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TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 438
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....scrutiny. The assessment was completed under Section 143(3) of the Act vide order dt.21.12.2011 wherein the income of the assessee was determined at Rs. 34,37,72,450 as against the returned income of Rs. 4,41,18,220 in view of the following additions / disallowances thereto :- (i) Disallowance under Section 14A : Rs.1,93,730. (ii) Addition under Section 41(1) : Rs.38,07,116. (iii) Income from Shantiniketan Project : Rs.29,55,92,202. 2.2Aggrieved by the order of assessment for Assessment Year 2009-10 dt.21.12.2011, the assessee preferred an appeal before the CIT (Appeals) - I, Bangalore. The learned CIT (Appeals) disposed off the assessee's appeal by the impugned order dt.22.10.2012 allowing the assessee partial relief. In this order, learned CIT (Appeals) deleted the addition of Rs. 29,55,92,202 made in respect of the income of the Shantiniketan Project; deleted the addition made under Section 41(1) of the Act to the extent of Rs. 32,19,299; sustaining the remaining portion of Rs. 5,87,817 under Section 41(1) of the Act and also sustained the entire addition of Rs. 1,93,730 made under Section 14A of the Act. 3. Aggrieved by the order of the CIT (App....
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....the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with section 234B of the Act. 10. The appellant craves leave to add, alter, delete, modify any of the grounds which are urged above. 11. For the above and such other grounds as may be urged at the time of hearing the appellant prays your Honour to consider the facts and circumstances of the case and justice be rendered." 5. The grounds at S.Nos.1, 10 & 11 of the assessee's appeal are general in nature and not being urged before us are dismissed as infructuous. 6. Grounds 2 to 5 : Disalowance u/s.14A of the Act - Rs. 1,93,730. 6.1 The facts of the matter on this issue as emanate from the record are that the Assessing Officer in the order of assessment has observed that the assessee, in spite of having huge liabilities by way of Term Loans and Current Liabilities continued to invest in associate companies in the form of shares with the intention of earning interest income and that in order to carry on such investment activity it has directly or indirect....
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....ts, it is clear that out of the total amount of Rs. 3,87,46,000, the assessee's investment in associate / group company to the extent of Rs. 3,87,00,000 is made not with a view to earn exempt income but for strategic business purposes. Therefore, the investment of Rs. 46,000 made in other companies i.e. Andhra Bank only could be considered as investments made with a view to earn exempt income. It is further submitted that the investments (supra) in purchase of Andhra Bank shares was made in the financial year ended March, 2001 and of the investment of Rs. 3.87 Crores in Trichy Steel Rolling Mills, Rs. 1,87,00,000 was invested in the financial year ending 31st March, 2001 and the balance Rs. 2.00 Crores was invested in the financial year ending 31st March, 2003. It is contended by the learned Authorised Representative that these investments are long term investments, which form a part of the record before the IT Department and that no expenditure has been incurred to either maintain or monitor these investments. It is submitted that the assessee has earned exempt income of Rs. 18,400 only, out of the investment of Rs. 46,000 invested in the shares of Andhra Bank and that no divi....
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.... considered the material on record; including the judicial pronouncements placed reliance upon by the assessee. The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd. V CIT reported in 347 ITR 272 has held that by virtue of the provisions of sub-section (2) and (3) of Section 14A of the Act, if the Assessing Officer is not satisfied by the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon the determination of the amount of expenditure in accordance with Rule 8D. While rejecting the claim of the assessee, the Assessing Officer has to render cogent reasons for the same. In a case where the assessee states that no expenditure has been incurred by it to earn exempt income, the Assessing Officer has to verify the correctness of the assessee's claim having regard to the accounts of the assessee. In the case on hand, we find that the Assessing Officer has not given any cogent reason in the order of assessment for disbelieving the contention of the assessee that it has incurred no expenditure to earn the exempt income of Rs. 18,400 but has proceeded to apply the provisions of Rule 8D to arr....
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.... than the dues shown by the creditor. In such a case the revenue can perhaps take a view that the liability to the extent of the difference is no longer payable and therefore be treated as income under Section 41(1) of the Act. It is contended that in the said case since the assessee has shown a lesser liability than the amount shown as due by its creditor, the basic requirement that a liability no longer exists is not present in the facts of this case in order to apply the provisions of section 41(1) of the Act. 7.4 The learned Departmental Representative supported the orders of the authorities below and prayed for the assessee's appeal on this issue to be rejected as the orders of the authorities below were factually indisputable. 7.5.1 We have heard the rival contentions and perused and carefully considered the material on record. It is not disputed that the assessee in its books of accounts has claimed that the liability due to KBDL is Rs. 3,65,92,256 whereas on examination of the books of account of KBDL by the Assessing Officer, it was found that the assessee was shown to be liable to pay KBDL Rs. 3,71,80,073. As there was no satisfactory explanation, the Assessing Offi....
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....appeal revenue has raised the following grounds :- " Ground No.1. The learned CIT (Appeals) erred on fact and in law n holding that no income is chargeable for the assessment year ignoring the fact that the assessee received huge amount of non-refundable deposits in lieu of transfer of its right in the constructed area to be received. Ground No.2. The learned CIT (Appeals) erred in fact and in law in holding that the year of taxability is the year in which stock-in-trade (land/flats or transferred apartments) are sold on registration. Ground No.3. The learned CIT (Appeals) erred in fact and in law in contradicting his own findings where he accepted that the capital gains will arise only in the assessment year 2005-06 since the transfer took place during the year on the basis of execution of JDA by the appellant company and further execution of Power of Attorney on 5.2.2005 and 1.3.2005 in favour of M/s. PEPL for transfer of stock for development and finally the CIT (Appeals) is directing the Assessing Officer to take necessary remedial action to tax the capital gains in the appellant's case in the year in which the stock is sold and tran....
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....f. In this view of the matter, the Assessing Officer then proceeded to determine the assessee's income on the Percentage Completion Method holding that the assessee was not correct in following the Project Completion Method as it was maintaining its books of account on the Mercantile System of Accounting and not the cash system and that the assessee ought to have recognized and admitted its income in accordance with Accounting Standards - 7. The Assessing Officer contends that when both the assessee and PEPL have held common stock of land on which construction activity has been simultaneously started, and PEPL is offering the income earned from this project on Percentage Completion Method, it is difficult to accept the assessee's proposition that percentage completion method is not applicable to the assessee. The Assessing Officer was also of the view that once the stock of land is given for construction of the apartments, all such contracts would fall within the ambit of Percentage Completion Method for recognition of income and since PEPL, the developer, offers its income on the Percentage Completion Method, the same is also applicable to the assessee and it should offer ....
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....t to Assessment Year 2005-06, the transfer had taken place in that year itself and if this view of the Assessing Officer were to be held to be correct, then the Capital Gains would arise during Assessment Year 2005-06. 11.3.5 In para 5.15 of the impugned order, the learned CIT(A) has held that in a case where immovable property has been held as stock-in-trade, the conveyance of the same cannot be made by merely handing over possession, but takes place only by registration of sale of the immovable property in order to pass on the title to the purchaser or developer in as much as section 53 of the Transfer of Property Act applies only to those immovable properties which are held as Capital Assets as provided under Section 2(47) of the Act and not to those held by way of stock-in-trade. In both paras 5.15 and 5.17 of the impugned order, the learned CIT(A) has held that since no stock (land/flats or apartments) are sold in the impugned Assessment Year 2009-10, no Capital Gains or Business Profits would arise for Assessment Year 2009-10 to the assessee in the case on hand. 11.3.6 In para 5.16 of the impugned order, the learned CIT(A) has concluded that in view of the fact that the Ass....
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....tal Representative supported the findings rendered by the Assessing Officer in the order of assessment and prayed for the impugned order of the learned CIT(A) on this point to be reversed and that of the Assessing Officer to be restored. 11.5.1 The written submissions put forth by the learned Authorised Representative on this issue regarding the findings rendered by the Assessing Officer in the order of assessment are extracted as under :- "8.5 PERMISSION TO DEVELOP: i. Clause 1.1(page 50 of the paper book) of the JDA (which is placed at pages 39 to 102 of the Paper Book) states that The First Party (Assessee) hereby permits the Second Party (PEPL) to enter the schedule 'D' property for development thereof in terms of this Development Agreement. ii. Clause 1.3 (Page 51 of Paper Book) specifies that such permission to enter upon the schedule 'D' property shall however not be construed as delivery of possession under section 53 A of the Transfer of Property Act read with section 2(47) (v) of the Income Tax Act, 1961. The legal possession of Schedule 'D' Party shall continue to vest in the First Party. The Second Party shall only be permitted to enter ....
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....overall development by 24/03/2011, but is still in the process of final finishing, inspecting & handing over of the Owner's Constructed Area as on 24/03/2011 (paras 8 & 9 of the agreement in paper book page no. 165 & 166). Thus it is evident that the Developer has not completed the construction of the Owner's constructed area in all respects even as on 24/03/2011, relevant to the A.Y.2011-12 & therefore the question of considering any income from the JDA in the hands of the Assessee upto the A.Y. 2011-12 does not arise. iv. The Assessing officer is therefore wrong in coming to the conclusion that the Assessee has transferred land to the Developer. 8.7 OBLIGATIONS OF THE ASSESSEE: i. Page 5, sub para IV of the preamble in the JDA (Page 44 of paper book) states that the Assessee has received possession of 14 acres 12 guntas of land from KIADB & is yet to receive the absolute sale deed in its name. ii. Page 4, sub para III of the preamble in the JDA (page 43 of paper book) states that the Assessee is required to take conveyance of 10 acres of land from Vicon Ltd. iii. Page 4, sub para IV of the preamble in the JDA (page 44 of pape....
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....emonstrates that the land is in the name of the Assessee & all permissions, licenses etc are to be obtained in the name of the Assessee in order carry out development on the Schedule Property. If the land were to be transferred the question of obtaining permissions & licenses in the name of the Assessee would not arise. In the eyes of the concerned statutory authorities the land continues to be the property of the Assessee & the JDA does do not in any way alter this fact. iii. Clause 13.5 (page 76 of paper book) states that the Assessee has executed a separate POA, on 05/02/2005, other than the one mentioned in Clause 13.4 authorising the PEPL to enter into agreements for sale, lease of PEPL's share of the constructed area. iv. Clause 13.6 (page 76 of paper book) states that the Assessee has executed a separate POA, on 05/02/2005, other than the ones mentioned in Clause 13.4 & 13.5 authorising the PEPL to convey sale deeds, lease deeds etc in respect of PEPL's share of the constructed area & that the said POA is kept in escrow in terms of Cl.13.9 of the JDA. v. Clause 13.9 of the JDA (page 77 of paper book) states that the POA mentioned in Clause 13.6 shall be kept in Esc....
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....ly subsequent to this date with the aid of the POA executed on 24/03/2011 and the POA executed on 05/02/2005 was handed back to the Assessee on 24/03/2011 by the Escrow, which fact is evidenced in page 15 of the said agreement of 24/03/2011(paper book page no.168) under the head "Documents of Title". 8.9 DOCUMENTS OF TITLE: i. Clause No.14 of the JDA (page 78 of paper book) specifies that the Original Documents of Title shall also be kept in Escrow with Mr.Kusuma Muniraju, Advocate having his office at Eden Park, No.20, Vittal Mallya Road, Bangalore and that the handing over of the same will depend on the phase being complete and whether for that phase there are independent title deeds. Further in the event of termination of the agreement the Original Title Deeds shall be returned to the Assessee. In the event of dispute the same shall be handed over to the forum which is presiding over the dispute. ii. The above covenant also demonstrates that ownership shall get transferred only upon the developer completing the development of the Owners share of the Constructed Area agreed upon & not before that. iii. Further it is evident from the A....
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....tion (2) of section 45 in as much as the impugned lands are held as Stock in Trade. The provisions of section 53A of the Transfer of Property Act apply to an asset held as a Capital asset /investment & not to Stock In Trade. 8.14 From a reading & understanding of the JDA what has to be ascertained is the date on which PEPL starting exercising the POA to convey ownership of the undivided interest in the land held as Stock in Trade & treat only those portions of undivided interest in land which are actually registered in favour of PEPL or its nominees or any third person for that matter & bring to tax the Capital Gains arising out of such conveyance in such years in which it is so transferred. The sale of undivided interest in land has two components of income. The first is Income from Capital Gains which is to be worked out as per the provisions of sub section (2) of section 45 & the other component being Income from Business, which is to be computed on the basis of the value attributed to the building in the office of the sub - registrar for purposes of stamp duty at the time of registration of the sale deed of an apartment. The Sale deed for an apartment will consist of two compo....
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....tered deed of conveyance. 8.16 In the present case, the facts being similar, the decision of the ITAT Chennai Bench in the case of R.Gopinath (HUF) vs ACIT, 42 DTR Tribunal Judgments 127 is squarely applicable. 8.17 One another important fact that needs to be considered is the assessment order u/s 143(3) passed for the A.Y. 2007-08, in the case of the Assessee, a copy of which is filed. In Par 4 of the said order, the assessing order observes as follows "The most important that is to be noticed here is that the assessee company has not declared any income from the project 'Shantiniketan'. However it has claimed an expenditure which is on account of booking of share, documentation etc. In case the share of the assessee has been determined and it has accrued, the income of the same has to be declared for tax purpose. This has not been done by the assessee company. It stated that the income would be declared when the project is completed. Presumably the assessee is following the project completion method for recognizing the income. This method of revenue recognition has been examined in detail in A.Y. 2005-06. There the assessing officer held that since the corresponding in....
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....8,20,351/-. 8.23 Thus considering the above facts, circumstances, position in law, the assessing officer is both legally & factually incorrect in making an addition by way of Income from Shantiniketan Project." 11.5.2 On the issue of whether the assessee had actually converted the asset into stock-in- trade before entering into the JDA with PEPL, the learned Authorised Representative submitted that the issue was argued before this Tribunal in the appeal for Assessment Year 2005-06 by both the assessee and the Revenue. The co-ordinate bench of this Tribunal in its order in ITA No.557/Bang/2014 dt.21.11.2014 at para 21 thereof has rendered a finding of fact that the assessee had converted the lands held as Capital Assets into stock-in-trade and the same was held as stock-in-trade at the time of entering into that JDA on 5.2.2005 and that the point in time when the tax will arise in the year in which the stock-in-trade is sold. It is submitted that the co-ordinate bench has also observed that the Assessing Officer was aware of all these facts when he passed the original order of assessment for Assessment Year 2005-06 under Section 143(3) of the Act. 11.5.3 The learned Authorised Re....
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....ntly following the completed contract method of accounting and the same appears to have accepted by revenue; v) The Assessing Officer has not brought on record any material evidence to demonstrate that the system of accounting followed by the assessee does not show a true and correct picture of income, which in turn would warrant rejection of the books of account. The Assessing Officer has not rejected the books of account maintained by the assessee in the year under consideration; vi) The assessee is basically a landlord simpliciter as far as the JDA between the assessee and PEPL is concerned; vii) There is no requirement in law that the assessee ought to adopt the percentage completion method of accounting merely because PEPL, the developer in the JDA, in following the said method. In the light of the above facts, it would be incorrect to conclude that the assessee has earned any income out of the JDA in the period relevant to the impugned assessment year 2009-10. 11.6.2 On a careful perusal, we find that the judicial pronouncement rendered by the Chennai Bench of the ITAT in the case of R.Gopinath (HUF) V CIT in ITA Nos.29 & 30/Mad/2008 dt.24.7.2009 and relied on by the ass....