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Facts
The assessee, a developer, filed returns for AY 2014-15 and 2015-16. For AY 2014-15, the Assessing Officer made additions totaling Rs. 1.77 crores for administrative, interest, and depreciation expenses treated as capital, and Rs. 23 lakhs under Section 43CA for sales below stamp duty value. The Ld. CIT(A) sustained these additions due to the assessee's non-compliance.
Held
The tribunal held that under the percentage completion method, direct project expenses can be claimed against recognized revenue, while expenses for company maintenance are revenue expenditure. For Section 43CA, if an agreement existed prior to the registered sale, the stamp duty valuation on that earlier date should be considered. Due to the assessee's non-compliance, both matters (indirect expenses and Section 43CA addition) for AY 2014-15 were restored back to the Assessing Officer for fresh adjudication, and the Section 43CA issue for AY 2015-16 was also allowed for statistical purposes.
Key Issues
Key legal issues included the validity of jurisdiction under Section 153C, the correct treatment of administrative, interest, and depreciation expenses (capital vs. revenue) under the Percentage Completion Method, additions made under Section 43CA for sales below stamp duty value, and the use of survey documents for assessment under Section 153C.
Sections Cited
153C, 143(3), 43CA, 133A, 132, 142(1), 274, 271(1)(c), 234B, Income-tax Act, 1961
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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SUNIL KUMAR SINGH
These two appeals by the assessee are directed against a These two appeals by the assessee are directed against a These two appeals by the assessee are directed against a common order dated 30.11.2023 passed by the Ld. Commissioner common order dated 30.11.2023 passed by the Ld. Commissioner common order dated 30.11.2023 passed by the Ld. Commissioner of Income-tax (Appeals) tax (Appeals) – 52, Mumbai [in short ‘the Ld. CIT(A)’] for 52, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2014 assessment year 2014-15 and 2015-16 respectively. Being common 16 respectively. Being common issue in dispute involved in both these appeals issue in dispute involved in both these appeals, same were heard same were heard together and disposed off by way of this consolidated order for together and disposed off by way of this consolidated order for together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. convenience and avoid repetition of facts.
2. The grounds raised in assessment year 2014 The grounds raised in assessment year 2014 The grounds raised in assessment year 2014-15 are reproduced as under: reproduced as under:
The notice issued us 153C of the Act dated 16.07.2018 is bad The notice issued us 153C of the Act dated 16.07.2018 is bad The notice issued us 153C of the Act dated 16.07.2018 is bad in law and the Ld. AO has erred in assuming jurisdiction u/s in law and the Ld. AO has erred in assuming jurisdiction u/s in law and the Ld. AO has erred in assuming jurisdiction u/s 153C of the Act as the mandatory condition to invoke the 153C of the Act as the mandatory condition to invoke the 153C of the Act as the mandatory condition to invoke the jurisdiction under Sec. 153C of the Act did not exist jurisdiction under Sec. 153C of the Act did not exist jurisdiction under Sec. 153C of the Act did not exist and consequently the assessment is liable to be set aside. consequently the assessment is liable to be set aside. consequently the assessment is liable to be set aside.
The order u/s 143(3) r.w.s. 153C of the Act dated 30.12.2018 The order u/s 143(3) r.w.s. 153C of the Act dated 30.12.2018 The order u/s 143(3) r.w.s. 153C of the Act dated 30.12.2018 is bad in law and liable to be set aside. is bad in law and liable to be set aside.
The Ld. CIT(A) erred in confirming the action of the 1d. AO in The Ld. CIT(A) erred in confirming the action of the 1d. AO in The Ld. CIT(A) erred in confirming the action of the 1d. AO in adding a sum of Rs. 3,86,61,523 adding a sum of Rs. 3,86,61,523/-as business income. The Ld. as business income. The Ld. CIT(A) erred in upholding the action of Ld. AO erred in making CIT(A) erred in upholding the action of Ld. AO erred in making CIT(A) erred in upholding the action of Ld. AO erred in making the impugned addition of Rs.3,86,61,523/ the impugned addition of Rs.3,86,61,523/-as the entire as the entire assessment is made on the basis of documents assessment is made on the basis of documents 4. found at the time of survey u/s. 133A and not on the basis of found at the time of survey u/s. 133A and not on the basis of found at the time of survey u/s. 133A and not on the basis of documents found and seized in the course of search u/s. 132 ocuments found and seized in the course of search u/s. 132 ocuments found and seized in the course of search u/s. 132 of the Act. The use of documents collected during survey u/s. of the Act. The use of documents collected during survey u/s. of the Act. The use of documents collected during survey u/s. 133A for the assessment u/s. 153C is not permissible under 133A for the assessment u/s. 153C is not permissible under 133A for the assessment u/s. 153C is not permissible under law 5. The Ld. CIT(A) erred in upholding the action of Ld. AO in Rs. The Ld. CIT(A) erred in upholding the action of Ld. AO in Rs. The Ld. CIT(A) erred in upholding the action of Ld. AO in Rs. estimating estimating the on-money received for the year under reference money received for the year under reference using extrapolation technique. using extrapolation technique.
D G Land Developers Pvt. Ltd. D G Land 3 405 408, 405/MUM/2024
6. The Ld. CIT(A) erred in upholding the action of Ld. AO in The Ld. CIT(A) erred in upholding the action of Ld. AO in The Ld. CIT(A) erred in upholding the action of Ld. AO in assuming the profit element in the on assuming the profit element in the on-money received for new money received for new construction at 36% instead the reasonable profit that construction at 36% instead the reasonable profit that construction at 36% instead the reasonable profit that is earned in appellants line of business being in the range of 10% earned in appellants line of business being in the range of 10% earned in appellants line of business being in the range of 10% to 12%. Similarly, the learned A.O. erred in assuming profit to 12%. Similarly, the learned A.O. erred in assuming profit to 12%. Similarly, the learned A.O. erred in assuming profit element at 16% for redevelopment projects instead at 8% to element at 16% for redevelopment projects instead at 8% to element at 16% for redevelopment projects instead at 8% to 10% being the reasonable profit. 10% being the reasonable profit.
Without prejudice to above, the lea Without prejudice to above, the learned A.O, erred in Rs. taxing rned A.O, erred in Rs. taxing the profit element of the gross receipts in the year under the profit element of the gross receipts in the year under the profit element of the gross receipts in the year under reference for projects where no sales are booked during the reference for projects where no sales are booked during the reference for projects where no sales are booked during the year since no income was accrued following percentage year since no income was accrued following percentage year since no income was accrued following percentage completion method. completion method.
The Ld. AO has erred in initiating The Ld. AO has erred in initiating penalty proceedings u/s 274 penalty proceedings u/s 274 r.w.s 271(1)(c) of the Act vide letter dated 30.12.2018. The r.w.s 271(1)(c) of the Act vide letter dated 30.12.2018. The r.w.s 271(1)(c) of the Act vide letter dated 30.12.2018. The Appellant prays that the penalty proceedings us 274 r.ws Appellant prays that the penalty proceedings us 274 r.ws Appellant prays that the penalty proceedings us 274 r.ws 271(1)(c) of the Act be dropped. 271(1)(c) of the Act be dropped. 9. The Ld. CIT (A) has erred upholding the action of AO in Rs. The Ld. CIT (A) has erred upholding the action of AO in Rs. The Ld. CIT (A) has erred upholding the action of AO in Rs. levying interest levying interest u/s 234B of the Act 10. The Appellant craves leave to add, to amend, alter/delete The Appellant craves leave to add, to amend, alter/delete The Appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal
on or before the and/or modify the above grounds of appeal on or before the and/or modify the above grounds of appeal on or before the final hearing. final hearing.
3. Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed return of income for assessment year u return of income for assessment year under consideration on nder consideration on 29.12.2016 declaring total income at Rs.89,61,000/-. The case was 29.12.2016 declaring total income at Rs.89,61,000/ 29.12.2016 declaring total income at Rs.89,61,000/ selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied tax Act, 1961 (in short ‘the Act’) were issued and complied tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment order passed with. In the assessment order passed u/s 143(3) of the Act on u/s 143(3) of the Act on 29.12.2016, the Assessing Officer made two additions, firstly, 29.12.2016, the Assessing Officer made two additions, 29.12.2016, the Assessing Officer made two additions, administrative, interest and depreciation expenses held as capital in administrative, interest and depreciation expenses held as capital in administrative, interest and depreciation expenses held as capital in nature amounting to Rs.1,77,70,261/- and secondly secondly, addition nature amounting to Rs.1,77,70,261/ invoking section 43CA of the Act for invoking section 43CA of the Act for sales of flats below the stamp sales of flats below the stamp duty value amounting to Rs.23,02,264/ duty value amounting to Rs.23,02,264/-. In this manner after . In this manner after making these two additions, the Assessing Officer assessed total making these two additions, the Assessing Officer assessed total making these two additions, the Assessing Officer assessed total income at Rs.2,90,33,522/ income at Rs.2,90,33,522/-.
D G Land Developers Pvt. Ltd. D G Land 4 405 408, 405/MUM/2024
On further appeal, the Ld. CIT(A) issued various notices On further appeal, the Ld. CIT(A) issued various notices On further appeal, the Ld. CIT(A) issued various notices however same were not complied by the assessee and therefore, the e were not complied by the assessee and therefore, the e were not complied by the assessee and therefore, the Ld. CIT(A) sustained both the disallowance/additions observing as Ld. CIT(A) sustained both the disallowance/additions observing as Ld. CIT(A) sustained both the disallowance/additions observing as under:
“6. I have considered the facts of the case. Ground No. 1 relates to “6. I have considered the facts of the case. Ground No. 1 relates to “6. I have considered the facts of the case. Ground No. 1 relates to expenses of Rs. 1,21,08,537/ expenses of Rs. 1,21,08,537/- (Sheetal Deep), Rs.38,40,784 (Sheetal Deep), Rs.38,40,784 (Sheetal Shakuntala), Rs.6,26,500/ Shakuntala), Rs.6,26,500/-(Walawalkar), Rs. 10,44,440/ (Walawalkar), Rs. 10,44,440/- (Sweet Seven) and Rs.1,50,000 (Malvani) totalling to Rs. 1,77,70,261/ Seven) and Rs.1,50,000 (Malvani) totalling to Rs. 1,77,70,261/ Seven) and Rs.1,50,000 (Malvani) totalling to Rs. 1,77,70,261/- which according to the AO are capital in nature. Even though sales which according to the AO are capital in nature. Even though sales which according to the AO are capital in nature. Even though sales were recorded as NIL, the appellant claimed the expen were recorded as NIL, the appellant claimed the expen were recorded as NIL, the appellant claimed the expenses under the head of Administration, Interest and Depreciation as revenue head of Administration, Interest and Depreciation as revenue head of Administration, Interest and Depreciation as revenue expenses for the year under consideration. The assessee has expenses for the year under consideration. The assessee has expenses for the year under consideration. The assessee has overlooked the matching concept of revenue and expense. The overlooked the matching concept of revenue and expense. The overlooked the matching concept of revenue and expense. The appellant also did not furnish any reply to the notices issue appellant also did not furnish any reply to the notices issue appellant also did not furnish any reply to the notices issued before me. The appellant has not furnished any particulars including return me. The appellant has not furnished any particulars including return me. The appellant has not furnished any particulars including return of income, Tax Audit Report, submissions made before the AO, etc., of income, Tax Audit Report, submissions made before the AO, etc., of income, Tax Audit Report, submissions made before the AO, etc., despite specifically being called for. In my view, the AO's action despite specifically being called for. In my view, the AO's action despite specifically being called for. In my view, the AO's action cannot be stated to be arbitrary or unreason cannot be stated to be arbitrary or unreasonable. This addition able. This addition stands CONFIRMED. Ground No.1 stands DISMISSED. stands CONFIRMED. Ground No.1 stands DISMISSED. stands CONFIRMED. Ground No.1 stands DISMISSED.
7. Ground No. 2 relates to difference in the stamp duty value and 7. Ground No. 2 relates to difference in the stamp duty value and 7. Ground No. 2 relates to difference in the stamp duty value and sale price. Since the appellant could not furnish any explanation, he sale price. Since the appellant could not furnish any explanation, he sale price. Since the appellant could not furnish any explanation, he brought the same to tax u/s. 43CA of the Act. No evi brought the same to tax u/s. 43CA of the Act. No evi brought the same to tax u/s. 43CA of the Act. No evidences have been produced before me also. Onus lies solely on the appellant to been produced before me also. Onus lies solely on the appellant to been produced before me also. Onus lies solely on the appellant to explain such additions. One of the contentions of the appellant is that explain such additions. One of the contentions of the appellant is that explain such additions. One of the contentions of the appellant is that adequate opportunity was not given to explain the market value of adequate opportunity was not given to explain the market value of adequate opportunity was not given to explain the market value of the property. A perusal of the assessme the property. A perusal of the assessment order shows that several nt order shows that several opportunities have been given u/s 142(1) of the Act. Hence, this opportunities have been given u/s 142(1) of the Act. Hence, this opportunities have been given u/s 142(1) of the Act. Hence, this contention is unable to be accepted. Another contention of the contention is unable to be accepted. Another contention of the contention is unable to be accepted. Another contention of the appellant is that AO ought to have made reference to the Valuation appellant is that AO ought to have made reference to the Valuation appellant is that AO ought to have made reference to the Valuation Officer. The appellant has not br Officer. The appellant has not brought out any evidence to show that ought out any evidence to show that such a request was made before the AO. Had it been so, this office such a request was made before the AO. Had it been so, this office such a request was made before the AO. Had it been so, this office could have remanded the matter to the AO during the course of could have remanded the matter to the AO during the course of could have remanded the matter to the AO during the course of appellate proceedings. But the appellant, for reasons best known to appellate proceedings. But the appellant, for reasons best known to appellate proceedings. But the appellant, for reasons best known to it, has chosen to remai it, has chosen to remain silent. Under these circumstances, the AO's n silent. Under these circumstances, the AO's action cannot be stated to be arbitrary or unreasonable. The addition action cannot be stated to be arbitrary or unreasonable. The addition action cannot be stated to be arbitrary or unreasonable. The addition stands CONFIRMED. Ground No. 2 stands DISMISSED.” stands CONFIRMED. Ground No. 2 stands DISMISSED.” stands CONFIRMED. Ground No. 2 stands DISMISSED.”
D G Land Developers Pvt. Ltd. D G Land 5 405 408, 405/MUM/2024
We have heard rival submission of the parties and perused We have heard rival submission of the parties and perused We have heard rival submission of the parties and perused relevant material on record. relevant material on record. As far as the ground As far as the grounds relating to disallowance of administrative disallowance of administrative, interest and depreciation expenses interest and depreciation expenses aggregating to Rs.1,77,79,686/ aggregating to Rs.1,77,79,686/- is concerned, we find that assessee we find that assessee was following percentage completion method of accounting and was following percentage completion method of accounting and was following percentage completion method of accounting and therefore, the assessee di the assessee did not recognize any profit from the projects any profit from the projects namely ‘Sheetal Height Sheetal Height’; ‘Sheetal Jyot’; ‘Sheetal Deep Sheetal Deep’; ‘Sheetal Shakuntala’; ‘Walwalkar Walwalkar’; ‘Sweet Seven and ‘Malwani Malwani’, but claimed the expenses incurred on administration, employee cost etc incurred on administration, employee cost etc under incurred on administration, employee cost etc the head ‘revenue expenditure’. The assessee contented that it was nue expenditure’. The assessee contented that it was nue expenditure’. The assessee contented that it was following the guidance note issued by the Chartered Accountant of ollowing the guidance note issued by the Chartered Accountant of ollowing the guidance note issued by the Chartered Accountant of India, 2012 and submitted that indirect expenses India, 2012 and submitted that indirect expenses on project on project which were not directly attributable to the were not directly attributable to the project were considered project were considered revenue expenditure. However, the Assessing Officer was of the view that . However, the Assessing Officer was of the view that . However, the Assessing Officer was of the view that following the matching concept of the revenue and expenses, the following the matching concept of the revenue and expenses following the matching concept of the revenue and expenses assessee should have capitalize the said indirect expenses, because assessee should have capitalize the said indirect expenses assessee should have capitalize the said indirect expenses no revenue income was shown from those projects no revenue income was shown from those projects. The Ld. CIT . The Ld. CIT(A) also upheld the same view. also upheld the same view.
5.1 However, we are of the opinion that under the percentage However, we are of the opinion that under the percentage However, we are of the opinion that under the percentage completion method, the expenses which are directly related to the completion method, the expenses which are directly related to the completion method, the expenses which are directly related to the project can only be claimed against the revenue recognized from project can only be claimed against the revenue recognized project can only be claimed against the revenue recognized those projects and and the the expenses expenses which which are are required required for for maintenance of company structure for day maintenance of company structure for day-to-day running day running, are to D G Land Developers Pvt. Ltd. D G Land 6 405 408, 405/MUM/2024 be allowed as revenue expenditure. As far as ground allowed as revenue expenditure. As far as grounds related to allowed as revenue expenditure. As far as ground section 43CA of the Act is concerned, the assessee contented that section 43CA of the Act is concerned, the assessee contented that section 43CA of the Act is concerned, the assessee contented that no opportunity was given by the Assessi given by the Assessing Officer for explaining the ng Officer for explaining the market value of the property and the AO should have referred the market value of the property and the AO should have referred the market value of the property and the AO should have referred the matter to the Valuation Officer. Before the Ld. CIT(A) no compliance matter to the Valuation Officer. Before the Ld. CIT(A) no compliance matter to the Valuation Officer. Before the Ld. CIT(A) no compliance was made and therefore, the Ld. CIT(A) has sustained the addition. was made and therefore, the Ld. CIT(A) has sustained the addition. was made and therefore, the Ld. CIT(A) has sustained the addition. In our opinion, as far as In our opinion, as far as section 43CA of the Act is concerned if section 43CA of the Act is concerned if assessee has sold his stock has sold his stock-in-trade below the stamp duty value trade below the stamp duty value then it is required to add difference as profit and gains of the is required to add difference as profit and gains of the is required to add difference as profit and gains of the business, but in case any agreement exists for sale of the property in case any agreement exists for sale of the property in case any agreement exists for sale of the property prior to the registered sale agreement tered sale agreement, then th then the stamp duty valuation as on that date valuation as on that date should be considered. Since, in the case, should be considered. Since, in the case, the stamp duty value as on the date of the agreement has not been the stamp duty value as on the date of the agreement has not been the stamp duty value as on the date of the agreement has not been considered by the Assessing Officer considered by the Assessing Officer, therefore, the issue needs to be herefore, the issue needs to be re-examined.
5.1 Though, the assessee has not complied before the Ld. CIT(A), Though, the assessee has not complied before the Ld. CIT(A), Though, the assessee has not complied before the Ld. CIT(A), but, the assessee did not avail opportunity before the Assessing , the assessee did not avail opportunity before the Assessing , the assessee did not avail opportunity before the Assessing Officer also, therefore, also, therefore, we feel it appropriate to restore we feel it appropriate to restore, both the matter of indirect expenses and 43CA of the Act invo of indirect expenses and 43CA of the Act invo of indirect expenses and 43CA of the Act involved in the appeal, back to the file of the Assessing Officer for deciding afresh. back to the file of the Assessing Officer for deciding afresh. back to the file of the Assessing Officer for deciding afresh. The grounds raised by the assessee in assessment year 2014-15 are The grounds raised by the assessee in assessment year 2014 The grounds raised by the assessee in assessment year 2014 allowed for statistical purposes. allowed for statistical purposes.
D G Land Developers Pvt. Ltd. D G Land 7 405 408, 405/MUM/2024 5.2 In assessment year 2015 In assessment year 2015-16, only one addition in r only one addition in relation to section 43CA of the A 43CA of the Act addition is contested, therefore, following therefore, following our finding in assessment year 2014 our finding in assessment year 2014-15, said ground said ground decided mutasis mutandis and and allowed for statistical purpose. allowed for statistical purpose.
In the result, both the appeals are allowed for statistical In the result, both the appeals are allowed for statistical In the result, both the appeals are allowed for statistical purposes.