ITO 25(2)(3), MUMBAI V. SIMANDHAR ASSOCIATIN, MUMBAI

ITA 3117/MUM/2012

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0692 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Assessee Lawyers: RASHMIKANT KUNDALIA
• Keywords: Capital asset; Set aside
• Section: 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3117/MUM/2012 ASSESSMENT YEAR: 2009-10 ITO -25(2)(3) ROOM NO. 105, 1 ST FLOOR BUILDING C-11, PRATYAKSHAKAR BHAWAN BANDR KURLA COMPLEX BANDRA(E), MUMBAI-400 051 VS. M/S SIMANDHAR ASSOCIATION A-402, TRISHALA TOWER VAZIRA NAKA, BORIVALI(W) MUMBAI-400 092 PAN AADAS1997C (REVENUE) (ASSESSEE) REVENUE BY : SHRI D.G.PANSARI & MS. NEELIMA NADKA RNI ASSESSEE BY : SHRI RASHMIKANT KUNDALIA DATE OF HEARING :26.04.2019 DATE OF PRONOUNCEMENT : 24.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER 1. THE REVENUE BY WAY OF THIS APPEAL IS CHALLENGING THE ORDER DATED 27/02/2012 OF THE LD. COMMISSIONER OF INCOME- TAX (APPEALS)-35 HEREINAFTER CALLED [CIT(A)], MUMBAI, IN APPEAL NO.CIT(A)-35/ITO-25(2)(3)/ITA.226/11-12. THE ASSESS MENT FOR IMPUGNED AY WAS FRAMED BY LD. INCOME TAX OFFICER- 25(2)(3),MUMBAI [AO] U/S 143(3) OF THE INCOME TAX A CT,1961 ON 28/12/2011. THE REVENUE HAS RAISED THE FOLLOWING GR OUNDS IN ITS APPEAL. 2 IT A NO.3117/MUM/2012 THE VARIOUS GROUNDS TAKEN BY THE REVENUE ARE AS UND ER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO ON THE GROUND THA T THE FUTURE INCOME ATTRIBUTABLE TO FLATS HAS BEEN BROUGHT TO TAX WITHOUT APPRECIATING THE FACT THAT WHAT IS BEING TAXED IN THE YEAR UNDER CONSIDERATION IS A MARKET VALUE I.E. BOO KING VALUE FOR THE 33 FLATS WHICH WAS PREVAILING DURING THE PREVIOUS YEAR AS EVIDENT FROM THE RATES AT WHICH THE FLATS WERE BOOKED IN THE PROJECT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE CONSIDERATION RECEIVED BEING FLATS ON TRANSFER OF DEVELOPMENT RIGHT IS TOTALLY INDEPENDENT TRANSACTIO N VIS--VIS SALE CONSIDERATION OF THE FLATS SO RECEIVED IN THE SUBSEQUENT YEARS, BOTH ARE NOT TO BE CLUBBED TOGETHER. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O. IGNORING THE FACT THAT ASSESSEE HAS ENTERED INTO BARTER TRANSACTION, AND HENCE THE PREVAILING MARKET VALUE OF THE COMMODITIES TRANSFERRED I.E. 33 FLATS HAS PROPERTY BEE BROUGHT TO TAX AS CO NSIDERATION RECEIVED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O. ON THE GROUN D THAT THE AGREEMENT DT. 26/05/2008 ON THE BASIS OF WHICH THE INCOME IS BROUGHT TO TAX IS SUPPLEMENTARY AGREEMENT, WITHOUT APPRECIATING THE FACT THAT THIS SUPPLEMENTARY AGREE MENT IS A SUBSTANTIVE AGREEMENT AS IT CONTAINS THE TERMS OF CONSIDERATION WHICH WERE NOT SPECIFIED IN THE ORIGINAL AGREEMENT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AD IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CHATURBUJ DWARKADAS KAPADIA V/S CIT (260 ITR 491) (BOM) IS SQ UARELY APPLICABLE TO THE INSTANT CASE. 6. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT( A) ON THE GROUNDS BE ST ASIDE AND THAT OF THE AO BE RESTORED 7. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY G ROUND OR ADD A NEW GROUND 2. THE COMMON ISSUE RAISED BY THE REVENUE IN THE VA RIOUS GROUNDS OF APPEAL AS REPRODUCED ABOVE IS AGAINST TH E ORDER OF CIT(A) DELETING THE ADDITIONS MADE BY THE AO IN RES PECT OF FUTURE INCOME FROM FLATS TO BE GIVEN TO THE ASSESSEE UN DER DEVELOPMENT AGREEMENT WITHOUT APPRECIATING THE FACT S THAT MARKET VALUE I.E. BOOKING VALUE 33 FLATS WERE BR OUGHT TO TAX WHEN THESE FLATS WERE BOOKED WHICH IS DIFFERENT FRO M ACTUAL SALES CONSIDERATION RECEIVED UPON SALE OF THESE FLATS. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED R ETURN OF INCOME ON 29/03/2010 DECLARING INCOME AT NIL WHIC H WAS 3 IT A NO.3117/MUM/2012 PROCESSED U/S 143(1) OF THE ACT. THE CASE OF THE A SSESSEE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED AND DULY SERVED ON THE ASSESSEE. THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION VIDE AGREEMENT DATED 26/05/2008 ENTER ED INTO UNDERSTANDING WITH M/S. DIMPLE REALTORS PVT. LTD W HEREBY THE ASSESSEE GAVE DEVELOPMENT RIGHTS TO M/S. DIMPLE REA LTORS PVT. LTD. AND IN TERMS OF THE SAID AGREEMENT, THE DEVE LOPER AGREED TO GIVE THE ASSESSEE IN CONSIDERATION 33 FLATS. TH E AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAD CAPITALIZED THE EXPENSES UNDER THE HEAD WORK IN PRO GRESS AND SHOWING INCOME AT NIL IN THE RETURN OF INCOME. T HE OPENING W.I.P. AS ON 01.04.2008 WAS RS. 1,85,44,356/- WHICH FURTHER INCREASED TO RS. 2,23,00,706/-AS ON 31/03/2009. TH E AO WAS OF THE VIEW THAT 33 FLATS TO BE RECEIVED BY THE ASSE SSEE IN CONSIDERATION OF TRANSFERRING THE DEVELOPMENT RIGHT S IN FAVOUR OF DIMPLE REALTORS PVT.LTD. HAS TO BE BROUGHT TO TAX I N THE CURRENT YEAR AS ACCORDING TO THE AO, THE ASSESSEE TRANSFERR ED THE DEVELOPMENTAL RIGHT DURING THE YEAR AND IN CONSIDER ATION AGREED TO RECEIVE CONSIDERATION IN THE FORM OF 33 FLATS. FINALLY AN ADDITION OF RS. 16,15,21,284/- WAS MADE TO THE INCO ME OF THE ASSESSEE BY FRAMING ASSESSMENT U/S 143(3) OF THE A CT VIDE ORDER DATED 28/12/2011. 4. IN THE APPELLATE PROCEEDINGS CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE CONTENTIONS AND SUBM ISSIONS AS RAISED DURING THE APPELLATE PROCEEDINGS BY OBSERVIN G AND HOLDING AS UNDER: ON FURTHER PERUSAL OF FACTS AND LEGAL CITATIONS OF THE ID.AO AS AN AGREEMENT FOR SALE IS ONLY A SUPPLEMENTARY AGREEMENT WHICH IS AN INTEG RAL PART AND PARCEL OF THE 4 IT A NO.3117/MUM/2012 ORIGINAL AGREEMENT FOR DEVELOPMENT EXECUTED ON 29-1 2-2007 RELEVANT TO A.Y. 2008- 09. IT CLEARLY MEANS THAT NO TRANSACTION TOOK PLACE IN THE YEAR UNDER APPEAL. AND IF AT ALL THERE WERE TO BE ANY TRANSACTION TO BE CONSIDER ED THAT HAD TAKEN PLACE, IT WA TO BE CONSIDERED IN F.Y. 2007-08 RELEVANT TO A.Y. 2008-09 II) FURTHER,, THE RATIO OF APPELLANT M CHA TOTAL CO NSTRUCTED AREA STANDS REDUCED FROM 45% TO 33% BY AND UNDER A SUPPLEMENTARY AGREEMENT EXECUTED ON 26-6-2010 WHICH MAKES IT CLEAR THAT THE AO HAS TAXED THE FUTURE UNCERTAIN AND CONTINGENT IN COME ON NON-EXISTING ASSET. III) THE OWNERSHIP OF THE PIECE OF LAND IS NEVER PA RTED WITH BY THE APPELLANT IN FAVOR OF ANYBODY. THE APPELLANT WAS THE OWNER OF TH E SAID LAND BEFORE THE SAID DEVELOPMENT AGREEMENT AND DURING THE CURRENCY OF TH E PROJECT AND EVEN AFTER COMPLETION OF THE PROJECT. HENCE, NO SALE OR TRANSFER HAS TAKEN PLACE NOR IS THERE AN INTENTION TO SELL OR TRANSFER THE SAID PIECE OF LAND BY THE OWNER. IV) THE OWNER HAS GIVEN A POWER OF ATTORNEY TO THE DEVELOPER WITH A VIEW TO FACILITATE THE DEVELOPER TO CARRY OUT THE DEVELOPMENT WORK SMOOTHL Y. HENCE, THE SAID POWER OF ATTORNEY IS ONLY A FUNCTIONAL OR PERFORMANCE POA AND NOT AN IRR EVOCABLE ONE. V) THE INTENTION OF THE APPELLANT WAS NOT TO EVADE TAX ON THE INCOME FROM THE PROJECT IS CLEAR FROM THE FACT THAT BASED ON THE ESTIMATE OF INCOME FROM THE PROJECT THE APPELLANT AHS PAID SUBSTANTIAL ADVANCE TAX FOR F.Y. 2011-12 RELEVANT T O A.Y. 2012-13 OF AN AMOUNT OF RS. 2,40,00,000/- BY DECEMBER, 2011. VI) (A) THE ASSET IN QUESTION BEING STOCK-IN-TRADE AND NOT A CAPITAL ASSET, THE PROVISIONS OF SEC. 2(47)(V) OF THE INCOME TAX ACT, 1961 ARE NOT A PPLICABLE TO THE APPELLANT AT ALL. AND IN TURN, THE QUESTION OF APPLICABILITY OF SEC. 53A OF T.P. ACT, 1882 ALSO DOES NOT ARISE. IN VIEW OF THIS, THE REFERENCE VS CIT 260 ITR 491 (BOM) MADE B Y THE AO IS NOT APPLICABLE HERE. VI(B) IN FACT THE LD. AR HAS BEEN ABLE TO DISTINGUI SH THE FACTS AND RATIO OF PRESENT APPEAL WITH THAT OF THE CASE RELIED UPON BY THE A.O. FURTHER, THE ID. A.R. HAS EXHAUSTIVELY QUOTED THE V ARIOUS CLAUSES OF THE AGREEMENT BETWEEN THE APPELLANT AND THE DEVELOPER AND HAS BEEN ABLE T O DEMONSTRATE THAT THERE WAS NOT ANY TRANSFER OF THE LAND AND THE LAND IN QUESTION WAS U NDISPUTEDLY STOCK-IN-TRADE AND ACCORDINGLY THE PROVISION OF CAPITAL GAIN DO NOT APPLY. FURTHER THE W.A.R. HAS BEEN ABLE TO CO-RELATE THE FACTS & RATIO OF THE PRESENT CASE UNDER CONSIDERATI ON WITH THAT OF THE CASE LAWS RETTED UPON BY THE APPELLANT;'! HAVE ALSO GONE THROUGH THE JUDGMEN T RELIED UPON BY A.R. AND FIND THAT THE RATIO OF THIS CASE IS APPLICABLE, (VII) TO MY MIND, AO HAS TAXED NON-EXISTENT ASSET O R A FUTURE ASSET. THE ASSESSING OFFICER HAS APPLIED THE CURRENT MARKET VALUE TO A NOR EXISTING PROPERTY. THE METHOD ADOPTED BY THE A.O. IS ERRONEOUS. THE AO PROPOSES TO TAX THE INCOME BASED ON ESTIMATED SALE CONSIDERATION OF FUTURE ASSET WHICH IS YET TO COME INTO ITS EXISTENCE. THAT BASIC VACUUM IS APPARENT. IT IS SOMETHING TO COME WITHIN A PERIOD OF THREE TO FOUR YEARS IN FUTU RE. THE EXERCISE SUGGESTED BY THE AO IS LIKE A PROJECT FORECAST, RELEVANT FOR COST AND FINANCE MAN AGEMENT. ACCORDINGLY, ADDITION MADE ON FUTURE ASSET OR PROJECTED SALE/RECEIPT CAN'T BE TAXED AT T HIS JUNCTURE. 7. IN THE RESULT, THE APPEAL IS ALLOWED. 5. THE LD. DR VEHEMENTLY SUBMITTED FOR THE BENCH TH AT ORDER OF CIT(A) IS NOT CORRECT AS THE CIT(A) FAILED TO AP PRECIATING THE FACT THAT THE RIGHT TO RECEIVE 33 FLATS HAS ACCRUED TO THE ASSESSEE DURING THE YEAR WITH THE SIGNING OF AGREEMENT WITH DIMPLE REALTORS PVT. LTD. AND THE CONSIDERATION ACCRUED TO THE ASSESSEE FOR THE 33 FLATS IN VIEW OF TRANSFER OF DEVELOPME NTAL RIGHTS IN THE 5 IT A NO.3117/MUM/2012 PROPERTY. THE LD. DR THEREFORE HEAVILY RELIED ON TH E ORDER OF THE AO AND PRAYED THAT THE ORDER OF CIT(A) ALLOWED SET ASIDE. 6. THE LD. AR ON THE OTHER HAND SUBMITTED THAT THE INCOME OF THE ASSESSEE COULD NOT BE BROUGHT TO TAX DURING THE YEAR AS 33 FLATS DID NOT CAME INTO EXISTENCE DURING THE YEAR AND THE INCOME WAS ASSESSED HYPOTHETICALLY WHICH IS NOT THE PURPOR T OF THE ACT. THE LD.AR FURTHER SUBMITTED THAT ASSESSEE WAS HANDE D OVER THESE FLATS BY DIMPLE REALTORS PVT. LTD. IN THE SU BSEQUENT YEARS AFTER COMPLETION OF CONSTRUCTION AND INCOME FROM TH ESE FLATS WERE OFFERED TO TAX IN THE AY 2012-13 AND 2013-14 AND ASSESSEE HAS ALREADY PAID DUE TAXES THEREON. THE LD. AR RELI ED HEAVILY ON THE CIT(A) BY SUBMITTING THAT CIT HAS PASSED CORREC T, REASONED ORDER AND PRAYED FOR THE BENCH THAT THE SAME MAY BE REFERRED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE OBSERVE IN THIS CASE, THE A O HAS ASSESSED THE INCOME ON HYPOTHETICAL BASIS BY BRINGING 33 FLA TS TO TAX WHICH THE ASSESSEE WAS TO BE RECEIVE IN CONSIDERATI ON ON GIVING THE DEVELOPMENTAL RIGHTS TO DIMPLE REALTORS PVT. LT D. THE ASSESSEE HAS SUO-MOTO OFFERED THE INCOME ON THESE FLATS IN AY 2012-13 AND 2013-14 AND PAID TAXES WHICH WAS ACCEP TED BY THE REVENUE. THE LD. CIT(A) IN OUR OPINION HAS PASSED A VERY REASONED AND CORRECT ORDER BY HOLDING THAT THE IN COME CANNOT BE BROUGHT TO TAX ON HYPOTHETICAL BASIS AS THE AC TUAL ASSET ON WHICH THE INCOME IS SOUGHT TO BE TAXED HAS NOT CO ME INTO EXISTENCE. THEREFORE, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY WE UPHO LD THE ORDER OF LD. CIT(A) BY DISMISSING THE APPEAL OF THE REVENUE . 6 IT A NO.3117/MUM/2012 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 4 TH MAY,2019. SD/- SD/- (MAHAVIR SINGH) (RAJES H KUMAR) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED : 24 MAY,2019 * THIRUMALESH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER (ASSISTANTREGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI