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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: Shri Saktijit Dey & Shri G Manjunatha
O R D E R Per G Manjunatha, AM : This appeal filed by the assessee is directed against order of CIT(A)-28, Mumbai dated 20-03-2015 and it pertains to AY 2003-04. The assessee has raised the following grounds of appeal:-
1. “On the facts & circumstances of the case, the learned Commr. of Income Tax (Appeals) has erred in holding that there was valid issue of notice u/s.148 and consequently the reassessment order passed is a valid order. The appellant prays that notice issued u/s 148 was bad in law and consequently the reassessment order
2. On the facts & circumstances of the case, the learned Commr. of Income Tax (Appeals) has erred confirming that the appellant has earned taxable income in A.Y.2003-04. The appellant prays that no income is chargeable to tax in A.Y. 2003-04 in the hands of the appellant.
3. On the facts & circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in determining total income at Rs.27,39,68,175/- for A.Y. 2003-04. The appellant prays that the determination of the total income is contrary to provisions to income Tax Act, 1961 and not justified; hence the determination of the income by the Learned Commr. of Income Tax (Appeals) may be deleted.
4. On the facts & circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in confirming that the project of the Chaitanya Tower is completed to the extent of 96.59% during F.Y.2002-03. The appellant prays that the conclusion reached by the Learned Commr. of Income Tax (Appeals) is erroneous and contrary to the facts of the case.
5. On the facts & circumstances of the case, the Learned Commr. of Income Tax/ (Appeals) has erred in ignoring the fact that the profit of the Chaitanya Tower Project is already taxed in the hands of M/s. Twinkle Property Developers Pvt Ltd. in A.Y. 2003-04.
6. Without prejudice to the fact that no income is chargeable to tax, on the facts & circumstances of the case, the Learned Cornmr. of Income Tax (Appeals) has erred in including Rs.6,90,70,122/- as a part of the gross receipts of the appellant for AY.2003-04. The appellant prays that the sum of Rs.6,90,70,122/- should not be considered as part of gross receipt.
7. Without prejudice to the fact that no income is chargeable to tax, on the facts & circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in including Rs.3598,74,600/- as a part of the gross receipts of the appellant for AY.2003-04. The appellant prays that the sum of Rs.3,98,74,600/- should not be
8. Without prejudice to the fact that no income is chargeable to tax, on the facts & circumstances of the case, the Learned Commr. of Income Tax (Appeals) has erred in allowing deduction of expenditure of Rs.79,55,64,006/-. The appellant prays that the expenditure incurred for completion of the project should also be allowed as deduction in computing the total income for A.Y. 2003-04.
9. On the facts & circumstances of the case the appellant prays that the total income determined by the Learned Commr. of Income Tax (A) amounting to Rs.27,39,68,175/- be deleted. 10. The Learned Commr. of Income Tax (Appeals) has erred in confirming levy of interest u/s 234B. The appellant denies the liability of payment of interest u/s 234B. On the facts & circumstances of the case the appellant submit that levy of interest u/s 234B is not justified and be deleted.
The Learned Commr. of Income Tax (Appeals) has erred in confirming levy of interest u/s 234A. The appellant denies the liability of payment of interest u/s 234A. On the facts & circumstances of the case the appellant submit that levy of interest u/s 234A is not justified and be deleted.”
The brief facts of the case are that the assessee has not filed its return of income for the assessment year 2003-04 u/s 139(1) of the Income-tax Act, 1961 before the due date. However, it filed the return of income in response to notice u/s 148 dated 28-03-2008 declaring total income at Nil.
Subsequently notices u/s 143(2) and 142(1) of the Act were issued. In the course of assessment proceedings it was noticed that assessee was a partnership firm engaged in the business of civil construction. The assessee 2002. As such, on dissolution of partnership firm, the assets / liabilities of the firm were distributed between the partners. At the time of its existence, the assessee firm, alongwith Orbit Finance Pvt Ltd, was engaged in the business of construction and development of a project, viz. Chaitanya Towers. During the financial year relevant to AY 2002-03, the assessee has effected sales to the extent of 114.52 crores and no profit is offered for taxation on the ground that it has been following project completion method. Since the partnership firm has been dissolved wef 01-09-1992, it is clear that there was existence of closing work-in-progress between 01-04-2002 to 30-08-2002 relevant to AY 2003-04 and the assessee firm, should have filed the return of income declaring profit arising out of transfer of closing work-in-progress to the partners on dissolution of partnership firm. The AO, after considering relevant facts available on record and also considering the submissions of the assessee completed assessment u/s 143(3) r.w.s. 147 of the Act on 31-12-2008 on the basis of closing work-in-progress and calculated net profit of Rs.22,69,63,837.
Being aggrieved by the order of AO, the assessee preferred appeal before the CIT(A).
The CIT(A), vide her order dated 31-03-2010 upheld the action of the AO of computing fair market value of closing WIP; however, directed the AO to 5 verify the addition of Rs.4,87,61, 962 being sale consideration of the single building sold to Jindals and already offered to tax in the AY 1998-99. The AO vide order dated 18-06-2010 while giving effect to the order of CIT(A), assessed the total income of the firm at Rs.21,96,51,175. Being aggrieved, assessee preferred appeal before ITAT. The ITAT, vide its order in ITA No.3303/Mum/2010 dated 04-03-2011 has admitted additional evidence in the form of a paper book containing pages 285 – 501 and further directed the AO to re-examine the whole issue in the light of additional evidences with the help of valuation of the property by the DVO, if needed. Consequent to direction of the ITAT, the AO has taken up the case for fresh hearing and after considering the submissions of the assessee and also report of the DVO determining the value of the property has determined total income of the firm at Rs.116,07,69,840. Aggrieved by the assessment order, assessee preferred appeal before CIT(A).
Before the CIT(A), the assessee has filed elaborate written submissions to challenge the reopening of the assessment and also additions made by the AO towards determination of income of the firm on the basis of closing work- in-progress. The CIT(A), for the detailed discussion in his order dated 20-03- 2015, determined the total income of the firm at Rs.25,51,58,334 subject to verification of the claim of the assessee with regard to parking space / escalation recovery. If on verification as directed it is found that the claim of the assessee regarding parking / escalation recovery is not correct, the profit from the project assessable to tax would be Rs.27,39,08,175. Thus, CIT(A) partly allowed appeal filed by the assessee. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
5. None appeared for the assessee. We have heard the Ld.DR and perused taxability of the partnership firm before its dissolution. The AO has assessed the total income of the partnership firm till the date of dissolution on the basis of closing work-in-progress as on the date of dissolution of the firm. The CIT(A) re-worked the profit from the project by taking into account total receipts from the project and applied project completion method to determine the income at Rs.25,51,58,334 subject to verification of assessee’s claim with regard to parking space / escalation recovery. The relevant portion of the order of CIT(A) is extracted below:-
“4. I have considered the facts of the case and the submissions made by the assessee. I find that the issue relating to the re- opening of the assessment proceedings u/s 147 of the Act has already been decided by the Ld.CT(A) in her appellate order dated 31.03.2010. In the said order, the Ld.CIT(A) has dismissed the grounds of appeal filed by the assessee against the assumption of jurisdiction u/s 147 of the I.T. Act, 1961 by the Assessing Officer. Such decision of the Ld.CIT(A) has not been over ruled by the Hon'ble ITAT. I agree with the reasons given by the Ld.CIT(A) for upholding the assumption of jurisdiction by the A.O. u/s of the Act.
4.1 Coming to the issues raised by the assessee in the appellate proceedings, I find that the A.O. has recorded that the assessee had not filed the return of income for the A.Y.2003- 04 although it had effected sales to the extent of Rs.114,52,06,868/-. The A.O. also found that the assessee had not offered any profit on the same. Considering the sale proceeds received, balance sales to be effected and balance work stated to be pending, the A.O. had reasons to believe that the income chargeable to tax on the date of dissolution of the firm as relevant to the A.Y. 2003-04 had escaped assessment. The A.O. has further recorded that though the firm was stated to be 7 dissolved as on 01.09.2002, the assessee was duty bound in law to furnish the return of income for the period from 01 .04.2002 to 01 .09.2002 relevant to the A.Y. 2003-04. I find that as per the provisions of section 170(I) of the I.T. Act, 1961, where a person carrying on any business or profession has been succeeded therein by any other person who continues to carry on that business or profession, such person would be assessed in respect of income of the previous year in which the succession took place upto the date of succession and the successor would be assessed in respect of the income of the previous year after the date of succession. In the present case, therefore, the assessee, i.e., Pratiksha Enterprises, should have filed the return of income for the period upto 31 .08.2002 which it did not do. Hence, the case of the assessee would fall within the provisions of Explanation 2(a) of section 147 of the I.T. Act, 1961. Since the assessee had not filed the return of income, the question of the assessee having disclosed all material facts necessary to frame the assessment does not arise. The action of the A.O. of re-opening the assessment u/s 147, therefore, cannot be faulted.
4.1.1 As regards the contention of the assessee that the firm Pratiksha Enterprises was not in existence and, therefore, the issue of notice u/s 148 in the name of the assessee was not valid, I do not find such contention of the assessee acceptable. The provisions of section 170(1) requires the assessment upto the date of succession to be done in the hands of the predecessor, i.e., in this case, the assessee. No other person can be deemed to be the assessee. The arguments may hold good where a real person dies, in which case the legal representative is deemed to be an assessee in view of the provisions of section 159. However, as per section 170, where a person carrying on the business is succeeded by any other person who continues to carry on that business or profession, for the period upto the date of succession it will only be the predecessor who would be regarded as the assessee under the provisions of the Act and any notice u/s 148 will have to be issued in its name only. The notice could not have, and cannot be, issued in the name of Twinkle Properties Pvt. Ltd, i.e., the successor, since it is not the income of the successor which is sought to be assessed. If the notice had been issued in the name of M/s Twinkle Properties Pvt. Ltd., the said concern would have 8 had to file its return. However, it is not Twinkle's income which was sought to be assessed or reassessed. Rather, it is the income of Pratiksha Enterprises which was sought to be assessed or reassessed, Twinkle Properties could not have even filed the return incorporating the accounts of Pratiksha before the date of dissolution. Hence, the notice was required to be issued in the name of Pratiksha Enterprises only. Since the notice for the period was required to be issued only in the name of the assessee, the action of the A.O. of issuing the notice u/s 148 in the name of Pratiksha Enterprises is held to be valid. It is also pertinent to note that even the appeal in Form No.35 has been filed in the name of Pratiksha Enterprises. 4.1.2 As regards the arguments of the assessee relating to the principles laid down by the Hon'ble Supreme Court in the case of GKN Driveshaft (supra), the contentions of the assessee are not correct. The following procedure has been laid down by the Hon'bte Supreme Court once the notice u/s 148 is issued by the A. 0. the assessee is required to file the return. (i) if the assessee so desires, he can ask for the reasons recorded (ii) for re-opening the assessment. the assessee can, thereafter, file his objections. (iii)
The A.O, is then required to dispose of the objections. (iv)
4.1.3. However, in the present case, on receipt of the notice u/s 148 dated 28.03.2008 on 02.04.2008, the assessee objected to the re- opening of the assessment vide its letter dated 07.04.2008 without first filing its return of income as mandated by the Hon’ble Supreme Court. The assessee also asked for the reasons recorded for the issue of the notice u/s 148. It is only after this that the assessee filed its return of income on 23.04.2008 pursuant to the notice u/s 148. Therefore, the assessee has itself not followed the procedure laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltyd.259 ITR 19(SC).
4.1.4. The argument of the assessee relating to change of opinion is also not tenable since change of opinion postulates formation of opinion in the first place. It pre-supposes that an assessment has 9 been made by the A.O. wherein the AO had formed an opinion on an issue. However, in the present case, even the return of income had not been filed by the assessee prior to the issue of notice u/s 148. The question of any assessment having been made, therefore, does not arise. If no assessment has been made, the question of forming ay opinion on an issue would also not arise. Therefore, to apply the principles of change of opinion would be out of context.
4.1.5 In view of the aforesaid reasons and the reasons given by Ld.CIT(A) in her order dated 31.03.2010 with which I agree, I am of the opinion that the jurisdiction u/s 147 of the Act has been validly exercised by the A.0. The action of the A.O. of re- opening the assessment u/s 147 of the I.T. Act, 1961 is, therefore, upheld. The first effective ground of appeal filed by the assessee is dismissed.
With regard to the second effective ground of appeal
, dealing with the applicability of the decision of ALK Firm
89. I T R 285, the assessee, placing reliance on the judgement of the Hon'ble Supreme Court in Sakthi Trading Co. 250 ITR 871, has submitted that for the application of the tenet in ALA Firms case, two paramount conditions must be satisfied. Firstly, the firm must be dissolved and, secondly, the business of the firm must be discontinued. In the present case although the firm Pratiksha Enterprises was dissolved with effect from 01 .09.2002, the business of real estate and property development was continued by one of the erstwhile partners of Pratiksha, i.e., Twinkle Property Developers Pvt. Ltd . Moreover, all the assets and Liabilities of the entire business of Pratiksha, including the work-in- progress of Rs.79,55,64,006/- of the Chaitanya Tower Project was reflected in the books of Twinkle at cost which reinforces the argument of the appellant that the very and only business carried on by the assessee subsisted uninterruptedly in the hands of Twinkle without any break or stoppage. In view of the aforesaid reasons, the case of the assessee squarely falls within the four corners of the verdict of the Hon'bte Supreme Court in Sakthi Trading Co. (supra) and the ratio of ALA Firm (supra) cannot be invoked in the assessee's case. In the result, the work-in-progress of 10 Rs.79,55,64,006/- ought to be valued in accordance with the normal and regular well settled commercial and accountancy practice of cost or market, whichever is lower. 5.1 The assessee has further submitted that in ALA Firm (supra), great emphasis was attached to the fact that the partners therein agreed to value the assets at market value and actually did so by drawing a revaluation account in the books of accounts and that factor really turned the table against the assessee. The appellant has neither revalued the assets in the books of accounts, neither has it drawn any revaluation account but settled the accounts at book value between the partners as can be seen from the partners' capital account and the several clauses of the dissolution deed. 5.1.1 The appellant has contended that even assuming while not conceding that the judgement of the Hon'ble Supreme Court in ALA Firm vs. CIT (1991) 189 ITR 285 is triggered off in its case, at the highest, what can be valued at market price are the unsold flats as on 01.09.2002, the date of dissolution. From the chart enclosed it was apparent that in respect of the four flats bearing Nos. 102,303, 803 and 1201, the consideration was received in advance prior to 31.03.2002 amounting to Rs.1,42,98,000/- and Rs.1,49,93,000/- till 31 .08.2002 and the same is also reflected in the balance sheet as on 31 .03.2002. The agreement is executed after 01 .09.2002 but the price at which the flats were to be sold were finalized much before and these flats were not available for the appellant to sell as on 01.09.2002. The appellant was obliged to fulfill the commitment of the partnership firm and, in fact, the said flats were sold to the parties from whom advances were received prior to 31 .03.2002 at the same price. Out of the four flats, two flats were sold to a reputed corporate like Videocon International Ltd. All the four flats were sold to outsiders at arms length price and none of the parties were directly indirectly related to the appellant. Only one flat bearing No.1404 admeasuring 885 sq.ft. was in stock as on 01.09.2002 for which agreement was entered on 29.01 .2003 and the total consideration for which the said flat was sold is Rs.47,42,000/-. The assessee has furnished in a chart the complete details enclosed. The summary of the advances
11 received for the area which was sold admeasuring 2,27,175 sq.ft., and the advance received in respect of four flats admeasuring 4470 sq.ft. has also been furnished by the assessee that the Assessing Officer has grossly over determined the income for A.Y. 200304 in reassessment proceedings. At the first stage only one flat which remained unsold was admeasuring 885. sq.ft. and without prejudice to the stand that the principle of ALA firm is not applicable, at best the Assessing Officer could have valued the unsold stock based on the market value. Instead, he applied the average rate of Rs.9,150/-, which itself is a matter of challenge, to the total area of the project being 2,32,530 sq.ft. The A.O. has totally ignored the fact that out of 2,32,530 sq.ft., the appellant had already entered into an agreement for 2,27,175 sq.ft. prior to 31.03.2002 and had received the consideration of Rs.96,38,79,178/- and in respect of four flats admeasuring 4,470 sq.ft. the consideration was received prior to 31.08.2002 amounting to Rs.1,49,93,000/upto 31 .08.2002 and only one flat admeasuring 885 sq.ft. was in stock as on 01.09.2002. In a case of a developer when the sale of flat had begun right from the year 1994 onwards and the rights of the purchasers are created in the said flats and the consideration is also received, then it is unfair and unjustified to estimate the value of the said flats as on the date of dissolution assuming that they are capable of sate. As against the actual consideration received by the appellant from the project which is amounting to Rs.111,32,67,990/-, the estimation of the market value at Rs.212,76,49,500/- and, consequently, determining the taxable income at Rs.1 16,07,69,841/- is itself not justified. The assessee has also challenged the rate adopted by the DVO. 5.1.2 With regard to the action of the Assessing Officer of computing the total income at Rs.116,07,69,840/-, it has been submitted by the assessee that the A.O. has taken the average of the five flats bearing No.102, 3Q3, 803, 1201 and 1404 based on the valuation report and has taken the average at Rs.9,150/- per sq.ft. This rate the A.O. has applied to the total area being 2,32,530 sq.ft. and assumed the gross sale consideration at Rs.212,76,49,500/-. Then the A.O. estimated that the project was complete upto 90% and determined the value at Rs. 191,48,84,550/-. From this 12 figure the work-in-progress as reflected in the balance sheet amounting to Rs.79 55,64,606/- has been reduced and the A.O. has fly determined the income at Rs. 116,07,69,843/-. The assessee has submitted
5.1.3 With regard to the extent of completion of the project as on 01 .09.2002, it has been submitted by the assessee that the project was complete to the extent of 83-84% as against 90% complete as held by the A.O. When so viewed, the valuation of the work-in-progress in relation to Chaitanya Tower Project would be Rs.79,55,64,006/- and not Rs.97,37,65,881 / - as computed by the A.O. The basis of determining that 90% work is complete itself was erroneous. In addition, the A.O. in calculating the Fair Market Value of the work-in-progress of the Chaitanya Tower Project overlooked the liabilities in the form of encumbrances owned by the appellant to the outsiders and third parties including huge sale proceeds received from the flat owners who had been conferred full, complete, absolute unqualified ownership, right title and interest in the respective flats purchased by them by way of a registered agreement. It has been pointed out that Fair Market Value has been defined in section 2(223) of the I.T. Act as the price which the asset would fetch on sate in the open market. Surely, when the work-in-progress with regard to Chaitanya Tower Project is put for sale in the open market of wilting buyers and sellers, the prospective buyer will certainty factor in and cushion the various Liabilities and other depressing factors, etc., white quoting a bid for the same and, hence, the value of the work-in-progress pertaining to the Chaitanya Tower Project could not have been under any stretch of imagination worked out at Rs.212,76,49,500/-. The Assessing Officer had also ignored the fact that there was huge liability on the appellant by way of the sate consideration and if it was assumed that the Fair Market Value of the property could be computed as if it was capable of sale, then the sum of Rs.97,88,72,178/plus the liability for interest and damages is also to be allowed as deduction. 5.1.4 With regard to the addition of Rs.4,87,61,962/-, being the sale consideration of the single building sold to the Jindals, it has been submitted by the assessee that this addition made by the A.O. is erroneous as the said consideration was 5.1.5 It has been pointed out by the assessee that Twinkle Property Developers Pvt Ltd. has already offered the profit derived from the Chaitanya Tower Project in the A.Y. 2003-04 which has been accepted by the Department. Further, the CIT(A) vide his order dated 29.. 10.2007 has held the assessment of the profits in the case of Twinkle Property Developers Pvt. Ltd for the A.Y. 2003-04 as substantive. Hence, it is clear that the same income has been assessed twice - once in the hands of Twinkle and again in the hands of Pratiksha. This cannot be done once the income has already been assessed in the hands of Twinkle. Therefore, the addition of Rs.116,07,69,840/- is baseless and unjustified and ought to be deleted. 5.1.6 On the query raised in the appellate proceedings as to why the profit should not be computed as on 31.08.2002 in respect of the project, it has been that: -
"Twinkle Property Developers Pvt.Ltd. has taken over the entire business with the project of Chaitanya Tower and subsequent take over they have incurred substantial expenditure and have completed the project. Please note that they took the risk of settling the dispute with the flat owners to whom the possession was not given for last many years, there was delay in completion, there was financial difficulties, disputes with vendors, suppliers etc. They completed the project during the period 01.09.2002 to 3 1.03.2003 and offered the income of the said project in A. Y. 2003-04 and Income Tax Department has also accepted the claim that the income is chargeable to tax in A. Y. 2003- 04 in the hands of Twinkle Property Developers Pvt. Ltd. Pleasenote that originally the income was taxed on protective basis, but subsequently the said income is taxed on final basis in the hands of Twinkle Properties Pvt. Ltd. During the assessment proceedings for A. Y. 2003-04 in the hands of the MIs. Pratiksha Enterprises the Department tried to tax
14 the income of the said project in A. Y. 2002-03 where the previous year had ended on 31.03.2002. The matter traveled upto the High Court. The Hon'ble Tribunal while deleting the addition in the hands of MIs. Pratiksha Enterprises has also made an observation that the income is correctly taxed in the hands of Twinkle Property Developers Pvt. Ltd. The appeal was filed before the Bombay High Court and the appeal of the Department is dismissed. No authority has given a finding that income is chargeable to tax in the hands of Pratiksha Enterprises. We further submit that as on 3 1.08.2002 the project was not completed. Various issues relating to the project are pending. The expenditure was required to be incurred. The firm did not have funds. The estimated cost on the date of the project was about more than Rs. 15 cores. As per the estimate the project was only complete upto 83% as on the date of dissolution, it was only with the efforts, relationship and ability to generate funds, the project could be completed by Twinkle Property Developers Pvt. Ltd by spending Rs.7 crores (approx). However, at the time when the dissolution has taken place it was estimated that the additional project cost of Rs. 15 crores is required. As only 83% of the project was completed as on 31.08.2002 no income can be computed for A. Y. 2003-04 in the hands of Pratiksha Enterprises. Please note that in the submissions made before CIT(Appeals) in the first round also the stand was taken that the project was completed only upto 83%. There were several disputes from the flat purchasers and the vendors and the some is settled by Twinkle Property Developers Pvt. Ltd. Please note that they have spent Rs.23,91,7201- during the period 0 1.09.2002 to 31.03 .2003. Please note that Twinkle Property Developers Pvt.Ltd. have spent amount on steel, cement, civil work, electrical work, fabrication work, tiling, water proofing etc. which clearly shown that the project was not completed as on 31.08.2002. Please also note that in A.Ys. 2004-05 1± 2005-06 also on the project Of "Chaitanya Tower" the amount has been spent which technically should have been provided and claimed as on 3 1.03.2003 when the income from the project is offered for tax.
15 We would also like to point out that the Chaitanya Tower consisted of 23 floors. This was the project of Pratiksha Enterprises and of Orbit Finance Pvt. Ltd. This fact is on record. First 18 floors belong to Pratiksha Enterprises and from 19 to 23 floors belongs to Orbit Finance Pvt. Ltd. The Chaitanya Tower is a single project and one building consisting of 23 floors. The income of 18 floors is offered for tax by Twinkle Property Developers Pvt. Ltd. successor to Pratiksha Enterprises and income of 19 to 23 floors is offered by Orbit Finance Pvt. Ltd. Please note that in the hands of Orbit Finance Pvt. Ltd. also the income tax department has accepted that the project is completed in March 2003 and the income is taxed in A. Y. 2003-04. In case of a single project of a single building, if the Department has admitted that income chargeable to tax for 19 to 23 floors is to be taxed in A.Y. 2003- 04 on the conclusion that the project is completed in March 2003, then how can for the some project of a single building the income could be deemed to accrue on 31.08.2002. We submit that the income has accrued on the project completion to Twinkle Property Developers Pvt. Ltd. only and the said income, can be taxed. only in the hands of Twinkle Property Developers Pvt. Ltd. in A. Y. 2003-04 and no income can be computed as on 31.08.2002 in the hands of Pratiksha Enterprises.
Without prejudice to above submissions, we also submit that if income is to be computed for 83% project completion basis, then the total income chargeable to tax can only be Rs.2,70,22,8991-. The working of the some is enclosed herewith. Please note that this working is submitted based on the assumption that what could be the income if the project is deemed to be completed 83% as on 31.08.2002. We still retreat that no income is chargeable to tax in A. Y. 2003-04 in the hands of Pratiksha Enterprises. This submission is without prejudice to the stand that no income is chargeable to tax in A. Y. 2003-04 in the hands of Pratiksha Enterprises." 5.1.7 I have considered the facts of .the case and the submissions made by the assessee. However, before deciding this issuelt would be pertinent to deal with certain submissions made by the assessee which are clearly not correct. The assessee has submitted that subsequent to the take over of the business, M/s.
16 Twinkle Properties has incurred substantial expenditure and have completed the project. This is not correct. It is M/s. Pratiksha Enterprises which had incurred almost the entire expenditure on the project as would be evident from the discussions made later in the order. Secondly, the project was almost complete when the firm dissolved. It is also apparent that the disputes, if any, was not settled by M/s. Twinkle since the project was completed almost entirely which the firm Pratiksha Enterprises was in existence and almost immediately after the firm stood dissolved Occupation Certificate was also granted by the Authorities.
Further, it is fallacious to say that he Department had accepted that the income is assessable in the hands of M/s. Twinkle. This issue has been discussed in detail later in this order.
5.1.8 In my opinion, the issue that needs to be decided in this ground of appeal is as to whether any income would be assessable in the hands of the assessee for the period from 01.04.2002 to 01.09.2002, i.e., upto the date of dissolution of the firm.' If yes, what would be the amount of income which would be assessable in the hands of the assessee. Is it the income of Rs.116,07,69,840/- as assessed by the A.O. as the business income in the assessment order u/s 143(3) r.w.sec 254 of the Act dated 28.03.2013 or would it be any other amount of income?
5.1.9 As regards the first issue, it i an undisputed fact that the assessee was carrying on business during the period 01 .04.2002 to 31 .08.2002 after which the firm was dissolved and the business was continued to be carried on by its successor, M/s. Twinkle Properties Pvt. Ltd. Hence, as per the provisions of section 170(1) of the Act, the assessee would be liable to be assessed in respect of its income of the previous year upto the date of succession. It is important to note that the business was not discontinued but the same business continued to be carried on by M/s. Twinkle Properties Pvt. Ltd. Therefore, it is only the period after which M/s. Twinkle succeeded the assessee in the business that Ws. Twinkle Properties Pvt. Ltd. would be assessable in respect of the business. Therefore, if any income has accrued to 17 the assessee for the period during which it carried on the business, it would be the assessee only who would be assessable in respect of that income. 5.1.10 It is an undisputed fact that the assessee was in the business of construction and had undertaken to develop a project. In respect of the said project, as per assessee’s own admission, it had received almost the entire amount of sales consideration from the buyers. The total area for sale was 2,32,530 sq.ft. and as submitted by the assessee itself, area of 2,27,175 sq.ft. had already been sold for which total sales consideration had already been received by the assessee. Another four flats admeasuring 4470 sq.ft. totally were also sold by the assessee before 01.04.2002 for which substantial sale consideration had been received by it before 01 .09.2002, although the agreement was executed after 01.09.2002. Only one flat of 885 sq.ft. remained unsold by the assessee. As per assessee's own submissions, the four flats of 4470 sq.ft. totally were agreed to be sold for Rs.1,58,12,000/- for which consideration of Rs.1,49,93,000/- was already received by it as on 31.08.2002. The fact that the assessee had received the entire sales consideration on sate of flats itself suggests that the construction was either complete or substantially complete. As per the accounts filed by the assessee, the work-in-progress of the Prabhadevi Project was shown at Rs.79,55,64,000/- as on 01.09.2002. As per the accounts of M/s. Twinkle Properties Pvt. Ltd., the total expenditure incurred during the entire financial year is shown at Rs.6,87,35,977/-. Hence, the total expenses on the project has been worked . out at Rs.82,36,10,879/- . As per the accounts of Pratiksha and Twinkle, filed in the course of the appellate proceedings, as on 01.09.2002, expenditure of approximately 96.59% already stood incurred by the assessee on the project. The assessee had also received the entire sates consideration from the buyers in respect of almost all the flats other than 5 flats. In respect of 4 out of the remaining 5 flats, a very substantial part of the consideration was also received and only one flat remained to be sold. It would, therefore, be clear that the project of the assessee and its construction can be said to be either complete or very substantially complete. There was, therefore, no reason as to why the assessee should not have offered the income earned by it as on 01.09.2002 to tax.
Appeal Order - MIs. Pratiksha Enterprises, 18 A.Y.200304 ITA No.4567/Mum/2016
The assessee has contended that Chaitanya Project consisted of 23 floors out of which the assessee was developing the building upto 18 floors and the construction from 19 to 23 floors belonged to M/s. Orbit. It is the contention of the assessee that when it has been accepted by the A.O. of M/s. Orbit that its part of the project was completed in March, 2003, it was logical that the part of the single project upto 18 floors belonging to Pratiksha Enterprises was also completed in March, 2003.
6.1I have considered such contention of the assessee but do not find it acceptable. M/s Pratiksha Enterprises and M/s Orbit are two separate and independent assesses developing different parts of the project. The assessee was developing the floors upto the 1 8thfloor. It is clear that the assessee completed the construction before 21 .01 .2003. In fact, the entire project from 1 to 23 floors was completed before 21.01.2003. This fact is evidenced by the "Occupation Certificate" dated 25.02.2003 granted by Municipal Corporation of Greater Bombay. This certificate was with reference to the assessee's architect's letter dated 21.01,2003. This evidences the fact that at least on 21.01.2003, the flats of the entire building upto part 23 floors were ready for occupation. In reality, the construction would have been complete earlier since after completion of construction, it is only after carrying out further inspections and formalities would the architect actually apply for Occupation Certificate. Hence, from this angle also it can be fairly concluded that the project of the assessee was complete /substantially complete as on the date of dissolution. MIs. Twinkle Properties Pvt. Ltd. has debited certain expenditures after the date of succeeding in the business which is only a miniscule percentage of the total expenditure incurred. However, this will have no impact on the issue since even after the completion of the project, certain expenditures do get incurred in respect of improvements made and such expenditure could be claimed in the accounts of M/s. Twinkle against the balance receipts. The assessee has argued that M/s. Orbit has shown its part of the project to be complete in March. In my opinion, there is nothing extra-ordinary in this fact. M/s. Orbit continued to be in existence as on 31" March. Hence, it would be liable to offer the 19 income only as on 31" March irrespective of when the project was completed during the course of the year. iç. Pratiksha had been in existence as on 31st March' it would have also filed its return as on 31 March, even if the project stood completed in August. It has is in any case been shown that the project was ready for occupation much before 21.01.2003.
