TaxTMI 
TaxTMI 
2020 (3) TMI 1228
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....claim of the appellant that the alleged amount receivable by appellant on e-auction is allowable as bad debts or business loss. 4. The appellant prays that: i) addition sustained by the learned Commissioner of Income Tax (Appeals) may be deleted and it may be held that no amount is assessable in the hands of the appellant on the said ground; ii) recovery of demand in dispute may be stayed till the hearing and disposal of appeal; iii) any other relief your honours may deem fit. 3. Revenue's appeal : Grounds of appeal read as under :- 1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in restricting the 5% of sale receipt as assessee's income though in principle, the Ld. CIT(A) was in agreement with findings of the Assessing Officer about the treatment of e-auction receipt as business income. 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in restricting the addition on account of amount received through e-auction of the impugned land and property to only 5% of the receipt without appreciating the fact that the amended facilitation agre....
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....d or alter any ground or add a new ground, which may be necessary. 4. Brief facts of the case are as under :- The assessee is a registered company and is engaged in the business of construction and development of real estate. During the course of assessment proceedings, on going through balance sheet and its Annexures, the assessing officer observed that inventories in the form of Turner shown at Rs. 3,89,47,109/- as on 31/3/2013 was shown as 'Nil' as on 31/3/2014. The profit and loss account for the year shows revenue from sale of undivided sale of land at Rs, 3,53,18,899/- and the corresponding cost of land sold was shown at Rs, 3,47,45,141/-. The notes/annexures also shows the cost of land at Rs. 3,47,45,141/-. Details of comparative format balance sheet filed by the appellant shows that an amount of Rs. 2,53,61,691/- was shown as 'advance holding company' as on 31/3/2014. Further, the assessing officer also noted that an amount of Rs. 5,02,54,749/- shown as 'advance received from customers' as on 31/3/2013 had become Nil for the year ending 31/3/2014. The Assessing Officer referred to the facts that emerged during assessment proceedings of anoth....
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....SAFAESI Act and appropriated the mortgaged property sold (E auction) the same to Evita Constructions Pvt. Ltd. for a consideration of Rs. 2,96,29,01,000/-. As a result the assessee company made the following adjustments - Inventories in the form of land was shown at Rs. 8,89,47,109/- as on 31/3/2013 was shown as Nil as on 31/3/2014, the profit and loss account for the year showed revenue from sale of undivided sale of flat at Rs. 3,53,60,899/- and the corresponding cost of land was shown at Rs. 3,47,45,141/-. The Annexures/notes in this regard showed the cost of land at Rs. 3,47,45,141/-. Details of 'comparative format balance sheet' filed by the assessee showed an amount of Rs. 2,53,61,691/- as advance holding company as on 31/3/2014. Further an amount of Rs. 5,02,54,749/- was shown as advance received from customers as on 31/3/2013 had become Nil for the year ending 31/3/2014. The Assessing Officer opined that in view of the facts, the contention of the assessee, that the receipts arising from option of the mortgaged property is against the development (construction of building and infrastructure), receivable from customers upon sale of land of the assessee company, appea....
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....any-HPGPL to the extent of its liability being written off by HDFC on account of appropriation of mortgage Rs. 296,29,01,000/-. Thus, the assessing officer pointed out that the purpose for mortgage of property was not in the exigencies of its business and lacked an expediency or mutuality. Also, the fact that the borrowings by the holding company-HPGPL ceased from the moment the mortgaged property of the assessee company was appropriated and auctioned by the lender HDFC under SAFAESI Act, 2002. The benefit of the cessation of liability had accrued in the hands of the holding company HPGPL to the extent of its outstanding liability towards the loan of Rs. 550 crcres taken from HDFC as on the date of auction. The ceased liability in the hands of the holding company HPGPL to the extent of sale proceeds (e-auction) from the assessee-company's mortgaged properties was in fact the income that had shifted from the assessee's hands to that of the holding company HPGPL. 7. The assessing officer also stated that when the assessee company pledged (mortgaged) the property (land), then in the case of default the creditors HDFC of the holding company HPGPL shall have all the right ....
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.... principal activity of assessee is to acquire land for developing residential townships in India. That the assessee company had entered into facilitation agreement granting development rights to Hiranandani Palace Gardens Private Limited (HPGPL), the project development company (PDC) and which is also its holding company. Assessee's facilitation agreement with HPGPL was dated 1.4.2009 as amended on 1.4.2010. Learned CIT(A) also noted that seven landowning companies including the assessee entered into facilitation agreements with HPGPL for development of a township in Chennai. Thereafter learned CIT(A) referred to facilitation agreement which gave HPGPL rights to develop the impugned land and construct buildings and as per the amended facilitation agreement, assessee company was entitled to the total consideration payable towards the said land subject to maximum 5% of the total price at which the constructed property with the said is sold to the final customer. Thereafter, learned CIT(A) noted that HGPGL obtained project finance from HDFC in three tranches of Rs. 100 crores, Rs. 300 crores and Rs. 150 crores during 2008 to 2010 against collateral security of the impugned land owned ....
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....nnot be construed as diversion of income by overriding title. Thereafter learned CIT(A) referred to following case laws to reject the assessee's claim that no income has arisen :- i) CIT Vs. Roshanbabu Mohammed Hussein (144 Taxman 720) (Bom) ii) CIT Vs. Attili N. Rao (252 ITR 880) (SC) iii) CIT Vs. Shoorji Vallabhdas & Co. (46 ITR 144) 11. Thereafter learned CIT(A) also rejected the Assessing Officer's reference that purchaser M/s. Evita Constructions Pvt. Ltd. and the assessee were related party. Accordingly, he concluded by directing the Assessing Officer to restrict the addition on account of amount received through e-auction of impugned land and property by HDFC to only 5% of the receipt and recomputed income after giving benefit for amount of inventory of land written off. 12. Against this order the assessee and Revenue are in cross appeals before us. 13. We have heard both the counsel and perused the records. The Revenue in its grounds of appeal has raised ground that the amended facilitation agreement between the assessee and HPGPL on which learned CIT(A)'s decision is based has not been registered and same cannot be relied upon. It has al....
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....sion of Hon'ble Apex Court for the proposition of diversion of income by overriding totally. In the alternative, learned counsel claimed that even part of the amount is treated as income of the assessee the same should be treated as loss as assessee has not received any amount whatsoever. He further claimed that land was assessee's trading asset. The loan of trading asset should be allowed as trading loss. Hence, learned counsel claimed that no income is to be computed in the hands of the assessee. 17. Upon careful consideration, we note that the assessee is a company which is engaged in the business of construction and development of real estate. It had entered into facilitation agreement with its holding company HPGPL for development of project in Chennai on the land holdings belonging to the assessee as well as other group companies. In 2008, the said HPGPL was sanctioned loan of Rs. 550 crores as construction loan from HDFC to be disbursed, subsequently on the basis of development of the construction of the project. The assessee's land whose book value of Rs. 8,88,47,107/- was also given as mortgage . There was also an amended facilitation agreement. As per this agreemen....
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....essee. He also opined that there was no need by the assessee to mortgage the said property. 19. Assessee appealed before learned CIT(A). In its appeal the assessee claimed that it had not received any money whatsoever and the entire land of the assessee-company has been sold by HDFC in e-auction and sale proceeds of the property through e-auction were adjusted against the loan by HPGPL. As the assessee did not receive any amount and it claimed loss thereon learned CIT(A) examined the issue. He was of the opinion that sale comprised of land belonging to the assessee as well as construction thereon by HPGPL. In these circumstances, learned CIT(A) referred to assessee's facilitation agreement with HPGPL. As per the terms of the facilitation agreement he opined that assessee-company was to receive 5% of the total price of the constructed property when sold to the final customer. So learned CIT(A) applied this ratio and held that 5% of the proceeds were belonging to the assessee. In this regard learned CIT(A) rejected the assessee's contention that there was diversion of income by overriding title as per the decision Hon'ble Supreme Court in the case of CIT Vs. Sitaldas Dirathdas....
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....s upon the stage of construction and over a period it came to Rs. 550 crores. The said disbursal was dependent upon stage of construction. By no stretch of imagination it can be said that entire sum was received only against land belonging to the assessee. It is further clear from sale certificate wherein in the description of the property it has been mentioned that the same consists of immovable property being sold by way of sale of residuary right including receivable of HPGPL with step-in obligation in respect to the immovable property. Hence, it is quite evident that the receipt of e-auction by the HDFC against its finance to HPGPL did not belong to the assessee in its entirety as the same was of project as it stood as on that date. It comprised of the constructions there on as well receivable by HPGPL. Learned CIT(A) is correct in his appreciation that the assessee can be entitled to 5% which was agreed upon in the facilitation agreement between the assessee and its developer holding company i.e. HPGPL. 22. Now we come to the assessee's claim that since it has not received any amount and its land has also been e-auctioned, the assessee's case should be treated as business l....