9911796707
TMI Blog2011 (12) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... ing plans in respect of building No.2 in its project. The learned A.O. has erred in stating that the liability undertaken by your petitioner under the legally valid and registered documents for giving alternate residential accommodation to the existing tenants was a contingent liability and it was only estimate and not actual accrued liability. 2. The learned A.O. has erred in holding that the assessee had debited its profit and loss account with only estimation of expenditure and not accrued expenditure. Your petitioner submits that it had undertaken real life liability to provide alternate accommodation to eight existing tenants and its valuation of such live liability has been made on the documentary evidences. Your petitioner states that this accrued liability was crystalised during the year. 3. The learned A.O. has further erred in holding that the liability undertaken by the assessee for payment of all municipal taxes, cesses, levies, deposits, scrutiny fees, Architects fees and normal day to day business expenses for getting the approval of plans for 2nd building was not the actual liability but only estimation of liability." 1.2. Grounds rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: a) As per Clause 2 of the Agreement dt. 11.4.2003, the total FSI which may be available in respect of the said property, was to be proportionately divided amongst the Developers and the Sub-Developers herein in equal shares. However, the TDR which may be acquired from the open market, at the costs and expenses of the Sub-Developers, for consumption on the said Property for putting up additional floors on the proposed buildings and all the benefits of such constructed area shall belong to the Sub-Developer only. It was also agreed that in the event of grant of permission for construction of the commercial area in the said proposed buildings the same shall be earmarked only for the benefits of the sub-developers out of their 50% share in the constructed area on consumption of FSI which is available in respect of consumption of FSI which is available in respect of the said property. b) As per Clause 4 of the Agreement dt.11.4.2003, the Developer has to negotiate with the existing occupants/tenants of the structures in order to vacate the respective premises in their occupation, to enable the subdeveloper to demolish the existing structures standing on the said Prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that development charges to be paid for obtaining necessary approvals/sanctions in respect of the proposed buildings to MCGM shall be initially paid by the Developers only. However, the said aggregate amount shall be proportionately divided amongst the flats/units holders of the proposed buildings on pro-rata basis for the reimbursement of the same to the Sub-Developers. 4. The total FSI involved in construction of two buildings was 124291 sq. ft. Building No.1 involving 39741 sq. ft. of FSI was already constructed and completed during the Financial Year and building No.2 involving FSI 84550 sq. ft. was in progress. Building No.1 had three wings viz., A, B and C while Building No.2 has two wings viz., D and F. As a result of revision, total FSI for the buildings was 130,855 sq. Ft. as against 124291 sq. ft. as stated earlier. First building having wings A, B and C was already completed hence balance FSI would be 91113 sq. ft. for building No.2 having wings of D and F. Building No.1 had 7 storeys while building No.2 (D and F wings) was to be of 14 storeys. Thus, the assessee got in all 42 residential flats as per agreement dated 11.4.2003. As per supplementary agreement dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development. Accordingly the Assessee negotiated with the tenants of the structures and agreed with them that each tenant will be given alternative accommodation consisting of 420 sq. ft. constructed saleable area. The tenants were given temporary accommodation in the said plot by giving temporary tenement. The stamp duty and registration agreement charges in respect of agreements with tenants to give them owner-ship rights in the new tenement are to be borne by the builders. The Assessee pointed out that 8 tenants who were to be given alternative accommodation of 420 sq. ft. of saleable area could not be provided the said alternative in the Building NO.1. The main reason for not giving them the area was that the settlement was arrived much later on and the area scheduled to be resolved for them had been meanwhile sold off. The assessee has estimated the cost of providing them alternative accommodation at the present market rates including stamp duty, legal charges, etc. at Ps. 4460/- per sq.ft. le. for 420 sq.ft. Ps. 1,50,00,000/- has been provided as liability for further expenses. The assessee has provided Re.1 crore under the heading "MCGM Expenses" detailed as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year and is not in nature of ascertained liability. The AO also pointed out that as per the notes on accounts reproduced above, break up of this estimation was as under:- Provisions for expenditure on tenants Rs.1,50,00,000/- Provisions for expenditure to be paid to MCGM Rs.1,00,00,000/- Provisions for Consultancy Charges Rs.25,00,000/- Provisions for salaries, misc. etc., Rs.10,45,186/- Total Rs.2,85,45,186/- As against the claim for deduction of Rs.3,00,07,557/- in the profit and loss account the break up as above was only Rs.2,85,45,186. Thus, there was difference of Rs.14,62,371/- on the provisional estimate given by the assessee. The assessee, subsequently revised provisional payment to MCGM as under:- "A NOTE ON PROVISION OF RS.1,01,29,368/- TOWARDS PROPOSEDMUNICIPAL CORPORATION OF GREATER MUMBAI EXPESNES. The total F.S.I. involved in the construction of two residential buildings is 14? 4291 sq.ft.. The construction of the first residential building involving me consumption of P.5.1. of 39741 sq.ft. is over as of today. The balance FSI to be constructed 84550 sq. ft. The assessee incurred total expenses of Rs.47,61,051/- for getting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enants were residing in the plot when it was plot acquired by the assessee in 1980s. It was always known to assessee that it had to pay compensation to the tenants or to give them an alternate accommodation in the said plot. As per the details furnished by the assessee the project was commenced on 29- 03- 001 and Phase-I was completed on 04-10-2004. Therefore, even If the tenants were to be given alternate accommodation it could have given them in the Phase- I itself. Just as the assessee has entered into MOU with M/s. Audumber Constructions Co., it could have also signed agreements with the tenants regarding alternate accommodation or compensation, The assessee was not under any obligation to provide flats to them only Phase-Il. As per clause 5, assessee has to provide alternate accommodation to the tenant out of its own share I. e. Developer's share. But the assessee has sold off all flats in Bldg.-1 knowing fully well that it is entitled to sell only one flat in Bldg- 2 and other flats are to be sold by M/s. Audumber Construction Co. But the assessee has signed agreement with these 8 tenants only on 26/11/2003. Therefore, if at all the rate at which tenants to be provide alterna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable expenses. " 3.23. In the case of the appellant it has filed return by offering the gross receipts, even though the project is not yet complete. As per decision of ITAT, Mumbai in the case of Champion Construction Co. vs. ITO 5 lTD 495. Income from a construction project is taxable in the year when the project is substantially complete (above 90%). In the light of above judgment, it is to be seen whether the income of the appellant from construction project is taxable in the year under consideration or not (irrespective of the fact that appellant offered all the receipts in this year and claimed expenses.) The project consists of 2 buildings having A,B,C,D and E Wings Building No.1 having wings A,B and C is completed during the period relevant to A.Y. 2005-06 while construction of building No.2 could not be continued due to petition filed by some people in Mumbai High Court. Work of construction of building No.2 of project consisting wing D and E could start after close of the accounting year. Wings 0 and E will have 14 storeys. Construction of work of 0 Wing is completed upto 5 storeys till now and upto plinth level of E Wing. Counsel of the appellant filed that cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration as all the receipts are offered in the year or the receipts related to project be also taxed in the year when ITO allows expenses against the receipts. He argued that if expenses related to project are not allowed in the year under consideration, this will never be allowed in the subsequent years as there could be no receipts related to project in subsequent years. Appellant contented that once receipts are taxed by the A.O. and expenses related to alternate accommodation taxes levies and fee related to project are not allowed by the A.O.,then it would be great sufferers as these expenses can never be allowed in future in the absence of receipts from the project. In view of above counsel of the appellant again and again reiterated that justice would be denied to the appellant if all the receipts related to project are taxed but corresponding expenses are not allowed. 3.32. I have gone through the contention and find that the appellant has prematurely offered all the receipts as income in the year under consideration, it appears that it did so under the impression that Wings AB and C are completed hence. ITO would allow all the expenses Iliability related bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protectively in the year under consideration. A.O. is further directed to tax income related to project in A.Y. 2009-10 as the project is expected to complete by March 2009. Till then A.O will not enforce recovery of taxes on protectively assessed Income in this year." 15. Aggrieved by the order of the CIT(A) holding that the income declared by the Assessee be protectively assessed in this year and substantively in AY 09-10 when the project gets completed, the Revenue and the Assessee (Gr.No. 5) have filed the appeal before the Tribunal. Aggrieved by the order of the CIT(A) upholding disallowance of expenses referred to in ground No.1 to 4 of the Assessee's appeal, the Assessee has raised Gr.No.1 to 4 before the Tribunal. 16. We have heard the rival submissions. The learned D.R. relied on the order of the AO. The learned counsel for the Assessee reiterated submissions made before the Revenue authorities. It was his submission that as far as the Assessee is concerned, income from the project is complete and that it had offered the sale value of all flats and claimed expenses by way of provision. It was his submission that incurring of liability which were claimed as deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from the project to tax in this Assessment Year. The AO has accepted the offer to tax the income. The CIT(A) has however gone on the presumption that it is only when both the Buildings viz., Building No.1 and 2 are complete can it be said that the project is complete. This approach is not acceptable. Once the income from the project is taxed, the Assessee will have no occasion to claim expenses relating to that project in a later assessment year. In this regard, we also find that the CIT(A) has accepted that fact that the Assessee has got his share of flats in Building No.1 and one flat in Building No.2 also and both have been sold and the sale proceeds shown in the profit and Loss account. As far as Building No.2 is concerned, the Assessee no longer has any interest in the same. It is for M/S.Audumber Construction Co. to complete Building No.2 and deal with it. The Assessee has nothing to do with that building. In that view of the matter, we hold that income from the project, as far as the Assessee is concerned, has to be assessed in this assessment year viz., AY 05-06 on a substantive basis, by treating the project, as far as the Assessee is concerned, as complete. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment Charges (2) Water and Sewerage charges (3) Scrutiny fees (4) MCGM non-refundable deposits (5) Land Revenue Non Agriculture tax. 22. The total area to be constructed in respect of two buildingsi.e., Building No.1 and Building No.2 was 124291 sq. ft. The first building having the wings, A, B and C was already constructed which consumed 39741 sq. ft. leaving the balance FSI of 84550 sq. ft. to be consumed in construction of Building No.2 having Wings of D and F and consisting of14 floors. Thereafter, the total building FSI available to the assessee was found at 130855 sq. ft. As a result, the balance FSI to be consumed in the course of the construction of Building No.2 was also increased to the extent of 91113 sq. ft. 23. The assessee had incurred upto 31-3-2005, Rs.47,61,051/- for getting the approved plans for the first building involving construction of 39741 sq. ft. i.e., roughly Rs.119.80 per sq. ft. On the basis of the above actual real expenditure paid out, the assessee calculated its future liability in respect of payment of municipal taxes, charges, cesses, fees, etc. at Rs.1,0l,29,258/-. Accordingly, a provision of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing No.1 which was already constructed and in respect of one residential flat agreed to be sold at Rs.13,02,000/-in the Building No.II which was under construction. The assessee had booked all its income from the construction activities in the year under account, while its expenses as herein above mentioned had to be booked in order to arrive at correct profit. In order to arrive at correct profits, the outstanding liabilities based on voluminous documentary evidences placed on record has to be taken into account. We are of the view that in respect of providing alternate accommodation, it is for the Assessee to choose the manner in which it gives the old occupants of the land, alternate accommodation. The AO cannot sit in judgment over the business decision of the Assessee and say that the Assessee should have given alternate accommodation to the old occupants of the land only from his share of built up area received from the subdeveloper. There can also be no dispute that the expenditure claimed by the Assessee as deduction by way of provision, were to be borne by the Assessee as per the terms of the sub-development agreement with the sub-developer. These obligations spring from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e flat. 10. The learned CIT (A) has erred in not considering the disallowance of Rs.1,05,200/- and Rs.14,114/- made by the A.O. Your petitioner states that though it has not subsequently taken up this ground in the appeal memo, however, it had claimed relief in respect of both these additions also". 26. As far as ground No.7 and 9 is concerned, no ground of appeal was raised by the Assessee before CIT(A). Even before us, no evidence regarding actual payment to BMC or reasons why tax was not deducted on payment of fees to consultant have been given. In these circumstances, we dismiss Gr.No.7 and 9. 27. As far as Ground No.8 is concerned, we are of the view that the payment of Rs.16,000 to Krishna complex utsav mandal alone can be considered as one incurred owing to commercial expediency. Krishna complex is the project developed by the Assessee and it would be guided by commercial considerations when the payment in question is given to gain goodwill. Considering the quantum of payment, we are of the view that the same can be allowed as deduction. As far as the other items of donations are concerned, we find no grounds to interfere with the order of CIT(A). Gr.No.8 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
