ACIT-12(3)(2), MUMBAI V. MIDCITY BHOOMI DEVELOPERS PVT LTD., MUMBAI

ITA 4401/MUM/2019

AI Insights

The case involves M/s Midcity Bhoomi Developers Pvt Ltd, a company engaged in the business of builders and developers, which was under scrutiny for the assessment year 2006-07. The primary issue was the disallowance of Rs.8,72,05,981 made by the Assessing Officer (AO) on account of amounts recoverable from members of Nanadadeep CHS, which was later deleted by the CIT(A). The Revenue appealed against this decision. The Tribunal had earlier remanded the matter back to the AO to verify if the consideration for construction work had been received and accounted for by the assessee. The AO, however, sustained the disallowance citing discrepancies in the details provided by the assessee, which were later contested and found to be substantiated by the CIT(A). The Tribunal, after reviewing the submissions and evidence, upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108470 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-05-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAKING A FRESH DISALLOWANCE OF RS.; . AGGRIEVED
• Keywords: Share purchase agreement; Additional evidence
• Section: 143(1); 22

Judgement Text

1 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE AMIT SHUKLA (JUDICIAL MEMBER) AND MS. PADMAVATHY S. (ACCOUNTANT MEMBER) I.T.A. No.4401/Mum/2019 (Assessment year 2006-07) ACIT-12(3)(2), Mumbai 1 st Floor, Aayakar Bhavan M.K. Road, Mumbai-400 020 vs M/s Midcity Bhoomi Developers Pvt Ltd, 219-221, Ashirwad Industrial Estate, Ram Mandir Road, Goregaon (West), Mumbai-400 104 PAN : AACCM6605E APPELLANT RESPONDENT Assessee represented by Shri Kunal Shah, Shri Sreyash Shah Department represented by Shri Manoj Kumar Singh (Sr.AR) Date of hearing 18-05-2023 Date of pronouncement 24-05-2023 O R D E R PER : MS PADMAVATHY S. (AM) This appeal of the revenue is against the order of the Commissioner of Income-tax -21, Mumbai [hereinafter „Ld.CIT(A)‟] dated 28/03/2019 for the assessment year 2006-07. The assessee raised the following grounds of appeal:- 1. Whether, on the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in law, the Id.CIT(A) in deleting the addition of Rs.8,72,05^98I/- an account of amounts recoverable from members". 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.8,72,OS,981/- made by the AO on account of amount receivable from the members of Nanadadeep CHS without appreciating the facts that the assessee has failed to produce 2 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd proper documentation and basis of recovery of cost of construction before the Assessing Officer. 3. On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in admitting additional evidence furnished by the assessee in the form of ledger accounts and other documents without giving an opportunity to the Assessing Officer for verification in contravention of 46A of the I:IT. Rules, 1962" 2. The assessee company is engaged in the business of builders and developers. For the assessment year 2006-07 the assessee filed the return of income on 17/11/2006 declaring income of Rs.1,07,52,796/-. The return was processed under section 143(1) accepting the return of income. Subsequently, the case was selected for scrutiny and statutory notices were duly served on the assessee. The assessing officer in the first round of assessment proceedings disallowed a sum of Rs.3,13,38,943 u/s.37(1) while completing the assessment u/s.143(3). The assessee being aggrieved filed its appeal in which the CIT(A) deleted the addition made by the Assessing Officer, but enhanced the income of the assessee by making a fresh disallowance of Rs.8,72,05,981/-. Aggrieved, the assessee filed appeal before the Hon‟ble ITAT. The ITAT remanded the issue back to the Assessing Officer with the following directions:- “5. We have taken note of assessee's contention that consideration, which assessee was entitled to receive under the agreement for construction and allied obligation, has been received by the assessee from members of the society. Whether this consideration is received through the society or directly from twelve members specified under the agreement, it has no impact on taxability of assessee's income. All that is necessary is that consideration for work done by the assessee has to be taken into account - whether received through the society or directly. Once the consideration for construction work is found to have been taken account, it is only corollary thereto that expenses incurred to fulfill related obligation are to be allowed as deduction. In other words, as long as consideration received or receivable by the assessee is found to have been accounted /or, expenses incurred for the said purpose are to be allowed. With the consent 3 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd of the parties, therefore, we remit the matter to the file of the Assessing Officer for limited purposes of verification of assessee's plea that consideration for carrying out construction work etc, has been duly received from members directly and, as such, properly accounted for. In case this plea is found to be correct, the impugned disallowance of Rs.8,72,05,981 stand deleted." 3. Subsequently, the Assessing Officer in the remanded proceedings called on the assessee to furnish certain details as per the directions of the Hon‟ble ITAT. The Assessing Officer retained the disallowance for the reason that the details filed by the assessee are not coherent and does not match with the claims made by the assessee. Aggrieved, assessee filed second round of appeal before the CIT(A), who deleted the additions made by the Assessing Officer based on the various details filed by the assessee. Aggrieved, the Revenue is in appeal before the Tribunal. 4. Brief facts of the main issue under consideration, Assessee acquired development rights of plot no. 685 corresponding to CTS No. E-151, Bandra (West), Mumbai vide four Development Agreements dated 12.05.2004 executed with Marwah family. Independent development of the aforesaid plot was not commercially and economically viable and hence, the Assessee in order to ensure optimum utilisation of the FSI and TDR considered prudent to develop and construct a composite building known as 'Swaroski' by amalgamating Marwah's plot with the neighboring Plot No. 684 bearing CTS No. E-147, Bandra (West), owned by Nandadeep CHS Limited (Nandadeep), comprising 12 flats. Joint construction proposal was endorsed by members of Nandadeep resulted into a Construction Contract with the Assessee dated 29.04.2004 by virtue of which old members of Nandadeep society would surrender existing old flats and allow demolition of building in consideration of being allotted on 4 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd ownership basis as and by way of permanent alternative accommodation being a new flat in 'Swaroski Scheme' as per the said contract dated 29.04.2004, Agreement for Grant of Permanent Alternative Accommodation dated 25.05.2007 and individual Contract Letter dated 07.04.2004. Meanwhile during the course of construction and work in progress, certain existing old members transferred their flats to new members. Using FSI and TDR of the Marwah‟s plot and additional FSI and TDR purchased, the Assessee constructed 22 flats on the joint plot of which:  12 flats were to be handover to 12 old/ existing members of the Nandadeep CHS,  4 flats to be handover to Marwah‟s, and  Balance 6 flats were available to the Assessee as free sale flats. 5. While the redevelopment was going on, 4 flats have been purchased by the nominee of the Assessee Primo Realtors Private Limited and the area of the flats have been merged with the free sale area. Thus, the revised flat distribution was as follows:  8 flats were to be handover to 8 old/ existing members of the Nandadeep CHS. (statement of original members transferred flats to new memberspage 721 to 724 of PB)  4 flats to Marwah‟s, and  Balance 10 flats were available to the Respondent Assessee as free sale flats. 6. The reason for CIT(A) to enhance the disallowance in the first round of appellate proceeding is that the cost of construction ought to be born by the members of the society and that the assessee has not shown any 5 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd receipts towards cost of construction. Therefore the CIT(A) was of the view that the expenses incurred by the assessee towards construction without showing the corresponding receipt cannot be allowed. The Hon’ ble Tribunal remanded the issue back to the AO for the limited purpose of verification of receipt of cost of construction from the members by the assessee so that the assessee can be allowed the cost of construction as a deduction. 7. The assessee had in remand/ set aside proceedings submitted necessary documents evidencing how the receipts/revenue from the project is accounted as directed by the Hon'ble Tribunal. However the Assessing Officer was not convinced with the details submitted and sustained the addition by holding that – “6. The submission of the assessee is considered carefully and found not to be acceptable in view of the following reasons viz. a) The assessee company has submitted a copy of : :: Construction Contract dated 29.04.2004 made between Nandadeep Co-op. Society and a brief glance shows the name of the assessee company on page 4 (four) and page 7 (seven) and in the connecting sentence the lumpsum contract cost calculated and the amount payable to the Contractor calculated as per sq. feet of Municipal Area was kept blank; b) The assessee company has submitted the information in a tabular form with the following columns (i) Flat No. in Old Building; (ii) Name of the original members; (iii) Name of the New Existing members; (iv) Name of Existing Members transferred flat to New Members; (v) Share certificate Number; (vi) Distinctive Number; (vii) Area Sq. Ft. and (viii) Allotted Flats in Swaroski Building; c) The information in the tabular format as stated in ( above gives no clue of the happening in this project of the assessee company - for eg. At SI. No. 1, Mr. D.R.Patil is the name of the original member whereas in the column maintained as Name of the New Existing Members the names of (1) Mr. Mahendra Likhite and (2) Mrs. Mughda Likhite is appearing and , in the next column maintained as Name of the Existing Members Transferred flat to New Members is appearing as Mr, Vishal D. Jaisinsgh (31.05.20.05) whose area appears to be 792, but in the last column maintained as Allotted Flats in Swaroski Building the area shown as 702 sq.ft. Neither any explanation was offered for this discrepancy nor was any supporting document attached to throw light on this; 6 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd d) The entire statement is full of such un-matched names and figures. To enlighten one more example is illustrated here: At SI. No. 2 again Mr. D.R. Patil is the name of the original member whereas in the column maintained as Name of the New Existing Members the names of (1) Mrs. Madhuri Khuslani and (2) Shri Harish Khuslani is appearing and in the next column maintained as Name of the Existing Members Transferred flat to New Members is appearing as Mr. Rajkumar Sharma (31.05.2005) to Mrs. Jagruti Dhruv whose area appears to be 792, but in the last column maintained as Allotted Flats in Swaroski Building is shown as 1101 sq.ft. Neither any explanation was offered for this discrepancy nor was any supporting document attached to throw light on this; 8. The CIT(A) had, while deleting the disallowance sustained by the Assessing Officer in the remanded proceedings, factually gone through the various submissions / evidences given by the assessee as listed below:- o Statement of details of cost of construction recovered from flat owners and sale of 4 flats of Nandadeep by the Respondent Assessee. (page 716 of PB). o Statement of flats and area allotted in "Swaroski" building to existing members (page 93 and 140, 25-26, 599-601 ofPB). o Ledgers, agreements, allotment letters (page 141-417, 108-139 ofPB] o Detailed notes to accounts of sales reported in the profit and loss account (page 607-608, 741-756, 717-720 ofPB). o Ledger of sale of residential units (504-606) and individual party-wise ledger of sales (page 609-621 ofPB. o Statement of original members transferred their flats to new existing members in Nandadeep Co-operative Housing Society Limited (Page 721-724 of PB). o Financial statements for AY 2006-07 (Page 468-494 of PB) and tax audit report (page 495-518, 534-540 ofPB). As can be seen from the profit and loss account (page 482 of the PB) forming part of the annual report, the reported other income amounting to Rs. 3,48,49,108/- tallies with the break of other income given at page 719 of PB. Thus, it can be clearly seen that the Respondent Assessee has recovered the Construction cost and also accounted for the same, which is in accordance with the Hon'ble ITAT's directions.” 7 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd 9. The CIT(A) after verifying the above details have given the finding that there is no mismatch of names as claimed by the Assessing Officer and that the assessee has properly accounted the various receipts towards contribution from members. Accordingly the CIT(A) deleted the disallowance sustained by the Assessing Officer. 10. The Ld.AR submitted that the issue was remitted to the Assessing Officer by the Hon‟ble Tribunal for the limited purpose of whether the consideration for carrying out the construction work has been duly received from the members directly and as such properly accounted for. Further, the Ld.AR submitted that the Assessing Officer has gone beyond his jurisdiction to give finding with regard to the various terms of the agreement and has also given incorrect finding with regard to the facts. In this regard the Ld.AR drew our attention to the finding given by the CIT(A) in the second round of appellate proceedings where in para 6.8 (page 16) of his order that the Assessing Officer has gone beyond the directions and sustained the disallowance for the reason that some lacuna in the copy of the construction contract without bringing out the nexus with the directions given by the Hon‟ble Tribunal. The Ld.AR further submitted that the assessee had submitted all the necessary evidences as per directions of the Hon‟ble ITAT to substantiate the claim and the CIT(A), after going through all the necessary evidences has correctly deleted the additions. 11. The ld AR also made a detailed submission before us drawing our attention to the way the accounting is done of the receipts from the members as given below and prayed that the order of the CIT(A) should be upheld. Particulars Corresponding relevant page of the paper book Profit and loss account - Sale of Residential unit of Rs. 15,92,29,840/- 482 8 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd - Other Income of Rs. 3,48,49,108/- Grouping of sales of Residential unit of Rs. 15,92,29,840/- 718 Grouping of other income of Rs. 3,48,49,108/- 719 Sales Chart of Swaroski project 755-756 Ledger of accounting for Swaroski project sales along with individual ledgers of members 604-621 Particulars Corresponding relevant page of the paper book Profit and loss account - Total expenses of Rs. 18,40,97,633/- 482 Grouping of total expenses of Rs. 18,40,97,633/- 747 Detailed head-wise breakup of expenses relating to Swaroski project 748-750 12. The Ld.DR, relied on the order of the Assessing Officer to submit that the assessee has not shared the correct details during the remand proceedings and that the Assessing Officer has given various discrepancies in the details submitted with the relevant details claimed to have been submitted by the assessee before the CIT(A) having been examined by the Assessing Officer and that the CIT(A) did not call for any remand report from the Assessing Officer. It is, therefore, submitted by the Ld.DR that the CIT(A) deleting the addition, is not correct. 9. We heard the parties and perused the materials on record. To recapitulate the facts, the assessee had acquired the development rights of a certain piece of land and entered into an agreement with one Marwah family. Since the plot was not commercial and economically viable, the assessee had entered into agreement to develop and construct a composite building by amalgamating the plot acquired from Marwah family with the neighbouring plot owned by 9 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd Nandadeep CHS Ltd comprising 12 flats under the name “Swaroski”. The old members of Nandadeep society would surrender existing old flats and allow demolition of building in consideration of being allotted on ownership basis as and by way of permanent alternative accommodation being a new flat in “Swaroski”. 5. Since it was a redevelopment project for Nandadeep Society, no construction cost was to be borne by the members and in lieu of which, the members were provided their original area along with a 100% increase to the original area by the Assessee as a part of the redevelopment. In other words the consideration received by the members for the transfer of rights is in the form of allotment of new flats without any cost. However there are few members who have opted to get some additional space in the new flats and some extra amenities for which the members are required to pay additional amount. The Assessee has accounted for the same and reported it as income in its Profit and Loss Account. The same is evidenced by the table submitted by the ld AR during the course of hearing the entries from which is accounted in ledger accounts which are also part of records submitted – MIDCITY BHOOMI DEVELOPERS FVT. LTD STATEMENT OF FLATS AND AREA ALLOTMENT IN "SWAROSKI" BUILDING TO EXISTING MEMBERS - f RY. 2005-06t SR. NO. NAME OF THE EXISTING MEMBERS (AS PER CONSTRUCTION AGREEMENT DATED 29.04.2004) NAME OF THE EXISTING MEMBERS TRANSFERRED FLAT TO NEW MEMBERS DURING CONSTRUCTION PERIOD OLD FLAT AREA SQ.FT. ALLOTED FLAT NO. IN "SWAROSK I BLDG" FREE AREA ALLOTED TO MEMBERS EXTRA AREA ALLOTED TO MEMBER S ALLOTED FLAT AREA SQ. FT. IN "SWAROSKI BLDG" EXTRA AREA TO OWNERS (A/C. AS SALES) ALLOTMENT OF PARKING SPACES TO OWNERS EXTRA AMENTI ES TOTAL SALE CONSIDERA TION RS. PAGE NO. OF PAPER BOOK 1 2 3 4 5 6 7 8 9 10 11 12 1 Smt. Madhuri Khuslani & Shri. Harish Khuslani Mr. Rajkumar Sharma to Mrs. Ja^ruti Dhruv 792 1,101 1,584 216 1,800 10,80,000 5, 166-189 3 Mr. Rajkumar Sharma - 553 501 1,106 694 1,800 25,00,000 10,00,000 5,00,000. 40,00,1 UU 190-210 4 Mr. Mahosh K. Doshi - 342 1,102 684 616 1,300 25,00,000 5,1)0,000 5,00,000 35,00,000 211-247 5 Mrs. Uma M. Doshi - 342 1,202 684 526 1,210 25,00,000 5,1)11,000 1,30,000 31,30,000 248-273 6 Mr. Hiren Dhruv - 553 1,201 1,106 24 1,130 1,20,1 XX) 5,00,000 - 6,20,000 274-309 7 Mr. Lalchand Tahilramani & Mrs. Harsh Tahilramani Mr. Kishore S. Jadhwani, Mrs. Riddhi K. Jadhwani & Kishore S. Jadhwani (HUF) 866 1,001 1,732 68 1,800 3,40,000 10,00,000 13,40,000 310-344 8 Mr. Mahendra Likhite & Mrs. Meghdha Likhite Mr. Vishal D. Jaisingh 792 702 1,300 284 1,584 14,20,000 10,00,000 - 24,20,00(1 345-366 Total Rs. II] 8,880 3,044 11,924 1,29,60,00 0 60,00,000 16^0,000 2,05,90,000 10 ITA N.4401/Mum/2019 M/s Midcity Bhoomi Developers Pvt Ltd FR1MO REALTORS PRIVATE LIMITED