M/s. Dhara Developers, Baroda V. The Income Tax Officer, Ward-2(4), Baroda

ITA 570/AHD/2015

• Counselvise Citation: 57020514 RSA 2015
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L SHARMA
• Assessee Lawyers: URVASHI SHODHAN
• Keywords: Business income; Initiation of penalty proceedings; Reason to believe; Reassessment proceedings
• Section: 143(3)

Judgement Text

ITA NO . 570 / AHD/ 20 1 5 ASSESSMENT YEAR: 2 0 08 - 09 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH , SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM ] ITA NO. 570 / AHD / 2 0 1 5 ASSESSMENT YEAR: 20 08 - 09 DHARA D E VEL OPERS ....... .. . ..... APPELLANT 1 , ABHISHEK COLONY, GOTRI ROAD, VADODARA. [PAN A ADFD 5444 J ] VS. INCOME TAX OFFICER, .... .................. .... .. RESPONDENT WARD 2(4), BARODA. APPEARANCES BY: URVASHI SHODHAN FOR THE APPELLANT B.L. SHARMA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : SEPTEMBER 3 RD , 201 5 DATE OF PRONOUNCIN G THE ORDER : NOVEMBER 12 TH , 2015 O R D E R 1. BY WAY OF THIS APPEAL, THE A SSESS EE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 2 1 ST NOVEMBER , 2014 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) , FOR THE ASSESSMENT YEAR 20 08 - 09 , ON THE FOLLOWING GROUND S : - 1. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING ORDER OF AO DENYING CLAIM OF DEDUCTION U/S 80IB(10) OF THE ACT ON SALE OF DEVELOPMENT RIG HTS. LD. CIT(A) FAILED TO HOLD T HE REASONS RECORDED TO REOPEN THE ASSESSMENT AS ERRONEOUS SEEKING TO DISALLOW PROFIT OF R S.4,55,970/ - EARNED ON SALE OF DEVELOPMENT RIGHT WHEN PROFIT EARNED ON ENTIRE PROJECT IS RS.4,08,297/ - . LD. CIT(A) OUGHT TO HAVE QUAS HED REASSESSMENT ORDER. IT BE SO HELD NOW. 2. LD. CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THE REASSESSMENT AS VALID SINCE THE APPELLANT FAILED TO RAISE ANY OBJECTIONS AGAINST REOPENING BEFORE AO AND PARTICIPATED IN REASSESSMENT PROCEEDINGS NOT PERMISS IBLE NOW AT APPELLATE STAGE. LD. CIT(A) OUGHT TO HAVE HELD REASSESSMENT AS INVALID DUE TO INSUFFICIENCY OF REASONS RECORDED. IT BE SO HELD NOW. ITA NO . 570 / AHD/ 20 1 5 ASSESSMENT YEAR: 2 0 08 - 09 PAGE 2 OF 6 3. LD. CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN C ONFIRMING ADDITION SINCE THE AP PELLANT FAILED TO SUBSTANTI ATE GROUND CHALLENGING NON CONSIDERATION OF THE COST OF DEVELOPMENT RIGHTS OF RS.4,55,970/ - BY AO. LD. CIT(A) OUGHT TO HAVE DELETED ADDITION MA D E A S NO PROFIT ON SALE OF DEVELOPMENT RIGHTS WAS EARNED DURING THE YEAR. IT BE SO HELD NOW. 4. INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT IS NOT JUSTIFIED. 5. LEVY OF INTEREST U/S 234A/B/C OF THE ACT IS NOT JUSTIFIED. 2. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. IT IS CASE OF REOPENED ASSESSMENT. WHILE THE ORIGINAL ASSESSME NT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED, IN THIS CASE, ON 22 ND DECEMBER, 2010, THE ASSESSING OFFICER REOPENED THE CASE, BY RECORDING THE FOLLOWING REASONS, ON 21 ST FEBRUARY , 2014: - IN THIS CA S E T HE RETURN OF INCOME WAS FILED ON 25.9.2008 DECLARIN G THEREIN TOTAL INCOME OF RS. NIL AFTER CLAIMING DEDUCTION OF RS.4,08,297/ - U/S .80IB(10) OF THE ACT. THE ASSESSMENT U/S. 143(3) OF THE ACT W AS FINALISED ON 22.12.2010 A T RS.4,08,300/ - . ON SCRUTINISING COPIES OF RETURN OF INCOME TAX AUDI REPORT AND COPY O F ACCOUNTS AND ANNEXURE (PROFIT AND LOSS A /S. A ND BALANCE SHEET ), IT REVEALED THAT THE ASSESSEE HAD SALE OF DEVELOPMENT RIGHT OF RS.4,55,970/ - WHICH WAS ADDED TO WORK DONE R S .15,28,693/ - GETS DEDUCTION U/S. 80IB(10). THE PROFIT EARNED ON SALE OF DEVELOPMEN T RIGHT RS.4,55,970/ - WAS INCOME FROM OTHER SOURCES AND DEDUCTION UNDER SECTION 80IB(10) NOT TO BE ALLOWED AND HAS TO BE TAXED. 3. ON 26 TH FEBRUARY, 2014, THE ASSESSEE FILED A DETAILED OBJECTION TO THE ASSESSING OFFICER. IN THIS LETTER, THE ASSESSEE, IN TER ALIA, SUBMITTED AS FOLLOWS : - HERE IT IS SUBMITTED THAT SALE OF DEVELOPMENT RIGHT MEANS THE LAND WHICH H A S BEEN SOLD TO MEMBERS ALONG WITH SUPER STRUCTURE AND PURCHASED BY ENTERING INTO DEVELOPMENT RIGHT AGREEMENT. SINCE THE PLOT OF LAND WAS NOT PURCH ASED THE ACCOUNTING HE A D STATED IS SALE OF DEVELOPMENT RIGHT AND COST OF DEVELOPMENT RIGHT. ITA NO . 570 / AHD/ 20 1 5 ASSESSMENT YEAR: 2 0 08 - 09 PAGE 3 OF 6 IT IS SUBMITTED THAT THE CO NSTRUCTION OF SUPER STRUCTURE IS NOT POSSIBLE WITHOUT LAND. ASSESSEE FIRM HAS CONSTRUCTED RESIDENTIAL UNITS ON A PLOT OF LAND. THUS, P LOT OF LAND IS INTEGRAL PART OF RESIDENTIAL UNIT CONSTRUCTED BY ASSESSEE FIRM. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE PROFIT FROM SALE OF DEVELOPMENT RIGHT CANNOT BE TREATED A S INCOME FROM OTHER SOURCES AND DEDUCTION THEREON CANNOT BE DISALLOWED AS THE SAME IS PART AND PARCEL OF BUSINESS ACTIVITY OF CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL UNITS. THE CLAIM MADE BY THE ASSESSEE OF DEDUCTION U/S 80IB(10) OF THE INCOME TAX ACT, 1961 OF RS.4,08,300/ - WAS NOT ALLOWED ON THE GROUND T HAT LAND IS NOT OWN BY THE ASSESSEE FIRM . WE ARE SUBMITTING HEREWITH THE COPY OF APPEAL ORDER FOR THE YEAR UNDER ASSESSMENT FOR YOUR READY REFERENCE. ON GOING THROUGH THE SAME, IT WILL BE NOTICED THAT THE HONOURABLE CIT(A) HAS ALLOWED THE APPEAL RELYING OF HIS PREDECESSOR S ORDER . ON FURTHER VERIFICATION, IT WILL BE NOTICED THAT THE TEST LAID DOWN BY THE HONOURABLE ITAT, AHMEDABAD IN THE CA S E OF SHAKTI DEVELOPERS IS ALSO EXAMINED BY YOUR OFFICE AND HELD THAT ASSESSEE HAD THE TERMS AND CONDITIONS OF THE DEVELOPMENT AGREEMENT A RE SIMILAR TO THAT OF DECIDED BY THE HONOURABLE IT A T IN THE CASE OF ITO & OTHERS VS. M/S. SHAKTI CORPORATION, VADODARA & OTHERS IN IT A NO. 1503/AHD/2008 DATED 07.11.2008. FURTHER, IT IS SUBMITTED THAT THE ISSUE OF TWO AGREEMENTS AND SALE CONSIDERATION THE RE OF ALREADY ADJUDICATED BY THE JURISDIC T IONAL ITAT, AHMED A BAD AND OTHER ITATS. THE TWO AGREEMENT S A RE ENTERED INTO FOR THE CONVENIENCE OF THE CUSTOMERS AND ULTIMATELY ASSESSEE FIRM HAS SOLD THE RESIDENTIAL UNIT DULY CONSTRUCTED ON THE PLOT OF LAND AS PE R APPROVED PLAN OF THE LOCAL AUTHORITY. IN SATANG DEVELOPERS VS. ACI T IN ITA NO. 1011/AHD//2012 IN DCIT VS. SMR BUILDERS (P) LTD . (2012) 24 TAXMAN.COM 194 (HYD.) IN SKY BUILDERS & DEVELOPERS VS. ITO (2011) 14 TAXMAN.COM 78 (INDORE) IN M/S. VARDHMAN BUILDERS AND DEVELOPERS VS . ITO - I T ANO.559/IND/2010 DAT E D 09/05/2012 IN RAGHAVA ESTATES VS . DY. CIT - ITA N OS.248 & 49/VIZAG/2009 DATED 04/08/2011 UNDER THE CIRCUMSTANCE, IT IS SUBMITTED THAT INCOME DERIVED FROM T HE SALE OF DEVELOPMENT RIGHT TO BE TAXED UNDER THE HEA D BUSINESS INCOME AND NOT UNDER THE HEAD OTHER SOURCE AS STATED IN THE REASONS RECORDED. 4. HOWEVER, THE ASSESSING OFFICER DISREGARDED THESE SUBMISSIONS AND PROCEEDED TO FRAME THE REASSESSMENT ORDER. IN THE ASSESSMENT ORDER, HOWEVER, HE DEALT WIT H THESE SUBMISSIONS ON MERIT, AS FOLLOWS : - ITA NO . 570 / AHD/ 20 1 5 ASSESSMENT YEAR: 2 0 08 - 09 PAGE 4 OF 6 ASSESSEE S SUBMISSIONS HAS BEEN CAREFULLY CONSIDERED. THE ASSESSEE HAS NOT DONE COMPLETE WORK OF CONSTRUCTION/DEVELOPMENT ON THE PART OF THE PROJECT, DEVELOPMENT RIGHT OF WHICH WAS/WERE SOLD TO T HE PERSON. CON STRUCTION /DEVELOPMENT ON SUCH PAR T OF WORK COULD HAVE BEEN COMPLETED BY THE OTHER PERSON WHO BOUGHT THE DEVELOPMENT RIGHT FROM THE ASSESSEE AND NOT COMPLETED BY THE ASSESSEE. INCOME EARNED FROM S A LE OF DEVELOPMENT RIGHTS CANNOT BE REGARDED AS PROFIT EARNE D OUT OF THE MAIN BUSINESS ACTIVITIES. THIS AMOUNT CANNOT BE EQUATED WITH ACTUAL PROFIT ON CONTRACTION /DEVELOPMENT ACTIVITIES. THUS, S A LE OF DEVELOPMENT RIGHT DOES NOT QUALITY FOR DEDUCTION U/S 80IB(10) OF THE ACT. AS THE ASSESSEE HAS CLAIMED ALL THE EX PENSES , SO NO FURTHER EXPANSES WILL BE ALLOWABLE FROM THE SALE OF SUCH DEVELOPMENT RIGHT. HENCE CLAIM OF DEDUCTION U/S 80IB(10) ON S A LE OF DEVELOPMENT RIGHT OF RS.4,55,970/ - IS NOT ALLOWED TO THE ASSESSEE AND ACCORDINGLY T HE SAME IS BROUGHT TO TAX. THERE FORE , ADDITION OF RS.4,55,970/ - IS MADE TO THE TO TA L INCOME OF THE ASSESSEE . 5. AGGRIEVED BY THE STAND SO TA KEN BY THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT ( A ) BUT WITHOUT ANY SUCCESS. REJECTING THE GRIEVANCES OF THE ASSESSEE, THE CIT(A) HELD AS FOLLOWS: - 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE L EA RNED AUTHORISED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. FROM THE SUBMISSIONS OF THE AUTHORISED REPRESENTATIVE , IT TRANSPIRES THAT THE APPELLANT HAS CHALLENGED THE REOPENING OF THE ASSESSMENT MAINLY ON THE INCORRECTNESS OF THE REASON TO BELIEVE RECORDED BY THE ASSESSING OFFICER. IN THE LAST PARA OF THE SUBMISSIONS, IT IS REITERATED AS : THIS IS PRACTICALLY IMPOSSIBLE SITUATION WHERE ENTIRE PROJECT PROFIT FOR THE YEAR IS RS. 4,08,297/ - AND TO EARN PROFIT ON S A LE OF DEVELOPMENT RIGHTS IS RS.4,55,970/ - AS STATED IN THE RE ASONS RECORDED TO REOPEN THE ASSESSMENT . HON BLE SUPREME COURT IN THE CASE