ACIT, CIRCLE-1,, VELLORE vs. M/S. BROWNLAND PROPERTIES,, VELLORE

आदेश / O R D E R

PER G. MANJUNATHA, ACCOUNTANT MEMBER:

M/s.Brownland Properties :: 2 :: under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of above appeal is condoned and appeal filed by the Revenue is admitted for adjudication.

1. Order of CIT(A) is erroneous both on law and facts.

2. Whether the CIT(A) is correct in holding that when income from sales received in excess of the registered sale consideration is offered to tax by the assessee is accepted by the Assessing Officer, the lower sale consideration should also be accepted for the reason that the project got delayed and the expenditure incurred by the assessee towards stamp paper etc., is allowable is correct?

3. Whether the CIT(A) is correct in holding that tax can be levied on real income and since the AO invoked the provisions of Sec. 43CA r.w.s.50C, the Assessing Officer ought to have referred the plots for valuation when there is no request from the assessee?

4. Whether the CIT(A) is correct in observing that it is not clear as to how the Assessing Officer arrived at the conclusion that the assessee declared the sale consideration as per Sec. 43CA as the said fact is evident from the records?

5. Whether the CIT(A) is correct in allowing the expenditure when the assessee declared the sale consideration as per the provisions of sec. 43CA but claimed an amount equivalent to the difference in sale consideration received as expenditure in all the cases where the consideration received is less than the value as per Sec. 43CA?

5. Whether the CIT(A) is correct in holding that the Assessing Officer did not question the genuineness of the expenses claimed when the very expenditure is not allowable at all?

7. Whether the CIT(A)is correct in remitting the matter back to the Assessing officer 'to verify and allow the expenditure relating to distribution of prizes without deducting tax at source u/s 194B when the assessee did not, furnish such details before either the Assessing Officer or the CIT(A)?

8. Any other ground that may be adduced at the time of hearing, the order of Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored.

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During the course of assessment proceedings, the AO noticed that during financial year relevant to AY 2016-17, the assessee had admitted gross turnover of Rs.14,51,75,018/-. The AO further noted that the assessee has followed unique method of accounting for accounting sales revenue from sale of plots. As per which, wherever consideration received for sale of plots is less than the amount of guideline value adopted for the purpose of stamp duty, the assessee has increased the sale value in terms of provisions of Sec.43CA of the Act, and at the same time, debited difference between actual consideration and stamp duty value to business development on sales expenses. Further, on perusal of P & L A/c, it is found that the assessee has debited Rs.1,83,11,675/- on account of business development on sales expenses. The AO called upon the assessee to explain the nature of expenses with necessary details. In response, the assessee submitted that the firm has incurred certain expenses on sales including stamp duty and registration fees payable on registration of site and the same has been debited to business development on sales expenses, because, the assessee has sold the site to poor people in installment basis over a period of 50 months and above, as and when they pay the last installment, the registration will be done in their name. In the meantime, wherever increase in rates for registration or any expenses and other incidental expenses, the firm incurred said expenses on behalf of the purchasers as per the oral commitment and thus, the same is claimed as business expenses.

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Therefore, the same needs to be allowed as deduction. The Ld.CIT(A) after considering relevant submissions of the assessee and also relied upon certain judicial precedents held that the assessee has accounted income towards difference in value to business development on sales income and also debited corresponding expenses to business development on sales expenses. If you see the details of income accounted by the assessee in terms of provisions of Sec.43CA of the Act, the assessee has accounted

M/s.Brownland Properties :: 5 :: income on sales at Rs.77.48 lakhs, whereas, total expenditure incurred towards business development on sales expenses is at Rs.1.83 Crs.

Further, the assessee has given details of plots with discounts allowed, etc., if you consider all those aspects, there is no error in the method followed by the assessee to account income as well as expenses. Therefore, directed the AO to delete addition made towards disallowance on business development expenses amounting to Rs.1,83,11,675/-.

However, the lower sales consideration should also be accepted for the reason that the project got delayed and expenditure incurred by the assessee towards stamp paper, etc., is allowable is incorrect. The Ld.DR further submitted that the AO has disallowed expenses, whereas, the Ld.CIT(A) allowed relief by giving different reasons that provisions of Sec.43CA r.w.s.50C of the Act, cannot be invoked. Therefore, he submitted that the Ld.CIT(A) is completely erred in deleting the addition made towards disallowance of expenses. Therefore, the issue may be set aside to the file of the AO to verify the claim of the assessee with regard to certain expenses incurred on behalf of buyers and to decide the issue in accordance with law.

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Therefore, the Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and their orders should be upheld.

Therefore, the assessee needs to comply with provisions of Sec.43CA of the Act. In fact, the assessee has complied with provisions of Sec.43CA of the Act, as per which, wherever actual consideration received for transfer of property is less than the guideline value, the assessee has accounted

M/s.Brownland Properties :: 7 :: difference between actual consideration and guideline value as sales income. To this extent, there is no dispute. In fact, the AO has accepted the fact that the assessee has accounted income in the books of accounts.

But, the only dispute is with regard to the corresponding debit to business development on sales expenses towards equal amount of difference between actual consideration and guideline value. The assessee has adopted a unique method of accounting, thereby, credited difference between guideline value and actual consideration to sales income and debited to business development on sales expenses. In other words, the net effect for the purpose of taxation was ‘zero’. The assessee explained that business development on sales expenses is nothing, but various expenses incurred by the assessee as per oral agreement with purchases like stamp duty and registration charges, incidental expenses, etc. As per contractual obligation, the assessee needs to incur these expenses and accordingly, it is in the nature of expenses incurred wholly and exclusively for the purpose of business. No doubt, the assessee must have incurred certain expenses as per contractual obligation with its customers and incurred those expenses. However, fact remains that except making an oral statement, no evidence was filed before the AO and before us to justify its case that the assessee has incurred such and such expenses on behalf of such and such party and such and such property sold during the relevant period. Unless, the assessee proves its case with necessary evidences, the claim of the assessee cannot be accepted, because, if you go through the M/s.Brownland Properties :: 8 :: unique entry passed by the assessee in the books of accounts, in our considered view, the assessee has adopted a tool to nullify the effect of provisions of Sec.43CA of the Act. In one side, the assessee tried to comply with provisions of Sec.43CA of the Act, and on the other side nullified the effect with corresponding debit to expenses account without any details.

The Ld.CIT(A) without appreciating these facts deleted the additions made by the AO on different grounds, although, the case of the AO was that the assessee has not substantiated expenses debited under the head ‘business development on sales expenses’. Therefore, we set aside the order of the Ld.CIT(A) and restored the issue to the file of the AO and direct the AO to re-examine the case of the assessee in light of claim of the assessee that it has incurred certain expenses as per oral understanding with purchasers.

The assessee is directed to furnish necessary evidences before the AO to justify its case.

provisions of Sec.40(a)(ia) of the Act, with a direction to AO to verify the claim of the assessee.