M/s. Vishwakarma Realtors, CHENNAI V. ACIT, CHENNAI

CO 141/CHNY/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2488 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 4 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: V JAGADISAN
• Keywords: Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . . ! '# , $ %& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1442/MDS/2012 & CO NO.141/MDS/2012 ' (' /ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI -600 034. V. M/S.VISHWAKARMA REALTORS, VISHWAKARMS CENTRE, 563/2, ANNA SALAI, TEYNAMPET, CHENNAI 600 018. PAN : AAGFV 3905 R ( )* /APPELLANT) ( +,)* /RESPONDENT/ CROSS OBJECTOR) ASSESSEE BY : SHRI V.JAGADISAN, C.A. DEPARTMENT BY : SHRI SUPRIYO PAL, JCIT ! -.$ /DATE OF HEARING : 20.10.2016 /0( -.$ /DATE OF PRONOUNCEMENT : 25.11.2016 /O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF CIT(A) XII, CHENNAI DATED 30.03.2012 AND PERTAINS TO ASSE SSMENT YEAR 2008- 09. THE ASSESSEE HAS FILED THE CROSS OBJECTION TO S UPPORT THE SAME ORDER 2 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 OF THE CIT (A). SINCE BOTH THE APPEAL AND THE CROSS OBJECTION ARISE OUT OF THE VERY SAME ORDER OF THE CIT (A), WE HEARD THE SA ME TOGETHER AND WE DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. SHRI SUPRIYO PAL, THE LEARNED REPRESENTATIVE FOR THE DEPARTMENT SUBMITTED THAT THE ASSESSEE FILED THE RETURN OF INC OME CLAIMING THAT IT IS A PARTNERSHIP FIRM. THE ASSESSING OFFICER FOUND THA T THE PARTNERS OF THE ASSESSEE ENTERED INTO MEMORANDUM OF UNDERTAKING WIT H VARIOUS OTHER PARTIES. THEREFORE, THE ASSESSEE HAS TO BE TREATED AS AOP. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE STATUS OF THE ASS ESSEE AS AOP INSTEAD OF PARTNERSHIP FIRM. THE CIT(A) ALSO CONFIRMED THE STA TUS OF THE ASSESSEE AS AOP. ACCORDING TO THE LEARNED REPRESENTATIVE, THE E NTIRE TRANSACTION IN REAL ESTATE WAS CARRIED ON BY THE AOP ON THE BASIS OF THE INVESTMENT BROUGHT IN BY THE RESPECTIVE MEMBERS OF AOP. IN THE ABSENCE OF ANY PROVISION IN THE MEMORANDUM OF UNDERTAKING TO SHARE THE PROFIT, THE ASSESSING OFFICER FOUND THAT THE CLAIM OF THE ASSES SEE THAT IT IS A PARTNERSHIP FIRM IS NOT JUSTIFIED. REFERRING TO THE ORDER OF CIT(A), THE LEARNED DEPARTMENT REPRESENTATIVE SUBMITTED THAT TH E CIT(A) TREATED THE STATUS OF THE ASSESSEE AS A FIRM EVEN THOUGH THE 10 DIFFERENT PERSONS WERE CARRYING ON THE BUSINESS AS JOINT VENTURE WITH OUT ANY DEFINITE DETERMINATION OF SHARING THE PROFIT. THE ORDER OF T HE CIT(A) ACCORDING TO 3 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 THE REPRESENTATIVE IS NOT JUSTIFIED. THEREFORE, THE ASSESSEE HAS TO BE TREATED AS AOP. 3. REFERRING TO THE NEXT GROUND OF APPEAL, THE DEPA RTMENT REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE EXPENDITURE TO THE EXTENT OF RS.6,20,00,000/ -. HOWEVER, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND DETERM INED THE TAXABLE INCOME AT RS.1,73,60,403/- INSTEAD OF RS.7,53,60,40 3/-. THE LEARNED DEPARTMENT REPRESENTATIVE FURTHER SUBMITTED THAT EV EN THOUGH THE RATE OF TAX IS SAME FOR THE FIRM AND THE AOP, THE STATUS OF THE ASSESSEE CANNOT BE TREATED AS FIRM SINCE TEN DIFFERENT PERSO NS WERE CARRYING ON THE BUSINESS AS A JOINT VENTURE PROJECT. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. TH E ASSESSEE HAS ALSO FILED CROSS OBJECTION AGAINST THE ORDER OF CIT(A) WHEREIN , HE CONFIRMED A PART OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. 4. ON THE CONTRARY, SHRI V.JAGADISAN, THE LEARNED R EPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER O N THE BASIS OF SPECIAL MEMORANDUM OF UNDERTAKING, AGREEMENT AND SALE DEEDS EXECUTED BETWEEN TWO INDIVIDUAL PARTNERS OF THE ASSESSEE FIR M WITH THIRD PARTIES FOUND THAT THE ASSESSEE WAS CARRYING ON BUSINESS AS JOINT VENTURE IN THE STATUS OF AOP. ACCORDING TO THE LEARNED REPRESENTAT IVE, THERE IS A 4 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS. THE PR OFIT HAS TO BE SHARED EQUALLY AMONG THE TWO PARTNERS. THEREFORE, THE ASSE SSEE HAS TO BE TREATED AS PARTNERSHIP FIRM. MERELY BECAUSE THE IND IVIDUAL PARTIES ENTERED MEMORANDUM OF UNDERSTANDING AND AGREEMENT WITH THRE E PARTIES THAT CANNOT BE A REASON TO TREAT THE ASSESSEE AS AN AOP. THE ASSESSEE FIRM WAS CONSTITUTED BY A WRITTEN PARTNERSHIP DEED AND I T HAS NOTHING TO DO WITH THE TRANSACTION OF INDIVIDUAL PARTNERS WITH TH E THREE PARTIES. ON A QUERY FROM THE BENCH, HOW CAN THE PARTNERSHIP FIRM CAN CLAIM THE EXPENDITURE SAID TO BE INCURRED BY AOP, THE LEARNED REPRESENTATIVE SUBMITTED THAT THE PARTNERSHIP FIRM IS NOT CLAIMING ANY EXPENDITURE. THE PARTNERSHIP FIRM WAS ESTABLISHED WITH AN INTENTION TO AGGREGATE LAND FOR SEVERAL COMPANIES. SINCE THE ASSESSEE-FIRM HAVE NO SUFFICIENT FUNDS, THE INDIVIDUAL PARTNERS ENTERED INTO AGREEMENT AND MEMO RANDUM WITH OTHER PARTIES INCLUDING THE SOME COMPANIES SO AS TO BRING MONEY FOR THE PURPOSE OF ACQUIRING THE LAND. THE AGREEMENT ENTERE D INTO BETWEEN THE TWO INDEPENDENT PARTNERS OF THE ASSESSEE FIRM WITH THREE PARTIES IS A SEPARATE TRANSACTION. IT CANNOT BE CONFUSED WITH BU SINESS OF THE ASSESSEE. AT THE BEST, THE AOP CONSTITUTED BY INDEP ENDENT PARTNERS OF THE ASSESSEE AND OTHER THREE PARTIES CAN BE ASSESSE D SEPARATELY. HOWEVER, NO NOTICE WAS ISSUED BY THE REVENUE TO THE AOP FOR ASSESSING 5 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 SEPARATELY. THEREFORE, THE CIT(A) HAS RIGHTLY FOUND THE STATUS OF THE ASSESSEE AS PARTNERSHIP FIRM. 5. REFERRING TO THE DISALLOWANCE OF EXPENDITURE, TH E REVENUE IN THE GROUNDS OF APPEAL CLAIMS THAT THE ASSESSEE CLAIMED RS.6,20,00,000/- AS EXPENDITURE. IN FACT, THE ASSESSEE HAS NOT CLAIMED RS.6,20,00,000/-. REFERRING TO THE ORDER OF CIT(A), MORE PARTICULARLY AT PAGE 33, THE DEVELOPMENT EXPENDITURE WAS CLAIMED ONLY TO THE EXT ENT OF RS.2,22,09,600/- AND NOT RS.6,20,00,000/-. THEREFOR E, THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS NOT CORRECT. THE LE ARNED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT IN RESPECT OF PART OF EXPENDITURE, DISALLOWED BY CIT(A), THE ASSESSEE HAS FILED THE CO . 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PARTNERSHIP DEED CLEARLY SHOWS THAT IT WAS CONSTITUTED BY TWO PARTNE RS. THE PROFIT SHARING RATIO IS 50% EACH. SUBSEQUENT TO FORMATION OF THE P ARTNERSHIP FIRM, ADMITTEDLY, THE PARTNERS, IN THEIR INDIVIDUAL CAPAC ITY ENTERED INTO SEVERAL AGREEMENTS AND MEMORANDUMS FOR RAISING FUNDS. THE P ARTNERSHIP FIRM IS NOT A PARTY TO ABOVE AGREEMENTS AND MEMORANDUM. EVE N THOUGH THE PARTNERS AND PARTNERSHIP FIRM ARE ONE AND THE SAME UNDER THE COMMON LAW, THE PARTNERS AND PARTNERSHIP FIRM ARE DIFFEREN T ASSESSABLE UNIT UNDER 6 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 THE INCOME TAX ACT. THEREFORE, THE ACTIVITY OF THE INDIVIDUAL PARTNERS WITHOUT ANY REFERENCE TO THE PARTNERSHIP FIRM CANNO T BE TAKEN AS THE TRANSACTION OF THE PETITIONER FIRM. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE WAS VALIDLY ES TABLISHED PURSUANT TO A WRITTEN PARTNERSHIP DEED. HENCE, THE STATUS OF TH E ASSESSEE HAS TO BE TREATED AS A FIRM AND NOT AS AOP. AS RIGHTLY SUBMIT TED BY THE AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, THE INDEPENDENT PA RTNERS ENTERED INTO SEVERAL AGREEMENTS AND MEMORANDUM WITH THREE PARTIE S. THEREFORE, SUBSEQUENT TO THE FORMATION OF THE PARTNERSHIP FIRM , THE INDEPENDENT PARTNERS ENTERED INTO AGREEMENT FOR JOINT VENTURE P ROJECT. THIS ACT OF ENTERING INTO AGREEMENT TO DO BUSINESS JOINTLY CAN BE CONSIDERED AS AOP. 7. THE REVENUE IS CONFUSING THE TWO SITUATIONS AND TREATING THE ASSESSEE AS AN AOP. THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT THE SUBSEQUENT CONDUCT OF THE INDIVIDUAL PARTNERS OF TH E ASSESSEE FIRM MAY BE RELEVANT FOR TREATING FORMATION OF THE JOINT VEN TURE AS AOP. HOWEVER, THE ASSESSEE FIRM HAS TO BE TREATED ONLY AS PARTNER SHIP FIRM. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY IN TREATING THE ASSESSEE FIRM AS PARTNERS HIP FIRM. 8. NOW COMING TO THE CLAIM OF THE ASSESSEE TOWARDS EXPENDITURE, THE ASSESSEE CLAIMS THAT THE INDEPENDENT PARTNERS E NTERED INTO JOINT 7 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 VENTURE PROJECT THROUGH AGREEMENT AND MEMORANDUM OF UNDERTAKING. THE SUBSEQUENT CONDUCT OF THE PARTNERS IN ENTERING INTO THE PARTNERSHIP FIRM MAY CONSTITUTE AS AN ASSOCIATION OF PERSONS. T HEREFORE, THE EXPENDITURE INCURRED BY THE AOP CANNOT BE CLAIMED A S EXPENDITURE OF PARTNERSHIP FIRM. NO MATERIAL IS AVAILABLE ON RECOR D TO SUGGEST THAT THE MONEY BROUGHT IN SUBSEQUENT TO THE FORMATION OF PAR TNERSHIP FIRM CONSEQUENT TO THE AGREEMENT AND MEMORANDUM OF UNDER STANDING WAS TAKEN AS CAPITAL RECEIPT IN THE HANDS OF THE ASSESS EE FIRM. MOREOVER, NO MATERIAL IS AVAILABLE ON RECORD TO SUGGEST THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN DEVELOPMENT OF THE LAND. THE MAT ERIAL AVAILABLE ON RECORD SUGGEST THAT THE PROFIT OF THE JOINT VENTURE PROJECT WAS SHARED AMONG THE MEMBERS OF THE AOP. HOWEVER, THE ASSESSEE CLAIMS THAT IT IS ONLY AN EXPENDITURE AND NOT SHARING OF PROFIT. IN V IEW OF THE ABOVE, THERE IS A FACTUAL CONFUSION REGARDING THE EXPENDITURE SA ID TO BE INCURRED BY THE ASSESSEE. IT HAS TO BE ASCERTAINED WHAT WAS CLA IMED BY THE ASSESSEE IS AN EXPENDITURE FOR EARNING THE INCOME OR IT IS A N EXPENDITURE OF THE AOP CONSTITUTED BETWEEN SEVERAL PERSONS AND THE PAR TNERS OF THE ASSESSEE FIRM. IN THE ABSENCE OF ANY MATERIAL AVAIL ABLE ON RECORD, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATT ER NEEDS TO BE RE- EXAMINED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTH ORITIES ARE SET ASIDE AND ISSUE OF CLAIM OF EXPENDITURE IS REMITTED BACK TO THE FILE OF THE AO. 8 I.T.A. NO.1442/MDS/2012 & CO N O.141/MDS/2012 THE AO SHALL RE-EXAMINE THE MATTER AFRESH AND FIND OUT THE SOURCE OF INCOME OF THE ASSESSEE AND EXPENDITURE FOR EARNING THAT INCOME AND THEREAFTER DECIDE THE MATTER IN ACCORDANCE WITH LAW . 9. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AN D CROSS OBJECTION OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED ON 25 TH NOVEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ! '# ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) $ /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 1 /DATED, THE 25 TH NOVEMBER, 2016. SP. - +.'2 32(. /COPY TO: 1. )* /APPELLANT 2. +,)* /RESPONDENT 3. ! 4. ( )/CIT(A) 4. ! 4. /CIT, 5. 25 +. /DR 6. ' 6 /GF.