Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 5356 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-05-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
28-03-2017
Assessment Year
2005-2006
Appeal Filed On
06-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . A. NO. 193 /BANG/20 14 (ASSESSMENT YEAR : 20 05 - 06 ) M/S. CANARA HOUSING DEVELOPMENT COMPANY, NO.10/1, L AKSHMINARAYANA COMPLEX, PALACE ROAD, BANGA LORE - 560 052 . . APPELLANT. VS. JOINT COMMISSIONER OF INCOME TAX (OSD), CENTRAL RANGE, BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI VIJAY MEHTA & SHRI R. RAMAKRISHNAN, CAS R E SPONDENT BY : MS. NEERA MALHOTRA, CIT (DR) (ITAT) - 2, BENGALURU. DATE OF H EARING : 28.03.2017. DATE OF P RONOUNCEMENT : 12 .05 .201 7 . O R D E R PER SHRI VIJAY P AL RAO, J .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT.28.11.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2005 - 06. 2. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL HOWEVER AT THE TIME OF HEARING THE LEARNED AUTHORISED REPRESENTATIVE OF 2 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. THE ASSESSEE HAS STATED AT BAR THAT THE EFFECTIVE GROUND OF APPEAL IS ONLY GROUND NO.1 WHICH READS AS U NDER : 1. THE LEARNED CIT (APPEALS) IS NOT JUSTIFIED IN DISMISSING THE APPEAL CLAIM OF DEDUCTION OF RS.64 CRORES PAID TO M/S. CARAKA ACADEMY OF LIFE LONG LEARNING. WE FIND THAT THE OTHER GROUNDS ARE ONLY IN THE NATURE OF ARGUMENT IN SUPPORT OF GROU ND NO.1. 3. BRIEF FACTS LEADING TO THE CONTROVERSY ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF REAL ESTATE INCLUDING PURCHASES, PROCUREMENT, ACQUISITION OF RIGHT IN THE LAND AND REAL ESTATE PROPERTIES, INTEGRATED DEVELOPM ENT OF PROPERTIES, ETC. THE ASSESSEE ENTERED INTO AN AGREEMENT TO SALE DT.2.4.2002 IN RESPECT OF FOUR PROPERTIES REFERRED TO THEREIN. AS PER THE TERMS OF THE AGREEMENT DT.2.4.2002, THE ASSESSEE AGREED TO SELL / TRANSFER THE CONSTRUCTED AREA TO M/S. MANI PAL INFOCOM PVT. LTD. ( MIPL ) AGAINST THE TOTAL CONSIDERATION OF RS.22 CRORES WHICH WAS RECEIVED BY THE ASSESSEE IN ADVANCE AT THE TIME OF AGREEMENT. IT IS PERTINENT TO MENTION THAT IN THE MEANTIME THE NAME OF M/S. MIPL WAS CHANGED TO M/S. MANIPAL UNIVERS A L LEARNING PVT. LTD. ( MULPL ). FURTHER DUE TO THE LEGAL RESTRICTION OF ACQUIRING THE REAL ESTATE INTEREST BY MIPL, THE RIGHT/INTEREST IN SAID FOUR PROPERTIES WAS ASSIGNED 3 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. TO M/S. CARAKA ACADEMY OF LIFEL ONG LEARNING PVT. LTD. ( CALL ) VIDE AGREEMENT DT.5.4.2 005. SINCE THE ASSESSEE FAILED TO DELIVER THE PROPERTY WITHIN TIME FRAME AS STIPULATED IN THE AGREEMENT AND REVISED AGREEMENT A DISPUTE AROSE IN RESPECT OF THE QUANTUM OF COMPENSATION T O BE PAID BY THE ASSESSEE TO THE OTHER PARTY. THE MATTER WAS REFERRE D TO THE ARBITRATION FOR RESOLUTION OF DISPUTE. THE LEARNED ARBITRATOR HAD GIVEN ITS AWARD ON 30.8.20 0 5 BASED ON THE CONSENT TERMS ARRIVED BY THE PARTIES TO THE DISPUTE. ACCORDINGLY, THE ASSESSEE PAID RS.64 CRORES AS COMPENSATION / DAMAGES TO CALL. THE ASSESSEE CLAIMED DEDUCTION OF THE SAID AMOUNT HOWEVER THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION FOR COMPENSATION PAID TO CALL WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') ON 28.12.2007 . THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS) BUT COULD NOT SUCCEED. THE MATTER WAS CARRIED TO THE TRIBUNAL IN THE FIRST ROUND OF APPEAL AND VIDE ORDER DT.10.11.2010 IN ITA NO.406/BANG/2010, THIS TRIBUNAL SET ASID E THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE PARTIES TO THE AGREEMENT AND ALSO TO THE JOINT DEVELOPMENT AGREEMENT (JDA) AND THEN DECIDE THE ISSUE AS PER LAW. IN THE SET ASIDE 4 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. PROCEEDINGS, THE ASSESSING OFFICER REPEAT ED THE DISALLOWANCE OF CLAIM OF RS.64 CRORES ON ACCOUNT OF COMPENSATION PAID. THE MATTER HAS AGAIN REACHED THE TRIBUNAL FOR ADJUDICATION. 4. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICE R HAS DENIED THE CLAIM PARTICULARLY ON THREE GROUNDS VIZ. (I) AGREEMENTS ARE ENTERED INTO BY SHRI P. DAYANANDA PAI IN HIS INDIVIDUAL CAPACITY AND NOT ON BEHALF OF THE ASSESSEE FIRM. (II) THE PROPERTY AGREED TO BE SOLD DID NOT BELONGING TO THE ASSESSE E AND (III) THE LIABILITY HAD NOT CRYSTALLISED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2005 - 06. 5. AS REGARDS THE FIRST OBJECTION OF THE ASSESSING OFFICER THAT THE AGREEMENTS WERE ENTERED INTO BY SHRI P. DAYANANDA PAI IN HIS INDIVIDU AL CAPACITY, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT ALL TRANSACTIONS OF THE ASSESSEEARE ENTERED IN THE NAME OF SHRI P. DAYANANDA PAI WHO IS MANAGING PARTNER OF THE ASSESSEE - FIRM. THE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED TO AN AGREEMENT DT.15.05.2006 FOR SALE OF PROPERTY FOR RS.18.75 CRORES ENTERED INTO ON THE NAME OF SHRI P. DAYANANDA PAI AND SUBMITTED THAT IT IS A ROUTINE 5 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. BUSINESS PRACTICE OF THE ASSESSEE - FIRM TO ACQUIRE AND SALE THE PROPERTIES THROUGH THE AGREE MENT IN THE NAME OF SHRI P. DAYANANDA PAI. THUS THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE INCOME ARISING FROM SUCH TRANSACTION DONE THROUGH SHRI P. DAYANANDA PAI IN THE EARLIER YEAR I.E. ASSESSMENT YEAR 2004 - 05 HAS BEEN OFFERED TO TAX AND ACCEPTED BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) ON 16.03.2005. HE HAS ALSO REFERRED TO THE DETAILS OF VARIOUS TRANSACTIONS ENTERED INTO IN THE NAME OF SHRI P. DAYANANDA PAI WHICH HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE INCOME FROM THOSE TRANSACTIONS WERE OFFERED TO TAX AND ACCEPTED BY THE ASSESSING OFFICER. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT SHRI P. DAYANANDA PAI AND OTHER PARTNERS AS PER PREV AILING BUSINESS PRACTICE ENTERED INTO AGREEMENT S IN THEIR OWN NAME S WITH THE INTENTION TO ACQUIRE THE PROPERTIES FOR AND ON BEHALF OF THE ASSESSEE FIRM. THE ACTS OF SHRI P. DAYANANDA PAI AND OTHER PARTNERS ARE WITH CONSENT OF ALL OTHER PARTNERS AND DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED TO THE BALANCE SHEET AS ON 31.3.2005 AND SCHEDULE SHOWING PROPERTY ADVANCES PAID AND SUBMITTED THAT PROFIT 6 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. ARISING FROM THESE TRANSACTIONS ARE CONSISTENT LY SHOWN IN THE ACCOUNTS, RETURN OF INCOME AND ASSESSING OFFICER HAS BEEN CONSISTENTLY ACCEPTED THE SAME IN THE EARLIER ASSESSMENT YEARS AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS. HE HAS REFERRED TO THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2004 - 05 AS WELL AS FOR THE ASSESSMENT YEAR 2008 - 09 AND SUBMITTED THAT THE ASSESSING OFFICER HAS ACCEPTED THE INCOME OFFERED TO TAX FROM SUCH TRANSACTION OF P URCHASE AND SALE OF THE PROPERTY IN THE NAME OF SHRI P. DAYANANDA PAI AS WELL AS OTHER PARTNERS ON BEHALF OF THE ASSESSEE. THE ASSESSING OFFICER HAS RECOGNIZED THIS PRACTICE IN THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2008 - 09. THUS THE EVIDENCES ACCEPTED BY THE ASSESSING OFFICER CLEARLY SHOW THAT SHRI P. DAYANANDA PAI HAD ACQUIRED RIGHTS IN THE PROPERTIES AND ENTERED INTO FORMAL AGREEMENT FOR AND ON BEHALF OF THE ASSESSEE ALTHOUGH THE DOCUMENTS PERTAINING TO THE PROPERTIES ARE ENTERED BY SHRI P. DAYANANDA PAI IN HIS INDIVIDUAL NAME. THUS THE LEARNED AUTHORISED REPRESENTATI VE HAS CONTENDED THAT THE ASSESSING OFFICER HAVING ACCEPTED THE INCOME ARISING FROM SIMILAR TRANSACTIONS IN THE HANDS OF THE ASSESSEE IN THE EARLIER AND SUBSEQUENT ASSESSMENT YEARS CANNOT TREAT THE TRANSACTION ENTERED INTO UNDER IDENTICAL MANNER 7 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. DIFFERENT LY MERELY BECAUSE THE ASSESSEE HAD INCURRED LOSS THEREIN . F URTHER THE LEARNED AUTHORISED REPRESENTATIVE HAS POINT ED OUT THAT THE TRIBUNAL IN THE SET ASIDE ORDER HAD SPECIFICALLY DIRECTED THE ASSESSING OFFICER TO EXAMINE THE PARTIES TO THE AGREEMENT AS WEL L AS TO THE JDA TO FIND OUT THE REAL NATURE OF THE TRANSACTION HOWEVER THE ASSESSING OFFICER DID NOT CARRY OUT DIRECTION OF THE TRIBUNAL TO EXAMINE THE PART IES . THEREFORE WITHOUT EXAMINING THE PARTIES TO THE AGREEMENTS THE ASSESSING OFFICER CANNOT ARRIVE A T THIS CONCLUSION REGARDING ENTITY WHO HAD ENTERED INTO THE TRANSACTION MERELY BASED ON SURMISES. 6. QUA THE SECOND OBJECTION OF THE ASSESSING OFFICER THAT PROPERTIES DID NOT BELONG TO THE ASSESSEE, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSE E HAS SUBMITTED TH A T THE ASSESSEE IDENTIF IES THE LAND IN AND AROUND BANGALORE CITY BELONGING TO VARIOUS PERSONS AND ACQUIRE INTEREST, RIGHTS AND TITLE OVER THE PROPERTIES W ITHOUT ACTUALLY REGISTERING THE TITLE IN ITS NAME. THE ASSESSEE OFFERED TO TAX THE INCOME ARISING FROM SALE OF SUCH INTEREST, RIGHTS AND TITLE OVER THE PROPERTIES. THE ASSESSEE NEGOTIATE S WITH THE POTENTIAL BUYERS AND GETS LAND / PROPERTY DIRECTLY TO THE BUYERS FR O M THE ORIGINAL LAND OWNERS. FOR RENDERING OF SUCH SERVICE THE ASSESSEE RECEIVED SUBSTANTIAL CONSIDERATION AS AGGREGATOR OF LAND AND 8 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. AS A CONSENTI NG PARTY IN THE TRANSFER AND TITLE DEED. THE ASSESSEE ALSO ACTS AS A VENTURE CAPITALIST CONTRIBUTES TOWARDS COST OF THE PROJECTS AND CREATES RIGHTS, INTEREST AND TITLE OVER THE PRO PERTY. THE ADVANCES PAID TO THE PROPERTY OWNERS ARE SHOWN AS ASSET AND ADVANCES RECEIVED AGAINST THE P ROPERTIES ARE SHOW N AS LIABILITY IN THE BALANCE SHEET. THUS THE ASSESSEE NEED NOT TO BE THE OWNER OF THE PROPERTY AND STILL ENTER INTO A CONTRACT WITH PROMOTERS TO SELL SUCH PROPERTY TO DELIVER IN FUTURE TO THE BUYER OF THE PROPERTY. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS POINTED OUT THAT THIS NATURE O F BUSINESS OF THE ASSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENT AND PARTICULARLY BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008 - 09. IT IS CLEAR FROM THE AGREEMENT DT.2.4.2002 THAT THE ASSESSEE AGREED TO SALE PA R T OF ITS RIGHT S AND ENTITLEMENT IN THE PROPERT IES BEING DEVELOPED BY OTHER DEVELOPERS. THE FINANCIALS OF THE ASSESSEE DI SCLOSED VARIOUS PROPERTIES OWNED BY THE ASSESSEE HOWEVER THESE PROPERTIES ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE. HE HAS REFERRED TO THE BALANCE SHEET AND OTHER SCHEDULES OF ASSETS AND LIABILITIES AND SUBMITTED THAT THE ASSESSEE HAS BEEN SHOWING RIGHTS IN THE PROPERTIES IN THE ACCOUNTS THOUGHT THE SAME ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE. THE INCOME ARISING ON THE 9 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. TRANSFER OF THESE PROPERTIES/RIGHTS THEREIN HAS BEEN CONSISTENTLY OFFERED TO TAX BY THE ASSESSEE AND THE SAME HAS BEEN ASS ESSED BY THE ASSESSING OFFICER. THE ACTS DONE BY SHRI P. DAYANANDA PAI ARE FOR AND ON BEHALF OF THE ASSESSEE FIRM EVEN AS PER THE PROVISIONS OF SECTIONS 4, 14,18,19,20 AND 22 OF THE PARTNERSHIP ACT. THE PAYMENT OF DAMAGES HAS BEEN MADE DURING THE COURSE OF BUSINESS AND TO PROTECT ITS GOODWILL BY DOING SO THE ASSESSEE HAS MAINTAINED ITS GOODWILL THAT IT HONOURS AND MAINTAIN S COMMITMENT IN THE PROPERTY RELATED MATTER WHICH SPILL OVER SEVERAL YEARS AND THEREFORE INSPIRES AND ENHANCE THE CUSTOMERS OF THE ASS ESSEE WHICH IS NECESSARY FOR THE PURPOSE OF BUSINESS. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. NAINITAL BANK LIMITED 62 ITR 638. 7. AS REGARDS THE THIRD OBJECTION OF THE ASSESSIN G OFFICER THAT THE LIABILITY HAS NOT CRYSTALLIZED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE LEARNED AUTHORISED REPRESENTATIVE HAS ASSERTED THAT THE CLAIM OF DEDUCTION IS BASED ON THE PRINCIPLE OF PRUDEN CE AND CONSERVAT ISM . HE HAS CONTENDED THAT THE ASSESSEE FAILED TO DELIVER THE PROPERTY AS ON 31.3.2005. THEREFORE THE DEFAULT / FAILURE OCCURRED AND CONSEQUENTLY LIABILITY STOOD CRYSTALLIZED ON 10 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 31.3.2005. ACCORDINGLY, THE ASSESSEE CLAIMED DEDUCTION IN THE ASSESSMENT YE AR 2005 - 06. THE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED TO THE PARA 8.2 OF THE ACCOUNTING STANDARD 4 (AS - 4) REGARDING CONTINGENICES AND EVENTS OCCURRING AFTER THE DATE OF BALANCE SHEET AND SUBMITTED THAT IT PROVIDES NEED OF ADJUSTMENT TO THE ASSETS AND LIABILITIES ON ACCOUNT OF THE EVENTS OCCURRING AFTER THE BALANCE SHEET DATE THAT PROVIDE ADDITIONAL INFORMATION MATERIAL LY AFFECTING THE DETERMINATION OF AMOUNTS RELATING TO CONDITION EXISTING AT THE BALANCE SHEET DATE. THE ASSESSEE HAD LIABILITY OF RS.22 CRORES PREVAILING AS ON THE DATE OF BALANCE SHEET I.E. 31.3.2005 WHICH WAS INSUFFICIENT. THE ASSESSEE FAILED TO DELIVER THE PROPERTY AND IT OCCURRED LIABILITY TO PAY COMPENSATION OF HIGHER AMOUNT WHICH STAND CORROBORATED BY THE AWARD GIVEN SUBSEQUE NTLY TO THE DATE OF BALANCE SHEET. THUS THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT AS PER AS - 4, THE ASSESSEE HAS CORRECTLY VALUED ITS LIABILITY BASED ON THE EVENT OCCURRED AFTER THE DATE OF BALANCE SHEET. HE HAS RELIED UPON THE FOLLOWING DECISIONS : (I) ACIT VS. ALLIED GEMS CORPORATION (BOMBAY) 16 3 ITR 56 (BOM) (II) B HARAT EARTH MOVERS VS. CIT 245 ITR 428 (SC) 11 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 8. ALTERNATIVELY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT IN CASE THE LIABIL ITY HAS NOT CRYSTALLIZED IN THE ASSESSMENT YEAR 2005 - 06 THEN THE ASSESSING OFFICER MAY BE DIRECTED TO ALLOW THE DEDUCTION IN ASSESSMENT YEAR 2006 - 07. THE LEARNED AUTHORISED REPRESENTATIVE HAS FURTHER POINTED OUT THAT THE AMOUNT OF COMPENSATION RECEIVED BY THE OTHER PARTY HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS : (I) PERFECT EQUIPMENT S VS. DCIT 85 ITD 50 (AHD) . (I I ) AJAY DEVAGAN VS. ADDL. CIT IN ITA NO.514/MUM/200 7 DT.9. 10.2009. (III ) JCIT V S. MUKUND LIMITED 291 ITR (AT ) 249 (MUM) (SB) 9. AS REGARDS THE OTHER REASONS ASSIGNED BY THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF THE ASSESSEE, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT FO R CLAIMING THE DEDUCTION AS A BUSINESS EXPENDITURE IT NEED NOT BE NECESSARY THERE IS YIELD OF I NCOME FROM THE PROJECT . THE ASSESSEE WAS NOT DEVELOPED ANY OF THE PROPERTIES IN QUESTION BY ITSELF AND THEREFORE YIELD OF INCOME FROM THE PROJECTS IS IRRELEVANT IN DECIDING THE ISSUE OF ALLOWING OF DEDUCTION FOR COMPENSATION PAID ON ACCOUNT OF BREACH OF CONTRACT. THE COMPENSATION PAID FOR FAILURE TO TRANSFER DOES NOT AMOUNT TO BUY BACK OF SUCH PROPERTY 12 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. AS OBSERVED BY THE ASSESSING OFFICER. THE COMPENSATION IS PAID FOR RELINQUISHMENT OF RIGHT AND NOT FOR PURCHASE OF CONSTRUCTED PROPERTY . T HE TRANSACTION HAS BEEN ENTERED INTO WITH A THIRD PARTY AT ARM S LENGTH AND THEREFORE THE SAME CANNOT BE TREATED AS A COLOURABLE TRANSACTION. THE RECIPIENT OF THE COMPENSATIO N OFFERED THE AMOUNT TO TAX. THE ASSESSEE HAS ALSO OFFERED INCOME TO TAX ARISING FROM THESE PROJECTS. THERE IS NOT EVEN AN ALL EGATION THAT THE MONEY HAS COME BACK TO THE ASSESSEE. T HERE IS NO EVASION OF TAX AND AS SUCH THE TRANSACTION CANNOT BE TERMED A S COLOURABLE DEVICE. EVEN OTHERWISE WHEN THE ASSESSING OFFICER HAS NOT GIVEN EFFECT TO THE DIRECTIONS OF THE TRIBUNAL THEN THE ORDER PASSED BY THE ASSESSING OFFICER IS LIABLE TO BE QUASHED/SET ASIDE ON THIS GROUND ALONE. HE HAS RELIED UPON THE FOLLOWING DECISIONS : I . DEEPAK DIWAN VS ITO 54 TTJ 567 (DEL) II . US H DEV INTERNATIONAL LIMITED VS. JCIT (ITA NO.1905/MUM/ 20 13) THUS IT WAS PRAYED THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.64.74 CRORES BE DELETED. 10. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO THE AGREEMENT DT.2.4.2002 AND SUBMITTED THAT THE SECOND PARTY INVESTED A SUM OF RS.22 CRORES FOR THE PURCHASE OF VARIOUS 13 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. PROPERTIES BELONGING TO FIRST PARTY SHRI P. DAYANANDA PAI BUT THE FACT REMAINS THAT AS ON THE DATE OF AGREEMENT THE FIRST PARTY WAS NOT HAVING ANY OWNERSHIP OR RIGHT IN THE PROPERTIES IN QUESTION. IN THE YEAR 2002, NEITHER THE ASSESSEE NOR SHRI P. DAYANANDA PAI WAS THE OWNER OF THESE PROPERTIES OR HAD ANY RIGHT IN THE PROPERTIES IN QUESTION . HE HAS REFERRED TO REVISE D AGREEMENT DT.10.3.2004 AND SUBMITTED THAT THE TIME PERIOD OF HANDING OVER OF THE CONSTRUCTED PORTION TO THE SECOND PARTY WAS EXTENDED UPTO 10.3.2006 AND PRIOR TO THE EXPIRY OF THE SAID EXTENDED TIME LIMIT NO DAMAGES CAN BE CLA IMED. THEREFORE THE LIABILITIES TO PAY ANY DAMAGES OR COMPENSATION WOULD NOT ARISE OR CRYSTALLIZE BEFORE 10.03.2006 AS EXTENDED TIME LIMIT VIDE AGREEMENT DT.10.03.2004. THE ASSESSING OFFICER HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE AND ALSO CONSIDERED TH E SUBMISSIONS OF THE ASSESSEE HOWEVER THE ASSESSEE FAILED TO ESTABLISH THAT IT WAS THE OWNER OF THE PROPERTY OR ANY RIGHT IN THE PROPERTIES IN QUESTION. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS FURTHER CONTENDED THAT THE TRIBUNAL HAS CLEARLY LEFT THE MATTER OPEN TO THE ASSESSING OFFICER TO COMPL ETE THE ASSESSMENT AS PER LAW. THE ASSESSEE HAS NOT BROUGHT ANY RECORD TO SUGGEST THAT THERE WAS SOME INFORMATION WHICH THE ASSESSING OFFICER HAS MISSED TAKING INTO ACCOUNT. 14 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. HE HAS CONTENDED THAT LIABILITY WAS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 11. IN REJOINDER THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE PAYMENT TO ACQUIRE THE PROPERTY WAS ADMITTE DLY MADE BY THE ASSESSEE. ONE OF THE PROPERTY WAS BELONGING TO THE SISTER CONCERN AND THE ASSESSEE WAS HAVING RIGHT IN THE BUILT UP AREA IN THE PROPERTY. THE TIME PERIOD TO TRANSFER THE BUILT UP AREA WAS SPREAD OVER TO TWO YEARS AND NOT AT THE END OF TWO YEARS. THE ASSESSEE HAS AGREED TO PAY COMPENSATION BECAUSE IT WAS NOT POSSIBLE FOR THE ASSESSEE TO HONOU R THE OBLIGATION OF HANDING OVER THE BUILT UP AREA BY THE END OF THE TIME PERIOD ALLOWED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THIS IS SECOND ROUND OF APPEAL. IN THE FIRST ROUND, THE TRIBUNAL VIDE ORDER DT.10.11.2010 REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CONDUCT OF FURTHER ENQUIRY / EXAMINATION AND RECONSIDERATION OF T HE ISSUE AS DIRECTED IN PARA 8 OF THE TRIBUNAL AS UNDER : 8. THE OTHER FINDINGS OF THE CIT (APPEALS) WAS THAT THE AGREEMENTS WERE ENTERED INTO BY SHRI DAYAND PAI IN HIS INDIVIDUAL CAPACITY AND HIS NAME IS MENTIONED AS REPRESENTATIVE OF THE ASSESSEE F IRM ONLY IN THE ARBITRATION 15 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. AWARD. ON PERUSAL OF THE COPIES OF THE SAID AGREEMENT DT.2.4.2002 AND 4.6.2005, WE FIND THAT THE STATUS OF SHRI DAYANAND PAI, IS IN HIS CAPACITY AS INDIVIDUAL AND NOT IN THE CAPACITY OF THE MANAGING PARTNER OF THE ASSESSEE FIRM . BUT, ANOTHER POINT WORTH TAKING NOTE OF AND CANNOT BE IGNORED IS THAT THE ASSESSEE FIRM HAD RECEIVED THE SALE CONSIDERATION OF RS.22.00 CRORES AS REFLECTED IN ITS ACCOUNTS AND THEREFORE, IT IS THE CASE OF THE ASSESSEE THAT IT IS THE BENEFICIARY OF THE S AID AGREEMENT AND THEREFORE, WILL HAVE TO FULFILL THE LIABILITY OF PAYING THE COMPENSATION. THE ASSESSEE FIRM HAS SHOWN IT AS AN ADVANCE IN ITS BOOKS OF ACCOUNTS. THIS GIVES CREDENCE TO THE ARGUMENT OF THE ASSESSEE THAT SHRI DAYANAND PAI BEING THE SHEET ANCHOR OF THE GROUP HAD ENTERED INTO THE AGREEMENT ON BEHALF OF THE FIRM. WE FEEL THAT SOME MORE FACTUAL FINDINGS ARE NECESSARY IN THIS REGARD. ACCORDING TO US, THE ASSESSING OFFICER SHOULD HAVE EXAMINED THE OTHER PARTIES TO THE AGREEMENT I.E. M/S. MIPL AND ALSO M/S. CARAKA ACADEMY OF LIFE LONG LEARNING PVT. LTD., TO FIND OUT THE PITH AND SUBSTANCE OF THE AGREEMENTS AND NOT GO BY MERE RECITALS IN THE AGREEMENTS. THEREFORE, IN THE INTEREST OF JUSTICE, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE PARTIES TO THE AGREEMENTS AND ALSO TO EXAMINE THE JOINT DEVELOPMENT AGREEMENTS AND TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE GIVEN A FAIR OP PORTUNITY OF HEARING AND THE ASSESSEE ALSO SHALL CO - OPERATE WITH THE REVENUE AUTHORITIES IN SPEEDY DISPOSAL OF THE CASE. THUS IT IS CLEAR THAT IN THE REMAND PROCEEDINGS, THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE PARTIES TO THE AGREEMENT AND ALSO TO EXAMINE THE JDA. THE ASSESSING OFFICER WHILE PASSING THE ORDER DT.30.12.2011 IN PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL HAS OBSERVED AND HELD IN PARAS 1.1, 2, 3 TO 6 AS UNDER : 16 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 17 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 18 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 19 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 20 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 21 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 22 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 23 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 24 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 25 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 26 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 27 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. IT IS MANIFEST FROM T HE ORDER OF THE ASSESSING OFFICER THAT HE DID NOT EVEN TAKE ANY STEP TO EXAMINE THE PARTIES TO THE AGREEMENT. THUS IT IS A CASE OF GROSS VIOLATION OF DIRECTIONS OF THE TRIBUNAL TO EXAMINE PARTIES TO THE AGREEMENT. IT IS PERTINENT TO MENTION THAT THE JURI SDICTION OF THE ASSESSING OFFICER AND SCOPE OF REMAND PROCEEDINGS CANNOT GO BEYOND THE DIRECTIONS OF THE REMAND ORDER. IT WAS NOT A OPEN REMAND OF THE MATTER AS CONTENDED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BUT THE MATTER WAS REMANDED BY THE TRI BUNAL WITH SPECIFIC DIRECTION S . THEREFORE THE SCOPE OF THE REMAND PROCEEDINGS AND THE JURISDICTION OF THE ASSESSING OFFICER WAS DETERMINED IN THE REMAND ORDER ITSELF. THE ASSESSING OFFICER CHOSE NOT TO GIVE EFFECT TO THE SPECIFIC DIRECTIONS OF THE TRIBU NAL AND THEREFORE THE ORDER PASSED BY THE ASSESSING OFFICER IS CONTRARY TO THE DIRECTIONS OF THE TRIBUNAL AND ALSO AGAINST THE JUDICIAL DISCIPLINE. THEREFORE THE IMPUGNED ORDER PASSED B Y THE ASSESSING OFFICER 28 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. IS LIABLE TO BE QUASHED B EING NOT SUSTAINABLE ON THIS GROUND ALONE . A SIMILAR VIEW IS TAKEN BY I N THE CASE OF DEEPAK D EE WAN VS. ITO (SUPRA), DELHI BENCH OF THE TRIBUNAL WHILE DEALING WITH AN ISSUE ARISING FROM THE ORDER PASSED BY THE ASSESSING OFFICER IN PURSUANT TO THE REMAND ORDER BY THE CIT (APPE ALS) HAS HELD IN PARAS 5 TO 7 AS UNDER : 5. AFTER RECORDING THESE FINDINGS THE COMMISSIONER (APPEALS) RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER ON THE LIMITED POINT FOR MAKING NECESSARY INVESTIGATION AFTER GIVING THE ASSESSEE DUE OPPOR TUNITY OF BEING HEARD IN THE MATTER. 6. WHEREAS THE COMMISSIONER (APPEALS) DID ASK THE ASSESSING OFFICER TO MAKE FURTHER ENQUIRY AND INVESTIGATION AND RECORD A FINDING, CERTAIN ASPECTS OF THE MATTER AS HAVE BEEN HIGHLIGHTED ABOVE HAD BEEN DECIDED BY HIM. REVENUE DID NOT CHALLENGE THE ORDER OF THE COMMISSIONER (APPEALS). THEREFORE, THESE FINDINGS HAVE BECOME FINAL. WHEN WE SEE THE ORDER OF THE ASSESSING OFFICER AND THAT OF THE APPELLATE AUTHORITY IN THE SECOND ROUND, WE DO NOT FIND ANY FRESH MATERIAL HAVING BEEN COLLECTED BY THE ASSESSING OFFICER FOR TAKING A DIFFERENT VIEW. THE ONLY ENQUIRY MADE BY THE ASSESSING OFFICER AFTER THE MATTER WAS SET ASIDE WAS REGARDING SHRI SACHDEVA. AS IS CLEAR FROM THE RECORDS, THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ENFORC E THE ATTENDANCE OF SHRI SACHDEVA. NO OTHER MATERIAL AGAINST THE ASSESSEE HAS BEEN COLLECTED IN THE SECOND ROUND OF THE PROCEEDINGS. AS SUCH THE ADDITION OF RS. 10 LAKHS MADE BY THE ASSESSING OFFICER IS UNWARRANTED. 7. WE DO NOT KNOW WHAT WOULD HAVE BEEN THE FATE OF THE FINDINGS OF THE COMMISSIONER (APPEALS) IN HIS APPELLATE ORDER DATED 3RD JANUARY, 1989 IF THESE WERE CHALLENGED BEFORE THE TRIBUNAL. HOWEVER ONCE THESE FINDINGS HAVE NOT BEEN CHALLENGED, THE ASSESSING OFFICER WHILE MAKING THE FRESH ASSESSMEN T CANNOT IGNORE THOSE FINDINGS AS THESE HAVE BECOME FINAL. WE ARE, THEREFORE, MAKING OURSELVES VERY CLEAR THAT WE ARE NOT SUBSCRIBING TO THE VIEW OF THE COMMISSIONER (APPEALS) IN HIS APPELLATE ORDER DATED 3RD JANUARY, 1989 BUT SINCE THE PRESENT APPEAL ARIS ES OUT OF ORDER OF THE ASSESSING OFFICER PASSED AS A RESULT OF THE FIRST APPELLATE ORDER, WE ARE BOUND TO HOLD THAT THE ASSESSING OFFICER WAS LEGALLY BOUND TO ACT UPON THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. THE REVENUE NOT HAVING ESTABLISHED THE CA SE AS PERCEIVED BY THE COMMISSIONER (APPEALS) VIDE ORDER DATED 3RD JANUARY, 1989, THE ADDITION OF RS. 10 LAKHS, IN OUR VIEW, COULD NOT BE REPEATED. THE ADDITION IS ACCORDINGLY DELETED. 29 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE IMPUG NED ORDER DT.30.12.2011 PASSED BY THE ASSESSING OFFICER QUA THIS ISSUE BEING NOT SUSTAINABLE. O N M E R I T S 13. ONE OF THE OBJECTION S OF THE ASSESSING OFFICER TO DENY THE CLAIM OF DEDUCTION ON ACCOUNT OF COMPENSATION PAID IS THAT THE ASSESSEE W AS NOT THE OWNER OF THE PROPERTY IN QUESTION AT THE TIME OF AGREEMENT DT.2.4.2002. THIS OBJECTION OF THE ASSESSING OFFICER IS BASED ON THE FACT THAT THE JDA IN RESPECT OF THE PROPERTIES IN QUESTION WERE ON SUBSEQUENT DATES AND NOT PRIOR TO THE AGREEMENT DT.2.4.2002. I T IS PERTINENT TO NOTE THAT THE PARTICULARS OF THE PROPERTIES TO BE DEVELOPED AND CONSTRUCTED AREA TO BE GIVEN TO M/S. MANIPAL INFOCOM PVT. LTD. (MIPL) HAVE BEEN SPECIFICALLY MENTIONED IN THE SAID AGREEMENT DT.2.4.2002. AT THIS STAGE THE R ELEVANT PART OF THE RECITAL AS WELL AS TERMS & CONDITIONS OF THE AGREEMENT DT.2.4.2002 ARE REPRODUCED BELOW : 30 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 31 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 32 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 5 . 6 .. 33 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 7 .. 8 .. 14. THUS THE PROPERTIES TO BE DEVELOPED AND BUILT UP AREA IN THOSE PROPERTIES TO BE TRANSFERRED BY THE ASSESSEE TO THE OTHER PART Y WERE DULY IDENTIFIED IN THE SAID AGREEMENT DT.2.4.2002. THE ASSESSEE AGREED TO DELIVER THE CONSTRUCTE D AREA IN THE PROJECTS IN FUTURE AND WITHIN THE TIME PERIOD AS PROVIDED IN THE AGREEMENT. THE PARTIES TO THE AGREEMENT HA D NO DOUBT AND AMBIGUITY ABOUT THE PROPERTIES TO BE DEVELOPED UNDER JDA 34 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. AND THEREFORE THE QUESTION OF HAVING THE OWNERSHIP OF THE PROP ERTY AT THE TIME OF AGREEMENT DOES NOT ARISE. THE ASSESSEE PRODUCED ALL THE JDAS IN RESPECT OF THE PROPERTIES IN QUESTION AND THEREFORE THE ASSESSEE ACQUIRED RIGHTS IN THESE PROPERTIES AND PARTICULARLY IN THE CONSTRUCTED AREA OF THE PROPERTIES THROUGH THE JDA S AND PART OF WHICH WAS TO BE TRANSFERRED TO MIPL / MULPL / CALL. THEREFORE THE PROPERTIES WHICH ARE PARTICULARLY LAND S WERE IDENTIFIED BY THE ASSESSEE FOR DEVELOPMENT THROUGH THE OTHER DEVELOPERS UNDER THE JDA S THEN THE REGISTRATION OF THE OWNERSHIP OF THE PROPERTY IS NOT A PRE - REQUISITE CONDITION FOR ACQUIRING INTEREST, RIGHT AND TITLE IN THE CONSTRUCTED AREA OF THE PROPERTY IS BEING DEVELOPED UNDER JDA S . THERE IS NO EMBARGO FOR ENTERING INTO A CONTRACT FOR PERFORMANCE OF ONE PART IN FUTURE. THE P ROPERTIES WERE VERY MUCH IN EXISTENT AT THE TIME OF AGREEMENT AS SPECIFIED IN THE AGREEMENT ITSELF AND IT WAS THE INTENTION OF THE PARTIES TO THE AGREEMENT TO HAVE SHARE IN THE CONSTRUCTED AREA OF THE PROPERTIES TO BE DEVELOPED IN FUTURE. THE ASSESSEE BE ING IN THE BUSINESS OF REAL ESTATE FOR SEVERAL DECADES AND DERIVED INCOME FROM VARIOUS LAND DEALS , INCLUDING SELLING OF RIGHTS OVER CERTAIN PROPERTIES AS WELL AS INTEREST AND SHARE OVER THE LAND WHICH WERE CREATED BY WAY OF AGREEMENT, TOKEN RECEIPTS, MEMOR ANDUM OF 35 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. UNDERSTANDING WITHOUT ACTUALLY REGISTERING THE PROPERTY IN ITS NAME , HAD ENTERED INTO THE AGREEMENT WHICH IS PART OF THE NORMAL BUSINESS ACTIVITY OF THE ASSESSEE. THE VALIDITY AND ENFORCEABILITY OF AGREEMENT DT.2.4.2002 AS WELL AS THE REVISED AGR EEMENT DT.10.3.20 04 CANNOT BE QUESTIONED ON THE BASIS THAT THE ASSESSEE WAS NOT THE REGISTERED OWNER OF THE PROPERTY WHEN IT WAS CLEAR TO THE PARTIES TO THE AGREEMENT THAT THESE PROPERTIES WOULD BE DEVELOPED IN FUTURE UNDER JDA AND THEREFORE THEY WILL REC EIVE THE CONSTRUCTED AREA AS PER THE AGREEMENT. ACCORDINGLY WE DO NOT FIND ANY SUBSTANCE OR MERIT IN THIS OBJECT OF THE A.O./CIT (APPEALS). 15. AS REGARDS THE AGREEMENT WAS ENTERED INTO BY SHRI P. DAYANANDA PAI AND NOT BY THE ASSESSEE FIRM OR FOR OR ON BEHALF OF THE ASSESSEE FIRM IT IS WORTH NOTING THAT THE TRANSACTION OF RECEIPT OF RS.22 CR ORES BEING ADVANCE FROM MIPL / MULPL WAS DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE PARTNERSHIP FIRM. THE AMOUNT OF ADVANCE WAS SHOWN IN THE BALANCE SHEET AS ON 31.3.2003 AS WELL AS IN SUBSEQUENT BALANCE SHEET S WHICH HA VE BEEN PLACED AT PAGES 113 TO 159 OF THE PAPER BOOK. FURTHER THIS IS NOT AN ISOLATED TRANSACTION CARRIED OUT THROUGH SHRI P. DAYANANDA PAI BUT IT IS A REGULAR PRACTICE OF THE ASSESSEE TO PURCHASE AND SELL THE PROPERTY THROUGH SHRI P. DAYANANDA PAI. ALL OTHER 36 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. TRANSACTIONS OF PURCHASE AND SALE HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. FOR THE ASSESSMENT YEARS 2004 - 05 AND 2008 - 09, THE ASSESSING OFFICER HAS ACCEPTED THE IN COME FROM THE TRANSACTION OF PURCHASE AND SALE OF PROPERTY THROUGH SHRI P. DAYANANDA PAI AND THEREFORE THIS PRACTICE OF THE ASSESSEE PARTNERSHIP FIRM OF DOING THE TRANSACTION THROUGH SHRI P. DAYANANDA PAI WAS VERY WELL RECOGNIZED AND ACCEPTED BY THE ASSES SING OFFICER EXCEPT THIS PARTICULAR TRANSACTION WHERE THE ASSESSEE PAID THE COMPENSATION TO THE OTHER PARTY . O NCE THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE PARTNERSHIP FIRM AND THE RECEIPT AND PAYMENT IN RESPECT OF THE P URCHAS E AND SALE OF THE PROPERT IES ARE MADE BY THE ASSESSEE FIRM THEN IT IS A CLEAR CASE OF MUTUAL UNDERSTANDING AND CONSENT BETWEEN THE PARTNERS OF THE ASSESSEE FIRM AS WELL AS THE PARTIES TO THE TRANSACTION THAT SHRI P. DAYANANDA PAI ACTED ON BEHALF OF THE ASS ESSEE PARTNERSHIP FIRM AND NOT IN HIS PERSONAL INDIVIDUAL CAPACITY. SECTION 14 OF THE PARTNERSHIP ACT DEAL WITH THE PROPERTY BELONG TO THE PARTNERSHIP FIRM IF RIGHTS AND INTERESTS IN THE PROPERTY ORIGINALLY BROUGHT INTO THE STOCK OF THE FIRM. FOR READY REFERENCE, WE QUOTE SECTION 14 OF THE PARTNERSHIP ACT, 1932 AS UNDER : 37 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 14. THE PROPERTY OF THE FIRM. --- SUBJECT TO CONTRACT BETWEEN THE PARTNERS, THE PROPERTY OF THE FIRM INCLUDES ALL PROPERTY AND RIGHTS AND INTERESTS IN PROPERTY ORIGINALLY BROUGH T INTO THE STOCK OF THE FIRM, OR ACQUIRED, BY PURCHASE OR OTHERWISE, BY OR FOR THE FIRM, OR FOR THE PURPOSES AND IN THE COURSE OF THE BUSINESS OF THE FIRM, AND INCLUDES ALSO THE GOODWILL OF THE BUSINESS. THEREFORE THE PROVISIONS OF PARTNERSHIP ACT ALSO PERMITS THE PROPERTY TO BE RECOGNIZED AS OF THE FIRM IF BROUGHT INTO THE STOCK OF THE FIRM. IN THE CASE ON HAND WHEN THE TRANSACTION IS RECORDED IN THE BOOKS OF ACCOUNTS OF THE FIRM AND THE RIGHT AND INTEREST IN THE PROPERTIES WAS INCLUDED IN THE STOCK O F THE FIRM THEN , THE QUESTION OF OWNERSHIP IN RESPECT OF THE SAID PROPERTY DOES NOT ARISE. SIMILAR TRANSACTION OF PURCHASE OF RIGHTS IN THE PROPERTY AND SALE OF THE SAME THROUGH THE AGREEMENT ENTERED INTO BY SHRI P. DAYANANDA PAI HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AS THE INCOME ARISING FROM THE SIMILAR TRANSACTION HAS BEEN ACCEPTED IN THE HAND OF THE PARTNERSHIP FIRM IN THE EARLIER YEAR I.E. ASSESSMENT YEAR 2004 - 05 AS WELL AS IN THE SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2008 - 09. WE FIND THAT IN TH E BOOKS OF ACCOUNTS THE ASSESSEE USED TO DISCLOSE VARIOUS PROPERTIES OWNED BY THE ASSESSEE THOUGH THESE PROPERTIES ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE FIRM. THE ASSESSING OFFICER HAS NOT QUESTIONED ALL THESE TRANSACTIONS AS SHOWN IN THE BOOKS OF 38 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. ACCOUNTS FOR THE ASSESSMENT YEARS 2003 - 04, 2004 - 05 AND 2005 - 06 EXCEPT FOR THE YEAR UNDER CONSIDERATION AND PARTICULARLY ONE TRANSACTION IN RESPECT OF THE ASSESSEE PAID COMPENSATION TO THE OTHER PARTY. THE INCOME RISING ON SALE / TRANSFER OF THE PROPER TY / RIGHTS HAVE BEEN REGULARLY OFFERED TO TAX AND THE SAME HAS BEEN ASSESSED BY THE ASSESSING OFFICER. THEREFORE ACQUIRING THE RIGHTS, INTEREST AND TITLE OVER THE PROPERTY WITHOUT REGISTERING TO ITS NAME IS THE NORMAL AND REGULAR BUSINESS ACTIVITY OF THE ASSESSEE. THIS FACT HAS BEEN ACKNOWLEDGED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DT.30.12.2010 FOR THE ASSESSMENT YEAR 2008 - 09 AS UNDER : 39 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 40 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. THUS THE ADVANCE PAID TO THE PROPERTY OWNERS ARE SHOWN AS ASSETS IN THE BALANCE SHEET AND ADVA NCE RECEIVED FROM PURCHASER OF THE PROPERTY / RIGHTS ARE SHOWN AS LIABILITIES IN THE BALANCE SHEET. ON COMPLETION OF THE ACTUAL TRANSFER THE SAID ADVANCES CONVERTED TO INCOME OR EXPENDITURE AS THE CASE MAY BE. THEREFORE IN VIEW OF THE FACTS AND CIRCUMST ANCES OF THE CASE AS WELL AS ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE TRANSACTIONS IN QUESTION UNDER THE AGREEMENT DT.2.4.2002 ARE IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE THROUGH ITS PRINCIPAL PARTNER BY SHRI P. DAYANANDA PAI AND THEREFORE ALL THESE TRANSACTIONS WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE THEN THE GENUINENESS OF THE TRANSACTION CANNOT BE QUESTIONED MERELY ON THE GROUND THAT THE PROPERTIES WERE NOT REGISTE RED IN THE NAME OF THE ASSESSEE OR THE AGREEMENTS WERE EXECUTED BY SHRI P. DAYANANDA PAI. 41 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. CRYSTALLISATION OF LIABILITY 1 6 . THE ASSESSING OFFICER HAS HELD THAT AS PER THE REVISED AGREEMENT DT.10.03.2004 THE ASSESSEE WAS TO DELIVER THE CONSTRUCTED AREA WITHIN TWO YEARS AND THEREFORE THE LIABILITY TO PAY THE COMPENSATION WOULD NOT ARISE PRIOR TO 10.03.2006. HENCE THE ASSESSING OFFICER WAS OF THE VIEW THAT THE LIABILITY HAS NOT BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. AS PER THE TERMS OF THE REVISED AGREEMENT DT.10.03.2004, THE ASSESSEE WAS REQUIRED TO DELIVER THE PROPERTY DURING THE EXTENDED PERIOD OF TWO YEARS. THE RELEVANT PART OF RECITAL AND CLAUSES OF THE AGREEMENT DT.10.03.2004 ARE REPRODUCED AS UNDER : . .. 42 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. . .. 12. FOR ANY OF THE BREACHES COMMITTED BY EITHER PARTY, THE PARTY IN DEFAULT SHALL MAKE GOOD FOR ALL THE LOSSES AND CONSEQUENTIAL DAMAGES SUFFERED BY THE OTHER WITHOUT PREJUDICE TO THE RIGHT OF EACH PARTY TO SUE THE OTHER FOR SPECIFIC PERFORMANCE OF THIS CONTRACT. THE ASSES SEE AGREED TO GIVE THE OTHER PARTY SPECIFIED AREA IN FOUR PROPERTIES FOR A CONSIDERATION OF RS.22 CRORES ALREADY RECEIVED IN ADVANCE BY THE ASSESSEE AT THE TIME OF ORIGINAL AGREEMENT DT.2.4.2002. AS PER CLAUSE 5 OF THE REVISED AGREEMENT THE ASSESSEE UNDER TOOK TO PROVIDE BUILT UP AREA WITH OCCUPANCY CERTIFICATE WITHIN A SPREAD OVER PERIOD OF TWO YEARS FROM THE DATE OF AGREEMENT. FAILING WHICH THE ASSESSEE WOULD BE LIABLE TO MAKE GOOD FOR ALL LOSSES AND DAMAGES TO THE OTHER PARTY AS P ROVIDED IN CLAUSE 12 OF THE AGREEMENT. 43 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. 16. THE OBJECTION OF THE DEPARTMENT IS THAT THE TIME PERIOD FOR DELIVERY OF THE CONSTRUCTED AREA WAS TO EXPIRE ON 10.03.2006 AND THEREFORE LIABILITY WAS NOT CRYSTALLIZED AS ON 31.3.2005. IT IS PERTINENT TO NOTE THAT IT IS NOT A CASE OF SALE OF GOOD BUT IT IS AN AGREEMENT FOR TRANSFER OF CONSTRUCTED AREA IN THE PROJECT TO BE CONSTRUCTED UNDER JDA S . THEREFORE IT DEPENDS ON THE PROGRESS OF THE WORK OF CONSTRUCTION AND VERY WELL BE JUDGED IN ADVANCE WHE THER THE ASSESSEE WOULD BE ABLE TO FULFILL ITS COMMITMENT / OBLIGATION WITHIN THE TIME LIMIT AS PROVIDED IN THE AGREEMENT. THU S WHEN THE ASSESSEE REALIZED THAT THE S T ATUS OF THE CONSTRUCTION OF THE PROJECT UNDER JDA HAS NOT REACHED TO THE STAGE AS EXPECTED AND THEREFORE IT WAS NOT AT ALL POSSIBLE TO DELIVER THE COMPLETED PROPERTY TO THE OTHER PARTY WITHIN THE TIME LIMIT THEN THE ASSESSEE IS FREE TO TAKE A DECISION TO PROTECT ITS BUSINESS INTEREST AND MINIMIZE THE LOSSES WHICH WOULD BE SUFFERED BY IT IN FUTURE. THOUGH THE EVENT OF FINAL A MOUNT OF COMPENSATION HAPPENED AFTER CLOSING OF FINANCIAL YEAR UNDER CONSIDERATION HOWEVER, AS PER THE PRUDENT AND C ONSERVATIVE ACCOUNTING PRINCIPLE SUCH CONTINGEN CIES ARE TO BE TAKEN INTO ACCOUNT EVEN AFTER THE DATE OF BALANCE SHEET. AS PER PARA 8.2 OF A S - 4, THE ADJUSTMENT TO THE 44 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. ASSETS AND LIABILITY ARE REQUIRED FOR THE EVENT S OCCURRING AFTER THE BALANCE SHEET DATE. SUCH EVENTS HAVE BEEN DEFINED IN PARA 3.2 OF AS - 4 AS UNDER : 3.2 EVENTS OCCURRING AFTER THE BALANCE SHEET DATE ARE THOSE SIGNIFICANT EVENTS, BOTH FAVOURABLE AND UNFAVOURABLE, THAT OCCUR BETWEEN THE BALANCE SHEET DATE AND THE DATE ON WHICH THE FINANCIAL STATEMENTS ARE APPROVED BY THE BOARD OF DIRECTORS IN THE CASE OF A COMPANY, AND, BY THE CORRESPONDING APPROVING AUTHORITY IN THE CASE OF ANY OTHER ENTITY. THEREFORE THE LOSS DUE TO THE EVENT TOOK PLACE AFTER THE DATE OF BALANCE SHEET COULD BE ALLOWED WHILE COMPUTING THE INCOME FOR THE RELEVANT ASSESSMENT YEAR. SECTION 145(2) PROVIDES THAT THE CENTRAL GOVT. MAY NOTIFY IN THE OFFICIAL GA ZETTE FROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. THE AMENDED PROVISIONS OF SECTION 145(2) ELABORATE THE REQUIREMENT OF ACCOUNTING STANDARDS TO BE FOLLOWED FOR COMPUTATION OF TAXA BLE INCOME. THEREFORE, THE ACCOUNTING STANDARDS NOTIFIED UNDER SECTION 145(2) OF IT ACT ARE TO BE FOLLOWED FOR COMPUTATION OF INCOME AND DISCLOSURE OF INFORMATION BY ANY CLASS OF ASSESEE OR ANY CLASS OF INCOME. THE STANDARDS FOR INCOME COMPUTATION AND DISC LOSER OF INFORMATION AS NOTIFIED UNDER SECTION 145(2) OF THE ACT ARE NOT MEANT FOR MAINTENANCE OF BOOKS OF ACCOUNTS BUT ARE TO BE FOLLOWED FOR 45 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. COMPUTATION OF INCOME AND DISCLOSURE OF INFORMATION FOR THE PURPOSE OF ASSESSMENT TO TAX. EVENTS OCCURRING AFTER BALANCE SHEET DATE MIGHT CONFIRM THE STATE OF AFFAIRS ON THE BALANCE SHEET DATE AND THEREFORE TO DEAL WITH SUCH SITUATION AS4 PERMITS ADJUSTMENT OF ASSETS AND LIABILITIES AT THE BALANCE SHEET DATE IF EVENTS OCCURRING AFTER THE BALANCE SHEET DATE CONFIRM T HE CONDITIONS EXISTING ON BALANCE SHEET DATE. THE CONCEPT/RULE OF TAXING THE REAL INCOME AND NOT MERELY ON THE BASIS OF BOOK ENTRIES HAS BEEN LAID DOWN BY HON BLE SUPREME COURT IN THE FOLLOWING DECISIONS: I ) CIT V. SHOORJI VALLABHDAS & CO. (1962) 46 ITR 144 ( SC) II ) CIT V. BIRLA GWALIOR (P) LTD. (1973) 89 ITR 266 (SC) III ) GODHRA ELECTRICITY CO. LTD. V. CIT (1998) 225 ITR 746 (SC) THE HON BLE SUPREME COURT AGAIN IN CASE OF SUTLEJ COTTON MILLS V. CIT 116 ITR 1 HELD THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT CONC LUSIVE OF MATTER IF THE SAME ARE NOT IN CONFORMITY WITH THE ACCOUNTING PRINCIPLES. WHAT IS REQUIRED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. THEREFORE, IT IS SETTLED PROPOSITION THAT REGARDLESS OF ENTRIES IN THE BOOKS OF ACCOUNTS TAXABILITY OF INCOME OR TRANSACTION IS ALWAYS BASED ON THE PROVISIONS OF ACT, SUBSTANCE WHICH BRINGS THE TRUE STATE OF AFFAIRS AND FINANCIAL RESULTS. IF A 46 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. TRANSACTION, TREATMENT AND CLAIM OF THE ASSESSEE IS LEGAL, VALID AN D BONA FIDE THEN THE SAME HAS TO BE ACCEPTED. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. APPLIED GEMS CORPORATION (BOMBAY) 163 ITD 56 (BOM) WHILE DEALING WITH AN IDENTICAL ISSUE HAS HELD IN PARA 4.4 AS UNDER : 4.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IT IS QUITE WELL UNDERSTOOD THAT SECTION 4 OF THE ACT, CHARGES INCOME TAX IN RESPECT OF THE TOTAL INCOME OF A PREVIOUS YEAR RELEVANT TO THE CONCERNED ASSESSMENT YEAR. SECTION - 5 OF THE ACT, PRESCRIBES THE SCOPE OF TOTAL IN COME AND SO FAR AS WE ARE CONCERNED, THE DISPUTE RELATES TO THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'; WHICH IS LIABLE TO BE COMPUTED IN ACCORDANCE WITH THE METHODOLOGY PRESCRIBED IN SECTION 145(1) OF THE ACT I.E. E ITHER IN TERMS OF CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SUB - SECTION (2) OF SECTION 145 EMPOWERS THE CENTRAL GOVERNMENT TO NOTIFY ACCOUNTING STANDARDS FOR ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. IN THE PRESENT CASE, ASSESSEE FIRM HAS MAINTAINED ITS ACCOUNTS ON MERCANTILE SYSTEM AND WHILE COMPUTING INCOME FOR THE YEAR UNDER CONSIDERATION, IT CLAIMED DEDUCTION FOR A SUM OF RS. 49,64,937/ - REPRESENTING LOSS ON SHORT REALIZATION OF EXPORT PROCEEDS, WHICH WERE OUTSTANDING AS ON 31/3/2009, OF COURSE, SHORT REALIZATION HAVING TAKEN PLACE IN THE SUBSEQUENT PERIOD. THE CLAIM OF THE ASSESSEE IS THAT THE MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE JUSTIFIES SUCH ADJUSTMENT AND FOR THAT MATTER, REFERE NCE IS MADE TO THE PRINCIPLE OF PRUDENCE, WHICH HAS BEEN EMPHASIZED IN THE ACCOUNTING STANDARD - 1 NOTIFIED UNDER SECTION 145(2) OF THE ACT ALSO. THE PRINCIPLE OF PRUDENCE SEEKS TO ENSURE THAT PROVISION OUGHT TO BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THERE MAY REMAIN SOME UNCERTAINTY WITH ITS DETERMINATION. SO HOWEVER, IT HAS TO BE APPRECIATED THAT WHAT THE PRINCIPLE OF PRUDENCE SIGNIFIES IS THAT THE PROBABLE LOSSES SHOULD BE IMMEDIATELY RECOGNIZED. IN THE PRESENT CONTEXT, THE STAND OF THE ASSESSEE IS THAT THOUGH REALIZATION OF EXPORT RECEIVABLES TOOK PLACE IN THE SUBSEQUENT PERIOD, BUT THE LOSS COULD BE ACCOUNTED FOR IN THE INSTANT YEAR ITSELF AS IT WOULD BE PRUDENT IN ORDER TO REFLECT THE CORRECT FINANCIAL RESULTS. FACTUALLY SPEAKING, REVE NUE DOES NOT DISPUTE THE SHORT REALIZATION FROM DEBTORS TO THE EXTENT OF RS. 49,64,937/ - AND, THEREFORE, INSOFAR AS THE QUANTIFICATION OF THE LOSS IS CONCERNED, THE CLAIM OF THE ASSESSEE CANNOT BE ASSAILED ON GROUNDS OF UNCERTAINTY. THEREFORE, ASSESSEE IS JUSTIFIED IN DETERMINATION OF SUCH LOSS ON THE BASIS OF ACTUAL FIGURES WHICH WERE AVAILABLE WHILE ASSESSING ITS INCOME IN THE INSTANT ASSESSMENT YEAR. IN THE CASE OF U.B.S. PUBLISHERS AND DISTRIBUTORS ( SUPRA ), WHICH HAS BEEN RELIED UPON BEFORE US, THE ISSU E RELATES TO THE ASSESSMENT YEAR 1967 - 68 (PREVIOUS YEAR ENDING ON 31/05/1966). IN THE ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT 47 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. ASSESSEE THEREIN HAD CLAIMED AN EXPENDITURE BY WAY OF PURCHASES OF A SUM OF RS. 6,39,124/ - REPRESENTING ADDITIONAL LIABILITY TOW ARDS FOREIGN SUPPLIERS IN RESPECT OF BOOKS IMPORTED ON CREDIT UP TO THE END OF 31/05/1966. THE SAID ADDITIONAL CLAIM WAS BASED ON ACCOUNT OF DEVALUATION OF INDIAN CURRENCY, WHICH HAD TAKEN PLACE ON 06/06/1966 I.E. AFTER THE CLOSE OF THE ACCOUNTING YEAR. SU CH A CLAIM WAS DISALLOWED ON THE GROUND THAT IT DID NOT PERTAIN TO THE PREVIOUS YEAR ENDING 31/5/1966 AND THAT THE EVENT OF DEVALUATION HAD TAKEN PLACE ONLY ON 06/06/1966, WHICH WAS AFTER THE CLOSE OF THE ACCOUNTING PERIOD. THE CLAIM OF THE ASSESSING OFFIC ER WAS THAT SINCE ASSESSEE WAS MAINTAINING ITS ACCOUNTS ON MERCANTILE SYSTEM, THE LIABILITY ON ACCOUNT OF DEVALUATION OF THE INDIAN CURRENCY COULD NOT BE SAID TO HAVE ACCRUED DURING THE ACCOUNTING PERIOD ENDING ON 31/5/1966 AS DEVALUATION TOOK PLACE AFTER THE END OF THE ACCOUNTING PERIOD. THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THOUGH DEVALUATION OF INDIAN CURRENCY TOOK PLACE AFTER THE END OF THE PREVIOUS YEAR, BUT ASSESSEE WAS JUSTIFIED IN DETERMINING HIS LIABILITY ON THE BASIS OF THE A CTUAL FIGURES AVAILABLE WHEN ACCOUNTS FOR THAT YEAR WERE YET NOT FINALIZED. THE HON'BLE ALLAHABAD HIGH COURT AFFIRMED THE DECISION OF THE TRIBUNAL AND NOTED THAT LIABILITY TO PAY IN FOREIGN EXCHANGE ACCRUED WITH THE IMPORT OF BOOKS AND WAS NOT AS A RESULT OF DEVALUATION. ACCORDING TO THE HIGH COURT, SINCE THE ACTUAL FIGURE OF LOSS ON ACCOUNT OF DEVALUATION WAS AVAILABLE WHEN THE ACCOUNTS FOR 31/5/1966 ENDING WERE FINALIZED, THE SAME WAS AN ALLOWABLE DEDUCTION IN ASSESSMENT YEAR 1967 - 68 ITSELF. THE PARITY OF REASONING LAID DOWN BY THE HON'BLE ALLAHABAD HIGH COURT IS SQUARELY APPLICABLE IN THE PRESENT CASE ALSO. IN THE PRESENT CASE, SHORT REALIZATION OF EXPORT PROCEEDS TO THE EXTENT OF RS. 49,64,937/ - , TOOK PLACE IN NEXT YEAR BUT IT RELATED TO EXPORT RECEIVABL E FOR THE INSTANT YEAR, AND AT THE TIME OF FINALIZATION OF ACCOUNTS FOR THE INSTANT YEAR, THE ACTUAL FIGURE WAS AVAILABLE, AND THEREFORE, ASSESSEE MADE NO MISTAKE IN CONSIDERING IT FOR THE PURPOSES OF ARRIVING AT THE TAXABLE INCOME. THUS IT IS HELD THAT THE PRINCIPLE OF PRUDENCE S EEKS TO ENSURE THAT PROVISION OUGHT TO BE MADE FOR ALL KNOWN LIABILITY AND LOSSES EVEN THOUGH MA Y REMAIN SOME UNCERTAINTY WITH ITS DETERMINATION. THE CLAIM OF DAMAGES AND COMPENSATION WAS MADE BY THE OTHER PARTY TO THE AGREEMEN T VIDE CLAIM STATEMENT DT.11.07.2005. THE DISPUTE WAS REFERRED TO THE SOLE ARBITRATOR. THE BASIS OF THE CLAIM WAS THE FAIR MA RKET P RICE OF THE AREA TO BE DELIVERED BY THE ASSESSEE TO THE OTHER PARTY. THE ASSESSEE NEVER DISPUTED THE LIABILITY BUT ONLY TH E QUANTUM 48 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. WAS TO BE DETERMINED THROUGH THE ARBITRATION. THEREFORE THE LIABILITY WAS ALREADY IN EXISTENCE IN TERMS OF THE AGREEMENT BETWEEN THE PARTIES THAT IN THE EVENT OF FAILURE TO DELIVER THE COMPLETED CONSTRUCTED AREA, T HE ASSESSEE WOULD BE LIABLE TO MAKE GOOD OF THE LOSSES AND DAMAGES TO THE OTHER PARTY. EVEN OTHERWISE RIGHT FROM BEGINNING THE ADVANCE RECEIVED BY THE ASSESSEE HAS BEEN SHOWN AS LIABILITY IN THE BOOKS OF ACCOUNTS. THE LIABILITY TO PAY THE COMPENSATION AND DAMAGES IS ALSO A CERTAIN LIA BILITY AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT BETWEEN THE PARTIES THOUGH THE QUANTUM WAS TO BE D ETERMINED THROUGH ARBITRATION. IN THE CASE ON HAND, THE FAILURE OF THE ASSESSEE TO FULFILL ITS OBLIGATION IS IN THE NATURE OF DEFAULT OF BUSINESS OB LIGATION AND THEREFORE THE COMPENSATION PAYABLE / PAID BY THE ASSESSEE WOULD BECOME AN ALLOWABLE CLAIM BEING THE BUSINESS LOSS / EXPENSES IN ORDER TO CARRY OUT TH EIR BUSINESS / OBLIGATION AND THEREFORE THE SAID CLAIM OF DEDUCTION IS IN THE REVENUE FIELD . 18. THOUGH THE ASSESSING OFFICER HAS QUESTIONED THE MANNER IN WHICH THE ARBITRATION AWARD HAS BEEN PASSED ON THE BASIS OF MUTUAL CONSENT OF THE PARTIES HOWEVER , IT IS PERTINENT TO NOTE THAT WHEN THE COMPENSATION IS DETERMINED BETWEEN THE PARTIES AS PER THE FAIR MARKET PRICE AS ON THE 49 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. DATE THEN MERELY BECAUSE THE ASSESSEE AGREED TO SETTLE THE DISPUTE BY MUTUAL COMPROMISE D TERMS CANNOT BE A REASON OF DOUBTING THE GENUINENESS OF THE CLAIM. FURTHER THE ACTUAL PAYMENT OF THE COMPENSATION HAS NOT BE EN DISPUTED THEREFORE , WHEN THE ASSESSEE HAS REALIZED IN DEFINITE TERMS THAT IT WOULD NOT BE POSSIBLE FOR IT TO HONOUR THE COMMITMENT AND OBLIGATION UND E R THE AGREEMENT THEN THE LIABILITY ARISES UNDER THE AGREEMENT IS A CERTAIN LIABILITY THOUGH THE QUAN TUM OF THE SAME COULD HAVE BEEN DETERMINED SUBSEQUENTLY. THE ASSESSING OFFICER HAS RELIED UPON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF ASUM A CASHEW COMPANY VS. CIT 162 ITR 175 HOWEVER , WE FIND THAT THE DISPUTE IN THE SAID CASE WAS LIABILITY TO PAY DAMAGES AS DETERMINED BY THE ARBITRATION WAS HELD TO BE CRYSTALLIZED ON THE DATE OF AWARD BECAUSE IN THAT CASE THE ASSESSEE DENIED ITS LIABILITY TO PAY THE DAMAGES AND IT WAS ONLY BECAUSE OF THE ARBITRATION AWARD THE ASSESSEE RECOGNIZE T HE SAME . W HEREAS IN THE CASE ON HAND, THE ASSESSEE DID NOT DISPUTE THE LIABILITY TO PAY THE COMPENSATION IN THE EVENT OF FAILURE ON THE PART OF ASSESSEE TO HONOUR ITS OBLIGATION. THEREFORE THE LIABILITY TO PAY THE COMPENSATION WAS NEVER DISPUTED BY THE ASSESSEE, ONLY THE QUANTUM WAS SETTLED THROUGH ARBITRATION. ACCORDINGLY IN VIEW OF THE 50 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. ABOVE DISCUSSION, WE HOLD THAT THE LIABILITY TO PAY THE COMPENSATION WAS CRYSTALLIZED WHEN THE ASSESSEE ACCEPTED ITS FAILURE TO PERFORM ITS PART UNDER THE AGREEMENT W ITHIN THE STIPULATED TIME PERIOD AND THUS DETERMINATION OF COMPENSATION AFTER THE BALANCE SHEET DATE HAS TO BE TAKEN INTO ACCOUNT IN VIEW OF THE PRINCIPLE OF PRUDENCE AND CONSERVATI SM ACCOUNTING AS PROVIDED UNDER AS - 4. HENCE WE DECIDE THIS ISSUE IN FAVOU R OF THE ASSESSEE AND ALLOW THE CLAIM. 1 9 . THE ASSESSING OFFICER HAS RAISED CERTAIN OTHER OBJECTIONS REGARDING THE PROPERTY HAS NOT STARTED YIELDING INCOME AND THE TRANSACTION IS A COLOURABLE DEVICE HOWEVER WE FIND THAT YIELDING OF INCOME IS NOT A PRE - C ONDITION FOR ALLOWANCE OF DEDUCTION WHEN THIS PARTICULAR TRANSACTION IS ONLY A PART OF A REGULAR BUSINESS ACTIVIT IES OF THE ASSESSEE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE BUSINESS OF THE ASSESSEE HAS NOT ESTABLISHED OR COMMENCED BUT THE O BJECTION OF THE ASSESSING OFFICER IS RESTRICTED TO THE POINT THAT THIS PARTICULAR TRANSACTION HAS NOT STARTED YIELDING INCOME. WE ARE OF THE VIEW THAT THE BUSINESS ACTIVITY OF ASSESSEE COMPRISES ALL THE TRANSACTIONS AND THEREFORE A PARTICULAR TRANSACTIO N OR DEAL WHICH IS ONLY A PART OF THE REGULAR BUSINESS ACTIVITY NEED NOT START YIELDING INCOME FOR ALLOWING THE CLAIM IN QUESTION. 51 IT A NO. 193 /BANG/201 4 CANARA HOUSING DEVT. CO. FURTHER WHEN THE TRANSACTION IS NOT BETWEEN THE RELATED PARTIES AND IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE MON EY HAS COME BACK TO THE ASSESSEE THEN THE SAID TRANSACTION OF PAYMENT OF COMPENSATION AS PER THE OUTCOME OF THE ARBITRATION AWARD CANNOT BE HELD AS A COLOURABLE DEVICE. THE RECIPIENT OF THE COMPENSATION HAS CONSIDERED THIS AMOUNT FOR THE PURPOSE OF INCOME CHARGEABLE TO TAX. HENCE THE OBJECTIONS OF THE ASSESSING OFFICER ARE WITHOUT ANY LEGAL MATERIAL OR BASIS. THE ASSESSEE HAS OFFERED THE INCOME ARISING FROM THE PROJECT IN QUESTION TO TAX AND THEREFORE THE TRANSACTION OF DEVELOPMENT OF PROPERTIES IN QUES TION CANNOT BE HELD AS A BOGUS OR COLOURABLE DEVICE. 20 . TO CONCLUDE THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE QUA THIS ISSUE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. SINCE WE HAVE ALLOWED THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEAR UND ER CONSIDERATION THEREFORE THE ALTERNATE PLEA RAISED BY THE ASSESSEE BECOMES INFRUCTUOUS. 2 1. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12TH DAY OF MAY, 201 7 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER BANGALORE, DT. 12 .05.2017. *REDDY GP
