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TMI Blog2017 (1) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... case are that the assessee-company has field its return of income electronically on 30.9.2008 declaring total income at Rs. 35,68,29/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee on 25.9.2009. According to the AO, on perusal of balance sheet it revealed that the assessee- company had made huge investment in shares and securities. The assessee has claimed interest expenditure of Rs. 11,39,180/- in its profit & loss account. The assessee has not allocated any interest expenditure towards investment. Accordingly, ld.AO has made disallowance of Rs. 9,69,947/- under section 14A r.w.r. 8D of the Income Tax Rules. He made disallowance of interest expenditure at Rs. 1,34,997/- and administrative expenditure at Rs. 8,34,950/-. 4. Appeal to the CIT(A) did not bring any relief to the assessee. On the strength of Hon'ble Gujarat High Court decision in the case of CIT Vs. Corrtech Energy P.Ltd., 45 taxmann.com 116 (Guj), the ld.counsel for the assessee contended that if there is no exempt income claimed by the assessee, then there could not be any disallowance under section 14A of the Income Tax Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Rs. 9,69,947/- 6. In the next fold of grievance, the assessee has pleaded that it has suffered a loss in a contract which has been disallowed by the AO, and the ld.CIT(A) has confirmed such disallowance. 7. Brief facts of the case are that M/s.Jay Construction is a proprietary concern of Shri Naresh Muktilal Shah. The proprietorship concern had entered into an agreement on 26.4.2007 with Shri Bharatbhai Kothari and Shri Rajendrasingh Ravubhai Waghela i.e. owners of the land bearing survey no.695. Under this agreement, he has acquired development right of this land, admeasuring 8802 sq.meters of Village Sanand. He entered into an agreement with the assessee on 26.6.2007 in which it has been agreed that the assessee would construct 100 bungalows out of said plot of land in conformity with the plan, drawings and specifications. It has been agreed that second party i.e. the assessee would commence construction within 30 days of approval of development plan by appropriate authority, and complete construction on or before expiry of 24 months from the date of execution of the contract. Somehow the contract could not be completed. As per clause-7 of the contract, second party if ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utely seized or is in possession of such land to carry out the construction of 100 bungalows. In my opinion, the inclusion of factually incorrect clause it self makes the agreement illegal. Further the appellant is conspicuously silent on certain issue relating to plan for construction viz who has applied for plan or when such plan for construction was submitted or who has applied for CLU permission ( change of land use) to non-agriculture land which is basic prerequisite for submission of plan and construction thereof. No evidence to this effect is submitted before the A.O or before me to reinforce the claim that appellant indeed has taken substantial steps to plan and commence construction by appointing the SH N M shah. I also find that the fact of stamp paper numbers for execution of contract and cancellation of contract as being successively numbered indicating the fact that such exercise was pre-mediated one, specifically designed to book losses in the given Asst. Year. It is notice- worthy that Shri N.M. Shah is a person of no means and does not have a valid PAN nor he has filed his income-tax return to show that such receipts before Income-tax department. I am inclin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " employed in section 37 refers to quantification of expenditure, while, expression "exclusively" refers to motive, objects and purpose of the expenditure. The ld.counsel for the assessee has made reference to written submissions filed before the ld.CIT(A) and in those submissions, a large number of decisions have been referred by the assessee. In order to appraise ourselves with authoritative pronouncements of the Hon'ble Gujarat High Court as well as Hon'ble Delhi High Court, propounding approach requires to be adopted by adjudicating authority while appreciating claim of the assessee about the business expenditure, it is important to make reference to the decisions of the Hon'ble Gujarat High Court in the case of Voltamp Transformer Pvt. Ltd. Vs. CIT, 129 ITR 105 (Guj). The following observations of the Hon'ble Court are worth to note: "So far as the questions of commercial expediency and business need of an organization are concerned, it is not the view point of a revenue officer which should count, but it should be the view of an ordinary businessman dealing with a situation like the one faced by the assessee." 11. In a similar circumstance, the Hon'ble Delhi High Court had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement. In order to appreciate this documents, it is pertinent to take note of the agreement dated 27.6.2007 which is available at page no.112 of the paper book. It reads as under: "AGREEMNT FOR CONSTRUCTION OF BUILDING Party of the First Part : Promoter JAY CONSTRUCITON a Proprietorship firm through its proprietor Naresh Muktilal shah Aged 48 years, by religion Hindu, occupation business, having address at Vardhman ni Khadki, Mangal Parekh No Khancho, Shahpur Darwaja, Ahmedabad. Hereinafter called "Party of the First Part" or]"Promoters " which expression shall un-„ less it be repugnant to the context or meaning thereof be deemed to include its suc- cessors and assigns. Party of the Second Part: Contractor Ganesh Plantations Ltd. a company registered under Reg. No. U01119GJ1994 PLC023941 dated 21/12/94 through its au-thotized signatory Harshit Rajnikant Shah Ag4d adult, by religion Hindu, occupation service, having address at 1st Floor, Samudra Complex, Off. C.G.Rcad, Ellisbridge, Ahmedabad. Hereinafter called "Party of the Second Part" or "Contractor" which expression shall unless it be repugnant to the context or meaning thereof be deemed to include its succ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall pay to the Party of the Second Part such! sum as may be sufficient to defray the expenses incurred by the Party of the Second Part in respect of the work checked and certified by the qualified engineer of the Party of the First Part. 4. After the completion of the construction work of the intended buildings according to the contact, the Party of the second part shall have removed and cleared all scaffolding, unused material and rubbish from the land and premises at their own cost. 5. The Party of the First Part shall allow free ingress to and egress from the premises to the Party of the Second Part, servants, employees, sub-contractors and all other persons, who are necessary in connection with the carrying out of the works under the agreement. 6. The Party of the Second Part shall indemnify the Party of the First Part in respect of all claims, damages or expenses payable in consequence to any injury to any employee, workman, nominee, invitee while in or upon the said premises. The Party of the Second Part shall also be responsible for any damage to buildings, whether immediately adjacent or otherwise and any damage to buildings, whether immediately adjacent or otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der discussion made by the AO under each question formulated by him along with finding recorded by the ld.CIT(A) extracted supra. While appreciating the genuineness of the agreement, the ld.AO in the remand report has devoted major time about explaining nature of contract, and thereafter observed that the assessee failed to furnish evidence as to when it received approved for alleged construction of 100 bungalows as per clause (2) of the said agreement. The ld.CIT(A) has also concurred with these circumstances. But if contract is being perused, then it will be seen that it was not specifically specified that it is the responsibility of Jay Corporation to provide approved plan. In the written submissions before the ld.CIT(A), the assessee has specifically pleaded that it was the duty of the assessee to get approval and when it failed to get the approval, it realized that this contract cannot be executed. On page no.183 of the remand report in the written submissions the assessee has specifically pleaded that "However, the appellant company could not get the approval which was the primary and first step and hence the agreement was terminated.". Now it is to be appreciated as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it was owner of the land bearing survey no.695. M/s.Jay Corporation has alleged that it is seized of development right and possession of the land. Mutual understanding between the assessee and Jay Corporation was that the assessee would get approval and commence construction work within 30 days from the approval made, and Jay Corporation will pay a sum of Rs. 20,45,72,000/- towards construction cost. If the assessee failed to get construction commenced, then it will have to pay a sum of Rs. 4.00 crores as compensation/damage. The ld.CIT(A) has erred in not appreciating distinction between holding of development right alongwith possession vis-à-vis ownership of the land. It appears that in the finding extracted supra, the ld.Revenue authorities has intermingled these two different rights and made observation that claim of the first party i.e. Jay Corporation about the possession and seizure of land is factually incorrect. A person can be in possession of a land and can be having development right without there being ownership. Thus, facts have not been appreciated in right perspective by the ld.Revenue authorities. 17. The next objection raised by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Muktilal Shah, aged about 51 years, Hindu by religion, occupation Business and having address at Vardhman ni Khadki, Mangal Parekh no Khancho, Shahpur Darwaja, Ahmedabad-380001 do hereby state on oath that - 1) I am a proprietor of a firm known as Jay Construction. 2) My firm has entered into an agreement for construction of building in the year 2007 with a Company known as Ganesh Plantations Ltd having its registered office at 1st floor, Samudra Complex, Off:C.G.Road, Ahmedabad. 3) The said Company could not start the construction and therefore in 2008 we entered into an agreement for cancellation of the earlier agreement. 4) There was a scrutiny assessment of Ganesh Plantations Ltd for the Assessment Year 2008-09 under Income Tax Act 1961. The said transactions were scrutined by the assessing officer Mr. R.R.Nair, Income Tax Officer, Ward 4(1), Ahmedabad. From my behalf I submitted two written submissions. 5) However the assessing officer issued a notice u/s 133(6) of the I.T. Act 1961 and directed me to appear before him in November/December 2010. Due to several reasons like my travelling and illness I could not appear before the assessing officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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