TaxTMI 
TaxTMI 
2017 (11) TMI 564
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....the appellant has earned taxable income in A.Y.2003-04. The appellant prays that no income is chargeable to tax in A.Y. 2003-04 in the hands of the appellant. 3. On the facts & circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in determining total income at Rs. 27,39,68,175/- for A.Y. 2003-04. The appellant prays that the determination of the total income is contrary to provisions to income Tax Act, 1961 and not justified; hence the determination of the income by the Learned Commr. of Income Tax (Appeals) may be deleted. 4. On the facts & circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in confirming that the project of the Chaitanya Tower is completed to the extent of 96.59% during F.Y.2002-03. The appellant prays that the conclusion reached by the Learned Commr. of Income Tax (Appeals) is erroneous and contrary to the facts of the case. 5. On the facts & circumstances of the case, the Learned Commr. of Income Tax/ (Appeals) has erred in ignoring the fact that the profit of the Chaitanya Tower Project is already taxed in the hands of M/s. Twinkle Property Developers Pvt Ltd. in A.Y. 2003-04. ....
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....ngaged in the business of civil construction. The assessee firm has been dissolved vide dissolution deed dated 13-09-2012 wef 01-09- 2002. As such, on dissolution of partnership firm, the assets / liabilities of the firm were distributed between the partners. At the time of its existence, the assessee firm, alongwith Orbit Finance Pvt Ltd, was engaged in the business of construction and development of a project, viz. Chaitanya Towers. During the financial year relevant to AY 2002-03, the assessee has effected sales to the extent of 114.52 crores and no profit is offered for taxation on the ground that it has been following project completion method. Since the partnership firm has been dissolved wef 01-09-1992, it is clear that there was existence of closing work-in-progress between 01-04-2002 to 30-08-2002 relevant to AY 2003-04 and the assessee firm, should have filed the return of income declaring profit arising out of transfer of closing work-in-progress to the partners on dissolution of partnership firm. The AO, after considering relevant facts available on record and also considering the submissions of the assessee completed assessment u/s 143(3) r.w.s. 147 of the Act on 31-12....
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....ership firm till the date of dissolution on the basis of closing work-in-progress as on the date of dissolution of the firm. The CIT(A) re-worked the profit from the project by taking into account total receipts from the project and applied project completion method to determine the income at Rs. 25,51,58,334 subject to verification of assessee's claim with regard to parking space / escalation recovery. The relevant portion of the order of CIT(A) is extracted below:- "4. I have considered the facts of the case and the submissions made by the assessee. I find that the issue relating to the reopening of the assessment proceedings u/s 147 of the Act has already been decided by the Ld.CT(A) in her appellate order dated 31.03.2010. In the said order, the Ld.CIT(A) has dismissed the grounds of appeal filed by the assessee against the assumption of jurisdiction u/s 147 of the I.T. Act, 1961 by the Assessing Officer. Such decision of the Ld.CIT(A) has not been over ruled by the Hon'ble ITAT. I agree with the reasons given by the Ld.CIT(A) for upholding the assumption of jurisdiction by the A.O. u/s of the Act. 4.1 Coming to the issues raised by the assessee in the app....
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....essee in view of the provisions of section 159. However, as per section 170, where a person carrying on the business is succeeded by any other person who continues to carry on that business or profession, for the period upto the date of succession it will only be the predecessor who would be regarded as the assessee under the provisions of the Act and any notice u/s 148 will have to be issued in its name only. The notice could not have, and cannot be, issued in the name of Twinkle Properties Pvt. Ltd, i.e., the successor, since it is not the income of the successor which is sought to be assessed. If the notice had been issued in the name of M/s Twinkle Properties Pvt. Ltd., the said concern would have had to file its return. However, it is not Twinkle's income which was sought to be assessed or reassessed. Rather, it is the income of Pratiksha Enterprises which was sought to be assessed or reassessed, Twinkle Properties could not have even filed the return incorporating the accounts of Pratiksha before the date of dissolution. Hence, the notice was required to be issued in the name of Pratiksha Enterprises only. Since the notice for the period was required to be issued only in ....
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....t has been validly exercised by the A.0. The action of the A.O. of reopening the assessment u/s 147 of the I.T. Act, 1961 is, therefore, upheld. The first effective ground of appeal filed by the assessee is dismissed. 5. With regard to the second effective ground of appeal, dealing with the applicability of the decision of ALK Firm 89 ITR 285, the assessee, placing reliance on the judgement of the Hon'ble Supreme Court in Sakthi Trading Co. 250 ITR 871, has submitted that for the application of the tenet in ALA Firms case, two paramount conditions must be satisfied. Firstly, the firm must be dissolved and, secondly, the business of the firm must be discontinued. In the present case although the firm Pratiksha Enterprises was dissolved with effect from 01 .09.2002, the business of real estate and property development was continued by one of the erstwhile partners of Pratiksha, i.e., Twinkle Property Developers Pvt. Ltd . Moreover, all the assets and Liabilities of the entire business of Pratiksha, including the work-inprogress of Rs. 79,55,64,006/- of the Chaitanya Tower Project was reflected in the books of Twinkle at cost which reinforces the argument of the appellant....
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....ice and none of the parties were directly indirectly related to the appellant. Only one flat bearing No.1404 admeasuring 885 sq. f t . was in stock as on 01.09.2002 for which agreement was entered on 29.01 .2003 and the total consideration for which the said flat was sold is Rs. 47,42,000/-. The assessee has furnished in a chart the complete details enclosed. The summary of the advances received for the area which was sold admeasuring 2,27,175 sq.ft., and the advance received in respect of four flats admeasuring 4470 sq.ft. has also been furnished by the assessee that the Assessing Officer has grossly over determined the income for A.Y. 200304 in reassessment proceedings. At the first stage only one flat which remained unsold was admeasuring 885. sq.ft. and without prejudice to the stand that the principle of ALA firm is not applicable, at best the Assessing Officer could have valued the unsold stock based on the market value. Instead, he applied the average rate of Rs. 9,150/-, which itself is a matter of challenge, to the total area of the project being 2,32,530 sq.ft. The A.O. has totally ignored the fact that out of 2,32,530 sq.ft., the appellant had already entered into an agr....
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....he liabilities in the form of encumbrances owned by the appellant to the outsiders and third parties including huge sale proceeds received from the flat owners who had been conferred full, complete, absolute unqualified ownership, right title and interest in the respective flats purchased by them by way of a registered agreement. It has been pointed out that Fair Market Value has been defined in section 2(223) of the I.T. Act as the price which the asset would fetch on sate in the open market. Surely, when the work-in-progress with regard to Chaitanya Tower Project is put for sale in the open market of wilting buyers and sellers, the prospective buyer will certainty factor in and cushion the various Liabilities and other depressing factors, etc., white quoting a bid for the same and, hence, the value of the work-in-progress pertaining to the Chaitanya Tower Project could not have been under any stretch of imagination worked out at Rs. 212,76,49,500/-. The Assessing Officer had also ignored the fact that there was huge liability on the appellant by way of the sate consideration and if it was assumed that the Fair Market Value of the property could be computed as if it was capable of....
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....03-04 in the hands of the MIs. Pratiksha Enterprises the Department tried to tax the income of the said project in A. Y. 2002-03 where the previous year had ended on 31.03.2002. The matter traveled upto the High Court. The Hon'ble Tribunal while deleting the addition in the hands of MIs. Pratiksha Enterprises has also made an observation that the income is correctly taxed in the hands of Twinkle Property Developers Pvt. Ltd. The appeal was filed before the Bombay High Court and the appeal of the Department is dismissed. No authority has given a finding that income is chargeable to tax in the hands of Pratiksha Enterprises. We further submit that as on 3 1.08.2002 the project was not completed. Various issues relating to the project are pending. The expenditure was required to be incurred. The firm did not have funds. The estimated cost on the date of the project was about more than Rs. 15 cores. As per the estimate the project was only complete upto 83% as on the date of dissolution, it was only with the efforts, relationship and ability to generate funds, the project could be completed by Twinkle Property Developers Pvt. Ltd by spending Rs. 7 crores (approx). However,....
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....perty Developers Pvt. Ltd. in A. Y. 2003-04 and no income can be computed as on 31.08.2002 in the hands of Pratiksha Enterprises. Without prejudice to above submissions, we also submit that if income is to be computed for 83% project completion basis, then the total income chargeable to tax can only be Rs. 2,70,22,8991-. The working of the some is enclosed herewith. Please note that this working is submitted based on the assumption that what could be the income if the project is deemed to be completed 83% as on 31.08.2002. We still retreat that no income is chargeable to tax in A. Y. 2003-04 in the hands of Pratiksha Enterprises. This submission is without prejudice to the stand that no income is chargeable to tax in A. Y. 2003-04 in the hands of Pratiksha Enterprises." 5.1.7 I have considered the facts of .the case and the submissions made by the assessee. However, before deciding this issuelt would be pertinent to deal with certain submissions made by the assessee which are clearly not correct. The assessee has submitted that subsequent to the take over of the business, M/s. Twinkle Properties has incurred substantial expenditure and have completed the project. ....
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....had undertaken to develop a project. In respect of the said project, as per assessee's own admission, it had received almost the entire amount of sales consideration from the buyers. The total area for sale was 2,32,530 sq.ft. and as submitted by the assessee itself, area of 2,27,175 sq.ft. had already been sold for which total sales consideration had already been received by the assessee. Another four flats admeasuring 4470 sq.ft. totally were also sold by the assessee before 01.04.2002 for which substantial sale consideration had been received by it before 01 .09.2002, although the agreement was executed after 01.09.2002. Only one flat of 885 sq.ft. remained unsold by the assessee. As per assessee's own submissions, the four flats of 4470 sq.ft. totally were agreed to be sold for Rs. 1,58,12,000/- for which consideration of Rs. 1,49,93,000/- was already received by it as on 31.08.2002. The fact that the assessee had received the entire sales consideration on sate of flats itself suggests that the construction was either complete or substantially complete. As per the accounts filed by the assessee, the work-in-progress of the Prabhadevi Project was shown at Rs. 79,55,64,000/- ....
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....completion of construction, it is only after carrying out further inspections and formalities would the architect actually apply for Occupation Certificate. Hence, from this angle also i t can be fai r ly concluded that the project of the as ses see was complete /substantially complete as on the date of dissolution. MIs. Twinkle Properties Pvt. Ltd. has debited certain expenditures after the date of succeeding in the business which is only a miniscule percentage of the total expenditure incurred. However, this will have no impact on the issue since even after the completion of the project, certain expenditures do get incurred in respect of improvements made and such expenditure could be claimed in the accounts of M/s. Twinkle against the balance receipts. The assessee has argued that M/s. Orbit has shown its part of the project to be complete in March. In my opinion, there is nothing extra-ordinary in this fact. M/s. Orbit continued to be in existence as on 31" March. Hence, it would be liable to offer the Appeal Order - MIs. Pratiksha Enterprises, A.Y.200304 income only as on 31" March irrespective of when the project was completed during the course of the year. iç. Pratiks....
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....'right person'. The Hon'ble Apex Court has held that merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact as to which course is more beneficial to the revenue. The language of the relevant provisions of the 1961 Act is quite clear and unambiguous. Section 183 shows that where the Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt, entitled to be relieved of it in accordance with law, but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer has taxed the said income in the hands of another person contrary to law. 6.1.2 Hence, the assessee cannot claim that the income LawfuLly Liable to be taxed in its hands cannot be brought to tax in its hands because the same has been held to be taxable in the hands of another person. The income accrued to the assessee upto the date of its dissolution will, therefore, be taxed in the hands of the assessee itself. Twinkle may take n....
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....ute property of the assessee. For this, the assessee would have been required to refund the amounts and also pay compensation to the existing buyers at market rates in which case, the FMV of the entire property as worked out by the A.O. would be required to be deducted by the amount Of refund made and the amount of compensation. Presuming that even if refund of Rs. 96.38 crores was to be made in case of cancellation of the agreements, the FMV of the property by A.Os own working would be Rs. 212.76 crores (-) Rs. 96.38 crores, i.e., Rs. 116.38 crores, which almost corresponds to the sale consideration disclosed by the assessee. This does not take into account any further amount to be paid to the flat owners by way of additional compensation. In view of the aforesaid reasons, the method adopted by the A.O. for computing the business profits of the assessee cannot be upheld. 6.1.4 Coming to the computation of the income of the assessee, it has already been held that the project of the assessee was already completed to the extent of approximately 96.59% as on the date of the dissolution. Therefore, the profits will be computed based on the actual sales consideration received a....
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....f the assessee that out of the total receipts of Rs. 9,07,42,178/- on account of sale of car parking space/ escalation recovery, only an amount of Rs. 7,12,68,277/- was received as on 30.08.2002. The A.O. is, therefore, directed to verify this aspect. If the contention of the assessee is found to be correct and he is able to show the correctness of the claim, profits of the business assessable in the hands of the assessee would be Rs. 25,51,58,334/-, otherwise 96.59% of the balance amount of receipt, i.e., Rs. 9,07,42,178/- (-) Rs. 7,12,68,277/-, i.e., Rs. 1,88,09,8411- wilt also be taken into consideration by the A.O. for computing the profits of the assessee assessable to tax, in which case the income of the assessee would be Rs. 27,39,68,175/-. 6.1.7 The content ion of the as ses see wi th regard to the addi t ion of Rs . 4,87,61,962/- has been considered. However, its contention that the same represents sale consideration of a single building sold to the assessee which was already offered to tax in the A.Y. 1998-99 cannot be accepted and this amount cannot be reduced f rom the sale cons iderat ion as computed hereinabove in thi s order. The sate consideration taken int....