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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: Shri Mahavir Singh & Shri G Manjunatha
per the provisions of section 153A if the assessments are concluded on the date of search, the assessee cannot make any fresh claim to reduce the income already admitted in the original return. In this case, though
34 Akshar Devlopers group the assessee has not made claim of deduction u/s 80IB(10) in original return reduced the income by making fresh claim which was not in accordance with law. The Ld.DR further submitted that even on merits, the AO has brought out clear facts that the assessee has not satisfied with any of the conditions specified u/s 80IB(10) so as to be eligible for deduction and hence, the AO rightly rejected the claim made by the assessee and his finding should be upheld.
We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The facts with regard to the execution of housing project which is eligible for deduction u/s 80IB(10) is not disputed by the lower authorities. The AO rejected the claim made by the assessee on the ground that the assessee has made a fresh claim in return filed u/s 153A which was not made in return filed u/s 139(1), therefore opined that the assessee cannot make a fresh claim in the return filed u/s 153A, as the said provisions are beneficial provision for the Revenue and also where the assessments are unabated / concluded, as on the date of search, no fresh claim can be made. According to the AO, even on merits, the assessee is not eligible for deduction u/s 80IB as the assessee’s housing project does not satisfy any of the conditions specified therein which is evident from the fact that the assessee has sold more than one flat to a single individual which is contrary to the clauses (e) and (f). The assessee has constructed
35 Akshar Devlopers group commercial portion in the building in excess of specified limit provided u/s 80IB(10). The assessee has constructed certain flats which are having super built up area of more than the specified limit. The project ‘Sreeji Heights’ has been developed on a land having more than 1 acre and also the project was within a distance of 25 kms from the Mumbai Metropolitan limits. The Ld.CIT(A) has concurred with the findings of the AO insofar as fresh claim made by the assessee in return filed u/s 153A and observed that the assessee cannot make a fresh claim which was not made in the original return filed u/s 139(1) where the assessment has been concluded or reached finality as on the date of search. However, differed with the findings of the AO insofar as merits is concerned and observed that the deduction cannot be denied merely for the reason that the assessee has sold 2 units to one buyer, through one agreement on the ground that clauses (e) and (f) inserted by the Finance Act wef 01- 04-2010 is not applicable to the facts of the assessee’s case as the assessee’s project has been completed before the insertion of clauses (e) and (f) which is evident from the fact that the occupancy certificate in respect of the said project was received on 22-09-2008. The CIT(A) further observed that the restriction of commercial area on the housing project was inserted by Finance (No.2) Act, 2004 wef 01-04-2005 whereas the assessee’s project was approved on 16-10-2004, therefore, even if the commercial area is more than the specified limit, there is no 36 Akshar Devlopers group bar for claiming deduction u/s 80IB(10) as per the law laid down by the jurisdictional High Court in the case of CIT vs Brahma Associates (supra)
The CIT(A) further observed that merely because one building, B-Wing does not satisfy the requirement of section 80IB(10) would not result in nullifying the claim of the assessee for the entire project. The assessee is entitled to have benefit of deduction in respect of residential units satisfying the requirements u/s 80IB(10) as held in the following cases:-
Vishswas Promoters Pvt Ltd vs ACIT & Ors (2013) 214
Taxman.524
CIT vs Vandana Properties (2012) 19 taxman.com 16
The CIT(A) also negated the observations of the AO with regard to the applicability of the decision of the Hon’ble Bombay High Court in the case of Brahma Associates (supra) by holding that the AO was wrong in not following the decision on the ground that SLP was filed against the decision. In any case, as of now, the decision has been upheld to be correct by Hon’ble Apex Court and the SLP of the Income-tax Department is dismissed. The AO has mentioned that almost 1/3 of the flats have built up area in excess of the prescribed limits. The assessee has asked for a proportionate deduction on the flats which fulfilled the requirements of section 80IB(10) on proportionate basis excluding the flats having built up area in excess of 1000 sq.ft. However, the CIT(A) further observed that the assessee has not been able to counter the AOs
37 Akshar Devlopers group finding that the project, ‘Sreeji Heights’ was within a distance of 25 kms from the Bombay Metropolitan limits. Accordingly, the AO was directed to allow deduction u/s 80IB(10) on the flats not exceeding limits of built up area as prescribed in the Act on prorata basis. The revenue has not challenged the findings of the AO, insofar as merits of the deduction claimed u/s 80IB(10) and hence, the findings of the CIT(A) has become final. As regards observations of the CIT(A) with regard to the distance of the project, ‘Sreeji Heights’, the assessee has submitted that its project, ‘Sreeji Heights’ is within 25 kms from the metropolitan limits of Mumbai for which he has furnished Google map and also extract from MCGM website as per which the project is 25 kms away from metropolitan limits of Mumbai. The Ld.AR also filed certain case laws to support her arguments that the distance from the municipal limits should be measured by road, but not as crow flies. Accordingly, the Hon’ble Bombay High Court in the case of Nitish Ramchandra Choradia to 23 of 2015; 121 to 129 of 2013; 131 of 2013; 140 of 2013 and 151 of 2015 dated 30-03-2015 has taken a view that the distance between the municipal limits of the assessee’s property is to be measured having regard to the shortest road distance and not as the crow flies, i.e. a straightline distance as canvassed by the revenue. However, these facts were not before the AO. Therefore, we are of the view that the AO may examine the claim of the assessee in the light of the evidences filed and 38 Akshar Devlopers group also the decision of jurisdictional High Court cited by the assessee.
As regards the observations of the CIT(A) with regard to the claim of the assessee in the return filed u/s 153A, we find that the Hon’ble jurisdictional High Court in the case of Continental Warehousing Corporation (Nava Sheva) Ltd (supra) and CIT vs Gurinder Singh Bawa (supra) have taken a view that no addition can be made in the assessments which have been concluded / unabated as on the date of search in the absence of any seized materials. The ratio laid down by the Hon’ble jurisdictional High Court in those cases is that in case of unabated assessments, there is no scope for the AO to make any addition on the basis of regular books of account and if at all any addition can be made, it should be on the basis of seized materials. In other words, if assessments are abated, then the AO is having jurisdiction to assess or reassess total income on the basis of return of income filed filed by the assessee u/s 153A, including incriminating material found as a result of search. Going by the same analogy, if the assessments are abated as on the date of search, the assessee is at liberty to file a true and correct return making a claim which was not made earlier in the original return filed u/s 139(1) if such claim is allowable under the Act. In this case, on perusal of the facts available on record, we find that the search took place on 29-09-2011, the dispute involved with regard to the claim of deduction u/s 80IB(10) pertains to AY 2009-10 to 2012-13. The 39 Akshar Devlopers group assessment for the assessment year 2009-10 has been unabated / concluded as on the date of search as the time limit for issue of notice u/s 143(2) has been expired on 30-09-2010 even though no assessment has been framed u/s 143(3). Insofar as assessment year 2010-11 onwards, the time limit for issue of notice u/s 143(2) was due on 30-09- 2011, 30-09-2012 and 30-09-2013 and all the dates are after the date of search. Therefore, we are of the view that the assessment for AY 2009- 10 is unabated and AY 2010-11 onwards are abated and in view of the ratio of the Hon’ble jurisdictional High Court in the case of Continental Warehousing Corporation (Nava Sheva) Ltd and Gurinder Singh Bawa, the assessee can make a fresh claim which was not made in the original return u/s 139(1) is abated assessments. Accordingly, the assessee is eligible for deduction u/s 80IB(10) as per the claim made in the return filed u/s 153A of the Act and hence, we direct the AO to admit the claim of the assessee and make a limited verification insofar as the observation of the CIT(A) with regard to the distance of the project before allowing the claim. In the result, the ground raised by the assessee insofar as deduction u/s 80IB(10) for the assessment year 2009-10 has been rejected and in respect of AYS 2010-11 to 2012-13 is allowed.
26 . The next issue that came up for our consideration for AY 2011-12 is reduction in the value of closing stock. The assessee firm had disclosed closing stock of city center project at Rs.145,01,67,054 in the return of 40 Akshar Devlopers group income filed u/s 139(1). However, while filing the return u/s 153A of the Act, the closing stock was valued at Rs.143,28,67,054. The said difference was Rs.1, 73,00,000 on account of reduction of loss on sale amounting to Rs.1,73,00,000 made to M/s Bombay Infrastructure Ltd which were included in closing work-in progress. The loss was supposed to be recovered from M/s Bombay Infrastructure Ltd. Since M/s Bombay Infrastructure Ltd did not reimburse the said loss, the assessee has written off the same; hence, the profit otherwise earlier overstated of Rs.173 lakhs was brought down to correct figure. In support of its arguments, filed auditor’s report and other evidences. The AO rejected the arguments of the assessee and added an amount of Rs.173 lakhs to the total income towards suppressed stock on the ground that the said claim was not supported by the letter from M/s Bombay Infrastructure Ltd. the assessee submitted before the AO that due to strained relations with the buyer, it could not able to get confirmation from the party; however, the AO has not disputed the consideration received from M/s Bombay Infrastructure Ltd for the sale of those shops. The fact of the matter is that the assessee is in receipt of sale consideration which is less than the cost incurred on the construction of shop at city centre mall. The facts stand admitted based on evidences. The entries in books which was wrongly made earlier has been corrected now and has merely been brought in conformity with the 41 Akshar Devlopers group primary documents for costs and sale proceeds.
The Ld.AR for the assessee submitted that the Ld.CIT(A) having accepted the fact that the assessee has explained the facts with regard to the reduction in work-in-progress due to the loss incurred on sale of two shops at city centre mall, failed to delete addition made by the AO by holding that the assessee has failed to furnish any evidence that the loss pertaining to AY 2009-10 and 2010-11 was not claimed in the respective assessment years. The Ld.AR further submitted that the Ld.CIT(A) has erred in upholding the addition of Rs.173 lakhs as suppression of stock being irrecoverable loss written off during the year on the misinterpretation of the facts and information. The assessee has furnished necessary evidence to rectify the mistakes in passing entries in the books of account in respect of loss incurred on sale of flats to M/s Bombay Infrastructure Ltd. The AO merely, on the basis of non furnishing of confirmation from the party, has made addition even though the facts clearly indicate that the assessee has incurred loss in respect of sale of shops which has been reduced in closing work-in-progress.
The Ld.DR, on the other hand, strongly supported the order of the CIT(A).
We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The AO made addition of Rs.173 lakhs towards suppression of closing stock on 42 Akshar Devlopers group the ground that the assessee has failed to furnish any evidence including confirmation from M/s Bombay Infrastructure Ltd towards loss incurred on sale of 2 shops at City Centre Mall. The Ld.CIT(A), while approving the findings of the AO has held that even going by the details submitted by the assessee it is very clear that the assessee has failed to explain how it has incurred loss of Rs.173 lakhs in respect of sale of City Centre Mall to M/s Bombay Infrastructure Ltd. The relevant portion of the order of the CIT(A) is extracted below:
“54. It appears from the letter that the appellant had sold the city mall in three years. The sales made in the year ending on 31/03/2009 relevant to asst.year 2009-10 allegedly resulted in loss of Rs.31,84,564/- The sales made in the year ending on 31/03/2010 relevant to asst year 2010-11 resulted in loss of t 2,76,53,618/~. The sales made in the year ending on 31/03/2011 relevant to asst year 2011-12 resulted in profit of ? 1,35,38,1827-. The appellant claims that thus there has been overall loss of ? 1,73,00,0007- in this project and the same has been claimed in the return filed in response to the notice u/s 153A. The loss has been claimed as downward revision in the closing stock of WIP.
Even if the above details furnfshed by the appellant are to be believed, there is no evidence furnished by the appellant that the loss pertaining to asst years 2009-10 and 2010-11 was not claimed in the respective asst years. The details as available on the record show that the loss if any, had already been claimed and there was nothing to be set off during this year by way of reduction in the value of the closing stock.”
Facts are not clear. The assessee claims that it has furnished necessary evidences to justify reduction in value of closing work-in- progress in respect of loss incurred on sale of City Centre Mall to M/s Bombay Infrastructure Ltd. The CIT(A), on the other hand, observed that 43 Akshar Devlopers group the assessee has not filed any evidences. The assessee has filed various details to explain the loss. Therefore, we are of the considered view that the issue need re-examination from the AO in the light of evidence filed by the assessee; hence, we set aside the issue to the file of the AO and direct him to consider the evidence filed by the assessee and to decide the issue afresh in accordance with law after affording opportunity of hearing to the assessee. In the result, ground raised by the assessee is allowed, for statistical purpose.
In the result, appeal filed by the assessee in for AY 2009-10 is dismissed and appeals filed by the assessee in 2677/Mum/2017 & 2678/Mum/2017 for assessment years 2010-11, 2011-12 & 2012-13, respectively are partly allowed for statistical purpose. ITA Nos 6243 & 6244/Mum/2016, 2672 & 2673/Mum/2017, 6245 & 6246/Mum/2016 & 2675/Mum/2017
This bunch of 7 appeals filed by two different assessees are directed against separate, but identical orders of CIT(A)-11, Pune dated 16-01- 2017 for the assessment years 2009-10, 2010-11, 2011-12 and 2012-13.
In these appeals, the assessee have taken up more or loss common grounds of appeal for all the years. Therefore, for the sake of convenience and brevity, the grounds of appeal appearing in appeal for AY 2009-10 in are reproduced below:-
44 Akshar Devlopers group The Appellant individual is aggrieved by the order dated 16.1.2017 passed by the learned CIT(A) Pune-11 u/s 250 of the Income-tax Act, 1961 and is in appeal :-
1.
1. Because, the Id. C1T(A) has erred in holding that the issuance of notice \ u/s 143(2) of the Act is not mandatory for carrying out assessment I proceedings u/s 153A of the Act and that the impugned assessment / ^J order is valid. 2(i) Because, the Id. CIT(A) has erred in holding the add back of interest income of Rs. 133,84,004/- by the AO on account of income accrued but not due. (ii) Because, the Id. CIT(A) has erred in holding that the deed of addendum dated 31/3/2009 to the partnership deed was an after thought although the same was validly executed and formed part of auditor's report in all years. (iii) Because, the Id. CIT(A) has erred in failing to consider that the partnership firm M/s Akshar Developers had capitalized the interest accrued to the partners in the work-in-progress of the on going project "Decorium" in their return of income filed u/s 153A. 3(i) Because, the Id. CIT(A) has erred in upholding AO's action of considering the impact of seized material in the hands of M/s Akshar Developers even though the material pertained to several entities co-owned by the Appellant and another. (ii) Because, the ld.CIT(A) has erred in upholding AO’s action of rejecting the offer of business income to the tune of Rs.1,36,93,535/- in the hands of the Appellant on account of peak working of the seized material.”
33. From these grounds of appeal, the assessees have challenged the assessment order passed by the AO u/s 143(3) r.w.s. 153A on the ground that the impugned assessment orders are bad in law as the AO has failed to issue mandatory notice u/s 143(2) of the Act. The assessee has taken up a ground challenging the action of the CIT(A) in upholding the addition made by the AO towards interest on capital of partners accrued but not due and consequent deduction towards interest paid to others against income from business. The assessees also have taken a ground for AY 2012-13 challenging the addition made by the AO towards short term capital gain declared in original return filed u/s 139(1) but not 45 Akshar Devlopers group declared in revised return filed in response to notice issued u/s 142(1).
The brief facts of the case extracted from are that the assessee had filed his original return of income on 11-01- 2013 declaring total income of Rs.1,52,81,625. A search and seizure action u/s 132 of the Act, was conducted on 29-11-2011 and accordingly notice u/s 153A was issued on 11-03-2013. The assessee has filed a return u/s 153A on 02-09-2013 disclosing income of Rs.1,55,85,230. In the return filed u/s 153A, the assessee has included an amount of Rs.1,36,93,535 on account of disclosure made during the search towards unaccounted cash receipts recorded in rough cash book 1 and excluded an amount of Rs.1,33,84,004 being the interest from partnership firms which was offered in the original return filed u/s 139(1).
The AO completed the assessment u/s 153A, determining the total income at Rs.1,53,75,700 excluding the offer of additional income of Rs.1,36,93,535 but adding back interest accrued but not due from partnership firms. The assessee carried the matter in appeal before the first appellate authority. Before the CIT(A), assessee had taken up a legal plea inasmuch as that the assessment order passed by the AO is bad in law and liable to be quashed as the AO did not issue the mandatory notice u/s 143(2) required to be issued after the return was filed in response to notice u/s 153A. The assessee also filed elaborate written submissions in respect of addition made by the AO towards
46 Akshar Devlopers group interest on capital from partnership firm and also exclusion of disclosure made during the course of search.
The CIT(A), after considering relevant submissions of the assessee, rejected the ground taken insofar as validity of assessment for non issue of notice u/s 143(2) by holding that the provisions of section 153A are quite different and notice u/s 143(2) is not a must for making assessment u/s 153A of the Act. Insofar as addition made by the AO towards interest on partners’ capital account received from partnership firms, the whole argument and the scheme of the so-called amendment deed appear to be an afterthought. It is seen from the records that though the amendment deed is claimed to be dated 31-03-2009, the assessee has disclosed the interest income in his return of income filed u/s 139(1) right upto AY 2012-13. The original return for the assessment year 2011-12 was filed as late as 11-01-2013 in which the interest income was included. Thus, the fact of the amendment deed and as a consequence of non due of interest income came to assessee’s mind only filing 153A returns. The CIT(A) further observed that even on going by the details filed by the assessee, the original return of income of the partnership firm of Akshar Developers for the assessment year 2011-12 reveals that the firm had profit of Rs.4,64,17,370 before depreciation and interest to partners account and the firm had claimed deduction towards interest paid to partners u/s 40(b) and net profit of Rs.2,22,07,217 only offered to 47 Akshar Devlopers group tax. In the return filed in response to 153A notice, the position remains the same, except that the resultant income has been claimed exempt u/s 80IB(10) of the Act. With these observations, the CIT(A) upheld addition made by the AO towards interest from partnership firm. Similarly, the CIT(A) has enhanced the assessment insofar as deduction claimed by the assessee towards interest paid to others against income from business by holding that the assessee has not explained any nexus between interest expenditure and income disclosed. The CIT(A) further observed that it can be presumed that the assessee claims that while interest payable on his borrowings accrues immediately and interest receivable on his lending or investment in the firms would accrue in future when the firms profits are recorded or determined to the satisfaction of the assessees and its partners. This dual approach is nothing but an attempt to avoid payment of tax. With these observations and also relying upon certain judicial precedents, enhanced the assessment to the extent of interest deduction claimed against income from business. As regards assessment of income determined on the basis of seized material in the hands of M/s Akshar Developers and not in the hands of the assessee, the CIT(A) observed that the issue has been discussed in detail in the appellate order in the case of Akshar Developers, wherein the addition made by the AO has been confirmed and hence, there is no point in taxing the same income again in the 48 Akshar Devlopers group hands of the assessee. The exclusion of such income from assessee’s income has been rightly done by the AO. This ground of appeal was, therefore, dismissed. Aggrieved by the CIT(A)’s order, the assessee is in appeal before us.
36. The first issue that came up for our consideration is addition made towards interest on capital accrued but not due from partnership firm.
The facts with regard to the impugned addition are that in the original return of income filed, the assessee had included interest accrued but not due from the partnership firm M/s Akshar Developers. However, in the return filed in response to 153A notice, the assessee excluded this amount on the ground that interest had not been accrued during the previous year. According to the assessee, the firm has made provision for interest on capital account on the basis of partnership deed and credited interest on capital to a separate account and debited to work-in- progress account without treating it as revenue expenditure. The assessee further submitted that the partners have mutually decided to alter the partnership deed insofar as interest on capital clause is concerned and accordingly as per the addendum to partnership deed dated 31-03-2009, interest on capital shall be payable to partners only after the project is complete and profit is determined as the market condition had worsened. Thus, in view of the amendment to partnership deed, interest on capital account is accrued but not due from the said
49 Akshar Devlopers group partnership firm and hence, the same has not been offered to tax in the return filed u/s 153A of the Act. Though, the assessee has included interest on capital in the original return of income filed u/s 139(1) such inclusion was made erroneously without considering the legal implication to the addendum to partnership deed. The assessee further submitted that the firm has amended the partnership deed by way of addendum deed dated 22-04-2015 reversing interest credited to partners’ account and also reduced closing work-in-progress and this fact has been confirmed by the auditors in their audit report in Form 3CB for the year ended 31-03-2016. Accordingly, the assessee claims that the fact of interest being contingent exists even prior to search in returns for AYs 2009-120 and 2010-11 and the lower authorities have not controverted these vital facts; hence, it is not an afterthought, therefore, the assessee has rightly corrected legal position in the revised return filed u/s 153A of the Act.
The AO, after considering relevant submissions of the assessee and also taking into account various evidences filed by the assessee observed that the assessee has included interest on capital accrued from partnership firm in the original return filed u/s 139(1). However, without there being any material changes in the facts, excluded interest in revised return filed u/s 153A, on the basis of amended partnership deed which is nothing but an afterthought to defer payment of taxes. The AO
50 Akshar Devlopers group further observed that the question of accrual of interest from partners’ capital account is fully dependent upon the clauses in partnership deed, but not by the conduct of the assessee. The assessee may amend the partnership deed to its convenience so as to defer payment of taxes but, what law says is important. Once, interest clause was provided in partnership deed, as per which the assessee needs to provide interest on capital whether or not paid. Moreover, the assessee has included interest in its return of income even after amendment to partnership deed dated 31-03-2009 which is a clear case of afterthought by the assessee, therefore, cannot be accepted.
The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in upholding addition made by the AO towards interest on capital from partnership firm accrued but not due without appreciating the fact that the partnership firm has reversed interest payable to partners by reducing it from work-in-progress as the said interest has not been claimed as revenue expenditure, but only capitalized to work-in-progress.
The Ld.AR further submitted that taxability of any receipt including interest depends upon accrual of income which is, in this case, not accrued to the assessee because the partnership firm has deferred payments of interest on partners’ capital account due to adverse market conditions by amending the partnership deed, interest on capital clause.
The assessee also amended partnership deed once again to reverse
51 Akshar Devlopers group interest credited to partners’ capital account and accordingly reversed interest on capital account to partners by reducing it from work-in- progress. To this effect furnished copies of financial statements of partnership firm for the year ending 31-03-2016 along with auditors’ report wherein reversal of interest has been confirmed by the auditors by way of notes to tax audit report. The Ld.AR further submitted that once interest has been reversed in the partnership firm account and not claimed as deduction against profits, taxing the same in the hands of the partners amounts to double taxation of same amount which is not permissible in law.
The Ld.DR, on the other hand, strongly supported the order of the CIT(A).
We have heard both the parties and perused material available on record. The AO made addition towards interest accrued but not due on partners’ capital account from partnership firm, M/s Akshar Developers on the ground that the assessee has included interest on capital in original return filed u/s 139 whereas excluded such interest in revised return filed u/s 153A without there being any material changes in facts.
The AO further observed that intereston capital to partners has been provided and debited to the P&L Account of the firm and simultaneously credited to the capital account of the partners under double entry system of accounting, therefore, the assessee is bound to include the same in its 52 Akshar Devlopers group computation of income and accordingly, the same is added u/s 28 of the Act. It is the contention of the assessee that interest on partners’ capital account accrued but not due has been included in original return on the basis of partnership deed as per which the partners were entitled for interest on capital; however, due to changed business conditions, the partners have mutually decided to defer payment of interest by amending interest on capital clause in the partnership deed by an addendum to partnership deed dated 31-03-2009. The assessee also contended that the partners have entered into one more amendment to partnership deed by amending interest on capital clause and decided not to pay any interest on partners’ capital account because of adverse business conditions and accordingly whatever interest has been credited to partners’ capital account has been reversed simultaneously reducing it from work-in-progress as the same had been debited to work-in-progress without treating it as revenue expenditure.
Having heard both the sides, we find that the controversy has to be resolved in the light of legal position that whether the assessee can exclude interest on capital in the return filed u/s 153A, which was earlier included in return filed u/s 139(1) of the Act. The assessee claims that the assessment for AY 2009-10 onwards are abated in view of the fact that the search took place on 29-09-2011 and the assessment for the AY 2009-10 onwards were abated as the due date for issue of notice u/s 53 Akshar Devlopers group 143(2) was due on 30-09-2010 and time limit for completion of assessment was due on 31-03-2012. Insofar as assessment year 2010- 11 onwards, the time limit for issue of notice u/s 143(2) was due to expire on 30-09-2011, therefore, the assessment for AY 2010-11 and subsequent years are certainly abated, therefore, in view of the decision of jurisdictional High Court in the case of Continental Warehousing (Nava Sheva) Ltd (supra) and CIT vs Gurinder Singh Bawa (supra) wherein the law has been explained with reference to 153A assessment and accordingly, there is no scope of any addition in respect of concluded / unabated assessments without there being any seized materials. In other words, the assessments which are pending as on the date of search shall abate and accordingly, the AO shall assess or re-assess the total income on the basis of regular books of account and other seized material found during the course of search. The sum and substance of the ratio of judgments of jurisdictional High Court is that in case of abated assessments, the scope of assessment is not limited to seized materials, but on the basis of regular books of accounts and return filed by the assessee. Going by the same analogy, when the AO is permitted to assess or re-assess total income on the basis of regular books of account and seized materials, the assessee also can make a fresh claim in respect of items which have not been claimed in the original return of income or make any deductions which were not claimed in the original
54 Akshar Devlopers group return of income. Therefore, we are of the considered view that if an assessment is abated, then the assessee can make a fresh claim including deduction or exclusion of any item of income if such exclusion or inclusion is in accordance with the provisions of Act. In this case, on the basis of information available on record, we find that the search took place on 29-9-2011and as on the date, the time limit for issue of notice u/s 143(2) for AY 2009-10 was expired on 30-09-2010. Therefore, we are of the view that the assessment for AY 2009-10 was concluded / unabated and hence, the assessee cannot make any fresh claim or exclusion of income in the revised return u/s 153A of the Act.
Accordingly, ground raised by the assessee for AY 2009-10 is rejected.
Having said so, let us come to AY 2010-11 onwards. Admittedly, on the basis of date of search, the assessment for AY 2010-11and onwards have been abated as the time limit for issue of notice u/s 143(2) was due to expire on 30-09-2011, therefore, going by the ratio of judgments of the jurisdictional High Court in Continental Warehousing (Nava Sheva) Ltd (supra) and CIT vs Gurinder Singh Bawa (supra), we are of the view that the assessee can make a fresh claim of any item of income in accordance with law. In this legal background, if we examine the issue before us in respect of taxability of interest accrued but not due on partners’ capital account from partnership firm, the assessee sought to exclude interest on capital in the returns filed u/s 153A on the ground 55 Akshar Devlopers group that such interest has not been due to the assessee in view of the addendum to partnership deed where the partners have mutually decided to postpone payment of interest and subsequently reversed interest by making simultaneous adjustment to work-in-progress.
According to the assessee, interest accrued but not due on partners’ capital account is not taxable, as the firm has not claimed deduction towards interest on capital in its books of account u/s 40(b) as it has reversed interest in the financial year 31-03-2016 for which necessary amendments to partnership deed have been executed and also reversed interest entry in firm’s books of account.
Having heard both the sides, we find that the issue of taxability of interest on capital has to be seen in the light of whether such interest has been really accrued to the assessee in the light of real income theory.
The question whether real income has materialised has to be examined in the context of commercial and business realities in the circumstances in which the assessee is placed and not with reference to system of accounting. The accrual of income does not depend upon the accounts of the assessee. Whatever position of accounts, income would have to be referred back to the chargeable accounting period during which such profits or gains are actually arisen / accrued and the assessee would be liable to be taxed in respect of the same. In this case, it is an admitted fact that the assessee has included interest on capital in original returns,
56 Akshar Devlopers group whereas the same has been excluded in revised return for which the assessee has filed necessary evidence and also explanations. No doubt, the taxability of interest on partners’ capital u/s 28 of the Income- tax Act, 1961 depends upon the method of accounting followed by the partnership firm, further supported by clauses in partnership deed for payment of interest subject to certain conditions specified u/s 40(b) of the Act. If the partnership firm debits interest on capital to partners’ and claims interest on capital as deduction u/s 40(b) then certainly interest on capital is taxable in the hands of partners whether or not such interest has been paid to the partners. In this case, it is the claim of the assessee that interest on capital is credited to partners’ capital account and debited to work-in-progress without treating it as revenue expenditure. The assessee further claims that such interest has been reversed in the financial year 2016 and simultaneously reducing it from work-in-progress. If the claim of the assessee is found to be correct, then there is no question of taxing interest on capital in the hands of the partners, because such interest has not been claimed as deduction in the partnership firm’s profits. But, facts are totally different. The Ld.CIT(A) observed that for the AY 2011-12, the partnership firm M/s Akshar Developers has claimed interest on capital u/s 40(b) against profits in the statement of total income in original return filed u/s 139(1) and in a return filed in response to notice u/s 153A, the position remains
57 Akshar Devlopers group same. The facts are contradictory to each other. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of contradictory facts and if the AO finds that the partnership firm has claimed interest on capital against from profits then certainly, the assessee cannot excluded interest on capital in its return of income. If the firm has not claimed interest on capital against its profits and reversed interest on capital by reducing it from work-in-progress, then certainly, exclusion made by the partners in their individual hands in revised return is in accordance with law. Therefore, we direct the AO to verify these facts and take an appropriate decision in the light of our observation above. Hence, the ground raised by the assessees for the AYs 2010-11 to 2-12-13 in both the assessee’s case are set aside to the file of the AO.
The next issue that came up for our consideration for AY 2-12-13 is addition made by the AO towards short term capital gain and long term capital gain on the basis of original return of income filed u/s 139(1) ignoring revised return filed by the assessee in response to notice u/s 142(1) of the Act. The facts with regard to the impugned dispute are that the assessee has shown income of Rs.2,30,17,500 under the head ‘short term capital gain’ on sale of asset while filing return of income u/s 139(1) on 31-03-2013. However, while filing the return of income on 02-03- 2013 in compliance to notice u/s 142(1) of the Act, the assessee has 58 Akshar Devlopers group calculated long term capital gain on the said property after claiming deduction u/s 54F of Rs.1,36,90,055. According to the assessee, in the original return filed u/s 139(1) gain on sale of asset was erroneously considered as short term capital gain on the basis of holding period of asset taken from date of acquisition as per registration of agreement instead of booking date on 21-08-2007. In the revised return, the said mistake has been corrected by taking booking date and accordingly, asset has been held for a period of more than 36 months, therefore, gain has been considered as long term capital gain. The assessee further claimed that even in respect of sale consideration and cost of acquisition, there is an error in considering sale consideration and cost of acquisition, therefore, the mistakes have been rectified by adopting correct figure of sale consideration and cost of acquisition in the revised return filed u/s 142(1) of the Act. The AO rejected the claim of the assessee on the ground that the assessee has failed to file any evidence in respect of re- computation of capital gain by filing necessary evidence to justify the date of acquisition of the property and also cost of improvement and re- investment in purchase of another house property u/s 54 of the Act. The AO further observed that the date of purchase of one property has been shown from FY 2008-09 which is held for less than 36 months.
According to the assessee, it had inadvertently excluded stamp duty and registration charges in respect of 7 shops. The sale consideration has 59 Akshar Devlopers group been incorrectly recorded which resulted into double deduction of cost of acquisition in respect of 7 shops. Further, in respect of shop No.11, date of acquisition was wrongly mentioned as 01-04-2010 instead of 14-03- 2008. Thus, there was a wrong calculation of capital gain under the head short term instead of long term.
Having heard both the sides and considered material on record, we find that the assessee has revised computation of capital gain in respect of sale of property and shifted short term capital gain declared in original return to long term capital gain in the revised return filed u/s 142(1) by changing the date of acquisition of property, according to which, the period of holding of asset is more than 36 months. As per the workings furnished by the assessee showing computation of capital gain as per original return of income filed u/s 139(1) and as per return filed u/s 142(1), there is a mismatch of date of acquisition of property, cost of acquisition and sale consideration. The assessee claims that while adopting cost of acquisition, it has inadvertently omitted to included registration charges and stamp duty. Similarly, the assessee claims that cost of acquisition was deducted twice from the sale consideration which resulted in double deduction and under statement of capital gain in respect of two shops. The assessee has filed various details to justify its arguments that the property has been purchased on 21-08-2007 by way of booking advance, however, in the return the date of acquisition has 60 Akshar Devlopers group been taken as per registration of agreement. The facts are not clear.
One side the AO claims that the assessee has not furnished any evidence to justify the date of acquisition of property, cost of improvement and exemption claimed in respect of 54F towards re- investment in purchase of property. On the other hand, the assessee has filed various details including copies of agreement, sale deeds and letter of allotment for booking the flat. The assessee also filed a chart explaining various expenditure incurred in the assessment year 2009-10 for improvement of property. We do not know whether these documents have been furnished before the AO at the time of assessment proceedings or not. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of additional evidence filed by the assessee. Therefore, we set aside the issue to the file of the AO and direct him to examine the claim of the assessee in the light of additional evidence and if the assessee is able to justify the date of acquisition of the property on 21-08-2007 by filing necessary evidence, then the AO is directed to treat gain from sale of property under the head ‘long term capital gain’ instead of short term capital gain.
If the assessee has considered the date of acquisition on the basis of allotment letter without there being any agreement, then the holding period of the asset should be considered from the date of agreement but not from the date of allotment letter. Similarly, the assessee has claimed
61 Akshar Devlopers group various expenditure to justify improvement to the asset. If the assessee is able to establish expenditure incurred with necessary evidences and also source, then the AO is required to examine the evidences before taking any decision to allow cost of improvement. If the assessee is able to justify the cost of improvement with necessary evidence, then the AO is directed to allow cost of improvement as claimed by the assessee.
In the result, ground raised by the assessee for AY 2012-13 is allowed for statistical purposes.
The remaining effective ground pending for our adjudication for all the assessment years in both the cases are legal grounds challenging the validity of assessments in the light of non issue of notice u/s 143(2) for the AYs 2009-10 and 2011-12 and in respect of 2012-13 challenging the action of Ld.CIT(A) holding that consequent to the annulment of assessment, the original return of income filed on 31-03-2013 in compliance to notice u/s 142(1) r.w. intimation u/s 143(1) has attained finality and thus, the subsequent return filed on 23-09-2013 has become non est. Since the issues involved in all the years has been set aside to the file of the AO for verification in all the assessment years in respect of both the assessees, the legal ground raised by the assessees in all the years become infructuous and hence, the same are dismissed.
In the result, the appeals filed by the assesses in /Mum/2016 for AY 2009-10 is dismissed; for AYs 2010-11 to 2012-13 in 62 Akshar Devlopers group 2672 & 2673/Mum/2017, 6245 & 6246/Mum/2016 & 2675/Mum/2017are partly allowed for statistical purpose.
As a result, appeal filed by the assessee in AY 2009-10 is dismissed and appeals filed by the assessee in 2677/Mum/2017 & 2678/Mum/2017 for assessment years 2010-11, 2011-12 & 2012-13, respectively are partly allowed for statistical purpose and the appeals filed by the assesses in ITA No. ITA No 6244 /Mum/2016 for AY 2009-10 is dismissed; for AYs 2010-11 to 2012-13 in ITA No. 6245/Mum/2016; 2672 & 2673/Mum/2017, 6245 & 6246/Mum/2016 & 2675/Mum/2017are partly allowed for statistical purpose. Order pronounced in the open court on 28th February, 2018.