ACIT, COIMBATORE vs. RASI ASSETS CORPORATION, COIMBATORE

आयकर अपीलीय अिधकरण ‘बी’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI

माननीय +ी महावीर िसंह, उपा12 एवं माननीय +ी मनोज कुमार अ7वाल ,लेखा सद: के सम2। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

- 2 - आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by revenue for Assessment Years (AY) 2007-08 and 2013-14 arises out of separate orders of learned first appellate authority. The assessee has filed cross-objections for AY 2013-14. The appeal for AY 2007-08 arises out of common order passed by learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 21.10.2016 for AYs 2007-08 to 2012-13. The assessment for this year was framed by Ld. AO u/s 143(3) r.w.s. 153C on 31.03.2015 wherein the returned income of Rs.14.61 Lacs was assessed at Rs.1148.36 Lacs. The grounds taken by the revenue read as under: - 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The Ld. CIT(A) is not justified in deleting the addition of Rs.14,27,50,637/- made by the AO towards business income of the assessee, in the assessment order passed for the AY 2007-08. 2.1 The Ld. CIT(A) ought to have appreciated the reasons stated in the assessment order by the AO for making the said addition of Rs. 14,27,50,637/- in the assessment. 2.2 The Id. CIT(A) having relied on the decision of the Hon'ble Apex Court in the case of Alapati Venkatramiah Vs CIT reported in 57 ITR 185 has failed to take note of the decision of the Hon'ble High Court of Bombay in the case of Chaturbhuj Dwarakadas Kapadia Vs CIT (269 ITR 491, Bom) wherein, it has been held that even arrangements confirming privileges of ownership without transfer of title could fall under the ambit of sec.2(47)(v) of the I.T. Act,1961 and which decision is fully applicable to the case of the assessee. 3. The Ld.CIT (A) erred in deleting the disallowance of Rs.6,24,434/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 r.w.Rule 8D of the IT Rules, 1962 in the assessment for AY 2007-08 made u/s 143(3)r.w.s 153A of the IT act, 1961 in the above case. 3.1 The ld.CIT(A) erred in holding that, the disallowance u/s 14A of the IT Act, 1961 cannot be made in absence of reference to any incriminating material/ documents seized during the search, when the assessee had made investment in shares, etc., and had incurred expenses for the earning of tax free income, and the Assessing Officer had rightly followed the provisions of the Act, in accordance with the legal mandate under section 14A of the 1.T. Act, 1961. 3.2 The ld. CIT(A) erred in not appreciating that the disallowance under the provisions of Section 14A of the IT Act, 1961 is mandatory when the assessee had made investment in shares and had incurred expenses for the purposes of earning

- 3 - of tax free income, even if, the assessee had not earned any exempt income or has not incurred any expenditure towards earning of such exempt income. 3.3 The Id. CIT(A), ought to have taken note that the Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act, has clarified vide circular No.5/2014 dt 11/02/2014, that Rule 8D read with Section 14A of the Act, provides for disallowance of the expenditure, even where the taxpayer in a particular year has not earned any exempt income. 4. The ld. CIT(A) erred in holding that addition in assessment u/s 153A of the IT Act 1961 can be made only based on incriminating documents seized when as per section 153A of the IT Act, the Assessing officer is required to assess the total income of the assessee for each assessment year falling within the six assessment years, immediately preceding the previous year, in which search was conducted. 4.1 The ld.CIT(A) having relied on the decision of Hon'ble ITAT Special Bench Mumbai in the case of All Cargo Global Logistics Ltd. Vs DCIT(2012) 137 ITD 287 (Mum) (SB) erred in not appreciating that the facts of the present case are different in that, in the present assessee's case, there was no completed assessment either u/s 143(3) or 147 of the IT Act. 4.2 The Id. CIT(A) erred in not following the decision of Hon'ble Kerala High Court in the case of CIT, Thrissur Vs St. Francis Clay Decor Tiles(2016) 385 ITR 624 and the decision of the Hon'ble Karnataka High court in ITA No. 38/2014 dated 25.07.2014 in the case of M/s Canara Housing Development Company VS dcit, Central Circle-1(1), Bangalore. 5. For these grounds and for any other ground including amendment that may be raised during the course of the appeal proceedings, the order of learned CIT (Appeals) may be set aside and that of the Assessing Officer be restored.

