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Asstt. Commissioner of Income tax -25(2) Bldg. No.C-11, 1st Floor Room No.108, Pratyakshakar Bhavan, Bandra-Kurla Complex, Bandra (E) Mumbai-400 051. Vs. M/s. Leela Creators 13A, Dattani Towers S.V. Road, Borivali (W) Mumbai-400 092.
June, 04th 2012
           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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