6.1.1 I have also perused the order of the Hon'ble ITAT in the case of M/s. Pratiksha Enterprises referred to by the assessee and find that nowhere has the Hon'ble Tribunal observed that the income is correctly taxed in the hands of M/s Twinkle Properties Pvt. Ltd in the A.Y. 2003-04. All that the Hon'ble ITAT has held is that the project was completed in 2003-04 and not in the A.Y. 2002-03. In the present proceedings, there is no dispute on the above finding. What is to be decided is as to whether any income has accrued to the assessee as on the date of dissolution in the A.Y. 2003-04. The order of the Ld.CIT(A) in the case of M/s. Twinkle Properties holding the income to be substantive in the hands of Twinkle cannot be imposed on the A.O. of Pratiksha Enterprises or in the present proceedings since what is being decided here is as to whether any income has accrued in the hands of the assessee as on the date of its dissolution. Any decision on the issue can be given only by the CIT(A) deciding the appeal of the assessee and not by any other Ld.CIT(A). Since the addition has been made in the hands of the assessee and only a protective assessment was made in the hands of M/s. Twinkle Properties, it will have to be first decided as to whether the substantive assessment in the hands of the assessee is correct or not. Secondly, the substantive assessment in the hands of the assessee was confirmed by Ld.CIT(A) and has been set aside by the Hon'bte ITAT for re-examination. Hence, it will have to be first decided as to whether the assessment made by the AO. in the hands of the assessee is correct or not. Further, as held by the Honb'le Supreme Court in Income-tax Officer vs Ch. Atchaiah 84 Taxman 630, 218 ITR 239 (SC), under the 1961 Act, the Assessing Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person' is meant the person who is liable to be taxed, according to Law, with respect to a particular income. The expression 'wrong person' is obviously used as the opposite of the expression 'right person'. The Hon'ble Apex Court
20 has held that merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact as to which course is more beneficial to the revenue. The language of the relevant provisions of the 1961 Act is quite clear and unambiguous. Section 183 shows that where the Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt, entitled to be relieved of it in accordance with law, but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer has taxed the said income in the hands of another person contrary to law.
6.1.2 Hence, the assessee cannot claim that the income LawfuLly Liable to be taxed in its hands cannot be brought to tax in its hands because the same has been held to be taxable in the hands of another person. The income accrued to the assessee upto the date of its dissolution will, therefore, be taxed in the hands of the assessee itself. Twinkle may take necessary steps for exclusion of the income assessed in the hands of the assessee from its total income as per law. 6.1.3 The next issue that is required to be decided in this appeal is as to the amount of income which is required to be taxed in the hands of the assessee upto 01 .09.2002. 1 find that the A.O. has taken note of the FMV of 5 flats as on 01 .09.2002 estimated by the DVO and has applied the same for valuing the FMV of the entire project of the assessee comprising of 2,32,530 sq.ft. and has worked out the closing stock of the assessee at Rs.212,76,49,500/- and has assumed this value as the gross sales consideration in the hands of the assessee which is almost Rs.100 crores, more that the sales consideration actually received by the assessee or finally received by the successor, i.e.,M/s. Twinkle Properties Pvt. Ltd. In fact, the business profits from the project has been computed at more than even the total sales consideration received from the project. This in itself shows the incorrect method adopted by the A.O. for computing the sales consideration in the hands of the assessee for arriving at its income as on the date of the dissolution. The A.O. has ignored the fact that out of the 2,32,530 sq.ft., the assessee had already entered into an 21 agreement for sale of 2,27,175 sq.ft. before the date of dissolution and had received almost the entire consideration of Rs.96,38,79,178/for the same. The assessee had also agreed to sell another 4470 sq.ft. for which substantial consideration had already been received by it and only 885 sq.ft. was remaining to be sold. Hence, the rights of the purchasers already stood created on almost the entire stock other than the stock of 885 sq.ft. Therefore, the assessee could not have sold the already sold area to any other person without these parties agreeing to the same and without receiving the consideration already paid and compensation for the same which would have had to be worked out with reference to the value of the property purchased by them as on 01.09.2002. FMV value of the property as worked out by the A.O. cannot be ascribed in the hands of the because the property (other than 885 sq.ft.) stood already sold by it at different rates at different times and the assessee could not sell the same in the open market unless and until the agreement to sell was cancelled and the stock became the absolute property of the assessee. For this, the assessee would have been required to refund the amounts and also pay compensation to the existing buyers at market rates in which case, the FMV of the entire property as worked out by the A.O. would be required to be deducted by the amount Of refund made and the amount of compensation. Presuming that even if refund of Rs.96.38 crores was to be made in case of cancellation of the agreements, the FMV of the property by A.Os own working would be Rs.212.76 crores (-) Rs.96.38 crores, i.e., Rs. 116.38 crores, which almost corresponds to the sale consideration disclosed by the assessee. This does not take into account any further amount to be paid to the flat owners by way of additional compensation. In view of the aforesaid reasons, the method adopted by the A.O. for computing the business profits of the assessee cannot be upheld.
6.1.4 Coming to the computation of the income of the assessee, it has already been held that the project of the assessee was already completed to the extent of approximately 96.59% as on the date of the dissolution. Therefore, the profits will be computed based on the actual sales consideration received and the expenditure incurred as on the date of the dissolution. As per the accounts of M/s. Pratiksha Enterprises upto 31.08.2002 filed by the assessee in the appellate proceedings, the assessee has shown receipts of Rs.116,47,12,3681- towards flat booking. It has also shown further advance of Rs.6,90,70,122/- from prospective customers. In the P&L account of Twinkle, sale of flats of Rs.98,26,51,212/-, sale of car parking space/escalation recovery of Rs.9,07,42,178/- and recovery towards cost of construction of Rs.3,98,74,600/- has been shown. The break-up of receipt of Rs.116,47,12,368/- in the hands of Pratiksha Enterprises has been furnished by the assessee as follows in the appellate proceedings:- Break-up of advance received as on 31.08.2002 Floors Flat Parking and Total Escalation 97,88,72,178/- 1-18 floors 90,76,03,901/- 7,12,68,277/- 19-23 17,35,73,000/- 1,22,67,190/- 18,58,40,190/- floors Total 108,11,76,901/- 8,35,35,467/- 116,47,12,368/-
6.1.5 However, in the above working of advance received by Pratiksha Enterprises, the assessee has not included the advance received of Rs.6,90,70,122/- from prospective buyers as on 31.08.2002. This amount also relates to sale of flats in the project of the assessee. Further, recovery towards cost of construction of Rs,3,98,74,600/- will also have to be included in the sates as on 31.08.2002. Therefore, the total receipts in the hands of the assessee would work out to (Rs.97,88,72,178/- + Rs.6,90,70,122/- + Rs.3,98,74,600/-), i.e., Rs.108,78,16,900/-. Since as per assessee's own accounts 96.59% of the expenditure has already been incurred and it has been held that the project of the assessee was to be treated as complete or. very substantially complete as on 30.08.2002, i.e., on the date of dissolution, 96.59% of the receipts will be taken into consideration for computing the income of the assessee. The computation of income of the assessee would, therefore, be as follows:-
23 Total receipt Rs.108,78,16,900/- 96.59% of the above Rs.105,07,22,340/- Less : Expenditure Rs. 79,55,64,006/- Profits Rs. 25,51,58,334/- 6.1.6 Therefore, the income of the assessee from the project which will be assessable would be Rs.25,51,58,334/-. The above working is based on the claim of the assessee that out of the total receipts of Rs.9,07,42,178/- on account of sale of car parking space/ escalation recovery, only an amount of Rs.7,12,68,277/- was received as on 30.08.2002. The A.O. is, therefore, directed to verify this aspect. If the contention of the assessee is found to be correct and he is able to show the correctness of the claim, profits of the business assessable in the hands of the assessee would be Rs.25,51,58,334/-, otherwise 96.59% of the balance amount of receipt, i.e., Rs.9,07,42,178/- (-) Rs.7,12,68,277/-, i.e., Rs.1,88,09,8411- wilt also be taken into consideration by the A.O. for computing the profits of the assessee assessable to tax, in which case the income of the assessee would be Rs.27,39,68,175/-.
6.1.7 The contention of the assessee with regard to the addition of Rs. 4,87,61,962/- has been considered. However, its contention that the same represents sale consideration of a single building sold to the assessee which was already offered to tax in the A.Y. 1998-99 cannot be accepted and this amount cannot be reduced from the sale consideration as computed hereinabove in this order. The sate consideration taken into account in this order is based on the sale consideration shown by the assessee itself. Further, if the sale consideration had already been offered for taxation in the A.Y. 1998-99, the question of the same being part of the advance received against sate of fiats would not arise. The contention of the assessee on this issue is, therefore, rejected.
6.1.8 In the assessment order it has been stated by the Assessing Officer that the assessee had stated before the ITAT that it had no objection to take up the valuation of the whole project being dosing stock as per the fair market value determined by 24 the DVO and that the assessee had submitted that it would accept the valuation of the DVO. This observation of the Assessing Officer is not correct. I find from the order of the Hon'bte ITAT that the Hon'bie Bench had set aside the order of the Ld.CIT(A) and remitted the same to the file of the A.O. to re- examine the whole issue in the tight of the additional evidence. The Hon'ble Bench had also made it clear that in view of the undertaking of the Ld. Counsel of the assessee the A.O. would be free, if he so desires, to refer the matter to the valuation cell and the assessee would not raise any objection in this regard. The order of the Hon'ble Tribunal does not, any where even suggest that the fair market value of the 4 flats as estimated by the DVO should be super imposed on the flats already sold/agreed to be sold in the different years and this value should be adopted as the sales consideration from the project for arriving at the income assessable in the hands of the assessee. 6.1.9 In view of the aforesaid reasons, it is hereby held that the income of the assessee from the project which will be assessable would be Rs.25,51,58,334/subject to the verification as directed hereinabove in this order. If on verification as directed it is found that the claim of the assessee regarding parking space/ escalation recovery is not correct, the profit from the project assessable to tax would be Rs. 27,39,68,1751-.The ground of appeal filed by the assessee is partly allowed.”
6. The facts remain unchanged. The assessee did not appear before us to controvert the findings of fact recorded by the CIT(A). Therefore, we are of the view that the CIT(A) was right in re-working profit from the project on the basis of project completion method. We do not find any error in the order of CIT(A); hence, we are inclined to uphold the order of CIT(A) and dismiss the appeal filed by the assessee.
Order pronounced in the open court on 11th October, 2017.