2023 (11) TMI 535 - AT - Income Tax

Assessee wins appeal on flat sale profits as additional construction costs and land acquisition expenses allowed

The Deputy Commissioner of Income-tax (OSD-1), Central Range 7 Versus M/s Simplex Realty Limited, Mumbai

The Deputy Commissioner of Income-tax (OSD-1), Central Range 7 Versus M/s Simplex Realty Limited, Mumbai - TMI Issues Involved:1. Disallowance of additional cost of construction.2. Difference in revenue booked by the assessee and GPL.3. Long-term capital gain on conversion of land into stock-in-trade.4. Disallowance of interest expenditure as development cost.5. Disallowance of depreciation on building.6. Disallowance of foreign travel expenses.7. Additional ground raised by the assessee regarding additional cost disallowed in A.Y. 2009-10.Summary:1. Disallowance of Additional Cost of Construction:The assessee, a public limited company, followed the percentage completion method for a real estate project with Godrej Properties Limited (GPL). The Assessing Officer (AO) disallowed Rs. 10,32,70,436/- due to discrepancies in the cost of construction claimed by the assessee. The CIT(A) confirmed this disallowance. However, the Tribunal found merit in the assessee's claim, noting that the cost of construction claimed was lower than the average rate communicated by GPL and the final rate agreed upon. Thus, the disallowance of Rs. 10,32,70,436/- was deleted.2. Difference in Revenue Booked by the Assessee and GPL:The AO made an addition of Rs. 1,85,70,000/- due to differences in revenue booked by the assessee and GPL. The CIT(A) partially allowed the appeal, reducing the addition to Rs. 49,25,630/-. The Tribunal did not specifically address this issue in the provided text.3. Long-Term Capital Gain on Conversion of Land into Stock-in-Trade:The AO added Rs. 1,05,13,749/- as long-term capital gain. The CIT(A) deleted this addition, relying on the decision for A.Y. 2009-10. The Tribunal upheld the CIT(A)'s decision, noting that the land was not vacant as of the valuation date and that the valuation provided by the assessee was based on a scientifically drawn-up report.4. Disallowance of Interest Expenditure as Development Cost:The AO disallowed Rs. 48,72,474/- claimed as interest expenditure. The CIT(A) deleted this disallowance, stating that the interest was paid wholly and exclusively for business purposes. The Tribunal upheld this decision, agreeing that the interest cost incurred towards acquiring a clear title of the property can be claimed as part of the development cost.5. Disallowance of Depreciation on Building:The AO disallowed Rs. 2,54,776/- claimed as depreciation on the building. The CIT(A)'s decision on this issue was not specifically addressed in the provided text.6. Disallowance of Foreign Travel Expenses:The AO disallowed Rs. 8,86,299/- claimed as foreign travel expenses. The CIT(A)'s decision on this issue was not specifically addressed in the provided text.7. Additional Ground Raised by the Assessee Regarding Additional Cost Disallowed in A.Y. 2009-10:The assessee claimed Rs. 23,20,35,862/- as additional cost disallowed in A.Y. 2009-10. The CIT(A) allowed this claim, contingent on the outcome of the appeal for A.Y. 2009-10. The Tribunal noted that the assessment order for A.Y. 2009-10 had been quashed by the Tribunal, meaning the claim for the cost of construction was allowed. However, if the Bombay High Court reverses this decision, the CIT(A)'s order allowing the cost in A.Y. 2010-11 will prevail.Conclusion:The Tribunal allowed the appeal of the assessee regarding the disallowance of additional cost of construction and upheld the CIT(A)'s decisions on long-term capital gain and interest expenditure. The Tribunal also provided conditional directions regarding the additional cost claimed for A.Y. 2009-10. The revenue's appeal was partly allowed, and the assessee's appeal was allowed.