TaxTMI 
TaxTMI 
2021 (1) TMI 910
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....nt of proceeds of Rs. 4,20,00,000/- received on issue of debentures holding that no sale had taken place without appreciating that this is a sham transaction entered only to avoid tax. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has not appreciated that the assessee company is not the actual owner of the flats/parking spaces but the shareholders/debenture holders are the actual owners of the flats/parking spaces." 2. Briefly stated, the assessee company which is engaged in the business of a builder, masonry and general construction contractor had filed its return of income for A.Y. 2011-12 on 20.09.2011, declaring its total income at Rs. 26,41,130/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee had constructed two buildings, viz. (i) Tanna Residency (Phase-I); and (ii) Raheja Empress (Phase-II). As observed by the A.O, that while for the building Tanna Residency (Phase-I) was comp....
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....bentures/shares that were issued during the year in question, and submitted that it was not engaged in any trading activity for earning profits insofar the construction of the building viz. Tanna Residency was concerned. It was further stated by the assessee that its aforesaid claim had been accepted by the department in the respective assessments that were framed under Sec. 143(3) in the preceding years, viz. A.Y 2001-02 and A.Y 2006-07 to A.Y. 2009-10. Elaborating on the nature of its business activities, it was submitted by the assessee that it continued to own the building and its construction cost had been raised through the share holders by issuing unsecured redeemable debentures to them. In order to buttress its aforesaid claim, it was submitted by the assessee that issuing of debentures by the company and raising of money therefrom was neither held as sale of units nor sale of parking space by the department while framing its assessments for the aforementioned preceding years. Coming to the facts pertaining to the year under consideration i.e A.Y.2011-12, it was submitted by the assessee that it had issued 60(sixty) 1% Unsecured Redeemable Optionally Convertible Debentures ....
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.... respect of specified positions in the building being constructed by it. As such, it was submitted by the assessee that funds raised by the assessee company by issuing debentures not being in the nature of income could not have been brought to tax. 5. After deliberating at length on the contentions advanced by the assessee, the A.O was not persuaded to accept the same. It was observed by the A.O that while framing the assessment for A.Y. 2006-07 the assessee's claim for depreciation on buildings was specifically disallowed, for the reason, that the assessee was not the real owner of the buildings. As noticed by the A.O, in the assessee's assessment for A.Y. 2007-08 it was specifically observed that the assessee company was only maintaining the property and was not the owner of the same. Also, as observed by the A.O a similar view was taken while assessing the income of the assessee company for A.Y. 2008-09, wherein it was once again held that the assessee was maintaining the building and, thus, was impliedly not the owner of the same. Accordingly, the A.O dislodged the claim of the assessee that the department had accepted its method of accounting in the preceding years. As r....
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....before the CIT(A). Observing, that the accounting treatment of debenture money received by the assessee company had been accepted by the department since A.Y. 2001-02, the CIT(A) was of the view that the charging of the same as sale income of the assessee in the year in question i.e A.Y. 2011-12 would go against the principle of consistency. Accordingly, finding favour with the contentions advanced by the assessee, the CIT(A) vacated the addition by observing as under: - "6. I have carefully considered the facts of the case and the submissions made by the Ld. AR. I have also gone through the decisions relied on by the Ld. AR. The issue that requires consideration is whether the receipt of debenture money from M/s. lnternational Export and Estate Agency ("lEEA") amounts to sale consideration of the parking space. The appellant has received similar debenture monies in the past which have been accepted as such by the AO. The receipt was not considered as sale proceeds of the flats or parking space. This is clear from the assessment order passed by the AO for A.Y.2001-02, wherein it was concluded that the appellant company is not engaged in trading activities for earning pr....
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....cannot also be forfeited for breach of any condition. The debenture also carries interest from the date it becomes fully paid up. There remains a liability on the appellant to redeem the debentures, which makes it a debt. That the debentures are redeemable on a future date does not detract the liability from becoming a debt. In view of the above facts, the receipt of debenture money does not partake the character of revenue receipt, which can be subjected to tax. 6.3 That the appellant has not sold the parking space to IEEA is also clear from the another fact. IEEA had the right to occupy the parking spaces as long as it held the requisite number of shares and debentures. The appellant has brought to my notice the fact that the impugned sixty debentures were redeemed on 07.10.2013. The redemption of debentures issued to IEEA released the parking spaces allotted to IEEA. Presently, right to occupy the parking spaces is with the appellant. The appellant is the owner of the parking spaces, which justifies its stand of allotting parking spaces to persons on the basis of holding requisite number of shares and debentures. It is immaterial whether the funds are ....
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....of the appellant and has not treated the debenture money as sale proceeds of flats or parking space. While it is true that principle of res judicata is not applicable in tax proceedings, but the principle of consistency would certainly apply. The appellant, in this regard, has relied on the decisions in the cases of Radhasoami Satsang(supra), Chetan K. Mehta (supra), Oil India Ltd (supra), and Spectra Shares & Scrips (P.) Ltd. (supra). The Hon'ble Supreme court in the case of Radhasoami Satsang(supra) has held that where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be appropriate to change the position in a subsequent year. Hence, the principle of consistency is to be maintained when the facts are identical. There is no reason as to why the ratio of the above decisions shall not be applicable to the facts of the instant appeal. In the present case, the accounting treatment of debenture money by the assessee has been accepted since A.Y.2001-02 and hence, charging it in AY 2011-12 would go against the princi....