9911796707
TMI Blog2011 (10) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... es at length, perused the findings of the authorities below and considered the material available on record. The assessee also filed written submission which is also taken into consideration. NEPTUNE INSFRASTRUCTUE PVT. LTD. (All appeals of assessee and revenue) All the cross appeals are directed against the common order of the learned CIT(A), Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06. 2. The facts noted in the impugned order of the learned CIT(A) are that the assessee is Private Limited Company incorporated in 1997 with the share capital of ₹ 46,000/-. The Assessee Company claimed that during the year under consideration, it was engaged in the single project of developing Shree Ghantakarna Mahavir Cloth Market for Mahalaxmi Bhavan Co-operative Housing Society Limited. It was also engaged in the business of real estate development work and financial activities. The Assessee Company has developed the project Shree Ghantakarna Mahavir Cloth Market on the land admeasuring 31102 square meters bearing Revenue Survey number 20/1(Paiki) and Final Plot number 12(Paiki) of TPS No.18 originally belonged to M/s. Gujarat State Textile Corporation Limited., an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loor, value of sq. ft. in rupees, floor wise amount and grand total of each block. There are 13 blocks and the grand summary area of block Nos. A to M is shown as 620450 sq. ft. The sum total of all the blocks is shown at ₹ 1,41,46,26,000/- based on this loose paper. The AO has drawn a conclusion that the assessee has realized the total sum of ₹ 1,41,46,26,OOO/- for the entire project and as against the same, it has recorded total realized value of ₹ 50,89,29,741/- and therefore, the balance amount of ₹ 90.57 Crores (Rs.141.46 Crores - ₹ 50.89 Crores) is a suppressed income. The AO, therefore, apportioned the amount of ₹ 90.57 Crores in the project years from its commencement of assessment year 1997-98 to 2005-06 in the ratio of cumulative sales sold in the books as under:- Assessment Year Cumulative proceeds books sales shown in the Percentage Undisclosed Income (Rs.) 1997-98 27,75,000 0.55 49,81,186 1998-99 1,30,00,000 2.00 1,81,13,405 1999-00 4,40,38,306 6.10 5,52,45,886 2000-01 8,07,88,891 7.22 6,53,89,393 2001-02 24,41,05,634 32.09 29,06,29,586 2002-03 37,89,59,285 26.50 24,00,02,618 2003-04 40,77,28,937 5.66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. In the said document, Shri Rasikbhai Patel - Manager of Assessee Company stood as the surety to this loan transactions. Further, the AO has taken the base of Govt. Registered Valuation Report wherein the valuation is placed in report dated 16-1-2001 of C. K. Patel, Valuer and report dated 26-1-2001 of Mukund C. Shah, Valuer. The value placed by them for ground floor to third floor changes from ₹ 3800/- to ₹ 4600/- for ground floor and lower price for first floor to third floor. The AO, therefore, concluded that the price indicated in the loose paper was the real price fetched by the Assessee Company. Therefore, the difference between the price indicated in the loose paper and the price indicated in the books of accounts is suppressed receipt and chargeable to tax. Accordingly, The AO has made the addition to income as noted above. 3. The addition of undisclosed income was challenged before the learned CIT(A). It was contended inter alia that the Assessee Company, Neptune Infrastructure Pvt. Ltd. in all the years was engaged in the development of the single project by the name Shree Ghantakarna Mahavir Cloth Market, the project was developed on behalf of Mahala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to help them to purchase the property accommodating their margin money, (j) the difference in the price rate shown by the AO in Para 8 of the order stood explained and reconciled, (k) the allotment price collected for society from members was at the prevailing market rates supported by the registered sale document effected in the cases of subsequent transfer, which price match with the allotment price found recorded in the books, (l) a specific request was made by assessee to the AO to give opportunity before taking any adverse action and also to offer cross examination of such person, however, this opportunity was not given, (m) the assessee has filled the affidavits of five persons indicating that certificates were given to them by the representative of the Assessee Company to accommodate their needs and that the actual consideration given to Neptune Infrastructure Pvt. Ltd. was as per money receipts issued and it was only price paid and that no other consideration was paid, (n) there was no material evidence on records to establish that the so called suppressed money was received by the assessee, (o) the AO has made an error in the measurement of the construction area. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk as aforesaid being value at ₹ 1,41,46,26,000/- as sale price received and to tax it. There is no documentary evidence to suggest that the aforesaid value is received in full and not recorded in the books of account. Further the entire addition made in all the years is of the alleged sale price only and it is a settled law that only income earned out of such sale can be taxed. In the instant case nowhere in the relied seized document the cost of construction is mentioned and in such an eventuality the set off of cost incurred has to be allowed. At the most profit on it could be taxed but certainly not the whole amount. 3. The appellant also relies on the following Judicial Pronouncements in support of the above contentions:- 3.1 A. RAMAN & C0. 67 ITR11 (SC). HEADNOTES:- "LAW DOES NOT OBLIGE A TRADER TO MAKE MAXIMUM PROFIT." In the appellant's case the Schedule "A" seized and relied was a future budgetary projection of the value only and not actual receipt. Moreover, being a recessionary market at the relevant time different price was charged as such the value as shown cannot be taken as sale price and to tax as such. 3.2 S.P. GOYAL v. DEPUT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Goyal (SUPRA) it should be appreciated that the same cannot be treated as actual receipt but future budgetary projection only and it cannot be added as income. 4. The appellant therefore earnestly request you honour to consider the above submissions judiciously before deciding the appeals." 4. The learned CIT(A) considering the explanation of the assessee in the light of the findings of the AO and material on record directed to estimate the taxable profit at 20% of the total receipts of the project and partly allowed all the appeals of the assessee. The findings of the learned CIT(A) in Para 6 to 11 of the appellate order are reproduced as under: "6. I have considered the submissions of the appellant company and the contention of the Assessing Officer, as mentioned in the assessment order. I have also referred to the relevant documents of the seized materials. Before adjudicating the issue, in order to determine the correct measurement of the construction area of the shops, the matter was referred by the assessing officer during the course of appeal hearing to the valuation officer, unit-l, Ahmedabad. As per the loose paper, total construction area 620450 sq. ft. (as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights regarding the necessary activities carried out by them on behalf of the Party of the First Part for development of the land acquired by the Party of the First Part i.e. Society. And for carrying out such development activities, the Party of the Third Part is eligible on behalf of the Party of the First Part if they are required to obtain any permission from Central Government, State Government and Municipal Corporation. And in relation to development of the asset, the party of the Third Part is eligible on behalf of the Party of the First Part if the Party of the Third Part is required to obtain permission for construction from the Town Planning Office of Municipal Corporation, Collector, Deputy Collector, Commissioner and any other development authorities. We, the Party of the First Part are agreed to pass necessary resolution, sign the documents, and give declaration and undertaking for carrying out all the aforesaid activities by the Party of the Third Part. And, we, the Party of the First Part undertake the liability for the abovementioned activities carried out by the Party of the Third Part. " "9(e) The Party of the Third Part is authorized to appoint engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the member of the Party of the First Part who has acquired a property is required to make registered sale deed then as per the notice of the Party of the Third Part, the Party of the First Part has to make such sale deeds, and we, the Party of the First Part are agreed for making such sale deeds." "9(m) In this project, if the member of the Party of the First Part is required to borrow money or take a loan from any institution for acquiring abovementioned units or property then the Party of the First Part as per the notice of the Party of the Third Part, has to provide necessary agreement and certificates." 8.1 From the above terms and conditions of the development agreement, it is apparent that the appellant company has been entrusted all the powers, including power to enter new members and allot them the space. In other words, the appellant company is authorized to sell the "vacant place" in lieu of considerations. These clauses clearly illustrates that the appellant company has sold the "vacant place" in the constructed market and it has actually collected the price for the premises to be sold to the prospective buyers. In other words, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments and these carries no evidentiary values. Even the two independent valuers viz. Shri C, K. Patel and Shri Mukund C. Shah have certified the prevailing market price of the shops in the cloth market, which is much more than the Jantri Price. 9.1 In appeal proceedings, the counsel of the appellant has vehemently argued that properties in the cloth market have sold at Jantri price, which has been recorded in the books of accounts. However, I am afraid that due to availability of sufficient circumstantial evidences, such arguments of the appellants could not be accepted. It is a well known fact that in the real estate market, the "on money" receipt is always there. The same proposition is also true in the case of re-sale of shops. Thus, I am of the opinion that total receipts of the appellant company is required to be determined on the constructed area (till the date of search) on the basis of rates of the properties as mentioned in seized document i.e. Annexure- A. The same is determined as under:- BLOCKS L/LL G/F. F/F S/F T/F Total (Rs.) A 7039 12763 12732 12447 3768 B 15695 15110 . 15120 14738 15140 C 13016 13625 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in all the assessment years at ₹ 18,95,73,380/- as mentioned in Para 9.2 of the appellate order reproduced above. The assessee stated in the grounds of appeals that the society remained real owner of the land and building under reference and the assessee received developing charges. The learned CIT(A) should have accepted the property sold at Jantri Price and should not have accepted alleged on-money. The seized document Annexure - A was not for sale price realized as it was only project budgetary estimate and not actual transaction. The learned CIT(A) should not have determined the income on estimated basis at 20% and made the additions as mentioned in Para 9.2 of the appellate order. The learned CIT(A) should have considered the real income of the assessee as per law. The revenue challenged the order of the learned CIT(A) in reducing the profit of the assessee as against the income determined by the AO. The learned representatives of both the parties submitted that the issue for consideration thus would be as to who is the beneficiary of the income out of the project in question and as to what quantum income should be determined in the case of the assessees. 6. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el, cement etc. for the period from 01-04-2001 to 06-12-2005 are filed at PB-789 to 807 to show all the building materials for construction of the project were purchased in the name of the society. PB - 808 to 816 are the sample copies of the booking receipts which were transferred and adjusted against the society. Copies of ledger accounts are filed at PB - 817 to 841. The details of units resold by the assessee's allottee at Jantri Price are also filed. At PB - 842 to 843, chart is filed showing average rate as per Annexure - A. The assessee has shown development charges in the books in all the assessment years under appeal. Apart from it, for assessment years 1997-98 to 2000-01, development charges received from the society has been shown in the regular return. Copies of the audited accounts for assessment year 2000-01 showing development charges received from the society have been filed at PB - 844 to 887 which have been assessed by the revenue department as development charges in the earlier year and the order of ITAT Ahmedabad Bench in ITA No.3181/Ahd/2003 dated 30-07-2004 for assessment year 2000-01 is filed in support of the same. He has submitted that work in progress is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Hon'ble Gujarat High Court in the case of M. K. Shah, 307 ITR 137, decision of the Hon'ble Delhi High Court in the case of S. M. C. Sharebroker Ltd., 288 ITR 345 and the decision of the Hon'ble M. P. High Court in the case of P. C. Nahata, 301 ITR 132. He has also relied upon order of ITAT Ahmedabad Bench in the case of Hiral Pharma Ltd. Vs DCIT in ITA No.1255/Ahd/2001 dated 29-01-2010 in which it was held that the statement recorded by the ITO and his report would not be relevant to the matter in issue as well as cannot be read in evidence because assessee was never allowed cross examination to such statement at the assessment stage. The statement recorded by the AO was excluded from consideration. He has also relied upon order of ITAT Ahmedabad Bench in the case of Yadav Developers Pvt. Ltd. Vs DCIT, ITA No.3674/Ahd/2008 dated 08-04-2011 in which it was held that there was no evidence in possession of the revenue on the basis of which it could be held that the assessee has taken on-money on booking of the flats. The learned Counsel for the assessee also submitted that onus on the AO to tax the income on account of onmoney has not been discharged. No evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el and that they have admitted real rates of the property in question and the future rates have gone up. The learned DR however, fairly stated that there is nothing on record to show that their statements were subjected to cross examination by the Assessee Company. He has submitted that cost certificate Annexure - D - 3/26 and A - 3/26 were issued by the Assessee Company. However, in the statement of Shri Rasikbhai Patel, director of the Assessee Company, no undisclosed income have been declared. He has submitted that cost certificate match with the Annexure - A/1 and that the assessee's counsel admitted rates/cost certificate in the statement of facts. The valuation report of C. K. Patel and M. C. Shah are prior to the search, which proves that the assessee has shown lower rates in the books of account. The bank loan certificate have shown higher value which compared with the Annexure - A/1. He has submitted that it is a common knowledge that in real estate business, the real value of sale consideration is always higher as against the Jantry rate which is meant for stamp valuation only. The learned DR filed details of four parties of the shops which were mortgaged along with mortg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned DR would not indicate assessee received any actual on-money. Same is the position with regard to mortgage documents. In the written submission the queries raised by the AO have been explained. PB - 638 is order of the learned CIT(A) dated 28-02-2011 in the case of the society for assessment year 2007-08 in which it is mentioned that the society ceased to exist with effect from 07-12-2005 as per order of Registrar of Societies and thus the development agreement between assessee and society rescind. It is also stated in the written submission that the learned CIT(A) held that the seized document Annexure - A/1 also shows the future financial projection of the project and such finding of fact have not been challenged by the revenue department. The learned Counsel for the assessee also submitted that the reply of the assessee also indicate that assessee suffered huge losses. He has therefore, submitted that learned CIT(A) should have deleted the entire addition. 9. We have considered rival submissions and material on record. It is stated that the Assessee Company entered into development agreement with the society vide development agreement dated 15-06-1997 (PB - 351) according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment agreement in question and the revenue department accepted the same nature and source of income of the assessee. Therefore, the nature of business income of the assessee could not be disputed by the revenue department in the proceedings u/s 153A of the IT Act under appeals. It is well settled law that though the principle of res-judicata does not apply to the income tax proceedings but the principle of consistency shall have to be followed by the revenue department while making the assessments. The revenue department did not dispute the income received by the assessee on account of development charges from the same shopping complex under consideration in earlier years as well as in the regular assessments u/s 143(3)/143(1) of the IT Act for the assessment years under appeal, therefore, revenue department cannot be permitted to take a different stand and change the nature of business income of the assessee. We rely upon the decisions of the Hon'ble M. P. High Court in the case of Godavari Corporation Ltd., 156 ITR 835, Hon'ble Supreme Court in the case of Berger Paints (India) Ltd., 266 ITR 99, Hon'ble Supreme Court in the case of Satish Pannalal Shah, 249 ITR 221 and Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income. The Hon'ble Delhi High Court in the case of Girish Chaudhury, 163 Taxman 608, held "there is no basis as to how, AO came to conclusion that 48 was ₹ 48 lacs. No material is there to support such findings of the AO. It is dumb document. Additions deleted." The learned CIT(A) in Para 9 of the impugned order on consideration of the report of the DVO and seized document Annexure - A also held that the seized paper indicates that the document Annexure - A also shows the future financial projection of the project. The finding of fact recorded by the learned CIT(A) on appreciation of the seized material have not been challenged by the learned DR during the course of argument. No specific ground of appeal has been raised in the departmental appeal against this finding. Further, no material is produced to rebut this finding of the learned CIT(A). Therefore, it would support the contention of the assessee that the assessee has not received any undisclosed income on account of on-money from the project in question. There is no indication in the seized paper that the assessee actually received ₹ 141 Crores. In the absence of any evidence to prove that assessee rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that the addition for undisclosed receipt had to be sustained only to the extent of ₹ 12,80,00,000 as accepted by the assessee and there was no basis for making addition to the tune of ₹ 20,55,86,000 as the assessee had acquired development rights only in relation to 7 lakhs sq. yds. Of land and not 11.11 lakhs sq. yds. Of land. At the same time, the Tribunal also recorded that the amount of ₹ 12,80,00,000 paid by the assessee for acquisition of the development rights had to be treated as allowable deduction under section 37 of the Act. On appeal: Held, dismissing the appeal, (i) that the assessee had entered into a transaction involving the total land area to the tune of 11 lakhs sq. yds. And this was found on the basis of loose papers found from the residence of the employee of the assessee. The Tribunal had recorded, after appreciating the same set of evidence in the form of documents seized from the residence of the employee that it only contained the payment schedule and no amount was actually paid. The Tribunal had therefore, after taking the totality of circumstances into consideration recorded that both, as regards the area as well as the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e." The Hon'ble Delhi High Court in the case of S. M. C. Sharebrokers Ltd., 288 ITR 345 held that "AO did not allow cross examination of the person searched. Illegal. Cannot be relied upon. Principle of Natural Justice not followed." The Hon'ble M. P. High Court in the case of CIT Vs Rameshchandra Shukla, 10 ITJ 286 held that "it is now well settled that where the assessee requests the AO to issue summons, to enforce attendance of the creditor to establish the genuineness and capacity of the creditor, it is duty of the AO to enforce attendance of creditors by issuing summons. If the AO does not choose to issue summons and examine the creditors, he cannot subsequently treat the loans standing in the name of such creditors as non-genuine, nor add the amount thereof to the income of the assessee." The Hon'ble Madhya Pradesh High Court in the case of Prakash Chand Nahta Vs CIT, 301 ITR134 - "Held, that as the Assessing Officer had not summoned R in spite of the request made under section 131 of the Act, the evidence of R could not have been used against the assessee and in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps have been examined by the AO. No sale deeds executed in their cases have been disputed. The assessee in the written submission explained that assessee was required to debit all amounts received by passing journal entry and expenditures were also adjusted. The Assessee Company was entitled to development charges and the amounts received on behalf of the society were adjusted against the account of the society. All development charges received