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2019 (1) TMI 1953 - AT - Income TaxDetermination of income from Kalhar Project - AO has treated the assessee as owner of Kalhar Project whereas the case of the assessee is that it is a developer - HELD THAT - Stand of the assessee before the AO was that being a developer, its rights were limited to receive development fees on completion of project. The society is owner and has right, title and interest on work-in-progress. This stand of the assessee has been accepted by the CIT(A) in both the assessment years. Contrary to this stand, nothing has been brought to our notice. The assessee has demonstrated that it was working only as a developer and alleged collection over expenditure cannot be treated as its business income, rather, it was a liability in the balance sheet. Therefore, we are of the view that the CIT(A) has rightly deleted this addition and, no interference is called for. Similarly, in A.Y.2009-10 and addition was made on account of excess of collection over expenses. It was deleted by CIT(A). We do not find any error in the order of the ld.CIT(A). Thus, this ground is rejected in both years. Estimation of profit on WIP at 8% of the various projects - HELD THAT - Assessee was working as a developer. It was not owner of work-in-progress. Moreover, on completion of project, it used to offer receipt received in the shape of development fees and such receipts have been recognized on completion of project. Consistently, this has been shown by the assessee. AO has made an addition on hypothetical basis by treating the WIP belonged to the assessee. It has been contended before us that the AO has invoked Accounting Standard-7 which otherwise applicable on contractor. The assessee is a developer, and AS-7 is not applicable. After going through the finding of the ld.CIT(A) and relying upon the order of the ITAT in the assessee s own case for the Asstt.Year 1997-98, we are of the view that 8% profit on alleged WIP cannot be estimated in the case of the assessee. Hence, the ld.CIT(A) has rightly deleted this addition in both the years. No other ground has been agitated by the Revenue in the Asstt.Year 2008-09. Hence, its appeal is rejected. Accrual of receipts - HELD THAT - Efforts at the end of the AO are to somehow to make the assessee the owner of the project and assess any type of receipts by the assessee. In his first attempt, he assessed gross collection over expenditure out of booking amount. In that effort also he treated the assessee as an owner of the project. Thereafter, the second outcome of his understanding is estimation of profit at 8% of the work-in-progress. In both these issues, the ld.CIT(A) has held that the assessee is not owner of the project nor WIP related to it. Hence, excess of collection over the expenditure or estimation of profit in the WIP cannot be assessed in the hands of the assessee. In the third set, he construed that if after signing memorandum of satisfaction between the ultimate buyer vis- -vis the assessee, who developed the project, any receipt is being received, then it will be income of the assessee. The assessee again emphasised that whatever amount has been received, it was in fiduciary capacity of trustee of these co-operative societies for whom it has been worked out development activity. The ld.DR failed to bring any material to our mind which can demonstrate that these receipts were meant for the assessee, and income qua this receipt accrued to the assessee. Reopening of assessment u/s 147 - HELD THAT - AO harboured a belief that income has escaped assessment in the case of assessee on the basis of material found during the course of search at the premises of vendee who alleged to have purchased the plot from the assessee, and disclosed cash payment over and above one stated in the sale deed. Revenue was possessing statement of vendee recorded under section 132(4) and a diary showing details of payment. Thus, there was information possessed by the AO for harbouring a belief that income has not been rightly accounted for by the vendor. The AO has to only form a prima facie opinion which has formed on the basis of information came to the notice on account of search at the vendee s premises. Therefore, this ground of appeal is rejected in both the years. Disallowance u/s 14A - HELD THAT - A perusal of the assessment order would indicate that the AO has worked out interest expenditure at ₹ 1,56,494/-. No doubt, this expenditure cannot be worked out, once the assessee has demonstrated the availability of more interest free funds, then investment made by it. But the ld.AO further worked out a sum of ₹ 1,36,936/- at the rate of 0.5% of the average value towards administrative expenditure under Rule 8D. CIT(A) has not given any justification for deleting this amount. AO has reproduced submissions made by the assessee, wherein it has submitted that interest expenditure was not incurred by the company for the purpose of deriving exempt income, but it has not given any explanation qua expenditure attributable towards administrative purpose. Considering the above aspects, we allow this ground of appeal partly and confirm addition of ₹ 1,36,936/- out of ₹ 2,93,430/- made by the AO. This ground of Revenue is partly allowed. Addition on account of cessation of liability or non-genuineness of the liability available in the accounts - HELD THAT - AO merely submitted that the assessee was requested to discharge its onus. All these details were already submitted to the AO during the appellate hearing also, when remand report was called for. The difficulty is that the AO does not want to apply his mind and does not want to carry out the exercise directed by the higher authority. He on lame excuse of assessee failing to give supporting evidence again made addition. The ld.CIT(A) again verified it and deleted. Before us, nothing has been produced by the AO as to how reconciliation, regrouping and reclassification of the liabilities in the accounts are wrong. No report from the AO has been called for by the CIT(Admn.) who authorizes for filing of appeal. Even before us, the ld.DR unable to demonstrate how the liability has ceased and this addition deserves to be made. Taking into consideration the details submitted by the assessee, discussion made by the ld.CIT(A) in the quantum order i.e. dated 23.3.2010 and re-appreciated again by the ld.CIT(A) in the impugned order, we do not find any merit in this appeal
Issues Involved:
1. Reopening of assessments under section 148. 2. Addition of income from Kalhar Project. 3. Estimation of profit at 8% on Work-in-Progress (WIP). 4. Addition based on memorandum of satisfaction and subsequent receipts. 5. Deletion of addition on account of unexplained cash credit. 6. Deletion of addition under section 14A. Issue-wise Detailed Analysis: 1. Reopening of assessments under section 148: The assessments for the years 2008-09 and 2009-10 were reopened by issuing notices under section 148 based on the belief that income had escaped assessment. The Tribunal upheld the reopening, stating that the AO had a prima facie opinion based on the information from the search at the vendee’s premises, which justified the reopening. 2. Addition of income from Kalhar Project: The AO treated the collection over expenditure from the Kalhar Project as the assessee's income, making an addition of ?10,54,50,250/- for 2008-09 and ?4,84,35,702/- for 2009-10. The CIT(A) deleted these additions, observing that the assessee was a developer, not the owner, and the collections were liabilities, not income. The Tribunal upheld the CIT(A)’s decision, agreeing that the assessee's role was limited to receiving development fees, and the collections were correctly shown as liabilities. 3. Estimation of profit at 8% on Work-in-Progress (WIP): The AO estimated profit at 8% on WIP, resulting in additions of ?3,67,86,220/- for 2008-09 and ?4.34 crores for 2009-10. The CIT(A) deleted these additions, and the Tribunal upheld the deletion, noting that the assessee was a developer, not the owner of the WIP, and consistently offered receipts as development fees on project completion. The Tribunal relied on its previous decision in the assessee’s case for 1997-98, where similar additions were deleted. 4. Addition based on memorandum of satisfaction and subsequent receipts: For 2009-10, the AO added ?1,97,07,844/- based on receipts from members after signing the memorandum of satisfaction. The CIT(A) deleted the addition, explaining that the amounts received were part of the total consideration and were liabilities towards the project owner. The Tribunal upheld the deletion, agreeing that the receipts were in the fiduciary capacity and not the assessee’s income. 5. Deletion of addition on account of unexplained cash credit: The AO made an addition of ?2,82,96,734/- on account of unexplained cash credit, which the CIT(A) deleted. The CIT(A) found that the addition resulted from regrouping and reclassification of liabilities and assets, with no cessation of liability. The Tribunal upheld the CIT(A)’s decision, noting that the AO failed to verify the details and the reconciliation provided by the assessee was accurate. 6. Deletion of addition under section 14A: For 2012-13, the AO made a disallowance of ?2,93,430/- under section 14A. The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds to cover the investments. The Tribunal partly allowed the Revenue’s appeal, confirming the disallowance of ?1,36,936/- towards administrative expenses, as the assessee did not provide a satisfactory explanation for this expenditure. Conclusion: The Tribunal dismissed the Revenue’s appeals for the years 2008-09, 2009-10, and 2002-03, upholding the CIT(A)’s deletions of various additions. The Tribunal partly allowed the Revenue’s appeal for 2012-13, confirming a partial disallowance under section 14A. The Tribunal also partly allowed the assessee’s appeals, remitting the issue of refund computation for further verification.
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