ITO, CHENNAI V. S.Karunakaran, CHENNAI

ITA 1962/CHNY/2014

• Counselvise Citation: 196221714 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 01-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2014
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: R PADMANABHAN
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , ! ' , # $% BEFORE SHRI N.R.S.GANESAN, JUDICIAL MMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO.1962/MDS/2014 AND C.O. NO.95/MDS/2014 (IN ITA NO.1962/MDS/2014) / ASSESSMENT YEAR : 2009-10 THE INCOME-TAX OFFICER, BUSINESS WARD-III(4), CHENNAI. ( /APPELLANT) VS SHRI S. KARUNAKARAN, NO.25, BAJANAI KOIL STREET, CHENNAI-94. PAN ABLPK8673P ( /RESPONDENT) / APPELLANT BY : SHRI P. RADHAKRISHNAN, JCIT / RESPONDENT BY : SHRI R. PADMANABHAN, CA / DATE OF HEARING : 01.09.2015 ! / DATE OF PRONOUNCEMENT: 04.09.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THE APPEAL AND THE CROSS - - ITA 1962/14 ET C. 2 OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX(APPEALS) DATED 25.3.2014. 2. THE GRIEVANCE OF THE REVENUE IN THE APPEAL IS WI TH REGARD TO DELETION OF ADDITION OF ` 20,63,000/-, OUT OF A TOTAL ADDITION OF ` 39,47,000/- MADE BY THE ASSESSING OFFICER AND ALSO OBSERVING THAT THE INCOME TO BE ESTIMATED AT 8% OF THE SALE P ROCEEDS AND TREATING THE INCOME UNDER THE HEAD BUSINESS INSTE AD OF SHORT TERM CAPITAL GAINS. THE ASSESSEE HAS FILED THE CRO SS OBJECTION IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCOME- TAX(APPEALS). 3. BEFORE US, THE LD. AR MADE AN ENDORSEMENT THAT T HE ASSESSEE IS NOT INTERESTED IN PROSECUTING THE CROSS -OBJECTION. ACCORDINGLY, THE CROSS OBJECTION IS DISMISSED AS NO T PRESSED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS THE PROPRIETOR OF M/S. KARTHIK SANITARY TRADERS AND HAS ADMITTED INCOME FROM BUSINESS, HOUSE PROPERTY, TRANSPORTATIO N CHARGES RECEIVED AND INTEREST ON CAPITAL FROM M/S. ALPHA PR OPERTIES. THE ASSESSING OFFICER HAD INFORMATION THAT THE ASSESSEE HAD SOLD PROPERTIES FOR THE CONSIDERATION OF ` 1,20,96,480/- TO THE FOLLOWING PARTIES: - - ITA 1962/14 ET C. 3 1. MR. N. TULASIRAMAN ` 42,24,000/- 2. MR. RAMAKUMAR ` 39,60,000/- 3. MR. MURTAZA ` 39,12,480/- TOTAL ` 1,20,96,480/- WHEN THE AO QUESTIONED, IN THE ASSESSMENT PROCEEDIN GS, THE ASSESSEE STATED THAT HE, AS A POWER AGENT, HAD RECEIVED COMMISSION AT 2% FROM THE OWNERS OF THE PROPERTIES. THE AO OBSERVED THAT THE ASSESSEE HAD TAKEN POSSESSION OF 50% OF THE PROPERTY ON THE BASIS OF T HE GENERAL POWER OF ATTORNEY DATED 16.3.2007. THE ASS ESSEE HAS FURNISHED THE COPY OF CONSTRUCTION AGREEMENT EN TERED BY THE ASSESSEE WITH ONE MR. SATYAPRAKASH WITH M/S. DEEPIKA HOUSING ENTERPRISES WHEREIN THE TOTAL CONSIDERATION OF ` 81,68,000/- WAS SHOWN. THE AO FOUND THAT THE TOTAL RECEIPTS IN ASSESSEES BANK ACCOUNT TOTALLED TO ` 1,22,34,000/- AND ` 82,87,000/- WHICH CONSISTED OF PAYMENTS TO VARIOUS PERSONS FOR THE CONSTRUCTION OF THE PROPERTY, CONSIDERATION RECEIVED FROM THE PARTIES T O WHOM THE PROPERTIES WERE SOLD AND ALSO TO THE OWNERS OF THE PROPERTIES. AS THE ASSESSEE WAS UNABLE TO GIVE THE CASH FLOW STATEMENT IN RESPECT OF THE PROPERTY CONSTRUCT ED BY THE - - ITA 1962/14 ET C. 4 ASSESSEE AS POWER AGENT, THE AO TREATED THE DIFFERE NCE OF ` 39,47,000/- AS SHORT TERM CAPITAL GAINS ESCAPED FR OM THE TAXATION AND BROUGHT THE SAME TO TAX. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) . 5. BEFORE THE CIT(APPEALS), THE ASSESSEE HAS TAKEN A PLEA THAT THE ASSESSEE IS A POWER OF ATTORNEY HOLDE R BY MR. SATYAPRAKASH, S/O LATE EDWARD, MR. SELVAPRAKASH, S/ O LATE EDWARD AND MRS. CATERIN SUGUNAKUMAR W/O LATE EDWARD AND ALL THE POWER OF ATTORNEY WAS FOR DEVELO PMENT, CONSTRUCTION AND SALE OF THE PROPERTY ON THE PIECE OF LAND SITUATED AT NO.15, THIRUVEETHIYAN STREET, GOPALAPUR AM, CHENNAI. THE ASSESSEE WAS AUTHORIZED TO DEVELOP TH E PROPERTY BY CONSTRUCTING THE FLATS AND ALSO MAKE A SALE OF THE PROPERTY BY REGISTERING THE UNDIVIDED SHARE OF THE LAND ON BEHALF OF THE OWNERS. FROM THE READING OF THE G ENERAL POWER OF ATTORNEY, THE CIT(APPEALS) FOUND THAT NO W HERE IT WAS STATED THAT THE ASSESSEE WAS THE OWNER OF 50% O F THE PROPERTY AS CONTENDED BY THE AO. THEREFORE, THE CIT(APPEALS) HELD THAT THE COMPUTATION OF THE CAPIT AL GAIN IN THE HANDS OF THE ASSESSEE BY TAKING THE DIFFEREN CE - - ITA 1962/14 ET C. 5 BETWEEN THE OUTGOINGS AND INCOMINGS IN THE BANK ACC OUNT IS NOT CORRECT. ACCORDINGLY, THE ASSESSEE SUBMITTE D THAT THE ASSESSEES INCOME TO BE COMPUTED UNDER THE HEAD BUSINESS INCOME. THE CIT(APPEALS) AFTER GOING TH ROUGH THE COPIES OF AGREEMENT, HE COMPUTED THE TOTAL SALE VALUE AT ` 2,35,5000/- AND CONSIDERED THE INCOME OF THE ASSESSEE AT 8% OF ABOVE SALE VALUE COMPUTED AT ` 18,84,000/-. AGAINST THIS, THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CIT(APPEALS) CONSIDERED TH E FACTS THAT AFTER GETTING THE POWER OF ATTORNEY FROM THREE CO- OWNERS, VIZ., SATHYA PRAKASH, SELVAPRAKASH AND CATE RIN SUGUNAKUMARI, WHO HAD ENTERED INTO A JOINT VENTURE AGREEMENT WITH M/S. ALPHA PROPERTIES, WHEREIN THE ASSESSEE IS A PARTNER. ACCORDING TO THE JOINT VENT URE AGREEMENT, THE ASSESSEE HAS TO CONSTRUCT THE FLATS OUT OF WHICH THREE FLATS FOR OWNERS AND THE BUILDER CAN SE LL THE REMAINING THREE FLATS AND ALSO MEET THE COST OF CON STRUCTION OF SIX FLATS. SINCE, M/S. ALPHA PROPERTIES WERE NOT ABLE TO - - ITA 1962/14 ET C. 6 CARRY OUT THE CONSTRUCTION AS THEY DID NOT HAVE THE SUFFICIENT INFRASTRUCTURE AND OTHER FACILITIES TO CONSTRUCT TH E FLATS AND THE PROJECT WAS HELD UP FOR ABOUT ONE YEAR WITHOUT TAKE OFF, MR. KARUNAKARAN BEING THE POWER OF ATTORNEY HOLDER FOR THE OWNERS (ENTIRE PROPERTY) NEGOTIATED AND ENTERED IN A JOINT VENTURE AGREEMENT WITH THE SAME TERMS AND CONDITION S WITH M/S. DEEPIKA HOUSING AND ENTERPRISES BY A JOIN T VENTURE AGREEMENT. 6.1 ACCORDING TO THE CIT(APPEALS), THE PROFIT OF TH E ASSESSEE HAS TO BE WORKED OUT IN THE FOLLOWING MANN ER : PROFIT FOR THE JOINT VENTURE SALE OF FLATS BY THE BUILDER (3 X 7000000) 21,00 0,000 LESS: CONSIDERATION OF UNDIVIDED SHARE OF LAND SPENT ON THE CONSTRUCTION OF BUILD- ING DEEPIKA HOUSING ENTERPRISES 12,096,480 FURTHER AMOUNT SPENT BY DEEPIAK HOUSING & ENTERPRISES ON THE ENTIRE LAND 9,000,000 ---------------- 6 FLATS PLINTH AREA CONSTRUCTED 7809 SQ.FT. 21,096,480 ----------------- NET LOSS FROM THE PROJECT (96 ,480) -------------- THE TOTAL COST OF ` 2,10,96,480/- FOR CONSTRUCTING 7809 SQ.FT. FOR BUILDING OF 6 FLATS (3 FOR OWNERS AND 3 FOR BUI LDER) - - ITA 1962/14 ET C. 7 INCURRED THROUGH M/S. DEEPIKA HOUSING AND ENTERPRIS ES STARTING FROM THE YEAR APRIL, 2007 TO MARCH 2010 WA S SUPPORTED BY THE ASSESSEE BEFORE THE CIT(APPEALS). 6.2 THEREAFTER, THE ASSESSEE WAS REQUESTED TO FURNI SH THE DETAILS OF THE SALE PRICE OF THE UNDIVIDED SHAR E OF THE LAND AND CONSTRUCTION COST RECEIVED FROM THREE PERS ONS AS WELL AS THE COPIES OF CONSTRUCTION AGREEMENT AND TH E SAME WAS FURNISHED BEFORE THE CIT(APPEALS). ACCORDING T O THE INFORMATION GIVEN BY THE LD. AR OF THE ASSESSEE, TH E TOTAL VALUE OF THE THREE PROPERTIES WAS ` 2,35,50,000/- AND THE CONSTRUCTION WAS ENTRUSTED TO DEEPIKA HOUSING ENTERPRISES. AS PER THE SUPPLEMENTARY CONSTRUCTION AGREEMENT DATED 28.8.2008 ENTERED BY DEEPIKA HOUSIN G ENTERPRISES (PARTY OF THE FIRST PART) WITH MR. SATY APRAKASH, MR. SELVAPRAKASH AND MRS. CATHERINE SUGUNAKUMARI (P ARTY OF THE SECOND PART), THE COST OF CONSTRUCTION WAS R EQUIRED TO BE PAID BY THE PARTY OF THE SECOND PART TO THE FIRS T PART, A SUM OF ` 2,10,00,000/- FOR CONSTRUCTING SIX FLATS MEASURING 9505 SQ.FT. CONSTRUCTED AREA IN THE GROUND FLOOR G1 AND G2, FIRST FLOOR F1 AND F2, SECOND FLOOR S1 AND S2. AS PER THE - - ITA 1962/14 ET C. 8 UNDERSTANDING BETWEEN THE ASSESSEE AND THE OWNERS O F THE LAND, THE OWNERS OF THE LAND WOULD RETAIN 3 FLA TS AND BALANCE 3 FLATS ARE TO BE RETAINED BY THE ASSESSEE FOR SALE IN THE MARKET. THE DIFFERENCE BETWEEN THE SALE PRIC E AND CONSTRUCTION WAS TO BE BORNE BY THE ASSESSEE AND COMPUTED THE ADMINISTRATIVE COST OF ` 25,50,000/- AS THE COST INCURRED FOR GOPALAPURAM SITE AND NO EVIDENCE WAS FURNISHED BY THE ASSESSEE IN RESPECT OF THE EXPENSE S OF ` 25,50,000/-. HOWEVER, INCURRING OF CERTAIN EXPENDI TURE BY THE ASSESSEE IS NOT RULED OUT. ON ENQUIRY, THE ASS ESSEE VIDE LETTER DATED 12.3.2014 OFFERED THE INCOME AT 8 % ON GROSS RECEIPTS IN THE ABSENCE OF BOOKS OF ACCOUNT, RELEVANT VOUCHERS AND BILLS FOR THE CLAIM OF EXPENSES OVER A ND ABOVE WHICH WAS REQUIRED TO BE PAID TO DEEPIKA HOUS ING ENTERPRISES. 6.3 THE CIT(APPEALS) ACCEPTED THE NET INCOME OF TH E ASSESSEE IN THE REAL ESTATE BUSINESS IN RESPECT OF THE DEVELOPMENT OF THE PROPERTY UNDER CONSIDERATION AT 8% OF THE GROSS RECEIPTS ON SALE OF PROPERTIES AND THE TO TAL GROSS SALE PRICE OF THE 3 FLATS TOGETHER CAME TO ` 2,35,50,000/-. - - ITA 1962/14 ET C. 9 ACCORDING TO THE CIT(APPEALS), SINCE THE NET INCOME AGREED FOR TAXATION DURING THE COURSE OF APPELLATE PROCEEDINGS AT 8% OF THE SALES WORKED OUT TO ` 18,84,000/-, THE ASSESSEE HAS EARNED PROFIT OF ` 18,84,000/- IN THE REAL ESTATE BUSINESS IN RESPECT OF THE DEVELOPMENT OF TH E PROPERTY UNDER CONSIDERATION. 6.4 THE CIT(APPEALS) HAS GONE THROUGH THE CONSTRUCT ION AGREEMENT AND OBSERVED THAT THE ASSESSEE IS ENTRUST ED THE CONSTRUCTION TO DEEPIKA HOUSING ENTERPRISES AND THE TOTAL SALE VALUE OF THE THREE PROPERTY WAS ONLY ` 2,35,50,000/- AND ESTIMATED THE INCOME FROM SALE PROCEEDS AT ` 18,84,000/-. THE CIT(APPEALS) CONSIDERED THE CLAI M, WHICH WAS NOT BEFORE THE AO AND DIRECTED THE AO TO DELETE THE BALANCE ADDITION OF ` 20,63,000/- WITHOUT CALLING A REMAND REPORT. IN OUR OPINION, IT IS APPROPRIATE T O REMIT THE ISSUE BACK TO THE FILE OF THE AO TO DECIDE THE ISSU E AFRESH. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERATION AFTER GIVING ADEQUATE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. - - ITA 1962/14 ET C. 10 IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION IS DISMISSED AS NOT PRESSED. ORDER PRONOUNCED ON FRIDAY, THE 4 TH OF SEPT., 2015 AT CHENNAI. SD/- SD/- ( ' . . ' . #$ ) ( % & ' ( ) ) N.R.S.GANESAN * )+,-./0-1223-04* 5 67 /JUDICIAL MEMBER 6789::2;.<-.<=>?@>0 %5 /CHENNAI, A6 /DATED, THE 4 TH SEPT., 2015. MPO* 6$ BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E)* /CIT(A) 4. E /CIT 5. CF# G /DR 6. #HI /GF.