ACIT 17(1), MUMBAI V. FORTALEZA DEVELOPERS, MUMBAI

ITA 7454/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3045 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2014
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Business income; Question of law; Competent authority
• Section: 80IB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO. 7116 & 7117/MUM/2014 (ASSESSMENT YEARS: 2010-11 & 2011-12) M/S FORTALEZA DEVELOPERS 601, COMMERCE HOUSE 140, NAGINDAS MASTER ROAD FORT, MUMBAI 400 023 VS ITO, 15(1)(3) MUMBAI PAN : AAAJF0056B (APPELLANT) (RESPONDENT) I.T.A. NO. 7453 & 7454/MUM/2014 (ASSESSMENT YEARS: 2010-11 & 2011-12) ACIT, 17(1), MUMBAI VS M/S FORTALEZA DEVELOPERS 601, COMMERCE HOUSE 140, NAGINDAS MASTER ROAD FORT, MUMBAI 400 023 (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY SHRI S PANDIAN DATE OF HEARING : 19-07-2016 DATE OF PRONOUNCEMENT : 21 -09-2016 O R D E R PER ASHWANI TANEJA, AM: THESE CROSS APPEALS PERTAIN TO THE SAME ASSESSEE FO R DIFFERENT ASSESSMENT YEARS INVOLVING IDENTICAL ISSUES. THERE FORE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER. 2 2. FIRST, WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.7116/MUM/2014 FOR A.Y. 2010-11 FILED ON THE FOLLOWI NG GROUNDS: BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-26, THIS APPEAL PETITION IS SUBMITTED ON THE FOLLOWING GROUNDS:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CLT(A) ERRED IN CONFIRMING, IGNORING THE OR DER OF THE HON'BLE ITAT IN AY 2007-08 IN APPELLANT'S OWN CASE , THE REDUCTION OF BUSINESS INCOME BY RS.9,37,37,531/- BE ING THE SHARE OF PROFIT OF ONE OF THE MEMBERS OF THE APPELL ANT AOP VIZ M/S SANAND PROPERTIES PVT LTD (SPPL) ERRONEOUSLY, H OLDING THAT IT IS A CASE OF DIVERSION OF SALES OR REVENUE AND NOT A CASE OF APPLICATION OF REVENUE OR SALES. THE REDUCTION OF RS.9,37,37,531/-NEEDS TO BE CANCELLED AND RETURNED BUSINESS INCOME AND CONSEQUENTIAL CLAIM U/S 80IB (10) ON THA T AMOUNT NEEDS TO BE ACCEPTED. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.30,34,472/- BEING THE INTEREST ON FDR MADE OUT O F FUNDS MEANT EXCLUSIVELY FOR THE PROPOSED SOCIETY HOLDING THAT NO MUTUAL ORGANIZATION IS IN EXISTENCE DURING THE PREV IOUS YEAR. ADDITION CONFIRMED WITHOUT APPRECIATING THE FACT TH AT THE APPELLANT NEVER BE SAID TO HAVE DERIVED PROFITS FRO M CONTRIBUTIONS MADE BY THE MEMBERS TO THE FUND WHICH COULD ONLY BE SPENT FOR THEIR BENEFIT OR RETURNED TO THE MEMBERS IS BAD IN LAW AND THE SAME NEEDS TO BE DELETED. 3. GROUND 1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACT ION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN REDUCI NG THE BUSINESS INCOME BY RS.9.37 CRORES BEING THE SHARE OF PROFIT OF ONE OF THE MEMBERS OF AOP OF THE ASSESSEE, VIZ. M/S SANAND PROPERTIES PVT LTD (HEREI NAFTER REFERRED TO AS SPPL) BY HOLDING THAT IT WAS A CASE OF DIVERSION OF REVE NUE AT SOURCE AND NOT A CASE OF APPLICATION OF REVENUE. 4. DURING THE COURSE OF HEARING BEFORE US, IT WAS STAT ED AT THE VERY OUTSET BY THE LD. COUNSEL OF THE ASSESSEE THAT NOW THIS CO NTROVERSY HAS BEEN LAID TO 3 REST AS THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF TH E ASSESSEE BY THE TRIBUNAL CONSISTENTLY FOR THE PREVIOUS YEARS, AND THAT IN ON E OF THE EARLIER YEARS, THE MATTER ALSO REACHED BEFORE THE HONBLE BOMBAY HIGH COURT WHEREIN HONBLE HIGH COURT ALSO AFFIRMED THE ORDER OF THE TRIBUNAL AND THUS, THE ISSUE STANDS COVERED AS ON DATE IN FAVOUR OF THE ASSESSEE. IN R ESPONSE TO THE QUERIES RAISED BY THE BENCH, THE LD. COUNSEL ALSO BROUGHT ON RECOR D VARIOUS DETAILS AND EVIDENCES TO SHOW THAT INCOME OF THE AOP HAS BEEN C OMPUTED STRICTLY AS PER COMMERCIAL PRINCIPLES AND THUS, THERE WAS NO DIVERS ION OF REVENUE AT THE SOURCE. PER CONTRA, THE LD. DR RELIED UPON THE ORDE RS OF THE LOWER AUTHORITIES. 6. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AS WELL AS THE ORDER OF THE TRIBUNAL AND HONBLE HIGH COURT PASSED IN EARLIER YEARS. THE BACKGROUND OF THE ISSUE AND BRIEF FACTS IN THIS CAS E ARE THAT THE ASSESSEE IS AN AOP (ASSOCIATION OF PERSONS) AND ENGAGED IN THE BUS INESS OF REAL ESTATE DEVELOPER. IT HAS TWO MEMBERS NAMELY M/S RAVI RAJ KOTHARI AND COMPANY (RKC) AND M/S SANAND PROPERTIES PVT. LTD (SPPL). AN AGREEMENT WAS ENTERED BETWEEN THE TWO MEMBERS ON 29.04.2003 AS PER WHICH AN AOP WAS CONSTITUTED FOR THE CONSTRUCTION OF THE RESIDENTIAL AND COMMERC IAL BUILDINGS ON SPPL OWNED DEVELOPMENT RIGHTS ON A LAND MEASURING 37,976.90 SQ . MTS. THE ARRANGEMENT BETWEEN THE MEMBERS OF AOP TO SHARE REVENUE/PROFITS IS AS UNDER: SHARE OF REVENUE AND INCOME , ALL AGREEMENTS FOR SALE OF RESIDENTIAL UNITS IN THE HOUSING PROJECT UN DERTAKEN BY THE AOP SHALL BE ENTERED INTO ONLY BETWEEN THE AUTHORISED SIGNATORIES OF THE AOP AND THE RESPECTIV E PURCHASERS OF THE HOUSING UNITS. THE MEMBERS OF THE AOP HEREBY AGREE THAT NEITHER OF THEM WILL DURING THE V ALIDITY OF THIS AGREEMENT EXECUTE ANY INDEPENDENT OR SEPARATE AGREE MENT ON THEIR OWN WITH ANY PROSPECTIVE PURCHASER. ALL PA YMENTS RECEIVABLE FROM THE PURCHASERS TOWARDS THE ABOVE SH ALL BE RECEIVED ONLY IN THE NAME OF THE AOP, I.E. FORTALEZ A DEVELOPERS OUT OF THE AFORESAID AMOUNTS RECEIVED FR OM M/S.FORTALEZA DEVELOPERS A.YS. 2010 - 11 AND AY 2011 - 12 4 THE PURCHASERS OF THE HOUSING UNITS (REPRESENTING THE GROSS SALE PROCEEDS OF THE UNITS INCLUSIVE OF THE VALUE O F LAND) SPPL SHALL BE ENTITLED TO, AS ITS SHARE OF REVENUE/INCOME, AN AMOUNT COMPRISING OF 35% OF SUCH RECEIPTS. IT IS HE REBY AGREED AND UNDERSTOOD BETWEEN THE PARTIES HERETO, T HAT SPPL MAY ACTUALLY WITHDRAW SUCH SHARE OF REVENUE/INCOME TO WHICH IT IS ENTITLED AS PER THE UNDERSTANDING BETWEEN THE PARTIES, FROM TIME TO TIM E. OUT OF THE BALANCE (65% OF THE AFORESAID RECEIPTS REPRESENTING THE GROSS SALE PROCEEDS), ALL REQUIRED AND RELEVANT EXPENDITURE FOR THE PURPOSES OF THE BUSINE SS OF THE AOP SHALL BE MET WITH AND WHATEVER NET BALANCE REMA INS THEREAFTER, SHALL BE DETERMINED AS THE SHARE OF REVENUE/INCOME OF RKC. RKC WILL BE AT LIBERTY TO AC TUALLY WITHDRAW ITS SHARE OF REVENUE/INCOME AS WORKED OUT HEREINABOVE, FROM TIME TO TIME. THE ABOVE ARRANGEMENT OF SHARING OF REVENUE AND IN COME IS RESTRICTED TO THE PRESENT HOUSING PROJECT DEVELOPED BY AOP ON LAND ADMEASURING 31026.90 SQ. MTRS (APPROX. 7.76 ACRES) ON PLOT NO, 72, YERAWADA TPS AND BEARING S. NO, 210 (PART) SITUATED AT VILLAGE YERAWADA, TALUKA HAVELI, DIST. PUNE. HOWEVER FOR ANY OTHER PROJECT TO BE DEVELOPED BY TH IS AOP IN FUTURE THE SHARING OF REVENUE AND INCOME SHALL BE D ECIDED MUTUALLY BY THE PARTIES HERETO FROM TIME TO TIME.' 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O RECOMPUTED THE BUSINESS INCOME OF THE ASSESSEE BY EXCLUDING 35% OF THE SALE PROCEEDS, AND THUS HE COMPUTED THE BUSINESS INCOME ONLY ON THE BA SIS OF REMAINING 65% OF THE REVENUE. IT WAS NOTED BY THE AO THAT THE PERUS AL OF THE AFORESAID AGREEMENT REVEALED THAT IT WAS A REVENUE SHARING AG REEMENT AND NOT A PROFIT SHARING ARRANGEMENT BECAUSE SPPL, I.E. ONE OF THE M EMBERS OF THE AOP WAS ENTITLED TO 35% OF THE GROSS SALE PROCEEDS OF THE P ROJECT CONSTRUCTED ON LAND BELONGING TO SPPL AND CONTRIBUTED TO AOP AND REMAIN ING 65% OF THE SALE PROCEEDS WAS TO BE UTILISED BY THE ASSESSEE FOR MEE TING EXPENDITURE ON CONSTRUCTION AND MARKETING ETC AND ONLY THE BALANC E REMAINED AS PROFIT OF 5 THE OTHER MEMBER OF THE AOP, VIZ. M/S RAVIRAJ KOTHA RI & CO. IT WAS FURTHER FOUND BY THE AO IN THE ACCOUNTS OF THE ASSESSEE THA T SHARE IN SALE PROCEEDS OF SPPL WAS NOT DEBITED AND THE SAME WAS SHOWN AS PART OF NET PROFIT UPON WHICH DEDUCTION WAS CLAIMED U/S 80IB(10). DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, AO ISSUED SHOW CAUSE NOTICE TO THE ASS ESSEE STATING THAT PROFIT AS PER PROFIT AND LOSS ACCOUNT WAS AT RS. 10,17,23, 315/- AND 35% OF THE SAME COMES TO RS.3,56,03,160. THE SALES WERE AT RS.16,85,48,129/- AND 35% OF THAT COMES TO RS.5,89,91,145/-. AS RS,5,89,9 1,145 WAS ALLOCATED TO M/S. SANAND PROPERTIES PVT. LTD WHICH WAS 35% OF THE SALES PROCEEDS, AMOUNTS RECEIVED BY M/S SANAND PROP ERTIES WAS NOT SHARE OF PROFITS BUT A SHARE OF REVENUE/SALE PROCEE DS OF THE PROJECT. AO THUS ASKED THE ASSESSEE TO SHOW CAUSE WHY CLAIM OF DEDUCTION U/S 80IB(10) SHOULD NOT BE RESTRICTED TO RS.4,27,32,169 /- INSTEAD OF RS.10,41,81,525/-. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE RE PLY OF THE ASSESSEE AND RELYING UPON HIS ORDERS FOR EARLIE R YEARS, I.E. A.YS 2007-08, 2008-09 AND 2009-10, HE RECOMPUTED THE BUSINESS INC OME OF THE ASSESSEE AND GRANTED THE BENEFIT OF DEDUCTION U/S 80IB(10) A CCORDINGLY. 8. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD. C IT(A) AND AGITATED THE ACTION OF THE ASSESSING OFFICER IN RE-COMPUTING THE BUSINESS INCOME. IT WAS SUBMITTED, INTER-ALIA , THAT SIMILAR ISSUE HAD ARISEN IN EARLIER YEARS. FURTHER, THE ORDER U/S 263 PASSED BY THE CIT(A) IN A.Y. 2007-08 HAS BEEN SUBSEQUENTLY SET ASIDE BY ITAT AND THUS, THE CLAIM OF THE ASSESSEE HAS BEEN IMPLIEDLY ACCEPTED BY THE ITAT. LD. CIT(A) DID NOT FOLLOW THE ORDER OF ITAT FOR A.Y. 2007-08 ON THE GROUND THAT IT WAS A CASE OF OR DER U/S 263 AND THUS, ASSESSEE CANNOT HAVE BENEFIT OF THE SAME IN THESE P ROCEEDINGS AND THUS, ACTION OF THE ASSESSING OFFICER WAS CONFIRMED. 9. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE TRIBUNA L. 6 10. DURING THE COURSE OF HEARING BEFORE US IT HAS BEE N DEMONSTRATED BY THE LD. COUNSEL THAT THIS ISSUE HAD BEEN THREADBARE DIS CUSSED AND CLARIFIED BY THE TRIBUNAL IN PRECEDING YEARS AS WELL AS BY HONBLE H IGH COURT AND THUS, THIS ISSUE IS NO MORE RES INTEGRA. 11. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE TRIBU NAL AND HIGH COURT IN EARLIER YEARS AND WE SHALL DEAL WITH THEM ONE BY ONE HEREUNDER: 11.1 IT IS NOTED BY US THAT IN A.Y. 2007-08, THIS ISSUE WAS RAISED FOR THE FIRST TIME BY THE CIT BY PASSING ORDER U/S 263. THE MATT ER REACHED BEFORE THE TRIBUNAL AND THE TRIBUNAL DECIDED THIS ISSUE IN FAV OUR OF THE ASSESSEE BY ITS ORDER DT 12-10-2012 REPORTED IN 141 ITD 133. IT IS NOTED BY US THAT THE TRIBUNAL NOT ONLY QUASHED THE ORDER U/S 263 BUT ALSO DISCUSS ED AND ADJUDICATED THE ISSUE INVOLVED THEREIN ON ITS MERITS. THEREFORE, W E FIND IT RELEVANT TO REFER AND REPRODUCE THE RELEVANT PORTION OF THE ORDER PASSED BY THE TRIBUNAL HEREUNDER: 5.5 WE HAVE CAREFULLY CONSIDERED THE VERSION OF LD. CIT IN THE LIGHT OF AVAILABLE ON OUR RECORD. WE HAVE CAREFULLY GONE THR OUGH THE CLAUSE 7 OF THE AGREEMENT AND THE DISTRIBUTION OF REVENUE BY TH E ASSESSEE IN ITS ACCOUNTS DISTRIBUTION OF THE REVENUE IN THE ACCOUNT OF THE ASSESSEE IN ACCORDANCE WITH THE INTENT AND PURPOSE OF CLAUSE-7 OF THE AGREEMENT. ACCORDING TO CLAUSE-7 OF THE AGREEMENT SPPL IS ENTI TLED TO 35% SHARE OF THE GROSS SALE PROCEEDS OF THE INCLUSIVE OF THE VAL UE OF THE LAND. ACCORDING TO DISTRIBUTION IN THE ACCOUNTS OF THE AS SESSEE SPPL HAS RECEIVED RS.15.11 CRORE WHICH IS 35% OF GROSS SALE PROCEEDS OF THE UNIT AMOUNTING TO RS.43.17 CRORES. A SUM OF RS.112.62 C RORE IS CREDITED IN THE ACCOUNT OF SPPL ON ACCOUNT OF LAND ETC. AND RS. 3.49 CRORE IS CREDITED IN THE ACCOUNT OF SPPL. OUT OF BALANCE 65%, AFTER INCLUDING THE MSEB INCIDENTAL CHARGES AND REDUCING THE DEVELOPMENTAL C HARGES A SUM OF RS. 10.76 CRORES HAS BEEN CONSIDERED AS PROFIT SHARE OF RRKC. THEREFORE, THE DISTRIBUTION OF PROFIT MADE BY THE ASSESSEE BETWEEN ITS MEMBERS IS IN ACCORDANCE WITH CLAUSE 7 OF THE AGREEMENT. THE INTE RPRETATION OF CLAUSE- 7 SOUGHT TO BE ADOPTED BY LD. CIT WILL BE AGAINST T HE VERY INTENT AND PURPOSE FOR WHICH THE AOP HAS BEEN FORMED AND IF SU CH INTERPRETATION IS ADOPTED IT WILL TANTAMOUNT TO DENIAL OF EXISTENCE O F AOP WHICH IS NOT EVEN THE CASE OF LD. CIT. IT HAS ALREADY BEEN POINTED OU T THAT AOP IS A SEPARATE AND DISTINCT ASSESSABLE ENTITY AND IS ALSO ENTITLED TO CLAIM THE DEDUCTIONS PERMITTED UNDER THE INCOME-TAX ACT PROVIDED IT FULF ILLS THE CONDITIONS LAID 7 DOWN IN THE SECTION GOVERNING THAT DEDUCTION. THE A SSESSEE AOP IN THE PRESENT CASE HAS BEEN ASSESSED AS AOP AND FOUND TO HAVE FULFILLED THE CONDITION LAID DOWN IN SECTION 80-IB ( 10) AND HAS BEEN HELD TO BE ELIGIBLE FOR SUCH DEDUCTION. THE QUANTUM OF DEDUCTION UNDER SECTION 80-IB ( 10) WILL DEPEND ON THE INCOME EARNED FROM ELIGIBLE PROJECT. THE QUANTUM 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 M AXIMUM MARGINAL RATE. THEREFORE, MANNER IN WHICH THE AOP DISTRIBUTE ITS PROJECT HAS NO BEARING OVER ELIGIBLE QUANTUM OF DEDUCTION UNDER SE CTION U/S. 80-LB (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 NOT ENTITLED THE BENEFIT O F DEDUCTION UNDER SECTION 80-LB (10). THE ONLY OBJECTION OF THE LD.CIT IS THA T DISTRIBUTION OF REVENUE IN THE ACCOUNT OF THE ASSESSEE IS INAPPROPR IATE AND BY THIS MANNER ASSESSEE HAS BEEN BENEFITED BY LARGER I N PLACE OF SMALLER DEDUCTION AVAILABLE TO IT. IN OUR OPINION S UCH OBSERVATIONS OF LD. CIT ARE INCORRECT, FIRSTLY, ON THE GROUND THAT EVEN DISTRIBUTION OF REVENUE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE CAN NOT BE SAID TO BE CONTRARY TO THE PURPOSE AND INTENT DESCRIBED IN CLA USE-7 OF THE AGREEMENT. SECONDLY, THE ALLOWABILITY OR OTHERWISE OF DEDUCTION UNDER SECTION 80-IB( 10) IS DEPENDENT UPON THE MANNER IN WHICH THE PROFIT HAS BEEN DISTRIBUTED AMONG MEMBERS OF AOP BUT IT DEPEND UPON THE FULFILLMENT OF THE CONDITIONS LAID DOWN IN THAT SEC TION AND ALSO THE DEDUCTION IS AVAILABLE TO AN UNDERTAKING AND THE IN DIVIDUAL CONSTITUENT OF AN UNDERTAKING, 5.6 WE HAVE ALSO NOT FOUND ANY FORCE IN THE SUBMISS ION LD. D.R THAT 35% SHARE ALLOCABLE TO SPPL WAS IN THE NATURE OF OVERRI DING TITLE. CLAUSE-7 OF THE AGREEMENT WHICH HAS BEEN SOUGHT INTERPRETED BY LD. CIT DR IN THIS MANNER DOES NOT INDICATE THAT 35% OF THE GROSS REVENUE TO BE SHARED BY SPPL WAS IN THE OVERRIDING TITLE, THEREF ORE, THIS ARGUMENT OF LD. CIT DR HAS TO BE REJECTED AND IT IS TO BE HE LD THAT 35% SHARE RECEIVED BY SPPL WAS NOT IN THE NATURE OF OVERRIDIN G TITLE TO THE REVENUE BUT IT IS ONLY SHARE OF PROFIT OF SPPL. 5.7 IN VIEW OF ABOVE DISCUSSION, IT IS HELD THAT TH E IMPUGNED ASSESSMENT ORDER HER ERRONEOUS NOR PREJUDICIAL TO T HE INTEREST OF REVENUE ON ACCOUNT OF LION OF PROFIT BETWEEN MEMBER S AS PER ACCOUNTS OF THE ASSESSEE AS ION OF PROFIT IN THE AC COUNTS OF THE ASSESSEE IS IN ACCORDANCE WITH CLAUSE- E AGREEMENT AND MANNE R OF ALLOCATION OF PROFIT IN THE ACCOUNT CANNOT BE QUANTUM OF DEDUCTIO N AVAILABLE TO AOP UNDER SECTION 80-IB (10). 11.2. IT IS FURTHER NOTED THAT THE ORDER OF THE TRIBUNAL WAS TAKEN TO HONBLE 8 BOMBAY HIGH COURT BY THE REVENUE. HONBLE HIGH COU RT DISMISSED THE APPEAL OF THE REVENUE VIDE ITS ORDER DT 09-04-2015 REPORTED AT 374 ITR 510 (BOM) WITH DETAILED OBSERVATIONS AND FINDINGS WHICH ARE REPRODUCED HEREUNDER: WE HEARD MR. MALHOTRA, THE LEARNED COUNSEL FOR THE APPELLANT AND MR. MISTRI, THE LEARNED SENIOR COUNSEL, APPEARING F OR THE RESPONDENT AT A CONSIDERABLE LENGTH. MR. MALHOTRA SUBMITTED TH AT THE INTERPRETATION PLACED THE ASSESSING OFFICER AND COM PUTING THE TOTAL INCOME OF RS. 14,63,04,860 WAS CORRECT. HE FURTHER SUBMITTED THAT THE DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80IB (10) WAS JUSTIFIABLE AND CONSIDERED THAT THE RESPONDENT SHALL NOT BE ENTITLED TO CLAIM THE BENEFITS OF THE SAID SECTION 80IB (10) ON ACCOUNT OF THE MANNER IN WHICH CLAUSE (7) OF THE AS SOCIATION OF PERSONS AGREEMENT HAS BEEN WORDED. ACCORDING TO HIM , THE MANNER IN WHICH THE ASSOCIATION OF PERSONS AGREEMENT WAS W ORDED BY THE ASSESSEE, ENTITLED THE ASSESSEE TO CLAIM THE BENEFI T OF SECTION 80IB (10). MR. MISTRI, ON THE OTHER HAND, FAULTED THE RE ASONING OF THE ASSESSING OFFICER AND SUPPORTED THE ORDER OF THE TR IBUNAL. HE SUBMITTED THAT THE ASSESSEE HAD COMPLIED WITH ALL T HE CONDITIONS OF SECTION 80IB (10) AND, THEREFORE, ENTITLED TO CLAIM DEDUCTION. MOREOVER, HE SUBMITTED THAT THE INTERPRETATION OF C LAUSE 7 OF THE ASSOCIATION OF PERSONS AGREEMENT BY THE ASSESSING O FFICER WAS INCORRECT INTERPRETATION OF THE SAID CLAUSE (7)ENTI TLED SPPL CONSTITUENT OF THE ASSESSEE TO APPROPRIATE 35 PER CENT SALE PRO CEEDS AS PROVIDED UNDER THE SAID CLAUSE BEFORE DEDUCTION OF COST OF T HE PROJECT. ACCORDING TO MR. MISTRI, AFTER SPPL APPROPRIATES IT S SHARE OF 35 PER CENT PROCEEDS, THE BALANCE 65 PER CENT WOULD BE USE D BY THE ASSESSEE TO PAY OVERALL COST INCLUDING COST OF DEVE LOPMENT AND ALL THE EXPENSES FOR THE PROJECT. ONLY THEREAFTER T HE RESIDUAL AMOUNT COULD BE APPROPRIATED BY RRK. HAVING CONSIDERED THE VARIOUS SUBMISSIONS, WE ARE C LEAR THAT THE CONTRACT BETWEEN THE TWO PARTIES WAS SELF-EXPLANATO RY AND THE INTERPRETATION PLACED BY THE ASSESSEE ON CLAUSE (7) AND CLAIMING DEDUCTION UNDER SECTION 80-IB(10) IS IN ORDER. THE INTERPRETATION OF ONE OF THE ASSESSING OFFICER COULD NOT HAVE SUBSTIT UTED THE PARTIES INTERPRETATION OF THE RELEVANT CLAUSE (7) OF THE AS SOCIATION OF PERSONS AGREEMENT WITH HIS OWN REASONING AND THAT TOO, TO T HE DETRIMENT OF 9 THE ASSESSEE. THE FACTS, IN THE PRESENT CASE ALSO, REVEAL THAT TH E CONCLUSIONS ARRIVED AT BY THE TRIBUNAL, VIDE ORDER DATED OCTOBE R 12, 2012, ARE NEITHER PERVERSE NOR GIVING RISE TO ANY ERROR OF LA W APPARENT ON THE FACE OF THE RECORD. THE ISSUE CANNOT HE REOPEN ED IN THE MANNER SOUGHT TO BE DONE IN THE PRESENT CASE AND SE CTION 263 OF THE ACT COULD NOT BE RESORTED TO FOR THE PURPOSE. T HE ORDER OF THE ASSESSING OFFICER HAD OBVIOUSLY MERGED WITH THE FIR ST APPELLATE AUTHORITY, ACCORDINGLY, WE FIND THAT THE SUBJECT AP PEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. THE APPEAL I S, DISMISSED. THERE WILL BE NO ORDERS AS TO COSTS. 11.3. IT IS FURTHER NOTED THAT IN A.YS. 2008-09 & 2009-10 , THIS ISSUE CAME UP BEFORE THE TRIBUNAL WHEREIN IDENTICAL GROUND WAS RA ISED BY THE ASSESSEE WHICH IS REPRODUCED AS UNDER FOR THE SAKE OF READY REFERE NCE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE REDUCTION OF BUSINES S INCOME BY RS.14,64,64,961/- BEING THE SHARE OF PROFIT OF ON T HE MEMBERS OF THE APPELLANT AOP ERRONEOUSLY HOLDING THAT THE AGREEMEN T ENTERED INTO BETWEEN THE MEMBERS OF THE AOP IS FOR SHARING OF TH E REVENUE AND NOT FOR SHARING OF THE NET PROFIT. REDUCTION OF BUS INESS INCOME BEING BAD IN LAW, THE SAME NEEDS TO BE CANCELLED AND RETU RNED BUSINESS INCOME AND CONSEQUENTIAL CLAIM U/S. 80IB(10) ON THA T AMOUNT NEEDS TO BE ACCEPTED. THE TRIBUNAL HAD CONSIDERED THE FACTS OF THE CASE A ND ORDER OF THE TRIBUNAL FOR A.Y. 2007-08 AND RELYING UPON THE SAME, IT WAS FOUN D THAT THE FACTS WERE IDENTICAL IN THESE YEARS AND, THEREFORE, THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND ORDERS OF THE LOWER AUTHORITIES WERE R EVERSED. 11.4 WE HAVE GONE THROUGH THE ORDERS PASSED BY THE TRIBU NAL AND FIND THAT THE ORDERS PASSED IN EARLIER YEARS SQUARELY COVERS THE ISSUE. LD. DR MADE VEHEMENT ARGUMENTS WITH RESPECT TO THIS ISSUE AND C ONTENDED THAT IN THIS CASE, THE REVENUE EARNED BY THE ASSESSEE WAS DIVERTED AT THE SOURCE WHEREBY 35% OF THE SHARE WAS DIVERTED TO ONE OF ITS MEMBERS, VIZ. SPPL AND, THEREFORE, THE SAID 10 DIVERTED AMOUNT SHOULD NOT BE CONSIDERED AS PART OF THE BUSINESS INCOME OF THE ASSESSEE. THEREFORE, TO FIND OUT THE COMPLETE T RUTH, WE ASKED THE LD. COUNSEL TO SUBMIT BEFORE US COMPLETE WORKING OF THE COMPUTATION OF INCOME AND PROFIT OF THE ASSESSEE. IN RESPONSE TO THE SAM E, IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT INCOME AND PROFIT OF THE ASSES SEE IS COMPUTED PURELY ON COMMERCIAL PRINCIPLES AND AFTER COMPUTING THE PROFI T IN THIS MANNER, THE APPORTIONMENT IS DONE OF THE INCOME BETWEEN THE TWO MEMBERS. IT WAS VEHEMENTLY SUBMITTED THAT COMPUTATION OF PROFIT AND DISTRIBUTION OF PROFIT ARE TWO SEPARATE ACTIONS WHICH ARE INDEPENDENT OF EACH OTHER AND SHOULD NOT BE MIXED FOR THE PURPOSE OF ARRIVING AT THE TAXABLE IN COME AND TAX PAYABLE THEREON. THE ASSESSING OFFICER HAD BECOME CONFUSED AND THAT IS WHY THIS WHOLE LITIGATION HAD TAKEN PLACE. WITH A VIEW TO F IND PRECISE FACTS AND TRUTH IN THIS REGARD, WE ANALYSED, WITH THE ASSISTANCE OF BO TH THE PARTIES, THE COMPUTATION OF INCOME AND P&L ACCOUNT AND WORK SHEE T OF ALL THE ASSESSMENT YEARS I.E. 2007-08, 2008-09, 2009-10, 2010-11 & 20 11-12. IT IS NOTED BY US THAT THE COST OF LAND HAS BEEN MADE PART OF THE WORK-IN- PROGRESS AND IS ACCORDINGLY APPORTIONED ON YEAR TO YEAR BASIS DEPENDING UPON TH E AMOUNT OF DIFFERENCE BETWEEN THE OPENING BALANCE OF WIP AND CLOSING BALA NCE OF WIP. THE EXPENDITURE PERTAINING TO COST OF CONSTRUCTION ARE PROVIDED FOR IN THE PERIOD TO WHICH THEY RELATE. FOR THE SAKE OF SIMPLICITY, ONE CONSOLIDATED CHART HAS BEEN SUBMITTED BY THE LD. COUNSEL WHICH CLARIFIES THIS I SSUE THREADBARE. THE WORKING SUBMITTED IN THIS CHART IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: SR. NO. PARTICULARS A.Y. 07-08 A.Y. 08-09 A.Y. 09-10 A.Y.10 -11 A.Y. 11-12 1. GROSS RECEIPTS 44.66 42.50 17.06 27.47 24.44 2. LESS : WIP (INCLUSIVE OF LAND AND CONSTRUCTION COST) 30.41 19.38 6.89 10.34 8.,71 11 PROPORTIONATE TO SALES 3. INCOME OF AOP 14.25 22.12 10.17 17.13 15.73 4. SHARE OF M/S SANAD PROPERTIES PVT LTD 3.49 14.18 5.89 9.42 8.45 5. SHARE OF RAVI RAJ KOTHARI AND CO. 10.76 7.94 4.28 7.71 7.28 6. TOTAL 14.25 22.12 10.17 17.13 156.73 A PERUSAL OF THESE DETAILS AND DOCUMENTS CLEARLY RE VEALS THAT ASSESSEE HAS COMPUTED THE PROFIT OF THE AOP FIRM PURELY ON COMME RCIAL PRINCIPLES AFTER DEDUCTING THE COST OF LAND AND CONSTRUCTION EXPENSE S FROM THE AMOUNT OF SALES / REVENUE AND ACCORDINGLY NET PROFIT WAS SHOWN UNDE R THE HEAD INCOME FROM BUSINESS UPON WHICH DEDUCTION U/S 80IB(10) HAS BEE N CLAIMED. IN OUR CONSIDERED VIEW, THE COMPUTATION OF PROFIT AND DETE RMINATION OF TAXABLE INCOME IS ONE ASPECT WHICH IS DIFFERENT FROM APPORT IONMENT OF PROFIT / INCOME BETWEEN THE AOP MEMBERS. IT APPEARS THAT ASSESSING OFFICER HAD MIXED UP THESE TWO INDEPENDENT ACTIONS WHICH LED TO WHOLE CO NFUSION AND AVOIDABLE LITIGATION. THUS, WE FIND THAT THE TRIBUNAL HAD CO RRECTLY APPRECIATED THE WHOLE ISSUE IN THE PRECEDING YEARS AND THE SAME HAS ALSO GOT AFFIRMATION FROM THE HONBLE HIGH COURT. THUS, VIEWED FROM ANY ANGLE, T HE ACTION OF THE LOWER AUTHORITIES IN RE-COMPUTING THE INCOME WAS NOT JUST IFIED AND, THEREFORE, THE SAME IS HEREBY REVERSED. GROUND 1 IS ALLOWED. 12. GROUND 2: IN THIS GROUND, THE ASSESSEE HAS CONTESTED THE ACTI ON OF LOWER AUTHORITIES IN TAXING THE INTEREST ON FDR OF RS.320 ,34,472 RECEIVED ON ACCOUNT OF THE FUNDS TO BE USED BY THE PROPOSED SOCIETY. 13. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER NOTE D DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD EARNED DURING THE YEAR UNDER CONSIDERATION, A SUM OF RS.30,34,472/- FROM UNION B ANK ON ACCOUNT OF INTEREST OF FDRS, WHICH WAS NOT OFFERED TO TAX BY THE ASSESS EE. ACCORDINGLY, THE 12 ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE A SSESSEE FOR BRINGING THE SAME TO TAX. THE ASSESSEE SUBMITTED VIDE ITS SUBMI SSION DT 21-02-2012 TO THE ASSESSING OFFICER THAT THE AFORESAID INTEREST INCOM E WAS NOT TAXABLE IN ITS HANDS. THE ASSESSEE SUBMITTED THAT ASSESSEE WAS BO UND BY THE AGREEMENT ENTERED WITH THE PURCHASERS TO FORM A SOCIETY AND T O TRANSFER THE ENTIRE FUNDS INCLUDING THE IMPUGNED INTEREST INCOME FOR THE MAIN TENANCE OF THE HOUSING PROJECT DEVELOPED BY IT AND, THEREFORE, THE AFORESA ID INTEREST INCOME WAS NOT INCOME OF THE ASSESSEE AT ALL, AND THEREFORE, THE S AME WAS NOT TAXABLE IN ITS HANDS. THE RELEVANT PART OF ASSESSEES SUBMISSION IS REPRODUCED BELOW: WE SUBMIT THAT THE ASSESSEE IS CONTRACTUALLY OBLIGE D TO FOLLOW THE AGREED TERMS. IT IS SUBMITTED THAT THE AMOUNT KEPT DEPOSITED BY THE FLAT PURCHASER WAS ONLY FOR THEIR USE FOR MUTUAL US E OF THE MEMBERS OF THE COMMON ORGANIZATION ONLY. THE ASSESSEE IS AN AG ENT OF THE MEMBERS FOR COLLECTION AND KEEP THE CORPUS AS P ER THE SPECIFIC DIRECTIONS AS MENTIONED ABOVE. THE FACTS A RE THAT ALL FLAT PURCHASERS WILL BECOME MEMBERS OF THE COMMON OBJECT OF MAINTENANCE AND UPKEEP OF THE COMMON FUND FOR FINAN CING THE COST OF COMMON OBJECT OF MAINTENANCE AND UPKEEP OF THE COMMON AMENITIES/ BUILDINGS FOR MUTUAL INTEREST AND HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY. THE CONCEPT AND PRINCIPAL OF MUTUALITY HAS BEEN ELA BORATELY EXAMINED BY THE APEX COURT AND FOLLOWED IN SEVERAL DECISIONS OF HIGH COURTS AND TRIBUNALS. THERE ARE THREE CONDITIONS FO R APPLICABILITY OF THE PRINCIPLE OF MUTUALITY, WHICH ARE AS FOLLOWS:- A) WHERE A NUMBER OF REASONS COMBINE TOGETHER CONTRIBU TE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OB JECT; B) THEY HAVE NO DEALINGS OR RELATION WITH ANY OUTSIDE BODY; AND C) SURPLUS GENERATES A NOT SPENT FOR ANY OTHER PURPOSE ACCEPTING FOR THE WELFARE OF THE PRINCIPLES. ON THIS BASIS, COURTS CLEARLY HELD THAT EVEN IF THE RE WAS AN INCOME EARNED BY THE SOCIETY IN THE FORM OF INTEREST BY KE EPING THE FUNDS GENERATED FROM THE MEMBERS IN THE BANK. IT IS SUBMITTED THAT THE AMOUNT COLLECTED THE FLAT PURCHASER AS CORPUS HAS BEEN KEPT IN FIXED DEPOSITS AND HAD NOT BEEN DI VERTED FOR ANY OTHER PURPOSE. IN VIEW OF PRINCIPLE OF MUTUALITY TH E INTEREST ACCRUED IS 13 NOT A TAXABLE INCOME. THE ASSESSEE HAS PREPARED SEP ARATE BALANCE SHEET AND RECEIPT PAYMENT ACCOUNT GOT AUDITED AND S UBMITTED TO THE MEMBERS. AS EXPLAINED ABOVE THE ASSESSEE DECLARED INTEREST I NCOME OF RS.59, 972/- AND CLAIMED TDS ON THIS AMOUNT ONLY. T HE INTEREST AMOUNT RS.29, 74,500/- PERTAINING TO FLAT PURCHASERS HAS B EEN KEPT SEPARATE AND INCLUDED IN THE SEPARATE BALANCE SHEET AND RECE IPT PAYMENT ACCOUNT PREPARED, GOT AUDITED AND SUBMITTED TO THE MEMBERS.' 14. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE S UBMISSIONS OF THE ASSESSEE AND ASSESSED THE AFORESAID INTEREST INCOME AS INCOME OF THE ASSESSEE MAINLY ON THE GROUND THAT ASSESSEE HAS NOT PRODUCED THE PROOF THAT THE SAID INTEREST INCOME HAS BEEN REMITTED TO THE SOCIETY AS THE SOCIETY WAS NOT STILL FORMED. 15. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE LD. CIT(A) WHERE EXHAUSTIVE SUBMISSIONS WERE MADE. THE ASSESSEE ALS O SUBMITTED VARIOUS EVIDENCES TO CLARIFY THE DOUBTS RAISED BY THE ASSES SING OFFICER AND TO SHOW THAT ENTIRE FUNDS WHICH WERE RECEIVED BY THE ASSESSEE WE RE TRANSFERRED TO THE SOCIETY INCLUDING WHATEVER AMOUNT OF INTEREST WAS R ECEIVED FROM THE BANK AND NO AMOUNT WAS USED BY THE ASSESSEE FOR ITS OWN USE OR BENEFIT. LD. CIT(A) DID NOT ACCEPT ARGUMENTS ABOUT APPLICATION OF THE PRINC IPLE OF MUTUALITY IN VIEW OF THE FACTS OF THE CASE AND RELYING UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF BANGALORE CLUB VS CIT DT 14-6-2013, AND TH E AFORESAID AMOUNT OF INTEREST WAS HELD TO BE RIGHTLY TAXED IN THE HANDS OF THE ASSESSEE. 16. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE VEHEMENT LY MADE DETAILED ARGUMENTS AND PLACED BEFORE US, SAMPLE COPY OF AGRE EMENT ENTERED WITH THE BUYERS TO SHOW THAT THESE FUNDS WERE RECEIVED BY TH E ASSESSEE IN A FIDUCIARY CAPACITY FROM THE BUYERS WHICH WERE TO BE TRANSFERR ED TO THE SOCIETY ALONG WITH AMOUNT OF INTEREST RECEIVED THEREON. OUR ATTE NTION WAS ALSO DRAWN UPON 14 RELEVANT PROVISIONS OF MAHARASHTRA OWNERSHIP FLATS (REGULATIONS AND THE PERMISSION OF CONSTRUCTION, SALE, MANAGEMENT & TRAN SFER) ACT, 1963 (HEREINAFTER CALLED, MOFA) AND IT WAS ARGUED THAT T HE ASSESSEE WAS BOUND BY THESE REGULATIONS AND ACCORDINGLY ASSESSEE WAS BOUN D TO KEEP THESE FUNDS IN FIDUCIARY CAPACITY TO BE HANDED OVER TO THE SOCIETY FOR MAINTENANCE OF THE BUILDING CONSTRUCTED BY THE ASSESSEE. DURING THE C OURSE OF HEARING, LD. COUNSEL SUBMITTED THAT THOUGH IN THE A.YS 2012-13 & 2013-14 SIMILAR INTEREST INCOME WAS OFFERED TO TAX BY THE ASSESSEE INADVERTE NTLY, BUT HE GAVE AN UNDERTAKING AT THE BAR ON BEHALF OF THE ASSESSEE TH AT IN CASE THIS ADDITION IS DELETED IN THE IMPUGNED YEAR, THEN THE ASSESSEE SHA LL NOT SEEK ANY RECTIFICATION IN ASSESSMENT YEARS 2012-13 AND 2013- 14 IN PURSUANCE TO ORDER OF THE TRIBUNAL. 17. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF TH E LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THESE FACTS ARE STILL NO T AVAILABLE ON RECORDS THAT WHETHER THE ASSESSEE HAS TRANSFERRED THIS AMOUNT IN TOTALITY TO THE SOCIETY OR SOME PORTION HAS BEEN APPROPRIATED BY THE ASSESSEE. 18. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND ORDE RS PASSED BY THE LOWER AUTHORITIES. THE ADMITTED FACTS ARE THAT ASS ESSEE, AN AOP, HAD COLLECTED DEPOSITS AS PER THE PROVISIONS OF THE AGREEMENT EXE CUTED WITCH THE BUYERS OF THE FLATS TOWARDS CORPUS FOR MAINTENANCE AND RELATE D JOBS TILL THE FORMATION OF THE SOCIETY. AS PER THE AGREEMENT, THE AMOUNT WAS TO BE TRANSFERRED TO THE SOCIETY FOR MAINTENANCE OF THE FLATS. IN THE MEANT IME, TILL THE AMOUNT WAS TRANSFERRED, THE DEPOSITS WERE KEPT IN FDR BY THE A SSESSEE (AOP) WITH THE BANK AND INTEREST WAS CREDITED BY THE BANK UPON THESE FD R. THUS, THE MOOT QUESTION THAT ARISES HERE IS WHETHER, THE INTEREST SO CREDITED BY THE BANK ON THIS FDR SHALL FORM PART OF THE INCOME OF THE ASSES SEE OR NOT? 15 19. WE HAVE ANALYSED THIS ISSUE AND TO BEGIN WITH OUR ANALYSIS, WE HAVE REFERRED TO THE RELEVANT CLAUSE OF THE SAMPLE AGREE MENT WHICH THE ASSESSEE HAS ENTERED INTO WITH ONE OF ITS CUSTOMERS. IT IS NOTED THAT CLAUSE 14 OF THE AGREEMENT CLEARLY STIPULATES ABOUT THE OBLIGATION O F THE PURCHASER TO PAY A PARTICULAR AMOUNT TOWARDS CORPUS IN THE NAME OF SEC URITY DEPOSIT FOR MAINTENANCE AND UPKEEP OF THE COMMON AMENITIES AND BUILDINGS. IT ALSO STIPULATES AND CASTS AN OBLIGATION UPON THE DEVELOP ER BUILDER (I.E. THE ASSESSEE AOP) TO PUT THE ENTIRE AMOUNT COLLECTED FROM THE PU RCHASERS TOWARDS CORPUS FOR THE MAINTENANCE AND UPKEEP OF THE COMMON AMENIT IES AND BUILDINGS IN THE FDR AND ALSO TO GIVE DETAILED ACCOUNT THEREOF TO TH E BUYER. IT IS FURTHER NOTICED BY US THAT THE ASSESSEE IS ALSO BOUND BY TH E STRICT REGULATIONS OF THE MOFA. IT IS NOTED THAT SECTION 5 OF MOFA PROVIDES AS UNDER: 5. PROMOTER TO MAINTAIN SEPARATE ACCOUNT OF SUMS TA KEN AS ADVANCE OR DEPOSIT AND TO BE TRUSTEE THEREOF AND DI SBURSE THEM FOR THE PURPOSES FOR WHICH THEY ARE GIVEN -THE PROMOTER SHALL MAINTAIN A SEPARATE ACCOUNT IN ANY BANK OF SUMS TAK EN BY HIM, FROM PERSONS INTENDING TO TAKE OR WHO HAVE TAK EN, FLATS, AS ADVANCE OR DEPOSIT, INCLUDING ANY SUMS SO TAKEN TOW ARDS THE SHARE CAPITAL FOR THE FORMATION OF A. CO-OPERATIVE SOCIETY OR A COMPANY, OR TOWARDS THE OUTGOINGS (INCLUDING GROUND RENT IF ANY, MUNICIPAL OR OTHER LOCAL TAXES, TAXES ON INCOME, WA TER CHARGES, ELECTRICITY CHARGES, REVENUE ASSESSMENT, I NTEREST ON ANY MORTGAGE OR OTHER ENCUMBRANCES IF ANY); AND HE SHALL HOLD THE SAID MONEYS FOR THE PURPOSES FOR WHICH THEY WER E GIVEN AND SHALL DISBURSE THE MONEYS FOR THOSE PURPOSES AND SH ALL ON DEMAND IN WRITING BY A COMPETENT AUTHORITY, MAKE FU LL AND TRUE DISCLOSURE OF ALL TRANSACTIONS IN RESPECT OF THAT A CCOUNT. 20. IT IS FURTHER NOTED THAT SECTION 13(1) & (2) OF MOFA DEAL WITH OFFENCES OF PROMOTER AND CONSEQUENCES ON CONVICTION, PROVIDE AS UNDER: 13. OFFENCES BY PROMOTERS AND CONSEQUENCES ON CONVI CTION- (1) ANY PROMOTER WHO, WITHOUT REASONABLE EXCUS E, FAILS TO COMPLY WITH OR CONTRAVENES, THE PROVISIONS OF SECTIONS 3, 4, 5 (SAVE AS PROVIDED IN SUB-SECTION (2) OF THIS SECTION), 10 OR 11 SHALL, O N CONVICTION BE, PUNISHED WITH IMPRISONMENT FOR A TERM WHICH MAY EXT END TO THREE YEARS OR WITH FINE, OR WITH BOTH. 16 (2) ANY PROMOTER WHO COMMITS CRIMINAL BREACH OF TRUST O F ANY AMOUNT ADVANCED OR DEPOSITED WITH HIM FOR THE PURP OSES MENTIONED IN SECTION 5 SHALL, ON CONVICTION, BE PUN ISHED WITH IMPRISONMENT FOR A TERM WHICH MAY EXTEND TO FIVE YE ARS, OR WITH FINE, OR WITH BOTH. 21. THUS, FROM THE PERUSAL OF VARIOUS CLAUSES OF THE AG REEMENT ENTERED WITH THE BUYERS AND STRICT PROVISIONS OF MOFA, AS REPROD UCED ABOVE, WE CAN CONCLUDE THAT ASSESSEE WAS BOUND TO KEEP THE AMOUNT OF SECURITY DEPOSIT RECEIVED FROM ITS CUSTOMERS (BUYERS OF FLATS) IN A SEPARATE ACCOUNT TO BE SPENT FOR THE DESIGNATED PURPOSES AND TO TRANSFER THE BAL ANCE AMOUNT TO THE SOCIETY FOR THIS PURPOSE. THE ASSESSEE HAD NO DISCRETION O R PERMISSION OR ANY TYPE OF LIBERTY OR FLEXIBILITY TO USE IT FOR ITS OWN PURPOS ES OR FOR ANY OTHER PURPOSE NOT STIPULATED IN THE AGREEMENT. UNDER THESE CIRCUMSTA NCES, IT CAN SAFELY BE CONCLUDED THAT THIS AMOUNT WAS RETAINED IN A FIDUCI ARY CAPACITY. THERE WAS NO DISTINCTION BETWEEN THE AMOUNT OF PRINCIPAL AND AMO UNT OF INTEREST CREDITED BY THE BANK, AS FAR AS THE ASSESSEE IS CONCERNED. THUS, FOR THE ASSESSEE IT WAS SIMPLY AN AMOUNT RECEIVED IN ADVANCE WHICH WAS TO B E TRANSFERRED TO THE SOCIETY OR TO BE SPENT FOR THE DESIGNATED PURPOSES. IT HAS NO CHARACTER OR ELEMENT OF INCOME AS FAR AS ASSESSEE IS CONCERNED. IT WAS SIMPLY HELD IN THE FORM OF AN OBLIGATION / LIABILITY. THE ASSESSEE WA S A TRUSTEE OR CUSTODIAN SIMPLICITER OF THE SAID AMOUNT. THE REAL INCOME TH EORY AS IS FOLLOWED UNDER INCOME TAX LAW DOES NOT PERMIT ASSESSMENT OF AN AMO UNT AS INCOME UNLESS IT HAS GOT ELEMENTS OR CHARACTERISTICS OF INCOME IN TH E HANDS OF ITS RECIPIENT. UNDER THESE CIRCUMSTANCES, WE FIND THAT PRINCIPALLY SPEAKING THE IMPUGNED AMOUNT OF INTEREST CANNOT BE TREATED AS INCOME IN T HE HANDS OF THE ASSESSEE. 22. LD. CIT(A) HAS HELD IT TO BE TAXABLE ON THE GROUND THAT PRINCIPLES OF MUTUALITY DOES NOT APPLY HERE. WE AGREE WITH THE L D. CIT(A) THAT PRINCIPLES OF MUTUALITY DOES NOT APPLY WHERE THE AMOUNT OF INTERE ST INCOME IS RECEIVED FROM A THIRD SOURCE, I.E. A BANK HERE. IT HAS BEEN SO CLARIFIED NOW BY HONBLE 17 SUPREME COURT ALSO IN THE CASE OF BANGALORE CLUB VS CIT (SUPRA). THERE IS NO DISPUTE OR DOUBT ON THAT. BUT THE SAID ISSUE (OF A PPLICATION OF PRINCIPLE OF MUTUALITY) NEEDS TO BE EXAMINED IN THE HANDS OF THE SOCIETY WHERE THIS INCOME SHALL BE FINALLY APPROPRIATED / EXHAUSTED. THE ASSESSEE BEING MERELY A CONDUIT FOR TRANSFERRING THE IMPUGNED AMOUNT FROM T HE BUYERS TO THE SOCIETY OR IT CAN BE DESCRIBED AT BEST AS A CUSTODIAN/TRUST EE OF THIS AMOUNT, IT CANNOT BE HELD TO BE AN ASSESSEE LIABLE TO BE TAXED FOR TH IS AMOUNT WHICH IS HELD IN FIDUCIARY CAPACITY. THE ISSUE OF TAXABILITY OF THI S AMOUNT CAN OF COURSE BE EXAMINED IN THE HANDS OF THE SOCIETY. THE REVENUE IS FREE TO DO SO, AS PERMITTED UNDER THE LAW KEEPING IN VIEW THE AFORESA ID JUDGMENT OF THE HONBLE SUPREME COURT OR ANY OTHER LAW / JUDGMENT A S MAY BE APPLICABLE AND ALSO KEEPING IN VIEW APPLICABILITY OF THE PRINCIPLE S OF MUTUALITY. 23. THE OTHER APPREHENSION RAISED BY THE LD. DR WAS THA T IN A.YS. 2012-13 & 2013-14 THE ASSESSEE HAS ITSELF PAID TAX ON THE A MOUNT OF INTEREST ON THESE DEPOSITS AND THEREFORE, POSITION IN THESE YEARS SHO ULD NOT BE DISTURBED IRRESPECTIVE OF THE FACT THAT WHATEVER DECISION IS TAKEN BY THE TRIBUNAL IN THE IMPUGNED YEAR. IN REPLY, THE LD. COUNSEL SUBMITTED THAT THOUGH THE TAX WAS PAID IN A.YS. 2012-13 & 2013-14 BY MISTAKE AND INAD VERTENTLY, STILL THE ASSESSEE HEREBY UNDERTAKES NOT TO SEEK ANY KIND OF REFUND/ RECTIFICATION IN THESE TWO YEARS. IN THIS REGARD, THE ASSESSEE AL SO SUBMITTED AN UNDERTAKING BY WAY OF ITS LETTER DT 20-07-2016, THE RELEVANT PA RT OF WHICH IS REPRODUCED HEREUNDER: 1 KINDLY REFER TO THE CAPTIONED MATTER THAT WAS HE ARD BEFORE YOUR HONOURS ON 20.07.2016 2. THE ASSESSEE AOP HAD BEEN COLLECTING DEPOSITS AS PE R THE PROVISIONS OF AGREEMENT EXECUTED WITH THE BUYERS OF THE FLAT TOWARDS CORPUS FOR MAINTENANCE, ETC. TILL THE FORMATION OF THE SOCIETY. THE SAID AMOUNT WHICH WAS HELD IN F IDUCIARY 18 CAPACITY BY ASSESSEE AOP WAS KEPT IN FIXED DEPOSIT AND INTEREST WAS RECEIVED THEREFROM. 3. THE SAME WAS NOT OFFERED TO TAX IN A.Y. 2010-11 AND 2011- 12 SINCE THE SAME BELONGED TO THE BUYERS OF THE FLA T AND WAS HELD IN FIDUCIARY CAPACITY BY ASSESSEE. 4. HOWEVER, IN A.Y. 2012-13 AND 2013-14, INTEREST O N ED WAS RECEIVED AND BY OVERSIGHT WAS OFFERED TO TAX BY ASS ESSEE. WE HEREBY UNDERTAKE AND CONFIRM THAT WE SHALL NOT R ETRACT FROM THE ABOVE POSITION BY WAY OF MOVING ANY RECTIF ICATION APPLICATION BY FILING ADDITIONAL GROUND OF APPEAL B EFORE APPELLATE AUTHORITY OR BY ANY OTHER MEANS WHATSOEVE R. FURTHER, THE TAX PAID ON INTEREST RECEIVED ON ED FO R A.Y. 2012- 13 AND 2013-14 WILL ALSO NOT BE CLAIMED BACK AS REF UND OR OTHERWISE. THE AO IS DIRECTED TO ENSURE THAT THE ASSESSEE ADHE RES TO AFORESAID UNDERTAKING FOR THE SAKE OF FINALITY. THUS, APPREHE NSION OF THE REVENUE IN THIS REGARD DULY ADDRESSED. 24. THE OTHER OBJECTION OF LD. CIT(A) WHICH HAS BEEN RE ITERATED BY THE LD. DR ALSO BEFORE US WAS THAT THERE WAS NO CLARITY ON FAC TS WITH REGARD TO TRANSFERRING OF IMPUGNED SECURITY DEPOSIT AMOUNT TO THE SOCIETY BY THE ASSESSEE IN ENTIRETY. IN FACT, FROM THE ARGUMENTS OF THE LD. D R IT TRANSPIRES THAT THIS IS THE ONLY OBJECTION LEFT TO BE ADDRESSED AS PER FINAL ST AND OF THE REVENUE. THUS, IN ALL FAIRNESS TO BOTH THE PARTIES, WE FIND IT APPROP RIATE TO SEND THIS ISSUE BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF THESE FAC TS. THE ASSESSEE SHALL BRING ON RECORD ALL REQUISITE EVIDENCES TO DEMONSTRATE THAT THE IMPUGNED AMOUNTS RECEIVED BY WAY OF DEPOSITS FROM THE CUSTOMERS ALON G WITH THE AMOUNT OF INTEREST CREDITED BY THE BANK THEREON HAVE BEEN TRA NSFERRED TO THE CONCERNED SOCIETY. IN CASE, ANY AMOUNT HAS BEEN APPROPRIATED BY THE ASSESSEE IN VIOLATION OF THE AGREEMENT OR IN VIOLATION OF THE R EGULATIONS OF MOFA, THEN 19 CORRESPONDING AMOUNT OF INTEREST THEREON CAN BE BRO UGHT TO TAX IN THE HANDS OF THE ASSESSEE. THUS, WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THIS GROUND AFRESH. IT IS ALSO DIRECTED THAT THE ASSESSEE SHALL ABIDE BY ITS UNDERTAKING DT 20-07-2016 WHICH HAS BEEN REPRODUCED ABOVE. THE ASSESSING OFFICER SHALL ALSO VERIFY RELEVANT FACTS IN THIS REGARD. AS A RESULT, THIS GROUND OF APPEAL IS TREA TED AS ALLOWED, FOR STATISTICAL PURPOSES. 25. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. 26. NOW WE SHALL TAKE UP REVENUES APPEAL IN ITA NO . 7453/MUM/2014 FOR A.Y. 2010-11. THE REVENUE HAS FILED APPEAL ON FOLLOW ING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S. 801B(10). 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING T HE CLAIM OF THE ASSESSEE OF DEDUCTION U/S.80IB(10) OF RS. 17,08,31 ,084/- WITHOUT APPRECIATING THE FACT THAT CIT(A) IN THE IMPUGNED ORDER ITSELF CORRECTLY INTERPRETED CLAUSE 7 OF THE AOP AGREEMENT DATED 29 /04/2003 BY DETAILED ANALYSIS BY UPHOLDING THE ACTION OF THE AO OF EXCLUDING THE SHARE OF SPPL FROM THE REVENUE OF THE ASSESSEE WHILE COMPUTING BUSINESS INCOME OF THE ASSESSEE WHILE DEALING WITH GROUND NO. 3 OF THE ASSESSEE. 26. GROUND 1: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACT ION OF THE LD.CIT(A) IN ALLOWING DEDUCTION U/S 80IB(10). THE BRIEF FACTS ARE THAT THE ASSESSEE HAS BEEN CLAIMING DEDUCTION U/S 80IB (10) AS DEVELOPER SINCE AY 2007- 08. IT IS NOTED BY US THAT IN AYS 2007-08, 2008-09 AND 2009-10, LD. CIT(A) HAS ALLOWED THE DEDUCTION TO THE ASSESSEE AND REVENUES APPEALS IN THESE THREE YEARS WERE DISMISSED BY THE TRIBUNAL. RELYING UPON THE ORDERS OF THE TRIBUNAL, 20 THE LD. CIT(A) IN THE IMPUGNED YEAR HAS ALLOWED THE RELIEF TO THE ASSESSEE WHICH HAS BEEN CONTESTED BY THE REVENUE BEFORE US. 27. DURING THE COURSE OF HEARING, IT WAS BROUGHT TO OUR NOTICE BY THE LD. COUNSEL OF THE ASSESSEE THAT THE REVENUE HAD CARRIE D THIS MATTER BEFORE THE HONBLE HIGH COURT AND HONBLE HIGH COURT HAS AFFIR MED THE ORDER OF THE TRIBUNAL AND DISMISSED THE APPEAL OF THE REVENUE AN D THUS THIS ISSUE NOW STANDS SETTLED IN FAVOUR OF THE ASSESSEE BY THE ORD ER OF THE HONBLE JURISDICTIONAL HIGH COURT. 28. PER CONTRA, LD. DR RELIED UPON THE ORDERS OF THE LO WER AUTHORITIES AND DID NOT MAKE ANY DISTINCTION ON FACTS OR LAW. 29. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHOR ITIES. IT IS NOTED THAT THE BENEFIT OF DEDUCTION U/S 80IB WAS DENIED B Y THE ASSESSING OFFICER ON THE GROUND THAT CERTAIN FLATS WERE HAVING CONSTRUCT ED AREA OF MORE THAN 1500 SQ.FT. AND THUS, VIOLATED THE CONDITIONS OF SECTION 80IB (10). THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN A.Y . 2007-08 CONFIRMING THE ORDER OF THE LD. CIT(A) AND HELD AS UNDER: 4.3. THIS FACTUAL ASPECT HAS BEEN DISPUTED BEFORE US. T HEREFORE, WHEN EACH OF THE FACTS HAVE BEEN CONSTRUCTED AS PER THE PLAN DULY APPROVED BY THE LOCAL AUTHORITIES AND ALSO COMPLETE D AS PER THE COMPLETION CERTIFICATE, WHEREIN THE BUILT UP AREA O F EACH FLATS HAS BEEN SHOWN LESS THAN 2500 SQ.FT., THEN RECEIVING TH E CONSIDERATION BY THE ASSESSEE FOR MORE THAN 2500 SQ.FT. SHOWING AS S ALEABLE AREA OF THE FLATS / RESIDENTIAL UNITS AS PER THE SANCTIONED PLANT AND COMPLETION CERTIFICATE. 4.4. IN VIEW OF THE ABOVE DISCUSSION AS WELL AS IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A), QUA THIS ISSUE. . 6.2 THEREFORE, AS PER THE PRE-AMENDED PROVISIONS OF SEC 80IB(10), ONCE THE PROJECT HAS BEEN APPROVED BY THE LOCAL AUT HORITIES, THEN IN 21 THE ABSENCE OF ANY SUCH CONDITION OF COMMERCIAL ARE A IN THE PROVISIONS OF SEC.80IB(10), DEDUCTION CANNOT BE DEN IED ON THIS POINT. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A), QUA THIS ISSUE. . 7. WE HAVE HEARD THE LD LD. DEPARTMENTAL REPRESENT ATIVE AS WELL AS THE LD LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IN VIE W OF OUR FINDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80I B (10), THE ISSUE OF ADDITION HAS BECOME INFRUCTUOUS AS IT BECOME REVENU E NEUTRAL. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) ON T HIS ISSUE ALSO. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 30. IT IS FURTHER NOTED THAT THIS ISSUE REACHED BEFORE THE HONBLE BOMBAY HIGH COURT WHICH WAS DECIDED IN FAVOUR OF THE REVEN UE BY THE HONBLE HIGH COURT. THE REVENUE CARRIED THE MATTER BEFORE THE H ONBLE APEX COURT WHERE IT WAS DECIDED AS PART OF BATCH OF APPEALS AND IS REPO RTED AS CIT VS SARKAR BUILDERS & ORS 375 ITR 392 (SC) WHEREIN IT HAS BEEN INTER ALIA HELD THAT WHERE HOUSING PROJECT WAS SANCTIONED BEFORE THE AMENDMENT BUT HAS BEEN COMPLETED AFTER APRIL 1, 2005, WHEN THE AMENDED PRO VISIONS CAME INTO OPERATION, THE ASSESSEE WOULD BE ENTITLED TO DEDUCT ION U/S 80IB (10) AND CONDITIONS MENTIONED IN CLAUSE (D) WOULD NOT APPLY. IT HAS BEEN STATED THAT ASSESSEES PROJECT WAS APPROVED PRIOR TO THE SAID D ATE WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. THUS, RESPECTFULLY FOLLOW ING THE DECISIONS OF THE TRIBUNAL AND JUDGEMENT OF THE HONBLE BOMBAY HIGH C OURT IN ASSESSEES OWN CASE FOR EARLIER YEARS, WE FIND NO SUBSTANCE IN THE APPEAL OF THE REVENUE FOR THE IMPUGNED YEAR AND, THEREFORE, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 31. GROUND 2: IN THIS GROUND THE REVENUE HAS CONTESTED THE ACTION OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE U/S 80 IB(10) DESPITE THE FACT THAT THE LD.CIT(A) HAD UPHELD THE ACTION OF THE AO IN EX CLUDING THE SHARE OF SPPL 22 FROM REVENUE OF THE ASSESSEE WHILE COMPUTING THE BU SINESS INCOME OF THE ASSESSEE. IT WAS STATED BY BOTH THE PARTIES THAT T HIS GROUND IS CONSEQUENTIAL TO GROUND 1 OF ASSESSEES APPEAL AND IF GROUND 1 OF AS SESSEES APPEAL IS ALLOWED, THEN GROUND 2 OF REVENUES APPEAL WIIL BECOME INFRU CTUOUS. 32. WE HAVE ALREADY ALLOWED GROUND 1 OF ASSESSEES APPE AL WHEREIN IT WAS HELD THAT FOR COMPUTING THE BUSINESS INCOME OF THE ASSESSEE, THE SHARE OF SPPL WAS NOT REQUIRED TO BE EXCLUDED. THUS, THE PRESENT GROUND RAISED BY THE REVENUE BECOMES INFRUCTUOUS AND IS DISMISSED, AS SU CH. 33. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA N O. 7117/MUM/2014 FOR A.Y.2011-12. 34. IT IS NOTED THAT BOTH THE GROUNDS RAISED IN THIS AP PEAL ARE IDENTICAL TO GROUNDS RAISED IN APPEAL FOR A.Y. 2010-11 AND NO DI STINCTION HAS BEEN MADE IN FACTS OR LAW BY EITHER PARTY BEFORE US AND, THEREFO RE, WE DIRECT THE AO TO FOLLOW OUR ORDER FOR A.Y. 2010-11. AS A RESULT, GROUND 1 IS ALLOWED AND GROUND 2 IS SENT BACK TO THE FILE OF THE AO WITH IDENTICAL DIRE CTIONS. 35. NOW WE SHALL TAKE UP REVENUES APPEAL IN ITA NO .7454/MUM/2014 FOR A.Y. 2011-12. 36. IT IS NOTED THAT BOTH THE GROUNDS RAISED BY THE REV ENUE ARE IDENTICAL TO GROUNDS RAISED IN APPEAL FOR A.Y. 2010-11. NO DIST INCTION HAS BEEN MADE IN FACTS OR LAW BY EITHER PARTY BEFORE US AND, THEREFO RE, WE DIRECT THE AO TO FOLLOW OUR ORDER FOR A.Y. 2010-11. THEREFORE, FOLLOWING O UR ORDER FOR A.Y. 2010-11, WE DISMISS BOTH THE GROUNDS RAISED BY THE REVENUE. 23 37. AS A RESULT, ASSESSEES APPEALS ARE PARTLY ALLOWED AND REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON THIS _21 ST DAY OF SEPTEMBER, 2016. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 21 ST SEPTEMBER, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , F-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES