Westland Developers Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1752/DEL/2013

• Counselvise Citation: 175220114 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 23-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: V S RASTOGI
• Keywords: Business income; Business expenditure; Search and seizure; Document seized; Cost of acquisition; Commercial expediency; Documents seized; Revenue expenditure; Capital expenditure
• Section: 40A(3); 143(3); 37(1); 131; 145; 37; 28; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: H NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI. J.S.REDDY, ACCOUNTANT MEMBER I.T.A .NO.-1752/DEL/2013 (ASSESSMENT YEAR-2006-07) WESTLAND DEVELOPERS PVT. LTD., M-11, MIDDLE CIRCLE, CONNAUGHT CIRCUS, NEW DELHI-110001 PAN-AAACW1093J (APPELLANT) VS ACIT, CENTRAL CIRCLE-23, NEW DELHI-110001 (RESPONDENT) APPELLANT BY: MR. V.S.RASTOGI, AR RESPONDENT BY: SH. SAMEER SHARMA, SR. DR ORDER PER DIVA SINGH, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 28.12.2012 OF LD. CIT(A)-XXXIII, NEW DELHI PERTAINING TO 2006- 07 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE CIT(A) ERRED IN REJECTING APPELLANTS CONTENTION T HAT ASSESSMENT ORDER MADE BY ASSESSING OFFICER WAS BAD IN LAW AND VOID AB-INITO ON THE GROUND THAT IT OUGHT TO HAVE BEEN MADE U/S 1 53C OF THE INCOME TAX ACT, AND NOT, AS WAS DONE U/S 143(3) OF THE INCOME TAX ACT. 2. THAT WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTIO N OF THE ASSESSING OFFICER IN RELYING UPON THE MATERIAL SEIZ ED IN THE CASE OF SEARCH ON M/S BPTP GROUP OF CASES DESPITE:- (I) THAT SUCH MATERIAL HAD NO NEXUS/RELEVANCE WITH THE CASE OF THE APPELLANT AND, (II) THAT, THE CIT(A) HIMSELF HOLDING THAT SUCH MATERIAL DID NOT BELONG TO THE APPELLANT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A ERRED IN NOT ACCEPTING THE APPELLANTS CONTEN TION THAT 2 I.T.A .NO.-1752/DEL/2013 ADDITIONAL PAYMENTS HAVING NOT BEEN CLAIMED AS DEDU CTION BY APPELLANT, NO DISALLOWANCE COULD HAVE BEEN MADE IN THE HANDS OF THE APPELLANT. 3.1. THAT WITHOUT PREJUDICE THE CIT(A) ERRED IN UPHOLDIN G THE DISALLOWANCE OF ADDITIONAL PAYMENTS MADE TO THE REC IPIENTS WHO WERE NOT THE OWNERS OF LAND AND TO THE PAYMENT MADE IN CASH. 3.2. THAT WITHOUT PREJUDICE THE CIT(A) ERRED IN NOT HIMS ELF QUANTIFYING THE ADDITION TO BE MADE. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U/S 40A( 3) IN RESPECT OF WHICH NO DEDUCTION WAS CLAIMED BY THE APPELLANT. 4.1. THAT EVEN ON MERITS THE DISALLOWANCE WAS NOT JUSTIFIED. 5. THAT THE ORDERS PASSED BY THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS)-XXXIII, NEW DELHI ARE BAD I N LAW AND VOID AB-INITO. 6. THE APPELLANT CRAVES PERMISSION TO ADD, AMEND, A LTER OR VARY ALL OR ANY GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEAR ING OF THE APPEAL. 2. AT THE OUTSET LD. AR SUBMITTED THAT HE WOULD NOT BE PRESSING GROUND NO. 1, THE SAME ACCORDINGLY IS DISMISSED AS NOT PRESSED . GROUND 5 REQUIRES NO SPECIFIC SEPARATE ADJUDICATION AS THE SAME IT IS ST ATED IS ADEQUATELY ADDRESSED IN THE REMAINING GROUNDS. GROUND NO-6 IT IS SEEN IS A GENERAL GROUND AS SUCH ALSO DOES NOT REQUIRE ANY ADJUDICATION. HOWEVER IT WAS HIS SUBMISSION THAT HE WOULD SEEK TO ARGUE GROUND NO. 4 FIRST AND THEREAFT ER GROUND NO. 3 & 2 IN THAT SEQUENCE AS THE ARGUMENTS FOR GROUND NO-4 WOULD ADD RESS GROUND NO-3 ALSO. 3. BEFORE REFERRING TO THE ARGUMENTS POSED ON BEHAL F OF THE ASSESSEE IN SUPPORT OF THE GRIEVANCE POSED IN THE GROUNDS RAISE D IT IS APPROPRIATE TO FIRST REFER TO THE RELEVANT FINDINGS RECORDED IN THE ASSESSMENT ORDER. A PERUSAL OF THE RECORD SHOWS THAT THE ASSESSING OFFICER RECORDS IN PARA 2 THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND DURING T HE YEAR DERIVED INCOME FROM PURCHASE AND SALE OF PROPERTY AND FROM HOUSE PROPER TY. SUBJECT MATTER OF THE PRESENT PROCEEDINGS IS THE ADDITION U/S 40A(3) MADE BY THE AO ON ACCOUNT OF THE 3 I.T.A .NO.-1752/DEL/2013 REASONS SETOUT IN PARA 3 TO PARA 3.5 OF THE ASSESSM ENT ORDER. THESE ARE REPRODUCED HEREUNDER FOR READY REFERENCE: - 3. ADDITION ON ACCOUNT OF DISALLOWANCE U/S 40A(3) 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS BEEN NOTICED THAT THE ASSESSEE COMPANY HAS ACQUIRED VARIOUS LAND S THROUGH FARMERS/VILLAGERS AND AFTER ACQUIRING THE SAME FROM FARMERS/VILLAGERS, IT HAS, IN PURSUANCE OF A COLLABORATION AGREEMENT HAND ED OVER THE SAME TO M/S COUNTRYWIDE PROMOTERS (P.) LTD. (CWPPL) FOR DEVELOPMENT/CONSTRUCTION OF AN INTEGRATED TOWNSHIP PROJECT ON THE SAID LAND. AS PER THE TERMS OF THE COLLABORATION AGREEME NT, THE ASSESSEE COMPANY IS ENTITLED FOR AN ADDITIONAL CONSOLIDATED FEE OF RS.35,000I- PER ACRE OVER AND ABOVE THE COST OF LAND ACQUIRED AND H ANDED OVER TO CWPPL. IT IS PERTINENT HERE TO MENTION THAT IN THE SAID CO LLABORATION AGREEMENT BETWEEN THE ASSESSEE COMPANY AND CWFPL, THE ASSESSE E COMPANY BEEN REFERRED TO AS 'OWNER' OF THE LAND AND CWPPL HAS BE EN REFERRED TO AS 'DEVELOPER'. THE AGREEMENT STARTS AS UNDER: 'WHEREAS THE OWNER HEREIN IS IN THE PROCESS OF ACQU IRING VARIOUS AGRICULTURAL LANDS FALLING IN THE VICINITY OF SECTO RS 81, 82 AND 85 OF FARIDABAD AND THE OWNER UNDERTAKES THAT IT SHALL ACQUIRE PERFECT LEGAL TITLE ALONG WITH THE VACANT POSSESSION OF 18 ACRES OF LAN D OR THEREABOUT. AND WHEREAS THE OWNER IS DESIROUS TO DEVELOP/CONSTR UCT AN INTEGRATED TOWNSHIP PROJECT AT THE SAID LAND, HOWEVER DUE TO F INANCIAL CONSTRAINTS, LACK OF KNOWLEDGE AND EXPERTISE IN THE REAL ESTATE BUSINESS IS NOT IN A POSITION TO DO SO. AND WHEREAS THE OWNER HAS APPROACHED THE DEVELOPER TO CARRY OUT THE DEVELOPMENT AND CONSTRUCTION WORKS OF THE PROPOSED TOWNSHIP AND THE DEVELOPER HAS AGREED TO THE SAME ..... ' 3.2. FURTHER, ON PERUSAL OF THE DETAILS OF PAYMENTS MADE BY THE ASSESSEE COMPANY FOR ACQUIRING THE LAND FROM FARMERS/VILLAGE RS, IT HAS BEEN NOTICED THAT THE ASSESSEE HAS MADE PART PAYMENT OF TOTAL SA LE CONSIDERATION IN CASH (OUT OF TOTAL. SALE CONSIDERATION OF RS.185,032,500 /-, A SUM OF RS.865,800/- HAS BEEN PAID IN CASH) AND THUS HAS CONTRAVENED THE PROVISIONS OF SECTION 40A(3). ACCORDINGLY, THE ASSESSEE VIDE ORDER SHEET ENTRY DT. 17.11.2008, HAS BEEN ASKED TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 40A(3) MAY NOT BE APPLIED TO THE EXPENDITURE INCURRED BY IT IN CASH FOR ACQUIRING THE LAND FROM THE FARMERS/VILLAGERS AND THE SAME MAY NO T BE DISALLOWED TO THE EXTENT OF 20% AS PROVIDED IN THE SUPRA SECTION. IN RESPONSE THERETO, THE ASSESSEE VIDE ITS REPLY DT.17-12- 2008 HAS REFERRED TO THE TERMS AND CONDITIONS OF THE COLLABORATION AGREEMENT ENTERED I NTO BETWEEN THE ASSESSEE AND CWPPL AND SUBMITTED AS UNDER: 4 I.T.A .NO.-1752/DEL/2013 'BASED ON THE AFORESAID AGREEMENT THE ASSESSEE PURC HASED LAND FOR WHICH THE(M/S COUNTRYWIDE PROMOTERS PVT. LTD.) HAS REIMBU RSED ALL COSTS AND EXPENSES WITH RESPECT TO THE ACQUISITION OF THE SAI D LAND AND ALSO IN CONFORMITY WITH THE COLLABORATION AGREEMENT THE ASS ESSEE HAS RECEIVED FEES CALCULATED @ RS.35,000/- PER ACRE, WHICH IS DU LY CREDITED TO THE PROFIT AND LOSS ACCOUNT AS THE INCOME. SECTION 40A APPLIES TO EXPENSES OR PAYMENTS NOT DED UCTIBLE IN CERTAIN CIRCUMSTANCES. IT STARTS WITH THE NON-OBSTANTE CLAU SE PROVIDING THAT THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWIT HSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THE ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFIT AND G AINS OF BUSINESS OR PROFESSION, SUB-SECTION (3) OF SECTION 40A IS AN E XCEPTION TO THE DEDUCTIBILITY OF EXPENDITURE UNDER THE COMPUTATION PROVISIONS OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS AXIOMAT ICALLY WHAT DOES NOT FALL WITHIN THE COMPUTATION OF INCOME WILL NOT ATTRACT T HE PROVISIONS OF SECTION 40A(3). THE ASSESSEE FURTHER SUBMITS THAT THE SUM PAID BY I T FOR PURCHASE OF LAND DOES NOT FALL WITHIN THE TERM 'EXPENDITURE' AS IT I S USED IN SECTION 40A(3). THE ASSESSEE HAS ALSO CONTENDED THAT THE LAND HAS N OT BEEN PURCHASED BY IT AS STOCK-IN-TRADE AND IT HAS NOT CLAIMED THE COST OF LAND AS ANY EXPENDITURE WHILE DETERMINING ITS INCOME UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' AND HENCE THE PROVISIONS OF SECTION 40A(3) CANNOT BE APPLIED TO MAKE ANY DISALLOWANCE. 3.3 THE ABOVE SUBMISSION OF THE ASSESSEE HAS BEEN C ONSIDERED AND AFTER CAREFUL EXAMINATION OF ALL THE FACTS OF THIS CASE A ND PROVISIONS OF SECTION 40A(3) IT IS FOUND TO BE NOT TENABLE FOR THE REASO NS DISCUSSED HERE-IN- BELOW.- THE ASSESSEE COMPANY IS ONE OF THE GROUP COMPANIES OF BPTP LTD. DURING THE YEAR UNDER CONSIDERATION IT HAS PURCHASED LAND FROM THE FARMERS/VILLAGERS AND NECESSARY SALE-DEEDS IN FAVOU R OF THE ASSESSEE COMPANY WERE EXECUTED BY THE VILLAGERS AND THE POSS ESSION OF THE LAND WAS TAKEN BY THE ASSESSEE COMPANY. AFTER GETTING THE PO SSESSION OF THE LAND SO PURCHASED, IT HAS HANDED OVER THE SAME TO COUNTRYWI DE PROMOTERS PVT. LTD., ANOTHER FLAGSHIP COMPANY OF BPTP GROUP, FOR DEVELOP MENT AND CONSTRUCTION OF PROPOSED TOWNSHIP IN PURSUANCE OF T HE COLLABORATION AGREEMENT. IN CONSIDERATION OF THE TRANSFER OF LAN D TO CWPPL, THE ASSESSEE COMPANY HAS EARNED AN ADDITIONAL INCOME/FE E OF RS.35,OOO/- PER ACRE, WHICH WAS OVER AND ABOVE THE COST OF THE LAND . THUS, IN OTHER WORDS, THE ASSESSEE HAS TRANSFERRED THE LAND TO CWPPL AT A PREMIUM OF RS.35 Z 000/- P ER ACRE TO THE PURCHASE COST OF THE LAND. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY DID NOT CARRY A NY BUSINESS OTHER THAN THAT OF ACQUIRING LAND FROM VILLAGERS THROUGH REGIS TERED SALE DEEDS AND 5 I.T.A .NO.-1752/DEL/2013 TRANSFERRING THE LAND SO ACQUIRED TO CWPPL. IT IS PERTINENT TO MENTION HERE THAT WHATEVER BUSINESS INCOME WAS EARNED BY TH E ASSESSEE HAS DIRECT NEXUS WITH THE LAND ACQUIRED AND TRANSFERRED BY IT. HAD THERE BEEN NO ACQUISITION OF LAND BY THE ASSESSEE COMPANY THERE W OULD NOT HAVE BEEN ANY BUSINESS INCOME. IT SHOWS THAT ACQUIRING LAND FROM VILLAGERS AND TRANSFERRING THE SAME TO CWPPL IS THE MAIN INGREDIE NTS/COMPONENTS OF THE ASSESSEES BUSINESS. THE SAME IS ALSO ESTABLISHED FROM THE OPENING LINES OF THE COLLABORATION AGREEMENT, AS MENTIONED ABOVE. F URTHER, IN THE CASE OF TRADING BUSINESS, A PERSON MAKE PURCHASES, WHICH IS HELD BY HIM AS STOCK- IN-TRADE AND WHEN HE SELLS THAT STOCK-IN-TRADE I.E . WHEN HE PARTS WITH THE POSSESSION OF THE SAME, HE EARNS PROFIT. IN THE CAS E OF ASSESSEE ALSO WHATEVER LAND WAS ACQUIRED BY THE ASSESSEE COMPANY CONSTITUTED ITS STOCK IN TRADE AND TRANSFER OF THE SAME STOCK-IN-TRADE TO CW PPL AT THE COST PRICE PLUS PROFIT @ RS.35,000/- PER ACRE HAS YIELDE D BUSINESS INCOME TO THE ASSESSEE COMPANY. HENCE, THE LAND SO PURCHASED BY THE ASSESSEE COMPANY FOR THE PURPOSES OF TRANSFER TO CWPPL WAS NOTHING B UT ITS STOCK-IN-TRADE, WHICH WAS TRANSFERRED TO CWPPL AT A PROFIT MARGIN O F RS.35,OOOI- PER ACRE. THE STATUTORY AUDITOR OF THE ASSESSEE COMPANY HAS CATEGORICALLY MENTIONED IN NOTES ON ACCOUNTS THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE MEMORA NDUM AND ARTICLES OF ASSOCIATION ALSO SUGGESTS THAT TO CARRY ON THE BUSI NESS OF REAL ESTATE DEVELOPER IS THE MAIN OBJECT OF THE ASSESSEE COMPAN Y. IN VIEW OF THE ABOVE DISCUSSION, THE CONTENTION OF THE ASSESSEE THAT THE LAND PURCHASED BY IT WAS NOT ITS STOCK-IN-TRADE BUT AN ASSET HAS NOT MERIT A ND IS REJECTED. 3.4. AS PER ABOVE DISCUSSION, IT IS PROVED BEYOND A NY IOTA OF DOUBT THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PURC HASE AND SALE OF LAND AND THE LAND SO PURCHASED BY IT IS NOTHING BUT ITS STOCK-IN-TRADE. IT IS PERTINENT TO MENTION HERE THAT THE HON'BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH VS ITO 191 ITR 667 HAS CLEARLY SETTLED THAT PAYMENT MADE FOR PURCHASE OF STOCK-IN-TRADE HAS TO BE REGARDED AS 'EXPENDITURE' AS ENVISAGED IN SECTION 40A(3) OF THE INCOME TAX ACT, 1961. THE ASSESSEE, VIDE ITS REPLY DT.L7 -12-2008, HAS AL SO SUBMITTED THAT THE AMOUNT OF CASH PAYMENTS FOR PURCHASE OF LAND DOES N OT FALL WITHIN THE TERM 'EXPENDITURE' AS IT IS USED IN 40A(3) BECAUSE IT HA S NOT CLAIMED ANY DEDUCTION OF THE PURCHASE COST OF LAND WHILE COMPUT ING ITS INCOME UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSIO N'. THIS CONTENTION OF THE ASSESSEE IS ALSO NOT PLAUSIBLE BECAUSE THE ASSESSEE HAS ALSO BEEN PAID THE COST OF LAND BY CWPPL BESIDES THE PREMIUM OF RS.35, 000/- PER ACRE. BY SHOWING THE INCOME FROM BUSINESS @RS.35,000/- PER A CRE OF LAND TRANSFERRED, THE ASSESSEE HAS CLAIMED THE DEDUCTION OF COST OF LAND, DIRECTLY OR INDIRECTLY. HAD IT NOT CLAIMED THE DEDUCTION OF THE COST OF LAND FROM THE AMOUNT RECEIVED FROM CWPPL, THE PROFIT OF HE ASSESS EE WOULD HAVE BEEN INCREASED BY THE COST OF THE LAND. 3.5. IN VIEW OF THE SUPRA JUDGEMENT OF THE HON'BLE SUPREME COURT COUPLED 6 I.T.A .NO.-1752/DEL/2013 WITH THE FACT THAT THE ASSESSEE COMPANY HAS MADE PA RT PAYMENT OF THE TOTAL SALE CONSIDERATION IN CASH CLEARLY ATTRACTS THE PRO VISIONS OF SECTION 40A(3). MOREOVER, THE SAID CONTRAVENTION OF SECTION 40A(3) IS NOT COVERED BY THE EXCEPTIONS REFERRED TO IN RULE 6DD. RULE 6DD PROVID ES FOR AN EXHAUSTIVE LIST OF CASES AND CIRCUMSTANCES IN WHICH A PAYMENT IN A SUM EXCEEDING RS.20,000/- MAY BE MADE OTHERWISE THAN BY A CROSSED CHEQUE DRAWN ON A BANK OR A CROSSED BANK DRAFT. IT IS NOT AN INCLUSIVE LIST BUT AN EXHAUSTIVE LIST AND THE PAYMENTS MADE BY THE ASSESS EE COMPANY FOR THE PURCHASE OF LAND ARE NOT COVERED BY THE EXCEPTION P ROVIDED IN RULE 6DD. IT HAS BEEN HELD BY KERALA HIGH COURT IN THE CASE OF K AMATH MARBLES VS ITO 260 ITR 470 THAT THE CONTINUING EXCEPTIONS UNDER RU LE 6DD LIKE EXCEPTIONS FOR TRANSACTION IN PLACE WHERE THERE IS NO BANKING FACILITY OR WHERE PURCHASE IS OF AGRICULTURAL OR FOREST PRODUCE IS SU FFICIENT. HOWEVER, IN THE PRESENT CASE, PAYMENTS WERE BEING MADE TO THE SAME PARTIES BOTH IN CASH AND CHEQUE, WHICH IS CLEARLY IN VIOLATION OF THE PR OVISIONS OF SECTION 4 OA(3). HENCE, A SUM EQUAL TO 20% OF THE AMOUNT PAID IN CAS H (RS.865,800/-) IN CONTRAVENTION OF THE PROVISIONS O F SECTION 40A(3) IS DISALLOWED. THIS WORKS OUT TO RS. 173,160/- AND THE SAME WOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY. (ADDITION OF RS. 173.160/-) 4. APART FROM THIS ADDITION THE AO ALSO MADE AN ADD ITION OF RS.5,30,000/- BY WAY OF A DISALLOWANCE WHICH IS A SUBJECT MATTER FOR CONSIDERATION RAISED IN GROUND NO.3 & 2 BY THE ASSESSEE. THESE REASONS ARE SET OUT IN PARAS 4 TO 4.6 OF THE ASSESSMENT ORDER AND REPRODUCED HEREUNDER FOR R EADY-REFERENCE:- 4. ADDITION ON ACCOUNT OF DISALLOWANCE OF ADDITION AL PAYMENT 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS BEEN NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS TO THE VENDORS OF TH E LAND, WHICH WERE OVER AND ABOVE THE SALE CONSIDERATION MENTIONED IN THE S ALE-DEEDS. IT HAS ALSO BEEN NOTICED THAT THE ASSESSEE HAS INCREASED THE VALUE O F LAND BY AMOUNT OF ABOVE PAYMENTS MADE TO THE VENDORS. IN THIS REGARD THE AS SESSEE WAS ASKED TO EXPLAIN THE NATURE AND DETAILS OF THESE PAYMENTS. I N RESPONSE THERETO, THE ASSESSEE HAS SUBMITTED THE DETAILS OF ADDITIONAL PA YMENTS MADE. AS PER THE SAID DETAILS, THE ASSESSEE COMPANY HAS MADE ADDITIO NAL PAYMENTS TO THE VENDORS OF THE LAND TO THE TUNE OF RS.530,000/-. THE ASSESSEE WAS THEN ASKED TO EXPLAIN THE PURPOSE FOR WHICH THESE PAYMENTS WERE M ADE AND ALSO TO SUBSTANTIATE THE SAME ALONG WITH THE COMMERCIAL EXP EDIENCY ATTACHED WITH SUCH PAYMENTS. THE ASSESSEE HAS FURNISHED PHOTOCOPY OF THE RECEIPT WHICH IS MADE PART AND PARCEL OF THE ANNEXURE-A. THE ASSESSE E WAS ALSO ASKED TO EXPLAIN AS TO WHY THIS AMOUNT OF ADDITIONAL PAYMENT S MADE FOR ACQUISITION OF 7 I.T.A .NO.-1752/DEL/2013 LANDS BE NOT DISALLOWED FOR VIOLATION OF THE PROVIS IONS OF INDIAN STAMPS ACT. 4.2. THE ASSESSEE VIDE ITS LETTER DT.26-12-2008 HAS SUBMITTED AS UNDER: 'FOR PURCHASE OF LAND AN AGREEMENT IS ENTERED INTO BETWEEN THE ASSESSEE AND THE SELLER WHERE THE SALE CONSIDERATION TO BE PAID IS AGREED UPON. THEREAFTER A SALE DEED IS EXECUTED AND REGISTERED W HERE THE SALE CONSIDERATION IS RECORDED IN THE SALE DEED. AFTER THE SALE DEED I S EXECUTED THE ASSESSEE BECOMES OWNER AND IS ENTITLED TO TAKE POSSESSION OF THE LAND. HOWEVER IN ACTUAL PRACTICE IT OFTEN HAPPENS THAT DISPUTES ARIS E IN THE MATTER OF TAKING POSSESSION. SUCH DISPUTE ARISES DUE TO DIVERSE REAS ONS SOME OF WHICH ARE STATED HERE-UNDER- A.) ONE OF MAJOR REASONS FOR DISPUTE IS NATURE OF LAND HOLDING IN INDIA. LAND IS TRANSFERRED FROM GENERATION TO GENERATION A ND THRU INFORMAL/UNWRITTEN AGREEMENTS OWNERSHIP IS DIVIDED AMONG VARIOUS CLAIMANTS. HOWEVER, NO PARTITION OF LAND IS GENERAL LY RECORDED. WE HAD TO ENTER INTO AGREEMENTS WITH EACH INDIVIDUAL SEPAR ATELY WHEREBY WE PURCHASE LAND FROM HIM. HOWEVER, OTHER FAMILY MEMB ERS AT TIME RAISES DISPUTES ON ACCOUNT OF NON PARTITION OF LAND. EVEN AS ON TODAY NUMBER OF SUCH DISPUTES RELATED TO BPTP ASSOC IATES COMPANIES ARE PENDING IN VARIOUS COURTS. AT TIMES INSTEAD OF GOING FOR LONG DRAWN COURT DISPUTES, WE HAD TO AGREE FOR SOME PAYMENTS T O THESE MEMBERS SO THAT WE CAN GET TIMELY/PEACEFUL POSSESSION OF THE PROPERTY. B) QUITE OFTEN THE AGREED PRICE IS PAID BY ISSUING POST DATED CHEQUES. WHEN THE TIME COMES FOR ENCASHMENT OF THE CHEQUE I N MANY CASES THERE IS CONSIDERABLE ESCALATION IN THE PRICE OF LAND IN THE MEANWHILE. THE SELLER, THEREFORE, RAISES A CLAIM FOR COMPENSATION FOR THE DELAY IN PAYMENT. THE DIFFERENCE BETWEEN RULING PRICE AND TH E PRICE SHOWN IN THE SALE DEED IS DEMANDED AS COMPENSATION. C) IN MANY CASES IT IS CLAIMED BY THE SELLER THAT THE PRICE AGREED WAS FOR LAND AND- THE COMPANY HAD TO WAIT TO ALLOW FARM ER TILL CUTTING OF STANDING CROPS ETC. IS COMPLETED. THE SELLER ALSO WISHES FOR ADDITIONAL PAYMENT TOWARDS TUBEWELL INSTALLED, STANDING TREES ON THE LAND AND FOR ANY OTHER SUPERSTRUCTURE ON LAND INCLUDING REVENUE RASTA WHICH PROVIDES ACCESS TO THE LAND. FACED WITH SUCH NUMEROUS POST SALE SITUATIONS, THE ASSESSEE IN VIEW OF COMMERCIAL EXPEDIENCY HAS TO INCUR ADDITIONAL EXPEN DITURE. SUCH ADDITIONAL EXPENDITURE IS INCURRED IN ORDER TO ENSURE THAT THE PURCHASE ALREADY MADE 8 I.T.A .NO.-1752/DEL/2013 DOES NOT BECOME ABORTIVE BECAUSE OF LONG PENDING LI TIGATION AND AT TIMES FOR FEAR OF HOSTILITY BY THE SELLER. IN ORDER TO BUY PE ACE THE ADDITIONAL PAYMENT IS AGREED UPON. ' ALONG WITH ABOVE SUBMISSION DT. 26.12.2008 THE ASSE SSEE HAS FURNISHED THE DETAILS OF PERSONS TO WHOM THE SAID ADDITIONAL PAYM ENTS OF RS.530,000/- WERE MADE FOR THE REASONS MENTIONED ABOVE ALONG WITH PHO TOCOPY OF PAYMENT RECEIPT. ON PERUSAL OF THE PHOTOCOPY OF THE RECEIPT IT HAS BEEN NOTICED THAT OUT OF RS.530,000/- A SUM OF RS. 150,000/- WAS PAID IN CASH IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3). SINCE, THE WHOLE OF T HIS ADDITIONAL PAYMENT HAS BEEN ADDED BACK TO THE INCOME OF THE ASSESSEE (AS P ER DISCUSSION MADE HEREIN BELOW), SO NO DISALLOWANCE U/S 40A(3) IS MADE. FURT HER, ON PERUSAL OF THE SAID RECEIPT, FOLLOWING DEFECTS HAVE BEEN NOTICED: THAT THE RECEIPT WAS WITHOUT DATE I.E. IT IS NOT C LEAR ON WHAT DATE THE RECEIPT WAS EXECUTED, WHETHER IT WAS EXECU TED DURING THE YEAR UNDER CONSIDERATION OR TO SOME OTHE R YEAR; THE RECEIPTS DO NOT CONTAIN THE NAME OF THE PAYER OF THE AMOUNT I.E. IT IS NOT CLEAR FROM THE SAID RECEIPT WHETHER THE PAYMENT WAS MADE BY ASSESSEE COMPANY OR SOME OTHER COMPANY. FROM THE RECEIPT IT IS NOT CLEAR THAT IN RESPECT O F WHICH LAND THE SAID PAYMENT WAS MADE. IT IS ONLY ASSESSEE WHO IS REFERRING THAT THE SAID PAYMENT WAS MADE IN RESPECT OF WHICH PROPERTY. ON COMPARING THE SIGNATURES OF THE PAYEES ( 5 IN NUMBER) AS APPENDED ON THE RECEIPT WITH THAT OF CORRESPONDING SALE DEED, IT HAS BEEN NOTICED THAT TWO PAYEES NAMELY PRABHUDAYAL AND RAMKARAN DID NOT SIGN THE SALE-DEED BUT PUT THEIR THUMB IMPRESSION WHEREAS IN THE RECEIPT FOR A DDITIONAL PAYMENT THEY HAVE PUT THEIR SIGNATURES. IT IS VERY HARD TO BELIEVE THAT A PERSON WHO DID NOT SIGN THE SALE DEE D HAS PUT HIS SIGNATURES ON THE RECEIPT. IN VIEW OF THE ABOVE DEFECTS IN THE RECEIPT ALLEGE D TO HAVE BEEN ISSUED BY THE PAYEES OF ADDITIONAL PAYMENT, THE GENUINENES S AND TRUTHFULNESS OF THE TRANSACTION WAS NOT PROVED AND ACCORDINGLY, THE CLAIM OF SAID ADDITIONAL PAYMENT IS DISALLOWED. 4.3. AT THIS POINT, IT IS NOT OUT OF PLACE TO MENTION TH AT A SEARCH OPERATION WAS CARRIED UPON THE BPTP LTD. AND ITS GROUP COMPAN IES ON 15-11-2007. THE ASSESSEE COMPANY ALSO HAPPENS TO BE ONE OF THE GROU P COMPANY OF BPTP LTD. BUT IN ITS CASE NO SEARCH WARRANT WAS CONDUCTED. DU RING THE COURSE OF SEARCH OPERATION ON BPTP LTD. AND OTHER GROUP COMPANIES VA RIOUS DOCUMENTS PERTAINING TO THE COMPANIES OF BPTP LTD. GROUP INCL UDING 9 I.T.A .NO.-1752/DEL/2013 THE ASSESSEE COMPANY WERE FOUND AND SEIZED. ON CRIT ICAL ANALYSIS OF THE SEIZED MATERIAL, IT HAS BEEN NOTICED THAT THERE ARE LARGE NUMBER OF DOCUMENTS WHICH ARE UNDATED BLANK RECEIPTS DULY SIGNED OR HAV ING THE THUMB IMPRESSION OF THE SELLERS. THE BLANK RECEIPTS ARE AN ACKNOWLED GMENT FOR RECEIVING AN (INDEFINITE) BLANK AMOUNT OF SUM AND SOME OF SUCH R ECEIPT HAVE BEEN USED BY THE GROUP COMPANIES AS PROOF FOR ADDITIONAL PAYMENT S. DURING THE POST SEARCH INVESTIGATION, SUMMONS U/S 131 WERE ISSUED TO LARGE NUMBER OF FARMERS FROM WHOM THE LANDS WERE PURCHASED IN FARID ABAD AND ADDITIONAL PAYMENTS WERE ALLEGED TO HAVE BEEN MADE TO THEM. IN RESPONSE TO THOSE SUMMONS, SOME FARMERS APPEARED AND THEIR STATEMENTS WERE RECORDED. IN THESE CASES THE FARMERS HAVE STATED THAT THEY HAVE NOT RECEIVED ANY ADDITIONAL PAYMENTS, THOUGH AS PER SEIZED DOCUMENTS ADDITIONAL PAYMENTS HAD BEEN REFLECTED AGAINST THEIR NAMES. THEY CATEGORICALLY D ENIED THAT ANY ADDITIONAL PAYMENT OVER AND ABOVE THE AGREED SALE PRICE WAS EV ER PAID TO THEM ON ACCOUNT OF STANDING CROPS, TUBE-WELL, ETC. THEY FUR THER ADMITTED THAT THEY HAD GIVEN BLANK RECEIPTS TO THE CONCERNED COMPANY TO WH OM THE LAND WAS SOLD. THE SAID ADMISSION OF SIGNING BLANK RECEIPTS AT THE TIME OF SALE BY FARMERS FURTHER SUBSTANTIATES THAT THE CLAIM OF THE ASSESSE E REGARDING ADDITIONAL PAYMENT ON THE BASIS OF THESE BLANK RECEIPTS IS BO GUS. 4.4. IN ANY CASE, THE ABOVE SUBMISSION OF THE ASSESSEE F OR ADDITIONAL PAYMENTS CLAIMED TO HAVE BEEN MADE ON ACCOUNT OF ST ANDING CROPS, TUBE- WELL ETC. HAS NO FORCE IN IT BECAUSE WHEN PER ACRE PRODUCTION OF THE CROP IS COMPARED TO THE ADDITIONAL PAYMENTS MADE, IT IS FOU ND THAT THE VALUE OF THE AGRICULTURAL PRODUCE COMES TO FEW THOUSAND RUPEES W HEREAS THE ADDITIONAL PAYMENT HAVE BEEN MADE IN LAKHS. MOREOVER, ON PERUSAL OF THE P & L ACCOUNT OF THE ASSESSEE COMPANY AND ALSO OF M/S COUNTRYWIDE PROMOTERS (P) LTD. TO WHOM THE LAND WAS TRANSFERRED, IT HAS BEEN NOTICED THAT THESE COMPANIES DID NOT SHOW ANY INCOME FROM THE SALE OF STANDING CROP/PLANTS/TREES OR OF ANY OTHER SOUGHT, WHICH WOU LD HAVE BEEN GENERATED BY WAY OF SALE OF TUBEWELL ETC. FOR WHICH COMPENSAT ION HAS BEEN PAID BY THEM. 4.5. MOREOVER EVEN OTHERWISE, THE ASSESSEE IS NOT ENTITLED TO CLAIM THE DEDUCTION OF THIS ADDITIONAL PAYMENT FOR THE FOLLOW ING REASONS: I)THERE IS NO CONSIDERATION RECEIVED IN LIEU OF THE SE PAYMENTS OTHER THAN THE LAND WHICH HAD ALREADY BEEN RECEIVED BY THE ASSESSEE COMPANY AT THE FIRST INSTANCE ITSELF I.E. AT THE TIME OF SALE-DEEDS. THE POSSESSION OF THESE LANDS WAS TAKEN IN EACH AND EVERY CASE BY THE ASSESSEE CO MPANY AT THE TIME OF EXECUTION OF SALE- DEEDS AS IS EXPRESSLY MENTIONED IN THE REGISTERED SALE- DEEDS. THE ADDITIONAL PAYMENTS WERE MADE MUCH AFTER THE EXECUTION OF THE REGISTERED SALE-DEEDS AS PER WHICH THE POSSESSION O F THE LAND AND ALL ITS 10 I.T.A .NO.-1752/DEL/2013 RIGHTS WERE ALREADY WITH THE ASSESSEE COMPANY. II) THE AMOUNT OF ADDITIONAL PAYMENTS HAVE BEEN ADD ED TO THE COST OF THE LAND AND NO STAMP DUTY HAS BEEN PAID ON THE SAID AD DITIONAL PAYMENT WHICH MEANS THE ASSESSEE COMPANY HAS CLAIMED IN ITS BOOKS ALL THE PAYMENTS WHICH HAVE BEEN MADE OVER AND ABOVE THE SALE CONSIDERATIO N AS DESCRIBED IN THE SALE DEED AND ON WHICH NO STAMP DUTY HAS BEEN PAID TO THE GOVERNMENT. AS PER SECTION 24 OF THE INDIAN STAMPS ACT, 1899 STAMP DUTY SHOULD HAVE BEEN PAID ON THE ADDITIONAL PAYMENT MADE FOR THE LAND AN D AS PER SECTION 35 OF THAT ACT, ANY INSTRUMENT ON WHICH PROPER STAMP DUTY HAS NOT BEEN PAID IS AN INADMISSIBLE EVIDENCE. AS PER' INDIAN STAMPS ACT, P ROSECUTION PROCEEDINGS CAN BE INITIATED FOR THIS VIOLATION. HENCE, THESE A DDITIONAL PAYMENTS CANNOT BE ALLOWED AS AN EXPENDITURE TO THE ASSESSEE COMPAN Y AS PER THE EXPLANATION TO SECTION 37 WHICH CLEARLY STATES AS UNDER:- 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. ' (III) THUS, IT IS CLEAR THAT THESE ADDITIONAL PAYMENTS HA VE BEEN MADE IN CLEAR CUT VIOLATIONS AND CONTRAVENTIONS TO THE GOV ERNMENT ACTS, RULES AND REGULATIONS FOR WHICH EVEN PROSECUTION PROCEEDI NGS CAN BE INITIATED AGAINST THE ASSESSEE COMPANY. HENCE IT IS CLEAR TH AT THIS EXPENSE OF ADDITIONAL PAYMENT IS NOT ALLOWABLE AS DEDUCTION AN D IS ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY IN VIEW OF THE D ISCUSSION MADDER HERE IN PARA 4.7 AND ALSO FOR THE DISCUSSION MADE V IDE PARA 3 HERE-IN- ABOVE. 4.6. THUS, IN VIEW OF THE ABOVE FACTS AND REASONS, THE SAID AMOUNT OF RS.530,000/- SHOWN AS ADDITIONAL PAYMENTS MADE TO T HE FARMERS IS DISALLOWED AND WOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY. THE UNDERSIGNED IS ALSO SATISFIED THAT TH E ASSESSEE COMPANY BY CLAIMING DEDUCTION OF ADDITIONAL PAYMENT HAS FURNIS HED INACCURATE PARTICULARS OF ITS INCOME, FOR WHICH PENALTY PROCEE DINGS U/S 271(1)(C) HAVE BEEN SEPARATELY INITIATED. (ADDITION OF RS.530,000/-) 5. AGGRIEVED BY THIS THE ASSESSEE CAME IN APPEAL BE FORE THE FIRST APPELLATE AUTHORITY RAISING VARIOUS ARGUMENTS WHICH WERE NOT ACCEPTED RESULTING IN THE CONFIRMATION OF THE ORDER PASSED BY THE AO. 6. AGGRIEVED BY THIS THE PRESENT APPEAL HAS BEEN FI LED BY THE ASSESSEE. 11 I.T.A .NO.-1752/DEL/2013 7. THE LD. AR AS OBSERVED SUBMITTED THAT HE WOULD F IRST LIKE TO ADDRESS GROUND NO-4 AS THE ARGUMENTS ADVANCED HEREIN WOULD MORE OR LESS ADDRESS THE OTHER REMAINING GROUNDS RAISED NAMELY GROUND NO 3 & 2. TAKING US THROUGH THE ASSESSMENT ORDER IT WAS HIS SUBMISSION THAT THE AO INITIALLY STARTED TAKING THE FACTS ON RECORD CORRECTLY HOWEVER SUBSEQUENTLY WHILE SUMMING UP HAS FALTERED AND HAS COME UP WITH CONTRADICTORY FINDING S WHICH FACT IT WAS SUBMITTED HE WOULD DEMONSTRATE FROM THE ASSESSMENT ORDER ITSE LF AS THE CONFUSION HAS CONTINUED THEREAFTER. FOR THIS SPECIFIC PURPOSE, O UR ATTENTION WAS INVITED TO PARA 3 OF THE ASSESSMENT ORDER ON THE BASIS OF WHICH IT WAS CONTENDED THAT THE AO INITIALLY STARTS TAKING NOTE OF THE FACTS CORRECTLY IN AS MUCH THAT HE HOLDS THAT THE ASSESSEE COMPANY HAS ACQUIRED VARIOUS LANDS THROUGH FARMERS/VILLAGERS AND AFTER ACQUIRING THE SAME FROM FARMERS/VILLAGERS, IT HAS, IN PURSUANCE OF A COLLABORATION AGREEMENT HANDED OVER THE SAME TO M/S COUNTRYWIDE PROMOTERS (P.) LTD. (HEREINAFTER REFERRED TO AS CWPPL) FOR DEVELOPMENT/CONSTRUCTION OF AN INTEGRATED TOWNSHIP PROJECT ON THE SAID LAND. I T WAS POINTED OUT THE AO RECORDS THAT AS PER THE TERMS OF THE COLLABORATION AGREEMENT, THE ASSESSEE COMPANY IS ENTITLED FOR AN ADDITIONAL CONSOLIDATED FEE OF RS.35,000/- PER ACRE OVER AND ABOVE THE COST OF LAND ACQUIRED AND HANDED OVER TO CWPPL. NOTING OF THE FACTS IN THE ASSESSMENT ORDER TO THIS EXTENT IT WAS SUBMITTED ARE CORRECT. HOWEVER THE ATTEMPT OF THE AO TO ROPE IN SECTION 40 A(3) ON FACTS IT WAS SUBMITTED IS NOT JUSTIFIED. WHILE QUESTIONING THE SAID STAND IT WAS SUBMITTED THAT THE AO AGAIN TAKES THE FACTS CORRECTLY TO THE EXTENT IT IS HELD BY HIM THAT THE ASSESSEE CONTINUES TO BE THE OWNER OF THE LAND AND THE FACT THAT THE LAND HAS NOT BEEN PURCHASED BY THE ASSESSEE AS STOCK-IN-TRADE . HOWEVER AFTER DULY REFERRING TO THE AGREEMENT ENTERED INTO BY THE ASSE SSEE WITH M/S COUNTRYWIDE PROMOTERS PVT. LTD., IT WAS SUBMITTED HE PROCEEDS TO DISALLOW THE EXPENDITURE 12 I.T.A .NO.-1752/DEL/2013 RELYING ON SECTION 40A(3) IGNORING THE MATERIAL FAC T THAT NO EXPENDITURE FOR THE COST OF LAND HAS BEEN CLAIMED BY THE ASSESSEE WHICH FACT RELYING UPON DECISIONS WAS CONSISTENTLY ARGUED BEFORE HIM. IT WAS SUBMITT ED THAT IN ORDER TO JUSTIFY ITS STAND THE AO MAKES AN ELABORATE DISCUSSION THAT SIN CE THE LAND ACQUIRED AND TRANSFERRED BY HIM HAD A DIRECT NEXUS ACCORDINGLY T HOUGH IT IS EARLIER HELD BY HIM THAT IT WAS NOT STOCK-IN-TRADE NOW BECOMES THE ST OCK-IN-TRADE OF THE ASSESSEE ON ACCOUNT OF CONVULATED CONFUSED REASONING. RESORT ING TO SUCH INCORRECT CONVULATED REASONING IT WAS SUBMITTED THE AO FURTHE R MISTAKENLY RELIED ON ATTAR SINGH GURMUKH SINGH VS ITO 191 ITR 667 (SC) WHICH H AD NO RELEVANCE TO THE ISSUE AT HAND AND THEREAFTER CONSIDERING THE EXCEPT IONS REFERRED TO UNDER RULE 6DD AND THE JUDGEMENT OF THE KERALA HIGH COURT IN T HE CASE OF KAMATH MARBLES VS ITO 260 ITR 470 (KER.) ADDITION OF RS. 1,73,160/ - WAS MADE BY WAY OF DISALLOWANCE OF 20% OF THE AMOUNT PAID IN CASH. 7.1. REFERRING TO THE IMPUGNED ORDER, ATTENTION WAS INVITED TO PARA 4.4 OF THE SAME WHEREIN IT WAS POINTED OUT THAT THE CIT(A) HAS REPRODUCED THE JUDGMENTS RELIED UPON BY THE ASSESSEE FOR THE PROPOSITION TH AT SINCE NO EXPENSE WAS INCURRED BY THE ASSESSEE, ADDITION BY WAY OF A DISA LLOWANCE COULD NOT BE MADE AS ON FACTS NO EXPENDITURE HAD BEEN CLAIMED BY THE ASSESSEE. IT WAS CONTENDED THAT HE ALSO DOES NOT CONSIDER THE SAID JUDGEMENT A ND THE ORDER IS SILENT ON THIS ISSUE. THE FOLLOWING DECISIONS IT WAS STATED WERE R ELIED UPON BEFORE THE CIT(A) AS ARE APPEARING IN PARA 4.4 OF THE SAME:- I). CIT VS MOTILAL KHATRI (2008) 218 ITR 602 (RAJ.) ; II). CIT, FARIDABAD VS ALPHA TOYO LTD. (2008) 174 T AXMAN 427 (PURI AND HARYANA); AND III). CIT VS BANWARI LAL BANSIDHAR 229 ITR 229 (ALL .) 7.2. REFERRING TO THE IMPUGNED ORDER IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAD ALL ALONG CLAIMED THAT IN TERMS OF THE AGREEMEN T ENTERED INTO BY THE ASSESSEE 13 I.T.A .NO.-1752/DEL/2013 WITH CWPPL THE ASSESSEE WAS REIMBURSED BY CWPPL AN D IT WAS CONTENDED THAT REIMBURSEMENT UNDER NO CIRCUMSTANCES CAN BE RE GARDED AS A REVENUE RECEIPT AS HAD BEEN HELD BY THE FOLLOWING JUDGEMENTS ON WHI CH RELIANCE WAS PLACED BEFORE THE CIT(A) WHO AGAIN HAS REFERRED TO THESE J UDGEMENTS IN PARA 4.5 OF HIS ORDER AND HAS AGAIN NOT CARED TO ADDRESS THEM IN HI S ORDER:- I). CIT VS TEJAJI FARASRAM KHARAWALLA LTD. (1968) 6 7 ITR 95 (SC); II). CIT VS INDUSTRIAL ENGINEERING PROJECTS (P.) LT D. 202 ITR 1014 (DEL) 7.3. IN THE SAID BACKGROUND REFERRING TO THE FINDIN G RECORDED IN PARA 5.7 OF THE IMPUGNED ORDER IT WAS HIS SUBMISSION THAT DESPITE T AKING NOTE OF THE FACT THAT THE EXPENDITURE HAS NOT BEEN CLAIMED IN THE P&L A/C O F THE ASSESSEE, THE CIT(A) HAS PROCEEDED TO UPHOLD THE ADDITION MADE WITHOUT A DDRESSING THE APPLICABILITY OF THE JUDGEMENTS RELIED UPON. LD. AR TOOK US THRO UGH THE FINDINGS OF THE CIT(A) AND THE AGREEMENT TAKEN INTO CONSIDERATION B Y THE AUTHORITIES BELOW AND THE ACCEPTED FACTS ON RECORD ON THE BASIS OF WHICH IT WAS HIS SUBMISSION THAT NO INCOME WAS TO BE RECEIVED BY THE ASSESSEE AFTER THE LAND HAD BEEN TRANSFERRED FOR DEVELOPMENT. THE ASSESSEE, IT WAS SUBMITTED CONTI NUES TO REMAIN THE OWNER OF THE SAID LAND AND SINCE THE ASSESSEE LACKED THE NEC ESSARY KNOWLEDGE AND FINANCIAL CAPABILITY FOR UNDERTAKING DEVELOPMENTAL WORKS ITS ACTIVE ROLE ENDED AT THAT STAGE. IT WAS HIS SUBMISSION THAT THIS IS THE MANNER IN WHICH ALMOST ALL THE DEVELOPMENT IN AND AROUND NCR HAS TAKEN PLACE AS TH E NATURE OF EXPERTISE REQUIRE TO INTERACT WITH THE FARMERS AND SMALL LAND HOLDERS IN ORDER TO PURCHASE LAND FOR DEVELOPMENT REQUIRES NEGOTIATION SKILLS, A SSISTANCE OF PEOPLE WHO CAN INTERACT WITH THESE SMALL LAND HOLDERS AND INSPIRE FAITH IN THEM AND THE LAND CAN ONLY BE PURCHASED AFTER THE LAND IS IDENTIFIED AND BARGAINED FOR AND THE PRICE SETTLED WITH THE LAND HOLDERS WHO AT TIMES CONSIST OF LANDS TRANSFERRED TO THEM THROUGH GENERATIONS WHEREIN AT TIMES THERE ARE THRO UGH UNWRITTEN INFORMAL AGREEMENTS OF OWNERSHIP AND TITLE AND AT TIMES THER E IS CONFUSION ON ACTUAL 14 I.T.A .NO.-1752/DEL/2013 CLAIMANTS AT TIMES ON ACCOUNT OF WHICH DIFFERENT DE VELOPERS NEED TO RESORT TO LAND CONSOLIDATORS WHO AT TIMES START OUT WITH THE INTENTION OF ACQUIRING THE LAND FOR THEIR OWN PURPOSES BUT LACKING THE EXPERTISE TH E SPECIFIC KNOWLEDGE AND AVAILABILITY OF FUNDS LIMIT THEMSELVES TO CONSOLIDA TE AND IDENTIFY LAND HOLDINGS WHICH ARE RIPE FOR PURCHASE. IT WAS SUBMITTED THAT THE PURCHASE IS MADE FOR CWPPL AND IT IS AN ADMITTED FACT ON RECORD AND THE LAND ACQUIRED IS TRANSFERRED TO THE DEVELOPER I.E CWPPL FOR WHICH PURPOSE A SPE CIFIC PAYMENT HAS BEEN RECEIVED BY THE ASSESSEE WHICH HAS BEEN DISCLOSED A S BUSINESS INCOME OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE ONLY ACTS AS A CONDUIT FOR THE PAYMENTS MADE TO THE FARMERS WHICH WAS REIMBURSED T O THE ASSESSEE. SINCE THESE PAYMENTS HAVE NOT PASSED THROUGH THE P&L AC COUNT OF THE ASSESSEE NO CLAIM FOR THIS EXPENSE WAS MADE AS IT WAS NEVER INC URRED BY THE ASSESSEE. IT WAS HIS SUBMISSION THAT THIS HAS BEEN THE CONSISTENT ST AND OF THE ASSESSEE FOR WHICH PURPOSE ATTENTION WAS INVITED TO COPY OF THE LETTER DATED 17.12.2008 ADDRESSED TO THE AO WHICH WAS ALSO PLACED BEFORE THE CIT(A) AND IS AVAILABLE AT PAGES 36-53 OF THE PAPER BOOK. COPY OF THE COLLABORATION AGREE MENT ENTERED INTO BY THE ASSESSEE WITH THE DEVELOPER TAKEN INTO CONSIDERATIO N BY THE AUTHORITIES WAS ADVERTED TO AND SPECIFIC REFERENCE AND RELIANCE WAS PLACED ON PARA 3(B) OF THE SAME WHICH READS AS UNDER:- 3(B) THAT THE DEVELOPER SHALL ALSO REIMBURSE THE O WNER ALL COSTS AND EXPENSES INCURRED BY THE OWNER WITH RESPECT TO ITS ACQUISITION OF THE SAID LAND. THE DEVELOPER SHALL ADDITIONALLY PAY TO THE OWNER A CONSOLIDATED FEE TO BE CALCULATED @ RS.25,000/- (RUPEES TWENTY F IVE THOUSAND ONLY) PER ACRE OF LAND FOR WHICH THE LICENSE IS ACTUALLY ACQU IRED. AN ADVANCE PAYMENT OF RS.5,000/- (RUPEES FIVE THOUSAND ONLY) A GAINST THE SAME IS BEING PAID IN CASH TO THE OWNER AT THE TIME OF THIS AGREEMENT, RECEIPT OF WHICH THE DEVELOPER HEREBY ACKNOWLEDGES. 7.4. ADDRESSING THE AMOUNT MENTIONED IN THE ABOVE E XTRACT, LD. AR CLARIFIED THAT IT WAS SUBSEQUENTLY REVISED TO RS.35,000/- BY ADDENDUM WHICH IS NOT 15 I.T.A .NO.-1752/DEL/2013 DISPUTED BY THE DEPARTMENT AND IS AN ACCEPTED FACT. ATTENTION WAS ALSO INVITED TO PB PAGE 65 WHICH CONTAINS COPY OF THE LEDGER ACCOUN T OF THE M/S COUNTRYWIDE PROMOTERS (P.) LTD. WHICH ILLUSTRATES THIS POINT. PAPER BOOK PAGES 62 TO 65 IT WAS SUBMITTED SHOWS HOW THE LEDGER ENTRIES HAVE BE EN PASSED ACCORDINGLY IT WAS HIS SUBMISSION THAT NO MONEY HAS BEEN SPENT ON ACQUISITION OF LAND BY THE ASSESSEE. IT WAS CONTENDED THAT THE AGREEMENT ENTE RED INTO BY THE ASSESSEE WITH CWPPL HAS NOT BEEN HELD TO BE EITHER WRONG I.E. A GAINST THE LAW AND NOR HAS IT BEEN DOUBTED OR CHALLENGED OR DISPUTED AS CONTRARY TO LAW. RECEIVING FEES IT WAS SUBMITTED IS NOT PROFIT. THE ISSUE IT WAS SUBMITTE D IS WELL SETTLED BY THE LATEST JUDGEMENT OF THE DELHI HIGH COURT IN CIT VS INDUSTR IAL ENGINEERING PROJECTS (P.) LTD. (CITED SUPRA) WHEREIN IT HAS BEEN HELD TH AT REIMBURSEMENT IS NOT A TRADING RECEIPT. COPY OF THE SAID JUDGEMENT RELIED UPON BEFORE THE CIT(A) QUOTED BY HIM IN HIS ORDER AND STILL NOT DEALT WITH BY HIM, IT WAS SUBMITTED IS AVAILABLE AT PAGES 60 TO 61 OF THE PAPER BOOK WHICH WOULD SHOW THAT THE HONBLE DELHI HIGH COURT FOLLOWED THE PRINCIPLE LAI D DOWN BY THE APEX COURT IN THE CASE OF CIT VS TEJAJI FARASRAM KHARAWALLA LT D. (CITED SUPRA). REFERRING TO THE IMPUGNED ORDER IT WAS HIS SUBMISSION THAT TH E JUDGEMENT OF THE APEX COUNT IN THE CASE OF TUTICORIN ALKALIES CHEMICALS A ND FERTILIZERS LTD. VS CIT (1997) 227 ITR 0172 DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE AND RELIANCE PLACED BY THE AO THEREON IS COMPLETELY MISPLACED. 7.5. REVERTING BACK TO THE PROPOSITION THAT NO DISA LLOWANCE OF EXPENDITURE NOT CLAIMED COULD BE MADE IT WAS SUBMITTED THAT OVER A ND ABOVE THE DECISIONS RELIED UPON BEFORE THE CIT(A) ON WHICH HEAVY RELIANCE IS B EING PLACED EVEN IN THE PRESENT PROCEEDINGS HE WOULD FURTHER SEEK TO RELY O N THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EMBEE CLEARING & SHIPPING SERVICE PVT. LTD. [2007] 12 SOT 227 (MUM.) VS ACIT. ACCORDINGLY IT WAS ARGUED THAT THE 16 I.T.A .NO.-1752/DEL/2013 ISSUE IS WELL SETTLED THAT ADDITION BY WAY OF A DIS ALLOWANCE CANNOT BE MADE WHERE AN EXPENDITURE HAS NOT BEEN CLAIMED BY THE AS SESSEE, THE OCCASION TO DISALLOW THE SAME AS SUCH DOES NOT ARISE. 7.6. SINCE APART FROM THE ORAL ARGUMENTS LD. AR HAD ALSO FILED SYNOPSIS AT THE TIME OF HEARING WHICH ADDRESSES THE GRIEVANCE OF TH E ASSESSEE EXTRACTS FROM THE SAME ARE REPRODUCED HEREUNDER:- 1. AN AGREEMENT WAS ENTERED INTO ON 10.06.2005 BETWEE N ASSESSEE AND M/S COUNTRYWIDE PROMOTERS PVT. LTD. (HEREINAFTER CW PP) COPY AT PAGES 40 TO 48. THE SAME WAS MODIFIED BY AN ADDEND UM ON 24.08.2005 (COPY AT PAGES 49 TO 51). THE SALIENT F EATURES OF THE AGREEMENTS ARE AS UNDER: I) LAND FALLING IN THE VICINITY OF SECTORS 81, 82 & 85 OF FARIDABAD WAS ACQUIRED BY THE ASSESSEE. II) THE ASSESSEE WAS DESIROUS TO DEVELOP, CONSTRUCT AN INTEGRATED TOWNSHIP PROJECT AT THE SAID LAND BUT DUE TO FINANC IAL CONSTRAINT, LACK OF KNOWLEDGE AND EXPERTISE APPROACHED CWPP TO CARRY OUT THE DEVELOPMENT AND CONSTRUCTION WORK OF THE PROPOS ED TOWNSHIP TO WHICH CWPP AGREED. III) THE ASSESSEE GRANTED/CONVEYED ITS PERMISSION/CONSEN T/APPROVAL TO CWPP TO DEVELOP/CONSTRUCT INTEGRATED TOWN AT SAI D LAND. IV) THE ENTIRE AMOUNT REQUIRED FOR CARRYING OUT ON CONS TRUCTION AND COMPLETION OF TOWNSHIP WAS TO BE WHOLLY ON ACCOUNT OF CWPP . V) CWPP WAS TO SHARE 100% OF BUILT UP AREA AND ASSESSE E WAS NOT TO HAVE ANY RIGHT IN THE FSI (PARA 1 OF ADDENDUM) VI) CWPP WAS TO PAY FEES OF RS. 35000/- PER ACRE TO THE ASSESSEE (PARA 2 OF ADDENDUM) VII) CWPP SHALL ALSO REIMBURSE THE ASSESSEE ALL COST AND EXPENSE INCURRED BY THE ASSESSEE WITH RESPECT TO ITS ACQUIS ITION OF THE SAID LAND. 1.1 BASED ON THE ABOVE AGREEMENTS: ASSESSEE SHOWED THE INCOME BY WAY OF FEES @ RS. 350 00/- PER ACRE WHICH IS CREDITED TO THE P&L ACCOUNT ASSESSEE RECEIVED REIMBURSEMENT OF THE EXPENDITURE TOWARDS COST INCURRED BY IT IN RESPECT OF ACQUISITION OF SU BJECT LAND. 2. CIT(A) HELD THUS IN PARA 4.7 (REPRODUCED BELOW) : (I) THE APPELLANT COMPANY CAN BE SAFELY TERMED A S ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE. WHAT HE RE CEIVES I.E. COST OF LAND AND RS. 35,000/- PER ACRE IN (IS) RECEIPT IN I TS HAND FOR THE TRANSFER OF DEVELOPMENT RIGHT AND THE PAYMENT FOR PURCHASE O F LAND IS ITS 17 I.T.A .NO.-1752/DEL/2013 EXPENDITURE. ON THESE FACTS, IN MY OPINION THE PAYMENT MADE TO LAND OWNER IS EXPENSE IN APPELLANTS HAND AND ENTIRE RECE IPTS INCLUDING COST OF LAND PLUS RS. 35000/- PER ACRE IS REVENUE RECEIP T IN ITS HAND. AS COST OF LAND IS AN EXPENDITURE IN APPELLANTS HAND, SECT ION 40A(3) IS APPLICABLE, AS THE EXPENDITURE HAS BEEN INCURRED. (II) RELIANCE IS PLACED ON THE JUDGMENT OF SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS VS. CIT, 2 77 ITR 172 (SC). 7.7. THE FOLLOWING SUBMISSIONS CHALLENGING THE ACTI ON OF THE CIT(A) HAVE BEEN PLACED ON RECORD BY WAY OF THE WRITTEN SYNOPSI S:- SUBMISSIONS 3. THE FINDINGS GIVEN BY CIT(A) ARE CHALLENGED, B OTH ON FACTS AND IN LAW, FOR MORE THAN ONE REASON, AS STATED HEREINAFTER. 3.1 BEFORE ADVERTING TO OUR PRECISE SUBMISSIONS, I T IS RELEVANT TO REFER TO THE FOLLOWING SETTLED PROPOSITIONS ON THE INTERPRETATIO N OF AGREEMENT: ON INTERPRETATION OF AGREEMENT I) KIND ATTENTION IS INVITED THE SECTION 91 OF THE IND IAN EVIDENCE ACT, 1872, WHICH STATES THUS: S. 91 EVIDENCE OF TERMS OF CONTRACTS, GRANTS AND OT HER DISPOSITIONS OF PROPERTY REDUCED TO FORM OF DOCUMENT WHEN THE TERMS OF A CONTRACT, OR A GRANT, OR OF ANY OTHER DISPOSITION OF PROPERTY, H AVE BEEN REDUCED TO THE FORM OF A DOCUMENT, AND IN ALL CASES IN WHICH ANY M ATTER IS REQUIRED BY LAW TO BE REDUCED TO THE FORM OF A DOCUMENT, NO EVI DENCE SHALL BE GIVEN IN PROOF OF THE TERMS OF SUCH CONTRACT, GRANT OR OTHER DISPOSITION OF PROPERTY, OR SUCH MATTER EXCEPT THE DOCUMENT ITSELF, OR SECON DARY EVIDENCE OF ITS CONTENTS IN CASES IN WHICH SECONDARY EVIDENCE IS AD MISSIBLE UNDER THE PROVISIONS HEREINBEFORE CONTAINED. II) IN CIT VS. MOTORS & GENERAL STORES (P) LTD. 66 ITR 692 (SC) , IT WAS HELD THAT IN THE ABSENCE OF ANY SUGGESTION OF BAD F AITH OR FRAUD THE TRUE PRINCIPLE IS THAT A TAXING STATUTE HAS TO BE APPLIE D IN ACCORDANCE WITH THE LEGAL RIGHTS OF THE PARTIES TO THE TRANSACTION. WHEN THE TRANSACTION IS EMBODIED IN A DOCUMENT THE LIABILITY TO TAX DEPENDS UPON THE MEANING AND CONTENT OF THE LANGUAGE USED IN ACCORDANCE WITH THE ORDINARY RULES OF CONSTRUCTION. III) IN D.S. BIST & SONS VS. CIT, 149 ITR 276 (DEL.) , IT WAS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT THAT IT ACT DOES NOT CLOTHE THE TAXING AUTHORITY WITH ANY POWER OR JURISDICTION TO REWRITE THE TERM OF AN AGREEMENT ENTERED INTO ..UNDER, THE TAXING SYSTEM IT IS UP TO THE ASSESSEE TO CONDUCT HIS BUSINESS IN HIS WISDOM. TH E ASSESSEE MAY ENTER INTO COMMERCIAL TRANSACTIONS WITH ANOTHER PARTY WHO IS AD IDEM WITH THE ASSESSEE AS TO THE TERMS AND CONDITIONS. 18 I.T.A .NO.-1752/DEL/2013 IV) IN STATE BANK OF INDIA VS. MULA SAHAKARI SAKHAR KAR KHANA LTD. 132 COMP CASES 565 (SC), IT WAS HELD : A DOCUMENT, AS IS WELL KNOWN MUST PRIMARILY BE CON STRUED ON THE BASIS OF THE TERMS AND CONDITIONS CONTAINED THEREIN. IT IS ALSO TRUE THAT WHILE CONSTRUING A DOCUMENT THE COURT SHALL NOT SUPPLY AN Y WORDS WHICH THE AUTHOR THEREOF DID NOT USE . THE DOCUMENT IN QUESTION IS A COMMERCIAL DOCUMENT. IT DOES NOT ON ITS FACE CONTAIN ANY AMBI GUITY. THE HIGH COURT ITSELF SAID THAT EX FACIE THE DOCUMENT APPEARS TO B E A CONTRACT OF INDEMNITY. SURROUNDING CIRCUMSTANCES ARE RELEVANT FOR CONSTRUC TION OF A DOCUMENT ONLY IF ANY AMBIGUITY EXISTS THEREIN AND NOT OTHERWISE . THE SAID DOCUMENT, IN OUR OPINION, CONSTITUTES A DO CUMENT OF INDEMNITY AND NOT A DOCUMENT OF GUARANTEE AS IS CLEAR FROM TH E FACT THAT BY REASON THEREOF THE APPELLANT WAS TO INDEMNITY THE COOPERAT IVE SOCIETY AGAINST ALL LOSSES, CLAIMS, DAMAGES, ACTIONS AND COSTS WHICH MA Y BE SUFFERED BY IT. THE DOCUMENT DOES NOT CONTAIN THE USUAL WORDS FOUND IN A BANK GUARANTEE FURNISHED BY A BANK AS, FOR EXAMPLE, UNEQUIVOCAL C ONDITION THE COOPERATIVE SOCIETY WOULD BE ENTITLED TO CLAIM THE DAMAGES WITHOUT ANY DELAY DEMUR OR THE GUARANTEE WAS UNCONDITIONAL AN D ABSOLUTE AS WAS HELD BY THE HONBLE HIGH COURT. THE HIGH COURT THUS, MISREAD AND MISINTERPRETED THE DOCUMENT AS ON SCRUTINY THEREOF, IT HAD OPINED THAT IT WAS A CONTR ACT OF GUARANTEE AND NOT A CONTRACT OF INDEMNITY. V) IT IS JUDICIALLY SETTLED PRINCIPLE THAT IF A TRANSA CTION IS EMBODIED IN A DOCUMENT, THE LIABILITY TO TAX DEPENDS UPON THE MEA NING AND CONTENT OF THE LANGUAGE USED I.E. THE COURT HAS TO LOOK TO THE TER MS OF THE CONTRACT BETWEEN THE PARTIES AS TO WHAT IS THE TRUE NATURE A ND EFFECT OF THE TERMS EMBODIED IN AN AGREEMENT BETWEEN THE PARTIES. UNDER SECTION 91 AND 92 OF THE EVIDENCE ACT, NO ORAL EVIDENCE MAY BE ADMITT ED BY THE COURT WHICH IS CONTRARY TO THE AVERMENTS CONTAINED IN A W RITTEN DOCUMENT AND THAT WRITTEN CONTRACT CANNOT BE IGNORED AND A DIFFE RENT CONTRACT BETWEEN THE PARTIES BE SPELT OUT BY THE COURT. THIS IS SUPPORTED BY THE FOLLOWING DECISIONS: - RE POLLY PACK INTERNATIONAL PLC (IN ADMN.) [1962] 2 ALL ER 433 - ITO VS. SHRIRAM BEARING LTD. 164 ITR 419 (CAL.) AFF IRMED IN ITO VS. SHRIRAM BEARING LTD. 224 ITR 724 (SC) 4. COMING TO THE FINDINGS OF THE CIT(A) (I) THE CIT(A) IS TOTALLY INCORRECT IN STATING THAT IT IS DIFFICULT TO ACCEPT THE ARS CONTENTION THAT THE COST OF LAND IS REIMBURSED BY CWPPL. IN STATING SO THE CIT(A) TOTALLY IGNORED THE FOLLOWING: THAT PARA 3(B) OF THE AGREEMENT (PAGE 42) CLEARLY S TATES THAT CWPP SHALL REIMBURSE ALL COSTS AND EXPENSES INCURRED BY THE ASSESSEE WIT H RESPECT TO THE ACQUISITION OF SAID LAND; THAT IN THE BOOKS OF ACCOUNT MAINTAINED CONTEMPORAN EOUSLY THE SUM RECEIVED FROM CWPP WAS SHOWN AS REIMBURSEMENT. THE BOOKS OF 19 I.T.A .NO.-1752/DEL/2013 ACCOUNTS ARE DULY ACCEPTED BY THE LOWER AUTHORITIES AND ARE NOT REJECTED. WHAT THE CIT(A) HAS DONE IN TO BRUSH ASIDE THE TERM S OF AGREEMENT AND THE FACT THAT THE TERMS OF AGREEMENT WERE CARRIED O UT AND THAT REIMBURSEMENT WAS ACTUALLY MADE. IN DISREGARDING THE ABOVE EVIDENCE THE CIT(A) IS UNFORTUNATELY DOING NOTHING BUT TO RE WRITE THE AGREEMENT, WHICH AS REFERRED TO ABOVE, IS NOT PERMISSIBLE BY H IM AS A TAXING AUTHORITY. IT IS NOT NECESSARY TO DWELL FURTHER ON THIS EVIDEN T MATTER. (II) IT IS NEXT STATED BY CIT(A) THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE, THAT THE COST OF LAND A ND RS. 35000/- PER ACRE RECEIVED IS ASSESSEES BUSINESS RECEIPT AND PAYMENT BY ASSESSEE TO THE LAND OWNER IS ITS BUSINESS EXPENDITURE. THE ABOVE ARGUMENT, IT IS SUBMITTED, IS ENTIRELY FA LLACIOUS FOR MORE THAN ONE REASON AS STATED HEREUNDER: (A) THE CIT(A) IS WRONG AND INCORRECT IN STATING THAT A SSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTATE. PARA 1 OF THE ADDENDUM AT PAGE 50 , CLEARLY SHOWS THAT CWPP SHALL SHARE 100% OF BUILT UP AREA AND ASSESSEE SHALL HAVE NO RIGHT IN THE FSI. FURTHER, PARA 2 STATES T HAT THE ONLY INCOME TO THE ASSESSEE WOULD BE FEES @ RS. 350 00/- PER ACRE. ON THESE FACTS, THE CIT(A) IS TOTALLY WR ONG IN STATING THAT ASSESSEE IS CARRYING ON OR ENGAGED THE BUSINESS OF DEVELOPMENT OF REAL ESTATE. IT IS PLAIN THAT ASSESSEE, NOT BEING ENTITLED TO ANY INCOME FROM THE DEVELOPMENT O F REAL ESTATE, CANNOT IN ANYWAY BE SAID TO BE CARRYING ON OR ENGAGED IN THE BUSINESS OF DEVELOPMENT OF REAL ESTA TE. (B) THE CIT(A) IS WRONG IN STATING THAT THE RECEIPTS TO WARDS COST OF LAND FROM CWPP ARE REVENUE RECEIPTS IN THE HAND OF THE ASSESSEE. THE CIT(A) HAS IGNORED THE FACT THAT RECEIPTS FROM CWPP TOWARDS THE COST OF LAND WERE NOT TRADING RECEIPTS OF THE ASSESSEE BUT WERE REIMBURSEMENT OF COST INCURRED BY THE ASSESSEE WITH RESPECT TO THE ACQUIS ITION OF THE SAID LAND AS PER PARA 3(B) OF THE AGREEMENT. TO SAY THAT IT IS THE TRADING RECEIPT AGAIN AMOUNTS TO REWRITIN G THE AGREEMENT BETWEEN THE ASSESSEE AND CWPP . AS STATED, THE COURTS, INCLUDING THE APEX COURT, HAVE FROWNED UPON THE ATTEMPT OF TAXING AUTHORITIES TO REWRITE THE AGREEM ENT IN THE GARB OF INTERPRETING THE SAME. (C) THE CIT(A) HAS ALSO ERRED IN IGNORING THE SETTLED L EGAL POSITION THAT UNDER NO CIRCUMSTANCES CAN BE REGARDE D AS REVENUE RECEIPT AS HELD IN CIT VS. TEJAJI FARSRAM KHARAWALA 67 ITR 95 (SC) AND FOLLOWED BY THE JURISDICTIONAL HIGH COURT IN CIT VS. INDUSTRIAL ENG INEERING PROJECTS PVT. LTD. 202 ITR 1014 (DEL.). THESE JUDG MENTS WERE REFERRED TO, BUT THE CIT(A) SKIRTED TO DEAL WI TH THEM. 20 I.T.A .NO.-1752/DEL/2013 MORE RECENTLY HONBLE BOMBAY HIGH COURT IN DI(INTERNATIONAL TAXATION) VS. KRUPP UDHE GMBH 354 ITR 173 (BOM.) FOLLOWING DELHI HIGH COURT JUDGMENT IN INDUSTRIAL ENGINEERING PROJECTS (P) LTD. (SUPRA), H AVE HELD THAT REIMBURSEMENT OF EXPENSES WOULD NOT BE LIABLE TO BE INCLUDED IN INCOME. TO CONCLUDE A REIMBURSEMENT CA N NEVER BE A TRADING RECEIPT. (D) CIT(A) IS EQUALLY WRONG IN HOLDING THAT THE COST OF LAND IS EXPENDITURE IN APPELLANTS HAND. HERE AGAIN THE CIT(A) IGNORED THE SETTLED POSITION AS TO WHAT CONSTITUTES EXPENDITURE. IN GENERAL INSURANCE COMPANY OF INDIAN LIMITED VS. CIT, 240 ITR 139 (SC) THE COURT EXPLAINED THE TERM EXPEN DITURE AS UNDER: 11. THE TERMS EXPENDITURE CAME UP FOR CONSIDERATION OF THIS COURT IN INDIAN MOLASSES CO. P. LTD. VS. CI T [1959] 37 ITR 66. IT WAS HELD : SPENDING IN THE SENSE O F PAYING OUT OR AWAY OF MONEY IS THE PRIMARY MEANING OF EXPENDITURE. EXPENDITURE IS WHAT IS PAID OUT O R AWAY AND IS SOMETHING WHICH IS GONE IRRETRIEVABLY. IN THE PRESENT CASE, THE COST OF LAND IS NOT INCURR ED OUT OF ASSESSEES POCKET, AND MORE IMPORTANTLY IS NOT SOME THING WHICH HAS GONE IRRETRIEVABLY. AFTER IT IS INCURRED IT IS REIMBURSED TO THE ASSESSEE. HENCE, THE SAME DOES N OT HAVE THE ATTRIBUTES OF EXPENDITURE. FURTHER IN ATTAR SINGH GURMUKH SINGH 191 ITR 667 (S C), EXPENDITURE WAS HELD TO MEAN WHICH HAVE BEEN TAKEN INTO ACCOUNT WHILE DETERMINING THE PROFIT U/S 28, AND PU RCHASE OF STOCK-IN-TRADE IS ONE SUCH OUTGOING WHICH WOULD BE COVERED BY THE WORD EXPENDITURE. IN THE PRESENT CA SE, COST OF LAND CANNOT BE TAKEN INTO DETERMINING PROFIT U/S 28 NOR FOR ACQUISITION OF STOCK-IN-TRADE. (III) THE RELIANCE ON THE JUDGMENT IN TUTICORIN ALKALI CH EMICALS & FERTILIZERS (SUPRA) IS MISPLACED. THE SUPREME COURT IN CIT VS. SUN ENGG. WORKS PVT. LTD. 198 ITR 297 (SC) HAS HELD THUS: IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OU T A WORD OR A SENTENCE FROM THE JUDGMENT OF THE COURT, DIVORCED F ROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THE COURT. THE JUDGMENT MUST BE READ A S A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT HAVE TO BE CONSIDERE D IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT. A DECIS ION OF THE COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND WHILE APPLYING THE DECISION TO A LATER CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THE COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE 21 I.T.A .NO.-1752/DEL/2013 JUDGMENT, DIVORCED FROM THE CONTEXT OF THE QUESTION S UNDER CONSIDERATIONS BY THE COURT, TO SUPPORT THEIR PROCE EDINGS. THE JUDGMENT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS & FERTILIZERS (SUPRA) IS OF NO HELP. THE QUESTION IN THAT CASE W AS WHETHER INTEREST DERIVED FROM BORROWED FUNDS INVESTED IN SHORT TERM DEPOSIT WITH BANK WOULD BE CHARGEABLE TO TAX UNDER THE HEAD INCOME F ROM OTHER SOURCES OR WOULD BE CAPITALIZED AFTER THE COMMENCEMENT OF COMM ERCIAL PRODUCTION. THE COURT HELD THAT INTEREST WAS CHARGEABLE AS INCO ME FROM OTHER SOURCES. THE FINDING WAS BASED ON THE PROVISIONS OF INCOME T AX ACT ON THE ACCRUAL OF INCOME. THE COURT DID NOT REJECT THE ACCOUNTS M AINTAINED AND CONFINED THE DECISION TO THE PROVISIONS OF THE ACT ON THE CH ARGEABILITY OF INCOME. IN THE PRESENT CASE, THE CIT(A) HAS CHALLENGED THE ACC OUNTS AND HAS IN EFFECT REWRITTEN THEM HIMSELF BY CASTING A TRADING AND PRO FIT AND LOSS ACCOUNT AND IN DOING SO SEEKS SUPPORT FROM THE JUDGMENT OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA). THIS IS NOT THE R ATIO OF THE JUDGMENT OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA). (IV) THE ACTION OF THE CIT(A) AS STATED SUPRA IS BASED O N CHALLENGING THE BOOKS OF ACCOUNT BY CONSTRUING THE ACTIVITY OF THE ASSESS EE IN THE MATTER OF PURCHASE OF LAND AND TRANSFERRING ITS DEVELOPMENT R IGHTS AS A TRADING ACTIVITY. THE CIT(A) HAS NOT INVOKED PROVISIONS OF SECTION 145 IN REJECTING THE ACCOUNTS. THE ENTIRE ORDER IS OF BARREN OF ANY FINDING WHATSOEVER THAT SECTION 145 WAS APPLICABLE AND THEREFORE, CIT(A) WA S NOT PERMITTED TO REJECT THE ACCOUNTED VERSION IN THE MANNER HE HAS D ONE AND TO HOLD THAT SECTION 40A(3) WAS APPLICABLE. 5. FROM ABOVE, IT IS SUBMITTED THAT THE COST OF ACQUIS ITION OF LAND WAS NOT AN EXPENDITURE IN THE HANDS OF THE ASSESSEE AND, THERE FORE, WAS NOT SUBJECT TO THE PROVISIONS OF SECTION 40A(3). THE COST OF LAND HAV ING NOT BEEN CLAIMED AS EXPENDITURE, THERE COULD BE NO DISALLOWANCE U/S 40A (3). ON THE PROPOSITION THAT NO DISALLOWANCE CAN BE MADE U/S 40A(3) WHERE N O DEDUCTION IS CLAIMED REFERENCE IS MADE TO: I) CIT VS. MOTILAL KHATRI (2008) 218 CTR 602 (RAJ.) II) CIT FARIDABAD VS. ALPHA TOYO LTD. (2008) 174 TAXMAN N 427 (P&H) III) CIT VS. BANWARI LAL BANSIDHAR (1998) 229 ITR 229 (A LL.) IV) EMBEE CLEARING & SHIPPING SERVICE PVT. LTD. (2007) 12 SOT 227 (MUM.) 5.1 IT IS, THEREFORE, PRAYED THAT THE DISALLOWANCE U/S 40A(3) MAY KINDLY BE DELETED. 8. THE LD. DR ON THE OTHER HAND PLACED HEAVY RELIAN CE UPON THE ASSESSMENT ORDER AND THE IMPUGNED ORDER. REFERRING TO THE AGR EEMENT ENTERED INTO BY THE 22 I.T.A .NO.-1752/DEL/2013 ASSESSEE WITH CWPPL QUOTED BY THE ASSESSING OFFICER IN HIS ORDER, IT WAS CONTENDED THAT THE ASSESSEE IS IN THE REAL ESTATE B USINESS. IT WAS POINTED OUT THAT THE SALE DEED WAS IN ASSESSEES FAVOUR AND IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS MERELY A HUSK OWNER AS ALMOST ALL THE RIGHTS QUA THE LAND HAD BEEN TRANSFERRED TO THE DEVELOPER AND IN THESE FACTS AND CIRCUMSTANCES, IT WAS HIS SUBMISSION HE WOULD PLACE HEAVY RELIANCE UPON PARA 4.7 OF THE CIT(A). THE SAME IS REPRODUCED HEREUNDER FOR READY-REFERENCE:- 4.7. I HAVE CONSIDER THE ASSESSMENT ORDER, ARGUMEN T OF LD. AR. TO DECIDE THE ISSUE OF DISALLOWABILITY U/S 40A(3) POIN TED OUT BY LEARNED AR, IT IS PROPER TO EXAMINE THE TERMS OF COLLABORATION AGREEM ENT AND FACTS OF THE CASE. THE APPELLANT PURCHASES THE LAND FROM VARIOU S FARMERS/LAND OWNERS IN ITS OWN NAME BY ENTERING INTO SALE DEED. REGIST RATION IS DONE IN THE NAME OF APPELLANT. THE PAYMENT IS MADE BY APPELLANT. A S PER THE COLLABORATION AGREEMENT, THE APPELLANT COMPANY WOULD ACQUIRE THE LAND AND TRANSFER 100% OF ITS DEVELOPMENT RIGHT TO M/S CWPPL. THE AP PELLANT COMPANY IS SHOWN AS OWNER OF THE LAND. IN LIEU OF TRANSFERRIN G THE DEVELOPMENT RIGHT, THE APPELLANT COMPANY GETS COST OF LAND PLUS RS.35, 000 PER ACRE FOR CWPPL. THIS BEING THE CASE, WHAT IS TRANSFERRED IS THE DEVELOPMENT RIGHT, THE OWNERSHIP REMAINS WITH APPELLANT. THEREFORE, I T IS DIFFICULT TO ACCEPT THE LD. ARS CONTENTION THAT THE COST OF LAND IS REIMBU RSED BY CWPPL. IF THE LAND WOULD HAVE BEEN SOLD TO CWPPL, VIEW MIGHT HAVE BEEN THAT THE APPELLANT IS ONLY WORKING AS AN AGENT OF CWPPL AND EXPENDITURE PERTAINS TO CWPPL AND THE APPELLANT IS ONLY RECEIVING THE CO ST OF LAND AS REIMBURSEMENT OF EXPENDITURE. I AGREE WITH THE FIN DING OF A.O. THAT OWNERSHIP CONTINUES WITH THE APPELLANT AND ONLY DEV ELOPMENTAL RIGHT IS TRANSFERRED TO CWPPL. IN THAT SCENARIO, THE APPELL ANT COMPANY CAN BE SAFELY TERMED AS ENGAGED IN THE BUSINESS OF DEVELOP MENT OF REAL ESTATE. WHAT HE RECEIVES I.E. COST OF LAND AND RS.35,000 PE R ACRE IN RECEIPT IN ITS HAND FOR THE TRANSFER OF DEVELOPMENT RIGHT AND THE PAYMENT MADE TO LAND OWNER IS EXPENSE IN APPELLANTS HAND AND ENTIRE RECE IPTS INCLUDING COST OF LAND PLUS RS.35,000 PER ACRE IS REVENUE RECEIPT IN ITS HAND. AS COST OF LAND IS AN EXPENDITURE IN APPELLANTS HAND, SECTION 40A( 3) IS APPLICABLE, AS THE EXPENDITURE HAS BEEN INCURRED. THIS EXPENDITURE IS NOT CLAIMED EXPLICITLY IN ITS PROFIT & LOSS A/C AS THE RECEIPT AND PAYMENT TO THE SAME EXTENT GETS SQUARED UP TO THE EXTENT OF COST OF LAND. THIS ACC OUNTING TREATMENT CAN NOT OVERRIDE THE TRUE NATURE OF TRANSACTION. IT IS SET TLED LAW THAT THE PROVISIONS OF INCOME TAX ACT WOULD PREVAIL OVER THE SYSTEM OF ACCOUNTING. RELIANCE IS PLACED ON HONBLE S.C DECISION IN THE CASE OF TUTIC ORIN ALKALIES CHEMICALS AND FERTILIZERS LTD. VS CIT (1997) 227 ITR 0172. 23 I.T.A .NO.-1752/DEL/2013 9. IN REPLY, THE LD. AR SUBMITTED THAT NEITHER THE CIT(A) HAS ADDRESSED THE JUDGEMENTS RELIED UPON BY THE ASSESSEE THOUGH REFE RENCE TO THEM HAD BEEN MADE AND REPRODUCED BY HIM IN HIS ORDER NOR HAS THE DEPA RTMENT CARED TO DISTINGUISH THE SAME SO AS TO SHOW HOW THEY ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. IT WAS SUBMITTED THE FACT REMAINS UNASSAILED ON RECORD THAT THE EXPENDITURE DISALLOWED BY THE AO WHICH HAS BEEN UPHELD BY THE CIT(A) WAS NEVER CLAIMED BY THE ASSESSEE. IT WAS ALSO SUBMITTED THAT THE MO DE OF TRANSFER OF OWNERSHIP AS PER THE LAWS OF THE LAND IS ADMITTEDLY ONLY BY A R EGISTERED SALE DEED AND IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS THE OWNE R OF THE LAND ACCORDINGLY THE ARGUMENTS THAT ACTUAL OWNER IS SOMETHING ELSE AND T HE ASSESSEE IS ONLY A HUSK OWNER DOES NOT ADVANCE THE CASE OF THE REVENUE IN A NY MANNER. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIRST REPRODUCE THE RELEVANT PROVISION WHICH HAS BEEN INVOKED BY THE TAX AUTHORITIES:- [EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIR CUMSTANCES] 40A.1. . 2. ........... 3. WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPEC T OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON I N A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. 10.1. A PERUSAL OF THE ABOVE PROVISION SHOWS THAT I T STARTS WITH THE NON-OBSTANTE CLAUSE SETTING OUT THAT THE PROVISIONS OF THIS SECT ION SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THE ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. SUB-SECTION (3) OF SECTIO N 40A IS AN EXCEPTION TO THE DEDUCTIBILITY OF EXPENDITURE UNDER THE COMPUTATION PROVISIONS OF PROFITS AND 24 I.T.A .NO.-1752/DEL/2013 GAINS OF BUSINESS OR PROFESSION. THUS CONSEQUENTL Y WHAT DOES NOT FALL WITHIN THE COMPUTATION OF INCOME WILL NOT ATTRACT THE PROV ISIONS OF SECTION 40A(3). 10.2. IN THE FACTS OF THE PRESENT CASE IT IS NECESS ARY TO FIRST REFER TO HOW THE ISSUE HAS BEEN ADDRESSED BEFORE THE AO. A PERUSAL OF REP LY DATED 17.12.2008 WHICH HAS BEEN EXTRACTED BY THE AO SHOWS THAT THE ASSESSE E CLAIMED RELYING UPON THE AGREEMENT ENTERED INTO WITH M/S COUNTRYWIDE PROMOTE RS PVT. LTD. THAT THE ASSESSEE HAD ACQUIRED VARIOUS LANDS THROUGH FARMERS /VILLAGERS AND AFTER ACQUIRING THE SAME HANDED OVER TO THE DEVELOPER FOR DEVELOPME NT OF AN INTEGRATED TOWNSHIP PROJECT AND IN TERMS OF THE COLLABORATION AGREEMENT THE ASSESSEE RECEIVED A CONSOLIDATED FEE OF RS.35,000/-. THE OP ENING PARAS OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE DEVELOPER AR E EXTRACTED IN UN-NUMBERED PAGES 2 OF THE ASSESSMENT ORDER AND THE SAME ARE RE PRODUCED HEREUNDER ONCE AGAIN FOR READY-REFERENCE:- WHEREAS THE OWNER HEREIN IS IN THE PROCESS OF ACQU IRING VARIOUS AGRICULTURAL LANDS FALLING IN THE VICINITY OF SECTO R 81, 82 AND 85 OF FARIDABAD AND THE OWNER UNDERTAKES THAT IT SHALL AC QUIRE PERFECT LEGAL TITLE ALONG WITH THE VACANT POSSESSION OF 18 ACRES OF LAN D OR THEREABOUT. AND WHEREAS THE OWNER IS DESIROUS TO DEVELOP/CONSTR UCT ON INTEGRATED TOWNSHIP PROJECT AT THE SAID LAND, HOWEVER DUE TO F INANCIAL CONSTRAINTS, LACK OF KNOWLEDGE AND EXPERTISE IN THE REAL ESTATE BUSIN ESS IS NOT IN A POSITION TO DO SO. AND WHEREAS THE OWNER HAS APPROACHED THE DEVELOPER TO CARRY OUT THE DEVELOPMENT AND CONSTRUCTION WORKS OF THE PROPOSED TOWNSHIP AND THE DEVELOPER HAS AGREED TO THE SAME.. 10.3. THE EXPLANATION OF THE ASSESSEE EXTRACTED THE REIN IS ALSO REPRODUCED HEREUNDER:- BASED ON THE AFORESAID AGREEMENT THE ASSESSEE PURC HASED LAND FOR WHICH THE (M/S COUNTRYWIDE PROMOTERS PVT. LTD.) HAS REIMB URSED ALL COSTS AND EXPENSES WITH RESPECT TO THE ACQUISITION OF THE SAI D LAND AND ALSO IN CONFORMITY WITH THE COLLABORATION AGREEMENT THE ASS ESSEE HAS RECEIVED FEES CALCULATED @ RS.35,000/- PER ACRE, WHICH IS DULY CR EDITED TO THE PROFIT AND LOSS ACCOUNT AS THE INCOME. 25 I.T.A .NO.-1752/DEL/2013 SECTION 40A APPLIES TO EXPENSES OR PAYMENTS NOT DED UCTIBLE IN CERTAIN CIRCUMSTANCES. IT STARTS WITH THE NON-OBSTANTE CLA USE PROVIDING THAT THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWI THSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THE A CT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION. SUB-SECTION (3) OF SECTION 40A IS AN EXCEPTION TO THE DEDUCTIBILITY OF EXPENDITURE UNDER THE COMPUTATION PROVISIONS OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS AXIOMATICAL LY WHAT DOES NOT FALL WITHIN THE COMPUTATION OF INCOME WILL NOT ATTRACT T HE PROVISIONS OF SECTION 40(A)3. 10.4. IT IS SEEN THAT THE AO HAS SUMMED UP THE EXPL ANATION OFFERED IN THE FOLLOWING MANNER:- THE ASSESSEE FURTHER SUBMITS THAT THE SUM PAID BY IT FOR PURCHASE OF LAND DOES NOT FALL WITHIN THE TERM EXPENDITURE AS IT I S USED IN SECTION 40A(3). THE ASSESSEE HAS ALSO CONTENDED THAT THE LAND HAS N OT BEEN PURCHASED BY IT AS STOCK-IN-TRADE AND IT HAS NOT CLAIMED THE COST O F LAND AS ANY EXPENDITURE WHILE DETERMINING ITS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AND HENCE THE PROVISIONS OF SECTION 40A (3) CANNOT BE APPLIED TO MAKE ANY DISALLOWANCE. 10.5. A READING OF THE ORDER SHOWS THAT THE AO HOWE VER SUBSEQUENTLY PROCEEDS TO HOLD THE LAND AS STOCK-IN-TRADE OF THE ASSESSE E AND INVOKES SECTION 40A(3) RELYING UPON ON ATTAR SINGH GURMUKH SINGH VS ITO ( CITED SUPRA). THE CIT(A), IT IS SEEN THOUGH REPRODUCES THE JUDGEMENTS RELIED UPON BY THE ASSESSEE IN PARA 4.4 TO PARA 4.6 HOWEVER UPHOLDS THE ACTION OF THE AO WITHOUT CARING TO ADDRESS HOW THE SPECIFIC JUDGEMENTS RELIED UPON BY THE ASSESSEE TO CONTEND THAT RE-IMBURSEMENT OF EXPENSES CANNOT BE TREATED AS INC OME OF THE ASSESSEE WERE NOT APPLICABLE. NOR HAS HE CARED TO CONSIDER THE R ATIO DECIDENDI OF THE JUDGEMENTS WHICH UNAMBIGUOUSLY HOLDS THAT WHERE TH E EXPENDITURE HAS NOT BEEN INCURRED BY THE ASSESSEE CONSEQUENTLY CLAIM NO T HAVING BEEN MADE THE OCCASION TO MAKE AN ADDITION BY WAY OF A DISALLOWAN CE DOES NOT ARISE. ADMITTEDLY IT IS A FACT ON RECORD THAT THE EXPENDIT URE IS NOT CLAIMED IN THE P&L A/C OF THE ASSESSEE AND THE PAYMENT IS SQUARED UP. IN THESE AFORE-MENTIONED 26 I.T.A .NO.-1752/DEL/2013 PECULIAR FACTS AND CIRCUMSTANCES, WE FIND OURSELVES UNABLE TO CONCUR WITH THE REASONING AND FINDING ARRIVED AT IN THE IMPUGNED OR DER AS THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MOTILAL KHATRI (2008) 218 CTR 602 (RAJ.) IS VERY CLEAR. THEIR LORDSHIPS BEFORE ARRIV ING AT THEIR DECISION CATEGORICALLY TOOK NOTE OF THE FACT THAT THE PROVIS IONS OF SECTION 40A(3) HAD BEEN LOOKED AT AND THEREAFTER THE POSITION IS VERY CLEAR IN AS MUCH AS WHEN THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION OF ANY EXPEN DITURE THE QUESTION OF NOT ALLOWING ANY PART OF THAT EXPENDITURE AS DEDUCTION DOES NOT ARISE. FOR READY- REFERENCE, WE EXTRACT THE RELEVANT FINDING OF THEIR LORDSHIPS FROM THE SAID JUDGEMENT:- IN OUR VIEW, A BARE READING OF THE LANGUAGE OF THI S SUB-SECTION IS ENOUGH TO SHOW, THAT IN THE CIRCUMSTANCES OF THE CASE, PROVIS IONS OF S.40A(3) ARE NOT ATTRACTED WITH RESPECT TO EITHER OF THE TRANSACTION S; OBVIOUSLY BECAUSE IT ONLY PROHIBITS ALLOWING OF DEDUCTION AS EXPENDITURE. EX PENDITURE OBVIOUSLY MEANS EXPENDITURE ADMISSIBLE TO BE DEDUCTED FROM OU T OF THE INCOME, WHICH MAY INCLUDE THE EXPENDITURE ON PURCHASE AND THE LIK E, AND THE SUB-SECTION PROVIDES THAT IF ANY SUCH EXPENDITURE IS INCURRED A FTER SPECIFIED DATE, IN A SPECIFIED MANNER, THEN 20 PER CENT OF SUCH EXPENDIT URE SHALL NOT BE ALLOWED AS A DEDUCTION. IN THE PRESENT CASE THE ASSESSEE H AS NOT CLAIMED ANY DEDUCTION OF ANY EXPENDITURE OF RS.3,88,000 OR RS.7 ,35,000 AND THEREFORE, THERE IS NO QUESTION OF NOT ALLOWING ANY PART OF TH AT EXPENDITURE, AS DEDUCTION. THUS, THE FINDING ARRIVED AT IN THIS RE GARD, BY THE LEARNED CIT(A), AND THE LEARNED TRIBUNAL CANNOT BE SAID TO BE WRONG. QUESTION NO.2 IS ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE. 10.6. IT IS SEEN THAT THE JUDGEMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ALPHA TOYO LTD. (2008) 174 TAXMANN 4 27 (PUNJ. & HARY.) ALSO FULLY SUPPORTS THE VIEW TAKEN. FOR READY-REFERENCE , WE REPRODUCE PARAS 6 & 7 OF THE SAID JUDGEMENT:- 6. WE HAVE HEARD LEARNED COUNSEL FOR THE REVENUE. TH E TRIBUNAL HAS FOUND AS A FACT THAT THE ANNUAL REPORTS FOR THE ASSESSMEN T YEAR 1989-90 OF THE ASSESSEE CLEARLY SHOWS THE OUTSTANDING LOANS TO THE THREE PARTIES AS ON 1-4- 1989. COPIES OF THE LOAN ACCOUNT OF THE THREE PART IES FOR THE PERIOD COMPRISING THE PREVIOUS YEAR ARE ALSO AVAILABLE ON THE RECORD. THE PLEA OF THE ASSESSEE THAT THE PAYMENTS WERE MADE IN RESPECT OF THE CAPITAL ACCOUNT 27 I.T.A .NO.-1752/DEL/2013 HAVE BEEN RIGHTLY ACCEPTED BY THE COMMISSIONER OF I NCOME TAX (APPEALS).THE ASSESSING OFFICER WITHOUT GIVING ANY FINDING ON THE ISSUE HAS MERELY GONE ON THE PRESUMPTION THAT THE BOOKS OF AC COUNT HAVE BEEN MANIPULATED. THE ASSESSING OFFICER HAS ALSO NOT GIVEN A FINDING THAT THE SUM IN QUESTION WAS ACTUALLY REVENUE EXPENDITURE WH ICH WERE CLAIMED AS DEDUCTION IN PROFIT AND LOSS ACCOUNT. 7. IN VIEW OF THE ABOVE FINDING OF FACTS, THE TRIBUNAL HAS RIGHTLY CONCLUDED THAT THE PAYMENT IN QUESTION WERE MADE ON ACCOUNT OF CAP ITAL ACCOUNT, THEREFORE, PROVISIONS OF SECTION 40A(3) OF THE ACT WERE NOT AT TRACTED. THUS, WE DO NOT FIND ANY MERIT IN THIS APPEAL AND NO SUBSTANTIAL QU ESTION OF LAW ARISES FOR DETERMINATION OF THIS COURT. HENCE THIS APPEAL IS DISMISSED. (EMPHASIS PROVIDED BY THE BENCH) 10.7. IT IS SEEN THAT SIMILAR VIEW HAS BEEN HELD BY THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS BANWARI LAL BANSIDHAR [1998] 229 ITR 229 (ALL.) WHICH IS RELIED UPON IN THE PRESENT PROCEEDINGS IN SUPPORT O F THE CONCLUSION DRAWN. FOR READY-REFERENCE, WE EXTRACT FROM THE SAID JUDGEMENT :- ALL THE THREE QUESTIONS, REFERRED TO THIS COURT, R EVOLVE ROUND THE SAME CONTROVERSY. THE QUESTION FOR CONSIDERATION IS WHE N NO DEDUCTION WAS SOUGHT AND ALLOWED UNDER SECTION 40A(3), WAS THERE ANY NEED TO GO INTO SECTION 40A(3) AND RULE 6DD(J). WE SEE FORCE IN TH E VIEW TAKEN BY THE APPELLATE TRIBUNAL THAT WHEN THE INCOME OF THE ASSE SSEE WAS COMPUTED APPLYING THE GROSS PROFIT RATE AND WHEN NO DEDUCTIO N WAS ALLOWED IN REGARD TO THE PURCHASES OF THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVISIONS OF SECTION 40A(3) AND RULE 6DD(J). NO D ISALLOWANCE COULD HAVE BEEN MADE IN VIEW OF THE PROVISIONS OF SECTION 40A( 3) READ WITH RULE 6DD(J) AS NO DEDUCTION WAS ALLOWED TO AND CLAIMED BY THE A SSESSEE IN RESPECT OF THE PURCHASES. WHEN THE GROSS PROFIT RATE IS APPLIED T HAT WOULD TAKE CARE OF EVERYTHING AND THERE WAS NO NEED FOR THE ASSESSING OFFICER TO MAKE SCRUTINY OF THE AMOUNT INCURRED ON THE PURCHASES BY THE ASSE SSEE. 10.8. THE LD. AR IN THE COURSE OF HIS ARGUMENT HAS ALSO RELIED UPON THE ORDER OF THE CO-ORDINATE BENCH IN EMBEE CLEARING & SHIPPING SERVICE PVT. LTD. [2007] 12 SOT 227 (MUM.) FOR THE PROPOSITION THAT EVEN U/S 37 DISALLOWANCE CANNOT BE MADE IF NO EXPENDITURE HAS BEEN CLAIMED. WE EXTRACT THE RELEVANT PORTION FROM THE SAID ORDER HEREUNDER:- 5. WE HAVE HEARD THE PARTIES., THE REVENUE HAS CH ALLENGED THE DELETION OF IMPUGNED DISALLOWANCE OF RS.35,77,500 ON THE SHO RT GROUND THAT THE 28 I.T.A .NO.-1752/DEL/2013 PAYMENTS IN RESPECT OF WHICH IMPUGNED DISALLOWANCE HAS BEEN MADE ARE NOTHING BUT ILLEGAL PAYMENTS MADE IN THE FORM OF BR IBES TO EMPLOYEES AND THEREFORE NOT ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. SECTION 37 PROVIDES FOR ALLOWANCE OF AN Y EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE. EXPLANATION TO SECTION 37(1) BARS DEDUCTION OF ANY EXPENDITURE INCURRED BY THE ASSESS EE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. SECTION 37 OR ITS EXPLANATION CANNOT THEREFORE BE PRESSED INTO SERVIC E UNLESS THE ASSESSEE SEEKS DEDUCTION FOR THE EXPENDITURE. DISALLOWANCE OF EXPENDITURE CAN ARISE ONLY WHEN THERE IS A CLAIM FOR ITS ALLOWANCE. IF THE ASSESSEE DOES NOT CLAIM ALLOWANCE FOR ANY EXPENDITURE IN THE PROF IT AND LOSS ACCOUNT, THE QUESTION OF DISALLOWANCE OF SUCH EXPENDITURE CA NNOT ARISE. IN THE MATTER BEFORE US, IT IS THE CLAIM OF THE ASSESSEE T HAT IT HAS NOT CLAIMED ANY DEDUCTION FOR THE IMPUGNED EXPENDITURE IN ITS PROFI T & LOSS ACCOUNT AND HENCE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DI SALLOWING THE SAME. 10.9. IT IS ALSO SEEN FROM A PERUSAL OF THE COPY OF THE LEDGER ACCOUNT OF THE COLLABORATOR THAT THESE WERE RE-IMBURSEMENT TO THE ASSESSEE FOR PAYMENTS TO SPECIFIC LAND HOLDERS. COPY OF THIS IS AVAILABLE AT PAGES 65-66 OF THE PAPER BOOK. 10.10. WE HAVE ALSO TAKEN OURSELVES THROUGH THE J UDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS INDUSTRIAL ENGINEE RING PROJECTS PVT. LTD. (CITED SUPRA) WHICH HAS BEEN RELIED UPON BEFORE US FOR TH E PROPOSITION THAT REIMBURSEMENT OF EXPENSES CANNOT BE TREATED TO BE A REVENUE RECEIPT. HOW THE JUDGEMENT OF THE APEX COURT IN TUTICORIN ALKALI CHE MICALS & FERTILIZERS IS APPLICABLE TO THE FACTS OF THE PRESENT CASE HAS NOT BEEN SET OUT IN THE ORDER OF THE AUTHORITIES NOR HAS THE LD. DR BEEN ABLE TO ADDRESS THE APPLICABILITY OF THE SAID JUDGEMENT TO THE ISSUE AT HAND. WE HAVE TAKEN OURS ELVES THROUGH THE SAID JUDGEMENT AND SEEN THAT IT PROCEEDS ON ENTIRETY DIF FERENT FACTS AND CIRCUMSTANCES AND HAS NO APPLICABILITY TO THE FACTS OF THE PRESEN T CASE. CONSEQUENTLY, IT IS SEEN THAT FROM THE RATIO OF THE JUDGEMENTS RELIED UPON B EFORE THE CIT(A) AND ALSO 29 I.T.A .NO.-1752/DEL/2013 BEFORE US WHICH HAVE BEEN DISCUSSED IN THE EARLIER PART OF THIS ORDER NO ARGUMENTS HAVE BEEN ADVANCED BY THE REVENUE SO AS T O CONTEND HOW THEY ARE NOT APPLICABLE TO THE CASE AT HAND, NO DISTINGUISHI NG FACT, CIRCUMSTANCE OR POSITION OF LAW HAS BEEN RELIED UPON SO AS TO COME TO A CONTRARY FINDING THAN THE ONE ARRIVED AT. ACCORDINGLY ON A CONSIDERATION OF THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDGEMENTS RELIED UPON CONSIDERING THE RELEVANT PROVISION OF THE ACT NAMELY SECTION 40A(3) , WE HOLD FOR THE DETAILED REASONS GIVEN HEREINABOVE THAT SECTION 40A(3) OF TH E ACT HAS BEEN WRONGLY INVOKED AS ADMITTEDLY NO EXPENSES RELATABLE TO THE ADDITION HAS BEEN CLAIMED AND THE ASSESSEE HAS SUCCESSFULLY DEMONSTRATED THAT THE PAYMENT WERE RE- IMBURSEMENT MADE BY CWPPL. ACCORDINGLY GROUND NO-4 IS ALLOWED. 11. ADDRESSING GROUND NO.-3, LD. AR SUBMITTED THAT SINCE THE ASSESSING OFFICER MADE AN ADDITION BY WAY OF A DISALLOWANCE O F THE ENTIRE AMOUNT CONSEQUENTLY HE HELD THAT FOR THIS PURPOSE DISALLOW ANCE U/S 40A(3) IS NOT BEING MADE. FOR THE SAID PURPOSE OUR ATTENTION WAS INVIT ED TO THE FOLLOWING FINDING OF THE AO RECORDED IN UN-NUMBERED PAGE 6:- ALONG WITH ABOVE SUBMISSION DT. 26.12.2008 THE ASS ESSEE HAS FURNISHED THE DETAILS OF PERSONS TO WHOM THE SAID ADDITIONAL PAYM ENTS OF RS.530,000/- WERE MADE FOR THE REASONS MENTIONED ABOVE ALONG WIT H PHOTOCOPY OF PAYMENT RECEIPT. ON PERUSAL OF THE PHOTOCOPY OF TH E RECEIPT IT HAS BEEN NOTICED THAT OUT OF RS.530.000/- A SUM OF RS.150,00 0/- WAS PAID IN CASH IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3). SINCE, THE WHOLE OF THIS ADDITIONAL PAYMENT HAS BEEN ADDED BACK TO THE INCOM E OF THE ASSESSEE (AS PER DISCUSSION MADE HERE IN BELOW), SO NO DISALLOWA NCE U/S 40A(3) IS MADE. 12. REFERRING TO THE ORDER IT WAS SUBMITTED THE AO MAKES A PASSING REFERENCE TO SEARCH ON BPTP LTD. AND ITS GROUP COMPANIES TA KING NOTE OF THE FACT THAT NO SEARCH WAS CONDUCTED ON THE ASSESSEE AND PROCEEDED TO MAKE A DISALLOWANCE U/S 37 IGNORING THE FACT THAT NO SUCH CLAIM WAS MADE BY THE ASSESSEE AS THESE WERE 30 I.T.A .NO.-1752/DEL/2013 NOT ROUTED THROUGH THE P&L A/C OF THE ASSESSEE AND WERE ALSO LIKE THE EARLIER PAYMENT WERE MADE TO THE CLAIMANTS OF THE LAND HOLD INGS AND FOR THE ASSESSEE THESE WERE RE-IMBURSEMENTS. THE ISSUE HAS BEEN CON SIDERED BY THE CIT(A) IN PARAS 5.3.1 TO PARAS 5.3.8 HOWEVER HE HAS RESTORED THE MATTER WITH CERTAIN DIRECTIONS REFERRING TO FACTS WHICH WERE NOT RELATA BLE TO THE ASSESSEE. ADDRESSING THESE FACTS LD. AR SUBMITTED THE ARGUMENTS HEREIN A LSO REMAIN THE SAME AS THESE WERE PAYMENTS FOR THE PURCHASE OF LAND AND HAVE NOT BEEN CLAIMED AS AN EXPENDITURE BY THE ASSESSEE AS THESE WERE REIMBURSE D TO THE ASSESSEE. THE ARGUMENT HEREIN ALSO REMAINS THE SAME THAT SINCE NO CLAIM OF EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE AS THE PAYMENT WAS M ADE AS THEY WERE PAID ON BEHALF OF CWPPL TO SETTLE THE CLAIMS OF THE VARIOUS CLAIMANTS FOR THE LANDS SOLD WHERE POTENTIAL DISPUTES, CLAIMS AND COUNTER CLAIMS OF THE LAND HOLDERS HAD TO BE PAID FOR PEACEFUL LITIGATION FREE POSSESSION OF THE LAND HOLDING. IT WAS RE- ITERATED BY THE LD. AR THAT THE AO HAS RECORDED CER TAIN FINDINGS IN PARAS 4 TO 4.6 OF THE ASSESSMENT ORDER TO SEARCH ON BPTP IT WAS C ONTENDED AND HE GAVE NO INDICATION IN THE COURSE OF THE HEARING THAT HE WOU LD BE REFERRING TO THE FACTS PERTAINING TO THE SEARCH ON BPTP. IT WAS HIS SUBMI SSION THAT IT IS A MATTER OF RECORD THAT NO SEARCH OPERATION TOOK PLACE ON THE A SSESSEE AND THIS FACT HAS BEEN NOTED BY THE AO HIMSELF. IN THIS BACKGROUND IT WAS CONTENDED THAT THE CIT(A) WRONGLY IN PARAS 5 TO 5.3.8 HAS INCORPORATED CERTAI N FACTUALLY INCORRECT FINDINGS IN THE ORDER BY RESORTING TO CUTTING AND PASTING FR OM VARIOUS OTHER CASES AS A RESULT OF WHICH ENORMOUS ERRORS HAVE OCCURRED. INV ITING ATTENTION TO PARAS 5 TO 5.3, IT WAS CONTENDED WOULD SHOW THAT THE CIT(A) MA KES A REFERENCE TO SOME STATEMENT OF PATWARI REFERRED TO BY THE AO WHICH DO ES NOT FIND ANY MENTION IN THE ASSESSMENT ORDER AND MAY BE A FACT IN THE CASE OF SOME OTHER GROUP COMPANYS CASE. SIMILARLY IN PARA 5.3.4 STATEMENT OF SOME CHOTU RAM RECORDED 31 I.T.A .NO.-1752/DEL/2013 ON 24.03.2008 IS STATED TO BE EXTRACTED IN THE ASS ESSMENT ORDER IS REFEREED TO WHEREAS IN THE ASSESSMENT ORDER UNDER CONSIDERATION IT WAS POINTED OUT THERE IS NO SUCH REFERENCE OR FOR THAT MATTER TO ANY SUCH ST ATEMENT HAVING BEEN RECORDED. IT WAS HIS SUBMISSION THAT ALL ARGUMENTS ADVANCED IN GROUND NO-4 CONTENDING THAT SECTION 40A(3) IS WRONGLY INVOKED WOULD FULLY APPLY HERE. HEREIN ALSO IT WAS SUBMITTED ADDITIONAL PAYMENTS WERE NEVER CLAIME D BY THE ASSESSEE AS EXPENSES. SINCE THE SAID ISSUE HAS ALSO BEEN COVER ED IN THE ASSESSEES SYNOPSIS FILED, THE RELEVANT SUBMISSIONS QUA THE SAID GROUN D FOUND MENTIONED IN PARA 6.1 & 6.2 OF SYNOPSIS FILED, IS REPRODUCED HEREUNDER:- 6.1. THE CIT(A) FOR IDENTICAL REASONS AS IN THE CA SE OF DISALLOWANCE U/S 40A(3) HAS HELD THAT THE PAYMENT FOR PURCHASE OF LA ND WAS ASSESSEES EXPENDITURE (KINDLY SEE PARA 5.3.1). HE HAS GIVEN DIRECTIONS TO THE AO TO DEAL WITH THE ADMISSIBILITY OF ADDITIONAL PAYMENT I N PARA 5.3.8 OF HIS ORDER. 6.2. THE FINDING OF THE CIT(A), THAT COST OF LAND I S ASSESSEES EXPENDITURE IS CHALLENGED FOR IDENTICAL REASON AS I N GROUND NO-4 (SUPRA). IT IS CONTENDED THAT COST OF LAND CANNOT BE CONSIDE RED IN THE HANDS OF THE ASSESSEE AND RESULTANTLY THE DIRECTIONS CONTAINED I N PARA 5.3.8 ARE NON- ISSUE IN THE HANDS OF THE ASSESSEE. IT IS PRAYED T HAT THE ASSESSEES CONTENTION BE ALLOWED, VIZ THAT NO DISALLOWANCE U/S 37(1) CAN BE MADE IN THE HANDS OF THE ASSESSEE. 12.1. IN THE SAID BACKGROUND IT WAS SUBMITTED THAT THESE ADDITIONAL PAYMENTS MADE TO THE PARTIES WHICH ADMITTEDLY HAVE NOT BEEN ROUTED AS AN EXPENSE IN ASSESSEES P&L A/C HAS BEEN WRONGLY ADDED AS AN ADD ITION IN ASSESSEES HANDS. IN THIS BACKGROUND IT WAS CONTENDED THAT SINCE COST OF THE LAND AS ASSESSEES EXPENDITURE HAS BEEN ASSAILED IN GROUND NO-4 FOR S IMILAR REASONS ADDITIONAL PAYMENTS FOR THE PURCHASE OF THE LAND RE-IMB URSED BY CWPPL CANNOT BE DISALLOWED U/S 37(1) IN THE HANDS OF THE ASSESSEE A S NO EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE. APART FROM THIS SIMILARI TY OF FACTS QUA THE ARGUMENTS FOR GROUND NO-3 WITH GROUND NO.-4, IT WAS SUBMITTED THAT THE ASSESSEE HAS SPECIFICALLY CHALLENGED VIDE GROUND NO-2 THE ACTION OF THE CIT(A) WHO NO 32 I.T.A .NO.-1752/DEL/2013 DOUBT WAS DEALING WITH MULTIPLE CASES OF SEARCH AND HAS VIRTUALLY CUT AND PASTED IN HIS ORDER FACTS WHICH ARE NOT EVEN EMERGING FROM THE ASSESSMENT ORDER AS SUCH KEEPING IN MIND THE FACT THAT AO NEVER GAVE ANY HIN T DURING THE HEARING THAT HE WOULD REFER TO BPTP LTD. GROUP CASES WHICH WERE SEA RCHED WHERE ASSESSEE ADMITTEDLY WAS NOT SEARCHED AND THE CIT(A) HAS MADE OBSERVATION ON THE FACTS WHICH ARE NOT ON FACTS OF THE CASE. SINCE HEREIN ALSO THE ISSUE IS ADDRESSED IN THE SYNOPSIS FILED BY THE ASSESSEE, WE EXTRACT PARA 7 FROM THE SAME:- 7. GROUND NO.2 WHILE THE DISALLOWANCE OF ADDITIONAL PAYMENT IS CH ALLENGED FOR THE REASONS STATED IN PARA 6.1 & 6.2 ABOVE, WE SUPPORT THE SAME BY THE OBJECTIONS TAKEN IN GROUND NO.2 FOR FOLLOWING REASONS:- (I) SEARCH U/S 132 WAS CARRIED OUT ON 15.11.2007 ON M/S BPTP LTD AND ITS GROUP COMPANIES. ALTHOUGH ASSESSEE IS A GROUP C OMPANY NO SEARCH WAS CARRIED ON IT. IT IS ALSO A MATTER OF RECORD THAT N O DOCUMENT WAS SEIZED IN THE COURSE OF SUCH SEARCH WHICH BELONGED TO THE ASS ESSEE AND WHICH WAS TREATED AS INCRIMINATING. THIS FOLLOWS FROM THE FAC T THAT NO ACTION WAS TAKEN U/S 153C IN THE HANDS OF THE ASSESSEE. (II) IN THE PRESENT ASSESSMENT MADE U/S 143(3), THE AO IN PARAS 4.3 & 4.4 HAS REFERRED TO CERTAIN SEIZED RECORD BELONGING TO M/S BPTP LTD AND ITS GROUP COMPANIES (AND NOT OF THE ASSESSEE COMPANY) A ND USED THE SAME TO THE DETRIMENT OF THE ASSESSEE IN JUSTIFYING DISALLO WANCE U/S 37(1) BY WAY OF ADDITIONAL PAYMENT. THIS ACTION WAS LEGALLY WRONG A ND INCORRECT BECAUSE ANY ALIEN SEIZED MATERIAL I.E. MATERIAL BELONGING O F ANY OTHER COMPANY, WHICH DID NOT BELONG TO THE ASSESSEE, COULD NOT BE USED IN AN ASSESSMENT OF THE ASSESSEE U/S 143(3). ONLY SUCH SEIZED MATERIAL WHICH BELONGS TO THE ASSESSEE COULD BE USED AND THAT TOO U/S 153A/153C AS HELD IN THE CASE OF ABHAY KUMAR SHROFF VS. CIT 290 ITR 14 (JHAR.) (COPI ES BEING FILED; REFERENCE PARA 20). FROM THE FACT THAT THE ASSESSME NT WAS MADE U/S 143(3) IT IS TO BE TAKEN THAT AO ADMITS THAT NO SEIZED MAT ERIAL BELONGED TO THE ASSESSEE. HENCE, THE ENTIRE OBSERVATIONS IN PARA 4. 3 & 4.4 OF THE ORDER OF THE AO ARE TO BE EXPUNGED. (III) THE ORDER OF THE CIT(A) SUFFERS FROM FACTUAL ERRORS AND LEGAL INFIRMITY. FIRSTLY, IN CLAUSES (II) AND (III) OF PA RA 5.2 HE HAS REFERRED TO SOME SUBMISSIONS ALLEGEDLY MADE BY THE ASSESSEE. NO SUCH SUBMISSION WERE MADE. SECONDLY, YET AGAIN WHAT HE HAS STATED I N PARAS 5.3.3, 5.3.4, 5.3.5, & 5.3.6, NOTHING EMERGES FROM ORDER OF THE A SSESSING OFFICER NOR FROM ANY REPLY BY THE ASSESSEE. UNFORTUNATELY, THE CIT(A) HAS MIXED UP THE FACTS FROM SOME OF HIS ORDER(S) IN OTHER APPEALS. 33 I.T.A .NO.-1752/DEL/2013 (IV) THE CIT(A) IN PARA 6.3 SAYS, TO QUOTE, 'UNDOU BTEDLY AO HAS UTILIZED THE DOCUMENTS SEIZED FROM THE PREMISE OF M/S BPTP L TD AND GROUP COMPANIES. HOWEVER, ASSESSMENT ORDER NOWHERE MENTIONS THAT ANY PART OF THE SEIZED MATERIAL BELONG TO APPELLANT COMPANY'. THE CIT(A) THEREFORE HIMSELF GIVES A FINDING THAT NO MATERIAL SEIZED BELONGED TO THE ASSESSEE AND WAS UTILIZED IN MAKING THE ASSESSMENT. (V) HOWEVER, NOTWITHSTANDING HAVING STATED AS ABOV E, THE CIT(A) JUSTIFIES IN PARA 6.4, THE UTILIZATION OF ALIEN MATERIAL SEIZ ED FROM A DIFFERENT ASSESSEE IN THE HANDS OF AN ASSESSEE IN MAKING ASSESSMENT U/ S 143(3) BY RELYING ON THE JUDGMENT IN POORAN MAL VS. CIT 93 ITR 505 (SC). THE CIT(A) HAS MISREAD THIS JUDGMENT. THERE IS NO Q UARREL ON THE PROPOSITION AS LAID DOWN IN THAT CASE, THAT WHERE S EARCH AND SEIZURE WERE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 132, MATERIAL SEIZED WOULD BE LIABLE TO BE USED. BUT WHAT HAS BEEN HELD IN THIS J UDGMENT IS THAT SUCH MATERIAL WOULD BE LIABLE TO BE USED, SUBJECT TO LAW , AGAINST THE PERSON FROM WHOSE CUSTODY IT WAS SEIZED. THIS IS WHAT WAS STATE D BY THE COURT IN THIS REGARD:- 'IN THAT VIEW, EVEN ASSUMING, AS WAS DONE BY THE HI GH COURT, THAT THE SEARCH AND SEIZURE WERE IN CONTRAVENTION OF THE PRO VISIONS OF SECTION 132 OF THE INCOME TAX ACT, STILL THE MATERIAL SEIZED WAS L IABLE TO BE USED SUBJECT TO LAW BEFORE THE INCOME TAX AUTHORITIES AGAINST THE P ERSON FROM WHOSE CUSTODY IT WAS SEIZED.' (COPY OF ORDER BEING FURNISHED.) THE CIT(A) IS PLAINLY WRONG AND INCORRECT IN EXTEND ING THE SCOPE OF THE JUDGMENT BY SAYING THAT SUCH MATERIAL CAN BE USED I N AN ASSESSMENT U/S 143(3) IN THE HANDS OF A TOTALLY DIFFERENT PERSON I .E. A PERSON FROM WHOSE CUSTODY IT WAS NOT SEIZED OR TO WHOM IT DID NOT BEL ONG TO. 7.2 IN VIEW OF ABOVE, THE ORDERS PASSED BY THE AO AND THE CIT(A), IN SO FAR AS THEY ARE BASED ON THE UTILIZATION OF ALIEN S EIZED MATERIAL, WHICH DOES NOT BELONG TO THE ASSESSEE, CANNOT BE SUSTAINED. 7.3 IN FINE, IT IS CONCLUDED THAT ON FACTS AND IN LAW THE DISALLOWANCE OF ADDITIONAL PAYMENT IS NOT JUSTIFIED. 12.2. THE LD. SR. DR PLACED RELIANCE UPON THE ORDE RS OF THE AUTHORITIES BELOW. IT WAS HIS SUBMISSION THAT THERE WAS NO OBLIGATION ON THE ASSESSEE TO MAKE THE PAYMENTS ACCORDINGLY THE SAME COULD NOT BE ALLOWED AS A BUSINESS EXPENDITURE. 34 I.T.A .NO.-1752/DEL/2013 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CASE LAW RELIED UPON BY THE PARTIES HA S BEEN TAKEN INTO CONSIDERATION. ON A CONSIDERATION OF THE SAME WE A RE OF THE VIEW THAT SINCE IN THE FACTS OF THE PRESENT CASE THE MATERIAL ISSUE IS THAT THE SAID EXPENDITURE WAS NEVER CLAIMED AS ASSESSEES BUSINESS EXPENDITURE TH E OCCASION TO MAKE A DISALLOWANCE OF THE SAME DOES NOT ARISE. ON THIS F ACT THERE IS NO DISPUTE AS ADMITTEDLY THE EXPENDITURE WAS NOT CLAIMED AS AN EX PENSE BY THE ASSESSEE AND CONSEQUENTLY HAS NOT BEEN ROUTED THROUGH ITS P&L A /C. IN THE CIRCUMSTANCES, THE OCCASION TO MAKE AN ADDITION OF THE SAME BY WAY OF A DISALLOWANCE IN THESE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE DOES N OT ARISE. THE REASONING AND FINDING GIVEN WHILE CONSIDERING THE ARGUMENTS QUA G ROUND NO-4 WOULD FULLY APPLY HERE ALSO. THE DIFFERENCE THAT HERE THE ENTI RE AMOUNT IS ADDED U/S 37 AS OPPOSED TO PART OF THE EXPENDITURE DISALLOWED U/S 40A(3) IS NOT SO MATERIAL AS THE FINDING IS ARRIVED AT TAKING COGNIZANCE OF THE MATERIAL FACT THAT HEREIN ALSO NO SUCH CLAIM OF EXPENDITURE HAS BEEN MADE. THE FACT THAT THE ADDITIONAL PAYMENTS WERE WARRANTED IN ORDER TO AVOID POTENTIAL DISPUTE S AMONGST THE CLAIMANTS OF THE LAND HOLDING WHICH HAVE BEEN PASSED THROUGH TO THE LAND HOLDERS FROM GENERATION TO GENERATION WHEREIN THERE MAY BE INFOR MAL ARRANGEMENTS OF OWNERSHIP AND OR THE PAYMENTS WERE FOR COMMERCIAL E XPEDIENCY TO FACILITATE PEACEFUL POSSESSION AND REGISTRATION OF THE LAND HO LDING; WHERE BY THE TIME REGISTRY WAS MADE THE LANDHOLDERS FELT A HIGHER PAY MENT WAS NECESSITATED DUE TO INCREASE IN VALUE ARE ISSUES WHICH ARE NOT REQUIRED TO BE ADDRESSED IN THE PRESENT PROCEEDINGS. GROUNDNO-3 ON THE FACTS AVAILABLE ON R ECORD CONSIDERING THE JUDICIAL PRECEDENT REFERRED TO IN DETAIL WHILE DECI DING GROUND NO-4 HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.3.1 A ND 3.2 AS SUCH NEED NOT BE ADJUDICATED IN THE PRESENT CASE. QUA GROUND NO-2 T HE OBSERVATION AND FINDINGS 35 I.T.A .NO.-1752/DEL/2013 TO THE EXTENT THAT GENERAL OBSERVATIONS BASED ON MA TERIAL FOUND DURING BPTP GROUP OF COMPANIES WHICH WERE SEARCHED DOES NOT HAV E ANY BEARING. THE MATERIAL NOT HAVING BEEN CONFRONTED TO THE ASSESSEE IN THE FACE OF THE ARGUMENT THAT EVEN OTHERWISE HAS NO NEXUS HAS NOT BEEN REBUT TED BY THE REVENUE BY ANY EVIDENCE OR ARGUMENT AS THE THRUST OF THE PARTIES A TTENTION REMAINED FOCUSED ON ADDRESSING THE ADDITIONS MADE. IN THE AFORE-MENTIO NED PECULIAR FACTS AND CIRCUMSTANCES TAKING COGNIZANCE OF THE FACT THAT IN THE FACTS OF THE PRESENT CASE THE CIT(A) MAKES A REFERENCE TO FACTS NOT BORNE OUT FROM THE RECORD NAMELY RECORDING OF STATEMENT OF SOME PATWARI AND CHOTU RA M THE SUPPORT DRAWN BY THE CIT(A) IN SUSTAINING THE ADDITION IS FOUND TO BE MI SPLACED. HOWEVER SINCE THE SPECIFIC ADDITIONS UNDER CHALLENGE HAVE BEEN ADDRES SED ON FACTS AND THE LEGAL POSITION THEREON GROUND NO-2 IN TERMS OF THE ABOVE OBSERVATION IS LEFT OPEN FOR WANT OF NECESSARY EVIDENCES AND ARGUMENTS BASED ON EVIDENCES. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 ND OF AUGUST 2014. SD/- SD/- (J.S.REDDY) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:- 22/08/2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRA R ITAT NEW DELHI