TMI Blog2020 (3) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... constructions there on as well receivable by HPGPL. Learned CIT(A) is correct in his appreciation that the assessee can be entitled to 5% which was agreed upon in the facilitation agreement between the assessee and its developer holding company i.e. HPGPL. We come to the assessee s claim that since it has not received any amount and its land has also been e-auctioned, the assessee s case should be treated as business loss. That it should be treated that land being trading asset of the assessee has been lost so assessee has claimed business loss. Further limb of the assessee s submission is that since land was mortgaged to the bank for loan to HPGPL and the bank has adjusted the sale proceeds against loan to HPGPL, there is diversion of income by overriding title. The income has been diverted to HDFC by HPGPL and the assessee has not received any amount. So nothing can be attributed to the assessee s income. We find that this limb of the assessee s submission is also not sustainable. It is undoubted that the assessee had facilitation agreement with its holding company for development of the project on its land. As per the said agreement the assessee was entitled to 5% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of. 2. The learned Commissioner of Income Tax (Appeals) failed to appreciate that no income accrued or arose to the appellant on account of eauction of property by HDFC. 3. Without prejudice to above, the learned Commissioner of Income Tax (Appeals) erred in confirming action of the Assessing Officer in rejecting the claim of the appellant that the alleged amount receivable by appellant on e-auction is allowable as bad debts or business loss. 4. The appellant prays that: i) addition sustained by the learned Commissioner of Income Tax (Appeals) may be deleted and it may be held that no amount is assessable in the hands of the appellant on the said ground; ii) recovery of demand in dispute may be stayed till the hearing and disposal of appeal; iii) any other relief your honours may deem fit. 3. Revenue s appeal : Grounds of appeal read as under :- 1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in restricting the 5% of sale receipt as assessee's income though in principle, the Ld. CIT(A) was in agreement with findings of the Assessing Officer about the treatment of e-auction receipt as business income. 2. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering that the assessee by way of adopting this method of transfer of land has eventually shifted the income component without paying taxes due to appreciation of prices of land being the asset in this case by creating an overriding title? The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. 4. Brief facts of the case are as under :- The assessee is a registered company and is engaged in the business of construction and development of real estate. During the course of assessment proceedings, on going through balance sheet and its Annexures, the assessing officer observed that inventories in the form of Turner shown at ₹ 3,89,47,109/- as on 31/3/2013 was shown as 'Nil' as on 31/3/2014. The profit and loss account for the year shows revenue from sale of undivided sale of land at Rs, 3,53,18,899/- and the corresponding cost of land sold was shown at Rs, 3,47,45,141/-. The notes/annexures also shows the cost of land at ₹ 3,47,45,141/-. Details of comparative format balance sheet filed by the appellant shows that an amount of ₹ 2,53,61,691/- was shown as 'advance holding company' as on 31/3/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C for which the assessee-company had mortgaged its land property. Thus, the assessee's property (inventors) of book value ₹ 8,89,47,109/- was mortgaged against the loan of ₹ 550 crores. The holding company HPGPL defaulted in the payment of the loan taken and consequently the lender -HDFC invoked the SAFAESI Act and appropriated the mortgaged property sold (E auction) the same to Evita Constructions Pvt. Ltd. for a consideration of ₹ 2,96,29,01,000/-. As a result the assessee company made the following adjustments - Inventories in the form of land was shown at ₹ 8,89,47,109/- as on 31/3/2013 was shown as Nil as on 31/3/2014, the profit and loss account for the year showed revenue from sale of undivided sale of flat at ₹ 3,53,60,899/- and the corresponding cost of land was shown at ₹ 3,47,45,141/-. The Annexures/notes in this regard showed the cost of land at ₹ 3,47,45,141/-. Details of 'comparative format balance sheet' filed by the assessee showed an amount of ₹ 2,53,61,691/- as advance holding company as on 31/3/2014. Further an amount of ₹ 5,02,54,749/- was shown as advance received from customers as on 31/3/2013 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of equivalent amount of payables (creditors-liability) to the holding company. Hence, Assessing Officer held that it proved that the assessee had admitted to the benefit arising in the hands of holding company-HPGPL on account of appropriation and e-auction of the land by HDFC and the fact that the quantum of benefit arising to the holding company-HPGPL to the extent of its liability being written off by HDFC on account of appropriation of mortgage ₹ 296,29,01,000/-. Thus, the assessing officer pointed out that the purpose for mortgage of property was not in the exigencies of its business and lacked an expediency or mutuality. Also, the fact that the borrowings by the holding company-HPGPL ceased from the moment the mortgaged property of the assessee company was appropriated and auctioned by the lender HDFC under SAFAESI Act, 2002. The benefit of the cessation of liability had accrued in the hands of the holding company HPGPL to the extent of its outstanding liability towards the loan of ₹ 550 crcres taken from HDFC as on the date of auction. The ceased liability in the hands of the holding company HPGPL to the extent of sale proceeds (e-auction) from the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Assessing Officer completed the assessment proceedings u/s. 143(3) of the Act and passed order dated 30/12/2016 computing the total income at ₹ 287,39,53,890/-. 9. Against the above order assessee appealed before learned CIT(A). 10. Learned CIT(A) noted that the assessee was engaged in the business of construction and development of real estate. The principal activity of assessee is to acquire land for developing residential townships in India. That the assessee company had entered into facilitation agreement granting development rights to Hiranandani Palace Gardens Private Limited (HPGPL), the project development company (PDC) and which is also its holding company. Assessee s facilitation agreement with HPGPL was dated 1.4.2009 as amended on 1.4.2010. Learned CIT(A) also noted that seven landowning companies including the assessee entered into facilitation agreements with HPGPL for development of a township in Chennai. Thereafter learned CIT(A) referred to facilitation agreement which gave HPGPL rights to develop the impugned land and construct buildings and as per the amended facilitation agreement, assessee company was entitled to the total consideration paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L in the form of Facilitation Agreement is completely independent of the term loan agreement between HDFC and HPGPL for which the impugned land belonging to assessee was mortgage. That the facilitation agreement makes the assessee (GHPL) entitled to 5% of the sale price of the developed/constructed property. Hence, he noted that if the assessee chooses not to press that claim forgoes that claim it cannot be construed as diversion of income by overriding title. Thereafter learned CIT(A) referred to following case laws to reject the assessee s claim that no income has arisen :- i) CIT Vs. Roshanbabu Mohammed Hussein (144 Taxman 720) (Bom) ii) CIT Vs. Attili N. Rao (252 ITR 880) (SC) iii) CIT Vs. Shoorji Vallabhdas Co. (46 ITR 144) 11. Thereafter learned CIT(A) also rejected the Assessing Officer s reference that purchaser M/s. Evita Constructions Pvt. Ltd. and the assessee were related party. Accordingly, he concluded by directing the Assessing Officer to restrict the addition on account of amount received through e-auction of impugned land and property by HDFC to only 5% of the receipt and recomputed income after giving benefit for amount of inventory of land written o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that date. He claimed that the assessee has not received single paisa out of that. Hence he submitted that no income accrued to the assessee. He further claimed that the amount itself retained by the HDFC against loan sanctioned to HPGPL. Hence, learned counsel claimed that there cannot be any question of income arisen to the assessee. Learned counsel further referred to the decision of Hon'ble Apex Court for the proposition of diversion of income by overriding totally. In the alternative, learned counsel claimed that even part of the amount is treated as income of the assessee the same should be treated as loss as assessee has not received any amount whatsoever. He further claimed that land was assessee s trading asset. The loan of trading asset should be allowed as trading loss. Hence, learned counsel claimed that no income is to be computed in the hands of the assessee. 17. Upon careful consideration, we note that the assessee is a company which is engaged in the business of construction and development of real estate. It had entered into facilitation agreement with its holding company HPGPL for development of project in Chennai on the land holdings belonging to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d but also the construction thereon by HPGPL, receivable and other items on that date, the Assessing Officer wanted the assessee company to prove amount spent by it on the construction. The Assessing Officer took adverse inference as the construction was not done by the assessee and the same was not appearing in assessee s books. The Assessing Officer proceeded to hold that the entire ₹ 296 crores belonged to the assessee. He also opined that there was no need by the assessee to mortgage the said property. 19. Assessee appealed before learned CIT(A). In its appeal the assessee claimed that it had not received any money whatsoever and the entire land of the assessee-company has been sold by HDFC in e-auction and sale proceeds of the property through e-auction were adjusted against the loan by HPGPL. As the assessee did not receive any amount and it claimed loss thereon learned CIT(A) examined the issue. He was of the opinion that sale comprised of land belonging to the assessee as well as construction thereon by HPGPL. In these circumstances, learned CIT(A) referred to assessee s facilitation agreement with HPGPL. As per the terms of the facilitation agreement he opined tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er whatsoever that there was any issue of valuation of land. Moreover, nothing stopped the Assessing Officer from obtaining the value of land. Moreover, as it is clear in this case sale was not done by the assessee-company. Entire property was e-auctioned by the lender HPGPL and the entire proceeds were received by the lender against the loan to holding company i.e. HPGPL. It is also correct that disbursal of advance was upon the stage of construction and over a period it came to ₹ 550 crores. The said disbursal was dependent upon stage of construction. By no stretch of imagination it can be said that entire sum was received only against land belonging to the assessee. It is further clear from sale certificate wherein in the description of the property it has been mentioned that the same consists of immovable property being sold by way of sale of residuary right including receivable of HPGPL with step-in obligation in respect to the immovable property. Hence, it is quite evident that the receipt of e-auction by the HDFC against its finance to HPGPL did not belong to the assessee in its entirety as the same was of project as it stood as on that date. It comprised of the con ..... 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