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2023 (2) TMI 297 - AT - Income TaxEstimation of income from the project at the rate of 10% of the work-in-progress - assessee has transferred two existing projects to its sister concern as per the value declared in balance sheet and it is fact on record that assessee has transferred the project at the work-in-progress value to its sister concern without adding any profit to the above said project cost - HELD THAT - Assessee has partly completed the two projects namely Kapil Malhar Intelligent Homes Phase-II and development rights and transferred the same at the end of the current assessment year to its sister concern M/s Indorigin Electric Ltd. It is fact on record that assessee has transferred the same as per the Books of Accounts at cost without adding any profit of the effort put in by the assessee on these projects. On enquiry assessee has declared profit earned by sister concern i.e. M/s Indorigin Electric Limited at 7.71% after completion of the projects. Therefore, to the extent the assessee has completed the project which was declared in the Books of Accounts as work-in-progress at the end of the year which was subsequently transferred to its sister concern. Therefore, it is proper and just to estimate the profit @7.71% on the value of work-in-progress transferred to its sister concern. AO is directed to add the profit on these projects @7.71% on the value of work-in-progress transferred during the year at the value of ₹.7.2 crores. Accordingly, ground raised by the assessee as well as revenue are partly allowed. Addition made on account of land cost claimed as expenses by the assessee - CIT-A deleted addition on the basis of the fresh evidence, without giving an opportunity to the Assessing Officer as per the provisions of Rule 46A - HELD THAT - Considered the rival submissions and material placed on record, we observe from the record that the Ld.CIT(A) considered the various submissions of the assessee and while deleting the addition made by the Assessing Officer he heavily relied on the information contained in the assignment deed based on which the project was transferred to its sister concern. Therefore, it clearly shows that it is not an additional evidence submitted before the Ld.CIT(A). Accordingly, the additional ground raised by the revenue is dismissed. Rectification of mistake u/s 154 - CIT(A) allowed the claim of the assessee with regard to interest expenditure and on the issue of transfer of outstanding sundry creditors to the sister concern - HELD THAT - Assessee has taken loan from Bank of Maharashtra for the project Kapil Malhar and the loan was utilized in the project. During the year the above said project was sold to a third party. The profit from the sale of the remaining part of the project was declared and assessed as 'Business Income . Against this 'Business Income the assessee has claimed the interest expenditure incurred by it for the said project. We are in agreement with the findings of the Ld.CIT(A) that the interest expenditure claimed by the assessee is towards the loan taken from Bank of Maharashtra and the funds were utilized in the said project was subsequently transferred. Therefore, the assessee declared the income earned from this project as the business income. Accordingly, assessee is eligible to claim the above said interest expenditure as business expenditure. Therefore, we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, Ground No. 2 raised by the revenue is dismissed. Outstanding creditors liability in its Books of Accounts - HELD THAT - As during the year assessee has transferred the development rights and projects to its sister concern and as per the assignment agreement they agreed to transfer the remaining project on as is and where is basis and the liability in respect of the sundry creditors outstanding in the above said projects are automatically transferred to the sister concern. Therefore, there is no liability in the Books of Accounts as per the transfer of the projects to its sister concern. Therefore, the Assessing Officer has merely presumed that the assessee has written off these sundry creditors and he presumed that this falls under deemed income of the assessee. Ld.CIT(A) has verified the development agreement and came to the conclusion that the assessee has transferred the project along with the liability to its sister concern. Therefore, there is no reason to interfere with the findings of the Ld.CIT(A). Accordingly, Ground No. 3 raised by the revenue is dismissed.
Issues Involved:
1. Estimation of profit on work-in-progress transferred to sister concern. 2. Disallowance of liability shown as payable to sister concern. 3. Deletion of addition on account of land cost claimed as expenses. 4. Rectification application under Section 154 of the Income-tax Act, 1961. 5. Classification of income from Business Centre. 6. Disallowance of interest paid to Bank of Maharashtra. 7. Addition on account of transfer of sundry creditors. Detailed Analysis: 1. Estimation of Profit on Work-in-Progress Transferred to Sister Concern: The assessee transferred two projects to its sister concern, M/s Indorigin Electric Ltd., without estimating profit on the work-in-progress. The Assessing Officer (AO) observed that the assessee did not show any profit on the transfer of work-in-progress valued at Rs. 16,11,24,323/-. The AO treated the difference between liabilities and assets as income, amounting to Rs. 6,06,70,429/-. The CIT(A) estimated the profit at 10% of the work-in-progress, sustaining an addition of Rs. 1,41,36,133/-. Upon appeal, the Tribunal directed the AO to estimate the profit at 7.71%, based on the profit declared by M/s Indorigin Electric Ltd. 2. Disallowance of Liability Shown as Payable to Sister Concern: The AO disallowed a liability of Rs. 7,53,12,160/- shown as payable to M/s Indorigin Electric Ltd., questioning its genuineness. The CIT(A) deleted this addition, and the Tribunal upheld this decision, noting that the liability was transferred as part of the project. 3. Deletion of Addition on Account of Land Cost Claimed as Expenses: The Revenue raised an additional ground, arguing that the CIT(A) erred in deleting the addition of Rs. 2,47,57,242/- claimed as land cost without giving the AO an opportunity as per Rule 46A. The Tribunal dismissed this ground, stating that the information was available during assessment proceedings and was not fresh evidence. 4. Rectification Application under Section 154: The assessee filed a rectification application under Section 154, contending mistakes apparent on record. The CIT(A) allowed the rectification regarding interest expenditure and transfer of sundry creditors. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest expenditure was related to the business income and the liability of sundry creditors was transferred to the sister concern. 5. Classification of Income from Business Centre: The assessee argued that income from the Business Centre should be treated as business income, consistent with earlier assessments. The CIT(A) accepted this, and the Tribunal upheld the decision, noting the consistency in the system of accounting. 6. Disallowance of Interest Paid to Bank of Maharashtra: The AO disallowed interest of Rs. 50,96,138/- paid to Bank of Maharashtra, claiming the assessee had no business activity. The CIT(A) allowed the deduction, and the Tribunal upheld this, noting that the interest was related to a loan for a project that generated business income. 7. Addition on Account of Transfer of Sundry Creditors: The AO added Rs. 1,38,16,738/- as unexplained cash credit, assuming the assessee wrote off sundry creditors. The CIT(A) deleted this addition, and the Tribunal upheld the decision, confirming that the liability was transferred to the sister concern. Conclusion: - The appeal by the assessee in ITA.No. 656/Mum/2013 is partly allowed. - The appeal by the Revenue in ITA.No. 2528/Mum/2013 is partly allowed. - The appeals by the Revenue in ITA.Nos. 4787 and 6154/Mum/2014 are dismissed. Order pronounced in open court on 30th January 2023.
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