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TMI Blog2017 (1) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... e constructed portion on the balance plot i.e.60% of the plot. The AO was not justified in applying ready reckoner rate on the stamp duty valuation and that also for the year under consideration.As the order of the FAA needs no interference from our side, so, confirming the same we decide the first ground of appeal against revenue Addition on incurred expenditure toward building number two of the police station building under various heads - Held that:- AO had not doubted the genuineness of the expenditure.His only objection was that at the time of spot visit by the inspector it was found that the assessee was not carrying out any construction activities.In our opinion,in the case of a contractor or a developer time gap in starting a new project after completing the first project is not an abnormal practice. But he has to maintain the office and the staff for starting the second project. Expenditure incurred for the intervening period cannot be disallowed. The assessee had started the construction of Police station and quarters after the plot of land was de-reserved. The FAA had scrutinized all the expenses incurred by the assessee and had held that certain expenses were not all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .mts.,that as per the agreement it agreed to provide the Police department on ownership basis free of charge the Police station and Police quarters with required amenities and fittings on the plot area of 159.56 Sq.mts.. Considering these facts,the AO held that as per the terms of agreement on completion of the project and handing over possession of the building/flat the assessee was entitled to receive the balance 3239.34 Sq.mts. plot of land, that it was entitled to plot of 3239.34 Sq.mts. in lieu of the expenditure incurred for construction of the Police quarters and station, that it had completed the construction in the month of September, 2009 and had offered the possesion of the property to the Police department in the month of October, 2009, that at that point of time assessee became the owner of the balance plot of 3239.34 Sq.mts.(5398.90 Sq.mts. -2159.56 Sq.mts.). He directed the assessee to explain as to why profit should not be worked out on transaction completed in respect of the plot of land. It was argued by the assessee that no profit had arisen to it,that the entire expenditure incurred for construction of PS quarters and station of ₹ 4.59 crores was taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Area of plot received by the assessee on completion of the police quarters/station 3239.34 sq.mtrs. Rate of plot of land as per Stamp Duty Ready Reckoner land stipulated at 96/E, Wadhvan, Kandivali, Mumbai. 22,400 per sq.meter Cost of Plot 22,400 x 3239.34 Rs.7,25,61,216/- Cost incurred for construction of Police Quarters and Police Station as per assessee s statement. Rs.4,59,95,471/- Profit from the Project/transaction Rs.2,65,65,745/- 2.1. Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).After considering the elaborate submissions made by the assessee and the assessment order, he held that as per the Articles of Agreement dated 06/09/1979 the assessee had purchased a plot of land including the reserved plot of 5398 Sq.mts., that as per the clause five of the agreement on certain conditions assessee was entitled to get further FSI, that land was earmarked for a reserve purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that what had happened in reality was that as per the government of Maharashtra resolution the balance 60% of the plot of land which was earlier earmarked for reservation was de-reserved for development,that it was factually and legally incorrect to hold that the assessee received balance 60% of the said plot of land in question as a consideration for constructing the quarter/station free of cost, that by incurring the expenditure on construction of Police quarters/building it merely obtained the rights to develop the balance 60% of the reserve land owned by it, that the cost incurred by it on construction of 40% of the land of Police building would be the cost towards obtaining the benefit of developing the 60% of the said land for earning income, that land was always owned by it (though earmarked for reservation), that the government had not acquired the plot of land, that the government had released the benefit of development to the assessee by reserving the 60% of the land, that it could not be held that Governmnet gave the plot of land to the assessee in lieu of the construction of the Police-building free of cost, that the AO had himself held that assessee became the owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the Police department,that if the assessee was not the owner of the plot of land there was no need for the government to enter in to a lease.Reserving or de-reserving of the plot of land cannot decide the issue of ownership of the plot of land.By constructing the plot of land the assessee had improved upon the right in land. If any taxable income was to accrue or arise it would not be at this stage but at the stage of sale of the constructed portion on the balance plot i.e.60% of the plot. The AO was not justified in applying ready reckoner rate on the stamp duty valuation and that also for the year under consideration.As the order of the FAA needs no interference from our side,so,confirming the same we decide the first ground of appeal against him. 3. Next ground of appeal(GOA-5)deals with deletion of addition of ₹ 9.50 lakhs.During the assessment proceedings,the AO found that the assessee had incurred expenditure of ₹ 9.50 lakhs toward building number two of the police station building under various heads. However, on spot visit by the Board Inspector it was reported that no construction activities were carried out on the plot and it was lying vacant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion,in the case of a contractor or a developer time gap in starting a new project after completing the first project is not an abnormal practice.But he has to maintain the office and the staff for starting the second project.Expenditure incurred for the intervening period cannot be disallowed.In the case under consideration the assessee had started the construction of Police station and quarters after the plot of land was de-reserved. The FAA had scrutinized all the expenses incurred by the assessee and had held that certain expenses were not allowable.Expenses incurred under the heads salary of staff or electricity bills cannot be disallowed,especially when incurring of expenses is not in doubt.Therefore,in our opinion,the order of the FAA does not suffer from any legal or factual infirmity.Upholding his order,we decide the effective ground of appeal no.2 against the AO. CO No.73/Mum/2016 In the first objection the assessee has supported the order of the FAA on both the counts i.e., deletion of additionn of ₹ 2.65 crores and incurring of expenditure of ₹ 9.50 lakhs (- ₹ 476). While deciding the appeal filed by the AO, we have decided both the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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