OF RAYMOND WOOLLEN MILLS LTD. V S. IT O [1999] 236 ITR 34 (SC) H A S HELD THAT IF THERE IS SOME PRIMA FACIE MATERIAL ON THE B A SIS OF WHICH THE DEPARTMENT COULD REOPEN T HE CASE, THE S UFFICIENCY OR CORRECTNESS OF THE MATERIAL CANNOT BE CHALLENGED BY THE ASSESSEE. IT WAS HELD THAT : IN THIS CASE, WE DO NOT HAVE TO G IVE A FINAL DECISION AS TO WHETHER THERE IS S UPPRESSION OF MATERIAL F ACTS BY THE ASSESSEE OR NOT. WE HAVE ONLY TO SEE WHETHER THERE WAS PRIMA F A CIE SOME MATERIAL ON THE BASIS OF WHICH THE DEPARTMENT COULD REOPEN THE CA S E. THE SUFFICIENCY OR CORRECTNESS O F THE MATERIAL IS NOT A THING TO BE CONSIDERED AT THIS STAGE. WE ARE OF THE VIEW THAT THE COURT CANNOT STRIKE DOWN THE REOPENING OF THE CA S E IN THE FACTS OF ITA NO . 570 / AHD/ 20 1 5 ASSESSMENT YEAR: 2 0 08 - 09 PAGE 5 OF 6 THIS CASE. IT WILL BE OPEN TO THE ASSESSEE TO PROVE THAT THE ASSUMPTION OF FACTS MAD E IN THE NOTI CE WAS ERRONEOUS. AS THE APPELLANT HAS NOT BEEN A BLE T O RAISE OBJECTION AGAINST REOPENING BEFORE THE ASSESSING OFFICER AND PARTICIPATED IN THE REASSESSMENT PROCEEDING, HE CANNOT CHALLENGE THE INSUFFICIENCY OF REASONS AT THIS STAGE AND ACCORDINGLY, IT IS HELD T HAT THE REOPENING OF THE ASSESSMENT WAS VALID. THE SAME IS UPHELD AND THE ADDITION MADE BY THE ASSESSING OFFICER IS ALSO CONFIRMED BECAUSE THE APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE T HE GROUND T AKEN. 6. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 7. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION . 8. I FIND THAT THERE IS NO DISPUTE THAT THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND THAT IT IS A CASE OF REOPENING BEYOND FOUR YEARS AND THERE IS NOT EVEN AN ALLEGATION BY THE REVENUE THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY A LL MATERIAL FACTS NECESSARY FOR ASSES SMENT. THE CONDITIONS UNDER FIRST PROVISO TO SECTION 147 ARE THUS NOT SATISFIED. IN THIS VIEW OF THE MATTER, THE VERY INITIATION OF REASSESSMENT PROCEEDING ON THE FACTS OF THIS CASE IS VITIATED IN LAW. 9. AS FOR LD. CIT(A) S OBSERVATION THAT AS THE APPE LLANT HAS NOT BEEN ABLE TO RAISE OBJECTION AGAINST REOPENING BEFORE TH E AO AND PARTICIPATED IN THE REASSESSMENT PROCEEDINGS , I FIND IT IS FACTUALLY A ND LEGALLY INCORRECT . THE ASSESSEE S PARTICIPATION IN THE REASSESSMENT PROCEEDINGS DOES NOT ACT TO THE PR EJUDICE OF HIS LEGAL RIGHTS TO TH E ASSUMPTION OF JURISDICTION. I, THEREFORE, QUASH THE REASSESSMENT. ITA NO . 570 / AHD/ 20 1 5 ASSESSMENT YEAR: 2 0 08 - 09 PAGE 6 OF 6 10. AS I HAVE DECIDED THE ISSUE OF JURISDICTION AGAINST THE ASSESSING OFFICER, I SEE NO NEED TO ADDRESS MYSELF TO THE MERITS OF THE CASE. THAT ASPECT OF THE MATTER IS WHOLLY ACADEMIC. 11 . IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF NOVEMBER, 2015. SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) AHMEDABAD , THE 12 TH DAY OF NOVEMBER , 2015 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNA L AHMEDABAD BENCHES, AHMEDABAD