TMI Blog2013 (9) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the transaction - An "exchange" involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person -There must be a mutual transfer of ownership of one thing for the ownership of another - A "relinquishment" takes place when the owner withdraws himself from the property and abandons his rights thereto - It presumes that the property continues to exist after the relinquishment - Where, upon amalgamation, the company in which the assessee holds shares stands dissolved, there was non "relinquishment" by the assessee - In view of the above discussion, there was no relinquishment of right over the property. – decided against Revenue. Confirmation of Addition Towards Payment Made - addition was sustained in the hands of the assessee on the reason that it was deleted in the hands of the recipients - Held that:- The deletion of the addition by the Commissioner of Income-tax (Appeals) in the hands of recipients may be on various reasons, but that itself cannot be a reason to sustain the same in the hands of the assessee who has incurred this expenditure wholly and exclusively for the purpose of business. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure had to be allowed as business expenditure and the same was allowed - the assessee filed all the requisite details in the form of bill and receipt from the architect - Payment was made by cheque and also subjected to TDS - The expenditure was incurred towards consulting services provided by the architect with regard to site plan, SEZ specific building plan - More so, the Department had not brought anything to show that the assessee had not incurred this expenditure for the purpose of the business and it was presumed that it was incurred for the purpose of business and the same had to be allowed. Disallowance of Technical Expenditure – Held that:- The assessee claimed the above expenditure but had not filed explanation regarding this expenditure and had also not filed proof for having spent this expenditure - This expenditure was relating to the earlier year and the same was disallowed - Before us also no evidence was produced by the assessee as a proof for incurring this expenditure wholly and exclusively for the purpose of business - Being so this ground is dismissed. Disallowance of Expenditure Towards Video Surveillance Charges - Held that:- if the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right over the asset by the assessee to the purchaser. Being so, he was of the opinion that there is a transfer in view of the provision of section 2(47) of the Act and levied tax on capital gain accordingly. On appeal the Commissioner of Income-tax (Appeals) observed that against the agreed total sale consideration of ₹ 2,24,00,000, only a paltry advance of ₹ 8 lakhs was received by the assessee. The Assessing Officer has considered the transaction as transfer within the meaning of section 2(47) of the Income-tax Act on the ground that the vendor had agreed to execute the sale deed as per the terms of the agreement of sale and that there was a clause allowing the vendee to enter into further agreement in respect of the scheduled property. Considering the same, the Assessing Officer held that the assessee had relinquished his rights in the property in favour of the purchaser which comes within the meaning of section 2(47) of the Act. The Commissioner of Income-tax (Appeals) observed that as per section 2(47) transfer in relation to a capital asset includes sale, exchange, or relinquishment of the asset or the extinguishment of any right therein or compulsory a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speak of relinquishment of right at all. Either it has to be relinquishment of asset or extinguishment of right therein . Thus, considering the fact in totality, the Commissioner of Income-tax (Appeals) was of the opinion that there was no justification on the part of the Assessing Officer for invoking the provision of section 2(47) of the Income-tax Act simply on the basis of the agreement of sale since none of the conditions relating to the transfer enumerated in section 2(47) were fulfilled. Otherwise also, as stated by the assessee, no prudent person shall hand over the possession of the property and transfer the ownership on payment of a paltry sum of ₹ 8 lakhs when the market value of the property is around ₹ 2.24 crores. Accordingly, he held that the Assessing Officer was not justified in treating the transaction as transfer within the meaning of section 2(47) of the Income-tax Act so as to levy capital gain thereon. Thus the computation of capital gain made by the Assessing Officer and adding the same to the total income is held to be unjustified and directed to be deleted. Against this the Revenue is in appeal before us. We have heard both parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We also place reliance on the decision of CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198 (SC) wherein the apex court held, affirming the decision of the High Court, that there was neither an exchange nor a relinquishment and no capital gains arose from the transaction. An exchange involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another. A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment. Where, upon amalgamation, the company in which the assessee holds shares stands dissolved, there is non relinquishment by the assessee. In view of the above discussion, there is no relinquishment of right over the property. Accordingly, the appeal of the Revenue is dismissed. I. T. A. Nos. 1018 and 891/Hyd/2011 : The assessee raised the following grounds in I. T. A. No. 891/Hyd/2011 : 1. The order of the Commissioner of Income-tax (Appeals)-I, Hyderabad, in confirming the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng dated July 28, 2007. He also accepted the payment of ₹ 5 lakhs to Mr. Vittal Reddy vide cheque No. 673835. However, only he doubted the payment of ₹ 5 lakhs to Syed Naser and Dilip Kumar. When the payment of this amount arose out of the same transaction, in our opinion, this payment alone cannot be disallowed. More so, all these persons had claimed the right over the property which the assessee dealt with by selling the same to DLF group of companies. At that time, they initiated civil litigation and this expenditure, in our opinion, it is incurred by the assessee on account of business and commercial exigencies for the purpose of business. The deletion of the addition by the Commissioner of Income-tax (Appeals) in the hands of recipients may be on various reasons, but that itself cannot be a reason to sustain the same in the hands of the assessee who has incurred this expenditure wholly and exclusively for the purpose of business. Considering the facts and circumstances of the case, we are inclined to delete the addition. The next ground is with regard to confirming the addition of ₹ 19,81,519. The brief facts of the issue are that the assessee claimed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the commencement of the business, and it is incurred not for carrying on the business of the assessee but for setting up the business. Accordingly it cannot be considered as business expenditure to allow the deduction. The addition is sustained. The next ground is with regard to sustaining disallowance of site-levelling expenditure at ₹ 13.90 lakhs. The brief facts of the issue are that during the assessment proceedings the Assessing Officer requested the assessee to furnish the details regarding site-levelling expenses. After verifying the details filed by the assessee the Assessing Officer found that ₹ 6,33,924 was paid to Lumbini Filling Stations towards fuel expenses and all the payments were made in cash in excess of ₹ 20,000. The Assessing Officer observed that the payments clearly attracted the provision of section 40A(3). As regards the balance expenses, the Assessing Officer also observed that the payments were made by cash though the same was below ₹ 20,000. The Assessing Officer also observed that in the case of Demi Realtors a reference was made to the Valuation Officer to verify whether any development expenditure was incurred in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LF group of companies. The memorandum of understanding does not speak anything specific regarding any site-levelling expenses or any other expenditure of similar nature. As per the paper book filed by the assessee the sale deeds had been executed in the month of August 2007 whereas most of the expenditure claimed by the assessee, as pointed out by the Assessing Officer, related to the earlier part of 2008. Further, the Assessing Officer has also referred to the report of the Valuation Officer who had confirmed that no such developmental activity had actually taken place. Thus considering the totality of the facts as emerging from the discussion made by the Assessing Officer in the assessment order, the claim of site-levelling expenditure is not admissible to the assessee. Therefore, the addition made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) is justified. We have heard both the parties and perused the material on the record. According to the Department the assessee has not incurred this expenditure as per the memorandum of understanding. But in our opinion, every expenditure incurred by the assessee cannot be foreseen and to specify in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments were made in connection with their services in respect of sale of property of Aravind Babu. The Assessing Officer observed that the land belonging to Aravind Babu group was undisputed and having clear title and the assessee-company had directly entered into memorandum of understanding dated March 25, 2007 with Aravind Babu for purchase of his lands and the memorandum of understanding was silent on any payment to be made to any sub-agents. The Assessing Officer further observed that the payments were made to the above parties in September and November 2007 and there were no agreements with the above parties for providing any service in connection with purchase of land for the Aravind Babu group. The Assessing Officer also observed that the assessee-company had not filed any evidence to prove that the above parties have admitted the above income in their tax returns. Accordingly, he disallowed the entire amount and added the same to the total income. The learned authorised representative submitted that in almost all real estate transactions involvement of intermediary agents/brokers is always there. The extent of business activity carried on by the assessee is volumin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence the claim of the commission agents cannot be allowable. No specific evidence relating to services rendered by these persons has been filed either during the assessment or appellate proceeding. Thus, the addition made by the Assessing Officer to the tune of payments made to ladies amounting to ₹ 87,00,000 is justified. The Departmental representative further submitted the it is not clear as to what services were rendered by the remaining parties, viz., J. Raghavendra Prasad, P. Nagaraju and A. Venkateswara Reddy. Further, the signature of J. Raghavendra Prasad and Sri A. Venkateswara Reddy as appearing in the receipt does not tally at all with the signature as appearing in the TDS certificates. Considering all this, the payments claimed to have been made by the assessee do not appear to be genuine. Hence, the payment of ₹ 71,00,000 made to J. Raghavendra Prasad and A. Venkateswara Reddy is treated as not genuine. Otherwise also, Sri A. Venkateswara Reddy in the money receipt had shown to have rendered services in relation to the property in Puppalaguda and Narsingi village. Since the assessee was not concerned with any land deal at Puppalaguda the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1 to 2 per cent. of the value of the property bought and sold. In this case, during the course of search action, the Department found material in the form of receipts for payments made through account payee cheques to sub-agents to the tune of ₹ 1.70 crores and the same was seized. This payment was subjected to TDS. The subagents have filed their returns of income after payment of advance tax as applicable. Even during the course of investigation, the assessee placed necessary evidence before the investigating authority explaining the payment. Thereafter the assessee also filed acknowledgement for receipt of commission. Being so, the Department has not got anything on record to show that the payment is excessive or it is made to relatives of director of the assessee-company. We are not in a position to confirm the additions made by the lower authorities. Considering the facts of the present case we are of the opinion that the claim of the assessee has to be allowed placing reliance on the decision of the Supreme Court in the case of Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC). The next ground is with regard to disallowance of architect fee at ₹ 19 lakhs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment was made by cheque and also subjected to TDS. The expenditure was incurred towards consulting services provided by the architect with regard to site plan, SEZ specific building plan. In our opinion the expenditure has to be allowed as business expenditure and the same is allowed. More so, the Department has not brought anything to show that the assessee has not incurred this expenditure for the purpose of the business and it is presumed that it is incurred for the purpose of business and the same has to be allowed. The next ground is with regard to disallowance of ₹ 4,96,562 with regard to technical expenditure. The assessee claimed the above expenditure but has not filed explanation regarding this expenditure and has also not filed proof for having spent this expenditure. This expenditure is relating to the earlier year and the same was disallowed. Before us also no evidence was produced by the assessee as a proof for incurring this expenditure wholly and exclusively for the purpose of business. Being so this ground is dismissed. The last ground is with regard to disallowance of expenditure of ₹ 28,99,100 towards video surveillance charges. The assessee claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of CIT v. K. K. Marketing [2005] 278 ITR 596 (Delhi). He also relied on the judgment of the Delhi High Court in the case of Vishwanath Khanna v. Union of India [2011] 335 ITR 548 (Delhi) and on the judgment of the Punjab and Haryana High Court in the case of CIT v. Ashok Kumar [2011] 334 ITR 355 (P H). The learned Departmental representative submitted that adjustment of seized amount cannot be given and it cannot be treated as recovery towards advance tax and it has to be adjusted towards existing liabilities. According to the Departmental representative, the provisions of section 132B are applicable and it has to be adjusted towards existing liabilities of the assessee. After hearing both parties, we are of the opinion that the seized amount has to be adjusted in terms of section 132B of the Act. However, after adjusting existing liabilities, if any amount remains, the same has to be adjusted towards outstanding tax relating to the assessment completed under section 153A of the Act. Accordingly, we direct the Assessing Officer to recalculate the interest under sections 234A and 234B of the Act. In the result, I. T. A. No. 891/Hyd/2011 is partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the control of the company or through persons appointed by it. In effect the company did not have effectual or otherwise control over the affairs of the partnership firm Demi Realtors. Even payments made to Demi Realtors and the assessee was distinct and separate. Considering all this, the protective addition made by the Assessing Officer is unjust, arbitrary and contrary to the fact and evidence on record. We have heard both parties and perused the material on record. In this case assessment was made substantively in the hands of Demi Realtors. The issue is now pending before the concerned Commissioner of Income-tax (Appeals). Being so, at this point of time, it is preposterous to decide this issue and we are inclined to remit the issue raised before us to the file of the Commissioner of Income-tax (Appeals) to decide in whose hands the impugned edition has to be made. The appeal of the Revenue is partly allowed for statistical purposes. In the result, I. T. A. No. 1017/Hyd/2011 by the Revenue is dismissed, I.T.A. No. 891/Hyd/2011 (assessee) and 1018/Hyd/2011 (Revenue) are partly allowed. The order pronounced in the open court on the 28th September, 2012 - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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