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TMI Blog2019 (1) TMI 1953X X X X Extracts X X X X X X X X Extracts X X X X ..... hd/2016 are Revenue's appeal for the Asstt.Year 2002-03 and 2012-13 against order of the ld.CIT(A)-1 dated 30.8.2011 and order of the ld.CIT(A)-9 dated 20.6.2016. 2. ITA Nos.339, 340 and 342/Ahd/2017 are filed by the assessee against orders of the ld.CIT(A)-9, Ahmedabad of even dated i.e. 26-12-2016 for the Asstt.Years 2001-02, 2002-03 and 2004-05. In these appeals for the Asstt.Years, issues raised are common i.e.(a) the ld.CIT(A) has erred in confirming estimation of profit on WIP at 8% of the various projects. 3. In the Asstt.Year 2009-10, the Revenue has raised identical issues viz. (a) the ld.CIT(A) has erred in deleting addition of Rs. 4,84,35,702/- which was added by the AO on account of income from Kalhar Project ; (b) The ld.CIT(A) has erred in deleting the addition of Rs. 4,34,90,414/- which was added by the AO by estimating profit at Rs. 8% of WIP of various projects. Similar common issue is raised by the assessee in ITA Nos.339, 340 and 342/Ahd/2017, and by the Revenue in ITA No.2183/Ahd/2016. First we take appeals of the Revenue against first round of CIT(A)'s order. 4. There are only two issues agitated by the Revenue in the Asstt.Year 2008-09; they are (a) the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bunglows and other projects should be treated as business income of our company. It is submitted that said proposal could have been said to have lawful force if the projects were completed and all the units -were handed over to the members and all other legal formalities -would have concluded without any farther obligation on part of either company or the owner of the projects. It is asserted that till completion of all the formalities and till construction of the units.and till handing over of the units the collections are always in nature of liability have no characteristics of income. It is most respectfully submitted that under provisions of the Income tax Act, 1961 only income chargeable to tax can be considered as part and parcel of total income. It is submitted that any collection or any amount received by an assessee which does not have characteristic of an income cannot be considered as income in computation of the total income. 2.2 We have to state that our company has collected the booking amounts, from the various members in respect of the various projects owned by the other entities and such collection in fact are towards a liability on part of our company and are em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a difference between the amounts collected and the amount expended on the project and in fact substantially represents amounts to be expended on construction of the bunglows. It may be appreciated that there may be an instance where the expenditure incurred by our company may be more than the amount collected. Such excess expenditure can never be considered as our expenditure deductible in computation of the total income. Such contingency may not be repetitive -where the scheme is for development and construction and development of apartments. It is submitted that the collection is in nature of liability and therefore the question of any income does not arise. 2.3. It may be appreciated that as on 31st March, 2008 the excess of expenditure towards credit/collection in respect of Kollanade Central Project was Rs. 40.69 Crores. It is submitted that the said project -was constructed and developed by our company. However, unfortunately our company could not realize the targeted collection on account of recessionary trend in commercial premises and therefore Rs. 40.69 Crores have been reflected as excess of expenditure over the collection in respect of Kollanade Project. It may be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for expenses, names and complete details of creditors for goods, names and complete details for creditors for labour which were also placed on the records of the assessing officer. It is contended that each and every individual credit entry has been accepted by the assessing officer as genuine and duly supported by documentary evidences acceptable in the eyes, of law. It is therefore asserted that since each and every individual entry has been accepted as a genuine liability the balance of Rs. 10,54,50,250/-is also a genuine liability on the part of the appellant company. 4.7 It is submitted by the appellant company that on completion of the construction and on allotment of bunglows, the booking amount and the cost of the construction are being transferred to the respective societies. The appellant has provided a statement showing the details of Kalhar Booking as at 31st March, 2007, 31st March, 2008, 31st March, 2009 and 31st March, 2010. It is observed that Kalhar booking amount which was Rs. 21,87,62,854/- as on 31st March, 2007 had stood substantially reduced to 'Rs. 7,30,81,763/- as on 31st March, 2008 and amount also stands reduced thereafter. The reduction in boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een brought to our notice. The assessee has demonstrated that it was working only as a developer and alleged collection over expenditure cannot be treated as its business income, rather, it was a liability in the balance sheet. Therefore, we are of the view that the ld.CIT(A) has rightly deleted this addition and, no interference is called for. Similarly, in A.Y.2009-10 and addition of Rs. 4,84,35,702/- was made on account of excess of collection over expenses. It was deleted by CIT(A). We do not find any error in the order of the ld.CIT(A). Thus, this ground is rejected in both years. 10. As far estimation of profit at 8% of the WIP in both these years is concerned, we have gone through the record with the assistance of the ld.representatives. In the Asstt.Year 2008-09, WIP of Rs. 45,98,27,752/- was noticed by the AO. He estimated 8% profit on such WIP and made addition of Rs. 3,67,86,220/-. On similarly analogy, he noticed WIP of Rs. 54,36,30,173/- in the Asstt.Year 2009-10 and estimated profit at Rs. 4.34 crores. These additions have been deleted by the ld.CIT(A). Similar addition was made in the case of the assessment in the Asstt.Year 1997-98 which was deleted by the ld.CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that submissions made by the assessee in the Asstt.Year 2008-09 have been considered by the AO partly. The ld.AO did not appreciate the submission in toto. It was emphasized that the assessee company had made collection from various members for and on behalf of the respective societies. The collections were always in the nature of liability on the part of the assessee, as the collection was made in the capacity of a trustee for and on behalf of the society. The collections have been utilized towards the cost of construction and cost of land. The assesseecompany has enclosed copies of accounts of various members referred to by the AO, before the ld.CIT(A) and submitted that collections have been appropriated in favour of the society towards cost of land and cost of construction. The ld.First Appellate Authority has appreciated these contentions of the assessee and deleted the addition. The finding recorded by the ld.CIT(A) in this regard reads as under: "11. The AO has held that the sum of Rs. 1,97,07,844/- which is received from the members after the memorandum of satisfaction was signed with them is the income of the appellant. The AO has relied on the contention of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of post dated cheques. 11.3 In view of the above, it is clear that the amount of Rs. 1,97,07,844/- was part of the total consideration to be received from these persons against units allotted to them. The total consideration received from these persons is exactly the same as was to be received from them. Thus the contention of the AO that this constitutes income of the appellant is not correct. In fact, the amounts have the same character as money received from other person to whom units are allotted and with whom no memorandum of satisfaction has been signed as yet. These amounts also constitute liability of the appellant towards the owner of the project to whom the entire receipts of units sold have to be transferred. As already discussed the income of the appellant is only development fees and construction fees. In view of the above the addition made by the AO is not justified." 15. With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the record would indicate that this issue is also a by-product of other two issues. Efforts at the end of the AO are to somehow to make the assessee the owner of the project and asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case are that search under section 132 of the Income Tax Act was carried out on 8.12.2009 at 44, Yogeshwanagar, Opp: Kalindi Bungalow, Thaltej, Ahmedabad. During the course of search, a diary was found which was inventorised as Annexure AS-13. It revealed to the AO that Shri Arvindbhai Govindbhai Dalwadi had purchased a plot bearing No.151, whose details have been recorded in this diary. Revenue formed an opinion that this plot was purchased from Navratna Organizers & Developers P.Ltd. Diary disclosed cash payment of Rs. 1,09,80,000/-, and therefore, reasons were recorded for reopening of the assessment of the assessee. The reasons are reproduced in the assessment order in para 3.1. 19. As far as reopening of the assessment is concerned, we have heard both parties and we do not find any merit in this ground of appeal in both years. The ld.AO harboured a belief that income has escaped assessment in the case of assessee on the basis of material found during the course of search at the premises of vendee who alleged to have purchased the plot from the assessee, and disclosed cash payment over and above one stated in the sale deed. Revenue was possessing statement of vendee reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tyavatiben Jaigopal, and Shri Nandlal Jaigopal has been shown as vendor no.3. Name of the assessee is being mentioned as an organizer and developer. The sale deed thereafter disclosed that vendors have three pieces of land "A", "B" and "C" aggregating to 2,54,385 sq.meters. Its permission was obtained for development of this land. The details have been mentioned in clause-7 of the sale deed. The total area, which was available to the vendor for use was 1,98,283 sq.meters. Out of this, vendors have carved out 157 plots to be marketed by way of sale. This will consume an area of 1,74,655 sq.meters. Eight plots were used for common open lands, common service area and this will consume an area of 10,429.84 sq.meters. Thereafter, 13199 sq.meters area was referred for internal sanctioned roads. Thus, out of these 157 plots, plots no.151 were sold by these three vendors to Shri Arvindbhai Dalwadi. At this stage, two conditions of the sale deed deserve to be noted, which read as under: AND WHEREAS the Vendor No.3, as recommended by the Developer, and transaction finalized by Developer and Purchaser, have agreed to execute necessary Conveyance for the said Plot in favour of the Purchaser, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that crossexamination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them." 24. Taking into consideration all these facts and circumstances, we are of the view that addition made in the hands of assessee in both the years are not sustainable. They are deleted. 25. In the result, both the appeals of the Revenue are dismissed; whereas the appeals of the assessee are partly allowed. 26. Now we take three appeals of the assessee i.e. ITA Nos.339, 340 and 342/Ahd/2017. 27. In these three appeals, the first common ground is that the ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2,93,430/- which was added by the AO with aid of section 14A of the Income Tax Act. 34. Brief facts of the case are that the assessee has received exempt income amounting to Rs. 9,13,205/-. The AO has confronted the assessee to show reason as to why expenditure attributable to earning of such exempt income should not be disallowed under section 14A of the Income Tax Act. After hearing the assessee, the ld.AO has worked out disallowance with help of Rule 8D at Rs. 2,93,430/-. On appeal, the ld.CIT(A) has deleted disallowance by holding that investment made by the assessee as on 31.3.2013 was of Rs. 2,74,32,264/- whereas it has reserves and surplus of more than Rs. 21 crores. The assessee has share capital, reserves and surplus as on 31.3.2011 at Rs. 48 crores. Considering the investment of Rs. 2.73 crores only, the ld.CIT(A) has deleted the disallowance worked out by the AO. 35. With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the assessment order would indicate that the AO has worked out interest expenditure at Rs. 1,56,494/-. No doubt, this expenditure cannot be worked out, once the assessee has demonstrated the avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regrouping / reclassification made in respect of balance-sheet of A.Ys.2002-03 and 2003-04. The appellant has furnished the following reconciliation. BALANCE SHEET AS ON 31.03.2002 1. Unsecured loan (Cr.) 96,82,506 2. Booking (Cr.)33,53,41,540 3. Contribution (Cr.) 70,47,495 4. - do -- (Dr.) 95,000 A (Cr.)35,19,76,541 5. Loans and Advances (Dr.) (Dr.) 2,66,16,091 (Dr.)10,53,95,420 B (Dr.)33,20,11,511 6. Project Cost (Dr.) C NET (Cr.) 1,99,65,030 Balance Sheet as on 31.03.2003 Regrouped balance of unsecured loans as per balance sheet (balance as on 31.03.2002) (NET)______ (Cr.)1,32,63,421- Reduction in CR Difference D (Cr.)67,01,609 Sundry creditors for goods as on 31.3.2002 (Cr.)1,58,76,642 Sundry creditors for goods as on 31.03.2002 as per balance sheet for 31.03.2003 (Cr.) Nil Reduction in CR Difference E (Cr.)1,58,76,642 Sundry creditors for expenses as on 31.03.2002 (Cr.)7,59,600 Sundry Creditors for expenses as on 31.03.2002 as per Balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile giving effect to this appellate order, reverify as to whether the appellant has merely carried out regrouping / reclassification of certain liabilities and whether such an exercise has given rise to any income due to cessation of any liabilities. The Assessing Officer is directed to make addition only if any cessation of the liabilities has taken place. The Assessing Officer is further directed to pass the speaking order on this point." 41. The ld.AO has passed an order giving effect to the order of the ld.CIT(A) dated 13.7.2010. Again AO did not verify the details and made addition. The order of the AO reads as under: ORDER GIVING EFFECT TO THE ORDER OF THE CIT(A)s ORDER : In view of the Ld.CIT(A)-I, Ahmedabad's order No.CIT(A)-I/CC-l(l)/256/2008-09 dtd.23/3/2010, the total income of the assessee company is computed as under: Total income as per order u/s.153A(l)(b) rws 143(3) of the I.T. Act dtd.31/12/2008 Rs. 3,48,06,040/- Less: Addition deleted by the Ld.CIT(A) (1) Business income Rs. 404140/- (2) Unexplained cash credit Rs. 225000/- (3) Unexplained liability Rs. 5817422/- Rs. 64,46,562/- Revised total income Rs. 2,83,59,478/- i.e. Rs. 2,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regate balances of liabilities have been reduced. Each and every reduction under liability is matched with the reduction in the assets merely on account of regrouping and therefore the question of any benefit does not arise. 6.4 The appellant has also provided closing balance in respect of each and every party, as on 31st March, "2002/1st April, 2002 and" 31st March, 2003. and it is noticed-that the closing balances have been carried forward on 1sl April, 2002 without any change in figures. The company on reconsideration of the relevant facts merely regrouped and reclassified the accounts. Amounts collected by way of booking from members were reflected as unsecured loans as on 31st March, 2002 were regrouped and reclassified as contribution from members as on 1st April, 2002 and was shown under the head project cost. On account of this exercise of regrouping there was reduction in aggregate of unsecured loans on liability side and reduction in project cost on asset aside. It is also observed that certain accounts reflected as unsecured loans which in fact represented creditors for expenses were regrouped as sundry creditors from the unsecured loans and thereby reducing balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was requested to discharge its onus. All these details were already submitted to the AO during the appellate hearing also, when remand report was called for. The difficulty is that the AO does not want to apply his mind and does not want to carry out the exercise directed by the higher authority. He on lame excuse of assessee failing to give supporting evidence again made addition. The ld.CIT(A) again verified it and deleted. Before us, nothing has been produced by the AO as to how reconciliation, regrouping and reclassification of the liabilities in the accounts are wrong. No report from the AO has been called for by the CIT(Admn.) who authorizes for filing of appeal. Even before us, the ld.DR unable to demonstrate how the liability has ceased and this addition deserves to be made. Taking into consideration the details submitted by the assessee, discussion made by the ld.CIT(A) in the quantum order i.e. dated 23.3.2010 and re-appreciated again by the ld.CIT(A) in the impugned order, we do not find any merit in this appeal. It is dismissed. 44. In the result, appeals are disposed of as under: i) ITA No.2634/Ahd/2011, 1875/Ahd/2013 and IT(SS) A. No.577/Ahd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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