Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

New Mount Trading & Investment Co. Ltd. Versus Additional Commissioner Grade-I Commercial Tax & Anr.

2017 (12) TMI 312 - ALLAHABAD HIGH COURT

Validity of reassessment proceeding - Section 29 of the U.P. VAT Act, 2007 - interpretation of statute 'reason to believe' - escapement from tax - deemed sale of construction material - Held that: - the jurisdiction to reassess the petitioner could arise under Section 29 only if after the petitioner's assessing authority records a valid 'reason to believe' as is the requirement of the Act itself - it cannot be gain said that at present merely a show cause notice has been issued to the petitioner .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- There is not even any information with the assessing authority of the petitioner as to any turnover having escaped assessment. The petitioner's assessing authority in fact desires to conduct a fishing and roving inquiry to explore the possibility of escapement of turnover, though at present he does not appear to have with him any material that may lead to formation of a 'reason to believe' as to escapement of any part of the petitioner's turnover - It being a jurisdictional issue that goes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t relevant material with the assessing authority to claim occurrence of the taxable event and further that such event occurred during the Assessment Year in question and that it escaped assessment. - The fact situation of the present case admits of no doubt that the taxable event of deemed transfer of construction material never occurred during the A.Y. 2008-09. Though the petitioner admitted to have started making the constructions in that assessment year but the petitioner denied existence .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

taxable event having occurred, the revenue could not have also alleged that any turnover ever escaped assessment at the hands of the petitioner in that year. - The reassessment issue notice in the present case dated 2.3.2017 and the sanction order dated 25.2.2017 are wholly without jurisdiction and consequently deserve to be quashed - petition allowed - decided in favor of petitioner. - Writ Tax No. 147 of 2017 - Dated:- 4-12-2017 - Hon'ble Bharati Sapru And Hon'ble Saumitra Dayal S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssessment proceeding initiated against it under Section 29 of the U.P. VAT Act, 2007 (hereinafter referred to as the Act) for the Assessment Year 2008-09 (U.P.). These proceedings have been initiated vide reassessment notice dated 2.3.2017 issued by the Deputy Commissioner, Commercial Tax, Sector-III Allahabad, upon prior permission obtained by that authority under the proviso to Section 29 (7) of the Act, from the Additional Commissioner, Grade-I, Commercial Tax, Allahabad Zone, Allahabad. On 2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

plot that the petitioner describes as Block-A, Towers 1 and 2. However, according to the petitioner, initially, that is during the Assessment Year 2008-09, it met the expenditure of these constructions from its own resources for which purpose it is also disclosed to have obtained a term loan of ₹ 25,00,00,000/- from the State Bank of India, on 17.8.2010 in the shape of cash credit facility. According to the petitioner, it first advertised the project for sale of flat by the name of Kanha S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on record, on 22.5.2014 a survey was conducted by the Special Investigation Branch of the Commercial Tax Department with respect to the constructions that were being raised by the petitioner. Also, the petitioner was subjected to the assessment for Assessment Years 2011-12, 2012-13 and 2013-14 vide assessment orders dated 26.9.2016. For all these Assessment Years the petitioner was subjected to tax on deemed sale of construction material, made in favour of persons who gained allotment of indivi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the petitioner having received any booking or having sold even a single residential flat/unit during the Assessment Year 2008-09. It is in this background that a proposal for reassessment appears to have been made by the petitioner's assessing authority to initiate reassessment proceeding against the petitioner for the Assessment Year 2008-09. Copy of the said proposal has been brought on record alongwith the second supplementary counter affidavit filed by the revenue today. Perusal of that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for the Assessment Year 2008-09 wherein it had disclosed purchase of construction material worth ₹ 1,19,87,175/-. Having noted the aforesaid facts, the Assessing Authority then recorded his 'reason to believe' as to alleged escapement from tax, of turnover of deemed sale of construction material in light of the judgment of the Supreme Court in the case of K. Raheja Development Corporation Vs. State of Karnataka, (2005) 5 SCC 162 and Larsen and Toubro Vs. State of Karnataka, (2014) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

