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Income Tax Appellate Tribunal, “G”, BENCH
Before: SHRI PAWAN SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-24, Mumbai in appeal No.CIT(A)-24/ITO-15(3)(3)/IT-223/2016-17 dated 26/12/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 20/12/2016 by the ld. Income Tax Officer – 15(3)(3), Mumbai (hereinafter referred to as ld. AO).
The Ground Nos.1 and 6 raised by the assessee are general in nature and does not require any specific adjudication.
M/s. Shree Laxmi Estate Pvt. Ltd.,
The Ground No. 2 raised by the assessee is with regard to disallowance of interest paid to M/s Nayan Gems in the sum of Rs 2,85,041/-. The Ground No. 3 raised by the assessee is with regard to disallowance of interest paid to M/s Casper Entertainment Pvt Ltd , Pragati Gems Pvt Ltd and Duke Business Pvt Ltd in the sums of Rs 1,64,384/- ; Rs 1,57,151/- and Rs 82,191/- respectively totaling to Rs 4,03,726/-.
3.1. We have heard the rival submissions. The ld AO observed that the loans borrowed from aforesaid parties in Asst Year 2013-14 were treated to be ingenuine and hence the interest paid to those parties are not allowable. Accordingly, the ld AO disallowed the interest paid on loans to aforesaid parties in the sums of Rs 2,85,041/- and Rs 4,03,726/-. This action of the ld AO was upheld by the ld CITA. We find that this tribunal in assessee’s own case for the Asst Year 2013-14 in dated 3.5.2019 had held the loans received from aforesaid parties to be genuine and deleted the additions made u/s 68 of the Act. We hold that once the loans were held to be genuine, the interest paid on such loans are also allowable expenditure. It is not the case of the revenue that the borrowed funds from aforesaid parties were diverted by the assessee for non-business purposes. The assessee is a builder and developer and deriving business income from such projects. The borrowings were utilized only for the purpose of business which fact remain undisputed by the revenue and hence the interest paid on such loans, which were treated as genuine in Asst Year 2013-14 by the order of this tribunal dated 3.5.2019 supra, becomes an allowable deduction. Hence we direct the ld AO to grant deduction of interest paid on such loans in the sums of Rs 2,85,041/- and Rs 4,03,726/- . Accordingly, the Ground Nos. 2 and 3 raised by the assessee are allowed.
M/s. Shree Laxmi Estate Pvt. Ltd., 4. The Ground No.4 raised by the assessee is with regard to the disallowance of depreciation claimed on motor car in the sum of Rs 10,80,912/-.
4.1. We have heard the rival submissions. It is not in dispute that the motor car bearing registration number MH04- FZ-6299 was purchased in the name of the Director of the assessee company and not in the name of the assessee company , for which the assessee had explained that the same was done in order to reduce the incidence of indirect taxes leviable thereon. It is not in dispute that the assessee company had borrowed vehicle loan of Rs 34,00,000/- from M/s Daimler Financial Services (I) Pvt Ltd for purchase of motor car. This loan borrowed was duly disclosed under the head ‘Secured Loan’ in the balance sheet of the assessee company. It is not in dispute that the motor car was registered on 25.3.2013. Once the vehicle is registered, the fact of the vehicle being put to use cannot be doubted. Infact even before the registration of the vehicle, the vehicle could be used by an assessee subject to the maximum limits of kilometers permitted under the Motor Vehicles Act. Hence the fact of motor car being put to use before 31.3.2013 cannot be doubted in the instant case. It is not in dispute that the motor car was duly reflected as a fixed asset in the balance sheet of the assessee company as at 31.3.2013 and depreciation claimed accordingly. It is not in dispute that the assessee company had claimed only 50% of eligible rate of depreciation on motor car since the car was used for less than 180 days in Asst Year 2013-14 as per the provisions of section 32 of the Act as it is being used for its business. The only reason for disallowance of depreciation on motor car is that the assessee company is not the owner of the said motor car as it was in the name of director of assessee company. We find that the assessee company had given reasonable explanation for registering the vehicle in the name of the individual
M/s. Shree Laxmi Estate Pvt. Ltd., director to reduce the incidence of indirect taxes , levies etc. This does not hinder in any way to allow the claim of depreciation in the hands of the assessee company, as the motor car was reflected in the balance sheet of the assessee company and that the vehicle loan was also borrowed for the same by the assessee company. We find that the similar issue had been addressed by the co-ordinate bench of this tribunal in the case of ITO vs Banglore Shirt Company Pvt Ltd in for Asst Year 2012-13 dated 8.8.2018 .
4.2. We find that this tribunal in Asst Year 2013-14 in assessee’s own case in dated 3.5.2019 had adjudicated this issue and directed the ld AO to allow the depreciation on motor car. Respectfully following the said decision, we direct the ld AO to allow depreciation for Asst Year 2014-15 also in the sum of Rs 10,80,912/-. Accordingly, the Ground No. 4 raised by the assessee is allowed.
The Ground No. 5 raised by the assessee is with regard to the action of the ld CITA in confirming the addition made u/s 43CA of the Act in the sum of Rs 3,41,41,270/- on account of suppression of sales. The inter connected issue involved therein is that the ld CITA erred in not considering the additional evidences filed by the assessee before him while deciding the appeal.
5.1. The brief facts of this issue are that the assessee developed a commercial project called ‘Orchid Plaza’ at Borivali. The assessee adopted Project Completion Method on this ‘Orchid Plaza’ project. This method is consistently followed by the assessee. All the queries raised by the ld AO during the course of assessment proceedings were duly replied by the assessee. The ld AO asked the assessee to produce copy of Index II. On going through those documents, the ld AO noticed that in respect of the M/s. Shree Laxmi Estate Pvt. Ltd., following units, there were huge discrepancies between Agreement value and stamp duty value:- Agreement value Stamp duty Value(Rs-) Difference (Rs.) 505 47,40,000 66,47,000 79,07,000 506 64,50,000 90,34,000 25,84,000 302 77,25,000 1,23, 69,500 46,44,500 605 59,25,000 66,47,000 7,22,000 604 57,75.000 69,38,500 17,63,500 504 61,87,500 69,38,500 7,51,000 505 71,62,500 80,34,000 8,77,500 206 43,00,000 86,03,500 43,03,500 301 70,00,000 7,21,32,500 57,32,500 305 40,00,000 63,30,500 23,30,500 603 38,20,000 80,34,500 42,14,500 303 47,75,000 76,52,000 28,77,000 304 38,00,000 49,95,270 95,270 203 62,07,500 76,52,000 74,44,500 Total 3,41,41,270 Out of the above 14 properties, 7 were allotted to the parties prior to 31.3.2013. The details of the same are as under:- Unit No. Agreement Stamp Duty Difference Date of Value Value allotment 302 77,25,000 7,23,69,500 46,44,500 22.06.2012 206 43,00,000 86,03,500 43,03,500 07.05.2012 301 70,00,000 7,27,32,500 51,32,500 01.04.2011
M/s. Shree Laxmi Estate Pvt. Ltd., 305 40,00,000 63,30,500 23,30,500 06.04.2012 603 38,20,000 80,34,500 42,74,500 14.06.2012 303 47,75,ooo 76,52,000 28,77,000 22.06.2012 304 38,00,000 49,95,270 11,95,270 15.04.2011 Total 3,54,20,000 6,01,17,770 2,46,97,770 The balance 7 properties were allotted during the year as under:- Unit No. Agreement Stamp Duty Difference Date of Value Value allotment 505 47,40,000 66,47,000 19,07,000 22.06.2013 506 64,50,000 90,34,000 25,84,000 22.06.2013 605 59,25,ooo 66,47,000 7,22,000 30.07.2013 604 57,75,ooo 69,38,500 11,63,500 22.08.2013 504 61,87,500 69,38,500 7,51,000 10,09.2013 503 71,62,500 80,34,000 8,71,500 10.09.2013 203 62,07,500 76,52,000 14,44/500 01.07.2013 Total 4,24,47,500 5,18,91,000 94,43,500 5.2. The ld AO asked the assessee to explain the difference between agreement value and stamp duty value. The assessee submitted that the registration authorities charged stamp duty based on the village / area which is different from the area in which the assessee project is situated. Due to change in the village / area, the value of stamp duty also changed. The assessee also pleaded that in respect of 7 properties where allotment had been made prior to 31.3.2013, the registration of those properties were completed during the Asst Year 2014-15 and hence there is difference in stamp duty value and agreement value. The assessee also M/s. Shree Laxmi Estate Pvt. Ltd., pleaded that sale value of the properties are based on various market conditions, locations, etc, whereas the stamp duty valuation is based on thumb rule without taking into account various market conditions, locations etc. The assessee pleaded that value mentioned in the agreement is the correct value as the buyers were not willing to make any payment over and above what is stated in the agreement.
5.3. The assessee stated that the entire project was completed in Asst Year 2015-16 and the sales of all the 14 properties were duly offered to tax in Asst Year 2015-16 following project completion method. The assessee alternatively also pleaded that any difference in value between agreement value and stamp duty value need to be considered in the year of completion of project and not otherwise.
5.4. The ld AO applied the provisions of section 43CA of the Act in all the 14 properties registered inspite of the fact that out of 14 properties, 7 were allotted prior to Asst Year 2014-15. In respect of units that were allotted to the parties prior to Asst Year 2014-15, the ld AO observed that the assessee had not submitted any document in support of the fact that those units were allotted in the earlier years. He also observed that further since 2011 and 2012, there is moderate increase in stamp duty value in the State of Maharashtra , whereas the difference between the agreement at unit sold were Rs 3,54,20,000/- whose stamp duty value at the time of registration is Rs 6,01,17,770/-, that translate difference of Rs 2,46,97,770/- , which is equal to 69.72% on agreement value. The ld AO also observed that the increase in ready reckoner rate from the year of booking is hardly 5 to 10%. Hence the assessee’s contentions were not accepted by the ld AO. The ld AO accepted the fact that the assessee had offered only the agreement value in Asst Year 2015-16 under Project Completion Method and not the stamp duty value. The ld AO observed
M/s. Shree Laxmi Estate Pvt. Ltd., that as all the transactions were executed in the year under appeal, the difference of Rs 3,41,41,270/- between agreement value and the stamp duty value is to be treated as suppressed sales by the assessee and the same is to be brought to tax in Asst Year 2014-15.
5.5. The assessee submitted before the ld CITA that the provisions of section 43CA of the Act are applicable only from Asst Year 2014-15 and that the same could not be applied in any case in respect of units that were allotted to the parties prior to 31.3.2013. The assessee also pleaded that in any case that any addition on account of discrepancy should be made in the year of completion of project i.e Asst Year 2015-16 and not in the year of appeal i.e Asst Year 2014-15. The assessee before the ld CITA vide submission dated 3.8.2017 submitted additional evidences under Rule 46A of the Rules , the copy of letter from Town Planning and Valuation Department Mumbai Region (Valuation) , Mumbai, in English and Marathi language, and the ready reckoner rate for FYs 2011-12, 2012-13 and 2013-14. The assessee submitted that these documents are to be produced in the year of completion of project i.e Asst Year 2015-16 and hence the same were not furnished before the ld AO at the time of assessment proceedings. The ld CITA admitted these additional evidences under Rule 46A of the Rules in the appellate proceedings which is mentioned in page 10 of his order. The ld CITA on analyzing the provisions of section 43CA of the Act admitted the fact that the said provisions are applicable only from Asst Year 2014-15 onwards, but observed that in case, transfer of immovable property takes place without registration of sale deed but by way of execution of sale agreement / power of attorney or by way of transfer with the regulatory authority or in any other manner, provisions of section 43CA of the Act shall be applicable. The ld CITA observed that in the instant case, the sale agreements were registered during the year under appeal. Irrespective of M/s. Shree Laxmi Estate Pvt. Ltd., the fact that the assessee had received the advance and letter of allotment was issued to the purchaser, the provisions of section 43CA of the Act would apply as the transfer of ownership in the unit has taken place during the year under appeal. Accordingly, the ld CITA held that the provisions of section 43CA of the Act are applicable in the instant case. The ld CITA further observed that the assessee had pleaded that the agreement value is the correct market value as against the stamp duty value adopted by the ld AO. He observed that in case if the assessee disputes the stamp duty value, then the provisions of section 43CA of the Act provides the assessee to make a representation to the ld AO for referring the case of the Learned Valuation Officer for determining the fair market value of the properties. That option was not exercised by the assessee in the instant case. Hence he held that the action of the ld AO requires to be sustained . With regard to the other contention of the assessee that the difference, if any, would be added in the year of completion of project, the ld CITA observed that the provisions of section 43CA of the Act are applicable in case of transfer of ownership of property by any mode and that following project completion method is merely accounting and taxation aspect of the business of the assessee and does not hinder the ‘transfer’ of ownership to the buyer of the property in any of the years prior to the year of completion of project. With these observations, he upheld the action of the ld AO.
5.6. Aggrieved, the assessee is in appeal before us.
5.7. We have heard the rival submissions. We find that the ld AR at the outset argued that even if the provisions of section 43CA of the Act are to be made applicable to the facts of the instant case, then the difference in value cannot be treated as ‘suppressed sale’ in as much as the difference in value is to be brought to tax only pursuant to deeming fiction created
M/s. Shree Laxmi Estate Pvt. Ltd., in the statute in terms of section 43CA of the Act. The deeming fiction is in respect of treating the stamp duty value value as full value of consideration for the purpose of computing the profits of the assessee in respect of real estate projects / development projects. Though we agree with this argument of the ld AR in principle, but , in our considered opinion, it does not in any way change the computation of total income of the assessee as ultimately the difference between the agreement value and the stamp duty value is to be brought to tax in terms of section 43CA of the Act. Hence we hold that the expression ‘suppressed sales’ used by the ld AO and upheld by the ld CITA is totally unwarranted as the addition is only made by applying the deeming fiction provided in section 43CA of the Act.
5.7.1. It is not in dispute that the assessee had not reported any sales from sale of units during the year under appeal in view of the fact that it is following project completion method and since the project was completed in Asst Year 2015-16, the assessee had reported the sale of units as its turnover in Asst Year 2015-16 by declaring the agreement value as the full value of consideration. It is not in dispute that the assessee had not sold any land or building or both in respect of any of the units during the year under appeal. We find that the assessee had only registered the agreement during the year under appeal, wherein, it is very clearly stated that the subject mentioned property (i.e the property proposed to be transferred by the assessee to the ultimate flat buyers) was still under construction and that the ultimate flat owners shall allow the assessee to enter upon the subject mentioned property premises to complete the construction of the flats as agreed upon in the said agreement which was subject matter of registration with the stamp duty authorities. In other words, the agreement that was registered with the stamp duty valuation authorities was only the ‘property under M/s. Shree Laxmi Estate Pvt. Ltd., construction’ and not the property per se. In these circumstances, whether the provisions of section 43CA of the Act could at all be applied is to be seen. We are conscious of the fact that the provisions of section 43CA of the Act are applicable only when there is transfer of land or building or both. In the instant case, neither of those had happened pursuant to registration of agreement with the stamp duty valuation authorities. In respect of allotment of offices made prior to 31.3.2013, we find from the documents enclosed in the paper book that the assessee and the prospective buyer of flats had specifically agreed that till such time the agreement of sale is executed and registered , no right is being created in favour of the flat buyer and that the allotment letter is just a confirmation of booking subject to the execution of the agreement which is to be drafted at a later point of time. The said allotment letter also specifies that the relevant office has been allotted to the flat buyer with rights reserved to assessee to amend the building plan as it may deem fit. Accordingly, the flat buyer is bound to accept unconditionally and confirm that any kind of increase or decrease in the area of the said office or shift in the position of the said office, if arises, due to amendment in the plan etc and in case of variation of the area, the value of the office shall be proportionately adjusted. All these documentary evidences clearly go to prove that the assessee had not completed the construction of the office during the relevant year. It could also be inferred that pursuant to registration of agreement with the stamp duty valuation authorities, a right is created in favour of the flat buyer. Hence what the assessee had transferred pursuant to registration of the agreement was only the rights in the flat/ office (which is under construction) and not the property per se. Hence it could be safely concluded that there was no transfer of any land or building or both by the assessee in favour of the flat buyers pursuant to registration of the agreement in the year under appeal. Hence we hold that the provisions of section 43CA of the Act cannot be M/s. Shree Laxmi Estate Pvt. Ltd., made applicable to the same. Reliance in this regard is placed on the following decisions of co-ordinate benches of tribunals :- a) Ahmedabad Tribunal in the case of ITO vs Yasin Moosa Godil in dated 13.4.2012 wherein it was held as under:-
“16. From the reading of Sec. 50C, it is evident that Sec. 50C is a deeming provision and it extends to only to land or building or both. Section 50C can come into play only in a situation where the consideration received or accruing as a result of the transfer by an appellant of a capital asset, being land or building or both is less than the value adopted or assessed or assessable by any authority of State Government therefore for the purpose of payment of stamp duty in respect of such transfer. It is settled legal proposition that deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Clearly therefore, it is essential that for application of Sec.50C that the transfer must be of a capital asset, being land or building or both. If the capital asset under transfer cannot be described as "land or building or both" then section 50C will cease to apply. From the facts of the case narrated above, it is seen that the assessee has transferred booking rights and received back the booking advance. Booking advance cannot be equated with the capital asset and therefore section 50C cannot be invoked.” b) Jaipur Tribunal in the case of Mrs Rekha Agarwal vs ITO reported in (2017) 79 taxmann.com 290 (Jaipur Trib.) dated 17.2.2017 “2.9 On close reading of the above documents, the existence and contents thereof have not been denied by the Revenue, it is clear that firstly what has been purchased initially by the assessee alongwith her husband is the right of allotment in the office flat measuring 2500 sq.ft. in the Medi City project which was under development at Sector 38, Gurgaon. It is also clear that from the perusal of the agreement of Conveyance dated 23.07.2010 that what has been sold is again a right of allotment of the said flat in the Medi City project. The said fact is apparent from the fact that the balance 10% consideration of Rs. 3,75,000/- which was supposed to be paid to the developer at the time of possession of the flat in terms of the original MOU dated 22.12.2004 had still not been paid and it has now been agreed that the said 10% balance consideration shall be paid directly by the purchaser namely S.A.S. Servizio (P) Ltd., A-10/6 Vasant Vihar, New Delhi. Further, it has been agreed that the purchaser has gone through the MOU dated 22.12.2004 and shall agree with the contents thereof. Further, what has been physically handed over to the buyer of the M/s. Shree Laxmi Estate Pvt. Ltd., property is the original MOU as well as the original payment receipt issued by the developer M/s. Global Heal (P) Ltd. On a combined reading of all these clauses which are mutually agreed upon between both the parties, it is clear that what has been transferred is a right of allotment in the property which was under construction and possession thereof was not taken by the assessee and hence, there is no question of transfer of the possession of the said property. Further, other than these agreements and MOU, there is nothing in terms of any positive tangible evidence which has been brought on record by the Revenue to support its position that it is the flat which has been transferred by the assessee. After the assessee has submitted to the AO vide its letter dated 12.03.2014 that the property was under consideration at the time of the sale and no sale deed was executed, the AO has not carried out any further investigation with the developer to refute the contentions raised by the assessee. In result, on perusal of the documents available on record, the contention of the assessee remains uncontroverted. It is the right in the property by way of right of allotment which has been assigned by the assessee in favour of the buyer and not the property itself. 2.10 The next question that arises for consideration now is whether the provisions of section 50C are applicable in respect of right of allotment in the property. In this regard, we refer to the provisions of section 50C(1) of the Act which reads as under: "Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed, or assessable by any authority of a State Government (hereafter in this section referred to as the 'stamp valuation authority') for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer." 2.11 On reading of sub-section (1) of section 50C, it is clear that the value of land, building or both adopted or assessed or assessable by the Stamp Valuation Authority shall for the purpose of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. It is a deeming provision and it extent only to land, building or both. It therefore follows that where a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the Stamp Valuation Authority, the deeming provisions of sub section(1) of section 50C shall be applicable. In the instant case what has been transferred is a right of allotment in office flat and not the office flat itself. It is therefore clear that a deeming provision which is limited to land, building or both cannot be extended beyond the purpose for which it is enacted and is therefore not applicable in the instant case. The Ld. AR
M/s. Shree Laxmi Estate Pvt. Ltd., has relied on the Coordinate Bench's decision in the case of Atul G. Puranik (132 ITD 499) (Mum Trib) supra which squarely supports the case of the assessee. In that case, the assessee was allotted lease right in a plot for a period of sixty years. The relevant finding of the Coordinate Bench contain at para 11.4 of its order is reproduced as under: "In view of the aforenoted judgements rendered by the Hon'ble Apex Court and that of the Hon'ble Jurisdictional High Court, it is clear that a deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Turning to S. 50C, it is seen that the deeming fiction of substituting adopted or assessed or assessable value by the stamp valuation authority as full value of consideration is applicable only in respect of "land or building or both". If the capital asset under transfer cannot be described as 'land or building or both', then s. 50C will cease to apply. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the plot for a period of sixty years, which right was further assigned to M/s. Pathik Construction in the year in question. It is axiomatic that the lease rights in a plot of land are neither 'land or building or both' as such nor can be included within the scope of 'land or building or both'. The distinction between a capital asset being 'land or building or both' and any 'right in land or building or both' is well recognized under the IT Act. Sec. 54D deals with certain cases in which capital gain on compulsory acquisition of land and building is charged. Sub-s. (1) of S. 54D opens with 'subject to the provisions of sub-s. (2), where the capital asset, being land or building or any right in land or building, forming part of an industrial undertaking..." It is palpable from s. 54D that 'land or building' is distinct from 'any right in land or building'. Similar position prevails under the WT Act, 1957 also. Sec. 5 (1) at the material time provided for exemption in respect of certain assets. Clause (xxxii) of s/5(1) provided that "the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in land or building or any asset referred to in any other clauses of this sub- section) forming part of an industrial undertaking" shall be exempt from tax. Here also it is worth nothing that a distinction has been drawn between 'land or building' on one hand and 'or any rights in land or building' on the other. Considering the fact that we are dealing with special provision for full value of consideration in certain cases under s. 50c, Which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As Sec. 50C applies only to a capital assets, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee transferred lease rights for sixty years in the plot and not land itself, the provisions of S.50C cannot be invoked. We, therefore,
M/s. Shree Laxmi Estate Pvt. Ltd., hold that the full value of consideration in the instant case be taken as Rs. 2.50 crores." 2.12 In light of above facts and circumstances of the case and taking into consideration the decision of the Co-ordinate Bench referred (supra) we are of the view that what has been transferred by the assessee is a right of allotment in the property and not the actual property itself and in respect of such rights, the deeming provisions of section 50C are not applicable. The ground taken by the assessee is accordingly allowed. In the result the appeal filed by the assessee is allowed.”
We find that the aforesaid decisions are directly applicable to the facts of the case before us. In view of our aforesaid observations in the facts and circumstances of the case, we hold that the provisions of section 43CA of the Act could not be made applicable to the issue in dispute before us. In view of this finding, the other arguments advanced by the ld AR with regard to the fact that the ld AO ought to have made reference to the ld Departmental Valuation Officer (DVO) in the light of provisions of section 43CA(2) of the Act which is analogous to provisions of section 50C(2) of the Act need not be gone into as it becomes academic in nature. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 05/07/2019