NARANG LAND DVELOPEMENT CORPORATION, MUMBAI V. ADDL CIT RG 12(1), MUMBAI

ITA 2616/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2955 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 10-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: JAYESH DESAI
• Keywords: Capital asset; Revenue expenditure; TDS
• Section: 28

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN, JM & HONBLE SH. G. MANJUNATHA, AM ./ I.T.A. NO . 2616 /MUM/2017 ( / ASSESSMENT YEAR: 2006 - 07 ) M/S NARANGI LAND DEVELOPMENT CORPORATION, ROOM NO. 10, 2 ND HARI CHAMBERS, 56/64, SHAHID BHAGAT SINGH ROAD, MUMBAI 400 023 / VS. ACIT - 12 (1) , AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN NO. A A AAN3465B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI JAYESH DESAI, AR / RESPONDENTBY : SHRI SUMAN KUMAR , D R / DATE OF HEARING : 02.01 .201 9 / DATE OF PRONOUNCEMENT : 01.03.2019 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 46 , MUMBAI DATED 31.01 .2017 F OR AY 2006 - 07 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF COMPENSATION PAID TO RETIRING MEMBER OF AOP AMOUNTING TO RS.15,00,000/ - ON CONSIDERATION OF THE SAME AS PAYMENT TOWARDS GOODWILL. YOUR APPELLANT PRAYS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER MAY BE DIRECTED TO GRANT DEDUCTION FOR COMPENSATION PAID TO RETIRING MEMBE R OF AOP AS CLAIMED BY YOUR APPELLANT IN RETURN OF INCOME. 2. THE LD. CIT(A) HAS ERRED IN RESTRICTING ALLOWANCE OF LAND DEVELOPMENT EXPENSES, OUT OF RS. 48,51,244/ - , TO THE EXTENT OF 25% OF SUCH EXPENSES IN ABSENCE OF SUPPORTING DETAILS. YOUR APPELLANT PRAYS THAT THE LD. ASSESSING OFFICER MAY BE DIRECTED TO RESTRICT THE DISALLOWANCE TO 10% OF SAID EXPENSES (RS. 48,51,244) - I.E. DISALLOWANCE MAY BE RESTRICTED TO RS.485124/ - ONLY. 3 . YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY AND/OR CHANGE TH E ABOVE GROUND OF APPEAL. 3 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION 2. T HE BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE HAD PROCURED LAND IN THE VILLAGE NARANGI AND HAD ENTERED INTO A CONTRACT WITH M/S.LOK HOLDING FOR GETTING THE CONVEYANCE IN THEIR FAVOUR. HOWEVER, DUE TO FINANCIAL PROBLEMS, TH E ASSESSEE SOLD ITS RIGHTS IN FAVOUR OF VIVA HOLDING. THE ASSESSEE FOLLOWED CONTRACT COMPLETION TO ARRIVE AT PROFITS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 30 - 10 - 2006 SHOWING TOTAL INCOME OF RS.1,20,65,170/ - . THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT AND TOTAL INCOME WAS DETERMINED AT RS.3,85,95,450/ - AFTER MAKING THE ADDITIONS UNDER DIFFERENT HEADS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT( A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES, PARTLY ALLOWED THE APPEAL OF THE ASSESS EE . NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APP EAL BY RAISING THE ABOVE GROUND . 