ITO 8(2)(2), MUMBAI V. KHAYBER PROPERTIES & INVESTMENTS P.LTD, MUMBAI

ITA 4062/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1434 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 27-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2012
• Court: TRIBUNAL
• Department Lawyers: TUFAIL A KHAN
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 4062 / MUM/20 1 2 ( ASSESSMENT YEAR : 2007 - 0 8 ) ITO 8(2)(2), MUMBAI VS. M/S. KHAYBER PROPERTIES &INVESTMENTS PVT. LTD., 1 ST FLOOR, STANDARD HOUSE, NEAR SAFED PULM, SAKINAKA, MUMBAI PAN/GIR NO. AAACK2217Q APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI TUFAIL A KHAN ASSESSEE BY SHRI NILESH JOSHI DATE OF HEARING 03 / 02 /201 7 DATE OF PRONOUNCEME NT 06 / 04 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT Y E AR 2007 - 08 IN THE MATTER OF ORDER PASSED U/S. 143(3), WHEREIN FOLLOWING TWO GROUNDS HAVE BEEN TAKEN BY THE REVENUE. 'ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING T HE ADDITION OF RS.1,31,00,000/ - U/S. 40A(2)(B) WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY HAS NOT FURNISHED ANY JUSTIFICATION AND EVIDENCE FOR TREATING THE PAYMENT MADE TO TWO DIRECTORS ON DIFFERENT FOOTING THAN THE OTHER TENANTS FOR SURRENDERING THE RIGHTS FOR DEVELOPMENT' . 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1, 16,00,000/ - MADE BY THE A.O. O N ACCOUNT OF UNDISCLOSED INCOME ON SALE OF UNDISCLOSED ADDITIONAL AREA OF 2750 SQ FT TO LOKHANDWALA KATARIA BUILDERS'. ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 2 2. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT IN THE SCRUTINY ASSESSMENT FRAMED U/S.143(3), AO MADE ADDITION OF RS.1,31,00,000/ - U/S.40A(2)(B). BY THE IMPUGNED ORDER CIT(A) DELETED THE SAME AFTER OBSERVING AS UNDER: - I HA VE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL, THE FACTS BROUGHT ON RECORD AND CASE LAWS CITED A N D RELIED UPON BY THE LD. COUNSEL - WHICH C LEARLY SHOW THAT THE APPELLANT HAS MADE THE PAYMENT TO TWO DIRECTORS/ SHARE HOLDERS - SINCE, THEY ARE TENANTS HOLDING THE TENANCY RIGHTS IN RESPECT OF COMMERCIAL SHOP AND ALSO HOLDING POSSESSION OF LARGE AREA OF LAND APPURTENANT THERETO - BEHIND THE COMMER CIAL SHOP AND IT IS THE SOLE AND ABSOLUTE RESPONSIBILITY OF THE INTENDING DEVELOPERS TO SETTLE WITH THE TENANTS, PROVIDE THE COMPENSATION TO THE TENANTS FOR TEMPORARY ALTERNATE ACCOMMODATION AND FINALLY TO PROVIDE PERMANENT ALTERNATE ACCOMMODATION AT THE E NTIRE COST AND EXPENSES OF THE DEVELOPER AND FOR THAT APPELLANT HAS SUBMITTED THE DOCUMENTARY EVIDENCE AND FURTHER A.O. HAS ERRONEOUSLY COME TO THE CONCLUSION THAT EACH AND EVERY TENANT WERE SETTLED @ RS. 2,50,000/ - AGAINST THE SURRENDER OF THE TENANCY RIG HT OF THE TENANTS IN THE PRESENT CASE - APPELLANT HAS NOT INCURRED 1,71,19,700/ - TO SETTLE THE 69 TENANTS BUT THE SAID AMOUNT IS NOTHING BUT WORK IN PROGRESS - SINCE, 199 2 - 93 TO 2006 - 07 AND FOR THAT LD. COUNSEL HAS SUBMITTED THE DETAILS OF WORK IN PROGRES S AND FURTHER LD. COUNSEL HAS WITHOUT PREJUDICE PRODUCED THE REA DY RECKNOR FOR 20 07 AND ES TIMATED VALUE ALSO AS PER RECKNOR COMES TO RS. 74,52,000/ - FOR THE AREAS OF 675 SQ. FT. CARPET AND IN THE PRESENT CASE APPELLANT HAS RECEIVED ONLY RS. 68,00,000/ - - A ND IT IS TO SETTLE THIS THAT THE APPELLANT HAS PAID INDEPENDENTLY THE SAID TWO TENANTS - EACH OF THEM A SUM OF RS.68,00,000/ - AGGREGATING TO RS. 1,36,00,000/ - AND A.O. HAS DEDUCTED RS. 2,50,000/ - FOR EACH TENANT AND MADE THE ADDITION OF RS. 1,31,00,000/ - W ITHOUT ANY BASIS AND FACTUAL ASPECT. 1.6 HENCE, IN VIEW OF THE ABOVE FACTS, IT IS CLEAR THAT THE CASE OF THE APPELLANT FOR MAKING THESE PAYMENTS IS NOT HIT BY THE PROVISIONS OF SECTION 40( A )(2B) . HENCE, THE A.O. IS DIRECTED TO DELETE THE ADDITION / DISAL LOWANCE OF RS. 1,31,00,000/ - . HENCE, THIS GROUND OF APPEAL IS ALLOWED . ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 3 3. ADDITION OF RS.1,16,00,000/ - MADE BY AO ON ACCOUNT OF SALE VALUE OF UNDISCLOSED AREA OF 2750 SQ.FT WAS DELETED BY CIT(A) AFTER OBSERVING AS UNDER: - THE LD. COUNSEL HAS FURTHER SUBMI TTED AS FOLLOWS: U NDISCLOSED INCOME OF RS.1.16 CRO RE ON SALE OF UNDISCLOSED ADDITIONAL AREA . THE AO HA S CARRIED OUT ADDITION OF RS.1.16 CR O RE ON ACCOUNT OF SALE VALUE OF UNDISCLOSED AREA OF 2750 SQUARE FEET BY ALLEGING THAT THOUGH THE APPELLANT HAS SURRE NDERED THE SAID AREA TO LOKHANDWALA KATARIA BUILDERS PRIVATE LIMITED VIDE SURRENDER DEED DATED 28.07.2006, HAS FAILED TO OTTER THE SAID INCOME IN ITS RETURN. THIS ALLEGATION OF THE AO IS BASELESS AS THE SAID TRANSACTION STOOD DISCLOSED IN THE BOOKS OF THE APPELLANT AS ALSO IN THE RETURN OF INCOME FILED. THE AO HAS FAILED TO VERIFY AND CORRELATE THE SAME WITH THE FINAL ACCOUNTS AND THE RETURN OF INCOME AND HAS MERELY RUSHED THROUGH THE ADDITION ON A NOTIONAL BASIS WITHOUT ANY CORROBORATIVE MATERIAL OR COGENT EVIDENCE TO SUPPORT HIS UNWARRANTED ACTION. THE DISCUSSION IN THE ASSESSMENT ORDER ON THIS ISSUE CLEARLY SUGGESTS THAT THE AO HAS CARRIED OUT THIS ADDITION MERELY ON PRESUMPTION, SUSPICION, GUESS WORK, CONJECTURES AND SURMISES AND ON FAILURE TO CONSIDER RELEVANT MATERIAL ON RECORD, WHICH IS LEGALLY NOT SUSTAINABLE. KINDLY REFER TO DHAKESHWARI COTTON MILLS LTD. V. CIT - 26 ITR 775 (SUPREME COURT), UMACHARAN SHAW & BROS. V. CIT - 37 ITR 271 (SUPREME COURT). 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE L D. COUNSEL AND SINCE, THE APPELLANT HIMSELF HAS DULY DISCLOSED IN THE BOOKS OF ACCOUNT, THE SUM OF RS. 1,16,00,000/ - - WHICH HAS BEEN CLEARLY PROVED BY THE APPELLANT - THE A.O. IS 'DIRECTED TO DELETE THIS ADDITION/DISALLOWANCE OF RS. 1,16,00,000/ - . HENCE, TH IS GROUND OF APPEAL IS ALLOWED. 4. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT AO HAS MADE ADDITION OF RS.1,31,00,000/ - ON THE PLEA THAT ASSESSEE HAS GIVEN TH IS AMOUNT TO ITS TWO DIRECTORS, THEREFORE, COVERED BY PROVISIONS OF SECTION 40A(2B) OF THE IT ACT, ACCORDINGLY, HE DISALLOWED THE SAME. FROM ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 4 THE RECORD, WE FOUND THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF BUYING AND SELLI NG OF IMMOVEABLE PROPERTIES, DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAS DEBITED THE DEVELOPMENT EXPENSES AMOUNTING TO RS. 3,06,87,851/ - . DURING THE R ELEVANT ASSESSMENT YEAR, MR. A. M. LALA AND MR. Z. M. LALA HAVE SURRENDERED THE TENANCY RIGHTS I N THEIR INDIVIDUAL CAPACITY IN RESPECT OF THE PREMISES WHICH THEY ARE HOLDING IN THEIR INDIVIDUAL CAPACITY IN FAVOUR OF THE ASSESSEE , MR. A. M. LALA AND MR. Z. M. LALA ARE ALSO DIRECTORS AND SHARE HOLDERS OF THE ASSESSEE COMPANY . AS PER THE DEVELOPMENT CON TROL REGULATIONS FOR GREATER BOMBAY 33(7), THE DEVELOPERS HAS TO SUBMIT THE CONSENT OF ALL TENANTS/ OCCUPANTS TO THE MUNICIPAL CORPORATION OF GREATER MUMBAI AND/ OR SUCH OTHER CONCERNED AUTHORITIES AND ON THE BASIS OF SU CH CONSENT, THE APPROVAL WILL BE GRA NTED BY THE MUNICIPAL CORPORATION OF GREATER MUMBAI. INITIALLY MR. Z. M. LALA AND MR. A. M. LALA HAD GIVEN THEIR CONSENT TO ACQUIRE THE PREMISES EQUIVALENT TO 225 SQUARE FEET INSTEAD OF 675 SQUARE FEET I.E. AS PER THE RULES AND REGULATIONS OF THE DEVELOPME NT CONTROL REGULATIONS 33(7). AS PER THE SAID RULE, EVEN IF THE OCCUPANTS/ TENANTS ARE ACQUIRING THE PREMISES MORE THAN 225 SQUARE FEET, IN THAT CASE ALSO, THE DEVELOPERS SHALL NOT GRANT MORE THAN AREA ADMEASURING 225 SQUARE FEET. 5. IN THE COURSE OF ASSES SMENT, AO MADE ADDITION OF RS.1,31,00,000/ - TOWARDS THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961 MERELY ON THE GROUND THAT PAYMENTS MADE TO THE RELATED CONCERNED PERSONS. WE FOUND THAT ASSESSEE WAS HOLDING AREA OF ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 5 675 SQ.FT. THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE ON THE BASIS OF COMPENSATION GRANTED TO THE OTHER OCCUPANTS, THOSE WHO ARE HOLDING AREA LESS THAN 225 SQ.FT. WE FOUND THAT THE INITIALLY THE ASSESSEE HAS ENTERED INTO A MEMORANDUM OF UNDE RSTANDING WITH LOKHANDIOALA KATARIA CONSTRUCTIONS PRIVATE LIMITED BY VIRTUE OF MEMORANDUM OF UNDERSTANDING DATED 28.9.2001 AND PURSUANT TO THE SAID MEMORANDUM OF UNDERSTANDING, THE ASSESSEE HAS SUBMITTED THE FORM 37 - 1 AS REQUIRED UNDER THE PROVISIONS OF SE CTION 269UC OF THE INCOME TAX ACT, 1961, A COPY OF FORM NO. 37 - I, DULY FILLED IN AND SIGNED BY THE PARTIES HE R ETO ALONG WITH THE MEMORANDUM OF UNDERSTANDING WERE FIXED BEFORE LOWER AUTHORITIES. THE LEARNED ASSESSING OFFICER IN HIS FINDING HIMSELF STATED TH AT 'IT WAS FURTHER DISCOVERED THAT TO SETTLE THE 69 TENANTS, THE ASSESSEE HAD INCURRED A TOTAL EXPENSES OF RS. 1,71,19,700/- (INCLUDING THE COST OF THE PROPERTY AND OTHER EXPENSES') I.E. 'EACH OF THE TENANTS HAS RECEIVED MAXIMUM OF RS. 2,50, 000 / - ' AND ON T HE BASIS OF THE SAME ERRONEOUS FINDINGS, THE LEARNED ASSESSING OFFICER HAD DISALLOWED THE SUM OF (RS.1,36, 00,000/ - - RS.5,00,000 / - ) = RS. 1,31,00,000/ - ON ACCOUNT OF PAYMENT MADE TO 2 SHARE HOLDERS/ DIRECTORS, WHO W ERE ALSO THE TENANTS, AND WHO HAVE ALSO C ONSENTED TO RECEIVE THE AREA OF 225 SQUARE FEET IN THE REDEVELOPED PROPERTY AS FINAL SETTLEMENT OF THEIR CLAI M. THE ASSESSEE HAS ENTERED INTO MEMORANDUM OF UNDERSTANDING ON 28/09/2001 ACCORDING TO WHICH 2 TENANTS, WHO ARE THE DIRECTORS/ SHARE HOLDERS OF TH E APPELLANT ARE HOLDING THE TENANCY RIGHT IN RESPECT OF COMMERCIAL SHOPS PREMISES, AND ALSO HOLDING POSSESSION OF LARGE AREA OF ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 6 LAND, APPURTENANT THERETO, AND BEHIND THE COMMERCIAL SHOPS, AND ,TO SETTLE THE SAME, IT IS THE SOLE AND ABSOLUTE LIABILITY AND R ESPONSIBILITY OF THE ASSESSEE AND THEREFORE THE ASSESSEE HAVE SETTLED INDEPENDENTLY WITH THE SAID TWO TENANTS AND PAID THE SUM OF RS. 68,00,000/ - (RUPEES SIXTY EIGHT LAKHS ONLY) TO EACH OF THE TENANTS. THE LIST OF THE TENANTS ARE CLEARLY MENTIONED IN LIST OF T ENANTS BEING PART AND PARCEL OF THE MEMORANDUM OF UNDERSTANDING DATED 28.9.20 01 AND THE LEARNED ASSESSING OFFICER MERELY ON PLAIN READING OF THE FORMAL CONSENT, SUBMITTED BY MR. Z. M. LALA AND ACCEPTED THE AREA TO THE EXTENT OF 225 SQUARE FEET, SINCE S IMULTANEOUSLY PARALLEL UNDERSTANDING WAS ALSO DONE BY AND BETWEEN THE TENANTS, WHO ARE OCCUPYING COMMERCIAL PREMISES AND THE ASSESSEE. AS PER THE SAID MEMORANDUM OF UNDERSTANDING, THE PERMANENT ALTERNATE ACCOMMODATION IS TO BE GRANTED TO THE TENANTS BY THE DEVELOPERS, WHICH IS MORE PARTICULARLY MENTIONED IN CLAUSE NO. 10 OF THE SAID MEMORANDUM OF UNDERSTANDING . 6. WE FOUND THAT THE ASSESSEE HAS PAID COMPENSATION OF RS.68,00,000/ - EACH TO TWO SHAREHOLDERS - DIRECTORS FOR SURRENDERING THEIR TENANCY RIGHTS. BOT H THE DIRECTORS WERE ENTITLED TO RECEIVE AREA OF 675 SQUARE FEET IN THE REDEVELOPED PROPERTY BUT INSTEAD OPTED FOR RECEIVING AREA OF 225 SQUARE FEET. THE AO HAS OBSERVED THAT THE OTHER 69 TENANTS WERE PAID COMPENSATION OF RS . 2.50, 000 / - FOR SURRENDERING THE IR TENANCY RIGHTS AND BASED ON THE SAME ARRIVED AT THE CONCLUSION THAT THE PAYMENTS MADE TO THE SAID SHAREHOLDERS - DIRECTORS IN EXCESS OF RS. 2,50,000/ - WERE EXCESSIVE, UNWARRANTED AND UNREASO NABLE. THIS VIEW OF THE AO WA S ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 7 HIGHLY SUBJECTIVE AND FAILS TO CON SIDER THE COMMERCIAL REALITY INVOLVED IN THE TRANSACTI ON. WHILE INVOKING PROVISIONS OF SECTION 40A(2)(A), THE AO HAS OVERLOO KED ALL THE THREE INGREDIENTS OF SECTION 40A(2)(A) AND HIS ORDER IS SILENT ABOUT THE CONCRETE/CONVINCING REASONS FOR FORMING THE OPI NION THAT P AYMENT OF COMPENSATION TO SHAREHOLDERS - DIRECTORS IS UNREASONABLE HAVING REGARD TO THE THREE STIPULATED CONDITIONS, THE ASSESSING OFFICER ALSO FAILED TO APPRECIATE THAT THERE CANNOT BE SAME FAIR MARKET VALUE OF TENANCY RIGHTS SURRENDERED AT ALL TIMES. THE ASSESSING OFFICER HAS ALSO NOT GIVEN PROPER CONSIDERATION TO THE LEGITIMATE BUSINESS NEEDS AND BENEFIT ASPECT OF THE ASSESSEE . THE AO HAS FAILED TO APPRECIATE THAT THE SHAREHOLDERS - DIRECTORS BEING IN BETTER POSITION TO KNOW THE BENEFIT ACCRUING TO THE ASSESSEE HAVE IN TURN STRUCK A BETTER BARGAIN WITH THE ASSESSEE AT RELEVANT TIME AS COMPARED TO THE OTHER TENANTS. THE ASSESSEE HAS PAID HIGHER COMPENSATION TO THE SHAREHOLDERS - DIRECTORS CONSIDERING THE LEGITIMATE BUSINESS NEEDS AND THE BENEFIT DERI VED BY THE ASSESSEE FROM SUCH PAYMENT. IT IS ALSO A MATTER OF COMMON KNOWLEDGE THAT COMPARISON CAN BE MADE AT ALL TIM ES WITH THE LIKE ONES ONLY. I N THE PRESENT CASE, THERE CANNOT BE ANY COMPARISON OF SHAREHOLDERS - DIRECTORS WITH THE OTHER TENANTS AS THE BEN EFIT ACCRUING TO THE ASSESSEE FROM SHAREHOLDERS - DIRECTORS IS FAR MORE THAN THE OTHER TENANTS AND THEY STAND ON DIFFERENT FOOTING. 7. W E FOUND THAT ASSESSEE HAS MADE PAYMENT TO THESE TWO DIRECTORS. SINCE THEY WERE TENANTS HOLDING TENANCY RIGHT IN RESPECT O F COMMERCIAL SHOP AND ALSO HOLDING POSSESSION OF LARGE AREA OF LAND APPURTENANT ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 8 THERETO - BEHIND THE COMMERCIAL SHOP , IT WAS THE SOLE AND ABSOLUTE RESPONSIBILITY OF THE INDENTING DEVELOPERS TO SETTLE WITH THE TENANTS, PROVIDE THE COMPENSATION TO THE TENANT S FOR VACATING THE PREMISES. SINCE THE AMOUNT WAS PAID AS A COMMERCIAL CONSIDERATION AND NOTHING WAS BROUGHT ON RECORD BY THE AO TO THE EFFECT THAT AMOUNT SO PAID WAS HIGHER THAN THE FAIR MARKET VALUE, THE CIT(A) HAS DELETED THE SAME AFTER RECORDING DETAIL ED FINDING AT PARA 1.5 OF HIS APPELLATE ORDER. THE FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD AND DO NOT REQUIRE ANY INTERFERENCE ON OUR PART. 8. WITH REGARD TO ADDITION OF RS.1,16,00,000/ - MADE BY THE AO ON THE PLEA THAT SALE VALUE OF 275 0 SQ.FT WAS NOT OFFERED BY THE ASSESSEE. WE FOUND THAT DETAILED FINDING HAS BEEN RECORDED BY CIT(A) TO THE EFFECT THAT ASSESSEE HAS SURRENDERED 2750 SQ.FT AREA AND AS DISCLOSED IN ITS BOOKS OF ACCOUNTS, THE SUM OF RS.1,16,00,000/ - , ACCORDINGLY NO ADDITION WAS WA RRANTED. THE DETAILED FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD, THEREFORE, DO NOT REQUIRE ANY INTERFERENCE ON OUR PART. 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 06 / 04 / 2016 S D/ - ( RAVISH SOOD ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 06 / 04 /201 6 KARUNA SR. PS ITA NO.4062/MUM/2012 KHAYBER PROPERTIES & INVESTMENTS 9 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPEL LANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//