Revenue appeal dismissed, avoiding double taxation. Construction expenditure as capital work in progress.

The appeal filed by the revenue was dismissed. The CIT(A) correctly appreciated the business activities of the assessee, noting that taxing the same income twice would result in impermissible double taxation. The construction expenditure was rightly considered as Capital Work in Progress, funded by shareholders. The assessee could not escape tax liability by using different nomenclature, and changes in the Articles of Association were deemed valid. The deletion of income from the sale of a building was directed to avoid double taxation. The decision upheld on 23rd August 2018 ensured fair treatment and avoidance of double taxation.

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Issues Involved
1. Whether the CIT(A) erred in not appreciating the business activities of the assessee.
2. Whether the construction expenditure should be considered as Capital Work in Progress.
3. Whether the assessee can escape tax liability by recording business activities under different nomenclature.
4. Whether the changes in the Articles of Association by attaching building space to shares are ultra vires of the Companies Act, 1956.
5. Whether taxing the income in the hands of the assessee results in double taxation.
6. Whether the CIT(A) erred in directing the deletion of Rs. 2,47,56,227/- on account of income from the sale of Lodha Supremus Building.

Detailed Analysis

Issue 1: Business Activities of the Assessee
The CIT(A) did not err in appreciating the business activities of the assessee. The assessee is engaged in land development and construction. The CIT(A) considered the fact that the income taxed by the AO in the assessee’s hands was already assessed and taxed in the hands of SNCML. Taxing the same income again would result in double taxation, which is impermissible.

Issue 2: Capital Work in Progress
The CIT(A) correctly appreciated that the construction expenditure incurred was shown as Capital Work in Progress in the balance sheet. The funds for the construction were provided by the shareholders (SNCML), and the work was carried out on their behalf.

Issue 3: Tax Liability and Nomenclature
The CIT(A) found that the assessee could not escape its tax liability by recording its business activities under different nomenclature. The assessee acted as a Special Purpose Vehicle (SPV) for the construction of Lodha Supremus, funded by its shareholders, and did not record any revenue independently. Thus, no profit arose in the hands of the SPV.

Issue 4: Changes in Articles of Association
The CIT(A) did not find the changes in the Articles of Association by attaching building space to shares to be ultra vires of the Companies Act, 1956. The assessee was used as an SPV by SNCML for construction, similar to a cooperative society carrying out work on behalf of its members.

Issue 5: Double Taxation
The CIT(A) held that taxing the income in the hands of the assessee would result in double taxation. The income from the Lodha Supremus project was already taxed in the hands of SNCML, as evidenced by the order of the Income Tax Settlement Commission (ITSC) under section 245D(4) of the I.T. Act.

Issue 6: Deletion of Rs. 2,47,56,227/-
The CIT(A) directed the deletion of Rs. 2,47,56,227/- on account of income from the sale of Lodha Supremus Building. The CIT(A) found that the project was developed by SNCML, and all revenue from the project was recorded in SNCML’s books. Taxing the same income in the hands of the assessee would result in double taxation. The CIT(A) also disallowed the assessee’s claim of losses of Rs. 1,52,974/- since no revenue was offered by the assessee independently.

Conclusion
The appeal filed by the revenue was dismissed. The CIT(A)’s findings were judicious and well-reasoned, with no new facts or contrary judgments brought to rebut the findings. The decision ensured that double taxation was avoided, and the role of the assessee as an SPV was appropriately considered. The order was pronounced in the open court on 23rd August 2018.

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