ACIT - 12(3), MUMBAI v. M/s. A.G. DEVELOPERS, MUMBAI

ITA 828/MUM/2008 | 2004-2005
Pronouncement Date: 29-10-2010 | Result: Partly Allowed

Appeal Details

RSA Number 82819914 RSA 2008
Assessee PAN AAAFA3958M
Bench Mumbai
Appeal Number ITA 828/MUM/2008
Duration Of Justice 2 year(s) 8 month(s) 23 day(s)
Appellant ACIT - 12(3), MUMBAI
Respondent M/s. A.G. DEVELOPERS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-10-2010
Date Of Final Hearing 23-04-2010
Next Hearing Date 23-04-2010
Assessment Year 2004-2005
Appeal Filed On 06-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI J.SUDHAKAR REDDY (A.M.) AND SHRI V.D. R AO (J.M.) ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 A.C.I.T.12(3) R.NO.121 AAYAKAR BHAVAN M.K. RD. MUMBAI 400 020. VS. A.G. DEVELOPERS 115 MAKER CHAMBERS III NARIMAN POINT MUMBAI 400 021. PAN : AAAFA3958M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.N. DEVDASAN (DR) RESPONDENT BY : SHRI JITENDRA JAIN (AR) O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE LEARNED CIT (A)-XII MUMBAI DATED 15.11.2007 FOR TH E ASSESSMENT YEAR 2004-2005. 2. FACTS IN BRIEF: THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL COMPLEXES. THE ISSUE S THAT ARISES FOR OUR CONSIDERATION IN THIS APPEAL ARE A) DISALLOWANCE O F ` .6 00 000/- BEING DEPUTATION/COMPENSATION CHARGES PAID BY THE ASSESSE E TO M/S. ASHISH ESTATES & PROPERTIES PVT. LTD. WHICH IS DELETED BY THE CIT(A) IN THE APPEAL B) DISALLOWANCE OF AN ADDITION OF ` .29 07 000/- BEING PROFITS ARISING OUT OF SALE OF FLATS BY M/S. GIRDHARILAL SHAMLAL (HUF) WHI CH BOOKED THREE FLATS IN THE ASSESSEES PROJECT. THE REVENUE IS AGGRIEVED WITH THE DELETION OF BOTH THESE ADDITIONS BY THE LEARNED CIT(A) AND HAS FILED THESE APPEALS. 3. WE HAVE HEARD MR. D.N. DEVDASAN THE LEARNED DR AND MR. JITENDRA JAIN THE LEARNED COUNSEL OF THE ASSESSEE. ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 2 4. ON THE CAREFUL CONSIDERATION OF THE FACTS AND CI RCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE PAPER ON RECORD AND TH E ORDERS OF THE AUTHORITY BELOW AS WELL AS CASE LAW CITED WE HOLD AS FOLLOWS. 5. ON THE FIRST ISSUE OF DISALLOWANCE OF ` .6 00 000/- FROM OUT OF THE PAYMENT OF ` .30 00 000/- MADE BY THE ASSESSEE TO M/S. ASHISH ES TATES & PROPERTIES PVT. LTD. WHICH IS A PARTNER OF THE ASS ESSEES FIRM WE FIND THAT THE ASSESSING OFFICER HAS ALLOWED THE CLAIM TO THE EXTENT OF ` .24 00 000/-. THE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN DOU BTED BY THE ASSESSING OFFICER. THE FACT IS THAT THE ASSESSEE HAS NO INFR ASTRUCTURE OF HIS OWN AND IT HAS USED THE STAFF FACILITIES SUCH AS ELECTRICITY COMPUTERS TELEPHONE ETC. ALONG WITH THE PREMISES SANGAM BELONGING TO M/S. ASHISH ESTATES & PROPERTIES PVT. LTD. TAX DEDUCTION AT SOURCE HAS BEEN MADE ON THE AMOUNT OF ` .30 00 000/- AND M/S. ASHISH ESTATES & PROPERTIES P VT. LTD. HAS DECLARED THE SAME AS INCOME. 6. THE ASSESSING OFFICER HAS NOT INVOKED SECTION 40 A(2)(B) OF THE ACT. UNDER THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINION THAT THE FIRST APPELLATE AUTHORITY WAS RIGHT IN DELETING THE DISAL LOWANCE OF ` .6 00 000/-. THE ASSESSING OFFICER HAS NOT DEMONSTRATED THAT THE RE IS EXCESSIVE PAYMENT IN THIS CASE. IN THE RESULT GROUND NO.1 OF THE RE VENUE IS DISMISSED. 7. COMING TO GROUND NO.2 THE FACTS ARE BROUGHT ON RECORD IN PARA 2.1 AND 2.2 OF CIT(A) ORDER AT PAGE NO.3 AND 4 WHICH A RE EXTRACTED FOR REFERENCE 2.1 THE ASSESSING OFFICER OBSERVED THAT M/S. GIRDH ARILAL SHAMLAL VAID (HUF) HAD BOOKED 3 FLATS VALUED AT ` .51 84 000/- IN THE ASSESSEES PROJECT KNOWN AS SANGAM. THES E WERE BOOKED IN THE YEAR 2003-04 AND THE ALLOTMENT LETTER DATED 12.05.2003 WAS GIVEN TO THEM THE HUF FOR THEIR RIGH TS IN THE SAID FLATS. THE HUF PAID ` .30 00 000/- BY CHEQUE FOR BOOKING THE SAID FLATS. HOWEVER THE CONVEYANCE DEED WAS N OT EXECUTED WITH THE HUF. IN THE MEANTIME M/S. GIRDH ARILAL SHYAMLAL VAID (HUF) FOUND BUYERS FOR THE ABOVE PROP ERTIES AND THE DEALS WERE FINALIZED AT ` .80 91 000/-. SINCE A FORMAL CONVEYANCE HAD NOT BEEN EXECUTED BETWEEN THE ASSESS EE AND THE HUF AS THE FLATS WERE NOT READY THE HUF HAD TO APPROACH THE ASSESSEE FOR CONVEYING THESE FLATS TO THE NEW F OUND FINAL ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 3 PURCHASERS. ACCORDINGLY ALTHOUGH THE ASSESSEE SH OULD HAVE BEEN ONLY A CONFIRMING PARTY TO THIS TRANSACTION S INCE A CONVEYANCE WAS NOT EXECUTED WITH THE HUF AS IN MIG HT HAVE LED TO THE PAYMENT OF THE STAMP DUTY TWICE IT HAD TO BE THE ASSESSEE WHO HAD TO EXECUTE THE AGREEMENTS WITH THE FINAL PURCHASERS. THE SALE CONSIDERATION OF ` .80 91 000/- WAS RECEIVED FROM THE PURCHASERS BY THE ASSESSEE AND TH E PROFIT OF ` .29 07 000/- WAS PAID TO GIRDHARILAL SHAMLAL (HUF). 2.2 THE ASSESSING OFFICER NOTED THAT THE SAID TRANS ACTION IS A COLOURABLE DEVICE WHICH HAS BEEN ENTERED INTO MERELY TO REDUCE THE ASSESSEE PROFITS FOR THE REASON THAT GIR IDHARILAL SHAMLAL (HUF) IS A SISTER CONCERN OF THE ASSESSEE. THE ASSESSEES NATURE OF BUSINESS IS TO CONSTRUCT THE B UILDING AND SELL THE SAME ON PROFIT. IN THIS CASE THE PROFIT H AS NOT BEEN SHARED AND EVEN GIRDHARLAL SHAMLAL (HUF) HAS ALSO N OT PAID ANY TAXES ON THE PROFIT DERIVED BY THEM AS THE SAME HAS BEEN SET OFF AGAINST THE CARRIED FORWARD CAPITAL LOSS. 8. THE ASSESSING OFFICER HAS TREATED THE TRANSACTIO N AS A COLOURABLE DEVICE AND HELD THAT PROFITS EARNED ON THE ULTIMATE SALE OF FLAT BELONG TO THAT OF THE FIRM AND NOT TO GIRDHARILAL SHAMLAL (HU F). THE FIRST APPELLATE AUTHORITY DELETED THE SAID ADDITION. AGGRIEVED WIT H SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL HERE BEFORE US. 9. THE LEARNED DR MR. D.N. DEVDASAN VEHEMENTLY CO NTENDED THAT THIS IS A COLOURABLE DEVICE AS THE ASSESSEE HAS BOOKED F LATS IN 12.05.2003 @1600 PER SQ.FT. BY PAYING ONLY ` .30 00 000/- OUT OF TOTAL SALE CONSIDERATION OF ` 51 84 000/- AND SOLD THE SAME ON 15.10.2003 @ 2450 PER SQ.FT. FOR FLAT NO.103 AND @ ` .2525/- FOR THE OTHER TWO FLATS. HE SUBMITTED THA T THE PROFIT IS THAT OF THE FIRM ONLY AND TRANSACTION BEING WITH IN THE GROUP IT WAS DEVICE FOR REDUCTION IN TAXATION. HE TOOK THIS BENCH TO THE ORDER OF THE ASSESSING OFFICER AND SUPPORTED THE SAME. HE POINTED OUT T HAT EXCEPT CLAIMING SALE OF ` .30 00 000/- FROM M/S. GIRDHARILAL SHAMLAL (HUF) T HE ASSESSEE HAS NOT SOLD FLAT TO ANY OTHER PERSONS AT THE SAME RATE AND ON THE SAME TERMS AND CONDITIONS. HE SUBMITTED THAT THIS IS A BLATENT C ASE OF DIVERSION OF PROFIT AND CIT(A) WAS WRONG IN DELETING THE PROFITS. ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 4 10. THE LEARNED COUNSEL OF THE ASSESSEE MR. JITEND RA JAIN ON THE OTHER HAND OPPOSE THE CONTENTIONS AND SUBMITTED THAT THE FACT THAT THE ASSESSEE HAD RECEIVED ` .30 00 000/- FROM M/S. GIRDHARILAL SHAMLAL (HUF) FO R BOOKING 3 FLATS AT A PARTICULAR RATE ON 12.05.2003 IS NOT D ISPUTE. HE FURTHER SUBMITTED THAT THE FACT THAT THESE VERY FLAT WAS SO LD AT A HIGHER RATE ON 15.10.2003 IS ALSO NOT IN DISPUTE. HE DRAW THE AT TENTION OF THE BENCH TO THE RETURN OF INCOME AND THE STATEMENT OF ACCOUNTS IN THE CASE OF GIRDHARLAL SHAMLAL (HUF) AND POINTED OUT THAT SIMILAR INVESTME NT WAS MADE BY THE HUF FOR PURCHASE OF FLATS IN TRIVENI(5 FLATS) AND I N OTHER PROJECTS ETC. HE SUBMITTED THAT INVESTMENTS WERE ALSO MADE IN PAINTI NG AND THUS IT IS NOT STRANGE FOR THE HUF TO MAKE AN INVESTMENT IN THE FL ATS OF ONE OF ITS ASSOCIATE CONCERN. HE FURTHER SUBMITTED THAT THE MONEY OF ` . 30 00 000/- WAS THAT OF THE HUF AND IT WAS GIVE AS SALE CONSIDERATIONS T O THE ASSESSEES FIRM AND TO SAY THAT NO COMPPENSATION WAS DUE ON IT IS NOT PROPER. HE RELIED ON THE ORDER OF THE FIRST APPELLATE AUTHORITY AND SUPPORTE D THE SAME. ALTERNATIVELY HE SUBMITTED THAT ASSESSEE HAS RECEIVED ` .30 00 000/- FROM THE HUF IT SHOULD NOT BE TREATED AS INCOME OF THE FIRM AS THE CASE OF THE REVENUE IS THAT THIS IS A COLOURABLE DEVICE. ALTERNATIVELY H E SUBMITS THAT IF THIS ` .30 00 000/- IS TREATED AS INCOME OF THE FIRM THEN THE RE-PAYMENT SHOULD BE TREATED AS EXPENDITURE OF THE FIRM. 11. RIVAL CONTENTIONS HEARD. THE FIRST APPELLATE AUTHORITY IN PARA 2.5 AND 2.6 HELD AS FOLLOWS: THE UNDERSIGNED HAS PERUSED THROUGH THE RIVAL CONT ENTIONS. IT IS NOTED THAT THE SAID GIRDHARLAL SHAMLAL (HUF) HAS ACTUALLY MADE THREE PAYMENTS OF ` .10 00 000/- EACH ON 12.05.2003 FOR BOOKING 3 FLATS I.E. A-103 A-401 AND A-601 ADMEASU RING 1200 SQ.FT. 1020 SQ.FT. AND 1020 SQ.FT. RESPECTIVELY. ON PAYING THE SAID AMOUNTS THE ASSESSEE ISSUED AN ALLOTMENT LET TER DATED 12.05.2003 TO THEM CONFIRMING THAT THE SAID FLATS H AVE BEEN ALLOTTED TO THEM FOR VALUABLE CONSIDERATION RECEIVE D FROM THEM. IT IS KNOWN THAT IN ORDER TO THEM FOR VALUABLE CONS IDERATION RECEIVED FROM THEM. IT IS KNOWN THAT IN ORDER TO MITIGATE THE INCIDENCE OF STAMP DUTY/REGISTRATION CHARGES BOOKI NG OF FLATS IS NORMALLY MADE ON THE BASIS OF ALLOTMENT LETTERS WHICH ARE SUBSEQUENTLY REGULARIZED BY THE CONVEYANCE DOCUMENT WHEN THE POSSESSION IS GRANTED TO THE ALLOTTEE. IT IS A LSO A FACT THAT THERE ARE INVESTORS IN PROPERTIES WHO MAY NOT BE IN TERESTED IN TAKING POSSESSION AND NORMALLY DISPOSE OFF THE SAID FLATS FOR PROFIT. IN THE ABOVE CASE GIRDHARILAL SHAMLAL (HU F) IS ONE SUCH ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 5 INVESTOR IN THE FLATS WHOSE MAIN PURPOSE WAS TO TA KE ADVANTAGE OF THE INCREASE IN THE REAL ESTATE PRICES AND NOT TO USE THE PROPERTIES FOR ITS OWN PURPOSES. NORMALLY SUCH TRANSACTIONS ARE TRIPARTITE AGREEMENTS BETWEEN THE BUYER THE SELLER (GIRDHARLAL SHAMLAL (HUF)) AND THE DEVELOPER (ASSESSEE). THE CONSIDERATION IN SUCH CASES IS PAID DIRECTLY BY THE BUYER TO THE SELLER WITH THE DEVELOPER BEING A CONFIRMING P ARTY. THE DEVELOPER NORMALLY WOULD CHARGE A SMALL FEE FRO BEI NG THE CONFIRMING PARTY. IN COMMERCIAL TERMS THE ENTIRE PROFIT ARISING FROM THE TRANSACTION WOULD BELONG TO THE SE LLER I.E. IN THIS CASE GIRDHARILAL SHAMLAL (HUF) AND THE ENTIRE CONSIDERATION WOULD BE PAID TO THE SELLER. HOWEVER WHERE ALLOTMENT LETTERS ARE ISSUED WITHOUT A SALE DOCUM ENT THE FINAL DOCUMENT CANNOT BE EXECUTED BY THE SELLER AND THERE FORE THE TRANSACTION IS ENTERED INTO BETWEEN THE DEVELOPER A ND THE NEW BUYER WITH THE ALLOTTEE BEING THE CONFIRMING PARTY. HERE AGAIN THE ENTIRE CONSIDERATION IS PASSED ON TO THE ALLOTT EE OF THE FLATS AND THE DEVELOPER RETAINS HIS FEE/CHARGES OF GRANT ING THE NOC. IN THE PRESENT CASE IT IS ESTABLISHED THAT GIRDHARILAL SHAMLAL (HUF) HAS ACTUALLY PAID AMOUNTS AGGREGATING TO ` .30 00 000/- BY CHEQUE. IN CONSIDERATION THEREOF THE ABOVE FLATS HAVE BEEN ALLOTTED TO THEM. HAVING ISSUED TH IS ALLOTMENT LETTER THE DEVELOPER I.E. THE ASSESSEE WOULD NOW N OT BE ABLE TO DEAL OR SELL THESE FLATS WITHOUT THE PERMISSION OF GIRDHARILAL SHAMLAL (HUF). THIS ALLOTMENT LETTER ENTITLED GIR DHARILAL SHAMLAL (HUF) TO OBTAIN POSSESSION OF THE PROPERTY BY PAYING THE BALANCE AMOUNT OR TO DEAL THE SAID PROPERTY IN WHATEVER MANNER IT THINKS FIT. IT CAN THEREFORE NOT BE SAID THAT THE TRANSACTION OF THE ISSUE OF THE ALLOTMENT LETTER AN D THE RECEIPT OF CHEQUES WAS AN AFTER THOUGHT OR A COLOURABLE DEVICE AS INFERRED BY THE ASSESSING OFFICER. ONCE IT IS ESTABLISHED THAT THE SAID FLATS BELONGED TO THE HUF THEY HAD THE RIGHTS TO S ELL THE SAID FLATS TO A NEW BUYER FOR A PROFIT WHICH IS ACTUALL Y DONE IN THE PRESENT CASE. THERE SHOULD NOT BE ANY DOUBT IN MIN D AND THUS THAT THE PROFIT ARISING FROM THE SALE OF THE SAID F LATS WOULD BELONG ONLY TO GIRDHARILAL SHAMLAL(HUF) AND NOT TO THE ASSESSEE WHO HAS NO RIGHT AS SUCH IN THE SAID FLAT S. THE UNDERSIGNED THEREFORE IS OF THE OPINION THAT THE SA ID PROFIT OF ` .29 07 000/-ARISING ON THE SALE 3 FLATS WOULD BELON G TO GIRDHARILAL SHAMLAL (HUF) ONLY AND WHO HAD BEEN RIG HTLY PAID SUCH AMOUNTS BY THE ASSESSEE. 2.6 HOWEVER ONE HAS TO KEEP IN MIND THAT ALTHOUGH THE ABOVE TRANSACTION IS A COMMERCIAL ONE THE DEVELOPE R I.E. THE ASSESSEE HAS NOT CHARGED ANY FEE/CHARGES IN THIS CA SE FOR CONFIRMING THIS TRANSACTION AS IS NORMALLY DONE BY OTHER DEVELOPERS/BUILDERS. NORMALLY SUCH CHARGES WOULD BE A SMALL LUMP SUM FEE OR A FEE BASED ON SQ.FT. AREA. THE UN DERSIGNED IS OF THE VIEW THAT THE ENDS OF JUSTICE WOULD BE MET IF A FEE OF ` .50 PER SQ.FT. WERE TO BE RETAINED BY THE ASSESSEE FOR THIS TRANSACTION. CONSIDERING THAT THE TOTAL AREA OF T HE FLATS TRANSFERRED IS 3 240 SQ.FT. THIS AMOUNT WOULD BE ` .1 62 500/-. ACCORDINGLY THIS AMOUNT SHOULD BE DISALLOWED OUT O F THE PAYMENT OF ` .29 07 000/- MADE BY THE GIRDHARILAL SHAMLAL ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 6 (HUF) AND THE BALANCE OF ` .27 44 500/- HAS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE APPELLANTS TOTAL INCOME . IN VIEW OF THESE FINDINGS THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE TO THE EXTENT OF ` .27 47 500/-. 12. WE ARE UNABLE TO AGREE WITH THERE FINDING OF TH E LEARNED CIT(A). THIS IS A CASE OF DIVERSION OF PROFITS. THE ASSESSEE HA S NOT BROUGHT ANY EVIDENCE TO DEMONSTRATE THE MARKET RATE OF THE FLATS AS ON 1 2.05.2003 AND THE MARKET RATE AS ON 15.10.2003 TO SUBSTANTIATE THE ABNORMAL RAISE IN PRICE. THERE IS A RISE OF ` 910 PER SQ.FT. IN 5 MONTHS. THE ASSESSING OFFICER HAS SUFFICIENT REASON TO COME TO SUCH A CONCLUSION. IN OUR OPINION HE HAS RIGHTLY CONCLUDED THAT THIS IS DIVERSION OF PROFITS. THE ALLOTMENT LETTERS ETC. ARE SELF SERVING DOCUMENTS. THE ARGUMENT OF THE ASSESSEE F OR DEDUCTION AS EXPENSES THE REFUND OF ` 30 LACS IS DEVOID OF MERIT AS THE CLAIM IS THAT T HE HUF SOLD THE FLATS AND IT RECEIVED THE CONSIDERATIO N FROM THE ULTIMATE BUYER. COMING TO THE ARGUMENT THAT THERE OTHER SUCH INVEST MENTS NOWHERE THE HUF HAS EARNED SUCH ABNORMAL PROFIT. THERE IS NO P ROOF THAT SUCH PROFIT IS GENUINELY EARNED DUE TO MARKET FLUCTUATION. THERE IS ALSO NO PROOF THAT THE HUF JOINED AS A CONFIRMING PARTY IN THE SALE DEED E XECUTED TO THE ULTIMATE BUYER. THE ASSESSING OFFICER HAS IN OUR HUMBLE OPI NION COME TO THE CORRECT CONCLUSION THAT THERE IS DIVERSION OF PROFIT. PRIM E-FACIE IN OUR OPINION ALSO THIS APPEARS TO BE A MANIPULATION AND DIVERSION OF PROFITS. THE HUF MADE MORE THAN 100% OF THE INVESTMENT AS PROFITS IN JUS T 5 MONTHS. THE HUF HAD CARRIED FORWARD LOSSES AND HENCE THE PROFITS AR E DIVERTED TO BE SET OFF AGAINST THE LOSSES. AT THE SAME TIME AS THE HUF H AS GIVEN AN AMOUNT OF ` 30 LACS TO THE ASSESSEE SOME PROFIT OR INTEREST OR COMPENSATION IS DUE TO THEM IF NOT THE WHOLE PROFIT. SUCH APPORTIONMENT I S TO BE DONE ON REASONABLE BASIS. HENCE WE SET ASIDE THE MATTER T O THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF DETERMINING AS T O WHAT IS THE PROFIT THAT CAN BE ATTRIBUTABLE TO THE HUF FOR INVESTING ` 30 LACS. THUS THIS ISSUE IS SET ASIDE. ITA NO.828/MUM/2008 ASSESSMENT YEAR : 2004-2005 7 13 IN THE RESULT APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF OCTOBER 2010. SD/- (V.D. RAO) (JUDICIAL MEMBER) SD/- (J.SUDHAKAR REDDY) (ACCOUNTANT MEMBER) MUMBAI DATED 29 TH OCTOBER 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- MUMB AI 4. COMMISSIONER OF INCOME TAX CITY- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH MUM BAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI