TaxTMI 
TaxTMI 
2017 (9) TMI 1227
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment can be made unless any incriminating material is found as a result of the search. The assessment made in the present case is invalid and bad in law. 4. The Learned Commissioner of Income Tax(Appeals) has in law and in facts in passing the order in violation of principles of natural justice. 5. The Learned Commissioner of Income Tax(Appeals) has erred in law and in facts in confirming addition of Rs. 13,82,94,326/- on account of income from alleged sale of land to M/s. Suzlon Energy Ltd. 6. The Learned Commissioner of Income Tax(Appeals) ought to have held that the tax paid by M/s. Vascon Engineers Ltd. on the alleged income added should be treated as tax paid by the appellant. 7. The appellant craves leave of your Honor to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal." 3. The grounds of appeal No.1 to 4 are not pressed, hence the same are dismissed as 'not pressed'. 4. The only issue raised by the assessee is against addition of Rs. 13,82,94,326/- on account of income from alleged sale of land to M/s. Suzlon Energy Ltd. The connected issue raised by way of Grounds of appeal No.6 is that in case the said addition is to be mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fulfillment of the said payment obligation. The remaining Rs. 10 crores were to be paid on final conveyance. The assessee further pointed out that Suzlon Energy Ltd. paid only Rs. 55.40 crores till the execution of the agreement and the balance was not paid, hence possession of the land was not handed over to Suzlon Energy Ltd. on the date of agreement and the sale was not completed on that date. It was further contended by the assessee before the Assessing Officer that before completing the sale, the firm was dissolved and became proprietorship concern of M/s. Vascon Engineers Ltd. The copy of the dissolution deed was referred to in this regard. The assessee pointed out that the sale of the above part of land was recognized in the books of M/s. Vascon Engineers Ltd. at the time of handing over the possession. The possession for the said property was given on 29-06-2007 after receiving the balance consideration and the sale was recognized in the books of account of M/s. Vascon Engineers Ltd. in financial year 2007-08. 7. The Assessing Officer however did not find the explanation of the assessee as correct since certain documents were found which suggested the existence of the fir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e share of profit that should have been paid to M/s. Panchashil Real Estate Consultants Pvt. Ltd. by the firm M/s. Vascon Hadapsar Ventures. The Assessing Officer rejected the other contention of the assessee also that M/s. Suzlon Energy Ltd. had not paid the balance amount. The Assessing Officer vide Para 7.5 noted that the real fact that there was profit of over Rs. 13.8 crores on account of land sale during Assessment Year 2008-09 and offered Rs. 12 crores on account of building construction contract during Assessment Year 2009-10 to the assessee firm and since Vascon Engineers Pvt. Ltd. was intending to go public and hence was interested in jacking up its profits with the motive of getting better valuation. The Assessing Officer thus held that the partners mutually entered into a conspiracy according to which one of the partner M/s. Vascon Engineers Pvt. Ltd. was allowed to take the benefit of profit of the firm, so that it can get better valuation for its shares. With such a motive, the firm was dissolved on 29-05-2007 and the entire project was shown as that of M/s. Vascon Engineers Pvt. Ltd. subsequent to that. The Assessing Officer held it to be a colourable device. The Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Representative for the assessee pointed out that plots at Sl. Nos. 1 & 2 has not been sold. The assessee further pointed out that the first piece of land for Rs. 65 crores was purchased from Shri Sunil Tupe and others, i.e. Syndicate Realtors for a sum of Rs. 65 crores. The said transaction was on 05-06-2006, part of which land was sold on 07-05-2007 for Rs. 75 crores. He further pointed out that another piece of land at Sl.Nos. 13 and 14 as purchased from Shri Ramdas Tupe and others for Rs. 6.50 crores on 19-06-2007 which was part of the sale transaction of Rs. 75 crores. The Ld. Authorised Representative for the assessee pointed out that the dissolution of the assessee firm took place on 29-05-2007 and the second plot for Rs. 6.50 crores was purchased after the dissolution. The Ld. Authorised Representative for the assessee further pointed out that sale to Suzlon Energy Ltd. was after the dissolution of the firm and undoubtedly agreement to sale was executed on 07-05-2007 which was prior to sale but the conveyance was completed subsequent to purchase of part of the land afterwards. He also pointed out that the profit on the sale of entire transaction was offered by Vascon Engin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egistered. He then pointed out that there was no contradiction in the transaction wherein M/s. Vascon Engineers Ltd. had contract with Shri Atul Chordia. Further, there was a profit of Rs. 12 crores on which M/s. Vascon Engineers Ltd. Paid taxes and the department accepted. The Ld. Authorised Representative for the assessee pointed out that CIT(A) says that Shri Atul Chordia in subsequent agreement had 50% share. So this agreement was colourable; but in fact Shri Atul Chordia had only 16% share and the conclusion of the CIT(A) in this regard was incorrect. He placed reliance on the following decisions to decide the issue of taxability of capital gains:- i) CIT Vs. 1. Excel Industries Ltd. & 2. Mafatlal Industries P. Ltd. (2013) 358 ITR 295 (SC) ii) CIT Vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom) iii) CIT Vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Del) iv) CIT Vs. Shri Ram Pistons & Rings Ltd. (2008) 220 CTR (Del) 404 v) Royal Information Systems P. Ltd. Vs. ITO in ITA No.7123/Mum/2014, relating to assessment year 2010-11, order dated 13.07.2016 13. The learned Authorized Representative for the assessee in conclusion pointed out that M/s. Vascon Engineers Ltd. had decl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;ble Supreme Court for the proposition that the substance of activity needs to be looked into and would form the basis for arriving at conclusion about the nature of activity. He further stressed that both the substance and the form clearly indicate that the assessee firm was in existence at the time of conveyance deed dated 22.04.2008. Reliance was placed on various decisions and the extracts of decisions are available in the written submissions but the learned Departmental Representative for the Revenue has failed to provide the copies of decisions, some of which are not reported. However, he also relies on the ratio laid down in Kedarnath Jute Mfg. Co. Ltd. Vs. CIT 1971 AIR 2145 for the proposition that the provisions of law relating thereto and not the view which the assessee might take of his rights nor can existence or absence of entries in the books of account be decisive or conclusive in the matter. 15. The Ld. Authorised Representative for the assessee pointed out that perusal of the terms of the agreement would show the facts of the case and nothing was hidden. Even at the time of search it was clarified. He stressed that as per the agreement dated 07-05-2007, possessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd. On 19-06-2007 certain portions of land belonging to Tupe family were agreed to be purchased which in turn were to be sold to Suzlon Energy Ltd. as per the agreement dated 07-05-2007. On 29-06-2007 possession of the land was handed over to Suzlon Energy Ltd. as part of the sale agreement, when Suzlon Energy Ltd. had paid substantial amount to M/s. Vascon Engineers Ltd. The copy of the letter dated 29-06-2007 under which vacant possession of piece of land admeasuring 41,200 sq.mtrs carved out of the total land holding in consideration was handed over is placed on record. The said document is signed by an authorized signatory on behalf of Vascon Hadapsar Ventures. On 23-04-2008 conveyance deed was made in favour of Suzlon Energy Ltd. which was signed by the assessee before us, i.e. Vascon Hadapsar Ventures. On 19-10-2008 construction was completed by M/s. Vascon Engineers Ltd. for Suzlon Energy Ltd. 17. Before addressing the issue raised, we may also look at the details of plot purchased for further sale to M/s. Suzlon Energy Ltd. The assessee vide purchase agreement dated 05.06.2006 had acquired different pieces of plots of land from M/s. Syndicate Realtors constituted of Sunil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ution Deed has been misplaced. However, the facts of dissolution have been declared in various documents. The first document on which the learned Authorized Representative for the assessee relied upon is the copy of Dissolution Deed itself which is placed at pages 72 to 75 of the Paper Book. The learned Authorized Representative for the assessee pointed out that the stamp papers for executing the Deed of Retirement Cum Dissolution was purchased on 15.03.2007 but since the accounts were not finalized, the date of retirement was shifted to 29.05.2007 and hence, the entries in hand on the said document vis-à-vis the date of dissolution. Our attention was drawn to clause 2 of the said Deed, wherein it was agreed between the parties that the amounts of business of said firm on the basis of going concern shall be completed for the period ending on 15.03.2007 as expeditiously as possible. However, thereafter, there is a mention of credit or debit to the respective accounts of parties and Balance Sheet as on 29.05.2007. Vide clause 3 also, there is similar mention of handing over of the properties, assets, business credits, stock-in-trade, securities, etc. including various rights, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the business of development projects. It was further pointed out that since the business of partnership firm was to carry out the business as builder and developer and the gain arising on sale of asset or transfer could be considered as business income. It was further pointed out that on 09.05.2007, agreement to sell was executed with M/s. Suzlon Energy Ltd. for consideration of Rs. 75 crores on certain terms and conditions which included the payment to be made i.e. Rs. 65 crores on or before execution of agreement and balance of Rs. 10 crores at the time of final conveyance. However, the payment of Rs. 65 crores was made by the said party after the date of agreement as under:- Date Amount 22.6.2006 5,00,00,000 14.2.2007 10,50,00,000 14.2.2007 9,90,47,983 30.4.2007 10,00,00,000 30.4.2007 20,00,00,000 20.6.2007 9,59,52,017 Sub total - payment due on the date of agreement 65,00,00,000 Payment due on the date of final conveyance 22.4.2008 - received on 26.4.2008 10,00,00,000 Total 75,00,00,000 19. It was also mentioned in that letter as per clause 2 of the above agreement to sell that M/s. Suzlon Energy Ltd. was required to pay sum of Rs. 65 crores on or befo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Energy Ltd. is the vendee. The said agreement is executed by M/s. Vascon Hadapsar Ventures through its partner M/s. Vascon Engineers Ltd. through its authorized signatory Mr. S.P. Nair. The copy of handing over of possession is filed during the course of hearing, which is letter dated 29.06.2007 and the possession has been handed over of land admeasuring 41,200 sq.mtrs. carved out of property. The said letter is signed by the authorized signatory for M/s. Vascon Hadapsar Ventures and the quite peaceful and vacant possession of the property has been received by M/s. Suzlon Energy Ltd. through its authorized signatory. The profit arising on sale of land at Rs. 13.83 crores is included in the hands of assessee as income of assessee for the instant assessment year by the Revenue, on the other hand, M/s. Vascon Engineers Ltd. had declared the business profit of Rs. 13.83 crores as profit for assessment year 2008-09, which is also assessed in its hands. It has been pointed out by the learned Authorized Representative for the assessee before us that on 01.06.2007, there was Joint Venture Agreement between M/s. Vascon Engineers Ltd. on one side and Mr. Atul Ishwardas Chordia i.e. one Direc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of dissolution. Another contention raised by the learned Authorized Representative for the assessee was that though the assessee had agreed to sell the portion of land to M/s. Suzlon Energy Ltd. vide agreement to sell dated 07.05.2007 but on the appointed date, the complete land was not available with the assessee for its transfer. Certain portion of land was purchased vide agreement dated 19.06.2007. The Revenue authorities has challenged the said agreement dated 19.06.2007 being executed by the assessee though it claims that the firm was dissolved on 29.05.2007. In other words, the firm was continuing, that is why it entered into the said agreement with Tupe family. The claim of dissolution of firm on 29.05.2007 is challenged by the Revenue on this issue of assessee entering into an agreement with Tupe family on 19.06.2007. The Revenue has also not accepted the explanation of assessee for non-production of original Dissolution Deed and has doubted the factum of dissolution on this ground also. Another document which has been relied upon by the learned Departmental Representative for the Revenue to refute the claim of dissolution of assessee by relying on Conveyance Deed dated 22....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on on a later date which was after the date of dissolution of the partnership firm, then there is no question of assessability of business profits on sale of land in the hands of dissolved firm but in the hands of partner who had taken over the assets and liabilities of the partnership firm. The case of Revenue on the other hand, is that there is no dissolution of erstwhile firm and the firm continues and consequently, the profit arising on sale of land is to be assessed in the hands of assessee itself. 22. The learned Departmental Representative for the Revenue in this regard, has placed reliance on various decision of the Hon'ble Supreme Court for the proposition that substance of activities needs to be looked into and would form the basis for arriving at conclusion about the nature of activities. The Hon'ble Supreme Court has held that neither the nomenclature of the documents nor any particular activity undertaken by the parties to the contract would be decisive. It is well settled proposition that an agreement and the mitigating circumstances have to be considered as a whole and the intention of parties is to be gathered from the same. It is necessary to look at the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The assessee before us claims that consequent to its dissolution, the said assets were acquired by M/s. Vascon Engineers Ltd., who completed the sale and also received the balance sale consideration and hence, the profits arising on the sale of said land are to be assessed in the hands of M/s. Vascon Engineers Ltd. It may be reiterated herein that M/s. Vascon Engineers Ltd. has duly accounted for the profits of sale of said land in its books of account and has also paid taxes thereon. The said income has been assessed in the hands of M/s. Vascon Engineers Ltd. as declared by it and has been assessed in the hands of assessee before us also on the ground that no dissolution of partnership firm had been completed. The reason for non acceptance of dissolution in the hands of assessee, first is the non production of original Dissolution Deed and the various markings in the documents. We have already referred to the clauses of agreement in the paras hereinabove and for the sake of brevity, not repeating the same. However, merely because the original Dissolution Deed could not be produced does not merit the stand of Revenue in not accepting the form of dissolution in the hands of assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ascon Engineers Ltd. However, the land deal had not completed and certain documentation had to be completed which were signed in the name of M/s. Vascon Hadapsar Ventures but through M/s. Vascon Engineers Ltd. In the case of land dealings, wherein the assessee had sought to acquire large chunk of land admeasuring 54,400 sq.mtrs. plus 5200 sq.mtrs., then the documentation was continued to be made in the names of assessee. However, the said documentation cannot dispute the fact of dissolution which was independent act of the assessee, which was duly intimated to different authorities and it cannot be held to be an afterthought of the assessee to show that there was dissolution of firm. Merely because the documentation have been executed subsequent to the dissolution of firm in the name of erstwhile firm, it would not bring the firm into existence which by act of partners has been dissolved and the relation between the partners has been severed. In the absence of agreement to continue the partnership, no burden can be cast on the said firm which already stands dissolved, to pay the taxes, on a venture which was completed after the date of dissolution. Accordingly, we find no merit in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, but possession was handed over on 07.05.2007 and hence, taxable. We find no merit in both the stands. 26. Now, coming to the next aspect of the issue. The Hon'ble Bombay High Court in CIT Vs. Nagri Mills Co. Ltd. (1958) in 33 ITR 681 (Bom) while deciding the issue of allowability of deduction had observed that the question as to the year in which the deduction is allowable may be material when the rate of tax chargeable on the assessee in two years, was different but where the rates chargeable on the assessee are uniform, then whether the deduction was allowed in one year or the other year should be the matter of no consequence to the Department. 27. Similar proposition has been laid down by the Hon'ble High Court of Delhi in CIT Vs. Dinesh Kumar Goel reported in 331 ITR 10 (Del). 28. The Hon'ble Supreme Court in CIT Vs. 1. Excel Industries Ltd. & 2. Mafatlal Industries P. Ltd. (2013) 358 ITR 295 (SC) has held as under:- "32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the d....