- 4 - the case. Drawing attention to the assessment order, Ld. AR submitted that computational mechanism of capital gains would not apply since Ld. AO has assessed the income as ‘Business Income’ only and not under the head ‘Capital Gains’. The Ld. AR further submitted that there was no incriminating material unearthed by the revenue and therefore, the additions would not otherwise be sustainable in the eyes of law. Having heard rival submissions and after perusal of case records, our adjudication would be as under. Assessment Proceedings 4.1 The assessee being resident firm is stated to be engaged in real estate business. The income of the assessee is admitted as well as accepted under the head ‘Profits and gains from Business / Profession’. Pursuant to search action u/s 132 on 10.01.2013 on the case of M/s Rasi Seeds Private Ltd. Group of cases, certain documents were found from the resident of Shri M. Ramasami, Chairman-cum-Managing Director of that entity. The documents were seized wherein page nos. 36 to 45 was a Joint Development Agreement (JDA) dated 30.03.2007 between the assessee (landowner) and a partnership firm M/s V.R. Nachimuthu (developer). The agreement was for construction of a residential complex containing 128 flats on 2 acres 38 cents of land owned by M/s NSR Corp. on Mettupalayam Road, Coimbatore. Since the seized document belonged to the assessee, proceedings u/s 153C r.w.s. 153A were initiated against the assessee. The case of the assessee was centralized vide notification no.07/2013-14 dated 20.08.2013 and notice u/s 153C was issued on 24.09.2013. The assessee offered income of Rs.14.61 Lacs on 02.04.2014. The original return of income was filed by the assessee on 28.10.2007 declaring same income of Rs.14.61 Lacs and

- 5 - evidently, no proceedings, whatsoever, were pending for this assessment year and this year was un-abated year. 4.2 During search action, statement of Shri V.N. Subramanian, Partner of M/s V.R. Nachimuthu was recorded which was confronted to the assessee by Ld. AO in the show-cause notice dated 24.03.2015. In terms of JDA, the assessee was entitled for 37.5% of super built up area. The assessee contributed land admeasuring 2 acres and 38 cents as their share in the project in exchange of 37.5% super built-up area. The land was shown as ‘business asset’ in the assessee’s books of account and Ld. AO opined that the profit arising on the sale of land was to be assessed as ‘business income’. On the date of signing of agreement, 62.5% of land was transferred to M/s V.R. Nachimuthu for construction and therefore, the transfer of land was complete to that extent. The profit arising therefrom would be liable to be assessed as ‘business income’. Proceeding further, the assessee would get 37.5% of super built up area. The cost of construction worked out to be Rs.2100 per square feet and the entire investment in the building was to be met by the developer. The 37.5% of built-up area was to be treated as consideration for sale and transfer of undivided proportionate share in the land comprised in the said premise. The Ld. AO also opined that the sale of land was complete when JDA was affected on handing over the possession to the developer. Accordingly, Ld. AO computed cost of construction of assessee’s share of 37.5% as Rs.1793.80 Lacs. The cost of land put to JDA to the extent of 62.5% was worked out to be Rs.366.30 Lacs. The differential of the two i.e., Rs.1427.50 Lacs was held to be ‘business income’ of the assessee for this year.

- 6 - 4.3 Another issue which is subject matter of appeal is disallowance u/s 14A r.w.r. 8D. The same was computed u/r 8D(2)(iii) for indirect expenditure computed @0.50% of average investments which resulted into disallowance of Rs.6.24 Lacs. 4.4 The assessee assailed the findings of Ld. AO and submitted that mere entering into JDA would not give rise to any income under the head ‘Business’. The proposal to bring to tax the proposed income would arise only if the income was assessed under ‘capital gains’ where the question of transfer would become relevant. Another point brought to the notice was that entire sale proceeds of the apartments which were sold were offered to tax during AYs 2013-14 and 2014-15. 4.5 However, rejecting the same, Ld. AO held that possession of land was handed over and transfer was complete as per the decision of Hon’ble High Court of Bombay in Chaturbhuj Dwarkadas Kapadia V/s CIT 269 ITR 491) wherein it was held that any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in Sec.53A of Transfer of Property Act would come within the ambit of Sec.2(47)(v). Therefore, the transfer had taken place since all the stipulated conditions were met. Finally, the business income arising under JDA was computed at Rs.1427.50 Lacs which was added to the returned income. Aggrieved, the assessee assailed the findings of Ld. AO before first appellate authority. Appellate Proceedings 5.1 The Ld. CIT(A) deleted the disallowance u/s 14A on the ground that the addition was not backed by any incriminating material unearthed during the course of search operations.

- 7 - 5.2 Regarding income accruing out of JDA, the assessee submitted that the land was held as stock-in-trade in the business of the assessee and therefore, it was not a capital asset. On the date of signing of JDA, no part of land could have been transferred to the developer without effecting conveyance of title in favor of the developer. The definition of transfer in Sec.2(47) would apply only in relation to a capital asset only and stock-in-trade would not constitute capital asset. Therefore, the transfer of immovable property would be complete only when a conveyance deed is executed and registered. The case law as relied upon by Ld. AO was, therefore, submitted to be not applicable 5.3 The arguments of the assessee found favor with Ld. CIT(A) who adjudicated the issue in assessee’s favor as under: - I have carefully considered the submissions of the appellant. It is seen from the records that the appellant has not conveyed title to the impugned property in favour of Ms. V.R.Nachimuthu by a registered sale deed. It is trite law that title to an immovable property gets conveyed only on registration of sale deed, save as otherwise provided by way of deeming provision, such as Section 53A of the Transfer of Property Act. In this connection, useful reference may be made to the decision of the Apex Court in the case of Alapati Venkataramiah v. CIT reported in 57 ITR 185 and the Special Bench decision of the Chennai Tribunal in the case of C. Vedachala Mudaliar v. ITO [1992] 198 ITR (AT) 18]. Hence, in the absence of any registration in favour of the transferee in respect of the immovable property, it has to be inferred that the appellant has not effected any transfer of immovable property during the relevant previous year. When there is no sale of immovable property during the relevant previous year, there is no basis for assessing the notional value of cost of construction of 37.5% in the hands of the appellant. In this regard, it would be worthwhile to note that an assessee is assessable only on the real income earned by it and not on any fictional/ notional income. In the circumstances, in the absence of conveyance of immovable property by the appellant, the addition of Rs.14,27,50,637/- made by the AO as business income is deleted. Hence this ground of appeal is allowed.

Aggrieved, as aforesaid, the revenue is in further appeal before us

- 8 - Our findings and Adjudication 6. We find that the basic facts are not under dispute. As per the terms of JDA, the assessee was to provide certain parcel of land in exchange of 37.5% of super built-up area in the project. This land is undisputedly held as stock-in-trade by the assessee since the assessee is engaged in real estate business. Therefore, any income arising therefrom would constitute ‘Business Income’ for the assessee. This is further evidenced by the fact that Ld. AO himself has assessed the proposed income as ‘Business income’ only. In such a case, the case laws dealing with interpretation of transfer u/s 2(47)(v) to compute income under the head ‘capital gains’ would not apply to the fact of this case. Rather the ‘business income’ has to be computed on mercantile basis when there is actual sale of flats by the assessee since the land could not be said to have been transferred merely by entering into JDA unless the title of the same is conveyed by execution of valid sale deeds. Another undisputed fact is that the income arising on sale of flats during AYs 2013-14 & 2014-15 has already been offered to tax by the assessee and therefore, taxing the same in this year would amount to double taxation. The Ld. CIT(A), in our considered opinion, has clinched the issue in correct perspective and correctly relied on the decision of this Tribunal to arrive at conclusion that in the absence of any registration in favor of the transferee, no transfer was affected by the assessee during this year. In such a case, there was no justification to bring to tax notional value of cost of construction of 37.5% of super built up area. 7. So far as the disallowance u/s 14A is concerned, we find that this disallowance is not based on any incriminating material as unearthed by the revenue during search operations. This being non-abated year, no

- 9 - such disallowance could have been made by the revenue and the same has rightly been deleted by Ld. CIT(A). In such a case, the ratio of decision of Hon’ble Bombay High Court in CIT V/s Continental Warehousing Corporation [2015; 374 ITR 645] would apply wherein it was held that unless any incriminating material was unearthed, no additions could be sustained in the hands of the assessee. Therefore, no infirmity could be found in the impugned order, in this regard. 8. The Ld. CIT-DR has referred to the decision of Hon’ble Kerala High Court in the case of E.N.Gopakumar V/s CIT (75 Taxmann.com 215; 03.10.2016) which has taken a contrary view by relying upon its earlier decision in CIT V/s St. Francis Clay Décor Tiles (70 Taxmann.com 234; 22.03.2016). However, upon perusal of decision of Hon’ble Court in CIT V/s St. Francis Clay Décor Tiles (supra), we find that the said case is factually distinguishable. In that case, the admitted facts were that the Managing Partner of the assessee had given voluntary statement to the Assessing Officer that there was undisclosed income of Rs.2.75 Crores. The admission was retracted by the Managing Partner subsequently. On the basis of these facts, it was concluded by Hon’ble Court that since there was a disclosure made by giving a statement during the course of search and therefore, the Assessing Officer, by virtue of the power conferred on him under section 153A, was competent to issue notice under the said provision and require the assessee firm to furnish the returns as provided there-under. It was further held that neither under section 132 nor under section 153A, the phraseology "incriminating" is used by the Parliament. Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke

- 10 - the provisions of Section 153A of the Income Tax Act, 1961. In the present case, no such admission is shown to have been made by the assessee. The revenue could not place any incriminating material before us which has led to the impugned additions / disallowances. Therefore, these case laws are distinguishable on facts. 9. In the result, the appeal stand dismissed. Assessment Year 2013-14 10. Similarly aggrieved, the revenue is in further appeal. The assessee has filed cross-objection wherein the grounds taken by the assessee as under: - 1. The learned CIT(A) has erred in confirming the disallowance under Section 14A read with Rule 8D, to the extent of Rs.4,75,840/-, is opposed to law and unsustainable, in the facts and circumstances of the case. 2. For this and other additional grounds of cross objections that may be raised at the time of hearing of appeal, the order of learned CIT(A), confirming to the extent of the disallowance of Rs.4,75,840/- is opposed to law and unsustainable in the fact and circumstances of the case.

The assessee has filed additional ground of appeal on 31.05.2018 which read as under: - The Ld. CIT(A) ought to have quashed the assessment made u/s 143(3) of the I.T.Act, 1961, by the AO, without invoking the special jurisdiction u/s 153C rws 153A of the I.T.Act, 1961, as invalid in law and in the facts and circumstances of the case.

Since the additional ground do not require appreciation of new facts and merely a legal ground, the same is admitted for adjudication. 11. In this year, Ld. AO has made an assessment u/s 143(3) vide order dated 31.03.2015. The assessee has admitted income of Rs.227.49 Lacs. However, Ld. AO, on similar logic and reasoning, opined that income arising from sale of flats was to be brought to tax. In this year, 86 flats were sold and the assessee’s share therein came to Rs.22.12

- 11 - Crores. The Ld. AO worked out business profits of Rs.850.14 Lacs as detailed in para 4.5 of the order. Another addition made was disallowance u/s 14A for Rs.4.75 Lacs which was for indirect expenditure u/r 8D(2)(iii) computed @0.5% of average investments. 12. The Ld. CIT(A), relying upon first appellate order for AYs 2007-08 to 2012-13, held that facts were similar in this year. The assessee derived income of Rs.681.39 Lacs which was offered as business income. The Ld. AO did not reject the accounts of the assessee and nothing was brought on record that the number of flats sold was more than the number of flats admitted by the assessee. Accordingly, the additions were deleted. However, disallowance u/s 14A was confirmed on the opinion that the same was to be computed even in a year where no exempt income was earned or received by the assessee. Aggrieved, the revenue is in further appeal before us whereas the assessee has assailed the confirmation of disallowance u/s 14A in its cross-objections. 13. It is undisputed facts that facts as well as issues are pari-materia the same in this year and therefore, our adjudication as for AY 2007-08 shall have equal application in this year. Further, the findings rendered by Ld. CIT(A) remain undisputed before us. The assessee has already offered to tax the income arising from sale of flats. Therefore, taking the same view as in AY 2007-08, we dismiss the corresponding ground raised in revenue’s appeal. 14. So far as the disallowance u/s 14A is concerned, it emerges that the assessee has not earned any exempt income during this year and therefore, this disallowance could not be sustained in the eyes of law. The ratio of decision of Hon’ble Madras High Court in the case of Redington India Private Ltd. (392 ITR 633) as well as the decision in

- 12 - CIT V/s Chettinad Logistics Private Ltd. (248 Taxman 55) is squarely applicable to the fact of the case. In the case of CIT V/s Chettinad Logistics Private Ltd. (supra), the Hon’ble Court has already considered CBDT Circular No.5 dated 11.02.2014. Further, revenue’s Special Leave Petition (SLP) against this order has already been dismissed by Hon’ble Supreme Court on 02.07.2018 which is reported at 95 Taxmann.com 250. The subsequent decision of Hon’ble High Court of Madras in CIT V/s Celebrity Fashion Ltd. (119 Taxmann.com 426; 21.09.2020) has also taken the same view. In the result, the ground raised in assessee’s cross-objection stand allowed. This being so, the legal grounds urged by the assessee by way of additional grounds has been rendered academic and therefore, the same is not adjudicated upon. In other words, the revenue’s appeal stand dismissed whereas the assessee’s cross-objections stands partly allowed. 15. The revenue’s appeal for both the years stands dismissed. The assessee’s cross-objections for AY 2013-14 stands partly allowed.

Order pronounced on 19th August, 2022.

Sd/- Sd/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा12 /VICE PRESIDENT लेखा सद: / ACCOUNTANT MEMBER चे.ई / Chennai; िदनांक / Dated : 19-08-2022 EDN/- आदेश की gितिलिप अ7ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF