DOSHI ESTATES,CHENNAI vs. ACIT, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both the appeals are filed by the assessee. When the

appeal in I.T.A. No.3463/Chny/2016 is directed against the order of

the Commissioner of Income Tax (Appeals) - 4, Chennai, dated

24.10.2016, the appeal in I.T.A. No.966/Chny/2017 is directed

2 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

against the order passed under Section 263 of the Income-tax Act,

1961 (in short 'the Act') by the Principal Commissioner of Income

Tax-5, Chennai, dated 21.03.2017. We heard both the appeals

together and disposing the same by this common order.

deduction claimed under Section 80-IB(10) of the Act.

that the assessee is a partnership firm consisting five partners.

According to the Ld. counsel, one Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran are the joint owners of the land at Old

State Bank Colony, III Street, Tambaram. Shri V. Chandrasekaran

and Smt. Saraswathi Chandrasekaran entered into an agreement

with the assessee-partnership firm and also executed power of

attorney in favour of Shri Mehul H. Doshi. In fact, according to the

Ld. counsel, the undivided share of land was sold by Shri Mehul H.

Doshi on behalf of Shri V. Chandrasekaran and Smt. Saraswathi

Chandrasekaran. The sale proceeds of the land was credited in the

books of account of the assessee-partnership firm. According to the

Ld. counsel, the assessee developed the land as per the joint

development agreement with Shri V. Chandrasekaran and Smt.

3 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

Saraswathi Chandrasekaran and claimed exemption under Section

80-IB of the Act. However, the Assessing Officer rejected the claim

of the assessee on the ground that the profit on sale of the land was

suppressed. According to the Ld. counsel, the market value of the

land was paid by the assessee-firm to the land owners, therefore, it

may not be correct to say that the taxable income was suppressed

by making a claim for deduction under Section 80-IB of the Act.

Merely because two sons of Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran were partners in the partnership firm,

according to the Ld. counsel, the Assessing Officer doubted the

entire transaction. According to the Ld. counsel, the partnership

firm was an independent and separate assessable unit. Under the

Income-tax Act, the assessee’s children are also independent.

Merely because the children of Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran are partners in the assessee-

partnership firm, according to the Ld. counsel, it cannot be

construed that the transaction of the assessee with Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran are dubious

method to avoid payment of tax. When the land owners transferred

the land to the partnership firm for construction of multistoried

building on payment of market rate of land, the Assessing Officer is

4 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

not justified in disallowing the claim of the assessee. According to

the Ld. counsel, the entire sale consideration received from the

prospective purchasers for sale of undivided share of land was

passed on to the land owners, namely, Shri V. Chandrasekaran and

Smt. Saraswathi Chandrasekaran and not even a single penny was

retained by the partnership firm. According to the Ld. counsel, the

observation of the Assessing Officer that Shri V. Chandrasekaran

and Smt. Saraswathi Chandrasekaran got more money than the

market value of the land since their children are having 35% of

shares in the partnership firm is not correct. According to the Ld.

counsel, the children of Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran might have received profit in proportion

to their shares as per partnership deed, that does not mean that the

land owners shifted the profit on sale of land to the partnership firm

so as to transfer the profit to the children of Shri V. Chandrasekaran

and Smt. Saraswathi Chandrasekaran.

submitted that the land owners’ share of sale proceeds is a

composite one, consisting of consideration for sale of undivided

share of land as well as the built-up area. The consideration

5 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

collected by the assessee-firm towards the cost of the land was

passed on to the land owners, namely, Shri V. Chandrasekaran and

Smt. Saraswathi Chandrasekaran. Therefore, according to the Ld.

counsel, no part of sale proceeds of undivided share of land was

included in the computation of eligible profit under Section 80-IB of

the Act. According to the Ld. counsel, the land forms integral part of

the housing project. The gain on sale of land is also eligible for

deduction under Section 80-IB of the Act.

submitted that the partnership firm was constituted on 01.10.2008.

The business of the partnership firm is to develop the land by

constructing multi-storied residential flats. According to the Ld.

counsel, 21 months before the formation of partnership firm, Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran had

executed agreement for sale and also executed irrevocable power

of attorney for sale of land to the prospective buyers. Therefore,

according to the Ld. counsel, it is not correct to say that Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran colluded

with the assessee-firm. Referring to the order of the CIT(Appeals),

more particularly page 8, the Ld.counsel submitted that the

6 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

Assessing Officer misunderstood the business transaction of the

assessee with Shri V. Chandrasekaran and Smt. Saraswathi

Chandrasekaran. The children of Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran, namely, Shri Prem Chandrasekaran

and Shri Akil Chandrasekaran contributed to the capital of the

assessee-partnership firm to the extent of 35% of the total

investment. The Assessing Officer was under the impression that

Shri Prem Chandrasekaran and Shri Akil Chandrasekaran were

admitted to the partnership firm without any capital contribution.

According to the Ld. counsel, the children of Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran are not only

eligible for profit in the partnership firm, they are also equally liable

for the losses suffered by the partnership firm.

entire funds for the project were raised on the security of the land

agreed to be purchased from Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran. Therefore, according to the Ld.

counsel, the observation of the Assessing Officer that Shri Prem

Chandrasekaran and Shri Akil Chandrasekaran, the children of Shri

V. Chandrasekaran and Smt. Saraswathi Chandrasekaran earned

7 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

their respective profit in the partnership firm without any risk

element is not correct. The very fact that the children of Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran also liable

for the losses of the partnership firm shows that they are taking risk

in the business. Referring to profit margin of the partnership firm,

the Ld.counsel submitted that profit margin in any business, not only

in civil construction, would depend upon various factors. In this

case, according to the Ld. counsel, the time gap between the joint

development agreement and the sale of flats was very long.

Moreover, the land was situated in a strategic location. According

to the Ld. counsel, the project was commenced when the real estate

business was in boom. Therefore, the profit margin declared by the

partnership firm is not an unusual one.

unless there is a material to suggest that the profit margin or the

market value of the land was suppressed or shifted with a motive to

reduce the profit and to avoid payment of tax, the Assessing Officer

cannot doubt the transaction at all. In this case, according to the

Ld. counsel, without any basic material, the Assessing Officer has

simply presumed that the profit was shifted and the tax liability was

8 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

reduced. For coming to a conclusion, the Assessing Officer simply

presumed that children of Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran were inducted in the partnership firm.

According to the Ld. counsel, merely because the children of Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran are

partners in the partnership firm, there cannot be any presumption

that taxable income was shifted or reduced. Other than

imagination, according to the Ld. counsel, both the authorities below

had no material to doubt the transaction. Therefore, according to

the Ld. counsel, there is no reason to disallow the claim of

deduction under Section 80-IB of the Act.

Representative, submitted that Shri V. Chandrasekaran and Smt.

Saraswathi Chandrasekaran entered into a joint development

agreement on 05.01.2007, copy of which is available at page 49 of

the paper-book, in respect of 2.61 acres of land located at Old State

Bank Colony, III Street, Tambaram. According to the Ld. D.R., the

assessee-partnership firm constructed a housing project known as

“Nakshatra” comprising 195 dwelling units. Shri V. Chandrasekaran

and Smt. Saraswathi Chandrasekaran had also executed a power

9 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

of attorney favouring Shri Mehul H. Doshi for sale of undivided

share of land. According to the Ld. D.R., the Assessing Officer

came to a conclusion that for sale of land to the prospective

purchasers of the flats, the rate which was below the market rate

was fixed and paid to Smt. Saraswathi Chandrasekaran. Therefore,

the Assessing Officer came to a conclusion that Shri V.

Chandrasekaran and Smt. Saraswathi Chandrasekaran devised a

method to reduce the taxable income and to claim sale proceeds as

exempt from taxation by introducing their own children, namely, Shri

Prem Chandrasekaran and Shri Akil Chandrasekaran as partners in

the assessee-partnership firm with 35% of stake. According to the

Ld. D.R., Shri Prem Chandrasekaran and Shri Akil Chandrasekaran

are sharing only the profit. The Assessing Officer has also found

that in the business of joint development, the sharing ratio of the

constructed area normally between the builder and owner of the

land would be in the ratio of 65:35. Therefore, according to the Ld.

D.R., the Assessing Officer found that the share of profit given to

the sons of the land owners is nothing but sale consideration

pertaining to the land.

10 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

the Ld. D.R. pointed out that the claim of the assessee that market

value of the land as determined by the Registration authorities was

paid to the land owners, therefore, the ordinary profit was

transferred to the owners of the land, was found to be not correct.

According to the Ld. D.R., in the case of housing project, the cost of

land would normally be more than the guideline value. In this case,

according to the Ld. D.R., the property was transferred at the rate of

guideline value. According to the Ld. D.R., the profit on sale of land

was also included as profit from housing project. Moreover, the

exorbitant profit shown by the assessee for claiming deduction

under Section 80-IB of the Act clearly suggests that there was a

devise adopted by the partnership firm along with the owners of the

land Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran

so as to reduce the tax liability. Hence, according to the Ld. D.R.,

the CIT(Appeals) has rightly confirmed the order of the Assessing

Officer.

perused the relevant material available on record. In both the

appeals, the issue arises for consideration is disallowance of

11 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

deduction claimed by the assessee under Section 80-IB(10) of the

Act. The Assessing Officer disallowed the claim of the assessee

under Section 80-IB(10) of the Act that the profit is approximately

50%. The Assessing Officer also found that the profit of the

business included the cost of land sold by Shri V. Chandrasekaran

and Smt. Saraswathi Chandrasekaran. The Assessing Officer

further found that a part of cost of land was diverted as share of

profit to Shri Prem Chandrasekaran and Shri Akil Chandrasekaran,

the children of the land owners.

for allowing deduction under Section 80-IA of the Act. For

disallowing the claim of the assessee, the Assessing Officer

referred the provisions of Section 80-IA(10). We have carefully

gone through the provisions of Section 80-IA(10) of the Act. Section

80-IA of the Act is for deduction in respect of profits and gains from

industrial undertaking or enterprises engaged in infrastructure

development. Whereas, Section 80-IB of the Act is for deduction in

respect of profits and gains from certain industrial undertakings

other than infrastructure development undertaking. The CBDT

clarified by circular No.4 of 2009 dated 30.06.2009 that Section 80-

12 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

IB(10) deduction is in respect of housing projects. The Assessing

Officer observed that the provisions of Section 80-IB(10) are

governed by Section 80-IA(10) of the Act. However, there is no

such reference in any of the provisions of Section 80-IB of the Act.

It was also not brought to the notice of the Bench by the Ld. D.R.

how Section 80-IA(10) would be applicable for allowing deduction

under Section 80-IB of the Act. Section 80-IB(10) of the Act, as

clarified by the CBDT, is only for housing projects. However,

Section 80-IA is for infrastructure development. Even assuming for

argument sake that Section 80-IA of the Act is applicable, this

Tribunal is of the considered opinion that there is no material to

suggest that the business of the assessee-partnership firm was so

arranged in such a way to produce more than the ordinary profit.

maintaining books of account. No defect was pointed out either by

the Assessing Officer or by the CIT(Appeals) in the books

maintained in the regular course of business activity. The

Assessing Officer found that the cost of the land which was said to

be taken from Shri V. Chandrasekaran and Smt. Saraswathi

Chandrasekaran for joint development by the assessee-partnership

13 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

firm was valued at guideline value. The market value was not paid

to Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran.

It is a well settled principle of law that market value of the land is not

a constant or fixed price. It may fluctuate depending upon various

factors such as area of the land, location of the land, infrastructure

facility available around the land, access to the public road, etc.

The State Registration Department, after considering all these facts,

fixed the value which is known as guideline value to guide the Sub-

Registrar to determine the market value. The guideline value may

not always reflect the market value. Sometimes, the guideline value

may be less or it may be more depending upon the area and

location of the property. When the assessee entered into a joint

development agreement for transfer of part of the land to the

partnership firm at a particular price, this cannot be said that the

value determined for transfer of part of land or the entire land is a

device to increase the profit of the assessee-firm.

the market value of the land was fixed at a very lower rate since the

children of the owners of the land were partners in the assessee-

firm. There may be a justification for making allegation like this

14 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

when the children of the land owners alone are partners. In this

case, apart from the children of the owners, there are other partners

who are not related to the land owners at all. The other partners

may not cooperate with the land owners to purchase the land or to

take the land on joint development so as to reduce the profit of the

firm. Moreover, the land owners also may not transfer the land for a

price less than the market value since the third party partners who

are in the assessee-firm indirectly get the benefit. Therefore, when

the third party individuals are partners in the assessee-firm apart

from the children of the land owners, this Tribunal is of the

considered opinion that the contention of the Revenue that the land

in question was transferred to the partnership firm at a guideline

value in order to increase the profit of the assessee-firm so as to

claim deduction under Section 80-IB(10) of the Act has no merit at

all. Moreover, the contention of the Ld. D.R. that the land was

transferred at the guideline value so as to shift the profit to the

partnership firm is not supported by any material.

than 50%. As observed earlier, the assessee is maintaining books

of account in the regular course of business activity and the land

15 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

was taken by way of joint development agreement and the Revenue

authorities have not doubted the books of account maintained in the

regular course of business. Therefore, when the book result

discloses the profit at 50%, the Revenue cannot doubt that the profit

was exorbitant or improbable one. The profit generated by the

assessee-firm is supported by the books of account maintained in

the regular course of business activity, therefore, the Revenue

authorities have no justification to doubt the percentage of profit.

Moreover, the children of the land owners, namely, Shri Prem

Chandrasekaran and Shri Akil Chandrasekaran are partners in the

firm with 35% of stake. Therefore, naturally they are eligible for

35% of the profit of the firm. 65% of the profit would go to the other

partners who are not in any way related to the land owners, namely,

Shri V. Chandrasekaran and Smt. Saraswathi Chandrasekaran.

The land owners may not prefer to give 65% of the shares to the

third parties who are not connected with them. In such

circumstances, this Tribunal is of the considered opinion that there

is no arrangement as projected by the Ld. D.R. to shift the profit to

the partnership firm so as to claim a higher rate of deduction under

Section 80-IB(10) of the Act.

16 I.T.A. No.3463/Chny/16 I.T.A. No.966/Chny/17

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-4, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF. 4. Principal CIT- 5, Chennai