TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 693
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the LD.AO to recompute the income of the appellant on the basis of provisions contained in clause 7 of the AOP agreement dated 29.04.2003. 3. On the facts and circumstances of the case and in law, the LD.CIT erred in passing order u/s.263 without appreciating the appellant's submission that in view of matter regarding deduction under Section 801B(10) being subject matter of appeal before the learned CIT(A), the order of the LD.AO on the issue of deduction under Section 8OlB(1O) as a whole had merged with that of the order of the learned CIT(A) and in view of the statutory bar in Explanation to s. 263(1) , revisionary power u/s.263 cannot be invoked. 4. On the facts and circumstances of the case and in law, the learned CIT has erred, while holding that the assessment order is prejudicial to the interest of the revenue, in observing that the entire amount of Rs. 15.11 crore would be assessable in the hands of M/s Sanand Properties Pvt. Ltd. The learned CIT failed to appreciate that he can not decide the taxability of any amount in the hands of third party while adjudicating the case of the appellant" 2. The assessee is an AOP earlier assessed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the impugned order. Ld. CIT noted from the terms and conditions of AOP agreement, which was dated 29/4/2003 and reference was made to clause(7) of the said agreement. According to Ld. CIT the said clause stated that M/s. Sananand Properties Pvt. Ltd. (SPPL) was to receive 35% of the sale proceeds of the project and out of the balance 65% of the receipts, all the expenditure for the purpose of AOP was to be met with and the net balance remaining thereafter was the share of income of M/s.Ravi Raj Kothari & Company(RRKC). According to Ld. CIT, the manner of allocation of revenue has provided the assessee undue benefit in the shape of higher claim of deduction u/s. 80 IB (10). In contradiction of clause - 7 of the agreement dated 29/04/2003, the assessee instead of first reducing 35% of revenue and claiming deduction under section 80 IB(10) on the balance amount has claimed deduction on the entire revenue. In other words, the share of 35% of the gross revenue pertaining to SPPL was not eligible for deduction under section 80 IB(10). The same was taxable in the hands of SPPL without having the benefit of deduction under section 80 IB(10). By granting deduction in respect of entire reve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the income assessed by the AO. Thus the assessment order cannot be said to be prejudicial to the interest of revenue. Reference in this regard was made to the decision of Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT, 243 ITR 83 (SC) to contend that unless the order passed by the AO is erroneous as well as prejudicial to the interest of revenue, powers under section 263 cannot be exercised. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Honda Siel Power Product Ltd., wherein it has been held that in a case where AO adopts one of the courses admissible in law and where there two views are possible, CIT cannot exercise power under section 263 of the Act. 2.5 Ld. CIT after considering the submissions of the assessee and referring to clause(7) of the aforementioned agreement has come to a conclusion that assessee has wrongly distributed the profits which are not in accordance with clause (7) of the agreement. According to agreement, before computing the income of AOP, 35% of the gross receipts were required to be paid to SPPL. However, in the books of accounts, the assessee has first adjusted all the expenditu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which has also been reproduced in para-6 of the order passed by Ld. CIT. Copy of this agreement is placed by the assessee in the paper book at pages 26 to 35. For the sake of completeness clause (7) of the agreement is also reproduced below. "SHARING OF REVENUE AND INCOME: All agreements for sale of residential units in the housing project under taken by the AOP shall be entered into only between the authorized signatories of the A OP and the respective purchasers of the housing units. The members of the AOP hereby agree that neither of them, will during the validity of this Agreement execute any independent or separate agreement on their own with any prospective purchaser. All the payments receivable from the purchasers towards the above shall be received only in the name of the AOP, i.e., FORTALEZA DEVELOPERS and the said amounts received from the purchasers of the housing units as aforesaid shall be deposited only in the bank account in the name of the A OP i.e., FOR TALEZA DEVELOPERS. Out of the aforesaid amounts received from the purchasers of the housing units (representing the gross sale proceeds of the units inclusive of the value of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ic Flat cost 431,768,917.00 35% of above to SPPL 151,119,120.95 113,106,696.00 Less : Capital Investment 3,093,838.00 116,200,534.00 Profit for the financial year 2006-07 34,918,586.95 2. Raviraj Kothari & Co Basic Flat Cost 431,768,917.00 65% of above 280,649,796.05 Add. MSEB & Incidental Charges 11,826,666,00 Profit for the financial year 06-07 292,476,462.05 Less : Development Charges 184,850,281.83 107,626,180.22 3.2 Referring to the aforementioned working it was submitted by him that the total revenue was a sum of Rs.43,17,68,917/-, 35% of the total revenue amounting to Rs.15,11,19,120.95 was allocated to SPPL. A sum of Rs. 11,62,00,534/- was already credited to the account of SPPL on account of land which is specifically stated in clause(7) and the balance amount of Rs.3,49,18,586.95 has been considered the profit of SPPL. Similarly out of total revenue 65% remaining amount is a sum of Rs.28,06,49,796.05. In addition thereto MSEB and incidental charges were to the tune of Rs. 1,18,26,666/-. Thus total profit after allocating 35% of the gross receipts of flats came to Rs. 29,24,76,462.05. Out of the said amount the develop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for lesser assessable income and lesser deduction ultimately to be assessed at nil income. Therefore, Ld. AR pleaded that there is no prejudice to the interest of revenue. He submitted that Ld. CIT is considering the order of AO prejudicial to the revenue for the reason that it is prejudicial to the interest of revenue in the case of SPPL. He submitted that loss, if any, to the revenue in the case of SPPL cannot be a ground for invoking section 263 in the case of the assessee being a distinct and separate assessable entity. 3.6 Ld. A.R further submitted that the assessment order passed by the AO also cannot be said to be prejudicial to the interest of revenue for the reason that AO disallowed the deduction under section 80 IB (10) in its entirety . The deduction was allowed to the assessee in an appeal and deduction has been given to the assessee by way of order passed for giving effect to appeal. Thus assessment order vide which no deduction was allowed under section 80 IB(10) cannot be said to be prejudicial to the interest of revenue as deduction was disallowed in the entirety. 3.7 It was further submitted by Ld. A.R that the assessment order had already merged with the appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....port incentive having not considered by CIT(A), the assessment order cannot be said to have merged with the appellate order. The Tribunal held that the "matter" as appearing in Explanation (c) to section 263 is certainly a word of wide import and represents a subject or situation that one needs to think about, discuss or deal with. A "matter" might have many aspect and the above mentioned two factors might be the aspects of the "matter" but not the entire "matter" itself. The "matter" in the instant case was deduction under section 80 HHC, therefore, the assessment order, so far as it relates to deduction under section 80 HHC had merged with the order of Ld. CIT(A). Thus it was held that order passed by CIT under section 263 was not a valid order in the eyes of law. 3.7.2 Reliance was also placed on the decision of Mumbai ITAT in the case of Marico Industries Ltd. vs. ACIT, 312 ITR(AT) 259. In this case also similar proposition was laid down. In the said case powers under section 263 were invoked on the issue regarding deduction under section 80 IB, which was the subject matter of appeal filed before CIT(A) and it was held that since deduction under section 80 IB was the subject m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed upon by Ld. AR being contrary to the aforementioned decision of Bombay High Court should be ignored. 4.1 It was submitted by Ld. CIT, DR that 35% of the gross receipts payable to SPPL were in the nature of overriding title and hence, they are required to be deducted at threshold before computing the profits and in this manner the deduction claimed by the assessee would come down to Rs. 10.58 crores and thus assesse has claimed more deduction against what was available to the assessee. He submitted that this was a unique case and invocation of power under section 263 of the Act was necessary as no other remedy was available with the revenue against the action of the assessee in the manner of calculating the divisible amount so that it had reduced the assessable income in the hands of one of the constituent of AOP. 4.2 In the rejoinder Ld. A.R distinguished the decision of Hon'ble Bombay High Court in the case of CIT vs. Ratilal Bacharilal & Son(supra), he submitted that in the said case the issue was regarding weighted deduction under section 35B which was allowed at Rs.5,63,350/- in place of a sum of Rs.8,90,676/- as claimed by the assessee. The assessee never filed any appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the ground that assessee did not fulfill the conditions laid down in section 80 IB(10). The disallowance of deduction under section 80 IB(10) was subject matter of appeal filed by the assessee before Ld. CIT(A) and the issue was decided in favour of the assessee. The said order of the Ld. CIT(A) has been confirmed by ITAT. Ld. CIT has exercised his power under section 263 in respect of assessment order dated 18/12/2009 vide which deduction under section 80 IB(10) was completely denied. The main reasons stated by Ld. CIT for invoking section 263 can be summarized as follows: (1) During the course of subsequent assessment proceedings in respect of assessment year 2008-09 and 2009-10 it was observed that account of the assessee AOP were not prepared in accordance with terms and conditions of the agreement dated 29/4/2003, specially as per clause-7 of the agreement according to which M/s. SPPL was to receive 35% of the sale proceeds of the project and out of balance 65% of the receipts, all the expenditure for the purpose of AOP was to be met with and the balance remaining thereafter was to be the share of RRKC. The assessee in its In the accounts had set off all t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch is also at liberty to actually withdraw such share. Such arrangement was applicable only to the land admeasuring 31,026.90 Sq.Meters contributed by SPPL. Against the above clause the distribution of the assessee amongst its members is as under:- Total proceeds of the flats are Rs.43,17,68,917/-, 35% of which comes to Rs.15,11,19,120.95. After deducting cost of land of Rs.11,62,00,534/-, which was credited to the account of SPPL the balance of Rs.3,49,18,586.95 was considered as profit of SPPL. Similarly 65% of the gross proceeds of flats comes to Rs.28,06,49,796.05 to which a sum of Rs.1,18,26,666/- added on account of receipts of MSEB and incidental charges and the amount available after deducting profit payable to M/s. SPPL remained at Rs. 29,24,76,462.05. From this amount the expenses incurred as development charges amounting to Rs.18,48,50,281.83 have been reduced from the balance 65% and the remaining amount of Rs. 10,76,26,180.22 is considered as profit of RRKC. (For figures reference can be made to para No. 3.1 of this order.) 5.4 Against the above mentioned calculation adopted by the assessee in its accounts, it is the case of Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lled the condition laid down in section 80 IB(10) and has been held to be eligible for such deduction. The quantum of deduction under section 80 IB (10) will depend on the income earned from eligible project. The quantum of deduction will not depend upon the mode of distribution of shares amongst the members of AOP as income of AOP is taxable at maximum marginal rate. Therefore, manner in which the AOP distribute its project has no bearing over eligible quantum of deduction under section u/s. 80IB (10) as the eligible quantum will be gross receipts from the project reduced by expenses incurred on the project. It is not even the case of Ld. CIT that assessee AOP is not entitled to get the benefit of deduction under section 80 IB (10). The only objection of Ld. CIT is that distribution of revenue in the account of the assessee is inappropriate and by this manner assessee has been benefited by larger deduction in place of smaller deduction available to it. In our opinion such observations of Ld. CIT are incorrect, firstly, on the ground that even distribution of revenue in the books of account of the assessee cannot be said to be contrary to the purpose and intent described in clause-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isions of law. Therefore, also order under section 263 has to be set aside. 6.1 Now coming to the issue of merger. For this purpose reliance has been placed by the Ld. A.R of the assessee on the aforementioned three decisions of co-ordinate benches of Mumbai ITAT which have been discussed in details in paras 3.7.1 to 3.7.3 of this order. The basis of these decisions is the decision of Hon'ble Calcutta High Court in the case of Oil India Ltd. vs. CIT, 138 ITR 836. In the aforementioned case following the decision of Hon'ble Calcutta High Court in the case of Oil India Ltd. vs. CIT (supra), it has been held that the word "matter" is word of wide import and represents a subject or situation that need to be think about, discussed or deal with. It was held by Hon'ble Calcutta High Court that if an assessment is subject matter of appeal then any ground which was held in favour of asssee can also be held against him though the appeal was preferred by the assessee. Such jurisdiction of AAC is undisputable and once the appeal has been preferred before the AAC on any aspect of the quantum, the Ld. CIT cannot assume jurisdiction otherwise an anomalous position would arise. Reference in this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....loyee of the assessee was on leave for one month and as such could not be said to be entitled to this accommodation, If that is the position, then, in our opinion, once the appeal has been preferred before the AAC on any aspect of the quantum of depreciation, the Commissioner cannot assume jurisdiction, otherwise an anomalous position would arise. The Income-tax Officer has been directed by the AAC to fix depreciation at a certain percentage, indicated by the AAC, without any further direction that it should be confined to 11 months or 12 months. But, now, if further consideration is superimposed by the Commissioner by rectification made by the Income-tax Officer as a result of the order passed by the Commissioner under section 263 then that would be in conflict with the direction given by the AAC, then that order, in our opinion, cannot be the subject- matter before the AAC, then that order, in our opinion, cannot be the subject-matter of an order of revision by the Commissioner. This principle, however, comes where the appeal does not lie from the order of the Income-tax Officer and before the AAC where different kinds of appeal are provided for in the scheme of the IT Act. This ....