Income Tax Appellate Tribunal - Pune
Manohar Gordhandas Kirpalani,, Pune vs Assessee on 27 May, 2016
आयकर अपील�य अ�धकरण पुणे �यायपीठ "ऐ" पुणे म�
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सु�ी सुषमा चावला, �या�यक सद�य एवं �ी �द�प कुमार के�डया, लेखा सद�य के सम�
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM
आयकर अपील सं. / ITA No. 1646/PN/2014
�नधा�रण वष� / Assessment Year : 2009-10
Ashok Gordhandas Kirpalani,
Plot No.239, Kirpalani Bhavan,
Pimpri Colony, Pimpri,
Pune - 411017 .... अपीलाथ�/Appellant
PAN: A FTPK0894C
Vs.
The Income Tax Officer,
Ward 8 (2), Pune .... ��यथ� / Respondent
आयकर अपील सं. / ITA No. 1647/PN/2014
�नधा�रण वष� / Assessment Year : 2009-10
Manohar Gordhandas Kirpalani,
Plot No.239, Kirpalani Bhavan,
Pimpri Colony, Pimpri,
Pune - 411017 .... अपीलाथ�/Appellant
PAN: ABBPK0636J
Vs.
The Income Tax Officer,
Ward 8 (2), Pune .... ��यथ� / Respondent
आयकर अपील सं. / ITA No. 1648/PN/2014
�नधा�रण वष� / Assessment Year : 2009-10
Teckchand Santram Kirpalani,
Plot No.239, Kirpalani Bhavan,
Pimpri Colony, Pimpri,
Pune - 411017 .... अपीलाथ�/Appellant
PAN: A ILPK0313R
Vs.
The Income Tax Officer,
Ward 8 (2), Pune .... ��यथ� / Respondent
2
ITA Nos.1646 to 1649/PN/2014
Ashok Gordhandas Kirplani & Ors
आयकर अपील सं. / ITA No. 1649/PN/2014
�नधा�रण वष� / Assessment Year : 2009-10
Pitamber Santram Kirpalani,
Plot No.239, Kirpalani Bhavan,
Pimpri Colony, Pimpri,
Pune - 411017 .... अपीलाथ�/Appellant
PAN: A BBPK0638G
Vs.
The Income Tax Officer,
Ward 8 (2), Pune .... ��यथ� / Respondent
अपीलाथ� क� ओर से / Appellant by : S/Shri K. Srinivasan &
Ta naji S. Shelke
��यथ� क� ओर से / Respondent by : Shri Mahesh Jasnani, JCIT
सुनवाई क� तार�ख / घोषणा क� तार�ख /
Date of Hearing : 26.04.2016 Date of Pronouncement: 27.05.2016
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
This bunch of four appeals filed by related assessees are against separate orders of CIT(A)-V, Pune, all dated 18.07.2014, relating to assessment year 2009-10 against respective orders passed under section 143(3) of the Income Tax Act, 1961 (in short 'the Act').
2. This bunch of appeals are filed by the related assessees on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, reference is being made to the facts in ITA No. 1646/PN/2014 to adjudicate the issue.
3. The assessee in ITA No. 1646/PN/2014 has raised the following grounds of appeal:-
3
ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors
1. That the Learned Commissioner of Income Tax (Appeal) V, has erred in his justification in confirming the addition made by the Assessing Officer the sum of Rs.6,66,334/- on account of Capital Gain, without considering facts and circumstances on which I have received Rs.25,00,000/- (Rupees Twenty Five Lacs) on account of security deposit by the member of A.O.P., may please be justified and deleted from total income computed by the Assessing Officer.
2. That the Learned Commissioner of Income Tax (Appeal) V, has erred in his justification to confirm the disallowance made by Assessing Officer of Rs.50,000/- on account of transport charges paid, may please be justified i.e. allowed or reduced from total income computed by the Assessing Officer.
4. The issue raised vide ground of appeal No.1 is against the addition made on account of capital gains against the security deposit received by one member of AOP.
