ITO, New Delhi V. M/s Finian Estates Developers Pvt. Ltd., New Delhi

ITA 2361/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52870 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 32

Judgement Text

FIT FOR PUBLICATION SD/- AM SD/-JM IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 2361(DEL)2011 ASSESSMENT YEAR: 2007-08 INCOME TAX OFFICER, M/S. FINIAN ES TATES DEVELOPERS PVT. LTD., WARD 11(2), NEW DELHI. V. 1-E, JHANDEWALAN EX TN., NEW DELHI. ITA NO. 1953(DE.)2011 ASSESSMENT YEAR: 2007-08 M/S. FINIAN ESTATES DEVELOPERS PVT. LTD. I NCOME TAX OFFICER, 1-E, JHANDEWALAN EXTN., NEW DELHI. V. WA RD 11(2), NEW DELHI. (APPELLANT) (RESPOND ENT) DEPARTMENT BY: S/SHRI PRADEEP DINODIA&R.K.KAPOOR, CA ASSESSEE BY: SHRI KRISHNA & SHRI S.K. SHARMA, CIT/DR ORDER PER A.D. JAIN, J.M. ITA NO. 2361(DEL)2011: THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2007-08, TAKING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ORDER OF THE CIT(A) IS WRONG AND AGAINST THE PROVIS IONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. ITA NOS. 2361 & 1953(DEL)2011 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF ` 58,03,59,600/- MADE ON ACCOUNT OF ACCRUED INCOME ON GRANT OF DEVELOPMENT RIGHTS IGNOR ING THAT - A) THE SAID ADDITION OF ` 58.03 CRORES WAS STRICTLY MADE IN ACCORDANCE WITH THE DEVELOPMENT AGREEMENT DATED 15.09.2006 ENTERED WITH M/S. DLF COMMERCIAL PROJECT S CORPORATION (DEVELOPER). THE SAID AGREEMENT (ARTI CLE 2.1) PROVIDES FOR GRANT OF AN EXCLUSIVE LICENCE TO THE D EVELOPER FROM THE DATE OF PURCHASE OF THE LAND BY THE ASSESS EE AND ARTICLE 5.1 PROVIDES THAT IN CONSIDERATION OF THE A SSESSEE TRANSFERRING THE EXCLUSIVE DEVELOPMENT RIGHTS OVER THE PROPERTY THE DEVELOPER SHALL PAY TO THE ASSESSEE TH E CONSIDERATION WITHIN TWO YEARS FROM THE EFFECTIVE D ATE SUM OF ` 2.25 CRORES PER ACRE. B) THE AO HAS POINTED OUT IN CLEAR CUT TERMS THAT THE IMPUGNED AGREEMENT IS SKEWED HEAVILY IN FAVOUR OF THE DEVELO PER AS IT HAS UNLIMITED RIGHTS UNDER THE AGREEMENT TO ENTER UPON THE PROPERTY, TO BUILD AND CONSTRUCT OPTION TO PURCHASE THE PROPERTY UPON ITS FAILURE TO OBTAIN LICENCE FROM TH E AUTHORITIES WITHOUT ANY OPPOSITION FROM FEDPL, RIGH T TO ENTER INTO AGREEMENT WITH PURCHASES/LESSEES OF THE DEVELOPERS PLOTS WITHOUT ANY OBJECTION FROM FEDPL. THE EXCLUSIVE RIGHT TO NAME THE BUILDING, RIGHT TO ASSI GN ALL THE RIGHT TO ANY ENTITY OR COMPANY WITHOUT ANY CONSENT FROM FEDPL. THUS IT CANNOT BE DENIED THAT THE ASSESSEE COMPANY HAS PARTED COMPLETELY WITH ALL RIGHTS OF DEVELOPMENT IN FAVOUR OF THE DEVELOPER. C) THE NON-OBTAINING OF PERMISSION BY THE DEVELOPER TO UNDERTAKE DEVELOPMENT ACTIVITIES FROM THE DIRECTOR, TOWN & COUNTRY PLANNING, CHANDIGARH IS MERELY A SUBSEQUENT PROCEDURAL STEP IN THE DEVELOPMENT OF THE PROPERTY AND MORE IMPORTANTLY, IT WAS NOT A CONDITION PRECEDENT TO TH E AGREEMENT TO COME IN FORCE. D) AS PER THE TERMS OF THE AGREEMENT, THE INTENTION OF THE PARTIES WAS FOR THE AGREEMENT TO COME INTO FORCE AS SOON AS ITA NOS. 2361 & 1953(DEL)2011 3 THE ASSESSEE OBTAINED LEGAL TITLE TO THE PROPERTY I N QUESTION AT WHICH POINT OF TIME THE CONSIDERATION BECAME PAY ABLE AND THE DEVELOPMENT RIGHTS TRANSFERRED, IRRESPECTIVE OF THE DATE ON WHICH THE CONSIDERATION WAS ACTUALLY PAID OR DEVELOPMENT ACTUALLY COMMENCED. E) WHERE ONE PARTY TO THE AGREEMENT HAS PERFORMED ITS OBLIGATION UNDER THE AGREEMENT, THE MERE POSSIBILIT Y OF A FUTURE CONTINGENCY PREVENTING THE OTHER PARTY FROM PERFORMING ITS OBLIGATION CANNOT HAVE THE EFFECT OF POSTPONING THE DATE OF THE AGREEMENT COMING INTO FO RCE OR THE DATE OF ACCRUAL OF CONSIDERATION OF THE AGREEME NT, ESPECIALLY WHEN SUCH A CONDITION IS NOT RECOGNIZED AS A CONDITION PRECEDENT IN THE AGREEMENT BETWEEN THE P ARTIES THEMSELVES. F) THE ASSESSEE HAD RECEIVED A SUBSTANTIAL PART OF THE CONSIDERATION UNDER THE GUISE OF INTEREST FREE DEPO SIT THOUGH THE INCOME ACCRUING TO IT WAS THE CONSIDERATION ` 2.25 CRORES PER ACRE OF THE PROPERTY ACQUIRED BY G) THE AO HAS APTLY CITED THE DECISIONS IN THE CASES O F CIT V. SYNDICATE BANK, 159 ITR 464(KAR); KESHAV MILLS L TD. V. CIT, 23 ITR 230; FRANCIS JOSEPH V. ITO, 64 ITD 456(MAD) R.V. PANDIT V. ACIT, 70 ITD 1(MUM); LAKSHMI NARAYAN FILMS V. CIT, 244 ITR 344(MAD) WH ILE MAKING THE SAID ADDITION ON ACCRUAL BASIS. 2. GROUND NO.1 IS GENERAL. 3. APROPOS GROUND NO.2, THE FACTS ARE THAT THE ASSE SSEE FIRM WAS FORMED IN 1984-85. SINCE THEN, IT WAS ENGAGED IN THE BUS INESS OF DEVELOPMENT OF REAL ESTATE. THE ASSESSEE FILED RETURN OF INCOME FOR THE YEAR, SHOWING LOSS OF ` 12,375/-. THE AO ASSESSED THE INCOME OF ` 58,03,39,900/- MAKING AN ADDITION OF ` 58,03,59,600/-, HOLDING IT AS ACCRUED INCOME FROM S ALE OF ITA NOS. 2361 & 1953(DEL)2011 4 DEVELOPMENT RIGHTS BY THE ASSESSEE TO M/S. DLF COMM ERCIAL PROJECT CORPORATION(THE DEVELOPER). 4. THE AO OBSERVED THAT FINIAN ESTATES DEVELOPERS PVT. LTD. (FEDPL), ENTERED INTO A DEVELOPMENT AGREEMENT DAT ED 15.9.06 WITH DLF COMMERCIAL PROJECT CORPORATION, I.E., THE DEVELOPER . IT RECEIVED ` 58.69 CRORES AS INTEREST FREE PERFORMANCE DEPOSIT FROM T HE DEVELOPER. THE AO OBSERVED THAT THE AGREEMENT WAS SKEWED HEAVILY IN F AVOUR OF THE DEVELOPER, WHO HAD UNLIMITED RIGHTS UNDER THE AGREEMENT, I.E., TO ENTER UPON THE PROPERTY, TO BUILD AND CONSTRUCT, OPTION TO PURCHAS E THE PROPERTY UPON ITS FAILURE TO OBTAIN LICENCE FROM THE AUTHORITIES WITH OUT ANY OPPOSITION FROM FEDPL, THE EXCLUSIVE RIGHT TO NAME THE BUILDING, RI GHT TO ASSIGN ALL THE RIGHTS TO ANY ENTITY OR COMPANY WITHOUT ANY CONSENT FROM F EDPL. THE AO OBSERVED THAT FEDPL HAD PARTED COMPLETELY WITH ALL RIGHTS OF DEVELOPMENT; THAT EVEN ON THE FAILURE OF THE DEVELOPER TO OBTAIN THE TOWNSHIP LICENSE, FEDPL IS BOUND TO AGREE TO THE SALE OF ITS PROPERTY AT THE FIXED RATE OF CONSIDERATION PAYABLE; THAT IT HAD NO RIGHT WHATSOE VER TO TERMINATE THE AGREEMENT, EXCEPT IN THE EVENT OF THE DEVELOPER NOT OBTAINING THE LICENSE AND ALSO NOT OFFERING TO PURCHASE ITS PROPERTY; THAT IT S CONSENT WAS NOT REQUIRED EVEN WHERE THE DEVELOPER ASSIGNED ALL OF THE DEVELO PMENT RIGHTS TO ANY OTHER ENTITY; THAT FEDPL WAS ALSO UNDER AN OBLIGATION TO OFFER THE DEVELOPMENT ITA NOS. 2361 & 1953(DEL)2011 5 RIGHTS IN ANY FUTURE ACQUISITION OF LAND MADE BY IT IN THE VICINITY OF THE SCHEDULED PROPERTY; THAT THE ASSESSEE HAD PARTED WI TH VALUABLE DEVELOPMENT RIGHTS IN LIEU OF WHICH CONSIDERATION AMOUNTING TO ` 58.03 CRORES HAD BECOME PAYABLE TO IT AND ACTUALLY IT HAD ALSO RECEIVED MON EY FROM THE DEVELOPER DURING THE YEAR UNDER THE NOMENCLATURE OF INTEREST FREE PERFORMANCE DEPOSIT AMOUNTING TO ` 58.03 CRORES; THAT THE ASSESSEE CONTENDED THAT INCOME FROM THE TRANSACTION SHOULD BE RECOGNIZED O NLY WHEN THE DEVELOPER OBTAINED THE LICENSE FROM DTCP. THE AO PUT THE AS SESSEE TO QUERY AS TO WHETHER THE CONSIDERATION PAYABLE TO THE ASSESSEE B Y THE DEVELOPER ACCRUED ON THE EFFECTIVE DATE, I.E., THE DATE ON WHICH THE ASSESSEE ACQUIRED LAND WITH FULL TITLE, AS PROVIDED IN THE AGREEMENT, OR AS CON TENDED BY THE ASSESSEE, IN VIEW OF THE UNCERTAINTY INVOLVED IN COMPLETION OF T HE TRANSACTION, THE INCOME WOULD BE RECOGNIZED UPON ISSUE OF THE LICENS E TY DTCP. 5. ON CONSIDERING THE ASSESSEES REPLY, THE AO CONC LUDED THAT THE AGREEMENT PROVIDED FOR EXCLUSIVE AND IRREVOCABLE GR ANT OF DEVELOPMENT RIGHTS OF THE ASSESSEE FROM THE DEVELOPER FOR A CON SIDERATION OF ` 2.25 CRORES PER ACRE OF THE PROPERTY ON THE DATE ON WHICH SUCH PROPERTY IS ACQUIRED BY THE ASSESSEE AND THE OTHER TERMS TO BE COMPLETED AF TER THE AGREEMENT COMES INTO FORCE WERE NOT MATERIAL IN ADJUSTING THE ISSUE REGARDING ACQUISITION OF ITA NOS. 2361 & 1953(DEL)2011 6 THE ASSESSEE UNDER THE DEVELOPMENT AGREEMENT; THAT THEREFORE, THE CONSIDERATION OF ` 2.25 CRORES PER ACRE OF THE PROPERTY HAD ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, AS TH E PROPERTY WAS ACQUIRED, DURING THE YEAR ITSELF; THAT SINCE THE PROPERTY ACQ UIRED BY THE ASSESSEE DURING THE YEAR AMOUNTED TO 25,79376 ACRES, A TOTAL CONSIDERATION OF ` 58,03,59,600/- HAD ACCRUED TO THE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION. THE AO, AS SUCH, TREATED THIS AMOU NT AS THE ASSESSEES INCOME ON ACCOUNT OF TRANSFER OF DEVELOPMENT RIGHTS IN THE LAND. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE AFORESAID ADDITION MADE BY THE AO. 7. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 8. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION RIGHTLY M ADE; THAT WHILE DOING SO, THE LD. CIT(A) HAS FAILED TO TAKE INTO CONSIDERATIO N THE FACTS, AS TAKEN NOTE OF BY THE AO; THAT THE ASSESSEE COMPANY HAS PARTED WIT H ALL ITS RIGHTS OF DEVELOPMENT COMPLETELY; THAT EVEN ON THE FAILURE OF THE DEVELOPER TO OBTAIN TOWNSHIP LICENCE, THE ASSESSEE WAS BOUND TO AGREE TO THE SALE OF ITS PROPERTY AT THE FIXED RATE OF CONSIDERATION PAYABLE, HAVING NO RIGHT TO TERMINATE THE AGREEMENT, EXCEPT IN THE EVENT OF THE DEVELOPER IN OBTAINING LICENCE AND ALSO NOT OVER ITS PROPERTY TO PURCHASE, NO SIGN OF THE A SSESSEE OF THE ASSESSEE WAS ITA NOS. 2361 & 1953(DEL)2011 7 REQUIRED EVEN WHERE THE DEVELOPER ASSIGNED ALL THE DEVELOPMENT RIGHTS TO ANY OTHER ENTITY; THAT THE ASSESSEE WAS ALSO UNDER AN OBLIGATION TO OFFER THE DEVELOPMENT RIGHTS IN ANY FUTURE ACQUISITION OF LAN D MADE BY IT IN THE VICINITY OF THE SCHEDULED PROPERTY; THAT THE ASSESS EE HAD ONLY TRIED TO JUSTIFY THE AMOUNT RECEIVED AS INTEREST FREE ADVANCES AND N OT ITS INCOME ; AND THAT THE DEVELOPMENT AGREEMENT WAS, IN FACT, NOT LOOKED INTO BY THE LD. CIT(A). 9. RELIANCE HAS BEEN PLACED ON THE FOLLOWING CASE L AWS:- 1. CIT V. SYNDICATE BANK 159 ITR 464 (KAR); 2. KESHAV MILLS LTD. V. CIT, 23 ITR 230(SC); 3. ANSAL PROPERTIES & INDUSTRIES LTD. V. DCIT, 115 I TD 443(DEL); 4. SURAJ PRAKASH SONI V. ACIT, 303 ITR 366(JODHPUR); 5. CIT V. DHIR AND CO. COLONISERS P.LTD., 288 ITR 56 1(P&H); AND 6. CIT V. PUNJAB BONE MILLS, 251 ITR 780(SC). 10. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS STRONGLY SUPPORTED THE IMPUGNED ORDER. IT HAS BEEN CONTEND ED THAT THE LD. CIT(A) HAS RIGHTLY TAKEN INTO CONSIDERATION ALL THE RELEVA NT ARTICLES OF THE DEVELOPMENT AGREEMENT AND HAS ANALYZED THE SAME; TH AT IT HAS RIGHTLY BEEN COMPLETED; THAT WITHOUT ACQUISITION/APPROVAL, IT CA NNOT BE DECIDED AS TO WHAT EXACT DEVELOPMENT THE ASSESSEE IS AUTHORIZED TO MAK E ON THE RAW LAND PURCHASED BY IT, SINCE NUMEROUS LEGAL REQUIREMENTS STILL REMAINED TO BE COMPLIED WITH BEFORE GRANT OF DEVELOPMENT RIGHT QUA THE PROPERTY FOR ITA NOS. 2361 & 1953(DEL)2011 8 COMMERCIAL USE OF THE ASSESSEE; THAT THE LAND OWNER S MIGHT EVEN BE DENIED THE LICENCE; THAT AS SUCH, TILL THE TIME OF GRANT O F LICENCE TO DEVELOP THE PROPERTY, NO RIGHT TO DEVELOP THE PROPERTY COMES IN TO EXISTENCE AND THAT BEING SO, NO DEVELOPMENT RIGHT BEING INEXISTENCE ON THE EFFECTIVE DATE, THERE CANNOT BE ANY QUESTION OF TRANSFERRING THE SAME; TH AT THEREFORE, MERE ACT OF ENTERING INTO THE DEVELOPMENT AGREEMENT DOES NOT GI VE THE ASSESSEE THE RIGHT TO RECEIVE THE SALE CONSIDERATION FOR THE TRA NSFER OF ANY DEVELOPMENT RIGHT AND THAT THE RIGHT UNDER THE DEVELOPMENT AGRE EMENT IS MERELY A CONTINGENT RIGHT WHICH MIGHT OR MIGHT NOT FRUCTIFY INTO AN ABSOLUTE RIGHT. THE LD. DR HAS CONTENDED THAT NONE OF THE CASE LAWS RELIED ON BY THE DEPARTMENT ARE APPLICABLE, SINCE THE FACTS THEREIN WERE ALTOGETHER DIFFERENT. 11. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE LD. CIT(A), WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS OBSERVED AS FOLLOWS:- 4. FINDING ON GROUND OF APPEAL NO. 1.1 TO 1.5 : - THE ISSUES TO BE DECIDED WITH REFERENCE TO THE ABOV E GROUNDS OF APPEAL CAN BE IDENTIFIED AS UNDER : A) WHETHER INCOME FOR RS. 58,03,59,600/- HAS ACCRUE D TO THE ASSESSEE ON ENTERING INTO THE IMPUGNED AGREEMEN T WITH THE DEVELOPER AND FROM THE EFFECTIVE DATE AS DEFINED IN ARTICLE 1.1 THEREOF WHICH IS DATE OF COMPLETION OF PURCHASE OF PROPERTY INCLUDING MUTATION IN THE NAME OF ASSESSEE IN REVEN UE RECORDS. ITA NOS. 2361 & 1953(DEL)2011 9 B) LINKED WITH THE ISSUE OF THE DATE OF ACCRUAL OF INCOME IS AS TO THE APPELLANT COULD HAVE IN ITS OWN RIGHT LE GALLY CLAIMED THE RECEIPT ON SALE OF DEVELOPMENT RIGHT, FROM THE DEVELOPER FROM THE EFFECTIVE DATE AS DEFINED ARTICLE 1.1 OR W HETHER SUCH RIGHT TO LEGALLY CLAIM IN THE INCOME VEST ONLY ON T HE DATE REQUISITE APPROVAL/LICENSE FOR DEVELOPMENT IS GRANT ED BY DTCP IN FAVOUR OF THE APPELLANT. THE ANSWER TO THE ABOVE QUESTIONS ARE DEPENDENT ON A COMPOSITE READING OF ALL THE CLAUSES OF THE AGREEME NT IN TOTALITY AND NOT READING THE PROVISIONS OF THE AGREEMENT IN PARTS. ON THIS PROPOSITION THE APPELLANT HAS RELIED ON THE OB SERVATIONS OF THE APEX COURT IN CASES OF UNION OF INDIA VS. COSAL IA SHIPPING P. LTD. 113 ITR 307 (SC); CONTROLLER OF ESTATE DUTY VS. ALOKE MITRA 126 ITR 599 (SC). ON THIS ISSUE IT IS OBSERV ED THAT THERE CAN BE NO TWO OPINION THAT IN ORDER TO UNDERSTAND T HE TRUE IMPORT OF AN AGREEMENT ALL THE PROVISIONS THEREOF W OULD HAVE TO BE READ IN CONJUNCTION AND IN TOTALITY. THE ASSESSEE HAS ALSO FILED A SEPARATE LEGAL NOTE D ISTINGUISHING ALL THE JUDGMENTS RELIED UPON BY THE AO (ON THE ISS UE OF ACCRUAL OF INCOME) AND HAS ADVANCED ITS OWN ARGUMENTS AND C ASE LAWS ON THE PROPOSITION AS TO WHEN CAN AN INCOME BE STAT ED TO HAVE ACCRUED TO AN ASSESSEE. AS THE FACTS IN NO TWO CAS ES CAN BE IDENTICAL AND RATHER THE FACTS IN CASES RELIED UPON BOTH BY THE AO & THE APPELLANT ARE NOT IDENTICAL SIMILAR TO THE APPELLANTS FACTS THEREFORE, IT WOULD BE APPROPRIATE TO HIGHLIG HT THE LEGAL POSITION AS TO WHEN AN INCOME CAN BE SAID TO HAVE A CCRUED TO AN ASSESSEE. THE BASIS PRINCIPLE ENUNCIATED IN SEV ERAL DECISIONS OF THE HONBLE COURTS SOME OF ARE AS BELO W: IN E.D. SASSON AND CO. LTD.S CASE [1954] 26 ITR 27 (SC) IT WAS EXPLAINED THAT THE WORDS ARISING OR ACCRUING DESCRIBED A RIGHT TO RECEIVE PROFITS AND THAT THERE MUST BE A DEBT OWED BY SOMEBODY. IT WAS OBSERVED THAT IT CAN NOT BE SAID THAT AN ASSESSEE HAS ACQUIRED A RIGHT TO RECEIVE TH E INCOME OR THAT INCOME HAS ACCRUED TO HIM UNLESS AND UNTIL THE RE IS CREATED IN FAVOUR OF THE ASSESSEE A DEBT DUE BY SOMEBODY. ITA NOS. 2361 & 1953(DEL)2011 10 ON THE CONNOTATION OF THE WORD DEBT, IN KESORAM I NDUSTRIES AND COTTON MILLS LTD. VS. CWT [1966] 59 ITR 767, THE APEX COURT OBSERVED AS FOLLOWS:- A DEBT IS A PRESENT OBLIGATION TO PAY AN ASCERTAIN ABLE SUM OF MONEY, WHETHER THE AMOUNT IS PAYABLE IN PRAESENTI O R IN FUTURO : DEBITUM IN PRASENTI, SOLVENDUM IN FUTURO. BUT A SUM PAYABLE UPON A CONTINGENCY DOES NOT BECOME A DEBT UNTIL THE SAID CONTINGENCY HAS HAPPENED. IN CIT VS. ASHOKBHAI CHIMANBHAI [1965] 56 ITR 42, T HE SUPREME COURT OBSERVED THAT THE WORDS ACCRUE AND ARISE ARE USED TO CONTRADISTINGUISH THE WORD RECEIVE. INCOME IS SAID TO BE RECEIVED WHEN IT ACTUALLY REACHES THE AS SESSEES HANDS, BUT SHORT OF RECEIPT, WHEN THE RIGHT TO RECE IVE THE INCOME BECOMES VESTED IN THE ASSESSEE, IT IS SAID TO ACCRU E OR ARISE. IF INCOME ACCRUES OR ARISES, IT MAY BECOME LIABLE TO T AX. IT IS, THEREFORE, MANIFEST THAT IF AN ASSESSEE ACQUIRES A RIGHT TO RECEIVE INCOME, THE INCOME CAN BE SAID TO ACCRUE TO HIM, THOUGH IT MAY BE RECEIVED LATER ON. IN THE CASE OF LAKSHMI NARAYAN FILMS VS. CIT 244 IT R 344, THE MADRAS HIGH COURT HAS FOLLOWING THE ORDER OF SUPREM E COURT IN CASE OF CIT VS. GAJAPATHY NAIDU 53 ITR 114 HAS LAID DOWN THE PRINCIPLE THAT THERE IS NO RIGHT TO RECEIVE THE AMOUNT ACCRUED TO AN ASSESSEE UNLESS THE ASSESSEE PERFORMS ITS PART OF THE OBLIGATION STIPULATED IN THE AGREEMENT. THE AG REEMENT IS NO DOUBT A VALID AGREEMENT IN THE SENSE THAT THE CONSI DERATION FOR THE AGREEMENT CAN BE PAST CONSIDERATION OR FUTURE CONSIDERATION, BUT ON THAT ACCOUNT, IT CANNOT BE AS SUMED THAT THE RIGHT TO RECEIVE THE PAYMENT HAD ACCRUED IN FAV OUR OF THE ASSESSEE ON THE DATE OF AGREEMENT. SOME OF THE OTHER JUDGMENTS, WHICH CONFIRM THE PROP OSITION THAT UNLESS THE RIGHT TO RECEIVE THE INCOME IS VEST ED IN THE ASSESSEE, THE SAME CANNOT BE SAID TO HAVE ACCRUED O R ARISEN TO THE ASSESSEE, ARE CIT VS. GOVIND PRASAD PRABHU NATH , 171 ITR 417 (ALL.); SETH PUSHALAL MANISINGHKA (P) LTD. VS. CIT (1967) 66 ITR 159 (SC); SETH MADAN LAL MODI VS. CIT (2003) 261 ITR 49 (DEL.). ITA NOS. 2361 & 1953(DEL)2011 11 THE SUPREME COURT AND THE JURISDICTIONAL DELHI HIGH COURT HAVE ALSO CONSISTENTLY REITERATED THE PRINCIPLE IN LAW THAT ONLY REAL INCOME AND NOT NOTIONAL INCOME CAN BE BROUGHT TO TAX. SOME OF THE DECISIONS IN WHICH THIS PRINCIPLE HAS B EEN DISCUSSED ARE CIT VS. SHOORJI VALLABHDAS & COMPANY (1962) 46 ITR 144 (SC); CIT VS. BIRLA GWALIOR P. LTD. (197 3) 89 ITR 266 (SC) MORVI INDUSTRIES LTD., 82 ITR 835, GODHRA ELEC TRICITY CO. LTD., VS. CIT (1997) 225 ITR 746 (SC); BOKARO S TEEL LTD. 236 ITR 315 (SC); CIT VS. MODI RUBBER LTD. 230 ITR 817 (DEL.); DEVSONS P. LTD. VS. CIT 329 ITR 483 (DEL.). ON THE BASIS OF ABOVE LEGAL PRINCIPLES ABOUT ACCRU AL OF INCOME AS SETTLED BY VARIOUS JUDICIAL PRONOUNCEMEN TS, IT IS OBSERVED THAT IN ORDER TO COME TO THE CONCLUSION TH AT WHETHER THE APPELLANT HAD BECOME ENTITLED TO THE RIGHT TO R ECEIVE THE PAYMENT FROM THE DEVELOPER IN THE INSTANT YEAR IT I S THE TERMS AND CONDITIONS STIPULATED IN THE AGREEMENT WHICH AR E THE MOST VITAL DOCUMENTS TO BE INTERPRETED. IT WOULD BE REQ UIRED TO BE SEEN AS TO WHEN THE RIGHT TO THE INCOME BECOMES VES TED IN THE ASSESSEE. IT WOULD ALSO HAVE TO BE EXAMINED AS TO WHETHER THE ASSESSEE/APPELLANT HAS PERFORMED HIS PART OF THE OB LIGATION CONTEMPLATED IN THE AGREEMENT, WHICH WOULD BE THE I NITIAL STEP TAKEN ON PART OF THE ASSESSEE IN ORDER TO VESTING O F THE RIGHT TO RECEIVE THE INCOME. IN ORDER TO DECIDE THIS MATTER IN THE LIGHT OF AFOR ESAID SETTLED LEGAL PRINCIPLES, THE CLAUSES IN THE AGREEMENT DATE D 15.09.06 HAVE TO BE CAREFULLY ANALYZED WHICH TO MY MIND ARE ABSOLUTELY NECESSARY. ARTICLE 1 OF THE SAID AGREEMENT HAS BEEN CATEGORIZE D AS DEFINITIONS AND INTERPRETATION WHICH DEFINES AMONGS T OTHERS APPROVALS BUILDINGS EFFECTIVE DATE ENCUMBRANCES POW ER OF ATTORNEY, SANCTIONED PLAN AND SCHEDULED PROPERTY. TWO OF THE DEFINITIONS WHICH HAVE A BEARING TO DECIDE THIS ISS UE ARE BEING PRODUCED HEREUNDER: ITA NOS. 2361 & 1953(DEL)2011 12 EFFECTIVE DATE MEANS DATE OF THE COMPLETION OF THE PURCHASE OF THE SCHEDULED PROPERTY INCLUDING MUTATION THEREO F IN FAVOUR OF FEDPL IN REVENUE RECORDS AND THE VESTING OF THE RIGHT, TITLE AND INTEREST IN THE SCHEDULED PROPERTY IN FAVOUR OF FEDPL, WHICH SHALL BE COMMUNICATED IN WRITING TO THE DEVEL OPER BY FEDPL. SCHEDULED PROPERTY MEANS ALL THAT PIECE AND PARCEL OF AGRICULTURAL LAND FIT FOR DEVELOPMENT SITUATED IN D ISTRICT GURGAON, STATE OF HARYANA. POA MEANS THE SPECIAL IRREVOCABLE POWER OF ATTORN EY IN FAVOUR OF THE DEVELOPER SUBSTANTIALLY IN THE FORM O F APPENDIX A. ARTICLE 2.1 OF THE AGREEMENT STATES THAT THE ASSESS EE HAS GRANTED TO THE DEVELOPER FROM THE EFFECTIVE DATE AN EXLCUSI VE LICENSE TO ENTER THE SCHEDULED PROPERTY AND DEVELOP THE SAME I N TERMS OF THE AGREEMENT. ARTICLE 2.2 CLARIFIES THAT THE ASSESSEE SHALL REMAI N THE OWNER OF THE SCHEDULED PROPERTY AND THE DEVELOPER SHALL HAVE ONLY PERMISSION TO ENTER UPON THE SCHEDULED PROPERTY FOR CARRYING OUT DEVELOPMENT WORK. ARTICLE 2.3 CLARIFIES THAT ON THE EFFECTIVE DATE TH E ASSESSEE SHALL EXECUTE AND DELIVER A POWER OF ATTORNEY IN FAVOUR O F THE DEVELOPER. ARTICLE 2.4 CLARIFIES THAT THE DEVELOPER SHALL BE R ESPONSIBLE FOR OBTAINING ALL THE APPROVALS INCLUDING THE LICENSE F ROM THE DIRECTOR, TOWN AND COUNTRY PLANNING, CHANDIGARH, HA RYANA FOR THE TOWNSHIP DEVELOPMENT AND THE SCHEDULED PROP ERTY AND ITS UPON RECEIPT OF THE SANCTIONED PLAN AND ALL APP ROVALS, THE DEVELOPER SHALL COMMENCE THE DEVELOPMENT AND CONSTR UCTION ON THE SCHEDULED PROPERTY AND COMPLETE THE DEVELOPMENT AND CONSTRUCTION OF THE BUILDING. THEREFORE, THERE ARE OTHER ARTICLES WHICH DEFINE THE OTHER EVENTUALITIES OF WHAT HAS TO HAPPEN IF NO APPROVAL IS RECEIVED OR IF NO OTHER OPTIONS AND COV ENANTS OF THE AGREEMENT ARE COMPLETED. ITA NOS. 2361 & 1953(DEL)2011 13 2.5 IT IS SPECIALLY AGREED BETWEEN THE PARTIES THAT THE DEVELOPER SHALL MADE BEST EFFORTS AND SHALL BE RESP ONSIBLE FOR OBTAINING THE LICENSE FOR TOWNSHIP DEVELOPMENT ON T HE SCHEDULED PROPERTY (TOWNSHIP LICENSE) WITHIN 2 YE ARS FROM THE EFFECTIVE DATE OR WITHIN SUCH EXTENDED TIME AS THE PARTIES MAY MUTUALLY DECIDE. THE DEVELOPER SHALL BE RESPON SIBLE FOR INFORMING COMPANY ON THE EXPIRY OF THE SAID PERIOD OF 2 YEARS FROM THE EFFECTIVE DATE ABOUT THE RECEIPT OR NON-RE CEIPT OF THE TOWNSHIP LICENSE, AS THE CASE MAY BE. 2.6 IN CASE, THE DEVELOPER FAILS TO OBTAIN THE TOWNSHIP LICENSE WITHIN THE SPECIFIED TIME OR EXTENDED TIME, IF APPL ICABLE, FOR REASONS NOT ATTRIBUTABLE TO COMPANY, THE DEVELOPER, SHALL HAVE THE RIGHT, BUT NOT HE OBLIGATION, TO OFFER TO PURCH ASE THE SCHEDULED PROPERTY AT THE PRICE OF RS. 2.25 CRORES ACRE. THE DEVELOPERS SHALL INFORM THE ASSESSEE OF HIS INTENTI ON TO PURCHASE THE SCHEDULED PROPERTY WITHIN 60 DAYS FROM THE DATE OF NOTICE SPECIFIED IN SUB-ARTICLE 2.5 ABOVE, IN WH ICH CASE, ASSESSEE COMPANY SHALL BE UNDER AN OBLIGATION TO SE LL THE SCHEDULED PROPERTY TO THE DEVELOPER AND OF ITS AFFI LIATE OR NOMINEES. 2.7 IN THE EVENT THE DEVELOPER ELECTS NOT TO EXERCISE I TS OPTION TO PURCHASE THE SCHEDULED PROPERTY WITHIN THE SPECI FIED TIME, ASSESSEE COMPANY SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO TERMINATE THIS AGREEMENT FORTHWITH IN THE MANNER ST IPULATED UNDER ARTICLE 8. 2.8 IN CASE, THE DEVELOPER FAILS TO OBTAIN THE TOWNSHIP LICENSE DUE TO REASONS ATTRIBUTABLE TO ASSESSEE COMPANY THE TIME PERIOD OF 2 YEARS SHALL AUTOMATICALLY STAND EXTENDED BY FU RTHER PERIOD OF 1 YEAR. ARTICLE 3 CLARIFIES AS TO WHO WILL BEAR THE COST AND EXPENSES IN RELATION TO INSURING THE ABSOLUTE MARKETABLE TITLE OF SCHEDULE PROPERTY AND THE COST OF DEVELOPMENT/CONSTRUCTION O N THE SCHEDULE PROPERTY AND AS TO WHICH OF THE PARTIES IS REQUIRED TO ITA NOS. 2361 & 1953(DEL)2011 14 OBTAIN APPROVALS AND BEAR THE NECESSARY EXPENSES UP ON SUCH APPROVALS. ARTICLE 4 PERTAINS TO THE INTEREST FREE PERFORMANCE DEPOSIT; TO BE GIVEN BY THE DEVELOPER TO FEDPL AS A SECURITY FOR T HE PERFORMANCE OF DEVELOPER OBLIGATION UNDER THIS AGRE EMENT. ARTICLE 5 STATES THAT IN CONSIDERATION OF FEDPL TR ANSFERRING THEIR EXCLUSIVE DEVELOPMENT RIGHTS OVER THE SCHEDUL E PROPERTY, THE DEVELOPER SHALL PAY TO FEDPL THE CONSIDERATION WITHIN 2 YEARS FROM THE EFFECTIVE DATE AND THAT UPON RECEIPT OF THE CONSIDERATION FEDPL SHALL IMMEDIATELY REFUND OUTSTA NDING INTEREST FREE PERFORMANCE DEPOSIT TO THE DEVELOPER. ARTICLE 10 TALKS ABOUT DEVELOPMENT RIGHTS AND INTER ALIA STATES THAT THE DEVELOPER SHALL BE ENTITLED TO UNDERTAKE T HE DEVELOPMENT AND CONSTRUCTION WORK ON THE SCHEDULED PROPERTY IN SUCH MANNER IT DEEMS FIT AND ALWAYS IN ACCORDANC E WITH THE APPLICABLE LAWS. THE PARTIES HAVE AGREED THAT A FI XED CONSIDERATION IS PAYABLE FOR THE GRANT OF DEVELOPME NT RIGHTS. ARTICLE 12 DEFINES THE OBLIGATIONS OF FEDPL IN AS MUCH AS FEDPL SHALL EXTEND NECESSARY/COOPERATION TO THE DEV ELOPER AND DO ALL SUCH ACTS, DEEDS AND SIGN/EXECUTE/DELIVE R ALL SUCH DOCUMENTS, DEED, STATEMENTS, AFFIDAVITS AS MAY BE R EQUIRED FOR THE DEVELOPMENT OF THE SCHEDULED PROPERTY IN ACCORD ANCE WITH THE AGREEMENT INCLUDING TAKING OF ALL APPROVALS. F EDPL SHALL UPON EXECUTION OF THE SAID POA, NOT DO AN ACT ANY O R DEED THAT MAY HAVE THE EFFECT OF CANCELING OR REVOKING THE PO A OR IN ANY MANNER PREJUDICING OR EFFECTING THE POWER/AUTHORITY VESTED IN THE DEVELOPER. UPON CAREFUL CONSIDERATION OF THE FINDINGS OF THE A O AS WELL AS THE VARIOUS SUBMISSIONS AND ARGUMENTS OF THE APPELL ANTS AR MY SPECIFIC FINDING ON THE ISSUE ARE AS UNDER : - ON A LITERAL READING OF THE ABOVE ARTICLES OF THE A RGUMENT, IT MAY APPEAR ON THE FACE OF IT THAT THE APPELLANT IS ENTITLED TO RECEIVE THE CONSIDERATION ON SALE OF DEVELOPMENT RI GHTS ON THE ITA NOS. 2361 & 1953(DEL)2011 15 VERY DATE ON WHICH THE APPELLANT BECOMES THE OWNER OF SCHEDULED PROPERTY, THE MUTATION OF WHICH IS DONE I N REVENUE RECORDS IN THEIR FAVOUR. THIS IS BECAUSE OF THE DE FINITION OF EFFECTIVE DATE IN THE TERMS OF AGREEMENT. HOWEVE R, SINCE IN SUBSTANCE THE SALE CONSIDERATION IS RELATED TO THE SALE OF DEVELOPMENT RIGHTS, BY THE APPELLANT IN FAVOUR OF D CPC, IT WOULD BE REQUIRED TO BE SEEN AS TO WHETHER THESE DE VELOPMENT RIGHTS HAD IN THE FIRST PLACE, COME IN EXISTENCE ON THE DATE OF MUTATION OF SCHEDULED PROPERTY IN APPELLANTS NAME OR WHETHER SUCH DEVELOPMENT RIGHT COMES IN EXISTENCE ON THE DA TE OF GRANT OF DEVELOPMENT LICENSE BY DTCP. IT IS APPARENT THA T TILL SUCH TIME THE LICENSE IS NOT GRANTED THERE IS NO RIGHT I N EXISTENCE TO DEVELOP THE SCHEDULED PROPERTY IN ANY MANNER EITHER BY THE APPELLANT OR BY THE DEVELOPER. RATHER IT CAN BE SA ID THAT WITHOUT THE LICENSE/APPROVAL IT IS NOT YET DECIDED AS TO WHAT EXACT DEVELOPMENT THE APPELLANT IS AUTHORIZED TO MA KE ON THE RAW LAND PURCHASED BY IT. FOR SUCH PURPOSE A LOT M ANY LEGAL REQUIREMENTS ARE STILL TO BE COMPLIED WITH BEFORE T HE APPELLANT IS GRANTED THE RIGHT TO DEVELOP THE PROPERTY FOR CO MMERCIAL USE. POSSIBILITY ALSO EXISTS THAT SUCH LICENSE MAY EVEN BE DENIED TO THE LAND OWNER OR ITS POWER OF ATTORNEY HOLDER. TH EREFORE, UPTILL THE TIME THE LICENSE TO DEVELOP THE PROPERTY IS NOT GRANTED BY THE DIRECTOR, TOWN AND COUNTRY PLANNING THERE CA N BE NO QUESTION OF THE EXISTENCE OF THE RIGHT TO DEVELOP T HE PROPERTY BY EITHER THE LAND OWNER OR TO ANY OTHER PARTY TO WHOM SUCH DEVELOPMENT RIGHT HAVE BEEN SOLD. SINCE ON THE EFFE CTIVE DATE THERE IS NO DEVELOPMENT RIGHT ATTACHED WITH THIS LA ND THEREFORE HOLDING THAT THE DEVELOPMENT RIGHT HAVE ALSO BEEN SOLD/TRANSFERRED ON THE SAME DATE WOULD BE AGAINST THE GENERAL LEGAL PROPOSITION THAT ONE CAN ONLY TRANSFER A RIGH T/PROPERTY WHICH IS IN EXISTENCE ON SUCH DATE AND WHICH IS ALS O OWNED BY THE TRANSFEROR. CONSEQUENTLY, THE RIGHT TO RECEIVE THE SALE CONSIDERATION ON ACCOUNT OF TRANSFER OF SUCH NONEXI STENT DEVELOPMENT RIGHTS, HAS ALSO NOT ACCRUED IN FAVOUR OF THE APPELLANT, MERELY ON ENTERING THE IMPUGNED AGREEMEN T, WHICH TO MY UNDERSTANDING IS IN THE NATURE OF A CONTINGEN T CONTRACT IN TERMS OF SEC. 32 OF THE INDIAN CONTRACT ACT, 1872 W HICH WOULD BECOME ENFORCEABLE BY LAW ON THE HAPPENING OF THE E VENT ENVISAGED IN SUCH CONTRACT VIZ. GRANT OF LICENSE/AP PROVAL AS ITA NOS. 2361 & 1953(DEL)2011 16 DEFINED IN ARTICLE 1 OF THE AGREEMENT. IN THIS CON NECTION IT IS OBSERVED THAT IN ARTICLE 2.1OF THE AGREEMENT THERE IS A MENTION THAT THE ASSESSEE HAS GRANTED TO THE DEVELOPER, FRO M THE EFFECTIVE DATE, AN EXCLUSIVE LICENSE TO ENTER THE S CHEDULED PROPERTY AND TO DEVELOP THE SAME IN TERMS OF THE AG REEMENT. NOW, WHILE ON THE FACE OF IT, IT MAY APPEAR THAT TH E DEVELOPER HAS ALREADY BEEN VESTED WITH THE EXCLUSIVE LICENSE TO ENTER THE SCHEDULED PROPERTY AND TO DEVELOP THE SAME FROM THE EFFECTIVE DATE AS PER THE AGREEMENT, BUT IN REALITY THE DEVEL OPER ACTUALLY BECOMES VESTED WITH THIS EXCLUSIVE LICENSE TO DEVEL OP THE PROPERTY ONLY FROM THE DATE WHEN THE LICENSE IS GRA NTED BY THE DTCP. THAT WITHOUT THE LICENSE HAVING BEEN GRANTED BY THE DTCP THE DEVELOPER HAS GOT NO LEGAL AUTHORITY/ SANC TION TO DEVELOP THE PROPERTY. THIS POSITION FURTHER BECOME S EVIDENT ON A READING OF ARTICLE 2.4 OF THE AGREEMENT WHICH STA TES THAT IT IS THE RESPONSIBILITY OF THE DEVELOPER TO OBTAIN ALL A PPROVALS (AS DEFINED IN ARTICLE 1) FROM DTCP AND ONLY UPON RECEI PT OF THE SECTIONED PLAN AND THE APPROVALS THE DEVELOPER SHAL L COMMENCE THE DEVELOPMENT AND CONSTRUCTION ON THE SCHEDULED P ROPERTY. IT IS A FACT ON RECORD AS NOTED FROM THE ASSESSMENT OR DER AS WELL AS THE APPELLANTS P&L A/C AND BALANCE SHEET AS ON 31.03.07 AND THREE SUBSEQUENT YEARS THAT NO DEVELOPMENT WORK HAS BEEN UNDERTAKEN ON THE SAID LAND DURING THESE YEARS. MO REOVER THE AO HAS ALSO NOT BROUGHT ANYTHING ON RECORD TO ESTAB LISH THAT THE NECESSARY APPROVALS INCLUDING LICENSE FOR DEVEL OPMENT OF SCHEDULED PROPERTY HAS BEEN GRANTED IN FAVOUR OF TH E APPELLANT OR TO THE DEVELOPER DURING THE YEAR. NOW SINCE THE SE ADMINISTRATIVE APPROVALS, WHICH APPARENTLY ARE NOT MERE PROCEDURAL FORMALITIES, HAVE NOT BEEN GRANTED DURIN G THE YEAR THEREFORE, THERE CAN BE NO SALE OF DEVELOPMENT RIGH T AND AS A COROLLARY NO ACCRUAL OF INCOME IN FAVOUR OF THE APP ELLANT FOR SALE OF SUCH DEVELOPMENT RIGHTS. TO REITERATE WHAT THE AGREEMENT HAS CREATED IS A VALID BUT CONTINGENT CON TRACT WHICH BECOMES ALIVE THE MOMENT THE DEVELOPMENT RIGHTS ARE GRANTED BY DTCP IN FAVOUR OF THE APPELLANT THROUGH DCPC. F URTHER THE RIGHT TO RECEIVE THE CONSIDERATION WOULD ALSO I NSTANTLY ARISE IN FAVOUR OF THE APPELLANT WHO NOW BECOMES LEGALLY VESTED WITH THE RIGHT TO RECEIVE THE CONSIDERATION. IN THIS CO NNECTION RELIANCE IS PLACED ON THE PROPOSITIONS EMERGING FRO M THE ITA NOS. 2361 & 1953(DEL)2011 17 DECISIONS REFERRED TO ABOVE IN THIS PARA, THE CRUX OF WHICH IS THAT INCOME IS SAID TO ACCRUE ONLY WHEN THE RIGHT T O RECEIVE THE INCOME GETS VESTED IN THE ASSESSEE. IT IS NOTED THAT THE AO HAS IN HIS ORDER MADE AN OB SERVATION THAT THE AMOUNT OF RS. 58.69 CRORES RECEIVED DURING THE YEAR FROM THE DEVELOPER REPRESENTS SUBSTANTIAL PART OF T HE CONSIDERATION IN THE GUISE OF INTEREST FREE PERFOR MANCE DEPOSIT, THOUGH THE INCOME ACCRUING WAS THE CONSID ERATION @ RS. 2.25 CRORES PER ACRE OF PROPERTY. ON THIS ISSU E IT HAS BEEN SUBMITTED BY THE APPELLANT THAT THE SAID INTEREST F REE PERFORMANCE DEPOSIT IS A REFUNDABLE AMOUNT AND WOUL D BE REFUNDED TO DEVELOPER ON RECEIPT OF THE CONSIDERATI ON FOR SALE OF DEVELOPMENT RIGHTS TO DCPC (REFER TO ARTICLE 4.1, 5 .1 & 5.2 OF THE AGREEMENT) THAT THIS AMOUNT IN TERMS OF ARTICLE 4.1 REPRESENTS SECURITY LYING WITH THE APPELLANT FOR TH E PERFORMANCE OF DEVELOPERS OBLIGATIONS IN THE AGREEMENT. IN TH IS REGARD, IT IS OBSERVED THAT THE INFERENCE DRAWN BY THE AO ON THIS ISSUE ARE NOT APPROPRIATE. THE TERMS OF THE AGREEMENT HAS TO BE GIVEN ITS PLAIN AND NORMAL MEANING AND THE APPARENT HAS TO BE TREATED AS REAL UNLESS PROVED OTHERWISE. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE INTEREST FREE PERFOR MANCE DEPOSIT REPRESENTS PART OF THE SALE CONSIDERATION TOWARDS SALE OF DEVELOPMENT RIGHTS, WHICH AS ALREADY HELD ABOVE WOULD COME INTO EXISTENCE ONLY ON GRANTING OF APPROVAL/LICENSE BY THE DTCP. EVEN IF IT IS ASSUMED FOR ARGUMENT SAKE THAT THE SAID INTEREST FREE DEPOSIT REPRESENTS PART OF SALES CONS IDERATION, THE APPELLANT IS NOT LEGALLY ENTITLED TO HAVE A VESTED RIGHT ON THIS AMOUNT TILL SUCH TIME THE LICENSE/APPROVAL FOR DEVE LOPMENT OF LAND IS GRANTED BY THE DTCP IN FAVOUR OF APPELLANT OR DEVELOPER. TO PUT IT DIFFERENTLY, UPTILL THE GRANT OF LICENSE/APPROVAL, THIS AMOUNT WOULD REMAIN AS DEPOS IT WITH THE APPELLANT, WHICH AS PER THE AGREEMENT THE LATER IS REQUIRED TO REFUND BACK IN CASE THE LICENSE IS NOT GRANTED AND THE DEVELOPER DOES NOT OPT TO PURCHASE THE PROPERTY. I, THEREFORE, HOLD THAT AO WAS NOT JUSTIFIED IN HOL DING THAT INCOME HAS ACCRUED TO THE ASSESSEE AND THE ADDITION S MADE BY ITA NOS. 2361 & 1953(DEL)2011 18 THE AO ON THIS ACCOUNT AMOUNTING TO RS. 58,03,59,60 0/- IS HEREBY DIRECTED TO BE DELETED. 12. FROM THE ABOVE, IT IS EVINCIBLE THAT THE LD. CI T(A) HAS DULY TAKEN INTO CONSIDERATION ALL THE RELEVANT ARTICLES OF THE DE VELOPMENT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE DEVELOPER. N OW, OBVIOUSLY, EVEN AS PER THE AGREEMENT, NO DEVELOPMENT RIGHT COMES INTO EXISTENCE TILL THE LICENCE IS GRANTED. INDISPUTABLY, TILL SUCH TIME, THE NATU RE OF THE EXACT DEVELOPMENT IS TO BE CARRIED OUT ON AUTHORIZING THE ASSESSEE TO DO THE SAME, IS UNDECIDED. TILL SUCH TIME, THE LAND PURCHASED REMAINS RAW LAND ONLY. THE RIGHT UNDER THE DEVELOPMENT AGREEMENT, THEREFORE, IS MERELY A C ONTINGENT RIGHT, DEPENDING ON THE GRANT OF LICENCE OR APPROVAL, AS P ROVIDED FOR ARTICLE I OF THE AGREEMENT. IT IS ONLY FROM THE DATE OF GRANT O F LICENCE FROM THE DTCP, THE DEVELOPER WOULD ACTUALLY BE VESTED WITH THE LIC ENCE TO DEVELOP THE PROPERTY. PRIOR TO SUCH DEVELOPMENT, ALL APPROVALS AS ENUMERATED IN ARTICLE I OF THE AGREEMENT ARE TO BE OBTAINED FROM DTCP AND IT IS THE RESPONSIBILITY OF THE DEVELOPER TO DO SO. IT IS ONLY WHEN THE SA NCTIONED PLAN AND THE APPROVALS ARE OBTAINED, THAT THE DEVELOPER CAN COMM ENCE THE DEVELOPMENT ON THE SCHEDULED PROPERTY. MOREOVER, THIS IS ON RE CORD BY WAY OF THE ASSESSEES PROFIT AND LOSS ACCOUNT AND BALANCE SHEE T AS ON 31.3.2007 AND FOR THE THREE SUBSEQUENT YEARS, THAT NO DEVELOPMENT WOR K WAS UNDERTAKEN IN THE ITA NOS. 2361 & 1953(DEL)2011 19 SAID YEARS. THE NECESSARY APPROVALS/LICENCE FOR D EVELOPMENT HAVE ALSO NOT BEEN SHOWN TO HAVE BEEN GRANTED EITHER TO THE ASSES SEE OR THE DEVELOPER DURING THE YEAR. SANS THESE APPROVALS/LICENCE OBV IOUSLY, NO DEVELOPMENT COULD HAVE BEEN CARRIED OUT . WITHOUT THESE APPRO VALS/LICENCE , IT CANNOT BE SAID THAT ANY DEVELOPMENT RIGHTS CAME INTO EXISTENC E AT ALL. THE CONTINGENT RIGHT UNDER THE AGREEMENT HAS NOT BEEN ESTABLISHED TO HAVE BEEN FRUCTIFIED INTO A VESTED RIGHT. 13. APROPOS THE INTEREST FREE PERFORMANCE DEPOSIT, THIS HAS NOT BEEN SHOWN TO BE REPRESENTING PART OF SALE CONSIDERATION FOR THE DEVELOPMENT RIGHTS. IT CANNOT DO SO, SINCE, AS OBSERVED, NO S UCH DEVELOPMENT RIGHTS CAME INTO EXISTENCE DURING THE YEAR. 14. ALL THE ABOVE FACTS HAVE CORRECTLY BEEN TAKEN I NTO CONSIDERATION IN THE RIGHT PERSPECTIVE BY THE LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. 15. APROPOS THE CASE LAWS RELIED ON BY THE DEPARTME NT, NONE OF THEM ARE APPLICABLE TO THE FACTS PRESENT HERE. IN ALL THOS E CASES, THERE WAS ACTUAL PHYSICAL PARTING OF POSSESSION IN FAVOUR OF THE DE VELOPER WHICH IS NOT SO HEREIN. 16. IN VIEW OF THE ABOVE, FINDING NO ERROR WHATSOEV ER WITH THE ORDER OF THE LD. CIT(A), WE UPHOLD THE SAME REJECTING THE GRIEVA NCE SOUGHT TO BE RAISED ITA NOS. 2361 & 1953(DEL)2011 20 BY THE DEPARTMENT BY WAY OF GROUND OF APPEAL TAKEN. THIS GRIEVANCE OF THE DEPARTMENT, HENCE, REJECTED. ITA NO. 1953(DE.)2011 17. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2007-08, TAKING THE FOLLOWING GROUNDS:- 1. THAT THE IMPUGNED ORDER DATED 08.03.2011 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII, NEW DELHI IS BAD IN LAW AND WRONG ON FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE AO IN MAKING DISALLOWAN CE U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 4,20,1 5,681/- (CORRECT AMOUNT IS RS. 1,24,33,376/-) PAID BY THE ASSESSEE T O THE CONSOLIDATOR FOR TRANSFER OF RIGHTS. 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(APPEALS)-XIII HAS ERRED IN HOLDING THAT THE C ONSOLIDATOR WAS WORKING AS AN AGENT OF THE ASSESSEE AND HENCE THE A SSESSEE OUGHT TO HAVE DEDUCTED TDS ON AMOUNT PAID TO THE CONSOLIDATO R U/S 194H OF THE INCOME-TAX ACT, 1961 . 18. GROUND NO. 1 IS GENERAL. 19. APROPOS GROUND NO.2, FROM THE PURCHASE DEED OF THE LAND, THE AO OBSERVED THAT THE LAND PRICE HAD BEEN INFLATED BY ` 4,20,15,681/-, THE AMOUNT PAID BY THE ASSESSEE TO M/S. VIKRAM ELECTRIC EQUIPM ENT P. LTD., THE ITA NOS. 2361 & 1953(DEL)2011 21 CONSOLIDATOR APPOINTED BY THE ASSESSEE TO ACQUIRE C ONSOLIDATED LAND HOLDINGS. THE AO HELD THAT AS PER THE ASSESSEES MOU WITH THE CONSOLIDATOR, THE PAYMENTS TO BE MADE TO HIM WOULD ACCRUE ONLY IN THE YEAR AFTER 27 ACRES OF LAND WOULD BE ACQUIRED. THE AO THUS DISALLOWED THIS AMOUNT OUT OF PURCHASES AND ALSO REDUCED IT FROM TH E CLOSING STOCK SHOWN BY THE ASSESSEE. 20. THE LD. CIT(A) CONFIRMED THIS ACTION OF THE AO, WHICH HAS ACCRUED THE ASSESSEE, BRINGING IT IN APPEAL BEFORE US. 21. CHALLENGING THE IMPUGNED ORDER, THE LEARNED COU NSEL FOR THE ASSESSEE HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN CONF IRMING THE ACTION OF THE AO; THAT THE AO HAD WRONGLY ADOPTED THE FIGURE OF ` 4,20,15,681/-, WHEREAS THE ACTUAL AMOUNT INVOLVED AND PAID/PAYABLE TO VIKR AM ELECTRIC EQUIPMENT P. LTD. AS CONSOLIDATOR CHARGES DURING THE YEAR, WA S OF ` 1,24,33,376/-; THAT THE LD. CIT(A) HAS ERRED IN OBSERVING THAT IT IS NO T CORRECT THAT THE EXCESS AMOUNT OF ` 124.33 LAKHS PAID BY THE ASSESSEE TO VIKRAM ELECTR IC EQUIPMENT P. LTD. IS NOT IN THE NATURE OF REMUNERAT ION WHICH WILL BE PAID AS MAY BE MUTUALLY AGREED AFTER PROMOTING THE ENTIRE 2 7 ACRE AS PER MOU; THAT THE LD. CIT(A) HAS GONE WRONG IN STATING THAT THE R EMUNERATION IS A FIXED PERCENTAGE OF COST OF LAND IN EACH CASE OF LAND TRA NSFER AND THAT THE ITA NOS. 2361 & 1953(DEL)2011 22 TRANSACTION IS NOT ON PRINCIPLE TO PRINCIPLE BASIS BUT ON THE BASIS OF PRINCIPLE AND AGENT, FOR WHICH, THE AGENT IS TO RECEIVE PAYME NT AND WHICH PAYMENT HAS ACTUALLY BEEN MADE; THAT THE LD. CIT(A) HAS ERRED I N OBSERVING THAT THE AMOUNT OF ` 124.33 LAKHS CONSTITUTES BROKERAGE OR COMMISSION OR FEE FOR PROFESSIONAL SERVICES, SUBJECT TO DEDUCTION OF TDS U/S 194 H OF THE ACT AND THAT SINCE NO TDS HAS BEEN DEDUCTED THEREON, THIS A MOUNT IS NOT DEDUCTIBLE AS EXPENDITURE AS PER THE PROVISIONS OF SECTION 40( A)(IA) OF THE ACT; THAT IT CANNOT BE DOUBTED THAT THE ASSESSEE MUST BE CLAIMED SOME EXPENSES ALLOWABLE UNDER SECTIONS 30 TO 38 OF THE ACT; THAT IN FACT, THE ASSESSEE HAS CLAIMED NO EXPENDITURE, AS AVAILABLE FROM PAGE 3 OF THE ASSESSEES PAPER BOOK (APB FOR SHORT), WHICH IS A COPY OF THE ASSE SSEES PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM 31.3.06 TO 31.3.07; THA T AS PER THIS PROFIT AND LOSS ACCOUNT, AN AMOUNT OF ONLY ` 19,700/- HAS BEEN CLAIMED AS EXPENDITURE AND NO EXPENDITURE HAS BEEN CLAIMED REGARDING PURCHASE OF LAND, DUE TO WHICH, THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT ARE NOT APPLICABLE; THAT FURTHER, EVEN AS PER THE MOU ENTERED INTO BY THE ASSESSEE WI TH THE CONSOLIDATOR (APB 8-14), 2% OF EVERY REGISTRATION OF LAND IS TO BE PAID; AND THAT AS PER THE DETAILS OF LAND PURCHASED DURING THE YEAR UNDER CON SIDERATION (APB-16), IT IS ONLY 2% OF EVERY REGISTRATION WHICH HAS BEEN ACTUAL LY PAID. ITA NOS. 2361 & 1953(DEL)2011 23 22. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY REL IED ON THE IMPUGNED ORDER IN THIS REGARD. IT HAS BEEN SUBMITTED THAT T HE LD. CIT(A) HAS CORRECTLY DECIDED THIS ISSUE AGAINST THE ASSESSEE; THAT THE R EMUNERATION HAS INDEED BEEN FIXED AT A FIXED PERCENTAGE OF COST OF LAND IN EACH CASE OF THE LAND TRANSFERRED; THAT THEREFORE, THE CONSOLIDATION CHAR GES PAID BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD., I.E., THE CONSOL IDATOR, SQUARELY FALLS WITHIN EXPLANATION (1) TO SECTION 194H OF THE ACT; THAT A PERUSAL OF MOU ENTERED WITH THE CONSOLIDATOR REVEALS THAT THE SERV ICES HAD BEEN RENDERED BY VIKRAM ELECTRIC EQUIPMENT P. LTD. TO THE ASSESSEE, ACTING ON BEHALF OF THE ASSESSEE; THAT EVEN OTHERWISE, ON ITS OWN, VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD NOT HAVE ACQUIRED THE LAND OR CONSOLIDAT ED IT, IN THE ABSENCE OF DIRECTIONS IN THIS REGARD TO VIKRAM ELECTRIC EQUIP MENT P. LTD. FROM THE ASSESSEE, IN TERMS OF THE MOU; THAT THEREFORE, THE RELATIONSHIP OF PRINCIPLE AND AGENT DOES STAND ESTABLISHED; THAT THEREFORE, THE LD. CIT(A) HAS CORRECTLY HELD THAT THE PAYMENT IS PAYMENT OF BROKERAGE OR C OMMISSION OR FEE FOR PROFESSIONAL SERVICES, WHICH IS THE SUBJECT OF DED UCTION OF TDS U/S 194 H OF THE ACT; THAT THE PROVISIONS OF SECTION 40(A)(IA ) OF THE ACT HAVE CORRECTLY BEEN HELD AS APPLICABLE, IN THE ABSENCE OF DEDUCTIO N OF TAX AT SOURCE; THAT THEREFORE, THE GRIEVANCE OF THE ASSESSEE IN THIS RE GARD IS ENTIRELY UNTENABLE AND IS LIABLE TO BE REJECTED; AND THAT THEREFORE, T HERE BEING NO MERIT THEREIN, ITA NOS. 2361 & 1953(DEL)2011 24 THE APPEAL OF THE ASSESSEE BE DISMISSED WHILE MAINT AINING THE ORDER PASSED BY THE LD. CIT(A). 23. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN PURCHAS ES AND CLOSING STOCK OF LAND AT ` 60,23,16,022/-. THIS INCLUDED A SUM OF ` 4,20,15,681/- PAID BY THE ASSESSEE TO M/S. VIKRAM ELECTRIC EQUIPMENT P. L TD. M/S. VIKRAM ELECTRIC EQUIPMENT P. LTD. HAD BEEN APPOINTED BY T HE ASSESSEE AS A CONSOLIDATOR TO ACQUIRE AND CONSOLIDATE THE LAND HO LDING. IT WAS OBSERVED BY THE AO THAT AS PER THE MOU WITH VIKRAM ELECTRIC EQU IPMENT P. LTD., PAYMENTS WERE TO ACCRUE TO VIKRAM ELECTRIC EQUIPM ENT P. LTD. ONLY ON ACQUISITION OF A MINIMUM OF 27 ACRES OF LAND. OBSE RVING THAT THE CONSOLIDATOR, I.E. , VIKRAM ELECTRIC EQUIPMENT P. L TD. HAD NOT CONSOLIDATED THE REQUISITE MINIMUM 27 ACRES OF LAND DURING THE Y EAR, THE AO DISALLOWED THE AMOUNT OUT OF PURCHASES. ACCORDINGLY, HE ALSO REDUCED THE CLOSING STOCK BY A SIMILAR AMOUNT. THE CLOSING STOCK WAS THUS DETERMINED AT ` 54,03,00,341/-. 24. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED T HAT THE AMOUNT INVOLVED WAS NOT OF ` 4,20,15,641/-, SINCE VIKRAM ELECTRIC EQUIPMENT P. LTD. HAD BEEN PAID ONLY ` 1,24,33,376/-. IT WAS ON THIS CONTENTION OF THE ITA NOS. 2361 & 1953(DEL)2011 25 ASSESSEE THAT THE LD. CIT(A) DIRECTED THE AO TO VER IFY THE ACTUAL AMOUNT INVOLVED. 25. IT HAS BEEN MAINTAINED BY THE ASSESSEE ALL THRO UGH THAT THE PAYMENT TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS ON ACCOUNT OF TRANSFER OF CERTAIN RIGHTS OF VIKRAM ELECTRIC EQUIPMENT P. LTD. IN THE LANDS TRANSFERRED TO THE ASSESSEE AND WAS NOT TOWARDS ANY SERVICES RENDERED. AS A CONSOLIDATOR, VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS TO CONTACT TH E LOCAL FARMERS IN AND AROUND GURGAON, WHO WERE WILLING TO SELL THEIR LAND . VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS MAKING PAYMENTS FROM ITS ACCO UNT TO THE FARMERS AND THERETO HAVE CERTAIN RIGHTS IN THE LAND. ON THE UL TIMATE TRANSFER OF LAND TO THE ASSESSEE THROUGH VIKRAM ELECTRIC EQUIPMENT P. LTD. , THE FINAL PAYMENT WAS TO BE MADE TO THE FARMERS. TOWARDS THE RIGHT OF VIKRAM ELECTRIC EQUIPMENT P. LTD., 2% OF THE COST OF LAND (IN SOME CASES, EVEN A HIGHER AMOUNT) WAS TO BE PAID TO VIKRAM ELECTRIC EQUIPMENT P. LTD., AS MUTUALLY AGREED. THIS WAS THE MUTUALLY AGREED PRICE. VIKR AM ELECTRIC EQUIPMENT P. LTD. WORKED FOR LAND ACQUISITION AND AFTER SCRUTINY OF THE CONCERNED DOCUMENTS OF THE LAND, VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD SUGGEST THE APPROPRIATE LAND FOR PURCHASE BY THE ASSESSEE. VI KRAM ELECTRIC EQUIPMENT P. LTD. THUS ACTED WITH THE FARMERS ON ITS OWN ACCO UNT RATHER THAN FOR AND ON BEHALF OF THE ASSESSEE, ON PRINCIPLE TO PRINCIPLE B ASIS, WITH THE FARMERS ON THE ITA NOS. 2361 & 1953(DEL)2011 26 ONE HAND AND THE ASSESSEE ON THE OTHER. THE ASSES SEE CONTENDS THAT THIS BEING SO, THE PROVISIONS OF NEITHER SECTION 194 C , NOR SECTION 194 H GET ATTRACTED TO THE PAYMENT MADE BY THE ASSESSEE TO VI KRAM ELECTRIC EQUIPMENT P. LTD. THE PAYMENT ALONG WITH PAYMENT MADE TO T HE FARMERS DIRECTLY REPRESENTED THE PURCHASE OF THE COST OF LAND AND HA D BEEN CORRECTLY TREATED AS SUCH IN THE ASSESSEES BOOKS OF ACCOUNT. IT HAS B EEN CONTENDED THAT ALTERNATIVELY, IN ANY CASE, THE PAYMENT MADE TO VIK RAM ELECTRIC EQUIPMENT P. LTD. HAS NOT AFFECTED THE TAXABLE PROFITS OF THE ASSESSEE DURING THE YEAR. THE TOTAL PURCHASES WERE LYING AS CLOSING STOCK, AS OBSERVED BY THE TAXING AUTHORITIES ALSO AND THE EFFECT OF ADJUSTMENT WITH REGARD TO THE AMOUNT PAID TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD ARISE ON LY ON AND IN THE INSTANCES OF SALE OF LAND BY THE ASSESSEE . IT IS AS SUCH THAT IT HAS BEEN CLAIMED THAT NO DISALLOWANCE U/S 40(A)(IA) OF THE A CT IS CALLED FOR, MUCH LESS ANY CONSEQUENTIAL ACTION U/S 201 OF THE ACT. IT H AS BEEN CONTENDED THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. HAD AN IMPORTANT ROLE TO PLAY AS A CONSOLIDATOR, SINCE THE ASSESSEE REQUIRED CONTIGUOU S LAND HOLDINGS IN ORDER TO DEVELOP A COLONY. IN CASE ANY LAND WHICH WAS AGREE D TO BE ACQUIRED BY VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS NOT FOUND TO BE SUITABLE, IT WAS VIKRAM ELECTRIC EQUIPMENT P. LTD. WHICH WOULD HAVE TO BEAR THE CONSEQUENCES, INDICATING THAT VIKRAM ELECTRIC EQUIP MENT P. LTD. WAS NOT ITA NOS. 2361 & 1953(DEL)2011 27 ACTING AS AN AGENT ON BEHALF OF THE ASSESSEE, BUT W AS WORKING ON A PRINCIPLE TO PRINCIPLE BASIS, INDEPENDENTLY. 26. THE STAND OF THE DEPARTMENT, ON THE OTHER HAND, HAS BEEN THAT MOU SIGNED BY THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMEN T P. LTD. LAYS DOWN THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS ACTING A S AN AGENT OF THE ASSESSEE, RENDERING SERVICES, FOR WHICH, THE PROVIS IONS OF SECTION 194 H OF THE ACT ARE APPLICABLE AND IT IS CORRECTLY APPLIED BY THE LD. CIT(A). 27. IN THIS REGARD, IT IS SEEN THAT CLAUSE 3.2 OF T HE MOU BETWEEN THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMENT P. LTD. MAKE S IT CLEAR THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. OR ITS AGENT AGREED TO A SSIGN THEIR RIGHTS TO PURCHASE THE LAND IN FAVOUR OF THE ASSESSEE. IT W OULD BE APPROPRIATE TO REPRODUCE HERE, THE SAID CLAUSE 3.2:- 3.2 IN CONSIDERATION OF THE CONSOLIDATOR OR ITS AGENT/NOMINEE ASSIGNING ITS RIGHTS TO PURCHASE THE LAND IN FAVOUR OF THE BUYER COMPANY AND CAUSING THE LAND OWNERS TO EXECUTE THE SALE DEEDS DIRECTLY IN FAVOUR OF THE BUYER COMPANY, THE BUYER COMPANY SHALL PAY THE CONSOLIDATOR SUCH SUM AS MAY BE MUTUALLY AGREED. HOWEVER, IT IS SPECIFICALLY AGREED BY THE CONSOLIDA TOR THAT NO SUM SHALL ACCRUE TO IT ON THIS ACCOUNT TILL IT PROCURES 27 ACRES OF LAND FOR THE BUYER COMPANY (UN LESS ITA NOS. 2361 & 1953(DEL)2011 28 THE BUYER COMPANY DECIDES TO PROCURE LESS THAN 27 A CRES THROUGH THE CONSOLIDATOR) AND ALL THE ISSUES RELATI NG TO POSSESSION AND MUTATION F SUCH LAND ARE SETTLED TO THE SATISFACTION OF THE BUYER COMPANY. 28. THE ABOVE CLAUSE ALSO MAKES IT EVIDENT THAT UNL ESS THE ASSESSEE DECIDED TO PROCURE LESS THAN 27 ACRES OF LAND THROU GH VIKRAM ELECTRIC EQUIPMENT P. LTD., VIKRAM ELECTRIC EQUIPMENT P. LTD ., WAS TO PROCURE 27 ACRES OF LAND FOR THE ASSESSEE, FAILING WHICH, NO P AYMENT WAS TO BE MADE BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. 29. THIS CLEARLY SHOWS THAT VIKRAM ELECTRIC EQUIPME NT P. LTD. WAS TRANSACTING ON A PRINCIPLE TO PRINCIPLE BASIS AND I T CANNOT BE SAID THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. FOR RENDERING OF ANY SERVICE. THE PROVISIONS OF SECTI ON 194 H OF THE ACT ARE, THEREFORE, NOT AT ALL APPLICABLE. 30. MOREOVER, THE AMOUNT PAID TO VIKRAM ELECTRIC EQ UIPMENT P. LTD. WAS DULY REFLECTED BY THE ASSESSEE IN THE PURCHASES CLO SING STOCK. NO SALES HAD BEEN MADE DURING THE YEAR UNDER CONSIDERATION. IT HAS NOT BEEN SHOWN TO BE OTHERWISE. IN SUCH A SCENARIO, IN OUR CONSIDERED OPINION, NO DISALLOWANCE IS CALLED FOR. ITA NOS. 2361 & 1953(DEL)2011 29 31. FURTHER STILL, THE CHART AT PAGE 16 OF THE ASSE SSEES PAPER BOOK SHOWS THAT ALMOST 2% OF THE SALE VALUE WAS BEING PAID BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. AS CONSIDERATION FOR TRA NSFERRING VIKRAM ELECTRIC EQUIPMENT P. LTD.S RIGHTS. THIS WAS IN TERMS OF THE AFORE-MENTIONED CLAUSE 3.2 OF THE MOU BETWEEN THE ASSESSEE AND VIKRAM ELEC TRIC EQUIPMENT P. LTD. IT HAS NOT BEEN SHOWN IF SUCH PAYMENT IS NOT A FAIR COMPENSATION PAID BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD . WHICH, ANYHOW, IS NOT AN IMPEDIMENT IN HOLDING, AS ABOVE, THAT THE TRANSA CTIONS BETWEEN THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMENT P. LTD. ARE ON A PRINCIPLE TO PRINCIPLE BASIS, NOT ATTRACTING THE PROVISIONS OF S ECTION 194 H OF THE ACT. 32. PERTINENTLY, NO ADDITION HAVING BEEN MADE FOR T HE YEAR BY THE AO, THE ALTERNATE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT NO ADDITION CAN BE MADE DURING THE YEAR, STANDS ACCEPTED BY BOTH THE AUTHOR ITIES BELOW. 33. THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN ANY CASE DO NOT APPLY, THE ASSESSEE HAVING NOT CLAIMED ANY DEDUCTIO N FOR ANY EXPENSES ON ACCOUNT OF PAYMENT TO VIKRAM ELECTRIC EQUIPMENT P. LTD. , EITHER IN ITS PROFIT AND LOSS ACCOUNT OR IN THE COMPUTATION OF TA XABLE INCOME FILED. IT WAS ONLY THAT THE AO RECORDED A LOSS OF ` 19,700/-. THIS OBVIOUSLY, DID NOT INCLUDE ANY ADDITION OF EITHER ` 4.02 CRORES OR ` 1.24 CRORES. ITA NOS. 2361 & 1953(DEL)2011 30 34. IN VIEW OF THE ABOVE DISCUSSIONS, THE GRIEVANCE OF THE ASSESSEE IS FOUND TO BE CORRECT AND IS ACCEPTED AS SUCH. 35. IN THE RESULT, THE APPEAL FILED BY THE DEPARTM ENT IS DISMISSED, WHEREAS THAT PREFERRED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.10.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05.10.2011. *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR