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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM
O R D E R PER BENCH:- 01. This is the bunch of five appeals in case of Aurum Platz Private Limited [the Assessee/ Appellant] for three different assessment years i.e. AY 2015-16 to 2017-18. The assessee has filed two
For A.Y. 2017-18: (i) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in upholding the action of the Assistant Commissioner of Income Tax, Central Circle -8(4), Mumbai (―the Ld. AO‖) assessing the capital gain from sale of investment property by the Appellant under the head ―Profit and Gains of Business or Profession‖ instead of ―Income from Capital Gain‖. (ii) The Appellant, therefore, prays that the action of the Ld. CIT (A) confirming action of the Ld. AO in treating the gain from sale of investment property as ―Profit and Gain from Business or Profession‖ instead of ―Income from Capital Gain‖ be held as ab inito or otherwise bad in law.
For A.Y. 2018-19:
The ld AO has raised following Grounds of Appeal:
For A.Y. 2015-16: i. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-50, Mumbai, has erred in treating the proceeds received on sale of flats under consideration as capital gain, without appreciating the facts that the Investigation Wing has carried out thorough investigation to determine the actual object of the assessee company and the information unearthed by the Investigation Wing during the course search leads to the finding that intention of the assessee was never to lease out the property but merely work as a builder and developer. ii. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-50, Mumbai, has erred in not appreciating that on similar grounds in the assessee‘s own case, he has confirmed the action of the AO in treating the capital gain as For A.Y. 2016-17:
(i) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals)-50, Mumbai, has erred in treating the proceeds received on sale of flats under consideration as capital gain, without appreciating the facts that the Investigation Wing has carried out thorough investigation to determine the actual object of the assessee company and the information unearthed by the Investigation Wing during the course search leads to the finding that intention of the assessee was never to lease out the property but merely work as a builder and developer. (ii) On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax
For A.Y. 2018-19: i. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was right in restricting the disallowance u/s 14A to the extent of exempt income earned by the assessee which is contrary to CBDT Circular No. 5/2014 which clarifies that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.
―That in the facts and in the circumstances of the case and in law, the Ld. CIT-(A) erred in directing the Assessing Officer to treat the unsold flat as ‗Stock-in- Trade‘ instead of ‗Investment‘ which was not the subject matter of assessment thereby travelling beyond the scope of assessment.‖
After hearing the parties we find that it is a connected issue to the main issue in appeal. No fresh facts are required to be adjudicated. It is challenge to the power of the ld CIT (A) to give a direction which was not subject matter of appeal before him. Therefore this ground of appeal
is admitted.
06. On perusal of grounds of appeal raised by the parties, certain common issues across different assessment years arose which are as under: (i) Whether income from sale of flats is chargeable to tax under the head ‗Profits and Gains of Business or Profession‘ or under the head ‗Capital Gains‘; (ii) Disallowance of interest expenditure u/s 36(1)(iii) for A.Y. 2015-16 and A.Y. 2016-17; (iii) Additions made under section 153A of the Act for ‗unabated years‘ i.e. for A.Y. 2015-16 and A.Y. 2016-
17. (iv) Treatment of Unsold flat as ‗Stock-in-Trade‘ vis-à-vis Investment as shown by assessee in its return of income.
Two more independent issues which arise out of the appeals are as under:
Lead appeal is appeal filed by the ld AO in 2301/MUM/2021 for A.Y. 2015-16 and A.Y. 2016-17 respectively for unabated years: [A.Y. 2015-16] [By the ld AO]
Brief facts of the case are that the assessee filed its return of income [ ROI] for AY 2015-16 on 30.10.2015 at income of Rs. 5,47,45,408/-. ROI was picked up for scrutiny and resulted in to assessment u/s 143(3) of the Income tax Act [The Act] on 23.12.2017 at returned income.
10. Search and seizure action u/s. 132(1) of the Act was carried out in case of the Aurum group and other related entities and persons on 22.03.2018 by The DDIT(Investigation) Unit-6(1), Mumbai. Consequently, notice u/s 153A of the Act was issued. In pursuance to the same, the assessee filed ROI on 17.07.2019 at Rs.5, 47, 45,408/-.
11. The LD AO made additions pertaining to income on sale of flats under the head ‗Income from Business & Profession‘ which was offered by assessee under the head ‗Capital Gains‘. the ld AO also disallowed interest u/s 36(1)(iii) of the Act for following reasons :-
―To own and let out apartments in the building situated at C. S. No. 406, Part-I bearing D ward no. 2574(3), Street No. 58-70, 6A, Chowpatty Road of Malabar Hill Division at Pandita Ramabai Road, Babulnath Cross Lane, Mumbai – 400007 also known as Aurum Platz for rent.‖ d. The assessee company, before altering its MOA, in line with its objects had already purchased a plot of land on 31.01.2008 at C. S. No. 406, Part-I bearing D ward no. 2574(3), Street No. 58-70, 6A, Chowpatty Road of Malabar Hill Division at Pandita Ramabai Road, Babulnath Cross Lane, Mumbai – 400007 which was shown as investments in its Audited Financial Statements. e. Assessee Company commenced the construction of the building on the said piece of land on 25.02.2010 and the occupation certificate of the project was received by the company on 05.09.2013. The project was finally named as ‗7, Marine Drive‘ which consisted of 7 duplex apartments in the 20 storied building. The total cost of construction including land declared by the company is Rs. 40.93 crores. f. Sequence of events shows as under :-
Receipt of Occupancy Certificate 05.09.2013
g. Units constructed by the assessee company are high end residential units intended to be leased out as a bare shell unit as each lessee may have different preferences and a standard furnishing would have restricted marketability and user preferences , thus, ability to target a larger segment. Common areas of the building were fully designed as per the good standards and the assessee company would furnish the common areas as per rational standards whereas the specific units would be furnished in accordance with the preferences of prospective lessees. h. Assessee started to look for the prospective tenants like High Net-worth Individuals (HNIs), Diplomats etc. to enter into a long-term lease agreement after the construction of building was substantially completed but before the receipt of completion certificate. For this purpose, the assessee appointed broker -‗M/s. Reflex Realty‘ and availed its marketing services to invite prospective lessees. However, even after substantial amount of time and efforts, broker was unable to procure a single tenant which was informed by the broker to the assessee. To substantiate this claim,
12. The Assessing Officer also disallowed the interest claim of the assessee u/s 36(1)(iii) amounting to Rs. 11,23,58,808/- on the ground that amount of investment at the year-end is higher than the amount of interest-bearing loans taken by the assessee, therefore there is presumption that interest bearing funds have been used for non interest bearing investments.
Consequently assessment order us/ 153 A rws 143(3) of the Act was passed on 30/12/2019 determining the business income of the assessee and total income at Rs. 19,09,96,845/-. So the treatment of profit on sale of flats as long term capital gain was treated as business income of the assessee and also denying interest deduction u/s 36(1) (iii) of the Act.
Aggrieved, assessee preferred appeal before the LD CIT (A) who passed appellate order on 30/8/2021 holding that year under consideration is an unabated year in terms of provisions of Section
At the time of hearing, the Ld. DR, to substantiate that the addition/disallowance made by the AO were on the basis of incriminating material found and seized during the course of search action filed an application on 04.10.2022 under Rule 27 of the ITAT Rules to admit ‗Additional Evidence‘ citing the reason that due to a major fire incident at Level IV Scindia House on 01.06.2018 all the material/documents including digital data was destroyed and only certain copies of seized documents were handed over to AO. The documents submitted through this application comprised of Board Resolution passed by the Board of Directors of the assessee company, copy of escrow account agreement entered with and undertaking given to IFCI Ltd. and copy of communication with the holding company of the assessee namely Aurum Ventures Pvt. Ltd. and IFCI Ltd. Later on, letter dated 22.12.2022 was filed by the Ld. DR wherein it was stated that in the application filed on 04.10.2022 Rule 29 of the ITAT Rules was inadvertently mentioned as Rule 27 and accordingly the same may be read as ‗application under Rule 29 of the ITAT Rules‘. Another piece of additional evidence was submitted by the Ld. DR during the course of hearing on 08.03.2023 in the form of
The Ld. AR opposed the admissibility of these Additional Evidences and also the relevance and evidentiary value of the documents comprising such additional evidences. It was submitted that Rule 27 of the ITAT Rules does not provide for any application of additional evidence and that merely filing a letter admitting inadvertent error was not reason enough to rectify the mistake made by the revenue. That an affidavit should have been filed in terms of Rule 10 of ITAT Rules. It was also argued by the Ld. AR that the documents sought to be admitted under the garb of additional evidence were nothing but part of regular records and books of accounts maintained by the assessee which could have been very well called for by issue of notice dated 142(1) during the course of assessment proceedings. These documents did not relate to any undisclosed income of the assessee unearthed during the course of search proceedings and accordingly they cannot be termed as incriminating evidences or material for making any addition/disallowance in the hands of the assessee.
We have perused the material on record, the orders passed by the lower authorities and have given our thoughtful consideration to the contentions placed by the Ld. DR and Ld. AR. The crux of the matter under appeal which needs adjudication is whether addition or disallowance can be made during the course of assessment proceedings u/s 153A if no incriminating material or evidence was found during the course of search action in relation to those addition and disallowance. It is a settled position in law that completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original
In the present case, the assessment proceeding for the year under consideration, was completed vide order dated 23.12.2017 u/s 143(3) of the Act i.e. before the date on which search was conducted. The addition made by the AO by treating the proceeds from sale of flats as income under the head ‗Profits and Gains from Business and Profession‘ and disallowance of interest expenditure u/s 36(1)(iii) was not based on any ‗incriminating material‘ seized during the course of search proceedings. This is evident from the fact that there is absolutely no reference of any incriminating material by the Assessing Officer in his assessment order. The documents relied upon by the AO were part of regular books of accounts maintained by the assessee and did not pertain to any undisclosed income earned by the assessee company.
It is the grievance of Ld CIT DR that ld CIT (A) had decided the appeal in favour of the assessee without appreciating that the Investigation Wing had carried out thorough investigation to determine the actual object of the assessee company and the information unearthed during the course of search proceedings leads to finding that intention of the assessee was never to lease out the apartments but act as a builder and developer.
We are not in agreement with the contention of the Ld CIT DR, for the reason that the treatment of income received from sale of apartments as business income of the assessee, was made by the AO based on the regular books of accounts maintained by the assessee and details called for during the course of assessment proceedings u/s 153A of the Act. There was no reference of any
There is nothing on record which suggests that there was any undisclosed income earned by the assessee based on any material found during the year.
Even otherwise , the Ld CIT DR has submitted Board Resolution dated 26, November 2013 , escrow agreement, undertakings to lenders and security package where in the company intends to borrow money from IFCI limited. For this purposes various formalities are carried out, same is also reflected in its books of accounts. Naturally for borrowing, escrow accounts are to be opened and fixed deposits are to be pledged, further securities are to be given. Further the loan was not give of Rs 115 Crores to Assessee Company. As per undertaking at page no 24 of the submission of the LD CIT DR, the loan was given to Aurum ventures private Limited, which is holding company of the assessee for acquisition of 100 % shares of LOMA IT park developers Pvt Ltd by Aurum ventures Pvt Ltd. Repayment of loan is also stated to be, if flats are sold, sale proceeds to be deposited in escrow account only. This is the requirement of lender for loan given to holding company of the assessee and cannot decide the characterization of income in the hands of assessee. Further the documents are pertaining to loan obtained by aurum ventures private limited and are not of Assessee i.e. Aurum Platz private Limited. Thus these are, even if admitted, does not become incriminating material found during the course of search which has any impact on the taxability of unaccounted income of the assessee.
We find that additional evidence was part of regular records maintained by the assessee, more precisely it is statutory record under the companies act such as Minutes of meetings etc., and its holding company, and did not relate to any undisclosed income earned by the assessee. Even if such documents are admitted as
Thus, we do not find any infirmity in the order of the LD CIT (A) in holding that there is no incriminating material found during the course of search to treat the income offered as capital gain on sale of flats as business income of the assessee. In our view, such additions made without any reference to incriminating material, cannot be permitted as it is against the provisions of the Act and also the decisions rendered by Hon‘ble Bombay High Court and confirmed by Hon‘ble supreme court in [2023] 149 taxmann.com 399 (SC).
As regards issue of disallowance made u/s 36(1) (iii) of the Act by the Assessing Officer, we find that there is no incriminating material on record to justify such disallowance. The said disallowance has been made by the AO without making reference to any incriminating material which is evident from the assessment order.
Accordingly we confirm the decision of LD CIT (A) and dismiss appeal of LD AO.
[A.Y. 2016-17] [By the LD AO] 27. This appeal was also filed by the revenue challenging the order of Commissioner (Appeals)-50, Mumbai dated 30.08.2021. The Grounds of Appeal raised by the revenue, the facts of case in the present appeal are identical to the Grounds raised, facts of the case in for A.Y. 2015-16 with the only
As the & 2005/MUM/2021 for A.Y. 2017-18 and A.Y. 2018-19 issue involved is that whether the income on sale of flats is chargeable to tax under the head capital gain as contended by assessee or under the head income from Business or profession as claimed by revenue. This is the concurrent finding of ld AO and Ld CIT (A) . Since the facts of the case with respect to the said issue are already discussed in detail while adjudicating the appeal in ITA No. 2300/MUM/2021, we proceed to record findings and contentions.
Time lapsed Time lapsed from from the date of the date of Assessment Date of Apartment commencement receipt of Year Agreement No. of Construction occupation certificate July 11, 2014 4 years, 5 10 months 2015-16 5 months May 07, 5 years, 3 1 year, 8 months 3 2016-17 2015 months June 12, 5 years, 4 1 year, 9 months 6 2016-17 2015 months December 5 years, 10 2 years, 3 2016-17 2 29, 2015 months months January 19, 6 years, 11 3 years, 4 2017-18 1 2017 months months September 7 years, 7 4 years 2018-19 4 21, 2017 months vi. Assessee had sold 6 out of the 7 constructed apartments over a period of 4 to 8 years from the date of commencement of construction and it still holding the 7th apartment as investment which has been leased out and against which it is earning rental income. vii. Thus, assessee had a clear intention of holding the apartments as ‗investment‘ and ‗leasing it out‘ to the prospective tenants to earn rental income which could not be done due to lack of availability of such prospective tenants even after conscious efforts were made by the assessee. viii. Intention of the assessee is further substantiated by the treatment of expenses incurred in relation to construction of the apartments i.e. all the expenditure was capitalized in the books of accounts maintained by the assessee company and classified as ‗investment‘ right from the year when the land was purchased by the assessee till date.
The Ld. CIT DR relied on the order passed by the Commissioner (Appeals)-50, Mumbai and also on the additional evidences submitted during the course of proceedings before us. The Ld. DR contended that A.O. has given specific findings in his assessment order and has justified the addition made by him by treating the income from sale of apartments as business income. She categorically summarized findings of the lower authorities and supported them :
i. That the assessee company had in its ‗other objects‘ activity of carrying on business of construction of buildings, houses etc. ii. That the assessee company has sold the flats in ‗7, Marine Drive‘ without basic furnishing which meant that there was no possibility of leasing out the flats, i.e. bear shell sale of flats iii. That the first flat was sold on 11.07.2014 and from perusal of the sale agreement, it can be seen that a declaration dated 10.06.2014 was filed by the assessee-company under the Maharashtra
Against these findings, the Ld. AR has filed submissions vide letter dated 21.07.2022 rebutting contentions placed by the LD AR. The relevant extract of the said submission is reproduced below:
‖ A. Submission with respect to „Other Object Clause‟ of the assessee: The Department has placed an argument that the Memorandum of Association of the Assessee Company also contains ‗other objects‘ stating that the Assessee Company can engage in the business of real estate. The relevant portion of the other object clause is reproduced below for ready reference: ―To carry on the business of construction, purchasing, developing or otherwise dealing In this regard it is submitted that, the object of carrying on the ‗business of construction‘ was part of the ‗other objects‘ of the company and not the ‗main object‘ which, as explained earlier, was to own and lease out the flats in building constructed at ‗C. S. No. 406, Part-I bearing D ward no. 2574(3), Street No. 58-70, 6A, Chowpatty Road of Malabar Hill Division at Pandita Ramabai Road, Babulnath Cross Lane, Mumbai – 400007‘. During the years under consideration i.e. A.Y. 2017-18 and A.Y. 2018-19 as well as in the previous and subsequent years the assessee had carried out only the main object and no action was taken by it to carry out any other object which is evident from the fact that no other property was ever purchased by the assessee to construct a building or no flats in any other project were ever sold by the assessee.
The other object of business of construction, etc. was kept as a part of Memorandum of Association so as to keep an avenue open for the assessee company to enter into such business if at all such opportunity presents itself in the future which has not been done by the assessee till date. The inclusion of the business of construction as ‗other object‘ in the MOA does not in any way undermine or overshadow the ‗main object‘ of the assessee company. In fact, the specific purpose of formation of the assessee company which is included in its main object will always prevail over the general nature of ‗other objects‘. Therefore, the stand of the department that construction activity included in the Even otherwise, for the sake of argument if it is assumed that the assessee had entered into other construction activity even in that case it would not affect the main purpose of the assessee company which was to own and lease out the flats in the building named ‗7, Marine Drive‘. It is important to understand that there is no restriction on an assessee to engage in investment as well as business of the same product / commodity. The CBDT in the Circular No. 4/2007 dated 15.06.2007 (Copy attached at Page Nos. 1-2 of the Paper book-II) has clarified in the cases of sale of shares, a tax payer can hold both investment portfolio wherein the shares are held as an ‗capital asset‘ as well as a trading portfolio wherein the tax payer holds the shares as ‗stock-in- trade‘. The relevant portion of the aforesaid circular is reproduced hereunder for ready reference:
―CBDT also wishes to emphasize that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income.‖ Reliance is also placed on the decision of Hon‘ble Delhi Tribunal in case of ACIT v Delhi Apartment (P.) Ltd. reported at 147 TTJ 451(Copy attached at Page Nos. 135-154 of the Paper book-II), wherein the Hon‘ble Tribunal has held as under:
―The Commissioner (Appeals) has given a finding that the land was used by the assessee for B. Submission with respect to the point of basic furnishing of the flats in the building: It is alleged by the department that the flats could not be leased out since the basic furnishing of the flats was not provided. It is submitted that, as already explained in Para 23 and 24 above, the flats constructed by the assessee were high end residential units intended to be leased out bare shell. Since each lessee may have different preferences, a standard furnishing would have Thus, the flats in the apartment were not fully furnished in order to accommodate the choice and preference of prospective lessees. If a standard furnishing was provided in the apartments then it would have restricted the prospective lessees, since in such high end flats the per month rent payments run into lakhs of rupees which can only be afforded by high net worth clients who prefer the furnishing to their specific choice and liking.
It is also pertinent to mention that, going by the logic given by the department that the assessee had no intention of leasing the flats due to the reason that flats were not furnished then in that case the assessee could not have sold the said unfurnished apartments. This is because whether a person approaches the assessee as a buyer or a lessee the ultimate purpose of the said person would be to stay in such apartment which is not possible in an unfurnished accommodation. Therefore, it is submitted that the condition of the apartment does not have any bearing on the intention of the assessee as the furnishing was left to the discretion of the lessee by the assessee. Thus, the said argument of the department is devoid of merits and is unsustainable.
C. Submission with respect to the sale of flat vide agreement dated 11.07.2014 and declaration dated 10.06.2014 filed by the assessee-company under the Maharashtra Apartment Ownership Act, 1970:
The assessee had sold first of the seven flats vide agreement dated 11.07.2014 for a total consideration of Rs. 28,10,00,000/-.
In this regard it is submitted that the above mentioned declaration was filed on 10.06.2014 i.e. just a month prior to the date of registration of sale deed of the first apartment. If the intention of the assessee was to sell the flats, this declaration would have been filed by the assessee very well in advance and it would not have waited till last moment to do the same. It is only when there were no prospective lessees available and the buyer of the flat who had already paid the advance was pressurizing the assessee for registration, the assessee filed the declaration. The conduct of the assessee clearly proves that it had acted as an investor right from the beginning and accordingly gains arising on sale of flats was correctly offered to tax under the head ‗Capital Gains‘.
Further, it is submitted that the declaration filed by the assessee under the Maharashtra Apartment Ownership Act, 1970 is a necessary legal requirement in case a flat is sold to another person wherein various details are required to be submitted with respect to the flat being sold. The relevant provisions of the Maharashtra Apartment Ownership Act, 1970 are reproduced below for ready reference:
―13. (1) The Declaration and all amendments thereto and the Deed of Apartment in respect of each apartment and the floor plans of the buildings referred to in subsection (2) shall all be registered under the [Registration Act, 1908].
(2) Simultaneously with the registration of the Declaration there shall be filed along with it a set of the floor plans of the building showing the layout, location, apartment numbers and dimensions of the apartments, stating the name of the building or that it has no name, and bearing the verified statement of an architect certifying that it is an accurate copy of portions of the plans of the building as filed with and approved by the local authority within whose jurisdiction the building is located. If such plans do not include a verified statement by such architect that such plans fully and accurately depict the layout, location, apartment numbers and dimensions of the apartments as built, there shall be recorded prior to the first conveyance of any apartment, an amendment to the Declaration to which shall be attached a verified statement of an architect certifying that the plans theretofore filed, or being filed simultaneously with such amendment, fully and accurately depict the layout, location, apartment number and dimensions of the apartment as built.
(3) In all registration offices a book called ―Register of Declaration and Deeds of Apartments under the Maharashtra Apartment Ownership Act, 1970‖ and Index relating thereto shall be kept. The book and the Index shall be kept in such form and shall contain such particulars as the State Government may prescribe.
(5) The Sub-Registrar, or as the case may be, the Registrar shall register the Declaration along with floor plans of the building and the Deed of Apartment in the Register of Declarations and Deeds of Apartments under the Maharashtra Apartment Ownership Act, 1970 and shall also enter particulars in the Index kept under subsection (3). Any person acquiring any apartment of any apartment owner shall be deemed to have notice of the Declaration and of the Deed of Apartment as from the date of its registration under this section.
(6) Except as provided in this section, the provisions of the [Registration Act, 1908], shall mutatis mutandis apply to the registration of such Declaration and Deeds of Apartments and the words and expressions used in this section but not defined in this Act, shall have the meanings assigned to them in the [Registration Act, 1908].‖ Section 11 of the Maharashtra Apartment Ownership Act, 1970 - Contents of Declaration.
―11. (1) The Declaration shall contain the following particulars, namely :— (b) Description of the building stating the number of storeys and basements, the number of apartments and the principal materials of which it is or is to be constructed; (c) The apartment number of each apartment, and a statement of its location, approximate area, number of rooms, and immediate common area to which it has access, and any other data necessary for its proper identification; (d) Description of the common areas and facilities; (e) Description of the limited common areas and facilities, if any, stating to which apartments their use is reserved; (f) Value of the property and of each apartment, and the percentage of undivided interest in the common areas and facilities, appertaining to each apartment and its owner for all purposes, including voting; and a statement that the apartment and such percentage of undivided interest are not encumbered in any manner whatsoever on the date of the Declaration ; (g) Statement of the purposes for which the building and each of the apartments are intended and restricted as to use; …..‖ Section 13 of the Maharashtra Apartment Ownership Act, 1970 provides that the Declaration and all amendments thereto and ―The Grantor can sell either all the duplex residential apartments or may sell some of them and retain the others with itself either for lease or for sale in future.‖ Therefore, based on above facts it is submitted that the assessee was still well within its rights to lease the apartments and was not precluded from doing the same. Consequently, the conclusion drawn by the Ld. A.O. is erroneous and factually incorrect and cannot form the basis for making addition in the case of the assessee.
D. Submission with respect to the Installation of lifts and fixing of aluminum windows after the receipt of occupancy certificate:
Further, it has been argued by the Department that the information was called from Mitsubishi Elevators India Pvt Ltd., it was tasked with installation of two elevator units (P1 & P2) in the building and Alfa Façade Systems Pvt Ltd was tasked with providing and fixing of aluminum windows in the building. It was With respect to the above, it is submitted that the building was supposed to be owned by the Assessee Company and flats were to be leased out based on the likings and preferences of prospective lessees and therefore it first installed one elevator and basic windows structure in each of the flats. Also, as stated above the Ld. A.O. had himself accepted the fact that one lift was installed in 2013 i.e. before the receipt of occupancy certificate and only the second lift i.e. ‗P2‘ was completed in 2015. A building can very well function with one lift and there is no such mandate that all the lifts in the building should be always in perfect working condition so as to lease out the flats.
However unable to lease out the apartments, there was no choice with the Assessee Company but to upgrade the buildings with the hope that it would be able to lease out in future and therefore the basis windows were replaced by aluminum windows in each of the apartment for which the expenditure was incurred by the assessee. Even otherwise, the Ld. A.O. did not consider that the Occupation Certificate was already received by the Assessee Company on 05.09.2013 only after installation of first lift and basic windows in all the flats. The only thing pending was the internal furnishing of the flats which as submitted earlier was to be done based on the individual liking and preferences of the prospective tenants so that the assessee may target a larger segment. Besides, an occupation certificate is only granted by the local authority when the building and apartments are fit for occupation and not before that. Further, the first lift was Therefore, the contention of the department that the flats could not be leased out since the work of lift and windows was completed in 2015 is erroneous and factually incorrect since one lift was already installed and in perfect working condition and even the windows were installed before receipt of the occupancy certificate and thus no addition can be sustained based on such erroneous finding.
E. Submission with respect to the payment made to contractors after the receipt of occupancy certificate:
In Para 6.8 of the assessment order the Ld. A.O. has tabulated the amount paid to contractors by the assessee over the years. The said table is reproduced below for ready reference:
F.Y. Amount paid to contractors 2010-11 1,87,23,391 2012-13 2,69,08,777 2013-14 6,32,06,754 2014-15 3,96,31,517 2015-16 2,31,76,652 2016-17 59,45,201 Total 17,75,92,292 On the basis of above table prepared by the Ld. A.O., he concluded that the flats were not ready for renting out as on the date of issue of occupancy certificate i.e. 05.09.2013 since according to him assessee had made payments of Rs. 6.87 crores after F.Y. 2013-14 which is approximately 40% of the total payments shown above.
The Actual Expenditure incurred by the assessee over the years from the time the land was first acquired which was capitalized in the books of accounts is given in the table below which was also reproduced by the Ld. A.O. in Para 6.12 of his assessment order:
F.Y. Nature of Amount (Rs.) Expenditure 2008-09 Land Purchase 13,21,53,000
2009-10 Construction Cost 2,05,000
2010-11 Construction Cost 2,06,51,632 2011-12 Construction 2,60,74,804 Cost 2012-13 Construction Cost 4,45,42,406 2013-14 Construction Cost 10,83,38,478
2014-15 Construction Cost 7,73,60,830
Total 40,93,26,150/- % of Expense incurred in 18.90% From the above table it is evident that only 18.90%of cost was incurred by the assessee after the receipt of occupancy certificate for the purpose of upgradation of the building i.e. replacement of basic windows with aluminum windows and completion of the 2nd lift. The services of Alfa Façade Systems Private Limited and Mitsubishi Elevators India Private Limited (for completion of 2nd lift) were engaged by the assessee only after receipt of O.C. since even after making efforts there were no inquiries from tenants and the assessee was left with no choice but to upgrade the building structure.
Sr. No. Particulars Amount (Rs.)
Total expenditure 7,73,60,830/- incurred in F.Y. 2014-15 2. Less: Expenditure 3,10,59,361/- incurred on replacement of basic windows with aluminum windows 3. Net Expenditure incurred 4,63,01,469/- on construction in F.Y. 2014-15 [1-2] 4. Total Cost of 40,93,2 Construction incurred till 6,150/- 31.03.2015 5. Percentage of 11.31% Expenditure on construction incurred in FY 2014-15 after the receipt of occupancy Further, it is also pertinent to mention that out of the expenditure of Rs. 7,73,60,830/- incurred in F.Y. 2014-15, the expenditure of Rs. 3,10,59,361/- was incurred on purchase of material and construction work of aluminum windows which was done for the purpose of upgradation of the apartments. This expenditure being not a part of the regular construction cost has to be removed from the construction cost. If the said expenditure if deducted from the regular construction cost the revised percentage of expenditure incurred after the receipt of occupancy certificate in F.Y. 2014-15 can be worked out as follows:
From the above facts it is evident that only 11.31% of total construction cost was actually incurred in F.Y. 2014-15 which is an insignificant amount as compared to the cost of construction incurred before the occupancy certificate was received by the assessee.
Therefore, it is submitted that the contention of the department is based on erroneous and incomplete set of facts and thus cannot be used against the assessee for alleging that the sale of flats were adventure in the nature of trade and not a capital gain transaction.
F. Submission with respect to the application and receipt of water connection in the building after the receipt of occupancy certificate:
It is submitted that the assessee had applied for permission of the water connection in the building on 30.10.2013 (Copy of the application letter is attached at Page Nos. 127-128 of the Paper book-I). The approval for water connection was received by the In this regard it is submitted that, the Ld. A.O. overlooked a crucial fact that the occupancy certificate is a mandatory document which is required to be submitted for making the application and getting the approval for water connection in the building. The assessee could not have made an application and got the approval from local authority for the water connection in the building until and unless occupancy certificate was received by it. The occupancy certificate was received by it on 05.09.2013 and the application for the water connection was made on 30.10.2013. After making the application, the assessee had no control whatsoever with respect to the time taken for receipt of approval from the local authority. In any case, the approval was received in 3 months from the date of application and no flat was sold during this period by the assessee. Therefore, the contention of the Ld. A.O. that the assessee had no intention to lease the apartments solely because the application and approval for water connection was made after the receipt of occupancy certificate is inherently flawed which is evident from the aforementioned facts and thus no addition is possible on this ground.
Further, the Ld. A.O. also alleged that ‗no person who has the intention to put building on rent will offer it for sale prior to water Therefore, if the Ld. A.O. alleges that apartment cannot be leased out without water connection, then in that case the apartment cannot be sold without a working water connection. This fact was not at all considered by the Ld. A.O. while passing the assessment order and he conveniently chose to ignore this crucial aspect in an immovable property transaction. In fact, if the apartment could be sold without a water connection then it could have also been leased and water connection could have been put by the time the lessee would have come to live there. Thus, it is submitted that this contention of the Ld. A.O. does not have any bearing on the treatment of flats and consequent treatment of gains arising on sale of such flats.
Moreover, the pipeline fittings and connection for the purpose of water supply to each and every flat was already completed at the time of construction of the building and before the receipt of occupancy certificate since it is a part of structure of the building and cannot be done separately after the construction of building is completed. In fact, the occupancy certificate of the building would not have been granted without it. The only thing pending was the permission from the local authority so that the water supply to the building could be started which was received on G. Submission with respect to the efforts made by assessee to lease the flats:
This point raised by the Ld. A.O. is completely baseless and factually incorrect in as much as the assessee had hired the marketing services of the broker M/s. Reflex Realty in order to invite prospective lessees to enter into a long term lease agreement which can be verified from the correspondence between the assessee and the broker as explained in Para 24 above. The Ld. A.O. in Para 8.12 of his assessment order rejected this proof submitted by the assessee without any justification and also stated that no paper advertisements were published by the assessee for leasing out the property.
In this regard it is submitted that such high end flats cannot be leased out with a mere advertisement in newspaper since the flats were not to be leased as a standard residential unit but were to be leased as a luxurious flat based on the preferences of the prospective lessees. Such luxurious flats in a prime location are sold through contacts with High Net worth Individuals (HNIs) and for that purpose the assessee had specifically engaged the services of a broker who had made representations before the assessee of having extensive networking among the Real Estate professionals which is evident from the correspondence submitted by the assessee before the A.O.
Therefore, it is submitted that the allegation made by the Ld. A.O. that no efforts were made to lease the flats is factually Apart from the above mentioned contentions of the assessee, it is submitted that whether a transaction will be considered as an adventure in the nature of trade has been a matter of judicial review. The tests laid down by decisions of various courts indicate that, in each case, it is the total effect of all relevant factors and circumstances that determine the character of the transaction. No one rule of thumb or yardstick can be established to determine the nature of transaction. Each case has to be determined on the total impression created by all the facts and circumstances of a particular case. One of the principal tests is the intention of the assessee and the conduct of the assessee over the period for which the asset is held by the assessee. If the asset is sold since an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business.
In the case of Pari Mangaldas Girdhardas v. CIT reported at 1977 CTR (Guj.) 647 (Copy attached at Page Nos. 171-192 of the Paper book-II), the Hon‘ble Gujarat High Court has formulated certain tests to determine as to whether an assessee can be said to be carrying on business, as under: ―... a )The first test is whether the initial acquisition of the subject- matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. c) The third test, which is frequently applied, is as The tests laid down by the Hon‘ble Gujarat High Court are discussed along with the facts of the case of the assessee as under:
Therefore, it is clear that at the time of acquisition, the intent of the assessee with respect to utilization of land was to hold it as an investment and earn rental income out of the same once the building was constructed. Therefore, the assessee has satisfied the criteria laid down in this test. b. Second Test- Subsequent Sale: As explained earlier, the assessee had sold its first flat on 11.07.2014 i.e. after 10 months from the date of receipt of occupation certificate. This was done by the assessee with a view to recover part of the huge investment made by it since there were no inquiries from any tenants to take the land on lease. Also, due to the prime location of the property the assessee received inquiries from prospective buyers. Thus, the initial sale of flat was done to recoup the investment which does not change the fact that the main object of the assessee was still to lease out the flats in the building. Therefore, the assessee has satisfied the criteria laid down in this test. c. Third Test- Treatment of asset by the assessee: It is an undisputed fact that the assessee from the very beginning i.e. from the time when the land was purchased till d. Fourth Test- Disclosure of Income from such asset and subsequent treatment by the Department: It is an undisputed fact that the assessee has consistently offered gains arising from sale of flats under the head ‗Capital Gains‘ which was also accepted by the department in the orders passed u/s 143(3) of the Act for A.Y. 2014-15 and A.Y. 2015-16. Now, the department is contradicting its own stand in absence of change in facts and circumstances of the case. The Hon‘ble Jurisdictional High Court in the case of Commissioner of Income Tax-25 Vs. Gopal Purohit cited above held that there ought to be uniformity in treatment and consistency when facts and circumstances are identical which is exactly the case of the assessee as there are no changes with respect to the subject matter of dispute i.e. treatment of income from sale of flats. Therefore, the assessee has satisfied the criteria laid down in this test. e. Fifth Test- Reference in Memorandum of Understanding (MOU): As explained in sub-Para (a) above, it is an undisputed fact that the MOU clearly stated that the assessee had acquired land for the purpose of constructing flats, holding them and then leasing out for earning rental income. Therefore, it is submitted that the main object clause itself stated the treatment and utilization of f. Sixth Test: Volume, frequency, continuity and regularity of purchase and sale transaction: It is submitted that, the assessee had purchased a solitary piece of land and constructed a single project/ building on the said land with multiple flats. The time gap between the purchase of land (31.01.2008) and receipt of occupancy certificate (05.09.2013) was a substantial period of 5.5 years during which the funds of the assessee were blocked as an investment in the said project. Even after receipt of occupancy certificate, the assessee made efforts to lease out the apartments which is evident from the communication letters with broker as referred to in Para 24 above.
The first apartment was sold by the assessee vide agreement dated 11.07.2014 which is after a long gap of 6.5 years from the date of acquisition of land which was done because there was no option left with the assessee as there was no prospective tenant in sight for leasing the flat and this was the only flat sold in A.Y. 2015-16. Further, the assessee sold 3 flats in A.Y. 2016-17 and one flat each in A.Y. 2017-18 and A.Y. 2018-19. The assessee had waited for a substantial period of time before selling each of the flats to see if any of these flats can be leased out. Moreover, as discussed earlier the last apartment is still held by the assessee as an investment from which the assesee is earning a rental income of Rs. 3,00,000/- per month from October, 2018 (A.Y. 2019-20) till date.
The above facts clearly show that there was no volume, frequency, continuity or regularity with respect to purchase and sale as the time gap between the first purchase and first sale is a substantial gap of 6.5 years which is in complete contradiction to Moreover, the assessee never engaged in any other construction project nor had bought any land/building for resale purpose which clearly shows that the assessee had a mindset of an investor and not a businessman. Therefore, it is submitted that there was no volume, frequency, continuity or regularity to conclude that it was an adventure in the nature of trade.
From the above explanation with respect to tests laid down by the Hon‘ble High Court it is submitted that the assessee meets each and every criteria required as provided in the above judgment and has correctly offered the income under the head ‗capital gains‘.
Further reliance is placed on the case of judgment of Hon‘ble Karnataka High Court in case of CIT v Kishan House Builders Association in of 2010(Copy attached at Page Nos. 193-197 of the Paper book-II), wherein the assessee had purchased a land in 1992 and subsequently sold the land in FY 2004-05. It was found that in accounts up to year 2004, property was mentioned as an asset and from perusal of entries in accounts it was evident that assessee had not conducted any other activity other than holding land as investment. The AO however, treated income arising from property as business income and not as capital gain. The High Court on basis of meticulous appreciation of evidence on record had recorded a finding that assessee had rightly disclosed income from property as long-term capital gains instead of business income. It was also ―9 …… The Division Bench of this Court in the case of Commissioner of Income Tax and another supra has laid down criteria for determining whether or not an income from the property is a business income or is a long term capital gain, which is reproduced below for the facility of reference: (1) ―There was a large time-gap between the dates of acquisition of the shares and the sale thereof. (2) Thus, the intention to sell cannot be inferred at the point of time of the purchase. (3) That merely because the sale had resulted in a profit did not mean that when the assessee purchased the shares, it was with an intention to sell them at a profit. (4) That an investor may sell the shares when he gets a good price for the shares. (5) That the assessee had shares in 25 to 30 companies and the value of the total holding was between Rs.57,000 and Rs.63,000, which was a very small amount considering the number of companies in which the shares were held, thus, denoting that the assessee was a small investor. (6) That the numbers of transactions are not many every year and the assessee could not be said to indulge in several transactions of purchase and sale every year.‖
It has further been held that total fact of relevant factors and circumstances determining the character of the transaction and the volume, frequency continued and regularity of transactions of parties and sale on goods has also be taken into account. It has been held that the aforesaid question is a question of fact it has to be determined in the fact situation of the case.
In the light of aforesaid settled legal principles, the facts of the case may be examined. Admittedly, the properties were acquired by the assessee in the year 1992 and assessee had entered into an agreement for sale on 13.05.2002. Thereafter in the accounts up to the year 2004, the property was mentioned as an asset……..
Thus, from perusal of the aforesaid entries it is evident that the assessee has not conducted any other activity other than holding the land as investment. It is also pertinent to mention here that the revenue has not come up with any documentary evidence to suggest that assessee had earned income from the transaction to the land in question during the year 2003-04. The Tribunal thereafter on the basis of meticulous appreciation of evidence on record has recorded a finding that assessee has rightly disclosed the income from the property as long term capital gains instead of business income. The aforesaid finding by no stretch of imagination can be believed to either perverse or arbitrary.‖ In case of the Assessee Company, the intention of the Assessee Company at the time of acquisition of the land was to construct the building as an investor and to own and let out units in the building. The property has been shown as an investment in the balance sheet. This is also supported by the conduct of the Assessee Company as it has neither marketed nor sold any unit until construction of the property.
Therefore, based on above facts and circumstances of the case and in law it is submitted that the assessee had correctly offered income from sale of flats under the head capital gains and thus it is humbly prayed that relief in this regard be granted to the assessee and order of Ld. CIT-(A) be set aside.‖
We have heard the rival contentions, perused the orders of the lower authorities, written submissions and application made by the parties and judicial precedents relied upon. The only issue involved here is whether gain or profit on sale of 6 out of 7 flats sold by the assessee is chargeable to tax under the head capital gain or Business income. Honourable supreme court in CIT V Glow shine Builder and Developers Ltd 332 CTR 489 (SC) has categorically held that in order to examine whether a particular transaction is sale of capital assets or business income. , multiple factors like frequency of trade, volume of trade, nature of transaction over the years are required to be examined. Merely on the basis of recording of the inventory in the books of accounts transaction could not become stock in trade. Thus in the present case no doubt assesse has shown the constructed property as investment but that is not determinative at all whether the income from sale of such asset is chargeable to tax as capital gain or business income. All surrounding facts need to be examined and appraised. There are no straight jacket formulae or principles which fit in to all situations to give the answer.
In Sutlej Cotton Mills Supply Agency Ltd. [1975] 100 ITR 706 (SC) It was noted that "the difficulty arises where the transaction is outside the assessee's line of business and then, it must depend upon the facts and circumstances of each case whether the transaction is in the nature of trade". Thus, while neither continuity of similar transactions is necessary to constitute such a transaction as "adventure in the nature of trade" it will depend on the facts and circumstances of every case whether the assessee has been able to demonstrate, by placing relevant materials that the transaction undertaken by it was, in fact, in the nature of trade. 35. We also find that Honourable Karnataka High court in Commissioner of Income Tax (Central) Vs Bagmane Developers
In this case following sequence of events are important :- i Company was formed on 25/09/2003 ii Land was purchased on 31/1/2008 iii Commencement of construction on 25/2/2010 iv Change in MOA to let out the property as the main object 17/2/2011, In other ancillary object business as real estate developers was also v Occupancy certificate received on 5/9/2013 vi Appointed broker for tenancy in FY 2012-13 vii MOA was for the earning of leasing of property and earn lease rent as per main object viii In other ancillary object business as real estate developers was also ix Brokers unable to find out the tenant x First sale deed of one flat was executed in 11/7/2014 xi Three flats were sold in Financial year 15-16 xii One flat is sold in FY 2016-17 xiii One flat is sold in 2017-18 xiv One flat is still lying unsold
Now whether the intention of the assessee was to hold the apartments as investment or to sell them to earn profit and whether the conduct of the assesee is that of a businessman or that of an investor. As regards the intention of the assessee, it is observed that the assessee had intention of holding the apartments as investment and leasing it to the tenants to earn rental income which is substantiated by the documentary evidences submitted before us in the form of Memorandum of Association of the assessee company, correspondence letters with the broker, audited financial statements of the company wherein the land & building are capitalized and treated as investment and also the fact that the said asset was held by the assessee for a very long duration. With respect to the conduct of the assessee company i.e. the question whether the act of sale of apartments by the assessee is ‗an adventure in the nature of trade‘ or ‗income from capital gains‘ can be decided in light of the tests laid down by various judicial precedents. These tests act as a yardstick for determination and taxability of income.
As on the date of acquisition of land, the intention of the assessee was to hold that land, construct the apartment and lease them out which is evident from the MOA formed at the time of its incorporation. Even on initial acquisition of the building i.e. at the time of receipt of occupancy certificate on 05.09.2013, the intention of the assessee was to lease the apartments which are evident from the altered MOA.
Main Object Clause:
―2. To carry on the business of owners of lands, flats maisonattes, dwelling houses, shops, offices, industrial estates, lessees of lands, flats and other immovable properties and for Other Incidental or Ancillary Objects to the Main Object Clause:
―6. To acquire, buy, obtain, hire, take on lease and sell, dispose of, let on hire, give on lease, develop, improve upon level and otherwise deal in land, quarries, metal ores, mines, coal mines and forests, farms, gardens and other immovable properties and to act as estate agents, representatives and distributors.‖
Both the main object clause as well as the other objects clause as reproduced above contained provisions to enable them to let out the apartments on hire which establishes the intention of the assessee to hold the properties as investment and not as stock in trade. Subsequently, after acquisition of land in F.Y. 2007-08 for the construction of the building and after commencement of such construction in w.e.f. 25.02.2010 the assessee altered its MOA to make specific changes in the main object clause to bring it in line with the activities of the assessee company. These changes were Sr. Events Date of such Period of No. event Holding of apartments from the date of acquisition of land 1. Date of Purchase of 31.01.2008 - Land 2. Date of Commencement 25.02.2010 - of Construction 3. Receipt of Occupancy 05.09.2013 5 years, 8 Certificate months 4. Sale of First apartment 11.07.2014 6 years, 6 months 5. Sale of Second 07.05.2015 7 years, 4 apartment months 6. Sale of Third apartment 12.06.2015 7 years, 5 months 7. Sale of Fourth 29.12.2015 7 years, 11 apartment months 8. Sale of Fifth apartment 19.01.2017 9 years 9. Sale of Sixth apartment 21.09.2017 9 years, 8 months Last flat is still held by the assessee and still classified as an investment in its books of accounts. Above event chart shows period of holding of the apartments is one of the factor which shows conduct of the assessee as an investor and not a businessman. Intention shown from the main object clause of memorandum of Association and conduct of the assessee shown
Moreover, the position that the assessee‘s activities are in the nature of an investor and it is not acting as a builder and developer was accepted by the revenue in the course of regular assessment proceedings u/s 143(3) of the Act for A.Y. 2014-15 and A.Y. 2015- 16. It is true that the principle of res judicata does not apply to income tax proceedings as each assessment year is treated as a distinct unit, but that does not mean consistency in manner in which assessment proceedings are conducted should be ignored especially when there are no material changes in the facts and circumstances of the case. The authorities are not permitted to take a different view in subsequent years when the law and facts are the same as earlier years. This position has been made sufficiently clear by the Hon‘ble Supreme Court in the case of Bharat Sanchar Nigam Ltd and another v. Union of India and ors. (2006) 282 ITR 273 (SC). Further, the Hon‘ble Apex Court in the case of Radhasoami Satsang vs CIT (193 ITR 321) stated that an accepted position in one assessment year cannot be allowed to be changed in a subsequent assessment year where the parties have allowed that position to be sustained by not challenging the order. Further Honourable Bombay High court in case of CIT V Mahindra Life space Developers Ltd [2013] 34 taxmann.com 83 (Bombay) has held that “3. So far as question (c) and (d) are concerned, the Assessing Officer has recorded a finding of fact that on a similar issue for earlier assessment year 2003-04
Based on the facts of the case discussed above, evidences produced before us , we reversing the order of the ld CIT (A) direct the AO to treat the proceeds received on sale of properties as income from ‗Capital Gains‘. Accordingly, the Appeal filed by the assessee is allowed.
The assessee has also filed additional grounds of appeal
challenging the direction given by Commissioner (Appeals)-50, Mumbai to treat the last unsold flat as ‗Stock-in-Trade‘ instead of ‗Investment‘. In this regard we state that in view of our finding earlier on the matter of treatment of income from sale of apartments and quashed the order of ld cit [A] directed the AO to treat the proceeds received on sale of apartments as income from ‗Capital Gains‘. Therefore, it follows that the remaining unsold flat which is still held by the assessee and also generating rental income for it, cannot be treated as stock in trade of the assessee. Accordingly, this direction given by ld CIT [A] is not valid and is hereby quashed. [A.Y. 2018-19]:
51. This appeal was also filed by the assessee challenging the order of Commissioner (Appeals)-50, Mumbai dated 30.08.2021. The Grounds of Appeal raised by the assessee, the facts of case and the law applicable in the present appeal are identical to the Grounds raised, facts of the case and the law applicable in ITA No. 2004/MUM/2021 for A.Y. 2017-18 with the only exception of quantum of addition/ disallowances made. Therefore, the decision rendered in relation to ITA No. 2005/MUM/2021 for A.Y. 2017-18
Addition of Rs. 20,00,000/- u/s 69C of the Act [ITA No. 2005/MUM/2021]:
The facts of the case in brief in relation to this addition are that a word document was found from the computer of accountant Ms. Supriya Rajeshirke during the course of search action u/s 132 of the Act conducted in case of the assessee group. The said word document contained a declaration that one Mr. Vishal Singh, the administration manager was carrying cash of Rs. 20,00,000/- for purposes of payment for purchases. The statement of Shri Vishal Singh was recorded u/s. 132(4) of the Act wherein he stated that the document pertained to delivery of cash on 08.09.2017 to one individual Mr. Nazir who is an electrical contractor.
During the course of assessment proceedings, the assessee was asked to explain why an addition u/s 69C of the Act should not be made based on the findings of the search and the statement of Mr. Vishal Singh wherein he had explained the said transaction. Against this, the assessee vide submission dated 23.12.2019 explained that Mr. Vishal‘s statement was taken under duress and cannot be relied upon in absence of any other corroborative evidence. In support of this claim, the assessee furnished an affidavit of Mr. Vishal Singh dated 30.12.2019 wherein he had retracted his statement recorded u/s 132(4) of the search proceedings.
However, the Assessing Officer rejected this explanation of the assessee and made an addition of Rs. 20,00,000/- u/s 69C of the
The assessee, aggrieved by the action of the Assessing Officer, challenged the said addition before the Commissioner ld CIT [A] who , decided the appeal against the assessee and upheld the addition made by the Assessing Officer relying on the findings of the assessing officer. Aggrieved, assessee is in appeal before us.
At the time of hearing, the Ld. Counsel appearing for the assessee submitted that the CIT (A) has erred in sustaining the addition made by the assessing officer overlooking the crucial factual as well as legal aspects of the case. He submitted that nothing has been brought on record to show that the assessee had actually incurred the expenditure as alleged by the Department and that the statement being relied upon by the department of Shri Vishal Singh has been retracted by an affidavit as it was taken under duress. This affidavit retracting the statement was submitted before the Assessing Officer during the course of assessment proceedings itself. It was also submitted that the statement of Mr. Vishal Singh is not in line with the contents of the word document and is contradictory in as much as the declaration found in the word document stated that the payment was for purchases whereas as per the statement recorded u/s 132(4), the said amount was allegedly paid to one Mr. Nazir for electrical works. It was also submitted that the said document was unsigned, undated and it there was nothing in the said document which could conclusively prove that such expenditure was incurred by the assessee. Further, the department also failed to identify any person by the name Nazir to whom such payment was allegedly made. This being the case, the statement cannot be relied upon for making any addition especially when no corroborative evidence
We have heard the rival submissions and perused the material on record. The sole matrix of the disputed issue is that whether addition under provisions of section 69C of the Act can be made based on a word document found during the course of search proceedings and statement recorded u/s 132(4) of the Act in relation to such word document. It is an undisputed fact that the word document found on the computer during the course of search proceedings mention in relation to payment of Rs. 20,00,000/- for Disallowance u/s 14A r.w.r. 8D of the Act for A.Y. 2018- 19 [ITA No. 2005 & 2302/MUM/2021]:
The Ld. AR appearing for the assessee submitted that CIT(A) has erred both in law as well as on facts in sustaining the addition to the extent of exempt income earned by the assessee. It was submitted that the Assessing Officer did not find any flaw or did not point out any defect in the suo motu disallowance made by the assessee and no valid satisfaction was recorded by the AO before invoking the provisions of Rule 8D. To support this contention the Assessment Position of the Position of the Opening Balance Closing Year shareholders shareholders of Investment in Balance of fund as on 31st fund as on 31st Exempt Income Investment in March, 2017 March, 2018 Yielding ‗Mutual Exempt Funds‘ as on 1st (Rs.) (Rs.) Income April, 2017 Yielding ‗Mutual Funds‘ 31st as on March, 2018(Rs.) 2018-19 65,54,24,318/- 80,56,97,958/- 15,50,00,002/- Nil
From the above chart it is evident that the assessee had sufficient amount of own funds to cover the investment made in mutual funds which yielded exempt income. In support of this contention the Ld. AR relied upon the decision of Hon‘ble Supr eme Court in case of Sintex Industries Ltd. (2018) 255 taxman 171 (SC) wherein the Hon‘ble Apex Court dismissed the SLP filed by the department against the decision of Hon‘ble Gujarat High Court wherein it was held that disallowance u/s 14A was not at all warranted where the interest free own funds of the assessee were sufficient enough to cover the investment made by it. Similarly,
We have heard the rival contentions and perused the material on record. The issue under consideration is with respect to both the applicability of Section 14A r.w.r 8D as well as the quantum of disallowance, if any, to be made. From the details submitted by the Ld. AR it is sufficiently clear that the assessee had sufficient non-interest bearing funds to cover the amount of investment in mutual funds which yielded exempt income. Accordingly, presumption is available that the investment was made by the assessee out of its own funds and no interest bearing funds were utilized and no expenditure incurred in order to earn exempt income. This leads to a conclusion that no interest disallowance is warranted under the provisions of section 14A r.w.r. 8D of the Act.
However with respect to administrative expenses u/r 8D (2) (iii) of The IT Rules we direct the ld AO to restrict the disallowance to Order pronounced in the open court on 20.06.2023.