Commissioner Of Income Tax Gandhinagar v. Sonata Developers....opponent(S

O/TAXAP/1250/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1250 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX GANDHINAGAR....Appellant(s) Versus SONATA DEVELOPERS....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIand HONOURABLE MR.JUSTICE K.J.THAKERDate : 03/12/2014ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.This is an appeal by the appellant revenue, seeking to challenge the order of the learned ITAT, ‘A’ Bench, Ahmedabad (for short, O/TAXAP/1250/2014 JUDGMENT ‘The Tribunal’), Dated : 29.04.2014, passed in ITA No.2770/Ahd/2012 for the A.Y. 2009-10, whereby, it dismissed the appeal of the appellant-Revenue. 2.The brief facts leading to the present proceedings are that the respondent-assessee, which is a partnership firm engaged in the business of land and building development, filed its return of income of income for the A.Y. 2009-10, declaring its total income at Rs.10,17,755/-. Pursuant thereto, the case of the assessee was taken-up for scrutiny and at the end of the same, certain additions came to be made to the income of the assessee. The assessee, therefore, approached the learned CIT(A), who partly allowed the appeal of the assessee. The Revenue, hence, carried the order of the CIT(A) before the Tribunal, wherein, the Tribunal passed the impugned order. Hence, the present appeal. 3.Mr. Mehta, learned Advocate for the appellant-Revenue, submitted that the Tribunal erred in passing the impugned order, inasmuch as it failed to appreciate the material on record and relevant provisions of law in its proper perspective and it erred in restricting the additions to the extent of Rs.4,81,600/- only. He submitted that the Tribunal erred in holding O/TAXAP/1250/2014 JUDGMENT that the assets are to be used commonly by plot holders. He, further, submitted that as an Appellate Authority, the Tribunal ought to have given its own findings, rather than relying on the findings recorded by the CIT(A). Mr. Mehta, therefore, prayed that the present appeal be allowed. 3.Mr. Mehta, learned Advocate for the appellant-Revenue, submitted that the Tribunal erred in passing the impugned order, inasmuch as it failed to appreciate the material on record and relevant provisions of law in its proper perspective and it erred in restricting the additions to the extent of Rs.4,81,600/- only. He submitted that the Tribunal erred in holding O/TAXAP/1250/2014 JUDGMENT that the assets are to be used commonly by plot holders. He, further, submitted that as an Appellate Authority, the Tribunal ought to have given its own findings, rather than relying on the findings recorded by the CIT(A). Mr. Mehta, therefore, prayed that the present appeal be allowed. 4.Heard, Mr. Mehta, learned Advocate for the appellant-Revenue, and perused the material on record, including the orders passed by the CIT(A) and the Tribunal. As stated above, during the course of scrutiny of the return filed by the assessee, the AO found that the assessee had claimed Rs.56,09,151/- towards development expenses, i.e. towards providing various facilities to the plot holders, such as compound wall, road, tube-well etc.. The AO was, further, of the opinion that the assessee had sold only plots to the purchasers and that the ownership of the aforesaid amenities had remained with the assessee and the plot holders had only right to use the same, and therefore, he added the aforesaid amount to the income of the assessee, considering the same as capital in nature. Here, it is required to be noted that the assessee brought out a scheme of residential units in the name of ‘Villa Sonata’, and therefore, as part of the said scheme, it is and was incumbent on him O/TAXAP/1250/2014 JUDGMENT to make arrangements for the basic facilities for the purchasers of plot, i.e. compound wall, internal roads, construction of tube-well for water supply etc.. It is no doubt true that while selling the plots to the individual plot holders, the firm did not pass on the right of ownership of the aforesaid common amenities to them. Nonetheless, the facts remains that same are to be used by the plot holders or the residents of the ‘Villa Sonata’. We are, therefore, of the view that the CIT(A) as well as the Tribunal rightly come to the conclusion that the assessee would not retain any rights in the common facilities and that the expenses incurred by the assessee in that regard is liable to be debited to the trading account. 5.Now, coming to the aspect of expenses incurred by the assessee towards construction of bore-well and overhead tank is concerned, it is rightly recorded by the CIT(A) and confirmed by the Tribunal that the rights of ownership in that regard shall remain with the assessee. Since, it is natural that the assessee may use the water from the said tube-well for any other scheme being developed by it in the vicinity or for any other purpose. Further, it is an admitted fact that for constructing an overhead tank or tube-well some land is required, which is estimated to O/TAXAP/1250/2014 JUDGMENT 5.Now, coming to the aspect of expenses incurred by the assessee towards construction of bore-well and overhead tank is concerned, it is rightly recorded by the CIT(A) and confirmed by the Tribunal that the rights of ownership in that regard shall remain with the assessee. Since, it is natural that the assessee may use the water from the said tube-well for any other scheme being developed by it in the vicinity or for any other purpose. Further, it is an admitted fact that for constructing an overhead tank or tube-well some land is required, which is estimated to O/TAXAP/1250/2014 JUDGMENT be about 200 sq.mts. in the case on hand, and therefore, after deducting the expenses towards the same, remaining amount is required to be disallowed. We are, therefore, of the opinion that the CIT(A) rightly deducted 20% of amount from the total amount and disallowed an amount of Rs.4,81,600/-. It is required to be noted that, while doing so, the CIT(A) did not allow any depreciation to the assessee, since, later on the said facilities are to be used by the plot holders and to maintain it, and therefore, the question of granting any depreciation to the assessee on that count does not arise. In view of the above discussion, we do not find that the Tribunal committed any error in passing the impugned order and the present appeal deserves to be dismissed. 6.In the result, present appeal fails and stands DISMISSED, as being without merit. No order as to costs. (K.S.JHAVERI, J.) UMESH (K.J.THAKER, J)