Bengal Shelter Housing Development Limited., Kolkata V. J.C.I.T (OSD) Cir - 8,kolkata., Kolkata

ITA 18/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9441 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 08-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Assessee Lawyers: A K TIBREWAL
• Keywords: Business income; Wholly owned subsidiary; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM ] I.T.A NO. 18/KOL/2013 ASSESSMENT YEAR : 2009 -10 BENGAL SHELTER HOUSING DEVELOPMENT LTD. -VS.- J.C.I.T.(OSD),CIRCLE-8, KOLKATA KOLKATA [PAN : AACCB 4289R] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI A.K.TIBREWAL, FCA FOR THE RESPONDENT : SHRI RADHEY SHYAM, CIT(DR) DATE OF HEARING : 16.01.2017. DATE OF PRONOUNCEMENT : 03.02.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 31.10.2012 OF CIT(A)-VIII, KOLKATA, RELATING TO AY 2009-10. 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOLL OWS :- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.25,00,000 REPRESENTING FEE PAID TO REGISTRAR OF COMPANIES FOR INCREASE IN AUTHORIZED CAPITAL OF THE COMPANY. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN T HE BUSINESS OF DEVELOPMENT, EXECUTION OF REAL ESTATE PROJECTS ALONG WITH TOWNSH IP AND INFRASTRUCTURAL DEVELOPMENT WORKS IN URBAN AS WELL AS RURAL AREAS OF WEST BENGA L. THE ASSESSEE IS A JOINT SECTOR COMPANY PROMOTED BY WEST BENGAL HOUSING BOARD (WBHB ) AND M/S. SHELTER PROJECTS LTD. WBHB AND M/S. SHELTER PROJECTS LTD HO LD 50% EACH OF THE PAID-UP CAPITAL OF THE ASSESSEE. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 2 4. DURING THE PREVIOUS YEAR THE AUTHORISED SHAR E CAPITAL OF THE ASSESSEE WAS INCREASED FROM RS.5 CRORE TO RS.55 CRORE . THE ASSE SSEE PAID A SUM OF RS.25,00,000/-TO THE REGISTRAR OF COMPANIES (ROC) AS FEES FOR INCREA SE IN THE AUTHORISED SHARE CAPITAL. THE AMOUNT SO PAID WAS CLAIMED AS REVENUE EXPENDITU RE AND DEDUCTIBLE WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUS INESS. 5. THE AO MADE A REFERENCE TO THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORA TION LIMITED VS CIT AND BROOKE BOND INDIA LIMITED VS CIT 225 ITR 792 (SC) AND 225 ITR 798(SC). IN THE AFORESAID DECISIONS, THE HONBLE SUPREME COURT HELD THAT FEES PAID TO ROC FOR INCREASE IN AUTHORISED SHARE CAPITAL IS A CAPITAL EXPENDITURE. THE DEDUCTION CLAIMED WAS ACCORDINGLY DISALLOWED BY THE AO. 6. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRME D THE ORDER OF AO. BEFORE CIT(A) THE ASSESSEE HAS RAISED ALTERNATIVE CONTENTION THAT UNDER THE PROVISION OF SECTION 35D OF THE INCOME TAX ACT, 1961 (ACT) AS AMENDED BY FIN ANCE ACT 2008 W.E.F. 01.04.2009, PRELIMINARY EXPENSES INCURRED FOR EXTE NSION OF AN UNDERTAKING ARE ALLOWABLE AS DEFERRED REVENUE EXPENDITURE OVER A PE RIOD OF FIVE YEARS. THE CIT(A) HELD THAT THE ASSESSEE DID NOT BRING ON RECORD ANY MATERIAL TO SHOW THAT THE CONDITIONS PRECEDENT FOR ALLOWING DEDUCTION U/S 35D OF THE ACT ARE FULFILLED. THE CIT(A) ALSO HELD THAT THE AUTHORISED SHARE CAPITAL OF THE ASSES SEE WAS INCREASED FOR MEETING GROWING BUSINESS NEEDS OF WORKING CAPITAL. HENCE EX PENSES INCURRED WERE NOT COVERED BY THE PROVISION OF SECTION 35D(1) OF THE ACT. THE CIT(A) THUS REJECTED THE ALTERNATIVE PLEA OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIU T(A) THE ASSESSEE HAS RAISED GROUND NO.1 BEFORE THIS TRIBUNAL. 7. THE LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE CIT(A). THE LD. DR RELIED ON THE ORDER OF CIT(A). ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 3 8. WE HAVE GIVEN CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. AS FAR AS THE QUESTION WHETHER THE EXPENDITURE IN QUESTION IS CAP ITAL OR REVENUE, THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN FINALLY CONCLUDED BY THE HONBLE SUPR EME COURT IN THE CASES REFERRED TO BY THE AO. AS FAR AS THE QUES TION OF ALLOWING DEDUCTION OF THE EXPENSES IN QUESTION U/S 35D OF THE ACT IS CONCERNE D, THE LIST OF EXPENSES ALLOWABLE FOR DEDUCTION U/S 35D(1) OF THE ACT ARE SET OUT IN SECTION 35D (2) OF THE ACT. THE LIST OF EXPENSES SET OUT IN SECTION 35D(2) OF THE ACT DO ES NOT INCLUDE FEES PAID TO ROC FOR INCREASE IN THE AUTHORISED SHARE CAPITAL. UNDER SEC TION 35(2)(C)(IV) OF THE ACT EXPENSES IN CONNECTION WITH THE ISSUE OF SHARES TO THE PUBLI C IS ALLOWABLE AS DEDUCTION. ADMITTEDLY IN THIS CASE THERE WAS NO PUBLIC ISSUE O F SHARES AND THEREFORE THE EXPENSES IN QUESTION DOES NOT FALL WITHIN THE AMBIT OF AFORE SAID CLAUSE. WE ARE THEREFORE OF THE VIEW THAT ORDER OF CIT(A) ON THIS ISSUE DOES NOT CA LL FOR ANY INTERFERENCE. ACCORDINGLY GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 9. GROUND NO.2 RAISED BY THE ASSESSEE READS AS F OLLOWS :- 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,81 ,851 BEING EXPENDITURE INCU RRED DURING THE YEAR BUT RELATED TO PRIOR PERIOD. 10. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE IN ARRIVING AT ITS INCOME FROM BUSINESS CLAIMED A SUM OF RS.3,81,851/- WHICH WAS PRIOR PERIOD EXPENSES. THE DETAILS OF PRIOR PERIOD EXPENS ES ARE GIVEN IN PAGE-2 OF THE ASSESSEES PAPER BOOK. THE SAME HAS BEEN GIVEN AS ANNEXURE TO THIS ORDER. THE AO WAS OF THE VIEW THAT THE ASSESSEE FOLLOWS MERCANTIL E SYSTEM OF ACCOUNTING AND THEREFORE THE EXPENDITURE RELATABLE TO THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10 ALONE CAN BE ALLOWED AS DEDUCTION. HE THEREFORE DISALLOWE D THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF PRIOR PERIOD EXPENSES. 11. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE EXPENSES THOUGH RELATED TO PRIOR PERIOD HAD CRYSTALLISED AS LIABILITY ONLY DURING TH E PREVIOUS YEAR. IT WAS THE PLEA OF THE ASSESSEE THAT THE BILLS AND OTHER DETAILS IN RESPEC T OF THE AFORESAID EXPENSES WERE ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 4 RECEIVED DURING THE PREVIOUS YEAR AND THEREFORE THE LIABILITY IN QUESTION HAD CRYSTALLISED TO THE ASSESSEE ONLY DURING THE PREVIO US YEAR. THE CIT(A) HOWEVER WAS OF THE VIEW THAT THE REASONS ADVANCED BY THE ASSESSEE WERE NOT CONVINCING AND THEREFORE THE PRIOR PERIOD EXPENSES CANNOT BE ALLOWED AS DEDU CTION. 12. BEFORE US THE LD.COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE CIT(A). HE DREW OUR ATTENTION TO ONE OF THE ITEMS O F THE EXPENSES GIVEN AS ANNEXURE TO THIS ORDER NAMELY MAINTENANCE EXPENSES OF RS.1 ,21,817/- WHICH WAS A SUM PAID TO M/S. TENACITY SECURITY WHO HAD RAISED THE BILL O NLY ON 04.04.2008. THOUGH THE SECURITY CHARGES WERE FOR THE MONTH OF MARCH, 2008, SINCE THE BILL WAS RAISED FOR SECURITY CHARGES IN THE MONTH OF APRIL, 2008 THE SU M IN QUESTION WAS BOOKED IN THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10. THE LD. COUN SEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MODIPAN LTD. 334 ITR 102 (DELHI) WHEREIN IT WAS HEL D THAT WHERE EXPENSES ARE NOT BOOKED DUE TO NON RECEIPT OF DETAILS, INFORMATION, IT WAS BEYOND THE CONTROL OF THE ASSESSEE. IN SUCH CIRCUMSTANCES THE EXPENSES COULD BE BOOKED IN THE YEAR IN WHICH BILLS OR INFORMATION AND DETAILS ARE RECEIVED. THE LD.DR RELIED ON THE ORDER OF CIT(A). 13. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION T O THE RIVAL SUBMISSIONS. ORDINARILY UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHICH I S THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE PRESENT CASE, ONLY EXPENSES WHICH HAVE ACCRUED OR ARISEN TO THE ASSESSED DURING THE RELEVANT PREVIOUS YEAR WILL BE ALLOWED AS DEDUCTION. IN THE PRESENT CASE THE CLAIM OF THE ASSESSEE WAS T HAT THE EXPENSES GIVEN IN THE CHART ANNEXED TO THIS ORDER, THOUGH THEY ARE RELATED TO T HE PREVIOUS YEAR PRIOR TO THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10, THOSE BILLS OR DETAIL S REGARDING THESE EXPENSES WERE RECEIVED BY THE ASSESSEE ONLY DURING THE PREVIOUS Y EAR AND THEREFORE THE POINT OF ACCRUAL OF LIABILITY IN SO FAR AS THE ASSESSEE IS C ONCERNED WAS THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10. THE ASSESSEE HAS FURTHER DEMONSTRAT ED HIS CASE BY SHOWING US THE BILL WHICH IS AT PAGE 3 OF THE ASSESSEES PAPER BOOK EVI DENCING THE MAINTENANCE CHARGES PAID AS SECURITY CHARGES. THE SAID MAINTENANCE EXPE NSES RELATE TO MARCH, 2008 FOR ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 5 WHICH A BILL DATED 04.04.2008 WAS RECEIVED BY THE A SSESSEE ONLY IN THE MONTH OF APRIL, 2008 AND WAS BOOKED AS EXPENSES PERTAINING TO A.Y.2 009-10. IT HAS BEEN CLAIMED BY THE ASSESSEE THAT ALL THE OTHER EXPENSES GIVEN IN T HE ANNEXURE ARE OF SIMILAR NATURE. KEEPING IN VIEW THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND ALSO THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS MODIPAN LTD. (SUPRA), WE ARE OF THE VIEW THAT EXPENSES IN QUESTI ON ACCRUED OR AROSE AS LIABILITY TO THE ASSESSEE ONLY DURING THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10. THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUM DESERVE S TO BE ACCEPTED. ACCORDINGLY GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 14. GROUND NOS. 3 TO 7 RAISED BY THE ASSESSEE R EAD AS FOLLOWS :- 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.44,42,85,000 REPRESENTING CONSIDERAT ION OF UNCONSTRUCTED PORTION OF 15% LEASE RIGHTS AGREED TO BE TRANSFERRED IN FIVE YEARS OF CONSTRUCTION PERIOD OF COLLEGE STREET MARKET COMPLEX. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN CONFIRMING THE ASSESSMENT OF TOTAL AMOUNT OF ADVANCE OF RS.63, 12, 00,000 RECEIVED BY THE APPELLANT ON ACCOUNT OF TRANSFER OF 15% LEASEHOLD RIGHTS IN COLL EGE STREET MARKET COMPLEX AGREED TO BE TRANSFERRED ON CONSTRUCTION OF THE SAME IN FIVE YEARS. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN UPHOLDING THE AFORESAID ADDITION OF RS.63,12,00,000 AS AGAINST TH E SUM OF RS.18,69,15,000 ONLY REPRESENTING TRANSFER OF LEASEHOLD RIGHT IN 33,984. 55 SQ. FT. AREA OF THE COLLEGE STREET MARKET COMPLEX WHICH WAS CONSTRUCTED BY 31 ST MARCH , 2009 AND FOR WHICH AREA THE APPELLANT COMPANY GOT LEASEHOLD RIGHTS FROM KOLKATA MUNICIPAL CORPORATION IN TERMS OF DEVELOPMENT AGREEMENT DATED 24TH FEBRUARY 2006. 6. THAT THE CONCLUSION DRAWN BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS), THAT THE APPELLANT HAD TRANSFERRED ALL ITS RIGHTS I N RESPECT OF 15% SHARE IN COLLEGE STREET MARKET COMPLEX TO ITS SUBSIDIARY M/S BARNAPARICHAY BOOK MALL PVT. LTD., DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2009 -10 FOR RS.63,12,00,000 AND THEREFORE THE WHOLE OF SUCH AMOUNT IS LIABLE TO TAX , IS AGAINST FACTS ON RECORD AND THEREFORE PERVERSE. 7. THAT THE APPELLANT HAVING TRANSFERRED THE LEAS EHOLD RIGHT IN RESPECT OF 33,984.55 SQ. FT. AREA ONLY WHICH HAD BEEN CONSTRUCTED AS ON 31ST MARCH, 2009 IN COLLEGE STREET MARKET COMPLEX, A PORTION OF 15% RIGHT IN THE SAID COMPLEX, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ADDI TION OF RS.44,42,85,000 REPRESENTING CONSIDERATION FOR TRANSFER OF LEASEHOL D RIGHT IN UNCONSTRUCTED PORTION OF COMPLEX. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 6 15. AS WE HAVE ALREADY SEEN THAT THE ASSESSEE CA RRIES ON BUSINESS OF DEVELOPMENT AND EXECUTION OF REAL ESTATE PROJECTS. KOLKATA MUNI CIPAL CORPORATION A STATUTORY BODY ESTABLISHED AND GOVERNED UNDER THE KOLKATA MUNICIPA L CORPORATION ACT, 1980 HEREINAFTER REFERRED TO AS KMC OWNS A MUNICIPAL M ARKET AT COLLEGE STREET, POPULARLY KNOWN AS COLLEGE STREET MARKET. KMC WANTED TO IMP ROVE THE COLLEGE STREET MARKET AS A COMPREHENSIVE MARKET COMPLEX WITH ALL NECESSAR Y INFRASTRUCTURAL AMENITIES WITH THE OBJECT OF PROVIDING BOTH DOMESTIC AND INTERNATI ONAL BOOK PUBLISHERS AND BOOK SELLERS SPACE AND OTHER ALLIED INFRASTRUCTURE. KMC ALSO WANTED TO REHABILITATE THE EXISTING LICENCEES IN THE COLLEGE STREET MARKET. KM C HAD LIMITED RESOURCES AND THEREFORE APPROACHED THE ASSESSEE FOR CARRYING OUT DEVELOPMENT AFTER DEMOLISHING OF THE EXISTING COLLEGE STREET MARKET. THE TERMS OF TH E AGREEMENT BETWEEN KMC AND THE ASSESSEE ARE CONTAINED IN AN AGREEMENT DATED 24.02. 2006, A COPY OF WHICH IS PLACED AT PAGES 4 TO 25 OF THE ASSESSEES PAPER BOOK. AS PER THE AGREEMENT THE ASSESSEE WAS ENGAGED AS A DEVELOPER FOR DEVELOPMENT OF A COMPREH ENSIVE MARKET COMPLEX. THE ASSESSEE HAD TO PAY A SUM OF RS.2 CRORES AS PREMIUM AND WAS ALSO TO PAY RS.36 LAKHS FOR MEETING THE COST OF ARRANGING ALTERNATIVE ACCOM MODATION FOR KMC LABOURERS WHO LIVED IN COLLEGE STREET MARKET PREMISES. THE IMPORT ANT TERMS AND CONDITIONS RELEVANT FOR THE PRESENT APPEAL ARE CLAUSE-4 OF THE AGREEMEN T WHICH PROVIDES THAT AFTER DEVELOPMENT OF THE NEW COMPREHENSIVE MARKET COMPLEX BY THE ASSESSEE, 70% OF THE BUILT UP AREA WILL BE RESERVED FOR THE ASSESSEE AND 30% OF THE BUILD UP AREA WILL BE ALLOTTED TO KMC TO ENABLE KMC TO LOCATE THE EXISTIN G LICENCEES AND THE STALL HOLDERS OF THE COLLEGE STREET MARKET. 70% OF THE BUILT UP A REA TO BE ALLOTTED TO THE ASSESSEE WAS ONLY A LEASE HOLD RIGHT OF THE BUILT UP AREA. THE A SSESSE HOWEVER HAD THE RIGHT TO DEAL WITH THE LEASE HOLD RIGHTS IN ANY MANNER IT DEEMS F IT. THE AGREEMENT DATED 24.02.2006 WAS FOLLOWED BY ANOTHER SUPPLEMENTARY AGREEMENT DAT ED 12.06.2006 BETWEEN THE ASSESSEE AND KMC. 16. IN PURSUANCE OF THE AFORESAID AGREEMENT WIT H KMC, THE ASSESSEE DEMOLISHED THE OLD STRUCTURE AFTER MAKING SUITABLE ARRANGEMENTS FO R SHIFTING THE EXISTING OCCUPANTS TO THE TEMPORARY ACCOMMODATION. THE ASSESSEE ALSO MADE A FINAL SURVEY AND PREPARED ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 7 THE BUILDING PLAN WHICH WAS DULY SANCTIONED BY KMC. AS PER THE TERMS OF THE AGREEMENT, THE ASSESSEE COULD EITHER CARRY OUT THE DEVELOPMENT WORK ITSELF OR COULD APPOINT A CONTRACTOR TO CARRY OUT THE DEVELOPMENT W ORK. THERE WAS ANOTHER SUBSIDIARY COMPANY OF THE ASSESSEE BY NAME SQUARE FEET FURNISH ERS PVT. LTD. (SFFPL) WHICH WAS LATER NAMED AS M/S. BARNAPARICHAY BOOKMALL PRIV ATE LIMITED (BBMPL). THE ASSESSEE DECIDED TO CARRY OUT THE DEVELOPMENT OF CO LLEGE STREET MARKET THROUGH BBMPL AND ACCORDINGLY AGREEMENT DATED 06.03.2008 WA S ENTERED INTO BETWEEN THE ASSESSEE AND BBMPL/SFFPL. AS PER THE TERMS OF THIS AGREEMENT, SFFPL/BBMPL AGREED TO DEVELOP THE COLLEGE STREET MARKET AT ITS COST AND DO ALL THE CIVIL WORKS AS PER THE SPECIFICATIONS AND DRAWINGS GIVEN BY THE ASSESS EE. CLAUSE 3 TO 7 OF THE AFORESAID AGREEMENT PROVIDES THAT SFFPL WILL BE ENTITLED TO DEAL WITH 70% SHARE OF LEASEHOL D RIGHT OVER THE BUILT UP AREA IN THE NEW MARKET TO B E CONSTRUCTED. THESE CLAUSES READ AS FOLLOWS: 3. SFFPL WILL RETAIN/RENTAL/SUB-LEASE TO THE INT ENDING LESSEES, AS THE CASE MAY BE AND THE CONSIDERATIONS THEREOF, FOR THE PORTION STI PULATED WITHIN 70% AS THE BSHDLS SHARE IN THE PROJECT. 4. SFFPL WILL BE ENTITLED TO TAKE PREMIUM FROM NOMI NEE OR NOMINEES MARKET TO BE CONSTRUCTEDNEES OF BSHDL IN RESPECT OF THE SPACES A ND/OR UNITS, EARMARKED INVOLVING KOLKATA 70% SHARE OR ,BSHDL'S SHARE WITHOUT MUNICIP AL,CORPORATION IN ANY MANNER WHATSOEVER WAY. 5. SFFPL SHALL BE. ENTITLED TO RAISE NECESSARY FINA NCE FOR DEVELOPMENT OF COMPREHENSIVE MARKET COMPLEX IN WHATSOEVER MANNER, INCLUDING FIN ANCE FROM THE AUTHORIZED FINANCIAL INSTITUTION, BANKS, CORPORATE OF THE LAND BY HOUSES OR SUCH OTHER BODIES FOR DEVELOPMENT CONSTRUCTION/DEVELOPMENT OF THE COMPREH ENSIVE MARKET, COMPLEX AS PER TERMS OF THE DEVELOPMENT AGREEMENT AND SUPPLEMENTAL AGREEMENT MADE BETWEEN KOLKATA MUNICIPAL CORPORATION AND BSHDL .WITHOUT HO WEVER CREATING ANY FINANCIAL LIABILITY FOR THE KOLKATA MUNICIPAL CORPORATION. 6. SFFPL SHALL BE ENTITLED TO NEGOTIATE FOR LEASE A ND/OR TRANSFER FOR SHOP/SPACE OR PORTIONS THEREOF SAVE AND EXCEPT THE AREA TO BE ALL OTTED TO THE KOLKATA MUNICIPAL CORPORATION OR ITS NOMINEE OR NOMINEES TOGETHER WIT H THE UNDIVIDED PROPORTIONATE SHARE IN THE LAND AND THE RIGHTS APPURTENANT THERETO. 7. SFFPL SHALL ALSO BE ENTITLED TO ENTER INTO AGREE MENTS, INCLUDING SUB-LEASE, UNDER- LEASE, ASSIGNMENT OF LEASE IN RESPECT OF BUILT UP S PACE CONTAINING SUCH PROVISIONS AND WITH SUCH PURCHASERS AND/.OR OTHER PERSONS AS PROVI DED FOR IN THE SAID DEVELOPMENT AGREEMENT AND TO RECEIVE PAYMENT MONEYS AND/OR PART AND ON FULL ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 8 PREMIUM/CONSIDERATION THERE UNDER BUT SFFPL SHALL K EEP KOLKATA MUNICIPAL CORPORATION FULLY INDEMNIFIED IN ALL SUCH CASES. 17. THERE WAS ANOTHER SUPPLEMENTARY AGREEMENT DA TED 31.03.2009 BETWEEN THE ASSESSEE AND SFFPL/BBMPL. THIS AGREEMENT REFERS TO THE EARLIER AGREEMENT DATED 6.3.2008 AND FURTHER STATES THAT SUBSEQUENT TO THE AGREEMENT DATED 6.3.2008 THE ASSESSEE HAD DECIDED TO RELINQUISH 1,23,600 SQ.FT. OUT ITS 70% SHARE OF LEASEHOLD RIGHTS IN THE BUILT UP AREA IN THE NEW MARKET TO BE CONSTRUCTED IN FAVOUR OF SFFPL/BBMPL FOR A CONSIDERATION OF RS.63,12,00,000. SFFPL/BBMPL PAID A SUM OF RS.57,16,68,000 TO THE ASSESSEE. THIS AGREEMENT CONTAINS A SCHEDULE WHICH IDENTIFIES THE LOCATION OF THE BUILT UP AREA TO BE ALLOTTED TO SFFPL/BBMPL AND ITS VALUE AND THE SAME IS AS FOLLOWS :- SCHEDULE OF ALLOCATION BLOCK FLOORS BUILT UP AREA RATE PER SQFT TOTAL (RS. ) A 2 ND 25,000 5500 137,500,000 3 RD 25,000 5500 137,500,000 4 TH 25,000 5250 131,250,000 5 TH 25,000 4750 118,750,000 6 TH & 7 TH 23,600 4500 106,200,000 123,600 631,200,000 BY A LETTER DATED 31.03.2009 SFFPL/BBMPL SPECIFICA LLY AGREED THAT THE AREA THAT HAS TO BE ALLOTTED TO IT WILL BE SO ALLOTTED ONLY ON CO MPLETION OF THE BARE CONSTRUCTION AND IN RESPECT OF PORTIONS REFERRED TO ABOVE WHICH REMA INS INCOMPLETE, SUCH AREA WILL BE TRANSFERRED ONLY IN THE YEAR OF COMPLETION OF CONST RUCTION. 18. IT IS NOT IN DISPUTE THAT DURING THE PREVIOUS YEAR BARE CONSTRUCTION WAS COMPLETED ONLY IN RESPECT OF 2 ND FLOORS OF THE NEW MARKET COMPLEX OF 25,000/- SQ.FT ., THE VALUE OF THE SAME WAS RS.18,69,15,000. WE HAVE ALREADY SEEN THAT THE TOTAL VALUE OF THE BUILT UP AREA THAT SFFPL/BBMPL HAS TO GET A SUM OF RS.63, 12,00,000/-. WE HAVE ALREADY SEEN THAT SFFPL HAS PAID AN ADVANCE OF A SUM OF RS. 57,16,68,000. WE HAVE ALREADY SEEN THAT THE VALUE OF THE CONSTRUCTION PORTION AS ON THE LAST DATE OF THE PREVIOUS YEAR RELEVANT TO A.Y.2009-10 WAS RS.18,,69,15,000/-. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 9 19. THE ASSESSEE IN ITS BOOKS OF ACCOUNT RECOGN ISED INCOME ONLY TO THE TUNE OF RS.18,69,15,000/-. THE ASSESSEE HAD SHOWN A SUM OF RS.57,16,16800 AS ADVANCE. THE DIFFERENCE BETWEEN THE AMOUNT OF INCOME RECOGNISED WHEN THE BOOKS OF ACCOUNTS AND THE ADVANCE TAKEN FROM FFPL NAMELY RS.38,37,53,000/ - (57166800 8869,15,000) WAS SHOWN IN THE CURRENT LIABILITIES IN THE BALANCE SHEET I.E. AS ADVANCE AGAINST DEVELOPMENT RIGHTS. IT IS THE CASE OF THE ASSESSEE THAT IT IS ONLY AFTER COMPLETION OF THE CONSTRUCTION BY SFFPL THAT INCOME WOULD ACCRUE TO T HE ASSESSEE AND THEREFORE THE INCOME TO THE EXTENT OF CONSTRUCTION THAT WAS COMPL ETE OF THE VALUE OF RS.18,69,15,000/- ALONE WAS RECOGNISED AS INCOME. T HE CASE OF AO HOWEVER WAS THAT ON SIGNING OF THE AGREEMENT BETWEEN THE ASSESSEE AN D SFFPL, INCOME TO THE TUNE OF RS. 63,12,00,000 ACCRUES TO THE ASSESSEE AND THAT H AD TO BE BROUGHT TO TAX. THE AO IN BRINING THE SUM OF RS.44,42,85,000/- TO TAX (63,12, 00,000 18,69,15,000) WAS OF THE VIEW THAT BY THE AGREEMENT DATED 31.3.2008, TRANSFE R OF LEASEHOLD RIGHT IN AN AREA OF 1.23,600 SQ.FT. WAS COMPLETE AND THEREFORE ENTIRE I NCOME OF RS.63.23.00,000/- ACCRUED TO THE ASSESSEE. ACCORDING TO THE AO THE C ONTINGENCIES MENTIONED IN THE AGREEMENT DATED 31.3.2008 CANNOT DEFER THE ACCRUAL OF INCOME. HE HELD THAT T HE TRANSFER OF RIGHTS CANNOT BE LINKED TO THE STAGE OF COMPLETION OF DEVELOPMENT WORKS CARRIED ON BY BBMPL. HE THEREFORE HELD THAT THE ASS ESSEE WAS NOT CORRECT IN RECOGNIZING ITS INCOME ON TRANSFER OF LEASE RIGHTS TRANSFER IN PROPORTION TO THE STAGE OF COMPLETION OF DEVELOPMENT WORKS BY BBMPL. THE AO AC CORDINGLY HELD THAT THE ENTIRE SUM OF RS.63,12,00,000/- HAS TO BE ASSESSED AS BUSINESS INCOME OF THE ASSESSEE FOR THE CURRENT ASSESSMENT YEAR. SINCE THE ASSESSEE HAS CREDITED THE P&L ACCOUNT BY A SUM OF RS.18,69,15,000/-, THE BALANCE SUM OF RS.44, 42,85,000/- WAS ADDED BACK AS BUSINESS INCOME OF THE ASSESSEE. 20. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONCUR RED WITH THE VIEW OF THE AO. THE CIT(A) IN UPHOLDING THE ORDER OF THE AO AND CAME T O THE FOLLOWING CONCLUSION :- 1. THE ARGUMENTS ON BEHALF OF THE ASSESSEE THAT P ROFIT/INCOME IN LIEU OF TRANSFER OF 15% OF THE LEASEHOLD RIGHTS TO ITS SUBSIDIARY COMPA NY, THE BBMPL IS ASSESSABLE IN ITS HANDS ON PROJECT COMPLETION METHOD CANNOT BE ACCEPT ED BECAUSE WHAT IS TRANSFERRED IS NOT THE RIGHT TO SHARE PROFIT, BUT THE LEASEHOLD RI GHTS VESTED IN THE ASSESSEE. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 10 2. THERE WAS NO LOGIC IN DISTRIBUTING THE AMOUNT R ECEIVED ON TRANSFER OF LEASE-HOLD RIGHTS ON THE BASIS OF PROJECT COMPLETION METHOD. T HE DISCLOSURE OF PART OF THE INCOME IN THE SUBSEQUENT YEARS ON THE PROJECT COMPLETION METH OD OR THE TREATMENT OF THE AMOUNT GIVEN IN THE ACCOUNTS OF THE SUBSIDIARY COMPANY, BB MPL, WOULD NOT BY ITSELF OBLITERATE THE APPELLANT'S OBLIGATION TO DISCLOSE THE CORRECT INCOME IN THE YEAR UNDER CONSIDERATION. THE FACT THAT THE SUBSIDIARY COMPANY HAS CAPITALIZE D THE AMOUNT IN LIEU OF LEASE-HOLD RIGHTS IN THE FORM OF PAYMENT/ADVANCE/SECURITY DEPO SIT GIVES CREDENCE TO THE ACTION OF THE ASSESSING OFFICER M TREATING THE ENTIRE AMOUNT OF RS.63,12,00,000/- AS INCOME. 21. THE FOLLOWING WERE THE FINAL CONCLUSION OF THE CIT(A): IN THE LIGHT OF THE ABOVE DISCUSSION AND OBSERVATI ON, AFTER PERUSING THE FACTS OF THE CASE AND OTHER MATERIALS BROUGHT ON RECORD AND ALSO FOR THE UNDER MENTIONED BRIEF REASONS, THIS GROUND OF THE APPEAL REGARDING THE ADDITION OF RS. 44,42,85,000/- IS DECIDED AGAINST THE APPELLANT : I)THE APPELLANT IS ENGAGED IN THE BUSINESS OF DEVEL OPMENT AND EXECUTION OF REAL ESTATE PROJECTS. IT HAS ENTERED INTO DEVELOPMENT AGREEMENT FOR COLLEGE SQUARE MARKET COMPLEX. AS PER THE AGREEMENT, UPON THE DEVELOPMENT OF THE COMPLEX, THE APPELLANT WILL GET 70% SHARE AND 30% TO GO TO KMC. II) SINCE THE APPELLANT WAS NOT ABLE TO COMPLETE TH E PROJECT INDEPENDENTLY HENCE, IT TRANSFERRED THE 15% OF THE LEASE HOLD RIGHT IN THE SAID PROJECT TO ITS WHOLLY OWNED SUBSIDIARY BBMPL (ERSTWHILE NAMED AS SQUARE FEET FU RNISHERS PVT. LTD,) FOR A TOTAL CONSIDERATION OF RS. 63,12,00,000/-. AS PER ID AR I T WAS AGREED BETWEEN THE PARTIES THAT BBMPL WILL COMPLETE THE CONSTRUCTION OF THIS 15% AR EA IN 5 YEARS. III) THE APPELLANT HAS TRANSFERRED ALL ITS RIGHT IN RESPECT OF 15% SHARE TO ITS SUBSIDIARY FOR RS. 63,12,00,000/- AND HENCE, IRRESPECTIVE OF THE T REATMENT OF THIS TRANSACTION IN THE BOOKS OF BBMPL, THE FULL CONSIDERATION RECEIVED BY THE APPELLANT DURING THE YEAR HAS ACCRUED IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR IN APPEAL TO THE APPELLANT. THUS, THIS AMOUNT OF RS. 63,12,00,000/- IS LIABLE T O TAX IN THE PREVIOUS YEAR RELEVANT ASSESSMENT YEAR 2009-10 AND ACCORDINGLY THE AO WAS JUSTIFIED IN ADDING RS.44,42,85,000/- TO THE INCOME OF THE APPELLANT AN D ACCORDINGLY THIS GROUND OF APPELLANT IS FAILED. IV) IN VIEW OF THE ABOVE REASONS, I AM OF THE CONSI DERED OPINION THAT THE ASSESSING OFFICER WAS FACTUALLY AND LEGALLY JUSTIFIED IN ASSE SSING THE WHOLE OF THE AMOUNT RECEIVED ON TRANSFER OF THE LEASEHOLD RIGHTS AT RS. 63,12,00 ,000/- AS THE APPELLANT'S INCOME DURING THE YEAR UNDER CONSIDERATION. THE ADDITION IS ACCO RDINGLY CONFIRMED AND THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. 22. AGGRIEVED BY THE ORDERS OF CIT(A) THE ASSESSEE HAS RAISED GROUND NOS. 3 TO 7 BEFORE THE TRIBUNAL. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 11 23. WE HAVE HEARD THE SUBMISSIONS OF THE LD. CO UNSEL FOR THE ASSESSEE AND THE LD. DR. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT DISPUTE ASSESSMENT OF THE SUM OF RS.18,69,15,000 IN THE ASS ESSMENT YEAR 2009-10. HOWEVER, THE ASSESSEE COMPANY DISPUTES THE ADDITION OF THE B ALANCE SUM OF RS.44,42,85,000 (RS,63,12,00,000 - RS.18,69, 15,000). IT WAS HIS SU BMISSION THAT THE ASSESSEE RECEIVED A SUM OF RS.57,16,68,000 FROM BBMPL AND AFTER RECOG NISING A SUM OF RS.18,69,15,000/- AS INCOME OF THE PREVIOUS YEAR, T HE BALANCE AMOUNT OF RS.38,47,53,000 (RS.57,16,68,000 18,69,15,000) WA S SHOWN AS ADVANCE AGAINST THE LEASEHOLD RIGHT APPEARING AT SCHEDULE 12 BEING DETA ILS OF CURRENT LIABILITIES & PROVISIONS AT PAGE 63 OF THE PAPER BOOK. SIMILARLY, BBMPL ALSO CAPITALIZED THE SAID SUM OF RS.18,69,15,000 IN THE FINANCIAL YEAR 2008-0 9 CORRESPONDING TO THE ASSESSMENT YEAR 2009-10. THE AUDITED ACCOUNTS ARE A T PAGES 78 TO 94 OF PB. THE BALANCE AMOUNT OF 3,847.53 LACS WAS TREATED AS ADVA NCE AGAINST PURCHASE OF DEVELOPMENT RIGHTS. OUR ATTENTION WAS DRAWN TO NOT E NO. 2(C) AT PAGE 89 OF THE PAPER BOOK AND ALSO SCHEDULE 6 (DETAILS OF LOANS AND ADVA NCES) APPEARING AT PAGE 85 OF THE PAPER BOOK. IT WAS SUBMITTED THAT IN ACCORDANCE WITH THE AGREEMENT DATED 31.3.2008, ASSESSEE BOOKED INCOME FROM TRANSFER OF LEASEHOLD RIGHTS TO BBMPL FROM YEAR TO YEAR ON COMPLETION OF THE BARE CONSTRUCTION OF THE AGREED AREA AS SPECIFIED IN SCHEDULE ANNEXED TO THE AGREEMENT. OUR ATTENTION WA S BROUGHT TO THE FACT THAT INCOME IN THE SUBSEQUENT YEARS ON COMPLETION OF BARE CONST RUCTION WAS DECLARED BY THE ASSESSEE AS FOLLOWS: 31ST MARCH, 2010 RS. 2,97,52,500 - PAGE 105 OF PB 31ST MARCH, 2011 RS.13,09,40,000 - PAGE 148 OF PB OUR ATTENTION WAS DRAWN TO THE FACT THAT M/S BBMPL ALSO CAPITALIZED THE AFORESAID AMOUNT IN THEIR BALANCE SHEET AS DETAILED HEREIN BE LOW. 31ST MARCH, 2010 RS. 2,97,52,500 - PAGE 130 OF PB 31ST MARCH, 2011 RS.13,09,40,000 - PAGE 169 OF PB IN VIEW OF THE AFORESAID FACTS, IT WAS SUBMITTED TH AT INCOME ACCRUED TO THE ASSESSEE ONLY WHEN THE RESPECTIVE RIGHT WERE TRANSFERRED. IT WAS ARGUED THAT THE AGREEMENT CLEARLY SPELT THAT THE LEASEHOLD RIGHT WOULD BE TRA NSFERRED ON BARE COMPLETION OF THE ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 12 AREA SPECIFIED IN THE AGREEMENT. IT IS ALSO A FACT THAT THE WHOLE OF THE CONSTRUCTION WAS NOT COMPLETED IN THE FIRST YEAR ITSELF. THERE IS NO DISPUTE ABOUT IT. THE ASSESSEE HAS CORRECTLY SHOWN THE INCOME IN RESPECT OF THE AREA F OR WHICH BBMPL COMPLETED THE BARE CONSTRUCTION AS AGREED UPON AND THE LEASEHOLD RIGHTS THEREIN TRANSFERRED. THE AREA FOR WHICH CONSTRUCTION REMAINED TO BE COMPLETED COU LD NOT BE TRANSFERRED UNLESS THE SAME IS IN EXISTENCE. IN THESE CIRCUMSTANCES, IT WA S SUBMITTED THAT THE ASSESSEE HAD DECLARED THAT PART OF INCOME IN THE RESPECTIVE YEAR S IN WHICH THE BARE CONSTRUCTION OF THE AREA WAS COMPLETED BY BBMPL. IT WAS SUBMITTED THAT THE ASSESSEE GETS TITLE TO LEASE HOLD RIGHTS ONLY ON COMPLETION OF CONSTRUCTIO N OF THE NEW MARKET AND THEREFORE IT CANNOT GIVE SOMETHING WHICH IT DOES NOT HAVE. IT W AS ARGUED THAT THE MAXIM ' NEMO DAT QUOD NON HABET ' WHICH MEANS - NO ONE CAN TRANSFER SOMETHING WHICH HE DOES NOT POSSESS, WILL BE APPLICABLE IN THE PRESENT CASE. I NCOME WOULD ACCRUE TO THE ASSESSEE ONLY WITH REFERENCE TO CONSIDERATION OF THE AREA FO R WHICH THE ACTUAL TRANSFER WAS EFFECTED OF THE VALUE OF RS.18,69,15,000 ONLY AND NOT RS.63,12,00,000 FOR THE WHOLE AREA TO BE CONSTRUCTED IN FIVE YEARS AS ALLEGED BY AO. IT WAS SUBMITTED THAT THE FOLLOWING AMOUNTS BEING PART OF THE SUM OF RS.44,42 ,85,000 (RS.63,12,00,000 - RS.18,69,15,000) HAS ALREADY BEEN OFFERED TO TAX BY THE ASSESSEE AS ITS INCOME ACCRUED TO IT IN THE FOLLOWING YEARS, WHEN THE RESP ECTIVE RIGHTS WERE TRANSFERRED ON COMPLETION OF THE WORK AS AGREED, AND HAS BEEN TAXE D ACCORDINGLY. 31ST MARCH, 2010 RS. 2,97,52,500 - PAGE 105 OF PB 31ST MARCH, 2011 RS.13,09,40,000 - PAGE 148 OF PB M/S BBMPL ALSO CAPITALIZED THE AFORESAID AMOUNTS IN THEIR BALANCE SHEET AS DETAILED HEREIN BELOW. 31ST MARCH, 2010 RS. 2,97,52,500 - PAGE 130 OF P B 31ST MARCH, 2011 RS.13,09,40,000 - PAGE 169 OF PB IT WAS ARGUED THAT THE ASSESSMENT OF THE AFORESAID SUMS HAVE BEEN ACCEPTED BY THE AO TO BE TAXED IN RESPECTIVE ASSESSMENT YEARS. IN THES E FACTS AND CIRCUMSTANCES OF THE CASE IT WAS SUBMITTED THAT THE ADDITION OF RS.44,25,00,0 00 SHOULD BE DIRECTED TO BE DELETED. THE LD. DR RELIED ON THE ORDER OF CIT(A). ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 13 24. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ASSESSEE UNDER AN AGREEMENT DATED 24.2.2006 READ WI TH SUPPLEMENTARY AGREEMENT DATED 12.6.2006 WITH KMC AGREED TO CARRY OUT DEVELO PMENT OF A COMPREHENSIVE NEW MARKET IN PLACE OF THE OLD MARKET KNOWN AS COLLEGE STREET MARKET, AFTER DEMOLITION OF THE EXISTING OLD STRUCTURE. THE ASSESSEE WAS TO BEAR ALL THE COST OF CARRYING OUT THE CONSTRUCTION, DEVELOPMENT ETC. THE ASSESSEE WAS ENT ITLED TO LEASEHOLD RIGHTS IN RESPECT OF 70% OF THE BUILT UP AREA OF THE NEW CONSTRUCTION AND KMC WAS ENTITLED TO 30% OF THE BUILT UP AREA OF NEWLY CONSTRUCTED MARKET. 25. THE ASSESSEE BY AN AGREEMENT DATED 6.3.2008 EN TERED INTO WITH SFFPL/BBMPL ASSIGNED ALL ITS RIGHTS AND OBLIGATIONS UNDER THE A GREEMENT WITH KMC TO AND IN FAVOUR OF SFFPL/BBMPL. WE HAVE ALREADY SET OUT THE TERMS OF THIS AGREEMENT IN THE EARLIER PART OF THIS ORDER. A READING OF THIS AGREEMENT SH OWS THAT THE ASSESSEE HAD COMPLETELY ASSIGNED ALL ITS RIGHTS AND OBLIGATIONS UNDER THE AGREEMENT WITH KMC IN FAVOUR OF SFFPL/BBMPL. THE ASSESSEE RECEIVED A SUM OF RS.57,16,68,000 FROM SFFPL/BBMPL. THIS RECEIPT IS NOT ACKNOWLEDGED IN T HIS AGREEMENT. KMC IS NOT A PARTY TO THIS AGREEMENT BETWEEN THE ASSESSEE AND SF FPL/BBMPL. SUBSEQUENLTY THERE WAS ANOTHER AGREEMENT DATED 31.3.2008. THIS AGREEMENT REFERS TO THE EARLIER AGREEMENT DATED 6.3.2008 AND FURTHER STATES THAT SU BSEQUENT TO THE AGREEMENT DATED 6.3.2008 THE ASSESSEE HAD DECIDED TO RELINQUISH 1,2 3,600 SQ.FT. OUT ITS 70% SHARE OF LEASEHOLD RIGHTS IN THE BUILT UP AREA IN THE NEW MA RKET TO BE CONSTRUCTED IN FAVOUR OF SFFPL/BBMPL FOR A CONSIDERATION OF RS.63,12,00,000. SFFPL/BBMPL PAID A SUM OF RS.57,16,68,000 TO THE ASSESSEE. THIS AGREEMENT CONTAINS A SCHEDULE WHICH IDENTIFIES THE LOCATION OF THE BUILT UP AREA TO BE ALLOTTED TO SFFPL/BBMPL AND ITS VALUE. AS WE HAVE ALREADY OBSERVED WHEN THE ENTIRE RIGHTS AND OBLIGATIONS OF THE ASSESSEE UNDER THE AGREEMENT WITH KMC IS ASSIGNED U NDER THE AGREEMENT DATED 6.3.2008 THERE WAS NO NECESSITY FOR THE AGREEMENT D ATED 31.3.2008. THE REVENUE HAS HOWEVER PROCEEDED ON THE BASIS OF THE TERMS OF THE AGREEMENT DATED 31.3.2008 AND THEREFORE, WE SHALL CONFINE OURSELVES TO THE QUESTI ON WHETHER INCOME TO THE TUNE OF RS. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 14 63,12,00,000 ACCRUED TO THE ASSESSEE AND THAT HAD T O BE BROUGHT TO TAX IN THE RELEVANT AY. 26. BY A LETTER DATED 31.03.2009 BETWEEN THE ASSES SEE AND SFFPL/BBMPL IT WAS SPECIFICALLY MENTIONED AFTER REFERRING TO THE AGREE MENT DATED 31.3.2009 THAT THE AREA THAT HAS TO BE ALLOTTED TO IT WILL BE SO ALLOTTED O NLY ON COMPLETION OF THE BARE CONSTRUCTION AND IN RESPECT OF PORTIONS WHICH REMAI NS INCOMPLETE, SUCH AREA WILL BE TRANSFERRED ONLY IN THE YEAR OF COMPLETION OF CONST RUCTION. THIS LETTER IS THE BASIS ON WHICH THE ASSESSEE CLAIMS THAT ACCRUAL OF INCOME WI LL BE BASED ON THE COMPLETION OF STRUCTURE WHICH IS REFERRED TO AS BARE CONSTRUCTIO N IN THE SAID LETTER. 27. THERE IS NO DISPUTE BEFORE US THAT THE INCOME IN QUESTION IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. U/S.145 OF THE ACT, INCOME FROM BUSINESS IS COMPUTED IN ACCORDANCE WITH THE REGULAR METHOD OF A CCOUNTING FOLLOWED BY THE ASSESSEE WHICH COULD BE EITHER CASH OR MERCANTILE S YSTEM OF ACCOUNTING. THE ASSESSEE IN THE PRESENT CASE FOLLOWS MERCANTILE SYS TEM OF ACCOUNTING. IN MERCANTILE ACCOUNTING SYSTEM, TRANSACTIONS ARE RECORDED ON ACC RUAL BASIS, I.E., AMOUNT PAID AND PAYABLE OR RECEIVED OR RECEIVABLE IN BUSINESS FOR A PERIOD ARE RECORDED. THE QUESTION IS WHETHER THE SUM OF RS.44,42,85,000/- CAN BE CONS IDERED AS HAVING ACCRUED TO THE ASSESSEE. 28. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING THER E WOULD BE AN ACCRUAL OF THE ENTIRE CONSIDERATION AGREED BETWEEN THE PARTIES VIZ., RS.6 3,12,00,000/- AS ON 31.3.2009.. IN FACT THE ASSESSEE AGREES THAT THERE HAS BEEN ACCRUA L OF INCOME TO THE EXTENT OF RS.18,69,15,000/-. THE REASON FOR CONSIDERING THE REMAINING SUM OF RS.44,42,85,000 AS INCOME NOT ACCRUED IS DUE TO THE NON COMPLETION OF THE BUILT UP AREA BY BBMPL. THE ASSESSEE SEEKS TO RELY ON THE FACT THAT AS PER THE AGREEMENT THE BUILT UP AREA ALLOTTED TO BBMPL WILL BE SUBJECT TO THE COMPLETION OF CONSTRUCTION BY BBMPL OF THE SAID AREA AND THEREFORE TILL CONSTRUCTION IS CO MPLETED, THERE CANNOT BE ACCRUAL OF INCOME IN THE HANDS OF THE ASSESSEE. IN THIS REGAR D, WE ARE OF THE VIEW THAT TRANSFER OF ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 15 LEASEHOLD RIGHTS AND VESTING OF LEGAL TITLE IN FAVO UR OF BBMPL WILL NOT DECIDE THE ACCRUAL OF INCOME IN THE HANDS OF THE ASSESSEE. IN OTHER WORDS THE ENTIRE SUM OF RS.63,12,00,000 SHOULD BE DEEMED TO HAVE ACCRUED OR ARISEN TO THE ASSESSEE ON 31.3.2009 WHEN THE AGREEMENT WAS SIGNED BETWEEN THE ASSESSEE AND BBMPL. IN THIS REGARD IT IS ALSO PERTINENT TO NOTE THAT THE A SSESSEE RECEIVED A SUM OF RS.57,16,68,000 OUT OF THE AGREED VALUE OF RS.63,12 ,00,000 DURING THE PREVIOUS YEAR. THIS AGAIN GOES TO SHOW THAT COMPLETION OF CONSTRUC TION WAS NOT A CONDITION PRECEDENT FOR PAYMENT OF CONSIDERATION BY BBMPL TO THE ASSESS EE IN RESPECT OF THE BUILT UP AREA THE LEASE HOLD RIGHTS OF WHICH WAS TO BE ALLOT TED TO BBMPL. WE ARE ALSO OF THE VIEW THAT THE PARTIES BY AN AGREEMENT CANNOT ALTER THE TIME OF ACCRUAL OF INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. INCOME UNDER THE MERCANTILE SYSTEM WILL ACCRUE AND ARISE WHEN THE RIGHT TO RECEIVE THE SUM IN QUES TION IS DETERMINED. SUCH RIGHT TO RECEIVE THE SUM IN QUESTION AND ITS ACCRUAL UNDER T HE MERCANTILE SYSTEM CANNOT GET POSTPONED BY AGREEMENT BETWEEN THE PARTIES. THE ARG UMENT THAT THE ASSESSEE FOLLOWED PERCENTAGE COMPLETION METHOD OR COMPLETION CONTRACT METHOD OF ACCOUNTING, IS AGAIN NOT ACCEPTABLE, BECAUSE THE INCOME IN QUESTION, IN SO FAR AS THE ASSESSEE IS CONCERNED, DOES NOT ARISE FROM EXECUTION OF ANY CONSTRUCTION C ONTRACT BY IT. IT ARISES OUT OF THE ASSESSEES ACTION OF TRADING THE BUILT UP SPACE WHI CH IT WAS TO GET BY VIRTUE OF ITS AGREEMENT FOR BUILDING NEW MARKET WITH KMC. 29. THE ARGUMENT THAT EVEN BBMPL RECOGNISED INCOME ONLY ON THE BASIS OF COMPLETION OF CONSTRUCTION, IS AGAIN IRRELEVANT WHE N IT COMES TO DETERMINING INCOME OF THE ASSESSEE. THE FACT THAT THE ASSESSEE WAS OF FERING TO TAX INCOME AS AND WHEN BARE CONSTRUCTION WAS COMPLETED IS AGAIN NOT RELEVA NT. IT WAS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE REVENUE HAS TAXED INCOME OFFERED IN THE SUBSEQUENT YEARS BY THE ASSESSEE AND TAXING THE SAME INCOME IN THE PRESENT AY WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME INCOME. WE ARE OF THE VIEW THAT THESE FACTORS CANNOT DECIDE THE ACCRUAL OF INCOME IN THE HANDS OF THE AS SESSEE. IF THERE IS DOUBLE TAXATION OF THE SAME INCOME THEN IT IS FOR THE ASSESSEE TO W ORK OUT ITS RIGHTS IN A MANNER KNOWN TO LAW. ITA NO.18/KOL/2013 BENGAL SHELTER HOUSING DEVELOPME NT LIMITED A.Y.2009-10 16 30. FOR THE REASONS GIVEN ABOVE, WE FIND NO MERIT S IN GRDS. 3 TO 7 RAISED BY THE ASSESSEE AND ACCORDINGLY DISMISS THE SAME. 31. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE COURT ON 03.02.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 03.02.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.BENGAL SHELTER HOUSING DEVELOPMENT LIMITED, BA-2, SECTOR-I, SALT LAKE CITY, KOLKATA-700064. 2. J.C.I.T.(OSD), CIRCLE-8, KOLKATA 3. CIT(A)-VIII, KOLKATA 4. CIT III, KOLKATA 5..CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT. REGISTRAR, KOLKATA BENCHES