Value of TDR and the value of fully constructed industrial building can not stand on equal footing – ITAT Mumbai

This appeal preferred by the Revenue is directed against the order dated 1.2.2010 passed by the ld. CIT(A)-4 for the Assessment Year 2006-07-.2. The facts of the case in brief are that the assessee is engaged in construction activity. It has completed Phase I of a project at Malad comprising construction of  industrial galas called “Aditya Industrial Estate”. During the year  it  Commenced Phase II comprising of  additional galas in the same project. For Phase II it purchased TDR for Rs. 1,43,04,413 as under:

The TDR and other costs incurred aggregating Rs. 1,76,71,459 were reflected as capital work-in-progress in the Balance Sheet for the year ended 31-3-2006.

The assessee had obtained a term loan of Rs. 2 crores from the Small Industrial Development Bank of India (SIDBI) for construction of Phase II. The loan was secured against mortgage

of immovable properties. The mortgage deed was executed on 26.9.2005, and registered with the stamp authorities at Borivali. This transaction of mortgage was included in the AIR data by the Sub-Registrar.

During the assessment proceedings the AO asked the assessee to confirm the AIR transaction vide letter dated 12.12.2008

Explanation of the assessee was submitted along with copy of registered mortgage deed vide reply dated 15.12.2008 and 18.12.2008.

By comparing cost of TDR purchased Rs. 1.43 crore and value reflected in mortgage deed Rs.2 cr, the AO concluded that assessee had made an explained investment.

On the basis of the rate of Rs.28,500 of fully constructed industrial building in Malad reflected in the Stamp Duty Ready Reckoner, the AO made an addition of Rs. 2,25,92,287 under sec. 69B (Market value @Rs. 28,500- Rs. 3,64,80,000 less cost disclosed- Rs. 1,38,87,713 = Rs. 2,25,92287/-.

3. On further appeal before the Ld. CIT(A), the Ld. CIT(A) held as follows:

“I have duly considered the submissions of the A. R. and I find that the appellant has explained the sources of purchase of TDR. The addition made by the A.O. is on account of valuation of TDR at market rate of buildings as per ready reckoner is not correct as the reckoner gives the valuation of land and building and not TDR. Therefore, the same rate cannot be applied in the respect of TDR. From the above, it is to be noted that the appellant has executed a mortgage deed on 26/09/2005 for creation of mortgage of plot of land having C.T.S. 1068/C including industrial galas to be constructed there as security of term loan of Rs. 2 crore and the same was registered with Office of the ft. Sub-registrar, Borivali, and stamp duty of Rs. 1,00,000/- was paid on 18/10/2005. The appellant has submitted copy of mortgage deed to the assessing officer on 15.12.2008 followed by another submission dated 18.12.2008.

The appellant has acquired during the year under appeal TDR for Rs. 1,43,04,413/- from two parties. Copy of agreement for acquisition ofTDR from both parties have been submitted to the assessing officer on 14.11.2008.

Transaction of creation of mortgage for availing loan of Rs.2 crore has been registered with Registrar and same is reported in Annual Information Report (AIR). The assessing officer has issued a letter on 10.12.2008 seeking explanation and confirmation of AIR transaction of Rs. 2 crore. As appellant denied transaction of Rs.2 crore, the assessing officer called for further information u/s 133 (6) from the Sub Registrar, Borivali- 4. On receipt of further information in form of Index II from the Sub Registrar, Borivali- 4, the assessing officer wrote another letter on 18.12.2008 stating as under:

“in this respect, please find enclosed copy of information called for and received U/s 133(6) of the Act from office of the ft. Sub Registrar, Borivali Registration Officer, Borivali, in respect of the market value and the stamp duty paid on the same regarding TDR purchased on property bearing CTS No. 1068/C. As is evident on a perusal of the same, it is seen that the market value ofthe TDR is shown to be Rs. 2,00,00,000/- on which stamp duty of Rs. 1,00,000/- has been paid which amounts to 0.5% of the market value. You are given an opportunity to explain the discrepancy between the amount declared by you and the amount shown in the stamp valuation as described above and also to give reasons as to why the difference be not treated as unexplained investments within meaning of section 69B of the I.T.Act, 1961.”

The Assessing Officer’s above mentioned letter dated 18^th December, 2008 shows that while examining AIR transaction of Rs. 2 crore, the assessing officer has mixed up the AIR transaction of Rs. 2 crore with purchase of TDR of Rs. 1,43,04,413/- and consequently made erroneous conclusion that there is undisclosed investment within meaning of section 69B. The appellant has explained AIR transaction vide submission dated 15.12.2008 and 18.12.2008 with supporting documents. Entire addition of undisclosed investment in TDR has been made on erroneous conclusion reached by mixing up of AIR transaction of Rs. 2 crore for creation of mortgage and purchase ofTDR of Rs. 1,43,04,413/-. After erroneously concluding about undisclosed investment in purchase ofTDR, the assessing officer made addition by adopting rate of fully constructed unit as provided in stamp duty ready reckon-er for rate of purchase of TDR and difference in both rates multiplied by area has been treated as undisclosed investment in purchase ofTDR. Thus, the assessing officer has made an incorrect conclusion that there is undisclosed investment in purchase ofTDR and has further erred in calculating addition by adopting rate of fully constructed units as provided in stamp duty ready reckon-er. In this case the assessee has explained the sources of investment in TDR. Therefore, no addition is called for u/s. 69B. The A.O. is directed to delete this addition.”

4. We have heard both the parties. The Ld. Counsel for the assessee Shri Nayak submitted at page 1 of the Paper book a copy of Ready Reckon-er from which it is clear that the same was meant for reference with respect to Stamp Duty and Market value of flats in Mumbai and not reference for TDR rates. There is a wide variation between value of TDR and value of fully constructed industrial building and the two values are not comparable. As rightly pointed out by the Ld. CIT(A), the AO’s letter dt. 18.12.2008 shows that while examining the AIR transaction of . two crores, the AO has mixed up the AIR transaction of two crores with purchase of TDR of Rs. 1,43,04,413/- and consequently made erroneous conclusion that there is undisclosed  investment within the meaning of Sec. 69B. Further the AO made addition by adopting rate of fully constructed unit as provided in Stamp Duty Ready Reckon-er for rate of purchase of TDR and the difference in both rates multiplied by area  has been treated as undisclosed investment in purchase of TDR. The AO has not appreciated that TDR rates depend upon market force and are not available in the Reckon-er. Hence the AO has taken a wrong basis for determining the TDR rates and therefore we confirm the order of the Ld. CIT(A) and allow the assessee’s appeal.

5. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced on this 28 day of April, 2011