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2023 (9) TMI 219 - AT - Income TaxDisallowance of Prior Period Expenses - HELD THAT - As in the case of Indian Petrochemicals Corporation Ltd. 2016 (9) TMI 110 - GUJARAT HIGH COURT held that prior period expenses quantified and paid during current year would be allowed as business expenditure in relevant assessment year even though assessee was following mercantile system of accounting. Respectfully Judgment (cited supra), we hereby delete the addition which has been confirmed by Ld. CIT(A).Decided against revenue. Over statement of loss - Auditors in the Special Audit Report observed that though during the year the assessee sold five shops of the hotel building for a consideration of Rs. 40,03,000/- but the sale consideration of only Rs. 35,03,000/- was adopted while working out the profits on such sales, accordingly a sum of Rs. 5,00,000/- was proposed to be added by the AO - HELD THAT - As CIT(A) after considering the material records and held that he do not find any reason why this sum of Rs. 5,00,00/- should again be added in the total income, accordingly the addition made by the AO is deleted.D.R. could not submit any contra evidence on the above findings of the Ld CIT A . Thus the ground no. 2 raised by the Revenue is devoid of merits and hereby dismissed. Addition u/s. 22 - ALV of finished stock - CIT(A) after considering the submissions of the assessee determined the ALV at 5% of the book value of the flats and determined the income - HELD THAT - Merely because income in respect of said units has not been recognized during the year on account of NON-Execution of Sale Deed, it cannot be held that units are vacant and owned by the assessee for the purpose of taxing notional income u/s. 22 - The assessee is in business of real estate flats in question are the part of the stock in trade . Therefore the ALV computed by the lower authorities at 8% and 4% are against the provisions of section 22 and the addition made on this account is illegal As in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock-in-trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up to one year from the end of the financial year in which a completion certificate is obtained from the competent authority. In view of the above amendment to section 23, in the instant case, the assessee is a builder and developer. The issue of taxability is with regard to unsold flats relating to the A.Y. 2013-14. In view of the insertion of sub-section (5) in section 23 by the Finance Act, 2017, w.e.f. 01.04.2018 narrated hereinbefore, we hereby delete the addition made on account of ALV. Disallowance u/s. 40(a)(ia) - TDS on payments made towards interest, rent, commission etc. - assessee contended that the amounts are charged to WIP of hotel building and reflected in the block of assets and the same has not been claimed as revenue expenditure during the previous year - HELD THAT - CIT A correcly deleted the sum paid to HUDCO is clearly out of the purview of TDS and hence no disallowance can be made of this amount. As regards the balance amount, since the same has not been charged to revenue account the same cannot be disallowed from revenue account. However, as the applicable TDS has not effected by the assessee, thus following the provisions of section 40(a)(ia) of the Act, the WIP has to be reduced. Thus Ld CIT A directed the AO to reduce the WIP and partly allowed the appeal correctly. Deduction u/s. 80IB(10) - income of residential/commercial projects constructed - CIT(A) held assessee has not fulfilled the condition for becoming eligible to deduction u/s. 80IB(10) - Project has not been completed within the time limit of 5 years prescribed in section 80(IB) - HELD THAT - Regarding Takshshila Coloneal project was not completed within the time limit of 5 years prescribed in section 80(IB) as decided in Bench of this Tribunal in 2023 (8) TMI 1185 - ITAT AHMEDABAD separate planning permission obtained by the assessee for each Block separately and after construction obtained separate Building Usage permission from the Local Authority within 5 years period, therefore the assessee cannot be denied the claim of exemption u/s. 80IB(10) of the Act. Thus the order passed by the Lower Authorities on this issue is hereby set aside - thus assessee is eligible for deduction u/s. 80IB 10 of the Act on the Takshshila Coloneal project. Commercial construction is more that the prescribed limit of 3% of the aggregate built-up area of the housing project - As relying on cases Suyog Shivalaya 2018 (7) TMI 1458 - SC ORDER and Arun Excello Foundations (P.) Ltd. 2012 (10) TMI 1216 - MADRAS HIGH COURT the assessee is eligible for deduction u/s. 80IB 10 of the Act on the commercial construction which was approved by the Local Authority within the frame work of Development Control Rules and Regulations. Thus this ground raised by the assessee is hereby allowed and the disallowance made by the AO is hereby deleted. Assessee sold units to more than one person of a family which is not allowed as per section 80(IB) - As relying on Om Swami Smaran Developers (P.) Ltd. 2018 (1) TMI 1646 - ITAT MUMBAI the assessee cannot be denied the deduction u/s. 80IB 10 of the Act on the entirety and the assessee is eligible for balance units which has been constructed as per conditions laid down in section 80IB 10 c of the Act. Thereby this issue is set aside to the file of the AO with a direction to grant the deduction after giving opportunity to the assessee. Difference in cost of construction - In the Special Audit Report the Auditors compared the cost of construction of the shops/flats adopted by the assessee in the current year to the earlier years and pointed out that the cost adopted in the current year is much higher in comparison to the cost taken in earlier years after adjusting the addition to cost of construction during the year - HELD THAT - CIT A considering the reply of the assessee held that the Auditors have arrived at the cost of construction on the basis of what was debited in earlier years and have not found any false expense or any part of the cost debited in the books of accounts of the current year despite the extensive special audit carried out. When the accounts of the assessee are subjected to special audit disallowance or addition cannot be made without impeaching the entries in the books of accounts or without any income/expense found not entered in the books of accounts, which has not been done in this case. Further in the SAR the Auditors pointed out that the assessee company has incurred various expenses pertaining to the projects eligible for deduction u/s. 80IB but they were charged to the projects which were not so eligible. Also certain common expenses were not proportioned between the projects eligible for deduction u/s. 80IB and other projects. Hence, the CIT A do not find any merit in the action of AO and the addition was deleted correctly. No contra evidence on the above detailed findings of the Ld CIT A .
Issues Involved:
1. Disallowance of Prior Period Expenses 2. Addition on account of Negative Cash Balance 3. Addition on account of Overstatement of Loss 4. Addition under Section 22 - ALV of Finished Stock 5. Disallowance under Section 40(a)(ia) 6. Disallowance of Deduction under Section 80IB(10) 7. Addition on account of Revaluation of Land under Section 115JB 8. General Grounds Summary: 1. Disallowance of Prior Period Expenses: The tribunal addressed the disallowance of prior period expenses amounting to Rs. 25,64,398/-. The CIT(A) deleted Rs. 21,68,894/- as these expenses were not claimed during the previous year, but confirmed the addition of Rs. 3,95,504/-. The tribunal, following the jurisdictional High Court's ruling in Indian Petrochemicals Corporation Ltd., deleted the confirmed addition of Rs. 3,95,504/- and allowed the ground raised by the Assessee while dismissing the Revenue's ground. 2. Addition on account of Negative Cash Balance: The assessee did not press this ground, and hence, it was dismissed. 3. Addition on account of Overstatement of Loss: The tribunal upheld the CIT(A)'s deletion of the Rs. 5,00,000/- addition made by the AO on account of overstatement of loss, as the Revenue could not provide any contrary evidence. Thus, the Revenue's ground was dismissed. 4. Addition under Section 22 - ALV of Finished Stock: The tribunal considered the addition of Rs. 53,19,672/- made by the AO for the ALV of finished stock. The CIT(A) reduced the ALV computation to 5% of the book value, resulting in an income of Rs. 33,24,796/-. The tribunal, following the jurisdictional High Court judgments and considering the amendment in section 23, deleted the addition made on account of ALV, allowing the Assessee's ground and dismissing the Revenue's ground. 5. Disallowance under Section 40(a)(ia): The tribunal upheld the CIT(A)'s decision to delete the Rs. 24,16,153/- paid to HUDCO from the purview of TDS and directed the AO to reduce the WIP by Rs. 12,33,712/-. Both the Assessee's and the Revenue's grounds were dismissed. 6. Disallowance of Deduction under Section 80IB(10): The tribunal, following its earlier decision, allowed the deduction under section 80IB(10) for the Takshshila Coloneal project. It also allowed the deduction for commercial construction within the prescribed limits and proportionate deduction for units sold to more than one family member. The tribunal set aside the issue to the AO for granting deduction after due verification. 7. Addition on account of Revaluation of Land under Section 115JB: The assessee did not press this ground, and it was dismissed. 8. General Grounds: Grounds 7 and 8 raised by the assessee were general and did not require specific adjudication. Conclusion: The appeals filed by the Assessee and the Revenue were partly allowed. The order was pronounced in the open court on 01-09-2023.
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