SAGAR DEVELOPERS, MUMBAI V. ACIT 34, MUMBAI

ITA 3726/MUM/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8359 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 26-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: S C TIWARI MS NATASHA MANGAT
• Keywords: Gift; Search and seizure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI , ! '# $ $ $ $ , % && , , '# ' BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUICIAL MEMBER ./I.T.A. NOS.843 & 3726/MUM/2014 ( ( ( ( ( / ASSESSMENT YEARS : 2007-08 & 2008-09 M/S. SAGAR DEVELOPERS, C/O MR. NIKHIL GANDHI, C.A, 303/304, VYOM ARCADE, TEJPAL SCHEME ROAD NO. 5, VILE PARLE (E), MUMBAI-400 057 THE ACIT, CENTRAL CIRCLE-34, MUMBAI #) ! ./ %* ./PAN/GIR NO. : ABFFS 0640E ( )+ /APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . / APPELLANT BY : ` SHRI S.C. TIWARI MS. NATASHA MANGAT , -)+ / . /RESPONDENT BY : SHRI KISHAN VYAS / 01! / DATE OF HEARING :14.08.2014 23( / 01! / DATE OF PRONOUNCEMENT :20.8.2014 '4 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A)-41, MUMBAI DT. 26.11.2013 PERTAINING TO ASSESSMENT YEAR 2007-08 AND LD. CIT(A)-39 MUMBAI DT. 26.2.2014 PERT AINING TO A.Y. 2008-09. AS BOTH THESE APPEALS WERE HEARD TOGETHER , THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AN D BREVITY. ITA NO. 843/M/2014 A.Y. 2007-08 ITA NOS.3726 & 843/M/14 2 2. THE SOLE GRIEVANCE OF THE ASSESSEE RELATES TO TH E ADDITION OF RS. 20 CRORES ON ACCOUNT OF SALE CONSIDERATION. 3. THE ASSESSEE FIRM WAS CONSTITUTED ON 19.3.2006 WITH 5 PARTNERS. A SEARCH AND SEIZURE OPERATION WAS CONDUCTED AT THE R ESIDENTIAL PREMISES OF ONE OF THE PARTNERS NAMELY SHRI GANGADHAR SHETTY. DURING THE COURSE OF THE SEARCH PROCEEDINGS A MOU DT. 8.3.2007 WAS FOU ND WITH RESPECT TO SALE OF ONE SRA PROJECT TO SALASAR DWELLERS PVT. LT D. IN THE SAID MOU, THE SALE CONSIDERATION WAS STATED AT RS. 20 CRORES. AS PER THE SAID MOU, SHRI DIVAKAR SHETTY HAS ACKNOWLEDGED THE RECEIVING OF RS. 90 LAKHS AS A PARTNER OF THE ASSESSEE. THE ASSESSING OFFICER FO UND THAT THE ASSESSEE HAS NOT SHOWN ANY INCOME ARISING OUT OF SUCH SALE. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN THE SAME. IT WAS EXPLAINED THAT SOME DISPUTE AROSE BETWEEN THE PARTNERS SHRI DIVAKAR SHETTY AND SHRI GANGADHAR SHETTY. SHRI GANGADHAR SHETTY HAS APPROACHED HIGH COURT FOR GETTING NECESSARY RELIEF. IT WAS POINTED OUT THAT THE FIRM HAS NOT RECEIVED ANY PAYMENT. IT WAS FURTHER MENTIONED THAT THE SALE AG REEMENT WAS FRAUDULENTLY EXECUTED AND SIMILARLY THE DEED OF DIS SOLUTION WAS ALSO FRAUDULENTLY OBTAINED. IT WAS FURTHER EXPLAINED T HAT THE SOCIETY WHO HAS GIVEN THE RIGHTS FOR DEVELOPMENT HAS ITSELF FILED A CASE AND HAS TERMINATED THE RIGHTS GIVEN TO THE FIRM. THE SUBMISSIONS OF T HE ASSESSEE WERE OUTRIGHTLY REJECTED BY THE AO WHO HEAVILY RELIED UP ON THE CONTENTS OF THE MOU TAKING THE SALE CONSIDERATION AT RS. 20 CRORES. THE AO ALLOWED THE COST OF RS. 1,43,55,655/- AS THE PROFIT OF THE ASSE SSEE. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THE M OU ITSELF IS NOT GENUINE BECAUSE IT HAS BEEN CHALLENGED BEFORE THE A RBITRATOR. IT WAS POINTED OUT THAT THE MOU IS DT. 8.3.2007 WHEREAS M/ S. SALASAR DWELLERS ITA NOS.3726 & 843/M/14 3 PVT. LTD., CAME INTO EXISTENCE ON 29.3.2007. IT WA S ALSO STATED THAT THE SOCIETY WHO HAS GIVEN THE RIGHTS TO THE ASSESSEE HA S ITSELF TERMINATED THE DEVELOPMENT RIGHTS AND A SUIT IS PENDING. AFTER CO NSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS NOT CONVINCED A ND CONFIRMED THE ADDITION OF RS. 18,56,44,345/-. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEF ORE THE LOWER AUTHORITIES. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E FINDINGS OF THE REVENUE AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD BE FORE US. THE ASSESSEE FIRM WAS CONSTITUTED VIDE PARTNERSHIP DEED DT. 11.3 .2006. THE MOU FOUND AT THE TIME OF SEARCH IS DT. 8.3.2007 WHICH W AS BETWEEN THE ASSESSEE AND M/S. SALASAR DWELLERS PVT. LTD. THE CERTIFICATE OF INCORPORATION FROM THE REGISTRAR OF COMPANIES SHOWS THAT M/S. SALASAR DWELLERS PVT. LTD. CAME INTO EXISTENCE ON 29.3.2007 . BEING A LEGAL PERSON, A LIMITED LIABILITY COMPANY IS BORN ON THE DATE OF INCORPORATION AS CERTIFIED BY THE REGISTRAR OF COMPANIES THEREFORE T HE MOU DT. 8.3.2007 IS VOID BECAUSE IT IS BETWEEN A PARTNERSHIP FIRM AND A NON EXISTING PERSON. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE MOU IS N OT A VOID DOCUMENT, IT RELATES TO THE SALE OF SRA PROJECT. IN OUR UNDE RSTANDING OF MUNICIPAL LAWS, AROUND 29 TO 30 PERMISSIONS/NO OBJECTION CERT IFICATES ARE REQUIRED BEFORE THE COMMENCEMENT OF THE PROJECT FROM THE STA TE GOVERNMENT/LOCAL AUTHORITIES. THERE IS NOT EVEN A SINGLE EVIDENCE W HICH COULD SHOW THAT THE LOCAL AUTHORITIES HAVE GRANTED/SANCTIONED PERMI SSION TO THE ASSESSEE. ITA NOS.3726 & 843/M/14 4 THE ENTIRE ASSESSMENT HAS BEEN MADE ONLY ON THE BAS IS OF THIS MOU WHICH FIRSTLY IS A INVALID DOCUMENT AND SECONDLY I T DOES NOT GIVE ANY CLUE IN RESPECT OF THE COMMENCEMENT OF THE SRA PROJECT. THERE IS NO OTHER COGENT MATERIAL EVIDENCE BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HAS ACTUALLY RECEIVED THE CONSIDERATION NOR ANY SUCH DO CUMENT WAS FOUND DURING THE COURSE OF THE SEARCH PROCEEDINGS. THE E NTIRE ADDITION IS MADE ON THE BASIS OF ASSUMPTIONS/PRESUMPTIONS, SUCH ADDI TION CANNOT BE SUSTAINED. WE, THEREFORE, SET ASIDE THE ORDER OF T HE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 18,56,44,345/- . ITA NO. 3726/M/2014 A.Y. 2008-09 8. THE SOLE GRIEVANCE OF THE ASSESSEE RELATES TO TH E ADDITION OF RS. 6,73,45,900/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO ONCE AGAIN RELIED UPON THE MOU FOUND AND SEIZED DU RING THE COURSE OF THE SEARCH PROCEEDINGS IN THE RESIDENTIAL PREMISES OF GANGADHAR SHETTY. THIS MOU HAS ELABORATELY BEEN DISCUSSED BY US IN IT A NO. 843/M/2014. CONTINUING THE FINDINGS GIVEN IN THE ASSESSMENT YEA R 2007-08, THE AO OBSERVED THAT THE AGREEMENT FOR SALE WAS EXECUTED O N 16.4.2007 FOR RS. 8.50 CRORES. AFTER DEDUCTING THE COST, THE AO ARRI VED AT THE PROFIT OF RS. 6,73,45,900/- AND COMPLETED THE ASSESSMENT ON THIS INCOME. 9. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT AS P ER THE DEVELOPMENT AGREEMENT DT. 26.4.2007, THE ASSESSEE WAS REQUIRED TO MAKE OUT MARKETABLE TITLE OF THE PROPERTY AND THE DEVELOPER S AREA FREE FROM ALL ENCUMBRANCES, DOUBTS, CLAIMS. IT WAS FURTHER EXPL AINED THAT THE ASSESSEE WAS REQUIRED TO COMPLETE ALL THE FORMALITIES RELATE D TO BMC/SRA. IT WAS STRONGLY CONTENDED THAT AFTER FULFILLING THESE CON DITIONS, THE DEVELOPERS ITA NOS.3726 & 843/M/14 5 HAVE AGREED TO PAY THE SUM OF RS. 8.50 CRORES AND THAT TOO IN INSTALMENTS. SINCE NOTHING HAS BEEN DONE BY THE ASSESSEE, NO PART OF THE CONSIDERATION ACCRUED TO THE ASSESSEE. 9.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S AND THE DEVELOPMENT AGREEMENT DT. 26.4.2007, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE WAS TO RECEIVE THE CONSIDERATION IN INSTAL MENTS WHICH ARE NOT LINKED TO PERFORMANCE OF OBLIGATIONS ON THE PART OF THE ASSESSEE . THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE IS FOLLO WING ACCRUAL SYSTEM OF ACCOUNTING THEREFORE THE ENTIRE INCOME HAS TO BE T AXED DURING THE YEAR UNDER CONSIDERATION AND CONFIRMED THE FINDINGS OF T HE AO. 10. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 11. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WH AT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THOUGH THE AGREEMENT IS DT. 26.4.2007 BETWEEN THE ASSESSEE AND M/S. SALASAR DWELLERS PVT. LTD. BUT THE ASSESSEE HAS NOT FULFILLED ANY CONDITION/OBLIGATION TO PUT THE LAND IN A MARKETABL E CONDITION FREE FROM ALL ENCUMBRANCES THEREFORE NO PART OF THE INCOME SH OULD BE CONSIDERED DURING THE YEAR UNDER CONSIDERATION. THE LD. COUNS EL FURTHER STATED THAT THE ASSESSEE FIRM WAS DISSOLVED ON 14.5.2007 THERE FORE IN A SPAN OF LESS THAN 20 DAYS THE ASSESSEE COULD NOT HAVE CARRIED OU T ANY WORK TO EARN THE INCOME OF RS. 8.50 CRORES AS ALLEGED BY THE AO. 12. PER CONTRA, THE LD. DR SUPPORTED THE FINDINGS O F THE LOWER AUTHORITIES. ITA NOS.3726 & 843/M/14 6 13. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECO RD BEFORE US. THE IMPUGNED AGREEMENT FOR DEVELOPMENT IS DT. 26.4.2007 . IT IS AN UNDISPUTED FACT THAT THE ASSESSEE FIRM WAS DISSOLVE D ON 14.5.2007. A PERUSAL OF THE DEED OF DISSOLUTION DT. 14.5.2007 SH OWS THAT SHRI DIVAKAR SHETTY HAS AGREED TO TAKE OVER ALL THE ASSETS AND L IABILITIES OF THE FIRM INCLUDING EXCLUSIVE RIGHT IN THE PROPERTY. IT IS A LSO PROVIDED IN THE DEED OF DISSOLUTION THAT SHRI DIVAKAR SHETTY SHALL HAVE EXCLUSIVE RIGHT TO DEVELOP THE SAID PROPERTY AND SHALL TAKE OVER THE PARTNERSHIP. A PERUSAL OF THE AGREEMENT FOR DEVELOPMENT DT. 26.4.2 007 SHOWS THAT CLAUSE (F) THAT THEY (OWNERS) SHALL MAKE OUT MARKETABLE TITLE TO THE SAID PROPERTY (IMPUGNED PROPERTY) AND THE DEVEL OPERS AREA FREE FROM ALL ENCUMBRANCES, DOUBTS AND CLAIMS AND GET IN ALL OUTSTANDING ESTATES AND CLEAR ALL DEFECTS IN THE TI TLE, ENCUMBRANCES AND CLAIMS BY WAY OF SALE, EXCHANGE, MORTGAGE, GIFT TRUST HOWEVER, IF ANY ENCUMBRANCES ARE FOUND ON THE DEVEL OPERS AREA, THE OWNER SHALL CLEAR THE SAME AT THEIR OWN COST AN D EXPENSES. CLAUSE (G) THAT THEY (OWNER) HAVE AGREED TO CO MPLETE ALL THE PAPER FORMALITIES RELATED TO THE BMC/SRA AND OTHER GOVERNMENT DEPARTMENT AND BEAR ALL THE COST AND EXPENSES OF DEVELOPMENT OF SRA PROJECT AND ALL THE COSTS AND EXPENSES OF SALE COMPONENT. 13.1. THERE IS NO COGENT MATERIAL EVIDENCE ON RECOR D TO SHOW THAT THE ASSESSEE HAS TAKEN PERMISSION FROM VARIOUS LOCAL AU THORITIES IN RESPECT OF THE SAID PROJECT, EVEN THE PAYMENT SCHEDULE IN THE AGREEMENT SHOW THAT RS. 50 LAKHS ONLY HAS BEEN RECEIVED ON 5.4.2007. A S MENTIONED HEREINABOVE, THE FIRM WAS DISSOLVED ON 14.5.2007 AN D THE ENTIRE BUSINESS ITA NOS.3726 & 843/M/14 7 WAS TAKEN OVER BY ONE OF THE PARTNERS. CONSIDERING ALL THESE FACTS IN TOTALITY, WE FAIL TO UNDERSTAND HOW THE ENTIRE CONS IDERATION HAS BEEN TAXED IN THE HANDS OF THE ASSESSEE WHEN THE BUSINESS HAS BEEN TAKEN OVER BY ONE OF THE PARTNERS. ONLY RS. 50 LAKHS HAS BEEN RECEIV ED ON 5.4.2007 I.E. BEFORE THE DATE OF DISSOLUTION, ONLY TO THIS EXTENT , THE ASSESSEE CAN BE MADE LIABLE TO PAY THE TAX AND THAT TOO WHEN THIS A MOUNT HAS NOT BEEN SHOWN AS INCOME SUBSEQUENTLY BY THE PARTNER WHO HA S TAKEN OVER THE BUSINESS OF THE DISSOLVED FIRM. THEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILES OF THE AO FOR THE L IMITED PURPOSE OF VERIFICATION OF RS. 50 LAKHS, WHETHER THIS INCOME H AS BEEN SHOWN BY THE PARTNER WHO HAS TAKEN OVER THE BUSINESS OF THE ASSE SSEE FIRM AND IF IT IS TAXED IN THE HANDS OF THE PARTNER, THEN THE SAME CA NNOT BE TAXED IN THE HANDS OF THE FIRM. IN RESPECT OF THE BALANCE ADDI TION OF RS. 6,23,45,900/-, WE DO NOT FIND ANY EVIDENCE TO JUSTIFY THIS ADDITIO N WHICH IS ACCORDINGLY DELETED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 843/M/14 IS ALLOWED AND THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 3726/M/14 IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND AUGUST, 2014 '4 / 3( ! 5 6'7 22.8.2014 3 / & SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) '# / JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 6' DATED 22 ND AUGUST, 2014 . . ./ RJ , SR. PS ITA NOS.3726 & 843/M/14 8 '4 '4 '4 '4 / // / ,0 ,0 ,0 ,0 8(0 8(0 8(0 8(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :& ,0 , , / DR, ITAT, MUMBAI 6. &; < / GUARD FILE. '4 '4 '4 '4 / BY ORDER, -0 ,0 //TRUE COPY// = == = / > > > > % % % % (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI