PRERNA REAL ESTATES P. LTD, MUMBAI V. ITO 3(2)(4), MUMBAI

ITA 3177/MUM/2010

• Counselvise Citation: 317719914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D EVI SINGH
• Keywords: Opportunity of being heard; Reassessment proceedings; Set aside
• Section: 143(3); 147; 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 3177/MUM/2010 (ASSESSMENT YEAR: 2005-06) PRERANA REAL ESTATES P. LTD., MUMBAI APPELLANT (PAN: AAACP2465R) VS INCOME TAX OFFICER 3(2)(4), MUMBAI RESPONDENT ASSESSEE BY: MR J P BAIRAGRA REVENUE BY: MR DEVI SINGH DATE OF HEARING: 10 TH AUGUST 2011 DATE OF PRONOUNCEMENT: 24 TH AUGUST 2011 O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2005-06 AND IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX ON 29 TH MARCH 2010 UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT E NTERED INTO AN AGREEMENT WITH AKTA REAL ESTATE PRIVATE LIMITED (AKTA FOR SHORT) FOR PURCHASE AND DEVELOPMENT OF A PROPERTY NAMED M ON REPOSE LOCATED IN PLOT NO:14A, WORLI ESTATE. THE AGREEMENT WAS ENTERED INTO ON 30 TH MARCH 2000. THE ASSESSEE OWNED 1/4 TH UNDIVIDED SHARE IN THE PROPERTY AND AKTA OWNED 3/4 TH OF THE SAME. UNDER THE AGREEMENT THE PROPERTY WAS TO BE DEVELOPE D SOLELY BY AKTA AND 25% OF THE COST OF THE PROJECT WAS TO BE A LLOCATED TO AND ITA NO: 3177/MUM/2010 2 BORNE BY THE ASSESSEE COMPANY. IN CLAUSE 8 OF THE AGREEMENT IT WAS STATED THAT THE ASSESSEE WAS TO BE PROVIDED WIT H 20% OF THE SALEABLE AREA OF THE PROPERTY AFTER DEVELOPMENT OR THE EQUIVALENT NUMBER OF FLATS OR ONE UNIT OF DUPLEX. FROM THIS C LAUSE THE ASSESSING OFFICER, IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, NOTED THAT THOUGH THE ASSESSEE IS ENTITLED TO ONLY 20% OF THE SALEABLE AREA OF THE PROJECT, BUT IT HAD TO INCUR / BEAR 25% OF THE COST OF THE PROJECT. HE WAS OF THE VIEW THAT THIS CLAUSE WOULD LEAD TO NON-DETERMINATION OF THE TRUE PROFITS OF THE BUS INESS. HE THEREFORE ASKED THE ASSESSEE COMPANY WHY THE AFORES AID CLAUSE IN THE AGREEMENT CANNOT BE IGNORED AND THE TRUE PROFIT S OF THE PROJECT BE DETERMINED. THE ASSESSEE OBJECTED TO THE PROPOS AL ON VARIOUS GROUNDS BUT THEY WERE ALL REJECTED BY THE ASSESSING OFFICER FOR THE REASONS STATED BY HIM IN PARAGRAPH 2.6 OF THE ASSES SMENT ORDER. HE NOTED THAT IN THE PROFIT AND LOSS ACCOUNT THE AS SESSEE HAD APPORTIONED ` 7,25,00,000/- AS COST OF THE PROJECT WHEREAS IF 20% OF THE PROJECT EXPENSES ARE CALCULATED, THE AMOUNT TO BE BORNE BY THE ASSESSEE WOULD COME ONLY TO ` 5,80,01,800/-. THE DIFFERENCE BETWEEN THE TWO FIGURES WHICH CAME TO ` 1,44,98,140/- WAS DISALLOWED AND ADDED BACK TO THE ASSESSEES INCOME. 3. WHILE COMPUTING THE INCOME FROM THE PROJECT, THE ASSESSING OFFICER ALSO ADOPTED ` 9,00,00,000/- AS THE INCOME FROM THE 20% SALEABLE AREA WHICH BELONGED TO THE ASSESSEE AS PER THE AGREEMENT WITH AKTA AND COMPUTED THE PROFIT FROM TH E PROJECT ACCORDINGLY. THE ASSESSMENT ORDER WAS PASSED ON TH ESE LINES ON 31 ST DECEMBER 2007 UNDER SECTION 143(3) OF THE ACT. ITA NO: 3177/MUM/2010 3 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE CIT(A) AND IN THE FIRST GROUND OF APPEAL QUESTIONED THE DISALL OWANCE OF THE EXPENDITURE TO THE EXTENT OF ` 1,44,98,140/-. THE CIT(A) HELD THAT THE ACCEPTANCE OF THE TERM IN THE AGREEMENT OF BEAR ING 25% OF THE COST OF CONSTRUCTION BUT GETTING ONLY 20% OF THE CO NSTRUCTED AREA IS PRIMA FACIE ADVERSE TO THE ASSESSEE AND THAT THE AG REEMENT WAS A DELIBERATELY PLANNED AGREEMENT TO GENERATE A LOSS. HE ACCORDINGLY HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN RE DUCING THE ALLOCABLE EXPENSES TO 20% AS AGAINST 25% ENVISAGED IN THE AGREEMENT. IN THIS VIEW OF THE MATTER HE CONFIRMED THE DISALLOWANCE OF ` 1,44,98,140/- AND DISMISSED THE GROUND OF APPEAL. HE FURTHER HELD THAT THE ENTIRE TRANSACTIO N HAS TO BE CONSIDERED FOR TAXABILITY IN THE ASSESSMENT YEAR 20 01-02, FOR THE REASONS GIVEN BY HIM IN HIS ORDER. HE ACCORDINGLY INVOKED SECTION 150 OF THE ACT AND DIRECTED THE ASSESSING OFFICER T O INITIATE REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE A CT FOR THE ASSESSMENT YEAR 2001-02 AND BRING THE INCOME TO TAX IN THAT YEAR. THE BASIS FOR THIS DIRECTION WAS THAT ACCORDING TO THE CIT(A), IN TERMS OF THE AGREEMENT THE ASSESSEE HAD SOLD THE IM MOVABLE PROPERTY TO AKTA WITHIN THE MEANING OF SECTION 2(47 ) OF THE ACT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001- 02 AND THEREFORE THE ASSESSEES SHARE IN THE INCOME FROM T HE PROJECT SHOULD BE ASSESSED ONLY IN THAT YEAR. HE NOTED THA T THE DATE OF TRANSFER SHOULD BE 8 TH AUGUST 2000, WHICH FELL WITHIN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02. THE ORDER OF THE CIT(A) WAS PASSED ON 11 TH NOVEMBER 2008. ITA NO: 3177/MUM/2010 4 5. AGAINST THE AFORESAID ORDER OF THE CIT(A), THE A SSESSEE PREFERRED A FURTHER APPEAL TO THE TRIBUNAL IN ITA N O: 7359/MUM/2008, WHICH WAS DISPOSED OFF BY THE TRIBUN AL BY ORDER DATED 22 ND JANUARY 2010. THE TRIBUNAL DELETED THE DISALLOWAN CE OF THE EXCESS EXPENDITURE OF ` 1,44,98,140/-. THE TRIBUNAL ALSO HELD THAT SECTION 2(47) IS NOT ATTRACTED TO THE ASSESSEE S CASE SINCE THE ASSESSEE WAS A CO-DEVELOPER OF THE PROPERTY AND HAS OFFERED THE INCOME UNDER THE HEAD BUSINESS AND NOT AS CAPITA L GAINS. THE TRIBUNAL THEREFORE QUASHED THE DIRECTIONS OF THE CI T(A) TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT FOR THE ASSESSMENT YEAR 2001-02 ON THE BASIS OF SECTION 2(47) OF THE A CT. THUS THE APPEAL OF THE ASSESSEE WAS ALLOWED. 6. ON 24 TH MARCH 2010 THE CIT TOOK PROCEEDINGS UNDER SECTION 263 OF THE ACT ON TWO ISSUES. HE CONSIDERED THAT T HE ASSESSING OFFICER OUGHT NOT TO HAVE ALLOWED ANY EXPENDITURE T O THE ASSESSEE IN RESPECT OF THE PROJECT SINCE AS PER THE TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND AKTA ON 8 TH AUGUST 2000, NO PART OF THE COST OF CONSTRUCTION WAS TO BE BORNE BY THE ASSESSEE. HE WAS THEREFORE OF THE VIEW THAT THE ENTIRE EXPEND ITURE INCURRED BY THE ASSESSEE SHOULD HAVE BEEN DISALLOWED BY THE ASS ESSING OFFICER AND NOT MERELY THE EXPENDITURE OF ` 1,44,98,140/-. HE WAS OF THE VIEW THAT THERE WAS UNDER-ASSESSMENT OF THE INCOME TO THE EXTENT OF THE EXPENDITURE OF ` 5,80,01,860/- ALLOWED BY THE ASSESSING OFFICER. THIS CONSTITUTED AN ERROR WHICH WAS PREJU DICIAL TO THE INTERESTS OF THE REVENUE. THE SECOND POINT TAKEN B Y THE CIT WAS THAT THE TOTAL BUILT-UP AREA OF THE PROJECT WAS 389 01 SQ. FT. OUT OF ITA NO: 3177/MUM/2010 5 WHICH THE ASSESSEE WAS ENTITLED TO 7780.2 SQ. FT. B EING 20% THEREOF. THE DEVELOPED PROPERTY WAS SOLD AT ` 14,629/- PER SQ. FT. AND APPLYING THIS RATE TO THE AREA ALLOTTED TO THE ASSESSEE, THE REVENUE WOULD WORK OUT TO ` 11,38,16,545/-, WHEREAS THE ASSESSEE HAS SHOWN ONLY ` 9,00,00,000/- AS REVENUE. THE REVENUE SHOWN BY THE ASSESSEE PERTAINED TO 20% OF THE AREA AFTER RED UCING THE AREA PERTAINING TO THE TENANTS OR IN OTHER WORDS, ONLY T HE SALEABLE AREA. THE CIT WAS OF THE VIEW THAT THE AGREEMENT CONTAINE D NO PROVISION TO REDUCE THE AREA OCCUPIED BY THE OLD TENANTS WHIL E ALLOTTING THE BUILT-UP AREA TO THE ASSESSEES SHARE. HE FURTHER FOUND THAT IN THE EARLIER YEARS AN AMOUNT OF ` 50,00,000/- WAS ALREADY ACCOUNTED FOR IN THE PROJECT ACCOUNT AND THE COST TO THAT EXTENT WAS NOT ACCOUNTED BY THE ASSESSEE. THE AMOUNT STATED TO HAVE BEEN PA ID TO THE TENANTS WAS FOUND TO BE NOT ALLOWABLE AS A DEDUCTIO N. THE CIT THUS CONSIDERED THE ASSESSMENT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THIS POINT ALSO. 7. CITING THE ABOVE TWO POINTS, THE CIT ASKED THE A SSESSEE TO SHOW CAUSE WHY THE ASSESSMENT SHOULD NOT BE SET ASI DE FOR FRESH ADJUDICATION IN THE LIGHT OF HIS OBSERVATIONS MADE IN THE NOTICE. THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS DATED 2 9 TH MARCH 2010 BEFORE THE CIT, WHICH WERE OVERRULED BY HIM AND HE ULTIMATELY PASSED AN ORDER ON 29 TH MARCH 2010 HOLDING THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE SET ASIDE THE ASS ESSMENT ORDER WITH THE DIRECTION TO THE ASSESSING OFFICER TO PASS A FRESH ASSESSMENT ORDER IN THE LIGHT OF THE OBSERVATIONS M ADE IN THE ORDER ITA NO: 3177/MUM/2010 6 UNDER SECTION 263. THE ASSESSEE WAS TO BE GIVEN AD EQUATE OPPORTUNITY OF BEING HEARD. 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER PASS ED BY THE CIT UNDER SECTION 263 OF THE ACT. WE HAVE CONSIDER ED THE FACTS AND THE RIVAL CONTENTIONS. AS REGARDS THE FIRST IS SUE, NAMELY, THE DISALLOWANCE OF THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE ON THE PROJECT AND NOT MERELY ` 1,44,98,140/-, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE IS RIGHT IN CONTEND ING THAT THE THEORY OF MERGER APPLIES. THE ASSESSING OFFICER HAD DISAL LOWED THE AFORESAID AMOUNT IN THE ASSESSMENT ORDER AGAINST WH ICH THE ASSESSEE HAD GONE IN APPEAL TO THE CIT(A) UNSUCCESS FULLY. HOWEVER, THE FURTHER APPEAL OF THE ASSESSEE TO THE TRIBUNAL WAS ALLOWED BY ORDER DATED 22 ND JANUARY 2010. THE RESULT WAS THAT NO PART OF THE EXPENDITURE INCURRED BY THE ASSESSEE WA S TO BE DISALLOWED. IN OTHER WORDS, THE DISALLOWANCE OF TH E EXPENDITURE HAD BEEN THE SUBJECT MATTER OF APPEAL BEFORE THE TRIBUN AL, WHICH HAS ALSO ADJUDICATED UPON THE SAME. THE ASSESSMENT ORD ER THUS GOT MERGED WITH THE ORDER OF THE TRIBUNAL ON THIS POINT . IT WAS THEREFORE NOT LEGALLY PERMISSIBLE FOR THE CIT TO DEAL WITH TH IS ISSUE BY VIRTUE OF HIS POWERS UNDER SECTION 263. HE CAN ONLY REVISE T HE ASSESSMENT ORDER AND THE ASSESSMENT ORDER HAVING MERGED ON THI S POINT WITH THE ORDER OF THE TRIBUNAL, THE ORDER OF THE TRIBUNA L WAS THE ONLY OPERATIVE ORDER ON THIS POINT WHICH THE CIT CANNOT REVISE. WE THEREFORE UPHOLD THE ASSESSEES CONTENTION AND HOLD THAT SO FAR AS THE FIRST POINT, NAMELY, THE DISALLOWANCE OF EXPEND ITURE IS ITA NO: 3177/MUM/2010 7 CONCERNED, THE CIT HAD NO JURISDICTION TO REVISE TH E ASSESSMENT UNDER SECTION 263 OF THE ACT. 9. HOWEVER, AS REGARDS THE SECOND ISSUE, THE THEORY OF MERGER IS NOT APPLICABLE. THE ASSESSING OFFICER HAD BROUG HT ONLY ` 9,00,00,000/- AS REVENUE FROM THE PROJECT. HOWEVER , ACCORDING TO THE CIT, THE REVENUE SHOULD HAVE BEEN WORKED OUT AT ` 11,38,16,545/- BY APPLYING THE SALE RATE OF ` 14,629/- PER SQ. FT. TO 7780.20 SQ. FT. TO WHICH THE ASSESSEE WAS ENTITLED UNDER THE ARRANGEMENT WITH AKTA. IN THE NOTICE ISSUED UNDER SECTION 263, THE CIT HAS STATED THAT THE ASSESSEE HAD DECLARED REVEN UE PERTAINING TO 20% OF THE AREA AFTER REDUCING THE AREA PERTAINI NG TO THE OLD TENANTS INSPITE OF THE FACT THAT IN THE AGREEMENT B ETWEEN THE ASSESSEE AND AKTA THERE WAS NO MENTION OF THE AREA THAT WAS REQUIRED TO BE REDUCED IN RESPECT OF THE OLD TENANT S, IF ANY. THIS ASPECT OF THE MATTER, ACCORDING TO THE CIT, WAS NOT ENQUIRED INTO BY THE ASSESSING OFFICER. SINCE THERE WAS NO APPEAL O N THIS POINT BY THE ASSESSEE BEFORE THE CIT(A) OR BEFORE THE TRIBUN AL, THERE IS NO QUESTION OF MERGER OF THE ASSESSMENT ORDER WITH THE ORDERS PASSED BY THE APPELLATE AUTHORITIES. THE QUESTION IS WHET HER THE ASSESSING OFFICER HAD CONDUCTED ANY ENQUIRY INTO THIS ASPECT. A PERUSAL OF THE ASSESSMENT ORDER DOES NOT SHOW THAT THE ASSESSING O FFICER HAD EXAMINED THIS MATTER SPECIFICALLY. HE SIMPLY TOOK ` 9,00,00,000/- AS REVENUE FROM THE SALE OF 20% BUILT-UP AREA TO WHICH THE ASSESSEE WAS ENTITLED. THE QUESTION WHETHER THE ASSESSEE WA S ENTITLED TO A HIGHER REVENUE IN TERMS OF THE AGREEMENT WITH AKTA, AS ALSO THE QUESTION WHETHER THE ASSESSEE COULD REDUCE THE SALE ABLE AREA BY ITA NO: 3177/MUM/2010 8 THE AREA OCCUPIED BY THE OLD TENANTS, WERE NOT SPEC IFICALLY EXAMINED BY THE ASSESSING OFFICER. IT IS WELL SETT LED THAT LACK OF ENQUIRY BY THE ASSESSING OFFICER CAN CONSTITUTE A G ROUND FOR INITIATING PROCEEDINGS UNDER SECTION 263 OF THE ACT . THE LEARNED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE ASSESSEES REPLY DATED 29 TH MARCH 2010 FILED BEFORE THE CIT IN THE COURSE OF THE PROCEEDINGS UNDER SECTION 263 (PAGE 3 OF THE PAPER BOOK). IT IS TRUE THAT IN THIS REPLY THE ASSESSEE HAS EXPLAINED THE POINT BUT THAT IS BESIDES THE POINT BECAUSE WE ARE CONCERNED WITH THE QUESTION WHETHER THERE WAS ANY ENQUIRY ON THIS ASPECT OF THE MATTER BY THE ASSESSING OFFICER. OUR ATTENTION WAS NOT DRAWN TO ANYTHING ON RECORD TO SHOW THAT EVEN DURING THE ASS ESSMENT PROCEEDINGS, THIS PARTICULAR ASPECT HAD BEEN ENQUIR ED INTO BY THE ASSESSING OFFICER. WE ARE THEREFORE OF THE VIEW TH AT THE CIT WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ENQ UIRE INTO THIS ASPECT OF THE MATTER AND COMPLETE THE ASSESSMENT AFRESH AF TER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. HIS ORDER ON THIS POINT IS UPHELD. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 24 TH AUGUST 2011 SALDANHA ITA NO: 3177/MUM/2010 9 COPY TO: 1. PRERANA REAL ESTATES PVT. LTD. 101, B WING, MITTAL COURT NARIMAN POINT, MUMBAI 400 021 2. ITO 3(2)(4), MUMBAI 3. CIT-3, MUMBAI 4. CIT(A)-III, MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI