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TMI Blog2017 (12) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... e s appeals for the A.Y 2010-11 and 2009- 10 respectively. Since common issue is involved, these are heard together and disposed-of by this common order. ITA No. 149/Hyd/15 AY. 2010-11: 2. Brief facts of the case are that the assessee, which is engaged in the business of Real Estate, filed its return of income for the AY. 2010-11 originally on 21-03-2011 admitting taxable income of ₹ 49,84,618/-. Subsequently, the assessee filed a revised return of income on 18-05-2011 declaring taxable income of ₹ 49,50,990/-. The case was selected for scrutiny under CASS to verify the income arising to the assessee on sale of a property. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee firm is carrying on business in real estate by purchase of land and sale thereof after division and development of plots and during the course of such business, has admitted receipts from the development of land at ₹ 3,90,64,918/-, receipts from sale of land at ₹ 1,89,14,882/- apart from closing stock of ₹ 4,15,50,289/-, but that the assessee had admitted a net profit of ₹ 47,96,566/- only, though the net profit derived by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an overriding charge is whether the amount sought to be deducted, in truth, never reached him as his income. That the payment made by assessee firm was taxed in the hands of the company, therefore there is no revenue leakage . 6. Ld. CIT (A) granted relief to the assessee by accepting the principle of diversion of income by overriding title and after observing that similar payment in the AYs. 2007-08 to 2010-11 has been allowed by the AO and therefore, the rule of consistency and uniformity has to be followed. The order for AY 2009-10 is extracted for the sake of brevity. As per the MOU between the appellant and Sindya Infrastructure Development Co. Pvt. Ltd. dated 22-3-2007, the appellant company received ₹ 8 crores from Sindya Infrastructure Development Company Pvt. Ltd., as under: 29-06-2006 - 2 crore 31-6-2006 - 6 crore After receiving the money from Sindya Infrastructure Development Company Pvt. Ltd. the appellant entered MOU with HDFC for development of land on 22-3-2007. It is pertinent to mention that the amount paid by Firm of ₹ 1,57,01,809 paid to the company was shown as income of the company. However the company did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in the case of CIT vs. Sitaldas Tirathdas reported in (1961) [41 ITR 367]. 8. The learned Counsel for the assessee, on the other hand, submitted that it was with the advances received from M/s. SIDCPL, that the assessee had purchased the land from HDFC Ltd and therefore, the said company had the charge over the property. He submitted that the intention of both the parties is evident from the MOU wherein it is clearly stated that the property has been purchased with the advance given by M/s. SIDCPL and further that the assessee has not been able to repay the amount and hence 87% of the profits was to be shared by M/s. SIDCPL. He submitted that the Revenue has lost sight of the fact that the assessee could not have purchased the land, leave alone earning any profit, but for the advances of ₹ 8.00 crores from M/s. SIDCPL. He also submitted that the assessee had been able to repay only a part of the advances during the relevant previous year. In support of his contention that the charge of M/s. SIDCPL over the gross receipts is nothing but diversion of income by overriding title, the learned Counsel for the assessee placed reliance upon the following decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribute the profit (after expenditure) in the ratio of 87.12% to the said SIDCPL, balance 12.88% to be retained by the assessee-firm. As seen from the financials for the period 01-04-2006 to 31-03-2007, assessee s gross receipts on development of land and sale of land were to the tune of ₹ 1,05,36,668/-, having closing balance of ₹ 8,39,94,008/-. The net profit earned in that year was ₹ 19,69,838/-. For that assessment year AY 2007-08, assessee has filed return of income on 31-05-2010 ( Belatedly) admitting income of ₹ 25,47,842/-. This income includes profit of ₹ 19,69,838/- and disallowance of amount u/s. 40(a)(ia). This indicates that for the assessment year ending 31-03-2007, the profits earned were not shared between the two, even though MOU was stated to have been entered on 22-03-2007. As on 31-03- 2007, assessee has repaid more than ₹ 2 Crores of loan and the outstanding amount was only ₹ 5.95 Crores against SIDCPL. As seen from the ledger account also, assessee was able to repay an amount of ₹ 2,05,00,000/- to the said company. However, as seen from the financials placed on record in the Paper Book from pg. 120 onwards includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,73,86,209/- and the share of profit to that company was determined at ₹ 1,57,01,809/-. In the company s accounts, however, this amount was not shown as income at all, even though for 31-03-2008, amount of ₹ 3,43,59,901/- as claimed by assessee was shown. In the order for AY. 2009-10 also, there is no discussion about this amount supposed to have been received from assessee-firm nor was offered as income in that year. The account copy of SIDCPL indicate that an amount of ₹ 5 Crores was adjusted on 01-04-2009 towards Smt. Sunitha Reddy with the entry being advance pending allotment of shares received from SR wrongly classified under Kamineni Builders now rectified . These, transactions indicate that assessee and M/s. SIDCPL had some other transactions, which has no bearing on the claim of profit being shared. d. For year ending 31-03-2010, the financials of SIDCPL indicate that profit from M/s. Kamineni Builders ₹ 3,60,46,308/- was offered as income. The same amount was also claimed by assessee in its financials for 31-03-2010 and net profit of ₹ 47,96,565/- was only offered. e. For the year ending 31-03-2011, assessee had no sales and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y entering into an agreement dated 28-06-2006. At that point of time, there is no obligation on the part of the assessee, to part with any of the receipts or even profit from the sale of such land. It is only a receipt of advance which was stated to be returned within the period agreed to by and between the parties on or before 31-03- 2007. Thereafter, it was stated, that when the assessee could not repay the advance to SIDCPL as agreed to and the assessee entered into an MOU dated 22-03-2007 to assign/nominate 87.12% of the share in the profits, which is defined in the MOU to mean surplus remaining after deduction from out of total sale receipts of land, cost of acquisition of land, development charges, brokerage charges on purchase of lands and other incidental expenses . Therefore, it is clear that the so called obligation of the assessee, arises only by virtue of the MOU dated 22-03-2007, that too, by way of agreement between parties, not connected with property as such. 14. Since the amount of ₹ 2.05 Crores was already paid by the time the MOU entered, the distribution of profit at 87.12% also gives rise to a doubt about the ratio that was determined. The project was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her aspect which CIT(A) has considered is consistency in accounts, even though this concept also was not applied properly. As already stated, assessee has not distributed the profits for the year ending 31-03-2007 (already noted, the return was filed in May, 2010) and the entire profits were offered, even though it was claimed that there was an agreement dt. 22-03-2007. As verified from the documents placed on record, the said company also did not offer the incomes, even though it has received in some years. Basically, M/s. Kamineni Builders is even not shown as debtor or as an investment in any of the schedules, whereas another sister concern is being shown as party to whom the funds are advanced interest free. That AO s disallowance of interest free on two sister concerns in the hands of company is indication that M/s. Kamineni Builders is not shown in the books of the said company (as verified by us from the documents placed on record). In view of these facts available on record, we are of the opinion that assessee did indeed earn very high margin of profits and for unexplained reasons, the same was distributed/applied to discharge its obligation of repaying the loan. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absolute right over the property. We are afraid that the principles laid down by the Hon'ble Madras High Court in that case do not apply to the facts of the case, as there is no obligation to the property at all, but the obligation was created by arrangement/agreement between the parties subsequently. 18.3. Similarly, the facts in the case of CIT, AP Vs. M.D. Manohar Rao is that there is diversion by overriding title. In that case, there is an agreement for sale of land and the land was subsequently acquired by Government. The excess price received belongs to the purchaser as per the agreement. Therefore on the facts of the case, it was held that amount of compensation in excess of agreed sale price was diverted by overriding title from seller. The facts of that case and the principle laid down therein do not apply to assessee s case at all. 18.4. The rest of the cases relied upon by assessees Counsel are on the principle of consistency. As already discussed above, neither party is following any consistent method of accountancy or claims. In view of that, even though there is no dispute with reference to the principle of consistency on the facts of the case those decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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