DCIT 13(1), MUMBAI V. MOHAMED HUSSAIN UMER MERCHANT, MUMBAI

ITA 4469/MUM/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3688 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 02-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D V LAKHANI
• Keywords: Capital asset; Fair market value; Capital receipt
• Section: 54F

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, M UMBAI BEFORE S/SHRI B.R.BASKARAN, AM AND PAWAN SINGH, J M ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) ASTT. COMMISSIONER OF INCOME-TAX 131) ROOM NO.427, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. SHRI MOHAMED HUSSAIN UMER MERCHANT, 26, MOHAMED ALI ROAD, MUMBAI 400 003 ( / APPELLANT) .. ( / RESPONDENT) ./ ./PAN. :AADPM9143R / APPELLANT BY SHRI ABHISHEK SHARMA ! / RESPONDENT BY SHRI D.V. LAKHANI ! $% / DATE OF HEARING : 20.1.2016 ! $% /DATE OF PRONOUNCEMENT: .04.3.2016 / O R D E R PER B R BASKARAN, AM: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 22-03-2010 PASSED BY LD CIT(A)-24, MUMBAI IN THE HA NDS OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING ISSUES:- (A) DELETING THE ADDITION OF RS.2.50 CRORES TREATING T HE SAME AS CAPITAL RECEIPT. (B) DELETING THE ADDITION OF RS.1.30 CRORES RELATING T O THE AMOUNT RECEIVED FROM M/S SAMARTH ERECTORS & DECORATORS. 2. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS A PARTNER IN A PARTNERSHIP FIRM NAMED M/S VENUS BUILD ERS. BESIDES, HE IS ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 2 ALSO RUNNING PROPRIETORY CONCERNS UNDER THE NAME M/ S STAR PETROL PUMP AND M/S VENUS BUILDERS (SAME NAME AS THAT OF PARTNE RSHIP FIRM). 3. THE FIRST ISSUE RELATES TO THE TAXABILITY OF THE AMOUNT OF RS.2.50 CRORES RECEIVED BY THE ASSESSEE FROM THE PARTNERSHI P FIRM M/S VENUS BUILDERS. THE SAID PARTNERSHIP FIRM CONSISTS OF TW O PARTNERS VIZ., THE ASSESSEE AND M/S M.D. CHOKSI CONST. CO. P LTD. IT WAS FORMED ON 19-10- 1998 AND THE FIRM WAS REGISTERED UNDER THE INDIAN P ARTNERSHIP ACT ON 01- 10-2003. THE PARTNERSHIP FIRM WAS FORMED WITH AN O BJECTIVE OF DEVELOPING A PROPERTY, WHICH WAS BROUGHT IN BY M/S M.D. CHOKSI CONST. CO. P LTD INTO THE BOOKS OF PARTNERSHIP FIRM AS ITS CAPITAL. AS P ER THE PARTNERSHIP DEED, THE ASSESSEE TOOK UP THE RESPONSIBILITY TO CLEAR CE RTAIN ENCUMBRANCES ATTACHED TO THE PROPERTY THAT WAS PROPOSED TO BE DE VELOPED. SUBSEQUENTLY DISPUTES DEVELOPED BETWEEN THE PARTNER S AND WHEN THE MATTER WENT TO HONBLE HIGH COURT OF BOMBAY, IT APP OINTED AN ARBITRATOR NAMED SHRI J.V. CHINAI TO ARBITRATE AND SETTLE THE DISPUTE BETWEEN THE PARTNERS. AS PER THE DECISION OF THE ARBITRATOR, T HE PARTNERSHIP FIRM WAS DISSOLVED AND THE ASSESSEE RECEIVED A SUM OF RS.2. 50 CRORES IN FULL AND FINAL SETTLEMENT OF ALL HIS RIGHTS IN THE FIRM. 4. THE ISSUE CONTESTED BEFORE US IS ABOUT THE TAXABILITY OF THE AMOUNT OF RS.2.50 CRORES REFERRED ABOVE. IT IS PERTINENT TO NOTE THAT THE ASSESSEE DECLARED THE SAME AS CAPITAL GAINS IN ITS RETURN OF INCOME AND PROPOSED TO AVAIL EXEMPTION U/S 54F OF THE ACT BY DEPOSITING TH E SAME IN CAPITAL GAINS SCHEME BEFORE PURCHASING A NEW RESIDENTIAL HOUSE. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CHAN GED HIS STAND AND CONTENDED THE SAME REPRESENTED CAPITAL RECEIPT AND HENCE NOT TAXABLE. ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 3 5. THE AO EXAMINED THE CLAIM OF THE ASSESSEE AND TOOK THE VIEW THAT THE CLAIM OF EXISTENCE OF PARTNERSHIP FIRM ITSELF I S NOT ACCEPTABLE FOR THE FOLLOWING REASONS:- (A) EVEN THOUGH IT WAS CLAIMED THAT THE PARTNERSHIP AGREEMENT WAS ENTERED ON 19.10.1998, THE SAME WAS REGISTERED ONLY ON 01.10.2003. (B) UNDER THE DEED OF PARTNERSHIP, THE ROLE OF THE ASSESSEE IS ONLY TO CLEAR THE ENCUMBRANCES ATTACHED TO A PROPERTY, W HICH WAS INTENDED TO BE DEVELOPED. (C) THE PARTNERSIP FIRM DID NOT MAINTAIN ANY BOOKS OF ACCOUNTS AND IT DID NOT CARRY ON ANY BUSINESS ACTIVITIES. (D) THE PARTNERSHIP FIRM DID NOT FILE ANY INCOME TAX RETURNS. ACCORDINGLY, THE AO CONCLUDED AS UNDER IN PARAGRAPN 3.6 OF HIS ORDER:- 3.6 THESE ARE TELLING FACTORS WHICH INVARIABLY GRAVITATE TOWARDS THE CONCLUSION THAT THERE WAS NO PARTNERSHIP FIRM I N EXISTENCE AT ALL DURING THE SUSTENANCE OF PACT BETWEEN THE ASSESSEE AND M/S M.D. CHOKSI CONST. CO. PVT LTD FOR CLEARING THE PROPERTY IN QUESTION BELONGING TO M/S M.D. CHOKSI CONST. CO. P LTD OF AL L ITS ENCUMBRANCES. AT BEST, IT CAN BE STATED THAT IT WA S AN ASSOCIATION OF PERSONS BY WHICH THE SERVICES OF THE ASSESSEE WE RE DRAFTED WITH AN EXPRESS PURPOSE FOR DERIDING THE PROPERTY BELONG ING TO M/S M.D. CHOKSI CONST. CO. PVT LTD OF ALL ITS ATTENDANT LIAB ILITIES AND ENCUMBRANCES AND IN RECOGNITION OF SERVICES RENDERE D BY THE ASSESSEE, HE WAS TO RECEIVE THE COMPENSATION FROM M /S M.D. CHOKSI CONST. CO. P LTD AND THAT THERE WAS NO PARTNERSHIP RIDE (SIC. RIGHT) WHICH WAS RELINQUISHED BY THE ASSESSEE FOR WHICH HE HAD RECEIVED THE COMPENSATION AND THAT IT IN RECOGNITION OF THE SERVICES THAT THE COMPENSATION CAME TO BE PAID TO HIM, THE QUANTUM WH EREOF WAS UNDER DISPUTE WHICH WAS ULTIMATELY RESOLVED BY THE ARBITRATOR IN TERMS OF CONSENT TERMS DATED 11.08.2006. THE SAID DEED OF CONSENT TERMS, HOWEVER, DOES NOT THROW ANY LIGHT ON THE MANNER IN WHICH OR THE BASIS ON WHICH THE COMPUTATION OF QUAN TUM OF COMPENSATION FINALLY WHICH CAME TO BE PAID TO THE A SSESSEE WAS WORKED OUT. AS FAR AS THE INCOME TAX PROCEEDINGS A RE CONCERNED, THIS WAS ANOTHER ASPECT OF INQUIRY WHICH WAS PRECLU DED ON ACCOUNT OF INCOMPLETE DATA FURNISHED BY THE ASSESSEE IN THI S CONTEXT. THIS ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 4 ALONE WOULD MERIT ADEQUATE GROUND FOR REJECTING THE PLEA OF THE ASSESSEE. THEN THE ASSESSING OFFICER PLACED RELIANCE ON THE D ECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF MANORANJAN PICTURES CORPN PVT LTD (1997)(228 ITR 202)(DELHI), WHEREIN IT WAS HELD THA T WHERE A RETIRING PARTNER IN A PARTNERSHIP FIRM REALISES HIS INTEREST AND SUCH INTEREST IN ESSENCE RELATES TO THE EXTINGUISHMENT OF A RIGHT TO RECEIVE THE INCOME FROM BUSINESS OF PARTNERSHIP FIRM, IT HAS TO BE TRE ATED AS REVENUE RECEIPT. ACCORDINGLY, THE AO HELD THAT THE AMOUNT OF RS.2.50 CRORES RECEIVED BY THE ASSESSEE REPRESENTS MONEY RECEIVED FOR SERVICES RENDERED BY THE ASSESSEE TO M/S M.D. CHOKSI CONST. CO. PVT LTD AND ACCORDINGLY ASSESSED THE AMOUNT OF RS.2.50 CRORES AS REVENUE RECEIPT. 6. IN EFFECT, THE ASSESSING OFFICER DID NOT ACCE PT THE CLAIM OF EXISTENCE OF A PARTNERSHIP FIRM AND HENCE HE PROCEEDED TO EXAMIN E ABOUT THE NATURE OF RECEIPT AND FINALLY CONCLUDED THAT THE SAME REPRESE NTS REVENUE RECEIPT AND IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT, REFERRED SUPRA. 7. THE LD CIT(A) HOWEVER HELD THAT THE ASSESSEE HAS RECEIVED THE IMPUGNED AMOUNT FROM A PARTNERSHIP FIRM AND ACCORDI NGLY HELD THAT THE SAME IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE AN D TAXABILITY OF THE SAME MAY BE CONSIDERED IN THE HANDS OF THE PARTNERSHIP F IRM U/S 45(4) OF THE ACT, IF OTHER CONDITIONS OF SEC.45(4) ARE SATISFIED . THE RELEVANT OBSERVATIONS MADE BY THE LD CIT(A) ARE EXTRACTED BE LOW:- 6. IN MY OPINION, ON THE FACTS OF THE CASE THE ADDITION MADE IN THE HANDS OF THE APPELLANT IS NOT JUSTIFIED BECAUSE IT IS UNDISPUTED THAT THE APPELLANT WAS A PARTNER IN A FIRM BY NAME AND STYLE OF M/S VENUS BUILDERS (INDIA) WHICH WAS REGISTERED ON 1/10 /2003 W.E.F. 19/10/1998 AND EVIDENCED BY A DEED OF PARTNERSHIP O N STAMP PAPER ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 5 OF RS.100/-. THE ISSUE THAT REQUIRES CONSIDERATION IS IF THIS FIRM WAS VALIDLY FORMED AS PER THE REQUIREMENTS OF THE INDIA N PARTNERSHIP ACT, 1932 AND MERELY BECAUSE IT DID NOT FILE AN INCOME T AX RETURN NOR APPLIED FOR REGISTRATION U/S 184 ETC., THEN LATER O N CAN THIS BY ITSELF DISENTITLE THE FIRM FOR BEING CONSIDERED AS A FIRM FOR INCOME TAX PURPOSES PARTICULARLY WHEN IT DID NOT HAVE A TAXA BLE INCOME WHICH WOULD HAVE REQUIRED FILING OF THE RETURN FOR THE RE LEVANT ASSESSMENT YEARS. IN THIS CASE THE APPELLANT HAVING BROUGHT O N RECORD THE REGISTRATION DOCUMENT EVIDENCING THE TERMS OF THE P ARTNERSHIP DEED BETWEEN HIM AND M/S M.D. CHOKSI CONSTN. PVT LTD AN D LATER ON THE SAME PARTNERSHIP DEED BEING ACTED UPON BY THE ARBIT RATOR SHRI J.V. CHINAI, APPOINTED BY THE HONBLE BOMBAY HIGH COURT AND AS STATED IN CLAUSE 3 OF THE CONSENT TERMS/AWARD THAT SINCE N O BUSINESS WAS CARRIED ON AND NO RETURNS RELATING TO THE SAID FIRM WAS FILED AND IT WAS AGREED TO TREAT THE FIRM AS DISSOLVED CLEARLY SHOWS THAT A PARTNERSHIP FIRM DEED (SIC. DID) EXIST IN LAW AS RE QUIRED BY THE INDIAN PARTNERSHIP ACT, 1932 AND AO COULD NOT HAVE IGNORED THE SAME. HENCE, WHAT THE APPELLANT HAS RECEIVED IS NOTHING B UT HIS SHARE ON THE DISSOLUTION OF THE PARTNERSHIP FIRM AS STATED IN CLAUSE 3 OF THE CONSENT/AWARD, WHICH IS TAXABLE IN THE HANDS OF THE PARTNERSHIP FIRM U/S 45(4) OF I.T. ACT WHICH ON THE GIVEN FACTS MA Y BE CONSIDERED BY THE AO, AS THE APPELLANT IS STATING THAT THE FIR M STOOD DISSOLVED, THE APPLICABILITY OF PROVISIONS OF SECTION 45(4) OF I.T ACT, ON THE GIVEN FACTS MAY BE CONSIDERED BY THE AO, IF THE OTH ER CONDITIONS OF SECTION 45(4) ARE SATISFIED ON THE ISSUE OF TAXABIL ITY IN THE HANDS OF THE FIRM. 8. THUS, WE NOTICE THAT THE LD CIT(A), UPON APP RECIATION OF THE EVIDENCES AND FACTS PREVAILING IN THE INSTANT CASE, HAS GIVEN A CLEAR FINDING THAT THERE EXISTED A PARTNERSHIP FIRM AND THE ASS ESSEE HAS RECEIVED THE IMPUGNED AMOUNT OF RS.2.50 CRORES ON DISSOLUTION OF THE SAID PARTNERSHIP FIRM. WE HAVE EARLIER NOTICED THAT THE ASSESSING O FFICER HAS PROCEEDED THE TO ASSESS THE AMOUNT OF RS.2.50 CRORES AS REVENUE R ECEIPT ONLY BY REJECTING THE CLAIM OF EXISTENCE OF PARTNERSHIP FIR M. HOWEVER, THE FINDING OF THE LD CIT(A) THAT THERE EXISTED A PARTNERSHIP F IRM AND THE ASSESSEE HAS RECEIVED THE IMPUGNED AMOUNT OF RS.2.50 CRORES ON D ISSOLUTION OF THE PARTNERSHIP FIRM, HAS NOT BEEN CHALLENGED BY THE RE VENUE, MEANING ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 6 THEREBY, THE SAID FINDING OF LD CIT(A) HAS ATTAINED FINALITY. THIS IS CLEAR FROM THE GROUNDS RAISED BY THE REVENUE, WHICH READ AS UNDER:- (1) (I) THE LD CIT(A), ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, ERRED IN LAW IN DELETING THE ADDITION MADE OF RS.2,50,00,000/- RECEIVED BY THE ASSESSEE FROM THE FIRM, ON RETIREME NT TREATING IT AS CAPITAL RECEIPT ON DISSOLUTION OF THE FIRM. (II) THE LD CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, ERRED IN LAW IN DELETING ADDITION MADE OF RS. 2,50,00,000/- RECEIVED BY THE ASSESSEE FROM THE FIRM, ON RETIREME NT TREATING IT AS CAPITAL RECEIPT ON DISSOLUTION OF THE FIRM WITHOUT APPRECIATING THE FACT THAT THE AMOUNTS RECEIVED BY THE PARTNER ON RE TIREMENT DOES NOT AMOUNT TO TRANSFER U/S 2(47) OF THE I.T ACT AND DOES NOT FALL WITHIN THE AMBIT OF SEC. 45 OF THE ACT AS THERE IS NO TRANSFER OF CAPITAL ASSSET. (228 ITR 202 DELHI) 9. EVEN OTHERWISE THE VERY FACT THAT THE FACT T HAT THE PARTNERSHIP FIRM IS EVIDENCED BY A PARTNERSHIP DEED; THAT IT WAS REGIST ERED UNDER INDIAN PARTNERSHIP ACT (THOUGH BELATEDLY, WHICH IS PERMISS IBLE UNDER THAT ACT); THAT THE HONBLE HIGH COURT OF BOMBAY HAS APPOINTED AN ARBITRATOR ACCEPTING THE FACT OF EXISTENCE OF PARTNERSHIP; THA T THE ARBITRATOR HAS EXPRESSLY PASSED AN ORDER STATING THAT THE PARTNERS HIP FIRM SHALL STAND DISSOLVED CLEARLY SUPPORT THE FINDING GIVEN BY THE LD CIT(A). HENCE WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUST IFIED IN REJECTING THE PARTNERSHIP FIRM, MERELY BECAUSE THE PARTNERSHIP FI RM DID NOT FILE RETURN OF INCOME OR IT DID NOT PRODUCE THE BOOKS OF ACCOUNTS BEFORE THE ARBITRATOR. THE VERY FACT THAT THE PARTNERSHIP FIRM WAS REGISTE RED UNDER THE INDIAN PARTNERSHIP ACT WAY BACK IN OCTOBER, 2003 (WE ARE D EALING WITH AY 2007- 08) CLEARLY SHOWS THAT THE FORMATION OF PARTNERSHIP CANNOT BE CONSIDERED TO BE A MAKE BELIEF ARRANGEMENT, SINCE AT THE POINT OF TIME OF FORMATION OF THE PARTNERSHIP IN 1988 AND ITS REGISTRATION IN 200 3, IT COULD NOT BE SAID THAT THE ASSESSEE COULD HAVE VISUALISED THE DISPUTE . HENCE, WE UPHOLD THE ORDER OF LD CIT(A) IN HOLDING THAT THE ASSESSEE HAS RECEIVED THE IMPUGNED ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 7 AMOUNT OF RS.2.50 CRORES ON DISSOLUTION OF A VALIDL Y CONSTITUTED PARTNERSHIP FIRM. 10. THE ASSESSING OFFICER HAS HELD THE IMPUGNE D AMOUNT OF RS.2.50 CRORES AS REVENUE RECEIPT BY PLACING RELIANCE ON TH E DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASEOF MANORANJAN P ICTURES CORPORATION PVT LTD (1997)(228 ITR 202). WE NOTICE THAT THE AS SESSMENT YEAR CONSIDERED BY HONBLE DELHI HIGH COURT WAS ASSESSME NT YEAR 1971-72 AND THE SCHEME OF TAXATION OF PARTNERSHIP FIRM AND IT S PARTNERS HAS UNDERGONE A SEA CHANGE FROM AY 1993-94 ONWARDS. HE NCE, IN OUR VIEW, THE ASSESSING OFFICER SHOULD HAVE NOT PLACED RELIAN CE ON THE ABOVE SAID DECISION, WHICH WAS RENDERED IN THE CONTEXT OF THE PROVISIONS THEN EXISTING IN THE ACT. 11. WE ARE OF THE VIEW THAT THE LD CIT(A) HAS RI GHTLY REFERRED TO THE PROVISIONS OF SEC. 45(4) OF THE ACT, WHICH PROVIDES FOR MANNER OF TAXATION IN CASE OF DISSOLUTION OF A PARTNERSHIP FIRM OR OTH ER ASSOCIATION OF PERSONS. THE SAID SECTION READS AS UNDER:- 45(4) THE PROFITS OR GAINS ARISING FROM THE TRANS FER OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON T HE DISSOLUTION OF A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF IND IVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE, SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM, ASSOCI ATION OR BODY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF TH E ASSET ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE FULL VA LUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER. IT CAN BE NOTICED THE LIABILITY TO PAY TAX ARISING ON DISTRIBUTION OF ASSETS ON THE DISSOLUTION OF A PARTNERSHIP FIRM OR ASSOCIATIO N OF PERSONS OR BODY OF INDIVIDUALS IS FASTENED UPON FIRM OR ASSOCIATION OR BODY AND NOT UPON THE PARTNERS OR MEMBERS. IT CAN FURTHER BE NOTICED THA T, EVEN IF THE ASSESSING ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 8 OFFICER TREATS THE PARTNERSHIP FIRM AS ASSOCIATION OF PERSONS AS PER THE PROVISIONS OF THE ACT, EVEN THEN THE LIABILITY, IF ANY, SHALL ARISE ON THE ASSOCIATION OF PERSONS ONLY AND NOT ON ITS MEMBERS. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) HAS RIGHTLY OBSERVED THAT T HE ACTION, IF ANY, CAN BE TAKEN ONLY IN THE HANDS OF THE PARTNERSHIP FIRM U/S 45(4) OF THE ACT, IF THE CONDITIONS PRESCRIBED THEREIN ARE SATISFIED. 12. IN VIEW OF THE FOREGOING DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN HOLDING THAT THE ASSES SING OFFICER WAS NOT RIGHT IN LAW IN ASSESSING THE IMPUGNED AMOUNT OF RS.2,50, 00,000/- IN THE HANDS OF THE ASSESSEE. ACCORDINGLY WE UPHOLD HIS DECISIO N ON THIS ISSUE. 13. THE NEXT ISSUE CONTESTED BY THE REVENUE REL ATES TO THE TAXABILITY OF RS.1.30 CRORES RECEIVED BY THE ASSESSEE FROM M/S SA MARTH ERECTORS & DEVELOPERS. THE FACTS RELATING TO THE SAME ARE THA T THE ASSESSEE WAS ENTRUSTED WITH THE JOB OF CLEARING ENCUMBRANCES ATT ACHED TO A LAND OWNED BY A SOCIETY NAMED M/S TATYA TOPE NAGAR CO-OP SOCIE TY IN THE YEAR 1987, SINCE THE SOCIETY PROPOSED TO DEVELOP THE SAID LAND . THE ASSESSEE SPENT MONEY FROM TIME TO TIME OVER THE YEARS ON THE SAID LAND. ALL THE EXPENSES WERE DEBITED TO THE LAND ACCOUNT OVER THE YEARS AND THE SAME HAS BEEN DULY DISCLOSED IN THE RETURNS OF INCOME FILED FOR T HE EARLIER YEARS. THE ASSESSEE ALSO ALLOCATED A PART OF INDIRECT EXPENSES TOWARDS THE LAND. THE LAND ACCOUNT DISCLOSED A BALANCE OF RS.1,30,83,179/ -, RS.1,31,88,474/- AND RS.1,36,31,449/- RESPECTIVELY IN THE YEARS RELE VANT TO THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE DECLARED THIS LAND AS HIS CURRENT ASSE T, SINCE HE TREATED THE DEALING IN THE SAID LAND AS HIS BUSINESS ACTIVITY. ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 9 14. SUBSEQUENTLY, THE ABOVE SAID SOCIETY ENTERE D INTO A DEVELOPMENT AGREEMENT WITH M/S URJA HOLDINGS PVT LTD FOR DEVELO PMENT OF THE ABOVE SAID LAND UNDER SRA SCHEME. HOWEVER, M/S URJA HOLD INGS LTD COULD NOT PROCEED IN THE MATTER OF DEVELOPMENT AND HENCE IT T RANSFERRED ITS RIGHTS TO M/S SAMARTH ERECTORS & DEVELOPERS. IN THIS REGARD, THE ASSESSEE RECEIVED A SUM OF RS.1,30,00,000/- FROM M/S SAMARTH DEVELOPE RS AS REIMBURSEMENT OF EXPENSES INCURRED BY HIM IN CLEARI NG THE ENCUMBRANCES IN SETTLEMENT OF HIS DUES. THE ASSESSEE DECLARED A LOSS OF RS.7,52,449/- (RS.1,37,52,449/- LESS RS.1,30,00,000/-), SINCE THE AMOUNT RECEIVED BY HIM WAS LESSER THAN THE ACTUAL EXPENDITURE INCURRED BY HIM. 15. THE ASSESSING OFFICER TOOK THE VIEW THAT T HE ASSESSEE DOES NOT HAVE ANY DOCUMENT TO EXPLAIN THE NATURE OF COMPENSA TION PAID BY M/S SAMARTH ERECTORS & DEVELOPERS. HE FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO FURNISH COPY OF ACCOUNTS SUBMITTED BY HIM TO M/S SAMARTH ERECTORS & DEVELOPERS. ACCORDINGLY THE AO HELD THA T THE EXPENDITURE OF RS.1,37,52,449/- CLAIMED BY THE ASSESSEE AGAINST TH E RECEIPT OF RS.1,30,00,000/- IS NOT ACCEPTABLE, IN THE ABSENCE OF PRIMARY EVIDENCE FOR CONNECTING THE EXPENDITURE TO INCOME. ACCORDINGLY, HE ASSESSED THE SUM OF RS.1,30,00,000/- REFERRED ON GROSS BASIS. 16. THE LD CIT(A) NOTICED THAT THE ACCOUNTS OF THE ASSESSEE PERTAINING TO EARLIER YEARS, WHICH WERE ALSO SUBJECTED TO SCRU TINY BY THE AO, DISCLOSED THE DETAILS OF EXPENSES. FURTHER, THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF EXPENSES BEFORE THE AO AND ALSO CONFIRMA TION OBTAINED FROM M/S SAMARTH ERECTORS & DEVELOPERS TO THE AO. ACCORDING LY THE LD CIT(A) HELD THAT THE EXPENDITURE OF RS.1,37,52,449/- CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED. ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 10 17. WE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE AND PERUSED THE RECORD. IN OUR VIEW, THE APPROACH OF THE ASSESSING OFFICER IN THIS MATTER AND THE REASONING GIVEN BY HIM TO DISREGARD THE CLA IM OF EXPENSES ARE DEVOID OF MERITS. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE WAS ENTRUSTED WITH SOME WORK IN CONNECTION WITH THE LAND BY THE SOCIETY, REFERRED ABOVE. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSEE HAS INCURRED EXPENDITURE OVER THE YEARS IN CONNECTI ON THEREWITH AND THE SAME HAS BEEN DULY DISCLOSED IN THE BOOKS OF ACCOUN TS OF THE EARLIER YEARS. IT IS AN ADMITTED FACT THAT THE BOOKS OF ACCOUNTS O F THE ASSESSEE PERTAINING TO THE EARLIER YEARS HAVE BEEN SUBJECTED TO SCRUTIN Y ASSESSMENTS. HENCE THE FACT THAT THE ASSESSEE HAS SPENT MONEY IN CONNE CTION WITH THE LAND BELONGING TO THE SOCIETY CANNOT BE DISPUTED IN THIS ASSESSMENT YEAR. FURTHER, WHAT THE ASSESSEE RECEIVED FROM M/S SAMART H ERECTORS & DEVELOPERS IS THE REIMBURSEMENT OF EXPENSES ALREADY INCURRED BY THE ASSESSEE. WHEN THE SAID FACT IS CONFIRMED BY M/S S AMARTH ERECTORS & DEVELOPERS IN ITS CAPACITY AS THE PAYER IN FINAL SE TTLEMENT OF THE CLAIMS OF THE ASSESSEE IN RESPECT OF THE LAND, WE FIND NO REA SON TO SUSPECT THE SAME, PARTICULARLY IN VIEW OF THE FACT THAT THE ASS ESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTRADICT THE SA ID CLAIM. IN THAT VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THERE IS NO SCOPE TO ISOLATE THE RECEIPT OF RS.1,30,00,000/- FROM THE EXPENSES INCUR RED BY THE ASSESSEE, I.E., IT CANNOT BE TREATED THAT THE RECEIPT OF RS.1 ,30,00,000/- AS A SEPARATE SOURCE OF INCOME DISTINCT AND SEPARATE FROM THE EXP ENSES INCURRED BY THE ASSESSEE ON THE LAND. IT IS ALSO AN ADMITTED FACT THAT THE DETAILS OF EXPENSES INCURRED BY THE ASSESSEE ARE AVAILABLE IN THE BOOKS OF ACCOUNTS OF THE PAST YEARS AND FURTHER THE ASSESSEE HAS ALSO FURNISHED THE STATEMENT OF EXPENSES TO THE ASSESSING OFFICER DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS. HENCE WE ARE OF THE VIEW T HAT THE LD CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO SET OFF THE EX PENSES OF ./I.T.A. NO.4469/MUM/ 2010 ( / ASSESSMENT YEAR: 2007-08) 11 RS.1,37,52,449/- AGAINST THE RECEIPT OF RS.1,30,00, 000/-. ACCORDINGLY WE UPHOLD HIS DECISION ON THIS ISSUE. 18. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 4 TH MARCH , 2016. ( )* +,- 4 TH MARCH 2016 ! SD/- SD/- (PAWAN SINGH) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER ) MUMBAI: 4TH MARCH , 2016. . . ./ VM , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 8$ ( ) / THE CIT(A)- CONCERNED 4. 8$ / CIT CONCERNED 5. 9: $; , % ; , ) / DR, ITAT, MUMBAI CONCERNED 6. < / GUARD FILE. , / BY ORDER, (ASSTT. REGISTRAR) % ; , ) /ITAT, MUMBAI