ACIT, CHENNAI V. M/s. Madeena Constructions, CHENNAI

ITA 1143/CHNY/2010

• Counselvise Citation: 114321714 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Competent authority
• Section: 2(14); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NO. 1143/MDS/2010 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE IV, CHENNAI 600 034. (APPELLANT) V. M/S MADEENA CONSTRUCTIONS, NO.19, ARUNACHALAM ROAD, DASARATHAPURAM, SALIGRAMAM, CHENNAI 600 093. PAN : AAJFM8896P (RESPONDENT) APPELLANT BY : SHRI P.B. SEKARAN RESPONDENT BY : SHRI M. KA RUNAKARAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL OF THE REVENUE, IT HAS RAISED FIVE GROUNDS ALTOGETHER, OF WHICH 1 AND 5 ARE GENERAL NEEDING NO ADJUDICATION. 2. VIDE ITS GROUND NO.2, GRIEVANCE RAISED BY THE RE VENUE IS THAT CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE A SSESSING OFFICER APPLYING THE PROVISIONS OF SECTION 40(B) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). ACCORDING TO THE REVENUE, WHEN THE PARTNERSHIP WAS RECONSTITUTED, THE RECONSTITUTION DEED DID NOT ADHERE TO PROVISION S OF SECTION 40(B) OF THE ACT NOR WAS IT IN ACCORDANCE WITH THE CIRCUL AR NO.739 DATED 25.3.96 OF CBDT. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE-FIRM CARRY ING ON BUSINESS OF CIVIL CONSTRUCTION HAD CHARGED PARTNER S REMUNERATION OF ` 54,83,571/- IN ITS PROFIT AND LOSS ACCOUNT, WHILE ARRIVING AT THE NET PROFIT OF ` 71,80,678/- FOR THE IMPUGNED ASSESSMENT YEAR. A.O . WAS OF THE OPINION THAT PAYMENT OF REMUNERATION TO THE SOLE WORKING PARTNER OF THE ASSESSEE-FIRM WAS NOT SPECIFIED IN T HE PARTNERSHIP DEED AND THEREFORE, THE CLAIM OF PARTNERS REMUNERA TION COULD NOT BE ALLOWED. A DISALLOWANCE OF THE CLAIMED AMOUNT WAS THEREFORE, MADE BY THE A.O. 4. IN ITS APPEAL BEFORE THE CIT(APPEALS), SUBMISSIO N OF THE ASSESSEE WAS THAT THE FIRM WAS ORIGINALLY CONSTITUT ED BY DEED DATED 10.4.1997 WHEREIN REMUNERATION TO PARTNERS WAS CLEA RLY SPECIFIED IN A TABLE AND SUCH TABLE WAS IN ACCORDANCE WITH SECTI ON 40(B) OF THE ACT. FURTHER, ACCORDING TO IT, WHILE RECONSTITUTIN G THE FIRM ON 1.4.2005, THE RELEVANT RECONSTITUTION DEED SPECIFIE D REMUNERATION TO BE PAID TO THE SOLE WORKING PARTNER AND AMOUNT PAYA BLE WAS ALSO CLEARLY INDICATED. ARGUMENT OF THE ASSESSEE WAS TH AT AS PER SECTION 40(B) OF THE ACT, REMUNERATION ONCE AUTHORIZED UNDE R THE DEED OF PARTNERSHIP COULD NOT BE DISALLOWED. AS PER THE AS SESSEE, INSTEAD OF REPEATING IN A TABULAR FORMAT THE LIMITS FOR ALLOWA NCE SPECIFIED UNDER SECTION 40(B) OF THE ACT, IT HAD STIPULATED SUCH PA YMENT TO BE MADE IN ACCORDANCE WITH SECTION 40(B) OF THE ACT AND THE REFORE, ACCORDING TO IT, A.O. WAS NOT JUSTIFIED IN OBSERVING THAT REM UNERATION WAS NOT SPECIFIED IN TERMS OF MONEY PAYABLE. CIT(APPEALS ) WAS APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HI M, AMOUNT PAYABLE TO THE WORKING PARTNER WAS CLEARLY SPECIFIED IN THE DEED AND ASSESSEE IN THE RECONSTITUTION INSTEAD OF REPEATING IT VERBATIM THE PROVISIONS OF SECTION 40(B) OF THE ACT, STIPULATED THE REMUNERATION TO BE CALCULATED IN ACCORDANCE WITH SUCH PROVISIONS. HE WAS OF THE OPINION THAT THERE WAS NO VIOLATION OF SECTION 40(B ) OF THE ACT AND DIRECTED THE A.O. TO ALLOW THE CLAIM OF REMUNERATIO N PAID TO THE WORKING PARTNER. 5. NOW, BEFORE US THE LEARNED D.R. STRONGLY ASSAILI NG THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THE RECONSTITUTION DEED DID NOT SPECIFY THE QUANTUM OF REMUNERATION THAT WAS TO BE PAID TO THE WORKING PARTNER. ACCORDING TO HIM, WHAT WAS MENTIO NED IN THE RECONSTITUTION DEED WAS NOT ENOUGH SINCE QUANTIFICA TION OF THE REMUNERATION PAYABLE WAS ESSENTIAL. RELYING ON SEC TION 40(B) OF THE ACT, IT WAS SUBMITTED THAT PAYMENT OF REMUNERATION OF A PARTNER WHO WAS A WORKING PARTNER, WAS SPECIFICALLY PROHIBITED FROM BEING ALLOWED UNLESS IT WAS MADE WITHIN THE LIMITS SPECIFIED IN C LAUSE (V) OF THE SAID SECTION. IN SUPPORT OF HIS CONTENTION THAT THE REM UNERATION AS CLAIMED BY THE ASSESSEE WAS RIGHTLY DISALLOWED BY T HE A.O., RELIANCE WAS PLACED ON THE DECISION OF CHANDIGARH BENCH OF T HIS TRIBUNAL IN THE CASE OF ITO V. DURGA DASS DEVKI NANDAN KANGRA ( 2005) 1 SOT 263 (CHD). 6. PER CONTRA, THE LEARNED A.R. STRONGLY SUPPORTING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THE PUNE BENCH OF THIS TRIBUNAL, IN THE CASE OF ACIT V. SUMAN CONSTRUCTION (2009) 34 SO T 495 (PUNE), HAD HELD THAT AN ASSESSING OFFICER COULD NOT ALLOW SALARY TO PARTNERS ON ACCOUNT OF A REASON THAT THE AMOUNT OF SALARY WA S NOT QUANTIFIED IN THE PARTNERSHIP DEED. ACCORDING TO HIM, CBDT VI DE CIRCULAR NO.739 MENTIONED SUPRA, REQUIRING QUANTIFICATION OF THE SALARY IN THE PARTNERSHIP DEED HAD NO RELEVANCE SINCE CBDT DID NO T HAVE POWERS TO SUBSTITUTE THE TERM AUTHORIZE OCCURRING IN CLA USE (V) OF SECTION 40(B) OF THE ACT WITH QUANTIFIED. PLACING ON REC ORD, A COPY OF ORIGINAL PARTNERSHIP DEED DATED 10 TH APRIL, 1997 AND THE PARTNERSHIP RETIREMENT DEED DATED 1 ST APRIL, 2005, LEARNED A.R. SUBMITTED THAT THE REMUNERATION PAYABLE TO THE WORKING PARTNER WAS CLEARLY MENTIONED THEREIN AND THE RELEVANT CLAUSE WAS IN AC CORDANCE WITH SECTION 40(B) OF THE ACT. IN SUPPORT OF HIS CONTEN TION, THAT QUANTIFICATION OF THE AMOUNT OF REMUNERATION IN THE PARTNERSHIP DEED WAS NOT ESSENTIAL, LEARNED A.R. PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF THIS TRIBUNAL IN SUMAN CONSTRUCTION M ENTIONED SUPRA. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THERE IS NO DISPUTE ON FACTS. ASSESSEE-FIRM WAS CO NSTITUTED THROUGH A PARTNERSHIP DEED ON 10 TH APRIL, 1997. IN THE PARTNERSHIP DEED, CLAUSE (8) AUTHORIZED REMUNERATION TO PARTNERS THAT WAS PAYABLE IN THE FOLLOWING MANNER:- 8. ALL THE PARTNERS OF THE PARTIES HAVE AGREED TO DEVOTE THEIR TIME AND ATTENTION TO THE BUSINESS OF THE PARTNERSHIP. IT IS HEREBY AGREED THAT IN CONSIDERA TION THAT FIRST PART OF THE PARTIES SHALL BE ENTITLED TO DRAW YEARLY REMUNERATION AS FOLLOWS: (I) THE YEARLY REMUNERATION PAYABLE TO THE FIRST PA RT SHALL BE CALCULATED AS UNDER:- PARTICULARS REMUNERATION A) IN CASE OF LOSS NIL OR B) IN CASE OF INCOME LESS THAN OR RS.50,000/- ACTUA L INCOME OR C) IN CASE OF INCOME ABOVE RS.50,000/- BUT LESS THA N RS.75,000/- 90% OF THE INCOME OR RS.50,000/- WHICHEVER IS HIGHER OR D) IN THE CASE OF INCOME ABOVE RS.75,000/- BUT LESS THAN RS.1,50,000/- RS.67,500/- PLUS 60% OF THE INCOME ABOVE RS.75,000/- OR E) IN CASE OF INCOME ABOVE RS.1,50,000/- RS.1,12,50 0/- PLUS 40% OF THE INCOME ABOVE RS.1,50,000/- THE PARTNERS ARE ENTITLED TO SALARY FOR HIS DAY TO DAY WORK IN THE FIRM AS FOLLOWS:- PARTNERS REMUNERATION 1. RASHEED KHAN ; 100% (II) FOR PURPOSE OF ABOVE CALCULATION, INCOME SHA LL BE COMPUTED AS PER THE PROVISIONS AND RULES OF THE INCOME TAX ACT, FOR THE RELEVANT ACCOUNTING YEAR. (III) THE PARTNER SHALL NOT BE ENTITLED TO DRAW ANY REMUNERATION ON THE BASIS OF CALCULATION REFERRED T O CLAUSE (II) ABOVE, IN THE ACCOUNTING YEAR IN WHICH THE PARTNERS HIP FIRM HAS SUFFERED LOSSES. (IV) THE PARTNER SHALL BE ENTITLED TO INCREASE OR R EDUCE THE ABOVE REMUNERATION. THE PARTNER ALSO AGREE TO REVISE THE MODE OF CALCULATING THE ABOVE REMUNERATION AND PAY SALARY, INTEREST, COMMISSION ON SALES, PREMIUM ON LIFE INSU RANCE OR ANY OTHER PAYMENT. (V) REMUNERATION PAYABLE TO THE ABOVE PARTNER SHALL BE CREDITED TO HIS ACCOUNTS AT THE CLOSE OF THEIR ACCO UNTING PERIOD WHEN FINAL ACCOUNTS OF THE PARTNERSHIP ARE MADE UP. AND THE AMOUNT OF REMUNERATION SHALL FALL DUE TO THEM ON DE TERMINING THE SAME IN THE MANNER REFERRED TO HEREIN BEFORE. (VI) THE SAID PARTNER SHALL BE ENTITLED TO DRAW THE IR REMUNERATION ONLY AFTER THE END OF THE RELEVANT ACC OUNTING PERIOD. HOWEVER, NOTHING HEREIN CONTAINED, SHALL P RECLUDE ANY OF THE SAID PARTNERS FROM WITHDRAWINGS ANY AMOUNT STAN DING TO THE CAPITAL AND/OR CURRENT OR LOAN ACCOUNT HIS/HER SHAR E OF PROFIT FOR RELEVANT ACCOUNTING YEAR IN SUCH MANNER AS MAY BE DECIDED BY THE PARTNERS BY MUTUAL CONSENT. 8. THERE WERE RETIREMENTS FROM THE SAID FIRM FOR WH ICH THERE WAS ANOTHER DEED EXECUTED ON 1 ST APRIL, 2005 AND CLAUSE (8) OF THE SAID DEED MENTIONED PARTNERS REMUNERATION AS FOLLOWS:- 8. THE FIRST PART OF THE CONTINUING PARTNER MR. RASHEED KHAN HAVE AGREED TO CONDUCT THE AFFAIRS OF THE BUSINESS IN THE PARTNERSHIP FIRM, AS WORKING PARTNERS AND HE SHALL BE ENTITLED TO RECEIVE REMUNE RATION. THE REMUNERATION PAYABLE TO THE FIRST PART SHALL BE COMPUTED IN THE MANNER LAID DOWN IN EXPLANATION 3 TO SECTION 40(B) OF THE INCOME-TAX ACT, 1961 OR ANY OTHER APPLICABLE PROVISION AS MAY BE IN FORCE IN THE INCO ME-TAX ASSESSMENT OF THE PARTNERSHIP FIRM FOR THE RELEVANT ACCOUNTING YEAR. THE PARTNERS ARE ALSO ENTITLED TO INCREASE OR DECREASE THE ABOVE REMUNERATION. THE P ARTIES HERETO MAY ALSO AGREE TO REVISE THE ABOVE SAID REMUNERATION AND INTEREST ON CAPITAL AS MAY BE AGRE ED TO AND BETWEEN THE PARTNERS FROM TO TIME. 9. AS PER THE REVENUE, THE ABOVE CLAUSE IN RECONSTI TUTION DEED WAS NOT SUFFICIENT FOR A CLAIM OF REMUNERATION UNDE R SECTION 40(B) OF THE ACT. ACCORDING TO IT, THE REMUNERATION PAYABLE TO THE SOLE WORKING PARTNER WAS NOT SPECIFIED IN TERMS OF MONEY . WE FIND THAT PARTNERSHIP RETIREMENT DEED DATED 1 ST APRIL 2005 DOES NOT HAVE A CLAUSE STATING THAT THE PROVISIONS OF EARLIER DEED DATED 10 TH APRIL, 1997 WOULD APPLY WHEREVER IT HAD NOT BEEN VARIED, A LTERED, SUBSTITUTED, OR DELETED THROUGH THE DEED DATED 1 ST APRIL, 2005. THEREFORE, THE QUESTION BOILS DOWN TO ALLOWABILITY OF THE CLAIM OF ASSESSEE ON THE BASIS OF CLAUSE (8) OF THE DEED OF PARTNERSHIP RETIREMENT DEED DATED 1 ST APRIL, 2005, IT DOES MENTION THAT MR. RASHEED KHAN WAS ENTITLED TO RECEIVE REMUNERATION. IN OTHER WORDS, THIS RECONSTITUTED DEED HAS AUTHORIZED THE FIRM TO GIVE REMUNERATION TO MR. RASHEED KHAN. A METHOD OF COMPUTATION IS ME NTIONED. IT IS THAT REMUNERATION HAS TO BE COMPUTED AS PER EXPLANA TION 3 TO SECTION 40(B) OF THE ACT. IF WE LOOK AT EXPLANATIO N 3 TO SECTION 40(B) OF THE ACT, IT RUNS AS UNDER:- EXPLANATION 3,- FOR THE PURPOSES OF THIS CLAUSE, BOO K-PROFIT MEANS THE NET PROFIT, AS SHOWN IN THE PROFIT AND LO SS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D AS INCREASED BY THE AGGREGATE AMOUNT O F THE REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE N ET PROFIT. 10. THE ABOVE EXPLANATION 3, DOES NOT GIVE ANY METH OD OF COMPUTATION OF REMUNERATION PAYABLE TO A WORKING PA RTNER. IT SIMPLY STATES WHAT IS BOOK-PROFIT FOR THE PURPOSE OF WOR KING OUT THE REMUNERATION, UNDER SECTION 40(B) OF THE ACT. CLAU SE (8) OF THE DEED DATED FIRST APRIL 1995 ALSO STATES IN THE ALTERNATI VE THAT ANY OTHER APPLICABLE PROVISION WHICH WOULD BE IN FORCE FOR TH E INCOME-TAX ASSESSMENT HAS TO BE APPLIED FOR SUCH COMPUTATION. THERE IS A FURTHER MENTION THAT PARTNERS WERE ENTITLED TO INCR EASE OR DECREASE THE REMUNERATION. IN OUR OPINION, ALL THESE WHEN R EAD TOGETHER WOULD MAKE THE CLAUSE EXTREMELY VAGUE FOR BEING APPLIED I N A MEANINGFUL MANNER. ASSESSEE-FIRM THROUGH THIS CLAUSE IS TRYIN G TO FIND A METHOD BY WHICH WHATEVER REMUNERATION CLAIMED BY IT AS PAY ABLE OR PAID TO THE WORKING PARTNER WOULD BECOME ALLOWABLE UNDER TH E PROVISIONS OF INCOME-TAX ACT. NO DOUBT, IN THE CASE OF SUMAN CON STRUCTION (SUPRA) DECIDED BY THE PUNE BENCH OF ITAT, IT WAS H ELD THAT CBDT HAD NO JURISDICTION TO SUBSTITUTE THE TERM AUTHORI SE' OCCURRING IN SECTION 40(B) BY THE TERM QUANTIFY. HOWEVER, IN OUR OPINION, THIS CANNOT BE EXTENDED TO MEAN THAT AN AUTHORIZATION WH ICH IS SO VAGUE THAT NO PROPER QUANTIFICATION COULD BE DONE WOULD A LSO BE SUFFICIENT FOR A CLAIM. WHERE THE AUTHORIZATION IS SUCH THAT THE CORRECT QUANTIFICATION OF THE REMUNERATION PAYABLE TO A WOR KING PARTNER CANNOT BE DONE, IN OUR OPINION, IT CANNOT BE CONSTR UED AS A TYPE OF AUTHORIZATION WHICH WOULD SATISFY THE REQUIREMENT O F SECTION 40(B) OF THE ACT. WE ARE THUS OF THE OPINION THAT CLAUSE (8 ) OF THE DEED DATED 1 ST APRIL, 2005 WAS VAGUE AND NOT SUSCEPTIBLE TO A MEA NINGFUL QUANTIFICATION. WE ARE ALSO OF THE OPINION THAT RE LIANCE PLACED BY THE LD. CIT(APPEALS), ON THE PARTNERSHIP DEED DATED 10 TH APRIL, 1997, WAS INCORRECT. THIS IS FOR THE REASON THAT THE LATER D EED DATED 1 ST APRIL, 2005 DOES NOT HAVE ANY CLAUSE WHICH WOULD ENABLE TH E ASSESSEE TO FALL BACK UPON THE OLD DEED DATED 10 TH APRIL, 1997, IN CASE OF ANY DEFICIENCY THEREIN. IN OUR OPINION, THE CIT(APPEAL S) FELL IN ERROR WHEN HE DIRECTED THE A.O. TO DELETE THE DISALLOWANCE OF ` 54,83,571/- BEING REMUNERATION PAID TO WORKING PARTNER CONSIDERING IT AS NOT ALLOWABLE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(APPEA LS) IN THIS REGARD AND REINSTATE THE DISALLOWANCE MADE BY THE A.O. 11. VIDE GROUND NO.3, REVENUE IS AGGRIEVED THAT THE CIT(APPEALS) DELETED THE DISALLOWANCE OF ` 16,57,950/- MADE BY THE A.O. THE SAID DISALLOWANCE WAS ON ACCOUNT OF A LOSS ON SALE OF FL AT AT SALIGRAMAM CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCO UNT WHICH WAS NOT ACCEPTABLE TO THE A.O. 12. SHORT FACTS APROPOS ARE THAT ASSESSEE IN ITS SC HEDULE NO.5 FORMING PART OF ITS AUDITED FINAL ACCOUNTS, HAD GIV EN A BREAK-UP OF INDIRECT EXPENSES WHICH INCLUDED A SUM OF ` 16,57,950/- SHOWN AS LOSS INCURRED ON SALE OF FLAT AT SALIGRAMAM. A.O. WAS OF THE OPINION THAT SUCH LOSS WAS NOT PROVED TO HAVE BEEN INCURRED IN THE COURSE OF ASSESSEES BUSINESS OF CIVIL CONSTRUCTION BUT, ON T HE OTHER HAND, INCURRED DUE TO PURCHASE AND SALE OF LAND. FURTHER , ACCORDING TO HIM, THE PURCHASE AND SALE WERE EFFECTED IN CLOSE PROXIM ITY OF TIME AND LAND VALUE COULD NOT HAVE DEPRECIATED TO SUCH A LAR GE EXTENT IN A PRIME LOCATION OF THE CITY. HE, THEREFORE, DISALLO WED THE CLAIM OF LOSS. 13. BEFORE THE CIT(APPEALS), SUBMISSION OF THE ASSE SSEE WAS THAT THE LOSS WAS ON ACCOUNT OF SALE OF THE FLAT AT SALI GRAMAM AND CIRCUMSTANCES GIVING RISE TO THE LOSS WAS NOT CONSI DERED BY THE A.O. ACCORDING TO IT, A.O. WAS NOT JUSTIFIED IN CONSIDER ING THAT PURCHASE AND SALE OF LAND DID NOT FALL IN THE BUSINESS LINE OF THE ASSESSEE. ASSESSEE ARGUED THAT THE LANDS PURCHASED WERE HELD BY IT AS STOCK- IN-TRADE AND NOT AS CAPITAL ASSET. ASSESSEE ALSO E XPLAINED THE CIRCUMSTANCES IN WHICH IT HAD TO INCUR A LOSS ON TH E SALE OF THE FLAT AT SALIGRAMAM. EXPLANATION GIVEN BY THE ASSESSEE WAS THAT ASSESSEE WAS CONSTRUCTING A COMMERCIAL FLAT FOR ONE SHRI KAL AIVANAN WHO MADE DEFAULT IN PAYMENTS OF CONTRACTED AMOUNTS. TH E CONTRACTEE HAD TO PAY THE ASSESSEE ` 30,00,000/- IN LIEU OF WHICH HE HAD GIVEN AN OLD FLAT TOWARDS FINAL SETTLEMENT OF THE DUES. ASSESSEE SUBMITTED THAT THE CONTRACTEE WAS AN INFLUENTIAL MAN WHO COUL D DAMAGE ITS BUSINESS PROSPECTS AND THEREFORE, IT ACCEPTED THE O LD FLAT IN LIEU OF THE AMOUNT DUE FROM HIM AND THEREAFTER THE SAID FLA T WAS SOLD AT A LOSS. THEREFORE, ACCORDING TO ASSESSEE, THE LOSS W AS IN THE COURSE OF BUSINESS OF THE ASSESSEE AND HAD TO BE ALLOWED. TH ERE WAS AN ALTERNATIVE CLAIM BEFORE THE LD. CIT(APPEALS), THAT THE AMOUNT WAS NEVER BE COLLECTED FROM SHRI KALAIVANAN AND HENCE O UGHT BE ALLOWED AS BUSINESS LOSS. CIT(APPEALS) WAS OF THE OPINION THAT ASSESSEE HAD GIVEN EXPLANATIONS WHICH WERE ACCEPTABLE AND TH E LOSS OF ` 16,57,950/- COULD BE ALLOWED. ACCORDING TO CIT(APP EALS), EVEN IF IT IS NOT ALLOWED AS A LOSS, IT HAS TO BE ALLOWED AS BAD DEBT UNDER SECTION 36(1)(VII) OF THE ACT. 14. NOW BEFORE US, THE LEARNED D.R. ASSAILING THE O RDER OF THE CIT(APPEALS) SUBMITTED THAT THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF CIVIL CONSTRUCTION AND NOT PURCHASE AND SALE OF LAND. ACCORDING TO HIM, SALE OF FLAT COULD NEVER BE A LOS S SINCE THE REAL ESTATE BUSINESS WAS BOOMING IN THE RELEVANT PERIOD OF TIME. 15. PER CONTRA, THE LEARNED A.R. SUPPORTING THE ORD ER OF THE CIT(APPEALS) SUBMITTED THAT WITHOUT DOUBTING THE SA LE DEED AND PURCHASE DEED RELATING TO THE TRANSACTIONS, THE LOS S COULD NOT HAVE BEEN DISALLOWED. POINTING OUT THE PARTNERSHIP DEED DATED 1 ST APRIL, 2005, HE SUBMITTED THAT THE BUSINESS OF THE ASSESSE E-FIRM WAS OF PROMOTING COMMERCIAL AND RESIDENTIAL FLATS AS ALSO CONSTRUCTING, MAINTAINING, ALTERING, IMPROVING, RECONSTRUCTING AN D OTHERWISE DEALING WITH BUILDINGS OR TO CARRY ON ANY OTHER LIN E OR LINES OF BUSINESS WHICH THE PARTNERS DECIDE FROM TIME TO TIM E AS BENEFICIAL. ACCORDING TO HIM, LAND WAS SHOWN AS STOCK-IN-TRADE IN THE BALANCE SHEET AND HENCE, LOSS ARISING ON SALE THEREOF COULD NOT HAVE BEEN DISALLOWED. 16. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. ASSESSING OFFICERS DISALLOWANCE WAS BASED ON TWO R EASONS FIRST, THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS O F PURCHASE AND SALE OF LAND AND SECOND WAS THAT THERE COULD NOT HA VE BEEN DEPRECIATION IN THE VALUE OF LAND SO AS TO CLAIM LO SS ON SALE. LEAVING ASIDE THE REASONS GIVEN BY THE CIT(APPEALS), WE ARE OF THE OPINION THAT BOTH THESE ASSERTIONS OF THE A.O. WERE MISPLAC ED. ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROMOTING COMMERCIAL AND RESIDENTIAL FLATS AND ALSO BY THE PARTNERSHIP DEED, AUTHORIZED TO CARRY ON ANY LINE OR LINES OF BUSINESS. EVEN IF WE CONSI DER THE AUTHORIZATION GIVEN IN THE PARTNERSHIP DEED TO CAR RY ON ANY OTHER LINE OR LINES OF BUSINESS, TO BE EJUSDEM GENERIC WITH THE EARLIER TERMS OF PROMOTING COMMERCIAL AND RESIDENTIAL FLATS, SALE AND PURCHASE OF LAND WOULD STILL COME WITHIN THE AMBIT OF THE BUSI NESS OF THE ASSESSEE. CLAUSE (3) OF THE PARTNERSHIP DEED AS RE PRODUCED HEREUNDER WOULD BRING OUT THIS CLEARLY:- THE BUSINESS OF THE FIRM SHALL BE THAT OF PROMOTING COMMERCIAL AND RESIDENTIAL FLATS OR CONSTRUCT, MAIN TAIN, ALTER, IMPROVE, RECONSTRUCT OR OTHERWISE DEAL WITH BUILDINGS OR TO CARRY ON ANY OTHER LINE OR LINES OF BUSINESS, WHICH THEY MAY DECIDE FROM TIME TO TIME FOR THEIR BENEFITS. 17. IN A BUSINESS OF PROMOTING COMMERCIAL AND RESID ENTIAL FLATS AND OTHER LINES OF BUSINESS, WE CANNOT SAY THAT PURCHAS E AND SALE OF LAND WOULD BE ALIEN AND NOT A PART OF THE BUSINESS. FUR THER, AS STATED BY THE CIT(APPEALS) IN PARA 6.2 OF HIS ORDER, THE LAND WAS TREATED AS STOCK-IN-TRADE AND THIS HAS NOT BEEN DISPUTED BY THE LEARNED D.R. WHEN STOCK-IN-TRADE IS SOLD RESULT CAN ONLY BE BUSI NESS PROFIT OR BUSINESS LOSS. ASSESSEE MIGHT HAVE BEEN FORCED TO SELL IT AT A LOSS FOR A MYRIAD OF REASONS. IT IS NOT FOR THE REVENUE TO SIT ON THE ARM CHAIR OF A BUSINESSMAN AND TO DECIDE APPROPRIATE PO INT OF TIME IN WHICH A SALE OR PURCHASE HAS TO BE EFFECTED IN THE COURSE OF HIS BUSINESS. NEITHER THE SALE DEED HAD BEEN DOUBTED N OR THE PURCHASE DEED HAD BEEN DOUBTED. NEITHER BOOKS OF ACCOUNTS H AVE BEEN REJECTED NOR THE SELLER OR PURCHASER HAD BEEN CALLE D UP BY THE REVENUE FOR ANY VERIFICATION. WITHOUT DOUBTING THE PURCHASE AND SALE DEED, IN OUR OPINION, THE LOSS COULD NOT HAVE BEEN DISALLOWED. THE CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDI TION MADE BY THE A.O. WE CANNOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(APPEALS). GROUND NO.3 STANDS DISMISSED. 18. IN GROUND NO.4, GRIEVANCE OF THE REVENUE IS THA T THE CIT(APPEALS) DELETED A DISALLOWANCE MADE BY THE A.O . OF ` 36,83,334/-. A.O. HAD DISALLOWED THE SAID AMOUNT F INDING THE LOSS CLAIMED ON SALE OF PROPERTY AT T. NAGAR TO BE UNACC EPTABLE. 19. SHORT FACTS APROPOS ARE THAT IN ADDITION TO THE CLAIM OF LOSS MADE IN RESPECT OF SALE OF FLAT AT SALIGRAMAM, ASSE SSEE HAD ALSO CLAIMED A LOSS ON SALE OF PROPERTY AT T. NAGAR TO T HE TUNE OF ` 36,83,334/-. FOR THE SAME REASON AS MENTIONED BY T HE A.O. WITH REGARD TO THE DISALLOWANCE OF SALIGRAMAM PROPERTY, THIS CLAIM OF LOSS WAS ALSO DISALLOWED. 20. IN ITS APPEAL BEFORE THE CIT(APPEALS), SUBMISSI ON OF THE ASSESSEE WAS THAT IT COULD NOT EFFECT ANY CONSTRUCT ION IN THE PROPERTY AT T. NAGAR, CHENNAI, ON ACCOUNT OF CERTAIN DIFFICU LTIES IN GETTING THE PLAN APPROVED AND THEREFORE, WAS CONSTRAINED TO SEL L IT OUT AT A LOSS. ACCORDING TO ASSESSEE, THERE WAS A RECESSION IN REA L ESTATE BUSINESS, WHICH RESULTED IN THE LOSS. CIT(APPEALS) APPRECIATED THIS CONTENTION OF THE ASSESSEE. ACCORDING TO HIM, ASSE SSEE HAD TO ABANDON THE PROJECT IN THE LAND AT T. NAGAR, FINDIN G IT NOT VIABLE AND IN ORDER TO MEET FINANCIAL COMMITMENTS, IT HAD EFFE CTED THE SALE. HE, THEREFORE, DELETED THE DISALLOWANCE. 21. NOW BEFORE US, LEARNED D.R. ASSAILING THE ORDER OF THE CIT(APPEALS), MADE MORE OR LESS SIMILAR SUBMISSIONS AS HE MADE IN GROUND NO.3. 22. PER CONTRA, THE LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF THE CIT(APPEALS). 23. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE A.O. HAD MADE THE DISALLOWANCE OF CLAIM OF LOSS ON SALE OF T. NAGAR PROPERTY OF THE ASSESSEE, FOR THE SAME REASON AS FOR THE DISALLOWANCE OF THE LOSS CLAIMED BY THE ASSESSEE ON ITS SALIGRAMAM PROPERTY. WE HAVE VIDE PARAS 16 & 17 ABOVE, HELD T HAT THE DISALLOWANCE OF LOSS ON SALE OF PROPERTY AT SALIGRA MAM WAS NOT CALLED FOR IN THE CIRCUMSTANCES. FOR THE SAME REAS ONS, WE ARE OF THE OPINION, THAT THE DISALLOWANCE OF THE LOSS CLAIMED BY THE ASSESSEE ON THE SALE OF PROPERTY AT T. NAGAR WAS ALSO WAS ALSO NOT CALLED FOR. LD. CIT(APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOW ANCE. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CI T(APPEALS) AND HENCE WE DISMISS THIS GROUND TAKEN BY THE REVENUE. 24. TO SUMMARISE THE RESULT, THE APPEAL OF THE REVE NUE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)- (4) CIT (5) D.R. (6) GUARD FILE PER U.B.S.BEDI, J.M: 25. WHILE FULLY AGREEING WITH THE CONCLUSION AN D FINDING AS DRAWN BY THE ID. ACCOUNTANT MEMBER WITH RESPECT TO FIRST ISSUE OF SE TTING ASIDE THE ORDER OF THE ID. CIT(A) AND RESTORING THE DISALLOWANCE MADE BY THE A SSESSING OFFICER APPLYING THE PROVISIONS OF SECTION 40(B) OF THE INCOME TAX A CT, I DO NOT AGREE WITH THE FINDING AND CONCLUSION AS DRAWN BY THE ID. ACCOUNTA NT MEMBER WITH REGARD TO CONFIRMATION OF DELETION OF DISALLOWANCE OF ` 16,57,950/- AND ` 36,83,334/- WITH RESPECT TO STATED LOSS ON SALE OF FLAT MEASURING 10 50 SQ.FT. AT SALIGRAMAM AND LOSS ON SALE OF PROPERTY AT T. NAGAR RESPECTIVELY AND MY REASONS FOR THE SAME ARE GIVEN AS UNDER: 26. AS REGARDS SECOND ISSUE ABOUT DELETION OF A DDITION OF ` 16,57,950/- ON SALE OF STATED FLAT AT SALIGRAMAM IS CONCERNED, THE ASSESSEE IS FOUND TO HAVE CLAIMED IN THE LIST OF INDIRECT EXPENSES, A SUM OF ` 16,57,950/- SHOWN AS LOSS INCURRED IN SALE OF FLAT AT SALIGRAMAM. ACCORDING T O THE ASSESSING OFFICER, THE LOSS WAS NOT PROVED TO BE INCURRED IN THE COURSE OF ASSE SSEE'S BUSINESS OF CIVIL CONSTRUCTION AND ACCORDING TO THE ASSESSING OFFICER , THE PURCHASE AND SALE OF LAND WERE EFFECTED IN CLOSE PROXIMITY OF TIME AND LAND V ALUE COULD NOT HAVE BEEN DEPRECIATED TO SUCH A LARGE EXTENT IN A PRIME LOCAT ION OF THE CITY. HE THEREFORE, DISALLOWED THE CLAIM OF LOSS WITH RESPECT TO THE ST ATED FLAT AT SALIGRAMAM. 27. THE ASSESSEE, BEFORE THE ID. CIT(A) SUBM ITTED THAT THE LOSS WAS ON ACCOUNT OF SALE OF FLAT AT SALIGRAMAM AND CIRCUMSTA NCES, WHICH HAVE GIVEN RISE TO THE LOSS WAS NOT CONSIDERED BY THE ASSESSING OFFICE R AS THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CONSIDERING AND HOLDING THAT T HE PURCHASE AND SALE OF LAND DID NOT FALL IN THE BUSINESS LINE OF THE ASSESSEE. THE ASSESSEE FURTHER ARGUED THAT THE LANDS PURCHASED WERE HELD BY IT AS STOCK-IN-TRADE A ND NOT AS CAPITAL ASSET. THE ASSESSEE ALSO TRIED TO EXPLAIN THE CIRCUMSTANCES IN WHICH IT HAD INCURRED LOSS ON SALE OF FLAT AT SALIGRAMAM. IN AS MUCH AS THE ASSES SEE WAS CONSTRUCTING THE COMMERCIAL FLAT FOR ONE SHRI KALAIVANAN, WHO MADE D EFAULT IN PAYMENTS OF CONTRACTED AMOUNTS. THE CONTRACTEE HAD TO PAY THE A SSESSEE ` 30,00,000/- IN LIEU OF WHICH HE HAD GIVEN AN OLD FLAT TOWARDS FINAL SET TLEMENT OF THE DUES AND THE ASSESSEE SUBMITTED THAT THE CONTRACTEE WAS AN INFLU ENTIAL MAN WHO COULD DAMAGE ITS BUSINESS PROSPECTS AND THEREFORE, IT ACCEPTED T HE OLD FLAT IN LIEU OF THE AMOUNT DUE FROM HIM AND THAT FLAT WAS SOLD AT LOSS. AS SUCH, THE LOSS WAS DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE AND HAD TO BE ALLOWED. THE ASSESSEE ALSO RAISED AN ALTERNATIVE CLAIM BEFORE THE ID. CIT (A) THAT THE AMOUNT WAS NOT COLLECTED, HENCE SAME OUGHT TO HAVE BEEN ALLOWED AS BUSINESS LOSS. THE ASSESSEE HAS DULY FILED EXPLANATION BEFORE THE ASSESSING OFF ICER AND THE LOSS COULD BE ALLOWED AND EVEN IF IT IS NOT ALLOWABLE AS A LOSS, IT HAS TO BE ALLOWED AS BAD DEBT UNDER SECTION 36(1)(VII) OF THE ACT. THE I D. CIT(A) ACCEPTED THE APPEAL OF THE ASSESSEE IN THIS REGARD. 28. BEFORE THIS BENCH, IN APPEAL, THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE ID. CIT(A) ON THIS POINT AND SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND NOT PURCHASE AND SALE OF LAND, SO IT COULD NEVER BE A LOSS IN THE BUSINESS AND OTHERWISE, THE REAL E STATE BUSINESS WAS BOOMING IN THE RELEVANT PERIOD OF TIME. SO, THE PLEA OF THE AS SESSEE ABOUT LOSS COULD NOT HOLD GOOD AND THE SAME CANNOT BE ALLOWED. MOR EOVER, THERE IS NO DOCUMENTARY EVIDENCE, WHATSOEVER, SUCH AS PURCHASE DEED ETC. BY VIRTUE OF WHICH THE ASSESSEE WAS GIVEN THE OWNERSHIP OF THE FLAT AND WH AT THE ASSESSEE HAS FILED IS COPY OF SALE DEED EXECUTED BY SHRI S.S.R. KALIVANAN , THROUGH SHRI K. RASHEED KHAN AS POWER OF ATTORNEY, IN WHICH THE SAID VENDOR IS SHOWN TO HAVE SOLD THE SHOP MEASURING 1050 SQ.FT. TO MR. JAGADESAN VIDE SA LE DEED EXECUTED ON 23.06.2006 FOR A SUM OF ` 13,42,0501-. AND THE STATUS OF MR. K. RASHEED KHAN, PARTNER OF THE ASSESSEE FIRM, IS THAT OF GENERAL PO WER OF ATTORNEY HOLDER THROUGH GPA DATED 04.05.2006, WHO HAS SIGNED SUCH DOCUMENT WITHOUT ANY FURTHER ELABORATION OR DETAILS (COPY OF WHICH TOO HAS NOT B EEN FILED), AS POA ON BEHALF OF THE VENDOR. SO, THERE IS NOTHING ON RECORD TO SHOW AS TO HOW THE SAID SHOP WAS SOLD TO THE ASSESSEE FOR ` 30.00 LAKHS AND HOW HE RECOVERED THE AMOUNT IS NOT APPARENT FROM THE DOCUMENTS FILED. THEREFORE, THE P LEA OF THE ASSESSEE IN THIS REGARD IS NOT TENABLE AND THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE, WHOSE ACTION SHOULD BE CONFIRMED BY S ETTING ASIDE THE ORDER OF THE ID. CIT(A) IN THIS REGARD. 29. THE ID. COUNSEL FOR THE ASSESSEE RELIED UPO N THE ORDER OF THE ID. CIT(A) AND PLEADED FOR CONFIRMATION OF THE SAME. 30. AFTER HAVING HEARD BOTH THE SIDES, CONSIDER ING THE MATERIAL ON RECORD, IT IS FOUND THAT ONE SHRI S.S.R. KALAIVANAN THROUGH HIS P OWER OF ATTORNEY HOLDER SHRI K. RASHEED KHAN SOLD 'ALL THAT PIECE AND PARCEL OF THE PROPERTY BEING SHOP BEARING NO.1, SITUATED IN THE GROUND FLOOR OF ANUBH AV S.S.R. PANKAJAM ENCLAVE AT NO. 24, ARUNACHALAM ROAD, SALIGRAMAM, CHENNAI - 93 MEASURING 1050 SQ.FT. CONSTRUCTED AREA (WHICH INCLUDES COMMON AREA) TO GETHER WITH 530.18 SQ.FT. UNDIVIDED OF SHARE OUT OF TOTAL EXTENT OF 21600 SQ .FT. IN THE SAID PREMISES COMPRISEDIN SURVEY NOS.143/1,143/2,144/1 AND 144/2 OF SALIGRAMAM VILLAGE, EGMORE - NUNGAMBAKKAM TALUK' TO SHRI P. JAGADEESAN [AS PER SCHEDULE OF PROPERTY AT PAGE NO.19 OF THE SALE DEED DATED 23.06 .2006 PLACED AT PAGES 1 TO 21 OF THE COMPILATION DATED 22.11.2010]. OTHERWISE, TH ERE IS NO DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE OR IS FOUND ON RE CORD OF THE APPEAL PAPERS, WHICH COULD SHOW THAT THE ASSESSEE HAS PURCHASED AN Y PROPERTY OR ANY CONSIDERATION AMOUNT HAS BEEN FIXED OR ADJUSTED WHI CH WAS DUE. WHAT IS AVAILABLE ON RECORD IS A COPY OF SALE DEED DATED 23.06.2006, AT PAGES 1 TO 21 OF COMPILATION DT. 22.11.2010, EXECUTED BY SHRI S.S.R. KALAIVANAN, IN WHICH SHRI K. RASHEED KHAN, PARTNER OF THE ASSESSEE FIRM HAS B EEN SHOWN TO BE POWER OF ATTORNEY HOLDER AND HAS SIGNED SUCH DEED IN THAT CA PACITY ONLY AND, AS PER COVENANT AT PAGE 10, IT IS MENTIONED THAT 'THUS THE SAID MR. S.S.R. KALAIVANAN (THE VENDOR HE REIN) IS TRULY SEIZED AND IN ABSOLUTE POSSESSION AND IN ENJOYMENT OF THE PROPERTY BEING SHOP BEARING NO.1, SITUATED IN THE GROUND FLOOR OF ANUBH AV S.S.R. PANKAJAM ENCLAVE AT NO.24, ARUNACHALAM ROAD, SALIGRAMAM, CHENNAI - 93 MEASURING 1050 SQ.FT. CONSTRUCTED AREA (WHICH INCLU DES COMMON AREA) TOGETHER WITH 530.18 SQ.FT. UNDIVIDED OF SHARE OUT OF TOTAL EXTENT OF 21600 SQ.FT. IN THE SAID PREMISES COMPRISED IN SURVEY NOS . 143/1, 143/2, 144/1 AND 144/2 OF SALIGRAMAM VILLAGE, EGMORE-NUNGAMBA KKAM TALUK, MOREFULLY DESCRIBED IN THE SCHEDULE HEREUNDER.' 31. BESIDES, NOTHING HAS BEEN BROUGHT ON RECORD TO JUSTIFY THE PLEA RAISED BY THE ASSESSEE AND OTHERWISE ALSO AS PER THE RECITAL CLAUSE AND UNDER OTHER CLAUSE OF THE DEED, PURCHASER HAD PAID ` 13,42,050/- AS SALE CONSIDERATION TO THE VENDOR BY WAY OF CASH AT THE TIME OF EXECUTION OF T HE DOCUMENT AND THE VENDOR HAS ADMITTED IN THE ACKNOWLEDGEMENT OF THE RECEIPT OF THE PAYMENT OF ` 13,42,050/- AND IT IS CATEGORICALLY MENTIONED IN T HE SAID DOCUMENT THAT THE PROPERTY IS FREE FROM ALL ENCUMBRANCE AND ALL RIGHT S HAVE BEEN TRANSFERRED IN FAVOUR OF THE PURCHASER BY THE VENDOR AND SO FAR AS ACQUISITION OF THE PROPERTY/CAPITAL ASSET IS CONCERNED, RELEVANT PROVI SION AS CONTAINED IN SUB- SECTION (14) OF SECTION 2 DEFINES 'CAPITAL ASSET' A S 'PROPERTY OF ANY KIND' WHETHER OR NOT CONNECTED WITH THE BUSINESS OR PROFE SSION. NEITHER THE TERM 'PROPERTY' NOR THE TERM 'PROPERTY OF ANY KIND' AS U SED IN SECTION 2(14) IS DEFINED IN THE INCOME-TAX ACT OR COMPREHENSIVELY DE FINED IN ANY OTHER ACT THOUGH INCLUSIVE DEFINITIONS OF 'IMMOVABLE PROPERTY ' OR 'MOVABLE PROPERTY' ARE AVAILABLE, INTER-ALIA, IN THE GENERAL CLAUSES A CT AND THE TRANSFER OF PROPERTY ACT. IN COMMON PARLANCE, 'PROPERTY' INCLUD ES NOT ONLY MONEY AND OTHER TANGIBLE THINGS OF VALUE BUT ALSO ANY INTA NGIBLE RIGHT CONSIDERED AS A SOURCE OR ELEMENT OF INCOME OR WEALTH AS ALSO THE R IGHT AND INTEREST WHICH A MAN HAS IN LANDS AND CHATTELS TO THE EXCLUSION OF OTHERS. THUS THE WORD 'PROPERTY' DOES NOT MEAN MERELY PHYSICAL PROPERTY B UT ALSO MEANS THE RIGHT, TITLE OR INTEREST IN IT. IF A PERSON IS AN ABSOLUTE OWNER OF THE PROPERTY, THEN AND THEN ONLY IT CAN BE SAID THAT HE HAS ALL THE RIGHTS AND INTEREST IN THAT PROPERTY, THAT IS TO SAY, RIGHT TO TITL E, RIGHT TO ALIENATE, RIGHT TO POSSESSION, RIGHT TO ENJOYMENT, ETC. IF A PERSON IS NOT THE ABSOLUTE OWNER OF PROPERTY THEN IT CANNOT BE SAID THAT HE HAS ALL THE RIGHTS AND INTEREST IN THE PROPERTY AS AN ABSOLUTE OWNER THEREOF WOULD HAVE. A PERSON CANNOT TRANSFER WHAT HE DOES NOT HAVE. THE RELEVANT QUE STION THEREFORE IS AS TO WHAT HAS BEEN TRANSFERRED BY THE ASSESSEE AND WHE N WAS THE SAME ACQUIRED. IF A PERSON TRANSFERS ABSOLUTE OWNERSHIP, THEN HE MUST FIRST ACQUIRE ABSOLUTE OWNERSHIP ELSE HE CANNOT TRANSFER ABSOLUTE OWNERSHIP WITHOUT FIRST ACQUIRING IT. IT IS THUS THE DATE OF ACQUISITION OF ABSOLUTE OWNERSHIP AND THE DATE OF TRANSFER OF ABSOLUTE O WNERSHIP GIVING RISE TO GAIN OR PROFIT, WHICH IS RELEVANT FOR DETERMIN ING THE PERIOD OF HOLDING OF WHAT HAS BEEN TRANSFERRED. SO IN THE ABSENCE OF ANY THING HAVING BEEN ESTABLISHED TO SHOW THAT ASSESSEE FIRM HAS EVER ACQ UIRED ANY RIGHT IN THE SAID PROPERTY AGAINST WHICH THE ASSESSEE IS CLAIMING LOS S ON SALE, WHETHER IT COULD BE FURTHER ALIENATED IN ORDER TO CONSIDER THE CLAIM OF LOSS. 32. FROM THE DISCUSSION AS MADE ABOVE AND IN VIEW OF DOCUMENTARY EVIDENCE AND MATERIAL ON RECORD, IT COULD BE SEEN THAT THE A SSESSING OFFICER HAS NOT PROPERLY CONSIDERED AND APPRECIATED THE ISSUE WHILE DECIDING THE SAID LOSS AMOUNT AS CLAIMED BY THE ASSESSEE AND EVEN DID NOT LOOK INTO THE DOCUMENTARY EVIDENCE PLACED BEFORE HIM AT ASSESSMENT STAGE, WHI CH IS APPARENT FROM THE FACT THAT IN PARA 4 OF HIS ORDER, HE IS DISCUSSING ABOUT SHORT TERM LOSS ON SALE OF LAND, WHEREAS THIS IS A CASE OF SALE OF SHOP GIVING HIS L OGIC THAT LAND CANNOT DEPRECIATE TO SUCH A LARGE EXTENT IN PRIME LOCATION OF THE CIT Y WHILE MENTIONING ABOUT DIRECT EXPENSES OF THE CLAIM OF THE ASSESSEE. THE ID. CIT( A), IN APPEAL HAS ALSO NOT APPROPRIATELY DEALT WITH THE ISSUE WHEN HE IS MENTI ONING LOSS ON SALE OF FLAT WHEN IT IS A SHOP AND THAT TOO WITHOUT CONSIDERING WHETH ER SUCH PROPERTY, ABOUT WHICH APPEAL IS BEING CONSIDERED AND DECIDED, HAS EVER BE EN ACQUIRED BY THE ASSESSEE, AND WHETHER THE ASSESSEE HAS BECOME FIRST AN ABSOLUTE OWNER OF THE PROPERTY BEFORE ALIENATING THE SAME IN ORDER TO CLA IM LOSS AND FROM ALL THIS, IT CAN BE INFERRED THAT THE ID. CIT(A) DID NOT CONSIDER TH E FACTUAL ASPECT OR LEGAL POSITION TO ASCERTAIN THE JUSTIFICATION OF CLAIM OF THE ASSE SSEE BEFORE ALLOWING THE SAME. SO, THE ORDERS OF BOTH THE AUTHORITIES BELOW ARE NO T SUSTAINABLE. THEREFORE, IN THE INTEREST OF JUSTICE AND TO HAVE A FAIR PLAY IN THE MATTER, IT WOULD BE JUST AND APPROPRIATE TO SET ASIDE THE ORDERS OF BOTH THE AUT HORITIES ON THIS ISSUE AND RESTORE THE MATTER BACK ON THE FILE OF THE ASSESSIN G OFFICER WITH THE DIRECTION TO RE-EXAMINE THE ISSUE BY CONSIDERING NECESSARY DETAI LS AND MAKING PROPER ENQUIRY AFTER GIVING DUE OPPORTUNITY TO THE ASSESSE E. IT IS HELD AND DIRECTED ACCORDINGLY. 33. AS REGARDS THIRD ISSUE, WHICH RELATES TO D ELETION OF DISALLOWANCE OF CLAIM OF LOSS OF ` 36,83,334/- ON SALE OF PROPERTY AT T. NAGAR, CHEN NAI, THE FACTS IN BRIEF INDICATE THAT THE ASSESSEE IS STATED TO HAVE ABANDO NED THE PROJECT FOR WHICH THE LAND AT RAMESHWARAM ROAD, T. NAGAR WAS ACQUIRED AS IT COULD NOT GET APPROVAL OF THE PLAN AND THIS WAS IN THE COURSE OF ASSESSE E'S BUSINESS IN CONSTRUCTION OF FLATS. SINCE THE PROJECT COULD NOT BE MATERIALIZE D AND THE ASSESSEE WAS IN NEED OF BLOCKED CAPITAL, IT SOLD THE PROPERTY AT A LO SS AS THERE WAS STATED RECESSION IN THAT PARTICULAR POINT OF TIME. SUCH PLEA OF THE AS SESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER, WHO DISALLOWED THE CLAIM AGAINST WHICH THE ASSESSEE PREFERRED APPEAL AND THE ID. CIT(A) WHILE RECORDI NG WRITTEN SUBMISSIONS IN PARA 6.7 OF HIS ORDER, HAS CONCLUDED TO DELETE THE IMP UGNED ADDITION AS PER PARA 6.8 OF HIS ORDER, BOTH THE PARAS ARE REPRODUCED AS UNDE R: '6.7 IN THE WRITTEN SUBMISSION FILED ON 11. 02 2010. THE AR OF THE APPELLANT STATED THAT AS REGARDS THE LAND AT T .NAGAR, CHENNAI THE APPELLANT ACQUIRED THE LAND WITH THE INTENTION TO PUT UP FLAT. SINCE THE APPROACH ROAD WAS NOT WIDE, THERE WAS DIFFICULT Y IN GETTING THE PLAN APPROVED. SINCE THE APPELLANT HAS TO ABANDON THE PR OJECT AS NOT VIABLE, THE LAND PURCHASED WAS SOLD AND THE APPELLANT INCURRED A LOSS OF ` 36.83,334/- AS THERE WAS RECESSION IN REAL ESTATE AT THAT PARTI CULAR POINT OF TIME. SINCE THE APPELLANT HAS TO MEET THE FINANCIAL COMMITM ENTS, THEY HAD TO COMPULSORILY SELL THE LAND TO THE MAXIMUM AMOUNT TH AT COULD BE REALIZED. THE LOSS HAS ARISEN IN THE COURSE OF THE APPELLANT' S REGULAR BUSINESS AND THEREFORE, THE SAME HAS TO BE ALLOWED. THE AO IS NO T DOUBTING THE PURCHASE CONSIDERATION OR SALE CONSIDERATION OF THE LAND A ND THE LOSS SUSTAINED. SINCE THE LAND WAS ONLY THE APPELLANT'S 'STOCK IN TRADE' AND NOT 'CAPITAL ASSET', ' THE LOSS ON SALE OF SUCH STOCK IN TRADE IS TO BE TR EATED AS BUSINESS LOSS AND THE A A IS NOT JUSTIFIED IN TREATING THE SAME AS 'CAPITAL L OSS' AND DISALLOWING THE SAME. 6.8 1 HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT'S REPRESENTATIVE AND THE REASONING OF THE AO. I AM OF ALLOWED AS BUSINESS EXPENDITURE OR IN THE ALTERNATIVE, THE LOSS COULD EVEN BE ALLOWED AS A BAD DEBT U/S 36(VII) OF THE INCOME TAX ACT. 1961. AS THE AMOUNT HAS ALREADY BEEN WRITTEN OFF IN HIS BOOKS OF ACCOUNT AND THE AMOUNT COULD NOT BE R EALIZED, SEEMS TO BE ACCEPTABLE. SINCE THE APPELLANT EXPLAINED THE CIRCU MSTANCES UNDER WHICH THE LOSS HAVING BEEN INCURRED IN THE COURSE OF BUSI NESS, I DIRECT THE AO TO ALLOW THE LOSS OF (,36,83.334/- ON SALE OF LAND INCURRED BY THE APPELLANT. THE APPELLANT SUCCEEDS ON THIS GROUND. 34. AGGRIEVED BY THIS ORDER OF THE ID. CIT(A), TH E DEPARTMENT HAS COME UP IN APPEAL AND THE ID. DR SUBMITTED THAT FIRSTLY NO DOCUMENT HAS BEEN ADDUCE D BY THE ASSESSEE TO SHOW THAT HE HAS BECOME OWNER OF TH E PLOT OF LAND MEASURING 2 GROUNDS AND 670 SQ FT. WHEN TWO SEPARATE SALE DEEDS HAVE BEEN EXECUTED, WHEREIN SHRI A. RASHEED KHAN, WHO IS PARTNER OF THE ASSESSEE FIRM IS SHOWN TO BE POWER OF ATTORNEY HOLDER, WHO HAS EXECUTED SALE DEEDS IN THE CAPACITY OF POWER OF ATTORNEY HOLDER ON BEHALF OF THE VENDOR AN D NOWHERE IN SUCH DEEDS, IT IS SPECIFICALLY OR OTHERWISE MENTIONED ABOUT THE ASSES SEE FIRM HAVING BECOME OWNER OF THIS PIECE OF LAND. NO EVIDENCE TO THE EFF ECT THAT ANY PERMISSION WAS APPLIED FOR BY THE ASSESSEE FIRM FOR CONSTRUCTING A NY BUILDING ON SAID PLOT OF LAND OR REFUSAL LETTER, IF ANY, ISSUED BY THE COMPETENT AUTHORITY. THIS STORY APPEARS TO HAVE BEEN MADE BY THE ASSESSEE IN ORDER TO REDUCE T HE TAX LIABILITY WHEN THE ASSESSEE IS NOT SHOWN TO BE LEGAL AND ABSOLUTE OWNE R OF THE PLOT AND SAME HAS BEEN JUST SOLD BY THE VENDOR THEMSELVES THROUGH THE IR ATTORNEY, WHO HAPPENS TO BE PARTNER OF THE ASSESSEE FIRM. HOWEVER, THE ASSES SEE HAS ALSO FILED COPY OF THE AGREEMENT OF SALE FOR PURCHASE OF 2 GROUNDS 670 SQ.FT. PLOT AT T. NAGAR FOR A SUM OF ` 2.06 CRORES VIDE AGREEMENT DATED 20.11.2006, BUT N EITHER THERE IS ANY MENTION ABOUT SUCH AGREEMENT IN EITHER OF THE TWO S ALE DEEDS EXECUTED NOR THE ASSESSEE HAS EXPLAINED ANYTHING EITHER BEFORE THE A UTHORITIES BELOW OR EVEN BEFORE THIS BENCH AS TO HOW IT HAS BECOME ABSOLUTE OWNER OF THE SAID PLOT OF LAND, WHICH WAS SOLD THROUGH TWO TRANSACTIONS WITHO UT INDICATING THE STATUS OF THE ASSESSEE FIRM TO BE THAT OF ABSOLUTE OWNER. HE HAS JUST PUT UP A STORY, WHICH APPEARS TO BE BEYOND LOGIC OR HAVING ANY TRUTH IN I T, JUST TO GET HIS INCOME REDUCED BY HAVING CLAIMED LOSS BY STATING THAT THER E IS RECESSION IN IMMOVABLE PROPERTY BUSINESS AND THE ASSESSEE HAS SUFFERED A L OSS. IN FACT, THE LANDED PROPERTY DOES NOT DEPRECIATE AND PARTICULARLY DURIN G SHORT SPAN OF TIME, RATHER IT APPRECIATES AND THERE IS NO QUESTION OF ANY LOSS H AVING BEEN INCURRED BY THE ASSESSEE AND MOREOVER, THE LAND STATED TO HA VE BEEN SOLD IS 5250 SQ.FT., WHEREAS PURPORTED ACQUISITION IS 5470 SQ.FT. LEAVIN G 220 SQ.FT. UNSOLD AND COST OF WHICH COMES TO BE MORE THAN ` 8.00 LAKHS, WHICH IN ANY CASE COULD NOT BE PART OF LOSS, IF CONSIDERED TO BE ALLOWABLE, SO THE ASSESSI NG OFFICER HAS RIGHTLY REFUSED TO ALLOW SUCH LOSS AND THE ID. CIT(A) IS NOT JUSTIFI ED IN DELETING SUCH DISALLOWANCE MADE BY THE ASSESSING OFFICER. IT WAS THUS, PLEADED FOR SETTING ASIDE THE ORDER OF THE ID. CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 35. THE ID. COUNSEL FOR THE ASSESSEE RELIED UPON T HE ORDER OF THE ID. CIT(A) IN THIS REGARD AND PLEADED THAT SINCE PERMISSION TO CO NSTRUCT BUILDING COULD NOT BE OBTAINED BY THE ASSESSEE DESPITE HAVING MADE EFFORT S AND THE ASSESSEE WAS IN NEED OF MONEY, THEREFORE, HE HAD TO SELL THE LAND P URCHASED EVEN AT LOSS AND THIS WAY LOSS WAS INCURRED, WHICH IS BUSINESS LOSS DURIN G THE COURSE OF NORMAL BUSINESS ACTIVITY, WHICH HAD TO BE ALLOWED AND THE ID. CIT(A) CONSIDERING ALL THESE FACTS HAS DELETED THE ADDITION MADE BY THE AS SESSING OFFICER, WHOSE ACTION IS PROPER AND JUSTIFIED, WHICH SHOULD BE UPHELD. 36. AFTER HAVING HEARD BOTH THE SIDES AND CONSID ERING THE MATERIAL ON RECORD, IT IS FOUND THAT AS PER THE DOCUMENTARY EVIDENCE PR ODUCED AND PLACED FROM PAGES 22 TO 29 OF THE COMPILATION FILED DATED 22.11 .2010, BY VIRTUE OF WHICH SHRI K. RASHEED KHAN IS SHOWN TO HAVE AGREED TO PURCHASE PLOT OF LAND MEASURING 2 GROUNDS AND 670 SQ.FT. (5470 SQ.FT.) THROUGH AN AGR EEMENT OF SALE ENTERED INTO BETWEEN SHRI K. RASHEED KHAN, PARTNER OF THE ASSESS EE FIRM WITH 4 SELLERS NAMELY MRS. SUKANYA RAJAGOPALAN, MRS. SRIMATHI SUND ARARAJAN, SMT. MYTHILI VENUGOPALAN AND SMT. NIRMALA PRABHAKAR FOR A SUM OF ` 2.06 CRORES. THIS ALSO STIPULATED IN THE SAID AGREEMENT THAT ` 50 LAKHS HAVE BEEN RECEIVED AT THE TIME OF EXECUTION OF THIS AGREEMENT AND REST OF ` 1.56 CRORES WOULD BE PAID WITHIN THREE MONTHS FROM THE DATE OF THE AGREEMENT TO THE VENDOR S IN THE PROPORTION AND MANNER INDICATED THEREIN. IT IS ALSO STIPULATED IN CLAUSE 3 OF THE AGREEMENT THAT BALANCE OF ` 1.56 CRORES WOULD BE PAID TO THE VENDOR IN FULL QU IT AND ON RECEIPT OF THE ENTIRE SALE CONSIDERATION, THE VENDORS SHALL EX ECUTE REGISTERED GENERAL POWER OF ATTORNEY IN FAVOUR OF THE PURCHASER TO DEAL WITH THE SCHEDULED PROPERTY BUT NO SUCH POWER OF ATTORNEY HAS BEEN PLACED ON RECORD. 37. THERE ARE TWO COPIES OF SEPARATE SALE DE EDS DATED 08.01.2007 AND 28.03.2007, PLACED IN THE PAPER BOOK FROM PAGES 32 TO 45 AND 46 TO 72, FOR SALE OF PROPERTY MEASURING 2700 SQ.FT. AND 2550 SQ. FT. FOR CONSIDERATION OF ` 87,00,000/- AND ` 82,16,167/- RESPECTIVELY AND IN THE FIRST DEED SHR I K. RASHEED KHAN, PARTNER OF THE ASSESSEE FIRM IS SHOWN TO BE P OWER OF ATTORNEY HOLDER AND CONFIRMING PARTY WHEREAS IN THE SECOND DEED HE HAS SIGNED SUCH DEED ON BEHALF OF THE VENDORS AS THEIR POWER OF ATTORNEY HOLDER WI THOUT HAVING MENTIONED ABOUT THIS AGREEMENT OF SALE OR WITHOUT SHOWING ANY AUTHO RITY TO HAVE BECOME OWNER OF THE PROPERTY IN EITHER OF THE DEEDS . 38. AS MENTIONED WHILE DISCUSSING THE SECOND ISS UE IN EARLIER PARAGRAPHS THAT BEFORE ALIENATING RIGHT IN THE PROPERTY ONE HAS TO ESTABLISH THAT IT/HE HAS ACQUIRED ABSOLUTE RIGHT IN THE PROPERTY BY ADDUCING NECESSAR Y EVIDENCE. IF A PERSON IS AN ABSOLUTE OWNER OF THE PROPERTY, THEN ONLY IT CAN BE SAID THAT HE HAS ALL THE RIGHTS AND INTEREST IN THAT PROPERTY, THAT IS TO SAY, RIGH T TO TITLE, RIGHT TO ALIENATE, RIGHT TO POSSESSION, RIGHT TO ENJOYMENT, ETC. IF A PERSON I S NOT THE ABSOLUTE OWNER OF PROPERTY THEN IT CANNOT BE SAID THAT HE HAS ALL THE RIGHTS AND INTEREST IN THE PROPERTY AS AN ABSOLUTE OWNER THEREOF WOULD HAVE. A PERSON CANNOT TRANSFER WHAT HE DOES NOT HAVE. THE RELEVANT QUESTION THERE FORE IS AS TO WHAT HAS BEEN TRANSFERRED BY THE ASSESSEE AND WHEN WAS THE SAME A CQUIRED. IF A PERSON TRANSFERS ABSOLUTE OWNERSHIP, THEN HE MUST FIRST AC QUIRE ABSOLUTE OWNERSHIP ELSE HE CANNOT TRANSFER ABSOLUTE OWNERSHIP WITHOUT FIRST ACQUIRING IT AND ONLY THEN HE CAN FURTHER ALIENATE THE SAME. IN THIS CASE WHEN TH E ASSESSEE FIRM'S PARTNER SHRI K. RASHEED KHAN IS JUST ACTING AS ATTORNEY HOLDER/C ONFIRMING PARTY, IT DOES NOT FOLLOW THAT HE HAS ACQUIRED ANY RIGHT, WHICH IS BEI NG ALIENATING FURTHER. MOREOVER, NEITHER COPY OF THE POWER OF ATTORNEY EXECUTED BY T HE SO-CALLED SELLER OF THE LAND TO THE PARTNER OF THE ASSESSEE'S FIRM HAS BEEN FILE D NOR ANY OTHER DOCUMENT TO SHOW WHAT WAS THE EXTENT OF AUTHORITY GIVEN TO THE ATTORNEY HOLDER AND WHETHER ANY ABSOLUTE RIGHT IN PROPERTY HAS BEEN CONFERRED U PON THE ASSESSEE AT ANY POINT OF TIME. SINCE ALL THESE ASPECTS HAVE NOT BEEN LOOK ED INTO OR CONSIDERED DURING ASSESSMENT AND THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF LOSS BY PASSING VERY SKETCHY ORDER IN THIS REGARD AND THE I D. CIT(A) HAS JUST GIVEN THE RELIEF BY DELETING THE DISALLOWANCE MADE WHEN MAJOR ISSUES ARE THERE, WHICH REQUIRES PROPER INVESTIGATION AND PROBING, THEREFOR E, IN THE INTEREST OF JUSTICE AND TO HAVE FAIR PLAY IN THE MATTER, ORDERS OF AUTHORIT IES BELOW IN THIS REGARD ARE SET ASIDE AND MATTER IS RESTORED BACK ON THE FILE OF TH E ASSESSING OFFICER FOR RECONSIDERATION OF THE ISSUE AFRESH AFTER INVESTIGA TING THE CLAIM OF THE ASSESSE THOROUGHLY AND PROPERLY AFTER CONSIDERING EXTENT OF AREA ACQUIRED AND SOLD BY GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSE. IT IS HELD AND ORDERED ACCORDINGLY. SD/- (U.B.S. BEDI) JUDICIAL MEMBER DATED 21.04.2011 VM/- IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT THIRD MEMBER ITA NO.1143(MDS)/2010 ASSESSMENT YEAR: 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, BUSINESS CIRCLE IV, CHENNAI. VS. M/S. MADEENA CONSTRUCTIONS NO.19, ARUNACHALAM ROAD, DASARATHAPURAM, SALIGRAMAM, CHENNAI-93. PAN AAJFM8896P. (APPELLANT) (RESPONDENT) APPELLANT BY : R.B.NAIK, IRS, COMMISSIONER OF INCOME-TAX RESPONDENT BY : SHRI M.KARU NAKARAN, ADVOCATE. DATE OF HEARING : 18 TH OCTOBER, 2011 DATE OF ORDER : 31 ST OCTOBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: IN THIS THIRD MEMBER CASE, THE QUE STION PLACED BEFORE ME IS: IN VIEW OF THE FACTS AND CIRCUMSTANCES, WHETHER THE ORDERS OF AUTHORITIES BELOW COULD BE SET ASIDE A ND MATTER CAN BE REMITTED BACK TO THE ASSESSING OFFICER FOR RECONSIDERATION OR ORDER OF THE LD. CIT(A) COULD BE UPHELD WITH REGARD TO SECOND AND THIRD ISSUE? 2. IN COMPLETING THE ASSESSMENT UNDER SECTION 143( 3) OF THE INCOME-TAX ACT, 1961, THE ASSESSING AUTHORIT Y HAD MADE THE FOLLOWING THREE DISALLOWANCES:- (I) REMUNERATION TO PARTNERS - ` 54,83,571/- (II) LOSS ON SALE OF FLAT - ` 16,57,950/- (III) LOSS ON SALE OF LAND - ` 36,83,334/- THE COMMISSIONER OF INCOME-TAX (APPEALS) SET ASIDE ALL THESE THREE DISALLOWANCES AND DELETED THE CORRESPONDING A DDITIONS MADE BY THE ASSESSING AUTHORITY. 3. THE REVENUE FILED SECOND APPEAL BEFORE THE TRIBUNAL. IN THE TRIBUNAL, THE LEARNED ACCOUNTANT MEMBER AUTHORED THE ORDER. REGARDING THE FIRST QUESTION O F DISALLOWANCE OF REMUNERATION TO PARTNERS, THE LEARNED ACCOUNTANT MEMBER SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A PPEALS) AND REINSTATED THE DISALLOWANCE MADE BY THE ASSESSING A UTHORITY. THAT ISSUE WAS ACCORDINGLY DECIDED AGAINST THE ASSE SSEE. IN THE MATTER OF THE OTHER TWO DISALLOWANCES, BEING LOSS O N SALE OF FLAT AND LOSS ON SALE OF LAND, THE LEARNED ACCOUNTANT ME MBER AGREED WITH THE COMMISSIONER OF INCOME-TAX(APPEALS) AND DI SMISSED THE CORRESPONDING GROUNDS RAISED BY THE REVENUE. T HUS THE LEARNED ACCOUNTANT MEMBER PROPOSED DISPOSING OF THE APPEAL FILED BY THE REVENUE BY DECIDING ONE ISSUE IN FAVOU R OF THE REVENUE AND DECIDING TWO ISSUES IN FAVOUR OF THE AS SESSEE. 4. THE LEARNED JUDICIAL MEMBER, WHO DISSENTED, AGREED WITH THE ORDER OF THE LEARNED ACCOUNTANT MEM BER AS FAR AS THE FIRST ISSUE OF DISALLOWANCE OF PARTNERS REM UNERATION IS CONCERNED. AS FAR AS THE REMAINING TWO ISSUES OF L OSS ON SALE OF FLAT AND LOSS ON SALE OF LAND ARE CONCERNED, THE LE ARNED JUDICIAL MEMBER UPHELD THE ORDER OF THE ASSESSING AUTHORITY AND SET ASIDE THE ORDERS OF THE COMMISSIONER OF INCOME-TAX( APPEALS) AND THUS DISSENTED FROM THE VIEW OF THE LEARNED ACC OUNTANT MEMBER. 5. IT IS WITH REFERENCE TO THE ABOVE TWO DISALLOWA NCES, NAMELY, LOSS ON SALE OF FLAT AND LOSS ON SALE OF LA ND THAT THE QUESTION IS REFERRED TO THE THIRD MEMBER. 6. I CONSIDERED THE MATTER IN DETAIL. THE ASSESSE E HAS CLAIMED A LOSS OF ` 16,57,950/- AS LOSS INCURRED ON SALE OF FLAT AT SALIGRAMAM. THE SAID SUM OF ` 16,57,950/- RELATED TO INDIRECT EXPENSES INCURRED IN CONNECTION WITH THE SALE OF FL AT AT SALIGRAMAM. THE OTHER LOSS OF ` 36,83,334/- WAS CLAIMED BY THE ASSESSEE IN RESPECT OF SALE OF LAND AT T.NAGAR. BO TH THE LOSSES HAVE BEEN DISALLOWED BY THE ASSESSING AUTHORITY ON THE FOLLOWING GROUNDS:- (I) THE ASSESSEE HAS NOT PROVED THAT THE LOSSES WE RE INCURRED IN THE COURSE OF ASSESSEES BUSINESS OF CI VIL CONSTRUCTION. ON THE OTHER HAND, THE LOSSES WERE I NCURRED WHILE MAKING PURCHASE AND SALE OF THOSE PROPERTIES. (II) ON CONSIDERING THE PROXIMITY OF TIME OF PURCH ASE AND SALE OF PROPERTIES, THERE COULD NOT HAVE BEEN SUCH A FALL IN THEIR PRICES AND CONSEQUENTLY THERE COULD NOT BE SU CH LOSSES AS CLAIMED BY THE ASSESSEE. 7. BY AND LARGE THE ABOVE STATED REASONS HAVE BEEN APPLIED BY THE ASSESSING AUTHORITY FOR BOTH THE DIS ALLOWANCES. 8. THE COMMISSIONER OF INCOME-TAX(APPEALS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND DELETE D THE DISALLOWANCES ON THE FOLLOWING GROUNDS:- (I) THE ASSESSING AUTHORITY HAS NOT CONSIDERED THE CIRCUMSTANCES IN WHICH THE ASSESSEE INCURRED LOSS O N SALE OF THOSE PROPERTIES. (II) THE ASSESSEE IS CARRYING ON THE BUSINESS OF C IVIL CONSTRUCTION AND FURTHER THE PARTNERSHIP DEED AUTHO RISES THE ASSESSEE TO CARRY ON ANY OTHER LINE OR LINES OF BUSINESS AND THE ASSESSEE WAS CARRYING ON BUSINESS IN THE FI ELD OF PROMOTING COMMERCIAL AND RESIDENTIAL FLATS AND AS S UCH THE OBSERVATION OF THE ASSESSING OFFICER IS AGAINST FAC TS. HE HELD THAT, THEREFORE, THE LOSS WAS INCURRED IN T HE COURSE OF CARRYING ON OF THE BUSINESS BY THE ASSESSEE. IN FA CT THE FLAT AT SALIGRAMAM WAS SOLD BY THE ASSESSEE AS A PART OF SE TTLEMENT ARRIVED AT BETWEEN THE ASSESSEE AND THE CONTRACTEE. 9. THE VIEWS OF THE COMMISSIONER OF INCOME- TAX(APPEALS) HAVE BEEN UPHELD BY THE LEARNED ACCOUN TANT MEMBER IN THE FOLLOWING MANNER:- (I) THE ASSESSING AUTHORITY HAS MADE THE DISALLOWAN CES ON TWO REASONS. (II) THE FIRST REASON BEING THAT THE ASSESSEE WAS N OT ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF LAN D. (III) THE SECOND REASON BEING THAT THERE COULD NOT HAVE BEEN DEPRECIATION IN THE VALUE OF LAND SO AS TO CLA IM A LOSS ON ITS SALE. (IV) APART FROM THE REASONS STATED BY THE COMMISSIO NER OF INCOME-TAX(APPEALS), THE ASSESSEE IS AUTHORISED BY THE DEED OF PARTNERSHIP TO CARRY ON THE BUSINESS OF CONSTRUCTION AND THAT OF PROMOTING COMMERCIAL AND RESIDENTIAL FLATS AND IN SUCH CIRCUMSTANCES THE PUR CHASE AND SALE OF FLAT AND LAND ARE VERY MUCH PART OF THE BUSINESS REGULARLY CARRIED ON BY THE ASSESSEE. (V) THE ASSESSEE TREATED THE LAND IN ITS ACCOUNTS A S STOCK IN TRADE AND WHEN STOCK IN TRADE IS SOLD, THE RESUL T WOULD BE NATURALLY EITHER BUSINESS PROFIT OR BUSINESS LOS S. (VI) THE ASSESSEE WAS FORCED TO SELL THE PROPERTIES FOR LOSS FOR ITS OWN BUSINESS REASONS WHICH CANNOT BE OVERLO OKED BY THE ASSESSING AUTHORITY FOR HIS OWN REASONS. (VII) THE PURCHASE AND SALE DEEDS HAVE NOT BEEN DOU BTED BY THE ASSESSING AUTHORITY. (VIII) THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED BY THE ASSESSING AUTHORITY. 10. IN THE LIGHT OF THE ABOVE FINDINGS, THE LEARNE D ACCOUNTANT MEMBER HELD THAT THERE IS NO JUSTIFICATI ON FOR THE DISALLOWANCE OF THE LOSSES ARISING OUT OF THE SALE OF THE TWO PROPERTIES. HE ACCORDINGLY UPHELD THE ORDERS OF TH E COMMISSIONER OF INCOME-TAX(APPEALS). 11. THE LEARNED JUDICIAL MEMBER, ON THE OTHER HAND , HAS SET ASIDE THE ORDERS OF THE COMMISSIONER OF INC OME- TAX(APPEALS) ON THE ABOVE TWO DISALLOWANCES AND REM ITTED BACK THE ISSUES TO THE ASSESSING AUTHORITY TO PASS FRESH ORDERS AFTER CONDUCTING NECESSARY ENQUIRIES. THE LEARNED JUDICI AL MEMBER HAS COME TO THE ABOVE CONCLUSION ON THE GROUND THAT THE CHRONOLOGY AND SEQUENCE OF THE TRANSACTIONS HAVE NO T BEEN FULLY EXPLAINED BY THE ASSESSEE FIRM ESPECIALLY IN THE LI GHT OF THE FACT THAT SHRI K.RASHEED KHAN, ONE OF THE PARTNERS OF TH E ASSESSEE FIRM WAS ACTING ONLY AS A POWER OF ATTORNEY HOLDER AND THERE IS NO MATERIAL TO COME TO THE CONCLUSION THAT THE FIRM HAD GOT RIGHTS IN THE RESPECTIVE PROPERTIES BEFORE ALIENATING THEM . 12. AFTER CONSIDERING THE CASE, I AM OF THE VIEW T HAT THE LEARNED JUDICIAL MEMBER HAS OVERLOOKED THE SALIENT FACTS OF THE CASE AND HAS RATHER BEEN LED BY THEORETICAL ASPECTS OF THE LAW RELATING TO TRANSACTIONS OF IMMOVABLE PROPERTIES. HE HAS OVERLOOKED THE MATERIALS AVAILABLE ON RECORD THAT T HE PURCHASES AND SALES HAVE BEEN DOCUMENTED, BOOKS OF ACCOUNTS H AVE BEEN PROPERLY MAINTAINED AND THE CONTENTIONS OF THE ASSE SSEE FIRM ARE SUPPORTED BY THE ENTRIES IN THE BOOKS OF ACCOUNT AN D THE CONDUCT OF THE ASSESSEE HAS TO BE CONSIDERED AS USUAL PRACT ICES FOLLOWED IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE. 13. ON THE OTHER HAND, THE LEARNED ACCOUNTANT MEMB ER HAS EXAMINED ALL THESE SPEAKING FACTS IN THE RIGHTF UL MANNER AND HAS RIGHTLY COME TO THE CONCLUSION THAT THE ASSESSE E HAS DISCHARGED ITS BURDEN IN A REASONABLE MANNER WHILE CLAIMING THE TWO LOSSES IN COMPUTING ITS TAXABLE INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL. I AGREE WITH THE LEARNED ACCOUN TANT MEMBER THAT THE PURCHASE AND SALE OF LAND AND FLAT ARE NEC ESSARILY PARTS OF THE REGULAR BUSINESS CARRIED ON BY THE ASSESSEE AND, THEREFORE, THE LOSS ARISING OUT OF THE SALE OF THOS E TWO ASSETS SHOULD BE CONSIDERED AS LOSS INCURRED IN CARRYING O N ITS REGULAR BUSINESS. 14. IN SHORT, I AGREE WITH THE LEARNED ACCOUNTANT MEMBER TO HOLD THAT THE ORDER OF THE COMMISSIONER O F INCOME- TAX(APPEALS) HAS TO BE UPHELD WITH REGARD TO THE IS SUES OF LOSS ON SALE OF FLAT AND LOSS ON SALE OF LAND. 15. NOW THIS FILE WILL BE PLACED BEFORE THE REGULA R BENCH FOR PASSING ORDERS TO FINALLY DISPOSE OF THE CASE O N A MAJORITY VIEW. DATED THIS MONDAY, 31 ST OF OCTOBER, 2011 AT CHENNAI. SD/- (DR. O.K.NARAYANAN) VICE-PRESIDENT THIRD MEMBER V.A.P IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A. NO. 1143/MDS/2010 (ASSESSMENT YEAR : 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE IV, CHENNAI 600 034. (APPELLANT) V. M/S MADEENA CONSTRUCTIONS, NO.19, ARUNACHALAM ROAD, DASARATHAPURAM, SALIGRAMAM, CHENNAI 600 093. PAN : AAJFM8896P (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, SR-AR RESPONDENT BY : SHRI M. KARUNA KARAN, ADVOCATE DATE OF HEARING : 18.11.2011 DATE OF PRONOUNCEMENT : 18.11.2011 ORDER GIVING EFFECT PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : TWO ISSUES OUT OF THREE ISSUES RAISED BY THE REVE NUE IN ITS APPEAL WERE REFERRED TO THE HON'BLE VICE PRESIDENT, ON ACCOUNT OF DIFFERENCE BETWEEN THE MEMBERS CONSTITUTING THE ORI GINAL BENCH. ON THE TWO ISSUES REFERRED TO HIM, HON'BLE VICE PRESID ENT SITTING AS THIRD MEMBER, HAS AGREED WITH THE VIEW TAKEN BY THE ACCOU NTANT MEMBER. 2. RESULTANTLY, GROUND NO.2 OF THE REVENUE ASSAILIN G THE DELETION OF DISALLOWANCE OF REMUNERATION OF ` 54,83,571/- TO PARTNERS BY THE LD. CIT(APPEALS), IS ALLOWED, WHEREAS GROUND NOS.3 AND 4 ASSAILING THE DELETION OF DISALLOWANCE FOR LOSS ON SALE OF FLAT A ND LOSS ON SALE OF LAND ` 16,57,950/- AND ` 36,83,334/- RESPECTIVELY ARE DISMISSED. OTHER GROUNDS ARE GENERAL NEEDING NO ADJUDICATION. 3. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 18 TH NOVEMBER, 2011. SD/- SD/- (HARI OM MARATHA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 18 TH NOVEMBER, 2011. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-VIII, CHENNAI / CIT-VI, CHENNAI/D.R./GUARD FILE