5. Briefly, in the facts of the case, the assessee had furnished return of income declaring total income of Rs.3,33,225/-. The Assessing Officer noted that the assessee had shown a liability of Rs.25 lakhs in the Balance Sheet and the assessee was asked to file an agreement with M/s. Shriram Constructions in this regard. In reply, the assessee furnished the explanation along with copy of joint venture agreement with M/s. Shriram Constructions. The assessee was also carrying on the business of stone crushing and sale of stone metals under the name and style Kripalani Metal Works and was also engaged in the business of transport under the name and style Ashok Transport. The assessee had maintained separate books of account for the business activity. The Assessin g Officer noted that the assessee had debited transport charges at Rs.5,29,450/- in the trading account. On perusal of bills and vouchers, the Assessing Officer found that some of expenses were claimed on self-made vouchers and the payment was made in cash. Further, some of the bills were not made available for verification and some of the vouchers did not bear the signature of recipients. In view thereof, sum of Rs.50,000/- was disallowed to cover up the errors and omissions. The second 4 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors point noted by the Assessing Officer was the joint venture agreement between the assessee and M/s. Shriram Constructions. The reply of the assessee is reproduced in the assessment order, in which the assessee explained that five persons had entered into a Development Agreement with different land owners and all the five parties had further transferred and assigned development rights in assessee's and his family's favour and they had started development of the said properties with M/s. Estate Enterprises and M/s. Shriram Constructions and had formed the AOP in the name and style M/s. Gajanan Associates by Deed of Joint Venture on 26.05.2008 registered in the office of Sub-Registrar's office. In the said AOP, the assessee claimed that they had contributed their development rights and M/s. Shriram Constructions was to look after the construction work and also provide all the material required for construction and finance for all the expenses required to complete the construction work. The parties of the First and Second Part were to make available the land for joint development and the party of Third Part was to bring in the capital required for the construction of project. As per para 33 of the said agreement, the understanding was that the said joint venture was for efficient pooling of resources and it was undertaken that neither party was transferring to other, any kind of right or interest, etc. in the said properties and as such, the documents were exempted from registration. The assessee states that it had taken sum of Rs.25 lakhs as security deposit to avoid any losses and the same does not become part of sale consideration. The Assessing Officer on the other on the other hand, held as under:-
"10. From the facts discussed above, as per para 2 of the letter dated 23- 12-2011, the assessee has entered into Agreement with M/s Shriram Construction and assigned their Development Rights to M/s Shriram Construction. On the same date, M/s Shriram Construction and the assessee have entered into Agreement with M/s Gajanan Associates by forming AOP. Thus, the assessee has assigned his Development Rights to the extent of his share acquired from the five persons (Kate, Govind Developers & others) to M/s Shriram Construction, Pune. Therefore there is clear cut nexus between the interest free deposits accepted from M/s Shriram Constructions and 5 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors assignment of Development Rights to the extent of his share. In view of the above facts, it is held that the interest free deposit received from M/s Shriram Construction is nothing but Assignment of Development Rights to the AOP through M/s Shriram Construction. The assessee is getting profit from the AOP formed under the name and style M/s Gajanan Associates as per Agreement dated 26-05-2008. The assessee has acquired the Development Rights for Rs.18,83,666/- and assigned the Rights to M/s Shriram Construction for Rs 25,00,000/-. The difference between the deposits of Rs.25,00,000/- and the Development Rights acquired in the above properties is taxed as a capital gains and added to the total income."
6. The CIT(A) further held as under:-
" I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is clear that the appellant had contributed 8.33% of his share of development rights in land as capital contribution in the AOP as one of the parties of Second Part. The appellant claims that the amount of Rs.25,00,000/- received by him is interest free security which cannot be charged to tax as Capital Gain, is difficult to be accepted in view of specific provisions of Sec.45(3) of the Income-tax Act. For the sake of clarity, Sec.45(3) is reproduced as under:-
"7[(3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purpose of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset."
The appellant claims that since value of Capital Asset was not recorded in the Books of AOP while forming AOP, provisions of Sec.45(3) of the Income-tax Act cannot be applied in the sense that all the conditions making the section workable are not satisfied. In this case, it is seen that agreement dated 26.05.2008 has been registered for Rs.2 crores out of which the appellant has got Rs.25 lacs. Thus, it cannot be said that the value of asset is not recorded in the Books. In any case, the entries in the Books of Account are not the sole criteria for deciding the taxability of income as held by Hon'ble Supreme Court in the case of Kedarnath Jute Mills Ltd., 82 ITR 363 (SC). Therefore, on the facts and circumstances of the case, I do not find any necessity for interfering with the order of the Assessing Officer and his action in adding Rs.6,66,334/- under the head Capital Gains to the total income of the appellant is upheld.
The appellant has relied upon the decision of Hon'ble Supreme Court in the case of Travancore Rubbers & Tea Co. Ltd. Vs. CIT 243 ITR 158. I find that the facts of the case are different as in that case the issue pertained to taxability of earnest money and certain advances after termination of contract. Therefore, the above case law cited by the appellant cannot be said to be relevant in this particular case.
Accordingly, Ground No.1 is dismissed"
6
ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors
7. The CIT(A) also upheld the disallowance of Rs.50,000/- out of transport expenses.
8. The assessee is in appeal against the order of CIT(A) on both the counts.
9. The learned Authorized Representative for the assessee furnished note on the joint venture transactions, which read as under:-
NOTE ON JOINT VENTURE TRANSACTIONS S.No. Particulars Remark
1) Subject to Land was purchased on 07.07.2005 which is introduce in Joint Venture (Gajanan Associate)
2) On 26.05.2008 we entered in to Joint Venture with another two parties for development of my land (i.e. co- owner) on only security deposit for cause to further litigations and any losses as per condition No.17 of Agreement vide page No.113 to 138 without mentioning cost of land nor recorded in the books of AOP.
(Referred deposit received from third member Shriram Associate.
3) As per condition No.13 on page 126 I have received profit in the AY 2010 -11 Rs.2,31,744/- which is disclosed with return of income vide page No.60.
4) As per the clause No.15 on page No.128 the party of the first part and the party of the second part (Owner of the Land) has to be furnished additional TDR/ FSI in the said project. Accordingly the party of first part and the party of the Second part has purchased TDR from outside and Supplied in the F.Y. 2010-2011 and in the same year the subjected land is converted into Stock- in-trade vide account extract page No 69 and computation of income on Page No.65.
During the year received share profit is credited to cost of Land converted in to Stock-in-trade. (Share Profit Rs.33,21,001/-).
5) Further subsequent AY.'s received s hare income is taxed under income from AOP for the AY.2012 -2013 page No.72 Rs.41,56,089/- (Rs.54,46,495/- (-) Rs.12,90,406/-) and for the AY.2013 -2014 on page No.67 Rs.55,18,158/- and also received amount is taxes in subsequent AY.'s.
6) After completion of project I have repaid security Deposit Rs,25,00,000/- to Shriram Associate in the F.Y.2014 -2015 by account payee cheque as referred in Bank account vide page No.108 Rs.8,50,000/-and page No.110 Rs.16,50,000/-.
7
ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors
10. The learned Authorized Representative for the assessee pointed out that the assessee as the owner of land had entered into a Development Agreement, where the assessee had contributed the land to the AOP. Another person had contributed the TDR rights and the third person had contributed funds for development. The assessee, as per the Agreement had received security deposit of Rs.25 lakhs and the issue arising in the present bunch of appeals was whether sum of Rs.25 lakhs was chargeable to tax in the hands of assessee. He stressed that there was no transfer of land to the AOP as it was joint venture agreement, where each person was doing his part of the agreement. Referring to the order of Assessing Officer, the learned Authorized Representative for the assessee pointed out that as per the Assessing Officer, the land was received in lieu of transfer of development rights, whereas the case of assessee was that it was security deposit and was refundable. On the other hand, the CIT(A) held that the provisions of section 45(3) of the Act were attracted. In this regard, the learned Authorized Representative for the assessee pointed out that where no asset had been transferred to the AOP and it was the case of joint venture and where asset was not recorded in the books of AOP, therefore, provisions o f section 45(3) of the Act could not be invoked. For applying the provisions of said section, two primary conditions had to be satisfied that the amount of value should be shown as asset and the credit of amount should be given to the contributor. However, in the absence of the same, the learned Authorized Representative for the assessee vehemently stated that the provisions of section 45(3) of the Act were not to be applied, where the assessee had received security deposit, the same could not be converted into consideration. He further stated that when section was being applied, under deeming provisions, rule of interpretation should be directly applied. In case of procedural provisions, liberal view should be taken. Our attention was drawn to the copy of Joint 8 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors Venture agreement entered into on 26.05.2008, copy of which is placed at page 111 to 139 of the Paper Book and reference was made to various clauses of the said agreement.
11. The learned Departmental Representative for the Revenue on the other hand, relying on the order of CIT(A) pointed out that in the joint venture agreement itself, the value of property is mentioned to be Rs.2 crores i.e. on which price it was transferred.
12. In respect of ground of appeal No.2, the learned Authorized Representative for the assessee stated that the disallowance was adhoc and the learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.
13. We have heard the rival contentions and perused the record. The first issue arising in the present appeal is with regard to assessability of sum of Rs.25 lakhs, which the assessee claims he had received as security deposit on account of entering into joint venture agreement and was not relatable to the cost of asset. Whereas, the case of Revenue, on the other hand, was that the said amount received by the assessee was on account of cost of asset which was transferred to the AOP and hence, income from capital gains on the transfer of land. The assessee along with Parmanand A. Kriplani, Tekchand S. Kriplani, Manohar G. Kriplani and Shri Pitambar S. Kriplani entered into development agreement with various land owners as enlisted by the CIT(A) in his order at pages 2 and 3 of the appellate order. The assessee after getting the development rights transferred/assigned in his favour, formed AOP with two other parties vide Deed of Joint Venture dated 26.05.2008 under the name and style M/s. Gajanan Associates. The said Joint Venture was entered 9 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors into with M/s. Estate Enterprises, who was the party of First Part, Kriplani Brothers, who were party of the Second Part and M/s. Shriram Constructions, who was the party of Third Part. The AOP was registered in the office of Sub - Registrar, Pimpri Chinchwad, Pune. As per clauses of Joint Venture Agreement, the parties were desirous of developing the said properties and to construct multi-storied buildings or such other permissible constructions thereon. In order to implement the project of carrying out the development and construction jointly, it was decided to pool the financial strength, experience and expertise in the development and construction of said immovable properties. The agreement was to jointly implement the said business on the said properties by way of a Joint Venture without actually forming partnership firm. As per clause 3 of the said agreement, the parties agreed to jointly come together with an intention to get maximum benefit by centralization of the development activities and the moment the entire development was completed, the AOP would automatically come to an end after ascertaining and distribution of revenue share profits generated from the Venture and settlement of accounts. The party of the First Part and Second Part were under an obligation to pay the land cost to the said owners of the said properties as per the said development agreement and had to further apply to the concerned local authority for getting the building plans sanctioned. The obligations of the party of the First Part and Second Part are enlisted in clause 7 of the said Joint Venture Agreement. As per clause 8 of the said agreement, the obligation of the party of the Third Part was to take all decisions regarding day-to-day working and management of development work to be carried out and to supervise the work of development and also to bear and pay all the funds required for sanctioning of building plans, carrying out the actual work of construction, development on the said projects, expenses of advertisement, etc. Further, it was also his obligation to ensure 10 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors that the said business was completed expeditiously and to perform and discharge all contractual and statutory obligations as promoter towards the proposed allottees of flats / units in the project. The parties also agreed to the area to be constructed and also the minimum sale price of the units constructed. As per clause 13, there was an understanding between the parties for sharing the gross sale proceeds of the units of the said project; the party of First Part was to receive 23% (along with share of attorney), the party of Second Part was to receive 23% (along with share of attorney) and the party of Third Part was to receive 50%. The share of the assessee in the said gross sale proceeds was to the extent of 3.5%. Under clause 16 of the Joint Venture agreement, it was agreed between the parties hereto that the capital required for the construction of the project other than that of land should be brought in by the party of Third Part. As per clause 17, the party of the Third Part had agreed to give interest free advance of Rs.1 crore to the parties of the First and Second Part each and the said amount had to be adjusted against final payment of revenue share. Besides the other terms agreed upon between the parties, as per clause 33, it was reiterated that the agreement of Joint Venture related to efficient pooling of the resources and neither parties was transferring to other any kind of right, interest in the said properties and as such the document was exempted from registration under the provisions of Indian Registration Act.
14. The issue arising before us is with regard to the amount received by the assessee pursuant to the said Joint Venture agreement. The claim of the assessee was that it had received the said security deposit from the developer of the plot in order to safeguard themselves against any charges levied for violation of any provisions. The case of the Department on the other hand, is that as per the Assessing Officer, the amount has been received on acc ount of 11 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors transfer of property and as per the CIT(A), the said amount is assessable in the hands of assessee under section 45(3) of the Act by way of transfer of the said asset to the AOP. The perusal of Joint Venture Agreement entered into between the assessee and others reflected that the First Part had contributed certain lands and also TDR rights and the assessee had contributed the land to the AOP for development only. It was not the case of transfer of land to the AOP, but was the case of joint poolin g of resources by three different parties, wherein the party of the First Part was to contribute TDR rights, the party of Second Part i.e. assessee was to make available the land, on which the development had to be undertaken and the party of Third Part had to overseas the construction and also contribute funds for the construction of the said project. In such scenario, where the asset held by the assessee has not been transferred to the AOP, there is no question of charging any income from capital gains in the hands of assessee in this regard under section 45(3) of the Act. The security deposit received by the assessee is not chargeable to tax. Even otherwise, the said security deposit has been refunded by the assessee by cheque to M/s. Shriram Constructions i.e. party of the Third Part in financial year 2014-15. The assessee has also placed the copy of bank account on record, wherein there is debit of Rs.8,50,000/- and Rs.16,50,000/- totaling Rs.25 lakhs. The copy of bank statement is placed at pages 108 to 110 along with confirmation of M/s. Shriram Constructions at page 106 of the Paper Book.
15. Another aspect to be seen in the case is that while completing the assessment in the hands of Parmanand A. Kriplani, who had received 16.67% as against 8.33% received by the assessee, was completed by the Assessing Officer vide order passed under section 143(3) of the Act dated 03.11.2011 and though during the course of assessment proceedings, submissions were 12 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors made with regard to the purchase of property and the Joint Venture Agreement, but no addition was made in this regard. The copies of the said assessment order along with explanation filed by the assessee are placed at pages 97 to 105 of the Paper Book. In such scenario, where the transaction as such has been accepted in the hands of one of co-owners, no adverse view could be taken in the hands of other persons.
16. Another objection raised by the learned Departmental Representative for the Revenue was that while registering Joint Venture Agreement, t he market price of the property was fixed and was taken at Rs.2 crores. We find no merit in the said claim of learned Departmental Representative for the Revenue. The assessee along with others had pooled in their resources i.e. by way of availability of land and TDR rights and finance, respectively and where the property as such has not been transferred to the AOP, there is no question of assessing the value of security deposit as gain arising on the transfer of land in the hands of assessee. Accordingly, we delete the addition of Rs.6,66,334/- made by the Assessing Officer on account of income from capital gains. The ground of appeal No.1 raised by the assessee is thus, allowed.
17. Now, coming to the issue in ground of appeal No.2 i.e. against disallowance of Rs.50,000/- out of transport charges paid by the assessee.
18. The said disallowance was made since the expenses were claimed on self made vouchers and was also paid in cash. The Assessing Officer also noted certain discrepancies in the bills produced by the assessee. In the totality of the above said facts and circumstances, we restrict the disallowance 13 ITA Nos.1646 to 1649/PN/2014 Ashok Gordhandas Kirplani & Ors to Rs.25,000/-. The ground of appeal No.2 raised by the assessee is thus, partly allowed.
19. The facts and issues in ITA Nos.1647 to 1649/PN/2014 are identical to the facts and issues in ITA No.1646/PN/2014 and our decision in ITA No.1646/PN/2014 shall apply mutatis mutandis to ITA Nos.1647 to 1649/PN/2014.
20. In the result, all the appeals of assessee are partly allowed.
Order pronounced on this the 27th day of May, 2016.
Sd/- Sd/-
(PRADIP KUMAR KEDIA) (SUSHMA CHOWLA)
लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER
पुणे / Pune; �दनांक Dated : 27th May, 2016.
GCVSR
आदे श क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to :
1. अपीलाथ� / The Appellant;
2. ��यथ� / The Respondent;
3. आयकर आयु�त(अपील) / The CIT(A)-V, Pune;
4. आयकर आयु�त / The CIT-V, Pune;
5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पुणे "ऐ" / DR 'A', ITAT, Pune;
6. गाड� फाईल / Guard file.
आदे शानुसार/ BY ORDER, स�या�पत ��त //True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune