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TMI Blog2013 (3) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... making additions on account of short-term capital gains. 3. The assessee company had promoted a big residential project at Kazhiapattur Village, some 45 kms. away from Chennai on Old Mahabalipuram Road. The assessee had identified about 25 acres of land to set up the project. The task of identifying and purchasing the land from different land owners was entrusted by the assessee to one Mr. Rajagopalan of Kazhiapattur. Mr. Rajagopalan managed to procure 14.79 acres of land in favour of the assessee company. The assessee company purchased the entire 14.79 acres for a total consideration of ₹ 4,41,38,500/-. The guideline value for which the sale of the properties was registered is ₹ 1,38,82,000/-. But, the assessee had to pay an amount of ₹ 1,86,61,000/- to the land owners over and above the guideline value. This is for the reason that the market value of the land was much higher than the guideline value prescribed by the State Government. The land owners insisted that they could sell the land only at market price. Therefore, in addition to the guideline value paid by the assessee and shown in the registered document, the assessee also paid ₹ 1,86,61,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly negotiated with M/s.MPC and transferred the extent of 2.96 acres of land in favour of M/s.MPC for a consideration of ₹ 9.79 crores. The amount of ₹ 9.79 crores was in fact paid by M/s. MPC directly to M/s.Wondertech Software Pvt. Ltd., Shri Chakkubhai and Shri Dhanapal. The amount of consideration stated in the sale deed executed by the assessee at ₹ 21,27,31,250/- was in fact including the value of the property measuring 2.96 acres. 7. While computing the short-term capital gains, the Assessing Officer did not accept all these figures as explained by the assessee. The Assessing Officer accepted the guideline value of ₹ 1,38,82,000/- as the cost of acquisition by the assessee. He disallowed the amount paid by the assessee, in addition to the document value amount, of ₹ 1,86,61,000/- and also disallowed the compensation of ₹ 1,15,95,500/- paid by the assessee to vacate the unauthorized occupants. The Assessing Officer also declined to give deduction for ₹ 9.79 crores, directly paid by M/s.MPC to the three parties for acquiring 2.96 acres of land, and adopted the entire sum of ₹ 21,27,31,250/- as sale consideration. It is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the various payments made by the assessee to different parties as well as the consideration received by the assessee. On these quantum aspects there is no dispute as well as there is no dispute regarding the genuineness of the payments made by the assessee and claimed as part of cost of acquisition of the property in computing the short-term capital gains. It is true that the Revenue has raised so many grievances in its grounds of appeal so as to make out a case that the Assessing Officer had not accepted the full story of the payments as explained by the assessee-company. But those grievances raised by the Revenue are quite unfounded. In the assessment order itself, it is stated then and there that there was no doubt regarding the factum of payments claimed by the assessee as part of cost of acquisition of land. In the order of the Commissioner of Incometax( Appeals) these issues have been elaborately examined again and the Commissioner of Income-tax(Appeals) has made a categorical finding that all the payments made by the assessee were proved. 16. In these circumstances, the only dispute arising in this context is regarding the question whether the payments made by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guideline value. It is not possible to purchase land for a price lesser than the market value only for the reason that the guideline value is lesser than the market value. 18. In the present case, the payment of additional consideration made by the assessee-company is proved as genuine. In these circumstances the additional consideration paid by the assessee-company at ₹ 1,86,61,000/- is definitely part of cost of acquisition of 14.79 acres of land acquired by the assessee for the project. Therefore, we uphold the order of the Commissioner of Income-tax(Appeals) on this point and hold that the Commissioner of Income-tax(Appeals) has rightly treated the amount of ₹ 1,86,61,000/- as part of cost of acquisition and directed the Assessing Officer to deduct that amount also from the total consideration for working out the short-term capital gains taxed in the hands of the assessee-company. 19. The next amount objected to is the compensation paid by the assessee to vacate the unauthorized occupants. The assessee had paid ₹ 1,15,95,500/- to different unauthorized occupants of the land to vacate the property. This payment is also proved as genuine. The assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the hands of the assessee-company, which related to the payments made to Shri Chakkubhai and Shri Dhanapal. It is to be seen that the total consideration of ₹ 21,27,31,250/- was agreed for the sale of 17.75 acres. The assessee had in fact in its ownership and possession only 14.79 acres. M/s. MPC had made payments directly to the assessee-company pertaining to the purchase of 14.79 acres. But, regarding 2.96 acres of land, what the assessee had in its hands was only a right to purchase the property. That right was transferred to MPC without any profit. The assessee allowed M/s. MPC to negotiate and purchase the property directly from those three parties after making payments directly to those parties. 22. In these circumstances, the Assessing Officer ought to have excluded the sum of ₹ 9.79 crores from the total consideration of ₹ 21,27,31,250/- while computing the short-term capital gains in the hands of the assessee-company. This is because the said sum was directly paid by M/s. MPC to the owners of the land measuring 2.96 acres. The assesseecompany was only a mediator. If, on the other hand, the entire consideration of ₹ 21,27,31,250/- has been ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subcontractor after the satisfactory performance of the work carried out by them. The Assessing Officer, while examining the balance-sheet of the assessee-company as on 31-3-2007, found that the sum of ₹ 2,18,96,985/- has been shown under the head Other Liabilities . The Assessing Officer observed that the money would be released only after the satisfactory completion of the contract works and therefore the liability cannot be considered as crystallized in the hands of the assessee and therefore it was contingent in nature. He accordingly added back that amount of ₹ 2,18,96,985/- to the income of the assesseecompany. 26. It is usual in contract agreements to retain a specific sum of money with the awarder himself, called as retention money. The retention money will be paid to the contractor only on final settlement of the contract obligation after the satisfactory execution of the work. It is not a contingent liability. It is an actual liability. The assessee was bound to pay that amount also to the contractor. The only point is that the said retention money will be withheld by the assessee till the project is completed satisfactorily. Usually, projects will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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