TaxTMI 
TaxTMI 
2025 (12) TMI 1700
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned Commissioner of Income-tax (Appeals) 45, Bengaluru has erred in confirming the impugned order passed by the Assessing officer. The orders passed being bad in law and are liable to be quashed. Without prejudice: 2. The condition precedent for issue of notice u/s 148 of the Act being absent, mandatory procedures under law not having been followed and the requisite approvals from the specified authority not having been taken, reopening of assessment in the appellant's case is bad in law. Consequently, the reassessment order as passed being also bad in law is required to be quashed. Without further prejudice: 3.1. The learned C1T(A) has erred in confirming the denial of deduction of Rs. 5.54 crores with respect to cost of TDR without appreciating that the tax treatment of cost of TDR having attained finality in the assessment order for AY 20-21, the learned assessing officer, for the assessment of income for AY 18-19 ought to have followed the same tax treatment. The action of the learned assessing officer in the reassessment order being inconsistent with the concluded position on the same matter is bad law hence the denial of deduction as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issued to the assessee on 31st of March 2022 disposing off the objections. Notice u/s. 148 was issued on 31st of March 2022 which was responded to by filing the return in response to that on 11 May 2022. 4. The issue in the appeal is that assessee has purchased the land to the extent of Rs. 1,96,020 sq.ft. and building to the extent of 21,350 sq.ft. in the financial year 2005 - 06. This asset was rented out by the assessee and income from house property was declared in the return of income. The capital asset was converted into stock in trade in the financial year 2011 - 12 upon conversion of land it was held as a capital asset converted into stock in trade and the capital gain of Rs. 191,622,660/- was computed u/s. 45 (2) of the Act which was liable to be subjected to tax in the year of sale or otherwise transfer of the stock in trade. Assessee entered into a joint development agreement with a builder in financial year 2013 - 14 as per agreement dated 2 August 2013 registered as document with Sub- Registrar Bangalore. As per the joint development agreement the assessee was entitled to receive super built up area of constructed area of 1,49,640 sq.ft. for giving up 1,40,670 sq.f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transfer of super built up area to the assessee in financial year 2017 - 18. As per the joint development agreement the assessee was required to pay the amount within 90 days to the developer. The fact of purchase of transferable development right is intimated to the assessee in the supplementary joint development agreement dated 2 May 2018 hence the assessee was required to pay the amount within the financial year 2018 - 19. Further this expenditure should be appropriated as cost in respect of all the sales of specified super built up area made by the assessee. During the current year the assessee has not sold any super built up area, hence the cost incurred towards the super built up area will have to be added to the closing work in progress. Thus, as per ld. AO as no super built up area was sold in the current year, no deduction will be allowed under the head income from business payment of transferable development right. Hence the same should have been included in the closing stock of super built up area in financial year 2018 - 19. Thus, the claim of the assessing officer is that that during the assessment year 2018 - 19 the assessee was handed over the possession of 76,865 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same is to be claimed in assessment year 2018 - 19. The learned CIT - A dismissed the appeal of the assessee holding as under: - "6.4 the grounds, submission of the appellant and material available on record have been carefully considered. There is no dispute on the fact that the cost of transferable development right has to be appropriated as cost in respect of all the flats sold. It is also a fact that there was no sale of flats during the year 2018 - 19. This being the case there is no scope for allowance of the entire TDR expenses in this year. The cost paid for the TDR is to be treated as part of the cost of land or development cost and this cost is to be capitalised into the overall development costs, which means it becomes the cost of the capital expenditure of the project, similar to the cost of land acquisition, construction and labour. The cost of TDR has to be located across the various units in the project. When TDR is acquired, it is to be recorded in the books as and as at the cost of TDR is capitalised over the life of the project, thereby contributing to the cost of each unit sold. The appellant also agrees to the above accounting treatment of transferable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inventory cost. Such expenses were accounted and claimed in assessment year 2020 - 21 based on invoices raised on the company by the builder. For assessment year 2020 - 21 deduction was claimed only in respect of that portion of TDR cost which pertained to inventory sold during that year. However, in the assessment order for assessment year 2020 - 21 it was concluded that the transferable development right cost pertain to the assessment year 2018 - 19 and therefore same was disallowed for that assessment year holding it to be a prior period expenditure. Thus, in the return filed u/s. 148 of the Act the cost of the transferable development right which was disallowed in the assessment year 2020 - 21 has been claimed as a deduction for assessment year 2018 - 19. Even during this year, the claim of the assessee was not accepted. Therefore, the learned assessing officer has taken a contradictory stand which was his stand for assessment year 2020 - 21 that the cost belongs to the assessment year 2018 - 19 and while framing the assessment order for assessment year 2018 - 19 when such cost was claimed by the assessee for assessment year 2018 - 19 it was disallowed holding that it is pertai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....portfolio for the sole purpose of the wealth appreciation which is held to be not an allowable business expenditure. 17. The assessee preferred an appeal before the learned CIT - A against the assessment order. The assessee has also filed form No. 68 seeking immunity from levy of penalty as per the provisions of section 270AJ of the Act on 22 December 2022. However, as the penalty proceedings have been initiated under the circumstances referred to under subsection (9) of section 270 A of the Act the order rejecting the said application is not required to be passed in pursuance to the provisions of section 270 AA (3) of the Act. Therefore, notice u/s. 270A (2) (A) was also issued to the assessee, the assessee explained that that its claim of deduction u/s. 37 (1) of the Act of keyman insurance premium is bona fide and no penalty could have been levied on the same. The learned assessing officer rejected the claim of the assessee and held that the disallowance of Rs. 4,646,000/- has resulted into the underreporting of income in consequence to misreporting thereof and therefore liable for penalty at the rate of 100% of Rs. 1,169,305/-, the learned AO levied the penalty at the rate o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the assessment order wherein it did not specify as to under which subclause of section 270 A the penalty is initiated, further the penalty order levying penalty also fails to identify the specific laws of section 270 (9) under which the appellant is guilty of misreporting. 21. The learned departmental representative vehemently supported the orders of the learned lower authorities and submitted that assessee has claimed an investment as an expenditure holding that the Keyman insurance expenses are the insurance charges but in fact they were held to be the wealth maximisation policy of the directors and with the intent of investment. Therefore, there is a clear case of misreporting of the income. 22. We have carefully considered the rival contention and perused the orders of the learned lower authorities. Briefly stated the fact shows that the assessee has claimed deduction of Rs. 50 lakhs towards the Keyman insurance premium paid which is allowed to the extent of the insurance content and to the extent of the investment sum of Rs. 4,646,000 was disallowed. The assessment order also speaks about the initiation of penalty u/s. 270 A of the Act. Accordingly, penalty at the rate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act confirmed by the ld. CIT(A). 26. The brief facts show that assessee filed its return of income on 31.10.2022 at a taxable income of Rs. 16,10,24,817. The assessee has paid interest expenditure of Rs. 107,67,048 on the funds borrowed of Rs. 10,80,21,694 for its business of real estate. The ld. AO found that most of the assets is other than the inventories such as non-current investment, long term loans & advances and advances to vendors. The amount of inventory was Rs. 5,37,57,135, accordingly he held that part of the interest is not allowable as deduction to the assessee. The AO was of the view that borrowed funds were utilized for the non-current investment of Rs. 34.74 crores and other advances. The income from these assets is chargeable to tax under the head capital gains. The assessee explained that it had incurred interest on borrowings of Rs. 1.21 crores out of which Rs. 13.98 lakhs has been capitalized and the balance sum of Rs. 1.07 crores is charged to P&L a/c as business expenditure. The ld. AO disbelieved the explanation of the assessee and disallowed the above interest expenditure holding it to be relatable to other non-current investments. Assessment order u....