TMI Blog2007 (3) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... reciate the facts : (a) that the land in question was owned only by Sri N. Venkatesh by virtue of an irrecoverable GPA and other two members (including the assessee) had no powers to alienate the property even after development. (b) that there was no agreement of any kind in writing to the effect that it was a joint venture (AOP) of the three persons. (c) that there was only one bank account relating to this project which was in the name of Sri N. Venkatesh and he alone operated the said account and others had no role to play. (d) that the plots were ultimately transferred from Sri N. Venkatesh (GPA holder) to the buyers some of whom were of course introduced by other members, Sri K. S. Sathyanarayana and Sri N. A. Nagaraja Setty. (e) that Sri N. Venkatesh by virtue of being a GPA holder of the property and the lone operator of bank account was the individual owner of this business venture and the other two (including the assessee) were at best, his agents in marketing the sale of plots. 5. The Commissioner of Income-tax (Appeals) should have also appreciated the fact that none of the three persons claimed for an assessment in the status of association of persons either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The land at survey No. 10, Pattanagere village, Bangalore, measuring 4 acres, owned by one Sri M. Manchaiah was initially negotiated for purchase at Rs. 8 lakhs per acre by Sri K. Bagegowda and an agreement was drawn on September 30, 1995. Sri Bagegowda also paid advance of Rs. 5 lakhs. Later, he undertook some developmental activities on the land. Sri K. S. Sathyanarayana and Sri D. Raghu entered into an agreement with Sri K. Bagegowda on May 24, 1996, to purchase the said land (which was partly developed) in as is where is condition at Rs. 13,75,000 per acre. The seized documents show that : (1) Sri K. S. Sathyanaranana, (2) Sri N. Venkatesh, and (3) Sri N. A. Nagaraja Setty joined together to complete the project of developing this 4 acres of Pattanagere land into sites, and for this purpose they contributed capital also. Sri K. Bagegowda initially negotiated the purchase of land from Sri Manchaiah, executed some development works and later handed over the project to Sri K. S. Satyanarayana group and thus he remained as a facilitator of the project. By virtue of his past experience in estate business and developmental projects, he executed some more work also even after handin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discussed as under : (I) Sri N. A. Nagaraja Setty, one of the co-venturers has deposed on January 5, 2001 (Q and A. 16) that "as per actual understanding, our share in the profit was 65 percent to Mr. Satyanarayana, 20 percent mine and 15 percent to Sri N. Venkatesh . . .". This shows that it was the understanding (though not in any written form) to share profit of the project as KSS : NAN : NV = 65 : 20 : 15. (II) The seized paper at page 58 in file No. A/KSS/6, shows the working of net surplus at Rs. 58,56,000 and page 48 of the same file indicates that Sri N. A. Nagaraja Setty's share is 20 percent of Rs. 58,56,000. (III) The evidences at (I) and (II) lead to the inference that Sri K. S. Satyanarayana, Sri N. A. Nagaraja Setty and Sri N. Venkatesh had 65 percent, 20 percent and 15 percent share respectively. (IV) A statement of drawings of these three persons has been reflected at page 49/A/KSS/6 indicating that it is in the ratio of 65 percent, 20 percent and 15 percent respectively to K. S. Sathyanarayana, N. A. Nagaraja Setty and N. Venkatesh. The Assessing Officer noted the contributions towards the capital and the drawing. The observations of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 has been drawn on May 10, 1999, indicating that the project was complete by that date. In paragraph 11 he observes as under : From the above analysis of facts with reference to various seized materials, it clearly emerges that the income and expenditure statement drawn obviously on May 10, 1988, and arriving at the profit of Rs. 61,79,680 (after taking into account the value of just 7 unsold sites at the average rate of sale of other sites) is the only basis, and the correct basis to ascertain the profit collectively earned by Sri K. S. Sathyanarayana, Sri N. A. Nagaraja Setty and Sri N. Venkatesh in this Pattanagere project. Though many items of expenses reflected in various expenditure statements referred to above are not capable of verification for want of details, bills, vouchers, etc., keeping in view the turnover and the probable margin of profit that is generally derived in real estate business, the profit margin in this project which works out to about 33.73 percent (Rs. 61,79,680 vis-a-vis the sale proceeds of Rs. 1,83,20,400) is adopted in this assessment without disturbing the figure of total expenses. As far as the sale proceeds are concerned, there are enough de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 in respect of this venture, (III) that in the block return also he has offered the same income to tax, (IV) that as indicated in the seized material at page 58 of A/KSS/6, his profit in this project was only 5 percent, i.e., Rs. 3,23,680 and that he has not gained any benefit over and above this project. 4. The assessee's above submissions are very vague and it does not explain various entries made in the seized materials. In this office letter dated December 23, 2002, the assessee was specifically asked to explain the contents of pages 44, 45, 46, 48, 49, 57 and 58 where the profits of the project and the share of the three members are clearly indicated. In his written reply dated December 26, 2002, the assessee has given short and vague answers and has not explained the contents therein. In regard to various drawings entered in the seized materials against his name, the assessee says that these entries represent payments to him against various project expenses incurred by him. No such details are furnished. Further, these set of drawings in the names of the assessee and his other two coventurers are in the definite ratio of 65 percent, 20 percent and 15 percent It cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot open to the Assessing Officer to choose the person in whose hands the income is assessable, but to assess the income in the hands of a right person. The decision of the Patna High Court in CIT v. Chandmal Rajgarhia [1995] 213 ITR 789 was considered that involved a husband and wife and the conclusion was that the income from the venture was assessable in the status of association of persons. Similar view was taken by the Karnataka High Court in Smt. K. Bhoomiamma v. CIT [1992] 194 ITR 723. The Commissioner of Income-tax (Appeals) considering the decisions as stated above in his order observed as under : Hence, in view of the discussions made in detail above and keeping in view the ratio of the decisions cited, particularly the decisions of the hon'ble apex court in the cases of ITO v. Ch. Atchaiah [1996] 218 ITR 239 and S. P. Jaiswal v. CIT [1997] 224 ITR 619 and the hon'ble jurisdictional High Court in the case of Smt. K. Bhoomiamma v. CIT [1992] 194 ITR 723, it is clear that the undisclosed income/profit relating to the impugned project at Pattanagere village was required to be assessed to tax in the hands of the said association of persons comprising of the appellant and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer to the effect that the profit sharing ratio of three persons is 65 : 20 : 15. On the abovementioned facts, the Department is challenging the order of the Commissioner of Income-tax (Appeals) that it was not proper to arrive at the conclusion that the assessment could have been made only in the hands of the association of persons. The appeal by the assessee is in regard to the fact that when assessment is to be framed in the hands of the association of persons, any amount to be paid to the member i.e., 5 percent of the net profit amounting to Rs. 3,23,680 could not have been allowed as a deduction in computing the income of the association of persons and thereby it could not have been assessed in his hands. The assessee then moved an additional ground of appeal that surcharge is not leviable as the search was made on December 29, 2000, and that the Special Bench of the Tribunal in Merit Enterprises v. Deputy CIT [2007] 288 ITR (AT) 226 (Hyd) has held that the surcharge is not attracted in regard to assessments framed where the searches have been made prior to June 1, 2002. On the above facts, the rival contentions have been very carefully considered. The sequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) should have done is to hold that assessment framed in the hands of the assessee individual is wrong because he on his own did not carry out the project. In our opinion, the plea as raised by the assessee that the Commissioner of Income-tax (Appeals) had exceeded his jurisdiction by directing the Assessing Officer to assess the association of persons for the income from Pattanagere project is not at all justified. The effort of the assessee before the Commissioner of Income-tax (Appeals) was to show that the Pattanagere project was not carried out by him in his individual capacity but along with Mr. Nagaraja Setty and Mr. Venkatesh. Since the facts indicated involvement of more than one person in the said project, the Commissioner of Income-tax (Appeals) came to the conclusion that the income would have to be assessed on a person which person has come into being because of the joint venture nature of work carried out by the assessee along with others. During the course of arguments, the assessee further insisted that the ratio of profit from the Pattanagere project, as stated by the Commissioner of Income-tax (Appeals) should be directed to be maintained o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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