TMI Blog2019 (2) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... crores is not a revenue affecting transaction but it will be taken into consideration at the time of sale of the property by the seller. Hence, it is only a matter of different assessment year when finally the properties in question are to be sold by the seller. The Assessing Officer has not brought any material or fact that the seller has circumvented the provisions of Section 51 of the Act. Further the payment of ₹ 7.00 crores by the assessee to the seller is not in dispute and this is a real transaction but the Assessing Officer has disallowed the claim on the ground that the forfeiture of the amount is not genuine. It is pertinent to note that once the parties to the transaction have accepted the forfeiture and the assessee has not made any claim or the amount was otherwise not paid to the assessee then there is no reason to treat the forfeiture as non-genuine. Accordingly, when the AO has duly examined all the relevant facts as well as the seller during the course of remand proceedings and nothing adverse was either found or brought on record to contradict the claim of the assessee then the claim of forfeiture of the amount in question is an allowable claim U/s 37 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of agreement, the assessee paid ₹ 2.00 crores and as per the terms of the agreement, further payment of ₹ 2.00 crores to be made within 10 days from the date of execution of agreement and ₹ 3.00 crores within 30 days from the date of agreement. The balance full and final payment was to be made on or before 27/2/2014, however, the assessee submitted that the assessee could make only ₹ 7.00 crores and failed to make the payment of balance amount of ₹ 13.00 crores as per terms of the agreement and consequently the other party forfeited the said amount of ₹ 7.00 crores which has been claimed by the assessee as allowable expenditure. In support of the contention, the assessee furnished copy of the agreement, letters of M/s Synod Farm and Infra Developers Pvt. Ltd. dated 20/2/2014, 11/3/2014 and 18/3/2014. The Assessing Officer was not satisfied with the explanation of the assessee and held that this is only the arrangement between the parties to avoid the tax on the profit of the assessee and thereby reduced the profit by ₹ 7.00 crores. Accordingly, the Assessing Officer made addition of ₹ 7.00 crores in the total income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 7.00 crores in its books of account by reducing the same from the cost of property, therefore, there is no revenue effect as per the provisions of Section 51 of the Income Tax Act, 1961 (in short the Act) when the forfeiture amount would reduce the cost of acquisition in the hand of the seller and therefore, the profit on the sale of the property will be increased by the same amount. The ld. AR has further submitted that during the course of remand proceedings, the Assessing Officer has examined the seller and also verified the facts that the seller has duly declared the said amount in the books of account and assessment of the seller was completed U/s 143(3) of the Act. Therefore, once the seller has confirmed the forfeiture as well as declaration of the forfeiture amount in the books of account which was not disturbed by the Assessing Officer while completing the assessment U/s 143(3) of the Act then the ld. CIT(A) is right in deleting the addition. He has supported the order of the ld. CIT(A) and submitted that the ld. CIT(A) has given the finding on the basis of the fact after considering the remand reports of the Assessing Officer. 5. We have considered the rival submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that its company M/s Synod has forfeited the amount of ₹ 7 Crore advanced by the appellant AOP. It is further noted that in the remand report, the AO has just repeated its version as recorded in the assessment order. It has already been mentioned earlier that the forfeited amount of ₹ 7 Crore has already been declared by M/s Synod in its financial statements for the year under consideration and its assessment for the year under consideration has been completed u/s 143(3) of the Act and no adverse inference has been drawn thereof. Thus, there is no evidence on record, which may establish that the transaction under consideration was not genuine. The only ground on the basis of which the addition was made was that the appellant has not taken any action for recovery of the forfeited amount and the period for forfeiture was too short. (vii) It is noted from the letter dated 18.03.2014 of M/s Synod written to the appellant that the appellant has made request for extension of time for payment of the balance consideration of ₹ 13 Crore but the same was not agreed to by M/s Synod. It would be appropriate to reproduce the above referred letter of M/s Synod as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis for making a further enquiry which was already made in the remand proceedings. It is the evidence and evidence alone which can dictate the true picture of things. Further, it may be mentioned that it is not the case of the AO that M/s Synod was not owning/having these offices and the contract was executed without owning the assets. (ix) It may be mentioned that in the case of ITO Vs New Wave Realtors Pvt. Ltd. in ITA No. 3861 /DEL/2009, the similar issue was before the Hon'ble ITAT, New Delhi, wherein, vide its order dated 20.05.2016, it was held by the Hon'ble tribunal that: 11. We have perused all the records and heard both the parties. The Assessing Officer has elaborately quoted the relevant portion of the agreement of the assessee with the other company. There was nothing on record to show that the transaction was not a genuine transaction. Merely by saying that the transaction is not genuine cannot result in a just and proper transaction in the eyes of law being held as not a genuine transaction. When the parties agreed to certain terms and conditions in a contract, the same are binding on the parties and it is not for the A.O. to say otherwise. One ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has shown its receipt on capital account to avoid paying taxes. Mr. Pinto responded by stating he is not aware. In any case it is a settled position that nature of receipt in the hands of the payee will not determine the nature of payment i.e. capital or revenue in the hands of the payer. The respondent assessee is dealer in immovable property and it is for a businessman to decide the manner in which he should conduct his business and take steps which are in the best interest of his business. A mere loss in a venture does not mean that the transaction is not genuine. Therefore, the revenue has not been able to show that the findings of fact rendered by the CIT (A) and the Tribunal are perverse and/or arbitrary. Accordingly, the question of law as proposed does not give rise to any substantial question of law. 8. Accordingly, the Appeal is dismissed. No order as to costs. (xi) In view of the above judicial pronouncements and looking to the facts of the case, it is, therefore, held that the disallowance of ₹ 7 Crore was made by the AO without any basis and without having any iota of evidence and was made on the basis of surmises and conjectures. (xi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conditioners as laid down in the said agreement. 2. Today, i.e. on 04.12.2013 at Jaipur, we the party No. 1 and 2 above have further mutually agree to carry on and undertake following further ventures jointly. (i) To invest and trade in shares, debentures, funds bonds and other derivatives of all types. (ii) To invest and trade in any other properties other than the properties as mentioned in the aforesaid joint venture dated 1.5.2007. (iii) To undertake construction works, works of land development etc. (iv) Any other venture of any nature with mutual consent of both the parties. (V) To jointly undertake business ventures of any nature including real estate trading etc. 3. Both the parties have gone through the contents of this addendum carefully and have accepted the same without any fear and duress and put their signatures in the presence of the following witnesses. (xv) Thus, evidently the AOP was formed to develop the land purchased by its members and sale of the plots under the name and style of Sukh Sagar Enclave . It is noted from the various other clauses of the said document that the AOP was to develop the land and sold plots ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany running a spinning and weaving mill as well as a new project of straw-board manufacturing factory. The question before the Court was whether the expenditure incurred for the new venture was a revenue expenditure or not. The Allahabad High Court noted that control over the existing spinning mill as well as the new project of straw-board manufacturing factory was in the hands of the assessee and it was effectively one establishment controlling both the units. The business of the two units were interconnected; the profit and loss account of the company embraced the business of the straw-board manufacturing factory and the balance sheet represented the financial picture of the company after taking into consideration the affairs of both the units. Relying upon Produce Exchange Corpn. Ltd. v. CIT [1970] 77 ITR 739 (SC), it was held that unity of control is a decisive test and not the nature of the two lines of business. It was further held that if the management, the trading organization, the administration, the funds and the place of business were common, then it cannot be said that the two ventures are two different businesses carried on by the same company. 10. In CIT v. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained loans for building a cinema theatre and the question was whether the interest payable on the loans borrowed for the new business was a revenue expenditure or not. While answering the question in favour of the assessee, the Supreme Court found that the two businesses were composite in the sense that there was inter-connection, inter-lacing or interdependence between the jewellery business and the cinema business. 14. On an appreciation of the law laid down by the various decisions referred to above, it is clear that the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be as distinct as a jewellery business and a business of cinematographic films; it could be as different as manufacture of metal alloys and manufacture of rubber products. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity - it could be as far apart as Baroda an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same set of executives at head office - Tribunal, accordingly, held that sugar plant was a mere extension of existing business of ferro-alloys plant and, therefore, interest paid on funds borrowed for purpose of setting up of sugar plant was allowable under section 36(1) (iii) - Whether in view of findings of fact recorded by Tribunal, there was any error in Tribunal's order - Held, no ] (xix) It may be mentioned that the above judgement was affirmed by the Hon'ble Apex Court in the case of CIT Vs Monnet Industries Ltd. [2012] 25 taxmann.com 236 (SC), wherein the appeal of the revenue was dismissed. (xx) In the case of Vijayashanthi Builders Ltd. Vs JCIT [2016] 69 taxmann.com 31 (Chennai - Trib.), it has been held by the Hon ble Tribunal that: In this case, admittedly, the assessee acquired a stock-in-trade for construction of residential flats at Ambattur in Madhavaram Village. Therefore, the loss, if any, suffered in the course of the acquisition of the stock-in-trade has to be necessarily allowed a revenue loss, hence, it has to be allowed as business loss while computing the total income. In view of the above, we are unable to uphold the orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it is a benefit of enduring nature, then of course the assessee cannot get the deduction of amount for acquisition of land as revenue expenditure. When land was not acquired, no capital asset has been acquired, therefore, the payment of ₹ 50,489 is to be allowed as business loss. 6. We agree with the view taken by the Tribunal. No interference is called for. (xxii) In the case of CIT Vs Himalayan Tiles Marble (P.) Ltd. [1975] 100 ITR 177 (Bombay), it has been held by the Hon'ble Bombay High Court that: It was further submitted that the acquisition or purchase of an actionable claim as subject-matter of the litigation cannot be trade or business. It was pointed out in connection with this branch of the argument-and this seems to have impressed the Tribunal also-that the memorandum of objects of the company did not permit it to trade in actionable claims. The fact that there was no such provision in the memorandum of objects appears to me to be irrelevant for the purpose of this decision, though if there had been such a provision it would have clearly decided the matter against the assessee. That the assessee embarked upon a venture different from his u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 , then, such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.] Therefore, the forfeiture amount was either to be reduced from the cost of the asset/property or to be assessed as income as per the provisions of Section 56(2)(ix) of the Act. Since the provisions of Section 56(2)(ix) of the Act are not applicable for the year under consideration, therefore, the only option was to reduce the said amount from the cost of acquisition of the property in the hand of the seller and consequently the profit earning on the sale of the said property would be enhanced by the said amount. The provisions of Section 51 of the Act is a safeguard against the loss of revenue on account of such forfeiture. Therefore, the said claim of forfeiture of ₹ 7.00 crores is not a revenue affecting transaction but it will be taken into consideration at the time of sale of the property by the seller. Hence, it is only a matter of different assessment year when finally the properties in question are to be sold by the seller. The Assessing Officer has not brought a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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