TMI Blog2019 (10) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of the land, infrastructure facility available around the land, access to the public road, etc. The State Registration Department, after considering all these facts, fixed the value which is known as guideline value to guide the Sub- Registrar to determine the market value. The guideline value may not always reflect the market value. Sometimes, the guideline value may be less or it may be more depending upon the area and location of the property. When the assessee entered into a joint development agreement for transfer of part of the land to the partnership firm at a particular price, this cannot be said that the value determined for transfer of part of land or the entire land is a device to increase the profit of the assessee-firm. AO as well as the CIT(Appeals) found that the market value of the land was fixed at a very lower rate since the children of the owners of the land were partners in the assessee-firm. There may be a justification for making allegation like this when the children of the land owners alone are partners. In this case, apart from the children of the owners, there are other partners who are not related to the land owners at all. The other partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the authorities below are set aside and the Assessing Officer is directed to allow deduction under Section 80-IB(10) of the Act as claimed.- Decided in favour of assessee. - ITA No.3463/Chny/2016 And ITA No.966/Chny/2017 - - - Dated:- 1-10-2019 - Shri N.R.S. Ganesan, Judicial Member And Shri Inturi Rama Rao, Accountant Member For the Appellant : Shri G. Baskar, Advocate For the Respondent : Shri S. Bharath, CIT ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: Both the appeals are filed by the assessee. When the appeal in I.T.A. No.3463/Chny/2016 is directed against the order of the Commissioner of Income Tax (Appeals) - 4, Chennai, dated 24.10.2016, the appeal in I.T.A. No.966/Chny/2017 is directed against the order passed under Section 263 of the Income-tax Act, 1961 (in short 'the Act') by the Principal Commissioner of Income Tax-5, Chennai, dated 21.03.2017. We heard both the appeals together and disposing the same by this common order. 2. The only issue arises for consideration is disallowance of deduction claimed under Section 80-IB(10) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration received from the prospective purchasers for sale of undivided share of land was passed on to the land owners, namely, Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran and not even a single penny was retained by the partnership firm. According to the Ld. counsel, the observation of the Assessing Officer that Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran got more money than the market value of the land since their children are having 35% of shares in the partnership firm is not correct. According to the Ld. counsel, the children of Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran might have received profit in proportion to their shares as per partnership deed, that does not mean that the land owners shifted the profit on sale of land to the partnership firm so as to transfer the profit to the children of Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran. 4. Shri G. Baskar, the Ld.counsel for the assessee further submitted that the land owners share of sale proceeds is a composite one, consisting of consideration for sale of undivided share of land as well as the built-up area. The consideration collected by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer that Shri Prem Chandrasekaran and Shri Akil Chandrasekaran, the children of Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran earned their respective profit in the partnership firm without any risk element is not correct. The very fact that the children of Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran also liable for the losses of the partnership firm shows that they are taking risk in the business. Referring to profit margin of the partnership firm, the Ld.counsel submitted that profit margin in any business, not only in civil construction, would depend upon various factors. In this case, according to the Ld. counsel, the time gap between the joint development agreement and the sale of flats was very long. Moreover, the land was situated in a strategic location. According to the Ld. counsel, the project was commenced when the real estate business was in boom. Therefore, the profit margin declared by the partnership firm is not an unusual one. 7. The Ld.counsel for the assessee further submitted that unless there is a material to suggest that the profit margin or the market value of the land was suppressed or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also found that in the business of joint development, the sharing ratio of the constructed area normally between the builder and owner of the land would be in the ratio of 65:35. Therefore, according to the Ld. D.R., the Assessing Officer found that the share of profit given to the sons of the land owners is nothing but sale consideration pertaining to the land. 9. Referring to the assessment order, more particularly para 6, the Ld. D.R. pointed out that the claim of the assessee that market value of the land as determined by the Registration authorities was paid to the land owners, therefore, the ordinary profit was transferred to the owners of the land, was found to be not correct. According to the Ld. D.R., in the case of housing project, the cost of land would normally be more than the guideline value. In this case, according to the Ld. D.R., the property was transferred at the rate of guideline value. According to the Ld. D.R., the profit on sale of land was also included as profit from housing project. Moreover, the exorbitant profit shown by the assessee for claiming deduction under Section 80-IB of the Act clearly suggests that there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act is applicable, this Tribunal is of the considered opinion that there is no material to suggest that the business of the assessee-partnership firm was so arranged in such a way to produce more than the ordinary profit. 12. It is an admitted fact that the assessee-partnership firm is maintaining books of account. No defect was pointed out either by the Assessing Officer or by the CIT(Appeals) in the books maintained in the regular course of business activity. The Assessing Officer found that the cost of the land which was said to be taken from Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran for joint development by the assessee-partnership firm was valued at guideline value. The market value was not paid to Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran. It is a well settled principle of law that market value of the land is not a constant or fixed price. It may fluctuate depending upon various factors such as area of the land, location of the land, infrastructure facility available around the land, access to the public road, etc. The State Registration Department, after considering all these facts, fixed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t discloses the profit at 50%, the Revenue cannot doubt that the profit was exorbitant or improbable one. The profit generated by the assessee-firm is supported by the books of account maintained in the regular course of business activity, therefore, the Revenue authorities have no justification to doubt the percentage of profit. Moreover, the children of the land owners, namely, Shri Prem Chandrasekaran and Shri Akil Chandrasekaran are partners in the firm with 35% of stake. Therefore, naturally they are eligible for 35% of the profit of the firm. 65% of the profit would go to the other partners who are not in any way related to the land owners, namely, Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran. The land owners may not prefer to give 65% of the shares to the third parties who are not connected with them. In such circumstances, this Tribunal is of the considered opinion that there is no arrangement as projected by the Ld. D.R. to shift the profit to the partnership firm so as to claim a higher rate of deduction under Section 80-IB(10) of the Act. 15. In view of the above, this Tribunal is unable to uphold the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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