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TMI Blog2016 (4) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... the said search action u/s.132 of the I.T. Act in the case of Darode Jog Builders Pvt. Ltd. certain papers belonging to the assessee were found and seized. In view of the above, the AO issued notice u/s.153C to the assessee after recording the following reasons : (i) Registered Joint Venture Development Agreement bearing Sr.No.9288/2006 dated 29-12-2006 between M/s. Lagad Brothers Developers and Darode-Jog & Associates (Pages 1 to 37 of Bundle No.30 seized from the business premises of DJBPL. (ii) Statement of payment made to M/s. Lagad Brothers Developers as a deposit and as a drawing made from Darode Jog Lagad ventures. Total payment made from 28.12.2006 to 26.02.2009 is at , 12,13,14,597/-. (Page No. 55 of Bundle No. 20 Seized from the business premises of DJBPL) (iii) Statements drawn on 31.10.2008 showing the details of sold flats, unsold flats, payable to Lagad Brothers Developers, Promoters, Builders & Developers. cost and the working of shortfall of funds for projects completion in respect of the Crossover County Phase-I project of Darode Jog Lagad Ventures. On page No.44 the total summary of the page no. 45 has been mentioned and it is seen that the total estimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income on 10-08-2011 declaring loss of Rs. 32,797/- which was the same figure in the return filed by it earlier on 31-07-2007. During the course of assessment proceedings the AO asked the assessee to justify as to why the joint venture agreement should not be considered as a development agreement in view of clause (3) of the same wherein sharing of the profits of the joint venture is given. 4. The assessee submitted that the proposal to consider the joint venture agreement as development agreement is unjustified and incorrect. The relevant submission of the assessee as reproduced by the AO in the body of the assessment order reads as under : "Your proposal to treat Joint, Venture agreement as development agreement is not justified and not valid on account of following reason: 1. You have referred to the joint venture agreement and in clause 3, the mode of sharing the profits of the joint venture is given. As per this clause, the assessee was to get profit of 40% and The balance 60% will be to the account of the developer. It is further mentioned that this 40% of the sale proceeds will be reduced by the cost of the development rights paid by the joint venture to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enture agreement that the possession of the property has been given unconditionally. 6.2 The joint venture agreement is certainly for the development of land and pursuant to this agreement the land owners have handed over possession to the developer. It is in consideration of this handing over of the land that the land owners have been promised to be given percentage of sales which was later on stated to be given in the form of 80% of the net profit which clearly means the land owners under the nomenclature of joint venture agreement have in fact entered into development agreement. 6.3 The reference of supplementary agreement and the copy of which submitted before me, from the perusal of the same it clearly appears that assessee has entered into a supplementary agreement on 02.05.2010, which in my opinion is a afterthought given for correcting the original Joint Venture agreement which in real sense is a development agreement only. 6.4 As per Sec. 53A of the transfer of property Act, transfer of property is either a transfer of absolute ownership or a transfer of one or more of the subordinate rights. As per Mulla's commentary on transfer of property Act, absolute ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 153C at (-)Rs.32,797/-. 7. Similar view was taken by the AO for A.Y. 2008-09 wherein the income returned at Nil was accepted. The return filed for A.Y. 2009-10 was accepted at Rs. 8,99,340/- and for A.Y. 2010-11 the loss declared at Rs. (-)6,46,373/- was accepted as per the return filed. 8. Before CIT(A) it was submitted that the AO has considered the Joint Venture Agreement as a Development agreement on the ground that as per section 2(47) there is a transfer of land and possession has been given unconditionally. Further, land owners have been promised to be given percentage of sales which was later on stated to be given in the form of 80% of net profit which means the land owners under the nomenclature of Joint Venture Agreement have infact entered into development agreement. It was submitted that the assessee has a valid PAN and registration under the MVAT 2002 and Central Sales Act, 1957 and discharged the liability as Association of Persons under both the Act. The Income Tax Act does not define what constitutes an AOP which u/s.2(31) (v) of the I.T. Act is an entity or unit of assessment. In the absence of any definition the words must be construed in their plain ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by both of them. (d) the object of the joint venture is to produce income. (e) they have formed the joint venture for the purpose of completing the development of the land and completing the project on the said land which means the joint venture agreement is in pursuant of the combine WILL of both the parties and there is a meeting of the minds which has a main dominant objective to produce income for both of them. (d) The joint venture agreement entered into by the parties is for the improvement of property so that fruits of the venture can be enjoyed by both the parties." 9. Referring to the decision of Hon'ble Supreme Court in the case of CIT Vs. Indira Balakrishna reported in 39 ITR 546 it was submitted that the impugned agreement satisfies all the conditions and therefore the conclusion drawn by the AO that the impugned agreement is a development agreement is incorrect. 10. However, the Ld.CIT(A) was also not satisfied with the arguments advanced by the assessee and held that the agreement between Lagad Brothers Developers and Darode Jog and Associates was clearly a Joint Development Agreement though it is titled as joint venture development agreement. The relevant ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the local authorities as well as any liability on account of losses, injury or govt. dues of any kind were to be met by the Second Party. vii. That the consideration for the property was already received by the First Party before hand in the guise of 'security deposit'. This fact is inadvertently acknowledged in the 'Supplementary Agreement' wherein on page-5 it is stated that the consideration for the rights in the land had already been decided in the original agreement, at Rs. 2 crore. Notably, as per the original agreement, this amount of Rs. 2 crore was to be a refundable interest free security deposit." 6.4 Considering the above facts, I am of the considered view that the agreement between M/s. Lagad Brothers Developers on the one hand and Darode Jog & Associates on the other, was clearly a joint development agreement though titled a 'Joint Venture Development Agreement'. 6.5 For the reasons discussed n detail above, therefore, these three grounds of appeal are hereby dismissed." 11. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : The following grounds are taken without prejudice to each other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated. He submitted that in this agreement the shares in the profit of the individual parties were not linked to the sale proceeds but they were depending on the actual profits/losses of the AOP. 14. Referring to pages 63 and 64 of the paper book the Ld. Counsel for the assessee submitted that joint venture is registered under MVAT Act, 2002 and the tax payer identification No.27370925367V which is dated 23-08-2012. Referring to page 64 of the paper book he submitted that M/s. Darode Jog Lagad Venture has been registered under the Central Sales Tax (registration in turnover) Rules, 1957 w.e.f., 23-08-2012. Referring to page 62 of the paper book he drew the attention of the Bench to the PAN Number of Darode Jog Lagad Venture which was issued by the department and the PAN No. is AAAAD4381Q. He submitted that if the agreement is a development agreement the flat would be sold by the developer and not by both the parties together. He referred to a sample sale deed and submitted that the seller in the instant case is the joint venture and not Darode only. The joint venture is the seller and not Darode alone. This according to the Ld. Counsel for the assessee proves that the agreement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplementary agreement for bringing clarity and it was clearly stated as to how the profits of the joint venture would be shared between the 2 parties. There is nothing wrong in revising a contract for the purpose of removing the ambiguity. He submitted that there is no bar in the contract Act that an agreement once made cannot be revised. Therefore it is not understood as to why the AO rejected the supplementary agreement. 17. Referring to the decision of the Hon'ble Supreme Court in the case of Wallfort Securities reported in 326 ITR 1 he submitted that the Hon'ble Supreme Court in the said decision has held that even if the transaction is preplanned but there is nothing to impeach the genuineness of the transaction the same should be accepted by the court and it does not amount to abuse of law. Referring to the decision of the Hon'ble Supreme Court in the case of Union of India Vs. Azadi Bachao Andolan reported in 263 ITR 706 he submitted that the Hon'ble Supreme Court in the said decision has accepted that a citizen is free to carry on business within four corners of law. Similar view has been taken by the Hon'ble Punjab and Haryana High Court in the case of Porrits and Spenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Darode has to construct the project. Therefore, the transaction constitutes an AOP in view of the above decision of the Hon'ble Supreme Court. Further, since the AO in the assessment orders for A.Yrs. 2007-08, 2011- 12 and 2012-13 has assessed profits in the hands of AOP, therefore, it is wrong to hold that the profit should be assessed in the hands of the 2 parties separately and not in the hands of the AOP. 19. The Ld. Counsel for the assessee referring to the decision of Hon'ble Supreme Court in the case of Berger Paints India Ltd. Vs. CIT reported in 266 ITR 99 submitted that the Hon'ble Supreme Court in the said decision has held that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of other assessees without just cause. Referring to the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) he submitted