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Sayan Textiles Park Ltd. Versus ACIT

2015 (4) TMI 184 - ITAT AHMEDABAD

Revenue receipt v/s capital receipt - amount received at the time of execution of the sub lease - booking advances - Held that:- If a receipt is having a direct nexus with the acquisition of capital asset then the expenditure is capital in nature. Even if an amount is received against that capital asset then naturally such receipt is a capital receipt. A general Rule is that the amount received in lieu of a capital asset is a capital receipt and if an amount is received in lieu of circulating ca .....

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capital receipt. Specially when the Assessee has incurred a huge amount of ₹ 38.5 crore for acquiring the lease rights from GIDC. The said lease amount was to be recovered from the members joining the scheme by sub leasing the land to them. Upto this extent, we hereby hold that the Assessee was required to demonstrate by a separate account in its books to “earmark” the amount received against the sub lease from the members of the scheme. This fact still can be verified by perusing the sub .....

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is based upon the concept of sharing the expenditure as well as sharing the profits. In the present case, nowhere it was demonstrated that the surplus, if any generated from the running of the scheme, shall be distributed amongst the members of the scheme. In the absence of such evidence we hereby hold that the principle of mutuality shall not apply on this Assessee.

The basic principle is that the unaccounted income should be taxed in the hands of the Assessee on the basis of the inc .....

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the part relief granted by learned CIT(A) was merely on the basis of a hypothecation that against 94 plots a proportionate expenditure might have been incurred. Such hypothecation cannot be upheld especially when the Assessee is in a position to demonstrate the year-wise financial position. Resultantly, grounds raised against the part relief by both the sides are hereby set aside back to the stage of the AO to be decided de novo as per the directions.- Decided in favour of Assessee and the Reven .....

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013 were that the Assessee company was stated to be in the activity of developing a Textile Park to provide infrastructure and other facilities to the Textile Industry by allotting plot of land. In this connection, the Assessee has furnished a note explaining the nature of activity of the company as under: "With a view to enhance competitive strength of textile sector, to promote the export and R&D, to enable the entrepreneurs to adobe new technology and to provide better infrastructure .....

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uildings. The major drawback Indian textile industry is delay in supply and quality issues. The units in park can get together and serve the large export orders so that international buyer can get quality fabric within required time. Machineries installed in the units must be TUF approved machines which are better machines and can produced good quality of fabric. Units get power in time and good quality of infrastructure and common facilities as mentioned above so that units can be competitive i .....

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. Amount of subsidy could be utilized even for construction of shed but in such case ownership of the shed vests with SPV and member gets only lease hold right for such shed. All properties which are constructed by utilizing the fund of subsidy belongs to government and could not be dispose off. Basically the concept of SPV is on cost sharing basis by members' who are interested in developing modern textile units and Government gives 40% of the total project cost and members are required to .....

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ey are directly report to the MOT. Government Nominee or nominee of PMC are on the board of directors as well as tender committee. Bills are certified by PMC and they are sent to the bank and payment is made from trust account by bank directly to contractors or suppliers. The promoters or the members have control over only routine maintenance account and nothing more. 2.1 A search was carried out at one Shahlon Group and consequentially a survey action took place at the site office of the Assess .....

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Dinesh Chandra Gandhi, marketing personal of the company, was recorded. He has stated that the total cost of each plot was ₹ 12 lac. If a broker was to be involved then 2% commission was to be paid to the broker. In respect of the amount received in cheque a receipt is issued, whereas no receipt was issued in respect of the cash payment received. The agreements were executed for ₹ 8 lac only. An another marketing personal namely Ashok B. Sheth has also been interrogate, who has state .....

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aries are prepared in which the amounts are written in code and which are in the custody of customers. While replying to Q.No.9, he stated that as per Annexure BF-2, this diary pertains to plots J-19 to J-23 booked by Shri Ashok Kabrawala and amount of "6005" is actually ₹ 60,05,000/-. On page no.3 the cash payments made by Shri Ashok Kabrawala of ₹ 5 lacs till date have been mentioned against total ₹ 20 lacs (Rs. 4 lacs X ₹ 5 lacs ) the total value of the plot. .....

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0 crore. The AO has reproduced his statement as under: "The sale rate of industrial plot is ₹ 12.01 lakh for which lease deed is to be prepared for ₹ 8 lakhs for plot and ₹ 4 lakhs were earmarked and charged for plinth level construction. Regarding admission of on-money, I can state that ₹ 7,00,00,000 has been admitted as net additional income of Sayan Textile Project. However, I could not identify per plot on-money component." 2.3 However, the Assessee has furn .....

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nt/sale of any plot/shed was done during the year under consideration." 2.4 In the balance-sheet under the head current liabilities , the Assessee had shown the booking advances as on 31.03.2010 at ₹ 11,27,60,000/-/ The breakup of the same was that a sum of ₹ 7 crore as disclosed at the time of survey was included in the said booking amount received. The objection of the AO was that the Assessee has not furnished the names and addresses of the person from whom the alleged amount .....

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AO had perused the contents of the Sub Lease and made an observation that for the purpose of business of textile the land was given on sub-lease for construction on the plot which was to be done by the allottee but with the consent of the Assessee. The Sub Lease Deed had clarified that the plot holder had paid a sum of ₹ 8 lacs as a one time value for the allotment rights over the plot in favour of the plot holders. The said amount of ₹ 8 lac was stated to be inclusive of members co .....

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xpenditure were to be borne by the plot holder. After narrating those facts, the AO has issued a show cause notice, relevant portion is reproduced below: 1.During the course of survey it was discovered that your company was charging ₹ 12,01,000/- for the sale of plot, out of which ₹ 8,00,000/-was being taken as cheque and ₹ 4,01,000/- as cash. During the course of survey various evidence has been collected as per Annexure BF-1 (4 pages) and BF- 2 (2 pages), which contain the de .....

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of ₹ 12 lacs. 3. Shri Rajendra Chokhawala, Director of the company could not explain on oath as to why ₹ 4 lacs is taken in cash for the construction purpose, when the lease deed is prepared at only ₹ 8 lacs. But however he admitted ₹ 7 crores as its net additional income of Sayan Textile Projects. Since the textile park has 499 plots, please showcause as to why the total unaccounted income from the project should not be calculated at rate of ₹ 4 lac per plot i.e. & .....

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Tater. It is observed that you are simply sub-leasing the plot of land to various parties and obtaining one time value which is to be treated as members' contribution. It is observed from the audit report for the year ending 31-3-2010 and 31-3-2011 that you are not offering any income in the profit and loss account. However, it is seen from the audit report for the year ending 31-3-2012 that you are offering income in the form of rent income, maintenance income and interest income. Since yo .....

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rpose of business activity. In view of the above please showcause as to why the entire on-money income of ₹ 19,96,00,000/- should not be taxed as income from other sources . 2.5 The Assessee s reply was that there was no evidence that the Assessee had received any amount more than 7 crore as additional receipt. There was no such incriminating document recovered at the time of survey. It was further explained that during the year under consideration no deed of sub lease was executed; hence .....

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d earned unaccounted income of ₹ 7 crore from the said project which was disclosed in the books of account. According to AO, no income was offered as per the return of income and claimed huge expenses which were shown as work in progress amount to ₹ 23,93,17,249/-. The Assessee has also raised one more objection that the amount received was not the income of the Assessee but it was a mutual benefit fund. The surplus was therefore not recorded as income or gain of the Assessee. For th .....

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business as prescribed u/s.2(13) which had defined the term business or trade or commerce, etc. The AO has drawn the conclusion as under: 5.5 During the year the assessee has received total amount of ₹ 11,27,06,000/- as income received on account of sub-leasing of plots. Income received on subleasing of plots cannot be classified into income from House property, or income from business/profession. Income from leasing of plots is "income from other sources". Since, the entire amo .....

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sub-leasing of plots, which is classified as "income from other sources" and which is taxable on receipt basis as against the assessee's contention of treating the amount as "Business income" on accrual basis. Therefore, the amount of ₹ 11,27,06,000/- is added to the total income of the assessee. 2.7 Against the addition, the Assessee has preferred an Appeal. 3. Before learned CIT(A), the Assessee has informed that the Ministry of Textile, GOI had decided to develo .....

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on cost sharing basis and the government was required to contribute 40% of the total project cost. It was also mentioned that generally the government keeps the control for 15 years and thereafter nominate the Directors of the Board of Company to supervise the operation. Thereafter, in this case; SPV was executed between the promoters of the park and the members who were interested in putting up textile industry. The Assessee Company through its promoters have obtained the land on lease from GID .....

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6,000/- was therefore shown in the balance sheet on 31.03.2010 under the head current liabilities. The argument of the Assessee company was that the amount received as advance was nothing but in the nature of capital receipt, as held in the case of Panbari Tea Company, 57 ITR 422. It has also been argued that during the year under consideration no deed of Sub Lease was executed hence no income was earned therefore, the amount declared at the time of survey of ₹ 7 crore was nothing but curr .....

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re learned CIT(A) that the total plots under the project were 504 in number. Learned CIT(A) was of the view that the expenditure incurred upto 31.03.2010 amounting to ₹ 23,93,17,249/- in respect of the total number of plots 504 as against that amount of ₹ 11.27 crore was received in respect of only 94 plots therefore he has divided the number of plots and came to the conclusion that in respect of the 94 plots only a sum of ₹ 4,46,34,566/- should have been incurred by the Assess .....

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23,93,17,249/- in respect of total plots. Therefore, the proportionate expenses in respect of 94 plots are worked out as under:- 94 X 23,93,17,249 divided by 504 = ₹ 4,46,34,566. Therefore, against the receipt of ₹ 11,27,06,000 the expenses to the tune of ₹ 4,46,34,566 shall be allowed as expenses incurred in respect of 94 plots in respect of which, the money has been received during the year. Thus, the amount to be capitalized as WIP in the balance sheet will be only ₹ .....

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rt relief has been granted by learned CIT(A); therefore, the Assessee as well as Revenue both are in appeal. 4. From the side of the Assessee, learned AR, Mr. Rasesh Shah appeared and argued that the premium which was received by the Assessee was nothing but a capital receipt . He has pleaded that the Assessee company had obtained a lease from GIDC and paid a huge amount. Therefore, when the Assessee has given sub-lease to the member then the sub lease amount was towards the allotment of plot wh .....

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buted for the land therefore the was a principle of mutuality existed. Due to this reason, the Assessee was only managing the claim hence not to be taxed on the amount received from the members. His third alternate argument was that if the amount of ₹ 11,27,06,000/- is to be treated as business receipt in the hands of the Assessee then the expenditure incurred shown as work in progress amounting to ₹ 23.93 crore should be allowed as expenditure. Learned A.R. has also drawn our attent .....

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ancial years received from the booking advances was as under: FinancialYear Amount 2008-09 20,33,000 2009-10 11,27,06,000 2010-11 30,20,85,215 2011-12 32,16,57,015 2012-13 42,18,32,023 2013-14 47,48,86,905 4.1 Likewise the plots were also allotted in different financial years and the scheme was in progress when the assessment was finalized. Since, the Assessee is not the owner of the land, therefore, the amount which was received as sub lease amount from the members should not be taxed as busine .....

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atements, copies of the same placed in the compilation filed by the Revenue Department. Learned Sr.D.R., has pleaded that the Assessee has not denied the fact that there was cash component in each sale of plot which was nothing but the unaccounted income earned by the Assessee. In the statement, it was clearly mentioned that ₹ 8 lac was to be recorded in the lease deed and ₹ 4 lac was to be received in cash which was not to be recorded. Therefore, the total value of the plot was ment .....

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relief granted by learned CIT(A). According to him, the Assessee had maintained the books of account on yearly basis; therefore, the correct income should have been calculated on the basis of the accounts on each year and over and above on money which received should be taxed in the hands of the Assessee. 6. We have heard both the sides at some length. We have carefully perused in the light of the compilation filed from both the sides. The admitted factual position is that on payment of ₹ .....

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ee. Few pocket diaries were impounded. On scrutiny of those diaries, it was found that the Assessee was receiving cash of ₹ 4 lac for granting sub lease to the members. The diaries have revealed that the cost of the plot was also ₹ 12 lac against which lease deed was to be executed for an amount of ₹ 8 lac and the balance amount of ₹ 4 lac was to be received in cash. When those diaries were confronted then one of the Director of the Company had surrendered a sum of ₹ .....

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as carried before the First Appellate Authority he was of the view that the Assessee was running a project for development of the plots therefore it was a business adventure due to which only the amount received upto the year under consideration was required to be matched with the expenditure incurred on the plots. Hence, a view was taken that the amount of ₹ 11.27 cr. was received against the lease of 94 plots out of 504 plots; therefore, a proportionate expenditure was to be adjusted aga .....

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ral decisions; but the controversy remained unresolved however in our opinion required to be decided on the basis of the facts of each case. If a receipt is having a direct nexus with the acquisition of capital asset then the expenditure is capital in nature. Even if an amount is received against that capital asset then naturally such receipt is a capital receipt. A general Rule is that the amount received in lieu of a capital asset is a capital receipt and if an amount is received in lieu of ci .....

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he nature of capital receipt. Specially when the Assessee has incurred a huge amount of ₹ 38.5 crore for acquiring the lease rights from GIDC. The said lease amount was to be recovered from the members joining the scheme by sub leasing the land to them. Upto this extent, we hereby hold that the Assessee was required to demonstrate by a separate account in its books to earmark the amount received against the sub lease from the members of the scheme. This fact still can be verified by perusi .....

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le of mutuality is based upon the concept of sharing the expenditure as well as sharing the profits. In the present case, nowhere it was demonstrated that the surplus, if any generated from the running of the scheme, shall be distributed amongst the members of the scheme. In the absence of such evidence we hereby hold that the principle of mutuality shall not apply on this Assessee. 6.4 Alternatively, in our opinion, this is a case where this company was running a business of development of a sc .....

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and the other component is towards the expenditure of development in infrastructure. It was an obligation of the Assessee company to provide infrastructure to the members of the scheme. That was the expenditure towards development of the scheme hence in the nature of work in progress WIP. The profit on such type of activity can be calculated by two methods one is project completion method and the other is percentage completion method. Both these methods are recognized method as per the accounti .....

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