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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 29.06.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The grounds raised
the Revenue are as under:
1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding re-assessment of total income u/s. 153A, as invalid on the ground that no incriminating materials were found during the course of search, notwithstanding the fact that on similar facts in assessee's group case, viz. Runwal Projects Pvt. Ltd., Runwal Homes Pvt. Ltd., the CIT(A) has upheld the validity of assessment in A.Y. 2009-10, 2012-13 and 2013-14". 2. "On the facts and in the circumstances of the case and in law, the id. CIT(A) erred in allowing the expenses amounting to Rs. 137,52,79,824/- by holding that 2 M/s. Runwal Developers Pvt. Ltd. the same has been paid by him for acquisition of land parcel notwithstanding that the AO has established that the said amount was paid by the assessee to the firm M/s. Sportsfield construction for becoming a partner in it and therefore it can not be treated as paymentjor acquisition of land parcel."
The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.
The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-52, Mumbai, may be set aside and that of the Assessing Officer restored.”
3. The issues raised in the ground no. 1 and 2 are same against the deletion of addition of Rs.137.53 Cr. The issue raised in the first ground of appeal is against the order of CIT(A) holding the re-assessment of income as invalid on the ground that no incriminating materials were found during search and issue in the 2nd ground is against the deleting the addition by ld. CIT(A) allowing the expenses amounting to Rs. 137.53 Cr by holding that the same were paid for the acquisition of land despite the AO establishing that the same were paid for becoming partners in the firm.
The facts in brief are that the assessment was framed u/s 143(3) of the Act vide order dated 29.1.2013 at an income of Rs.27.65 Cr as against the returned income of Rs. 25.96 Cr. A search action was conducted on the Runwal group on 17.11.2014 including the assessee. After centralising the cases with Central Circle, notice u/s 153A of the Act was issued on 16.11.2015. The assessee filed return of income in response to the said notice on 27.7.2016 declaring an income of Rs. 25.96 Cr which was same as declared in the original return of income. The assessee is engaged in the business of developers and builders, running and maintaining the malls. During the course of re-assessment proceedings the AO observed that assessee has 3 M/s. Runwal Developers Pvt. Ltd. claimed Rs. 137.53 Cr as expenses incurred for the purchase of land wrongly as the said payments were made to become partner in the firm M/S Sports Field Construction. The brief background is that a firm M/S Sports Field Construction was formed in the year 1992 to develop the plots/land and sports facilities. The firm was reconstituted upon retirement of some partners and with the induction of new partners. The piece of land owned by the firm M/S Sports Field Construction was sold by M/S Runwal Developers Pvt. Ltd to M/S Ranwal Projects Pvt. Ltd. on 31.12.2009 for a consideration of Rs. 81.50 Cr. Besides the said amount, the 58.50 Cr was debited to the land cost towards the compensation for settlement of various liabilities due to disputes raised for the interest, rights and titles thereby the total cost of land going up to Rs. 140.00 Cr. The, AO before coming to the conclusion that Rs.137.53 were paid for becoming partners in the firm, observed as under: “5.3 The facts, transactions and events are narrated hereunder:
M/s. Sportsfield Construction, a partnership firm was incorporated by partners on 6/5/1992. Three partners introduced land as their capital contribution. Book entry was passed in the books valuing land at Rs. 1.50 Crore. The parcel of land is located at Lokhandwala, Andheri (W), Mumbai. The firm Sports Field Construction is holding the land as fixed asset at Rs. 1.50 Crore as per the last balance sheet available as at 31.03.2008.
5.4 All erstwhile partners of M/s Sports Field Construction have individually received consideration from M/s. Runwal Developers Pvt. Ltd (RDPL) towards transfer of their share in the partnership firm - M/s Sports Field Construction.
5.5 M/s. Runwal Developers Pvt. Ltd (RDPL) has made payments to erstwhile partners of the M/s Sports Field Construction and entered into M/s Sports Field as partner along with (1) Shri Subhash Runwal, (2) Shri Sandeep Runwal and (3) Shri Subottti Runwal, vide deed of retirement and admission dated 04/04/2008. The payments have been made as compensation against their retirement from the said partnership firm.
5.6 Consequently, the payment made by M/s. Runwal Developers Pvt. Ltd( RDPL) for obtaining share in partnership firm amounts to payment made for the 4 M/s. Runwal Developers Pvt. Ltd. acquisition of a capital asset i.e. rights in the firm M/s Sportsfield Construction, and has to be accounted for in the books of M/s. Runwal Developers Pvt. Ltd (RDPL) at cost.
5.7 The piece of land that was introduced by partners in the firm as their capital contribution is an asset. The ownership of said land remains with the firm -M/s Sports Field Construction. The said land is reflected as an asset of the firm. However M/s. Runwal Developers Pvt. Ltd (RDPL) has sold and transferred the ownership land of the firm M/s Sports Field Construction in favor of M/s. Runwal Projects Pvt. Ltd.(RPPL) vide agreement dated 31/12/2009. The partnership firm M/s Sport Field Construction is owner of the land. M/s. Runwal Developers Pvt. Ltd (RDPL) and its directors are partners of the firm Sports Field Construction. The firm has not objected to the sale and transfer of the capital asset owned by it by M/s. Runwal Developers Pvt. Ltd (RDPL) to M/s. Runwal Projects Pvt. Ltd.(RPPL). Since all the partners are party to sell the property owned by the Sports Field Construction, it can be stated that partnership firm M/s Sports Field Construction has relinquished its right in the said land in favour of partner/s i.e M/s. Runwal Developers Pvt. Ltd (RDPL) and its directors.
5.8 / It is observed that M/s. Runwal Developers Pvt. Ltd (RDPL) has made various fments to erstwhile partners and others in order to acquire share / right in partnership firm. M/s. Runwal Developers Pvt. Ltd (RDPL) has acquired 100% share in partnership of firm - M/s Sports Field Construction in consideration of payment to erstwhile partners. The said asset i.e. share in partnership is neither sold nor transferred. Therefore the following payments shall be attributed to cost of acquisition of share in partnership firm and not towards acquisition of land. M/s. Runwal Developers Pvt. Ltd (RDPL) has not transferred the share in partnership firm and same remained in its books at cost.”
Ultimately, AO added Rs. 137.53 Cr to the income of the assessee by framing assessment u/s 143(3) r.w.s. 153A of the Act by rejecting the submissions of the assessee that the said sum was paid towards the purchase of land and settling various claims, interest etc and for taking peaceful possession.
In the appellate proceedings, the ld CIT(A) deleted the additions made by the AO of Rs. 137.53 Cr on the ground that on the date of search the assessment in the instant year has already attained finality and any addition could only be made based upon the incriminating materials seized during the search action by following the decisions of the Hon’ble Bombay High
5 M/s. Runwal Developers Pvt. Ltd. Court in the case of CIT Vs Continental Warehousing Corporation ITA 563 of 2013 and CIT Vs All Cargo Logistics Ltd ITA No. 1969 of 2013 order dated 21st April, 2015 by observing and holding as under:-
“19. I have considered the facts of the case, submissions and contentions of the appellant, as also the assessment order of the AO. The sum and substance of the assessee's argument is that firstly no incriminating material was found during the ;course of search in respect of purchase of land at Lokhandwala of Rs. 137.52 crs. and that this issue was already examined by She then Assessing Officer while completing the original assessment u/s. 143(3) of the Act vide order dated 29/01/2013 prior to the date of search and therefore, in view of the judgement of Hon'ble Jurisdictional High Court in the case of Intercontinental Warehousing Ltd. and All Cargo Ltd., the AO could not have reopened the issue. The second argument of the assessee is that it never became partner in M / s. Sports Field Const, and there was no partnership deed to that effect and therefore, the AO was not justified in holding that sum of Rs. 137.52 crs. was paid towards becoming the partner in the partnership firm M/s. Sports Field Construction. The assessee further submitted that it actually purchased the property from the landowners viz. Smt Amritben Malsi, Smt. Velbhai Devshi Shah and Bipin T. Shah, who bad shares in the property to the tune of 42.84 %, 42.84% and 14.32% and to whom amount of Rs. 11 crs., 11 crs. and Rs. 16.77 crs. were paid and individual sale deeds transferring the land were executed . The assessee has also argued that amounts paid to other persons viz. Vithal Kamat was to take over the possession of the property and to secure the property in every way. Therefore, the assessee argued that the AO was not justified in holding that above amount was paid towards becoming the partners in the firm and therefore, the A£> was not justified in disallowing a sum of Rs. 137.52 crs. in the hands of the assessee.
With a view to verify the above facts, the matter was remanded to the AO vide this office letters dated 12/05/2017 and 17/05/2017 and the AO was asked whether any incriminating material was found during the course of search in respect of purchase of the land at Rs. 137.52 crs. The AO was also asked to furnish his comments in respect of applicability of judgement of Hon'ble jurisdictional High Court in the cases of Intercontinental Warehousing Ltd. and All Cargo Ltd. The AO was also asked to furnish necessary evidence in respect of the appellant company becoming partner in the firm M/s. Sports Field Construction alongwith partnership deed, if any. The AO submitted a remand report vide letter dated 12/06/2017 and 22/06/2017 wherein though he accepted that the assessee had purchased property from the landowners, but still maintained that amount of Rs. 137.52 crs. was paid for purchasing shares in partnership firm M/s. Sports Field Construction and becoming partner thereof. However, the AO was silent about the fact whether any incriminating material was found in respect of purchase of land during the course of search. The AO also did not comment about applicability of jurisdictional High Court decision in case of All Cargo, considering the fact that this issue had already been examined while completing the original assessment prior to the date of search. The AO also
From the perusal of the details, it appears that the assessee had paid a sum of Rs. 137.52 crs. to 22 different parties. The main amount has been paid to 3 co- owners of the land viz. Smt. Amritben Malsi, Smt. Velbhai Devshi Shah and Bipin T. Shah, who had shares in the property to the tune of 42.84 %, 42.84% and 14.32% and to whom amount of Rs. 11 crs,, 11 crs. and Rs. 16.77 crs. has been paid respectively. Besides, an amount of Rs. 48.14 crs. has been paid to Shri Vithal Kamat who was having possession of land and was also a partner in M/s. Sports Field Construction, with a view to secure the possession of the land. Besides, various amounts have been paid to other persons, details of which are tabulated as under:-
………. ………… ……
From the abo^e it may be concluded that AH the payments have been made in lieu of acquiring the said Land Parcel which was the only intention of the Appellant, which would be apparent from its Business and Conduct as well. Further None of the payments were made to the Partnership Firm for the acquiring of the said Land Parcel. The Conveyance of the said Land Parcel has been done by its actual owners who were independently compensated and not by the said M/s. Sportsfield Construction which proves yet again the fact that the said Land was never owned by the said Firm. Further the Learned Assessing Officer preferred to ignore the fact that in the assessment of Shri Vithal Kamat, the said issue had already been decided by the Department by treating the sum received by him as Capital Gains on Transfer of Right, Title and Interest in Property. The said order u/s. 143(3) of the Act was passed in his case on 26.12.2011. Copy of the said order passed is available with the Appellant and the same is enclosed herewith for Your Honour's ready reference and records. "
As discussed above, the assessee had purchased this land at Lokhandwala from three different persons viz. Smt. Amritben Malsi, Smt. Velbhai Devshi Shah and Bipin T. Shah. Further, at the time of purchase, tills land was in possession of one Mr. Vithal Kamat. It is gathered that Mr. Kamat had floated a partnership firm, in the name of M/s. Sports Field Construction in which there were partners. In the meanwhile, Mr. kamat had entrusted this land to another gentleman viz. Shri Ramesh Shanbaug, who started running a club in the name "Kamath Club" at the said land and made several persons as members of the said club. In between the assessee entered into a Memorandum of Understanding dated 12/11/2003 with M/s. Sports Field Construction for development of the said land under the impression that the land belonged to the firm . However later they discovered that the firm only had possession of the land and legal title belonged to three ladies . The assessee company Aalso realized that M/s. Sports Field Construction did not have title deeds of the property and the actual co-owners had disputed the possession of the land by Sports Field Construction, therefore, the assessee company thought to buy this property directly from the legal owners. Since, the possession of this land was with Sports Field Construction, Vithal
7 M/s. Runwal Developers Pvt. Ltd. Kamat and Ramesh Shanbaug, the assessee paid them a sum of Rs. 4.72 crs., Rs. 48.14 cr., Rs. 1.20 cr. Respectively and consequently they handed over possession of the property to the assesse company and relinquished all their rights in the said property or partnership. Besides, some small amounts were paid to the partners of Sport Field Construction viz. Ramesh C. Rambhaiyya and Shantilal Dungershi Maroo. These amounts were paid with a view to secure complete title and possession of the property and with a view to avoid any litigation later on . The assessee in this regard has submitted copies of sale deed dated 09/04/2009, 08/04/2009 with Amritbai Malsi, Smt. Velbhai Devshi Shah and Bipin T. Shah as per which this land is purchased for a sum of Rs. 85 cr from them. The assessee has also submitted a copy of agreement with Vithal Kamat and with Ramesh Shanbaug. From the above details, it is clear that the assessee company has directly purchased this land from actual owners viz. Amritbai Malsi, Smt. Velbhai Devshi Shah and Bipin T. Shah and has paid amounts directly to them and a sale deed/conveyance deed has been executed, which is duly registered with the Sub-Registrar. There is no role as such of Sports Field Construction in the same. It is gathered that Vithal Kamat, Sports Field Construction and Ramesh Shanbaug had possession of this land and therefore, with a view to takeover the possession certain amounts have been paid to them. However, that has been done only to secure the title and the possession.
In this regard it is also relevant to discuss the finding of the assessing officer in case of Sri Vithal Kamath while completing his assessment. He mentioned in para 6.11 of the assessment order dated 26/12/2011 that 'deed of admission and retirement' was apparently prepared to camouflage the transaction of transfer of the development rights and rights possessed by Vithal Kamath to RDPL Aand infact this document was merely a device to avoid tax. The relevant finding vide order dated 26/12/2011 for the A.Y. 2O09-10 is reproduced as under :-
i. The conduct of the parties and documents entered into by the various partners including the Appellant show that that the property and its rights were transferred by the individual owners in their individual capacity without any reference to the partnership firm or the deed of admission & retirement executed on 04.04,2008. In fact, it would be appreciated that the Property Card of the said piece of land (copy enclosed) was also recognizing the said three persons as the owners of the said land. ii. Each of the landowners/holders of the right in the property with the sole exception of Shri. Vithal Kamat has transferred the property to M/s. Runwal Developers Pvt. Ltd., by way of separate sale agreement and not by the way of deed of admission & retirement executed on 04.04.2008. The sale deeds/ agreements were signed on different dates. iii. The three landowners have transferred the land and relinquished their rights, title and interest in the property and handed over the possession of the property. The consideration was paid separately to each land owner by the Appellant. iv. Shri. Vithal Kamat (holder of the rights in the property) has received the money directly in his bank account from the Appellant and not through
8 M/s. Runwal Developers Pvt. Ltd. the firm. This money was not received in the profit sharing ratio of the partners in the firm. In fact, this was received as per the individual negotiation skill of the seller/transferor. v. The deed of admission & retirement dated 04.04.2008 was executed for retirement by Shri. Vithal Kamat. The property or its rights were never transferred by this documents as is visible from the fact that the property was transferred in the name of Runwal Developers Pvt. Ltd. vi. Shri. Vithal Kamat had mere right of possession of the property which was transferred to M/s. Runwal Developers Pvt. Ltd., at a consideration of Rs.48.15 crores. In fact Shri. Vithal Kamat has received the consideration for handing over of possession of the property and for transferring /relinquishing any rights and interest in the property. Thus, the transaction was purely in the nature of transfer of immovable property by various individuals to M/s. Runwal Developers Pvt. Ltd., and this conclusion is further strengthened by the fact that after the deeds were registered by a conveyance deed executed by the land owners only and not by M/s. Sportsfieid Construction, the property got transferred directly in the name of M/s. Runwal Developers Pvt. Ltd. vii. In fact, if version of the Ld. AO is to be accepted that the property was transferred by way of deed of admission and retirement dated 04.04.2008, then the property should have been in the name of the firm M/s. Sportsfieid Construction which is not the case."
In view of these facts, there is no doubt that the appellant company has purchased this land and the amounts have been paid for the purchase of land only that to directly to the landowners. No payment as such made to M/s Sportsfield construction except a monor sum. Further made to the landowners have not been routed through sportsfield construction but made directly to them and that too for purchase of land in lieu of sale deed .Whatever payments have been made to Vithal Kamath or Ranoesh Shanbaug has been made for securing the possession of the land , which was in their possession though legal title was with the three ladies.
Further the claim of the AO that M/s RDPL became partner in M/s Sportsfield construction or runwal family members became partners is far from truth . There is no evidence that either RDPL or Sandeep Runwal actually became partner in the said firm . There is no partnership deed or any other document to that effect . In fact the so called retirement cum admission deed is not signed by any other partners of the said firm except Mr Vithal Kamath and it appeared to be only a device to save tax in his own hands .
Therefore, there appears to be no truth in the claim of the AO that the above amounts were paid towards becoming the partner in Sports Field Construction. In fact, no evidence in this regard has been produced by the AO despite repeated queries from the undersigned. There appears to be no partnership deed in which the appellant company or Sandeep Runwal are a partner. Therefore, the claim of the AO that the above expenditure of Rs. 137.52 crs. was made for taking over
9 M/s. Runwal Developers Pvt. Ltd. partnership does not appear to be substantiated. Therefore, the conclusions drawn by the AO that this expenditure of Rs. 137.52 crs. was not an allowable expenditure, does not appear to be correct or justified. Needless to say that the genuineness of the expenditure was never doubted by the AO .
Therefore considering the overall facts of the case and evidence produced by the assessee, there is no doubt that this sum of Rs. 137.52 crs. was incurred by the assessee towards purchase of the above land and securing its complete possession and to remove any incumberance in this regard . Therefore, while computing the profit of the assessee on sale of such land to a sister concern such—cost is held to be an eligible expenditure. Consequently, this issue is allowed on merits also in the favour of the assessee.
In the result, this appeal is partly allowed.”
The ld DR submitted before the bench that order of Ld. CIT(A) is not correct and contains several infirmities as it has ignored the provisions of section 158BH the Act that which make it abundantly clear that all other provisions of the Act are clearly applicable to the assessment being framed u/s 153A of the Act. The ld DR submitted before the bench that wrong claim on which AO laid his hands during the course of assessment proceedings need not to be necessarily based upon the incriminating materials seized during the search. The ld DR referred to the details of payments as tabulated by the AO in page no. 5 to 7 of the assessment order and argued that the said information was gathered during the course of search and constitute the materials seized during the search. The ld DR argued that even if it presumed for a moment that the said information was gathered during post search period, still the addition can be made as section 158 BH of the Act makes it clear that all other provisions of the Act would apply to the assessment framed u/s 153A of the Act. The ld DR relied on the decision of Hon’ble Apex Court in the case of CIT Vs S Ajit Kumar C.A. No.10164 of 2014 dated 2.5.2018 in defense of his
10 M/s. Runwal Developers Pvt. Ltd. arguments. The ld DR thus argued that even addition made on the evidences gathered post search as well as during assessment proceedings can be the basis of addition. The ld DR argued that the payment of Rs. 137.53 Cr was made to the former partners to replace them in the firms and thus it is capital investment paid for becoming partners in the firm and not related to the land purchased. The Dr also submitted that the issue of land cost was not examined at all in the original assessment proceedings and came to light only during search or post search enquiries. The ld DR finally prayed that the order of CIT(A) may be reversed and that of the AO may be restored.
The ld AR, on the other hand, relied heavily on the order of CIT(A) by submitting that it is settled position that any addition in case of an assessment year which has attained finality on the date of search , no addition can be made except on the basis of seized materials during the course of Search. The ld AR argued that the Hon’ble jurisdictional High Court in the case of All Cargo Logistics Ltd and Continental Warehousing Corporation (Supra)has laid down that the addition to an assessment which is final on the date of search, can only be made based upon the seized materials during search and not otherwise. The ld AR therefore submitted that the order of CIT(A) is well reasoned and speaking one passed after following the decisions of the jurisdictional high court and needs to be upheld by dismissing the appeal of the Revenue.
After hearing the ld DR and the ld AR and perusing the materials as placed before us along with the impugned order, we
11 M/s. Runwal Developers Pvt. Ltd. find that it is undisputed that on the date of search on the assessee on 17.11.2014, the assessment has attained finality as the assessment was framed u/s 143(3) of the Act vide order dated 29.01.2013. So it is very clear that any addition can only be made based upon the seized materials and not otherwise as has been held by the jurisdictional High /court in the case of CIT Vs All Cargo Logistics Ltd. and CIT Vs Continental Warehousing Corporation (supra). At the time of hearing on 18.1.2019 the ld DR specifically requested the bench to give some time to obtain information/report from the AO on the issue of any materials found and seized during search which was allowed by posting the next hearing on 1.2.2019. Again on 1.2.2019 a request was made by the ld DR for further time which was allowed by adjourning date of hearing to 1.3.2019. Again on 1.3.2019 the case was adjourned at the request of ld DR to 8.3.2019. On the said date the ld DR informed the bench that he is relying on the assessment order and argued that the addition could be made on the basis of information gather even during post search period. We are not in agreement with the arguments presented before us by the ld DR on this issue as the same were contrary to the ratio laid down by the Hon’ble jurisdictional high court. Under these facts and circumstances, there is no reason to deviate from the findings of ld CIT(A) who has passed the appellate order after following the ratio laid down by the Hon’ble Bombay High Court as discussed above. Accordingly we uphold the order of CIT(A) by dismissing the appeal of the Revenue.
In result the appeal of the revenue is dismissed.
Order pronounced in the open court on 22.03.2019.