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TMI Blog2014 (7) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... ocation of expenses @ 19% as applied by the Commissioner (Appeals) seems to be quite reasonable and rational basis in the absence of other material or criteria for allocation for the purpose of making the allocation of the expenses between Phase–I and Phase–II - the disallowance of 19% on the road expenses should be restricted to net expenditure incurred by the assessee i.e., ₹ 1 crore and not ₹ 1,12,20,280, because the assessee got the reimbursement of ₹ 12,20,285 - the disallowance on account of road expenses should be restricted to ₹ 19 lakhs. Disallowance of loss on sale of TDR – Held that:- Disallowance of loss on account of TDR was not the subject matter of either the original assessment proceedings or the mandate of the Tribunal order - the reasons adopted by the CIT(A) that the sale of TDR to one Mr. Vijay M. Parkih is at lower cost is without any enquiry or any adverse material on record that the assessee has suppressed the sale made to this aprty - secondly, to hold that the payment of legal fee is not a necessary expenditure is again based on surmises that to be without any enquiry or based on some evidence - Even under the law, the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional fees ₹ 1,24,624/- III) Labour Charges ₹ 58,207/- 3. The learned CIT(A) erred in making enhancement of disallowance of expenses relating to TDR by ₹ 13,43,718/- by disallowing loss of ₹ 57,06,488/- on sale of TDR vis-a-vis disallowance of ₹ 43,62,770/ made by the assessing officer on the ground of wrong allocation of expenses without appreciating that in the facts of the case ld. CIT(A) had no jurisdiction to make enhancement and exercise of such jurisdiction was bad in law as it was beyond the direction of Hon'ble ITAT and hence the disallowance of loss on sale of TDR of ₹ 57,06,4881- made by CIT(A) may be deleted. 3.1 Without prejudice to above the learned CIT(A) erred in making enhancement of disallowance of expenses relating to TDR by ₹ 13,43,718/- by disallowing loss of ₹ 57,06,488/- on sale of TDR vis-a-vis disallowance of ₹ 43,62,7701- made by the assessing officer on the ground of wrong allocation of expenses without appreciating that allocation of expenses to TDR by CIT(A) for calculating the loss is erroneous and hence the disallowance of loss on sale of TDR of ₹ 57,06,488/- made by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to Phase II, had not started. The assessee had shown all the expenses incurred during the commencement and completion of Phase I, to be allocated for the Phase I only, on the ground that these two phases were entirely different and the same cannot be allocated to Phase II. In the return of income filed on 31st October 2001, the assessee declared income of ₹ 52,16,250 from Phase I after claiming set off of credit forward and unabsorbed loss of earlier year of ₹ 33,11,907. Thus, the current year income shown in the Profit Loss account was at ₹ 85,28,161. As against the returned income, the assessment was completed at an income of ₹ 1,63,59,205, after adding the various expenses on the ground that the assessee has allocated all the expenditure in Phase I and there are certain expenses which are also attributable to Phase II and that the assessee could not substantiate from the books of account and bills vouchers that expenses were only for Phase I. The following expenses were disallowed by the Assessing Officer out of the amount claimed under various heads: S.No. Items of Exp. / Loss (on ad hoc basis) Amount disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 7th October, 2002 that the cost of development of the property which began around the year 1994-95 was in progress. Therefore, in our opinion, no fault can be found if the A.O. has disallowed a part of the expenses as not for phase 1 alone. No details are seen provided by the assessee as to the balance phases of the project and how much of the expenses could be allocated to such balance phases. Though one of the reasonings given by the A.O was that books of account, bills and vouchers were not produced, the main plank for the disallowance, as it comes out from the assessment order is that the expense claimed were not confined to phase 1 alone, though revenue was recognized for phase 1 only. Ld. CIT(A) has misdirected himself when he gave the finding that expenses were not bogus and no cogent reasoning was given by the A.O. for the disallowance, when the main plank on which disallowances were made by the A.O. was that the expenses were not properly allocated. Though disallowances for TDR land cost and expenses were made in proportion of land area for other items these were made in proportion of land area for other items these were made on estimates. However, at the same time we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be allocated for both the Phases on a rational basis. Since the order of the Tribunal has attained finality, the expenses have to be allocated. Thus, she held that the expenditure like road expenses, labour charges, legal professional fee, have to be allocated as done by the Assessing Officer. She further observed that since Phase II has not commenced, therefore, the criteria of turnover of Phase II cannot be worked out for allocating the expenditure, therefore, proportionate area of land pertaining to Phase I and Phase II should be taken as rational basis. Looking to the fact that Phase I constituted of ₹ 26,398 sq.mtrs. and Phase II consisted of 6,338 sq.mtrs., therefore, in the same ratio, proportionate disallowance of expenditure can be made. Thus, she worked out 19% based on the ratio of the land for allocating the expenditure for Phase II. However, allocation of expenses in respect of TDR, she accepted the assessee s contention in principle that disallowance of expenses pertaining to TDR cannot be apportioned. Accordingly, she allocated the expenses @ 19% on other heads of expenses. Relevant observation of the learned Commissioner (Appeals) on the issue of allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 57,06,488. Thus, it resulted into enhancement of the assessee income. As a result of the appellate order, the total disallowance aggregated to ₹ 80,20,173. 9. Before us, the learned Senior Counsel, Dr. K. Shivaram, on behalf of the assessee, at the outset, submitted that insofar as grounds relating to disallowance on account of legal and professional fee of ₹ 1,24,624 and ground relating to labour charges disallowance of ₹ 58,207, which has been raised vide ground no.2(ii) and 2(iii), are not pressed as amount involved is small. Accordingly, these grounds are dismissed and disallowances are confirmed. 10. Regarding the disallowance of road expenses, he submitted that the property of the assessee in which project was undertaken was a land locked. The municipal corporation of Mumbai required the assessee to build a road from highway up to the property, for which the assessee had to make the payments for getting the right of way to various parties and thereafter, to construct the said road. The assessee has incurred total expenditure of ₹ 1,1220,285, on construction of the road, out of which, sum of ₹ 12,20,285 was reimbursed to the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. The learned Commissioner (Appeals) has doubted the loss mainly on the ground that the sale of TDR made to Mr. Vijay M. Parikh is at lower cost and payment of legal fees paid to M/s. Daisaria Associate, is not necessary expenditure. Such a finding and the observation of the learned Commissioner (Appeals) is purely based on surmise / presumption and that cannot be the basis of disallowance of loss. Moreover, the assessee has also filed affidavit of various persons to whom TDR has been sold. The learned Commissioner (Appeals) has not made any enquiry from the purchases and, therefore, no such presumption could have been drawn. That apart, the parties to whom TDRs were sold are completely unrelated to the assessee and, therefore, it cannot be held that the rates on which the assessee had sold TDR are suppressed for extraneous consideration. Thus, he submitted that such a disallowance made by the learned Commissioner (Appeals) should be deleted. 12. The learned Departmental Representative, on the other hand, submitted that as regards proportionate disallowance on road expenses are concerned the same has been made on the basis of the direction of the Tribunal, which was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocation of expenses made by the Assessing Officer between two phases in principle and held that the entire expenses cannot be apportioned to Phase I alone. However, the matter was set aside to the file of the Assessing Officer with a categorical direction that the Assessing Officer shall allocate the expenditure claimed by the assessee to its completed Phase I after verifying the details furnished by the assessee and on some rational basis. In the second round, the Assessing Officer has repeated the said disallowance on the ground that the assessee has failed to furnish the details relating to bifurcation of the said expenses, as directed by the Tribunal. The assessee s main contention has been that the major project on the land related to Phase I and all the activities and the expenditures were incurred for Phase I alone. The second phase had not started even in the subsequent years and, therefore, allocating any expenses for Phase II which has not yet commenced, would not be feasible. Hence, no details could have been furnished for giving any basis for allocation. Regarding the road expenses, it has been submitted that the same were necessary for getting access to the plot an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land for Phase I and II. 15. Now, the main issue before us is, whether there should be any allocation of road expenditure or not and whether the learned Commissioner (Appeals) is justified in allocating 19% of the road expenses on account of Phase I and II. Apparently, on the face of the facts, discussed above, the road expenditure cannot be allocated for Phase II, for the reason that, firstly, for developing the plot and particularly the Phase I, road was required to be constructed for getting access to the plot which was land locked; secondly, the said road has been handed over to the municipal corporation of Mumbai for public use at large and not for assessee s project alone that the assessee has received the TDRs. Lastly, the entire sale proceeds of the TDR has been shown as revenue in this year and against the said revenue the assessee has claimed expenditure of the entire road expenses. Therefore, there cannot be any basis for allocation of road expenses to the Phase II. The expenses has to be seen on a matching principle i.e., the cost incurred for the purpose of generating the revenue. If the matching principle is to be applied, then the entire road expenditure incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale proceeds of TDR ₹ 2,60,12,282 Less: Road expenses ₹ 1,00,00,000 TDR and cost ₹ 1,80,76,950 TDR expenses ₹ 15,91,820 Legal Professional fees pertaining to TDR ₹ 20,50,000 (Rs. 3,17,18,770) Loss from sale of TDR (Rs. 57,06,488) 18. The basis on which the loss has been disallowed by the learned Commissioner (Appeals) is neither sustainable on facts nor in law. Because on facts, the reasons adopted by the learned Commissioner (Appeals), firstly, that the sale of TDR to one Mr. Vijay M. Parkih is at lower cost is without any enquiry or any adverse material on record that the assessee has suppressed the sale made to this aprty; secondly, to hold that the payment of legal fee is not a necessary expenditure is again based on surmises that to be without any enquiry or based on some evidence. Even under the law, the learned Commissioner (Appeals) cannot disallow the loss in this round of proceedings, which is in pursuance of Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plain its case were not fulfilled by the assessee. (3) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in restricting the above disallowance after failing to appreciate the fact that the directions contained m the Hon'ble ITAT's judgment ITA No.757/M/2006 dtd. 05/11/2008 were further ratified by the Hon'ble ITAT m its order No.M.A./246/MUM/2009 dtd. 24/07/2009 for A.Y. 2001-02 while disposing the assessee's miscellaneous application. (4) On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee could not substantiate its claim towards TOR expenses and cost because of which the A.O. could not bifurcate these expenses Phase wise. 22. Both the parties admitted before us that the issue arising out of the aforesaid grounds have already been discussed in detail in assessee s appeal and, therefore, in view of our findings given therein, these ground raised by the Revenue are not sustainable, as we have already upheld the basis for allocation of expenditure, as made by the learned Commissioner (Appeals). Thus, these grounds raised by the Revenue are treated as dismissed. 23. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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