TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 981
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.... raised vide ground No.1(a) to 1(c), where department has challenged deletion of addition of Rs. 46,75,48,739/- are that assessee is a builder and developer. For the year under consideration assessee had sold some units and its building constructed by it namely, 'Universal Majestic' near Chembur, Mumbai. The Assessing Officer noted that there was a huge variation in the sale price of individual units and found that assessee had sold various units at different rates ranging from Rs. 13,513/- per sq. ft to Rs. 27,951/- per sq.ft. He has noted the comparable sale instances at page 2 of the assessment order. In the reply to show-cause notice assessee has given various factors and reasons for the variation in the prices for example, firstly some units had additional flower bed area; secondly due to various Vaastu angles and passage for the flat which commanded different prices; thirdly, certain units had additional areas like store room, flower bed and passage area and lastly, some of the units had no natural ventilation and due to certain market conditions also, the price bookings and rates are varied. Apart from that, it was also submitted that the project was on off-location and no g....
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.... 40000000 25235133 4 Sushil Budhia / Suchitra Budhia/ Usha Gopalan 1103 117.50 1264 16,650 16.6.10 21645500 14284464 5 Sterling & wilson Powergen P. Ltd. 1001-1006 962.50 10352 16,650 26.5.10 172500000 116987952 6 Pratibha Pipes & Structural Ltd. 1301-1306 962.50 10352 16,650 09.4.10 172500000 116987952 Total 284906445 Comparable - III Sr. no Name of Buyer Flat No. Area Sq. mtrs. Area Sq. Ft Rate Date of Booking Agreement value Addition 1. SHL Property Holdings Ltd. 1108 193.25 2078 23,172 23.12.10 48202155 9330762 2. Thakkar Constructions P. Ltd. 1105 207.65 2233 15,538 11.10.10 34730000 27718229 3. Techno Force (I) P. Ltd. 1107 164.07 1764 19,818 08.02.11 35000000 14346612 Total 51995603 5. The ld. CIT(A) after considering the explanations and reasoning given by the assessee wherein assessee has raised various propositions, has deleted the said addition after observing and holding as under:- 5.26 I have gone through the assessment order and submissions made in this regard. It is noted that during t....
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....f various units like shape of various units, location of the units etc.. The appellant further contended that the addition made by the Assessing Officer by estimating the sale rate of unit no. 1101 to all the units sold during the year is contrary to the Assessing Officer's own action of preparing comparables in 4 different categories. This itself showed that while the Assessing Officer has initiated the enquiry for different purposes and ended the proceedings in a different manner. The very purpose for which 4 application of comparables were made as evident from the assessment order was that different period of booking were found in respect of 4 groups of comparables. However, while making that addition of a single rate was applied to all the sales instances in the various groups ignoring the different date of booking. On the basis of the above, the appellant submitted that the Assessing Officer was incorrect in comparing and adopting the sale rate of unit 1101 to other units sold during the year. The appellant therefore prayed that the addition of Rs. 46,75,48,737/- is unjustified and incorrect and deserved to be deleted. It is noted that the AO had made addition on the basis....
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.... of collusion between them. d. The Ld. AO has referred to past survey proceedings conducted on 09.03.2010. However, the same does not have any bearing for the subsequent years which are under consideration. In any case, in proceedings for A.Y. 2010-11 consequent to survey, no addition is made on account of suppressed sales. e. The sale consideration for all the units is above stamp duty value. The details of the same are enclosed at Page 16 of PB. There is no provision under the Income Tax Act except S. 50C and s. 43CA to revise the sale consideration. The provisions of s. 43CA of the Act are applicable from 01.04.2014 and hence not applicable for the years under consideration. Moreover, the provisions of s. 50C of the Act will also not apply to stock in trade in case of assessee builder. f. The difference in sale rate for various units is explained by assessee with justifiable reasons. It was explained that the rate of various units differ due to size of units, location, vastu compliance, need of the buyer etc. Moreover, some units have exclusive access to corridors, terrace area, AHU, balcony etc., which is free of FSI area and not taken into consideration in agreement but ....
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....ation of civic/municipal laws of the City. Also, when the additional area is not exclusive and not mentioned in agreement, can it be charged at the same rate as claimed by the assessee. Further, during the course of arguments, before the Hon'ble Bench, it was shown from the Paper Book filed by the assessee, that other units also had similar common area as balcony, flower bed etc, yet the rate per sq.ft. was not comparable. For eg. 1101 & 1103 on P.No.3 are similar on P. No.4 of PB 1108 is although comparable with 1105 & 1107 but there is a huge difference in rate. (ii) A survey action in the case of the assessee u/s. 133A of the Act on 09.03.2009 was carried out where it had declared an amount of Rs. 6.50 crore to cover discrepancies in the papers found and impounded during the course of survey. Such incriminating documents found, statement made by the assessee u/s. 133A and assessment order for relevant assessment year passed u/s. 143(3) are a strong corroborative evidence that the assessee has been indulging in out of book transactions and therefore, the same can be correlated to the variations appearing in the price per sq. ft. of the different units sold within a year....
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....n giving any reasonable and satisfactory explanation. The ld. CIT(A) fails to examine the reason for huge variation and therefore, the department humbly urges the Hon'ble ITAT to decide for preventing miscarriage of justice. 8. We have heard both the parties at length and also perused the relevant finding given in the impugned orders. From the perusal of the assessment order as well as the impugned order, we find that the entire controversy revolves around that, assessee had sold its units at a varied prices ranging from Rs. 13,513/- per sq. ft to Rs. 27,951/- per sq. ft in the same project. Such a huge variation prima facie was not found to be justifiable by the ld. AO who has given a very detailed analysis and the reasons to rebut the explanation of the assessee, whereas the ld. CIT (A) without any much factual analysis has accepted the contention of the assessee. Though there could be some variation in the rates per unit depending upon the various factors which cannot be brushed aside, but to accept that there would be such a huge variation is beyond any prudence and reality. Thus, such a huge difference is certainly not justified and even the action of the ld. AO to take m....
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....00 10,360 16,650 522 54,08,056 3.14 This company purchased entire i4th Fl 25,026 sq. ft. @ 13.222/-.Further, balance units- 1307-1312admeasuring 2,508 sq.ft. pur. in A.Y. 1213 @16,789/- 11 SHL Property Holdings Ltd 1,108 4,82,02,155 2,080 23,173 12 D. Thakkar Construction Pvt Ltd 1,105 3,47,30,000 2,235 15,538 1,634 36,51,851 10.51 This Company also purchased entire106 unit of1959 sq.ft. @ I7,728/- at the same time 13 Techno Force(I) Pvt Ltd. 1,107 3,50,00,000 1,766 19,818 - - - The said unit was having 4 car parking space TOTAL 73,97,71,655 43,080 4,02,96,088 5.45 Weighted Average Rate 17, 172 AY 2012-13 Sr. No. (1) Name of Party (2) Unit No. (3) Agreement value (4) Agreement Area (5) Agreement Rate (6) [4/5] Difference in rate where actual rate is less than weighted average rate[7] Difference in value (8) [5*7] %difference (9)[8/4] Remarks l Deonar Weight Bridge Pvt. Ltd. F-l 4,00,00,000 2,422 16,515 1,121 27,13,929 6.78 This unit was just above the G-1....
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....e taken. Accordingly, for all other 12 units the rate for estimating the sales is taken at Rs. 17,172/-. Thus, ld. AO is directed to work out the consequential relief and accordingly, the appeal of the Revenue is partly allowed. 10. Similarly, for A.Y.2012-13 and 2013-14 also the weighted average rate is Rs. 17,636 and Rs. 18,136/- respectively. Thus, ld. AO is directed to give consequential relief by applying this weighted average rate and our finding given will apply mutatis mutandis for these two years also. Accordingly, the appeal of the Revenue on this issue is partly allowed. 11. Coming to the issue of disallowance of Rs. 21,65,79,666/- in respect of construction expenditure, the Assessing Officer in his assessment order has observed that the expenses have been incurred by the assessee after the issue of occupation certificate (OC) i.e., after 16/02/2010 and hence, these expenses cannot be allowed. According to the AO, once the OC has been issued, the construction of the building is said to be completed and that after the said date, there cannot be any expenditure. For this purpose, the AO has relied upon the inquiries made with BMC seeking information with respect to the c....
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....icer (reproduced in the order of Ld. AO) which shows that OC is issued on compliance of conditions mentioned in IOD/Amended plan approval letter which refers to 'major works' which are required to be carried out to receive such OC. However, it is not necessary that the entire building should be ready and constructed and that no work would be pending on the receipt of occupancy certificate. The details of expenditure carried out were enclosed. It can be seen that these expenses are for maintaining the building. During the course of defect liability period, the assessee builder is responsible to replace any damages in the building construction work. Moreover, if some work is completed but it is not of proper quality or specifications, then the assessee builder is responsible to again make it. The expenses are also in the nature of butler services, housekeeping and cleaning services which are in the nature of maintenance expenses. It can be seen that the nature of work which was incurred by the assessee during the year are not of such type which can affect the occupancy of the building by the occupants. c. As regards claim of expenditure of the earlier year, i.e. A.Y. 2010-1....
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....it was submitted that the aforesaid expenses were required to be incurred by the assessee on the basis of the agreement entered by the assessee with the parties. These facts can be seen from recital no. 25 and 33 of the agreement entered with the parties. Further, as per recital 1(xvii) of the agreement and annexure to the agreement, the assessee was required to construct common amenities. The impugned expenses disallowed by the Ld. AO include expenses incurred for developing such common amenities which was required by the assessee to be provided to the customers. 14. Further, it was submitted that out of expenses disallowed by Ld. AO, part of the expenses were in the nature of maintenance of building which were incurred by the assessee on behalf of the their customers. It is submitted that the society was formed in 2017. Till such time, the assessee was incurring common maintenance cost for running and maintaining the building and thereafter recovering such costs from the tenants in the proportion of area. These facts are reflected at Recital no. 16 of the agreement entered by the assessee with the purchasers. Further, even in subsequent years, the assessee had incurred cost on b....
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....f the nature of expenditure incurred that it has no connection with the Occupation Certificate issued by the ld. Commissioner. The OC issued after the work has been done as per the sanction plan and assessee has also produced letter by Dy. Chief Engineer to the ld. AO to show that OC has been issued on compliance of conditions mentioned in IOD/Amended plan approval letter which refers to 'major works' which are required to be carried out to receive such OC. However, it is not necessary that the entire building should be ready and constructed and that no work would be pending on the receipt of occupancy certificate. The expenses are mostly for maintaining building and during the course of defect liability period assessee was responsible to replace any damages in the building construction work. Moreover, if some work is completed but it is not of proper quality or specifications, then the assessee builder is responsible to again make it. Further it is seen that most of the expenses are also in the nature of butler services, housekeeping and cleaning services which are in the nature of maintenance expenses. It is seen that the nature of work which was incurred by the assessee ....
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.... borrowing cost, i.e. 17.15% for working out the proportionate interest disallowance. However, the ld. CIT (A) has not examined the fact that whether the funds diverted to the sister concern were out of secured loans or unsecured loans and if the loans diverted to sister concern were out of secured loans, on which the assessee paid interest @23%, then the ld. CIT (A) cannot come to the conclusion that the average interest rate has to be considered for working out the disallowance u/s. 36(1)(ii) of the Act. 21. Ld. CIT (A) had deleted the addition after observing as under:- "7.7 I have perused the assessment order of the A.O. and the submissions of the appellant in this regard. The Assessing Officer in his assessment order had noted that the appellant had taken secured loans from various parties at the Interest rate ranging from 14.50% to 23% pa and unsecured loans taken at the interest rate ranging from 12% to 15% pa. As against the same, the appellant had given ICDs to its sister concern, i.e. Tulip Shares & Structures Pvt. Ltd. at interest rate of 9% pa. The Assessing Officer observed that the interest-bearing funds were diverted by the appellant to its sister concern at a low....
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....e analysis of these figures, it is worked out that the assessee has paid excess interest which is worked out as 45,82,964/- on the amount advanced of Rs. 7,40,39,682 out of the borrowed fund taken @14.13% and advanced to M/s Tulip Shares & Structures Pvt. Ltd. a sister concern. This view is supported by the decision of the Income Tax Appellate Tribunal - Mumbai "F" BENCH, MUMBAI in the case of Vinca Developers P. Ltd, Mumbai vs Assessee on 2 March, 2016 wherein the Hon'ble tribunal has upheld the disallowance of interest by holding that disallowance of interest, if any, is to be restricted to the amount of advance actually given by the assessee to sister concern. Having regards to the facts and circumstances of the case it is held that the assessee has given advances to its sister Concern out of unsecured loans on which interest has been debited to the Profit & loss account therefore, the addition made by the AO on this issue is directed to be restricted to Rs. 37,98,236/- and the balance addition is deleted. Accordingly this ground of appeal is partly allowed. 22. From the perusal of the impugned order, we find that differential interest rate on loans to the extent of advanc....