The ITO, Ward-2(4), Baroda V. M/s. Pratham Developers, Baroda

ITA 981/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1413 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 981/AHD/2012 (ASSESSMENT YEAR: 2005-06) INCOME-TAX OFFICER WARD 2(4), BARODA V/S M/S. PRATHAM DEVELOPERS, PRATHAM MAKRAND DESAI ROAD, NR. MOTHERS SCHOOL, BARODA-390007 (APPELLANT) (RESPONDENT) PAN: AAHFP2699D APPELLANT BY : SHRI KAMLESH MAKWANA, SR. D.R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 06 -06-20 16 DATE OF PRONOUNCEMENT : 07-06-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-II, BARODA DATED 09.02.2012 PERTAINING TO A. Y. 2005-06. 2. THE GRIEVANCE OF THE REVENUE READS AS UNDER:- ITA NO. 981/ AHD/2012 . A.Y. 2005-06 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID CIT (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION U/S.80IB(10) R.W.S.80IB(L0) OF THE INCOME-TAX ACT, WITHOUT APPRECIATING THE FACT THAT RELATIONSHIP BETWEEN THE ASSESSEE AND THE END USER OF THE UNITS WAS THAT OF WORK CONTRACT SINCE THE APPROVAL BY THE LOCAL AUTH ORITY AS WELL AS COMPLETION CERTIFICATE WAS NOT GRANTED TO THE AS SESSEE BUT TO THE LANDOWNER AND THE RIGHTS AND THE OBLIGATIONS UNDER THE SAID APPROVAL WERE NOT TRANSFERABLE, AND THAT TRANSFER OF DWELLING UNI TS IN FAVOUR OF THE END- USERS WAS MADE BY THE LANDOWNER AND NOT BY THE ASSE SSEE. 3. ASSESSEE IS A REAL ESTATE DEVELOPER MAINTAINING ITS ACCOUNT ON MERCANTILE SYSTEM OF ACCOUNTING. THE ORIGINAL ASSES SMENT WAS MADE U/S. 143(3) OF THE ACT VIDE ORDER DATED 20.12.2007. THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S. 148 OF THE ACT DATED 04.08.2009. 4. DURING THE COURSE OF THE RE-ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE FIRM HAS RECEIVED HUGE SUM AS ADV ANCE FROM CUSTOMERS. HOWEVER, NO REVENUE WAS FOUND TO BE RECO GNIZED BY THE ASSESSEE ON THE WORK- IN- PROGRESS AMOUNTING TO RS. 6,59,28,223/-. THE ASSESSEE WAS ASKED TO JUSTIFY ITS STAND. THE AS SESSEE CLAIMED THAT SINCE HE WAS FOLLOWING PROJECT COMPLETION METHOD, T HEREFORE, THE INCOME WAS NOT RECOGNIZED AS THE PROJECT WERE NOT C OMPLETED DURING THE YEAR UNDER CONSIDERATION. 5. HOWEVER, THE A.O. DID NOT ACCEPT THIS CLAIM OF THE ASSESSEE HOLDING THAT EACH YEAR IS A SEPARATE YEAR UNDER THE INCOME TAX ACT; THEREFORE, THE PROFIT OF ONE YEAR CANNOT BE SHIFTED TO ANOTHER YEAR. THE A.O. WAS OF THE FIRM BELIEF THAT THE PROFIT HAS TO BE COMPUT ED ON PERCENTAGE COMPLETION METHOD. THE A.O. PROCEEDED BY COMPUTING THE ADDITION @ ITA NO. 981/ AHD/2012 . A.Y. 2005-06 3 10% OF THE ADDITION MADE TO THE WORK-IN-PROGRESS OF RS. 6,59,28,223/- AND MADE AN ADDITION OF RS. 65,92,822 /-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CLAIM. HOWEVER, THE ASSESSEE MADE AN ALTERNATIVE CL AIM THAT IF THE IMPUGNED ADDITION IS ASSESSED IN ITS HAND THAN HE I S ELIGIBLE FOR DEDUCTION U/S. 80IB(10) OF THE ACT. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE REFERRED TO THE ORDER OF THE FIRST APPELLA TE AUTHORITY MADE IN THE CASE OF ORIGINAL ASSESSMENT ORDER WHEREIN THE F IRST APPELLATE AUTHORITY ALLOWED THE CLAIM OF DEDUCTION U/S. 80IB( 10) OF THE ACT. SINCE, THERE WAS NO POSITIVE INCOME IN THE ORIGINAL ASSESSMENT ORDER; NO DEDUCTION COULD BE GIVEN EFFECT TO. 7. THE LD. CIT(A) WAS CONVINCED WITH THIS CONTENTION O F THE ASSESSEE AND DIRECTED THE A.O. TO ALLOW DEDUCTION U/S. 80IB(10) ON THE BUSINESS INCOME WORKED OUT IN THE ORDER U/S 143(3) R.W.S. 14 7 OF THE ACT. 8. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. AT THE VERY OUTSET, IT CAME TO OUR NOTICE THE ORDER OF THE HONBLE JURISDICTION AL HIGH COURT OF GUJARAT IN ASSESSEES OWN CASE IN TAX APPEAL NO. 12 8 OF 2013. A PERUSAL OF THE ORDER OF THE HONBLE HIGH COURT SHOW S THAT THE HONBLE HIGH COURT WAS SEIZED WITH THE FOLLOWING QUESTION F OR CONSIDERATION. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN UPHOLDING THE DECISION OF THE CIT(A) AND THEREBY DELETING THE DISALLOWANCE UNDER SECTION 80IB(10) WI THOUT APPRECIATING THAT THE LEGAL RELATIONSHIP BETWEEN THE ASSESSEE FIRM AN D THE END USERS OF THE UNIT WAS THAT OF 'WORK CONTRACT'?' ITA NO. 981/ AHD/2012 . A.Y. 2005-06 4 9. WE FIND THAT THE HONBLE HIGH COURT HAS FOLLOWED IT S OWN DECISION GIVEN IN THE CASE OF RADHE DEVELOPERS 341 ITR 403. THE RELEVANT PART READS AS UNDER:- 3. IN THE DECISION IN CASE OF RADHE DEVELOPERS (SUP RA), WE HAD OBSERVED AS UNDER: '36. WE HAVE NOTED AT SOME LENGTH, THE RELEVANT TERMS AND CONDITIONS OF THE DEVELOPMENT AGREEMENTS BETWEEN THE ASSESSEES AN D THE LAND OWNERS IN CASE OF RADHE DEVELOPERS. WE ALSO NOTED THE TERM S OF THE AGREEMENT OF SALE ENTERED INTO BETWEEN THE PARTIES. SUCH COND ITIONS WOULD IMMEDIATELY REVEAL THAT THE OWNER OF THE LAND HAD R ECEIVED PART OF SALE CONSIDERATION. IN LIEU THEREOF HE HAD GRANTED DEVEL OPMENT PERMISSION TO THE ASSESSEE. HE HAD ALSO PARTED WITH THE POSSESSIO N OF THE LAND. THE DEVELOPMENT OF THE LAND WAS TO BE DONE ENTIRELY BY THE ASSESSEE BY CONSTRUCTING RESIDENTIAL UNITS THEREON AS PER THE P LANS APPROVED BY THE LOCAL AUTHORITY. IT WAS SPECIFIED THAT THE ASSESSEE WOULD BRING IN TECHNICAL KNOWLEDGE AND SKILL REQUIRED FOR EXECUTION OF SUCH PROJECT. THE ASSESSEE HAD TO PAY THE FEES TO THE ARCHITECTS AND ENGINEERS . ADDITIONALLY, ASSESSEE WAS ALSO AUTHORIZED TO APPOINT ANY OTHER A RCHITECT OR ENGINEER, LEGAL ADVISER AND OTHER PROFESSIONALS. HE WOULD APP OINT SUB-CONTRACTOR OR LABOUR CONTRACTOR FOR EXECUTION OF THE WORK. THE AS SESSEE WAS AUTHORIZED TO ADMIT THE PERSONS WILLING TO JOIN THE SCHEME. TH E ASSESSEE WAS AUTHORIZED TO RECEIVE THE CONTRIBUTIONS AND OTHER D EPOSITS AND ALSO RAISE DEMANDS FROM THE MEMBERS FOR DUES AND EXECUTE SUCH DEMANDS THROUGH LEGAL PROCEDURE. IN CASE, FOR SOME REASON, THE MEMB ER ALREADY ADMITTED IS DELETED, THE ASSESSEE WOULD HAVE THE FULL RIGHT TO INCLUDE NEW MEMBER IN PLACE OF OUTGOING MEMBER. HE HAD TO MAKE NECESSA RY FINANCIAL ARRANGEMENTS FOR WHICH PURPOSE HE COULD RAISE FUNDS FROM THE FINANCIAL INSTITUTIONS, BANKS ETC. THE LAND OWNERS AGREED TO GIVE NECESSARY SIGNATURES, AGREEMENTS, AND EVEN POWER OF ATTORNEY TO FACILITATE THE WORK ITA NO. 981/ AHD/2012 . A.Y. 2005-06 5 OF THE DEVELOPER. IN SHORT, THE ASSESSEE HAD UNDERT AKEN THE ENTIRE TASK OF DEVELOPMENT, CONSTRUCTION AND SALE OF THE HOUSING U NITS TO BE LOCATED ON THE LAND BELONGING TO THE ORIGINAL LAND OWNERS. IT WAS ALSO AGREED BETWEEN THE PARTIES THAT THE ASSESSEE WOULD BE ENTITLED TO USE THE FULL FSI AS PER THE EXISTING RULES AND REGULATIONS. HOWEVER, IN FUT URE, RULES BE AMENDED AND ADDITIONAL FSI BE AVAILABLE, THE ASSESSEE WOULD HAVE THE FULL RIGHT TO USE THE SAME ALSO. THE SALE PROCEEDS OF THE UNITS A LLOTTED BY THE ASSESSEE IN FAVOUR OF THE MEMBERS ENROLLED WOULD BE APPROPRIATED TOWARDS THE LAND PRICE. EVENTUALLY AFTER PAYING OFF THE LAND OWNER AND THE ERSTWHILE PROPOSED PURCHASERS, THE SURPLUS AMOUNT W OULD REMAIN WITH THE ASSESSEE. SUCH TERMS AND CONDITIONS UNDER WHICH THE ASSESSEE UNDERTOOK THE DEVELOPMENT PROJECT AND TOOK OVER THE POSSESSION OF THE LAND FROM THE ORIGINAL OWNER, LEAVES LITTLE DOUBT I N OUR MIND THAT THE ASSESSEE HAD TOTAL AND COMPLETE CONTROL OVER THE LA ND IN QUESTION. THE ASSESSEE COULD PUT THE LAND TO USE AS AGREED BETWEE N THE PARTIES. THE ASSESSEE HAD FULL AUTHORITY AND ALSO RESPONSIBILITY TO DEVELOP THE HOUSING PROJECT BY NOT ONLY PUTTING UP THE CONSTRUCTION BUT BY CARRYING OUT VARIOUS OTHER ACTIVITIES INCLUDING ENROLLING MEMBERS, ACCEP TING MEMBERS, CARRYING OUT MODIFICATIONS ENGAGING PROFESSIONAL AGENCIES AN D SO ON. MOST SIGNIFICANTLY, THE RISK ELEMENT WAS ENTIRELY THAT O F THE ASSESSEE. THE LAND OWNER AGREED TO ACCEPT ONLY A FIXED PRICE FOR THE L AND IN QUESTION. THE ASSESSEE AGREED TO PAY OFF THE LAND OWNER FIRST BEF ORE APPROPRIATING ANY PART OF THE SALE CONSIDERATION OF THE HOUSING UNITS FOR HIS BENEFIT. IN SHORT, ASSESSEE TOOK THE FULL RISK OF EXECUTING THE HOUSIN G PROJECT AND THEREBY MAKING PROFIT OR LOSS AS THE CASE MAY BE. THE ASSES SEE INVESTED ITS OWN FUNDS IN THE COST OF CONSTRUCTION AND ENGAGEMENT OF SEVERAL AGENCIES. LAND OWNER WOULD RECEIVE A FIX PREDETERMINED AMOUNT TOWARDS THE PRICE OF LAND AND WAS THUS INSULATED AGAINST ANY RISK. 37. BY NO STRETCH OF IMAGINATION CAN IT BE SAID THA T THE ASSESSEE ACTED ONLY AS A WORKS CONTRACTOR ... 4. TAX APPEAL IS DISMISSED. ITA NO. 981/ AHD/2012 . A.Y. 2005-06 6 10. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT ON R ECORD IN FAVOUR OF THE REVENUE. RESPECTFULLY FOLLOWING THE P RECEDENCE (SUPRA), FINDINGS OF THE LD. CIT(A) ARE UPHELD AND APPEAL FI LED BY THE REVENUE IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 07- 06 - 201 6. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD