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Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
आदेश / O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER:
The aforesaid appeal has been filed by the revenue against the impugned order dated 27/07/2018, passed by the Commissioner of Income Tax(Appeals) - 33, Mumbai (hereinafter referred to as CIT(A) for the assessment year 2015-16.
The grounds raised by the Revenue are as under:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 53,97,45,000/- made on account of business income from transfer of development rights by treating the flat booking advance received by the assessee as compensation towards absolute transfer of the business asset in the nature of Development Rights.” 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 53,97,45,000/- made on account of business income from transfer of development rights by treating the flat booking advance received by the assessee as compensation towards towards absolute transfer of the business asset in the nature of Development Rights ignoring the fact that according to the agreement M/s. Richa Housing Pvt. Ltd. has become the absolute owner of the right with the role of the assessee being reduced to obtaining permissions, sanctions and liasioning merely as the rights were originally conferred to the assessee and transferring the same statutorily shall lead to further procedure which can be alleviated by keeping the assessee as joint promoter." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 53,97,45,000/- made on account of business income from transfer of development rights by treating the flat booking advance received by the assessee/as compensation towards absolute transfer of the business asset in the nature of Development Rights ignoring that the provisions of section 43CA of the Income Tax Act, 1961 would be applicable to the instant case as the consideration received by the assessee towards transfer of development rights is less than the stamp duty value as on the date of agreement." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 53,97,45,000/- made on account of business income from transfer of development rights by treating the flat booking advance received by the assessee as compensation towards absolute transfer of the business asset in the nature of Development Rights ignoring the ratio of judgment laid down by the Hon'ble Apex Court in the case of A.L.A. Firm v. CIT (Supreme Court) (1991) 189 ITR 285.”
5. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
6. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
The only one common issue raised in all the grounds of appeal by the revenue is against the order of ld. CIT(A) deleting the addition of Rs.53,97,45,000/- as made by the AO towards the advance received by the assessee as compensation towards absolute transfer of the business asset in the nature of development rights, despite the fact that the entire project has been transferred, however, booking advances received still remains with the assessee.
The facts in brief are that the assessee filed return of income on 30/09/2015 declaring income of Rs. 30,49,380/-. The case of the assessee was selected under scrutiny and statutory notices were duly issued and served on the assessee. The assessee is engaged in the business of real estate development. During the course of assessment proceedings, the AO noticed from AIR information that assessee has sold an immovable property value of which was Rs.35,47,84,000/- during the year, however, no such transaction was disclosed by the assessee in the return of income filed. The AO also noticed from the balance sheet that assessee had excluded W.I.P of Rs.16,75,76,945.50/- which was hitherto appearing in its assets and accordingly, called upon the assessee to furnish the details in connection therewith. The AO noticed from the details furnished by the assessee that assessee has entered into an development agreement with Richa Housing Project Pvt. Ltd., vide dated 21/07/2014 for a total consideration of Rs.18 Crores, the stamp value thereof was Rs.35,47,84,000/-.
The assessee has acquired developmental rights for development of property at Dadar namely Park Mist on a plot measuring 1925.60 sq.mtr which originally belonged to MCGM and was occupied by tenants and unauthorized occupants. The said occupants formed a public society in the name of Manshati Co-operative society and appointed the assessee as Developer to develop the property. MCGM pursuant to request for development of the property approved the same and leased the land to the co-operative society for a period of 30 years renewable for a further period of 30 years as per the terms and conditions. The assessee was to pay compensation to MCGM of capitalized value of the land which was Rs.7,37,19,700/- out of which 10% was to be paid before granting commencement certificate and 90% before obtaining occupation certificate. The plan of the property was submitted in 2009 and approved accordingly. However, the project could not take off due to certain deviations / infractions of the above plan and consequently, the work was stopped by MCGM and thus, the original approved plan was lapsed. In the meantime, in view of the modified developmental rules, the assessee became eligible for FSI of 3 i.e. assessee was eligible to construct more area equal to 7,798.68 sq.mtr for which additional compensation of Rs.9,62,87,000/- was payable. The assessee was finding it difficult to go ahead with the project and approached another developer M/s. Richa Housing Pvt. Ltd., and entered into joint development. It is held that 47 existing tenements to whom flats / commercial premises were to be provided and after that area of 5482.52 sq.mtr was available for sale. It was also conveyed that 10% of plot value was already paid and balance of Rs.5,89,74,760/- was payable to MCGM and further amount of Rs.9,62,80,000/- was payable for additional FSI under the said development agreement and the assessee was to be paid Rs.18 Crores. The Clause No.5.1 of the Joint Agreement provides that M/s. Richa Housing Pvt. Ltd. shall pay to the assessee a fixed amount of Rs.18 Crore by way of consideration for grant of development rights. The AO observed that assessee has transferred work in progress relating to the said project to the developer , however, the advances received against advance booking of flats of Rs.54,19,95,000/- has not been transferred to the said developer and also there is no mention about the utilization of the said money. Accordingly, a show-cause notice was issued to the assessee that against the stamp value of Rs.35.48 Crores, the assessee has already received Rs.54,19,95,000/- towards sale of property and there is no mention of that in the said joint development agreement and as to why the total consideration of Rs.72.20 Crores which comprised of Rs.54.20 Crores as advanced from sale of booking of flats and Rs.18 Crores received by the assessee as sale consideration of developmental rights should not be brought to tax under the head ‘income from business’ after allowing the expenses already incurred. The said show-cause notice was replied by the assessee vide letter dated 07/11/2017 stating that the said advance of Rs.54,19,95,000/- was received in the earlier years through banking channels and accepted as liability in the earlier assessments. The assessee submitted that the said booking advances have to be refunded to the purchasers on cancelation of booking and therefore, it would not be correct to add liability incurred in the earlier years to the income of the assessee. The assessee submitted before the AO that assessee entered into joint development agreement and not the agreement to sell. However, AO was not finding the contentions of the assessee as tenable and added the entire amount of booking amounts of Rs.54,19,95,000/- as ‘business income’ of the assessee towards transfer of developmental rights by observing and holding as under:-
4.14 The assessee has not been able to refute the said findings and consequently it is held that there is transfer of development rights. It is seen that even the stamp duty authorities have valued the transaction at Rs.35,47,84,000/- which is obviously/shall not be inclusive of the expenses incurred by the assessee which is only in the nature of compensation to tenants ,payment to MCGM etc. Accordingly even on such basis the net gain as per stamp duty value should have been Rs.35,47,84,000/- as the assessee has not incurred any expense to obtain development rights. The provisions of the Income tax Act is clear that when a business asset is transferred to another entity the same has to be at the market value and the said legal position has been endorsed even by the Honorable Apex Court in the case of A.L.A Firms reported in 189 ITR 285 . In view of the facts involved herein the only inference that can be drawn is that the actual compensation received by the assessee for the transfer of the development rights is the retained amount of advance received for sale of flat of Rs.54,19,95,000/- and the amount received of Rs.18,00,00,000/- is merely the reimbursement of the expenses already incurred by the assessee for the project consequent to which there is a loss of Rs.84,59,469/- due to short reimbursement of the consideration .It is pertinent to observe that even as per the provisions of section 43CA the stamp duty value would have been adoptable as the consideration if the assessee's contention was to be accepted that the advance retained by it is not part of the compensation receivable by the assessee. However due to reasons enumerated herein above the advance retained by the assessee is very much a part of the compensation received by the assessee and accordingly the said amount of Rs.54,19,95,000/- is adopted as the consideration for the transfer of the development rights of the property held as a business asset by the assessee .
In the appellate proceedings, the ld. CIT(A) partly allowed the appeal of the assessee by deleting the addition to the extent of Rs.53,97,45,000/- while sustaining the addition to the extent of Rs.22,50,000/- after taking into consideration the submissions of the assessee and the contentions raised during the course of appellate proceedings by observing and holding as under:-
9. I have carefully considered the submissions made by the Ld. AR of the appellant, arguments of the AO during the appellate proceedings, the impugned assessment order and the material available on record. My observations are as under.
10. The issue to be decided here is whether the booking advances of Rs.54,19,95,000/-, received by the appellant upto the date of joint development agreement, which is neither a part of the agreement nor passed on to M/s Richa Housing Projects Pvt. Ltd. will partake the character of taxable income of the appellant for the year under consideration. According to the AO the liability of Rs. 54,19,95,000/-is a part of compensation received by the appellant for entering into the agreement for joint venture and hence it is the consideration for transfer of development in the nature of business income of the appellant for the instant year.
On the other hand, the appellant has taken the ground that the said amount represents advances received against the flats booking which is to be refunded. The amount is shown as liability in the balance sheet of the appellant as on 31 March 2015 which the appellant has not absolved by the end of the relevant financial year and treating the said amount as income is contingent upon the completion of the project.
11. According to the Ld. AR, the appellant was appointed as the Developer of the proposed redevelopment of the said property by the society on 9.03.2005. Pursuant to that the society submitted a proposal for redevelopment of the property which was approved by the MCGM on 13.11.2006. MCGM issued letter of Intent (LOI) dated 12.12.2006 granting permission for redevelopment of the property subject to certain conditions. The appellant acquired the development rights over and in respect of the property via Development Agreement dated 09.05.2007 entered into between the society and the appellant. On 4.11.2008, MCGM issued commencement certificate for 'commencement of the construction upto the plinth level on the property, fn pursuance to the commencement certificate, the appellant started development work and completed construction till plinth level. There were 33 floors to be completed as per the amended plans submitted for approval on 12.01.2009. However, there were some complaint to the MCGM on 20.03.2009 to the effect that the reservation under Town Planning (TP) shows that the plot of the said property is reserved for school while development plan (DP) shows the same being reserved for play ground. The said complaint was on the basis of judgment dated 07.06.2010 passed in W.P. No. 1731 of 2009. (Jain Shravak Sangh Vs. BMC). In SLP no. 24350/2010, the Hon'ble Supreme Court on 14.10.2011 remanded back the matter to the Hon'ble Bombay High Court. Further, during the site visit by the officers of MCGM, it was observed that the plinth was not in accordance with the sanctioned plan. Therefore, MCGM issued a Stop Work Notice dated 30.06.2010 under Section 354(A) of the Mumbai Municipal Corporation Act, 1888. On 16.11.2010, the appellant made an application to the Chief Engineer (D.P) of MCGM with a request to proceed the proposal as per government directives. Finally Honorable Bombay High Court commented that the development on the said property is not illegal and removed the Stop Work Notice vide resolution dated 26.06.2012. The plan was further amended and the new plans were proposed for G+23 floors (for rehab.) and G+Stilt+31 floors (for sale). Accordingly, NOC was procured on19.01.2Q13.
It is further explained that since F.Y. 2007-08, the appellant had taken advances against the flat booking totalling to Rs. 54,19,95,0007- from few persons towards purchase of flats in the building to be developed on the said property. The details of the said booking are mentioned yearwise as under: Sr.N Name of the FYO7-O8 FY 08-09 FY 09-10 FYI0-11 FY 11-12 FY 12-13 FY 13-14 FY 14-15 o. Customers 1 Rajesh & Shally 3,40.250 Srivastav 2 Rakesh Z Chandolia 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000 1 ,00,000 & Uma Rakesh Chandolia 3 Tarabai D. Gite 2,04,740 2,04,740 2,04,740 2,04,740 2,04,740 (Maintenance Dhuru.) 4 Anant Dhotre 4,60,000 4,60,000 4,60,000 4,60,000 2,10.000 2,10,000 5 G.S.Kamat 3,09,000 6 Mahendra Wagh 93,500 7 Maintenance Deposit 8,84,947 (Dhuru) 8 Nitin Gandhi- 95,00,000 Advance 9 Suresh Waugh 2,00,000 10 Uday Tribakkar 5,50,000 11 Vijay Wagh 36.000 12 Antony Joseph & 1 1,00,000 14,00,000 14,00,000 14,00.000 14,00,000 Shiny Antony 13 Richa Realtors 75,00,000 75,00,000 14 Raguvendra Manohar 10,00,000 10,00,000 10,00,000 14 ; Kulkami 15 Bhavesh 25,00,000 25,00,000 25,00,000 Navinchandra Shah (HUF) 16 wadilal (Its Creation) 25,00,000 25,00,000 5,00,000 5,00,000 5,00,000 5,00,000 17 Bhavesh Estates (I) 25,00,000 1,00.00.000 1,00,00,000 1,00,00,000 Pvt.Ltd 18 Kiritkumar 10,00,000 10,00,000 10,00.000 10.00,000 10,00,000 10,00,000 Navinchandra Shah & Jigisha Shah 19 Bharat Jain & Meena 5,00,000 18,00,000 18,00,000 18,00,000 Jain 20 Vinod Jain & 13,00,000 13,00,000 13,00,000 Shakuntala Jain 21 Deepak Sohanandani 12,50,000 12,50,000 12,50,000 12,50,000 22 Deepak Shete & Ors 1,23.50.000 1,23,50,000 23 Anuradha Shete & 75,00,000 1,42,50,000 1,42,50,000 Ors 24 Dhanjay Vijay Gupte 64,50,000 64,50,000 64,50,000 9,50.000 25 Ashwin S, Sheth 15.00,000 15,00,000 15,00.000 15,00,000 15,00,000 15,00,000 26 Nitin S. Sheth (HUF) 15,00,000 15,00,000 15,00,000 15.00,000 15.00,000 15,00,000 27 Vijay Virji Patel & 27,00.000 Punjiben Patel 28 Rajiben Manjibhai 24,00,000 24,00,000 24,00,000 Mandora 29 Jignesh Anil Shah 27,00,000 27,00,000 27,00,000 27,00,000 27,00,000 30 Yogesh Mehta 6.00,000 6,00.000 6,00,000 6,00,000 6,00,000 6,00,000 31 Hemant Chitamani 66,20,000 66,20,000 66,20,000 66,20,000 66,20,000 66,20,000 Samant 32 Chandulal D. 27,00.000 27,00,000 27,00,000 27,00,000 27,00,000 42,25,000 Vora/Dhirajlal D. - Vora 33 Bhadra K. Juthani & 9,00,000 9,00,000 9,00,000 9,00,000 9,00,000 9,00,000 Xishor J. Juthani 34 Rita Bhavesh Shah 25.00,000 25,00,000 25,00,000 35 Ramakant R. Jadhay 25,00,000 40.00,000 52,50,000 1,69,50,000 1,69.50,000 1,99,50.000 1,99,50,000 1.99,50,000 HUF 36 Prakash V, 44.00,000 54,00,000 1,66,50,000 1,69,50,000 2,22,50.000 3,42,50,000 3,42,50,000 3,42,50,000 Ajgaonkar (HUF) 37 Santosh D. 24,00,000 24,00,000 24,00,000 24,00,000 24,00,000 24, 00,000 Mithbawkar 38 B.R. International 45,00,00,000 45,00,00,000 45,00,00,000 39 Jayashree V. 2,00,000 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000 Kharche & Vitas P. Khardie 40 M.K.Sheltere 20.00,000 20,00,000 20,00,000 41 M/S Sakshi 2,50.000 2,50.000 2,50,000 2,50,000 Advocates & Associates 42 Tarita Realtors Pvt 60,00,000 40,00,000 30,00,000 15,00,000 15,00,000 15,00,000 15.00,000 Ltd 43 Vilas P. Kharche & 2.00,000 10,00,000 10,00,000 10,00,000 10.00,000 10,00.000 Jayashree V. Kharche Total / 1,94,78.437 1,58,60,000 7,71,64,740 11,67,84,740 11,85,84,740 54,75,84,740 54,18,70,000 54,19,95,000 According to the appellant, since the project was prolonged by a, long period and the appellant did not have sufficient financial and marketing viability, the appellant in the year under appeal, entered into a Joint Development Agreement with M/s Richa Housing Projects Private Limited (hereinafter referred as 'Richa') on 21.07.2014 for a total consideration of Rs. 18,00,00,000/-. Vide the said Joint Development Agreement, both the parties have agreed to jointly develop the said property on certain terms and conditions as mentioned in the said Joint Development Agreement.
From the details and paper books filed by the appellant, I find that the appellant had received the amount of Rs. 54,19,95,000/- as flat booking advances from FY 2007-08 to FY 2014-15. The booking advance so received are credited in the books of accounts of the appellant and reflected in the balance sheet of the appellant for all the relevant years as Current Liability. It is also observed that before the AO, the appellant has submitted Confirmation of Liabilities from all flat purchasers, except from 3 persons for an advance of Rs. 22,50,000/-, On further verification of the advances received of Rs. 54,19,95,0007-, it is noticed that the appellant had received Rs. 45,00,00,000/- from one concern M/s B. R. International ('BRI') and remaining advances of Rs. 9,19,95,000/-were from other persons as listed in the preceding paragraph. There exist an agreement dated 21.12.2012 between M/s.B.R.International and the appellant, wherein M/s B.R. International had booked 27 flats for a total amount of Rs. 50,62,50,000/- with the promise to receive the possession of the flats by 31.03.2017.The appellant has received Rs. 45,00,00,000/-as psrt consideration against 27 flats from M/s.B.R.International.
The Ld. AR has also brought on record that these liabilities were verified and accepted in the scrutiny proceedings of A.Ys. 2008-09, 2009-10, 2011-12 and 2013-14. From the details and records submitted it is found that the Department has never doubted the genuineness of the said booking advances, including in the instant year, where the AO has also not made any adverse remarks about the truthfulness of the booking advances received in earlier years. According to the Ld. AR, no income was recognized in earlier years because the project has not gone beyond plinth level. Therefore, no income can be recognized in the instant year qua the advances of Rs. 54 crores since there is no material change in the implementation of the project even after the execution of the joint development agreement. The status of the project has remained the same till today as in the earlier years. The only change brought in by the joint development agreement is that certain rights in respect of development of the impugned property has been transferred to M/s Richa against which certain consideration/was received which has been reduced from WIP and the difference is offered to tax. The appellant is a joint developer under the joint development agreement and equally liable and responsible for the development work and to the prospective flat buyers. 16. In this regard, I find that the appellant has entered into the Joint Development Agreement with M/s Richa Housing Projects Private Limited on 21.07.2014 for a total consideration of Rs. 18,00,00,000/-. According to the AO, although it was a Joint Development agreement, all the responsibilities of developing the project and subsequent booking rest with M/s.Richa, the new Developer of the project. The appellant's role was negligible. On the other hand, the appellant has contended that the said agreement clearly reveals that the project is to be jointly developed by the appellant and M/s.Richa. The Joint Development Agreement clearly shows that the entire joint development right of the project has not been handed over to M/s.Richa. 17. According to the Ld. AR, the AO has misinterpreted the entire Joint Development Agreement by reading between the clauses while ignoring rest of the aspects of the agreement. A holistic reading of the said agreement would suggest that the appellant has parted with some of the development rights to M/s Richa. There is no complete or outright transfer of development rights to M/s Richa. In this regard, the appellant has brought to the attention of the undersigned various clauses of the agreement which clearly bring out that M/s.Richa and the appellant are jointly responsible for development of the project. For the sake of clarity, these clauses of the agreement are reproduced below- Clause 2.1 - In consideration of each party providing its/their expertise and other resources as set out hereinafter, the parties hereby agree that the project shall be developed by the developer and Richa on the terms and conditions set out in this agreement and the developer hereby agrees that Richa shall be jointly entitled to, all rights, benefits and interest of the development under the said Development Agreements. Clause 2.2 - Richa has; relying on the representations and warranties of the developer as provided for in this agreement and subject to the developer fulfilling its obligations under this agreement, agreed to jointly develop the project with the developer. Clause 2.3 - The developer shall bring in the said property alongwith all right under the LOI, Revised LOI and Development Agreements with the Society and also benefit of all the approvals and permissions free of all disputes, for the purpose of development of the project and Richa shall, at its own risk and cost, develop the project on the said property in accordance with the Development Agreements and this Agreement and the Developer shall be entitled to receive the developer's consideration as described hereunder: In pursuance of the aforesaid, the developer and Richa shall undertake a joint development of the project by : (i) Demolishing the existing buildings, dwelling, in uses structures standing on the said property ; (ii) Construction of the transit camp/temporary rehabilitation of the members of the society during the period of redevelopment, shifting of members in the temporary accommodation, construction of Rehab Units and developing DP Reservation Area (Play Ground) as provided for in the Development Agreements and relocating the members in the Rehab Units so constructed; and ' (iii) Constructing on the said property in accordance with approvals, sanctions and permissions of the concerned authorities, the free sale building/s by utilizing the maximum available FSI area. Clause 2.4 -The Developer hereby hands over passion to and grants Richa, from the date of this Agreement, a right to enter upon the said property as a joint developer and develop the same together with the developer and execute the project, in terms of this agreement. Clause 2.7 - As far as free saleable area or the premises are concerned, Richa shall have the sole absolute and exclusive discretion in conceptualizing the scheme of development of the premises and undertaking the project, as per the agreed terms and in this regard, Richa shall be freely entitled to develop the said property in any manner it deems fit, as per the revised sanctions plans and subject to all applicable laws. It is agreed between the parties that the developer shall be responsible for all the liaisoning work for the development of the said project as per the plans, designs, concept, schedule prepared by Richa as per applicable laws. Clause 2.9 - The Developer shall also ensure to facilitate timely release of FSl for development of the premises so that the project is not stalled or stopped for want of further sanction for release of FSl from MCGM and redevelopment shall keep Richa indemnified for any loss or damage that may be caused to Richa due to the failure of the developer. Clause 2.11 - Richa may commence, implement and complete the development of said property or any part/s thereof, in any phases and at any intervals, as it may deem fit and proper, subject to provisions of the Development Agreements and this agreement. The parties shall be responsible to construct and handover Rehab Units to the society and developed DP Reservation i.e. play ground to the MCGM as per the time schedule and specifications mentioned in the Development Agreements and respective approvals. Clause 2.15 - Parties shall carry out the development/construction activities with a view to maximizing the revenue from the project. Richa shall be free to develop the said property in such manner as it deems fit, but always in accordance with the applicable laws, and the specifications and as per the provisions of this agreement and Development Agreements. Clause 4.4 - The Developer shall be responsible to shift the members to the Rehab Units at the cost of Richa and hand over the developed DP Reservation i.e. Play Ground to MCGM once the Rehab Units and DP Reservation is ready for hand over as per the terms of Development Agreement.
From the aforesaid clauses, it is observed that the appellant along with M/s Richa will bring their respective expertise for joint development of the project. The appellant will bring rights under various LOl, Development agreements etc. in its possession and M/s Richa will develop the project at its own cost. Thus, both the parties have .; participation in their own rights for the development of the project. Clause 2.7 specifies \ that the appellant is responsible for all the liasoning work for the said project as per the plans, design etc. Similar stipulations are there in clause 2.8. Clause 2.9 states that the Developer will ensure timely release of FSl for the development of the premises. In clause 2.11, it is mentioned that both the parties are responsible for construction and handover of the rehabilitation units to the Society and developed DP Reservation i.e. play ground to MCGM as per the time schedule. Clause 2.15 clearly states that the appellant along with M/s Richa will carry out the development with a view to maximize the revenue from the project. In clause 4.4, it is specified that the appellant shall be responsible for shifting of the members to the rehabilitation units at the cost of M/s. Richa and hand over the developed DP Reservation i.e. play ground to MCGM once the rehabilitation units and DP Reservation are ready for hand over. It is further observe--from the agreement that the clauses 8 and 9 deal with the representation and covenants of the appellant and the obligations of the appellant. In my considered opinion, a comprehensive reading of all the clauses and sub clauses of the joint development agreement establishes that the project is to be jointly developed by the appellant and M/s/Richa and it is not the case that the entire joint development right has been handed r to M/s, Richa. Their role and responsibilities will certainly differ.
9. I find that there are two aspects of joint development agreement qua this project: a. The first one is rehabilitation of existing tenants and occupants, handing over of the playground to MCGM as per the DP Reservation and liasoning with various governmental authorities to get the proper permissions and approvals b. construction of the new building for effecting sale of free area it appears that the AO has completely overlooked the first aspect, which is concerned with the role and responsibility of effecting and fulfilling the same that still remains with the appellant even after entering into the joint development agreement. The/second part relates to the cost to be incurred for development and construction of the/project, which has been undertaken by M/s Richa.
In this regard, Ld. AO has contended that there are certain inaccurate observations made of the AO in the assessment order. For example, the AO has stated that there is absolute transfer of Development right and that the role of the appellant has been reduced to mere obtaining of permissions. As stated in the preceding paragraphs, the appellant is still a joint developer and responsibilities have been casted upon it under the agreement and it cannot be said that entire work related to the project is to be carried out by M/s Richa only. According to the Ld. AR, the consideration of Rs. 18 crore relates to only that portion of responsibilities which are parted with, keeping the right to jointly develop the project with the appellant, that has been offered to tax in the year under consideration. Further, the AO is not correct in calculating certain notional value of the saleable area of project. It is argued that the project is under litigation and till date there is no progress in the project. The market value of the project would be realized once there is some construction. Therefore, such notional calculation has no relevance. The AO has further observed that under the provisions of Income Tax Act, when a business asset is transferred to another person, the same has to be taxed at market value as held by the Hon'ble Apex Court in case of ALA Firm. In this regard, on careful study of the facts of the case, I agree with the Ld. AR that the ratio of the judgment in case of ALA firm will not be applicable as in that case, the stocks were directed to be valued at market rate on the dissolution of the firm where there was no continuation of the business of the firm. The facts of the present case are entirely different. As held in the judgments of the Apex Court in cases of CIT vs. Surji Vallabhdas & Co [46 ITR 144 (SC)] and CIT vs. A. Raman & Co. [67 ITR 11(SC), only real income can be taxed in contrast to the notional income. The Ld. AR has also highlighted that the observation of the AO to the effect that even as per section 43CA, stamp duty value had to be adopted, is also incorrect. It is argued that section 43CA would have no applicability in the present case. What has been transferred in not land or building or both, but a right in the land. The AO has himself accepted in para 4.12 that the land does not belong to the assessee but to MCGM and therefore, the land has not been transferred but the development rights in the land is the subject matter of the agreement. In such a scenario, the provisions of section 43CA do not apply. The appellant has relied upon the judgments of Hon'ble Mumbai ITAT in cases of ITO vs. Pradeep Steel Re-Rolling Mills (P) Ltd. (155 TTJ 294), ITO vs. Hemant Tandel (44 CCH 55) and Shri Atul G. Puranik in wherein it has been held that land or building or both does not include leasehold right in the land. Alternatively, It is also argued during the appellate proceedings that the stamp duty value is determined at Rs. 35.47 crore. The appellant has received Rs. 18 crore as consideration. Further, the appellant had to incur expenditure to the tune of Rs. 22.58 crore as per the agreement which is also accepted by the AO in para 4.3 of the assessment order. After entering into the said agreement, M/s Richa has agreed to pay the said expenses. Therefore, the total consideration for the transfer of partial development right would be Rs. 40.58 crore (Rs. 18 crore + Rs. 22.58 crore). Such consideration would be higher than the SDV. Also, the corresponding cost for the appellant would be Rs. 18.84 crores + Rs. 22.58 crores, which would ultimately lead to a loss of Rs. 84 lakh. Thus, even the provisions of section 43CA are not getting attracted. After careful consideration, I find merit in the above arguments of the appellant looking to the facts of the instant case and judicial decisions relied upon.
Upon careful verification of the accounts of the appellant together with various clauses of the joint development agreement, I do not agree with the AO that the. % liabilities of the appellant towards the persons, who have booked the flats in the proposed projects has extinguished. It is beyond comprehension that the appellant, which has received the advance of Rs. 54 crore from various persons against flat booking, would do nothing in return and still allowed to safely keep the entire money treating ft as its income. As explained in the preceding paragraphs, even after executing the agreement, the appellant is still a joint developer of the project and therefore has a responsibility towards the prospective buyers as well as past advances received. The effect of the agreement as set out above is, to make M/s Richa a joint developer in the project for the purpose of construction of free saleable area and handing over to the prospective buyers. This would in no scenario lead to the conclusion that qua the existing bookings, the appellant ceases to have any liability. In my considered opinion, the appellant is fully responsible for either refund the advances or to hand over the flats as per the agreed terms. Till such time, it cannot be said that the appellant has become owner of Rs. 54 crore on its own rights without doing anything else. The AO has completely overlooked the fact that under the Income tax Act, only real income is taxable not an imaginary or hypothetical income, unless clearly specified in the statute. The said amount of Rs 54 crores cannot be said to be the real income of the appellant since the appellant has yet not got the right to retain the same as an owner. The advances so received have to be either refunded or the flat buyers or to be given flats. In case the advances are refunded, there would arise no question of taxing the same. And in case the buyers are allotted the flats then on the date of allotment, income from the sale proceeds would be recognized not before that. It is brought on record that till date, the project has not progressed even after the involvement of M/s Richa.
I also find that under the doctrine of 'privity in contract', it is only appellant who is under an obligation to perform his part of contract under the said agreement against the advances received of Rs. 54 crores since the parties to the contract can sue under the contract and a third part derives no such right or obligation under such contract Under this doctrine a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. Therefore, there is no basis for the AO to state that the appellant was no longer required to refund the money, nor was it required to hand over the flat and that all the liability/ obligation under the contract was that of M/s. Richa. In this regard, section 40 of the Indian Contract Act, 1872 is worth mentioning here- "// it appears from the nature of the case that it was the intention of the parties to any contract that any promise contain in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it." In the present case, the onus to hand over the flat to the buyers was on the appellant as it had entered into contract while receiving advances, and at that point of time when the advances were received through entering into agreement or by issue of allotment letter, M/s Richa was not in the picture. The promise under the agreement to sale has to be performed by the appellant only. Hence, I do not agree with the AO that the amount received by the appellant as flat booking of Rs. 54,19,95,000/- will become its income instead of liability of the appellant as recognized till the end of the relevant F.Y. and appellant does not require to perform its part of contract or to refund the said amount.
The Ld. AR has also brought on record, an agreement entered into with M/s B R International dated 15.10.2015, the concern which has advanced Rs. 45 crore out of total advance of Rs. 54 crore. This is a tripartite agreement with the appellant, M/s B. R. Enterprise and M/s Richa. As per the agreement, the three parties have agreed to cancel the booking of M/s B R Enterprise and to refund the entire advance received from it along with a further compensation of Rs. 40 crore. As per the agreement, the entire payment of Rs. 85 crore (Rs. 45 crore advance + Rs. 40 crore compensation) is to be made jointly by the appellant and M/s Richa. Although the agreement was entered in the subsequent F.Y., it further establishes that the appellant is still a joint developer of the project even after entering into the Joint Development Agreement with M/s Richa. It also proves that the appellant is still liable to the persons who had booked the flats and given the advance.
From the documents submitted by the appellant, it is also observed that apart from M/s B R International, other buyers too, who furnished advances to the appellant in past years, also entered into agreements with the appellant and were issued allotment letters on different dates with a promise to deliver the flats within specified dates. Under such agreements, the appellant js under an obligation to perform it's part of contract. M/s Richa was not a party to the original agreement/allotment letters with M/s BR International or with other buyers. Therefore, M/s B R International as well as ofter buyers can enforce specific performance only against the appellant and not with M's Richa. The appellant has primary liability towards M/s B R International and other buyers and the same cannot be said to have been shifted or cancelled because of the transfer of certain development rights in favour of M/s Richa under the JD agreement. M/s Richa has specifically not undertaken the said liability/ obligation/ duty of the appellant meaning thereby that the appellant would have to discharge the same. It is also found that the said Joint development agreement was not in the knowledge or connivance of the buyers and they were not made party to the agreement. In such a scenario, it is not correct on the part of the AO to treat such advances as income of the appellant for the instant year on the ground that the appellant is no longer answerable to such buyers.
The Ld. AR has further argued that as per section 8 of Maharashtra Ownership Flat Act ('MOFA'), in the event of failure to deliver the possession within the prescribed time, 9% simple interest along with principle amount has to be refunded. The Section 8 of MOFA is reproduced herein below:- "Section 08: refund of amount paid with interest for failure to give possession within specified time or further time allowed if (a) the promoter fails to give possession in accordance with the terms of his agreement of a flat duly completed by the date specified, or any further date or dates agreed to by the parties, or (b) the promoter for reason beyond his control and of his agents, is unable to give possession of (he flat by the date specified, or a further agreed date and a period of three months thereafter, or a further period of three months if those reasons still exist, then, in any such case, the promoter shall be liable on demand (but without prejudice to any other remedies to which he may be liable) to refund the amounts already received by him in respect of the flat (with simple interest at nine percent per annum from the date he received the sums till the date the amounts and interest thereon is refunded), and the amounts and the interest shall be a charge on the land and the construction if any thereon in which the flat is or was to be constructed, to the extent of the amount due, but subject to any prior encumbrances." According to the Ld.AR similar provisions exist in the Real Estate Regulation Act, 2016. Upon appreciation of these provisions, I find that the amount received by the appellant of Rs. 54,19,95,000/- towards flat booking advances still constitute liability of the appellant. 26. It is also found that during the assessment proceedings, confirmations from 40 parties out of total 43 parties who have given advances to the appellant, confirming that the respective amount is still payable to them, are submitted. The appellant has again filed the details viz. Ledger confirmations from 40 parties, ITR, balance sheet, etc. These details clearly show that the said liabilities are still payable. The summary of the details are as under- Particulars Amount Ledger Bank Balance ITR Ack Audit Report Confirmatio Statement Sheet n Ashwin S. Sheth 15,00.000 Received B.R. International 4500,00,00 Received Received 0 Bhadra K. Juthani & Kisnor 9,00.000 Received Rsce ived Received J. Juthani Bhavesh Estate Pvt. Ltd. 100.00,000 Received Received Received Received Chandulal D. Vora/Dhirajlal 42,25,000 Received Vora Jignesh Anil Shah 27,00,000 Received Received Received Received KJritkumar Navinchandra 10,00,000 Received Shah & Jigisha Shah M.K- Shelters 20.00.000 Received Nitin S, Sheth (HUF) 15,00.000 Received Prakash Ajgaonkar HUF 172,00.000 Received Received Received Received Prakash V. Ajgaonkar (HUF) 97,00.000 Received Received Received Received Prakash V. Ajgaonkar (HUF) 73,50,000 Received Received Received Received Rakesh 2 Chandolia 8 Uma 1.00,000 Received Received Received Rakesh Chandolia Ramakant R. Jadhav (HUF) 30,00.000 Received Received Received Received Ramakant R. Jadhav HUF 139,50,000 Received Received Received Received Ramakant R. Jadhav HUF 30,00,000 Received Received Received Received Santqsh D. Uithbawkar 24,00,000 Received Received Received Received Tarita Realtors Pvt Ltd 15,00,000 Received Received Received Received Received Yogesh Mehta 6,00,000 Received Received Received Hemant Chintamani 66,20,000 Received Samant/Leena Hemant Samant Jayashree V. Kharche & Vilas 10,00,000 Not Revived P. Kharche M/S Sakshi Advocates & 2.50,000 Not Associates Received Was P. Kharche & Jayashree 10.00,000 Not V. Kharche Received Wdilal (It’s creation) 5,00,000 Received
In the light of the detailed discussion made in the preceding paragraphs, I conclude that the AO is not correct in treating the advances received against the booking of the flats in the proposed project as income of the appellant of the year under consideration. However, since confirmations of existing liabilities from Ms. Jayashree V. Kharche & Mr. Vilas P. Kharche and M/S Sakshi Advocates & Associates to the extent of Rs. 22,50,000/- are not submitted either during the assessment or appellate proceedings, no benefit for treating the amount as liability can be given to the appellant. Hence, the addition of Rs. 22,50,0007- is confirmed while balance addition of Rs.53,97,45,000/- deleted. Thus, the grounds of appeal
raised in the appeal are partly allowed.
28. In result, the appeal of the appellant for A. Y. 2015-16 is partly allowed.”
We have heard rival submissions and perused the materials available on record including the impugned order and joint development agreement along with various evidences filed by the assessee in the paper book. We find that assessee has entered into joint development agreement with Richa Housing Project Pvt. Ltd., on 21/07/2014 for which a consideration of Rs.18 Crores were received. The assessee transferred the WIP incurred and shown in the balance sheet of Rs.16,75,76,945.50/- , however, the advance received from booking of flats of Rs.54,19,95,000/- was retained and continued to be showed in the balance Sheet of the assessee. The said booking advances against the booking of flat were received from the F.Y.2007-08 to 2014-15 and were credited in the books of accounts and appearing in the liability side of the Balance Sheet and was being brought forward since then. The project could not get through and assessee finally decided to develop the said property owned jointly with Richa Housing Project Pvt. Ltd., and hence, this agreement was executed.
The ld. AR vehemently submitted before us that AO has not appreciated the facts in the correct perspective. The ld. AR submitted that the amount of booking advances were retain by the assessee as the same was to be refunded to the purchasers of flats and this liability was not transferred under the joint development agreement. The ld. AR drew attention towards refund made by the assessee in some cases, however, due to the stressed and strained financial condition of the assessee, the entire money could not be refunded. The ld. AR stated before us that this liability has not been transferred as the purchasers who booked the flat of the assessee would no longer be entitled for allotment in the property developed jointly by the assessee and Richa Development Housing Projects Pvt. Ltd., and refund of booking advances were the sole responsibility of the assessee. The ld. AR also took us through various mortgage deeds executed by the assessee to create security in favour of the purchasers and to guarantee the refund to the purchasers whose flats booking was cancelled vide agreement dated 15/10/2015, the copy of which is placed in page Nos.130-137 which was executed between Santosh Enterprises as the first part, Richa Housing Project Pvt. Ltd., as the second part and B.R International who booked the flat at Rs.45 Crore as fourth part. Thereafter, agreement for cancellation was entered into on 27/11/2015 between the same parties, wherein payment was provided was to commence as under:-
On or before 31st March 2016 Rs. 1,00,00,000/- On or before 1st October 2016 Rs. 13,00,00,000/- On or before 1st April 2017 Rs.15,00,00,000/- On or before 1st October 2017 Rs.10,00,00,000/- On or before lsl April 2018 Rs. 15,00,00,000/- On or before 1st October 2018 Rs.15,00,00,000/- On or before 1st April 2019 Rs. 16,00,00,000/-
Thereafter, second amendment to the agreement dated 09/02/2016 was executed between the same parties wherein certain terms and conditions were modified. The assessee also executed the mortgage deed dated 25/06/2016 in favour of BR International which is sent by the party wherein the mortgage to the tune of Rs.45 Crores was deleted whereby 22 of the salable flats were mortgaged as security for the payment. We note that assessee has already refunded Rs.12 Crores to the buyers. The ld. AR further submitted that the said liability in the books of accounts of the assessee were not to be considered as a compensation towards transfer of developmental rights by the assessee. The ld. AR took us to the various observations and conclusion drawn by the ld. CIT(A) while passing the order and submitted that all the factual as well as legal aspects has been examined in detailed by the first appellate authority and consequently, has arrived at a correct conclusion.
The ld. DR on the other hand strongly opposed to the arguments of the ld. AR by submitting that this is not practically possible that booking advances of Rs.54,19,95,000/- have not been transferred while transferring the developmental rights under the joint development agreement. The ld. AR also submitted that the cost of work in progress is standing in the books of assessee was also been transferred under the joint development agreement.
After taking due consideration, the facts of the case and the rival submissions especially, the cancellation of purchase agreement with BR International and refund of money of Rs.12 Crores by the assessee towards the booking advance received, we are left with no confusion or ambiguity that assessee has only executed the joint development agreement without transferring the money received towards booking of flats which was the sole responsibility of the assessee to refund and therefore, the same cannot be added to the income of the assessee. The ld. CIT(A) has passed a very reasoned and convincing order after taking the account all the aspects of the issues. We are therefore, inclined to upheld the same by dismissing the appeal.
In the result, appeal of the revenue is dismissed.
Order pronounced on 04/03/2021 by way of proper mentioning in the notice board.