SKYLINE GREATHILLS ,MUMBAI vs. DCIT, CENTRAL CIRCLE 8(2), MUMBAI

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills undisclosed expenditure should be recognized, and increase in WIP due to increase in such expenditure should be allowed.

2 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 17,66,44,500/- being business income in the guise of security deposit received by the Respondent, as the latter had already transferred its rights of ownership by way of irrevocable covenant as also received the entire consideration by way of security deposit?

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills

“11. The AO made the addition on the grounds that the company SMPL is of the same management since all the partners of the appellant firm holds 59.66% of the shares in SMPL. Similar addition of Rs 23.63 lakhs was made u/s 2(22)(e) in the assessment order passed for the A.Y 2009-10 on the amount of security deposits received of Rs 54,68,90,000. The Ld CIT (A) vide order dated 21.09.2012 has held that the entire amount of security deposits received of Rs 54,68,90,000 cannot be said to business receipt because market value of land itself has been valued by stamp valuation authority at the time of registration at Rs 42,41,44,500. Therefore, the excess amount received by the appellant of Rs 12,27,45,500 over and above the stamp duty value cannot be considered as business receipts. Accordingly, CIT(A) directed the A.O to considered the amount of Rs 12.27 crores for the purpose of section 2(22)(e) of the Act. The Hon'ble Mumbai ITAT vide order dated 08.05.2013 has held that the amount received as security deposits is a business receipt. Relying on the decision of Universal Medicare Pvt. Ltd. it is held that since the appellant is neither the shareholder nor beneficial shareholder of SMPL, the amount in question can not be treated as deemed dividend in the hands of appellant firm.

11.2 The Hon'ble Bombay High Court vide order dated 16.02.2016(ITA No 2299 of 2013) has upheld the decision of Hon'ble Mumbai ITAT. The relevant portion of this decision is reproduced as under-

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills "(f) The issue as raised for our consideration in the question formulated, is no longer res integra as this Court in Universal Medicare Pvt. Ltd. (supra) has inter alia held thus:-

"Consequently, the effect of clause (e) of section 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee." (emphasis supplied)

(g)in the above view, the question as formulated for our consideration does not give rise to any substantial question of law. Thus, not entertained"

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills “19. For the year under consideration, it is observed that the AO has relied on the findings of the Ld. CIT(A) in A.Y. 2009-10. Thus, to arrive at the consideration of the JDA, the AO has substituted Rs. 42,41,44,500 being the stamp duty value as per municipal records in place of Rs. 24,75,00,000 suo moto offered by the appellant. Thus, what the AO has failed to appreciate that the asset under consideration being development rights has been classified as a stock-in-trade by the appellant in the books of accounts and thus impliedly applied provisions of section 50C to a business asset is not justified in light of decisions rendered by the Hon'ble ITAT in the appellant's own case for A.Y. 2009-10. Nevertheless, the provisions of section 43CA of the Act could not have impugned year as the same have been inserted with effect been invoked in the impugned year as the from 01.04.2014.

"4. Consideration

4.1 As and by way of consideration for the grant by the Joint Developers to the Owners/Developers of the development rights in respect of the Property described in the Third Schedule hereunder written as aforesaid, and conferring upon the Owners/Developers the rights, powers, privileges and benefits as set out herein to the Joint Developer. Owners/Developers shall construct for and allot flats /penthouses/shops/offices/parking spaces having FSI equivalent to 16,500 sq. mts.along with proportionate parking spaces Owners'/Developers' own cost. at the

4.2 It is agreed that in respect of any area in the said Property required by the concerned authorities to be earmarked for any reservation, amenity open space or facilities of any nature (both present and future) including while giving permission for the Development or conversion of the said Property from Residential user to Commercial user, then, the obligations attached to providing such reservations, amenity open space or facilities shall be carried out by the Owners/ Developers at their own expense in all respects. All the

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills FSI/TDR and other benefits available in respect thereof shall belong to the Owners/Developers."

20.2 On perusal of the above, it can be seen that the appellant is not receiving any monetary considerations upon transfer of development rights through the JDA. What the appellant is entitled to get is flats / penthouses /shops/offices/parking spaces having FSI equivalent to 16,500 sq. mtrs. Thus, in such a situation the appellant has quantified the consideration by applying the ready reckoner value as on 2011 to the constructed area it will receive pursuant to the JDA. The appellant has offered Rs. 24,75,00,000 as a consideration for entering the JDA. While doing so, the appellant has considered Rs. 15,000 per sq. mtr as a tentative consideration for the constructed premises that it would receive in the future i.e. 16,500 sq. mtrs.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills on account of unexplained cash expenditure found during the survey. While going through the computation of income of the assessee for AY 2012-13 the ld. CIT(A) has observed that, though the assessee had made the declaration of Rs. 12 crores, but at the same time the amount offered has been capitalized as work- in-progress in the books of account, thus indirectly the effect of declaration of additional income has been nullified. The ld. CIT(A) issued a show cause notice under section 251(1) of the Act on 10.01.2025, to explain as to why the additional income offered during the survey should not be reduced from the WIP of the assessee to the extent it has been capitalized.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills

“Section 251 of the Income-tax Act, 1961 [Corresponding to section 31(3) of the Indian Income-tax Act, 1922] - Commissioner (Appeals)- Power of Assessment year 1952-53 - Whether power of enhancement of AAC under section 31(3) of 1922 Act is restricted to subject matter of assessment or source of income which have been considered expressly or by clear implication by ITO from point of view of taxability of assessee - Held, yes - Whether, therefore, AAC had no jurisdiction under section 31(3) of 1922 Act, to assess a source of income which had not been processed by ITO and which was not disclosed either in return filed by assessee or in assessment order - Held, yes”

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills empowering the CIT(A) to invoke the provisions in respect of enhancement under section 251 of the Act.

"The inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 and section 263, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority."

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills decision is based on the facts unique to the assessee's case. This ground of the assessee is allowed accordingly.”

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills issue on account of legality that a new issue cannot be taken up by the appellate authority under section 251(1) of the Act unless the same is dealt with by the ld. AO, whereas nothing could be established on merits so as to support the capitalization of unaccounted expenditure in WIP. Under such circumstances ld. CIT(A) has correctly enhanced the income of assessee by reducing the amount of work-in-progress.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills assessment order and facts on records, it is ostensive that he had look into it. Such fact is visible from the impugned order of Ld. CIT(A), having observation that “the AO did not examine other components of the financial statement”. We thus find force in the submissions of Ld. AR, on first principle, that section 251(1) of the Act restricts the CIT(A) to assume jurisdiction for enhancement of income, on an issue or new source of income, which was not dealt with or considered by the Ld. AO, during the assessment proceedings, at the most such issue can be taken up by invoking provisions of section 263, section 147 or section 154, if law permits to do so. In view of such ratio of law in place, we are of the considered opinion that in the facts and circumstances of the present case the proceedings for enhancement by the Ld. CIT(A) are not in consonance with the mandate of law, vitiates and proposed enhancement, hence is liable to and directed to be reversed. In result the ground no 1 raised by the assessee, stands allowed. 15. On merits we are not expressing any view, as the facts of case relied upon and facts of present matter are subject to further verification. Also, once the enhancement is held as invalid, ground no. 2 and 3 of the present appeal became academic only.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills 17. In result the appeal of assessee in ITA 3466/M/2025 stands allowed, in terms of our aforesaid observation.

ITA 3904/MUM/2025 revenues appeal 18. Ground No.1 : regarding addition made under section 2(22)(e) of the Act.

“Consequently, the effect of clause (e) of section 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has 15

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee."

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills wherein the addition of Rs. 23,63,010/- was made under section 2(22)(e) of the Act which though Hon’ble ITAT had deleted, however the Department has not accepted such decision and has preferred an appeal before the Hon’ble Bombay High Court. As per order of ld. CIT(A), the ITAT, Mumbai vide order dated 08.05.2013 in ITA No. 6616/Mum/2012 for AY 2009-10 in assessee’s own case has held that the amount received as security deposit constitutes a business receipt. The issue was further challenged before the Hon’ble Jurisdictional High Court of Bombay, wherein the question raised by the revenue was dismissed by the Hon’ble Bombay High Court vide order dated 16.02.2016 (ITA No. 2299 of 2013) [2016] 68 Taxmann.com 188 (Bom.), the issue has been decided by the ITAT regarding addition under section 2(22)(e), challenged by revenue was dismissed by the Hon’ble High Court with the observation that no addition in the hands of assessee can be made, at the most if any dividend in terms of provisions of section 2(22)(e) has to be added the same can be taxed in the hands of shareholders only. As the assessee company is neither a registered shareholder nor beneficial shareholder, therefore the issue is squarely covered by the decision of ITAT and Hon’ble Bombay High Court in the assessee’s own case.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills material, decision or argument by the Department, are of the considered opinion that the ld. CIT(A) has rightly and judiciously adjudicated the issue in favor of the assessee following the decision of ITAT, which was approved by the Hon’ble Bombay High Court in assessee’s own case. Accordingly, we approved the decision of ld. CIT(A) with no modification to the same.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills is prayed that the order of ld. CIT(A) on the issue is liable to be reversed and the addition made by the ld. AO deserves to be upheld.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills Transfer of Property Act cannot be made applicable to the land under consideration, the said land is stock-in-trade and it is not a capital asset. It is further held that the business profit arises to the assessee on the sale of stock-in- trade only when the constructed premises are sold and not at the time when development agreement was entered into. ITAT has held that the development rights can be said to be transferred only in the FY 2011-12 relevant to AY 2012- 13 and not in the year when JDA was entered into. Accordingly, the amount received by assessee for Rs. 24,75,00,000/-, which was suo moto offered as income by the assessee shall be the income of assessee for the relevant year, which cannot be substituted by the stamp duty value of land which is of entire land parcel consisting of 32262 sq. mtrs. Therefore, the ld. CIT(A) has rightly adjudicated the issue in favour of the assessee with observation that the assessee will get consideration for only 16500 sq. mtrs of constructed area out of the JDA, therefore market value of plot of land as a consideration for JDA is incorrect approach to adopt as income of the assessee and therefore the addition made by ld. AO by completely ignoring the consideration clause of JDA and re- computing the income on the basis of market value of the entire plot in place of value to be derived in terms of JDA was bereft of substance and devoid of merits, the same therefore rightly deleted by the ld. CIT(A).

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills Tribunal has decided the issue in AY 2009-10 in assessee’s own case, from where the main outcome of the finding are, that the subjected land is stock-in- trade and not a capital asset. The amount received as deposit by the assessee under JDA should not be considered as sale consideration received by the assessee. The nature of transaction between the parties by way of development agreement cannot be considered to be a sale of immovable property which is stock-in-trade or otherwise as provided in the Transfer of Property Act. It was held that the business profit arises to the assessee on sale of stock-on-trade only when the constructed premises were sold and not at the time when development agreement was entered into. We thus find substance in the decision of ld. CIT(A) that the actual FSI which is available to the assessee as a consideration of JDA was only 16500 sq. mtrs for which the actual amount to be taxed was Rs. 24,75,00,000/- and the value of total plot of land admeasuring 32262 sq. mtr. as per market value /ready reckoner cannot be added in the hands of assessee. We, thus, approve the decision of ld. CIT(A), which is based on the findings of ITAT in assessee’s own case for AY 2009-10.

ITA Nos. 3466 & 3904/Mum/2025 M/s Skyline Greathills 31. In result, the appeal of revenue is dismissed.

(Dy./Asstt. Registrar) ITAT, Mumbai