4 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION GROUND NO. 1 3 . THIS GROUND RAISED BY THE ASSESSEE RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING DISALLOWANCE OF COMPENSATION PAID TO RETIRING MEMBER OF AOP AMOUNTING TO RS.15,00,000/ - ON CONSIDERATION OF THE SAME AS PAYMENT TOWARDS GOODWILL. 4 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES A T LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. 5. LD. AR APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE LD. CIT(A) AND SUBMITTED THAT AS SESSEE, AN AOP WAS CONFIRMED WITH THE MAIN OBJECTIVE TO PURCHASE AGRICULTURAL LAND FROM THE FARMERS / LAND OWNERS AT VILLAGE NARANGI IN VIRAR FOR DEVELOPMENT AND IN THIS RESPECT, THE SAID AOP HAD EXECUTED AGREEMENT OF SALE WITH VARIOUS LAND OWNERS FOR PURCHASE OF LAND IN THE YEAR 1995 AND MADE PART PAYMENT OF 20% OF THE AGREEMENT VALUE. IT WAS FURTHER SUBMITTED THAT AO HAD UNDERTAKEN TO PAY BAL ANCE AMOUNT IN 18 5 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION MONTHS FROM THE DATE OF EXECUTION OF AGREEMENT AND TAKE CONVEYANCE FROM THE LAND OWNERS AND IN A VIEW TO RAISE FINANCE FOR THE PAYMENT OF BALANCE AMOUNT TO LAND OWNERS, THE AOP ENTERED IN TO AGREEMENT WITH M/S LOK HOLDING ON 27.12.95 FOR SALE OF LAND SO ACQUIRED. 6. LD. AR RELIED UPON THE RETIREMENT DEED DATED 30 TH NOV 2003, WHEREIN M/S OSCAR CONSTRUCTION PVT. LTD. HAVING 1/6 SHARE IN THE SAID JOINT VENTURE, RETIRED FROM THE SAID JOINT VENTURE AND AS PER PARA 3 OF THE SAID RETIREMENT DEED , AOP HAD AGREED TO PAY RS. 15,00,000/ - TO M/S OSCAR CONSTRUCTION PVT. LTD. FOR RELINQUISHMENT OF ITS RIGHTS IN THE ASSETS AND PROPERTY OF AOP, INCLUDING THE SAID ACQUIRED LANDS AND FOR BENEFITS OF AND UNDER THE SAID REGISTERED AGREEMENTS IN RESPECT OF ACQ UIRED LANDS IN FAVOUR OF THE CONTINUING MEMBER OF AOP. IT WAS FURTHER SUBMITTED THAT SINCE AT THE TIME OF RETIREMENT OF M/S OSCAR CONSTRUCTION PVT. LTD., THE AOP HAD TRANSACTED BUSINESS OF PART ACQUISITION OF LAND AND ALSO ENTERED INTO AN AGREEMENT WITH LO K HOLDING FOR SALE OF SAID LAND, THEREFORE THE AMOUNT PAID TO M/S OSCAR CONSTRUCTION PVT. LTD. FOR RELINQUISHMENT OF ITS RIGHT IN 6 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION BENEFITS OF THE LAND SO ACQUIRED AND FOR AGREEMENT EXECUTED PRIOR TO ITS RETIREMENT IS ALLOWABLE EXPENSES. THUS, THE ASS ESSEE HAD CLAIMED THE AMOUNT SO PAID AS DEDUCTION. IN THIS RESPECT, LD. AR ALSO RELIED UPON VARIOUS JUDGMENTS AND FURTHER SUBMITTED THAT AO HAD FAILED TO APPRECIATE THE FACTS IN THE INSTANT CASE, COMPENSATION HAS BEEN PAID TO THE RETIRING MEMBER AGAINST RELINQUI SHMENT OF ITS RIGHT AND BENEFITS IN THE LAND SO ACQUIRED BY THE AOP PRIOR TO ITS RETIREMENT, WHICH IS A STOCK IN TRADE AND NOT CAPITAL ASSETS. 7. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 8. BEFORE WE DECIDE TH E MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUND RAISED BY THE ASSESSEE IN PARA NO. 7.3 (7.3.1 TO 7.3.10) OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 7.3 DECISION 7.3.1 I HAVE CONSIDERED THE DETAILED SUBMISSION CAREFULLY. THE ISSUE RELIES ON THE FACT THAT ONE OF THE 7 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION PARTNER OF AOP RETIRED (OSCAR CONSTRUCTION) HOLDING 1/6 TH SHARE AND ALSO THE RETIRING PARTNER WAS PAID RS. 15 LACS WHICH WAS CLAIMED AS REVENUE EXPENDITURE. 7.3.2 IT HAS BEEN THE ARGUMENT BY THE AUTHORISED REPRESENTATIVE DURING APPEAL PROCEEDINGS THAT THE PAYMENT WAS TOWARDS THE FUTURE PROFIT AS THE AGREEMENT WAS ALREADY ENTERED BY AOP WITH M/S.LOK HOLDING FOR ONWARD SALE. 7.3.3 THE AUTHORISED REPRESENTATIVE R ELIED ON THE RATIO LAID DOWN BYHON'BLE SUPREME COURT IN CIT VS. TRAVANCORE SUGAR CHEMICALS 88 ITR 1 WHERE THE RATIO LAID DOWN WAS WITH REGARD TO THE TREATMENT OF EXPENSES BEING CAPITAL OR REVENUE DEPENDED ON WHETHER THE PAYMENT WAS ON ACCOUNT OF GOODWILL / RIGHT IN ASSETS OR FUTURE PROFITS. THE RELEVANT PART OF THE JUDGEMENT IS EXTRACTED BELOW : ' THE AMOUNT TO BE PAID BY REFERENCE TO PROFITS CAN EITHER BE THAT - WHICH IS PAID AFTER THE PROFITS BECOME DIVISIBLE OR DISTRIBUTABLE, OR THAT - WHICH IS PAYABLE PR IOR TO SUCH DISTRIBUTION OR DIVISION TO BE COMPUTED BY A REFERENCE TO NOTIONAL OR AS IN SOME DECISIONS WHAT IS TERMED AS APPARENT NET PROFITS. IN THE FORMER INSTANCE, IT - WILL CERTAINLY BE A DISTRIBUTION OF PROFITS AND NOT DEDUCTIBLE AS AN EXPENDITURE INCU RRED IN RUNNING THE BUSINESS BUT IN THE LATER CASE IT MAY, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THE AGREEMENT OR THE NATURE OF THE OBLIGATION UNDER PARTICULAR INSTRUMENTS WHICH GOVERNS THE OBLIGATION, BE AN EXPENDITURE INCURRED AS A CONTRIBUTION TO THE PROFIT EARNING APPARATUS OR IS ONE LAID OUT AND 8 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION EXPENDED - WHOLLY AND EXCLUSIVELY FOR PURPOSES OF SUCH BUSINESS. SECTION 10(1) OF THE 1922 ACT [ CORRESPONDING TO SECTION 28 (I) OF THE 1961 ACT] IMPOSES A CHARGE ON THE PROFITS AND GAINS OF A BUSINESS - WHICH ACCRUE TO THE ASSESSEE - WHILE SUB - SECTION (2) OF THE SECTION 10 OF THE 1922 ACT [ CORRESPONDING TO SECTION 29 OF THE 1961 ACT ] ENUMERATES VARIOUS ITEMS - WHICH ARE ADMISSIBLE AS DEDUCTION. ' 7.3.4 THE CLAIM OF ASSESSEE IS BASED ON THE GROUND THAT T HE RETIRING PARTNER WAS PAID RS.15 LACS IN LIEU OF FUTURE PROFITS AND INTEREST IN STOCK - IN - TRADE AND NOT FOR GOODWILL OR RIGHT IN ASSETS. I DO NOT FIND THE CLAIM OF THE ASSESSEE AS CORRECT. 7.3.5 A COPY OF RETIREMENT DEED ENTERED DATED 30 - 11 - 2003 WAS FILED . THE DEED STATES THAT THE AOP HAD ENTERED INTO AGREEMENT WITH ONE M/S.LOK HOLDINGS TO SELL (VIDE AGREEMENT DATED 27 - 12 - 1995) THE ACQUIRED LANDS UNDER AGREED TERMS & CONDITION. UNDER THE REGISTERED AGREEMENTS FOR PURCHASES OF LAND, LARGE AMOUNTS OF BALANCE WAS PAYABLE - TO THE LAND OWNERS AND FOR FURTHER PURCHASE OF NON AGRICULTURAL LAND WHICH WAS AGREED TO BE PROVIDED BY M/S.LOK HOLDING. 'AS THE SAID M/S.LOK HOLDING COMMITTED BREACHES OF THEIR COMMITMENT UNDER THE SAID AGREEMENT ........ THE REMAININ G LAND COULD NOT BE ACQUIRED BY THE AOP'. IT IS FURTHER RECORDED THAT, M/S.LOK HOLDINGS THEN ASSIGNED THEIR RIGHT, TITLE, DEED AND PRIVILEGES TO 9 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION BASSEIN HOUSING DEVELOPMENT CORPN. VIDE DEED DATED 14 - 1 I - 2003. HOWEVER, DUG TO PASSAGE OF TIME THE LAND OWNE RS / HOLDERS HAD INCREASED THEIR PRICE AS WELL AS SOME EVEN 'REFUSED TO SELL MAKING IT PRACTICALLY IMPOSSIBLE FOR THE AOP TO BRING THE SAID AGREEMENT TO ITS LOGICAL CONCLUSION WITHOUT SUFFERING A LARGE AND HEAVY LOSSES AND FURTHER APART, THE AOP WAS UNABLE TO ARRANGE FOR SUCH FUND.' IT IS IN THIS BACK GROUND THAT '(J) IN SUCH CIRCUMSTANCES, THE RETIRING MEMBER HAS EXPRESSED ITS DESIRE TO RETIRE / RESIGN FROM THE AOP AND REQUESTED THE CONTINUING MEMBER TO ACCEPT ITS RESIGNATION FROM AOP .................... 7.3.6 AS ALREADY REPRODUCED ABOVE, THERE WAS CLEARLY NO PROFIT LIABLE TO BE COMING AT THE TIME OF RETIREMENT DEED TO THE AOP. IN FACT, IT IS CLEARLY LISTED THAT THE IMPENDING LOSSES AND DIFFICULTY IN CLOSING OF CONTRACT WAS THE REASON FOR THE PARTNER, OS CAR CONSTRUCTION TO RETIRE. ALSO, AS ON THE DATE OF THE RETIREMENT DEED THE ASSESSEE HAD MADE ONLY 20% PAYMENT TO THE LAND OWNERS AGAINST THE PROMISED AMOUNT AND MOST OF THEM WERE REFUSING OR DEMANDING MORE PAYMENT. THE AGREEMENT TO SALE WERE ENTERED WAY B ACK IN FEB. 1995. IN THE ABSENCE OF COMPLETION OF PURCHASE BY WAY OF COMPLETE PAYMENT AND CONVEYANCE IN 2003, THE 10 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION IMMOVABLE PROPERTY 'LAND' WERE NOT THE STOCK - IN - TRADE. THE DETAILS FILED SHOW THAT ONLY PART (20%) WAS PAID TO EACH PARTY TOTALING TO RS.1.8 6 CRORES AS AGAINST AGREED PAYMENT OF RS.9.56 CRORES FOR LAND MEASURING 11,09,008 SQ. YARD. THERE WAS NO TRADEABLE COMMODITY IN THE FORM OF LAND OWNED BY THE ASSESSEE AND HENCE THE CLAIM THAT IT WAS PAYMENT MADE FOR STOCK IN TRADE IS NOT CORRECT. 7.3.7 IN THE LIGHT OF ABOVE, IT IS EVIDENT THAT THE RETIRING PARTNER DID NOT GET ANYTHING AGAINST FUTURE PROFIT AS THERE WAS NO APPARENT PROFIT LIKELY TO COME IN THE YEAR 2003. NOR HAD THE RETIRING PARTNER, OSCAR CONSTRUCTIONS, EXECUTED THE CONTRACTS ON AS SESSEES BEHALF, AS RELIED IN THE CASE OF M/S.WADIA GHANDY & CO. VS. ADDL.CIT ITA NO.7324 & 1014/M/2013, THE FACTS OF THE QASE ARE DIFFERENT. FROM THE FACTS EXTRACTED ABOVE AND THE RECORDED REASONS, IT IS CLEAR THAT THE RETIRING PARTNER HAD THUS RECEIVED A LUMPSUM PAYMENT IN LIEU OF THE GOODWILL OR HIS SHARE HI THE AOP. 7.3.8 IT IS IMPORTANT TO HIGHLIGHT THAT THE PROFIT IN THE PRESENT AY ARISES ONLY ON ACCOUNT OF THE ASSESSEE RELINQUISHING HIS RIGHTS IN FAVOUR OF VIVA HOLDING IN AY 2006 - 07. 7.3.9 AS PER THE DETAILS FILED, THE AGREEMENT OF AOP WITH M/S.LOK HOLDING WAS FOR RS.36.57 CRORES WHICH 11 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION WAS REDUCED TO RS.23.96 CRORES LATER ON THE TAKE OVER BY BASSEIN HOUSING DEVELOPMENT CORPN. THE RETIREMENT DEED CATEGORICALLY GAVE THE LOSSES AND DIFFICULTY IN BUSINESS BEING THE REASON FOR RETIRING MEMBER TO LEAVE AOP. IT WAS MUCH LATER THAT THE ASSESSEE IN TURN EXITED THE CONTRACT AS IT WAS UNABLE TO EXECUTE CONVEYANCE IN FAVOUR OF BASSEIN HOUSING DEVELOPMENT CORPN. BY ASSIGNING ITS RIGHTS IN FAVOUR OF VIVA HOLDINGS FOR RS.2.37 CRORES (ON 28 - 04 - 2005). THERE WERE THUS NO BINDING PROFIT CONTRACTS AS ON 30.11.2003. AS THE PAYMENT WAS WAS OF NOT ON ACCOUNT OF ANY PROFITS OR TOWARDS STOCK IN TRADE, IT WAS TOWARDS MERELY THE GOODWILL AND RIGHT IN THE ASSETS (BEING RIGHT IN LAN D), THE SAME IS NOT ALLOWABLE AS REVENUE EXPENDITURE IN LIGHT OF THE DECISIONS OF CIT VS. STANDARD MALTING & ALLIED PRODUCTS CORPORATION 226 ITR 1, R.V. PANDIT VS. ACIT 70 ITD 1 AND HON'BLE SUPREME COURT IN THE CASE OF CIT VS. TRAVANCORE SUGARS AND CHEMICA LS 88 ITR 1. 7.3.10 IN LIGHT OF THE ABOVE FACTS AND JUDICIAL PRONOUNCEMENTS, THE DECISION OF ASSESSING OFFICER IS UPHELD AND GROUND OF APPEAL NO.2 IS DISMISSED. 9 . AFTER HAVING GONE THROUGH THE ORDERS PASSED BY REVENUE AUTHORITIES AND CONSIDERING THE FACTS AS DISCUSSED ABOVE, WE FIND 12 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION THAT ONE OF THE PARTNER OF AOP WHO WAS HOLDING 1/6 SHARE HAD RETIRED AND ALSO RETIRING PARTNER WAS PAID RS. 15 LAKHS, WHICH WAS CLAIME D AS REVENUE EXPENDITURE. HOWEVER, AS PER THE DEFENCE SET UP BY THE ASSESSEE, THE SAID AMOUNT OF RS. 15 LAKHS WAS PAID IN LIEU OF FUTURE PROFITS AND INTERESTS IN STOCK - IN - TRADE AND NOT FOR GOODWILL OR RIGHT IN ASSETS. WHEREAS ON THE SCRUTINY OF THE COPY OF RETIREMENT DEED DATED 30.11.2003, THE SAID DEED STATES THAT AOP HAD ENTERED INTO AN AGREEMENT WITH ONE M/S .LOK HOLDINGS TO SELL THE ACQUIRED LANDS UNDER AGREED TERMS & CONDITION. IT WAS ALSO RECORDED THAT M/S. LOK HOLDINGS , THE THEN ASSIGNED THEIR RIGHT, TITLE, DEED AND PRIVILEGES TO BASSEIN HOUSING DEVELOPME NT CORPN. VIDE DEED DATED 14 - 11 - 2003. FROM THE RECORDS, WE NOTICE THAT DUG TO PASSAGE OF TIME , THE LAND OWNERS HAD INCREASED THEIR PRICE AS WELL AS SOME EVEN 'REFUSED TO SELL THEREBY MAKING IT IMPOSS IBLE FOR THE AOP TO BRING THE SAID AGREEMENT TO ITS LOGICAL CONCLUSION , THEREFORE IN THAT BACKGROUND, THE RETIRING M EMBER HAD EXPRESSED ITS DESIRE AS PER CLAUSE J OF THE AGREEMENT TO RETIRE / RESIGN FROM THE AOP AND REQUESTED THE CONTINUING MEMBER TO ACCEPT ITS RESIGNATION FROM AO P. 13 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION 10. FROM THE DOCUMENTS AS RELIED UPON BY THE ASSESSEE, WE FIND THAT THERE WAS NO PROFIT LIABLE TO BE COMING AT THE TIME OF RETIREMENT DEED TO THE AOP. WHEREAS ON THE CONTRARY, IT WAS CLEARLY LISTED THAT THE IMPENDING LOSSES AND DIFFICULTY IN CLOSING OF CONTRACT WAS THE REASON FOR THE PARTNER, OSCAR CONSTRUCTION TO RETIRE. ALSO, AS ON THE DATE OF THE RETIREMENT DEED , THE ASSESSEE HAD MADE ONLY 20% PAYMENT TO THE LAND OWNERS AGAINST THE PROMISED AMOUNT AND THEREFORE, MOST OF T HEM WERE REFUSING OR DEMANDING MORE PAYMENT. THE REFORE, I N THE ABSENCE OF COMPLETION OF PURCHASE BY WAY OF COMPLETE PAYMENT AND CONVEYANCE IN 2003, THE IMMOVABLE PROPERTY 'LAND' WERE NOT THE STOCK - IN - TRADE. HENCE, THE CLAIM OF THE ASSESSEE THAT HE MADE PA YMENT FOR STOCK - IN - TRADE IS NOT CORRECT. ALL THE JUDGMENTS CITED BY THE ASSESSEE WERE FOUND APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 11. AS PER THE FACTS OF THE PRESENT CASE, IT IS EVIDENT THAT THE RETIRING PARTNER DID NOT GET ANYTHING AGAINST FUTURE PROFIT AS THERE WAS NO APPARENT PROFIT LIKELY TO COME IN THE YEAR 2003, N OR HAD THE RETIRING PARTNER, OSCAR CONSTRUCTIONS, EXECUTED THE CONTRACTS 14 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION ON ASSESSEE S BEHALF, AS RELIED IN THE CASE OF M /S.WADIA GHANDY & CO. VS. ADDL.CIT ITA NO.7324 & 1014/M/2013 , THEREFORE THE FACTS OF THE CASE ARE DIFFERENT F ROM THE FACTS EXTRACTED ABOVE . MOREOVER, T HE RETIREMENT DEED CATEGORICALLY GAVE THE LOSSES AND DIFFICULTY IN BUSINESS BEING THE REASON FOR RETIRING MEMBER TO LEAVE AOP. IT WAS THUS MUCH LATER THAT THE ASSESSEE IN TURN EXITED THE CONTRACT AS IT WAS UNABLE TO EXECUTE CONVEYANCE IN FAVOUR OF BASSEIN HOUSING DEVELOPMENT CORPN. BY ASSIGNING ITS RIGHTS IN FAVOUR OF VIVA HOLDINGS . THERE WAS THUS NO BINDING PROFIT CONTRACTS AS ON 30.11.2003 I.E. THE DATE OF EXECUTING THE RETIREMENT DEED. 12 . EVEN BEFORE US, N O NEW FACTS O R CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS SO RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE ASSESSEE STANDS DISMISSED . 15 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION GROUND NO. 2 13 . THIS GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN RESTRICTING ALLOWANCE OF LAND DEVELOPMENT EXPENSES, OUT OF RS. 48,51,244/ - , TO THE EXTENT OF 25% OF SUCH EXPENSES IN ABSENCE OF SUPPORTING DETAILS. 14 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUND RAISED BY THE ASSESSEE IN PARA NO. 8 (8.1 TO 8.4) OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 8. GROUN D OF APPEAL NO.3 - ADDITION OF RS.56,34,244/ - ON ACCOUNT OF LAND DEVELOPMENT EXPENSES : 8.1 AS AGAINST THE INCOME, THERE IS CLAIM OF EXPENSES SPREADING FROM THE BEGINNING THE AOP WAS FORMED IN 1988 TO 2004 - 05, THE TOTAL EXPENSES CLAIMED ARE RS.56,34,244/ - . THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM AS THE AUTHORISED REPRESENTATIVE COULD NOT 16 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION FILE DETAILS IN SUPPORT. AS PER THE BREAK UP THE MAJOR PART WAS TOWARDS BROKERAGE (RS.19.60 LACS) AND OTHER ADMINISTRATION EXPENSES. THE EXPENSES WERE TILL FY 199 8 - 99 LARGELY. THE AUTHORISED REPRESENTATIVE HAS SUBMITTED THE DETAILS OF EXPENSES CLAIMED AS DEDUCTION AS UNDER: PARTICULARS AMOUNT DEBITED TO P&LA/C (RS.) %TO TOTAL INCOME REMARKS SALARIES 10,93,831/ - 2.80 THE EXPENDITURE INCURRED IS MERELY 2.8% OF GROSS INCOME. THE EXPENSES INCURRED DURING INITIAL PERIOD WHEN AOP ACQUIRED LAND. IN VIEW OF THE TRANSACTIONS EXECUTED BY THE AOP, THE YEARLY EXPENSES WHICH IS IN RANGE OF RS.2.38 LACS TO 2.90 LACS IS MOST REASONABLE AND COULD NOT BE CONSTRUED AS EXCESSIVE OR THAT THOSE EXPENSES WOULD HAVE NOT BEEN INCURRED. RENT 1,44,000/ - 0.37 THE AOP HAS BPERIE - A* OFFICE AT TFAYAN CHAMBERS, AZAD NAGAR, NAVGHAR, VASAI TO FACILITATE ITS OPERATION OF ACQUISITION OF LAND. THE SAID OFFICE IS MADE OPERATIONAL FOR IN INITIAL FOUR YEARS. THE YEARLY RENT OF RS.36,000/ - IS NOMINAL AMOUNT AND IT COULD NOT BE CONSTRUED THAT THOSE EXPENSES WOULD HAVE NOT BEEN INCURRED. B ROKERAGE 19,60,2701 - 5.01 WHEN APPELLANT HAD STARTED ACQUISITION OF LAND, IT HAS ENGAGED THE SERVICES OF VARIOUS AGENTS. IT IS NORMAL PRACTICE IN BUSINESS OF REAL ESTATE TO PAY BROKERAGE IN SALE /PURCHASE OF LAND. CONSIDERING THE AGREEMENT VALUE OF THE TRANSACTION (RS.9.57 CR.), THE EXPENSES 17 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION CLAIMED IS NOMINAL AND IT COULD NOT BE CONSTRUED THAT THOSE EXPENSES WOULD HAVE NOT BEEN INCURRED. LEGAL EXPENSES 8,62,270/ 2.21 THE LEGAL EXPENSES INCLUDE EXPENSES ON STAMP DUTY AND R EGISTRATION CHARGES AND LEGAL FEES. THE A.O. COULD HAVE VERIFIED EXPENSES ON STAMP DUTY AND REGISTRATIONS CHARGES FROM THE COPIES OF AGREEMENT SUBMITTED TO HIM DURING THE COURSE OF ASSESSMENT PROCEDURE. FURTHER, COPY OF BILL FOR LEGAL FEES PAID PRODUCED I N APPELLATE PROCEEDINGS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, EXPENSES 'CLAIMED AS DEDUCTION ARE NOMINAL AND IT COULD NOT BE CONSTRUED THAT THOSE EXPENSES WOULD HAVE NOT BEEN INCURRED. SURVEY EXPENSES 2,36,3581 - 0.60 APPELLANT HAD INCURRED THE SAID EXPENSES FOR CARRYING OUT SURVEYS OF LAND ACQUIRED BY IT AND MAKING MAPS ECT. IN VIEW OF TOTAL AREA OF THE LAND COVERED IN THE TRANSACTION, THE EXPENSES ARE VERY NOMINAL AND IT COULD NOT BE CONSTRUED THAT THOSE E XPENSES WOULD HAVE NOT BEEN INCURRED. .OTHER ADMINISTRAT IVE EXPENSES 13 , 37,515/ - 3.42 THE SAID EXPENSES HAS BEEN INCURRED IN RELATION TO PRINTING AND STATIONERY, ZEROX COPIES AND GENERAL OFFICE EXPENSES. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, EXPENSES CLAIMED AS DEDUCTION IS NOMINAL AND IT COULD NOT BE CONSTRUED THAT THOSE EXPENSES WOULD HAVE NOT BEEN INCURRED. TOTAL 56,34,244/ - 14.41 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, EXPENSES CLAIMED AS DEDUCTION IS NOMINAL AND IT COULD NOT BE CONSTRUED THAT THOSE EXPENSES WOULD HAVE NOT BEEN INCURRED. 18 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION 8.2 FROM THE ASSESSMENT ORDER, IT IS EVIDENT THAT THE ASSESSING OFFICER CALLED FOR PROOF VIDE ORDER SHEET DATED 16 - 12 - 2008, AND THE HEARING WAS CONDUCTED LATER ON 22 - 12 - 2008 & 26 - 12 - 2008. NO DETAILS WERE FILED BEFORE ASSESSING OFFICER. 8.3 DURING APPEAL PROCEEDINGS ALSO DETAILS OF ONLY RS.7.83 LACS (APPEARING AS LEGAL EXPENSES WERE F ILED. NO OTHER DETAILS WERE FURNISHED IN SUPPORT OF THE BALANCE CLAIMED AMOUNT. 8.4 THE AUTHORISED REPRESENTATIVE HAS STATED THAT THERE WERE PAYMENT DETAILS WITH EVIDENCE DIRECT AND INDIRECT AVAILABLE ONLY TOWARDS THE LEGAL EXPENSES OF RS.7.83 LACS. TH E EVIDENCES ARE IN THE NATURE OF RECEIPTS ALONGWITH COPY OF INVOICES AND COPY OF BANK A/C REFLECTING THE PAYMENT. TDS WAS ALSO DEDUCTED ON IT AT VARIOUS OCCASIONS. CONSIDERING THE DETAILS FILED, THE CLAIM OF RS.7.83 LACS IS ALLOWED. OUT OF THE BALANCE, THE EXPENSES ARE ON VARIOUS HEADS AND IT IS DIFFICULT TO ACCEPT THAT THE ASSESSEE HAD BEEN INDULGING IN THE ACTIVITY OF LARGE SCALE LAND PURCHASE WITHOUT INCURRING ANY OTHER EXPENSES. HOWEVER, THE ONUS LIES ON THE ASSESSEE TO PROVE THE GENUINENESS OF SUCH CLA IM. IT IS IMPORTANT TO REITERATE THAT THE ASSESSEE WAS UNABLE 19 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION TO SUBSTANTIATE THE CLAIM OF LARGE AMOUNT OF EXPENSE THROUGH ANY EVIDENCE - DIRECT OR INDIRECT EITHER DESPITE BEING FULLY AWARE THAT IT WAS OBLIGATORY TO MAINTAIN PROPER ACCOUNTS. PURCHASE OF LA ND DEFINITELY WOULD REQUIRE THE HELP OF AGENTS TO SCOUT AND MEDIATE, AS WELL AS INCIDENTAL ADMINISTRATION EXPENSES, BUT IN THE ABSENCE OF ANY DETAILS WHATSOEVER, I AM CONSTRAINED TO ALLOW ONLY 25% OF THE TOTAL BALANCE CLAIM (OF RS.48,51,2447 - I.E. RS.9,70, 248/ - ). THUS, THE ASSESSEE GETS RELIEF OF ONLY RS.7,83,000 + 9,70,248 I.E. RS. 17,53,248/ - OUT OF LAND DEVELOPMENT EXPENSES. THE ASSESSING OFFICER IS DIRECTED TO LIMIT THE DISALLOWANCE TO RS. 38,80,995/ - . GROUND OF APPEAL NO. 3 IS PARTLY ALLOWED. 15 . AFTER HAVING GONE THROUGH THE ORDERS PASSED BY REVENUE AUTHORITIES AND CONSIDERING THE FACTS AS DISCUSSED ABOVE, WE FIND THAT ASSESSEE WAS UNABLE TO SUBSTANTIATE THE CLAIM OF LARGE AMOUNT OF EXPENSE S THROUGH ANY EVIDENCE I.E. DIRECT OR INDIRECT EVEN INSTEA D OF GIVING SEVERAL OPPORTUNITIES. THE ASSESSEE WAS FULLY AWARE THAT IT WAS OBLIGAT ORY TO MAINTAIN PROPER ACCOUNTS, BUT IN THE ABSENCE OF ANY DETAILS WHATSOEVER, THE REVENUE AUTHORITIES HAD NO OTHER OPTION EXCEPT TO DISALLOW THE CLAIM OF THE ASSESSEE. 20 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION 16 . EVEN BEFORE US, N O NEW FACTS O R CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS SO RECO RDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE ASSESSEE STANDS DISMISSED . GROUND NO. 3 . 17 . THIS GROUND RAISED BY THE ASSESSEE IS GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 18 . IN THE NET RESULT , THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH , 2019. SD/ - SD/ - ( G. MANJUNATHA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 01. 03 .201 9 SR.PS . DHANANJAY 21 I.T.A. NO. 2616 /MUM/201 7 M/S NARANGI LAND DEVELOPMENT CORPORATION / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI