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TMI Blog2023 (9) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... it's Managing Director. It is averred therein that the appellant- company was unaware of the impugned order having been passed on 24.8.2020. The period was covered by the Covid-19 pandemic, when the State of Kerala was facing severe crises in terms of lockdowns and dislocation of services. The assessee was also operating with skeletal staff. It was only on 24.8.2022 that the appellant- company was telephonically informed of the impugned order by the office of the concerned Assessing Officer (AO). Immediate steps for redressal were taken by contacting the CA, the ld. counsel before the first appellate authority, and the appeal, engaging another counsel, filed on 02.9.2022. The said facts, which, to the extent they relate to Covid-19, are borne out by common knowledge, are not disputed by the Revenue. In fact, the bulk of the period of delay is covered by the blanket saving by the Hon'ble Apex Court per its suo motu petition in Cognizance For Extension of Limitation (in MA No. 21 of 2022, dated 10/1/2022). We under the circumstances find merit in the assessee's case and, accordingly, condone the delay, and admit the appeal. Ajit Associates (P.) Ltd. (AAPL) 3. The assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of being allowed the cost of improvement as a business deduction also could not be allowed in the absence of any supporting vouchers being furnished by the assessee, who had failed to produce the books of account, mandatory for their maintenance and audit, both under the Act and the Companies Act. The share of ERF (Rs. 2,18,49,600) was, accordingly, assessed as business income. The assessee failing to improve it's case before it, the same was confirmed in appeal, for the same reasons, by the first appellate authority, who, though, allowed it credit for expenditure at 20% of the claimed sum of Rs. 434.35 lacs, reducing the income, assessed as of business, by that sum (Rs. 86.87 lacs). Aggrieved, the assessee is in second appeal. Good Homes Private Limited (GHPL) 4. The facts of the case are broadly similar, except that it required several notices u/s. 142(1) by the AO, as indeed u/s. 144 on 06.11.2013, and then again on 04.12.2013, for the assessee to file it's return of income, which it did on 25.3.2014, returning nil income. Needles to add, no books of account or supporting documents evidencing the expenditure claimed qua cost of land development were produced. On reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the interest thereon, causing major crises, with the threat of attachment from the creditors looming large. Distress sales, as to AWHO (Army Welfare Housing Organization) for sale of 426 cents of land in 1991, at Rs. 10,000 per cent, as against the market price / circle rate of Rs. 25,000 per cent, were made. ICDS, which had underwritten the loan from Syndicate Bank, attached the property (except to the extent given to HUDCO) in 1993-1994. That is, the sale of property during this period was made only for survival, and for clearing loan and interest dues. The period post 2005, which may be regarded as the second phase, provided the promoters an excellent opportunity to sell the property due to increased demand for real estate. New opportunities to purchase land also arose. As buying land in old (promoter) companies (PCs) would lead to their immediate attachment in view of their default status, three new companies (NCs) (i.e., Capvest Wealth Services Private Limited, Jeeva Vacations Private Limited and Elton Web Sales Private Limited), were promoted by the majority of the original promoters, purchasing land to the extent of 152 cents. It is during this time that the land in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y error, however, committed by him, and not rectified by the first appellate authority, is in dividing the aggregate cost (i.e., development and other costs) of Rs. 36,56,89,780, to arrive at the per unit cost, by 896.76 cents, i.e., the total land purchased, instead of 624.533 cents, being the saleable area, i.e., the land available for sale (part of which stands sold during the year), on deducting from the land purchased, that utilized for providing open area, lawns, internal roads, landscapes, loss of land due to litigation and attachment by FIs, etc. This was clearly an error on his part as, without doubt, while cost is incurred with reference to the total land area available, in computing the cost of the land sold or, where unsold, held in stock as at the year-end, the cost would be allocated to the land available for being sold. Reference was made by him to the following tabular chart forming part of the paper-book: (PB-1, pages 2, 3) Table A Sl. No. Particulars Extent of land (in cents) Total value (in Rs.) Value of the land (per cent) (in Rs.) 1. Total purchase of land 893.73 1,30,09.678.10 14,556.61 2. Less: Property sold prior to 1996 89. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making variable the proportion of land purchased by them available for sale. A company with a larger proportion of it's land available for sale would stand to gain more from the common development, and the concomitant cost sharing arrangement, more than the one with a lower proportion in comparison, which could even result in a loss, as is indeed the case, and toward which he would refer to a chart (Table B, at PB-1, pg. 13). Thirdly, the sale price of land would also vary significantly, even as the development cost, due to its aggregation, becomes uniform, resulting in a distortion. This is as the land located in the vicinity of an open area or adjacent to the main road normally fetches a higher rate than the other. On being queried that the purchase rates of lands by different entities would also be correspondingly different, he explained that the difference in land price came about on and with reference to the project layout, absent at the time of it's purchase during 1981-1983. Also, about 97% of the land cost, as apparent (see Table-A), is comprised of the development cost, rendering the purchase cost as marginal and, thus, irrelevant. Table-B is reproduced as under: Name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 174.56 12,280.84 21,43,744 1,72,13,435 -- 1,50,69,692 -- 2. Beaver Estates Pvt.Ltd. 224.6 12,280.84 27,58,277 1,21,58,910 -- 94,00,633 -- 3. Mr.BR Ajit 37.6 12,280.84 4,61,760 23,91,023 -- 19,29,263 -- 4. Capvest Wealth Management Services Pvt.Ltd. 100.5 12,280.84 12,34,225 -- 1,50,42,408 -- 1,62,76,633 5. Elton Technologies Pvt.Ltd. 48.5 12,280.84 5,95,621 -- 1,22,33,746 -- 1,28,29,367 6 Jeeva Vacation Resorts Pvt.Ltd. 3 12,280.84 36,843 27,43,255 -- 27,06,412 -- Total 588.76 12,208.84 72,30,469.14 3,45,06,623 2,72,76,154 2,91,06,000 2,91,06,000 Net surplus 72,30,469 The assessee's share would thus work to Rs. 21,43,744, which may be accepted as it's income. In the alternative, he would continue, the entire income of Rs. 72,30,469, i.e., on the real estate developed, assessed in the hands of an AOP, giving suitable directions to the AO, which is acceptable to all the individual companies and their managing director, Sri Ajit, himself a constituent thereof, and who have toward the same conveyed their consent vide affidavits on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repute, on whom several accolades and awards stand bestowed upon in his long and illustrious career for unique/creative buildings/structures. The Island was to be the first such, albeit private, property in the country, a mini township so to speak, comprising a gated residential complex, villas, clubhouse, resorts, lawns, etc. spread over the area. The structures may or may not have been planned for being constructed by the group companies, i.e., could be jointly with a Developer, or by person/s purchasing the land for that purpose, viz. clubhouse, is another matter. It may well be that it had been planned to, or otherwise specific projects, i.e., development of land; villa project; bridge work, etc., be undertaken by the individual companies. Why, as it appears, AAPL - despite no land, actually undertook to set up a villa project (see para 3 of this order), with there being also reference to sale of Silver Heights Apartments (para 4).The said project could only have been upon securing land, even if for development purpose, from another. The project may not have taken off at the time and/or in the manner anticipated due to delayed approvals, resulting in increased costs, principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her/s, or jointly. The same is relevant as it is only the cost actually incurred that could be claimed toward the cost of improvement. Even in case of joint development, inasmuch as costs are shared jointly, and each entitled to sale proceeds of their separate land holdings, arises to them separately. It is only a cost sharing arrangement, whereby each is entitled to the cost borne by it. Income in case of joint development, would arise jointly, in the defined ratio; it being the principal driver of income. This would be irrespective of the head of income under which it is assessable. This is precisely what we meant when it is said that the change of the head of income would not change the person to whom the income arises. Development, where and to the extent made by another, as appears from the charge of ERF, would warrant a charge by another, and could be no reason for the income per se being not of the assessee. The same though may lead to computational issues. Further still, no return, even if u/s. 147, stands filed by a AOP, defining it's constituents and the areas of work to which the arrangement extends, specifying also the contribution envisaged by each member, and it's sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The 3 new companies were formed much later, while the bulk of the development was in the initial years. As it appears, therefore, the permission for land development for the entire area of 9 acres (see Table A) stands moved by one company as the lead company, in which case, the other companies, which get involved for extraneous or ancillary reasons, would outsource the development work, of which there is though no whisper. This would also be so even if they undertake separate works of development, with a view to bring home their separate functional expertise. In either case, it would lead to the question/issue of who pays whom, and how much, i.e., for the work done by any one, of which all others, or at least some of them, would be beneficiaries? There is though nothing to indicate that. The fund/loan requirement in each case would also be vastly different. For example, it would be much more for a housing project, as undertaken by AAPL. It would therefore require an agreement, predefining the basis for raising the charge by each one, for the work performed, on the beneficiaries thereof, of which there is, as afore-stated, no claim. The Approval/s sought by a company/s could thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.) Income offered for assessment (in Rs.) Easement rights charges Other income disallowances made in the assessment order. Total income assessed 1. Good Homes Pvt. Ltd. AABCG0444L 343 174.56 4,77,70,288 2,05,20,000 -- 6,82,90,288 -- 2. Beaver Estates Pvt. Ltd. AADCB0193M 318 224.6 5,08,26,390 1,59,60,000 -- 6,67,86,390 -- 3. Mr.BR Ajit AAPPA1312A 45 37.6 89,71,794 91,20,000 1,29,57,046 3,10,48,840 1,38,65,701 4. Capvest Wealth Management Services Pvt. Ltd. AACCC8942Q 134.73 100.5 1,58,30,000 -- -- 1,58,30,000 1,52,47,100 5. Elton Technologies Pvt. Ltd. AABCE3698N 50 48.5 17,86,750 -- -- 17,86,750 17,86,750 6 Jeeva Vacation Resorts Pvt. Ltd. AABCJ9338C 3 3 26,00,950 -- -- 26,00,950 26,00,950 Total 893.73 588.76 12,77,86,172 4,56,00,000 1,29,57,046 18,63,43,218 3,35,00,501 This, i.e., ERF, as a development charge, however, does not explain the repetitive transactions of purchase (more than 77 transactions of medium and small plots, from 1983 to 2006), and sale of land by the group companies, i.e., as a part of the SSI project (para 3.5/page 13 of the assessment order of GHPL). What, we wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... built and, thus, consumed in the process, and which is in the ratio of 45:35:20 in favour of GHPL, BEPL and AAPL. This is as the said companies have foregone their lands for the project in that ratio. It is these companies which, therefore, are to be compensated, and in that ratio. The rationale and the purport of the charge, appealing at first blush, fails completely on scrutiny. Firstly, cl. 1, which is the only part of the Agreement before us, does not speak of any charge, but only of a prior consent of the parties to the Agreement, for the smooth conduct of the development work. Inasmuch as they have contributed their land toward common property and facilities, presumably in that ratio, having possessory rights in the stated ratio, their consent is required for any person who wishes to use the roads for transport, only which shall enable him access to his property. This would apply to other common facilities as well. Further, this consent, the purpose of which is thus the smooth conduct of the project work, is to remain in force till at least 95% of the total saleable area is sold. Now, this, understandable indeed, does not speak of any fee being charged from those using these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ything if the compensation is pegged only at cost, even as it's contribution for the project cannot be denied; it having, rather, contributed it's entire land for the purpose. It is thus only on margin being taken into account would it's contribution to the project recognized in the real, commercial sense of the term. No hard and fast rules in its respect, though, could be made, which is a subject matter of agreement between the parties thereto. This gives rise to another question, i.e., the manner of regulation of development prior to 17/4/2001, whereat the bulk of the development has taken place; Rs. 20.39 cr. out of the total capital outlay of Rs. 22.05 cr. on the project (i.e., as per the assessee's letter dated 31/1/2014), or over 92%, having been incurred prior to 2001. Even if the parties have entered into an agreement later, i.e., in respect of the development work done earlier, it is only the parties having executed that workover the said period, in respect of their land, who would come together to arrive at a formal agreement qua the costs incurred or rights accrued thereto, if only to, given the inequitable manner in which the revenues from the project may stand to arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No wonder the same is not part of the record, even as it would be so even for the reason that it was not specifically referred to during hearing (refer Rule 18(6) of the Income-Tax (AT) Rules, 1963). All these contradictions and inconsistencies need to be explained. The second reason stated for the charge of ERF is the locational advantage of its land enjoyed by one company vis-à-vis the other, i.e., with reference to the project layout. This is, again, incomprehensible. The project layout is determined not by considerations as to which part of the land is owned or acquired by which entity, but by project considerations alone. As such, which part of the total land would be placed more favourably than the other, i.e., in terms of it's final sale value, itself determined by a variety of factors, and which are again themselves liable to vary with time, as indeed their relevance and, thus, weight, cannot be predicated, much less form the basis of one entity compensating the other. It, after all, does not stand to gain at the expense of other for it to compensate it. The only manner to mitigate the impact of this variance, to our mind, as also afore-stated, is to form a separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for ERF, even as the same is, for the reasons discussed herein before, inaptly termed so. It stands to arise by way of an inter se adjustment/charge arising to one (or more) company/s engaged in the project from the other/s, and which would surely form part of their operating statements, and not from any outsider to the Agreement, i.e., just the opposite to what it purportedly states! Though the extracted part of the Agreement is only in respect of 'consent', the same would, where the subject matter of the Agreement extends to the charge of ERF as well, as we presume - as otherwise reference thereto is of no relevance, it is only the parties obliged to seek consent for the easement right, which would pay it. It cannot be otherwise. In fact, it is the NCs which are paying ERF to the PCs. As explained, the same is as it is only where one has acquired a right, that it could transfer or grant it to another. Implying, therefore, that the NCs have charged the same from the buyers of the property therefrom, as indeed the PCs on sale of land to the outside buyers. And which, in either case, is not so. Now, if land/property could be sold to a buyer without charge of ERF, why we wonder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its respect - for income cannot be unilateral, arises. That is, a cause for charge obtains, constituting a valid basis for reckoning income as well as, correspondingly, expense. To put succinctly, the concept of profit equalization is only a manner of application or appropriation of profit, liable to be ignored, both from the income as well as the expense side w.r.t. the operating statement of the relevant entity. At the same time, it may well be that ERF is conceived as a mechanism to save on stump duty inasmuch as it gets absorbed in the sale price, as is admittedly the case when an NC purchasing the land sells it to an outsider. This would, in that case, require a comparison of the price at which PC has sold land to NC, with that at which it has sold to an outsider. The sale in either case being of developed land, the price difference between the two would correspond to the ERF where it is indeed toward price of land, so charged to save on stamp duty. That is, it is only in a demonstrated case of ERF corresponding to the price differential, that an inference as to the same representing sale price and, thus, a part thereof, would follow. So conceived, the charge of ERF is un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t before us, held by the AO to be not entitled thereto inasmuch as it owns no land (refer para 4). It is, on the other hand, BRA, proprietor, Ajit Associates, who owns land and, accordingly, entitled to 20% of ERF (taken at Rs. 91.20 lacs), with the balance 80%, in either case, arising to GHPL and BEPL in the ratio of 45:35. Now how could this - clearly anomalous, be, to which, we are sorry to say, neither side drew our attention during hearing. If the income, and to whatever extent, by way of ERF, which is the sole income arising to AAPL for the current year, has accrued thereto, it has to be from one or more persons. Who are they, and what are their contributions? Further, there could be no grant of ERF by one to another without ownership of land qua which easement rights, out of the entire bundle of rights, signifying ownership, is granted. The situation becomes all the more perplexing as the assessee (AAPL), despite several grounds assumed by it, does not refute or deny being a recipient of ERF, and at the disclosed sum of Rs. 218.50 lacs, but only the character thereof as capital and, alternatively, of it being allowed expenditure there-against. While the former is not, the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the total land excluded as sold prior to 1996 is only 89.39 cents! (para 3). This needs to be clarified. And, similarly, the sale of Apartments. B. Land abandoned due to excessive cost (70 cents): As it appears, land was to be developed jointly with HUDCO which, however, was abandoned as the cost incurred, as well as likely to be, in completing the project, would exceed the revenue that stands to arise on it's sale, i.e., as per the agreement. The land stands rightly excluded inasmuch as it is not available for being sold, but, as in the case of (A) above, all costs in relation thereto, again taking the purchase cost at actuals, would stand to be determined and excluded. It could be that the creditors have, in exercise of their rights, appropriated the property, which could be by way of attachment, etc. The said costs, as incurred up to the date the project was abandoned, which would include interest on loans taken for the project, would stand to be excluded, i.e., net of the sum, if any, realized on sale/booking of flats/villas, inasmuch as that would represent the net cost incurred. This becomes relevant also for the reason that the quantum of loan, in proportion to the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld comprise the cost of purchase; of conversion; and other costs incurred in bringing the inventory to its present location and condition. This, then, defines the basis for inclusion or otherwise of any cost as the cost of production or, as the case may be, development, so that any cost, on a question in its respect arising, is to be determined on the anvil of this test. Paras 11 and 12 of AS-2 are in respect of 'other costs', and read as under: 'Other Costs 11. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories. 12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories.'(emphasis, ours) The foregoing, representing the usual accounting treatment, which has the approval of ICAI, may require some explanation. Interest cost is essentially a tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest and other costs incurred by an enterprise in connection with the borrowing of funds. 3.2 A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Explanation: What constitutes a substantial period of time primarily depends on the facts and circumstances of each case. However, ordinarily, a period of twelve months is considered as substantial period of time unless a shorter or longer period can be justified on the basis of facts and circumstances of the case. In estimating the period, time which an asset takes, technologically and commercially, to get it ready for its intended use or sale is considered. Recognition 6. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Standard. Other borrowing costs should be recognized as an expense in the period in which they are incurred. 12. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be recovered. In the instant case, the work is being undertaken as a project of real estate development, for sale, as and when the occasion arises, to an eligible buyer, being a member of the public, as developed land or, better still, together with construction thereon, for which though construction contract may have to be entered into for a whole or part of the construction, involving another contractor/developer. The sale of the villas to HUDCO, since abandoned, would fall in this category. The following paragraphs of the Standard are relevant in this regard: Recognition of Contract Revenue and Expenses 21. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognized as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognized as an expense immediately in accordance with paragraph 35. 22. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t progression agreeing, even if broadly, with the time line in its respect, viz. at the time of seeking approval, loans, etc. It is not unusual to therefore specify time lines in tentative terms, viz. 3-4 months, 6-8 months, 12-15 months, et. al. This is as some time loss is inevitable and, thus, broadly construed, regarded as normal. Time estimates usually factor this. We may here also clarify that there could be nevertheless, and in the interregunm, periods of suspension of work, as for example, awaiting an approval; arranging finance, etc., over which the project gets stalled. The interest corresponding to such periods of stalled work is to be excluded, including it, once again, on commencement or resumption of work. Loan repayment, as indeed of interest, are, as per the agreement, generally stipulated only upon the completion of the project, or in conformity with the cash inflows. Circumspection is the key, with a view to identify and segregate, given the project schedule and imperatives, what could be regarded as a normal time loss from that which could not be so regarded. Then, there is the question of interest on interest. This obtains when interest is, for any reason, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. A question may arise as to how the payment during a particular year is to be appropriated towards principal, interest thereon, or interest on interest. The same has to be necessarily as per the loan agreement. Where it is silent on this, inasmuch as unpaid interest stands to be included in the principal amount outstanding, i.e., for reckoning interest for the subsequent period, normally charged quarter-wise, in our view the assessee can, at its option, regard it as against any. While it is relevant from the standpoint of deduction of interest, it is irrelevant from the perspective of the bank as each of the three components, i.e., loan, interest, and interest on interest, where unpaid, qualify as part of the amount on which the interest for the subsequent period is to be charged. It may have further clarified that it is the interest, which, subject to its qualifying in terms of the project being executed, falling within the normative time, would stand to be loaded on to the project cost. D. Development Cost The same has been adopted at Rs. 36.57 crore in the assessment order, i.e., the figure advanced by the assessee during the assessment proceedings. Though later revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, being a period cost, cannot be accumulated for being claimed as part of the project cost in the year of sale, but is to be expensed for the year to which it relates. The proscription of ss.40A(3)/(3A), 40(a)(ia), et.al, shall also obtain. F. Sale Commission Though surely not a part of the project cost, would definitely form part of expense on sales and, therefore, deductible, where shown to be incurred bonafide. As it appears, even the details of the payees have not been furnished. Further, it shall be subject to satisfying the postulate as to the mode of payment (s.40A(3)/(3A)); tax deduction at source (sec.40(a)(ia)), etc. G. Repayment to Allottees How could repayment of advance to allottees be regarded as an expense? The amount received advance, which would have to be shown to be so with documents, is not 'sale', and its repayment cannot be regarded as reversal thereof. It is, clearly, only in case of repayment of sums already accounted for as sale, could a claim of sale reversal, on cancellation of the agreement, follow. The onus on the assessee, particularly in the absence of accounts, is heavy, involving, in the very least, confirmation from the parties; matching c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity of, and following the due process of, law. The assessee's reliance on CIT v. Malibu Estate Pvt. Ltd. [2008] 298 ITR 72 (Del), inasmuch as the copy of the same stands appended to the assessee's written submissions, without though being adverted to during hearing, is misplaced. In the facts of that case, a township by the name 'Malibu Township', for which approval was sought, required a minimum of 100 acres, while the land ceiling was at 28 acres. This led to five companies entering into a joint venture, with four of them giving power of attorney to the fifth, the respondent company. It's request for apportioning the income in the ratio of land holdings (even as returned and accepted in the instant case), if not assessed as a AOP, was not accepted by the Revenue. All that the Hon'ble Court held that no infirmity having been found in the concurrent findings by both the appellate authorities, no substantial question of law arises. That is, affirms the matter as essentially factual. In fact, it is only on admission of a substantial question of law that an adjudication u/s. 260A of the Act could follow (Maharaja Amrinder Singh v. CWT [2017] 397 ITR 752 (SC); San ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one wonders, is the scope for any difference or dispute? Our jurisdiction in the instant proceedings extends to the validity or otherwise of the assessments under challenge, including quantum thereof. It is not open for us to direct the AO to frame an assessment in the hands of another, not before us, nor indeed the constituents of the stated person. There is nothing to show joint execution, nor sharing of surplus or loss. Why, even in case of joint development, it is possible that the costs are agreed to be shared proportionately, i.e., in the ratio of land-holding, so that each earns profit or, as the case may be, incurs loss, in relation to it's land-holding. The income claimed to be arising and, accordingly, returned was by way of capital gain, i.e., on holding a capital asset, which is admittedly in the individual capacity. This is despite the fact that the value of the land gets fillip only due to its development and connectivity with the main land - again a form of development. There is, further, no doubt on the legality of the said sales, which result in the passing of legal title to the buyer of land. Merits apart, on which we have dealt with at length (para 6.2), the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o goes against the claim of AOP. The total land developed is less than 9 acres (900 cents), while the land ceiling is stated to be at 15 acres per company (entity). The charge - which on its premise of compensating for land contributed to the common areas, cannot be charged from an outsider party, as has been, and from a different set of companies, presenting a different ratio, i.e., not in agreement with what stands stated in its respect or as per the agreement. The conceptual infirmities apart, the stated ratio does not obtain in reality (Table E), with a charge raised on NCs and, further, inextricably not on the land purchased, but on that sold, by them(PB-1, pg. 12)! None of the claims hold. Stated to arise on the basis of an agreement dated 17.4.2001, it is not shown to have been charged thereunder and, further, since then, even as the same ought to, where serving a purpose, be in vogue since inception; the bulk of the development being prior thereto. Why, 92 % of the cost stands incurred prior to 2001. Rather, it appears to be by way of a consent of the companies contributing their land to the common areas, a permission so to speak, toward smooth conduct of the operations, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure only to that extent. Any cost incurred in excess of the proportionate land holding by any entity, would be for and on behalf of another and, therefore, recoverable from it. That is, on capital account. As afore-stated, this would obviate the need to raise any charge for ERF, or for the claim of an AOP, which even otherwise cannot be raised at this stage. The only aspect arising is a variable contribution, in terms of ratio, to the common pool by different companies (Table-B). The same, again, presents no issue as the saleable area, for each company, can be regarded as that available on the average, i.e., 87.71 % (100-12.29 / see para 6.3). Thus, for each sale made by any entity, the proportionate land cost allowed to it would be 1.14 (100/87.71) times the land sold. That is, for each 100 cents of land sold, the land cost set off would be corresponding to 114 cents. This would by itself distribute the common area load across different entities holding land in the proportionate ratio. The excess cost, if any, incurred by anyone would stand recoverable from the other. The aggregate cost, across all companies, spread over the total area available for sale (624.533 cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other companies. In Conclusion 8. The assessments, in view of the foregoing, are restored back to the file of the assessing authority. We have, considering the indeterminate state of affairs, with the assessee's claims being both unsubstantiated and inchoate, construed the issue arising before us holistically, i.e., the income assessable, including the head under which it is, in the facts and circumstances of the case, i.e., in accordance with law, also addressing the additional grounds. The claim of AOP does not survive, being both untenable and without jurisdiction. As regards ERF, the assessee itself seeks it's disregard despite returning it. In our view, the same could hold only where the same is shown to represent an economic charge, i.e., where one gains at the expense of the other, while, that as presented bears anomalies, discussed in detail in the order. We are conscious that assessments have been made in the group companies, assessing loss on account of ERF, and which, being undisputed, may have attained finality. That however would not detain us inasmuch as the said assessments are not before us and, two, it is only the correct legal position, and not the view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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