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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
आयकर अपीलीय अिधकरण, रायपुर �यायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR �ी र�वश सूद, �याियक सद�य एवं �ी अ�ण खोड़�पया, लेखा सद�य के सम� । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM (Assessment Year: 2011-12) Assistant Commissioner of Vs M/s. TC Buildcon Pvt. Ltd. Income Tax, Circle 1(1) Vasudev, B-5, Sector-5, Raipur, (C.G.) Devendra Nagar, Raipur (C.G.) PAN: AACCT4516F Cross Objection No. 26/RPR/2019 (Arising out of (िनधा�रण वष� / Assessment Year : 2011-12) Assistant Commissioner of Vs M/s. TC Buildcon Pvt. Ltd. Income Tax, Circle 1(1) Vasudev, B-5, Sector-5, Raipur, (C.G.) Devendra Nagar, Raipur (C.G.) PAN: AACCT4516F (अपीलाथ� /Appellant) (��यथ� / Respondent) .. िनधा�रती क� ओर से /Assessee by : Shri Sunil Kumar Agrawal, CA राज�व क� ओर से /Revenue by : Shri V.K. Singh, CIT-DR सुनवाई क� तार�ख / Date of Hearing : 16-08-2023 घोषणाक� तार�ख/Date : 27-10-2023 of Pronouncement आदेश / O R D E R Per Arun Khodpia, AM:
The captioned appeal is filed by the Revenue in Cross Objection is filed by the assessee in CO No. 26/RPR/2019, against the order of Ld Commissioner of Income Tax (Appeals)-1, Raipur, dated 04/04/2019, arising out of the order of Ld. Assessing Officer u/s 144 r.w.s. 147 of the I.T. Act, 1961 dated 12/11/2018.
2. The Grounds of Appeal filed by the Revenue are as under:
3. The Grounds of the Cross Objection filed by the assessee are as under:
1. 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has correctly deleted the addition made by the Ld. AO at Rs. 1,58,39,320.
2. The assessee craves leave to add, urge, alter, modify, and withdraw any ground/grounds before or at the time of hearing of the appeal.
The brief facts of the case culled out from the records are that the assessee has filed his return of income on 27.09.2011 declaring total income of Rs. 3,96,34,074/- from real estate and LTCG. During the previous year, the assessee and M/s Biltech Engineering Pvt. Ltd. have sold a joint ownership property on a net value of Rs. 68,05,400/-, wherein the share of assessee’s was 50% i.e. Rs. 34,02,700/-. This property was a part of the residential project "Banyan Tree Enclave" at Shankar Nagar, Raipur. The assessee had entered into joint venture on 28.12.2006 with M/s Biltech Engineering Pvt. Ltd. (AACCB2418A) for development of 1.977 Hectares of land situated at Shankar Nagar, Raipur. As per Clause-25 of the Joint development agreement, the assessee and the developer, M/s Biltech Engineering Pvt. Ltd. were entitled to sell 29% and 71 % of flat and constructed areas including the undivided proportionate share in the common areas respectively. It is observed by the Ld. AO that, however, no specific details of flats/villas/lands were earmarked in the agreement which could ascertain the fact that the two properties pertain to M/s Biltech Engineering Pvt. Ltd. During the previous year, the assessee has shown cash receipt of Rs. 2,70,00,000/-, seven villas valued at Rs. 2,25,75,000/-, two flats valued at Rs. 53,87,200/- and two shops valued at Rs. 5,54,400/- totaling to Rs. 5,55,16,600/- as sale consideration and after deducting indexed acquisition cost of land at Rs. 1,58,39,316/- has computed Rs. 3,96,77,284/- as LTCG. According to the Ld. AO, since, the assessee had entered into joint venture with M/s Biltech Engineering Pvt. Ltd. On 28.12.2006 and the impugned land was converted into tock-in-trade, the entire amount of Rs. 5,55,16,600/- is business receipt instead of sale consideration of asset. Hence, the assessee was not entitled to claim LTCG and could not compute the receipt of Rs. 5,55,16,600/- under the head LTCG. Accordingly, income of Rs. 1,92,42,016/- [Rs. 5,55,16,600- (Rs.3,96,77,284 - Rs. 34,02,700)] escaped assessment for the relevant A.Y. 2011-12.
