AKSHAR DEVELOPERS,NAVI MUMBAI vs. ACIT CEN CIR 3, THANE

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.

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:-

Taxman.524

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 ITA Nos

18 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.

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.

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.

CIT(A).

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. 55. 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.”

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.

for AY 2009-10 is dismissed and appeals filed by the assessee in ITA

Nos.2676/Mum/2017, 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

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 ITA No.2675/Mum/2017 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. 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).

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.

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.

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.

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.

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.

CIT(A).

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.

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.

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.

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.

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.

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.

allowed for statistical purposes.

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.

/Mum/2016 for AY 2009-10 is dismissed; for AYs 2010-11 to 2012-13 in

62 Akshar Devlopers group ITA No. 6245/Mum/2016; 2672 & 2673/Mum/2017, 6245 & 6246/Mum/2016 & 2675/Mum/2017are partly allowed for statistical purpose.

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.

Sd/- sd/- (Mahavir Singh) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 28th February, 2018 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Sr.PS, ITAT, Mumbai