TMI Blog2023 (9) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... less liable to be assessed in the hands of the right person. AO cannot, without issuing a finding as to the person to whom the income in reality belongs, and which can only be on the basis of material in his possession, assess income arising to one in the hands of another, even if agreed to by the latter, or even both. Tax can only be levied under the authority of, and following the due process of, law. In the instant case, on the other hand, we have, even at this stage, no clue as to when, and by whom the Approval was sought, or even if the same was later amended to co-opt others. Why, as against seven entities, with the land ceiling of 15 acres, the total area developed is a mere 9 acres. Here it also needs to be appreciated that while the land ceiling in Malibu Estate Pvt. Ltd. [ 2006 (8) TMI 168 - DELHI HIGH COURT] was with reference to the township area, in the instant case the same is only w.r.t. land holding per se, i.e., without any reference to any project. In fact, 3 of the 6 companies, stated to be a part of AOP, came up much later, i.e., after a time lag of 20 years, i.e., which itself was much after the work began, even as the bulk of the development was done in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter the Act ) dated 18.3.2015 and 29.3.2014 for assessment year (AY) 2007-2008, respectively. The background facts of both the cases being same, these are heard together, and are being disposed of pera common, consolidated order for the sake of convenience. 2. At the outset, it was observed that a delay of 679 days attends the filing of appeal in the case of GHPL. The condonation petition dated 02.9.2022, furnished along with the appeal memo, is accompanied by a sworn affidavit of even date by Sri. B. R. Ajit, it s Managing Director. It is averred therein that the appellant- company was unaware of the impugned order having been passed on 24.8.2020. The period was covered by the Covid-19 pandemic, when the State of Kerala was facing severe crises in terms of lockdowns and dislocation of services. The assessee was also operating with skeletal staff. It was only on 24.8.2022 that the appellant- company was telephonically informed of the impugned order by the office of the concerned Assessing Officer (AO). Immediate steps for redressal were taken by contacting the CA, the ld. counsel before the first appellate authority, and the appeal, engaging another counsel, filed on 02.9.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings. The building of roads; their maintenance; and allowing the right of way on payment of ERF, was all part of the assessee s business activity. There was no transfer of ownership or possession rights by the assessee to the buyers of the land and from whom ERF had been received. Reference toward this was made by the AO to Clause-1 of the Agreement dated 17.4.2001, reproducing it at page 4 of the assessment order. The receipt was a business receipt and income thereon, thus, business income. The assessee s alternative claim of being allowed the cost of improvement as a business deduction also could not be allowed in the absence of any supporting vouchers being furnished by the assessee, who had failed to produce the books of account, mandatory for their maintenance and audit, both under the Act and the Companies Act. The share of ERF (Rs. 2,18,49,600) was, accordingly, assessed as business income. The assessee failing to improve it s case before it, the same was confirmed in appeal, for the same reasons, by the first appellate authority, who, though, allowed it credit for expenditure at 20% of the claimed sum of Rs. 434.35 lacs, reducing the income, assessed as of business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster plan for the island. The approvals were accordingly blocked by Greater Cochin Development Authority (GCDA) in 1981, and permission for development, granting a no objection, on compliance of stringent conditions, allowed only in December, 1984. The bridge connecting the island with the main land could not therefore progress, even as the interest on the loans taken for the purpose mounted. Besides, due to delayed approvals, the demand for land did not materialize. In fact, loans had to be taken to discharge old loans as well as service the interest thereon, causing major crises, with the threat of attachment from the creditors looming large. Distress sales, as to AWHO (Army Welfare Housing Organization) for sale of 426 cents of land in 1991, at Rs. 10,000 per cent, as against the market price / circle rate of Rs. 25,000 per cent, were made. ICDS, which had underwritten the loan from Syndicate Bank, attached the property (except to the extent given to HUDCO) in 1993-1994. That is, the sale of property during this period was made only for survival, and for clearing loan and interest dues . The period post 2005, which may be regarded as the second phase, provided the promoters an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company clearly stated the business as of purchase and development of land, plots, real estate, and other business related to the real estate sector. The transactions were clearly commercial transactions of a business, with real-estate constituting its stock-in-trade. Hence the second appeal. 5. Before us, it was submitted by Sri Gopalakrishnan, the learned counsel for the assessee, that the AO had accepted the cost estimate of development and other costs as furnished by the assessee. The sale amount is, again, undisputed. The only error, however, committed by him, and not rectified by the first appellate authority, is in dividing the aggregate cost (i.e., development and other costs) of Rs. 36,56,89,780, to arrive at the per unit cost, by 896.76 cents, i.e., the total land purchased, instead of 624.533 cents, being the saleable area, i.e., the land available for sale (part of which stands sold during the year), on deducting from the land purchased, that utilized for providing open area, lawns, internal roads, landscapes, loss of land due to litigation and attachment by FIs, etc. This was clearly an error on his part as, without doubt, while cost is incurred with refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 If only this is corrected, for which the matter be remanded back to the file of the AO, it would make the assessment largely in agreement with the facts of the case. Continuing further, apart from the correction aforesaid, the Table also normalizes the cost of land; its development; as well as it s sale value, different for each company, by aggregating the same for the different entities that had come together to execute the project, yielding an aggregate profit of Rs. 72.30 lacs, which could be allocated to different companies in the ratio of the land sold by them. This is being proposed , he would continue, even as the individual companies had filed their separate returns of income, and which had accordingly been subject to assessments, including the impugned assessments, by the Revenue, for more than one reason. The joint land development justifies the uniformity in cost thereof, including interest on loans assumed for financing the project, across different entities. The joint land development makes irrelevant the identity of the monies applied therefor, i.e., with reference to the company which had supplied the capital own or borrowed, for the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,24,69,088 5,80,188 13,03,10,178 ₹ 54,136 1,21,58,910 -- Mr. BR Ajit 37.60 6,67,699 2,51,05,488 6,04,108 2,27,14,465 63,591 23,91,023 -- Capvest Wealth Management Services Pvt. Ltd. 100.50 4,97,512 5,00,00,000 6,47,188 6,50,42,408 -1,49,676 -- 1,50,42,408 Elton Technologies Pvt. Ltd. 48.50 4,51,340 2,18,90,000 7,03,582 3,41,23,746 -2,52,242 -- 1,22,33,746 Jeeva Vacation Resorts Pvt. Ltd. 3.00 15,00,000 45,00,000 5,85,582 17,56,745 9,14,418 27,43,255 -- Total 588.76 6,16,569.93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100.5 12,280.84 12,34,225 -- 1,50,42,408 -- 1,62,76,633 5. Elton Technologies Pvt.Ltd. 48.5 12,280.84 5,95,621 -- 1,22,33,746 -- 1,28,29,367 6 Jeeva Vacation Resorts Pvt.Ltd. 3 12,280.84 36,843 27,43,255 -- 27,06,412 -- Total 588.76 12,208.84 72,30,469.14 3,45,06,623 2,72,76,154 2,91,06,000 2,91,06,000 Net surplus 72,30,469 The assessee s share would thus work to Rs. 21,43,744, which may be accepted as it s income. In the alternative, he would continue, the entire income of Rs. 72,30,469, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities, as roads, water, electricity, besides common infrastructure facilities, seeking approval from the Government of Kerala; in sum, to develop the Island as per it s Master Plan. In fact, the entire project, as also informed by Sri GK during hearing, is the brain child of Sri BRA, an architect of national repute, on whom several accolades and awards stand bestowed upon in his long and illustrious career for unique/creative buildings/structures. The Island was to be the first such, albeit private, property in the country, a mini township so to speak, comprising a gated residential complex, villas, clubhouse, resorts, lawns, etc. spread over the area. The structures may or may not have been planned for being constructed by the group companies, i.e., could be jointly with a Developer, or by person/s purchasing the land for that purpose, viz. clubhouse, is another matter. It may well be that it had been planned to, or otherwise specific projects, i.e., development of land; villa project; bridge work, etc., be undertaken by the individual companies. Why, as it appears, AAPL despite no land, actually undertook to set up a villa project (see para 3 of this order), with there bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be not his income if it is assessable, instead, as a business income? The income, it stands to reason, would, respective of the head under which it is assessable, continue to be of the assessee only. There is, in fact, no claim, while returning capital gains, of the land development being undertaken, to whatever extent, by another/s, or jointly. The same is relevant as it is only the cost actually incurred that could be claimed toward the cost of improvement. Even in case of joint development, inasmuch as costs are shared jointly, and each entitled to sale proceeds of their separate land holdings, arises to them separately. It is only a cost sharing arrangement, whereby each is entitled to the cost borne by it. Income in case of joint development, would arise jointly, in the defined ratio; it being the principal driver of income. This would be irrespective of the head of income under which it is assessable. This is precisely what we meant when it is said that the change of the head of income would not change the person to whom the income arises. Development, where and to the extent made by another, as appears from the charge of ERF, would warrant a charge by another, and could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two sharing the sale proceeds thereof, i.e., a joint venture between these two, is understandable, of which there is though nothing to suggest, nor even a contention, much less evidence. On the contrary, as afore-noted, AAPL stands charged ERF, suggesting, if anything, the entities transacting with each other on an arm s length basis. The 3 new companies were formed much later, while the bulk of the development was in the initial years. As it appears, therefore, the permission for land development for the entire area of 9 acres (see Table A) stands moved by one company as the lead company, in which case, the other companies, which get involved for extraneous or ancillary reasons, would outsource the development work, of which there is though no whisper. This would also be so even if they undertake separate works of development, with a view to bring home their separate functional expertise. In either case, it would lead to the question/issue of who pays whom, and how much, i.e., for the work done by any one, of which all others, or at least some of them, would be beneficiaries? There is though nothing to indicate that. The fund/loan requirement in each case would also be vastl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payee respectively. That apart, all the companies selling land have returned the gain as their income, implying it being sold in one s own right, as under: Table D Sl. No. Name of the company PAN Extent of land purchased (in cents) Extent of land sold (in cents) Surplus from sale of land Income assessed (in Rs.) Income offered for assessment (in Rs.) Easement rights charges Other income disallowances made in the assessment order. Total income assessed 1. Good Homes Pvt. Ltd. AABCG0444L 343 174.56 4,77,70,288 2,05,20,000 -- 6,82,90,288 -- 2. Beaver Estates Pvt. Ltd. AADCB0193M 318 224.6 5,08,26,390 1,59,60,000 -- 6,67,86,390 -- 3. Mr.BR Ajit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., the Promoter Companies, and as expense in the hands of three entities incorporated later (i.e., at Sr.Nos.4, 5 and 6 of Table- D). Clause 1 of the Agreement, reproduced at page 4 of the assessment order in AAPL (ITA No.870/Coch/2022), reads as under: The ownership and management of all common properties and facilities shall continue in the above three entities at least until 95% of all saleable properties are sold out as otherwise development of project as per master plan could not be smoothly conducted. It was further provided that The road shall be used only for transportation of people and to transport goods as permitted by the three companies. If at all the property through which the road passes through is to be sold to an outsider to the parties to this agreement, it shall be done only with prior consent of all the parties to this agreement. Even then no right over the road shall be transferred to any outsider. It shall remain with the Original title holders. The buyer of the land shall have only the using right over the road . (emphasis, ours) As explained during hearing, as afore-noted (para 3), as indeed in the assessment order, the same is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, either purchasing property at the Island or otherwise using common facilities thereat, but only from amongst themselves. The reason is simple. It is the three PCs which would in that case agree to compensate and, thus, stand to be compensated by, each other. There is no question of any charge arising on this count from a third (outsider) person, as obtains, being paid/payable to the PCs by NCs or third parties buying land. Companies, A, B and C, for example, contribute 10%, 20% and 30% (say) of their land to the common pool, the company contributing less (A) shall be liable to compensate the other two for their excess contribution, i.e., 10% and 20%, by B C respectively, in the ratio of their excess contribution, i.e., 1:2. Rather, as we would think, the company/s contributing lower than the average ratio to the common area, which in the instant case works to 12.29% (109.81 cents / 893.76 cents see Table A at para 5), would compensate those having contributed higher than the average ratio. This only would ensure an equitable distribution of the common area load, also fixing a suitable price therefor, which would correspond to the per unit development cost, if not also a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he common pool is neither in the stated ratio and, in fact, includes that by 2 of the 3 NCs as well , as under: Table E Sl. No. Name Total extent of land utilized for common purpose 1. Good Homes Pvt. Ltd. 60.12 2. Beaver Estates Pvt. Ltd. 13.96 3. BR Ajit -- 4. Capvest Wealth Management Services Pvt. Ltd. 34.23 5. Elton Technologies Pvt. Ltd. 1.50 6. Jeeva Vacation Resort Pvt. Ltd. -- Total 109.81 That is, the contribution of land to the common areas (109.81 cents/ Table A), is not by the 3 PCs, as referred to in cl. 1 of the Agreement dated 17/4/2001, and, in fact, involves a different set of companies, including the NCs! The question of ERF being to the 3 PCs in the stated ratio, and as actually allowed, does not arise! Further still, how does ERF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegral part of the purchase/acquisition of any property. There is, accordingly, no question of it being valued separately. As such, even if, assuming so, some land has a better access in view of the project layout, than another, which could well be, the same shall get factored into the value placed on it and, thus, its price, i.e., at which it is transacted, i.e., bought and sold. A buyer being charged separately for the right of way or easement is thus beyond comprehension. Yes, we are conscious that such a right is necessary not only for the buyer, but may also be for any Developer, entitling him access to the subject land for development. But these, and such issues, would only arise in the absence of any cohesion; each company working at cross purposes with another, and which is nobody s case and, rather, inconceivable as the companies are being promoted by the same set of people, with BRA being the central figure behind the project. This explains the concept of consent by the developing entities, and is expected even in case the entities involved were not related. A road, after all, would be built only after laying the underground pipe for water, sewerage, and preferably al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o another, as afore- stated, arises only where one gains or benefits at the expense of the other . (also see para 6.4) 6.4 Next, we may consider the computational issues, i.e., in determining the profits of the two assessee-appellants in appeal before us. Before, however, we set out to do so, we observe three issues which need to be accordingly addressed, clearing the ground as it were. The first and foremost is if the ERF, discussed herein before, charged by the PCs to NCs and, accordingly, included in their income, while claimed as an expense in the case of the latter, is to be included in the computation of profit/loss of the different entities who acquired land at the Island and sold the developed land thereat. Continuing with our discussion at para 6.3 in its respect, we find that the economic rationale spelt out for the ERF, i.e., to compensate one for the land committed to the common area, which could only be between the contributing companies inter se, is neither substantiated nor indeed borne out. The same, as it appears, then, is perhaps a device to either equalize profit, as discussed at para 6.2, or even to save stamp duty that would otherwise be attracted on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land purchased stands subsequently sold by it or is held as stock-in-trade, in which case it would stand to be valued at inclusive thereof. The matter, as apparent, thus needs ample clarification . There having been no deliberation thereon during hearing, with in fact ERF being taken as part of the income statement, both for the payee and payer, the matter would accordingly require being restored back for adjudication afresh. It may well be argued that the same having been returned, and accepted by the Revenue, is not in dispute and, in any case, not an issue arising. Our concern in the matter, despite it being not apparently in dispute, is for the reason that where the same does not represent a valid charge, as is apparently the case, it is only a mechanism for transfer of profit of one concern to the another, which cannot be. Why, Sri.GK himself, despite the assessee-appellant s returning income, which includes loss, based on their operative data, would canvass for a uniform profit across all entities upon ignoring ERF, implying it being a profit equalization charge . That apart, it is well-settled, that it is the correct legal position that is relevant, and not the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sagree more. We have already highlighted inconsistencies across the two assessments, i.e., of AAPL and GHPL, before us, as also internal inconsistencies. We further observe no finding qua the different aspects of the computation by the Revenue authorities, which could only be on the basis of evidence, absence of which marks the assessee s case. Why, the assessee s itself, abandoning it s consistent stand, as indeed it s return of income, pleads for a uniform allocation of profit across different entities. We have already clarified, with reference to trite law, that it is the correct legal position that is relevant. We discuss our observations in the matter of computation, as under: A. Land sold prior to 1996 (89.39 cents) : The reduction of cost of development is at the average cost of it s purchase, and which cannot be, and has necessarily to be on the basis of actual cost of the land sold. Two, unless shown to be wholly and totally undeveloped, would require reduction of proportionate development cost as well. Besides being highly improbable inasmuch as the said time extends upto 1996, with bulk of the land acquisition having been completed in 1983, major works like reclamati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urely liable to be assessed and carried forward, subject of course to the statutory limitation as to time. Further, we are conscious that the cost on the abandoned project may continue to be incurred thereafter and, being contractual, continue to be borne, as by way of interest on loans, i.e., even as the land, or the structure/s thereon, i.e., the underlying asset/s, stands appropriated. The same would firstly require reference to the terms of the loan contract, as indeed of sale, only with reference to which liability, if any, to the creditor, arise. There are in such cases instances where the buyers take over the project, negotiating further loans, or otherwise meeting the balance cost. The cost incurred, to continue, would though be in the nature of a loss and, accordingly, stand to be allowed as business expenditure in the year of accrual, subject of course, to other provisions, as sec. 43B.The same cannot, though, be claimed as part of the cost of land development. C. Interest Cost : A substantial part of the cost of development is comprised of interest cost, i.e., on loans contracted for the purpose of land development. The AO, as apparent from para 4.5-4.11 of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, is to be expensed for the period to which it relates. This explains the dictum of the AS afore-noted. The premise for the inclusion of interest on borrowed capital in the cost of production/development, on the other hand, is that time, to that extent, is necessarily required for production/development, i.e., to bring the subject goods to its current state of location and condition. Clearly, therefore, the prescription for inclusion of interest cost on borrowed capital comes with an important caveat or condition. That is, work, as per schedule, is carried out during the relevant period, representing a cost which, though for the relevant period, is yet essentially and normally consumed for the completion of the work of production/development. Thus, costs relatable to the period of suspension of work, which could be for several reasons, including non-availability of materials or other factor of production, or even funds, would have to be excluded. Interest cost on a stalled project does not add value thereto and, thus, is to be excluded, even as the same, being an incident of business, is liable to be claimed as a business expense for the relevant period. Even as, thus, a time co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period should not exceed the amount of borrowing costs incurred during that period. Commencement of Capitalization 14. The capitalization of borrowing costs as part of the cost of a qualifying asset should commence when all the following conditions are satisfied: (a) expenditure for the acquisition, construction or production of a qualifying asset is being incurred; (b) borrowing costs are being incurred; and (c) activities that are necessary to prepare the asset for its intended use or sale are in progress. Suspension of Capitalization 17. Capitalization of borrowing costs should be suspended during extended periods in which active development is interrupted. Cessation of Capitalization 19. Capitalization of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. 21. When the construction of a qualifying asset is completed in parts and a completed part is capable of being used while construction continues for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. Recognition of Expected Losses 35. When it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately. Para 35 supra endorses our observations at para 6.5(B) above. We may now, given the framework, examine the assessee s claim of interest cost for capitalization, i.e., toward inclusion as cost of the qualifying asset, i.e., real estate being developed as part of it s trade for being, on completion of development, sold. Admittedly, the project got delayed, not by weeks or months, but years, witnessing cessation of work, which in turn entailed litigation costs as well as distress sales to close liabilities, including interest. No wonder, Phase-I continued for 27 years. It is, again, only understandable that stock held, upon completion of work, awaiting a correct time in terms of sale value, for its realization, is, again, only a period (holding) cost and, thus, is to be expensed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, is if it can be included as a part of the project cost inasmuch as, clearly, the sum on which it is charged does not represent a borrowing, but on the cost of borrowing. In our clear opinion, it would qualify as so, where and to the extent it is for the period for which the interest on the principal sum (borrowing) is being capitalized. This is as the same only raises the in-effect interest cost, so that instead of being at 10% p.a. (say), it may amount to 11% p.a. (say), when reckoned on the initial borrowing. Needless to add, if the interest (on borrowing) is itself to be regarded as not representing a normative cost, so as to be capitalized, the question of capitalization of interest thereon does not arise. Weare conscious that there is thus an increase in the effective interest cost which is being loaded to the project cost, while the project is to be capitalized at a capitalization rate. The said rate, as the reading of AS-16 would show, is the average borrowing rate for the different borrowings made for the project. Inasmuch as different loans are assumed at different times, and which may be at varying rates of interest and terms, the actual interest cost, on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cost as not disputed at Rs. 36.57 cr. This is anomalous as the Other Costs had been simultaneously revised downward by the assessee, i.e., from Rs. 22.57 cr. to Rs. 16.71 cr., forming part of Rs. 36.57 cr. and Rs. 38.76 cr. respectively, and which downward revision has been thus ignored by the AO. The question, it needs to be appreciated, is not the acceptance of a figure, or of it being higher or lower, but one which is correct and substantiated. We find no justification for the revision by the assessee nor, consequently, any discussion by the AO. An assessment under the Act is not in the nature of a lis between two parties, the AO and the assessee (see, inter alia, Gadgil (S.S.) v. Lal Co. [1964] 53 ITR 231(SC))), but a proceeding for determining the correct income chargeable to tax, i.e., assessable under the Act, a public law, and which is also the purport of the appellate proceedings (NTPC Ltd. v. CIT [1998] 229 ITR 383 (SC)). In fact, even ignoring the assessee s first claim of Rs. 48.35 cr., i.e., vide letter dated 04.12.2013, the revised figures, i.e., per letters dated 31/1/2014 and 25/3/2014, exhibit wide variations, which need to be validated. The same is also impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his working, on quantum, is also inconsistent with. The AO shall examine these matters in the set aside proceedings. It is the inherent defect in the claims, we are afraid, that impels us, as the final fact finding authority, to consider them from the stand-point of a valid and reasonable assessment. A project, to cite an example, which may ordinarily take 3-4 (say), or perhaps even 5, years, drags on, for several reasons, for 27 years. Interest, as a part of the project cost is claimed for the entire period! Sale commission, to cite another, is claimed without identifying the payee or the sale to which it relates. It is this overarching concern for a reasonable assessment that leads us to examine the claim of ERF, even as the same stands duly returned and assessed; in fact been allowed as an expense in assessment of the payer, all of which though, without any finding! In Sum 7. The several issues attending the appeals have been discussed, highlighting the relevance and the need for being addressed in arriving at the correct income chargeable to tax for the current year (AY 2007-08). The claims made, i.e., qua capital gains; ERF; AOP, are not sustainable in law; rather, mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers. Why, as against seven entities, with the land ceiling of 15 acres, the total area developed is a mere 9 acres. Here it also needs to be appreciated that while the land ceiling in Malibu Estate Pvt. Ltd. (supra) was with reference to the township area, in the instant case the same is only w.r.t. land holding per se, i.e., without any reference to any project. In fact, 3 of the 6 companies, stated to be a part of AOP, came up much later, i.e., after a time lag of 20 years, i.e., which itself was much after the work began, even as the bulk of the development was done in the initial years. If indeed a joint venture, different entities with varied complementary capabilities, including financial, or even strengths supplementing each other, would have come together to execute the project, defining their functional roles, agreeing to share the resultant profit in a predefined ratio, of which there is no contention, much less evidence. Land ownership, or extent thereof, cannot be, as suggested, a basis for division of profits in such a case, which has necessarily to be on the basis of the pooling of efforts, including resources. Yes, land could be thrown in the common hotchpotch, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income, as indeed we find it to be.Further still, it is only in case of the facts being undisputed, otherwise admitted, could the legal issue be raised for the first time. That apart, several inconsistencies in its case observed put pays the assessee's claim of an AOP. The issue of letters of consent (dated15.3.2023), filed with the Tribunal on 16.03.2023, seeking the assessment of income in the hands of the AOP consisting of all the seven entities, is not sustainable in law in the facts and circumstances of the case. A case, perhaps, could have been made out for an AOP comprising the two promoter companies, i.e., BEPL and GHPL, and BRA, while we observe no such claim at any stage, with each rather filing it's return, which was not revised, in individual capacity. There is, further, no sharing of the profits/losses, as was found in Malibu Estate (supra). The assessee's claim qua ERF, which militates against the concept of AOP, is equally fraught. Its economic rationale, which only would justify it, remains elusive even after examining it from all angles. It speaks of consent, and not charge, much less of how it is arrived at. It is not, as presumed by us, a deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he further question of any contribution of land by it does not arise and, two, in a sum - worked out, at the same ratio, much higher than that for BRA (proprietor Ajit Associates), who substitutes it. There are other anomalies as well. Our concern, however, for this, undisputed charge (ERF), duly returned and assessed - which explains our stating it as not in dispute, either between the parties to the agreement (payer and payee), or even between the parties before us, is not for the reason that the assessee(s) now wishes to retract therefrom, but if it does represent a valid charge, which we find as so qua the variable land contribution, in which case it would be by way of an inter se adjustment between the relevant companies (Table E), and would stand to be by way of one-time charge, constituting an expense and income for the payer and payee (enterprise) respectively. In fact, in either case, i.e., arising as a cost or as a credit, it would stand to be appropriated toward the cost of land. In fact, adjustment to this effect would also prevent the distortion of the operating statement of the relevant companies and, rather, it is the not making of the adjustment in its respect that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern of distortion of profits across different companies which, in fact, is accentuated by the charge of ERF. All other inter-company adjustments, including ERF, are to be ignored, including the inter-company purchases/sales of land, be it developed, under- developed or undeveloped. Sure, the title to the buyer of the land flows from the seller thereof. We are not for a moment doubting the legality of the transaction. But only that the inter-company transactions remain wholly unexplained, nor has any profit prior to AY 2007-2008 been returned thereon, even as there have been, as pointed out by the Revenue authorities, numerous transactions. Besides, it shall present computational issue as the land may be fully or partly developed, necessitating allocation of development cost between the transacting companies, unfeasible in the absence of any record; there being no claim in its respect. In fact, given a profile of the area contributed, categorizing it as A, B and C (say) in terms of locational advantage of the balance land (other than common), weights could be assigned thereto, and inter-company adjustment made, or directed to be, toward the second distortion for which ERF was r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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