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TMI Blog2011 (10) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the authorities below and considered the material available on record. The assessee also filed written submission which is also taken into consideration. NEPTUNE INSFRASTRUCTUE PVT. LTD. ( All appeals of assessee and revenue) All the cross appeals are directed against the common order of the learned CIT(A), Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06. 2. The facts noted in the impugned order of the learned CIT(A) are that the assessee is Private Limited Company incorporated in 1997 with the share capital of ₹ 46,000/-. The Assessee Company claimed that during the year under consideration, it was engaged in the single project of developing Shree Ghantakarna Mahavir Cloth Market for Mahalaxmi Bhavan Co-operative Housing Society Limited. It was also engaged in the business of real estate development work and financial activities. The Assessee Company has developed the project Shree Ghantakarna Mahavir Cloth Market on the land admeasuring 31102 square meters bearing Revenue Survey number 20/1(Paiki) and Final Plot number 12(Paiki) of TPS No.18 originally belonged to M/s. Gujarat State Textile Corporation Limited., an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch floor, value of sq. ft. in rupees, floor wise amount and grand total of each block. There are 13 blocks and the grand summary area of block Nos. A to M is shown as 620450 sq. ft. The sum total of all the blocks is shown at ₹ 1,41,46,26,000/- based on this loose paper. The AO has drawn a conclusion that the assessee has realized the total sum of ₹ 1,41,46,26,OOO/- for the entire project and as against the same, it has recorded total realized value of ₹ 50,89,29,741/- and therefore, the balance amount of ₹ 90.57 Crores (Rs.141.46 Crores ₹ 50.89 Crores) is a suppressed income. The AO, therefore, apportioned the amount of ₹ 90.57 Crores in the project years from its commencement of assessment year 1997-98 to 2005-06 in the ratio of cumulative sales sold in the books as under:- Assessment Year Cumulative proceeds books sales shown in the Percentage Undisclosed Income (Rs.) 1997-98 27,75,000 0.55 49,81,186 1998-99 1,30,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,000 depending upon the situation and location of the shops. Similarly, Shri Bholabhai Patel, key person of Mahalaxmi Housing Finstock Pvt. Ltd. submitted that the loose paper contained details of calculation per sq. ft. of floor wise of shops and offices in 13 block (Blocks A to M) in five floors, The total figure of receipts indicated in the loose paper is ₹ 1,41,46,26,000/-. Based on this loose paper and the statements of the two persons, the AO has drawn a conclusion that the sale price recorded in the books of account is understated and that the real price received is ₹ 1,41,46,26,000/-. The AO further relied on the Annexure A-3 page 26 of the seized material from the office of Shri Bholabhai Patel, which is a cost certificate dated 21-2-2000 issued by the key person of Assessee Company, wherein, the price of certain shops have been declared at higher price than the documented price. Further, the AO has drawn conclusion from the post search inquiry made from the Mehsana Urban Cooperative Bank Ltd. that cost of shop reflected in the loan document is higher than the same recorded in the books of account. In the said document, Shri Rasikbhai Patel - Manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the development agreement and received consideration towards development charges which were reflected in books of accounts, (d) the Assessee Company has arranged the finance for the project and has charged interest thereon and TDS was made by the society and this income was offered for taxation, (e) the allotment of the shops to the buyers was made by the society under the recommendation of the assessee after the buyers were enrolled as members of the society, (f) the annexure - A Page Nos. 222 to 224 reflecting the project details were mere estimation/projection sheet only and not paper to indicate the sale consideration, (g) the fact that group booking was made in respect of three parties reflects the correct allotment price in as much as the purchase price in their hands was accepted by the department under scrutiny assessment made by the Central Circle Officer, (h) the allotment was made at prevailing market price prevailing after the period of earth-quake, (i) the cost certificate issued by the Manager of the Assessee Company was made available to accommodate the buyers of the shop for drawing higher amount of loan so as to help them to purchase the property accommodating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer as SALE PRICE realized. The document has to be read and interpreted as such and not otherwise as has been done by the Assessing Officer. After the site inspection and the report of DVO, it is now proved beyond doubt that neither the permission for block No. A to M for construction admeasuring 6,20,450 Sq. ft. was granted by the competent authority nor the construction work of 6,20,450 Sq. ft. was completed at the relevant time. In fact, the unconstructed area as on 31.12.2009 was of 1,89,898 Sq. ft. ( ii) The reliance placed by the Assessing Officer on some of the valuation certificates is also misplaced in as much as that the same were issued for the purpose of the clients and due confirmations in the form of affidavits are also placed on record. Thus, the same stands rebutted with concrete evidence as aforesaid. 2. Assuming without conceding and admitting, in the alternative at the most the addition for the value to the extent of such instances quoted in the assessment order could be sustained and it cannot be taken as a base to fortify the future budgetary projection drawn before the start of the work as aforesaid being value at ₹ 1,41,46,26,000/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of permission of Ahmedabad Municipal Corporation and also the Schedule was prepared before the beginning of the project and it is not in accordance with the actual allotment and booking amount. The collection shown in the books of account is the true collection and nothing is concealed. The appellant's case is even on more sound footing as in the cited Case the department did not record any statement of the assessee regarding that paper during the course of search. 3.3 RADHE DEVELOPERS (INDIA) LTD. v DY. CIT (ASST) S.R. 5, AHMEDABAD in IT(SS) A.N0.103/Ahd/1997 BY ITAT AHMEDABAD BENCH 'B' Dated 15.01.1999. As affirmed -by Gujarat High Court in the case of DEPUTY COMMISSIONER OF INCOME TAX v. RADHE DEVELOPERS (INDIA) LTD. [2010] 329 ITR 1 (GUJ). HEAD NOTES:- THE TRIBUNAL HAD AFTER APPRECIATING EVIDENCE ON RECORD FOUND THAT THESE FIGURES WERE PROJECTED BUDGETARY ESTIMATES AND NO ACTUAL TRANSACTION HAD TAKEN PLACE. In the appellant's case having regards to the factual position as narrated in para 1 (i) above coupled with answer to question no.25 narrated above below the case of S.P. Goyal (SUPRA) it should be appreciated that the same canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich should be subjected to tax? 8. As regards to the adjudication on the first issue, it is noticed that the appellant has entered into a development agreement with M/s. Mahalaxmi Co-operative Housing Society on 15.06.1997, wherein M/s. Apollo Organisers and Developers has acted as confirming party. The appellant is termed as party of the third part in the aforementioned development agreement. The following clauses of the development agreements are worth mentioning:- 9(b) According to this agreement, you, the Party of the Third Part, as developers of land acquired by the Party of the First Part, are eligible for all the rights. Accordingly, you, the Party of the Second Part are required to get the possession of the whole land and in relation to the development of said asset, the Party of the Third Part is required to provide all necessary facilities and to appoint staff members at its convenient and availability and we, the Party of the First Part will have no objection in relation to this matter. . 9(d) According to this development agreement, the Party of the Third Part is eligible for all the rights regarding the necessary activities carried out by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not admit any person as a member of society without obtaining written permission from the Party of the Third Part. The Party of the Third Part can give the vacant place to any other person in lieu of adequate consideration. Thus, the Party of the Third Part is required to credit all amounts received by passing Journal Entry. And it is also required to credit the account of the Party of the Third Part by passing Journal entry for all the expenditure incurred for the purpose of development of asset. 9(f) The Party of the Third Part is authorized to create a lien and claim rights on the said property for the amount invested and expenses incurred by it for the development of such property. And the Party of the First Part cannot enter into any transaction with any one related to the property possessed by the Party of the Third Part as developers without a written consent from the Party of the Third Part. And without a permission of the Party of the Third Part, the Party of the First Part cannot rescind this development agreement. 9(1) In this project, for complying with the legal procedure, if the member of the Party of the First Part who has acquired a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft. It indicates that document (Annexure-A) also shows the future financial projections of the project. However, the rates of the properties, as mentioned in document (Annexure-A) could not be brushed aside. In the assessment, order, the Assessing Officer has cited the other circumstantial and corroborative evidences, which establishes that appellant has charged on money in the sale of premises of the project. Such evidences includes independent evidences collected from the office of Shri Bholabhai Patel (Annexure- A/3), wherein one of the main person of the appellant company group has issued certificates for certain shops in the cloth market, as mentioned by Assessing Officer at page 9 of the assessment order. The appellant could not be allowed to brush-aside such important pieces of evidences by merely stating that these certificates were issued for availing bank loans. The filing of affidavits or declarations in appeal proceedings from some such persons , in order to rebut the contents of such evidences is of no use, as such affidavits and declarations are self serving documents and these carries no evidentiary values. Even the two independent valuers viz. Shri C, K. Patel a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K 2675 3784 3786 3786 606 L 0 4185 4199 0 130 M 0 5372 5373 135 135 Round cab 400 TOTAL 66922 94716 94819 83653 55126 395636 @ 1600 3500 6500 2500 2200 1600 TOTAL 107075200 331506000 237047500 18403660 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- as mentioned in Para 9.2 of the appellate order reproduced above. The assessee stated in the grounds of appeals that the society remained real owner of the land and building under reference and the assessee received developing charges. The learned CIT(A) should have accepted the property sold at Jantri Price and should not have accepted alleged on-money. The seized document Annexure A was not for sale price realized as it was only project budgetary estimate and not actual transaction. The learned CIT(A) should not have determined the income on estimated basis at 20% and made the additions as mentioned in Para 9.2 of the appellate order. The learned CIT(A) should have considered the real income of the assessee as per law. The revenue challenged the order of the learned CIT(A) in reducing the profit of the assessee as against the income determined by the AO. The learned representatives of both the parties submitted that the issue for consideration thus would be as to who is the beneficiary of the income out of the project in question and as to what quantum income should be determined in the case of the assessees. 6. The learned Counsel for the assessee reiterated the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-2005 are filed at PB-789 to 807 to show all the building materials for construction of the project were purchased in the name of the society. PB - 808 to 816 are the sample copies of the booking receipts which were transferred and adjusted against the society. Copies of ledger accounts are filed at PB - 817 to 841. The details of units resold by the assessee s allottee at Jantri Price are also filed. At PB - 842 to 843, chart is filed showing average rate as per Annexure A. The assessee has shown development charges in the books in all the assessment years under appeal. Apart from it, for assessment years 1997-98 to 2000-01, development charges received from the society has been shown in the regular return. Copies of the audited accounts for assessment year 2000-01 showing development charges received from the society have been filed at PB - 844 to 887 which have been assessed by the revenue department as development charges in the earlier year and the order of ITAT Ahmedabad Bench in ITA No.3181/Ahd/2003 dated 30-07-2004 for assessment year 2000-01 is filed in support of the same. He has submitted that work in progress is booked in the books of the society. Whatever statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of M. K. Shah, 307 ITR 137, decision of the Hon ble Delhi High Court in the case of S. M. C. Sharebroker Ltd., 288 ITR 345 and the decision of the Hon ble M. P. High Court in the case of P. C. Nahata, 301 ITR 132. He has also relied upon order of ITAT Ahmedabad Bench in the case of Hiral Pharma Ltd. Vs DCIT in ITA No.1255/Ahd/2001 dated 29-01-2010 in which it was held that the statement recorded by the ITO and his report would not be relevant to the matter in issue as well as cannot be read in evidence because assessee was never allowed cross examination to such statement at the assessment stage. The statement recorded by the AO was excluded from consideration. He has also relied upon order of ITAT Ahmedabad Bench in the case of Yadav Developers Pvt. Ltd. Vs DCIT, ITA No.3674/Ahd/2008 dated 08-04-2011 in which it was held that there was no evidence in possession of the revenue on the basis of which it could be held that the assessee has taken on-money on booking of the flats. The learned Counsel for the assessee also submitted that onus on the AO to tax the income on account of onmoney has not been discharged. No evidence has been brought on record to prove that assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty in question and the future rates have gone up. The learned DR however, fairly stated that there is nothing on record to show that their statements were subjected to cross examination by the Assessee Company. He has submitted that cost certificate Annexure D - 3/26 and A - 3/26 were issued by the Assessee Company. However, in the statement of Shri Rasikbhai Patel, director of the Assessee Company, no undisclosed income have been declared. He has submitted that cost certificate match with the Annexure - A/1 and that the assessee s counsel admitted rates/cost certificate in the statement of facts. The valuation report of C. K. Patel and M. C. Shah are prior to the search, which proves that the assessee has shown lower rates in the books of account. The bank loan certificate have shown higher value which compared with the Annexure - A/1. He has submitted that it is a common knowledge that in real estate business, the real value of sale consideration is always higher as against the Jantry rate which is meant for stamp valuation only. The learned DR filed details of four parties of the shops which were mortgaged along with mortgage documents to show that higher rates have been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y actual on-money. Same is the position with regard to mortgage documents. In the written submission the queries raised by the AO have been explained. PB - 638 is order of the learned CIT(A) dated 28-02-2011 in the case of the society for assessment year 2007-08 in which it is mentioned that the society ceased to exist with effect from 07-12-2005 as per order of Registrar of Societies and thus the development agreement between assessee and society rescind. It is also stated in the written submission that the learned CIT(A) held that the seized document Annexure - A/1 also shows the future financial projection of the project and such finding of fact have not been challenged by the revenue department. The learned Counsel for the assessee also submitted that the reply of the assessee also indicate that assessee suffered huge losses. He has therefore, submitted that learned CIT(A) should have deleted the entire addition. 9. We have considered rival submissions and material on record. It is stated that the Assessee Company entered into development agreement with the society vide development agreement dated 15-06-1997 (PB - 351) according to which the society was owner of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment accepted the same nature and source of income of the assessee. Therefore, the nature of business income of the assessee could not be disputed by the revenue department in the proceedings u/s 153A of the IT Act under appeals. It is well settled law that though the principle of res-judicata does not apply to the income tax proceedings but the principle of consistency shall have to be followed by the revenue department while making the assessments. The revenue department did not dispute the income received by the assessee on account of development charges from the same shopping complex under consideration in earlier years as well as in the regular assessments u/s 143(3)/143(1) of the IT Act for the assessment years under appeal, therefore, revenue department cannot be permitted to take a different stand and change the nature of business income of the assessee. We rely upon the decisions of the Hon ble M. P. High Court in the case of Godavari Corporation Ltd., 156 ITR 835, Hon ble Supreme Court in the case of Berger Paints (India) Ltd., 266 ITR 99, Hon ble Supreme Court in the case of Satish Pannalal Shah, 249 ITR 221 and Hon ble Punjab and Haryana High Court in the case of Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Girish Chaudhury, 163 Taxman 608, held there is no basis as to how, AO came to conclusion that 48 was ₹ 48 lacs. No material is there to support such findings of the AO. It is dumb document. Additions deleted . The learned CIT(A) in Para 9 of the impugned order on consideration of the report of the DVO and seized document Annexure - A also held that the seized paper indicates that the document Annexure - A also shows the future financial projection of the project. The finding of fact recorded by the learned CIT(A) on appreciation of the seized material have not been challenged by the learned DR during the course of argument. No specific ground of appeal has been raised in the departmental appeal against this finding. Further, no material is produced to rebut this finding of the learned CIT(A). Therefore, it would support the contention of the assessee that the assessee has not received any undisclosed income on account of on-money from the project in question. There is no indication in the seized paper that the assessee actually received ₹ 141 Crores. In the absence of any evidence to prove that assessee received ₹ 141 Crores, authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for undisclosed receipt had to be sustained only to the extent of ₹ 12,80,00,000 as accepted by the assessee and there was no basis for making addition to the tune of ₹ 20,55,86,000 as the assessee had acquired development rights only in relation to 7 lakhs sq. yds. Of land and not 11.11 lakhs sq. yds. Of land. At the same time, the Tribunal also recorded that the amount of ₹ 12,80,00,000 paid by the assessee for acquisition of the development rights had to be treated as allowable deduction under section 37 of the Act. On appeal: Held, dismissing the appeal, (i) that the assessee had entered into a transaction involving the total land area to the tune of 11 lakhs sq. yds. And this was found on the basis of loose papers found from the residence of the employee of the assessee. The Tribunal had recorded, after appreciating the same set of evidence in the form of documents seized from the residence of the employee that it only contained the payment schedule and no amount was actually paid. The Tribunal had therefore, after taking the totality of circumstances into consideration recorded that both, as regards the area as well as the amount of payment and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in the case of S. M. C. Sharebrokers Ltd., 288 ITR 345 held that AO did not allow cross examination of the person searched. Illegal. Cannot be relied upon. Principle of Natural Justice not followed. The Hon ble M. P. High Court in the case of CIT Vs Rameshchandra Shukla, 10 ITJ 286 held that it is now well settled that where the assessee requests the AO to issue summons, to enforce attendance of the creditor to establish the genuineness and capacity of the creditor, it is duty of the AO to enforce attendance of creditors by issuing summons. If the AO does not choose to issue summons and examine the creditors, he cannot subsequently treat the loans standing in the name of such creditors as non-genuine, nor add the amount thereof to the income of the assessee. The Hon ble Madhya Pradesh High Court in the case of Prakash Chand Nahta Vs CIT, 301 ITR134 - Held, that as the Assessing Officer had not summoned R in spite of the request made under section 131 of the Act, the evidence of R could not have been used against the assessee and in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shops have been examined by the AO. No sale deeds executed in their cases have been disputed. The assessee in the written submission explained that assessee was required to debit all amounts received by passing journal entry and expenditures were also adjusted. The Assessee Company was entitled to development charges and the amounts received on behalf of the society were adjusted against the account of the society. All development charges received by the Assessee Company have been credited in the regular books of accounts. Same submissions were also made before the authorities below but the same have not been rebutted through any evidence. All sales are made at the Jantri Rate. The assessee in the written submission also explained that post severe earth-quake in city on 26-01-2001, the real estate market was affected and it also further affected due to Godhra Riots at the end of February, 2002. The explanation of the assessee is reasonable and probable and cannot be brushed aside. The explanation of the assessee clearly prove that there was no evidence with the revenue department that assessee has collected any on-money for itself or for the society. There is no evidence or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reference, that the amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only realization of the excess over the cost incurred could form part of the profit included in the consideration for the sales. Since there was no finding to the effect that investment by way of incurring the cost in acquiring the goods which were sold had been made by the assessee and that that investment was also not disclosed, only the excess over the cost incurred could be treated as profit. The Hon ble Gujarat High Court in the case of CIT Vs Samir Synthetics Ltd., 326 ITR 410 held - In the course of a search by the Excise Department in the premises of the assessee, it was found that the production of man-made fabrics was suppressed and only a small part thereof was shown in the excise register. The assessee could not reconcile the production, sales and the closing stock despite opportunity given by the Assessing Officer and addition in respect of unaccounted sales was made by the Assessing Officer. The Commissioner (Appeals) found that the assessee failed to explain the suppre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the AO is not sufficient to make out a case against the assessee. In view of the above findings we set aside the orders of the authorities below and delete the entire additions in all the assessment years. 9.7 In the result, all the appeals of the assessee are allowed and departmental appeals are dismissed. ( Mahalaxmi Bhavan Co-operative Housing Society Ltd.) ( All appeals of the assessee and the revenue) 10. All the cross appeals are directed against common order of learned CIT(A)-1, Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06. However, assessee has further preferred appeal in ITA No.447/Ahd/2011 against the order of the learned CIT(A)-I, Ahmedabad dated 28-02-2011 for assessment year 2006- 07. 11. In all the departmental appeals, the revenue challenged the deletion of additions on account of profit from the cloth market made on protective basis. The AO made the substantive addition in the case of M/s. Neptune Infrastructure Pvt. Ltd. and protective assessment in the case of the society. The learned CIT(A) noted in the impugned order that since substantive addition on account of undisclosed income is upheld by him i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually correct in upholding the rent received on unsold shops and offices in the project as rent on the vacant land and thereby treating the same as income from other sources as originating from the capital asset i.e. land, resulting into denial of statutory deduction under section 24 of the Act ? 5. Whether the CIT (A) was right in not considering rent received on vacant shops offices as non taxable on mutuality concept? 14. On these grounds of appeals in assessment years 2001-02 to 2005-06, learned CIT(A) followed his order for assessment year 2006-07 dated 28-02-2011 and dismissed these grounds of appeals of the assessee. We therefore, take up this issue from assessment year 2006-07. The assessee submitted before the AO that it is not liable for any tax as it claimed that they were carrying on activity of construction of building for its members only as mutual concern out of funds provided by the members of the society and also that the society was working on no profit no loss basis. The AO noted that two issues cropped up as far as the taxability is concerned viz., rent income and profit from construction activity of Shree Ghantakarna Mahavir Cloth Market Projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut along with copy of resolution of the society. Copies of return of income, balance sheet and ledger account of rental income are also filed in paper book to demonstrate that rental income was shown in the books of accounts of the assessee. Copies of the same are filed from pages 101 to 117 and PB - 274 to 297. The learned Counsel for the assessee submitted that the AO did not asked for any specific details and merely on work in progress shown in the books presumed that assessee has rented out vacant land of the project. He has submitted that since large number of shops and offices have been rented out to various persons, therefore, it is difficult to believe that large number of people could be accommodated as tenant in the open space. He has submitted that findings of the authorities below are factually incorrect and the rental income could be tax as income from house property on which assessee would be entitled for deduction u/s 24 of the IT Act and further income would be exempt on principle of mutuality. 16. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that there is a factual difference in the submission of the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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