ACIT 16(3), MUMBAI V. AJANTA CONSTRUCTION, MUMBAI

ITA 144/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2869 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU JIT BANGAR
• Assessee Lawyers: R S CHOKSI
• Keywords: Business income; Diversion of income
• Section: 143(3)

Judgement Text

, IN THE INCOME-TAX APPELLATE TRIBUNAL -ABENCH M UMBAI , BEFORE S.SH.RAJENDRA,ACCOUNTANT MEMBER AND AMIT SHUKLA,JUDICIAL MEMBER /ITA NO.144/MUM/2013, /ASSESSMENT YEAR 2009-10) ASST. COMMISSIONER OF INCOME TAX 16(3) MATRU MANDIR, TARDEO ROAD, MUMBAI- 400 007. VS. M/S. AJANTA CONSTRUCTIONS 315/G, S.M.BLDG, OFF NO.7, 2 ND FLOOR, NEW CHARNI ROAD, MUMBAI-400 004 PAN: AAAAA5807A ( / APPELLANT ) ( / RESPONDENT ) / ASSESSEE BY : R.S.CHOKSI / REVENUE BY :SUJIT BANGAR / DATE OF HEARING : 21.10. 2015 / DATE OF PRONOUNCEMENT : 28.10.2015 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDERS DTD.15.10.2012OF THE CIT(A)- 27,MUMBAI,THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL. THE EFFECTIVE GROUND OF A PPEAL IS ABOUT DELETING THE ADDITION OF RS.43.46 LACS. 2. ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF DEVELOPMEN T OF LAND AND CONSTRUCTION OF FLATS FILED ITS RETURN OF INCOME ON 24.09.2009 DECLARING TOTAL INCOME OF RS.35.76 LACS.THE AO COMPLETED THE ASSESSMENT ON 30.10.2011,U/S. 143(3) OF THE ACT ,DETERMINING THE INCOME OF ASSESSEE OF RS. 79.23 LACS. DURING THE ASSESSMENT PROCEEDINGS,THE AO FILED THE AIR HAD REPORTED FIVE TRANSACTION OF SALE OF IMMOVABLE PROPERTY RESULTING IN A TOTAL SALE CON SIDERATION OF RS.1.92 CRORES IN THE NAME OF THE ASSESSEE.HE DIRECTED IT TO RECONCILE THE INFORM ATION, APPEARING IN THE AIR, WITH ITS BOOKS OF ACCOUNTS.VIDE LETTER,DATED 23.09.2011,THE ASSESSEE FILED EXPLANATION AND PRODUCED THE RELEVANT AGREEMENTS.IT WAS CLAIMED THAT THE ASSESSEE HAD PAI D COMPENSATION TO THE PERSONS WHO HAD BOOKED THE FLAT INITIALLY AND GOT AN ALLOTMENT LETT ER THAT WAS UNREGISTERED,THAT SUCH BUYERS WOULD SELL THE FLATS TO THIRD PARTY WHO WOULD REGIS TER THE PROPERTY IN THEIR NAMES.IT WAS CLAIMED THAT THE COMPENSATION WAS THE DIFFERENCE IN AMOUNT WHAT THE ASSESSEE RECEIVED FROM THE THIRD PARTY AS THE REGISTERED SALE VALUE AND WHAT THE ASS ESSEE HAD ALREADY RECEIVED INITIALLY.IT WAS FOUND BY THE AO THAT THE FLATS WERE SOLD TO VIJAY A ND MRUNAL SOGODAKAR,UMESH MEHRA AND GOVIND AND BHAVANA CHOUDHARY,THAT THE ASSESSEE HAD PAID COMPENSATION OF RS. 43,46,650/- AS TO 3 PARTIES NAMELY JAGRUTI SHAH,SEJAL NIKHIL SHAH AND NIKHIL HASMUKH SHAH,THAT THE COMPENSATION WAS PAID TO THE RELATED PARTIES.HE HEL D IT WAS A CASE OF DIVERSION OF PROFIT TO THE RELATED PARTIES RELYING ON ACCOMMODATED JOURNAL ENT RIES IN THE RETROSPECT,THAT THE PROFIT HAD TO BE TAXED IN THE HANDS OF ASSESSEE.FINALLY,THE COMPE NSATION PAID TO THE RELATED PARTIES WAS ADDED BACK TO ITS BUSINESS INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE R THE APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,THE ASSESSEE CONTENDED TH AT IT WAS AN ESTABLISHED TRADE PRACTICE IN THE BUSINESS OF CONSTRUCTION THAT THE ALLOTMENT WAS MADE ON THE BASIS OF INVESTMENTS MADE AND ITA/ 144/MUM/2013/AJANTA-AY.2009-10 2 2 THE FINAL SALE AGREEMENTS WERE ENTERED WITH THE ULT IMATE BUYERS INSTEAD OF THE ORIGINAL INVESTORS,THAT THE INVESTORS WOULD TAKE THE BENEFIT OF INCREASE OF PRICES AT THE TIME OF FINAL SALE, THAT FLAT NO.610 WAS ALLOTTED TO NIKHIL H. SHAH,THA T HE HAD OPENING CREDIT BALANCE OF RS.10.10 LACS IN THE BOOK OF THE ASSESSEE AS ON 01.04.2008, THAT THE ASSESSEE HAD RECEIVED RS.78.80 LACS FROM NIKHIL H. SHAH ON 20.04.2008,THAT RS. 12 LACS WERE UTILIZED FOR THE PURCHASE OF FLAT NO, 610 THAT ON ISSUE OF ALLOTMENT LETTER RS. 12 LACS WERE DEBITED TO PERSONAL ACCOUNT AND WERE CREDITED TO FLAT NO. 610 ACCOUNT. SIMILAR SUBMISSIO NS WERE MADE IN THE CASES OF SEJAL NIKHIL SHAH AND PRAKASH H. SHAH. IT WAS FURTHER ARGUED THA T THE COMPENSATION OF RS. 43.46 LACS WAS PAID TO THE ORIGINAL INVESTOR BY WAY OF CHEQUE ON T RANSFER OF THEIR RIGHTS TO THE ULTIMATE BUYER, THAT ASSESSEE HAD FURNISHED THEIR RELEVANT DETAILS IN RESPECT OF THE PAYMENTS RECEIVED FROM THE ORIGINAL INVESTORS AS WELL AS ABOUT THE COMPENSATIO N PAID TO THEM, THAT THE ORIGINAL ALLOTMENT AS WELL AS THE PAYMENT OF COMPENSATION WAS NOT MADE TH ROUGH THE HAWALA CHANNELS,THAT THE ASSESSEE FURNISHED ITS DETAILS FOR SALE OF FLATS AL LOTTED TO UNRELATED PARTIES AND CLAIMS AT NO UNDUE BENEFIT HAD BEEN TRANSFERRED TO THE UNRELATE D PARTIES,THAT THE FLATS SOLD TO RELATED PARTIES WERE IN THE RANGES OF 3018-3323 PER SQUARE FEET, TH AT THE FLATS SOLD TO UNRELATED PARTIES WERE IN THE RANGE OF 2880-3313 PER SQUARE FEET, THAT NO UND UE ADVANTAGE. AFTER CONSIDERATION OF THE ASSESSEE AND THE ASSESSM ENT ORDER,THE FAA HELD THAT IN THE LINE OF CONSTRUCTION ACTIVITIES LIQUIDITY WAS THE PARAMOUNT INTEREST,THAT ACTUAL SALE TAKES PLACE ONLY AT THE END OF THE COMPLETION OF PROJECT, THAT INVESTOR S MAKE INVESTMENT IN THE PROPERTY, THE INVESTORS IN THE MOST OF CASES WOULD NOT BE OF THE FINAL BUYERS,THAT THE INVESTORS WOULD REAP THE BENEFIT OF INCREASE IN THE PRICE,THAT THE ULTIMATE BUYERS LIKE TO ENTER INTO AN AGREEMENT FOR PURCHASE OF FLATS WITH THE BUYER TO AVOID LEGAL ISS UES,THAT IT WAS FOR THE SAKE OF MUTUAL CONVENI -ENCE THAT ADDITIONAL AMOUNTS RECEIVED BY THE BUILD ER FROM THE ULTIMATE BUYERS WERE PASSED BY THE ORIGINAL INVESTORS AND THE DIRECT AGREEMENT WAS ENTERED BETWEEN THE BUILDERS AND THE ULTIMATE BUYERS,THAT THE FINAL SALE AGREEMENT IN FA VOUR OF THE ULTIMATE BUYER WERE REGISTERED ON A LATER DATE,THAT IT WOULD AVOID THE REPETITION COS TS OF REGISTRATION.HE FURTHER HELD THE ASSESSEE HAD SUFFICIENTLY EXPLAIN BY WAY OF LEDGER EXTRACTS AND THE BANK STATEMENTS THAT RECIPIENT OF THE COMMISSION HAD SUFFICIENT BANK BALANCE,THAT THEY HA D UTILISED THE MONEY FOR INVESTING IN THE FLAT NOS. 610,510 & 190, THAT THE FLATS ALLOTTED TO THE RELATED PARTIES WERE AT ARMS LENGTH,THAT THE FLATS WERE ALLOTTED AT THE PREVAILING MARKET RA TE,THAT NO UNDUE BENEFIT WAS PASSED ON THE RELATED PARTIES IN THIS TRANSACTIONS, THAT THE COMP ENSATION TO THE RELATED PARTIES WAS PAID TROUGH CHEQUES,THAT THE ACT OF ALLOTTING THE FLATS TO RELA TED PARTIES INITIALLY AND TO ENTER IN TO FINAL AGREEMENT WOULD NOT AMOUNT TO ACCOMMODATING BY WAY OF PASSING JOURNAL ENTRIES, THAT IT WAS NOT A DEVISE FOR DIVERSION PROFIT TO THE RELATED PA RTIES.HE DELETED THE ADDITION MADE BY THE AO AMOUNTING TO RS.43,46,650/-. 4 .DURING THE COURSE OF HEARING BEFORE US,THE DEPARTM ENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR)CO NTENDED THAT IT WAS NOT THE CASE OF DIVERSION OF INCOME IN FAVOUR OF RELATED PERSONS,TH AT THE INVESTORS HAD SHOWN THE INCOME RECEIVED AS COMPENSATION FROM THE ASSESSEE IN THEIR RESPECTIVE RETURNS OF INCOME,THAT ASSESSEE WAS FOLLOWING NORMAL BUSINESS PRACTICE. 5. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT DURING UNDER CONSIDERATION THE ASSESSEE HAD ALLOTTED FLAT NO,109,510 & 610 TO THE RELATED PARTIES, THAT LATER ON THESE INVESTORS SOLD THE FLATS TO THE ULTI MATE BUYERS,THAT THE ASSESSEE CANCELLED THE INITIAL ALLOTMENT LETTER.THE DETAILS OF ALLOTMENT P RICE, FINAL PRICE AND THE DIFFERENCE IN PRICE CAN BE TABULATED AS UNDER. ITA/ 144/MUM/2013/AJANTA-AY.2009-10 3 3 FLAT NO. ALLOTMENT PRICE FINAL PRICE DIFFERENCE 109 28,88,800 45,00,000 16,11,200 510 26,00,000 42,45,950 16,45,950 610 24,00,000 34,89,550 10,89,550 TOTAL 78,88,800 1,22,35,450 43,46,650 IT IS FOUND THAT THE FINAL SALE AGREEMENT WILL ENTE RED IN TO WITH THE ULTIMATE BUYERS,THAT THE DIFFERENCE OF RS.43.46 LACS WAS PAID TO THE INITIAL INVESTORS UNDER THE HEAD COMPENSATION,THAT THE ASSESSEE HAD BOOKED NET SALES OF RS.78.88 LACS. WE FIND THAT THE SALE PRICE IN CASE OF THE RELATED PARTIES WAS EQUAL TO OR HIGHER THAN THE SAL E PRICE OF THE ULTIMATE BUYERS,THAT THE RELATED PARTIES WHO HAD RECEIVED THE COMPENSATION HAD OFFER ED THE COMMISSION AGENT IN THEIR BOOKS OF ACCOUNTS.THEREFORE,WE ARE OF THE OPINION THAT THE O RDER OF FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIRMING HIS ORDER,WE DECIDE THE EFFECT IVE GROUND OF APPEAL AGAINST THE A.O. AS A RESULT, APPEAL FILED B Y THE AO STANDS DISMISSED. !'# ! $ %&' () . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER,2015. *+ %, -& 28 ./'0 ,2015 12 3 SD/- SD/- ( % +. /AMIT SHUKLA ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, -& DATE: 28.10.2015 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.