in the provided text. 3. Long-Term Capital Gain on Conversion of Land into Stock-in-Trade: The AO added Rs. 1,05,13,749/- as long-term capital gain. The CIT(A) deleted this addition, relying on the decision for A.Y. 2009-10. The Tribunal upheld the CIT(A)'s decision, noting that the land was not vacant as of the valuation date and that the valuation provided by the assessee was based on a scientifically drawn-up report. 4. Disallowance of Interest Expenditure as Development Cost: The AO disallowed Rs. 48,72,474/- claimed as interest expenditure. The CIT(A) deleted this disallowance, stating that the interest was paid wholly and exclusively for business purposes. The Tribunal upheld this decision, agreeing that the interest cost incurred towards acquiring a clear title of the property can be claimed as part of the development cost. 5. Disallowance of Depreciation on Building: The AO disallowed Rs. 2,54,776/- claimed as depreciation on the building. The CIT(A)'s decision on this issue was not specifically addressed in the provided text. 6. Disallowance of Foreign Travel Expenses: The AO disallowed Rs. 8,86,299/- claimed as foreign travel expenses. The CIT(A)'s decision on this issue was not specifically addressed in the provided text. 7. Additional Ground Raised by the Assessee Regarding Additional Cost Disallowed in A.Y. 2009-10: The assessee claimed Rs. 23,20,35,862/- as additional cost disallowed in A.Y. 2009-10. The CIT(A) allowed this claim, contingent on the outcome of the appeal for A.Y. 2009-10. The Tribunal noted that the assessment order for A.Y. 2009-10 had been quashed by the Tribunal, meaning the claim for the cost of construction was allowed. However, if the Bombay High Court reverses this decision, the CIT(A)'s order allowing the cost in A.Y. 2010-11 will prevail. Conclusion: The Tribunal allowed the appeal of the assessee regarding the disallowance of additional cost of construction and upheld the CIT(A)'s decisions on long-term capital gain and interest expenditure. The Tribunal also provided conditional directions regarding the additional cost claimed for A.Y. 2009-10. The revenue's appeal was partly allowed, and the assessee's appeal was allowed.
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