that the Hon'ble Supreme Court in the said has held that strictly speaking the principle of res judicata does not apply to income tax proceedings though each assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed its return of income declaring loss of Rs. 32,797/- which was as per the original return filed on 31-07-2007 for the A.Y. 2007-08. Although the assessee has filed the return as an AOP treating the said Joint Development Agreement as a Joint Venture Agreement the AO asked the assessee to explain as to why the same should not be considered as a Joint Development Agreement and not a Joint Venture Agreement in view of various clauses of the said agreement. We find rejecting the various explanations given by the assessee the AO considered the joint Venture Agreement as a Development Agreement on the basis of the various clauses in the agreement. According to him, the agreement specified sharing of the sale proceeds by the 2 parties and thus this is an agreement for sale of land by Lagad to Darode for a consideration linked to the gross sale proceeds and the flats in the project. It is also the case of the Revenue that it is Darode who is developing the housing project and Lagad is simply transferring its land and thus the deduction u/s.80IB(10) is not available to Lagad and the arrangement between the 2 parties is not a Joint Venture (AOP) and it cannot be assessed as AOP. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment to the Joint venture viz. Darode Jog Lagad Developers were supposed to receive 40% of the sale proceeds of the Joint venture on account of land given it to the Joint venture for development. As per the Joint Venture agreement the cost of land in the books of Joint venture was adopted at 2,00,00,000/- though the joint venture actually paid 40% of sale proceeds on account of land. Value of land adopted by the Joint venture in its books was at Rs. 1000/- per sq. meter. The joint Venture partner M/ s Darode Jog Associates purchased the land behind the project of the Joint Venture at the rate of Rs. 7,558/ - per sq. meter from Baban Genu Kumbharkar. The consideration paid to Shri. B. G. Kumbharkar which was in accordance with the stamp duty valuation. Purchase of land from Kumbharkar was within 3 months from the date of purchase of developments rights by the joint venture from M/s Lagad Brothers Developers. Thus it was obvious that the market value of land cost was at around Rs. 7,558/ - per sq. meter. However this land was introduced in the books of the Joint Venture at a lesser value of Rs. 1000 per sq. meter. 02. The Joint venture has developed a project on the land taken fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated as Joint Venture. Similarly, the assessee has been registered under the Central Sales Tax (Registration in turnover) Rules, 1957. We find before the AO the assessee vide dated 04-05-2011 had categorically stated that the seized documents belonging to Darode Jog Lagad Ventures which is a Joint Venture between Darode Jog and Associates and Lagad Brothers Developers. From the copy of the sample sale deed between Darode Jog Lagad Ventures-M/s. Sneha Chandrakant Kudal and C.P. Kudal HUF, purchasers we find the joint venture has sold the flat as seller. We further find from the copy of the capital account of the partners to the Joint Venture that the profit has been shared by the 2 members as per the supplementary agreement dated 02-05- 2010 which is 20% to Darode Jog and Associates and 80% to Lagad Brothers Developers. Although the supplementary deed was filed during the course of assessment proceedings as well as appeal proceedings explaining that the same was necessary as there were certain ambiguity in the original agreement regarding sharing of profit by the 2 parties for which the supplementary agreement was made for bringing clarity, we find the lower authorities have ignore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into by the assessee as 'consenting witness' with (i) the land owner as 'owner'; and (ii) M/s.Purvankara Projects Ltd., Mumbai as 'promoter', to develop a residential apartment on the above land-As per the agreement, the promoters were to pay a consideration of Rs. 45,00,000/- and to deliver 22% of the super built area to the consenting witness, namely the assessee-As a consequence of the agreement, the assessee got the land converted into non-agricultural land and got the work commencement from the Municipal Corporation-Out of the total 211 flats that were to be constructed as per the projects, 40 flats in different blocks were allotted to the assessee-Assessee sold some of the flats and claimed the income on sale of the flats as deduction u/s 80IB(10) of the Act-AO rejected the claim of deduction on the ground that the assessee had not fulfilled the conditions laid down in section 80IB(10)-Held, it is not merely building housing project, which attracts the provision of section 80IB(10) but developing and building housing project, which attracts the provision-In the order passed by the CIT (Appeals), the development and construction activities unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule property jointly." 10. From the above, it is clear that the assessee was engaged in the property development and this fact has also been admitted by the AO. The assessee got his agricultural land converted for non agricultural purposes i.e for residential purposes and jointly undertook the development and construction of the schedule property by getting permission and plan sanctioned. The clause - (4) of the agreement entered by the assessee with M/s Reddy Structures Pvt. Ltd. states as under : "It is hereby agreed that the first party has contributed the schedule property as his capital contribution for joint development & construction and the second party shall make investment on schedule property for joint development and construction. First party shall make investment for all statutory approvals including BWSSB, KEB, plan sanction etc., the first party shall retain 24% of the built up area in the schedule property along with 24% car parking. Both the parties to this agreement shall be entitled to all common rights and facilities in the common areas of the building proportionally as per their respective shares." 11. From the above clause, it is clear that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction u/s 80IB(10) is that the undertaking is developing and building, housing projects approved by a local authority. In the present case, it is not the case of the Department that the project was not approved or developed and built by the assessee. The only reason for denying the deduction u/s 80IB(10) of the Act to the assessee was that the assessee had not carried out any construction activity, in our opinion that reason is not sufficient to deny deduction u/s 80IB(10) of the Act. In the present case, the assessee made the contribution of his capital in the shape of land and incurred the initial expenses for development and building of housing project like sanction of plan, getting the electricity and water connection by making the payments to BWSSB and KEB etc. Therefore, merely on this basis that the assessee did not construct himself was not a ground to deny the deduction u/s 80IB(10), particularly when the assessee had undertaken the other work like making the land useful by getting it converted into non agricultural purpose and getting plan sanctioned. On a similar issue, their lordships of Hon'ble Jurisdictional High Court in the case of CIT Vs. M/s Shravanee Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s 80IB(10) of the Act. We, therefore, considering the totality of the facts and respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court in the above said referred case of M/s Shravanee Construction (cited Supra), set aside the impugned order passed by the CIT(A) and direct the AO to allow the deduction u/s 80IB(10) of the Act to the assessee. 16. In the result, the appeal of the assessee is allowed." 30. Similar view has been taken by the Mumbai Bench of the Tribunal in the case of ACIT Vs. Bombay Real Estate Development Company Pvt. Ltd. reported in 64 DTR (Tribunal) 137 where it has been held as under : "Assessee having entered into an agreement with another company for jointly developing a housing project on its land, undertaking the responsibility of obtaining all statutory clearances, permissions, etc. for putting up the housing project on the land as well as the responsibility to remove all structures and unauthorized occupants of the land, and agreeing to share the gross sale proceeds of the housing project with the other company in an agreed ratio, the activities undertaken by the assessee are activities relating to development of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e supplementary deed and the amount received towards land is the part of 80% of the profit. 4. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." Grounds in ITA No.311/PN/2014 (A.Y. 2008-09) : The following grounds are taken without prejudice to each other- On facts and in law, 1. The learned CIT(A) erred in confirming the action of the AO considering the withdrawals of Rs. 27887850/- from Joint Venture as a taxable income in the hands of the appellant as business income. 2. The learned CIT(A) fails to appreciate that the true essence of the agreement, which refers to an agreed sharing of net profit computed on the basis of certain percentage of gross revenue after making certain adjustment is very much permissible under the provisions of law. 3. The learned CIT(A) has erred in confirming the action of the AO for not allowing deduction u/s 80IB(10) on the ground that appellant is not developer of the project. 4. The learned CIT(A) has failed to appreciate that the appellant ultimately is to receive 80% of the profit as per supplementary deed and the amount received towards land is the part of 80% of the profit. 5. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a partnership deed dated 15/12/2006. The firm acquired development rights over the property admeasuring two Hectors and two Ares (202 R) situated at Sr. No. 12, Vadgaon Khurd vide an agreement dated 29/12/2006 from Shri Laxman Narayan Lagad & other thirty one (Land owners) for a consideration of Rs. 1,15,00,000/-. The transaction was registered in the office of Sub-Registrar Haveli No. 16 at S. No. 9286 on 29/12/2006. In pursuance of this agreement the land owners have executed a power of attorney which is also registered at S.No. 9287 on 30/12/2006. In the power of attorney the land owners have appointed two partners of the firm M/s. Lagad Brothers Developers as their constituted attorney. As per this power of attorney the firm gets absolute authority & right to develop the said land. 36. On the very date on which the firm acquired development rights over the property i.e. 29/12/2006, the firm entered into a Joint Venture agreement with M/s. Darode Jog & Associates which is also registered in the office of Sub-Register Haveli No. 16. As per this Joint Venture Development agreement the J.V. Partner M/s. Darode Jog Associates is responsible for the construction activity and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese facts the assessee was asked to clarify as to why Rs. 85,00,000 (Rs. 200,00,000/- -Rs. 1,15,00,000/-) should not be taxed as its income on account of transfer of development rights for the year under consideration. In response to the same the assessee vide paras 3 & 4 of their letter dated 17/11/2011 have admitted that the income of Rs. 85,00,000/- has been offered to tax during Asst. Year 2008-09. The income of Rs. 85,00,000/- was offered to tax during Asst. Year 2008-09 on the plea that NA order for the land was received during the Asst. Year 2008-09. Thus it is very clear that there is no dispute on the quantum of income but there is a difference of opinion on the issue of year of taxability. 39. In view of the above, the AO held that there is adventure in the nature of trade for profit in the case of the assessee firm during the year under consideration. Therefore, issues like getting N.A. at a later stage is irrelevant. He accordingly held that the profit on account of transfer of development rights needs to be taxed as income of the year under consideration. 40. Before CIT(A) the assessee submitted that under the JVA, the assessee was saddled with certain duties and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . order was obtained only on 14/05/2007. For all these reasons section 53A of the Transfer of Property Act were not attracted and it could not be said that there was a transfer or an adventure in the nature of trade. In support of this contention, the assessee relied upon the decision of ITAT Hyderabad in S. Ranjith Reddy reported in 95 DTR 283. 41. However, the CIT(A) was also not satisfied with the explanation given by the assessee and upheld the action of the AO. The alternate claim for allowing deduction u/s.80IB(10) on the amount to be received by the assessee as per the supplementary deed was also dismissed by the CIT(A). 42. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 43. The Ld. Counsel for the assessee at the outset submitted that the assessee is a partner of the Joint Venture, i.e. Darode Jog Lagad Ventures. Therefore, the amount received from the Joint Venture is not taxable. Since the assessee has withdrawn some amount from its capital account, therefore, the assessee is not liable to any tax. It is only the profit that can be taxed and not the withdrawal. In his alternate contention he submitted that deduction u/s.80IB(10) should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is not a Developer at all. Relying on various decisions the Ld. Departmental Representative submitted that the assessee is not entitled to deduction u/s.80IB(10). 46. As regards the contention of the assessee that any amount in excess of Rs. 2 crore is withdrawal from the AOP. Darode Jog Lagad Venture by a member thereof which cannot be taxed as income in the hands of the said member is concerned, the Ld. Departmental Representative submitted that the Joint Venture Agreement dated 29-12-2006 clearly states that the assessee would be entitled to 40% of the receipts on account of flat sales. Further actions also support the same. The said amount of Rs. 2,78,87,850 that was paid to the assessee was exactly 40% of the receipts on account of flat sales during the year as per the agreement vide which the property in question was transferred to the Joint Venture. 47. The Ld. Departmental Representative submitted that the assessee also presented supplementary agreement dated 2-5-20I0 wherein it is stated the assessee M/s Lagad Brothers developers and M/s Darode Jog Associates were to share profits of the venture to the extent of 80% and 20% respectively and withdrawal already made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances are at much higher rate. He accordingly submitted that the transaction in question is a business transaction and the assessee is not eligible for any deduction u/s.80IB(10) and the AO has rightly taxed amount of Rs. 2 crore and also in excess of Rs. 2 crore in the hands of the assessee. He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised by the assessee should be dismissed. 50. We have considered the rival arguments made by both the sides, perused the orders of the AO & CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the case of Darode Jog Lagad Ventures we have already accepted the grounds raised by the assessee by holding that the Agreement between the Darode Jog and Associates and Lagad Brothers Developers constitute an AOP and not a Development Agreement. Once it is held that the agreement constitutes AOP any amount drawn from the AOP cannot be taxed in the hands of the assessee member. It is only the Joint Venture that has to pay the tax and the assessee is not liable to pay any tax on the amount withdrawn from the Joint Venture. The assessee is also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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