M/s. Kal Shelters Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1522/PUN/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9483 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE
• Keywords: Business expenditure; Earning of tax free income; Additional evidence
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1522 /P U N/201 4 / ASSESSMENT YEAR : 20 10 - 11 M/S. KUNAL SHELTERS PVT. LTD., KUNALHOUSE, OPP KAMALA NEHRU PARK, SHIVAJINAGAR, PUNE 411004 . / APPELLANT PAN: AA ACK8711F VS. THE DY. COMMISSIONER OF INCOME TAX, CI RCLE 11(1), PUNE . / RESPONDENT / APPELLANT BY : S /S HRI NIKHIL PATHAK AND SUHAS BORA / RESPONDENT BY : S HRI ANIL KUMAR CHAWARE / DATE OF HEARING : 1 7 .0 5 . 2017 / DATE OF PRONOUNCEMENT: 26 . 0 5 .201 7 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - I, PUNE , DATED 0 3.03.2014 RELATING TO ASSESSMENT YEAR 20 10 - 11 AGAINST ORDER PASSED UNDER SECTION 143( 3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX APPEAL (1), PUNE HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT 1 961, AMOUNTING TO RS 41,04,507/ - FROM EXPENSES PROPORTIONATELY, WITHOUT APPRECIATING THE FACTS THAT THERE IS NO NEXUS BETWEEN EXPENDITURE INCURRED AND EXEMPTED INCOME EARNED BY THE AS S ESSEE COMPANY. ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 2 2. THE LEARNED COMMISSIONER OF INCOME TAX APPEAL (1), P UNE HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF COMPENSATION AMOUNTING TO RS . 60,00,000/ - PAID BY THE ASSESSEE COMPANY TOWARDS CANCELLATION OF BUSINESS DEED IN THE INTEREST OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE AND BASED ON MISI NTERPRETATION OF PROVISIONS OF INCOME TAX ACT 1961. 3. THE LEARNED COMMISSIONER OF INCOME TAX APPEAL (1), PUNE HAS ALSO ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD AMOUNTS WRITTEN OFF AMOUNTING TO RS . 24,17,922/ - BASED ON MISINTERPRETATION OF PROVISIONS OF INCOME TAX ACT, 1961. 4. WITHOUT PREJUDICE THE GROUND NO 1, COMMISSIONER OF INCOME TAX APPEAL (1). PUNE IS FARTHER ERRED IN NOT CONSIDERING ASSESEE'S GROUND THAT THE DISALLOWANCE IS NOT WORKED OUT AS PER THE PROVISION OF SECTION 14A OF THE INCOME TAX ACT, 1961. 5. THE APPELLANT PRAYS FOR ADMISSION OF ADDITIONAL GROUNDS /ADDITIONAL EVIDENCE IF ANY REQUIRED TO SUPPORT THE CASE. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE VIDE GROUND OF APPEAL NO.1 IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF BUILDER AND PROMOTER AND WAS ALSO PARTNER IN VARIOUS PARTNERSHIP FIRMS WHICH WERE ENGAGED IN THE BUSINESS OF BUILDER AND PROMOTERS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD EARNED EXEMPT INCOME OF RS.13,700/ - FROM DIVIDEND AND RS.1,78,65,941/ - ON ACCOUNT OF SHARE OF PROFIT FROM INVESTMENTS IN THE PARTNERSHIP FIRM. THE ASSESSEE HAD NOT DEBITED ANY EXPENDITURE BEING ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD AND THE REPLY OF ASSESSEE IS INCORPORATED UNDER PARA 4.1 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE FOR THE INSTANT ASSESSMENT YEAR , THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) ARE APPLICABLE, THEN THE DISALLOWANCE IS TO BE WORKED OUT ACCORDINGLY. THE ASSESSING OFFICER DISALLOWED SUM OF RS.41,07,504/ - RELATABLE TO IN VESTMENTS ON ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 3 WHICH EXEMPT INCOME WAS EARNED AND % OF AVERAGE VALUE OF INVESTMENTS FOR THE EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER AND THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 6. THE LE ARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(II) OF THE RULES , THE ASSESSEE HAD SUFFICIENT RESERVES AND SURPLUS TO THE EXTENT OF RS.29.22 CRORES AND ONLY LOAN OF RS.3.23 CRORE S AS AGAINST INVESTMENT MADE BY THE ASSESSEE IN THE PARTNERSHIP FIRMS. HE FURTHER POINTED OUT THAT THE TOTAL INTEREST EXPENDITURE WAS TO THE TUNE OF RS.34.84 LAKHS AND THE ASSESSEE HAD EARNED INTEREST FROM THE PARTNERSHIP FIRMS TO THE EXTENT OF RS.51.44 L AKHS AND SHARE OF PROFIT TO THE TUNE OF RS.1.78 CRORES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF ITO VS. KARNAVATI PETROCHEM PVT. LTD. IN ITA NO.2228/AH D/2012, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 05.07.2013 FOR THE PROPOSITION THAT NO DISALLOWANCE OUT OF INTEREST IS TO BE MADE WHERE AFTER ADJUSTING THE INTEREST EXPENDITURE WITH THE INTEREST INCOME EARNED, THERE WAS NET POSITIVE INTEREST INCOM E. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A) . 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES BY WAY OF GROUND OF APPEAL NO.1 IS AGAINST THE DISALLOWANCE MAD E ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 4 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. ADMITTEDLY, THE PROVISIONS OF RULE 8D OF THE RULES ARE APPLICABLE TO THE INSTANT ASSESSMENT YEAR. THE FIRST QUESTION WHICH ARISES IS WHETHER IN VIEW OF THE FACT THAT WHERE THE ASSESSEE HAD RE CEIVED INTEREST INCOME OF RS.51.44 LAKHS AND HAD INCURRED INTEREST EXPENDITURE OF RS.34.84 LAKHS AND IN THE BALANCE, IT HAD POSITIVE INTEREST INCOME, CAN ANY DISALLOWANCE BE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(II) OF THE RULES. THE SECOND ASPECT OF THE ISSUE IS THE INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE BY WAY OF RESERVES AND SURPLUS AND OTHER ADVANCES WHICH ARE AVAILABLE FOR MAKING THE INTEREST FREE ADVANCES. WITHOUT GOING INTO THE ASPECT OF INTEREST FREE ADVANCES AVAILABLE WITH T HE ASSESSEE, WE HOLD THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS TO BE MADE SINCE THE ASSESSEE HAS NET POSITIVE INTEREST INCOME I.E. AFTER ADJUSTING INTEREST EXPENDITURE OF RS.34.84 LAKHS AGAINST INTEREST INCOME OF RS.51.44 LAKHS , THERE IS N O EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, THERE IS NO MERIT IN MAKING ANY DISALLOWANCE UNDER RULE 8D(II) OF THE RULES. 9. THE OTHER DISALLOWANCE IS IN RESPECT OF EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME WHICH HAS BEEN WO RKED OUT AS PER RULE 8D(III) OF THE RULES @ % OF AVERAGE INVESTMENTS. THE SAID DISALLOWANCE IS MERITED IN THE HANDS OF ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FAILED TO POINT OUT ANY ERROR IN COMPUTATION OF SAID DISALLOWANCE AND HENCE, WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD. THE GROUND OF APPEAL NO.1 IS THUS, PARTLY ALLOWED. ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 5 10. NOW, COMING TO THE SECOND ISSUE RAISED BY THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.2 I.E. DISALLOWANCE OF COMPENSATION PAID AT RS.60 LAKHS TOWARDS CANCELLATION OF BUSINESS DE AL . THE ISSUE IN GROUND OF APPEAL NO.3 IS LINKED TO GROUND OF APPEAL NO.2 WHICH IS AGAINST DISALLOWANCE OF EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD AMOUNTS WRITTEN OFF AMOUNTING TO RS.24,17,922/ - . 11 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT, THE ASSESSEE HAD ENTERED INTO A JOINT VENTURE AGREEMENT FOR DEVELOPMENT WITH SHRI KISHOR KACHI IN 2008. HOWEVER, THE ASSESSEE WAS UNABLE TO EXECUTE THE AGREEMENT WITHIN TIME LIMIT ALLOWED IN JOINT VENTURE AGRE EMENT FOR DEVELOPMENT AND SINCE THERE WAS NO POSSIBILITY OF COMPLETING THE DEAL IN THE NEAR FUTURE, THEREFORE THE DEVELOPMENT AGREEMENT WAS CANCELLED AND COMPENSATION OF RS.60 LAKHS WAS PAID TO SHRI KISHOR KACHI FOR CANCELLATION OF AGREEMENT. THE ASSESSIN G OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS AND JUSTIFICATION FOR CLAIM OF COMPENSATION. THE ASSESSEE FILED THE COPY OF JOINT VENTURE AGREEMENT AND POINTED OUT THAT TWO SEPARATE JOINT VENTURE AGREEMENTS WERE EXECUTED BETWEEN SHRI KISHOR KACHI AND THE ASSESSEE FOR DEVELOPMENT OF LAND AT KIWALE AND MUNDHWA. HOWEVER, THE CONDITIONS STIPULATED IN JOINT VENTURE AGREEMENT COULD NOT BE FULFILLED AND AS THERE WAS NO POSSIBILITY TO FULFILL THE CONDITIONS IN THE NEAR FUTURE, AS PER MUTUAL AGREEMENT BETWEEN THE PARTIES, THE SAID ARRANGEMENT WAS CANCELLED BY PAYING COMPENSATION IN TERMS OF JV AGREEMENT. THE ASSESSEE WAS TO PAY AN ADVANCE OF RS.3.25 CRORES FOR MUNDHWA LAND AND RS.3.75 CRORES FOR KIWALE LAND AND DEVELOP THE LAND . HOWEVER, DUE TO CASH CRUNCH, T HE ASSESSEE WAS UNABLE TO COMPLY WITH THE SAID CONDITIONS OF JV AND AGREEMENT WAS CANCELLED WITH THE UNDERSTANDING THAT COMPENSATION OF RS.60 LAKHS WOULD BE PAID TO SHRI KISHOR ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 6 KACHI. THE ASSESSING OFFICER NOTED THAT AS PER THE TERMS AND CONDITIONS OF JV AGREEMENT UNDER PARA 6A, THE ASSESSEE WAS REQUIRED TO COMPLETE THE DEVELOPMENT WITHIN FIVE YEARS I.E. BEFORE 14.05.2013. FURTHER, IT IS ALSO MENTIONED IN THE AGREEMENT THAT IN CASE MAJOR DEVELOPMENT WORK REMAINS UNFINISHED, THEN THE ASSESSEE HAS TO PAY TH E COMPENSATION TO SHRI KISHOR KACHI AS PER DISCUSSION. THE ASSESSING OFFICER NOTED THAT WHERE THE ASSESSEE HAD AGREED TO COMPLETE THE DEVELOPMENT IN FIVE YEARS AND THE ASSESSEE DECIDED NOT TO COMPLETE THE SAME AND CANCELLED THE AGREEMENT AFTER LESS THAN TW O YEARS ONLY, THEN THE COMPENSATION AMOUNT PAID COULD NOT BE ACCEPTED AS EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, IN VIEW OF EXPLANATION UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER THUS, DISALLOWED THE CLAIM OF ASSESSEE OF EXPENDITURE OF RS.60 LAKHS. FURTHER, THE ASSESSEE HAD DEBITED SUM OF RS.24,17,922/ - UNDER THE HEAD SUNDRY AMOUNTS WRITTEN OFF. THE ASSESSEE EXPLAINED THAT THE SAID AMOUNT WAS INCURRED BY THE ASSESSEE TOWARDS REGISTRATION AND OTHER EXPENSES OF DEVELOPM ENT AGREEMENT WHICH WAS CANCELLED AND HENCE, THE AMOUNTS WERE WRITTEN OFF. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF ASSESSEE AS THE PLEA OF ASSESSEE FOR CANCELLATION OF AGREEMENT WAS NOT ACCEPTED. 12. THE CIT(A) HAS UPHELD BOTH THE ADDITIONS MADE IN THE HANDS OF ASSESSEE HOLDING THAT WHERE THE AGREEMENTS WERE CANCELLED BY THE ASSESSEE WITHIN PERIOD OF LESS THAN ONE YEAR FROM THE DATE OF THEIR EXECUTION THOUGH, IT HAD TIME UPTO FIVE YEAR FOR COMPLETION OF DEVELOPMENT, THEN IT CLEARLY SHOWS THAT THE AGREEMENT WAS CANCELLED PREDOMINANTLY AT THE INSTANCE OF ASSESSEE AND NOT FOR BREACH OF PERFORMANCE OF TERMS OF JV AGREEMENT. ACCORDINGLY, HE HELD THAT THE COMPENSATION WAS PAID FOR FAILURE ON THE PART OF ASSESSEE TO ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 7 COMPLETE THE TRANSACTION AND NOT ITS FAILURE TO COMPLETE THE DEVELOPMENT WORK. THEREFORE, IT CANNOT BE SAID THAT COMPENSATION IN QUESTION WAS PAID IN TERMS OF CLAUSES OF JV AGREEMENT. THE CIT(A) ALSO UPHELD THE ORDER OF ASSESSING OFFICER IN DISALLOWING EXPENDITURE WRITTEN OFF OF RS.24,17,92 2/ - . 13. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 14. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BECAUSE OF RECESSION IN THE MARKET, THE ASSESSEE ASKED SHRI KISHOR KACHI TO RETURN THE DEPOSIT, WHO IN TURN, DEMAN DED COMPENSATION. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM HOLDING IT TO BE NOT BUSINESS EXPENDITURE. HOWEVER, THE CIT(A) HOLDS THAT IT RELATES TO BUSINESS BUT AS PER THE AGREE MENT WHICH HAD TO BE COMPLETED IN FIVE YEARS, WHEREIN THE ASSESSEE HAD PAID THE COMPENSATION WITHIN TWO YEARS, THE SAME WAS NOT ALLOWABLE. THE CIT(A) FURTHER HELD THAT THE ASSESSEE HAS ENTERED INTO JV WHICH WAS A SEPARATE VENTURE AND ANY COMPENSATION PAID WAS IN CAPITAL FIELD. HE REFERRED TO THE AGREEMENT EXECUTED BETWEEN THE PARTIES AND POINTED OUT THAT THOUGH IT WAS TERMED AS JV BUT IN SUBSTANCE, IT WAS A DEVELOPMENT AGREEMENT. SINCE THE ASSESSEE WAS ENGAGED IN REAL ESTATE BUSINESS OF CONSTRUCTION OF PROJECTS, HENCE, THE ADVANCE WAS SHOWN AS STOCK IN TRADE. OUR ATTENTION WAS DRAWN TO THE TERMS OF AGREEMENT I.E. ENGLISH TRANSLATION OF MARATHI DOCUMENT, WHEREIN IT WAS CLEARLY PROVIDED THAT THE ARRANGEMENT WAS TO DEVELOP THE PROPERTIES AND TERMS IN THIS REGARD WERE ENTERED INTO AND AGREED UPON. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD MADE SEPARATE ADVANCE OF RS.3.25 CRORES AND RS. 2.25 CRORES UNDER EACH OF THE DEVELOPMENT AGREEMENT TO SHRI KISHOR KACHI, WHICH ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 8 WAS RETURNED AFTER THE ASSESSEE PAID COM PENSATION. HE STRESSED THAT WHEN THERE WAS RECESSION IN MARKET, THERE WAS NO POINT IN GOING AHEAD WITH THE DEVELOPMENT WORK AS LOSS, IF ANY, ARISES ON ACCOUNT OF DEVELOPMENT OF THE SAID PROJECT, THEN THE SAME HAD TO BE BORNE BY THE ASSESSEE. HE STRESSED THAT THE AGREEMENT ENTERED INTO IS A SIMPLE DEVELOPMENT AGREEMENT, WHERE THE ASSESSEE WAS ENGAGED IN THE REAL ESTATE DEVELOPMENT, THEN SUCH COMPENSATION PAID DURING THE COURSE OF CARRYING ON ITS BUSINESS WAS BUSINESS EXPENDITURE. HE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN ITO VS. RAJDEEP & PMCC INFRASTRUCTURE IN ITA NO.1280/PN/2006, RELATING TO ASSESSMENT YEAR 2003 - 04, ORDER DATED 25.05.2009 AND POINTED OUT THAT WHERE THE PARTIES DO NOT SHARE LOSSES, IT IS NOT AN AOP. HE AL SO POINTED OUT THAT THE SAID DECISION HAS BEEN CONFIRMED BY THE HON'BLE SUPREME COURT IN CIT VS. RAJDEEP & PMCC INFRASTRUCTURE LTD. (2016) 73 TAXMAN.COM 256 (SC). ON THE SAME ANALOGY, WHERE THE ASSESSEE AND SHRI KISHOR KACHI WERE NOT SHARING ANY LOSSES AN D AS PER THE AGREEMENT, 45% OF GROSS RECEIPTS HAD TO BE PAID TO SHRI KISHOR KACHI AND ALL THE EXPENSES WERE TO BE BORNE BY THE ASSESSEE, THEN THE AGREEMENT BETWEEN THE PARTIES IS PURELY, DEVELOPMENT AGREEMENT, THOUGH TERMED AS JV AGREEMENT. THE LEARNED AU THORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE SAME ANALOGY POINTED OUT THAT THE BUSINESS EXPENDITURE INCURRED FOR THE SAID PROJECT I.E. THE PAYMENT OF STAMP DUTY, REGISTRATION AND OTHER EXPENSES SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. 15. THE LEARN ED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACING RELIANCE ON CLAUSE (6) OF THE AGREEMENT, POINTED OUT THAT THERE WAS PERIOD OF FIVE YEARS FOR THE ASSESSEE TO COMPLETE THE DEVELOPMENT AND THE ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 9 ASSESSEE HAD CANCELLED THE AGREEMENT MUC H BEFORE THE TIME AND PAID COMPENSATION, WHICH IS NOT TO BE ALLOWED AS EXPENDITURE. HE PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER AND CIT(A). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT G ROUND OF APPEAL IS THE CLAIM OF COMPENSATION PAID BY THE ASSESSEE TO SHRI KISHOR KACHI WITH WHOM HE HAD ENTERED INTO AN AGREEMENT WHICH WAS TERMED AS JV AGREEMENT. SHRI KISHOR KACHI WAS THE OWNER OF LAND AND SINCE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROMOTER AND DEVELOPER, HAD OFFERED HIS SERVICES TO SHRI KISHOR KACHI FOR THE DEVELOPMENT OF TWO OF HIS PLOTS OF LAND. AN AGREEMENT WAS ENTERED INTO BETWEEN THE PARTIES, UNDER WHICH CERTAIN TERMS WERE AGREED UPON FOR THE DEVELOPMENT OF SAID PROPERTY. THE PERUSAL OF TERMS AGREED UPON BETWEEN THE PARTIES, COPY OF WHICH IS PLACED AT PAGES 45 TO 111 OF THE PAPER BOOK ALONG WITH ENGLISH TRANSLATION AT PAGE 168 ONWARDS OF THE PAPER BOOK IN RESPECT OF LAND AT MUNDHWA, IT TRANSPIRES THAT THE AGREEMENT WAS TO D EVELOP THE PROPERTY, THERE WAS NO SHARING OF PROFITS OR LOSSES BETWEEN THE PARTIES. THE ASSESSEE HAD TO BEAR THE COST AND SHRI KISHOR KACHI WAS ENTITLED TO 45% OF THE GROSS RECEIPTS IRRESPECTIVE OF THE COST OF THE PROJECT. IN ORDER TO SAFEGUARD HIS LAND, SHRI KISHOR KACHI RECEIVED AN ADVANCE OF RS.3.25 CRORES AND RS.2.25 CRORES EACH FOR THE DEVELOPMENT OF TWO PLOTS. THE ASSESSEE HAD TO COMPLETE THE PROJECT WITHIN PERIOD OF FIVE YEARS AND IT WAS ALSO AGREED UPON THAT IN CASE THE SAID PROJECT IS NOT SO COM PLETED WITHIN STIPULATED PERIOD, THEN SHRI KISHOR KACHI IS ENTITLED TO COMPENSATION. THE FIRST PART OF THE ISSUE IS WHERE THE PARTIES ARE NOT SHARING ANY LOSSES , WHETHER SUCH AN AGREEMENT WHICH HAS BEEN ENTERED INTO BETWEEN THE PARTIES IS JV AGREEMENT, TH AT MEANS WHEREAS THE ASSESSEE ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 10 CLAIMS THAT IN SUBSTANCE, THE AGREEMENT BETWEEN THE PARTIES IS THE DEVELOPMENT AGREEMENT. WE FIND MERIT IN THE PLEA OF ASSESSEE WHERE THE TERMS OF AGREEMENT CLEARLY REFLECT NON - SHARING OF LOSSES AND THEN SUCH AN AGREEMENT CAN NOT ESTABLISH THE CONNECTION BETWEEN THE PARTIES AS ASSOCIATION OF PARTIES. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROMOTER AND DEVELOPER AND IN VIEW THEREOF, H AD ENTERED INTO AN AGREEMENT FOR THE DEVELOPMENT OF LAND AT MUNDHWA AND KIWALE. MERELY BE CAUSE THE AGREEMENT WAS TERMED AS JV, DOES NOT SETTLE THE LIABILITIES OF THE PARTIES INTERSE SINCE THE TERMS OF AGREEMENT HAVE TO BE GONE INTO TO ESTABLISH THE CASE OF REVENUE IN THIS REGARD. ACCORDINGLY, WE FIND NO MERIT IN THE STAND TAKEN BY THE ASSESSI NG OFFICER AND THE CIT(A). 17. NOW, COMING TO THE NEXT ASPECT OF THE ISSUE THAT WHERE THE ASSESSEE HAD AGREED TO DEVELOP THE SAID PLOTS OF LAND WITHIN FIVE YEARS BUT HAS FORECLOSED THE AGREEMENT WITHIN TWO YEARS AND PAID COMPENSATION, CAN THE ASSESSEE BE HELD NOT TO HAVE INCURRED EXPENDITURE FOR ITS BUSINESS NEEDS. THE ASSESSEE HAS EXPLAINED TIME AND AGAIN THAT BECAUSE OF RECESSION IN THE MARKET, IT WAS NOT FEASIBLE TO GO AHEAD WITH THE PROJECT, WHERE THE ASSESSEE HAD TO BEAR THE TOTAL COST OF THE PROJECT AND SHRI KISHOR KACHI WAS RECEIVING 45% OF THE GROSS RECEIPTS I.E. NOT TAKING INTO CONSIDERATION THE ESCALATION OF COST OR THE DEMAND IN THE MARKET. ACCORDINGLY, THE STAND TAKEN BY THE ASSESSEE IN FORECLOSING THE AGREEMENT IN VIEW OF THE FACTS AND CIRCUM STANCES PREVAILING IN THE MARKET, SINCE THE PROJECT INVOLVES POSITIVE MARKET CONDITIONS FOR IT TO BE PROFITABLE, WE HOLD THAT THE CLAIM OF COMPENSATION PAID CANNOT BE DISALLOWED ON THE GROUND THAT THE ASSESSEE FORECLOSED THE AGREEMENT WITHIN PERIOD OF TWO YEARS AS AGAINST FIVE YEARS PROVIDED IN THE AGREEMENT. THE EXPENDITURE WAS I NCURRED BY ITA NO. 1522 /P U N/20 1 4 M/S. KUNAL SHELTERS PVT. LTD. 11 THE ASSESSEE ON ACCOUNT OF HIS BUSINESS NEEDS AND HENCE, THE SAME MERITS TO BE ALLOWED AS BUSINESS EXPENDITURE. FURTHER, THE EXPENDITURE INCURRED BY THE ASSESSEE IN RE LATION TO STAMP DUTY, REGISTRATION AND OTHER EXPENSES BEING WRITTEN OFF, IS ALSO TO BE ALLOWED AS BUSINESS EXPENDITURE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. THE ISSUE IN GROUND OF APPEAL NO.4 IS WITHOUT PREJUDICE TO GROUND OF A PPEAL NO.1, WHICH HAS BEEN ALLOWED AND GROUND OF APPEAL NO.4 IS DISMISSED. 1 8 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 26 TH DAY OF MAY , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 26 TH MAY , 201 7 . GCVSR / COPY OF THE ORD ER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - I , PUNE ; 4. / THE CIT - I , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE