TMI Blog2017 (10) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. Necessary enquiries were conducted by the AO in scrutiny proceedings, which were picked up under CASS for the specific purpose of verifying the claim of deduction under Chapter VI-A, the Assessing Officer after conducting the enquiries have come to a conclusion which is as per the law and hence, the same cannot be disturbed by the Commissioner under the garb of exercise of revisionary powers under section 263 of the Act. In any case, the Commissioner has failed to give a finding and has remitted the matter back to the file of Assessing Officer to verify the claim of assessee, which is also not permissible under section 263 of the Act. Without prejudice to our findings in the paras hereinabove, the order of Commissioner under section 263 of the Act is contrary to the extent that where he has held that the assessee merely transferred the land, then in such circumstances, the resultant profit is assessable as capital gains on the date of transfer i.e. 05.10.2004, which falls in assessment year 2005-06 and hence, there is no merit in exercising the jurisdiction under section 263 of the Act in assessment years 2009-10 and 2010-11. Assessee with an authorized share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s consolidated order for the sake of convenience. 3. The facts and issues in both the appeals are identical. However, for the sake of adjudication, reference is being made to the facts and issues in ITA No.1013/PUN/2014. 4. The assessee in ITA No.1013/PUN/2014, relating to assessment year 2009-10 has raised revised grounds of appeal which reads as under:- 1. On the facts in the circumstances of the case and as per law, the Ld. Commissioner of Income-tax erred in setting aside the order passed by the Assessing Officer and directing to pass the fresh order. 2. The Ld. Commissioner of Income-tax had erred by not considering the details and an explanation submitted by the appellant and has passed the order. 3. Without prejudice the Ld. Commissioner of Income-tax was not justified in considering the assessment order dated 19/12/2011 as erroneous and prejudicial to the interest of the revenue. 5. The assessee is aggrieved by exercise of revisionary powers by the Commissioner under section 263 of the Act in the case of assessee for both the years under consideration. 6. Briefly, in the facts of the case, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in the hands of said Joint Venture. He thus, held that the same as such could not partake the character of profit derived from housing project so as to qualify for deduction under section 80IB(10) of the Act in the hands of recipient. The Commissioner was of the view that on this portion, deduction under section 80IB(10) of the Act should not be allowed and this has resulted in excess carry forward of MAT credit. He further noted that the Assessing Officer taxed book profit of ₹ 4.68 crores as offered by the assessee. While computing the said book profit, the assessee had reduced carry forward losses of ₹ 53,28,640/- in assessment year 2009-10 and the same was accepted without their being any carry forward unabsorbed depreciation. The omission to disallow carry forward losses, as per the Commissioner, had resulted in under-assessment of book profit by ₹ 53,28,640/- involving short levy of tax and interest under section 234B of the Act. 7. The Commissioner gave show cause notices to the assessee, who time and again sought adjournments but did not furnish details completely and did not appear before the Commissioner and hence, he proceeded to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was never a developer and hence, the provisions of section 80IB(10) of the Act were not applicable. The Commissioner then referred to the Articles of Agreement entered into between the Joint Venture and Shri Venktesh and noted that the development rights of vacant piece of land were granted to the said developer and in lieu thereof, the developer had to handover 31% of constructed premises upon the said property. The relevant para of Articles of Agreement are reproduced at pages 9 and 10 of the order of Commissioner. The Commissioner further observed that where the Assessing Officer had failed to make any enquiries as how the assessee was entitled to claim the deduction under section 80IB(10) of the Act and further failed to note that if actually work of construction of housing project had been undertaken by the assessee, then why the assessee is entitled to the deduction when the assessee had only shown regular administrative expenses amounting to ₹ 54,21,261/- and bank charges of ₹ 5,976/-. In Schedule D of fixed assets, the assessee had shown ₹ 54,27,237/- as addition to work-in-progress which was contrary to the factual position of Trading (Construction) Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the factual facts of the present case pointed out that the assessee was a developer of housing project and hence, was eligible to claim the deduction under section 80IB(10) of the Act. The assessee stated that it had entered into Joint Venture Agreement dated 26.05.1996 with Rajkotia Securities Ltd. (in short Rajkotia ) for the purpose of carrying on the development of land and in this regard, it was agreed upon that both the parties shall jointly make all efforts to obtain necessary facilities, infrastructure and resources for development. The fees of Architect, Consultants, scrutiny fees for sanctioning of FSI expenses for sanctioning of plans, advertisement cost and cost of providing security had to be borne by the assessee. The development initially had to be done by the assessee and Rajkotia. However, subsequently the said Joint Venture between the assessee and Rajkotia entered into an agreement with Shree Venkatesh to jointly undertake the development and construction of housing project on the said land. The terms of agreement dated 05.10.2004 were agreed upon, under which Joint Venture had introduced the land on which the development had to be undertaken. The Joint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons for denying the deduction under section 80IB(10) of the Act was no expenditure debited to the Profit and Loss Account during the year. The assessee in this regard explained that KPJV through the assessee had introduced land admeasuring 18639.64 sq.mtrs. for the development of building project. Several permissions and approvals were obtained in the past by the assessee and KPJV for which necessary expenses were incurred. In the year under consideration, though no expenditure was incurred but in any case, the incurrence of expenditure was not determinative of the fact whether the assessee was engaged in the activities of development and construction of housing project. Further, the assessee again reiterated that since it had introduced the land, the cost to obtain approvals for permissions, etc. and had also undertaken certain obligations which may result in incurring of expenditure, it cannot be said that the assessee has not incurred any expenditure. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by the Hon ble High Court of Karnataka in CIT Vs. Shravanee Constructions (2012) 22 taxmann.com 250 (Kar.). It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue on without prejudice basis which was raised by the assessee was that the findings of Commissioner are self contradictory, wherein it has held that if the assessee has merely transferred the land, the resultant profit was assessable as capital gains on the date of transfer i.e. 05.10.2004 and even if it was assessable as business income, then it was taxable in that year, where the assessee had no role in the construction activity. The learned Authorized Representative for the assessee pointed out that the land was transferred on 05.10.2004 which falls in assessment year 2005-06 and in such case, the assessment order passed for the captioned assessment year cannot be said to be prejudicial to the interest of revenue. 14. The Commissioner had also exercised the revisionary powers on calculation of book profits under section 115JB of the Act. The learned Authorized Representative for the assessee pointed out that where the assessment was taken up only for limited issue and verifying the claim of deduction under section 80IB(10) of the Act, hence, the powers of Assessing Officer in the proceedings were limited and he had no power to verify any other claim. In view thereof, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer asked but no enquiry was made and the Assessing Officer failed to apply his mind to the issue concerned, hence, the same is to be taken as non-application of mind and the order passed thereunder should be revised being erroneous and prejudicial to the interest of revenue. He further referred to the written submissions filed by the assessee, wherein the assessee has claimed that he might incur some expenditure in future, but no details of the said expenditure has ever been given. In respect of reliance of the learned Authorized Representative for the assessee on different decisions, the learned Departmental Representative for the Revenue referred to each one of them and pointed out that factually all of them were different. He further stressed that where the Assessing Officer had failed to make enquiries, then the order was erroneous. In this regard, he placed reliance on the following decisions:- i) Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC) ii) Gee Vee Enterprises Vs. Addl. CIT Others (1975) 99 ITR 375 (Del) iii) Sify Software Ltd. Vs. ACIT (2017) 80 taxmann.com 273 (Chennai Trib.) iv) Rajmandir Estates (P.) Ltd. Vs. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and also prejudicial to the interest of revenue. Both the conditions of section being erroneous and also prejudicial to the interest of revenue have to be fulfilled for the Commissioner to exercise his powers under section 263 of the Act. 20. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT (supra) had held that twin conditions of section 263 of the Act are to be satisfied and in case one of them is absent i.e. order of the Assessing Officer is erroneous but not prejudicial to the interest of revenue or if it is prejudicial to the interest of revenue, but not erroneous, then recourse cannot be made to section 263(1) of the Act. Further, it has been laid down by the Hon'ble Supreme Court in the said case that the provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted and incorrect assessment of facts or incorrect application of law will satisfy the requirement of order being erroneous. In the same category falls the orders passed without applying the principles of natural justice or without application of min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to enable themselves to develop the land and undertake the project. Similarly, plans were also approved from the Pune Municipal Corporation (PMC) for carrying out the development and construction of the project. In the meanwhile, the assessee has also approached various builders like Tata Housing, Godrej and Great Eastern Shipping Company, etc. to jointly carry out the development and building of the project. However, they required NOC from Union which could not materialize. c. The assessee had then entered into Joint Venture Agreement dated 26.05.1996 with Rajkotia for the purpose of carrying out development of the land in the name of Kunver Prabhu Joint Venture‟ (KPJV). This is evident from the clauses (c), (d) and (e) of the Recitals and clause 3 of agreement with Rajkotia which states that both the parties intended development of the said property. It has been specifically agreed that the assessee and Rajkotia are joint responsible for providing finance required for execution and implementation of the project including development of the property and shall jointly make all the efforts to obtain necessary facilities, infrastructure and resources for developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious permissions and approvals over the period of time. The necessary expenditure for obtaining approvals was also incurred. Thus, necessary risk and responsibilities were assumed by KPJV, Partners, i.e. the assessee and Rajkotia in respect of the said project. h. The consideration from the said project was also distributed amongst the parties in the ratio of 31:69, i.e. 31% of the value of the constructed premises belonged to the KPJV to be divided between the assessee and Rajkotia and the balance 69% was the share of Venkatesh. This is evident from the Profit and Loss Account and computation of income enclosed at page 1-5 of the Paper Book. The working of distribution of profit from the project is enclosed at page 3 and 41 of the Paper Book filed by Ld. CIT-DR. It is submitted that the manner in which the consideration is being determined under the agreement with Venkatesh itself shows that the returns from the project were not fixed. It is submitted that since the profit of the assessee was determined on sale value of the project, the profit attributable to the assessee would depend on successful completion of the project. Further, the consideration of the assessee wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JV, which in turn, had to be divided amongst the assessee and Rajkotia and balance 69% was the share of Shree Venkatesh. It is not case of assessee getting a fixed price for the land but it is a case of sharing the consideration at 31%, wherein it was agreed that first ₹ 200/- per sq.ft. would be given to the assessee and the balance is to be shared equally between the assessee and Rajkotia. The assessee in this regard has offered 31% revenue on sale of flats in Phase-I at ₹ 2.49 crores + ₹ 1.49 crores and has also offered long term capital gains on sale of flats at ₹ 1.22 crores in the Trading Construction Account for the year under consideration, copy of Trading Construction Account is placed at page 3 of the Paper Book. In the Notes to accounts to the Balance Sheet placed at page 17 of the Paper Book-1 in note Nos.11 to 15, the assessee had declared as under:- 11. The Company has entered into Joint Venture with Rajkotia Securities Ltd. for development of Land as per the agreement dated 26/05/1996. The Company is to receive ₹ 200/- per sq. ft. from Joint Venture as Cost of Land and 50% of balance as share of profit. 12. The Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under section 80IB(10) of the Act. The claim of assessee was that it had developed and constructed the housing project. The said claim of assessee under section 80IB(10) of the Act was verified by the Assessing Officer in the assessment proceedings taken up for the instant assessment year and it may be pointed out herein itself that the case of assessee was picked up under CASS for the specific purpose of verifying the claim under section 80IB(10) of the Act. The assessee has filed the details of proceedings before the Assessing Officer and even the learned Departmental Representative for the Revenue in the Paper Book has filed complete details of the proceedings before the Assessing Officer. The assessee has even filed the copy of questionnaire issued by the Assessing Officer which is placed at pages 20 to 22 of the Paper Book, in which specific query of deduction claimed under section 80IB(10) of the Act was ₹ 3.99 crores along with documentary evidence and detailed computation was asked for. In the assessment order passed under section 143(3) of the Act, dated 19.12.2011, the Assessing Officer mentions that the assessee had entered into various Joint Ventures and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny had also claimed the deduction under section 80IB(10) of the Act. Initially, the Assessing Officer denied the said deduction to Rajkotia. However, the Tribunal vide order dated 05.06.2013 in ITA No.6363/Mum/2012 relating to assessment year 2009-10, copy of which is placed at pages 82 to 102 of the Paper Book, after verification of the facts noted that the deduction was denied not on the ground that they were not developers but on the ground of non-payment of deposits under the Agreement. The Tribunal noted that the Assessing Officer in that case was fully convinced that the conditions of 80IB(10) of the Act were duly complied with by Rajkotia. The Tribunal thus, held that non filing of bank statements and non compliance of conditions of payment of deposit to the Co-venturer i.e. the assessee would not come in the way of claim of deduction under section 80IB(10) of the Act, hence, Rajkotia was entitled to the said deduction. By simile where the Co-venturer of a Joint Venture has been allowed the deduction on identical facts, then similar deduction to the other Co-venturer cannot be denied on any ground. Since the conditions are jointly applicable and are to be fulfilled by both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore claiming benefit of deduction under the said provision. 6. In the instant case, all those conditions are fulfilled. However, the dispute is when the assessee has not built the housing project, is he entitled to the benefit of the aforesaid provision. 7. As stated earlier, it is not merely building housing project, which attracts this provision. It is developing and building housing project, which attracts the provision. In the order passed by the Commissioner of Income Tax (Appeals), the development and construction activities undertaken by the assessee are listed. They are: (i) Obtaining khatha from municipality; (ii) Obtaining plan sanction for construction of apartment on the said property by the local authority; (iii) Making the land usable for the purpose of apartment construction by providing proper road and to give an approach to the site; (iv) Jointly supervising the construction of the apartments buildings; (v) Marking the apartments falling to the share of the assessee; (vi) Also undertaking the leveling the road and removal of rocky surface in the said land and made it usable for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the Profit and Loss Account and Balance Sheet in this regard and the deduction claimed under section 80IB(10) of the Act was denied. The explanation of assessee was that it had incurred project expenses in relation to the statutory approvals and the balance other expenses were incurred by the developer. The assessee also furnished evidence in this regard. However, the plea of assessee was not accepted. The Tribunal noted that the assessee had converted his agricultural land into non agricultural land and jointly undertook the development and construction of scheduled property by getting the permissions and plans sanctioned. As per the agreement between the assessee and the developer, the onus upon the assessee was to make investment for all statutory approvals and plan sanctions, retained 24% of built up area. The Tribunal noted that the assessee had contributed the property in lieu of capital contribution for joint development and construction and the second party was required to make investment in joint development and construction and where the assessee was required to make investment in schedule property and also to get the statutory approvals at his cost, the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that the assessee had not carried out any construction activity, in our opinion that reason is not sufficient to deny deduction u/s 80IB(10) of the Act. In the present case, the assessee made the contribution of his capital in the shape of land and incurred the initial expenses for development and building of housing project like sanction of plan, getting the electricity and water connection by making the payments to BWSSB and KEB etc. Therefore, merely on this basis that the assessee did not construct himself was not a ground to deny the deduction u/s 80IB(10), particularly when the assessee had undertaken the other work like making the land useful by getting it converted into non agricultural purpose and getting plan sanctioned. On a similar issue, their lordships of Hon'ble Jurisdictional High Court in the case of CIT Vs. M/s Shravanee Construction (cited Supra) at para 8 of the judgment dated 28th Feb, 2012 in ITA No.421 and 422 of 2009 observed as under : In terms of the agreement, which are not in dispute, the assessee not only undertook the aforesaid development activities on the land in question, but in fact, he entered into an agreement of sale with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable to the assessee which has been so allowed by the Assessing Officer, can the said order of the Assessing Officer be said to be erroneous and prejudicial to the interest of revenue. 34. The Hon'ble Supreme Court in CIT Vs. Max India Ltd. (supra) had held as under:- 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase prejudicial to the interest of the Revenue under s. 263 has to be read in conjunction with the expression erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. 35. Following the said principle laid down by the Hon'ble Supreme Court and in view of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT (supra), which issue has been upheld by the Hon'ble Supreme Court also. The ratio laid down in the said case is in respect of exercise of powers by the Commissioner under section 263 of the Act, wherein the Assessing Officer had not made the requisite investigation except for calling of records. In the facts of the case before that, the assessee with an authorized share capital of ₹ 1.36 crores raised nearly sum of ₹ 32 crores on account of premium and chose not to go in for increase of authorized share capital, merely to avoid payment of statutory fees, as per the Commissioner was an important pointer necessitating investigation. In such a case, the Commissioner held the assessment order is erroneous and prejudicial to the interest of revenue. However, the facts of the said case are at variance to the facts raised before us and we have already referred to the facts and investigation made by the Assessing Officer during the course of assessment proceedings and hence, there is no merit in the aforesaid reliance. 40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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