4.1 After recording reason to believe, proceedings u/s 147 of the Act were initiated on 26.03.2018, subsequently, with the necessary approval from the competent authority i.e. Pr. Commissioner of Income Tax-1, Raipur, notice u/s 148 of the Act dated 30.03.2018 served upon the assessee through system as well as through registered post. In response to this notice, the assessee did not file return of income but vide his letter dated 11.04.2018 raised an objection that the notice u/s 148 of the Act was delivered on 10.04.2018, after the limitation period. Notice u/s 142(1) of the I.T. Act, 1961 dated 19.07.2018 was issued to the assessee but the assessee made no compliance. Hence, vide a letter dated 16.10.2018 Ld. AO replied to the objections of the assessee, with a request to comply the legal notice. However, the assessee did not comply. Again, notice u/s 142(1) of the I.T. Act, 1961 dated 25.10.2018 issued by requesting the assessee to explain the issue that receipt of Rs. 5,55,16,600/- should have been compute as business income of the previous year, but, the assessee again submitted that the system generated notice was not received by him timely hence, the notice ceases its validity. Further, the assessee objected that the notice sent by registered post was also not correct as at the time of filing of return the address of the assessee was different. Ld. AO relied on the order of Hon’ble Delhi High Court in the case of CIT vs. Jagat Novel Exhibitors (P) Ltd. (2012)67DTR/248 CTR217/207 Taxman 243/356 ITR 559 (Delhi), wherein the Court held that section 292B has a salutary purpose and ensures that technical objections, without substance and when there is effective compliance or compliances with intent and purpose, do not come in a way or affect the validity of the assessment proceedings. In the case of Sky light hospitality LLP v/s ACIT the Hon'ble Supreme Court (in 2018) held that wrong name mentioned in said notice was merely clerical error, which could be corrected u/s 292B". The fact is that notice u/s 148 of the Act was generated on 30.03.2018 and simultaneously sent to the assessee. The proof of date of dispatch of the notice is the date of generation of notice itself which is 30.03.218 at 7:15 P.M. There is no dispute. Alternatively, the system generated notice 148 of the Act dated 30.03.2018 was dispatched through registered post on 31.03.2018 which was returned back undelivered is available on the record. The proof of dispatch of the notice may also be tracked from consignment No. "RC22538585IN". The assessee has grievance that the registered pot bears current address of the assessee "T. C. Buildcon Pvt. Ltd., Vasudev, Raipur — 492009 (Chhattisgarh)" instead of old address of the assessee "T.C. Buildcon Pvt. Ltd., Tiwari Niwas, Naharpara, Raipur — 492009 Chhattisgarh)". The contention of the assessee is not accepted by the Ld. AO. Both the notices are valid within the provisions of Section 282 of the I. T. Act, 1961. As per above discussion, it was the view of the Ld. AO that the assessee is unnecessarily challenging the validity of the notice u/s 148 of the Act dated 30.03.2018 instead of complying the notices. A final opportunity notice u/s 144 issued on 05/11/2018 through e-mail and dak, giving an opportunity to the assessee to appear on 09/11/2018. But again, no compliance by the assessee. Hence, Ld. AO has decided to assess the income of the assessee u/s 144 of the I. T. Act, 1961. Considering the facts and circumstances of the case, the income of the assessee is assessed as under: - Income from Business and Profession: Receipt : Rs. 5,55,16,600/- Expenses : Rs. 43,210/- -------------------------------------------------- Total Income : Rs. 5,54,73390/- 4.2 Aggrieved with the aforementioned addition and the order of Ld. AO, assessee preferred an appeal before the Ld. CIT(A), wherein assessee’s contentions pertaining to the addition made on account of assumption of invalid jurisdiction u/s 47 and also on merits were accepted by the Ld. CIT(A) and, accordingly, the addition imposed by the Ld. AO was deleted.
4.3 Being dissatisfied with the findings of Ld. CIT(A), now the department is before us in the present appeal.
Before dealing with the grounds of appeal raised by the department, it is brought to our notice, that the Ld. AR of the assessee has submitted two additional grounds on 11/01/2023 under the cross objection filed by the assessee. The additional grounds raised are extracted as under:
5.1 The aforesaid Additional grounds raised by the assessee are allowed for consideration in view of the settled position of law laid down by Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383/157 CTR 249 (SC), therefore, we are first taking up the additional legal grounds raised by the assessee first time before us, which goes to the route of matter.
5.2 With respect to, additional grounds No. (1), wherein the Ld. AR has allegedly mentioned that the reasons recorded for the escaped income of Rs. 1,92,42,016/- was merely based on presumption and surmises without any tangible material, therefore, in violation of section 45(2) r.w.s. 2 (47)(v). Ultimate addition confirmed was for Rs. 42,34,074/- only, therefore, the addition made was not in conformity with the reasons recorded and, thus, in absence of reason to believe as mandated by law u/s 147, which is sine qua non for assuming valid jurisdiction to reopen the case, the reopening u/s 147(148) is liable to be quashed. Reliance was place on:
TANMAC India vs DCIT(2017) 78 taxmann.com 155 (Mad HC),wherein, Hon’ble Madras High Court has held that: “Where assessee firm paid certain amount to partner who retired from firm and claimed deduction of same and AO allowed the same while
processing the return, but latter on, reopen assessment on the basis of return and enclosure thereto, which were already part of record, reopening was not justified.”
Tupperware India Pvt. Ltd. vs CIT(2016) 60 taxmann.com 350 (Del HC). In this case Hon’ble Delhi HC has delt with the aspect pertaining to contract manufacturing agreements entered into by the assessee with two companies for manufacturer of plastic products, the relevant extract of the decision is culled out as under: “Where contract manufacturers were carried out manufacturing activity for assessee and it was in assessee’s business interest that all tax liabilities of manufacturer were duly satisfied payments towards tax liabilities of contract manufacturer was to be regarded as business expenditure.”
Prakriya Pharmacem vs ITO (2016) 66 taxmann.com 149(Guj HC), wherein Hon’ble High Court has held that, “Where AO merely mentioned about transactions in notice for reassessment and nothing more and thus he read not stated how he had come to reason to believe that income has escaped that assessment, such notice lacked validity”.
4. CIT vs Orient Craft Ltd (2013) 354 ITR 536 (Del HC). In this judgment Hon’ble Delhi HC has held that: “In absence of any tangible material available with AO to form requisite relief regarding escapement of income, reopening u/s 147 of assessment made u/s 143(1) is without jurisdiction.”
5.3 On the other hand, Ld. CIT(DR) opposed the objection raised by the assessee in the additional ground that assumption of the Jurisdiction of the Ld. AO u/s 147 was invalid, is a wrong contention of the assessee, since the AO has verified the information available on record, further the explanations and details were called for the assessee, which were submitted in response on 23/03/2018 and based on such material the reason to belief have been establish, recorded and thereupon the approval of the Ld. PCIT was obtained wherein Ld. PCIT has mentioned that “Yes, I am satisfied on the reason recorded by the AO. Sanctioned granted u/s 151 of the I.T. Act, 1961 for issue of notice u/s 148 of the Act”. Only after complying with all the mandatory provisions of law the notice u/s 148 was issued to the assessee on 30/03/2018. Since, the reasons u/s 148(2) and the statutory notices were also served on the assessee within the stipulated time, however, the assessee choses not to respond on the merits of the case but have only agitated against the validity of the issuance of notice and assumption of jurisdiction in reopening of the assessment u/s 147 of the Act. In such circumstances Ld. AO has rightly completed the assessment u/s 144 r.w.s 147 of the I.T. Act and, therefore, the additions made therein are sustainable. The finding of the Ld. CIT(A) are not in proper consideration of the facts of the case, since the assessee itself has converted its investment into stock in trade, therefore, the income generated from transfer of such investment should be considered as business receipt and not the income chargeable under the head capital gains.
We have considered the rival contention, perused the material available on record and have considerately gone through the case laws pressed for our consideration. On perusal of the Joint Development Agreement, as also observed by Ld. CIT(A) that according to the said agreement wherein the assessee company has entered into with M/s Biltech engineering Pvt. Ltd., as per covenants of the said agreement the assessee was only concerned with securing and obtaining the consideration of land from the developer in lieu of granting the developer, rights to develop the land. The owner and the developer shall be entitled to 29% and 71% of flats and constructed areas including the Undivided proportionate share in the common areas/ facilities. The Developer shall be responsible for keeping and holding possession of the said land and to construct the building or buildings and to do the development work. According to the said agreement the Developer has agreed to develop the said property and to employ its own funds and resources for the development of the property and construction of the building/s. In case of a joint development agreements, how to decide the taxability of the income received by the owner of the land, there are specific provisions available in the Act, which under the similar facts of the case, have been discussed and decided by the coordinate bench of ITAT, Hyderabad ‘A’ Bench in the case of DCIT Vs. Nagam Suguna, reported in (2022) 193 ITD 436 (Hyd), wherein it is observed that:- 8. We have heard the rival submissions through video conference and carefully perused the material on record. From the facts of the case, it is apparent that the assessee has only entered into a joint development agreement with the promoter of the project. As a result, the assessee has contributed her land for joint development, and by virtue of the agreement she is entitled to receive 32.30 per cent of the total saleable constructed/developed area in the project. Hence, it is evident that during the relevant assessment year the assessee has contributed her immoveable property for the joint development of the property and eventually when her share in the developed property is sold, she will be benefited by gain or loss as the case may be unless the assessee opts to retain the developed property. If the assessee opts for sale of her developed property, provisions of s. 45(2) of the Act may apply and long-term capital gain for the sale of the land as well as profit from the sale of the developed property would be computed in accordance with the provisions of s. 45(2) r/w s. 48 of the Act and under the head "Income from business" respectively. And if the assessee opts to retain her share in the developed property, then long-term capital gain shall accrue to the assessee when the transfer of the immovable property pertaining to the share of land assigned to developer takes place. At this juncture it is pertinent to mention that the amount received by the assessee of Rs. 7 crores is only an interest-free refundable security deposit for ensuring the project to be completed as per the terms of the agreement. Further, it is also obvious that the assessee has only permitted the developer to develop the project in her land. Therefore, it cannot be construed that the possession of the immoveable property of the assessee is vested with the joint developer as per the provisions of the Act. Considering these facts and circumstance of the case of the assessee it is apparent that the assessee shall not be liable to be taxed for entering into a joint development agreement when neither the assessee have received any consideration nor handed over possession of the immovable property during the relevant assessment year. It is ordered accordingly. Hence the appeal of Revenue is devoid of merits.
6.1 According to the aforesaid findings of the ITAT, it is explicitly clear that the provisions of section 45(2) r.w.s. 48 for Capital Gain and “Income from Business and Profession” shall apply in the present case also. AO’s belief that the entire amount received/credited to P&L by the assessee shall be taxable in the hands of assessee under the head ‘Business and Profession”, since the same are treated into stock-in-trade by the assessee and therefore benefit of indexation claimed by the assessee is not available. Though, Ld AR has submitted before us that factually the consideration received by the assessee as per its entitlement under Joint Development Agreement dated 28.12.2006, in the form of monetary consideration of Rs. 2.70/- Crore and in kind has received 11 properties (7 Villas + 2 Apartments + 2 Shops), only the monetary consideration received is taxable in the relevant year and the properties which are sold in the AY 2015-16 and 2018-19 should have been taxed in the year in which such transaction of sale has been materialized. Since the assessee himself has treated and accepted the accrual/receipt of the value of the said properties in the year under consideration, the year of taxing the same is not in dispute and thus such contention is only academic in the nature in present appeal.
6.2 For Extract of provisions of section 45(2) applicable in the present case is reproduced for better understanding: 45(2) “Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.”
6.3 In the present case since the assessee company as the owner has agreed to sell and transfer its rights, title, and interest in the land in favour of the developer as per the requirement of Developer, thus has contributed in the form of land in the Joint Development Agreement, in turn the assessee as consideration towards the extinguishment of rights in the land has received 29% of the properties constructed apart from cash consideration of Rs, 2.70 Crore. In such a case taxability of the income which the assessee has credited on accrual basis and offered for taxation in the relevant assessment years requires to be worked out under the provisions of section 45(2) r.w.s. 48, i.e. long-term capital gain for the sale of the land as well as profit from the sale of the developed property would be computed in accordance with the provisions of s. 45(2) r.w.s. 48 of the Act and under the head "Income from business" respectively. Thus, the reasons recorded by the Ld AO u/s 148(2) treating the income to chargeable under the head Business and Profession are found to be under wrong appreciation of facts and erroneous application of law, which is not permissible. This aspect is covered by the judgment relied upon by the assessee, in the case of Prakriya Pharmacem Vs. ITO (supra), wherein Hon’ble Gujarat High Court has categorically held that, under the circumstances, the reasons recorded by the Assessing Officer to form belief that the income chargeable to tax had escaped assessment lack validity for the simple reason that an attempt was as made by the AO to apply certain provisions of the Act, which were not apply in the case on hand. Thus, the notice u/s 147 for reopening is set aside. Relevant extract of the decision in Prakriya Pharmacem (supra) is as follows:
With this narrow scrutiny permissible at this stage we would examine the reasons recorded by the Assessing Officer for issuing the impugned notice. We may recall that in the reasons provided it is stated that the assessee has transferred 5,30,410 shares during year under consideration whose market value on the date of transfer was Rs. 7.63 crores (rounded off). This transfer had taken place in favour of M/s Nerka Chemicals Pvt Ltd without consideration under transfer deed dated 26.02.2010. In view of such facts, the Assessing Officer has reason to believe that the income chargeable to tax in excess of Rs.1,00,000/- had escaped assessment.
For multiple reasons we are convinced that these reasons lack validity. The first and foremost, reasons themselves record merely the transaction and nothing more. Quite apart from there not being live link between the first portion of the reasons recorded, namely, by merely duplicating the recording of transaction of transfer of sizable number of shares having considerable market value without consideration and second portion of the reasons where he concluded that the income chargeable to tax had escaped assessment.
Quite apart from this, even on greater scrutiny of the statutory provisions, we find that the transaction in question did not invite any tax liability on the petitioner. Section 45 of the Act, as is well known, pertains to capital gains. Sub-section (1) thereof in particular provides for charging of tax on any profit or gain from transfer of capital assets as deemed income of the assessee for the previous year in which transfer took place. Section 47 of the Act pertains to transaction not regarded as transfer. Sub-clause (iii), which is relevant for our purpose reads as under: "47. Nothing contained in section 45 shall apply to the following transfers :— (i) and (ii) ** ** (iii) any transfer of a capital asset under a gift or will or an irrevocable trust: Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf." Under sub-clause (iii) of section 47 of the Act, therefore, nothing would apply to any transfer of capital assets under a gift or will or irrevocable trust. It is not the case of the Assessing Officer that the present case is not one of transfer of asset under a gift. In terms of sub-clause (iii) of section 47 of the Act, thus such transfer would not be governed by section 45 of the Act. For apparent reasons, the proviso to sub-section (iii) of section 47 of the Act would not apply to the present case, since it applies to any transfer under gift or irrevocable trust under capital asset in the nature of shares, debentures or warrants allotted by a company to its employees under Employees' Stock Option Plan or Scheme. Admittedly, this is not such a case. This proviso is in the nature of exclusion to main provisions of sub-clause (iii) of section 47 of the Act. Under the circumstances, the case on hand would be governed by the main body of sub-clause (iii) of section 47 of the Act and consequently, the provision of section 45 of the Act pertaining to capital gain would not apply.
An attempt was made by the Assessing Officer to apply further to proviso to section 48 of the Act. Section 48 of the Act pertains to mode of computation. It essentially provides that the income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely, expenditure incurred wholly and exclusively in connection with such transfer, and the cost of acquisition of the asset and the cost of any improvement. Further proviso to section 48 of the Act which the respondents want to press into service reads as under: "Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section."
For the simple reason this proviso would not apply in the case on hand. Firstly section 48 of the Act itself provides for mode of computation of income chargeable as capital gain. Sub-clause (iii) of section 47 of the Act excludes application of section 45 of the Act in case of certain transfers. By no application of section 48 of the Act, such exclusion can be ignored. Section 48 of the Act only aims to provide for formula for computation of income chargeable as capital gain. Further, this proviso provides for computation of income which is referred to in proviso to sub-clause (iii) of section 47 of the Act, and thus, would cover cases which are to be excluded from the purview of sub-clause (iii) of section 47 of the Act. As noted, the case on hand does not fall within the proviso to sub- clause (iii) of section 47 of the Act, and therefore, mode of computation provided under section 48 of the Act would simply not apply. 14. Under the circumstances, we hold that the reasons recorded by the Assessing Officer to form belief that the income chargeable to tax had escaped assessment lack validity. The Impugned notice is, therefore, set aside. The petition is allowed and is disposed of.
6.4 In view of the aforesaid observations, facts and circumstances and respectfully following the ratio of law laid down by Hon’ble Gujrat High Court in the case of Prakriya Pharmacem (supra), it is apparent that the belief formed by the Ld. AO was misconceived, which lead to recording of reasons without considering the provision of sections 45(2) r.w.s. 2(47) and section 48 of the Act, therefore, such proceedings for initiating the reopening assessment under the provisions of section 147/148 to charge the income escaped assessment was bad in law, thus, can not be held as valid. Accordingly, notice issued u/s 148 is set aside and the order passed u/s 147 r.w.s. 144 is quashed.
6.5 Since, the legal ground No. 1 raised by the assessee under its CO No. 26/RPR/2019, pertaining to validity of jurisdiction is decided by us, in favor of the assessee by quashing the order passed u/s 147 in terms of our aforesaid observations, the additional ground raised by the assessee, grounds of CO in support of the order of Ld. CIT(A), and the grounds raised by the revenue in are rendered academic, therefore, the same are not adjudicated and left open.
7 In the result CO filed by the assessee is allowed and the appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 27/10/2023.