M/s vikram Traders, Bangalore V. ACIT, Bangalore

ITA 538/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95239 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: C RAMESH
• Keywords: Capital receipt; Revised return

Judgement Text

ITA.538/BANG/2014 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER I.T.A NO.538/BANG/2014 (ASSESSMENT YEAR : 2010-11) M/S. VIKRAM TRADERS, SUBRAMANYAPURA, BANGALORE 560 061 .. APPELLANT PAN : AAAFV7242B V. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -10(1), BANGALORE .. RESPONDENT ASSESSEE BY : SHRI. C. RAMESH, CA REVENUE BY : SHRI. SUNIL KUMAR AGARWALA, JCIT HEARD ON : 26.08.2015 PRONOUNCED ON : 04.09.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, IT ASSAILS THE D IRECTION OF CIT (A) TO TREAT A SUM OF RS.2,50,00,000/- RECEIVED BY IT FROM M/S. PR ESTIGE ESTATE PROJECTS P. LTD, (IN SHORT PEP) AS INCOME ASSESSABLE UNDER THE HEA D PROFITS /GAINS FROM BUSINESS / PROFESSION. AS PER THE ASSESSEE BY THE VERY NATURE OF THE DEAL UNDER WHICH THE SAID AMOUNT WAS RECEIVED, IT WAS ONLY CAP ITAL RECEIPT. ITA.538/BANG/2014 PAGE - 2 02. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN FABRICS, POWER GENERATION ETC., HAD FILED ITS RETUR N FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF RS.1,83,82,717/ -. DURING THE COURSE OF ASSESSMENT, AO NOTED THAT A SUM OF RS.2,50,00,00 0/- WAS SHOWN BY THE ASSESSEE AS PAYABLE TO M/S. PEP, AMONG OTHER CREDIT ORS. AO SENT A LETTER TO M/S. PEP FOR CONFIRMATION OF THE BALANCE TO WHIC H THEY REPLIED AS UNDER : THIS HAS REFERENCE TO YOUR OFFICE LETTER DATED OCT OBER 16, 2012 WHEREIN YOUR GUDSELF HAVE ASKED US TO SUBMIT CERTAIN INFORM ATION ON THE CAPTIONED SUBJECT. IN THIS REGARD WE WOULD LIKE TO SUBMIT AS UNDER : 1. WE DO NOT HAVE ANY AMOUNT PAYABLE TO M/S. VIKRAM TR ADERS AS ON MARCH 31, 2010 AS PER OUR BOOKS OF ACCOUNTS. 2. OUR PAN IS AABCP8096K. WE ARE ASSESSED BY DCIT / JC IT CENTRAL CIRCLE 1(1), BANGALORE HOPE THIS WILL SUFFICE YOUR REQUIREMENT. 03. ASSESSEE WAS PUT ON NOTICE. REPLY OF THE ASSESSEE WAS AS UNDER : IN CONNECTION WITH THIS TRANSACTION, WE SUBMIT THA T AN ADVANCE OF RS.4.95 CRORES WAS MADE TO M/S. PRESTIGE DEVELOPERS FOR PURCHASE OF PROPERTY. THE DEAL DID NOT COME THROUGH AND M/S. P RESTIGE DEVELOPERS REPAID AN AMOUNT OF RS.7.45 CRORES. THE DIFFERENCE WAS SHOWN AS PAYABLE TO M/S. PRESTIGE DEVELOPERS IN THE BOOKS. HOWEVER, ON NEGOTIATIONS IT WAS AGREED THAT THE AMOUNTS WERE NO LONGER PAYABLE AND THE SURPLUS OF RS.2.5 CRORES HAS BEEN OFFERED TO TA X FOR THE A. Y. 2011-12. 04. AO WAS OF THE OPINION THAT ASSESSEE SHOULD HAVE ADMITTED THE INCOME IN THE IMPUGNED ASSESSMENT YEAR AND SHOULD NOT HAVE POSTPONED IT TO THE NEXT YEAR. AS PER THE AO, ASSESSEE COULD HAVE FILE D A REVISED RETURN INCLUDING THE ABOVE AMOUNT ALSO, THE MOMENT IT BECA ME AWARE THAT ITA.538/BANG/2014 PAGE - 3 NOTHING WAS PAYABLE TO M/S. PEP. HE THEREFORE TREA TED THE AMOUNT AS CESSATION OF LIABILITY AND ADDED IT TO THE INCOME O F THE ASSESSEE. 05. AGGRIEVED ASSESSEE MOVED IN APPEAL BEFORE THE C IT (A). AS PER THE ASSESSEE IT WAS NOT IN THE LINE OF REAL ESTATE BUSI NESS. ACCORDING TO IT THE ADVANCE OF RS.4.95 CRORES TO M/S. PEP WAS WITH THE INTENTION OF BUYING A PROPERTY IN THEIR SILVER OAK PROJECT. AS ON 31.03.2 010, WHEN THE PROJECT DID NOT MATERIALISE ASSESSEE WAS STILL IN NEGOTIATI ON WITH PEP. MEANWHILE M/S. PEP HAD PAID BACK RS.7.45 CRORES AND THE SURPL US OF RS.2.50 CRORES WAS A LIABILITY TO M/S. PEP. SUCH SURPLUS RECEIPT COULD AT THE BEST BE CONSIDERED AS LIQUIDATED DAMAGES AND WAS IN THE NAT URE OF CAPITAL RECEIPTS. AS PER THE ASSESSEE, IT HAD ACQUIRED NO RIGHTS FROM M/S. PEP ON PAYMENT OF RS.4.95 CRORES AND HENCE NO CAPITAL GAINS COULD BE COMPUTED. SINCE IT WAS A CAPITAL RECEIPT, AS PER THE ASSESSEE, IT COUL D NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES ALSO. RELIANCE WAS PLACED ON THE DECISION OF COORDINATE BENCH IN THE CASE OF YOGESH ARORA (P) LTD (2009) TIOL-511-ITAT-BANG, AND THAT OF HONBLE CALCUTTA HI GH COURT IN THE CASE OF CIT V. ASHOKA MARKETING LTD [(1987) 164 ITR 664]. 06. CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE BUSINESS RELATIONSHIP THAT PARTNERS OF THE ASSESSEE FIRM HAD WITH M/S. PEP, HELD THAT THE SURPLUS WAS NOTHING BUT BUSINESS RECE IPT IN ASSESSEES HANDS. REASONS GIVEN BY THE CIT (A) ARE SUMMARISED HEREUND ER : ITA.538/BANG/2014 PAGE - 4 (I) THOUGH THERE WAS NO WRITTEN AGREEMENT BETWEEN A SSESSEE AND PEP, THE ADVANCE OF RS.4.95 CRORES PAID TO M/S. PEP WAS SHOWN BY THE ASSESSEE UNDER THE HEAD ADVANCE TO SUPPLIERS / CREDITORS I N ITS ACCOUNTS. (II) THERE WAS NOTHING TO INDICATE THAT THE CHEQUE FOR RS.2.50 CRORES RECEIVED BY ASSESSEE FROM M/S PEP OVER AND ABOVE TH E SUM OF RS.4.95 CRORES REFUNDED BY THEM WAS A RESULT OF ANY NEGOTIA TIONS. (III) LETTER DT.31.05.2006, UNDER THE COVER OF WHIC H ASSESSEE HAD GIVEN THE ADVANCE OF RS.4.95 CRORES WAS ONLY A SELF-SERVING D OCUMENT. (IV) THOUGH SECTION 41(1) WAS NOT APPLICABLE, THE S URPLUS RECEIVED WAS REVENUE IN NATURE AND THE DEALINGS HAD COLOUR OF A BUSINESS VENTURE. (VI) SINCE THE TRANSACTIONS WERE A PART OF A BUSINE SS VENTURE, SURPLUS WAS TAXABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSI NESS / PROFESSION. 07. NOW BEFORE US, LD. AR STRONGLY ASSAILING THE OR DERS OF THE AUTHORITIES BELOW, SUBMITTED THAT ASSESSEE WAS IN THE BUSINESS OF TRADING IN FABRICS AND HAD NEVER DONE ANY REAL ESTATE BUSINESS. INTEN TION OF THE PAYMENT OF RS.4.95 CRORES TO M/S. PEP WAS ONLY INVESTMENT. AS PER THE LD. AR, THERE WAS NO PARTICIPATION BY ASSESSEE IN ANY BUSIN ESS VENTURE. FURTHER AS PER THE LD. AR, WHAT WAS PAID BACK BY M/S. PEP IN E XCESS OF RS.4.95 CRORES WAS ONLY COMPENSATION. AS PER THE LD. AR SU CH SURPLUS WAS NOT TAXABLE UNDER ANY PROVISIONS OF THE ACT. APART FRO M THE CITATIONS PLACED BEFORE THE LD. CIT (A), RELIANCE WAS ALSO PLACED ON THE FOLLOWING : ITA.538/BANG/2014 PAGE - 5 DIGITAL ELECTRONICS LTD V. ACIT ITA NO.8646/MUM/20 10, DT.21.06.2013 B. RAMAKRISHNAIAH V. ITO [(2010) 39 SOT 379] GOVINDBHAI C. PATEL V. DCIT [(2010) 1 ITR (TRIB) 34 ] AGAIN AS PER THE LD. AR, EVEN PRESUMING THAT THERE WAS A BUSINESS VENTURE, THE BUSINESS ITSELF HAD NEVER TAKEN OFF AN D HENCE THE RECEIPT OF COMPENSATION BY VIRTUE OF THE JUDGMENT OF HONBL E DELHI HIGH COURT IN THE CASE OF KHANNA AND ANNADHANAM V. CIT [ (2013) 351 ITR 0110] WAS RECEIPT OF A CAPITAL NATURE. 08. PER CONTRA LD. DR STRONGLY SUPPORTED THE ORDER OF CIT (A). 09. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. ADMITTEDLY THERE WAS NO AGREEMENT BETWEEN ASSESSEE AND M/S. PEP AT ANY POINT OF TIME. THE ONLY DOCUMENT ON WHICH ASSE SSEE PLACES RELIANCE IS A LETTER DT.31.05.2006, SENT BY IT TO M/S. PEP. THIS LETTER IS REPRODUCED HEREUNDER : ITA.538/BANG/2014 PAGE - 6 10. THERE IS NO COMMUNICATION FROM M/S. PEP ON ANY OF THE ASPECTS MENTIONED IN THE ABOVE LETTER. FUNDAMENTAL FOR A V ALID CONTRACT IS EITHER A WRITTEN OR AN ORAL AGREEMENT. ABOVE LETTER IS NOT AN AGREEMENT. AT THE BEST IT IS ONLY A CONDITIONAL OFFER. NOT ONLY IS THERE ANY AC CEPTANCE FROM M/S. PEP, THERE ITA.538/BANG/2014 PAGE - 7 IS A COMMUNICATION DT.07.11.2012 FROM M/S. PEP TO T HE AO REPRODUCED BY US IN PARA 2 ABOVE WHICH POINTS TO AN OPPOSITE POSITION. THUS CLAIM OF THE ASSESSEE WHAT WAS RECEIVED BY IT FROM M/S. PEP, IN EXCESS OF WHAT WAS PAID BY IT, WAS ONLY A COMPENSATION IN THE CAPITAL FIELD FALLS FLAT . 11. NOW COMING TO THE NATURE OF RECEIPT, ADMITTEDLY ASSESSEE HAD SHOWN THE SUM OF RS.4.95 CRORES, PAID BY IT TO M/S. PEP IN IT S BALANCE SHEET AS ON 31.03.2009 UNDER THE HEAD ADVANCE TO SUPPLIERS AND CREDITORS. THAT IT WAS HAVING BUSINESS VENTURES IN THE NATURE OF PROPERTY DEVELOPMENT ALONG WITH M/S. PEP IS CLEAR FROM THE FOLLOWING CLARIFICATIONS GIVE N BY IT BEFORE THE CIT (A) : 12. LETTER DT.31.05.2006 WRITTEN BY ASSESSEE TO M/S . PEP ALSO CLEARLY SHOW THAT ITS INTENT WAS NOTHING BUT TO DO THE BUSINESS OF CONSTRUCTION AND SELLING LAND AFTER DEVELOPMENT AND CONSTRUCTION. THUS THE AMOUN T OF RS.4.95 CRORES PAID WAS NOTHING BUT AN ADVANCE FOR ACQUIRING THE STOCK FOR ITS REAL ESTATE DEVELOPMENT VENTURE. INSTEAD OF GETTING THE DEVELO PED AREAS AS DESIRED, WHAT ASSESSEE RECEIVED WAS A SUM OF RS.7.45 CRORES FROM M/S. PEP. SURPLUS IN OUR OPINION HAD ALL THE FEATURES OF BUSINESS PROFIT, SI NCE ASSESSEES ADVENTURE OR FORAY INTO REAL ESTATE DEVELOPMENT WAS ONLY A TRADI NG OR BUSINESS VENTURE. THE BACK GROUND OF THE TRANSACTION, WHERE PARTNERS OF A SSESSEE FIRM HAD ALREADY DONE SIMILAR BUSINESS WITH M/S. PEP, CORROBORATES THIS F URTHER. ITA.538/BANG/2014 PAGE - 8 13. BEFORE PARTING IT WILL NOT BE PROPER IF WE DO N OT DEAL WITH THE DECISIONS / JUDGMENTS RELIED ON BY THE ASSESSEE. BOTH IN THE C ASE OF YOGESH ARORA (SUPRA) DECIDED BY THE COORDINATE BENCH AND IN THE CASE OF M/S. ASHOKA MARKETING LTD, (SUPRA) OF HONBLE CALCUTTA HIGH COURT, CONCERNED A SSESSEES HAD ENTERED INTO AGREEMENTS FOR PURCHASE OF PROPERTY. HERE THERE WA S NO AGREEMENT BETWEEN ASSESSEE AND M/S. PEP AND HENCE THESE DECISIONS WOU LD NOT HAVE ANY RELEVANCE. 14. AS TO THE DECISION OF AHMEDABAD BENCH OF THIS T RIBUNAL IN THE CASE OF GOVIND C. PATEL (SUPRA), IT WAS CESSATION OF LIABIL ITY U/S.41(1) OF THE ACT, WHERE A LIABILITY UNDER CAPITAL ACCOUNT WAS WRITTEN OFF. IN THE CASE BEFORE US WE HAVE ALREADY HELD THAT SURPLUS RECEIVED BY THE ASSESSEE WAS REVENUE IN NATURE AND HENCE THIS CASE ALSO HAS NO RELEVANCE. 15. AS TO THE CASE OF B. RAMAKRISHNAIAH (SUPRA) DEC IDED BY HYDERABAD BENCH OF THIS TRIBUNAL THE QUESTION WAS WHETHER CAPITAL G AINS IS LEVIABLE WHEN COST CANNOT BE COMPUTED. THE RECEIPT IN THE CASE OF THE ASSESSEE HERE IS IN THE REVENUE FIELD AND HENCE THIS CASE HAS NO APPLICABIL ITY. 16. VIS-A-VIS THE DECISION OF MUMBAI TRIBUNAL IN TH E CASE OF DIGITAL ELECTRONICS LTD (SUPRA) IT IS NEITHER A REPORTED DE CISION NOR HAS ASSESSEE FILED A COPY BEFORE US. 17. AS TO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF KHANNA & ANNADHANAM (SUPRA) THE COMPENSATION RECEIVED BY THE CONCERNED ASSESSEE WAS BASED ON AN AGREEMENT CANCELLING AN AGENCY OF TRADI NG NATURE, ASSESSEE HAVING REPRESENTED THE OTHER PARTY FOR A LONG PERIOD OF 13 YEARS. IN THE CASE BEFORE US ITA.538/BANG/2014 PAGE - 9 ASSESSEE WAS NOT REPRESENTING M/S. PEP, NOR WAS THE RE ANY CANCELLATION OF AGENCY. 18. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE O PINION THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). 19. APPEAL OF THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH DAY OF SE PTEMBER, 2015. SD/- SD/- (VIJAYPAL RAO) (ABRAH AM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR