AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (5) TMI 1083
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.... Tirandaz, Powai, Mumbai, in spite of arriving at the conclusion that the joint development agreement dt. 4th April 2008 represented a genuine business transaction. 1.3 The ld CIT(A) erred in arriving at the conclusion that the security deposit received by the appellant firm from M/s. Skyline Mansions Pvt. Ltd. in respect of the agreement for joint development of property was partly for business considerations and partly for non-business considerations. 2.1 The ld CIT(A) erred in enhancing the assessed income by a sum of Rs. 28,41,34,500/- in respect of a new source being "business income" allegedly arising from sale of FSI under joint development agreement dt. 4" April 2008. 2.2 The ld CIT(A) erred in enhancing the income in respect of a new source which was not considered by the id AO in the assessment nor was any ground in respect thereof raised before the id CIT(A). 3. On the merits of addition of Rs. 28,41,34,500/- (enhanced income) as business income arising on sale of FSI. 3.1 The ld. CIT(A) erred in arriving at the conclusion that the joint development agreement dt. 4th April 2008 led to business income of Rs. 28,41,34,500/- aris....
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.... of the Balance Sheet at 31st March_2009. Both the parties intend to develop the said land jointly. Presently, the land is under no Development Zone (NDZ) as per the prevalent development regulations of BMCC. Accordingly, no development in foreseeable future is anticipated by the partners of the assessee firm." 3. Assessing Officer has stated that assessee has not submitted any agreement in this regard. That assessee was again asked vide order sheet noting dated 13.09.2011 to give copy of agreement entered into with SMPL. That assessee finally submitted copy of the agreement alongwith its letter dated 03.11.2011. The relevant part of the said letter is reproduced by the Assessing Officer in para 5.2 as under: "The deposit received from M/s. Bahupriya Properties Pvt. Ltd. is towards the joint development agreement dated 04.04.2008 between the said company and the assessee firm. The joint' development agreement is executed with regards to joint development of contiguous pieces of lands owned by both the parties independently at village Tirandaz, Near Powai, Mumbai." 4. Assessing Officer after considering the agreement and shareholding pattern of SMPL has stated tha....
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.... clause 23 of the said development agreement dated 4.4.2008 was referred to and stated that it is specifically mentioned that the parties had entered into the said agreement on principal to principal basis and nothing contained therein shall be deemed to be a partnership or joint venture between the concerned parties. It was also contended that AO doubted the genuineness of the said agreement only on account of delay in registering the agreement as registration was done after a period of 43 months. It was contended that the agreement was got registered only after the receipt of requisite approvals and commencement certificates from Municipal Corporation of Greater Mumbai (MCGM) on 1/2/2011. It was also contended that the stamp duty paid including the penalty for registering the agreement dated 4/4/2008 on 20/10/2011 was Rs.78,89,100/-, which is more than 5 times the tax levied by AO on the assessee u/s. 2(22)(e). Hence the conclusion of the Assessing Officer that the agreement between the assessee and SMPL was only a make belief transaction to cover up the transfer of funds by SMPL to assessee firm establishes the fallacy of the conclusion of the Assessing Officer. It was contended....
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....nt etc for the joint venture, I agree with the contentions of the Ld. AR that the AO has failed to appreciate that as per clause 23 of the agreement dated 04-04-2008 it was a joint development agreement between the appellant and the company on principle to principle basis and it was not a joint venture agreement at all. The AO suspected the genuineness of the agreement dated 04/04/2008 on grounds that the said agreement was not registered immediately after 04/04/2008 and it was registered only after the date when the AO asked for the copy of the agreement during the assessment proceedings on 13/09/2011. Whether the agreement dated 04-04-2008 is registered or not or the fact that the same has been registered after delay of 43 months, would not make the agreement void or not genuine. The registration of documents after delay is also lawfully admissible under the registration laws after payment of requisite penalty. In this case also the appellant has paid penalty of Rs. 36,47,650/- at the time of registration of confirmation deed of the agreement on 20-10-2011. The said land is appearing as stock in trade in the balance sheet of appellant and subsequently the plans have also been app....
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....ment cannot step into shoes of the businessman to decide as to how he should have done its transaction but the same needs to be done as per commercial principles, if one has to claim any particular benefit under the Act. Ld CIT(A) has stated that if at all some deposit was considered appropriate in the wisdom of contracting parties, it could have been taken only as per commercial principles in order to claim that the entire amount was in nature of business receipt only and nothing else. Ld CIT(A) has stated that in the agreement dated 4.4.2008, though it is mentioned that SMPL shall give security deposit but there is no mention of the quantum or purpose or period of the security deposit. Ld CIT(A) has stated that in absence of any quantification of security deposit in agreement itself, it cannot be said that entire amount of Rs. 54,68,90,000/- received from SMPL is for business consideration only in terms of agreement dt. 4.4.2008. The entry of the sum as security deposit in books of account cannot be conclusive unless in sum and substance they conform to the nature of the receipts. Ld CIT(A) has stated that as per clause 17 of the agreement, the security deposit was to be received....
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....reated as shareholder and sums advanced by company to the firm has to be treated as deemed dividend u/s.2(22)(e) of the Act. Ld CIT(A) has stated that the partners who are registered shareholders of SMPL are having more than 10% shares but when it is the firm which has received the money, the deemed dividend u/s.2(22)(e) is to be assessed in the hands of the firm. Ld CIT(A) has further stated that decision of Hon'ble Bombay High Court in the case of Universal Medicare Pvt Ltd.,(supra) and the decision of ITAT (SB) in the case of Bhaumik Colour Pvt Ltd (supra) relied upon by the assessee are not applicable to the facts of the case. Ld CIT(A) has stated that the Hon'ble Apex Court has held in the case of Goodyear India Ltd, 188 ITR 402(SC) that a precedent is binding only for what is actually decided by it and not for what may remotely follow from it. Ld CIT(A) has stated that the decisions cited on behalf of assessee are not at all applicable to the facts of the assessee's case as they have not decided the question of taxability of sums received by firm u/s.2(22)(e) of the Act, where the partners are shareholders as the firm has a different legal status and relationship ....
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....on of Hon'ble Delhi High Court in the case of National Travel Services (supra) was considered by the ITAT Mumbai in the case of M/s. Beekay Tex vs ACIT (I.T.A. No. 5118/M/2010 for A.Y. 2006-07) by its order dated 23.12.2011. That the ITAT Mumbai Bench after considering the said decision of Hon'ble Delhi High Court in the case of National Travel Services (supra) and also the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop, 313 ITR 116(Raj) as well as the decisions of Hon'ble Bombay High court in the case of Universal Medicare Pvt. Ltd (supra) and ITAT Mumbai (SB) in the case Bhaumik Colour (P) Ltd (supra) have held that the amount in the hands of the assessee firm could not be assessed as deemed dividend as the assessee firm was not registered or beneficial shareholder of shares in the lender company namely M/s. Anish Synthetics Pvt Ltd. Ld A.R. furnished a copy of the said order (supra) and submitted that the facts of the case of the assessee are identical to the facts of the case decided by the Tribunal by its order dated 23.12.2011 (supra) as the shares were held by the partners in their individual capacity in the lender company namel....
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....nto between the assessee and SMPL dated 4.4.2008. However, ld CIT(A) has doubted the total amount of security deposit received by the assessee from SMPL and has considered that the amount to the extent of Rs. 42.41 crores could said to be for business consideration. We find substance in the submission of ld A.R. that once it is accepted that there was a business transaction between the parties and assessee has received security deposit under the said agreement as part of the business transaction, the amount of consideration to be received by the parties is for the for the parties to decide on the basis of commercial prudence and the department is not justified to determine the amount on the basis of the valuation made by the stamp valuation authority for the purpose of payment of stamp duty. Therefore, the finding of ld CIT(A) that only a sum of Rs. 42,42,44,500 is in the nature of business receipts and the balance amount of Rs. 12,27,45,500 out of the total receipts of Rs. 54,68,90,000 are received for non- business consideration is not based on commercial basis but merely on presumption and assumption. Moreover, we observe that the land held by the assessee is undisputedly shown ....
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....ely SMPL is as under: Sr. No. Name of partner Percentage of share in the firm 1 Narottam Sharma 12.50 2 Chandan Sharma 12.50 3 Jatin Diasaria 12.50 4 Urmi Diasaria 12.50 5 Skyline Vision Pvt. Ltd. 25.00 6 Dave Builders Pvt. Ltd. 25.00 Total 100.00 Sr. No. Name of the shareholder Percentage of share holding 1 Narottam Sharma 7.775 2 Chandan Sharma 7.775 3 Jatin Diasaria 8.375 4 Urmi Diasaria 8.375 5 Skyline Vision Pvt. Ltd. 16.750 6 Dave Builders Pvt. Ltd. w 16.750 Total 65.80 16. During the course of hearing, reliance was placed on behalf of the assessee on the decision of Hon'ble Rajasthan High Court in the case of Hotel Hilltop(supra). We consider it useful to state the facts of the said case which are as follows: The Assessee was one M/s. Hotel Hilltop a partnership firm. This firm received an advance of Rs.10 lacs from a company M/s. Hilltop palace Hotels (P) Ltd. The shareholding pattern of M/s. Hillltop Palace Hotels (P) Ltd., was as follows: 1. Shri Roop Kumar Khurana : 23.33% ....
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....ning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course, the two individuals being R and D. are the common persons, holding more than requisite amount of shareholding and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed divided, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm." 17. However, in the case of National Travel Services (supra), the facts were as follows: "The assessee was a partnership firm consisting of three partners being Naresh Goyal, Surinder Goyal and Jet Enterprises Pvt. Ltd. The assessee was the "beneficial owner" of 48.18% of the share capital of Jetair Pvt. Ltd which were held in the name of its partners Naresh Goyal and Surinder Goyal. T....
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....ctively. The assessee firm had taken a loan of Rs. 28,52,41,516/- from M/s Jetair Pvt. Ltd. New Delhi. In this company the assessee has invested by subscribing to the equity share numbering 1,43,980 of Rs. 100 each which constitute 48.18%. However, the shares were purchased in the name of the two partners namely Mr. Naresh Goyal and Mr. Surinder Goyal. Thus, whereas, Mr. Naresh Goyal and Mr. Surinder Goyal are the respective share holders, the assessee is the beneficial share holder. On these facts, in this appeal we are concerned with the first limb [in contradiction to second limb that fell for interpretation in Ankitech (supra)] and are called upon to examine as to whether this first limb of Section 2(22)(e) of the Act has been satisfied. We should point out at the outset that it is an admitted position that all other conditions stipulated in Section 2(22)(e) of the Act are fulfilled. The extent of share holding is also so high that the assessee has indubitably substantial interest in Jetair Pvt. Ltd." 19. We have seen that the facts of the assessee case are different and are identical to the case decided by Hon'ble Rajasthan High Court in the case of Hotel Hilltop (supra....
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.... the market value was valued at Rs.42,41,44,500/- by Stamp Valuation Authority but the assessee received a sum of Rs.54,68,90,000. Hence, assessee received the entire market value of development right during the financial year 2008-09 itself. That the business transaction of sale of development rights was complete and assessee was required to recognize the revenue/profits from the said transaction in A.Y. 2009-2010 as per Accounting Standard -9 or transfer u/s.2(47)(v) are applied. Ld CIT(A) after considering clauses 1.5, 1.7,1.11,4,6,7 (k), 8(b), 8(d), 8(g), 12(i), 13(b), 14.1, 14.2,14.3,6 & 17 of the said agreement dated 4.4.2008 at pages 13 to 17 of the impugned order, issued show cause notice dt.26.6.2012 to explain as to why the revenue may not be recognized in the assessment year 2009-2010 and the income of the assessee should not be enhanced by an amount equivalent to the difference between the market value of 16,500 sq.mtrs of FSI being received as consideration and the cost of land as appearing in books for which the development rights have been transferred. Assessee filed its reply vide letter dated 13.9.2012, the contents of which have been summarized by ld CIT(A) in par....
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....business profits for the land owner arose only when the constructed FSI of 16500 sq mts were ultimately sold." 21. Ld CIT(A) did not accept above contentions of the assessee and stated that the competence of ld CIT(A) is not restricted to examine those aspects of assessment which are complained by the assessee but his competence ranges over the whole assessment and it is open to him to correct the ITO not only with regard to matter raised by the assessee but also with regard to a matter which has been considered by the AO and determined in the assessment. Ld CIT(A) placed reliance on the decision of Hon'ble Apex Court in the case of Raj Bahadur Hardutroy Chamaria (supra). He further stated that same principle has been upheld by Hon'ble Delhi High court in the case of Union Tyres (supra), the case which is also relied upon by ld A.R., wherein, the AAC made enhancement by probing into the source of investment. It was stated that in that context, the Hon'ble Court held that it was a new source as the unexplained investment had no bearing on the question of estimation of sales & G.P. Ld CIT(A) has stated that ld CIT(A) has power to examine any matter though not raised by....
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....funds by SMPL to the assessee firm. We observe that ld CIT(A) has not agreed with AO that the agreement between the assessee and SMPL was only a make belief transaction. On the other hand, ld CIT(A) has held that the said agreement between the assessee and SMPL is a genuine transaction of joint development of land owned by the assessee firm and SMPL at village Tirandaz, Powai, Mumbai. It is also held by ld CIT(A) that assessee and SMPL have entered into said development agreement on principal to principal basis and it was not a joint venture agreement. Therefore, we are of the considered view that ld CIT(A) while examining the nature of receipt of Rs. 54,68,90,000/- is not considering new source of income. On the facts of the case, we are of the view that ld CIT(A) has power u/s. 251(1)(a) of the Act to examine and consider the order of assessment before him as to whether he may confirm, reduce, enhance or annul the assessment. Hence, we hold that the contention of ld A.R., that ld CIT(A) has no jurisdiction to examine the nature of transaction and the nature of receipt of the amount received by the assessee firm from SMPL, has no merit. Therefore, notice issued by ld CIT(A) u/s. 2....
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....e cost of construction of 16,500 sq.mtrs of constructed FSI which was agreed consideration as per agreement was valued at Rs.16.5 crores only and the market value was valued at Rs.42,41,44,500 by Stamp Valuation Authority. Since the assessee had received a sum of Rs.54,68,90,000 as security deposit from SMPL under the agreement dated 4.4.2008, it was nothing but a business consideration on sale of development rights in the financial year 2008-09. Ld CIT(A) has stated that assessee was required to recognize the revenue/profits from the said transaction in A.Y. 2009-2010 as per Accounting Standard -9 or transfer u/s. 2(47)(v). Ld CIT(A) has stated that assessee has already transferred significant risks and rewards of ownership by way of irrevocable covenants and also received the entire consideration in the garb of security deposit which was to be repaid only by adjustment @ 28% of net sale proceeds of constructed FSI of 16,5000 sq.mtrs which was to be received by the assessee. Hence, the profit and gains from transfer of stock-in-trade was chargeable in assessment year 2009-2010 itself. It is relevant to state that assessee has shown the said land in its books of account as stock-in....
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....hat the entry of the sum as 'security deposit' in books of accounts cannot be conclusive unless in sum and substance it confirm to such nature of receipts. He has stated that naming the consideration as security deposit is just a colorful device to camouflage the receipt of money. Ld CIT(A) has further stated that SMPL has noted the work-in-progress as on 31.3.2009 as per its balance sheet at Rs. 2,06,78,741/-, which includes the construction to retain wall, drain work, hutment compensation, purchase of material, BMC scrutiny fee, etc. Therefore, SMPL had already started the development work in assessment year 2009-2010 by incurring above expenditures. Ld CIT(A) has stated that the averments in clause 9(c)(ii) to give licence to developer i.e. SMPL to enter the premises for carrying out development of property only after receipt of approval of plans and CC, is just redundant clause guided by motive to postpone the year of taxability owing to close nexus between the assessee firm and SMPL. Ld CIT(A), after considering the decision of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs CIT, 260 ITR 491 (Bom), has concluded that once the agreement is r....
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....He submitted that under the said agreement, the parties would first obtain surrender of leases from 60 lesseess and, then become entitle for clear possession of the land which is subject of agreement. Ld A.R. further submitted that on the date of agreement entered into the said land was in No Development Zone and the parties were to await for the zoning of the land to be changed from No Development Zone to residential/commercial use and only thereafter the parties would apply for and obtain requisite permission/sanction in the form of approval of plans for joint development of the said property. Ld A.R. submitted that on receipt of commencement certificate from the Municipal Corporation and against identification of premises falling to the share of the joint developers, the license to enter upon the said property for the purposes of development was to be granted. Ld A.R. submitted that the first commencement certificate was granted by Muncipal Corporation on 1.2.2011 and referred pages 116 to 119 of PB. He submitted that the units falling to the share of the joint developers were identified on the approved plan and the license to enter upon the said property was granted to SMPL by ....
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....onstructed property on the land, the assessee has agreed only for a portion of the constructed property for sale for the purpose of recovery of the cost of construction and margin of the developer. The assessee has executed all the sale deeds for transfer of constructed apartments in favour of the end user/purchaser, therefore the transfer of the proportionate land took place only when the assessee transferred the construction property by way of sale deeds and offered the business income which was accepted by the department. In any case, when the assessee has retained the portion of the land being proportionate to the constructed area to be retained by the assessee, then there is no question of transfer of the entire land to the developer. In view of the above discussion, we hold that the orders of the lower authorities qua this issue are not sustainable on the facts as well as on law. We set aside the orders of the lower authorities, qua this issue and direct the AO to tax the capital gain arising from the conversion of the land and building into stock-in-trade proportionately into the previous years in which the constructed property was sold by the assessee or retained for self-u....
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.... the cost of construction of proposed building to the extent of which it fell to the assessee in the ultimately constructed area but the market value of such share of constructed area which might be after the completion of the construction. In view of this, there was no infirmity in the order of the Assessing Officer on this issue. Accordingly, this ground taken by the revenue was to be allowed. 29. Ld A.R. further submitted that ITAT Mumbai also considered similar issue in I.T.A.No.61230/M/2009 in the case of DCIT vs. Shri Vijay Kumar Jain vide order dated 27.7.2011. 30. Ld A.R. submitted that when no sale or transfer of the business assets i.e. development rights took place in the assessment year 2009-2010 and only the transaction was recorded in the joint development agreement dated 4.4.2008, there is no accrual of income in the assessment year under consideration. He submitted that the possession was handed over in assessment year 2012-13 and income on constructed cost of 16500 sq.mtrs was offered for taxation in assessment year 2012-13, wherein, the consideration of joint development has been determined based on stamp duty ready reckoner, the value of which worked out Rs....
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....Zone, which was changed to residential/commercial use and the first commencement certificate was granted by Municipal Corporation of Greater Mumbai (MCGM) on 1.2.2011. The department has not disputed the fact that thereafter the units falling to the share of joint developers were identified on the approved plan and assessee granted licence to enter upon the said property to SMPL on 25.4.2011. Ld A.R. contended before us that the amalgamation of the contiguous lands held by both parties was done only after grant of license on 25.4.2011. We find merits in the said contention of the assessee that the transaction of development as proposed in the joint development agreement could be said to be crystalised only on 25.4.2011 i.e when the license to enter upon the said property was granted to SMPL for carrying out the development of the project. We observe that ld CIT(A) has referred the clauses of the agreement and stated that assessee has given irrevocable and conclusive permission under the said agreement to SMPL. Therefore, ld CIT(A) has presumed that the possession was also delivered in financial year 2008-09 relevant to assessment year under consideration as SMPL has shown work-in-p....
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....ward for the purpose of development thereof and to carry out development thereon. Yours truly, For M/s Skyline Great Hills We accept: For Skyline Mansions Pvt. Ltd. 34. Therefore, we agree with ld A.,R. that the amalgamation of contiguous land held by both parties had taken place on or after 25.4.2011. On perusal of the relevant clauses of the joint development agreement, it is observed that assessee is entitled for the amount of security deposit and assessee received security which according to the department, is much more than the sale consideration but the question arises as to whether the transfer of land/right took place immediately and the said amount could be considered as sale proceeds. We observe that the said agreement has been registered as Memorandum of Agreement and the stamp duty has also been paid accordingly and not stamped as deed of conveyance. We are of the considered views that the said joint development agreement is entered into only for the purpose of protecting the rights of the parties and to ensure smooth development of the project. Further, we are of the considered view that the provisions of section 53A of the Transfer of Proper....