2023 (11) TMI 981 - AT - Income Tax

Additions against Suppressed sales - huge variance in sale price of flats - Assessee had sold its units at a varied prices ranging from Rs. 13,513/- per sq. ft to Rs. 27,951/- per sq. ft in the same project - Such a huge variation prima facie was not found to be justifiable by the ld. AO who has given a very detailed analysis and the reasons to rebut the explanation of the assessee, whereas the ld. CIT (A) without any much factual analysis has accepted the contention of the assessee. HELD THAT - Weighted average rate for A.Y.2011-12 comes to Rs. 17,172/- per sq.ft. However, we find that there is one unit which is a shop cum garage and definitely it cannot be compared with other units where the agreement rate was very low and therefore, the same rate of Rs. 17,172/- cannot be applied. Firstly, this was a major area of 5091 sq.ft for agreement value of Rs. 8 Crores. Accordingly, in the weighted average this particular unit sold to Deonar Weight Bride Pvt. Ltd. Unit No.G-1 shop / garage is directed to be excluded from while calculating the weighted average and actual price should be taken. Accordingly, for all other 12 units the rate for estimating the sales is taken at Rs. 17,172/-. Thus, ld. AO is directed to work out the consequential relief and accordingly, the appeal of the Revenue is partly allowed. Similarly, for A.Y.2012-13 and 2013-14 also the weighted average rate is Rs. 17,636 and Rs. 18,136/- respectively. Thus, ld. AO is directed to give consequential relief by applying this weighted average rate and our finding given will apply mutatis mutandis for these two years also. Accordingly, the appeal of the Revenue on this issue is partly allowed. Disallowance of construction expenditure - expenses have been incurred after the issue of occupation certificate (OC) hence, these expenses cannot be allowed - According to the AO, once the OC has been issued, the construction of the building is said to be completed and that after the said date, there cannot be any expenditure - HELD THAT - The expenses are mostly for maintaining building and during the course of defect liability period assessee was responsible to replace any damages in the building construction work. Moreover, if some work is completed but it is not of proper quality or specifications, then the assessee builder is responsible to again make it - most of the expenses are also in the nature of butler services, housekeeping and cleaning services which are in the nature of maintenance expenses. It is seen that the nature of work which was incurred by the assessee during the year are not of such type which can affect the occupancy of the building by the occupants. There are certain expenditures which assessee had stated that although bills and evidences and bills related to earlier date, however, the expenditure has been booked and incurred in the year under consideration since the bills were belatedly received and some of the bills were received on a later date where the work had completed which was subject to defect liability period. Thus, it cannot be held that since these expenses have been incurred after the OC and therefore, same cannot be allowed. One of the issues raised by the ld. AO that construction cost was on a higher side which has no base because assessee had submitted the working of the construction cost for which entire details were filed before us in the paper book. That apart, assessee had also earned huge profit from such activity and thus, it cannot be presumed that the construction expenses are on higher side. Thus, the finding and observation of the ld. CIT (A) in deleting the addition is confirmed and accordingly, this ground raised by the Revenue is dismissed. Disallowance of interest expenditure - Interest-bearing funds were diverted by the assessee to its sister concern at a lower interest rate - As per AO assessee had taken secured loans from various parties at the interest rate ranging from 14.50% to 23% p.a. and unsecured loans taken at the interest rate ranging from 12% to 15% pa as compared to given ICDs to its sister concern at interest rate of 9% p.a. - HELD THAT - We find that differential interest rate on loans advances to sister concern cannot be disallowed because the loan given to the said party was to the tune of Rs. 7.40 Crores, whereas interest rate by the assessee to various parties in respect of loan aggregating to Rs. 50.27 Crores which has been considered by the ld. AO. The ld. AO has disallowed interest of all the loans where interest was charged more than 9% ignoring that advances made to the sister concerns were only to the tune of Rs. 7,40,39,682/- in the interest of other loan to the tune of Rs. 60,27,55,727/- cannot be disallowed. Thus, disallowance in such a case at the most can be made in respect of differential interest rates of loans given to sister concern of Rs. 7.40 Crores. Thus, the action of the ld. CIT (A) in restricting the disallowance is justified which does not warrant any interference. Accordingly, this ground raised by the Revenue is dismissed. Disallowance of interest made u/s. 14A - HELD THAT - CIT (A) has correctly deleted the disallowance on the ground that assessee has sufficient own funds to make the investment which were to the extent of 53.61 Crores as against value of investment of Rs. 33.5 Crores. This issue now stands covered by the decision of the Hon ble Supreme Court in the case of South Indian Bank Ltd 2021 (9) TMI 566 - SUPREME COURT - Accordingly, the action of the ld. CIT(A) deleting the said disallowance is upheld. Disallowance u/s. 40(a)(ia) - Assessee had not deducted TDS on interest paid to Kotak Mahindra Prime Ltd. - CIT(A) restricting the disallowance to 30% - HELD THAT - However, the order of the ld. CIT(A) while confirming the disallowance by restricting to 30% of the expenditure u/s. 40(a)(ia) is not correct, because the said amendment was brought in the statute w.e.f. 01/04/2015 and is applicable prospectively. This has been held so in the case of Shree Choudhary Transport Co. 2020 (8) TMI 23 - SUPREME COURT - Hence, the action of the ld. CIT(A) in restricting the disallowance to 30% is not correct. Thus, this ground raised by the Revenue is allowed.

Summary

Issues Involved:
1. Deletion of addition on account of suppressed sales of flats for A.Y. 2011-12, 2012-13, and 2013-14.
2. Disallowance of construction expenditure for A.Y. 2011-12, 2012-13, and 2013-14.
3. Disallowance of interest expenditure for A.Y. 2011-12, 2012-13, and 2013-14.
4. Disallowance under Section 14A for A.Y. 2012-13.
5. Disallowance under Section 40(a)(ia) for A.Y. 2013-14.

Summary:

Issue 1: Suppressed Sales of Flats
The Revenue challenged the deletion of addition on account of suppressed sales of flats for A.Y. 2011-12, 2012-13, and 2013-14. The Assessing Officer (AO) noted significant variations in the sale prices of flats and applied the highest rate observed to all units. The CIT(A) deleted the addition, accepting the assessee's explanation that variations were due to factors like additional areas, Vaastu compliance, and market conditions. The Tribunal found that while some variation in prices is justifiable, the AO's approach of applying the highest rate was not. The Tribunal directed the AO to use a weighted average rate for calculating the sales, excluding certain units like shops and garages from this calculation. Consequently, the appeals on this issue were partly allowed.

Issue 2: Disallowance of Construction Expenditure
The AO disallowed construction expenses incurred after the issuance of the Occupation Certificate (OC), arguing that no further construction expenses should be allowed post-OC. The CIT(A) allowed the expenses, noting they were for maintenance and defect liability period work, which are legitimate business expenses. The Tribunal upheld the CIT(A)'s decision, confirming that such expenses are allowable even if incurred after the OC. The Revenue's appeals on this issue were dismissed.

Issue 3: Disallowance of Interest Expenditure
The AO disallowed interest expenses on loans taken at higher rates, arguing that the funds were diverted to a sister concern at a lower interest rate. The CIT(A) restricted the disallowance to the differential interest on the amount advanced to the sister concern. The Tribunal upheld the CIT(A)'s decision, noting that only the differential interest on the specific amount advanced to the sister concern should be disallowed. The Revenue's appeals on this issue were dismissed.

Issue 4: Disallowance under Section 14A
For A.Y. 2012-13, the AO made a disallowance under Section 14A on account of interest expenditure. The CIT(A) deleted the disallowance, noting that the assessee had sufficient own funds to make the investments. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's decision in South Indian Bank Ltd. v. CIT. The Revenue's appeal on this issue was dismissed.

Issue 5: Disallowance under Section 40(a)(ia)
For A.Y. 2013-14, the AO disallowed interest expenditure for non-deduction of TDS. The CIT(A) restricted the disallowance to 30%, applying a proviso to Section 40(a)(ia). The Tribunal found this application incorrect, noting that the amendment was prospective from 01/04/2015. The Tribunal allowed the Revenue's appeal on this issue, confirming the full disallowance.

Conclusion:
The Tribunal's order resulted in partly allowing the Revenue's appeals concerning suppressed sales and fully allowing the appeal on the disallowance under Section 40(a)(ia). Other appeals by the Revenue were dismissed.