Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
PER SAKTIJIT DEY, J.M.
Aforesaid appeal has been filed by the assessee challenging the order dated 8th January 2014, passed by the learned Commissioner (Appeals)–20, Mumbai, for assessment year 2007–08.
In ground no.1 and 2, the assessee has challenged validity of re– opening of assessment under section 147 of the Income Tax Act, 1961 (for short “the Act”).
2 Vijay Alloys Pvt. Ltd.
Brief facts are, the assessee company filed its return of income for the impugned assessment year on 31st October 2007, declaring loss of ` 57,423. The return of income filed by the assessee was processed under section 143(1) of the Act on 6th December 2008. Subsequently, in course of assessment proceedings for assessment year 2009–10, it came to the notice of the Assessing Officer that the assessee vide agreement dated 20th April 2006, had sold a plot at Thane for a total sale consideration of ` 6.30 crore. However, the assessee did not offer any capital gain arising out of such sale transaction. The Assessing Officer also noticed that the assessee had advanced loan to two persons to which provision of section 2(22)(e) of the Act gets attracted. Thus, the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment, re– opened the assessment under section 147 of the Act for the impugned assessment year and ultimately completed the assessment determining the total income at ` 3,96,79,830. Being aggrieved of the assessment order so passed, the assessee preferred appeal before the learned Commissioner (Appeals), inter–alia, on the ground that re– opening of assessment under section 147 of the Act is invalid. Insofar as the issue of re–opening of assessment under section 147 of the Act is concerned, the learned Commissioner (Appeals) rejected all
3 Vijay Alloys Pvt. Ltd.
contentions raised by the assessee and upheld the validity of re– opening of assessment under section 147 of the Act.
Shri Nitesh Joshi, learned Counsel appearing for the assessee drawing our attention to the reasons recorded for re–opening of assessment submitted that the Assessing Officer without proper application of mind has exercised power under section 147 of the Act. He submitted, as per the terms of the development agreement, the developer was given license to undertake development activities and there was no transfer of property, as such, in favour of the developer. Thus, he submitted, there is no escapement of income necessitating re–opening of assessment under section 147 of the Act.
The learned Departmental Representative strongly relying upon the reasons recorded and observations of the learned Commissioner (Appeals) submitted that the material on record clearly revealed escapement of income, hence, the Assessing Officer was justified in re–opening of assessment. He submitted, in assessee’s case no scrutiny assessment for the impugned assessment year was made earlier. The assessee also did not offer capital gain arising from transfer of immovable property. Therefore, while re–opening of assessment, the Assessing Officer had tangible material in his possession indicating escapement of income. He submitted, at the
4 Vijay Alloys Pvt. Ltd.
stage of re–opening of assessment under section 147 of the Act the Assessing Officer on the basis of material in his possession should have a prima–facie belief that income chargeable to tax has escaped assessment. At that stage, the Assessing Officer is not required to record a conclusive finding that the disputed income will be ultimately taxed. Thus, he submitted, re–opening of assessment in the present case cannot be assailed.
We have considered rival submissions and perused materials on record. Undisputedly, the return of income filed by the assessee for the impugned assessment year was not subjected to scrutiny but was only processed under section 143(1) of the Act. Therefore, the Assessing Officer had no scope to examine various claims made by the assessee in the return of income with reference to its books of account and other documents. It is evident, subsequently the Assessing Officer received material/information indicating that the assessee has entered into a registered development agreement with a developer, namely, Sanghvi Premises Pvt Ltd. on 20th April 2006. After going through the terms of the development agreement, the Assessing Officer found that the assessee has transferred the immovable property in favour of the developer for a total consideration of ` 6.30 crore. He also found that as per the terms of the agreement, the assessee has transferred
5 Vijay Alloys Pvt. Ltd.
irrecoverable and unrestricted right over the property to the developer.
Since, the assessee had not offered capital gain arising out of transfer of immovable property by virtue of the development agreement, the Assessing Officer having reason to believe that income chargeable to tax for the impugned assessment year has escaped assessment initiated proceedings under section 147 of the Act. These facts are clearly discernible from the reasons recorded by the Assessing Officer for re–opening of assessment, a copy of which is at Page–32 of the paper book. As per the settled principle of law, while exercising power under section 147 of the Act, the Assessing Officer on the basis of material in his possession should form a prima facie belief that income chargeable to tax has escaped assessment. At that stage, the Assessing Officer is not required to give a conclusive finding with regard to the escaped income as has to be looked into in course of the assessment proceedings after allowing reasonable opportunity to the assessee to explain its case. At the time of reopening of assessment what is required to be seen is, whether there is a reasonable nexus between the material available with the Assessing Officer and belief formed by him. In the facts of the present case, there was enough material before the Assessing Officer by way of development agreement to form a prima–facie belief that income chargeable to tax
6 Vijay Alloys Pvt. Ltd.
has escaped assessment. Therefore, in our considered opinion, the Assessing Officer was empowered under the Act to reopen the assessment under section 147 of the Act. The grounds raised by the assessee in this regard must fail.
In grounds no.3, 4 and 5, the assessee had challenged the addition made on account of capital gain.
Brief facts are, the assessee by registered deed dated 20th 9. February 1974, had purchased a property admeasuring 52,940 sq.mtrs. from Ms. Dina Manekji Modi, at village Parsik, District Thane. Out of the said property, the assessee has sold 11,000 sq.mtrs. to M/s. Bella Estate Pvt. Ltd., by registered sale deed dated 30th March 1982, and another portion of land admeasuring 25,164 sq.mtrs. to Shri Mukund Kashinath Nathu and others vide registered sale deed dated 10th July 1997. In respect of the balance portion of land to the extent of 16,776 sq.mtrs., over which the assessee was still enjoying ownership, he entered into a registered development agreement on 20th April 2006, with Sanghvi Premises Pvt. Ltd. for a total sale consideration of ` 6.30 crore. In course of the assessment proceedings, when the Assessing Officer called upon the assessee to explain why capital gain should not be charged since there is a transfer of capital asset under section 2(47)(v) of the Act in pursuance to the
7 Vijay Alloys Pvt. Ltd.
development agreement, it was submitted by the assessee that the property has not been transferred by the assessee to the developer but the assessee is still owner of the property. It was submitted, the developer was only given license to develop the property and the possession was not given to the developer. It was submitted by the assessee, as per the terms of the agreement transfer of ownership will only take place when the total sale consideration is paid to the assessee. It was submitted, since in the relevant previous year, the assessee had not received the entire sale consideration, there is no transfer of ownership in terms of section 2(47)(v) of the Act. The Assessing Officer, however, was not convinced with the submissions made by the assessee. After perusing the development agreement, the Assessing Officer observed that the assessee has transferred all its rights over the property in favour of the developer. He observed, after execution of the development agreement, the developer has taken over the possession of the property and has also carried out development activities. The Assessing Officer observed, in response to the notice issued under section 133(6) of the Act, the developer M/s. Sanghvi Premises Pvt. Ltd. had replied that an amount of ` 3,09,37,500 was paid to the assessee in financial year 2006–07. It was also informed that a total consideration of ` 5,53,18,910, was paid to the assessee till 31st March 2010. The Assessing Officer also
8 Vijay Alloys Pvt. Ltd.
observed that as per the terms of the agreement, the developer was required to pay all rent, taxes, fees, etc. relating to the property. Thus, upon going through the development agreement as a whole and other attending facts and circumstances, the Assessing Officer concluded that all conditions of transfer as per section 2(47)(v) of the Act stand fulfilled. After referring to certain judicial precedents, the Assessing Officer ultimately concluded that the assessee has transferred the property in question to the developer in the previous year relevant to the assessment year under dispute in terms of section 2(47)(v) of the Act. Further, the Assessing Officer observed, the stamp valuation authority has valued the property for stamp duty purpose at ` 6,37,48,800. Therefore, applying the provision of section 50C of the Act, the Assessing Officer held that the value determined by the stamp duty authority should be treated as deemed sale consideration for computing capital gain. After allowing deduction towards indexed cost of acquisition of land and building and expenses related to transfer of the property, the Assessing Officer determined the net long term capital gain at ` 3,96,79,832, and brought it to tax in the impugned assessment year. Being aggrieved of such addition, the assessee preferred appeal before the learned Commissioner (Appeals). However, the learned Commissioner (Appeals) rejecting the contention
9 Vijay Alloys Pvt. Ltd.
raised by the assessee sustained the addition made by the Assessing Officer on account of long term capital gain.
The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted that there was no transfer of immovable property in terms of section 2(47)(v) of the Act in the relevant previous year. In this context, the learned Authorised Representative drew our attention to different clauses of the development agreement, a copy of which is at Page–1 of the paper book. Referring to clause–2 of the development agreement, he submitted that the transfer of the property in favour of the developer would be completed only on execution of separate deed of conveyance in favour of the developer or its nominee. Referring to clause–20 of the development agreement, the learned Authorised Representative submitted, as per the terms of the agreement, the total consideration payable to the assessee was ` 6.30 crore. He submitted, as per clause–15 of the development agreement only on payment of entire consideration, the developer shall be deemed to be in possession of the property and shall be entitle to mortgage the property in favour of the Bank or any institution or borrow money. Referring to clause– 12(a), the learned Authorised Representative submitted, the developer was given right of entry to the property as a licensee. Referring to clause–28 and 29 of the development agreement, the learned
10 Vijay Alloys Pvt. Ltd.
Authorised Representative submitted that a reading of these clauses would indicate that there is no transfer of right over the property under section 2(47)(v) of the Act. He submitted, as per the information submitted by the developer in pursuance to the notice issued under section 133(6) of the Act, the entire sale consideration was not paid to the assessee in the impugned assessment year. He submitted, even as of now the assessee is yet to receive ` 76 lakh from the developer. Therefore, he submitted, in terms of the agreement transfer could not have taken place under section 2(47)(v) of the Act. He submitted, the commencement certificate issued by Thane Municipal Corporation on 9th May 2007, mentions the assessee as the owner. Thus, the learned Authorised Representative submitted, since the conditions of section 53A of the Transfer of Property Act, 1882, have not been fulfilled, it cannot constitute a transfer under section 2(47)(v) of the Act. In support of his contention, he relied upon the following decisions:–
i) CIT v/s Arvind S. Phake, [2018] 401 ITR 96 (Bom.); ii) CIT v/s Shri Sadia Seikh, Tax Appeal no.11 and 12 of 2013, dated 02.12.2013; iii) ACIT v/s Jawaharlal L. Agicha (2011) 161 ITD 429 (Mum.); and iv) CIT v/s Geeta Devi Pasari, [2009] 17 DTR (Bom.) 280.
11 Vijay Alloys Pvt. Ltd.
The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted that transfer of capital asset having taken place in the impugned assessment year the assessee was liable to pay tax on capital gain. The learned Departmental Representative drawing our attention to specific clauses of development agreement submitted that a reading of the development agreement goes to prove that the assessee has irrevocably parted possession over the property in favour of the developer and on the strength of the development agreement the developer has started construction activity over the land. He submitted, under no circumstances the assessee is going to get back the possession over the land. Referring to clause–11 of the agreement, the learned Departmental Representative submitted, it makes clear that the assessee has extinguished all its rights over the property. He submitted, out of the agreed sale consideration as per the development agreement, the assessee has received a major part and a nominal amount is left to be paid. He submitted, in the impugned assessment year itself, about 50% of the sale consideration has already been paid to the assessee. He submitted, mere deferment of sale consideration does not mean that transfer has not taken place. He submitted, the execution of development agreement between the parties and their subsequent conduct clearly envisages transfer in
12 Vijay Alloys Pvt. Ltd.
terms of section 2(47)(v) of the Act r/w section 53A of the Transfer of Property Act, 1882. He submitted, even there is no dispute between the parties regarding the part performance of the contract by either of the parties. He submitted, reading of the development agreement as a whole leaves no room for doubt that there is a irrevocable transfer of right over the property in favour of the developer. Thus, he submitted, provisions of section 2(47)(v) of the Act r/w section 53A of Transfer of Property Act, 1882, clearly get attracted. Hence, the Assessing Officer was justified in computing capital gain in the impugned assessment year.
We have considered rival submissions and perused materials on record. We have also applied our mind to the decisions relied upon. Undisputed facts are, on 20th April 2006, the assessee has executed registered development agreement with M/s. Sanghi Premises Pvt. Ltd. for a total sale consideration of ` 6.30 crore. As per clause–(vi) of the agreement, the assessee being owner of the property, has agreed to grant, convey, transfer and assign to the developers the development rights over the said property for an agreed consideration. The said clause further provided that the owner shall convey the property in favour of the developer or their nominees and as per the said clause, the expression development right shall mean and include the property owned by the assessee, all the rights, title, interest, benefits,
13 Vijay Alloys Pvt. Ltd.
advantage, claims and demands in respect of the said property and FSI, DTR, yield, floating rights, other benefits and advantages, etc. Thus, as per the aforesaid clause, all rights over the property shall be conveyed by the owners in favour of the developers. As per clause 2 of the agreement, the owners are required to sell or transfer the property to the developer or their nominees by executing one or more deed of conveyance. As per clause–4 of the agreement, the developer shall have an unrestricted right and be entitled to the development rights including construction of building over the said property by consuming / loading / utilizing the development rights. Further, the developer is entitled to own and retain the flats, shops, industrial galas, garages, parking, offices, commercial premises, parking space and all other areas and premises in the said property. Further, the developers can sale, transfer and/or otherwise deal with and dispose off the tenements to such persons and on such terms as the developers may deem fit without any restriction, including, restriction as to the price of the tenement and / or the choice of the purchaser and receive the appropriate sale proceeds thereof. The owner is also required to execute an irrecoverable power of attorney appointing and authorising the developer and their representatives to do several acts and deeds for the purpose of development of the property. Clause–11 of the agreement provides that after execution of the development
14 Vijay Alloys Pvt. Ltd.
agreement, the developer shall pay all rent, rates, taxes, charges in respect of the property. Clause–12 of the agreement provides that from the date of execution of the agreement, the developers will have irrevocable and unrestricted right and be entitled to enter into the premises as licensee and do all such activities as may be required for developing the property. Clause–20 of the development agreement provides for sale consideration of ` 6.30 crore to the owners of the property. Clause–21 of the agreement stipulates the mode and manner of such payment. Thus, on a careful reading of the development agreement it becomes clear that as per the terms of the development agreement, the assessee has not only handed over possession of the property in favour of the developer but has also parted with its right over the property in favour of the developer. It is also evident, out of the total agreed sale consideration of ` 6.30 crore, the assessee has received ` 3,09,37,500, during the previous year relevant to the assessment year under dispute. In fact, in response to the notice issued under section 133(6) of the Act, the developer M/s. Sanghvi Premises Pvt. Ltd. has informed the Assessing Officer that by the end of 31st March 2010, the assessee has been paid total sum of ` 5,53,18,910. The assessee has submitted before us and which is also evident from the accounts of the developer that as on 28th November 2012, an amount of ` 76,81,090, remained payable to the assessee.
15 Vijay Alloys Pvt. Ltd.
However, even in respect of aforesaid outstanding amount, the Assessing Officer has observed that the assessee as per the terms of the agreement was required to incur cost of ` 45 lakh which was to be reimbursed by the developer as part of the sale consideration. Thus, the actual amount remaining payable to the assessee was ` 31,81,090. Thus, as could be seen from the aforesaid facts, the assessee has received major chunk of the sale consideration. It is relevant to observe, on careful reading of the development agreement it appears that it is totally silent as regards assessee’s right to proceed against the developer in case of any breach or violation of the agreement by the developer. On the contrary, the development agreement fully protects the developer against any breach or violation by the owner assessee. Further, the assessee has not brought any material or evidence on record to indicate unwillingness of the developer, either expressly or impliedly, in performing his part of the contract. In fact, the assessee has not produced even a single correspondence with the developer alleging any breach or violation on the part of the developer in performing his part of the contract. Thus, all the conditions of section 53A of the Transfer of Property Act, 1882, are fully complied with resulting in a transfer of capital asset within the meaning of section 2(47)(v) of the Act. As observed earlier, out of the total sale consideration of ` 6.30 crore the assessee has received an
16 Vijay Alloys Pvt. Ltd.
amount of ` 5,53,18,910. As regards the balance amount of ` 76,81,090, there is nothing in record to suggest that the developer is unwilling to pay the said amount or the assessee has demanded the unpaid amount from the developer to fulfill the terms of the contract. In the aforesaid fact situation, one has to conclude that a transfer in terms of section 2(47)(v) has taken place on execution of the registered development agreement on 20th April 2006. Notably, even till date, the assessee on his own has not offered any capital gain to show its bonafide. As regards the decisions relied upon by the learned Authorised Representative on a careful reading of the same, we found them to be factually distinguishable, hence, will not apply to facts of the present case. The Hon'ble Jurisdictional High Court in Arvind S. Phake (supra) has held that transfer is effected only on transfer of physical possession of property and not on the date of execution of development agreement. However, in the facts of the present case, the Assessing Officer has recorded a categorical finding that possession of land has been given to the developer on execution of agreement and the developer has also taken steps for development of the property. Assessee has not produced any evidence to demonstrate that physical possession of the property was not handed over to the developer in the impugned assessment year. In case of Shri Sadia Shaikh (supra) it was factually found that the agreement only
17 Vijay Alloys Pvt. Ltd.
permitted the development to be carried out by the developer while assessee retained the entire control over the property. Whereas, in the facts of the present case, the control of the property has been handed over to the developer. The Tribunal, Mumbai Bench, in Jawaharlal L. Agicha (supra), the development agreement was not registered, which is not the fact in the present case. The decision of Hon'ble Delhi High Court also doesn’t help the assessee. Thus, on over all consideration of facts and materials on record, and in the light of the decisions cited before us, we are of the view that the decision of the learned Commissioner (Appeals) on the issue deserves to be upheld. Accordingly, grounds raised are dismissed.
Ground no.6, is not pressed, hence, dismissed.
Grounds no.7 and 8, the assessee had challenged disallowance of brokerage expenses.
Brief facts are, before the Assessing Officer, the assessee contended that while computing long term capital gain, deduction for an amount of ` 9 lakh should be allowed on account of expenditure incurred towards brokerage. However, the deduction claimed by the assessee was disallowed by the Assessing Officer on the reasoning that no evidence could be produced by the assessee to substantiate its
18 Vijay Alloys Pvt. Ltd.
claim. The aforesaid disallowance was also sustained by the learned Commissioner (Appeals).
The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted that the assessee has incurred the expenditure of ` 9 lakh towards brokerage. In this context, he drew our attention to the letter dated 27th April 2006, written by the assessee to one Gopal D. Joshi. Thus, he submitted that the assessee having incurred the expenditure towards brokerage, it should get the benefit of deduction under section 48 of the Act.
The learned Departmental Representative relied upon the observation of the learned Commissioner (Appeals) and the Assessing Officer.
We have considered rival submissions and perused materials on record. As could be seen, right from the assessment proceedings, though, the assessee has claimed deduction on account of brokerage, but, it has failed to substantiate such claim with corroborative evidence. Even before us also, except relying upon the letter dated 27th April 2006, written to one Gopal D. Joshi, the assessee could not furnish any other evidence to establish its claim that brokerage, in fact, was paid to the concerned parties. In the absence of any other corroborative evidence, the letter dated 24th July 2006, as referred to
19 Vijay Alloys Pvt. Ltd.
above can only be treated as self serving document without having any evidentiary value. Even, a perusal of the aforesaid letter written by the assessee indicates that what the assessee has suggested in the letter is its consent to pay ` 9 lakh towards brokerage. However, there is no evidence on record to demonstrate whether the aforesaid amount was actually paid or even if it was paid, the mode and manner of such payment and to whom such amount was paid. Thus, in the absence of any evidence to substantiate the claim of the assessee, we are unable to disturb the finding of the Departmental Authorities on this issue. Accordingly, grounds raised are dismissed.
In the result, assessee’s appeal is dismissed. Order pronounced in the open Court on 12.10.2018
Sd/- Sd/- MANOJ KUMAR AGGARWAL SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 12.10.2018 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Sr. Private Secretary) ITAT, Mumbai