The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), in the case of M/s. Housing Development and Infrastructure Ltd. v. DCIT held that the matter shall be reverted back to the AO who shall gave the parties sufficient opportunity of hearing to determine whether the TDR surrender was disallowable while computing the Profit on sale of TDR in view of the cancellation of the contract.
The assessee is engaged in a business of Builder and Property Developers, which under an agreement for the development of the Mumbai Airport, received a Transfer of Development Right (TDR) surrender of land which was rehabilitated (as a part of the contract) and later sold by the assessee in the open market.
The assessee was asked to submit details for the unrealized cost written off as the extraordinary/ exceptional item in the revised return filed. The Assessing Officer (AO) denying the claim observed that the assessee had claimed a deduction in respect of ‘profit and sale’ of TDR, however, ‘cost’ pertained to TDR sold can only be apportioned against the ‘sale’ of TDR resulting in reduction of profit of sale of TDR resulting in reduction of profit of sale of TDR. The Commissioner of Income Tax (Appeals) further upheld the order of the AO.
The issue before the present court was with respect to disallowance of unabsorbed cost of TDR while computing the Profit on sale of TDR in view of the cancellation of the contract.
The assessee contended that he started selling the land TDR, the ‘sale’ of which was credited to P/L account each year. The ‘expenses’ incurred were then debited to the Work in Progress account and the ‘cost’ of sale of TDR was transferred from Work in progress account to P/L account. Hence, the deduction was claimed on the profit before termination of the contract.
The AO, on the other hand, contended that since the termination of the contract was yet disputed, the amount debited to P/L account is only a contingent liability and hence unallowable.
The Tribunal after assessing the submissions of both the parties declared that the contention of respondent that the assessee had not provided complete details is not tenable. The Hon’ble Tribunal pointed out that in another case before the present Tribunal, it had held that since the contract was terminated the very basis of the claim of deduction was subject to the result of arbitration proceedings and upheld re-computation of the TDR. The Tribunal reverted back the issue concerning the treatment of expenses and writing off of unrealized cost to the AO.
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