AKRUTI STEELFAB CORPORATION,MUMBAI vs. DCIT CEN CIR 5(1), MUMBAI

Only effective ground raised by the assessee is against the confirmation of disallowance of amount written off of Rs.12,87,085/- towards 380 sq.ft of transferable development rights as the same were not recovered and has become bad.

Facts of the case are that the assessee was engaged in the business of builder and development of the properties and filed its return of income on 15.10.2010 declaring an income of Rs.NIL, which was processed under section 143(1) of the Income Tax Act, 1961. Thereafter the case of the assessee was selected for scrutiny and the statutory notices were issued under section 143(2) and 142(1) and duly served upon the assessee. During the course of assessment proceeding, the AO found that the assessee firm has claimed expenses to the tune of Rs.12,27,085/- on account of FSI /TDR written off. The AO vide ordersheet entry dated 17.10.2012, called upon the assessee to explain as to why the amount of FSI written off during the year should not be disallowed. In reply, the assessee submitted that this TDR formed part of stock in hand of the firm coming over from the earlier years as the firm is in the business of construction and therefore TDR has direct connection with the business of the firm. The ld.AR submitted that the amount receivable on account of TDR is recognized as income in the profit and loss account in the earlier years at the time of generation of TDR and the resultant income stands assessed to tax though in the hands of one of the partners. It was also submitted that the period of more than 10 years have elapsed and amount of TDR was not received in favour of the assessee and therefore the amount was rightly written off during the year. The AO observed that the TOR was generated in the financial year 2000-2001 on completion of a rehabilitation project but not released till the date. The AO was not convinced with the contention and submissions of the assessee and came to the conclusion that withholding of TDR was definitely penal in nature and mere withholding the TDR by Municipal Authority could not be taken to mean that TDR has been denied to the assessee. The AO accordingly framed the assessment order u/s 143(3) of the Act by assessing the total income at Rs.12,10,701/- vide order dated 5.11.2012 by making the disallowance of TDS written off.

Aggrieved by the order of AO, the assessee preferred an appeal· before the FAA, who also dismissed the appeal of the assessee by upholding the order of the AO as under :

The Id. AR vehemently submitted before us that the TDR was allocated to Mls Akruti Nirman Pvt. Ltd. when it executed a slum rehabilitation project and the said TDR was brought in the assessee firm as capital contribution of the partner. 5ince the said TOR were being shown in the profit and loss account as stock in trade since the formation of the firm and as the said TOR could not be recovered and was rightly written off by the assessee. The Id. AR placed before us the necessary evidences qua the accrual of TDR and further bringing into the firm by stating that these were not before the authorities below. Lastly the Id AR submitted that in view of these facts the appeal of the assessee should be allowed. On the other hand the ld.DR pressed two points namely that the TORs were accrued in favour of partner MI5 Akruti Nirman Pvt Ltd and not the assessee and second, all the evidences were very old which were not before the authorities below which required verification at the level of AO and therefore the case should be restored to the AO for appreciation of evidences and adjudicating accordingly as per the evidences.

We have heard the rival contentions and perused the material placed before us including the impugned orders. After examining the records before us we are of the considered view that the partner in the assessee firm brought these TDR’s into the firm as its capital contribution and was treated as part of stock in trade over the years before being written off during the year. We are not in agreement with the conclusion the first appellate authority on this issue that claim of the assessee remained unsubstantiated. In our considered view the assessee has to be allowed write off of the said TDR when it finally became bad. But finding merit in the arguments of ld.DR that the documents relating to TDR were not before the AO and the matter should be restored back to AO for verification of claim of the assessee on the basis of the said papers. Therefore, we are of the view it would be in the interest of justice, if the order of the FAA is set aside and the AO is directed to consider the issue of allocation of TDR denovo with fair and reasonable opportunity of hearing to the assessee. Accordingly, we set aside the order of Id. CIT(A) and direct the AO to decide the issue on the basis of material available on record and also evidence as supplied by the assessee in the set aside proceedings and allow the claim of the TDRs were found to be brought in by the partner as capital contribution.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 4th April, 2017.