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Gigaplex Estate Pvt Ltd., (Formerly known as B Raheja Builders Pvt Ltd) , Versus Dy. Commissioner of Income Tax, OSD-II, Mumbai

2017 (11) TMI 719 - ITAT MUMBAI

Re-opening of assessment u/s 147 - reasons of believe - Held that:- There was failure on the part of assessee to disclose fully and truly all material facts for completion of assessment during the assessment proceedings. The case laws relied upon by the assessee are not applicable to the facts of the case as the necessary agreements qua joint venture, relinquishing the interest in the said land were not furnished before the AO in the course of assessment proceedings and there is a failure on the .....

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ne and thereby upholding the reduction of 100.80 Cr from the inventories of the assessee? - Held that:- The chronology of events clearly shows that the application was made in the joint names of the assessee, OM and WW. The land was also allotted by MIDC on the said application made by the three joint venture partners. Thereafter MIDC on an application made by the JV partners approved the relinquishment of interest in the said land by two JB partners OM and WW in favour of the assessee on paymen .....

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ken by them in the best interest of the business. Moreover all the three parties are unrelated parties and not related to each other. Therefore the transaction can not be said to be non genuine and sham. Further we failed to understand as to how a transaction which is assessed to tax in the hands of two JV partners by the revenue treating the same as genuine was treated as sham in the hands of assessee. - In our considered view the assessee has entered into the transaction of purchasing the .....

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d AR. The mere irregularities in the documents as pointed by the ld DR can not be the basis to draw conclusion as to genuineness of the transaction. So far as the reasonableness of the transaction is concerned, the valuation by the registered valuer and the DVO were largely same and can not be ignored and lost sight of while deciding reasonableness of the transaction. After considering the rival contentions, records, written submissions and case laws filed by both the parties we are of the view .....

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ls of the assessee are directed against the order dated 26.11.2015 passed by the ld.PCIT-52 for the assessment years 2007-08, 2008-09 and 2006-07 respectively. For the sake of convenience, these appeals were clubbed together, heard together and are being disposed of by this consolidated order. 2. First we will take up the appeal of the assessee for the assessment year 2006-07, wherein following grounds of appeal have been taken: Based on the facts and circumstances of the case, Gigaplex Estate P .....

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S Metals Ltd ('OM') and Wellwisher Construction and Finance Pvt Ltd ('WW') amounting to ₹ 100.80 crores reflected in its books of accounts under the head 'Inventories', is a non-business expenditure. 3. In upholding the disallowance of interest expense attributable to the monies borrowed for financing the payments to OM and WW and reducing such interest from the value of 'Inventories'. 3. The facts in brief are that the assessee is a company incorporated wit .....

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assessing officer (hereinafter called AO ) after four years from the end of the assessment year on the basis of assessment order passed in the case of M/S OM Metals Ltd (hereinafter called OM) who happened to be a joint venture partner by issuing notice u/s 148 of the Act dated 28.05.2012. In reply to the said notice the assessee filed return of income at an income of ₹ 8,83,666/- and also requested the AO to supply the reasons recorded u/s 148 for re-opening the assessment which were sup .....

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acres of land for a consideration of ₹ 50,58,62,500/-. After allotment the assessee bought the interest of OM. and WW in the said land with the previous sanction and permission of MIDC for ₹ 100,80,00,000/- from both the parties in equal proportion. The said payment was made by the assessee partly out of own funds and partly out of borrowed funds. The objections raised by the assessee against the re-opening of assessment were rejected and dismissed and ultimately the re-assessment wa .....

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143(3) of the Act vide order dated 22.12. 2008 was re-opened by issuing notice u/s 148 of the Act on 28.05.2012 recording the reasons which are extracted below:- The reasons recorded by the AO read as under: From the perusal of records, it is found that the assessee company has Increase in Stock in its Profit & Loss Account at ₹ 152,79,93,507j- and has carried forward the same as Inventories in its Balance Sheet. During the course of assessment proceeding vide letter dated 31.05.2010, .....

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under : Well Wisher Construction & Finance Pvt Ltd Ledger Account 01.04.2005 to 31.03.2006 Debit Credit 19-09-2005 To Vijaya Bank Payment 3,00,00,000 12-12-2005 To SCB Payment 40,00,000 02-01-2006 To SCB Payment 12,50,000 31-03-2006 To payable to Well Wisher Construction and Finance Ltd Journal 46,87,50,000 50,40,00,000 50,40,00,000 50,40,00,000 50,40,00,000 Well Wisher Construction & Finance Pvt Ltd Ledger Account 01.04.2005 to 31.03.2006 Debit Credit 10-12-2005 To SCB Payment 40,00,000 .....

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0,40,00,000 + 50,40,00,000 + 50,58,62,500) and has carried this value to the Balance Sheet as Inventories . The assessment of OM. for A Y 2008-09 was completed in Dec., 2010 by the jurisdictional AO at Jaipur which was subsequently forwarded to this office. The details annexed with this assessment order brings various glaring and shame transaction entered between the assessee B. Raheja Builders Pvt Ltd, Wellwisher Construction & Finance Pvt. Ltd., and OM. i. M/s. B. Raheja Builders PVI. Ltd. .....

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land at Airoli, purported to made jointly by all the three parties, but the project that highlights their capability as builders/developer, finds mention of projects developed by B. Raheja group only. iv. MIDC vide letter dated 14.11.2005 has offered 50 acres of land. v. An unregistered agreement was entered between B. Raheja Builders Pvt. Ltd. Wellwisher Construction & Finance Pvt. Ltd., and OM. on OB.12.2005 which mentions relinquishment of rights of Wellwisher Construction & Finance .....

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s. Ltd., did not contributed for the above transaction and the entire arrangement made appears sham in light of the following facts: i. A payment of ₹ 3,00,00,000 has been made to Wellwisher Construction & Finance Pvt. Ltd. on 19.08.2005 just after entering into the Joint Venture agreement, much earlier to allotment of land at Airoli by MIDC. ii. The assessee company did not mention the reasons for attributing the amount of ₹ 50,40,00,000/- against Wellwisher Construction & F .....

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d group concerns were having sufficient capital to fund this acquisition. The two other entities viz. Wellwisher Construction & Finance Pvt. Ltd. and OM., entered in the midst of this process and that seeked exit after a short period, till which no land was allotted. These two entities neither brought any expertise nor brought any funds to this Joint Venture to justify this huge payment to them. Thus, no role was played by Wellwisher Construction & Finance Pvt Ltd and Om Metals Ltd., and .....

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ablished. Also the interest expense attributable to this non-genuine payment made to these two entities viz. Wellwisher Construction & Finance Pvt Ltd (Rs.3,53,50,000) and OM. (Rs3,52,50,000j-), needs to be disallowed since the same has not been incurred wholly and exclusively for the purpose of the business. Thus, the assessee company has not made correct claim regarding its expenses claimed and debited in its books of accounts for the current financial year under consideration. Therefore, .....

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has been incorporated in para no 8 of the appellate order by observing and holding as under:- 8. I have considered the facts of the case, submissions made by the learned AR in this regard. As stated above, the assessee company entered into a joint venture agreement with OM and Wellwisheer Construction and Finance Pvt Ltd on 16.8.2005, allegedly for developing an IT Park at Navi Mumbai. They accordingly applied to MIDC for allotment of a plot of land on 18/8/2005. However, the very next day, on .....

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ssessee company or to the joint venture, and, therefore, on 19/8/2005, it could not have been concluded whether the joint venture ';; s actually going to be allotted a plot of land by the MIDC or not. Subsequently, on 15/9/2005, MIDC offered to allot a plot of land for a sum of ₹ 50 crores, with the condition that initial premium of ₹ 25.29 crores is paid 'within 30 days of the allotment. Thereafter, the assessee company paid a sum of ₹ 25.29 crores to MIDC on 12/12/200 .....

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issues about genuineness of the transaction. It is further relevant to mention over here that the joint venture partners did not bring in either any investment or capital or technical expertise to the joint venture. In fact, the assessee company belongs to Rah ja Group of cases, which is a quite well-known builder group having long experience on construction business and had also developed an IT. Park at Bangalore and, therefore, it is not the case that the assessee company lacked such expertise .....

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. 9. It is also relevant to mention over here that the assessee company in A.Y. 2006-07, had shown the sum of ₹ 100.80 crores in its accounts in the form of inventories and no separate entry as such, as amount paid to OM. and Wellwisher Construction & Finance Pvt. Ltd., had been mentioned in the accounts. For clarity, the relevant entries made by the assessee in its books for'A.Y:2006-07 are reproduced as under :- Particulars Amount (in Rs.) Deferred Tax Assets 1,19,87 Current Asse .....

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see has claimed that its duty was only to disclose primary facts alone and other facts have to be unearthed by the AO from the accounts enclosed by the assessee with the return. However from the basic accounts enclosed by the assessee, the facts relating to payment of ₹ 100.80 Crores to OM. and Wellwisher Construction & Finance Pvt. Ltd. are just not clear and the AO, by a cursory look at the Balance Sheet, could not have made out whether any payment has been made to such parties. Sinc .....

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93,507 100 From the above table also, it is clear that no separate entry has been passed in respect of the amount of ₹ 100.80 Crores paid to OM. and Wellwisher Construction & Finance Pvt. Ltd. The assessee has included this amount as cost of land/premium for development rights. However, the payments made to OM. and Wellwisher Construction & Finance Pvt. Ltd. is neither land cost, nor premium paid for development rights. Thus, the assessee had not shown this amount properly in its b .....

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l material facts were apparently not disclosed by the assessee, either with the return of income or in the original assessment proceedings, it cannot claim now that it had disclosed all material facts. Consequently, various case laws relied upon by the assessee are distinguishable on facts of the present case. 11. In view of the discussion in the foregoing paragraphs, the opening of the assessment made by the AO u/s 147 of the Act, by issue of a notice u/s 148 of the At, is held to be valid. Con .....

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se of non disclosure of materials facts by the assessee in the assessment proceedings concluded u/s 143(3) of the Act. The ld AR submitted that the assessment in the case of the assessee was completed on 22.12. 2008 which was re-opened on the basis of assessment order of M/S OM dated 30.12.2010 which was passed approximately two years after the assessment in the case of the assessee. The assessment order of M/S Om Metal Ltd was not available with the assessee nor with the AO during original asse .....

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li Jummabhai 198 ITR 69 Guj, (v) CIT Vs Satya Narayan Lohia 204 ITR 894(Cal). The ld AR contended that the assessment can only be re-opened u/s 147 of the Act after lapse of four years from the end of assessment year where the assessment is framed u/s 143(3) of the Act if the income has escaped assessment due to failure on the part of the assessee to disclose material facts. The ld AR submitted that the assessee has disclosed all the facts in the annual accounts of the assessee by referring to p .....

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which included the payment to MIDC, OM and WW and the details of sundry creditors which included the amounts payable to two parties vide letter dated 18.10.2008. No further details were sought by the AO after examination and verification of records and written submissions by the assessee. The ld AR also pointed out that while recording reasons, AO started the reasons by using the line from the perusal of records it is found that the company has….. which clearly showed that AO recorded th .....

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see to disclose materials facts either in the accounts or during the assessment proceedings, proceedings u/s 147 of the Act were invalid and should be quashed. The ld counsel relied on the following decisions in support of his arguments (i) Bhor Industries Ltd ACIT 267 ITR 161 (Bom), (ii) Ajanta Pharma Ltd Vs ACIT 267ITR 200 (Bom), (iii) Hindustan Lever Ltd Vs ACIT 268 ITR 232(Bom), (iv) Titanor Components Ltd Vs ACIT 20 Taxman.com 805 (Bom). 4.4 The third limb of argument of the ld AR was that .....

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umbai on the same day i.e 25.5.2012 who on the same day accorded approval in a mechanical manner by noting I have gone through the reason and agree with the reasons given by the AO.I consider it a fit case for invoking proceedings u/s 147. The ld CIT granted approval within 24 hours by just mentioning his satisfaction in one line. The ld AR submitted that due diligence is a pre-requisite for re-opening and mechanical approval is not valid. The ld AR relied on a number of decisions in support of .....

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audit report, audited accounts to the assessment proceedings. As contended during the hearing proceedings and admitted by appellant that management of M/s.B.Raheja Builders Pvt. Ltd. (the assessee) was earlier with the Vijay Raheja Group but subsequently taken by K. Raheja Group. The assessee's paperbook is based on evidences taken by K. Raheja Group from the AO. The assessee neither before the AO nor during appellate proceedings before Ld.PCIT or before Hon'ble ITAT submitted any eviden .....

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llate authority to hide crucial information. Further, there are different averments made by assessee at different level without producing and substantiating the same with evidences. The ld DR submitted that the upon examination of the assessment records as has been filed in the paper book it is amply clear that no details were called for by the AO and filed by the assessee in respect of joint venture, joint application for allotment of land from MIDC, terms and conditions of allotment and cost o .....

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O has made due enquiries qua the purchase of land or rights therein by calling for details from the assessee vide letter dated 19.05.2010 but the assessee supplied details only in respect of payments to the two companies who surrendered their interest in the land. The ld DR while taking us through the relevant pages of the paper book submitted that when the interest in the land was surrendered vide deed of assignment dated 6.8.2007 relevant to AY 2008-09 how the assessee could foresee and create .....

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proves beyond doubt that the assessee did not want to divulge the details to the tax authorities. On the recording of reasons, the ld DR submitted that before re-opening the case the reasons were recorded after eliciting information from the assessee and also with reference to the copy of assessment order of OM with annexures which formed credible information that transaction entered into by the assessee with two JV partners was sham. The ld DR also brought to the notice of the bench that ͅ .....

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the ld DR prayed before the bench that the order of PCIT upholding the re-opening is correct and deserved to be upheld. 4.6. We have heard the rival contentions of the parties and perused the relevant records placed before us including the various case laws relied by both the parties and also the rebuttal by the ld AR. The undisputed facts are that the assessee bought over the interest in the land allotted by the MIDC from two other companies namely M/S OM. and M/S Well Construction and Finance .....

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ee, OM and WW was a sham and non genuine. As per the provisions of the Act, the re-opening after a period of four years from the end of relevant assessment year can only be done only if income has escaped assessment due to assessee s failure to disclose fully and truly all material facts for completion of assessment during the assessment proceedings. The assessee has duly disclosed the purchase of interest in land measuring 50 acres from two other companies for a consideration of ₹ 100.80 .....

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d 22.12.2008. The AO raised a specific query to the assessee qua the inventories and sundry creditors which the assessee complied with by filing the details of inventories and sundry creditors, however the copies of the agreements with M/S OM and WW were not filed before the AO and as a result the AO could not examine the transaction among the trio. Looking the facts in totality, we are of the view that there was failure on the part of assessee to disclose fully and truly all material facts for .....

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section 147 of the Act. We are, therefore, inclined to hold that re-opening of assessment u/s 147 of the Act is valid and accordingly the ground raised by the assessee is dismissed. 5. The issue agitated in the second ground is against the upholding the order of AO by PCIT that the transaction of purchase of interest in 50 acres of land from two companies OM and WW was sham and non genuine and thereby upholding the reduction of 100.80 Cr from the inventories of the assessee. 5.1. The facts in b .....

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MIDC. Pursuant to the said agreement the assessee paid some money to these companies and the outstanding was duly provided for in the books of the assessee as compensation to these companies by increasing the inventories by ₹ 100.80 Cr. According to the AO the payment of ₹ 100.80 Cr to these two companies in lieu of relinquishment of interest in the land was not justified for the reason that the two companies (joint venture partners) decided to quit the JV within three days of enteri .....

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mercial Tax Officer and held that ₹ 100.80 Cr incurred cannot be treated as business expenditure. The ld AO, without prejudice, also held that at best the payment could be regarded as professional fee. But since the assessee not subjected the payment to TDS u/s 194J of the Act, the expenditure should be disallowed u/s 40(a)(ia) of the Act. Finally AO reduced the said amount of ₹ 100.80 Cr from inventories ( land) and completed the assessment. 5.2. The ld PCIT also dismissed the groun .....

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isition of land from M/DC at Navi Mumbai, but later the joint venture was terminated. The AO, while completing the assessment, observed that it was wholly unnecessary and superfluous on the part of the assessee to pay a sum of ₹ 100. 80 crores to the alleged joint venture partners, viz. OM. and Wellwisher Construction & Finance Pvt. Ltd., and that such parties remained in existence, as far as the joint venture is concerned, for a period of only three days and walked away with a whoppin .....

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mercial Tax Officer. The AO, accordln.gly, reduced the amount of ₹ 100.8O crores out of the closing work-in-progress of the assessee in respect of the concerned project. 15. I have examined the facts of the case. Before proceeding further, it will be relevant to mention the sequence of events, as mentioned by the assessee itself before the AO, as under :- Date Event 16/08/2005 The assessee company entered into a joint venture agreement with Wellwisher Construction & Finance Pvt. Ltd. a .....

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inance Pvt.Ltd. on 19/8/2005 as a token amount for relinquishing its ri9. in the joint venture, just three days after the signing of joint venture agreement. 15/09/05 Consequent to proposal made by the assessee company with other two companies jointly to MIDC a plot of land was offered for a premium of ₹ 50 crores by MIDC 23/09/2005 Vide letter dated 23/9/2005, this offer was claimed to have been accepted by all three companies. 14/11/2005 MIDC, through letter dated 14/11/2005, allotted pl .....

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0/12/2005 ₹ 40 lacs each was paid to Wellwisher & Om Metals 02/01/2006 Rs.3.12 crores was paid to Om Metals 02/01/2006 Rs.12.50 lacs was paid to Wellwisher. 24/02/2006 MIDC allotted land vide letter dated 24/2/2006 25/03/2006 All the three companies made a request to MIDC to execute the lease deed in favour of the assessee company 31/03/2006 The assessee company made provision in the books of accounts towards balance compensation payable of ₹ 46.87 crores to each of the companies .....

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r assignment of rights in plot of land in favour of the assessee company, on payment of permission o f ₹ 78,89,700. From the above sequence of events, mentioned by the assessee itself before the AO, it is quite clear that on 16/8/2005, the assessee company entered into a joint venture with OM. and Wellwisher Construction & Finance Put. Ltd., with the so-called object of developing an I. T. Park in Navi Mumbai. It further appears that they jointly made an application to MIDC on 18/8/200 .....

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lotment was claimed to have been accepted by all the three companies. Later, MIDC, through a letter dated 14/11/2005, allotted a plot of land of 50 acres for a premium of ₹ 50 crores, on the condition that initial premium. 0/Rs.25.29 crores will be paid within 30 days of allotment. Thereafter, on the basis of earlier understanding that the assessee would develop the plot independently, OM. and Wellwisher Construction & Finance Put. Ltd. agreed to relinquish their rights over the land.& .....

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ssessee company chose to pay a sum of ₹ 3 crores upfront to Wellwisher Construction & Finance Put. Ltd. on 19/8/2005 itself, for relinquishing rights in the joint venture, which is strange and surprising. It further appears that neither OM. nor Wellwisher Construction & Finance Put. Ltd. undertook any liability in the whole exercise of formation of this joint venture, nor they made any investment or capital contribution, and they just walked away with a whopping amount of ₹ 1 .....

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relevant to mention over here that even before any land was allotted to the - so-called joint venture or permanently to the assessee company, a sum of ₹ 3 crores had been paid to Wellwisher Construction & Finance Put. Ltd. one of the companies of the joint venture, without any basis or justification. It is also interesting to note that the other two companies have not brought in any capital or expertise to the project and even the entire amount for the plot, payable to MIDC, had been .....

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by MIDC, a plot of land of 50 acres was allotted for an amount of ₹ 50 crores. However, the assessee has paid a total amount of ₹ 1 00.80 crores to the joint venture partners, which is more than two times of the cost of the plot of land. The assessee has not been able to explain the basis of computing the compensation payable to the joint venture partners, at a huge amount of ₹ 100.80 crores. This gives rise to serious doubts about the genuineness of the. whole transaction. 16. .....

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two companies had not made any contribution towards the project either by way of capital or expertise, etc. This is evident from the joint venture agreement dated 16/8/2005 and agreements dated 10/12/2005, which are silent on the contributions made by these companies. In fact, it has been clearly mentioned in the agreements dated 10/12/2005 that the entire premium for allotment of the plot of land had . been paid by the assessee company alone. The learned AR has referred to clause 4 and 5 of the .....

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is also stated by the learned AR that due to various disagreements, the partners decided to terminate the joint venture agreement, and, therefore, the need for detailing the joint venture terms did not arise. These clauses of the joint venture agreement and the admission of the learned AR that no agreement in this regard was executed on account of termination. of the joint venture agreement make it amply clear that no contribution had been made by these companies towards the project, as no contr .....

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d the agreements relinquishing their rights. Surprisingly, the agreements dated 10/12/2005 do not mention any reason for termination of the joint venture and as to how the compensation is computed. In any case, it has not been explained as to how the compensation for the so called goodwill could be valued at an amount more than two times of the cost of the land. Hence, this explanation of the assessee is only an after-thought and the; same cannot be accepted. Further, the assessee company itself .....

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has also contended that the AO's assumption that the joint venture was dissolved on 19/8/2005 was wrong, as the agreement for termination of the joint venture was entered into only on 10/12/2005, and that the actual payments and final termination of the joint venture took place only in August, 2007. Accordingly, the learned AR contended that the transaction could not be regarded as a pre determined or paper transaction. As per the sequence of events given by the assessee itself before the AD .....

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is admitted by the assessee itself that the decision to terminate the joint venture had been taken by the parties and a payment of ₹ 3 crores had also been made to one of the parties as per such understanding, immediately after formation of the joint venture and before allotment of any land by MIDC. Therefore, it is not material that the agreement in this regard was entered into later. 19. Before me, the learned AR has also contended that the joint venture agreement was terminated due to v .....

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lease and assign their rights in the land in favour of the assessee company and the companies had agreed to do the same for a consideration. Thus, the agreements for termination of joint venture do not mention any reason for termination. Even before the AO during assessment proceedings or before me, the appellant has not explained the exact reasons for termination of the joint venture. 20. The learned AR also contended before me that the assessee had incurred various expenses in connection with .....

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t is to be decided after considering all the relevant facts of the case. In the present case, firstly, the assessee has not established that it had to enter into the joint venture agreement for bona fide and genuine business purposes, as it could have applied for allotment of the land on its own. Secondly, the assessee has. not explained satisfactorily as to why the joint venture agreement was terminated, only after three days of formation, even though a formal agreement in this regard may have .....

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ency in making the payment of a large amount of ₹ 100.80 crores to the two companies, as consideration for releasing and assigning their rights in the land allotted by the MIDC, when the cost of the land was only about ₹ 50 crores and the parties had not made any contribution, either by way of capital or expertise or in any other form, towards the project, except lending their names as one of the applicants for allotment of the land. Under the circumstances, the entire transaction ha .....

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re Construction & Finance Put. Ltd. was not disproportionate to the fair market value of the land. However, it is seen that this valuation report has been prepared only on 20/2/2015. Therefore, it is obvious that the amount payable to the above two companies had not been determined on the basis of such valuation report. Further, as per this valuation report, the fair market value of the plot of land in question as on 28/2/2007 was ₹ 125, 72,94,500/-, and not as on 19/8/2005, when the j .....

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had not contributed any capital or technical expertise towards the project and that they had merely lent their names as co-applicants for allotment of the land. Moreover, the decision to terminate the so-called joint venture agreement was taken by the parties and the assessee company had also started making payments to OM. and Wellwisher Construction & Finance Put. Ltd., in this regard, on 19/8/2005 itself. Therefore, it is not understood as to how the market value as on 28/2/2007 could be .....

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yment, when the party concerned did not have any rights to be relinquished. This also shows that the entire arrangement was pre-determined. In the facts and circumstances of the case, the valuation report filed by the assessee during appellate proceedings also does not justify the payment of ₹ 1 00.80 crores to the above-mentioned companies. 22. It may be clarified here that the fact that the corresponding receipt has been taxed in the hands of OM. will not affect the allowability of the e .....

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e has not been able to justify the payment of ₹ 100.80 crores, and, consequently, the expenditure cannot be allowed in the hands of the assessee. 23. In the case of McDowell & Co. Ld. Vs. Commercial Tax Officer (154 ITR 148), the Hon ble Supreme Court has dealt with the issue of tax avoidance by observing as under : We think that time has come for us to depart from the Westminister principle as emphatically as the British Courts have done and to dissociate ourselves from the observatio .....

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t brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful, advisers on the other side. Then again there is the 'sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it'. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden .....

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hose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that It stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taking statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literal .....

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or desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is upto the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation as was done in Ramsay, Burma Oil and Dawson, to expose the devices for what they really are and to refuse .....

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ance Put. Ltd., as business expenditure. Consequently, the disallowance made by the Aa in this regard is upheld and the ground taken by the assessee is rejected. Further, on the similar lines, the claim of interest expenditure on loan taken for making payments to OM. and Wellwisher Construction & Finance Pvt. Ltd. has also been held as not allowable by the undersigned in the case of the assessee for A.Y. 2006-07. Therefore, following my own order in the case of the assessee for A.Y. 2006-07, .....

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nd in question were duly assessed by the revenue authorities without doubting or treating the transaction as sham in their hands. The ld AR submitted that both companies M/S OM and WW were involved right from the JV agreement dated 16.08.2005 till final sanction by MIDC of assignment of interest in the land in favour of the assessee by these two companies. Therefore the conclusion of the AO that the two companies did not have any role in the acquisition of land and they were just name lenders is .....

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The AO has only described the transaction as sham but has failed to point out any features of sham transaction. The ld AR taking us through the chronology of events such as initial agreement to terminate the JV agreement was made on 10.12.2005 four months after application for allotment was made, quantum of payment to out going JV partners was not fixed in the termination agreement entered on 10.12.2005 but formula to calculate was mentioned, final termination of JV agreement taking place on 6. .....

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n the case of Shree Meenakshi Mills Ltd Vs CIT (1956)31 ITR 28.The revenue has not raised any issue about receipt of money by JV partners but only legal issue of taxability of receipts in their hand was raised. 5.4. The ld AR, without prejudice, argued that revenue accepted the transaction as genuine in the hand of OM and WW while treating the same transaction as sham in the case of the assessee. In case of WW amount received from assessee was shown as capital receipts and MAT was paid thereon a .....

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sset. In the hands of Om Metal Ltd the compensation was treated as capital receipt but the AO treated the same as revenue receipt which was accepted by the OM and OM paid taxes thereon with some dispute as to claim of expenses was allowed by PCIT and revenue s appeal before ITAT was also dismissed. In other words the assessments of OM and WW were made and travelled upto ITAT and in both the cases the amount paid to these parties were assessed to tax. The ld AR contended that when the multiple ta .....

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28 ITR 378 (Mad), (ii) Raman and Raman Ltd Vs CIT 46 ITR 400(Mad), (iii) CIT Vs Walchand & Co Pvt Ltd 65 ITR381 SC, (iv) JK Woollen Manufacture Vs CIT 72 ITR 612 SC, (v) CIT Vs Dhanrajgiri Raja Narasingirji 91 ITR 544 SC, (vi) Sasoon J.David and Co Pvt Ltd Vs CIT 118 ITR 261 SC, (vii) CIT Vs National Rayon Commercial Co Ltd 193 ITR 744 Bom, (viii) CIT Vs Dalmia Cement (B) Ltd 254 ITR 377 (Del). On the reasonability of the payment, the ld AR argued that value as per registered valuer s report .....

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nt dt.16.08.2005 was executed between assessee, WW and OM. Though this unregistered JV on ₹ 100 stamp paper was submitted before the AO of OM whereas another JV agreement was got registered on a stamp papers of ₹ 1,000/- taken out by WW on 06.10.2005. Therefore, there were two Joint venture agreements dated 6.8.2005 i.e. one is on ₹ 100 stamp paper and not registered and submitted by M/s 0M and another was registered one on ₹ 1000 stamp paper submitted by M/s. WW before t .....

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t for development of I.T.Park, all these parties hereto have decided to pool their financial resources, establishment, technical teams and other know how . The assessee neither submitted copy of JV agreement as applicable for his case for the impugned transaction nor substantiated about how the other two parties supplied any resources, fund, services, expertise, technical knowhow etc. Then an application for allotment of land was filed before the MIDC on 18.08.2005 which was referred to on the l .....

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for sending ₹ 6000/- in advance in cash for the purpose of making application jointly in the name of assessee and WW This application dt.18.08.2005 is after the unregistered JV dt. 16.8.2005 but does not bear the name of OM explain the nature of such transaction and paperwork. The only resolution of the board was submitted by OM dt.15.11.2005 despite the fact that all the three corporate entities were bound by such resolution not only for joint venture but also for subsequent settlement ab .....

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ied these information to assessee and called for comment on the Joint Venture agreement as supplied by MIDC. The assessee vide letter dt.04.07.2013 called for copy of letter of MIDC dt.07.05.2013 which was provided. After seeking an adjournment vide letter dt.10.07.2013, the assessee made a reply to AO vide letter dt.15.07.2013 filing the chronology of events in a tabular form and submitted explanation in respect of the transaction. Following are the important findings from the details so furnis .....

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heir AO i.e ACIT Rg.18(1), New Delhi. This application reflects that the same was made by WW and assessee only. The application is signed by Shri C.K.Bhansali, Director of WW only. The amount of EMV of ₹ 5050 paid through a banker cheques dt.17.08.2005 was in fact sent by Shri Vijay.V.Raheja in cash as evident from the letter dt.16.11.2005 addressed to Shri Chandrakant M.Bhansali .In the joint application dt. 03.03.2005, it is mentioned that all the three parties have entered into a Joint .....

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09.09.2005 and 12.09.2005, the MIDC vide its letter 15.09.2005 issued an offer letter available at pg.no.166 to 167. One of the condition for compliance to accept such officer was to file documentary evidences that there is a Joint Venture between WW, OM and assessee. A copy of the Board resolution passed by the Board of Director for purchase of land was also called for. The offer letter was for 50 acre of land @ ₹ 2500 per sq.mt. The assessee vide letter 23.09.2005 submitted the complian .....

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is agreement. OM in their assessment for A.Y 2008-09 submitted a copy of JV agreement dt.16.8.2005 at point 3 (PB pg.189) mentioned about the JV agreement dt.16.8.2005. At point 4 it is mentioned that The Raheja Group are the promoters and pvt. Ltd. ( JVC or Company). The parties have now agreed that M/s. WW and M/s.OM shall each subscribe for and acquire 125 equity shares of ₹ 100 / - each in JVC so that WW, OM and Raheja Group shall hold the paid up equity share capital of JVC in the rat .....

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86). At pg.176 the order sheet noting dt.14.12.05 reflect the submission of Joint Venture & share subscription agreement dt.10.12.2005 by which M/s.B.Raheja Builders Pvt. Ltd. shall be the Joint Venture company and other applicant i.e OM and WW will acquire share in JVC i.e assessee's company and develop the plot jointly. It is therefore, relinquishment of any right in property before 14.12.2005 is not supported by this finding leading to a conclusion of sham transaction. Therefore, no r .....

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ness expediency and allowable. The DR further stated that question of payment to WW and OM for a considerable amount of ₹ 100.80 cr. in the case of assessee as considered by AO is related to its allowability u/s.37 (1) of the Act. It is, therefore, immaterial as to how WW and OM reflected this amount in their books. The condition for allowability of such payment in the case of assessee has to be tested for whether such payment was made wholly and exclusively for the purpose of assessee' .....

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nditure in question is not of the nature described u/s 30 to 36,(b) The expenditure is not of the nature of capital expenditure,(c) It is not a personal expenditure and (d) The expenditure has been laid out or expanded wholly or exclusively for the purpose of business or profession. All conditions simultaneously should be satisfied. To support these contentions following legal authorities were relied on by the ld DR : a. Laxminarayan Madan Lal V/s. CIT - (1972) 86 ITR 0439 b. Killick Nixon Ltd. .....

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ee wholly and exclusively and therefore was rightly rejected by the lower authorities. 5.7. In the rebuttal, the ld AR submitted that the facts of the decisions relied on by the ld DR are clearly distinguishable on facts and therefore not applicable. In the case of Killick Nixon Ltd Vs DCIT 2012 81 CCH 0066 the Hon ble Bombay high court has held that where a transaction is a sham and not genuine then it cannot be considered to be part of tax planning or legitimate avoidance of tax liability. In .....

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sed the relevant records placed before us including case laws cited by the parties. The undisputed facts are that the land measuring 50 acres was allotted to assessee and two other JV partners OM and WW by MIDC upon a payment of Rs. ₹ 50,58,62,500/-. The JV partners decided to surrender their interest in the land in favour of the assessee upon a payment of 100.80 Cr. The necessary sanction for the said transaction was obtained from MIDC. The assessee accounted and provided for the transact .....

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ssment u/s 143(3) of the Act vide order dated 22.12.2008. In the mean time the assessment of OM was completed for the assessment year 2008-09 in December,2010 in Jaipur approximately two years after the completion of assessment of the assessee and the AO at Jaipur forwarded copy of the assessment order with relevant annexures to the AO of the assessee. Thereafter the AO also sought the details of the transaction from the assessee vide letter dated 19.05.2010 and re-opened the case of the assesse .....

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on was treated as genuine in the hands of OM and WW the two JV partners to whom the assessee paid ₹ 50.40 Cr each for acquiring the interest in the land. In the case of OM, the receipt from the assessee was treated as capital receipt but the same was treated as revenue receipts by the AO in the assessment framed u/s 143(3) of the Act which was accepted by OM and paid due taxes thereon. In the case of the WW the money received from the assessee was treated as capital receipt and MAT was pai .....

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assessee. Moreover the chronology of events clearly shows that the application was made in the joint names of the assessee, OM and WW. The land was also allotted by MIDC on the said application made by the three joint venture partners . Thereafter MIDC on an application made by the JV partners approved the relinquishment of interest in the said land by two JB partners OM and WW in favour of the assessee on payment of specified premium. It is relevant to note that records of MIDC proved that the .....

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ated parties and not related to each other. Therefore the transaction can not be said to be non genuine and sham. Further we failed to understand as to how a transaction which is assessed to tax in the hands of two JV partners by the revenue treating the same as genuine was treated as sham in the hands of assessee. In our considered view the assessee has entered into the transaction of purchasing the interest in the land from the said two parties and after purchase, became the exclusive owner of .....

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