INCOME TAX ACT, 1961

Section 48

Capital gains - Computation - Sale of project - Bifurcation of sale proceeds of project on the basis of sale of land vis-a-vis flats

In Rani Meyyammal Towers-Phase II, totally 17 flats were constructed by assessee to be sold to third parties. During financial year 2010-11, assessee sold 10 flats. Out of the balance of 7 flats, 4 flats were sold during the financial year 2011-12. As per unit wise profit and loss account submitted by assessee, the opening stock-in-trade of business of sale of flats of Rani Meyyammai Towers was Rs. 6,28,89,678 and the closing stock-in-trade was Rs. 0. Further, assessee had debited a total sum of Rs. 86,16,810 on account of expenses incurred towards construction of flats. The entire expenses were incurred in respect of the balance flats; however, out of the total of 7 flats only 4 flats have been sold during the year. Therefore, only expenses to the extent of flat sold could be debited to the profit and loss account and the balance expenses towards the unsold flat should be taken to enhance the closing stock value in the form of work-in-progress. Thus, total expnses of Rs. 86,16,810 was divided in the ratio 4 : 3 and arrived at Rs. 49,23,891 and Rs. 36,92,919. The proportionate expenseds for 3 flats of Rs. 36,92,919 was to be added to the closing stock. Further, the closing stock as per the assessment order of assessment year 2011-12 dated 14-3-2014 was Rs. 8,65,98,850. Therefore, same was considered as opening stock as on 1-4-2011 and the cost of construction of flats sold has been worked out by AO at Rs. 5,15,95,297. However, the cost of construction of flats sold as worked out by the assessee was Rs. 5,80,99,021. The difference of cost of construction adopted by the assessee (Rs. 5,80,99,021) and the cost of construction calculated as above (Rs. 5,15,95,297) was Rs. 65,03,724. Hence, excess expenditure claimed by assessee was disallowed and brought to tax. Held: In the Calculation carried out by AO in the impugned assessment order, the expenditure incurred towards construction of flats had been rightly considered on proportionate basis at Rs. 49,23,891, whereas, assessee had considered the entire amount of Rs. 86,16,810, which was not in accordance with the facts of the case. Hence, discrepancy of Rs. 15,79,833 arrived at by assessee was not correct and accordingly, discrepancy of Rs. 65,03,724 worked out by AO was confirmed.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 14A Rule 8D

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