Appeal Details
Counselvise Citation
[2018] 121 COUNSELVISE.COM (IT) 9903 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
9 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
26-09-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Assessment Year
2012-2013
Appeal Filed On
12-12-2017
Judgement Text
, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.4009/MUM/2016 ASSESSMENT YEAR: 2012-13 INCOME TAX OFFICER - 6(2)(2), R. NO.562, AAYAKAR BHAVAN, M. K. ROAD, CHURCHGATE, MUMBAI-400020 / VS. M/S DARSHAN REALTORS PVT. LTD. OMAKAR HOUSE, OFF EASTERN HIGHWAY, OPP.SION, CHUNNABHATTI SIUGNAL SION (EAST), MUMBAI-400022 ( ! / REVENUE) ( '# $ /ASSESSEE) P.A. NO. AADCD4673N C.O. NO.299/MUM/2017 (ARISING OUT OF ITA NO.4009/MUM/2016) ASSESSMENT YEAR: 2012-13 M/S DARSHAN REALTORS PVT. LTD. OMAKAR HOUSE, OFF EASTERN HIGHWAY, OPP.SION, CHUNNABHATTI SIGNAL SION (EAST), MUMBAI-400022 / VS. INCOME TAX OFFICER - 6(2)(2), R. NO.562, AAYAKAR BHAVAN, M. K. ROAD, CHURCHGATE, MUMBAI-400020 ( '# $ /ASSESSEE) ( ! / REVENUE) P.A. NO. AADCD4673N M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 2 ! / REVENUE BY SHRI C.S. GULATI CIT-DR '# $ / ASSESSEE BY SHRI DHARMESH SHAH & SHRI DHAVAL SHAH % !& ' $ ( / DATE OF HEARING : 09/07/2018 ' $ ( / DATE OF ORDER: 26/09/2018 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 31/03/2016 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI AND THE ASSESSEE HAS PREFERRED CROSS OBJECTION. FI RST, WE SHALL TAKE UP THE APPEAL OF THE REVENUE, WHEREIN, T HE FIRST GROUND RAISED PERTAINS TO ALLOWING DEDUCTION OF RS.24,21,00,000/-, BEING THE AMOUNT OF COMPENSATION PAID TO AKSHATA MERCANTILE PVT. LTD., IGNORING THE FACT THAT THE SAID PAYMENT IS NOT SUBSTANTIATED EITHER ON FACTS O R IN LAW AS A LEGITIMATE CLAIM AGAINST ITS INCOME FROM THE S RA PROJECTS. 2. DURING HEARING, THE LD. CIT-DR, SHRI C.S.GULAT I, ADVANCED ARGUMENTS WHICH ARE IDENTICAL TO THE GROUN D RAISED. OUR ATTENTION WAS INVITED TO PARA-1.2 (PAGE -1) OF THE ASSESSMENT ORDER BY CLAIMING THAT NO ROLE WAS PLAYE D BY M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 3 AKSHATA MERCANTILE PVT. LTD., THUS, THE PAYMENT SO MADE TO IT IS NOT A BUSINESS TRANSACTION. OUR ATTENTION WAS FURTHER INVITED TO PARA-3.7 OF THE ASSESSMENT ORDER ALONG W ITH PAGE- 29 OF THE IMPUGNED ORDER. PLEA WAS ALSO RAISED THAT EVEN THE LD. ASSESSING OFFICER DID NOT INVESTIGATE THE MATTE R PROPERLY BUT STILL A DETAILED ASSESSMENT ORDER HAS BEEN FRAM ED. IT WAS ALSO PLEADED THAT EVEN THE LD. COMMISSIONER OF INCOME TAX (APPEAL) IGNORED THE FACTUAL MATRIX AND WAS EXP ECTED TO DIRECT THE ASSESSING OFFICER TO EXAMINE THE CASE PR OPERLY BUT THAT WAS ALSO NOT DONE. IT WAS PLEADED THAT THE ISS UE MAY BE SET-ASIDE TO THE FILE OF THE LD. ASSESSING OFFICER. RELIANCE WAS PLACED UPON THE DECISION FROM HON'BLE DELHI HIG H COURT IN THE CASE OF CIT VS M/S JANSAMPARK ADVERTISING AN D MARKETING PVT. LTD. (ITA NO.525 OF 2014), ORDER DAT ED 11/03/2015. 2.1. ON THE OTHER HAND, SHRI DHARMESH SHAH ALONG WITH SHRI DHAVAL SHAH, LD. COUNSEL FOR THE ASSESSEE , DEFENDED THE IMPUGNED ORDER BY ARGUING THAT THE LD. ASSESSING OFFICER EVEN RAISED OBJECTIONS TO THE PAY MENT AND THERE WAS A JOINT VENTURE AGREEMENT BETWEEN THE PAR TY AND M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 4 THE PROJECT IS STILL IN PROGRESS. OUR ATTENTION WAS INVITED TO CLAUSE-5(PAGE-23) OF THE AGREEMENT BETWEEN THE PART IES AND EVEN THE LD. ASSESSING OFFICER HAS NOT DOUBTED THE PAYMENT. OUR ATTENTION WAS INVITED TO PAGES -25, 29 AND 30 O F THE PAPER BOOK. OUR ATTENTION WAS FURTHER INVITED TO SE CTION 37 ALONG WITH SECTION 53 OF THE CONTRACT ACT. PLEA WA S ALSO RAISED THAT SECTION 54 IS DIRECTLY ON THE ISSUE. A STRONG PLEA WAS RAISED THAT IF THE ASSESSEE WOULD NOT HAVE PAID THE COMPENSATION THEN THE TENANTS WOULD HAVE CREATED PR OBLEM AND IT WOULD HAVE BEEN A VIOLATION OF THE AGREEMENT . THE LD. COUNSEL EXPLAINED THAT M/S AKSHATA MERCANTILE PVT. LTD. PERFORMED ITS DUTY WELL IN NEGOTIATING WITH THE SLU M DWELLERS AND THE PAYMENT WAS MADE TO THEM. OUR ATTENTION WAS FURTHER INVITED TO SECTION 73 OF THE ACT BY EXPLAIN ING THAT EVEN THE LD. ASSESSING OFFICER MADE ENQUIRIES, NOTI CES UNDER SECTION 133(6) WERE ISSUED TO M/S AKSHATA MERCANTIL E PVT. LTD. FOR WHICH OUR ATTENTION WAS INVITED TO PAGE-69 OF THE ACT. IT WAS PLEADED THAT ALL EVIDENCES WERE FILED BY THE ASSESSEE. OUR ATTENTION WAS INVITED TO PAGE-85 (CONFIRMATION) TO THE EFFECT THAT THE LD. ASSESSING OFFICER HAS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 5 ALREADY MADE ENQUIRIES WITH AKSHATA MERCANTILE PVT. LTD. OUR ATTENTION WAS FURTHER INVITED TO THE REMAND REP ORT (PAGES 109, 110 OF THE PAPER BOOK) AND PAGE-111 (RE JOINDER TO THE REMAND REPORT). RELIANCE WAS PLACED UPON THE DECISION OF THE THIRD MEMBER IN THE CASE OF ACIT VS ANIMA INVESTMENT LTD. [2000] (73 ITD 12(TM)(DEL.) AND TAT IA SKYLINE & HEALTH FARMS LTD. V. ASSISTANT COMMISSION ER OF INCOME-TAX (1999) 70 ITD 387 (CHENNAI). 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SO FAR AS , THE GROUND RAISED BY THE REVENUE ALLOWING THE DEDUCTION OF RS.24,21,00,000/-, BEING THE AMOUNT OF COMPENSATION PAID TO AKSHATA MERCANTILE PVT. LTD., IS CONCERNED, THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY WAS INCORPORAT ED ON 13/11/2009 WITH THE OBJECTS OF CARRYING ON THE BUSI NESS OF REAL ESTATE DEVELOPMENT AND IS WHOLLY OWNED SUBSIDI ARY OF M/S OMKAR REALTORS AND DEVELOPERS PVT. LTD., DECLAR ED LOSS OF RS.60,872/- IN ITS RETURN FILED ON 26/09/2012, W HICH WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T, 1961 (HEREINAFTER THE ACT). THE CASE OF THE ASSESSEE, LA TER ON, WAS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 6 SELECTED FOR SCRUTINY, UNDER CASS, THEREFORE, NOTIC E UNDER SECTION 143(2) DATED 23/09/2013 AND THEREAFTER NOTI CE UNDER SECTION 142(1) ALONG WITH QUESTIONNAIRE WAS I SSUED AND SERVED UPON THE ASSESSEE. AS PER ASSESSMENT ORD ER, THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED THE DETAILS AS IS EVIDENT FROM PARA 1.1 ( PAGE-1) OF THE ASSESSMENT ORDER ITSELF. THE ASSESSEE ENTERED I NTO A JOINT VENTURE AGREEMENT (HEREINAFTER JVA) DATED 06/06/201 0 WITH M/S AKSHATA MERCANTILE PVT. LTD. (HEREINAFTER IN SH ORT AKSHATA) FOR CARRYING OUT AN SRA PROJECT LOCATED AT SHIVSENA NAGARI, MUMBAI. BEFORE ADVERTING FURTHER, IT IS OUR BOUNDED DUTY TO EXAMINE THE AFORESAID AGREEMENT DATED 06/06/2010, THEREFORE, THE RELEVANT PORTION OF THE AFORESAID JOINT VENTURE AGREEMENT (PAGES 15 TO 34 OF THE PAPE R BOOK) IS REPRODUCED HEREUNDER WHICH IS REQUIRED TO BE EXA MINED SO THAT WE CAN REACH TO A FAIR CONCLUSION. 5. ROLES AND RESPONSIBILITIES OF AKSHATA: AKSHATA SHALL PERFORM THE FOLLOWING ROLES AND RESPO NSIBILITIES, AT ITS. OWN COSTS AND EXPENSES* A) . AKSHATA SHALL COMMENCE AND COMPLETE THE CONSTRUCT ION OF THE FREE SALE . BUILDINGS ON THE FREE SALE LAND, BY UTILISATION OF THE FREE SALE COMPONENT IN ACCORDANCE WITH . THE SANCTIONED LAYOUT PLANS AND THE SANCTIONED M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 7 BUILDING PLANS BY THE SRA AND ALL OTHER STATUTORY A UTHORITIES AND THE APPROVALS AND FOR SUCH USER AS DETERMINED IN THE BUSINESS PLA N IN ACCORDANCE WITH THE TIME-LINES AS STATED IN THE WORK SCHEDULE (FORM ING PART OF THE BUSINESS PLAN) AT THE COSTS AND EXPENSES OF AKSHATA . AKSHAT SHALL COMPLY WITH ALL THE TERMS AND CONDITIONS OF THE APPROVAL AT THE COSTS AND EXPENSES OF AKSHATA; B) AKSHATA SHALL COMMENCE AND COMPLETE THE CONSTRUCTIO N OF THE REHAB BUILDINGS ON THE REHAB LAND, BY UTILISATION OF THE REHAB COMPONENT IN ACCORDANCE WITH THE SANCTIONED LAYOUT PLANS AND THE SANCTIONED BUILDING PLANS BY THE SRA AND ALL OTHER STATUTORY AUTHORITIE S AND THE APPROVALS IN ACCORDANCE WITH THE TIME-LINES AS STATED IN THE WOR K SCHEDULE (FORMING PART OF THE BUSINESS PLAN) AT THE COSTS AND EXPENSES OF AKSHATA. AKSHATA SHALL COMPLY WITH ALL THE TERMS AND CONDITIONS OF T HE APPROVAL AT THE COSTS AND EXPENSES OF AKSHATA; C) AKSHATA SHALL COMMENCE AND COMPLETE THE CONSTRUC TION AND ' DEVELOPMENT OF THE COMMON AREAS AND FACILITIES AND THE INFRASTRUCTURE ON THE SAID LAND INCLUDING THE PARKING, RECREATION GARDEN, LAYOUT PHYSICAL RECREATIONAL GARDEN, ELECTRIFICATION, BASIC FACILIT IES AND AMENITIES AS PER THE SANCTIONED PLANS AND SPECIFICATIONS AND AS SHALL BE DETAILED IN THE BUSINESS PLAN. THE COSTS AND EXPENSES THEREOF SHALL BE BORNE AND PAID BY AKSHATA; D) AKSHATA SHALL COMMENCE AND COMPLETE THE CONSTRUCTI ON AND DEVELOPMENT OF THE RELIGIOUS STRUCTURES EXISTING ON THE SAID LAND IN THE MANNER AND ON THE LOCATION AS PER THE SETTLEMENT AR RIVED BY THE COMPANY. THE COSTS AND EXPENSES, THEREOF SHALL BE BORNE AND .PAID BY AKSHATA; E) TO THE EXTENT APPLICABLE ON AKSHATA (WITH REGARD T O THE ROLES AND RESPONSIBILITIES OF THE AKSHATA), TO COMPLY WITH TH E TERMS AND CONDITIONS AS CONTAINED IN THE SOCIETY AGREEMENTS AND THE AGREEME NTS EXECUTED BETWEEN THE INDIVIDUAL SLUM DWELLERS AND THE COMPANY; F) TO THE EXTENT APPLICABLE ON AKSHATA (WITH REGARD T O THE ROLES AND RESPONSIBILITIES OF AKSHATA), TO COMPLY AND FULFILL AND CAUSE THE COMPLIANCE OF ALL THE CONDITIONS AS MENTIONED IN THE SAID LETTER OF INTENT (L01) AND THE INTIMATION OF APPROVAL (I0A) THAT MAY BE ISSUED BY THE SRA AND ALL THE CONDITIONS OF THE REVISED LETTER OF INTENT AND THE REVISED 10A, IF ANY,' REQUIRED AND/OR APPLIED FOR AS MAY BE ISSUED BY THE SRA FROM TIME TO TIME; G) THE AKSHATA SHALL, DEAL WITH AND SETTLE ALL THE EL IGIBLE, NON ELIGIBLE SLUM DWELLERS AND ALL THE OCCUPANTS AND HUTRNENTS O N THE SAID PROPERTY AND CAUSE THE VACATION OF THE SAID PROPERTY FOR THE DEV ELOPMENT OF THE REHAB LAND AND THE FREE SALE LAND IN THE MANNER AS STATED IN THIS AGREEMENT. THE COSTS AND EXPENSES PERTAINING TO THE SAME SHALL BE BORNE BY THE COMPANY; H) THE AKSHATA SHAL CAUSE THE SHIFTING OF ALL THE ELI GIBLE SLUM DWELLERS TO M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 8 THE TRANSIT ACCOMMODATION AND SHALL ALSO CAUSE THE RELOCATION OF ALL ELIGIBLE SLUM DWELLERS TO REHAB BUILDINGS AFTER COMPLETION T HEREOF BY AKSHATA. THE COMPANY SHALL PAY AND BEAR ALL THE RENT AND DEPOSITS FOR THE TRANSIT ACCOMMODATION OF THE ELIGIBLE SLUM DWELLERS ; I) THE AKSHATA SHALL DEAL WITH ALL SLUM DWELLERS, ENCR OACHERS . OCCUPANTS WHO ARE FOUND TO BE INELIGIBLE AND CAUSE THE VACATI ON THEREOF FROM THE SAID LAND AND ALL AND EXPENSES IN THIS REGARD SHALL BE INCURRED BY THE COMPANY; J) TO DO ALL THE NECESSARY ACTS, DEEDS, MATTERS AND T HINGS FOR ADMINISTRATION, SUPERVISION AND MANAGEMENT OF THE R EHAB PROJECT AND THE FREE SALE PROJECT; K) TO GENERALLY DO ANY AND ALL OTHER ACTS, DEEDS, MATTERS AND THINGS THAT MAY BE REQUIRED FOR CARRYING OUT THE ROLES AND RESPONSIBILITIES . OF AKSHATA AS ENVISAGED HEREIN AT THE COSTS AND EXPENSES OF AK SHATA. 6. MARKETING THE DECISION WITH REGARD TO THE MARKETING OF THE PR EMISES IN THE FREE SALE BUILDINGS INCLUDING THE DETERMINATION OF THE PRICE AND CONSIDERATION AT WHICH THE SAME . SHOULD BE UNDERTAKEN AND DONE AND THE PAYMENT TERMS SHALL BE TAKEN JOINTLY BY THE COMPANY AND AKSHATA. 7. BUSINESS PLAN AKSHATA SHALL PREPARE A BUSINESS PLAN (INCLUDING TH E WORK SCHEDULE) AND SUBMIT THE SAME TO THE COMPANY. THEREUPON, THE COMP ANY SHALL GIVE ITS VIEWS AND SUGGESTIONS ON THE BUSINESS PLAN . AKSHATA AND THE COMPANY SHALL THEREUPON MUTUALLY FINALISE THE B USINESS PLAN AND ANY SUBSEQUENT MODIFICATION AND AMENDMENT THERETO SHALL BE DONE JOINTLY BY THE COMPANY AND AKSHATA. XXXXXXXXXXXXXXXXXXXXXX 12. DEFAULT (A) IF ANY PARTY ('DEFAULTING PARTY') COMMITS A BREACH OF THIS AGREEMENT OR COMMITS A DEFAULT IN PERFORMANCE OF ITS ROLES, RESPONSIBILITIES AND COVENANTS UNDER THIS AGREEMENT, THEN IN SUCH A CASE WITHOUT P REJUDICE TO THE OTHER RIGHTS AND REMEDIES, IN LAW AVAILABLE TO THE OTHER PARTY ( 'NON DEFAULTING PARTY'), THE NON-DEFAULTING PARTY SHALL ISSUE A NOTICE (REME DY NOTICE') TO THE DEFAULTING PARTY AND CALL UPON THE DEFAULTING P ARTY TO RECTIFY AND REMEDY THE BREACH AND/OR PERFORM ITS RESPONSIBILITIES AND COVENANTS WITHIN 30 DAYS OF THE ISSUANCE OF THE . REMEDY NOTICE FAILING ' WHICH THE NON-DEFAULTING ' PARTY SHALL HAVE A RIGHT AND BE ENTITLED (BUT SHALL NOT B E OBLIGATED) TO RECTIFY THE DEFAULT AND/OR AND REMEDY THE BREACH AND/OR PERFORM THE ROLES AND RESPONSIBILITIES OF THE DEFAULTING PARTY AS SET OUT HEREIN ABOVE, AS THE CASE MAY BE, AT THE COST OF THE DEFAULTING PARTY ('DEFAU LT COST'); . M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 9 (B) THE DEFAULTING PARTY SHALL FORTHWITH BEAR AND P AY THE DEFAULT COST TOGETHER WITH INTEREST THEREON AT THE RATE OF 21% P ER ANNUM FROM THE DATE WHEN THE DEFAULT COST IS BORNE AND PAID BY THE NON-DEFAU LTING PARTY TILL THE ACTUAL REPAYMENT THEREOF AND TILL SUCH TIME THE DEFAULTING PARTY SHALL NOT BE ENTITLED TO WITHDRAW ANY AMOUNT WITH REGARD TO ITS SHARE FROM T HE REVENUE ACCOUNT. FURTHER, IN CASE OF DEFAULT IN THE PAYMENT OF DEFAULT COST WITH THE INTEREST THEREON THE NON-. DEFAULTING PARTY SHALL BE ENTITLED TO ADJ UST THE SAME . FROM THE SHARE OF THE REVENUE OF THE DEFAULTING PARTY. 13. NOTICE IT IS AGREED THAT ANY NOTICE OR OTHER COMMUNICATION TO BE SERVED UPON ANY PARTY TO THESE PRESENTS SHALL ALWAYS BE IN WRITING AND SHALL BE SERVED EITHER BY (I) SPEED PBST WITH ACKNOWLEDGMENT DUE OR (II) BY COURIER AT THE RESPECTIVE ADDRESSES STATED IN THE TITLE OR SUCH OTHER ADDRESS AS MAY BE NOTIFIED IN WRITING BY EITHER. PARTY, AND, WITHIN 7 DAYS FROM THE SERVI CE THEREOF, SHALL BE DEEMED TO BE RECEIVED BY THE ADDRESSEE. 14. FORCE MAJEURE (A) UPON THE OCCURRENCE OF AN EVENT OF FORCE MAJEURE, T HE PARTY ('AFFECTED PARTY') WHO SHALL BE UNABLE TO PERFORM ITS RESPONSIBILITIES UNDER THIS AGREEMENT SHALL, WITHIN 14 (FOURTEEN) DAYS OF THE O CCURRENCE OF SUCH AN EVENT OF FORCE MAJEURE BRING THE SAME TO THE NOTICE OF THE OTHER PARTY ('UNAFFECTED PARTY') AND ALSO INFORM THE UNAFFECTED PARTY ABOUT THE STEP S UNDERTAKEN BY THE AFFECTED PARTY TO MITIGATE THE EF FECT OF THE OCCURRENCE OF SUCH EVENT OF FORCE MAJEURE; (B) THE AFFECTED PARTY SHALL NOT BE LIABLE FOR ANY FAIL URE OR DELAY IN COMPLYING WITH ITS ROLES AND/OR RESPONSIBILITIES UNDER THIS AGREEM ENT TO THE EXTENT SUCH FAILURE OR DELAY ARISES DIRECTLY BY RESULT OF THE O CCURRENCE OF AN EVENT OF FORCE MAJEURE AND THE TIME FOR THE PERFORMANCES OF THE RO LES AND/OR RESPONSIBILITIES OF THE AFFECTED PARTY SHALL ACCORD INGLY STAND EXTENDED. 15. ARBITRATION AND JURISDICTION (A) ALL DISPUTES, CLAIMS AND/OR QUESTIONS OF WHATSO EVER NATURE WHICH MAY ARISE WITH RESPECT TO THIS AGREEMENT BETWEEN THE PARTIES HERETO AND/OR ANY DISPUTES, CLAIMS AND/OR QUESTIONS OF WHATSOEVER TOU CHING OR RELATING TO OR ARISING OUT OF THE AGREEMENT OR THE CONSTRUCTION OR APPLICATION THEREOF OR ANY CLAUSES OR THING HEREIN OR THEREIN CONTAINED OR IN RESPECT OF THE DUTIES AND RESPONSIBILITIES OF EITHER PARTY . THEREUNDER OR AS TO ANY ACT OR OMISSION OF ANY PARTY OR AS TO ANY OTHER' MATTER IN ANYWISE RELATIN G - TO THIS AGREEMENT OR THE RIGHTS., DUTIES AND LIABILITIES OF EITHER PARTY UND ER THIS AGREEMENT. SHALL BE REFERRED TO THE SOLE ARBITRATION OF EITHER A RETIRE D JUDGE OF THE SUPREME COURT OR A RETIRED JUDGE OR THE BOMBAY HIGH . COURT TO BE MUTUALLY APPOINTED . BY .THE COMPANY AND AKSHATA. THE PLACE OF ARBITRAT ION SHALL BE MUMBAI. THE ARBITRATION THAN BE CONDUCTED IN ACCORD ANCE WITH THE PROVISIONS, OF THE ARBITRATION AND CONCILIATION ACT , 1996 OR ANY RE-ENACTMENT OR STATUT ORY- MODIFICATION THEREOF. THE LANGUAGE OF ARBITRAT ION SHALL BE ENGLISH; M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 10 (B) . IT IS MUTUALLY AGREED THAT THE . COURTS IN MUMBAI SHALL HAVE EXCLUSIVE JURISDICTION IN RESPECT OF ANY DISPUTE OR QUESTION RELATING TO THIS AGREEMENT. 19. MISCELLANEOUS (A) THE STAMP DUTY AND REGISTRATION COST ON THIS AGREEM ENT SHALL BE BORNE AND PAID BY AKSHATA. EACH PARTY TO THIS AGREE MENT SHALL SEPARATELY . BEAR AND PAY THEIR RESPECTIVE ADVOCATES AND SOLICIT ORS FEES; (B) IF ANY PROVISION IN THIS AGREEMENT BECOMES INVALID OR ILLEGAL OR ADJUDGED UNENFORCEABLE, THE PROVISION SHALL BE DEEM ED TO HAVE BEEN SEVERED FROM THIS AGREEMENT, AS THE CASE MAY BE AND THE REM AINING PROVISIONS OF THE AGREEMENT, SO FAR AS POSSIBLE, BE AFFECTED BY THE S EVERANCE: (C) THIS AGREEMENT SHALL NOT BE ALTERED, MODIFIED OR SUPPLEMENTED EXCEPT WITH THE PRIOR WRITTEN APPROVAL OF THE PARTIES, AND ALL SUCH ALTERATIONS, MODIFICATIONS AND SUPPLEMENTAL WRITINGS SHALL BE EFFECTIVE, VALID AND BINDING ONLY IF THE SAME ARE RECORDED IN WRITING AN D EXECUTED BY THE PARTIES. THIS AGREEMENT SHALL SUPERSEDE ALL PRIOR UNDERSTAND INGS, WRITINGS AND AGREEMENTS BETWEEN THE PARTIES; (D) IT IS AGREED BETWEEN THE PARTIES THAT, EACH PARTY S HALL BE LIABLE TO BEAR AND PAY HIS/THEIR INCOME TAX AND ALL OTHER TAXES IN RES PECT OF INCOME RECEIVED BY EACH PARTY AND 'NEITHER PARTY SHALL BEAR AND PAY TH E INCOME TAX PAYABLE BY THE OTHER PARTY; (E) NOTHING CONTAINED IN THIS AGREEMENT SHALL BE DEEMED TO CONSTITUTE A PARTNERSHIP OR AN ASSOCIATION OF PERSONS BETWEEN TH E PARTIES HERETO. IT IS HEREBY 'AGREED AND DECLARED THAT EACH PARTY HAS UND ERTAKEN OBLIGATIONS AND HAS RIGHTS SPECIFIED HEREINABOVE,, ON THEIR OWN ACC OUNT AND ON PRINCIPAL TO PRINCIPAL BASIS AND NOT, ON BEHALF OF OR ON ACCOUNT OF OR AS AGENT OF ANY OF THEM OR OF ANYONE ELSE. 2.3. IF THE AFORESAID JOINT VENTURE AGREEMENT IS ANALYZED AT PAGE-23 (CLAUSE-5) EXPLAINS ABOUT THE R OLE AND RESPONSIBILITIES OF AKSHATA HAS BEEN PROVIDED. AS P ER CLAUSE- G (PAGE-24 OF THE PAPER BOOK), AKSHATA WAS TO DEAL WITH/SETTLE ALL ELIGIBLE OR NON-ELIGIBLE SLUM DWELL ERS AND ALL M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 11 THE OCCUPANTS AND HUTMENTS WERE TO BE VACATED AT TH E COST OF THE ASSESSEE COMPANY. THE RELEVANT CLAUSE-G IS REPRODUCED HEREUNDER:- F) THE AKSHATA SHALL, DEAL WITH AND SETTLE ALL THE ELI GIBLE, NON ELIGIBLE SLUM DWELLERS AND ALL THE OCCUPANTS AND HU TRNENTS ON THE SAID PROPERTY AND CAUSE THE VACATION OF THE SAID PR OPERTY FOR THE DEVELOPMENT OF THE REHAB LAND AND THE FREE SALE LAN D IN THE MANNER AS STATED IN THIS AGREEMENT. THE COSTS AND E XPENSES PERTAINING TO THE SAME SHALL BE BORNE BY THE COMPAN Y; 2.4. AT PAGE-25 OF THE PAPER BOOK (CLAUSE-7), IT H AS BEEN AGREED THAT AKSHATA SHALL PREPARE A BUSINESS P LAN (INCLUDING THE WORK SCHEDULE) AND SUBMIT THE SAME T O THE ASSESSEE COMPANY. AT PAGE-28 (CLAUSE-12), THE DEFAU LT HAS BEEN INCORPORATED WITH RESPECT TO BREACH OF THIS AG REEMENT OR DEFAULT IN PERFORMANCE OF ROLES AND RESPONSIBILI TIES AND COVENANTS UNDER THIS AGREEMENT. IN CASE OF DEFAULT (CLAUSE- B), THE DEFAULTING PARTY SHALL BEAR THE DEFAULT COS T ALONG WITH INTEREST THEREON AT THE RATE OF 21% PER ANNUM (PAGE -28 OF THE PAPER BOOK). CLAUSE-15 (PAGE-29) OF THE JVC SPE AKS ABOUT ARBITRATION AND JURISDICTION AND AT CLAUSE-19 (PAGE 30 OF THE PAPER BOOK), IT HAS BEEN AGREED THAT THE STA MP DUTY AND THE REGISTRATION COST OF THE AGREEMENT SHALL BE BORNE AND PAID BY AKSHATA. THUS, THE TOTALITY OF FACTS, C LEARLY M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 12 INDICATES THE TERMS AND CONDITIONS AGREED UPON IN T HE JOINT VENTURE AGREEMENT. AT PAGE-69 OF THE PAPER BOOK, ON E REPLY DATED 16/10/2014 FROM AKSHATA HAS BEEN PROVIDED, WH ICH IS IN RESPONSE TO NOTICE UNDER SECTION 133(6) IN TH E CASE OF THE ASSESSEE WITH RESPECT TO NATURE AND TRANSACTION . AT PAGE-109 AND 110 OF THE PAPER BOOK, THE SUBMISSIONS FROM THE ASSESSING OFFICER (ADDRESSED TO THE LD. COMMISS IONER OF INCOME TAX (APPEAL)) HAS BEEN ANNEXED, WHICH IS ALS O REPRODUCED HEREUNDER:- GOVERNMENT OF INDIA OFFICE OF THE INCOME TAX OFFICER-6(2)(2) ROOM NO.510, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 TEL:22032077 , 22039131 EXT.2510 NO.ITO-6(2)(2)/REMAND/2015-16 DATE:29.02.2016 TO, THE COMMISSIONER OF INCOME TAX (APPEALS) - 12, MUMBAI MADAM, {THROUGH PROPER CHANNEL} SUB:- FORWARDING OF SUBMISSION IN THE CASE OF M/S DARSHAN REALTORS PUT. LTD (PAN AAACC4204D) FOR ASST YEAR 2012-13 - REG. REF:- LETTER NO CIT(A) 12/REMAND REPORT/2015-16 DATED 16.10.2015 ----------------------------------------------- --------------------------------------------------- ---------------------- ----- KINDLY REFER TO THE ABOVE, VIDE ABOVE REFERRED LETTER A REPORT HAS BEEN SOUGHT BY 24.11.2015. THE REPORT M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 13 COULDN'T BE SENT ON TIME. THE DELAY IN SUBMITTING T HE REPORT IS EXTREMELY REGRETTED. THE ASSESSEE FILED ITS RETURN OF INCOME, FOR A.Y.20 12-13 ON 26/09/2012 DECLARING LOSS OF RS.60,872/-.. THE SAME WAS ASSESS ED U/S. 143(3). IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF INCOME TAX ACT ON 16.03.2015, ADDITION WAS MADE TO THE RETURNED INCOME ON ACCOUNT OF DISALLOWANCE OF EXPEN SES CLAIMED OF RS.24,21,00,000/- FOR COMPENSATION TO M/S AKSHATA M ERCANTILE P LTD AND DISALLOWANCE OF RS.6,71,20,591/- FOR OTHER EXPENSES . THE COMPUTATION IS REPRODUCED AS UNDER: (A) INCOME FROM BUSINESS: (1) ON SRA PROJECT AS PER ASSESSEE (-) R5. 60, 872 ADD: EXPENSES CLAIMED BY THE ASSESSEE SINCE DISALLOWED (A) COMPENSATION TO AKSHATA 24,21,00,000 (B) OTHER EXPENSES 6,71,20,591 RS.30,92,20,591 ---------------------------------- RS.30,91,59,719 LESS: INTEREST INCOME CONSIDERED UNDER OTHER SOUR CES RS. 7,11,248 BUSINESS INCOME ASSESSED AS PER THIS ORDER RS.30,84,48,471 (B) INCOME FROM OTHER SOURCES RS. 7, 11,248 -------------------------------- -- TOTAL INCOME ASSESSED AS PER THIS ORDER RS.3 0,91,59,719 ROUNDED OFF TO RS.30,91,59,720 THUS, THE TOTAL ASSESSED INCOME OF THE ASSESSEE WAS DETERMINED AT RS 30,91,59,720/- THE ASSESSEE FILED AN APPEAL AGAINST THE ASSESSMENT ORDER ON 30.03.2015. VIDE ABOVE REFERRED LETTER THE ASSESSEE HAS RELIED ON SOME DOCUMENTS. THE DOCUMENTS RELIED ON BY THE ASSESSEE, DON'T HAVE ANY BEARING ON THE FACTS OF THE CASE. AS PER RULE 46A OF INCOME TAX RULES, THE ASSESSEE SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE CIT(A) ANY EVIDENCE, WHETHER ORAL OR DOCUMENTARY, OTHER THAN THE 'EVIDENCE PRODUCED BY H IM DURING THE COURSE OF ASSESSMENT PROCEEDINGS, EXCEPT IN THE FOLLOWING CASES: A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMIT EV IDENCE WHICH OUGHT TO HAVE BEEN ADMITTED B) WHERE THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUS E FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE AO C) WHERE THE ASSESSING OFFICER HAS MADE THE ORDER APPE ALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE IN THIS CASE, NONE OF THE ABOVE CONDITIONS ARE SATI SFIED. THERE IS NO REASONABLE CAUSE BY VIRTUE OF WHICH, THE ASSESSEE W AS PREVENTED FROM SUBMITTING ANY DOCUMENTS. THE ASSESSEE WAS GIVEN SU FFICIENT OPPORTUNITY TO PRODUCE THE EVIDENCE, IF ANY. THE AO HAS NOT REFUSE D TO ADMIT ANY EVIDENCE, WHICH OUGHT TO HAVE BEEN ADMITTED. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 14 IT IS RELEVANT TO MENTION HERE THAT THE DOCUMENTS R ELIED UPON BY THE ASSESSEE COMPANY DOESN'T HAVE ANY BEARING ON THE CA SE IN VIEW OF THE FACT THAT M/S OMKAR REALTORS PVT. LTD IS NOT THE PARTY T O THE MOU DT.06/06/2010 SIGNED BETWEEN M/S AKSHATA MERCANTILE PVT. LTD AND THE ASSESSEE COMPANY. THE OPINION OF THE ADVOCATE IS NOT BINDING ON THE REVENUE AUTHORITIES. ACCORDINGLY, THE ADDITIONAL GROUNDS FILED BY THE AS SESSEE SHOULD NOT BE ADMITTED. THE APPEAL MAY BE ACCORDINGLY DECIDED ON THE BASIS OF ABOVE SUBMISSIONS AND MERITS OF THE CASE. 2.5. THE REJOINDER TO THE ABOVE IS AVAILABLE AT PA GES 111 TO 113 OF THE PAPER BOOK, WHICH WAS ALSO CONSID ERED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL). IT IS ALSO NOTED THAT THE SUBMISSIONS OF THE ASSESSEE VIDE COMMUNICATION DATED 11/09/2015 ARE ALSO PROVIDED IN THE PAPER BOOK EXPLAINING THE REASONS OF THE PAYMENT (ADDRESSED TO THE LD. COMMISSIONER OF INCOME TAX (A PPEAL). IT IS FURTHER NOTED FROM THE PAPER BOOK THAT ALL TH E DOCUMENTS RUNNING INTO 138 PAGES WERE MADE AVAILABL E BEFORE THE LD. ASSESSING OFFICER AND ALSO BEFORE TH E LD. COMMISSIONER OF INCOME TAX (APPEAL) AS INDICATED IN THE CERTIFICATE BELOW THE INDEX TO THE PAPER BOOK. THUS , THE CONTENTION OF THE LD. CIT-DR THAT PROPER INVESTIGAT ION WAS NOT DONE BY THE ASSESSING OFFICER/LD. COMMISSIONER OF INCOME TAX (APPEAL) IS FACTUALLY INCORRECT. SO A PA RTICULAR M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 15 DECISION IS CONCERNED THAT DEPENDS UPON THE SUBJECT IVE APPROACH OF THE CONCERNED OFFICER. HOWEVER, WE FIND THAT THE LD. ASSESSING OFFICER AS WELL AS THE LD. COMMISSION ER OF INCOME TAX (APPEAL) HAS TAKEN ONE OF THE POSSIBLE V IEWS. SO FAR AS THE CONTENTION OF THE LD. CIT-DR THAT THE LD . COMMISSIONER OF INCOME TAX (APPEAL) WAS EXPECTED TO GIVE DIRECTION TO THE LD. ASSESSING OFFICER TO EXAMINE T HE ISSUE AGAIN IS CONCERNED, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) IS EMPOWERED TO DECIDE THE APPEAL ON MERIT AND IF SO DESIRED AFTER GETTING THE REMAND REPORT OR SUBMI SSION FROM THE ASSESSEE, WHICH HAS BEEN DONE, THEREFORE, THERE IS NO NECESSITY TO SEND IT BACK. 3. IF THIS ISSUE IS ANALYZED IN THE LIGHT OF THE CO NTRACT ACT, 1872, CHAPTER-IV SPEAKS ABOUT PERFORMANCE OF CONTRA CTS. SECTION 37 PROVIDES/OBLIGATION OF THE PARTIES TO TH E CONTRACT, WHICH IS REPRODUCED HEREUNDER:- 37. THE PARTIES TO A CONTRACT MUST EITHER PERFORM, OR OFFER TO PERFORM, THEIR RESPECTIVE PROMISES, UNLESS SUCH PERFORMANCE IS DISPENSED WITH OR EXCUSED UNDER THE PROVISIONS OF THIS ACT, OR OF ANY OTHER LAW. PROMISES BIND THE REPRESENTATIVES OF THE PROMISORS IN CASE OF THE DEATH OF SUCH PROMISORS BEFORE PERFORMANCE, UNLESS A CONTRAR Y INTENTION APPEARS FROM THE CONTRACT. ( A ) A PROMISES TO DELIVER GOODS TO B ON A CERTAIN DAY O N PAYMENT OF RS. 1,000. A DIES BEFORE THAT DAY. A'S REPRESENTATIVES ARE BOUND TO DELIVER M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 16 THE GOODS TO B, AND B IS BOUND TO PAY RS. 1,000 TO A'S REPRESENTATIVES. ( B ) A PROMISES TO PAINT A P ICTURE FOR B BY A CERTAIN DAY, AT A CERTAIN PRICE. A DIES BEFORE THE DAY. THE CONTRACT CANNOT BE ENFOR CED EITHER BY A'S REPRESENTATIVES OR BY B. 3.1. IF THE AFORESAID SECTION IS ANALYZED BY KEEPI NG IT IN JUXTAPOSITION WITH THE JVA, IT IS THE DUTY OF THE C OURT TO INTERPRET THE DOCUMENT OF CONTRACT AS WAS UNDERSTOO D BETWEEN THE PARTIES, STRICTLY, WITHOUT ALTERING THE NATURE OF THE CONTRACT. A DIFFERENT INTERPRETATION CANNOT BE GIVEN DEHORS THE CONTRACT AS WAS HELD BY THE HON'BLE APEX COURT IN POLYMAT INDIA PVT. LTD. VS NATIONAL INSURANCE CO MPANY LTD. (2005) 9SSC 174 (SUPREME COURT) AND NO AID OUT SIDE THE TERMS OF THE CONTRACT SHOULD BE SOUGHT UNLESS T HE MEANING IS AMBIGUOUS ON A STRICT READING OF THE SAI D TERMS AS WAS HELD IN UNITED INDIA INSURANCE COMPANY LTD. VS HARCHAND RAI CHANDAN LAL, (2004) 8 SCC 644. SO FAR AS THE EFFECT OF REFUSAL TO ACCEPT THE OFFER OF PERFORMANC E IS CONCERNED, IT HAS BEEN PROVIDED IN SECTION 38 OF TH E ACT AS PER WHICH THE OFFER HAS TO BE FULFILLED, WHICH SHOU LD BE UNCONDITIONAL. THE LIABILITY OF PARTIES PREVENTING EVEN ON WHICH CONTRACT IS TO TAKE EFFECT HAS BEEN PROVIDED IN SECTION 53 OF THE CONTRACT ACT AND AS PER THE SECTION 54, E FFECT OF M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 17 DEFAULT AS TO THAT PROMISE HAS BEEN PROVIDED. THE CONSEQUENCES OF BREACH OF CONTRACT HAS BEEN PROVIDE D IN CHAPTER-VI AND SECTION 73 OF THE CONTRACT ACT SPEAK S ABOUT COMPENSATION OF LOSS AND DAMAGE CAUSED BY BREACH OF CONTRACT HAS BEEN PROVIDED. THE PROVISION IS REPROD UCED HEREUNDER:- 73. WHEN A CONTRACT HAS BEEN BROKEN, THE PARTY WHO SUF FERS BY SUCH BREACH IS ENTITLED TO RECEIVE, FROM THE PARTY WHO H AS BROKEN THE CONTRACT, COMPENSATION FOR ANY LOSS OR DAMAGE CAUSED TO HIM T HEREBY, WHICH NATURALLY AROSE IN THE USUAL COURSE OF THINGS FROM SUCH BREACH, OR WHICH THE PARTIES KNEW, WHEN THEY MADE THE CONTRACT, TO B E LIKELY TO RESULT FROM THE BREACH OF IT. SUCH COMPENSATION IS NOT TO BE GIVEN FOR ANY REMOTE AND INDIRECT LOSS OR DAMAGE SUSTAINED BY REASON OF THE BREACH. COMPENSATION FOR FAILURE TO DISCHARGE OBLIGATION RE SEMBLING THOSE CREATED BY CONTRACT : WHEN AN OBLIGATION RESEMBLING THOSE CREATED BY CONTRACT HAS BEEN INCURRED AND HAS NOT BEEN DISCHAR GED, ANY PERSON INJURED BY THE FAILURE TO DISCHARGE IT IS ENTITLED TO RECEIVE THE SAME COMPENSATION FROM THE PARTY IN DEFAULT, AS IF SUCH PERSON HAD CONTRACTED TO DISCHARGE IT AND HAD BROKEN HIS CONTRACT. EXPLANATION : IN ESTIMATING THE LOSS OR DAMAGE ARISING FROM A BREACH OF CONTRACT, THE MEANS WHICH EXISTED OF REMEDYING THE INCONVENIENCE CAUSED BY NON-PERFORMANCE OF THE CONTRACT MUST BE T AKEN INTO ACCOUNT. ( A ) A CONTRACTS TO SELL AND DELIVER 50 MAUNDS OF SALTPE TRE TO B, AT A CERTAIN PRICE TO BE PAID ON DELIVERY. A BREAKS HIS PROMISE. B IS ENTITLED TO RECEIVE FROM A, BY WAY OF COMPENSATION, THE SUM, IF ANY, BY WHICH THE CONTRACT PRICE FALLS SHORT OF THE P RICE FOR WHICH B MIGHT HAVE OBTAINED 50 MAUNDS OF SALTPETRE OF LIKE QUALIT Y AT THE TIME WHEN THE SALTPETRE OUGHT TO HAVE BEEN DELIVERED. ( B ) A HIRES B'S SHIP TO GO TO BOMBAY, AND THERE TAKES O N BOARD ON THE FIRST OF JANUARY, A CARGO, WHICH A IS TO PROVI DE, AND TO BRING IT TO CALCUTTA, THE FREIGHT TO BE PAID WHEN EARNED. B'S S HIP DOES NOT GO TO BOMBAY, BUT A HAS OPPORTUNITIES FOR PROCURING SUITA BLE CONVEYANCE FOR THE CARGO UPON TERMS AS ADVANTAGEOUS AS THOSE O N WHICH HE HAD CHARTERED THE SHIP. A AVAILS HI MSELF OF THOSE OPPORTUNITIES, BUT IS PUT TO TROUBLE AND EXPENSE IN DOING SO. A IS ENTITLED T O RECEIVE COMPENSATION FROM B IN RESPECT OF SUCH TROUBLE AND EXPENSE. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 18 ( C ) A CONTRACTS TO BUY OF B, AT A STATED PRICE, 50 MAUN DS OF RICE, NO TIME BEING FIXED FOR DELIVERY. A AFTERWARDS INFORMS B THAT HE WILL NOT ACCEPT THE RICE IF TENDERED TO HIM. B IS ENTITLED T O RECEIVE FROM A, BY WAY OF COMPENSATION, THE AMOUNT, IF ANY, BY WHICH T HE CONTRACT PRICE EXCEEDS THAT WHICH B CAN OBTAIN FOR THE RICE AT THE TIME WHEN A INFORMS B THAT HE WILL NOT ACCEPT IT. ( D ) A CONTRACTS TO BUY B'S SHIP FOR 60,000 RUPEES, BUT BREAKS THE PROMISE. A MUST PAY TO B, BY WAY OF COMPENSATION, T HE EXCESS, IF ANY, OF THE CONTRACT PRICE OVER THE PRICE WHICH B C AN OBTAIN FOR THE SHIP AT THE TIME OF THE BREACH OF PROMISE. ( E ) A, THE OWNER OF A BOAT, CONTRACTS WITH B TO TAKE A CARGO OF JUTE TO MIRZAPUR, FOR SALE AT THAT PLACE, STARTING ON A SPE CIFIED DAY. THE BOAT, OWING TO SOME UNAVOIDABLE CAUSE, DOES NOT STA RT AT THE TIME APPOINTED, WHEREBY TH E ARRIVAL OF THE CARGO AT MIRZAPUR IS DELAYED BEYOND THE TIME WHEN IT WOULD HAVE ARRIVED IF THE B OAT HAD SAILED ACCORDING TO THE CONTRACT. AFTER THAT DATE, AND BEF ORE THE ARRIVAL OF THE CARGO, THE PRICE OF JUTE FALLS. THE MEASURE OF THE COMPENSATION PAYABL E TO B BY A IS THE DIFFERENCE BETWEEN THE PRICE WHI CH B COULD HAVE OBTAINED FOR THE CARGO AT MIRZAPUR AT THE TIME WHEN IT WOULD HAVE ARRIVED IF FORWARDED IN DUE COURSE, AND ITS MA RKET PRICE AT THE TIME WHEN IT ACTUALLY ARRIVED. ( F ) A CONTRACTS TO REPAIR B'S HOUSE IN A CERTAIN MANNER, AND RECEIVES PAYMENT IN ADVANCE. A REPAIRS THE HOUSE, BUT NOT AC CORDING TO CONTRACT. B IS ENTITLED TO RECOVER FROM A THE COST OF MAKING THE REPAIRS CONFORMING TO THE CONTRACT. ( G ) A CONTRACTS TO LET HIS SHIP TO B FOR A YE AR, FROM FIRST OF JANUARY, FOR A CERTAIN PRICE. FREIGHTS RISE, AND, ON THE FIRST OF JANUARY, THE HIRE OBTAINABLE FOR THE SHIP IS HIGHER THAN THE CONTRACT PRICE. A BREAKS HIS PROMISE. HE MUST PAY TO B, BY WAY OF COMPENSATION, A SUM EQUAL TO THE DIFFERENCE B ETWEEN THE CONTRACT PRICE AND THE PRICE FOR WHICH B COULD HIRE A SIMILAR SHIP FOR A YEAR ON AND FROM TH E FIRST OF JANUARY. ( H ) A CONTRACTS TO SUPPLY B WITH A CERTAIN QUANTITY OF IRON AT A FIXED PRICE, BEING A HIGHER PRICE THAN THAT FOR WHICH A C OULD PRO CURE AND DELIVER THE IRON. B WRONGFULLY REFUSES TO RECEIVE T HE IRON. B MUST PAY TO A, BY WAY OF COMPENSATION, THE DIFFERENCE BE TWEEN THE CONTRACT PRICE OF THE IRON AND THE SUM FOR WHICH A COULD HAVE OBTAINED AND DELIVERED IT. ( I ) A DELIVERS TO B, A COMM ON CARRIER, A MACHINE, TO BE CONVEYED, WITHOUT DELAY, TO A'S MILL, INFORMING B THAT HIS MI LL IS STOPPED FOR WANT OF THE MACHINE. B UNREASONABLY DELAYS THE DELI VERY OF THE MACHINE AND A, IN CONSEQUENCE, LOSES A PROFITABLE C ONTRACT WITH THE GOVERNMENT. A IS ENTITLED TO RECEIVE FROM B, BY WAY OF COMPENSATION, THE AVERAGE AMOUNT OF PROFIT WHICH WO ULD HAVE BEEN MADE BY THE WORKING OF THE MILL DURING THE TIME THA T DELIVERY OF IT WAS DELAYED, BUT NOT THE LOSS SUSTAINED THROUGH THE LOSS OF THE GOVERNMENT CONTRACT. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 19 ( J ) A, HAVING CONTRACTED WITH B TO SUPPLY B WITH 1,000 TONS OF IRON AT 100 RUPEES A TON, TO BE DELIVERED AT A STATED TIME, CONTRACTS WITH C FOR THE PURCHASE OF 1,000 TONS OF IRON AT 80 RUPEES A TON, TELLING C THAT HE DOES SO FOR THE PURPOSE OF PERFORMIN G HIS CONTRACT WITH B. C FAILS TO PERFORM HIS CONTRACT WITH A, WHO CANNOT PR OCURE OTHER IRON, AND B, IN CONSEQUENCE, RESCINDS THE CONTRACT. C MUS T PAY TO A 20,000 RUPEES, BEING THE PROFIT WHICH A WOULD HAVE MADE BY THE PERFORMANCE OF HIS CONTRACT WITH B. ( K ) A CONTRACTS WITH B TO MAKE AND DELIVER TO B, BY A F IXED DAY, FOR A SPECIFIED PRICE, A CERTAIN PIECE OF MACHINERY. A DO ES NOT DELIVER THE PIECE OF MACHINERY AT THE TIME SPECIFIED, AND, IN C ONSEQUENCE OF THIS, B IS OBLIGED TO PROCURE ANOTHER AT A HIGHE R PRICE THAN THAT WHICH HE WAS TO HAVE PAID TO A, AND IS PREVENTED FROM PER FORMING A CONTRACT WHICH B HAD MADE WITH A HIRED PERSON AT TH E TIME OF HIS CONTRACT WITH A (BUT WHICH HAD NOT BEEN THEN COMMUN ICATED TO A), AND IS COMPELLED TO MAKE COMPENSATION FOR BREACH OF THAT CONTRACT. A MUST PAY TO B, BY WAY OF COMPENSATION, THE DIFFER ENCE BETWEEN THE CONTRACT PRICE OF THE PIECE OF MACHINERY AND TH E SUM PAID BY B FOR ANOTHER, BUT NOT THE SUM PAID BY B TO THE THIRD PERSON BY WAY OF COMPENSATION. ( L ) A, A BUIL DER, CONTRACTS TO ERECT AND FINISH A HOUSE BY THE F IRST OF JANUARY, IN ORDER THAT B MAY GIVE POSSESSION OF IT AT THAT TIME TO C, TO WHOM B HAS CONTRACTED TO LET IT. A IS INFORMED O F THE CONTRACT BETWEEN B AND C. A BUILDS THE HOUSE SO BADLY THAT, BEFORE THE FIRST OF JANUARY, IT FALLS DOWN AND HAS TO BE REBUILT BY B, WHO IN CONSEQUENCE, LOSES THE RENT WHICH HE WAS TO HAVE RE CEIVED FROM C, AND IS OBLIGED TO MAKE COMPENSATION TO C FOR THE BR EACH OF HIS CONTRACT. A MUST MAKE COMPENSATION TO B FOR THE COS T OF REB UILDING OF THE HOUSE, FOR THE RENT LOST, AND FOR THE COMPEN SATION MADE TO C. ( M ) A SELLS CERTAIN MERCHANDISE TO B, WARRANTING IT TO BE OF A PARTICULAR QUALITY, AND B, IN RELIANCE UPON THIS WARRANTY, SEL LS IT TO C WITH A SIMILAR WARRANTY. THE GOODS PROVE TO BE NOT ACCORDING TO THE WARRANTY, AND B BECOMES LIABLE TO PAY C A SUM OF MO NEY BY WAY OF COMPENSATION. B IS ENTITLED TO BE REIMBURSED THIS S UM BY A. ( N ) A CONTRACTS TO PAY A SUM OF MONEY TO B ON A DAY SPE CIFIED. A DOES NOT PAY THE MONEY ON THAT DAY; B, IN CONSEQUENCE OF NOT RECEIVING THE MONEY ON THAT DAY, IS UNABLE TO PAY HIS DEBTS, AND IS TOTALLY RUINED. A IS NOT LIABLE TO MAKE GOOD TO B ANYTHING EXCEPT THE PRINCIPAL SUM HE CONTRACTED TO PAY, TOGETHER WITH I NTEREST UP TO THE DAY OF PAYMENT. ( O ) A CONTRACTS TO DELIVER 50 MAUNDS OF SALTPETRE TO B ON THE FIRST OF JANUARY, AT A CERTAIN PRICE. B, AFTERWARDS, BEFORE THE FIRST OF JANUARY, CONTRACTS TO SELL THE SALTPETRE TO C AT A PRICE HIG HER THAN THE MARKET PRICE OF THE FIRST OF JANUARY. A BREAKS HIS P ROMISE. IN ESTIMATING THE COMPENSATION PAYABLE BY A TO B, THE MARKET PRICE OF THE FIRST OF JANUARY, AND NOT THE PROFIT WHICH WOULD HAVE ARISEN TO B FROM THE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 20 SALE TO C, IS TO BE TAKEN INTO ACCOUNT. ( P ) A CONTRACTS TO SELL AND DELIVER 500 BALES OF COTTON TO B ON A FIXED DAY. A KNOWS NOTHING OF B'S MODE OF CONDUCTING HIS BUSINESS. A BREAKS HIS PROMISE, AND B, HAVING NO COTTON, IS OBL IGED TO CLOSE HIS MILL. A IS NOT RESPONSIBLE TO B FOR THE LOSS CAUSED TO B BY CLOSING OF THE MILL. ( P ) A CONTRACTS TO SELL AND DELIVER TO B, ON THE FIRST OF JANUARY, CERTAIN CLOTH WHICH B INTENDS TO MANUFACTURE INTO CAPS OF A PARTICULAR KIND, FOR WHICH THERE IS NO DEMAND, EXCEPT AT THAT SEASON . THE CLOTH IS NOT DELIVERED TILL AFTER THE APPOINTED TIME, AND TOO LA TE TO BE USED T HAT YEAR IN MAKING CAPS. B IS ENTITLED TO RECEIVE FROM A, BY WAY OF COMPENSATION, THE DIFFERENCE BETWEEN THE CONTRACT P RICE OF THE CLOTH AND ITS MARKET PRICE AT THE TIME OF DELIVERY, BUT N OT THE PROFITS WHICH HE EXPECTED TO OBTAIN BY MAKING CAPS, NOR THE E XPENSES WHICH HE HAS BEEN PUT TO IN MAKING PREPARATION FOR THE MANUF ACTURE. ( R ) A, A SHIP OWNER, CONTRACTS WITH B TO CONVEY HIM FRO M CALCUTTA TO SYDNEY IN A'S SHIP, SAILING ON THE FIRST OF JANUARY , AND B PAYS TO A, BY WAY OF DEPOSIT, ONE-HALF OF HIS PASSAGE- MONEY. THE SHIP DOES NOT SAIL ON THE FIRST OF JANUARY, AND B, AFTER BEING IN CONSEQUENCE, DETAINED IN CALCUTTA FOR SOME TIME, AND THEREBY PUT TO SOME EXPENSE, PROCEEDS TO SYDNEY IN ANOTHER VESSEL, AND, IN CONSEQUENCE, ARRIVING TOO LATE IN SYDNEY, LOSE S A SUM OF MONEY. A IS LIABLE TO REPAY TO B HIS DEPOSIT, WITH INTEREST, AND THE EXPE NSE TO WHICH HE IS PUT BY HIS DETENTION IN CALCUTTA, AND THE EXCESS, I F ANY, OF THE PASSAGE- MONEY PAID FOR THE SECOND SHIP OVER THAT AGREED UPO N FOR THE FIRST, BUT NOT THE SUM OF MONEY WHICH B LOST BY ARRIVING IN SYDNEY TOO LATE. THUS, FROM THE ANGLE OF CONTRACT ACT ALSO, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (APPEAL). SO FAR AS, THE CONTENTION OF THE LD. CIT- DR THAT A REASONED ORDER HAS NOT BEEN PASSED BY THE FIRST APP ELLATE AUTHORITY, IS CONCERNED, IT DEPENDS UPON INDIVIDUAL APPROACH AND WAY OF DEALING WITH THE MATTER, THEREF ORE, WE FIND NO INFIRMITY IN THE ORDER. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 21 4. DURING HEARING, THE LD. CIT-DR ALSO RELIED UPON THE DECISION FROM HON'BLE DELHI HIGH COURT IN THE C ASE OF CIT VS M/S JANSAMPARK ADVERTISING & MARKETING PVT. LTD. (ITA NO.525 OF 2014) ORDER DATED 11/03/2015. IN ALL FAIRNESS, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF THE AFORESAID ORDER:- 1. THIS APPEAL UNDER SECTION 260-A OF INCOME TAX ACT, 1961 ASSAILS THE ORDER DATED 14.06.2013 PASSED BY INCOME TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS THE ITAT) IN APPEAL NO. 4839/DEL/2009 RESPECTING THE RESPONDENT (THE ASSES SEE) FOR THE ASSESSMENT YEAR (AY) 2004-05. THE FOLLOWING SUBSTAN TIAL QUESTION OF LAW WAS FRAMED BY ORDER DATED 25.11.2014:- 2.1 WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE LD. ITAT WAS CORRECT IN ALLOWING THE APPEAL OF THE ASSESSEE IN R EGARD TO ADDITION OF 71,00,000/- ON ACCOUNT OF UNEXPLAINED CREDIT U/S 68 OF THE INCOME TAX ACT. 2.2 WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE LD. ITAT WAS CORRECT IN ALLOWING THE APPEAL OF THE ASSESSEE IN R EGARD TO ADDITION OF 1,42,000/- ON ACCOUNT OF COMMISSION PAID ON ENTRY T AKEN FROM ENTRY PROVIDER. 2. THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR AY 2004-05 ON 01.11.2004 DECLARING INCOME OF 3,180/-. THE SAID ORIGINAL RETURN WAS ACCEPTED. IT IS STATED THAT SOME TIME IN 2007 T HE ASSESSING OFFICER (AO) WAS IN RECEIPT OF INFORMATION FROM DIT (INVESTIGATION), NEW DELHI THAT THE ASSESSEE HAD BE EN IN RECEIPT OF ACCOMMODATION ENTRIES FROM THE ENTRY PROVIDERS. IT IS THE AVERMENT OF THE REVENUE THAT DURING THE COURSE OF THE ENQUIRIES CONDUCTED BY THE INVESTIGATION WING OF THE DEPARTMENT IT WAS CONCLUD ED THAT MOST OF THE ENTRY OPERATORS ARE CHARGING COMMISSION @ 2% FOR GIVING THIS ACCOMMODATION APPROACH TO ANOTHER P ERSON AND HAND OVER THE CASH PLUS COMMISSION AND TAKE CHEQUES/DDS/POS. THE CASH IS DEPOSITED BY THE ENTRY OPERATOR IN A BANK ACCOUNT EITHER IN HIS OWN NAME O R IN THE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 22 NAME OF THE RELATIVE/FRIENDS OR OTHER PERSON HIRED BY HIM FOR THE PURPOSE OF OPENING BANK ACCOUNT. THE OTHER PERS ON (IN WHOSE NAME THE ACCOUNT IS OPENED) ONLY SIGNS THE BL ANK CHEQUE BOOK AND HANDS OVER THE SAME TO MAIN ENTRY OPERATORS. THE ENTRY OPERATOR THEN ISSUES CHEQUES/D DS/POS IN THE NAME OF THE BENEFICIARY FROM THE SAME ACCOUN T IN WHICH THE FUNDS ARE TRANSFERRED THROUGH CLEARING IN TWO OR MORE STAGES. THE BENEFICIARY IN TURN DEPOSITS THESE INSTRUMENTS IN HIS BANK ACCOUNTS AND THE MONEY COME S TO HIS REGULAR BOOKS OF ACCOUNTS IN THE FORMS OF GIFT, SHA RE APPLICATION MONEY/SHARE CAPITAL/UNSECURED LOANS ETC . THROUGH BANKING CHANNEL. SINCE THE FUNDS HAVE COME THROUGH BANKING CHANNEL IN THE BOOKS OF BENEFICIARY THESE A PPARENTLY LOOK GENUINE. 3. HAVING REASONS TO BELIEVE THAT INCOME HAD ESCAPE D ASSESSMENT, THE AO RE-OPENED THE CASE FOR AY 2004-05 UNDER SECT ION 147 OF INCOME TAX ACT AND ISSUED NOTICE UNDER SECTION 148 ON 18.04.2007. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED A COPY OF THE RETURN THAT HAD BEEN SUBMITTED ON 01.11.2004. 4. DURING THE ASSESSMENT PROCEEDINGS, THUS RE-OPENE D, THE AO NOTICED THAT THE ASSESSEE HAD RAISED SHARE CAPITAL FROM THE FOLLOWING PARTIES TO THE EXTENT INDICATED AGAINST EACH:- 1. M/S LABH - TRONICS OVERSEAS (P) LTD. 5,00,000 /- 2. M/S F.N.S. CONSULTANCY 7,00,000/- 3. M/S C.V. METAL POWDER 5,00,000/- 4. M/S MAESTRO MKTG.(P) LTD. 4,00,000/- 5. M/S DIGNITY FINVEST (P) LTD. 4,00,000/- 6. M/S ETHNIC CREATION (P) LTD. 3,00,000/- 7. M/S M.V. MARKETING (P) LTD. 3,00,000;': 8. M/S AKSHAY SALES (P) LTD. 5,00,000/- 9. M/S S.G.C. PUBLISHING (P) LTD. 10,00,000/- 10. M/S MAESTRO MKTG. & ADVERTISING (P) LTD. 13,00,000/- 11. M/S FAIR N SQUARE EXPORTS (P) LTD. 5,00,000/- 12. M/S JAIN PROJECTS & FIN. CONSULTANTS (P) LTD. 7,00,000/- TOTAL 71,00,000/- M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 23 5. IT IS THE CASE OF THE REVENUE THAT ON EXAMINATIO N OF THE DETAILS, AND AS PER THE INFORMATION COLLECTED ON THE BASIS O F INVESTIGATION CARRIED OUT, IT WAS FOUND THAT SHARE CAPITAL HAD BE EN RECEIVED FROM THE FOLLOWING THREE ENTRY OPERATORS WHO ARE ALLEGED LY ENGAGED IN THE BUSINESS OF GIVING ACCOMMODATION ENTRIES: A. MAESTRO MKTG. & ADVERTISING (P) LTD. B. FAIR N SQUARE EXPORTS (P) LTD. C. JAIN PROJECTS & FIN. CONSULTANTS (P) LTD. 6. IT IS STATED THAT IN ORDER TO VERIFY THE GENUIN ENESS OF THE CLAIM OF RECEIPT OF SHARE APPLICATION MONEY, SUMMONS WERE IS SUED UNDER SECTION 131 OF THE INCOME TAX ACT TO THE TWELVE ENT ITIES IN RESPONSE TO WHICH, NO ONE APPEARED AND SOME OF THE PROCESSES RETURNED UN-DELIVERED WITH THE POSTAL REMARKS LEFT /NO SUCH PERSON. IN THIS FACT SITUATION, THE AO CALLED UPON THE ASSESSEE TO PRODUCE THE PARTIES/PERSONS IN QUESTION WHICH DIREC TION WAS NOT COMPLIED WITH. 7. THE AO, THUS, TREATED THE AMOUNT OF 71 LACS AS UNEXPLAINED CREDIT IN TERMS OF THE PROVISION CONTAINED IN SECTI ON 68 OF INCOME TAX ACT AND ADDED IT TO THE INCOME OF THE ASSESSEE. THE ASSESSEES EXPLANATION WAS REJECTED BY DRAWING ADVERSE INFEREN CES ON THE FOLLOWING REASONING:- (I) MERE PAYMENT OF A/C PAYEE CHEQUE IS NOT SACROSA NCT. (II) BANK ACCOUNT REVEALED A UNIFORM PATTERN OF CAS H DEPOSIT OF EQUAL AMOUNT BY CASH OR CHEQUE IN RESPEC TIVE ACCOUNTS. (III) ASSESSEE FAILED TO PRODUCE THE DIRECTORS OF T HE COMPANIES FROM WHOM THE SHARE APPLICATION MONEY WAS RECEIVED. (IV) SUMMONS U/S 131 OF THE ACT WERE ISSUED, BUT SO ME OF THE SUMMONS WERE RECEIVED UNSERVED WITH POSTAL REMA RKS 'LEFT/NO SUCH PERSON'; NONE APPEARED IN RESPONSE TO SERVED SUMMONS . 8. FURTHER, A SUM OF 1,42,000/- TAKEN AS PROBABLE COMMISSION GIVEN OUT OF THE UNACCOUNTED INCOME NOT HAVING BEEN BOOKED WAS ALSO ADDED TO THE INCOME. 9. THE ASSESSEE PREFERRED APPEAL AGAINST THE ASSESS MENT ORDER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) [HE REINAFTER REFERRED TO AS THE CIT (APPEALS)] MAKING THE FOLL OWING SUBMISSIONS:- M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 24 (I) THE ALLEGATION OF THE ASSESSING OFFICER THAT SO ME OF THE SUMMONS CAME BACK UNSERVED, THE ASSESSEE WAS NEVER CONFRONTED WITH ANY SUCH CORRESPONDENCE. (II) ASSESSEE HAD DISCHARGED THE PRELIMINARY BURDEN IN TERMS OF SEC. 68 FOR THE EXISTENCE OF THE CREDITORS THE PARTIES FROM WHOM IT HAS RECEIVED SHARE APPLICATION MONEY BY FILING COPY OF APPLICATION FOR SUBSCRIPTION OF S HARES, CONFIRMATIONS, COPY OF COMPANY MASTER DATA FROM THE OFFICE OF ROC. ACKNOWLEDGMENT OF FILING OF INCOME T AX RETURN WITH PERMANENT ACCOUNT NUMBER ETC. (III) THE CREDIT WORTHINESS OF THE PARTIES TO PAY S UCH SHARE APPLICATION MONEY TO THE APPELLANT COMPANY HAS BEEN ESTABLISHED ON THE BASIS OF COPY OF ANNUAL ACCOUNTS OF THE SUBSCRIBER COMPANIES, COPY OF BANK STATEMENTS ETC., FILED DURING ASSESSMENT PROCEEDINGS. (IV) THE GENUINENESS OF THE TRANSACTION I.E. THE NA TURE OF RECEIPTS BY THE ASSESSEE COMPANY BY WAY OF SHARE APPLICATION MONEY IS ESTABLISHED BY THE FACT THAT T HE AMOUNTS WERE RECEIVED THROUGH BANKING CHANNELS, SHA RES WERE ALLOTTED AGAINST THE AMOUNTS RECEIVED, VIDE RE TURN OF ALLOTMENT DATED 29.06.2004, FILED WITH ROC. 10. THE APPEAL WAS ALLOWED BY THE CIT (APPEALS) DEL ETING THE ADDITIONS MADE BY THE AO, INTER ALIA, RELYING UPON CIT V. LOVELY EXPORTS PVT. LTD., (2008) 216 CTR 195 (SC). THE REV ENUE HAVING PREFERRED APPEAL (ITA NO. 4839/DEL/2009), TO WHICH THE ASSESSEE HAD ALSO FILED COUNTER-OBJECTION (NO. 103/DEL/2011) , WAS UNSUCCESSFUL BEFORE ITAT. 11. THE ITAT HAS NOTED IN THE IMPUGNED ORDER THAT I N THE CASE OF REASSESSMENT, THE ASSESSEE HAD BEEN ASKED TO SHOW T HE IDENTITY AND GENUINENESS OF THE SHARE APPLICANTS AND CREDITWORTH INESS OF THE TRANSACTIONS AND THAT THE ASSESSEE HAD RESPONDED BY CLARIFYING THAT THE SHARE APPLICATION MONIES HAD BEEN RECEIVED THRO UGH ACCOUNT PAYEE CHEQUES, WHILST FILING FOLLOWING DOCUMENTS BE FORE THE AO:- (I) CONFIRMATIONS OF THE PARTIES; (II) COPIES OF INCOME-TAX RETURNS ALONG WITH SUPPOR TING STATEMENTS; (III) COPIES OF THE BANK STATEMENTS; (IV) COPIES OF THE BOARD RESOLUTION OF THE RESPECTI VE SHARE HOLDING COMPANIES FOR SUBSCRIBING THE SHARE APPLICA TIONS; (V) COPIES OF ALLOTMENT LETTERS; (VI) COPIES OF THE REGISTRATION CERTIFICATES OF THE SHARE HOLDER COMPANIES FROM REGISTRAR OF COMPANIES DISCLO SING EXISTENCE OF THE COMPANIES AS PER MASTER DATA FROM THE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 25 OFFICE OF ROC ALONG WITH THE SUBSCRIPTION OF THE CA PITAL DETAILS, NUMBER AND DATES OF PAYMENTS. 12. THE CONTENTIONS OF REVENUE WERE REJECTED BY THE ITAT WITH OBSERVATIONS TO THE FOLLOWING EFFECT:- 7. ... THE ASSESSEE CONSEQUENT TO THE ASSESSING OFF ICER'S QUERIES FURNISHED ALL THE RELEVANT DOCUMENTARY EVID ENCE BEFORE THE ASSESSING OFFICER. FROM THE PERUSAL OF R ECORD AND ORDERSHEETS IT CLEARLY EMERGES THAT THE REQUIREMENT OF PHYSICAL PRODUCTION OF THE PARTIES WAS COMMUNICATED TO THE ASSESSEE AS LATE AS ON 17-12-2008 AS AGAINST THE DA TE OF ASSESSMENT BEING 26- 12-2008. SIMILARLY, FROM THE E NTRY DATED 22-12-2008 THE ASSESSING OFFICER VAGUELY STAT ED THAT SOME SUMMONS WERE ISSUED ON SOME PARTIES, SOME CAME UNSERVED AND NONE APPEARED. THE SAME IS SKETCHY AND NON- SPECIFIC. WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT IT WILL NOT BE EASILY POSSIBLE TO ASK AN ASSES SEE TO ACCOMPANY HIM TO THE PROCEEDINGS BEFORE THE ASSESSI NG OFFICER. IN OUR VIEW, ADVERSE INFERENCE DRAWN ON TH ESE ISSUES IS UNJUSTIFIED. 7.1. NO ADVERSE MATERIAL WAS CONFRONTED TO THE ASSE SSEE BY THE ASSESSING OFFICER. THUS, THE ADDITION CANNOT BE SUSTAINED ON THE GROUND OF CANON OF NATURAL JUSTICE I.E. AUDI ALTERAM PARTEM. THE ASSESSING OFFICER SET BACK ON HIS QUERY AND MERELY ASKING SOME NON-SPECIFIC SKETCHY QUESTIONS A T THE FAG END OF THE ASSESSMENT ORDER, IT CANNOT BE HELD THAT PROPER INQUIRIES WERE INSTITUTED. THUS, IT IS CASE WHICH SUFFERS FROM LACK OF ENQUIRIES AS REFERRED TO BY HO N'BLE DELHI HIGH COURT IN THE CASE OF GANGESHWARI METAL P VT. LTD. WHICH WE HAVE TO RESPECTFULLY FOLLOW. 13. IT MUST BE NOTED HERE THAT IT HAS BEEN THE CASE OF THE REVENUE THAT THE ENTITIES WHICH HAD GIVEN SHARE CAPITAL TO THE ASSESSEE COMPANY WERE SAME AS HAD SIMILARLY GIVEN SHARE CAPI TAL TO ANOTHER ENTITY NAMED M/S NOVA PROMOTERS AND FINLEASE (P) LT D. IT IS STATED THAT THE BANK ACCOUNTS STATEMENTS INDICATE THAT THE RE IS A UNIFORM PATTERN OF TRANSACTION WHEREIN ISSUE OF CHEQUES IS IMMEDIATELY PRECEDED BY THE DEPOSITS OF EQUAL AMOUNTS IN THE AC COUNT EITHER IN CASH OR THROUGH CHEQUES/TRANSFER ENTRIES. IN THE CA SE OF M/S NOVA PROMOTERS AND FINLEASE (P) LTD., THE ADDITION MADE BY THE REVENUE OF THE AMOUNTS RECEIVED FROM SIMILAR ENTRY PROVIDER S WAS UPHELD BY THIS COURT. RELYING UPON, INTER ALIA, THE DECISION OF THIS COURT IN CIT V. NOVA PROMOTERS AND FINLEASE (P) LTD., (2012) 342 ITR 169 (DEL.), THE REVENUE ARGUES THAT SIMILAR ENTRIES IN THE CASE OF ASSESSEE HEREIN CANNOT BE TREATED DIFFERENTLY. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 26 14. IN ACCEPTING THE CONTENTIONS OF THE ASSESSEE, T HE ITAT REFERRED, INTER ALIA, TO THE DECISION OF THIS COURT IN CIT V. GANGESHWARI METAL PVT. LTD. (ITA 597/2012 DECIDED ON 21.01.2013) QUOT ING THE FOLLOWING OBSERVATIONS FROM M/S NOVA PROMOTERS AND FINLEASE (P) LTD.(SUPRA) AND DISTINGUISHING IT ON FACTS:- 'THE RATIO OF A DECISION IS TO BE UNDERSTOOD AND AP PRECIATED IN THE BACKGROUND OF THE FACTS OF THAT CASE. SO UND ERSTOOD, IT WILL BE SEEN THAT WHERE THE COMPLETE PARTICULARS OF THE SHARE APPLICANTS SUCH AS THEIR NAMES AND ADDRESSES, INCOME TAX FILE NUMBERS, THEIR CREDITWORTHINESS, SHARE APP LICATION FORMS AND SHARE HOLDERS' REGISTER, SHARE TRANSFER R EGISTER ETC. ARE FURNISHED TO THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRY INTO THE SAME OR HAS NO MATERIAL IN HIS POSSESSION TO SHOW THAT THOSE PA RTICULARS ARE FALSE AND CANNOT BE ACTED UPON, THEN NO ADDITIO N CAN BE MADE IN THE HANDS OF THE COMPANY UNDER SEC.68 AND T HE REMEDY OPEN TO THE REVENUE IS TO GO AFTER THE SHARE APPLICANTS IN ACCORDANCE WITH LAW. WE ARE AFRAID TH AT WE CANNOT APPLY THE RATIO TO A CASE, SUCH AS THE PRESE NT ONE, WHERE THE ASSESSING OFFICER IS IN POSSESSION OF MAT ERIAL THAT DISCREDITS AND IMPEACHES THE PARTICULARS FURNISHED BY THE ASSESSEE AND ALSO ESTABLISHES THE LINK BETWEEN SELF - CONFESSED 'ACCOMMODATION ENTRY PROVIDERS' WHOSE BUS INESS IT IS TO HELP ASSESSEES BRING INTO THEIR BOOKS OF A CCOUNT THEIR UNACCOUNTED MONIES THROUGH THE MEDIUM OR SHARE SUBSCRIPTION, AND THE ASSESSEE. THE RATIO IS INAPPL ICABLE TO A CASE, AGAIN SUCH AS THE PRESENT ONE, WHERE THE INVO LVEMENT OF THE ASSESSEE IN SUCH MODUS OPERANDI IS CLEARLY I NDICATED BY VALID MATERIAL MADE AVAILABLE TO THE ASSESSING O FFICER AS A RESULT OF INVESTIGATIONS CARRIED OUT BY THE REVEN UE AUTHORITIES INTO THE ACTIVITIES OF SUCH 'ENTRY PROV IDERS'. THE EXISTENCE WITH THE ASSESSING OFFICER OF MATERIAL SH OWING THAT THE SHARE SUBSCRIPTIONS WERE COLLECTED AS PART OF A PRE- MEDITATED PLAN -A SMOKESCREEN CONCEIVED AND EXECU TED WITH THE CONNIVANCE OR INVOLVEMENT OF THE ASSESSEE EXCLUDES THE APPLICABILITY OF THE RATIO. IN OUR UNDERSTANDIN G, THE RATIO IS ATTRACTED TO A CASE WHERE IT IS A SIMPLE QUESTIO N OF WHETHER THE ASSESSEE HAS DISCHARGED THE BURDEN PLAC ED UPON HIM UNDER SEC.68 TO PROVE AND ESTABLISH THE ID ENTITY AND CREDITWORTHINESS OF THE SHARE APPLICANT AND THE GENUINENESS OF THE TRANSACTION. IN SUCH A CASE, THE ASSESSING OFFICER CANNOT SIT BACK WITH FOLDED HANDS TILL THE ASSESSEE EXHAUSTS ALL THE EVIDENCE OR MATERIAL IN H IS POSSESSION AND THEN COME FORWARD TO MERELY REJECT T HE SAME, WITHOUT CARRYING OUT ANY VERIFICATION OR ENQU IRY INTO THE MATERIAL PLACED BEFORE HIM. THE CASE BEFORE US DOES NOT FALL UNDER THIS CATEGORY AND IT WOULD BE A TRAVESTY OF TRUTH M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 27 AND JUSTICE TO EXPRESS A VIEW TO THE CONTRARY. [EMPHASIS SUPPLIED] 15. IN UPHOLDING THE CONTENTION OF LACK OF INQUIRY ON THE PART OF THE AO, THE FOLLOWING SUBMISSIONS OF THE ASSESSEE WERE ACCEPTED BY THE ITAT:- 6.1. A PERUSAL OF THE ORDER-SHEET ENTRIES WILL CLEA RLY REVEAL THAT ON 17-12-2008 THE ASSESSEE WAS ASKED TO PRODUC E THE PARTIES FOR PHYSICAL VERIFICATION. IT IS SUBMITTED THAT IN INCOMETAX PROCEEDINGS IT IS NOT POSSIBLE FOR THE AS SESSEE TO ENFORCE ATTENDANCE OF ANY PERSON TO PHYSICALLY BRIN G HIM BEFORE ANY INCOME-TAX AUTHORITY. THE ASSESSEE HAS N EITHER THE POWERS NOR THE ABILITY TO CONVINCE THE PARTIES TO COME WITH IT TO ATTEND BEFORE THE ASSESSING OFFICER. ON 22-12- 2008 ASSESSEE WAS ONLY INTIMATED THAT SOME 131 SUMM ONS WERE ISSUED 5 DAYS PRIOR TO THE FRAMING OF THE ASSE SSMENT. IT WAS INTIMATED BY ASSESSING OFFICER THAT SUMMONS U/S 131 HAVE BEEN ISSUED TO 'SOME OF THE PARTIES' AND S OME OF THE SUMMONS HAVE BEEN RECEIVED BACK, AND FOR OTHERS NONE OF THEM APPEARED. THE ASSESSEE WAS NEVER MADE AWARE WHICH WERE THE SOME PARTIES TO WHOM SUMMONS WERE ISSUED; WHICH WERE THE SOME PARTIES WHOSE SUMMONS C AME BACK AND WHO WERE SOME PARTIES FOR WHICH NON-APPEAR ED. ON 23-12-2008 ASSESSEE IN ALL HUMBLENESS EXPRESSED HIS INABILITY TO PRODUCE THE PARTIES IN SHORT PERIOD. T HE ADDITIONS WERE MADE WITHOUT CONDUCTING ANY INQUIRY AND ASSESSING OFFICER SITTING IN HIS CHAMBER HELD THAT ASSESSEE DID NOT DISCHARGE ITS BURDEN. THUS, THE ENTIRE EDIF IES OF THE ASSESSING OFFICER DRAWING THE ADVERSE INFERENCE IS ON WRONG PREMISE I.E. WITHOUT CONDUCTING ANY INQUIRY, VERIFICATION OF INCOME-TAX RECORD AND WITHOUT ANY CONFRONTATION TO THE ASSESSEE. IN THE ABSENCE OF AN Y EXERCISE WHAT SO EVER BY ASSESSING OFFICER, THE ASS ESSEE'S PRIMARY BURDEN CANNOT BE HELD TO HAVE BEEN REBUTTED BY ASSESSING OFFICER. [EMPHASIS SUPPLIED] 16. BY WAY OF THE CROSS-OBJECTIONS, THE ASSESSEE HA S RAISED THE ISSUE OF LIMITATION BAR AGAINST THE RE-OPENING WHICH HAD NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW. THE ITAT, HAVI NG REJECTED THE APPEAL OF THE REVENUE, DECLINED TO GO INTO THAT ISS UE OBSERVING THAT IT HAD BEEN RENDERED MERE ACADEMIC AND INFRUCTUOUS. 17. THE REVENUE IS AGGRIEVED ON THE GROUND THAT THE RELIANCE ON CIT V. GANGESHWARI METAL PVT. LTD. (SUPRA) WAS NOT CORRECT INASMUCH AS UNLIKE THE SAID CASE, HERE THE AO HAD I SSUED SUMMONS TO THE SHARE APPLICANTS WHICH EITHER REMAINED UNSER VED OR WERE NOT M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 28 RESPONDED TO AND WHEN THE ASSESSEE WAS CONFRONTED W ITH THIS FACT- SITUATION AND GIVEN OPPORTUNITY TO PRODUCE THE SHAR E APPLICANTS, THERE WAS FAILURE IN COMPLIANCE. 18. IT MUST BE NOTED AT THIS STAGE THAT THE ASSESSE E HAD ALSO COME UP WITH APPEAL (ITA NO. 289/2014) IMPUGNING THE ORDER DATED 14.06.2013 OF ITAT RAISING GRIEVANCES AS TO VALIDIT Y OF RE-OPENING OF THE ASSESSMENT, QUESTIONS IN WHICH RESPECT HAD R EMAINED UNADDRESSED SINCE THE CROSS-OBJECTIONS WERE REJECTE D AS INFRUCTUOUS. WHILE ENTERTAINING THE APPEAL AT HAND FILED BY THE REVENUE (ITA NO. 525/2014), THE DIVISION BENCH THEN SEIZED OF THE MATTER BY ORDER DATED 29.08.2014 DISPOSED OF TH E ASSESSEES APPEAL WITH OBSERVATIONS THAT IN THE EVENT OF REVEN UE SUCCEEDING HERE, THE ISSUE WITH REGARD TO VALIDITY OF RE-OPENI NG WOULD BE REMITTED TO THE ITAT FOR DETERMINATION. 19. THE ARGUMENT OF THE REVENUE THAT THE ENTITIES W HICH HAD PROVIDED THE SHARE CAPITAL HAVING BEEN FOUND IN CAS E OF M/S NOVA PROMOTERS AND FINLEASE (P) LTD. (SUPRA) TO BE ENGAG ED IN THE BUSINESS OF GIVING ACCOMMODATION ENTRIES, SIMILAR T RANSACTIONS INDULGED IN HERE CANNOT BE TREATED OTHERWISE MUST B E REJECTED OUTRIGHT. EACH CASE HAS TO BE EXAMINED ON ITS OWN M ERITS AND THE ADVERSE FINDINGS RECORDED IN THE OTHER CASE CONCERN ING ASSESSMENT OF A DIFFERENT ASSESSEE CANNOT HOLD GOOD OR BE BIND ING AGAINST THE PRESENT ASSESSEE. 20. THE PROVISION CONTAINED IN SECTION 68 OF INCOME TAX ACT READS AS UNDER:- 68. CASH CREDITS.WHERE ANY SUM IS FOUND CREDITED I N THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOU S YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERE D BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER , SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PR EVIOUS YEAR: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIAL LY INTERESTED), AND THE SUM SO CREDITED CONSISTS OF SH ARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, ANY EXPLANATIO N OFFERED BY SUCH ASSESSEE-COMPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 29 (A) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALS O OFFERS AN EXPLANATION ABOUT THE NATURE AND SOURCE O F SUCH SUM SO CREDITED; AND (B) SUCH EXPLANATION IN THE OPINION OF THE ASSESSIN G OFFICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY : PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRS T PROVISO SHALL APPLY IF THE PERSON, IN WHOSE NAME TH E SUM REFERRED TO THEREIN IS RECORDED, IS A VENTURE CAPIT AL FUND OR A VENTURE CAPITAL COMPANY AS REFERRED TO IN CLAU SE (23FB) OF SECTION 10. [EMPHASIS SUPPLIED] 21. IT MUST BE MENTIONED AT THIS STAGE THAT TWO PRO VISOS WERE ADDED TO THE MAIN PROVISION IN SECTION 68 AS EXTRACTED AB OVE BY FINANCE ACT, 2012 AND CAME INTO EFFECT FROM 01.04.2013. THE REFORE, THEY WOULD NOT STRICTLY APPLY TO THE CASE AT HAND WHICH RELATES TO AY 2004-05. 22. THE OBJECTIVE BEHIND THE PROVISION IS TO HOLD T HE ASSESSEE ACCOUNTABLE FOR EACH SUM FOUND CREDITED IN HIS BOOK S OF ACCOUNTS BY RESPONDING TO THE CALL OF THE AO TO GIVE SATISFA CTORY EXPLANATION ABOUT NATURE AND SOURCE OF SUCH SUMS. IF NO EXPLA NATION IS FORTHCOMING OR THE EXPLANATION GIVEN IS FOUND TO BE UNSATISFACTORY, THE SUM OF MONEY SO CREDITED MAY BE LAWFULLY INCLUD ED IN THE INCOME OF THE ASSESSEE FOR THE CORRESPONDING PERIOD . 23. MORE OFTEN THAN NOT, QUESTIONS HAVE BEEN ARISI NG IN ASSESSMENT PROCEEDINGS RESPECTING SUMS FOUND CREDITED IN THE B OOKS OF ACCOUNTS OF COMPANIES INCORPORATED UNDER THE COMPAN IES ACT IN THE CONTEXT OF THEIR EFFORTS TO RAISE CAPITAL THROU GH SHARES, PURSUANT TO WHICH THEY RECEIVE APPLICATIONS ALONG WITH SHARE APPLICATION MONEY FROM VARIOUS PERSONS. IF THE AO DOUBTS THE GE NUINENESS OF SUCH INVESTORS AS HAD PURPORTEDLY SUBSCRIBED TO THE SHARE CAPITAL, THE ASSESSEE IS GENERALLY ASKED TO EXPLAIN THE NATU RE AND SOURCE AS ALSO THE GENUINENESS OF THE TRANSACTION. 24. THE PROVISION CONTAINED IN SECTION 68 READ IN A BOVE CONTEXT SUGGESTS THAT THE INITIAL BURDEN OF PROOF IS ON THE ASSESSEE TO EXPLAIN. THE QUESTION AS TO WHAT KIND OF PROOF IS T O BE FURNISHED BY THE ASSESSEE TO DISCHARGE SUCH BURDEN, HOWEVER, HAS BEEN THE SUBJECT MATTER OF ADJUDICATION IN A NUMBER OF JUDIC IAL PRONOUNCEMENTS, INCLUDING CIT V. BIJU PATNAIK, (199 6) 160 ITR 674 (SC), CRYSTALLIZING EVENTUALLY IN THE VIEW UPHE LD BY THE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 30 SUPREME COURT IN THE CASE OF CIT V. LOVELY EXPORTS PVT. LTD. (SUPRA). 25. THE APPEAL BEFORE THE SUPREME COURT IN THE CASE OF CIT V. LOVELY EXPORTS PVT. LTD.(SUPRA) HAD ARISEN OUT OF T HE DECISION OF THIS COURT IN THE CASE REPORTED AS CIT V. DIVINE LE ASING AND FINANCE LIMITED, (2007) 207 CTR 38 (DEL.). THE JUDG MENT OF THIS COURT GOVERNED THREE APPEALS INCLUDING ITA NO. 953/ 2006 CONCERNING LOVELY EXPORTS. THE CONCLUSIONS IN PARA 16 OF THE JUDGMENT IN CIT V. DIVINE LEASING AND FINANCE LIMIT ED (SUPRA) NEED TO BE EXTRACTED AS UNDER:- 16. IN THIS ANALYSIS, A DISTILLATION OF THE PRECEDE NTS YIELDS THE FOLLOWING PROPOSITIONS OF LAW IN THE CONTEXT OF SECTION 68 OF THE IT ACT. THE ASSESSEE HAS TO PRIMA FACIE P ROVE (1) THE IDENTITY OF THE CREDITOR/SUBSCRIBER; (2) THE GE NUINENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRA NSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; (3) THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER. (4) IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTITY OF THE CREDITOR/SUBSCRIBER ARE FURN ISHED TO THE DEPARTMENT ALONG WITH COPIES OF THE SHAREHOLDER S REGISTER, SHARED APPLICATION FORMS, SHARE TRANSFER REGISTER ETC. IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE. (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADV ERSE INFERENCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAIL S OR NEGLECTS TO RESPOND TO ITS NOTICES; (6) THE ONUS WO ULD NOT STAND DISCHARGED IF THE CREDITOR/SUBSCRIBER DENIES OR REPUDIATES THE TRANSACTION SET UP BY THE ASSESSEE N OR SHOULD THE AO TAKE SUCH REPUDIATION AT FACE VALUE A ND CONSTRUE IT, WITHOUT MORE, AGAINST THE ASSESSEE. (7 ) THE ASSESSING OFFICER IS DUTY-BOUND TO INVESTIGATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER THE GENUINENESS OF THE TRANSACTION AND THE VERACITY OF THE REPUDIATION. [EMPHASIS SUPPLIED] 26. THE FACTS OF CIT V. LOVELY EXPORTS PVT. LTD.(SU PRA), AS SUMMARIZED LATER IN THE CASE OF M/S NOVA PROMOTERS AND FINLEASE (P) LTD.(SUPRA), WERE AS UNDER:- ... THE ASSESSEE-COMPANY IN THAT CASE HAD FURNISHED THE NECESSARY DETAILS SUCH AS PAN NO./INCOME TAX WARD NO./RATION CARD OF THE SHARE APPLICANTS AND SOME OF THEM WERE ASSESSED TO TAX. THE MONIES WERE RECEIVED THRO UGH BANKING CHANNELS. IN SOME CASE, AFFIDAVITS/CONFIRMA TIONS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 31 OF THE SHARE APPLICANTS CONTAINING THE ABOVE INFORM ATION WERE FILED. THE ASSESSING OFFICER DID NOT CARRY OUT ANY INQUIRY INTO THE INCOME TAX RECORDS OF THE PERSONS WHO HAD GIVEN THEIR FILE NUMBERS IN ORDER TO ASCERTAIN WHET HER THEY WERE EXISTENT OR NOT. HE NEITHER CONTROVERTED NOR DISAPPROVED THE MATERIAL FILED BY THE ASSESSEE. FUR THER, THE ASSESSEE HAD SPECIFICALLY INVITED THE ASSESSING OFFICER TO CARRY OUT AN ENQUIRY AND EXAMINE THE ASSESSMENT RECORDS OF THE SHARE APPLICANTS WHOSE INCOME TAX FI LE NUMBERS WERE GIVEN. THOUGH THE ASSESSING OFFICER HA D SUFFICIENT TIME TO CARRY OUT THE EXAMINATION, HE DI D NOT DO SO, BUT PUT FORTH AN EXCUSE THAT THE ASSESSEE WAS T AKING SEVERAL ADJOURNMENTS. THIS COURT OBSERVED THAT IT I S FOR THE ASSESSING OFFICER TO MANAGE HIS SCHEDULE AND HE SHO ULD HAVE ENSURED THAT BECAUSE OF THE ADJOURNMENTS HE DI D NOT RUN OUT OF TIME FOR DISCHARGING THE DUTIES CAST ON HIM BY LAW. IT WAS HELD THAT WHEN DETAILS WERE FURNISHED B Y THE ASSESSEE, THE BURDEN SHIFTED TO THE ASSESSING OFFIC ER TO INVESTIGATE INTO THE CREDITWORTHINESS OF THE SHARE APPLICANTS WHICH HE WAS UNABLE TO DISCHARGE... [EMPHASIS SUPPLIED] 27. THE MATTER CONCERNING CIT V. LOVELY EXPORTS PV T. LTD. (SUPRA) WAS TAKEN BY THE REVENUE TO THE SUPREME COURT. THE SPECIAL LEAVE PETITION WAS DISMISSED IN LIMINE WITH THE FOL LOWING OBSERVATIONS:- 2. CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME UNDER S. 68 OF IT ACT, 1961? WE FIND NO MERIT IN THIS SPECIAL LEAVE PETITION FOR THE SIM PLE REASON THAT IF THE SHARE APPLICATION MONEY IS RECEI VED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDER S, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMEN T IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSME NTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WI TH THE IMPUGNED JUDGMENT. 28. THE APPEALS OF THE REVENUE QUESTIONING DELETION OF THE ADDITION IN ALMOST SIMILAR SET OF CIRCUMSTANCES BY THE AO IN VOLVING A NUMBER OF SIMILARLY PLACED ASSESSEES GIVING RISE TO COMMON QUESTIONS CONCERNING APPLICATION OF SECTION 68 OF I NCOME TAX ACT WERE DISMISSED BY ANOTHER DIVISION BENCH OF THIS CO URT BY JUDGMENT RENDERED ON 31.01.2011 REPORTED AS CIT V. OASIS HOSPITALITIES PVT. LTD. (2011) 333 ITR 119 (DEL.). TAKING NOTE OF THE JURISPRUDENTIAL DEVELOPMENT ON THE SUBJECT AS C ULMINATING IN JUDGMENT OF SUPREME COURT IN CIT V. LOVELY EXPORTS PVT. LTD.(SUPRA), IT WAS HELD THAT THE INITIAL BURDEN IS UPON THE ASSESSEE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 32 TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLI CATION MONEY AND IN ORDER TO DISCHARGE THIS ONUS, THE ASSESSEE SHOUL D PROVE (A) THE IDENTITY OF SHAREHOLDER; (B) GENUINENESS OF THE TRA NSACTION; AND (C) CREDITWORTHINESS OF SHAREHOLDERS. IT WAS FURTHER OB SERVED THAT FOR DISCHARGING THE ABOVE BURDEN, THE ASSESSEE MUST FIL E SOME DOCUMENTS OR PRODUCE THE SHAREHOLDER TO PROVE HIS I DENTITY. IN THE CASE OF SUBSCRIBER BEING A COMPANY DETAILS IN THE F ORM OF REGISTERED ADDRESS OR PAN IDENTITY, ETC. WOULD SUFFICE. THE GE NUINENESS OF THE TRANSACTION MAY BE DEMONSTRATED BY SHOWING THAT THE ASSESSEE HAD, IN FACT, RECEIVED MONEY FROM THE APPLICANT SHAREHOL DER AND THAT IT HAD COME NOT FROM THE COFFERS OF THE ASSESSEE BUT F ROM THAT OF THE APPLICANT SHAREHOLDER. AS TO THE CREDITWORTHINESS O R FINANCIAL STRENGTH OF THE SUBSCRIBER, THE PROOF COULD INCLUDE BANKS STATEMENTS OF THE SUBSCRIBER SHOWING SUFFICIENT BALANCE IN ITS KITTY TO ENABLE IT TO SUBSCRIBE. 29. IN M/S NOVA PROMOTERS AND FINLEASE (P) LTD. (SU PRA), THIS COURT FOUND THE FACTS AS UNDER:- 41. IN THE CASE BEFORE US, NOT ONLY DID THE MATERIA L BEFORE THE ASSESSING OFFICER SHOW THE LINK BETWEEN THE ENT RY PROVIDERS AND THE ASSESSEE COMPANY, BUT THE ASSESSI NG OFFICER HAD ALSO PROVIDED THE STATEMENTS OF MUKESH GUPTA AND RAJAN JASSAL TO THE ASSESSEE IN COMPLIANCE WITH THE RULES OF NATURAL JUSTICE. OUT OF THE 22 COMPANIES W HOSE NAMES FIGURED IN THE INFORMATION GIVEN BY THEM TO T HE INVESTIGATION WING, 15 COMPANIES HAD PROVIDED THE S O- WAS THUS SPECIFIC INVOLVEMENT OF THE ASSESSEECOMPAN Y IN THE MODUS OPERANDI FOLLOWED BY MUKESH GUPTA AND RAJ AN JASSAL. THUS, ON CRUCIAL FACTUAL ASPECTS THE PRESEN T CASE STANDS ON A COMPLETELY DIFFERENT FOOTING FROM THE C ASE OF CIT V OASIS HOSPITALITIES P. LTD. (SUPRA). [EMPHASIS SUPPLIED] 30. THE JUDGMENT IN THE CASE OF CIT V. GANGESHWARI METAL PVT. LTD. (SUPRA), WHICH HAS BEEN REFERRED BY THE ITAT I N THE IMPUGNED ORDER FOLLOWED THE SAME LINE OF REASONING BUT WITH ADVERSE RESULT FOR THE REVENUE BECAUSE, ON FACTS, IT WAS HELD THAT THE ASSESSEE HAVING FURNISHED ALL THE REQUISITE MATERIAL, THERE HAD BEEN A FAILURE ON THE PART OF THE AO TO CONDUCT PROPER INQUIRY. 31. IN THE CASE AT HAND, THE COUNSEL FOR THE ASSESS EE SUBMITTED THAT A LARGE NUMBER OF DOCUMENTS WERE MADE AVAILABLE TO TH E AO TO PROVE NOT ONLY THE IDENTITY OF SOME OF THE ENTITIES , THE SHARE APPLICATION MONEY RECEIVED FROM WHICH WAS UNDER SCR UTINY BUT ALSO THEIR RESPECTIVE CREDITWORTHINESS AND THE GENUINENE SS OF EACH TRANSACTION, AND YET THEY WERE NOT PROPERLY EXAMINE D. THE COUNSEL, M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 33 HOWEVER, CONCEDED THAT THE DOCUMENTS, THUS, SUBMITT ED WOULD NOT COVER EACH OF THE TWELVE ENTITIES. HE SUBMITTED THA T SUFFICIENT OPPORTUNITY WAS NOT AVAILABLE TO PROCURE SIMILAR DO CUMENTS FROM THE OTHER SHARE APPLICANTS OR TO PRODUCE THEM BEFOR E THE AO. IN THIS CONTEXT, HE POINTED OUT THAT THE COMMUNICATION FOR PHYSICAL PRODUCTION OF THE PARTIES WAS RECEIVED ON 17.12.200 8 WHEREAS THE ASSESSMENT WAS FINALIZED ON 26.12.2008. IT WAS FURT HER ARGUED THAT IT HAD BEEN SUBMITTED BEFORE THE CIT (APPEALS) THAT THE ASSESSMENT ORDER WAS BARRED BY LIMITATION AND THAT THE CONCLUS IONS REACHED BY THE AO WERE WITHOUT BASIS. IT WAS ALSO ARGUED THAT THE ASSESSMENT ORDER IS VAGUE, IN THAT, IT IS NOT CLEAR AS TO THE SUMMONS UNDER SECTION 131 OF INCOME TAX ACT TO WHICH OF THE TWELV E ENTITIES HAD RETURNED UNDELIVERED WITH POSTAL REMARKS INDICATIVE OF THE SAME HAVING BEEN EVADED. 32. ON THE OTHER HAND, THE COUNSEL FOR THE REVENUE SUBMITTED THAT THE CONCLUSION OF THE CIT (APPEALS) THAT THE GENUIN ENESS OF THE TRANSACTIONS OF EACH OF THE TWELVE ENTITIES WAS DUL Y ESTABLISHED IS UNFOUNDED, IN THAT, THE ORDER LEADING TO SUCH CONCL USION IS SILENT AS TO THE MATERIAL, WHICH IT IS BASED UPON. COUNSEL SU BMITTED THAT THE ITAT WAS NOT CORRECT IN CONCLUDING THAT THE ASSESSE E WAS NOT CONFRONTED WITH THE ADVERSE MATERIAL. HE POINTED OU T THAT THIS CONCLUSION IS IN THE TEETH OF THE OTHER CONCLUSIONS THAT INSUFFICIENT TIME WAS GIVEN FOR PRODUCTION OF THE PARTIES IN QUE STION AFTER THE SUMMONSES UNDER SECTION 131 WERE RETURNED UNSERVED. IT IS FURTHER ARGUED BY THE REVENUE THAT THE APPELLATE AUTHORITIE S BELOW WERE DUTY BOUND IN LAW TO HOLD PROPER INQUIRY IN TO THE FACTS BEFORE REACHING THE CONCLUSIONS ON FACTS AND, FOR SUCH PUR POSES, A REMAND REPORT COULD AND SHOULD HAVE BEEN CALLED FOR AND SU BJECTED TO DETAILED ANALYSIS. 33. SIGNIFICANTLY, PRIOR TO THE AMENDMENT OF SECTIO N 68 BY THE FINANCE ACT, 2012 (WHEREBY THE TWO PROVISOS QUOTED EARLIER WERE INSERTED), THERE WAS NO EXPRESS STATUTORY OBLIGATIO N ON THE PART OF A COMPANY CALLED UPON IT TO EXPLAIN A SUM CREDITED IN ITS BOOKS OF ACCOUNTS DESCRIBED AS SHARE APPLICATION MONEY TO SU PPORT IT WITH EXPLANATION OF THE SHARE APPLICANT ABOUT THE NATURE AND SOURCE OF SUCH SUM CREDITED IN HIS NAME. IN SUCH SCENARIO, IT COULD NOT BE EXPECTED THAT THE COMPANY WHICH HAD RECEIVED THE SH ARE APPLICATION MONEY IN RESPONSE TO THE OFFER MADE TO THE PUBLIC AT LARGE TO COLLECT MINUTE DETAILS RESPECTING THE SHAR E APPLICANTS TO THE EXTENT OF IT BEING ABLE TO VOUCHSAFE THE FINANCIAL WORTH OF EACH SUBSCRIBER, SUCH THAT, WHEN CALLED UPON BY THE INCO ME TAX AUTHORITIES, IT WOULD BE IN A POSITION TO CONCLUSIV ELY PROVE THEIR RESPECTIVE CREDITWORTHINESS. BUT THEN, GIVEN THE LA RGER OBJECTIVE BEHIND THE PROVISION CONTAINED IN SECTION 68, THE P RIMARY AIM OF WHICH IS TO ENSURE THAT NO MONETARY TRANSACTION REM AINS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 34 UNACCOUNTED, THE INITIAL BURDEN IS ON THE RECIPIENT OF THE MONEY. FOR THIS PURPOSE, THE ASSESSEE IN RECEIPT OF MONEY (BY WHATEVER NAME CALLED, INCLUDING IN THE FORM OF SHARE APPLICA TION MONEY CREDITED IN ITS BOOK BY A COMPANY) MUST COLLECT AND HAVE IN ITS POSSESSION SOME PROOF TO SATISFY, WHEN THE NEED ARI SES, THE ASSESSING AUTHORITIES NOT ONLY AS TO THE IDENTITY O F THE PARTY MAKING THE PAYMENT BUT ALSO ITS CREDITWORTHINESS AS INDEED THE GENUINENESS OF THE TRANSACTION. 34. FROM THE ORDERS PASSED BY THE THREE AUTHORITIES BELOW, IT DOES APPEAR THAT THE ASSESSEE IN THE CASE AT HAND HAD SU BMITTED SOME DOCUMENTS RESPECTING THE TWELVE ENTITIES INDICATIVE OF THEIR IDENTITY/EXISTENCE. SOME FURTHER MATERIAL APPEARS T O HAVE BEEN SHARED BY THE ASSESSEE WITH THE AO TO SHOW THAT THE SHARE APPLICATION MONEY IN EACH CASE HAD COME TO ITS CRED IT THROUGH BANKING CHANNELS. FROM THE CONCLUSIONS REACHED BY C IT (APPEALS), WHICH WERE ENDORSED BY ITAT, IT APPEARS THAT THE FI RST APPELLATE AUTHORITY WAS SATISFIED WITH THE EXPLANATION OF THE ASSESSEE ONLY BECAUSE THE IDENTITY OF THE SHAREHOLDERS HAD BEEN ESTABLISHED. THE CIT (APPEALS) REJECTED THE ADDITIONS MADE BY TH E AO, IN WHICH RESULT THE ITAT CONCURRED, ON THE REASONING T HAT THE AO HAD FAILED TO POINT OUT ANY DISCREPANCY IN THE EVIDEN CE RELIED UPON BY THE ASSESSEE AND BECAUSE THE AO HAD FAILED TO PURS UE THE MATTER FURTHER FOR MAKING INQUIRIES, INASMUCH AS IT WAS EQUALLY THE DUTY OF THE AO TO HAVE TAKEN STEPS TO VERIFY THEIR ASSES SMENT RECORDS. 35. ASSESSMENT PROCEEDINGS UNDER THE INCOME TAX ACT ARE NOT A GAME OF HIDE AND SEEK. THE INQUIRY IN THE WAKE OF A NOTICE UNDER SECTION 148 IS NOT AN EMPTY FORMALITY. IT MUST BE E FFECTIVE AND WITH A SENSE OF PURPOSE. THERE IS AN ELABORATE PROCEDURE SET OUT WHICH REQUIRES SCRUPULOUS ADHERENCE AND FOLLOWED UP ON. I N THE HIERARCHY OF THE AUTHORITIES, THE AO IS PLACED AT THE BOTTOM RUNG. THE TWO LAYERS OF APPEALS, BEFORE THE MATTER ENGAGES THE AP PELLATE JURISDICTION OF THIS COURT, ARE AUTHORITIES VESTED WITH THE JURISDICTION, POWER AND OBLIGATION TO REACH APPROPR IATE FINDINGS ON FACTS. NOTICEABLY, IT IS ONLY THE APPEAL TO THE HIG H COURT, UNDER SECTION 260-A, WHICH IS RESTRICTED TO CONSIDERATION OF SUBSTANTIAL QUESTION OF LAW, IF ANY ARISING. AS WOULD BE SEEN FROM THE DISCUSSION THAT FOLLOWS, THE OBLIGATION TO MAKE PRO PER INQUIRY AND REACH FINDING ON FACTS DOES NOT END WITH THE AO. TH IS OBLIGATION MOVES UPWARDS TO CIT (APPEALS), AND ALSO ITAT, SHOU LD IT COME TO THEIR NOTICE THAT THERE HAS BEEN DEFAULT IN SUCH RE SPECT ON THE PART OF THE AO. IN SUCH EVENT, IT IS THEY WHO ARE DUTY BOUN D TO EITHER THEMSELVES PROPERLY INQUIRE OR CAUSE SUCH INQUIRY T O BE COMPLETED. IF THIS WERE NOT TO BE DONE, THE POWER UNDER SECTIO N 148 WOULD BE RENDERED PRONE TO ABUSE. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 35 36. THE AUTHORITY TO BRING TO TAX UNACCOUNTED MONEY BY EXERCISING THE POWER GIVEN TO THE AO UNDER SECTION 68 IS OF GR EAT IMPORTANCE. IT IS EXPECTED THAT THE AO WOULD RESORT TO THIS PRO VISION WITH ALL REQUISITE CIRCUMSPECTION. SINCE THE PROVISION IS GE NERALLY INVOKED, AS HAS BEEN DONE IN THE CASE AT HAND, BY RECOURSE T O THE PROCEDURE OF NOTICE UNDER SECTION 148 UPON SATISFACTION UNDER SECTION 147 THAT THE INCOME (PURPORTEDLY REPRESENTED BY THE UNE XPLAINED SUMS FOUND CREDITED IN THE BOOKS OF ACCOUNTS), WITHIN TH E MISCHIEF OF SECTION 68, IT IS INHERENT THAT THE EXPLANATION OF THE ASSESSEE RESPECTING SUCH CREDIT ENTRIES WOULD BE CALLED FOR ONLY WITH CIRCUMSPECTION AND SOLELY UPON SOME CONCRETE MATERI AL COMING UP TO SUPPORT THE TENTATIVE IMPRESSION ABOUT IT BEING SUSPECT. 37. THUS, WHEN THE AO SETS ABOUT SEEKING EXPLANATIO N FOR THE UNACCOUNTED CREDIT ENTRIES IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IN TERMS OF SECTION 68, IT IS LEGITIMATELY EXPECTED THAT THE EXERCISE WOULD BE TAKEN TO THE LOGICAL END, IN ALL FAIRNESS TAKING INTO ACCOUNT THE MATERIAL SUBMITTED BY THE ASSESSEE IN SUPPORT O F HIS ASSERTION THAT THE PERSON MAKING THE PAYMENT IS REAL, AND NOT NON-EXISTENT, AND THAT SUCH OTHER PERSON WAS ACTUALLY THE SOURCE OF THE MONEY FORMING THE SUBJECT MATTER OF THE TRANSACTION AS IN DEED THAT THE TRANSACTION IS REAL AND GENUINE, SAME AS IT IS REPR ESENTED TO BE. HAVING EMBARKED UPON SUCH EXERCISE, THE AO IS NOT E XPECTED TO SHORT-SHRIFT THE INQUIRY OR IGNORE THE MATERIAL SUB MITTED BY THE ASSESSEE. 38. THE PROVISION OF APPEAL, BEFORE THE CIT (APPEAL S) AND THEN BEFORE THE ITAT, IS MADE MORE AS A CHECK ON THE ABU SE OF POWER AND AUTHORITY BY THE AO. WHILST IT IS TRUE THAT IT IS THE OBLIGATION OF THE AO TO CONDUCT PROPER SCRUTINY OF THE MATERIAL, GIVEN THE FACT THAT THE TWO APPELLATE AUTHORITIES ABOVE ARE ALSO F ORUMS FOR FACT- FINDING, IN THE EVENT OF AO FAILING TO DISCHARGE HI S FUNCTIONS PROPERLY, THE OBLIGATION TO CONDUCT PROPER INQUIRY ON FACTS WOULD NATURALLY SHIFT TO THE DOOR OF THE SAID APPELLATE A UTHORITY. FOR SUCH PURPOSES, WE ONLY NEED TO POINT OUT ONE STEP IN THE PROCEDURE IN APPEAL AS PRESCRIBED IN SECTION 250 OF THE INCOME T AX ACT WHEREIN, BESIDES IT BEING OBLIGATORY FOR THE RIGHT OF HEARIN G TO BE AFFORDED NOT ONLY TO THE ASSESSEE BUT ALSO THE AO, THE FIRST APPELLATE AUTHORITY IS GIVEN THE LIBERTY TO MAKE, OR CAUSE TO BE MADE, FURTHER INQUIRY, IN TERMS OF SUB-SECTION (4) WHICH READS A S UNDER:- THE COMMISSIONER (APPEALS) MAY, BEFORE DISPOSING OF ANY APPEAL, MAKE SUCH FURTHER INQUIRY AS HE THINKS FIT, OR MAY DIRECT THE ASSESSING OFFICER TO MAKE FURTHER INQUIR Y AND REPORT THE RESULT OF THE SAME TO THE COMMISSIONER (APPEALS). M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 36 39. THE FURTHER INQUIRY ENVISAGED UNDER SECTION 250 (4) QUOTED ABOVE IS GENERALLY BY CALLING WHAT IS KNOWN AS REM AND REPORT. THE PURPOSE OF THIS ENABLING CLAUSE IS ESSENTIALLY TO ENSURE THAT THE MATTER OF ASSESSMENT REACHES FINALITY WITH ALL THE REQUISITE FACTS FOUND. THE ASSESSMENT PROCEEDINGS REOPENED ON THE B ASIS OF PRELIMINARY SATISFACTION THAT SOME PART OF THE INCO ME HAS ESCAPED ASSESSMENT, PARTICULARLY WHEN SOME UNEXPLAINED CRED IT ENTRIES HAVE COME TO THE NOTICE (AS IN SECTION 68), CANNOT CONCL UDE, SAVE AND EXCEPT BY REACHING SATISFACTION ON THE TOUCHSTONE O F THE THREE TESTS MENTIONED EARLIER; VIZ. THE IDENTITY OF THE THIRD P ARTY MAKING THE PAYMENT, ITS CREDITWORTHINESS AND GENUINENESS OF TH E TRANSACTION. WHILST IT IS TRUE THAT THE ASSESSEE CANNOT BE CALLE D UPON TO ADDUCE CONCLUSIVE PROOF ON ALL THESE THREE QUESTIONS, IT I S NONETHELESS LEGITIMATE EXPECTATION OF THE PROCESS THAT HE WOULD BRING IN SOME PROOF SO AS TO DISCHARGE THE INITIAL BURDEN PLACED ON HIM. SINCE SECTION 68 ITSELF DECLARES THAT THE CREDITED SUM WO ULD HAVE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE IN THE ABSEN CE OF EXPLANATION, OR IN THE EVENT OF EXPLANATION BEING N OT SATISFACTORY, IT NATURALLY FOLLOWS THAT THE MATERIAL SUBMITTED BY TH E ASSESSEE WITH HIS EXPLANATION MUST ITSELF BE WHOLESOME OR NOT UNT RUE. IT IS ONLY WHEN THE EXPLANATION AND THE MATERIAL OFFERED BY TH E ASSESSEE AT THIS STAGE PASSES THIS MUSTER THAT THE INITIAL ONUS PLACED ON HIM WOULD SHIFT LEAVING IT TO THE AO TO START INQUIRING INTO THE AFFAIRS OF THE THIRD PARTY. 40. THE CIT (APPEALS), AS ALSO THE ITAT, IN THE CAS E AT HAND, IN OUR VIEW, UNJUSTIFIABLY CRITICIZED THE AO FOR NOT HAVIN G CONFRONTED THE ASSESSEE WITH THE FACTS REGARDING RETURN OF SOME OF THE SUMMONS UNDER SECTION 131 OR NOT HAVING GIVEN OPPORTUNITY F OR THE IDENTITY OF ALL THE SHARE APPLICANTS TO BE PROPERLY ESTABLIS HED. THE ORDER SHEET ENTRIES TAKEN NOTE OF IN THE ORDER OF CIT (AP PEALS) SEEM TO INDICATE OTHERWISE. THE ORDER OF CIT (APPEALS), WHI CH WAS CONFIRMED BY ITAT IN THE SECOND APPEAL, DOES NOT DE MONSTRATE AS TO ON THE BASIS OF WHICH MATERIAL IT HAD BEEN CONCL UDED THAT THE GENUINENESS OF THE TRANSACTIONS HAD BEEN DULY ESTAB LISHED. THERE IS VIRTUALLY NO DISCUSSION IN THE SAID ORDERS ON SUCH SCORE, EXCEPT FOR VAGUE DESCRIPTION OF THE MATERIAL SUBMITTED BY THE ASSESSEE AT THE APPELLATE STAGE. WHILST IT DOES APPEAR THAT THE TIM E GIVEN TO THE ASSESSEE FOR PROVING THE IDENTITY OF THE THIRD PART Y WAS TOO SHORT, AND FURTHER THAT IT IS PROBABLY NOT ALWAYS POSSIBLE FOR THE ASSESSEE PLACED IN SUCH SITUATION TO BE ABLE TO ENFORCE THE PHYSICAL ATTENDANCE OF SUCH THIRD PARTY (WHO, IN THE CASE OF SHARE APPLICANTS VIS--VIS A COMPANY, WOULD BE INDIVIDUALS AT LARGE AND MAY NOT BE EVEN IN DIRECT OR PERSONAL CONTACT), THE CURTAINS O N SUCH EXERCISE AT VERIFICATION MAY NOT BE DRAWN AND ADVERSE INFERENCE S REACHED ONLY M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 37 ON THE BASIS OF RETURNING UNDELIVERED OF THE SUMMON SES UNDER SECTION 131. CONVERSELY, WITH DOUBTS AS TO THE GENU INENESS OF SOME OF THE PARTIES PERSISTING ON ACCOUNT OF NON-DELIVER Y OF THE PROCESSES, THE INITIAL BURDEN ON THE ASSESSEE TO AD DUCE PROOF OF IDENTITY CANNOT BE TREATED AS DISCHARGED. 41. WE ARE INCLINED TO AGREE WITH THE CIT (APPEALS) , AND CONSEQUENTLY WITH ITAT, TO THE EXTENT OF THEIR CONC LUSION THAT THE ASSESSEE HEREIN HAD COME UP WITH SOME PROOF OF IDEN TITY OF SOME OF THE ENTRIES IN QUESTION. BUT, FROM THIS INFERENCE, OR FROM THE FACT THAT THE TRANSACTIONS WERE THROUGH BANKING CHANNELS , IT DOES NOT NECESSARILY FOLLOW THAT SATISFACTION AS TO THE CRED ITWORTHINESS OF THE PARTIES OR THE GENUINENESS OF THE TRANSACTIONS IN Q UESTION WOULD ALSO HAVE BEEN ESTABLISHED. 42. THE AO HERE MAY HAVE FAILED TO DISCHARGE HIS OB LIGATION TO CONDUCT A PROPER INQUIRY TO TAKE THE MATTER TO LOGI CAL CONCLUSION. BUT CIT (APPEALS), HAVING NOTICED WANT OF PROPER IN QUIRY, COULD NOT HAVE CLOSED THE CHAPTER SIMPLY BY ALLOWING THE APPEAL AND DELETING THE ADDITIONS MADE. IT WAS ALSO THE OBLIGA TION OF THE FIRST APPELLATE AUTHORITY, AS INDEED OF ITAT, TO HAVE ENS URED THAT EFFECTIVE INQUIRY WAS CARRIED OUT, PARTICULARLY IN THE FACE OF THE ALLEGATIONS OF THE REVENUE THAT THE ACCOUNT STATEME NTS REVEAL A UNIFORM PATTERN OF CASH DEPOSITS OF EQUAL AMOUNTS I N THE RESPECTIVE ACCOUNTS PRECEDING THE TRANSACTIONS IN QUESTION. TH IS NECESSITATED A DETAILED SCRUTINY OF THE MATERIAL SUBMITTED BY THE ASSESSEE IN RESPONSE TO THE NOTICE UNDER SECTION 148 ISSUED BY THE AO, AS ALSO THE MATERIAL SUBMITTED AT THE STAGE OF APPEALS, IF DEEMED PROPER BY WAY OF MAKING OR CAUSING TO BE MADE A FURTHER INQU IRY IN EXERCISE OF THE POWER UNDER SECTION 250(4). THIS AP PROACH NOT HAVING BEEN ADOPTED, THE IMPUGNED ORDER OF ITAT, AN D CONSEQUENTLY THAT OF CIT (APPEALS), CANNOT BE APPRO VED OR UPHELD. 43. IN THE RESULT, THE QUESTIONS OF LAW STAND ANSWE RED IN FAVOUR OF THE REVENUE THOUGH WITH A DIRECTION THAT THE MATTER OF ASSESSMENT ARISING OUT OF NOTICE UNDER SECTION 148 INCOME TAX ACT ISSUED ON 18.04.2007 FOR AY 2004-05 IN RESPECT OF THE ASSESSE E WOULD STAND REMITTED TO THE CIT (APPEALS) FOR FRESH CONSIDERATI ON/ADJUDICATION IN ACCORDANCE WITH LAW. 44. IN ABOVE VIEW, THE CONTENTIONS OF THE ASSESSEE RESPECTING THE VALIDITY OF THE ASSESSMENT, AS PRESERVED FOR CONSID ERATION BY THIS COURT BY ORDER DATED 29.08.2014 IN ITAT NO. 289/201 4, WOULD ALSO BE EXAMINED BY THE CIT (APPEALS). GIVEN THE FACT TH AT SUCH OBJECTIONS HAVE A BEARING ON THE ISSUE OF JURISDICT ION, CONSIDERATION OF SUCH CONTENTIONS OF THE ASSESSEE MUST PRECEDE TH E SCRUTINY OF THE QUESTIONED CREDIT ENTRIES FROM THE PERSPECTIVE OF S ECTION 68. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 38 45. THE APPEAL IS DISPOSED OF IN ABOVE TERMS. 4.1. THE AFORESAID ORDER DEAL WITH UNEXPLAINED CRE DIT UNDER SECTION 68 OF THE INCOME TAX ACT, AND WITH RE SPECT TO ADDITION ON ACCOUNT OF COMMISSION PAID ON ENTRY TAK EN FROM ENTRY PROVIDER. HOWEVER, THE ISSUE BEFORE US IS NOT WITH RESPECT TO SECTION 68 RATHER IT IS WITH RESPECT TO SECTION 37 OF THE ACT AND COMPENSATION PAID TO AKSHATA. IN THE PR ESENT APPEAL, THE JVC IS NOT IN DISPUTE, PAYMENT MADE TO AKSHATA THROUGH BANKING CHANNEL IS NOT IN DISPUTE, ROLE OF AKSHATA IS ALSO NOT IN DISPUTE, THEREFORE, THE FACTS OF THE CASE FROM HON'BLE DELHI HIGH COURT IS ALTOGETHER DIFFERENT AN D BLINDLY CANNOT BE APPLIED/RELIED UPON TO THE FACTS OF THE P RESENT APPEAL. ADMITTEDLY, A TRIPARTITE AGREEMENT WAS ENT ERED BETWEEN THE ASSESSEE OMKAR & VINAYAK AND AKSHATA WA S ENTERED INTO WHEREIN IT WAS AGREED TO COMBINE ALL T HE SRA PROJECTS TO THE THREE PARTIES. IT IS THUS CLEAR THA T THE EARLIER JV AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH AKS HATA ON 06.06.2010 WAS IN FORCE AND BOTH THE PARTIES AGREED TO JOINTLY DEVELOP PROPERTY WHICH AFTER A STAGE BOTH T HE PARTIES NAMELY THE ASSESSEE AND AKSHATA DECIDED TO PART WIT H IN M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 39 ACCORDANCE WITH AGREED TERMS BETWEEN THEM VIDE CANCELLATION AGREEMENT DATED 13.03.2012, WHEREIN AK SHATA DECIDED TO RELINQUISH ALL ITS RIGHTS, TITLES, INTER EST AND ENTITLEMENTS UNDER JV AGREEMENT DATED 06.06.2010. T HE JV AGREEMENT DATED 06.06.2010 AND CANCELLATION AGREEME NT DATED 13.03.2012 ARE PLACED IN PAPER BOOK FILED BY THE ASSESSEE. THE ASSESSEE COMPLIED ITS PART OF JVA OBL IGATION IN SUCCESSFULLY OBTAINING LOI, THE RIGHT, IF ANY ON TH E SAID PROJECT AND THE SAID AGREEMENT WAS LATER ON AMENDED BY ENTERING INTO A SUPPLEMENTAL AGREEMENT ON 31/03/201 2, WHEREBY THE BASIC TERMS AND CONDITIONS OF THE SAID JVA ITSELF WERE AMENDED. AS PER THE AMENDED AGREEMENT, THE ASSESSEE AND THE VINAYAK HAD EFFECTIVELY HANDED OVE R THE SRA PROJECTS TO OMKAR TO BE DEVELOPED BY THE LATER EXCLUSIVELY AT ITS OWN COST AND ITS RESPONSIBILITY TOWARDS THE TENANTS. THE ASSESSEE MADE PAYMENT OF RS.24,21,00,0 00/- ON ACCOUNT OF COMPENSATION TO M/S AKSHATA FOR THE P URPOSE OF GETTING AKSHATA OUT FROM THE JVC. THE LD. ASSESS ING OFFICER ISSUED QUESTIONNAIRE/NOTICES TO THE PARTIES AND ALSO CONSIDERED THEIR REPLY AND THEREAFTER REACHED TO A P ARTICULAR M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 40 CONCLUSION. THE TERMS OF THE AGREEMENT HAS BEEN DUL Y CONSIDERED BY THE LD. COMMISSIONER OF INCOME TAX (A PPEAL) AFTER GETTING A REPORT FROM THE LD. ASSESSING OFFIC ER AS IS EVIDENT FROM THE IMPUGNED ORDER. THE ISSUE HAS ALSO BEEN ANALYZED BY THE LD. COMMISSIONER OF INCOME TAX (APP EAL) WITH RESPECT TO PRINCIPLE OF COMMERCIAL EXPEDIENCY BY PLACING RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMEN T, WHICH ARE NOT BEING REPEATED. SO FAR AS THE ADMISSI ON OF ADDITIONAL EVIDENCE BY THE LD. COMMISSIONER OF INCO ME TAX (APPEAL) IS CONCERNED, AS CANVASSED BY LD. CIT-DR, WE FIND THAT THIS ADDITIONAL EVIDENCE WAS FORWARDED TO THE LD ASSESSING OFFICER FOR HIS COMMENTS AND THE REPLY OF THE LD. ASSESSING OFFICER DATED 29/02/2016HAS BEEN CONSIDER ED ALONG WITH THE REJOINDER OF THE ASSESSEE TO THE REM AND REPORT. THE CRUX OF THE ARGUMENT BY THE LD. CIT-DR AND THE OBJECTION OF THE LD. ASSESSING OFFICER TO THE EFFEC T THAT THERE WAS NO NEED TO GIVE COMPENSATION TO AKSHATA IS CONC ERNED, THIS ISSUE HAS BEEN DEALT WITH AT PAGE-29 ONWARDS O F THE IMPUGNED ORDER, WHEREIN, IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS DULY REBUTTED THE OBSERVATION MADE IN THE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 41 ASSESSMENT ORDER THROUGH ITS SUBMISSIONS. NO EVIDEN CE HAS BEEN BROUGHT ON RECORD AT ANY STAGE TO SUBSTANTIATE THAT IT WAS A SHAM TRANSACTION OR IT WAS A KIND OF ACCOMMOD ATION ENTRY. THE ADDITION HAS BEEN MADE MERELY ON THE BAS IS OF SUSPICION. WE ARE OF THE VIEW THAT SUSPICION CANNO T TAKE THE SHAPE OF EVIDENCE HOWEVER STRONG IT MAY BE. THUS, I N THE LIGHT OF THE FOREGOING DISCUSSION, WE FIND NO INFIR MITY IN THE IMPUGNED ORDER ON THE ISSUE IN HAND, RESULTANTLY; T HIS GROUND OF THE REVENUE IS DISMISSED. 5. THE NEXT GROUND RAISED BY THE REVENUE IS WITH RESPECT TO ALLOWING THE DEDUCTION OF EXPENSES INCUR RED TOWARDS ALTERNATE ACCOMMODATION TO TENANTS OF A SRA PROJECTS AND OTHER EXPENSES AMOUNTING TO RS.6,71,20 ,591/-. THE LD. CIT-DR ADVANCED ARGUMENTS WHICH ARE IDENTIC AL TO THE GROUND RAISED. ON THE OTHER HAND, THE LD COUNSE L FOR THE ASSESSEE EXPLAINED THAT IT IS A VERY COMMON PRACTIC E IN A CITY LIKE MUMBAI, WHERE ALTERNATIVE ACCOMMODATION HAS TO BE PROVIDED TO THE TENANTS OF THE SRA PROJECTS AND THU S SUCH EXPENSES ARE ALLOWABLE FOR COMMERCIAL EXPEDIENCY. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 42 5.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) HAS DEALT W ITH THE ISSUE AT PAGE-30 (PARA-12) OF THE IMPUGNED ORDER. T HE CLAIM OF THE ASSESSEE IS THAT THE EXPENSES WERE INCURRED BEFORE AND AFTER AGREEMENT DATED 31/03/2012 AND THE SAME W ERE INCURRED BY OMKAR. AS PER THE JVA WITH M/S AKSHATA , THE ASSESSEE HAS 50% SELLING RIGHT AND SUBSEQUENTLY THA T AGREEMENT WAS CANCELLED WITH M/S AKSHATA. IT SEEMS THAT SOME CONFUSION HAS BEEN CREATED IN THE IMPUGNED ORD ER, WHEREIN, IT WAS OBSERVED THAT . THE REASON BEHIND SUCH TRANSACTION IS BASED KNOWN TO THE APPELLANT ONLY. THE ASSESSING OFFICER HAS N OT MADE ANY COMMENT AS TO WHETHER THE EXPENSES HAVE NOT BEEN INCURRED OR WHETHER, IT IS BOGUS EXPENSES. HENCE, IT IS HELD THAT THE EXPENSES ARE GENUINE BUSINESS EXPENSES BUT THE TRANSACTION IS AN ARRANGED TRANSACTION BETWEEN RELATED CONCERNED PARTIES.., ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO TREAT BUSINESS INCOME AT NIL AND TAXED THE AMOUNT OF RS.7,11,248/- AS INCOME FROM OTHER SOURCES. IF THE TOTALITY OF FACTS ARE ANALYZED, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) AT PAGE-30, HAS HERSELF OBSERVED THAT THE ASSESSEE CANCELLED THE AG REEMENT M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 43 WITH AKSHATA AND THE ASSESSEE INCURRED EXPENSES TOW ARDS ALTERNATE ACCOMMODATION TO TENANTS OF SRA PROJECTS AND OTHER EXPENSES. THE CONFUSION WAS FURTHER CREATED I N THE IMPUGNED ORDER BY OBSERVING THAT THERE IS LACK OF COMMERCIAL DECISION BECAUSE THE ASSESSEE IS THE SUB SIDIARY OF M/S OMKAR, THEREFORE, ITS A COLORABLE DEVICE. W E ARE OF THE VIEW THAT A CLEAR CUT CONTRADICTORY OBSERVATION HAS BEEN MADE BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL) . SO FAR AS THE CLAIM OF EXPENSES IS CONCERNED, IT IS UP TO THE BUSINESSMAN AND THE ASSESSING OFFICER IS NOT EXPECT ED TO GET INTO THE SHOES OF A BUSINESSMAN. THE LD. COMMIS SIONER OF INCOME TAX (APPEAL) AT ONE HAND (PAGE-31) HELD T HAT THE EXPENSES ARE GENUINE BUSINESS EXPENSES BUT THE TRAN SACTION IS AN ARRANGED TRANSACTION BETWEEN THE RELATED PART IES AND FURTHER OBSERVED THAT AKSHATA IS NOT A RELATED PART Y. BOTH THINGS SIMULTANEOUSLY CANNOT HAPPEN. WHEN THE LD. COMMISSIONER OF INCOME TAX (APPEAL) HOLDS THAT THE EXPENSES ARE GENUINE BUSINESS EXPENSES THEN HOW IT CAN BE AN ARRANGED TRANSACTION. IF THE TRANSACTION IS ARRA NGED THEN IT CANNOT BE HELD TO BE A GENUINE BUSINESS EXPENSES . WHAT M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 44 IT MAY BE, WE ARE EXPECTED TO EXAMINE THE LEGITIMAC Y OF SUCH EXPENSES. THE PAYMENT IS NOT IN DISPUTE AND IF THES E ARE GENUINE BUSINESS EXPENSES THEN NECESSARILY HELD TO BE ALLOWABLE UNDER SECTION 37 OF THE ACT. BEFORE ADVER TING FURTHER, WE ARE REPRODUCING HEREUNDER THE PROVISION OF SECTION 37 OF THE ACT:- 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE N ATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. EXPLANATION 1. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFES SION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT FOR THE PURPOSES OF SUB-SECTION (1), ANY EXPENDITUR E INCURRED BY AN ASSESSEE ON THE ACTIVITIES RELATING TO CORPORATE SO CIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF THE COMPANIES ACT, 20 13 (18 OF 2013) SHALL NOT BE DEEMED TO BE AN EXPENDITURE INCURRED B Y THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. (2) [***] (2B) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), NO ALLOWANCE SHALL BE MADE IN RESPECT OF EXPENDITURE I NCURRED BY AN ASSESSEE ON ADVERTISEMENT IN ANY SOUVENIR, BROCHURE , TRACT, PAMPHLET OR THE LIKE PUBLISHED BY A POLITICAL PARTY. 5.2. IF THE AFORESAID SECTION IS ANALYZED, IT SPEAKS ABOUT ANY EXPENDITURE (NOT BEING EXPENDITURE IN THE SECTION 30 TO 36) AND NOT BEING IN M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 45 THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE BUT LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ITS OUR BOUNDED DUTY TO ANALYZE THE CLAIM OF DEDUCTION U/S 37(1) OF THE ACT. 5.3. NOW, QUESTION ARISES, WHETHER THE EXPENSES INCURRED TOWARDS ALTERNATE ACCOMMODATION TO TENANTS OF SRA PROJECTS/OTHER EXPENSES ARE ALLOWABLE OR NOT. THE OBVIOUS REPLY IS YES. 5.4. THE HON'BLE COURT IN CIT VS NEW SAVAN SUGAR AND GOOD REFINING CO. LTD. (1990) 185 ITR 564, 571 (CAL.) HELD THAT IT IS FOR THE TRIBUNAL TO DECIDE WHETHER THE EXPENDITURE IS WHOLLY INCURRED FOR THE PURPOSE OF K EEPING THE ASSESSEE COMPANY IN OPERATION AND EARNING INCOM E IN AS MUCH AS THE CONCEPT WHOLLY PERTAINS TO QUANTUM OF THE MONEY EXPENDED. THE HON'BLE COURT FURTHER OBSERVED EVEN IF A PARTICULAR EXPENDITURE IS UN-REMUNERATIVE, SUC H EXPENDITURE IS NONETHELESS A PROPER DEDUCTION, IF S UCH M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 46 EXPENDITURE IS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING SUCH INCOME. 5.5. IF THE ISSUE IS ANALYZED IN THE LIGHT OF SECT ION 37(1) OF THE ACT, BROADLY SPEAKING, WE HAVE NOTICE IN MAN Y CASES THAT THE DEVELOPERS ARE EXPANDING/INCURRING EXPENSE S FOR PROVIDING ALTERNATE ACCOMMODATION TO TENANTS OF SRA PROJECTS, OTHERWISE, THE TENANTS WILL NOT VACATE TH E PREMISES AND THAT AREA CANNOT BE DEVELOPED UNLESS AND UNTIL SUCH TENANTS ARE PROVIDED ALTERNATE ACCOMMODATION. THIS PROPOSITION IS SUPPORTED BY HON'BLE APEX COURT IN D ALMIA JAIN & CO. LTD. VS CIT (1971) 81 ITR 754 (SC) AND MEENAKSHI MILLS LTD. VS CIT (1967) 63 ITR 207 (SC). TO BE MORE PRECISE, THE TYPE OF LITIGATION, OBJECT OR PUR POSE OF THE LITIGATION HAS TO BE ASCERTAINED FROM THE FACTS OF EACH CASE. IF THE OBJECT OR PURPOSE IS WITH RESPECT TO BUSINESS P URPOSES, IT HAS TO BE AN ALLOWABLE DEDUCTION. THE RATIO LAID DOWN IN FOLLOWING CASES SUPPORTS OUR VIEW:- A) CIT V. BENGAL ASSAM INVESTORS LTD., (1969) 72 ITR 319 , 325 (CAL); M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 47 B) CIT V. LIFE INSURANCE CORPORATION OF INDIA, (1966) 6 2 ITR 827 (CAL); C) PREMIER CONSTRUCTION CO. LTD. V. CIT, (1966) 62 ITR 1 76 (BOM); D) LIBERTY CINEMA V. CIT, (1964) 52 ITR 153, 167 (CAL) ; TRANSPORT CO. PR. LTD. V. CIT, (1962) 46 ITR E) 1009, 1016 (MAD); TRANSPORT CO. LTD. V. CIT, (1957) 3 1 ITR 259, 266-7 (MAD); F) G. VEERAPPA PILLAI V. CIT, (1955) 28 ITR 636 (MAD); G) CIT V. RAMAN & RAMAN LTD.,(1951) 19 ITR 558, 569-70 (MAD). ALSO SEE, LACHMINARAYAN MODI V. CIT, (1955) 28 ITR 322 (ORISSA); H) J. B. ADVANI & CO. LTD. V. CIT, (1950) 18 ITR 557 (B OM); I) MAHABIR PRASAD & SONS V. CIT, (1945) 13 ITR 340 (LA H); J) CENTRAL INDIA SPINNING, WEAVING & MANUFACTURING CO. L TD. V. CIT, (1943) 11 ITR 266 (NAG); K) CIT V. MAHARAJADHIRAJA SIR KAMESHWAR SINGH (1942) 1 0 ITR 214 (PC) L) SOUTHERN V. BORAX CONSOLIDATED LTD. (1942) 10 ITR (SU P) 1 (KB) M) ASSOCIATED PORTLAND CEMENT MANUFACTURERS LTD. V. KERR, (1946) 27 TAX CAS 103, 118 (CA) N) EBRAHIM ABOOBAKER V CIT (1971) 81 ITR 664 (BOM.) 5.6. AS PER THE PROVISION OF SECTION 37(1) OF THE ACT, ALL THAT THE COURT HAS TO SEE IS WHETHER THE EXPENSES W ERE INCURRED BY THE ASSESSEE IN HIS CHARACTER AS A TRADER/DEVELOPER, IN OTHER WORDS, WHETHER THE TRANS ACTION AROSE OUT OF AND WAS INCIDENTIAL TO ASSESSEE'S BUSI NESS. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 48 FURTHER, IT IS TO BE SEEN WHETHER THE EXPENDITURE W AS BONAFIDELY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS [SEE, CIT V. BIRLA COTTON SPNG. & W VG. MILLS LTD., (1971) 82 ITR 166 (SC); CIT V. DHANRAJGIRJI R AJA NARSINGIRJI, (1973) 91 ITR 544, 549 (SC)]. 5.7. SO FAR AS, ISSUE OF QUANTUM OF THE EXPENDITUR E TO BE INCURRED IS CONCERNED, WE ARE OF THE VIEW, IT IS FOR THE ASSESSEE TO DECIDE HOW BEST TO PROTECT HIS OWN INTE REST. IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPEND ITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. THE RATIO LAID DOWN IN CIT V. DHANRAJGIRJI RAJA NARSINGIRJI, (1973) 91 ITR 544 (S C) SUPPORTS OUR VIEW. IN THAT CASE HIS LORDSHIP OBSERV ED: IT IS TRUE THAT IN SOME OF THE CASES THIS COURT HA S HELD THAT AN EXPENDITURE INCURRED BY AN ACCUSED ASSESSEE TO DEFEND HIMSELF AGAINST A CRIMINAL CHARGE DID NOT FA LL WITHIN THE SCOPE OF SECTION 1O(2)(XV)*. THOSE DECIS IONS WERE RENDERED ON THE FACTS OF THOSE CASES. THAT IS NOT THE POSITION IN THIS CASE.' THUS, THE REVENUE CANNOT SIT IN THE ARMCHAIR OF THE BUSINESSMEN TO DECIDE WHAT EXPENSES ARE TO BE INCUR RED FOR M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 49 ITS BUSINESS SO LONG THESE EXPENSES ARE GOVERNED BY PRINCIPLES OF COMMERCIAL EXPEDIENCY. REFERENCE IS D RAWN TO THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT V. DALMIA CEMENT(BHARAT) LIMITED (2002) 254 ITR 377(DE L) WHICH PROPOSITION IS APPROVED BY HON'BLE SUPREME CO URT IN S.A.BUILDERS LIMITED V. CIT(A) (2007) 288 ITR 1(SUP REME COURT). THE HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS((SUPRA)) OBSERVED AS UNDER:- 34. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COU RT IN CIT V. DALMIA CEMENT (BHARAT) LTD. [2002] 254 IT R 377 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PU T ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HO W MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AU THORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AN D SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIE S MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POI NT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED AB OVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS T O A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER T HE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 35. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINIO N THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLO WED IF THE ASSESSEE ADVANCES IT TO A SISTER CONCERN. IT AL L DEPENDS ON THE FACTS AND CIRCUMSTANCES OF THE RESPECTIVE CA SE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UT ILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PER SONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONE Y WAS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 50 ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SIST ER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERATED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE H OLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINES S PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDIN ARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED L OANS. 36. IN VIEW OF THE ABOVE, WE ALLOW THESE APPEALS AND S ET ASIDE THE IMPUGNED JUDGMENTS OF THE HIGH COURT, THE TRIBUNALS AND OTHER AUTHORITIES AND REMAND THE MATT ER TO THE TRIBUNAL FOR A FRESH DECISION, IN ACCORDANCE WI TH LAW AND IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE. 37. WE ALSO MAKE IT CLEAR THAT WE ARE NOT SETTING ASID E THE ORDER OF THE TRIBUNAL OR OTHER INCOME-TAX AUTHORITI ES IN RELATION TO THE OTHER POINTS DEALT WITH BY THESE AU THORITIES, EXCEPT THE POINT OF DEDUCTION OF INTEREST ON THE BO RROWED FUNDS. 5.8. WHAT IS REQUIRED UNDER SECTION 37(1) OF THE ACT IS THAT WHETHER THE EXPENDITURE WAS INCURRED AND IS HA VING NEXUS WITH THE PROFITS OR BUSINESS, ARE ALLOWABLE D EDUCTION SAHARANPUR ELECTRIC SUPPLY CO. LTD. V. CIT, (1971) 82 ITR 405 (ALL). THE HON'BLE GUJARAT HIGH COURT IN CIT V. AHMEDABAD CONTROLLED IRON & STEEL ASSN. PR. LTD., ( 1975) 99 ITR 567 (GUJ), WHERE EXPENSES INCURRED BY COMPANY I N DEFENDING ITS MANAGING DIRECTOR WERE HELD ALLOWABLE . IN ORDER TO SO CLAIM SUCH EXPENDITURE THE ASSESSEE HAS NOT ONLY TO PROVE THAT THE EXPENDITURE WAS INCIDENTAL T O THE BUSINESS BUT ALSO TO SHOW THAT THE EXPENDITURE WAS LAID OUT M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 51 OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS [INDERMANI JATIA V. CIT, (1951) 19 ITR 342 (ALL) ON APPEAL, SEE, (1959) 35 ITR 298 (SC)]. TO SUM UP THE ISSUE WE FIND THAT HON'BLE JUSTICE P.D. DESAI, IN SMT. VIRMA TI RAMKRISHNA VS CIT (1981) 131 ITR 659, 672-73(GUJ.), HAS ANALYZED THE STATUTORY LANGUAGE AND LAID DOWN VARIO US PRINCIPLES, IN VARIOUS DECIDED CASES AND MADE FOLLO WING PROPOSITIONS. (I) IN ORDER TO DECIDE WHETHER AN EXPENDITURE IS A PERMISSIBLE DEDUCTION UNDER SECTION 57(III), THE NA TURE OF THE EXPENDITURE MUST BE EXAMINED; (II) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE; (III) THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING 'INCOME FROM OTHER SOURCES'; (IV) THE PURPOSE OF MAKING OR EARNING SUCH INCOME MUST BE THE SOLE PURPOSE FOR WHICH THE EXPENDITURE MUST HAVE BEEN INCURRED, THAT IS TO SAY, THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR SUCH PURPOSE AS ALSO FOR ANOTHER PURPOSE OR FOR A MIXED PURPOSE; V) THE DISTINCTION BETWEEN PURPOSE AND MOTIVE MUST ALWAYS BE BORNE IN MIND IN THIS CONNECTION, FOR, WH AT IS RELEVANT IS THE MANIFEST AND IMMEDIATE PURPOSE AND NOT THE MOTIVE OR PERSONAL CONSIDERATIONS M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 52 WEIGHING IN THE MIND OF THE ASSESSEE IN INCURRING T HE EXPENDITURE; (VI) IF THE ASSESSEE HAS NO OPTION EXCEPT TO INCUR THE EXPENDITURE IN ORDER TO MAKE THE EARNING OF THE INCOME POSSIBLE, SUCH AS WHEN HE HAS TO INCUR LEGAL EXPENSE FOR PRESERVING AND MAINTAINING THE SOURCE O F INCOME, THEN, UNDOUBTEDLY, SUCH EXPENDITURE WOULD BE AN ALLOWABLE DEDUCTION; HOWEVER, WHERE THE ASSESSEE HAS AN OPTION AND THE OPTION WHICH HE EXERCISES HAS NO CONNECTION WITH THE MAKING OR EARNING OF THE INCOME AND THE OPTION DEPENDS UPON PERSONAL CONSIDERATIONS OR MOTIVES OF THE ASSESSEE, THE EXPENDITURE INCURRED IN CONSEQUENCE OF THE EXERCISE OF SUCH OPTION CANNOT BE TREATED AS AN ALLOWABLE DEDUCTION; (VII) IT IS NOT NECESSARY, HOWEVER, THAT THE EXPEND ITURE INCURRED MUST HAVE BEEN OBLIGATORY; IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO AN IMMEDIATE BENEFIT TO THE ASSESSEE BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE THE MAKING OR EARNING OF THE INCOME; (VIII) IF, THEREFORE, IT IS FOUND ON APPLICATION OF THE PRINCIPLES OF ORDINARY COMMERCIAL TRADING THAT THER E IS SOME CONNECTION, DIRECT OR INDIRECT, BUT NOT REMOTE , BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED, THE EXPENDITURE MUST BE TREATED AS AN ALLOWABLE DEDUCTION; (IX) IT WOULD NOT, HOWEVER, SUFFICE TO ESTABLISH ME RELY THAT THE EXPENDITURE WAS INCURRED IN ORDER INDIRECT LY TO FACILITATE THE CARRYING ON OF THE ACTIVITY WHICH IS THE SOURCE OF THE INCOME; THE NEXUS MUST NECESSARILY BE M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 53 BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED; (X) IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITUR E WAS A PROFITABLE ONE OR THAT IN FACT INCOME WAS EARNED; (XI) THE TEST IS NOT WHETHER THE ASSESSEE BENEFITED THEREBY OR WHETHER IT WAS A PRUDENT EXPENDITURE WHICH RESULTED IN ULTIMATE GAIN TO THE ASSESSEE BUT WHETHER IT WAS INCURRED LEGITIMATELY AND BONA FIDE FOR MAKING OR EARNING THE INCOME; (XII) THE QUESTION WHETHER THE EXPENDITURE WAS LAID OUT OR EXPENDED FOR MAKING OR EARNING THE INCOME MUST BE DECIDED ON THE FACTS OF EACH CASE, THE FINA L CONCLUSION BEING ONE OF LAW'. 5.9. LIKEWISE, HON'BLE APEX COURT IN SREE MEENAKSH I MILLS LTD. V. CIT, (1967) 63 ITR 207 (SC), WHERE EX PENSES WERE INCURRED IN FILING A SUIT FOR OBTAINING AN ORD ER RESTRAINING SEIZURE OF GOODS DELIVERED IN CONTRAVEN TION OF THE CONTROL ORDER WERE HELD ALLOWABLE DEDUCTION. IT FOL LOWS FROM THIS DECISION THAT: (I) LITIGATION EXPENSES TO SECURE AN ORDER FROM THE COURT FOR ENABLING AN ASSESSEE TO CARRY ON ITS BUSINESS WITHOUT INTERFERENCE IS AN ALLOWABLE DEDUCTION; (II) EXPENDITURE INCURRED TO RESIST, IN A CIVIL PROCEEDING, THE ENFORCEMENT OF A MEASURE, LEGISLATIVE OR EXECUTIVE, WHICH IMPOSES RESTRICTION S ON THE CARRIAGE OF A BUSINESS OR TO OBTAIN A M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 54 DECLARATION THAT THE MEASURE WAS INVALID, WOULD, IF OTHER CONDITIONS ARE SATISFIED, BE ADMISSIBLE AS DEDUCTION; AND (III) THE DEDUCTIBILITY OF EXPENDITURE INCURRED IN PROSECUTING A CIVIL PROCEEDING DEPENDS UPON THE NATURE AND PURPOSE OF THE CIVIL PROCEEDING IN RELATION TO ASSESSEE'S BUSINESS AND CANNOT BE AFFECTED BY THE FINAL OUTCOME OF THAT BUSINESS. 5.10. IN THE CASE OF CIT VS GANNON DUNKARLAY AND C O. PVT. LTD. (2000) 243 ITR 646 (MAD.), CIT VS ADMINIS TRATOR GENERAL OF MADRAS (1998) 234 ITR 351 (MAD.), CIT VS PATIALA FLOUR MILLS CO. LTD. (1989) 180 ITR 75 (P & H), HIN DUSTAN MILK FOOD MANUFACTURING LTD. 179 ITR 302 (P & H), P ALANI SIR MURGUN TEXTILES LTD. VS ACIT (2002) 254 ITR 333 (MAD.) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE LIGHT OF THE FOREGOING DISCUSSION, RATIO LAID DOWN BY VARIOU S HON'BLE HIGH COURTS/HON'BLE APEX COURT AND THE FACTS AVAILA BLE ON RECORD, WE ARE OF THE CONSIDERED OPINION THAT THE E XPENSES INCURRED TOWARDS PROVIDING ALTERNATE ACCOMMODATION TO TENANTS OF SRA PROJECTS/OTHER EXPENSES, IS AN ALLOW ABLE DEDUCTION. THUS, THIS GROUND OF THE REVENUE IS DISM ISSED. WE ORDER ACCORDINGLY. M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 55 6. NOW, WE SHALL TAKE UP THE CROSS OBJECTION OF TH E ASSESSEE IN C.O. NO.299/MUM/2017. WE HAVE ELABORATE LY DISCUSSED AND ANALYSED THE ENTIRE SPECTRUM OF THE TRANSACTION ENTERED INTO BY THE ASSESSEE AND GIVEN AN ELABORATE FINDINGS WITH DETAILED REASONING WHILE DE CIDING THE AFORESAID APPEAL OF THE REVENUE. HENCE, CO OF THE A SSESSEE IS ADJUDICATED IN LINES WITH OUR ABOVE DECISION IN REVENUES APPEAL AND ACCORDINGLY ASSESSEES CO IS DISPOSED OF F. THUS, IN NUT-SHELL THE CO OF THE ASSESSEE IS ALLOWED. WE ORDER ACCORDINGLY. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE ARE AUTOMATICALLY D ISPOSED OF IN TERMS INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26/09/2018. SD /- SD/- ( N.K. PRADHAN ) (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $ # / JUDICIAL MEMBER MUMBAI; * DATED : 26/09/2018 F{X~{T? P.S / +! M/S DARSHAN REALTORS PVT. LTD. ITA NO.4009/MUM/2016 & C. O. NO.299/MUM/2017 56 !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT 2. 0./ / THE RESPONDENT. 3. 2$ ( ,- ) / THE CIT, MUMBAI. 4. 2$ / CIT(A)- , MUMBAI 5. 4!5$ , ,-(,6 , / DR, ITAT, MUMBAI 6. 7'8 / GUARD FILE. ! / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI,
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