Business Park Promoters Pvt. Ltd.,, New ... vs Assessee

ACIT, Central Circle 23, vs. M/s. Business Park Promoters (P) Ltd., New Delhi. M - 11, Middle Circle, Connaught Circus, New Delhi - 110 001. (PAN : AAACB5014A)

ITA No.1732/Del/2013 (ASSESSMENT YEAR : 2006-07)

M/s. Business Park Promoters (P) Ltd., vs. ACIT, Central Circle 23, M - 11, Middle Circle, New Delhi. Connaught Circus, New Delhi - 110 001. (PAN : AAACB5014A)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri V.S. Rastogi, AR REVENUE BY : Smt. Anuradha Mishra, CIT DR

Date of Hearing : 13.04.2015 Date of Pronouncement : 20.04.2015

ORDER

PER SHRI GEORGE GEORGE K, JM:

2 ITA No.1404 & 1732/Del/2013

These are cross appeals directed against the order of the CIT (A) XXXIII,

New Delhi dated 24.12.2012. The relevant assessment year is 2006-07.

2. We shall first adjudicate the revenue's appeal.

ITA No.1404/Del/2013 (Revenue's Appeal)

3. In Revenue's appeal, the following effective grounds are raised :-

"1. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition of Rs.40,22,546/- made by the Assessing Officer on account of interest on PDCs paid out of books of account.

2. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition of Rs.60,76,555/- made by the Assessing Officer in view of the provisions of Section 37(1) of the Income tax Act, 1961 on account of additional payment in violation of Stamp Duty Act, 1899."

GROUND NO.1

4. Briefly stated the facts of the case are as follows. During assessment

proceedings, Assessing Officer noticed that the assessee company is one of the

group company of BPTP group. The assessee had purchased several tract of

land in the NCR (National Capital Region). The assessee company has made

only part payment of sale consideration to the seller at the time of executing sale

deed and balance payment is made by way of post dated cheques (PDCs).

During the assessment, the A.O. obtained details of such PDCs given at the time

of registration to the seller and date of encashment. The A.O. applied rate of

15% interest per annum paid for the period from sale deed to date of

encashment, on the amount of PDCs on the basis of seized material. The A.O. 3 ITA No.1404 & 1732/Del/2013

gave the findings in the assessment order that total such interest payable comes

to Rs.40,22,546/- on PDCs and such interest is paid in cash outside of books of

account. Therefore, such interest is added as unaccounted/unexplained

expenses.

5. Aggrieved the assessee preferred an appeal before the First Appellate

Authority. The CIT(A) after examining the seized papers/documents directed to

recomputed the interest on PDCs. The CIT(A) was of the view that interest on

PDCs is to be calculated after six months from the date of the issue of the

PDCs. The Revenue being aggrieved is in appeal before us.

6. At the very outset, the Ld. Counsel for the assessee submitted that the

issue in question is covered by the order of the Tribunal in the group case of the

assessee namely M/s IAG Promoters and Developers Pvt. Ltd. in ITA

no.1674/Del/2013 & 1752/Del/2013 vide order dated 31.10.2014 for the A.Y.

2008-09. The Ld. D.R. relied on the assessment order.

7. We have heard the rival submissions and perused the material on record.

The ground raised by the Revenue is misconceived because the CIT(A) has not

deleted the addition of Rs.40,22,546/-. The CIT(A) has only directed the A.O.

to recomputed the interest on post dated cheques after six months from the date

of issue of PDCs. In the group case an identical/similar order of the CIT(A)

was confirmed by the Co-Ordinate Bench of the Tribunal in the case of M/s

IAG Promoters and Developers Pvt.Ltd. (supra). The relevant finding of the

Hon'ble Co-Ordinate Bench of the Tribunal reads as follows. 4

ITA No.1404 & 1732/Del/2013

"5. We have heard the arguments of both the sides and perused relevant material placed before us. At the outset, the ground raised by the Revenue is misconceived because Ld.CIT(A) has not deleted the addition of Rs.5,06,625/- but has only directed to recalculate the interest. We have carefully gone through the order of the Ld.CIT(A) and also the submissions of both the parties and we do not find any infirmity in the order of the Ld.CIT(A). After examining the loose papers seized at the time of search at the assessee's premises, it was noticed that interest is paid on the PDCs only during the period of extension of PDCs and, therefore, he directed the A.O. to recomputed the interest on PDCs at the time of extension of the PDCs. He has further observed that if it is not possible to work out the extension of PDCs in each case, then the A.O. is directed to recomputed interest on PDCs after six months from the date of issue of the PDCs. Therefore, the ground of appeal of the Revenue that the CIT(A) deleted the addition of Rs.5,06,625/- made by the A.O. on account of interest on PDCs is factually incorrect and contrary to the order of the CIT(A). The CIT(A) directed to recalculate the interest on PDCs and there was a sound logic for such direction. His direction is based on material found and seized at the time of search. In view of the above, we do not find any justification to interfere with the order of ld.CIT(A) in this regard and accordingly, we reject ground no.1 of the revenue's appeal."

8. In view of the Co-Ordinate Bench order of the Tribunal in the group

concern of the assessee in the case of M/s IAG Promoters and Developers Pvt.

Ltd. (supra), we hold that the CIT(A)'s order is correct and no interference is

called for. It is ordered accordingly.

GROUND NO.2

9. The AO had made a disallowance of Rs.60,76,555/- being additional

payment made for the purchase of land. The assessee company purchased the

land from farmer and land owner and transferred the same to one of flagship

company of BPTP Group, namely, M/s. Country Wide Promoters (P) Ltd. 5

ITA No.1404 & 1732/Del/2013

(CWPPL) under collaboration agreement for development and received

Rs.35,000/- per acre from CWPPL which was over and above the cost of land.

In para 3.1 of the assessment order, it is mentioned that BPTP Group had made

more than Rs.45.02 crores to the vendors of land which was over and above the

sale consideration and these payments had been made much after the execution

of sale deed. During the year under consideration, the assessee company made

the following additional payments :-

Name of the Payee Amount (Rs.) S/D in respect of which paid

Prem Chand 18,35,615 1666 dt. 06-05-2005

Dharam Veer 16,93,125 1667 dt. 06-05-2005

Karan Singh & Others 10,47,815 3655 dt. 09-06-2005

Ranveer 6,41,285 4424 dt. 27-06-2005

Narveer 8,58,715 4423 dt. 24-06-2005

The AO held that even if the additional payment is considered for acquisition of

land, the same is not allowable u/s 37 (1) of the Act as the said payment is in

violation of Stamp Duty Act.

10. The assessee challenged the addition made before the CIT (A). It was

submitted before the CIT (A) that no deduction has been claimed with regard to

the additional payment for the purchase of land and hence, no disallowance

could be made. The CIT (A) did not accept this contention of the assessee. He,

however, gave certain direction to quantify the disallowance made. While 6 ITA No.1404 & 1732/Del/2013

giving effect to the directions of the CIT (A), the entire amount of

Rs.60,76,555/- was allowed. Revenue being aggrieved is in appeal before us.

11. At the very outset, ld. counsel for the assessee submitted that assessee has

not claimed the expenses as a deduction and AO is not justified in disallowing

the same. It was further submitted by the ld. counsel that similar disallowance

was made in the case of Group concern, namely M/s. Westland Developers Pvt.

Ltd. for assessment year 2006-07 which was partly confirmed by the CIT (A).

The Tribunal, on further appeal, vide order dated 22.08.2014 in ITA

No.1712/Del/2013 (copy enclosed at pages 34 to 68 of the paper book filed by

the assessee) deleted the addition confirmed by the CIT (A). It was submitted

by the ld. counsel for the assessee that since the facts in the present case are

identical to the facts of M/s. Westland Developers Pvt. Ltd. (supra), the order of

co-ordinate Bench of the Tribunal in case of M/s. Westland Developers Pvt.

Ltd. may be followed. The ld. DR was unable to controvert the submissions

made by the ld. AR.

12. We have heard rival submissions and perused the material on record. In

the case of Group concern, namely, M/s. Westland Developers Pvt. Ltd., the

Tribunal vide its order dated 22.08.2014 in ITA No.1752/Del/2013, on identical

facts and circumstances, has held as follows :-

"13. We have heard the rival submissions and perused the material available on record. The case law relied upon by the parties has been taken into consideration. On a consideration of the same we are of the view that since in the facts of the present case the material issue is that the said expenditure was never 7 ITA No.1404 & 1732/Del/2013

claimed as assessee's business expenditure the occasion to make a disallowance of the same does not arise. On this fact there is no dispute as admittedly the expenditure was not claimed as an expense by the assessee and consequently has not been routed through its P&L A/c. In the circumstances, the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise. The reasoning and finding given while considering the arguments qua Ground No-4 would fully apply here also. The difference that here the entire amount is added u/s 37 as opposed to part of the expenditure disallowed U/S 40A(3) is not so material as the finding is arrived at taking cognizance of the material fact that herein also no such claim of expenditure has been made. The fact that the additional payments were warranted in order to avoid potential disputes amongst the claimants of the land holding which have been passed through to the land holders from generation to generation wherein there may be informal arrangements of ownership and or the payments were for commercial expediency to facilitate peaceful possession and registration of the land holding; where by the time Registry was made the landholders felt a higher payment was necessitated due to increase in value are issues which are not required to ITA NOS.1532 & 1756/Del/2013 7 be addressed in the present proceedings. Ground No-3 on the facts available on record considering the judicial precedent referred to in detail while deciding Ground No-4 has to be decided in favour of the assessee."

13. Further similar disallowance has been deleted by the Tribunal in other

group cases, namely, (i) M/s. Glitz Builders and Promoters Pvt. Ltd. - ITA

Nos.1747/Del/2013 & 1406/Del./2013 dated 02.01.2015 for AY 2006-07 and

(ii) M/s. ISG Estate Pvt. Ltd. - ITA Nos.1532/Del./2013 & 1756/Del/2013

dated 23.01.2015 for AY 2006-07.

14. Since the facts in the present case are identical to the facts considered by

the Tribunal in the case of M/s. Westland Developer Pvt. Ltd. (supra), we hold 8 ITA No.1404 & 1732/Del/2013

that CIT (A) is justified in deleting the addition of Rs.60,76,555/-. It is ordered

accordingly.

ITA No.1732/Del/2013 (Assessee's Appeal)

15. In assessee's appeal, six grounds are raised. However, in course of

hearing, the ld. AR did not press grounds no.1, 2, 2.1, 5 and 6, hence, these

grounds are dismissed as not pressed. The surviving grounds, namely, grounds

no.3, 3.1, 3.2, 4 and 4.1 read as follows :-

"3. That on the facts and circumstances of the case and in law the CIT(A) erred in not accepting the appellant's contention that Additional Payments having not been claimed as deduction by appellant, no disallowance could have been made in the hands of the appellant.

3.1 That without prejudice the CIT(A) erred in upholding the disallowance of Additional Payments made to the recipients who were not the owners of land and to the payment made in cash.

3.2 That without prejudice the CIT(A) erred in not himself quantifying the addition to be made.

4. That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the disallowance u/s 40A(3) in respect of which no deduction was claimed by the appellant.

4.1 That even on merits the disallowance was not justified."

We shall take up for adjudication the issues groundwise as under.

GROUND NOS.3, 3.1 & 3.2

16. The AO had made a disallowance of Rs.60,76,555/- u/s 37(1) of the Act

on account of additional payment for purchase of land. The assessee has 9 ITA No.1404 & 1732/Del/2013

challenged before the CIT (A) that the deduction of purchase of land having not

being claimed by the assessee, no disallowance could be made. The CIT (A)

did not accept this contention, however, he gave certain directions to quantify

the disallowance made and while giving effect to the order of the CIT (A), the

entire amount of Rs.60,76,555 added was deleted. The CIT (A) having rejected

the assessee's contention that no disallowance is called for since no deduction is

claimed, the assessee is in appeal. The ld. DR was duly heard.

17. We have heard rival submissions and perused the material on record. The

CIT (A) has allowed the entire claim of the assessee and hence, there is no

grievance arising for the assessee. Moreover, for our reasoning in para 12 to 14

of this order, these grounds of the assessee's appeal need not be adjudicated. It

is ordered accordingly.

GROUND NOS.4 & 4.1

18. Brief facts in relation to the above ground are as follows. The assessee

company has made cash payment for acquiring certain land. The total cash

payment was Rs.41,27,344/-. The A.O. invoking the provisions of Section

40A(3) of the Act disallowed 20% of Rs.41,27,344/- amounting to

Rs.8,25,469/-.

19. The assessee being aggrieved filed the appeal before the CIT(A). The

CIT(A) confirmed the order of the A.O. The relevant finding of the CIT(A)

reads as follows :-

10

ITA No.1404 & 1732/Del/2013

"7.6 Findings :-

I have considered the assessment order, argument of Ld.A.R. To decide the issue of disallowability u/s 40A(3) pointed out by learned AR, it is proper to examine the terms of collaboration agreement and facts of the case. The appellant purchases the land from various farmers/land owners in its own name by entering into sale deed. Registration is done in the name of assessee. The payment is made by appellant. As per the collaboration agreement, the assessee company would acquire the land and transfer 100% of its development right to M/s CWPPL. The appellant company is shown as owner of the land. In lieu of transferring the development right, the appellant company gets cost of land plus Rs.35,000 per acre for CWPPL. This being the case, what is transferred is the development right, the ownership remains with assessee. Therefore, it is difficult to accept the Ld.AR's contention that the cost of land is reimbursed by CWPPL. If the land would have been sold to CWPPL, view might have been that the appellant is only working as an agent of CWPPL and expenditure pertains to CWPPL and the appellant is only receiving the cost of land as reimbursement of expenditure. I agree with the finding of AO that ownership continues with the appellant and only developmental right is transferred to CWPPL. In that scenario, the appellant company can be safely termed as engaged in the business of development of real estate. What he receives i.e. cost of land and Rs.35,000 per acre in receipt in its hand for the transfer of development right and the payment for purchase of land is its expenditure. On these facts in my opinion the payment made to land owner is expense in appellants hand and entire receipts including cost of land plus Rs.35,000 per acre is revenue receipt in its hand. As cost of land is an expenditure in appellant's hand, section 40A(3) is applicable, as the expenditure has been incurred. This expenditure is not claimed explicitly in its P&L a/c as the receipt and payment to the same extent gets squared up to the extent of cost of land. This accounting treatment cannot over ride the true nature of transaction. It is settle law that the provision of I.T.Act would prevail over the system of accounting. Reliance is placed on Hon'ble S.C. decision in the case of Tuticorin Alkalies Chemicals and Fertilisers Ltd. Vs. CIT (1997) 227 ITR 172."

20. The assessee being aggrieved is in appeal before us. 11

ITA No.1404 & 1732/Del/2013

21. The Ld. Authorised Representative for the assessee submitted that the

issue in question is covered in favour of the assessee by the orders of the

Tribunal in the case of Glitz Builders and Promoters Pvt.Ltd. 1747/Del/2013 dt.

2.1.2015 for the A.Y. 2006-07 and in the case of Westland Developers Pvt.Ltd.

in ITA 1752/Del/2013 vide order dt. 22.8.2014 for the A.Y. 2006-07. The

Ld.D.R. was unable to controvert the submissions made by the Ld.Authorised

Representative.

22. We have heard the rival submissions and perused the material on record.

The Tribunal in the group cases of the assessee on identical facts have held that

the payment made for acquisition of land was not claimed as a deduction and

hence the provisions of S.40A(3) of the Act is not applicable. The relevant

finding of the Hon'ble Tribunal in the case of Glitz Builders and Promoters Pvt.

Ltd. (supra) reads as follows :-

"The above facts stated by the learned counsel during assessment proceedings have not been found to be incorrect or non genuine. As per the collaboration agreement, the assessee was to purchase the land for and on behalf of CWPPL and whatever was the purchase price including the additional payment was debited to CWPPL and the assessee only received fixed remuneration i.e. Rs.35,000/- per acre. Thus, we agree with the contention of the learned counsel that the assessee has not claimed any deduction in respect of cost of the purchase of the land, whether original or additional payment. When the cost of the land as well as additional payment is not claimed by the assessee as deduction, the question of any disallowance u/s 40A(3) or otherwise in the case of the assessee does not arise. We, therefore, delete the entire disallowance made by the A.O. u/s 40A(3) as well as additional payment."

12 ITA No.1404 & 1732/Del/2013

23. A similar view has been taken by the Hon'ble Tribunal in the case of

Westland Developers Pvt.Ltd. (supra). In view of the Coordinate Bench orders

of the Tribunal, we hold that income tax authorities are not justified in invoking

the provisions of Section 40A(3) of the Act and disallow a sum of

Rs.8,25,469/-. Hence ground nos. 4 and 4.1 raised by the assessee are allowed.

24. In the result, the appeal of the assessee is partly allowed.

Order pronounced in open court on this 20th day of April, 2015.

Sd/- sd/- (T.S. KAPOOR) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 20th day of April, 2015 TS

Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-XXXIII, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.