IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "A", MUMBAI
BEFORE SHRI B.R. MITTAL, J.M. AND SHRI RAJENDRA SINGH, A.M.
ITA No.5252/Mum/2010
Assessment Year : 2007-08
Asstt. Commissioner of M/s. Leela Creators
Income tax -25(2) 13A, Dattani Towers
Bldg. No.C-11, 1st Floor S.V. Road, Borivali (W)
Room No.108, Pratyakshakar Mumbai-400 092.
Bhavan, Bandra-Kurla Vs.
Complex, Bandra (E) PAN No. AAAFV 0190 Q
Mumbai-400 051.
(Appellant) (Respondent)
Cross Objection No.109/M/2011
(arising out of ITA No.5252/M/2010)
Assessment Year : 2007-08
M/s. Leela Creators Asstt. Commissioner of Income
Mumbai-400 092. tax -25(2)
Vs. Mumbai-400 051.
(Cross Objector) (Appellant in appeal)
ITA No.5253/Mum/2010
Assessment Year : 2007-08
Asstt. Commissioner of M/s. Leela Estate Developers
Income tax -25(2) 13A, Dattani Towers
Bldg. No.C-11, 1st Floor S.V. Road, Borivali (W)
Room No.108, Pratyakshakar Mumbai-400 092.
Bhavan, Bandra-Kurla Vs.
Complex, Bandra (E) PAN No. AAAFV 1396 G
Mumbai-400 051.
(Appellant) (Respondent)
2 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
Cross Objection No.110/Mum/2011
Arising out of ITA No.5263/Mum/2010
Assessment Year : 2007-08
M/s. Leela Estate Developers Asstt. Commissioner of Income
Mumbai-400 092. tax -25(2)
Mumbai-400 051.
Vs.
(Cross Objector) (Appellant in appeal)
Department by : Shri D.S. Sunder Singh
Assessee by : Shri Vijay Mehta
Date of hearing : 23.5.2012
Date of Pronouncement : 01.6.2012
ORDER
PER RAJENDRA SINGH, AM:
These appeals and cross objections are directed against different
orders both dated 13.4.2010 of CIT(A) for the assessment year 2007-
08 in case of the two assessees under reference. As the disputes
raised in the appeals and cross objections are identical, these are
being disposed of by a single consolidated order for the sake of
convenience.
2. We first take up the appeals of the revenue in ITA
No.5252/M/2010 and ITA No.5253/M.2010 for assessment year
2007-08.
3 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
2.1 In both the appeals, the only dispute raised by the revenue is
regarding disallowance of claim of deduction on account of provision
for TDR while computing income from the projects. The facts in brief
are that both the assessees who were engaged in business as builder
and developer, were executing building projects. The Brihanmumbai
Nagarpalika in both the cases had issued commencement certificates
as per which the assessee had got approval for "A" and "B" Wing with
stilt and 4 upper floors. However, the assessee in the case of M/s.
Leela Creators had completed construction of stilt plus 8 floors
whereas Leela Estate Developers, had completed construction of Leela
Sterling A & B Wing with stilt plus 7 upper floors. The building had
been completed as on 31.3.2007 and the assessees had also sold all
the flats during the year. The assessee's were following mercantile
system of accounting and were declaring profit on the basis of project
completion method. Since during the relevant year, assessees had
offered income from the entire project, while computing income,
deduction had been claimed for a sum of Rs.1,78,70,000/- in case of
Leela Creators and a sum of Rs.2,47,60,000/- in case of Leela Estate
Developers on account of provision for cost of TDR. The assessee
submitted that since income from entire project had been declared and
TDRs had been used in the construction, the provision for TDR has to
be allowed as per matching principle. The AO however, did not accept
4 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
the contentions raised. It was observed by him that the assessee had
claimed expenses based on estimate as per architect's certificate and
expenses were not ascertained liabilities and were of the nature of
contingent liability. The AO further observed that the assessee had not
even obtained the approval for TDR from the municipal authorities
even after lapse of two years from the sale of most of the flats.
Therefore, liability on account of TDR was not certain and thus, had
not accrued during the year. The AO accordingly disallowed claims on
deduction.
3. Both the assessees disputed the decision of AO and submitted
before CIT(A) that liability on account of TDR was an ascertained
liability as TDRs had been used in construction, the income from which
had been fully accounted during the year. It was also submitted that
municipal authorities had not granted approval of TDR only because of
the fact that TDR had not been procured and submitted to them.
Though TDR was based on estimate of the architect, the liability had
incurred and had to be allowed. It was also submitted that in case the
provisions were found to be less, the balance amount could be allowed
in subsequent year and in case provision was more, the excess
amount could be offered as income under section 41(1) of the Income
tax Act . The CIT(A), after considering the submissions of the
assessee, observed that the assessee had to procure TDR and submit
5 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
the same to BMC to obtain approval. Thus the assessees were under
contractual obligation to purchase TDR which was required to be
fulfilled in the near future. Liability on account of TDR was an
ascertained liability though quantification may have to be done later.
CIT(A) accordingly allowed the claims of the assessees aggrieved by
which, revenue is in appeal before the Tribunal in both the appeals.
4. We have heard both the parties, perused the records and
considered the matter carefully. We find that the same issue had
arisen in case of Leela Estate (ITA No.141/M/2010 dated 11.5.2011)
an assessee from the same group, in which case also approval had
been granted for construction of stilt level plus 1st floor but the
assessee had made construction up to 7th floor after using TDRs
without getting approval from BMC. In that case also, assessee was
following mercantile system of accounting and project completion
method. The assessee like in these cases had also claimed provision
for TDR Rs.3,44,59,100/- which had been disallowed by the AO but in
appeal the same had been allowed by CIT(A) aggrieved by which
revenue was in appeal before the Tribunal . The Tribunal after detailed
examination observed that the matching concept had to be applied as
per which if there is revenue, the cost incurred for such revenue if not
paid during the year has to be allowed. However, the Tribunal also
observed that it was required to be examined whether there was any
6 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
liability on account of TDR attached to the income offered by the
assessee by way of sale of flats. The Tribunal held that the issue had
to be examined after careful consideration of the BMC Rules. In case
as per BMC Rules, purchasing of TDRs was permissible post
construction and requisite conditions as laid down in such rules were
satisfied, the deduction had to be allowed for the likely amount that
may be required for the purchase of such TDR. In that case, quantum
of provision for TDR has to be ascertained properly on the basis of
some relevant evidence and certificate of architect could not be
considered as sole basis of quantification of TDR. The Tribunal also
observed that in case on, examination of BMC Rules, the AO found that
there was no provision for purchase of TDRs post construction, in that
case, it would mean that the assessee was not entitled to such TDR as
per law and hence deduction can not be granted. The Tribunal,
therefore, set aside the order of CIT(A) and restored the matter to the
file of AO for taking fresh decision after necessary examination. The
facts in case of present assessees are identical and therefore,
respectfully following the decision of the Tribunal (supra) we set aside
the orders of CIT(A) and restore the matter to the file of AO for
passing fresh orders after necessary examination and after allowing
opportunity of hearing to the assessee.
Cross Objection No.109/M/2011 and 110/M/2011
7 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
5.1 In the cross objections, the only effective ground raised by the
two assessees is that income on account of sale of flats to the extent
of TDR acquired did not accrue to the assessee. The ld. AR for the
assessee argued that the project could not be said to be completed
until the obligation of loading of TDRs and regularisation did not take
place. It was also submitted that the project should be considered as
incomplete until TDRs were actually purchased and in such a situation
income to that extent should not be recognized.
6. We have perused the records and considered the matter
carefully. We find that the issue raised in Cross Objections is also
covered by the decision of the Tribunal in case of Leela Estate (Supra)
in which the Tribunal did not find any force in the contentions raised
by the assessee. The Tribunal observed that the assessee was
following project completion method and project had been completed
and the entire sales had taken place during the year. Therefore, once
all flats were sold and possession of flats given to buyers and sale
consideration received, there was no question of treating the project
as incomplete to the extent of provision for TDR. The Tribunal further
observed that there was no material to show that there was any
liability on part of the assessee to refund any part of sale consideration
in the event of non-purchase of TDRs. The Tribunal therefore did not
8 ITA No.5252 & 5253/M/10 & COs 109 & 110/M/11
A.Y.07-08
find any merit in the Cross Objections raised by the assessee and
accordingly same were dismissed. Facts in these cases are identical.
We therefore, dismiss the Cross Objections raised by the assessee
following the decision of the Tribunal (supra).
7. In the result both the appeals of the revenue are allowed for
statistical purposes whereas the cross objections raised by the
assessee are dismissed.
Order pronounced in the open court on 1.6.2012.
Sd/- Sd/-
(B.R. MITTAL ) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 1.6.2012.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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