$~29
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgement delivered on:03.02.2017
+ ITA No.710/2016 & CM No. 38487/2016
UNITECH HOSPITALITY SERVICES LIMITED ..... Appellant
Through: Mr. Gagan Kumar, Advocate.
Versus
ASSISTANT COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr.Ruchir Bhatia, Senior Standing
Counsel with Mr. Puneet Rai,
Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE NAJMI WAZIRI
NAJMI WAZIRI, J. (OPEN COURT):-
CM No. 38487/2016 (for exemption)
Allowed, subject to all just exceptions.
The application stands disposed off.
ITA No.710/2016
1. The appellant has impugned the order of the Income Tax Appellate
Tribunal (hereinafter referred to as the `ITAT') dated 07.03.2016, which
confirmed the order of the Assessment Officer (AO) and of the
Commissioner of Income Tax (Appeals) [CIT(A)] disallowing deduction of
`6,73,76,070/- towards license fee, external development charges and
conversion charges. The following question of law was framed for
consideration in this appeal on 10.01.2017:-
ITA 710/2016 Page 1 of 11
"Did the ITAT commit an error in confirming the
disallowance of Rs. 6,73,76,070/- claimed by the assessee
as one relating to license fee, external development
charges and conversion charges, in the circumstances of
the case?"
2. The facts of the case are that M/s. Unitech Business Parks Pvt. Ltd.
(hereinafter referred to as the "UBPL") purchased 3.39 acres of land on
31.08.2004 from M/s. Unitech Ltd., M/s. Pioneer Profin Ltd. and M/s. Sarda
Plywood Industries Ltd., the "original allottees". On 30.03.2006, UBPL
entered into an Agreement to Sell (ATS) with M/s. Unitech Developers &
Hotels Pvt. Ltd. (hereinafter referred to as the "UDHPL") for sale of the said
land and it was agreed that all the approvals for construction shall be
obtained by the purchaser. However, since the purchaser was unable to pay
the monies, it sought cancellation of the ATS.
3. By a Memorandum of Understanding (hereinafter referred to as the
"MoU") executed between UBPL and UDHPL and the Unitech Hospitality
Services Limited - the appellant on 01.04.2007, the ATS dated 30.03.2006
was treated as cancelled and the said land was agreed to be sold to the
appellant. It was also agreed that all expenses incurred on development
shall be borne by the appellant.
4. Meanwhile, on 05.10.2006 and 06.12.2006, although the original
allottees had all rights and interests in favour of UBPL by way of the Sale
Deed, nevertheless, paid an amount of `13,67,23,723/- to the Department of
Town and Country Planning, Government of Haryana (hereinafter referred
to as the "DTCP, Haryana") towards license fees, external development
charges and conversion charges of the aforesaid land.
ITA 710/2016 Page 2 of 11
5. The DTCP, Haryana gave necessary approval for the development of
the said land vide letter dated 18.04.2007. UBPL executed a Sale Deed in
favour of the appellant on 25.03.2008 for a consideration of `7.16 crores. A
week later i.e. on 31.03.2008, the appellant capitalized `22,23,51,205/- in
its books of accounts towards cost of land, stamp duty charges and license
fees, external development charges and conversion charges. Upon sale of
one of the two blocks constructed on the said land, on 06.03.2009 the
appellant apportioned a sum of `6,73,76,070/- towards a portion of license
fees, conversion charges and external development charges as proportionate
cost of the land beneath Block-A. However, the AO disallowed this
apportionment cost. Both, in the appeal before the CIT(A) and ITAT, the
said disallowance was upheld. The Tribunal examined the MoU dated
01.04.2007 executed between UBPL, UDHPL and the appellant and did not
find any such monies or consideration payable by the assessee to either the
Seller UBPL or to the original allottee. It reasoned inter alia:-
"6.............According to this agreement it is stated that
united business park ltd is the owner of the licensed land
which was purchased by it from Unitech Ltd on 31-
August-2004. On 30.3.2006 Unitech business park ltd
further entered into the agreement to sale this property to
Unitech Developers and Hotels Pvt. Ltd for Rs. 675 lacs
only. As unitech developers and hotels Pvt ltd could not
pay the price agreed to unitech business park ltd, Unitech
Developers and hotel Pvt ltd and the assessee jointly
approached the Unitech business parks ltd for
cancellation of agreement to sale dated 30th March 2006
and assessee agreed to purchase that property on
payment of mutually agreed consideration. On reading of
the said MOU we could not find any consideration to be
paid by the assessee to the owner of the land agreed
ITA 710/2016 Page 3 of 11
based on this MOU. Therefore for the exact consideration
and cost of land the only relevant documents required to
be seen is the sale deed executed between the assessee
and Unitech business parks ltd. This sale deed dated
25.03.2008 which is filed in the PB 89-91. According to
that sale deed the total consideration for 3.398 acre of
land was Rs.716 lacs and stamp duty paid of Rs.
4296,000/-. On reading of the sale deed we could not find
any reference of the amount of license fees etc to be paid
to the owner or to the other party. The terms and
conditions of the sale deed are as under:-
"1. That in lieu of payment of aggregate consideration of
Rs. 7,16,00,000/- (Rupees Seven Crore Sixteen Lac Only),
the VENDOR doth hereby sell, transfer, convey and
assign all its rights, title and interest in the land
admeasuring 3.398 acres situated in Block-B at
Greenwoods City, Gurgaon, Haryana, unto the VENDEE
together with all its rights, liberties, privileges, liens,
easements, advantages, passages, pathways, permission
grants whatsoever attached or annexed to the said land.
2. That the VENDEE has paid the aforesaid total
consideration of Rs.7,16,00,000/ -(Rupees Seven Crore
Sixteen Lac Only) vide cheque No.856317 dated
25.03.2008 drawn on Canara Bank, Nehru Place, New
Delhi to the VENDOR, the receipt whereof the VENDOR
hereby admits and acknowledges.
3. That hereafter the VENDOR Company is not left with
any right, lien or claim of any nature whatsoever in the
said land/ plot of land shall henceforth be owned and
developed by the VENDEE requirements, per its own
requirements.
4.That the VENDOR simultaneously with the execution of
this Deed of Sale has handed over the vacant physical
possession of the said land/plot to the VENDEE.
ITA 710/2016 Page 4 of 11
5. That all taxes, levies,- assessments, demands or
charges, which are levied in respect of the said plot of
Land upto the date of execution of this Deed of Sale are
paid by the VENDOR. However, the said assessment,
charges, rates etc., which may be levied in future shall be
borne and paid by the VENDEE.
6. That all expenses, incurred on registration of this Sale
Deed including Stamp Duty and other charges have been
borne and paid by the Vendee."
7. According to paragraph No.5 of that sale deed of tax
levies assessment demand or charges which are levied in
respect of the said plot of land paid up to the date of Sale
deed are to be paid by the vendor and after that by the
assessee. Contrary to the statement made by the assessee
according to the sale deed in Para No.1 of the sale deed
total interest in the land were transferred by Unitech
business Parks Ltd to the assessee for Rs. 7.16 only. We
failed to understand that if such cost is to be borne by the
assessee why it does not find a mention in the sale deed
or MOU executed by the parties. Further AO and CIT (A)
both have perused these documents and based on that
have disallowed these costs to the assessee. Therefore in
our opinion merely because the assessee has recorded the
cost of external development charges and license fees in
the books of account by crediting it to some other parties
account and showing it as work in progress i.e. opening
stock, it cannot be granted as deduction from the sales
price of the land when (1) the cost has been incurred by
the other party, (2) the sales deed proves otherwise, (3)
MOU relied up on by the assessee does not support the
argument of the assessee. LD AR has argued vehemently
that the assessee has already accounted this expenditure
as it is work in progress and it has been taken as closing
stock therefore it has to be granted as deduction in the
next year as it becomes opening stock in that year. For
this proposition he relied on the decision of the Supreme
Court in the case of VK. Builders and contractors Pvt.
ITA 710/2016 Page 5 of 11
Ltd. Vs. CIT reported in 318 ITR 204. At the first
instances the argument looks attractive but on
examination of the facts before the Supreme Court and
the facts of the case of the assessee, this argument
deserves to be dismissed. Fact before the Supreme Court
in case cited before us is quite different. The Hon'ble
Supreme Court has held that according to the principle of
accountancy that the figure of the closing stock of the
earlier years does form the opening stock of the next year
and it cannot be questioned in the subsequent year. Off
course, there cannot be any question on acceptance of
this accounting principle. However, Hon'ble Supreme
Court was not concerned the issue like in the case of the
assessee where the cost debited itself cannot be
considered as the cost of the land unsupported by
evidences in the form of conveyance deed and MOU
executed by the buyer and seller. Therefore reliance by
AR on the decision of Honorable Supreme Court is
misplaced as it does not apply to the facts of the case of
assessee. On probing amount of the work in progress the
AO has come to know that these expenses have not all
been incurred by the assessee and on perusal of the sale
deed AO has stated that sale consideration is inclusive of
all rights. Therefore in this case AO is disputing the
closing stock of the earlier years also. In view of the
above facts and circumstances of the case we are of the
view that learned Commissioner of Income-tax (Appeals)
has rightly confirmed that disallowance of Rs.
6,73,76,070/- towards the cost of land, we confirm the
order of learned Commissioner of Income-tax (Appeals)
and dismiss the ground No.1 of the appeal of the
assessee."
6. For the convenience of this Court, the learned counsel for the assessee
had relied upon the following sequence of events and structure of financial
transactions between the parties:-
ITA 710/2016 Page 6 of 11
7. The Court would note that by the Conveyance Deed dated
31.08.2004, the original allottees had, for a consideration of `6.75 Crores,
agreed to convey, sell, transfer and assign all their rights and interest in the
aforesaid plot of land to the Vendee i.e. UBPL alongwith all its rights,
liberties etc. in the said plot of land. It further recorded that the Vendors are
left with no right, lien or claim of any nature whatsoever in the said land.
Clauses (5) and (6) of the said Agreement record that all the external
development charges up to the date of the said Conveyance Deed had been
paid by the Vendee to the original allottees and nothing further remained to
be paid in that regard. The taxes, levies, assessments, demands or charges
ITA 710/2016 Page 7 of 11
etc. had been paid by the Vendors and all further charges etc. in that regard
would be payable by the Vendee, the purchaser. Therefore, as far as the
Vendor the original allottee was concerned it had divested itself of all
interests in the sold land. The Court is of the view that if the original
allottee chose to make any payments in subsequent years towards license fee
and development charges and conversion charges, it may be out of
benevolence or whatever other considerations, but the amount of
`13,67,23,723/- paid by it could not be fastened either upon the Vendee,
UBPL or upon the subsequent Vendee the appellant for reimbursement.
The agreement between UBPL and UDHPL dated 30.03.2006 does not
stipulate any such liability or reimbursement to the original allottee. In any
case, such monies before reimbursement or transfer to the original allottee
would be subject to tax in the hands of the assessee.
8. The ATS dated 30.03.2006 between the UBPL and UDHPL records
the transfer of the said plot of land admeasuring 3.39 acres for a
consideration of `6.75 crores of which an amount of `10,00,000/- was
acknowledged to have been received by the Vendor and the balance of
`6,65,00,000/- was to be paid by 30.04.2006. The ATS further recorded:-
"(6) All costs, charges and expenses payable on or in
respect of this agreement and on all other instruments
and deeds to be executed, if any, pursuant to this
agreement, including stamp duty and the registration
charges of the Sale Deed, shall be borne and paid solely
by the Vendee.
(7) That all rates, taxed, levies, etc. in respect of the
said Plot of Land upto the date of registration of
Conveyance Deed shall be paid by the Company and
thereafter such rates, taxes and charges shall be paid by
the Vendee."
ITA 710/2016 Page 8 of 11
9. The MoU dated 01.04.2007, recorded that UBPL had purchased the
land by Registered Conveyance Deed dated 31.08.2004; the land was meant
for development of a commercial complex. The ATS between UBPL and
UDHPL for a sale consideration of `6.75 crores was required to be
concluded by a Sale Deed by 30.04.2006. This time was extended to
31.03.2007, but even then the purchaser UDHPL was unable to perform its
part of contract. Hence, through the MoU the appellant was requested to
take over the liabilities and funds under the ATS and to remit UDHPL's
expenses incurred by it towards the commercial complex on the said land.
The assessee agreed to the above terms. The MoU recorded inter alia as
under:-
"1. That all the expenditure incurred and spent on the
construction and development of Commercial Complex
on the Said Land shall be transferred and accounted for
in the books of accounts of 'UHSL'.
2. That the transfer of expenses, as mentioned
hereinabove shall include expenses, such as, License fee,
Architect's fee, EDC, IDC, conversion charges,
construction cost including materials
consumed/unconsumed at site of the Project or any other
indirect expenditure incurred in connection with the
construction and development of the Said Commercial
Complex.
3. That as a consequence of the Understanding as agreed
herein, the ATS dated 30.03.2006 and the Supplementary
Agreement dated 25.04.2006 shall stand cancelled and
the Conveyance Deed of the Said Land shall be executed
by 'UBPL' in favour of 'UHSL' within a period of one
year from the date hereof.
4. That it is expressly agreed in between the Parties that
ITA 710/2016 Page 9 of 11
they shall remain bound by this Understanding and shall
take all consequential steps in accordance with the
provisions of this MOU.
5. That in the event of any controversy or ambiguity
pertaining to or arising out of this MOU, the same shall
be referred to the Chairman of the Holding Company i.e.
Unitech Limited and the decision of the Chairman of the
Holding Company shall be binding on all the Parties."
10. Aforesaid clauses (1) and (2) clearly state that the transfer of expenses
shall include all expenses such as, license fee, external development charges,
conversion charges. Instead the expenses made towards conversion and
development of the commercial complex were to be transferred to the books
of accounts of UHSL the appellant Significantly, it does not stipulate
reimbursement of any monies by the appellant to the original allottee.
Therefore, the appellant was under no obligation to make any payments to
the original allottee. Hence, its payment of `13.67 crores to the latter on
29.09.2007 is of its free volition and under no legal obligation under any of
the documents relied upon by the appellant. The said amount could not be
claimed as against the costs etc. for development of the said land. The Sale
Deed was executed between the UBPL and the appellant on 25.03.2008,
however, in the absence of any obligation under any agreement between the
appellant, the UBPL and UDHPL to pay monies of any sort to the original
allottee, the appellant could not claim the sum of Rs.6.75 crores towards
deduction from income. The AO had further disallowed and disputed the
addition of such costs on the ground that no such expenses had at all been
incurred by the assessee and the perusal of the Sale Deed showed that the
sale consideration was inclusive of all rights. Hence, the costs of transfer of
ITA 710/2016 Page 10 of 11
rights alongwith all developments/constructions thereon were included in
the sale consideration.
11. The ITAT also distinguished the reliance of the appellant on V.K.
Builders and Contractors Pvt. Ltd. Vs. CIT reported in [2009] 318 ITR 204
(SC) on the ground that the facts of the present case and the documents such
as Conveyance Deed etc. did not support the debiting of the aforesaid cost.
12. Similarly, in the same vein, the appellant has also relied upon the
decision of the Allahabad High Court in Ram Luxman Sugar Mills Vs.
Commissioner of Income-tax, [1967] 63 ITR 51 (Allahabad) and of the
Andhra Pradesh High Court in Commissioner of Income Tax Vs. Mopeds
India Limited [1988] 31 ITR 347 (AP) to contend that the assessee has a
right to value his stock at market price or cost price, whichever is lower, if
he desires to do so. The said precedent, however, is inapplicable to the facts
at the present case because the valuation of the closing stock whatever it
may be would by itself not create a liability to pay any amounts to the
original allottee, since no such liability was transferred to the appellant.
13. In view of the above, the Court is of the view that there is no error in
the impugned order. Accordingly, the question of law framed is answered in
the negative and against the appellant.
14. The appeal is dismissed in the above terms.
NAJMI WAZIRI, J.
S. RAVINDRA BHAT, J.
FEBRUARY 03, 2017/sb
ITA 710/2016 Page 11 of 11
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