TMI Blog2019 (5) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... Rohit Reddy. It is an admitted fact that ld. Civil Judge of City Civil Court restrained the assessee and directed to maintain status quo till the disposal of Suit. The Reddy Group withdrew the said suit on 14.12.2012, during the Assessment Year 2013- 14. The assessee has shown the Project Completion in Assessment Year 2013-14. The treatment of revenue recognition on project completion is not in dispute. Therefore considering the facts that the assessee was restrained to handover the units in the project by the order of Civil Court and the occupancy certificate was also stayed by operation of injunction order. The injunction order was lifted on the withdrawal of the civil suit on 14.12.2013. The assessee has shown the completion of the project in assessment year 2012-13, therefore, the action of the assessing officer in bringing the profit in the year under consideration was not justified. Thus, we affirm the view taken by the ld CIT(A). In the result, the grounds of appeal raised by the revenue are rejected. Appeal of the revenue is dismissed. - ITA No. 1208/Mum/2018, ITA No. 1185/Mum/2018 - - - Dated:- 31-5-2019 - SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project, and had to maintain the status quo, ignoring that the assessee had received Occupancy Certificate vide letter dated 29.10.2011, and project completion method is consistently followed by the assessee and the registration of agreements of all the units had also been already made. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 114.84 crores on account of Revenue recognition from the Fantasia building project, ignoring the decision In the case of Champion Construction Co. (5 ITD 76) wherein the Hon'ble Tribunal held that proportionate profit must be charged to tax, and therefore the assessee having received Occupancy Certificate vide letter dated 29.10.2011, during the Financial Year 2011-12 relevant to Assessment Year 2012-13, it is the trigger point that the project is complete and the revenue has to be recognized in Assessment Year 2012-13. 3. The appellant prays that the order of the CIT(A), Mumbai on the above directions be set-aside and that of the assessing officer be restored. 4. The appellant craves leave to amend or alter any of the aforesaid grounds or add a new ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construct a multiplex theatre on the condition that up to 600 per sq. mtr. of plot area (i) the cost would be entirely borne by the developer/assessee (ii) the cost in excess of 600 per sq. ft. area of built-up are in excess of would be shared in the ratio of 60:40 by developer(assessee). In the intervention period, the Reddy Group, who owned MECL entered into series of agreement with assessee group through Late Satish Kashinath Haware. As per these agreements (series) the share of Haware Group in development property incurred substantially and developed rights of the said plot and control and management of MECL was agreed to be transferred to Haware Group. On 27.09.2003, four different agreements were executed between MECL and Haware Group, for first agreement shareholding agreement in the ratio of 80:20 for ownership of MECL (Haware Group 80% and Reddy Group 20%) (iii) agreement for transfer of share by Manish Nitya Reddy, Harish Haware in respect of share of MECL, third agreement for transfer of share of Manish Mohan Reddy and Satish Haware, fourth agreement for transfer of share of Pratik Reddy and Satish Haware, fifth agreement for transfer of shares of Mohit Reddy and Mr. Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) acquisition of acquire development right regarding the plot in order to buy peace. As a result of settlement, the ratio of obligation and retention of 60:40 between the assessee and MECL were changed to 90:10. Under these circumstances, the total composition of cost underwent changed retrospectively and therefore, the loan of ₹ 60 Lakhs from assessee, which was utilized for incurring the cost then by MECL is now transfer in the books of assessee. Similarly, as a result of 40% contribution, ₹ 9.48 Crore were attributed to MECL and its books, the same has to be changed in consonance with 90:10 ratio and therefore, brought into cost of the assessee-company. The assessee-company made the following payments to family members of Reddy family mentioned as below: Sr. No. Name of person Assessment year 2012-13 Assessment year 2013-14 Total i Harishvardhan Reddy 20,90,50,000 - 20,90,50,000 ii Muthu Pratima Reddy 11,25,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding permanent injunction for development and sale of property, wherein Reddy Group made Sub- Registrar, Thane, Architecture, Chartered Accountant, Navi Mumbai Municipal Corporation, Cosmos Bank Ltd. and Registrar of Companies and Directors of Haware Group and sister concern as a parties to the Civil Suit. (ii) The Occupancy Certificate issued by Navi Mumbai Municipal Corporation was stayed on 08.12.2011 on the application dated 03.12.2011 filed by Rohit Reddy. Copy of public notice issued by issued by Reddy Group issued dated 19.03.2012 published in Times of India warning the public at which so as not entered into transaction with Haware Infrastructure in respect of Plot No. 47, Sector 30A, Vashi, Navi Mumbai. The details of status qua order granted for Civil Suit No. 758/2011 by Civil Judge (Senior Division, Thane). The details of payment made in pursuance of agreement dated 15.02.2012 and details of withdrawal of different Suits/litigations in pursuance of agreement dated 15.02.2012. The assessee also contended that perusal of various documents made it clear that the complete project namely Fantasia handled in all respect including financial, contractual, legal and other techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he backgrounds of facts, plethora of documents and various cases filed and settled by the parties. The assessee paid consideration for transfer of share of Real Optimist India Ltd. (supra), settlement of all pending issues /disputes in various Forums, acquisition of clear development right regarding the project in order to buy peace. The assessee also stated that as stated in reply dated 09.03.2015 as also assuming that it was a capital receipt in the hand of recipient i.e. under both the circumstances, the assessee-company is concerned, the payment is necessarily, solely, explicitly and only for the purpose of betterment of its development right which was wrongfully denied by Reddy s and under duress to get rid of various disputes, as the prohibitory order of the Court for getting Occupancy Certificate, the payment was made thereof has to be inevitably nothing but a revenue expenditure. 14. The contention of assessee was not accepted by Assessing Officer. The Assessing Officer observed that DIT (Inv.), Hyderabad conducted a survey under section 133A in Muthu Rohit Reddy (Reddy s Group), in the said survey, the enquiry was also made from assessee-company. After detailed enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by Assessing Officer. The Assessing Officer concluded that the assessee received Occupancy Certificate during the relevant previous year. Once the project is completed and Occupancy Certificate is obtained. The Assessing Officer further concluded that it is clearly established that once Occupancy Certificate is obtained in respect of any project, the project must have completed in all practical purpose. As the assessee has obtained Occupancy Certificate, nothing is left to establish that project has already completed before the date of issuance of Occupancy Certificate by Navi Mumbai Municipal Corporation. The Assessing Officer further concluded that the assessee simply delayed the revenue recognition on the ground that there was dispute and that matter was sub-judice before Civil Judge, Thane. The ld. CIT(A) concluded that in his opinion, even if, there is dispute, cannot affect the status of project completion. The Assessing Officer worked out the profit of project in the following manner: Agreement value of sale ₹ 153,75,22,278 WIP shown in the books ₹ 89,74,96,057 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advances from various prospective buyers against sale of various units in the project. The breakup of closing balance as on 31st March 2010, 31st of March 2011, 31st March 2012 and 31 March 2013 was provided to the assessing officer. Unfortunately, the founder promoter Directors of both the companies i.e. assessee as well as of MECL expired. The remaining shareholders and directors of MECL finding an opportunity of unfair advantages refused to acknowledge the un-registered agreement, acted upon earlier by both the parties in the regime of its founder promoters / shareholders. This episode give rise to the serious dispute, which multiplied due to the claims and counter claims and drives to many areas such as Accounts, Company Law matters, Contracts filing of Criminal Complaints and Civil Suits. As a result of dispute and a number of complaints were filed against the assessee. The assessee company has already spent huge amount on development, thus, the assessee was on a defensive stand due to an arm-twisting tactics of the Reddy s family. The assessing officer as well as learned CIT (A) was provided the copy of the development agreement and the details of various litigations launched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw all the suits, complaints, petitions and to release the project for further commercial exploitation by the assessee company. 19. The learned AR for the assessee further submits that as an incidental, commercial requirement share Reddy s family owned company MCPL of worth ₹ 40.00 lakhs were also surrendered by Reddy family, they having achieved their ulterior motive of upfront cashing their proud of flesh. Out of which ₹ 109.60 crore towards acquisition of development rights regarding the plot of land and sum of ₹ 39.99 lakh (399900 Share x ₹ 10/-) was paid for a consideration of acquisition of the balance shares from Reddy family. The shares of company had no significant value having an agreed to give clean project to the assessee company. However, as a matter of convenience the value of shares was arrived at an aggregate value of ₹ 39.99 lakhs. The valuation of ₹ 10/- per share was adopted as per Rule 11UA of Income tax Rules 1962. The acquisition of share of MECL by the assessee from Reddy family was only incidental for smooth handling and exploitation of the project fantasy which had received occupation certificate but not a single sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusively incurred for the purpose of business, without which the business could have come to a standstill. In the receipt executed by the family members of Reddy s are in respect of development rights of plot No 47 Sector 30-A Vashi, Navi Mumbai. The lower authorities were incorrect in appreciating the above facts while interpreting the settlement document. 21. The learned AR further submits that if the apparent is not real, then the onus is on the person who alleges to do so. The learned Commissioner (Appeals) merely relying on the para 6(d)(iii) of the agreement to arrive at a conclusion that entire consideration was paid for purchase of share by ignoring the facts mentioned in the complete agreement and the facts of the case. Therefore, the conclusion of learned Commissioner (Appeals) is not correct. 22. The learned AR of the assessee in his without prejudice to his earlier submissions submits that the plot underneath development of fantasy project was allotted to MECL by CIDCO. After the allotment of said plot the said company was not able to even pay full consideration to CIDCO and to make construction on the said plot. Thus, vide unregistered development agreement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure, further in Malayalam Plantation (43 ITR 114 SC) it was held by Hon ble Supreme Court that the expression wholly and exclusively laid out or expended for the purpose of business need not necessarily be construed for the purposes of earning profits. For the purpose of business is wider than the scope of expression for the purposes of earning profits. Its range is so wide, it may take in not only the day to day running of a business and for protection of its assets and property from expropriation coercive process or assertion of hostile title. Further, in Meenakshi Mills Ltd. (63 ITR 207 SC) the Hon ble Supreme Court held that the expression for the purposes of business is wider than the purpose of earning income. The former would include within its scope expenditure incurred on the grounds of commercial expediency. In Dalmia Jain Co. Ltd. (81 ITR 754 SC), the Hon ble Supreme Court held that where litigation expenses are incurred by an assessee for the purposes of creating, curing or completing the assessee's title to capital, then the expenditure incurred must be considered as capital but if litigation expenses are incurred to protect the business of the assessee they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparent is not real and that taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying real test of human probabilities. 25. The ld. AR also referred the decision of Hon'ble Bombay High Court in the case of CIT V/s. Chemosyn Ltd. (371 ITR 427), wherein it has been held that Due difference between groups, assessee company was directed to buy 34 per cent of shareholding of one of warring group, as said expenditure was incurred only to enable smooth running of business, it was a deductible expenditure . 26. It was argued that in this case the dispute is between the assessee and the shareholders of the Mohan Entertainment Pvt. Ltd. from whom the assessee has acquired the development rights. The ld. AR submits that Hon ble Madras High Court in the case of CIT V/s. Sarada Binding Works, (102 ITR 187), held that in order to decide whether some particular expenditure of a trader should be brought into account, four tests, similar to those considered in relation to receipts, should be applied. First, is the expenditure wholly and exclusively laid out for the purposes of the trade. If not, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Summary of the litigation disposed off with the settlement as a result of the compromise. 116-118 12. Copy of the corrigendum agreement to development of property. 119-130 13. Copy of occupancy certificate issued by NMMC. 131 133 14. Copy of the Civil Judge (S.D.) Thane, Spl. Civil Suit No.758 of 2011 in Thane City Civil Court being suit for cancellation of agreement, declaration for injunction for consequential relief. 134 - 236 15. Copy of the order dtd.13.12.2011 directing the assessee to maintain status-quo till disposal of suite No.758 of 2011. 237 - 239 16. Copy of Public Notice dtd.29.02.2012 issued by Reddy family in the Times of India, Hyderabad and later on, on 29.03.2012 issued in the Times of India, Mumbai, cautioning people not to enter any agreements with the assessee in respect of the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment clause. The ld. DR for the revenue prayed for confirming the order of ld. CIT(A). 29. We have considered the rival submission of the parties and have gone through the orders of authorities below. The Income Tax Act does not define the terms Capital Expenditure and Revenue Expenditure , one has to depend upon their nature meaning as well as decided cases. It is settled position that Capital Expenditure is acquired, extending or improving its fixed assets, whereas Revenue Expenditure is incurred in the normal course of business as a routine expenditure. Capital Expenditure provides benefit for several previous years, whereas Revenue Expenditure is consumed within a previous year. Similarly Capital Expenditure makes improvement in earning capacity of a business and on the other hand, the Revenue Expenditure, maintains the profit making capacity of business. For determining whether expenditure is of capital or revenue in nature, it is immaterial how the recipient treated the money in their hand. Though, the dividing line between the capital and revenue expenditure is real, yet some time it become difficult to draw that line. Therefore, a decision has to be taken in each case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of its project. The payments to Reddy group were made in various trenches, as explained in the substituted agreement and were shown to learned CIT(A). It was claimed that on payment of compensation the assessee would got the right title of the project along with the shareholding of MECL. It was further explained that the assessee was in receipt of advance of ₹ 8090 Crores from various customers for project it had completed work of ₹ 38.90 Crores. Had the assessee not entered into settlement agreement, it would have a long run dispute and would have created a huge financial losses to the assessee. The assessee also explained that only ₹ 39,90,9000/-was paid for acquisition of shares and the balance consideration of ₹ 109,60,01,000/-was effectively and essentially for the project fantasia , without payment of this money the assessee was not in a position to carry out further development at site. All details of Criminal Complaints, Civil suits and other litigation pending in various other legal forums were also explained. After considering the submission and explanations furnished by assessee, the learned CIT(A) appeal concluded that once the payment is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t executed on 15.02.2012, the assessee agreed to pay ₹ 110 Crore to Reddy Group against transfer of equity share of MEPL, settlement of all pending litigation before various Forums, acquisition of clear development right and to buy peace. The ld. AR of the assessee also vehemently submitted that the assessee has made huge investment in the project and a number of investor invested substantial investment. The assessee under the compelling circumstances has no option except to accept the unreasonable demand and payment of ₹ 110 Crore, out of which only ₹ 39.90 lakhs was paid for transfer of shares. The amount was incurred for commercial expediency and allowable as business expenses for the previous year. 33. The Hon ble Supreme Court in Shahazada Nand Sons (supra) held that if the payment is made through commercial expediency, the same would be allowed as business expenditure. Further Hon ble Supreme Court in Malayalam Plantation (supra) held that the expression wholly and exclusively laid out or expended for the purpose of business need not necessarily be construed for the purposes of earning profits. For the purpose of business is wider than the scope of expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry pledged with assessee bank by its constituents were stolen by dacoits from premises of bank. Bank paid the market value of the jewellery pledged by the constituents and claimed the same as expenditure which is allowed 39. The Hon ble Supreme Court in CIT V/s. Panbari Tea Co. Ltd. (supra) held that It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regarding to the other circumstances, to ascertain the intention of the parties. 40. In Sumati Dayal V/s. CIT, (supra), the Hon ble Apex Court held that that apparent must be considered real until it is shown that there are reasons to believe that apparent is not real and that taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying real test of human probabilities. 41. The Hon'ble Bombay High Court in the case of CIT V/s. Chemosyn Ltd. (371 ITR 427), held that Due difference between groups, assessee company was directed to buy 34 per cent of shareholding of one of warring group, as said expenditure was incurred only to enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. AR of the assessee further submits that in appeal for Assessment Year 2009-10 and 2007-08 on similar issue of project completion method was accepted. Copy of order of Tribunal for Assessment Year 2007-08 2008-09 is also placed on record. 46. We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment, the Assessing Officer noted that the assessee was following the Project Completion Method and had received the Occupancy Certificate on 29.10.2011 from Navi Mumbai Municipal Corporation (NMMC). Once the Occupancy Certificate is received, the project is complete. The Assessing Officer after considering the agreement value of sales and considering the work till progress shown the books and after deducting addition on account of Capital Expenditure worked out the profit of project and added the same to the income of assessee. During the first appellate stage, the assessee filed detailed written submission and explained the fact that the assessee was restrained from creating third party interest in the units constructed in the project and the operation of Occupancy Certificate was stayed by ld. Civil Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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