TMI Blog2014 (1) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... the entry of the appellant into the project 75% of the profit would not lie with M/s Kaypee Developers but would be allocated between M/s Kaypee Developers and the appellant in proportion to the work done by them – As M/s Kaypee Developers had been allotted the work of getting all legal and other procedural clearances their share of the project was as described above - It is also seen that M/s. Kaypee Developers had carried out their part of the agreement - The assessing officer has not looked into the case in totality by taking into consideration all the documents involved and the history of the case but has concentrated only on a part of it - Accordingly the assessing officer has arrived at a conclusion as recorded in the assessment order - The AO has not conducted any investigation/enquiry in the case like questioning SVA Securities (P) Ltd, M/s. Kaypee Developers etc - The observation of the assessing officer in his order regarding the applicability of sec 40A(2)(b) of the I.T. Act is based mainly on presumptions and surmises influenced by the fact that the partners of' M/s Kaypee Developers were also directors of the appellant company - No effort has been made to establish th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of deleting addition on the basis of MOU dated 4.11.2003 between M/s. SVA Securities M/s. Kaypee Developers which was never produced before AO. 2) On the facts and in the circumstances of the case in law, the Ld. CIT(A) erred in adding fresh evidence without referring the ao which is contravention of Rule 46A. 3) The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the AO be restored. 2. Relevant facts are that the assessee is a private limited company, engaged in the business of builders and real estate developers. The assessee- company developed real estate project "Mangala" at Belapur, Navy Mumbai. The assessee filed return of income declaring total income of Rs. 58,90,690/-. On total sales of Rs. 11.95 crores in "Mangala" Project, the assessee has shown net profit of Rs. 66.65 lakhs, including rental income of Rs. 26.34 lakhs and miscellaneous income of Rs. 81,127/-. 3. The Assessing Officer has stated that the assessee acquired development rights for development of "Mangala" project from M/s. SVA Securities Pvt. Limited under an agreement dated 18.1.2005. Prior to the said development agreement, the assessee entered into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m commercial, obtaining U.L.C. NOC, etc. from CIDCO, N.M.M.C. or other concerned authorities. (iii) The party of the other Part Shall also obtain other incidental permissions like Fire NOC, Drainage NOC, Health NOC, Cess NOC, commencement Certificate, Occupation Certificate, Temporary as well as Permanent Water Connection, etc from NMMC or any other competent authorities with respect to construction of the building on the said Plot. (iv) The Party of Other Part shall also carry on liaison work with Architect, R.C.C. consultants, Advocates for preparation of Agreement for Sale of the Flat/Commercial premises and other documents and papers and to attend all legal matters and Court matters arising out of constructing building on the said Plot and to finalize various contracts to be entered into by Party of first Part with others (like Labour Contract etc.) in relation to construction of the building on the said Plot". 7. The Assessing Officer has stated that as per information and the signatures of the Memorandum of Association, the partners of M/s. Kaypee Developers are Shri Satish Sabhlok and Shri Surinder Sabhlok are also active directors of the assessee-company and they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... q. ft. was allotted by CIDCO to one SVA Securities Private Limited on lease for the limited purpose of development of a corporate office. The plot was not permitted to be transferred in favour of any other third party. To establish this issue, a copy of agreement of lease granted by CIDCO on 10/4/1995 has been submitted by the appellant. I find the same is in order and it is also seen that the AO has not doubted its veracity. As stated by the appellant it is seen that the said concern that is SVA Securities Private limited did not wish to develop the said plot on its own and therefore entered into an agreement with one M/s Kaypee Developers for development of the said plot to certain terms and conditions. In the said firm two of the directors/ shareholders of the appellant company are equal partners. SVA securities Pvt Ltd and M/s Kaypee Developers entered into with MOU dated 4/11/2003 wherein the terms and conditions of development of plot number 84 of sector 15 were formalised. Under the said arrangement M/s Kaypee developers would develop the said plot by constructing premises thereon. It was agreed that 25% of the constructed premises would be granted to the other party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. I find that the order of the Assessing officer has not considered this document in his assessment order. In the circumstances of the case it was required that this document be taken into consideration as along with the agreement dated 4/11/2003 this forms the very basis of the case. Records show that after the exclusion of the 'above mentioned agreement M/s. Kaypee Developers commenced working On the plot. As proof letter dated 12/2/2004 written by SVA Securities Pvt Ltd to CIDCO has been submitted by him where a request for extension of construction time has been made. The letter is signed by the partner of M/s Kaypee Developers on behalf of SVA Securities Pvt Ltd. This letter too finds no mention in the order of the assessing officer. The above issues are all indicative of the fact that M/s Kaypee Developers had hoped any interest in the plot of land even before the appellant company came into the picture and had started working on it. The permission had been granted by CIDCO to change the use in respect of the said plot had been obtained by M/s. Kaypee Developers on 15/3/2004: In copies of the above permission/sanction obtained clearly shows that it was due to the effor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order that -the assessing officer has not held the agreements dated 7/7/2004 and 18/1/2005 as wrong or bogus. In fact the assessing officer has I find, been silent on the validity of the said agreements except for saying that all permission from the concerned authorities had been taken well before the agreement had been signed and therefore the payment to M/s. Kaypee Developers was not required. However what is for consideration here is the history of the case/project that has to be considered from the time of allotment of plot to SVA Securities Private Limited and the final development of the plot by the appellant company. In doing so all the agreements made during the course of this period would have to be read together and not in isolation. Therefore the agreement dated 7/7/2004 would have to be seen as a continuation of the previous agreements made between SVA Securities and M/s Kaypee Developers as detailed above in the order. As these agreements have not found to be invalid the provisions contained in them would need to be looked into and accepted. 3.8. A reading of the agreement shows that in the development of the plot of land there were to be 84 flats and 6 shops. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopers was actually done or not. Unless this had been done the documents as produced by the appellant to establish "the fact that M/s Kaypee Developers had a major role to play in the case cannot be discounted or rejected.. It is also to be considered that the law does not prohibit sister concerns from transacting business with each other. What has to be seen that the transaction are wholly and exclusively for' business if claims are made. 3.9. It is entirely the case of the appellant as to whom it transacts business with and what expenditure it incurs to realise the profit. The assessing officer is only required to look into the authenticity of the expenditure and the fact that it was for business purposes and that correct profits have been declared in the agreement dated 7/7/2004 the appellant had agreed to pay a sum of Rs.1,44,85,000/ that is the value of the units to M/s Kaypee Developers for the services rendered by them. The AO was required to consider this amount only. So even if the disallowance was required to be made the amount to be considered has to be Rs.1,44,85,000/- only. The fact that the units are sold at a high rate in the, subsequent years would have no bearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Honourable Bombay High Court in the case of CIT versus Indo Saudi Services (travel) Pvt. Ltd., 310 ITR 306 (2009) on which the appellant has relied also works on the appellant's favour. The addition so made is therefore to be deleted and the ground of appeal to be allowed." Hence, this appeal by the Department. 11. At the time of hearing ld. DR relied on the order of AO and whereas ld. AR supported the order of ld. CIT(A). He referred para 4.1 of the order of the AO and stated that the AO on 21.12.2009 asked the assessee to file the details of the units handed over to Kaypee Developers alongwith the copies of the documents of the services rendered by Kaypee Developers to the assessee giving only 7 days time. He submitted that all details in respect of the said project and services rendered by Kaypee Developers were mentioned in MOU with the AO and no such additional documents were filed before ld. CIT(A) which could be said to be additional evidence. He submitted that ld. CIT(A) has considered the facts in its entirety, which the AO failed to consider and deleted said addition justifiably. He submitted that the order of ld. CIT(A) be confirmed 12. In respect of groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopers only. Therefore it is evident that Kaypee Developers was involved in the said project before the assessee-company was involved and has rightly observed by ld. CIT(A) that the AO has not mentioned the said fact in the assessment order. Ld. CIT(A) has rightly stated that this fact cannot be overlooked that Kaypee Developers were the ones who were supposed to be developing the land and appropriating the profit from said project. It is further observed that said plot was allotted by CIDCO for development of a corporate office only with certain frame of time. M/s. Kaypee Developers obtained permission for change of use of plot from corporate office to that of residential- cum-commercial and also obtained permission for transfer of plot to a third party as well as extension of time for development and construction of said plot. Said facts are supported by the copy of the letter dated 5.2.2004 written by M/s. SVA Securities Pvt. Ltd. to CIDCO authorising partners of the Kaypee Developers to liaison on their behalf. Ld. CIT(A) has rightly stated that the AO has not stated above facts in the assessment order. Subsequently Kaypee Developers approached the assessee-company and offer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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