ITO 2(1)(1), MUMBAI vs. ASHAPURA HABITATS P. LTD, MUMBAI

Per Sanjay Garg, Judicial Member:

(2) On the facts and the circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.83,73,284/- being estimated profit rate of 10% of the receipts of the assessee, without appreciating the fact that the project was 60% complete and the agreements made with the buyers were registered with the stamp registration authority.

(3)On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.2,22,35,000/- made on account of unexplained investment u/s69B, as the assessee had not accounted for the difference in the market value of the completely constructed 29 shops surrendered by M/s Darshan Enterprises and for which the assessee did not furnish any evidence or explanation for not accounting the same in the books of accounts.

(4) On the facts and circumstances of the case and in law, the CIT(A) erred in 2 M/s. Ashapura Habitats P. Ltd. deleting the addition of Rs.8,37,829/- being advertisement expenses incurred by the assessee on behalf of other group concerns, the profits of which were not accounted for in the assessee’s total income.

(5) On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs.13,08,360/- being stamp duty expenses paid by the assessee which were to be borne by the purchasers.

(6)(a) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs.32,33,995/- in respect of deemed dividend within the meaning of sec.2(22)(e) of the I.T. Act to the extent of accumulated profits without considering the provisions of said clause (e) of sec2(22) which provides that any payment to any concern in which the shareholder is a member shall be considered as deemed dividend.

(6)(b) Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in following the decision of the Special Bench of the Tribunal in the case of ACIT vs Bhaumil Colours Pvt. Ltd. ignoring the fact that further appeal U/s260A in that case was not filed only due to low tax effect.

3 M/s. Ashapura Habitats P. Ltd. and allot 27% of the constructed premises to the owners. Such constructed premises includes 18 residential flats and 29 commercial shops. Subsequent to the said development agreement during the current financial year vide letter dt.15.3.2005, M/s. Darshan Enterprises have entered into an agreement for surrender of the above referred constructed area which was surrendered to the assessee on 25.03.2005. The value of such surrendered premises was stated at Rs.1,15,55,000/- which was subsequently paid to M/s. Darshan Enterprises by the assessee.”

According to the A.O., the assessee has paid only a sum of Rs.1,15,55,000/- towards the surrender of the above premises. Therefore, he taxed the difference of these two i.e. Rs.2,22,35,000 (3,37,90,000 - 1,15,55,000) in the hands of the assessee as unexplained investments u/s.69B. The AO also held that the project completion accounting method adopted by the assessee was wrong. He applied percentage completion method of accounting and estimated the income from the project for the year under consideration on accrual basis at the rate of 10% of the receipts at Rs. 8,37,32,840/- and added the same into the assessable income of the assessee. The AO also added a sum of Rs. 3,86,98,448/- on account of undisclosed debtors. The A.O. further disallowed advertisement expenses amounting to Rs.8,37,829/- and stamp duty expenses of Rs.13,08,360/-. Aggrieved by this order the assessee preferred appeal before the Ld. CIT(A).

Ground No.1 6. Ground No.1 is general in nature and does not require any adjudication.

Ground No.2 7. Vide ground No.2, the Revenue has agitated the action of the Ld. CIT(A) in deleting the addition of Rs.83,73,284/- being estimated profit at the rate of 10% of the receipts of the assessee.

5 M/s. Ashapura Habitats P. Ltd. from the banks on the basis of said agreements. Under such circumstances, there was no justification on the part of the AO to assess the income of the assessee at the rate of 10% of the receipts on accrual basis for the year under consideration.

Ground No.3 11. Vide ground No.3, the Revenue has agitated the action of the Ld. CIT(A) in deleting the addition of Rs.2,22,35,000/- made on account of unexplained investment under section 69B on account of difference in the market value of the constructed 29 shops and 18 flats surrendered by M/s. Darshan Enterprises. The Ld. CIT(A) has elaborately discussed this issue in paras 12 to 14 of the impugned order. It is not the case of the AO that any extra money has exchanged hands other than Rs.1,15,55,000/-. The AO estimated the market price of the flats and shops in question and added the difference as unexplained investment of the assessee under section 69B of the Act. Such an action of the AO is against the provisions of the law. It is not a case where the assessee has been found to have incurred any unexplained investment. The case of the assessee is that only 18 flats were surrendered by M/s. Darshan Enterprises and that there was not any surrender of 29 shops as has been alleged by the AO. The deal has been finalized for 18 flats only for which a sum of Rs.1,15,55,000/- has been paid by the assessee to M/s. Darshan Enterprises. It is the case of the assessee that being the builder, he is not supposed to purchase the flats or the land etc. at the market rate. He is supposed to purchase the flats or the land etc. at a lower rate and sell at a higher rate to earn the profits. Hence, the estimation of the market rate of the shops and flats by the AO and thereby calculating the difference and treating the same as unexplained investment of the assessee was not justified. Even

6 M/s. Ashapura Habitats P. Ltd. the assessee has given the sale instances where the assessee has sold the flats at a lesser rate. It is the case of the assessee that the price offered by the assessee was for 18 flats and that there was no surrender of 29 shops. The Ld. CIT(A), under the circumstances, has held that no additions on this account are warranted under section 69B of the Act.

Ground No.4 13. Vide ground No.4, the Revenue has agitated the action of the Ld. CIT(A) in deleting the addition of Rs.8,37,829/- being advertisement expenses incurred by the assessee on behalf of other group concerns, the profit of which was not accounted for in the assessee’s total income. The Ld. CIT(A) has discussed this issue in paras 15 to 17 of his order. The AO noted that the assessee had shown expenses on account of advertisement at Rs.8,37,829/-. The assessee had not claimed any expenditure in the P & L Account as the assessee has been following project completion method of accounting. The AO, however, observed that along with the advertisement of the project in question, the assessee had also mentioned about four other projects, accordingly, the corresponding advertisement expenses at the rate of 1/4th of the expenses was disallowed by him. The Ld. A.R. explained that the advertisement issued by the assessee was in respect of project in question and only in the lower part of the advertisement, it was mentioned that the assessee’s group companies were also having other projects at Dombivali, Kalyan and Mira Road.

Ground No.5 16. Vide ground No.5, the Revenue has agitated the action of the Ld. CIT(A) in deleting the addition of Rs.13,08,360/- being stamp duty expenses paid by the assessee which were to be borne by the purchasers. The Ld. A.R. of the assessee has explained that to promote the sale during the festive season, a scheme was offered by the assessee wherein the assessee had agreed to bear the stamp duty expenses etc. The said scheme was part of the business activity of the assessee and hence the expenditure in relation to the stamp duty charges etc. was rightly debited to the work in progress.

Ground Nos.6(a) & 6(b) 18. Vide ground Nos.6(a) & 6(b), the Revenue has agitated the action of the Ld. CIT(A) in deleting the addition of Rs.32,33,995/- in respect of deemed dividend under section 2(22)(e) of the Act. The AO during the assessment proceedings noted that the assessee had borrowed unsecured loans of Rs.32,33,995/- from M/s. Sanghvi Premises Pvt. Ltd. He noted that there were common shareholders in both the companies and their shareholding pattern was more than 20%. He, therefore, held that the common shareholders were having more than 10% of voting power and therefore the loan would fall within the ambit of section 2(22)(e) of the Act and he accordingly taxed the amount Rs.32,33,995/- in the hands of the assessee as deemed dividend.

8 M/s. Ashapura Habitats P. Ltd. and submitted that M/s. Sanghvi Premises Pvt. Ltd. was holding only 0.39% shares of assessee company and the loan given by the lender was for the company and not for the benefit of shareholder. The Ld. CIT(A), considering the submissions of the assessee, observed that M/s. Sanghvi Premises Pvt. Ltd. was having less than 10% shareholding in the assessee company and that the provisions of section 2(22)(e) of the Act were not applicable to the case of the assessee. The loan was not used for the benefit of shareholders but for the business of the company. Considering the above facts, he deleted the impugned additions.