TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 247
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....O observed that the assessee firm is carrying on business in real estate by purchase of land and sale thereof after division and development of plots and during the course of such business, has admitted receipts from the development of land at Rs. 3,90,64,918/-, receipts from sale of land at Rs. 1,89,14,882/- apart from closing stock of Rs. 4,15,50,289/-, but that the assessee had admitted a net profit of Rs. 47,96,566/- only, though the net profit derived by it was Rs. 4,08,42,873/- and that the balance profit of Rs. 3,60,46,308/- was not offered for taxation. The assessee was therefore, asked to explain as to why the remaining profit of Rs. 3,60,46,308/- was not offered to tax in the hands of the assessee firm. The assessee filed a letter dated 27- 02-2013 stating that the assessee entered into an MOU on 22-03- 2007 with M/s. Sindya Infrastructure Development Company Private Limited (herein after referred as SIDCPL or Company), Chennai, as per which, the said company has a charge on the gross receipts of the assessee i.e. 87.12% of the gross receipts after deducting cost of land development charges and brokerage for purchase of land and hence, SIDCPL has an overriding title over ....
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....lopment Company Pvt. Ltd., as under: 29-06-2006 - 2 crore 31-6-2006 - 6 crore After receiving the money from Sindya Infrastructure Development Company Pvt. Ltd. the appellant entered MOU with HDFC for development of land on 22-3-2007. It is pertinent to mention that the amount paid by Firm of Rs. 1,57,01,809 paid to the company was shown as income of the company. However the company did not pay any taxes in view of brought forward losses. It is pertinent to mention that the same issue was decided in favour of the appellant by the CIT(Appeals) for A.Y. 2010-11 in appeal No. 0095/13- 14/ CIT(A)-VI dtd12-11-2014 where in the CIT(A) observed that : This practice/ method of accounting has been fallowed by the appellant firm from 2007-08 onwards which were accepted by the department and the amount of Rs. 3,60,46,408/- claimed and debited to profit and loss account for the year under reference is an similar lines and as per the MOU. There is no change in facts and law for A.Y. 2007-08 to 2010-11, and under the circumstances, the argument of the appellant appears reasonable and there is no reason to disturb the claim. The decision of Supreme Court in the case of Radha Soa....
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.... 8.00 crores from M/s. SIDCPL. He also submitted that the assessee had been able to repay only a part of the advances during the relevant previous year. In support of his contention that the charge of M/s. SIDCPL over the gross receipts is nothing but diversion of income by overriding title, the learned Counsel for the assessee placed reliance upon the following decisions: (a) I.T.A.T Order in the case of C. Narendranath in ITA No.48/Hyd/2013, dated: 26/11/2014 (b) Jamshedpur Motor Accessories Stores vs. C.I.T (Patna) 95 ITR 664 (c) C.I.T vs. C.V. Soundararajan and Another 8 & 9 (Madras) 150 ITR 80 (d) C.I.T vs. M.D. Manohar Rao (A.P High Court) 155 ITR 696 (e) CIT vs. Excel Industries Ltd (Supreme Court) 358 ITR 295 (f) CIT vs. Gopal Purohit (Bombay) 336 ITR 287 (g) C.I.T vs. A.R.J. Security Printers (Delhi) 264 ITR 276. (h) CIT vs. Sitaldas Tirathdas (Supreme Court) 41 ITR 367 (i) Hon'ble A.P. High Court in the case of Spectra Shares and Scrips P Ltd vs. CIT reported in 36 taxmann.com 348 (j) Official Trustee of West Bengal vs. C.I.T, West Bengal- II, Calcutta 116 ITR 219 (k) CIT, Bombay City -I vs. Crawford Bayley & Co 22 106 ITR 884 (l) CIT, Bombay C....
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....ore than Rs. 2 Crores of loan and the outstanding amount was only Rs. 5.95 Crores against SIDCPL. As seen from the ledger account also, assessee was able to repay an amount of Rs. 2,05,00,000/- to the said company. However, as seen from the financials placed on record in the Paper Book from pg. 120 onwards including assessment order in the case of SIDCPL dt. 24-12-2009, M/s. Kamineni Builders was not shown in the balance sheet under any of the head. While disallowing the interest on the interest free advances made, the AO of the said company had determined the interest free advances made to M/s. Kalpatharu Infrastructure Development Pvt. Ltd., and disallowed the amount paid to M/s. Kalpatharu Enterprises Pvt. Ltd., whereas the interest free deposit given to M/s. Kamineni Builders was not shown or reflected anywhere so as to verify the same. Thus, there is no evidence of assessee firm being shown as debtor or the profit was shared as decided in the MOU relied on. b. Coming to AY. 2008-09 i.e., for the year ending 31-03-2008, assessee has shown a profit of Rs. 47,06,063/- on receipt of Rs. 6,28,95,338/-. For this year, however, assessee has shown the share of gross profit at Rs. 3,....
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.... Rs. 3,60,46,308/- was offered as income. The same amount was also claimed by assessee in its financials for 31-03-2010 and net profit of Rs. 47,96,565/- was only offered. e. For the year ending 31-03-2011, assessee had no sales and only closing stock was shown being the opening stock but the operations resulted in a loss of Rs. 38,765/-. This loss along with other expenditure was claimed at Rs. 3,97,928/-, but the net loss was not divided between the two companies, as per the agreement. f. However, in the subsequent year ending on 31-03-2012, assessee has shown gross profit of Rs. 3,05,57,192/- and this profit was again shared with SIDCPL at Rs. 2,65,87,139/-. The financials of SIDCPL for these years, however, were not placed on record, so as to examine whether the said company offered the income or not. 11. As seen from the above, there is no consistency in claims either by assessee or by the said company SIDCPL. As far as year ending 31-03-2007 was concerned for which return was filed in May 2010, the entire profit was offered, even though the so called agreement was dated 22-03-2007 and was operative in 2007 itself. As already pointed out, that company has offered incomes ....
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....h. 14. Since the amount of Rs. 2.05 Crores was already paid by the time the MOU entered, the distribution of profit at 87.12% also gives rise to a doubt about the ratio that was determined. The project was to be undertaken by the firm and only the profits are to be shared, not the losses, after set off of all expenditures. If there is an obligation at the source, then the losses arising also gets shared. As seen from the terms of agreement, this can only be considered as appropriation of the profits but not a 'diversion by overriding title'. The principles are very clear that the obligation has to be to the source. In this case, this obligation is created by the parties by way of subsequent agreement, much later to the advancing of money to assessee-company (with or without interest) and part of the payment was already repaid out of the total amount borrowed. The way incomes were offered in assessee's hands in the first year, even though agreement was entered as early as 22-03-2007 and the return was filed much later on in May 2010 and that company was offering incomes only in two years and not offering in some years, even though it has received substantial amounts in three years ....
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...., we are of the opinion that assessee did indeed earn very high margin of profits and for unexplained reasons, the same was distributed/applied to discharge its obligation of repaying the loan. Accordingly, we are of the opinion that this obligation cannot be considered as an expenditure or as diversion of income. We have no hesitation in setting aside the order of the CIT(A) and restoring the order of AO for the impugned assessment years. 17. Assessee's Counsel has relied on various cases law as stated above. We are of the opinion that the principle established in various case law is based on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Sitaldas Tirathdas (supra), but the facts of case are entirely different so as to make applicable to assessee's case. 18. In the case of ACIT Vs. Mr. C. Narendranath in ITA No. 48/Hyd/2013 (AY. 2008-09) dt. 26-11-2014, the issue is with reference to adopting sale consideration. There, the facts indicate that the land owner has to pay corpus fund, infrastructure fund and difference on account of teakwood falling to his share to the builder by an agreement. The builder instead of collecting the same from the flat owners, passed ....