TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 142
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.... the CIT(A) erred in confirming the disallowance of various expenses, viz. Power and Fuel, Deferred Revenue Expenses, Rent, rates and taxes, Miscellaneous Expenses, to the extent of 25% as against ad-hoc disallowance made by the AO of 75%. 1.3 The grounds urged by the revenue read as under: - 1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the profit estimated by the AO at Rs. 28,01,64,768/- by observing that the percentage completion method followed consistently by the appellant cannot be rejected without appreciating the contention of the AO discussed in detail at para No. 4 of the assessment order. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to adopt the cost of acquisition as the fair market value as on 01/04/1981 in respect of the land converted from investment in stock-in-trade at Rs. 240/- per sq.ft. as against Rs. 16.32 which was adopted by the assessee himself while converting the land to stock-in-trade in AY 2004-05 for a similar project. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to adopt fai....
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....establishing the fact that the transactions giving rise to the losses have been concocted with a colorable intention to evade taxes. C) On the facts and in the circumstances of the case and in law, the CIT(A) has erred in not appreciating the fact that the intra group series of transaction and shares and application of money suffered from want of transparency and it had obtained the blemish of colorable device and tax avoidance. 7. The appellant prays that the order of CIT(A) on the grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 2. The Ld. CIT-DR, drawing attention to the factual matrix of the case, pleaded for restoration of assessment as framed by Ld.AO. The Ld. AR, on the other hand, drawing attention to various documents as placed in the paper book, supported the impugned order. The Ld. AR also contested the disallowance of various expenses. Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The decision of Tribunal in assessee's own case for AY 2004-05, ITA Nos.2135,2343/Mum/2009 dated 30/08/2019 has also been refe....
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....ount. The aforesaid accounting methodology was stated to be in accordance with Generally Accepted Accounting principles and accounting standards issued by The Institute of Chartered Accountants of India (ICAI). 4.3 However, rejecting the aforesaid accounting methodology, Ld. AO opined that there would be three components of profits viz. (i) Long-term capital gains on sale of land upto the date of conversion; (ii) profit / loss on sale of land subsequent to conversion; (iii) profit / loss on construction of the premises. 4.4 In the above background, Ld. AO proceeded to work out profit / loss on sale of land. It was noted that average sale price of the constructed premises was Rs. 5558/- per square feet and estimated average cost of construction including profit on construction activities would be Rs. 750/- per square feet. The differential of the two i.e. Rs. 4808/- per square feet would be the sale value of 91628 square feet of land sold during the year. The total sale value of the land would thus be Rs. 4405.13 Lacs. Since the assessee reflected sale of Rs. 1603.49 Lacs under the head capital gains, the remaining amount i.e. Rs. 2801.64 Lacs would be the business profit on sale ....
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....f completion of the project. Moreover, this is a company in which the public are substantially interested and its final accounts are subject to scrutiny and approval by the shareholders in the annual general meeting: calling for full transparency before the public. Therefore ultimately there will be no revenue loss. The undersigned gives due weightage to the appellant's submission that there are only two methods for construction accounting, firstly the 'Project Completion Method' and secondly the 'Percentage Completion method'. The appellant has adopted a recognised method of accounting for offering the revenue for taxation based on the percentage completion method. The AO has not pointed out any defect therein which may warrant the rejection of the method followed. The AO has computed the profit on sale of land separately and the profit on sale of construction separately. Both of these profits are components of the same project as a whole which cannot be isolated as done by the AO. In the present case the AO has bifurcated the entire profit on this Ashok Tower project between capital gains and business income as in this case the project was taken up by converti....
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....of these premises. For the purpose of revenue recognition, the assessee followed percentage completion of method of accounting. Since project was completed to the extent of 11% during the year as certified by the Architect, the assessee recognized projected revenues to that extent in its books of accounts. The said method was recognized method of accounting as per Accounting Standards issued by ICAI and this method was consistently followed in subsequent years to recognize the revenue. This method was accepted in earlier years also. Therefore, Ld. AO, in our considered opinion, was not justified in rejecting the methodology adopted by the assessee and estimating the business profits on sale of land as well as profits from construction activities separately since the land merged into the stock-in-trade and the premises including the undivided share in the land was sold to various buyers during the year. The perusal of chart placed before us would show that finally, the project has been completed in AY 2010-11 and revenue has been recognized from AYs 2005-06 to 2010-11 based on percentage of completion method of accounting. Therefore, finding no infirmity in the impugned order on thi....
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....et as on 01/04/1981 as taken by Ld.AO was the cost of land in the year 1934-35 and not in the year 1981 and therefore, disturbing the same, was not justified at all. 6.4 However, Ld. CIT(A) justified reference to DVO and directed Ld. AO to adopt the FMV on the date of conversion as declared by the assessee subject to revision of the same on the receipt of DVO report. Regarding valuation as on 01/04/1981, Ld. AO did not form any opinion that the FMV declared by the assessee was less than actual FMV and therefore, the same was to be taken at Rs. 240/- per square feet as directed in first appellate order for AY 2004-05. Aggrieved, the revenue is in further appeal before us. Our findings & Adjudication 7. Upon perusal of factual matrix, we find that there are two facets of the dispute i.e. FMV as on 01/04/1981 as well as FMV on 24/12/2003 i.e. the date of conversion. The FMV, on both the dates, as adopted by the assessee is duly supported by the valuation report of registered valuers, the copies of which are on record (page nos.54 to 61 of Paper-Book). So far as the valuation as on 24/12/2003 is concerned, we find that Ld. CIT(A) has already directed Ld. AO to accept the valuation o....
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....by the assessee was less then the fair market value. In the present case, it is an undisputed position that the value adopted by the respondent-assessee of the property at Rs. 35.99 lakhs was much more than the fair market value of Rs. 6.68 lakhs even as determined by the Departmental Valuation Officer. In fact, the Assessing Officer referred the issue of valuation to the Departmental Valuation Officer only because in his view the valuation of the property as on 1981 as made by the respondent-assessee was higher then the fair market value. In the aforesaid circumstances, the invocation of Section 55A(a) of the Act is not justified. 8. The contention of the revenue that in view of the amendment to Section 55A(a) of the Act in 2012 by which the words "is less then the fair market value" is substituted by the words " "is at variance with its fair market value" is clarifactory and should be given retrospective effect. This submission is in face of the fact that the 2012 amendment was made effective only from 1 July 2012. The Parliament has not given retrospective effect to the amendment. Therefore, the law to be applied in the present case is Section 55A(a) of the Act as existing dur....
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....V as on 01/04/1981 by Ld.AO cannot be held to be in accordance with law. Therefore, finding no infirmity in the impugned order, in this respect, we dismiss ground no.2 of revenue's appeal. Disallowance of Professional fees 8.1 The assessee claimed Rs. 130.52 Lacs as professional fees which was paid to different persons / entities. Upon perusal of assessee's submissions, Ld.AO opined that the submissions do not give any picture as to the fact that the expenses were incurred wholly and exclusively for the purpose of business. Accordingly, 75% of these expenses were disallowed which came to Rs. 97.89 Lacs. 8.2 During appellate proceedings, it was submitted that complete details of professional fees paid by the assessee was furnished. The fees include certification fees for representing before tax authorities, fees for limited review etc. The same being for business purposes were allowable expenditure. Concurring with the same, Ld. CIT(A) directed Ld. AO to allow the same. Aggrieved, the revenue is in further appeal before us. 8.3 We find that the assessee has furnished name of payees, nature of expenses and the amount paid to each of them (Page no. 83 of the Paper Book). No defect....
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....the revenue is in further appeal before us. 9.3 We find that the provisions of Sec.35DDA entitle the assessee to amortize the expenses incurred on voluntary retirement scheme and allow 1/5th of such expenditure starting from the year in which the expenditure has been incurred by the assessee. The perusal of computation of income would show that VRS expenditure has been incurred by the assessee during FYs 2000-01 to 2003-04 and the same are claimed as per the mandate of Sec.35DDA. The same has been claimed to the extent of 1/5th of expenditure incurred in earlier years. The deduction of the same has been allowed to the assessee in past assessments. Therefore, there could be no occasion to disallow the same in this year. Hence, the disallowance of Rs. 1866.34 Lacs has rightly been deleted in the impugned order. So far as the balance expenditure of Rs. 558.65 Lacs is concerned, the perusal of above table would show that majority of these payments are in the nature of wages, ex-gratia payment, leave encashment, gratuity, VRS expenses etc. paid by the assessee. Upon perusal of the same, it could be seen that these are normal business liability of the assessee paid during normal conduc....
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....as under: - - 131.51 Lacs Equity Shares of MTL were acquired from MVB at Rs. 2.78 per share in October 2003. - 100 Lacs Equity shares were acquired on 20/07/2004 pursuant to the scheme formulated by MTL at Rs. 15.50 per Share On 27/10/2004, PLL surrendered 138.76 Lacs Equity Shares @Re.0.10 per share as per the scheme approved by Hon'ble Bombay High Court. The remaining 92.75 Lacs shares were given free of cost to share holders of PLL. Accordingly, Long-Term Capital Loss (LTCL) of Rs. 366.24 Lacs arose on surrender of 131.51 Lacs shares whereas there was short-term capital loss (STCL) on sale of remaining 7.25 Lacs shares for Rs. 111.69 Lacs. The same was claimed in the computation of income. 10.4 However, after considering assessee's submissions, Ld. AO alleged that fresh shares were purchased by the assessee on 29/06/2004 with full knowledge and intention of booking loss on this account. Therefore, STCL claimed by the assessee was to be disallowed. This was in the background of the fact that the assessee group adopted various practices in artificially creating a series of transactions with related parties with an intention to evade taxes and siphon away public funds. M/s Mo....
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.... revenue. 10.6 Concurring with assessee's submissions, Ld.CIT(A) reversed the action of Ld. AO with following observations: - 7.13. The undersigned has carefully perused through the rival contentions. It is noted that merely on the basis of intention, a valid claim made within the four corner of the Act, cannot be disallowed unless established to the contrary. In this case the AO has not conducted any independent enquiry to prove that the above mentioned claims of capital losses were not bonafide. In the above mentioned observations, it is also noticed that the appellant has furnished pointwise replies to all the adverse comments made by the AO. 7.14. Therefore, it is held that the AO did not have sufficient reasons to conclude that the claimed capital losses were not allowable. Hence the AO is directed to allow the claim of the short term capital loss at Rs. 3,66,24,370/- and the long term capital loss at Rs. 1,11,69,404/- and further to delete the re-computation the long term capital gains of Rs. 87,07,94,630/- and the short term capital gains of Rs. 3,88,75,330/- Aggrieved as aforesaid the revenue is in further appeal before us. Our findings & Adjudication 11. The undis....
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....essee could not be brought to tax as capital gains or business income. It could further be seen that similar allegations were leveled by Ld. AO in assessment order for AY 2004-05 and few of these allegations have merely been reproduced in the assessment of this year. However, all such allegations as well as disallowances as made in AY 2004-05 stood settled in assessee's favor by the cited decision of Tribunal for AY 2004-05. We find no reason to deviate from the same. Therefore, considering the facts and circumstances of the case, no error could be found out in the order of Ld. CIT(A) reversing the stand of Ld.AO, in this regard. This ground as well as the revenue's appeal stand dismissed. Assessee's Appeal 12.1 The only ground urged in assessee's appeal is disallowance of following expenses: - No. Expenditure Amount (Rs.) 1. Power & Fuel Rs. 37.09 Lacs 2. Rates, Taxes & Water Charges Rs. 31.05 Lacs 3. Miscellaneous Expenses Rs. 64.48 Lacs The power & fuel expenses have been disallowed by Ld. AO with the observation that the assessee claimed electricity expenses for Ashoka Towers for Rs. 27.13 Lacs. The office situated at Parel was being used by other sister ....