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2016 (2) TMI 568 - ITAT PUNE

2016 (2) TMI 568 - ITAT PUNE - TMI - Deduction u/s.54F - Held that:- Since the assessee had a right in the said property which he released and obtained ₹ 3 crores in lieu of the same, therefore, the gain that has arised is capital gain. The assessee is therefore entitled to get deduction u/s.54F from such capital gain. However, since the lower authorities have not verified the claim of allowability of deduction u/s.54F from such capital gain, therefore, we restore the issue to the file of .....

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d 02-11-2012 of the CIT(A)-I, Pune relating to Assessment Year 2008-09. 2. Facts of the case, in brief, are that the assessee is a partner in M/s. Real Value Advertiser and derives income from remuneration from the firm, share of profit, interest on capital, dividend income and bank interest. He had filed his original return of income for the impugned assessment year on 30-09-2008 declaring business income of ₹ 40,31,860/-. 3. The AO received information from Addl.CIT, Range-3, Pune that d .....

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nse to notice u/s.148. 4. During the course of assessment proceedings the AO, on going through the computation of income noted that the assessee has claimed exemption u/s.54F of ₹ 3.25 crores treating the money received of ₹ 3 crores as Long term Capital gain on sale of plot at Baner. He noted that during the survey u/s.133A conducted on 12- 03-2008 in the premises of Shri Kailash Babulal Wani, a copy of the Memorandum of Understanding (MOU) was found which is signed between Fullmoon .....

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T, the assessee filed various details such as the Power of Attorney dated 16.07.2001, MOU dated 16.07.2011, Court paper Suit No.1006/1996, MOU dated 16-05- 2007 (in Marati) etc. The assessee also filed another MOU dated 16- 07-2001 on stamp paper of ₹ 20/- in which as per Para 8 and 9 there is clear mention of development right to the assessee with respect to the property in question. According to the Addl.CIT the MOU subsequently prepared is in order to suit the assessee s case because it .....

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l. CIT at the fag end of the time barred assessment proceedings no action is called for. He held that the evidence produced before him now are not reliable and therefore he rejected the same. He accordingly directed the AO to tax the amount ₹ 3 crores in the hands of the assessee as brokerage or commission received by the assessee from Fullmoon Housing & Finance Pvt. Ltd. The AO accordingly made addition of ₹ 3 crores to the total income of the assessee as brokerage or commission .....

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linquishment of his rights in the said property, Shri Kailash Wani was ready to pay ₹ 3 crores to him. Accordingly, Shri Sanjay Nemichand Lohade, i.e. the assessee filed application in the court and withdrew the Special Suit No.1006/1996 by using the Power of Attorney. Thereafter, Shri Kailash Wani sold the entire property to Fullmoon Housing & Finance Pvt. Ltd. Pune. This MOU was executed on 16-05-2007 between Fullmoon Housing & Finance Pvt. Ltd. and Shri Kailash Wani. In the said .....

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ee Shri Sanjay Nemichand Lohade got ₹ 3 crores for relinquishment of all his rights which was shown and disclosed in the return of income under the head long term capital gain and it was claimed exempt u/s.54F from the said amount as the said amount was utilized for acquiring the residential house. 7. However, the CIT(A) also was not convinced with the explanation given by the assessee and upheld the action of the AO by observing as under : 6. I have carefully perused the material availabl .....

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had to raise money for marriage of her daughters. Shri. Dhorje, through consent deed executed on 24/8/1995, paid ₹ 5 lacs vide cheque dated 28/8/1995 towards token for purchase of said land. After giving public notice in Sakal papers on 2/9/1995, Kadam family entered into written agreement with Dhorje on 1/10/1995 for entire land for consideration of ₹ 1.61 crs. Accordingly, on account of earnest money Dhorje paid ₹ 25 lacs (including ₹ 5 lacs as mentioned above) and was .....

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8377; 60 lacs by cheque. The balance 2 acres (81R) would be disposed off within 15 days after executing of 1st sale deed. Later on Kadam family entered into sale deed with Kailash Babulal Wani & Roundal family by 8 sale deeds by se!ling 10R each to 8 persons for ₹ 6 lacs per sale deed (i.e. ₹ 48 lacs for 80R). The above 8 sale deeds were registered at sl.no.8883 to 8890 on 17/10/1995 in the office of Sub Registrar, Haveli, Pune. Dhorje filed suit against Kadam family & Wani v .....

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s M.O.U., Wani paid Dhorje ₹ 6 lacs as compensation. Dhorje agreed that hereafter Wani will take carae of the civil suit on behalf of Dhorje. Subsequently since Dhorje could not attend court matters and other meetings regarding sale of land therefore, he gave Power of Attorney to Shri. Sanjay Lohade. This Power of Attorney in favour of Shri. Sanjay Lohade, the appellant was signed on 16.7.2007 and through it the appellant was given all the rights on behalf of Dhorje for executing and perfo .....

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Fullmoon Housing Pvt. Ltd. entered into M.O.U. with Wani regarding 81R of Plot A. Out of this Kadam family is owner of 40R and regarding 41R Sanjay Lohade was holding Development rights. According to this M.O.U. Fullmoon Housing Pvt. Ltd. paid ₹ 3 crs to Sanjay Lohade, ₹ 3.40 crs to Kadam family and ₹ 2.11 crs to Wani. 7. The crux of the issue involved in the appeal is whether the amount received by the appellant of ₹ 3 crores as per the MOU dated 16.5.2007 between M/s. .....

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adam family. 7.1 It would be relevant at this stage to refer to the definition of transfer in relation to capital assets as defined u/s.2(47) of the Income Tax Act, 1961. (47) transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, st .....

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or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation - For the purposes of sub- clauses (v) and (vi)," immovable property" shall have the same meaning as in clause (d) of section 269UA;]. 7.2. Therefore, it needs to be examined whether the appellant had any rights over the capital asset duly conferred on him by the owner or .....

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1 ares of property specifically bearing S.Nos. 5/1A (herein referred to as plot A) and 5/1B (herein referred to as Plot B). Kadam family entered into agreement of sale with Pradeepkumar & Co. (represented by Shri Pradeepkumar Dhorje) for the entire property on 1.10.1995, after an initial consent deed executed on 24.8.1995. Shri Dhorje paid ₹ 25 lakhs as earnest money and it was agreed that sale deed for 80 ares (Plot A) would be executed during the month on payment of ₹ 20 lakhs .....

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A. Alternatively, he requested the Court for damages of ₹ 3,50,00,000 in case the Court came to the conclusion that specific performance was not possible. It is important to remember that this civil suit was subsequently withdrawn by Shri Dhorje (through his power of attorney holder) only on 22.8.2007. Therefore, the ownership of plot A (which is the subject matter of transaction in this appeal) remained in dispute between the years 1996 till 2007. 7.4. Subsequently, as per agreement for s .....

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nd he was to continue the litigation against Kadam family. It is therefore, surprising that Shri Dhorje again executed power of attorney on 16.7.2001 in favour of Shri Sanjay Lohade and appointed him to continue the said suit. It may be mentioned here that this POA does not make any reference whatsoever to the POA granted as per agreement for sale dated 12.10.2000. 7.5. Further, although all rights, title and interest were vested in Shri Wani by Shri Dhorje, by MOU dated 12.10.2000 referred to i .....

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lopment rights in respect of 40 ares land in Plot B given to Shri Lohade e) Shri Lohade is to execute deeds and documents in respect of Plots A and B f) Shri Dhorje receives agreed consideration from Shri Wani as full and final settlement in exchange for his no objection for all the transactions referred to above. g) Shri Dhorje and Shri Wani would have no interest in Plots A and B except the 4 development agreements duly between Wani (and 3 others) with Shri Lohade and his wife in respect of po .....

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A, transaction pertaining to which is the subject matter of the present appeal. Even noteworthy is the fact that the ownership question of plot A is, as on that date, still disputed in view of the pendency of the civil suit 1006/96. Again, it is highly surprising that no consideration was paid / payable by the appellant Shri Sanjay Lohade either to Shr. Pradeep Dhorje or Shri Kailash Wani. There is no mention in the MOU that any land/ rights in land are gifted to the appellant. All these facts .....

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r consent recorded. It is important to remember that they were in physical occupation of the entire 81 ares of land in plot A till the subsequent sale deed for 41 ares was registered on 3.11.2007. Subsequently, sale deed is registered on 3.11.2007 in favour of Fullmoon Housing Pvt. Ltd. by Shri Wani and Shri Gadeeya in respect of these 41 ares of land. This follows the withdrawal of civil suit 1006/96 by Shri Lohade using his power of attorney on 22.8.2007. The appellant, Shri Sanjay Nemichand L .....

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to in the preceding paragraphs. Each one of the documents referred to above are unregistered documents, merely documented on ₹ 20 stamp paper and notarized. In all the documents referred to above, dated 12.10.2000, 16.7.2001 and 16.5.2007, the description of the property shows that Kadam property is in possession of Plot A and Wani Family in possession of plot B. The land which subsequently became the subject matter of MOU between Fullmoon Housing Pvt. Ltd. and Kailash Wani (41 ares out o .....

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erm capital gains in the hands of the appellant and has been rightly treated as commission and brokerage by the Assessing Officer. In the result, Grounds No.1 to 11 are dismissed. 8. It may be mentioned here that the appellant has raised the issue of lack of opportunity in connection with the section 144A proceedings. However, it is seen that the application u/s.144A was suo moto filed by the appellant and he was given an opportunity of being heard. Further, once directions are received u/s.144A .....

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d in taxing the amount of ₹ 3 Crs. received from M/s. Full Moon Housing Pvt. Ltd. as commission and brokerage as against income under the head 'capital gains' offered by the assessee. 2 The learned CIT(A) erred in confirming the addition of ₹ 3 Crs. made on account of disallowance of exemption u/s 54F on the ground that there was no transfer of any capital asset u/s 2(47) of the Act and that the amount received by the assessee was in nature of brokerage and commission and not .....

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he ownership of the said land was in dispute till 2007 and the possession of the same was with the members of Kadam family who were the legal owners till then and hence, the assessee could not have obtained the development rights therein from Shri Dhorje. b. In the MOU dated 16.07.2001, there was no mention of the transfer of any development rights in the said land nor was there any mention of the consideration to paid by the assessee in respect of the same. 4.1 The learned CIT(A) erred in doubt .....

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ge and commission without bringing on record any evidence in support of the said conclusion drawn by him. 5 The learned CIT(A) ought to have appreciated that the assessee had acquired the development rights in respect of the land at S.No. 5/1A vide MOU dated 16.07.2001 and the amount of ₹ 3 Crs. received by the assessee vide MOU dated 16.05.2007 was in consideration of the surrender of development rights acquired by the assessee therein and hence, the amount of ₹ 3 Crs. was rightly o .....

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10. The Ld. Counsel for the assessee submitted that the additional ground raised is legal in nature and all the facts are on record. Therefore, the same may be admitted for adjudication. Relying on various decisions he submitted that since no new facts are required to be investigated and the additional ground is legal one the same should be admitted. For the above proposition he relied on the following decisions : 1) NTPC Ltd. 222 ITR 383 (SC) 2) Jute Corporation of India Ltd. 187 ITR 688 3) Ah .....

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perty to Shri Kailash Babulal Wani. Shri Pradeep Kumar Dhorje filed a complaint to the court against legal heirs of Shri Kadam and Shri Kailash B. Wani challenging the above sale. 13. Referring to pages 12 to 19 of the paper book the Ld. Counsel for the assessee submitted that for this legal matter Shri Pradeep Kumar Dhorje gave power of attorney to Shri Sanjay Nemichand Lohade, i.e. the assessee on 16-07-2001. Referring to pages 4 to 11 of the paper book he submitted that a MOU was signed betwe .....

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the assessee acquired rights in the said land. 14. Referring to pages 20 to 23 of the paper book, which is in Marati, and its English Translation at pages 24 to 27, the Ld. Counsel for the assessee drew the attention of the Bench to the MOU dated 16-05-2007 which was entered into between Shri Kailwash Wani and Fullmoon Housing and Finance Pvt. Ltd. Referring to para 3 of the said MOU he submitted that it was decided that Shri Kailwash Wani would pay the amount to Shri Sanjay Nemichand Lohade for .....

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term Capital gain shown by the assessee. 15. The Ld. Counsel for the assessee submitted that brokerage or commission is to be paid for the services rendered in connection with the sale transaction. In this case for the sale of land to Fullmoon Housing & Finance Pvt. Ltd. the AO or the CIT(A) have not proved the nature of services, if any, rendered by the assessee. Secondly, the brokerage or commission in connection with the land deal is generally to the extent of 2 to 3%. However, in the ins .....

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ble Supreme Court in the case of CIT Vs. Khetan and Company reported in 45 ITR 170 and the decision in the case of CIT Vs. Delhi Flour Mills Co. Ltd. reported in 35 ITR 15 he submitted that the department cannot rewrite an agreement. 17. Referring to the decision of Hon ble Bombay High Court in the case of Tata Services Ltd. reported in 122 ITR 594 he submitted that the Hon ble High Court under identical facts and circumstances has held the amount received as capital gain. In that case the asse .....

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he widest amplitude and the definition has reemphasized this by the use of the words of any kind . Any right which can be called property will be included in the definition of capital asset . A contract for sale of land is capable of specific performance. It is also assignable. Therefore, a right to obtain conveyance of immovable property is clearly property as contemplated by section 2(14) of the Act. 19. Referring to the order of CIT(A) the Ld. Counsel for the assessee drew the attention of th .....

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r that Shri Sanjay Nemichand Lohade was holding development rights. Therefore, how the CIT(A) can say that the assessee has received brokerage or commission for transfer of the said land. He submitted that an agreement is enough for getting right in the property. 20. Referring to the decision of the Pune Bench of the Tribunal in the case of Shri Kailash B. Wani vide ITA No.858/PN/2013 order dated 30-06-2015 for A.Y. 2008-09 he submitted that the Tribunal in the said decision has held that Shri S .....

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t all taxable in his hands. For the above proposition, the Ld. Counsel for the assessee relied on the following decisions : i. CIT Vs. J. Dalmia reported in 149 ITR 215 (Delhi) ii. Baroda Cement and Chemicals Ltd. Vs. CIT reported in 158 ITR 636 (Gujarat) iii. CIT Vs. Abbasbhoy A. Dehgamwalla & others reported in 195 ITR 28) 22. Without prejudice to the above, the Ld. Counsel for the assessee submitted that if the receipt has resulted into long term capital gain then the deduction u/s.54F sh .....

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rights the Ld. Departmental Representative submitted that the CIT(A) has wrongly written the same. However, in subsequent paragraphs, the CIT(A) has treated the amount received as brokerage or commission. So far as the decision of the Tribunal in the case of Shri Kailash B. Wani is concerned he submitted that the Tribunal in the said order has not held that it is for development right. 24. As regards the argument of the Ld. Counsel for the assessee that the amount of ₹ 3 crores received o .....

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to the decision of Hon ble Bombay High Court in the case of Messrs. Jerkison Tribhuvandas, Bombay Vs. CIT reported in 31 ITR 376 he submitted that you cannot take contrary stands. He submitted that there is no contradiction in the two MOUs. In the year 2001 the MOU was between Shri Pradeep Kumar Dhorje, Shri Kailash B. Wani and Shri Sanjay Nemichand Lohade whereas MOU on 16-05-2007 was entered into between Shri Kailash B. Wani and Fullmoon Housing and Finance Pvt. Ltd. Although the same was clar .....

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have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case a survey u/s.133A of the Act was conducted in the premises of Shri Kailash Babulal Wani during which an MOU dated 16-05-2007 was impounded. As per the said MOU land admeasuring 41 Ares is to be purchased by Fullmoon Housing Pvt. Ltd. for total consideratio .....

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amount as long term capital gain and claimed exemption u/s.54F. We find the AO rejecting the contention of the assessee that the same is a capital gain treated the same as brokerage or commission which has been upheld by the CIT(A). It is the contention of the Ld. Counsel for the assessee that since the amount was received for surrender of the rights in the property the same is long term capital gain. Therefore, the deduction u/s.54F should be allowed. It is also the alternate contention of the .....

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. Sanjay Nemichand Lohade at the behest of Shri. Kailash Wani and infact this money belongs to Shri. Kailash Wani. Further, Shri Sanjay Nemichand Lohade had no right in the said property for which he added ₹ 3 crores paid to Shri Sanjay Nemichand Lohade in the hands of Shri Kailash Wani. The CIT(A) allowed the claim and on further appeal the Tribunal dismissed the appeal filed by the Revenue. In the said order the Tribunal after considering various clauses of the MOU, the statement of the .....

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unded the contents of the MOU has to be considered and accepted as a whole and the revenue cannot be permitted to use a part of the MOU as correct and the other part as incorrect. The relevant observation of the Tribunal from Para 13 onwards read as under : 13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. W .....

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h 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 (Forsurrendering rights) 5. Rs.2,11,46,600/- To be paid to the assessee in cash TOTAL Rs.9,26,46,600/- The amount of ₹ 2,11,46,600/- which was received by the assessee in cash was offered as additional income in the statement of the assessee recorded during the course of survey. So far as the other 4 items are concerned the AO accepted the items 1, 2 and 3 above a .....

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n 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 the powers of attorney. It is also the contention of the AO that Mr. Sanjay N. Lohade had no locus standi and he had no effective control over the entire litigation as well as the land. In view of the above and in view of the reasonings given in the preceding paragraphs the AO added the amount of ₹ 3 crores in the hands of the assessee. 13.1 We find the Ld.CIT( .....

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7; 3 crores received by Mr. Sanjay N. Lohade has been treated as taxable being earning from commission and brokerage by the AO as per the direction of the Addl.CIT, Ahmednagar Range which has been upheld by the CIT(A). It is also the observation of the CIT(A) that the document found during survey has to be considered as a whole and those facts which favour the assessee cannot be totally ignored. 13.2 We do not find any infirmity in the order of the CIT(A) deleting the addition. As mentioned earl .....

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penditure when the same was paid to Mr. Lohade for surrendering his rights as per the MOU. Further, the same amount has been paid by account payee cheque and the amount has been taxed as brokerage/commission income in the hands of Mr. Sanjay N. Lohade as per the direction of the Addl.CIT and upheld by the CIT(A). 13.3 We find clause 9 of the MOU dated 16-07-2001 reads as under where Party No.3 is Mr. Sanjay N. Lohade and Party No.2 is the assessee ,i.e. Mr. Kailash Babulal Wani : 9. Similarly, f .....

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s 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 have remembered the facts. You are given a further opportunity to state the details about the discussions with Shri Lohade? Ans. Sri Lohade was expecting an amount of ₹ 4 crores and we were ready for a payment upto ₹ 3 crores. 13.5 Similarly, we find Mr. Sanjay N. Lohade in his reply to Question Nos. 16, 17, 22, 23, 24 and 25 has replied as under : Q.16 Gi .....

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, Mr. Dorje had filed the civil suit against the property owners. Q.22 The property in question finally has been purchased by Foolmoon Housing Pvt. Ltd. Please state as to what you have received from Foolmoon Housing Pvt. Ltd. and the mode of receipt of money by you? Ans. ₹ 3 crores received by account payee crossed cheque. The money was received from 2007 to 2010. Q.23 For receipt of aforesaid money, what did you do as quit-pro-quo? Ans. I filed affidavit for withdrawal of civil suit whic .....

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shown as sale consideration, in which you only had withdrawn Civil Suit in the name of Shri Dorje? Also provide copy of the affidavit filed before the Civil Court, withdrawing the civil suit and copy of any other document, deed which you may have signed in favour of Foolmoon Housing Pvt. Ltd.,? Ans. I have not shown the amount of ₹ 3 crores in my books of accounts. As and when the money was received out of ₹ 3 crores the same was shown as Advance in my books of accounts and no porti .....

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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 amount of ₹ 3 crores on their behalf and not on behalf of the assessee. It was the purchase who itself decided the terms of payment including the amount to be paid to Kadam Family, Mr. Sanjay N. Lohade and to the respondent and therefore the AO s observation that the said purc .....

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d to be attended by him at his own cost and responsibility. 13.7 In case of transactions in immovable properties the purchaser will always try to buy the property free of litigation. When the land in question is not free from litigation and a civil suit is pending, a fact not disputed by the AO himself, therefore, the payment to Mr. Sanjay N. Lohade by M/s. Full Moon Housing Pvt. Ltd. either at the instance of the assessee or otherwise has to be allowed as deduction from the sale proceeds. 13.8 .....

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Pune Respected Sir, I, the undersigned do hereby state and confirm as under : 1. That I have received ₹ 3,00,00,00.00 by account payee cheque from M/s. Foolmoon Housing Pvt. Ltd., details of which are under : Date Ch.No. Amount 30-08-2007 523128 11,00,000/- 01-11-2007 240271 50,00,000/- 16-11-2007 240272 25,00,000/- 12-12-2007 249704 25,00,000/- 05-03-2008 240293 50,00,000/- 05-03-2008 240292 50,00,000/- 10-03-2008 249734 50,00,000/- 11-10-2010 RTGS 39,00,000/- 3,00,00,000/- 2. That the s .....

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hat it should directly and immediately benefit the business of the assessee. Even expenditure incurred voluntarily on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business would be deductible u/s.37. The question whether it was necessary for commercial expediency or not is a question that has to be decided from the point of view of the businessman and not by the subjective standard of reasonableness of the revenue. The question must be viewed i .....

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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 have been allowed as deduction from the hands of Shri Kailash Babulal Wani, i.e. the assessee. Therefore, in our opinion, it is immaterial as to whether the amount has been paid to Mr. Sanjay N. Lohade by M/s. Full Moon Housing Pvt. Ltd. at the instance of the assessee or the assessee has paid directly to Mr. Sanjay N. Lohade from the total consideration. As mention .....

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he 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 view of the detailed reasonings given by the CIT(A) while deleting the addition we find no infirmity in his order and therefore, uphold the same. Grounds of appeal No. 1 to 3 by the Revenue are accordingly dismissed. (emphasis supplied by us). 29. In view of the above we find force in the submission of Ld. Counsel for the assessee that the amount of ₹ 3 crores .....

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not been granted by the Municipal Corporation. Ultimately under Tripartite agreement the assessee transferred and assigned all its rights, title and interest under the agreement in favour of one M/s. A&B and received a sum of ₹ 5,90,000/- from A & B, ₹ 5 lakhs as consideration for the transfer and assigning of the assessee s right, title and interest under the agreement and ₹ 90,000/- being the earnest money earlier deposited by the assessee. The Tribunal held that this .....

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nder that provision, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The other sub clauses which deal with what property is not included in the definition of capital asset are not relevant. Under s. 2(47), a transfer in relation to a capital asset is defined as including the sale, exchange or relinquishment of the asset or the extinguishment of any right therein or the compulsory acquisition thereof under any law. The word .....

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