OMPRAKASH & CO., MUMBAI V. DCIT CEN CIR-31, MUMBAI

ITA 1471/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2145 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 04-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K SINGH
• Assessee Lawyers: JAIDEV
• Keywords: Additional evidence; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI. D.K. AGARWAL (J.M.) AND SHRI. T.R. SOO D (A.M.) ITA NO. 1471/MUM/2009. ASSESSMENT YEAR: 2003-2004 OMPRAKASH & CO. LAALASIS, PLOT NO.219, 11 TH RD., CHEMBUR, MUMBAI 400 071. PAN : AAAFO1648Q VS. DCIT CEN CIR - 31, AAYAKAR BHAVAN, M.K. RD., CHURCHGAGE, MUMBAI 400 703. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. JAIDEV.(A.R.) DEPARTMENT BY : SHRI. B.K. SINGH.(D.R.) O R D E R PER T.R. SOOD, A.M. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GR OUND. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF COMPENSATION PAID OF RS.7,00,000/- IN RESPECT OF K RISHNA GOVINDA PROJECT. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDING ASSESSING OFFICER NOTICED THAT THE ASSES SEE HAD PAID THE SUM OF RS.7,00,000/- TOWARDS COMPENSATION. ON INQUIRY I T WAS NOTICED THAT THE ASSESSEE HAD WRITTEN A LETTER TO M/S. TIME STAR DEV ELOPERS PVT. LTD. IN WHICH IT WAS MENTIONED THAT DUE TO FAILURE ON YO UR PART TO MAKE THE FINAL PAYMENT, THE BOOKING WAS BEING CANCELLED AND ASSESS EE WOULD PAY A COMPENSATION OF RS.7,00,000/- WHEN IT WAS POINTED O UT TO ASSESSEE THAT THERE WAS NO OBLIGATION TO PAY COMPENSATION TO M/S. TIME STAR DEVELOPERS PVT. LTD. IT WAS EXPLAINED THAT THE ASSE SSEE HAD USED THE FUNDS AMOUNTING TO RS.4.00 CRORES FOR SOME TIME AND IN FACT THE COMPENSATION WAS IN THE FORM OF INTEREST. THE AS SESSING OFFICER WAS OF THE VIEW THAT SUCH COMPENSATION COULD NOT BE TREATED AS REVENUE EXPENDITURE AND THEREFORE SAME WAS DISALLOWED. ITA NO. 1471/MUM/2009. A.Y.: 2003-2004 2 3. BEFORE CIT(A) SIMILAR SUBMISSIONS WERE MADE AND LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS REJECTED THE CLAIM VIDE PARA 10 OF HIS ORDER WHICH IS AS UNDER: 10. IT IS APPARENT FROM READING OF THE LETTER SENT BY M/S. TIME STARS DEVELOPERS PVT. LTD. TO THE APPELLANT TH AT THE FAULT CLEARLY LAY WITH M/S. TIME STARS DEVELOPERS PVT. LT D. WHO DID NOT WANT TO PAY THE FULL AMOUNT FOR THE PROPERTIES BOOK ED BY THEM. THUS, THE ASSESSING OFFICER WAS RIGHT IN HIS OBSERV ATION THAT SINCE THE FAILURE TO HONOUR THE AGREEMENT WAS ON TH E PART OF M/S. TIME STARS DEVELOPERS PVT. LTD., THERE WAS NO OBLIG ATION ON THE PART OF THE APPELLANT TO PAY COMPENSATION OF RS.7.0 0 LACS. ALSO, I OBSERVE THAT THERE WAS NO CLAUSE IN THE AGREEMENT F OR SALE WHICH WAS IN THE FORM OF LETTERS OF BOOKING OF THE PREMIS ES FOR PAYMENT OF ANY COMPENSATION IN CASE THERE IS DEFAULT IN THE PAYMENT SCHEDULE. IN THE ABSENCE OF SPECIFIC CLAUSE TO THI S EFFECT, PAYMENT OF RS.7.00 LACS AS COMPENSATION CANNOT BE ALLOWED. 4. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE S UBMITTED THAT THE SIMILAR CLAIM IN THE CASE OF GROUP CONCERN HAD ALRE ADY BEEN ALLOWED BY THE TRIBUNAL IN THE CASE OF KUKREJA CONSTRUCTION CO. VS . ACIT HAVING ITA NO.6414MUM/07 AND MOTIRAM TOLARAM VS. ACIT HAVING I TA NO.4139/MUM/07 [ COPIES OF THESE ORDERS WERE FILED ON RECORD ]. IN VIEW OF THESE ORDERS MATTER WAS COVERED IN FAVOUR OF ASSESS EE. 5. ON THE OTHER HAND, LEARNED D.R. SUBMITTED THAT T HERE WAS A DISTINGUISHING FEATURE FROM THE OTHER ORDERS I.E. T HERE WAS NO OBLIGATION ON THE PART OF ASSESSEE TO MAKE THE PAYMENT FOR COMPEN SATION AND THEREFORE EARLIER ORDERS CAN NOT BE FOLLOWED. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y. WE FIND THAT ASSESSING OFFICER HAS DENIED ALLOWANCE OF COMPENSAT ION BECAUSE ACCORDING TO HIM IT WAS NOT REVENUE EXPENDITURE. IN THE CAS E OF KUKREJA CONSTRUCTION CO. VS. ACIT (S), IT WAS HELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. THE CLAIM OF COMPENSATION TO THE SISTER CONCERNS WE RE, AS PER THE ASSESSEE, FOR RELEASE OF FLATS THAT SUCH SISTER CON CERNS HAD AGREED TO PURCHASE FOR WHICH ASSESSEE COULD FIND OTHER CUS TOMERS WHO WERE WILLING TO PAY MORE. ACCORDING TO THE ASSESS ING OFFICER AS WELL AS CIT(A), THESE TRANSACTIONS WERE NOT GENUINE , BUT, WERE ONLY MADE THROUGH JOURNAL ENTRIES AND ASSESSEE WAS UNABLE TO ITA NO. 1471/MUM/2009. A.Y.: 2003-2004 3 PRODUCE THE ALLOTMENT LETTERS OR CORRESPONDENCE WIT H THE ORIGINAL PURCHASERS BOTH OF WHOM WERE SISTER CONCERNS. ASS ESSEES CASE IS THAT BOTH THE SISTER CONCERNS HAD ACCOUNTED SUCH CO MPENSATION IN ITS BOOKS AND THE ENTRIES AT THE TIME OF BOOKING OF THE FLATS WERE DONE BY JOURNALS ONLY ON ACCOUNT OF THE REASON THAT THE SISTER CONCERNS WERE HAVING CREDIT BALANCE IN THE BOOKS OF THE ASSESSEE. ACCORDING TO THE ASSESSEE, SUCH CREDIT BALANCES WER E MORE THAN SUFFICIENT AND EVEN AFTER DEBITING THE VALUE OF THE FLATS ALLOTTED TO THE SISTER CONCERNS, THERE REMAINED LARGE SUMS DUE FROM IT TO SUCH SISTER CONCERNS. FROM THE COPY OF THE ACCOU NT OF M/S. GANGA DEVELOPERS IN THE BOOKS OF THE ASSESSEE PLACE D AT PAPER BOOK 93 TO 100, WE FIND THAT THE CONSIDERATION FOR ALLOTMENT OF THE FLATS WERE ACCOUNTED ON VARIOUS DATES AND THESE WER E NOT CONSOLIDATED ENTRIES PASSED AT THE END OF THE YEAR. SIMILAR IS THE CASE IN THE ACCOUNT OF M/S. APARANTA HOTELS PVT. AS WELL. BEING SISTER CONCERNS, THERE COULD HAVE BEEN A LINGERING DOUBT THAT THE TRANSACTIONS WERE STAGE MANAGED SO AS TO TRANSFER S OME OF THE PROFITS OF THE ASSESSEE TO THE BOOKS OF THE SISTER CONCERNS WHICH HAD RETURNED HUGE LOSSES. BUT, NEVERTHELESS IN ORD ER TO DISCOUNT THE TRANSACTIONS WHICH IS PROPERLY ACCOUNTED BY ASS ESSEE AND TO ESTABLISH THAT THESE WERE NOT GENUINE, THE RECORDS HAD TO BE EXAMINED BY THE ASSESSING OFFICER AS WELL AS THE LE ARNED CIT(A) WHICH THEY ELECTED NOT TO DO DESPITE BEING FURNISHE D BY THE ASSESSEE. THE RECORDS RELATING TO THE ORIGINAL A LLOTMENT LETTERS ISSUED BY THE ASSESSEE TO THESE TWO SISTER CONCERNS AND THE COMMUNICATION RELATING TO THE RATES AS WELL AS PAYM ENTS OF COMPENSATION WERE ALL FURNISHED BY THE ASSESSEE. IT IS VERY MUCH TRUE THAT ASSESSEE WAS UNABLE TO PRODUCE THESE RECO RDS BEFORE THE ASSESSING OFFICER. BUT, ADMITTEDLY, IT HAD PRODUC ED SUCH DOCUMENTS BEFORE CIT(A) IN THE COURSE OF APPEAL PRO CEEDINGS. THERE COULD BE NO DOUBT THAT SUCH DOCUMENTS WERE NE CESSARY FOR DECIDING THE ISSUE ON MERITS AND THEREFORE, WE ARE OF THE VIEW THAT CIT(A) OUGHT HAVE EXERCISED HIS POWERS AND ADM ITTED SUCH ADDITIONAL EVIDENCE. PROCEDURAL RULES ARE ALWAYS M EANT TO FACILITATE DISPOSITION OF PROPER JUSTICE AND IT SHO ULD NOT BE INTERPRETED IN A MANNER WHICH WOULD COME IN THE WAY OF ADMINISTRATION OF JUSTICE. THE ISSUE WAS WHETHER T HE TRANSACTIONS WITH THE SISTER CONCERNS WERE GENUINE OR WHETHER THE ASSESSEE HAD STAGE MANAGED THE TRANSACTIONS FOR TRANSFERRING SOME OF ITS PROFITS TO ITS LOSS MAKING SISTER CONCE RNS. WE FIND THAT ASSESSEE HAD ESTABLISHED THE TRANSACTIONS WITH ITS SISTER CONCERNS FOR ALLOTTING FLATS TO BE GENUINE NOT ONLY THROUGH THE ENTRIES IN THE BOOKS OF ACCOUNTS BUT ALSO THROUGH T HE VARIOUS COMMUNICATION IT HAD WITH THEM. ASSESSEES CLAIM THAT IT HAD NOT RECEIVED ANY MONEY ONLY ON ACCOUNT OF THE STAND ING CREDIT BALANCES SUCH SISTER CONCERNS HAD IN ITS BOOKS HAS ALSO BEEN SUBSTANTIATED. AS HELD BY THE HONBLE ORISSA HIGH COURT IN THE CASE OF CIT VS. INDUSTRIES DEVELOPMENT CORPORATION 268 ITR 130, A TRANSACTION OTHERWISE VALID IN LAW, IF IT RESULTS IN TAX DEDUCTION CANNOT BE BRUSHED ASIDE SAYING THAT UNDERLYING MOTI VE WAS TO REDUCE TAX LIABILITY. THEREFORE IN OUR OPINION TH E REJECTION OF THE CLAIM OF THE ASSESSEE WAS DONE WITHOUT PROPERLY APP RECIATING THE ITA NO. 1471/MUM/2009. A.Y.: 2003-2004 4 FACTS AND ALSO DISREGARDING THE ASSESSEES PLEA THA T BY GETTING A RELEASE AND SELLING THE FLATS TO OTHER CUSTOMERS IT HAD EARNED A LARGER PROFIT. IN THE RESULT WE HOLD THAT THE DIS ALLOWANCE OF THE COMPENSATION PAID BY THE ASSESSEE TO ITS SISTER CON CERNS WAS NOT JUSTIFIABLE AND THEREFORE SUCH DISALLOWANCE STANDS DELETED. SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF MOTIRAM TOLARAM VS. ACIT. THEREFORE, FOLLOWING THIS DECISION WE DECIDE THE ISSUE IN FAVOUR OF ASSESSEE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010. SD/- (D.K. AGARWAL) JUDICIAL MEMBER SD/- (T.R. SOOD.) ACCOUNTANT MEMBER MUMBAI, DATED 14 TH MAY, 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MU MBAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBA I 5. DEPARTMENTAL REPRESENTATIVE, BENCH C, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI