DY CIT CC 4(1), MUMBAI vs. M/S R S ASSOCIATES , MUMBAI

The cross appeal is filed by the revenue and the assessee against the order of the Commissioner of & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 2 - Income Tax (Appeals) -52, Mumbai passed u/s 147 r.w.s 143 and 250 of the Income Tax Act, 1961.

In the assessee has challenged the validity of reassessment proceedings, being the legal & jurisdictional issue. The assessee has raised the following grounds of appeal.

The brief facts of the case are that, the assessee is a partnership firm and is engaged in the business of real-estate development. The assessee has filed the return of income for the A.Y 2010-11 on 30.09.2010 with a total income of Rs.30,16,54,952/- and the assessment was completed U/sec 143(3) of the Act dated 05.11.2012 with taxable income of Rs. 30,16,,54,954/-.Subsequently, the assessing officer (A.O.) has reason to believe that, there is income escaping the assessment as per the reasons recorded at page 2 of the assessment order and issued notice u/s 148 of the Act dated 16.12.2015. The assessee has filed a letter on 25.12.2015 to treat the return of income filed u/s 139(1) of the Act as due compliance to notice issued u/s 148 of the Act. The A.O. provided copy of reasons recorded for reopening of assessment refered at page 2 of the order, read as under:

The assessee has filed the objections for reopening of assessment and the A.O has disposed off the same by office letter dated 14.07.2016.Subsequently, notice u/s 143(2) and 142(1) of the Act are issued. In response to the notice, the Ld.AR of the assessee appeared from time to time and submitted the details. The A.O. found that the assessee is a builder and the owner of land situated at Village Poisar, Taluka Borivili, Mumbai has engaged M/s Sheth Developers Ltd for joint development of the property vide an agreement dated 28.11.2002 with an understanding & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 5 - that 50% of the sale proceeds of the flats or parking spaces/garages to be sold shall be shared with the assessee firm. Whereas the A.O. has verified the information submitted by the assessee and observed that the assessee has to share the revenue and expenses from the project of Vasant Pride in the ratio of 50:50.The A.O. has worked out the revenue and expenses shared in equal proportion. But the assessee firm has claimed 100% cost of expenditure pertaining to projects towards the opening work in progress(WIP) in the profit and loss account. Finally, the A.O is of the opinion that the assessee has claimed 50% more expenditure in the opening work in progress and made disallowance of Rs.2,30,29,668/-and assessed the total income of Rs.32,46,84,620/- and passed the order u/s 147 r.w.s 143(3) of the Act dated 26.12.2016.

Aggrieved by the order, the assessee has filed an appeal before the CIT(A) whereas the CIT(A) considered the grounds of appeal, submissions of the assessee, findings of the A.O. and granted the marginal relief to the extent of claim of work in progress and partly allowed the assessee appeal. Aggrieved by the CIT(A) & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 6 - order, the assessee has filed an appeal with the Hon’ble Tribunal.

We heard the rival submissions and perused the material available on record. The Ld.AR made submissions on the validity of reassessment proceedings that the assessment was reopened on the same set of facts and material and on the wrong assumption of the facts by the A.O. We find that the Ld. AR has restricted his arguments to the extent of & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 7 - validity of reassessment. The Ld. AR’s contentions are that the original order was passed under 143(3) of the Act for A.Y 2010-11 on 05.11.2012 and the assessee has made fair and full disclosure of material information in the Assesseement proceedings and now the A.O. on the same facts and material has formed an opinion of escapement of income and issued notice U/sec148 of the Act The Ld.AR has demonstrated the reasons recorded by the A.O at page 2 of the assessment order and submitted that the A.O. has wrongly interpreted the agreement clauses and was of the opinion that the revenue and expenses of the project shall be shared in the ratio of 50% each and the assessee has not shared the opening work in progress(WIP) and claimed 100% of work in progress in the profit and loss account.

The Ld. AR emphasized that as per the agreement the assessee is not entitled to share expenditure with the developers and therefore has claimed opening work in progress in the profit and loss account. The Ld. AR demonstrated the finance-cum-development agreement between the assessee and M/s Sheth Developers Ltd dated 28.11.2002 at page 44 to 76 of the paper book. & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 8 - The contentions of the Ld. AR are that the A.O. has wrongly assumed the facts of sharing revenue and expenditure in ratio of 50% each share which is factually incorrect as there is no specific clause in the agreement that the expenditure has to be claimed in ratio of 50% each. The Ld. AR refer to page 49 of paper book were the allocation of property for residential, sanctioned, and construction of retail park and parking lot is being developed was discussed. Further at page 52 clause -4 is read as under:

Similarly in the agreement at page 51, there is a discussion on the developers requisite financial, managerial and organizational sources and the infrastructure development of the property as per the layout and sanctioned building plan. Further the Ld. AR referred to clause – 9 &11 at page 53 & 54 of the paper that the asseessee shall obtain the permission from MCGM for development and handing over parking & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 9 - lot to BMC at the cost of owner/assessee. The Ld.AR demonstrated clause-11 of the agreement that the sales proceeds received from sale of flats in the project shall be shared in ratio of 50% each. Finally the Ld.AR to substantiate that the cost shall be borne by the owner/assessee as per agreement has read clause- 21,22,26,27,29,&30 to substantiate that the all the cost of the project has to be incurred by the owner/assessee. The Ld. AR emphasized that except revenue sharing between the assessee and developer no expenditure is shared. Further, the opening balance of WIP is carry forwarded from earlier years and the Ld. AR referred to the chart at page 94 of the paper book and most of the expenses are incurred by the assessee prior to entering into the agreement on 28.11.2002.

We considering the factual aspects, material and the submissions of the Ld. AR observe that the provisions of Sec.148 of the Act has to invoked only when the A.O. has reason to believe that the income has escaped assessment. where as in the present case on perusal of the various clauses which the Ld. AR has referred in the hearing, it is very clear that the reasons & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 10 - for sharing expenses and revenue are supported with the evidences and in most of the cases it is revenue sharing inter se between the assessee and developer and there is no cost/ expenditure sharing by the developer. We find that the Ld.AR submissions are realistic and has referred to the clauses in the agreement in particular to show that no expenditure has been shared by the developer. We are of the opinion that the A.O. has ventured on a wrong assumption of facts though the agreement was available on hand with the A.O. in the original assessment proceedings. The AO has assumed that when the revenue is being shared,the cost/expenditure shall also be shared between the assessee and developer. Further there is no tangible material was brought to our knowledge by the Ld.DR to come to a conclusion that there is an income escaping the assessment. We considering the facts and circumstances are of the opinion that the reopening on the wrong assumption of facts by the assessing officer cannot be sustained. Accordingly, we find the reassessment is bad in law and quash the assessment order passed u/s 143(3) r.w.s 147 of the Act. Since the & 1349/Mum/2020 M/s R.S Associates, Mumbai. - 11 - legal issue is decided in favour of the assessee and again adjudicating on merits becomes academic and are left open and we allow the grounds of appeal in favour of the assessee. (Revenue)

Since the reassessment proceedings are invalid, and the Assesseement order is annulled, therefore the appeal of the revenue becomes infractious and is dismissed.

In the result, the appeal filed by the revenue is dismissed and the assessee appeal is allowed.