2020 (10) TMI 502 - AT - Income Tax

Disallowance of the cost of TDRs - HELD THAT - Revenue has also proceeded without any definite basis. Sure, there is nothing to show or exhibit the sale of TDRs to RSB, for the assessee to claim the cost thereof, but that does not by itself demonstrate their sale to any other person. Revenue should have insisted on the assessee producing some authentic document/material with regard to the obtaining status of those rights, which could then be verified, before imputing their sale by the assessee during the relevant year. Why, it could itself make enquiry with the registering authority. Non-reflection of the said TDRs in the assessee s balance-sheet (as on 31.3.2010), on which it relies for the purpose, is of little consequence in view of the admitted position of the assessee having charged their cost to the P L account for the year, claiming it as a deductible expense. The matter, therefore, is indeterminate, and is accordingly restored back to the file of the AO for consideration afresh. The matter being old, he shall decide the same within a reasonable time. As regards valuation, i.e., where held to be a case of sale, valuation of TDRs shall be with reference to the rate of open land, and not of residential building, inasmuch as these are development rights of land. The land location, in case of estimation, shall not be, as also observed during hearing, where the TDRs arose, but where these are (or would be) utilized and, further, with reference to a land with similar development potential therein. This is as only like can be compared with like. Further, the issue of deduction of the TDR cost (₹ 14.42 lacs), i.e., the first issue, being inter-related, we consider it proper to remit the same along with. We may though make it clear that it is not that we entertain any doubt qua the disallowance of TDR cost (₹ 14.42 lakhs) on the basis of the material on record as not valid. Disallowance of the refundable security deposit in computing the assessee s business income for the year - HELD THAT - The assessee has disposed its rights in land, encumbered by the obligation to re-compense the displaced occupants/ tenants, so that the cost suffered toward the same, by way of its forfeiture or transfer of the right to receive in favour of the purchaser, whichever way one may look at the transaction, is an associated cost, integral to the said transfer. It cannot, therefore, be regarded as the capital cost. The third objection is of the same arising in the following year. In fact, this is in contradiction of the claim of the loss having already arisen, i.e., independent of, and prior to, the transaction of transfer in March/July, 2010. That apart, when the income arising from the transfer is being subject to tax for AY 2010-11, how could a related cost possibly arise for being claimed/allowed in a subsequent year ? The same militates against the concept of income (or income computation), which is (to be) at net of all expenditure incurred in relation thereto. Section 5 of the Act in any case makes it clear that income can be brought to tax either in the year of its receipt or its accrual. The objections by the ld. CIT(A) to the disallowance of the cost of ₹ 54 lakhs are, therefore, not valid. Disallowance is accordingly, i.e., in view of the discussion directed to be deleted. We decide accordingly.

Summary

Issues Involved:
1. Deduction of the cost of Transferrable Development Rights (TDRs).
2. Valuation and taxation of the sale of TDRs.
3. Disallowance of the refundable security deposit in computing business income.

Detailed Analysis:

1. Deduction of the cost of Transferrable Development Rights (TDRs):
The first issue concerns the disallowance of the cost of TDRs, claimed by the assessee at ?14,41,900. The Assessing Officer (AO) disallowed this deduction, asserting that the TDRs were not mentioned in the conveyance deed and were not purchased by RSB Developers Pvt. Ltd. The Tribunal noted that the assessee's claim was unsubstantiated and that the TDRs, being valuable rights, should have been explicitly mentioned in the conveyance deed. The Tribunal found no infirmity in the disallowance, stating that the assessee failed to provide adequate evidence to support its claim.

2. Valuation and taxation of the sale of TDRs:
The second issue pertains to the valuation of the TDRs, which the Revenue estimated and brought to tax after deducting its cost. The Tribunal observed that neither the assessee nor the Revenue had properly advanced their cases. The Tribunal directed the AO to reconsider the matter, emphasizing that the valuation of TDRs should be based on the rate of open land, not residential buildings, and should reflect the land's development potential. The Tribunal remitted the issue back to the AO for fresh consideration, allowing the assessee to produce relevant evidence.

3. Disallowance of the refundable security deposit in computing business income:
The third issue involves the disallowance of a refundable security deposit of ?54 lakhs. The Revenue's stance was that the consent decree was no longer operative, and the assessee had already suffered a loss prior to the transaction with RSB Developers Pvt. Ltd. The Tribunal, however, found that the assessee's obligation to provide alternate accommodation to the tenants was real and integral to the transfer of its rights in the land. The Tribunal held that the cost of ?54 lakhs was a legitimate expense associated with the transfer and directed the disallowance to be deleted.

Conclusion:
The Tribunal partly allowed the assessee's appeal, remitting the issues related to the TDR cost and valuation back to the AO for fresh consideration, while directing the deletion of the disallowance of the security deposit. The Tribunal emphasized the need for a pragmatic approach in interpreting time limits for pronouncement of orders, considering the extraordinary circumstances caused by the COVID-19 lockdown.