Shri Milind Digambar Kolte, Pune V. DCIT, Central Circle 1(1), Pune

ITA 1359/PUN/2013

• Counselvise Citation: 135924514 RSA 2013
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Search and seizure; Cost of acquisition; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.1355 TO 1358/PN/2013 (ASSESSMENT YEARS : 2006-07 TO 2009-10) SHRI RAJESH ANIRUDHA PATIL, 2 ND FLOOR, CITY POINT, DHOLE PATIL ROAD, PUNE 411002 PAN NO.AAXPP9193L .. APPELLANT VS. DCIT, CENTRAL CIRCLE 1(1). PUNE .. RESPONDENT ITA NOS.1359 TO 1361/PN/2013 (ASSESSMENT YEARS : 2006-07 TO 2008-09) SHRI MILIND DIGAMBAR KOLTE, 2 ND FLOOR, CITY POINT, DHOLE PATIL ROAD, PUNE 411002 PAN NO.ABIPK5780C .. APPELLANT VS. DCIT, CENTRAL CIRCLE 1(1). PUNE .. RESPONDENT ITA NOS.1341 AND 1346/PN/2013 (ASSESSMENT YEARS : 2007-08 & 2006-07) MS.ANKITA RAJESH PATIL, 2 ND FLOOR, CITY POINT, DHOLE PATIL ROAD, PUNE 411002 PAN NO. ANWPP7440G .. APPELLANT VS. DCIT, CENTRAL CIRCLE 1(1). PUNE .. RESPONDENT ITA NOS.1342 TO 1345/PN/2013 (ASSESSMENT YEARS : 2006-07 TO 2008-09) SHRI NARESH ANIRUDHA PATIL, 2 ND FLOOR, CITY POINT, DHOLE PATIL ROAD, PUNE 411002 PAN NO. AAXPP9202G .. APPELLANT 2 VS. DCIT, CENTRAL CIRCLE 1(1). PUNE .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI RAJESH DAMOR DATE OF HEARING : 13-06-2014 DATE OF PRONOUNCEMENT : 30-06-2014 ORDER PER R.K. PANDA, AM : THE ABOVE BATCH OF 13 APPEALS FILED BY THE RESPECTI VE ASSESSEES FOR DIFFERENT ASSESSMENT YEARS ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 12-04-2013 OF THE CIT(A)-I, PUNE RELATING TO THE RE SPECTIVE ASSESSMENT YEAR MENTIONED THEREIN. SINCE COMMON ISSUES ARE IN VOLVED IN ALL THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND A RE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP ITA NO.1355/PN/2013 IN CASE OF SHRI RAJESH ANIRUDDA PATIL AS THE LEAD CASE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL. A SEARCH AND SEIZURE ACTION U/S.132 OF THE INCOME TAX ACT WAS CONDUCTED IN CASE OF THE ASSESSEE AND OTHERS ON 22-08-2008. IN RESPONSE TO NOTICE U/S.153A THE ASSESSEE FILED HIS RETURN OF INCOME ON 30-03-2009 DISCLOSING TOTAL INCOME OF RS.12,10,26,580/-. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS PAID BROKERAGE TO M/S. REGENESIS PROJECT MANAGEMENT COMPANY PVT. LTD. (REG ENESIS PMCPL) WHICH IS A RELATED PARTY OF THE ASSESSEE. THIS BRO KERAGE HAS BEEN PAID BY THE ASSESSEE TO THE ABOVE PARTY FOR THE SALE OF JAM BHE LAND. THE LAND HAS BEEN SOLD TO M/S.KOLTE PATIL DEVELOPERS LTD. (KPDL IN SHORT) WHICH IS THE 3 FLAGSHIP CONCERN OF THE GROUP. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE BROKERAGE PAID TO M/S. REGENE SIS PMCPL AMOUNTING TO RS.25,96,400/- FOR THE IMPUGNED ASSESS MENT YEAR (RS.5,17,549/- FOR A.Y. 2007-08 AND RS.4,20,455/- F OR A.Y. 2008-09) SHOULD NOT BE DISALLOWED. 3.1 IT WAS EXPLAINED BY THE ASSESSEE THAT KPDL WANT ED TO UNDERTAKE A MASSIVE PROJECT ON THE LANDS OWNED BY THE DIRECTORS AND THEIR RELATIVES AT HINJEWADI. SINCE KPDL DID NOT HAVE NECESSARY EXPER IENCE AND CONTACTS, IT DECIDED TO SET UP THE SUBSIDIARY, NAMELY REGENES IS PMCPL TO UNDERTAKE A DIALOGUE WITH INVESTORS AND FINANCERS A ND TO MARKET THE LAND TO A JOINT VENTURE COMPRISING OF KPDL AND THE JOINT VENTURE PARTNER. CONSEQUENTLY, A TEAM OF PROFESSIONALS WAS HIRED BY REGENESIS PMCPL TO HELP KPDL FIND A JOINT VENTURE PARTNER WHICH ULTIMA TELY CRYSTALISED IN THE FORM OF M/S ICICI VENTURES. THE BROKERAGE PAID TO R EGENESIS PMCPL IS @ 0.5% TO 1 .5% OF THE LAND COST AS AGAINST THE MAR KET RATE OF AROUND 2%. IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT THE INDIVIDUAL MEMBERS OF THE KOLTE PATIL FAMILY, WHO HAD ACQUIRED THE LAND ON THEIR OWN, COULD NOT HAVE FOUND THE CUSTOMER FOR THEIR LA NDS AT A PRICE MUCH HIGHER THAN THE COST THEY PAID AND THAT TOO IN SUCH A SHORT TIME. 4. HOWEVER, THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO. HE HELD THAT REGENESIS PMCPL IS A SUBSIDIARY OF KPDL SINCE SHRI RAJESH PATIL AND SHRI MILIND KOLTE ARE DIRECTORS HO LDING 50% BENEFICIAL OWNERSHIP OF THE SHARES OF KPDL. SECONDLY, THE EFFE CTIVE CONTROL OVER REGENESIS PMCPL IS IN THE HANDS OF THESE TWO PERSON S. THE AO REFERRED TO PROVISIONS OF SECTION 194H WHICH DEFINES COMMISS ION OR BROKERAGE AS 4 'COMMISSION, OR BROKERAGE INCLUDES PAYMENTS RECEIVE D OR RECEIVABLE DIRECTLY OR INDIRECTLY BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES IN THE COURSE OF BUYING OR SELLING OF GOOD S OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES'. NOTABLY, UNDER THIS SECTION, COMMISSION IS PAID TO A THIRD PARTY, WHO ACTS ON BEHALF OF THE PRINCIPAL. THIS AS PECT WAS MISSING IN THE INSTANT CASE, SINCE THE COMMISSION HAS BEEN PAID TO AN INTERESTED PARTY, AND THE ASSESSEE, SHRI RAJESH A. PATIL WAS HIMSELF THE CEO/ DIRECTOR OF REGENESIS PMCPL. IN THE INSTANT CASE, THERE WAS NO DISTINCTION AS SUCH BETWEEN THE AGENT AND THE PRINCIPAL. THE ASSESSING OFFICER HELD THAT THE ASSESSEE, BEING THE CHAIRMAN AND MANAGING DIRECTOR OF KPDL, DOES NOT NEED A BROKER THAT TOO IN A FORM OF ANOTHER COMPANY BELONGING TO THE SAME GROUP AND EFFECTIVELY CONTROLLED BY THE MD HIM SELF, TO FACILITATE SALE OF LAND TO THE COMPANY JOINTLY OWNED BY KPDL, WHICH IS ANOTHER GROUP CONCERN. 4.1 THE ASSESSING OFFICER EXAMINED THE FINANCIAL RE SULTS OF REGENESIS PMCPL FOR THE IMPUGNED ASSESSMENT YEARS. THIS EXAMI NATION SHOWED THAT THE COMPANY HAD SHOWN LOSSES FOR A.YS. 2006-07 AND 2009-10 AND NOMINAL INCOMES FOR A.YS. 2007-08 AND 2008-09. HE T HEREFORE, HELD THAT THE STRATEGY/ MODUS OPERANDI WHICH WAS ADOPTED BY T HE ASSESSEE AND OTHER INDIVIDUALS OF KPDL GROUP WAS DEVISED TO REDU CE THE TAX LIABILITY THROUGH WHAT WAS APPARENTLY A COLOURABLE DEVICE/ARR ANGEMENT. HE HELD THAT THE ASSESSEE HAD NOT ONLY WORKED OUT LESSER SH ORT TERM CAPITAL GAINS BY CLAIMING THE BROKERAGE EXPENSES BUT ALSO THE ENT IRE TRANSACTION HAD BEEN SO ARRANGED SO AS TO RESULT IN NEGLIGIBLE OR N IL INCOME/LOSSES IN THE 5 HANDS OF THE RELATED CONCERN NAMELY REGENESIS PMCPL . HE, THEREFORE, PROCEEDED TO DISALLOW BROKERAGE AMOUNTS CLAIMED TO HAVE BEEN PAID FROM THE COMPUTATION OF SHORT TERM CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. 5. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE AO W AS NOT JUSTIFIED IN DISALLOWING THE BROKERAGE PAID BY THE ASSESSEE ON T HE GROUND THAT THE SAME HAS BEEN PAID TO AVOID TAX. IT WAS SUBMITTED THAT THE BROKERAGE HAS BEEN PAID AS PER MOU DATED 03-10-2005 BETWEEN THE A SSESSEE AND REGENESIS PMCPL WHICH SPECIFIES THE REASONS FOR PAY MENT OF BROKERAGE AND THE DUTIES AND SERVICES TO BE PROVIDED BY REGEN ESIS PMCPL. THE OBSERVATION OF THE AO THAT THE LAND IN QUESTION HAV E BEEN SOLD TO KPDL WAS CHALLENGED. IT WAS SUBMITTED THAT THE LANDS HA VE NOT BEEN SOLD TO KPDL BUT TO THE JOINT VENTURE COMPANY NAMELY I-VEN KOLTE PATIL TOWNSHIP PVT. LTD. IT WAS SUBMITTED THAT THE AO HA S ERRED IN ARRIVING AT THE FINDING THAT REGENESIS PMCPL IS A SUBSIDIARY OF KPDL AND SHRI RAJESH PATIL AND SHRI MILIND KOLTE ARE DIRECTORS WI TH 50% BENEFICIAL OWNERSHIP. IT WAS CLARIFIED THAT REGENESIS PMCPL I S A SUBSIDIARY OF KPDL BUT SHRI RAJESH PATIL AND SHRI MILIND KOLTE HO LD ONLY 0.002% OF THE SHAREHOLDING WITH KPDL HOLDING 99.996% OF THE S HAREHOLDING. IT WAS SUBMITTED THAT THE AO DISALLOWED THE BROKERAGE PAID BY THE ASSESSEE TO REGENESIS PMCPL MAINLY ON THE FOLLOWING GROUNDS : A. M/S. REGENESIS PMCPL IS A SUBSIDIARY OF KPDL. B. EFFECTIVE CONTROL & MANAGEMENT OF RENEGESIS, PMC PL IS IN THE HANDS OF RAJESH PATIL AND MILIND KOLTE. C. SINCE THE APPELLANT IS ALSO A DIRECTOR OF KPDL, TH ERE WAS NO NEED FOR PAYMENT OF ANY BROKERAGE. D. THE TRANSACTION IS CARRIED OUT FOR REDUCING TAX LI ABILITY AND THE ARRANGEMENT IS NOTHING BUT TAX AVOIDANCE BORDERING O N TAX EVASION. 6 6. THE ASSESSEE FILED ELABORATE WRITTEN SUBMISSIONS CHALLENGING EACH OF THE ABOVE REASONS WHICH HAS BEEN REPRODUCED BY T HE CIT(A) IN THE APPEAL ORDER AT PAGE 6 TO 7 OF HER ORDER AND WHICH READS AS UNDER : ON THE PREMISES ON THESE FACTS OUR SUBMISSIONS ON EACH OF THE GROUND ARE AS UNDER: 1. THE FIRST OBJECTION OF THE A.O. IS THAT THE PAYMEN T OF BROKERAGE BY THE APPELLANT TO REGENESIS PMCPL IS FOR THE PURPOSE OF EVADING TAX AND THEREFORE, IT IS A CASE OF TAX PLANNING. IT IS SUBMITT ED BEFORE YOUR HONOUR THAT THE BROKERAGE HAS BEEN PAID AS PER THE MEMORANDU M OF UNDERSTANDING BETWEEN THE APPELLANT AND THE REGENESIS PMCPL DULY EXECUTED AND IN WHICH IT IS CLEARLY SPECIFIED AS TO W HY THE BROKERAGE HAS BEEN PAID AND WHAT ARE THE DUTIES AND SERVICES TO BE P ROVIDED BY REGENESIS PMCPL. THUS IT IS SUBMITTED BEFORE YOUR HONOUR THAT A) THERE IS NO TAX PLANNING DEVISE ADOPTED BY THE APP ELLANT AS MISUNDERSTOOD BY THE A.O., WHEN HE HAS HIMSELF ADMITTED THAT THE TRANSACTION HAS BEEN CARRIED OUT BY LEGITIMATE MEANS. B) THE LAND HAS NOT BEEN SOLD TO KPDL BUT TO JOINT V ENTURE COMPANY - I-VEN KOLTE PATIL TOWNSHIP PVT. LTD. C) THE BROKERAGE HAS BEEN PAID BY THE APPELLANT FOR ARRANGING THE SALE TRANSACTION BY THE REGENESIS PMCPL. IN VIEW OF ABOVE IT IS EVIDENT THAT THE CONCLUSION OF THE A.O. THAT THE SOLE PURPOSE OF PAYMENT OF BROKERAGE BY THE APPELLANT TO REDUCE TAX LIABILITY IS NOT JUSTIFIED IN LAW 2. THE APPELLANT HAS GIVEN DETAILED SUBMISSION DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE A.O. COPY OF WHICH IS ENCLOSED (REFER PAGE NO. 1 TO 9). 3. IT IS SUBMITTED BEFORE YOUR HONOUR THAT WHI LE DISALLOWING THE BROKERAGE PAID BY THE APPELLANT, THE LEARNED A.O. H AS STATED THAT THE REGENESIS PMCPL IS A SUBSIDIARY OF THE KPDL AND RAJESH PA TIL & MILIND KOLTE ARE THE DIRECTORS OF THE COMPANY WITH 50% EACH BENEFICIAL OWNERSHIP/ OF THE EQUITY SHARES IS FACTUALLY INCORRECT, IT IS SUBMITTED BEFORE YOUR HONOUR THAT REGENESIS PMCPL IS A SUBSIDIARY OF KPDL BUT RAJESH PATIL & MILIND KOLTE ARE NOT HAVING 50% EACH BENEFICIAL OWNERSHIP OF THE COMPANY. IN SUPPORT OF THIS THE SHARE HOLDING PATTERN OF THE REGENESIS IS ENCLOSED (REFER PAGE NO. 10S). 4. THE LEARNED A. O. HAS NOT APPRECIATED TH E FACTS OF THE CASE PROPERLY AND THEREFORE, WE BRING THE CORRECT FACTS RELATING T O THE TRANSACTION, THE REASON OF PAYMENT OF BROKERAGE BY THE APPELLANT TO R EGENESIS PMCPL AS UNDER. A) THE APPELLANT AND THE FAMILY MEMBERS ACQ UIRED SOME LANDS IN JAMBHE, PUNE. KOLTE PATIL GROUP HAD ALSO ACQUIRED S OME LANDS ON ITS OWN IN THIS AREA AND IT WAS REALIZED THAT THE LAND W OULD FETCH VERY GOOD PROFITS IF A TOWNSHIP IS CONSTRUCTED THEREON BUT IF THE LAND IS BEING DEVELOPED IN SMALL PIECES, THE PROFIT WOULD NOT BE HIGH. KOLTE 7 PATIL GROUP ON ITS OWN DID NOT HAVE THE FINANCIAL STR ENGTH TO. DEVELOP SUCH A LARGE PROJECT OF ABOUT 300 TO 400 AC RES. THEREFORE, IT WAS INTERESTED IN FINDING AN INVESTOR WHO WOULD JOI N KOLTE PATIL GROUP IN THE DEVELOPMENT OF THE PROJECT AND PROVIDE FINANCE ALSO. B) THE ABOVE PROPOSAL WAS A VERY DIFFICULT ONE. IT REQUIRED DETAILED PRESENTATION TO THE BIG INVESTORS AND A PROFESSIONAL WAY OF SETTLING THE JV TERMS. AS IN THE PAST, THE KOLTE PATIL GROUP DID NOT HAVE ANY SUCH EXPERIENCE OR THE CONTACTS. IT THEREFORE, FORM ED A SUBSIDIARY CALLED REGENESIS PMCPL AND INDUCTED SOME PROFESSIONA LS THEREIN. REGENESIS PMCPL WAS ASSIGNED THIS JOB OF GETTING A JV P ARTNER. AFTER SUCCESSFUL NEGOTIATIONS, REGENESIS PMCPL WAS INSTRUMENT AL IN FORMING THE JV CO. WITH 1CICI VENTURES AND NEGOTIATI NG A VERY GOOD PRICE FOR THE LAND TO BE TRANSFERRED TO THE JV. IT WAS BECAUSE OF THE EFFORTS OF REGENESIS PMCPL, THE APPELLANT COULD SELL TH E LAND TO THE JV CO. AND HENCE, THE ASSESSEE IS JUSTIFIED IN CLAI MING THE BROKERAGE AS AN ALLOWABLE EXPENDITURE. C) THE PAYMENT OF COMMISSION @ 1% TO REGENESIS PMCPL IS JUSTIFIED ON THE GROUNDS OF BUSINESS CONSIDERATION, REASONABLENESS, BECAUSE IN THE NORMAL CASE OF REAL ESTATE TRANSACTION THE C OMMISSION @ 2% IS PAID TO THE BROKERS, IN THE CASE OF APPELLANT, HE H AS PAID COMMISSION @1% TO REGENESIS PMCPL WHICH IS ABSOLUTELY REASONAB LE AND PARTICULARLY WHEN THE APPELLANT HAD MADE SUBSTANTIA L GAIN ON TRANSFER OF LAND TO THE JV CO. D) THE APPELLANT COULD FETCH THE HIGHER PRICE FROM THE JV CO. ONLY BECAUSE OF THE EXPERTISE AND THE KNOWLEDGE OF THE TEA M OF THE PEOPLES OF REGENESIS PMCPL WHO HAVE MADE MARATHON EFFORTS TO COM PLETE THE DEALS SUCCESSFULLY. 5. IN VIEW OF ABOVE FACTS, IT IS SUBMITTED BEFORE Y OUR HONOUR THAT THE SERVICES OF REGENESIS PMCPL WERE NECESSARY AND INSTRUMENT AL IN SUCCESSFULLY TRANSFERRING THE LAND FROM THE APPELLANT, AT A BETTER PRICE AND THEREFORE THE PAYMENT OF BROKERAGE MADE BY THE APPE LLANT TO REGENESIS PMCPL IS REASONABLE AND FULLY JUSTIFIED. THUS IT IS SUB MITTED THAT DISALLOWANCE OF BROKERAGE MADE BY THE A.O. BE DELETE D. 7. THE SUM AND SUBSTANCE OF THE ARGUMENTS OF THE AS SESSEE NECESSITATING THE PAYMENT OF BROKERAGE ARE THAT THE ASSESSEE AND FAMILY MEMBERS HAD ACQUIRED SOME LANDS IN JAMBHE, PUNE ALO NG WITH KPDL DURING A.YS. 2006-07TO 2009-10 (AND BETWEEN 2006-07 AND 2007-08 IN THE CASE OF SMT. ANKITA RAJESH PATIL) . IT WAS REAL IZED THAT THIS LAND WOULD FETCH HIGHER PROFITS IF A TOWNSHIP IS CONSTRUCTED T HEREON, RATHER THAN DEVELOPMENT IN BITS AND PIECES. SINCE KPDL DID NOT HAVE THE FINANCIAL STRENGTH TO DEVELOP SUCH A LARGE PROJECT OF 300 TO 400 ACRES, IT WAS INTERESTED IN FINDING A PARTNER TO INVEST FUNDS AND DEVELOP THE PROJECT 8 ALONG WITH KPDL. SINCE THE KOLTE PATIL GROUP DID NO T HAVE NECESSARY EXPERIENCE AND CONTACTS, A SUBSIDIARY CALLED REGENE SIS PMCPL WAS FORMED AND ASSIGNED TO THE TASK OF FINDING A SUITAB LE JV PARTNER. THROUGH PROFESSIONAL EXPERTISE AVAILABLE TO REGENESIS PMCPL , THE ASSESSEE WAS ABLE TO SUCCESSFULLY NEGOTIATE WITH ICICI VENTURES AND GET A GOOD PRICE FOR THE IMPUGNED LANDS TO BE TRANSFERRED TO THE JV. THIS WAS POSSIBLE ONLY DUE TO THE MARATHON EFFORTS OF THE REGENESIS PMCPL. THE SERVICES OF REGENESIS PMCPL WAS NECESSARY AND INSTRUMENTAL IN S UCCESSFULLY TRANSFERRING THE LAND OF THE ASSESSEE AT A BETTER P RICE AND THEREFORE, THE PAYMENT OF BROKERAGE MADE BY THE ASSESSEE TO REGENE SIS PMCPL IS REASONABLE AND FULLY JUSTIFIED. 8. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE E XPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY THE AO BY OBSERVING AS UNDER : 5.1 I HAVE CONSIDERED THE SUBMISSIONS MADE FROM TIME T O TIME BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE APPELLANT AN D EXAMINED THE DOCUMENTS FILED DURING THE COURSE OF APPELLATE PROCEE DINGS. THE ISSUE IN QUESTION IN THESE APPEALS RELATES TO THE JUSTIFIABILITY OF THE BROKERAGE PAID BY THE APPELLANT TO A RELATED PARTY. THE APPELLANT ALONG WITH HIS FAMILY MEMBERS HAD PURCHASED LANDS AT JAMBHE IN PUNE DISTRICT. THE DETAILS OF COST OF ACQUISITION OF LAND, SELLING PRICE, BROKERAGE PAID AND THE SHORT TERM CAPITAL GAINS OFFERED TO TAX BY THE APPELLANT SHRI R AJESH ANIRUDHA PATIL ARE AS UNDER: A.Y. COST OF ACQUISITION SALE PRICE BROKERAGE PAID NET CAPITAL GAINS 2006-07 4,57,44,656 17,30,95,800 25,96,400 12,20,18,053 2007-08 2,75,84,840 10,34,77,748 5,17,549 7,53,12,011 2008 - 09 7,61,20,000 13,78,41,000 4,20,455 6,12,48,576 5.1. AS THE FIGURES, WOULD SHOW, THE NET CAPITAL GAIN S OFFERED TO TAX STAND REDUCED BY THE AMOUNT OF COMMISSION PAID OF RS.3 5,34,404. SINCE THE CLAIM OF THE APPELLANT IS MADE U/S 48(I) OF THE IN COME TAX ACT, 1961, THE QUESTION AS TO WHETHER THE PAYMENTS WERE WHOLLY AND EXCLUSIVELY INCURRED IN CONNECTION WITH THE TRANSFER OF THE CAPITAL ASSET, NEEDS TO BE EXAMINED. TO EXAMINE THE CONTENTION OF THE APPELLANT T HAT, THE LAND SOLD TO THE JV COMPANY COULD FETCH A HIGHER PRICE DUE TO T HE EFFORTS OF REGENESIS PMCPL, DURING THE COURSE OF APPELLATE PROCE EDINGS, THE 9 APPELLANT WAS REQUESTED TO FURNISH SAMPLE COPIES OF S ALE DEED OF THE LANDS SOLD BY THE APPELLANT. ACCORDINGLY, VIDE WRITTEN SUBMIS SIONS DATED 26.11.2012 (PAGES 4 TO 32 OF THE ENCLOSED PAPER BOO K) DEVELOPMENT AGREEMENT BEARING REGISTRATION NO. 1133/06 DATED 27.2. 2006 BETWEEN SHRI RAJESH PATIL, SHRI NARESH PATIL, SHRI MILIND DIGAMBAR KOLTE AND MS. ANKITA RAJESH PATIL AND L-VEN TOWNSHIPS (PUNE) PVT. LT D. HAS BEEN FURNISHED. THIS RELATES TO SALE OF LANDS AT S.NO. 74/ 2, 74/9/2, 81/2, 82/1, 82/2, 82/3, 83 AND OTHERS LOCATED AT MAUJE JAMBHE, TALUKA MULSHI, DIST. PUNE OWNED BY THE APPELLANT AND OTHERS WHICH STAND T RANSFERRED TO JV COMPANY. A PERUSAL OF THE SAME SHOWS THAT THE SALE DEED HAS BEEN EXECUTED FOR AN AMOUNT OF RS.60,59,74,700 WHICH IS A T PAR WITH THE MARKET VALUE AS DEMONSTRATED IN THE INDEX II FURNISHED BEFOR E ME. THEREFORE, IT CANNOT BE SAID FROM THE SALE DEED THAT THE SALE PRICE RECEIVED BY THE APPELLANT IS A BETTER PRICE SINCE THE SALE CONSIDERATIO N IS PRIMA FACIE AS PER THE MARKET VALUE. THE MARKET VALUE IS KNOWN TO BE AN INDICATOR OF REASONABLE RATE THAT THE PROPERTY WOULD FETCH IN THE MARKET AND NOT PER SE AN INDICATOR OF THE BEST RATE THAT THE APPELLANT COU LD HAVE RECEIVED, ESPECIALLY IN THE CONTEXT THAT THE AGREEMENT IN QUEST ION IS NOT RELATED TO OUTRIGHT SALE BUT IS A DEVELOPMENT AGREEMENT. IT HAS B EEN ARGUED THAT THE BROKERAGE IS JUSTIFIED ON ACCOUNT OF THE FUTURE PROFI TS THAT WOULD ACCRUE IF THE TOWNSHIP WERE TO BE CONSTRUCTED RATHER THAN THE L AND BEING DEVELOPED IN SMALL PIECES. THIS ARGUMENT DOES NOT HOLD GOOD IN TH E APPELLANT'S CASE SINCE IN THE HANDS OF THE APPELLANT AS AN INDIVIDUAL I T IS ONLY THE CAPITAL GAINS THAT ATTRACTS TAXATION AND NOT PROFITS THAT WOUL D ACCRUE IN FUTURE. THE APPELLANT INDIVIDUAL AND OTHER INDIVIDUALS OF TH E GROUP NAMELY SHRI NARESH A. PATIL, SHRI MILIND D. KOLTE AND SMT. ANKIT A R. PATIL ARE NOT ENTITLED TO SHARE IN THE PROFITS AS PER THE JV AGREEME NT DATED 23.2.2006. 5.2. I HAVE EXAMINED THE MEMORANDUM OF UNDERSTANDIN G (MOD) SIGNED BY THE APPELLANT AND OTHER INDIVIDUALS OF THE KOLTE PATIL GROUP AND KPDL WITH REGENESIS PMCPL DATED 3.10.2005. THIS MOU HAS BEE N EXECUTED FOR THE PURPOSES OF DEVELOPMENT OF A SPECIAL TOWNSHIP OR S EZ AT JAMBHE, DIST PUNE THROUGH THE EFFORTS OF REGENESIS PMCPL TO CONTAC T LARGE INSTITUTIONAL INVESTORS, REAL ESTATE FUNDS ETC. SO THAT LAND MAY BE SOL D AS PER DEVELOPMENT RIGHTS ASSIGNED TO A JV/ SPV, IN WHICH KPD L WOULD BE A PARTNER. FROM THIS MOU IT IS CLEAR THAT REGENESIS PMCPL IS PRIMA FACIE NOT BEING PAID BROKERAGE/ COMMISSION ONLY FOR SALE / ASSIGNM ENT OF DEVELOPMENT RIGHTS OF THE LANDS OWNED BY THE APPELLAN T SIMPLICITOR BUT FOR THE HIGHER OBJECTIVE OF IDENTIFICATION OF A SUITABLE JV PARTNER WHO COULD DEVELOP THE LANDS TOGETHER WITH KPDL THROUGH SUITABLE INVESTMENT. THE MOU MAKES IT VERY CLEAR THAT THE APPELLANT AND OTHER INDIVIDUALS IN THE GROUP ARE OBLIGATED UNDER THE MOU TO COMPENSATE REGE NESIS PMCPL, SUBSEQUENT AND SUBJECT TO THE FINDING A JV PARTNER WHO CAN BEAR 50% OF THE COSTS OF DEVELOPMENT. THE TRANSFER/ SALE OF LAND TO A JV, WITH KPDL HOLDING HALF THE STAKES IN THE JV, IS ONLY INCIDENTAL. FURTHER, THE TRANSFER OF LAND TO THE JV COMPRISING KPDL IS A CO-DEVELOPER OF LAND, IS NOT WHAT ATTRACTS THE COMMISSION PAYMENT, BUT THE ACT OF IDENT IFICATION OF A SUITABLE INVESTOR BY AN INSTITUTIONAL INVESTOR OR REAL ESTATE F UND. THIS INTENTION IS CLEAR FROM CLAUSES 1 TO 3 OF THE MOU, WHICH ARE ALSO R EPRODUCED HEREINUNDER FOR THE SAKE OF CONVENIENCE. 1. REGENESIS HAS AGREED TO EXPLORE POTENTIAL INVESTO RS, INSTITUTIONAL INVESTORS, REAL ESTATE FUNDS ETC. WHO MAY CO-INVEST WIT H KPDL FOR DEVELOPMENT OF A BIG PROJECT AT JAMBHE, PUNE. 2. KPDL, RAP, MDK, NAP AND ARP HAVE ADVISED REGEN ESIS THAT THEY WILL NOT SELL THE LAND ON OUTRIGHT BASIS TO THE INSTITUTION AL INVESTORS BUT KPDL SHALL ACT AS A DEVELOPER OF THE LAND PARCELS ALONG WIT H THE INVESTOR. 10 3. REGENESIS HAS AGREED TO CONTACT THE LARGE INSTITUT IONAL INVESTORS, REAL ESTATE FUNDS ETC. SO THAT KPDL, RAP, MDK, NAP AND ARP MAY SELL THE LAND PARCELS/ ASSIGN THE DEVELOPMENT RIGHTS TO ANY SPECIAL PU RPOSE VEHICLE COMPANY THAT MAY BE FORMED CONSEQUENT TO ANY INVESTME NT THAT MAY BE AGREED BY INSTITUTIONAL INVESTORS, REAL ESTATE FUNDS ETC . REGENESIS HAS ASSURED KPDL THAT IN THE NEGOTIATIONS WITH THE INVESTOR S, THEY WILL KEEP IN MIND THAT THE DEVELOPMENT WILL BE MADE ONLY IN A JO INT VENTURE OF THE INVESTOR AND KPDL. 5.3. THE TERMS OF PAYMENT OF COMMISSION/BROKERAGE WERE ALSO VERIFIED. THE PAYMENT OF COMMISSION AS AGREED BY CLAUSE (4) OF TH E MOU WOULD BE PAID BY EACH OF THE ENTITIES AT THE RATE OF 1.5% FOR THE FIRST TRANCHE OF MINIMUM 100 ACRES AND FOR ADDITIONAL AREA @ 0.5% OF THE TRANSACTION VALUE, SUBJECT TO NOT SIMPLY THE SALE/TRANSFER OF LAND BUT THE HIGHER OBJECTIVE OF SECURING A PARTNER FOR JOINT INVESTMENT AND DEVELOPMENT OF A TOWNSHIP. CLAUSE (4) READS AS UNDER: 4. KPDL, RAP (THE APPELLANT), MDK, NAP AND ARP HAVE AGREED TO PAY INDIVIDUALLY FOR THE FIRST TRANCHE OF MINIMUM 100 AC RES @ 1.5% AND SUBSEQUENTLY FOR THE ADDITIONAL AREA @ 0.5% OF THE TR ANSACTION VALUE OF THEIR RESPECTIVE LANDS TO REGENESIS AS ITS FEE IN THE EVE NT REGENESIS IS SUCCESSFUL IN SECURING INVESTMENT BY REAL ESTATE FUNDS ETC . INTO JAMBHE LANDS ALONG WITH KPDL AS DEVELOPER. 5.4. THE LANDS SOLD/ ASSIGNED BY THE APPELLANT TO T HE JOINT VENTURE ARE AT PAR WITH THE MARKET VALUE OF THE LANDS AND NO HIGHER OR BETTER PRICE AS HAS BEEN CLAIMED, HAS BEEN ACTUALLY EARNED. THE FUTURE PROFITS THAT WOULD ACCRUE AT A LATER DATE WOULD NOT ACCRUE IN THE HAND S OF THE INDIVIDUALS BUT IN THE HANDS OF THE COMPANY I.E. KPDL. THEREFORE, TH E ASSESSING OFFICER IS RIGHT IN HOLDING THAT THE PAYMENT OF THE BROKERAGE IS NOT JUSTIFIED. M/S KPDL IS A 50% PARTNER IN THE 'LIFE REPUBLIC' TOWNSHIP BEING DEVELOPED JOINTLY WITH L-VEN KOLTE PATIL TOWNSHIPS PVT. LTD. TH E YEARWISE DETAILS OF INVESTMENT BY THE KOLTE PATIL GROUP AND ICICI VENTUR E FOR THE VARIOUS FINANCIAL YEARS UPTO AN INCLUDING F.Y. 2010-11 HAVE BEEN FURNISHED WHICH SHOWS THAT BOTH THE PARTIES HAVE INVESTED RS.163,19,94,3 10 EACH. THE TOTAL INVESTMENT IN THIS PROJECT UPTO 31.3.2011 IS RS.326,39, 88,620. AS HAS BEEN DEMONSTRATED FROM READING OF CLAUSE (4) OF THE MOU AT PARA 5.3 SUPRA, ALTHOUGH THE BROKERAGE TO REGENESIS PMCPL HAS BEEN LIN KED TO THE TRANSACTION VALUE ON THE TRANSFER OF LANDS, THE BROKER AGE IS CONDITIONAL UPON THE SECURING OF THE FUNDS FOR INVESTMENT IN THE E NTIRE PROJECT. AS ALREADY STATED ABOVE, THERE IS NO JUSTIFICATION ON PAR T OF THE APPELLANT TO MAKE THE PAYMENT OF BROKERAGE TO REGENESIS PMCPL, SINC E THE APPELLANT IS NOT ENTITLED AS AN INDIVIDUAL TO A SHARE OF THE FUTUR E PROFITS TO BE EARNED BY THE JOINT VENTURE. ON THIS GROUND ALSO THEREFORE, THE PAYMENT OF BROKERAGE AND COMMISSION IS NOT JUSTIFIABLE. 5.5. THE JOINT VENTURE AGREEMENT BETWEEN KOLTE P ATIL GROUP AND ICICI VENTURE FUNDS MANAGEMENT CO. LTD. DATED 23.2.2006 (I N WHICH REGENESIS PMCPL IS ALSO ONE OF THE SIGNATORIES) HAVE BEEN PERUSED. HOWEVER, THE SAME ALSO DOES NOT THROW ANY LIGHT OR ASSIGN ANY SPECIFIC RESPONSIBILITY OR LIABILITY ON REGENESIS PMCPL. THE JOINT VENTURERS TO THE AGREEMENT ARE TO INVEST IN SHARE HOLDING OF THE SPECIAL PURPOSE VEHICLE (SPV) FORMED FOR THE PURPOSE VIZ. L-VEN TOWNSHIPS (PUNE) PVT. LTD. IN THE R ATIO OF 50 : 50 AND PROVIDE FUNDING TO THE EXTENT OF THE SHAREHOLDING IN THE SPV. SHRI RAJESH PATIL THE APPELLANT WAS APPOINTED AS THE CEO OF THE S PV. THE JV AGREEMENT SPEAKS ABOUT THE DUTIES AND OBLIGATIONS OF THE KOLTE P ATIL GROUP AND OF THE INVESTOR AND THE MUTUAL DUTIES OF THE JOINT VENTURERS. CLAUSE 15 OF THE AGREEMENT TALKS OF PROFIT OR LOSS ARISING OUT OF THE J OINT VENTURE. THUS, BOTH THE JOINT VENTURERS WOULD GET PRO-RATA SHARES OF THE PROFIT AS PER SHARE HOLDING TILL THEY RECEIVED AN IRR OF 24% P.A. OR 2. 5 TIMES OF THE TOTAL 11 INVESTMENT, WHICHEVER IS HIGHER. REGENESIS PMCPL WOULD GET 10% POST DISTRIBUTION TO THE JOINT VENTURERS AND THE SURPLUS CASH FLOW AFTER DISTRIBUTION AS PER ABOVE WOULD BE DISTRIBUTED IN THE RATIO OF 35% : 35% : 30% BETWEEN ICICI JV, KOLTE PATIL GROUP AND REGENESI S PMCPL. THUS, A READING OF THIS AGREEMENT WOULD FURTHER SHOW THE PAYM ENT OF BROKERAGE AND COMMISSION HAS NOT ONLY REDUCED THE LIABILITY IN T HE HANDS OF THE APPELLANT BUT ALSO BY MAKING REGENESIS PMCPL A PARTNER IN THE JOINT VENTURE, SHARED THE PROFITS ULTIMATELY EARNED ON THE JOINT VENTURE WITH REGENESIS PMCPL WHICH IS A GROUP COMPANY OF KOLTE PATI L DEVELOPERS AND A RELATED CONCERN TO THE APPELLANT. THE APPELLANT H AS NOT BENEFITED BY THE PAYMENT OF BROKERAGE IN THE PROFIT SHARING TO BE EAR NED ON THE LATER DATE BY THE JOINT VENTURE. 5.6. THE DELHI HIGH COURT IN THE CASE OF SMT SITA NA NDA VS CIT REPORTED IN 251 ITR 575 HAS HELD THAT THE EXPRESSION 'EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER' AS USE D IN SECTION 48(I) MEANS EXPENDITURE INCURRED WHICH IS NECESSARY TO EFFEC T THE TRANSFER. EVEN IF AN EXPENDITURE HAS SOME NEXUS WITH THE TRANSFER , IT DOES NOT QUALIFY FOR SUCH DEDUCTION UNLESS IT IS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. THEREFORE, THE INTEREST PAID BY THE ASSESSEE TOWARDS BELATED PAYMENT OF THE UNEARNED INCREASE CHAR GED BY THE LDO TOWARDS PERMISSION TO TRANSFER LEASEHOLD RIGHTS IN RESPECT OF A LAND WAS HELD TO BE INADMISSIBLE. THE OPERATIVE PART OF THE DE LHI HIGH COURT ORDER IS REPRODUCED HEREINBELOW FOR READY REFERENCE: '4. SECTION 48(I ) AT THE RELEVANT POINT OF TIME RE ADS AS FOLLOWS : '48. MODE OF COMPUTATION AND DEDUCTIONS. THE INCO ME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED BY DEDUCTING FROM THE 'FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER;' A BARE READING OF THE PROVISION MAKES IT CLEAR THAT WHAT CAN BE DEDUCTED UNDER SECTION 48(I) IS EXPENSES INCURRED WHOLLY AND EXCLU SIVELY IN CONNECTION WITH THE TRANSFER. THE AMOUNT WHICH THE ASSESSEE CLAIMED TO BE COVERED WAS NOT REALLY A PART OF THE UNEARNED INCREASE. ON THE CONT RARY, IT WAS THE AMOUNT PAID FOR MAKING THE PAYMENT DEMANDED BY THE LDO BELATEDL Y. THE INTEREST, AS WAS NOTED BY THE TRIBUNAL, HAD TO BE PAID BY THE ASSESS EE AS SHE MADE THE PAYMENT OF UNEARNED INCREASE BELATEDLY. THE CRUCIAL WORDS I N THE PROVISION ARE 'IN CONNECTION WITH SUCH TRANSFER'. THE EXPRESSION MEANS INTRINSICALLY LINKED WITH THE TRANSFER. SUCH EXPENDITURE HAS TO BE WHOLLY AND EXCL USIVELY IN CONNECTION WITH THE TRANSFER. EVEN IF SUCH EXPENDITURE HAS SOME NEXUS WITH THE TRANSFER, IT DOES NOT QUALIFY 'FOR DEDUCTION UNLESS IT IS WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. THE TRIBUNAL WAS, THEREFORE, RIGHT IN ITS CONCLUSION THAT THE PAYMENT OF INTEREST WAS IN THE SHAPE OF DAMAGES FOR LATE PAYMENT OF UNEARNED INCREASE. THAT BEING SO, THE INTEREST PAID CANNOT BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. THE ANSWER TO THE QUESTION IS IN THE NEGATIVE, IN FAVOUR OF THE RE VENUE AND AGAINST THE ASSESSEE.' 5.7. APPLYING THE RATIO OF THIS DECISION TO THE PRESEN T CASE, IT WOULD BE SEEN THAT THE APPELLANT, AS AN INDIVIDUAL, WAS NOT HAVING ANY SHARE IN THE PROFITS ARISING OUT OF THE JOINT-VENTURE ARRANGEMENT BETWEEN THE DEVELOPER COMPANY (KPDL) IN WHICH HE WAS A KEY PERSON NOR WAS HE ENTITLED TO ANY OF THE RESIDUAL PROFITS TO BE EARNED BY REGENESIS PMCPL POST-DISTRIBUTION OF THE REGULAR PROFITS NOR THE SURPLUS CASH FLOW DISTRIB UTION ARISING AT THE END OF THE JOINT VENTURE. BENEFIT, IF AT ALL ANY, R ECEIVED BY THE APPELLANT OUT OF THE PAYMENT OF THE BROKERAGE IS ONLY REMOTE AND T HERE IS NO DIRECT 12 NEXUS BETWEEN THE BROKERAGE PAID AND THE SUBSEQUENT TR ANSFER OF THE LAND, WHICH IS ANYWAYS A FAIT ACCOMPLI. 5.8. DURING THE COURSE OF APPELLATE PROCEEDINGS, ON 16.11.2012 AND FURTHER ON 27.11.2012 ALONG WITH OTHER DETAILS, THE LD. ARS WERE REQUESTED TO PRODUCE EVIDENCES AND CORRESPONDENCES AND / OR ANY OTHER DOCUMENTARY EVIDENCES REGARDING THE SERVICES RENDERED BY REGENESIS PMCPL IN ACCORDANCE WITH AND FOR PROSECUTION OF THE MOU DATED 3.10,2005 BETWEEN THE APPELLANTS AND REGENESIS PMCPL. HOWEVER, O THER THAN THE LIST OF SENIOR EXECUTIVES EMPLOYED BY REGENE SIS PMCPL, THEIR QUALIFICATIONS AND THE AMOUNT OF SALARY/ PROFESSIONAL F EES PAID DURING THE FINANCIAL YEARS 2005-06 TO 2008-09, NO SUCH EVIDENCES HAS BEEN FILED. THE ARGUMENT ADVANCED BY THE AR IS THAT SINCE THE KEY PER SONNEL HAVE LEFT THE COMPANY FOR OTHER ASSIGNMENTS ALONG WITH THEIR LAPTOP S ETC. IT IS NOT POSSIBLE ON THE PART OF THE APPELLANT TO PRODUCE ANY WRITTEN OR DOCUMENTARY EVIDENCES TO SHOW THAT SERVICES HAVE BEEN R ENDERED. IT HAS BEEN SUBMITTED THAT THE KEY PERSONNEL WERE HAVING SUIT ABLE EXPERIENCE IN THE FIELDS OF FINANCE, MARKETING, ENGINEERING ETC. A ND WERE THUS COMPETENT TO CARRY OUT THE WORK. THE QUALIFICATIONS OF ALL EMP LOYEES VIZ. 8 EMPLOYEES WHO WERE DRAWING A SALARY OF MORE THAN RS.10 LAKHS HAVE BEEN FURNISHED. IT IS SEEN THAT TWO OF THESE WERE EX-EMPLOYEES OF KO LTE PATIL DEVELOPERS LTD. AND 5 PERSONS WERE EARLIER WORKING WITH THE PROPERTY SERVICE DIVISION OF ICICI BANK LTD. OR WITH ICICI ONE SOURCE LTD. BE THAT AS IT MAY, THIS PER SE DOES NOT PROVE THAT THE PAYMENT OF BROKERAGE BY THE APPELLAN T TO REGENESIS PMCPL IS JUSTIFIED. DURING THE COURSE OF HEARING ON 5.4.2013 , THE LEARNED AR WAS REQUESTED TO PROVIDE ANY SUPPORTING EVIDENCE THAT S ERVICES ARE ACTUALLY BEEN PROVIDED BY REGENESIS PMCPL. IN RESPONSE TO THE SAM E VIDE LETTER DATED 9.4.2013 THE AR HAS CLARIFIED THAT 'THE SERVICES HAS ALREADY BEEN PROVIDED THE PAYMENTS FOR THOSE SERVICES ARE MADE AND ALL THE AGREEMENTS FOR SERVICES / DOCUMENTS WHICH EXPLAINS THE PROJECT MANAGE MENT SERVICES HAS BEEN SUBMITTED BEFORE YOUR HONOUR AND THEREFORE, TH E COMMISSION/ BROKERAGE PAID TO REGENESIS IS AN ALLOWABLE DEDUCTION WHILE COMPUTING CAPITAL GAINS.' FROM THE ABOVE REPLY OF THE APPELLA NT IT IS NOTED THAT DESPITE THE CLAIM THAT 'MARATHON EFFORTS' WERE MADE BY THE REGENESIS TEAM TO IDENTIFY THE SUITABLE JV PARTNER, IN REALITY THE MA RATHON NATURE OF THE EFFORTS IS NOT PROVED. THE ASSESSING OFFICER HAD THEREFORE, RI GHTLY HELD THAT THE QUESTION OF HOW AND AT WHAT PROPORTION THE BROKERAGE HAS BEEN P AID OR WORKED OUT DOES NOT ARISE IN THE ABSENCE OF ANY JUSTIFICATION FOR SUCH PAYMENT. SIMPLY BECAUSE REGENESIS PMCPL HAS INCURRED SUBSTANTIAL EXPENDITUR E ON CERTAIN EMPLOYEES AS WELL AS ADMINISTRATIVE COSTS, THE SAME IS NOT AL LOWABLE IN THE HANDS OF THE APPELLANTS UNLESS THE EFFORTS UNDERTAKEN BY REGENES IS PMCPL OR ITS EMPLOYEES TOWARDS THE SALE OF LAND AND ULTIMATELY THE FINALIZ ATION OF THE JOINT VENTURE, IS BROUGHT ON RECORD. THERE IS NOT A SINGLE PROOF REGARDING THE SERVICES ACTUALLY RENDERED IN THE NATURE OF BROKERAGE BY REG ENESIS PMCPL. IN FACT, ON THIS GROUND ALONE THE ASSESSING OFFICER IS HELD TO HAVE CORRECTLY DISALLOWED THE COMMISSION/ BROKERAGE CLAIMED TO HAV E BEEN PAID TO REGENESIS PMCPL. 5.9. TO SUMMARIZE THEREFORE, IT IS HELD THAT THE ASSESSING OFFICER WAS CORRECT IN LAW AS WELL AS FACTS TO DENY THE APPELLANT THE BENEFIT OF DEDUCTION OF THE BROKERAGE PAYMENTS U/S 48(I) AS EXPENDITURE 'WHOLLY AND EXCLU SIVELY INCURRED IN CONNECTION WITH THE TRANSFER OF THE LAND' BY THE APPELLANT IN VIEW OF THE FOLLOWING REASONS : A) THE BROKERAGE PAYMENT TO REGENESIS IS PRIMA FACI E NOT LINKED TO THE TRANSFER OF LAND BUT TO THE IDENTIFICATION OF SUI TABLE INVESTMENT PARTNER TO DEVELOP THE LANDS INTO A SPECIAL TOWNSHIP. THE TRAN SFER OF LANDS IS ONLY INCIDENTAL TO THE ENTIRE ARRANGEMENT. 13 B) THE APPELLANT HAS RECEIVED THE PREVALENT MARKET PRICE OF THE LAND AND NOTHING MORE THAN THE SAME, ALTHOUGH HE HAS ENTER ED INTO A DEVELOPMENT AGREEMENT AND NOT SIMPLY A SALE AGREEMENT . C) THE REAL BENEFICIARIES IN THE WHOLE PROCESS ARE NO T ONLY THE APPELLANTS WHO WANT TO CLAIM THE BROKERAGE AND REDUC E THEIR CAPITAL GAINS- TAXES BUT ALSO REGENESIS PMCPL WHO OFFERED NIL TO NOMIN AL INCOMES AND ALSO GET ENTITLED TO A SHARE OF THE RESIDUAL PROFITS O F THE JOINT VENTURE, IF ANY. D) THE ACT OF PAYMENT OF BROKERAGE TO AN INTERESTED PARTY BY THE APPELLANT WHO IS THE CEO OF THE BROKERAGE COMPANY IS CERTAINLY A COLOURABLE TRANSACTION. THE ASSESSING OFFICER HAS RIGHTLY QUESTIONED THE NECESSITY OF PAYMENT OF BROKERAGE WHEN IT IS THE INTEN TION TO DEVELOP THE LAND THROUGH KPDL ALL ALONG, AS A CO-DEVELOPER. E) PERHAPS THE MOST CRUCIAL ASPECT IN THE WHOLE AFFA IRS IS THE LACK OF ANY DOCUMENTARY/ WRITTEN EVIDENCES AS TO THE SERVICES A CTUALLY RENDERED BY THE BROKER, REGENESIS PMCPL. THE LAW, AS EXPOUNDED BY THE COURTS, IMPLICITLY REQUIRES THE ASSESSEE TO SHOW THAT THE EXPENDI TURE HAS BEEN INCURRED 'IN CONNECTION' WITH THE TRANSFER OF THE CA PITAL ASSET AND THAT THERE IS A DIRECT AND IMMEDIATE NEXUS BETWEEN THE TWO . IN THE PRESENT CASE, THROUGH THERE IS A TRANSFER OF ASSET AND BROKERAGE STANDS PAID, NO DIRECT EVIDENCE HAS BEEN PRODUCED BY THE APPELLANT T O SHOW THAT ANY SERVICES HAVE ACTUALLY BEEN RENDERED TO JUSTIFY THE BR OKERAGE PAID. 5.10. IN VIEW OF THE DETAILED DISCUSSION, IN PARA 5 TO 5.8 SUPRA, IT IS HELD THAT PAYMENT OF BROKERAGE TO REGENESIS PMCPL IS NOT J USTIFIED. GROUNDS NO. 1 TO 5 ARE DISMISSED. 9. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE T O EACH OTHER ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 25,96,400/- ON ACCOUNT OF DISALLOWANCE OF BROKERAGE EXPENSES CLAIMED AS A DEDUCTION U/S 48(I) OF THE ACT AGAINST THE CAPITAL GAINS EARNED ON SALE OF LAND IN THIS YEAR. 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT TH E BROKERAGE PAID BY THE ASSESSEE TO M/S REGENESIS PMCPL WAS NOT ALLOWABLE AS A DEDUC TION U/S 48 OF THE ACT ON THE FOLLOWING GROUNDS - A. THE BROKERAGE PAID TO M/S. REGENESIS PMCPL WAS PR IMA FACIE NOT LINKED TO THE TRANSFER OF THE LAND BUT TOWARDS IDENTI FICATION OF SUITABLE INVESTMENT PARTNER TO DEVELOP THE LANDS INTO A TOWNSHI P ALONG WITH KOLTE PATIL DEVELOPERS LTD. AND THE SAID TRANSACTION W OULD NOT RESULT IN ANY BENEFIT TO THE ASSESSEE IN HIS INDIVIDUAL CAPACITY AND THUS, THE SAID EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSES OF TRANSFER OF LAND AND HENCE, THE SAID BROKERAGE PAY MENT WAS NOT ALLOWABLE AS DEDUCTION U/S 48 OF THE ACT. B. THE ASSESSEE HAD NOT RECEIVED ANYTHING OVER AND AB OVE THE MARKET PRICE OF THE LAND AND HENCE, THE PAYMENT OF BROKERA GE FOR SALE OF LAND WAS NOT ALLOWABLE. 14 C. THE ASSESSEE WAS THE CEO OF M/S. REGENESIS PMCPL AND H ENCE, THE SAID BROKERAGE EXPENDITURE PAID TO THE ABOVE RELATED PAR TY WAS ONLY A COLOURABLE DEVICE TO AVOID TAXES AND THEREFORE, THE SAID EXPENDITURE WAS NOT ALLOWABLE AS A DEDUCTION U/S 48 OF THE ACT. D. THE ASSESSEE WAS NOT ABLE TO PROVE WITH THE HELP OF ANY DOCUMENTARY EVIDENCE THAT M/S. REGENESIS PMCPL HAD ACTUALLY RENDER ED ANY SERVICES FOR THE PURPOSE OF THE FINDING THE BUYER FOR THE LAND SOLD BY THE ASSESSEE AND BROKERAGE PAID BY THE ASSESSEE COULD NOT BE ALLOWED AS A DEDUCTION U/S 48 AGAINST THE CAPITAL GAINS EARNED AGAINST SALE OF THE SAID LAND. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THA T - A. THE ASSESSEE HAD PAID THE SAID BROKERAGE TO M/S. REGEN ESIS PMCPL TOWARDS THE SERVICES RENDERED BY IT TO FIND A BUYER FO R THE LAND OF THE ASSESSEE AND HENCE, THE SAME WAS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF TRANSFER OF LAND AND THEREFORE, THE SAME WA S ALLOWABLE TO THE ASSESSEE AS A DEDUCTION U/S 48 OF THE ACT. B. M/S. REGENESIS PMCPL HAD HELPED THE ASSESSEE TO SALE THE LAND AT A SUBSTANTIALLY PROFITS AND HENCE, THE AMOUNT OF BROKERA GE PAID BY THE ASSESSEE IN ACCORDANCE WITH THE MOU ENTERED WITH THE SAI D PARTY OUGHT TO HAVE BEEN ALLOWED AS A DEDUCTION AGAINST THE CAPITAL GAINS EARNED ON SALE OF THE SAID LAND. C. THE RATE OF BROKERAGE PAID BY THE ASSESSEE TO M/S. RE GENESIS PMCPL WAS BETWEEN 0.50 TO 1.50% OF THE SALE CONSIDERATION WHICH WAS QUITE REASONABLE AS COMPARED TO MARKET RATE OF 2% AND HENCE , THERE WAS NO REASON TO MAKE ANY DISALLOWANCE IN RESPECT OF THE SAME. D. THE ASSESSEE HAD ACTUALLY PAID THE SAID BROKERAGE AMO UNT TO M/S. REGENESIS PMCPL, WHICH WAS A DISTINCT LEGAL ENTITY, SPEC IALLY FORMED TO FIND AN APPROPRIATE BUYER FOR THE LAND HELD BY THE ASSESSEE AND OTHER OWNERS OF THE ADJOINING LANDS AND HENCE, THE SAID EXPE NDITURE WAS RIGHTLY CLAIMED BY THE ASSESSEE AS A DEDUCTION AGAINST CAPITAL GA INS ON SALE OF LAND AND THUS, THE ASSESSEE HAD NOT MADE ANY ATTEMPT TO AVOID ANY TAXES IN RESPECT OF THE SAID SALE OF LAND. E. THE ASSESSEE HAD SUBMITTED SUFFICIENT EVIDENCES TO INDI CATE THAT M/S. REGENESIS PMCPL HAD RENDERED SERVICES TO THE ASSESSEE FOR SA LE OF THE LAND AND ACCORDINGLY, THE BROKERAGE PAID BY THE ASSESSEE TO THE SAID COMPANY SHOULD HAVE BEEN ALLOWED AS A DEDUCTION WHILE COMPUTI NG THE CAPITAL GAINS ON SALE OF LAND. F. THE PAYMENT OF BROKERAGE BY THE ASSESSEE WAS NOT A T AX AVOIDANCE ARRANGEMENT AND THEREFORE, THERE WAS NO REASON TO DISA LLOW THE BROKERAGE PAID BY THE ASSESSEE TO M/S. REGENESIS PMCPL. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND O R DELETE ANY FO THE ABOVE GROUNDS OF APPEAL. 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF BROKERAGE MADE BY THE AO AND UPHELD BY THE CIT(A ) IS NOT AT ALL 15 JUSTIFIED. HE SUBMITTED THAT THE ASSESSEE AND OTHER MEMBERS OF KOLTE PATIL GROUP HAD ACQUIRED LAND OF MORE THAN 100 ACRES AT J AMBHE NEAR HINJEWADI. HOWEVER, IN ORDER TO DEVELOP THE SAID PR OJECT, THE KOLTE PATIL GROUP WAS LOOKING FOR POTENTIAL INVESTORS WHO COULD INVEST FUNDS ALONG WITH KPDL TO DEVELOP THE SAID PROJECT. HE SUBMITTED THAT KOLTE PATIL GROUP HAD NOT UNDERTAKEN DEVELOPMENT OF SUCH HUGE P ROJECT OF MORE THAN 100 ACRES. ACCORDINGLY, IT WAS DECIDED TO JOINTLY D EVELOP THE LAND ALONG WITH SOME INVESTOR. THUS, ON 03.10.2005, THE ASSESS EE ALONG WITH OTHER MEMBERS OF THE KOLTE PATIL GROUP AND KDPL ENTERED I NTO AN MOU WITH REGENESIS. (COPY OF THE SAID MOU IS PLACED ON PAGE S 150 - 151 OF PAPER BOOK). AS PER THE SAID MOU, REGENESIS HAD AGREED TO EXPLORE POTENTIAL INVESTORS, INSTITUTIONAL INVESTORS, REAL ESTATE FUN DS ETC. WHO MAY CO-INVEST WITH KPDL TO DEVELOP A BIG TOWNSHIP PROJECT ON THE LANDS ACQUIRED BY THE VARIOUS MEMBERS OF KOLTE PATIL GROUP AND KPDL A T VILLAGE JAMBHE, MARUNJI & NERE SITUATED IN PUNE DISTRICT. AS PER TH E SAID MOU, IT WAS FURTHER AGREED THAT THE VARIOUS MEMBERS OF THE KOLT E PATIL GROUP WOULD INDIVIDUALLY PAY REGENESIS A FEE OF 1.50% OF THE TR ANSACTION VALUE FOR THE FIRST TRANCHE OF 100 ACRES AND A FEE OF 0.50% OF TH E TRANSACTION VALUE FOR THE ADDITIONAL AREA SOLD OVER AND ABOVE 100 ACRES I N CONSIDERATION OF THE SERVICES RENDERED BY REGENESIS FOR FINDING THE POTE NTIAL INVESTOR. 10.1 HE SUBMITTED THAT FOR THE PURPOSE OF FIN DING THE POTENTIAL INVESTORS, REGENESIS EMPLOYED VARIOUS PERSONS WITH HIGH EDUCATIONAL QUALIFICATIONS AND VAST EXPERIENCE IN THE FIELD OF REALTY MARKET. REFERRING TO PAGE 249 OF THE PAPER BOOK, HE DREW THE ATTENTIO N OF THE BENCH TO THE DETAILS OF THE EDUCATIONAL QUALIFICATIONS AND PAST EXPERIENCE OF THE KEY EMPLOYEES OF REGENESIS AND SUBMITTED THAT THE VARIO US PERSONS EMPLOYED 16 WERE HIGHLY QUALIFIED AND SPECIALIZED IN THE FIELD OF REALTY MARKET. HE SUBMITTED THAT SOME OF THE EMPLOYEES HAD WORKED WIT H RENOWNED ORGANISATIONS IN THE REALTY MARKET LIKE MAHINDRA RE ALTY, KNIGHT FRANK, ICICI ONE SOURCE LTD., ICICI BANK (PROPERTY SERVICE DIVISION), HDFC, RELIANCE INDUSTRIES LTD., DLF UNIVERSAL LTD., ETC. ETC. REFERRING TO PAGE 248 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE HIGH SALARY PAID TO THOSE EMPLOYEES BY THEIR ERSTWHILE E MPLOYERS. 10.2 HE SUBMITTED THAT WITH PERSISTENT EFFORTS TO W OE INVESTORS, REGENESIS SUCCEEDED IN PURSUING ICICI VENTURE FUNDS MANAGEMENT COMPANY LTD. (ICICI VENTURE) TO CO-INVEST WITH KPDL IN ORDER TO DEVELOP THE SAID TOWNSHIP PROJECT ON THE ABOVE LAND S ACQUIRED BY KOLTE PATIL GROUP MEMBERS. ACCORDINGLY, A JOINT VENTURE A GREEMENT DATED 23.02.2006 WAS ENTERED INTO BETWEEN THE TRUSTS FORM ED BY ICICI VENTURE AND THE VARIOUS INDIVIDUALS AND ENTITIES OF KOLTE P ATIL GROUP ( PAGES 152- 173 OF THE PAPER BOOK) WHEREIN IT WAS AGREED THAT I CICI VENTURE AND THE KOLTE PATIL GROUP WOULD FORM A SPECIAL PURPOSE VEHI CLE [I-VEN KOLTE PATIL TOWNSHIPS PVT. LTD. JV) (HEREINAFTER REFERR ED TO AS 'JV')] FOR DEVELOPING THE ABOVE TOWNSHIP PROJECT AND THE SAID PARTIES WOULD MAKE INVESTMENTS IN THE RATIO OF 50 : 50 IN THE SAID JV (PAGE 157 OF PAPER BOOK). REFERRING TO PAGE 251 OF THE PAPER BOOK HE D REW THE ATTENTION OF THE BENCH TO THE DETAILS OF YEAR WISE INVESTMENTS M ADE BY ICICI VENTURE AND KOLTE PATIL GROUP. 10.3 AS REGARDS THE ALLEGATION OF THE REVENUE THAT THE PAYMENT OF BROKERAGE BY THE ASSESSEE TO REGENESIS WAS AN ARRAN GED TRANSACTION HE SUBMITTED THAT REGENESIS WAS ALSO A PARTY TO THE SH AREHOLDERS AGREEMENT 17 BETWEEN KOLTE PATIL AND ICICI. AS PER CLAUSE 15.3.1 OF THE SAID AGREEMENT (PAGE 165 OF THE PAPER BOOK), IT WAS AGREED THAT TH E PROFIT EARNED BY THE JV WOULD BE DISTRIBUTED TO EACH PARTY'S SHAREHOLDIN G TILL ICICI VENTURE AND KOLTE PATIL GROUP RECEIVE AN IRR OF 24% P.A. OR 2.5 TIMES OF THE TOTAL INVESTMENT, WHICHEVER IS HIGHER. AS PER CLAUS E 15.3.2, IT WAS AGREED THAT REGENESIS WOULD BE ENTITLED TO GET 10% OF (THE AMOUNT DISTRIBUTED TO THE VARIOUS PARTIES OVER AND ABOVE THE TOTAL INVEST MENT MADE BY THESE PARTIES). AS PER CLAUSE 15.3.3, IT WAS AGREED THAT THE BALANCE PROFITS AFTER THE DISTRIBUTION MENTIONED IN CLAUSE 15.3.1 & 15.3. 2 WOULD BE DISTRIBUTED IN THE RATIO OF 35 : 35 : 30 BETWEEN ICICI VENTURE, KOLTE PATIL GROUP AND REGENESIS. THUS, NOT ONLY THE MEMBERS OF KOLTE PATI L GROUP BUT ALSO THE THIRD PARTY I.E. ICICI VENTURE HAD AGREED TO PAY A PART OF THE PROFITS OF THE JV TO REGENESIS IN CONSIDERATION OF THE SERVICE S RENDERED BY THE SAID COMPANY IN BRINGING ABOUT THE DEAL. HE ACCORDINGLY SUBMITTED THAT REGENESIS WAS AN INDEPENDENT ENTITY WHICH PLAYED A SUBSTANTIAL ROLE IN MATERIALIZING THE DEAL BETWEEN KOLTE PATIL GROUP AN D ICICI VENTURE AND HENCE, THE BROKERAGE PAID TO THE SAID COMPANY BY TH E ASSESSEE WAS JUSTIFIED ON FACTS OF THE CASE. HE SUBMITTED THAT T HE FACT THAT REGENESIS WAS MADE A PARTY TO THE SHAREHOLDERS AGREEMENT ITSE LF INDICATES THAT REGENESIS WAS THE MAIN PERSON WHO HAD BROKERED THE DEAL. HE SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS POINTED OUT THAT ONLY BECAUSE REGENESIS WAS INSTRUMENTAL IN FINALIZI NG THE DEAL, ICICI HAD ALLOWED TO MAKE REGENESIS A PARTY TO THE SAID SHARE HOLDERS' AGREEMENT AND ALSO SHARE SOME PROFITS. IF REGENESIS HAD NO RO LE TO PLAY IN THE FINALIZATION OF THE DEAL, THERE WAS NO REASON TO MA KE IT A PARTY TO THE SAID AGREEMENT. THIS FACT ITSELF INDICATES THAT BECAUSE OF THE EFFORTS PUT IN BY 18 REGENESIS, ICICI VENTURE HAD AGREED TO BE A PARTNER TO DEVELOP THE LAND ALONG WITH KOLTE PATIL. 10.4 AS REGARDS THE OBSERVATION OF LD. CIT(A) T HAT THE ASSESSEE HAD SOLD THE LAND AT PREVAILING MARKET RATES AND THE AS SESSEE HAD NOT SOLD LANDS AT MORE THAN THE PREVAILING MARKET PRICES FOR WHICH SHE HAS REFERRED TO ONE SALE AGREEMENT IN PARA 5.1 OF HER ORDER, THE LD . COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID OBSERVATION OF THE LEARNED CIT(A) IS NOT CORRECT. REFERRING TO PAGE 250 OF THE PAPER BOOK WH ICH CONTAINS THE COST OF LAND AND SALE PROCEEDS HE SUBMITTED THAT SUBSTAN TIAL CAPITAL GAINS WERE EARNED ON THE SALE OF LANDS.. THE TOTAL CAPITAL GAI N EARNED BY THE ASSESSEE IS RS. 26.13 CRS. AND THE TOTAL CAPITAL GAIN EARNED BY ALL THE INDIVIDUALS IS RS. 148.95 CRS. THUS, THE ASSESSEE AND OTHER PERSON S EARNED MORE THAN 100% RETURN OF THEIR INVESTMENT AND THIS WAS POSSIB LE DUE TO THE EFFORTS PUT IN BY REGENESIS. REGENESIS WAS ABLE TO CONVINC E THE INVESTOR I.E. ICICI VENTURES TO BUY THE DEVELOPMENT RIGHTS IN THE ASSESSEE'S LAND AT A SUBSTANTIALLY HIGHER PRICE THAN THE MARKET VALUE. R EFERRING TO PAPER BOOK PAGES 189 TO 247, HE SUBMITTED THAT THE CIT(A) REFE RRED TO ONLY ONE OF THE TRANSACTIONS WHERE AS SHE IGNORED THE OTHER TRANSAC TIONS AS PER THE DEVELOPMENT AGREEMENT. 10.5 REFERRING TO THE ABOVE DEVELOPMENT AGREEMENT ( PAPER BOOK PAGE 191) HE SUBMITTED THAT IN THIS AGREEMENT, THE ASSES SEE HAS SOLD THE DEVELOPMENT RIGHTS IN ONE OF THE LANDS TO THE JOINT VENTURE COMPANY FOR RS. 13.07 CRS AS AGAINST THE STAMP DUTY VALUATION O F RS. 20 LACS. HE ACCORDINGLY SUBMITTED THAT THE ASSESSEE AND OTHER F AMILY MEMBERS EARNED 19 SUBSTANTIAL CAPITAL GAIN AND THE LEARNED CIT(A) HAS ERRED IN NOT CORRECTLY APPRECIATING THE FACTS WHILE DECIDING THE CASE. 10.6 HE SUBMITTED THAT THE SALE CONSIDERATION O F THE LANDS SOLD TO THE JOINT VENTURE COMPANY IS MENTIONED IN THE SHAREHOLD ERS' AGREEMENT. IN THE COURSE OF HEARING, THE ASSESSEE HAD POINTED OUT ON PAGE 159 OF THE PAPER BOOK THAT THE SALE CONSIDERATION WAS FIXED. THIS AS PECT ALSO INDICATES THAT THE ASSESSEE AND OTHER PERSONS WERE ABLE TO CONVINC E ICICI VENTURES TO MAKE PAYMENT FOR SALE OF LAND AT A HIGHER PRICE AND THIS WAS BECAUSE OF THE EFFORTS PUT IN BY REGENESIS. FURTHER, THE BROK ERAGE PAID BY THE ASSESSEE TO REGENESIS AT THE RATE OF ABOUT 0.50% TO 1.50% IS VERY REASONABLE CONSIDERING THE FACTS OF THE CASE AND IN VIEW OF THE SUBSTANTIAL ROLE PLAYED BY THE SAID COMPANY IN FINDING INVESTOR S FOR THE ASSESSEE'S LAND. HENCE, THE LOWER AUTHORITIES WERE NOT JUSTIFI ED IN DISALLOWING THE SAME. HE SUBMITTED THAT THE VARIOUS REASONS STATED BY THE LEARNED CIT(A) FOR DISALLOWING THE SAID BROKERAGE PAYMENT MADE TO REGENESIS ARE FACTUALLY INCORRECT. FIRSTLY, THE BROKERAGE PAID TO REGENESIS WAS IN RELATION TO FINDING AN INVESTOR TO DEVELOP THE ASSESSEE'S LA ND AND HENCE, THE SAID BROKERAGE PAYMENT WAS CERTAINLY INCURRED IN CONNECT ION WITH THE TRANSFER OF LAND AND THEREFORE, THE SAME IS ALLOWABLE AS A D EDUCTION WHILE COMPUTING THE CAPITAL GAINS ON TRANSFER OF THE LAND . HE SUBMITTED THAT ONLY IF A GOOD INVESTOR WAS FOUND, HE WOULD HAVE BEEN AB LE TO SELL THE LANDS AT SUBSTANTIAL AMOUNTS AND EARN CAPITAL GAIN. THUS, FI NDING OF THE INVESTOR HAD A DIRECT NEXUS WITH THE SALE OF LANDS AND THIS FACT IS ALSO EVIDENT SINCE THE SALE CONSIDERATION OF THE LANDS IS MENTIONED IN THE SHAREHOLDERS AGREEMENT. 20 10.7 HE SUBMITTED THAT REGENESIS HAD EARNED SUB STANTIAL PROFITS OF RS.6,53,864/- IN A.Y.2006 - 07 (PAGE 39 OF PAPER BO OK), RS. 11,63,183/- IN A.Y.2007 - 08 (PAGE 65) AND RS.25,42,095/- IN A. Y.2008 - 09 (REFER PAGE 98 OF PAPER BOOK). THEREFORE, THE LEARNED CIT( A) IS NOT JUSTIFIED IN HOLDING THAT REGENESIS HAD DECLARED NIL OR NOMINAL INCOME IN THESE YEARS AND THUS, THE PAYMENT OF BROKERAGE WAS MADE TO AVOI D PAYMENT OF TAXES BY THE ASSESSEE. HE SUBMITTED THAT REGENESIS HAD DE CLARED A LOSS IN A.Y.2009 - 10. HOWEVER, IN THAT YEAR THE ASSESSEE H AS NOT PAID ANY BROKERAGE TO THE SAID COMPANY. HE SUBMITTED THAT, IF AT ALL, THE ASSESSEE WANTED TO AVOID PAYMENT OF TAXES, THEN HE WOULD HAV E CERTAINLY PAID BROKERAGE TO REGENESIS IN A.Y. 2009-10 ALSO SINCE T HE SAID COMPANY WOULD NOT HAVE BEEN REQUIRED TO PAY ANY TAXES ON TH E SAID BROKERAGE INCOME AS IT HAD INCURRED A LOSS. HE SUBMITTED THA T WHEN THE ASSESSEE HAS OFFERED HUGE AMOUNT OF CAPITAL GAINS OF ABOUT RS.26 .13 CRS. FOR A.Y. 2006 - 07 TO 2009-10 AND HAS DULY PAID TAXES THEREON, TH EREFORE, THERE WAS NO REASON FOR THE ASSESSEE TO AVOID PAYMENT OF TAXES O N A MEAGER AMOUNT OF RS.35.34 LACS PAID TOWARDS BROKERAGE CHARGES TO REG ENESIS. HE ACCORDINGLY SUBMITTED THAT THE ABOVE CONTENTION OF THE LEARNED CIT(A) IS NOT JUSTIFIED ON THE FACTS OF THE CASE. 10.8 AS REGARDS THE OBSERVATION OF CIT(A) THAT THE ASSESSEE WAS THE CEO OF REGENESIS AND HENCE, THE PAYMENT MADE BY THE ASSESSEE TO THE SAID COMPANY WAS A COLOURABLE TRANSACTION TO AVOID PAYMENT OF TAXES HE SUBMITTED THAT THE LEARNED CIT(A) HAS NOT TAKEN INT O CONSIDERATION THE FACTUAL BACKGROUND BEHIND THE PAYMENT OF SUCH BROKE RAGE TO REGENESIS. HE SUBMITTED THAT THE VARIOUS MEMBERS OF THE KOLTE PATIL GROUP HAD ACQUIRED HUGE AREA OF LAND AT JAMBHE VILLAGE AND TH EY WANTED TO DEVELOP 21 A BIG TOWNSHIP PROJECT ON THE SAID LAND. HOWEVER, I T WAS NOT POSSIBLE FOR THE KOLTE PATIL GROUP TO DEVELOP THE TOWNSHIP PROJE CT SINGLE HANDEDLY AND HENCE, IT WAS LOOKING FOR POTENTIAL INVESTORS WHO C OULD INFUSE HUGE CAPITAL FUNDS ALONG WITH KPDL TO DEVELOP THE SAID P ROJECT. THE TASK OF FINDING POTENTIAL INVESTORS FOR SUCH HUGE INVESTMEN T WAS A VERY COMPLICATED JOB AND THEREFORE, IT WAS NOT POSSIBLE FOR THE MEMBERS TO INDIVIDUALLY SEARCH FOR AND CONVINCE THE INVESTORS FOR INFUSING FUNDS IN THE SAID PROJECT. THEREFORE, IT WAS DECIDED THAT A NEW COMPANY I.E. REGENESIS WOULD BE FORMED FOR THE PURPOSES OF FINDI NG POTENTIAL INVESTORS FOR DEVELOPING THE SAID PROJECT. FOR THE PURPOSES OF THIS TASK, REGENESIS EMPLOYED VARIOUS HIGHLY QUALIFIED EMPLOYEES WHO HAD PREVIOUSLY WORKED WITH ELITE ORGANISATIONS IN THE REALTY MARKET AND P AID HUGE SALARIES TO SUCH EMPLOYEES AND ONLY THEREAFTER, REGENESIS WAS ABLE T O FIND ICICI VENTURE AS THE INVESTOR FOR DEVELOPING THE TOWNSHIP PROJECT WITH KPDL. HE SUBMITTED THAT THE TASK OF FINDING POTENTIAL INVEST ORS WAS A HIGHLY COMPLICATED JOB WHICH INVOLVED MEETING A LARGE NUMB ER OF POTENTIAL INVESTORS, PREPARING PRESENTATIONS ETC., CONVINCING THE INVESTORS ABOUT THE FINANCIAL FEASIBILITY AND FUTURE PROSPECTS OF THE P ROJECT AND THE SAID TASK REQUIRED SPECIALISTS WITH VAST EXPERIENCE IN THIS F IELD AND THEREFORE, IT WAS NOT POSSIBLE FOR THE ASSESSEE OR THE OTHER MEMBERS OF THE KOLTE PATIL GROUP TO INDIVIDUALLY UNDERTAKE THE ABOVE ACTIVITIE S. HE ACCORDINGLY SUBMITTED THAT REGENESIS, WHICH UNDERTOOK THE ABOVE ACTIVITIES BY EMPLOYING VARIOUS EXPERTS, WAS A DISTINCT ENTITY FR OM THE ASSESSEE AND THE OTHER MEMBERS OF THE KOLTE PATIL GROUP AND HENCE, T HERE WAS NO REASON TO HOLD THAT THE FORMATION OF THE SAID COMPANY WAS MER ELY A COLOURABLE DEVICE TO AVOID PAYMENT OF TAXES. 22 10.9 REFERRING TO PAPER BOOK PAGE 255 HE SUBMITT ED THAT THE ASSESSEE HAS ALSO PAID SERVICE TAX @ 12.24% ON THE BROKERAGE PAID TO REGENESIS. IF THE ACTIVITY OF FINDING POTENTIAL INVESTORS WOUL D HAVE BEEN CONDUCTED INDIVIDUALLY BY THE KOLTE PATIL GROUP MEMBERS, THEN THEY WOULD NOT HAVE REQUIRED TO INCUR THE ADDITIONAL LIABILITY TOWARDS SERVICE TAX AND THIS FACT ALSO PROVES THAT THE ASSESSEE HAD NOT ENTERED INTO ANY COLOURABLE TRANSACTION TO AVOID TAXES BY MAKING PAYMENTS TO RE GENESIS. 10.10 AS REGARDS THE ALLEGATION OF CIT(A) THAT THE ASSESSEE HAS NOT FURNISHED THE DOCUMENTARY EVIDENCES IN RESPECT OF T HE SERVICES RENDERED BY REGENESIS HE SUBMITTED THAT THE ACTUAL DATA REGA RDING SERVICES RENDERED BY REGENESIS WAS IN THE LAPTOPS OF THE KEY EMPLOYEE S ENGAGED BY REGENESIS. HE SUBMITTED THAT ALL THESE EMPLOYEES LE FT AFTER 3-4 YEARS FROM INCORPORATION OF THE SAID COMPANY AND THEREFORE, TH E DIRECT EVIDENCES REGARDING THE ACTUAL SERVICES RENDERED BY REGENESIS ARE NOT AVAILABLE WITH THE ASSESSEE. HE SUBMITTED THAT THE FACT THAT REGEN ESIS HAD PLAYED A SUBSTANTIAL ROLE IN FINALIZING THE DEAL BETWEEN ICI CI VENTURE AND KOLTE PATIL GROUP IS EVIDENT FROM THE VARIOUS DETAILS FUR NISHED BY THE ASSESSEE IN THE FORM OF PAYMENTS MADE BY REGENESIS TO ITS VARIO US EMPLOYEES OVER THE YEARS (PAGE 248 OF THE PAPER BOOK), THE EDUCATI ONAL QUALIFICATIONS AND BACKGROUND OF KEY EMPLOYEES (PAGE 249 OF THE PAPER BOOK), THE ANNUAL REPORTS OF REGENESIS (PAGES 29-149 OF THE PAPER BOO K), THE MOU ENTERED INTO BETWEEN THE MEMBERS OF KOLTE PATIL GROUP AND R EGENESIS (PAGES 150-151 OF PAPER BOOK) AND OTHER DOCUMENTS. FURTHER , REGENESIS WAS ALSO PARTY TO THE SHAREHOLDERS AGREEMENT WITH ICICI VENTURES AND REGENESIS WAS ALSO TO RECEIVE PART OF PROFITS OF TH E JV. THESE FACTS AMPLY PROVE THE ROLE PLAYED BY REGENESIS IN FINALIZING TH E DEAL BETWEEN ICICI 23 VENTURE AND KOLTE PATIL GROUP. HE ACCORDINGLY SUBMI TTED THAT REGENESIS HAD ACTUALLY RENDERED VARIOUS SERVICES IN ORDER TO FIND POTENTIAL INVESTOR FOR DEVELOPING ASSESSEE'S LAND AND THEREFORE, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE IN RESPECT OF THE BROKERAGE PAID B Y THE ASSESSEE TO REGENESIS. HE ACCORDINGLY SUBMITTED THAT THE BROKE RAGE PAID BY THE ASSESSEE TO REGENESIS IS A GENUINE TRANSACTION AND HENCE, THE DISALLOWANCE MADE BY THE LEARNED AO/ CIT(A) BE DELETED. 11. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT WHEN THE ASSESSEE WAS SELLING THE LAND TO A GROUP CONCERN IN WHICH HE IS DIRECTLY INTERESTED, THERE WAS NO POINT IN GIVING BROKERAGE/COMMISSION T O THE SAID CONCERN. HE SUBMITTED THAT THE CIT(A) WAS FULLY JUSTIFIED IN DISALLOWING THE CLAIM OF COMMISSION MADE BY THE ASSESSEE. HE SUBMITTED T HAT THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE QUANTUM O F COMMISSION IS VERY LOW AS COMPARED TO THE HUGE AMOUNT OF CAPITAL GAIN EARNED BY THE ASSESSEE IS IMMATERIAL SINCE THE QUESTION HERE IS T HE ALLOWABILITY OF BROKERAGE/COMMISSION U/S.48(I) OF THE I.T. ACT. HE SUBMITTED THAT THE ASSESSEE HAS ADOPTED THIS METHOD ONLY TO REDUCE HIS TAX LIABILITY AND THEREFORE IT IS A COLOURABLE DEVICE. REFERRING TO PARA 5.9 OF THE ORDER OF THE CIT(A) HE DREW THE ATTENTION OF THE BENCH TO TH E FINDINGS BY THE LD.CIT(A) WHERE THE LD.CIT(A) HAS MENTIONED THAT TH E REAL BENEFICIARIES IN THE WHOLE PROCESS ARE NOT ONLY THE ASSESSEES WHO WANT TO CLAIM THE BROKERAGE AND REDUCE THEIR CAPITAL GAIN TAXES BUT A LSO REGENESIS PMCPL WHO OFFERED NIL TO NOMINAL INCOME AND ALSO GET ENTI TLED TO SHARE OF THE RESIDUAL PROFIT OF THE JOINT VENTURE. HE SUBMITTED THAT EITHER KPDL OR THE ASSESSEES COULD HAVE EMPLOYED THE PERSONS APPOINTED BY REGENESIS TO 24 FIND POTENTIAL INVESTORS. THEREFORE, AT THE MOST, SOME PROPORTIONATE EXPENSES TOWARDS SALARY OF THOSE PERSONS MAY BE ALL OWED. BUT EVEN THAT IS ALSO NOT NECESSARY. HE ACCORDINGLY SUBMITTED TH AT THE ORDER OF THE CIT(A) BE UPHELD. 12. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT KPDL I.E. KOLTE PATIL DEVELOPERS LTD. IS A PUBLIC L IMITED COMPANY AND EVEN IF IT ITSELF HAD EMPLOYED THE VARIOUS EMPLOYEE S FOR THE PURPOSE OF LOCATING POTENTIAL INVESTORS FOR THE LANDS OWNED BY THE VARIOUS FAMILY MEMBERS OF THE KOLTE PATIL GROUP, THEN IT WOULD HAV E CERTAINLY CHARGED THE INDIVIDUAL MEMBERS FOR THE EXPENSES INCURRED BY IT FOR FINDING THE POTENTIAL INVESTOR TO DEVELOP THEIR LANDS AND THUS, IN THAT CASE, THE ASSESSEE AND THE OTHER MEMBERS WOULD HAVE PAID THE ABOVE BRO KERAGE CHARGES TO KPDL INSTEAD OF REGENESIS. SIMILARLY, EVEN IF THE A SSESSEE OR ANY OTHER MEMBER WOULD HAVE SOLELY ENGAGED SUCH EXPERTS, HE W OULD HAVE CERTAINLY CHARGED THE OTHER MEMBERS FOR THEIR SHARE OF COSTS INCURRED BY THE ASSESSEE. FURTHER, THE EXPERTS EMPLOYED BY REGENESI S WERE PAID VERY HIGH SALARIES AS COMPARED TO THE EMPLOYEES OF KPDL AND H ENCE, IF THESE EMPLOYEES WERE HIRED DIRECTLY BY KPDL, THAT MAY HAV E RESULTED IN DISCONTENT AMONG THE EXISTING EMPLOYEES. HENCE, IN ORDER TO AVOID ANY SUCH COMPLICATIONS, IT WAS DECIDED TO FLOAT A NEW C OMPANY I.E. REGENESIS FOR THIS PURPOSE. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY QUESTION TO BE DECIDED IN THE INSTANT 25 CASE IS THE ALLOWABILITY OF THE EXPENDITURE FOR BRO KERAGE/COMMISSION PAID TO REGENESIS PMCPL BY THE ASSESSEE AS AN ALLOWABLE EXPENDITURE U/S.48(I) OF THE I.T. ACT. AS PER THE PROVISIONS O F SECTION 48(I) THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS SHALL BE CO MPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED O R ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET AFTER DEDUCTING T HE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRAN SFER. 13.1 WE FIND THE AO IN THE INSTANT CASE DISALLOWED THE CLAIM OF BROKERAGE PAID TO REGENESIS PMCPL ON THE GROUND THA T REGENESIS PMCPL IS A SUBSIDIARY OF KPDL WHOSE CONTROLLING MAN AGEMENT IS IN THE HANDS OF SHRI RAJESH PATIL AND MILIND PATIL. SINCE THE ASSESSEE IS ALSO A DIRECTOR OF KPDL THERE WAS NO NEED FOR PAYMENT OF A NY BROKERAGE AND THE TRANSACTION WAS CARRIED OUT FOR REDUCING THE TAX LI ABILITY. WE FIND THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE BROKERAGE PAYMENT TO REGENESIS IS PRIMA-FACIE NOT LINKED TO T HE TRANSFER OF THE LAND BUT TO THE IDENTIFICATION OF SUITABLE INVESTMENT PA RTNER IN ORDER TO DEVELOP THE LANDS INTO A SPECIAL TOWNSHIP. THE TRANSFER OF LAND IS NOT INCIDENTAL TO THE ENTIRE ARRANGEMENT. THE ASSESSEE HAS NOT RECEI VED ANYTHING MORE THAN THE PREVAILING MARKET PRICE AND THE TRANSACTION IS NOTHING BUT A COLOURABLE DEVICE. ACCORDING TO HER, THE REAL BENEFICIARIES I N THE WHOLE PROCESS ARE NOT ONLY THE ASSESSEE AND THE OTHER MEMBERS WHO SOL D THE LAND AND CLAIMED BROKERAGE BUT ALSO REGENESIS PMCPL WHO OFFE RED NIL TO NOMINAL INCOME ARE ALSO GET ENTITLED TO A SHARE OF THE RESIDUAL PROFIT OF THE JOINT VENTURE. 26 13.2 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR TH E ASSESSEE THAT THE TRANSACTION IS NOT AT ALL A COULOURABLE DEVICE SINC E THE COMPANY REGENESIS PMCPL HAS PAID TAX ON ITS INCOME WHICH IS NOT MARGI NAL BUT SUBSTANTIAL, THE ASSESSEE HAS PAID SERVICE TAX FOR THE BROKERAGE SO PAID. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT AS PER THE MOU REGENESIS HAD AGREED TO EXPLORE POTENTIAL INVESTORS , INSTITUTIONAL INVESTORS AND REAL ESTATE FUNDS ETC. WHO MAY CO-INVEST WITH K PDL TO DEVELOP A BIG TOWNSHIP PROJECT. WITHOUT THE ASSISTANCE OF REGENE SIS PMCPL, WHICH WAS A PROFESSIONALLY MANAGED COMPANY BY HIRING EXPE RTS FROM REAL ESTATE BUSINESS, THE ASSESSEE AND THE OTHER MEMBERS COULD NOT GET SUCH HUGE PRICE AND ENMASS TRANSFER OF THE LAND. WE FIND MER IT IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. FR OM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK WE FIND REGENESIS HAD EMPLOYED VARIOUS PERSONS WITH HIGH EDUCATIONAL QUAL IFICATIONS AND VAST EXPERIENCE IN THE FIELD OF REALTY MARKET SINCE SOME OF THE EMPLOYEES HAD WORKED WITH RENONWED ORGANISATIONS IN THE REALTY MA RKET LIKE MAHENDRA REALTY, KNIGHTFRANK, ICICI ONE SOURCE LTD. ICICI BA NK (PROPERTY SERVICE DIVISION), HDFC, RELIANCE INDUSTRIES LTD., DLF UNIVERSAL LTD. ETC. IN OUR OPINION BY APPOINTING REGENESIS, THE A SSESSEE AND OTHER PERSONS COULD SELL THE VAST LAND AT A TIME AND IN S OME CASES OVER THE MARKET PRICE AND THEREFORE, THE BROKERAGE/COMMISSIO N SO PAID IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER AND IS ALLOWABLE U/S.48(I) OF THE I.T. ACT . 13.3 SO FAR AS THE CLAIM OF THE REVENUE THAT THE AS SESSEE HAD SOLD THE LAND AT PREVAILING MARKET RATES AND THAT THE ASSESSEE HA S NOT RECEIVED ANYTHING EXTRA THAN THE PREVAILING MARKET PRICE AND FOR WHIC H RELIANCE HAS BEEN 27 PLACED ON ONE INSTANCE, WE FIND FROM THE COPY OF TH E DEVELOPMENT AGREEMENT DATED 19-01-2007 (PLACED AT PAGES 189 TO 247 OF THE PAPER BOOK) THAT THE ASSESSEE HAS SOLD THE DEVELOPMENT RI GHTS IN ONE OF THE LANDS TO THE ICICI VENTURE COMPANY FOR RS.13.07 CRORES AS AGAINST THE STAMP DUTY VALUATION OF RS.20 LAKHS. THEREFORE, THE CLAI M OF THE REVENUE THAT THE ASSESSEE HAS NOT RECEIVED MORE THAN THE PREVAILING MARKET PRICE IS NOT CORRECT. THEREFORE, WE FIND MERIT IN THE SUBMISSIO N OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE AND OTHER PERSONS WE RE ABLE TO CONVINCE ICICI VENTURES TO MAKE PAYMENT FOR SALE OF LAND AT HIGHER PRICE AND THIS WAS BECAUSE OF THE EFFORTS PUT IN BY REGENESIS FIND S SOME MERIT. 13.4 SO FAR AS THE CLAIM OF THE REVENUE THAT REGENE SIS PMCPL HAS OFFERED NIL TO NOMINAL INCOME AND PAYMENT OF BROKER AGE IS A COLOURABLE DEVICE TO REDUCE THE TAX WE FIND THE SAME IS ALSO N OT CORRECT. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PA PER BOOK WE FIND REGENESIS HAS EARNED SUBSTANTIAL PROFIT OF RS.6.53 LAKHS IN A.Y. 2006-07 (PAPER BOOK PAGE 39) RS.11.63 LAKHS IN A.Y. 2007-08 (PAPER BOOK PAGE 65) AND RS.25.42 LAKHS IN A.Y. 2008-09 (PAPER BOOK PAGE 98). APART FROM THE ABOVE, THE ASSESSEE HAS ALSO PAID SERVICE TAX ON THE BROKERAGE PAID AND SUCH SERVICE TAX IS @ 12.24% (PAPER BOOK P AGE 255). THEREFORE, IF THE ACTION OF THE ASSESSEE IS TO REDUCE THE TAX LIABILITY BY PAYING BROKERAGE TO REGENESIS PMCPL THEN SUCH COMPANY WOUL D NOT HAVE PAID TAX ON THE HUGE INCOME DECLARED NOR THE ASSESSEE WO ULD HAVE PAID SERVICE TAX TO THE GOVERNMENT ACCOUNT. THEREFORE, THE ALLE GATION OF THE REVENUE THAT REGENESIS PMCPL HAS OFFERED NIL TO NOMINAL INC OME AND THE ASSESSEE CLAIMED THE BROKERAGE TO REDUCE THE CAPITA L GAIN TAX ALSO DOES NOT FIND MUCH FORCE. 28 13.5 WE FURTHER FIND MERIT IN THE ARGUMENT OF THE L D. COUNSEL FOR THE ASSESSEE THAT WHEN THE TOTAL CAPITAL GAIN EARNED BY THE ASSESSEE IS RS.26.13 CRORES FOR THE A.Y. 2006-07 TO A.Y. 2008-09 AND HE HAS DULY PAID TAXES THEREON AND THE CAPITAL GAIN EARNED BY THE INDIVIDU AL MEMBERS OF THE GROUP IS RS.148.95 CRORES THERE WAS NO JUSTIFICATIO N ON THE PART OF THE ASSESSEE TO CLAIM SUCH A MEAGRE COMMISSION FOR SALE OF THE LAND WHICH IS HARDLY 0.5% TO 1.5% AS AGAINST THE PREVAILING MARKE T RATE OF ABOUT 2% AND ABOVE. IN THIS VIEW OF THE MATTER WE FIND MERIT IN THE SUBMISSION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE PAYMENT OF BRO KERAGE AT RS.25,96,400/- WAS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE LAND WHICH IS A N ALLOWABLE EXPENDITURE U/S.48(I) OF THE I.T. ACT. WE THEREFORE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE. ITA NOS.1356 AND 1357/PN/2013 (SHRI RAJESH ANIRUDHA PATIL) (A.YRS. 2007-08 AND 2008-09) : 14. THE ASSESSEE IN THE ABOVE APPEALS HAS CHALLENGE D THE DISALLOWANCE OF BROKERAGE EXPENSES CLAIMED AS DEDUCTION U/S.48(I ), THE DETAILS OF WHICH ARE AS UNDER : A.Y. DISALLOWED AMOUNT 2007-08 5,17,549 2008-09 4,20,595 14.1 AFTER HEARING BOTH THE SIDES, WE FIND THE GROU NDS RAISED BY THE ASSESSEE IN THE ABOVE 2 APPEALS ARE IDENTICAL TO GR OUNDS OF APPEAL IN ITA NO.1355/PN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE HAVE BEEN ALLOWED. FOLLOWIN G THE SAME RATIO, THE GROUNDS IN THE ABOVE APPEALS BY THE ASSESSEE ARE AL LOWED. 29 ITA NO.1358/PN/2013(SHRI RAJESH ANIRUDHA PATIL) (A. Y.2009-10) 15. THE ASSESSEE IN THE ABOVE APPEAL HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF RS.5,43,439/- ON ACCOUNT OF UNEXPLAINED JEWELLERY FOUND DURING THE COURSE OF SE ARCH ACTION AT THE RESIDENTIAL PREMISES OF THE ASSESSEE. 15.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING T HE COURSE OF SEARCH AT BUNGALOW NO.53, KOREGAON PARK, LANE NO.2, PUNE, GOL D JEWELLERY OF 1976.43 GMS VALUED AT RS.25,18,750/- WAS FOUND. ON BEING QUESTIONED BY THE ASSESSING OFFICER TO EXPLAIN THE SOURCE FOR THE JEWELLERY, IT WAS EXPLAINED THAT THE SAME HAS BEEN RECEIVED BY THE AS SESSEE OVER A PERIOD OF TIME AS GIFTS FROM RELATIVES AND SOME HAVE BEEN PURCHASED BY HIM OVER THE PERIOD OF HIS LIFE TIME FOR WHICH MONTHLY WITHDRAWALS CAN STAND AS SOURCE. THE ASSESSEE ALSO RELIED ON THE CBDT IN STRUCTION. THE ASSESSING OFFICER FOLLOWING THE INSTRUCTION OF CBDT CONSIDERED 1550 GMS OF JEWELLERY AS EXPLAINED WHICH BELONG TO THE A SSESSEE, HIS WIFE, HIS FATHER, MOTHER, DAUGHTER AND SON. THE BALANCE GOLD JEWELLERY OF 426.43 GRAMS WAS DISALLOWED BY HIM IN ABSENCE OF ANY SATIS FACTORY EXPLANATION BY THE ASSESSEE. THUS, THE ASSESSING OFFICER MADE ADDITION OF RS.5,43,439/- BEING THE VALUE OF JEWELLERY OF 1550 GRAMS AS UNDISCLOSED INCOME IN THE HANDS OF THE ASSESSEE. 16. IN APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER : 17.2 I HAVE CONSIDERED THE SUBMISSIONS MADE. IT IS SEEN T HAT THE APPELLANT HAS ONLY MADE SOME GENERAL OBSERVATIONS ABOUT THE AFFLUENCE OF THE FAMILY AND THE ACCUMULATION OF JEWELLERY OVE R A PERIOD OF TIME BY WAY OF GIFTS AND PURCHASES. NO ATTEMPT HAS BEEN MADE T O SUBSTANTIATE THE CLAIM OF THE APPELLANT WITH REFERENCE TO THE RE CORD. I FIND THAT THE ASSESSING OFFICER HAS ALREADY BEEN QUITE GENEROUS IN ALLO WING THE CLAIM 30 OF OWNERSHIP OF GOLD JEWELLERY IN THE HANDS OF NOT ON LY THE APPELLANT BUT ALSO ALL MEMBERS OF HIS FAMILY SUCH AS WIFE, CHILDREN AN D PARENTS. THE ORDER OF THE ASSESSING OFFICER, IN MY VIEW, DESERVES TO B E UPHELD SINCE IT IS EXTREMELY REASONABLE AND ALSO IN ACCORDANCE WITH TH E BOARD'S INSTRUCTION ON THIS SUBJECT. ACCORDINGLY, GROUNDS NO. 1 TO 3 FOR A.Y. 2009- 10 ARE TREATED AS DISMISSED. 18. GROUND NO.4 : UNDER THIS GROUND, THE APPELLANT HAS ONLY SOUGHT T O RESERVE THE RIGHT TO AMEND, ALTER OR ADD TO THE GROU NDS OF APPEAL. SINCE NO SUCH RIGHTS HAVE BEEN EXERCISED DURING APPELLATE PROCE EDINGS, AS SUCH, AT THIS STAGE, THE GROUND IS INFRUCTUOUS AND MAY BE TREATE D AS DISMISSED. 19. IN CONSEQUENCE OF THE ABOVE, THE APPEAL IS T REATED AS DISMISSED. 16.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 17. AFTER HEARING BOTH THE SIDES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ADMITTEDLY THE AO HAS ALREADY GIVEN CREDIT FOR EXPLAINING THE JEWELLERY BELONGING TO THE FAMILY ME MBERS AS PER THE INSTRUCTION OF THE CBDT. THE ASSESSEE COULD NOT BR ING ON RECORD ANYTHING MORE TO PROVE THAT HE HAS PURCHASED THE JEWELLERY O UT OF HIS WITHDRAWALS. IN ABSENCE OF THE SAME, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE CIT(A) SUSTAINING THE ADDITION OF RS.5,43,439/-. T HE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. ITA NOS.1359 TO 1361/PN/2013 (SHRI MILING DIGAMBAR KOLTE) A.YRS. 2006-07, 2007-08 AND 2008-09) : 18. THE ASSESSEE IN THE ABOVE APPEALS HAS CHALLENGE D THE DISALLOWANCE OF BROKERAGE EXPENSES CLAIMED AS DEDUCTION U/S.48(I ), THE DETAILS OF WHICH ARE AS UNDER : A.Y. DISALLOWED AMOUNT 2006-07 26,15,493 2007-08 37,66,891 2008-09 5,04,754 31 18.1 AFTER HEARING BOTH THE SIDES, WE FIND THE GROU NDS RAISED BY THE ASSESSEE IN THE ABOVE APPEALS ARE IDENTICAL TO GROU NDS OF APPEAL IN ITA NO.1355/PN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE HAVE BEEN ALLOWED. FOLLOWIN G THE SAME RATIO, THE GROUNDS IN THE ABOVE APPEALS BY THE ASSESSEE ARE AL LOWED. ITA NOS.1341 AND 1346/PN/2013 (SHRI MS. ANKITA RAJE SH PATIL) A.YRS. 2006-07 AND 2007-08) : 19. THE ASSESSEE IN THE ABOVE APPEALS HAS CHALLENGE D THE DISALLOWANCE OF BROKERAGE EXPENSES CLAIMED AS DEDUCTION U/S.48(I ), THE DETAILS OF WHICH ARE AS UNDER : A.Y. DISALLOWED AMOUNT 2006-07 18,86,903 2007-08 11,28,433 19.1 AFTER HEARING BOTH THE SIDES, WE FIND THE GROU NDS RAISED BY THE ASSESSEE IN THE ABOVE APPEALS ARE IDENTICAL TO GROU NDS OF APPEAL IN ITA NO.1355/PN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE HAVE BEEN ALLOWED. FOLLOWIN G THE SAME RATIO, THE GROUNDS IN THE ABOVE APPEALS BY THE ASSESSEE ARE AL LOWED. ITA NOS.1342 TO 1345/PN/2013 (SHRI NARESH ANIRUDHA PATIL) A.YRS. 2006-07, 2007-08 AND 2008-09) : 20. THE ASSESSEE IN THE ABOVE APPEALS HAS CHALLENGE D THE DISALLOWANCE OF BROKERAGE EXPENSES CLAIMED AS DEDUCTION U/S.48(I ), THE DETAILS OF WHICH ARE AS UNDER : A.Y. DISALLOWED AMOUNT 2006-07 19,90,806 2007-08 2,65,237 2008-09 2,80,000 32 20.1 AFTER HEARING BOTH THE SIDES, WE FIND THE GROU NDS RAISED BY THE ASSESSEE IN THE ABOVE APPEALS ARE IDENTICAL TO GROU NDS OF APPEAL IN ITA NO.1355/PN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE HAVE BEEN ALLOWED. FOLLOWIN G THE SAME RATIO, THE GROUNDS IN THE ABOVE APPEALS BY THE ASSESSEE ARE AL LOWED. 21. IN THE RESULT, ITA NO.1358/PN/2013 IS DISMISSED AND ALL OTHER APPEALS FILED BY THE RESPECTIVE ASSESSEES ARE ALLO WED. PRONOUNCED IN THE OPEN COURT ON 30-06-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PAN DA) JUDICIAL MEMBER ACCOUNTAN T MEMBER PUNE DATED: 30 TH JUNE, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE 33