TMI Blog2017 (9) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... that even if dissolution is there, but possession was handed over on 07.05.2007 and hence, taxable. We find no merit in both the stands As the taxes have been paid on the profits arising on sale of said land by M/s. Vascon Engineers Ltd. in the instant year itself at higher rates and no benefit has arisen to the said concern on this account. There is no merit in disturbing the same. Accordingly, we delete the addition made in the hands of assessee on account of sale of land at Hadapsar. Another aspect which has to be considered is the approach of Revenue Department, wherein the balance land was also developed. In case there is no dissolution of assessee’s firm, then the profit arising on the development of balance land should have been assessed in the hands of assessee. However, they have not been assessed in the hands of assessee. The said profits were declared by M/s. Vascon Engineers Ltd. and Mr. Atul Chordia in their joint venture agreement and have been so assessed. Because of inconsistency, we find no merit in the stand of Revenue and since due taxes have been paid on the transaction, the ratio laid down in CIT Vs. Excel Industries Ltd. and Mafatlal Industries P. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in the hands of assessee, then the taxes paid by M/s. Vascon Engineers Ltd. on the alleged income should be treated as taxes paid by the assessee. 5. Briefly in the facts of the case search action under section 132 of the Income Tax Act was conducted on the Panchashil group of cases on 11-09-2009. The assessee before us was also covered under the said search operation on 11-09-2009. The assessee had originally filed the return of income on 16-09-2008 showing loss of ₹ 91,450/-. In response to the notice issued under section 153A of the Act the assessee again filed the return of income declaring loss of ₹ 91,450/-. The Assessing Officer during the course of assessment proceedings noted that the assessee firm had come into existence on 12-05-2006 with the following partners : (1) Vascon Engineers Ltd. 50% share (2) Panchashil Real Estate Consultants Pvt. Ltd. 50% share 6. The assessee entered into a single Joint Venture agreement dated 05-06-2006 with M/s. Syndicate Realtors. On account of the said Joint Venture agreement, the assessee acquired development rights of some properties at Hadapsar. Subsequently, the said property to be developed by the Join ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re found which suggested the existence of the firm even after the date of dissolution, i.e. 29-05-2007. Therefore, another show cause notice was issued to the assessee referring to the several documents found during the course of search on the premises of the assessee and business premises of Panchashil Real Estate Consultants Pvt. Ltd. The said show cause is reproduced under para 4 at pages 4 to 8 of the assessment order. In response, the assessee filed a reply which is reproduced under Para 5 at pages 8 to 23 of the assessment order. 8. The Assessing Officer noted that the assessee had not filed the original dissolution deed and was given one more opportunity to file the same. The assessee in reply submitted that the original dissolution deed was not traceable, however, the notarized copy of the same was filed. Secondly to confirm that the dissolution deed was executed on 29-05-2007 between the partners, the assessee pointed out that it had disclosed the fact of dissolution in the annual report for the year ending 31-03-2008. Second contention raised by the assessee was that M/s. Vascon Engineers Ltd. had offered the income to tax. The Assessing Officer was of the view that fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer held it to be a colourable device. The Assessing Officer was of the view that the Joint Venture agreement to share the profit of residential project was only an afterthought and was prepared subsequent to search. The Assessing Officer thus held that the arrangement was made to shift the profit of the assessee firm to M/s. Vascon Engineers Pvt. Ltd. and even the dissolution was merely an arrangement on paper to give a colour of genuineness but the same could not be accepted. Therefore, the Assessing Officer held that the profit on account of sale of land needed to be taxed in the hands of assessee where the assessee had bought and sold the property. Even the agreement to sell was prior to the date of dissolution of the firm, therefore the entire income on account of sale of property to Suzlon Energy Ltd. was to be offered to tax in the hands of the assessee firm since the assessee adopts mercantile system of accounting. The profit on sale of land was worked out at ₹ 13,82,94,326/- and was added in the hands of assessee. 9. The CIT(A) after considering the detailed written submissions of assessee noted that the assessee had failed to even furnish a certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He also pointed out that the profit on the sale of entire transaction was offered by Vascon Engineers Ltd. He further pointed out that though the original dissolution deed is not traceable but the fact of dissolution has been declared by the other partner, i.e. Panchashil Real Estate Consultants Pvt. Ltd., in its balance sheet, in the notes to accounts and also in the document issued for IPO on 14-11-2007 where facts of dissolution is mentioned. The Ld. Authorised Representative for the assessee further referred to the documents in this regard wherein even in the letter to the Assistant Director of Income Tax (Investigation) dated 04-12-2007 subsequent to search placed at page 163 of the paper book, this fact of dissolution was mentioned. The Ld. Authorised Representative for the assessee also referred to the book entries wherein the development account of Suzlon Energy Ltd. was transferred to Vascon Engineers Ltd. by the assessee placed at pages 126 and 127 of the paper book. He further referred to the entries by the Vascon Engineers Ltd. wherein the said concern has shown the sale of ₹ 75 crores against which the assessee is in appeal. The cost of the land was ₹ 61.17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2016 13. The learned Authorized Representative for the assessee in conclusion pointed out that M/s. Vascon Engineers Ltd. had declared the income from capital gains which has been assessed in its hands. In other words, income arising from sale of one asset has been assessed on substantive basis in the hands of two parties i.e. the assessee before us and M/s. Vascon Engineers Ltd. He further clarified that in any case, M/s. Vascon Engineers Ltd. had shown income of ₹ 103 crores and there is no merit in the case of Revenue authorities that income has been so shown to avoid taxes. 14. The Ld. Departmental Representative for the revenue filed written submissions and pointed out that the possession of the said land was given to Suzlon Energy Ltd. However, on perusal of the documents during the course of hearing, it was pointed out by us that there were no covenants of transfer of possession in the said agreement to sale, to which the Ld. Departmental Representative had no reply. He further pointed out that the various documents being referred to by the assessee to establish the date of dissolution of the assessee firm were self-serving documents, the annual report of partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and nothing was hidden. Even at the time of search it was clarified. He stressed that as per the agreement dated 07-05-2007, possession was not given. Balance consideration was received on 29-06-2007, i.e. after the date of dissolution when the possession was given to Suzlon Energy Ltd. He stressed that incase dissolution of the firm was disputed, then what about the subsequent events. He stressed that the substance and form are different. The agreement though is in the name of Vascon Hadapsar Ventures but entire consideration was received by M/s. Vascon Engineers Ltd. may be though Vascon Hadapsar Ventures but the substance of the transaction proves the case of the assessee. 16. We have heard the rival contentions and perused the record. The grounds of appeal No.1 to 3 are not pressed and hence, the same are dismissed as not pressed. The issue vide grounds of appeal No.4 to 6 is against the addition of ₹ 13.83 crores made on account of income arising on the alleged sale of land to M/s. Suzlon Energy Ltd. The quantification of the gain arising on the sale of the said land is not disputed but the dispute is centering around the hand in which the same is to be asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee vide purchase agreement dated 05.06.2006 had acquired different pieces of plots of land from M/s. Syndicate Realtors constituted of Sunil Tupe and another admeasuring 54,400 sq. mtrs. of land. The copy of agreement is placed at pages 13 to 38 of Paper Book. Out of this land, the assessee has retained 12600 sq. mtrs. and 5800 sq. mtrs. of land which is unsold and is an asset shown in the hands of M/s. Vascon Engineers Ltd., after dissolution. The agreement to sell 41,200 sq.mtrs. of land was entered into on 07.05.2007 i.e. the date on which admittedly, the assessee did not have complete portion of land available with it i.e. out of piece of land purchased by it admeasuring 54,400 sq.mtrs., the availability of land was only 36,000 sq.mtrs. The contract was to sell 41,200 sq. mtrs. of land for total consideration of ₹ 75 crores. The balance piece of land was acquired on 19.06.2007 admeasuring 5200 sq.mtrs. for total consideration of ₹ 6.50 crores from Ramdas Tukaram Tupe and others. The copy of said agreement is placed at pages 87 to 111 of Paper Book. The total cost of acquisition of land was ₹ 71.50 crores and the proportionate cost of land and other e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2007. Vide clause 3 also, there is similar mention of handing over of the properties, assets, business credits, stock-in-trade, securities, etc. including various rights, trade name and goodwill to M/s. Vascon Engineers Ltd. w.e.f. 16.03.2007. The second reference is made to the Notes and Accounts to the Balance Sheet of Panchashil Real Estate Consultants Pvt. Ltd. as on 31.03.2008, wherein it categorically declared that on 29.05.2007 M/s. Vascon Hadapsar Ventures was dissolved and hence, the company is no longer a partner as on 31.03.2008. The said Balance Sheet is signed on 15.07.2008 by the Director and also by the auditor. The copy of the same is placed at pages 157 to 161 of the Paper Book. Further, in the Notes to Accounts, similar declaration was made under the head particulars of partnership firm in which the company was a partner during the previous year. The assessee declared that it was a partner in M/s. Vascon Hadapsar Ventures and the name of the other partner was M/s. Vascon Engineers Ltd. and the sharing ratio of 50%; and on 29.05.2007 M/s. Vascon Hadapsar Ventures was dissolved and hence, the company is no longer a partner as on 31.03.2008. Further, the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2007 20,00,00,000 20.6.2007 9,59,52,017 Sub total payment due on the date of agreement 65,00,00,000 Payment due on the date of final conveyance 22.4.2008 received on 26.4.2008 10,00,00,000 Total 75,00,00,000 19. It was also mentioned in that letter as per clause 2 of the above agreement to sell that M/s. Suzlon Energy Ltd. was required to pay sum of ₹ 65 crores on or before execution of said agreement and accordingly, the possession was to be handed over based on the fulfillment of said payment obligations. The remaining ₹ 10 crores was agreed to be paid on the final conveyance. As against the terms of agreement, M/s. Suzlon Energy Ltd. paid only ₹ 55,40,47,983/- till the date of execution of agreement and sum of ₹ 9,59,52,017/- which was to be paid before the date of execution of agreement was not so paid and hence, the possession was not handed over to M/s. Suzlon Energy Ltd. on the date of agreement and the sale was not completed on that date. Subsequently, the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized signatory. The profit arising on sale of land at ₹ 13.83 crores is included in the hands of assessee as income of assessee for the instant assessment year by the Revenue, on the other hand, M/s. Vascon Engineers Ltd. had declared the business profit of ₹ 13.83 crores as profit for assessment year 2008-09, which is also assessed in its hands. It has been pointed out by the learned Authorized Representative for the assessee before us that on 01.06.2007, there was Joint Venture Agreement between M/s. Vascon Engineers Ltd. on one side and Mr. Atul Ishwardas Chordia i.e. one Director of Panchashil Real Estate Consultants Pvt. Ltd. for the project management of M/s. Suzlon Energy Ltd. The copy of said agreement is placed at pages 76 to 86 of the Paper Book. The agreement is dated 01.06.2007 and M/s. Vascon Engineers Ltd. has declared itself to be well and sufficiently entitled to or seized and possessed of all that piece and parcel of property at Hadapsar and it is desirous of developing the same to suit campus facilities to M/s. Suzlon Energy Ltd. on a portion of said property. Mr. Atul Chordia on the other hand, had experience in implementing the projects development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm was continuing, that is why it entered into the said agreement with Tupe family. The claim of dissolution of firm on 29.05.2007 is challenged by the Revenue on this issue of assessee entering into an agreement with Tupe family on 19.06.2007. The Revenue has also not accepted the explanation of assessee for non-production of original Dissolution Deed and has doubted the factum of dissolution on this ground also. Another document which has been relied upon by the learned Departmental Representative for the Revenue to refute the claim of dissolution of assessee by relying on Conveyance Deed dated 22.04.2008 which was executed for transfer of rights in land to M/s. Suzlon Energy Ltd. The copy of same is placed at pages 112 to 125 of the Paper Book. The parties to the agreement are Shri Sunil Tupe and family, Shri Ramdas Tukaram Tupe and family, M/s. Vascon Hadapsar Ventures and M/s. Syndicate Realtors as vendors and M/s. Suzlon Energy Ltd. as the vendee. Vide clause (d) at page 116 of Paper Book, parties were desirous of executing the Deed of Conveyance as agreed in the document dated 07.05.2007 and the vendors conveyed and transferred to the purchasers the said land free from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has placed reliance on various decision of the Hon'ble Supreme Court for the proposition that substance of activities needs to be looked into and would form the basis for arriving at conclusion about the nature of activities. The Hon'ble Supreme Court has held that neither the nomenclature of the documents nor any particular activity undertaken by the parties to the contract would be decisive. It is well settled proposition that an agreement and the mitigating circumstances have to be considered as a whole and the intention of parties is to be gathered from the same. It is necessary to look at the substance rather than form. Applying the said principle to the facts of the present case, we find that the first agreement which was executed was the partnership deed which is dated 12.05.2006 i.e. partnership deed of the assessee, under which two persons joined to carry on the business of development and builders. Vide agreement dated 05.06.2006, the partnership firm acquired certain land admeasuring 54,400 sq.mtrs. at a cost of ₹ 65 crores from M/s Syndicate Realtors. The assessee had to acquire the adjacent land admeasuring 5200 sq.mtrs. from Mr. Ramdas Tukaram Tupe and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and has been assessed in the hands of assessee before us also on the ground that no dissolution of partnership firm had been completed. The reason for non acceptance of dissolution in the hands of assessee, first is the non production of original Dissolution Deed and the various markings in the documents. We have already referred to the clauses of agreement in the paras hereinabove and for the sake of brevity, not repeating the same. However, merely because the original Dissolution Deed could not be produced does not merit the stand of Revenue in not accepting the form of dissolution in the hands of assessee. First of all, dissolution on stamp paper which has been bought prior to the date of dissolution. The assessee has explained the various terms of said agreement. Secondly, the factum of dissolution as on 29.05.2007 has been declared by M/s. Vascon Engineers Ltd. by way of details filed before SEBI as it wanted to come out with IPO. The said declaration was made on 14.11.2007. The said company came out with the IPO much later. The other retiring partner had also in its Balance Sheet declared that it had retired from the partnership firm and was no more a partner in the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and it cannot be held to be an afterthought of the assessee to show that there was dissolution of firm. Merely because the documentation have been executed subsequent to the dissolution of firm in the name of erstwhile firm, it would not bring the firm into existence which by act of partners has been dissolved and the relation between the partners has been severed. In the absence of agreement to continue the partnership, no burden can be cast on the said firm which already stands dissolved, to pay the taxes, on a venture which was completed after the date of dissolution. Accordingly, we find no merit in the stand of Revenue authorities in this regard and we hold that the agreements which were entered into after the date of dissolution though were in the name of erstwhile firm, but in actual fact, the transaction was not of the assessee firm but of M/s. Vascon Engineers Ltd. Hence, the profit arising on sale of said land cannot be taxed in the hands of dissolved firm. In any case, the Revenue authorities have made no efforts to tax the said income in one hand and continues to assess the said income in two hands i.e. in the hands of assessee firm before us and in the hands of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowed in one year or the other year should be the matter of no consequence to the Department. 27. Similar proposition has been laid down by the Hon ble High Court of Delhi in CIT Vs. Dinesh Kumar Goel reported in 331 ITR 10 (Del). 28. The Hon'ble Supreme Court in CIT Vs. 1. Excel Industries Ltd. 2. Mafatlal Industries P. Ltd. (2013) 358 ITR 295 (SC) has held as under:- 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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