TMI Blog2016 (4) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 It is only the Joint Venture that has to pay the tax and the assessee is not liable to pay any tax on the amount withdrawn from the Joint Venture.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 not entitled for any deduction u/s. 80IB(10) and it is the joint venture that is eligible for the deduction u/s.80IB(10). We therefore set aside the order of the CIT(A) and direct the AO to accept the return of income filed. - ITA Nos.2038 to 2041/PN/2013, ITA Nos.310 to 312/PN/2014 - - - Dated:- 9-3-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Nikhil Pathak and Shri Suhas Bora For The Revenue : Shri Dheeraj Kumar Jain ORDER PER R.K. PANDA, AM : ITA Nos.2038 to 2041/PN/2013 filed by the assessee are directed against the common order dated 20-08-2013 of the CIT(A) Central Pune relating to Assessment Years 2007-08 to 2010-11 respectively. ITA Nos. 310 to 312/PN/2014 filed by the assessee are directed against the order dated 24-12-2013 of the CIT(A) Central, Pune relating to Assessment Years 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opers in respect of land at Sr. No. 12, Lagad mala, Wadgaon Khurd, Pune. 05. It is gathered that the project Shriniwas Crossover County Phase-I Project is developed by the A.O.P. Darode Jog Lagad Ventures, The project is claimed to be eligible for deduction u/s. 80IB of the Income Tax Act. 06. On comparison with the sale instance in respect of the transaction made by Darode Jog and Associates with the landlord Shri Baban Genu Kumbharkar it is noticed that the land in question in this joint venture is highly undervalued. 07. Both these land (i.e claimed to be owned by the assessee and the one as mentioned in para 6) are adjacent land forming part of greater piece of land of Survey No. 25 and the transaction have been executed on almost similar dates. The development agreement between M/s. Lagad Brothers Developers and Darode Jog Associates was entered on 29.12.2006 and the development agreement between Shri Baban Genu Kumbharkar and Darode Jog Associates was entered on 26.03.2007. It is seen that the rate of the land is ₹ 7,558/- per sq. meter in the case of Shri Baban Genu Kumbharkar, however, the rate of land is ₹ 1,000/- per sq. meter in the case of Lagad Bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. At the outset, the supplementary agreement clarifies in no uncertain terms that the assessee would receive a share in the profits I losses of the JV and the amount of withdrawal made by the assessee would be adjusted against its share in profits and the other dues from the JV. 3. It is submitted that you have not correctly appreciated the true essence of the agreement which refers, to an agreed sharing of the net profits, computed on the basis, of certain percentage of gross revenue after making certain adjustments. These terms were revised as per the supplementary agreement and therefore it is not correct to ignore it and it may be noted that an agreement is a contract which can be revised by the parties. Hence supplementary agreement read with original agreement should be considered for deciding the issue of considering the JV Agreement as Development Agreement. 4. 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. In view of above, it is submitted that your proposal to consider JV agreement as development agreement is unjustifiable and not correct. 5. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace, terrace etc. to the prospective buyers, allottee etc. and to receive sale proceeds from the prospective buyers, which clearly means the land owners have no role to play in the implementation of the scheme and the selllng.of the scheme, thus this joint venture agreement is nothing but the development agreement. 6.6 The contention of the essessee that enjoyment would be in the form of enhanced value is quite hypothetical and not worthy any serious consideration. 6.7 In view of the above discussion, I am of the opinion that this joint venture agreement entered into by the parties is nothing but a development agreement. 07. Without prejudice to whatever discussed above, since the assessee has filed the return of income disclosing total income at Rs. NIL and also submitted audit report in Form No. 10CCB claiming that the housing project developed by the assessee is eligible for deduction u/s. 801B(10). The question of allowability of deduction u/s.80IB(10) is not to be decided here since the assessee has not claimed any deduction under Sec. 801B(10). 6. In view of the above, the AO held that the Joint Venture Agreement is nothing but a Development agreement which means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether or not such person or body, authority or judicial person was formed or established or incorporated, with the object of deriving of income, profits or gains. It was submitted that as per clause (3) of joint venture agreement it has categorically stated that both the parties have decided to develop the property jointly and for this specific reasons have decided to share the sale proceeds in the ratio of 40% to 60% which was later on changed to sharing of net profit in the ratio of 80% to 20% as per supplementary agreement dated 02-50-2010. Although the development agreement as well as the supplementary agreement was filed before the AO, however, the AO has erroneously concluded that the agreement is development agreement. It was submitted that the reason why the parties had to enter into supplementary agreement was also given. The supplementary agreement clarifies in no uncertain terms that the parties to the joint venture would receive a share in the profits/losses of the joint venture and the amount withdrawn by the parties will be adjusted against their share in profits/losses. Therefore, the question of treating the joint venture agreement as development agreement does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed in any other status contemplated under section 2(31) of the Act. As such, no decision is necessary in my view on the appellant's submissions with regard to its status. Coming now to the nature of the agreement, I have carefully perused the contents of the 'Joint Venture Development Agreement' dated 29/12/2006 and also the 'Supplementary Agreement' dated 2/5/2010 with M/s.Lagad Brothers Developers and have also considered carefully the arguments and contentions of the appellant which have been extracted above. Upon careful reading of the two documents mentioned above, the following facts clearly emerge: i. That the entire finance for the project was to be arranged by the second party, namely Darode Jog Associates (DJA). ii. That actual construction was also to be undertaken by the said Second Party iii. That approval for plan, sale of completed units, parkings, terraces etc. was also to be done the Second Party. iv. That the role of the land owners, i.e. the First Party was almost entirely confined to handing over vacant possession of the land on which the project was to be developed, not to cause any hindrance to the development activity, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 12. The Ld. Counsel for the assessee did not press grounds of appeal No.1 for which the Ld. Departmental Representative has no objection. Accordingly, grounds of appeal No.1 is dismissed as not pressed . 13. So far as grounds of appeal No.2 is concerned the Ld. Counsel for the assessee strongly opposed the order of the CIT(A). Referring to the copy of the paper book pages 1 to 35 the Ld. Counsel for the assessee drew the attention of the Bench to the various clauses of the joint venture development agreement dated 29-12-2006. He submitted that on 02-05-2010 Lagad Brothers Developers and Darode Jog and Associates made a supplementary agreement to the original joint venture agreement, a copy of which is placed at pages 36 to 43 of the paper book. He submitted that in the original agreement the clause regarding the division of profits of the joint venture was not clear. At one place it was stated 40% profit whereas in the other part it was written 35% of the sale proceeds for Lagad. Therefore, to remove this ambiguity, the supplementary agreement was entered into in which it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is understated. The AO while considering the provisions of section 80IA(10) r.w.s. 80IB(10) has concluded that the market value of the land is higher than the value in the joint venture agreement and therefore he reduced higher value of the land from the profits and reduced the profit eligible for deduction u/s.80IB(10). However, the AO has assessed the profit in the hands of the AOP and deduction u/s.80IB(10) has also been allowed to the AOP. He submitted that if the AO was of the opinion that the agreement between Lagad and Darode did not constitute AOP the assessment of the AOP ought to have been made at Nil and deduction u/s.80IB(10) should have been allowed to the individual parties. Therefore, the AO in these assessments has accepted the stand of the assessee that the profits have accrued to the AOP only and he assessed the income in the hands of the AOP. He submitted that the AO and the CIT(A) have not given due weightage to the supplementary agreement. 16. Referring to the order of the AO for A.Y.2007-08 the Ld. Counsel for the assessee drew the attention of the Bench to para 6.3 wherein the AO has stated that the said supplementary agreement is an after though given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot merely a piece of paper but it is acted upon by both the parties and therefore due credence should be given to the supplementary agreement. Referring to para 6.3 of the order of the CIT(A) he submitted that the CIT(A) has clearly accepted that this controversy as to whether it is an AOP or not does not survive as the AO himself has accepted the status of the assessee as an AOP. But thereafter he held that the agreement is not a joint venture agreement but a development agreement. He submitted that the when the AO and the CIT(A) has accepted that the transaction constituted AOP, the profit should be taxed in the hands of the AOP. Referring to the decision of Hon ble Bombay High Court in the case of Messrs. Jerkison Tribhuvandas, Bombay Vs. CIT reported in 31 ITR 376 he submitted that the Hon ble High Court in the said decision has held that the AO cannot take contrary stands. On one hand, the AO and the CIT(A) have assessed the profits in the hands of the AOP and on the other hand they held that this is not the joint venture agreement but merely a development agreement. Therefore, this is a contradiction in their decision. 18.1 Referring to the decision of the Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4728/Mum/2007 20. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that it is Joint Development Agreement and not a Joint Venture. Referring to para 6.3 of the order of the CIT(A) he submitted that the Ld.CIT(A) has given a categorical finding at para 6.4 of the order that the agreement between M/s. Lagad Brothers Developers on the one hand and Darode Jog and Associates on the other was clearly a Joint Development Agreement and is not a Joint Venture agreement. He submitted that since the consideration for the property was already received by the first party before hand in the guise of security deposit as per the original agreement which has inadvertently acknowledged in the supplementary agreement, therefore, the agreement between M/s. Lagad Brothers Developers and Darode Jog and Associates is only a Development Agreement and cannot be considered as a Joint Venture. He accordingly submitted that the grounds raised by the assessee should be dismissed. 21. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32,797/-. It is also the submission of the Ld. Counsel for the assessee that the AO in subsequent assessment years, i.e. A.Y. 2011-12 in order passed u/s.143(3) r.w.s.147 vide order dated 30-03-2015 has considered the status of the assessee as AOP and the claim of deduction u/s.80IB(10) has been accepted. Similarly, for A.Y. 2012-13 the AO in the order passed u/s.143(3) has allowed the status of the assessee as AOP and allowed the claim of deduction u/s.80IB(10). It is also the submission of the Ld. Counsel for the assessee that the Ld.CIT(A) at para 6.3 of his order has accepted that the controversy as to whether it is an AOP or not does not survive as the AO himself has accepted the status of the assessee as AOP. 23. We find force in the above submissions of the Ld. Counsel for the assessee. From the copy of the assessment order the status has been mentioned by the AO as AOP and the AO has passed the orders u/s.143(3) r.w.s. 153C determining the total loss of the assessee AOP at ₹ 32,797/- which was the returned loss as per the original return filed on 31-07-2007. We find in appeal the Ld.CIT(A) at Para 6.3 at page 24 of his order has also mentioned that the AO has asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment the claim of deduction u/s 80IB would have been much lower than one done by the assessee in its returns of income. As per the provisions of section 80IA(10) and on facts at least a part of this claim of deduction u/ s 80IB(10), which may run in to crores can be disallowed by the Assessing Officer. 03. Therefore, on facts I am satisfied that there is excess claim of deduction u/ s 80IB(10) and such a claim is more than ₹ 1 lakh. Therefore I am of the view that income assessable to tax in excess of ₹ 1,00,000/-has escaped assessment in the case of Joint Venture M/s Darode Jog Lagad Venture for the year under consideration. In view of this, the case of the assessee is a fit case for issue of notice u/ s 148 of Income Tax Act, 1961. 24. After recording the above reason, the AO in the order passed u/s.143(3) r.w.s.147 has accepted the status of the assessee as AOP and thereafter allowed the claim of deduction u/s.80IB(10) to the extent of ₹ 2,66,30,721/- to the AOP. Similarly, the AO in the order passed u/s.143(3) vide order dated 31-03-2015 for A.Y. 2012-13 has accepted the status of the assessee as AOP and allowed the deduction of ₹ 26,85,247/- u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motive to evade tax through colourable devices is not found open even by the judgement of this court in Mc.dowell Co. Limited s case. 27. We find the Hon ble Supreme Court in the case of CIT Vs. Indira Balakrishna reported in 39 ITR 546 has held as under : 18. The aforesaid discussion would show that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable device and consequently earn any disqualification. The Hon'ble Supreme Court in the concluding paras of its judgment in Azadi Bachao Andolan (2003) 263 ITR 706 has rejected the submission that an act, which is otherwise valid in law, cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the Revenue. The aforesaid view looks to be the correct view. It has ready support from the Division Bench judgment of this Court rendered in the case of Satya Nand Munjal (2002) 256 ITR 516 (P H) and the Division Bench judgment of the Orissa High Court in the case of Industrial Development Corporation of Orissa Ltd. Vs. CIT (2004) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Hon ble Karnataka High Court cited (Supra) has held as under : 9. We have considered the submissions of both the parties and carefully gone through the materials available on record. In the present case, it is not in dispute that the assessee was a land developer and this fact has also been admitted by the AO in para 2 of the assessment order dated 31.12.2008. The assessee entered into agreement with M/s Reddy Structures Pvt. Ltd., for development of housing project situated at survey No.26/1, Volagerahalli, Kengeri Hobli, Bangalore South Taluk, measuring 1 acre and 31 guntas. The assessee got 24% share in the said project and sold 49 flats as mentioned in page No.6 of the assessee s compilation, which is the copy of the bill and sale of flat during the financial year 2005-06. The assessee also incurred certain expense for electricity and water connection connected with the project and also made payment to BWSSB and KEB. The assessee entered into an agreement with M/s Reddy Structures Pvt. Ltd. In the said agreement dated 3.11.2003, copy of which is placed at page Nos. 1 to 13 of the assessee s paper book dated 28.2.2012, in the said agreement, it is mentioned at page No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So, it cannot be said that the assessee did not make any investment for the project under consideration. 12. In the present case, the AO denied the deduction to the assessee by stating that the assessee only contributed the land and had not carried out any construction activities. Now, we have to analyze the provision contained in sec. 80IB(10) of the Act. The said provision read as under : The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of Mar, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project 13. The explanation has been inserted to sub sec. (10) of sec. 80IB w.e.f 1.4.2010 with retrospective effect from 1.4.2001 vide Finance (No.2) Act 2009. The said explanation read as under : For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government). 14. On a joint reading of sub. sec (10) of sec. 80IB and explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. Thus, the assessee contributed the land, undertook the aforesaid development activities in the said land and thus, complied with all other conditions, which have to be fulfilled before claiming benefit u/s 80IB(10) of the Act. The builder has invested the money in the construction. It is after completion of the building in terms of the agreement, the assessee was given 22% share of the building area. It is after sale of the built area, in terms of sec. 80IB(10), the assessee is claiming deduction. As is clear from the joint development agreement, the undertaking of developing and building housing project was jointly undertaken by the assessee and the builder. Therefore, in respect of the residential units numbering 211 in all, the persons who undertook this undertaking are entitled to the benefit of sec. 80IB(10) of the Act in proportion to the share to which they are entitled to in the built up area. 15. In the present case also, the assessee entered into an agreement with M/s Reddy Structures Pvt. Ltd., for development and building of the housing project on the land belonging to him. The assessee contributed the land, undertook the developmental activities in the said la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitute an AOP and not a mere Development Agreement. Therefore, the assessee has rightly claimed the status of the assessee as AOP. In view of the above, we set aside the order of the CIT(A) and direct the AO to accept the status of the assessee as AOP. 32. Identical grounds raised by the assessee in ITA Nos. 2039 to 2041/PN/2013 for A.Yrs. 2008-09 to 2010-11. Grounds raised by the assessee are identical to that of grounds in ITA No.2038/PN/2013 for A.Y. 2007-08 grounds of appeal No.2 and 3 by the assessee in the above appeals are allowed. 33. As mentioned earlier, the assessee has not pressed grounds of appeal No.1 in the above 3 appeals. Accordingly, the grounds of appeal No.1 challenging the validity of the assessment u/s.143(3) r.w.s.153C is dismissed. The above appeals filed by the assessee are accordingly partly allowed. ITA No.310 to 312/PN/2014 (A.Y. 2007-08 to 2009-10) : 34. Grounds raised by the assesseein the above appeals are as under: Grounds in ITA No.310/PN/2014 (A.Y. 2007-08) : 1. The Ld. CIT(A) erred in upholding the action of the AO of taxing ₹ 82,15,910/- as taxable in the year 2006-07 without appreciating the following importa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 7,32,29,597/- 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 learned CIT(A) has erred in confirming the conclusion drawn by the AO that the appellant has given the property for development and execution of supplementary agreement is a device to avoid payment of legitimate taxes. 6. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 35. First we take up ITA No.310/PN/2014 for A.Y. 2007-08. Facts of the case, in brief, are that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Joint Venture agreement seized during the course of search in the case of Darode Jog Group. 37. As per the Joint Venture agreement, the other Joint Venture partner M/s. Darode Jog Associates was supposed to develop the project out of its share of 60 % of the receipt. Thus it is very clear that Darode Jog Associates was the developer of the project and the assessee has nothing to do with the development of the housing project. For transferring the development rights the assessee was supposed to get 40 % of the sale proceeds of the project. The assessee firm received the same from time to time. The total receipts received by the assessee from the Joint Venture over a period of years on account of development rights is at ₹ 30,20,41,133/-. 38. On the basis of the above the AO noted that the assessee has purchased the development rights on 29-12-2006 and has transferred the same to the Joint Venture for a consideration which is much higher than the cost. He noted that the cost of purchase of development rights is ₹ 1,15,00,000/- which has been transferred to the Joint Venture on the very day of its purchase 29-12-2006 and the Joint Venture had adopted the value of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bhoomi pooja expenses. Mere incurring of expenses on bhoomi pooja, boundary wall etc., did not amount to commencement of construction activity. For this proposition, the assessee had relied upon the decision in the case of Nirmitee Developers 95 TTJ 1117. Based on these facts, the assessee contended that there was no extinguishment of rights or receipt of consideration and the assessee had also not performed its obligations as envisaged under section 53A of the Transfer of Property Act. The assessee also relied upon the decision in CIT v. Eastern Ceramics Ltd. reported in 38 Taxman.com 68, wherein it has been held that where no possession of the factory land was given to the assessee under the Joint Development Agreement and no construction activity had commenced, there is no occasion for the application of S. 2(47). In the assessee's case too, it was contended that development activity could not commence in the absence of N.A. order which was received only on 14/05/2007. It was also contended that the AO has made the addition only because the assessee entered into the JV on 29/12/2006 but merely because the assessee entered into the said JV on that date without performin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The assessee had received sale consideration and it had nothing to do further and also was not liable for any loss incurred under the Joint Venture Agreement etc. The assessee purchased development rights for the purpose of business and those were sold for the purpose of business, therefore, it is clear that intention of the assessee was for doing business transaction only. Under these circumstances the adventure was in the nature of trade and gains accrued to the assessee immediately. For the above proposition, the Ld. Departmental Representative relied on the decision of the Hon ble Supreme Court in the case of G.Venkataswami Naidu Company Vs. CIT reported in 35 ITR 594 (SC), CIT Vs. Prabhu Dayal reported in 82 ITR 804 (SC) and S.P. Balasubramiam reported in 250 ITR 127 (Mad) and Smt. Parvathi Devi others Vs. CIT reported in 164 ITR 675 (AP). 45. As regards the alternate claim of deduction u/s.80IB(10) by the assessee on the ground that they are Joint Developer of the housing project and project is eligible for deduction u/s.80IB(10) and therefore they are eligible for deduction u/s.80IB(10) is concerned the Ld. Departmental Representative submitted that first of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of tax evasion. Furthermore most importantly it is to be examined what is the supplementary agreement. Assessee firm and Darode Jog and Associates will share profits of AOP in the ratio of 80% and 20 % respectively. Now the question is why the assess firm will get 80% of profit from AOP. The assessee was having development rights in the land and those rights were sold to the so called AOP. Now what is the stake of the assessee in the AOP. Assessee has not made any investment in the AOP then for what he was receiving share of profit 48. He submitted that the assessee firm has no stake in the AOP. Had the land been capital contribution of the assessee, the assessee would not have accepted any consideration against that land. Once the development rights were sold for once and all, then profit sharing makes no sense, Business is the risk taking capacity of a person. In the present case it is not understandable as to what is the risk of the assessee involved. There is no locus standi of the assessee in the AOP. These transactions are fit in the principle of corporate veil. The AOP is just for the namesake. Actually the assessee has sold his development rights and rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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