A.R.Foundations, CHENNAI V. ACIT, CHENNAI

ITA 1873/CHNY/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6446 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 17-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHI J
• Assessee Lawyers: S SRIDHAR
• Keywords: Gift; Principle of natural justice

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.1873/MDS./2015 / ASSESSMENT YEAR : 2012-13 M/S.A.R.FOUNDATIONS , ACROPOLIS, GROUND FLOOR, NO.148,DR.RADHAKRISHNA SALAI, MYLAPORE, CHENNAI 600 004. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-1, CHENNAI, [PAN AASFA 0033 B] ( / APPELLANT) ( /RESPONDENT) ! ' / APPELLANT BY : SHRI S.SRIDHAR,ADVOCATE #$ ! ' /RESPONDENT BY : SHRI ASISH TRIPATHI, JCIT,DR % & ! '( / DATE OF HEARING : 09 - 08 - 2017 )* ! '( / DATE OF PRONOUNCEMENT : 10 - 08 - 2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, CHENNAI DATED 28.05.2015 FOR THE ASSESSMENT YEAR 2012-13. ITA NO.1873/15 :- 2 -: 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS WITH REGA RD TO DIRECTION OF THE LD.CIT(A) TO RE-OPEN THE ASSESSMENTS OF SMT. ANURADHA REDDY, MANAGING PARTNERS SISTER OF THE ASSESSEE AND SHRI SUGANAKARA REDDY, MANAGING PARTNERS FATHER OF THE ASSESSEE AND TO AS SESS THE DIFFERENCE OF THE COST OF THE VILLA U/S.56(1)(VII) OF THE INCOME-TAX ACT,1961. 3. SHRI S. SRIDHAR, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF CONSTRUCTION OF HOUSING PROJECTS. THE PARTNERSHIP F IRM CONSISTS OF TWO PARTNERS, NAMELY MR.P.AMRANATHA REDDY AND HIS WIF E SMT.SWETHA REDDY. THE ASSESSEE FIRM HAS UNDERTAKEN CONSTRUCTIO N OF A PROJECT KNOWN AS AMARA SAMUDRA, WHICH CONSISTS OF 7 VILLA S. THE AMARA SAMUDRA PROJECT WAS CONSTRUCTED ON THE LAND, WHICH BELONGS TO MR.P.AMARANATHA REDDY, ONE OF THE PARTNERS OF THE A SSESSEE-FIRM. THE ASSESSEE-FIRM, IN FACT, ENTERED INTO AN AGREEME NT FOR CONSTRUCTION WITH BUYERS, AND EXECUTED THE WORK AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE, PARTNERSHIP FIRM, CONSTRUCTED FOUR (4) VILLAS AND S OLD THE SAME FOR A PRICE RANGING FROM ` 3.5 CRORES TO ` 8.5 CRORES. TWO VILLAS WERE SOLD TO ITA NO.1873/15 :- 3 -: THE MANAGING PARTNERS FATHER AND SISTER FOR ` 2.0 CRORES PER VILLA. THE ASSESSEE VALUED THE UNSOLD VILLA AT ` 3.5 CRORES IN THE BOOKS OF ACCOUNTS. AT THE YEAR END, THE ASSESSEE COMPLETED THE CONSTRUCTION OF ALL THE SEVEN (7) VILLAS. THE LD. ASSESSING OFFICE R FOUND THAT VILLAS ARE SOLD TO DIFFERENT PERSONS AT DIFFERENT RATES. THER E WAS A MAJOR DIFFERENCE IN RESPECT OF TWO VILLAS SOLD TO SMT.ANU RADHA REDDY, SISTER OF MANAGING PARTNER OF ASSESSEE -FIRM AND SHRI SUGA NAKARA REDDY, FATHER OF MANAGING PARTNER OF ASSESSEE-FIRM. SINCE SMT.ANURADHA REDDY AND SHRI SUGANAKARA REDDY ARE CLOSE RELATIVES OF THE PARTNERS OF THE ASSESSEE FIRM, THE ASSESSING OFFICER FOUND T HAT THE ASSESSEE REDUCED THE SALE PRICE LESSER THAN THE ACTUAL EXPEN DITURE INCURRED. EVEN THE UNSOLD ONE VILLA WAS VALUED AND SHOWN AT ` 3.5 CRORES, THEREFORE, THE ASSESSING OFFICER FOUND THAT THE BOO KS OF ACCOUNTS WERE NOT REFLECTING CORRECT PROFIT OF THE ASSESSEE-FIRM. ACCORDINGLY, HE REJECTED THE BOOKS ACCOUNTS AND ESTIMATED THE PROFI T. ON APPEAL BY THE ASSESSEE, THE LD.CIT(A) DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER IN THE HANDS OF ASSESSEE-FIRM. HO WEVER, LD.CIT(A) DIRECTED THE AO TO RE-OPEN THE ASSESSMENT OF SMT.A NURADHA REDDY AND SHRI SUGANAKARA REDDY FOR ASSESSMENT YEAR 2012- 13 AND TAX THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. P LACING RELIANCE IN ITA NO.1873/15 :- 4 -: THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF C IT VS. T.A.KRISHNASWAMY REPORTED IN (2007) 75 CCH 1193 (CH EN HC), LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT( A) HAS NO POWER TO GIVE DIRECTION TO RE-OPEN THE ASSESSMENT OF ANOTHE R ASSESSEE. AT THE BEST, THE LD.CIT(A) MIGHT OBSERVE THAT THE INCOME C ANNOT BE ASSESSED IN THE HANDS OF ASSESSEE. GIVING FURTHER DIRECTION TO RE-OPEN THE ASSESSMENT OF OTHER ASSESSEES, WHO ARE NOT BEFORE THE LD.CIT(A), IS BEYOND THE JURISDICTION OF THE LD.CIT (A). 4. ON THE CONTRARY, SHRI ASISH TRIPATHI, DEPARTMEN TAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE SOLD TH E VILLAS TO VARIOUS PERSONS RANGING FROM ` 3.5 CRORES TO ` 8.40 CRORES. ONLY TO THE MANAGING PARTNERS SISTER AND FATHER, THE VILLA WAS SOLD AT THE RATE OF ` 2 CRORES. EVEN THE UNSOLD FLAT WAS VALUED @ ` 3.5 CRORES, THEREFORE, THE ASSESSING OFFICER FOUND THAT BOOKS OF ACCOUNT OF ASSESSEE-FIRM DID NOT REFLECT THE CORRECT PROFIT AND REJECTED THE BOO KS OF ACCOUNTS. SINCE THE FLAT WAS SOLD TO CLOSE RELATIVES OF THE MANAGIN G PARTNERS LESSER THAN THE COST PRICE, THE ASSESSING OFFICER HAS RIGH TLY ASSESSED THE SAME. THE LD.CIT(A) FOUND THAT IT CANNOT BE ASSESS ED IN THE HANDS OF THE ASSESSEE, THEREFORE, RIGHTLY DIRECTED THE AO TO ASSESS THE SAME IN ITA NO.1873/15 :- 5 -: THE HANDS OF SMT.ANURADHA REDDY AND SHRI SUGANAKARA REDDY FOR ASSESSMENT YEAR 2012-13. HENCE, NO INTERFERENCE IS CALLED FOR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSI NESS OF CIVIL CONSTRUCTION. THE ASSESSEE-FIRM CONSTRUCTED AMARA SAMUDRA PROJECT IN THE LAND BELONGS TO THE MANAGING PARTNER, MR.P.A MARANATHA REDDY. THE ASSESSEE CONSTRUCTED SEVEN VILLAS, FOUR VILLAS WERE SOLD AT A COST RANGING ` 3.5 CRORES TO ` 8.40 CRORES, TWO VILLAS WERE SOLD TO MANAGING PARTNERS SISTER AND FATHER @ ` 2 CRROES PER VILLA. THE ASSESSEE VALUED THE UNSOLD THE VILLA AT ` 3.50 CRORES. THE ASSESSING OFFICER FOUND THAT THE VILLAS SOLD TO MANAGING PARTNERS SISTER AND FA THER WAS LESSER THAN THE COST PRICE. SO, THE BOOKS OF ACCOUNT DO NOT REF LECT THE CORRECT PICTURE. ACCORDINGLY, ASSESSING OFFICER REJECTED T HE SAME. ON APPEAL BY THE ASSESSEE, THE LD.CIT(A) FOUND THAT THE AO RE JECTED THE BOOKS OF ACCOUNT WITHOUT MAKING ANY PROPER ENQUIRY. THERE FORE, THE RATE ADOPTED IN BOOKS OF ACCOUNT NEEDS TO BE APPLIED TO THE VILLAS SOLD TO THE RELATIVE ALSO. THE LD.CIT(A) FOUND THAT THE SAL E CONSIDERATION RECEIVED FROM THE CLOSE RELATIVE OF THE MANAGING PA RTNER WAS ITA NO.1873/15 :- 6 -: INADEQUATE. THE LD.CIT(A) FURTHER FOUND THAT PROVIS O TO SECTION 40A(2)(B) OF THE ACT WERE NOT ENFORCEABLE, SINCE TH E EXCESS EXPENDITURE WAS NOT PAID TO THE PERSONS REFERRED TO IN SEC.40A(2)(B) OF THE ACT. HOWEVER, THE DIFFERENCE OF AMOUNT AS WORK ED OUT TO THE EXTENT OF ` 2,58,22,504/- HAS TO BE TREATED AS GIFT TO THE MANA GING PARTNERS SISTER AND FATHER. ACCORDINGLY, THE LD.C IT(A) DIRECTED THE ASSESSING OFFICER OF SMT.ANURADHA REDDY AND SHRI S UGANAKARA REDDY TO RE-OPEN THEIR ASSESSMENT FOR ASSESSMENT YEAR 20 12-13 AND ASSESS THE DIFFERENCE UNDER THE HEAD INCOME FROM OTHER SOU RCES. THE QUESTION ARISE FOR OUR CONSIDERATION IS WHETHER THE LD.CIT(A) CAN DIRECT THE ASSESSING OFFICERS OF OTHER ASSESSEE, WHO ARE N OT BEFORE HIM TO REOPEN THE ASSESSMENT. THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE LD.CIT(A) BEING THE APPELLATE AUTHORITY HAS TO CONFINE HIMSELF TO THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE HIM AND ALSO THE PARTIES TO THE LITIGATION BEFORE HIM. WITHOUT HEARI NG THE ASSESSEE, OR THE ASSESSING OFFICER OF THE THIRD PARTIES, THE LD. CIT(A) CANNOT GIVE ANY DIRECTION. AS HELD BY THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. T.A.KRISHNASWAMY (SUPRA), THE APPELLATE AUT HORITY CANNOT EXCEED THEIR POWERS WHILE EXERCISING THEIR JURISDIC TION VESTED UNDER THE STATUTE. IN THIS CASE, THE LD.CIT(A) HAS EXCEEDED HIS JURISDICTION IN DIRECTING THE ASSESSING OFFICER, WHO IS NOT BEFORE HIM AND ALSO TO ASSESS THE INCOME IN THE HANDS OF SHRI SUGANAKARA R EDDY AND ITA NO.1873/15 :- 7 -: SMT.ANURADHA REDDY. BOTH OF THEM ARE NOT A PARTY BE FORE THE LD.CIT(A). THEREFORE, THE DIRECTION OF THE LD.CIT(A ) IS A CLEAR VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AND EXCEEDED HIS J URISDICTION. 6. MOREOVER, THE ASSESSEE IS A PARTNERSHIP FIRM. E VEN THOUGH PARTNERSHIP FIRM HAS NO STATUTORY EXISTENCE UNDER T HE COMMON LAW, IT IS AN INDEPENDENT ASSESSABLE UNIT UNDER THE INCOME- TAX ACT. THEREFORE, WHEN THE PARTNERSHIP FIRM SOLD THE VILLA S AT A PRICE LESSER THAN THE ACTUAL COST, IT CANNOT BE CONSTRUED AS THE MANAGING PARTNER GIFTED SOMETHING TO HIS CLOSE RELATIVES. THERE MAY BE VARIOUS REASONS FOR A BUSINESSMAN TO SELL THE FLAT/VILLA AT LOWER P RICE. ONE OF THE REASONS, THERE MAY NOT BE ANY DEMAND IN THE MARKET. MOREOVER, THERE MAY BE A PRESSURE FOR REPAYMENT OF BORROWED L OAN. THEREFORE, IN ORDER TO MEET THE EXPENDITURE AND TO RE-PAY THE BORROWED FUNDS, THE ASSESSEE, PARTNERSHIP FIRM MIGHT HAVE SOLD THE VILLA LESSER THAN THE ACTUAL COST. WITHOUT EXAMINING THOSE DETAILS AND R EASONS, ONE CANNOT SAY THAT THE ASSESSEES MANAGING PARTNER GIFTED SOM ETHING TO HIS CLOSE RELATIVES. THE VERY FACT THAT ONE OF THE VILLAS RE MAINS UNSOLD, EVEN AT THE YEAR END, SHOWS THAT THERE WAS NO TAKER FOR THE REMAINING VILLA. THEREFORE, THERE MAY BE COMPELLING REASONS ON THE P ART OF THE ASSESSEE, PARTNERSHIP FIRM TO SELL THE VILLAS AT A PRICE LESSER THAN THE ACTUAL COST. ITA NO.1873/15 :- 8 -: 7. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD T HE ORDER OF THE LD.CIT(A) TO RE-OPEN THE ASSESSMENT OF SMT.ANU RADHA REDDY AND SHRI SUGANAKARA REDDY, AND TO ASSESS THE DIFFERENCE AMOUNT IN THE HANDS OF SMT.ANURADHA REDDY AND SHRI SUGANAKARA RED DY. ACCORDINGLY, THE ORDER/DIRECTION OF THE LD.CIT(A) T O REOPEN THE ASSESSMENT OF SHRI SUGANAKARA REDDY AND SMT.ANURAD HA REDDY IS DELETED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED ON 10 TH AUGUST, 2017, AT CHENNAI. SD/ - SD/ - (( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) # ! /JUDICIAL MEMBER + & / CHENNAI , / DATED: 10 TH AUGUST, 2017. K S SUNDARAM ! #'./ 0/' / COPY TO: 1 . / APPELLANT 3. % 1' () / CIT(A) 5. /4 #'5 / DR 2. #$ / RESPONDENT 4. % 1' / CIT 6. 6 7& / GF