ITO 32(1)(5), MUMBAI V. EMPIRE DEVELOPERS, MUMBAI

ITA 2321/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3324 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2016
• Appeal Filed By: Department
• Bench Allotted: SMC
• Next Hearing Date: 29-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2015
• Court: TRIBUNAL
• Department Lawyers: MAHUA SARKAR
• Keywords: Capital receipt

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI , ! ' , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, ITA NO.2321/MUM/2015 ASSESSMENT YEAR: 2008-09 INCOME TAX OFFICER-32(1)(5), ROOM NO.203, C-11, 2 ND FLOOR, PRATYAKSH KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400051 / VS. M/S EMPIRE DEVELOPERS, SHOP NO.3, OPP. WIRELESS STATION, S.V. ROAD, DAHISAR EAST, MUMBAI-400068 / REVENUE / ASSESSEE P.A. NO . AACFE1641B $ % & / REVENUE BY MS. MAHUA SARKAR -DR $ % & / ASSESSEE BY NONE / DATE OF HEARING 29/08/2016 & / DATE OF ORDER: 01/09/2016 & / O R D E R THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 27/01/2015 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE FIRST GROUND RAISED PERTAINS TO ALLOWIN G RELIEF ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 2 OF RS.3,61,356/- U/S 36(1)(III) OF THE INCOME TAX A CT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING, THE LD. DR, MS. MAHUA SARKAR, CONTENDED THAT THE RELIEF WAS GRANTED TO THE ASSESS EE WITHOUT APPRECIATING THE FACT THAT NO EVIDENCE FOR INVESTMENT IN AOP WAS FILED AND THUS NO INCOME OR L OSS WAS SHOWN FROM AOP. IT WAS ALSO PLEADED THAT INTERE ST BEARING FUNDS WERE DIVERTED AS ADVANCES TO THE SIST ER CONCERN, FRIENDS AND FAMILY MEMBERS WITHOUT ANY BUSINESS EXPEDIENCY AND THAT TOO WITHOUT CHARGING A NY INTEREST. 2.1. ON THE OTHER HAND, NONE WAS PRESENT FOR THE ASSESSEE IN SPITE OF ISSUANCE OF REGISTERED AD NOTI CE ISSUED ON 29/06/2016 & 13/07/2016. THE ASSESSEE NEITHER PRESENTED ITSELF NOR MOVED ADJOURNMENT PETI TION. IT SEEMS THAT THE ASSESSEE IS NOT INTERESTED TO PUR SUE THE APPEAL FILED BY THE REVENUE, THEREFORE, I HAVE NO O PTION BUT TO PROCEED EX-PARTE, QUA THE ASSESSEE, AND TEND TO DISPOSE OF THIS APPEAL ON THE BASIS OF MATERIAL AVA ILABLE ON RECORD. 2.2. I HAVE CONSIDERED THE SUBMISSIONS OF LD. DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE F ACTS, IN BRIEF, ARE THAT THE LD. ASSESSING OFFICER DISALLOWE D INTEREST PAYMENT OF RS.3,61,356/- BEING CAPITAL INTRODUCED I N M/S KING EMPIRE DEVELOPERS (AOP), ON THE PLEA THAT THE INTEREST BEARING FUNDS WERE DIVERTED, WITHOUT CHARG ING ANY ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 3 INTEREST, OUT OF OWN FUNDS. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL) GRANTED RELIEF TO THE ASSESSEE, WHICH IS UNDER CHALLENGE BEFORE THIS TRIB UNAL. IT IS NOTED THAT THE ASSESSEE GAVE LOAN AND ADVANCES T O THE TUNE OF RS.23,68,000/- AND ALSO INVESTED RS.1,52,00,427/- IN KINGS EMPIRE DEVELOPERS AND NO INTEREST WAS CHARGED ON THESE AMOUNTS. A SHOW-CAUSE NOTICE WAS ISSUED TO THE ASSESSEE BY THE ASSESSING OFFICER AS TO WHY THE INTEREST SHOULD NOT BE DISALLOWED U/S 36(1)(III) OF THE ACT AS INTEREST BEARING FUNDS WER E DIVERTED AS INTEREST FREE LOAN AND ADVANCES. THE SUBMISSIONS OF THE ASSESSEE ARE SUMMARIZED HEREUNDER:- THE AO NOTICED THAT THE ASSESSEE HAD DEBITED RS.43 ,16,645/- UNDER THE HEAD 'INTEREST ON LOAN (KURLA) SHOWN UNDER SCHE DULE F:ADMINISTRATIVE EXPENSES. AS PER TAX AUDIT REPORT, THE INCOME RECEIVED AND PAID IS SHOWN AT RS.NIL. THE ASSESSEE HAS GIVEN LOANS AND ADVANCES TO THE TUNE OF RS.23,68,000/- AND ALSO INVESTED RS.1,52,00,427/- IN KINGS EMPIRE DEVELOPERS AND NO INTEREST HAS BEEN CHARGED ON THESE LOANS. THE ASSESSEE WAS ISSUED A S HOW-CAUSE NOTICE AS TO WHY THE INTEREST SHOULD NOT BE DISALLOWED U/S 36(1)(III) AS INTEREST BEARING FUNDS ARE DIVERTED AS INTEREST FRE E LOANS AND ADVANCES. TO THIS, THE ASSESSEE HAS SUBMITTED AS UN DER:- WE HAVE TO INFORM YOU THAT, WE ARE A MEMBER OF AOP M/S KINGS EMPIRE DEVELOPERS AND WE HAVE INTRODUCED CAPITAL IN THE SAID A.O.P., WHICH IS REFLECTED UNDE R THE INVESTMENTS IN OUR BALANCE SHEET. WE HAVE THE SAID CAPITAL INTRODUCTION IN THE EARLIER YEARS AND THE B ALANCE AS ON 31/03/2007 WAS RS. 2,46,80,000/- AND THE DOSING BAL ANCE AS ON 31/03/2008 WAS RS.1,52,00,428/- THE SAID FACT CRYSTALISES THAT , WE HAVE NOT MADE A NY NEW INVESTMENT IN THE CURRENT YEAR. ON THE CONTRARY WE HAVE MADE WITHDRAWAL FROM THE CAPITAL IN M/S KINGS EMPIRE DEVELOPERS, AS OUR CLOSING CAPITAL IS REDUCED TO RS. 1,52,00,428/- FROM THE OPENING CAPIT AL OF RS. 2,46,80,000/-. THE FURTHER CRYSTALISES THAT, SINCE THERE IS NO NEW INVESTMENT, THERE IS NO SOURC E FOR THE SAME IN THE CURRENT YEAR AND HENCE THE DETA ILS ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 4 CALLED FOR ARE NOT APPLICABLE TO US '. THE AO HAS, HOWEVER, NOT ACCEPTED THE EXPLANATION ACCORDED BY THE ASSESSEE SINCE THE ASSESSEE HAS APPARENTLY NOT FILED ANY DOCUMENTARY EVIDENCE AND A LSO IT IS NOT EXPLAINED AS TO WHY INTEREST BEARING FUNDS HAVE BEEN DIVERTED TO INTEREST FREE LOANS AND ADVANCES TO OTH ER CONCERNS SUCH AS KINGS BUILDERS & DEVELOPERS, HITES H B. MEHTA AND NAZMA GULAB SHAIKH. THEREFORE, THE AO HAS WORKED OUT THE DISALLOWANCE U/S 36(1)(III) AS UNDER TOTAL LOAN FUND AS ON 1.4.2007 RS. 2,82,83,306 TOTAL LOAN AS ON 31.3.2008 RS.2,32,51,728 INTEREST EXPENDITURE DEBITED RS.43,16,645 INTEREST DISALLOWABLE RS.23,68,000/- X 15.26% RS.3,61,356/- DURING THE COURSE OF APPEAL, THE APPELLANT HAS SUBM ITTED THAT - 1. 'THE ASSESSEE WAS A MEMBER OF AOP OF M/S. KINGS EMPIRE DEVELOPERS AND THE ASSESSEE FIRM M/S. EMPIRE DEVELOPERS HAD INTRODUCED A CAPITAL IN M/S. KINGS EMPIRE DEVELOPERS. (PG. NO.8) THE BUSINESS ACTIVITY OF THE AOP IS ALSO A CONSTRUCTION OF BUILDING AND DEVE LOPMENT OR PROPERTY / LAND. 2. AS A MEMBER OF AOP THE ASSESSEE FIRM HAD MADE INTRODUCTION OF CAPITAL FROM BORROWED FUNDS FOR THE SAME BUSINESS ACTIVITY OF CONSTRUCTION AND DEVELOPMENT OF PROPERTY / LAND. THE FIRM HAD PAID A N INTEREST ON SUCH BORROWED FUND AND CLAIMED THE DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. SECT ION 36(1)(III) OF THE ACT PROVIDES THAT AMOUNT OF INTEREST IN RESPECT OF CAPITAL BORROWED FOR THE PUR POSE OF BUSINESS OR PROFESSION SHALL BE ALLOWED AS BUSIN ESS EXPENDITURE. DURING THE A.Y. 2008 2009, THE SAME AMOUNT OF CAPITAL INTRODUCTION WAS REFLECTED IN THE BALANCE SHEET AS INVESTMENT. 3. THE ASSESSING OFFICER FAILED TO OBSERVE THAT SAI D AMOUNT WAS INVESTED IN THE EARLIER YEAR AND NOT FOR THE CURRENT YEAR. ON 31/03/2007 THE AMOUNT WAS RS. 2,46,80,000/- (PG. NO. 25T) AND AS ON 31/03/2008 IT WAS RS. 1,52,00,427/- (PG. NO. 8) I.E. THE ASSESSEE FIRM HAD UTILISED THE SAID BORROWED FUNDS FOR THE PURPOSE OF BUSINESS ACTIVITY. AND THE ASSESSEE HAD REPAID A LOAN ON SUCH BORROWINGS FROM THE CAPITAL I NTRODUCED IN A AOP AND CLAIMED DEDUCTION U/S. 36(1)(III). ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 5 4. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD DISCLOSED ALL THE DETAILS BEFORE THE ASSESSING OFFICER RELATED TO ITS BUSINESS ACTIVITY. 5. THE ASSESSEE FURTHER STATES THAT THERE IS NO QUESTION OF EARNING INCOME FROM THE SAID INVESTMENT MADE IN KINGS EMPIRE DEVELOPERS. WHEN THERE IS NO INVESTMENT IN CURRENT YEAR, THEN THERE IS NO QUESTION OF PRODUCING DOCUMENTS FOR INVESTMENT AS IT WAS AVAILABLE WITH THE ASSESSEE IN THE FORM BALANCE SHEET WHICH WAS ALREADY IN RECORDS BEFORE THE ASSESSING OFFICER. 6. THERE WAS NO ANY DEFICIENCY IN THE PAYMENT OF INTEREST. THE ASSESSING OFFICER HAD WRONGLY OBSERVE D THAT THE ASSESSEE HAD DIVERTED ITS INTEREST BEARING FUNDS TO INTEREST FREE LOANS AND ADVANCES. AND HE HAD MADE DISALLOWANCE OF RS. 3,61,356/- ON THE BASIS OF OPENING AND CLOSING BALANCES OF THE LOANS AND ADVANCES AND INTEREST EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAD SUBMITTED THE FUND FLOW STATEMENT VIDE LETTER DTD. 27/08/2013. 7. WITHOUT PREJUDICE TO THE ABOVE THE MAIN CONTENTION THAT THE CAPITAL INTRODUCE IN THE AOP WAS OUT OF OWN FUNDS AND IT WAS IN NORMAL COURSE OF BUSINESS ACTIVITY, THE ASSESSEE ALTERNATIVELY FURTH ER SUBMITS THAT FOR THE PURPOSE OF CALCULATION OF ANY DISALLOWANCE, THE OPENING BALANCE PERTAINING TO EAR LIER YEARS CANNOT BE MADE AVAILABLE FOR ADVANCES DURING THE YEAR. FURTHER THE ASSESSEE HAS EARNED SHARE OF PROFIT FROM AOP OF RS. 69,862/- (PG. 6). THE AOP IS AN INDEPENDENT ASSESSEE THE ASSESSEE HAS A JV WITH KIN GS EMPIRE DEVELOPER FOR DEVELOPMENT OF KURLA PROJECT. THE LEDGER A/C OF KINGS EMPIRE DEVELOPERS IS ENCLOS ED. CIT V. R L KALTHIA ENGINEERING & AUTOMOBILES (P.) LTD. 7[2013] 215' TAXMAN 9 (GUJARAT)(MAG.) INTEREST PAID ON BORROWED FUND ON GROUND THAT ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS FOR PURPOSE OF INVESTMENT IN SHARES AND LOANS TO SISTER CONCERN, SINCE SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH ASSESSEE, DISALLOWANCE OF INTEREST EXPENDITURE WAS NOT PERMISSIBLE. CIT V. RAGHUVIR SYNTHETICS LTD. (2013) 354 ITR 222 (GUJ)(H C) THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 6 EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. AND CONSIDERING THE MATERIAL ON RECORD AND SUBSTANTIAL INTEREST-FREE FUNDS AND BUSINESS EXPEDIENCY, NO DISALLOWANCE OF INTEREST WAS WARRANTED FOR PURPOSE OF ADVANCE TO SISTER CONCERNS. VENUS RECORDS & TAPES (P.) LTD. V. ADDL CIT (2013) 58 SOT 47(MUM)(TRIB) WHERE THE ASSESSEE HAD SUFFICIENT FUNDS IN SHAPE OF SHARE CAPITAL AND SHARE APPLICATION MONEY OUT OF WHICH ADVANCE LOAN TO ITS SISTER CONCERN, INTEREST PAID ON BORROWED CAPITAL WOULD BE ALLOWED UNDER SECTION 36(1)(III) CIT VS HDFC BANK LTD. (BOMBAY HIGH COURT) CIT VS SRIDEVI 192 ITR 165 KAR. ITO VS JMP ENTERPRISES (2006) 101 ITD 324 (ASR) 2.3. AFTER CONSIDERING THE AFOREMENTIONED SUBMISSIONS AND THE CASE LAWS, RELIED UPON BY THE ASSESSEE, THE LD. FIRST APPELLATE AUTHORITY CONCLUD ED AS UNDER: I HAVE GONE THROUGH THE FACTS OF THE CASE AND I FI ND MERIT IN THE ARGUMENT ADVANCED BY THE APPELLANT THA T THE SAID AMOUNT WAS INVESTED IN THE EARLIER YEAR S AND NOT FOR THE CURRENT YEAR AND THEREFORE, DURING THE YEAR, IT CANNOT BE HELD THAT INTEREST BEARING FUNDS HAD BEEN USED TO ADVANCE THE INTEREST FREE LOANS AND ADVANCES. IN LIGHT OF THIS, THE PROPORTIONATE DISALLOWANCE MADE BY THE AO CANNOT BE UPHELD. THE APPEAL ON THIS GROUND IS ALLOWED. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME , CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RES PECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, TH ERE IS UNCONTROVERTED FINDING IN THE IMPUGNED ORDER THAT T HE IMPUGNED AMOUNTS WERE INVESTED IN EARLIER YEARS AND NOT ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 7 IN THE CURRENT YEAR. IT IS ALSO NOTED THAT NO EVIDE NCE HAS BEEN PRODUCED BY THE REVENUE EVIDENCING THAT THE FU NDS WERE DIVERTED WITHOUT COMMERCIAL EXIGENCIES. SO FAR AS, MAKING INVESTMENT IS CONCERNED, IT IS THE BUSINESSM AN WHO IS TO MAKE THE INVESTMENT PROTECTING HIS BUSINE SS INTEREST. THE ASSESSING OFFICER CANNOT BE EXPECTED TO SIT IN THE CHARE OF THE ASSESSEE AND DECIDE IN WHICH MANNE R THE INVESTMENT HAS TO BE MADE. ACTION CAN ONLY BE TAKEN OR DISALLOWANCE CAN BE MADE ONLY IN A SITUATION WHEN I T IS FOUND THAT THE INVESTMENT OR GRANTING LOANS IS CONT RARY TO THE PROVISIONS OF THE ACT. THEREFORE, I FIND NO ME RIT IN THE GROUND RAISED BY THE REVENUE, CONSEQUENTLY, THE STA ND TAKEN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL ) IS AFFIRMED. 3. THE NEXT GROUND RAISED BY THE REVENUE PERTAINS TO THE DIRECTION TO THE ASSESSING OFFICER TO TREAT RS.50 LAKH, COMPENSATION RECEIVED BY THE ASSESSEE FOR CANCELLATION OF DEVELOPMENT AGREEMENT, AS CONTRACTU AL RECEIPT INSTEAD OF CHARGEABLE AS SHORT TERM CAPITAL GAIN, HELD BY THE ASSESSING OFFICER. 3.1. THE CRUX OF ARGUMENT ADVANCED MS. SARKAR, IS IDENTICAL TO THE GROUND RAISED. I HAVE CONSIDERED T HE SUBMISSIONS OF THE LD. DR AND PERUSED BEFORE ADVERT ING FURTHER, I AM REPRODUCING HEREUNDER THE RELEVANT FI NDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL) FOR READY REFERENCE AND ANALYSIS:- ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 8 DURING THE COURSE OF ASSESSMENT, THE AO NOTICED TH AT THE ASSESSEE HAD FURNISHED A COPY OF DEED OF CANCELLATION BETWEE N CHANDRALOK FABRICS AND THE ASSESSEE WHICH SHOWS THA T THE ASSESSEE IS A DEVELOPER AND CHANDALOK FABRICS ARE T HE OWNERS OF LAND BEARING CTS NO.176 ADMEASURING 1677.27 SQ.MTS. OF VILLAGE PAHADI, TALUKA- GOREGAON, DISTRICT-MUMBAI. THE TWO HAD ENTERED INTO A DEVELOPMENT AGREEMENT ON 24.10.2005 FOR THE DEVELOPMENT . OF THE SAID PROPERTY AND THE ASSESSEE HAD PAID RS.10,00,000/- TO THE OWNER AS SECURITY DEPOSIT TO BE REPAID TO THE ASSESSEE ON COMPLETION OF THE ENTIRE DEVELOPMEN T PROJECT. IN THE BOOKS OF THE ASSESSEE, THE SAID AMOUNT WAS REFLECTED AS INVESTMENT. HOWEVER, THE AGREEMENT HAS BEEN CANCELLED SUBSEQUENTLY AND DURING THE YEAR, THE ASS ESSEE RECEIVED RS.50,00,000/- AS COMPENSATION FOR THE CAN CELLATION OF THE SAID AGREEMENT. THE AO ISSUED A SHOW-CAUSE TO THE A SSESSEE AS TO WHY THE SAID RS.50,00,000/- SHOULD NOT BE TREATE D AS CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. THE ASSESSEE, O N THE OTHER HAND, HAS SHOWN THE SAID AMOUNT OF RS.50,00,000/- A S CONTRACT RECEIPTS AGAINST WHICH THE ASSESSEE HAS SHOWN COST OF GOODS SOLD AT RS.37,60,077/-, RESULTING IN A GROSS PROFIT OF RS.12,39,922/-. FURTHER, ADMINISTRATIVE EXPENSES ET C. HAVE BEEN BOOKED AGAINST THE SAID GROSS PROFIT. THE ASSE SSEE WAS ASKED TO JUSTIFY THE CLAIM OF EXPENSES WITH DOCUMENTARY EVIDENCES. THE ASSESSEE HAS SUBMITTED T HE DETAILS BEFORE THE AO REGARDING VARIOUS EXPENSES IN CURRED AND CLAIMED AND HAS ALSO MADE A SUBMISSION AS TO W HY THE SAID AMOUNT SHOULD NOT BE TREATED AS CAPITAL GAINS. THE ASSESSEE HAS SUBMITTED BEFORE THE AO THAT THE SAID DEVELOPMENT AGREEMENT WAS CANCELLED DUE TO THE DIFF ERENCES CREATED BETWEEN TWO PARTIES AND SINCE THE WORK HAD ALREADY BEEN STARTED AND EXPENDITURE OF RS.37,60,077/- HAD ALREADY BEEN INCURRED, THEREFORE, CHANDALOK FABRICS AGREED TO COMPENSATE THE FIRM FOR THE MONETARY VALUE OF THE EXPENDITURE INCURRED AND THE TIME DEVOTED FOR THE D EVELOPMENT WORK. THE SAID AMOUNT IS NOT FOR ANY TRANSFER OR SALE OF ASSET AND THEREFORE, CANNOT BE TREATED AS CAPITAL GAINS. THE AO HAS, HOWEVER, NOT ACCEPTED THE VIEW OF THE A SSESSEE IN VIEW OF THE FACT THAT THE SO-CALLED DEPOSIT OF RS.1 0,00,000/- HAS BEEN REFLECTED BY THE ASSESSEE AS INVESTMENT IN THE BALANCE SHEET. THE COMPENSATION RECEIVED OF RS.50,00,000/- HAS, THEREFORE, BEEN REDUCED BY THE SAID RS.10,00,000/- AND BALANCE RS.40,00,000/- HAS BEEN BROUGHT TO TAX AS SHORT TER M CAPITAL GAIN. THE ASSESSEE IS IN APPEAL AGAINST THIS ON THE GROUNDS THAT THE ASSESSEE WAS NEITHER OWNER NOR HAD HE PURCHASED THE SAID PROPERTY AND THEREFORE, WAS NOT LIABLE TO CAPITAL G AINS. ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 9 APPELLANT'S SUBMISSIONS DURING THE COURSE OF APPEAL, THE APPELLANT HAS REITERATED THE ARGUMENT ADVANCED BEFORE THE AO AND HAS ALSO REFERRED TO THE DECISION IN THE CASE OF '3I INFOTECH LTD. V. ADDL. CIT (2014) 146 LTD 405 WHERE THE COMPENSATION HAD BEEN RECEIVED BY THE ASSCSSEE ON LOSING ITS RIGHT TO RECEIVE INCOME IN RESPECT OF SERVICES BEING RENDERED BY THE ASSESSEE TO THE BANK. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS A LOSS OF SOURC E OF INCOME TO THE ASSESSEE AND COMPENSATION HAS BEEN DETERMINED ON THE BASIS OF THE SAID LOSS. IT IS THE CASE OF THE REVENUE THAT THE AMOUNT RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED AS INCOME IN THE NATURE OF REVENUE. THE ITAT HELD THAT THE COMPENSATION RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF CAPITAL AND NOT LIABLE FOR CAPITAL GA IN TAX.' 3.2. CONSIDERING THE FACTUAL MATRIX AND THE JUDICI AL PRONOUNCEMENTS, THE FIRST APPELLATE AUTHORITY CONCL UDE AS UNDER:- I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS A N UNDISPUTED FACT THAT THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND M/S CHANDRALOK FABRICS . IT IS ALSO UN DISPUTED FACT THAT THE SAID AGREEMENT HAS BEEN CANCELLED. IT IS A LSO A FACT WHICH HAS BEEN ACCEPTED BY THE AU THAT THE EXPENSES , AS SUBMITTED BY THE APPELLANT BEFORE THE AO, HAVE NOT BEEN FOUND TO BE WRONGLY CLAIMED AS NOT BEING INCURRED. THE ONLY LINE OF ARG UMENT BEING ADOPTED BY THE AO IS THAT BECAUSE RS.10,00,00 0/- WAS ADVANCED BY THE ASSESSEE TO M/S CHANDRALOK FABR ICS AT THE OUTSET OF THE AGREEMENT AND THE SAME HAS BEE N CLASSIFIED AS INVESTMENT BY THE ASSESSEE IN ITS BOO KS, THEREFORE, SUBSEQUENTLY, RECEIPT OF RS.50,00,000/- WOULD ALSO CONSTITUTE CAPITAL RECEIPT . THIS IS CLEARLY A MISUNDERSTANDING OF THE FACTUAL SITUATION OF THE SA ID TRANSACTION. WHILE DEFINITELY THE SAID RS.10,00,000 /- CONSTITUTED THE SECURITY DEPOSIT WHICH WAS TO BE RE PAID TO THE ASSESSEE ON COMPLETION OF THE ENTIRE DEVELOPMENT WO RK, HOWEVER, IT IS CERTAINLY NOT A DEPOSIT IN THE NATUR E OF CAPITAL DEPOSIT AND MORE IMPORTANTLY, IN THE MANNER THAT TH E AGREEMENT HAS BEEN DRAFTED AND THE PROJECT WORK STARTED AND T HEN TRUNCATED, THE AMOUNT OF RS.50,00,000/- COMES THROU GH AS A COMPENSATION/ REIMBURSEMENT PAYMENT OF THE ACTUAL E XPENSES INCURRED BY THE ASSESSEE AS A DEVELOPER IN THE SAID AGREEMENT. ONCE THE AU IS NOT DOUBTING OR DEBATING THE ACTUALI TY OF THE EXPENSES INCURRED BY THE ASSESSEE TOWARDS PART OF T HE DEVELOPMENT ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 10 OF THE SAID PROJECT, THEN HOW CAN THE PAYMENT MADE BY. M/S CHANDRALOK FABRICS TO THE ASSESSEE ON THIS ACCOUNT, NOT BE TAKEN AS REIMBURSEMENT OF EXPENSES INCURRED BY THE ASSESSEE ON THIS ACCOUNT IN LIGHT OF THE FACT THAT IT WAS M/S CHANDRALOK FABRICS THAT WAS THE OWNER OF THE SAID P ROPERTY AND AFTER THE COMPLETION OF THE DEVELOPMENT WORK, T HE ENTIRE PROPERTY WOULD HAVE REMAINED IN THE OWNERSHIP AND C ONTROL OF M/S CHANDRALOK FABRICS. IN MY CONSIDERED VIEW, THE AO HAS DEVELOPED A MISPLACED UNDERSTANDING OF THE NATURE O F THE TRANSACTION BY TREATING IT AS CAPITAL RECEIPT. IT I S CLEAR THAT THE ASSESSEE HAS CARRIED OUT THE EXPENDITURE TOWARD S THE PERFORMANCE OF THE DEVELOPMENT AGREEMENT. THE AO, I S THEREFORE, DIRECTED TO TREAT RS.50,00,000/- AS CONT RACTUAL RECEIPT. THE AO, IS HOWEVER, FREE TO LOOK INTO THE GENUINENE SS OF THE EXPENSES AS CLAIMED SINCE FROM THE ASSESSMENT ORDER IT EMERGES THAT EXERCISE HAS NOT BEEN CARRIED OUT. ALSO THE AO MAY LOOK INTO THE NET TRANSACTION VALUE CONSIDERING THAT RS.10,00 ,000/- WHICH WAS DEPOSITED BY THE ASSESSEE THAT M/S CHANDRALOK F ABRICS HAS NOT BEEN SHOWN AS HAVING BEEN RECEIVED BACK. TH E CONSOLIDATED EXERCISE MAY BE CARRIED OUT BY THE AO NOW.. THE GROUND OF APPEAL IS ALLOWED. 3.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME , CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RES PECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, THE RE IS UNCONTROVERTED FINDING IN THE IMPUGNED ORDER THAT T HE ASSESSEE CARRIED OUT THE EXPENDITURE TOWARDS THE PERFORMANCE OF DEVELOPMENT EXPENDITURE. IT IS FURTH ER NOTED THAT SPECIFIC DIRECTION IS THERE TO THE ASSES SING OFFICER THAT HE IS FREE TO LOOK INTO THE GENUINENES S OF THE EXPENSES AND RELEVANT EXERCISE WAS NOT CARRIED OUT BY THE ASSESSING OFFICER. CONSIDERING THE TOTALITY OF FACT S, I DONT FIND ANY INFIRMITY IN THE DIRECTION TO THE ASSESSIN G OFFICER, ITA NO.2321/MUM/2015 M/S EMPIRE DEVELOPERS 11 THEREFORE, THE CONCLUSION DRAWN IN THE IMPUGNED ORD ER IS UPHELD. THUS, THIS GROUND OF THE REVENUE IS ALSO W ITHOUT ANY MERIT, CONSEQUENTLY, DISMISSED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN T HE PRESENCE OF LD. DR AT THE CONCLUSION OF THE HEARING ON 29/08/2015. SD/- (JOGINDER SINGH) ! ' / JUDICIAL MEMBER MUMBAI; DATED : 01/09/2016 F{X~{T? P.S / ! & $ )!*+ ,&+-* / COPY OF THE ORDER FORWARDED TO : 1. '#$%& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * / THE CIT, MUMBAI. 4. ) ) * / CIT- , MUMBAI 5. +,- ' , ) '#$ ' / , / DR, ITAT, MUMBAI 6. -0 1$ / GUARD FILE. & / BY ORDER, (+# ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI