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Income Tax Appellate Tribunal, “G”BENCH,
Before: S/SHRI R. C. SHARMA & AMARJIT SINGH]
स्थायीलेखासं./जीआइआरसं./PAN/GIR No. : AAACB1508R (Appellant) .. (Respondent) Appellant by Shri Arvind Sonde Respondent by Shri Abhijit Patankar CIT/Shri V. Vidhyadhar (DR) Date of Hearing: 01.01.2018 Date of Pronouncement: 19.03.2018 O R D E R PER: AMARJIT SINGH: JM The above mentioned appeals have been filed by the assessee against the different order passed by the CIT(A)-52, Mumbai [hereinafter referred to as “CIT(A)”] relevant to the A.Ys. 2009-10, 2010-11 & 2011-12.
The Assessee has filed the present appeal against the order dated 26.11.2015 passed by the Commissioner of Income Tax (Appeals)-52, Mumbai relevant to the AY. 2009-10.
The Assessee has raised the following grounds: -
, 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 “Based on the facts and circumstances of the case, Gigaplex Estate Pvt Ltd ('the Appellant) respectfully submits That the learned Commissioner of Income Tax (Appeals) - 52, Mumbai ('CIT(A)'}, has in his order under section 250 of the Income-tax Act, 1961 {'the Act'} erred on the following grounds:
1. In upholding that initiation of reassessments proceedings under section 147 of the Ad on the basis that income chargeable to tax had escaped assessment is valid and proper in law.
2. In upholding that the amount payable by the Appellant to Gm Metals Ltd ((OM) and Wellwisher Construction and Finance Pvt Ltd {'WW') amounting to Rs.87.05 crores reflected in its books of accounts under the head 'inventories', is a non-business expenditure.
3. In upholding the disallowance of interest expense attributable to the monies borrowed for financing the payments to OM and WW and reducing such interest from the value of 'Inventories'. The Appellant craves leave to add, alter, vary, omit, substitute or amend any of the above grounds of appeal, at any time before or at, the time of appeal, so as to enable the Honorable Income-tax Appellate Tribunal to decide this appeal according to law. “
4. The brief facts of the case, are that the assessee filed its return of income for the A.Y. 2009-10 on 29.09.2009 declaring total loss to the tune of Rs.2,97,26,441/-. The return was processed u/s 143(3) of the I.T. Act dated 30.12.2011 by assessing the total loss to the tune of Rs.73,32,780/-. Thereafter, the assessment was reopened by issuance of notice u/s 148 of the Act dated 31.05.2012. The assessee filed the return of income declaring total loss to the tune of Rs.73,32,780/- in response to the notice u/s 148 of the Act. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was engaged in the business of real estate development. The case of the assessee was reopened for the A.Y. 2006-07 on 28.05.2012 on account of amount of Rs.100.80 crores paid/payable to two parties namely Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. The amount of Rs.13.75 crores was reversed in A.Y. 2007-08. This transaction has a bearing on this assessment on account of interest attributable on the aforesaid amount debited to inventory in the financial of the assessee company. The reply was filed by the assessee and after the , 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 consideration of the reply, the objections were rejected and closing stock was assessed to the tune of Rs.87,05,00,000/-. Interest for the A.Y. 2006-07 to the tune of Rs.20,12,791 interest to the tune of Rs.1,03,26,288/-, for the A.Y. 2007-08 and interest to the tune of Rs.5,88,01,270/- for the A.Y. 2008-09 and interest to the tune of Rs.1,07,95,192/- for the A.Y. 2009-10 total to the tune of Rs.8,19,35,541/- was reduced and the total closing stock was valued to the tune of Rs.1,69,05,74,306/-. The addition to the work in progress for the A.Y. 2008-09 u/s 147 of the Act dated 06.03.2014 to the tune of Rs.14,56,784/- was also raised. The loss of the assessee was assessed u/s 148 of the Act to the tune of Rs.73,32,780/-. The assessee was not satisfied and filed an appeal before the CIT(A) who dismissed the appeal of the assessee, therefore, the assessee has filed the present appeal before us.
ISSUE NO 1:-
Under this issue the assessee has challenged the reopening of the case of the assessee u/s 148 of the Act. At the very outset, the Ld. Representative of the assessee has argued that this issue has been covered and decided in favour of the assessee in the assessee’s own case for the A.Y. 2006-07, 2007-08 and 2008-09 in 1133 & 1137/M/2016 dated 10.11.2017, therefore, accordingly this issue is required to be decided in favour of the assessee in accordance with law. Copy of order dated 10.11.2017 passed in ITA. No.1132, 1133 & 1137/M/2016 dated 10.11.2017 in the assessee’s own case is on the file in which the issue of reopening and u/s 147/148 of the Act has been decided against the assessee. The relevant para is 4.6 which is hereby reproduced below as under: - “4.6. We have heard the rival contentions of the parties and perused the relevant records placed before us including the various case laws relied by both the parties and also the rebuttal by the ld AR. The undisputed facts are that the assessee bought over the interest in the land allotted by the 3 ITA. NO. 1134, 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 MIDC from two other companies namely M/S OM. and M/S Well Construction and Finance Pvt Ltd for a consideration of Rs. 100.80 Cr. In the present case the assessment has been completed on 22.12.2008 u/s 143(3) of the Act and was re-opened by issue of notice u/s 148 of the Act on 28.5.2012 apparently four years after the end of relevant assessment 19 and 1133/Mum/2016 year. The case of the assessee was re- opened after the AO of the assessee received information from the AO of M/S OM after the assessment of OM for AY 2008-09 was framed in December, 2010 stating that the transaction between assessee, OM and WW was a sham and non genuine. As per the provisions of the Act, the re- opening after a period of four years from the end of relevant assessment year can only be done only if income has escaped assessment due to assessee’s failure to disclose fully and truly all material facts for completion of assessment during the assessment proceedings. The assessee has duly disclosed the purchase of interest in land measuring 50 acres from two other companies for a consideration of Rs.100.80 Cr which was shown in the inventories of the assessee and money outstanding to the two companies was also shown as payable in the Sundry creditors in the balance sheet of the company. It is also true that the AO raised specific query during the assessment proceedings qua the inventories and sundry creditors which were supplied to the AO. It is only thereafter the AO after being satisfied accepted the said transaction and the assessment was framed accordingly u/s 143(3) of the Act vide order dated 22.12.2008. The AO raised a specific query to the assessee qua the inventories and sundry creditors which the assessee complied with by filing the details of inventories and sundry creditors, however the copies 20 ITA No.1132 and 1133/Mum/2016 of the agreements with M/S OM and WW were not filed before the AO and as a result the AO could not examine the transaction among the trio. Looking the facts in totality, we are of the view that there was failure on the part of assessee to disclose fully and truly all material facts for completion of assessment during the assessment proceedings. The case laws relied upon by the assessee are not applicable to the facts of the case as the necessary agreements qua joint venture, relinquishing the interest in the said land were not furnished before the AO in the course of assessment proceedings and there is a failure on the part of the assessee to disclose the material facts during the course of assessment and hence in our opinion the re-opening is validly done under 1st proviso to section 147 of the Act. We are, therefore, inclined to hold that re-opening of assessment u/s 147 of the Act is valid and accordingly the ground raised
by the assessee is dismissed.”
6. In view of the said finding of the Hon’ble ITAT in the assessee’s own case(supra), we decide this issue in favour of the revenue against the assessee.
ISSUE NO 2:-
ITA. NO. 1134, 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 7. Under this issue the assessee has challenged the finding of the CIT(A) in which the CIT(A) has confirmed the order passed by the AO in connection with amount payable to two parties namely Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. amounting to Rs.87.05 crores reflected in its books of accounts under the head of inventories which was held as non-business expenditure. At the very outset, the Ld. Representative of the assessee has argued that this issue has duly been covered by the finding of the Hon’ble ITAT in the assessee’s own case in 1133 & 1137/M/2016 for the A.Y. 2006-07, 2007-08 & 2008-09 dated 10.11.2017. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. Before going further, we deemed it necessary to advert the finding of the Hon’ble ITAT in the assessee’s own case (supra) on record. The relevant finding has been given in para no. 5.8 which is hereby reproduced below as under: - “5.8. We have considered the rival contentions and perused the relevant records placed before us including case laws cited by the parties. The undisputed facts are that the land measuring 50 acres was allotted to assessee and two other JV partners OM and WW by MIDC upon a payment of Rs. Rs.50,58,62,500/-. The JV partners decided to surrender their interest in the land in favour of the assessee upon a payment of 100.80 Cr. The necessary sanction for the said transaction was obtained from MIDC. The assessee accounted and provided for the transaction in its books of accounts as on 31.3.2006 by increasing the cost of land/inventories and correspondingly crediting the two JV partners with Rs. 50.40 Cr each and showing the remaining payable at the year end under the head sundry creditors. The transaction was accepted by the AO during the scrutiny proceedings after raising specific query which was replied by the assessee 44 ITA No.1132 and 1133/Mum/2016 by filing the details of inventories and sundry creditors and it was only after satisfying himself, the AO framed assessment u/s 143(3) of the Act vide order dated 22.12.2008. In the mean time the assessment of OM was completed for the assessment year 2008-09 in December,2010 in Jaipur approximately two years after the completion of assessment of the assessee and the AO at Jaipur forwarded copy of the assessment order with relevant annexures to the AO of the assessee. Thereafter the AO also sought the details of the transaction from the assessee vide letter dated 19.05.2010 and re-opened the case of the assessee by issuing notice u/s 148 of the Act on 25.05.2012 5 ITA. NO. 1134, 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 after four years from the end of the relevant assessment year. In the first para of the reasons recorded by the AO, he admitted that the assessee vide letter dated 18.10.2008 supplied the details of sundry creditors. Thereafter ,the AO while framing order u/s 143(3) r.w.s. 148 of the Act reduced the inventories of the assessee by Rs. 100.80 Cr on the ground that the transaction was a sham and non genuine despite the fact the same transaction was treated as genuine in the hands of OM and WW the two JV partners to whom the assessee paid Rs. 50.40 Cr each for acquiring the interest in the land. In the case of OM, the receipt from the assessee was treated as capital receipt but the same was treated as revenue re 45 and 1133/Mum/2016 143(3) of the Act which was accepted by OM and paid due taxes thereon. In the case of the WW the money received from the assessee was treated as capital receipt and MAT was paid thereon. The AO accepted the same in the assessment framed u/s 143(3) of the Act however the CIT invoked revisionary jurisdiction u/s 263 of the Act which stood quashed by the ITAT. In other words the amounts paid by the assessee to OM and WW were taxed in their hands as genuine transaction by the deptt. It is difficult to understand that when the revenue treated the transaction as genuine in the hands of two JV partners , how the same transaction can be non genuine and sham in the hands of the assessee. Moreover the chronology of events clearly shows that the application was made in the joint names of the assessee, OM and WW. The land was also allotted by MIDC on the said application made by the three joint venture partners . Thereafter MIDC on an application made by the JV partners approved the relinquishment of interest in the said land by two JB partners OM and WW in favour of the assessee on payment of specified premium. It is relevant to note that records of MIDC proved that the assessee, OM and WW were the joint owners of the plot of land till the relinquishment of rights by OM and WW was approved by MIDC which showed the transaction being genuine and out of business consideration. A business decision was taken 46 ITA No.1132 and 1133/Mum/2016 by the assessee to purchase the interest from two JV partners to which two partners also agreed to sell their interest to the assessee which is also a business decision taken by them in the best interest of the business. Moreover all the three parties are unrelated parties and not related to each other. Therefore the transaction cannot be said to be non genuine and sham. Further we failed to understand as to how a transaction which is assessed to tax in the hands of two JV partners by the revenue treating the same as genuine was treated as sham in the hands of assessee. In our considered view the assessee has entered into the transaction of purchasing the interest in the land from the said two parties and after purchase, became the exclusive owner of the said land and therefore the said expenditure is wholly and exclusively incurred for the purpose of business and should be allowed to the assessee. Beside, the involvement of multiple agencies including Govt authorities like MIDC and AOs of OM and WW, professional consultants and escrow agents specially when none of them were related to each other further lends credence to the contention of the ld AR. The mere irregularities in the documents as pointed by the ld DR cannot be the basis to draw conclusion as to genuineness of the 6 ITA. NO. 1134, 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 transaction. So far as the reasonableness of the transaction is concerned, the valuation by the registered valuer and the 47 and 1133/Mum/2016 DVO were largely same and cannot be ignored and lost sight of while deciding reasonableness of the transaction. After considering the rival contentions, records, written submissions and case laws filed by both the parties we are of the view that the order of PCIT upholding the order of AO treating the purchase of interest in the land from OM and WW as sham is incorrect and cannot be sustained. The decisions relied by the revenue are also distinguishable on facts and therefore not applicable. In view of the above discussions, we set aside the order of PCIT on this issue and accordingly appeal of the assessee is allowed. AO is directed accordingly.”
On appraisal of the above mentioned finding, we noticed that the assessee along with JV partners OM and WW got allotted the land measuring 50 acres upon the payment of Rs.50,58,62,500/- to the MIDC. Thereafter, the JV partners decided to surrender their interest in the land in favour of the assessee upon payment of Rs.100.80 crores. The necessary sanction was obtained from MIDC. The assessee accounted and provided for the transaction in its books of accounts as on 31.03.2006 by increasing the cost of land/inventories and correspondingly crediting the two JV partners with Rs.50.40 cores each and showing the remaining payable at the year end under the head of sundry creditors. The transaction was accepted by the AO at the time of scrutiny proceedings. In the meantime the assessment was completed for the A.Y. 2008-09 in December, 2010 in Jaipur approximately two years after the completion of assessment of the assessee. The assessment order was forwarded to the assessee by the Assessing Officer who reopened the case of the assessee. In the case of Om, the amount to the tune of Rs.50.40 crores was treated as revenue receipt and accordingly the taxed. In the case of WW the money received from the assessee was received as capital receipt and MAT was paid thereon. However, the CIT(A) invoked the revisionary jurisdiction u/s 263 of the Act which was quashed by the ITAT. In brief the amount was paid by the assessee to OM and WW were taxed in their hand as genuine transaction by the Department. When the 7 , 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 transaction has already been treated as genuine then there is no ground to treat the same as sham transaction in further reassessment order. Moreover, the case of the assessee based on factual position which has duly been explained by the Hon’ble ITAT while passing the order in the assessee’s own case by virtue of order dated10.11.2017. In view of the said circumstances, we are of the view that the present issue has duly been covered by the assessee’s own case(supra). Accordingly, we decide this issue in favour of the assessee against the revenue.
ISSUE NO 3:-
Under this issue the assessee has challenged the confirmation of the addition of interest upon the payment made to OM and WW. This issue has already been covered by the assessee’s own case dated 10.11.2017 (supra). The relevant finding is hereby reproduced below as under: - “6.1. Since we have decided the ground no 2 in favour of the assessee holding the transaction to be true on the ground that the same transaction which was treated as genuine in the hands of both the JB partners namely WW and OM, the same can not be held to be non genuine and sham in the hands of assessee. In view of the said findings any interest which the assessee has incurred on the money borrowed has to be allowed to the assessee and accordingly we direct the AO to delete the disallowance.”
In view of the said circumstances, when the addition has been deleted finding genuine case of the assessee, therefore, the interest which has been incurred upon the borrowed money is liable to be allowed. Therefore, we decide this issue in favour of the assessee against the revenue.
ITA NOs.1135/M/2016& 1136/M/2016:- 11. All the issues raised in these appeals are identical to the issues which have been adjudicated by us in therefore, the ITA. NO. 1134, 1135& 1136/M/2016 A.Y. 2009-10, 2010-11& 2011-12 decision in the ITA. No. 1134/M/2016 is also applied to these appeals. Accordingly, these appeals of the assessee are hereby partly allowed.