2015 (12) TMI 1124 - HC - Income Tax

Court upholds ITAT's decision on development rights taxation, dismisses Revenue's appeal.

THE COMMISSIONER OF INCOME TAX-IV Versus GIRNAR INFRASTRUCTURE PVT. LTD.

The Court dismissed the Revenue's appeal against the ITAT order, which allowed the assessee's appeal regarding the taxation of development rights and ... Taxability of development rights - Held that:- Tribunal was of the opinion that when development rights are transferred it has a cost and when the receipt is taxed and the corresponding cost has to be allowed as expenditure. This view is in conformity with the fundamental principle in taxation that the gross receipt cannot be brought to tax, and only the profits can be which means that the cost has to be allowed as deduction. Given this situation, the Tribunal noticed that the AO had accepted the value of the closing stock and that deduction may be allowed as expenditure but in the application of such principle had faltered. Since in the present case the figures provided by the assessee as to the nature of the expenditure i.e. proportionate value of the land at the time of acquisition, the licence fee paid etc. are verifiable and do not appear to be disputed, and in the absence of any alternative method, this Court is of the opinion that the ITAT’s approach in this case cannot be faulted. - Decided against revenue. Issues: Revenue's appeal against ITAT order allowing the assessee's appeal regarding taxation of development rights and related expenses.The judgment involves a dispute where the revenue challenged the ITAT order dated 26th July, 2013, which allowed the assessee's appeal. The assessee, incorporated in 2007, had purchased land and incurred expenses for which the holding company made payments. The revenue sought to tax the entire amount received from the sale of development rights, but the ITAT held that only the profits should be taxed after deducting allowable expenses. The revenue argued that the ITAT failed to consider the reality of transactions, but couldn't provide an alternative method for determining profits. The ITAT relied on a previous ruling stating that the gross receipt cannot be taxed, only the profits. The Court found that the ITAT's approach was correct as the expenditure details provided by the assessee were verifiable and undisputed, and no substantial question of law arose for consideration. Therefore, the appeal was dismissed.In the case, the assessee, incorporated in 2007, purchased land and incurred expenses paid by the holding company. The revenue sought to tax the entire amount received from the sale of development rights. The ITAT held that only the profits should be taxed after deducting allowable expenses. The revenue argued that the ITAT failed to consider the reality of transactions, but couldn't provide an alternative method for determining profits. The ITAT relied on a previous ruling stating that the gross receipt cannot be taxed, only the profits. The Court found that the ITAT's approach was correct as the expenditure details provided by the assessee were verifiable and undisputed, and no substantial question of law arose for consideration. Therefore, the appeal was dismissed.