Ganesh Plantation Ltd., Ahmedabad V. The Income Tax Officer, Ward 4(1), Ahmedabad

ITA 1520/AHD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9735 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; Question of law; Difference of opinion; Competent authority; Commercial expediency
• Section: 14A; 133(6); 37(1); 131; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.1520/AHD/2013 / ASSTT. YEAR: 2008-2009 GANESH PLANTATION LTD. GANESH CORPORATE HOUSE HEBATAPUR THALTEJ ROAD NR.SOLA BRIDGE OFF. C.G. HIGHWAY AHMEDABAD 380 054. PAN : AAACG 7004 R VS. ITO, WARD - 4(1) AHMEDABAD. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI DHIREN SHAH, AR REVENUE BY : SHRI PRASOON KABRA, SR.DR / DATE OF HEARING : 24/11/2016 / DATE OF PRONOUNCEMENT: 06/12/2016 +,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)- XXI, AHMEDABAD DATED 26.3.2013 PASSED FOR ASSTT.YEA R 2008-09. 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES , 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, THE GRIEVANCES OF THE ASSESSEE ARE OF TWO FOLDS, VIZ. (A) THE LD.CIT(A) H AS ERRED IN CONFIRMING THE DISALLOWANCE OF LOSS IN CONTRACT AMOUNTING TO RS.4. 00 CRORES, AND (B) THE ITA NO.1520/AHD/2013 2 LD.CIT(A)HAS ERRED IN CONFIRMING DISALLOWANCE OF RS .9,69,947/- WHICH WAS MADE BY THE AO UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. FIRST WE TA KE SECOND FOLD OF GRIEVANCE I.E. DISALLOWANCE MADE UNDER SECTION 14A R.W.S. 8D. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY HAS FIELD ITS RETURN OF INCOME ELECTRONICALLY ON 30.9.2008 DECLARING TOT AL INCOME AT RS.35,68,29/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE ON 25.9.2009. ACCORDING TO THE AO, ON PERUSAL OF BALANCE SHEET IT REVEALED THAT THE ASSESSEE- COMPANY HAD MADE HUGE INVESTMENT IN SHARES AND SECU RITIES. THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS.11,39,180/- IN ITS PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS NOT ALLOCATED ANY INTEREST EXPENDI TURE TOWARDS INVESTMENT. ACCORDINGLY, LD.AO HAS MADE DISALLOWANCE OF RS.9,69 ,947/- UNDER SECTION 14A R.W.R. 8D OF THE INCOME TAX RULES. HE MADE DIS ALLOWANCE OF INTEREST EXPENDITURE AT RS.1,34,997/- AND ADMINISTRATIVE EXP ENDITURE AT RS.8,34,950/-. 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. ON THE STRENGTH OF HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF CIT VS. CORRTECH ENERGY P.LTD., 45 TAXMANN.COM 116 (GUJ), T HE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT IF THERE IS NO EXEMPT INCOM E CLAIMED BY THE ASSESSEE, THEN THERE COULD NOT BE ANY DISALLOWANCE UNDER SECT ION 14A OF THE INCOME TAX ACT. HE PLACED ON RECORD COPY OF THE HONBLE CO URTS DECISION. THE LD.DR IS UNABLE TO CONTROVERT TO THIS CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE. 5. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. HONBLE HIGH COURT HAS HELD THAT IF ASS ESSEE HAS NOT MADE A CLAIM ITA NO.1520/AHD/2013 3 FOR EXEMPTION, THEN, SECTION 14A COULD NOT BE APPLI ED. THE FINDING RECORDED BY THE HONBLE COURT IN PARA-4 OF READS AS UNDER: 4. COUNSEL FOR THE REVENUE SUBMITTED THAT THE ASSE SSING OFFICER AS WELL AS CIT(APPEALS) HAD APPLIED FORMULA OF RULE 8D OF THE INCOME TAX RULES, SINCE THIS CASE AROSE AFTER THE ASSESSMENT Y EAR 2009-2010. SINCE IN THE PRESENT CASE, WE ARE CONCERNED WITH THE ASSE SSMENT YEAR 2009- 2010, SUCH FORMULA WAS CORRECTLY APPLIED BY THE REV ENUE. WE HOWEVER, NOTICE THAT SUB-SECTION(L) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE A CT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE PRESENT CASE, THE TRIBUNAL HAS RECO RDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR E XEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS BASIS TH AT THE TRIBUNAL HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT COUL D NOT BE MADE. IN THE PROCESS TRIBUNAL RELIED ON THE DECISION OF DIVI SION BENCH OF PUNJAB AND HARYANA HIGH COURT IN CASE OFCITV WINSOME TEXTI LE INDUSTRIES LTD. [20091 319 ITR 204 IN WHICH ALSO THE COURT HAD OBSERVED AS UNDER : : '7. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. TH E JUDGEMENT OF THIS COURT IN AHHISHEK INDUSTRIES LTD(2006) 286 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIV EN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCT ION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PU RPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOU T HAVING NEXUS WITH THE BUSINESS. THE OBSERVATIONS MADE THEREIN HA VE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTEDLY TH E ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATI ON SECTION 14A COULD HAVE NO APPLICATION.' THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR, THEREFORE, NO DISALLOWANCE CAN BE MADE. RESPECTFULLY FOLLOWIN G JUDGMENT OF THE HONBLE GUJARAT HIGH COURT CITED (SUPRA), WE ALLOW THIS GROUND OF APPEAL, AND DELETE THE DISALLOWANCE OF RS.9,69,947/- ITA NO.1520/AHD/2013 4 6. IN THE NEXT FOLD OF GRIEVANCE, THE ASSESSEE HAS PLEADED THAT IT HAS SUFFERED A LOSS IN A CONTRACT WHICH HAS BEEN DISALL OWED BY THE AO, AND THE LD.CIT(A) HAS CONFIRMED SUCH DISALLOWANCE. 7. BRIEF FACTS OF THE CASE ARE THAT M/S.JAY CONSTRU CTION IS A PROPRIETARY CONCERN OF SHRI NARESH MUKTILAL SHAH. THE PROPRIET ORSHIP CONCERN HAD ENTERED INTO AN AGREEMENT ON 26.4.2007 WITH SHRI BH ARATBHAI KOTHARI AND SHRI RAJENDRASINGH RAVUBHAI WAGHELA I.E. OWNERS OF THE L AND BEARING SURVEY NO.695. UNDER THIS AGREEMENT, HE HAS ACQUIRED DEVE LOPMENT RIGHT OF THIS LAND, ADMEASURING 8802 SQ.METERS OF VILLAGE SANAND. HE EN TERED INTO AN AGREEMENT WITH THE ASSESSEE ON 26.6.2007 IN WHICH IT HAS BEEN AGREED THAT THE ASSESSEE WOULD CONSTRUCT 100 BUNGALOWS OUT OF SAID PLOT OF L AND IN CONFORMITY WITH THE PLAN, DRAWINGS AND SPECIFICATIONS. IT HAS BEEN AGR EED THAT SECOND PARTY I.E. THE ASSESSEE WOULD COMMENCE CONSTRUCTION WITHIN 30 DAYS OF APPROVAL OF DEVELOPMENT PLAN BY APPROPRIATE AUTHORITY, AND COMP LETE CONSTRUCTION ON OR BEFORE EXPIRY OF 24 MONTHS FROM THE DATE OF EXECUTI ON OF THE CONTRACT. SOMEHOW THE CONTRACT COULD NOT BE COMPLETED. AS PE R CLAUSE-7 OF THE CONTRACT, SECOND PARTY IF ABANDONS CONTRACT OR FAIL S TO COMMENCE WORK THEN WOULD PAY A SUM OF RS.4.00 CORES TO THE FIRST PARTY I.E. M/S.JAY CORPORATION. ACCORDING TO THE ASSESSEE, IT COULD NOT GET THE APP ROVAL FROM COMPETENT AUTHORITY, AND THEREFORE, COULD NOT COMMENCE CONTRA CT WORK. ON 20.3.2008, THE CONTRACT WAS CANCELLED, AND A CANCELLATION AGRE EMENT WAS EXECUTED BETWEEN THE PARTIES. THE ASSESSEE HAS MADE PAYMENT OF RS.4 CRORES THROUGH ACCOUNT PAYEE CHEQUE, WHICH HAS BEEN DULY CREDITED IN JAY CORPORATION. THE ASSESSEE HAS CLAIMED DEDUCTION OF THIS AMOUNT ON TH E GROUND THAT IT HAS SUFFERED LOSS. THE CLAIM OF THE ASSESSEE WAS DISAL LOWED BY THE AO. HE HAS SUSPICION ABOUT THE EXECUTION OF SUCH CONTRACT. TH E AO WAS OF THE OPINION THAT IT WAS A STEP AT END OF THE ASSESSEE TO AVOID PAYMENT OF TAX. THE AO HAS ITA NO.1520/AHD/2013 5 NARRATED CERTAIN PERIPHERAL CIRCUMSTANCES IN ORDER TO BRING POINT AT HOME THAT THE CONTRACT WAS NOT GENUINE, AND DEVISED TO REDUCE TAX LIABILITY, AND THERE IS NO SUCH ACTIVITIES BEING CARRIED OUT BY THE ASSESSE E. ACCORDINGLY, HE DISALLOWED CLAIM OF THE ASSESSEE. IN APPEAL, IT WA S CONTENDED BY THE ASSESSEE THAT THE AO HAS NOT GRANTED SUFFICIENT TIME FOR PRO DUCING PROPRIETOR OF JAY CORPORATION. HE APPEARED BEFORE THE AO ON 23.12.20 10 AND AFFIDAVIT TO THIS EFFECT WAS SUBMITTED BEFORE THE AO. THE LD.CIT(A) HAS CALLED FOR REMAND REPORT. IT HAS BEEN PLACED ON PAPER BOOK AT PAGE N O.159 TO 165. THE LD.CIT(A) HAS GONE THROUGH THE RECORD, AND THEREAFT ER CONCUR WITH THE AO. THE FINDING OF THE LD.CIT(A) READS AS UNDER: 4.2 I HAVE CONSIDERED THE ORDER PASSED BY TH E AO, THE ELABORATE REMAND REPORT AND THE COUNTER COMMENTS BY THE APPEL LANT. I FIND THAT THE APPELLANT CONSPICUOUSLY SILENT ON ABOUT THE FAC T THAT NEITHER THEY NOR SHRI N.M. SHAH HAVE UNDERTAKEN ANY REAL ESTATE PROJECT IN THE PAST OR IN FUTURE. THE APPELLANT HAS ALSO NOT OFFERED AN Y CONVINCING REASONS FOR ENTERING INTO AGREEMENT FOR CONSTRUCTION OF BUN GALOWS ON AN AGRICULTURAL LAND WHEN THE LAW OF LAND STIPULATES T HAT NO CONSTRUCTION COULD NOT CARRIED OUT ON AGRICULTURAL LAND, IT IS A LSO NOTICE WORTHY THAT THE CLAUSE 1 OF THE AGREEMENT STATES THAT' THE PART Y OF THE 1ST PART IS ABSOLUTELY SEIZED AND POSSESSED LAND OF SURVEY NUMB ER / BLOCK NUMBER 695......' WHICH IS FACTUALLY INCORRECT AS THIS LAN D STANDS IN THE NAME OF OTHER PERSONS AND THERE IS NO FACT BROUGHT ON THE R ECORD BY THE APPELLANT THAT HOW M/S JAY CONSTRUCTION IS ABSOLUTE LY SEIZED OR IS IN POSSESSION OF SUCH LAND TO CARRY OUT THE CONSTRUCTI ON OF 100 BUNGALOWS. IN MY OPINION, THE INCLUSION OF FACTUALLY INCORRECT CLAUSE IT SELF MAKES THE AGREEMENT ILLEGAL. FURTHER THE APPELLANT IS CON SPICUOUSLY SILENT ON CERTAIN ISSUE RELATING TO PLAN FOR CONSTRUCTION VIZ WHO HAS APPLIED FOR PLAN OR WHEN SUCH PLAN FOR CONSTRUCTION WAS SUBMITT ED OR WHO HAS APPLIED FOR CLU PERMISSION ( CHANGE OF LAND USE) TO NON-AGRICULTURE LAND WHICH IS BASIC PREREQUISITE FOR SUBMISSION OF PLAN AND CONSTRUCTION THEREOF. NO EVIDENCE TO THIS EFFECT IS SUBMITTED BEFORE THE A.O OR BEFORE ME TO REINFORCE THE CLAIM THAT APPELL ANT INDEED HAS TAKEN SUBSTANTIAL STEPS TO PLAN AND COMMENCE CONSTRUCTION BY APPOINTING THE SH N M SHAH. ITA NO.1520/AHD/2013 6 I ALSO FIND THAT THE FACT OF STAMP PAPER NUMBERS FO R EXECUTION OF CONTRACT AND CANCELLATION OF CONTRACT AS BEING SUCC ESSIVELY NUMBERED INDICATING THE FACT THAT SUCH EXERCISE WAS PRE-MEDI ATED ONE, SPECIFICALLY DESIGNED TO BOOK LOSSES IN THE GIVEN A SST. YEAR. IT IS NOTICE- WORTHY THAT SHRI N.M. SHAH IS A PERSON OF NO MEANS AND DOES NOT HAVE A VALID PAN NOR HE HAS FILED HIS INCOME-TAX RETURN TO SHOW THAT SUCH RECEIPTS BEFORE INCOME-TAX DEPARTMENT. I AM INCLINE D TO AGREE WITH THE CONCLUSION DRAWN BY THE AO IN PARA-10 OF HIS REMAND REPORT THAT THE APPELLANT HAD ONLY INTEREST AND INCOME FROM OTHER S OURCES AMOUNTING TO RS.4.47 CRORES APPROXIMATELY AND THE APPELLANT H AD DEVISED THE AFORESAID EXERCISE TO REDUCE THE TAXABLE INCOME BY AN AMOUNT OF RS.4 CRORES THROUGH A PAYMENT: FROM THE ENTIRE EXERCISE WHICH CLEARLY IS COLOURABLE DEVISE, A DUBIOUS METHOD OF ENTERING INT O A CONTRACT AND CANCELLATION THEREAFTER TO BOOK A BOGUS LIABILITY O F RS.4 CORRES. CONSIDERING ALL THE ABOVE, I AM OF THE FIRM VIEW TH AT THE ACTION TAKEN BY THE AO IN MAKING FOR DISALLOWANCE OF RS.4 CRORES IS CORRECT AND SAME IS THEREFORE HEREBY CONFIRMED. GROUND NO.4 RAISED BY THE APPELLANT THEREFORE IS DISMISSED. 8. BEFORE US, WHILE IMPUGNING THE ORDERS OF THE REV ENUE AUTHORITIES, THE LD.COUNSEL FOR THE ASSESSEE TOOK US THROUGH WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A) AND AVAILABLE ON PAGE NO.179 OF THE PAPE R BOOK. HE POINTED OUT THAT THE AO HAS MADE REFERENCE TO CERTAIN CIRCUMSTA NTIAL SITUATIONS AVAILABLE IN THIS TRANSACTION IN ORDER TO DOUBT THE GENUINENE SS OF THE CONTRACT AND CONTRACTUAL LIABILITY. HE APPRAISED US AS TO HOW T HIS INFERENCE DRAWN BY THE AO IS NOT SUSTAINABLE IN THE EYES OF LAW. WE WILL BE DEALING EACH OBJECTION AND EXPLANATION OF THE ASSESSEE IN SUBSEQUENT PARAS OF THIS ORDER. 9. THE LD.DR RELIED UPON THE ORDERS OF THE CIT(A) A ND POINTED OUT AS TO HOW ACTION OF THE AO IS JUSTIFIABLE TO IGNORE THIS CONTRACT AND DISALLOWANCE OF THE ALLEGED LOSS TO THE ASSESSEE. 10. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS AND CIRCUMSTANCE PLEADED BY THE ASSESSEE AND CONSIDERED BY THE AO AB OUT THE ALLOWABILITY OR ITA NO.1520/AHD/2013 7 DISALLOWABILTY OF THE CLAIM OF LOSS, WE DEEM IT PER TINENT TO KEEP IN MIND CERTAIN FUNDAMENTAL PROPOSITION OF LAW FOR APPRECIA TING SUCH CONTROVERSY. IT IS PERTINENT TO OBSERVE THAT IN ORDER TO CLAIM EXPE NDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT, ASSESSEE REQUIRES TO FULFILL CERTAIN CONDITIONS VIZ. (A) THERE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUS T NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36, (C) EXPENDITURE MUS T NOT BE IN THE NATURE OF CAPITAL NATURE OR PERSONAL EXPENDITURE OF THE ASSES SEE, AND (D) EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. THE EXPRESSION WHOLLY EM PLOYED IN SECTION 37 REFERS TO QUANTIFICATION OF EXPENDITURE, WHILE, EXP RESSION EXCLUSIVELY REFERS TO MOTIVE, OBJECTS AND PURPOSE OF THE EXPENDITURE. THE LD.COUNSEL FOR THE ASSESSEE HAS MADE REFERENCE TO WRITTEN SUBMISSIONS FILED BEFORE THE LD.CIT(A) AND IN THOSE SUBMISSIONS, A LARGE NUMBER OF DECISIO NS HAVE BEEN REFERRED BY THE ASSESSEE. IN ORDER TO APPRAISE OURSELVES WITH AUTHORITATIVE PRONOUNCEMENTS OF THE HONBLE GUJARAT HIGH COURT AS WELL AS HONBLE DELHI HIGH COURT, PROPOUNDING APPROACH REQUIRES TO BE ADO PTED BY ADJUDICATING AUTHORITY WHILE APPRECIATING CLAIM OF THE ASSESSEE ABOUT THE BUSINESS EXPENDITURE, IT IS IMPORTANT TO MAKE REFERENCE TO T HE DECISIONS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORM ER PVT. LTD. VS. CIT, 129 ITR 105 (GUJ). THE FOLLOWING OBSERVATIONS OF T HE HONBLE COURT ARE WORTH TO NOTE: SO FAR AS THE QUESTIONS OF COMMERCIAL EXPEDIENCY A ND BUSINESS NEED OF AN ORGANIZATION ARE CONCERNED, IT IS NOT THE VIE W POINT OF A REVENUE OFFICER WHICH SHOULD COUNT, BUT IT SHOULD BE THE VI EW OF AN ORDINARY BUSINESSMAN DEALING WITH A SITUATION LIKE THE ONE F ACED BY THE ASSESSEE. 11. IN A SIMILAR CIRCUMSTANCE, THE HONBLE DELHI HI GH COURT HAD AN OCCASION TO EXAMINE ASPECT OF COMMERCIAL EXPEDIENCY CONSIDERED BY A BUSINESSMAN WHILE INCURRING ANY EXPENDITURE. THE H ONBLE DELHI HIGH COURT ITA NO.1520/AHD/2013 8 HAS MADE THE FOLLOWING OBSERVATIONS ON THIS ASPECT IN THE DECISION OF THE CIT VS. DALMIA CEMENT LTD., 254 ITR 377. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRI CAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW THE BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXPENDITURE. THE TERM 'COMMERCIAL EXPEDIENC Y' IS NOT A TERM OF ART. IT MEANS EVERYTHING THAT SERVES TO PROMOTE COM MERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE T EST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINES S THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE (SEE CIT V. WALCHAN D AND CO. (P.) LTD. ; J. K. WOOLLEN MANUFACTURERS V. CIT; ALUMINIU M CORPORATION OF INDIA LTD. V. CIT AND CIT V. PANIPAT WOOLLEN AND GE NERAL MILLS CO. LTD. . BUT IT MUST NOT SUFFER FROM THE VICE OF COLL USIVENESS OR COLOURABLE DEVICES. 12. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE F ACTS OF THE PRESENT CASE. AS OBSERVED EARLIER, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT ON 27.6.2007 WITH JAY CORPORATION FOR CONSTRUCTION OF 100 BUNGAL OWS ON PLOT OF LAND ADMEASURING 8802 SQ.METERS. ACCORDING TO THE ASSES SEE, IT FAILED TO FULFILL THE TERMS AND CONDITIONS OF THIS AGREEMENT, AND THEREFO RE, IN VIEW OF TERMS AND CONDITIONS OF AGREEMENT FOR MAKING PAYMENT, DAMAGES IT HAS PAID A SUM OF RS.4 CRORES TO JAY CORPORATION. IN SUPPORT OF THIS CLAIM, THE ASSESSEE HAS FILED COPY OF THE AGREEMENT DATED 27.6.2007, COPY OF CANC ELLATION AGREEMENT DATED 20.3.2006, CONFIRMATION FROM JAY CORPORATION, DETAI LS OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES TO JAY CORPORATION, COPY OF L EDGER ACFOUNT OF JAY CORPORATION IN THE BOOKS OF THE ASSESSEE HAS BEEN P LACED ON PAGE NO.123N OF THE PAPER BOOK. DETAILS OF PAYMENTS ARE BEING DULY REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. IT HAS ALSO BEEN BROUGHT TO OUR N OTICE THAT MONEY WAS NOT WITHDRAWN FOR A SUBSTANTIAL TIME FROM THE ACCOUNT O F JAY CORPORATION AND IT IS NOT CASE OF THE AO THAT AMOUNTS WERE IMMEDIATELY WI THDRAWN OR TRANSFERRED TO THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE D REW OUR ATTENTION TOWARDS ITA NO.1520/AHD/2013 9 BANK STATEMENT. IN ORDER TO APPRECIATE THIS DOCUME NTS, IT IS PERTINENT TO TAKE NOTE OF THE AGREEMENT DATED 27.6.2007 WHICH IS AVAI LABLE AT PAGE NO.112 OF THE PAPER BOOK. IT READS AS UNDER: AGREEMNT FOR CONSTRUCTION OF BUILDING PARTY OF THE FIRST PART : PROMOTER JAY CONSTRUCITON A PROPRIETORSHIP FIRM THROUGH ITS PROPRIETOR NARESH MUKTILAL SHAH AGED 48 YEARS, BY RELIGION HINDU, OCCUPATION BUSINESS, HAVING ADDRESS AT VARDHMAN NI KHADKI, MANGAL PAREKH NO KHANCHO, SHAHPUR DARWAJA, AHMEDABAD. HEREINAFTER CALLED 'PARTY OF THE FIRST PART' OR]'PROMOTERS ' WHICH EXPRESSION SHALL UN- LESS IT BE REPUGNANT TO THE CONTE XT OR MEANING THEREOF BE DEEMED TO INCLUDE ITS SUC- CESSORS AND ASSIGNS. PARTY OF THE SECOND PART: CONTRACTOR GANESH PLANTATIONS LTD. A COMPANY REGISTERED UNDER REG. NO. U01119GJ1994 PLC023941 DATED 21/12/94 THROUGH ITS AU-THOTIZED SIGNATORY HARSHIT RAJNIKANT SHAH AG4D ADULT, BY RELIGION HINDU, OCCUPATION SERVICE, HAVING ADDRESS AT 1ST FLOOR, SAMUDRA COMPLEX, OFF. C.G.RCAD, ELLISBRIDGE, AHMEDABAD. HEREINAFTER CALLED 'PARTY OF THE SECOND PART' OR 'CONTRACTOR' WHICH ITA NO.1520/AHD/2013 10 EXPRESSION SHALL UNLESS IT BE REPUGNANT TO THE CONTEXT OR MEANING THEREOF BE DEEMED TO INCLUDE ITS SUCCESSORS AND ASSIGNS. WHEREAS, 1) THE PARTY OF THE FIRST PART IS ABSOLUTELY S EIZED AND POSSESSED LAND OF SURVEY NO. / BLOCK NO. 695 HAVING AREA ADME ASURING ABOUT 8802 SQ. MTRS OF VILLAGE SANAND OF TAL. SANAN D OF DIST. AHMEDABAD IN RESPECT TO DEVELOPMENT AGREEMENT DATED 26/04/2007 EXECUTED BY AND BETWEEN THE PARTY OF THE FIRST PART AND THE ORIGINAL OWNER OF THE SAID LAND MORE PARTIC ULARLY DESCRIBED IN THE SCHEDULE WRITTEN HEREUNDER (HEREIN AFTER REFERRED TO AS THE 'SAID PLOT OF LAND'). 2) THE PARTY OF THE FIRST PART ENGAGED IN THE B USINESS OF REAL ESTATE DEVELOPMENT, CONSTRUCTION AND INFRASTRUCTURE DEVELOPMENT. THE PARTY OF THE FIRST PART HAS PROPOS ED RESIDENTIAL BUNGLOW SCHEME (FOR SHORT 'AADITAYA BUN GLOW') OF ON THE SAID PLOT OF LAND, THE PARTY OF THE FIRST PA RT WANTS TO DEVELOP THE ABOVE SAID PLOT OF LAND. PARTY OF THE F IRST PART PROPOSED TO DEVELOP SAID PLOT OF LAND HAVING AREA A DMEASURING ABOUT 8802 SQ. MTRS AND FOR THAT PURPOSE PARTY OF T HE FIRST PART HAS OFFERED TO THE PARTY OF THE SECOND PART TO CONS TRUCT THE ABOVE SAID RESIDENTIAL BUNGLOW SCHEME. KNOWN ASAADITAYA B UNGLOW. 3) THE PARTY OF THE FIRST PART HAS APPOINTED H IREN MEWADA AS THE ARCHITECT AND THE SAID ARCHITECT HAS PREPARED THE P LANS, DRAWINGS AND ELEVATION OF THE SAID PLOT OF LAND AND THE SPECIFICATIONS OF THE WORKS TO BE DONE AND OF THE M ATERIALS. 4) THE PARTY OF THE SECOND PART ENGAGED IN THE BUSINESS OF THE BUILDING CONSTRUCTION AND LAND DEVELOPERS HAS AGREE D TO CONSTRUCT THE SAID PLOT OF THE LAND. NOW IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS: 1. THE PARTY OF THE SECOND PART WILL CONSTRUCT T HE 100 BUNGLOWS OUT OF THE SAID PLOT OF THE LAND IN CONFORMITY WITH THE PLANS, ITA NO.1520/AHD/2013 11 DRAWINGS, SPECIFICATIONS AND ELEVATIONS PREPARED BY THE ARCHITECT WITH THE MATERIAL OF BEST QUALITY. 2. THE PARTY OF THE SECOND PART HEREBY UNDERTAKE TO COMMENCE THE CONSTRUCTION WITHIN 30 DAYS OF APPROVAL OF DEVELOPM ENT PLANS BY APPROPRIATE AUTHORITY ANA1 COMPLETE THE CONSTRUC TION ON OR BEFORE THE EXPIRY OF 24 MONTH'S FROM THE DATE OF EX ECUTION OF THESE PRESENTS IN ACCORDANCE WITH THE PLANS DULY AP PROVED AND SANCTIONED BY THE APPROPRIATE AUTHORITY. 3. THE PARTY OF THE FIRST PART WILL PAY TO THE P ARTY OF THE SECOND PART A SUM OF RS. 20,45,72,000/- SAY RUPEES TWENTY CRORES FORTY FIVE LACS SEVENTY TWO THOUSAND ONLY AS THE TOTAL CO NSTRUCTION COST OUT OF WHICH THE PARTY OF THE FIRST PART SHALL PAY TO THE PARTY OF THE SECOND PART SUCH! SUM AS MAY BE SUFFICIENT TO D EFRAY THE EXPENSES INCURRED BY THE PARTY OF THE SECOND PART I N RESPECT OF THE WORK CHECKED AND CERTIFIED BY THE QUALIFIED ENG INEER OF THE PARTY OF THE FIRST PART. 4. AFTER THE COMPLETION OF THE CONSTRUCTION WORK OF THE INTENDED BUILDINGS ACCORDING TO THE CONTACT, THE PARTY OF TH E SECOND PART SHALL HAVE REMOVED AND CLEARED ALL SCAFFOLDING, UNU SED MATERIAL AND RUBBISH FROM THE LAND AND PREMISES AT THEIR OWN COST. 5. THE PARTY OF THE FIRST PART SHALL ALLOW FREE INGRESS TO AND EGRESS FROM THE PREMISES TO THE PARTY OF THE SECOND PART, SERVANTS, EMPLOYEES, SUB-CONTRACTORS AND ALL OTHER PERSONS, W HO ARE NECESSARY IN CONNECTION WITH THE CARRYING OUT OF TH E WORKS UNDER THE AGREEMENT. 6. THE PARTY OF THE SECOND PART SHALL INDEMNIFY THE PARTY OF THE FIRST PART IN RESPECT OF ALL CLAIMS, DAMAGES OR EXP ENSES PAYABLE IN CONSEQUENCE TO ANY INJURY TO ANY EMPLOYEE, WORKM AN, NOMINEE, INVITEE WHILE IN OR UPON THE SAID PREMISES . THE PARTY OF THE SECOND PART SHALL ALSO BE RESPONSIBLE FOR ANY D AMAGE TO BUILDINGS, WHETHER IMMEDIATELY ADJACENT OR OTHERWIS E AND ANY DAMAGE TO BUILDINGS, WHETHER IMMEDIATELY ADJACENT O R OTHERWISE. 7. IF THE PARTY OF THE SECOND PART ABANDON THE C ONTRACT OR FAIL TO COMMENCE THE WORK OR SUSPEND THE PROGRESS OF THE WO RK FOR 30 DAYS WITHOUT ANY LAWFUL EXCUSE UNDER THESE CONDITIO NS, OR FALL TO ITA NO.1520/AHD/2013 12 PROCEED WITH THE WORKS WITH SUCH DUE DILIGENCE AND FAIL TO MAKE SUCH DUE PROGRESS AS WOULD ENABLE THE WORKS TO BE C OMPLETED WITHIN THE TIME AGREED UPON THE PARTY OF THE SECOND PART HAS TO PAY COMPENSATION/DAMAGES OF RS.4,00,00,000/- SAY RU PEES FOUR CRORES ONLY TO THE PARTY OF THE FIRST PART AND CANC ELLED THE SAID AGREEMENT 8. THE PARTY OF THE SECOND PART SHALL BE BOUND T O APPOINT AN ENGINEER COMPETENT TO RECEIVE INSTRUCTIONS FROM THE ARCHITECT FROM TIME TO TIME, ON BEHALF OF THE PARTY OF THE SE COND PART AT ALL REASONABLE HOURS AND ALL DIRECTIONS GIVEN TO HIM BY THE ARCHITECT SHALL BE DEEMED TO HAVE BEEN GIVEN TO THE PARTY OF THE SECOND PART. 9. THE PARTY OF THE FIRST PART OR HIS REPRESENTA TIVE SHALL BE ENTITLED TO INSPECT THE PROGRESS OF THE CONSTRUCTION WORK AN D MATERIALS USED FOR THE CONSTRUCTION AND THEY SHALL BE ENTITLE D TO POINT OUT TO THE ARCHITECT ANY DEFECTS IN THE CONSTRUCTION WORK, QUALITY OF WORKMANSHIP OR MATERIALS USED WHEN SUCH DEFECTIVE W ORK IS IN PROGRESS OR BEING EXECUTED OR SUCH MATERIAL IS BROU GHT ON SITE. IF THE ARCHITECT IS SATISFIED ABOUT THE OBJECTIONS RAI SED, THE SAID ARCHITECT SHALL CERTIFY THE SAME IN WRITING AND DIR ECT THE PARTY OF THE SECOND PART TO RECTIFY AT THEIR OWN COST THE DE FECT IN THE SAID CONSTRUCTION WORK OR REMOVE SUCH DEFECTIVE MATERIAL S AND THE SAME SHALL BE RECTIFIED OR REMOVED BY THE PARTY OF THE SECOND PART AS DIRECTIVES. IN WITNESS WHEREOF THE PATTIES HAVE SET AND SUBSCRI BED THEIR HANDS AND SEAL ON THE DAY 27 OF JUNE 2007 AT AHME DABAD. 13. CONTRARY TO THE ABOVE EVIDENCE, CONCLUSIONS OF THE AO ARE BASED ON INFERENCE DRAWN FROM THE CIRCUMSTANCES. IN THE REM AND REPORT, THE LD.AO HAS CONSIDERED IT MORE ELABORATELY AND OBJECTIVELY. HE FORMULATED THE FOLLOWING FOUR QUESTIONS: (A) WHETHER THERE IS ANY GENUINE AGREEMENT E NTERED INTO WITH M/S. JAY CONSTRUCTION? (B) WHETHER M/S. JAY CONSTRUCTION IS GENUINE ENTITY AND HAS THE CAPACITY TO ENGAGE A CONTRACTOR LIKE GANESH PLANTAT ION LIMITED? ITA NO.1520/AHD/2013 13 (C) WHETHER THE SO CALLED AGREEMENT IS ENFORCE ABLE UNDER THE LAW? (D) IF THE AGREEMENT IS ENFORCEABLE UNDER THE LA W, WHETHER THE LIABILITY OF COMPENSATION/ DAMAGES IS ACCRUED DURIN G THE YEAR UNDER CONSIDERATION. 14. LET US CONSIDER DISCUSSION MADE BY THE AO UNDER EACH QUESTION FORMULATED BY HIM ALONG WITH FINDING RECORDED BY TH E LD.CIT(A) EXTRACTED SUPRA. WHILE APPRECIATING THE GENUINENESS OF THE A GREEMENT, THE LD.AO IN THE REMAND REPORT HAS DEVOTED MAJOR TIME ABOUT EXPLAINI NG NATURE OF CONTRACT, AND THEREAFTER OBSERVED THAT THE ASSESSEE FAILED TO FURNISH EVIDENCE AS TO WHEN IT RECEIVED APPROVED FOR ALLEGED CONSTRUCTION OF 10 0 BUNGALOWS AS PER CLAUSE (2) OF THE SAID AGREEMENT. THE LD.CIT(A) HAS ALSO CONCURRED WITH THESE CIRCUMSTANCES. BUT IF CONTRACT IS BEING PERUSED, T HEN IT WILL BE SEEN THAT IT WAS NOT SPECIFICALLY SPECIFIED THAT IT IS THE RESPONSIB ILITY OF JAY CORPORATION TO PROVIDE APPROVED PLAN. IN THE WRITTEN SUBMISSIONS BEFORE THE LD.CIT(A), THE ASSESSEE HAS SPECIFICALLY PLEADED THAT IT WAS THE D UTY OF THE ASSESSEE TO GET APPROVAL AND WHEN IT FAILED TO GET THE APPROVAL, IT REALIZED THAT THIS CONTRACT CANNOT BE EXECUTED. ON PAGE NO.183 OF THE REMAND R EPORT IN THE WRITTEN SUBMISSIONS THE ASSESSEE HAS SPECIFICALLY PLEADED T HAT HOWEVER, THE APPELLANT COMPANY COULD NOT GET THE APPROVAL WHICH WAS THE PRIMARY AND FIRST STEP AND HENCE THE AGREEMENT WAS TERMINATED. . NOW IT IS TO BE APPRECIATED AS TO HOW TWO BUSINESS ENTITIES HAVE MA DE DISCUSSION ABOUT THE DEVELOPMENT OF THE PROJECT. WHAT ARE THEIR OBLIGAT IONS AND HOW THE OBJECTS WOULD BE ACHIEVED. THE LD.CIT(A) HAS OBSERVED THAT THE LAND ON WHICH THE ALLEGED BUNGALOWS ARE TO BE CONSTRUCTED WAS AN AGRI CULTURE LAND AND NONE COULD COMMENCE CONSTRUCTION ON AGRICULTURE LAND. S IMILARLY, THE LD.CIT(A) HAS OBSERVED THAT LAND BEARING SURVEY NO.695 WAS NO T OWNED BY M/S.JAY CORPORATION. IT APPEARS THAT THESE TWO FACTS WEIGH ED IN THE MIND OF THE LD.REVENUE AUTHORITIES TO DOUBT CLAIM OF THE ASSESS EE. THOUGH THE ISSUE IS NOT ITA NO.1520/AHD/2013 14 DIRECTLY LINKED WITH THE CONTROVERSY IN HAND, BUT I T HAS SOME LINKS. SECTION 80IB(10) WAS INCORPORATED IN THE STATUTE WITH AN IN TENTION TO GIVE AND ENCOURAGE TO PROVIDE HOUSING UNITS IN URBAN AND SEM I-URBAN AREAS, WHERE THERE IS AN ACUTE SHORTAGE OF HOUSING UNITS, PARTIC ULARLY, FOR MIDDLE INCOME GROUP CITIZENS. TO ENSURE THAT BENEFIT REACHES TO THE PEOPLE, CERTAIN CONDITIONS WERE PROVIDED IN SUB-SECTION (10). WE H AVE EXPERIENCE, BASED ON LARGE NUMBER OF DECISIONS, AT THE END OF THE HONBL E GUJARAT HIGH COURT THAT THESE BENEFITS WERE DENIED TO THE DEVELOPERS ON THE CONDITIONS THAT APPROVAL WAS NOT IN THEIR NAMES, LAND WAS NOT OWNED BY THEM. THE HONBLE GUJARAT HIGH COURT HAS CONSIDERED AN IMPORTANT QUESTION OF LAW IN BUNCH OF APPEALS ALONG WITH THE CASE OF RADHE DEVELOPERS REPORTED IN 351 ITR 403. THE QUESTION FRAMED BY THE HONBLE HIGH COURT READS AS UNDER: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN LAW IN ALLOWING DED UCTION U/S.80IB(10) R.W.S. 80IB(1) TO THE ASSESSEE WHEN THE APPROVAL BY THE LOCAL AUTHORITY AS WELL AS COMPLETION CERTIFICATE WAS NOT GRANTED T O THE ASSESSEE BUT TO THE LANDOWNER AND THE RIGHTS AND THE OBLIGATIONS UN DER THE SAID APPROVAL WERE NOT TRANSFERABLE, AND WHEN THE TRANSF ER OF DWELLING UNITS IN FAVOUR OF THE END-USERS WAS MADE BY THE LANDOWNE R AND NOT BY THE ASSESSEE?'' 15. THE HONBLE HIGH COURT HAS ULTIMATELY HELD THAT FOR DEVELOPING HOUSING PROJECT, IT IS NOT NECESSARY THAT THE ASSES SEE TO BE OWNER OF THE LAND. SIMILARLY, IT WAS NOT NECESSARY THAT APPROVAL SHOUL D BE IN THE NAME OF ASSESSEE. IF ASSESSEE HAS BORNE RISK AND REWARD OF THE CONTRACT, THEN, IT WILL BE A PROJECT OF THE ASSESSEE. 16. IN THE VERY CONTENTS OF THE CONTRACT AGREEMENT ENTERED INTO WITH ASSESSEE AND JAY CORPORATION IT HAS NEVER ALLEGED T HAT IT WAS OWNER OF THE LAND BEARING SURVEY NO.695. M/S.JAY CORPORATION HAS ALL EGED THAT IT IS SEIZED OF ITA NO.1520/AHD/2013 15 DEVELOPMENT RIGHT AND POSSESSION OF THE LAND. MUTU AL UNDERSTANDING BETWEEN THE ASSESSEE AND JAY CORPORATION WAS THAT THE ASSES SEE WOULD GET APPROVAL AND COMMENCE CONSTRUCTION WORK WITHIN 30 DAYS FROM THE APPROVAL MADE, AND JAY CORPORATION WILL PAY A SUM OF RS.20,45,72,0 00/- TOWARDS CONSTRUCTION COST. IF THE ASSESSEE FAILED TO GET CONSTRUCTION C OMMENCED, THEN IT WILL HAVE TO PAY A SUM OF RS.4.00 CRORES AS COMPENSATION/DAMAGE. THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING DISTINCTION BETWEEN HOLDI NG OF DEVELOPMENT RIGHT ALONGWITH POSSESSION VIS--VIS OWNERSHIP OF THE LAN D. IT APPEARS THAT IN THE FINDING EXTRACTED SUPRA, THE LD.REVENUE AUTHORITIES HAS INTERMINGLED THESE TWO DIFFERENT RIGHTS AND MADE OBSERVATION THAT CLAIM OF THE FIRST PARTY I.E. JAY CORPORATION ABOUT THE POSSESSION AND SEIZURE OF LAN D IS FACTUALLY INCORRECT. A PERSON CAN BE IN POSSESSION OF A LAND AND CAN BE HA VING DEVELOPMENT RIGHT WITHOUT THERE BEING OWNERSHIP. THUS, FACTS HAVE NO T BEEN APPRECIATED IN RIGHT PERSPECTIVE BY THE LD.REVENUE AUTHORITIES. 17. THE NEXT OBJECTION RAISED BY THE REVENUE AUTHOR ITIES IS ABOUT MANNER IN WHICH AGREEMENT WAS EXECUTED. ACCORDING TO THEM, I T WAS NOT REGISTERED OR NOTARIZED. STAMP PAPER FOR EXECUTION OF THE AGREEM ENT AND CANCELLATION ARE IN CONTINUOUS SERIAL NUMBER EXHIBITING THE FACT THAT T RANSACTION WAS ONLY ON PAPER AND DEVISED TO TAKE BENEFIT TO BOOK THE LOSS. THIS IS AN INFERENCE BASED UPON AN ANGLE WITH WHICH AN ADJUDICATING AUTHORITY APPROACHES THE CONTROVERSY. ACCORDING TO THE ASSESSEE, IT WAS A C ONTRACT DULY ENTERED BETWEEN TWO COMPETENT ENTITIES AS PER SECTION 46 OF THE COMPANIES ACT, 1956, WHICH PROVIDES A FORM OF CONTRACT ON BEHALF OF THE COMPANY. THERE IS NO LAPSE COMMITTED BY THE PARTIES. THERE IS NO VIOLAT ION UNDER THE INDIAN CONTRACT ACT ABOUT THE TERMS AND CONDITIONS AND CON SIDERATION AND OTHERWISE. NOW EVEN IT IS NOT ON STAMP PAPER AND EXECUTED ON S IMPLE PAPER WITHOUT ANY NOTARIZATION, IF PARTY TO THE CONTRACT DID NOT DISP UTE IT, HOW THIS CONTRACT CAN BE ITA NO.1520/AHD/2013 16 IGNORED ? THE LD.AO CANNOT DOUBT A CONTRACT ON THE BASIS OF ITS FORMATION. THE LD.CIT(A) HAS ALSO RAISED ISSUES REGARDING WHO HAS APPLIED FOR CHANGE OF LAND USER CERTIFICATE; WHO HAS APPLIED FOR PLAN ETC . NO DOUBT THE CONTRACT DOES NOT SPELL THIS ASPECT. IT TALKS ABOUT PLAN REQUIRE D TO BE PREPARED BY AN ARCHITECT. 18. NEXT OBJECTION GIVEN BY THE AO IS THAT SHRI N.M . SHAH COULD NOT APPEAR BEFORE HIM FOR EXAMINATION. IT IS PERTINENT TO NOTE THAT NOTICE UNDER SECTION 143(2) WAS ISSUED UPON THE ASSESSEE ON 25.9 .2009 VIDE WHICH AN OPPORTUNITY WAS GIVEN TO SUBMIT ANY DETAILS IN SUPP ORT OF RETURN. ASSESSMENT PROCEEDINGS REMAINED DORMANT UPTO JUNE, 2010 WHEN I NCUMBENT IN THE SEAT OF THE AO CHANGED AND NEW INCUMBENT CAME. HE AGAIN IS SUED NOTICED UNDER SECTION 143(2). PROCEEDINGS HAVE STARTED AND THE A SSESSEE HAS SUBMITTED CERTAIN DETAILS ON 12.7.2010. WITH REGARD TO THE P RESENT ISSUE, THE AO HAD RAISED SPECIFIC QUERY VIDE LETTER DATED 5.10.2010. HE COMPLETED THE ASSESSMENT ON 22.12.2010. DURING THIS PERIOD, HE I SSUED A NOTICE TO THE PROPRIETOR OF JAY CORPORATION AND SUMMONS UNDER SEC TION 131 OF THE INCOME TAX ACT. THE PROPRIETOR HAS ALLEGED THAT HE COULD NOT APPEAR ON 22.12.2010 ON ACCOUNT OF HIS PRE-OCCUPATION AND NOT KEEPING GO OD HEALTH, BUT HE APPEARED ON 23.12.2000 AND THE AO REFUSED TO EXAMIN E HIM. HIS AFFIDAVIT DATED 23.12.2010 HAS BEEN PLACED ON RECORD ALONG WI TH THE LETTER WRITTEN TO AO. THE AFFIDAVIT READS AS UNDER: AFFIDAVIT I, NARESH MUKTILAL SHAH, AGED ABOUT 51 YEARS, HINDU BY RELIGION, OCCUPATION BUSINESS AND HAVING ADDRESS AT VARDHMAN NI KHADKI, MANGAL PAREKH NO KHANCHO, SHAHPUR DARWAJA, AHMEDABA D-380001 DO HEREBY STATE ON OATH THAT - 1) I AM A PROPRIETOR OF A FIRM KNOWN AS JAY CONST RUCTION. 2) MY FIRM HAS ENTERED INTO AN AGREEMENT FOR CONS TRUCTION OF BUILDING IN THE YEAR 2007 WITH A COMPANY KNOWN AS GANESH PLANTATIONS LTD ITA NO.1520/AHD/2013 17 HAVING ITS REGISTERED OFFICE AT 1ST FLOOR, SAMUDRA COMPLEX, OFF:C.G.ROAD, AHMEDABAD. 3) THE SAID COMPANY COULD NOT START THE CONSTRUCT ION AND THEREFORE IN 2008 WE ENTERED INTO AN AGREEMENT FOR CANCELLATION OF THE EARLIER AGREEMENT. 4) THERE WAS A SCRUTINY ASSESSMENT OF GANESH PLAN TATIONS LTD FOR THE ASSESSMENT YEAR 2008-09 UNDER INCOME TAX ACT 1961. THE SAID TRANSACTIONS WERE SCRUTINED BY THE ASSESSING OFFICE R MR. R.R.NAIR, INCOME TAX OFFICER, WARD 4(1), AHMEDABAD. FROM MY B EHALF I SUBMITTED TWO WRITTEN SUBMISSIONS. 5) HOWEVER THE ASSESSING OFFICER ISSUED A NOTICE U/S 133(6) OF THE I.T. ACT 1961 AND DIRECTED ME TO APPEAR BEFORE HIM IN NO VEMBER/DECEMBER 2010. DUE TO SEVERAL REASONS LIKE MY TRAVELLING AND ILLNESS I COULD NOT APPEAR BEFORE THE ASSESSING OFFICER. HOWEVER EVERY TIME THROUGH MY AUTHORIZED REPRESENTATIVE I OBTAINED AN ADJOURNMENT . 6) SUBSEQUENTLY GANESH PLANTATIONS LTD WERE DIREC TED BY THE ASSESSING OFFICER TO PRODUCE ME FOR MY STATEMENT. T HE LAST DATE GIVEN WAS 22ND DECEMBER,2010. DUE TO MY ILLNESS, I COULD NOT APPEAR BEFORE THE ASSESSING OFFICER. 7) HOWEVER I APPEARED BEFORE HIM ON 23RD DECEMBER 2010. BUT THE ASSESSING OFFICER REFUSED TO TAKE MY STATEMENT. I H EREBY STATE AND CONFIRM THAT I AM AVAILABLE FOR ANY TYPE OF QUESTIO NING IF REQUIRED BY THE ASSESSING OFFICER. FOR, JAY CONSTRUCTION STATED ON OATH. PROPRIETOR SD/- (NARESH MUKTILAL SHAH) PLACE: AHMEDABAD DATE :23-12-2010. 19. ON AN ANALYSIS OF THESE DETAILS, WE ARE OF THE VIEW THAT THOUGH THE LD.AO HAS POSED CERTAIN QUESTIONS ABOUT DUTY OF PAR TIES TO THE AGREEMENT FOR GETTING APPROVAL FROM COMPETENT AUTHORITY FOR CONST RUCTIONS OF THE BUNGALOWS, THESE ARE PERIPHERAL CIRCUMSTANCES WHICH HAS CREATE D A SUSPICION, BUT WE HAVE ITA NO.1520/AHD/2013 18 TO APPRECIATE WHAT WOULD HAVE OPERATED IN THE MINDS OF TWO BUSINESSMEN EXPLORING POSSIBILITIES OF BUSINESS WHILE ENTERING INTO TRANSACTION. THE APPROACH OF THE REVENUE AUTHORITIES IS SUCH THAT EV ERY BUSINESS VENTURE WOULD ONLY GIVE PROFIT. WITH THIS ANGLE, IF A TRANSACTIO N IS BEING APPRECIATED, THEN THE CIRCUMSTANCES AND QUESTIONS WOULD ONLY GIVE RIS E TO SUSPICION. ON THE OTHER HAND, STAND OF THE ASSESSEE AS A BUSINESSMAN IS THAT IN SUCH TYPE OF PROJECTS WHERE EVERYTHING WAS DEPENDING ON GETTING APPROVAL FROM THE GOVERNMENT NOTHING CONCRETE COULD BE ANTICIPATED. TO OUR MIND, IT IS ONLY DIFFERENCE OF OPINION IN APPRECIATING A TRANSACTION . AFTER LOOKING INTO THE EXPLANATION OF THE ASSESSEE WITH ALL OTHER ATTENDIN G CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE HAD ENTERED INTO AN AGRE EMENT WHICH WAS A BUSINESS VENTURE AND SUFFERED LOSS. IT HAS MADE PAYMENT OF CONTRACTUAL LIABILITY. MONEY HAS BEEN PAID THROUGH ACCOUNT PAYEE CHEQUE AN D IT DID NOT RETURN TO THE ASSESSEE AS POINTED OUT BY THE LD.COUNSEL FOR T HE ASSESSEE. IN SUCH SITUATION, THE AO WAS NOT JUSTIFIED TO DISALLOW CLA IM OF THE ASSESSEE. WE ALLOW GROUNDS OF APPEAL OF THE ASSESSEE AND DELETE THE DI SALLOWANCE. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 6 TH DECEMBER, 2016 AT AHMEDABAD. SD/- SD/- ( MANISH BORAD ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 06/12/2016