ACIT, Erode V. B.Rangaswamy Naidu Orchards Pvt. Ltd., Sathyamangalam

ITA 344/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4110 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R RAJESWARI
• Assessee Lawyers: S SRIDHAR
• Keywords: Wholly owned subsidiary

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , ! . , ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER , AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.343 & 344/MDS/2017 /ASSESSMENT YEARS: 2012-13 & 2013-14 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, NO.15, GANDHIJI ROAD, ERODE-638 001. VS. M/S.B.RANGASWAMY NAIDU ORCHARDS PVT. LTD., NO.14, PULIAKULAM ROAD, COIMBATORE. (NOW AMALGAMATED WITH M/S.GESTIONE CONSULTING INDIA PVT. LTD., NO.14, VATHIYAAR THOTTAM, RAMBAIYALUR, CHIKKARASAMPALAYAM, SATHYAMANGALAM 638 401). [PAN: AABCB 2447 E ] ( & /APPELLANT) ( '(& /RESPONDENT) CO NO. 4 4 /MDS/20 17 (IN ITA NO. 343 /MDS/20 17) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) /ASSESSMENT YEARS: 2012-13 & 2013-14 M/S.B.RANGASWAMY NAIDU ORCHARDS PVT. LTD., NO.14, PULIAKULAM ROAD, COIMBATORE. (NOW AMALGAMATED WITH M/S.GESTIONE CONSULTING INDIA PVT. LTD., NO.14, VATHIYAAR THOTTAM, RAMBAIYALUR, CHIKKARASAMPALAYAM, SATHYAMANGALAM 638 401). VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, NO.15, GANDHIJI ROAD, ERODE-638 001. [PAN: AABCB 2447 E ] ( & /APPELLANT) ( '(& /RESPONDENT) ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 2 -: ASSESSEE BY : SHRI S.SRIDHAR, ADV. DEPARTMENT BY : SMT. R. RAJESWARI, JCIT * /DATE OF HEARING : 13.07.2017 * /DATE OF PRONOUNCEMENT : 13.07.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.343/MDS/2017 IS AN APPEAL FILED BY THE REVE NUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, CO IMBATORE, IN ITA NO.191/16-17 DATED 18.11.2016 FOR THE AY 2012-13 & ITA NO.344/MDS/2017 IS AN APPEAL FILED BY THE REVENUE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBATORE, IN ITA NO.192/16- 17 DATED 18.11.2016 FOR THE AY 2013-14 AND CO NO.44 /MDS/2017 IS A CROSS-OBJECTION FILED BY THE ASSESSEE IN ITA NO.343 /MDS/2017 FOR THE AY 2012-13 & CO NO.45/MDS/2017 IS A CROSS-OBJECTION F ILED BY THE ASSESSEE IN ITA NO.344/MDS/2017 FOR THE AY 2013-14. 2. SMT. R. RAJESWARI, JCIT, REPRESENTED ON BEHALF O F THE REVENUE AND SHRI S.SRIDHAR, ADV., REPRESENTED ON BEHALF OF THE ASSESSEE. 3. AS THE ISSUES IN BOTH THE APPEALS ARE IDENTICAL AND RELATING TO THE SAME ASSESSEE, FOR THE SAKE OF CONVENIENCE, THE SAM E ARE HEARD TOGETHER AND BEING DISPOSED OFF IN THIS COMMON ORDER. ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 3 -: 4. IT WAS SUBMITTED BY THE LD.DR THAT THE ASSESSEE IS A DOMESTIC COMPANY WHICH IS DOING REAL ESTATE BUSINESS. IT WA S A SUBMISSION THAT THE ASSESSEE HAD ACQUIRED A LAND MEASURING 33.64 ACRES AT KURUCHI VILLAGE UNDER AN AUCTION SALE FROM THE DEFENCE DEPARTMENT O F GOVERNMENT OF INDIA LONG AGO. THE ASSESSEE HAD ENTERED INTO AGRE EMENT FOR SALE OF THIS PROPERTY WITH CERTAIN PARTIES ON DIFFERENT OCCASION S, BUT TRANSACTIONS HAD NOT GONE THROUGH ON ACCOUNT OF DEFECTS IN THE TITLE DEED. IT WAS A SUBMISSION THAT THE ASSESSEE HAD ENTERED INTO AGREE MENT WITH M/S.GESTIONE CONSULTING INDIA PVT. LTD. (IN SHORT M/S.GCIPL). THE PROCESS ADOPTED WAS OF M/S.GCIPL TAKING OVER THE AP PELLANT COMPANY AND CONSEQUENTLY ACQUIRING THE SAID 33.64 ACRES OF LAND . THE AGREEMENT WAS FOR A CONSIDERATION NEARLY RS.8.5 CR. HOWEVER, AS THERE WAS AN AGREEMENT ENTERED INTO BY THE ASSESSEE COMPANY EARL IER WITH ONE SMT.P.THILLAIKARASI FOR A CONSIDERATION OF RS.5.5 C R. AND AS THE ASSESSEE HAD RECEIVED A BETTER OFFER FROM M/S.GCIPL, THE ASS ESSEE HAD PAID AN AMOUNT OF RS.3.00 CR. TO SMT.P.THILLAIKARASI FOR RE MOVING THE ENCUMBRANCE CREATED BY THE AGREEMENT WITH SMT.P.THI LLAIKARASI. IT WAS A SUBMISSION THAT SIMILARLY AN AMOUNT OF RS.2.75 CR. WAS PAID TO MR.VIKRAM MOHAN BY THE ORIGINAL SHAREHOLDERS OF THE ASSESSEE COMPANY BEING MR.K.RAJESH AND SMT.SRIVALLI. IT WAS A SUBMISSION THAT FOR THE PURPOSE OF RETURNING THE ORIGINAL TITLE, MR.VIKRAM MOHAN WAS P AID RS.2.75 CR. IT WAS A FURTHER SUBMISSION THAT SIMILARLY RS.2.74 CR. EAC H WAS PAID TO ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 4 -: MR.K.RAJESH AND SMT.SRIVALLI, THE OUTGOING SHAREHOL DER SO AS TO GET THE TITLE CLEAR. IT WAS A SUBMISSION THAT SUBSEQUENTL Y THE ASSESSEE HAD INCURRED NEARLY RS.8.50 CR FOR BRINGING, THE SAID L AND DEVELOPED AND READY FOR SALE. IT WAS SUBMITTED BY THE LD.DR THAT AS TH E LANDS WERE ALWAYS PROPERTIES OF THE ASSESSEE COMPANY AND THE PAYMENT TO SMT.P.THILLAIKARASI, COULD NOT BE ALLOWED AS COST O F IMPROVEMENT AS THE PAYMENT WAS MADE BY M/S.GCIPL. IT WAS A FURTHER SU BMISSION THAT SIMILARLY IN RESPECT OF THE OTHER EXPENSES INCURRED IN RESPECT OF THE SAID 33.64 ACRES OF LAND. IT WAS A SUBMISSION THAT THE LD.CIT(A) HAD ALLOWED THE EXPENDITURE CLAIMED TO BE TREATED AS THE COST O F THE DEVELOPMENT OF THE LAND. IT WAS A SUBMISSION THAT THE ORDER OF TH E LD.CIT(A) LIABLE TO BE REVERSED. 5. IN REPLY, THE LD.AR SUBMITTED THAT 33.64 ACRES O F LAND WAS THE MAIN ASSET IN THE HANDS OF THE ASSESSEE COMPANY. THE SA ID PROPERTY SUFFERED FROM VARIOUS DEFECTS IN ITS TITLE. THE ASSESSEE CO MPANY HAD BEEN ATTEMPTING TO SELL THE SAID LAND AND THE SALE WAS N OT GOING THROUGH FOR A QUITE LONG TIME. SUBSEQUENTLY, M/S.GCIPL CAME FORW ARD TO ACQUIRE THE LAND. FOR THE PURPOSE OF ACQUIRING THE SAID LAND, THE MODUS OPERANDI ADOPTED BY M/S.GCIPL WAS TO TAKE OVER THE ASSESSEE COMPANY AS 100% SUBSIDIARY. IT WAS A SUBMISSION THAT THE TAKEOVER TO BE SUCCESSFUL IN SO FAR AS GETTING THE POSSESSION OF THE SAID 33.64 ACR ES OF LAND, THE ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 5 -: AGREEMENT WITH SMT.P.THILLAIKARASI HAD TO BE CANCEL LED. THIS HAD COST THE ASSESSEE RS.3.00 CR. IT WAS A FURTHER SUBMISSION T HAT FOR THE PURPOSE OF PURCHASING THE SAID LAND BY TAKEOVER OF THE ASSESSE E COMPANY, THE EXISTING TWO SHAREHOLDERS HAD TO BE BROUGHT OUT. C ONSEQUENTLY, THE ASSESSEE HAD TO PAY RS.2.74 CR. EACH. IT WAS A FUR THER SUBMISSION THAT WHEN THE AGREEMENT FOR THE SALE OF THE SAID LAND HA D BEEN ENTERED INTO BY THE ASSESSEE, THE ORIGINAL DOCUMENTS IN RESPECT OF THE SAID LAND HAD BEEN KEPT IN ESCROW WITH MR.VIKRAM MOHAN. IT WAS A SUBM ISSION THAT AS THE ORIGINAL DOCUMENTS OF THE ASSESSEE COMPANY HAD BEEN KEPT WITH MR.VIKRAM MOHAN BY THE OUTGOING SHAREHOLDERS, M/S.G CIPL HAD TO PAY MR.VIKRAM MOHAN RS.2.74 CR. TO GET THE ORIGINAL TIT LE DEED BACK IN THE HANDS OF THE ASSESSEE. IT WAS A SUBMISSION THAT WH AT HAD ACTUALLY HAPPENED WAS THAT M/S.GCIPL HAD BY TAKING OVER THE ASSESSEE COMPANY HAD ACQUIRED 33.64 ACRES OF LAND. THE LAND CONTINU ED TO BE HELD IN THE NAME OF THE ASSESSEE COMPANY BUT THE TITLE DEED OF THE SAID LAND HAD BEEN SO WIDELY ENCUMBERED THAT THE SAME COULD BE RE CTIFIED AND RECOVERED ONLY BY INCURRING SUBSTANTIAL EXPENSES WH ICH THE NEW SHAREHOLDERS HAD TO INCUR. IT WAS A SUBMISSION THA T THE ASSESSEE COMPANY UNDER THE MANAGEMENT OF THE NEW SHAREHOLDER S ARE SELLING THE SAID LAND IN PIECEMEAL AFTER DEVELOPMENT AND NOW OF FERING THE PROFIT TO TAX ALSO. IT WAS A SUBMISSION THAT WITHOUT INCURRI NG THESE EXPENDITURES, THE ASSESSEE WOULD NEVER HAVE HAD A CLEAR TITLE IN RESPECT OF THE SAID LAND. ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 6 -: IT WAS A FURTHER SUBMISSION THAT THE LD.CIT(A) HAD APPRECIATED THE FACTS AND HAD ALSO IN PARA NO.5.4 OF HIS ORDER FOR THE AY 2012-13 HAS HELD THAT THE PAYMENTS RECEIVED BY EACH OF THOSE PERSONS ARE LIABLE TO BE ASSESSED AND BROUGHT TO TAX IN THEIR RESPECTIVE HANDS UNDER VARIOUS HEADS. IT WAS A SUBMISSION THAT THIS FINDING OF THE LD.CIT(A) HAS ALSO NOT BEEN CHALLENGED BY THE REVENUE. IT WAS A SUBMISSION THA T THE ORDERS OF THE LD.CIT(A) WAS LIABLE TO BE UPHELD. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ORDER OF THE LD.CIT(A) FOR THE AY 2012-13, MORE SPECIFICALLY IN PARA NO.5.1 GIVES THE SUMMARIZED FACTS IN THE ASSESSEES CASE. THE A O HAS NOT CHALLENGED THE GENUINENESS OF THE PAYMENTS. THE LD.CIT(A) HAS SPECIFICALLY RECOGNIZED THIS FACT AND HAS ALSO RECOGNIZED THE FA CT THAT THE LIABILITY IN RESPECT OF THE SAID LAND HAD BEEN INCURRED BY THE E RSTWHILE DIRECTORS OF THE ASSESSEE COMPANY. THE ASSESSEE ADMITTEDLY HAS INCURRED THIS EXPENDITURE CLEARLY FOR PROTECTING THE TITLE AND TH E TITLE DEEDS OF THE SAID LAND. THE LD.CIT(A) HAS CATEGORICALLY GIVEN FINDIN G THAT THE INTENTION EMERGING FROM THE FACTUM OF SUCH HUGE EXPENDITURES IS FOR SECURING THE TITLE OF THE LAND FOR SELLING IT FOR PROFIT. THESE FACTS AS RECORDED BY THE LD.CIT(A) HAVE NOT BEEN DISAPPROVED BY THE REVENUE. THE AO DISALLOWED THE SAID EXPENDITURE BY HOLDING THAT THE LAND WAS A LREADY THE ASSESSEE COMPANY PROPERTY WOULD NOT SUFFICE IN SO FAR AS HAV ING POSSESSION OF THE ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 7 -: IMMOVABLE PROPERTY IS ONE THING BUT HAVING A CLEAR TITLE MORE SO AN UNENCUMBERED TITLE IN RESPECT OF THE SAID IMMOVABLE PROPERTY IS WHAT INCREASES THE VALUE OF THE PROPERTY. THE EXPENDITU RE INCURRED BY THE ASSESSEE IS CLEARLY FOR EXTINGUISHING THIRD PARTY R IGHTS AND CLEARING OF GETTING PROPER AND CLEAR TITLE OF THE IMMOVABLE PRO PERTY. THIS BEING SO, AS THE REVENUE HAS NOT BEEN ABLE TO DISLODGE ANY OF TH E FINDINGS OF THE FACTS AS ARRIVED AT BY THE LD.CIT(A), WE FIND NO GOOD REA SON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). IN THESE CIRCUMSTANCES , THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 7. AT THE TIME OF HEARING, THE LD.AR SUBMITTED THAT HE DID NOT WISH TO PRESS THE CROSS-OBJECTIONS AS THERE WERE ONLY IN SU PPORT OF THE ORDER OF THE LD.CIT(A). CONSEQUENTLY, THE CROSS-OBJECTION F ILED BY THE ASSESSEE STANDS DISMISSED AS NOT PRESSED. 8. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AND THE CROSS- OBJECTIONS FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 13, 201 7, AT CHENNAI. SD/- ( . ) ( A. MOHAN ALANKAMONY ) ! /ACCOUNTANT MEMBER SD/- ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER ITA NOS.343 & 344/MDS/2017 CO NO.44/MDS/2017 (IN ITA NO.343/MDS/2017) & CO NO.45/MDS/2017 (IN ITA NO.344/MDS/2017) :- 8 -: /CHENNAI, 0 /DATED: JULY 13, 2017. TLN * '12 32 /COPY TO: 1. & /APPELLANT 4. 4 /CIT 2. '(& /RESPONDENT 5. 2 ' /DR 3. 4 ( ) /CIT(A) 6. /GF