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2021 (12) TMI 1173 - AT - Income TaxDisallowance of administrative expenses - Expenses related to Business or to earn capital gain - JDA - CIT(A) based on disallowance made for assessment year 2009-10 being the immediately preceding assessment year and considering the fact that assessee executed JDA during the previous year relevant to assessment year under consideration, allowed expenditure of ₹ 15 lakh as sufficient for running the company - HELD THAT - We note that in all the preceding assessment years a proportionate amount of expenditure was disallowed, which has not been contested by assessee before this Tribunal. Assessee has restrained from filing any appeal before this Tribunal in any of the preceding assessment years. Further assessee has placed in the paper book, the orders passed by 1st appellate for preceding assessment years. There is a categorical observation in all the preceding assessment years by the Ld. CIT(A) therein that, assessee had an increase in work in progress. On perusal of the balance sheet for year under consideration placed in the paper book, we note that, no work in progress is accounted for. Under such circumstances, we do not find any reason to allow entire administrative expenses claimed by assessee. Whatever has been allowed by the Ld. CIT(A) is justifiable. Addition of direct expenses - Whether payments were relating to transfer of capital asset? - HELD THAT - Clause 3 of the memorandum allows assessee to undertake construction activities. Assessee used to have clubhouse business which could not run well in the past. Assessee had to shut down the business as there was a lull period. It was during this period that, the assessee entered into real estate construction. This led to the JDA with M/s. Palma Developers Ltd. The expenses incurred are towards development of the land as per JDA. Under such circumstances, in our view these expenses pertained to the activities carried on by assessee during the relevant period.Accordingly these expenses are to be allowed as business expenditure. Computation of capital gains on the constructed area falling into assessee's share as per JDA - CIT(A) treated the refundable deposit as non-refundable, for the purposes of capital gains - HELD THAT - As on the factual findings in case of M/s. Plama Developers Ltd. that Ld. CIT(A) determined the consideration for transfer of land by assessee to be at ₹ 19.30 crores (16.30 3), during the assessment year 2010-11. Admittedly assessee has received ₹ 19.30 crores during the relevant year under consideration. There is nothing on record to establish that assessee received anything over and above ₹ 19.30 crores. We therefore do not find any infirmity in the observation of the Ld. CIT(A) in treating the money received by assessee to be ₹ 19.30 crore from the developer. Transfer of capital asset - analyse the JDA along with the power of attorney executed by assessee with M/s. Plama Developers Ltd. - By virtue of the terms and conditions mentioned in the agreements referred to herein above, transfer as contemplated under section 2(47)(v) of the Act had taken place during the relevant year under consideration. The land mentioned in the JDA was transferred as was the provisions of the said section and part performance was made by the developer by paying the consideration towards the transfer of the land. A reading of the JDA coupled with all the supplementary agreement entered into between the party subsequently shows that the owner has transferred the developers share in the land akin to ownership to the developer. Also a real income has arisen in the hands of assessee upon such transfer of developers share which is fortified by the subsequent sup supplementary JDA entered into between the parties in the year 2013. Even otherwise the nomenclature of the amount received by assessee during the year under consideration from the developer is non-refundable security deposit . Further it is more clear from the supplementary agreement entered into between the parties in the year 2013 that, upon completion of the construction the developer is only handing over the constructed premises to assessee. If one goes by the averments in the JDA and supplementary agreement the intention is very clear that the money received at the time of entering of JDA, automatically leads to the conclusion that it pertained to the transfer of rights and ownership of the developers share in the land. We are therefore unable to appreciate the arguments advanced by the Ld. AR under such peculiar facts that emanate from records that assessee had only granted right to enter the land for purposes of developing. Respectfully following the observation of Hon'ble Supreme Court in the case of CIT vs. Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT and TK. DAYALU 2012 (6) TMI 405 - KARNATAKA HIGH COURT do not find any infirmity in the view taken by Ld. CIT(A). - Decided against assessee. Taxability of constructed area to be received by assessee - AO noted that assessee has not declared the capital gains of the constructed area that is receivable and therefore brought to tax by applying cost of construction at ₹ 1880/- per square feet as contemplated to be disclosed by M/s. Plama Developers Ltd - HELD THAT - On perusal of various supplemental agreement entered into by assessee, there is a mention of additional FAR that may be available, the actual constructed area which will be handed over to the assessee by the developer is not known for the year under consideration. We therefore of the opinion that acted constructed are cannot be determined, as they are non-existent as on the date of entering into JDA and the constructed area that accrues to assessee in the future cannot be predicted. Therefore such constructed area cannot be brought to tax during the year under consideration. For the year under consideration except for the plans having prepared no activity in respect of the development has been completed. There is nothing on record brought by the Ld. AO to show that there was development activity in the land under consideration during the year under consideration, and the cost of construction incurred by the developer was merely an assumption by Ld. AO. Depreciation granted by Ld. CIT(A) on other assets at normal rates - HELD THAT - In order that the assessee can be entitled to depreciation, assessee must carry on a business. It is not necessary that the business should in fact yield profits. The carrying on of a business may result in loss; but the particular activity carried on by the assessee must be such as must be calculated to yield profits. The test is not the actual making of the profits; the test is whether the nature of the activity is such as possibly to yield profits to the assessee. Where no business has been carried on by the assessee during the previous year, the assessee cannot claim depreciation. Admittedly, assessee did not carry on any business during the relevant financial year as observed by Ld. CIT(A) himself in para 6 of the impugned order. We therefore hold that the Ld. CIT(A) was wrong in granting depreciation in part to assessee.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Disallowance of administrative expenses. 3. Disallowance of direct expenses related to transfer of capital assets. 4. Computation of capital gains on non-refundable deposit. 5. Taxability of constructed area to be received by the assessee. 6. Depreciation claim on other assets. Condonation of Delay in Filing the Appeal: The Tribunal condoned the delay of 79 days in filing the appeal due to the director's hospitalization and subsequent bed rest. The Tribunal found the reason genuine and allowed the condonation in the interest of justice. Disallowance of Administrative Expenses: The CIT(A) restricted the administrative expenses to ?15,00,000/- from the claimed ?30,87,571/-. This decision was based on the disallowance made in the preceding assessment year and the fact that the assessee executed a Joint Development Agreement (JDA) during the relevant year. The Tribunal upheld this disallowance, noting that the assessee did not contest similar disallowances in previous years and had no work in progress for the year under consideration. Disallowance of Direct Expenses Related to Transfer of Capital Assets: The assessee claimed direct expenses of ?46,60,463/- related to the transfer of land to developers and demolition of a clubhouse. The Tribunal found these expenses to be part of the assessee's real estate activities and allowed them as business expenses, overturning the CIT(A)'s disallowance. Computation of Capital Gains on Non-Refundable Deposit: The CIT(A) upheld the AO's decision to tax the capital gains in the year of possession transfer (FY 2009-10) but reduced the consideration from ?22.30 crores to ?19.30 crores. The Tribunal agreed with the CIT(A), noting that the assessee received ?19.30 crores during the relevant year and no additional amounts were received. Taxability of Constructed Area to be Received by the Assessee: The CIT(A) ruled that the constructed area to be received in the future should not be taxed in the year under consideration. The Tribunal upheld this decision, noting that the actual constructed area was uncertain and dependent on future events. The Tribunal emphasized that only the consideration received (?19.30 crores) should be taxed, and any future gains on the constructed area should be taxed in the respective years. Depreciation Claim on Other Assets: The AO denied depreciation as the assessee did not carry on any business during the relevant financial year. The CIT(A) granted partial depreciation, but the Tribunal overturned this, stating that depreciation cannot be claimed if no business activity was carried out. Conclusion: The Tribunal partly allowed the appeals of both the assessee and the revenue. It upheld the disallowance of administrative expenses and the computation of capital gains based on the non-refundable deposit. It allowed the direct expenses related to the transfer of capital assets and ruled against the taxability of the constructed area in the year under consideration. The Tribunal denied the depreciation claim due to the lack of business activity.
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