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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI PRASHANT MAHARISHI
Assessee by: Sh.Gautam Jain, CA Sh. Piyush Kr. Kamal, CA Respondent by: Sh.Kartar Singh, CIT DR Date of Hearing 08/12/2015 Date of pronouncement 07/03/2016 O R D E R PER PRASHANT MAHARISHI, A. M. This appeal is preferred by the assessee against the order of learned 1. Commissioner of Income-tax (Appeals)-XXI, New Delhi for the Assessment Year 2009-10 raising following grounds of appeal:-
1. That learned Commissioner of Income Tax (Appeals) XXI, New Delhi has grossly erred both in law and on facts in sustaining a disallowance of sum of Rs.6,73,76,070/- representing expenditure incurred on licence fees, external development charges and conversion charges of land and held to be not forming part of cost of land for computing the profit on sale of commercial block by the appellant company. 1.1 That the learned Commissioner of Income Tax (Appeals) has overlooked the contention of the appellant that consideration for purchase of licence land of Rs.10.94 crores had been paid by demand drafts in the immediately preceding year i.e. Assessment Year 2008-09 and therefore addition sustained by adopting the cost of land at Rs.4,20,27,377/- instead of Rs.10,94,10,9107- was without jurisdiction. 1.2 That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the factual and legal position that once an expenditure had been incurred, the same necessarily had to be adopted as part of cost of land of the appellant company and allowed as necessary deduction while computing the profit on sale of commercial block by the appellant company. 1.3 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that Memorandum of Understanding dated 1.04.2007 specifically provided that cost incurred by transferor companies Page 2 of 10 towards licence fee development charges and, conversion charges shall be paid by the company on purchase of land and as such, there was neither law and nor on fact to conclude that, such expenditure was not an expenditure incurred by the appellant company and allowable as deduction as cost of land. 1.4 That the approach adopted by the learned Commissioner of Income Tax (Appeals) to confirm the disallowance without recording any cogent findings and conclusions is in disregard of the submissions and evidence on record and thus, perverse, wholly unjustified and unsustainable. 1.5 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the disallowance of Rs. 17,53,00,007/- representing expenditure incurred on development of building in the financial year 2007-08 relevant to assessment year 2008- 09. 1.6 That the learned Commissioner of Income Tax (Appeals) while upholding the disallowance has overlooked that contention that since such expenditure had been incurred in assessment year 2008-09 and not in the instant assessment year the same was beyond the scope and ambit of the instant proceedings and as such perse, without jurisdiction 2.2 That mere fact expenditure aggregating to Rs. 17,53,00,007- had been incurred prior to registration of sale deed of the land could not be a ground to conclude that such expenditure was not incurred by the appellant company, particularly when it was incurred in pursuance to a Memorandum of Understanding dated 1.04.2007 and, paid by account payee cheques supported by bills/vouchers and duly debited in books of accounts, which have been accepted as such and therefore, the addition sustained is altogether misconceived, misplaced and unsustainable. 2.3 That the finding of the learned Commissioner of Income Tax (Appeals) that expenditure has been incurred between 28.3.2003 (date of purchase) and 313.2008 (end of the financial year) is factually incorrect, contrary to record duly established that expenditure was not incurred during the four days but incurred during the entire financial year 2007-08 relevant to assessment year 2008-09. 2.4 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in failing to appreciate the written submissions and. judicial pronouncements relied upon by the appellant company 3 That the learned Commissioner of Income Tax (Appeals) has erred both hi law and on facts in confirming the levy of interest u/s 234B of the Act of Rs. 2,15,34,711/- which is not leviable at all on the facts of the appellant company.”
2. Brief facts of the case are that the assessee is a limited company which derived its income from property development. For the year it filed its return Page 3 of 10 of income on 21.03.2011 declaring a loss of Rs. 2,86,91,730/- and assessment u/s 143(3) was completed on 30th December 2011 by making two adjustments i.e. (1) disallowance of Rs.6,73,76,070/- being difference between the cost adopted by the assessee and determined by the AO to be deducted from sale of land and (2) disallowance of an amount of Rs.1753 lacs being expenditure as deduction on land because it is found to have been incurred prior to the date of the sale deed. Against both the additions the assessee in appeal before learned Commissioner of Income-tax (Appeals), who in turn confirmed the disallowances and therefore the assessee is in appeal before us.
3. The first ground of appeal is against the disallowance of sum of Rs. 6,73,76,070/- being expenditure incurred by the assessee on license fees, the external development charges and conversion charges of land as according to AO they cannot be forming part of cost of land for computing the profit on sale of commercial complex by the appellant company. The brief facts of this grounds is that during the year the assessee company sold a commercial property at Block B, Gurgaon vide conveyance deed dated 06.03.2009 for Rs.7,72,04,000/-. The property was sold comprising ground floor admeasuring 19301 sq.ft. With indivisible and impartible land underneath measuring 0.174 acres as well as along with common facilities. Another property was sold for Rs. 54,04,28,000/- admeasuring 1,35,107 sq. ft on 06.03.2009 to J.S. Exim Pvt. Ltd. This plot was measuring 1.219 acres of land and 134 car parking as well as common facilities. Based on above there is a sale of 154408 sq ft along with land amounting to Rs. 61,76,32,000/- The above properties were sold during the year and therefore the ld AO asked for the detail of cost and expenses incurred by the assessee which can be deducted from the sale price of the land for determining the profit. The assessee was granted to deduction of cost of land and stamp duty including additional stamp duty paid by the assessee. However the ld. AO did not consider an amount of Rs. 8,42,23500/- incurred for licence fees, Rs.3,40,22,446/- incurred as external development charges and Rs. 1,84,77,777/- as conversion charges since these expenses are found by AO to have been incurred prior to the purchase of the land. Based on this the assessee claimed total cost of Rs. 10,94,10,910/- and AO calculated Rs.4,20,27,377/- therefore an amount of Page 4 of 10 Rs.67376070/- was disallowed. On appeal before the learned Commissioner of Income-tax (Appeals) the assessee submitted that the property was purchased by the assessee on 01.04.2007 as per MOU dated 01.04.2007. The original seller agreed to sale this property to one M/s. Unitech Hospital Developers Pvt. Ltd. which was cancelled and sale was made to the assessee. The original sellers prior to the sale of land applied for approval of construction of commercial complex of the said land and paid an amount Rs. 13,67,23,723/- pertaining to licence fees, conversion charges and external development charges. This amount was paid by the seller to the Director, country planning Haryana on 25.03.2008. The sale deed was executed of the land in favour of the appellant for Rs. 716 lacs on which stamp duty of Rs. 1,40,12,280/- was paid and assessee incurred the cost of land of Rs. 8,56,12,280/- and development charges of Rs.13,67,23,723/- making total cost of property of Rs. 22,23,51,205/-. On the said property comprising of 3.398 acre Assessee constructed two complex consisting of 1.393 and 2.005 acres being Block No. A and Block No. B respectively. The total expenses incurred for the construction is Rs. 75.50 crores. This cost was bifurcated by the assessee having been incurred in two year i.e. Assessment Year 2008-09 and 2009-10 for Block A of Rs.54.04 crores and for Block B Rs.21.46 cores. As during FY 2008-09 i.e. AY 2009-10, Block A was sold for Rs.61.76 acres against this the assessee deducted cost of land of Rs.10.94 based on the total built up area and cost of building of Rs. 54.04 crores and thereby showing a profit of Rs. 3.22 crores. The ld AO did not consider license fees, conversion charges and external development charges of Rs.13.76 while calculating the cost of land as these expenditure was incurred by the vendor prior to the purchase of land by the appellant company. On appeal before CIT (A) he confirmed the disallowance as under :- “4.4 Ground No.2 to 2.2 have been taken disallowance of Rs.6,73,76,070/- about which AO has mentioned in the body of order that there is difference of Rs.6,73,76,070/- between cost adopted by assessee which is Rs. 10,94,10,910/- and as per AO it is Rs.4,20,27,377/-. In this regard, Ld.AR of the appellant has submitted that the figure taken by the AO is totally misconceived as such expenditure was incurred by the vendor prior to the sale of the land to the appellant and it could not be a ground to allege or conclude that such expenditure has been incurred for approval of construction of commercial complex and it was not eligible as business expenditure of the appellant company. In this regard, Ld.AR of the appellant has relied Page 5 of 10 on the Memorandum of Understanding dated 1.4.2007, wherein, it has been mentioned that all the expenditure incurred and expended on the construction and development of commercial complex on the said land shall be transferred and accounted for in the books of account of UBPL. Ld.AR of the appellant has further submitted that approach of the AO is unilateral and interpretation of the sale deed dated 28.3.2008 has been done in a mechanical manner. 4.5 I have gone through the submission and findings of the AO in this regard. In fact, AO's finding is based on sale deed dated 28.3.2008, wherein, cost of land has been taken at Rs.8,56,12,2807-which is inclusive of stamp duty and additional stamp duty. So in Para 3.7 of the assessment order AO has meticulously worked out the proportionate cost of land after taking into account each and every expenditure. Case laws relied by the Ld.AR of the appellant are distinguishable on facts. After considering the reply of the appellant, I do not find any infirmity in the order of AO in this regard. So addition of Rs.6,73,76,070/- is confirmed.”
4. Before us LD AR submitted that a. AO did not consider the MOU dated 01.04.2007, wherein it was provided that expenditure incurred and spent on construction and development of commercial complex shall be transferred and accounted for in the books of assessee. ld AO has overlooked MOU dated 01.04.2007 which is submitted before us at Page 84 to 88 of the PB. b. As assessee has shown the above cost of the property as inventory as at 31.3.2008, It was argued that AO was bound to accept the opening cost of such land which is already incurred and accounted for in the books of the earlier years. It was further submitted such cost of land should be granted as deduction even if such cost was not paid by the appellant. He specifically relied on the decision of Hon’ble Supreme Court 318 ITR 204 in case of VKJ Builders and contractors Pvt. Ltd. Vs. CIT. For this he took us to the balance-sheet of the company filed at Page No.97 PB before us wherein the opening balance of capital work in progress was stated to be Rs.22,70,96,065/- and closing balance was stated Rs. 21,46,28,942/- and therefore he submitted that cost of land taken by the assessee should be granted as deduction.
5. The ld DR vehemently supported the order of AO as well as learned Commissioner of Income-tax (Appeals).
Page 6 of 10 6. We have carefully considered the rival contention and facts placed before us. It is important to look at MOU entered between (1) Unitech business parks ltd, (2) unitech developers and hotels Pvt. Ltd and (3) Unitech Hospitality service ltd. According to this agreement it is stated that united business park ltd is the owner of the licensed land which was purchased by it from Unitech Ltd on 31-August-2004. On 30.3.2006 Unitech business park ltd further entered into the agreement to sale this property to Unitech Developers and Hotels Pvt. Ltd for Rs. 675 lacs only. As unitech developers and hotels Pvt ltd could not be pay the price agreed to unitech business park ltd, Unitech Developers and hotel Pvt ltd and the assessee jointly approached the Unitech business parks ltd for cancellation of agreement to sale dated 30th March 2006 and assessee agreed to purchase that property on payment of mutually agreed consideration. On reading of the said MOU we could not find any consideration to be paid by the assessee to the owner of the land agreed based on this MOU. Therefore for the exact consideration and cost of land the only relevant documents required to be seen is the sale deed executed between the assessee and Unitech business parks ltd. This sale deed dated 25.03.2008 which is filed in the PB 89-91. According to that sale deed the total consideration for 3.398 acre of land was Rs.716 lacs and stamp duty paid of Rs. 4296,000/-. On reading of the sale deed we could not find any reference of the amount of license fees etc to be paid to the owner or to the other party. The terms and conditions of the sale deed are as under:- “1. That in lieu of payment of aggregate consideration of Rs.7,16,00,000/- (Rupees Seven Crore Sixteen Lac Only), the VENDOR doth hereby sell, transfer, convey and assign all its rights, title and interest in the land admeasuring 3.398 acres situated in Block-B at Greenwoods City, Gurgaon, Haryana, unto the VENDEE together with all its rights, liberties, privileges, liens, easements, advantages, passages, pathways, permission grants whatsoever attached or annexed to the said land.
That the VENDEE has paid the aforesaid total consideration of Rs. 7,16,00,000/-(Rupees Seven Crore Sixteen Lac Only) vide cheque No.856317 dated 25.03.2008 drawn on Canara Bank, Nehru Place, New Delhi to the VENDOR, the receipt whereof the VENDOR hereby admits and acknowledges.
That hereafter the VENDOR Company is not left with any right, lien or claim of any nature whatsoever in the said land/plot of land shall henceforth be owned and developed by the VENDEE requirements, per its own requirements.
Page 7 of 10 4. That the VENDOR simultaneously with the execution of this Deed of Sale has handed over the vacant physical possession of the said land/plot to the VENDEE.
That all taxes, levies,- assessments, demands or charges, which are levied in respect of the said plot of Land upto the date of execution of this Deed of Sale are paid by the VENDOR. However, the said assessment, charges, rates etc., which may be levied in future shall be borne and paid by the VENDEE.
That all expenses, incurred on registration of this Sale Deed including Stamp Duty and other charges have been borne and paid by the Vendee.”
According to paragraph No.5 of that sale deed of tax levies assessment demand or charges which are levied in respect of the said plot of land paid up to the date of Sale deed are to be paid by the vendor and after that by the assessee. Contrary to the statement made by the assessee according to the sale deed in Para No.1 of the sale deed total interest in the land were transferred by Unitech business Parks Ltd to the assessee for Rs.7.16 only. We failed to understand that if such cost is to be borne by the assessee why it does not find a mention in the sale deed or MOU executed by the parties. Further AO and CIT (A) both have perused these documents and based on that have disallowed these cost to the assessee. Therefore in our opinion merely because the assessee has recorded the cost of external development charges and license fees in the books of account by crediting it to some other parties account and showing it as work in progress i.e. opening stock , it cannot be granted as deduction from the sales price of the land when ( 1) the cost has been incurred by the other party, (2) the sales deed proves otherwise, ( 3) MOU relied up on by the assessee does not support the argument of the assessee. LD AR has argued vehemently that the assessee has already accounted this expenditure as it is work in progress and it has been taken as closing stock therefore it has to be granted as deduction in the next year as it becomes opening stock in that year. For this proposition he relied on the decision of the Supreme Court in the case of VK. Builders and contractors Pvt. Ltd. Vs. CIT reported in 318 ITR 204. At the first instances the argument looks attractive but on examination of the facts before the supreme court and the facts of the case of the assessee, this argument deserves to be dismissed. Fact before the Supreme Court in case cited before us is quite different. The Hon’ble Supreme Court has held that according to the principle of accountancy Page 8 of 10 that the figure of the closing stock of the earlier years does form the opening stock of the next year and it cannot be questioned in the subsequent year. Off course, there cannot be any question on acceptance of this accounting principle. However Hon’ble Supreme Court was not concerned the issue like in the case of the assessee where the cost debited itself cannot be considered as the cost of the land unsupported by evidences in the form of conveyance deed and MOU executed by the buyer and seller. Therefore reliance by AR on the decision of Honorable supreme court is misplaced as it does not apply to the facts of the case of assessee. On probing amount of the work in progress the AO has come to know that these expenses have not all been incurred by the assessee and on perusal of the sale deed AO has stated that sale consideration is inclusive of all rights. Therefore in this case AO is disputing the closing stock of the earlier years also. In view of the above facts and circumstances of the case we are of the view that learned Commissioner of Income-tax (Appeals) has rightly confirmed that disallowance of Rs. 6,73,76,070/- towards the cost of land , we confirm the order of learned Commissioner of Income-tax (Appeals) and dismiss the ground No.1 of the appeal of the assessee.
The second ground of appeal is against the disallowance of Rs.1753 lacs representing the expenditure incurred on development of the property. The brief reasons for disallowance by the assessee that the assessee was required to prove the genuineness of the expenditure incurred on construction of building between the 28th March 2008 to 31St March 2008 i.e. within four days this amount of expenditure is incurred. On reply filed by the assessee explaining the expenditure incurred during this period of Rs.17.53 lacs it was also observed by AO that all these expenses are incurred prior to the purchase of the land by the assessee. The AO further supported his disallowance relying on the sale deed executed on 28th March 2008 wherein on the 3rd Para it is clearly stated that vacant plot of land has been sold to the assessee alternatively it was stated by AO that sale to the assessee was in respect of land only therefore there is no construction on that land till the date of sale of land. Against this the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) wherein detailed arguments were made. However learned Commissioner of Income- Page 9 of 10 tax (Appeals) confirmed this disallowance holding that the above expenditure has been incurred prior to the registration of sale deed and rejected the argument of the assessee that expenditure was incurred in pursuance of memorandum of understanding dated 01.04.2007. He further confirmed the finding of the AO that the land was purchased on 28th March 2003 and previous year ended on 31.03.2008. These expenses have been incurred and therefore the expenditure of Rs.1753 lacs is prior to the purchase of the land. The ld AR contended same arguments which were raised before the learned Commissioner of Income-tax (Appeals) and in the same manner that the capital work in progress showing the opening stock cannot be disturbed by AO. The ld DR on the relied on the order of lower authorities.