TMI Blog2017 (11) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... al filed by the assessee is directed against order of CIT(A)-28, Mumbai dated 20-03-2015 and it pertains to AY 2003-04. The assessee has raised the following grounds of appeal:- 1. On the facts circumstances of the case, the learned Commr. of Income Tax (Appeals) has erred in holding that there was valid issue of notice u/s.148 and consequently the reassessment order passed is a valid order. The appellant prays that notice issued u/s 148 was bad in law and consequently the reassessment order passed by the Learned assessing officer may be cancelled. 2. On the facts circumstances of the case, the learned Commr. of Income Tax (Appeals) has erred confirming that the appellant has earned taxable income in A.Y.2003-04. The appellant prays that no income is chargeable to tax in A.Y. 2003-04 in the hands of the appellant. 3. On the facts circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in determining total income at ₹ 27,39,68,175/- for A.Y. 2003-04. The appellant prays that the determination of the total income is contrary to provisions to income Tax Act, 1961 and not justified; hence the determination of the income by the Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of interest u/s 234A. The appellant denies the liability of payment of interest u/s 234A. On the facts circumstances of the case the appellant submit that levy of interest u/s 234A is not justified and be deleted. 2. The brief facts of the case are that the assessee has not filed its return of income for the assessment year 2003-04 u/s 139(1) of the Income-tax Act, 1961 before the due date. However, it filed the return of income in response to notice u/s 148 dated 28-03-2008 declaring total income at Nil. Subsequently notices u/s 143(2) and 142(1) of the Act were issued. In the course of assessment proceedings it was noticed that assessee was a partnership firm engaged in the business of civil construction. The assessee firm has been dissolved vide dissolution deed dated 13-09-2012 wef 01-09- 2002. As such, on dissolution of partnership firm, the assets / liabilities of the firm were distributed between the partners. At the time of its existence, the assessee firm, alongwith Orbit Finance Pvt Ltd, was engaged in the business of construction and development of a project, viz. Chaitanya Towers. During the financial year relevant to AY 2002-03, the assessee has effected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,51,58,334 subject to verification of the claim of the assessee with regard to parking space / escalation recovery. If on verification as directed it is found that the claim of the assessee regarding parking / escalation recovery is not correct, the profit from the project assessable to tax would be ₹ 27,39,08,175. Thus, CIT(A) partly allowed appeal filed by the assessee. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 5. None appeared for the assessee. We have heard the Ld.DR and perused the materials available on record. The only dispute is with regard to the taxability of the partnership firm before its dissolution. The AO has assessed the total income of the partnership firm till the date of dissolution on the basis of closing work-in-progress as on the date of dissolution of the firm. The CIT(A) re-worked the profit from the project by taking into account total receipts from the project and applied project completion method to determine the income at ₹ 25,51,58,334 subject to verification of assessee s claim with regard to parking space / escalation recovery. The relevant portion of the order of CIT(A) is extracted below:- 4. I hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessment does not arise. The action of the A.O. of re-opening the assessment u/s 147, therefore, cannot be faulted. 4.1.1 As regards the contention of the assessee that the firm Pratiksha Enterprises was not in existence and, therefore, the issue of notice u/s 148 in the name of the assessee was not valid, I do not find such contention of the assessee acceptable. The provisions of section 170(1) requires the assessment upto the date of succession to be done in the hands of the predecessor, i.e., in this case, the assessee. No other person can be deemed to be the assessee. The arguments may hold good where a real person dies, in which case the legal representative is deemed to be an assessee in view of the provisions of section 159. However, as per section 170, where a person carrying on the business is succeeded by any other person who continues to carry on that business or profession, for the period upto the date of succession it will only be the predecessor who would be regarded as the assessee under the provisions of the Act and any notice u/s 148 will have to be issued in its name only. The notice could not have, and cannot be, issued in the name of Twinkle Proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace. It pre-supposes that an assessment has been made by the A.O. wherein the AO had formed an opinion on an issue. However, in the present case, even the return of income had not been filed by the assessee prior to the issue of notice u/s 148. The question of any assessment having been made, therefore, does not arise. If no assessment has been made, the question of forming ay opinion on an issue would also not arise. Therefore, to apply the principles of change of opinion would be out of context. 4.1.5 In view of the aforesaid reasons and the reasons given by Ld.CIT(A) in her order dated 31.03.2010 with which I agree, I am of the opinion that the jurisdiction u/s 147 of the Act has been validly exercised by the A.0. The action of the A.O. of reopening the assessment u/s 147 of the I.T. Act, 1961 is, therefore, upheld. The first effective ground of appeal filed by the assessee is dismissed. 5. With regard to the second effective ground of appeal, dealing with the applicability of the decision of ALK Firm 89 ITR 285, the assessee, placing reliance on the judgement of the Hon'ble Supreme Court in Sakthi Trading Co. 250 ITR 871, has submitted that for the application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,42,98,000/- and ₹ 1,49,93,000/- till 31 .08.2002 and the same is also ref lected in the balance sheet as on 31 .03.2002. The agreement is executed after 01 .09.2002 but the price at which the flats were to be sold were finalized much before and these flats were not available for the appellant to sell as on 01.09.2002. The appellant was obliged to fulfil l the commitment of the partnership firm and, in fact, the said flats were sold to the parties from whom advances were received prior to 31 .03.2002 at the same price. Out of the four flats, two flats were sold to a reputed corporate like Videocon International Ltd. All the four flats were sold to outsiders at arms length price and none of the parties were directly indirectly related to the appellant. Only one flat bearing No.1404 admeasuring 885 sq. f t . was in stock as on 01.09.2002 for which agreement was entered on 29.01 .2003 and the total consideration for which the said flat was sold is ₹ 47,42,000/-. The assessee has furnished in a chart the complete details enclosed. The summary of the advances received for the area which was sold admeasuring 2,27,175 sq.ft., and the advance received in respect of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounting to ₹ 79 55,64,606/- has been reduced and the A.O. has fly determined the income at ₹ 116,07,69,843/-. The assessee has submitted 5.1.3 With regard to the extent of completion of the project as on 01 .09.2002, it has been submitted by the assessee that the project was complete to the extent of 83-84% as against 90% complete as held by the A.O. When so viewed, the valuation of the work-in-progress in relation to Chaitanya Tower Project would be ₹ 79,55,64,006/- and not ₹ 97,37,65,881 / - as computed by the A.O. The basis of determining that 90% work is complete itself was erroneous. In addition, the A.O. in calculating the Fair Market Value of the work-in-progress of the Chaitanya Tower Project overlooked the liabilities in the form of encumbrances owned by the appellant to the outsiders and third parties including huge sale proceeds received from the flat owners who had been conferred full, complete, absolute unqualified ownership, right title and interest in the respective flats purchased by them by way of a registered agreement. It has been pointed out that Fair Market Value has been defined in section 2(223) of the I.T. Act as the price whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase note that they took the risk of settling the dispute with the flat owners to whom the possession was not given for last many years, there was delay in completion, there was financial difficulties, disputes with vendors, suppliers etc. They completed the project during the period 01.09.2002 to 3 1.03.2003 and offered the income of the said project in A. Y. 2003-04 and Income Tax Department has also accepted the claim that the income is chargeable to tax in A. Y. 2003- 04 in the hands of Twinkle Property Developers Pvt. Ltd. Pleasenote that originally the income was taxed on protective basis, but subsequently the said income is taxed on final basis in the hands of Twinkle Properties Pvt. Ltd. During the assessment proceedings for A. Y. 2003-04 in the hands of the MIs. Pratiksha Enterprises the Department tried to tax the income of the said project in A. Y. 2002-03 where the previous year had ended on 31.03.2002. The matter traveled upto the High Court. The Hon'ble Tribunal while deleting the addition in the hands of MIs. Pratiksha Enterprises has also made an observation that the income is correctly taxed in the hands of Twinkle Property Developers Pvt. Ltd. The appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income of 19 to 23 floors is offered by Orbit Finance Pvt. Ltd. Please note that in the hands of Orbit Finance Pvt. Ltd. also the income tax department has accepted that the project is completed in March 2003 and the income is taxed in A. Y. 2003-04. In case of a single project of a single building, if the Department has admitted that income chargeable to tax for 19 to 23 floors is to be taxed in A.Y. 2003- 04 on the conclusion that the project is completed in March 2003, then how can for the some project of a single building the income could be deemed to accrue on 31.08.2002. We submit that the income has accrued on the project completion to Twinkle Property Developers Pvt. Ltd. only and the said income, can be taxed. only in the hands of Twinkle Property Developers Pvt. Ltd. in A. Y. 2003-04 and no income can be computed as on 31.08.2002 in the hands of Pratiksha Enterprises. Without prejudice to above submissions, we also submit that if income is to be computed for 83% project completion basis, then the total income chargeable to tax can only be ₹ 2,70,22,8991-. The working of the some is enclosed herewith. Please note that this working is submitted based on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(1) of the Act, the assessee would be liable to be assessed in respect of its income of the previous year upto the date of succession. It is important to note that the business was not discontinued but the same business continued to be carried on by M/s. Twinkle Properties Pvt. Ltd. Therefore, it is only the period after which M/s. Twinkle succeeded the assessee in the business that Ws. Twinkle Properties Pvt. Ltd. would be assessable in respect of the business. Therefore, if any income has accrued to the assessee for the period during which it carried on the business, it would be the assessee only who would be assessable in respect of that income. 5.1.10 It is an undisputed fact that the assessee was in the business of construction and had undertaken to develop a project. In respect of the said project, as per assessee s own admission, it had received almost the entire amount of sales consideration from the buyers. The total area for sale was 2,32,530 sq.ft. and as submitted by the assessee itself, area of 2,27,175 sq.ft. had already been sold for which total sales consideration had already been received by the assessee. Another four flats admeasuring 4470 sq.ft. totally we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atiksha Enterprises and M/s Orbit are two separate and independent assesses developing different parts of the project. The assessee was developing the floors upto the 1 8thfloor. It is clear that the assessee completed the construction before 21 .01 .2003. In fact, the entire project from 1 to 23 floors was completed before 21.01.2003. This fact is evidenced by the Occupation Certificate dated 25.02.2003 granted by Municipal Corporation of Greater Bombay. This certificate was with reference to the assessee's architect's letter dated 21.01,2003. This evidences the fact that at least on 21.01.2003, the flats of the entire building upto part 23 floors were ready for occupation. In reality, the construction would have been complete earlier since after completion of construction, it is only after carrying out further inspections and formalities would the architect actually apply for Occupation Certificate. Hence, from this angle also i t can be fai r ly concluded that the project of the as ses see was complete /substantially complete as on the date of dissolution. MIs. Twinkle Properties Pvt. Ltd. has debited certain expenditures after the date of succeeding in the business wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the assessee was confirmed by Ld.CIT(A) and has been set aside by the Hon'bte ITAT for re-examination. Hence, it will have to be first decided as to whether the assessment made by the AO. in the hands of the assessee is correct or not. Further, as held by the Honb'le Supreme Court in Income-tax Officer vs Ch. Atchaiah 84 Taxman 630, 218 ITR 239 (SC), under the 1961 Act, the Assessing Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person' is meant the person who is liable to be taxed, according to Law, with respect to a particular income. The expression 'wrong person' is obviously used as the opposite of the expression 'right person'. The Hon'ble Apex Court has held that merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact as to which course is more beneficial to the revenue. The language of the relevant provisions of the 1961 Act is quite clear and unambiguous. Section 183 shows that whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chasers already stood created on almost the entire stock other than the stock of 885 sq.ft. Therefore, the assessee could not have sold the already sold area to any other person without these parties agreeing to the same and without receiving the consideration already paid and compensation for the same which would have had to be worked out with reference to the value of the property purchased by them as on 01.09.2002. FMV value of the property as worked out by the A.O. cannot be ascribed in the hands of the because the property (other than 885 sq.ft.) stood already sold by it at different rates at different times and the assessee could not sell the same in the open market unless and until the agreement to sell was cancelled and the stock became the absolute property of the assessee. For this, the assessee would have been required to refund the amounts and also pay compensation to the existing buyers at market rates in which case, the FMV of the entire property as worked out by the A.O. would be required to be deducted by the amount Of refund made and the amount of compensation. Presuming that even if refund of ₹ 96.38 crores was to be made in case of cancellation of the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery towards cost of construction of Rs,3,98,74,600/- will also have to be included in the sates as on 31.08.2002. Therefore, the total receipts in the hands of the assessee would work out to (Rs.97,88,72,178/- + ₹ 6,90,70,122/- + ₹ 3,98,74,600/-), i.e., ₹ 108,78,16,900/-. Since as per assessee's own accounts 96.59% of the expenditure has already been incurred and it has been held that the project of the assessee was to be treated as complete or. very substantially complete as on 30.08.2002, i.e., on the date of dissolution, 96.59% of the receipts will be taken into consideration for computing the income of the assessee. The computation of income of the assessee would, therefore, be as follows:- Total receipt Rs.108,78,16,900/- 96.59% of the above Rs.105,07,22,340/- Less : Expenditure ₹ 79,55,64,006/- Profits ₹ 25,51,58,334/- 6.1.6 Therefore, the income of the assessee from the project which will be assessable would be ₹ 25,51,58,334/-. The above working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter to the valuation cell and the assessee would not raise any objection in this regard. The order of the Hon'ble Tribunal does not, any where even suggest that the fair market value of the 4 flats as estimated by the DVO should be super imposed on the flats already sold/agreed to be sold in the different years and this value should be adopted as the sales consideration from the project for arriving at the income assessable in the hands of the assessee. 6.1.9 In view of the aforesaid reasons, it is hereby held that the income of the assessee from the project which will be assessable would be ₹ 25,51,58,334/subject to the verification as directed hereinabove in this order. If on verification as di rected i t is found that the claim of the assessee regarding parking space/ escalation recovery is not correct, the profit from the project assessable to tax would be ₹ 27,39,68,1751-.The ground of appeal filed by the assessee is partly allowed. 6. The facts remain unchanged. The assessee did not appear before us to controvert the findings of fact recorded by the CIT(A). Therefore, we are of the view that the CIT(A) was right in re-working profit from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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