Assistant Commissioner of Income-tax, V. M/s. Sanand Properties Pvt. Ltd., Pune

ITA 612/PUN/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6989 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANTKUMAR C LEUVA
• Keywords: Business income; Maximum Marginal Rate
• Section: 143(3); 133A; 115JB; 80IB; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , # , % & BEFORE SHRI R.K. PANDA, AM & SHRI VIKAS AWASTHY, JM . / ITA NO. 612/PUN/2015 %( ( / ASSESSMENT YEAR : 2009-10 ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 6, PUNE. .. APPELLANT VS. M/S.SANAND PROPERTIES PVT LTD., SURVEY NO.177/2, DESAI HOUSE, DHOLE PATIL ROAD, PUNE 411001. PAN: AAHCS3227K .. RESPONDENT ASSESSEE BY : SMT. DEEPA KHARE DEPARTMENT BY : SHRI HEMANT KUMAR C. LEUVA DATE OF HEARING : 08-03-2017 DATE OF PRONOUNCEMENT : 10-03-2017 / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 08-02-2015 OF THE CIT (A)4, PUNE RELATING TO A.Y. 2009-1 0. 2. THE REVENUE IN THE GROUNDS OF APPEAL HAS CHALLENGED THE ORDER OF THE CIT(A) IN DELETING THE PENALTY OF RS.1,78,25,925/- LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE INCOME TAX ACT. 2 ITA NO.612/PUN/2015, A.Y: 2009-10 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEVELOPING AND PROMOTING REAL ESTATE. IT FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 21/10/2009 DECLARING TOTAL INCOME OF RS.1,12,21,203/- WHICH WAS SUBSEQUENTLY REVISED ON 13/09/ 2010 WHEREIN TAX WAS COMPUTED U/S 115 JB AFTER INCLUDING THE IN COME IT RECEIVED FROM THE AOP IN WHICH IT WAS A MEMBER. A SURVEY ACTION U/S 133A OF THE INCOME TAX ACT WAS CARRIED OUT BY THE DEPARTMEN T IN THE CASE OF THE ASSESSEE ON 23/12/2010 DURING WHICH TH E STATEMENT OF ASHOK V. SURATWALA, DIRECTOR OF THE ASSESSEE COMPANY W AS RECORDED U/S 131 OF THE INCOME TAX ACT. THE ASSESSM ENT WAS COMPLETED U/S 143(3) ON 02.05.2011 AT AN INCOME OF RS.5,24,44,614/-. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAD HELD THAT THE SHARE OF PROFIT RECEIVED B Y THE ASSESSEE FROM THE AOP M/S FORTALEZA DEVELOPERS WAS BUSINESS INCOM E AND NOT SHARE OF PROFITS. THUS THE EXEMPTION CLAIMED BY THE A SSESSEE ON THE RECEIPTS U/S 167B(2) WAS DENIED. THIS ACTION OF THE AS SESSING OFFICER WAS CONFIRMED BY THE CIT(A) BY HOLDING THAT SINCE THE AMOUNT RECEIVED FROM THE AOP WAS NOT SHARE OF PROFIT BUT A CONS IDERATION FIXED AT A CERTAIN PERCENTAGE OF A GROSS SALE PROCEEDS IN LIEU OF TRANSFER OF DEVELOPMENT RIGHTS, THE SAME AMOUNTED TO BUS INESS RECEIPTS AND THE PROVISION OF SEC.67A, SEC.86 & SEC.167B HA D NO APPLICATIONS. THE ASSESSING OFFICER THEREAFTER INITIATED PENAL TY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT. THE SUBMISSION O F THE ASSESSEE THAT THE ISSUE IS A DEBATABLE ONE AND DOES NO T AMOUNT TO FURNISHING OF INACCURATE PARTICULARS WAS REJECTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER FURTHER NOTED THAT THOUGH T HE ASSESSEE 3 ITA NO.612/PUN/2015, A.Y: 2009-10 HAD COMPUTED TAXABLE INCOME U/S 115JB OF THE ACT, HOW EVER, IT HAS EXCLUDED AN AMOUNT OF RS.5,89,91,145/- RECEIVED FROM THE AO P IN THE COMPUTATION OF INCOME BY CLAIMING THAT THE SAID INCOME IS ALREADY TAXED IN THE HANDS OF THE AOP AND THE PROFITS RE CEIVED FROM AOP IS NOT TAXABLE U/S 167B(2) OF THE ACT. RELYING ON THE DECISION OF CIT(A) THAT WHAT THE ASSESSEE HAD RECEIVED FROM THE AOP WAS NOT SHARE OF PROFIT BUT A CONSIDERATION FIXED AT A CERTAIN PER CENTAGE OF A GROSS SALE PROCEEDS IN LIEU OF TRANSFER OF DEVELOPMENT RIG HTS AND THEREFORE THE AMOUNT RECEIVED WAS CHARGEABLE TO TAX AN D NOT EXEMPT FROM TAX, THE ASSESSING OFFICER LEVIED PENALTY OF RS.1,78,25,925/ - UNDER THE PROVISION OF SECTION 271(1)(C) R.W. EXPLANATION 1 THERETO. 4. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT FULL PARTICULARS OF INCOME HAD BEEN FURNISHED. THE SHARE FROM THE AOP WAS D ULY REFLECTED IN THE PROFIT & LOSS ACCOUNT AND THE SAME WAS ALSO DULY REFLECTED SEPARATELY IN THE COMPUTATION OF INCOME AS A DE DUCTION IN THE LIGHT OF SECTIONS 86 AND 167B. IT WAS ARGUED THAT THE MUMBAI BENCH OF THE TRIBUNAL HAS HELD IN THE CASE OF THE AOP FOR ASSESSMENT YEARS 2008-09 & 2009-10 THAT THERE CANNOT BE ANY CA RVING OUT OF THE SHARE OF PROFITS OF MEMBERS OF THE AOP FOR DISALLOWANCES. I T WAS POINTED OUT THAT NO PENALTY CAN BE LEVIED WHERE TWO VI EWS ARE POSSIBLE AND THE ISSUE INVOLVED IS DEBATABLE. IT WAS FINALLY ARGUED THAT THE QUANTUM APPEALS FILED BEFORE THE TRIBUNAL FOR ASS ESSMENT YEARS 2008-09 & 2009-10 HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 21.03.2014. 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE A ND OBSERVING THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOU R OF THE 4 ITA NO.612/PUN/2015, A.Y: 2009-10 ASSESSEE THE LD. CIT(A) CANCELLED PENALTY LEVIED BY THE ASS ESSING OFFICER. 5.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) REVENUE IS IN A PPEAL BEFORE US. 6. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). WE FIND THE TRIBUNAL IN ASSESSEES OWN CAS E IN ITA NOS.1860/PN/2012 & 2446/PN/2012 ORDER DATED 21-03-20 14 FOR A.YRS. 200910 & 2008-09 RESPECTIVELY HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND UPHELD BY CIT(A) BY OBSE RVING AS UNDER : 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND IN THE INSTANT CASE, THE ASSESSEE ALONG WITH M/S. RAVIRAJ KOTHARI AND COMPANY (RKC) FORMED AN AOP NAMELY M/S. FORTALEZA DEVELOPER S FOR THE PURPOSE OF DEVELOPING AND CONSTRUCTING A HOUSING PR OJECT, NAMELY, 'FORTALEZA' ON THE LAND SITUATED IN S.NO.210 AT YER AWADA, PUNE, THE DEVELOPMENT RIGHTS OF WHICH WERE ACQUIRED BY THE AS SESSEE COMPANY FROM THE OWNERS OF THE LAND. CLAUSE 7 OF THE AOP AG REEMENT PROVIDES THE REVENUE SHARING RATIO BETWEEN THE TWO ENTITIES AS PER WHICH THE SALES PROCEEDS OF THE UNITS WERE TO BE DEPOSITED IN A JOINT ACCOUNT AND WOULD BE SHARED AT THE RATIO OF 35% AND 65% BY THE ASSESSEE AND RKC RESPECTIVELY. DURING THE YEAR THE ASSESSEE RECE IVED RS.5,89,91,145/- FROM THE SAID AOP AND HAS SHOWN TH E SAME AS ITS SHARE OF PROFIT FROM AOP UNDER THE HEAD 'OTHER INCO ME' IN THE PROFIT AND LOSS A/C. IN THE STATEMENT OF TOTAL INCOME FILE D WITH THE RETURN, THE ASSESSEE EXCLUDED THIS AMOUNT FROM THE TOTAL INCOME ON THE GROUND THAT THE SAID INCOME WAS ALREADY TAXED IN THE HANDS OF AOP AND THE SHARE OF PROFIT RECEIVED FROM AOP IS NOT TAXABLE AS PER SEC. 167B OF THE I T ACT. ON THE OTHER HAND, THE CASE OF THE ASSESSI NG OFFICER IS THAT THE ASSESSEE HAS NOT RECEIVED SHARE OF PROFIT FROM THE AOP BUT HAS RECEIVED CONSIDERATION IN THE FORM OF 35% SHARE IN THE GROSS SALE PROCEEDS AGAINST DEVELOPMENT RIGHTS IN LAND SURREND ERED BY THE ASSESSEE TO THE OTHER MEMBER OF AOP AND FINALLY TO THE BUYERS OF UNITS IN THE PROJECT UNDERTAKEN BY THE AOP. THEREFORE, TH E POINT FOR DETERMINATION IN THE PRESENT CASE IS AS TO WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE AOP REPRESENTING 35% OF GROSS SALE PROCEEDS WAS A PROFIT SHARING ARRANGEMENT AS CLAIME D BY THE ASSESSEE OR IT IS A MERE CONSIDERATION IN LIEU OF S URRENDER OF DEVELOPMENT RIGHTS IN THE LAND TO RKC AS OBSERVED B Y THE ASSESSING OFFICER. 5 ITA NO.612/PUN/2015, A.Y: 2009-10 7.1 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.FORTALEZA DEVELOPERS VS. ITO AND VIDE ITA NO.36 86/MUM/2012 FOR A.Y. 2008-09 AND ITA NO.3687/MUM/2012 FOR A.Y. 2009-10 ORDER DATED 13- 09-2013 HAD AN OCCASION TO DECIDE THE ISS UE IN CASE OF THE AOP WHICH READS AS UNDER: '2. THE ASSESSEE HAS RAISED ONE COMMON GROUND IN THESE APPEALS. THE GROUND RAISED FOR THE ASSESSMENT YEAR 2008-09 AS UNDER: '1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C!T(A) ERRED IN CONFIRMING THE REDUCTIO N OF BUSINESS INCOME BY RS. 14,64,64,961/- BEING THE SHA RE OF PROFIT OF ONE THE MEMBERS OF THE APPELLANT AOP ERRO NEOUSLY HOLDING THAT THE AGREEMENT ENTERED INTO BETWEEN THE MEMBERS OF THE AOP IS FOR SHARING OF THE REVENUE AN D NOT FOR SHARING OF THE NET PROFIT. REDUCTION OF BUSINES S INCOME BEING BAD IN LAW, THE SAME NEEDS TO BE CANCELLED AN D RETURNED BUSINESS INCOME AND CONSEQUENTIAL CLAIM U/ S 80IB(10) ON THAT AMOUNT NEEDS TO BE ACCEPTED. 3. WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR A ND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE N OTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IS ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 12.10.2012 IN ITA NO.2648/2012 IN PARA 5.5. T O 5.7 AS UNDER: '5.5 WE HAVE CAREFULLY CONSIDERED THE VERSION OF LD . CIT IN THE LIGHT OF AVAILABLE ON OUR RECORD. WE HAVE CAREF ULLY GONE THROUGH THE CLAUSE-7 OF THE AGREEMENT AND THE DISTR IBUTION OF REVENUE BY THE ASSESSEE IN ITS ACCOUNT. THE DIST RIBUTION OF THE REVENUE IN THE ACCOUNT OF THE ASSESSEE IS IN ACCORDANCE WITH INTENT AND PURPOSE OF CLAUSE-7 OF T HE AGREEMENT. ACCORDING TO CLAUSE-7 OF THE AGREEMENT S PPL IS ENTITLED TO 35% SHARE OF THE GROSS SALE PROCEEDS OF THE UNITS INCLUSIVE OF THE VALUE OF THE LAND. ACCORDING TO DI STRIBUTION IN THE ACCOUNT OF THE ASSESSEE SPPL HAS RECEIVED RS . 15.11 CRORE WHICH IS 35% OF GROSS SALE PROCEEDS OF THE UN IT AMOUNTING TO RS.43. 17 CRORES. A SUM OF RS. 11.62 C RORE IS CREDITED TO THE ACCOUNT OF SPPL ON ACCOUNT OF LAND ETC. AND RS.3.49 CRORE IS CONSIDERED AS PROFIT SHARE OF SPP L. OUT OF BALANCE 65%, AFTER INCLUDING THE MSEB AND INCIDENTA L CHARGES AND REDUCING THE DEVELOPMENTAL CHARGES A SU M OF RS. 10.76 CRORE HAS BEEN CONSIDERED AS PROP SHARE O F RRKC. THEREFORE, THE DISTRIBUTION OF PROFIT MADE BY THE ASSESSEE BETWEEN ITS MEMBERS IS IN ACCORDANCE WITH CLAUSE 7 OF THE AGREEMENT. THE INTERPRETATION OF CL AUSE-7 SOUGHT TO BE ADOPTED BY LD. CIT WILL BE AGAINST THE VERY INTENT AND PURPOSE FOR WHICH THE ASSESSEE AOP HAS B EEN FORMED AND IF SUCH INTERPRETATION IS ADOPTED IT WIL L TANTAMOUNT TO DENIAL OF EXISTENCE OF AOP WHICH IS N OT EVEN THE CASE OF LD. CIT. IT HAS ALREADY BEEN POINTED OU T THAT 6 ITA NO.612/PUN/2015, A.Y: 2009-10 AOP IS A SEPARATE AND DISTINCT ASSESSABLE ENTITY AN D IS ALSO ENTITLED TO CLAIM THE DEDUCTIONS PERMITTED UND ER THE INCOME TAX ACT PROVIDED IT FULFIL THE CONDITIONS LA ID DOWN IN THE SECTION GOVERNING THAT DEDUCTION. THE ASSESSEE AOP IN THE PRESENT CASE HAS BEEN ASSESSED AS AOP AND FOUND TO HAVE FULFILLED THE CONDITION LAID DOWN IN SECTION 8 0IB(10) AND HAS BEEN HELD TO BE ELIGIBLE FOR SUCH DEDUCTION . THE QUANTUM OF DEDUCTION UNDER SECTION 80IB (10) WILL D EPEND ON THE INCOME EARNED FROM ELIGIBLE PROJECT. THE QUA NTUM OF DEDUCTION WILL NOT DEPEND UPON THE MODE OF DISTRIBU TION OF SHARES AMONGST THE MEMBERS OF AOP AS INCOME OF AOP IS TAXABLE AT MAXIMUM MARGINAL RATE. THEREFORE, MANNER IN OVER ELIGIBLE QUANTUM OF DEDUCTION UNDER SECTION U/ S. 80IB (10) AS THE ELIGIBLE QUANTUM WILL BE GROSS RECEIPTS FROM THE PROJECT REDUCED BY EXPENSES INCURRED ON THE PROJECT . IT IS NOT EVEN THE CASE OF LD. CIT THAT ASSESSEE AOP IS N OT ENTITLED TO GET THE BENEFIT OF DEDUCTION UNDER SECT ION 80IB (10). THE ONLY OBJECTION OF LD. CIT IS THAT DISTRIB UTION OF REVENUE IN THE ACCOUNT OF THE ASSESSEE IS INAPPROPR IATE AND BY THIS MANNER ASSESSEE HAS BEEN BENEFITED BY LARGE R DEDUCTION IN PLACE OF SMALLER DEDUCTION AVAILABLE T O IT. IN OUR OPINION SUCH OBSERVATIONS OF LD. CIT ARE INCORR ECT, FIRSTLY, ON THE GROUND THAT EVEN DISTRIBUTION OF RE VENUE IN THE BOOKS OF ACCOUNT OF THE-ASSESSEE CANNOT BE SAID TO BE CONTRARY TO THE PURPOSE AND INTENT DESCRIBED IN CLA USE-7 OF THE AGREEMENT. SECONDLY, THE ALLOWABILITY OR OTHERW ISE OF DEDUCTION UNDER SECTION 80IB (10) IS NOT DEPENDENT UPON THE MANNER IN WHICH THE PROFIT HAS BEEN DISTRIBUTED AMONG THE MEMBERS OF AOP BUT IT DEPEND UPON THE FULFILMEN T OF THE CONDITIONS LAID DOWN IN THAT SECTION AND ALSO T HE DEDUCTION IS AVAILABLE TO AN UNDERTAKING AND NOT TO THE INDIVIDUAL CONSTITUENT OF AN UNDERTAKING. 5.6 WE HAVE ALSO NOT FOUND ANY FORCE IN THE SUBMISS ION LD. DR THAT 35% SHARE ALLOCABLE TO SPPL WAS IN THE NATU RE OF OVERRIDING TITLE. CLAUSE-7 OF THE AGREEMENT WHICH H AS BEEN SOUGHT TO BE INTERPRETED BY LD. CIT DR IN THIS MANN ER DOES NOT INDICATE THAT 35% OF THE GROSS REVENUE TO BE SH ARED BY SPPL WAS IN THE NATURE OF OVERRIDING TITLE, THEREFO RE, THIS ARGUMENT OF LD. CIT DR HAS TO BE REJECTED AND IT IS TO BE HELD THAT 35% SHARE RECEIVED BY SPPL WAS NOT IN THE NATURE OF OVERRIDING TITLE TO THE REVENUE BUT IT IS ONLY SHARE OF PROFIT OF SPPL. 5.7 IN VIEW OF ABOVE DISCUSSION IT IS HELD THAT THE IMPUGNED ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTEREST OF REVENUE ON ACCOUNT OF ALLOCATION OF PRO FIT BETWEEN MEMBERS AS PER ACCOUNTS OF THE ASSESSEE AS ALLOCATION OF PROFIT IN THE ACCOUNTS OF THE ASSESSE E IS IN ACCORDANCE WITH CLAUSE-7 OF THE AGREEMENT AND MANNE R OF ALLOCATION OF PROFIT IN THE ACCOUNT CANNOT ALTER TH E QUANTUM OF DEDUCTION AVAILABLE TO AOP UNDER SECTION 80 IB(1 0). 7 ITA NO.612/PUN/2015, A.Y: 2009-10 4. THE FACTS FOR THE ASSESSMENT YEAR 2007-08 AND FO R THE ASSESSMENT YEARS UNDER CONSIDERATION ARE IDENTICAL AS THIS ISSUE IS REGARDING THE CLAUSE 7 OF AOP AGREEMENT DATED 29 .4.2003. ACCORDINGLY FOLLOWING THE EARLIER ORDER OF THIS TRI BUNAL WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE ORDERS OF THE AUTHORITIES BELOW QUA THIS ISSUE SET ASIDE.' 7.2 SINCE THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF THE AOP HAS CATEGORICALLY HELD THAT 35% SHARE RECEIVED BY S PPL WAS NOT IN THE NATURE OF OVERRIDING TITLE TO THE REVENUE BUT IS ON LY SHARE OF PROFIT OF SPPL, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE A ND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO NOTICE AGAINST THE ORDER OF THE TRIBUNAL THE GROUNDS RAISED BY THE ASSESSEE HAVE TO BE ALLOWED. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) AND A LLOW THE GROUNDS RAISED BY THE ASSESSEE. 7. SINCE THE VERY ADDITION WHICH IS THE BASIS FOR LEVY OF PE NALTY HAS BEEN DELETED BY THE TRIBUNAL IN THE QUANTUM APPEAL, THEREFORE, THE PENALTY DOES NOT SURVIVE. WE, THEREFORE, DO NOT FIND A NY INFIRMITY IN THE ORDER OF CIT(A) CANCELLING THE PENALTY LEVIED BY THE A SSESSING OFFICER U/S 271(1)(C) OF THE INCOME TAX ACT. ACCORDINGLY, THE ORDER OF THE CIT(A) CANCELLING THE PENALTY IS UPHELD AND THE GROUN DS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 10 TH DAY OF MARCH, 2017. SD/- SD/- ( ( # / VIKAS AWASTHY) (. . / R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER / PUNE; / DATED : 10 TH MARCH, 2017 S S G G R R 8 ITA NO.612/PUN/2015, A.Y: 2009-10 , -%/# 0# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. () / THE CIT(A)-4, PUNE 4. / THE PR.CIT-3, PUNE 5. , ! , # , / DR, ITAT, B BENCH, PUNE. 6. & / GUARD FILE. / BY ORDER, / / TRUE COPY / / / ASSISTANT REGISTRAR, ! , / ITAT, PUNE