NEEL SIDHI DEVELOPERS ,VASHI vs. ACIT, CIRCLE 28(2), MUMBAI, VASHI

Ground No. 1 raised by the assessee relates to challenging the order of the Ld. CIT(A) in upholding the addition of Rs. 16,58,000 made under Section 40A(2)(b) of the Act by disallowing the compensation paid to the partner of the assessee firm in lieu of surrendering his right, title, and interest in the residential flat.

We have heard the counsel for both parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we noticed that one of the partners of the assessee firm, i.e., Sandeep K. Sampath, was initially allotted Flat No. 201 of Tower No. 6 in the Amarante Project developed by the assessee vide letter of allotment dated 06.03.2010. The said partner paid the entire sale consideration of Rs. 30,15,875 in installments from time to time on various occasions as per the stages of construction. The applicable service tax was also deposited by the said partner.

However, the said Sandeep K. Sampath requested cancellation of the allotment and also for the sale of the said flat to a third party. Consequently, the assessee sold the said flat to a third party for a consideration of Rs. 75,00,000/-. The resultant difference of Rs. 44,84,125 was shared between Sandeep K. Sampath and the assessee in the ratio of Rs. 43,41,625 and Rs. 1,42,500 respectively.

We also noticed that the amount paid to the said partner was booked as compensation cost and reported in the tax audit report as paid to specified persons as per Section 40A(2)(b) of the Act. On the contrary, the AO was of the view that the flat in question was initially allotted in favour of Sandeep K. Sampath in 2010, but no registered

The AO was further of the view that the profit arising from the sale of the flat was to be taxed in the hands of the assessee as business income and, therefore, treated the said amount as business income of the assessee and added it to the total income.

After going through the facts of the present case, it is an undisputed fact that the flat was initially allotted in favour of Sandeep K. Sampath in the year 2010. The said partner had already paid the entire sale consideration of Rs. 30,15,875 towards the purchase of the said flat. Although the agreement was not registered, he later requested cancellation of the allotment, and subsequently, the flat was sold to a third party for a lump sum consideration of Rs. 75,00,000/-.

In our view, once the said partner had paid the entire sale consideration, a right in the said property was created in favour of Sandeep K. Sampath, and the same stood crystallized as he had held the said flat and ultimately facilitated its sale after approximately 6 years. Therefore, the role of the assessee was limited to facilitating the transaction, for which the assessee earned a surplus of Rs. 1,42,500.

We are further of the view that the Revenue Authorities failed to appreciate that by paying the entire sale consideration and obtaining the allotment letter, Sandeep K. Sampath acquired valuable rights in the property. Thus, the assessee firm was legally bound to transfer the said flat for a consideration of Rs. 30,15,875, which had already been fully paid by him on scheduled dates.

Moreover, the Revenue Authorities also failed to appreciate that there was no question of tax evasion in the present case. The initial gain from the first sale by the assessee firm to the partner was already offered to tax by the assessee in Assessment Year 2013–14. The additional gain arising from the transfer of the flat to a third party was also offered by both Sandeep K. Sampath and the assessee from their respective shares in AY 2017–18.

In this regard, necessary documents such as ledger accounts of Sandeep K. Sampath for allotment and cancellation of Flat No. 201, Tower No. 6, request letter dated 25.11.2016 for cancellation, acceptance of cancellation letter dated 01.12.2016, ledger account of compensation, ledger account for sale of the concerned flat to a third party, Index II of comparative sale instances of similar flats sold to third parties, and copy of ITR-V and computation of income of Sandeep K. Sampath for AY 2017–18 were placed on record.

Therefore, considering the totality of facts and circumstances, we are of the view that the AO had wrongly made additions of Rs. 16,58,000 in the hands of the assessee. Accordingly, we direct the AO to delete the additions.

Ground No. 2 raised by the assessee relates to challenging the order of the Ld. CIT(A) in upholding the addition of Rs. 1,81,33,696 by disallowing society maintenance expenses in respect of unsold flats/shops of the Amarante Project developed by the assessee.

We have heard counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the AO disallowed the

It was further noticed by the AO that the assessee had offered income for the flats/shops sold during the year under consideration, thus, only those revenue expenses which are aligned with earning such income can be allowed. Since the assessee had paid maintenance charges towards the unsold flats/shops, the same was not found allowable.

Moreover, the Ld. CIT(A) was of the view that, from the computation of income under the head “Income from House Property,” a standard deduction at the rate of 30% of the gross ALV had already been allowed by the Assessing Officer. Thus, the deduction @ 30% of the ALV is towards repair, maintenance, insurance, upkeep, etc., of the property irrespective of the actual expenses incurred by the assessee. Therefore, once this standard deduction is allowed while computing the income, no separate

In this regard, after evaluating the facts of the present case, we find that the Revenue denied the deduction of maintenance expenses on the ground that the standard deduction at the rate of 30% of the gross ALV had already been granted to the assessee. Thus, the assessee was not found entitled to claim deduction for actual maintenance expenses.

In this regard, we have considered the decision of the Coordinate Bench of the ITAT

Therefore, considering the totality of facts and circumstances, we are of the view that the maintenance expenses are allowable as business expenses. Accordingly, we direct the AO to delete the additions.

Ground No. 3 relates to challenging the order of Ld. CIT (A) in upholding additions to the extent of Rs. 4,05,83,083/- as annual letting value (ALV) in respect of unsold units in respect of the real estate project developed by the assessee.

At the very outset we noticed that this issue raised by the assessee is squarely covered in favour of assessee by the Coordinate Bench of ITAT in assessee's own case for AY 2014-15 in case titled Neel Sidhi Developers -vs- ACIT, Hon. Members "B" Bench, I.T.A. No. 2429/Mum/2024 ITAT Mumbai

Therefore, considering the totality of facts and circumstances of the case, and also keeping in view the decision of the Coordinate Bench of the ITAT in the assessee’s own case, and adhering to the doctrine of binding precedents and judicial consistency, the issue is restored to the file of the AO for fresh adjudication.

In the result, the appeal filed by the assessee stands partly allowed.