by the Assessee Company have been credited in the regular books of accounts. Same submissions were also made before the authorities below but the same have not been rebutted through any evidence. All sales are made at the Jantri Rate. The assessee in the written submission also explained that post severe earth-quake in city on 26-01-2001, the real estate market was affected and it also further affected due to Godhra Riots at the end of February, 2002. The explanation of the assessee is reasonable and probable and cannot be brushed aside. The explanation of the assessee clearly prove that there was no evidence with the revenue department that assessee has collected any on-money for itself or for the society. There is no evidence or material f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only realization of the excess over the cost incurred could form part of the profit included in the consideration for the sales. Since there was no finding to the effect that investment by way of incurring the cost in acquiring the goods which were sold had been made by the assessee and that that investment was also not disclosed, only the excess over the cost incurred could be treated as profit." The Hon'ble Gujarat High Court in the case of CIT Vs Samir Synthetics Ltd., 326 ITR 410 held - "In the course of a search by the Excise Department in the premises of the assessee, it was found that the production of man-made fabrics was suppressed and only a small part thereof was shown in the excise register. The assessee could not reconcile the production, sales and the closing stock despite opportunity given by the Assessing Officer and addition in respect of unaccounted sales was made by the Assessing Officer. The Commissioner (Appeals) found that the assessee failed to explain the suppression of production of fabri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case against the assessee. In view of the above findings we set aside the orders of the authorities below and delete the entire additions in all the assessment years. 9.7 In the result, all the appeals of the assessee are allowed and departmental appeals are dismissed. (Mahalaxmi Bhavan Co-operative Housing Society Ltd.) (All appeals of the assessee and the revenue) 10. All the cross appeals are directed against common order of learned CIT(A)-1, Ahmedabad dated 31-03-2011 for assessment years 2001-02 to 2005-06. However, assessee has further preferred appeal in ITA No.447/Ahd/2011 against the order of the learned CIT(A)-I, Ahmedabad dated 28-02-2011 for assessment year 2006- 07. 11. In all the departmental appeals, the revenue challenged the deletion of additions on account of profit from the cloth market made on protective basis. The AO made the substantive addition in the case of M/s. Neptune Infrastructure Pvt. Ltd. and protective assessment in the case of the society. The learned CIT(A) noted in the impugned order that since substantive addition on account of undisclosed income is upheld by him in the case of Assessee Company - M/s. Neptune Infrastructure Pvt. Ltd., there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject as rent on the vacant land and thereby treating the same as income from other sources as originating from the capital asset i.e. land, resulting into denial of statutory deduction under section 24 of the Act ? 5. Whether the CIT (A) was right in not considering rent received on vacant shops & offices as non taxable on mutuality concept?" 14. On these grounds of appeals in assessment years 2001-02 to 2005-06, learned CIT(A) followed his order for assessment year 2006-07 dated 28-02-2011 and dismissed these grounds of appeals of the assessee. We therefore, take up this issue from assessment year 2006-07. The assessee submitted before the AO that it is not liable for any tax as it claimed that they were carrying on activity of construction of building for its members only as mutual concern out of funds provided by the members of the society and also that the society was working on no profit no loss basis. The AO noted that two issues cropped up as far as the taxability is concerned viz., rent income and profit from construction activity of Shree Ghantakarna Mahavir Cloth Market Project. On the rental income AO noted that assessee furnished balance sheet along with its other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ledger account of rental income are also filed in paper book to demonstrate that rental income was shown in the books of accounts of the assessee. Copies of the same are filed from pages 101 to 117 and PB - 274 to 297. The learned Counsel for the assessee submitted that the AO did not asked for any specific details and merely on work in progress shown in the books presumed that assessee has rented out vacant land of the project. He has submitted that since large number of shops and offices have been rented out to various persons, therefore, it is difficult to believe that large number of people could be accommodated as tenant in the open space. He has submitted that findings of the authorities below are factually incorrect and the rental income could be tax as income from house property on which assessee would be entitled for deduction u/s 24 of the IT Act and further income would be exempt on principle of mutuality. 16. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that there is a factual difference in the submission of the assessee and finding of the AO. Therefore, matter could be restored to the file of the AO for reconsiderat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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