SONI & ASSOCIATES, MUMBAI V. ACIT 25(2), MUMBAI

ITA 1775/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7869 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-09-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 05-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: Y P TRIVEDI
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.1775/M/2013 ASSESSMENT YEAR: 2006-07 ITA NO.3728/M/2013 ASSESSMENT YEAR: 2009-10 ITA NO.2306/M/2011 ASSESSMENT YEAR: 2007-08 M/S. SONI & ASSOCIATES, 003, SHIVGANGA BUILDING NO.III, SONI COMPLEX, CHINCHOLI BUNDER ROAD, MALAD (W), MUMBAI 400 064 PAN: AAAFS4432Q VS. ACIT -25(2), FIRST FLOOR, C-11, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI Y.P. TRIVEDI, A.R. & MS. USHA DALAL, A.R. REVENUE BY : SHRI V. JUSTIN, D.R. DATE OF HEARING : 15.11.2017 DATE OF PRONOUNCEMENT : 27.12 .2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE ABOVE TITLED APPEALS HAVE BEEN PREFERRED BY TH E ASSESSEE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TA X (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 16.01 .2013, 22.02.2013 & 14.02.2011 RELEVANT TO ASSESSMENT YEARS 2006-07, 2009-10 & 2007-08 RESPECTIVELY. ALL THESE APPEALS ARE RELATE D TO SAME GROUP OF ITA NO.1775/M/2013, ITA NO.3728/M/2013 & ITA NO.2306/M/2011 M/S. SONI & ASSOCIATES 2 COMPANY. THEREFORE, WE DISPOSE THESE APPEALS BY TH IS COMMON ORDER. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE FIRM IS ENGAGED IN BUSINESS OF BUILDE RS AND DEVELOPER. THE ASSESSEE PURCHASED THE LAND AT MALA D (WEST) VIDE AGREEMENT DATED 27.03.03 EXECUTED BETWEEN SONI ASSO CIATE AND NAMAH REALTORS. THE LAND WAS PURCHASED UNDER VARIO US AGREEMENTS IN THE YEARS 1994-95 AND 1995-96. AT THE RELEVANT TIME, THE LAND WAS ENCROACHED WITH HUTMENTS AND OTHER TENEMENTS WHICH WERE REQUIRED TO BE SETTLED BEFORE THE DEVELOPMENT COULD TAKE PLA CE ON THE SAID PLOT. IN VIEW OF THIS, THE FIRST PROJECT NAMELY SHI V PARVATI WAS COMPLETED IN THE ASSESSMENT YEAR 2002-2003. IN THE SAID PROJECT THE TOTAL SALE WAS DECLARED IN ASSESSMENT YEAR 2002-03 OF RS.8,56,00,000/-. THE SETTLEMENT WITH THE TENANT AN D ENCROACHERS WAS STILL NOT COMPLETED. DURING THE PERIOD 1994 TO 200 3, TO COMPLETE THE PROJECT, M/S. SONI & ASSOCIATES HAS SOLD CERTAIN FL ATS TO PROSPECTIVE FLAT PURCHASERS. THE BUILDINGS COULD NOT BE COMPLE TED IN TIME DUE TO THE RECESSION. THEREFORE, M/S, SONI & ASSOCIATES H AD TO SETTLE PROSPECTIVE PURCHASERS OF 3 RD AND 4 TH BUILDING NAMELY OM ELEGANCE. THE PURCHASERS WERE INTERESTED IN CANCELING THE AGR EEMENTS ON ACCOUNT OF DELAY IN CONSTRUCTION OF THE BUILDINGS. THEREFORE, ASSESSEE HAS TO COMPENSATE THESE PURCHASERS AND ADDITIONAL L IABILITY HAD TO INCUR TO COMPLETE THE PROJECT. IN THE MEANTIME, TH E PARTNERS M.I. BADGUJAR & M.F. BADGUJAR DESIRED TO RETIRE. THEY W ERE RETIRED AND COPY OF THE AGREEMENT WAS MADE. THEREAFTER, THE SU PPLEMENTARY ITA NO.1775/M/2013, ITA NO.3728/M/2013 & ITA NO.2306/M/2011 M/S. SONI & ASSOCIATES 3 RETIREMENT WAS ALSO EXECUTED IN BETWEEN AND ACCORDI NG TO SUPPLEMENTARY DEED OF RETIREMENT MR. MOHD. IQBAL BA DGUJAR WAS AGREED TO BE GIVEN 13500 SQ. FT. SALABLE AREA FREE OF COST. IN ADDITIONAL, COST FREE AREA WAS GIVEN TO MR. MOHD. I QBAL BADGUJAR AND ONLY COST FREE 11000 SQ. FT. SALABLE ARE WAS LOADED ON THE COST OF ELEGANCE. THEREAFTER, THERE WAS AGREEMENT BETWEEN SONI ASSOCIATE AND NAMAH REALTORS. THEREFORE, ASSESSEE HAD TO INC UR ADDITIONAL COST AND THE COST HAS TO BE ALLOCATED BETWEEN SONI ASSOC IATE AND NAMAH REALTORS AND THERE WAS NET LOSS TOWARDS THE LAND CO ST AND LOSS RETURN WAS ALSO FILED IN 2006-07 AND 2007-08. THE CLAIM O F RS.1,03,51,756/- AS PAYMENT TO RETIRED PARTNER MR. M.I. BADGUJAR WAS CONSIDERED AS CAPITAL EXPENDITURE. THEREAFTER, THE RE WAS A SETTLEMENT BETWEEN SECOND RETIRING PARTNER. THEREFORE, ASSESS EE HAD TO INCUR LOSSES. THEREFORE, IN A.Y. 2006-07 ASSESSEE IS IN APPEAL AGAINST NOT TREATING THE REVENUE EXPENDITURE. IN A.Y. 2007-08 ASSESSEE IS IN APPEAL FOR NOT ALLOWING THE COMPENSATION PAID TO RE TIRING PARTNER MR. M.I. BADGUJAR OF RS.97,02,171 /- AND ALSO CONFIRMING THE DISALLOWANCE OF RS.3 LAKHS IN A.Y. 2007-08 AND IN A .Y. 2009-10 ASSESSEE IS IN APPEAL AGAINST NO ALLOWING RS.20,000 /- PAID AS COMPENSATION ON CANCELLING OF PURCHASED FLAT AND NO T ALLOWING THE REDUCTION OF WORK IN PROGRESS OF RS.67 LAKHS BEING COMPENSATION PAID TO RETIRING PARTNER MR. M.I. BADGUJAR. IN ALL THESE THREE YEARS, THE AO AND THE LD. CIT(A) HAVE CONFIRMED THE SAME. 3. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. DURING THE COURSE OF HEARING, BOTH THE PARTIES AGREED THAT THE ISSUE IN ALL ITA NO.1775/M/2013, ITA NO.3728/M/2013 & ITA NO.2306/M/2011 M/S. SONI & ASSOCIATES 4 THESE APPEALS IS RELATING TO ONE PLOT WHICH WAS PUR CHASED BY SONI ASSOCIATE AND THEREAFTER THEY HAVE MADE AGREEMENT B ETWEEN SONI ASSOCIATE AND NAMAH REALTORS AND LAND WAS ENCROACHE D BY HUTMENTS AND ONE PROJECT WAS COMPLETED IN A.Y. 2002-03. IN THE MEANTIME, THERE WAS A TRY TO MAKE SETTLEMENT WITH TENEMENTS A ND ENCROACHERS. IN THE MEANTIME, THE PARTY WHO HAS AGREED TO PURCHA SE THE FLATS HAD ALSO EXPRESSED THEIR INTEREST IN CANCELLING THE AGR EEMENT ON ACCOUNT DELAY IN CONSTRUCTION OF BUILDING. THEREFORE, ASSE SSEE HAD TO AGREE TO COMPENSATE THESE PURCHASERS THE VALUE OF THE FLAT A S PER THE RATE OF SALE ON THE DATE OF SALE TO PROSPECTIVE PURCHASERS. THIS ADDITIONAL LIABILITY WAS TO INCUR TO COMPLETE THE PROJECT. TH EREFORE, AO HAS TO VERIFY FROM THE BEGINNING THE DEVELOPMENT OF THE PR OJECT AND THE COMPENSATION PAID BY SONI ASSOCIATE TO OTHER PARTNE RS ALSO AND ADDITIONAL COMPENSATION WAS TO BE PAID BY THE ASSES SEE. THEREFORE, THIS IS A REVENUE EXPENDITURE OR CAPITAL EXPENDITUR E THAT FACTS CAN BE ASCERTAINED ONLY FROM AO. THEREFORE, ALL THESE FIL ES REQUIRE VERIFICATION AT THE END OF THE AO. THEREFORE, IN T HE INTEREST OF JUSTICE AND FAIRPLAY, WE RESTORE THIS ISSUE BACK TO THE FIL E OF AO TO CONSIDER THE ABOVE POINTS WHICH READ AS UNDER: 1. WHETHER IN FACT PAYMENT HAS BEEN MADE TO MOHD LQBAL BADGUJAR AND HAS HE RECEIVED THE FUNDS FROM THE ASS ESSEE FIRM? 2. TO INQUIRE TO WHETHER THE SAID AMOUNT WHICH IS RECE IVED BY MOHD LQBAL BADGUJAR HAS BEEN SHOWN IN HIS RETURN OF . INCOME? WHETHER AN ASSESSMENT IS COMPLETED ON THE S AID INCOME IN HIS HANDS? 3. TO INQUIRE WHETHER ANY DEDUCTION IS CLAIMED IN RESP ECT OF SUCH PAYMENT TO MOHD. LQBAI BDUJGAR BY NAMAH REALTO RS? ITA NO.1775/M/2013, ITA NO.3728/M/2013 & ITA NO.2306/M/2011 M/S. SONI & ASSOCIATES 5 4. TO INQUIRE WHETHER ANY DEDUCTION IS CLAIMED BY ANY OTHER PARTY- EXCEPT PRESENT ASSESSEE I.E. M/S. SONI &ASSO CIATES? 5. WHETHER THE RIGHT TO RECEIVE THE AREA TO BE CONSTRUC TED HAD ACCRUED TO MOHD. LQBAL BADGUJAR IN THE YEAR 1999-20 00 BY VIRTUE OF THE AGREEMENT DT.05/04/1992? 6. TO INQUIRE WHETHER THE RIGHT TO RECEIVE THE PAYMENT IN ANY EVENT HAD ACCRUED TO SHRI MOHD. LQBAL BADGUJAR AT L EAST IN A.Y. 2004-2005 BY VIRTUE OF THE AGREEMENT ENTERED I N TO BY THE ASSESSEE WITH M/S. NAMAH REALTORS WHEREIN THE SCHEDULE TO THE SAID AGREEMENT AREA TO BE GIVEN TO MOHD. LQBAL BADGUJAR WAS SPECIFIED, AND THE SAID AGREEMEN T WAS REGISTERED. 7. WHETHER THERE WAS DIVERSION BY OVERRIDING TITLE IN T HE YEAR 1998 OR IN ANY EVENT IN THE YEAR 2003? 8. FOR THE AFORESAID PURPOSES THE ASSESSING OFFICER MA Y EXAMINE THE PARTNERS OF M/S. NAMAH REALTERS AND/OR SHRI MOHD. LQBAL BADGUJAR TO VERIFY THESE FACTS. 9. IT IS SUBMITTED THAT THE ABOVE DIRECTIONS SHOULD BE FOLLOWED BY A.0. TO ARRIVE AT A CONCLUSION WHETHER FOR MOHD. LQBAL BADGUJAR THE RIGHT TO THE AREA TO BE CONSTRUCTED, H AD ALREADY ACCRUED TO MOHD. LQBAL? 10. WHETHER THE JUDGMENTS CITED BY THE ASSESSEE'S COUNSE L AND ALSO NARRATED IN THE OPINION OF SHRI ARUN SATHE ARE APPLICABLE IN THE PRESENT CASE? DISALLOWANCE OF RS 3,00,000/- OUT OF LABOUR CHARGES 4. THE AO SHOULD CONSIDER THAT ALL THESE EXPENSES A RE 1. PROPERLY VOUCHED 2. THE COST AUDITOR HAS EXAMINED AND FOUND THEM TO BE PROPER. 3. COMPARE TO THE TOTAL LABOUR EXPENSES INCURRED, THE DISALLOWANCE IS VERY EXCESSIVE AND 4. NO DISALLOWANCE WAS MADE IN OTHER YEARS. ITA NO.1775/M/2013, ITA NO.3728/M/2013 & ITA NO.2306/M/2011 M/S. SONI & ASSOCIATES 6 5. THE AO SHOULD EXAMINE WHETHER THE ADDITION OF RS.67,00,000/- TENTAMOUNTS TO DOUBLE TAXATION OF TH E SAID AMOUNT IN WHICH CASE THE ADDITION SHOULD BE DELETED . 5. AFTER CONSIDERING THE ABOVE POINTS, THE AO IS DI RECTED TO DECIDE THESE THREE APPEALS AFTER HEARING TO THE ASSESSEE A ND AO IS DIRECTED TO GIVE OPPORTUNITY OF HEARING BEFORE PASSING THE ORDE R. AO IS DIRECTED TO PASS AN ORDER, AS PER LAW. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSE SSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.12.2017. SD/- SD/- (N.K. PRADHAN) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.12.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.