DCIT, CHENNAI V. M/s. Sanmar Property Development Ltd., CHENNAI

ITA 2501/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8202 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 26-08-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: ABHISHEK
• Keywords: Business income; Condonation of delay

Judgement Text

, A/SMC , IN THE INCOME TAX APPELLATE TRIBUNAL A/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./I.T.A.NO.2501/MDS/2016 ( / ASSESSMENT YEAR :2003-04) THE DY. COMMSSR. OF INCOME TAX, CORPORATE CIRCLE 6(1), AAYAKAR BHAVAN, NEW BLOCK, 121, M.G.ROAD, 7 TH FLOOR, CHENNAI-600 034. VS. M/S.SANMAR PROPERTY DEVELOPMENT LTD., NO.9, CATHEDRA ROAD, CHENNAI-600 086. PAN:AAACS8544G ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR. SHIVA SRINIVAS , JCIT / RESPONDENT BY : MR. ABHISHEK, ADVOCATE ! ' #$ / DATE OF HEARING : 0 1 . 1 2 .201 6 %& #$ /DATE OF PRONOUNCEMENT : 09 . 0 1 .201 7 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-15, CHENNAI, D ATED 05.05.2016 IN ITA NO.110/CIT(A)-15/2013-14. ITA NO.2501/MDS/2016 :-2-: 2. ON PERUSING THE APPEAL, WE FIND THAT THE AO HAD FILE D THE APPEAL WITH DELAY OF 17 DAYS. THE LEARNED AO HAS SUBMITTED A PETITION DATED 26.02.2016 SEEKING CONDONATION OF DELAY AND THE AO STATED IN THIS PETITION THAT THE DELAY OF 17 DAYS IN FILING THE APPEAL BEFO RE THIS TRIBUNAL IS ON ACCOUNT OF MIXING UP OF PAPERS IN HIS OFFICE AND IT TOOK TIME TO LOCATE THE SAME AND AS SOON AS HE TRACED THE RECORDS, HE FILED THE APPEAL ON 26.08.2016. IN OUR OPINION, THE REASONS EXPLAINED B Y THE AO FOR FILING THE APPEAL BELATEDLY IS BONAFIDE. ACCORDINGLY, THE DEL AY IS CONDONED. 3. THE FIRST ISSUE IN THIS APPEAL IS WITH REGARD TO D ELETION OF ADDITION OF WRITE OF ADVANCE OF ` 50 LAKHS AS REVENUE LOSS. 4. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE ENT ERED INTO A JOINT DEVELOPMENT AGREEMENT (JDA) ON 25.10.1995 WITH A.RAM A RAO AND HAN RAM ACHANTA FOR JOINTLY DEVELOPING THE PROPERTY AT 49 HAMS ROAD, CHENNAI. THE ASSESSEE WAS THE OWNER OF THE ADJACENT PROPERTY AT 50,HAMS ROAD, CHENNAI. THE ASSESSEE ADVANCED AN AMO UNT OF ` 50 LAKHS WITH AN INTENTION TO BUY THE PROPERTY LOCATED AT NO. 49,HARRIS ROAD, CHENNAI SO THAT BOTH THE PROPERTIES CAN BE TO RECON STITUTED AND DEVELOPED AS COMBINED PROPERTY THEREBY DERIVING THE BENEFITS OF MULTI-STORIES BUILDING WITH GREATER FLOOR SPACE INDEX. AFTER JOI NING THE JDA, THE ITA NO.2501/MDS/2016 :-3-: ASSESSEE APPLIED FOR THE DEVELOPMENT OF THE PROPERT IES AT 49 & 50 HARRIS ROAD TO THE AUTHORITIES CONCERNED FOR WHICH THE PL ANNING PERMIT TOOK INORDINATE TIME DUE TO THE INTRODUCTION OF SECOND M ASTER PLAN AND OBJECTION FROM DEPUTY COMMISSIONER-TRAFFIC, CHENNAI. AS THE DEVELOPMENT POSSIBILITY BECAME UNCERTAIN, IT WAS DEC IDED TO DROP THE JDA. HENCE, THE AO DISALLOWED THE LOSS ON THE GROUND THAT FORFEITURE OF ADVANCE DO NOT GIVE RISE TO LOSS AS CONTEMPLATED U/S.45 TO 49 OF THE ACT RELYING ON VARIOUS CASE LAWS. AGGRIEVED BY THE ORDER OF AO, TH E ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 4.1 BEFORE THE LD.CIT(A), THE ASSESSEE HAS SUBMITTED T HAT THE LEARNED ASSESSING OFFICER MIGHT HAVE ACCEPTED THE FACT THA T, THE ASSESSEE WAS EXPECTING HIGHER FSI WHICH DID NOT MATERIALIZED. TH E PLANNING PERMIT FOR THE PROPOSED DEVELOPMENT TOOK INORDINATE TIME DUE TO TH E INTRODUCTION OF THE SECOND MASTER PLAN AND OBJECTION BY DEPUTY COMMISSI ONER-TRAFFIC, CHENNAL. AS THE DEVELOPMENT POSSIBILITY BECAME UNCERTAIN AND AN Y ATTEMPT TO DEVELOP THE PROPERTY WITH LOWER FSI WOULD MEAN MORE LOSSES, IT WAS DECIDED TO DROP THE JOINT DEVELOPMENT AGREEMENT IN THESE CIRCUMSTANCES, THE LAND OWNER TO WHOM THE ADVANCE GIVEN WAS NOT PREPARED TO REFUND THE AD VANCE. IN VIEW OF THIS THE ADVANCE WAS WRITTEN OFF IN THE BOOKS. ACCORDING TO LD.A.R, THE PROPERTY ITA NO.2501/MDS/2016 :-4-: DEVELOPMENT IS A BUSINESS VENTURE AND INCOME THEREO N WOULD HAVE TO BE ASSESSED AS PROFITS AND GAINS OF BUSINESS UNDER SEC TION 28. IN VIEW OF THIS ANY EXPENDITURE CONNECTED WITH THIS IS AN ALLOWABLE DED UCTION. ACCORDING TO LD.A.R, IT IS WELL SETTLED PRINCIPLE FOR AN ALLOWING AN EXPEND ITURE IS THAT IT SHOULD NOT BE CAPITAL IN NATURE OR PERSONAL EXPENDITURE. THE WRIT E OFF OF ADVANCE ON ACCOUNT OF CANCELLATION OF AGREEMENT IS PURELY OUT OF COMME RCIAL EXPEDIENCY AND THERE IS NO ELEMENT OF CAPITAL / PERSONAL IN NATURE. TO SUPP ORT ITS VIEW, THE LD.A.R PLACED RELIANCE ON THE FOLLOWING DECISIONS: (A) CIT VS MAIWA VANSAPATHI CHEMICALS CO.(MP) 226 I TR 259 (B) CIT VS GUJARAT STEEL TUBES LTD (258 ITR 235) (G UJARAT) (C) B.NAGI REDDY VS CIT (199 ITR 451)(MDS) (D) CIT VS MONDAL (175 ITR 440) THE LD.CIT(A) OBSERVED THAT THE HONBLE ITAT CHENNA I BENCH IN THE CASE OF M/S.MARKLAND (P) LTD. IN ITA NO.954/MDS/1999DT.17.1 0.2005 HAS HELD THAT WHERE THE ASSESSEE BUILDER PAID ADVANCE MONEY TO BUY A LA ND FOR CONSTRUCTION OF RESIDENTIAL FLATS THEREUPON AND LAND MONEY IS FORFE ITED, SUCH LOSS WAS TO BE TREATED AS REVENUE LOSS AS IT WAS INCURRED TO ACQUI RE STOCK-IN-TRADE, I.E. LAND. FOLLOWING THE RATIO LAID DOWN IN THE CASE CITED SUP RA, LD.CIT(A) DIRECTED THE AO TO TREAT ` 50 LAKHS AS REVENUE LOSS. AGAINST THIS, THE REVENU E IS IN APPEAL BEFORE US. ITA NO.2501/MDS/2016 :-5-: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MONEY WAS ADVANCED IN THE ORDINARY COURSE OF BUSINE SS OF ASSESSEE THROUGH JDA ON 25.10.1995 TO MR. A.RAMA RAO AND MR.HAN RAM ACHANTA FOR JOINTLY DEVELOPING THE PROPERTY AT 49 HAMS ROAD, CHENNAI. THIS PROJECT WAS NOT MATERIALIZED AND MONEY WAS ALSO NOT RETURNED TO THE ASSESSEE. SINCE THE MONEY WAS ADVANCED IN THE ORDINARY COURSE OF BUSINESS OF ASSESSEE AND IT WAS WRITTEN OFF, PROVISIONS OF THE SECTION 36(2) WAS FULFILLED, THE ASSESSEE IS ENTITLED FOR CORRESPONDING DEDUCTION WHILE COMPUTING THE INCOME OF ASSESSEE UNDER THE HEAD BUSINESS OR PROFESSION. BEING SO,THE LD.CIT( A) HAS TAKEN A CORRECT VIEW OF THE FACTS OF THE CASE FOR DECIDING THE CASE IN F AVOUR OF ASSESSEE. THE SAME IS CONFIRMED. 6. THE SECOND GROUND IS WITH REGARD TO TREATING TH E ADDITIONAL AMOUNT RECOVERED AGAINST THE ADVANCE AT ` 14 LAKHS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. 7. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE AD MITTED THAT THE WRITE OFF OF AMOUNT WAS IN EXTRICABLY CONNECTED WITH THE BUSINES S AND HENCE ADDITIONAL AMOUNT RECOVERED SHOULD ALSO BE TREATED ONLY AS BUS INESS INCOME AND PLACED RELIANCE IN THE DECISION OF JURISDICTIONAL HIGH COU RT IN THE CASE OF MADRAS MOTORS LTD. VS. CIT IN 257 ITR 60(MAD.). THE AO CONSIDERED THAT EXTRA CONSIDERATION OF ` 14 LAKHS IS INCOME FROM OTHER SOURCES AS IT DOES NO T EMANATE FROM THE BUSINESS ITA NO.2501/MDS/2016 :-6-: ACTIVITY OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) DELELTED THE ADDITION MADE BY THE LD. ASSESSING OFFICER. AGAINST THIS, THE REVENU E IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. HAD AN AMOUNT OF ` 14 LAKHS RECEIVED BY THE ASSESSEE IS HAVING DIRECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE AND IT IS EMERG ED FROM THE AMOUNT ADVANCED BY THE ASSESSEE TO THE PARTY IN THE ORDINARY COURSE OF BUSINESS OF ASSESSEE AND THE INTEREST RECEIVED ON THE AMOUNT ADVANCED BY THE ASSESSEE. SINCE IT IS HAVING DIRECT NEXUS WITH THAT AMOUNT, IT WOULD BE C ONSIDERED AS INCOME FROM BUSINESS ONLY. ACCORDINGLY, WE FULLY AGREE WITH TH E ORDER OF THE LD.CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND OF APPEAL BY REV ENUE IS REJECTED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH JANUARY, 2017 AT CHENNAI. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 09 TH JANUARY , 2017. K S SUNDARAM. ' #)* +*# / COPY TO: 1 . / APPELLANT 3. ! ,# () / CIT(A) 5. */0 #1 / DR 2. / RESPONDENT 4. ! ,# / CIT 6. 02 3' / GF