SKYLINE GREAT HILLS, MUMBAI V. ITO WD 21(3)(2), MUMBAI

ITA 6618/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3744 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Keywords: Unexplained investment; Sale consideration of property below Jantri Value; Capital asset; Business income; Question of law; Deemed dividend
• Section: 50C; 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, M UMBAI BEFORE S/SHRI B.R.MITTAL (JM) AND RAJENDRA (AM) . . , !' !' !' !' , !# !# !# !# ! !! ! $ $ $ $ . /I.T.A. NO.6618/M/2012 ( % % % % & & & & / ASSESSMENT YEAR:2009-2010) SKYLINE GREAT HILLS, B-204, SKYLINE VILLA NAVBHARAT COMPOUND, NEAR TRINTY SOCIETY, POWAI, MUMBAI-76 % % % % / VS. ITO, WARD 21(3)(2), BUILDING, C-11, 5 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA, MUMBAI-51 ' !# ./ ( ./PAN/GIR NO. : ABAFS 1107 R ( ') /APPELLANT ) .. ( *+') / RESPONDENT ) ') , ! / APPELLANT BY : SHRI VIJAY MEHTA *+') - , ! /RESPONDENT BY : SHRI GIRIJA DAYAL % - .# / DATE OF HEARING: 19.3.2013 /0& - .# /DATE OF PRONOUNCEMENT: 8.5.2013 !1 / O R D E R PER B.R.MITTAL, JM: THE ASSESEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2009-2010 AGAINST ORDER DATED 21.9.2012 OF LD CIT(A)-32, MUMBAI ON FOLLOWI NG GROUNDS: 1.1 THE LD. CIT (A) ERRED IN CONFIRMING THE ADDI TION OF RS.23,63,010/- U/S 2(22)(E) OF THE I.T. ACT 1961, NOT APPRECIATING THAT THE APPELLANT FIRM WAS NOT A REGISTERED AS WELL AS BENEFICIAL SHARE HO LDER OF THE COMPANY, M/S. SKYLINE MANSIONS PVT. LTD. AND ACCORDINGLY THE PROVISIONS OF SECTION 2(22)(E) WERE NOT ATTRACTED TO THE AMOUNT OF SECURI TY, DEPOSIT RECEIVED BY THE APPELLANT FIRM FROM M/S. SKYLINE MANSIONS PV T. LTD. 1.2 THE LD CIT (A) ERRED IN CONFIRMING THE ADDITI ON OF RS.23,63,010/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE IT. ACT 1961, O N ACCOUNT OF DEPOSIT RECEIVED FROM M/S. SKYLINE MANSIONS PVT. LTD. TOWAR DS JOINT DEVELOPMENT OF LAND FALLING UNDER C.T.S NO.38, VILLAGE TIRANDAZ , POWAI, MUMBAI, IN SPITE OF ARRIVING AT THE CONCLUSION THAT THE JOINT DEVELOPMENT AGREEMENT DT. 4TH APRIL 2008 REPRESENTED A GENUINE BUSINESS T RANSACTION. I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 2 1.3 THE LD CIT (A) ERRED IN ARRIVING AT THE CONCLU SION THAT THE SECURITY DEPOSIT RECEIVED BY THE APPELLANT FIRM FROM M/S. SK YLINE MANSIONS PVT. LTD. IN RESPECT OF THE AGREEMENT FOR JOINT DEVELOPM ENT OF PROPERTY WAS PARTLY FOR BUSINESS CONSIDERATIONS AND PARTLY FOR N ON-BUSINESS CONSIDERATIONS. 2.1 THE LD CIT (A) ERRED IN ENHANCING THE ASSESSED INCOME BY A SUM OF RS.28,41,34,500/- IN RESPECT OF A NEW SOURCE BEING BUSINESS INCOME ALLEGEDLY ARISING FROM SALE OF FSI UNDER JOINT DEVE LOPMENT AGREEMENT DT. 4 APRIL 2008. 2.2 THE LD CIT (A) ERRED IN ENHANCING THE INCOME I N RESPECT OF A NEW SOURCE WHICH WAS NOT CONSIDERED BY THE ID AO IN THE ASSESSMENT NOR WAS ANY GROUND IN RESPECT THEREOF RAISED BEFORE THE ID CIT(A). 3. ON THE MERITS OF ADDITION OF RS. 28,41,34,500/- (ENHANCED INCOME) AS BUSINESS INCOME ARISING ON SALE OF FSI. 3.1 THE LD. CIT (A) ERRED IN ARRIVING AT THE CONCL USION THAT THE JOINT DEVELOPMENT AGREEMENT DT. 4TH APRIL 2008 LED TO BUS INESS INCOME OF RS. 28,41,34,500/- ARISING IN THE HANDS OF THE APPELLAN T IN THE YEAR UNDER APPEAL. 3.2 THE LD. CIT (A) ERRED IN NOT APPRECIATING THAT UNDER THE JOINT DEVELOPMENT AGREEMENT, THE APPELLANT HAD NOT SOLD O R TRANSFERRED FSI BUT HAD ENTERED INTO A BUSINESS TRANSACTION TO COMM ERCIALLY EXPLOIT THE POTENTIAL OF DEVELOPMENT RIGHTS HELD BY THE ASSESSE E FIRM ALONGWITH THE OWNER OF ADJOINING PLOT OF LAND. 3.3 THE LD. CIT (A) ERRED IN NOT APPRECIATING THAT TILL THE TIME THE REGULATORY SANCTIONS/PERMISSIONS WERE FINALLY OBTAI NED ON 1ST FEB. 2011 AND LICENSE TO ENTER UPON THE SAID PROPERTY WAS GRA NTED ON 25.04.2011 IN RESPECT OF THE LAND IN QUESTION, THERE WAS NO TRANS FER OF SIGNIFICANT RISKS AND REWARDS IN FAVOUR OF A THIRD PARTY LEADING TO G ENERATION OF REVENUE IN THE HANDS OF THE APPELLANT. 3.4 THE LD. CIT (A) ERRED IN DETERMINING THE PROFI T ON SALE OF FSI BY TAKING INTO ACCOUNT THE VALUE AS PER STAMP VALUATIO N AUTHORITY AS THE CONSIDERATION FOR SALE NOT APPRECIATING THE FACT THAT AS THE DEVELOPMENT RIGHTS WERE HELD BY THE APPELLANT AS STOCK-IN-TRAD E, THE VALUE AS PER STAMP VALUATION AUTHORITY HAD NO ROLE TO PLAY IN WO RKING OF PROFIT/INCOME. 2. IN RESPECT OF GROUND NO.1 OF APPEAL, THE RELEVAN T FACTS GIVING RISE TO THIS APPEAL ARE THAT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPING REAL ESTATE. FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N, ASSESSEE FILED THE RETURN OF INCOME ON 26.9.2009 DECLARING TOTAL INCOME AT RS.11 ,77,550/-. DURING THE COURSE OF I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 3 ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT ASSESSEE FIRM HAS SHOWN DEPOSIT OF RS.54,68,90,000/- FROM M/S. SKYLINE MANS IONS PVT LTD., (FORMERLY KNOWN AS BAHUPRIYA PROPERTIES PVT LTD.,), HEREINAFTER TO BE REFERRED IN SHORT SMPL. AO ASKED THE ASSESSEE TO GIVE NATURE OF DEPOSIT, PURPOSE FOR DE POSIT AND TO GIVE COPY OF AGREEMENT EXECUTED IN THIS REGARD, IF ANY. IN RESPONSE THERE TO, ASSESSEE VIDE LETTER DATED 12.9.2011 SUBMITTED AS UNDER: THE ASSESSEE HAS RECEIVED DEPOSIT FORM M/S BAHUPRI YA PROPERTIES PVT. LTD. TOWARDS THE PROPOSED JOINT DEVELOPMENT OF LAND BEARING S.NO. 38 AT VILLAGE TIRANDAZ. A PORTION OF THE LAND FALLING UND ER S.NO. 38 IS HELD BY M/S. BAHUPRIYA PROPERTIES PVT. LTD. SIMILARLY, THE ASSESSEE ALSO HOLDS A PART OF THE LAND FALLING UNDER S. NO. 38 AT VILLAGE TIRANDAZ. THE LAND HELD BY THE ASSESSEE APPEARS AS PART OF STOCK IN TRADE U NDER SCHEDULE F OF THE BALANCE SHEET AT 31 ST MARCH_2009. BOTH THE PARTIES INTEND TO DEVELOP TH E SAID LAND JOINTLY. PRESENTLY, THE LAND IS UNDER NO DEVELOPMENT ZONE (NDZ) AS PER THE PREVALENT DEVELOPMENT REGULATIONS OF BMC C. ACCORDINGLY, NO DEVELOPMENT IN FORESEEABLE FUTURE IS ANTICIPATED BY THE PARTNERS OF THE ASSESSEE FIRM. 3. ASSESSING OFFICER HAS STATED THAT ASSESSEE HAS NOT SUBMITTED ANY AGREEMENT IN THIS REGARD. THAT ASSESSEE WAS AGAIN ASKED VIDE ORD ER SHEET NOTING DATED 13.09.2011 TO GIVE COPY OF AGREEMENT ENTERED INTO WITH SMPL. THAT ASSESSEE FINALLY SUBMITTED COPY OF THE AGREEMENT ALONGWITH ITS LETTER DATED 03.11.2011 . THE RELEVANT PART OF THE SAID LETTER IS REPRODUCED BY THE ASSESSING OFFICER IN PARA 5.2 AS UNDER: THE DEPOSIT RECEIVED FROM M/S. BAHUPRIYA PROPERTIE S PVT. LTD. IS TOWARDS THE JOINT DEVELOPMENT AGREEMENT DATED 04.04.2008 BE TWEEN THE SAID COMPANY AND THE ASSESSEE FIRM. THE JOINT DEVELOPME NT AGREEMENT IS EXECUTED WITH REGARDS TO JOINT DEVELOPMENT OF CONTI GUOUS PIECES OF LANDS OWNED BY BOTH THE PARTIES INDEPENDENTLY AT VILLAGE TIRANDAZ, NEAR POWAI, MUMBAI. 4. ASSESSING OFFICER AFTER CONSIDERING THE AGREEMEN T AND SHAREHOLDING PATTERN OF SMPL HAS STATED THAT ASSESSEE HAS ACCEPTED DEPOSITS FROM ITS GROUP COMPANIES I.E. SMPL IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTEREST ED. THAT ASSESSING OFFICER HAS GIVEN DETAILS OF PARTNERS OF THE ASSESSEE FIRM AND SHAREH OLDING PATTERN OF SMPL AT PAGE 3 IN PARA 5.3 OF THE ASSESSMENT ORDER AS UNDER: I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 4 5. ASSESSING OFFICER HAS STATED THAT IN THE FINANCI AL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, SMPL HAD RESERVES AND SUR PLUS TO THE TUNE OF RS.23,63,010/-. ASSESSING OFFICER DOUBTED GENUINENESS OF THE AGREEM ENT DATED 4.4.2008 UNDER WHICH ASSESSEE HAS STATED TO HAVE RECEIVED DEPOSIT FROM S MPL TOWARDS JOINT DEVELOPMENT OF LAND BEARING S.NO.38 AT VILLAGE TIRANDAZ, POWAI, MU MBAI. HE HAS STATED THAT TRUE NATURE OF THE SAID AMOUNT IS IN THE NATURE OF LOAN OR ADVA NCE AS CONTEMPLATED BY SECTION 2(22)(E) OF THE ACT. THE ASSESSEES STORY OF FOR MATION OF JOINT VENTURE & JOINT VENTURE DEVELOPMENT AGREEMENT IS AN AFTER THOUGHT TO AVOID APPLICATION OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ASSESSING OFFICER AFTER CONSI DERING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NATIONAL TRAVEL S ERVICES, 347 ITR 305/249 CTR 540 HAS MADE THE ADDITION OF RS.23,63,010/- U/S.2(22)( E) OF THE ACT, THE EXTENT OF RESERVES AND SURPLUS AVAILABLE DURING THE ACCOUNTING YEAR RE LEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THUS, AO COMPLETED THE ASSESSMENT A T RS.35,60,560/-. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 6. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT THE AO DID NOT APPRECIATE THE IMPORT OF TRANSACTIONS AS PER DEVELOPMENT AGREEMENT DATED 4.4.2008, WHICH WAS A I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 5 COMMERCIAL TRANSACTION BETWEEN THE ASSESSEE AND SMP L. THAT THE PARTNERS OF THE ASSESSEE WERE ALSO THE SHAREHOLDERS IN SMPL, WAS ON LY INCIDENTAL. BEFORE LD CIT (A), CLAUSE 23 OF THE SAID DEVELOPMENT AGREEMENT DATED 4 .4.2008 WAS REFERRED TO AND STATED THAT IT IS SPECIFICALLY MENTIONED THAT THE PARTIES HAD ENTERED INTO THE SAID AGREEMENT ON PRINCIPAL TO PRINCIPAL BASIS AND NOTHING CONTAINED THEREIN SHALL BE DEEMED TO BE A PARTNERSHIP OR JOINT VENTURE BETWEEN THE CONCERNED PARTIES. IT WAS ALSO CONTENDED THAT AO DOUBTED THE GENUINENESS OF THE SAID AGREEMENT ON LY ON ACCOUNT OF DELAY IN REGISTERING THE AGREEMENT AS REGISTRATION WAS DONE AFTER A PERIOD OF 43 MONTHS. IT WAS CONTENDED THAT THE AGREEMENT WAS GOT REGISTERED ONL Y AFTER THE RECEIPT OF REQUISITE APPROVALS AND COMMENCEMENT CERTIFICATES FROM MUNICI PAL CORPORATION OF GREATER MUMBAI (MCGM) ON 1/2/2011. IT WAS ALSO CONTENDED TH AT THE STAMP DUTY PAID INCLUDING THE PENALTY FOR REGISTERING THE AGREEMENT DATED 4/4 /2008 ON 20/10/2011 WAS RS.78,89,100/-, WHICH IS MORE THAN 5 TIMES THE TAX LEVIED BY AO ON THE ASSESSEE U/S.2(22)(E). HENCE THE CONCLUSION OF THE ASSESSING OFFICER THAT THE AGREEMENT BETWEEN THE ASSESSEE AND SMPL WAS ONLY A MAKE BELIEF TRANSA CTION TO COVER UP THE TRANSFER OF FUNDS BY SMPL TO ASSESSEE FIRM ESTABLISHES THE FALL ACY OF THE CONCLUSION OF THE ASSESSING OFFICER. IT WAS CONTENDED THAT THE SAID AGREEMENT BETWEEN THE ASSESSEE AND SMPL IS A GENUINE TRANSACTION OF JOINT DEVELOPMENT OF LAND OW NED BY THE ASSESSEE AND SMPL AND THE BELIEF OF THE AO IS GUIDED MERELY BY SUSPICION. HENCE, THE SAID AMOUNT OF RS.54,68,90,000 WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF BUSINESS TRANSACTION, WHICH IS OUTSIDE THE AMBIT OF SECTION 2(22)(E)OF TH E ACT. 6.1 IT WAS CONTENDED THAT ASSESSEE IS NEITHER A REG ISTERED SHAREHOLDER NOR A BENEFICIAL SHAREHOLDER OF SMPL AND IN VIEW OF THE D ECISION OF ITAT SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR PRIVATE LTD 118 ITD 1 (SB) A ND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PRIVAT E LTD. 324 ITR 263 (BOM), THE ADDITION OF DEEMED DIVIDEND CAN BE MADE IN THE HAND S OF REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHAREHOLDER ONLY. 7. LD CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. LD CIT(A) HAS STATED THAT THE TEST FOR APPLICATION OF SECTION 2(22)(E) I S WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE FROM SMPL OF RS.54,68,90,000/- WAS WHOLLY TOWARDS A BUSINESS TRANSACTION ONLY OR PARTLY IT WAS IN NATURE OF BUSINESS RECEIPT S AND PARTLY FOR NON BUSINESS CONSIDERATIONS. LD CIT(A) HAS STATED THAT THE JOIN T DEVELOPMENT AGREEMENT DATED I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 6 4.4.2008 CANNOT BE SAID TO BE A MAKE BELIEF AGREEME NT. IT CANNOT BE SAID THAT THERE WAS NO ELEMENT OF BUSINESS TRANSACTION IN THE AGREE MENT DATED 4.4.2008 AND THE AMOUNT RECEIVED HAD NO ELEMENT OF BUSINESS RECEIPT AT ALL. THE RELEVANT PART OF LD CIT(A) IN REGARD TO ABOVE CONCLUSION IS AT PAGES 5 TO 6 OF THE IMPUGNED ORDER, WHICH READ AS UNDER: THE APPELLANT FIRM IS ENGAGED IN THE BUSINESS OF R EAL ESTATE DEVELOPMENT AND DURING THE YEAR THE INCOME FROM CONSTRUCTION AN D SALE OF FLATS HAS BEEN SHOWN IN THE P&L A/C. IT IS ALSO NOTED THAT TH E LAND FOR WHICH THE DEVELOPMENT RIGHTS HAVE BEEN GIVEN IS AT SURVEY NO. 38 ADMEASURING 32,262.38 SQ MTS WHOSE VALUE INCLUDING DEVELOPMENT WORK CARRIED OUT ON THE SAID LAND IS APPEARING IN SCHEDULE F OF THE B ALANCE SHEET AS STOCK IN TRADE AT RS. 14,00,10,000 AS ON 31/03/2009. ON THE OTHER HAND, THE SUM OF RS 54,68,90,000 RECEIVED FROM M/S. SKYLINE MANSI ONS PVT. LTD. IS APPEARING AS DEPOSIT IN SCHEDULE D OF BALANCE S HEET UNDER THE HEAD OTHER ADVANCES. REGARDING THE OBSERVATION OF AO OF NOT TRANSFERRING THE ASSETS TO THE JOINT VENTURE AND NOT MAINTAINING SEP ARATE BOOKS OF ACCOUNT ETC FOR THE JOINT VENTURE, I AGREE WITH THE CONTENT IONS OF THE LD. AR THAT THE AO HAS FAILED TO APPRECIATE THAT AS PER CLAUSE 23 OF THE AGREEMENT DATED 04-04-2008 IT WAS A JOINT DEVELOPMENT AGREEME NT BETWEEN THE APPELLANT AND THE COMPANY ON PRINCIPLE TO PRINCIPL E BASIS AND IT WAS NOT A JOINT VENTURE AGREEMENT AT ALL. THE AO SUSPECTED THE GENUINENESS OF THE AGREEMENT DATED 04/04/2008 ON GROUNDS THAT THE SAID AGREEMENT WAS NOT REGISTERED IMMEDIATELY AFTER 04/04/2008 AND IT WAS REGISTERED ONLY AFTER THE DATE WHEN THE AO ASKED FOR THE COPY OF THE AGREEMENT DURING THE ASSESSMENT PROCEEDINGS ON 13/09/2011. WH ETHER THE AGREEMENT DATED 04-04-2008 IS REGISTERED OR NOT OR THE FACT THAT THE SAME HAS BEEN REGISTERED AFTER DELAY OF 43 MONTHS, WOULD NOT MAKE THE AGREEMENT VOID OR NOT GENUINE. THE REGISTRATION OF DOCUMENTS AFTER DELAY IS ALSO LAWFULLY ADMISSIBLE UNDER THE REGISTRATION LAWS AFTER PAYMENT OF REQUISITE PENALTY. IN THIS CASE ALSO THE APPELLANT HAS PAID PENALTY OF RS.36,47,650/- AT THE TIME OF REGISTRATION OF CONFI RMATION DEED OF THE AGREEMENT ON 20-10-2011. THE SAID LAND IS APPEARING AS STOCK IN TRADE IN THE BALANCE SHEET OF APPELLANT AND SUBSEQUENTLY THE PLANS HAVE ALSO BEEN APPROVED AND COMMENCEMENT CERTIFICATES HAVE BEEN OB TAINED FOR CONSTRUCTION ON THE SAID LAND ALSO. HENCE THE JOINT DEVELOPMENT AGREEMENT DATED 04- 04-2008 CANNOT SAID TO BE A MAK E BELIEF AGREEMENT BECAUSE NO ONE WOULD PAY STAMP DUTY OF RS.42,41,450 /- AND PENALTY OF RS. 36,47,650/-TOTALING TO RS.78,89,100/-TO AVOID P ROVISIONS OF 2(22)(E) WHEN THE TAX ITSELF LEVIABLE ON DEEMED DIVIDEND OF RS. 23,63,010 ASSESSED BY THE AO IS MUCH LESSER. HENCE IT CANNOT BE SAID THAT THERE WAS NO ELEMENT OF BUSINESS TRANSACTION IN THE AGREE MENT DT 04.04-2008 AND THAT THE AMOUNT RECEIVED HAD NO ELEMENT OF BUSI NESS RECEIPT AT ALL. 8. LD CIT(A) HAVING HELD SO, HAS FURTHER STATED THA T THE ENTIRE AMOUNT OF RS. 54,68,90,000/- RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE BUSINESS RECEIPTS BECAUSE THE MARKET VALUE OF THE LAND ITSELF HAS BEEN VALUED BY STAMP VALUATION AUTHORITIES AT THE I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 7 TIME OF REGISTRATION OF CONFIRMATION DEED ON 20/10/ 2011 AT RS.42,41,44,500/-. LD CIT(A) HAS STATED THAT RECEIPT CAN BE BUSINESS RECE IPT ONLY WHEN IT IS RECEIVED AS PER COMMERCIAL BUSINESS CONSIDERATIONS AND NOT FOR ANY OTHER NON-BUSINESS CONSIDERATIONS EVEN IF IT IS RECEIVED FROM A PERSON WITH WHOM RECI PIENT IS HAVING BUSINESS DEALINGS. THAT THE QUANTUM OF RECEIPTS SHOULD ALSO BE COMMENS URATE WITH THE VALUE OF BUSINESS TRANSACTION ON PRINCIPLES OF COMMERCIAL PRUDENCE. LD CIT(A) HAS STATED THAT ASSESSEE HAS STATED THAT THE SAID AMOUNT RECEIVED IS SECURI TY DEPOSIT. HOWEVER, LD CIT(A) HAS STATED THAT THE SECURITY DEPOSIT IS NORMALLY TAKEN AT SMALL PERCENTAGE OF THE VALUE OF TRANSACTION OR ASSET WHICH IS SUBJECT MATTER OF THE TRANSACTION. HE HAS STATED THAT NORMALLY SECURITY DEPOSIT IS ACCEPTED IN TRANSACTIO N WHEN THE CONTRACTING PARTIES ARE NOT CLOSELY CONNECTED TO EACH OTHER TO ENSURE THE PERFO RMANCE AND PROTECT THE INTEREST OF TRANSFEROR. HE HAS STATED THAT ASSESSEE AND SMPL AR E CLOSELY CONNECTED AS PARTNERS, WERE HAVING MORE THAN 10% SHAREHOLDINGS OF SMPL AND ASSESSEE HAD ONLY GRANTED DEVELOPMENT RIGHTS OF LAND WITHOUT CONVEYING THE TI TLE. THERE WAS NO NEED AT THE FIRST PLACE TO TAKE A SECURITY DEPOSIT AT ALL FOR SUCH TR ANSACTION. IT WAS SMPL WHO WAS GOING TO DEVELOP THE LAND BY INCURRING HUGE CONSTRUCTION COST AND, THEREFORE, IF SMPL DID NOT COMPLETE THE DEVELOPMENT AS PER AGREEMENT, IT WAS S MPL WHO WAS TO SUFFER THE LOSS AND NOT THE ASSESSEE. LD CIT(A) HAS STATED THAT TH OUGH IN PRINCIPLE, THE DEPARTMENT CANNOT STEP INTO SHOES OF THE BUSINESSMAN TO DECIDE AS TO HOW HE SHOULD HAVE DONE ITS TRANSACTION BUT THE SAME NEEDS TO BE DONE AS PER CO MMERCIAL PRINCIPLES, IF ONE HAS TO CLAIM ANY PARTICULAR BENEFIT UNDER THE ACT. LD CIT (A) HAS STATED THAT IF AT ALL SOME DEPOSIT WAS CONSIDERED APPROPRIATE IN THE WISDOM OF CONTRACTING PARTIES, IT COULD HAVE BEEN TAKEN ONLY AS PER COMMERCIAL PRINCIPLES IN ORD ER TO CLAIM THAT THE ENTIRE AMOUNT WAS IN NATURE OF BUSINESS RECEIPT ONLY AND NOTHING ELSE. LD CIT(A) HAS STATED THAT IN THE AGREEMENT DATED 4.4.2008, THOUGH IT IS MENTIONE D THAT SMPL SHALL GIVE SECURITY DEPOSIT BUT THERE IS NO MENTION OF THE QUANTUM OR P URPOSE OR PERIOD OF THE SECURITY DEPOSIT. LD CIT(A) HAS STATED THAT IN ABSENCE OF A NY QUANTIFICATION OF SECURITY DEPOSIT IN AGREEMENT ITSELF, IT CANNOT BE SAID THAT ENTIRE AMO UNT OF RS. 54,68,90,000/- RECEIVED FROM SMPL IS FOR BUSINESS CONSIDERATION ONLY IN TER MS OF AGREEMENT DT.4.4.2008. THE ENTRY OF THE SUM AS SECURITY DEPOSIT IN BOOKS OF AC COUNT CANNOT BE CONCLUSIVE UNLESS IN SUM AND SUBSTANCE THEY CONFORM TO THE NATURE OF THE RECEIPTS. LD CIT(A) HAS STATED THAT AS PER CLAUSE 17 OF THE AGREEMENT, THE SECURI TY DEPOSIT WAS TO BE RECEIVED TOWARDS THE COST OF CONSTRUCTION. THOUGH COST OF 16500 SQ M TS OF CONSTRUCTED FSI, WHICH WAS THE CONSIDERATION TO BE RECEIVED AS PER THE SAID AGREEM ENT, WAS FIXED IN THE AGREEMENT IN I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 8 TERMS OF MONEYS WORTH BUT THE COST OF THE 16,500 S Q MTS OF CONSTRUCTED FSI WAS FIXED AT RS 16.5 CRORES AS THE MARKET VALUE WAS AT RS.42, 41,44,500/- BY THE STAMP VALUATION AUTHORITIES AT THE TIME OF REGISTRATION OF AGREEMEN T. LD CIT(A) HAS STATED THAT ASSESSEE COULD AT BEST TAKE 100% OF MARKET VALUE OF RS.42.4 1 CRORE FOR ENSURING THE PERFORMANCE OF CONTRACT, MEANING THEREBY THAT THE M AXIMUM AMOUNT RECEIPT ON BUSINESS CONSIDERATIONS COULD HAVE BEEN RS.42,41,44 ,500/- ONLY. SINCE THE ASSESSEE HAS RECEIVED THE SUM OF RS, 54,68,90,000/- WHICH IS MOR E THAN 100% OF MARKET VALUE ITSELF, AS PER STAMP VALUATION AUTHORITIES, THE EXCESS AMOU NT IS RECEIVED BY THE ASSESSEE ONLY DUE TO CLOSE CONNECTION BETWEEN THE ASSESSEE AND SM PL. HENCE, THE EXCESS AMOUNT OF RS.12,27,45,500/- (RS.54,68,90,000 RS.452,41,44,5 00) CANNOT BE IN THE NATURE OF RECEIPT DURING THE COURSE OF BUSINESS TRANSACTION I N PURSUANCE TO AGREEMENT DATED 4.4.2008. LD CIT(A) HAS STATED THAT THE SUCH EXCE SS AMOUNT IS IN THE NATURE OF GRATUITOUS DEPOSIT/ADVANCE WITHOUT ANY BUSINESS CON SIDERATIONS WHICH WOULD BE CLEARLY HIT BY THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T. LD CIT(A) AFTER CONSIDERING THAT THE PARTNERS OF THE ASSESSEE FIRM HAVE OVERDRAWN THE CA PITAL BY RS.19.7 CRORES AND THE NET FUNDS AVAILABLE AFTER WITHDRAWN IS ONLY RS.38.86 CR ORES AS PER BALANCE SHEET AND CONCLUDED THAT PART OF THE AMOUNT GIVEN BY SMPL WAS FOR PERSONAL USE BY PARTNERS AND NOT FOR BUSINESS CONSIDERATIONS. IN VIEW OF ABOVE, LD CIT(A) HAS HELD THAT THE EXCESS RECEIPT OF RS.12,27,45,500/- IS NOT IN THE NATURE O F BUSINESS RECEIPTS. SINCE THE RESERVES OF SMPL ARE OF RS.23,63,010/-, THE ADDITION U/S.2(2 2)(E) OF THE ACT HAS TO BE RESTRICTED TO RS.23,63,010/-. 9. IN RESPECT OF SUBMISSION OF ASSESSEE THAT NO ADD ITION U/S.2(22)(E) IS PERMISSIBLE IN THE HANDS OF THE FIRM AS IT IS NOT A REGISTERED SHARE HOLDER, LD CIT(A) HAS STATED THAT THE SAID CONTENTION OF THE ASSESSEE IS NOT TENABLE IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TRAVEL SER VICES (SUPRA), WHEREIN, IT HAS BEEN HELD THAT FOR THE PURPOSE OF SECTION 2(22)(E), PART NERSHIP FIRM THOUGH NOT A REGISTERED SHAREHOLDER, BEING A BENEFICIAL OWNER, IS TO BE TRE ATED AS SHAREHOLDER AND SUMS ADVANCED BY COMPANY TO THE FIRM HAS TO BE TREATED A S DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. LD CIT(A) HAS STATED THAT THE PARTNERS WH O ARE REGISTERED SHAREHOLDERS OF SMPL ARE HAVING MORE THAN 10% SHARES BUT WHEN IT IS THE FIRM WHICH HAS RECEIVED THE MONEY, THE DEEMED DIVIDEND U/S.2(22)(E) IS TO BE A SSESSED IN THE HANDS OF THE FIRM. LD CIT(A) HAS FURTHER STATED THAT DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PVT LTD.,(SUPRA) AND THE DECISIO N OF ITAT (SB) IN THE CASE OF BHAUMIK I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 9 COLOUR PVT LTD (SUPRA) RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE CASE. LD CIT(A) HAS STATED THAT THE HONBLE APEX C OURT HAS HELD IN THE CASE OF GOODYEAR INDIA LTD, 188 ITR 402(SC) THAT A PRECEDEN T IS BINDING ONLY FOR WHAT IS ACTUALLY DECIDED BY IT AND NOT FOR WHAT MAY REMOTEL Y FOLLOW FROM IT. LD CIT(A) HAS STATED THAT THE DECISIONS CITED ON BEHALF OF ASSESS EE ARE NOT AT ALL APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AS THEY HAVE NOT DECIDED THE QUESTION OF TAXABILITY OF SUMS RECEIVED BY FIRM U/S.2(22)(E) OF THE ACT, WHERE THE PARTNERS ARE SHAREHOLDERS AS THE FIRM HAS A DIFFERENT LEGAL STATUS AND RELATIONSHIP WITH PARTNERS IN CONTRADISTINCTION TO THE COMPANIES AND ITS SHAREHOLDERS. 10. IN VIEW OF ABOVE REASONS, LD CIT(A) HAS CONFIR MED THE ADDITION OF RS.23,63,010/- MADE BY THE AO U/S.2(22)(E) OF THE A CT. HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 11. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT AS SESSEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT WITH SMPL DATED 4.4.2008 AND UNDER THE SAID AGREEMENT, RECEIVED A SUM OF RS.54,68,90,000/- AS SECURITY DEP OSIT. ASSESSEE AS WELL AS SMPL HAVE RIGHTS IN RESPECT OF CONTIGUOUS PIECE OF LANDS AT V ILLAGE TIRANDAZ, POWAI, MUMBAI. THE SAID LAND FORMERLY WAS IN NO DEVELOPMENT ZONE AND B OTH THE PARTIES UNDER THE JOINT DEVELOPMENT AGREEMENT HAVE COME TO AN UNDERSTANDING TO JOINTLY DEVELOP THEIR LAND ON SPECIFIC TERMS AND CONDITIONS. AS PER CLAUSE 17 OF THE SAID JOINT DEVELOPMENT AGREEMENT, ASSESSEE RECEIVED SECURITY DEPOSITS. HE SUBMITTED THAT AO DOUBTED THE GENUINENESS OF THE SAID JOINT DEVELOPMENT AGREEMENT ON THE GROUND THAT IT WAS DATED 4.4.2008 BUT WAS REGISTERED ON 20.10.2011. HENCE, O N ACCOUNT OF DELAY IN REGISTERING THE AGREEMENT, AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT RECEIPTS WERE BUSINESS ADVANCE AND NOT LOANS OR DEPOSITS. LD A.R . REFERRED TO THE ORDER OF LD CIT(A) AND SUBMITTED THAT LD CIT(A) AT PAGE 6 OF THE IMPUG NED ORDER HAS HELD THAT SAID JOINT DEVELOPMENT AGREEMENT DATED 4.4.2008 CANNOT BE SAID TO BE A MAKE BELIEF AGREEMENT BECAUSE NO ONE WAS TO PAY STAMP DUTY OF RS.42,41,45 0/- AND PENALTY OF RS.36,47,650 TOTALING TO RS.78,89,100/- TO AVOID PROVISIONS OF S ECTION 2(22)(E) OF THE ACT, WHEN THE TAX ITSELF LEVIABLE ON DEEMED DIVIDEND ON RS.23,63, 010 ASSESSED BY THE AO IS MUCH LESSER. LD A.R. FURTHER SUBMITTED THAT LD CIT(A) H AS AGREED THAT UNDER THE SAID AGREEMENT, IT CANNOT BE SAID THAT THERE WAS NO ELEM ENT OF BUSINESS TRANSACTION. LD AR SUBMITTED THAT LD CIT(A) HAS CONSIDERED A PART OF T HE SAID DEPOSIT RECEIPT IN THE NATURE I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 10 OF BUSINESS RECEIPT; AND A PART OF THE SECURITY AS DEPOSIT/ADVANCE WITHOUT ANY BUSINESS CONSIDERATION. LD A.R. SUBMITTED THAT LD CIT(A) HA S APPLIED THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TRAVEL SER VICES (SUPRA) TO CONSIDER THE DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. HE SUBMITTED THA T DECISION OF NATIONAL TRAVEL SERVICES (SUPRA) AS APPLIED BY LD CIT(A) IS NOT APPLICABLE T O THE FACTS OF THE CASE. HE SUBMITTED THAT THE SAID DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA) WAS CONSIDERED BY THE ITAT MUMBAI IN THE CA SE OF M/S. BEEKAY TEX VS ACIT (I.T.A. NO.5118/M/2010 FOR A.Y. 2006-07) BY ITS ORD ER DATED 23.12.2011. THAT THE ITAT MUMBAI BENCH AFTER CONSIDERING THE SAID DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA) AND ALSO T HE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP, 313 ITR 116(RAJ) AS WELL AS THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PVT. LTD (SUPRA) AND ITAT MUMBAI (SB) IN THE CASE BHAUMIK COLOUR (P) LTD (SUP RA) HAVE HELD THAT THE AMOUNT IN THE HANDS OF THE ASSESSEE FIRM COULD NOT BE ASSESSE D AS DEEMED DIVIDEND AS THE ASSESSEE FIRM WAS NOT REGISTERED OR BENEFICIAL SHAR EHOLDER OF SHARES IN THE LENDER COMPANY NAMELY M/S. ANISH SYNTHETICS PVT LTD. LD A .R. FURNISHED A COPY OF THE SAID ORDER (SUPRA) AND SUBMITTED THAT THE FACTS OF THE C ASE OF THE ASSESSEE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNAL BY IT S ORDER DATED 23.12.2011 (SUPRA) AS THE SHARES WERE HELD BY THE PARTNERS IN THEIR INDIV IDUAL CAPACITY IN THE LENDER COMPANY NAMELY, SMPL AND NOT ON BEHALF OF THE ASSESSEE FIRM . HE SUBMITTED THAT THE FINDINGS OF LD CIT(A) THAT REASONABLE DEPOSIT COULD BE RS.42.41 CRORES, THE FIGURE AS CONSIDERED BY THE STAMP VALUATION AUTHORITY AS BUSINESS CONSIDERA TION IS NOT JUSTIFIED. ONCE LD CIT(A) HAS HIMSELF ACCEPTED THAT IT IS A BUSINESS RECEIPT, HE COULD NOT CONSIDER THAT THE AMOUNT OVER AND ABOVE RS.42.41 CORRES OUT OF TOTAL SECURIT Y DEPOSIT OF RS.54,68,90,000 IS A GRATUITOUS DEPOSIT/ADVANCE WITHOUT BUSINESS CONSID ERATION. HE SUBMITTED THAT THE CONSIDERATION IS FOR THE PARTIES TO DECIDE AND NOT FOR THE DEPARTMENT TO CONSIDER. HE SUBMITTED THAT ADDITION MADE BY LD CIT(A) U/S.2(22) (E) IS NOT JUSTIFIED. 12. ON THE OTHER HAND, LD D.R. SUPPORTED THE ORDER OF LD CIT(A). HE SUBMITTED THAT A FIRM CANNOT BE A REGISTERED SHAREHOLDER BUT COULD BE A BENEFICIAL SHAREHOLDER BECAUSE THE SHARES ARE HELD IN THE NAME OF THE PARTNERS. H E SUBMITTED THAT IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED THAT A PERSON SHOULD NOT ONLY BE A REGISTERED SHAREHOLDER BUT ALSO A BENEFICIAL SHAREHOLDER; IN THAT CASE THE PAR TNERSHIP FIRM CAN NEVER COME WITHIN THE MISCHIEF OF SECTION 2(22)(E) AND THIS WILL FRUS TRATE THE OBJECT OF SECTION 2(22)(E) OF I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 11 THE ACT. THEREFORE, IN THE CASE OF A FIRM, THE PROV ISIONS OF SECTION 2(22)(E) COULD BE APPLIED AND TO TREAT THE FIRM AS SHAREHOLDER EVEN T HOUGH IT IS NOT A REGISTERED SHAREHOLDER IN VIEW OF THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA). 13. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. 14 THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HA S RECEIVED A SUM OF RS.54,68,90,000 FROM SMPL AS SECURITY DEPOSIT, WHIC H IS ALSO APPEARING IN THE BALANCE SHEET OF THE ASSESSEE FIRM. LD CIT (A) HAS STATED IN HIS ORDER THAT THE AO HAS FAILED TO APPRECIATE THAT AS PER CLAUSE 23 OF THE AGREEMENT D ATED 4.4.2008, IT WAS A JOINT DEVELOPMENT VENTURE AGREEMENT BETWEEN THE ASSESSEE AND COMPANY VIZ; SMPL ON PRINCIPAL TO PRINCIPAL BASIS AND IT WAS NOT A JOINT VENTURE AGREEMENT AT ALL. LD CIT(A) HAS STATED THAT WHETHER THE AGREEMENT DATED 4.4.200 8 IS REGISTERED OR NOT OR THE FACT THAT THE SAME HAS BEEN REGISTERED AFTER A DELAY OF 43 MONTHS, WOULD NOT MAKE THE AGREEMENT VOID OR NOT GENUINE. LD CIT(A) HAS AGREE D THAT IT CANNOT BE SAID THAT THERE WAS NO ELEMENT OF BUSINESS TRANSACTION IN THE AGREE MENT ENTERED INTO BETWEEN THE ASSESSEE AND SMPL DATED 4.4.2008. HOWEVER, LD CIT( A) HAS DOUBTED THE TOTAL AMOUNT OF SECURITY DEPOSIT RECEIVED BY THE ASSESSEE FROM S MPL AND HAS CONSIDERED THAT THE AMOUNT TO THE EXTENT OF RS.42.41 CRORES COULD SAID TO BE FOR BUSINESS CONSIDERATION. WE FIND SUBSTANCE IN THE SUBMISSION OF LD A.R. THAT ON CE IT IS ACCEPTED THAT THERE WAS A BUSINESS TRANSACTION BETWEEN THE PARTIES AND ASSESS EE HAS RECEIVED SECURITY DEPOSIT UNDER THE SAID AGREEMENT AS PART OF THE BUSINESS TR ANSACTION, THE AMOUNT OF CONSIDERATION TO BE RECEIVED BY THE PARTIES IS FOR THE FOR THE PARTIES TO DECIDE ON THE BASIS OF COMMERCIAL PRUDENCE AND THE DEPARTMENT IS NOT JUSTIFIED TO DETERMINE THE AMOUNT ON THE BASIS OF THE VALUATION MADE BY THE ST AMP VALUATION AUTHORITY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY. THEREFORE, THE F INDING OF LD CIT(A) THAT ONLY A SUM OF RS.42,42,44,500 IS IN THE NATURE OF BUSINESS REC EIPTS AND THE BALANCE AMOUNT OF RS.12,27,45,500 OUT OF THE TOTAL RECEIPTS OF RS.54, 68,90,000 ARE RECEIVED FOR NON- BUSINESS CONSIDERATION IS NOT BASED ON COMMERCIAL B ASIS BUT MERELY ON PRESUMPTION AND ASSUMPTION. MOREOVER, WE OBSERVE THAT THE LAND HEL D BY THE ASSESSEE IS UNDISPUTEDLY SHOWN AS STOCK IN TRADE IN THE HANDS OF THE ASSESSE E AND RIGHT THEREOF HAS BEEN GIVEN FOR DEVELOPMENT TO LENDER COMPANY. WE ALSO AGREE WI TH LD CIT(A) THAT NATURE OF A I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 12 RECEIPT OR A TRANSACTION WOULD NOT BE DETERMINED ON LY BY THE NOMENCLATURE GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BUT BY SUBSTANCE O F THE COVENANTS AND ONLY CIRCUMSTANCES OF THE TRANSACTION. BE THAT AS IT MA Y, THERE IS NO DISPUTE TO THE FACT THAT LD CIT(A) HIMSELF HAS ACCEPTED THAT A PART OF THE A MOUNT RECEIVED BY THE ASSESSEE FROM SMPL IS IN THE NATURE OF BUSINESS RECEIPTS. HOWEVE R, HE HAS CONSIDERED THAT OUT OF THE TOTAL RECEIPT OF RS.54,68,90,000/-, A SUM OF RS.12, 27,45,500/- IS RECEIVED BY THE ASSESSEE FOR NON-BUSINESS CONSIDERATION AND HAS CON SIDERED IT TO BE IN THE NATURE OF GRATUITOUS DEPOSIT/ADVANCE AND THE SAID AMOUNT IS H IT BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. EVEN FOR THE SAKE OF ARGUMENT , IF IT IS CONSIDERED THAT THE SAID AMOUNT OF RS.12,27,45,500/- RECEIVED BY THE ASSESSE E FROM ITS SISTER CONCERN VIZ; SMPL IS IN THE NATURE OF GRATUITOUS DEPOSIT/ADVANCE, CAN BE IT CONSIDERED TO BE DEEMED DIVIDEND, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IN THE HANDS OF THE ASSESSEE U/S.2(22)(E) OF THE ACT.? 15. WE ARE OF THE CONSIDERED VIEW THAT, ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T ARE NOT APPLICABLE EVEN IF THE AMOUNT OF RS.12,27,45,500 IS CONSIDERED AS DEPOSIT WITH TH E ASSESSEE FOR NON-BUSINESS CONSIDERATION. ITAT SPECIAL BENCH IN THE CASE OF BHAUMIK COLOURS P. LTD (SUPRA) HAS HELD THAT THE DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF A PERSON WHO IS A REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHARE HOLDER OF THE SHARES IN THE LENDER COMPANY. THE SPECIAL BENCH HAS ALSO HELD THAT THE QUESTION OF APPLICABILITY OF LOANS AND ADVANCES GIVEN TO A CONCERN BY A COMPANY WHERE THE CONCERN TO WHICH THE LOAN IS GIVEN BY THE COMPANY IS NOT A SHAREHOLDER BUT THERE IS CO MMON PERSON WHO HAS SUBSTANTIAL INTEREST IN THE CONCERNS AS WELL AS COMPANY, EVEN I N SUCH CASE, THE LOAN OR ADVANCE CAN BE TAXED ONLY IN THE HANDS OF THE SHAREHOLDER (WHO HAS SUBSTANTIAL INTEREST IN THE CONCERN AS WELL AS IN THE COMPANY) AND NOT IN THE H ANDS OF THE CONCERNS AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THERE IS NO DISPUTE TO THE FACT THAT THE PARTNERS OF THE ASSESSEE FIRM AND THE SHAREHOLDING PATTERN OF THE LENDER COMPANY NAMELY SMPL IS AS UNDER: I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 13 16. DURING THE COURSE OF HEARING, RELIANCE WAS PLAC ED ON BEHALF OF THE ASSESSEE ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILLTOP(SUPRA). WE CONSIDER IT USEFUL TO STATE THE FACTS OF THE SAID C ASE WHICH ARE AS FOLLOWS: THE ASSESSEE WAS ONE M/S.HOTEL HILLTOP A PARTNERSH IP FIRM. THIS FIRM RECEIVED AN ADVANCE OF RS.10 LACS FROM A COMPANY M/S.HILLTOP PA LACE HOTELS (P) LTD. THE SHAREHOLDING PATTERN OF M/S.HILLLTOP PALACE HOTELS (P) LTD., WAS AS FOLLOWS: 1. SHRI ROOP KUMAR KHURANA : 23.33% 2. SMT.SAROJ KHURANA : 4.67% 3. VIKAS KHURANA : 22% 4. DESHBANDHU KHURANA: 25% 5. SHRI.RAJIV KHURANA : 25% THE CONSTITUTION OF THE FIRM HOTEL HILL TOP WAS AS FOLLOWS: 1. SHRI ROOP KUMAR KHURANA: 45% 2. SHRI.DESHBANDHU KHURANA: 55% IN THE SAID CASE, THE AO ASSESSED THE SUM OF RS.10 LACS AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT IN THE HANDS OF THE FIRM BE CAUSE THE TWO PARTNERS OF M/S.HOTEL I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 14 HILL TOP WERE HOLDING SHARES BY WHICH THEY HAD 10% VOTING POWER IN M/S.HILL TOP PALACE HOTELS (P) LTD. THEY WERE ALSO ENTITLED TO 20% OF T HE INCOME OF THE FIRM M/S.HOTEL HILL TOP. THEREFORE THE LOAN BY M/S.HILL TOP PALACE HOTE LS (P) LTD., TO THE FIRM M/S.HOTEL HILL TOP WAS TREATED AS DEEMED DIVIDEND IN THE HANDS OF M/S.HOTEL HILL TOP, THE FIRM UNDER THE SECOND LIMB OF SEC.2(22)(E) OF THE ACT. THE CIT (A) HELD THAT SINCE THE FIRM WAS NOT THE SHAREHOLDER OF THE COMPANY, THE ASSESSMENT AS D EEMED DIVIDEND IN THE HANDS OF THE FIRM WAS NOT CORRECT. THE ORDER OF THE CIT(A) W AS CONFIRMED BY THE TRIBUNAL. ON REVENUES APPEAL BEFORE THE HONBLE HIGH COURT, THE FOLLOWING QUESTION OF LAW WAS FRAMED FOR CONSIDERATION. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED TRIBUNAL WAS JUSTIFIED IN UP HOLDING THE ORDER OF LEARNED CIT(A) DELETING THE ADDITION O F RS.10 LACS AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF T HE IT ACT? THE HONBLE COURT HELD AS FOLLOWS: THE IMPORTANT ASPECT, BEING THE REQUIREMENT OF SEC TION 2(22)(E) IS, THAT THE PAYMENT MAY BE MADE TO ANY CO NCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER, OR THE PARTNER, AND IN WHICH HE HAS SUBSTANTIAL INTEREST, OR ANY PAYMENT BY ANY SUCH COMPANY, ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER . THUS, THE SUBSTANCE OF THE REQUIR EMENT IS THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, OBVIOUS LY, THE PROVISION IS INTENDED TO ATTRACT THE LIABILITY OF T AX ON THE PERSON, ON WHOSE BEHALF, OR FOR WHOSE INDIVIDUAL BENEFIT, T HE AMOUNT IS PAD BY THE COMPANY, WHETHER TO THE SHAREHOLDER, OR TO THE CONCERNED FIRM. IN WHICH EVENT, IT WOULD FALL WITHI N THE EXPRESSION DEEMED DIVIDEND. OBVIOUSLY, INCOME FRO M DIVIDEND, IS TAXABLE AS INCOME FROM THE OTHER SOURCES UNDER S ECTION 56, AND IN THE VERY NATURE OF THINGS THE INCOME HAS TO BE OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE PRES ENT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING SHAREHOLD ER. OF COURSE, THE TWO INDIVIDUALS BEING R AND D. ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAR EHOLDING AND ARE HAVING REQUISITE INTEREST, IN THE FIRM, BUT THEN, THEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM, RATHER IT WOULD OBVIOUSLY BE DEE MED DIVIDEND IN THE HANDS OF THE INDIVIDUALS, ON WHOSE BEHALF, O R ON WHOSE INDIVIDUAL BENEFIT, BEING SUCH SHAREHOLDER, THE AMO UNT IS PAID BY THE COMPANY TO THE CONCERN. THUS, THE SIGNIFICANT R EQUIREMENT OF SECTION 2(22)(E) IS NOT SHOWN TO EXIST. THE LIAB ILITY OF TAX, AS DEEMED DIVIDED, COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 15 17. HOWEVER, IN THE CASE OF NATIONAL TRAVEL SERVICE S (SUPRA), THE FACTS WERE AS FOLLOWS: THE ASSESSEE WAS A PARTNERSHIP FIRM CONSISTING OF THREE PARTNERS BEING NARESH GOYAL, SURINDER GOYAL AND JET ENTERPRISES PV T. LTD. THE ASSESSEE WAS THE BENEFICIAL OWNER OF 48.18% OF THE SHARE C APITAL OF JETAIR PVT. LTD WHICH WERE HELD IN THE NAME OF ITS PARTNERS NAR ESH GOYAL AND SURINDER GOYAL. THE ASSESSEE TOOK A LOAN OF RS. 28. 52 CRORES FROM JETAIR PVT. LTD. THE AO HELD THAT THE SAID LOAN WAS ASSESS ABLE AS DEEMED DIVIDEND U/S 2(22)(E) IN THE HANDS OF THE ASSESSEE WHICH WAS REVERSED BY THE TRIBUNAL. BEFORE THE HIGH COURT, THE ASSESSE E ARGUED, RELYING ON ANKITECH PVT. LTD, (199 TAXMAN 341), UNIVERSAL MEDICARE 324 ITR 363 (BOM) AND BHAUMIK COLOUR 118 ITD 1 (MUM) (SB), THAT S. 2(22)(E) COULD ONLY APPLY IN THE HANDS OF THE SHAREHOLDER AND AS THE ASSESSEE WAS NOT A SHAREHOLDER (ITS PARTNERS WERE), S. 2(22)(E) CO ULD NOT APPLY. THE HONBLE DELHI HIGH COURT HELD REJECTING THE ASSESSE ES PLEA, THAT THE FIRST LIMB OF S. 2(22)(E) IS ATTRACTED IF THE PAYMENT IS MADE BY A COMPANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A P ERSON WHO IS THE BENEFICIAL OWNER OF SHARES. WHILE IT IS CORRECT TH AT THE PERSON TO WHOM THE PAYMENT IS MADE SHOULD NOT ONLY BE A REGISTERED SHAREHOLDER BUT A BENEFICIAL SHARE HOLDER, THE ARGUMENT THAT A FIRM C ANNOT BE TREATED AS A SHAREHOLDER ONLY BECAUSE THE SHARES ARE HELD IN T HE NAMES OF ITS PARTNERS IS NOT ACCEPTABLE. IF THIS CONTENTION IS A CCEPTED, IN NO CASE A PARTNERSHIP FIRM CAN COME WITHIN THE MISCHIEF OF S. 2 (22)(E) BECAUSE THE SHARES WOULD ALWAYS BE HELD IN THE NAMES OF THE PAR TNERS AND NEVER IN THE NAME OF THE FIRM. THIS WOULD FRUSTRATE THE OBJE CT OF S. 2(22)(E) AND LEAD TO ABSURD RESULTS. ACCORDINGLY, FOR S. 2(22)(E ), A FIRM HAS TO BE TREATED AS THE SHAREHOLDER EVEN THOUGH IT IS NOT REGISTERED SHAREHOLDER 18. ON CONSIDERATION OF ABOVE CASE, WE OBSERVE THAT THERE IS NO DISPUTE THAT ASSESSEE FIRM IS NOT A REGISTERED OR BENEFICIAL SHA REHOLDER IN SMPL. IT IS ALSO NOT THE CASE OF THE DEPARTMENT THAT THE PARTNERS OF THE FIR M HELD SHARES IN SMPL FOR AND ON BEHALF OF ASSESSEE FIRM. IT IS ALSO NOT THE CASE O F THE DEPARTMENT THAT THE FUNDS FOR PURCHASE OF SHARES BY THE PARTNERS WERE PROVIDED BY THE ASSESSEE FIRM. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA) WOULD NOT BE APPLICABLE. THE FACTS AS NOTED BY HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TR AVEL SERVICES (SUPRA) WERE AS FOLLOWS: 7. THE RESPONDENT/ASSESSEE IS A PARTNERSHIP FIRM C ONSISTING OF THREE PARTNERS NAMELY MR. NARESH GOYAL, MR. SURINDER GOYA L AND M/S JET ENTERPRISES PVT. LTD. HAVING PROFIT SHARING RATIO O F 35%, 15% AND 50% RESPECTIVELY. THE ASSESSEE FIRM HAD TAKEN A LOAN OF RS. 28,52,41,516/- FROM M/S JETAIR PVT. LTD. NEW DELHI. IN THIS COMPAN Y THE ASSESSEE HAS I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 16 INVESTED BY SUBSCRIBING TO THE EQUITY SHARE NUMBERI NG 1,43,980 OF RS. 100 EACH WHICH CONSTITUTE 48.18%. HOWEVER, THE SHAR ES WERE PURCHASED IN THE NAME OF THE TWO PARTNERS NAMELY MR. NARESH G OYAL AND MR. SURINDER GOYAL. THUS, WHEREAS, MR. NARESH GOYAL AND MR. SURINDER GOYAL ARE THE RESPECTIVE SHARE HOLDERS, THE ASSESSEE IS T HE BENEFICIAL SHARE HOLDER. ON THESE FACTS, IN THIS APPEAL WE ARE CONCE RNED WITH THE FIRST LIMB [IN CONTRADICTION TO SECOND LIMB THAT FELL FOR INTE RPRETATION IN ANKITECH (SUPRA)] AND ARE CALLED UPON TO EXAMINE AS TO WHETH ER THIS FIRST LIMB OF SECTION 2(22)(E) OF THE ACT HAS BEEN SATISFIED. WE SHOULD POINT OUT AT THE OUTSET THAT IT IS AN ADMITTED POSITION THAT ALL OTH ER CONDITIONS STIPULATED IN SECTION 2(22)(E) OF THE ACT ARE FULFILLED. THE EXTE NT OF SHARE HOLDING IS ALSO SO HIGH THAT THE ASSESSEE HAS INDUBITABLY SUBS TANTIAL INTEREST IN JETAIR PVT. LTD. 19. WE HAVE SEEN THAT THE FACTS OF THE ASSESSEE CAS E ARE DIFFERENT AND ARE IDENTICAL TO THE CASE DECIDED BY HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILLTOP (SUPRA). SIMILAR ISSUE HAS ALSO BEEN CONSIDERED BY THE ITAT IN THE CASE OF M/S. BEEKAY TEX (SUPRA) AND THE TRIBUNAL AFTER CONSIDERING ABOVE DE CISIONS AS WELL AS DECISION OF ITAT (SB) IN THE CASE OF BHAUMIK COLOURS PVT LTD (SUPRA) HELD THAT THE AMOUNT OF LOAN TAKEN BY THE ASSESSEE FROM A CONCERN NAMELY ANISH SYNTHET ICS P LTD., IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND THREE OF THE PARTNERS OF THE ASSESSEE FIRM WERE THE SHAREHOLDERS HAVING SUBSTANTIAL INTEREST I.E. HAVIN G 25% OF THE SHAREHOLDING BY EACH PARTNER COULD NOT BE ASSESSED AS DEEMED DIVIDEND U/ S.2(22)(E) OF THE ACT IN THE HANDS OF THE FIRM AS THE ASSESSEE FIRM WAS NOT THE REGIST ERED OR BENEFICIAL SHAREHOLDERS IN THE SHARES OF ANISH SYNTHETICS PVT LTD., SIMILARLY, IN THE CASE BEFORE US, IT IS AN UNDISPUTED FACT THAT ASSESSEE FIRM IS NEITHER SHAREHOLDER NOR BENEFICIAL SHAREHOLDERS SHARES IN SMPL. WE HOLD THAT THE AMOUNT IN QUESTION COULD NO T BE CONSIDERED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE FIRM AS THE S AID DECISION OF HONBLE DELHI HIGH COURT NAMELY NATIONAL TRAVEL SERVICES (SUPRA) IS NO T APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE BEFORE US. HENCE, THE SAID ADDITIO N OF RS.23,63,010/- AS CONFIRMED BY AUTHORITIES BELOW U/S.2(22)(E) OF THE ACT IS NOT JU STIFIED AND IS DELETED BY ALLOWING GROUND NO.1 OF APPEAL TAKEN BY THE ASSESSEE. 