Tca/244/2020 Of The Commissioner Of Income Tax v. Doshi Estates

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE PUSHPA SATHYANARAYANA T.C.A.No.244 of 2020 The Commissioner of Income TaxChennai. M/s.Doshi Estates3H, Century Plaza, 560, Anna Salai,Teynampet, Chennai 600 018PAN AAGFD4592A...Respondent Prayer:- Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal, ''A'' Bench, Chennai dated 01.10.2019 inI.T.A.No.966/Chny/2017 against the order dated 21/03/2017 andmade in C. No 2(2)/PCIT – 5/NCR 3/2016-17 on the file of thePrincipal Commissioner of Income Tax – 5, Chennai against theolder dated 27/03/2015 and made in PAN No. on thefile of Income Tax Officer, Non Corporate Ward 3(2), Chennai. For Appellant: Ms.R.HemalathaSenior Standing counselFor Respondent :Mr.G.Baskar [Order of the Court was made by T.S.SIVAGNANAM, J.] This appeal, filed by the Revenue, under Section 260A of theIncome Tax Act, 1961 ('the Act' for brevity) is directed againstthe order dated 01.10.2019 passed by the Income Tax AppellateTribunal ('the Tribunal' for brevity), Bench 'A' Chennai inI.T.A.No.966/Chny/2017 for the assessment year 2012-13. Theappeal has been filed raising the following SubstantialQuestions of Law: https://hcservices.ecourts.gov.in/hcservices/ 1.Whether on the facts and in the circumstancesof the case the Tribunal was right and justified inholding that the provisions of Section 80IA (10) doesnot apply to the provisions of Section 80IB(10)? 2. Is not the finding of the Tribunal bad, byholding that the Principal Chief Commissioner ofIncome Tax had not proved with material evidence thatthe profits of the firm were more than the ordinaryprofits and that the sale consideration of the landought to be much higher without taking note of thefact brought out in the 263 order in the form of 3independent joint agreement appended to the saidorder? 3. Whether the reasoning and finding of theTribunal is proper by holding that there is no deviceto avoid tax, especially when the sons of the landowners who are non-resident Indian were introduced aspartners into the firm without making any contributionand was only a ruse to avoid taxation of income in thehands of the Seller of the land as a share of profitfrom the firm received by the sons which is nothingbut the sale consideration for the lands sold? 2. We have elaborately heard Ms.R.Hemalatha, learned SeniorStanding counsel for the appellant / assessee and Mr.G.Baskar,learned counsel for the respondent assessee. 3. The assessee is a Partnership Firm consisting of fivepartners. They are broadly divided into two groups viz., Dhosiand Chandrasekaran Group. In Dhosi Group, there are threepartners and Dhosi Group put together hold 65% share in the Firmand Chandrasekaran Family holds balance 35% which consists oftwo partners namely Mr.Akhil Chandrasekaran and Mr.PremChandrasekaran, who are the sons of Mr.V.Chandrasekaran andMrs.Saraswathi Chandrasekaran, who are the joint owners of theland measuring about 2.61 acres in Tambaram. The land ownersentered into an Agreement for joint development on 05.01.2007proposing to put up a Housing Project. The Partnership Firm cameinto being on 10.10.2008 in which 65% share was held by theDoshi family and remaining 35% were held by the sons ofMr.Chandrasekaran. The land appears to have been developed bythe Firm and sale of the flats took place during the assessmentyears under consideration, AY 2012-13 and 2013-14. The firmfiled return of income on 29.09.2012 admitting total income as'Nil'. The return was processed under Section 143(1) of the Actand subsequently the case was selected for scrutiny and the Firmfiled a revised return and after hearing the assessee, theAssessing Officer completed the assessment under Section 143(3) by order dated 27.03.2015 and the income assessed was atRs.23,235/-. by order dated 27.03.2015 and the income assessed was atRs.23,235/-. 4. The Principal Commissioner of Income Tax-5, Chennai('PCIT' for brevity) invoked his power under Section 263 of theAct, who opined that the Assessing Officer while computing thequantum eligible for deduction under Section 80IB(10), omittedto examine the vital aspects and parameters. The PCIT came tothe conclusion that the project income for the year is Rs.22.52crores and the net profit stands at Rs.11.35 crores which isapproximately 50% on the sales accounted for the year and suchhuge net profit margins in the business of construction ishighly improbable and the same confirms that the net profitmargin includes a major portion of gains that relates to theland sold by Smt. and Shri.Chandrasekaran who diverted as shareof profit to their children Mr.Prem Chandrasekaran and AkhilChandrasekaran. Therefore, the PCIT formed an opinion that theassessee firm would be ineligible for deduction under Section80IB(10) to the extent of Rs.3,97,40,900/- that is 35% of shareof profit for the year and therefore, the claim for deductionhas to be restricted to Rs.7,37,18,972/-. This according to thePCIT is the basis for revoking the power under Section 263 ofthe Act, as the Assessment Order is both erroneous insofar as itis prejudicial to the interest of the Revenue. 5. The respondent assessee by letter dated 23.11.2015requested to drop the proceedings initiated under Section 263 ofthe Act. Subsequently since there was a change of Commissioner,further showcause notice was issued calling upon the assessee toexplain as to why the Assessment Order passed under Section 143(3) of the Act should not be set aside as it is found to beerroneous insofar as it is prejudicial to the interest of theRevenue. The assessee contended that the sale transaction waswell within the guideline value and there is no understatementof consideration. They placed reliance on the decision of theSupreme Court of India in the cases of 131 ITR 597 (K.P.VargheseVs. ITO); 282 ITR 259 (CIT Vs. P.V.Kalyanasundram); 66 ITR 622(CIT Vs. George Henderson Co.Ltd); 87 ITR 407 (CIT Vs.Gillanders & Arbuthnot & Co.Ltd.,); [2011] 203 Taxman 241(madras) (Dr.Fareed Jamshid Italia Vs. ACIT). The PCIT afterconsidering the reply submitted by the assessee held that if theowners of land (Smt. and Shri.Chandrasekaran) had entered into aJoint Development Agreement with any builder during the relevantperiod of time, by which constructed space is received by theowners in lieu of transfer of undivided share of land to thebuilders, the sharing ration of constructed space, wouldnecessarily be in the ratio of 65:35 between the builder and theowner of the land. This ratio is uniformly adopted in all JointDevelopment Agreement in Chennai and in suburbs of Chennai. ThePCIT opined that instead of providing sale proceeds of the proportionate share of the constructed place to the ownerdirectly, by the arrangement of the partnership business, theassessee firm has passed on the value of sale proceedsindirectly as share of profit credited to the sons of the landowner, this according to PCIT was nothing but excess saleconsideration to the land transferred by the owners. The PCITthough found that the land was sold at the guideline value, heldthat the guideline value need not be a decisive factor todetermine the sale consideration between related enterprises /parties and the guideline value cannot be the sole factor todetermine the sale consideration for the purpose of computingthe capital gains. The PCIT relied on the decision in the caseof Thulasimani Ammal Vs. the Commissioner of Income Tax andAnother (158 CTR Mad 5 (2000)] and in the case of M.Ponnusamyand Others Vs. District collector, Erode and Others (1999 (2)L.W 231) and the decision of the Hon'ble Supreme Cout in RameshChand Bansal Vs. District Magistrate / Collector, Ghaziabad (AIR1999 SC 2126). These decision were referred to support it'sfinding that the guideline value / circle rate is not final butit is only a prima facie determination of the rate of the areaconcerned to give guidance to the registering authority to testprima facie whether the instrument has properly described thevalue of the property and the circle rate under the Stamp Act /Rules is not final. The PCIT observed that the provision ofSection 80IB are governed by Section 80IA(10) and net profitswhich stands at a phenomenal rate of 50% is definitely anarrangement of business so as to avail excessive deduction andaccordingly set aside the assessment order. 6. The assessee carried the matter on appeal before theTribunal. The Tribunal considered the submissions on eitherside, carried out a detailed analysis of the factual positionand found that there is no material to suggest that the businessof the assesseee / partnership was so arranged in such a way toproduce more than the ordinary profit. The appeal of theassessee was allowed by the impugned order. Challenging thesame, the Revenue is before us by way of this appeal. 7. After setting out the factual position and referring toSection 80IA(10) and Section 80IB(10), the learned SeniorStanding counsel submitted that the order passed by the PCITought not to have been interfered with by the Tribunal andrelied on the decision in the case of Thulasiammal and thedecision of the Hon'ble Supreme Court in State of Punjab &Others Vs. Mohabir Singh (1996 (1) SCC 609) and the decision ofthe Hon'ble Supreme Court in the case of Malabar IndustrialCompany Vs. CIT (Kerala State) dated 10.02.2020. These decisionswere relied to support the contention that the guideline valueis only an indicator and that cannot be a sole reason to termthe sale transaction to be for a genuine value. Reliance was also placed on the decision of the Hon'ble Court of Punjab andHaryana in Broadway Overseas Limited v. Commissioner of IncomeTax, Jalandhar -I [2014 41 Taxmann.com 75 (TNH)]. 8. Per contra, learned counsel for the respondent assesseecontended that the facts of the case will clearly show that theassessee has not so arranged their business with a view toproduce to the assessee more than the ordinary profits whichmight be accepted to arise in such eligible business. It issubmitted that the Tribunal on going through the factualposition found that there is no such methodology adopted by theassessee for invoking the provisions of Section 80IA(10). It isfurther submitted that the land owner is also entitled to claimdeduction under Section 80IB and in support of such argument,reliance was placed on the decision in the case of Commissionerof Income Tax Vs. Astoria Leathers [2020 117 taxmann.com 907(Madras)] dated 08.07.2020. 8. Per contra, learned counsel for the respondent assesseecontended that the facts of the case will clearly show that theassessee has not so arranged their business with a view toproduce to the assessee more than the ordinary profits whichmight be accepted to arise in such eligible business. It issubmitted that the Tribunal on going through the factualposition found that there is no such methodology adopted by theassessee for invoking the provisions of Section 80IA(10). It isfurther submitted that the land owner is also entitled to claimdeduction under Section 80IB and in support of such argument,reliance was placed on the decision in the case of Commissionerof Income Tax Vs. Astoria Leathers [2020 117 taxmann.com 907(Madras)] dated 08.07.2020. 9. We have elaborately heard learned counsel appearing forparties and carefully perused the entire materials placed onrecord. We find that the issue involved in the matter is whollyfactual. The Assessing Officer formed an opinion initially andcompleted the assessment under Section 143(3) of the Act. ThePCIT thought fit to invoke his power under Section 263 of theAct and doubted the value adopted in the transaction and thatthe Partnership Firm was a device made to divert the excessprofit to the sons of the land owners and this according to thePCIT was clearly hit by Section 80 IA(10) of the Act and theexcessive deduction had to be deleted. The Tribunal on its partre-examined the factual position and opined that there isnothing to indicate that the land was transferred at theguideline value so as to shift the profit to the PartnershipFirm and in the absence of any material to substantiate thesame, there was no ground to interfere with the Assessment Orderby invoking the power under Section 263 of the Act. 10. In the earlier part of this judgment, we referred tothe factual position and noted that the Joint DevelopmentAgreement was entered into on 05.01.2007. According to thePCIT, the Partnership Firm was a device adopted by the assesseeto arrange its business in such a manner to produce more thanthe ordinary profits. If such was the finding, then thePartnership Firm should have been in existence on the date whenthe Joint Development Agreement was entered into i.e., on05.01.2007. However, the undisputed fact is that the PartnershipFirm came into being pursuant to the Deed of Partnership on10.10.2008, which much after the Joint Development Agreement.There is no quarrel on the legal proposition that the guidelinevalue fixed by the State is only an indicator of the value ofthe property. The predominant purpose for which the guideline value is fixed by the State is for computing the stamp duty onan instrument of sale. However in the instant case, the PCITfaulted the land owners for having sold the land at theguideline value. There was no material available before the PCITthat such guideline value was ridiculously low. In fact, theprofit is being computed based on the sale which were effectedduring the assessment year under consideration, AY 2012-13, thatis more than five years after entering into the JointDevelopment Agreement, four years after the Partnership Firmcame into being. Therefore, in the absence of any material toshow that the assessee had so arranged the business and madetransaction to produce more than the ordinary profits and thesame having not been established by the Revenue, there was noground for the PCIT to exercise its power under Section 263 ofthe Act. 11. Reading of the order of the PCIT dated 21.03.2017, wefind that it is based on the hypothetical situation, we say sobecause the PCIT states that under normal circumstances, ifthere is a direct Joint Development Agreement, the parties wouldact in a particular fashion. There can be no presumptions andassumptions while deciding the correctness of an order ofassessment, more particularly when the PCIT invokes his powerunder Section 263 of the Act. The Statute mandates twinconditions to be fulfilled while exercising such power andtherefore there is no room to invoke such a power and in theabsence of any material before the PCIT to term the PartnershipFirm to be a device adopted by the assessee to earn more thanthe ordinary profit, there was no reason for the PCIT tointerfere with the Assessment Order under Section 143(3) of theAct. That apart, the Tribunal has elaborately considered thefactual position and granted relief to the assessee. 12. Thus for the above reasons we find that there are noQuestions of Law much less Substantial Questions of law arisesfor consideration in this appeal. Accordingly the Tax CaseAppeal fails and dismissed. No costs. Sd/- Assistant Registrar//True Copy// Sub Assistant Registrar sk https://hcservices.ecourts.gov.in/hcservices/ To The Commissioner of Income TaxChennai. The Income Tax Appellate Tribunal“A” Bench,Chennai. The Principal Commissioner of Income Tax – 5ChennaiThe Income Tax Officer,Non Corporate Ward 3(2)Chennai.+1cc to Mr.G.Baskar, Advocate, S.R.No.28689+1cc to Mr.T.Ravikumar, Advocate, S.R.No.28526T.C.A.No.244 of 2020VD(CO)RN(06/11/2020)