ITO 2(1)(1), MUMBAI v. AMARAWATI LAND DEVELOPMENT P. LTD, MUMBAI

ITA 262/MUM/2010 | 2005-2006
Pronouncement Date: 25-02-2011 | Result: Dismissed

Appeal Details

RSA Number 26219914 RSA 2010
Assessee PAN WASOF7045S
Bench Mumbai
Appeal Number ITA 262/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 13 day(s)
Appellant ITO 2(1)(1), MUMBAI
Respondent AMARAWATI LAND DEVELOPMENT P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 25-02-2011
Assessment Year 2005-2006
Appeal Filed On 11-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 262/MUM/2010 ASSESSMENT YEAR-2005-06 THE ITO 2(1)(1) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. AMARWATI LAND DEVELOPME NT PVT. LTD. 10 HOMI MODY STREET 2 ND FLOOR MUMBAI-400 001 PAN-AAACA 5041N (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.S. SRIVASTAVA RESPONDENT BY: SHRI REEPAL G. TRALSHAWALA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 6.10.2009 PASSED BY THE LD. CIT(A)-4 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ONLY GROUND OF APPEAL IS AGAINST DISALLOWAN CE OF DEVELOPMENT CHARGES AMOUNTING TO RS.24 33 179/-. IN THE ASSESSM ENT ORDER THE A.O. HAS NOTED THAT THE ASSESSEE HAS INCURRED DEVELOPMEN T EXPENSES TO THE EXTENT OF RS.45 79 250/- AND RS.27 03 532/- IN THE A.YS 2004-05 & 2005-06 RESPECTIVELY. THE A.O. HAS FURTHER NOTED TH AT THE PROJECT OF CONSTRUCTION WAS HANDED OVER TO A COMPANY UNDER THE SAME MANAGEMENT WHICH FALLS WITHIN THE DEFINITION OF SEC . 40A(2)(B) WITHOUT INVITING COMPETITIVE BIDS. HE HAS ALSO HELD THAT TH E ASSESSEE HAS INCURRED EXPENSES IN CONNECTION WITH THE PROJECT OVER AND AB OVE CONTRACT MADE WITH THIRD PARTY. IN THIS CASE THE ASSESSEE HAS AGR EED TO REIMBURSE THE EXPENSES IN CONNECTION WITH THE PROJECT TO A SISTER CONCERN. HENCE THE A.O. HAS ALLOWED 10% OF THE DEVELOPMENT CHARGES AND DISALLOWED THE REMAINING AMOUNT OF RS.24 33 179/- U/S.37(1) AS AC CORDING TO HIM THE ITA NO.262/M/2010 2 EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. 3. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE TH E LD. CIT(A) AND SUBMITTED AS FOLLOWS: THE APPELLANT SUBMITS THAT IT HAD ENTERED INTO A D EVELOPMENT AGREEMENT DATED 20/02/2001 WITH SHREE LAXMI COTTON TRADERS LTD. A COMPANY UNDER THE SAME MANAGEMENT FOR THE DEVELOP MENT AND CONSTRUCTION OF SHOPPING CENTER ON THE LAND SITUATE D AT PLOT NO.17 (PART) NAZUL STREET NO.58 MAUJE-TARKHEDA VIDARBH A MAHAVIDHYALAY ROAD AMRAVATI-444 601. AS PER THE TE RMS AND CONDITIONS OF THE SAID DEVELOPMENT AGREEMENT THE D EVELOPER I.E. SHREE LAXMI COTTON TRADERS LTD. WERE TO CARRY OUT T HE ENTIRE CONSTRUCTION WORK FROM SCRATCH I.E. OBTAINING REQUI SITE AND NECESSARY PERMISSIONS FOR THE CONSTRUCTION BRINGING FUNDS FO R THE CONSTRUCTION ACTIVITY INCURRING THE COST OF CONSTRUCTION OBTAI NING COMPLETION CERTIFICATE PHASE-WISE ENTITLED TO SELL THE CONSTR UCTED SHOPS ETC. THUS ALL THE RESPONSIBILITIES OF THE DEVELOPMENT AN D CONSTRUCTION OF THE SHOPPING COMPLEX WERE GIVEN TO THE DEVELOPER IN CLUDING INCURRING OF THE COST OF CONSTRUCTION. (CLAUSE 2 OF THE AGREE MENT) THE APPELLANT SUBMITS THAT FOR THE AFORESAID PURPOS ES THE TERMS OF THE AGREEMENT WAS THAT THE DEVELOPER WOULD BE REIMBURSED THE ACTUAL CONSTRUCTION COST PLUS CONSIDERATION AT THE RATE OF RS.650/- PER SALEABLE SQ. FT (CLAUSE I OF THE AGREE MENT). THE APPELLANT SUBMITS THAT THE SALEABLE AREA IN AY 2004-05 WAS OF 7045 SQ. FT. AND AS PER THE TERMS OF THE AGR EEMENT THE DEVELOPER WAS PAID AT THE TERMS OF THE AGREEMENT T HE DEVELOPER WAS PAID AT THE RATE OF RS.650 PER SQ. FT. AMOUNTIN G TO RS.45 79 250/-. THE SAID AMOUNT WAS TOWARDS THE CON STRUCTION OF LOWER AND UPPER FLOORS. THE APPELLANT SUBMITS THAT THE DEPARTMENT HAS ACCEPTED THE SAID POSITION IN THE AY 2004-05 AN D THE CLAIM OF THE APPELLANT IS ALLOWED THOUGH NOT UNDER SCRUTINY ASSESSMENT. DURING THE YEAR UNDER CONSIDERATION THE APPELLANT P AID TO THE SAID DEVELOPER AMOUNT OF RS.27 03 532/- FOR TOTAL S ALEABLE AREA OF 4159.278 SQ. FT. I.E. IN RESPECT OF TERRACE SALE. THE APPELLANT SUBMITS THAT THE CONSIDERATION TO BE PAID TO THE DEVELOPER WAS FIXED OF ENTERING INTO THE AGREEMENT ON 20/02/2001. AT THAT POINT OF TIME THE MARKET OUTLOOK WAS GOOD AND CONSIDERING ITA NO.262/M/2010 3 THE FUTURE PROSPECTS AND GROWTH IN REAL ESTATE THE APPELLANT WAS OF THE VIEW THAT IT WOULD BE ABLE TO EARN GOOD AMOUNT OF PROFIT. THE APPELLANT SUBMITS THAT AFTER THE COMMENCEMENT O F THE PROJECT OF THE APPELLANT A CO-OPERATIVE SOCIETY FA CTORY EXACTLY OPPOSITE TO THE APPELLANTS PLOT OF LAND DECIDED TO DISMANTLE THE FACTORY AND DEVELOP ITS ABOUT 4 ACRE PLOT INTO COMM ERCIAL AREA. THE SAID SOCIETY GOT APPROVAL FOR CONSTRUCTION OF 300 S HOPS. IN ORDER TO RAISE MONEY FOR THE CONSTRUCTION AND BEING A COOPER ATIVE SOCIETY IT STARTED BOOKING AT LOW PRICES AND THUS THE APPELLAN T COMPANY WAS FORCED TO CHARGE THE PRICE AS PER THE PREVAILING RA TE FOR THE SALE OF SHOPS. THE APPELLANT SUBMITS THAT SINCE THE AGREEMENT WAS ENTERED WAY BACK IN FEBRUARY 2001 AND THE APPELLANT COULD N OT HAVE FOR ANY REASON ANTICIPATED THAT THE FACTORY WOULD BE DI SMANTLED AND LARGE NUMBER OF SHOPS (TOTALING TO ABOUT 300 SHOPS TO BE CONSTRUCTED BY THE SOCIETY AS AGAINST ONLY 38 SHOPS OF THE APPELLANT) WOULD BE CONSTRUCTED ON THE SAID PLOT OF LAND OPPOS ITE TO THAT OF THE APPELLANT. THUS THE REASON FOR LOWER SALE VALUE AN D THEREFORE LOWER PROFIT IS NOT THAT THE APPELLANT HAS PAID EXCESSIVE DEVELOPMENT CHARGES TO THE SISTER CONCERN BUT CIRCUMSTANCES BEY OND THE CONTROL OF THE APPELLANT. IN THIS REGARD THE APPELLANT SUBMIT S HEREWITH PAPER BOOK II CONSISTING OF ADDITIONAL EVIDENCES IN SUPPO RT OF THE CONTENTION OF THE APPELLANT THAT THE CO-OPERATIVE S OCIETY CHARGED RATE OF ONLY RS.1001/- PER SQ. FT. AND INSPITE OF SUCH L OWER RATES THE APPELLANT HAS SOLD THE SHOPS AT THE RATES IN THE RA NGE OF 1300 TO 1500 PER SQ.FT. AND HENCE THE APPELLANT COULD FETC H A BETTER PRICE THAN THAT OF THE CO-OPERATIVE SOCIETY MAINLY FOR TH E REASON THAT THE CONSTRUCTION WORK CARRIED OUT BY THE DEVELOPER WAS MUCH BETTER. THE APPELLANT SUBMITS THAT THE AO HAS FAILED TO APP RECIATE THE EFFORTS PUT IN BY THE SAID DEVELOPER AND CONSIDERIN G THE RESPONSIBILITIES AND RISKS UNDERTAKEN BY THE DEVELO PER AND ALSO THE FACT THAT THE RATE OF RS.650 PER SQ. FT. WAS FIXED AT THE TIME OF AGREEMENT ITSELF THE APPELLANT SUBMITS THAT THE DE VELOPMENT CHARGES PAID TO THE DEVELOPER IS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT AND ALLOWABLE UNDER SECTION 37(1) OF THE ACT AND HENCE THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER THAT THE EXPENSES ARE NOT FOR THE PURPOSES OF THE BUSINESS IS WITHOUT ANY BASIS AND / OR JUSTIFICATION. WITH RESPECT TO THE PROVISION OF SECTION 40A (2)(B) OF THE ACT MERELY BECAUSE THE DEVELOPMENT CHARGES ARE PAID TO THE SISTER CONCERN THAT BY ITSELF WOULD NOT LEAD TO THE CONCL USION THAT HE CHARGES ARE EXCESSIVE OR UNREASONABLE UNLESS THE AO BRINGS ON ITA NO.262/M/2010 4 RECORD ANY MATERIAL TO SHOW THAT THE DEVELOPMENT CH ARGES AGREED WAS EXCESSIVE. IN FACT THE AMOUNT TO BE PAID TO TH E DEVELOPER WAS FIXED IN THE YEAR 2001 ITSELF AND IT WAS A FIXED AM OUNT AND NOT SHARE IN PROFITS FOR THE SIMPLE REASON THAT THE APP ELLANT WAS OF THE VIEW THAT IT COULD EARN GOOD PROFITS AND THUS NOT T O AGREE FOR SHARING OF PROFITS. DUE TO CIRCUMSTANCES BEYOND THE CONTROL THE PROFIT EARNED WAS NOT AS SUBSTANTIAL AS WAS ANTICIPATED. THE APPELLANT SUBMITS THAT IN ANY DEVELOPMENT AGREE MENT ENTERED INTO THE DEVELOPER TAKES CONSIDERATION FIX ED AT THE TIME OF ENTERING INTO THE AGREEMENT OR CONSIDERATION IS PAR TLY IN MONEY AND PARTLY IN KIND BY WAY OF GETTING PORTION OF CONSTRU CTED AREA OR BY WAY OF SHARING PROFIT WITH THE LAND OWNER. IN ANY O F THE ABOVE SITUATION THE DEVELOPER WOULD GENERALLY TAKE INTO CONSIDERATION THE COST OF THE CONSTRUCTION PLUS THE PROFIT ELEMENT OV ER AND ABOVE THE CONSTRUCTION COST. THUS IN THE INSTANT CASE OF THE APPELLANT THE DEVELOPER COMPANY HAS CHARGED FIXED RATE OF THE APP ELLANT THE DEVELOPER COMPANY HAS CHARGED FIXED RATE OF DEVELOP MENT CHARGES OVER AND ABOVE THE ACTUAL REIMBURSEMENT OF COST OF CONSTRUCTION WHICH IS QUITE OBVIOUS SINCE NO PERSON WOULD BE DEV ELOPING AND UNDERTAKING CONSTRUCTION WORK FREE OF CHARGES. FUR THER THIS UNDERSTANDING WAS FOUND FAVORABLE TO THE APPELLANT AT THE TIME OF ENTERING IN TO THE AGREEMENT FOR THE REASONS THAT T HE PRICES OF REALTY WERE GETTING IMPROVED HOWEVER FOR THE REASONS THA T THE PRICES OF REALTY WERE GETTING IMPROVED HOWEVER FOR THE REAS ONS BEYOND THE CONTROL OF THE APPELLANT AS EXPLAINED ABOVE IT HAD TO SELL SHOPS AT THE PREVAILING RATES WHICH WERE LOWER DUE TO THE C OMPETITION FROM THE PARTY OPPOSITE TO THE SITE OF THE APPELLANT. IN ANY CASE ONCE THE AGREEMENT IS FOUND TO BE GENUINE AND THE SERVICE BE ING RENDERED I.E. DEVELOPMENT AND CONSTRUCTION WORK DONE BY THE SISTE R CONCERN THE REVENUE DOES NOT HAVE AUTHORITY TO COMMENT UPON THE QUANTUM PAID AND CANNOT SIT IN JUDGMENT OF ASSESSEE AND NO DISAL LOWANCE COULD BE MADE INVOKING PROVISIONS OF SECTION 40A(2). THIS VIEW IS SUPPORTED BY THE DECISIONS IN VOLTAMP TRANSFORMERS P. LTD. VS. CIT (1981) 129 ITR 105(GUJ) WHEREIN IT IS HELD THAT THE TRANSACTION CANNOT BE LOOKED INTO BY CONSIDERING ANY EXTRANEOUS CONSIDERATIONS AND THE SAME SHOULD BE LOOKED INTO ON THE BASIS OF THE FACTS OF THE CASE AND THEN CONSIDER WHETHER THE PAYMENT WAS EXCE SSIVE OR UNREASONABLE & GUJARAT GUARDIAN LTD. VS. JCIT [2008 ] 174 TAXMAN 151 (DEL) (MAG) WHEREIN IT IS HELD THAT ONCE IT IS HELD THAT SERVICES HAVE BEEN RENDERED BY THE AGENT THE QUANTUM OF COMM ISSION THAT HAS TO BE PAID IS PURELY THE DISCRETION OF THE ASSE SSEE AND THE REVENUE CANNOT SIT IN JUDGMENT OVER THE SAME. IT WA S FURTHER HELD THAT THERE WAS NO JUSTIFICATION FOR INVOKING PROVIS ION OF SECTION 40A(2) WITHOUT MAKING ANY ATTEMPTS AS TO HOW THESE PROVISION WAS ITA NO.262/M/2010 5 ATTRACTED AND AS TO ON WHAT BASIS THE DISALLOWANCE WAS BEING MADE. THE APPELLANT FURTHER SUBMITS THAT THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER THAT THE APPELLANT HAD INCURRED EX PENSES ON ITS OWN AND WAS NOT COMPLETELY RELYING UPON THE DEVELOP ER IS ALSO FACTUALLY INCORRECT. THE APPELLANT SUBMITS THAT IT WAS TOTALLY RELYING UPON THE DEVELOPER AND THE PAYMENTS CHART SHOWN IN THE ASSESSMENT ORDER HAS NOTHING TO DO WITH THE ACTUAL CONSTRUCTION ACTIVITY OR CARRYING OF ANY OTHER RELATED WORK BUT MERELY CERTAIN PAYMENTS MAY HAVE BEEN MADE FOR PURCHASE OF MATERIA L ETC. DIRECTLY BY THE APPELLANT COMPANY AS PER MUTUAL UNDERSTANDIN G WITH THE DEVELOPER SINCE IN ANY EVENT THE CONSTRUCTION COST WAS TO BE REIMBURSED TO THE DEVELOPER. THUS MERELY BECAUSE CE RTAIN PAYMENT WERE DIRECTLY MADE BY THE APPELLANT DOES NOT LEAD T O CONCLUSION THAT APPELLANT WAS NOT RELYING UPON THE DEVELOPER. IN FA CT THE APPELLANT SUBMITS THAT IT HAD NOT MADE ANY REIMBURSEMENT OF C OST OF CONSTRUCTION TO THE DEVELOPER COMPANY FOR ALMOST AB OUT 3 YEARS AND THEREFORE THE DEVELOPER COMPANY HAS ALSO INCURRED F INANCE COST WHICH OTHERWISE THE APPELLANT WOULD HAVE TO INCUR B ESIDES OTHER INHERENT COSTS HAD IT CONSTRUCTED THE PROPERTY ON I TS OWN. THE APPELLANT FURTHER SUBMITS THAT THE AO HAS OBSER VED THAT SINCE THE DEVELOPMENT WAS DONE BY THE SISTER CONCER N FALLING WITHIN THE DEFINITION AS PROVIDED IN SECTION 40A(2)(B) OF THE ACT THE TRANSACTION HAS TO BE VIEWED WITH SUSPICION. THUS THE DISALLOWANCE MADE BY THE AO IS ONLY ON THE BASIS OF SUSPICION AND HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE COST INCURRED BY THE APPELLANT WAS EXCESSIVE OR UNREASON ABLE. THE APPELLANT SUBMITS THAT NO ADDITION COULD BE DONE ON LY ON THE BASIS OF CONJECTURES AND SURMISES. SUSPICION HOWEVER STRO NG CANNOT TAKE PLACE OF PROOF UMACHARAN SHAW & BROS. 37 ITR 271 (S C). 4. THE LD. CIT(A) HELD AS FOLLOWS: THE A.O. HAS NOTED THAT THE ASSESSEE HAS PAID A SUM OF RS.27 03 532/- IN THIS YEAR TO HIS SISTER CONCERN A S DEVELOPMENT CHARGES. THE A.O. DISALLOWED 90% OF THE DEVELOPMENT CHARGES ON THE GROUND THAT THE PAYMENT IS COVERED U/S.40A(2)(B ). HOWEVER THE A.O. HAS NOT GIVEN ANY COMPARABLE CASE TO SHOW THAT THE DEVELOPMENT CHARGES PAID BY THE APPELLANT IS MORE T HAN ARMS LENGTH PRICE. SIMPLY BECAUSE THE APPELLANT HAS PAID DEVELO PMENT CHARGES TO HIS SISTER CONCERN DOES NOT EMPOWER THE A.O. TO DISALLOW THE DEVELOPMENT CHARGES PAID BY THE APPELLANT U/S.40A(2 )(B). THESE ITA NO.262/M/2010 6 EXPENSES ARE ALSO NOT INADMISSIBLE U/S.37(1). THE A PPELLANT HAS CLEARLY MADE A CASE THAT AS PER THE AGREEMENT THE A SSESSEE WAS TO PAY DEVELOPMENT CHARGES TO HIS SISTER CONCERN FOR D EVELOPING THE PROPERTY. THE AUTHORIZED REPRESENTATIVE SUBMITTED T HAT THE ASSESSEE DID NOT PAY ANYTHING TO SHREE LAXMI COTTON TRADERS LTD. FOR ALMOST 3 YEARS. THE FACT THAT THE ASSESSEE HAS RETURNED LO W MARGIN OF PROFIT DOES NOT MEAN THAT THE PROVISIONS OF SECTION 40A(2) (B) ARE APPLICABLE. UNDER 40A(2)(B) IF ANY PAYMENT IS MADE TO A PERSON WHO IS HAVING NOT LESS THAN 20% OF THE VOTING RIGHT THEN SECTION 40A(2)(B) COULD BE APPLICABLE AND THE A.O. IS ENTITLED TO LOOK INTO TH E MATTER FROM THE ANGLE OF REASONABLENESS OF THE EXPENDITURE. IN THIS CASE THE A.O. HAS NOT ESTABLISHED AS TO WHAT IS THE REASONABLE EXPEND ITURE FOR DEVELOPING THE PROPERTY. WITHOUT ASCERTAINING THE R EASONABLENESS OF EXPENDITURE THE PROVISIONS OF SEC.40A(2)(B) CANNOT BE APPLIED. EVEN THE ISSUE OF DECISION IN THE CASE OF MACDOWELL & CO . LTD. VS. C.T.O. (154 ITR 148) CANNOT BE APPLIED AS THE A.O. HAS NOT ESTABLISHED AS TO HOW THE ASSESSEE HAS DEFRAUD THE REVENUE. HENCE THE ADDITION MADE BY THE A.O. IS REQUIRED TO BE DELETED. THE A.O . IS DIRECTED TO DELETE THIS ADDITION. ALL THE GROUNDS OF APPEAL MER GE INTO THE MAIN GROUND OF APPEAL. 5. AGGRIEVED REVENUE PREFERRED AN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE A LLEGED CLAIM OF REIMBURSEMENT OF THE EXTRA CONSIDERATION EXCEEDI NG 10% OF THE SUM OF RS. 650 PER SQ. FEET OVER AND ABOVE THE ACTUAL COST OF CONSTRUCTION TO SHRI LAXMI COTTON TRADERS LTD. A SISTER CONCERN FOR THE CONSTRUCTION OF A SHOPPING CENTRE AT AMRAVATI WITHOUT APPRECIATING THE FACT THAT THE EXCESS PAYME NT OF 90% OF RS. 650 PER SQ. FEET WAS UNCALLED FOR AND UNWARR ANTED LOOKING TO THE BUSINESS NEEDS AND BENEFITS DERIVED BY THE ASSESSEES BUSINESS. 6. THE LD. COUNSEL FOR THE ASSESSEE SHRI REEPAL G. TRALSHAWALA REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( A). HE BROUGHT TO OUR ATTENTION AT CLAUSE I AT PAGE 13 OF THE DEVELOP MENT AGREEMENT WHICH READS AS FOLLOWS: ITA NO.262/M/2010 7 THE OWNER COMPANY HAS GRANTED CONSTRUCTION RIGHTS IN FAVOUR OF DEVELOPER COMPANY FOR CONSTRUCTION OF A SHOPPING CENTER ON THE LAND SITUATED AT PLOT NO. 17 (PART) NAZUL STRE ET NO. 58M MAUJE-TARKHEDA VIDARBHA MAHAVIDHYALAY ROAD AMRAVA TI- 444 601 FOR CONSIDERATION OF RS. 650/- PER SALABLE SQ. FT. THE CONSIDERATION OF RS. 650/- PER SALABLE SQ. FT. SHAL L BE PAYABLE IN ADDITION TO THE REIMBURSEMENT OF COST OF CONSTRU CTION INCURRED BY THE DEVELOPER COMPANY. 7. THE LD. COUNSEL FOR THE ASSESSEE ALSO STRESSED ON THE FOLLOWING FACTS IN SUPPORT OF HIS ARGUMENT THAT THE ENTIRE EX PENDITURE IS ALLOWABLE. 1) CLAUSE 1 & 2 OF THE AGREEMENT OF DEVELOPMENT CLEARL Y INDICATE THAT ALL THE RESPONSIBILITIES OF THE DEVELOPMENT AN D CONSTRUCTION OF THE SHOPPING COMPLEX WERE GIVEN TO THE DEVELOPER AS EARLY AS 20.2.2001 AND IT WAS UNDERSTOOD THAT THE DEVELOPER WOULD BE REIMBURSED THE ACTUAL CONSTRUCTION COST PLUS CONSID ERATION AT THE RATE OF RS. 650/- PER SALEABLE SQ. FT. 2) WITH RESPECT TO PROVISIONS OF SEC. 40A(2)(B) OF THE ACT MERELY BECAUSE THE DEVELOPMENT CHARGES ARE PAID TO THE SIS TER CONCERN THAT BY ITSELF WOULD NOT LEAD TO THE CONCLUSION THA T THE CHARGES ARE EXCESSIVE OR UNREASONABLE. THE AO HAS NOT BROU GHT ANY MATERIAL ON RECORD TO PROVE THAT THE AMOUNT PAID TO THE DEVELOPER IS ON THE HIGHER SIDE. THE GENUINENESS O F THE AGREEMENT HAS NOT BEEN DISPUTED BY THE DEPARTMENT. 3) THE OBSERVATION OF THE AO THAT THE ASSESSEE HAD INC URRED EXPENSES ON ITS OWN AND WAS NOT COMPLETELY RELYING UPON THE DEVELOPER IS NOT CORRECT. MERELY BECAUSE CERTAIN P AYMENTS WERE DIRECTLY MADE BY THE ASSESSEE DOES NOT LEAD TO CONC LUSION THAT ASSESSEE WAS NOT RELYING UPON THE DEVELOPER. ITA NO.262/M/2010 8 4) THE ASSESSEE INFACT HAD NOT MADE ANY COST OF CONSTR UCTION TO THE DEVELOPER COMPANY FOR ALMOST 3 YEARS 8. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE AO HAD WRONGLY DISALLOWED 90% OF THE DEVELOPMENT CHARGES. HE RELI ED ON THE DECISION OF CHENNAI BENCH IN 2 ATR 539 IN THE CASE OF ACIT VS SWIFT AUDIO & VIDEL ENTERTAINMENT PVT. LTD. 9. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF THE AO. 10. WE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS CLEARLY MADE A CASE THAT AS PER THE A GREEMENT THE ASSESSEE WAS TO PAY DEVELOPMENT CHARGES TO ITS SISTER CONCER N FOR DEVELOPING THE PROPERTY. WHEN THERE IS A SPECIFIC AGREEMENT THE PROVISIONS OF SEC. 40A(2)(B) WOULD NOT BE APPLICABLE IN AS MUCH AS THE MATTER CANNOT BE LOOKED INTO FROM THE ANGLE OF REASONABLENESS OF THE EXPENDITURE. ONCE THE GENUINENESS OF THE AGREEMENT IS NOT CHALLENGED THE EXPENDITURE WHICH IS ADMISSIBLE U/S. 37(1) ARE TO BE ALLOWED. HENCE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND CONFIR M THE SAME. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY 2011 SD/- SD/- ( P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 25 TH FEBRUARY 2011 RJ ITA NO.262/M/2010 9 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO.262/M/2010 10 DATE INITIALS 1 DRAFT DICTATED ON: 23 . 02 .201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23 .02.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______