Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘ C’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S.JAYARAMAN
आदेश / O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-2, Chennai dated 28.05.2015 for the assessment year 2012-13.
ITA No.1873/15 :- 2 -:
The only grievance of the assessee is with regard to direction of the ld.CIT(A) to re-open the assessments of Smt.Anuradha Reddy, Managing partner’s sister of the assessee and Shri Suganakara Reddy, Managing partner’s father of the assessee and to assess the difference of the cost of the Villa u/s.56(1)(vii) of the Income-tax Act,1961.
Shri S. Sridhar, ld. Counsel for the assessee submitted that the assessee is a partnership firm, engaged in the business of construction of housing projects. The partnership firm consists of two partners, namely Mr.P.Amranatha Reddy and his wife Smt.Swetha Reddy. The assessee firm has undertaken construction of a project known as “Amara Samudra”, which consists of 7 villas. The “Amara Samudra” project was constructed on the land, which belongs to Mr.P.Amaranatha Reddy, one of the partners of the assessee-firm.
The assessee-firm, in fact, entered into an agreement for construction with buyers, and executed the work as per the terms and conditions of the agreement. During the year under consideration, the assessee, partnership firm, constructed four (4) villas and sold the same for a price ranging from `3.5 crores to `8.5 crores. Two villas were sold to ITA No.1873/15 :- 3 -: the Managing Partner’s father and sister for `2.0 crores per villa. The assessee valued the unsold villa at ` 3.5 crores in the books of accounts. At the year end, the assessee completed the construction of all the seven (7) villas. The ld. Assessing Officer found that villas are sold to different persons at different rates. There was a major difference in respect of two villas sold to Smt.Anuradha Reddy, sister of Managing Partner of assessee -firm and Shri Suganakara Reddy, father of Managing Partner of assessee-firm. Since Smt.Anuradha Reddy and Shri Suganakara Reddy are close relatives of the partner’s of the assessee firm, the Assessing Officer found that the assessee reduced the sale price lesser than the actual expenditure incurred.
Even the unsold one villa was valued and shown at `3.5 crores, therefore, the Assessing Officer found that the books of accounts were not reflecting correct profit of the assessee-firm. Accordingly, he rejected the books accounts and estimated the profit. On appeal by the assessee, the Ld.CIT(A) deleted the addition made by the Assessing Officer in the hands of assessee-firm. However, Ld.CIT(A) directed the AO to re-open the assessment of Smt.Anuradha Reddy and Shri Suganakara Reddy for assessment year 2012-13 and tax the same under the head “income from other sources”. Placing reliance in ITA No.1873/15 :- 4 -: the judgement of Madras High Court in the case of CIT Vs. T.A.Krishnaswamy reported in (2007) 75 CCH 1193 (Chen HC), ld. Counsel for the assessee submitted that the Ld.CIT(A) has no power to give direction to re-open the assessment of another assessee. At the best, the Ld.CIT(A) might observe that the income cannot be assessed in the hands of assessee. Giving further direction to re-open the assessment of other assessees, who are not before the Ld.CIT(A), is beyond the jurisdiction of the Ld.CIT(A).
On the contrary, Shri Asish Tripathi, Departmental Representative, submitted that the assessee sold the villas to various persons ranging from `3.5 crores to `8.40 crores. Only to the Managing partner’s sister and father, the villa was sold at the rate of `2 crores. Even the unsold flat was valued @ `3.5 crores, therefore, the Assessing Officer found that books of account of assessee-firm did not reflect the correct profit and rejected the books of accounts. Since the flat was sold to close relatives of the Managing Partners lesser than the cost price, the Assessing Officer has rightly assessed the same. The Ld.CIT(A) found that it cannot be assessed in the hands of the assessee, therefore, rightly directed the AO to assess the same in ITA No.1873/15 :- 5 -:
the hands of Smt.Anuradha Reddy and Shri Suganakara Reddy for assessment year 2012-13. Hence, no interference is called for.
We have heard the rival submissions of either side and also perused the material available on record. It is not in dispute that the assessee is a partnership firm, engaged in the business of civil construction. The assessee-firm constructed “Amara Samudra” project in the land belongs to the Managing Partner, Mr.P.Amaranatha Reddy.
The assessee constructed seven villas, four villas were sold at a cost ranging `3.5 crores to `8.40 crores, two villas were sold to Managing Partner’s sister and father @ `2 crroes per villa. The assessee valued the unsold the villa at `3.50 crores. The Assessing Officer found that the villas sold to Managing Partner’s sister and father was lesser than the cost price. So, the books of account do not reflect the correct picture. Accordingly, Assessing Officer rejected the same. On appeal by the assessee, the Ld.CIT(A) found that the AO rejected the books of account without making any proper enquiry. Therefore, the rate adopted in books of account needs to be applied to the villas sold to the relative also. The Ld.CIT(A) found that the sale consideration received from the close relative of the Managing Partner was ITA No.1873/15 :- 6 -: inadequate. The Ld.CIT(A) further found that proviso to section 40A(2)(b) of the Act were not enforceable, since the excess expenditure was not paid to the persons referred to in sec.40A(2)(b) of the Act. However, the difference of amount as worked out to the extent of `2,58,22,504/- has to be treated as gift to the Managing Partner’s sister and father. Accordingly, the Ld.CIT(A) directed the Assessing Officer of Smt.Anuradha Reddy and Shri Suganakara Reddy to re-open their assessment for assessment year 2012-13 and assess the difference under the head income from other sources. The question arise for our consideration is whether the Ld.CIT(A) can direct the Assessing Officers of other assessee, who are not before him to reopen the assessment. This Tribunal is of the considered opinion that the Ld.CIT(A) being the Appellate Authority has to confine himself to the assessment year under consideration before him and also the parties to the litigation before him. Without hearing the assessee, or the Assessing Officer of the third parties, the Ld.CIT(A) cannot give any direction. As held by the Jurisdictional High Court in the case of CIT Vs. T.A.Krishnaswamy (supra), the Appellate Authority cannot exceed their powers while exercising their jurisdiction vested under the statute. In this case, the Ld.CIT(A) has exceeded his jurisdiction in directing the Assessing Officer, who is not before him and also to assess the income in the hands of Shri Suganakara Reddy and ITA No.1873/15 :- 7 -:
Smt.Anuradha Reddy. Both of them are not a party before the Ld.CIT(A). Therefore, the direction of the Ld.CIT(A) is a clear violation of principle of natural justice and exceeded his jurisdiction.
Moreover, the assessee is a partnership firm. Even though partnership firm has no statutory existence under the Common Law, it is an independent assessable unit under the Income-tax Act.
Therefore, when the partnership firm sold the villas at a price lesser than the actual cost, it cannot be construed as the Managing Partner gifted something to his close relatives. There may be various reasons for a businessman to sell the flat/villa at lower price. One of the reasons, there may not be any demand in the market. Moreover, there may be a pressure for repayment of borrowed loan. Therefore, in order to meet the expenditure and to re-pay the borrowed funds, the assessee, partnership firm might have sold the villa lesser than the actual cost. Without examining those details and reasons, one cannot say that the assessee’s Managing Partner gifted something to his close relatives. The very fact that one of the villas remains unsold, even at the year end, shows that there was no taker for the remaining villa.
Therefore, there may be compelling reasons on the part of the assessee, partnership firm to sell the villas at a price lesser than the actual cost.
ITA No.1873/15 :- 8 -:
In view of the above, we are unable to uphold the order of the Ld.CIT(A) to re-open the assessment of Smt.Anuradha Reddy and Shri Suganakara Reddy, and to assess the difference amount in the hands of Smt.Anuradha Reddy and Shri Suganakara Reddy.
Accordingly, the order/direction of the Ld.CIT(A) to reopen the assessment of Shri Suganakara Reddy and Smt.Anuradha Reddy is deleted.
In the result, the appeal of the assessee stands allowed.
Order pronounced on 10th August, 2017, at Chennai.