11 of the writ petition are wrong hence are denied. It is submitted in reply that until and unless the petitioner comes out with the detail of resource on the basis of construction of flat was started by him. This clearly presuppose that he realize the earnest money as well as the installment from the prospective buyers but neither he disclosed the date of allotment of flats in favour of the prospective buyer neither the source or resource from which the construction started by him in the month .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t did not receive booking for even a single residential flat/unit in the aforesaid scheme Kanha Shyam Residency, during the Assessment Year 2008-09. Then, as to the 'reason to believe' recorded by the assessing authority, learned Senior Advocate submits that there does not exist any 'reason' inasmuch as in the two judgments referred to by the assessing authority in the proposal made by him, namely K. Raheja Development Corporation (supra) and Larsen and Toubro (supra), the Suprem .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng the constructions in question on its own account, it could never be said that any turnover had escaped assessment at the hands of the petitioner for the Assessment Year 2008-09 (U.P.). In opposition, Sri C.B. Tripathi, learned standing counsel appearing on behalf of the revenue submits the petitioner does not dispute the correctness of the allegation that in fact it had purchased construction material worth ₹ 1,19,87,175/- during the Assessment Year 2008-09. Therefore, the revenue has a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as only been required to show cause and, therefore, the writ petition may be dismissed. He relies on the division bench judgment of this Court in the case of M/s Express Projects Pvt. Limited Vs. State of U.P. and Others, Writ-Tax No. 314 of 2007 decided on 4.10.2013, the aforesaid writ petition was dismissed on the following observations:- "7. In view of the opinion of the Supreme Court in State of U.P. v. Assotech Realty Pvt. Ltd. (Supra), setting aside judgment of the High Court made rel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ances, in which a reference has been decided holding that the view taken in K. Raheja Development Corporation vs. State of Karnataka (supra) is correct, and that the Supreme Court had set aside the order passed by this Court interfering in writ petitions in matters arising out of assessment orders and had relegated the petitioners to file the appeal, all the counsels appearing for the petitioners pray to withdraw the writ petitions to seek remedies under the U.P. Sales Tax Act or the U.P. Value .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

thority has reason to believe that the whole or any part of the turnover of a dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under-assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions have been wrongly allowed in respect thereof, the assessing authority may, after issuing notice to the dealer and making such inquiry as it may consider necessary, assess or re-assess the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r assessment order, if any, and includes the officer or authority having jurisdiction for the time being to assess the dealer. Explanation III.- Notwithstanding the issuance of notice under this sub-section, where an order of assessment or re-assessment is in existence from before the issuance of such notice it shall continue to be effective as such, until varied by an order of assessment or re-assessment made under this section in pursuance of such notice". 29. (7) Where the Commissioner, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se 'reason to believe' in the context of reassessment proceeding has been subject matter of interpretation by the Courts. The Supreme Court in the case of Commissioner of Sales Tax Vs. Bhagwan Industries (P) Ltd., (1973) 31 STC 293 (SC) interpreted the phrase 'reason to believe' appearing in a similar provision in Section 21 of the U.P, Sales Tax Act, 1948 providing for reassessment thus: "The words "reason to believe" in Section 21 of the U.P. Sales Tax Act convey .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

elief regarding escaped assessment. If the ground are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relavant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the ground are adequate or not is not a matter which would be gone into by the High Court or the Supreme Court, for the suffi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

foresaid, it is apparently clear that the words "reason to believe" in Section 21 of the U.P. Trade Tax Act conveys that there must be some rational basis for the assessing authority to form a belief that the whole or any party of the turnover of a dealer has for any reasons escaped assessment. Such reason or reasonable ground to believe that the whole or any part of the turnover had escaped assessment must be germane to the formation of the believe regarding escaped assessment. Such r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ich such plea is raised are those of regular assessment and not of reassessment. In the course of regular assessment proceedings it is open to assessing authority to raise all his doubts, suspicion and seek clarification on the same from the assessee. However, the context changes, completely and decisively when such a plea is raised with reference to challenge raise as to the jurisdiction of the assessing authority to initiate reassessment proceedings. Once the assessee sets up a challenge as to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.Shukla & Co. Vs The Sales Tax Officer, 1981 UPTC 396 had clearly laid down the law that a completed assessment can be reopened if there is material before the Sales Tax Officer that points towards escapement of turnover. Those cases had arisen under the U.P. Sales Tax Act, 1948. Even under that Act, a reassessment proceeding could be initiated by the assessing authority upon formation of a 'reason to believe' as required under the Act. In those cases, upon completion of the assessme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he petitioner because tax on purchase of construction materials has not been paid, is misconceived on facts. There is not even a whisper to that effect in the proposal for reassessment or reasons recorded by the petitioner's assessing authority, as annexed with the 2nd Supplementary Counter Affidavit, filed today. Also, no material or information as may give rise to such a belief has been stated to exist. The first objection is thus rejected. Then, in the instant case we find, in fact, there .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

goes to the very root of the matter, the revenue cannot plead that the assessee may be first required to show cause without the revenue first satisfying this Court that it had jurisdiction to reassess the petitioner. Then, the jurisdiction to reassess the petitioner cannot be claimed merely because in subsequent assessment years the petitioner has been subjected to tax and the assessing officer wants to explore a possibility if similar liability may arise in the present year as well. There must .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

graph 11 of the counter affidavit), as a fact it is clear that the revenue has not denied that till 12.11.2010, no flat/unit was sold/booked to the prospective purchasers and that on 12.11.2010, the first unit was allotted in the project "Kanga Shyam Residency" to a prospective purchaser. Besides the pleadings, we find that the proposal to reassess the petitioner for the Assessment Year 2008-09 is wholly silent on the factual aspect as to when according to the revenue, the petitioner f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ese facts are admitted to the petitioner to be correct. However, none of these facts individually or taken together even remotely suggest that the petitioner had sold or booked a single flat during the Assessment Year 2008-09. The aforesaid four facts noted in the proposal cannot be relied upon, to draw an inference that the petitioner had made any booking or sold any flat during the Assessment Year 2008-09 so as to support the belief less so form a reason that the petitioner had sold any flat o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urchaser/s at pre-construction stage. The agreements (in that case) further provided that on completion of the construction the residential units or commercial complex would be handed over to the purchasers who would also get an undivided interest in the land on which such constructions were standing. It was in this factual background that the Supreme Court held as below:- "17. We have heard the parties, perused the various documents and considered the cases cited at the bar. As has been ri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o be said to be carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. We, therefore, do not need to go into the question whether the Appellants are owners as even if the Appellants are owners to the extent that they have entered into Agreements to carry out construction activity on behalf of somebody else for cash, deferred payment or other valuable consideration, they would be carrying out a works contract and would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

otion of Construction, Sales, Management and Transfer) Act, 1972 will have no relevance." (emphasis supplied) Then having considered the terms of the agreement with reference to the fact noted above, the Supreme Court held as below:- "20. Thus the Appellants are undertaking to build as developers for the prospective purchaser. Such construction/development is to be on payment of a price in various instalments set out in the Agreement. As the Appellants are not the owners they claim a & .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o long as there is no termination the construction is for and on behalf of purchaser. Therefore, it remains a works contract within the meaning of the term as defined under the said Act. It must be clarified that if the agreement is entered into after the flat or unit is already constructed, then there would be no works contract. But so long as the agreement is entered into before the construction is complete it would be a works contract." (emphasis supplied) Thus, the Supreme Court had mad .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

held as below:- "105. The argument on behalf of the developers that the flat purchaser is entitled to transfer of flat and conveyance of fraction of land only when all installments have been fully paid and that shows that the agreement between the developer and the flat purchaser is the sale of flat and not to appoint the developer as the contractor of the flat purchaser for the purposes of carrying out the construction of the flat for and on behalf of the flat purchaser has no merit. The s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ser. It is not necessary to recapitulate all clauses of the agreement under KOFA or for that matter under MOFA. Raheja Development1 takes note of relevant clauses of the recitals and the agreement under KOFA. We need not repeat them. Similarly, Form V of the Maharashtra Ownership Flat Rules contains recital such as, ''as a result of the Development agreement the promoters are entitled and enjoined upon to construct buildings on the said land'. One of the relevant clauses (omitting un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ions or modifications which may adversely affect the flat of the purchaser". It is, thus, not correct to say that the work is undertaken by the developer for himself and for the owner and the construction is not carried for and on behalf of the purchaser. 106. In the development agreement between the owner of the land and the developer, direct monetary consideration may not be involved but such agreement cannot be seen in isolation to the terms contained therein and following development ag .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vation in the referral order that if the ratio in Raheja Development is to be accepted then there would be no difference between works contract and a contract for sale of chattel as chattel overlooks the legal position which we have summarized above. 107. The argument that flat is to be sold as a flat and not an aggregate of its component parts is already negated by the Constitution Bench in Builders' Association. As a matter of fact, in Builders' Association, this argument was advanced .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the builder has a lien on the property but incorrectly states that lien is because they are not owners. It is argued that lien is because if the monies are not recovered from the prospective flat purchasers, the lien can be exercised and this would show that the contract is a contract of an agreement to sell immovable property. The argument is insignificant because if the developer has undertaken to build for the prospective purchaser for cash or deferred payment or a valuable consideration .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on of "works contract" in KST Act was under consideration. That definition of "works contract" is inclusive and refers to building contracts and diverse construction activities for monetary consideration viz; for cash, deferred payment or other valuable consideration as works contract. Having regard to the factual position, inter alia, Raheja Development1 entered into development agreements with the owners of the land and it also entered into agreements for sale with the flat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

arified that activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State Government." (emphasis supplied) Thereafter, the larger bench declined to take different view in the case of K. Raheja Development Corporation (supra) it was clarifie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at time there is no purchaser. That the building is intended for sale ultimately after construction does not make any difference." (emphasis supplied) That being clear position in law, the fact situation of the present case admits of no doubt that the taxable event of deemed transfer of construction material never occurred during the A.Y. 2008-09. Though the petitioner admitted to have started making the constructions in that assessment year but the petitioner denied existence of any contra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version