Ashokkumar Parmar, Pune V. Income-tax Officer, Ward - 5(5), Pune

ITA 2053/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9332 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 29-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARISES OUT OF DATED PASSED
• Section: 201; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE VIRTUAL COURT BEFORE SH RI R.S. SYAL, VICE PRESIDENT AND SH RI S.S. VISWANETHRA RAVI , J UDICIAL MEMBER I TA NO. 2053/PUN/2017 / ASSESSMENT YEAR : 20 1 2 - 13 ASHOKKUMAR PARMAR, SHRA DDHA, PLOT NO.6, SUJAY GARDEN, MUKUND NAGAR, PUNE 411037 PAN : AFWPP9573Q VS. ITO, WARD - 5(5), PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : TH IS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER DATED 0 8 - 06 - 2017 PASSED BY THE CIT(A) - 8, PUNE IN RELATION TO THE ASSESSMENT YEAR 20 1 2 - 13 . 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS CHALLENGE TO THE ECHOING BY THE LD. FIRST APPELLATE AUTHORITY OF THE DISALLOWANCE OF FORFEITURE OF EARNEST M ONEY DEPOSIT AMOUNTING TO RS.46, 40,000/ - . 3. SUCCINCTLY, THE FACTUAL PANORAMA OF THE CASE IS THAT THE ASSESSEE IS A REAL E STATE D EVELOPER CARRYING OUT ITS OPERATIONS A SSESSEE BY SHRI MANISH SOMANI RE VENUE BY SHRI PRATHAMESH J. LAWAND DATE OF HEARING 13 - 08 - 2020 DATE OF PRONOUNCEMENT 14 - 0 8 - 2 020 ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 2 UNDER ITS PROPRIE TORSHIP CONCERN , PARMAR DEVELOPERS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) ON 05 - 02 - 2003 WITH M/S GREAVES LIMITED FOR ACQUIRING INTEREST IN TH E PROPERTY OWNED BY THE LATTER. THE PURCHASE CONSIDERATION WAS SETTLED AT RS.4.64 CRORE. A SUM OF RS.46,40,000/ - WAS PAID BY THE ASSESSEE AS EARNEST MONEY. THE MONEY WAS FORFEITED BY M/S GREAVES LIMITED AS THE ASSESSEE FAILED TO COMPLY WITH THE TERMS AN D CONDITIONS OF THE MOU. THE ASSESSEE CLAIMED DEDUCTION FOR THE SAID SUM IN ITS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE AO OBSERVED THAT SIX MONTHS FROM THE DATE OF THE MOU LAPSED ON 05 - 08 - 2003 AND THEREFORE, THE LIABILITY ON ACCOUNT OF FORFEITURE AROSE IN THE FINANCIAL YEAR 2003 - 04 RELEVANT TO ASSESSMENT YEAR 2004 - 05. HE, THEREFORE, DISALLOWED THE CLAIM OF DEDUCTION IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE LD. CIT(A) AS WELL. 4. WE HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSEE ENTERED INTO MOU WITH M/S GREAVES LIMITED ON 05 - 02 - 2003 FOR ACQUISITION OF LAND , FOR WHICH HE PAID EARNEST MONEY OF ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 3 RS.46,40,000/ - . COPY OF THE MOU D ATED 05 - 02 - 2003 BETWEEN THE ASSESSEE AND M/S GREAVES LIMITED HAS BEEN PLACED ON PAGE 22 ONWARDS OF THE PAPER BOOK. CLAUSE 2 OF THE MOU PROVIDES FOR PAYMENT OF RS.46,40,000/ - BY THE ASSESSEE AS EARNEST MONEY. CLAUSE 3 STATES THAT THE ASSESSEE SHALL OBTAIN ALL THE REQUISITE PERMISSIONS FROM THE COLLECTOR OF PUNE OR GOVERNMENT OF MAHARASHTRA FOR DISPOSAL OF THE SAID PLOT WITHIN SIX MONTHS FROM THE DATE OF EXECUTION OF THE MOU AS THE GOVERNMENT OF MAHARASHTRA HAD ACQUIRED AND HANDED OVER THE LAND FOR THE USE AND BENEFIT OF M/S GREAVES LIMITED. DEFAULT CLAUSE HAS BEEN SET OUT AT SERIAL NO. 6 . C LAUSE 6 (C) OF THE MOU PROVIDES THAT IF THE ASSESSEE COMMITS BREACH OF ANY TERMS AND CONDITIONS, THE MOU SHALL AUTOMATICALLY STAND CANCELLED AND THE EARNEST MONEY OF 10 % PAID BY THE ASSESSEE , WILL BE FORFEITED . THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE FAILED TO FULFIL L HIS PAR T OF CONDITIONS IN ASMUCH AS HE COULD NOT OBTAIN THE REQUISITE PERMISSIONS FROM THE COLLECTOR OF PUNE OR GOVERNMENT OF MAHARASHTRA , AS A RESULT OF WHICH THE ASSESSEE INCURRED DEFAULT IN TERMS OF CLAUSE 6(C) OF THE MOU . THE ASSESSEE REQUESTED M/S GREAVES LIMITED TO EXTEND TIME FOR MEETING THE REQUIREMENT. THIS WENT ON FOR THREE YEARS. IT WAS ON ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 4 01 - 02 - 2006 THAT M/S GREAVES LIMITED INTIMATE D THE ASSESSEE OF HAV ING FORFEITED THE EARNEST MONEY SINCE THE ASSESSEE COULD NOT OBTAIN THE REQUISITE PERMISSIONS. THEREAFTER, THE ASSESSEE FILED CIVIL SUIT FOR SPECIFIC PERFORMANCE OF THE MOU. IT WAS ON 02 - 02 - 2012 THAT THE CIVIL COURT DISMISSED THE SUI T FOR SPECIFIC PERFORMANCE . P URSUANT TO TH E DECISION OF THE CIVIL COURT , THE ASSESSEE CLAIMED DEDUCTION OF THE EARNEST DEPOSIT IN HIS ACCOUNTS FOR THE YEAR ENDING 31 - 03 - 2012. THE ONLY DISPUTE IS ABOUT THE TIMING OF ALLOWING THE DEDUCTION AND NOT THE ACTUA L INCURRING OF LIABILITY BY MEANS OF FORFEITURE OF DEPOSIT. WHERE THE AO HAS MADE OUT A CASE THAT THE ASSESSEE OUGHT TO HAVE CLAIMED DEDUCTION WITHIN SIX MONTHS FROM THE DATE OF EXECUTION OF THE MOU WHEN HE FAILED TO OBTAIN THE REQUISITE PERMISSIO NS, THE LD. CIT(A) HAS OPINED AT PER PARA 22 OF HIS ORDER THAT THE DEDUCTION OF FORFEITURE SHOULD HAVE BEEN CLAIMED WHEN M/S GREAVES LIMITED COMMUNICATED THE FACT OF FORFEITURE OF EARNEST MONEY VIDE THEIR LETTER DATED 01 - 02 - 2006. IN THE ALTERNATE, THE LD. CIT(A) HELD THAT SINCE THE ASSESSEE HAD FILED APPEAL AGAINST THE ORDER PASSED BY THE CIVI L COURT DISMISSING HIS PETITION FOR SPECIFIC PERFORMANCE, THE ASSESSEE COULD CLAIM DEDUCTI ON ONLY WHEN THE MATTER ATTAINS ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 5 FINALITY BY THE JUDGMENT OF THE HONBLE SUPREME COUR T , WHICH EVENT HAD NOT TAKEN PLACE YET . IN OUR CONSIDERED OPINION, THE COURSE OF ACTION ADOPTED BY THE AUTHORITIES BELOW IS NOT IN ACCORDANCE WITH LAW. THE VIEW POINT OF THE LD. CIT(A) THAT THE ASSESSEE SHOULD HAVE CLAIMED DEDUCTION IN ITS ACCOUNTS FOR T HE YEAR ENDING 31 - 03 - 2006 DOES NOT STAND ANYWHERE BECAUSE AT THAT TIME THE ASSESSEE WAS PURSUING THE MATTER WITH M/S GREAVES LIMITED AND WAS STILL HOPEFUL OF SOME SUCCOR. 5 . UNDER THE MERCANTILE SYSTEM OF ACCOUNT ING , A DEDUCTION CAN BE CLAIMED WHEN LI ABILITY TO PAY THE AMOUNT IS INCURRED. AS AGAINST A STATUTORY LIABILITY BECOMING DEDUCTIBLE ONLY AGAINST THE NOTICE OF DEMAND, A CONTRACTUAL LIABILITY IS INCURRED WHEN ENFORCEABLE LIABILITY TO PAY IS CREATED AGAINST THE ASSESSEE. WE ARE CONFRONTED WITH A SITUATION IN WHICH THE ASSESSEE WAS CONTESTING HIS LIABILITY ARISING OUT OF THE MOU WITH M/S GREAVES LTD . IT BECAME ENFORCEABLE ON THE DISMISSAL BY THE CIVIL COURT OF HIS SUIT F OR SPECIFIC PERFORMANCE. IT WAS AT THAT POINT OF TIME THAT THE LIABILITY GOT C RYSTALISED AND BECAME ENFORCEABLE AGAINST THE ASSESSEE. THE HONBLE DELHI HIGH COURT IN NATIONAL AGRICULTURAL CO - OPERATIVE MARKETING FEDERATION OF INDIA LTD. VS. CIT (2011) 338 ITR 36 ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 6 (DEL) NOTED THAT ALBEIT THE AWARD WAS MADE BY THE ARBITRATOR ON 15TH NOV ., 1989 BUT IT WAS : `ONLY WITH PASSING OF THE DECREE BY THIS COURT ON 28TH JAN., 2000, THAT THE AWARD BEING MADE RULE OF THE COURT, BECAME ENFORCEABLE. THE LEGAL POSITION WHICH EMERGES IS THAT ONCE THE AWARD IS MADE A RULE OF THE COURT, ITS FURTHER STAY BY THE COURT CANNOT MAR THE INCURRING OF LIABILITY , WHICH BECOMES ENFORCEABLE ON THE AWARD HAVING BEEN MADE RULE OF THE COURT EARLIER. THIS PROPOSITION HAS BEEN LAID DOWN BY THE HONBLE DELHI HIGH COURT IN NATIONAL AGRICULTURAL CO - OPERATIVE MARKETING FEDER ATION OF INDIA LTD. (NAFED) VS. CIT (2017) 393 ITR 666 (DEL) . 6 . TESTING THE FACTUAL SCENARIO ON THE TOUCHSTONE OF THE ABOVE PRINCIPLES, IT IS MANIFESTED THAT THE ENFORCEABLE LIABILITY AGAINS T THE ASSESSEE WAS CREATED IN TH E EXTANT YEAR ON THE DISMISSAL OF THE ASSESSEES SUIT FOR SPECIFIC PERFORMANCE BY THE CIVIL COURT. THE VIEW POINT BY THE LD. CIT(A) THAT THE ASSESSEE CAN GET DEDUCTION ONLY WHEN THE MATTER I S FINALLY DECIDED BY THE HONBLE SUPREME COURT, IS NEITHER HERE NOR THERE. IT IS SO FOR THE RE ASON THAT INSOFAR AS THE QUESTION OF DEDUCTION IS CONCERNED, THE SAME DEPENDS ON ASCERTAINMENT OF LIABILITY, WHICH EVENT HAS ALREADY HAPPENED IN THE ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 7 INSTANT YEAR. IF SUPPOSE , AT A LATER POINT OF TIME , THE HIGHER COURT S DECIDE THE ISSUE IN FA VOUR OF THE ASS ESSEE AND THE FORFEITURE OF EARNEST MONEY IS REVERSED, THE ASSESSEE WILL BE OBLIGED TO INCLUDE SUCH AMOUNT IN THE TOTAL INCOME OF SUCH LATER YEAR BY VIRTUE OF PROVISIONS OF SECTION 41(1) OF THE ACT. WE, THEREFORE, HOLD THE ASSESSEE TO BE ENTITLED TO DEDUC TION OF RS.46,40,000/ - IN THE YEA R UNDER CONSIDERATION . THE IMPUGNED ORDER IS OVERTURNED AND THE DEDUCTION IS ALLOWED. 7 . IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST , 2020 . SD/ - SD/ - ( S.S. VISWANETHRA RAVI ) ( R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE ; DATED : 14 TH AUGUST , 2020 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A) - 8, PUNE 4 . 5. THE PR.CIT - 3 , PUNE , , / DR A , ITAT, PUNE 6 . / GUA RD FILE / BY ORDER, / / TRUE COPY // SENIOR PRIVATE SECRETARY ITA NO . 2053 /PUN/ 201 7 ASHOKKUMAR PARMAR 8 , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 1 3 - 08 - 2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 3 - 08 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SE NT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *