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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
आदेश / ORDER आदेश आदेश आदेश
PER SUSHMA CHOWLA, JM:
The cross appeals filed by assessee and Revenue are against the order
of CIT(A)-II, Nashik, dated 24.07.2014 relating to assessment year 2010-11
against order passed under section 143(3) of the Income-tax Act, 1961 (in short
‘the Act’).
The cross appeals filed by assessee and Revenue were heard together
and are being disposed of by this consolidated order for the sake of
convenience.
The assessee in ITA No.1743/PUN/2014 has raised the following
grounds of appeal:-
1 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition of Rs.20,00,000/- on account of compensation paid to Shri Balu Kadali. 2 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition of Rs.20,00,000/- ignoring that the said compensation expenditure has been proved in view of Notarized document filed with the A.O. 3 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.3,60,750/- on account of land development expenses incurred in the course of business and recorded in the audited books of accounts. 4 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.56,21,900/- on account of disallowance of depreciation on flat at Pune used for business purpose. 5 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.69,093/- on account of disallowance of depreciation on flat at Mumbai used for business purpose.
ITA No.1743/PUN/2014 3 ITA No.1804/PUN/2014
6 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.9,00,000/- on account of alleged unexplained advance received against land from Shri Prashant Hire. 7 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.3,63,455/- on account of disallowance of deduction u/s.80IB(10) of the Act. 8 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.1,26,000/- on account of deemed income from flats at Pune and Mumbai used for business purpose. 9 Your appellant craves, leave to add, alter, delete above or any other ground/s of appeal.”
3.1 The assessee has also raised the following additional ground of appeal :
On facts and in law,
The assessee submits that while computing the ‘accumulated profits’ for the purpose of section 2(22)(e), the current year profits of the lender company have to be excluded and in the instant case, the balance of accumulated profits of the lender company M/s. Ninad Builders, Contractors and Land Developers Pvt. Ltd., at the start of the year was Rs.Nil and therefore, no addition u/s.2(22)(e) was justified in the hands of the assessee in the year under consideration.”
The Revenue in ITA No.1804PUN/2014 has raised the following grounds
of appeal:-
The Learned CIT(A)-II, Nashik has erred by allowing deduction u/s.80IB on proportionate completion basis inspite of the fact that the project was incomplete before due date of completion and does not qualify for deduction u/s.80IB. 2. The Learned CIT(A)-II, Nashik has erred on facts and on law in interpreting provisions of section 80IB(10) of Income Tax Act, 1961. As per provisions of section 80IB, the deduction is allowable on profit derived from a housing project and not on profit from residential unit. 3. The Learned CIT(A)-II, Nashik has erred in law and on facts in considering the income of Late Valmik Raghunath Nikhade, Nashik u/s.2(22)(e) of the Income Tax Act, 1961 without considering the provisions laid down within that specific section and its applicability. 4. Hence, it is prayed that order of the Learned CIT(A) may be set aside and that of the assessing officer, may be restored. 5. The appellant craves the right to alter or modify any grounds or add a new ground.”
ITA No.1743/PUN/2014 4 ITA No.1804/PUN/2014
The grounds of appeal No.3 to 8 raised by the assessee are not pressed
and hence, the same are dismissed as ‘not pressed’.
Coming to the issue raised vide Ground Nos. 1 and 2 is against the
addition of Rs.20,00,000/- being compensation paid to Shri Balu Nivruti Kadali.
Briefly, in the facts of the case, the assessee was an individual engaged
in the business of building and developing housing projects, manufacturing and
selling of transformers under the name and style of “PVN Transformers”. The
assessee had expired on 06-05-2010. The return of income was filed by the
legal heir, i.e. his wife by declaring total income of Rs.39,86,430/-. The
Assessing Officer noted that the assessee had debited a sum of Rs.20,00,000/-
to the profit and loss account. In reply, the assessee pointed out that the said
payment was made to Shri Balu Nivruti Kadali as compensation for acquiring
right for approach road to get access to the assessee’s plot. In support, copy of
Sathekhat dated 24-01-2010 and ledger extract of the payment made was
furnished before the Assessing Officer. The Assessing Officer noted that the
total payment was made in cash. In this regard, the assessee explained that
the said person was an Adivasi residing at Chandsi Village and since the village
was not served by any bank and he was not having any bank account, the
entire payment was made in cash to him, In the agreement dated 24-01-2010
also, this fact was mentioned that the said person had no bank account. The
Assessing Officer in order to verify the identity of the person and the
genuineness of the transaction issued summons u/s.131 of the Act. However,
the said summons could not be served on the ground that Shri Balu Nivruti
Kadali was not residing in the village Chandsi, Nashik. It was also noted that
he was not residing in the village since last 10 years though he had some
ITA No.1743/PUN/2014 5 ITA No.1804/PUN/2014
agricultural land in the village. The assessee was confronted with the said facts
and was asked to produce Shri Balu Nivruti Kadali. The legal heir of assessee
explained her inability to produce him. Thus, the claim of the assessee was not
accepted and an addition of Rs.20,00,000/- was made on this ground.
Before the CIT(A), the assessee pointed out that the identity of Shri Balu
Nivruti Kadali and the genuineness of the transaction stands proved beyond
any doubt in view of the Notarized document dated 20-01-2010 which had
photo of the said person and seal and signature of notary Shri Pravin B.
Kharde, Nashik. The CIT(A) upheld the addition made in the hands of the
assessee in the absence of the assessee producing said person for verification
since the Inspector had reported that the person was not residing in the village.
It was also noted that Shri Balu Nivruti Kadali and his brother had sold the land
at Chandsi by a registered deed dated 24-07-2007 to Shri Martand Gomaji
Shardul who inturn sold the said land by registered deed to the assessee.
Since the land had been sold by Shri Balu Nivruti Kadali the CIT(A) held that he
had no right in the said land. Hence, making payment for road to Shri Balu
Nivruti Kadali appeared to be not logical. Hence, the onus having not been
discharged by the assessee, the contention of the assessee was rejected and
addition of Rs.20,00,000/- was upheld.
The learned Authorized Representative for the assessee pointed out that
the aforesaid payment of Rs.20,00,000/- in cash was made to Shri Balu Nivruti
Kadali for right to alter road passing through the land which was purchased by
the assessee. He submitted that the right was with Shri Balu Nivruti Kadali. On
24-07-2007 when the land was sold by Shri Balu Nivruti Kadali to Shri Martand
Gomaji Shardul the right was there and he never passed on the said right to
ITA No.1743/PUN/2014 6 ITA No.1804/PUN/2014
Shri Martand Gomaji Shardul. It is clear from Para 5(2) of the said agreement.
Shri Martand Gomaji Shardul sold the said right to the assessee vide deed
dated 20-02-2008 with the same condition. On a later date, the assessee
acquired the right to alter the road and paid Rs.20,00,000/- by a document
dated 20-01-2010. The learned Authorized Representative for the assessee
stressed that both the Assessing Officer and the CIT(A) have made the
aforesaid addition on the ground that the payment was made in cash and the
person could not be produced. The CIT(A) further holds that Shri Balu Nivruti
Kadali had no right in the road. In reply, learned Authorized Representative for
the assessee stressed that Shri Balu Nivruti Kadali was an Adivasi and was not
traceable but the identity and genuineness of the transaction stands
established. The second plea raised by him was that where the assessee had
already expired then his wife was not in a position to produce the said person.
The learned Departmental Representative for the Revenue placed
reliance on the orders of authorities below.
We have heard the rival contentions and perused the record. The issue
which arises in the present appeal is against the addition of Rs.20,00,000/-.
The said payment was made in cash to one Shri Balu Nivruti Kadali vide
document executed between the assessee and said Shri Balu Nivruti Kadali
which is a Notarized agreement dated 20-01-2010. But the background of the
issue is that Shri Balu Nivruti Kadali was the owner of a piece of land which
was sold by registered deed dated 24-07-2007 and 05-09-2007 to Shri Martand
Gomaji Shardul. The assessee has filed the copy of the said sale deed at page
34 to 86 of the paper book with English Translation separately filed. As per
Para 5(2), the road which was already constructed along East-West direction of
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the property was agreed to be maintained as it was. The relevant part of Para
5(2) reads as under :
“Para 5(2) : The area given to you as described in points A to E are marked in red in the layout map attached. From the layout attached there is a Road constructed along the East-West of the property. The right for which are transferred to you along with the property. But the road constructed along the East-West direction of the property is to be maintained as it is and any activity carried out on the property should not affect the Road at any time in future and on this condition only the rights of the road are transferred to you along with this property.”
The said land was further sold by Shri Martand Gomajo Shardul to the
assessee and Para 5 of the registered document dated 04-02-2010 was on
similar lines, copy of which is placed at pages 87 to 113 of the paper book. In
other words, the position of road was not to be disturbed by the assessee and
no right was given to the assessee to change direction of the road. On a later
date, i.e. 20-01-2010, the assessee entered into an agreement with Shri Balu
Nivruti Kadali, copy of which is placed at pages 114 to 119 of the paper book
and the assessee sought permission to alter the road for approval of layout. As
per the terms agreed between the parties, the said permission was given and a
sum of Rs.20,00,000/- was paid in cash for the same. The assessee has also
mentioned in the said notarized document that no rights in the said road were
transferred on the earlier occasion to any person in any form or any
consideration was received for such transfer. The said document also
mentioned the trail of transaction between the parties, i.e. Shri Balu Nivruti
Kadali to Shri Martand Gomaji Shardul and then to the assessee. In the said
facts and circumstances where the transaction has been completed through the
written documents and a perusal of the notarized agreement dated 20-01-2010
placed at pages 114 to 119 of the paper book also reflect that the photo identity
of Shri Balu Nivruti Kadali was there and the agreement was duly notarized and
ITA No.1743/PUN/2014 8 ITA No.1804/PUN/2014
hence, the same merits to be accepted. Merely because the said person could
not be produced would not disentitle the assessee form the aforesaid claim of
expenditure especially in the circumstances where the assessee was no more
and the case was being represented by his wife (as legal heir). Accordingly, we
direct the Assessing Officer to allow the claim of the assessee.
Now coming to the additional ground of appeal raised by the assessee,
i.e. against the legal issue of computation of accumulated profits for the
purpose of section 2(22)(e) of the Act, the issue raised is purely legal and the
same is admitted for adjudication.
The plea of the assessee before us is that in order to compute the
accumulated profits for the purpose of section 2(22)(e) of the Act, the current
profits of the lender company have to be excluded. It was also pointed out at
the start of the year, the accumulated profit of the lender company was Nil and
therefore, no addition u/s.2(22)(e) was warranted. In this regard, both the
Assessing Officer and CIT(A) had not accepted the plea of the assessee.
The learned Authorized Representative for the assessee has placed
reliance on the judgment of Hon’ble Gujarat High Court in CIT Vs. M.B.
Stockholding (P) Ltd. reported in (2015) 64 taxmann.com 138 (Gujarat) and the
decision of Pune Bench of the Tribunal in Rajmal Lakhichand Vs. JCIT, Range-
1, Jalgaon reported in (2018) 92 taxmann.com 94 (Pune-Trib.).
The learned Departmental Representative placed reliance on the order
of the CIT(A).
We have heard the rival contentions and perused the record. The issue
which arises before us for adjudication is against the addition made u/s.2(22)(e)
ITA No.1743/PUN/2014 9 ITA No.1804/PUN/2014
of the Act. The assessee’s case is that no such addition is warranted as the
accumulated profits at the start of the year was NIL in hands of the lender
company. It was also pleaded that current year’s profits of the lender company
have to be excluded for computing the accumulated profits for the purpose of
section 2(22)(e) of the Act. We find that the said issue raised by the assessee
is squarely covered by the judgment of Hon’ble Gujarat High Court in CIT Vs.
M.B. Stockholding (P) Ltd. (supra) wherein it was held as under :
“4.1 Having heard Mrs. Bhatt, learned advocate appearing on behalf of the Revenue and considering the provisions of Section 2(22)(e) of the Act, more particularly, Explanation 2 to Section 2(22)(e) of the Act, it cannot be said that the learned Tribunal has committed any error in directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act. While determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the learned Tribunal, the issue is already settled by the Hon'ble Supreme Court against the Revenue in the case of Associated Banking Corporation of India Ltd. v. CIT [1965] 56 ITR 1 by which, the view taken that the profit accrues when the books of account are closed.
Under the circumstances and considering the Explanation 2 to Section 2(22)(e) of the Act, we confirm the view taken by the learned Tribunal and held the question No.1 raised in the present appeal in favour of the assessee and against the Revenue. Consequently, the present appeal deserves to be dismissed and is accordingly dismissed. No order as to costs.”
The assessee before us has also furnished the audited balance sheet of
the said concern Shree Ninad Builders Contractors & Land Developers Pvt. Ltd.
The accumulated profits at the start of the year were NIL. The share capital
issued and paid-up capital and also Reserves & Surplus as on 01-04-2009
were NIL. Following the parity of reasoning as laid down by the Hon’ble
Gujarat High Court (supra), we hold that no addition is to be made in the hands
ITA No.1743/PUN/2014 10 ITA No.1804/PUN/2014
of the assessee by invoking the provisions of section 2(22)(e) of the Act.
Hence, the additional ground of appeal raised by the assessee is allowed.
Now coming to the appeal filed by Revenue the first issue raised is
against the pro-rata deduction allowed u/s.80IB(10) of the Act. Grounds of
appeal No. 1 and 2 raised by the Revenue are against the deletion on the
aforesaid issue by the CIT(A).
Ground of appeal No.3 raised by the Revenue is against the order of
CIT(A) while deciding the issue u/s.2(22)(e) of the Act. Since we have already
decided the issue of invoking the provisions of section 2(22)(e) of the Act on
jurisdictional basis, ground of appeal No.3 raised by the Revenue becomes
academic and the same is dismissed.
Coming to the grounds of appeal No.1 and 2, briefly, the facts relating to
the issue are that the assessee had constructed housing project at Karjat, Dist.
Ahmednagar. The said project was commenced vide commencement
certificate dated 20-12-2015 issued by the Gram Panchayat Karyalay, Karjat.
The project consisted of 126 residential units and the due date of completion of
the project was 31-03-2011. The completion certificate in respect of 126
residential units was issued on 25-03-2010 and consequent thereto the
assessee claimed deduction u/s.80IB(10) of the Act in assessment year 2010-
During the course of assessment proceedings, the Assessing Officer along
with the Inspector visited the above housing project on 06-03-2012. As per the
visit, it was noticed by the Assessing Officer that construction of 5 units out of
126 units was still under progress and the same was not completed. The visit
was on 06-03-2012. The assessee claimed that the construction of 5 units was
completed prior to 31-03-2011 and only minor work like painting, tiling and door
ITA No.1743/PUN/2014 11 ITA No.1804/PUN/2014
fittings was remaining. The said additional work was requested and being
carried out, though the possession of the units was given to the customers
without doing the said work. The assessee also explained that it was not
necessary to complete the above work for obtaining the completion certificate.
However, the Assessing Officer did not accept the claim of the assessee and
held that the construction of housing project was not completed prior to
31-03-2011. The Assessing Officer also held that even the proportionate
deduction in respect of the units completed was not allowable to the assessee.
Hence, the entire deduction claimed u/s.80IB(10) of the Act was denied to the
assessee.
In appeal, the CIT(A) concurred with the finding of the Assessing Officer
that 5 units out of 126 units were not habitable prior to 31-03-2011. However,
he holds that where the construction of remaining 121 units were complete in
all respect prior to the specified date, the assessee was entitled to pro-rata
deduction u/s.80IB(10) of the Act. In this regard, reliance was placed on the
decision of various High Courts and the Pune Bench of the Tribunal. The
Revenue is in appeal against the same.
We have heard the rival contentions and perused the record. We find
the issue stands covered by a series of decisions including the decision of
Pune Bench of the Tribunal in DCIT Vs. M/s. Om Associates in ITA
No.1031/PUN/2016 order dated 06-06-2018 for the assessment year 2011-12.
Accordingly, we uphold the order of CIT(A) in allowing proportionate deduction
u/s.80IB(10) of the Act. Grounds of appeal No.1 & 2 raised by the Revenue are
thus dismissed.
ITA No.1743/PUN/2014 12 ITA No.1804/PUN/2014
In the result, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.
Order pronounced on this 07th day of June, 2019.
Sd/- Sd/- (D.KARUNAKARA RAO) (SUSHMA CHOWLA) लेखा सद�य लेखा सद�य / ACCOUNTANT MEMBER �याियक �याियक सद�य सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य �याियक �याियक सद�य सद�य
पुणे Pune; �दनांक Dated : 07th June, 2019 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; आयकर आयु�(अपील) / The CIT (Appeals)-II, Nashik. 3. 4. The CIT-II, Nashik 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / DR ‘A’, ITAT, Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA No.1743/PUN/2014 13 ITA No.1804/PUN/2014
Date 1. Draft dictated on 30-05-2019 Sr.PS 2. Draft placed before author 31-05-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.