Appeal details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 85869 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 1 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-03-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
18-03-2015
Assessment Year
2010-2011
Appeal Filed On
05-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI ACCOUNTANT MEMBER ITA NO . 360 /AHD/20 14 A. Y . 20 10 - 11 SAYAN TEXTILES PARK LTD., 612 - A, INTERNATIONAL TRADE CENTER RING ROAD. , SURAT. PAN: AAJCS 5720K VS A CIT, CENTRAL CIRCLE - 1, SURAT . (APPELLANT) (RESPONDENT) ITA NO. 678 /AHD/20 14 A.Y .20 10 - 11 ACIT, CENTRAL CIRCLE - 1, SURAT. VS SAYAN TEXTILES PARK LTD., 612 - A, INTERNATIONAL TRADE CENTER RING ROAD., SURAT. PAN: AAJCS 572 0K (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SUBHASH BAINS , CIT - D.R. . ASSESSEE(S) BY : SHRI RASESH SHAH , A.R. / DATE OF HEARING : 18 / 0 3 /201 5 / DATE OF PRONOUN CEMENT: 26 / 0 3 /201 5 / O R D E R PER: MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THESE ARE CROSS APPEALS ARISING FROM THE ORDER OF LEARNED CIT(A) - I I , AHMEDABAD DATED 3 1.12. 20 1 3 . ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PAS SED U/S.143(3) DATED 26.03.2013 WERE THAT THE ASSESSEE COMPANY WAS STATED TO BE I N THE ACTIVITY OF DEVELOPING A TEXTILE PARK TO PROVIDE INFRASTRUCTURE AND OTHER FACILITIES TO THE TEXTILE INDUSTRY BY ALLOTTING PLOT OF LAND. IN THIS CONNECTION, THE ASSESSE E HAS FURNISHED A NOTE EXPLAINING THE NATURE OF ACTIVITY OF THE COMPANY AS UNDER: 'WITH A VIEW TO ENHANCE COMPETITIVE STRENGTH OF TEXTILE SECTOR, TO PROMOTE THE EXPORT AND R&D, TO ENABLE THE ENTREPRENEURS TO ADO BE NEW TECHNOLOGY AND TO PROVIDE BETTER INFRA STRUCTURE, MINISTRY OF TEXTILE, GOVERNMENT OF INDIA, DECIDED TO DEVELOP TEXTILE PARKS IN THE COUNTRY AND ALSO ANNOUNCE GRANT OF RS. 40.00 CR. (UPTO MAXIMUM 40% OF THE PROJECT COST) FOR THE ELIGIBLE COMPONENTS, WHICH ARE AS UNDER . 1) CORE INFRASTRUCTURE LI KE ROADS, WATER DISTRIBUTION, ELECTRIC DISTRIBUTION, DRAINAGE, STROM WATER, SITE DEVELOPMENT, COMPOUND WALL ETC. 2) COMMON FACILITIES LIKE RESEARCH & TRAINING CENTER, CANTEEN, WORKERS' HOSTEL, PARKING FACILITY, FIRE FIGHTING ETC. 3) FACTORY BUILD INGS. THE MAJOR DRAWBACK INDIAN TEXTILE INDUSTRY IS DELAY IN SUPPLY AND QUALITY ISSUES. THE UNITS IN PARK CAN GET TOG E THER AND SERVE THE LARGE EXPORT ORDERS SO THAT INTERNATIONAL BUYER CAN GET QUALITY FABRIC WITHIN REQUIRED TIME. MACHINERIES INSTALLED IN THE UNITS MUST BE TUF APPROVED MACHINES WHICH ARE BETTER MACHINES AND CAN PRODUCED GOOD QUALITY OF FABRIC. UNITS GET POWER IN TIME AND GOOD QUALITY OF INFRASTRUCTURE AND COMMON FACILITIES AS MENTIONED ABOVE SO THAT UNITS CAN BE COMPETITIVE IN INTERNATIONAL MARKET. THE DETAILED SCHEME OF SITP IS ALSO PROVIDED FOR YOUR REFERENCE. THE SPV IS FORMED BY PROMOTERS OF THE PARK AND MEMBERS WHO ARE INTERESTED IN PUTTING UP T EXTI L E INDUSTRY ARE INVITED TO BE A MEMBER IN THE SPV. THE RIGHT OF SUB LEASE OF LAND IS GIV EN TO THEM AGAINST THEIR CONTRIBUTION TOWARDS LAND. NO AMOUNT OF SUBSIDY CAN BE UTILIZED FOR PURCHASE OR SUB LEASE OF LAND. MEMBERS ALSO CONTRIBUTE FOR THE BALANCE AMOUNT IF ANY TOWARDS COST OF INFRASTRUCTURE AND COMMON FACILITIES. AMOUNT OF SUBSIDY COULD BE UTILIZED EVEN FOR CONSTRUCTION OF SHED BUT IN SUCH CASE OWNERSHIP OF THE SHED VESTS WITH SPV AND MEMBER GETS ONLY LEASE HOLD RIGHT FOR SUCH SHED . ALL PROPERTIES WHICH ARE CONSTRUCTED BY UTILIZING THE FUND OF SUBSIDY BELONGS TO GOVERNMENT AND COULD NOT B E DISPOSE OFF. BASICALLY THE CONCEPT OF SPV IS ON COST SHARING BASIS BY MEMBERS' WHO ARE INTERESTED IN DEVELOPING MODERN TEXTILE UNITS AND GOVERNMENT GIVES 4 0 % O F THE TOTAL PROJECT COST AND MEMBERS ARE REQUIRED TO BRING BALANCE AMOUNT AND ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 3 - AS SUCH THEY CAN NOT BE PROFIT MOTIVE IN SUCH SPV. GENERALLY GOVERNMENT KEEPS CONTROL FOR 15 YEARS AND ALSO NOMINATES THEIR DIRECTOR ON THE BOARD OF COMPANY TO SUPERVISE THE OPERATION OF THE COMPANY. T IME TO REVIEW MEETINGS ARE ALSO HELD AT DELHI AND IN CASE OF CONTRAVENTI ON OF THE SCHEME OR NON EXECUTION BY THE SPV THE SANCTION OF PARK MAY BE CANCELLED BY MOT. GOVERNMENT ALSO APPOINT NODAL AGENCY FOR PREPARATION OF DPR, PRESENTATION, SUPERVISION OF ACTIVITY OF SPV AND THEY ARE DIRECTLY REPORT TO THE MOT. GOVERNMENT NOMINEE OR NOMINEE OF PMC ARE ON THE BOARD OF DIRECTORS AS WEL L AS TENDER COMMITTEE. BILLS ARE CERTIFIED BY PMC AND THEY ARE SENT TO THE BANK AND PAYMENT IS MADE FROM TRUST ACCOUNT BY BANK DIRECTLY TO CONTRACTORS OR SUPPLIERS. THE PROMOTERS OR THE MEMBERS HAVE CO NTROL OVER ONLY ROUTINE MAINTENANCE ACCOUNT AND NOTHING MORE. 2.1 A SEARCH WAS CARRIED OUT AT ONE SHAHLON GROUP AND CONSEQUENTIALLY A SURVEY ACTION TOOK PLACE AT THE SITE OFFICE OF THE ASSESSEE COMPANY. THE AO HAS REFERRED T W O SMALL POCKET - DIARIES MA RKED AS BF - 1(4 PAGES) AND BF (2 PAGES). IN THOSE DIARIES, THERE WAS A DESCRIPTION OF PAYMENT EITHER RECEIVED OR RECEIVABLE FROM ONE SRI ASHOK KABRAWALA, WHO HAD PURCHASED 5 PLOTS IN THE TEXTILE PARK. THERE WAS ALSO A REFERENCE OF ONE SRI HARISHBHAI SAPKAL WHO HAD PURCHASED ONE PLOT IN THE TEXTILE PARK. THE REVENUE DEPARTMENT HAS DECIPHERED THAT 3 ZEROES WERE REQUIRED TO BE ADDED IN THE FIGURES NOTED IN THE SAID DIARY. A STATEMENT OF SRI DINESH CHANDRA GANDHI, MARKETING PERSONAL OF THE COMPANY , WAS RECORDED . HE HAS STATED THAT THE TOTAL COST OF EACH PLOT WAS RS.12 LAC. IF A B RO K E R WAS TO BE INVOLVED THEN 2% COMMISSION WAS TO BE PAID TO THE BROKER . IN RESPECT OF THE AMOUNT RECEIVED IN CHEQUE A RECEIPT IS ISSUED, WHEREAS NO RECEIPT WAS ISSUED IN RESPECT OF THE C ASH PAYMENT RECEIVED. THE AGREEMENTS WERE EXECUTED FOR RS.8 LAC ONLY . AN ANOTHER MARKETING PERSONAL NAMELY ASHOK B. SHETH HAS ALSO BEEN INTERROGATE, WHO HAS STATED AS UNDER: ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 4 - 4.3 SHRI. ASHOK B. SHETH WORKING AS MARKETING PERSONNEL OF THE COMPANY WHILE ANSW ERING TO Q.NO.3 ON 28 - 1 - 2010 STATED THAT THERE ARE 499 PLOTS AND EACH PLOT OF 227 SQ.YARD. AR OUND 45 % TO 50% PLOTS HAVE BEEN SOLD TILL THE DATED OF SURVEY. THE TOTAL LAND OF SAYAN TEXTILE PARK IS 2,25,000 SQ.MTR. HE HAS ALSO ADMITTED THAT THE TOTAL COST OF EACH PLO T IS RS.12 LAC. WHILE ANSWERING Q . NO.8 HE CONFIRMED THAT RECEIPTS ARE GIVEN FOR THE CHEQUE PAYMENTS AND FOR THE CASH PAYMENTS SEPARATE DIARIES ARE PREPARED IN WHICH THE AMOUNTS ARE WRITTEN IN CODE AND WHICH ARE IN THE CUSTODY OF CUSTOMERS. WHILE R EPLYING TO Q.NO.9, HE STATED THAT AS PER ANNEXURE BF - 2 , THIS DIARY PERTAINS TO PLOT S J - 19 TO J - 23 BOOKED BY SHRI ASHOK KABRAWALA AND AMO UNT OF '6005' IS ACTUALLY RS.60,05,000/ - . ON PAGE NO.3 THE CASH PAYMENTS MADE BY SHRI ASHOK KABRAWALA OF RS.5 LACS TILL DATE HAVE BEEN MENTIONED AGAINST TOTAL RS.20 LACS (RS. 4 LACS X RS.5 LACS ) THE TOTAL VALUE OF THE PLOT. SIMILARLY FOR ANNEXURE BF - 1 HE STATED THAT THIS DIARY PERTAINS TO PLOT NO.F - 5 PERTAINS TO HARESHBHAI SAPKAL. PAGE NO.1 SHOWS THAT '1201' WHICH IS ACTUA LLY RS.12,01,000/ - THE TOTAL VALUE OF THE PLOT. ON PAGE NO.2 OF THIS DIARY TOTAL CASH PAYMENTS OF RS.3 LACS HAVE BEEN MADE BY MR. SAPKAL TILL DATE, OUT OF AGAINST TOTAL RS.4 LACS TO BE PAID IN CASH. 2.2 AT THE TIME OF SURVEY , ONE OF THE DIRECTOR OF THE C OMPANY SRI RAJENDRA CHOKHAWALA HAS SURRENDERED AN INCOME OF RS.70 CRORE. THE AO HAS REPRODUCED HIS STATEMENT AS UNDER: 'THE SALE RATE OF INDUSTRIAL PLOT IS RS.12.01 LAKH FOR WHICH LEASE DEED IS TO BE PREPARED FOR RS.8 LAKHS FOR PLOT AND RS.4 LAKHS WERE EAR MARKED AND CHARGED FOR PLINTH LEVEL CONSTRUCTION. REGARDING ADMISSION OF ON - MONEY, I CAN STATE THAT RS.7,00,00,000 HAS BEEN ADMITTED AS NET A DD I TIONAL INCOME OF SAYAN TEXTILE PROJECT. HOWEVER, I COULD NOT IDENTIFY PER PLOT ON - MONEY COMPONENT.' 2.3 HOWEVER , THE ASSESSEE HAS FURNISHED THE RETURN OF INCOME AT RS. NIL AND IN THE AUDITOR S REPORT IT WAS NOTED AS UNDER: 'ASSESSEE DECLARED RS.7,00,00,000/ - IN THE COURSE OF SURVEY IN THE STATEMENT RECORDED U/S. 133A OF THE I.T. ACT, 1961. ASSESSEE HAS NOT CREDITED THE DISCLOSURE OF RS.7,00,00,000/ - TO PROFIT AND LOSS ACCOUNT, BUT HAS SHOWN THE SAME ON THE LIABILITIES OF THE BALANCE SHEET UNDER THE HEAD OF CURRENT LIABILITIES ON THE GROUND THAT INCOME DID NOT ACCRUE FOR THE YEAR UNDER CONSIDERATION AS NO ALLOTMENT/S ALE OF ANY PLOT/SHED WAS DONE DURING THE YEAR UNDER CONSIDERATION.' 2.4 IN THE BALANCE - SHEET UNDER THE HEAD CURRENT LIABILITIES , THE ASSESSEE HAD SHOWN THE BOOKING ADVANCES AS ON 31.03.2010 AT RS.11,27,60,000/ - / THE BREAKUP OF THE SAME WAS THAT A SUM OF RS.7 ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 5 - CRORE A S DISCLOSED AT THE TIME OF SURVEY WAS INCLUDED IN THE SAID BOOKING AMOUNT RECEIVED. THE OBJECTION OF THE AO WAS THAT THE ASSESSEE HAS NOT FURNISHED THE NAMES AND ADDRESSE S OF THE PERSON FROM WHOM THE ALLEGED AMOUNT OF RS.7 CRORE WAS RECEIVE D. THE ASSESSEE HAD NOT SHOWN ANY INCOME FROM THE PROJECT BUT DISCLOSED AS WORK IN PROGRESS WIP AT RS.23,93,17,249/ - . THE AO HAS OPINED THAT THE ASSESSEE HAD GIVEN PLOTS TO THE PLOT HOLDERS ON SUB - LEASE BASIS AND RECEIVED ONE TIME PAYMENT OF RS.8 LAC H OWEVER ALSO RECEIVED RS. 4 LAC IN CASH ON EACH PLOT. FOR RS.8 LAC AN AGREEMENT WAS EXECUTED AS PER THE RECORD MADE AVAILABLE TO THE AO . THE AO HAS ALSO REPRODUCED THE CLAUSES OF A S UB L EASE D EED. THE AO HAD PERUSED THE CONTENTS OF THE S UB L EASE AND MADE AN OBSERVATION THAT FOR THE PURPOSE OF BUSINESS OF TEXTILE THE LAND WAS GIVEN ON SUB - LEASE FOR CONSTRUCTION ON THE PLOT WHICH WAS TO BE DONE BY THE ALLOTTEE BUT WITH THE CONSENT OF THE ASSESSEE. THE S UB LEASE D EED HAD CLARIFIED THAT THE PLOT HOLDER HAD PAID A SUM OF RS.8 LACS AS A ONE TIME VALUE FOR THE ALLOTMENT RIGHTS OVER THE PLOT IN FAVOUR OF THE PLOT HOLDERS. THE SAID AMOUNT OF RS.8 LAC WAS STATED TO BE INCLUSIVE OF MEMBERS CONTRIBUTION AS PER SITP GUIDELINES. THE PLOT HOLDER WAS NOT ENTITLED TO TRANSFER THE PLOT AS A GIFT OR MORTGAGED ETC. BEFORE THE PRIOR SANCTION FROM THE ASSESSEE COMPANY. THE PLOT HOLDER WAS REQUIRED TO OBTAIN NO OBJECTION CERTIFICATE FROM THE ASSESSEE COMPANY BEFORE SUCH TRANSFER. A PLOT HOLDER WAS ALSO REQUIRED TO MAKE REGULAR PAYME NT PERTAINING TO COMMON MAINTENANCE CHARGES FIXED BY THE ASSESSEE. A CONSTRUCTION COULD BE CARRIED OUT AFTER OBTAINING PERMISSION FROM THE ASSESSEE COMPANY AND THE EXPENDITURE WERE TO ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 6 - BE BORNE BY THE PLOT HOLDER. AFTER NARRATING THOSE FACTS, THE AO HAS ISS UED A SHOW CAUSE NOTICE, RELEVANT PORTION IS REPRODUCED BELOW: 1.DURING THE COURSE OF SURVEY IT WAS DISCOVERED THAT YOUR COMPANY WAS CHARGING RS.12,01,000/ - FOR THE SALE OF PLOT, OUT OF WHICH RS. 8,00,000/ - WAS BEING TAKEN AS CHEQUE AND RS. 4,01,000/ - AS CA SH. DURING THE COURSE OF SURVEY VARIOUS EVIDENCE HAS BEEN COLLECTED AS PER ANNEXURE BF - 1 (4 PAGES) AND BF - 2 (2 PAGES), WHICH CONTAIN THE DETAILS OF PAYMENT RECEIVED AND RECEIVABLES FROM SHRI ASHOKBHAI KABRAWALA WHO HOLDS 5 PLOTS (J - 19 TO J - 23) AND SHRI HAR ISH SAPKAL WHO HOLDS 1 PLOT (F - 5). 2. SHRI ASHOKHBHAI KABRAWALA HAS ADMITTED ON OATH THAT RS.4 LAC WAS TO BE GIVEN IN CASH. SIMILARLY, HARISH SAPKAL HAS ALSO ADMITTED THAT THE AMOUNT WAS TO BE GIVEN IN CASH ALTHOUGH THE LEASE DEED IS EXECUTED AT RS.8 LACS ONLY. SHRI SAPKAL FURTHER ADMITTED THAT THERE NO CONSTRUCTION ACTIVITY IS TO BE CARRIED OUT AT THE PLOT AT THE VALUE OF RS. 12 LACS. 3. SHRI RAJENDRA CHOKHAWALA, DIRECTOR OF THE COMPANY COULD NOT EXPLAIN ON OATH AS TO WHY RS.4 LACS IS TAKEN IN CASH FOR THE CONSTRUCTION PURPOSE, WHEN THE LEASE DEED IS PREPARED AT ONLY RS. 8 LACS. BUT HOWEVER HE ADMITTED RS.7 CRORES AS ITS NET ADDITIONAL INCOME OF SAYAN TEXTILE PROJECTS. SINCE THE TEXTILE PARK HAS 499 PLOTS, PLEASE SHOWCAUSE AS TO WHY THE TOTAL UNACCOUNTED IN COME FROM THE PROJECT SHOULD NOT BE CALCULATED AT RATE OF RS. 4 LAC PER PLOT I.E. RS.19,96,00,000/ - . 4. FROM THE DETAILED SUBMISSION MADE BY YOU ON 11 - 11 - 2011 DURING THE COURSE OF ASSESSMENT PROCEEDINGS YOU HAVE MENTIONED THAT THE ASSESSEE COMPANY IS ENGAG ED IN THE BUSINESS OF DEVELOPING INTEGRATED TEXTILE PARK WHICH IS COVERED UNDER SITP SCHEME. YOU HAVE SUBMITTED THAT THE ACTIVITY OF THE COMPANY IS TO SUB - LEASE THE PLOT TO THE PLOT HOLDER. YOU HAVE ALSO SUBMITTED A DEED OF SUB - LEASE AND LETTER OF ALLOTMEN T VIDE YOUR SUBMISSION DATED 22 - 2 - 2013 OF S M T. SAROJADEVI RAJKUMAR TATER. IT IS OBSERVED THAT YOU ARE SIMPLY SUB - LEASING THE PLOT OF LAND TO VARIOUS PARTIES AND OBTAINING ONE TIME VALUE WHICH IS TO BE TREATED AS MEMBERS' CONTRIBUTION. IT IS OBSERVED FROM T HE AUDIT REPORT FOR THE YEAR ENDING 31 - 3 - 2010 AND 31 - 3 - 2011 THAT YOU ARE NOT OFFERING ANY INCOME IN THE PROFIT AND LOSS ACCOUNT. HOWEVER, IT IS SEEN FROM THE AUDIT REPORT FOR THE YEAR ENDING 31 - 3 - 2012 THAT YOU ARE OFFERING INCOME IN THE FORM OF RENT INCOME , MAINTENANCE INCOME AND INTEREST INCOME. SINCE YOU ARE NOT OFFERING ANY BUSINESS INCOME AND THE INCOME IS ONLY RECEIPT BY WAY OF SUB - LEASING OF PLOT OF LAND, MAINTENANCE INCOME AND INTEREST INCOME, PLEASE EXPLAIN AS TO WHY THE INCOME RECEIVED BY YOU SHOUL D NOT BE TREATED AS 'INCOME FROM OTHER SOURCES' AND ACCORDINGLY SINCE YOU HAVE NOT RECEIVED ANY INCOME THIS YEAR WHY THE ENTIRE EXPENSES CLAIMED BY YOU SHOULD NOT BE DISALLOWED U/S. 37(1) OF THE I.T. ACT, BECAUSE THE EXPENDITURE HAS NOT BEEN INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ACTIVITY. IN VIEW OF THE ABO VE PLEASE SHOWCAUSE AS TO WHY THE ENTIRE ON - MONEY INCOME OF RS.19,96,00,000/ - SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCES . ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 7 - 2.5 THE ASSESSEE S REPLY WAS THAT THERE WAS NO EVID ENCE THAT THE ASSESSEE HA D RECEIVED ANY AMOUNT MORE THAN 7 CRORE AS ADDITIONAL RECEIPT . T HERE WAS NO SUCH INCRIMINATING DOCUMENT RECOVERED AT THE TIME OF SURVEY. IT WAS FURTHER EXPLAINED THAT DURING THE YEAR UNDER CONSIDERATION NO DEED OF SUB LEASE WAS EXE CUTED ; HENCE THERE WAS NO TAXABLE INCOME FOR THE YEAR UNDER CONSIDERATION. IT HAS ALSO BEEN VEHEMENTLY CONTESTED THAT THE AMOUNT IN QUESTION WAS A PREMIUM ON SUB - LEASE OF THE PLOT IN THE NATURE OF CAPITAL RECEIPT. AS PER CLAUSE 11 OF THE DEED , THE ASSESSEE WAS RECEIVING RS.1 AS A RENT PER ANNUM FROM THE PLOT HOLDERS. 2.6 THE AO WAS ALSO OF THE VIEW THAT THE ASSESSEE WAS RECEIVING SUB - LEASE INCOME BY SUB - LEASE THE PLOT SITUATED IN TEXTILE PARK ; B UT AS PER THE STATEMENTS RECEI VED RS.4 LAC IN CASH AND EARNE D UNACCOUNTED INCOME OF RS.7 CRORE FROM THE SAID PROJECT WHICH WAS DISCLOSED IN THE BOOKS OF ACCOUNT. ACCORDING TO AO, NO INCOME WAS OFFERED AS PER THE RETURN OF INCOME AND CLAIMED HUGE EXPENSES WHICH WERE SHOWN AS WORK IN PROGRESS AMOUNT TO RS.23,93,17,24 9/ - . THE ASSESSEE HAS ALSO RAISED ONE MORE OBJECTION THAT THE AMOUNT RECEIVED WAS NOT THE INCOME OF THE ASSESSEE BUT IT WAS A MUTUAL BENEFIT FUND. THE SURPLUS WAS THEREFORE NOT RECORDED AS INCOME OR GAIN OF THE ASSESSEE. FOR THIS PLEA, THE ASSESSEE HAS PLA CED RELIANCE ON INDIA TEA PLANTERS, 82 ITR 322 AND KUMBHA KONAM MUTUAL BENEFIT FUND, 57 ITR 41 (SC). BUT THE AO WAS NOT CONVINCED AND HELD THAT THERE WAS ABSENCE OF MUTUALITY AS THERE WAS NO IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THE AO H AS DENIED ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 8 - THE BENEFIT OF PRINCIPLE OF MUTUALITY . ACCORDING TO AO, THE INCOME WAS EARNED DURING THE YEAR AS HELD IN THE CASE OF VENKAT SUBBIAH REDDIAR, 221 ITR 18 (MAD.). IN HIS OPINION, THE ASSESSEE HAS CARRIED OUT BUSINESS AS PRESCRIBED U/S.2(13) WHICH HAD DEFINED THE TERM BUSINESS OR TRADE OR COMMERCE, ETC. THE AO HAS DRAWN THE CONCLUSION AS UNDER: 5.5 DURING THE YEAR THE ASSESSEE HAS RECEIVED TOTAL AMOUNT OF RS.11,27,06,000/ - AS INCOME RECEIVED ON ACCOUNT OF SUB - LEASING OF PLOTS. INCOME RECEIVED ON SU BLEASING OF PLOTS CANNOT BE CLASSIFIED INTO INCOME FROM HOUSE PROPERTY, OR INCOME FROM BUSINESS/PROFESSION. INCOME FROM LEASING OF PLOTS IS 'INCOME FROM OTHER SOURCES'. SINCE, THE ENTIRE AMOUNT OF RS.11,27,06,000/ - IS TREATED AS INCOME FROM OTHER SOURCES, IT IS TAXED ON CASH BASIS AND NOT ON ACCRUAL BASIS. THE ASSESSEE'S CONTENTION THAT SINCE NO DEED OF SUB - LEASE WAS EXECUTED AND NO INCOME ON ACCOUNT OF LEASE ACCRUES TO THE ASSESSEE, THE AMOUNT OF RS. 7,00,00,000/ - DECLARED AS ON - MONEY IS TAXABLE IN THE YEA R UNDER CONSIDERATION AS IT FOLLOWS ACCRUAL METHOD OF ACCOUNTING IS THEREBY REJECTED. THE ASSESSEE HAS RECEIVED TOTAL AMOUNT OF RS.11,27,06,000/ - AS INCOME FROM SUB - LEASING OF PLOTS, WHICH IS CLASSIFIED AS 'INCOME FROM OTHER SOURCES' AND WHICH IS TAXABLE O N RECEIPT BASIS AS AGAINST THE ASSESSEE'S CONTENTION OF TREATING THE AMOUNT AS 'BUSINESS INCOME' ON ACCRUAL BASIS. THEREFORE, THE AMOUNT OF RS. 11,27,06,000/ - IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 2.7 AGAINST THE ADDITION , THE ASSESSEE HAS PREFER RED AN APPEAL. 3 . BEFORE LEARNED CIT(A), THE ASSESSEE HAS INFORMED THAT THE MINISTRY OF TEXTILE, GOI HAD DECIDED TO DEVELOP A TEXTILE PARK. THE GOVERNMENT HAD GRANTED RS.40 CRORE, I.E., UPTO 40% OF THE TOTAL COST OF THE PROJECT. IT WAS A S CHEME FOR I NTEG RATED T EXTILE P ARK (SITP) ON COST SHARING BASIS HENCE THE MEMBERS WERE TO BE THE PROMOTERS OF THE PARK. THE PROMOTERS WERE REQUIRED TO PROVIDE THE BALANCE FUND FOR THE PROJECT. FURTHER, IT WAS INFORMED THAT THE ASSESSEE COMPANY HAD OBTAINED THE LAND ON LE ASE BASIS FROM GIDC. IT WAS ALSO ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 9 - INFORMED THAT A DOCUMENT, I.E., SPECIAL PURPOSE VEHICLE (SPV) WAS EXECUTED ON COST SHARING BASIS AND THE GOVERNMENT WAS REQUIRED TO CONTRIBUTE 40% OF THE TOTAL PROJECT COST. IT WAS ALSO MENTIONED THAT GENERALLY THE GOVERNME NT KEEPS THE CONTROL FOR 15 YEARS AND THEREAFTER NOMINATE THE DIRECTORS OF THE BOARD OF COMPANY TO SUPERVISE THE OPERATION. THEREAFTER, IN THIS CASE; SPV WAS EXECUTED BETWEEN THE PROMOTERS OF THE PARK AND THE MEMBERS WHO WERE INTERESTED IN PUTTING UP TEXTI LE INDUSTRY. THE ASSESSEE COMPANY THROUGH ITS PROMOTERS HAVE OBTAINED THE LAND ON LEASE FROM GIDC BY GIVING A AMOUNT OF RS.38,54,54,186/ - . IT WAS INFORMED THAT THE ASSESSEE HAD TAKEN A LOAN FROM BANK OF BARODA. THE ASSESSEE HAS ALSO INFORMED THAT UPTO 31 ST MARCH, 2010 AN INVESTMENT TO THE TUNE OF RS.44,48,91,924/ - WAS INCURRED . S O THE ARGUMENT OF THE ASSESSEE WAS THAT AGAINST THE GROSS INCOME OF RS.11,27,06,000/ - AN EXPENDITURE OF RS.44,48,91,924/ - WAS INCURRED HENCE THERE WAS A LOSS OF RS.33,21,85,924/ - . T HE BOOKING AMOUNT RECEIVED AS AN ADVANCE OF RS.11,27,06,000/ - WAS THEREFORE SHOWN IN THE BALANCE SHEET ON 31.03.2010 UNDER THE HEAD CURRENT LIABILITIES. THE ARGUMENT OF THE ASSESSEE COMPANY WAS THAT THE AMOUNT RECEIVED AS ADVANCE WAS NOTHING BUT IN THE NAT URE OF CAPITAL RECEIPT, AS HELD IN THE CASE OF PANBARI T EA COMPANY, 57 ITR 422. IT HAS ALSO BEEN ARGUED THAT DURING THE YEAR UNDER CONSIDERATION NO DEED OF S UB L EASE WAS EXECUTED HENCE NO INCOME WAS EARNED THEREFORE, THE AMOUNT DECLARED AT THE TIME OF SURV EY OF RS.7 CRORE WAS NOTHING BUT CURRENT LIABILITIES HENCE WRONGLY TAXED IN THE A.Y.2010 - 11. RELIANCE WAS PLACED ON ASHA LAND CORPORATION , 133 ITR 55 (GUJ.) . LEARNED ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 10 - CIT(A) HAS ACCEPTED THE FACT THAT THE COMPANY HAD UNDERTAKEN THE PROJECT OF DEVELOPING INTEGRATED TEXTILE PARK IN SURAT. THE ASSESSEE HAD OBTAINED A LEASE FROM GIDC AND FOR PROCURING THE LAND PAID A SUM OF RS.38.40 CRORE. HE HAS ALSO ACCEPTED THAT THE ASSESSEE HAD INCURRED TOTAL EXPENDITURE OF RS.44.48 CRORE UPTO 31.03.2010 . A CLARIFICATION WAS ALSO MADE BEFORE LEARNED CIT(A) THAT THE TOTAL PLOTS UNDER THE PROJECT WERE 504 IN NUMBER. LEARNED CIT(A) WAS OF THE VIEW THAT THE EXPENDITURE INCURRED UPTO 31.03.2010 AMOUNTING TO RS.23,93,17,249/ - IN RESPECT OF THE TOTAL NUMBER OF PLOTS 504 AS AGAIN ST THAT AMOUNT OF RS.11.27 CRORE WAS RECEIVED IN RESPECT OF ONLY 94 PLOTS THEREFORE HE HAS DIVIDED THE NUMBER OF PLOTS AND CAME TO THE CONCLUSION THAT IN RESPECT OF THE 94 PLOTS ONLY A SUM OF RS.4,46,34,566/ - SHOULD HAVE BEEN INCURRED BY THE ASSESSEE UPTO 31 ST MARCH, 2010. AGAINST THAT THE ASSESSEE HAD RECEIVED 11.27 CRORE, THEREFORE, THE BALANCE OF RS.6,80,71,433/ - WAS LIABLE TO BE TAXED DURING THE YEAR UNDER CONSIDERATION. THE CONCLUSION OF LEARNED CIT(A) FOR READY REFERENCE IS REPRODUCED BELOW: THEREFORE , IN MY CONSIDERED VIEW, THE RS. 11.27 CRORES HAS TO BE TREATED AS MONEY RECEIVED FOR 94 PLOTS (OUT OF 504 PLOTS). THEREFORE, THE EXPENSES ARE TO BE CAPITALIZED PROPORTIONATELY. THE APPELLANT HAS SHOWN AN EXPENDITURE OF RS. 23,93,17,249 / - IN RESPECT OF TOT AL PLOTS. THEREFORE, THE PROPORTIONATE EXPENSES IN RESPECT OF 94 PLOTS ARE WORKED OUT AS UNDER: - 94 X 23,93,17,249 DIVIDED BY 504 = RS. 4,46,34,566. THEREFORE, AGAINST THE RECEIPT OF RS.11,27,06,000 THE EXPENSES TO THE TUNE OF RS. 4,46,34,566 SHALL BE AL LOWED AS EXPENSES INCURRED IN RESPECT OF 94 PLOTS IN RESPECT OF WHICH, THE MONEY HAS BEEN RECEIVED DURING THE YEAR. THUS, THE AMOUNT TO BE CAPITALIZED AS WIP IN THE BALANCE SHEET WILL BE ONLY RS.19,46,82,683/ - AND NOT RS.23,93,17,249/ - . ACCORDINGLY THE NET AMOUNT OF RS.6,80,71,433 WILL BE LIABLE TO BE TAXED DURING THE YEAR. THIS AMOUNT IS ALMOST IN TUNE WITH NET AMOUNT OF RS.7 CRORE OFFERED BY SHRI CHOKHAWALA THE DIRECTOR OF THE APPELLANT COMPANY FOR A.Y. IN QUESTION DURING THE COURSE OF SURVEY. THIS IS ALSO IN CONFORMITY WITH THE PERCENTAGE METHOD OF TAXING THE ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 11 - RECEIPTS AS ADOPTED IN THE CASE OF BUILDERS/DEVELOPERS. THE APPELLANT GETS PART RELIEF ACCORDINGLY. 3.1 SINCE PART RELIEF HAS BEEN GRANTED BY LEARNED CIT(A); THEREFORE, THE ASSESSEE AS WELL AS REVEN UE BOTH ARE IN APPEAL. 4. FROM THE SIDE OF THE ASSESSEE, LEARNED AR, MR. RASESH SHAH APPEARED AND ARGUED THAT THE PREMIUM WHICH WAS RECEIVED BY THE ASSESSEE WAS NOTHING BUT A CAPITAL RECEIPT . HE HAS PLEADED THAT THE ASSESSEE COMPANY HAD OBTAINED A LEAS E FROM GIDC AND PAID A HUGE AMOUNT. THEREFORE, WHEN THE ASSESSEE HAS GIVEN SUB - LEASE TO THE MEMBER THEN THE SUB LEASE AMOUNT WAS TOWARDS THE ALLOTMENT OF PLOT WHICH SHOULD BE TREATED AS THE CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. HIS SECOND PLANK OF ARGUMENT WAS THAT THIS IS NOT A CASE OF DEVELOPER BUT AS PER THE ADMITTED FACTUAL POSITION THE PROMOTERS HAVE AGREED TO DEVELOP A TEXTILE PARK IN TERMS OF THE DIRECTION OF THE MINISTRY OF TEXTILE WHO WAS HAVING THE CONTROL OVER THE PROJECT. DUE TO THIS REA SON, THE ASSESSEE WAS GIVEN THE LAND ON LEASE BASIS FROM GIDC. ON ONE HAND, THE GOVERNMENT WAS INVOLVED AND ON THE OTHER HAND THE MEMBERS HAVE CONTRIBUTED FOR THE LAND THEREFORE THE WAS A PRINCIPLE OF MUTUALITY EXISTED. DUE TO THIS REASON, THE ASSESSEE W AS ONLY MANAGING THE CLAIM HENCE NOT TO BE TAXED ON THE AMOUNT RECEIVED FROM THE MEMBERS. HIS THIRD ALTERNATE ARGUMENT WAS THAT IF THE AMOUNT OF RS.11,27,06,000/ - IS TO BE TREATED AS BUSINESS RECEIPT IN THE HANDS OF THE ASSESSEE THEN THE EXPENDITURE INCURR ED SHOWN AS WORK IN PROGRESS AMOUNTING TO RS.23.93 CRORE SHOULD BE ALLOWED AS EXPENDITURE. LEARNED A.R. HAS ALSO DRAWN OUR ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 12 - ATTENTION ON PAGE 13 OF LEARNED CIT(A) ORDER TO EXPLAIN THAT IN THE SUBSEQUENT YEARS FURTHER EXPENDITURE WAS INCURRED AND THAT EXPEND ITURE WAS IN THE NATURE OF PAYMENT TO GIDC, INTEREST ON LOAN, DOCUMENT REGISTRATION CHARGES AND A PAYMENT SUDA THEREFORE THE ASSESSEE SHOULD NOT BE TAXED IN THE YEAR UNDER CONSIDERATION. LEARNED A.R. HAS ALSO DRAWN OUR ATTENTION ON THE WRITTEN SUBMISSION F URNISHED IN THE COMPILATION INFORMED THAT THE PROJECT WAS CARRIED IN SUBSEQUENT YEARS AND THE AMOUNT IN DIFFERENT FINANCIAL YEARS RECEIVED FROM THE BOOKING ADVANCES WAS AS UNDER: FINANCIAL YEAR AMOUNT 2008 - 09 20,33,000 2009 - 10 11,27,06,000 2010 - 11 30,20 ,85,215 2011 - 12 32,16,57,015 2012 - 13 42,18,32,023 2013 - 14 47,48,86,905 4.1 LIKEWISE THE PLOTS WERE ALSO ALLOTTED IN DIFFERENT FINANCIAL YEARS AND THE SCHEME WAS IN PROGRESS WHEN THE ASSESSMENT WAS FINALIZED. SINCE, THE ASSESSEE IS NOT THE OWNER OF THE LAND, THEREFORE, THE AMOUNT WHICH WAS RECEIVED AS SUB LEASE AMOUNT FROM THE MEMBERS SHOULD NOT BE TAXED AS BUSINESS RECEIPT IN THE HANDS OF THE ASSESSEE. HE HAS PLACED RELIANCE ON THE DECISION AS ALREADY NOTED ABOVE, NAMELY, PAN B ARI TEA COMPANY, 5 7 ITR 42 2, ASHA LAND CORPORATION, 133 ITR 55 AND FEW DECISIONS OF THE TRIBUNAL. ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 13 - 5. FROM THE SIDE OF THE REVENUE - DEPARTMENT, LEARNED SR.D.R., MR. SUBHASH BAINS, CIT - DR APPEARED AND SUPPORTED THE ORDER OF THE AO, HOWEVER HE HAS PLEADED THAT THERE WAS NO BASIS TO PR OPORTIONATELY TAX THE AMOUNT IN DISPUTE AS HELD BY LEARNED CIT(A). HE HAS PLACED RELIANCE ON CERTAIN S TATEMENTS , COPIES OF THE SAME PLACED IN THE COMPILATION FILED BY THE REVENUE DEPARTMENT. LEARNED SR.D.R., HAS PLEADED THAT THE ASSESSEE HAS NOT DENIED THE FACT THAT THERE WAS CASH COMPONENT IN EACH SALE OF PLOT WHICH WAS NOTHING BUT THE UNACCOUNTED INCOME EARNED BY THE ASSESSEE. IN THE STATEMENT, IT WAS CLEARLY MENTIONED THAT RS.8 LAC WAS TO BE RECORDED IN THE LEASE DEED AND RS.4 LAC WAS TO BE RECEIVED IN C ASH WHICH WAS NOT TO BE RECORDED. THEREFORE, THE TOTAL VALUE OF THE PLOT WAS MENTIONED IN THE STATEMENT AS RS.12 LAC. IN THIS SITUATION WHEN THE CASH COMPONENT OF RS.4 LAC WAS CAUGHT BY THE REVENUE DEPARTMENT THEN IT WAS RIGHTLY TAXED BY THE AO IN THE HAND S OF THE ASSESSEE. AN ANOTHER ARGUMENT HAS ALSO BEEN RAISED THAT A LAND LEASE IF GRANTED IS AS GOOD THE TRANSFER OF OWNERSHIP. THE ASSESSEE WAS THEREFORE RUNNING A BUSINESS OF DEVELOPMENT OF A PROJECT HENCE THE ON MONEY RECEIVED WAS RIGHTLY TAXED BY THE A O. DUE TO THIS REASON, LEARNED D R HAS ALSO OPPOSED THE PART RELIEF GRANTED BY LEARNED CIT(A). ACCORDING TO HIM, THE ASSESSEE HAD MAINTAINED THE BOOKS OF ACCOUNT ON Y EARLY BASIS; THEREFORE, THE CORRECT INCOME SHOULD HAVE BEEN CALCULATED ON THE BASIS OF THE ACCOUNTS ON EACH YEAR AND OVER AND ABOVE ON MONEY WHICH RECEIVED SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE. ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 14 - 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE CAREFULLY PERUSED IN THE LIGHT OF THE COMPILATION FILED FROM BOTH THE SIDES. THE ADMITTE D FACTUAL POSITION IS THAT ON PAYMENT OF RS.38,54,54,186/ - TO GIDC THE ASSESSEE COMPANY HAD OBTAINED THE LAND IN QUESTION ON LEASE BASIS. THE PROJECT WAS IN THE LIGHT OF SCHEME OF MINISTRY OF TEXTILE, GOVERNMENT OF INDIA TO PROMOTE THE TEXTILE INDUSTRY IN SURAT. IT WAS A SCHEME FOR DEVELOPMENT OF AN INTEGRATED TEXTILE PARK. THE SCHEME WAS ON SHARING BASIS HENCE THE GOVERNMENT WAS REQUIRED TO CONTRIBUTE 40%, I.E., RS.40 CRORE. 6.1 WHEN THE PROJECT WAS IN PROGRESS A SURVEY TOOK PLACE ON 28.01.2010 AT THE BU SINESS PREMISES OF THE ASSESSEE. F EW POCKET DIARIES WERE IMPOUNDED . ON SCRUTINY OF THOSE DIARIES, IT WAS FOUND THAT THE ASSESSEE WAS RECEIVING CASH OF RS.4 LAC FOR GRANTING SUB LEASE TO THE MEMBERS. THE DIARIES HAVE REVEALED THAT THE COST OF THE PLOT WAS A LSO RS.12 LAC AGAINST WHICH LEASE DEED WAS TO BE EXECUTED FOR AN AMOUNT OF RS.8 LAC AND THE BALANCE AMOUNT OF RS.4 LAC WAS TO BE RECEIVED IN CASH. WHEN THOSE DIARIES WERE CONFRONTED THEN ONE OF THE DIRECTOR OF THE COMPANY HAD SURRENDERED A SUM OF RS.7 CROR E FOR THE SAYAN TEXTILE PROJECT . AT THE TIME OF ASSESSMENT, THE AO WAS OF THE VIEW THAT UPTO THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN TOTAL RECEIPTS OF RS.11,27,06,000/ - WHICH WAS INC LUSIVE OF ON - MONEY OF RS.7 CRORE , WHICH W AS OFFERED AT THE TIM E OF SURVEY. THE AO WAS OF THE VIEW THAT THE SAID AMOUNT OF RS.11.27 CRORE WAS RECEIVED ON ACCOUNT OF GRANTING SUB LEASE OF PLOTS HENCE THE NATURE OF INCOME WAS INCOME FROM OTHER SOURCES . AS AGAINST THAT WHEN ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 15 - THE MATTER WAS CARRIED BEFORE THE FIRST APPEL LATE AUTHORITY HE WAS OF THE VIEW THAT THE ASSESSEE WAS RUNNING A PROJECT FOR DEVELOPMENT OF THE PLOTS THEREFORE IT WAS A BUSINESS ADVENTURE DUE TO WHICH ONLY THE AMOUNT RECEIVED UPTO THE YEAR UNDER CONSIDERATION WAS REQUIRED TO BE MATCHED WITH THE EXPENDI TURE INCURRED ON THE PLOTS. HENCE, A VIEW WAS TAKEN THAT THE AMOUNT OF RS.11.27 CR. WAS RECEIVED AGAINST THE LEASE OF 94 PLOTS OUT OF 50 4 PLOTS; THEREFORE, A PROPORTIONATE EXPENDITURE WAS TO BE ADJUSTED AGAINST THE AMOUNT RECEIVED. IN THE LIGHT OF THE ABOVE DI SCUSSION, WE HAVE TO DECIDE THE QUESTIONS RAISED BEFORE US BY LEARNED A.R. 6.2 THE IT ACT BROADLY RECOGNISE ONLY TWO TYPES OF RECEIPTS ONE IS REVENUE RECEIPT AND THE OTHER IS CAPITAL RECEIPT. THE RECEIPTS ARE IN GENERAL FALL UNDER EITHER OF THE TWO CAGET ORIES. THE FIRST ARGUMENT REVOLVES AROUND THE ISSUE WHETHER THE AMOUNT IN QUESTION RECEIVED WAS A CAPITAL RECEIPT ? THIS QUESTION HAS BEEN ANSWERED IN THE PAST BY SEVERAL HON BLE COURTS IN SEVERAL DECISIONS ; BUT THE CONTROVERSY REMAINED UNRESOLVED HOWEVER I N OUR OPINION REQUIRED TO BE DECIDED ON THE BASIS OF THE FACTS OF EACH CASE. IF A RECEIPT IS HAVING A DIRECT NEXUS WITH THE ACQUISITION OF CAPITAL ASSET THEN THE EXPENDITURE IS CAPITAL IN NATURE. EVEN IF AN AMOUNT IS RECEIVED AGAINST THAT CAPITAL ASSET THE N NATURALLY SUCH RECEIPT IS A CAPITAL RECEIPT. A GENERAL RULE IS THAT THE AMOUNT RECEIVED IN LIEU OF A CAPITAL ASSET IS A CAPITAL RECEIPT AND IF AN AMOUNT IS RECEIVED IN LIEU OF CIRCULATING CAPITAL/STOCK - IN - TRADE THEN IT IS A REVENUE RECEIPT. A COMPENSATIO N IN LIEU OF A PROFIT IS A REVENUE RECEIPT BUT IF THE SOURCE OF THE PROFIT ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 16 - IS COMPLETELY PARTED THEN SUCH A GAIN IS A CAPITAL RECEIPT. LIKEWISE IF A RECEIPT IS TOWARDS A LOSS OF EARNING OR BUSINESS OR RELINQUISHMENT OF RIGHTS, PRIMA FACIE, IT TAKES A CHARA CTER OF A CAPITAL RECEIPT. AS FAR AS PRESENT APPEAL IS CONCERNED THE AMOUNT RECEIVED AT THE TIME OF EXECUTION OF THE SUB LEASE IS CONCERN ED , THE SAME IS DEFINITELY IN THE NATURE OF CAPITAL RECEIPT. SPECIALLY WHEN THE ASSESSEE HAS INCURRED A HUGE AMOUNT OF RS .38.5 CRORE FOR ACQUIRING THE LEASE RIGHTS FROM GIDC. THE SAID LEASE AMOUNT WAS TO BE RECOVERED FROM THE MEMBERS JOINING THE SCHEME BY SUB LEASING THE LAND TO THEM. UPTO THIS EXTENT, WE HEREBY HOLD THAT THE ASSESSEE WAS REQUIRED TO DEMONSTRATE BY A SEPARAT E ACCOUNT IN ITS BOOKS TO EARMARK THE AMOUNT RECEIVED AGAINST THE SUB LEASE FROM THE MEMBERS OF THE SCHEME. THIS FACT STILL CAN BE VERIFIED BY PERUSING THE SUB LEASE AGREEMENTS. OTHERWISE ALSO THE ADMITTED FACTUAL POSITION IS THAT THE ASSESSEE WAS RECEIV ING RS.8 LAC FROM EACH MEMBER ON GRANTING SUB LEASE TO THEM. THEREFORE THERE SHOULD NOT BE ANY DEFECT IN ASCERTAINING THE YEAR - WISE SUB LEASE AMOUNT RECEIVED BY THIS ASSESSEE. 6. 3 THE SECOND QUESTION IS THAT WHETHER THE PRINCIPLE OF MUTUALITY SHALL APP LY ON THE PRESENT SET OF FACTS. WE ARE NOT IN AGREEMENT WITH THE CONTENTIONS OF LEARNED A.R. BECAUSE OF THE SIMPLE REASON THAT THE PRINCIPLE OF MUTUALITY IS BASED UPON THE CONCEPT OF SHARING THE EXPENDITURE AS WELL AS SHARING THE PROFITS. IN THE PRESENT CA SE, NOWHERE IT WAS DEMONSTRATED THAT THE SURPLUS , IF ANY GENERATED FROM THE RUNNING OF THE SCHEME , SHALL BE DISTRIBUTED ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 17 - AMONGST THE MEMBERS OF THE SCHEME. IN THE ABSENCE OF SUCH EVIDENCE WE HEREBY HOLD THAT THE PRINCIPLE OF MUTUALITY SHALL NOT APPLY ON THI S ASSESSEE. 6.4 ALTERNATIVELY, I N OUR OPINION, THIS IS A CASE WHERE THIS COMPANY WAS RUNNING A BUSINESS OF DEVELOPMENT OF A SCHEME WHICH WAS SPONSORED BY THE GOVERNMENT OF INDIA. WHILE DEVELOPING SUCH PROJECT THE ASSESSEE ON ONE HAND HAS BEEN ALLOTTED A P IECE OF LAND ON LEASE BASIS. HOWEVER, ON THE OTHER HAND THE PLOTS WERE DEMARCATED AND LEASE D OUT BY CHARGING A PREMIUM ON EACH PLOT. THE PREMIUM SO CHARGE D WAS REQUIRED TO BE UTILIZED FOR THE PURPOSE OF THE DEVELOPMENT OF THE AREA . THE AMOUNT SO RECEIVED F ROM THE ALLOTTEES HAD TWO COMPONENTS, ONE COMPONENT IS TOWARDS THE CONSIDERATION TOWARDS LEASE GRANTED FOR 30 YEARS AND THE OTHER COMPONENT IS TOWARDS THE EXPENDITURE OF DEVELOPMENT IN INFRASTRUCTURE. I T WAS AN OBLIGATION OF THE ASSESSEE COMPANY TO PROVIDE INFRASTRUCTURE TO THE MEMBERS OF THE SCHEME. THAT WAS THE EXPENDITURE TOWARDS DEVELOPMENT OF THE SCHEME HENCE IN THE NATURE OF WORK IN PROGRESS WIP. THE PROFIT ON SUCH TYPE OF ACTIVITY CAN BE CALCULATED BY TWO METHODS ONE IS PROJECT COMPLETION METHOD AND THE OTHER IS PERCENTAGE COMPLETION METHOD. BOTH THESE METHODS ARE RECOGNIZED METHOD AS PER THE ACCOUNTING STANDARDS SUBSCRIBED BY THE A CT . FACTS OF THE CASE HAVE REVEALED THAT THE PROJECT WAS IN PROGRESS AND THE SAME WAS CARRIED OUT IN SUBSEQUENT YEARS AS WELL. THEREFORE, THE ASSESSEE IS IN A POSITION TO DEMARCATE YEAR WISE POSITION OF ITS ACCOUNT. ON THAT BASIS, THE AO CAN EASILY ARRIVE AT THE ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 18 - FIGURE OF PROFIT OF EACH YEAR , IF ANY , AFTER EXAMINING THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE CAN ALSO DEMONSTRATE WHETHER HE WORKED AS CONTRACTOR OR DEVELOPER . AFTER ASCERTAINING THIS FACTUAL POSITION THE CORRECT METHOD OF ACCOUNTING CAN BE APPLIED. AFTER FRAMING THESE GUIDELINES WE HEREBY RESTORE THIS PART OF THE ISSUE BACK TO THE STAGE OF THE AO . 6.5 STILL ONE MORE ISSUE IS YET TO BE DECIDED THAT WHETHER THE COMPONENT OF ON MONEY IS TO BE UNIFORMERLY APPLIED ON ALL THE PLOTS OR THE COMPONENT OF THE ONMONEY WHO REMAINED CONFINED TO THE EVIDENCES WHICH WERE DETECTED AT THE TIME OF SURVEY. THE B A S IC PRINCIPLE IS THAT THE UNACCOUNTED INCOME SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE ON THE BASIS OF THE INCRIMINATING MATERIAL UNEARTHED AT THE TIME OF SEARCH OR SURVEY. HOWEVER, IN THIS CASE NO LEASE WAS EXECUTED DURING THE ASSESSMENT YEAR 2010 - 11, BUT THE AO HAS TAXED RS. 11.2 7 CRORE. IF WE APPLY THE PRINCIPLE OF NATURAL JUSTICE THEN THE UNACCOUNTED INCOME SHOULD BE TAXED ON THE BASIS OF THE INCRIMINATING MATERIAL FOUND . BECAUSE OF THIS REASON, WE HEREBY DIRECT THE AO TO RESTRICT THE ASSESSMENT ONLY TO THE EXTENT THE INCRIMINATING MATERIAL FOUND AS PER SURVEY AND NOT TO EXTRAPOLAT E . THEREFORE, THE PART RELIEF GRANTED BY LEARNED CIT(A) WAS MERELY ON THE BASIS OF A HYPOTHECATION THAT AGAINST 94 PLOTS A PROPORTIONATE EXPENDITURE MIGHT HAVE BEEN INCURRED . SUCH HYPOTHECATION CA NNOT BE UPHELD ESPECIALLY WHEN THE ASSESSEE IS IN A POSITION TO DEMONSTRATE THE YEAR - WISE FINANCIAL POSITION. RESULTANTLY, GROUNDS RAISED AGAINST THE PART RELIEF BY BOTH THE SIDES ARE HEREBY SET ASIDE ITA NO S . 360 & 678 /AHD /20 14 M/S. SAYAN TEXTILES PARK LTD. FOR A.Y S . 20 10 - 11 - 19 - BACK TO THE STAGE OF THE AO TO BE DECIDED DE NOVO AS PE R THE DIRECTIONS. 7. IN THE RESULT, BOTH THE APPEALS REPRESENTED BY THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE . SD/ - SD/ - ( ANIL CHATURVEDI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED / 0 3 / 20 1 5 PRABHAT KR. KESARWANI , SR. P . S . S / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORD ER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD
