2012 (4) TMI 479 - AT - Income Tax

Tax Tribunal: Board's Income Upheld, Interest Disallowed, Stock Discrepancy Deleted.

Chandigarh Housing Board Versus Addl. Commissioner of Income-tax

Chandigarh Housing Board Versus Addl. Commissioner of Income-tax - TMI Issues Involved:1. Taxability of surplus generated from the sale of development rights in RGCTP project.2. Taxability of interest income on FDRs related to RGCTP project.3. Disallowance of interest on overdrafts obtained against FDRs.4. Taxability of interest income on funds related to conversion fee.5. Additions on account of discrepancies in stock of houses, booths, and closing stock of material.Issue-wise Detailed Analysis:Issue 1: Taxability of Surplus Generated from the Sale of Development Rights in RGCTP ProjectThe assessee-Board argued that the surplus generated from the sale of development rights to M/s Parsvnath Developers Ltd. belonged to the Chandigarh Administration, as the Board was merely acting as a nodal agency. The AO, however, treated the surplus as taxable income of the assessee-Board, asserting that the Board was not an agent of the Chandigarh Administration. The CIT(A) upheld the AO's decision, and the Tribunal confirmed this, stating that the Haryana Housing Board Act did not designate the Board as an agent of the Chandigarh Administration. The Tribunal emphasized that the Board had acquired the land in its own right and commercially exploited it, thus the income accrued to the Board and not to the Chandigarh Administration.Issue 2: Taxability of Interest Income on FDRs Related to RGCTP ProjectThe assessee-Board claimed that the interest income on FDRs, generated from RGCTP project funds, belonged to the Chandigarh Administration. The AO and CIT(A) disagreed, treating the interest income as taxable in the hands of the assessee-Board. The Tribunal upheld this decision, reiterating that the Board was not an agent of the Chandigarh Administration and thus the interest income on FDRs was rightfully taxable as the Board's income.Issue 3: Disallowance of Interest on Overdrafts Obtained Against FDRsThe assessee-Board contended that the overdrafts were taken against old FDRs to invest in new FDRs with higher interest rates, thereby acting prudently. The AO and CIT(A) found inconsistencies in the Board's explanations and noted that the funds from the overdrafts were likely used for ongoing projects, not new FDRs. The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of interest as the Board failed to substantiate its claims with evidence.Issue 4: Taxability of Interest Income on Funds Related to Conversion FeeThe AO added interest income from FDRs related to conversion fees, which the assessee-Board argued belonged to the Chandigarh Administration. The CIT(A) accepted the Board's claim, but the Tribunal found no sufficient evidence to establish an agency relationship between the Board and the Chandigarh Administration for this matter. The Tribunal set aside the CIT(A)'s decision and remanded the issue for fresh consideration, emphasizing the need for concrete evidence to support the agency claim.Issue 5: Additions on Account of Discrepancies in Stock of Houses, Booths, and Closing Stock of MaterialThe AO made additions based on discrepancies noted by auditors in the stock of houses, booths, and closing stock of material. The CIT(A) deleted these additions, accepting the Board's explanations that the discrepancies were due to higher closing stock values and adjustments made by the auditors. The Tribunal agreed with the CIT(A)'s reasoning and upheld the deletion of these additions.Conclusion:The Tribunal confirmed the CIT(A)'s decisions on most issues, except for the interest income on conversion fees, which was remanded for further consideration. The appeals by the assessee-Board were dismissed, while the Department's appeal was partly allowed.