Bombay High Court
Sanand Properties Pvt. Ltd vs Joint Commissioner Of Income Tax on 19 December, 2011
Bench: Dr. D.Y. Chandrachud, A.A. Sayed
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION NO.1648 OF 2011
Sanand Properties Pvt. Ltd. ...Petitioner.
Vs.
Joint Commissioner of Income Tax,
Range-6, Pune & Ors. ...Respondents.
....
Mr.B.V.Jhaveri for the Petitioner.
Mr.Vimal Gupta for the Respondents.
.....
CORAM : .D.Y.CHANDRACHUD AND
A.A.SAYED, JJ.
December 19, 2011.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
In these proceedings under Article 226 of the
Constitution, the Petitioner has sought to question a notice under
Section 148 of the Income Tax Act, 1961, issued on 11 January
2011, by the Assessing Officer, seeking to reopen assessment
proceedings for Assessment Year 2008-09.
2. The Petitioner filed a return of income for Assessment
Year 2008-09 on 29 September 2008, declaring a total income of
Rs.20.33 lakhs. A revised return of income was filed on 3 October
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2008, declaring an income of Rs.19.14 lakhs, as depreciation
under the Income Tax Rules remained to be reduced from the gross
total income. The Petitioner is a member of an Association of
Persons (AOP) by the name of Fortaleza Developers and was in
receipt of an amount of Rs.14.18 crores which was claimed to be
exempt under Section 86 read with Section 167B. The Petitioner
received from the AOP an amount comprised of 35% of the gross
receipts received by the AOP from the sale of flats. No expenses
relating to the business of the AOP were deducted from the share
of receipts given to the Petitioner by the AOP. On 20 July 2010, an
assessment order was passed under Section 143(3) determining
the income at Rs. 14.42 crores. Receipts from the AOP of Rs.
14.18 crores which were claimed to be exempt under Section
167B came to be disallowed by the Assessing Officer.
3. On 11 January 2011, a notice has been issued under
Section 148 on the ground that income chargeable to tax has
escaped assessment within the meaning of Section 147. The
reasons which have been recorded by the Assessing Officer are that
the assessee has not received a share of profits from the AOP, but
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has received consideration in the form of a 35% share in the
proceeds of the sale against development rights in land
surrendered by the assessee to the other members of the AOP and
finally to the purchasers of the flats/residential units.
Consequently, the Assessing Officer has stated in his reasons for
reopening the assessment that the income received by the assessee
from the AOP is not a share of profits, but consideration received
against development rights sold/surrendered. On this basis, the
Assessing Officer has recorded that income of Rs.14.18 crores is not
exempt income, but is taxable in the hands of assessee, but it had
escaped assessment within the meaning of sub clause (iv) of clause
(c ) of Explanation 2 to Section 147. Moreover, it has been stated
that a survey under Section 133A came to be conducted in the
case of the assessee on 23 December 2010 in which a statement of
the Director was recorded. The Director of the assessee stated that
development rights being precious, the assessee did not want the
returns from its business to be exposed to the inherent risks of
business and hence, to safeguard those rights, a formula was
devised by which the assessee came to be entitled to 35% of the
gross receipts out of the sale of flats in the AOP.
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4. The reasons for reopening the assessment were intimated
to the Petitioner on 18 May 2010. The Petitioner filed objections
on 7 February 2011 which have been disposed of by an order
dated 14 July 2011.
5. Counsel appearing on behalf of the Petitioner submitted
that: (i) The ground for reopening the assessment, though within
four years, is substantially similar to the ground that was set out in
a notice for reopening the assessment for Assessment Year
2007-08; (ii) By a judgment dated 23 September 2011 delivered
by this Court in Writ Petition 1647 of 2011, the notice reopening
the assessment for Assessment Year 2007-08 has been set aside and
that a similar order should follow in this case; (iii) There is only a
change of opinion on the part of the Assessing Officer in the
present case and there was no tangible material on the basis of
which the assessment could be reopened.
6. On the other hand, Counsel appearing on behalf of the
Revenue submitted that: (i) There is a material difference between
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the reopening that took place for Assessment Year 2007-08 as
compared to the reopening in the instant case for Assessment Year
2008-09. In the case of Assessment Year 2007-08, the order of
assessment in the case of AOP did not consider the issue as to
whether the share of the assessee in the AOP representing 35% of
the gross sale proceeds was a profit sharing agreement or a mere
revenue sharing agreement. The claim under Section 80IB(10)
was denied only on the ground that the assessee has not
constructed flats below required area. Contrariwise in the
assessment order relating to the AOP for Assessment Year 2008-09,
the Assessing Officer has gone into the agreement in a significant
amount of detail and has concluded that the agreement under
which the assessee received 35% of the gross sale proceeds of the
residential flats is not a profit sharing agreement, but a revenue
sharing agreement; (ii) The Assessing Officer has tangible material
on the basis of which the assessment could be reopened for
Assessment Year 2008-09. Under Section 67(2), the share of a
member in the income of an association of persons, computed
under sub-Section (1) has to be apportioned for the purposes of
assessment under various heads of income in the same manner in
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which the income of the association under each head has been
determined. The profit and loss account of the assessee for
Assessment Year 2008-09, reflected that an amount of Rs.14.18
crores was a share of profits from the AOP. The assessee has failed
to disclose to the Assessing Officer all the relevant facts and
circumstances. The reopening of the assessment is within
jurisdiction.
7. The reopening of the assessment in the present case, is
within a period of four years of the end of the relevant Assessment
Year. The order of assessment was passed under Section 143(3).
The jurisdictional condition for the reopening of the assessment is
that the Assessing Officer has reason to believe that income
chargeable to tax has escaped assessment for any Assessment Year.
However, in view of the law laid down by the Supreme Court in
Commissioner of Income Tax vs. Kelvinator of India Ltd.,1 it is
now a settled principle of law that even within a period of four
years the Assessing Officer is not entitled to review his finding and
an assessment can be validly reopened only if there is tangible
1 [2010] 320 ITR 561 (SC)
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material on the basis of which the Assessing Officer comes to the
conclusion that income has escaped assessment. The issue,
therefore, is as to whether there was tangible material before the
Assessing Officer to reopen the assessment for Assessment Year
2008-09.
8. The assessee is in receipt of an amount of Rs.14.18
crores from the AOP for Assessment Year 2008-09. The assessee
treated this as a share of profits from the AOP in the Profit and Loss
Account. The Assessing Officer in paragraph 2 of the order of
assessment dated 20 July 2010 merely recorded that the assessee is
a member of an AOP having a share of 35% in the profits. The
reason for reopening the assessment is what the assessee has
received from the AOP is 35% of the gross receipts from the sale of
flats against the development rights surrendered by the assessee in
land. The Assessing Officer has postulated that the income
received by the assessee from the AOP is not a share of profits, but
consideration received against development rights
sold/surrendered. Now the order of assessment that has been
passed by the Assessing Officer on 29 December 2010 in the case of
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the AOP forms part of the record of these proceedings. The order
of the Assessing Officer pertaining to the AOP contained a separate
discussion on the sharing of revenue and income. The Assessing
Officer has noted as follows :
"It may be seen from the above that M/s.Sanad Properties
Pvt. Ltd. is entitled to 35% of gross sale proceeds of the
housing units constructed on land belong to this
company. Remaining 65% of the sale proceeds is to be
utilized for meeting expenditure of construction,
marketing, etc. and the balance, being the profit of
business, is the share of M/s.Raviraj Kothari & Co. another
member of the AOP. The agreement, therefore, is based
on revenue sharing and not income sharing. In the
accounts, however, the share of sale proceeds of
M/s.Standard Properties Pvt. Ltd. has not been debited. It
has been shown as part of the net profit which has been
claimed as deduction u/s.80IB. The appropriation account
also is not in accordance with the terms and conditions of
the agreement wherein an amount of Rs.14,18,52,156/-
also been shown as share of M/s.Sanad Properties Pvt.
Ltd. and Rs.7,93,77,951/- of M/s.Raviraj Kothari &
Company." (emphasis supplied).
The total income of the AOP was computed at Rs.41.50 crores from
which the Assessing Officer deducted an expenditure of Rs.19.38
crores giving rise to a surplus transferred to the members as Rs.
22.12 crores. The AOP in its computation of business income took
the total income at Rs.22.08 crores. The Assessing Officer
disallowed the deduction claimed under Section 80IB(10). In the
assessment order, the Assessing Officer noted that the AOP "has
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deliberately tried to give colour of profit to the share of
M/s.Sanand Properties Pvt. Ltd. whereas such share is share of
gross receipt which is not deductible under Section 80IB". The
Assessing Officer noted that the benefit of a deduction under
Section 80IB(10) is available to profits derived from a housing
project subject to certain conditions.
9.
The Assessing Officer has tangible material on the basis
of which he could proceed to reopen the assessment for Assessment
Year 2008-09. This is not a case merely of a change of opinion.
The Assessing Officer was in our view within jurisdiction in forming
the belief that income chargeable to tax has escaped assessment.
Even according to the AOP, the total profit is in the vicinity of Rs.
22.08 crores. The assessee has claimed a receipt of Rs. 14.18
crores as a share of profits. According to the Assessing Officer, this
represents 35% of the gross sale proceeds and is evidently not a
35% share in profits.
10. Counsel appearing on behalf of the Assessee has
submitted that in the judgment delivered by the Division Bench of
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this Court on 23 September 2011, the petition filed by the assessee
questioning the reopening of an assessment for Assessment Year
2007-08 was allowed and that this Petition is on the same basis.
There is merit in the submission which was urged on behalf of the
Revenue by Learned Counsel that there is a material difference
between the reopening that took place for Assessment Year
2007-08 and the reopening in the present case for Assessment Year
2008-09. A copy of the order of the Assessing Officer in the case of
the AOP for Assessment Year 2007-08 has been placed for the
perusal of the Court in these proceedings. Reading the order of the
Assessing Officer for Assessment Year 2007-08, it is evident that
there was no discussion in that case at all, in regard to the nature
of the receipt which has accrued to the assessee representing 35%
in the share of the gross receipts from the sale of residential flats.
On the contrary, in the case of the AOP for the Assessment Year in
question, Assessment Year 2008-09, the order of the Assessing
Officer dated 29 December 2010 contained a detailed elaboration
of the nature of the agreement and concluded that the agreement
was based on revenue sharing. In other words, the share
representing 35% in the gross receipts was not a share in profits,
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but a share in revenue. Counsel appearing on behalf of the
Assessee submitted that it is always open to the parties to devise
their own formula or arrangement for determining the manner in
which profits should be distributed. Whether the arrangement is in
fact, an arrangement for distribution of profits or otherwise, is a
matter which will fall for determination of the Assessing Officer on
merits after the reopening takes place, in the course of
reassessment proceedings. However, the point to be noted is that
in the judgment of this Court dated 23 September 2011, the Court
had in paragraph 12 noted that the existence or validity of the
AOP is not questioned; the AOP had been assessed as such and it
was on that basis that the Department had approved the
assessment proceedings pertaining to the AOP. The Court also
observed that the assessment of the AOP was not sought to be
reopened. The facts of Assessment Year 2008-09 are materially
different because in the assessment proceedings pertaining to the
AOP the Assessing Officer has taken note of the nature of the
agreement between the parties. The reopening in the present case
is within a period of four years and is based on tangible material.
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11. For these reasons, we do not find it appropriate in the
exercise of our jurisdiction under Article 226 of the Constitution to
interfere with the reopening of the assessment. The Petition shall
accordingly stand dismissed. No order as to costs.
( Dr.D.Y.Chandrachud, J.)
ig ( A.A. Sayed, J. )
