TaxTMI 
TaxTMI 
2016 (4) TMI 588
X X X X Extracts X X X X
X X X X Extracts X X X X
....ectors was conducted on 28-04-2009. During the said search action u/s.132 of the I.T. Act in the case of Darode Jog Builders Pvt. Ltd. certain papers belonging to the assessee were found and seized. In view of the above, the AO issued notice u/s.153C to the assessee after recording the following reasons : (i) Registered Joint Venture Development Agreement bearing Sr.No.9288/2006 dated 29-12-2006 between M/s. Lagad Brothers Developers and Darode-Jog & Associates (Pages 1 to 37 of Bundle No.30 seized from the business premises of DJBPL. (ii) Statement of payment made to M/s. Lagad Brothers Developers as a deposit and as a drawing made from Darode Jog Lagad ventures. Total payment made from 28.12.2006 to 26.02.2009 is at , 12,13,14,597/-. (Page No. 55 of Bundle No. 20 Seized from the business premises of DJBPL) (iii) Statements drawn on 31.10.2008 showing the details of sold flats, unsold flats, payable to Lagad Brothers Developers, Promoters, Builders & Developers. cost and the working of shortfall of funds for projects completion in respect of the Crossover County Phase-I project of Darode Jog Lagad Ventures. On page No.44 the total summary of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case is fit for issue of notice u/s. 153C of the IT. Act." 3. In response to notice u/s.153C the assessee filed return of income on 10-08-2011 declaring loss of Rs. 32,797/- which was the same figure in the return filed by it earlier on 31-07-2007. During the course of assessment proceedings the AO asked the assessee to justify as to why the joint venture agreement should not be considered as a development agreement in view of clause (3) of the same wherein sharing of the profits of the joint venture is given. 4. The assessee submitted that the proposal to consider the joint venture agreement as development agreement is unjustified and incorrect. The relevant submission of the assessee as reproduced by the AO in the body of the assessment order reads as under : "Your proposal to treat Joint, Venture agreement as development agreement is not justified and not valid on account of following reason: 1. You have referred to the joint venture agreement and in clause 3, the mode of sharing the profits of the joint venture is given. As per this clause, the assessee was to get profit of 40% and The balance 60% will be to the account of the developer. It is further ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., considered in its widest possible sense because Sec. 2(47) clearly defines the word 'transfer' and in the case of the assessee it is clearly mentioned in the joint venture agreement that the possession of the property has been given unconditionally. 6.2 The joint venture agreement is certainly for the development of land and pursuant to this agreement the land owners have handed over possession to the developer. It is in consideration of this handing over of the land that the land owners have been promised to be given percentage of sales which was later on stated to be given in the form of 80% of the net profit which clearly means the land owners under the nomenclature of joint venture agreement have in fact entered into development agreement. 6.3 The reference of supplementary agreement and the copy of which submitted before me, from the perusal of the same it clearly appears that assessee has entered into a supplementary agreement on 02.05.2010, which in my opinion is a afterthought given for correcting the original Joint Venture agreement which in real sense is a development agreement only. 6.4 As per Sec. 53A of the transfer of property Act,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of Lagad Brothers Developers where notice u/s.148 has been issued and the assessment proceedings are in progress. The AO accordingly determined the income of the assessee in the order passed u/s. 143(3) read with section 153C at (-)Rs.32,797/-. 7. Similar view was taken by the AO for A.Y. 2008-09 wherein the income returned at Nil was accepted. The return filed for A.Y. 2009-10 was accepted at Rs. 8,99,340/- and for A.Y. 2010-11 the loss declared at Rs. (-)6,46,373/- was accepted as per the return filed. 8. Before CIT(A) it was submitted that the AO has considered the Joint Venture Agreement as a Development agreement on the ground that as per section 2(47) there is a transfer of land and possession has been given unconditionally. Further, land owners have been promised to be given percentage of sales which was later on stated to be given in the form of 80% of net profit which means the land owners under the nomenclature of Joint Venture Agreement have infact entered into development agreement. It was submitted that the assessee has a valid PAN and registration under the MVAT 2002 and Central Sales Act, 1957 and discharged the liability as Association of Persons ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "(a) there is a combination of two or more persons who have joined together. (b) these two persons have joined together for their own volition. (c) there is a common purpose and common action which is to be executed and implemented by both of them. (d) the object of the joint venture is to produce income. (e) they have formed the joint venture for the purpose of completing the development of the land and completing the project on the said land which means the joint venture agreement is in pursuant of the combine WILL of both the parties and there is a meeting of the minds which has a main dominant objective to produce income for both of them. (d) The joint venture agreement entered into by the parties is for the improvement of property so that fruits of the venture can be enjoyed by both the parties." 9. Referring to the decision of Hon'ble Supreme Court in the case of CIT Vs. Indira Balakrishna reported in 39 ITR 546 it was submitted that the impugned agreement satisfies all the conditions and therefore the conclusion drawn by the AO that the impugned agreement is a development agreement is incorrect. 10. However, the Ld.CIT(A) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....land owners irrevocably permitted and authorized the Second Party to enter upon the, land and commence the development work and surrendered their rights unconditionally to interfere in any manner with the development work to be undertaken by the second party. vi. That all the necessary deposits and dues to be paid to the local authorities as well as any liability on account of losses, injury or govt. dues of any kind were to be met by the Second Party. vii. That the consideration for the property was already received by the First Party before hand in the guise of 'security deposit'. This fact is inadvertently acknowledged in the 'Supplementary Agreement' wherein on page-5 it is stated that the consideration for the rights in the land had already been decided in the original agreement, at Rs. 2 crore. Notably, as per the original agreement, this amount of Rs. 2 crore was to be a refundable interest free security deposit." 6.4 Considering the above facts, I am of the considered view that the agreement between M/s. Lagad Brothers Developers on the one hand and Darode Jog & Associates on the other, was clearly a joint development agreement tho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 2 crores in the original agreement. Similarly, in clause (3) (page 40 of the paper book) it was stated that the profits/losses of the joint venture would be determined by deducting from the sale proceeds, cost of the land and of development and construction expenses. Similarly, in clause (4) (page 41 of the paper book) the shares of the 2 parties in profits/losses of the AOP were stated. He submitted that in this agreement the shares in the profit of the individual parties were not linked to the sale proceeds but they were depending on the actual profits/losses of the AOP. 14. Referring to pages 63 and 64 of the paper book the Ld. Counsel for the assessee submitted that joint venture is registered under MVAT Act, 2002 and the tax payer identification No.27370925367V which is dated 23-08-2012. Referring to page 64 of the paper book he submitted that M/s. Darode Jog Lagad Venture has been registered under the Central Sales Tax (registration in turnover) Rules, 1957 w.e.f., 23-08-2012. Referring to page 62 of the paper book he drew the attention of the Bench to the PAN Number of Darode Jog Lagad Venture which was issued by the department and the PAN No. is AAAAD4381Q. He submitt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement. The CIT(A) does not give any opinion on the supplementary agreement. He submitted that there was an ambiguity in the original agreement. In that clause (7) on page 8 mentioned about the sharing of the profits of the AOP by the 2 partners while some clauses stated that the gross sale proceeds of the flats would be shared. When this ambiguity was noticed by the 2 parties they made the supplementary agreement for bringing clarity and it was clearly stated as to how the profits of the joint venture would be shared between the 2 parties. There is nothing wrong in revising a contract for the purpose of removing the ambiguity. He submitted that there is no bar in the contract Act that an agreement once made cannot be revised. Therefore it is not understood as to why the AO rejected the supplementary agreement. 17. Referring to the decision of the Hon'ble Supreme Court in the case of Wallfort Securities reported in 326 ITR 1 he submitted that the Hon'ble Supreme Court in the said decision has held that even if the transaction is preplanned but there is nothing to impeach the genuineness of the transaction the same should be accepted by the court and it does not amount to abuse of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee submitted that when two or more parties join together in carrying out any business, they constitute an AOP. In the present case, the two parties namely Lagad and Darode have joined together for developing the housing project and they have shared the responsibilities and duties as per the agreement. Lagad has to ensure that the land is free from any defect and got it converted into NA and Darode has to construct the project. Therefore, the transaction constitutes an AOP in view of the above decision of the Hon'ble Supreme Court. Further, since the AO in the assessment orders for A.Yrs. 2007-08, 2011- 12 and 2012-13 has assessed profits in the hands of AOP, therefore, it is wrong to hold that the profit should be assessed in the hands of the 2 parties separately and not in the hands of the AOP. 19. The Ld. Counsel for the assessee referring to the decision of Hon'ble Supreme Court in the case of Berger Paints India Ltd. Vs. CIT reported in 266 ITR 99 submitted that the Hon'ble Supreme Court in the said decision has held that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t case a registered Joint Venture Development Agreement between M/s. Lagad Brothers Developers and Darode Jog and Associates was found during the course of search action u/s.132 of the Act in the case of Darode Jog Brothers Pvt. Ltd. On the basis of this registered Joint Venture Development Agreement and various other papers found the AO issued notice u/s.153C to the assessee. In response to the notice u/s.153C the assessee filed its return of income declaring loss of Rs. 32,797/- which was as per the original return filed on 31-07-2007 for the A.Y. 2007-08. Although the assessee has filed the return as an AOP treating the said Joint Development Agreement as a Joint Venture Agreement the AO asked the assessee to explain as to why the same should not be considered as a Joint Development Agreement and not a Joint Venture Agreement in view of various clauses of the said agreement. We find rejecting the various explanations given by the assessee the AO considered the joint Venture Agreement as a Development Agreement on the basis of the various clauses in the agreement. According to him, the agreement specified sharing of the sale proceeds by the 2 parties and thus this is an agreement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccepted. We find the AO in the order passed u/s.143(3) r.w.s.147 vide letter dated 30-03-2015 for A.Y. 2011-12 has recorded the following reasons for issue of notice u/s.147 : "The assessee is a Joint Venture between Darode Jog Associates & M/ s Lagad Brothers Developers. M/s Lagad Brothers Developers a firm. purchased a land from fanners through a registered agreement for Rs. 1,15,00,000/- and immediately gave it for development to the Joint venture viz. Darode Jog Lagad Developers were supposed to receive 40% of the sale proceeds of the Joint venture on account of land given it to the Joint venture for development. As per the Joint Venture agreement the cost of land in the books of Joint venture was adopted at 2,00,00,000/- though the joint venture actually paid 40% of sale proceeds on account of land. Value of land adopted by the Joint venture in its books was at Rs. 1000/- per sq. meter. The joint Venture partner M/ s Darode Jog Associates purchased the land behind the project of the Joint Venture at the rate of Rs. 7,558/ - per sq. meter from Baban Genu Kumbharkar. The consideration paid to Shri. B. G. Kumbharkar which was in accordance with the stamp duty valuation. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... passed after the order for A.Y. 2007-08 where the status of the assessee is disputed. 25. We find Darode Jog Lagad Venture has been allotted the PAN bearing No. AAAAD4381Q. The assessee has been registered vide Maharashtra Value Added Tax, 2002 and Certificate of Registration has been allotted to it, a copy of which is placed at page 63 of the paper book and the tax payer identification No. 27370925367V. The constitution of the assessee has been stated as Joint Venture. Similarly, the assessee has been registered under the Central Sales Tax (Registration in turnover) Rules, 1957. We find before the AO the assessee vide dated 04-05-2011 had categorically stated that the seized documents belonging to Darode Jog Lagad Ventures which is a Joint Venture between Darode Jog and Associates and Lagad Brothers Developers. From the copy of the sample sale deed between Darode Jog Lagad Ventures-M/s. Sneha Chandrakant Kudal and C.P. Kudal HUF, purchasers we find the joint venture has sold the flat as seller. We further find from the copy of the capital account of the partners to the Joint Venture that the profit has been shared by the 2 members as per the supplementary agreement dated 02-05....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hon'ble Karnataka High Court in the case of CIT Vs. Shravanee Constructions reported in 81 CCH 253 has held as under (Short notes) : "Deduction u/s 80IB(10)-Allowability-Assessee, engaged in the business of development and construction of residential flats, purchased agricultural land, however, the sale deed was not registered-Assessee entered into a Memorandum of understanding with the land owner and took possession of the land-A joint development agreement was entered into by the assessee as 'consenting witness' with (i) the land owner as 'owner'; and (ii) M/s.Purvankara Projects Ltd., Mumbai as 'promoter', to develop a residential apartment on the above land-As per the agreement, the promoters were to pay a consideration of Rs. 45,00,000/- and to deliver 22% of the super built area to the consenting witness, namely the assessee-As a consequence of the agreement, the assessee got the land converted into non-agricultural land and got the work commencement from the Municipal Corporation-Out of the total 211 flats that were to be constructed as per the projects, 40 flats in different blocks were allotted to the assessee-Assessee sold some of the flat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erty hence had applied for conversion of the said schedule property from agricultural to residential purpose before the Special Deputy Commissioner Bangalore District and the same was allowed by its order vide No.BDS. ALN.SR(s) 26/2002-2003 dated 28- 12-2002. AND WHEREAS the first party is developing the schedule property by putting up a residential housing enclave and the first party has entered into this agreement with the second party to undertakes the work of development of the schedule property jointly." 10. From the above, it is clear that the assessee was engaged in the property development and this fact has also been admitted by the AO. The assessee got his agricultural land converted for non agricultural purposes i.e for residential purposes and jointly undertook the development and construction of the schedule property by getting permission and plan sanctioned. The clause - (4) of the agreement entered by the assessee with M/s Reddy Structures Pvt. Ltd. states as under : "It is hereby agreed that the first party has contributed the schedule property as his capital contribution for joint development & construction and the second party shall make ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowable to an undertaking developing and building housing project approved, it is nowhere mentioned that for claiming this deduction, construction has to be carried out by the undertaker, moreover the explanation clarified that any undertaking which executed housing project as a works contract awarded by any person is not eligible for claiming this deduction which clearly shows even if any undertaking is constructing the housing project under a works contract entered by a person is not eligible for deduction. The only condition for claiming the deduction u/s 80IB(10) is that the undertaking is developing and building, housing projects approved by a local authority. In the present case, it is not the case of the Department that the project was not approved or developed and built by the assessee. The only reason for denying the deduction u/s 80IB(10) of the Act to the assessee was that the assessee had not carried out any construction activity, in our opinion that reason is not sufficient to deny deduction u/s 80IB(10) of the Act. In the present case, the assessee made the contribution of his capital in the shape of land and incurred the initial expenses for development and building ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....other conditions which have to be fulfilled before claiming the benefit u/s 80IB(10) of the Act. In the present case, it was agreed that after completion of the building in terms of the agreement, the assessee was given 24% of the share of the building area which he was entitled to sell to various persons, it was also clear from the joint development agreement that the undertaking of developing and building housing project was jointly undertaken by the assessee and M/s Reddy Structures Pvt. Ltd., therefore, the assessee was entitled for the benefit of deduction u/s 80IB(10) of the Act. We, therefore, considering the totality of the facts and respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court in the above said referred case of M/s Shravanee Construction (cited Supra), set aside the impugned order passed by the CIT(A) and direct the AO to allow the deduction u/s 80IB(10) of the Act to the assessee. 16. In the result, the appeal of the assessee is allowed." 30. Similar view has been taken by the Mumbai Bench of the Tribunal in the case of ACIT Vs. Bombay Real Estate Development Company Pvt. Ltd. reported in 64 DTR (Tribunal) 137 where it ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t obtaining NA order was a relevant factor and construction activity could not be started without it. b. That there was no transfer within the meaning of section 2(47) of the Act as possession was not handed over. 2. The Ld.CIT(A) has erred in not allowing deduction u/s.80IB(10), as the amount received on transfer of land should also be held to be eligible for deduction u/s.80IB(10) on the ground that the appellant has nothing to do with the development of the housing project. 3. The Ld.CIT(A) has failed to appreciate that the appellant ultimately is to receive 80% of the profit as per the supplementary deed and the amount received towards land is the part of 80% of the profit. 4. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." Grounds in ITA No.311/PN/2014 (A.Y. 2008-09) : The following grounds are taken without prejudice to each other- On facts and in law, 1. The learned CIT(A) erred in confirming the action of the AO considering the withdrawals of Rs. 27887850/- from Joint Venture as a taxable income in the hands of the appellant as business income. 2. The learned CIT(A) fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or A.Y. 2007-08. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of activities related to real estate. A search action u/s.132 of the I.T. Act was conducted in the case of Darode Jog and Associates group on 29-04-2009. During the said search action a Joint Venture agreement between the assessee and Darode Jog and Associates was siezed. In response to notice u/s.148 the assessee requested to treat the return of income filed originally on 18-08-2008 as return in response to notice u/s.148 where the total income was declared at NIL. During the course of assessment proceedings the AO noted that the assessee firm M/s. Lagad Brothers Developers came into existence vide a partnership deed dated 15/12/2006. The firm acquired development rights over the property admeasuring two Hectors and two Ares (202 R) situated at Sr. No. 12, Vadgaon Khurd vide an agreement dated 29/12/2006 from Shri Laxman Narayan Lagad & other thirty one (Land owners) for a consideration of Rs. 1,15,00,000/-. The transaction was registered in the office of Sub-Registrar Haveli No. 16 at S. No. 9286 on 29/12/2006. In pursuance of this agreement the land owners have execu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....int Venture had adopted the value of development rights at Rs. 2 crores in its books on 29-12- 2006. Thus, there is obvious adventure in the nature of trade on the part of the assessee for profit. He noted that on account of this transfer irrespective of the value of land/development rights adopted by the Joint Venture (JV) in its books, the assessee firm is entitled for 40% of sale proceeds of the project developed by the Joint Venture wherein the assessee is the partner. As per the J.V. Agreement the other Joint Venture partner i.e. Darode Jog Associates is supposed to receive 60% of the sale proceeds of the project developed by it & is supposed to develop the project out of its share of receipt of 60%. In view of these facts the assessee was asked to clarify as to why Rs. 85,00,000 (Rs. 200,00,000/- -Rs. 1,15,00,000/-) should not be taxed as its income on account of transfer of development rights for the year under consideration. In response to the same the assessee vide paras 3 & 4 of their letter dated 17/11/2011 have admitted that the income of Rs. 85,00,000/- has been offered to tax during Asst. Year 2008-09. The income of Rs. 85,00,000/- was offered to tax during Asst. Year....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... without performing the duties it could not be treated as 'transfer' within the meaning of section 53A of the Transfer of Property Act. It was also contended that the co-venturer M/s Darode Jog Associates was not a transferee. Clause 9 of the JV agreement clearly mentions that the coventurer has not taken possession but merely got a license to enter and develop the plot. In fact, there is no question of handing over possession to anybody since the assessee itself is a coventurer and the JV is not a new legal entity but an extension of the assessee itself. It was also argued that the assessee had not received any sale consideration on the date of execution of JVA, no construction activity had commenced, and the N.A. order was obtained only on 14/05/2007. For all these reasons section 53A of the Transfer of Property Act were not attracted and it could not be said that there was a transfer or an adventure in the nature of trade. In support of this contention, the assessee relied upon the decision of ITAT Hyderabad in S. Ranjith Reddy reported in 95 DTR 283. 41. However, the CIT(A) was also not satisfied with the explanation given by the assessee and upheld the action of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....first of all the assessee should claim deduction in the return of income filed on or before the due date specified u/s.139(1), however, the same was not done in the present case. Moreover, even the procedural requirement of filing the audit report in Form No.10CCB which was required to be filed along with return of income is clearly not fulfilled. Further, Darode Jog and Associates undertook the entire responsibility for the construction work. The assessee was not liable for any loss suffered in the building project and the assessee has nothing to do with the development of the housing project. The assessee was supposed to get 40% of sale proceeds for transferring the development rights. In view of the above factual matrix, the assessee is not a Developer at all. Relying on various decisions the Ld. Departmental Representative submitted that the assessee is not entitled to deduction u/s.80IB(10). 46. As regards the contention of the assessee that any amount in excess of Rs. 2 crore is withdrawal from the AOP. Darode Jog Lagad Venture by a member thereof which cannot be taxed as income in the hands of the said member is concerned, the Ld. Departmental Representative submitted tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d received consideration and those receipts are given the name of withdrawal from the AOP, Therefore it is a fit case where the corporate veil is required to be lifted and real nature of the transactions has to be examined. 49. As regarding the value of sale consideration is concerned, he submitted that it becomes clear that transaction in question is business activity and for which consideration of Rs. 2 cr was received. Therefore, the question that arises is as to whether adopted consideration value is Justifiable or not. During the whole project assessee firm received different amounts from time to time from the AOP. That amount is exactly 40% of the sale value. The Assessing Officer has brought out on record that comparable sale instances are at much higher rate. He accordingly submitted that the transaction in question is a business transaction and the assessee is not eligible for any deduction u/s.80IB(10) and the AO has rightly taxed amount of Rs. 2 crore and also in excess of Rs. 2 crore in the hands of the assessee. He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised by the assessee should be dismissed. 50. We have considered the ri....