20. IN RESPECT OF GROUND NO.2 OF APPEAL I.E. ISSUAN CE OF ENHANCEMENT OF ASSESSMENT NOTICE BY LD CIT(A) U/S.251(1)(A) OF THE ACT, THE R ELEVANT FACTS ARE THAT LD CIT(A) WHILE CONSIDERING THE ISSUE OF APPLICABILITY OF PROVISION S OF SECTION 2(22)(E) OF THE ACT ON THE SECURITY DEPOSIT RECEIVED BY THE ASSESSEE FROM SMPL STATED THAT ASSESSEE IS IN BUSINESS OF REAL ESTATE DEVELOPER AND LAND ADMEASURING 32,26 2.68 SQ.MTRS AT VILLAGE TIRANDAZ, POWAI, MUMBAI WAS HELD AS STOCK-IN-TRADE. THE ASSE SSEE ENTERED INTO A DEVELOPMENT I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 17 AGREEMENT WITH SMPL WHICH WAS ALSO HOLDING LAND CON TIGUOUS TO THE LAND OWNED BY THE ASSESSEE. THE ASSESSEE GAVE DEVELOPMENT RIGHTS OF ITS LAND TO SMPL. LD CIT(A) HAS STATED THAT THE SAID AGREEMENT HAS BEEN ENTERED INT O BETWEEN THE ASSESSEE AND SMPL ON PRINCIPAL TO PRINCIPAL BASIS WITHOUT ANY INTENTI ON OF ENTERING INTO A PARTNERSHIP OR JOINT VENTURE AS PER CLAUSE 23 OF THE AGREEMENT. LD CIT( A) HAS STATED THAT IT WAS AGREED AS PER AGREEMENT THAT THE COST OF CONSTRUCTION OF 16,5 00 SQ.MTRS OF CONSTRUCTED FSI BE VALUED AT RS.16.5 CRORES AND THE MARKET VALUE WAS V ALUED AT RS.42,41,44,500/- BY STAMP VALUATION AUTHORITY BUT THE ASSESSEE RECEIVED A SUM OF RS.54,68,90,000. HENCE, ASSESSEE RECEIVED THE ENTIRE MARKET VALUE OF DEVELO PMENT RIGHT DURING THE FINANCIAL YEAR 2008-09 ITSELF. THAT THE BUSINESS TRANSACTION OF SA LE OF DEVELOPMENT RIGHTS WAS COMPLETE AND ASSESSEE WAS REQUIRED TO RECOGNIZE THE REVENUE/ PROFITS FROM THE SAID TRANSACTION IN A.Y. 2009-2010 AS PER ACCOUNTING STANDARD -9 OR TRA NSFER U/S.2(47)(V) ARE APPLIED. LD CIT(A) AFTER CONSIDERING CLAUSES 1.5, 1.7,1.11,4,6, 7 (K), 8(B), 8(D), 8(G), 12(I), 13(B), 14.1, 14.2,14.3,6 & 17 OF THE SAID AGREEMENT DATED 4.4.2008 AT PAGES 13 TO 17 OF THE IMPUGNED ORDER, ISSUED SHOW CAUSE NOTICE DT.26.6.20 12 TO EXPLAIN AS TO WHY THE REVENUE MAY NOT BE RECOGNIZED IN THE ASSESSMENT YEA R 2009-2010 AND THE INCOME OF THE ASSESSEE SHOULD NOT BE ENHANCED BY AN AMOUNT EQ UIVALENT TO THE DIFFERENCE BETWEEN THE MARKET VALUE OF 16,500 SQ.MTRS OF FSI B EING RECEIVED AS CONSIDERATION AND THE COST OF LAND AS APPEARING IN BOOKS FOR WHICH TH E DEVELOPMENT RIGHTS HAVE BEEN TRANSFERRED. ASSESSEE FILED ITS REPLY VIDE LETTER DATED 13.9.2012, THE CONTENTS OF WHICH HAVE BEEN SUMMARIZED BY LD CIT(A) IN PARA 4.1 AT PA GES 18 TO 19 OF THE IMPUGNED ORDER AS UNDER: (I) THAT CIT(A) U/S 25 1(1) HAS NO POWERS TO ENHAN CE THE NEW SOURCE OF INCOME WHICH HAS NOT BEEN CONSIDERED BY THE AO. HE HAS RELIED ON THE DECISIONS IN CASE OF SHAPOORJI PALLONJI MISTRY 44 I TR 891(SC), RAJ BAHADUR HARDUTROY MOTILAL CHAMARIA 66 ITR 443(SC), SARDARIL AL & CO 251 ITR 864(DEL), UNION TYRES, 240 ITR 446(DEL). (II) ON MERITS IT HAS BEEN ARGUED THAT AGREEMENT DA TED 04/04/2008 ONLY LAID DOWN THE ROAD MAP FOR THE PROPOSED DEVELOPMENT AND RECORDS THE TERMS AND CONDITIONS OF THE PROPOSED DEVELOPMENT. THE AGREEMENT BASICALLY RECORDS THE INTENTION OF THE PARTIES. THE POSSESSION OF THE LAND WAS TO BE GIVEN, AFTER SURRENDER OF LEASES FROM 60 LESSEES AND THE PARTIES WERE TO WAIT FOR CHANGE OF ZONE FROM NO DEVELOPMENT ZONE TO RESIDENTIAL/COMMERCIAL ZONE AND OBTAIN REQUISITE PE RMISSIONS/APPROVALS AND IT WAS ON RECEIPT OF COMMENCEMENT CERTIFICATE, THE LICENSE TO ENTER UPON THE SAID PROPERTY FOR PURPOSE OF DEVELOPMENT W AS TO BE GRANTED. THE CC WAS RECEIVED ON 1/2/2011 AND THEREAFTER THE LICENSE TO ENTER THE PREMISES WAS GIVEN TO M/S SKYLINE MANSIONS PVT LTD ON 25/4/2011. I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 18 ACCORDINGLY IT WAS ARGUED THAT THE TRANSACTION OF D EVELOPMENT AS PROPOSED IN DEVELOPMENT AGREEMENT CRYSTALLIZED ON 2 5/04/2011 ON CLEARING ALL CONTINGENT EVENTS ON WHICH DEVELOPMENT WAS BASED. (III) REGARDING THE SUM OF RS 54.68 CR IT HAS BEEN STATED THAT THE SAME WAS RECEIVED AS SECURITY DEPOSIT TO ENSURE THE COMM ITTED PERFORMANCE ON THE PART OF COMPANY AND THIS DEPOSIT WAS FULLY REFU NDABLE ON RECEIPT OF CONSTRUCTED PREMISES/ SALE CONSIDERATION OF CONSTRU CTED PREMISE. ACCORDINGLY IT HAS BEEN CONTENDED THAT NO PART OF S ALE CONSIDERATION HAS BEEN RECEIVED BY THE APPELLANT IN AY 2009-10. (IV) REGARDING THE RECOGNITION OF REVENUE AS PER AS -9, IT HAS BEEN STATED THAT THE SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAS NOT BEEN TRANSFERRED TILL 25/04/2011 I.E THE DATE OF HANDING OVER OF POSSESSION AFTER THE RECEIPT OF CC ON 01.02/2011. THE POSSIBIL ITY OF DEVELOPMENT WAS CLOUDED WITH UNCERTAINTY IN AY 2009-10 WHICH GOT CL EARED ONLY ON SANCTION OF PLANS ON 01/02/2011 AND HENCE THERE IS NO QUESTION OF RECOGNITION OF REVENUES PRIOR TO THAT DATE. (V) RELYING UPON THE DECISION IN CASE OF R GOPINATH (HUF) 133 TTJ 595 (CHENNAI) IT HAS BEEN CONTENDED THAT WHEN THE LAND WAS HELD AS STOCK IN TRADE, THE BUSINESS PROFITS FOR THE LAND OWNER AROS E ONLY WHEN THE CONSTRUCTED FSI OF 16500 SQ MTS WERE ULTIMATELY SOL D. 21. LD CIT(A) DID NOT ACCEPT ABOVE CONTENTIONS OF T HE ASSESSEE AND STATED THAT THE COMPETENCE OF LD CIT(A) IS NOT RESTRICTED TO EXAMI NE THOSE ASPECTS OF ASSESSMENT WHICH ARE COMPLAINED BY THE ASSESSEE BUT HIS COMPET ENCE RANGES OVER THE WHOLE ASSESSMENT AND IT IS OPEN TO HIM TO CORRECT THE ITO NOT ONLY WITH REGARD TO MATTER RAISED BY THE ASSESSEE BUT ALSO WITH REGARD TO A MA TTER WHICH HAS BEEN CONSIDERED BY THE AO AND DETERMINED IN THE ASSESSMENT. LD CIT(A) PLACED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF RAJ BAHADUR HARDU TROY CHAMARIA (SUPRA). HE FURTHER STATED THAT SAME PRINCIPLE HAS BEEN UPHELD BY HONB LE DELHI HIGH COURT IN THE CASE OF UNION TYRES (SUPRA), THE CASE WHICH IS ALSO RELIED UPON BY LD A.R., WHEREIN, THE AAC MADE ENHANCEMENT BY PROBING INTO THE SOURCE OF INVE STMENT. IT WAS STATED THAT IN THAT CONTEXT, THE HONBLE COURT HELD THAT IT WAS A NEW S OURCE AS THE UNEXPLAINED INVESTMENT HAD NO BEARING ON THE QUESTION OF ESTIMATION OF SAL ES & G.P. LD CIT(A) HAS STATED THAT LD CIT(A) HAS POWER TO EXAMINE ANY MATTER THOUGH N OT RAISED BY THE ASSESSEE BUT WHICH HAS BEEN CONSIDERED BY THE AO IN THE ASSESSME NT ORDER FROM THE POINT OF TAXABILITY. LD CIT(A) HAS STATED THAT HE PROPOSED TO MAKE THE ENHANCEMENT IN RESPECT I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 19 OF VERY SAME RECEIPTS OF RS.54.68 CRORES WHICH WERE APPEARING IN THE BALANCE SHEET AND RECEIVED BY THE ASSESSEE UNDER THE DEVELOPMENT AGRE EMENT DATED 4.4.2008. THAT THE AO CONSIDERED THE SAID RECEIPTS IN THE HANDS OF THE ASSESSEE U/S.2(22)(E) OF THE ACT THOUGH HE RESTRICTED THE ADDITION TO THE EXTENT OF RS.23,63,010/- DUE TO AVAILABILITY OF RESERVES TO THAT EXTENT ONLY. THAT THE AO FAILED T O EXAMINE THE SPECIFIC CLAUSES OF THE AGREEMENT AND FAILED TO APPRECIATE THE NATURE OF TH AT RECEIPT OF RS.54.68 CRORES. LD CIT(A) HAS FURTHER STATED THAT THE POWERS OF THE C IT(A) ARE CO-TERMINUS WITH THAT OF AO AND HE CAN DO WHAT AO CAN DO OR DIRECT THE AO WHAT HE FAILED TO DO. IN VIEW OF ABOVE, LD CIT(A) STATED THAT HE WAS EXERCISING HIS POWER U /S.251(1) CORRECTLY AND NOT CONSIDERING A NEW SOURCE OF INCOME. HENCE, ASSESSE E HAS DISPUTED THE SAID ORDER OF LD CIT(A) IN APPEAL BEFORE THE TRIBUNAL. 22. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT LD CIT(A) HAS NO JURISDICTION TO CONSIDER THE SAID RECEIPTS AS BUSINESS RECEIPTS AS HE WAS EXAMINING A NEW SOURCE OF INCOME FOR WHICH, THERE IS NO ASSESSMENT ORDER. LD A.R. DID NOT FURTHER STRESS AND MADE ANY OTHER SUBMISSION ON THIS ISSUE. WHEREAS LD D.R. SUBMITTED THAT THE NOTICE ISSUED BY LD CIT(A)U/S.251(1) OF THE ACT TO CONSIDE R THE NATURE OF RECEIPTS OF RS.54.68,90,000 IS IN ACCORDANCE WITH LAW. 23. WE HAVE CONSIDERED THE SUBMISSIONS OF LD REPRES ENTATIVES OF PARTIES AND RELEVANT PART OF THE ORDER OF LD CIT(A), WHICH WE HAVE SUMMA RIZED HEREINABOVE. 24. WE AGREE WITH LD CIT (A) THAT THE POWERS OF LD CIT(A) ARE CO-TERMINUS WITH THAT OF AO AND HE CAN DO WHAT AO CAN DO OR DIRECT THE AO WHAT HE FAILED TO DO. WE OBSERVE THAT THE ISSUE BEFORE THE AO WAS RECEIPT OF RS.54,6 8,90,000/- BY THE ASSESSEE FROM SMPL AND THE AO CONSIDERED THE SAID RECEIPTS AS TAX ABLE IN THE HANDS OF THE ASSESSEE U/S.2(22)(E) OF THE ACT, BUT HE RESTRICTED THE ADDI TION TO THE EXTENT OF RS.23,63,010/- DUE TO AVAILABILITY OF RESERVES TO THAT EXTENT ONLY . THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE RECEIVED THE SAID AMOUNT UNDER THE DEVELOP MENT AGREEMENT DATED 4.4.2008 AND AO STATED THAT THE SAID AGREEMENT IS A MAKE BE LIEF TRANSACTION TO COVER UP THE TRANSFER OF FUNDS BY SMPL TO THE ASSESSEE FIRM. WE OBSERVE THAT LD CIT(A) HAS NOT AGREED WITH AO THAT THE AGREEMENT BETWEEN THE ASSES SEE AND SMPL WAS ONLY A MAKE BELIEF TRANSACTION. ON THE OTHER HAND, LD CIT(A) H AS HELD THAT THE SAID AGREEMENT BETWEEN THE ASSESSEE AND SMPL IS A GENUINE TRANSACT ION OF JOINT DEVELOPMENT OF LAND I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 20 OWNED BY THE ASSESSEE FIRM AND SMPL AT VILLAGE TIRA NDAZ, POWAI, MUMBAI. IT IS ALSO HELD BY LD CIT(A) THAT ASSESSEE AND SMPL HAVE ENTER ED INTO SAID DEVELOPMENT AGREEMENT ON PRINCIPAL TO PRINCIPAL BASIS AND IT WA S NOT A JOINT VENTURE AGREEMENT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT LD CI T(A) WHILE EXAMINING THE NATURE OF RECEIPT OF RS.54,68,90,000/- IS NOT CONSIDERING NE W SOURCE OF INCOME. ON THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT LD CIT(A) HAS POW ER U/S.251(1)(A) OF THE ACT TO EXAMINE AND CONSIDER THE ORDER OF ASSESSMENT BEFORE HIM AS TO WHETHER HE MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT. HENCE, WE HOLD THAT THE CONTENTION OF LD A.R., THAT LD CIT(A) HAS NO JURISDICTION TO E XAMINE THE NATURE OF TRANSACTION AND THE NATURE OF RECEIPT OF THE AMOUNT RECEIVED BY THE ASSESSEE FIRM FROM SMPL, HAS NO MERIT. THEREFORE, NOTICE ISSUED BY LD CIT(A) U/S. 251(1) IS VALID ON THE FACTS OF THE CASE DISCUSSED HEREINABOVE. HENCE, GROUND NO.2 OF APPEA L TAKEN BY ASSESSEE IS REJECTED. 25. IN GROUND NO.3 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD CIT(A) TO CONSIDER THE SUM OF RS.28,41,34,500/- AS BUSINESS I NCOME IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 26. WE HAVE ALREADY STATED THE RELEVANT FACTS WHILE DISCUSSING GROUND NO.1 OF APPEAL HEREINABOVE BUT FOR THE SAKE OF CLARITY, WE CONSIDER IT PRUDENT TO AGAIN STATE THE MATERIAL FACTS RELATING TO THIS GROUND. THAT SMPL IS THE OWNER OF LARGE PORTION OF LAND BEARING NO.38, VILLAGE TIRANDAZ, POWAI, MUMBAI AND ASSESSEE IS ALSO HAVING DEVELOPMENT RIGHTS IN RESPECT OF 32,262.68 SQ.MTRS OF LAND, CONTIGUOUS TO THE LAND OWNED BY SMPL. IN ORDER TO DEVELOP THE RESPECTIVE LAND, SMPL AND ASSESSEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT ON 4.4.2008, COP Y PLACED AT PAGES 35 TO 75 OF PB. IT IS STATED THAT A PORTION OF THE ENTIRE LAND WAS ON LEASE WITH 60 DIFFERENT LESSEES WHO ARE IN POSSESSION OF THE SAME. THAT SAID LAND WAS IN NO DEVELOPMENT ZONE (NDZ) AND PARTIES WERE TO WAIT FOR THE ZONING OF THE LAND FOR RESIDENTIAL/COMMERCIAL USE AND IMMEDIATE DEVELOPMENT WAS NOT FEASIBLE. IT IS STAT ED THAT AS PER THE SAID JOINT DEVELOPMENT AGREEMENT, A ROAD MAP WAS LAID DOWN FOR THE PROPOSED DEVELOPMENT OF LAND HELD BY BOTH THE PARTIES. IT IS FURTHER STATE D THAT THE PARTIES WOULD FIRST OBTAIN THE SURRENDER OF LEASES FROM 60 LESSEES AND THE POSSESS ION OF THE LAND WOULD BE GIVEN FOR THE PURPOSE OF DEVELOPMENT ON RECEIPT OF COMMENCEME NT CERTIFICATE. UNDER THE SAID AGREEMENT, ASSESSEE RECEIVED A SUM OF RS.54,68,90,0 00 AS SECURITY DEPOSIT TO ENSURE COMMITTED PERFORMANCE ON THE PART OF SMPL. IT IS S TATED THAT SAID DEPOSIT WAS FULLY I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 21 REFUNDABLE ON RECEIPT OF CONSTRUCTED PREMISES AND T HE SHARE OF THE ASSESSEE ARISES FROM THE SAID JOINT DEVELOPMENT WAS 16,500 SQ.MTRS ON CO NSTRUCTED AREA. THERE IS NO DISPUTE TO THE FACT THAT THE COMMENCEMENT CERTIFICATE WAS R ECEIVED ON 1.2.2011. ASSESSEE HAS STATED THAT THE LICENSE TO ENTER ON THE SAID PROPER TY FOR THE PURPOSE OF DEVELOPMENT WAS GRANTED TO SMPL ON 25.4.2011. HENCE, THE TRANSACTI ON OF DEVELOPMENT AS PROPOSED UNDER THE SAID JOINT DEVELOPMENT AGREEMENT DATED 4. 4.2008 WAS CRYSTALISED ON 25.4.2011 ON CLEARING OF ALL THE CONTINGENT EVENTS ON WHICH THE SAID JOINT DEVELOPMENT WAS BASED. LD CIT(A) AFTER CONSIDERING ABOVE FACTS AND THE FACT THAT THE COST OF CONSTRUCTION OF 16,500 SQ.MTRS OF CONSTRUCTED FSI W HICH WAS AGREED CONSIDERATION AS PER AGREEMENT WAS VALUED AT RS.16.5 CRORES ONLY AND THE MARKET VALUE WAS VALUED AT RS.42,41,44,500 BY STAMP VALUATION AUTHORITY. SINC E THE ASSESSEE HAD RECEIVED A SUM OF RS.54,68,90,000 AS SECURITY DEPOSIT FROM SMPL UN DER THE AGREEMENT DATED 4.4.2008 , IT WAS NOTHING BUT A BUSINESS CONSIDERATION ON SALE OF DEVELOPMENT RIGHTS IN THE FINANCIAL YEAR 2008-09. LD CIT(A) HAS STATED THAT ASSESSEE W AS REQUIRED TO RECOGNIZE THE REVENUE/PROFITS FROM THE SAID TRANSACTION IN A.Y. 2 009-2010 AS PER ACCOUNTING STANDARD -9 OR TRANSFER U/S.2(47)(V). LD CIT(A) HAS STATE D THAT ASSESSEE HAS ALREADY TRANSFERRED SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP BY WAY O F IRREVOCABLE COVENANTS AND ALSO RECEIVED THE ENTIRE CONSIDERATION IN THE GARB OF SE CURITY DEPOSIT WHICH WAS TO BE REPAID ONLY BY ADJUSTMENT @ 28% OF NET SALE PROCEEDS OF CO NSTRUCTED FSI OF 16,5000 SQ.MTRS WHICH WAS TO BE RECEIVED BY THE ASSESSEE. HENCE, T HE PROFIT AND GAINS FROM TRANSFER OF STOCK-IN-TRADE WAS CHARGEABLE IN ASSESSMENT YEAR 20 09-2010 ITSELF. IT IS RELEVANT TO STATE THAT ASSESSEE HAS SHOWN THE SAID LAND IN ITS BOOKS OF ACCOUNT AS STOCK-IN-TRADE AND NOT THE FIXED CAPITAL ASSET. LD CIT(A) HAS STA TED THAT A DEVELOPER AFTER OBTAINING THE DEVELOPMENT RIGHTS MAY START THE DEVELOPMENT IM MEDIATELY OR START AT A LATER DATE BUT THIS WILL NOT IN ANY WAY AFFECT HIS RIGHTS AS A DEVELOPMENT ARISING OUT OF THE DEVELOPMENT AGREEMENT. THAT THE DEVELOPMENT TAKES PLACE IN STAGES AND CONDITIONS OF OBTAINING REQUISITE PERMISSIONS ONLY ARE PART OF TH E DEVELOPMENT PROCESS AND NOT IN NATURE OF PRECONDITION FOR DEVELOPMENT ACTIVITY. T HAT ACCRUAL OF GAINS CANNOT BE POSTPONED TO THE DATE OF RECEIPT OF APPROVALS/PERMI SSIONS FROM MCGM, IF THE AGREEMENT OTHERWISE LEADS TO TRANSFER OF SIGNIFICANT RISKS AN D REWARDS OR IF THERE IS PART PERFORMANCE AS THE CASE MAY BE. LD CIT(A) HAS STAT ED THAT RECEIPT OF REQUISITE APPROVALS MAY HAVE EFFECT ON DATE OF TAXABILITY OF DEVELOPER BUT NOT IN HANDS OF THE TRANSFEROR. THAT AS PER THE AGREEMENT, ASSESSEE IS NOT REQUIRED TO INCUR ANY EXPENDITURE FOR ANY DEVELOPMENT WORK OF THE PROJECT . ASSESSEE IS NOT EVEN TO LOOK INTO I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 22 THE ACCOUNT AND EXPENDITURES INCURRED BY THE DEVELO PER I.E. SMPL ON THE PROJECT. THAT EVEN THE SELLING AND MARKETING EXPENSES FOR CONSTRU CTED FLATS PERTAINING TO SHARE OF ASSESSEE HAS BEEN AGREED TO BE DONE AT SMPL COST AS PER CLAUSE 14.3 OF THE AGREEMENT. THAT THE ONLY RIGHT/INTEREST OF THE ASSESSEE AFTER EXECUTION OF THE AGREEMENT IS RESTRICTED TO RECEIVING CONSTRUCTED FSI OF 16,500 S Q MTS IN THE PROJECT TO BE CONSTRUCTED. LD CIT(A) HAS ALSO STATED THAT AS PER CLAUSE 16 OF THE SAID AGREEMENT, ASSESSEE SHALL NOT TERMINATE THE AGREEMENT AND AS PER CLAUSE 4.2 O F THE AGREEMENT, ALL THE FSI/TDR AND OTHER FUTURE BENEFITS AVAILABLE IN RESPECT OF S AID LAND AFTER THE DATE OF AGREEMENT SHALL BELONG TO OWNERS/DEVELOPERS I.E. SMPL. THERE FORE, ASSESSEE HAS DIVESTED ALL CURRENT AND FUTURE RIGHTS IN THE *LAND FROM THE DAT E OF AGREEMENT ITSELF. LD CIT(A) HAS ALSO STATED THAT AS PER CLAUSES 8(B), 8(D) & 8(G) O F THE AGREEMENT, ASSESSEE IS INDEMNIFIED AGAINST ANY LOSSES/EXPENSES DUE TO ANY ACT OR DEED OF SMPL. LD CIT(A) HAS STATED THAT NATURE OF A RECEIPT OR A TRANSACTION W OULD NOT BE DETERMINED ONLY BY THE NOMENCLATURE GIVEN BUT BY SUBSTANCE OF THE COVENANT S AND CIRCUMSTANCES OF THE TRANSACTION AND PLACED RELIANCE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL CEMENT MINE INDUSTRIES, 42 ITR 69 (SC) AND PADAMJEE RA KADAMBANDE, 195 ITR 877(SC). LD CIT(A) HAS STATED THAT THE ENTRY OF THE SUM AS SECURITY DEPOSIT IN BOOKS OF ACCOUNTS CANNOT BE CONCLUSIVE UNLESS IN SU M AND SUBSTANCE IT CONFIRM TO SUCH NATURE OF RECEIPTS. HE HAS STATED THAT NAMING THE CONSIDERATION AS SECURITY DEPOSIT IS JUST A COLORFUL DEVICE TO CAMOUFLAGE THE RECEIPT OF MONEY. LD CIT(A) HAS FURTHER STATED THAT SMPL HAS NOTED THE WORK-IN-PROGRESS AS ON 31 .3.2009 AS PER ITS BALANCE SHEET AT RS.2,06,78,741/-, WHICH INCLUDES THE CONSTRUCTION T O RETAIN WALL, DRAIN WORK, HUTMENT COMPENSATION, PURCHASE OF MATERIAL, BMC SCRUTINY FE E, ETC. THEREFORE, SMPL HAD ALREADY STARTED THE DEVELOPMENT WORK IN ASSESSMENT YEAR 2009-2010 BY INCURRING ABOVE EXPENDITURES. LD CIT(A) HAS STATED THAT THE AVERME NTS IN CLAUSE 9(C)(II) TO GIVE LICENCE TO DEVELOPER I.E. SMPL TO ENTER THE PREMISES FOR CA RRYING OUT DEVELOPMENT OF PROPERTY ONLY AFTER RECEIPT OF APPROVAL OF PLANS AND CC, IS JUST REDUNDANT CLAUSE GUIDED BY MOTIVE TO POSTPONE THE YEAR OF TAXABILITY OWING TO CLOSE N EXUS BETWEEN THE ASSESSEE FIRM AND SMPL. LD CIT(A), AFTER CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA VS CIT, 260 IT R 491 (BOM), HAS CONCLUDED THAT ONCE THE AGREEMENT IS READ AS A WHOLE IT SUGGESTS T HAT THE ASSESSEE HAS IRREVOCABLY DIVESTED OF ALL RIGHTS IN THE LANDS FROM DATE OF AG REEMENT WITH NO POWER OF TERMINATION AND GIVING THE POWER OF ATTORNEY TO DEVELOPER TO DE AL WITH THE LAND WITH LIMITED PERMISSION TO ENTER THE PREMISES AT THE TIME OF AGR EEMENT ITSELF AND THE ASSESSEE ALSO I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 23 HAVING RECEIVED MORE THAN THE AGREED 16,500 SQ.MTRS IN THE FORM OF CASH MONEY IN GARB OF SECURITY DEPOSIT, THEN SUBSTANTIAL RISKS AN D REWARDS ARE TRANSFERRED WITH NO UNCERTAINTY OF REALIZATION OF REVENUES AS ENVISAGED IN AS-9. HENCE, THE YEAR OF CHARGEABILITY HAS TO BE THE DATE OF CONTRACT AND NO T THE DATE WHEN FINAL LICENSE TO ENTER IS GIVEN AFTER RECEIPT OF APPROVAL OR COMMENCEMENT CERTIFICATES. THUS, LD CIT(A) HAS STATED THAT IT CANNOT BE SAID THAT THERE IS NO TRAN SFER OR DEVELOPMENT RIGHTS FROM THE ASSESSEE IN ASSESSMENT YEAR 2009-2010. THEREAFTER, LD CIT(A IN ORDER TO QUANTIFY THE TAXABLE PROFITS FOR THE ASSESSMENT YEAR UNDER CONSI DERATION, HAS STATED THAT THE MARKET VALUE OF THE CONSTRUCTED FSI OF 16,500 SQ.MTRS IS A T RS.42,41,44,500/- OUT OF TOTAL RECEIPT OF RS.54,68,90,000. SINCE THE COST OF THE LAND IS APPEARING AT RS.14,00,10,000 IN THE BALANCE SHEET, THE PROFITS AND GAINS FROM GR ANT OF DEVELOPMENT RIGHTS COMES TO RS.28,41,34,500 (RS.42,41,44,500 RS.14,00,10,000) , WHICH IS LIABLE TO BE ASSESSED AS BUSINESS INCOME FOR ASSESSMENT YEAR 2009-2010 IN TH E HANDS OF THE ASSESSEE OVER AND ABOVE THE INCOME ALREADY ASSESSED BY THE ASSESSING OFFICER AT RS.23,63,010/- U/S.2(22)(E) OF THE ACT. HENCE, THIS APPEAL BEFORE THE TRIBUNAL. 27. LD A.R. SUBMITTED THAT ASSESSEE IS ENTITLED FOR DEVELOPMENT RIGHTS IN RESPECT OF 32262.68 SQ.MTRS OF LAND CONTIGUOUS TO THE LAND OWN ED BY SMPL. ASSESSEE IS A BUILDER/DEVELOPERS OF REAL ESTATE PROPERTIES AND TH E SAID DEVELOPMENT RIGHT IS HELD AS STOCK-IN-TRADE BY THE ASSESSEE. LD A.R. SUBMITTED THAT LD CIT(A) HAS PROCEEDED ON THE BASIS OF SECTION 50C OF THE I.T.ACT TO CONSIDER THE VALUE OF RS.42,41,44,500, THE VALUE AS CONSIDERED BY STAMP VALUATION AUTHORITY BUT THE PRO VISIONS OF SECTION 50C IS NOT APPLICABLE TO THE SAID DEVELOPMENT RIGHTS OF THE AS SESSEE. HE SUBMITTED THAT SECTION 50C IS APPLICABLE ONLY TO CAPITAL ASSETS AND NOT TO TRADING ASSETS. LD A.R. FURTHER SUBMITTED THAT THE SAID DEVELOPMENT AGREEMENT DATED 4.4.2008 ONLY LAID DOWN THE ROAD MAP FOR THE PROPOSED DEVELOPMENT OF LANDS HELD BY B OTH THE PARTIES. HE SUBMITTED THAT UNDER THE SAID AGREEMENT, THE PARTIES WOULD FIRST O BTAIN SURRENDER OF LEASES FROM 60 LESSEESS AND, THEN BECOME ENTITLE FOR CLEAR POSSESS ION OF THE LAND WHICH IS SUBJECT OF AGREEMENT. LD A.R. FURTHER SUBMITTED THAT ON THE D ATE OF AGREEMENT ENTERED INTO THE SAID LAND WAS IN NO DEVELOPMENT ZONE AND THE PARTIE S WERE TO AWAIT FOR THE ZONING OF THE LAND TO BE CHANGED FROM NO DEVELOPMENT ZONE TO RESIDENTIAL/COMMERCIAL USE AND ONLY THEREAFTER THE PARTIES WOULD APPLY FOR AND OBT AIN REQUISITE PERMISSION/SANCTION IN THE FORM OF APPROVAL OF PLANS FOR JOINT DEVELOPMENT OF THE SAID PROPERTY. LD A.R. I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 24 SUBMITTED THAT ON RECEIPT OF COMMENCEMENT CERTIFICA TE FROM THE MUNICIPAL CORPORATION AND AGAINST IDENTIFICATION OF PREMISES FALLING TO T HE SHARE OF THE JOINT DEVELOPERS, THE LICENSE TO ENTER UPON THE SAID PROPERTY FOR THE PUR POSES OF DEVELOPMENT WAS TO BE GRANTED. LD A.R. SUBMITTED THAT THE FIRST COMMENC EMENT CERTIFICATE WAS GRANTED BY MUNCIPAL CORPORATION ON 1.2.2011 AND REFERRED PAGES 116 TO 119 OF PB. HE SUBMITTED THAT THE UNITS FALLING TO THE SHARE OF THE JOINT DE VELOPERS WERE IDENTIFIED ON THE APPROVED PLAN AND THE LICENSE TO ENTER UPON THE SAID PROPERT Y WAS GRANTED TO SMPL BY THE ASSESSEE ON 25.4.2011 AND REFERRED PAGES 120 TO 121 OF PB TO SUBSTANTIATE HIS ABOVE SUBMISSION. LD A.R. SUBMITTED THAT THE AGREEMENT O F CONTIGUOUS LANDS HELD BY BOTH THE PARTIES WAS PERFORMED ONLY AFTER GRANT OF LICENSE O N 25.4.2011. HENCE, THE TRANSACTION OF DEVELOPMENT AS PROPOSED IN JOINT DEVELOPMENT AGR EEMENT WAS CRYSTALISED ON 25.4.2011 ON CLEARING OF ALL THE CONTINGENT EVENTS ON WHICH THE SAID JOINT DEVELOPMENT WAS BASED. LD A.R. REFERRED CLAUSE 17 OF THE AGREE MENT AND SUBMITTED THAT THE SAID AMOUNT OF RS.54,68,90,000 WAS RECEIVED BY THE ASSES SEE FROM SMPL AS SECURITY DEPOSIT AND THE SAID AMOUNT IS REFUNDABLE TO SMPL. HE FURT HER SUBMITTED THAT THE SAID SECURITY DEPOSIT IS TAKEN AS A SECURITY TO ENSURE COMMITTED PERFORMANCE ON THE PART OF SMPL. HE SUBMITTED THAT SAID AMOUNT WAS NOT TAKEN AS AN A DVANCE NOR IT WAS A RECEIPT OF PART CONSIDERATION, WHICH IS NOT REQUIRED TO BE REPAID. LD A.R. SUBMITTED THAT THE CONSIDERATION IN THE PRESENT TRANSACTION IS THE CON STRUCTED FLATS ADMEASURING 16500 SQ.MTRS, WHICH WAS TO BE RECEIVED ON SUCCESSFUL COM PLETION OF JOINT DEVELOPMENT. THE DATE OF SALE OF THE LAND LEADING TO RECOGNITION OF REVENUE CAN NEVER BE BEFORE THE COMPLETION OF ABOVE ACTS. LD A.R. FURTHER SUBMITTE D THAT LD CIT(A) HAS WRONGLY APPLIED AS-9, AS RECOGNITION OF REVENUE REQUIRES THAT REVEN UE IS MEASURABLE. HE SUBMITTED THAT THERE WAS NO SALE, EXCHANGE OR RELINQUISHMENT OF AS SET IN THE ASSESSMENT YEAR 2009- 2010. LD A.R. SUBMITTED THAT SIMILAR ISSUE HAS BEE N CONSIDERED BY ITAT CHENNAI BENCH IN THE CASE OF R.GOPINATH (HUF) VS ACIT, 133 TTJ ( CHENNAI) 595, WHEREIN, ON SIMILAR FACTS, ITAT OBSERVED THAT NEITHER THE DATE OF ENTER ING THE AGREEMENT NOR DATE OF HANDING OVER POSSESSION OF LAND WAS RELEVANT IN CAS E OF LAND HELD AS STOCK-IN-TRADE. IT WAS FURTHER HELD THAT BUSINESS PROFITS FOR THE LAND OWNER AROSE ONLY WHEN THE CONSTRUCTED PROPERTIES WERE ULTIMATELY SOLD BY WAY OF EXECUTION OF SALE DEEDS IN FAVOUR OF END CUSTOMERS OR RETAINED FOR SELF USE. LD A.R. REFERRED PARA 15 OF THE SAID ORDER TO SUBSTANTIATE HIS SUBMISSION, WHICH READS AS UNDER: IN THE PRESENT CASE, THE BUSINESS PROFIT ARISES T O THE ASSESSEE ON THE SALE OF THE STOCK IN TRADE ONLY WHE N THE I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 25 CONSTRUCTED APARTMENTS WERE SOLD AND NOT AT THE TIM E WHEN THE DEVELOPMENT AGREEMENT WAS ENTERED INTO. MOREOVER, IN THE DEVELOPMENT AGREEMENT, THE ASSESS EE HAS NOT AGREED FOR SALE OF THE ENTIRE CONSTRUCTED P ROPERTY ON THE LAND, THE ASSESSEE HAS AGREED ONLY FOR A PO RTION OF THE CONSTRUCTED PROPERTY FOR SALE FOR THE PURPOSE O F RECOVERY OF THE COST OF CONSTRUCTION AND MARGIN OF THE DEVELOPER. THE ASSESSEE HAS EXECUTED ALL THE SALE D EEDS FOR TRANSFER OF CONSTRUCTED APARTMENTS IN FAVOUR OF THE END USER/PURCHASER, THEREFORE THE TRANSFER OF THE PROPORTIONATE LAND TOOK PLACE ONLY WHEN THE ASSESSE E TRANSFERRED THE CONSTRUCTION PROPERTY BY WAY OF SA LE DEEDS AND OFFERED THE BUSINESS INCOME WHICH WAS ACCEPTED BY THE DEPARTMENT. IN ANY CASE, WHEN THE ASSESSEE HAS RETAINED THE PORTION OF THE LAND BEING PROPORTIONATE TO THE CONSTRUCTED AREA TO BE RETAINE D BY THE ASSESSEE, THEN THERE IS NO QUESTION OF TRANSFER OF THE ENTIRE LAND TO THE DEVELOPER. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE ORDERS OF THE LOWER AU THORITIES QUA THIS ISSUE ARE NOT SUSTAINABLE ON THE FACTS AS WELL AS ON LAW. WE SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES, QUA THIS ISSUE AND DIRECT THE AO TO TAX THE CAPITAL GAIN ARISING FROM THE CONVERSION OF THE LAND AND BUILDIN G INTO STOCK-IN-TRADE PROPORTIONATELY INTO THE PREVIOUS YE ARS IN WHICH THE CONSTRUCTED PROPERTY WAS SOLD BY THE ASSE SSEE OR RETAINED FOR SELF-USE AND CORRESPONDING BUSINESS INCOME WAS OFFERED. 28. LD A.R. SUBMITTED THAT THE TRIBUNAL IN THE SAID CASE ALSO CONSIDERED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADA VS CIT (SUPRA) ON WHICH LD CIT(A) HAS PLACED RELIANCE. LD A.R. FURTHER SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE CASE OF DDIT VS. G.RAGHURAM, (2010) 39 SOT 406 (HYD). IN THE SAID CASE, ASSESSEE, A LAND OWNER GAVE HIS LAND TO M/S. SDE ENGINEERS LTD., ON DEVELOPMENT BASIS AND AS PER TE RMS OF THE AGREEMENT, ASSESSEE WAS ALLOCATED A SPECIFIED AREA IN THE SUPERSTRUCTURE C ONSTRUCTED ON THE SAID LAND BY THE DEVELOPER. SINCE THE LAND OWNER HAD RELINQUISHED H IS RIGHTS ON THE LAND FORGONE, THE AO TREATED IT AS A TRANSFER UNDER SECTION 2(47) OF THE ACT AND COMPUTED CAPITAL GAIN. REGARDING APPLICABILITY OF SECTION 2(47), THERE WAS NO DISPUTE. ASSESSEE CONTENDED THAT THE MARKET VALUE OF THE LAND AS ON THE DATE OF TRAN SFER WAS TO BE CONSIDERED. AO DID NOT AGREE WITH THE SAID PROPOSITION AND HE CONSIDER ED THE VALUE OF THE SUPERSTRUCTURE TO DETERMINE THE SALE VALUE AND COMPUTED CAPITAL GAIN ACCORDINGLY. ON FIRST APPEAL, LD CIT(A) DIRECTED THE AO TO CONSIDER THE SALES CONSID ERATION AS PER VALUE OF THE LAND ADOPTED BY THE REGISTRAR FOR STAMP DUTY PURPOSE ON THE DATE OF REGISTRATION OF THE I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 26 DEVELOPMENT AGREEMENT. BUT IN FURTHER APPEAL, THE TRIBUNAL REVERSED THE ORDER OF LD CIT(A) AND CONFIRMED THE ACTION OF THE ASSESSING OF FICER. LD A.R. REFERRED HEAD NOTE AT PAGE 410 WHICH READ AS UNDER: THE CONSIDERATION FOR THE TRANSFER OF THE CAPITAL ASSET IS WHAT THE TRANSFEROR RECEIVES IN LIEU OF THE ASSETS HE PARTS WITH AND, THEREFORE, THE VERY ASSET TRANSFERRED OR PARTED WITH AND FULL VALUE OF CONSIDERATION CANNOT BE CONS TRUED AS HAVING A REFERENCE TO THE MARKET VALUE OF ASSET TRA NSFERRED AND THE SAID EXPRESSION ONLY MEANS THAT FULL VALUE OF THE ASSET RECEIVED BY THE TRANSFEROR IN EXCHANGE FOR TH E CAPITAL ASSET TRANSFERRED BY HIM. IN THE INSTANT CASE, SINC E THE DEVELOPMENT AGREEMENT SPECIFIED THAT CERTAIN PART O F THE CONSTRUCTED AREA WOULD BE SURRENDERED TO THE OWNER BY THE BUILDER ON THE COMPLETION OF THE CONTRACT AND T HE VALUE OF THE CONSTRUCTED AREA TO BE TRANSFERRED TO THE AS SESSEE TO BE CONSIDERED TO ASESSEE TO BE CONSIDERED AS CONSIDERATION RECEIVED AND, AS SUCH, FULL VALUE OF THE CONSIDERATION IN THE INSTANT CASE WAS NOT ONLY THE COST OF CONSTRUCTION OF PROPOSED BUILDING TO THE EXTENT OF WHICH IT FELL TO THE ASSESSEE IN THE ULTIMATELY CONSTRUCTED AREA BUT THE MARKET VALUE OF SUCH SHARE OF CONSTRUCTED AREA WHICH MIGHT BE AFTER THE COMPLETION OF THE CONSTRUCTION. IN VIEW OF THIS, THERE WAS NO INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. ACCORDINGLY, THIS GROUND TA KEN BY THE REVENUE WAS TO BE ALLOWED. 29. LD A.R. FURTHER SUBMITTED THAT ITAT MUMBAI ALSO CONSIDERED SIMILAR ISSUE IN I.T.A.NO.61230/M/2009 IN THE CASE OF DCIT VS. SHRI VIJAY KUMAR JAIN VIDE ORDER DATED 27.7.2011. 30. LD A.R. SUBMITTED THAT WHEN NO SALE OR TRANSFER OF THE BUSINESS ASSETS I.E. DEVELOPMENT RIGHTS TOOK PLACE IN THE ASSESSMENT YEA R 2009-2010 AND ONLY THE I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 27 TRANSACTION WAS RECORDED IN THE JOINT DEVELOPMENT A GREEMENT DATED 4.4.2008, THERE IS NO ACCRUAL OF INCOME IN THE ASSESSMENT YEAR UNDER C ONSIDERATION. HE SUBMITTED THAT THE POSSESSION WAS HANDED OVER IN ASSESSMENT YEAR 2 012-13 AND INCOME ON CONSTRUCTED COST OF 16500 SQ.MTRS WAS OFFERED FOR T AXATION IN ASSESSMENT YEAR 2012-13, WHEREIN, THE CONSIDERATION OF JOINT DEVELOPMENT HAS BEEN DETERMINED BASED ON STAMP DUTY READY RECKONER, THE VALUE OF WHICH WORKED OUT RS.24,75,00,000. HE SUBMITTED THAT ADDITION MADE BY THE AO IS NOT JUSTIFIED AND BE DEL ETED. 31. ON THE OTHER HAND, LD D.R. SUPPORTED THE ORDER OF LD CIT(A). HE SUBMITTED THAT UNDER THE SAID JOINT DEVELOPMENT AGREEMENT, ASSESSE E HAS TRANSFERRED ITS RIGHTS AND, THEREFORE, HE HAS RIGHTLY CONSIDERED IT AS A SALE. LD D.R. SUBMITTED THAT THE DEVELOPER SMPL HAS ACQUIRED IRREVOCABLE EXCLUSIVE RIGHTS IN R ESPECT OF SAID DEVELOPMENT RIGHTS AND ASSESSEE ALSO RECEIVED IN THE GARB OF SECURITY DEPO SIT MUCH MORE THAN THE MARKET VALUE OF THE SAID DEVELOPMENT RIGHTS. LD D.R. SUBMITTED THAT LD CIT(A) HAS RIGHTLY STATED THAT MERELY BECAUSE ASSESSEE HAS STATED THE RECEIPT OF R S.54,68,90,000/- AS SECURITY DEPOSIT, IS NOT DETERMINATIVE OF TRUE NATURE OF RECEIPTS. LD CIT(A) HAS RIGHTLY CONSIDERED THE TRUE NATURE AND QUALITY OF RECEIPTS AS SALE CONSIDE RATION OF THE AMOUNT RECEIVED FROM SMPL. LD D.R. SUBMITTED THAT THE ORDER OF LD CIT(A ) BE CONFIRMED. 32. WE HAVE CONSIDERED THE SUBMISSIONS OF LD REPRES ENTATIVES OF PARTIES. WE HAVE ALSO CONSIDERED THE CASES CITED BY LD CIT(A) AND TH E CASES ON WHICH LD A.R. PLACED RELIANCE (SUPRA). WE HAVE ALSO CAREFULLY PERUSED T HE COPY OF THE JOINT DEVELOPMENT AGREEMENT DATED 4.4.2008 PLACED AT PAGES 35 TO 75 O F PB. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE BEFOR E LD CIT(A) VIDE LETTER DATED 13.9.2012 PLACED AT PAGES 26 TO 34 OF PB. 33. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE I S A BUILDER/DEVELOPER OF REAL ESTATE PROPERTIES AND IS ENTITLED FOR DEVELOPMENT RIGHTS IN RESPECT OF 32262.68 SQ.MTS OF LAND CONTIGUOUS TO THE LAND OWNED BY SMPL. ASSESSEE IS HOLDING THE SAID DEVELOPMENT RIGHT AS STOCK IN TRADE. WE ALSO OBSERVE THAT A PART OF ENTIRE LAND WAS ON LEASE WITH DIFFERENT LESSESSES WHO ARE IN POSSESSION OF THE SAME, REFERE NCE OF WHICH IS STATED IN THE SAID DEVELOPMENT AGREEMENT DT.4.4.2008 AND IS ALSO INDIC ATED IN THE PLAN ATTACHED TO THE I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 28 JOINT DEVELOPMENT AGREEMENT, COPY PLACED AT PAGES 6 8 OF PB. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE AND SMPL HAVE ENTERED INTO THE S AID JOINT DEVELOPMENT AGREEMENT TO JOINTLY DEVELOP THE SAID PROPERTIES AND ASSESSEE UN DER THE SAID AGREEMENT IS ENTITLED TO GET CONSTRUCTED FSI OF 16,500 SQ.MTS AS PER FINAL APPROVED PLAN, ON TERMS AND CONDITIONS MENTIONED IN THE SAID AGREEMENT. THERE IS NO DISPUTE TO THE FACT THAT AT THE RELEVANT TIME THE SAID LAND WAS IN NO DEVELOPMENT Z ONE, WHICH WAS CHANGED TO RESIDENTIAL/COMMERCIAL USE AND THE FIRST COMMENCEME NT CERTIFICATE WAS GRANTED BY MUNICIPAL CORPORATION OF GREATER MUMBAI (MCGM) ON 1 .2.2011. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THEREAFTER THE UNITS FALLING TO THE SHARE OF JOINT DEVELOPERS WERE IDENTIFIED ON THE APPROVED PLAN AND ASSESSEE GRANTE D LICENCE TO ENTER UPON THE SAID PROPERTY TO SMPL ON 25.4.2011. LD A.R. CONTENDED BEFORE US THAT THE AMALGAMATION OF THE CONTIGUOUS LANDS HELD BY BOTH PARTIES WAS DO NE ONLY AFTER GRANT OF LICENSE ON 25.4.2011. WE FIND MERITS IN THE SAID CONTENTION O F THE ASSESSEE THAT THE TRANSACTION OF DEVELOPMENT AS PROPOSED IN THE JOINT DEVELOPMENT AG REEMENT COULD BE SAID TO BE CRYSTALISED ONLY ON 25.4.2011 I.E WHEN THE LICENSE TO ENTER UPON THE SAID PROPERTY WAS GRANTED TO SMPL FOR CARRYING OUT THE DEVELOPMENT OF THE PROJECT. WE OBSERVE THAT LD CIT(A) HAS REFERRED THE CLAUSES OF THE AGREEMENT AN D STATED THAT ASSESSEE HAS GIVEN IRREVOCABLE AND CONCLUSIVE PERMISSION UNDER THE SAI D AGREEMENT TO SMPL. THEREFORE, LD CIT(A) HAS PRESUMED THAT THE POSSESSION WAS ALSO DE LIVERED IN FINANCIAL YEAR 2008-09 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AS SMPL HAS SHOWN WORK-IN-PROGRESS AS ON 31.3.2009 AS PER BALANCE SHEET AT RS.2,06,78, 741, WHICH INCLUDES THE CONSTRUCTION TO RETAIN WALL, DRAIN WORK, HUTMENT COMPENSATION, P URCHASE F MATERIAL, BMC SCRUTINY FEE, ETC. WE ARE OF THE CONSIDERED VIEW THAT TO ENABLE THE DEVELOPER NAMELY SMPL, IRREVOCABLE AND CONCLUSIVE LICENSE, AND PERMISSION TO USE THE LAND HAS TO BE GIVEN BY THE ASSESSEE TO SMPL OTHERWISE THE VERY PURPOSE OF DEVELOPMENT WOULD BE DEFEATED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT CARR YING OUT OF THE SAID WORK DO NOT ESTABLISH THAT POSSESSION/LICENSE TO ENTER UPON THE LAND BELONGING TO THE ASSESSEE HAD BEEN GIVEN TO SMPL ON THE DATE OF DEVELOPMENT AGRE EMENT ENTERED INTO, PARTICULARLY WHEN IT IS A SPECIFIC CONDITION IN THE DEVELOPMENT AGREEMENT THAT THE LICENSE TO ENTER UPON THE SAID PROPERTY WOULD BE GRANTED BY THE ASSE SSEE TO SMPL ONLY AFTER THE UNITS FALLING TO THE SHARE OF JOINT DEVELOPERS WERE IDENT IFIED AND IT TOOK PLACE ON 25.4.2011 AS IS EVIDENT FROM PAGES 120 TO 121 OF PB, WHICH IS A COPY OF LETTER DATED 25.4.2011 OF THE ASSESSEE TO SMPL. WE CONSIDER IT USEFUL TO STATE THE CONTENTS OF THE SAID LETTER WHICH READS AS UNDER: I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 29 34. THEREFORE, WE AGREE WITH LD A.,R. THAT THE AMAL GAMATION OF CONTIGUOUS LAND HELD BY BOTH PARTIES HAD TAKEN PLACE ON OR AFTER 25.4.20 11. ON PERUSAL OF THE RELEVANT CLAUSES OF THE JOINT DEVELOPMENT AGREEMENT, IT IS O BSERVED THAT ASSESSEE IS ENTITLED FOR THE AMOUNT OF SECURITY DEPOSIT AND ASSESSEE RECEIVE D SECURITY WHICH ACCORDING TO THE DEPARTMENT, IS MUCH MORE THAN THE SALE CONSIDERATIO N BUT THE QUESTION ARISES AS TO WHETHER THE TRANSFER OF LAND/RIGHT TOOK PLACE IMMED IATELY AND THE SAID AMOUNT COULD BE CONSIDERED AS SALE PROCEEDS. WE OBSERVE THAT THE S AID AGREEMENT HAS BEEN REGISTERED AS MEMORANDUM OF AGREEMENT AND THE STAMP DUTY HAS A LSO BEEN PAID ACCORDINGLY AND I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 30 NOT STAMPED AS DEED OF CONVEYANCE. WE ARE OF THE C ONSIDERED VIEWS THAT THE SAID JOINT DEVELOPMENT AGREEMENT IS ENTERED INTO ONLY FOR THE PURPOSE OF PROTECTING THE RIGHTS OF THE PARTIES AND TO ENSURE SMOOTH DEVELOPMENT OF THE PROJECT. FURTHER, WE ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT CANNOT BE MADE APPLICABLE TO THE LAND UNDER CONSIDERATION AS UNDISPUTEDLY, THE SAID LAND IS STOCK IN TRADE AND IT IS NOT A CAPITAL ASSET. THE P ROVISIONS OF SECTION 53A OF TRANSFER OF PROPERTIES ACT CAN NOT BE EXTENDED TO STOCK IN TRAD E AS SECTION 2(47) OF THE I.T.ACT IS ARTIFICIALLY EXTENDED DEFINITION OF CAPITAL ASSETS ONLY. THEREFORE, THE SAID SECURITY DEPOSIT RECEIVED BY THE ASSESSEE AND SHOWN AS LIABILITY CAN NOT BE CONSIDERED AS SALE CONSIDERATION FOR TRANSFER OF LAND. FURTHER, LD CI T(A) HAS ALSO PLACED RELIANCE ON AS-9 TO SAY THAT REVENUE OF ABOVE TRANSACTION IS REQUIRED T O BE RECOGNIZED IN ASSESSMENT YEAR 2009-2010 AS THERE IS NO UNCERTAINTY OF REALIZATION OF REVENUE. HOWEVER, ON PERUSAL OF AS-9, THE KEY CRITERIA FOR DETERMINING WHEN TO RECO GNIZE REVENUE FROM A TRANSACTION INVOLVING SALE OF GOODS IS WHEN THE SELLER HAS TRAN SFERRED THE PROPERTY IN THE GOODS TO THE BUYER FOR A CONSIDERATION OR SIGNIFICANT RISK AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER AND SELLER RETAINED NO EFF ECTIVE CONTROL OF THE OWNERSHIP. SINCE IN THE CASE BEFORE US, TRANSACTION RELATES TO LAN D WHICH IS IMMOVABLE PROPERTY AND THE OWNERSHIP OF IMMOVABLE PROPERTY COULD BE TRANSFERR ED ONLY AS PER SECTION 54 OF TRANSFER OF PROPERTY ACT. SECTION 54 OF THE SAID A CT DEFINES SALE AS UNDER: SALE IS A TRANSFER OF OWNERSHIP IN EXCHANGE FOR A PRICE PAID OR PROMISED OR PART-PAID AND PART-PROMISED. FURTHER, HOW SALE IS MADE, IS ALSO PROVIDED UNDER SECTION 54 OF TRANSFER OF PROPERTY ACT AS UNDER: SALE HOW MADE: SUCH TRANSFER, IN THE CASE OF TANGI BLE IMMOVABLE PROPERTY OF THE VALUE OF ONE HUNDRED RUPEES AND UPWARDS, OR IN THE CASE OF A REVERSION OR OTHER INTANGIBLE THING, CAN BE MADE ONLY BY A REGIS TERED INSTRUMENT. IN THE CASE OF TANGIBLE IMMOVABLE PROPERTY OF A VA LUE LESS THAN ONE HUNDRED RUPEES, SUCH TRANSFER MAY BE MADE EITHER BY A REGIS TERED INSTRUMENT OR BY DELIVERY OF THE PROPERTY. 35. SINCE IN THE CASE BEFORE US, THE SAID JOINT DEV ELOPMENT AGREEMENT DATED 4.4.2008 AS MENTIONED HEREINABOVE IS NOT REGISTERED AS CONVEYANCE DEED BETWEEN ASSESSEE AND SMPL FOR THE IMPUGNED LAND, THERE IS N O SALE UNDER THE TRANSFER OF PROPERTY ACT. HENCE, THE SAID AMOUNT RECEIVED BY T HE ASSESSEE UNDER THE JOINT DEVELOPMENT AGREEMENT COULD NOT BE CONSIDERED AS SA LE CONSIDERATION RECEIVED BY THE ASSESSEE. MOREOVER, THE SAID JOINT DEVELOPMENT AGR EEMENT ON THE DATE OF ITS EXECUTION I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 31 WAS CLOUDED WITH UNCERTAINTY BECAUSE THE LAND TO BE DEVELOPED ITSELF WAS UNDER NDZ TILL THE COMMENCEMENT CERTIFICATE WAS ISSUED ON 1.2.2011 AND UNDER THE AGREEMENT THE LICENSE TO ENTER UPON THE PROPERTY WAS GRANTED TO S MPL ON 25.4.2011. HENCE, IT COULD BE SAID THAT ALL THE CONTINGENT EVENTS ON WHICH JOI NT DEVELOPMENT WAS BASED COULD BE CLEARED AND IT BECOMES EFFECTIVE IN THE FINANCIAL Y EAR 2011-12 RELEVANT TO ASSESSMENT YEAR 2012-13. THUS, IT CANNOT BE SAID THAT ASSESSE E DID NOT RETAIN EFFECTIVE CONTROL OF THE OWNERSHIP OF THE SAID LAND ON EXECUTION OF THE SAID DEVELOPMENT AGREEMENT AS ON 4.4.2008. MOREOVER, SIMILAR ISSUE HAS ALSO BEEN CO NSIDERED BY CHENNAI ITAT IN THE CASE OF IN THE CASE OF R.GOPINATH (HUF) VS ACIT (SUPRA), WHEREIN, IT WAS HELD THAT WHEN THE ASSESSEE HAS RETAINED THE PORTION OF THE LAND BEING PROPORTIONATE TO THE CONSTRUCTED AREA TO BE RETAINED BY THE ASSESSEE, THEN THERE IS NO QUESTION OF TRANSFER OF THE ENTIRE LAND TO THE DEVELOPER. IN THE SAID CASE ALSO, ASSE SSEE WAS HOLDING THE SAID LAND WHICH WAS TO BE DEVELOPED AS STOCK IN TRADE AND IT WAS HE LD THAT SALE/TRANSFER OF STOCK IN TRADE COULD NOT BE EQUATED IN THE TRANSFER OF CAPITAL ASS ET. THAT A REGARD MUST BE GIVEN TO THE WORD USED IN THE DOCUMENT. THE NATURE OF THE TRANS ACTION BETWEEN THE PARTIES BY WAY OF DEVELOPMENT AGREEMENT CANNOT BE SAID TO BE A SAL E OF IMMOVABLE PROPERTY WHICH IS STOCK IN TRADE AS OTHERWISE AS PROVIDED IN THE TRAN SFER OF PROPERTY ACT. IT WAS HELD THAT THE BUSINESS PROFITS ARISE TO THE ASSESSEE ON THE S ALE OF STOCK IN TRADE ONLY WHEN THE CONSTRUCTED PREMISES WERE SOLD AND NOT AT THE TIME WHEN THE DEVELOPMENT AGREEMENT WAS ENTERED INTO. WE ARE OF THE CONSIDERED VIEWS T HAT ABOVE CASE SQUARELY APPLIES TO THE CASE BEFORE US AND THE DEVELOPMENT RIGHTS CAN B E SAID TO BE TRANSFERRED IN THE CASE BEFORE US ONLY IN F.Y. 2011-2012 RELEVANT TO A.Y. 2 012-13 AND NOT IN THE ASSESSMENT YEAR WHEN JOINT DEVELOPMENT AGREEMENT WAS ENTERED I NTO. SINCE ASSESSEE STATED THAT ASSESSEE HAS ALREADY OFFERED THE INCOME TO TAX ON T HE AFORESAID TRANSACTION IN A.Y. 2012-13, WE ALLOW GROUND NO.3 OF APPEAL TAKEN BY AS SESSEE BY DELETING THE ADDITION MADE BY LD CIT(A). 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. 2 .3 % 2. 1 . 4 - . 56 ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAY, 2013. . !1 - /0& #! 7 8%3 8 TH MAY, 2013 0 - 9 SD/- SD/- ( !' , /RAJENDRA) ( . . /B.R.MITTAL) !# / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 8% DATED 08 / 05 /2013 I.T.A. NO.6618/M/2012 ASSESSMENT YEAR: 2009-2010) 32 . % . ./ PARIDA , SR. PS !1 !1 !1 !1 - -- - *.: *.: *.: *.: ;!:&. ;!:&. ;!:&. ;!:&. / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. < ( ) / THE CIT(A)-32 4. < / CIT-CITY 21 5. :=9 *.% , , / DR, ITAT, MUMBAI 6. 9> ? / GUARD FILE. !1% / BY ORDER, +:. +:. +:. +:. *. *.*. *. //TRUE COPY// 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI