ACIT CC-4, THANE V. M/S.HALLMARK DEVELOPERS, MUMBAI

ITA 1381/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0708 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AASIM THAKKAR
• Keywords: Bogus purchase; Business income; Business expenditure; Maximum Marginal Rate; Additional evidence; Difference of opinion; Onus to prove; TDS
• Section: 37(1); 13; 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAMLAL NEGI, JUDICIAL MEMBER ITA NO.1381/MUM/2018 ( ASSESSMENT YEAR: 2009-10 ) ACIT, CENTRAL CIRCLE-4, THANE VS. M/S. HALLMARK DEVELOPERS NO. 149/150, TARA CASTLE, MASOLI, DAHANU ROAD, DAHANU, MUMBAI- 401501 PAN/GIR NO. AADFH3619M (APPELLANT ) .. (RESPONDENT ) & ITA NO.1586/MUM/2018 ( ASSESSMENT YEAR: 2009-10 ) M/S. HALLMARK DEVELOPERS NO. 149/150, TARA CASTLE, MASOLI, DAHANU ROAD, DAHANU, MUMBAI- 401501 VS. JCIT, PALGHAR RANGE, PALGHAR. PAN/GIR NO. AADFH3619M (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI. SANDEEP RAJ, CIT-DR ASSESSEE BY SHRI. AASIM THAKKAR, AR DATE OF HEARING 12/03/2020 DATE OF PRONOUNCEMENT 12 /06/2020 / O R D E R PER G.MANJUNATHA: ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY THE REVENUE AS WELL A S THE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS)3, THANE, DATED 15/12/2017 AND THEY A RE PERTAINS TO HALLMARK DEVELOPERS 2 ASSESSMENT YEAR 2009-10. SINCE, FACTS ARE IDENTICA L AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED-OFF BY THIS CONSOLIDATED ORDER. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXPENDITURE OF RS. 31.42 CROR ES ON ACCOUNT OF BOGUS CONTRACTUAL EXPENDITURE. (A) THE LD. CIT(A) ERRED IN HOLDING THAT THE TAX P AID BY M/S METCON INDIA AT THE MAXIMUM MARGINAL RATE WILL GRANT IMMUNITY TO THE ASSESSEE EVEN WHEN BOTH ARE TWO DIFFERENT ENTITIES AND THERE IS N O QUESTION OF DOUBLE TAXATION INVOLVED. (B) THE LD. CIT(A) DECIDED THE ISSUE WITHOUT APPRE CIATING THAT THE HON'BLE INCOME TAX SETTLEMENT COMMISSION REJECTED T HE PLEA OF THE DEPARTMENT CITING THAT IT CANNOT REVISIT THE ADDITI ONS MADE IN THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER BE FORE THE SEARCH ACTION IN VIEW OF THE DECISION OF THE HON'BLE IT AT IN ALL CARGO LOGISTICS. (C) THE LD. CIT(A) DECIDED THE ISSUE WITHOUT APPR ECIATING THAT THE OBSERVATION OF THE HON'BLE INCOME TAX SETTLEMENT CO MMISSION DOES NOT HAVE A BEARING ON THE ASSESSMENT CONCLUDED PRIOR TO THE SEARCH ACTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING 50% OF THE DIRECT EXPENDIT URE DISALLOWED AMOUNTING TO RS. 4.5 CRORES OUT OF RS. 9 CRORES. (A.) THE LD. CIT(A) DECIDED THE ISSUE WITHOUT APPRE CIATION THAT THE DIRECT EXPENDITURE OF RS. 5.91 CRORES CLAIMED BY THE ASSES SEE ON ACCOUNT OF PURCHASES MADE FROM M/S JB ENTERPRISES IS BOGUS AS THE PARTY IS ONE OF THE HAWALA ENTRY PROVIDER IN THE LIST PREPARED BY T HE SALES TAX DEPARTMENT AND THE ASSESSEE FAILED TO PROVE THE GEN UINENESS OF THE PARTY. (B.) THE LD. CIT(A) DECIDED THE ISSUED WITHOUT APPR ECIATING THAT THE DIRECT EXPENDITURE OF RS. 2.92 CRORES CLAIMED BY THE ASSES SEE ON ACCOUNT OF PURCHASES MADE FROM M/S ARASH DEVELOPERS IS BOGUS A S THE PARTY IS ONE OF THE PARTNER IN THE ASSESSEE FIRM AND HAD NO STOC K TO SUPPLY TO THE ASSESSEE. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: HALLMARK DEVELOPERS 3 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,50,00,000/- OUT OF ADDITION OF RS.9,00,00,000/- MADE BY THE ASSESSING OFFICER FOR DIRECT EXPENSES MATERIAL ONLY ON ESTIMATION AND WITHOUT ANY BASIS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 71, 00,000/- MAD E BY THE ASSESSING OFFICER FOR THE COMPENSATION PAID TO RETIRING PARTN ERS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 30, 00, 000/- MA DE BY THE ASSESSING OFFICER IN RESPECT OF SALARY AND WAGES. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, M/S HALLMARK DEVELOPERS IS ENGAGED IN THE BUSINESS OF INVESTMENT INTO REAL ESTATE, DEVELOPMENT OF LANDS, CONSTRUCTION OF BUILD INGS AND COMMERCIAL PROPERTIES, HAS FILED ITS RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2009-10 ON 30-09-2009, DECLARING TO TAL INCOME OF RS. 7,46,79,830/-. DURING THE PREVIOUS YEAR RELEVA NT TO ASSESSMENT YEAR 2009-10, THE ASSESSEE HAD ENTERED INTO AN MOU DATED 11-01- 2008 WITH MS NUNLET PROJECT PRIVATE LIMITED FOR SAL E OF PLOT OF LAND ADMEASURING 9.41 ACRES AT NAGPUR FOR A CONSIDERATIO N OF RS. 85.50 CRORES. THE SAID LAND HAS BEEN PURCHASED ON 5-7-200 5 FROM M/S MAHARASHTRA STATE HANDLOOM CORPORATION LIMITED FOR A CONSIDERATION OF RS. 8,05,00,000 AND REGISTERED BY PAYING STAMP DUTY OF RS. 43,52,100/-. AS PER THE TERMS OF MOU, T HE ASSESSEE IS REQUIRED TO CLEAR ILLEGAL ENCROACHMENTS IN LAND, LE VELLING OF LAND, ROCK CUTTING AND OTHER WORKS BEFORE THE SAID LAND I S BEING CONVEYED TO SELLERS. FURTHER, TO KEEP THE LAND IN SEALABLE C ONDITION, THE HALLMARK DEVELOPERS 4 ASSESSEE HAD ASSIGNED LAND DEVELOPMENT WORK TO M/S METCON INDIA, A CATEGORY AA GOVERNMENT CONTRACTOR AND ACCORDINGLY , A SEPARATE WORK ORDER AND AGREEMENT IS ENTERED INTO WITH THE C ONTRACTOR WITH SCOPE OF WORK TO BE DONE AND FOR THIS PURPOSE A SUM OF RS. 36,08,96,156/ HAS BEEN PAID TO M/S METCON INDIA, AN D DEBITED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD CONTRACT CHA RGES. THE ASSESSEE HAD ALSO INCURRED VARIOUS OTHER EXPENDITUR ES, INCLUDING DIRECT EXPENSES MATERIALS PURCHASE AMOUNTING TO RS. 9,00,00,000/-, BROKERAGE PAYMENT OF RS. 100,93, 118/-, AMOUNT PAID FOR ARBITRATION AWARD AMOUNTING TO RS. 5,00,00,000/-, COMPENSATION TO RETIRING PARTNERS OF RS. 71,00,000/- AND SALARY AND WAGES EX PENDITURE OF RS. 30,00,000/-. 5. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS; THE AO HAS CALLED UPON T HE ASSESSEE TO FURNISH NECESSARY EVIDENCES FOR ALL EXPENDITURE AND TO JUSTIFY NEXUS BETWEEN EXPENDITURE INCURRED UNDER VARIOUS HEADS OF EXPENSES TO THE BUSINESS ACTIVITY. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE ASSESSEE HAS FILED DETAILS OF EXPENDITURE INCUR RED UNDER VARIOUS HEADS OF EXPENDITURE ALONG WITH NECESSARY EVIDENCES AND ALSO JUSTIFIED NECESSITY OF INCURRING THOSE EXPENDITURES IN CONNECTION WITH ITS BUSINESS ACTIVITY. THE AO WAS NOT CONVINCING WI TH THE EVIDENCES HALLMARK DEVELOPERS 5 FILED BY THE ASSESSEE WITH REGARD TO VARIOUS EXPEND ITURES INCURRED UNDER VARIOUS HEADS OF EXPENDITURE. ACCORDING TO TH E AO, THE ASSESSEE WAS FAILED TO OFFER ANY EXPLANATION AND EV IDENCE THAT THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS, WHICH IS DEVELOPMENT OF LAND. TO ARRIVE A T ABOVE CONCLUSION, THE AO HAD TAKEN SUPPORT FROM VARIOUS E XTERNAL INFORMATION INCLUDING PHYSICAL INSPECTION OF LAND, OBTAINING INFORMATION FROM THE SELLER OF LAND M/S MAHARASHTRA STATE HANDLOOM CORPORATION LIMITED, BUYER OF THE LAND M/S NUNLET P ROJECTS PRIVATE LIMITED, PHOTOGRAPHS TAKEN AT LAND ON 24-12-2011 AN D OPINION OF DVO FOR DRAWING ADVERSE INFERENCE AGAINST THE ASSES SEE. THE AO HAD ALSO TAKEN SUPPORT FROM THE FACT THAT THE ASSES SEE HAD ENTERED INTO TRANSACTIONS WITH ASSOCIATED/ RELATED PARTIES. ACCORDINGLY, HE CAME TO THE CONCLUSION THAT VARIOUS EXPENDITURES IN CURRED UNDER THE HEAD DIRECT EXPENSES MATERIALS, CONTRACT CHARGES, B ROKERAGE PAYMENT, ARBITRATION AWARD, COMPENSATION TO OUTGOIN G PARTNERS AND SALARY AND WAGES ARE NOT INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS, I.E. LAND DEVELOPMENT AND ALSO SAID EXPENDITURE IS EXCESSIVE AND UNREASONABLE WITHIN TH E MEANING OF SECTION 40A(2). ACCORDINGLY, HE HAS COMPLETED THE A SSESSMENT BY MAKING FOLLOWING ADDITIONS/ DISALLOWANCES OF EXPEND ITURE. THE RELEVANT FINDINGS OF THE LD. AO ARE AS UNDER: HALLMARK DEVELOPERS 6 I. DIRECT EXPENSES MATERIAL RS.9,00 ,00, 000/- II. 'BROKERAGE RS.1,00,93, 118/- III. ARBITRATION AWARD R S.5,00,00, 000/- IV. COMPENSATION TO RETIRING PARTNERS RS.71,00, 000/- V. CONTRACT CHARGES RS.3 4,08,96,165/- VI. SALARY & WAGES RS. 30,00,000 TOTAL RS.50,10,89,283/- AGGRIEVED BY THE ABOVE ADDITIONS, THE APPELLANT IS IN APPEAL, BEFORE ME. 3.0 RELEVANT EXTRACT FROM THE ASSESSMENT ORDER: '14.1. FIRST GROUND FOR REJECTING THE CLAIM OF THE ASSESSEE BASED ON FACTS CULLED FROM THE SUBMISSIONS MADE BY THE ASSESSEE AND FROM EXTERNAL SOURCES AVAILABLE IN PUBLIC DOMAIN,: A). FEW PHOTOGRAPHS OF THE PLOT AT NAGPUR TAKEN ON 24.12.2011 ARE PLACED ON RECORD. THESE PHOTOGRAPHS REVEAL THE ACTUAL CONDITI ON OF THE SUBJECT AND EVEN AS ON I.E. 24.12.2011. THE LAND IS NEITHER LEVELLED NOR SHOWING ANY SIGN HAVING BEEN 'DEVELOPED'. IN SHORT , THERE IS NOTHING TO INDICATE THAT THE LAND CLAIMED TO HAVE BEEN DEVELOPED BY THE ASSESSEE AT A COST OVER RS. 61 CRORES (RS. 49.84 + RS. 11.65 CRORES) HAS ANY FEATURES OF A 'DEVELOPMEN T LAND'. THE TERRAIN AND TOPOGRAPHY OF THE GROUND IN SIMILAR TO THAT OF THE ADJOINING AND SURROUNDING PLOTS. IN FACT, THE ADJACENT LAND IS STILL OWNED AN D USED BY M/S MSHC AS ITS OFFICE. OUTSIDE OF THE SAID LAND IN THE ADJOINING PLOTS THE RE ARE RESIDENTIAL BUILDINGS, OFFICE BUILDINGS, GODOWNS ETC WHICH ARE HABITUATED. THE OFFICE BUILDING AND GODOWNS OF M/S MSHC WERE BEING USED EVEN IN THE YEAR 2005 I.E. YEAR OF PURCHASES. THEREFORE THE CLAIM MADE BY THE ASSESSEE THAT THE CONDITION OF THE LAND AT THE TIME OF PURCHASE WAS ABYSMAL AND VERY B AD AND THIS NECESSITATED A HUGE EXPENDITURE ON ITS DEVELOPMENT IS TOTALLY CONT RARY TO THE REAL PICTURE. THE SAID PIECE OF LAND IS DEMARCATED FROM THE ADJOI NING AREA ON ONE THE ASSESSEE F S OWN ESTIMATE THE COST OF CONSTRUCTION OF THE WALL IS RS. 60,88,3Q6/- THE OTHER THREE SIDES HAVE BEEN FENCED BY TIN-SHEET S WHICH IS CLAIMED TO HAVE BEEN PLACES BY THE PURCHASER THAT IS M/S NPPL. B). ON THE DATE OF SALE OF THE LAND I.E. 05.09.2008 , THE STAMP DUTY AUTHORITIES HAD ASSESSED THE VALUE OF THE SAID PLOT AS RS. 18 C RORES. THIS VALUATION BY HE SAID AUTHORITIES APPEARS REASONABLE GIVEN THE FACT THAT THE PLOT WAS PURCHASED FOR RS. 8.05 CRORES ON 5 TH JULY 2005. ALSO THE AUTHORITIES WOULD INSPECT AND VALUE THE PROPERTY AND SUCH VALUATION WOULD DEFINIT ELY INCLUDE THE COST OF LAND PLUS COST OF IMPROVEMENT, BEFORE ARRIVING AT THE MA RKET VALUE. THEREFORE IT IS EVIDENT THAT THE ASSESSEE HAS INFLATED ITS CLAIM OF DEVELOPMENT COSTS. C). THE ASSESSEE FIRM IS NOT THE ONLY ONE IN THE BU SINESS OF LAND-DEVELOPMENT. THERE ARE HUNDREDS OF DEVELOPERS ACROSS THE COUNTRY . DEVELOPMENT EXPENSES CLAIMED BY ANY DEVELOPER RANGES FROM AROUND RS. 2 L ACS PER ACRE TO RS. 10 LACS PER ACRE. THEREFORE THE MAXIMUM EXPENDITURE ON SUPP ORTED BY THE APPROVED RATES AVAILABLE IN THE DSR PUBLISHED FOR FY 2008-09 FOR PWD, GOVT. OF MAHARASHTRA APPROVED CONTRACTS. OTHER ASSESSEE HAVE CLAIMED THE COST OF BUILDING DAMS ACROSS RIVERS AT A COST OF RS. 5 CROR ES AND AQUEDUCTS (A 3 LAYER CONDUIT) AT A COST OF RS. 6.5 CRORES. HALLMARK DEVELOPERS 7 D). M/S NPPL, THE PURCHASER HAS VIDE LETTER DATED 1 9 TH DEC. 2011 WRITTEN IN REPLY TO THIS OFFICER LETTER DATED 25.11.2011 HAVE CLARIF IED THAT THEY HAVE TAKEN POSSESSION OF THE LAND ON 5 TH SEPTEMBER 2008 AND THAT ALL THE DEVELOPMENT WORK SUCH COMPLETED BEFORE THE EXECUTION OF THE SAL E DEED I.E. BEFORE 5 TH SEPTEMBER 2008. THIS MEANS THAT AFTER 5 TH SEPTEMBER 2008 THE ASSESSEE COULD HAVE BEEN INCURRED ANY EXPENDITURE FOR DEVELOPMENT OF THE SAID LAND. FURTHER, IN THE SALE DEED DATED 05.09.2008 THERE IS A MENTION O F THE NEGOTIATIONS HAVING STARTED IN EARLY 2008 AND AN AGREEMENT OF SALE BEIN G SIGNED BY THE ASSESSEE AND M/S NPPL ON 04.02.2008 THIS FACT, IN COMBINATIO N WITH THE FACT THAT THE ASSESSEE HAS ADMITTED THAT THE WORK HAD TO BE TAKEN UP IN HURRY FOR WHICH IT HAD INCURRED AN EXPENDITURE OF RS. 11.65 CRORES IN FY. 2007-08 BY ALLOTTING THE WORK TO ITS SISTER CONCERN M/S METCONLNDIA, INDICATES TH AT THE WORK OF DEVELOPMENT WAS COMPLETED ON OR BEFORE 05.09.2008. I.E. THE DAT E OF EXECUTION OF THE DEED. IN VIEW OF THE FACTS DETAILED ABOVE THE CLAIM OF TH E ASSESSEE THAT IT HAD INCURRED AN EXPENDITURE OF RS. 49.84 CRORES ON 'DEV ELOPMENT OF LAND' IN THIS YEAR IS NOT ONLY UNREASONABLE, BUT ALSO BASEL ESS AND UNSUBSTANTIATED. THEREFORE THE CLAIM CANNOT BE ACCEPTED AND DISALLOW ANCE AS DISCUSSED IN SUBSEQUENT PARAGRAPHS IS MADE. 14.2. SECOND GROUND FOR REJECTING THE CLAIM OF THE ASSESSEE BASED ON ACCOUNTS AND BANK STATEMENTS:- A) ON GOING THROUGH THE SALE DEED OF THE NAGPUR PROPERTY DATED 05.09.2008, THE BALANCE SHEET AS AT 31.03.2008 AND THE BANK STATEMENTS OF CANARA BANK A/C NO. 0119201003280 THE FO LLOWING DISCREPANCIES ARE NOTICED. I) RECEIPTS SHOWN IN BALANCE SHEET AS ON 31.03.2008 (L IABILITY SIDE):- A) UNSECURED LOAN FROM NUNLET PROJECTS PVT. LTD. RS.2,00,00,000/- B) ADVANCES RECEIVED FOR NAGPUR LAND RS.16,08,69,806/- TOTAL RS. 18,08,69,806/- RECEIPTS FROM NPPL SHOWN IN THE BANK A/C (CANARA BA NK) IN FY 2008-09 (AS PER THE BOOKS OF THE ASSESSES AND AS PER BANK S TATEMENT) A) ON 08.07.2008 RS.11,01,18,384/--$ B) ON 06.09.2008 RS. 9,93,192/--$ C) -DO RS.70,00,00,000/-* D) - DO- RS. 2,67,50,000/-* TOTAL RS. 83,78,61,576/- III). RECEIPTS SHOWN AS PER SA/E DEED DATED 05.0 9.2008 A) ADVANCE RS. 2,00,00,000/-* B) ADVANCE ON 26.07.2008 RS . 18,82,50,000/-$ C) ON EXECUTION DATE I.E. 05.09.2008 RS, 72,67,50 ,000/~* TOTAL RS. 85,50,00,0007- READING THE ABOVE THREE RECEIPTS (I,II AND III) IT IS EVIDENT THAT THE ASSESSEE HAS RECEIVED EXCESS CONSIDERATION OVER AND ABOVE THE RE CEIPTS AS PER SALE DEED S QUANTIFIED BELOW:-UNTALLIED AMOUNTS : (INDICATED WI TH $) I) ADVANCES RECEIVED FOR NAGPUR LAND RS. 16,08,69,806/- II) DEPOSIT IN BANK FROM NPPL ON 08.07.2008 RS. 11,01,18,384/- HI) DEPOSIT IN BANK FROM NPPL ON 06.09.2008 RS. 9,93,192/- IV) ADVANCE GIVEN ON 26.07.2008 AS PER SALE DE ED RS. 10,82,50,000/- RS. 38,02,31,382/- HALLMARK DEVELOPERS 8 THE ASSESSEE WAS ASKED TO EXPLAIN THIS DISCREPANCY AND RECONCILE THE FIGURES. VIDE LETTER DATED 27.12.2011 THE ASSESSEE HAS EXPLA INED THAT AN AMOUNT OF RS.9,93,192/- SND RS. 28,61,576/- WAS ACTUALLY RE-I MBURSEMENT OF EXPENSES RECEIVED FROM M/S. NPPL FOR MUNICIPAL TAXES ETC AND THAT THESE HAVE NOT BEEN DEBITED BY THE ASSESSEE IN THE P/L ACCOUNT THIS IS VERIFIED AND ACCEPTED. HOWEVER, AS REGARDS THE ADVANCE AMOUNT OF RS. 16.08 CRS THE AR STATES IN THE SAID FETTER DATED 27.12.2011 THAT 'THESE WERE OLD L OANS/ADVANCES TAKEN FOR PURCHASES OF NAGPUR LAND AND THE SAME IS APPEARING IN THE BALANCE-SHEET AND PAID OFF DURING THE YEAR. THIS IS NOT THE CORRECT F ACT. AS PER THE AUDIT REPORT AND ANNEXURES FOR FY 2007-08 AND FY 2008-09, THIS SUM O F RS. 16,08,69,806/- IS ACTUALLY THE LOANS TAKEN BY THE ASSESSEE FROM THE R ELATIVES OF THE PARTNERS AND SISTER CONCERNS. SINCE THIS IS THE EXTENT OF RS. 16.08 CRORES IS TAKEN AS EXPLAINE D. B. CLOSING AND OPENING BALANCES OF IMPORTANT LEDGERS ACCOUNTS AS PER THE BALANCE SHEET AS AT 31.03.2008: CLOSING CREDIT BALANCE OF M/S METCON INDIA IS RS. 1 ,35,29,969/- CLOSING CREDIT BALANCE OF M/S TARASH DEVELOPERS PVT . LTD. (TDPL) IS RS, NIL AS PER THE SIGNED COPIES OF CONFIRMATION OF ACCOUNT S (FROM THE BOOKS OF THE -ASSESSEE-)* OPENING CREDIT BALANCE OF M/S METCONLNDIA IS RS. 12 ,28,36,328/ -OPENING CREDIT BALANCE OF M/S TDPL IS RS. 27,42,59 8/- OPENING CREDIT BALANCE OF M/S METCON INDIA IS RS. 6 4,010/- OPENING CREDIT BALANCE OF M/S TDPL IS RS.( RS. 27,4 2,59S/- TRANSFERRED TO CURRENT ACCOUNT OF PARTNER) AS PER BANK STATEMENT (CANARA BANK A/C. NO. ) PAYMENTS MADE TO M/S METCON INDIA IS RS. 42,47,27, 694/- PAYMENTS MADE TO M/S TDPL IS RS. 7,45,0 0,000/- AS PER BALANCE SHEET AS AT 31.03.2009: CLOSING CREDIT BALANCE OF M/S METCON INDIA IS RS. 3 7,07,471/~ CLOSING CREDIT BALANCE OF M/S TDPL IS RS . NIL (RS.27,42,598/- TRANSFERRED TO CURRENT ACCOUNT NOT REFLECTED IN THE CAPITAL ACCOUNT OF PARTNERS) CAPITAL ACCOUNTS: SHRI ASHOK MEHTA SMT. RAKSHITA MEHTA M/S TDPL OPENING BAL. AS ON 01. 04. 2008 AS PER LEDGER RS.3,99,88,051/- RS. 44,27, 469/- RS. 1,160/- OPENING BALANCE AS ON 31.03.2008 RS.3,99,88,051/- RS. 44,27,469/- RS.11,160/~ CLOSING BALANCE AS RS. 77,87 , 279/~ RS. 1, 99, 72, 63 5/- RS.4,73,95,676/- PER LEDGER AS ON HALLMARK DEVELOPERS 9 31.03.2009 CLOSING BALANCE AS PER BALANCE SHEET AS ON 31.03.2009 RS. 76,26,S26/- RS.1,68,11,882/- RS.4,72,30,981/- (IV). BANK ACCOUNTS: AS PER BALANCE SHEET AS PER AT 31.03.2008 BALANCECANARA BANK, RS. 2 F 657/- BALANCE ICICI BANK RS. 17,592/- BALANCE DRD JANTA BANK RS. 32,849/- OPENING BALANCE AS PER BANK STATEMENTS BALANCE CANARA BANK RS. 2,657/- BALANCE ICICI BANK RS. 88,98,900/- BA/ANCE DRD JANTA BANK CLOSED ON 28.03.2009 (STATEM ENT NOT GIVEN) CLOSING BALANCE AS PER BANK STATEMENTS BALANCE CANARA BANK RS. 3,49,72,714/- BALANCE ICIC BANK RS, 8,38,110/- BALANCE DRD JANTA BANK CLOSED ON 28.03.2009 (STATEM ENT NOT GIVEN) RECONCILIATION WITH CASH BOOK SUBMITTED. HOWEVER, C LOSING BALANCE APPEARING IN THE BALANCE SHEET AS AT 31.03.2009 BALANCE CANARA BANK RS. 6,47,56,314/- BALANCE ICICI BANK RS, 8,38,110/- (APPEARING AS BAL ANCE WITH DRD JANTA BANK) BALANCE DRD JANTA BANK {CLOSED ON 28.03.2009} THERE ARE OTHER DISCREPANCIES IN THE ACCOUNTS. THE ASSESSEE WAS ASKED TO RECONCILE THE FIGURES AND ASKED WHY THERE ARE DISCR EPANCIES. THE EXPLANATION WAS THAT DUE TO FIRE AT THE OFFICER, MOST ACCOUNTS WERE DESTROYED AND THEY WERE RE-CONSTRUCTED. A COPY OF THE FIR IS PLACED ON RECO RD. 14.3. THIRD GROUND FOR REJECTING THE C LAIM OF THE ASSESSEE BASED ON LAW AS PER THE PROVISION OF THE IT ACT, 1961 A). THE CLAIM IN RESPECT OF DEVELOPMENT EXPENS ES IS BEING MADE U/S 37 OF THE IT ACT, 1961 SECTION 37 READ AS UNDER: 'ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATU RE DESCRIBED IN SECTION 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITU RE OR PERSONAL EXPENSES OF THE ASSESSEE LID OUT OR EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD OF 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' [EXPLANATION. - FOR THE REMOVAL OF DOUBTS, IT IS HE RE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AS ASSESSEE FOR ANY PURPOSE WHICH IS AS OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO H AVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THE EMPHASIS IS ON 'LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IT IS FURTHER EXPLAINED THAT ANY A MOUNT INCURRED FOR ANY PURPOSE HALLMARK DEVELOPERS 10 WHICH IS AS 'OFFENCE' OR 'PROHIBITED BY LAW' CANNOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE AT BARRIER. THEREFORE, EVEN IF THE ASSESSEE'S CLAIM IS TO BE CO NSIDERED ON THE BASIS OF CONSTRUED AS HAVING BEEN 'INCURRED' OR 'LAID OUT', THE ASSESSEE IS NOT ABLE TO LEAD ANY EVIDENCE THAT THE SAME HAS BEEN INCURRED E XCLUSIVELY & WHOLLY FOR THE PURPOSE OF BUSINESS, WHICH IS 'DEVELOPMENT OF LAND' . THEREFORE THE ASSESSEE*\S CLAIM IS UNTENABLE AS PER THE PROVISIONS OF SECTION 37 SINCE THE NECESSITY AND BUSINESS EXPEDIENCY OF THE EXPENDITURE IS UNSUBSTAN TIATED. B) APPLICABILITY OF SECTION 40A(2): FROM THE SUBMISSION MADE BY THE ASSESSEE IT IS SEEN THAT A MAJOR PART OF THE CLAIM OF DEVELOPMENT WORK HAS BEEN ALLOTTED TO ITS SISTER CONCERN FOR E.G. (I) OUT OF CONTRACT CHARGES OF RS. 36.08 CRORES DEBITED IN THIS YEAR, AN AMOUNT OF RS. 31.42 CRORES AND RS. 17,39,415/- IS CLAIMED TO HAVE BEEN PAID TO THE SISTER CONCERNS OF THE ASSESSEE VIZ. M/S METCON INDIA AND M/S HALLMARK REALTORS PVT. LTD. (II) OUT OF TOTAL PURCHASES OF RS. 9,33,21,420/- AN AMOUNT OF RS. 2.93 CRORES IS CLAIMED TO HAVE BEEN MADE TO M/S TARAASH DEVELOPERS PVT. LTD. (TDPL), A PARTNER OF THE ASSESSEE FIRM. PRESUMING THOUGH NOT ADMITTING, THAT THE ABOVE EXPENSES ARE EXPENDED FOR THE BUSINESS, THE CLAIMS OF PAYMENTS T O SISTER CONCERNS ' FALL WITHIN THE PURVIEW OF SECTION 40A(2). 1 THE ASSESS EE WAS ASKED TO EXPLAIN WHY THE SAME SHOULD NOT BE CONSIDERED AS DISALLOWAN CE U/S 40A(2). THE ASSESSEE VIDE LETTER DATED 26.12,2011 GAVE VERY GENERAL EXPLANATIONS WHICH ARE SUMMARIZED ABOVE AT PARA 12. 2 ABOVE AND HAS ARGUED THAT THE PAYMENTS MADE TO SISTER CONCERNS ARE JUSTI FIED AND THAT THE PROVISIONS OF SECTION 40A(2) ARE NOT TO BE APPLIED. VARIOUS CA SE LAWS HAVE ALSO BEEN CITED IN SUPPORT THEREOF. THE ASSESSEE'S ARGUMENT CANNOT BE ACCEPTED SINCE THE BASIC QUESTION THAT STILL REMAINS TO BE ANSWERED IS WHETHER 'AN EXPENDITURE OF RS. 61 CRORES CAN REALLY BE INCURRED FOR DOING THE ABOVE MENTIONED WORK ON A PLOT OF LAND ADMEASURING 9.41 ACRES AND AS POINTED OUT IN SOME OF THE CASE LAWS CITED BY THE ASSESSEE ITSELF, THE QUESTION TO BE ASKED I 'IS IT PRUDENT TO INCUR SUCH HUGE EXPENDITURE ONLY ON DEVELOPMENT OF HE SAID LAND?' IN FACT THIS IS EXACTLY THE CENTRAL ISSUE IN THIS ENTIRE ASSESSMENT . HENCE THE ASSESSEE'S OBJECTION FOR DISALLOWANCE U/S 37 AND SECTION 40A(2 ) IS NOT ACCEPTABLE. FOR ALL THE ABOVE MENTIONED REASONS BASED ON THE FA CTS, ACCOUNTS AND LAW, THE ASSESSEE'S CLAIM FOR THE EXPENDITURE OF RS. 49.84 C RORES. AS LAND OUT IN THE P & L ACCOUNT IS REJECTED AND A FAIR ESTIMATE OF AROUND RS. 2.33 CRORES IS ALLOWED AS DEVELOPMENT EXPENSES. TO CONCLUDE, AFTER CONSIDERIN G THE ENTIRE SUBJECT MATTER AND ALL THE EXPLANATIONS OFFERED BY THE ASSESSEE TH E TOTAL EXPENDITURE THAT COULD HAVE BEEN POSSIBLY INCURRED ON THE 9.41 ACRES OF LA ND IS ESTIMATED AT A REASONABLE FIGURES OF RS. 2.33 CRORES FOR THIS YEAR . 15. OTHER POINTS:- 15.1. COMPENSATION/DAMAGE AS PER ARBITRATION AWARD THERE IS A CLAIM OF RS, 5 CRORES IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'COMPENSATION/DAMAGE AS PER ARBITRATION AWARD'. DET AILS WERE CALLED FOR AND THE SAME WERE FURNISHED. IN BRIEF, THE FACTS ON THI S POINT ARE AS FOLLOWS. HALLMARK DEVELOPERS 11 ON 14,09.2006 THE ASSESSEE FIRM SIGNED A MEMORANDUM OF UNDERSTANDING (MOU) WITH M/S HINDUSTAN CONTINENTAL LTD. (HCL) AND HERI, MUMBAI TO DEVELOP & CONSTRUCT A RESIDENTIAL CUM COMMERCIAL BUILDING O N THE LAND AT NAGPUR. UNDER THE TERMS OF THE MOU M/S HCL HAD UNDERTAKEN TO CONS TRUCT A BUILDING AFTER DEVELOPING THE LAND ENTIRELY AT ITS COST. FOR THIS PURPOSE THE ASSESSEE FIRM HAD ASKED FOR RS. 10 CRORES BANK GUARANTEE. AS PER THE TERMS, THE ASSESSEE HAD TO GET THE NECESSARY CLEARANCES FROM VARIOUS GOVERNMEN T AUTHORITIES AND GET THE LAND CONVERTED FROM INDUSTRIAL LAND TO RESIDENTIAL/ COMMERCIAL LAND. THERE WAS DELAY AND INACTION ON THE PART OF BOTH THE, PARTIES OF THE MOU. M/S. HCL ALSO COULD NOT PROVIDE THE BANK GUARANTEE OF RS.10 CROR ES. A DISPUTE AROSE. THIS WAS SETTLED WITH THE HELP OF THE PRE AGREED ARBITRA TOR. THE AWARD WAS DECIDED BY THE ARBITRATOR AFTER INTO CONSIDERATION THE CLAIMS OF BOTH THE PARTIES... IN SUPPORT OF THE CLAIM THE ASSESSEE'S AR BROUGHT THE CLAIMS O F BOTH THE PARTIES. IN SHRI S.K. KULHARI, WHO STATED THAT HE WAS NOT AWARE OF T HIS NAGPUR LAND HCL THE PROFIT AND LOSS A/C, BALANCE SHEET AND BANK STATEME NT FOR THE RELEVANT PERIOD. THE SAME ARE ON RECORD. IT WAS ALSO STATED BY SHRI S.K. KULHARI THAT NAGPUR LAND TRANSACTION WAS KNOWN ONLY TO LATE SHRI MUKESHTULSI AN WHO EXPIRED IN OCT. 2010. IN VIEW OF INCOMPLETE INFORMATION THE SAID PA YMENT IS UNVERIFIABLE. HENCE THE SAME IS REJECTED. SECOND REASON FOR DISALLOWING THE CLAIM OF RS.5 CRO RES IS THAT, THE COMPENSATION PAID TO M/S. HCL CANNOT BE CONSIDERED AS A GENUINE BUSINESS EXPENSES SINCE THE DAMAGES HAVE BEEN PAID FOR NON-PERFORMANCE OF P ROFIT AND LOSS ACCOUNT OF THE CURRENT YEAR IS DISALLOWED. INCIDENTALLY IT NEEDS TO BE MENTIONED HERE THAT AT PARA 20 AT PAGE NO. 9 ARBITRATOR HAS ACCEPTED M/S. HCL CLAIM THAT THEY HA D INVESTED SOME MONEY FOR DEVELOPMENT PURPOSE AND ALSO THEIR TIME FOR DIFFERE NT WORK OF LAND DEVELOPMENT' IN THE SAME ORDER THE ASSESSEE HAS PUT FORTH THE CL AIM VIDE THEIR LETTER DATED 07.11.2006 AND SUBSEQUENT LETTERS THAT THEY HAD COM PLIED WITH THEIR PART OF THE TERMS OF CONVERSION OF LAND USE, 80% OF REMOVAL OF ENCROACHMENT ETC. THIS IS ALSO EVIDENCE THAT SOME E XPENSES ON THE LAND HAS ALREADY BEEN INCURRED IN FINANCIAL YEAR 2006-07. 15.2 THE OTHER MAJOR EXPENSE OF RS.1,00,93,118/- IS DEBITED AS BROKERAGE CHARGES PAID TO VARIOUS PARTIES. DETAILS WERE CALLE D FOR. IT IS SEEN THAT IN THE PARTY WISE LIST THE PAYMENT TOTAL TO RS.1,10,92,061 /- AND AS PER THE DEBITS IN THE P & L A/C THE AMOUNT SHOWN IS RS.1,00,93,118/-. THI S INDICATES THE DISCREPANCY IN THE AMOUNT OF CLAIM. SINCE IT HAS ALREADY BEEN E XPLAINED ABOVE THAT THE ONLY MAJOR SALE TRANSACTION WAS OF THE NAGPUR LAND THERE FORE IT IS NOT CLEAR AS TO THE BROKERAGE BEING PAID TO MORE THAN ONE PARTY. MOREOV ER THE CLAIM OF THE ASSESSEE IS NOT VERIFIABLE HENCE CLAIM OF BROKERAGE EXPENSES IS DISALLOWED. 15.3 COMPENSATION PAID TO RETIRED PARTNERS: DURING THE YEAR THE ASSESSEE HAS CLAIMED TO HAVE PAID RS.71 LAKHS AS COMPENSATION TO DINESH SHAH GROUP AND NAVINCHANDRA SHAH GROUP WHO WERE THE ERSTWHILE PART NERS OF THE ASSESSEE FIRM. VIDE LETTER DATED 12.09.2011 THE ASSESSEE EXP LAINS THAT THERE WERE DISPUTE AND DIFFERENCE OF OPINION AMONGST THESE GROUP OF PA RTNERS AND DUE TO THIS IT WAS DECIDED TO DISCONTINUE ASSOCIATION WITH THEM AND A RETIREMENT DEED WAS MADE ON 01.04.2008. ACCORDINGLY, COMPENSATION OF RS. 71 LAKHS HAS BEEN PAID TO HALLMARK DEVELOPERS 12 THEM. IN SUPPORT OF HIS CLAIM RETIREMENT DEED DATED 01.04.2008 IS FURNISHED. HOWEVER, IT IS SEEN FROM THE BALANCE SHEET AS ON 31 .03.2008 THAT THE CAPITAL ACCOUNTS OF THESE TWO SHAH GROUPS ARE NOT APPEARING WITH EITHER CREDIT OR DEBIT BALANCE IN BALANCE SHEET. THEREFORE THERE IS NO JUS TIFICATION FOR MAKING SUCH COMPENSATION PAYMENTS AND MAKING IT A CHARGE ON PRO FITS OF THIS YEAR. EVEN IF THE PAYMENT IS GENUINE IT CANNOT BE ALLOWED AS A DE BIT IN THE P/L A/C SINCE IT IS MORE OF AN APPROPRIATION OF PROFIT AND CANNOT BE DE DUCTED FROM PROFITS. MOREOVER, IT IS SEEN THAT IN THE P/L A/C OF THE PRE VIOUS FINANCIAL YEAR I.E. F.Y. 2007-08, THE ASSESSEE HAS ALREADY CLAIMED COMPENSAT ION PAID TO PARTNERS TO THE TUNE OF RS.25 LAKHS. IF ANY FURTHER DUES HAD AC CRUED TO THE ERSTWHILE PARTNERS OF THE FIRM, THE SAME SHOULD HAVE BEEN PAID FROM TH E PROFITS APPROPRIATED BY OTHER PARTNERS IN THE EARLIER PERIOD. THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE BASIS OF WORKING FOR MAKING SUCH PAYMENTS WHICH WERE NOT FURNISHED. IT IS MERELY EXPLAINED THAT IT WAS A MUTUAL AGREEMENT AND ALLOWABLE U/S 37, HENCE THE CLAIM OF THE COMPENSATION PAID TO RETIRED PARTN ERS IS DISALLOWED. 15.4 IN THIS YEAR THE ASSESSEE HAS CLAIMED SAL ARY & WAGES TO THE TUNE OF RS.35,74,800/- AS COMPARED TO LAST YEAR'S CLAIM OF RS.4,38,216/-. MOREOVER THE YEAR AS DISCUSSED IN LENGTH ABOVE, THE FIRM HAD EFF ECTIVELY NO BUSINESS ACTIVITIES AFTER 05,09.2008. THEREFORE, THE CLAIM IS CONSIDERE D TO BE EXCESSIVE AND UNVERIFIABLE. HENCE OUT OF THE ABOVE AN AMOUNT OF R S.30,00,000 IS DISALLOWED. 16. VIDE LETTER DATED 27.12.2011 THE ASSESSEE HAS M ADE A FRESH CLAIM TO CONSIDER THE GAIN ON SALE OF LAND AT NAGPUR AS CAPI TAL GAIN INSTEAD OF BUSINESS INCOME. THIS IS AN AFTERTHOUGHT AND CANNOT BE CONSI DERED AT THIS STAGE OF ASSESSMENT. MOREOVER, THE SAID LAND HAS BEEN TAKEN TO BE PART OF WIP IN THE P/L A/C OF THIS YEAR AND EARLIER YEAR. THE INTENTIO N TO TREAT THIS LAND AS PART OF THE BUSINESS ASSET IS ALSO EVIDENT FROM THE AGREEMENT F OR DEVELOPMENT ENTERED INTO BY THE ASSESSEE THROUGH THE ABOVE REFERRED MOU DATE D 14 TH SEPT. 2006. HENCE THE CLAIM IS REJECTED. 6. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD. CIT (A). BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSION ALONG WITH APPLICATION FOR ADMISSION OF ADDITIONAL EVIDEN CES UNDER RULE 46A OF THE INCOME TAX RULES 1962 VIDE LETTER DATED 14-06-2012. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. CIT(A) HAS FORWARDED ADDITIONAL EVIDENCES FILED BY THE ASSESSE E TO THE AO FOR HIS COMMENTS AND REPORT. THE AO VIDE HIS REMAND REP ORT DATED 29- 03-2012 HAS COMMENTED UPON ADDITIONAL EVIDENCES AND THEIR HALLMARK DEVELOPERS 13 ADMISSIBILITY. THE REMAND REPORT WAS MADE AVAILABLE TO THE ASSESSEE FIRM, FOR WHICH IT HAS FILED REJOINDER DAT ED 23-05-2012 AND REBUTTED ALLEGATIONS OF THE AO IN TABULAR FORMAT. T HE ASSESSEE HAD ALSO FILED ADDITIONAL WRITTEN SUBMISSIONS FROM TIME TO TIME AND FILED ALL POSSIBLE EVIDENCES INCLUDING, BILLS AND VOUCHER S IN RESPECT OF ALL EXPENSES, INCLUDING CONTRACT CHARGES ETC.,. THE ASS ESSEE HAD ALSO FILED AGREEMENTS WITH M/S METCON INDIA FOR AWARDING WORKS CONTRACT FOR DEVELOPMENT OF LAND AND PAYMENT DETAILS AND ARG UED THAT THE WORK ORDER HAS BEEN ISSUED AFTER OBTAINING COMPETIT IVE BIDDING. THE PAYMENT TO CONTRACTOR HAS BEEN MADE AFTER DEDUCTING APPLICABLE TDS AS PER LAW. THE EVIDENCES OF THE WORK HAVING B EEN PHYSICALLY UNDER TAKEN WERE FURNISHED INCLUDING PHOTOGRAPHS TA KEN AT SITE. SIMILARLY, THE ASSESSEE HAD FILED ALL EVIDENCES IN RESPECT OF DIRECT EXPENSES MATERIAL PURCHASE, ARBITRATION AWARD EXPEN SES, SALARY AND WAGES AND COMPENSATION PAID TO RETIRED PARTNERS AND EXPLAINED UNDER WHAT CIRCUMSTANCES IT WAS FORCED TO PAY COMPE NSATION TO OUTGOING PARTNERS. 7. THE LD. CIT(A) AFTER CONSIDERING RELEVANT EVIDE NCES FILED BY THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT REMAND REPORT FURNISHED BY THE AO HAS PARTLY ALLOWED APPEAL FILED BY THE ASSES SEE, WHERE HE HAS ALLOWED 50% RELIEF TOWARDS DIRECT EXPENSES MATE RIALS PURCHASES HALLMARK DEVELOPERS 14 AND OUT OF ADDITION OF RS. 9,00,00,000/- A SUM OF R S. 4,50,00,000/- HAS BEEN ALLOWED AS RELIEF AND BALANCE AMOUNT OF RS . 4,50,00,000/- HAS BEEN CONFIRMED. IN SO FAR AS DISALLOWANCE OF CO NTRACT CHARGES, THE LD. CIT(A) HAS DELETED ADDITIONS MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAS FURNISHED ALL EVIDENCES INCLU DING WORK HAVING BEEN PHYSICALLY UNDER TAKEN AT SITE. THE CIT(A) FU RTHER OBSERVED THAT THE AO HAS MADE ADDITIONS ON SUSPICIOUS AND SU RMISE MANNER, IGNORING ALL EVIDENCES FILED BY THE ASSESSEE ON THE BASIS PHOTOGRAPHS TAKEN ON 24-12-2011, EVEN THOUGH THE AS SESSEE HAS FILED PHOTOGRAPHS TAKEN AT SITE WHERE THE EVIDENCES OF WORK BEING DONE AT SITE WAS CLEARLY ESTABLISHED. THE LD. CIT(A ) HAS ALSO TAKEN SUPPORT FROM THE LETTER OF JT. MD, MSHCL, WHERE HE HAD ADMITTED THE FACT OF LAND WAS IN ILLEGAL ENCROACHMENT, EXIST ENCE OF NALAS, PONDS AND ROCKS AT THE TIME OF SALE. THE OTHER IMPO RTANT FACT CONSIDERED BY THE LD. CIT(A) IS ORDER OF SETTLEMENT COMMISSION, WHERE M/S METCON INDIA HAS ADMITTED ADDITIONAL INCO ME OF RS. 24.40 CRORES FOR AY 2008-09 OUT OF CONTRACT CHARGES RECEI VED FROM THE ASSESSEE AND THIS FACT HAS BEEN CONFIRMED BY THE CI T IN HIS RULE 9 REPORT. THEREFORE, HE OPINED THAT THE AO WAS INCORR ECT IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO PROV E NECESSITY OF INCURRING HUGE EXPENSES IN CONNECTION WITH SALE OF LAND AND ACCORDINGLY, DELETED ADDITION MADE BY THE AO TOWARD S CONTRACT HALLMARK DEVELOPERS 15 CHARGES. AS REGARDS OTHER ADDITIONS BEING ARBITRATI ON CHARGES PAID TO HINDUSTAN CONTINENTAL LIMITED (HCL), THE LD. CIT(A) HELD THAT THE ASSESSEE HAS FILED OVERWHELMING EVIDENCES WHOSE VER ACITY IS NOT UNDER CHALLENGE IN CROSS VERIFICATION PROCEEDINGS A ND ACCORDINGLY, THERE IS NO REASON TO SUSTAIN ADDITIONS ON THIS REG ARD. HENCE, HE HAS DELETED ADDITIONS MADE TOWARDS ARBITRATION AWARD EX PENSES. LIKEWISE, THE LD. CIT(A) HAS DELETED ADDITIONS TOWA RDS BROKERAGE CHARGES PAID TO BROKERS MR INDRAJEET SINGH, BALVIND ER KAUR AND RARE EARTH PROPERTY ON THE GROUND THAT VARIOUS EVIDENCES HAS BEEN FILED TO PROVE PAYMENT OF BROKERAGE CHARGES. HOWEVER, HE HAD CONFIRMED ADDITIONS TOWARDS COMPENSATION TO EX-PARTNERS AMOUN TING TO RS. 71,00,000/- AND SALARY AND WAGES AMOUNTING TO RS. 3 0,00,000/- ON THE GROUND THAT NO EVIDENCES AND REASONS HAS BEEN F URNISHED TO PROVE AND JUSTIFY PAYMENT OF COMPENSATION TO PARTNE RS AND SALARY AND WAGES TO EMPLOYEES. THE RELEVANT FINDINGS OF LD . CIT(A) ARE AS UNDER: (I) COMING TO THE DISALLOWANCE OF DIRECT EXPENSES MATER IAL OF RS.9,00,00,000/- UNDER PROVISIONS OF SECTION 37(1) OF THE ACT, I AM IN AGREEMENT WITH THE AO THAT THE ONUS TO PROVE THAT T HE EXPENDITURE IN QUESTION HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS IS ON THE APPELLANT. THE APPELLANT HAS CON TENDED THAT THE EXPENDITURE IN QUESTION HAS BEEN INCURRED EXCLUSIVE LY AND WHOLLY FOR THE PURPOSE OF BUSINESS. TO SUPPORT THIS PROPOSITIO N IT HAS FURNISHED ACCOUNTING DETAILS AND OTHER ANCILLARY RECORDS SUCH AS WORK ORDERS, MOU, PHOTOGRAPHIC EVIDENCES OF THE SITE ETC. IT HAS ALSO BEEN CONTENDED THAT THE LAND DEVELOPMENT HAD COMMENCED I N THE EARLIER YEAR I.E. A.Y.2008-09 AND THE CONTRACT GRANTED TO M ETCON INDIA IN THE EARLIER YEAR HAS NOT BEEN QUESTIONED. IN FACT, EVEN SUBSEQUENT TO THE HALLMARK DEVELOPERS 16 COMPLETION OF ASSESSMENT UNDER APPEAL, NO REASSESSM ENT OR REVISIONAL PROCEEDINGS HAVE BEEN INITIATED FOR THE IMMEDIATE PRECEDING YEAR I.E,A.Y.2008-09. THEREFORE, WHERE TH E LAND DEVELOPMENT HAD NOT BEEN DOUBTED IN THE EARLIER YEA R, THERE WAS NO REASON TO DOUBT THE SAME IN THE SUBSEQUENT YEAR PAR TICULARLY, WHEN THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT CONTENDED THAT THE CONTRACT CHARGES HAD B EEN PAID TO METCON INDIA IN THE EARLIER YEAR ALSO. THE AO HAS A LSO CONDUCTED CROSS INQUIRES WITH THE PURCHASER/VENDOR OF THE LAN D AND NOTHING ADVERSE HAS BEEN BROUGHT ON RECORD. (II) I AM HOWEVER, INCLINED TO AGREE WITH THE AO THAT TH E ONUS TO PROVE THAT THE EXPENDITURE IN QUESTION HAS BEEN INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ON THE APPELLANT. TH E APPELLANT HAS NO CATEGORICAL REASON TO EXPLAIN AS TO WHY SUBSTANTIAL PURCHASES HAVE BEEN MADE FROM GROUP CONCERNS ONLY. THE AO HAS POIN TED OUT THAT PURCHASE OF RS.2.93 CRORES HAS BEEN MADE FROM M/S T ARAASH DEVELOPERS PVT. LTD., PARTNER OF THE APPELLANT FIRM . NO SPECIFIC REASON HAS BEEN FURNISHED FOR MAKING SUCH PURCHASES. SUCH PURCHASES FROM GROUP CONCERNS DEFINITELY AROUSE SUSPICION AND DOUB TS. IN VIEW OF THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND IN FAIR NESS OF THE ABOVE, I HEREBY CONFIRM 50% OF THE DISALLOWANCE OF PURCHASES MADE AMOUNTING TO RS.4,50,00,000/-, OUT OF RS. RS.9,00,0 0,000/-AND THE SAME IS ADDED TO THE TOTAL INCOME OF THE APPELLANT. THE APPELLANT GETS RELIEF FOR THE BALANCE ADDITION AMOUNTING TO RS.4,5 0,00,000/-. (III) COMING TO THE DISALLOWANCE OF CONTRACTOR CHARGES O F RS.34,08,96,165/-IT IS SUBMITTED THAT THE TOTAL CONTRACT CHARGES PAID A RE AS RS.36,08,96,165/-. THE CONTRACT CHARGES PAID TO MET CON INDIA IS RS.31,42,34,561/-. THEREFORE, THOUGH THE UNDERLYING REASON FOR MAKING DISALLOWANCE IS ON ACCOUNT OF CONTRACT ASSIG NED TO METCON INDIA, THE ADDITIONS HAVE BEEN MADE FAR IN EXCESS O F THE PAYMENTS MADE TO METCON INDIA. (IV) IN THIS CASE, THE APPELLANT HAS CARRIED OUT TH E DUE DILIGENCE REGARDING THE ASSIGNMENT OF CONTRACT WORK TO M/S.ME TCON INDIA. THE EVENTS AND SEQUENCE REGARDING WORK CONTRACT ARE DIS CUSSED IN CHRONOLOGICAL ORDER:- A) THE APPELLANT HAS SIGNED MOD WITH NUNLET PROJECTS PVT. LTD.(THE BUYER) TO HANDOVER THE LAND AFTER DEVELOPING. THE DEVELOPMENT, INCLUDE REMOVAL OF MARSHY SOIL, IL LEGAL ENCROACHMENTS, ROCK CUTTING, LEVELING ETC AND AFTER COMPLETION OF DEVELOPMENT, THE LAND WAS TRANSFERRED TO THE BUYER, VIDE SALE AGREEMENT DTD. 05.09.2008. B) THE APPELLANT HAS ASSIGNED THE CONTRACT WORK TO METCON INDIA, BEING THE LOWEST BID DER AS COMPARED TO SPORTINA EXIM PVT. LTD. & SINGA TRANSPORT CARRIERS C) THE APPELLANT HAS ALSO DEDUCTED TDS ON THE CONTRACT WORK ASSIGNED TO METCON INDIA AND THE CONTRACT RECEIPTS ARE REFLECTED IN THE ACCO UNTS OF METCON INDIA, D ) IN RESPONSE TO AO'S QUERY, THE JT. MD OF MSHCL (VE NDOR OF THE LAND) HAS CONFIRMED OF THE EXISTENCE OF NALAS, PONDS AND OTHER ILLEGAL ENCROACHMENT IN THE LAND AT THE TIME OF SAL E, VIDE D.O.NO.MSHC/ESTT/2883/2012 DATED 27.03.2012. E) IN RESPONSE TO AO'S LETTER DTD. 25.11.20U, M/S.NUNLET PROJECTS PRI VATE LIMITED, VIDE LETTER DATED 19.12.2011 HAS CONFIRMED AND THE SAME IS REPRODUCED AS BELOW:- HALLMARK DEVELOPERS 17 (V) 'A) DATE OF EXECUTION OF SALE DEED: 05 SEPTEMBER 20 08 . B) (I) TOTAL LAND AREA ACQUIRED:9.41 ACRES (38,085.19 SQ.MTRS) (II)) WHETHER ANY ENCROACHMENTS AND ILLEGAL OCCUPATIONS WERE THERE AT THE TIME OF AGREEMENT: C) DURING THE INITIAL STAGES OF NEGOTIATIONS AND SITE VISITS, WE HAVE FOUND THAT THERE WERE LOT OF HUTMENTS, ENCROACHMENT S AND ILLEGAL OCCUPATIONS ON THE SAID PROPERTY. AS THE NEGOTIATIO NS PROGRESSED WITH THE HALLMARK DEVELOPERS, WE MADE IT CLEAR THAT WE WANTED THAT LAND FREE FROM ALL ENCUMBRANCES, FREE FROM ILL EGAL ENCROACHMENTS AND OCCUPATIONS, ETC. AND MOST IMPORT ANTLY IN THE LEVELED ANT PRESENTABLE FORM. HALLMARK DEVELOPERS G OT THE ENTIRE LAND CLEARED FROM ALL THE ENCROACHMENTS AND HUTMENT S ETC. EXCEPT ONE SMALL MANDIR/TEMPLE COULD NOT BE REMOVED. WE HE REBY FURTHER INFORM THAT AT THE TIME OF HANDING OVER THE LAND, HALLMARK DEVELOPERS HAD GIVEN US THE PEACEFUL POSSESSION OF THE LAND TO US FREE FROM ENCROACHMENT AND/OR ILLEGAL OCCUPATIONS. THIS INFORMATION IS TO THE BEST OF OUR KNOWLEDGE AND INF ORMATION AT THAT TIME. (III) WHETHER LAND HAD BEEN CONVERTED FROM INDUSTRI AL TO COMMERCIAL /RESIDENTIAL USE ON THE DATE OF PURCHASE : WE HEREBY INFORM THAT HALLMARK DEVELOPERS GOT THE L AND USE CHANGED FROM INDUSTRIAL TO COMMERCIAL. AND WE FURTH ER INFORM THAT THIS CHANGE IN LAND USE TO COMMERCIAL WAS DONE BY N AGPUR MAHANAGAR PALLIKA, NAGPUR VIDE ITS LETTER NO.S, MPN /NRV/566, 600 AND 627 DATED 05 JULY 2008, 17 JULY 2008 AND 24 JUL Y 2008, C)(I)WHETHER ANY CONSTRUCTION ACTIVITY AND/OR EXCAV ATION AND ROCK CUTTING HAD BEEN CARRIED OUT ON THE SAID LAND ON TH E DATE OF PURCHASE: AS WE, HEREINABOVE, HAVE INFORMED THAT THE SAID LAN D WAS OCCUPIED BY HUTMENTS AND UNAUTHORIZED OCCUPANTS. TH IS LAND HAD A BIG SLUSHY POND WITH GARBAGE DUMP AREA ON THE OTHER SID E. AS PER OUR FINALIZED NEGOTIATIONS AND CONDITIONS, HALLMARK DEV ELOPERS EXECUTED THE WORK OF REMOVAL OF SLUSHY/MUDDY EARTH, EXCAVATED AN D TRANSPORTED THE BLACK COTTON SOIL, CHISELED AND EXCAVATED THE FRAGM ENTED/WEATHERED ROCK, EXECUTED RCC WALL WORK BELOW THE BOUNDARY WALL SUPP ORTED WITH GIRDERS ETC., BARRICADED AND FENCED, MADE BOUNDARY WALL, FI LLED THE EXCAVATED AREA WITH MURRUM. HALLMARK DEVELOPERS HAS ALSO DEMO LISHED THAT ALREADY CONSTRUCTED HIGH ROOT SHEDS ON TO THE SAID LAND AND REMOVED THE DEBRIS. THE LAND WAS PROPERLY DEVELOPED AND LEVELED BEFORE THE EXECUTION OF THE SALE DEED. (II) WHETHER ANY LEVELING, PLOTTING OR FENCING WORK HAD BEEN DONE BEFORE THE DATE OF PURCHASE: WE INFORM THAT HIGH ROOF SHEDS WERE CONSTRUCTED ALONG WITH THE WORK EXECUTED AS MENTION ED HEREINABOVE IN CLAUSE C(I). AS PER OUR FINALIZED TERMS AND CONDITI ONS OF LEVELED LAND, THE EXISTING STRUCTURES WERE DEMOLISHED. APART FROM THI S, LAND DEVELOPMENT WORK AND THE FENCING WAS COMPLETED WITH FAST PACE B Y HALLMARK DEVELOPERS AT THEIR OWN COST. WE FURTHER INFORM THA T AT THE TIME OF PURCHASE, THE LAND WAS PROPERLY SEGREGATED FROM SUR ROUNDING PROPERTIES/BUILDINGS BY BOUNDARY WALL AND BARBED BY WIRE FENCING WITH CONCRETE POLES IN LEVELED CONDITION, FREE FROM ALL ENCROACHMENTS. D) STATUS OF LAND AFTER PURCHASE: AFTER THE PURCHASE OF LAND, WE ARE IN PROCESS OF DEVELOPING THE LAND. THE CONCEPT AND DES IGN ETC. HAS BEEN FINALIZED AND SUBMITTED IN THE CONCERNED AUTHORITIE S. BUT NOW THE DELAY HALLMARK DEVELOPERS 18 HAS HAPPENED MAINLY DUE TO, SOME MODIFICATIONS IN T HE POLICY OF THE CONCERNED AUTHORITIES.' V) IN FACT, EVEN SUBSEQUENT TO THE COMPLETION OF ASSES SMENT UNDER APPEAL, NO REASSESSMENT OR REVISIONAL PROCEEDINGS H AVE BEEN INITIATED FOR THE IMMEDIATE PRECEDING YEAR I.E. A.Y.2008-09. THEREFORE, WHERE THE LAND DEVELOPMENT HAD NOT BEEN DOUBTED IN THE EARLIE R YEAR, THERE WAS NO REASON TO DOUBT THE SAME IN THE SUBSEQUENT YEAR PAR TICULARLY, WHEN THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT CONTENDED THAT THE CONTRACT CHARGES HAD BEEN PAID T O METCON INDIA IN THE EARLIER YEAR ALSO. VI) THE FACT THAT METCON INDIA HAD BEEN ASSIGNED THE CO NTRACT AFTER OBTAINING COMPETITIVE BIDS CANNOT BE IGNORED. THE C ONTENTIONS OF THE APPELLANT THAT EVEN THE SUBSEQUENT SEARCH PROCEEDIN GS INITIATED DID NOT REVEAL THE EXCHANGE OF CASH IN LIEU OF CHEQUES PAYM ENTS MADE FOR CONTRACTOR CHARGES HAVE CONSIDERABLE FORCE IN SUPPO RT OF THE GENUINENESS OF THE TRANSACTION. THE AO HAS NOT BROUGHT ABOUT AN Y MATERIAL OR OTHER EVIDENCE ON RECORD ON THE BASIS OF WHICH IT CAN BE INFERRED THAT THE CONTRACTOR CHARGES PAID WERE SHAM OR NON GENUINE LE AVE ALONE THE SAME BEING EXCESSIVE OR UNREASONABLE. MOST IMPORTANTLY, THE APPELLANT HAD BEEN SUBJECTED TO SEARCH PROCEEDINGS AND HAD APPROA CHED THE HON'BLE ITSC FOR THE SETTLEMENT OF THEIR TAX LIABILITIES WI TH REGARDS THE PROCEEDINGS U/S 153A. THE HON'BLE COMMISSION HAS IN THE ORDER P ASSED U/S 245D(4) OF THE ACT DATED 24.03.2014 ON PG.16 THEREOF HAS HE LD AS UNDER: 'WE A/SO AGREE WITH THE CONTENTION OF MR. THAKKAR, THAT FOR THE BOGUS PURCHASES WHICH ARE ONCE ADMITTED IN THE CASE OF TH E APPLICANT-FIRM, M/S METCON INDIA, A FURTHER ADDITION IN THE CASE OF M/S HALLMARK DEVELOPMENT ON SIMILAR GROUNDS CANNOT BE MADE AS SUGGESTED BY T HE CIT IN HIS RULE 9 REPORT. IT IS TO BE NOTED THAT THE ACCOMMODATION BI LLS WHICH HAVE BEEN OFFERED TO TAX BY M/S METCON INDIA (RS.24.4 CRORES) RELATE TO THE ASST. YEARS 2008-09 & 2009-10 WHEN THE NAGPUR LAND PROJEC T WAS EXECUTED. THESE ACCOMMODATION BILLS HAVE DIRECT NEXUS AND CON NECTION WITH THE DEVELOPMENT WORK UNDERTAKEN BY THE APPLICANT FIRM, M/S HALLMARK DEVELOPERS. WHILE SUGGESTING ADDITION OF THE SIMILA R AMOUNT IN THE CASE OF THE APPLICANT FIRM, M/S HALLMARK DEVELOPERS, THE CIT IN HIS RULE 9 REPO RT, IN FACT, HAS ACCEPTED THE DIRECT NEXUS BETWEEN THE BOGUS EXPENDI TURE INCURRED BY M/S HALLMARK DEVELOPERS AND THE CASH GENERATED THRO UGH THE ACCOMMODATION BILLS BY M/S METEOR? INDIA. THEREFORE , THE CONTENTION OF THE CIT, MADE IN THE RULE 9 REPORT, FOR MAKING ADDI TION OF SIMILAR AMOUNT IN THE CASE OF THE APPLICANT FIRM, M/S HALLMARK DEV ELOPERS CANNOT BE ACCEPTED.' THE ORDER PASSED BY THE HON'BLE ITSC IS FINAL AND C ONCLUSIVE. FURTHERMORE, \ THE AFORESAID ORDER HAS NOT BEEN C HALLENGED BEFORE THE HIGH COURT/SUPREME COURT. THEREFORE, THE FINDINGS O F THE HON'BLE ITSC, BEING THAT OF A SUPERIOR BODY HAS TO BE ACCEPTED. S INCE M/S. METCON INDIA HAS ALREADY OFFERED THE EXPENSES RELATED TO THE NAGPUR LAND AS ITS INCOME A ND THE NEXUS OF THE SAME HAVING BEEN ACCEPTED BY THE HON'BLE ITSC AND T HE CIT IN HIS RULE 9 REPORT, THE MAKING OF DISALLOWANCE IN THE HANDS O F THE APPELLANT FIRM WOULD NOT BE JUSTIFIED. M/S.METCON INDIA HAS PAID T HE TAX AT THE MAXIMUM HALLMARK DEVELOPERS 19 MARGIN RATE AND IT IS NOT THAT, THE CONTRACT RECEIP T HAS BEEN ADJUSTED TO REDUCE THE TAXABLE PROFIT. IN VIEW OF THE ABOVE, TH E ADDITIONS OF RS.34,08,96,165/- MADE BY THE AO IS DELETED AND THE APPEAL OF THE APPELLANT ON THIS GROUND IS PARTLY ALLOWED. (I) I HAVE GONE THROUGH THE CONTENTIONS OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. I FIND THAT THE PAYMENTS IN QUESTION HAVE BEEN MADE IN PURSUANCE OF ARBITRATION PROCEEDINGS. WHERE THE PAY MENTS HAVE BEEN MADE IN PURSUANCE OF ARBITRATION THE SANCTITY CANNO T BE DOUBTED PARTICULARLY WHEN IT HAS NOT BEEN ESTABLISHED THAT THE ARBITRATION PROCEEDINGS ARE SHAM. THE PAYMENTS IN QUESTION HAVE BEEN VERIFIED BY THE AO AND THE RECIPIENTS HAVE APPEARED IN PERSON A ND DEPOSED TO HAVING RECEIVED THE AMOUNT. THE NATURE OF DISPUTE H AS BEEN HIGHLIGHTED WHICH ALSO HAS NOT BEEN CHALLENGED BY THE AO.THE PA YMENTS IN QUESTION HAVE BEEN DISCLOSED BY WAY OF RECEIPTS AND INCLUDED IN THE RETURN OF INCOME FILED BY HCL. MERELY, BECAUSE THE OTHER DIRE CTORS OF HCL WERE NOT AWARE OF THE INTRICACIES OF THE DEALING CANNOT BE THE REASON FOR DOUBTING THE PAYMENT OF ARBITRATION CHARGES. THE DE ATH OF THE DIRECTOR HANDLING THE DEALINGS WITH THE APPELLANT AND OTHER DIRECTORS NOT FULLY ACQUAINTED WITH THE MATTER CANNOT BE THE REASON FOR VIEWING THE TRANSACTION WITH SUSPICION PARTICULARLY WHEN OVERWH ELMING EVIDENCES HAVE BEEN FURNISHED BY THE APPELLANT AND WHOSE VERA CITY IS NOT UNDER CHALLENGE IN THE CROSS VERIFICATION PROCEEDINGS UND ERTAKEN. I AM THEREFORE INCLINED TO AGREE WITH THE VIEWS OF THE APPELLANT A ND DIRECT THE DELETION OF THE ADDITION OF RS.5,00,000/- MADE BY THE AO. (I) I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT HAS POINTED OUT THAT THE TRANSACTION OF N AGPUR LAND WAS COMPLICATED AND INVOLVED MORE THAN ONE BROKER. AS S UCH, BROKERAGE TOTALING TO RS. 1,00,93,1187- WAS PAID TO THREE PAR TIES VIZ INDRAJEET SINGH, BALVINDAR KAUR, AND RARE EARTH PROPERTY SOLUTIONS A PART FROM THE PROFESSIONAL CHARGES PAID TO LAWYERS /C.A. TOTALING RS. 9,98,9437-. THE TDS HAS BEEN DEDUCTED FROM THE BROKERAGE PAID AND P AYMENT OF TDS HAS BEEN ACCEPTED BY ITO, TDS VIDE ORDER DATED 25.0 2.2010 U/S. 201(1)/201(1A). THE DISALLOWANCE OF THE BROKERAGE W ITHOUT PINPOINTING THE REASONS IN THIS NATURE OF BUSINESS, IS AGAINST JUDICIOUS APPROACH, AS WAS HELD IN THE CASE OF G.L. GEMS VS. ACIT 4 ITR (TRIB) 525 (2010) WHEREIN IT WAS HELD THAT 'THERE WAS NO JUSTIFICATIO N FOR MAKING DISALLOWANCE OF AN AMOUNT OF RS. 10,000 OUT OF BROK ERAGE EXPENSES WITHOUT PIN POINTING THE REASONS FOR DISALLOWANCE E SPECIALLY WHEN PAYMENT OF BROKERAGE @ 2 PER CENT IS IN THE ROUTINE PRACTICE OF THE BUSINESS AND THERE IS NO FINDINGS THAT ANY BROKER I S RELATED TO THE DIRECTORS OF THE ASSESSEE COMPANY. IT IS ALSO WORTH NOTING IN THE PRESENT CASE THAT THE BROKERAGE HAS BEEN PAID THROUGH ACCOU NT PAYEE CHEQUE. HENCE THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. THE AO HAS NOT REFUTED THE SUBMISSIONS / CONTENTIONS SUBMI TTED BY THE APPELLANT IN THIS REGARD EVEN IN HER REMAND REPORT. CONSIDERI NG THE DETAILS AND THE NATURE OF BUSINESS, AND ITS PRACTICES AND THE F ACT THAT THE PAYMENT TO THE BROKERS ARE NOT RELATIVES OF THE PARTNERS OF TH E ASSESSEE FIRM AND THE HALLMARK DEVELOPERS 20 RATE OF BROKERAGE BEING CONSISTENT WITH THE TRADE P RACTICE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED AND IS DELETED. (I) I HAVE CAREFULLY CONSIDERED THE CONTENTS OF THE ASSESSMENT ORDER AND THE REMAND REPORTS AS WELL AS THE CONTENTIONS OF THE AP PELLANT FILED DURING THE ASSESSMENT / APPELLATE PROCEEDINGS INCLU DING THE REJOINDER TO THE REMAND REPORT AND OTHER FACTS AND DETAILS ON RECORD. IT IS AN ADMITTED FACT THAT THE EXPENSES IN QUESTION WERE NO T INCURRED EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF BUSINESS. SETTLING PERSONAL DISPUTES WITH THE FUNDS OF THE APPELLANT FIRM IS NO T AN EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS AS ARGUED BY T HE APPELLANT. MERELY, BECAUSE A CLAIM HAS BEEN ALLOWED IN THE EAR LIER YEAR DOES ISPO FACTO LEAD TO THE CONCLUSION THAT THE SAME SHO ULD BE ACCEPTED IN THE SUBSEQUENT YEAR? THE PRINCIPLE OF RES JUDICATA OPERATES IN INCOME TAX PROCEEDINGS. EACH YEAR IS A SEPARATE AND INDEPE NDENT YEAR AND THE FINDINGS IN ONE YEAR DO NOT AUTOMATICALLY BECOM E BINDING IN THE OTHER YEARS. THEREFORE, IN VIEW OF THE FACT THAT TH E EXPENDITURE IN QUESTION WAS NOT INCURRED EXCLUSIVELY AND WHOLLY FO R THE PURPOSE OF BUSINESS THE SAME DESERVES TO BE DISALLOWED AND THE ADDITIONS IS HEREBY CONFIRMED. (I) I AGREE WITH THE CONTENTIONS OF THE AO. THE AP PELLANT HAS NOT FURNISHED ANY COGENT REASON FOR RETAINING SUCH STAFF IN SPITE OF THERE BEING NO COMMERCIAL BUSINESS AFTER THE SALE OF NAGPUR LAND. FINANCIAL AND COMMERCIAL PRUDENCE DICTATES THAT THE BUSINESSMAN W OULD TRY TO MAXIMIZE HIS PROFITS AND THEREBY MAINTAINING SUCH L ARGE NO. OF EMPLOYEES WOULD NOT BE A SOUND FINANCIAL PROPOSITIO N. I HEREBY DIRECT THAT THE ADDITIONS OF RS.30,00,000/- ON ACCOUNT OF SALARY BE CONFIRMED. 8. THE LD. DR APPEARED FOR THE REVENUE SUBMITTED TH AT THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXPENDITURE OF RS. 31.42 CRORES ON ACCOUNT OF BOGUS CONTRACT CHARGES WITHOUT APPRECIAT ING FACT THAT THE LD. AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT TH AT THE WHOLE EXPENDITURE IS BOGUS AND ARRANGED TO REDUCE PROFIT DERIVED FROM SALE OF PROPERTY. THE DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT TAX PAID BY M/S METCON INDIA AT MAXIMU M MARGINAL RATE WILL GRANT IMMUNITY OF THE ASSESSEE EVEN WHEN BOTH ARE DIFFERENT HALLMARK DEVELOPERS 21 ENTITIES AND THERE IS NO QUESTION OF DOUBLE TAXATIO N INVOLVED. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT ALTHOUGH INCOME TAX SETTLEMENT COMMISSION HAS ALLOWED RELIEF TO M/S MET CON INDIA, BUT SUCH RELIEF WAS GRANTED ON DIFFERENT GROUNDS ALTOGE THER AND IT DOES NOT HAVE ANY BEARING ON THE ASSESSMENT OF ASSESSEE WHICH IS CONCLUDED BEFORE SEARCH IN THE CASE OF M/S METCON I NDIA. THE LD. DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS GROSSLY E RRED IN NOT APPRECIATING FACTS BROUGHT OUT BY THE AO BEFORE MAK ING ADDITION AND HE HAD SIMPLY GONE ON THE BASIS OF EVIDENCES FILED BY THE ASSESSEE TO ALLOW RELIEF IN RESPECT OF ADDITION TOWARDS CONT RACT CHARGES. THE LD. DR FURTHER REFERRING TO PAGE NO 482 OF PB FILED BY THE ASSESSEE SUBMITTED THAT, THE HONBLE SETTLEMENT COMMISSION H AD RECORDED CATEGORICAL FINDING IN ITS ORDER IN RESPECT OF MODU S OPERANDI OF M/S METCON INDIA IN OBTAINING BOGUS PURCHASE BILLS AND CONSEQUENT SIPHONING OF MONEY TO MAKE INVESTMENTS IN LOANS AND ADVANCES IN REGULAR BOOKS OF ACCOUNT AND THIS WAS NOT REPORTED TO INCOME TAX DEPARTMENT. FROM THE ABOVE, IT IS VERY CLEAR THAT P AYMENT MADE TO M/S METCON INDIA IS A BOGUS EXPENDITURE WHICH WAS R OUTED THROUGH OWN ASSOCIATED COMPANY IN ORDER TO REDUCE PROFIT FR OM SALE OF LAND AT NAGPUR. THE AO HAD ALSO OBTAINED EXTERNAL INFORM ATION AND CONDUCTED FIELD ENQUIRY WHICH CLEARLY PROVES THE FA CT OF NOT CARRYING OUT ANY DEVELOPMENT WORK AT NAGPUR LAND. IN FACT TH E POSITION OF HALLMARK DEVELOPERS 22 LAND WAS UNCHANGED WHEN COMPARED TO DATE OF PURCHAS E AND DATE OF INSPECTION AND THIS FACT WAS FURTHER STRENGTHENE D BY THE LETTER OF JT. MD, MSHCL. THE LD. CIT(A) HAS IGNORED ALL THESE FACTS WHILE ALLOWING RELIEF TO THE ASSESSEE. 9. IN SO FAR AS DISALLOWANCES OF DIRECT EXPENSES MA TERIALS, THE LD. CIT(A) HAS DECIDED THE ISSUE WITHOUT APPRECIATING T HE FACT THAT DIRECT EXPENSES OF RS. 5.91 CRORES CLAIMED BY THE ASSESSEE ON ACCOUNT OF PURCHASES MADE FROM M/S JB ENTERPRISES IS BOGUS AS THE PARTY IS ONE OF THE HAWALA ENTRY PROVIDER AS PER THE LIST PR EPARED BY THE SALES TAX DEPARTMENT AND THE ASSESSEE FAILED TO PRO VE THE GENUINENESS OF THE PARTY. SIMILARLY, DIRECT EXPENSE S OF RS. 2.92 CRORES CLAIMED BY THE ASSESSEE ON ACCOUNT OF PURCHA SES MADE FROM M/S TARASH DEVELOPERS IS BOGUS AS THE PARTY IS ONE OF THE PARTNER IN THE ASSESSEE FIRM AND HAD NO STOCK TO SUPPLY TO THE ASSESSEE. THE LD. DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ER RED IN ALLOWING 50% RELIEF WITHOUT ASSIGNING ANY REASONS AS TO WHY AND HOW 50% EXPENDITURE OUT OF PURCHASES FROM THOSE TWO PARTIES BECOMES GENUINE, WHEN FACTS BROUGHT OUT BY THE AO CLEARLY S UGGEST THAT PURCHASES CLAIMED TO HAVE MADE FROM TWO PARTIES IS BOGUS AND NON- GENUINE. HALLMARK DEVELOPERS 23 10. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN PARTIALLY ALLOWED RELIE F IN RESPECT OF DIRECT EXPENSES MATERIALS PURCHASE, EVEN THOUGH THE ASSESS EE HAD FILED COMPLETE DETAILS OF PURCHASES WITH NECESSARY EVIDEN CES. THE LD. CIT(A) HAS FAILED APPRECIATE THE FACT THAT WHEN 50% OF EXPENDITURE IS GENUINE, THE REMAINING 50% EXPENSES CANNOT BE BO GUS OR NON- GENUINE. THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED BILLS AND VOUCHERS FOR PURCHASES FROM TWO PARTIES. THE AS SESSEE HAD ALSO EXPLAINED NEXUS BETWEEN MATERIALS PURCHASES AN D DEVELOPMENT WORK UNDERTAKEN AT SITE. BUT, THE CIT(A ) HAS DISALLOWED 50% OF EXPENSES ONLY ON THE GROUND THAT MAJOR PURCH ASE HAS BEEN MADE FROM GROUP CONCERN. IN SO FAR AS CONTRACT CHAR GES, THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS APPRECIATED AND A NALYZED EVIDENCES FILED BY THE ASSESSEE IN LIGHT OF VARIOUS FACTS BROUGHT OUT BY THE AO AND CAME TO THE CONCLUSION THAT THE LD. A O HAS MADE ADDITIONS PURELY ON SUSPICIOUS AND SURMISE MANNER, DISREGARDING ALL EVIDENCES FILED BY THE ASSESSEE. THE ASSESSEE HAD A LSO FILED AGREEMENTS WITH M/S METCON INDIA FOR AWARDING WORKS CONTRACT FOR DEVELOPMENT OF LAND AND PAYMENT DETAILS AND ARGUED THAT THE WORK ORDER HAS BEEN ISSUED AFTER OBTAINING COMPETITIVE B IDDING. THE PAYMENT TO CONTRACTOR HAS BEEN MADE AFTER DEDUCTING APPLICABLE TDS AS PER LAW. THE EVIDENCES OF THE WORK HAVING B EEN PHYSICALLY HALLMARK DEVELOPERS 24 UNDER TAKEN WERE FURNISHED INCLUDING PHOTOGRAPHS TA KEN AT SITE. IN FACT, THE SELLER OF THE LAND HAS CONFIRMED THAT THE RE EXISTS A NALA, ILLEGAL ENCROACHMENT, HARD ROCKS IN THE LAND. THE P URCHASER OF LAND HAS ALSO CONFIRMED HAVING DONE ALL WORKS BEFORE LAN D WAS SOLD TO THEM AS AGREED IN MOU, INCLUDING CONVERSION OF LAND FROM INDUSTRIAL TO NON-INDUSTRIAL PURPOSE, CLEARING ILLEGAL ENCROAC HMENTS AND HUTMENTS, EXCAVATION OF LAND, LEVELLING, ROCK CUTTI NG, FENCING ETC.,. THE PHOTOGRAPHS TAKEN AT SITE FOR HAVING DONE DEVEL OPMENT WORK AT LAND HAVE BEEN FILED BEFORE THE AO. THE AO HAS DISR EGARDED ALL EVIDENCES AND MADE ADDITIONS ONLY ON THE BASIS OF H IS OWN ASSESSMENT OF LAND POSITION AND PHOTOGRAPHS TAKEN A T SITE ON 24-12- 2011, WITHOUT CONFRONTING THOSE EVIDENCES TO THE AS SESSEE FOR ITS REBUTTAL. THE LD. AR FURTHER SUBMITTED THAT THE AO HAS ARRIVED AT A CONCLUSION ON THE BASIS OF HIS OWN ASSESSMENT OF PO SSIBLE EXPENDITURE REQUIRED FOR DEVELOPMENT OF LAND PER AC RE, WITHOUT APPRECIATING THE FACT THAT THE NATURE OF LAND MATTE RS WHEN IT COMES TO AMOUNT OF EXPENDITURE REQUIRED TO BE SPENT FOR DEVE LOPMENT. THE AR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ALSO T AKEN SUPPORT FROM THE FINDINGS OF HONBLE SETTLEMENT COMMISSION IN TH E ORDER PASSED U/S 245D(4) IN THE CASE OF THE ASSESSEE FIRM, WHERE IT HAS BEEN CLEARLY HELD THAT ACCOMMODATION BILLS TAKEN BY M/S METCON INDIA IS IN CONNECTION WITH WORKS UNDERTAKEN FOR CONTRACT WITH ASSESSEE FIRM FOR HALLMARK DEVELOPERS 25 DEVELOPMENT WORK AT NAGPUR LAND. THEREFORE, ONCE AD DITION ON TOTAL EXPENDITURE WAS HAVING BEEN MADE IN THE NAME M/S ME TCON INDIA, THE REVENUE RECOMMENDING MAKING ADDITIONS OF SIMILA R AMOUNT IN THE CASE OF THE ASSESSEE WAS OUT RIGHTLY REJECTED B Y THE ITSC. THE CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY REJECTED CLAIM OF THE AO AND HAS DELETED ADDITION TOWARDS CONTRACT CH ARGES. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CAREFULLY CONSIDERED MATERIALS PLACED BEF ORE US. THE SOLITARY ISSUE THAT CAME UP FOR OUR CONSIDERATION F ROM GROUND NO. 1AND 2 OF REVENUE APPEAL AND GROUND NO. 1 OF ASSESS EE APPEAL IS DISALLOWANCES OF CERTAIN EXPENDITURE INCURRED IN RE LATION TO DEVELOPMENT OF LAND AT NAGPUR. THE FACT WITH REGARD TO SALE OF LAND AT NAGPUR FOR THE IMPUGNED ASSESSMENT YEAR WAS NOT DISPUTED BY THE ASSESSING OFFICER. IN FACT, THE AO HAS ACCEPTED REVENUE GENERATED FROM SALE LAND. THE ONLY DISPUTE IS WITH REGARD TO CLAIM OF CERTAIN EXPENSES WITH REGARD TO SALE OF SAID LAND. THE ASSESSEE CLAIMS TO HAVE INCURRED CERTAIN EXPENSES, VIZ., DIR ECT EXPENSES MATERIALS PURCHASE, CONTRACT CHARGES, ARBITRATION A WARD EXPENSES, BROKERAGE PAYMENT, COMPENSATION TO RETIRING PARTNER S AND SALARY AND WAGES. THE AO HAS DOUBTED EXPENSES INCURRED UND ER VARIOUS HALLMARK DEVELOPERS 26 HEADS INCLUDING DIRECT EXPENSES MATERIALS AND CONTR ACT CHARGES MAINLY FOR THE REASON THAT THE ASSESSEE HAS FAILED OFFER ANY EXPLANATION THAT EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. TO ARRIVE AT ABOVE CONCLUS ION, THE AO HAD TAKEN SUPPORT FROM VARIOUS EXTERNAL INFORMATION INC LUDING PHYSICAL INSPECTION OF LAND, OBTAINING INFORMATION FROM THE SELLER OF LAND M/S MAHARASHTRA STATE HANDLOOM CORPORATION LIMITED, BUY ER OF THE LAND M/S NUNLET PROJECTS PRIVATE LIMITED, PHOTOGRAPHS TA KEN AT LAND SITE ON 24-12-2011 AND OPINION OF DVO FOR DRAWING ADVERS E INFERENCE AGAINST THE ASSESSEE. THE AO HAD ALSO TAKEN SUPPORT FROM THE FACT THAT THE ASSESSEE HAD ENTERED INTO TRANSACTIONS WIT H ASSOCIATED/ RELATED PARTIES. ACCORDINGLY, HE CAME TO THE CONCLU SION THAT VARIOUS EXPENDITURES INCURRED UNDER THE HEAD DIRECT EXPENSE S MATERIALS, CONTRACT CHARGES, BROKERAGE PAYMENT, ARBITRATION AW ARD, COMPENSATION TO OUTGOING PARTNERS AND SALARY AND WA GES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, I.E. LAND DEVELOPMENT AND ALSO SAID EXPENDITURE IS EXCESSIVE AND UNREASONABLE. 12. THE AO HAD DISALLOWED DIRECT EXPENSES MATERIALS PURCHASES ON THREE GROUNDS, VIZ, (I) SAID EXPENDITURE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SECTION HALLMARK DEVELOPERS 27 37(1) OF THE ACT. (II) THE SAID EXPENDITURE IS EXCE SSIVE AND UNREASONABLE HAVING REGARD TO NATURE AND EXTENT OF LAND DEVELOPMENT WITHIN THE MEANING OF SECTION 40A (2) O F THE ACT. (III)THE AO HAD QUESTIONED PRUDENCE OF INCURRING SU CH EXPENDITURE FOR DEVELOPMENT OF LAND. NO DOUBT, THE PROVISIONS O F SECTION 37(1) OF THE ACT, PLACES BURDEN ON THE ASSESSEE WHO CLAIMS T O HAVE INCURRED EXPENDITURE TO PROVE THAT SAID EXPENDITURE HAS BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF HIS BUSINES S. THE ASSESSEE SHALL FURNISH NECESSARY EVIDENCES TO PROVE THAT SAI D EXPENDITURE IS IN FACT INCURRED FOR THE PURPOSE OF HIS BUSINESS. IN O RDER TO DISCHARGE ITS ONUS, IT HAS TO FILE NECESSARY EVIDENCES. IN THIS C ASE, ON PERUSAL OF DETAILS AVAILABLE RECORD, WE FIND THAT THE ASSESSEE HAS FURNISHED COMPLETE DETAILS WITH REGARD TO DIRECT EXPENSES MAT ERIALS, INCLUDING BILLS FROM THE SUPPLIERS. THE AO HAS DISALLOWED A S UM OF RS. 9,00,00,000/- ONLY THE GROUND THAT MAJOR PURCHASES IS FROM SISTER CONCERN AND ONE OF THE SUPPLIER IS IN THE LIST OF H AWALA DEALERS AS PREPARED BY SALES TAX DEPARTMENT. THE FACT THAT MAJ OR PURCHASES HAVE BEEN MADE FROM ASSOCIATE CONCERN DOES NOT ALTE R THE SITUATION AND IT DOES NOT GIVE POWER TO THE ASSESSING OFFICER TO DISALLOW WHOLE EXPENDITURE ON THAT GROUND ALONE. FURTHER, THE FACT THAT ONE OF THE PURCHASER IS IN THE LIST OF ENTRY PROVIDER AS PREPA RED BY SALES TAX DEPARTMENT IS ALSO NOT SUFFICIENT TO INFER THAT THE PURCHASES FROM SAID HALLMARK DEVELOPERS 28 PARTY IS NON-GENUINE. THE ADDITIONS WHICH HAVE BEEN MADE BY THE AO ARE ON A PURELY ESTIMATE AND ADHOC BASIS AND THE RE IS NO REFERENCE WHATSOEVER TO THE BASIS OF DISALLOWANCES. THERE IS NO BAR UNDER ANY LAW FOR PURCHASES FROM ASSOCIATE/ SISTER CONCERN AND WHEN THERE IS NO BAR UNDER LAW, THE AO CANNOT DISAL LOW ENTIRE EXPENDITURE FOR THE SIMPLE REASON THAT IT HAS BEEN PURCHASED FROM ASSOCIATE CONCERN. BUT, WHAT IS TO BE SEEN IS WHETH ER SUCH PURCHASE IS AT ARMS LENGTH AND IT WAS MADE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE OR NOT. IN THIS CASE, THERE IS NO DOUBT OF WHATSOEVER WITH REGARD TO PURCHASES OF MATERIALS FOR THE PURPOSE OF DEVELOPMENT OF LAND. IN FACT, THE ASSESSEE HAS ESTABLISHED NEXUS B ETWEEN MATERIALS PURCHASE AND LAND DEVELOPMENT AT NAGPUR. THE LD. CI T(A), HAVING ACCEPTED THE FACT THAT DEVELOPMENT WORK HAS BEEN EX ECUTED, HAS DISALLOWED 50% ADHAC EXPENSE WITHOUT ASSIGNING ANY REASONS. FURTHER, WHEN 50% DIRECT EXPENSE IS GENUINE, THEN R EMAINING 50% CANNOT BE NON-GENUINE MERELY BECAUSE IT WAS PURCHAS ED FROM ASSOCIATE CONCERN. THEREFORE, WE ARE OF THE CONSIDE RED VIEW THAT THE AO AS WELL AS THE LD. CIT(A) WERE ERRED IN DISALLOW ING DIRECT EXPENSES MATERIALS PURCHASE. HENCE, WE DIRECT THE A O TO DELETE ADDITIONS MADE TOWARDS DIRECT EXPENSES MATERIALS AM OUNTING TO RS. 9,00,00,000/-. HALLMARK DEVELOPERS 29 13. COMING BACK TO DISALLOWANCE OF CONTRACT CHARGES OF RS.34,08,96,156/- OUT OF TOTAL CONTRACT CHARGES PAI D OF RS. 36,08,96,165/-. THE AO HAD DISALLOWED CONTRACT CHAR GES MAINLY ON THE GROUND THAT NO WORK HAS BEEN UNDERTAKEN AT NAGP UR LAND. THE AO HAS ARRIVED AT ABOVE CONCLUSION MAINLY ON THE BA SIS OF PHOTOGRAPHS TAKEN AT SITE AND IMAGES DOWNLOADED FRO M GOOGLE MAP. ACCORDING TO THE AO, NO DEVELOPMENT WORK WAS D ONE IN LAND AND THE NATURE OF LAND WAS SAME AS WAS AT THE TIME OF PURCHASE FROM MSHCL (SELLER OF LAND). THE ASSESSEE, ON THE O THER HAND FURNISHED COMPLETE DETAILS OF EXPENDITURE INCURRED FOR THE PURPOSE OF DEVELOPMENT OF LAND. THE ASSESSEE HAD ALSO FILED AG REEMENTS WITH M/S METCON INDIA FOR AWARDING WORKS CONTRACT FOR DE VELOPMENT OF LAND AND PAYMENT DETAILS. THE ASSESSEE HAD CARRIED OUT DUE DILIGENCE REGARDING ASSIGNMENT OF DEVELOPMENT WORK TO M/S METCON INDIA, AN AA CATEGORY CONTRACTOR REGISTERED WITH PW D, GOVT. OF MAHARASHTRA. THE ASSESSEE HAS ASSIGNED CONTRACT TO M/S METCON INDIA, THE LOWEST BIDDER AMONG THREE BIDDERS, VIZ, SPORTINA EXIM PVT LTD AND SINGA TRANSPORT CARRIER. THE PAYMENT TO CON TRACTOR HAS BEEN MADE AFTER DEDUCTING APPLICABLE TDS AS PER LAW. TH E EVIDENCES OF WORK HAVING BEEN PHYSICALLY UNDER TAKEN WERE FURNIS HED INCLUDING PHOTOGRAPHS TAKEN AT SITE. IN FACT, THE SELLER OF T HE LAND M/S MSHCL VIDE THEIR LETTER DATED 27-03-2012 HAS CONFIRMED TH AT THERE EXISTS A HALLMARK DEVELOPERS 30 NALAS, ILLEGAL ENCROACHMENT, HARD ROCKS IN THE LAND . THE PURCHASER OF LAND M/S NUNLET PROJECTS PRIVATE LIMITED, IN REPLY TO AO LETTER DATED 25-11-1011 HAS ALSO CONFIRMED HAVING DONE ALL WORKS BEFORE LAND WAS SOLD TO THEM AS AGREED IN MOU, INCLUDING CONVER SION OF LAND FROM INDUSTRIAL TO NON-INDUSTRIAL PURPOSE, CLEARING ILLEGAL ENCROACHMENTS AND HUTMENTS, EXCAVATION OF LAND, LEV ELLING, ROCK CUTTING, FENCING ETC.,. THE PHOTOGRAPHS TAKEN AT SI TE FOR HAVING DONE DEVELOPMENT WORK AT LAND HAVE BEEN FILED BEFORE THE AO WHICH CLEARLY PROVES DEVELOPMENT WORK AT LAND. IN FACT TH E ASSESSEE HAS DONE ALL WORKS AS AGREED IN THEIR MOU WITH PURCHASE R OF LAND, INCLUDING, CONVERSION OF LAND FROM INDUSTRIAL TO NO N-INDUSTRIAL PURPOSE, PUT UP FENCING INCLUDING RETAINING WALL AR OUND THE LAND. THE AO HAS DISREGARDED ALL EVIDENCES AND MADE ADDITIONS ONLY ON THE BASIS OF HIS OWN ASSESSMENT OF LAND POSITION AND PH OTOGRAPHS TAKEN AT SITE ON 24-12-2011, WITHOUT CONFRONTING THOSE EV IDENCES TO THE ASSESSEE FOR ITS REBUTTAL. THE AO HAS ARRIVED AT A CONCLUSION ON THE BASIS OF HIS OWN ASSESSMENT OF POSSIBLE EXPENDITURE REQUIRED FOR DEVELOPMENT OF LAND PER ACRE, WITHOUT APPRECIATING THE FACT THAT THE NATURE OF LAND MATTERS WHEN IT COMES TO AMOUNT OF E XPENDITURE REQUIRED TO BE SPENT FOR DEVELOPMENT. IN THIS CASE, AS PER DETAILS AVAILABLE WITH US, THE HEAVY EXPENDITURE ON LAND WA S INCURRED ON ACCOUNT OF FACT THAT THE TERRAIN OF THE LAND WAS VE RY DIFFICULT. AS PER HALLMARK DEVELOPERS 31 THE DOCUMENT AVAILABLE WITH US, THE ASSESSEE HAS CA RRIED OUT VARIOUS WORKS AS PER THE SCOPE OF WORK WHICH INCLUD ES, LAND FILLING AND LEVELLING, CHAIN FENCING, REMOVAL OF SLUSHY EAR TH, ROCK CUTTING, FABRICATION AND ERECTION OF GIRDER ETC,. THE PHOTO GRAPHS TAKEN BY THE ASSESSEE AT THE TIME OF REMAND PROCEEDINGS REVEALED THE SCOPE AND EXTENT OF WORK DONE AT SITE. THE INDEPENDENT ENQUIR IES CONDUCTED BY THE AO WITH BOTH VENDOR AND PURCHASER OF LAND ALSO PROVED THE FACT THAT THE ASSESSEE HAD INCURRED HUGE EXPENDITURE FOR DEVELOPMENT OF LAND. BUT, THE AO HAS IGNORED AND INTENTIONALLY SUP PRESSED THIS INFORMATION WHICH WAS IN HIS POSSESSION AND ON THE CONTRARY CONTENDED THAT INFORMATION IS CULLED OUT FROM PUBLI C DOMAIN ON THE BASIS OF WHICH THE ADDITION IS MADE. NO DOUBT, IT I S THE RESPONSIBILITY OF THE PERSON WHO INCURRED EXPENDITURE SHALL DISCHA RGE ITS ONUS BY FILING NECESSARY EVIDENCES TO PROVE THAT SAID EXPEN DITURE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF HIS BUS INESS AND SUCH EXPENDITURE IS NOT EXCESSIVE AND UNREASONABLE. IN O RDER TO PROVE THE SAME, HE HAS TO FILE COMPLETE DETAILS OF EXPENDITUR E AND ALSO TO EXPLAIN THE NEXUS BETWEEN EXPENDITURE AND HIS BUSIN ESS ACTIVITY. IN THIS CASE, THERE ARE NO DOUBTS OF WHATSOEVER REGARD ING EXPENDITURE INCURRED FOR DEVELOPMENT OF LAND. THE OVERWHELMING EVIDENCE FURNISHED BY THE ASSESSEE HAS NOT BEEN CHALLENGED B Y THE AO DURING RE VERIFICATION PROCEEDINGS. ON THE OTHER HA ND, THE LD. AO HAS HALLMARK DEVELOPERS 32 MADE ADDITIONS TOWARDS CONTRACT CHARGES PURELY ON S USPICIOUS AND SURMISE MANNER WITHOUT BRINGING ON RECORD ANY EVIDE NCE TO PROVE THAT THE ASSESSEE HAS RECEIVED BACK EQUAL AMOUNT IN CASH. THERE IS NO IOTA OF EVIDENCES WITH THE AO TO PROVE HIS ALLEG ATION THAT NO WORK HAS BEEN CARRIED OUT AT LAND. THE EVIDENCES RELIED UPON BY THE AO, INCLUDING PURPORTED PHOTOGRAPHS AND GOOGLE IMAGES W ERE NOT SHARED WITH THE ASSESSEE FOR ITS COMMENTS. UNLESS T HE EVIDENCES ARE CONFRONTED TO THE OTHER SIDE, THE VERACITY OF T HE SAME CANNOT BE RELIED UPON. IT IS TRITE AND SETTLED POSITION OF LA W THAT ONE CANNOT MAKE ADDITIONS UNLESS AND UNTIL THE MATERIALS ON WH ICH RELIANCE IS SOUGHT TO BE PLACED IS CONFRONTED TO THE CONCERNED PERSON AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF C. VASA NTLAL & CO . V CIT (1962) 45 ITR 206(SC). THE FACT THAT M/S METCON INDIA HAS BEEN GIVE WORK AFTER DUE DILIGENCE AND TENDER PROCESS CA NNOT BE IGNORED. THE CONFIRMATIONS OF VENDOR OF LAND M/S MSHCL AND T HE PURCHASER OF LAND M/S NPPL IS ALSO CANNOT BE IGNORED. FROM TH E ABOVE, IT IS UNDOUBTEDLY PROVED THAT THE ASSESSEE HAD UNDERTAKEN LAND DEVELOPMENT WORK. WE, THEREFORE, ARE OF THE CONSIDE RED VIEW THAT THE AO WAS COMPLETELY ERRED IN DISALLOWED CONTRACT CHARGES PAID TO M/S METCON INDIA FOR DEVELOPMENT OF LAND AT NAGPUR. HALLMARK DEVELOPERS 33 14. WE, FURTHER NOTED ANOTHER IMPORTANT ASPECT OF THE MATTER IN LIGHT OF ORDER OF THE INCOME TAX SETTLEMENT COMMISS ION PASSED IN THE CASE OF THE ASSESSEE U/S 245D(4) OF THE INCOME TAX ACT, 1961. THE HONBLE SETTLEMENT COMMISSION IN THE ORDER PASS ED U/S 245D(4) IN THE CASE OF THE ASSESSEE FIRM HAS CLEARL Y RECORDED CATEGORICAL FINDINGS THAT ACCOMMODATION BILLS TAKEN BY M/S METCON INDIA IS IN CONNECTION WITH WORKS UNDERTAKEN FOR CO NTRACT WITH ASSESSEE FIRM FOR DEVELOPMENT WORK AT NAGPUR LAND. THEREFORE, ONCE ADDITION ON TOTAL EXPENDITURE WAS HAVING BEEN MADE IN THE NAME M/S METCON INDIA, THE REVENUE RECOMMENDING MAKING A DDITIONS OF SIMILAR AMOUNT IN THE CASE OF THE ASSESSEE WAS OUT RIGHTLY REJECTED BY THE ITSC. M/S METCON INDIA HAS ALREADY OFFERED E XPENSES RELATED TO NAGPUR LAND AS ITS INCOME AND THE NEXUS OF THE S AME HAVING BEEN ACCEPTED BY THE INCOME TAX SETTLEMENT COMMISSION AN D THE COMMISSIONER OF INCOME TAX IN HIS RULE 9 REPORT. T HEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ON THIS COUNT ALSO, THE ADDITION MADE BY THE AO CANNOT BE SUSTAINED. THE LD. CIT(A) AFTER CO NSIDERING RELEVANT FACTS, HAS RIGHTLY DELETED ADDITIONS MADE BY THE AO TOWARDS CONTRACT CHARGES PAID TO M/S METCON INDIA. WE DO NO T FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LD. CIT(A) AND D IRECT THE LD. AO TO HALLMARK DEVELOPERS 34 DELETE ADDITIONS MADE TOWARDS CONTRACT CHARGES AMOU NTING TO RS. 34,08, 96, 156/-. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO 2 AND 3 OF ASSESSEE APPEAL IS DISALLOWANCES OF C OMPENSATION TO EX-PARTNERS AND SALARY AND WAGE EXPENSES. THE LD. A R FOR THE ASSESSEE HAS NOT SERIOUSLY CONTESTED THE ADDITIONS. EVEN OTHERWISE, THE LD. AO AS WELL AS THE LD. CIT(A) HAD RECORDED C ATEGORICAL FINDINGS THAT COMPENSATION PAID TO EX-PARTNERS FOR SETTLING DISPUTE AMONG THEMSELVES HAS NOT BEEN INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS. SETTLING PERSONAL DISPUTES BY PAYING OUT OF FUNDS OF THE FIRM CANNOT BE CONSIDERED AS EXPENDITU RE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE FACT THAT CLAIMS WAS ALLOWED IN EARLIER YEAR DOES NOT IPSO FA CTO LEAD TO A CONCLUSION THAT THE SAME SHALL BE ALLOWED IN SUBSEQ UENT YEARS. FOR ABOVE REASONS, WE DO NOT FIND ANY REASONS TO INTERF ERE WITH FINDINGS OF THE LD. AO AS WELL AS THE LD. CIT(A) AND HENCE, WE CONFIRM ADDITION MADE TOWARDS COMPENSATION TO EX-PARTNERS. IN SO FAR AS SALARY AND WAGES IS CONCERNED, THE LD. CIT(A) HAS R ECORDED A CLEAR FINDINGS THAT THE ASSESSEE DID NOT FURNISHED ANY CO GENT EVIDENCES TO PROVE PAYMENT OF SALARY TO HUGE NUMBER OF EMPLOYEES , WHEN THERE IS NO BUSINESS ACTIVITY AFTER SALE OF LAND AT NAGPU R. MERE SUBMITTING HALLMARK DEVELOPERS 35 PAN AND OTHER DETAILS OF EMPLOYEES AND DEDUCTION OF TDS ALONE WOULD NOT SUFFICIENT ENOUGH TO PROVE PAYMENT OF SAL ARY. FACTS REMAIN UNCHANGED. THE LD. AR FOR THE ASSESSEE DID N OT CONTROVERT FINDINGS RECORDED BY THE LD. AO AS WELL AS THE LD. CIT(A) WITH ANY COGENT EVIDENCES. THEREFORE, WE ARE OF THE CONSIDER ED VIEW THAT THERE IS NO ERROR IN THE FINDINGS OF THE LD. CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD ORDER OF THE LD. CIT(A) AND CONF IRMED ADDITIONS MADE BY THE AO TOWARDS SALARY AND WAGES. 16. IN THE RESULT, APPEAL FILED BY THE REVENUE IN ITA.NO.1381/MUM/2018 IS DISMISSED AND APPEAL FILED BY THE ASSESSEE IN ITA NO.1568/MUM/2018 IS PARTLY ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF INCOME TAX RUL ES 1963, THROUGH NOTICE TO PARTIES ON THIS: 12 /06/2 020 SD/- (RAMLAL NEGI) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 12/06/2020 SELF TYPED COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. HALLMARK DEVELOPERS 36 BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//