TOLARAM & CO, MUMBAI V. ACIT CEN CIR-31, MUMBAI

ITA 1470/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7797 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 04-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Assessee Lawyers: JAYDEV
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH ,(AM) ITA NO.1470/MUM/2009 ASSESSMENT YEAR : 2004-05 M/S. TOLARAM & CO. LAALASIS PLOT NO.219, 11 TH ROAD CHEMBUR MUMBAI-400 071. ..( APPELLANT ) P.A. NO. (AAAFT 5775 H) VS. ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-31 AAYAKAR BHAVAN, M.K. ROAD MUMBAI-2-. ..( RESPONDENT ) APPELLANT BY : SHRI JAYDEV RESPONDENT BY : SHR I NAVEEN GUPTA O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 1.1.2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION. IT FILED RETURN DECLARING TOTAL INCOME AT RS.65,16,130 /-. DURING THE ITA NO.1470/M/09 A.Y: 04-05 2 COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE AO T HAT THE ASSESSEE HAS CLAIMED COMPENSATION OF RS.11.55 LACS DEBITED TO RAM LAXMAN TRADING ACCOUNT AND RS.2.40 LACS DEBITED TO KUKR EJA CENTRE TRADING ACCOUNT. ACCORDINGLY THE ASSESSEE WAS ASKED TO EXPL AIN THE SAME. IT WAS INTERALIA EXPLAINED BY THE ASSESSEE THAT TH E BUYERS NAMELY FAIRDEAL TRADE LINK LTD. AND M/S. APARANTA HOT ELS PVT. LTD. HAVE AGREED TO PURCHASE CERTAIN PREMISES FROM THE ASSESSEE BUT HAVE NOT TAKEN THE POSSESSION OF THE PREMISES. MEANWHILE, TH E CUSTOMER APPROACHED THE ASSESSEE AND THE FLATS WITH THE CONSENT OF THE ABOVE BUYERS, WHO AGREED TO SURRENDER THE PREMISES AFTER RECE IPT OF COMPENSATION, WERE SOLD TO THE NEW CUSTOMERS. ACCORDINGLY THE ASSESSEE HAS DEBITED THE AMOUNT OF COMPENSATION OF RS.6,10, 000/-, AND RS.5,45,000/- PAID TO FAIRDEAL TRADE LINK LTD. A ND M/S. APARANTA HOTELS PVT. LTD. RESPECTIVELY IN THE TRADING ACCOUNT OF RAM LAXMAN PROJECT AND RS.2,40,000/- PAID TO M/S. APARANTA HOTELS PVT. LTD. IN THE TRADING ACCOUNT OF KUKREJA CENTRE. IT WAS FURTHER SUBMI TTED BY THE ASSESSEE THAT ON SUBSEQUENT SALE OF THESE FLATS THE ASSESSEE HA S EARNED PROFIT WHICH HAS BEEN OFFERED FOR TAXATION. HOWEVER, THE AO WAS OF THE VIEW THAT THERE WAS NO BOOKING DONE BY FAI RDEAL TRADE LINK LTD. OR M/S. APARANTA HOTELS PVT. LTD. THE ASSESSEE HAS SH OWN THE BOOKING DURING THE YEAR AND CANCELLED THE SAME IMMEDI ATELY THEREAFTER AND THE FLATS WERE SOLD TO PARTIES WITH WHI CH AGREEMENTS ITA NO.1470/M/09 A.Y: 04-05 3 HAVE BEEN ENTERED INTO BY THE ASSESSEE. NO EVIDENCE WA S FILED TO SHOW ANY BOOKING MADE BY TO SISTER CONCERNS OR, ANY PAYM ENTS MADE BY THE TWO SISTER CONCERNS AT THE TIME OF BOOKING OF TH ESE FLATS. THE AO FURTHER OBSERVED THAT THE FLATS FOR WHICH COMPENSATIO N HAS BEEN PAID TO THE SISTER CONCERNS ARE THE SAME FLATS WHICH HAVE BEEN SOLD DURING THE YEAR TO OUTSIDE PARTIES. ACCORDING TO THE AO THERE WAS NO GENUINE BOOKING OF THE PREMISES MADE BY SISTER CONCERNS A ND NEITHER WAS THERE ANY TRANSFER OF FUNDS. THE COMPENSATION WAS A LSO RECORDED BY WAY OF JOURNAL ENTRY. THE TRANSACTION IS A SHAM TRA NSACTION TO REDUCE THE PROFITS. ACCORDINGLY THE AO DISALLOWED THE CO MPENSATION PAID OF RS.11,55,000/- AND RS.2,40,000/- AND ADDED TO THE INCOME OF THE ASSESSEE. THE AO AFTER MAKING OTHER ADDITION OF PR OVISION FOR TAXATION UNDER THE HEAD OTHER INCOME, COMPLETED THE A SSESSMENT AT AN INCOME OF RS.80,22,190/ VIDE ORDER DATED 18.12.200 6 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON AP PEAL, THE LD. CIT(A) WHILE OBSERVING THAT IT IS A CASE OF BUILDER PAY ING AN ADDITIONAL AMOUNT TO BUYER, UPON A SURRENDER OF PREMISES, APPAREN TLY BOOKED BY A BUYER, AND RE-POSSESSING ITS PREMISES, THUS, AUGMENTING I TS OWN STOCK IN TRADE FOR THE PURPOSE OF SALE AND THE REASONS FO R SUCH COMPENSATION PAYABLE CANNOT BE DETERMINED WITH UNCHALLE NGED CERTAINTY BECAUSE THERE ARE NO PRIMARY DOCUMENTS TO SUPPO RT THE ITA NO.1470/M/09 A.Y: 04-05 4 SAME, UPHELD THE ADDITION OF RS.11,55,000/- AND RS.2,4 0,000/- MADE BY THE AO AND DISMISSED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN BOTH THE GROUNDS THE SUSTENANCE OF ADDITION OF RS.11,55,000/- AND RS.2,40,000/-. 4. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE SUBMITS THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSES SEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF TH E ASSESSEE IN M/S. KUKREJA CONSTRUCTION COMPANY VS. ACIT IN ITA NO.6414/MUM/2007 FOR ASSESSMENT YEAR 2004-05 DATED 13. 5.09. HE ALSO PLACED ON RECORD THE BREAKUP OF THE AMOUNT OF RS. 15,30,000/- BEING COMPENSATION RECEIVED AND SHOWN BY M/S. APARANTA HOTELS PVT. LTD. FOR ASSESSMENT YEAR 2004-05, PARTY-WISE AND PROJECT WISE CHART SHOWING THE DETAILS OF SALE PRICE, RE-PURCHASE PRICE, COMPE NSATION AND PROFIT EARNED AND COPY OF SAID ORDER OF THE TRIBUNAL APPEARING AT PAGE 11 TO 22 OF THE ASSESSEES PAPER BOOK. HE THEREFORE, SUB MITS THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LD. CIT (A) BE DELETED. 5. ON THE OTHER HAND THE LD. DR WHILE DISTINGUISHIN G THE DECISION OF THE TRIBUNAL IN THE CASE OF KUKREJA CONSTRUCTION COMPAN Y (SUPRA), SUPPORTS THE ORDER OF THE AO AND THE LD. CIT(A). ITA NO.1470/M/09 A.Y: 04-05 5 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN KUKREJA CONSTRUCTION CO. (SUPRA) AS THE FACTS OF THAT CASE ARE SIMILAR TO THE FACTS OF THE ASSESSEES CA SE. PER CONTRA, THE LD. DR SUBMITS THAT THE FACTS OF THE CASE OF K UKREJA CONSTRUCTION COMPANY(SUPRA), ARE DISTINGUISHABLE AND HE NCE, NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. LET US EXAM INE THE FACTS OF KUKREJA CONSTRUCTION COMPANY(SUPRA). IN THAT CASE, TH E ASSESSEE FIRM WAS ENGAGED IN THE REAL ESTATE DEVELOPMENT AND CIVIL C ONSTRUCTION. DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE DEBITED A SUM OF RS.37,05,000/- AS COMPENSATION PAID TO SISTER CONCERNS VIZ. , RS.29,60,000/- TO M/S. GANGA DEVELOPERS AND RS.7,45,000 /- TO M/S. APARANTA HOTELS PVT. LTD. THE AO DISALLOWED THE COMPEN SATION IN VIEW OF THE FOLLOWING REASONS (PAGE-2 OF TRIBUNAL ORDER): I. ALLOTMENT AND CANCELLATION HAPPENED IN A SHORT GAP OF TIME. II. NO CONSIDERATION WAS PAID BY THE TWO PARTIES AND THERE WERE ONLY DEBIT AND CREDIT ENTRIES MADE IN ACCOUNTS. III. THE RATE AT WHICH THE BOOKINGS WERE DONE BY THE SISTER CONCERNS WERE MUCH LESSER THAN THE RATE ON WHICH FLATS WERE SOLD TO THE ULTIMATE CUSTOMERS. THUS HE CAME TO A CONCLUSION THAT THE ALLOTMENT, CANCELLATION AND PAYMENT OF COMPENSATION WERE NOT ITA NO.1470/M/09 A.Y: 04-05 6 GENUINE, BUT, MERELY A DEVISE ADOPTED TO REDUCE THE PROFITS. IT HAS BEEN HELD BY THE TRIBUNAL AS UNDER(PARA-7 AT P AGE-7): ..THEREFORE IN OUR OPINION THE REJECTION OF THE CLAIM OF THE ASSESSEE WAS DONE WITHOUT PROPERLY APPRECIATING THE FACTS AND ALSO DISREGARDING THE ASSESSEES PLEA THAT BY GETTING A RELEASE AND SELLI NG THE FLATS TO OTHER CUSTOMERS IT HAD EARNED A LARGER PRO FIT. IN THE RESULT WE HOLD THAT THE DISALLOWANCE OF THE COMPENSATION PAID BY THE ASSESSEE TO ITS SISTER CON CERNS WAS NOT JUSTIFIABLE AND THEREFORE SUCH DISALLOWANCE STANDS DELETED. GROUND NO.1 OF THE ASSESSEE IS, THEREFORE , ALLOWED. FROM THE ABOVE IT IS CLEAR THAT THE FACTS OF THE ASSESSEES CASE ARE SIMILAR TO THE FACTS OF THE CASE OF KUKREJA CONSTRUCTION C OMPANY SUPRA, DECIDED BY THE TRIBUNAL ALLOWING THE COMPENSATIO N PAID BY THE ASSESSEE. FURTHER, WE FIND THAT THE RECEIPT OF COMPENSATI ON FROM THE ASSESSEE HAS BEEN DULY ACCOUNTED FOR DURING THE RELEVANT P REVIOUS YEAR BY THE RESPECTIVE PARTIES I.E. FAIRDEAL TRADE LIN K LTD. RS.6,10,000/- AND M/S. APARANTA HOTELS PVT. LTD. RS.15 ,30,000/- INCLUDING THE AMOUNT RECEIVED BY THE ASSESSEE RS.7,95,000/ -, APPEARING AT PAGE-8 AND 10 OF ASSESSEES PAPER BOOK. IN THIS VIEW OF THE MATTER AND KEEPING IN VIEW THAT THE ULTIMATE SAL E CONSIDERATION RECEIVED BY THE ASSESSEE, SUPPORTED BY AGREEMENTS IS NOT I N DOUBT AND THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND THE ENTRIES RECORDED THEREIN, WE ARE OF THE VIEW THAT THE LD. CI T(A) WAS NOT ITA NO.1470/M/09 A.Y: 04-05 7 JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF COMPENSATION PAID BY THE ASSESSEE TO ITS SISTER CONCERNS RS.11,55,000/- AND RS.2,40,000 /- AND ACCORDINGLY THE SAME IS DELETED. THE GROUNDS TAKEN BY T HE ASSESSEE ARE THEREFORE, ALLOWED. 7. IN THE RESULT ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.02.2010. SD/- SD/- (RAJENDRA SINGH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 3.2.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.1470/M/09 A.Y: 04-05 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 25.1.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 3.2.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 4.2.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER