TMI Blog2015 (11) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... ed First Appellate Authority has also supported his view by various decisions rendered by Hon’ble High Courts which includes the jurisdictional High Court, which are mentioned in the impugned order. After going through the same, we are of the considered view that the learned First Appellate Authority has passed a well reasoned order on the deletion of addition of ₹ 1.25 crores on account of advances received by the assessee.- Decided against revenue. Disallowance on account of rent receivable from let out property - CIT(A) deleted the addition - Held that:- The learned First Appellate Authority has examined the documentary evidence filed by the assessee in respect of its claim , i.e., copy of letter dated 10.10.2011, copy of rent agreement, copy of civil suit regarding mutation of property and receipts of rent, copy of order dated 03.02.2011 passed by Civil Judge, Bangalore and copy of pending recovery suit for unpaid rent. After considering all these documentary evidences, the learned First Appellate Authority has deleted the addition of ₹ 20.47 lakhs. We find no infirmity in the deletion of disallowance of ₹ 20.47 lakhs. We uphold the impugned order on the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The assessee has debited profit and loss account by ₹ 5.85 crores on account of property. During the assessment proceedings, the assessee was asked to produce justification regarding this expense. In response to the same, the assessee filed its reply, which the Assessing Officer has reproduced in the assessment order. The Assessing Officer further asked the assessee about the relation of assessee firm with D.D. Goel who forfeited the amount of ₹ 5.85 crores. In response to the same, the assessee filed reply, which the assessing Officer has also reproduced in the assessment order. After considering the reply filed by the assessee along with documentary evidence, the Assessing Officer, completed the assessment by giving findings on the issue in dispute at pages No. 9 to 12. As regards to the addition of ₹ 5.85 crores and as regards to addition of ₹ 1.25 crores on account of advance against future projects, the Assessing Officer had discussed in detail at page 12 to 14 and thirdly, as regards to the addition of ₹ 20.47 lakhs, the Assessing Officer has disclosed the addition in para No. 6 page 14 15 and completed the assessment u/s. 143(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and no approval was obtained for undertaking the said project. The Assessing officer also made reference to report of the inspector as per which the farmers have not confirmed authenticity of agreements with farmers, which are claimed to have been executed by the appellant. The Assessing Officer made reference to decision of Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 and in the case of MacDowell s and Co. 154 ITR 148. The appellant has furnished detailed submission in respect of each and every issue raised by the Assessing Officer which is extracted above. There is no dispute that there was development agreement between the appellant firm and Sh. D.D. Goel which was executed on 15/06/2006. In terms of the said agreement, the assessee firm made the payment to the extent of ₹ 5.85 crores as advance and acquired right to develop the land for their prospective project at Sonipat. The appellant claimed to have entered into various other agreements with farmers for purchase of land at Sonipat, the copies of which have already been placed on record. It will be relevant to quote the development agreements entered into by the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) of the First Part; And M/ s DKG Company having its registered office at HS-38 Kailash Colony, New Delhi-ll0048, through its Partner Sh. Amit Goel (hereinafter called the Second Party and also referred to as Developer which expression shall, unless it be repugnant to the subject or context thereof, include its assigns, legal representatives, successors and administrators etc.) of the Second Part; As per clause 9 of the said agreement payment was to be made @ of ₹ 60,00,000/- per acre to the Associate by the developer. 9. That the developer will give a deposit of ₹ 60,00,000/- (Rupees Sixty lakhs only) per acre to the Associate and further the sale proceeds will be shared between the developer and the associate in the ratio of 80:20. The whole of the booking/ sale amount will be collected through the developer and the proceeds will be distributed in the above ratio. As per clause 15 of the said agreement incase developer defaults on any terms conditions of this agreement, the Associate shall have right to forfeit the deposit at his discretion. 15. That the Developer shall obtain necessary permission/license from the concerned auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement. As you are aware due to certain conditions we have not been able to take up the project till date, we kindly request you to extend the period of two years by another two years. If our request for extension is not considered, as a special consideration we further request you to refund the advance so given to you hope to resolve the issue favorable. Letter written by She D.D Goel to DKG Company dt. 04.12.2008 Please note that as per the terms of the above mentioned agreement you were supposed to pay me a further a sum of ₹ 27075000 / - despite repeated reminders I have not received the balance amount. You have also not informed me about the progress of the project. I have to receive 20% of the sale proceeds also. Kindly note my money is blocked causing me heavy loss. As per clause 15 of said agreement since you have failed to fulfill your obligation, I hereby inform you that I have forfeited the advance amount of ₹ 5.85 crores paid by you to me. Kindly be informed that from now onwards the development agreement stands cancelled and you will have no claim against me and I shall be at liberty to deal with my land in any manner I may so choose., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the firm. In the circumstances, the assessee had no option but to accept the forfeiture of advance after taking necessary legal advice. The objection of the Assessing Officer that agreement -was between related parties and as such same was sham or collusive could not be accepted as a general proposition under the provisions of the Income Tax Act. The firm and Sh. D.D. Goel, are independent assessee and capable of executing the said agreement on the basis of their respective business interest and once the legal rights of the parties to execute such agreement is not in dispute, no adverse inference could be drawn regarding consequences of such agreement. The reference to decision of Supreme Court in the case of Durga Prasad More and McDowell Co. are not relevant and on the contrary the presumption laid down in those judgments support the claim of the appellant. The Hon ble Supreme Court has observed that if there is a self serving statement or documents with intention to evade tax than authorities are entitled to examine the surrounding circumstances to find out the reality and recitals in those documents. The decision of Supreme Court in the case of McDowel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business expenditure - Allowability of - Assessment year 1998-99 - Whether an obligation incurred, while entering into a commercial contract, has to be taken as a business expenditure within meaning of section 37(1) unless it is shown that contract itself was a sham document and was made with an ulterior motive - Held, yes - Whether for that purpose what is required to be established is a nexus between expenditure incurred and business purpose of assessee; it is not permissible for Assessing Officer to place himself in position of management of assessee and take it upon himself to decide how much would be a reasonable expenditure for a particular business purpose - Held, yes The observation of the Assessing Officer that the agreement to sale is not registered. In fact, the Assessing Officer himself has observed that there is no illegality involved for the same being not registered and genuineness of the agreement is to be considered on facts and business consideration. The appellant has been able to demonstrate that this is a case of genuine and bonafide agreement based on business consideration and same being acted by the parties and the claim of loss being on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cement Ltd. 254 ITR 377 is relevant and appropriate. The observation of the Assessing Officer that there was no forfeiture clause in the case of other agreements with the farmers and as such various agreements were executed with different purposes and motivated by the claim of loss. I have considered the various agreements with the fanners and it is noted that in all such agreements, there was similar clause of forfeiture and as such the allegation of the Assessing Officer is not based on correct appreciation of facts. It may be mentioned that as per agreements with farmers placed in the paper of facts clarified by the appellant and other adverse factors and in the absence of acquisition of 100 acres of land, there was no possibility for such approval. The observation of the Assessing Officer that assessee could have started the project with 14.72 acres of land is not correct and these observation are not in conformity with legal requirement and notification issued by Financial Commissioner and Principle Secretary to Government Haryana, Town and Country Planning Department Act. The observation about tax implication in the case of Sh. D.D. Goel is of no relevance for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various agreements with the farmers were part of record and whether I, the report of the inspector is in the context of those agreements or report was of a general nature has never been brought out on record. It is for the Assessing Officer to verify whether these are forged documents and in the absence of any specific finding or investigation, general observation cannot adversely affect the claim of the appellant particularly when assessee was not confronted with the report of the inspector. Regarding observation that in respect of similar agreement with Sh. Sumit Goel, partner of the firm, there was no forfeiture and as. such the Assessing Officer doubted the business justification of forfeiture in the case of Sh. D.D. Goel. As per facts clarified, Sh. Sumit Goel is partner of the firm and as such there could be no forfeiture between firm and partners as partner is part of the firm and the firm is not an independent legal or juristic person. Even otherwise, if Sh. Sumit Goel has not forfeited the advance, same cannot have any adverse implication in the case of Sh. D.D. Goel, if the claim of forfeiture is in accordance with terms of agreement between the parties and based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ghanashyam Steel Work Ltd. 195 TAXMAN 180 (GUJ.) Section 37(1), read with section 36(I)(iii), of the Income-tax Act, 1961 - Business expenditure - Allow ability of - Assessment years 1996-97 to 1998-99 - Assessee was engaged in business of manufacture of chemical processing equipment - During relevant assessment years, it had started construction of a new unit in a separate plot, adjacent to its existing unit - For this new unit, assessee borrowed funds and also collected funds through public issue of equity shares - It also incurred certain expenses in relation to said unit which were capitalized in its books of account - However, while filing returns of income, said expenses were claimed as revenue expenditure - Assessing Officer rejected assessee s claim treating expenses in question as capital expenses - Both, Tribunal as well as Commissioner (Appeals), had recorded concurrent findings of fact that so called new unit was merely an expansion of existing business of assessee and was not setting up of a new business and, as such, expenses incurred in this regard were allowable as revenue expenses - Further, considering the fact that Assessing Officer had not considered cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twear Pvt. Ltd. Rs.50,00,000/- iv) Sh. Mukesh Kumar Rs.10,00,000/- v) M/s. Saraswati Trading Co. Rs.15,00,000/- The Assessing Officer analyzed the confirmation furnished by the Assessing Officer and addition was made on the ground that creditworthiness of these parties were not established. The appellant has made detailed submission in respect of the above said issue which is reproduced hereunder: There is no dispute that payments from all the parties were received through account payee cheques and confirmation of these parties alongwith permanent account number were furnished. In fact, these are all trade advances in connection with business activities and these advances were received in connection with various ongoing and future projects of the appellant firm. The particulars in respect of these parties were furnished during assessment proceedings and are extracted hereunder: 1. Aggarwal Sales Corporation, Prop. Satish Kumar i. Copy of account alongwith confirmation and PAN No. ii. Copy of acknowledgement recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sec. 68 . In this connection, reliance is placed on following case laws: 1. Commissioner of Income Tax, Orissa Vs. Orissa Corporation Pvt.Ltd. Page 159, ITR 78 Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessee. Their index numbers were in the file of the Revenue. The revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so- called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden they lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Orissa Corporation Pvt. Ltd. Delhi High Court in the case of Diamond Products Ltd. is clearly applicable to the fact of this case. In case, the AO is not satisfied about source of such advance, the AO may forward the information to the concerned AO for appropriate action. However, there is no legal justification for any addition in the case of the appellant particularly when AO has not recorded any finding about any undisclosed income, which is represented by these advances. In the light of above discussion, the impugned addition is not sustainable and same is hereby deleted. Appeal on this ground is allowed. 6. Similarly, after going through the impugned order, we find that the learned First Appellate Authority has dealt with the third issue regarding deletion of disallowance of ₹ 20.47 lakhs on account of rent receivable from let out property at pages 46 to 49 of the impugned order. For the sake of convenience, that is reproduced as under : I have gone through the assessment order and written submission of the appellant. The Assessing Officer made following observation in respect of above said addition. Assessee has shown in the submission that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent on the basis of security deposit with the assessee. The action of the Assessing Officer is uncalled for in the context of fact that there was no receipt of rent for the period of 6 months and legal dispute was before the court of civil judge and as such the assessee could not have adjusted rent against the security deposit in the absence of proper settlement of dispute between the parties or direction of the court. In fact, regarding recovery of rent, the issue is still subjudice and as such there was no case for any addition on hypothetical and notional basis. A reference to provisions of sec. 23 of the Income Tax Act, 1961 regarding determination of annual rent, as per the provisions of sec. 23, only actual rent received or receivable is required to be considered for the purpose of assessment. However, in the case under reference, the party has refused to make the payment of rent and proceedings for recovery of rent is still pending before judicial authorities and as such there could be no addition on hypothetical and notional basis. The security deposit was refundable and in the absence of specific direction of court or mutual settlement between parties, it was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by respectfully following various decisions rendered by the Hon ble High Courts which are mentioned in the impugned order. We find no infirmity in the impugned order on the deletion of addition of ₹ 5.85 crores made by the Assessing Officer. Therefore, we decide the issue involved in ground No. 1 against the Revenue and in favour of the assessee by upholding the impugned order on this ground. 8. As regards to the deletion of addition of ₹ 1.25 crores on account of advances received by the assessee, after going through the impugned order, as well as the Assessing Officer, we are of the view that the learned First Appellate Authority has elaborately discussed the issue at pages 38 to 42 of the impugned order. The learned First appellate Authority has given various details of various parties mentioned in the impugned order. The learned First Appellate Authority has also supported his view by various decisions rendered by Hon ble High Courts which includes the jurisdictional High Court, which are mentioned in the impugned order. After going through the same, we are of the considered view that the learned First Appellate Authority has passed a well reasoned order on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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