ACIT, CHENNAI V. M/s. Shri Sankara Property Development Pvt Ltd., CHENNAI

ITA 481/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0961 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income; Tax effect; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER] I.T.A.NO. 481/MDS/2010 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX COMPANY CIRCLE VI(2) CHENNAI VS M/S SHRI SANKARA PROPERTY DEVELOPMENT PVT. LTD 7J, 7 TH FLOOR, CENTURY PLAZA ANNA SALAI, CHENNAI 600 018 [PIN AAJCS 0710 R] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIRUDH RAI, CIT/DR RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 08-01-2013 DATE OF PRONOUNCEMENT : 24-01-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENU E AGAINST THE ORDER OF THE CIT(A)-V, CHENNAI, DATED 29.1.2010. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.1. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F RS.200 LAKHS BY HOLDING THAT THE COMPENSATION OF RS.200 LAKHS PAID TO M/S. SAMUDRA SHOES OVERSEAS LTD. (SSO L) BY THE ASSESSEE COMPANY IS IN ORDER. I.T.A.NO.481/10 :- 2 -: 2.2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE IMPUGNED PAYMENT OF COMPENSATION WAS ONLY BY MEANS OF BOOK ENTRY. 2.3. ASSUMING BUT NOT CONCEDING, THE LEARNED CIT(A) 'S FINDING THAT THE PAYMENT OF COMPENSATION WAS IN ORDER, THE LEARNED CIT(A) OUGHT TO HAVE NOTED THAT THE COMPENSATION PAYMENT OF RS.200 LAKHS WAS SUBSEQUENT TO EXECUTION OF SALE DEED ON 1.9.05 BY THE ASSESSEE AND SSOL IN FAVOUR OF THE ULTIMATE BUYER (SMT. R AMA CHANDRAMANI) . 2.4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ONLY T HE EXPENDITURE WHICH ARE ALREADY INCURRED AT THE TIME OF TRANSFER OF THE CAPITAL ASSET QUALIFIES FOR DEDUCTI ON U/S.48 OF THE IT.ACT. 2.5. HAVING REGARD TO THE RATIO LAID DOWN BY THE HO N'BLA DELHI HIGH COURT IN THE CASE OF SMT. SEETHA NANDA V. CIT (251 ITR 575) THAT THE EXPRESSION 'IN CONNECTION WITH SUCH TRANSFER' USED IN SEC.48(I) OF THE ACT MEANS INTRINSICALLY LINKED WITH THE TRANSFER AND MERE NEX US OF THE EXPENDITURE WITH THE TRANSFER IS NOT ENOUGH, THE LE ARNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSES SING OFFICER. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A THE TIME OF HEARING, IT IS PRA YED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 200 LAKHS BY HOLDING THAT THE COMPENSATION OF ` 200 LAKHS PAID TO M/S SAMUDRA SHOES OVERSEAS LTD. (SSOL) BY THE ASSESSEE-COMPANY IS IN ORDER. I.T.A.NO.481/10 :- 3 -: 4. THE CIT/DR, SHRI ANIRUDH RAI, SUBMITTED THAT THE AS SESSEE- COMPANY WAS INCORPORATED ON 27.6.2005 FOR PROPERTY DEVELOPMENT. DURING THE FINANCIAL YEAR UNDER CONSIDERATION ONE T RANSACTION IN RESPECT OF ONE PROPERTY WAS UNDERTAKEN ON 17.8.2005 . THE COMPANY PURCHASED 179 CENTS OF LAND WITH BUILDING FROM M/S SSOL. THE CONSIDERATION PAID WAS ` 2,61,05,000/-. ACTUALLY THE SELLER M/S SSOL, OUT OF THE TOTAL 198 CENTS OF LAND, SOLD 179 CENTS TO THE ASSESSEE- COMPANY AND THE REMAINING 19 CENTS WAS RETAINED BY THE SAID M/S SSOL. THE L98 CENTS OF LAND WAS MORTGAGED BY THE S ELLER M/S SSOL TO IDBI BANK. OUT OF THE SALE CONSIDERATION OF ` 2,61,05,000/- THE ASSESSEE-COMPANY PAID ` 2,49,37,041/- DIRECTLY TO IDBI BANK FOR RELEASING THE LAND AND THE REMAINING ` 16,67,959/- WAS PAID TO THE SELLER. THIS VERY LAND WAS SOLD BY THE ASSESSEE T O ONE SMT. RAMA CHANDRAMANI ON 1.9.2005 AT A CONSIDERATION OF ` 4,97,23,000/-. BY THE SAME SALE DEED DATED 1.9.2005, M/S SSOL ALSO SO LD THE REMAINING 19 CENTS OF LAND WHICH WAS WITH THEM TO SMT. RAMA C HANDRAMANI AND GOT A CONSIDERATION OF ` 52,77,000/- DIRECTLY FROM THE PURCHASER. 5. NOW THE ASSESSEE FILED ITS RETURN OF INCOME DISCLO SING THE BUSINESS INCOME BUT IN THE PROFIT & LOSS ACCOUNT TH E ASSESSEE HAD SHOWN THE CONSIDERATION FOR PURCHASE OF LAND AT ` 4,61,05,000/- INSTEAD OF ` 2,61,05,000/- WHICH WAS THE VALUE MENTIONED IN THE SALE I.T.A.NO.481/10 :- 4 -: DEED DATED 17.8.2005. THE ASSESSING OFFICER ASKED FOR THE EXPLANATION WHY ` 2,61,05,000/- WAS CLAIMED AS AGAINST THE CONSIDERATION OF ` 4,61,05,000/- MENTIONED IN THE SALE DEED, THE ASSESSEES CONTENTION WAS THAT THEY HAD ENTERED INT O AN AGREEMENT OF SALE ON 24.8.2005 WITH M/S SSOL FOR PURCHASING THE REMAINING 19 CENTS OF LAND AND THE TOTAL CONSIDERATION OF 19 CEN TS OF LAND IN THEAT AGREEMENT FOR SALE WAS SHOWN AS ` 2,52,77,000/-. OUT OF THIS, TOTAL COST, COST OF 19 CENTS OF LAND WAS ` 52,77,000/- AND ` 1,90,00,000/- WAS COMPENSATION GIVEN FOR THE EARLIER SALE TRANSAC TION OF 179 CENTS AND ` 10 LAKHS WAS GIVEN FOR OTHER INFRASTRUCTURE FACILI TIES AVAILABLE. 6. THE CIT/DR FURTHER SUBMITTED THAT NOW IT IS NOT UNDERSTANDABLE THAT WHEN THE LAND OF 179 CENTS WAS PURCHASED ON 17.8.2005 AND THEN THE ASSESSEE HAD BEEN THE ABSOL UTE OWNER OF THE PROPERTY THEN WHAT WAS THE NEED TO ENTER INTO AN AG REEMENT FOR THE SAME FOR A CONSIDERATION OF ` 1,90,00,000/- AND ` 10 LAKHS. HE REFERRED TO PAGES 21 TO 24 OF THE PAPER BOOK FILED BY THE DEPARTMENT AND SUBMITTED THAT IT CONTAINS AN AGREEMENT TO SELL DATED 24.8.2005 FOR 19 CENTS OF LAND. HE POINTED OUT THAT THE STAM P PAPER WAS PURCHASED ON 3.8.2005. THE SALE DEED WAS REGISTERE D ON 17.8.2005. AGREEMENT TO SELL WAS DATED 24.8.2005. HE SUBMITTE D THAT IF SUCH AN AGREEMENT TO SELL WAS ENTERED INTO THEN THE SAME WO ULD HAVE FOUND I.T.A.NO.481/10 :- 5 -: MENTIONED IN THE SALE DEED BUT THERE IS NO SUCH ME NTION ABOUT THE SAME. FURTHER, HE SUBMITTED THAT THE AGREEMENT OF SALE WAS ON STAMP PAPER OF ` 20/- FOR ` 2,52,77,000/-, WHICH WAS NOT REGISTERED. HE SUBMITTED THAT WITH EFFECT FROM 24.9.2001 REGISTRAT ION OF SALE AGREEMENTS ARE MANDATORY IN ORDER TO BE ENFORCEABLE U/S 53A OF THE TRANSFER OF PROPERTY ACT. NO REGISTERED SALE AGREE MENT HAS NO LEGAL OR EVIDENTIARY VALUE. THIS AGREEMENT TO SELL WAS FOR PORTION OF 19 CNTS OF LAND WHICH WAS NEVER ACTED UPON. THE 19 CENTS OF L AND WAS DIRECTLY SOLD TO SMT. RAMA CHANDRAMANI ON 1.9.2005 BY M/S SS OL AND SALE PROCEEDS DIRECTLY RECEIVED FROM HER BY M/S SSOL. H E SUBMITTED THAT IF THIS VITAL CLAUSE WAS NOT ACTED UPON THEN THE SUBSI DIARY PORTION OF THE AGREEMENT I.E PAYMENT OF ` 1,90,00,000/- AND ` 10 LAKHS TO M/S SSOL HOW CAN BE ACCEPTED. HE SUBMITTED THAT AGREEMENT T O SELL IS VALID IF BOTH THE PARTIES FULFILLED THEIR OBLIGATION. OTHER WISE, THE AGREEMENT IS NOT VALID. HE ARGUED THAT IT WAS AN AFTERTHOUGHT B ECAUSE M/S SSOL WAS HAVING HUGE LOSSES CARRIED FORWARD. SO PART OF THIS SALE PROCEEDS WAS SAID TO HAVE BEEN PAID TO THEM AS COMPENSATION AND SO NO TAX EFFECT IN THE HANDS OF M/S SSOL AS WELL AS IN THE H ANDS OF THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO DISCUSSED HOW THE SALE PROCEEDS WAS UTILIZED BY THE ASSESSEE. THE ASSESS ING OFFICER AT PAGE 5 OF THE ASSESSMENT ORDER GIVES A GIST OF UTILIZATI ON OF SALE PROCEEDS WHICH HAVE BEEN TAKEN FROM THE LEDGER AND BANK ACCO UNT OF THE I.T.A.NO.481/10 :- 6 -: ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, ON 4 .10.2005 ` 1,75,00,000/- WAS PAID TO M/S SSOL AND ON THE NEXT DAY I.E ON 5.10.2005 ` 1,75,00,000/- WAS RECEIVED BY THE ASSESSEE AND THEREFORE, IT IS A CONTRA ENTRY. THUS, THE ASSESSI NG OFFICER HAS STATED THAT THE PAYMENTS WERE MADE BY BOOK ENTRIES. THE A SSESSING OFFICER, AFTER EXAMINING THE CLAUSES OF THE SALE AGREEMENT D ATED 24.8.2005 CAME TO THE CONCLUSION THAT THIS IS AN AFTERTHOUGHT BY WHICH A METHOD WAS ADOPTED TO AVOID PAYMENT OF INCOME-TAX IN THE H ANDS OF THE ASSESSEE. 7. THE ASSESSING OFFICER, AT PAGE 6 OF HIS ORDER, JUST AFTER THE TABLE, HAS STATED AS UNDER: IT HAS ALSO BEEN STATED BY THE ASSESSEE THAT M/S SAMUDRA SHOES OVERSEAS LTD HAS OFFERED THE ENTIRE AMOUNT IN CLUDING THE COMPENSATION AMOUNT RECEIVED FROM THE ASSESSEE COMPANY AS INCOME IN THEIR I T RETURN AND THEREFORE, THE ENTIRE PAYMENT MADE TO SSOL SHOULD BE ALLOWED, AS PURCHASE PRICE OF THE LAND. I HAVE PERUSED THE FIN AL ACCOUNTS AND COMPUTATION OF INCOME OF SAMUDRA SHOES OVERSEAS LTD. IT IS SEEN THAT M/S SAMUDRA SHOES OVERSEAS LTD IS A LOSS MAKING COMPANY HAVING INCURRED A TOTAL BUSINESS LOS S OF RS.7,27,34,241/- AND EVEN AFTER TAKING INTO ACCOUNT THE CAPITAL GAINS ON THE SALE OF THE LAND, THERE IS A N ET LOSS OF RS.2,75,04,017/-. THUS, THERE IS NO TAX LIABILITY OF M/S SAMUDRA SHOES OVERSEAS LTD DURING THE YEAR. IT IS O BVIOUS THAT M/S SAMUDRA SHOES OVERSEAS LTD HAS ACCOMMODATE D THE ASSESSEE COMPANY IN TRANSACTION. IT IS ALSO SEEN FROM THE FINAL ACCOUNTS OF M/S SAMUDRA SHOES OVERSEAS LTD THAT THE BANK LOAN WITH IDBI BANK TO WHOM THE LAND WAS I.T.A.NO.481/10 :- 7 -: MORTGAGED WAS SETTLED DURING THE YEAR AT A MUCH LES S AMOUNT AND TOTAL INTEREST PAYABLE TO THE BANK AMOUN TING TO RS.6,63.48,983/- WAS WRITTEN BACK DURING THE YEAR. 8. THE CIT/DR SUBMITTED THAT THE ASSESSING OFFICER, AF TER RELYING ON THE CASE LAWS, IN THE CASE OF SUMATI DAY AL VS CIT, 214 ITR 801(SC.), AND IN THE CASE OF MCDOWELL & CO. VS COMM ERCIAL TAX OFFICER, 154 ITR 148(SC) HAS HELD THAT IT WAS A COL OURABLE DEVICE ADOPTED BY THE ASSESSEE TO EVADE TAX ON THE AMOUNT OF ` 2,00,00,000/- WHICH WAS SHOWN AS GIVEN TOWARDS COMP ENSATION AND INFRASTRUCTURE FACILITIES. THE CIT/DR FURTHER SUBM ITTED THAT THE CIT(A) HAS MERELY RELIED ON THE SUBMISSIONS MADE BY THE A SSESSEE BEFORE HIM AND HAS GIVEN HIS FINDING IN PARA 20 OF HIS O RDER. THE CIT(A) HAS NOT GIVEN ANY FINDING ON THE MERITS OF CLAUSES OF A GREEMENT. THE ASSESSEE WAS HAVING EXCLUSIVE POSSESSION OF THE LAN D THEN WHAT WAS THE NEED FOR PAYMENT OF ` 2,00,00,000/- HAS NOT BEEN STATED BY THE CIT(A). 9. ON THE OTHER HAND, THE A.R FULLY SUPPORTED THE ORDE R OF THE CIT(A). HE SUBMITTED THAT THE TRANSACTIONS WERE EX AMINED BY THE CIT(A) AND THAT THEY WERE ENTERED INTO AT ARMS LEN GTH. SUCH TRANSACTIONS ENTERED INTO WERE ACTED UPON BY BOTH T HE PARTIES. HE RELIED ON THE ORDER OF THE CIT(A). I.T.A.NO.481/10 :- 8 -: 10. IN THE REJOINDER, THE CIT/DR SUBMITTED THAT PARA 15 TO 18 OF THE CIT(A), ARE THE SUBMISSIONS OF THE ASSESSEE. THEY ARE NOT THE FINDINGS OF THE CIT(A). THE CIT(A) HAS GIVEN HIS F INDING ONLY IN PARA 20. HE SUBMITTED THAT THE CIT(A) HAS RELIED ON THE LOAN TRANSACTIONS WHICH ARE NOT RELEVANT IN DECIDING THE ISSUE. HE S UBMITTED THAT INTEREST PAYMENT WAS MADE AND TAX WAS DEDUCTED AT S OURCE FROM SUCH INTEREST PAYMENT WAS ALSO NOT RELEVANT IN DECIDING THE ISSUE. IT WAS A SHAM AGREEMENT WHICH WAS NOT ACTED UPON AND THAT ON E PARTY UNILATERALLY FULFILLED ALL THE CONDITIONS ARE EXTRA NEOUS TO THE FACTS OF THE CASE. AGAINST THE SUBMISSION OF THE A.R THAT THE PURCHASER OF THE PROPERTY SHOULD HAVE BEEN EXAMINED TO VERIFY THE TR UTH, HE SUBMITTED THAT THERE WAS NO NEED OF CROSS EXAMINATION OF THE PURCHASER AT THIS STAGE WHEN THE FACTS ARE ABSOLUTELY CLEAR. THE ASS ESSING OFFICER WENT BY THE REGISTERED SALE DEED. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE PURCHASED 179 CENTS OUT OF THE TOTAL LAND OF 198 CENTS FROM M/S SSOL ALONG WITH PART OF FACTO RY BUILDING STANDING THEREON ALONGWITH PART OF INFRASTRUCTURE V IDE REGISTERED SALE DEED DATED 17.8.2005 FOR A CONSIDERATION OF ` 2,61,05,000/-. THEREAFTER THE ASSESSEE SOLD THE SAID PROPERTY OF 179 CENTS ON I.T.A.NO.481/10 :- 9 -: 1.9.2005 FOR A TOTAL CONSIDERATION OF ` 4,97,23,000/-. THE ABOVE FACTS ARE NOT IN DISPUTE. THE ASSESSEE CLAIMED TO HAVE PAID ADDITIONAL CONSIDERATION OF ` 2 CRORES TO M/S SSOL AND CLAIMED DEDUCTION THEREOF ALSO. THE ASSESSING OFFICER DISALLOWED THE DEDUCTI ON CLAIMED FOR ` 2 CRORES ON THE GROUND THAT THE SAID CLAIM WAS NOT GE NUINE AND ACCORDING TO THE ASSESSING OFFICER, IT WAS AN AFTER THOUGHT AND M/S SSOL WAS A LOSS MAKING COMPANY AND HAS NOT PAID ANY TAX IN RESPECT OF THE ABOVE ` 2 CRORES. 12. ON APPEAL, THE CIT(A) ACCEPTED THE CLAIM OF THE AS SESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTI ON FOR ` 2 CRORES TO THE ASSESSEE BY OBSERVING AS UNDER: 20. I HAVE CONSIDERED THE VIEWS OF THE LEARNED ASS ESSING OFFICER AND THE SUBMISSION OF THE AUTHORIZED REPRES ENTATIVE OF THE APPELLANT. FROM THE ABOVE ELABORATE DISCUSSION THE FOLLOWING INFERENCES CAN BE DRAWN:- (1) ORIGINALLY, THE PROPERTY TO THE EXTENT OF 179 CENTS SOLD FOR A SUM RS.2,61,05,000/- VIDE SALE DEED ADOPTING THE GU IDELINE VALUE AFTER PAYING A STAMP DUTY OF RS.23,47,430/-. (2) AFTER CLEARING THE OLD LOAN OF RS.2,49,37,041/ - WITH IDBI, THE PROPERTY WAS FREE FROM ENCUMBRANCE. (3) THE APPELLANT I.E. SHRI SANKARA PROPERTY DEVEL OPMENT PVT. LTD. HAD SOLD 179 CENTS OF LAND AT A CONSIDERATION OF RS.4,97,23,000/- TO MRS. RAMA CHANDRAMANI @ RS.2,77 ,782/- PER CENT. STAMP DUTY HAS ALSO BEEN PAID. (4) SIMILARLY, M/S. SAMUDRA SHOES OVERSEAS LTD. ALSO SO LD 19 CENTS OF LAND FOR A CONSIDERATION OF RS.52,77,000/- RS.2,77,782/- PER CENT TO MRS. RAMA CHANDRAMANI. ST AMP DUTY HAS ALSO BEEN PAID. I.T.A.NO.481/10 :- 10 -: (5) THE TRANSACTIONS WITH REGARD TO PAYMENT OF R S.190 LAKHS AS COMPENSATIN AND RS.I0 LAKHS AS INFRASTRUCTURE PA ID BY THE APPELLANT, SHRI SANKARA PROPERTY DEVELOPMENT PVT. L TD. TO M/S. SAMUDRA SHOES OVERSEAS LTD. WERE ACTUALLY ROUT ED THROUGH NORMAL BANKING CHANNEL AND NOT MERE BOOK EN TRY AS NARRATED BY THE LEARNED ASSESSING OFFICER. (6) MEANWHILE, THE COMPENSATION WAS ENTIRELY RECEIVED B Y M/S. SAMUDRA SHOES OVERSEAS LTD. AND AGAIN A SUM OF RS.17 5 LAKHS WAS ADVANCED TO THE APPELLANT COMPANY AS SHORT TERM LOAN CARRYING INTEREST THROUGH NORMAL BA NKING CHANNEL AND THE INTEREST PAYMENT HAS BEEN ALLOWED B Y THE LEARNED ASSESSING OFFICER. (7) TDS ON INTEREST PAYMENT OF RS.10,14,341/- PAI D BY THE APPELLANT, SHRI SANKARA PROPERTY DEVELOPMENTS PVT. LTD. TO M/S . SAMUDRA SHOES OVERSEAS LTD., FOR THREE FINANCIAL YE ARS WAS ALSO DEDUCTED. REPAYMENT OF THE LOAN WAS STRETC HED UPTO OCT., 2008. (8) AGAIN, THE REPAYMENT WAS ROUTED THROUGH NORMA L BANKING CHANNEL, WHICH STRETCHED UPTO OCT., 2008 AN D NOT A MERE BOOK ENTRY AS NARRATED BY THE LEARNED ASSESSIN G OFFICER. 21. CONSIDERING ALL THE ABOVE FACTS AND CIRCUMSTANC ES OF THE CASE, I AM OF THE VIEW THAT THE COMPENSATION OF RS. 200 LAKHS PAID TO M/S. SAMUDRA SHOES OVERSEAS LTD. BY THE APP ELLANT COMPANY IS FOUND TO BE IN ORDER AND THEREFORE THE A SSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.20 0 LAKHS . 13. BEFORE US, THE CIT/DR SUPPORTED THE ORDER OF THE AS SESSING OFFICER AND SUBMITTED THAT AS THE ASSESSEE ALREADY BECAME OWNER OF 179 CENTS OF PROPERTY BY MAKING PAYMENT OF CONSIDER ATION OF ` 2,61,05,000/- BY REGISTERED DEED, THERE WAS NO NEED FOR THE ASSESSEE TO MAKE A FURTHER PAYMENT OF ` 2 CRORES FOR THE SAID PROPERTY. THE AGREEMENT TO SELL DATED 24.8.2005 ENTERED INTO BY T HE ASSESSEE WITH M/S SSOL WAS NOT REGISTERED AS REQUIRED UNDER THE T RANSFER OF PROPERTY ACT. THE CIT/DR CLAIMED THAT THE AGREEME NT DATED I.T.A.NO.481/10 :- 11 -: 24.8.2005 FOR ACQUIRING BALANCE 19 CENTS OF LAND WA S NOT ACTUALLY ACTED UPON BY THE PARTIES BECAUSE THE SAID LAND WAS SUBSEQUENTLY SOLD BY M/S SSOL TO SMT. RAMA CHANDRAMANI AND NOT THE A SSESSEE. BECAUSE AS THE MAIN CLAIM OF AGREEMENT TO SELL DATE D 24.8.2005 WAS NOT ACTED UPON BY THE PARTIES, IT CAN BE CONCLUDED THAT THE OTHER PART OF THE AGREEMENT OF MAKING PAYMENT OF ` 2 CRORES WAS ALSO NOT ACTED UPON. THE LAST CONTENTION OF THE CIT/DR WAS THAT M /S SSOL WAS A LOSS MAKING COMPANY AND NO TAX WAS PAID BY M/S SSOL ON THE COMPENSATION OF ` 2 CRORES AND THEREFORE, THE AGREEMENT TO SELL WAS ONLY TO ACCOMMODATE THE ASSESSEE. 14. ON THE OTHER HAND, THE A.R OF THE ASSESSEE SUPPORT ED THE ORDER OF THE CIT(A) AND EXPLAINED THAT AFTER ACQUIR ING 179 CENTS OF THE PROPERTY, WHEN THE ASSESSEE CONTACTED SMT. RAMA CHA NDRAMANI, SHE AGREED TO PURCHASE THE PROPERTY ONLY ON THE CONDITI ON THAT THE ENTIRE 198 CENTS OF THE PROPERTY IS TRANSFERRED TO HER. T HEREFORE, FOR GETTING THE BALANCE 19 CENTS OF THE PROPERTY TRANSFERRED FR OM M/S SSOL TO SMT. RAMA CHANDRAMANI IT BECAME COMMERCIALLY EXPEDI ENT FOR THE ASSESSEE TO PAY A FURTHER COMPENSATION OF ` 2 CRORES TO M/S SSOL. THE A.R ALSO EXPLAINED THAT AS THE REGISTERED SALE DEED WAS EXECUTED WITHIN A SHORT SPAN OF TIME, THE PARTIES FELT IT NO T NECESSARY TO GET THE AGREEMENT OF SALE REGISTERED AND THUS, INCUR FURTH ER EXPENDITURE ON I.T.A.NO.481/10 :- 12 -: THAT ASPECT. HE ALSO SUBMITTED THAT IT WAS NOT COR RECT TO SAY THAT AGREEMENT TO SELL DATED 24.8.2005 WAS NOT ACTED UPO N AS EVIDENCED BY THE REGISTERED DEED OF SALE DATED 1.9.2005 WHERE IN M/S SSOL BECAME JOINT VENDOR WITH THE ASSESSEE AND THE ENTI RE 198 CENTS OF THE PROPERTY WAS TRANSFERRED TO SMT. RAMA CHANDRAMANI. HE ADMITTED THAT IF THE ASSESSEE WOULD HAVE GOT FIRSTLY 19 CEN TS REGISTERED IN ITS NAME AND THEN TRANSFERRED TO SMT. RAMA CHANDRAMANI THEN THE ASSESSEE HAD TO INCUR EXTRA EXPENDITURE ON STAMP DU TY AND TO SAVE THAT EXPENDITURE THE ASSESSEE GOT 19 CENTS OF LAND DIRECTLY REGISTERED IN THE NAME OF PURCHASER I.E SMT. RAMA CHANDRAMANI FROM M/S SSOL. THE A.R FURTHER CONTENDED THAT THE ASSESSING OFFICE RS MAIN REASON FOR DISALLOWANCE OF ` 2 CRORES WAS THAT AS M/S SSOL HAS SUFFERED BUSINES S LOSS OF ` 7,27,34,241/- DURING THE YEAR AND EVEN AFTER TAKIN G CAPITAL GAINS AS INCOME IN THE HANDS OF M/S SSOL, NO TAX WA S PAYABLE BY M/S SSOL, AND THEREFORE, THE TRANSACTION OF ` 2 CRORES WAS SHAM TRANSACTION WAS BASED ON WRONG APPRECIATION OF FACT S ON THE PART OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HIMS ELF OBSERVED THAT INTEREST ON LOAN OF M/S SSOL OF ` 6,63,48,983/- WAS WAIVED BY IDBI AND THEREFORE, THIS AMOUNT OF ` 6,63,48,983/- WAS TAXABLE U/S 41(1) OF THE ACT AND HENCE, BUSINESS LOSS REMAINED IN THE HANDS OF M/S SSOL WAS VERY NOMINAL AND M/S SSOL WAS LIABLE TO PAY TAX ON CAPITAL GAINS I.T.A.NO.481/10 :- 13 -: EARNED BY IT. THUS, THE VERY PREMISE FOR ALLEGING THE TRANSACTION IN QUESTION AS SHAM IS BASED ON WRONG APPRECIATION OF FACTS. 15. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ENTIRE P ROPERTY OF 198 CENTS WERE SOLD SIMULTANEOUSLY BY THE ASSESSEE AND M/S SSOL TO SMT. RAMA CHANDRAMANI. THE CASE OF THE ASSESSEE I S THAT TO SELL 179 CENTS OF THE PROPERTY TO SMT. RAMA CHANDRAMANI THE ASSESSEE WAS REQUIRED TO PAY ADDITIONAL AMOUNT OF ` 2 CRORES TO M/S SSOL SO THAT M/S SSOL EXECUTE SALE DEED OF BALANCE 19 CENTS OF PROPERTY IN FAVOUR OF SMT. RAMA CHANDRAMANI AND THEREFORE, THE PAYMENT OF ` 2 CRORES WAS OUT OF COMMERCIAL EXPEDIENCY. THE MAIN CASE OF THE REVENUE IS THAT AS M/S SSOL WAS NOT LIABLE TO PAY TAX ON THE A DMITTED AMOUNT OF ` 2 CRORES, THE ASSESSEE IS NOT ENTITLED FOR DEDUCT ION OF THE SAME. 16. IN CONTRAST TO THIS, THE ASSESSEE SUBMITTED BEFORE US THAT AS BUSINESS LOSS AFTER TAKING INTO CONSIDERATION THE W AIVER OF INTEREST LIABILITY BY IDBI IN THE HANDS OF M/S SSOL, WAS VER Y NOMINAL AND THEREFORE, M/S SSOL WAS LIABLE TO PAY TAX ON THE CA PITAL GAINS ACCRUED TO IT ON RECEIPT OF ADDITIONAL COMPENSATION OF ` 2 CRORES. WE FIND NONE OF THE LOWER AUTHORITIES HAVE VERIFIED THE ABOVE FA CTS. IN OUR CONSIDERED OPINION, IF THE SALE PROCEEDS OF ENTIRE PROPERTY OF 198 CENTS IN THE HANDS OF M/S SSOL WAS ASSESSED AT ` 5,13,82,000/- [ ` 2,61,05,000 + ` 2,00,00,000 + ` 52,77,000] AND A PART OF THE CAPITAL I.T.A.NO.481/10 :- 14 -: GAINS RESULTING THEREOF WAS ASSESSED TO TAX IN THE HANDS OF M/S SSOL THEN THERE IS NO REASON FOR NOT ALLOWING DEDUCTION OF ` 2 CRORES PAID BY THE ASSESSEE. AS BOTH THE PARTIES BEFORE US HAVE BROUGHT NO MATERIAL TO SHOW HOW CAPITAL GAINS WAS ASSESSED IN THE HANDS OF M/S SSOL, IN OUR CONSIDERED OPINION, IT SHALL BE FAIR AND IN THE INTEREST OF JUSTICE, TO RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR ADJUDICATION AFRESH AFTER PROPER VERIFICATION IN TH E LIGHT OF THE DISCUSSION MADE HEREIN ABOVE. NEEDLESS TO MENTION THAT PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE SHALL BE AL LOWED BY THE ASSESSING OFFICER AFTER APPRISING THE ASSESSEE THE RESULT OF HIS VERIFICATION BEFORE ADJUDICATING THE ISSUE AFRESH. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 24 TH OF JANUARY, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 24 TH JANUARY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR