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2015 (7) TMI 565 - ITAT PUNE

2015 (7) TMI 565 - ITAT PUNE - TMI - Disallowance of expenditure - ₹ 3 crores paid to Mr. Lohade for withdrawing the civil suit along with his rights, title in the property - survey action u/s.133A of the I.T. Act was conducted - CIT(A) deleted the addition on the ground that the AO had erroneously interpreted the MOU as well as the statements of Mr. Arvind Jain, Director of M/s. Full Moon Housing Pvt. Ltd., i.e. the purchaser and the statement given by Mr. Sanjay N. Lohade - Held that:- N .....

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why the amount of ₹ 3 cores should not be held as genuine as business expenditure when the same was paid to Mr. Lohade for surrendering his rights as per the MOU.

The land in question was not free from litigation and civil suit was pending. Therefore, we find force in the argument of the Ld. Counsel for the assessee that the purchaser M/s. Full Moon Housing Pvt. Ltd. after evaluating the interest in the land of Mr. Sanjay N. Lohade and after negotiating for the amount paid the .....

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i is also incorrect since Mr. Sanjay N. Lohade was given not only Power of Attorney but was also given the right to obtain the development agreement and purchase the said land in his name and for that purpose the entire litigation involved in Civil Suit No.1006/1996 was also required to be attended by him at his own cost and responsibility.

Even if the amount of ₹ 3 crores would have been paid by the assessee to Mr. Sanjay N. Lohade for giving free and peaceful possession of th .....

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efore, the contents of the MOU has to be considered and accepted as a whole. The revenue cannot be permitted to use a part of the MOU as correct and the other part as incorrect. Since the document impounded from the premises of the assessee shows payment of ₹ 3 cores to Mr. Sanjay N. Lohade which has been assessed in his hands as commission income and which has been upheld by the CIT(A), therefore, we find no infirmity in the order of the CIT(A) deleting the addition of ₹ 3 crores fr .....

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on demand draft. The legal expenses of ₹ 14,970/- is very nominal considering the transactions in question. We therefore, do not find any infirmity in the order of the CIT(A) deleting the addition of ₹ 4,10,000/-. - Decided against revenue. - ITA No. 858/PN/2013 - Dated:- 30-6-2015 - Shri R.K. Panda and Shri Vikas Awasthy, JJ. For the Petitioner : Shri Nikhil Pathak & Shri Suhas P. Bora For the Respondent : Shri Aseem Sharma ORDER PER R.K. PANDA, AM : This appeal filed by the Rev .....

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U) with Shri.Pradeep Dorje in the year 2000 and the MOU for the entire 41 ares has been signed by the assessee as consenting party, the sellers being the Kadam family members and the purchaser being M/s.Fullmoon Housing Pvt. Ltd. (2) The learned Commissioner of Income-tax (Appeals) erred in failing to appreciate the fact that the payment of ₹ 3 crores has been made to Shri.Sanjay Nemichand Lohade on behalf or at the instance of the assessee as it is the assessee who has entered into MOU da .....

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er deducting ₹ 3,40,00,000/- paid to the land owners, the remaining amount has been received by assessee either on behalf of or at the instance of the assessee. 3. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of trading in land and property development. He filed his return of income on 25-09- 2008 declaring total income of ₹ 3,14,36,020/-. During the course of assessment proceedings the Assessing Officer noted that a survey action u/ .....

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7; 42,214/- was also offered for tax in the statement recorded of the assessee on 12-03-2008. Thus, the total disclosure of ₹ 2,58,88,814/- was made by the assessee in the statement recorded. The assessee while honouring the disclosure of such amount of ₹ 2,11,46,600/- and ₹ 39,00,000/-, however, did not offer the amount of ₹ 42,214/- which was on account of any omission or error. The AO made addition of this amount which was accepted by the assessee before CIT(A) and the .....

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res is to be purchased by M/s. Full Moon Housing Pvt. Ltd. for a total consideration of ₹ 9,26,46,600/-. As per the MOU, the amount of ₹ 9,26,46,600/- is to be given to the assessee which is inclusive of the following : 1. Rs.3,40,00,000/- To Kadam sisters (Original owners) 2. Rs.25,00,000/- For expenses such as stamp duty etc. 3. Rs.50,00,000/- To Shri Kailash B. Wani (as mobadla) 4. Rs.3,00,00,000/- To shri Sanjay Nemichand Lohade (For surrendering rights) 5. Rs.2,11,46,600/- To be .....

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has correctly offered to tax the cash received by him of an amount of ₹ 2,11,46,600/- which was declared by him during the course of survey. 5. However, the AO was not satisfied with the above explanation of the assessee. He observed that the MOU dated 16-05-2007 executed between M/s. Full Moon Housing Pvt. Ltd, the purchaser and the assessee as the seller whereby the purchaser agreed to purchase 41 Ares of land at S.No 5/1-A for a total consideration of ₹ 9,26,46,600/- in the follow .....

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ity of the MOU dated 16-05-2007 the statement of the persons mentioned in the said MOU including Shri Sanjay N. Lohade, who was shown to have been paid ₹ 3 crores by the purchaser were recorded. While the genuineness and propriety of the payments to various persons were acceptable, the AO noted that the payment made to Mr. Sanjay N Lohade of ₹ 3 crores was doubtful. The Assessing Officer held that the money of ₹ 3 crores paid to Mr. Lohade belong to the assessee and the purchas .....

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per para 7.6 to 7.8 of the assessment order which has been summarized by CIT(A) at page 17 of the appeal order as under : "1) The assessee by MOU dated 16/05/2007 agreed to transfer S. No. 5/1A admeasuring 41 Ares to M/s. Full Moon Housing Pvt. Ltd for aggregate consideration of ₹ 9,26,43,600/-. 2) There was special power of attorney executed by Pradeep Dhorje on 16/07/2001 in favour of Shri. Sanjay Lohade constituting him as his attorney for Civil Suit No. 1006/1996. As per Assessin .....

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is not found anywhere in any document 5) The assessee brought Shri. Sanjay Lohade into the picture to deal with the Civil Suit bearing 1006/96 filed by Shri. Pradeep Dhorje against the land owners. 6) The said Sanjay Lohade only filed documents, applications for withdrawing the said Civil Suits from the court. 7) Shri. Sanjay Lohade stated that in the entire deal of transfer of land to M/s. Full Moon Housing Pvt. Ltd. he has not signed any of the documents. 8) In the year 2001 when Shri Pradeep .....

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n 1-10-1995 agreed to purchase the entire land of 81 Ares at S.No 5/1A as well as land measuring 80 Area at S.No.5/1B totalling to 161 Ares from the original land owners namely Kadam sisters/family. However, despite the existing agreement, the Kadam sisters/family sold 80 Ares of land of both the aforesaid Survey nos. to 8 different buyers each one buying 10 Ares. It was submitted that Mr. Pradeep Dhorje held the deal to be illegal because of the existing MOU dated 01-10-1995, being in his favou .....

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at S.No 5/1A-81 Ares continued. During the pendency of the special suit, Mr. Dhorje agreed to sell 32 Ares of land at S.No 5/1A to the assessee on 11-10-2000 for ₹ 6,00,000/- and in the same MOU also transferred the right in respect of the Special Suit. Thereafter, on 16-07-2001, Mr. Dhorje executed MOU with the assessee and Mr.Sanjay Lohade and the power of attorney in favour of Mr.Sanjay Lohade by which mention to the effect that Mr.Sanjay Lohade agreed to obtain development rights and t .....

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al consideration of ₹ 31,50,000/- and also executed development agreement. Thus, the entire land of 41 Ares was the subject matter of civil suit No 1006/1996 and without its settlement the assessee could not have sold the land and the Kadam family were seriously contesting the civil suit. The assessee as well as Mr. Dhorje found themselves incapable to continue with the legal battle which was consuming both time and money and thus out of business prudence Mr. Sanjay Lohade was brought into .....

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sistent efforts he could bring the Kadam family to amicable settlement in the year 2007 and the assessee agreed to enter into the MOU dated 16-05-2007 and accordingly Mr. Lohade agreed to give up his right of obtaining the development agreement. It was submitted that in view of the aforesaid fact and circumstances that the purchaser M/s. Full Moon Housing Pvt. Ltd agreed to pay the necessary compensation of ₹ 3 crores to Mr. Sanjay Lohade and, therefore, the Assessing Officer's observa .....

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attorney but also the right to obtain the development agreement and purchase the land in his name. It was submitted that Mr. Lohade besides having the right in the property though not in presentee but on attaining and getting the civil suit concluded which took six years to settle the issue and it was this contribution of Mr. Lohade which was evaluated by the purchaser who independently on its own agreed to pay ₹ 3 crores at its own behest apart from the amount of ₹ 3,40,00,000/- to .....

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at the instance of the assessee. In fact the correct interpretation should have been that the assessee being the vendor had to sell the land which was in fact not registered in his name as title holder and the assessee was also fully aware of the interest of the Kadam family as well as Mr.Lohade and, therefore, the assessee had to agree for payment of such purchase consideration to the original land owners i.e. the Kadam family and to Mr. Lohade who had vested interest in the property because of .....

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o included payment of ₹ 2,11,46,600/- which was not reflected in the final sale agreement, which the Assessing Officer has taxed in the hands of the assessee on the basis of the aforesaid MOU and considered the same as true and genuine. The assessee drew attention of Ld.CIT(A) to para 2 of the MOU which indicated that the assessee and Mr. Dhorje had assigned all their rights, title and interest to Mr.Sanjay Lohade vide the MOU dated 16-07- 2001 along with the rights and powers of civil sui .....

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to Mr. Lohade. Accordingly the purchaser paid the aforesaid amount directly to Mr. Lohade. The assessee accordingly requested the CIT(A) to delete the addition. 7. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition made by the AO by observing as under : 5.2 The facts brought on record indicate that a survey action u/s 133A was carried out on the appellant on 12-3-2008 wherein the Memorandum of Understanding or the MOU dated 16-05-2007 was found and impounded. The .....

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6,600/- To be paid to the assessee in cash ₹ 9,26,46,600/- The appellant on the basis of the notings made in the MOU which included payment in cash offered an additional income of ₹ 2,11,46,600/- during the survey action along with ₹ 39 lacs based on a loose paper No. 6. The Assessing Officer has examined Shri. Sanjay Lohade to whom payment of ₹ 3 crores were made and Shri. Arvind Jain, Director of FMHPL under oath u/s 131 recorded their statements. The Assessing Officer .....

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fter examining the MOU s for the said property and other related documents inferred that in the transfer of land, the role of Shri Lohade was limited to the withdrawal of the civil suit from the court in terms of the power of attorney. The fact brought on record do indicate the existence of litigation for the said property and which has continued for a pretty long time of nearly 12 years during which several negotiations and MOU's were executed by Shri. Pradeep Dhorje and the appellant, thro .....

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2007 was drawn and which was subsequently impounded during the course of the survey action on 12-03-2008. The Assessing Officer in arriving at the conclusion of the role of Shri. Lohade has relied heavily on the statements recorded u/s 131 during the assessment proceedings on 19.11.2010 & 29.11.2010 of Shri. Lohade and Shri. Arvind Jain, the Director of the Company Full Moon Housing Pvt. Ltd the purchaser. The responsibilities fixed upon Shri. Lohade could not be totally disregarded in the g .....

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he purchaser i.e. Full Moon Housing Pvt. Ltd was also fully aware of the facts of the case before the MOU dated 16-05-2007 was executed. In the statement recorded u/s 131 of Shri. Arvind Jain, the Director of the purchaser company before the Assessing Officer, it has never denied regarding the payment to Shri. Sanjay N Lohade rather reference to the negotiation for the settlement of the amount to be paid to Shri.Lohade has been mentioned as Shri. Lohade was expecting an amount of ₹ 4 crore .....

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by the purchaser. This is not a case where the purchaser was not aware of the role of different persons connected with the land such as the interest of the Kadam family and also that of Sanjay Lohade. Thus the inference drawn by the Assessing Officer that the payment to Shri. Lohade was made at the behest of the appellant is apparently not correct. The aforesaid land which is the subject matter of the issue involved had a history which has not been looked into and considered by the Assessing Off .....

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on of additional income by the appellant, the receipt of which was not recorded in the final sale agreement. The purchaser M/s FMHPL has made the payment to Shri. Lohade by way of cheque on different dates and which had also been confirmed by Shri. Lohade during the assessment proceedings. Moreover, the Assessing Officer has also accepted the contents of the MOU as true and correct for making the addition and also the payment to other related persons to the transaction except the payment made to .....

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d by Shri. Lohade before the CIT(A)-I Pune, in its appellate order dated 02-11-2012, the Ld. CIT has upheld the addition .made by the Assessing Officer treating the receipts of the amount of ₹ 3 crores as taxable and treated as earnings from commission and brokerage by the Assessing Officer. Thus, the contention of the appellant has considerable force that the factual points stated in the MOU found during survey, the A.O. has accepted the contents as true and correct for making the additio .....

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gotiating for the amount, paid the amount on their own behest as against the same held to be paid on behalf of the appellant. In any case the entire amount has been taxed in the case of Shri Lohade as discussed above. 5.4 In view of the above facts the addition made by the Assessing Officer is directed to be deleted and ground of appeal No. 3 is liable to be allowed. 8. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 9. The Ld. Departmental Representative heavily reli .....

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ement the members of the Kadam family sold 80 Ares of land on Survey No.5-1/B on 08-12-2005 to 8 different buyers each one buying 10 Ares. Mr.Pradeep Dhorje filed a civil suit bearing No.1006/1996 against the Kadam family as well as those 8 buyers for specific performance on the basis of MOU dated 01-10-1995 as according to him the deal was illegal in view of the MOU dated 01-10-95 and the Kadam family could not have executed the sale deeds on 08-01-1995. Thereafter on 18-08-1999 on the basis of .....

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ondent on 11-10-2000 for ₹ 6 lakhs and in the same MOU he also transferred his right in respect of the civil suit 1006/1996 in favour of the respondent. In due course on 16-07-2001 Mr. Pradeep Dhorje executed MOU with the respondent and Mr. Sanjay Lohade and also the Power of Attorney in favour of Sanjay Lohade. As per MOU at para 9 on page 4 there is a mention to the effect that the respondent and Sanjay Lohade as well as Kadam family had made the negotiations under which Sanjay Lohade ag .....

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MOU, Mr. Sanjay Lohade has also been given the specific power of attorney on 16/07/2001 i.e. on the same date. In due course said Mr. Sanjay Lohade did everything necessary in the matter in negotiating the land deal as well as agreed to withdraw the said special civil suit No. 1006/1996 without which further finalization of deal would not have not been possible. The respondent had purchased 9 Ares out of 81 Ares of S. No. 5/1A from Smt. Satam Sulbha on 11/8/2005 and also executed development agr .....

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tile and seriously contesting the Civil Suit. 11. Mr. Pradeep Dhorje and the respondent found themselves incapable to continue with this legal battle almost endlessly for a long time and from the view point of the assessee he had to pay a lot of toll both in monetary terms and loss of business. It was therefore purely out of business prudency the respondent and Mr. Pradeep Dhorje had to bring in Mr. Sanjay Lohade who assured to do everything necessary for attending the complicated litigation i.e .....

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de could bring the Kadam family to amicable settlement in the year 2007 and simultaneously respondent agreed to enter into MOU dated 16/05/2007. Mr. Sanjay Lohade accordingly withdrew the said Civil Suit No. 1006/1996. Mr. Sanjay Lohade also agreed to give up his right of obtaining development agreement in his favour as agreed by the respondent and Mr. Pradeep Dhorje as per MOU dated 16/07/2001. 12. The Ld. Counsel for the assessee drew the attention of the Bench to the MOU dated 16-05-2007 whic .....

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h. He submitted that the assessee has offered the cash component of ₹ 2,11,46,600/-. The first 3 items are accepted by the AO. The only dispute is regarding the amount of ₹ 3 crores paid to Mr. Sanjay Nemichand Lohade for surrendering his rights. He submitted that the assessee sold the land to M/s. Full Moon Housing Pvt. Ltd. who wanted to purchase the plot free of any defect. Therefore, it was the purchaser who itself has decided the terms of payment including the amount to be paid .....

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respondent could not have entered into MOU with M/s. Full Moon Housing Pvt. Ltd. and since all those complicated issues involved in the civil suit including bringing the Kadam family to the settlement terms are finally set at rest, therefore, it is incorrect to say that the amount of ₹ 3 crores paid to Sanjay Lohade was at the instance of the assessee. 12.1 He submitted that even if the income is treated as business income, then also expenditure of ₹ 3 crores will be allowed as expen .....

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e MOU found during the course of survey as true and correct for making the addition and also allowed the payment to other related persons to the transaction except payment made to Sanjay Lohade. He submitted that the amount of ₹ 3 crores has been taxed in the hands of Sanjay Lohade as per the direction of the Addl.CIT, Ahmednagar u/s.144. The same has been upheld by the CIT(A) vide appeal order dated 02-11-2012. He submitted that the document found during the course of survey has to be con .....

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of statement which was detrimental to it. The Ld. Counsel for the assessee also relied on the following decisions : i. Ahmed G.H. Ariff Vs. CWT (1970) reported in 76 ITR 471 (SC) ii. Pandit Lakshmi-kant Jha Vs. CWT reported in (1973) 90 ITR 97 (SC) iii. CIT Vs. Tata Services Ltd. reported in (1980) 122 ITR 594 (Bom.) iv. CIT Vs. Sterling Investment Corporation Ltd. reported in (1980) 123 ITR 441 ( Bom.) v. CWT Vs. Ashokkumar Ramanlal reported in (1967) 63 ITR 133 (Guj.) He accordingly submitted .....

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ich an MOU dated 16-05-2007 was impounded. As per the said MOU land admeasuring 41 Ares is to be purchased by M/s. Full Moon Housing Pvt. Ltd. for a total consideration of ₹ 9,26,46,600/- from the assessee. The bifurcation of payment of ₹ 9,26,46,600/- is as under : 1. Rs.3,40,00,000/- To Kadam sisters (Original owners) 2. Rs.25,00,000/- For expenses such as stamp duty etc. 3. Rs.50,00,000/- To Shri Kailash B. Wani (as mobadla) 4. Rs.3,00,00,000/- To shri Sanjay Nemichand Lohade (For .....

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ing so, The AO was of the opinion that the amount of ₹ 3 crores was paid to Shri Lohade at the behest of the assessee and in fact this money belongs to the assessee. Further according to the AO Mr. Sanjay Nemichand Lohade did not enjoy or had any right in the property transacted which was eventually sold to M/s. Full Moon Housing Pvt. Ltd. According to the AO in the transfer of land the role of Mr. Sanjay N. Lohade was limited to the withdrawal of the civil suit from the court in terms of .....

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Director of M/s. Full Moon Housing Pvt. Ltd., i.e. the purchaser and the statement given by Mr. Sanjay N. Lohade. According to the Ld.CIT(A) when the AO has accepted the other contents of the MOU as genuine he should not have doubted the payment made to Mr. Sanjay N. Lohade as for non business consideration. Further, the CIT(A) also observed that the amount of ₹ 3 crores received by Mr. Sanjay N. Lohade has been treated as taxable being earning from commission and brokerage by the AO as p .....

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,11,46,600/- received by the assessee in cash was offered by him as additional income during the course of survey. The assessee has honoured this and included the same in his return of income. The Ist 3 items are accepted by the AO as genuine, therefore, we fail to understand as to how and why the amount of ₹ 3 cores should not be held as genuine as business expenditure when the same was paid to Mr. Lohade for surrendering his rights as per the MOU. Further, the same amount has been paid b .....

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part and accordingly, the Party No.3 decided to obtain development rights and/or purchase the said Plot-A from said Kadam, either in his name or in the names of his nominees, at the sole discretion of the Party No.3 . 13.4 We further find that Mr. Arvind Jain, Director of M/s. Full Moon Housing Pvt. Ltd. in his statement recorded u/s.131 on oath on 29-11-2010 in his reply to Question No.25 recorded u/s.131 on oath on 29-11-2010 has answered as under : Q.25 I hope that with the break you may hav .....

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against Mrs. Kadam and Mr. Dorje had given rights to me to continue or withdraw the suit. Q.17 What was the Civil Suit? Ans. Mr. Pradeep Dorje had MOU duly signed by Mrs. Kadam and other owners of the property in respect of the property mentioned at Q.No.7 and the owners were not signing the documents required for transfer of such property to Mr. Dorje. Accordingly, Mr. Dorje had filed the civil suit against the property owners. Q.22 The property in question finally has been purchased by Foolmoo .....

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ed to tax? During the proceedings of summons a computation sheet has been filed which is showing sale consideration of ₹ 3 crores of the land in question and exemption of u/s.54F has been claimed of ₹ 3.25 crores. You may explain with any supporting evidences, that at the first place when the property was not belonging to you, how the money received is shown as sale consideration, in which you only had withdrawn Civil Suit in the name of Shri Dorje? Also provide copy of the affidavit .....

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tax in the year ended on 31-03-2008. Q.25. have you signed any deed/agreement/document etc. in favour of Shri Kailash Wani and if yes when and produce copy of such document? Ans. No and never. 13.6 The above replies clearly and categorically point one thing that the land in question was not free from litigation and civil suit was pending. Therefore, we find force in the argument of the Ld. Counsel for the assessee that the purchaser M/s. Full Moon Housing Pvt. Ltd. after evaluating the interest .....

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above facts, the observation of the AO that Mr. Sanjay N. Lohade had no locus standi is also incorrect since Mr. Sanjay N. Lohade was given not only Power of Attorney but was also given the right to obtain the development agreement and purchase the said land in his name and for that purpose the entire litigation involved in Civil Suit No.1006/1996 was also required to be attended by him at his own cost and responsibility. 13.7 In case of transactions in immovable properties the purchaser will al .....

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d an amount of ₹ 3 crores on various dates by cheque for releasing all rights and for withdrawing the Civil Special Court Suit No.1006/1996 for Sy.No.5, Baner. The contents of the said letter reads as under : From Sanjay Lohade Unique Chambers, F.C. Road, Tukaram Paduka Chowk, Pune - 411005 Date : 20th Oct, 2010 To The Additional Comm. of Income Tax, Range-3, Pune Respected Sir, I, the undersigned do hereby state and confirm as under : 1. That I have received ₹ 3,00,00,00.00 by accou .....

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Thanking you, Yours Truly, Sd/- Sanjay Lohade 13.9 The Hon ble Bombay High Court in the case of CIT Vs. Sales Magnesite Pvt. Ltd. has held that to decide whether the expenditure is incurred for the purpose of the business and allowable as deduction u/s.37 of the I.T. Act, it is not essential that it should be necessary, legally or otherwise, to incur the same or that it should directly and immediately benefit the business of the assessee. Even expenditure incurred voluntarily on the ground of c .....

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nstant case, the assessee is engaged in the business of trading in land and property development. No buyer will buy any property when the property in question is disputed. It is also the responsibility of the seller to sell the property free of litigation from any encumbrance. Therefore, even if the amount of ₹ 3 crores would have been paid by the assessee to Mr. Sanjay N. Lohade for giving free and peaceful possession of the land to M/s. Full Moon Housing Pvt. Ltd. the said amount would h .....

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s a whole. The revenue cannot be permitted to use a part of the MOU as correct and the other part as incorrect. Since the document impounded from the premises of the assessee shows payment of ₹ 3 cores to Mr. Sanjay N. Lohade which has been assessed in his hands as commission income and which has been upheld by the CIT(A), therefore, we find no infirmity in the order of the CIT(A) deleting the addition of ₹ 3 crores from the hands of the assessee. In this view of the matter and in vi .....

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t as well as appellate proceedings. 15. Facts of the case, in brief, are that during the assessment proceedings the Assessing Officer noted that the purchaser M/s.FMHPL had paid ₹ 25 lakhs to the assessee for incurring the expenditure for registration, stamp etc. The Assessing Officer sought the details of the expenses incurred with supporting evidence. From the various details furnished by the assessee, the Assessing Officer found that the assessee's documents of registration of land .....

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dated 28-10-2010 the details of the expenditure incurred on stamps, registration etc., were submitted the details of which are as under : Particulars Amount (in Rs.) Siddharth Raajagadia Document Franking 2,50,010 Siddharth Raajagadia's Document Registration 30,000 Mohit Astekar's Document Franking 5,40,628 Sudhir Yeole's Document Registration 5,94,691 Sunil Wani's Document Registration Franking 5,94,691 Above three Document Registration DD 30,000 FHPL's Document Registration .....

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