ITO, New Delhi V. M/s. Rational Builders & Developers, New Delhi

ITA 1204/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0030 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 23-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: R K KAPOOR C AS; S S H PRADEEP DINODIA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F : NEW DELHI BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1204 /DEL / 2012 ASSESSMENT YEAR: 2008 - 09 INCOME TAX OFFICER, VS. M/S RATIONAL BUILDERS & WARD - 31(1), NEW DELHI DEVELOPERS, 9 TH FLOOR, DLF CENTRE SANSAD MARG, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VIKRAM SAHAY, SR.DR RESPONDEN T BY : S /S H. PRADEEP DINODIA & R.K. KAPOOR, CAS DATE OF HEARING: 23 .04.2015 DATE OF PRONOUNCEMENT: 06.05.2015 ORDER PER SHRI INTURI RAMA RAO, A.M. : 1. THIS IS AN APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2008 - 09 IMPUGNING THE ORDER OF LEARNED CIT(A), DATED 23.12.2011 RAISING THE FOLLOWING GROUNDS OF APPEAL: I. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 4,23,71,75 0/ - MADE BY AO ON ACCOUNT OF SALE OF DEVELOPMENT RIGHTS? II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) WAS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE WHEN THE 'ADVANCES' SHOWN IS USED AS A DEVICE TO COLOUR THE SALE OF DEVELOPMENT RIGHTS TO DLF AT A PREDETERMINED PRICE MENTIONED IN SCHEDULE A OF AGREEMENT DATED 1.12.2006? III. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE C OURSE OF HEARING OF THE APPEAL? 2 ITA NO. 1204/DEL/2012 A.Y. 2008 - 09 2. THE BRIEF FACTS OF THE CASE ARE THAT THE R ESPONDENT ASSESSEE IS A PARTNER SHIP FIRM ENGAGED IN THE REAL ESTATE DEVELOPMENT. FOR THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE FILED RETURN OF INCOME DISCLOSING INCOME OF RS. 1,04,61,650/ - ON 30 TH SEPTEMBER, 2008. THE RETURN WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) ON 30.12.2010 AT A TOTAL INCOME OF RS. 5,28,33,400/ - AFTER MAKING ADDITION OF RS. 4,23,71, 750/ - BEING THE UNSPENT ADVANCE RECEIVED FROM M/S DLF LTD. THE BRIEF FACTS OF THE ISSUE INVOLVED ARE AS FOLLOW: T HE ASSESSEE FIRM HAD ENTERED INTO A BUSINESS DEVELOPMENT AGREEMENT DATED 01.12.2006 WITH M/S DLF LTD. FOR SALE OF DEVELOPMENT RIGHTS AND RECEIVED ADVANCED OF RS. 883, 94,68,435/ - AS PER AGREEMENT. FURTHER, THE ASSESSEE FIRM HAD ENTERED INTO DEVELOPMENT AGREEMENTS WITH VARIOUS LAND OWING COMPANIES (LOC S) WHEREIN THE ASSESSEE FIRM HAS ACQUIRED SOLE IRREVOCABLE DEVELOPMENT RIGHTS IN THE LAND WHICH HAS BEEN ACQUIRED/WILL B E ACQUIRED BY THESE LOC S AND HAS GIVEN ADVANCES FOR PURCHASE OF DEVELOPMENT RIGHTS. THE ASSESSEE FIRM HAS GIVEN ADVANCES OF RS. 918,76,02,860/ - TO VARIOUS LAND OWING COMPANIES TOWARDS EARNEST MONEY AND PART PAYMENTS UNDER THE AGREEMENT TO PURCHASE LANDS/C ONSTRUCTED PROPERTIES. ALL SUCH COMPANIES TO WHOM ADVANCES HAVE BEEN GIVEN WERE LISTED IN SCHEDULE 3 OF THE BALANCE SHEET UNDER THE HEAD STOCKS AS DEVELOPMENT RIGHTS FOR LAND EARNEST MONEY AND PART PAYMENTS UNDER AGREEMENT TO PURCHASE LAND/CONSTRUCTED PRO PERTIES. HOWEVER, THE CLOSING STOCK OF THE DEVELOPED PLOTS HELD BY THE ASSESSEE AS ON 31 ST MARCH, 2008 WAS THE SAME 3 ITA NO. 1204/DEL/2012 A.Y. 2008 - 09 AT RS. 918,76,02,860/ - AND ALL THE BALANCE AMOUNT REPRESENTED THE EARNEST MONEY AND PART PAYMENTS TOWARDS THE PURCHASE OF LAND AND THE DEVEL OPMENT RIGHTS. THE LEARNED AO HAS TREATED THE BUSINESS ADVANCES RECEIVED FROM DLF LIMITED FOR RS. 570,43,49,496/ - APPEARING IN CASH FLOW STATEMENT AS SALE OF DEVELOPMENT RIGHTS AND ADVANCES GIVEN TO VARIOUS LAND OWNING COMPANIES AMOUNTING TO RS. 566,19,77, 746/ - AFTER DEDUCTING SUNDRY CREDITORS OF RS. 40,47,42,852/ - APPEARING IN CASH FLOW STATEMENT TO LAND OWNING COMPANIES AGAINST THE DEVELOPMENT RIGHTS HAS BEEN TREATED AS COST OF SALES OF DEVELOPMENT RIGHTS AND THE DIFFERENCE BETWEEN THESE TWO AMOUNTS HAS B EEN TREATED AS PROFIT OF THE ASSESSEE WHICH WORKS OUT TO RS. 4,23,71,750/ - AND ADDED THE SAME AS INCOME OF THE ASSESSEE FIRM . THE LEARNED A.O. DURING THE ASSESSMENT PROCEEDINGS CALLED FOR NATURE OF THESE OUTSTANDING BALANCES ALONG WITH SAMPLE COPIES OF AG REEMENTS FROM WHICH SUCH LIABILITIES AROSE TO THE APPELLANT FIRM. IN RESPONSE TO THE SHOW - CAUSE QUERY OF THE ASSESSING OFFICER AS TO WHY THE SURPLUS OF THE CASH FLOW SHOULD NOT BE TREATED AS INCOME OF THE ASSESSEE, IT WAS EXPLAINED THAT ALL THESE WERE THE AMOUNTS PAID OR RECEIVED IN RESPECT OF THE TRANSACTIONS WHICH WERE TO MATERIALIZE IN FUTURE AND WHEN THE TRANSACTIONS HAVE BEEN ACTUALLY MATERIALIZED THE SAME HAVE BEEN PROPERLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. ON A GOING FORWARD BASIS, ALL THESES AMOUNT WHICH HAVE BEEN DISCLOSED AS CURRENT LIABILITIES OR WHICH HAVE BEEN SHOWN AS ADVANCES FOR ACQUISITION OF DEVELOPMENT RIGHTS HAVE APPROPRIATELY BEEN ACCOUNTED FOR AS PER 4 ITA NO. 1204/DEL/2012 A.Y. 2008 - 09 THE ACCOUNTING POLICY OF THE ASSESSEE. IT WAS ALSO EXPLAINED THAT AS PER REGULAR SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE SINCE ITS INCEPTION NO INCOME CAN BE SAID TO HAVE ACCRUED MERELY ON ENTERING INTO AGREEMENTS FOR DEVELOPMENT RIGHTS. IT WAS EXPLAINED THAT ALL THESE TRANSACTIONS REPRESENTED THE ADVANCES GIVNE OR ADVANCES RECE IVED BY THE ASSESSEE AGAINST THE DEVELOPMENT RIGHTS TO BE ACQUIRED OR TO BE PARTED WITH AS AND WHEN OTHER TERMS AND CONDITIONS IN THE AGREEMENTS WERE SATISFIED. 3. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE LEARNED CIT(A) WHO VIDE ORDER DATED 23 RD DECEMBER, 2011 DELETED THE ADDITION OF RS. 4,23,71,750/ - . AGGRIEVED BY THIS ORDER, THE REVENUE HAS COME UP WITH THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) HAS PASSED A VERY REASONABLE AND SPEAKING ORDER WHICH IS EXTRACTED BELOW: 7. IT IS AN ADMITTED FACT THAT DURING THE YEAR UNDER APPEAL THE APPELLANT FIRM HAS RECORDED SALES OF DEVELOPMENT RIGHT S TO DLF LIMITED FOR A SUM OF RS .5,82,91 , 73,906/ - , ACQUIRED AT COST OF RS . 5,81,88,26,906/ - AND ACCO RDINGLY DECLARED AN INCOME OF RS . 1 ,0 4,61 ,650 / - IN ITS RETURN OF INCOME. WHILE MAKING THE IMPUGNED ADDITION OF RS . 4,23,71,750/ - , THE AO HAS HOWEVER TAKEN DIFFERENCE OF BUSINESS ADVANCES RECEIVED BY THE APPELLANT FIRM FROM DLF LIMITED AND THE NET OF ADVANCES GIVEN BY THE APPELLANT FIRM TO VARIOUS LAND OWNING COMPANIES BY TREATING THE DIFFERENCE AS APPELLANTS SALE CONSIDERATION OF TRANSFER OF DEVELOPMENT RIGHTS TO M/S. DLF LIMITED AS OBSER VED IN PARA 8.12 OF THE IMPUGNED ASSESSMENT ORDER. IT IS EVIDENT, AS IMPRESSED BY THE AR. THAT THE AO HAS OVER LOOKED THE FACT THAT THERE ARE TWO SEPARATE DISTINCT ACTIVITIES, NAMELY, AGREEMENT BETWEEN M/S. DLF LIMITED AND THE APPELLANT FIRM FOR MAKING AVA ILABLE DEVELOPMENT RIGHTS TO DLF LIMITED AND BETWEEN THE LAND OWNING COMPANIES AND APPELLANT FIRM FOR ACQUIRING, IDENTIFIED SPECIFIC 5 ITA NO. 1204/DEL/2012 A.Y. 2008 - 09 AREAS OF CONTAGIOUS LAND AND THEREAFTER, OBTAINING OTHER APPROVALS AND LICENSE. IT IS A FACT THAT THERE IS NO AGREEMENT AS SUCH BETWEEN DLF LIMITED AND THE LAND OWNING COMPANIES AS IMPLIED BY THE A.O. IN PARA 8.3 OF THE ASSESSMENT ORDER WHILE DEALING WITH 'AGREEMENT WITH LAND OWNING COMPANIES'. BESIDES, THE ACQUIRING OF LAND BY THE LAND OWNING COMPANIES IN PURSUANCE OF THE AGR EEMENT BETWEEN THE LAND OWNING COMPANIES AND THE APPELLANT FIRM DOES NOT IN ITSELF PROVIDE ANY INHERENT DEVELOPMENT RIGHTS TO THE APPELLANT FIRM. IN FACT, ONCE THE IDENTIFIED CONTAGIOUS LAND IS ACQUIRED BY VARIOUS LOCS, THEN THE APPELLANT FIRM PROCEEDS TO OBTAIN APPROVAL FROM DIRECTOR TOWN & COUNTRY PLANNING (DTCP) FOR CONVERSION OF LAND USAGE FROM AGRICULTURAL TO RESIDENTIAL, COMMERCIAL ETC. USE AND AFTER ALL OTHER APPROVALS FROM THE AUTHORITIES CONCERNED ARE OBTAINED RESULTING THEREBY IN OBTAINING LICENCE SO THAT 'DEVELOPMENT RIGHTS' BECOME INHERENT I.E. NO FURTHER APPROVAL OR LICENCE ARE TO BE OBTAINED FOR COMMERCIAL USE OF LAND. 8. THERE IS FORCE IN THE SUBMISSIONS OF THE AR OF THE APPELLANT WHO STATED THAT ACQUIRING CONTAGIOUS LAND BY THE LOCS IN THE SPECIFIC IDENTIFIED AREAS AND THEREAFTER, SEEKING VARIOUS APPROVALS FROM THE CONCERNED AUTHORITIES, INCLUDING DIRECTOR TOWN & COUNTRY PLANNING (DTCP), IS A TIME CONSUMING PROCESS. IT WAS STATED THAT THE APPELLANT FIRM ADVANCES THE' AMOUNTS, TO LOCS WHICH H AVE BEEN RECEIVED AS ADVANCE FROM DLF LIMITED, WHEN THE LAND TRANSACTIONS ARE ABOUT TO BE CONCLUDED. IT I S ALSO A FACT THAT THE AO HAS NOT PLACED ON RECORD ANY MATERIAL OR EVIDENCE TO SUPPORT HIS CONTENTION AND FINDING THAT SURPLUS OF RS. 4,23,71,750/ - IS THE SALE CONSIDERATION OF TRANSFER OF DEVELOPMENT RIGHTS TO M/S. DLF LIMITED. 9. IN VIEW OF THE ABOVE FACTS AND DERIVING SUPPORT FROM THE JUDICIAL DECISIONS RELIED UPON BY THE AR OF THE APPELLANT, SPECIALLY THE DECISION, 'SUPRA', OF MY WORTHY PREDECESSOR AND THE HON'BLE ITAT IN THE CASE O F THE GROUP CONCERN, NAMELY: M/S DCPC THE AO WAS NOT JUSTIFIED IN HIS FINDING THAT THE DEVELOPMENT RIGHTS WERE SOLD BY THE APPELLANT FIRM TO M/S. DLF LIMITED, OVER AND ABOVE WHAT HAS BEEN DISCLOSED BY THE APPELLANT FIRM IN ITS RETURN OF INCOME, WITHOUT BRINGING ANY MATERIAL AND EVIDENCE ON RECORD OF ADDITIONAL DEVELOPMENT RIGHTS HAVING BEEN CRYSTALLIZED AND SOLD. CONSEQUENTLY, IN THE ABSENCE OF ANY EVIDENCE OR MATERIAL T O SUPPORT THE FINDING OF THE AO , T HE ADDITION MADE RS.4,23,71,750/ - IS HEREBY DELETED. 6 ITA NO. 1204/DEL/2012 A.Y. 2008 - 09 5. IN VIEW OF THE ABOVE FINDINGS, WE TOTALLY A GREE WITH THE REASONING GIVEN BY THE LEARNED CIT(A) AND DO NOT INTEND TO INTERFERE WITH THE ORDER PASSED BY THE LEARNED CIT(A). HENCE, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL IS DISMISSED. THE DECISION IS PRONOUNCED IN TH E OPEN COURT ON 6 T H M A Y , 2015. S D / - S D / - (G.C. GUPTA) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 6 T H M A Y , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDE NT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI