TaxTMI 
TaxTMI 
2017 (11) TMI 564
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..... 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. 6. Without prejudice to the fact that no income is chargeable to tax, o....
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....d 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 31-12-2008 on the basis of closing work-in-progress and calculated net profit of Rs. 22,69,63,837. Being aggrieved....
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....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 appellate proceedings, I find that the A.O. has recorded that the assessee had not filed the return of income for the A.Y.2003- 04 ....
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....ny 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 the name of the assessee, the action of the A.O. of issuing the notice u/s 148 in the name of Pratiksha Enterprises is held to be vali....
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....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 that the very and only business carried on by the assessee subsisted uninterruptedly in the hands of Twinkle without any break or stoppage. In view of the aforesaid reasons, the case of t....
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....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 agreement for 2,27,175 sq.ft. prior to 31.03.2002 and had received the consideration of Rs. 96,38,79,178/- and in respect of four flats admeasuring 4,470 sq.ft. the consideration was received prior to 31....
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....alified 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 sale, then the sum of Rs. 97,88,72,178/plus the liability for interest and damages is also to be allowed as deduction. 5.1.4 Wi th regard to the addi t ion of Rs. 4,87,61,962/-, being the sale consideration o....
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....l 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, at the time when the dissolution has taken place it was estimated that the additional project cost of Rs. 15 crores is required. As only 83% of the project was completed as on 31.08.2002 no income can be computed for A. Y. 2003-04 in the hands of ....
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.... 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. This is not correct. It is M/s. Pratiksha Enterprises which had incurred almost the entire expenditure on the project as would be evident from the discussions made later in the order. Secondly, the project was almost complete when the firm dissolved. It is also appa....
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..... 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/- as on 01.09.2002. As per the accounts of M/s. Twinkle Properties Pvt. Ltd., the total expenditure incurred during the entire financial year is shown at Rs. 6,87,35,977/-. Hence, the total expenses on the project has been worked . out at Rs. 82,36,10,879/- . As per the accounts of Pratiksha....
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....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. Pratiksha had been in existence as on 31st March' it would have also filed its return as on 31 March, even if the project stood completed in August. It has is in any case been shown that the project was ready for occupation much before 21.01.2003. 6.1.1 I have also perused the order of the Hon'ble....
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....ial 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 necessary steps for exclusion of the income assessed in the hands of the assessee from its total income as per law. 6.1.3 The next issue that is required to be decided in this appeal is as to the amount of income which is required to be taxed in the hands of the assessee upto 01 .09.2002. 1 find that the A.O. h....
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....pensation. 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 and the expenditure incurred as on the date of the dissolution. As per the accounts of M/s. Pratiksha Enterprises upto 31.08.2002 filed by the assessee in the appellate proceedings, the assessee has shown receipts of Rs. 116,47,12,3681- towards flat booking. It has also shown further advance of Rs. 6,90,70,122/- from prospect....
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....s 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 into account in this order is based on the sale consideration shown by the assessee itself. Further, if the sale consideration had already been offered for taxation in the A.Y. 1998-99, the question of the same being part of the advance received against sate of fiats would not arise. The contention of the assessee on this issue is, therefore, rejected. 6.1.8 In the assessment order it has been stated by the Ass....