Skyline Great Hills, Mumbai vs Assessee on 19 March, 2013

8/19/2019 Skyline Great Hills, Mumbai vs Assessee on 19 March, 2013

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Cites 13 docs - [View All]Section 2(22)(e) in The Income- Tax Act, 1995The Income- Tax Act, 1995Section 2(47) in The Income- Tax Act, 1995The Transfer of Property Act, 1882Section 54 in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - Mumbai

Skyline Great Hills, Mumbai vs Assessee on 19 March, 2013

आयकर अपील य अ धकरण ,

धकरण मबं

◌ ुई यायपीठ 'ई 'मंब

◌ ुई ।

IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI

BEFORE S/SHRI B.R.MITTAL (JM) AND RAJENDRA (AM)

सव ◌ी बी .आर

बी आर .

आर म ल ,

ल या यक सद य एव ं◌ी राज े ,लेखा सद य क◌ ेसम ।

आयकर अपील स.ं /I.T.A. No.6618/M/2012

( नधारण वष / Assessment Year:2009‐2010)

Skyline Great Hills, बनाम /

बनाम ITO, Ward 21(3)(2),B‐204, Skyline Villa Vs. Building, C‐11, 5 t h floor,

Navbharat Compound, Pratyakshakar Bhavan, Bandra,

Near Trinty Society, Mumbai‐51

Powai, Mumbai‐76

थायी ल ेख ◌ा स ं . /जीआइआर स ं . /PAN/GIR No. : ABAFS 1107 R

(अपीलाथ /Appellant) .. ( यथ / Respondent)

अपीलाथ ओर स े / Appellant by : Shri Vijay Mehta

यथ क ओर स/ेRespondent by : Shri Girija Dayal

सनवाई

◌ ु क तार ख / Date of Hearing: 19.3.2013

घोषणा क तार ख /Dat e of Pronouncement: 8.5.2013

आद ेश / O R D E R

Per B.R.Mittal, JM:

Lodha® The Park, MumbaiLavish 2, 3, 4 & 5 Bed Residences With a 7-acre Private Park at Worli

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The assesee has filed this appeal for assessment year 2009-2010 against order dated 21.9.2012 of

ld CIT(A)-32, Mumbai on following grounds:

"1.1 The ld. CIT (A) erred in confirming the addition of Rs.23,63,010/- u/s 2(22)(e) of

the I.T. Act 1961, not appreciating that the appellant firm was not a registered as well

as beneficial share holder of the company, M/s. Skyline Mansions Pvt. Ltd. and

accordingly the provisions of section 2(22)(e) were not attracted to the amount of security, deposit received by the appellant firm from M/s. Skyline Mansions Pvt. Ltd.

1.2 The ld CIT (A) erred in confirming the addition of Rs.23,63,010/- as deemed

dividend u/s 2(22)(e) of the IT. Act 1961, on account of deposit received from M/s.

Skyline Mansions Pvt. Ltd. towards joint development of land falling under C.T.S

No.38, Village Tirandaz, Powai, Mumbai, in spite of arriving at the conclusion that the

joint development agreement dt. 4th April 2008 represented a genuine business

transaction.

Assessment Year: 2009-2010) 1.3 The ld CIT (A) erred in arriving at the conclusion

that the security deposit received by the appellant firm from M/s. Skyline Mansions

Pvt. Ltd. in respect of the agreement for joint development of property was partly for business considerations and partly for non-business considerations.

2.1 The ld CIT (A) erred in enhancing the assessed income by a sum of

Rs.28,41,34,500/- in respect of a new source being "business income" allegedly arising

from sale of FSI under joint development agreement dt. 4" April 2008.

2.2 The ld CIT (A) erred in enhancing the income in respect of a new source which was

not considered by the id AO in the assessment nor was any ground in respect thereof

raised before the id CIT(A).

3. On the merits of addition of Rs. 28,41,34,500/- (enhanced income) as business

income arising on sale of FSI.

3.1 The ld. CIT (A) erred in arriving at the conclusion that the joint development

agreement dt. 4th April 2008 led to business income of Rs. 28,41,34,500/- arising in

the hands of the appellant in the year under appeal.

3.2 The ld. CIT (A) erred in not appreciating that under the joint development

agreement, the appellant had not sold or transferred FSI but had entered into a

business transaction to commercially exploit the potential of development rights held

by the assessee firm alongwith the owner of adjoining plot of land.

3.3 The ld. CIT (A) erred in not appreciating that till the time the regulatory

sanctions/permissions were finally obtained on 1st Feb. 2011 and license to enter upon

the said property was granted on 25.04.2011 in respect of the land in question, there

was no transfer of significant risks and rewards in favour of a third party leading to

generation of revenue in the hands of the appellant.

3.4 The ld. CIT (A) erred in determining the profit on sale of FSI by taking into

account the value as per stamp valuation authority as the "consideration for sale' not

appreciating the fact that as the development rights were held by the appellant as

"stock-in-trade", the value as per stamp valuation authority had no role to play in

working of profit/income".

2. In respect of Ground No.1 of appeal, the relevant facts giving rise to this appeal are that

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assessee is a partnership firm engaged in the business of developing Real Estate. For the

assessment year under consideration, assessee filed the return of income on 26.9.2009 declaring

total income at Rs.11,77,550/-. During the course of Assessment Year: 2009-2010) assessment

proceedings, the Assessing Officer observed that assessee firm has shown deposit of

Rs.54,68,90,000/- from M/s. Skyline Mansions Pvt Ltd., (formerly known as Bahupriya

Properties Pvt Ltd.,), hereinafter to be referred in short 'SMPL'. AO asked the assessee to give

nature of deposit, purpose for deposit and to give copy of agreement executed in this regard, if

any. In response thereto, assessee vide letter dated 12.9.2011 submitted as under:

"The assessee has received deposit form M/s Bahupriya Properties Pvt. Ltd. towards

the proposed joint development of land bearing S.No. 38 at village Tirandaz. A portion

of the land falling under S.No. 38 is held by M/s. Bahupriya Properties Pvt. Ltd.

Similarly, the assessee also holds a part of the land falling under S. No. 38 at village

Tirandaz. The land held by the assessee appears as part of stock in trade under

schedule F of the Balance Sheet at 31st March_2009. Both the parties intend to

develop the said land jointly. Presently, the land is under no Development Zone (NDZ)

as per the prevalent development regulations of BMCC. Accordingly, no development

in foreseeable future is anticipated by the partners of the assessee firm."

3. Assessing Officer has stated that assessee has not submitted any agreement in this regard. That

assessee was again asked vide order sheet noting dated 13.09.2011 to give copy of agreemententered into with SMPL. That assessee finally submitted copy of the agreement alongwith its

letter dated 03.11.2011. The relevant part of the said letter is reproduced by the Assessing Officer

in para 5.2 as under:

"The deposit received from M/s. Bahupriya Properties Pvt. Ltd. is towards the joint

development agreement dated 04.04.2008 between the said company and the

assessee firm. The joint' development agreement is executed with regards to joint

development of contiguous pieces of lands owned by both the parties independently at

village Tirandaz, Near Powai, Mumbai."

4. Assessing Officer after considering the agreement and shareholding pattern of SMPL has

stated that assessee has accepted deposits from its group companies i.e. SMPL in which public

are not substantially interested. That Assessing Officer has given details of partners of the

assessee firm and shareholding pattern of SMPL at page 3 in para 5.3 of the assessment order as

under:

Assessment Year: 2009-2010)

5. Assessing Officer has stated that in the financial year relevant to assessment year under

consideration, SMPL had reserves and surplus to the tune of Rs.23,63,010/-. Assessing Officer

doubted genuineness of the agreement dated 4.4.2008 under which assessee has stated to have

received deposit from SMPL towards joint development of land bearing S.No.38 at village

Tirandaz, Powai, Mumbai. He has stated that true nature of the said amount is in the nature of

loan or advance as contemplated by section 2(22)(e) of the Act. The assessee's story of formation

of joint venture & joint venture development agreement is an after thought to avoid application of

provisions of section 2(22)(e) of the Act. Assessing Officer after considering the decision of

Hon'ble Delhi High Court in the case of CIT vs. National Travel Services, 347 ITR 305/249 CTR

540 has made the addition of Rs.23,63,010/- u/s.2(22)(e) of the Act, the extent of reserves and

surplus available during the accounting year relevant to assessment year under consideration.

Thus, AO completed the assessment at Rs.35,60,560/-. Being aggrieved, assessee filed appeal

before ld CIT(A).

6. On behalf of assessee, it was contended that the AO did not appreciate the import of

transactions as per development agreement dated 4.4.2008, which was a Assessment Year: 2009-



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2010) commercial transaction between the assessee and SMPL. That the partners of the assessee

were also the shareholders in SMPL, was only incidental. Before ld CIT (A), clause 23 of the said

development agreement dated 4.4.2008 was referred to and stated that it is specifically

mentioned that the parties had entered into the said agreement on principal to principal basis

and nothing contained therein shall be deemed to be a partnership or joint venture between the

concerned parties. It was also contended that AO doubted the genuineness of the said agreement

only on account of delay in registering the agreement as registration was done after a period of 43

months. It was contended that the agreement was got registered only after the receipt of requisite

approvals and commencement certificates from Municipal Corporation of Greater Mumbai

(MCGM) on 1/2/2011. It was also contended that the stamp duty paid including the penalty for

registering the agreement dated 4/4/2008 on 20/10/2011 was Rs.78,89,100/-, which is more

than 5 times the tax levied by AO on the assessee u/s.2(22)(e). Hence the conclusion of the

Assessing Officer that the agreement between the assessee and SMPL was only a make belief

transaction to cover up the transfer of funds by SMPL to assessee firm establishes the fallacy of

the conclusion of the Assessing Officer. It was contended that the said agreement between the

assessee and SMPL is a genuine transaction of joint development of land owned by the assessee

and SMPL and the belief of the AO is guided merely by suspicion. Hence, the said amount of

Rs.54,68,90,000 was received by the assessee in the course of business transaction, which is

outside the ambit of section 2(22)(e)of the Act.

6.1 It was contended that assessee is neither a registered shareholder nor a beneficial shareholder

of SMPL and in view of the decision of ITAT Special Bench in the case of Bhaumik Colour Private

Ltd 118 ITD 1 (SB) and the decision of Hon'ble Bombay High Court in the case of Universal

Medicare Private Ltd. 324 ITR 263 (Bom), the addition of deemed dividend can be made in the

hands of registered shareholder as well as beneficial shareholder only.

7. Ld CIT(A) did not accept the contention of the assessee. Ld CIT(A) has stated that the test for

application of section 2(22)(e) is whether the amount received by the assessee from SMPL of

Rs.54,68,90,000/- was wholly towards a business transaction only or partly it was in nature of

business receipts and partly for non business considerations. Ld CIT(A) has stated that the joint

development agreement dated Assessment Year: 2009-2010) 4.4.2008 cannot be said to be a

make belief agreement. It cannot be said that there was no element of business transaction in theagreement dated 4.4.2008 and the amount received had no element of business receipt at all. The

relevant part of ld CIT(A) in regard to above conclusion is at pages 5 to 6 of the impugned order,

which read as under:

"The appellant firm is engaged in the business of real estate development and during

the year the income from construction and sale of flats has been shown in the P&L a/c.

It is also noted that the land for which the development rights have been given is at

survey No.38 admeasuring 32,262.38 sq mts whose value including development work

carried out on the said land is appearing in schedule 'F' of the balance sheet as stock in

trade at Rs. 14,00,10,000 as on 31/03/2009. On the other hand, the sum of Rs

54,68,90,000 received from M/s. Skyline Mansions Pvt. Ltd. is appearing as 'deposit'

in schedule 'D' of balance sheet under the head other advances. Regarding the

observation of AO of not transferring the assets to the joint venture and not

maintaining separate books of account etc for the joint venture, I agree with the

contentions of the Ld. AR that the AO has failed to appreciate that as per clause 23 of

the agreement dated 04-04-2008 it was a joint development agreement between the

appellant and the company on principle to principle basis and it was not a joint

venture agreement at all. The AO suspected the genuineness of the agreement dated

04/04/2008 on grounds that the said agreement was not registered immediately after

04/04/2008 and it was registered only after the date when the AO asked for the copy

of the agreement during the assessment proceedings on 13/09/2011. Whether the

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agreement dated 04-04-2008 is registered or not or the fact that the same has been

registered after delay of 43 months, would not make the agreement void or not

genuine. The registration of documents after delay is also lawfully admissible under

the registration laws after payment of requisite penalty. In this case also the appellant

has paid penalty of Rs.36,47,650/- at the time of registration of confirmation deed of

the agreement on 20-10-2011. The said land is appearing as stock in trade in the

balance sheet of appellant and subsequently the plans have also been approved and

commencement certificates have been obtained for construction on the said land also.

Hence the joint development agreement dated 04- 04-2008 cannot said to be a make

belief agreement because no one would pay stamp duty of Rs.42,41,450/- and penalty

of Rs. 36,47,650/-totaling to Rs.78,89,100/-to avoid provisions of 2(22)(e) when the

tax itself leviable on deemed dividend of Rs. 23,63,010 assessed by the AO is much

lesser. Hence it cannot be said that there was no element of business transaction in the

agreement dt 04.04-2008 and that the amount received had no element of business

receipt at all."

8. Ld CIT(A) having held so, has further stated that the entire amount of Rs. 54,68,90,000/-

received by the assessee cannot be said to be business receipts because the market value of the

land itself has been valued by stamp valuation authorities at the Assessment Year: 2009-2010)

time of registration of confirmation deed on 20/10/2011 at Rs.42,41,44,500/-. Ld CIT(A) has

stated that receipt can be business receipt only when it is received as per commercial business

considerations and not for any other non-business considerations even if it is received from a

person with whom recipient is having business dealings. That the quantum of receipts should also

be commensurate with the value of business transaction on principles of commercial prudence.

Ld CIT(A) has stated that assessee has stated that the said amount received is security deposit.

However, ld CIT(A) has stated that the security deposit is normally taken at small percentage of

the value of transaction or asset which is subject matter of the transaction. He has stated that

normally security deposit is accepted in transaction when the contracting parties are not closely

connected to each other to ensure the performance and protect the interest of transferor. He has

stated that assessee and SMPL are closely connected as partners, were having more than 10%

shareholdings of SMPL and assessee had only granted development rights of land without

conveying the title. There was no need at the first place to take a security deposit at all for such

transaction. It was SMPL who was going to develop the land by incurring huge construction cost

and, therefore, if SMPL did not complete the development as per agreement, it was SMPL who

was to suffer the loss and not the assessee. Ld CIT(A) has stated that though in principle, the

department cannot step into shoes of the businessman to decide as to how he should have done

its transaction but the same needs to be done as per commercial principles, if one has to claim

any particular benefit under the Act. Ld CIT(A) has stated that if at all some deposit was

considered appropriate in the wisdom of contracting parties, it could have been taken only as per

commercial principles in order to claim that the entire amount was in nature of business receipt

only and nothing else. Ld CIT(A) has stated that in the agreement dated 4.4.2008, though it is

mentioned that SMPL shall give security deposit but there is no mention of the quantum or

purpose or period of the security deposit. Ld CIT(A) has stated that in absence of any

quantification of security deposit in agreement itself, it cannot be said that entire amount of Rs.

54,68,90,000/- received from SMPL is for business consideration only in terms of agreement

dt.4.4.2008. The entry of the sum as security deposit in books of account cannot be conclusive

unless in sum and substance they conform to the nature of the receipts. Ld CIT(A) has stated that

as per clause 17 of the agreement, the security deposit was to be received towards the cost of

construction. Though cost of 16500 sq mts of constructed FSI, which was the consideration to be

received as per the said agreement, was fixed in the agreement in Assessment Year: 2009-2010)

terms of money's worth but the cost of the 16,500 sq mts of constructed FSI was fixed at Rs 16.5

Crores as the market value was at Rs.42,41,44,500/- by the stamp valuation authorities at the

time of registration of agreement. Ld CIT(A) has stated that assessee could at best take 100% of


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market value of Rs.42.41 crore for ensuring the performance of contract, meaning thereby that

the maximum amount receipt on business considerations could have been Rs.42,41,44,500/-

only. Since the assessee has received the sum of Rs, 54,68,90,000/- which is more than 100% of

market value itself, as per stamp valuation authorities, the excess amount is received by the

assessee only due to close connection between the assessee and SMPL. Hence, the excess amount

of Rs.12,27,45,500/- (Rs.54,68,90,000 - Rs.452,41,44,500) cannot be in the nature of receipt

during the course of business transaction in pursuance to agreement dated 4.4.2008. Ld CIT(A)

has stated that the such excess amount is in the nature of gratuitous deposit/advance without any

business considerations which would be clearly hit by the provisions of section 2(22)(e) of the

Act. Ld CIT(A) after considering that the partners of the assessee firm have overdrawn the capital

by Rs.19.7 crores and the net funds available after withdrawn is only Rs.38.86 crores as per

balance sheet and concluded that part of the amount given by SMPL was for personal use by

partners and not for business considerations. In view of above, ld CIT(A) has held that the excess

receipt of Rs.12,27,45,500/- is not in the nature of business receipts. Since the reserves of SMPL

are of Rs.23,63,010/-, the addition u/s.2(22)(e) of the Act has to be restricted to Rs.23,63,010/-.

9. In respect of submission of assessee that no addition u/s.2(22)(e) is permissible in the hands of

the firm as it is not a registered share holder, ld CIT(A) has stated that the said contention of the

assessee is not tenable in view of the decision of Hon'ble Delhi High Court in the case of National

Travel Services (supra), wherein, it has been held that for the purpose of section 2(22)(e),

partnership firm though not a registered shareholder, being a beneficial owner, is to be treated as

shareholder and sums advanced by company to the firm has to be treated as deemed dividend

u/s.2(22)(e) of the Act. Ld CIT(A) has stated that the partners who are registered shareholders of

SMPL are having more than 10% shares but when it is the firm which has received the money, the

deemed dividend u/s.2(22)(e) is to be assessed in the hands of the firm. Ld CIT(A) has further

stated that decision of Hon'ble Bombay High Court in the case of Universal Medicare Pvt Ltd.,

(supra) and the decision of ITAT (SB) in the case of Bhaumik Assessment Year: 2009-2010)

Colour Pvt Ltd (supra) relied upon by the assessee are not applicable to the facts of the case. Ld

CIT(A) has stated that the Hon'ble Apex Court has held in the case of Goodyear India Ltd, 188

ITR 402(SC) that a precedent is binding only for what is actually decided by it and not for what

may remotely follow from it. Ld CIT(A) has stated that the decisions cited on behalf of assessee

are not at all applicable to the facts of the assessee's case as they have not decided the question of

taxability of sums received by firm u/s.2(22)(e) of the Act, where the partners are shareholders as

the firm has a different legal status and relationship with partners in contradistinction to the

Companies and its shareholders.

10. In view of above reasons, ld CIT(A) has confirmed the addition of Rs.23,63,010/- made by the

AO u/s.2(22)(e) of the Act. Hence, assessee is in further appeal before the Tribunal.

11. On behalf of assessee, it was contended that assessee entered into a joint development

agreement with SMPL dated 4.4.2008 and under the said agreement, received a sum of

Rs.54,68,90,000/- as security deposit. Assessee as well as SMPL have rights in respect of

contiguous piece of lands at village Tirandaz, Powai, Mumbai. The said land formerly was in No

Development Zone and both the parties under the joint development agreement have come to an

understanding to jointly develop their land on specific terms and conditions. As per clause 17 of

the said joint development agreement, assessee received security deposits. He submitted that AO

doubted the genuineness of the said joint development agreement on the ground that it was dated

4.4.2008 but was registered on 20.10.2011. Hence, on account of delay in registering the

agreement, AO did not accept the contention of the assessee that receipts were business advance

and not loans or deposits. Ld A.R. referred to the order of ld CIT(A) and submitted that ld CIT(A)

at page 6 of the impugned order has held that said joint development agreement dated 4.4.2008

cannot be said to be a make belief agreement because no one was to pay stamp duty of

Rs.42,41,450/- and penalty of Rs.36,47,650 totaling to Rs.78,89,100/- to avoid provisions of

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section 2(22)(e) of the Act, when the tax itself leviable on deemed dividend on Rs.23,63,010

assessed by the AO is much lesser. Ld A.R. further submitted that ld CIT(A) has agreed that under

the said agreement, it cannot be said that there was no element of business transaction. Ld AR

submitted that ld CIT(A) has considered a part of the said deposit receipt in the nature

Assessment Year: 2009-2010) of business receipt; and a part of the security as deposit/advance

without any business consideration. Ld A.R. submitted that ld CIT(A) has applied the decision of

Hon'ble Delhi High Court in the case of National Travel Services (supra) to consider the deemed

dividend u/s.2(22)(e) of the Act. He submitted that decision of National Travel Services (supra)

as applied by ld CIT(A) is not applicable to the facts of the case. He submitted that the said

decision of Hon'ble Delhi High Court in the case of National Travel Services (supra) was

considered by the ITAT Mumbai in the case of M/s. Beekay Tex vs ACIT (I.T.A. No.5118/M/2010

for A.Y. 2006-07) by its order dated 23.12.2011. That the ITAT Mumbai Bench after considering

the said decision of Hon'ble Delhi High Court in the case of National Travel Services (supra) and

also the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Hotel Hilltop, 313 ITR

116(Raj) as well as the decisions of Hon'ble Bombay High court in the case of Universal Medicare

Pvt. Ltd (supra) and ITAT Mumbai (SB) in the case Bhaumik Colour (P) Ltd (supra) have held

that the amount in the hands of the assessee firm could not be assessed as deemed dividend as

the assessee firm was not registered or beneficial shareholder of shares in the lender company

namely M/s. Anish Synthetics Pvt Ltd. Ld A.R. furnished a copy of the said order (supra) and

submitted that the facts of the case of the assessee are identical to the facts of the case decided by

the Tribunal by its order dated 23.12.2011 (supra) as the shares were held by the partners in their

individual capacity in the lender company namely, SMPL and not on behalf of the assessee firm.

He submitted that the findings of ld CIT(A) that reasonable deposit could be Rs.42.41 crores, the

figure as considered by the Stamp Valuation Authority as business consideration is not justified.

Once ld CIT(A) has himself accepted that it is a business receipt, he could not consider that the

amount over and above Rs.42.41 corres out of total security deposit of Rs.54,68,90,000 is a

gratuitous deposit/advance without business consideration. He submitted that the consideration

is for the parties to decide and not for the department to consider. He submitted that addition

made by ld CIT(A) u/s.2(22)(e) is not justified.

12. On the other hand, ld D.R. supported the order of ld CIT(A). He submitted that a firm cannot

be a registered shareholder but could be a beneficial shareholder because the shares are held in

the name of the partners. He submitted that if the contention of the assessee is accepted that a

person should not only be a registered shareholder but also a beneficial shareholder; in that case

the partnership firm can never come within the mischief of section 2(22)(e) and this will frustrate

the object of section 2(22)(e) of Assessment Year: 2009-2010) the Act. Therefore, in the case of a

firm, the provisions of section 2(22)(e) could be applied and to treat the firm as shareholder even

though it is not a registered shareholder in view of the decision of Hon'ble Delhi High court in the

case of National Travel Services (supra).

13. We have considered submissions of ld representatives of parties and orders of authorities

below.

14 There is no dispute to the fact that assessee has received a sum of Rs.54,68,90,000 from SMPL

as security deposit, which is also appearing in the balance sheet of the assessee firm. Ld CIT (A)

has stated in his order that the AO has failed to appreciate that as per clause 23 of the agreement

dated 4.4.2008, it was a joint development venture agreement between the assessee and

company viz; SMPL on principal to principal basis and it was not a joint venture agreement at all.

Ld CIT(A) has stated that whether the agreement dated 4.4.2008 is registered or not or the fact

that the same has been registered after a delay of 43 months, would not make the agreement void

or not genuine. Ld CIT(A) has agreed that it cannot be said that there was no element of business

transaction in the agreement entered into between the assessee and SMPL dated 4.4.2008.

However, ld CIT(A) has doubted the total amount of security deposit received by the assessee

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from SMPL and has considered that the amount to the extent of Rs.42.41 crores could said to be

for business consideration. We find substance in the submission of ld A.R. that once it is accepted

that there was a business transaction between the parties and assessee has received security

deposit under the said agreement as part of the business transaction, the amount of consideration

to be received by the parties is for the for the parties to decide on the basis of commercial

prudence and the department is not justified to determine the amount on the basis of the

valuation made by the stamp valuation authority for the purpose of payment of stamp duty.

Therefore, the finding of ld CIT(A) that only a sum of Rs.42,42,44,500 is in the nature of business

receipts and the balance amount of Rs.12,27,45,500 out of the total receipts of Rs.54,68,90,000

are received for non- business consideration is not based on commercial basis but merely on

presumption and assumption. Moreover, we observe that the land held by the assessee is

undisputedly shown as stock in trade in the hands of the assessee and right thereof has been

given for development to Lender Company. We also agree with ld CIT(A) that nature of a

Assessment Year: 2009-2010) receipt or a transaction would not be determined only by the

nomenclature given by the assessee in its books of account but by substance of the covenants and

only circumstances of the transaction. Be that as it may, there is no dispute to the fact that ld

CIT(A) himself has accepted that a part of the amount received by the assessee from SMPL is in

the nature of business receipts. However, he has considered that out of the total receipt of

Rs.54,68,90,000/-, a sum of Rs.12,27,45,500/- is received by the assessee for non-business

consideration and has considered it to be in the nature of gratuitous deposit/advance and the said

amount is hit by the provisions of section 2(22)(e) of the Act. Even for the sake of argument, if it

is considered that the said amount of Rs.12,27,45,500/- received by the assessee from its sister

concern viz; SMPL is in the nature of gratuitous deposit/advance, can be it considered to be

deemed dividend, on the facts and in the circumstances of the case, in the hands of the assessee

u/s.2(22)(e) of the Act.?

15. We are of the considered view that, on the facts and in the circumstances of the case, the

provisions of section 2(22)(e) of the Act are not applicable even if the amount of Rs.12,27,45,500

is considered as deposit with the assessee for non-business consideration. ITAT Special Bench in

the case of Bhaumik Colours P. Ltd (supra) has held that the deemed dividend can be taxed only

in the hands of a person who is a registered shareholder as well as beneficial shareholder of the

shares in the lender company. The Special Bench has also held that the question of applicability

of loans and advances given to a concern by a company where the concern to which the loan is

given by the company is not a shareholder but there is common person who has substantial

interest in the concerns as well as company, even in such case, the loan or advance can be taxed

only in the hands of the shareholder (who has substantial interest in the concern as well as in the

company) and not in the hands of the concerns as deemed dividend under section 2(22)(e) of the

Act. There is no dispute to the fact that the partners of the assessee firm and the shareholding

pattern of the lender company namely SMPL is as under:


16. During the course of hearing, reliance was placed on behalf of the assessee on the decision of

Hon'ble Rajasthan High Court in the case of Hotel Hilltop(supra). We consider it useful to state

the facts of the said case which are as follows:

The Assessee was one M/s.Hotel Hilltop a partnership firm. This firm received an advance of

Rs.10 lacs from a company M/s.Hilltop palace Hotels (P) Ltd. The shareholding pattern of

M/s.Hillltop Palace Hotels (P) Ltd., was as follows:

1. Shri Roop Kumar Khurana : 23.33%

2. Smt.Saroj Khurana : 4.67%

3. Vikas Khurana : 22%



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4. Deshbandhu Khurana: 25%

5. Shri.Rajiv Khurana : 25% The constitution of the firm Hotel Hill Top was as follows:

1. Shri Roop Kumar Khurana: 45%

2. Shri.Deshbandhu Khurana: 55% In the said case, the AO assessed the sum of Rs.10 lacs as

deemed dividend u/s.2(22)(e) of the Act in the hands of the firm because the two partners of

M/s.Hotel Assessment Year: 2009-2010) Hill Top were holding shares by which they had 10%

voting power in M/s.Hill Top Palace Hotels (P) Ltd. They were also entitled to 20% of the income

of the firm M/s.Hotel Hill Top. Therefore the loan by M/s.Hill Top Palace Hotels (P) Ltd., to the

firm M/s.Hotel Hill Top was treated as deemed dividend in the hands of M/s.Hotel Hill Top, the

firm under the second limb of Sec.2(22)(e) of the Act. The CIT(A) held that since the firm was not

the shareholder of the company, the assessment as deemed dividend in the hands of the firm was

not correct. The order of the CIT(A) was confirmed by the Tribunal. On Revenue's appeal before

the Hon'ble High Court, the following question of law was framed for consideration.

"Whether on the facts and in the circumstances of the case and in law the learned

Tribunal was justified in upholding the order of learned CIT(A) deleting the addition

of Rs.10 lacs as deemed dividend under Section 2(22)(e) of the IT Act? "

The Hon'ble Court held as follows:

"The important aspect, being the requirement of section 2(22)(e) is, that the payment

may be made to any concern, in which such shareholder is a member, or the partner,

and in which he has substantial interest, or any payment by any such company, on

behalf or for the individual benefit of any such shareholder ....... " Thus, the substance

of the requirement is that the payment should be made on behalf of or for the

individual benefit of any such shareholder, obviously, the provision is intended to

attract the liability of tax on the person, on whose behalf, or for whose individual

benefit, the amount is pad by the company, whether to the shareholder, or to the

concerned firm. In which event, it would fall within the expression 'deemed dividend'.

Obviously, income from dividend, is taxable as income from the other sources under

section 56, and in the very nature of things the income has to be of the person earning

the income. The assessee in the present case is not shown to be one of the persons,

being shareholder. Of course, the two individuals being R and D. are the common

persons, holding more than requisite amount of shareholding and are having requisite

interest, in the firm, but then, thereby the deemed dividend would not be deemed

dividend in the hands of the firm, rather it would obviously be deemed dividend in the

hands of the individuals, on whose behalf, or on whose individual benefit, being such

shareholder, the amount is paid by the company to the concern. Thus, the significant

requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed

divided, could be attracted in the hands of the individuals, being the shareholders, and

not in the hands of the firm."


17. However, in the case of National Travel Services (supra), the facts were as follows:

"The assessee was a partnership firm consisting of three partners being Naresh Goyal,

Surinder Goyal and Jet Enterprises Pvt. Ltd. The assessee was the "beneficial owner"

of 48.18% of the share capital of Jetair Pvt. Ltd which were held in the name of its

partners Naresh Goyal and Surinder Goyal. The assessee took a loan of Rs. 28.52

crores from Jetair Pvt. Ltd. The AO held that the said loan was assessable as "deemed

dividend" u/s 2(22)(e) in the hands of the assessee which was reversed by the

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Tribunal. Before the High Court, the assessee argued, relying on Ankitech Pvt. Ltd,

(199 Taxman 341), Universal Medicare 324 ITR 363 (Bom) and Bhaumik Colour 118

ITD 1 (Mum) (SB), that s. 2(22)(e) could only apply in the hands of the "shareholder"

and as the assessee was not a "shareholder" (its partners were), s. 2(22)(e) could not

apply. The Hon'ble Delhi High Court held rejecting the assessee's plea, that the first

limb of s. 2(22)(e) is attracted if the payment is made by a company by way of advance

or loan "to a shareholder, being a person who is the beneficial owner of shares". While

it is correct that the person to whom the payment is made should not only be a

registered shareholder but a beneficial share holder, the argument that a firm cannot

be treated as a "shareholder" only because the shares are held in the names of its

partners is not acceptable. If this contention is accepted, in no case a partnership firm

can come within the mischief of s. 2 (22)(e) because the shares would always be held

in the names of the partners and never in the name of the firm. This would frustrate

the object of s. 2(22)(e) and lead to absurd results. Accordingly, for s. 2(22)(e), a firm

has to be treated as the "shareholder" even though it is not "registered shareholder"

18. On consideration of above case, we observe that there is no dispute that assessee

firm is not a registered or beneficial shareholder in SMPL. It is also not the case of the

department that the partners of the firm held shares in SMPL for and on behalf of

assessee firm. It is also not the case of the department that the funds for purchase of

shares by the partners were provided by the assessee firm. In such circumstances, we

are of the view that the decision of Hon'ble Delhi High court in the case of National

Travel Services (supra) would not be applicable. The facts as noted by Hon'ble Delhi

High court in the case of National Travel Services (supra) were as follows:

"7. The respondent/assessee is a partnership firm consisting of three partners namely

Mr. Naresh Goyal, Mr. Surinder Goyal and M/s Jet Enterprises Pvt. Ltd. having profit

sharing ratio of 35%, 15% and 50% respectively. The assessee firm had taken a loan of

Rs. 28,52,41,516/- from M/s Jetair Pvt. Ltd. New Delhi. In this company the assessee

has Assessment Year: 2009-2010) invested by subscribing to the equity share

numbering 1,43,980 of Rs. 100 each which constitute 48.18%. However, the shares

were purchased in the name of the two partners namely Mr. Naresh Goyal and Mr.Surinder Goyal. Thus, whereas, Mr. Naresh Goyal and Mr. Surinder Goyal are the

respective share holders, the assessee is the beneficial share holder. On these facts, in

this appeal we are concerned with the first limb [in contradiction to second limb that

fell for interpretation in Ankitech (supra)] and are called upon to examine as to

whether this first limb of Section 2(22)(e) of the Act has been satisfied. We should

point out at the outset that it is an admitted position that all other conditions

stipulated in Section 2(22)(e) of the Act are fulfilled. The extent of share holding is

also so high that the assessee has indubitably substantial interest in Jetair Pvt. Ltd."

19. We have seen that the facts of the assessee case are different and are identical to

the case decided by Hon'ble Rajasthan High Court in the case of Hotel Hilltop (supra).

Similar issue has also been considered by the ITAT in the case of M/s. Beekay Tex (supra) and the

Tribunal after considering above decisions as well as decision of ITAT (SB) in the case of

Bhaumik colours Pvt Ltd (supra) held that the amount of loan taken by the assessee from a

concern namely Anish Synthetics P Ltd., in which public are not substantially interested and

three of the partners of the assessee firm were the shareholders having substantial interest i.e.

having 25% of the shareholding by each partner could not be assessed as deemed dividend

u/s.2(22)(e) of the Act in the hands of the firm as the assessee firm was not the registered or

beneficial shareholders in the shares of Anish Synthetics Pvt Ltd., Similarly, in the case before us,

it is an undisputed fact that assessee firm is neither shareholder nor beneficial shareholders

shares in SMPL. We hold that the amount in question could not be considered as deemed

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dividend in the hands of the assessee firm as the said decision of Hon'ble Delhi High Court

namely National Travel Services (supra) is not applicable to the facts of the case of the assessee

before us. Hence, the said addition of Rs.23,63,010/- as confirmed by authorities below u/s.2(22)

(e) of the Act is not justified and is deleted by allowing Ground No.1 of appeal taken by the

assessee.

20. In respect of Ground No.2 of appeal i.e. issuance of enhancement of assessment notice by ld

CIT(A) u/s.251(1)(a) of the Act, the relevant facts are that ld CIT(A) while considering the issue of

applicability of provisions of section 2(22)(e) of the Act on the security deposit received by the

assessee from SMPL stated that assessee is in business of real estate developer and land

admeasuring 32,262.68 sq.mtrs at Village Tirandaz, Powai, Mumbai was held as stock-in-trade.

The assessee entered into a development Assessment Year: 2009-2010) agreement with SMPL

which was also holding land contiguous to the land owned by the assessee. The assessee gave

development rights of its land to SMPL. Ld CIT(A) has stated that the said agreement has been

entered into between the assessee and SMPL on principal to principal basis without any intention

of entering into a partnership or joint venture as per clause 23 of the agreement. Ld CIT(A) has

stated that it was agreed as per agreement that the cost of construction of 16,500 sq.mtrs of

constructed FSI be valued at Rs.16.5 crores and the market value was valued at Rs.42,41,44,500/-

by Stamp Valuation Authority but the assessee received a sum of Rs.54,68,90,000. Hence,

assessee received the entire market value of development right during the financial year 2008-09

itself. That the business transaction of sale of development rights was complete and assessee was

required to recognize the revenue/profits from the said transaction in A.Y. 2009-2010 as per

Accounting Standard -9 or transfer u/s.2(47)(v) are applied. Ld CIT(A) after considering clauses

1.5, 1.7,1.11,4,6,7 (k), 8(b), 8(d), 8(g), 12(i), 13(b), 14.1, 14.2,14.3,6 & 17 of the said agreement

dated 4.4.2008 at pages 13 to 17 of the impugned order, issued show cause notice dt.26.6.2012 to

explain as to why the revenue may not be recognized in the assessment year 2009-2010 and the

income of the assessee should not be enhanced by an amount equivalent to the difference

between the market value of 16,500 sq.mtrs of FSI being received as consideration and the cost of

land as appearing in books for which the development rights have been transferred. Assessee filed

its reply vide letter dated 13.9.2012, the contents of which have been summarized by ld CIT(A) in

para 4.1 at pages 18 to 19 of the impugned order as under:

"(i) That CIT(A) u/s 25 1(1) has no powers to enhance the new source of income which

has not been considered by the AO. He has relied on the decisions in case of Shapoorji

Pallonji Mistry 44 ITR 891(SC), Raj Bahadur Hardutroy Motilal Chamaria 66 ITR

443(SC), Sardarilal & co 251 ITR 864(Del), Union Tyres, 240 ITR 446(Del).

(ii) On merits it has been argued that agreement dated 04/04/2008 only laid down

the road map for the proposed development and records the terms and conditions of

the proposed development. The agreement basically records the intention of the

parties. The possession of the land was to be given, after surrender of leases from 60

lessees and the parties were to wait for change of zone from No development zone to

Residential/commercial zone and obtain requisite permissions/approvals and it was

on receipt of commencement certificate, the license to enter upon the said property for

purpose of development was to be granted. The CC was received on 1/2/2011 and

thereafter the License to enter the premises was given to M/s skyline Mansions Pvt

Ltd on 25/4/2011.

Assessment Year: 2009-2010) Accordingly it was argued that the transaction of

development as proposed in development agreement crystallized on 25/04/2011 on

clearing all contingent events on which development was based.

(iii) Regarding the sum of Rs 54.68 Cr it has been stated that the same was received as

security deposit to ensure the committed performance on the part of company and

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this deposit was fully refundable on receipt of constructed premises/ sale

consideration of constructed premise. Accordingly it has been contended that no part

of sale consideration has been received by the appellant in AY 2009-10.

(iv) Regarding the recognition of revenue as per AS-9, it has been stated that the

significant risks and rewards of ownership has not been transferred till 25/04/2011 i.e

the date of handing over of possession after the receipt of CC on 01.02/2011. The

possibility of development was clouded with uncertainty in AY 2009-10 which got

cleared only on sanction of plans on 01/02/2011 and hence there is no question of

recognition of revenues prior to that date.

(v) Relying upon the decision in case of R Gopinath (HUF) 133 TTJ 595 (Chennai) it

has been contended that when the land was held as stock in trade, the business profits

for the land owner arose only when the constructed FSI of 16500 sq mts were

ultimately sold."

21. Ld CIT(A) did not accept above contentions of the assessee and stated that the competence of

ld CIT(A) is not restricted to examine those aspects of assessment which are complained by the

assessee but his competence ranges over the whole assessment and it is open to him to correct the

ITO not only with regard to matter raised by the assessee but also with regard to a matter which

has been considered by the AO and determined in the assessment. Ld CIT(A) placed reliance on

the decision of Hon'ble Apex Court in the case of Raj Bahadur Hardutroy Chamaria (supra). He

further stated that same principle has been upheld by Hon'ble Delhi High court in the case of

Union Tyres (supra), the case which is also relied upon by ld A.R., wherein, the AAC made

enhancement by probing into the source of investment. It was stated that in that context, the

Hon'ble Court held that it was a new source as the unexplained investment had no bearing on the

question of estimation of sales & G.P. Ld CIT(A) has stated that ld CIT(A) has power to examine

any matter though not raised by the assessee but which has been considered by the AO in the

assessment order from the point of taxability. Ld CIT(A) has stated that he proposed to make the

enhancement in respect Assessment Year: 2009-2010) of very same receipts of Rs.54.68 crores

which were appearing in the balance sheet and received by the assessee under the development

agreement dated 4.4.2008. That the AO considered the said receipts in the hands of the assessee

u/s.2(22)(e) of the Act though he restricted the addition to the extent of Rs.23,63,010/- due to

availability of reserves to that extent only. That the AO failed to examine the specific clauses of

the agreement and failed to appreciate the nature of that receipt of Rs.54.68 crores. Ld CIT(A)

has further stated that the powers of the CIT(A) are co-terminus with that of AO and he can do

what AO can do or direct the AO what he failed to do. In view of above, ld CIT(A) stated that he

was exercising his power u/s.251(1) correctly and not considering a new source of income. Hence,

assessee has disputed the said order of ld CIT(A) in appeal before the Tribunal.

22. During the course of hearing, ld A.R. submitted that ld CIT(A) has no jurisdiction to consider

the said receipts as business receipts as he was examining a new source of income for which,

there is no assessment order. Ld A.R. did not further stress and made any other submission on

this issue. Whereas ld D.R. submitted that the notice issued by ld CIT(A)u/s.251(1) of the Act to

consider the nature of receipts of Rs.54.68,90,000 is in accordance with law.

23. We have considered the submissions of ld representatives of parties and relevant part of the

order of ld CIT(A), which we have summarized hereinabove.

24. We agree with ld CIT (A) that the powers of ld CIT(A) are co-terminus with that of AO and he

can do what AO can do or direct the AO what he failed to do. We observe that the issue before the

AO was receipt of Rs.54,68,90,000/- by the assessee from SMPL and the AO considered the said

receipts as taxable in the hands of the assessee u/s.2(22)(e) of the Act, but he restricted the

addition to the extent of Rs.23,63,010/- due to availability of reserves to that extent only. There is


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no dispute to the fact that assessee received the said amount under the development agreement

dated 4.4.2008 and AO stated that the said agreement is a make belief transaction to cover up the

transfer of funds by SMPL to the assessee firm. We observe that ld CIT(A) has not agreed with AO

that the agreement between the assessee and SMPL was only a make belief transaction. On the

other hand, ld CIT(A) has held that the said agreement between the assessee and SMPL is a

genuine transaction of joint development of land Assessment Year: 2009-2010) owned by the

assessee firm and SMPL at village Tirandaz, Powai, Mumbai. It is also held by ld CIT(A) that

assessee and SMPL have entered into said development agreement on principal to principal basis

and it was not a joint venture agreement. Therefore, we are of the considered view that ld CIT(A)

while examining the nature of receipt of Rs.54,68,90,000/- is not considering new source of

income. On the facts of the case, we are of the view that ld CIT(A) has power u/s.251(1)(a) of the

Act to examine and consider the order of assessment before him as to whether he may confirm,

reduce, enhance or annul the assessment. Hence, we hold that the contention of ld A.R., that ld

CIT(A) has no jurisdiction to examine the nature of transaction and the nature of receipt of the

amount received by the assessee firm from SMPL, has no merit. Therefore, notice issued by ld

CIT(A) u/s.251(1) is valid on the facts of the case discussed hereinabove. Hence, Ground No.2 of

appeal taken by assessee is rejected.

25. In Ground No.3 of appeal, assessee has disputed the order of ld CIT(A) to consider the sum of

Rs.28,41,34,500/- as business income in the assessment year under consideration.

26. We have already stated the relevant facts while discussing Ground No.1 of appeal hereinabove

but for the sake of clarity, we consider it prudent to again state the material facts relating to this

ground. That SMPL is the owner of large portion of land bearing No.38, village Tirandaz, Powai,

Mumbai and assessee is also having development rights in respect of 32,262.68 sq.mtrs of land,

contiguous to the land owned by SMPL. In order to develop the respective land, SMPL and

assessee entered into a joint development agreement on 4.4.2008, copy placed at pages 35 to 75

of PB. It is stated that a portion of the entire land was on lease with 60 different lessees who are

in possession of the same. That said land was in No Development Zone (NDZ) and parties were to

wait for the zoning of the land for residential/commercial use and immediate development was

not feasible. It is stated that as per the said joint development agreement, a road map was laid

down for the proposed development of land held by both the parties. It is further stated that theparties would first obtain the surrender of leases from 60 lessees and the possession of the land

would be given for the purpose of development on receipt of commencement certificate. Under

the said agreement, assessee received a sum of Rs.54,68,90,000 as security deposit to ensure

committed performance on the part of SMPL. It is stated that said deposit was fully Assessment

Year: 2009-2010) refundable on receipt of constructed premises and the share of the assessee

arises from the said joint development was 16,500 sq.mtrs on constructed area. There is no

dispute to the fact that the commencement certificate was received on 1.2.2011. Assessee has

stated that the license to enter on the said property for the purpose of development was granted

to SMPL on 25.4.2011. Hence, the transaction of development as proposed under the said joint

development agreement dated 4.4.2008 was crystalised on 25.4.2011 on clearing of all the

contingent events on which the said joint development was based. Ld CIT(A) after consideringabove facts and the fact that the cost of construction of 16,500 sq.mtrs of constructed FSI which

was agreed consideration as per agreement was valued at Rs.16.5 crores only and the market

value was valued at Rs.42,41,44,500 by Stamp Valuation Authority. Since the assessee had

received a sum of Rs.54,68,90,000 as security deposit from SMPL under the agreement dated

4.4.2008 , it was nothing but a business consideration on sale of development rights in the

financial year 2008-09. Ld CIT(A) has stated that assessee was required to recognize the

revenue/profits from the said transaction in A.Y. 2009-2010 as per Accounting Standard

-9 or transfer u/s.2(47)(v). Ld CIT(A) has stated that assessee has already transferred significant

risks and rewards of ownership by way of irrevocable covenants and also received the entire


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consideration in the garb of security deposit which was to be repaid only by adjustment @ 28% of

net sale proceeds of constructed FSI of 16,5000 sq.mtrs which was to be received by the assessee.

Hence, the profit and gains from transfer of stock-in-trade was chargeable in assessment year

2009-2010 itself. It is relevant to state that assessee has shown the said land in its books of

account as stock-in-trade and not the fixed capital asset. Ld CIT(A) has stated that a developer

after obtaining the development rights may start the development immediately or start at a later

date but this will not in any way affect his rights as a development arising out of the development

agreement. That the development takes place in stages and conditions of obtaining requisite

permissions only are part of the development process and not in nature of precondition for

development activity. That accrual of gains cannot be postponed to the date of receipt of

approvals/permissions from MCGM, if the agreement otherwise leads to transfer of significant

risks and rewards or if there is part performance as the case may be. Ld CIT(A) has stated that

receipt of requisite approvals may have effect on date of taxability of developer but not in hands

of the transferor. That as per the agreement, assessee is not required to incur any expenditure for

any development work of the project. Assessee is not even to look into Assessment Year: 2009-

2010) the account and expenditures incurred by the developer i.e. SMPL on the project. That

even the selling and marketing expenses for constructed flats pertaining to share of assessee has

been agreed to be done at SMPL cost as per clause 14.3 of the agreement. That the only

right/interest of the assessee after execution of the agreement is restricted to receiving

constructed FSI of 16,500 sq mts in the project to be constructed. Ld CIT(A) has also stated that

as per clause 16 of the said agreement, assessee shall not terminate the agreement and as per

clause 4.2 of the agreement, all the FSI/TDR and other future benefits available in respect of said

land after the date of agreement shall belong to owners/developers i.e. SMPL. Therefore, assessee

has divested all current and future rights in the *land from the date of agreement itself. Ld CIT(A)

has also stated that as per clauses 8(b), 8(d) & 8(g) of the agreement, assessee is indemnified

against any losses/expenses due to any Act or deed of SMPL. Ld CIT(A) has stated that nature of

a receipt or a transaction would not be determined only by the nomenclature given but by

substance of the covenants and circumstances of the transaction and placed reliance of the

decision of Hon'ble Supreme Court in the case of National Cement Mine Industries, 42 ITR 69

(SC) and Padamjee Ra Kadambande, 195 ITR 877(SC). Ld CIT(A) has stated that the entry of the

sum as 'security deposit' in books of accounts cannot be conclusive unless in sum and substance it

confirm to such nature of receipts. He has stated that naming the consideration as security

deposit is just a colorful device to camouflage the receipt of money. Ld CIT(A) has further stated

that SMPL has noted the work-in-progress as on 31.3.2009 as per its balance sheet at

Rs.2,06,78,741/-, which includes the construction to retain wall, drain work, hutment

compensation, purchase of material, BMC scrutiny fee, etc. Therefore, SMPL had already started

the development work in assessment year 2009-2010 by incurring above expenditures. Ld CIT(A)

has stated that the averments in clause 9(c)(ii) to give licence to developer i.e. SMPL to enter the

premises for carrying out development of property only after receipt of approval of plans and CC,

is just redundant clause guided by motive to postpone the year of taxability owing to close nexus

between the assessee firm and SMPL. Ld CIT(A), after considering the decision of Hon'ble

Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs CIT, 260 ITR 491 (Bom),

has concluded that once the agreement is read as a whole it suggests that the assessee has

irrevocably divested of all rights in the lands from date of agreement with no power of

termination and giving the power of attorney to developer to deal with the land with limited

permission to enter the premises at the time of agreement itself and the assessee also Assessment

Year: 2009-2010) having received more than the agreed 16,500 sq.mtrs in the form of cash

money in garb of security deposit, then substantial risks and rewards are transferred with no

uncertainty of realization of revenues as envisaged in AS-9. Hence, the year of chargeability has

to be the date of contract and not the date when final license to enter is given after receipt of

approval or commencement certificates. Thus, ld CIT(A) has stated that it cannot be said that

there is no transfer or development rights from the assessee in assessment year 2009-2010.

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Thereafter, ld CIT(A in order to quantify the taxable profits for the assessment year under

consideration, has stated that the market value of the constructed FSI of 16,500 sq.mtrs is at

Rs.42,41,44,500/- out of total receipt of Rs.54,68,90,000. Since the cost of the land is appearing

at Rs.14,00,10,000 in the balance sheet, the profits and gains from grant of development rights

comes to Rs.28,41,34,500 (Rs.42,41,44,500 - Rs.14,00,10,000), which is liable to be assessed as

business income for assessment year 2009-2010 in the hands of the assessee over and above the

income already assessed by the Assessing Officer at Rs.23,63,010/- u/s.2(22)(e) of the Act.

Hence, this appeal before the Tribunal.

27. Ld A.R. submitted that assessee is entitled for development rights in respect of 32262.68

sq.mtrs of land contiguous to the land owned by SMPL. Assessee is a builder/developers of real

estate properties and the said development right is held as stock-in-trade by the assessee. Ld A.R.

submitted that ld CIT(A) has proceeded on the basis of section 50C of the I.T.Act to consider the

value of Rs.42,41,44,500, the value as considered by Stamp Valuation Authority but the

provisions of section 50C is not applicable to the said development rights of the assessee. He

submitted that section 50C is applicable only to capital assets and not to trading assets. Ld A.R.

further submitted that the said development agreement dated 4.4.2008 only laid down the road

map for the proposed development of lands held by both the parties. He submitted that under the

said agreement, the parties would first obtain surrender of leases from 60 lesseess and, then

become entitle for clear possession of the land which is subject of agreement. Ld A.R. further

submitted that on the date of agreement entered into the said land was in No Development Zone

and the parties were to await for the zoning of the land to be changed from No Development Zone

to residential/commercial use and only thereafter the parties would apply for and obtain requisite

permission/sanction in the form of approval of plans for joint development of the said property.

Ld A.R.

Assessment Year: 2009-2010) submitted that on receipt of commencement certificate from the

Municipal Corporation and against identification of premises falling to the share of the joint

developers, the license to enter upon the said property for the purposes of development was to be

granted. Ld A.R. submitted that the first commencement certificate was granted by Muncipal

Corporation on 1.2.2011 and referred pages 116 to 119 of PB. He submitted that the units falling to

the share of the joint developers were identified on the approved plan and the license to enterupon the said property was granted to SMPL by the assessee on 25.4.2011 and referred pages 120

to 121 of PB to substantiate his above submission. Ld A.R. submitted that the agreement of

contiguous lands held by both the parties was performed only after grant of license on 25.4.2011.

Hence, the transaction of development as proposed in joint development agreement was

crystalised on 25.4.2011 on clearing of all the contingent events on which the said joint

development was based. Ld A.R. referred clause 17 of the agreement and submitted that the said

amount of Rs.54,68,90,000 was received by the assessee from SMPL as security deposit and the

said amount is refundable to SMPL. He further submitted that the said security deposit is taken

as a security to ensure committed performance on the part of SMPL. He submitted that said

amount was not taken as an advance nor it was a receipt of part consideration, which is not

required to be repaid. Ld A.R. submitted that the consideration in the present transaction is theconstructed flats admeasuring 16500 sq.mtrs, which was to be received on successful completion

of joint development. The date of sale of the land leading to recognition of revenue can never be

before the completion of above acts. Ld A.R. further submitted that ld CIT(A) has wrongly applied

AS-9, as recognition of revenue requires that revenue is measurable. He submitted that there was

no sale, exchange or relinquishment of asset in the assessment year 2009- 2010. Ld A.R.

submitted that similar issue has been considered by ITAT Chennai Bench in the case of

R.Gopinath (HUF) vs ACIT, 133 TTJ (Chennai) 595, wherein, on similar facts, ITAT observed that

neither the date of entering the agreement nor date of handing over possession of land was

relevant in case of land held as stock-in-trade. It was further held that business profits for the

land owner arose only when the constructed properties were ultimately sold by way of execution

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of sale deeds in favour of end customers or retained for self use. Ld A.R. referred para 15 of the

said order to substantiate his submission, which reads as under:

" In the present case, the business profit arises to the assessee on the sale of the stock

in trade only when the Assessment Year: 2009-2010) constructed apartments were

sold and not at the time when the development agreement was entered into.

Moreover, in the development agreement, the assessee has not agreed for sale of the

entire constructed property on the land, the assessee has agreed only for a portion of

the constructed property for sale for the purpose of recovery of the cost of

construction and margin of the developer. The assessee has executed all the sale deeds

for transfer of constructed apartments in favour of the end user/purchaser, therefore

the transfer of the proportionate land took place only when the assessee transferred

the construction property by way of sale deeds and offered the business income which

was accepted by the department. In any case, when the assessee has retained the

portion of the land being proportionate to the constructed area to be retained by the

assessee, then there is no question of transfer of the entire land to the developer. In

view of the above discussion, we hold that the orders of the lower authorities qua this

issue are not sustainable on the facts as well as on law. We set aside the orders of the

lower authorities, qua this issue and direct the AO to tax the capital gain arising from

the conversion of the land and building into stock-in-trade proportionately into the

previous years in which the constructed property was sold by the assessee or retained

for self-use and corresponding business income was offered."

28. Ld A.R. submitted that the Tribunal in the said case also considered the decision of Hon'ble

Jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapada vs CIT (supra) on which

ld CIT(A) has placed reliance. Ld A.R. further submitted that similar issue was considered by the

Tribunal in the case of DDIT vs. G.Raghuram, (2010) 39 SOT 406 (Hyd). In the said case,

assessee, a land owner gave his land to M/s. SDE Engineers Ltd., on development basis and as

per terms of the agreement, assessee was allocated a specified area in the superstructure

constructed on the said land by the developer. Since the land owner had relinquished his rights

on the land forgone, the AO treated it as a transfer under section 2(47) of the Act and computed

capital gain. Regarding applicability of section 2(47), there was no dispute. Assessee contendedthat the market value of the land as on the date of transfer was to be considered. AO did not agree

with the said proposition and he considered the value of the superstructure to determine the sale

value and computed capital gain accordingly. On first appeal, ld CIT(A) directed the AO to

consider the sales consideration as per value of the land adopted by the Registrar for stamp duty

purpose on the date of registration of the Assessment Year: 2009-2010) development agreement.

But in further appeal, the Tribunal reversed the order of ld CIT(A) and confirmed the action of

the Assessing Officer. ld A.R. referred Head Note at page 410 which read as under:

"The consideration for the transfer of the capital asset is what the transferor receives

in lieu of the assets he parts with and, therefore, the very asset transferred or parted

with and full value of consideration cannot be construed as having a reference to the

market value of asset transferred and the said expression only means that full value of

the asset received by the transferor in exchange for the capital asset transferred by

him. In the instant case, since the development agreement specified that certain part

of the constructed area would be surrendered to the owner by the builder on the

completion of the contract and the value of the constructed area to be transferred to

the assessee to be considered to asessee to be considered as consideration received

and, as such, full value of the consideration in the instant case was not only the cost of

construction of proposed building to the extent of which it fell to the assessee in the

ultimately constructed area but the market value of such share of constructed area

which might be after the completion of the construction. In view of this, there was no



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infirmity in the order of the Assessing Officer on this issue. Accordingly, this ground

taken by the revenue was to be allowed.

29. Ld A.R. further submitted that ITAT Mumbai also considered similar issue in

I.T.A.No.61230/M/2009 in the case of DCIT vs. Shri Vijay Kumar Jain vide order dated

27.7.2011.

30. Ld A.R. submitted that when no sale or transfer of the business assets i.e. development rights

took place in the assessment year 2009-2010 and only the Assessment Year: 2009-2010)

transaction was recorded in the joint development agreement dated 4.4.2008, there is no accrualof income in the assessment year under consideration. He submitted that the possession was

handed over in assessment year 2012-13 and income on constructed cost of 16500 sq.mtrs was

offered for taxation in assessment year 2012-13, wherein, the consideration of joint development

has been determined based on stamp duty ready reckoner, the value of which worked out

Rs.24,75,00,000. He submitted that addition made by the AO is not justified and be deleted.

31. On the other hand, ld D.R. supported the order of ld CIT(A). He submitted that under the said

joint development agreement, assessee has transferred its rights and, therefore, he has rightly

considered it as a sale. Ld D.R. submitted that the developer SMPL has acquired irrevocable

exclusive rights in respect of said development rights and assessee also received in the garb of

security deposit much more than the market value of the said development rights. Ld D.R.

submitted that ld CIT(A) has rightly stated that merely because assessee has stated the receipt of

Rs.54,68,90,000/- as security deposit, is not determinative of true nature of receipts. Ld CIT(A)

has rightly considered the true nature and quality of receipts as sale consideration of the amount

received from SMPL. Ld D.R. submitted that the order of ld CIT(A) be confirmed.

32. We have considered the submissions of ld representatives of parties. We have also considered

the cases cited by ld CIT(A) and the cases on which ld A.R. placed reliance (supra). We have also

carefully perused the copy of the joint development agreement dated 4.4.2008 placed at pages 35

to 75 of PB. We have also gone through the written submissions filed by the assessee before ld

CIT(A) vide letter dated 13.9.2012 placed at pages 26 to 34 of PB.

33. There is no dispute to the fact that assessee is a builder/developer of real estate propertiesand is entitled for development rights in respect of 32262.68 sq.mts of land contiguous to the

land owned by SMPL. Assessee is holding the said development right as stock in trade. We also

observe that a part of entire land was on lease with different lessesses who are in possession of

the same, reference of which is stated in the said development agreement dt.4.4.2008 and is also

indicated in the plan attached to the Assessment Year: 2009-2010) joint development agreement,

copy placed at pages 68 of PB. There is no dispute to the fact that assessee and SMPL have

entered into the said joint development agreement to jointly develop the said properties and

assessee under the said agreement is entitled to get constructed FSI of 16,500 sq.mts as per final

approved plan, on terms and conditions mentioned in the said agreement. There is no dispute to

the fact that at the relevant time the said land was in No Development Zone, which was changed

to residential/commercial use and the first commencement certificate was granted by MunicipalCorporation of Greater Mumbai (MCGM) on 1.2.2011. The department has not disputed the fact

that thereafter the units falling to the share of joint developers were identified on the approved

plan and assessee granted licence to enter upon the said property to SMPL on 25.4.2011. Ld A.R.

contended before us that the amalgamation of the contiguous lands held by both parties was done

only after grant of license on 25.4.2011. We find merits in the said contention of the assessee that

the transaction of development as proposed in the joint development agreement could be said to

be crystalised only on 25.4.2011 i.e when the license to enter upon the said property was granted

to SMPL for carrying out the development of the project. We observe that ld CIT(A) has referred

the clauses of the agreement and stated that assessee has given irrevocable and conclusive

permission under the said agreement to SMPL. Therefore, ld CIT(A) has presumed that the


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possession was also delivered in financial year 2008-09 relevant to assessment year under

consideration as SMPL has shown work-in-progress as on 31.3.2009 as per balance sheet at

Rs.2,06,78,741, which includes the construction to retain wall, drain work, hutment

compensation, purchase f material, BMC scrutiny fee, etc. We are of the considered view that to

enable the developer namely SMPL, irrevocable and conclusive license, and permission to use the

land has to be given by the assessee to SMPL otherwise the very purpose of development would

be defeated. Therefore, we are of the considered view that carrying out of the said work do not

establish that possession/license to enter upon the land belonging to the assessee had been given

t

Documents

Skyline Great Hills, Mumbai vs Assessee on 19 March, 2013